Analyzing Competitive Networks

Broadband Networking RetreatSan Diego, October 23-24, 2000

Michael Richarme, Vice President Decision Analyst, Inc.

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Session Focus

Evaluating competition End user perspective Distinctive competencies

Identifying profitable areas Switching behavior Price sensitivity

Research aided decision making

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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, TexasAbout 1/3 of our business in high techClients include a “Who’s Who” of broadband providers (LEC, CLEC, CATV, ISP, etc.)

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Broadband Definitions

Two major categories of BroadbandCable Modem – shared bandwidth on 2-way CATV systemsDSL – high bandwidth transmission on telco copper wire local loopsGenerally 200Kbps in at least one directionExclude SDSL, T-1, Fiber from this discussion

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Useful Secondary Data Sources

FCC Reporthttp://www.fcc.gov/Bureaus/Common_Carrier/News_Releases/2000/nrcc0040.html

Cable DataCom Newshttp://www.cabledatacomnews.com/

Technology Boardhttp://www.technologyboard.com

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Market Size – end of 1999

Cable modems – 1.4 million consumersADSL – 400,000 consumersOther includes commercial T-1, fiber connections, and other broadband

Cable Modems

ADSL

Other (T-1, Fiber)

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Market Size – mid-2000

Cable modems – 2.3 million consumersADSL – 850,000 consumersOther – moderately slow growth

Cable Modems

ADSL

Other (T-1, Fiber)

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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

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Market Penetration - current

Cable modems – about 4-5% of households that have compatible cable systemsADSL – about 3% of households with dial-up Internet connections

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Growth Rates – near term

Cable Modem – 150% unit growth last yearDSL – 380% unit growth last yearApproximately equal size markets at the end of 2004Will each have about 15 million subscribers at the end of 2004

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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

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Some Consumer Issues

Availability in my areaPricingInstallation tasksFirewall/securityPortabilityInflated speed claimsMultiple users

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Measure Issue Importance

“How important or unimportant to you are each of the following factors when selecting a high speed Internet connection?

Highly HighlyImportant Important Neither Unimportant

Unimportant5 4 3 2 1

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Measure Provider Rating

“How would you rate your high speed service provider on each of the following factors?

Very VeryGood Good Neither Poor Poor

5 4 3 2 1

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Performance Grid

Importance

Rating

Very Low Very High

Very Good

Very Poor

Below Expectations

Over Spending

TABLE STAKES

FIX IT REAL FAST !

42

2

4

FAMILY JEWELS

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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, comfortUse to build a value proposition to the customer

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Evaluating User Profitability

80-20 rule Some segments are much more

valuable than others

Pipe or pipe-and-applicationsIs $39.95 per month the end goal?

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Customer Value Analysis

Typical broadband customer is worth $20,000 to $50,000 over their lifetimeThis is a function of time and dollarsSome customers are more attractive than others

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Customer Value Model

Value = ƒ(Loyalty*Profit)This is impossible to measure directlyIndirect measure of loyalty is propensity to switchIndirect measure of profit is revenue (even better is contribution margin)

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Propensity to Switch

Proxy measures (LD Service switching)Awareness of alternativesCompetitive intensity

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Revenue Projection

Pull a reasonable price out of the airPrice it at the same price as everyone elsePrice it to deliver certain returnsOr, price it based on the consumer willingness to pay

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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…

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Simplifying the Research Stage

Don’t get too caught up in industry subscription numbersUnderstand key assumptions of your business model and test themStay close to the customer and their (fickle) needsStay current

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Session Speaker

Michael Richarme, Vice President - Client Service, is responsible for leading a

major account team that concentrates on companies working in rapidly changing

and highly competitive markets.

With over 20 years of marketing planning and research experience, Michael has

developed a knowledge base of strategic theory and fundamental tactics that he

applies to client projects. Michael also has significant experience in business

development and international business. He has a keen appreciation for

numbers, but his inherent curiosity always seeks to uncover the underlying story

that the numbers represent.

Michael has both bachelor’s and master’s degrees in marketing from the

University of Texas at Austin, with postgraduate work at the University of

Pennsylvania’s Wharton School of Business. He is currently working on his

Ph.D. in marketing and information systems at the University of Texas at

Arlington.

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Company SummaryDecision 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).

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Questions and Discussion

Decision Analyst, Inc.604 Avenue H East

Arlington, TX 76011www.decisionanalyst.com

800-ANALYST

Michael Richarmemrichar@decisionanalyst.com