Building momentum and scale in the telecoms software sector

1. Building momentum and scale in the telecoms software sector Kieran Moynihan Chief Technology Officer WatchMark-Comnitel Building on our Collective Experience 6th Annual Conference

2. Challenge – growing a cluster of telecoms software companies in Ireland that have the scale to compete globally Building on our Collective Experience 6th Annual Conference

3. Focus on key segment of the telco software market – Operational Support Systems (OSS) Building on our Collective Experience 6th Annual Conference

4. Comnitel Technologies – our journey in the OSS sector • Founded in Cork in 1999 • Focused on providing Service Quality Management & Service Level Agreement ( SQM/SLA) solutions for wireless carriers • Raised ~ 30 million dollars VC funding from HgCapital (UK), State Bank of Hamburg (Germany), SAIC (USA), Enterprise Ireland and ICC VC • Merged with WatchMark, a US wireless OSS company in October 2003 to form WatchMark-Comnitel • SQM/SLA Management division based in Cork with a current team of 80 and growing • Acquired a competitor, Metrica, from ADC in October 2004, for 35 million dollars + stock Building on our Collective Experience 6th Annual Conference

5. Comnitel Technologies – pioneering the standards in a new sector of OSS, wireless SQM/SLA mgmt • AT&T Wireless, a 23 million subscriber US wireless carrier has deployed ServiceAssure™ • 1st deployment worldwide of a wireless SQM/SLA management system • Now deploying across leading US, European and Asia-Pacific carriers Building on our Collective Experience 6th Annual Conference

6. Building momentum in the OSS market WatchMark–Comnitel + Metrica 500 people WatchMark-Comnitel 280 people Comnitel 80 people Building on our Collective Experience 6th Annual Conference

7. Barriers to entry to the OSS market – Scale of product for Tier 1 carriers • Can the OSS product handle large Tier 1 carriers e.g. • Cingular (47 million subs) • Verizon (43 million subs) • TIM (30 million subs) • Performance, Robustness • When the network goes down, the OSS needs to stay up ! Building on our Collective Experience 6th Annual Conference

8. Barriers to entry to the OSS market – Global presence • Telecom carrier groups now operate globally • Vodafone (29 carriers) • Orange (22 carriers) • T-Mobile (15 carriers) • Global group deals are now becoming commonplace • Vendors must demonstrate a global capability to deploy and support Building on our Collective Experience 6th Annual Conference

9. Barriers to entry to the OSS market – Financial Strength • Telecom carriers got burnt badly during 2000-2003 with large numbers of failed start-ups • While carriers still recognise small start-ups as a key source of innovation, carriers are not prepared to take major risks on small players for substantial deals • Balance sheet scrutiny is intense Building on our Collective Experience 6th Annual Conference

10. The challenge posed by Market timing • The toughest problem facing start-ups developing new software products is a serious delay in the market taking off • During the telecoms nuclear winter of 2001-2003, large numbers of telco software start-ups ran out of money while waiting for the market to start • This highlights the need to secure long-term investors who believe in your ability to become a major player when the market takes off Building on our Collective Experience 6th Annual Conference

11. The early battles in the wireless SQM/SLA market • Four players emerged as the market players in the new wireless SQM/SLA market • Our larger competitors started to use the tactic of admitting ServiceAssure™ was the best technology in the market but that we had not the financial strength to be a credible provider to large Tier 1 players Building on our Collective Experience 6th Annual Conference

12. A critical crossroads in our journey • The financial scrutiny was killing us and we needed to take it off the table • Executive team in conjunction with our investor group proactively decided in Q1 2003 to pursue a transformation strategy considering the following 3 options • Execute a large fundraising ( 20 million $ ) • Be acquired by one of competitors • Merge with a complimentary company of sufficient scale Building on our Collective Experience 6th Annual Conference

13. Merged with WatchMark October 2003 • WatchMark, a 10-year old wireless OSS company based in Seattle, USA • 200 people • 100 wireless carrier customers • 30 to 40 million dollar annual revenue • Very strong investment group • We had partnered together on a number of US bids Building on our Collective Experience 6th Annual Conference

14. Needed to enter the new wireless SQM/SLA market Existing market had matured US-centric company but weak in Europe Financial strength issue taken off the table Strong US presence accelerated our market entry 100 wireless carrier customers to upsell to Why was it good for both ? Building on our Collective Experience 6th Annual Conference

15. So how has it gone ? • This was an all-stock merger with both investment groups moving forward • From the very outset, a shared senior management team was put in place to drive the company • We adopted a merger of equals philosophy whereby they had the financial strength & customer base and we had the hot new growth technology Building on our Collective Experience 6th Annual Conference

16. Strengthening further … • In October 2004, WatchMark-Comnitel announced the acquisition of Metrica from the US corporation ADC • A wireless performance management competitor • 200 wireless customers • 35 million $ + stock • Combined company > 70 million $ revenue with a team of approx. 500 Building on our Collective Experience 6th Annual Conference

17. Going back to the original challenge Growing a cluster of telecoms software companies in Ireland that have the scale to compete globally .. A significant opportunity exists to proactively embrace M & A ( both internally between Irish companies and externally ) to build major global companies with significant operations in Ireland focused on high-end R&D

18. Need to re-shape attitude to M&A within Ireland • M & A is an integral part of the telecoms software market in USA, Israel and UK • In Ireland, a lot of negativity still surrounds M & A of emerging technology companies • Focus on “forced to sell out”, “not good enough to make it on your own”, “sense of failure” • Media hype on dilution, senior management changes • Focus needs to shift to “what is the smart business decision that is appropriate in a very tough marketplace” • Whether we like it or not, the market has shifted to wanting a smaller number of larger stronger players • The potential for small start-ups to succeed in the telco software industry on their own has diminished significantly

19. Comnitel Background - Fundraising slide from 2001 Our unique advantage in Ireland – a deep mobile expertise base • Wireless Service Management Product Company • Established in December 1999 in Cork, Ireland • Currently at 75 people • Experienced UK-based OSS commercial Team • Product architects led the design of GSM/GPRS and CDMA OSS for leading mobile equipment vendors • Unique world-class expertise in GSM, CDMA, GPRS(2.5G), IP and 3G • Staff drawn from the OSS groups of leading equipment vendors including Motorola, Ericsson, Nokia, Nortel, Lucent, Alcatel, Siemens • Staff drawn from the operations departments of leading GSM Mobile Operators in Europe such as Orange, Vodafone, Cellnet

20. Conclusion – a window of opportunity • Ireland has a timing window to utilise our 20 years of expertise in telecoms software to build a cluster of global players • Our competitors such as the rapidly emerging Chinese telecoms software industry are trying to break into this sector but lack credibility for the time being • We need to utilise M&A to build our long-term position in the global telco market

21. Kieran Moynihan kieran.moynihan@watchmark-comnitel.com