Analyzing Competitive Networks

1. Analyzing Competitive Networks Broadband Networking Retreat San Diego, October 23-24, 2000 Michael Richarme, Vice President Decision Analyst, Inc.

2. Session Focus • Evaluating competition • End user perspective • Distinctive competencies • Identifying profitable areas • Switching behavior • Price sensitivity • Research aided decision making 2

3. Decision Analyst overview • 22 year old full service marketing research firm • 65 position CATI telephone center • 1.6 million member Internet panel • 20,000 member High Tech business panel • High volume mail center • 250 employees in Arlington, Texas • About 1/3 of our business in high tech • Clients include a “Who’s Who” of broadband providers (LEC, CLEC, CATV, ISP, etc.) 3

4. Broadband Definitions • Two major categories of Broadband • Cable Modem – shared bandwidth on 2-way CATV systems • DSL – high bandwidth transmission on telco copper wire local loops • Generally 200Kbps in at least one direction • Exclude SDSL, T-1, Fiber from this discussion 4

5. Useful Secondary Data Sources • FCC Report http://www.fcc.gov/Bureaus/Common_Carrier/ News_Releases/2000/nrcc0040.html • Cable DataCom News http://www.cabledatacomnews.com/ • Technology Board http://www.technologyboard.com 5

6. Market Size – end of 1999 • Cable modems – 1.4 million consumers • ADSL – 400,000 consumers • Other includes commercial T-1, fiber connections, and other broadband 6

7. Market Size – mid-2000 • Cable modems – 2.3 million consumers • ADSL – 850,000 consumers • Other – moderately slow growth 7

8. Market Penetration • Cable modems • Cable passes 94% of US households • Networks 52% cable modem capable now • Networks 84% capable in 5 years • ADSL • Doubling of US Internet households in 5 years from 33% to 67% • About 80% of local loops within 18,000 foot distance from telco central office 8

9. Market Penetration - current • Cable modems – about 4-5% of households that have compatible cable systems • ADSL – about 3% of households with dial-up Internet connections 9

10. Growth Rates – near term • Cable Modem – 150% unit growth last year • DSL – 380% unit growth last year • Approximately equal size markets at the end of 2004 • Will each have about 15 million subscribers at the end of 2004 10

11. Key Competitors • CATV • AT&T/Media One, Time Warner, Cox, Charter • Top 5 have about 60% of subscribers • LEC • SBC, Verizon, BellSouth, Qwest/US West • about 80% of ADSL lines • CLEC • about 17% of ADSL lines • Other – wireless, ISPs, IXCs 11

12. Some Consumer Issues • Availability in my area • Pricing • Installation tasks • Firewall/security • Portability • Inflated speed claims • Multiple users 12

13. Measure Issue Importance • “How important or unimportant to you are each of the following factors when selecting a high speed Internet connection? Highly Highly ImportantImportantNeitherUnimportantUnimportant 5 4 3 2 1 13

14. Measure Provider Rating • “How would you rate your high speed service provider on each of the following factors? Very Very GoodGoodNeitherPoorPoor 5 4 3 2 1 14

15. Performance Grid Very Good FAMILY JEWELS Below Expectations 4 Over Spending TABLE STAKES Importance Very Low Very High 2 4 FIX IT REAL FAST ! 2 Very Poor Rating 15

16. Differential Advantages • What highly important things do you do extremely well that no other competitor does? • These tend to cluster into areas of technology, service, price, comfort • Use to build a value proposition to the customer 16

17. Evaluating User Profitability • 80-20 rule • Some segments are much more valuable than others • Pipe or pipe-and-applications • Is $39.95 per month the end goal? 17

18. Customer Value Analysis • Typical broadband customer is worth $20,000 to $50,000 over their lifetime • This is a function of time and dollars • Some customers are more attractive than others 18

19. Customer Value Model • Value = ƒ(Loyalty*Profit) • This is impossible to measure directly • Indirect measure of loyalty is propensity to switch • Indirect measure of profit is revenue (even better is contribution margin) 19

20. Propensity to Switch • Proxy measures (LD Service switching) • Awareness of alternatives • Competitive intensity 20

21. Revenue Projection • Pull a reasonable price out of the air • Price it at the same price as everyone else • Price it to deliver certain returns • Or, price it based on the consumer willingness to pay 21

22. Price Elasticity • A methodology for gauging price • What would be a reasonable price… • What would be the highest price… • What would be the lowest price, without worrying about the quality… • If this was available at a price of $x.xx, how interested would you be in buying… 22

23. Simplifying the Research Stage • Don’t get too caught up in industry subscription numbers • Understand key assumptions of your business model and test them • Stay close to the customer and their (fickle) needs • Stay current 23

24. Session Speaker 24

25. Company Summary Decision Analyst, Inc. is a leading national marketing research firm, serving a number of major U.S. corporations and advertising agencies. The firm is a recipient of the Advertising Research Foundation’s David Ogilvy Award for marketing research excellence, the top honor bestowed in the field of marketing research. The name, Decision Analyst, reflects the company's decision-oriented, analytical corporate philosophy. Decision Analyst, Inc. is a vertically integrated, full-service marketing research firm. Through its National Survey Center (with 65 interviewing positions presently), its National Field Department, and its American Consumer Opinion Online panel with over 1,600,000 members, and large mail-survey systems, the firm conducts national studies on an array of topics, spanning industries from packaged goods to high technology. The firm places great value on hard work, meeting deadlines, and staying within budgets. The focus of Decision Analyst’s energy is decision-oriented, action-oriented marketing research. Research must lead to decisions, to actions, to results. The education and training of our staff reinforce this decision-analytical emphasis. Decision Analyst, Inc. seeks the synergy inherent in combining qualitative and quantitative research techniques, as required by the objectives of each research project. Decision Analyst, Inc. is a corporation chartered in the State of Texas in 1978. The company is totally owned by employees, and most employees own stock in the company. Decision Analyst, Inc. is an active member of the Council of American Survey Research Organizations (CASRO) and subscribes fully to the Code of Quality Standards for Survey Research specified by CASRO. Also, Decision Analyst, Inc. fully subscribes to and supports the survey research quality standards set forth by the Advertising Research Foundation, the American Marketing Association, the Marketing Research Association, and ESOMAR (the European Society for Opinion and Marketing Research). 25

26. Questions and Discussion Decision Analyst, Inc. 604 Avenue H East Arlington, TX 76011 www.decisionanalyst.com 800-ANALYST Michael Richarme mrichar@decisionanalyst.com 26