2012 ATLANTIC-ACM Business Connectivity.executive Summary

ATLANTIC n ACM

2012 Business Connectivity

Wireline and Wireless

Report Card

Executive Summary

One Beacon Street, Boston, MA 02108 . Tel 617-720-3700 . Fax 617-720-1077 . www.atlantic-acm.com

ATLANTIC n ACM

The U.S. business market will remain relatively flat over the forecast

period 2010-2017e

ATLANTIC ■ ACM Copyright © 2012 2012 Business Connectivity Report Card 2

$34.1 $35.0 $35.9 $37.0 $38.0 $39.0 $39.9 $40.7

$32.9 $31.7 $30.2 $28.9 $27.7 $26.8 $26.1 $25.5

$0

$10

$20

$30

$40

$50

$60

$70

$80

2010 2011 2012e 2013e 2014e 2015e 2016e 2017e

Business Voice Business Data

Business Market Revenue Forecast 2010-2017e: Voice & Data

Reve

nu

e in

Bil

lio

ns

$67.0 $66.6 $66.1 $65.8 $65.7 $65.8 $66.0 $66.2

Source: U.S. Telecom Wired and Wireless Sizing and Share: 2012-2017, ATLANTIC-ACM, 2012; ATLANTIC-ACM Research and Analysis 2012

• ATLANTIC-ACM expects continued pressures in the business voice market, bringing down revenues at a CAGR (2011-2017e) of 3.5%

– Economic declines and migration away from traditional circuit-switched voice will drive most of the decline

• Business data products are predicted to grow steadily, due to a mix of positive growth rates from IP-based products and negative growth rates from legacy products

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ATLANTIC n ACM

Over the forecast period, VoIP revenues should grow by a CAGR of

17.7%, slightly offsetting drastic declines in domestic and local voice

revenues


$0

$10

$20

$30

$40

2010 2011 2012e 2013e 2014e 2015e 2016e 2017e

VoIP International Voice Domestic LD Voice Local Voice

Business Voice Products Revenue: 2010 – 2017e

Source: U.S. Telecom Wired and Wireless Sizing and Share: 2012-2017, ATLANTIC-ACM, 2012

Reven

ue i

n B

illio

ns

$32.9 $31.7

$30.2 $28.9

$27.7 $26.8 $26.1 $25.5

Note: Domestic LD Voice includes Conferencing

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ATLANTIC n ACM

Business data revenue growth will be driven by IP VPN revenues, which

are expected to climb at a CAGR of 6.4% through 2017


$0

$10

$20

$30

$40

$50

2010 2011 2012e 2013e 2014e 2015e 2016e 2017e

FTTx

Cable Modem

ATM/Frame

DSL

LD Transport

IP Access (DIA)

IP VPN

Local Transport

Business Data Products Revenue: 2010 – 2017e

Source: U.S. Telecom Wired and Wireless Sizing and Share: 2012-2017, ATLANTIC-ACM, 2012

Reve

nu

e in

Bil

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$34.1 $35.0 $35.9

$37.0 $38.0

$39.0 $39.9 $40.7

Note: Transport includes Ethernet, ISDN (PRI) and SONET Ring

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ATLANTIC n ACM

Major factors influencing trends within business telecom services


U.S. Business

Telecom Market

Cautionary economic conditions

in 2012 encourage businesses

to look for cost savings with

enhanced telecom capabilities

Continued migration from

legacy TDM voice services

to VoIP will shrink the

overall size of the voice

market

Cable providers’ ongoing success

in the small business market will

challenge major service providers’

share of the overall business

market

Cloud service adoption and

partnerships in 2012 signal

the success of SaaS and

long-term opportunities in

IaaS and PaaS

1. Technology

Investments for

Cost Savings

2. Increased

Competition

4. Movement to

the Cloud

3. Evolution of

Voice

ATLANTIC n ACM

The Business Connectivity Report analyzes customer opinions

from a range of company segments and business sizes


Small

Businesses

Medium-

Sized

Businesses

Large

Enterprises

Regional Bell Operating Company/Interexchange Carrier

(RBOCs/IXC) AT&T, CenturyLink, Level 3, Sprint, Verizon, Windstream

Competitive Local Exchange Carrier

(CLEC) Cogent, EarthLink, tw telecom, XO

Major Mobile AT&T Mobility, Sprint Wireless, T-Mobile, Verizon Wireless

Cable Cablevision, Comcast,

Time Warner Cable

The RBOCs,

LECs and

nationwide

IXCs provide

connectivity to

businesses of

all sizes

Likewise, the

major nationwide

mobile providers

also serve all size

businesses

CLECs, such as tw

Telecom and XO

focus on the

medium-sized

businesses, including

some smaller

customers

Cable providers

began selling to

small

businesses and

are now moving

up the market

The overbuilds of

fiber provided by

players such as

Fibertech Networks

and Sidera

Networks typically

focus on medium to

large businesses in

heavily populated or

large data

transmission areas Fiber Players

Fibertech Networks and

Sidera Networks

ATLANTIC n ACM

Network Performance continues to be the primary driver of

business telecom purchases


6.56

6.68

6.94

7.40

7.76

7.81

7.97

8.11

8.81

8.91

9.29

6.47

6.57

6.78

7.05

7.53

7.73

7.75

7.98

8.14

8.80

8.96

9.33

0 1 2 3 4 5 6 7 8 9 10

Sales Reps.

Recommendations of Others

Product Portfolios

Brand Reputation

Billing

Provisioning/ Installation

Economic Security of Business

Service Level Agreements (SLAs)

Customer Service Reps.

Price

Network Security

Network Performance

2012 Score

2011 Score

© 2012, ATLANTIC-ACM

Drivers of Purchase • Respondents have been consistent in rating their drivers of business telecom purchases, prioritizing network performance since the first year of this research

• While price rated above network security in 2008, in 2009, network security jumped ahead of price and has rated above it since, reflecting the increasing importance of security in networks

ATLANTIC n ACM

Since the inception of this research, Network Performance has

consistently rated as the top driver of purchase


7.76

7.27

7.36

7.44

7.98

8.29

8.35

8.43

8.57

9.00

7.71

7.72

7.80

7.98

8.03

8.28

5.0 5.5 6.0 6.5 7.0 7.5 8.0 8.5 9.0

Other

XO

Comcast

EarthLink

TWC

tw telecom

Cablevision

Cogent

Sidera Networks

Fibertech Networks

CenturyLink

AT&T

Windstream

Sprint

Verizon

Level 3

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N = 2,945

Q: For each carrier with which you work, please rate your perception of each carrier's network performance based on their network's quality, availability, and uptime

Source: 2012 ATLANTIC-ACM US Business Connectivity Survey

• For at least 4 consecutive years, Network Performance has been the operation for which business customers have perceived the smallest operational difference between CLEC/Cable/Fiber providers and ILEC/IXCs

0%

5%

10%

15%

20%

25%

30%

35%

40%

1 2 3 4 5 6 7 8 9 10

Pe

rce

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ge

of

To

tal R

ati

ng

s

Ratings

ILEC/IXC

CLEC/Cable/Fiber

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ILEC/IXC Ave.: 7.95

CLEC/Cable/Fiber Ave.: 7.89

Network Performance

Network Performance Scores Distribution

ATLANTIC n ACM

7.21

6.65

6.84

6.89

6.89

7.15

7.19

7.53

7.56

7.62

7.71

7.81

7.93

5.0 6.0 7.0 8.0 9.0

Other

AT&T

Verizon

XO

CenturyLink

TWC

Sprint

Earthlink

Level 3

tw telecom

Comcast

Windstream

Cablevision

7.76

7.49

7.52

7.73

7.86

7.86

7.97

7.99

8.07

8.19

8.30

8.31

8.48

5.0 6.0 7.0 8.0 9.0

Other

XO

Comcast

TWC

EarthLink

AT&T

Verizon

CenturyLink

Sprint

Windstream

Level 3

Cablevision

tw telecom

The overall average for voice quality rating average remained flat year-

over-year


Average: 7.96

Overall Voice Quality

Average: 7.12

© 2012, ATLANTIC-ACM © 2012, ATLANTIC-ACM

N = 2,342


N = 2,312


Overall Voice Price Competitiveness

• Overall Voice ratings combine individual scores from the following products: Circuit-Switched Voice, VoIP, and ISDN

ATLANTIC n ACM

AT&T

CenturyLink

Comcast

EarthLink

Level 3

Windstream

Sprint

TWC

tw telecom

Verizon

XO

Other

Cablevision

7.0

8.0

9.0

6.0 7.0 8.0


In 2012, only CenturyLink fell decisively in the Provide Premium

quadrant, as many of the carriers offering above-average quality were

also very price competitive

Overall Voice Quality and Price Competitiveness Correlation


More Price Competitive

Less Price Competitive

High Quality

Low Quality

Product Quality Average: 7.96

Price Competitiveness Average: 7.12

• Cablevision’s position within the Raise the Bar quadrant is illustrative of its high quality and competitively priced Voice services

Provide Premium

Raise the Bar

Shoot for Share Manage Margin

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ATLANTIC n ACM

Between 2011 and 2012, respondents perceived an improvement in the

overall price competitiveness of carriers’ Data product suites


N = 4,232


N = 4,061


• Overall Data ratings combine individual scores from the following products: Ethernet DIA, Legacy DIA, Internet Access, Metro Private Line, Ethernet Private Line, Long Haul Private Line, and IP VPN

7.29

6.53

6.69

6.94

7.03

7.13

7.24

7.38

7.51

7.73

7.76

7.96

7.97

8.24

8.37

8.95

5.0 6.0 7.0 8.0 9.0

Other

AT&T

Verizon

Earthlink

Sprint

Windstream

CenturyLink

XO

Level 3

TWC

tw telecom

Comcast

Sidera Networks

Fibertech Networks

Cablevision

Cogent

7.52

7.21

7.47

7.60

7.65

7.72

7.73

7.85

7.90

8.05

8.21

8.25

8.36

8.53

8.67

8.69

5.0 6.0 7.0 8.0 9.0

Other

Earthlink

Windstream

XO

AT&T

Verizon

Comcast

CenturyLink

TWC

Sprint

Sidera Networks

Level 3

Cogent

tw telecom

Fibertech Networks

Cablevision

Average: 7.85

Overall Data Quality

Average: 7.25

Overall Data Price Competitiveness

© 2012, ATLANTIC-ACM © 2012, ATLANTIC-ACM

ATLANTIC n ACM

AT&T

CenturyLink

Cogent

Comcast

EarthLink

Fibertech

Level 3

Windstream

Sidera

Sprint

TWC

tw telecom

Verizon

XO Other

Cablevision

7.0

8.0

9.0

6.0 7.0 8.0 9.0


The position of high quality and price competitiveness is difficult to

achieve in this competitive market

Overall Data Quality and Price Competitiveness Correlation


More Price Competitive

Less Price Competitive

High Quality

Low Quality

Product Quality Average: 7.85

Price Competitiveness Average: 7.25

Provide Premium

Raise the Bar

Shoot for Share Manage Margin

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• Sprint was the only carrier to rate within the Provide Premium quadrant, reflecting respondents’ dissatisfaction with Sprint’s data products’ pricing strategies

ATLANTIC n ACM


8.15

7.15

7.18

7.89

8.00

8.54

7.19

7.50

7.76

7.32

5.5 6.0 6.5 7.0 7.5 8.0 8.5 9.0

Other Wireless

T-Mobile

AT&T Mobility

Verizon Wireless

Sprint Wireless 2012

2011

Average: 7.59

Wireless Operations Average: 2011 vs. 2012

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N 2011: 3,667; N 2012: 4,272

Source: 2011 ATLANTIC-ACM US Business Connectivity Survey; 2012 ATLANTIC-ACM US Business Connectivity Survey

• Sprint’s 8.5% decline drove it towards the bottom of ratings for Wireless providers in 2012

• Other Wireless became the new top-rated Wireless provider for overall operations average in 2012, after Sprint Wireless was top-rated in 2011

AT&T was the only major Wireless provider to experience marked 2011

to 2012 improvement for overall operations ratings

ATLANTIC n ACM

Growth in cloud adoption among business customers will drive

increased need for high performing, secure networks • By storing an increasing amount of data and company processes in the cloud, company CIOs and CTOs

will need to ensure these precious assets remain secure as they are stored/accessed virtually

• Reflective of this trend, network security has remained among the top-2 drivers of purchase for 3 consecutive years, beating out price competitiveness


0%

10%

20%

30%

40%

50%

Software as a Service

Infrastructure as a Service

Platform as a service

Currently buy and will maintain spending

Currently buy and will grow spending/ Plan to purchase in the future

Cloud Service Purchase/ Planned Purchase


Pe

rce

nt

of

Res

po

nd

en

ts

Cloud Services

7.98

8.14

8.80

8.96

9.33

0 1 2 3 4 5 6 7 8 9 10

SLAs

Customer Service

Price

Network Security

Network Performance

Top-5 Drivers of Purchase: All Respondents


ATLANTIC n ACM

ILEC/IXCs improved year-over-year across all major customer

experience touch points while CLECs were either flat or down

15

-3.4%

-2.4%

-3.0%

-0.5%

-1.1%

-0.4% -0.2%

-0.8%

1.4% 1.1%

2.2%

3.2%

1.4%

2.8%

3.5%

1.4%

-4.0%

-3.0%

-2.0%

-1.0%

0.0%

1.0%

2.0%

3.0%

4.0%

Brand SR: Professional

SR: Proactive

Provisioning Network Billing Cust Serv.: Technical

Skills

Cust Serv.: Professional

CLEC ILEC/IXC

Year-over-Year (2011-12) Change in Customer Experience Touch Points:

ILECs/IXCs vs. CLECs

ATLANTIC ■ ACM Copyright © 2012 2012 Business Connectivity Report Card

• The largest nominal difference in year-over-year change came from sales-reps proactive selling. While CLECs continued to rate above ILECs in 2012, year-over-year improvement from ILECs/IXCs indicate these carriers are working hard to change customer perceptions

© 2012 ATLANTIC-ACM

Ye

ar-

ove

r-Y

ea

r C

han

ge

in

Ave

rag

e (

%)

ATLANTIC n ACM

Despite strong growth in VoIP, declines in Legacy Voice

revenues will drive the business voice market down

16

• xxxxx

$0

$5

$10

$15

$20

$25

$30

$35

2010 2011 2012e 2013e 2014e 2015e 2016e 2017e

$30.4 $28.5

$26.3 $24.3

$22.3 $20.5

$18.7 $17.1

$2.5 $3.2

$3.8 $4.6

$5.5 $6.4

$7.4 $8.4

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Business Voice Revenue 2010-2017e

CAGR (2011-2017) = -3.5%

Legacy Voice*

VoIP

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Share 2010 2011 2012e 2013e 2014e 2015e 2016e 2017e CAGR (11-17e)

VoIP 7.7% 10.0% 12.7% 15.9% 19.7% 23.8% 28.3% 33.0% 17.7%

Legacy Voice 92.3% 90.0% 87.3% 84.1% 80.4% 76.2% 71.7% 67.0% -8.2%

*NOTE: Legacy voice includes circuit-switched local voice, domestic LD voice and international LD voice

Source: 2012 ATLANTIC-ACM U.S. Wired and Wireless Sizing and Share: 2012-2017

ATLANTIC ■ ACM Copyright © 2012 2012 Business Connectivity Report Card

• According to ATLANTIC-ACM, business customers migrating away from traditional telephony solutions to more cost-effective VoIP solutions will translate to a smaller addressable business voice market

ATLANTIC n ACM


For more information please contact:

One Beacon Street, Boston, MA 02108

Tel (617) 720-3700 Fax (617) 720-1077

E-mail: [email protected]

The essence of strategic thinking is to anticipate your competitor's moves in advance. Knowledge of your competitor's reaction, or likely reaction, dramatically improves your ability to choose a strategy that will be successful.

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2012 ATLANTIC-ACM Business Connectivity.executive Summary