1. Tomorrow’s Home Technology Separating Fact from Fantasy Sandy Teger and David Waks Co-Founders, BroadbandHomeCentral.com Builder Technology Conference June 11, 2002 Copyright © 2002

2. Slide 2 About Us Sandy –18+ years with AT&T; multimedia strategy director Dave –Founder and R&D director, Prodigy Services Company Together as System Dynamics –Research and write Report on the Broadband Home Free monthly Internet newsletter More than two years Subscribers in more than 100 countries –Operate BroadbandHomeCentral.com as industry resource –Organized and ran five BBH conferences 2000-2001 –Consult for companies affected by residential broadband Technology, marketing, business analysis and planning Projects have included cable modem rollout, VOD, interactive TV, digital cable, HFC and IP telephony

3. Copyright © 2002 Slide 3 “Broadband Home” Broadband access and in-home distribution network Multiple broadband devices High speed –Megabits: Millions of bits per second –To the home, in the home and from the home “Always on” connection –Continuous connection –From the home to the outside world –To the home from the outside - can “see” the home from the outside

4. Copyright © 2002 Slide 4 What’s Your Starting Point? “Technological Readiness Questionnaire” –Look for and fill out form –Check the boxes that apply and count them 9-10 6-8 3-5 0-2 8-10 4-7 1-3 0 “True/False Questionnaire” –Look for and fill out form –Check “True” or “False” for each one and count True

5. Copyright © 2002 Slide 5 The Emerging Broadband Home ISP Services Cable Modem DSL Fixed Wireless Fiber Satellite Powerline Digital Terrestrial Broadband Access Home Gateway

6. Copyright © 2002 Slide 6 The Promise of Broadband Work from home as easily as in the office Personal voice and video conferencing Digital radio and TV everywhere in the home Share photos and videos with friends and family Untethered access Big jukeboxes of music, movies, TV and games Control VCRs, AC, lights from anywhere

7. Copyright © 2002 Slide 7 Our Broadband Home Movie Our Broadband Home An 8-minute movie showing how we use broadband, networking and digital consumer electronics technologies in our own home. Broadband version for cable modem and DSL (RealVideo, 220 Kbps): www.bbhcentral.com/presentations/BTC2002BB.rm Narrowband version for dialup (RealVideo, 20 Kbps): www.bbhcentral.com/presentations/BTC2002NB.rm

8. Copyright © 2002 Slide 8 Top Trends: What We’ll Be Saying Broadband access is foundation for much of what’s changing in home technologies Everything is going digital The consumer electronics industry has a huge investment in driving sales of networked appliances The worlds of the PC, home entertainment and telephones are starting to overlap and merge People are spending their time and money on buying and using “this stuff” Broadband to and within the home are increasingly important to your buyers Here’s what to watch…

9. Copyright © 2002 Slide 9 Top Trends (1): Broadband Penetration Increasing By “broadband” we mean high speed-always on connectivity –In US mostly via cable modem and DSL On-line HHs grew from 25% in ’98 to 54% Sept 2001 Broadband penetration grew from 1% to 10% during same timeframe Higher income families are more likely to want broadband: –Income of 25-35k14.6% BB – 50-75k17.7% BB – over 75k25.1% BB Business and societal forces promoting it –Corporate downsizing, work-at-home and home-based businesses –Cocooning, family-centered activities, post-9/11 reactions Source: NTIA, US Dept Commerce, Census Bureau, Feb. 01

10. Copyright © 2002 Slide 10 How Fast Will Broadband Grow? Factors that could slow it –Little or no competition in most markets Telcos and cable ops acting like “cozy duopoly”: both raising rates Affordability and penetration threatened –Current MSO pricing structure not sustainable Flat rate for “all you can use” is uneconomic in face of growing bandwidth demands Alternatives: throttling what users can get, or tiered pricing –Telcos delaying rollouts in fibered areas (at DLCs) Factors that could speed it –Coherent public policy push Lieberman bill requiring development of a national broadband strategy Like the Internet push from Clinton/Gore It has worked in Korea, Sweden and Canada –It’s reaching “The Tipping Point” It’s “IN” –Joneses have it, we gotta get it… In Jan ’02 51% of the online hours were by broadband users Number of dial-up users declined in 2001—moving to broadband Sources: Nielsen/NetRatings; TRI

11. Copyright © 2002 Slide 11 Top Trends (2): PC Networking Increasing Over 40% of US homes with PCs have more than one PC –Will be 50% in 2 years –And almost 70% of US HHs have PCs today Once they get broadband they want to share the connection Multiple ways to network PCs, including –Move them to one room and connect via Ethernet –“No new wires” Wireless (Wi-Fi, aka 802.11b; Home RF; 802.11a; Bluetooth) Existing wires –Phoneline (HomePNA; proprietary) –Power lines (HomePlug; CEA R7.3) –Structured wiring –UTP (Unshielded twisted pair, e.g. category 5E) Wireless networking makes it easy –Linksys and Netgear shipped >2 million cable/DSL routers in 2001..and 802.11b standard has made it cheap –D-Link Wireless Access Point and 3-port Switch is $133 (after rebate)

12. Copyright © 2002 Slide 12 Ad from New York Times: Sunday, June 9, 2002

13. Copyright © 2002 Slide 13 Top Trends (3): “Digital Everything” Video and audio players Cameras and camcorders Television Telephone New consumer electronics

14. Copyright © 2002 Slide 14 Everything Digital – Video Players Digital Analog

15. Copyright © 2002 Slide 15 Everything Digital – Audio Players Digital Analog

16. Copyright © 2002 Slide 16 Everything Digital – Still Cameras Digital Analog

17. Copyright © 2002 Slide 17 Everything Digital – Camcorders Digital Analog

18. Copyright © 2002 Slide 18 Everything Digital – Satellite Television Digital

19. Copyright © 2002 Slide 19 Everything Digital – Cable Television Digital Analog

20. Copyright © 2002 Slide 20 Everything Digital – Broadcast Television Digital Analog

21. Copyright © 2002 Slide 21 Everything Digital – Broadcast Television Digital Analog

22. Copyright © 2002 Slide 22 Everything Digital – Home Telephone Digital Analog

23. Copyright © 2002 Slide 23 Everything Digital – New Consumer Electronics Digital Analog

24. Copyright © 2002 Slide 24 Everything Digital – Summary Audio Players Video Players Still Cameras Camcorders Satellite TV Cable TV Broadcast TV Telephone New CE

25. Copyright © 2002 Slide 25 Ad in New York Times: Sunday June 9, 2002

26. Copyright © 2002 Slide 26 Ad in New York Times: Sunday June 9, 2002

27. Copyright © 2002 Slide 27 Top Trends (4): Networked Consumer Electronics TVs, stereos, digital cameras, digital video recorders, game consoles, PDAs, etc. are being built to connect and communicate. –Digital, networked appliances is consumer electronics industry’s central strategy for increasing sales Consumer Electronics Association (CEA) TechHome Rating System promotes home networking technologies –Rates home technologies enabling audio, video, voice, data and security applications –Pro-active effort to educate buyers, builders and realtors –Measurable, like number of baths or garage capacity Consumers using this networking stuff –Create and share media (photos, videos, music) –Around the house Play MP3s on speakers anywhere in house Show digital pictures on home theatre screen –Around the world Use broadband connection to share family videos, play games –Despite the !*?# complexity

28. Copyright © 2002 Slide 28 Ad in New York Times: Sunday June 9, 2002

29. Copyright © 2002 Slide 29 Ad in New York Times: Sunday June 9, 2002

30. Copyright © 2002 Slide 30 Home Networking Choices Different applications need different networks –Data: 10Mbps and “best efforts” ok –Telephone and audio: need “quality of service” (QoS) –Video: needs QoS, high quality takes high bandwidth –Security: needs high reliability Today’s “no new wires” networks handle PC networking, but lack speed and QoS for video UTP (Category 5E) structured wiring increasingly will do it all –Trend of analog to digital migration continuing –New technologies are expanding the bandwidth and QoS of UTP –Layers on top will be handled by Gigabit Ethernet or VHN –A/V will increasingly be done over Cat 5E (not RG6) UPnP loudspeakers from GE Smart Mitsubishi HDTV connected over Cat 5 using TI’s 1394b Ways to retrofit old speakers etc. happening

31. Copyright © 2002 Slide 31 Broadband Home Networking – Physical Medium DifferentiatorStructured WiringExisting WiringWireless Best usesNew construction and remodeling Interconnecting stationary devices Mobile devices such as notebook computers and webpads CostHigh (for installation) Low Useful lifetimeVery longShort Number and location of "outlets" Wherever neededMultiple electrical outlets in each room; several rooms with telephone outlets; few rooms with coax outlets Ideally throughout home Current data rate (Mbps) 100About 10 Future data rate (Mbps) 1000 or more30 to 10025 to 100 SecurityVery secureLess secure StandardizationWell-defined global standards Competing "standards" Source: S. Teger and D. Waks, “End User Perspectives on Home Networking”, IEEE Communications, April 2002

32. Copyright © 2002 Slide 32 Top Trends (5): Home “bandwidth budget” growing “Bandwidth budget” is total pipe size needed to accommodate all the information being sent around the home –Includes bits from all the things that people want to interconnect Just like any budget, it keeps expanding! –… because people want to connect more devices Not just PCs, but digital camcorders, MP3 players, PVRs, games,.. –… because each device is getting richer information (which means more bits) Digital cameras going from 2 to 3 to 4 megapixels TV going from standard definition to high definition Computer files going from data to incorporate video, special effects Consumer expressed interest in entertainment will keep driving bandwidth to and within the home

33. Copyright © 2002 Slide 33 Consumer Interest in New Entertainment Applications

34. Copyright © 2002 Slide 34 Top Trends (6): “Home Gateways” Emerging New categories of home equipment developing: “Home gateways” and “home servers” –Home gateways centralize certain functions Enables users to share a broadband connection May provide firewall, caller ID, routing, … May also be an enabling platform for consumer residential services –Home media server Stores multiple types of digital content such as video and audio for use throughout the home –Home gateways and home servers may be separate or combined Numerous conceptions of what they do –Range from simple (combined cable/DSL router and modem) to complex (“all of the above”) –Current versions influenced by history of company producing them Motorola and Pace: evolved cable set-top –Many companies producing something in this category Home Director, Samsung, Everex, Uniden, 2Wire, Ucentric, Philips, … Use tactically where appropriate, but watch for convergence –Physical space should be allotted for it

35. Copyright © 2002 Slide 35 Uniden “Evolo Gateway” at CES

36. Copyright © 2002 Slide 36 Moxi “Media Center” at CES

37. Copyright © 2002 Slide 37 Samsung “Home Media Center” at CES

38. Copyright © 2002 Slide 38 Top Trends (7): Increasing Consumer Expectations The instant gratification generation –People want what they want, when they want it Technologies have reinforced the expectations –Video-on-demand from cable companies –Personal video recorders (TiVo, Replay) –My music: MP3 players, jukeboxes –Broadband, always-on Internet—no wait for dial-up Needs cut across age and gender, not just techies and elite –81 year old Sarasota man: “broadband Internet saved my life” –Florida Realtor from buyersbroker.com: “lost sales because a neighborhood didn’t have broadband” –Survey of kids ages 8-17 found Internet most chosen medium if given one choice of TV, radio, telephone or Net Broadband is a key technology for meeting this expectation Source: Knowledge Networks/Statistical Research (KN/SRI)

39. Copyright © 2002 Slide 39 Top Trends (8): New specialists emerging Residential System Integrator (“The Broadband Plumber”) –New category created to address complexity and rate of technology change –Helps make "broadband plumbing" a standard part of the construction process for new homes -- like kitchen counters, sinks and flooring. May come from home security or A/V, but must know digital A few we’ve met – Cybermanor, in Silicon Valley ( www.cybermanor.com )www.cybermanor.com – SaVoyant, in Boston ( www.savoyant.com )www.savoyant.com – Homesync, in Colorado ( www.gohomesync.com )www.gohomesync.com – e house, in southeast ( www.e-house.cc )www.e-house.cc Formalizing the profession –Certification Program for Residential System Integrators –Sponsored by Internet Home Alliance* and CompTIA –Launching late summer 2002 –Expect 25,000 installers to be certified by end of next year *IHA members include Cisco, Panasonic, Sears, Best Buy, CompUSA

40. Copyright © 2002 Slide 40 Top Trends (9): Availability Impacts “Sale-ability” Availability of broadband services will increasingly impact home “sale-ability” You control what goes IN your homes, but can’t control whether telcos or cable ops offer broadband TO them –And it will be a negative if your homes can’t get it The transition from “geeky” to “IN” can happen pretty quickly –Remember before every TV and print ad had www.name.com?www.name.com –Watch signals for the approaching broadband “Tipping Point”

41. Copyright © 2002 Slide 41 Big Developers and Builders Can Take Control of Their Own Destiny Provide integrated package – the “triple play” –Video –Data –Voice Technologies becoming more plentiful and affordable –Gigabit Ethernet –Fiber in the neighborhood Some already doing it –Toll Brothers (Advanced Broadband) is example Partners can help –More choices becoming available Gatehouse Networks and Eagle Broadband are examples –Some will assume part of the financial risk But it’s not a piece of cake –Complex technologies and business arrangements –Technologies in flux –Regulatory obstacles in many places

42. Copyright © 2002 Slide 42 What Does It All Mean For Your Business? Offer the technology adders we’ve talked about; your competitors will Structured wiring is the right foundation –Help your buyers understand what they need to support computers, entertainment systems –Pulling two Cat 5E’s little harder than pulling one –It’s much easier to run to places there might be a PC, telephone, A/V system before the walls go up –Supplement 5E with RG6, but don’t overprovision (soon 5E will do A/V too) –Ignore fiber in the home (unless it’s for cachet) Having competent broadband plumbers (Residential System Integrators) is at least as important as competent electricians and plumbers –Their work is less visible but much harder to fix if it’s wrong Selling the customer is easy if you demo the applications –“TechHome allowance” just like kitchen appliance allowance –Pay for as part of mortgage

43. Copyright © 2002 Slide 43 What It Means If You’re a Developer Start planning for symmetrical 100mbps to each home If incumbent service providers not offering broadband to your area, plan how you can do it (with partners if appropriate)

44. 18 Beaver Ridge Road, Morris Plains, NJ 07950-1901 (973) 644-4739 Fax (973) 538-6003 dave @ bb-home.com sandy @ bb-home.com www.BroadbandHomeCentral.com www.BroadbandGurus.com For More Information: System Dynamics Inc.