Xiaolin Lu

CEO

Morning Forest, LLC

xlu@morningforest.com

Broadband Business

beyond learning from the US

February 26, 2004

What is this all about?What is this all about?

China Cable Industry is being “unleashed” from

government but still a “spoiled” baby in the cradle.

MBA does not help, but the street-smart might.

What and where is the business, and does it have

to repeat everything US did?

AGENDAAGENDA

Business Environment: US Example

Video Business

High-speed Data Business

Voice Business

Networks

Our Perspectives

Moore’s Law of NasdaqMoore’s Law of Nasdaq

0

500

1,000

1,500

2,000

2,500

3,000

3,500

4,000

4,500

5,000

30-J

ul-82

11-F

eb-8

3

26-A

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3

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02-D

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5

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5

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7

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20-F

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8

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19-M

ar-

99

01-O

ct-

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pr-

00

27-O

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00

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ar-

01

20-A

pr-

01

31-M

ay-0

1

11-J

ul-2001

Doubles in 8 years

Doubles in 4 years

Doubles in 2 years

Doubles in 1 year

1983 - 2001

Source: CSFB

The Present State of TelecomThe Present State of Telecom

Telecom was more tightly linked to the dot-com

industry than most people realized

Unrealistic optimism set in everywhere Disproportionate cost structure and revenue opportunity

Abundant available capital along with major shift

of regulatory policy resulted in: Fierce competition

Over capacity

“Innovative” practices fueled the fire: Vendor financing, capacity swaps, round trips

Revenue = receivable + inventory

Business Environment: Business Environment:

US ExampleUS Example

COMMUNICATION IN USCOMMUNICATION IN US

AT&T

Worldcom

Spring

Qwest

AT&T

Worldcom

Spring

Qwest

“Unregulated” “Unregulated” Regulated or

Semi-Regulated

Long-Haul Metro Access

MSO

ILEC

CLEC

MSO

ILEC

CLEC

REGULATION AND BUSINESSREGULATION AND BUSINESS

Communication

Services

Title 2

Regulation

Requirement

VOICE DATA VIDEO

Open Pipe Franchising

Business Selling Minutes Flat rate

+ Usage

Information

Services

Title 1

Content

Service

Title 6

None

Flat rate

THE RESIDENTIAL PIE THE RESIDENTIAL PIE -- 20002000

Cable ILECs Other

Video Voice Data

Source: Paul Kagan Associates

Cable Dominates

Video Market

ILECs Dominates

Voice Market

Cable Leads

High-Speed Data

Market

Ten Year Performance Ten Year Performance

ImprovementImprovement

WAN Bandwidth 2

Processor Power 2

Router Engine Performance/Price 1

Internet Traffic 2

Bandwidth to Homes 3 13

2000

1000

1000

1000

Sources: 1. Business Communications Reviews, Sept. 1997

2. AT&T

3. Dataquest

NETWORK TRAFFICNETWORK TRAFFIC

0

200

400

600

800

1000

1990 1995 2000 2005 2010

Tra

ffic

(G

b/s

)

Voice

Data

Total

K.G. Coffman and A. Odlyzko AT&T Labs

LOOKING FORWARD: TRIPLE PLAYLOOKING FORWARD: TRIPLE PLAY

Video

$128B

Voice

$75B

Data

$28B

CableCable VoIPVoIP

ILECILEC SDVSDV

VDSLVDSL

Standard based equipment

IP Infrastructure

OSS/BSS

New Services

Standard based equipment

IP Infrastructure

OSS/BSS

New Services

2002

OPPORTUNITIES: OPPORTUNITIES: TRIPLE PLAYTRIPLE PLAY

Create a customer destination Reduce churn

Create differentiation

Build a common platform for innovation and

gain economy of scale

Increase ARPU (Average Revenue Per Unit)

Offensively and defensively change the nature

of services and products

BUSINESS COMPARISONBUSINESS COMPARISON

Comcast x Cox x Gehua

Subscriber (M) 21.0 2.3 6.1 0.7 9.0

Revenue ($M) 8,079.0 169.0 5,038.6 105.4 47.8

Operation Cost ($M) 3,511.0 131.7 2,130.9 80.0 26.7

Gross Margin 57% 58% 44%

EBITDA Margin 35% 35% 24%

Revenue/Sub ($) 384.7 72.4 826.0 155.4 5.3

EBITDA/Sub ($) 134.9 79.0 291.7 170.7 1.7

OPPORTUNITIES AND ISSUESOPPORTUNITIES AND ISSUES

Basic: $13.44

Ext Basic: $40.49

Digital Tier $50.44, $60.44, $68.44,

$78.99, $93.99

HDTV: extra $5

VOD& DVR: $9.95

HSD: $52.95

Telephony: $25

Basic: $2.5

HSD: $15

US China

Network/HHP $175 $175

CMTS/Sub $8 $35

CM/Sub $40 $100

US China

BUSINESS VALUATIONBUSINESS VALUATION

US x China

ARPU/month 57.34 3.8 15.00

Gross Margin 57% 44%

EBITDA Margin 35% 1.5 24%

Multiple 16 1.6 10

Value/Sub ($) 3,853.2 8.92 432.0

EBITDA/Sub 150.00 88.2 1.70

Debt/EBITDA 4 4

Debt/Sub 600.00 88.2 6.80

KEY ISSUESKEY ISSUES

Cost Structure ( technology platform)

Regulatory

Environment

Op

era

tio

ns

Rea

lity

Business Opportunities

VIDEOVIDEO

5

59

30

89

22

45

25

70

36

82

106100

111

0

10

20

30

40

50

60

70

80

90

100

110

1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

Total Households

Analog Only Houses

Total Digital

Digital Cable

Satellite Digital

Analog Only

VIDEO: GOING DIGITAL!VIDEO: GOING DIGITAL!

Source = Kagan 2000 Databook

Today

DIGITAL CABLE SUBSCRIPTIONDIGITAL CABLE SUBSCRIPTION

0

5

10

15

20

25

4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q

Cablevision

Cox

Adelphia

Charter

Comcast

AOL TW

AT&T

00 01

Millio

n

Source: UBS Warburg

US CABLE DIGITAL PENETRATIONUS CABLE DIGITAL PENETRATION

0

5

10

15

20

25

30

35

40

1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q

% o

f B

asic

Su

b

00 01 02

Source: UBS Warburg

VIDEO DISTRIBUTION SYSTEMVIDEO DISTRIBUTION SYSTEM

Hubs

Analog

Video

Services

Application

Servers

Network

Control

Conditional Access,

Multiplexing,

Modulation

Interactive

Communication

Servers

Interactive

Set-top

Television

Video Services

Return

Data

Channel

Internet

Back-Office

Systems

Customer

Premise

Digital

Headend

Analog

Video

Services

Digital

Video

Services

Video

On

Demand

Server

Inband

Gateway

Terrestrial

Digital

Services

HFC

Network

Forward

Data

Channel

Nodes

OPENCABLE ARCHITECTUREOPENCABLE ARCHITECTURE OPENCABLE ARCHITECTUREOPENCABLE ARCHITECTURE

Supporting

Hardware

and Software

OpenCable Device

Consumer

Devices

OCI-C1

Headend

OCI-N

Security

Module(s) OCI-C2

Operations

OCI-H2

OCI-H1

Video

Content

Internet

Content

Other

Content

STRATEGIES

“Video”

“Video”

Growth

Strategies

Expand Expand

“Video”

Pie

Capture Capture

“Video”

Share

Recapture DBS Subs

Increase Subscription Rev$ Increase Subscription Rev$

Recapture Tape Rental

Get Ad Share From B’Cast

Own The Content

Non-TV Ad Market

Get Paid To Carry Content

Transaction Revenue

PRODUCT EVOLUTIONPRODUCT EVOLUTION PRODUCT EVOLUTIONPRODUCT EVOLUTION D

igit

al P

en

etr

ati

on

VOD VOD

Digital Plus Digital Plus

Digital Basic Digital Basic

Time

Extended VOD/PVR Extended VOD/PVR

ITV ITV

HDTV HDTV

INTERACTIVE TV MARKETINTERACTIVE TV MARKET

0

5,000

10,000

15,000

20,000

25,000

30,000

35,000

40,000

2001 2003 2005 2007 2009 2011

Interenet TV

Direct Response

Internet Portals

IPG

VOD

T-Comm

$M

Source: Kagan

WHAT’S CHANGED?WHAT’S CHANGED?

Revenue Projections

• Advertising

• T-Commerce

• Walled Garden Fees

Services

• Consumers Like

• Consumers Will Pay for

Costs

• Integration

• Maintenance 1999 View 2002 View

Revenue Cost

Profit Loss

There Still is a Model, it’s Just DifferentThere Still is a Model, it’s Just Different

Minimize Cost of Receiver

• Small Footprint Implementations

• Offload Processing to Proxy Servers for Low Cost Receivers

• H2O for HTML / JavaScript on Very Low Cost Receivers

• Minimize Code Size

Network Solutions

• Balance Traffic Between In-band Push and out-of-Band Pull

• Monitor Traffic and Performance

Maximize Integration with OSS and BSS

• Minimum Infrastructure, Integration and Operation Costs

• Evangelize Server Side Standardization

• DVB, Cable Labs, BSS Vendors

THE NEW FOCUSTHE NEW FOCUS

Information, Weather, Stocks, Sports Scores

Enhanced TV, Player Stats, Multiple Camera Angles

Shopping on Shopping Channels

Games of Skill and Parlor Games

Voting

Communication Services

Focus on Services that Provide High Value to Consumer, but Low Cost to Provide:

Focus Must be Simple, Fast, and Remain TV Centric

COMMUNICATIONSCOMMUNICATIONS

Multi-Platform Communications, Provides Interesting Opportunity:

- SMS

- Unified Messaging

- Instant Messaging

- Voice Mail

Messaging

- Voice Activated Dialing

- Voice Controlled

Messaging

Voice Solutions

SHORT MESSAGE SERVICESHORT MESSAGE SERVICE

75% of Mobile Users in Europe Use SMS

Currently, Over 12b SMS Messages are Sent Each Month

European Wireless Operators Generate 5%-15% of Their Revenues from SMS Services

Source: Forrester, January 2002

0% 10% 20% 30% 40% 50%

UK

Germany

France

Italy

Spain

Sweden

Current Likely

TV Based Messaging

FUTUREFUTURE

Television on Demand

VoD, SVoD, Network and Local PVR

Convergence of Voice, Data and Television Offering

Beyond Digital TV Infrastructure

• Roaming Between Digital TV and Other Networks (e.g. Cell Phone, Internet)

• Universal Messaging, Single Sign-in, Digital Passport and Wallet

• Extension to New Networks

• Home Area Network, Car Information and Entertainment Systems

Beyond Entertainment

• In-house Health Care, Distance Learning

CRITICAL ISSUESCRITICAL ISSUES

The ITV Model has Changed, but is Still Attractive

• Revenue

• Reduce Churn

• Fits Well and can Promote Other Services

• High Speed Data

• Voice

• Maintaining Simple, Fast, TV Centric Service is a Must

• Cost Effective Hardware and Middleware is Required

• Scale Platforms is Essential to Keep Costs Down and to Facilitate Application Development

HIGH SPEED HIGH SPEED

DATADATA

Global DOCSIS High Speed Data

0.00

10.00

20.00

30.00

40.00

50.00

60.00

70.00

Q1-

1999

Q3-

1999

Q1-

2000

Q3-

2000

Q1-

2001

Q3-

2001

Q1-

2002

Q3-

2002

Q1-

2003

Q3-

2003

Q1-

2004

Q3-

2004

Q1-

2005

Q3-

2005

Q1-

2006

Q3-

2006

Q1-

2007

Q3-

2007

Su

bs

cri

be

rs (

M)

HIGH SPEED ACCESSHIGH SPEED ACCESS

North AmericanNorth American

7

13

22

30

3640

4448

5156

0

10

20

30

40

50

60

70

80

90

100

'00 '01 '02 '03 '04 '05 '06 '07 '08 '09

HP

(M

illi

on

s)

Marketed Cable HSD HP Marketed DSL HP Other Subs Total HSD Subs

Source: Kagan

SPLIT THE PIE: 2001SPLIT THE PIE: 2001

US OnlyUS Only

32%

2%

66%

Cable

DSL

Other

Source: Kinetic Strategies

CABLE MODEM SUBSCRIBERCABLE MODEM SUBSCRIBER

0

2

4

6

8

10

12

4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q

Adelphia

Cablevision

Charter

Cox

Comcast

AT&T

TW

00 01

Millio

n

Source: UBS Warburg

Why is DOCSIS 2.0 CompellingWhy is DOCSIS 2.0 Compelling

Can Reduce Overall Capital Investment of

Upgrade

Even in Upgraded Plant, Larger Statistical

Area is Superior Design

Reduces CMTS Cost Burden on HSD and

VoIP Amortize router blade across more customers

Plants are Achieving High Penetrations How will they perform

• Without filters

• With Voice and other low latency services

MARKET DYNAMICS OF DATA BUSINESSMARKET DYNAMICS OF DATA BUSINESS

A Land Grab For 40 Million Existing Narrowband SubscribersA Land Grab For 40 Million Existing Narrowband Subscribers

0.32

0.240.6

13.9

7.9

5.4

4.119.8

15.7

15.4

1994

$0.6 B 2002

$28 B 2007

$55 B

$5.0B

18% Cable 57% 57%

E-Commissions

Advertising

Content

Access 50% 50%

36% 36% $9.9B

18% Cable

Increasingly difficult to capture value merely with access fee

Key sources of future value in the data business Advertising

Ability to close the transaction

Data business starts to look a lot like the video business

Increasingly difficult to capture value merely with access fee

Key sources of future value in the data business Advertising

Ability to close the transaction

Data business starts to look a lot like the video business

IP INFRASTRUCTUREIP INFRASTRUCTURE

CMTS HFC Network

(DOCSIS)

Managed

IP Network

CM

OSS

Server

Farm

MPLS/VPN/BGP

Optical Networking

Advanced OSS/BSS

MPLS/VPN/BGP

Optical Networking

Advanced OSS/BSS

Many IP Technologies DOCSIS Standard

Packet Cable Standard

Standard based end-to-end solution

Operation and scalability are the keys

New business model

Standard based end-to-end solution

Operation and scalability are the keys

New business model

VOICEVOICE

Voice Isn’t What It Used To Be…Voice Isn’t What It Used To Be…

13.7

39.3 39.7

73.7

30.844.323.743.6

103

1994

$93 B 2002

$149 B 2007

$170 B

15% 15%

Residential

LD

Residential

local

Total

Cellular 50% 50% 60% 60%

Cellular has already captured 50% of the value in a decade

Cellular has blurred the traditional residential-business segmentation

The residential wireline business is under significant pressure

Cellular has already captured 50% of the value in a decade

Cellular has blurred the traditional residential-business segmentation

The residential wireline business is under significant pressure

REDEFINE VOICE SERVICEREDEFINE VOICE SERVICE

Access to voice

network (Local,

Toll, LD, etc)

Vertical Services

CallerID, VoiceMail,

Integration, etc.

Average Monthly Phone Bill: Constant

Time

$

Price competition Product Differentiation

Convenient

Lower cost

More service value

Convenient

Lower cost

More service value

Benefit to Consumer

Differentiation

Customer retention

Additional revenue

Differentiation

Customer retention

Additional revenue

Benefit to Cable

Low-cost bundled offering

Web based provisioning

Persistent voice

Low-cost bundled offering

Web based provisioning

Persistent voice

VoIP

VoIP OVER CABLE NETWORKVoIP OVER CABLE NETWORK

CMTS HFC Network

(DOCSIS)

Managed

IP Network

CM MTA CMS

MG

SG

HFC Network

(DOCSIS)

CM MTA

CMTS

MGC

PSTN

SS7

MS

OSS

Server

Farm

TGS

DHCP & DNS

TFTP or HTTP

RKS

Provisioning

CMS: Call Management server MGC: Media Gateway Controller

MS: Media Server MG: Media Gateway

SG: Signaling Gateway

CABLE TELEPHONY SUBSCRIBERCABLE TELEPHONY SUBSCRIBER

0

0.5

1

1.5

2

2.5

4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q

Cablevision

Cox

AT&T

00 01

Millio

n

Source: UBS Warburg

Worldwide VoIP ForecastWorldwide VoIP Forecast

PacketCable 1.x ArchitecturePacketCable 1.x Architecture

PacketCable VoIP SolutionPacketCable VoIP Solution

E-MTA

PSTN

Gateway

LDS

E-MTA

OSS Functions:

Provisioning,

Security,

Record Keeping

Announcement

Server

Announcement

Controller

Announcement

Player

Media Gateway

Controller

Media

Gateway

Signaling

Gateway

Managed IP

Network DOCSIS 1.1

HFC Network

PSTN

CMTS

CMTS

DOCSIS

1.1

HFC

Network

RKS

DHCP

TFTP

CMS

GATE

Ctrl

SNMP

TOD

KDC

DNS

SYSLOG

GR-303

V5.2

Gateway

UPGRADE

EVOLUTIONEVOLUTION

DWDM

RF

DSP

Capacity

Quality

Reliability

DOCSISDOCSIS

High speed High speed

cable modemcable modem

Open CableOpen Cable

Universal set Universal set

top boxtop box

Packet CablePacket Cable

EndEnd--toto--end IP end IP

platformplatform

Broadband Full Service Platform

NETWORKSNETWORKS

IN THE PAST ...IN THE PAST ...

LEC

Twist Pair Star

Feature rich POTS

$84B “toll collection”

Voice = Communication

Cable

Coax Tree-and-Branch

Broadcast video

$24B “$1 buffet”

DLC, ISDNDLC, ISDN

FTTHFTTH

Monopoly

Voice-oriented

Video = Entertainment

PERSPECTIVESPERSPECTIVES

NetworkNetwork

ConnectivityConnectivity

Resource SharingResource Sharing

Media

Copper

Coax

Fiber

Radio

Topology

Star

Bus

Ring

Control

Central

Distributed

Self

Service

Communication

Entertainment

Convergence

Mind-Set

Bell-Head

Net-Head

“Cable Guy”

CHANGING PERSPECTIVESCHANGING PERSPECTIVES

RF Modem

DSP Performance

Fiber Optics

BellBell--CentricCentric MosaicMosaic

NetworkNetwork

“Proprietary”“Proprietary”

CircuitCircuit

Standard based

Capacity

Service enabler

BroadbandBroadband

Service PackageService Package

Network enabled or Network enabled or

independent independent

CompetitionCompetition

ApplicationsApplications

FeatureFeature--rich rich

VoiceVoice

ConnectionConnection

BusinessBusiness

MonopolyMonopoly

Bandwidth Internet

Multimedia

Router performance

LAN extension

Telecom Reform

Market maturity &

growth

OPTIONSOPTIONS

LEC

Narrowband

Switched DLC

Rebuild

Network Upgrade

Cable modem

Deep Fiber Deep Fiber

PenetrationPenetration

Wireless

Mobility

Broadband

Cable

Broadband

Broadcast

FTTH

CHALLENGESCHALLENGES

FN

FN

FN HE

HE

HE

Analog TV

5 50 500 750 1G

Emerging Services

Bandwidth Capacity: 5-40MHz/1000s HHP upstream

Transport Integrity: Ingress noise, dynamic range

103-to-1 Architecture: Centrally-mediated MAC

SOLUTIONSSOLUTIONS

103-to-1

Architecture

Bandwidth

Capacity

Transport

Integrity

UPGRADE

Fiber Node

Segmentation

DWDM Trunk

DOCSIS

High level

modulation

Centrally-

mediated MAC

NetworkNetwork

ModemModem

Fiber Node SegmentationFiber Node Segmentation

FN

Long cascade coax bus shared by many users

(1000s)

1,200 Homes

HE

Fiber Node SegmentationFiber Node Segmentation

HE

1,200 HHP/FN with 300 HHP/Bus

FN

300 Homes 300 Homes

300 Homes 300 Homes

DISTRIBUTED HEADDISTRIBUTED HEAD--ENDEND

Operation complexity

Cost of CMTS at lower take rate

Primary

Ring

Primary

Hub

HE

HE FN

FN

HE

CMTS SCALABILITYCMTS SCALABILITY

Chassis-based CMTS has

the most advanced

features & can simplify the

metro routing architecture

Desired configuration favor

centralized approach

150

250

350

450

550

650

750

850

2 LCs Chassis Rack

ADC Arris Cisco

Motorola Juniper Terayon

$$

/M

bp

s

* Cost is calculated based on combined upstream and

downstream capacity, and core-redundancy

configuration

Minimum Medium Maximum

80-400Mbps 400-1600Mbps 1200-3840Mbps

DWDM TRUNKDWDM TRUNK

FN

FN

SH

DWDM transport for end-to-end transparency

Route diversity for service protection

Consolidate high-end terminals (CMTS)

Primary

Ring

Primary

Hub

SH

SH

DWDM TRUNKDWDM TRUNK

1 x

8 D

WD

M

1 x

8 D

WD

M

RCV

RCV

RCV

. . . . . .

l

l

Co

arse

WD

M

RCV

Primary Hub Secondary Hub

Fiber Node

XTR 1.3mm

l

l

l

1 x

8 D

WD

M . . .

1 x

8 D

WD

M

. . . 1.5mm

4 PRIMARY HUBS

64 SYSTEM HEADENDS

0 SECONDARY HUBS

TRADITIONAL HFC INTERCONNECTIONTRADITIONAL HFC INTERCONNECTION

2 MASTER HEADENDS

56 SECONDARY HUBS

9 PRIMARY HUBS

SECONDARY RING HFC INTERCONNECTSECONDARY RING HFC INTERCONNECT

Segmentation

4X capacity

SH

SH

MODERN HFC NETWORKMODERN HFC NETWORK

SH Primary

Ring

Primary

Hub

FN

FN

DWDM Transport

End-to-end Transparency

ARCHITECTURESARCHITECTURES

FN

Tree-and-Branch

Broadcast

Cascaded

Cell-Based

Narrowcast

Clustered

RN

???

FIBER OPTICS ?FIBER OPTICS ?

Node 2,000+HP 1,200HP 600HP 200HP 100HP

Size

HOW Deep ?

HOW To ?

EVOLUTIONEVOLUTION EVOLUTIONEVOLUTION

Demand

Take Rate

Applications

User Behavior

Demand

Take Rate

Applications

User Behavior

Ban

dw

idth

per

Cu

sto

mer

Push Fiber

Deeper

Push Fiber

Deeper

Split Nodes Split Nodes

Higher RF

Efficiency

Higher RF

Efficiency

Time

Fiber Optics for CableFiber Optics for Cable

102

107

106

105

104

103

86 06 92 00

108

FSA (103 HP/node)

FTTC (102 HP/node)

FTTH

40 ch AM

100 ch AM

Broadcast Two-way Broadband

Fib

er t

erm

inati

on

mFNmFN

CMTS

PH

mFN mFN

mFN mFN

mFNs replace all coax amplifiers Less active components

More bandwidth and flexibility

Deep fiber penetration with cell structure

Optical add/drop to daisy chain mFNs Reduced fiber management & labor

Provisioning for growth

Distributed processing at mFN

SH

SH

SH

XTR XTR XTR

WDM PON

S

ADVANTAGESADVANTAGES

Operation Savings

61% reduction in active components

Reduced power consumption

Simplification of maintenance

Improved Performance

Reduced ingress noise funneling (10-48MHz operation)

Increased RF bandwidth

Improved reliability

Future Proof

Flexibility between current track and future opportunities

Improved QoS and further cost reduction

OPERATION SAVINGSOPERATION SAVINGS

Current Network: 5.5 actives/mile

OPERATION SAVINGSOPERATION SAVINGS

61% reduction in active components

21+% improvement in reliability

COST COMPARISONCOST COMPARISON

Category Fiber Deep 860 Fiber Deep 600 HFC

Headend/Hub Optronics $3 $3 $3

Field Optronics $6 $6 $6

Pow er Supplies w ith Pow er Coax $1 $1 $2

Actives $0 $0 $6

Passives $7 $7 $7

Coax $20 $20 $20

Hardw are $0 $0 $0

Splice & Activate Coax $2 $2 $2

Turn up and Test $1 $1 $2

Project Mgmt & Design Engineering $1 $1 $1

Taxes & Freight $1 $1 $2

Labor $23 $23 $25

Material $19 $19 $26

Cost Total $42 $42 $51

Saving 17% 18%

Network ComparisonNetwork Comparison

20,000 Home Example20,000 Home Example

Item

Traditional

mFN

Power Supplies

60

19

RF Amplifiers

905

0

Optical Nodes

42

225

Total Active Devices

1,007

244

Active Per Mile

>4

<1

Cascaded RF

Amplifiers

5

0

Network Reliability

99.98%

99.999%

Power Cost 10 Years

$762,260

$244,680

Maintenance Cost 10

Years

$4,693,333 $1,173,333

Network Reliability

10 Year Operating Costs ($M)

99.970%

99.975%

99.980%

99.985%

99.990%

99.995%

100.000%

Traditional mFN

$0.00

$1.00

$2.00

$3.00

$4.00

$5.00

$6.00

Traditional mFN

Network Buildouts Network Buildouts -- CableCable

0

5

10

15

20

25

30

Ho

me

s (

Millio

ns

)

AT&T AOL-TW Comcast Charter Cox Adel Cblvsn Rogers Mcom Insight Classic

2-Way Homes Homes Not Upgraded Source: Kagan

Majority cable networks complete upgrade by EOY 2003.

Next network frontier is to establish scalable interconnection.

Intelligent optical networking technology will play important role

OUR OUR

PERSPECTIVESPERSPECTIVES

GENERAL OBSERVATIONSGENERAL OBSERVATIONS

UK leads Europe and World in Digital

Penetration

US is more Focused on VOD and SVOD

Europe Leads on ITV applications Interactive Voting, Gaming, Multiple Camera Angles,

Theater Tickets

TRIPLE PLAYTRIPLE PLAY

Triple Play and Double

Play is Predominant in

Europe

UK is Projecting to be

90% Double or Triple

Play by 2010

0%

5%

10%

15%

20%

25%

30%

35%

40%

45%

50%

UK Europe

Triple Double Single

2010 Projections

OUR FOCUSOUR FOCUS

Financial Focus Can the operation generate enough cash to service the

debt, cover ongoing capital needs and ultimately build

equity

Service Offering We Believe in the Triple Play

• However, service mix is extremely situation dependent

– Capital structure

– Regulatory

– Competition

– Demographics and income

Critical Technology Investment Timing

SERVICE APPROACHSERVICE APPROACH

Digital Video Favor an open approach

Precise investment that can be returned varies

Low level interactivity and gaming is interesting

SVOD also shows opportunity

High Speed Data Favor converged platform based upon DOCSIS

Huge Proponents of DOSCIS 2.0 capabilities

• More Mbps per Line Card = Lower Cost Per Mbps and

Lowe Cost Per line for VoIP

SERVICE APPROACH SERVICE APPROACH -- contcont

Voice Favor a disruptive approach to voice

VoIP as a transport

Not a one for one match for ILEC

Feature rich, i.e., web based features, whisper alerts,

persistent voice applications

Minimize powering exposure

Flat rate billing

TECHNOLOGY TIMINGTECHNOLOGY TIMING

Lead/manage

innovation

Standardize

/De facto

Improve

the scale

Migrate to

next

CO

ST

Cap

ab

ilit

y

Technology platform is time dependent Time to lead, time to push standards, time to extend E-o-

Scale.

Cardinal Consideration for Cardinal Consideration for

Technology InvestmentTechnology Investment

Matching capital investment to market potential 150+ startups for cable @ $400M+/year burn-rate

CMTS revenue < 30% CMTS vendors R&D spending

VC and technology communities need to understand service companies’ business and operations

GLOBAL PESPECTIVESGLOBAL PESPECTIVES

Communication Industry recovery relies on both the cost structure and revenue opportunities.

We Strongly Believe in Cable Broadband Business Think That Europe and Asia Offer Some Attractive Opportunities

Changing the nature of services and the dynamics of service delivery is key to expand the market and achieve economy of scale

The Triple Play is a Powerful Offering, But Is situation dependent (e.g., infrastructure, legacy issues, etc)

Needs additional fine tuning (ITV strategy, Voice strategy, HSD strategy)

Technology deployment is time-critical