An Evolution is Coming: VoIP Exploring the Possibilities. Rhonda Goddard

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1 An Evolution is Coming: VoIP Exploring the Possibilities Rhonda Goddard

2 Rural Telephone Country

3 Rural Telephone and Nex-Tech Office Locations

4 Rural Telephone and Nex-Tech Broadband Coverage

5 Rural Telephone Nex-Tech Access Lines 10,824 12,247 Residential Lines 7,827 7,939 Business Lines 2,776 4,308 High Speed Internet Penetration to Households (%)

6 VoIP Service in Kansas Approved VoIP at the Crossroads Next-Gen Telcos/Industry to Sell Internet Phone Service Telecom s Red Pill Headlines VoIP-Nothing More Than Hype Microsoft Your Next Phone Company?

7 VoIP Research Committee to study technology and deployment alternatives formed in February 2004 Six member research committee: Director of Operations Research and Development Coordinator Communications Solutions Manager Internet Services Manager Director of Regulatory Affairs

8 Four Basic Types of VoIP Geek-to-geek IP telephony Service provider (Vonage style) IP telephony Over incumbent provided broadband with voice traffic offload to private network ILEC IP Telephony ILEC owned softswitch/gateway Enterprise IP Telephony Enterprise owned IP switch/gateway i.e. Avaya, Nortel, Polycom

9 Disadvantages of VoIP Potential for loss of access revenue Rural Telephone 3.2 million + annually ($24 per month avg per access line) Nex-Tech 1.5 million + annually ($11 per month avg per access line) Call quality Varies by provider and network Loss of power means loss of service Aggressive competition

10 Advantages of VoIP Basic Services/Value Added Services Feature rich IP Centrex Lowers the cost of telephony deployment $250 -$300 per customer vs. $600 - $1000 More efficient use of network Regulatory Hands Off Approach for now Pricing in the $25-$35 range for an all you can eat plan

11 Vonage Trial Order on-line Five minutes to install Works behind a firewall Decent voice quality Cost is $25 for unlimited U.S. calling Includes voice mail, caller ID and several other features

12 Vonage Trial Voice mail leaves notification On-line toll E-911 Operator Services

13 VoIP Research Extensive review of several different vendors Managed and Hosted/Owned Platforms Reference checks Backhaul carriers Triple play/digital Headend/Softswitch

14 VoIP Strategy Business plan and financial model Provides monthly repetitive income Ties into local and long distance offerings very well and enhances overall offering Assumed slow growth, 480 lines Year 1 Cost per customer to deliver service decreases to $250-$300 in Year 3 Net profit in Year 3 100% financed

15 VoIP Strategy Business IP/Centrex service should be very attractive to our small business customers. Affordable, competitive residential solution as necessary, marketed as innovative but not quite as reliable as POTS Service provider for other ILECs & CLECs Testing period November 1 through December 31 Service roll-out January 1, 2005

16 Chose Vendor - Voice over IP Softswitch Solution (VOISS) owned platform, supports multiple protocols, i.e. MGCP, SIP, H.323 Price VoIP Strategy Firewall solution Consists of application software and network components, including application servers Offer VoIP as a complementary service

17 Business IP/Centrex Sample Offering Three Options Targeted at Centrex Replacement, businesses will have access to a variety of rich, highend PBX type features and applications Basic-$24.95 Includes caller id, call waiting, voic w/ limited messages and minutes, 3-way calling, do not disturb, call park, call transfer, find me follow me, call hold, ext. dialing, park, call forward, call pickup, call notify and music on hold.

18 Business IP/Centrex Sample Offering Expanded-$29.95 Plus 6-way calling, priority ring, voice mail to , account codes, speed dialing, voice mail+ Premium-$34.95 Plus multiline appearance, station to station intercom (hands free), call return, selective call forward/reject, call back queue

19 Qos is a Big Concern Corporate IT Managers are working with traditional PBX and Centrex providers to replace older TDM equipment. VoIP s initial attraction is low price and many fancy features. Businesses do not want users to be able to tell the difference in quality from the PSTN. While fundamentally a data-centric function, VoIP has more in common with POTS than data-over-the- Internet.

20 Qos is a Big Concern Data can be transferred despite distractions like jitter and noise. Real-time voice traffic is very delay sensitive. As a service provider we have to be sure our network is clean that there are no dropped calls. If you re going to take someone s telephone off their desk and replace it with an IP phone, it damned well better work as well as the one you took off, George Hamilton, Senior Analyst with The Yankee Group.

21 Other VoIP Concerns Vendor software upgrades to keep up with market changes Integration with existing softswitch Reaching the customers in a large geographic territory, i.e. direct sales force Customer LANs Call Path Ratios 3 to 1, Charge for additional call paths

22 Other VoIP Concerns Phone Leasing due to high initial costs, 18 mo. Staff Training and Customer Support 911 & CALEA compliance Regulatory environment continues to concern us

23 Theories for The Future VoIP Telecom s Blue Pill The Internet remains a subset of telecommunications VoIP Telecom s Red Pill Death of traditional voice service Telecommunications becomes a subset of the Internet

24 Predictions for the Future VoIP is here to stay as the technology becomes more robust many of the remaining technical hurdles will be overcome Rural Telephone & Nex-Tech will be a leader in VoIP service providers among telecommunications companies our size.

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