Broadband Competitive Analysis

Broadband Competitive Intelligence Report

Broadband
Competitive
Analysis
Small Business Market
St. Louis, Missouri
October 2000

Salestar, Inc.
300 Lakeside Drive, 11th Floor
Oakland, CA 94612
Telephone: 510.637.4700
Facsimile: 510.740.1040
www.salestar.com

Information subject to change without notice. This publication may not be reproduced, sold or used in any form or by any
means - graphics, or electronic, including photocopying, scanning, or information storage and retrieval systems - without
written permission of Salestar, Inc.

© Copyright 2000 Salestar Inc. All rights reserved 1


Small Business Market - St. Louis, MO

Table of Contents

• Introduction .................................................................................................... pg. 3-4

• Demographic Profile ........................................................................................ pg. 5-6

• Strategic Notes ............................................................................................... pg. 7-8

• Competitive Matrix

DSL Providers
SWB .................................................................................... pg. 9
Birch .................................................................................... pg. 9
Gabriel ................................................................................. pg. 10
Primay Networks ................................................................ pg. 10

Integrated Service Providers
Sprint ................................................................................... pg. 11
Allegiance ............................................................................. pg. 11
XO ...................................................................................... pg. 11
Intermedia ........................................................................... pg. 12
Qwest .................................................................................. pg. 12

Fixed Wireless
Winstar ................................................................................. pg. 13
Teligent ................................................................................. pg. 13

• Benchmark Matrix .......................................................................................... pg. 14-16

• About Salestar ................................................................................................ pg. 17



Introduction
St. Louis is making a late transition from a manufacturing hub into an entrepreneurial service based economy.

Venture capital investments rose from a paltry $14 million in the first quarter of 1999 to $311 million in the second

quarter of 2000, exceeding $242-$283.5 million for the entire 1999. These investments are still less than half of the
$792.9 million venture capital investments San Jose, the largest for any city, obtained in a single first quarter of 1999.

The city has the wherewithal, including infrastructure and human talent, to fuel a technology boom. It had
6,000 fiber optic miles at the end of 1998 spread over the entire commercial sector. The region is also rated first for

backbone traffic and second for domain density in the USA. High-tech labor force constitutes 15% of the labor force.

This talent accrues very largely due to the presence of the 3,992 branches or subsidiaries of Fortune 1000 companies
located in the region, including headquarters of eleven Fortune 500 companies. When these companies reduced their

labor force in the 1990s, some of the employees turned into entrepreneurs.

Low costs of doing business, modest cost of living and superior quality of life are added attraction for doing

business and to draw talent to the region. Office rent at $19.07 per square foot is comparable to other boomtowns like

Omaha ($19.00), Nashville ($18.50) but much lower than Las Vegas ($29.16). The roadway congestion index at 1.05 is
comparable to other growth pole like Salt Lake City (1.05), Omaha (1.00) but lower than Las Vegas (1.20) or San

Francisco (1.33).

Prospects for small business growth are optimistic. The latest small business confidence index for St. Louis

rated as 12th in the country. The estimated future economic growth for the period 1998-2003 (forecast by Arthur

Andersen) at 22.15% compare well with other technology centers such as Kansas City (23.27%), San Antonio (24.92%)
and Raleigh (23.52%) but short of the top performers such as Nashville (31.56%) and Salt Lake City (29.97%).

Missouri has a favorable climate for business because it requires the approval of 2/3rds of the voters in order
to increase taxes of more than $50 million. It does not impose any Internet tax or any electricity tax. However, the state

has a relatively high capital gains tax of 6%, which is rated 29th in the country.



continued...

The availability of a technical experienced manpower pool is propelling technology driven growth in the

metropolitan area. St. Louis has been the headquarters of Southwestern Bell, which has been the incubator for talents
that created companies such as Brooks Fiber Properties (later sold to MCI WorldCom), one of the first CLECs in the

country. The former employees of Brooks have subsequently initiated start-ups like Gabriel Communications,

CoreExpress, Integra, etc. Other companies like McDonnell-Douglas, Boeing, etc have also contributed to the talent
pool.

Small businesses are looking for advanced telecommunications services, which is evident from the increasing

numbers of companies planning to offer Voice over DSL or integrated services using various types of access technolo-
gies. Gabriel Communications, Primary Networks (now part of Mpower Communications) and Omniplex Communica-

tions are committed to offer integrated services over DSL within the next two quarters. Currently, integrated services

are provided by using T-1 as access technology; AT&T plans to offer its INC services (also in collaboration with
AccessUS as its reseller) and a similar package is available from SAVVIS (sans voice). NextLink (now XO Communica-

tions) and Qwest are major providers of T-1 (with static bandwidth allocation).

New entrants to the St. Louis’s market provide a foretaste of the intense competition that can be expected in

the near future. Some of the new companies include strong regional players such as WorkNet, a fixed wireless provider

that has targeted the price sensitive segment of the small business market that can make do with a small web server to
accommodate no more than 6 IP addresses. Similarly, Birch Telecom offers low priced single data line DSL to small

businesses. Companies like SAVVIS, which offers policy managed integrated data services, meet customers with more

sophisticated needs. Allegiance Telecom, which has grown from a smart build-up strategy to a facilities based pro-

vider, is expanding its data services from its previous focus on voice services.



Demographic Profile

Business Growth
· Job growth has been a slow 1.9% per year, ranked 76th nationally
· Expected per capita income growth for ‘98-‘03 is 22.15%

Profile of Businesses
· 3,992 branches subsidiaries of Fortune 1000 companies (ranked 4th) (11 headquarters of Fortune 500)
· Had 68,751 firms with payrolls (1999)
· Services accounted for the largest share (37.3%) of all businesses, manufacturing (5.4%)
· A low index of business diversity (5.7) compared to Las Vegas (62.5) indicates susceptibility to recession

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Climate for Small Business
· Missouri is rated 14th nationally in small business confidence index (September 2000)
· Positives: zero electric utilities tax, tax limitation state
· Negatives: high sales tax (33rd), high crime (31st)
· Cost of Community services in St. Louis (taxes, fees and license costs) is ranked 66th nationally

Venture Capital and Business Start-Ups
· Venture capitalists invested $14 million in St. Louis (1Q 1999) compared to $792.9 million for San Jose
· Business Start-ups Index at 48 is less than half of Las Vegas at 100
· Growing Business Index at 43 is also low compared to 100 for Salt Lake City
· Cost of doing business (office rent) at $19.07 per square foot is low compared to $48.00 for San Francisco



continued...

Internet
· Ranked 35th in the USA as the most wired city
· Ranked first for backbone traffic, 2nd for domain density
· At 40.8% in 1999, Internet penetration in St. Louis was below the national average of 43.7%

Labor Force
· High tech labor force at 205,476 constitutes 15% of the total labor force
· Professionals and Managers constitute 13.8% of labor force, less than the 14.4% national average
· Unemployment rate was 3.4% in August 2000, down from the 4% of the previous year
· 20.9% of adults over the age of 25 have a Bachelor’s degree (Greater Washington is highest at 37%)



Strategic Notes
· Southwestern Bell does not offer integrated broadband services either by DSL or T1 access technologies. Some of its T1
products leave open the option for customers to do their own bonding for integrated access but this they can do at their own
cost. The incumbent’s focus is on single line DSL access and its emphasis is on drawing customers by low prices. These low
prices are available for the widest range of speed options from 384 Kbps to 6 Mbps downstream. Southwestern Bell’s product
range does not include SDSL.

· Primary Networks is a facilities-based CLEC and DSL provider based in St. Louis. The company is a very strong
competitor in the St. Louis DSL market and has approximately 35% of all DSL connections in the state of Missouri. Currently,
Primary Networks has its equipment in 27 central offices in the St. Louis metropolitan area to provide both ADSL and SDSL
services. Primary Networks completed its merger with MPower Communications, a VoDSL provider, in June 2000, and will
begin offering VoDSL service in St. Louis in 1Q01.

· Several competitors, for example Qwest, have taken recourse to product differentiation strategy to deal with the preda-
tory pricing of the incumbent. This includes a host of web hosting and e-commerce options and application services. By
offering web hosting and application hosting services, these carriers strengthened its position with their existing customer
base.

· Qwest, which combines generous discounts to customers based on volumes of traffic and contract period. Qwest gives
a discount of 21% on expenditures in the range of $500-$4,999 for a single year and up to 31% for a three year contract. Clearly,
the intent is to build long-term relationships sustained by service.

· XO Communications provides the widest range of web-hosting packages among all companies. This is despite the fact
that its pricing is comparable to the less feature rich, “no frills”, products from a price oriented player like Allegiance.

· Teligent is relying on its Premier package, which includes 50 MB of web hosting capacity and 50 e-mail user IDs.
Although Teligent offers a Basic package, its pricing is only marginally lower for its “On-net” (lit buildings) products. Priced
at about twice the level of Winstar, another fixed wireless provider, Teligent is counting on its added features to compete in
the market.

· Birch Telecom provides the widest range of web hosting and e-mail options among DSL providers. Its web-hosting
storage capacity, however, is an additional cost over its already high priced access solutions. Customers can obtain between
one and one hundred e-mail accounts depending on the bandwidth selected. Similarly, Birch offers a choice of three web-
hosting packages, with storage ranging from 10 MB to 75 MB. Although its access pricing is high, Birch offers local, long
distance and high-speed Internet at 12% to 42% less than Southwestern Bell, all under one single bill.



continued...

· WorkNet, a fixed wireless carrier, which is focused on low cost bandwidth needs of small businesses that require less
than 6 IP addresses and need to port a small web server (it has wired 108 buildings in the city and has covered 60-65% of the
city).

· The price sensitivity of the market is demonstrated by current promotions that are available from several companies.
Gabriel Communications waives the entire installation and CPE charges when bundled with 3 voice lines and three-year
contract. Winstar is offering 7 months free service with a three-year contract. Similar, discounts are available from XO
Communications, Teligent and Allegiance.



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2 L ine 4 L ine
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National-Non T erm: $ 292 $ 688
H‚‡uy’ ÃSrp ˆ……vtÃ8uh…tr
768K :$ 670, 896K:$ 710, 1024K :$ 780 192K bps - $ 495, 256K bps - $ 595
National-1to 3 Y r: $ 266 $ 625
VOIC E - $ 38.1 per Channel
3 384K bps - $ 750, 512K bps - $ 900
M etro-Non T erm: $ 232 $ 436
L ON G D IS T A N C E - B as ed on us age 786K bps - $ 1249, 1544K bps - $ 1395
M etro-1 to 3 Y r: $ 211 $ 396
terms . R anges from $ 0.046-$ 0.060
T erm plan: $ 149 $1000 for all s peeds (waived with a 1 2 or 3
,
D† ‡hyyh‡v‚Ã8uh…tr 1Y r $ 500, 2 Y rs $ 250, 3 Y rs $ 0
Non-term plan: $ 299 year term)
$ 2300 (aprox.) with a on-s ite ins tallation
@„ˆvƒ€r‡Ã8uh… tr S print ION H ub included in M R C Included charge of $ 400 or a plug play router
for $ 200.
DTQÃ8uh…tr No Charge No No Charge
$ 38.13/channel (1year term)
6 qqv‡v‚hyÃQ… vp vtÃ@yr€r‡† No B us ines s line (dial tone)$ 24/month Actual L ong Dis tance charges per minute
B us ines s line + s tandard features $ 51.00
8‚‡…hp ‡ 1, 2 or 3 Y ears 1, 2 or 3 Y ears 1, 2 or 3 Y ears
90 day cus tomer s atis faction policy. After
@h…y’ ÃUr… €vh‡v‚ÃArr that, cus tomer is liable for the remaining R epay $ 1000 dis count
$ 50 off ins tall charge for 1 year term
Q…‚€‚‡v‚† Not available Ins tallation waived with a 1 2 or 3 year term
,
F R E E ins tall for 3 year term
Tr … ‰vpr

@„ˆvƒ€r‡ÃD† ‡hyyr… S print Intermedia Qwes t
P… qr…ÃD‡r… ‰ hy 45 Calendar Days 60-75 Calendar Days 30-45 Calendar Days
Y es (100% up-time and 65 millis econds
Tr…‰ vp rÃGr‰ ryÃ6 t…rr€r‡† with 90 days S print will pay up to $ 600 to Y es (99.95% up-time)
delay)
Thyr † Ã8uh r y

Pyvr Y es No No
P@HÃ No No No
Sr‡hvy No No No

© Copyright 2000 Salestar Inc. All rights reserved


Fixed Wireless
X v T ‡h …Ã D ‡r t…h ‡r qÃ Ur y v t r ‡Ã D ‡r t…h ‡r q Ã
T ƒ…v ‡Ã D P IÃ
T r …‰ v pr † T r …‰ v pr †ÃQ…r€ v r…Ã Qhpx htr

Q… ‚ q ˆ p‡

ÃUrp u‚y‚t’ A DS L , Integrated Acces s , A T M platform F ixed Wireles s F ixed Wireles s
128K bps , 256K bps
1 bps /8M bps
M 128K bps , 384K bps
TƒrrqÃ Vƒ† ‡…rh€9‚ † ‡…rh€ 384K bps , 512K bps
684K bps /1M bps 768K bps , 1544K bps
1544K bps
@HhvyÃ6 p p ‚ˆ‡† 5 7 50
DQÃ6 qq… r† † r† M ultiple s tatic IP ’s Unlimited (as long as they are jus tified) Unlimited (as long as they are jus tified)
No (3 different pack ages available at an
Tuh…rqÃXriÃC‚† ‡vtÃDp yˆqrq P ers onal Web page (6M B ) Y es
additional cos t)
9‚€hvÃIh€rÃSrtv† ‡…h‡v‚ Y es Y es
Q…v€h…’ Ã9IT Y es Y es
Trp ‚qh… ’ Ã9IT Y es Y es
9h‡hÃT‡‚… htr 6M B 5M B 50M B
G‚p hyÃW ‚vp rÃTr… ‰ vp rÃDp yˆqrq Y es (at an additional price) Y es
minutes per month
G‚tÃ9v† ‡hp rÃTr… ‰ vp rÃDp yˆqrq Y es (at an additional price) Y es (at an additional price)
minutes per month
minutes included in plan
W ‚vp r9h‡hÃ9v† p ‚ˆ‡ Included Y es (30% off from R B OC) Y es (30% off from R B OC)
PyvrÃ6 p p ‚ˆ‡ÃHhhtr€r‡ Y es No Y es
8‚‡r‡ News group A cces s Office.com, News S erver A cces s No
Q… vpr

2 L ine 4 L ine 1-Y ear 2-Y ear 3-Y ear 128K bps - $ 745,
N ational-N on T erm: $ 292 $ 688 1 28K : $1 49 $139 $ 129 256K bps - $ 775
H‚‡uy’ ÃSrp ˆ……vtÃ8uh…tr N ational-1 to 3 Y r: $ 266 $ 625 384K : $ 249 $ 229 $ 209 384K bps - $ 81 0
M etro-N on T erm: $ 232 $ 436 768K : $ 449 $ 409 $ 379 512K bps - $ 895
M etro-1 to 3 Y r: $ 211 $ 396 1.54M B : $ 849 $ 779 $ 699 1544K bps - $ 1 20
,1
T erm plan: $ 149
D† ‡hyyh‡v‚Ã8uh…tr $ 350 Included
N on-term plan: $ 299
@„ˆvƒ€r‡Ã8uh… tr S print ION H ub included in M R C Included Included
DTQÃ8uh…tr N o Charge No Charge No Charge
Voice L ine $ 22.00 / L D bas ed on a $ 50,
$ 500, $ 2500 minimum
Intro Web H os ting $ 34.95/month
6 qqv‡v‚hyÃQ… vp vtÃ@yr€r‡† No S tarter Web H os ting $ 59.95/month Voice L ine $ 22.00
A dvanced Web H os ting $ 99.95/month
All packages are s ubject to a one time s et-
up fee of $ 39.95
8‚‡…hp ‡ 1, 2 or 3 Y ears 1 2, or 3 Y ears
, 1, 2 or 3 Y ears
90 day cus tomer s atis faction policy. A fter
Commitment level multiplied by the
@h…y’ ÃUr… €vh‡v‚ÃArr that, cus tomer is liable for the remaining
number of months in contract
3 months free local s ervice when bundled
$ 50 off ins tall charge for 1 year term 7 months free s ervice with 3 year term with L D and Data on a 1 Y r term and 5 free
Q…‚€‚‡v‚†
F R E E ins tall for 3 year term (limited time) months local s ervice on a 2 Y r. term when
bundled with L D and Data
Tr … ‰ vpr

@„ˆvƒ€r‡ÃD† ‡hyyr… S print Wins tar T eligent
P… qr…ÃD‡r… ‰ hy 45 Calendar Days 30-45 B us ines s Days 45 to 60 B us ines s Days
Tr…‰ vp rÃGr‰ ryÃ6 t…rr€r‡† with 90 days S print will pay up to $ 600 to N ot available Y es (on an individual cas e bas is )
Thyr † Ã8 u h r y

Pyvr Y es Y es No
P@HÃ No No No
Sr‡hvy No No No

© Copyright 2000 Salestar Inc. All rights reserved


Competitor Evaluation

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SWB

l Price: Pricing is nearly half of CLECs; self-installation further lowers installation cost
l Lead Time: As the incumbent operator, offers the lowest order interval at 15 business days. Beats its competi
tors by almost half
l Segmentation: Widest range of speeds caters to the broadest range of consumer groups
l Integration: Not offered at this time
l Contract: No month-to-month terms. Only one year term available with a $200 early termination fee
l Services: Virtually no services with the exception of disk space for a personal page
l Sales: Telephone sales and on-line inquiry only. OEM channel with COMPAQ on their residential Basic
package
l Promotions: Moderate discounts for one of its package and none for the other



Birch

l Price: At twice the levels of comparable offerings, price is high even when the value of web hosting is
factored in
l Lead Time: With a high 45-60 calendar days turn around, Birch ranks as the highest among service providers
l Segmentation: Offers a variety of web hosting packages and E-mail services
l Integration: No integration neither on single pipe nor bundling
l Contract: Month-to-month, one and two year terms available with a $250 early termination fee
l Services: Substantial web hosting storage with scope for sophisticated design and enhancement
l Sales: Telephone sales only
l Promotions: None available at this time

Gabriel Communications

l Price: High even when equipment and installation charges are included
l Lead Time: Similar to Birch, also Gabriel has a high service turn around
l Segmentation: Average speeds and no web hosting services
l Integration: Discounts available when bundling with three voice lines (minimum)
l Contract: One, two and three year terms available with penalties for an early termination of contract
l Services: Domain name registration but as a pass through charge to the customer
l Sales: Telephone sales available
l Promotions: Cost of CPE waived with a three year term and 50% off with a two year term

Primary Networks

l Prices: Several plan options with average prices. ADSL plans can achieve speeds up to 1.5MB and 6MB
l Lead Time: With a 20 business days order interval, Primary Networks is closer to SWB
l Segmentation: Competitive range of speeds tailored to target specific groups
l Integration: No bundling and no single pipe access offered
l Contract: One and three year term only. 60 day customer satisfaction policy, after that, customer is liable for
the remaining months in the contract
l Services: DNS and domain name registration services
l Sales: Telephone and on-line sales available
l Promotions: None offered at this time



Allegiance

l Price: Cheapest among integrated services providers
l Lead Time: 60 calendar days for service, ranks Allegiance as one of the highest among service viders
l Segmentation: Only web hosting is available with limited speed ranges
l Integration: Fractional T-1 only. Voice is available but no bundling discounts
l Contract: One, two and three year terms available. As a penalty for an early termination of contract, the cus-
tomer has to return credit he received from Allegiance
for purchase of Digital Trunk interface card
l Services: Virtually no services besides web hosting storage
l Sales: Telephone only

Qwest

l Price: Highest price among providers, however, Qwest offers volume and term discounts ranging from 21% to
45%
l Lead Time: Average lead time of 30 to 45 business days for service turn around
l Segmentation: Broadest range of speeds and web hosting services. Web hosting services are being
re-vamped
l Integration: Fractional T-1 and long distance services offered
l Contract: One, two and three year term with early termination fees
l Services: Web hosting and e-mail services are not included but available at an additional cost
l Sales: Telephone sales and on-line inquiry

XO Communications

l Price: Twice as high as Allegiance and highest installation charge
l Lead Time: 30 to 40 business days similar to Qwest
l Segmentation: Wide choice of e-mail addresses and web hosting services
l Integration: Fractional T-1 and discounts with voice bundling
l Contract: 1 year term only and early termination penalties
l Services: Sophisticated web hosting packages with high storage capacity
l Sales: Telephone sales only, no OEM or retail
l Promotions: Attractive incentives for new customers on their equipment and voice services



Intermedia

l Price: Very competitive prices and one of the lowest among providers
l Lead Time: 60 to 75 calendar days for service installation. Highest between other providers
l Segmentation: Wide range of speeds with voice and web hosting services
l Integration: Voice is included but extra for web hosting services
l Contract: One, two and three year term with applicable penalties for an early termination of contract
l Services: Broad range of web hosting and e-commerce solutions; local and long distance services also offered
l Sales: Only telephone channel is available

Winstar

l Price: Competitive low prices on all four different speeds offered
l Lead Time: Average lead time ranking equal to Intermedia and Qwest, XO
l Segmentation: Voice services offered including local and long distance. Also offers three web hosting pack
ages at affordable prices
l Integration: Voice and data on single broadband access and discounts with bundling
l Contract: Similar to Intermedia, after the customer satisfaction policy expires, customer is liable for remaining
months in contract
l Services: Rich web content through Office.com
l Sales: Telephone and on-line sales available
l Promotions: Seven months of free service with a three year commitment

Teligent

l Price: Higher by several multiples; high even after Web hosting installation and equipment charges factored
in
l Lead Time: 45 to 60 business days order interval on its service installation. One of the highest in the market
l Segmentation: Attractive web hosting services with Premier package. A cheaper, but less robust Basic pack
age is also available
l Integration: Attractive bundling discounts with integrated services
l Contract: Stiff penalties on early termination of contract. No month-to-month terms offered
l Services: Sophisticated web hosting services with high storage capacity
l Sales: Telephone sales available
l Promotions: Three and five months of free service when signing a 1 or 2 year term. Also substantial discounts
when bundling voice and data services



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