8/7/2019 c2b03fa073d14f999bd8ab5daf24033e

1/23

SHIBA SANKAR BEHERA

RAVENSHAW MANAGEMENT CENTRE, CUTTACK

8/7/2019 c2b03fa073d14f999bd8ab5daf24033e

2/23

Telecom MetamorphosisWilliam Quigley

Managing Director

Clearstone Venture Partners

Emerging Telephony Conference

January 24-26, 2006

8/7/2019 c2b03fa073d14f999bd8ab5daf24033e

3/23

Clearstone Venture Partners

Founded in 1997

Great success in Internet,Software, Services

Investing out of 3rd Fund. First

and second funds among topindustry performers

Investment Focus: Wireless, VoIP,Security, Consumer, Biometrics,Service Providers

Excellent limited partners (MIT,CalTech, Univ of California,CALPERS, Goldman Sachs, JPMorgan, Dell, others)

Early investors in: Overture

Paypal

NetZero

Good Technology PeopleSupport

MP3

Citysearch

CarsDirect Meru Networks

Idealab

8/7/2019 c2b03fa073d14f999bd8ab5daf24033e

4/23

A Time of Transition

Telecom service companies are goingthrough a metamorphosis

A whole new set of players areemerging as competitors

After long hiatus, attractive investment

opportunities returning to telecomsector

8/7/2019 c2b03fa073d14f999bd8ab5daf24033e

5/23

Top 5 Global Internet

Market Cap LeadersGoogle + Yahoo + eBay + Yahoo!Japan + Amazon

$ 2B = market value pre 2000 IPO$178B = market value Nasdaq peak

$ 32B = market value Nasdaq trough

$280B = market value 2006

Source: Morgan Stanley

8/7/2019 c2b03fa073d14f999bd8ab5daf24033e

6/23

Why are VCs still

Interested in Telecom?Volatility/uncertainty is a goodthing for investors

10s of $ billions riding on theright answer

So many divergent opinionstoday.

8/7/2019 c2b03fa073d14f999bd8ab5daf24033e

7/23

Only One Quadrant MakesSerious Money

Non

ConsensusView

Consensus

View

Incorrect

Prediction

Correct

Prediction

8/7/2019 c2b03fa073d14f999bd8ab5daf24033e

8/23

Possible Headlines in 2010?

RBOCs dissolve. Cable MSOs runAmericas communicationnetworks

RBOCs and MSOs unite.

Ebay/Skype et.al. control phone

network. End of era for toll calls

8/7/2019 c2b03fa073d14f999bd8ab5daf24033e

9/23

The Contrarian Case

Consumer wireline represents just 20% ofEBITDA (and 10% of FCF)

Wireless EBITDA margin stabilizing at 36%to 38%

Wireless substitution will eventually stabilize at

20% of US homes

Incumbents investing $60B over next 5years

Incumbents are not going away

8/7/2019 c2b03fa073d14f999bd8ab5daf24033e

10/23

Incumbents Choosing to Fight

2005 = 7M

2006 = 18M

2010 = 54M

FTTX Homes Passed

8/7/2019 c2b03fa073d14f999bd8ab5daf24033e

11/23

We Value Companies On CashGenerating Ability

Telecom service sector not overvalued

15 EPS

14.7 FCF

6.5 EBITDA

Yet enormous data, entertainment andmobile services business up for grabs

8/7/2019 c2b03fa073d14f999bd8ab5daf24033e

12/23

Cable Threat Manageable

MSOs Behaving Rationally

Comcast, TWC raising rates

by 3% to 6%

Cable telephony totaled 5million subs end of 2005using non predatory pricing

Cap Ex spending flat

8/7/2019 c2b03fa073d14f999bd8ab5daf24033e

13/23

What Piqued Our

Interest in VoWLAN?Over half of businesses using VOIP by 2006100M + dual mode phones by 2009 at

8/7/2019 c2b03fa073d14f999bd8ab5daf24033e

14/23

Economics of An EarlyVoWLAN Player

We were motivated by the financialmetrics of Spectralink:

VoWLAN pure play

70% gross margins

Trading at 5X revenues 10 year old technologyrequiring $1,000

8/7/2019 c2b03fa073d14f999bd8ab5daf24033e

15/23

$0.11

Wireless Minutes AreSurging

$0.11

$0.10

$0.09

$0.08

$0.07

$0.06

Average Price Per

Minute

AverageM

OU

2003 2004 2005

450

500

550

600

650

700

750

800

850

Average MOU AveragePricePer

Minute

8/7/2019 c2b03fa073d14f999bd8ab5daf24033e

16/23

Most enterprises running convergednetworks in 2 to 5 years

2/3 of all network connections will bemobile by 2009

Fixed mobile convergence underway inAsia

Drivers For VoWLANDeployments

8/7/2019 c2b03fa073d14f999bd8ab5daf24033e

17/23

Asia Adopting VoWLAN

FirstJapan and Korea most aggressive inVoIP mobility deployment

Yahoo BB was the catalyst

Asian enterprise customers willing toaccept first generation product

Osaka Gas was first big deployment:

50 Offices: 10,000+ DoCoMo3G/WLAN phones

8/7/2019 c2b03fa073d14f999bd8ab5daf24033e

18/23

Drivers For FMC +VoWLAN

Deployments86% of employees spend at least one day perweek outside of office

Yet enterprise IP systems do not servemobile employees

35% of mobile calls are inter-office

Yet mobile telecom spending not part of

enterprise communication platform

Enterprises ready for PBX features on mobilephones

8/7/2019 c2b03fa073d14f999bd8ab5daf24033e

19/23

Learnings From Our FMCInvestments

Enterprise rollouts not like initial RIMdeployments

ROI is impressive but not driving thebuying decision

If enterprise committed to VoIP, thenVoWLAN and FMC next logical step

Underestimated need for diagnostics andRF environment visualization tools

8/7/2019 c2b03fa073d14f999bd8ab5daf24033e

20/23

8/7/2019 c2b03fa073d14f999bd8ab5daf24033e

21/23

Applications Drive Value in

The VoIP NetworkSoftware becomes the dominatingfactor for adding value

fertile ground for start-ups

Voice just another appbut QoS

sensitiveEmerging new opportunities likeHosted IP and Managed Services

8/7/2019 c2b03fa073d14f999bd8ab5daf24033e

22/23

A Non Consensus Bet

CBeyond Communications

Performance Highlights

Started in 2001!

All IP based carrier

Delivering voice & mng svs

$160M run rate

70% gross margins

Valued at2X

MarketMultiple

8/7/2019 c2b03fa073d14f999bd8ab5daf24033e

23/23