A business case I developed for BroadSoft, to support their prospects' investment decision for Hosted Unified Communications. This executive-level report demonstrates the business case for investing in Hosted UC services to serve the SMB market. The case proved pivotal in helping numerous service providers understand the emerging opportunity and add UC to their service offer.

1. Service Provider Business Case:
Hosted Unified Communications
Juan Carlos Sanchez
December 2008

2. Overview
• Executive Summary
• What are Unified Communications?
– Enterprise Benefits
– Sources of value creation for
Hosted UC Service Providers
• Case assumptions & results
• “What-if?” Analysis
• Appendices:
Base Case Cash Flow, Unit Sales,
2 2008 BroadSoft®, Inc. Proprietary and confidential; do not copy, duplicate, or distribute

3. Executive Summary
• Studies show significant benefit in adopting unified communications to enrich &
enable better interaction within businesses
• Providing hosted UC services, integrating voice with productivity applications,
offers businesses high-value communications, which they are willing to pay for
• Preliminary bus case* for Hosted UC, powered by BroadWorks & HMC yields:
– Positive CF after 1.5 Yrs; 2 Yr Payback
– 5yr NPV: €50 M
– ARPU: €54, with 61% AMPU
– 5yr Net Hosted UC CAPEX/sub: €64
• Further analysis suggests:
– “What if?” scenario analysis suggests that despite market uncertainty, the 5yr
NPV > €45 M in 88% of cases
– Maximizing the project value requires focusing efforts on a strong low-mid level
SoHo SB Hosted UC propositions
* Considers incremental hosted UC business case, based on 86k Hosted UC subs over 5 years
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4. Unified Communications (UC) offer greater business
productivity through richer, more convenient interactions
Voice integrated with your business applications…
IM, Presence, e-Mail, Contacts, Calendar,
To-do List, Web Meeting, Doc Sharing, CRM
… and accessible from various business touch points
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5. Over 95% of businesses regard integrated multimedia
communications as important to their organization
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6. SoHo & SMBs are ready to pay $50-75 (€40-60) for a full range
of hosted office productivity services, beyond telephony
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7. Using hosted UC services offer businesses
a wide range of benefits
Enterprise benefits of using Benefits of getting UC as a
Unified Communications hosted service
Productivity Increase Lower CAPEX & OPEX
•Quicker problem resolution & •Less IT staff required
decisions making •Lower implementation costs & efforts
•Less missed calls
•Upgrades included
•Mobile device integration
•Business process integration •Future Proof Up-to-date Technology
Greater Customer Satisfaction Optimized OPEX
•Better responsiveness •More predictable operating costs
•In-time access to key •Only pay for services that are being used
customer data •Easier mobile & tele-worker support
Cost Reduction Greater business productivity
•Remote collaboration •Integration with other hosted & SaaS
•Reduced Travel applications
•More effective Tele-working
•More reliable & disaster resistant
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8. Hosted Unified Communications offers service
providers many value creation possibilities
Business Objective Strategy Possible Tactic
Protect current •Reduce churn vs. competition by •Offer existing clients possibility
revenue streams introducing differentiated UC offers to easily upgrade to Hosted UC
•Create differentiated business
Revenue
Grow current •Grow ARPU by adding HMC & CRM
revenue streams offers integrating voice with
services to existing voice & data portfolio HMC, CRM Hosted UC
Cashflow ROI
•Attract new business segments with • Attract SoHo & SMB with simple,
Develop new fee-based Hosted UC service scalable, fee-based UC offers
revenue sources •Develop new revenue streams by • Offer dedicated services catering
targeting non-traditional markets to specific vertical sectors
Operating Cost
Increase •Reduce complexity and time to market •Establish wholesale agreement
productivity in delivering UC service by outsourcing with Hosted UC ASP
Gross Investment
Make costs variable •Make business more scalable •Enter demand-based service
agreement with ASP
Minimize HW/SW •Reduce CAPEX vs. implementing & •Outsource HMC & CRM service
Investment maintaining HMC & CRM apps in house supply to specialized ASP
Hosted UC net business benefits will be a mix of these factors,
8 2008 BroadSoft , Inc. by strategy and duplicate, or distribute competitive context
driven Proprietary and confidential; do not copy, the local
®

9. The business case looks at a Service Provider with an
existing BroadWorks system, selling Hosted UC services
to SoHo & SMBs
ASP Communication
Communication
ASP
Service Provider
Service Provider Med Bus
Small Bus
Selling HMC, CRM
Selling HMC, CRM Selling Hosted UC
Selling Hosted UC SoHos
(HMC 4.5 inside)
(HMC 4.5 inside) (BroadWorks 14sp6 inside)
(BroadWorks 14sp6 inside)
Wholesale HMC & Hosted UC
CRM agreement Propositions
Monthly Wholesale Pricing Monthly Service Pack Pricing
•Hosted Exchange: €9.38/user •Office UC: €40/user
•Share Point: €6.13/user
•Live Meeting: €17.50/act. for up to 50 user •Anywhere UC: €50/user
•CRM (Dynamics): €15.00/user •Premium: €70/user
•Mobile Access: €2.00/user
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10. We consider a leading service provider offering Hosted
UC to businesses in a Sm-to-Med competitive market
Hosted UC Service Market
4,200 30.0%
Subscribers (x1000)
Market Share, Churn
4,000 25.0%
Assume constant market position 3,800 20.0%
Rate (%)
over 5yr period: 3,600 15.0%
3,400 10.0%
3,200 5.0%
- Bus BB Market Share: 25% 3,000 0.0%
2008 2009 2010 2011 2012 2013
- Bus Customer churn: ~ 3.5%
Business BB Lines Consumer BB Lines
SP Bus BB Market Share Business Churn Rate
Total Business Market
460.0 0.9
450.0 0.9 4.1
Total addressable market*: 440.0
4.0
Business (x 1000)
441K businesses, growing 0.5%/Yr: 430.0
420.0
45.7
44.5
410.0
400.0
SoHo: 89% Mid: 0.9% 390.0
380.0 401.4
SMB: 10% LE: 0.2% 370.0
391.6
360.0
2008 2013
*No. of employees per co.:
SoHo 1-9, SMB 10-50, Mid 50-250, LE > 250 Soho SME Mid LE
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11. The case is built on delivering 3 Hosted UC
Value Propositions to SoHo & SMBs
Office Unified Anywhere Unified Premium Unified
Communications Communications Communications
For business with: 2-25 employees 2-25 employees 10-200 employees
Office IM + Integrated Voice
Hosted Exchange 1GB user account 1GB user account 2GB user account
Hosted SharePoint - -
Hosted Live Meeting
Hosted Dynamics (CRM) - -
Mobile Access -
Hosted Business Telephony
Unlimited Local Fix-line Calls
Broadband Internet 10 MB/s 10 MB/s 50 MB/s
€40/user.mth €50/user.mth €70/user.mth
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12. Hosted UC boosts current SMB ARPU, it unleashes a
new SoHo revenue stream, while helping reduce churn
Business cases consider three Hosted UC Revenue - 5yr
sources of value creation: 0%
5 Yr Total:
€ 139 M
36%
1) ARPU uplift from SMBs customers:
Beyond existing ‘voice & data’ ARPU
of €14/user.mth 64%
Incr SMB ARPU SoHo Rev Rev from retained customers
2) New SoHo revenue:
Hosted UC fees + VoIP phones Rev based on 86 k HUC subs after 5 yrs
Hosted UC ARPU
3) Reduced churn across existing SMB
‘voice & data’ customers base 70
ARPU (ZAR/Sub.Mth)
60
- 2.5pts 0% pts; from Yrs 1 3 50
40
30
20
Case Considers 5 yr take-up scenario: 10
0
Yr 1 Yr 2 Yr 3 Yr 4 Yr 5
Office UC: SoHo 2.6%, SME 6%
Anywhere UC: SoHo 2.6%, SME 6% Incr SMB ARPU SoHo Rev Rev from retained customers
Premium UC: SoHo 0%, SME 6%
ARPU ~ €54
Avg. subs/bus: SoHo 6, SME 29 Incr. SMB Rev. 65%, SoHo Rev. 35%
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13. Delivering Hosted UC requires incremental
CAPEX to integrate with the ASP’s UC
Cumulated Investment - 5 Yr
Overlay Business Case requires
€ 5.4M CAPEX over 5 yrs
8% • New IP phone sets: 71%
User Handset
• Incremental VoIP licenses: 21%
21%
VoIP System - HW
• ICT network systems: 8%
0% VoIP System - SW
ICT Network-related
CAPEX as %Rev: 43 6% in Yr 0 3
71% CAPEX/sub: €64
• Based on 86 k Hosted UC subs after 5 yrs
5Yr Total CAPEX: Overlay investment scenario is demand
€5.4 M driven, and considers:
- VoIP phone set: €50-90 / new sub
- VoIP Licenses: €29 / new sub
- Servers: €6.5 k / unit
- ICT systems: CSTA Gateway, Voice & HMC
Mediation systems: €7-100k /unit
13 2008 BroadSoft®, Inc. Proprietary and confidential; do not copy, duplicate, or distribute

14. Offering Hosted UC involves IT application &
networking expenses, but delivers strong margins
Op Margin / Sub - After 5yr
Cost of Goods Sold - 5 Yr Total
ASP Expense 11%
45.0
28%
40.0
Network O&M
35.0
30.0 Distribution Channel
Cost (M ZAR)
Expenses
61%
25.0
Customer Retention Cost
20.0 COGS Overhead Op Margin
15.0 Net Subscriber Acquisition
10.0 Cost
Offnet Interconnection
-
5.0
Expenses Hosted UC offers 61% Op Margins:
– COGS: 28% total rev, of which:
Overhead Costs - 5 Yr Total
•44% Off-Net traffic interconnection
45.0 22% SRC, 11% SAC, 10% ASP
40.0
35.0
G&A
– Overhead: 11% total rev, of which:
30.0
Marketing Expenses •55% Marketing, 22% CC&B,
Cost (M ZAR)
25.0 Customer Care & Billing
20.0
15.0
Net Support & Scenario COGS Overhead
Maintenance •Off-net Interco: 15% sub fees • CC & Billing: €15-17/sub
10.0
based on:
•SRC: €30-36/sub •15/18% HW/SW Maintenance
5.0
•ASP: €9-18/ app.sub.mth •Marketing: €1.25 M (Launch)
-
•Power Expense, 3 staff 7-5% rev (Promo)
14 2008 BroadSoft®, Inc. Proprietary and confidential; do not copy, duplicate, or distribute

15. The hosted UC business case shows strong short-mid
term value creation, incl. quick time to +ive cashflow
Hosted UC project shows
strong mid-term potential:
• Time to positive CF: 1.5 Yrs
Free Cashflow
Hosted UC Project • Payback: 2 Yrs
100
– 5 Yr NPV: €50 M
80
60
M ZAR
40 Hosted UC success
20
0
depends on driving new
-20 Y0 Y1 Y2 Y3 Y4 Y5 customers & revenue, while
-40 containing IT networking fees
Rev COGS Overhead CAPEX Cum FCF
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16. What if the market impact where different?
The preliminary hosted UC business case suggests that the
project will create €50M NPV over 5 yrs (12% WACC)
“How much added
value would the Based on ‘what if”
Hosted UC offer analysis*, Hosted
create if…”: UC will provide:
1. Service demand where
different ? NPV > €45M in
–Worst case: 50% lower
–Best case: 50% higher 88% of cases
- Min: 35 M ZAR
2. Customers paid higher /
lower service fees? - Max: 67 M ZAR
–Worst case: 20% less
–Best case: 20% more Positive NPV in all
3. Offnet inter-co fees where cases considered
higher/lower ?
–Worst case: 25% less
–Best case: 25% more
Despite uncertainty in the market impact of launching the offer, a Hosted
UC service will create value for a first-mover service provider
* Monte Carlo simulation: NPV distribution obtained by running 5000 ‘NPV trials’ with randomly generated sets of input variables as specified
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17. What drives the business case?
The NPV is most sensitive to
SoHo adoption of low & mid-
level offers UC offers
This implies:
1) Creating “Office” &
“Anywere” UC offers that
appeal to SoHo SB segment
2) Ensuring strong market
awareness & promotion
3) Providing superior overall
experience to ensure
customer satisfaction
Maximizing this opportunity requires focused efforts on developing and
going-to-market with strong SoHo SB Hosted UC value proposition
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18. Appendix A – Free Cash Flow
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19. Appendix B – Hosted UC Units Sold & ARPU
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20. Questions?
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