COMPNAY REPORTS



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ChangeWave Research Report:

Telecom Equipment, VoIP & 3G Trends for 2004

Better Year Ahead - Cisco, Nokia and Nortel Will Lead Pack

Abstract

The post-bubble struggles of the telecom industry have been tracked numerous times by Alliance surveys since 2001. This report presents the findings of our most recent survey of telecom industry members, conducted October 14-20, 2003. A total of 130 members participated.

The current findings provide the most optimistic picture to date of a telecom industry evolving from an "old world" dominated by behemoths to a new, more dynamic paradigm shaped by next generation technologies. With demand projected to improve, 2004 should be a much better year for the beleaguered industry.

Telecom Equipment

• Demand Strengthening. A net 66% of respondents see demand increasing in the first half of 2004. This compares to a net of just 19% 10 months ago.

• Wireless Stands Apart. Wireless (+75) was by far the leading telecom segment according to our respondents. Data Transmission (+29) placed second. The worst segments were Traditional Wireline (-68) and Billing/CRM Software (-16).

• Best Performers Overall. Cisco (+39), Nokia (+26) and Nortel (+13).

• Worst Performers Overall. Lucent (-42) and JDS Uniphase (-17).

VoIP (Voice over Internet Protocol)

• VoIP Wears a Corporate Suit. Better than half (55%) of respondents believe Corporate Telecom Networks will be the mainstream VoIP market for 2004.

• Cisco Will Lead the Way. More than half (53%) of respondents also believe Cisco will be the fastest growing vendor of VoIP gear in 2004. Nortel (21%) was the only other company to garner double-digits.

3G Wireless

• 3G Deployment Will Increase, But Tight Budgets Hurt Growth. Better than half of our industry respondents say the pace of 3G deployments will increase in both the U.S. and Europe in 2004, but 36% say tight capital spending will hurt growth.

• A Trio of Leaders. Nokia (40%), Nortel (33%) and Ericsson (30%) will capture the most growth in 3G / 2.5G wireless gear markets in 2004.

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Table of Contents

Summary of Key Findings 3

The Findings 4

Telecom Equipment Trends 4

VoIP (Voice Over Internet Protocol) 7

3G Wireless 10

Summary and Analysis 14

ChangeWave Research Methodology 17

About ChangeWave Research 18

I. Summary of Key Findings

Overview

The post-bubble struggles of the telecom industry have been tracked numerous times by Alliance surveys since 2001. This report presents the findings of our most recent survey of telecom industry members, conducted October 14-20, 2003. A total of 130 members participated.

The current findings provide the most optimistic picture to date of a telecom industry evolving from an "old world" dominated by behemoths to a new, more dynamic paradigm shaped by next generation technologies. With demand projected to improve, 2004 should be a much better year for the beleaguered industry.

The survey results focus on three areas:

• Telecom Equipment Trends

• VoIP (Voice over Internet Protocol)

• 3G Wireless

II. The Findings

A. Telecom Equipment Trends

(1) Question Asked: Based on your own knowledge and what you are seeing in the industry, do you believe that telecom equipment demand in the first half of 2004 will increase, decrease, or remain the same in comparison to the second half of 2003?

| |Current Survey |Previous Survey |Previous Survey |

| |Oct 2003 |Jul 2003 |Dec 2002* |

|Demand will Increase in First Half of 2004 |68% |51% |39% |

|Demand will Decrease in First Half of 2004 |2% |4% |20% |

|Demand will Remain the Same in First Half of 2004 |28% |38% |38% |

* Note: In the December 2002 survey, the question was “Based on your own knowledge and what you are seeing in the industry, do you believe that telecom equipment demand in 2003 will increase, decrease, of remain the same in comparison to 2002?”

Rising Tide of Projected Demand. A net 66% of respondents see demand increasing in the first half of 2004. This compares to a net of 19% back in December 2002 who had expected demand to increase during 2003.

(2) Question Asked: Which one or two of the following categories of telecom equipment will perform the best in the first half of 2004? (Please Choose No More Than Two)

| |Current Survey |Previous Survey |Previous Survey |

| |Oct 2003 |Jul 2003 |Dec 2002* |

|Wireless |78% |68% |76% |

|Data Transmission |32% |29% |33% |

|Metro |16% |17% |21% |

|Optical/Fiber |15% |27% |13% |

|Net Management Software |13% |1% |16% |

|Traditional Wireline |4% |4% |5% |

|Billing/CRM Software |2% |6% |8% |

* Note: In the December 2002 survey, the question was “Which one or two of the following categories of telecom equipment will perform the best in 2003?”

(3) Question Asked: Which one or two of the following categories of telecom equipment will perform the worst in the first half of 2004? (Please Choose No More Than Two)

| |Current Survey |Previous Survey |Previous Survey |

| |Oct 2003 |Jul 2003 |Dec 2002* |

|Traditional Wireline |72% |60% |66% |

|Optical/Fiber |26% |30% |47% |

|Billing/CRM Software |18% |18% |15% |

|Metro |8% |9% |9% |

|Net Management Software |6% |10% |11% |

|Data Transmission |3% |2% |4% |

|Wireless |3% |3% |4% |

* Note: In the December 2002 survey, the question was “Which one or two of the following categories of telecom equipment will perform the worst in 2003?”

Net Difference Score – Current Survey (October 2003)

| | | |Net |

|Telecom Equipment |Perform |Perform |Difference |

|Sub-Category |Best |Worst |Score |

|Wireless |78% |3% |+75 |

|Data Transmission |32% |3% |+29 |

|Metro |16% |8% |+8 |

|Net Management Software |13% |6% |+7 |

|Optical/Fiber |15% |26% |-11 |

|Billing/CRM Software |2% |18% |-16 |

|Traditional Wireline |4% |72% |-68 |

Wireless is Top Category. Wireless (+75) was by far the leading category among respondents, when asked to choose the best and worst performing telecom segments for the first half of 2004. Data Transmission (+29) placed a distant second, followed by Metro (+8) and Net Management Software (+7).

Bottom of the Telecom Sector. The remaining categories – Traditional Wireline (-68), Billing/CRM Software (-16) and Optical/Fiber (-11) – all notched negative difference scores.

(4) Question Asked: Within the market for telecom equipment, which one or two companies do you believe have the best chance of improving their performance in the first half of 2004? (Please Choose No More Than Two)

| |Current Survey |Previous Survey |Previous Survey |

| |Oct 2003 |Jul 2003 |Dec 2002* |

|Cisco |45% |54% |59% |

|Nokia |32% |22% |44% |

|Nortel |28% |32% |15% |

|Motorola |19% |11% |18% |

|Ericsson |11% |6% |8% |

|Lucent |9% |15% |5% |

|JDS Uniphase |8% |12% |8% |

|Ciena |5% |8% |9% |

*Note: In the December 2002 survey, the question was “Within the market for telecom equipment, which one or two companies do you believe have the best chance of improving their performance in 2003?”

(5) Question Asked: Within the market for telecom equipment, which one or two companies do you believe have the least chance of improving their performance in the first half of 2004? (Please Choose No More Than Two)

| |Current |Previous Survey |Previous Survey |

| |Survey |Jul 2003 |Dec 2002* |

| |Oct 2003 | | |

|Lucent |51% |40% |53% |

|JDS Uniphase |25% |25% |26% |

|Ericsson |22% |36% |26% |

|Motorola |18% |17% |10% |

|Nortel |15% |17% |32% |

|Ciena |12% |15% |12% |

|Nokia |6% |6% |3% |

|Cisco |6% |5% |3% |

*Note: In the December 2002 survey, the question was “Within the market for telecom equipment, which one or two companies do you believe have the least chance of improving their performance in 2003?”

Net Difference Score – Current Survey (October 2003)

| |Best Chance |Least Chance of Improving |Net |

|Telecom Equipment Companies |of Improving Performance |Performance |Difference |

| | | |Score |

|Cisco |45% |6% |+39 |

|Nokia |32% |6% |+26 |

|Nortel |28% |15% |+13 |

|Motorola |19% |18% |+1 |

|Ciena |5% |12% |-7 |

|Ericsson |11% |22% |-11 |

|JDS Uniphase |8% |25% |-17 |

|Lucent |9% |51% |-42 |

Cisco and Nokia Have the Momentum, While Nortel Ranks Third. Among telecom equipment vendors, respondents see Cisco (+39) with the best chance of improving performance in 2004. Nokia (+26) placed second behind the enterprise networking giant. Once again Nortel (+13) placed third, a significant improvement over its difference score of –17 in the December 2002 survey.

Lucent Seen as Biggest Loser. Respondents believe Lucent (-42) has the least chance of improving its performance next year. JDS Uniphase (-17) is also seen as having a poor outlook for 2004.

B. VoIP (Voice over Internet Protocol)

(1) Question Asked: Which one of the following best describes your view of VoIP telephony technology?

|VoIP is a proven technology best suited for corporate telecom markets |40% |

|VoIP is a proven technology best suited for certain specialty markets (e.g., developing nations and other low cost point-to-point|25% |

|communications markets) | |

|VoIP is a proven technology best suited for mainstream carrier markets (e.g., cable, local, long distance) |16% |

|VoIP is an unproven technology that is still being tested |8% |

VoIP is the Real Deal, But For Which Market? While 81% of respondents believe VoIP is a “proven technology,” 40% believe it is best suited for corporate telecom markets. Another 25% think VoIP fits well within certain specialty markets such as developing countries, and 16% see mainstream carrier markets as the best match for VoIP technology.

(2) Question Asked: Of the following telecom markets, which one will be most considered a mainstream market for VoIP over the next 12 months?

|Corporate Telecom Networks |55% |

|Long Distance-Based Telecom Carrier Services |18% |

|Cable-Based Telecom Carrier Services |13% |

|Local-Based Telecom Carrier Services |4% |

Corporate Telecom Networks – the Primary VoIP Market for Next 12 Months. More than half (55%) of all respondents believe Corporate Telecom Networks will be the mainstream VoIP market for the coming year.

(3) Question Asked: What would you say is the greatest barrier to rapid adaptation of VoIP technology in corporate telecom markets?

|VoIP Technological Maturity (e.g., reliability of technology and equipment) |28% |

|Capital Budget Constraints Facing Telecom Carriers |22% |

|Regulatory Restrictions |21% |

|VoIP Technological Performance (e.g., ability to carry high quality calls) |17% |

|General Inertia |7% |

Numerous Barriers. When asked to name the biggest barrier to rapid adaptation of VoIP in corporate telecom markets, 28% of respondents said VoIP Technological Maturity, followed closely by Cap-Ex Constraints (22%), Regulatory Restrictions (21%) and VoIP Technological Performance (17%).

(4) Question Asked: What would you say is the greatest barrier to rapid adaptation of VoIP technology in telecom carrier markets (e.g., cable, local, long distance)?

|VoIP Technological Performance (e.g., ability to carry high quality calls) |25% |

|Capital Budget Constraints Facing Telecom Carriers |23% |

|General Inertia |19% |

|VoIP Technological Maturity (e.g., reliability of technology and equipment) |18% |

|Regulatory Restrictions |6% |

Similar Barriers Face VoIP in Telecom Carrier Markets. One-quarter (25%) of respondents see VoIP Technological Performance as the biggest factor restraining its growth in the Telecom Carrier markets. Other barriers cited were Cap-Ex Constraints (23%), Inertia (19%) and Technological Maturity (18%).

(5) Question Asked: Which telecom equipment company(s) is most likely to experience rapid growth in the sale of VoIP equipment in 2004 and why?

(n=68)

|Cisco |53% |

|Nortel |21% |

|Avaya |9% |

|Sonus |7% |

|Nokia |3% |

|Other |25% |

Cisco Will Be the VoIP Pacesetter. More than half (55%) of all respondents believe Cisco will be the fastest growing vendor of VoIP gear in 2004. Nortel (21%) was the one other company to garner double-digits.

As can be seen in the following sampling of comments, Cisco's market dominance and technological leadership are the key reasons cited by respondents when asked why their company will succeed in the VoIP market.

Sample of Alliance Member Responses

a. Cisco - (53%)

• DMC2902 writes, "Cisco has the best product line in VoIP and is the standard for operability within the wholesale carrier market."

• GPU6702 writes, "Cisco: current industry leader bringing new technology to market while others are just catching up – while at the same time targeting the small business market which is where the most near-term growth appears to be."

• JOH3355 writes, "Cisco...already the leader and ready to go...can supply demand rapidly."

• PDW2949 writes, "Cisco. Market leader, have the experience, mature product range compared to rest, are "walking the talk," are not hog-tied by legacy PABX capital/marketing."

• SSC5841 writes, "Cisco, they have in their own campuses very well-functioning VOIP telecom networks and have gained a lot of experience on VoIP through this day-to-day operation and usage."

• MAT4098 writes, "Cisco - they have a hybrid strategy to satisfy VoIP needs and at the same time link to existing PSTN networks/customers."

• DEH7520 writes, "Cisco. They dominate the market and have invested in R & D for the longest period of time."

• SEL8003 writes, "Cisco, as it is very well placed globally to win across all enterprise as well carrier business opportunities in 2004."

• KKP7141 writes, "All of the small VoIP players, Cisco and the Service Providers will enjoy the conversion going on right now at the corporate level to include voice, video and data into the current data transmissions circuits."

b. Nortel - (21%)

• BFL8671 writes, "Nortel, because it is aggressively positioning itself in the packet-switched market, while maintaining a sizable market share of the traditional circuit-switched telephony space."

• BSQ1293 writes, "Nortel / Avaya. These two companies can support legacy services. One of the greatest barriers to changing over to VoIP is the cost of changing all the telephones and the front-end equipment. These two companies can support legacy services while offering some VoIP. This is the only way the majority of business users will change. Without a business case, why would anyone change when the cost of long distance services is constantly going down."

• CBE7705 writes, "Market research firm Synergy ranked Nortel Networks #1 for both soft switches and gateway ports for the first half of 2003. They appear on track to maintain that ranking for the second half of the year and will aggressively look to enlarge market share for 2004."

• MTE6498 writes, "Nortel, Avaya and 3COM seem to be the best positioned. Cisco has real problems with their Call Manager and IOS in the Clusters. Work okay to begin; as upgrades are implemented more funds need to be sunk to fix quality issues. "

• VHR8539 writes, "Nortel Networks, as their products are superior to other companies' VoIP equipment."

c. Avaya - (9%)

• ENA7789 writes, "Avaya has combined VoIP and TDM capability."

• R1C1027 writes, "Understand that the telecom carriers are nothing more than access based providers sharing everyone’s networks. The true benefit of VoIP is at the customer premises, and that will be primarily medium to large business looking for a cheaper alternative to centrex abbreviated dialing plans and point to point. To the telecom provider, all these technologies and protocols are seamless. The equipment has already been in place for 5 to 10 years. Long distance providers like AT&T for as many as 20 years! Nothing new here, just more general public identification and use. Hardware Providers to do well? Avaya, Toshiba (integrated voice and VoIP systems), Cisco, Altigen and InterTel."

d. Sonus - (7%)

• DOU7937 writes, "Sonus and Dynamicsoft - stable and mature product lines using the SIP protocol."

• POC5284 writes, "Sonus due to the comprehensive package they offer as well as the technological advantage over any competitor."

C. 3G Wireless

(1) Question Asked: "3G" Wireless technology was supposed to be the next big thing. What would you say is the greatest barrier to rapid deployment of "3G" Wireless?

|Capital Budget Constraints Facing Telecom Carriers |36% |

|Expense of Service to Customers |18% |

|3G Technological Maturity (e.g., reliability of technology and equipment) |17% |

|3G Technological Performance (e.g., ability to carry high quality calls) |4% |

|Expense of Handsets |4% |

|General Inertia |4% |

Telco Budget Constraints Slow 3G Expansion. More than a third (36%) of respondents see Cap-Ex Constraints Facing Telecom Carriers as the primary obstacle to the growth of 3G Wireless. Two other barriers – Expense of Customer Service (18%) and Technological Maturity (17%) – were also cited as key factors holding back the expansion of 3G.

(2) Question Asked: In the United States, do you believe that the pace of "3G" Wireless deployment in 2004 will increase, decrease, or remain the same in comparison to 2003?

|Pace of 3G Deployment Will Increase in 2004 |51% |

|Pace of 3G Deployment Will Decrease in 2004 |2% |

|Pace of 3G Deployment Will Remain the same in 2004 |28% |

3G Growth Will Accelerate in U.S. in 2004. Half of all respondents (51%) believe the pace of 3G deployment in the U.S. will increase in 2004, while only 2% expect it to slow down. However, twenty-eight percent (28%) see no change in momentum for next year.

(3) Question Asked: And what about Europe? Do you believe that the pace of "3G" Wireless deployment in Europe in 2004 will increase, decrease, or remain the same in comparison to 2003?

|Pace of 3G Deployment Will Increase in 2004 |52% |

|Pace of 3G Deployment Will Decrease in 2004 |4% |

|Pace of 3G Deployment Will Remain the same in 2004 |15% |

Europe's Pace of 3G Deployment Will Be Surprisingly Similar to U.S. in 2004. Similar to the U.S., 52% of respondents expect 3G wireless to expand in Europe in 2004, compared to 4% who see it decreasing. Fifteen percent (15%) believe it will remain the same in 2004.

(4) Question Asked: Let's focus on "2.5G Wireless," which appears to have been gaining momentum recently. Which of the following best describe your view of "2.5G" Wireless for 2004? (Choose All That Apply)

|U.S. carriers will continue to build out "2.5G" Wireless networks in 2004 until there is clear evidence "3G" will|45% |

|appeal to consumers | |

|European carriers will continue building out "2.5G" Wireless networks in 2004 until there is clear evidence "3G" |35% |

|will appeal to consumers | |

|"2.5G" Wireless is merely an interim step and will quickly fade as a viable option for network deployment |23% |

|"2.5G" Wireless will replace "3G" (i.e., the industry will use "2.5G" as a base to jump to the equivalent of a |8% |

|"4G") | |

2.5G Wireless Will Not Disappear So Quickly. Forty-five percent (45%) of telecom industry respondents believe U.S. carriers will continue to expand 2.5G Wireless networks in 2004 until 3G is demonstrably ready for roll-out. This compares to 35% who see the same thing happening with European carriers.

Interestingly, 23% consider 2.5G Wireless as "merely an interim step" that will quickly fade, but 8% believe 2.5G will replace 3G in the evolutionary scheme of things.

Sampling of Alliance Member Responses on 2.5G

• SHJ5852 writes, "They will complement each other. 2.5G can be used in less populated areas for example."

• TME7298 writes, "2.5 bit rate is too slow to catch fire. It is irrelevant and a waste of money. 2.5G is being pursued because 3G is too hard to do and the phone companies need a wireless data story."

• JJP3936 writes, "The threat to xxG deployments is wireless VoIP network implementations. Low-cost "hot spot” and tel/data deployments provide a very low "cost per transaction," voice or data. The core US business telecom market is a "utility centric" market. Light on bells and whistles and heavy on transaction integrity – end to end."

• SSC5841 writes, "In Europe, 2.5G GPRS got cold feet. So the trend is toward 3G there. In U.S., 2.75G EDGE might have opportunity depending on the pick-up rate of WCDMA, 1xEV-DO and 1xEV-DV."

(5) Question Asked: Finally, which telecom equipment company(s) is most likely to experience rapid growth in the sale of "2.5G" and/or "3G" Wireless equipment in 2004 and why?

(n=60)

|Nokia |40% |

|Nortel |33% |

|Ericsson |30% |

|Lucent | 13% |

|Motorola |7% |

|Qualcomm |5% |

|AT&T |3% |

|Other |12% |

Nokia, Nortel and Ericsson Will Lead in 2.5G/3G Growth. According to respondents, a trio of companies will capture the most growth in the 2.5G and/or 3.5G Wireless gear markets in 2004: Nokia (40%), Nortel (33%) and Ericsson (30%). The only other company to reach double-digits was Lucent (13%).

Sample of Alliance Member Responses:

a. Nokia - (40%)

• JOH2803 writes, "Nokia - because number portability will be high in the US and will require new hand sets when moving."

• AWE3619 writes, "Nokia- reputation for quality, savvy marketing strategy, and competitive price performance."

• JOH3355 writes, "Nokia - most versatile manufacturing and ability to switch....without a lot of capital expense."

• KKP7141 writes, "Nokia, Lucent and others are leading the way in their deployments outside of US, which is where 2.5 and 3G is much further ahead."

• DBE8362 writes, "Nokia has the constant ability to produce cell phone models that the market likes, and has an entrenched brand name. Nokia may also be a dark horse as the SIP standard is adopted, so that non-proprietary VoIP handsets can be mass manufactured and sold, otherwise traditional handset manufacturers will do OK (e.g. Ericsson, Cisco)."

b. Nortel - (33%)

• PAM0828 writes, "Nortel Networks because they offer choice of technology to the wireless providers, both 2.5 and 3G."

• WAN7739 writes, "Nortel and Nokia - both have large customer base already, and different systems - GSM and CDMA equipment.”

• LTR6637 writes, "Nortel appears to be an industry leader in 2.5G and 3G development and deployment."

• DEH7520 writes, "Nortel. Worldwide dominance and support. Canadian companies are better liked by the rest of the world. Largest growth prospects in Asia and Europe until 2005 0r 2006."

c. Ericsson - (30%)

• HER5664 writes, "Ericsson - existing market share in both 2/2,5G and 3G."

• SHJ5852 writes, "Ericsson. Solid technical performance. Functional width. Greatest market share base."

• SVA0066 writes, "Ericsson has staked the farm on it, and has streamlined itself to be in position to build out new networks especially China and the Orient."

• CEV8392 writes, "Ericsson: actual market share of 2G and 3G systems gives them the possibility to explode the sales book. Also, from the technological point of view this company is leading implementing more and rapid 3G network in Europe, Asia and US. Nokia: second best option behind Ericsson in terms of infrastructure. Terminals will count a lot for this company as new 3G models are launched. Nortel: third best option. They are competing basically in price to gain market share."

d. Lucent - (13%)

• RUS8238 writes, "Lucent - they have the best technology and a track record of successful deployment."

• JJP3936 writes, "Believe it or not, Lucent could be a major US and Europe and Latin American player. Probability of success limited. Lucent is a strong technology company run by a bunch of political players with little "street smarts."

e. Other (including Comments on Motorola, Qualcomm and AT&T (27%))

• WAR5799 writes, "Motorola supplies infrastructure and supplies cell phone insides to many manufacturers."

• COS2687 writes, "Qualcomm - CDMA2000 is still growing strong. Ericsson - important WCDMA player; Nokia – handsets."

• BSQ1293 writes, "AT&T is going to experience more growth as they shift the emphasis towards getting the 2.5G into user’s hands at a reasonable cost. AT&T's only real growth engine is the wireless services and they will try to ensure they have share of this market.”

• DOU7937 writes, "Flarion - ongoing "4G" trials with wireless carriers."

• R1C1027 writes, "Kyocera, Nokia, Erickson, and LG."

• JER5808 writes, "The Chinese equipment producers, ZTE and Huawei. High quality and low cost. That's what carriers need. The problems with them are: 1) Not famous brands; 2) Not in big commercial usage yet."

• MAL7015 writes, "Cisco - deep pockets."

• RRT2061 writes, "LCC International."

• JAC6091 writes, "RF Micro."

Summary and Analysis

Long Road to Recovery. The severe post-bubble struggles of the telecom industry have been accurately tracked through a series of Alliance telecom survey’s conducted since 2001. The current survey provides the most optimistic picture to date of a telecom industry evolving from an "old world" dominated by behemoths into a new, more dynamic paradigm shaped by next generation technologies.

Telecom Equipment

Based on the findings in this survey, the wireless sector will be a standout of the telecom industry in 2004. In addition Cisco, Nokia, and Nortel are viewed as the companies mostly likely to record strong growth next year.

• A net 66% of respondents see demand increasing in the first half of 2004. This compares to a net of 19% back in December 2002 who had expected demand to increase during 2003.

• Wireless (+75) was by far the leading category among respondents, when they were asked to choose the best and worst performing telecom segments for the first half of 2004. Data Transmission (+29) placed a distant second, followed by Metro (+8) and Net Management Software (+7).

• Traditional Wireline (-68), Billing/CRM Software (-16) and Optical/Fiber (-11) were chosen as the worst performers for the first half of 2004.

• Respondents see Cisco (+39) having the best chance of improving performance in 2004. Nokia (+26) placed second behind the enterprise-networking giant. Once again Nortel (+13) came in third.

• Respondents see Lucent (-42) as having the least chance of improving its performance next year. JDS Uniphase (-17) is also seen as having a poor outlook for 2004.

VoIP

The survey results clearly show VoIP is the "real deal" and will have its biggest impact in the market for corporate telecom networks. Notably, technological performance and cap-ex constraints are cited by respondents as the biggest barriers to VoIP growth. Cisco and Nortel will outperform their competitors in the VoIP marketplace for 2004.

• Overall, 81% of respondents believe VoIP is a “proven technology,” 40% believe it’s best suited for corporate telecom markets and 25% think it fits well with certain specialty markets such as developing countries.

• More than half (55%) of all respondents believe corporate telecom networks will be the mainstream VoIP market for the coming year.

• What are the biggest barriers to rapid adaptation of VoIP in corporate telecom markets? Technological Maturity (28%), Cap-Ex Constraints (22%), Regulatory Restrictions (21%) and Technological Performance (17%).

• 53% believe Cisco will be the fastest growing vendor of VoIP gear in 2004. Nortel (21%) was the only other company to garner double-digits.

3G Wireless

3G Wireless has suffered with labor pains since its inception. Looking ahead, our survey respondents see the technology continuing to be hampered by telecom industry capital spending constraints, although they believe the pace of deployment will accelerate next year in both the U.S. and Europe.

Focusing on “2.5G” wireless networks, our respondents believe both U.S. and European carriers will continue building out "2.5G" in 2004 until there is clear evidence "3G" has been fully embraced by consumers. Nokia, Nortel and Ericsson are best positioned for 3G/2.5G growth in 2004.

• More than a third (36%) of respondents see Cap-Ex Constraints Facing Telecom Carriers as the primary obstacle to the growth of 3G Wireless.

• 51% believe the pace of 3G deployments in the U.S. will increase in 2004, versus only 2% who expect a slowdown. Similarly, 52% expect 3G Wireless to expand in Europe in 2004 compared to just 4% who see a slowdown.

• 45% believe U.S. carriers will continue to expand 2.5G Wireless networks in 2004 until 3G is demonstrably ready for roll-out. This compares to 35% who see the same thing happening with European carriers.

• Nokia (40%), Nortel (33%) and Ericsson (30%) will capture the most growth in the 3G and 2.5G Wireless gear markets in 2004.

Bottom Line: The current survey provides the most optimistic picture to date of a telecom industry evolving from an "old world" dominated by behemoths to a new, more dynamic paradigm shaped by next generation technologies.

As VoIP and 3G deployments accelerate in 2004, the telecom recovery will gain momentum. Cisco, Nokia and Nortel are best positioned to outpace the rest of the industry’s growth next year.

III. ChangeWave Research Methodology

This report presents the findings of a ChangeWave Alliance survey of its telecom industry members, conducted October 14-20, 2003. A total of 130 members participated.

The Alliance’s proprietary research and business intelligence gathering system is based upon the systematic gathering of valuable business and investment information directly over the Internet from accredited members.

ChangeWave surveys its Alliance members on a range of business and investment research and intelligence topics, collects feedback from them electronically, interprets and reconciles the information in a cohesive manner and converts the information into valuable quantitative and qualitative reports.

The Alliance has assembled its membership team from senior technology and business executives in leading companies of select industries. Nearly 3 out of every 5 members (58%) have advanced degrees (e.g., Master’s or Ph.D.) and 94% have at least a four-year bachelor’s degree.

The business and investment intelligence provided by the Alliance provides a real-time view of companies, technologies and business trends in key market sectors, along with an in-depth perspective of the macro economy – well in advance of other available sources.

IV. About ChangeWave Research

ChangeWave Research, of Phillips Investment Resources, Inc. is a market research intelligence network powered by thousands of accredited and organized front-line professionals – the ChangeWave Alliance.

ChangeWave is the alternative to traditional “sell-side” investment research. The company publishes ChangeWave Investing, the investment advisory service for individual investors dedicated to researching and discovering growth stocks that profit from radical change, and Weekly WaveWire, a free e-mail newsletter distributed to nearly 200,000 investors.

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VoIP Ready for

Broader Roll-Out

• 55% say Corporate Telecom Networks will be the prime VoIP market in 2004

• 53% say Cisco will be fastest growing VoIP vendor in 2004, with Nortel next at 21%

3G Wireless Will Increase, But Cap Spending Tight

• A majority say pace of 3G deployment will increase in 2004

• Nokia (40%), Nortel (33%), Ericsson(30%) lead 3G/2.5G growth

Emergence of a More Dynamic Paradigm

• The Telecom industry is evolving from an "old world" dominated by behemoths to a new, more dynamic paradigm shaped by next generation technologies. With demand projected to improve, 2004 should be a much better year.

• Telecom Pacesetters: Cisco, Nokia and Nortel[pic][?]L‡ˆ‰’“¥ ¦ ÛÜîïð

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Telecom Equipment Demand Improving

• A net 66% see demand increasing in 1st half of 2004. This compares to a net of just 19% ten months ago

• Best Segments: Wireless (+75) and Data Transmission (+29)

• Best Performers: Cisco (+39), Nokia (+26) and Nortel (+13)

• Worst Performers: Lucent (-42) and JDS Uniphase (-17)

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