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E-Business in Telecommunications: The Impact of the Internet on the Communications Industry April 13, E-Business in Telecommunications: The Impact of the Internet on the Communications Industry April 13, 2000

Contents • • • Introduction - impact of the Internet on the communications industry Contents • • • Introduction - impact of the Internet on the communications industry Household Market Corporate Market Notice: Pricewaterhouse. Coopers Proprietary Information. Not for use/disclosure outside Pw. C except under written agreement. 1 E-Biz. Telecom 021100, 3/15/2018 DRAFT - For Discussion Purposes Only

Introduction Despite playing a leading role in providing services for the Internet, the telecom Introduction Despite playing a leading role in providing services for the Internet, the telecom industry lags other segments in generating revenues through EBusiness initiatives E-Business Revenues by Industry - 2003 Projections Source: Business Week Percent of Total Industry Revenues E-Business Market Size Computing & Electronics Travel $410 B $67 B Notice: Pricewaterhouse. Coopers Proprietary Information. Not for use/disclosure outside Pw. C except under written agreement. Energy Financial Services Retail Telecomms $170 B $80 B $108 B $15 B 2 E-Biz. Telecom 021100, 3/15/2018 DRAFT - For Discussion Purposes Only

4 -Box Model Pw. C uses a 4 -box model to explore the implications 4 -Box Model Pw. C uses a 4 -box model to explore the implications of the Internet within the telecom industry Degree of change to business model Pw. C’s 4 -Box Model Restructuring the value chain to create ‘many-to-many’ relationships, new value propositions & new business models Box 4: Convergence Transformer Companies entering new industry sectors and competing outside of their core business areas S E Box 3: Industry Transformation Connections with trading partners and process changes across the value chain C Box 2: Value Chain Integration Enabler S E Enhancing current channels and adding new channels to market C Box 1: Channel Enhancement Enabler Transformer Role of E-Business Notice: Pricewaterhouse. Coopers Proprietary Information. Not for use/disclosure outside Pw. C except under written agreement. 3 E-Biz. Telecom 021100, 3/15/2018 DRAFT - For Discussion Purposes Only

E-Business as an enabler Our recent survey of telecom companies in the US and E-Business as an enabler Our recent survey of telecom companies in the US and Europe revealed that E -Business investments are focused almost entirely on channel enhancement and value chain integration activities Channel Enhancement Value Chain Integration Current Activities Box 2: • Bill presentment, review, payment • Self-service inquiries • Individual product sales • Order entry and status • Employee enrolment • Performance monitoring • Online account management • E-procurement • E-HR (salary/ benefits admin) • Financial and sales management and reporting Planned Activities Box 1: • • Product info/training • Real-time inventory and transactions • Network performance • Integrated purchaser/ vendor • Network activation • Capacity provisioning Electronic catalogues Account profiles Account access Web-based CRM Integrated order provisioning Real-time cross-selling Virtual reps Source: Pw. C Survey of Telecom E-Business Plans Notice: Pricewaterhouse. Coopers Proprietary Information. Not for use/disclosure outside Pw. C except under written agreement. 4 E-Biz. Telecom 021100, 3/15/2018 DRAFT - For Discussion Purposes Only

E-Business as a transformer We anticipate significantly more Box 3 and Box 4 activities E-Business as a transformer We anticipate significantly more Box 3 and Box 4 activities as the industry transforms through the adoption of current and future E-Business applications Box 3: Industry Transformation • Personalization and recommendations across broad service set (wholesale and retail) • Price buyer services • Personal router management • Traffic geolocation mapping • Network E-products • Multi-provider tracking • Billing aggregator • Total network inventory analysis and marketplace (public, competitor, corporate) • 3 G wireless infocom applications Box 4: Convergence • Home network services provision • Household services management • Integrated infocom services provision • Personal infocom services management • Applications and coms service hosting and provision Sources: Pw. C Survey of Telecom E-Business Plans, Pw. C Telecommunications Industry Visioning, internal review of E-Business activities across industries Notice: Pricewaterhouse. Coopers Proprietary Information. Not for use/disclosure outside Pw. C except under written agreement. 5 E-Biz. Telecom 021100, 3/15/2018 DRAFT - For Discussion Purposes Only

Impact by market segment The impact of the Internet should be analyzed by market Impact by market segment The impact of the Internet should be analyzed by market segment, given fundamental and increasing differences among the household, corporate and mobile segments Mass Market Corporate Mobile • The skills and products needed to serve business customers are now very different from those needed to effectively serve the mass market • The introduction of new services (advanced data services in business markets, mobility, Internet access, etc) in both markets has resulted in differing end-user requirements for both groups Products Skills Competitors Value Chains Geographic Scope Network Branding / Bundling Processes Key Success Factors Valuation Metrics • The geographic focus of the market segments differ - mass markets are more local, corporations are more global • In addition, the operational demands associated with effectively serving customers with complex product requirements are very different Today we will focus on the Mass Market and Corporate Market Notice: Pricewaterhouse. Coopers Proprietary Information. Not for use/disclosure outside Pw. C except under written agreement. 6 E-Biz. Telecom 021100, 3/15/2018 DRAFT - For Discussion Purposes Only

We will explore three areas related to the impact of the Internet on the We will explore three areas related to the impact of the Internet on the communications industry The Internet as a. . . Customer segments source of demand for telecom products/services Mass Market • Services • Access • Applications enabler transformer of business models Buyers Sellers Exchanges S E C Auctions Supplier Enterprise Customer Aggregators Corporate • Telecom services • Professional services • Backbone capacity Notice: Pricewaterhouse. Coopers Proprietary Information. Not for use/disclosure outside Pw. C except under written agreement. S E C Supplier Enterprise Customer 7 E-Biz. Telecom 021100, 3/15/2018 Tomorrow’s Business Focus Today’s Business Focus DRAFT - For Discussion Purposes Only

The Internet as a. . . Customer segments source of demand for telecom products/services The Internet as a. . . Customer segments source of demand for telecom products/services Mass Market enabler transformer of business models • Services • Access • Applications Corporate Notice: Pricewaterhouse. Coopers Proprietary Information. Not for use/disclosure outside Pw. C except under written agreement. 8 E-Biz. Telecom 021100, 3/15/2018 DRAFT - For Discussion Purposes Only

Consumer spending Consumers have over the past 10 years increased their spending on telecommunications Consumer spending Consumers have over the past 10 years increased their spending on telecommunications services as a percent of total household spending from 2. 76% to 3. 57%, belying the notion that telecommunications is a utility category Monthly Spending per US Household on Telecom Services (1940 -1998) 1996 Real $ • Consumer spending on core telecommunications products has outstripped underlying economic growth by a factor of two, three and sometimes four • Since 1978, spending on multichannel television services has grown more than 14% per year, with cable penetration standing at over 66% in 2000 • Internet usage has increased from 20% of households in 1997 to 30% of households in 1999. This number is expected to double over the next 5 years, reaching over 60% by 2003 Sources: Census Bureau, Department of Commerce, FCC Industry Analysis Division, Paul Kagan Associates, CTIA, Simba, AOL Annual Reports, Lehman Brothers Notice: Pricewaterhouse. Coopers Proprietary Information. Not for use/disclosure outside Pw. C except under written agreement. 9 E-Biz. Telecom 021100, 3/15/2018 DRAFT - For Discussion Purposes Only

Change in Components of Spend In the future, traditional telecom services will become a Change in Components of Spend In the future, traditional telecom services will become a smaller portion of overall service value; new services will be offered and could include retail transactions, entertainment, equipment leasing and billing Intermediary Plus A Communications Solutions Provider Bill Summary Network Connections (flat rate) High Speed Access Mobility Unified Messaging Digital Television Services DBS Package VOD Hong Kong Gangsters (Movie) Miss Internet Pageant (Event) European Cup Final (Sports) Monthly Internet Services Daily Customized News Service Appliance Monitoring Remote Security Publix Grocery Delivery Services Amazon. com Book of the Month $70. 00 $65. 00 $12. 00 $60. 00 $2. 95 $3. 95 $7. 95 On-Net Purchasing Victoria’s Secret 1 -800 Flowers. com On-Line Mall Equipment Leasing/Financing HAN w/HCC Mobile Web Surfers (2) Total - All Services $5. 00 $6. 00 $15. 00 $120. 00 $20. 00 Notice: Pricewaterhouse. Coopers Proprietary Information. Not for use/disclosure outside Pw. C except under written agreement. $59. 95 $49. 99 $275. 00 $10. 00 $797. 79 Where local and long distance calling is free !! 10 E-Biz. Telecom 021100, 3/15/2018 • Since 1970, household spending on telecommunications as a percent of discretionary spending has tripled. New communications services will perpetuate this trend • The total pool of value available to telecom service providers is not fixed, but expanding rapidly • In the not-so-distant future, one-stop shops will supply all basic and advanced telecommunications, entertainment and online purchasing needs -- with one bill and one point of customer contact • Conservative assumptions regarding the proportion of consumer spending moving to Web-enabled channels over the next five years generates the monthly bill to the left. This will double the growth rate of the traditional telecommunications industry, adding $50 billion annually to the new industry value chain in the U. S. alone DRAFT - For Discussion Purposes Only

Home Area Network A variety of needs in the household market are increasing demand Home Area Network A variety of needs in the household market are increasing demand for bandwidth and driving the development of new applications that support the emergence of the home area network (HAN) Home Area Network Needs • Sharing of: – Peripherals: printers, Digital Terrestrial TV Telephone return path Satellite to TV Telephone return path scanners, cameras – Internet access Smart Device – Files and application – Multimedia and games • High bandwidth for voice and video applications Terrestrial Wireless (Narrow & Broadband) • High speed access for telecommuting • Automation of home devices such as environmental controls and security systems Local Telco Exchange Fiber & Copper Notice: Pricewaterhouse. Coopers Proprietary Information. Not for use/disclosure outside Pw. C except under written agreement. 11 E-Biz. Telecom 021100, 3/15/2018 HCC TV Cable Company Local Server Broad band Wirel ess. Mobil e Fiber & Coax DRAFT - For Discussion Purposes Only

Broadband technologies Increased demand for local bandwidth and exponential growth in Internet traffic is Broadband technologies Increased demand for local bandwidth and exponential growth in Internet traffic is generating the development of multiple forms of broadband access and an increase in backbone capacity • x. DSL and cable modems are predicted to be the dominant forms of local broadband access Forecast of North American Residential Broadband Access CAGR x. DSL Cable Modem 328% • x. DSL is being driven largely by telco’s who can build on their existing networks to provide broadband service 83% • Cable modem’s are being deployed by cable operators over existing cable TV lines already deployed in millions of US households • Satellite technology is less developed than x. DSL and cable modems, and will therefore take longer to be deployed Broadband 260% Satellite systems are well suited to provide service to developing regions because there is no need to deploy last mile infrastructure Broadband Wireless 113% Source: 1999 Communications Industry Researchers, Inc Notice: Pricewaterhouse. Coopers Proprietary Information. Not for use/disclosure outside Pw. C except under written agreement. 12 E-Biz. Telecom 021100, 3/15/2018 DRAFT - For Discussion Purposes Only

Home Area Network Applications New applications and household devices that will increase the convenience Home Area Network Applications New applications and household devices that will increase the convenience and comfort of the home user will result from the emergence of the Home Area Network and deployment of broadband access New Applications Broadband Satellite High-speed Access Terrestrial Wireless (Narrow & Broadband) x. DSL Local Exchange HCC Cable Modems Local Server Fiber-tothe-home New Generation CPE • Control center for home Voice and video applications • Digital video networking • Video-on-demand • Interactive programming • Internet telephony • Videoconferencing • Internet radio • Distance learning Services Monitoring / Home Automation • Security • Electricity • Heating E-Commerce/Home shopping communications Notice: Pricewaterhouse. Coopers Proprietary Information. Not for use/disclosure outside Pw. C except under written agreement. 13 E-Biz. Telecom 021100, 3/15/2018 DRAFT - For Discussion Purposes Only

Home Area Network Applications An intelligent interface will develop, combining content and transport ILLUSTRATIVE Home Area Network Applications An intelligent interface will develop, combining content and transport ILLUSTRATIVE A Vision Of The Future Intelligent Interface Facility (Home And/Or Office) Communications Intelligent Interface COMMUNICATIONS Entertainment Voice Visual Data Office Applets . & ( Facilities Management Electricity Heating Security OFFICE ENTERTAINMENT Visual Voice Data FACITILITIES MANAGEMENT Electricity Heating Security Key Characteristics • Voice activated • Intelligent search Source: Forrester Research, Telephony, Pw. C analysis Notice: Pricewaterhouse. Coopers Proprietary Information. Not for use/disclosure outside Pw. C except under written agreement. 14 E-Biz. Telecom 021100, 3/15/2018 DRAFT - For Discussion Purposes Only

There a number of key value imperatives in the new household communications industry Key There a number of key value imperatives in the new household communications industry Key Value Imperatives • Access network providers • Capture content spending • Capture on-net spending • Enable new applications • Support the HAN • Establish net currency Notice: Pricewaterhouse. Coopers Proprietary Information. Not for use/disclosure outside Pw. C except under written agreement. 15 E-Biz. Telecom 021100, 3/15/2018 DRAFT - For Discussion Purposes Only

The Internet as a. . . Customer segments source of demand for telecom products/services The Internet as a. . . Customer segments source of demand for telecom products/services enabler transformer of business models Mass Market Corporate • Telecom services • Professional services • Backbone capacity Notice: Pricewaterhouse. Coopers Proprietary Information. Not for use/disclosure outside Pw. C except under written agreement. 16 E-Biz. Telecom 021100, 3/15/2018 DRAFT - For Discussion Purposes Only

The Internetworking Revolution The internetworking revolution is transforming the corporation and creating new opportunities The Internetworking Revolution The internetworking revolution is transforming the corporation and creating new opportunities for telecom providers to service their emerging needs Ø Ø Ø Ø Ø Growth of enterprise-wide applications ERP (eg SAP, Oracle) Knowledge Management (Lotus Notes) E-mail (MS Mail) Video Conferencing Internetworking Revolution Global Competition Privatisation and liberalisation Free trade (WTO, Single market, NAFTA) Emerging markets competition Global manufacturing, servicing and marketing trend Electronic channels to market Interoperability around Internet Technologies Ø TCP/IP Ø HTTP Ø HTML, XML, Java Ø Ø Telco opportunities Ø “The Global LAN” Ø Growth of E-business Ø “Death of distance” Optical fibre physical medium Transmission technologies (SDH/Sonet) Packet switching (frame relay ATM, IP) Telecom sector liberalisation (CLECs, infrastructure) Unbundling of the Corporation Notice: Pricewaterhouse. Coopers Proprietary Information. Not for use/disclosure outside Pw. C except under written agreement. 17 E-Biz. Telecom 021100, 3/15/2018 DRAFT - For Discussion Purposes Only

The Global LAN The global area network constitutes the virtual private network of the The Global LAN The global area network constitutes the virtual private network of the global enterprise, provided either end to end across owned facilities or through local service level agreements “The Global LAN” Global Network Desktop (LAN/WAN Integration) Notice: Pricewaterhouse. Coopers Proprietary Information. Not for use/disclosure outside Pw. C except under written agreement. WAN 18 E-Biz. Telecom 021100, 3/15/2018 Desktop (LAN/WAN Integration) DRAFT - For Discussion Purposes Only

The Global LAN The creation of the global area network creates new opportunities for The Global LAN The creation of the global area network creates new opportunities for telecom providers in providing new services such as managed network services and network integration for advanced voice and data products US Managed Network Services Revenues: 1998 - 2002 Advanced Data Total CAGR: 22% • • SMDS • X. 25 • Advanced Voice Frame Relay • Advanced Data ATM Corporate Internet Access Advanced Voice • • VPN • • 800/900 Services Dedicated Access In market research undertaken by Pw. C in 1999; 40% of corporate customers had already established a global buying function for communications products, revealing the expectations of corporations to receive true global solutions, and not piece-meal national solutions Notice: Pricewaterhouse. Coopers Proprietary Information. Not for use/disclosure outside Pw. C except under written agreement. 19 E-Biz. Telecom 021100, 3/15/2018 DRAFT - For Discussion Purposes Only

E-Commerce growth The growth in E-Business will generate increased bandwidth demand will provide new E-Commerce growth The growth in E-Business will generate increased bandwidth demand will provide new outsourcing opportunities in IT and communications services Growth in US E-commerce Transactions (Billions U$S) • Both Business-to-Consumer and Business-to-Business commerce, will drive bandwidth demand - Total CAGR: 82% the creation of vertical marketplaces and increased supply chain integration require infrastructure and will be a major driver of demand • The economics of the global economy will drive corporations to use the Internet to improve efficiencies and focus on their core competencies - Source: Forrester Research Notice: Pricewaterhouse. Coopers Proprietary Information. Not for use/disclosure outside Pw. C except under written agreement. 20 E-Biz. Telecom 021100, 3/15/2018 will lead to increased outsourcing of non-strategic IT and communications activities (infrastructure, applications, network management, operations and IT support) DRAFT - For Discussion Purposes Only

Unbundling of the corporation As corporations increasingly outsource core IT, communications and operational activities Unbundling of the corporation As corporations increasingly outsource core IT, communications and operational activities to focus on their own core competencies, the internetworking providers will have to fundamentally change their business model from a network-centric focus, to a customer and solutions-centric focus IT/(E)-Business Consulting M ar Sa le s Systems Integration ke t in g Applications Hosting Web Hosting Tomorrow’s Business Focus Network Management Customer Care Billing Service Assurance Service Activation Product Development Today’s Business Focus Capacity Provisioning Network Design and Integration Customer Relationship Management Notice: Pricewaterhouse. Coopers Proprietary Information. Not for use/disclosure outside Pw. C except under written agreement. 21 E-Biz. Telecom 021100, 3/15/2018 DRAFT - For Discussion Purposes Only

On-Net (Corporate) Customer ownership in the corporate market will shift from communications service providers On-Net (Corporate) Customer ownership in the corporate market will shift from communications service providers to application and information service providers Business Customers Application and Professional Services Provider End-to-End Communications Service Providers Billing and (Customer Management) Product and Content Providers Notice: Pricewaterhouse. Coopers Proprietary Information. Not for use/disclosure outside Pw. C except under written agreement. 22 E-Biz. Telecom 021100, 3/15/2018 DRAFT - For Discussion Purposes Only

Market success Customer and solution-centric companies are showing signs of success in the market Market success Customer and solution-centric companies are showing signs of success in the market when compared to network-centric service providers • Customer-centric companies, like Level 3, were able to increase their stock price by 271% over the past two years • Integrated telecom companies like Bell Atlantic and AT&T have only increased their stock by 29% and 16% respectively over the past two years Level 3 Bell Atlantic AT&T • Application service focused companies like Exodus Communications were rewarded by the market with an increase in stock price of 3, 216% since March 1998 Notice: Pricewaterhouse. Coopers Proprietary Information. Not for use/disclosure outside Pw. C except under written agreement. 23 E-Biz. Telecom 021100, 3/15/2018 DRAFT - For Discussion Purposes Only

The issue for operators is to decide where to play in the value chain The issue for operators is to decide where to play in the value chain IT Services IS/IT Consulting Ø IT/IS Consulting Corporate Network Integration Systems Integration Ø Ø Ø Application Development Ø Systems Integration Software Integration and Support Hardware Integration and Support IT Training and Education Communications Services Ø Ø Ø Network Consulting and Integration Corporate Network Management Ø Ø IS Outsourcing Desktop Management Services Ø Application Outsourcing Services Business Process Outsourcing Process Services Ø Ø Managed Voice Services Managed Data Service Ø Ø Ø Network Management Notice: Pricewaterhouse. Coopers Proprietary Information. Not for use/disclosure outside Pw. C except under written agreement. Basic Access and Transport Services Managed Network Services 24 E-Biz. Telecom 021100, 3/15/2018 Local Service LD Service Dedicated Access Network Infrastructure Provision Ø Ø Dark Fibre “Right of Way” Private Circuits IRUs Wireless Private Circuits DRAFT - For Discussion Purposes Only

A number of players are currently addressing this opportunity. . . Corporate and Network A number of players are currently addressing this opportunity. . . Corporate and Network Management Managed Network Services Basic Access and Transport Services Network Infrastructure Provision IS/IT Consulting Non core Mid Core Non core Non core Core Non core Mid Core Mid Core Mid Non core Core EQUANT Systems Integration Corporate Network Integration Mid Core Non core Mid Core Notice: Pricewaterhouse. Coopers Proprietary Information. Not for use/disclosure outside Pw. C except under written agreement. 25 E-Biz. Telecom 021100, 3/15/2018 DRAFT - For Discussion Purposes Only

Value Imperatives Key Value Imperatives • Enter the human capital business • End-to-end 100% Value Imperatives Key Value Imperatives • Enter the human capital business • End-to-end 100% ownership • Own the desktop • Be global • Build Wholesale Business Notice: Pricewaterhouse. Coopers Proprietary Information. Not for use/disclosure outside Pw. C except under written agreement. 26 E-Biz. Telecom 021100, 3/15/2018 DRAFT - For Discussion Purposes Only

The Internet as a. . . Customer segments source of demand for telecom products/services The Internet as a. . . Customer segments source of demand for telecom products/services transformer of business models enabler S E C Mass Market Supplier Enterprise Customer Corporate Supplier Enterprise Customer Notice: Pricewaterhouse. Coopers Proprietary Information. Not for use/disclosure outside Pw. C except under written agreement. S E 27 E-Biz. Telecom 021100, 3/15/2018 C DRAFT - For Discussion Purposes Only

E-Business Initiatives Telco’s are pursuing a variety of E-Business initiatives in e. Marketing, e. E-Business Initiatives Telco’s are pursuing a variety of E-Business initiatives in e. Marketing, e. Sales and e. Care to more effectively interact with the customers Selected Customer Touchpoints Develop Products/ Services Perform Marketing Sales E-Business Capabilities e. Marketing • • Quickly test and deploy alternative pricing, terms, or product • strategies in days rather than months • Use agents to develop • pricing or promotion response • Customer segmentation capability • • Widespread access to real time service/product availability • Push product • information and tailored promotions to customers • • Extend brand • Provide rapid alerts to changes in inventory, pricing and promotions • Identify customers at risk of churn Develop customized products Integrate various products and services offerings Improve new product take rates, and bring products to market more quickly Simulate and rapidly test new product ideas through online research or direct customer inquiry Differentiate product offers Establish key customer focus groups to collaborate in product packaging Service Activation & Assurance e. Sales • Reduce cost of sales through electronic transactions • Provide real time inventory of product availability • Establish one touch and done customer product inquiry order • Synchronize demand forecasts with inventory • Provide high value customers with tailored services • Promote real time cross-selling and upselling • Enable the timely and accurate distribution of sales leads • Create and manage price, terms, conditions, service level agreements and contracts Notice: Pricewaterhouse. Coopers Proprietary Information. Not for use/disclosure outside Pw. C except under written agreement. 28 E-Biz. Telecom 021100, 3/15/2018 Customer Care Billing e. Care • Collect order information, and generate service order • Provide on-line credit validation • Reduce product delivery costs • Enable customers of low value commodity products self activation of service • Enable account management from sales through implementation among equipment, network facilities, suppliers and customers • Collaborative management of network services and inventory management • Communicate test and turn-up of service/service activation • Automatically • Electronic billing, update resource review and loads, service and inquiry provisioning • Electronic bill schedules, force payment management and provide updates to customer order tracking files • Provide intelligent virtual service representative • Allow widespread monitoring and management of customer • Provide information and internet-based training on new products/services • Improve timeliness and quality of service • Monitor and track performance vs. SLAs DRAFT - For Discussion Purposes Only

The Case for e. Care By focusing on the customer rather than on the The Case for e. Care By focusing on the customer rather than on the enterprise, the web provides a more efficient and effective medium for the delivery of telecom services Efficiency Effectiveness e. Marketing • • • Decreased customer churn Improved profitability comparisons for different prospect types Accurate profitability comparisons for orders from different channels • • e. Sales • Decrease lead turnaround time • Increase margin contribution • Decrease sales cycle • Decrease promotion cost/discounts per order • Decrease training time • Decrease average time per sale + Improved customer loyalty (win-back) Increased analysis of marketing program effectiveness Improved visibility to win-rate comparisons for different prospect types Extending the life of customer e. Sales • Increase cross/up selling • Increase margin contribution • Increase average order size • Increase win/loss information e. Care • • • Increased speed and accuracy of resolution Increased outbound call capacity Decreased cost per service customer Notice: Pricewaterhouse. Coopers Proprietary Information. Not for use/disclosure outside Pw. C except under written agreement. 29 E-Biz. Telecom 021100, 3/15/2018 Increased customer satisfaction Increased lead conversion rates Additional sales channels through live contacts and teleweb DRAFT - For Discussion Purposes Only

Customer Markets The distinct character and needs of the each market suggests that the Customer Markets The distinct character and needs of the each market suggests that the household market should focus on marketing and sales activities, whereas the corporate market should focus on customer care Market Customer Base/Needs Household • Over 15 million customers • Bundling emphasis Corporate Product/ Service Offering • Standard service offerings • Voice and simple data • Less than 1 • Customized service offerings million customers • Voice & data • Hosting • Solutions (web/applications) emphasis • Network management • Negotiated pricing • Contracts, SLAs master service agreements Notice: Pricewaterhouse. Coopers Proprietary Information. Not for use/disclosure outside Pw. C except under written agreement. Economics • Very high volumes • TBR < $100/ month • Fixed pricing • Lower margin services • Very high volumes • TBR < $100/ month Care Needs Degree of Loyalty • Routine interactions • Simple inquiries • Service availability • Low • Customers price sensitive • Routine and complex interactions e. Priorities • Long-term relationships • Service availability • Higher margin and SLA services reporting e. Marketing and e. Sales e. Care • Billing analysis 30 E-Biz. Telecom 021100, 3/15/2018 DRAFT - For Discussion Purposes Only

The Internet as a. . . source of demand for telecom products/services enabler transformer The Internet as a. . . source of demand for telecom products/services enabler transformer of business models Buyers Sellers Customer segments Exchanges Mass Market Auctions Aggregators Tomorrow’s Business Focus Corporate Notice: Pricewaterhouse. Coopers Proprietary Information. Not for use/disclosure outside Pw. C except under written agreement. Today’s Business Focus 31 E-Biz. Telecom 021100, 3/15/2018 DRAFT - For Discussion Purposes Only

Introduction to Web-based business models New business models are already beginning to impact the Introduction to Web-based business models New business models are already beginning to impact the way telecom services are packaged and marketed Web-based Competitive Segmentation e. Retailers LD Beyond LD e. Retailers are Definition facilities based service providers that use the Internet as a sales and delivery channel V-o-IP LD providers Unified Messaging Free ISP’s Markets Revenue Model reseller Aggregators Supply directory Auctions Demand Supply aggregators - consolidate Demand telecom and/or other services on a aggregators portal or other platform. consolidate the needs of Resellers Directories act fragmented usually capture as “neutral markets to retail revenues, navigators” gain complete the allowing buyers purchasing entire to comparison power with transactions on shop, suppliers their web site, customize, and many times evaluate and provide billing purchase and customer products/service care to the end- s on the Web users Household Wireless Small Business Advertising. Commerce revenue. Licensing fees Advertising. Retail revenues Volume/ wholesale discounts Transaction commissions Advertising Bounties/ commissions paid by service providers Advertising Transactions commissions Notice: Pricewaterhouse. Coopers Proprietary Information. Not for use/disclosure outside Pw. C except under written agreement. 32 E-Biz. Telecom 021100, 3/15/2018 Exchanges provide a market mechanism for trading commodity assets online. They work effectively when there are multiple buyers and sellers, the asset is a defined and uniform good and there is market liquidity. Large Business Wholesale Advertising Transactions commissions Subscription fees Traditional Reverse Traditional auctions are seller driven online auction for wide variety of products and quantities Reverse auctions are buyer driven online auctions where there is one buyer and many suppliers Large Business Wholesale Small Business Large Business Advertising Transactions commissions Subscription fees DRAFT - For Discussion Purposes Only

Web-based players Most new telecom e. Marketplace players fall in the Supply Aggregator category Web-based players Most new telecom e. Marketplace players fall in the Supply Aggregator category Communications Industry Web-based Business Models Aggregators e. Retailers • • • • 1 st. Up. com Dialpad. com Deltathree. com e. Voice Fax Sav (Mail. com) Juno Linx Comm. Net 2 Phone. com Net. Zero One. Box. com Phone. free. com Rocket. Talk. com Think. Link U-Reach. com Z-Tel Supply directory reseller • Buy. Telco. com • College. Club. com • Essential. com • Extant • MVX. com • Servi. Sense • Telegea. com • Telstreet. com • Universal Access • Utility. com • • • • Auctions Biz. Buyer • Demandline. com Buyers. Zone • Accompany. Deal. Time. com Decide. com Lowermybills. com • Mercata. com My. Rate. Plan. com My. Simon. com Office. Click. com Onvia. com Point. com Reasonware. com Shop. Now. com Simplexity. com Lets. Talk. com Totally Wireless (e. Phones. com) Notice: Pricewaterhouse. Coopers Proprietary Information. Not for use/disclosure outside Pw. C except under written agreement. Exchanges Demand 33 E-Biz. Telecom 021100, 3/15/2018 • • Traditional Reverse • Bandwidth. com • Band. X Arbinet • Commerce. One • Band-X • Free. Markets Enron • imandi. com Rate. Change • Killerbiz. com • Priceline. com DRAFT - For Discussion Purposes Only

Summary of impact Emerging web-based business models will have varying impact on different sectors Summary of impact Emerging web-based business models will have varying impact on different sectors of the communications industry Communications Industry Web-based Business Models Aggregators Supply e. Retailers • • • Demand Exchanges Traditional Reverse Local Non-complex Businesses • • • directory Local Consumer • • • Complex Businesses reseller Auctions LD LD coming Wireless Internet Access Vertical Services * Bell. South. com LD Wireless Internet Access Vertical Services Bell. South. com LD Wireless Internet Access Wholesale Bell. South. com * Note: Harvey ball refers to Entertainment services, not Vertical services Notice: Pricewaterhouse. Coopers Proprietary Information. Not for use/disclosure outside Pw. C except under written agreement. 34 E-Biz. Telecom 021100, 3/15/2018 DRAFT - For Discussion Purposes Only

Summary of strategic alternatives Telco’s should aggressively manage those business models that represent the Summary of strategic alternatives Telco’s should aggressively manage those business models that represent the most opportunity for growth and the largest threat of disintermediation such as supply aggregators, both resellers and directories Summary of Strategic Direction Fight Ignore Join Support Buy Stake/ Acquire Create High Business Impact Low Notice: Pricewaterhouse. Coopers Proprietary Information. Not for use/disclosure outside Pw. C except under written agreement. 35 E-Biz. Telecom 021100, 3/15/2018 DRAFT - For Discussion Purposes Only

Notice: Pricewaterhouse. Coopers Proprietary Information. Not for use/disclosure outside Pw. C except under written Notice: Pricewaterhouse. Coopers Proprietary Information. Not for use/disclosure outside Pw. C except under written agreement. 36 E-Biz. Telecom 021100, 3/15/2018 DRAFT - For Discussion Purposes Only