Sample Business Plan ProSpeed

I I ProSpeed.Net, Inc. I I January, 2000 I | :. J_..r' j --_ __ F--J I I Release 2.3 I i Ira D. Kleiner Prepared by: Colin King I I Business "Opportunities Plan in DSL" I I 164 Westford Tyngsboro, Road MA 01879#I pl P I Tel Fax Email - 978-649-2800 - 978-649-2799 I - offeringOdslzone.net I I I I I I I I Table Of Contents 1.0 Executive S,,u--ary I.I Objectives .... ....... ..... • • 2 3 . 4 5 • S 6 6 7 7 8 8 8 D I a 2.0 1.2 Mission 1.3 Keys to Success Company S1,_m-ry 2.2 2.1 2.3 2.4 Start-up S-_-_ry ....... Company Term Plan ...... Ownership Short ProSpeed Acquires CB8 .... .... I 3.0 I Products and Services ..... 3.1 Our Network ......... 3.2 Data Centers G Collocation .... Customer 3.3 Central Office and Premise 3.4 Product and Service Description 3.5 Competitive Comparison ...... 3.7 3.6 3.8 Technology ...... ........ Sourcing Future Products and Services 3.8.1 Voice Over DSL Analysis S-w-___ry Market Segmentation . . 9 9 9 ii i0 12 13 13 14 16 16 16 17 17 18 I ...... .... I 4.0 Market 4.1 ......... .......... I 4.2 4.2.1 Market Needs ........ Target Market Segment Strategy 4.2.2 Market Trends . . 4.2.3 Market Growth .... Industry 4.3.1 Analysis Competition ....... and Buying Patterns . . . I 4.3 . I 5.0 5.1 Competitive Edge .... Strategy and Implementation Summary ..... 5.2 Marketing Strategy .... 5.2.1 Impact of the Telecommunications 5.2.2 5.2.3 5.2.4 5.3 5.4 Pricing . Promotion Strategy Strategy .... Distribution Strategy ..... Act . 20 20 21 . 22 . 23 24 24 25 25 26 28 28 28 29 I I Sales Strategy ......... 5.2.5 Marketing Programs 5.3.1 Sales Forecast Customer 5.4.2 5.4.1 5.4.3 Support System_ ..... .... ..... I ISP Power ...... Billing ..... HP OpenView & 8NMP .... I ! I ! ! Q I 6 0 Management S---_-ry 6.1 Organisational Structure 6.2 Management Teem . 6.4 6.3 Personnel Management Plan Teem . . . 30 30 . 30 . 32 31 34 I 7.0 I 8.0 Gaps Understanding Risk . Assumptions .... . Financial Plan 8.1 Important 8.3 8.2 8.4 8.5 8.6 Projected Projected Projected Business Long-term 38 38 40 39 41 42 43 I Cash Flow ....... Profit . Balance and Loss ........ Sheet Ratios ....... Plan .......... . I ! ! ! I ! I I 1 ! I ! I I I I I 1.0 Executive Summary thatisestablishing ProSpeed.Netisa a high-speed Competitivecommunicationetwork LocalExchange n Carrier(CLEC)and IntemetServiceProvider ISP) usingDigitalSubscriber Line(DSL) ( technology• DSLusesstandard unshielded copper twistedpairstodeliverbroadband capacityoverthe localloopthereby creatinga high-speed datapipeoverthe"lastmile"of Telecomnetworks. he T companyutarenotlimited a varietyof services Intametaccess,VirtualPrivateNetworking to tocorporate clientsandend users•Theseservices include, intends provide b to:high-speed always-on (VPN) RemoteI.ANServices,t.AN/WAN/MAN, oice-overP Telephony, V I VideoConferencingapabilities nd c a Hosting and Virtualand Physical ollocation. c OffsiteDataStorage• he Company T plansto offera variety additional of servicessuchas Domain The Companyispositioned totakeadvantage oftherapidlygrowing demand dedicated for fast I I in thestatesofMassachusettsnd NewHampshire, ndis inthe process attaining certifiedCLEC a a IntemetAccessandsecureremotenetworking (VPN)environment. Company alicensesin New The of is York, NewJersey,Connecticut, Pennsylvania, MaineandVermont.Thiscertification ermits p the company leaseand/orselllocaland longdistance to services wholesale at ratesas wellas permission whileutilizing to collocate theexistingin thesamepremises BellAtlantic orderto provide itsequipment copperlinesphoneinfrastructure. in as itsDSLservices competitors aredeploying largermetropolitan in (tier1) andmediumsizedcities(tier2). Thereis little 2nd and 3rd Tier iCities.The management larger,wellfundedCLECshavesetuptheir teamhasidentified trendintheindustry a whereas our or nodeploymentn smaller(tier3) cities.The Infrastructure, anditwilltakethemsometimebeforetheystartto showprofits fromtheir investment. 2 andtier 3 cities.We believethiswillmakeusan attractiveacquisition candidate themarket as ProSpeed's strategy be tobuilditsnetwork will outsideofthetier1 cities,andfocusin tier matures. deployment lines,ournetworkwillbe capableof delivering dataat speedsranging overstandard 7.1 MBPS, from128 KBPSto High-Speed,"AlwaysOn" LocalConnections.UsingDSLtechnology telephone butiscurrently onlyoffering speedsupto 1.5 MBPS. enabledfeaturesand applicationso extendthefun_onalityof corporategrowing Productivity-Enhancing Featuresand Applications.We plantoofferacommunications t suiteof and networknetworking resources remote for officesandworkers. e alsoplanto offerhighperformance W Intemet accesssolutions remoteoffices to andworkers,Emailandweb hosting. Low-speed,UnreliableLocalAccess.The current ocalaccessnetworkrepresents l thegreatest bottleneck highperformance to datanetworking.nthevastmajorityof cases,distributed orkers I w and overthetraditional telephone network gainaccessto theircorporate I.ANorthe remotebusiness circuit-switched locations mustrelyonlow-speed, nreliable u to dial-upmodems orISDN connections publicIntemet.Industry sources predict hatthenumber teieworkers t of who spendsomeportion of theirworkdayat homeratherthancompanylocations willgrowtoapproximately million 66 by2002. Industry sources also estimatethatover95%of teleworkers currently gainaccessto theircorporate I.ANorthepublicIntemetthrough dial-upmodems, hichgenerally w provide sub-optimal performance dueto lowspeed,dropped connectionsnd busysignals. ndustry a I sources alsoindicate that88%of businesses with intracompany etworkscurrently dial-upconnectionsorsite-to-site n use f connectivity. The Company's mainstrategy isto targetall size businesses. ProSpeed willfocusonproviding nichemarketthatfallsin tothefollowing categories; commercial ervicein thesecondandthirdtiermarkets(outsideofthe metropolitan s area)andfillthe •The demandforhighspeedaccesstothe Intemet I i I I I i I I I I I •The demandto connectofficesandsatellites. I I I COLLOCATION- The Company developing is severaldatacenterswhichwillsitonthe'edge'ofour network handlesuchtasksas Routing, mail,Web Hosting, an/Wan,VPN, Firewall ndWeb to E M a a natural placeto 'host'otherpeoples' omputers c (andallowtheircomputero sitontheedgeof a high t Caching. hesedatacenterswillbe ourpointofaggregation minimalnvestment T (whereallourhighspeedlinesmeet)and speednetwork).Collocation illrepresent profit enterfor a w a c i (monitoring, backup, andsecurity). OFFSITEDATASTORAGE- The edgeof ournetworkwillalsobe a naturalplaceto offeroffsitedata storage.Utilizing applications likeLanVaultorEVaultwe can createa safe,offsite, utomated a backup ofcritical ata.Itcanalsobe usedto rundistributed atabaseapplications. d d CURRENTPOSITION- The Company in theprocess deploying is of itsfirstserviceinthecityof Lowell,MA. We haveidentified marketof approximately a 4,000businesses thatcityand anticipate in thatitsdirect salesorganization illsellitsservicesto 3% to 5% of thelocalbusinesses, w or approximately 20-200clients, t an averagepriceofachievea positive 1 revenueof $24,000-$40,000. he Companyplans $200 perclientpermonthfora totalmonthly Ta to cashflowoperation fromthis cityin ordertostartitsexpansion 30 citiesin thefirst quarterof 2000.Withadditional to financing or positive cashflowgeneration theCompany willcontinue expandintodifferent reasofNew to a England. Thisbusiness planispreparedin orderto obtain"seed" financing intheamount $5,000,000.This of coverexpenses 30 beginworkonsitepreparation modifications, for to financing required CentralOffice(CO) locationsforthefirst36 monthsof operation. he company is and equipment urchases p T andto expectstoopenadditional Olocations C withinthe$5,000,000budget. he company T expectsto solicit a secondoffering withinan 18monthtimeframeto continue itssaturation intothemarketplace. Currently data centerisbeingconstructed a whichwillhouseourmainPOP site(Pointof Presence), DataAggregation Point(theedgeof ournetwork), eb Servers, ail Servers,and Collocation W M Facilities. roSpeedispartnering P withindustry leaderssuchas ClSCO,Paradyne,BellAtlantic, UUNet,MCl,andAT&T. Additional POPsiteswillbe constructed neededto aggregate as thedataefficiently crossBell a Each remote data center willbe a 600 to 1,000footoffice,stocked with inventory, omputers, c phones, Atlantic Intemetaccessto provide LATA's(billing region).It isalsoneededto supportnstallers i andadministrators inthoseareas. routersand support o thatregion. t are becoming teamhasa goodunderstandinganticipate emerging largerby mergerand acquisition. of thecurrent We creating self-sustainingrowth a market.The largeCLEC's g The management oriented company,whichwillbe eithertakenpublic an IPO,orwill be an attractive via acquisition candidate theDSLmarketmatures as andconsolidates. FUTUREPRODUCTS- The ProSpaedmanagementeamislooking t tothefutureforotherproducts andservicestocomplement ourdelivery service.Products likeMultiple VirtualLines(manydialtones emerging technologies thatwe willaddto ourvenueas we mature. ona singlepairofwires),voiceoverDSL, andcontentdeliverylikepay-par-view, areamong many 1.10bjectivu 1. Sell$7 million serviceby yeartwo(2)of operation. of 2. Salesincreasing morethan$36 million thefifthyear. to by I 3. Bringgrossmargin beckupto above30%, and maintain thatlevel. I I I I I I I I I ! 4. Complete 2nd offering second by haftof 2002.To raise$25 to $50 million formarketpenetration. 5. Buildoutquickly andovera large area,lowering costsof operations increasing and ourprofitability andcompatibility. I I 1.2 Mission I networking become a remote NewEnglandandTd-Stateservice for and workers. e intendto implementhefollowing W t strategies Our goal is solutions leadingoffices to provider f highperformance in o an effortto achieveourgoal: attractive economic performance and deployment characteristicsf We intendto capitalize o BE A MARKETLEADERIN DSLLOCALACCESSNETWORKS. DSLtoofferuserslocalIntemet onthe accessat speedsmanytimesfasterthanconventional dial-upmodemsandwitha favorable performance priceratiorelative existing to to alternatives. High-speed localaccessbandwidth will improve theabilityof customers bandwidth intensive Overtime,we planto offera portfolio value-added to betterutilize of servicesto meetcustomer eeds. applications. n requires lowerinitial nd incremental a capitalinvestment thanmanyothercurrently available local MINIMIZEUPFRONTCAPITALINVESTMENT. We believethattheourDSL network architecture accessarchitectures, suchas cablemodemsandwirelessalternatives.We havedesigned business a modelin whicha significant portionof thecapitaldeployed be directly will linkedto thesuccess of acquiring customers. CREATESTRATEGICPARTNERSHIPSWITH SERVICEPROVIDERS. We intendto develop strategic relationships ServiceProviders orderto accelerate with in thedistributionf ourservice o accessto B wideaudienceof business ChannelPartners,t willminimizeourdirectsalescosts,gain a customers, accelerate p and offerings. ysellingourservicesthrough i subscriber enetration, overtime, speedtheacceptanceof newservices. THEMISSION: clients. To provide corporate clientswithhigh-speed Intemetaccessina network environment corporate to To provide VirtualPrivate Networking betweenomcesandhome. To provide clients withsupport ervicesinthe process IP integration. s of To provide clients withreliable connections intheareasof dataservices,telephony,ntemetservices, I I andmanyothersimilar services. To purchase, ell,lease,own,install,maintain, epair,replace,erect,equipandoperatemachines, s r equipment, structures andotherfacilities necessary ordesirable operate to and maintain these telecommunication services. To buy,hold,ownor leaseanyrealestatenecessary ordesirable forsuchbusiness. I I i I i I ! I I I I I ' I I 1.3 Keys to Success I Real Estate: We needto obtain as many collocationsites as possibleat the earliestpossibletime. Deployment:We needtobuildthenetwork a fastand steadymethodology. in I Marketing: Competitive ricing p andhighvisibility. Service: Dependability ndspeedof connectionsre bothkeyareas. a a Equipment:Builda solidinfrastructure utilizing by enterprise fromkey leaders suchas Compaq, isco,Xylan,Paradyne, nd GeneralDataComm technology C a AT&T, BellAtlantic, nd Lucentn orderto leverage a i ourposition. StrategicAlliances: BecomecloselyalliedwithmajorTelecomforerunners suchas MCI, UUNet, Offer Value-addedproducts: The abilityto add suchservices webhosting, mail,VoiceoverIP, as E etc.toadd valuebeyondplainDSLservice. MISSIONOF SUCCESS ProSpeed's keyto success willbe itscommitment tothecustomer. understand We thatthecustomer isthebusiness, ndthesuccess a ofthebusiness reliesontheloyaltyof thecustomer. ProSpeedwillfocusgreatattention oncustomer ervice,making s itournumber one goal. The managementeamalsounderstands importance illbe paidto its iemployees t of oneasset,and an important ey tosuccess. ttention theorganization itsemployees,ts numberwith recognition k A in the w andfinancial ewardsbasedonsuccess. r KEYAREAS OF SUCCESS Customer ervice/HelpDesk S Competitive riceStructures P ReliableNetwork Employee Relations I i I I I I I I 2.0 Company Summary ProSpeed was incorporated June,1999andwillintroduce in its in ProSpccdisa newlyformedMassachusetts asedcompany. servicecommercially the Lowell, b MA, NashuaandManchester, H areasinthefirstquarterof 2000. N ProSpeed'sFounder:Ira Kleiner,President CEO & ProSpeedis an IntematServiceProvider (ISP) anda CLEC.A Competitive LocalExchange Carder Act of 1996to encourage competition thelocaltelecommunications in industry. LECsareguaranteed C (CLEC)is a newtypeof telecommunications servicecompany with Incumbent ocalExchange authorized bytheTelecommunications accessto localtelephone lineswhichenables themto compete L Carders(ILECs),otherwise known thelocaltelephone as companies. a facilitiesbasedCLEC, As fromthelocaltelephone company. ProSpeed ownsand operates own equipment nddoesnotmerelyresellexisting its a servicesavailable Facilities basedCLECsarewidelyexpectedto revolutionize thelocalexchange cardermarketby providing newandinnovative services lowerprices at with moreresponsive customer ervice. s I I i I I I 5 ! I 2.1 Company Ownership I ProSpeedis a privately-held corporation thestateof Massachusetts. C in IraKleiner,Founder,President nd CEO,currently a holds54%of_.he issuedstock,he isalsoan active memberoftheboard. ColinKingjoinsProSpeedasVice President f SalesandMarketing, e is alsotheactingTreasurer. o h Mr.Kinghasbeen working closelywithMr. Kleinertodevelopthebusiness plan,marketing strategy, andinvestor elations. r. Kingcurrently r M holds18%of theissuedstocks, nd isalsoan activemember a oftheboard. ChrisGoldenisbusiness advisor themanagement to team.Mr. GoldencurrenUy olds9%of the h issuedstock.Mr.Goldenisalsothecompany theBreakfast lub(an investment Clerk MortGoulder isan angelinvestor nd memberof andis alsoan activeboardmember. a C club).Mr. Goulder ison oftheco-founders f Sanders o Corporation ndwas secondinchargeoftheDepartment f a o 18%oftheissuedstock. DefensedudngtheNixonera. Mr.Goulder an activeadvisor thecompany is to and currently holds StephenGrossberg a privateinvestor nd currently is a holdsI% ofthe issuedstock, I Thereiscurrently 44% ofthe issuedstock available raiseworkingcapital. he management to T team wishesto setaside5% of thestock employee for distributionndtoattractadditionalndividualsnto a i o its management teamin thefuture. 2.2 Start-up Summary Currently themanagement teamis deploying itsfirstsitesin Lowell A,Nashuaand Manchester H. M N The equipment asbeenpurchased h forthecompany installitsDSLAMandpreparationsre being to a madeforbetasites.The teamisexpectingthe Siteto be operational byJanuary 2000. Thisplanmeetsthe needof a rolloutovera 2 yearperiod.The company needsto raise$5,000,000of seed moneyto purchase equipment ndstart-upcosts a for30 CentralOfficelocations,nventory, i by venture capitalinvestment. startupfinancing The willbe usedto carryProSpeed through second its personnel, perating o and yearof operation, herea positive w expenses,officeequipment supplies. cashflow isprojected be The start-up to obtained. costsareto befinanced applicationsnd a deposit. a Oncefundingisattained, roSpeedwillsecure P the30 CentralOffice"CO"spacesby submitting I I I I I I I i I I I I I I I I Start-up Plan Start-upExpenses Stationeryetc. Legal Brochures Consultants Relocation Insurance OfficeEquipment Total Start-upExpense NetworkingEquipment Start-up AssetsNeeded I Total Requirements Cash Short-termAssets Total Assets To_,l Start-up Requirements: Left to finance: Start-up Funding Plan Lossat Start-up I Total Capital and Liabilities Total Capital Checkline 2.3 Short Term Plan ProSpeed's Managementeamhasdeveloped t thefollowing shorttermplan: 1. Bringour1stsiteonline(betasite) 3. Saturate marketpotentialnthesecities i 2. Rollout30 CentralOffices(CO) 4. Establish ourbusiness infrastructure 5. Createmarketing planandexecuteit I 7. Raiseadditional support funds 6. Developsystems 8. Identifydeployment trategy 2ndand 3rdtiercities s of 2.4 ProSpeed Acquires CBS In November f 1999,theboardofdirectors o agreedto purchase Complete Business Systems (CBS) i provided byCBSwillcomplement andenhanceProSpeed's value. Further, heacquisition t provides fromitsfounder Kleiner. hisdecision Ira T was basedonthe beliefthattheexpertise andservices an immediate cashflow,echnical taffandpoolofpotential ustomers. t s c Purchase pdcewas $50,000. 1993.CBScurrently Complete Businessservicesover50 professional Systems (CBS) is a regional accounts thegreaterLowellarea.The revenues Systems in Integration foundedby Mr. Kleinerin firm for CBSfor thefiscalyear 1999areexpectedto be $300,000. CBSCurrently two three parttime technicians, anda parttime bookkeeper. employees fulltimetechnicians, $4,900,000 $4,900,000 $4,900,000 $0 $4,900,000 $4,900,000 $4,900,000 $5,000,000 $5,000,000 $2 000 $10 000 $5 000 $10 000 $15 000 $5 $15 000 $100 000 $38 000 i I I I I ! ! ! ' I I 3.0 Products and Services ProSpeediscreatinga high-speed data network partofitsproduct as package usingDigital I Subscriber butnotlimited Broadband As thisnetworkis implemented, wewillbe offedng services Line(DSL)andothertechnologies. as, to: IntemetAccess,remoteI.ANServices,LANNVAN and such MAN's,Voice-Over-IP Telephony, elecommuting, T VideoConferencing, OffsiteHighSpeedBackup, Collocation andWeb Hosting. ProSpeedcreatesthehighspeedlocalloopto theclientbyleasingDSL-qualified opperlinesfrom c BellAtlanticby leasing itslinesand installing itsownswitching equipmentntheCentralOffice(CO). i Level3and BellAtlantic with majorTelecommunication servicesto complete network. to Backhaul ndBackbone a its The Companyisworking prov;de Companies suchas MCI,UUnet,AT&T, 3.1 Our Network I ProSpeed's networkisdesignedusingquality, nterpdse e andcarderclassswitchesandrouters from companies likeCisco,Paradyne, lcatel,andGeneralDataComm.We willcontinue A toevaluateand identify equipment thatwillenhanceournetworkin and reliability. ProSpeedisimplementingirewall echnology termsof performance F t onitsnetworktoensuresecudty. i I I ProSpeedisimplementingachingtechnology nits networkto improve c o performance. 3.2 Data Centers & Collocation I ProSpeed's thebackbone datacenters willfunction togetontheIntemet) (whereallthedata linesmeetupto be as backhauledto providers a pointofaggregation The firstdatacenterisbeingbuiltat ourmainfacilityinTyngsboro, A.Preparations re beingmade M a to construct thenetworkanddatacenter. Enterprise classequipmentsbeingdeployed i tocreatethenetwork.ProSpeedisconfigudng thedata I centerwiththefollowing technologies: * Cisco7206VXRand2600 Routers * CiscoPIX Firewall * CiscoCacheServer Servers CompaqProliant 6500 ProSpeedpurchases 24x7x365support romits vendors. pecialprovisionsrebeingmade. f S a I The followingSoftwares beingdeployed: are * Linux6.1 forEmailandDNS * WindowsNT &ApacheServerforWeb Hosting andDNS Additional rovisions ustbe madeto complete p m thedatacenters operational acilities f suchas monitoring tools(SNMP,SimpleNetworkMonitodng Protocol), oftwareand hardware s willbe purchasedas neededto complete theinitialcenter. I I ! I I I 8 I I 3.3 Central Office and Customer Premise arrayofproducts and ProSpeedselected theParadyne equipment oritsdependability, f ProSpeedis deployingParadynetechnologyto deliver its DSL technology. Paradyne scalability, nd offersa wide a easeof use. I DSLAMs(A DigitalSubscriber ineAccessMultiplexer) L intends havea presence. he totalcostof installation ercitycan aredeployedineach city,(atthe BellAtlantic CentralOffice(CO)thecompany to T p rangefrom$50k-150Kfortier2 (suburban) ndtier3 (rural)cities(ourtargets). a DSLAMis a network at company centraloffice, hatreceivessignals t from multiple customer igitalSubscriber ine(DSL)connections nd putsthesignals D device,usuallyL a telephone a ona high-speed backbone lineusingmultiplexing techniques. epending D ontheproduct,DSLAMmultiplexers onnect c DSLAMenablesa phonecompany offerbusiness DSLlineswithsomecombination to ofasynchronous orhomesusersthefastestphonelinetechnology transfer mode(ATM),framerelay,or IP networks. (DSL)withthefastestbackbone network technology (ATM) PremiseDevice(CPE)installed Eachcustomerhatpurchases onthepremises. t ourDSL servicewillhavea Paradyne DSLModemorCustomer ProSpeed employ will fullSystems NetworkManagement rotocolSNMP)starting P ( fromthecustomer premiseallthewaythroughNetworkInfrastructure. from itsdatacenterdghtto the customer UtilizingHP Openviewsoftware, twillallow i ProSpeed monitor nd troubleshoot to a system problems premisewithout aving haveto doa truckrollout. h to I 3.4 Product end Service Description ProSpeedwilloffera varietyof serviceswhichwillutilizeDSL to dramatically increase accessspeed Corporate coppertelephone Surf-lutionsorhigh-speed f Intemetaccess;(ii)ProMANSolutions forsecureintrenets overexisting lines.ProSpeed'sinitial roducts nd serviceswillconsist f(i) and p a o extranets; (iii)WorkQHomeSolutions forremoteaccessto corporate applications;iv) Distributed ( StorageSolutions foraccessto corporate softwareandapplications. CORPORATESURF-LUTIONS.TogetherwiththeISP ChannelPartners, roSpccdwillofferIntemet P accessat speedsranging from384 Kbpsto 1.5 Mbps.The Company intends offeritscustomers to a ISDN, thishighbandwidth IntemetSolution isalwayson,significantly reducing latency(theactualtime choiceof speedsdepending of to accessthe services).The onthelengthand quality the copperloop.Unlike ProNetsolution willservecustomers' throughput eedswithscalable n dial-upaccessor bandwidth andto protecttheirsiteswithISPorcampusFirewall. roSpeed's ChannelPartners P ISP will I and Usenet)andconsulting/help deskservicestocreatefullyfun_onal turnkey Intemetsolutions for integratetheProSpeed's Networkwith theirownIntemetservices(e.g.,DNS registration, e-mail,FTP smalland medium business customers. intranets ProMANSOLUTIONS. The ProMANsolution be connected existingpdvatenetworks, andextranets. The Company's ProMANsolutionwillofferdedicated can to networkconnectivity for leveraging theinvestment existing in networkaccessdevicesandrouters.ProMANis designed to provide secureprivatelocalconnectivity nd access theIntemetthrougha securegateway. a to WorkeHome SOLUTIONS. ProSpeedintends toworkwith network and systems integratorso t configure corporate teleworker ccesstothe Intemetandthecorporate a backbone, ndto provide a highhighlyeffectivedistributed etworking, protocol or high-tech n forexample, f professionals suchas speedweb access, -mailandfiletransfer e ("FTP")connectivity. Thissolution corporate willdeliver systems administrators ornetworkmanagers orforgroupsof remote customer erviceagentslocated s in a homeofficesetting.In certaincases,ProSpeedwillworkwith information technology departments corporate applications nProSpeed's oa Network. to integrateapplicationst theteleworker's homedesktop, rin othercases,hosttheend-user's o I I I I I I I I DISTRIBUTEDSTORAGE SOLUTIONS. The DistributedStoragesolution willprovide costeffective, reliableand securedistributed storage content of richdatafiles(e.g.,softwareupgrades, atalogs c and theirdataintensive forremotebusiness customer atabases) d filesonserversthatresidein eachof ProSpeed's locations anddistributed MetroServiceCenters,giving workers. usinesses an store B c usersmore rapidresponse theirrequests to fordownloads reducing by thedistance thedata must travel.In addition, ontention c amonguserssimultaneouslyttempting accessa singlehost a to computer illbe reducedby distributing w theaccessloadamongmultiple hosts,each located a in ProSpeedServiceCenter. I I ADDITIONALPRODUCTS OFFSITEREMOTE BACKUP CACHING FTP WEBHOSTING EMAIL PHYSICALCOLLOCATION VIRTUALCOLLOCCATION FUTUREPRODUCTS MEDIAMALL VOICF_JIP VER DSL O FRAMEOVER DSL PBXOVER DSL 3.5 Competitive Comparison 3.5 Competitive Comparison I I i I I There are Severaloutstanding waysin whichwe willdifferentiate ourselves fromourcompetition. 2. 1. 3. 4. Value-addedservices, eb Hosting, irtualprivateNetworks. V Providedependable,ast IntemetAccessat competitive fW pdcing. QOS (Quality service)24/7 Monitoring, of Web basedHelpDesk. Deployment trategyinto2ndand 3rdtiercities. S i I 6. Verticallyintegrated A 5. Regional ccessprovider ISP. 7. Strategic alliances, CI WorldCom, T&T,etc. M A ProSpeedisa CLECand enjoysinherently bettercost structure thanpotentialocalcompetitors. l ProSpeedwillbe leasingDSL-qualified copperlinesfromBellAtlantic. I I I I I I I I0 I I 3.6 Sourcing The demandfor higherbandwidth iscreating demandforequipmenthatcanchannelhigherand a t up further.Backbone is everdecreasing theirnetworks providers re ramping a withspeedsinthe multi costof transportation andthedemandiscausing hardware gigabitrange.The the manufacturerso t developfasterand morepowerful witches s andhubs. Keyto success ofDSLTechnology isthe interface hardware (modems, slams). he evolving d T discipline willyielda wholenewbreedof equipment, interfaces, nd technology. iscritical hata a It t business partner abletoadaptandexecutenewtechnology thischanging be in market.We have and capability stayabreasttothechanging partner to corporations ourtechnology needsofthemarket. believethatthey havethe history chosenParadyne a becausewe The DSL-qualifiedopperlinesto eachclientsitewillbe leasedfromBellAtlantic CLECwholesale c at I at ourdata centers. rates. We arealsoprovisioning1 clearchanneldrcuitsfromBellAtlantic thepointofaggregation T to forbackbone Internet ervice.ProSpeedwillutilizemultiple s services providersocreatea competitive t ProSpeedhasengaged MCI Worldcom Communications, o Sprint,AT&Tand UUNet,majorproviders placeto purchase bandwidth. Thiswillalsocreateredundancy nournetwork,andreducethe possibility ofcompletesystem failure.We feelthatthecompanies ableto deliver are affordable important actorin thedecision at very competitive f making process ofthecarder. service,in a reliable environment, prices.The location the COwillplayan of ProSpeed willworkwithBellAtlantic source'clearchannel'ocalloopsfromthecentraloffices our to l to I bandwidth points(datacenters).We will be connecting demand. aggregation usingT1 orDS3 loops,depending on 3.7 Technology The mainadvantages arethatitusesexisting telephone infrastructurendthereforeneedsnospecial a widng,iseasyandinexpensive deploy, ndasymmetrical to a versions notinterfere do with existing thusfreeforuse. We see DSLas an appealing, ost-effective ay toofferbroadband c w datatransfer to telephone services.The serviceis also"alwayson"andthe telephone sharesthe bandwidth andis corporate otherend users. and RADSL,HDSL, HDSL2,MVL,VDSL,VDSL2,anda handful ore. Speed,effective distance, Thereare a widerangeof variants thatallworkessentiallyhesameway. Theseinclude and tm ADSL, symmetry thekeydifferences. e willfocusonADSLwhichoffersa maximum 7.5 Mbpsin are W of datatransmissionvera maximum o distance of5 miles. I I I i I ! I I I I I 3.8 Future Products and Services We have identifiedmany potential business application use of technologywhich we can work with our clientsand vendors to create: 1 2 3 4 5 6 7 8 9 10 11 12 13. 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 INTERNET ACCESS CACHING REMOTE LAN SERVICES COMPUTER BACKUP & OFFSITE SECURE STORAGE PBX EXTENTIONS DYNAMIC HOST CONTROL PROTOCOL POWER INTERNET LANNVAN METROPOLITAN AREA NETWORKS (MAN) FIREWALL VIRTUAL PRIVATE NETWORKS DIRECTORY SERVICES VOICE OVER DSL/IP TELEPHONY PSTN GATEWAY VIDEO CONFERENCE IP FAX EXPANDED E-COMMERCE SERVICES VERTICAL APPLICATIONS SOFTWARE DISTRIBUTION RENTAL APPLICATIONS TELE-WORKERS / WORK-AT-HOME LOCAL VOICE LONG DISTANCE VOICE SERVICE LOCAL VOICE SERVICE IP PRINTING TURNKEY INTERNET APPLICATIONS CONTENT DELIVERY STREAMING VIDEO COMMERCIALS PAY-PER-VIEW I I 3.8.1 Voice Over DSL I the ability Voiceand datatrafficovera smallbusiness to servicesto singledigital ubscriberineenablesCLECserviceproviders marketsegments. Combining deliverbundled s andupscaleresidential l Currently DSLserviceproviders sellinghigh-speed are Intemetaccessfor$40 to $200 parmonth, depending ontheamount bandwidth. of ProSpeedwillfocusonproviding integrated voiceand data stream,whileontheupscale servicesoverDSL,looking residential parmonthrevenuestreamintoa $720 per month totuma $200 sidedoubling ourdata revenues witha voicebundle. revenue DSL Architecture: I CompleteDSLbegins witha CPE orcustomer remises p equipment. Thisaccessdevicewillallow smallbusiness upscale or residence theseamless ability connect J-11jacksforthetelephone, ey to R k packetizes voicetrafficandcombines t the trafficoutontothe system,PBXorfauxconnectionss wellasa EthemetportforLANconnection. a itwithdatatraffic, henputs combined Suchequipment DSL.The complete DSLserviceconnects DSLfromthecustomer remises a DSLaccess the p to MultiplexerDSLAM)at thecentralofficeCO. FromtheDSLAM,thevoicetrafficpassestoa voice ( a Class5 switch overa T-1 connection. Similar POTS,theClass5 to to continues passedonto to gateway,wherethepacketized voiceis converted Timedivision switch trafficandgeneratedial multiplexed toneandotherClass5 switch featuressuchas callerID, *69 ringback service,andcallwaiting. his T typeof architecture passesthesevoicefeaturesseamlessiy thetelephones thecustomer to at between n them. theClass5 switch premises- either northetelephones areawarethata broadband connection exists ProSpaed's mainfocusiswhichopportunity isbestfor entedngthisbusiness, trading costwithtime off to market.Currently myriadof buildoutand resaleoptionsthatthebestmostcosteffective a to voiceanddata bundled servicesoverDSLareemerging. e haveidentified deliverintegrated W option for ProSpaedisfocusing onbecoming voiceoverDSLTransportreseller. s ProSpaed a A begins to likeAT&T.Thisstrategy ourDSLserviceswewillpartnerwitha voiceof DSLtransportprovider, willallowProSpeed offervoiceoverDSLservice,without he expenseof to t buildoutandstartto deploy building outthenetwork. e willrenta T-1 datacircuit romthe voiceoverDSLtransportprovider, W f effectively connecting ittotheirgateway and Class5 switch. ProSpaed understands thatinordertowinthesecustomers' trust,it is criticalhatthecustomers t i presented withattractive financial avings s and anexcellent customer erviceexpedence s devoidofthe fingerpointing. roSpeed P foresees thehugemarketopportunities thatwillbe takingthe$3.6 billion I data servicebusiness intoa $36 billion localvoiceservicebusiness. bottomline. a formidable forcein thelocalloopserviceswhileaddingstrong profitmargins Our goalisto be tothe I i 4.0 Market Analysis Summary We believethat a substantial marketopportunityxistsas a resultof theconvergence the following e of factors: The growing demand high-spaed for accesstothe Intemetandcorporate networks. The inherentlimitations ofdial-upmodems a connection datanetworks. as to The needfor companies improve productivityf theirremote to the o officesandworkers. The needfor smalland medium to communication solution fortheirnetworking sizedbusinesses havean integrated requirements. The increasing adoption DSLandwidespread of useof packet-based networks. The 1996Telecommunications creating Act; localphonemarketcompatition. Thesefactorscreatea dualmarketopportunity:newcarderscancreateefficient igh-speed h data, voiceandvideonetworksusingexisting infrastructure, andbusiness customers an betteraddress c theirlocalandwidearea networking needsthrough singlecarder. a I I I 4.1 Market Segmentation homesand businesses. Forexample,with US West'sterritory 40% of homesand businesseswith the Within a given DSL-enabledCentralOffice, DSLis availableanywherebetween40 and 100% of the footprint f a CO with DSLfunctionalityangettheservice; orSBC,it isabout67%. DSL availability o c f is primarily functionof geography a (howfarusersarefromtheCentralOffice)and linequality. Data communications isthefastestgrowing segment fthetelecommunications o industry.ndustry I sources indicate thatdatatrafficisgrowing seventimes fasterthanvoicetraffic,andthatbytheend of 2000 datacommunications willrepresent early77%of enterprise n network traffic.Muchof thegrowth in datatrafficwillbe driven thewidespreadorldlow,ofbandwidth by collaborative adoption-commerce intensive datanetworking applications, suchas intranets, w e anddatawarehousing. The growing useof suchbandwidth-intensive applications iscreatinga number ofchallenges forthe Thesechallenges affecttheentirearchitecture f theexistingtelecommunications o networkandlimit existing PublicSwitched Network(PSTN),public of newinformation datanetworksandprivatenetworks. theabilityof business Telephone leverage usersto optically thebenefits technologies. The Companybelieves thatthekey shortcomings oftoday's networksinclude: INEFFICIENTNETWORKARCHITECTURE. Current networkarchitecture a result regulatory is of restrictions andoutdatednetworkdesign. orexample,priortode-regulation rought boutbythe F b a passage theTelecommunications of Actof 1996,localandlongdistance networks remainedseparate traversing T longdistance r and distinct. hisarchitectureesultsinreachthesamelocaldestination, astingincreasinglyaluable the networkto a number networkinefficiencies, of w including localtrafficoften v widearea backbone bandwidth andreducing overallnetworkreliability andspeed. INCREASINGNETWORKCONGESTION. Networks arebecoming due tothe rapidgrowth datatrafficand the imbalance in incapacitybetween increasinglyongested localandwide c areanetworks. accessbottleneck, throughout i to the Whilehigh-speed otherbottlenecks localaccesstechnologies uchas DSLwillbe deployed helpsolvethelocal s theexistingnetworks, ncluding PSTN,willlikely becomeexposed, akingitnecessary redesign m to theexisting networks. existsin eitherprivateorpublicnetworks. s a result, henuservolumestorage A w exceedsnetwork capacity, LIMITEDDISTRIBUTEDSTORAGECAPACITY. Littleif anydistributed capacitycurrently datatransmission iseitherslowedorinformation lost.Today,eachtimea useraccessesa high is usagecompanydatabaseorwebsite,thedatamusttraverse entirelocalandwidearea network, the wasting capacityand decreasing userperformance. LACK OF AN INTEGRATEDSOLUTION. Today,ServiceProviders endusersareforcedto and networksolution. hisrequires T frequentinteractions ithmanyrepresentatives ithinthe ILECsand w w integrate telecommunications f p to othersuppliers resulting complex,time-c0nsumingrocess vendorsabilityto proactively ina serviceswithofferingsrommultiple limited createa complete and monitor nd managetheoverallperformance fcustomer etworks. a o n ProSpeed plansto marketitsproducts small-and medium-sizedorporationsnd eventually to c a home users. The focuswillbe on5-50 unitbusiness officesandthe high-end homeoffice. I I I i I I I I I I i I I I I I I I I Market Analysis Sales Forcast Worcester, MA Manchester,NH Concord, NH Framingham,MA Newton,MA Waltham, MA Nashua, NH Lowell,MA Tyngsboro,MA Lynn,MA Portsmouth, WelleslyMA NH Lawrence,MA Natick, MA Burlington, A M Lexington,MA Needham. MA Marlboro,MA Haverhill,MA Salem, NH Concord,MA Acton,MA Andover,MA Chelmsford,MA Billerica,MA Derry, NH Woburn/Winchester, A M Bedford,MA Merrimack,NH IP Intergration Web Hosting PhysicalCollocation EMail Voice Other Total 2000 300 224 129 148 180 129 174 142 18 146 62 67 75 79 54 76 72 76 98 58 46 46 65 52 52 60 136 30 44 52 500 20 315 0 0 3,.725 2001 600 448 258 295 359 258 349 284 35 293 125 134 149 159 108 151 144 152 195 116 93 131 93 104 104 120 271 60 88 100 2,500 50 50 200 200 8,776 2002 1350 1008 580 665 808 580 784 638 79 658 281 301 336 357 242 340 324 341 439 260 209 208 294 233 233 270 611 135 197 250 6,000 100 100 1000 1,000 21,211 2003 2100 1568 902 1034 1257 902 1220 993 123 1024 437 469 523 555 376 529 504 530 684 404 324 324 457 363 363 420 950 210 306 350 10000 200 306 2000 2,000 34,707 2003 3000 2240 1289 1477 1795 1289 1743 1418 176 1463 625 670 747 794 538 756 720 758 977 578 464 463 653 519 518 599 1357 300 438 500 20000 500 438 5000 5,000 59,802 I I I I i i I I i t ! I i 1 I | ,, I I 4.2 Target Market Segment Strategy bottlenecks f thepublic 1990and iscommerciallySLequipment, hendeployed eachend of o switched telephone network.available D w at DSLtechnologyemergedin todayto address theperformance standard coppertelephone lines,increases thedatacarrying capacity oftheselinesfromanalog modemspeedsof 56.6 Kbpsand ISDN speedsof 128 Kbpsto DSLspeedsof upto 6 Mbpsdepending DigitalSignalProcessing ofthe copper havemadethedeployment f DSLtechnology n a and ("DSP")algorithms onthe lengthandcondition line.Also,recentadvances semiconductor o in o technology widespread basismoreeconomical, ithequipment w pricesfallingby upto 75%overthelasttwoyears. The Company anticipates thatequipment riceswillcontinue fallasa resultofcontinued p to advances in semiconductor technologiesnd increases equipment a in production volumes. BecauseDSLtechnology reusestheexisting copperplant,it issignificantly lessexpensive todeploy cablemodems, irelessdataandsatellite w data.As a result,a significant portion oftheinvestment a in ona broadscalethanexisting as suchnetworksrequirea comparatively technologies, alternative high-speed digitalcommunication DSLnetworkis success-based, lowerinitial ixed f suchas investment, ndthesubsequent ariableinvestments DSLelectrenics directly a v in are relatedto the I numberofpayingcustomers. Aninitial raftof thespecification as completedin June1998anda finalversionis expectedbefore d w theendof thisyear.The specification willthenbe submitted theInternational to Telecommunications G.litespecification hasa maximum settingbody,forreview.Aimedat consumers,heso-called datathroughput rateof 1.5 Mbpsincoming and 512 Kbpsoutgoing. Union(ITU),an international standards t Ourchoiceoftargetmarketsis simple: offeran alternative ISDNand T-1connections to inthe corporate idealcorporateenvironment be small-to medium-sized environment broadband to and Intemetaccessto high-end homeoffices.To5 to 50 computer identified the officeswith thisend,we have seats,and largerwork(_homeand distributed atasolutions. d I In the nearfuture, e willalsoinvestigatehepossibility f offering w t o to resellercapacityorto improve theirconnections totheIntemet. DSLservices ISPs ineithera users. ProSpeedplansto marketitsproducts small-and medium-sizedndlargecorporations nd home to a a 4.2.1 Market Needs I DSLwillservea broadbaseof customers herever w fiberorfixedwireless areuneconomical or prohibitive.t islesscomplicated I andcostlyto deploy thanotheralternatives, offersbetter and cost/performance characteristics existing to products suchas ISDN ortraditional T-1linesformany customers. W'_hin thismarket,we believethere isroomforprovidershatfocusspecifically DSLandthen t on I provide DSLsolutions othercardersand ISPs. to 4.2.2 Market Trends HIGHSPEED ACCESSdemandforbandwidth becompW(ed will valueoftechnologies We believethatincreasing likeDSL. Bandwidth enablesapplicationsndfeedsthe virtualcircle demand a of bythe for bandwidth. he highbandwidth T DSLofferswillenablehigh-bandwidth-consuming applications for enableunprecedentedpplicationsora massmarket. Thesewillinclude a f interactive multimedia, ideo v a massmarketandwillreleasealso,sincetheamount demand data, bothin termsof timeand of forbandwidth.Thisbandwidth will ondemandandvoice-over-IP. tremendouscostoftransmitting A dollars, illfallsharply, serswilltransmit oredata. w u m I I I I I ! I I I 4.2.3 Market Growth I globe,for manycustomers, SLwillbe thebestwayto servethesecustomers ithbroadband the D access. We expectsignificantdemandgrowthfor DSL. Thereareover700 million w telephone linesacross Demandfor DSLwillbe fueledin largepart bydemand high-speed for Intemetaccess.We expect I ISDN linesincorporate offices wellas highbandwidth thehomeuser. as to DSLto growat nearly70% per.yearthrough 2008. Thereisa demand foralternativeso costlyT1 and t 4.3 Industry Analysis I TILE1 - Requires fullydedicated a circuit. The telephone companies developed DSLtechnologies to overcome thelimitations broadband of technologiesuchasT1 and El. The T1 (1.544Mbps)and E1 s 4,000feet to compensate costof a TllE1 linkismuchhigher than (2.048 Mbps)broadbandforsignalloss.The averagemonthly technologies runovercopperwirebutrequiredigitalrepeaters every3,000to ADSL,whileoffering lessbandwidth. Successful deployment ADSLtechnology ill compete of w headto-headwithTI/E1 services. Cable Modems- Developed bythe largecableoperators provide to customers with Intemetaccess through theTV cablesystem, ablemodems capableof transmitting pto 30 Mbpsovera hybrid c are u systemoffiberopticandcoaxialcables.Due tothe'Serial'or'Bus'technology sedto deploy u Cable Service,performanceallssharplyas subscribersre added. f a Wl_ileADSLprovides dedicated a servicebetween thesubscriber the localcentralofficemodem and plant.Withcablemodems,service customers to forbothdownstream upstream and trafficis via a privateline,cablemodemsprovide dedicated a serviceovera sharedmedium, he theusers t dependent nthenumberof userson anygivensegment ndthe typeof trafficpatternslocalcable o a generate.However,cablemodemupstream trafficwilloftenbe slowerthanADSLupstream trafficdue to contention foravailablebandwidth betweenusersonthesharedmedium. S6-KbpsAnalog Modems- Lastyear,thereweretwocompeting56-Kbpsmodemtechnologies: he t US Robotics whichwasthefirstto market,andtheK56fiex(orK56Plus)developed X2, byMotorola. ISPs generally madea decision installoneortheothertypesof modems viewof futuresoftware to in upgrades.A newstandard, thevg0 standard, asagreeduponin October w 1997 andincorporated bits frombothtechnologies. ISPsare now in theprocess converting of theirmodemstothisstandard but modems bothtypesarestillcommonly of used. Both56-Kbpstechnologiesequirea ofthelinkis r 56Kbpsmodemoneach endof the linkto connect t 56 Kbps.Ifthemodemononeendcompatible not a capableof 56-Kbps operation, r ifeithermodemsensesan analog-to-digital o conversion etweenit b (33.6 Kbpsor lower). andthe remotemodemdudngthetraining sequence, he connection be madeat V.34 speeds t will ISDN - A digitaltelecommunication networkwith a flexibleinfrastructure thatintegrates voice,data, I gainedwidespreadacceptance in c in video,andotherapplications ndservices, as developed a throughreductions installationostsandimprovements easeof w over20yearsago, buthasonlyrecently use.ISDN usestheexisting telephone network,butisbasedonend-to-end digitaltechnology, thus requiring theRBOCsorlocalexchange carders(LECs)to individuallyonfigureandprovision c each ISDN linewithdigitalswitches.ISDN doesnotrequirea modem,butdoesrequirean ISDN adapter to connectto thetelephone line. BRIISDN, thepreferred servicefortelecommuters, provides two64-KbpsB channels forcamjing Therearetwo ISDN services:basicrateinterface data,and a single16-Kbps channel orcarrying(BRI) ISDN and pdmary D f out-of-band signaling rateinterface(PRI) ISDN. (call-setup andtear-down information). twoB channels The can be combined orbonded,to provide 128-Kbpsserviceforremote channels forcarrying data andone64-KbpsD channelPRI ISDN provides signaling. RI ISDN isnormally P accesslogging intotheIntemetorthecorporate office.forout-of-band twenty-three 64-KbpsB usedonlybylargecorporatecustomers nd ISPsbecausethe cost isprohibitive homeuse. a for Compared ISDN,ADSLprovides to greaterbandwidth thanBRIISDN forbothdownstream and I I I i i I I i I i i I I I upstreamdigitaldata while supportingvoice trafficsimultaneouslynd independently datatraffic. a of Currently, onthly m ratesforBRI ISDN serviceare lowerthanADSLrates.However, asedon a b bandwidth thanADSLandiscompetitive ithADSLfor downstream w bandwidth. However, hemonthly t bandwidth ISDN are considerably igher comparison, ADSLisbetterin price/performance. ISDN provides PRI greaterupstream ratesforPRI h thanforADSL;consequently, ADSLislikely displace to PRI ISDN in a number commercial of accounts forshort-haul traffic. 4.3.1 Competition and Buying Patterns ProSpeed willfacecompetition frommanycompetitors ithsignificantlyreaterfinancial esources, w g r I well-establishedrandnames,and large,existing b installed b expectssignificant t competition expectsthelevelofcompetition intensify to inthefuture. he Company T customer ases.Moreover, heCompany fromILECs,traditional newIXCs,CAPs,CLECs,cablemodemserviceproviders, and ISPs and wirelessandsatellite dataserviceproviders. Manyofthesecompetitors re offering a (ormaysoonoffer)technologies ndservicesthatwilldirectly a compete with someor all oftheCompany's serviceofferings. uchtechnologies S include ISDN,DSL, transmissionpeed,reliability fservice,breadth service s o of priceperformance, etwork n include wireless dataand cablemodems.Someofthecompetitive favailability, actorsintheCompany's markets security, aseof accessand use,contentbundling, e customer upport,brandrecognition, s operating experience, apitalavailability nd exclusive c a contracts. The Company believes thatitcompares relationships ithend-users,available pricing discounts, ILECCO access,capitalavailability nd a unfavorablyw withitscompetitors ithregardto,amongotherthings,brandrecognition, w existing exclusive contracts. Substantially llofthe Company's andpotential h willbe ableto g resources a thantheCompany. herecan be noassurance competitors avesubstantially reater T competitors thattheCompany compete effectively itstargetmarkets. in as INCUMBENTLOCALEXCHANGECARRIERS. ILECs,such GTE andhavecircuit-switched wide areaconnectivityromIXCs,haveexisting f metropolitan areanetworksandUSWEST,are leasing local accessnetworks.In addition, ostILECsare establishing m theirownISP businessesnd are presently a commercial SLservicesin certainareas.The Company that ILECshavethepotential conductingD technical nd/ormarkettrialsof DSL-based believes a services.MostILECshaveannounced to quickly overcome manyof theissuesthathavedelayed widespread deployment DSL servicesin the of past;if andwhentheydoso,the ILECswillrepresent trong s competition allof theCompany's in target to deploy DSLservicesrapidly, ndare in a toofferservicefromcentraloffices markets.The ILECshavean establisheda position brandnameintheirserviceareas,possess wherethe sufficient capital Companymaybe unableto securecollocation space. TRADITIONALINTER-EXCHANGECARRIERS,FIBERBASEDCAPS AND andAT&Talready COMBINATIONSOF THE TWO. Longdistancecompanies suchas WoddCom have,orare rapidly acquiring, allof thenetworkfunctionality eededtosupporthigh-spccd, nd-ton e Communications); metropolitanreanetworking a (e.g.,WoridCom's acquisitionf MFS o end networking services. hisfunctionalityncludes T i widearea networking (e.g.,WorldCom andSprint Communications ompany, nc.and Brooks C I FiberProperties, nc.;Qwest/LCI; I andAT&T'sacquisition ofTeleportIntemetServicesanditsannounced merger); istributed TCI d localaccess(e.g., Technologies, Inc.andCompuServe; AT&T'sassociation UUNET withTCG WoridCom's Inc.,ANSCommunications, services(e.g.,WorldCom's alliance withMFS);and basicISP ownership of CERFnet,Inc.;andSprintCommunication's partnership withEarthLink Network,Inc.).Thesecarders havedeployed large scalenetworks, avelargenumbers existing h of business andresidential customers, brandrecognition. provide thesecompanies Forinstance, haveextensive to fiber networksinandenjoystrong areasthat primarily manymetropolitan highspeeddigitalandvoiceelements largecompanies. Thesecompanies coulddeploy highspeedoff-netservicesusingDSLin the ILECsandhaveaccruedcollocation spacesfromwhichtheycouldbeginto offer competitive DSL combination iththeircurrent ibernetworks. heyalso haveinterconnection w f madean announcement May 1998of itsintent createa highT agreements with manyof services.SprintCommunications in to speedend-to-end datanetwork. I I i I I I I I I I I I I i I I I NEW INTER-EXCHANGECARRIERS. Long-haulbackboneproviders,such as Williams, Qwestand Level 3 Communications,inc., are building and managinghigh bandwidth, nationwide IP-basedpacket iSPs to provide gateways tothe public IntemetandbasicISP services (e.g.,Williams/Concentric, technology networks forthewidearea network.Thesesameproviders w IXCIPSINet,Qwest/Supemet,Inc.).Thesecompanies couldextend areacquiring partnering ith theirexisting or networksto include fibermetropolitanrea networksand highspeed,off-natservicesusingDSL,eitheralone,orin a I partnership withothers. CABLE MODEMSERVICEPROVIDERS. Cablemodemserviceproviders suchas @HomeNetworks (andtheirrespective cablepartners) aredeploying high-speed Intemetaccessservicesoverhybrid the Company's services,andWheredeployed,hesenetworksprovide speed.Theyalsooffertheseservicesat lower fibercoaxialcablenetworks. in somecasesatthigher localaccessservicessimilar to pricepoints thantheCompany's services andtargetbothresidential andbusiness customers. hey T achievetheselowerpricepoints partby sharing in thebandwidth available onthecablenetwork I amongmultiple c mayhave a significant end users.Actualorprospectiveablemodemserviceprovider ompetition negative effectontheabilityoftheCompany securecustomersc to andmaycreate downward pressure onthepricestheCompany can chargeforitsservices. WIRELESSAND SATELLITEDATA SERVICEPROVIDERS. Wireless The Company and dataservice providers aredeveloping wirelessandsatellite-based Intemetconnectivity. satellite mayface competition fromterrestrial wirelessservices,including GHzand28 GHzwireless 2 cablesystems (LMDS),and 18 GHzandDistribution ystem(MMDS)andLocalMulti-channel theFCCSystem 38 microwave ystems. orexample, s F is (Multi-channel Multi-point GHz point-to-point S Distribution currently considering newrulesto permit MDS licensees usetheirsystems offertwo-way M to to services,including high-speed data,ratherthansolely provide to one-way videoservices. he FCC T I and Intemetaccess.In addition, ompanies alsorecently auctioned LMDSlicenses allmarketswhichcanbe usedforhigh-speed c in suchasTeligent,Inc.,AdvancedRadioTelecomCorp. dataservices andWinStarCommunications, Inc.holdpoint-to-point point-to-multi-point and microwave licenses to provide fixedwireless servicessuchasvoice,data,Intemetaccessand video.The Company alsomay face competition subsidiary f HughesElectronic orporation), fromsatellite-basedystems. otorola s M C SatelliteSystems,nc.,HughesSpace I I Communications (a o Teledesic, ridium World Communications, Ltd.,Globalstar nd othersareplanning a orare in theprocess building of global i the FCCnetworkswhichcan ofspectrum the5broadband in devicesto provide shortsatellite allocated300 MHz be usedto provide GHzbandforunlicensed voiceanddataservices.In January1997, range,high-speed wirelessdigital ommunications. c These frequencies mustbe sharedwith incumbent userswithout ausinginterference. c Although theallocation designed is tofacilitate thecreation new of forwhat purposes might utilized.what kindof equipment ight it be wireless LANs,it istooearlyto predict m ultimatelybe manufactured and INTERNETSERVICE PROVIDERS. IndependentSPs suchas Concentric I NetworkCorporation and I Mindspring Enterprisesprovide Intemetaccessto residential and HarvardNet, customers, generallyusing theexisting PSTN at ISDN speedsorbelow. omeISPs,suchasbusiness Inc.in Massachusetts, S InterAccessn Illinois i andVittsNetworkin NewHampshire, avebegunoffering h DSL-basedservices. DSLserviceproviders competitivewiththeCompany. To theextenttheCompany notableto partner is withISPsto provide itsservices,ISPscouldbecome OTHERCLECS. Othercompanies haveplansto enterthemarketand offerhigh-speed dataservices I rightto negotiateinterconnection withILECs.Furthermore, 1996ActallowsCLECsto the usinga business strategy similaragreements tothat oftheCompany. he 1996ACtspecificallyrantsCLECsthe T g enterintointerconnection agreements whichare identicaln allrespects thatofthe Company. i to CertainCLECs,including ProSpeedandNorthPoint, havebegunoffering DSL-based accessservices, and othersarelikelyto doso inthefuture. I I I I I I I 5.0 Strategy and Implementation Summary OUR NETWORKSOLUTION HIGH-SPEED,DEDICATEDLOCALACCESS. ProSpeed willconstruct high-speed, a "alwayson" (i.e.,dedicated) ocalaccessnetwork thesecondary l in Boston area usingDSLtechnology ver o I Mbpsupstream-substantially giveusersaccessspeedsof upto 1.5 Mb'ps 56 standard coppertelephone greaterspeedsthana standard Kbps(0.056Mbps)modem. he1.0 linesto downstreamT and Company believes thistechnology illoffersubstantially w greaterpriceperformance ascomparedto conventional networkalternatives. The Networkdesign willmeet therequirementsf broadband, o highlyreliable end-to-end data communications andsolvetheperformance problems today'snetworks. he Company's of T solution will I performance customers privatenetworks. roSpeed's P consists reliability of: offerbusiness anaffordable Networksolution network withtheperformance, andsecurity high of I willbe designed switch WIDEAREATRAFFIC MANAGEMENT. PreSpeed's to trafficwithineachoccupied cityarea,keepinglocaltrafficlocal OPTIMIZEDLOCALANDand route network architecture andsending onlyremotetrafficoverthewide areanetwork, herebyincreasing t overallnetwork capacityand reliability. END-TO-ENDBALANCEDCAPACITY. In orderto provide balanced localandwideareanetworks, ProSpeedplanstoconnectits high-speed localaccessnetworks leasedbackbone to facilities at equivalent orgreaterspeedsto provide uniform throughput. PACKAGEDNETWORKINGSOLUTIONS. ProSpccdbelieves thatits solutions canofferitsChannel Partners and endusersnational,ullyintegrated,ocalandwide areabusiness f l networking and proactive networkmanagemen*, andmonitoring buildstorage withotherCLEC's. to improve w DISTRIBUTEDSTORAGE. The Company capabilities orking plansto capacityin thenetwork networkperformance. hisdistributedtorage T s capacityisdesigned (i) increase to overallnetwork networkvolume onlyonce,thereby performance by sending by placing highusagecontentoverthe widearea losetotheend user;(ii) reduce densecontent,software andapplications network c reducing thenumberoftimesthatdataistransmitted; (iii)increase and overallthroughput byreducing trafficlevelsacross thewidearea network. I I I SECURITY. The ProSpeedNetworkwillbe designed provide to securecommunications onan end-toend basisbyimplementingothIP virtual rivatenetworks b p andATM permanent irtual ircuits v c (PVCs) to ensurea single,securepathamongcustomer ndpoints. e 5.1 Competitive Edge I ProSDeed'scompetitivenessin the bandwidthmarket: 1) CLECStatus I 2) Earlyinthe Market 3) Concentrationn Business o withvalueaddedproducts 4) Reliableserviceand support I I I 1 I 5.2 Marketing Strategy The Company willmarketits ProNetservices aswellas itscomplete suiteofProSpeedcorporate I solutions businesses he directsalesforcewillbe managedbyamarketing to affiliates. tT hrough directsalesforce,augmented regional programs whois a by withvalue addedreseller salesdirector responsibleorleadgeneration f andsalesand marketing efforts ProSpeed.Net ustomers. to c The sales for remoteaccess withinan enterprise. Company The intends expanditsdirect to salesforceinfuture forcedealsdirectly eploymentntoadditionalfficer The Company o andthetelecommunications periods tosupportwiththechiefinformation d i regions. augments managerresponsible itssaleseffortsto its ProNetcustomers through partnerships withvalueadded reseUers, includingystems s integratorshat t The Company intends ProSpeedserviceas partof a completework-et-home to enterintostrategic partnerships withleading telecommunications canoffertheCompany's solution companies, to businesses. including ISP, Computer etailers,Cellularresellers r and Systemintegratorsnwhichthosecompanies i can reselltheCompany's ProLANservicestotheircustomers. he Company T believesthatthese indirectsaleschannelswillenabletheCompany penetrate targetmarketsmorerapidly. to its Businessand ConsumerInternet. Forthe business andconsumerntemetaccessmarkets, he I t ProSpeedwillwholesale itsserviceto ISPsthatcombine Company's the lineswiththeirIntemet accessservicesandresellthecombination totheirexisting and newend-users. he Company use will dedicatedISPchannelsalesandmarketingpersonnelo address t thismarket. T Companyplansonproviding severaltypesofjointmarketing its with marketdevelopment fundsand Marketing The Companyisalsopursuing ISPcustomers arrangements. orexample,the F materials whentheypromote ourProNetsuiteof services. In addition,heCompany t willsupport ts i salesefforts withmarketing efforts thatinclude advertising rograms p through radioandotherpopular corporate WideWeb, attendance tradeshows mailings,elemarketing, at t printmedia,billboards, cableTV. at media,World and presentations industry conferences, i I I I i I I I I I 21 I I 5.2.1 Impact of the Telecommunications Act communicationervices competition iththeILECs.The 1996Act eliminated substantial s in barrierto The passageofthe 1996Actcreateda w legalframework forCLECsto provide a localanaloganddigital entryforCLECsby enabling themto leveragetheexisting infrastructure builtby theILECs,ratherthan constructing competing a infrastructure significant at cost,whichrequired $200 billion a investment by leasecopper linesona lineby linebasis,tocollocate i DSLequipment, n the i ILECsand ILECratepayers. he 1996Actrequires equipment,ncluding T ILECs,amongotherthings,to allowCLECsto ILECs'COsto connect otheselines,to leaseaccessontheILECs'inter-COfiberbackbone linkthe t to CLECs'equipment ndto usetheILECs'ownOSSto placeorders a andaccessthe ILECs'databases. The 1996Actin particular mphasized e of advanced telecommunications theneedforcompatition-driven services,suchastheCompany's innovations DSLservices. inthe deployment Someof theservices offered.by theCompany, articularlyy itswholly-owned Corp.andACI p b ACI GOVERNMENTREGULATIONS Corp.- Virginiasubsidiaries ay be subjectto regulation thefederal,state and/orlocallevels.There m at can be noassurance thatcurrent rfuturefederalorstate regulations legislation o or andthereforehave condition, andabilityto makepayments onits including theNewNotes.In addition, a materialadverseimpact onthe Company's indebtedness, operating business prospects, results,inancing f participation proceedingsetting in s rulesat eitherthefederalor statelevelcouldconsume significant financial nd managerial a resources, ithnoassurance w ofan outcome favorabletotheCompany. FEDERALLEGISLATIONAND REGULATION THE 1996ACT.The 1996ACt,enactedonFebruary8, 1996,substantially eparts d fromprior legislation thetelecommunications in industry byestablishing localexchange competition asa national policythrough andthe preemption oflaws restricting theremoval f stateregulatory competition thelocalexchange bardera in o market. tocompetition thatidentify specific requirements c to The 1996ACtin somesections beforetheCompany isself-executing, butin and its competitorsan proceed implement mostcasesthe FCC mustissueregulations thechangesthe 1996Actprescribes. he outcome T ofthesevarious ongoing FCC rulemaking proceedings rjudicial ppealsofsuchproceedingsouldmaterially o a c affecttheCompany's business onitsindebtedness, including prospects, perating o results, inancial ondition, nditsabilityto makeprincipal ndinterest f theNew Notes. a c a payments The FederalCommunications Commission (FCC)prescribes rulesapplicableo interstate t I communications, rules implementing tcommissions. he1996Telecommunications Act(the"1996Act"),a responsibility including itshareswiththestateregulatory interpreting theACt(the"FCCOrder")were generally encouraging increased to localcompetition. A The 1996Actremoved manyoftheremaining theFCC Order,and overruled FCC'sinitial ules barriers localcompetition, someof itsprovisions, to andthe r federalappealscourtforthe8th Circuitreviewed including somerulesonpricing and nondiscrimination. Thatrulingis itselfto be reviewedbytheU.S. requirementhatformerBellSystemILECscannotprovide t interLATA services the untiltheymeetcertain SupremeCourt.In December,1997 a federalcourtinTexasruledunconstitutional 1996Act's requirements. Thiscouldreducetheincentives thoseILECsto cooperate openingtheirmarketsto of in competition. FCC andotherpartieshaveaskedthe U.S. SupremeCourtto reviewthis ruling.In The ILECsarenotunconstitutional. Thesecontrasting rulings maybe resolved bythe U.S. SupremeCourt May, 1998a federalcourtin Washington, D.C.ruledthat other1996Actlimitations nBellSystem o at somepoint. I I I i I I I I I i I I I I I I I 5.2.2 Pricing Strategy ISP Dialupaccount, e understand w thatthebasicconceptof Intemetas DSLproviderhana typical wt Intemet connectionsare a commodity.Though there are lesschoices a commodity illfollow fora through. s moreproviders A entertheDSLmarket,prices willdrop.We havestudied ourcompetition andwillpriceourserviceat thelowertierto giveusa competitive edge. SERVICE .... ....... . .............. I I I I SPEED .N.. PRICE RANGE ProNet144 144 Kbps $119 24,000 ProNet256...........256 Kbps $159 35,000 ProNet384...........384 Kbps $199 24,000 ProNet1.1............ 1.1 Mbps $350 12,000 ProNet768...........768 Kbps $299 14,000 ProNet1.5............ 1.5 Mbps $399 15,000 I Residential ServicesStarting@ 49.99Month ProNet144. ProSpeed's ProNet144 serviceoperatesat upto 144 Kbpsineachdirection, whichis similar totheperformance ofan ISDN line.Thisservice, hichcanuseexisting w ISDN equipment t the a end-usersite,istargetedatservicesfromtheILECwhen per-minute per month apply.It isalso m fiat comparefavorably ISDN theISDN replacement arketwhereits$90 to usagecharges ratecan the service thatProSpeed offersoncopperlinesthatare eithertoolongto carrytheCompany's higher speedservicesorareservedby DLCsorsimilar equipment where a continuous opperconnection c is notavailablefromtheend-user siteto theCO. ProNet256. Thisserviceprovides uptofourtimestheperformance ISDN at similar lowerprice of or market. points heavily-used to ISDN lines.The Company expectsProNet256 tobe deployed withintheRLAN ProNet384. Thisserviceprovideshreeto sixtimestheperformance f ISDN at similar t o pdcepoints to I I I I heavily-used ISDN lines.The Company expectsProNet384to be deployed withintheRLANmarket. ProNet768. Thisserviceprovides one-halfthebandwidth a T1 datacircuit substantially of at lessthan one-halfof themonthly pricethattheCompany estimates istypicalforT1 service.The targetmarket fortheProNet768 serviceis smallbusinesses suchservice.The servicealsocompetes needing moderate speedaccessto theIntemetbutwho have previously een unable affordthepriceof b to favorably froma price/performance standpoint withtraditionalra_onal T1 and FrameRelayservicesforthese f samecustomers. ProNet1.1. Thisserviceprovides overtwo-thirds thebandwidth a T1 datacircuit t substantially of a Jess thanone-halfofthe monthly pdcethattheCompany estimates istypicalforT1 service.The target havepreviously eenunabletoaffordthepriceof suchservice.The servicealso competes which b favorably marketforthe ProNet1.1 serviceis smallbusinesses needing Tl-level accesstothe Intemet froma price/performance standpoint ith traditional w fractional and FrameRelayservicesfor these T1 samecustomers. ProNet1.5. ProNet1.5 isthe Company's onlyasymmetric service,i.e., withdifferent peedsto and s fromtheend-user. hisserviceis intended T forend-users who consumemorebandwidth thanthey performance anyProNetserviceto streamvideoorothermultimedia of contento end-userlocations. t generateandis especially usefulforaccessing Web sites.The servicealso provides thehighest I i I I I I I I I Backhaul Services I site. These servicesinclude theaggregation ofall region I networkto an a metropolitanreaand end-users enterpriseor ISPcustomer in a ProSpeedprovidestwo Backhaulservicesfrom itsindividual transmissionfthe packetinformation thecustomer na singlehigh-speed o to o line.The services, pricesand suggested maximum aggregation f end-userrafficare asfollows: o t ProSpeed DS1. ProSpeed's DS1 Backhaul erviceis intended thesmallbusiness s for withupto 50 RLANend-users. he serviceoperatesat 1.5 Mbpsandimplements FrameRelayprotocol T a compatible ith mostlow-end w and mid-range routers. ProSpeedDS3.The Company's DS3 backhaul erviceis targeted largeenterprises nd ISPswith s to a upto 1,000end-users. he serviceutilizes ATM protocol T an thatefficiently handles highdata rates the involved andoperatesat upto 45 Mbps. 5.2.3 Promotion Strategy I I I I 5.2.3 Promotion Strategy ProSpeedhasa comprehensivetrategy s whichwillcovera broadmarketing spectrum orderto fulfill in itspromotional strategy. he companywillfocusonthefollowing T arees in orderto buildoutits corporatebranding andsalesdeployments forecast. Advertising, Newspapers, adio,TV, Billboards R Public Relations Campaigns, ressReleases P DirectMail,E-mailCampaigns Informational Seminarsat Hotels,Largecorporation facilities SalesBrochures, Mailers,Flyers,CD presentation disk WorldWideWebsite,Electronic Computer nd Marketing Presentations Cellularaffiliates and letters Resellers, SP, Systems I Integrators, a Telemarketing Programs,n house,Outsourced, I Directsales,Fax Blasting I I i I Additionally, ProSpeedwillbe working closelywith"Paradyne'sCopperPartnership Program" hich w willgreatlyassistProSpeedin identifying revenueopportunities ndisthesecondpartof thefast a forwardInnovation SeriesofHotwiremarketingprograms specifically esigned helpmaximize d to marketopportunities, generaterevenue, nd accelerate a ProSpeed's marketentry. ThisMarketing program centered is aroundtheadvantageofhavingParadynecreatea full set of withProSpeed deployhigh-speed to IntemetaccesswithHotwireproducts. marketing materials whichwillbe usedto attractresellers andcopperowners createa partnership to 5.2A Distribution Strategy I I I ProSpeed's Strategyof partnering iththeseidentified w distributionhannels, y offering c b bundled servicesand CPE modems willassistitin gaining severalsalesandmarketing advantages suchas, multiple salesforces prospecting DSLopportunities, for whileat thesametime takingadvantage for reseller affiliates thatwillseektheirowncustomers forhiddenDSLopportunities. DirectSales,Deliveryof modemsvia UPS G.Litemarketing push,off the shelfcomputersshipping withinternal odems m OfficeSupplystores,Computer ndsystemintegrators a like,RadioShack,CompUSA Strategic alliances with companies I i I I I I 5.2.5 Marketing Programs I Our marketingprogramincludesa wide range of programsincluding; Developcorporateidentityvia logo and message Preparemarketing materialsfor distributionthrough media Identifymedia groupsfor advertising Developand implementweb site Seek out alliancesto strengthenour marketpositions Developa comprehensivemarketing mix 5.3 Sales Strategy VAR (value-added Resallers) channel.ProSpeed's Strategy fordistribution illbe to focusand support w ProSpeed willfocusonthemarketneedforADSL,VolP (VoiceOverIP), VPN, distributed through the ISP's,VAR, Building owners and otherowners PrivateCopper creating partnership selland of by a to install he ProNetDSLsolution potential nd users. t to e 1. We needto sellthecompany, ottheproduct. n 2. We haveto sellourserviceandsupport.The product slikethe razor,andthesupport,service, i I whattheyreallyneed. software services, raining, nd seminars therazorblades. e needto serveourcustomers ith t a are W w I I i I i 5.3.1 Sales Forecast The important lements thesalesforecast reshownin theTotalSalesby MonthinYear I table. e of a The salesincrease about$15 million to totalin thethirdyear. A Priceof$125 was established averagethemixof Business to and Residential sales. I I I I I I I I I | ,5 I I Sales Forecast UnitSales Manchester,NH Worcester,MA Concord,NH Newton,MA Waltham, MA Framingham,MA Nashua, NH Tyngsboro,MA Lowell,MA Lynn,MA Wellesley,MA Lawrence,MA Portsmouth,NH Natick, MA Burlington, A M Lexington,MA Needham, MA Haverhill,MA Salem, NH Marlboro,MA Concord,MA Andover,MA Acton,MA Chelmsford,MA Derry, NH WoburnNVinchester, MA Billerica,MA Bedford,MA Merrimack,NH IP Intergration Web Hosting EMAIL Voice PhysicalCollocation Other Total Unit Sales UnitPrices Worcester,MA Concord,NH Manchester,NH Newton,MA Framingham,MA Waltham, MA Nashua, NH Lowell,MA Lynn,MA Tyngsboro,MA Wellesley,MA Portsmouth,NH Natick,MA Lawrence,MA Burlington, A M Lexington,MA 2000 2,688 3,599 1,547 2,154 1,547 1,772 2,092 211 1,702 1,756 804 897 750 952 645 907 864 1,172 693 909 556 764 555 623 719 1,629 622 360 525 52 500 3,780 0 240 0 38,606 2000 $125.00 $125.00 $125.00 $125.00 $125.00 $125.00 $125.00 $125.00 $125.00 $125.00 $125.00 $125.00 $125.00 $125.00 2001 5377 7199 3093 4309 3094 3544 4183 422 3404 3511 1607 1794 1500 1904 1290 1813 1729 2344 1386 1818 1113 1568 1110 1245 1438 3257 1244 720 1051 100 2,500 7,560 2,400 1,000 2,400 64,027 2001 $125.00 $125.00 $125.00 $125.00 $125.00 $125.00 $125.00 $125.00 $125.00 $125.00 $125.00 $125.00 $125.00 $125.00 $125.00 2002 12098 16197 6960 9695 6961 7974 9412 949 7659 7900 3616 4036 3374 4285 2903 4080 3890 5273 3119 4091 2503 3528 2498 2802 3236 732g 2798 1620 2364 230 6,000 18,000 12,000 2,000 12,000 203,380 2002 $125.00 $125.00 $125.00 $125.00 $125.00 $125.00 $125.00 $125.00 $125.00 $125.00 $125.00 $125.00 $125.00 $125.00 i I i I I I I I I I I i I I I i i 26 I I Needham, MA Haverhill,MA Salem, NH Marlboro,MA Concord,MA Andover,MA Acton,MA Chelmsford,MA Derry, NH WoburnNVinchester, MA Billerica,MA Bedford,MA Merrimack,NH IP Intergration Web Hosting EMAIL Voice PhysicalCollocation Other $125.00 $125.00 $125.00 $125.00 $125.00 $125.00 $125.00 $125.00 $125.00 $125.00 $125.00 $125.00 $895.00 $10.00 $6.00 $0.00 $200.00 $0.00 $125.00 $125.00 $125.00 $125.00 $125.00 $125.00 $125.00 $125.00 $125.00 $125.00 $125.00 $125.00 $895.00 $10.00 $6.00 $100.00 $200.00 $50.00 $125.00 $125.00 $125.00 $125.00 $125.00 $125.00 $125.00 $125.00 $125.00 $125.00 $125.00 $125.00 $895.00 $10.00 $6.00 $150.00 $200.00 $50.00 I I i I i I Worcester,MA Sales Manchester,NH Concord,NH Newton,MA Framingham,MA Waltham,MA Lowell,MA Nashua,NH Tyngsboro,MA Lynn,MA Wellesley,MAH Portsmouth, N Lawrence,MA Burlington, Natick,MA MA Lexington, A M Needham, MA Haverhill,MA Marlboro,MA Salem, NH Andover,MA Concord,MA Acton,MA Chelmsford,MA Derry, NH Billerlca,MA WobumNVinchester, MA Merrimack,NH Bedford,MA IP Intergration Web Hosting EMAIL PhysicalCollocation Voice Total Sales $449,875 $336,000 $193,375 $269,250 $221,500 $193,375 $212 750 $261 500 $26 375 $219 500 $100 500 $93 750 $112 125 $80 000 $119 625 $113 375 $108 000 $146,500 $113,625 $86,625 $98,000 $69,500 $69,375 $77,875 $89,875 $77,750 $203,625 $65,625 $45,000 $46,540 $5,000 $22,680 $48,000 $0 $4,376,470 $899,875 $672,125 $386,625 $538,625 $443 000 $386 750 $425,500 $522 875 $52 750 $438 875 $200 875 $187 500 $224 250 $161 250 $238 000 $226 625 $216 125 $293 000 $227 250 $173 250 $196 000 $139 125 $138 750 $155 625 $179 750 $155 500 $407,125 $131,375 $90,000 $89,500 $25,000 $45,360 $200,000 $240,000 $9,108,235 $2,024,625 $1,512,250 $870,000 $1,211,875 $996,750 $870,125 $957,375 $1,176,500 $118,625 $987,500 $452,000 $421,750 $504,500 $362,875 $535,625 $510,000 $486,250 $659,125 $511,375 $389,875 $441 000 $312,875 $312 250 $350 250 $404 500 $349 750 $916 125 $295 500 $202 500 $205 850 $60 000 $108,000 $400,000 $1,800,000 $21,717,600 I I I I I I I I I i I I 5.4 Customer Support Systems I rapidserviceresponsiveness reducethecostofcustomer upport. integratedtofacilitate and s An setofstandard, CUSTOMERSUPPORTSYSTEMS. The Company'ssystem architectureis designed off-the-shelf systems isusedto support he Company's t business processes. All business i support, sales,ordering, maintenance nd repair,billing, a accountingfunctions,ncluding aredesigned provisioning, anddecision tousea singledatabaserepository, ensuring that everyfunction hasaccurate,up-to-date information. Automation ithinandbetween w processes is enabledthrough useof client/serveroolsandscalableUnix,Linux,andMicrosoft T servers. the t N 5.4.1 Billing The company willprovideallof billing requirements,basisthrough including servicerating,nvoicing, illcreation, i BILLING. Customer billswillbe issuedona monthly theCompany's b systems. internal mailing,lockboxreceipts,remittance processingndtax reporting. urrently management a C the teamis researching foran ISP specific software package whichwillhandleallof ourdailyoperating needs. service, ndhelpdesk. billing, ustomerracking, ccounting, a needsinclude Ourspecific c t a network operations, customer 5.4.2 ISP Power I ProSpeediscurrently installing ISPPower, a billing system,ISP Poweris aimedat helping alloperations serviceproviders.Morethanjust togaincontrol verthe business, o of makebetteruse ISPPoweris designed toautomate and streamline resources, ndgivethetimeneededto focusongrowth.All of ISP Power's a toolsaredesigned help to reduceexpenses, mprove i service,andincreaserevenues being: by Flexible- ISPPower extremely is flexibleandcansupportustaboutanysituation. j Compatible- The leaderwith morelevelsof compatibility thananyotherpackage. I Powerful- ISPPower isvery powerful nd rapidly a performs manycomplex operations. Automated- Multi-level automation designedtoperformtheentirebilling process automatically, from any charging tocollection billing to without humanintervention. Easy-to-Use- Aneasyto useinterface makesISPPowereasyto usefordailyoperation. Expandable- Highly expandable accommodateothcurrent ndfuturetechnologies. to b a ISPPowerhasmanyAdd-Ons expand to systemfeatures makeourbusiness to operations asefficient I allowthemtoworktogether o streamline havea uniqueand highly and responsive s possible.TheseAdd-Ons a t operations making taskseffortless. integrated relationship that Belowisa listof justsomeofthe manyfeatures: I * Automatic generation ofbilling statements e-mailorpostalmail via • Automatic collection creditcard,bankaccount,elephone, ruserdefinedmethod via t o • Automatic suspension latenoticesforpast-due and accounts * Automatic fromAnywhere withWeb-BasedorWindowsInterfaces • ManageAccounts latefeesapplied forpast-due customers • Automatic calculation ofcustomer harges c • Trackresponse a fromadvertising * Task management ndassignment • Trackperformance salespeople of • Easilyimportexisting customersroma textfile f I I I I i I I I i I ! I 28 I I * Dozensof reportsincludingAR Aging and Joumal Detail reports • Anniversarydate billing or user-specificdayof monthbilling cycles • Trackand billfor usage,suchastimeon-line, iskspaceused,andWeb traffic d o • Customer r serviceleveldiscounts Unlimited Numberof ServicePlans • Customer ccount lassesand services a c • E-mailbills(to include periodic usingHTMLcoding) * Defineone timecharges, fixedcharges andperiodic usage-based charges • Customizable printedbillswiththeuse of CrystalReports(notincluded) • Web Interface customer elfaccount anagement for s m • Uniquesecurity tracking levelsforeachemployee * Customer problem and ticketing • Trackfree-loaders ISPPowerautomatically collectsusageinformation, d fromservers. The logfilesarethenautomatically suchastimeonline, iskusage,andwebusage imported.ISPPowerconveniently rejects theIogin IDs forpersons logging intothesystem thatdonothavean activerelatedservice. Example,if user pulledfromthe usagelogand movedto an errordirectory whereyourstaffcantheninvestigatehe is t "Joe"is logging intoyourserver,butdoesnothavean account n ISP Power,theusageinformation i causesofthe invalid Iogin.Thisallowsusto trackand resolveinvalid Iogins prevent to abuseandfreeloaders. ISP Powerisdesigned be a fullcustomer ervicesysteminstead justa simplebilling to s of system. ot N onlydoesISP Powerlogall charges, ayments, ccount nd servicechanges, utit alsoallowsus to p a a b record allphonecalls,e-mail,andothercontactswithourcustomers. Usingthecustomer istory h screenin ISP Power,we caneasilyreviewourcomplete relationship ith ourcustomers nd ensure w a thattheirneedsarebeingmet. ISP Powerautomaticallyalculates c charges forourcustomers ona periodic basisbasedonusage(if I applicable) ndtypesofaccounts cservices forpayment ia e-mailand/orpostalmail,or a and whichthe customers havesubscribed. ncecharges O havebeencalculated, urcustomers an be billed o v payment canbe automaticallyollected c bycreditcardcharge,checking account ithdrawalACH), w ( telephone bill,ora user-defined methodusingtheAutoCollection Add-On. ,5.4.3 HP OpenView & SNMP I provides leading OpenView The industry the ISPorganizationnd networkadministrators olution a standards-basedolutionthat HP a NetworkManagement thetoolsand processes S is they needto take s control f theirnetworking o environment. beginwiththeHP OpenViewNetworkManagement To solutionprovides discovery and mapping theentirenetwork network of so changescanbe instantly identified andnetworkproblems rapidly discovered, correlated,and oftenautomaticallyesolved. r The SimpleNetworkManagement rotocol SNMP)hasbecomethemostwidely-used P ( networkmanagementnformation i butdoesmuchmorethanthat.Italsodefinesa theexchange managementoolfor TCP/IP-basednetworks. NMP defines protocol formatfor representing t S a for of managementnformation i anda frameworkfor organizing distributingystems s intomanaging systems and managedagents.In addition, numberof specific a databasestructures, calledmanagement objects bases(MIBs),havebeendefinedaspart of theSNMPsuite;theseMIBs specifyLANs. forthemostcommon networkmanagement subjects,ncluding i bridges, outers, ndmanaged r a information I I I I i I I I I I I I 8.0 Management Summary ProSpeedwill want to work at ProSpeed becausewehavean environment thatencourages creativity Our managementphilosophyis based on responsibilityand mutualrespect.Peoplewho workat and achievement. teamwillinclude employees, ndera president nd fourmanagers. The 56 u a I I 6.1 Organizational Structure Ourmainmanagement ivisions salesand marketing, ervice,andadministration. d are s Servicehandles service, upport,nstallation, network s i and operations. Administration:President, ice President, FO, Administrationupport V C S I I Sales: Sales,Marketing, urchasing, P Accounting Support: CentralOfficeEngineers, ataCenterEngineers, ata CenterOperators, ostandWeb D D H Master,QualifiedInstallers,P Integrators, ebDesigners, elpDeskand Customer ervice. I W H S 8.2 Management Team ProSpeed consistsof a managementteam wiffi diverseexpertise and backgroundin I I technologyperspectivewith a keen understandingof the Intemet and its potential,unique telecommunications,Internet,and computerscience.CombiningIts expertise and ProSpeed will deliver productsenablingthe promise of Intemet to come true... BroadbandAccess. LocalandWide areanetworking field.Hewas asextensive o background Systems Inc.,President Ira D. Kleiner,President/CEOof ProSpeed, president fCompleteBusiness h intheTelecommunications, of Computernformation I Systems Inc,.andhasbeena Contract nalyst A forover10yearswithFortune 500 companies suchas Marshalls Inc.,T.J. Maxx,HomeGoods,AJ Wrightand Melville. Iracurrently holdsa B.S.& M.S. degreein Informationechnology. T Hisstudies emphasized on Technology while maintaining focusonBusiness, anagement ndAccounting a M a principles. He employees strong a technical ackground telecommunications, b in andIP Telephony. e possesses H highsellingskills, ommunicationkills,including c s theabilityto communicate omplex c concepts. I I I I Dynamic, elfmotivated,ndependent. s i COLINKING,Vice PresidentSales and MarkeUng Mr.Kingcurrently holdsa B.S. degreein SalesandMarketing. r. Kingalsohasfifteenyearsof sales M andmarketingexperience a competitive in telecommunication industry. VicePresident ndCo Founder TalebridgeInternational, a Moscow, ussia1996-1999 R firmforMotorola,Philips and NEC, Nortel,CiscoTelecommunications manufactures. Focusing onthe An International distributionompany. alebridge an authorized customer aseof over300 c in T is v b wireless and Intemetindustry RussiaandtheCIS,Talebridge wireless, oiceanddata distribution hasa clientsand$2.75 million revenuesperyear. in Business Development Manager:Distributed SoftwareDevelopment, Inc.1998- 1999 DSD Inc.isa Client/Server evelopment d company focusing onadvancedBilling andCustomer care ,_olutions fortheIntemet,Wireless,Cable,Telephone industry. DSDofferstum-keysolutions specialized EnterpriseithDSD he managedallof itsinternational for billing systems, ustomer aresystems, c c business electronic activities commerce and Intemetapplications applications, W development worldwide,esulting numerous r in largeinstallation contracts. Vicecompanyisexpecting exponential M and The President: arketingan Sales- ProSpeed.Nat 1999 growth ratebasedonstrong marketforecasts, nd a preparing itselfto be a strong competitorn theNorthEast. i I i I I I ! | I CHRISGOLDEN,Business Development PersonalQualificationsandHistory I Mr. Golden's resumeincludes officer levelexperience inan extensive listoftechnology companies servicing bothdomestic andinternational markets. r. Goldenholdsdegreesin Economics M (BA)and Business Administration (MBA),and haslivedandworkedin EuropeandtheFar East.Hisexpertise management xperience,Mr.Goldenprovides e consulting services Management. addition in and planning includes GeneralManagement, arketing,Finance M and Operations marketing Instrategic his to to various organizations involved themedical echnology, in t mentalhealthservices,andvisualization product markets. I Mostrecently, r.Goldenactingas founder,management M andconsultant,sactively i involved in several echnology t startups. tilizing U theadvantages virtual rganization, ofa o thesesuccessful theTumaroundManagement ssociation, A Association forCorporate Growthandhasheldpostsin the ventureshaveenjoyedthefavorof bothventureandgovemment esearch Who'sWhoWorldwide r funding. e isa memberof H AmericanElectronics Association NewEngland Council nd hasbeenlistedin a as wellasWho'sWho in Industry. Mr.Goldenwillprovide consulting servicesfocused onstrategic planning, financeandmarketing, nd a act as a memberofthe boardof directors. i Establish Goals: thecompanyasa recognized leaderin delivering highspeeddigitalaccessforsmallto medium sizedcompanies NewEngland. in Createan organization hichfocusesondeliveryof reliable w quality products. Provide topqualitycustomer ervice. s I Createaoncustomer atisfaction. a s r organization staffed withcapable,enthusiasticmployees e focused flexible, daptive, esponsive 6.3 Management Team Gaps Additional Staff: The company willhireTechnicalCustomer erviceSupportinvolved theproper S in implementation serviceof theproduct.Together and thestaffrepresents manyyearsof professional experience.Itsconsulting areexpertsin communications, andcustomer ervicealso s retainsprofessionals publicrelations, dvertising, in engineers a marketresearch, inance,lawandaccounting. f The entrepreneurial management teamresponsibleorpreparation this planhasgivenconsiderable f of attention notonlyidentifying to theseproblems butto identifyingffective e solutions them. to MANAGEMENTISSUES: Recognition ofthescopeofthemanagementaskhasencouraged t therecruitment severalhighly of fromassembly managers Directors. hetothebusiness ofthe T full-timeattention composition shallbe the qualified industry Boardof an attentionsolevacancyrequiring andconsulting and experience recruitment ChiefFinancial fficer.Thisposition severalcandidates ofa O has identified assume to responsibilitys soonas fundingissolidified. a ! I I I | I I 8.4 Personnel Plan i head count should increaseto 26 this first year, and capabilitiesto matchour positioning.Ourtotal The PersonnelPlan reflectsthe need to bolsterour to 56 by the third year. Personnel Plan CO Engineer1 DeploymentPersonnel CO Engineer2 CO Engineer3 Data CenterOperator1 Data Center Operator2 Data CenterOperator3 Data Center Operator5 Data Center Operator4 DC Engineer1 DC Engineer2 DC Engineer3 Web Designer1 Web Designer2 QualifiedInstaller2 QualifiedInstaller1 QualifiedInstaller3 QualifiedInstaller4 QualifiedInstaller5 QualifiedInstaller6 QualifiedInstaller7 QualifiedInstaller9 QualifiedInstaller8 SupportSupervisor HostMaster Web Master CustomerService CustomerService Subtotal CustomerService Sales and Marketing I Personnel VP of Sales Sales Associate1 SalesAssociate3 SalesAssociate2 SalesManager Telemarketerl Telemarkete r3 Telemarketer2 Telemarketer4 Telemarketer5 Telemarketer6 Telemarketer7 Telemarketer8 Telemarketerl0 Telemarketer9 SalesSupportStaff Subtotal $60,000 $30,000 $0 $0 $0 $25,000 $10,000 $22,500 $10,000 $0 $0 $0 $0 $0 $0 $0 $157,500 $80,000 $35,000 $30,000 $30,000 $45,000 $25,000 $25,000 $25,000 $25,000 $0 $0 $0 $0 $0 $25,000 $370,000 $100,000 $40,000 $35,000 $35,000 $55,000 $25,000 $25,000 $25,000 $25,000 $25,000 $25,000 $25,000 $25,000 $25,000 $30,000 $545,000 $60,000 2000 $35,000 $0 $36,000 $18,000 $6,000 $0 $0 $60,000 $35,000 $10,000 $0 $0 $37,000 $37,700 $25,600 $12,500 $7,500 $0 $0 $0 $0 $0 $36,000 $30,000 $36,000 $30,000 $512,300 $0 $65,000 2001 $40,000 $40,000 $38,000 $25,000 $25,000 $0 $25,000 $60,000 $42,000 $40,000 $30,000 $15,000 $40,000 $40,000 $35,000 $33,000 $30,000 $0 $0 $0 $42,000 $40,000 $32,000 $38,000 $33,000 $838,000 $0 $75,000 2002 $45,000 $50,000 $40,000 $30,000 $30,000 $25,000 $30,000 $65,000 $45,000 $45,000 $35,000 $30,000 $42,000 $42,000 $36,000 $35,000 $35,000 $35,000 $30 000 $35,000 $45 000 $45 000 $34 $40 000 $35 000 $1,096 000 $27 000 I I I I I I i I I i I I I I I I General and Administrative I VP General President Directorof Technology Controller Other Subtotal $60,000 $84,000 $0 $0 $0 $144,000 $70,000 $105,000 $60,000 $45,000 $0 $280,000 $80,000 $120,000 $70,000 $55,000 $0 $325,000 I I Bookkeeper/Office SupportPersonnelMgr OfficeManager Personel OfficeSupport Subtotal $30,000 $7,000 $16,200 $0 $53,200 $35,000 $40,000 $30,000 $20,000 $125,000 $38,000 $45,000 $33,000 $22,000 $138,000 I i Total Headcount Total Payroll PayrollBurden Total PayrollExpenditures 10 $867,000 $130,050 $997,050 17 $1,613,000 $241,950 $1,854,950 56 $2,104,000 $315,600 $2,419,600 I I I I I I I I I I I I I 7.0 Understanding Risk I RISK as a factor of Implementation.highdegreeofriskbecauseofcertainfactors.Thefollowing Investmentn theCompanyinvolves i a list of riskfactorsisnotintended be exclusive. to Whetherthe actualfinancial erformance p ofthe dependin partonthefactorssetforthbelow,someof whichare eventsoverwhichtheCompanywill will Company, ndconsequenteturntoinvestors a r willreachthelevelsprojected thisMemorandum in havenocontrol. The Company expects that itwillrequirethe entire$5,000,000proceeds fromthe saleof shares ADEQUACYOF FINANCING offeredherebyto marketandselltheproduct ndto continue a Researchand Development.However, therecanbe noassurance thattheproceeds ofthisoffering be sufficient accomplish will to thisresult. NO OPERATINGHISTORY;NO EXPERIENCEOF SERVICEDEPLOYMENT The Company was incorporated February1999andwillintroduce in itsservicecommercially the in As a resulttheCompany hasnooperating history,nohistorical finandaldatauponwhichan Lowell,MAofthe in January its prospects quarterof 2000. evaluationarea Company2000 andin theSecondarymarketareasinthesecond or canbe based. encountered prospectsin an earlystageofdeployment, bycompanies particularly thosein newand rapidly The Company's mustbe considered lightoftherisks,expanses, nd difficulties in a frequently evolving markets.Toaddresstheserisks, heCompany t must,amongotherthings,rapidly expandthe geographic coverageof itsservices; ttractand retaincustomers a withinitsexistingandin new regions; attract,retainandmotivate qualified services;respond persons; ontinue tocompetitive c to upgrade technologies; continue its its developments; commercialize increase awareness theCompany's of to network servicesincorporating suchtechnologies; andeffectively manageitsexpanding oparatJons. Therecan be noassurance thattheCompany willbe successful addressinguchrisks,andfailure in s to doso couldhavea materialadverseeffectontheCompany's business, rospects, p operating results andfinancial ondition. c agreement itha moderatepricing. he company w T plansto introduce itsserviceswith mid-range The Company's practicewith respect o itscorporatecustomers mplementation, servicewouldbe t Aftera successful will pricing comparison itscompetitors. in to initial beto enterintoa yearlyservice i the expanded a largergroupof end-users to andthenrolledouton a broader scale.Presently, he t processofdeploying Company's hasnotcompleteditsinitialphaseofwillbe executed.The the customers, serviceprovided theminimum offering companyhas nocorporate deployment, andis inthe Company willnotreceivereasonable revenue fromcorporatecustomers until nd unless50 to 100 a installations aterialize m thefirstyearof operation inthecityof Lowell.Therecan be noassurance as towhetherorwhentheCompany willobtaincorporate customers eyond evaluationA b u the stage. addition, uchcustomers ouldelectto terminate s c thesearrangements ponshortnotice, ny In continued orongoing failurefor anyreasonof corporate customers ordertheCompany's to services willhavea materialadverseeffectonthe Company's business, rospects, p operating resultsand financialcondition. UNPROVENBUSINESS;NO ASSURANCEOF PROFITABILITY midAugustof 1999in thecityofLowell.The profitpotential f the Company's o modelis The Company hasnoexperience launching services.The Company business available in its serviceswillbe by unproven andmaynotachievebroadcommercial cceptance.Although a approximately fourCorporate clientshaveagreedto BetaSiteand utilize theservices,the expected rateofdeployment fthe o serviceswillprovetoattained.The Company demandforitsserviceswillmaterialize pricing at servicesmaynotbe be viable,whether hasdifficulty predicting hetherthe the pricesitexpects w models forits orwhethercurrent rfuturepricinglevelswill be sustainable.Ifsuchpricing o levelsare notachieved or sustained oriftheCompany's servicesdo notachieveorsustain broadmarketacceptance, he t Company's business, perating o results,andfinancial ondition c willbe materially resultsor adversely affected. Therecan benoassurancethattheCompany willeverachievefavorableoperating profitability. I I I i I I I i I I I I I I CORPORATECLIENT SUBSCRIBERGROWTHRISKS The Company's abilityto achievethenumberofsubscribers itsservices to andgeneratefuture revenues willbe dependent na numberoffactors,manyof whicharebeyondtheCompany's o control. Thesefactorsinclude, mongothers: i) the timingat whichtheCompany aB cancollocate DSLAMs its equipmentnthe Lowell ellAtlantic ( i facilities; ii)thespeedthatitcan leaseand rolloutDSLqualified ( lines;(iii)theabilityof the Company coordinateimelyandeffectivemarketing to t campaigns;iv) the ( installationsequired r toinitiateservicefornewsubscdbers;whichtheCompanycustomer ndthe and (vi)thequalityof can complete a pricessetforthe serviceand itsinstallation; (v)thespeedat technical upportheCompany s t wouldprovide. he Company T believes subscriber rowth g willbe constrained, andwillcontinue be constrained to intheearlyfacesofdeployment becauseof services,and largenumbers subscribers aynotbe willing paya premium m priced a mid-range to equipmentntegration. serviceis currently i The of at premium fortheservice. tomanyotheronline Becauseof theforegoing factors, amongothers, he Company notabletoforecastitsrevenues t is or therateat whichitwilladd newsubscribers ithonlya limited w degreeof accuracy. RISK OF SYSTEMFAILURE The Company's operations dependent ponitsabilityto supportts highly are u i complexnetwork infrastructurendavoiddamagefromfires,earthquakes, a floods,powerlosses, elecommunications t failuresandDSLAMequipmentnstalled thetelephoneisaster r otherunanticipatedroblem the e d p inthe at Company'ssimilar vents. The occurrence a natural officeso i at of couldcauseinterruptions servicesprovidedbytheCompany. RISKS OF TECHNOLOGICALCHANGE The marketsfortheCompany's servicesare characterized rapidtechnological by developments, frequent newproductntroductions, evolving i and industry standards.The emerging natureof these performance, featuresand reliability itsnetwork,Intemetservicesandconsumer of and business products and servicesand theirrapidevolution willrequirethattheCompany continually improve the services, articularly responsetocompetitiveofferings.The Company p in maynotbe successful in responding uickly, osteffectively nd sufficientlyo thesedevelopments. q c a t Theremaybe a timelimited widespread forthe Company's marketopportunity services,andtheCompany may notbe serviceswith in achieving acceptance itsservicesbeforecompetitors of offerproducts successful and speedand performance similaro theCompany's t current fferings.In addition,hewidespread o t otherwise, ouldrequire c substantial expenditures bytheCompanyto modifyoradaptitsnetwork, adoption newIntemetortelecommuting affectthecharacter, iability the cable-based of servicesand could technologies rstandards, SL-besed,Company'sor o products and fundamentally vD of services,eitherofwhichcouldhavea material dverseeffectontheCompany's a business, perating o offeredbytheCompany design thatcouldhave a material dverse a resultsandfinancial ondition.In addition, flawsorotherdefects c may contain newIntemetortelecommuting servicesorenhancements effectontheCompany's business, perating o results, ndfinancial ondition. a c ON INTERCONNECTION AGREEMENTSWITH ILECS AVAILABILITYOF COLLOCATIONSPACE FROMILECS,UNBUNDLEDDSLQUALIFIEDLINES, The companyhasestablished collation a spacewith BellAtlanticforitsfirstdeployment inthe cityof Lowell hichwillbe available w byAprilof 1999, Additionally, itplansto expand theBostonArea. in The Company onILECsto provide theCompany Suchphysical ollocation with collocation f theCompany's o isheavilydependent equipmentn the ILECs'telephone i offices. securespace forphysical c allowstheCompanytoown,install,operate,maintain and upgrade itsownequipment t the ILECs' a applications spacein targetmarkets. itsdeployment, cannotpredict he t telephone forcollocation offices. he Company additional itproceeds The Company itwillsubmit extent T expectsthatas with of collocationgreement pprovals a a ofthe ILECsofitsfuturetargetmarkets.The rejection ofthe Company's applications collocationpacecouldin thefutureresult delaysin orincreased for s in materially adverseeffectonits business, of itsservicesin itstargetmarkets,whichcouldresultin a prospects, operating results,andfinancial ondition. c expensesassociated with thedeployment DEPENDENCEON GROWTHIN DEMANDFORDSL-BASEDSERVICES I The marketsforhighbandwidth VIRTUALPRIVATENETWORKandsmall-andmedium-sized business Intemetaccessare in theearlystagesof development. Sincethese marketsare newand becausecurrentandfuturecompetitors likely introduce are to competing services,itis difficult to predicthe rateat whichthesemarketswillgrow,if at all, orwhetherneworincreased t competition will I I I I I I I I i I I I I | " I I resultin marketsaturation. Becausepacket-based high-speed digital ommunicationervices c s using coppertelephone linesis a relatively newandevolving market,itis difficult predicttsfuturegrowth to i fromvarious suppliers forvariousapplications, noindustry and standard hasbeenbroadly adopted. rateand size.Variousproviders commercialdigitalcommunicationervicesare testing of s products Certaincritical ssuesconcerninghigh-speedseofVIRTUALPRIVATENETWORKandIntemet i u access,including security, reliability, aseandcost of accessandqualityof service, emain e r Company,ncluding i andmayimpactthegrowth suchservices.If themarketsfortheservicesofferedbythe Intemetaccess,failto develop, rowmoreslowly g thananticipated orbecome unresolved of saturated withcompetitors, Company's the business, rospects, p operating results, ndfinancial a condition couldbe materially adversely affected. UNPROVENNETWORKSCALABILITYAND SPEED As the Company's servicesgrow,theabilityof theCompany's DSLnetworks connectandmanagea to substantial numberofonlineend-users hightransmissionpeedsisstillunknown, ndtheCompany at s a facesrisksrelatedto itsability Whilepeakdigital atatransmission peedsacross while to scaleitsnetwork d itsexpectedend-user umbers upto n achieving superior erformance. p s theCompany's DSLnetworksare 1.5 Mbpsdownstream, actualdatatransmissionpeedsovertheCompany's the s technology deployed,hedistancean end-user t islocated fromthetelephone office,theconfiguration networkscouldbe significantlylowerandwilldependona varietyoffactors,including of bridged thetype of DSL of thetelecommunications s linebeingused,theexistence analogloadco,s, the number of taps,thegaugeof thecopper wires,andthepresence and severity interfering of transmissionsn o I achieveand maintain thighest ossible the p digitaltransmissionpeed.The Company's ableto s nearbylines.As a result, herecan be noassurance thattheCompany's networks failureto willbe achieveor maintain high-speed digital ransmissions t wouldsignificantlyeducecustomer nd end-user r a demand forits servicesand havea material dverseeffectonitsbusiness, rospects, a p operating results, ndfinancialcondition. a DIGITALCOMMUNICATIONSIGNALCOMPATIBILITYAND POTENTIALNETWORK INTERFERENCE Certaintechnicalaboratory l testsandfieldexperience interfered indicate thattheDSLtechnology presentin an theCompany andothersareusingmaycauseinterference withandbe with by othersignals ILEC'scopperplant,usually withlinesin closeproximity, whileotherlaboratory testsindicate thatthis I performance theCompany's servicesorrender if theCompanyunable offeritsservicesonselected to equipment oesnotcauseinterference. nterference, present, ouldcausedegradation d of I c of lines.The amount and extentof suchinterference ill dependonthecondition theILEC'scopper w of plantandthenumberanddistributionf DSLand othersignals suchplantand cannotnowbe o in interference issues betweenCLECsandan ILECare stillbeingdeveloped andthereis resolve ascertained. Wheninterference occurs, t isdifficulto detect.Further,the procedures noassurance i t to thattheseprocedures willbe effective. SECURITYRISK INTHE NETWORK measures,he Company's Despite implementation security the of t networksmaybe vulnerable to unauthorizedccess,computer iruses a v andotherdisruptive roblems. orporate p C networksandISPs accidental orintentional actions Intemetusers,current nd formeremployees of a andothers. havein thepastexperienced, mayinthefutureexperience,nterruptions serviceasa resultof and i in Unauthorized accesscouldalsopotentially jeopardize thesecurity confidentialnformation of i storedin thecomputer ystems theCompany's s of customers andsuchcustomers' end-users, hichmightresult w I Company theCompany its customers measures thatare standard withinthe telecommunications in liabilityintendstoimplement ecurity andalsomightdeterpotential ustomers. of to s c Although the industry, swell asnewCompany-developed a securitymeasures,theCompany hasnotyet doneso and therecan be noassurancethattheCompany willimplement uchmeasures a timelymanner s in or to thedegreethatmaybe compatible circumvented. withitsvarious Eliminating customers' computer orthatifandwhen expectations, implemented, suchmeasures willnotbe virusesandalleviating othersecurity problems mayrequireinterruptions, delays,orcessation ofservicetotheCompany's customers nd suchcustomers' a end-users, whichcouldhavea materially adverseeffectonthe Company's prospects, perating o business, results andfinancial ondition. c DEPENDENCEUPON SUPPLIERSAND LIMITEDSOURCESOF SUPPLY The Company reliesand willcontinue relyonoutside to partiesto manufacture networkequipment, its i I I I I I I I such as digitalsubscriberline accessmultiplexors (DSLAMs),customer remiseequipmentCPE) p ( modems,network routing and switching hardware, etworkmanagement oftware, ystems n s s management oftware s anddatabasemanagement oftware. theCompany s As signsadditional service contracts, theCompany believes theremayneedtobe a meetitscontractual ramp-upincommitments. theamount There of manufacturing thirdpartiesin orderfortheCompany significant by to canbe noassurancethatthesemanufacturers illbe abletomeet theCompany's w manufacturing whenand ifneeded.Although theCompany hasidentified altemativesuppliers foreachof these needsin a satisfactorynd timelymanner thesameDSLAMorCPE vendorin multiple a canobtainadditional anufacturers m regions,it technologies ndit isnotconstrained use a to orthattheCompany couldtakea significant period timeto establish of relationships alternative with suppliersforeachof relianceonthird-party anufacturers a r networks. he thesetechnologies ndsubstituteheirtechnologies a m t involves numberofadditional isks, ncluding Company's intothe Company's i T theabsenceof guaranteed capacityand reduced controloverdelivery schedules, uality q assurance, roduction ields p y andcosts.The lossof anyoftheCompany's relationships withthesesuppliers couldhavea materially adverseeffectontheCompany'sbusiness, rospects, p operating results, ndfinancial ondition. a c COMPETITION The marketsforbusiness Intemetservices and virtualprivatenetworksareextremely competitive, nd a theCompany thesemarketsareothercomparative thefuture.The Company's thatcompetition illintensify w in mostdirect competitorsnexpects i localexchange carriers(CLEC),Intemetservice providers, ational ongdistance n l cardersand localexchange carders,wireless serviceproviders, offer)technologies thatwillattempt competeManyofthesecompetitors to withsomeorallof theCompany's high-speed data onlineserviceproviders andcablecompanies. areoffering (ormaysoon service offerings.Suchtechnologies include Integrated ServicesDigitalNetwork(ISDN)and Asymmetric DigitalSubscriber ine(ADSL). In January1998,Compaq L Computer orporation, C Intel providers Microsoft orporation, announced C initiative othertechnology versionofADSL,referred as "ADSLLite," an todevelopa simplified Corporation, companies numerous to and telecommunication thatreducesthecomplexity andexpenseofinstalling IntemetservicesbasedonADSL.Deployment of ASDLwillbe theCompany's firstofferings hichwilltakeadvantage thissimplified w of versionof ADSL. ManyoftheCompany's competitors ndpotential ompetitors a c havesubstantiallyreaterfinancial, g technical nd marketing a resources,argersubscriber l bases,longeroperating histories, greatername recognition moreestablished and relationships ithadvertisers w and content nd application a providers may thantheCompany.Suchcompetitorsandbe ableto undertake marketing Intemet campaigns, adoptmoreaggressive pricing policies devote substantiallymoreextensive developing moreresources to services oronlinecontenthanthe Company. he Company t T maynotbe abletocompetesuccessfully materially adversely affectthe Company's business, p operating facedbytheCompany resultsorfinancial ondition.Further, c againstcurrent rfuturecompetitors, o andcompetitive ressures could as a strategic response changes thecompetitive nvironment, to in e theCompany maymakecertain pricing,serviceor marketing decisions orenterintonewofferings, ergers newventures m or that could havea materially adverseeffectonthe Company's business, perating o results, rfinancial ondition. o c MANAGEMENTOF EXPANDEDOPERATIONS;DEPENDENCEON KEY PERSONNEL The Companymaynotbe ableto successfully anageanyfutureperiods rapidgrowth m of or expansion, hichcouldbe expected placea significant to The strainontheCompany's operating,inancial ndother resources. failureoftheCompany provide managerial, fw a to adequatecustomer serviceorefficient rovisioningf newsubscribers s the Company's p o a serviceofferings scalewould affecttheCompany's o resultsandfinancial ondition. he Company adversely c T is havea materially business, perating adverseeffectonsubscriber rowth g and retention andwouldmatedaUyhighly dependent ponthe efforts itsseniormanagement u of team,andtheCompany's futureperformance willdepend,in part,upontheabilityofseniormanagemento managegrowth t effectively, hichwill w developfurther itsoperating, dministrative, managementnformation andcontrols; iii)to a financial systems ( (ii)to requiretheCompany: i) to implement dditional andaccounting ( a i systems capabilities; maintainclosecoordinationmongengineering, a accounting, finance,marketing, alesand operations; s and (iv)to hireandtrainadditional technical nd marketing a personnel. hereisintensecompetition T for seniormanagement, anyof theCompany'spersonneln theareasofthe Company's technical nd marketing a i The lossof theservicesof senior managementeam orthefailureto activities. t attractand retainadditional eyemployees k couldhavea materially adverseeffectonthe Company's business, operating results, ndfinancial ondition. a c I I I I I i I I I I I I i I I i I I 8.0 Financial Plan I have been devotedto developingthis the expertiseof over a dozen people. Hundredsof man helped The presentedplan was modeledwithconservativelyforecastedplan. The team of peoplewho hours developthis plan included; Ira Kleiner,VP - ProSpeed.Net Systems, reSpeed.Net P ColinKing,President- CompleteBusiness Christopher olden, P & CO0 - MindsetInc. G V KennethBarrett, ccountant-Parametric A Technologies ChrisPanagopilous, Corporation BrianGoguen,CPA President Marathon MarkCurtin,President Transition Automation MikeSong,DavidGreenbergParadyne LarryButhman, arkKoech- - SprintCorporation M Corporation PatnciaHardy,Account ep - BellAtlantic R JamesSweat,President BICNET/AICSISP. EdithDesmond, ccount A GregMaynard,Account Rep-CiscolRecom Rep- Alactel TroyDanvers,Engineer GeneralDataComm HarveyHiscock, ngineer MCI WorldComm E JasonKelly,Account Rep- UUNet DaveTravares- ButlerCommunications ofsources. The planhasbeencarefully studied and edited,baseduponempirical atacollectedfroma widearray d 8.1 Important Assumptions I The financialplandepends onimportant ssumptions, a mostof whichareshownin Table8.1 The key underlying ssumptionsre: a a * We assumea slow-growthconomy, ithout ajorrecession. e w m • We assumeofcoursethatthereareno unforeseen changesin technology makeproducts to immediately bsolete. o • We assumeaccessto equity capitaland financing sufficient maintain to ourfinancial lanas shown p in thetables. I I I I I I I I ! I I General Assumptions 2000 Short-term InterestRate % Lon g-termInterestRate % PaymentDays Estimator Tax Rate % CollectionDays Estimator Expensesin Cash % Sales on Credit% PersonnelBurden% 10.00% 10.00% 30 25.00% 45 0.00% 10.00% 15.00% 2001 10.00% 10.00% 30 25.00% 45 0.00% 10.00% 15.00% 2002 10.00% 10.00% 30 25.00% 45 0.00% 10.00% 15.00% I I I I I 8,2 Projected Profit and Lose The increaseingrossmarginis basedontheinitial ostof deployment c andtheaccelerated salesthat offices willfollowpopulation f central o (CO). Month-by-month assumptionsorprofit nd lossareincluded theappendices. f a in I ! I I Ratio Analysis Profitability Ratios: Gross Margin Net ProfitMargin Returnon Assets Returnon Equity ActivityRatios AR Turnover CollectionDays Inventory Turnover AcctsPayable Turnover Total AssetTurnover Debt Ratios Debt to Net Worth Short-termLiab. to Liab. LiquidityRatios CurrentRatio Quick Ratio NetWorkingCapital InterestCoverage AdditionalRatios Assetsto Sales Debt/Assets CurrentDebt/TotalAssets AcidTest AssetTurnover 2000 65.85% 37.23% 24.28% 24.95% 2000 1.00 183 6.91 6.67 0.65 2000 0.03 1.00 2000 37.09 34.70 $6,529,279 0.00 2000 1.53 3% 3% 32.28 0.65 0.67 2001 44.69% 17.98% 18.34% 20.05% 2001 1.00 270 5.33 6.67 1.02 2001 0.09 1.00 2001 11.75 2002 70.78% 42.50% 50.04% 53.06% 2002 1.00 259 3.85 6.67 1.18 2002 0.06 1.00 2002 17.61 I I I I 9.83 15.85 $8,166,743 $17,397,743 0.00 0.00 2001 0.98 9% 9% 8.63 1.02 1.12 2002 0.85 6% 6% 13.78 1.18 1.25 I I Sales/NetWorth 8.3 Projected Cash Flow I ProSpeedserviceis'prepaid' ythecustomer. b Serviceis provided afterthecustomer aysfor the p periodfor theservicesselected. e expectmorethen 50%of ourcustomers W willpayby creditcard, software whichwill'suspend'inourbankwithin24 hoursof brought pto date. t i u whichmeansthecashwillbethe serviceuntil he account s theinvoicedate.ProSpeedwillemploy The very natureof ourbusiness thatas we expandourclientbase,cashflowincreases is I I exponentially ith eachnewcustomer. w Thereare many'unforeseen' variables ourindustry, sthetechnologyhanges,costofequipment in a c changes,aswe engulfmorebandwidth, thecostofoperations willgetcheaper,aswe getbigger, e w can do moreforless.Thiswillcauseusto reevaluate p W understand thatthechanging globalmarketimpacts ourfinancial lanin lessthan12 months. e ourplan.We arecommitted keepontopof the to technology, andthatwillrequireus to keepontopofourforecasts. I I I Pro-Forma Cash Flow Net Profit I Plus: Depreciation Change in Accounts Payable CurrentBorrowing (repayment) Increase(decrease)Other Liabilities Long-termBorrowing (repayment) Subtotal CapitalInput Less: Change in Accounts ReceivableInventory Change in Change in Other ShortCapital Expenditure term Assets Dividends Subtotal Net Cash Flow Cash Balance 2000 $1,629,279 $0 $180,920 $0 $0 $0 $1,810,199 $0 2000 $437,647 $432,358 $0 $0 $0 $870,005 $940,194 $5,840,194 2001 $1,637,464 $0 $579,005 $0 $0 $0 $2,216,469 $0 2001 $473,177 $1,025,281 $0 $0 $0 $1,498,457 $718,012 $6,558,206 2002 $9,231,000 $0 $287,782 $0 $0 $0 $9,518,782 $0 2002 $1,260,937 $378,442 $0 $0 $0 $1,639,379 $7,879,404 $14,437,610 I I I I I I ! I I I I I I I I | _° I I 8.4 Projected Balance Sheet troublemeetingourdebtobligations-as longaswe canachieveourspecific objectives. The Projected Balance Sheet is quitesolid,and maybe conservative. donotprojectany real We I I Assets Pro-formaBalanceSheet Starting Balances I Short-term Assets Cash AccountsReceivable Other Short-termAssets Inventory Total Short-termAssets Long-termAssets Capital Assets AccumulatedDepreciation Total Long-termAssets Total Assets Liabilities and Capital AccountsPayable Short-termNotes Other Short-termLiabilities SubtotalShort-term Liabilities Long-termLiabilities $4,900,000 $0 $0 $0 $4,900,000 $0 $0 $0 $4,900,000 2000 $5,840,194 $437,647 $0 $432,358 $6,710,199 $0 $0 $0 $6,710,199 2000 2001 $6,558,206 $910,824 $0 $1,457,639 $8,926,668 $0 $0 $0 $8,926,668 2001 $759,926 $0 $0 $759,926 2002 $14,437,610 $2,171,760 $0 $1,836,081 $18,445,451 $0 $0 $0 $18,445,451 2002 $1,047,708 $0 $0 $1,047,708 I I I I $0 $0 $0 $180,920 $0 $0 $180,920 I $0 $0 $0 $0 $4,900,000 $4,900,000 $4,900,000 $4,900,000 $0 $180,920 $0 $1,629,279 $4,900,000 $6,529,279 $6,710,199 $6,529,279 $0 $759,926 $0 $1,637,464 $6,529,279 $8,166,743 $8,926,668 $8,166,743 $0 $1,047,708 $0 $9,231,000 $8,166,743 $17,397,743 $18,445,451 $17,397,743 I Total Liabilities Paid in Capital Earnings Earnings Retained Total Capital Total Liabilities and Capital Net Worth I I I I I I I 8.5 Business Ratios The tablefollows withourmainbusiness ratios. e dointendto improve W grossmargin, ollection c days,and inventory turnover. RatioAnalysis Profitability Ratios: GrossMargin Net ProfitMargin Returnon Assets Returnon Equity Act/v/tyRatios AR Turnover Collection Days Inventory Turnover Ac.cts PayableTurnover Total AssetTurnover DebtRatios Debt to Net Worth Short-termLiab.to Liab. Liquidity Ratios CurrentRatio Quick Ratio Net WorkingCapital InterestCoverage AdditionalRatios Assetsto Sales Debt/Assets CurrentDebt/TotalAssets AcidTest AssetTurnover Sales/NetWorth 2000 65.85% 37,23% 24.28% 24.95% 2000 1.00 183 6.91 6.67 0.65 2000 0.03 1.00 2000 37.09 34.70 $6,529,279 0.00 2000 1,53 3% 3% 32.28 0.65 0.67 2001 44.69% 17.98% 18.34% 20.05% 2001 1.00 270 5.33 6.67 1.02 2001 0.09 1.00 2002 70.78% 42.50% 50,04% 53.06% 2002 1.00 259 3.85 6.67 1.18 2002 0.06 1.00 2001 2002 11.75 17.61 9.83 15.85 $8,166,743 $17,397,743 0.00 0.00 2001 0.98 9% 9% 8.63 1.02 1.12 2002 0.85 6% 6% 13.78 1.18 1.25 42 I I 8.6 Long-term Plan ProSpaed'smanagementeamhasdeveloped t thefollowing longtermstrategy: I 1. Expandbeyond theregionalmarket 2. Expandintootherservices 4. Raiseadditional partnerships expand to ourmarket 3. Createstrategic fundsforexpandedmarkets 5. Identify potential cquisition a targetstoexpandbeyond thetri-state area. I I I I I I I I I I I I I I I