HIGHLIGHTS - SeaBoard Group

research RESEARCH& tr &eTRENDSnds An Exciting Year Ahead:

© SeaBoard Group, 2005, ALL RIGHTS RESERVED SeaBoard’s Views on the 2005 Communications Market

January 2005 - IGB Grant +1 514 849 3508 & Brian Sharwood +1 416 413 9381

HIGHLIGHTSKEY HIGHLIGHTS:

• This year will be an exciting one for telecom: we expect VoIP services to take significant
beachheads. Sporadic cable VoIP rollouts will happen through the first half of the year, with more
general availability by 3q05. The full marketing push will be in gear by the fourth quarter.
SeaBoard forecasts that over 150,000 customers will have signed up for cable-
offered VoIP telephony services; taking over 60% share of the still small market, by
the end of 2005.

• Driven by increased interest in the telephony product, and, to some extent questioning the need
for the ‘twisted pair’ connection, cable will increase its share of the high-speed internet
market. The decline in their market share in this market will end this year and we expect a 1-
2% gain by the end of the year, with continuing increase until 2009.

• Prices for telephony services will begin a descent. Cable company offerings will be at
parity with present wireline service initially – but discounting by independent providers (Vonage,
BabyTel and Primus, as examples) will lead the market lower.All players will need to pay close
attention to their competitors and be able to react quickly – even given regulatory restraints.

• The year will see a resurgence in the pre-paid mobile services market, with the entry
of Virgin Mobile Canada, dancing to different music than the rest of the players. The established
players will need to focus their attention on defending territory, and, importantly continuing to
grow the data service markets.

• Wireless will continue its inroad – wireless-only users will continue to grow. By the end of
2005 as many as 5% of Canadian households will have abandoned their landlines
for the convenience of a mobile only connection.

• The digital television market will continue to be dominated by the satellite and cable companies
but television services offered by the telephone companies will be continue to be tested and
honed for broad roll-out by mid to late 2006.

• VoIP offerings, and telephone company hosted-VoIP services, will take off in the small and
medium business market. Harried entrepreneurs will recognize the value of the new VoIP
products and embrace the expanded services suites.

These are highlights of a full report on the industry available to subscribers. For review
copies for accredited media or information on subscription please contact SeaBoard Group.

research RESEARCH& tr &eTRENDSnds An Exciting Year Ahead:

© SeaBoard Group, 2005, ALL RIGHTS RESERVED SeaBoard’s Views on the 2005 Communications Market

January 2005 - IGB Grant +1 514 849 3508 & Brian Sharwood +1 416 413 9381

JANUARYJANUARY 2005 2005

As we tuck the old year, 2004, behind us, and look at the year ahead we see a period of change
and tumult. 2005 will be an exciting year.

In the consumer world we will have the widespread availability of Voice over Internet Protocol
(VoIP). Many of Canada’s cable companies will enter the telecom field with VoIP products –
Rogers and Shaw all expected to offer voice services to their customers by mid-year – and
Videotron has already announce service to 300,000 customers on the south shore of Montreal.
Cable competition, together with offerings from companies like BabyTel, Primus and Vonage,
will change the way Canadians think about their home telephone service – and it will change
whom they pay to carry those calls.

2005 will also be a big year for wireless communications. The market leaders, Rogers, Bell and
Telus, will feel the hot breath of a new competitor, Virgin Mobile. They may well look back at
the competitive environment of 2004, when only Fido caused wireless marketers heartburn,
with wistful regret. Virgin plans to stir things up – and, we believe, that it will target its
partner’s customers (Bell), as much as it targets Rogers/Fido customers and Telus customers.
Virgin is focussed on the youth/university/college/ and 20-something market – and it plans to
drive Canadian wireless adoption towards European levels (over double the present
penetration). Virgin will also revitalize the flagging pre-paid market, which, due to strong
pressure from financial analysts for post-paid growth, has been underresourced and
undermarketed of late in Canada. SeaBoard suggests that while the industry may hem and haw
a bit, the additional buzz may well benefit all players.

Canada’s telcos will not be sitting on their hands as cable and wireless companies target their
traditional business – the telcos are marshalling their considerable resources to try to counter
the threats to their historical position. Telco video product will become more mainstream –
although still not a mass consumer product – and new bundle options will make the consumer
choice more complex – its not going to be easy to decide which provider to choose.

We foresee big changes too in the small business world. New service suites, new partnerships,
new products sets and new missions will characterize the SME telco thrust. Both Telus and Bell
are looking at new ways to serve their hundreds of thousands of smaller business customers.
Bell Canada’s new Microsoft partnership, where Bell will both repackage and help manage the
SME IT environment, we think could have a profound impact on the way smaller enterprise
deals with technology and communications. This is certainly a partnership model to watch.

PAGE 1/16

research RESEARCH& tr &eTRENDSnds Canada’s cable companies will look wistfully at the SME market, but we think that their hands are
full with the residential thrusts in the coming year. No such distraction, however, will cause
© SeaBoard Group, 2005, ALL RIGHTS RESERVED companies like Primus, Vonage, Navigata and Babytel to pull their punches though – as the
consumer market for VoIP product becomes more active we suspect that the VoIP pioneers may
well shift some of their focus into the SME space.

The following pages contain some of our forecasts for the market evolution. We set out the
baseline as of January 2005 and show how we think the communications market will unfold in
2005-2006. It promises to be an exciting ride!1

WHO TO CALL?PHONE SERVICE – WHOTO CALL?

The upcoming year will see big advertising budgets aimed at causing customers to rethink their
home telephone service, and importantly, their home telephone service provider. Videotron is
already in the market on Montreal’s south shore. Rogers and Shaw plan to be in the home-phone
business in the first half of the year, with Cogeco close behind. The cable companies have their
eyes on the $10B market for local phone services and will attempt to wrest accounts away from
the telcos.

The most important telephony alternative,VoIP phones, have been in Canada officially for exactly
one year with the launch of Primus’s TalkBroadband© service in January 2004. But up until this
year the service was one focused on those who actually ‘think’ about their phone service on a
regular basis – those who might cringe at their high long distance bills, or those who are looking
for new functionality, or dealing with continued frustrations with limitations of traditional
telephone. The uptake of VoIP was limited to customers who may have seen a rare IP phone
demo, or read about it in the ‘coming trend’ sections of a magazine or newspaper. This year will
be different. This year these telephony alternative products will be marketed and advertised
aggressively by the cable companies and the telephone companies will respond with their own
offerings in an attempt to stem the tides of defection – the VoIP alternatives will be in the
consumer consciousness propelled by much stronger marketing forces and significant distribution
infrastructure. VoIP product and services will be hard to avoid by 3Q05.

The cable companies have developed a good reputation for high-speed internet service provision.
The industry has proved to customers that cable companies can do more than pipe-in television
signals. Customer care services have improved and technical support capabilities have evolved.
Today’s cable company is a much more complex and more capable establishment than it was a
decade ago, or even five years ago when the consumer high-speed data market began. Cable
companies made the early running in the Canadian market and established a market beachhead.
The telephone company’s response, with DSL-based high-speed offerings, picked up steam as the
DSL deployment rolled-out. Today’s market is more neck-and-neck. We think that 2005 will see
the cable companies begin a new high-speed service ascendancy.

1As usual, SeaBoard clients are invited to explore some of our assumptions and methodologies on our client web-site at
www.seaboardgroup.com

PAGE 2/16

research RESEARCH& tr &eTRENDSnds We believe that the telecom companies will begin to lose share in the high-speed market. The
High Speed Customers (000)two primary reasons for the telco market share erosion will be the lack of a broadly available
television product and the push by the cable companies into ‘cable telephony’. Customers, as
they begin to adapt and understand VoIP, under the guise of ‘cable telephony’ will further
question the need for (and the expense of) a traditional circuit switch.

EXHIBIT 1: The Return of Cable High-Speed | Source: SeaBoard Group

High Speed Subscribers
Cable comes back - driven by IP Phones

14000 ACTUAL FORECAST 60%
12000 59%
10000 2004 2005 2006 2007 2008 2009 58%
8000 57%
6000 56%
4000 55%
2000 54%
53%
0 52%
2003 51%

50%
2010

DSL Cable Cable Market Share

© SeaBoard Group, 2005, ALL RIGHTS RESERVED It will take a little time for the telcos to catch up, but driven by a need to take back market share,
and evolving TelcoTV technology we see their momentum returning in mid 2009 when they will
drive their marketing engines into high gear and begin taking share back from the cablecos.

The VoIP market today is dominated by providers who do not have access to the actual
connectivity network. Their services are independent of the actual copper connection to the
customer with a ‘bring your own broadband’ type of service. These providers include, among
others:

• AOL, with TotalTalk™
• Yak, with Worldcity VoIP™
• Primus with,TalkBroadband™
• Voice & Data System, with BabyTel™
• Sprint Canada, with Internet Local Phone Service™
• Navigata, with WebCall™
• Vonage Canada™

We believe that the market for these services will continue to grow, and actually be driven
forward by the introduction of cable telephony. The marketing initiatives of the cable companies,
pushing their own VoIP services, will, in fact, over the next couple years, help the independents,
opening customers eyes to the alternatives in local telephone services.

PAGE 3/16

research RESEARCH& tr &eTRENDSnds EXHIBIT 2: Cable Drives the Market | Source: SeaBoard Group
IP Phone Customers by Provider
Cable Gets the Head Start Attracting IP Phone Customers

4000 ACTUAL FORECAST
3000
2000 2003 2004 2005 2006 2007 2008 2009
1000
10.7 31.8 94.8 214.8 347.8 468.3 574.1
0 0.0 0.0 7.7 40.9 115.9 425.7 1013.1
0.0 1.0 153.8 255.7 695.6 1234.5 1789.9
Independent VoIP Provider
Telco
Cable

Cable Telco Independent VoIP Provider

© SeaBoard Group, 2005, ALL RIGHTS RESERVED We will begin to see the introduction of VoIP services to residential customers by the telephone
companies it 2005. These introductions, if they come, will be late in the year. When these
products do arrive in force, in mid-to-late 2006, they will be powerful products with integrated
wireless/wireline messaging and communications products, differentiating the service significantly
from their lifeline services.

The introduction of and marketing of many VoIP services in the Canadian market will cause
inevitable price declines.The steep declines will not happen in 2005 as the many providers try to
maintain price stability in the market. We expect that pricing parity will be the objective of the
main cable companies, and even the low overhead challengers may only discount 10-20% from
traditional landline services. Unlimited long distance will be the norm.

However, the discounts will come, as they did in the long distance market in the late 1990s.
Incumbents will be forced to rethink their local line pricing2, as well as their features. With the
VoIP carriers including all their features – voicemail, call-display, call waiting and such – as part of
the package, it will become an impossible challenge for telcos to continue to expect customers to
pay the current rates. The value proposition will have been eroded. The present rate structures
will be untenable.

2Assuming, of course, that regulatory shackles are removed in the face of the ramp-up of competitive offerings. Without
that relief … well, there will be considerable pain.

PAGE 4/16

research RESEARCH& tr &eTRENDSnds EXHIBIT 3: Not the Same Revenue as they are used to | Source: SeaBoard Group

Price Competition hits the Wireline Segment

$45.00
$40.00
$35.00
$30.00
$25.00
$20.00
$15.00
$10.00
$5.00
$0.00

2002 2003 2004 2005 2006 2007 2008 2009 2010
IP Phone ARPU ILEC ARPU

As an example of the change taking place in the market, Vonage Canada recently dropped the
price of their residential Canadian Unlimited Plan to $39.95 from $44.95. Vonage, in the United
States has continued to drop its prices and their current 500 minute North American plan now
stands at a very inexpensive $14.99/month, which includes a full set of features.

Many of the current VoIP subscribers are not substituting the new phone for the old, but instead
adding a VoIP line to the existing phone service. Then, using the VoIP line to get cheap long
distance to talk to their relatives and friends in different parts of the world. We think that the
2005 thrust will be different. Certainly the cable companies will be looking for substitution - not
mere augmentation,

We feel that an increasing number of new VoIP subscribers will actually substitute a traditional
line, porting their old number to the new service by the end of 2005 or, in the important student
and youth market, never acquiring a traditional wireline at all. The percentage of these
subscribers who give up their traditional line for a VoIP line we expect to rise to almost 20% of
the wireline market by 2010.3

© SeaBoard Group, 2005, ALL RIGHTS RESERVED 3By 2010 what is called by the industry today Network Access Services (NAS) will likely not be labeled as such by then.
Our prediction for substitution comes from extending baseline NAS growth from 2002 as the Canadian market for
telecom products and services will continue to grow at traditional rates – the product set and pricing will simply be
different.

PAGE 5/16

RESEARCH & TRENDS

IP Phones (000)
IP Phone Substitution Rate
EXHIBIT 4: The Expanding VoIP market and Substitution | Source: SeaBoard Group

A New Type of Phone Emerges
- A Market Driven By Cable Companies

6,000 ACTUAL FORECAST 20%
5,000 18%
4,000 2003 2004 2005 2006 16%
3,000 14%
2,000 12%
1,000 10%
8%
- 6%
4%
2%
0%

2007 2008 2009 2010

© SeaBoard Group, 2005, ALL RIGHTS RESERVED WIRELESSWIRELESS SERVICES

Many prognosticators have called 2005 the year that wireless data becomes mainstream. We
disagree. There will be growth in wireless data services no doubt. Blackberries becoming more
affordable to a broader customer base, increased text messaging usage, downloadable ring-tones
and games will all play a big role in the action this year, but not take center stage. Bell Canada’s
announcement that they will be rolling out EVDO is exciting, but the product will not be available
until late in the year, or 2006. The promise of Inukshuk’s wireless broadband product – the
teaming up of Microcell, since bought by Rogers, AllStream, since bought by MTS, and NR
Communications – has faltered with management issues and other distractions within the
purchasing companies.

We believe that there will be two issues which will dominate the wireless stage in 2005. The
revitalization of the pre-paid market, and substitutors – customers who chose to give up landline
services for wireless services – CityFido, the next generation, as it were.

This year will be a landmark one for Virgin Mobile, a partnership between Bell Canada and the
Rebel Billionaire’s Virgin™ enterprise.Virgin is, what is known to the industry, as a Mobile Virtual
Network Operator (MVNO). Virgin will not own a network itself. It will be using Bell Canada’s
Mobility network as its supplier of network minutes and services. Virgin is free, however, to
market/position/advertise/promote as they like.

Virgin operates in many other parts of the world in the same fashion and uses its significant
marketing clout to attract customers – mainly in the youth (and wannabe-youth) market. Their
marketing is edgy, sexy and different – far from the dogs, lizards and teary-eyed grandmothers we,
as Canadians, are used to.

PAGE 6/16

research RESEARCH& tr &eTRENDSnds The biggest effect Virgin Mobile Canada will have, we believe, is the revitalization of the pre-paid
market. In Europe, where penetration rates of cell phones sometimes runs over 100%4, about
50% of customers buy their cell-phone plans on a pre-paid basis. In Canada this percentage
dropped in 2004 to 20.7% from over 23% in 2003. We think that the pre-paid market represents
a large potential opportunity which Virgin will be the first to take advantage of, and which other
carriers will catch onto (with attempts to catch up) later in the year.

EXHIBIT 5: The Rebel Arrives! | Source: SeaBoard Group

2007 Market Share Diagram

3% 5% 3% Rogers/Fido
25% 32% Bell

32% Telus
Other
Virgin Mobile

Other MVNO

Virgin Breaks New Ground

7% ACTUAL FORECAST 30%
6% 25%
Market Share 5% 20% Ratio of Prepaid
4% 15%
3% 10%
2% 5%
1% 0%
0%
2004 2005 2006 2007 2008
2003

Prepaid Virgin Mobile Other MVNO

© SeaBoard Group, 2005, ALL RIGHTS RESERVED Virgin will not become a ‘major player’ in the market measured by market share in the near
future, but their effect on the market will be significant. The MVNO market, now held tightly in
check by the major players will begin to see some movement, ideas will begin to develop on how
to leverage brand to gain subscribers. Telus’s opportunity to open up the Mike network to smart
youth marketing teams comes to mind initially. Nextel, which operates the U.S. version of the
push-to-talk market, reported, in a very successful quarter of 22% annual subscriber growth, 34%
of their 2.2 million new subscribers in came from the MVNO Boost Mobile. Boost Mobile brings
the push-to-talk product to the youth market with innovative advertising and sponsorships of
snowboarding, skateboarding and extreme sports events.

4Meaning there are actually more phone plans than people in the country.

PAGE 7/16

research RESEARCH& tr &eTRENDSnds EXHIBIT 6: Boosting the MVNO market for Nextel | Source: Boost Mobile

Outside of the push-to-talk market there are other opportunities for MVNOs in Canada which
can work outside of the traditional marketing schemes and benefit the carriers.

In Canada the room to grow the wireless market is substantial. The market is nowhere near
saturation and even lags the U.S. market by almost 20% at the end of 2004, a change from a lag of
10% at the end of 2002. Despite our leadership in broadband penetration we are falling behind in
wireless penetration!

EXHIBIT 7: Falling Behind | Source: SeaBoard Group

Plenty of Room For Growth
Wireless Penetrations still lags the U.S.

© SeaBoard Group, 2005, ALL RIGHTS RESERVED Wireless Subscribers (000) 30000 ACTUAL FORECAST 90% Penetration of Population
25000 2003 2004 2005 2006 80%
20000 70%
15000 60%
10000 50%
5000 40%
30%
0 20%
10%
0%

2002 2007 2008 2009

Mobile Phone Connections Canada U.S.

PAGE 8/16

research RESEARCH& tr &eTRENDSnds We believe that one of the primary reasons that Canadian penetration has fallen so significantly
Minutes of Use per Monthbehind the U.S. is the weakness in competitive and innovative pricing plans. As a quick proxy for
pricing, SeaBoard has taken a sample of 3 U.S. and Canadian carriers5 and calculated the average
minutes per use per month in the markets – with our models showing relatively even dollar
adjusted ARPUs. Exhibit 8 demonstrates that Canadians are not being encouraged by innovations
in pricing to actually use their cell phones. Additionally, most U.S. cell phone plans include a full
set of features and nationwide long-distance.

The industry, driven by myopic financial analyst expectations, has taken the approach that ARPU
trumps subscriber growth, a view we hold in question and will explore in greater depth in an
u7 pcoming paper on the evolution of the wireless industry in Canada.

EXHIBIT 8: Efficiency or Profits? | Source: SeaBoard Group

Talk Talk

800

700

600
500
400

300
200
100

0 Q3-04
Q3-03

Canadian Sample Average U.S. Sample Average

© SeaBoard Group, 2005, ALL RIGHTS RESERVED The second major wireless trend in 2005 will be the increase in households who ‘cut the cord’
and decide that they no longer need a wireline connection in their home. As discussed in Old
Bottles, New Wine (December 2004) the number of households with no local wireline phone has
significantly increased in the past couple years, however it still only represents less than 2% of
Canadian households. In areas where the CityFido™ plan has had longer-term marketing effects,
such as Vancouver, the numbers are much higher. In 2005 many more consumers will reconsider
their home phone and will ask the questions posed in our paper It’s Your Call – The Many Flavours
of Voice (July 2004). Do I need 911 services? Is mobility more important than security? How many
telephone lines to I have, and how many do I need? Mobile phones will win the hearts and
wallets of customers in many cases. Many substitutors will be new entrants into the market,
prompted to purchase a mobile phone from a provider like Virgin Mobile, moving into a new
home or residence, and then not re-ordering the traditional phone service.

5For the U.S. SeaBoard used SprintPCS, Cingular and AllTel: for Canada Rogers, Bell and Telus Mobility.

PAGE 9/16

research RESEARCH& tr &eTRENDSnds EXHIBIT 9: A New Type of Customer Emerges | Source: SeaBoard Group
Mobile Substiturors
Wireless Substitutors

6,000 ACTUAL FORECAST 25.0%
5,000 20.0%
4,000 15.0% % of Wireline Base
3,000 10.0%
2,000 5.0%
1,000

- 0.0%

2002 2003 2004 2005 2006 2007 2008 2009 2010

Mobile Substitutors Wireless Substitution

DIGITALDIGITALTELEVISION TELEVISION

The upcoming year will also be one of continued growth in the digital television market.
Customers will become more savvy of what is out there through marketing of new and
innovative services such as interactive video services offered through ExpressVu™, StarChoice™,
and PVR6 and digital TV services offered through Rogers, Shaw, Cogeco and Videotron. Digital
television will offer Canadians a much broader and more interactive experience than they have
experienced, with clearer pictures, better sound and broader programming.

© SeaBoard Group, 2005, ALL RIGHTS RESERVED 6Personal Video Recorder. This is a service, initially offered by TiVo in the U.S., which to our mind remains the gold
standard, and now in the mainstream product set of most cable companies, which allows customers to record shows
and movies and watch them at their convenience. Look forward to an upcoming SeaBoard report on the power and
promise of PVRs in Canada in the first half of 2005.

PAGE 10/16

research RESEARCH& tr &eTRENDSnds EXHIBIT 10: Digital Television Continues on its Growth Trajectory | Source: SeaBoard Group
Digital Subscribers (000)
8000 Alternate Forms of Digital Television Evolve
7000
6000 ACTUAL FORECAST
5000
4000
3000
2000
1000

0

2003 2004 2005 2006 2007 2008
Cable DTV TelcoTV and Other

© SeaBoard Group, 2005, ALL RIGHTS RESERVED We will also see this year the continued budding of television services offered through the phone
lines – Telco TV. Sasktel and MTS have had success marketing their products to their customer
base with MTS reporting over 25,000 customers (cumulatively) in the 3rd quarter of 2004 –
achieved with relatively little marketing effort. But 25,000 is not much in the big picture of
telecom and cable, it will take much more to make a dent in the larger market, against more
determined competition. With it’s ability to offer real-time interactive services, and include
features like visual voice-mail displayed on the TV screen there is true promise of growth, but we
think 2006 will be the year of larger broad-base growth in Telco TV. Also in 2006 will be the true
emergence of High-Definition (HD) TV. Canadians tend to be slight laggards in technology
adoption – broadband penetration aside – and HD hardware is still quite expensive and a bitter
taste to our frugal heritage and parsimonious nature. Falling hardware prices will help.

SMALL BUSINESSSMALL BUSINESS OFFERINGS

Large enterprises have been examining (and using) VoIP for a time now.They have the people and
resources to have test labs, to trial a product for a while and, if it works, roll it out across the
company. IP-PBXs have already made strong inroads into the Canadian corporate phone market
with over 200,000 lines installed – but these have been in companies mainly with large employee
bases and where the product can be tested over time.

PAGE 11/16

research RESEARCH& tr &eTRENDSnds Harried small business owners do not have this luxury. Every call could be the big contract they
are waiting for.They are trying to organize, prioritize and plan tasks only related to their business.
For them telecom services are an afterthought – or they should be. Telecom services are often
grouped by these frenzied kings of their own domain into ‘complex stuff I don’t want to deal
with’. For them our service providers must make things simple.

Yet they just don’t want simple; they want powerful, and they want cheap! VoIP services are the
answer to their prayers. Some will continue to work with their traditional key systems and small
PBXs but we think that the hosted solution – sold as an enhanced version of the residential
offering – is a far better answer. Small business owners like to work from many locations – often
spending time in the basement office of their home doing paperwork, or on the road trying to
make that important sale, and in the hotel room of the conference they are attending. Sometimes
they even spend time in their actual office. They want to keep track of what is going on in all
aspects of their business, logs on phone records, staff issues, customer orders, the list goes on.
Hosted IP can solve many of those problems. Small business owners will want to keep an eye out
for vertical specific applications which they can add onto their offering to best use the power of
IP to outwit competition who are not willing to take the small leap forward.

We think 2005 will be a banner year for the small business in Canada. Already powerful offerings
from Bell Canada such as the Productivity Pak™, providing e-mail and outlook exchange hosting,
and the TalkBroadband™ SME package from Primus have changed how some small businesses
operate. These services have the potential to make the small business owner’s life easier.
Specifically, these offerings can:

• Expand trading areas,
• Extend trading hours,
• Build alternative markets,
• Access a broader supplier base, and
• Lower costs.

The new capabilities will give SMEs the toolset of the larger enterprise – but at the same prices
that they now pay for legacy telephone services. Telcos need to change to take advantage of the
market potential.We note that the cable plant extends by many of the same customer prospects
and so too will wireless options like Inukshuk (if and when it gets going).The frazzled SME owner
is about to get a lot of attention – this time it looks like they will get the right kind of attention.7

© SeaBoard Group, 2005, ALL RIGHTS RESERVED 7Look forward to our upcoming report on Small Business solutions and hosted IP telephony options in 2005.

PAGE 12/16

research RESEARCH& tr &eTRENDSnds CONCCLUOSIONNS CLUSIONS
Number of Connections
What does this mean to the market? 2005 will be a year where many of the voice technologies
imagined and conceived over the last 5 years will reach consumers. Voice over IP will reach
consumers driven by cable companies desire to capture an additional $20-40 from their
customer base and telephone companies fear of losing the customer forever to their cable rival.
Independents will continue to drive growth in the market and keep the incumbent phone and
cable company offers honest. But the market will change. Exhibit 11 shows SeaBoard forecasts of
the changing landscape of telecommunications services over the next 6 years. Once an industry
where the only product was a wireline strung to the home or business is now complex,
multifaceted business where there is a wide product mix and customers can choose the product
or service that suits their particular lifestyle.

EXHIBIT 11: The Changing Face of Telecommunications – The Mix Changes | Source: SeaBoard Group

The Connection Market

45,000 ACTUAL FORECAST ILEC Lines (NAS)
40,000 2002 2003 2004 2005 2006 2007 2008 2009 2010
35,000 CLEC Lines
30,000
25,000 Mobile Phone
20,000 Connections
15,000 Hosted IP Phones
10,000

5,000
-

© SeaBoard Group, 2005, ALL RIGHTS RESERVED All players in the industry will need to react to the change. We believe that the telephone
companies have seen the change coming and have reacted strongly to make changes in their
processes and infrastructure given the dire situation of the gradual loss of their birthright –
the wired phone into the household.The emergence of a highly competitive long-distance market
woke them up to need to be fast and flexible to compete.

Cable companies have also continued to evolve with the industry change. They understood that
the only access to high-quality, diverse television programming was not going to be solely from
the coax cable and maintained share versus satellite providers. They have built up a strong high-
speed offerings, started the migration to high-definition, and begun the process to integrate other
offerings such as wireless with their product sets.

PAGE 13/16

research RESEARCH& tr &eTRENDSnds Independent VoIP providers will continue to lead the market, new services, new pricing, new
flexible approaches. The independent VoIP provider has little mass to shift as they define, refine
© SeaBoard Group, 2005, ALL RIGHTS RESERVED and explore new niches. They will continue to be the major innovators. As the market matures
there may be some consolidation, as carriers who have been content 'to watch' elect to become
'instant' success stories, but most independent's will survive. Indeed, we expect, given the low
cost of entry, that more will be born to exploit market niches and opportunity bypassed by the
larger players. The SME market especially is ripe for further innovation in both product and
channel to market.
This year will see the re-emergence of pre-paid phone service as a growing market in Canada
with the entry of Virgin Mobile providing drive and determination to the market. Canadians will
also become substitutors, giving up their local wireline phone for a pure wireless connection in
larger numbers than ever. By 2010 we see over 20% of households will have substituted a
wireless phone for wireline.
The small business market will again be the focus of carrier attention. This time, however, the
offerings will go beyond the creation of bundles of traditional communications product - long
distance and yellow pages and call-waiting, for example - to product suites with real meaning to
the SME user. Offerings like access to common calendaring, and conferencing capabilities are
potentially very empowering to the small business owner. This is a powerhouse of a market if
it can be tapped, and if ways can be found to assist the SME to exploit the potential. The
market winner will be the provider who can reach the small business owner with the right
offering through the most appropriate channel, be it the small systems integrator or the local
office supply store.
We look forward to an exciting 2005. There will be profound changes to the Canadian
telecom landscape in the coming year. Trends that we have discussed over the past two years
will begin to affect the market – consumers will begin to take up the new services and the new
ways of connecting in significant numbers. Timorous cable roll-outs this quarter and next, will
lead to widespread roll-outs by 3Q and widespread advocacy across the breadth of the public
consciousness. Hang on – it will be a wild ride.

PAGE 14/16

research RESEARCH& tr &eTRENDSnds READINGFOR FURTHER READING:

© SeaBoard Group, 2005, ALL RIGHTS RESERVED It's Your Call - The Many Flavours of Voice, July 2004.
Beyond Ernestine: The Evolution of Canadian Business Communications; A SeaBoard Discussion
Paper in Two Parts – Part One: “Your Call is Important to Us”; New Directions in Corporate
Communications, September 2003.
Beyond Ernestine: The Evolution of Canadian Business Communications; A SeaBoard Discussion
Paper in Two Parts – Part Two: “The Importance of Being Ernestine”; Empowerment of Small
Business The Evolution of Canadian Business Communications, November 2003.
It's Not Your Parent's Phone: A Survey of Changing Patterns in Canadian Consumer
Communications, August 2003.
Wireless Wonderland – Portable Numbers as Pistons of Progress, October 2003.
Get Shorty! – Canada’s Wireless Market – Through SeaBoard’s Looking Glass, February 2004.
Welcome Minister, Bienvenue, July 2004.
The Medium is not the Message, December 2004.

WWWUSEFUL WEBSITES:

• Bell Canada
http://www.bell.ca

• Telus
http://www.telus.com

• Rogers Wireless
http://www.rogers.com

• Fido
http://www.fido.ca

• Research in Motion
http://www.rim.com

• Boost Mobile
http://www.boostmobile.com

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