1. Hector Hernandez Senior Telecom Analyst hhernandez@idc.com Latin Americas Telecom Odyssey: From Dial Tone to IP Services

2. Agenda Definitions and Methodology Latin Americas Traditional Long Distance Market Overview Latin Americas IP Long Distance Telephony Market Overview IP Long Distance Market Drivers and Inhibitors Future Trends The Next Steps

3. IP Telephony in Latin America Definitions Traditional Long Distance Service IP Telephony –PC to PC calls –PC to Phone calls –Phone to Phone calls –Wholesale Market –Retail Market Web Talk –Click-to-talk –Conferencing –Messaging –IP Telephony

4. IP Telephony in Latin America Methodology In-country interviews with: –Incumbent operators –Next generation providers –Competitive exchange providers –Local Internet telephony service providers (ITSPs) Regional interviews with: –Traditional telephony carriers –Global Internet telephony service providers (ITSPs) –IP telephony equipment vendors

5. Latin Americas Long Distance Market Study Preliminary Results

6. Latin Americas Domestic Long Distance Markets, 1999: Quite Predictable Total Market Value: US$10.6 Billion $1,359 $4,427 $228 $670 $3,008 $453 $507 - 5,000 10,000 15,000 20,000 25,000 30,000 35,000 40,000 45,000 Market Revenues (US$ Billions) Traffic (Billions of Minutes) 28% Revenues (US$ Millions) 45% Revenues ArgentinaBrazilChileColombiaMexicoVenezuelaOther ELAM 51% Traffic 23% Traffic

7. Latin America Traditional International Long Distance Market Revenues 1999: Not Your Usual Suspect Total Market Value: US$4.1 Billion Source: IDCs Latin America Telecommunications Continuous Information Service, 2000 1999 Market Revenues (US$ Millions) 53% Revenues $833.29 $462 $538 $194 $113 $1,759 $266 - 1,000 2,000 3,000 4,000 5,000 6,000 7,000 8,000 Market Revenues (US$ Billions) Traffic (Billions of Minutes) ArgentinaBrazilChileColombiaMexicoVenezuelaOther ELAM 42% Revenues 52.3% Traffic 52.3% Traffic 42% Revenues 20% Traffic 20% Revenues

8. Six-Country Traditional Domestic Long Distance Market Forecast: A Price War $0.17 $0.16 $0.14 $0.12 $0.11 $0.10 - 10,000 20,000 30,000 40,000 50,000 60,000 70,000 80,000 90,000 100,000 199920002001200220032004 Six-Country Domestic Long Distance (Millions of Minutes) $- $0.02 $0.04 $0.06 $0.08 $0.10 $0.12 $0.14 $0.16 $0.18 Average Price per Minute (US$) CAGR 7% CAGR -13%

9. Six-Country Traditional International Long Distance Market Forecast $0.46 $0.41 $0.35 $0.31 $0.28 $0.26 - 5,000 10,000 15,000 20,000 25,000 30,000 199920002001200220032004 Six-Country International Long Distance (Millions of Minutes) $- $0.05 $0.10 $0.15 $0.20 $0.25 $0.30 $0.35 $0.40 $0.45 $0.50 Average Price per Minute (US$) CAGR -24% CAGR 21%

10. 6-Country Domestic Long Distance: IP Arrives in 2001 Driven by: –Efficiencies –Lower barriers to entry –Scaleability –Value Added Services Unified Messaging Click-to-talk Hindered by: –Regulation –Competition from cellular, cable telephony, etc. IP DLD CAGR 2000-2004 =443% 24% - 20,000 40,000 60,000 80,000 100,000 120,000 199920002001200220032004 Domestic Long Distance Traffic (Millions of Minutes) 0% 5% 10% 15% 20% 25% 30% Traditional DLD IP DLD IP as % of Total DLD

11. 6-Country International Long Distance: IP Anywhere Driven by: –Arbitrage –Efficiencies (cost per call, lower bandwidth requirements) –Lower barriers to entry Hindered by: –Regulation –Equipment Interoperability –QoS IP ILD CAGR 1999-2004 = 647% 25.1% - 5,000 10,000 15,000 20,000 25,000 30,000 199920002001200220032004 International Long Distance Traffic (Millions of Minutes) 0% 5% 10% 15% 20% 25% 30% Traditional ILD IP ILD IP as % of Total ILD

12. Global IP Telephony Market: The Opportunity Driven by: –Arbitrage –Efficiency –Gain Market Share –Value Added Services Unified Messaging Web Talk Hindered by: –Regulation –QoS –Equipment Interoperability Source: IDCs IP Telephony Services: Market Review and Forecast, 1998-2004. IP Traffic (Millions of Minutes) - 20,000 40,000 60,000 80,000 100,000 120,000 140,000 160,000 19992000200120022003 2004 0% 5% 10% 15% 20% 25% 30% Global IP MOU 6-Country IP MOU 6-Country Percent of Global IP Traffic Global IP CAGR 1999-2004 = 119%

13. Latin Americas IP Telephony Market Drivers Shift 2000-2004 VALUE ADDED SERVICES MARKET SHARE LOWER BARRIERS TO ENTRY EFFICIENCIES ARBITRAGE YEAR 2000 YEAR 2004 VALUE ADDED SERVICES EFFICIENCIES ARBITRAGE LOWER BARRIERS TO ENTRY

14. Latin Americas IP Telephony Market Drivers Arbitrage: Chasing the Opportunity IP/PSTN Price Gap Arbitrage Opportunity Country 1Launch Country 2 Launch Country 3 Launch Source: IDCs IP Telephony Services in Europe, 1998-2003

15. Latin Americas IP Telephony Market Drivers Arbitrage (origination Vs termination) PSTN IP Gateway Public Internet International Carrier System Settlement Rates Transport Costs Originated $$ Terminated

16. Latin Americas IP Telephony Market Drivers Arbitrage Onnet Vs. Offnet PSTN IP Gateway Private Network SLA QoS International Carrier System Settlement Rates Transport Costs Originated $$ Terminated

17. Latin Americas IP Telephony Market Drivers Typical VoIP call 10 Kbps (Toll Quality) Typical Voice Channel 64 Kbps 64 Kbps IP Network Efficiencies

18. Initial Investment Comparison Source: IDC, 2000 SOLUTION SOLUTION INVESTMENT INVESTMENT CAPACITY CAPACITYADVANTAGES QualityQuality ReliabilityReliability Proven TechnologyProven Technology EfficiencyEfficiency New Services PotentialNew Services Potential ScaleabilityScaleability EfficiencyEfficiency New Services PotentialNew Services Potential ScaleabilityScaleability TraditionalTelephony IP Telephony Class 5 Switch IP Pop IP Full Operation US$20 million US$100,000 US$3 to 5 million 20,000Lines 400,000 Minutes per Month 35 Million Minutes per Month

19. BANDWIDTHAVAILIBILITY Latin Americas IP Telephony Market Inhibitors QOS REGULATION YEAR 2000 EQUIPMENTINTEROPERABILITY REGULATION EQUIPMENTINTEROPERABILITY QOS BANDWIDTHAVAILIBILITY YEAR 2004

20. Latin Americas IP Telephony Market Inhibitors IP Telephony Regulation - 2000 CHILENORESTRICTIONS. ARGENTINA Currently banned. Only licensed operators can carry voice. Clients cannot use value-added services to transmit voice. Will open in November 2000. BRAZIL Not regulated Only licensed operators can carry voice. COLOMBIA Only licensed operators can use VoIP. MEXICO Not regulated. Only licensed LD operators can carry voice. VENEZUELA Not regulated. Only CANTV can offer voice services until October 2000.

21. Latin Americas IP Telephony Market Inhibitors - Regulation Regulation Voice Over IP

22. Latin Americas IP Telephony Market Inhibitors Typical IP Level 200-350 ms No Noticeable Delay Barely Noticeable Delay Acceptable Delay Unacceptable Delay Typical Satellite Level 300 ms Typical PSTN 50-150 ms 450 0 50 100 150 200 250 300 350 400 450 0 50 100 150 200 250 300 350 400 Quality of Service (QoS) Telephony Delay Levels (milliseconds) ms Worst Source: IDCs IP Telephony Services in Europe, 1998-2003 Best ms

23. Latin Americas IP Telephony Market Players Regional ITSPs: –Wholesale Operators: ITXC, iBasis, GRIC, etc. –Retail Operators: Net2Phone, Deltathree, etc. –Clearing Houses: (AT&T, Telia, etc.) Local ITSPs: –Incumbents: buying wholesale minutes, offering IP Telephony, installing IP Telephony networks –Clecs: Globus, Cybercenter, etc. –Other Players: ISPs, clandestine operators, callback operators (using IP Telephony), etc.

24. Main Global IP Telephony Players, 1999 Traffic is growing at an average of 147% per quarter 13% of traffic is going to and from the LA region Wholesale (44%) Vs Retail (56%) New companies playing in the LA space: Ursus, AIC, talk.com,Netvoice, Dialpad, etc. Source: IDCs IP Telephony Services: Market Review and Forecast, 1998-2004.

25. Future Trends

26. Web Talk Convergence Business Model Web-centric Talk Services Free to users Fax-to-emailVmail-to-email Instant Messaging Buddy Lists WebMessaging PC-to-PCPC-to-phonePhone-to-PC Telephony Audio,Video,Document/ File Sharing WebConferencing Click-to-X Voice-Enablement V-Commerce Mobile Networks

27. Worldwide Web Talk User Forecast A Web User is a Talking User Key Assumptions: Simple, easy-to-user, auto-install utility. Cellfon quality or better is typical. 1999 is start-up year for many services. 12-15 services reach 1 million+ users in 1st half 2K. Hotmail-like growth expected for PC-to-PC services. Millions Source: IDC, 2000

28. Latin Americas IP Telephony Market Inhibitors - Regulation Voice Over IP Regulation WebTalk

29. Web Talk in Latin America: The Chilean Example in 2001 Total Minutes ofWebtalk:255,681,429 % of Residential Users : 48% Number of Number of Residential Residential Users: Users: 546,328 546,328 % of Residential Users Doing Chat: 50% Number Number of Residential of Residential Users Doing Chat: Users Doing Chat:273,164 Number of Chat Minutes per Week per User:120 Number Number of Minutes per Year per User: 6240 User: 6240 Total Number of Chat Minutes: 1,704,542,861 1,704,542,861 % of Minutes of Webtalk: Webtalk: 15% 15% InternetUsers:1,138,183 Equivalent to 10% of DLD for that year

30. What is Next? Clarify Regulation Operators: –embrace the technology –generate new services –leverage on the efficiencies –Develop QoS, SLAs Equipment Vendors: –Achieve true interoperability

31. Hector Hernandez Senior Analyst, IDC Latin America hhernandez@idc.com Questions?