Here is a good portion of it.
TABLE OF CONTENTS
INTRODUCTION & OPPORTUNITY 1
DIGITAL SATELLITE TELEVISION SERVICE 2
HIGH-SPEED INTERNET SERVICE 3
OTHER SERVICES 4
COMPETITION 5
MARKETING STRATEGY 6
MANAGEMENT TEAM 7
CORPORATE STRUCTURE/EQUITY REQUIREMENTS 8
FINANCIAL PLAN 9
INTRODUCTION & OPPORTUNITY
MDU Communications Inc. was formed in 1998 to take advantage of new opportunities
created by the development of new technology and the deregulation of Canada's
telecommunications industry. MDU Communications facilitates the delivery of new
technology to the multi-dwelling unit marketplace. This market includes hospitality,
condominium, apartment, gated community, university, and other related properties within a
defined area.
The multi-dwelling unit marketplace represents a unique and very large niche market of
potential customers (2.2 million residences and growing in Canada alone) that offers very
compelling business opportunities for MDU Communications Inc. Firstly, monopoly
providers such as local cable television operators and telephone providers have historically
served this market. Thus, there have been virtually no competitive services available to the
residents living within these buildings. Secondly, the relationships between the property
owners and managers that control access to these properties and the past suppliers
providing service have been significantly strained over the past 15 years due to the
"monopoly" type practices of these past service providers. Thirdly, advancements in
communications and information technology has created an enormous demand for new
state of the art services such as digital satellite television and high-speed Internet services
within these properties. Fourthly, a significant regulatory shift has created an environment
where competition is fostered and encouraged.
MDU has established, and will continue to establish, strong, mutually beneficial relationships
with property owners and managers across Canada. Currently, a number of the largest
property developers, owners and managers across Canada have signed access
agreements with MDU Communications.
These mutually beneficial relationships translate into proprietary access agreements
between building owners and MDU that provide MDU with the exclusive right to provide
digital satellite television services to the residents of the property. The agreement also
allows for the provision of a high-speed Internet access and other services to the residents
of the property.
Property owners benefit in a number of ways through this unique relationship, as do the
residents of the properties. The principal benefits to the property owners, managers and
residents are: choice between service providers is now available; superior technology at
competitive prices; property value enhancement, and; new technologies are introduced in a
friendly cooperative manner.
DIGITAL SATELLITE TELEVISON
Historically, existing cable television services have been provided to more than 90% of
Canadian households by a handfull of de facto cable monopolies in any given jurisdiction.
Many customers are unhappy about the monopoly power granted to local cable operators.
There are numerous examples of cable companies abusing their monopoly status through
practices such as negative optioning, arbitrary changes to channel availability, and
programming packages which require customers to subscribe to channels they are not
interested in receiving. The cable industry faces significant economic, technical and
relationship barriers to deploying an improved service to the multi-dwelling unit market.
People want new alternatives.
Fortunately, with the recent licensing of direct-to-home (DTH) satellite broadcasters in
Canada, the stranglehold cable operators once held on the marketplace is being
eliminated.
Star Choice (VSE:STC), which is 49% owned by Shaw Communications (TSE:SCL.B), and
ExpressVu, a wholly-owned subsidiary of BCE (TSE:BCE), commenced broadcasting via
satellite in the fall of 1997. These are the only two licensed direct-to-home operators in
Canada. After less than two years, these companies have built a combined digital satellite
subscriber base of over 400,000 households, or approximately 4% of the 11 million
Canadian households with television sets. However, despite their impressive inroads into
the Canadian marketplace over a relatively short time, their focus has been on the
direct-to-home market only and not the multi-dwelling unit market place.
MDU is responsible for the design, installation, provision and marketing of the Star Choice
service within multi-dwelling unit properties throughout Canada. There are no other national
Star Choice system operators assigned for this market.
MDU's contract with Star Choice gives MDU a 30% share of gross subscriber revenues,
from the sale of the Star Choice programming services within MDU multi-dwelling unit
properties for a period of 10 years with renewal clauses. In addition, Star Choice is directed
by MDU to charge subscribers a digital access fee each month for the equipment, etc..
MDU receives 100% of this fee from Star Choice, which is currently $5.95 per subscriber
per month. MDU's average current digital set top subscriber spends approximately $ 35.00
per month on programming plus the digital access fee. With respect to the price charged to
MDU for the digital set top receivers purchased from Star Choice, MDU receives a
subsidized price from Star Choice equal to approximately $200.00 per receiver, therefore
MDU is only charged approximately $ 275.00/set top receiver.
This installation equipment includes a single satellite dish (approximately 1 metre in
diameter) for each multi-dwelling unit building, and off-air antennae (to provide local
channels if not available on Star Choice) mounted on the roof of the building, and a new
"cable backbone" linking the antennae to the existing cable boxes. Normally, the cable
within the cable boxes that connects the signal to the individual suite, is then removed, and
linked to the new MDU "backbone" through a patch panel system. MDU offers additional
incentives to the building residents to further enhance its service such as a front door
security monitoring channel whereby residents can tune to a specific television channel and
see who is at the door of the building.
HIGH SPEED INTERNET SERVICES
The demand for high-speed Internet access is growing rapidly, as standard dial-up
networks become increasingly congested with the growing number of Internet users. An
estimated 20% of Canadian households currently have Internet access and, by 2004, it's
estimated that national penetration will exceed 40%. Multi-unit dwelling penetration is well
below these levels for technical and economic reasons.
MDU Communications delivers the latest in high-speed (broadband) Internet access
solutions to its customers, using advanced technologies, value added services, and expert
technical and customer support. MDU delivers a total solution for properties to become high
speed Internet-ready without costly installation problems, and delivers Internet access at
speeds up to 350 times faster than traditional 28K Internet dial-up connections. Users get
an affordable, dedicated connection to the Internet, as well as simultaneous phone access.
Property managers and owners get a cost-effective Internet solution that avoids costly
technology infrastructure build-outs while enhancing the value of the property. By focusing on
multiple dwelling units and hotels, MDU can deliver a better service at a lower cost when
compared to competing services like cable modems and ADSL.
When Hilton Hotels Corp. decided to open its first hotel in British Columbia and to provide
the one luxury amenity few of its rivals offer, business-quality networking, MDU
Communications delivered it. MDU facilitated the delivery of a new high-speed Internet
service for the Hilton Vancouver Airport specifically designed for the property and its
business travelers. It allows business travelers to obtain secure remote access to corporate
networks through advanced virtual private network (VPN) capabilities and also supports
Microsoft NetMeeting-type videoconferencing.
By plugging in to one of two data ports available in every suite and launching a browser,
guests are automatically connected to the network regardless of the system's original IP
network settings and presented with a registration Web page. Once the user clicks the
"accept" button they are instantly connected to the Hilton Vancouver Airport's Virtual
Concierge, a browser-based vertical-portal application which allows guests to take a
point-and-click online tour of the hotel and the area. Directed by easy-to-navigate menus,
users can find everything they need, from TV listings and weather reports to restaurant
recommendations and ticketing agencies. Virtual Concierge also features a detailed guide
of hotel amenities, including information about meeting rooms and scheduled events,
access to printers and other equipment in the hotel's business center and the complete
room service menu.
Because the Hilton VBN is built on a Ethernet-based network, guests don't have to worry
about finding a local dial-up line to their Internet Service Provider (ISP), battling busy signals
and dropped connections or tying up their telephones waiting to transmit a file. Once they
register through the server, the network quickly accesses the Internet via a 10 megabits per
second (Mbps) switched Ethernet link and a high-speed T1 line - a connection up to 50
times faster than a dial-up modem. The system also connects the Virtual Concierge to the
hotel's property management system, which allows the hotel to quickly and efficiently track
network usage.
The Hilton's Virtual Private Network (VPN) capability is another major asset of the network,
enabling business travelers to obtain secure remote access from their suites or hotel
conference rooms to their corporate networks. VPNs are created by tunneling software
loaded on a user's laptop or PC and a VPN server located at the client's corporate network.
The VPN service delivers encrypted data across the Internet past the enterprise's firewall to
its ultimate destination. To the corporate network, the user appears to be in the office, not at
a remote site hundreds or thousands of miles away.
The Hilton Vancouver Airport's new network emanated from a unique partnership of
vendors, assembled by MDU Communications Inc. MDU, through a strategic relationship
with the Hilton Vancouver Airport, collaborated with these vendors to provide the hotel's
vision for a new standard in guest services.
Currently, individuals most commonly access the Internet through a dial-up service.
However, dial-up access has several drawbacks including delays, frequent busy signals and
mid-use cut-offs (drops) from service. Demand is ever increasing for cost-effective,
high-speed Internet connectivity in the hotel, business and residential communities. Internet
usage continues to be stimulated by the increasing number of Web sites, the increasing
sophistication of Internet browsers and software applications, and the proliferation of
bandwidth-intensive information (such as streaming video and audio) published on the
Internet.
High-speed Internet access, often referred to as Broadband access, is projected to grow
much faster than the Internet overall. While less than half of 1% of North American
households currently connect at broadband speeds (200 K or greater), it's anticipated that
25% of all online households will have broadband access by 2002, with more and more to
follow.
OTHER SERVICES
In addition to digital satellite television and high-speed Internet access, MDU
Communications is investigating other service enhancements and marketing opportunities
to maximize the return on the preferential relationships it establishes with its customers and
the infrastructure investment required by MDU to deploy digital satellite television services.
Local residential and business telephone services constitute an $8.5 billion industry in
Canada. An opportunity may develop for MDU Communications to establish a presence in
this market through partnerships with service providers or, potentially, by bypassing the
exisiting phone system altogether with local and long distance Internet protocol telephony
services, once this technology is mature.
Security in MDU buildings is already enhanced with the connection of on-site security
cameras to a security channel carried over the digital satellite system, allowing residents to
view over their TV sets people asking for building access. In the future, MDU envisions
enabling residents to subscribe to a monitored home security service linked to the central
MDU network infrastructure.
COMPETITION
For the provision of the MDU digital satellite television service, the following comprises the
competition:
CABLE COMPANIES, such as Rogers, Shaw and Videotron, currently dominate the
broadcasting market. For years, this small group of companies has successfully protected
itself from competition through government lobbying, although within the last few years, the
CRTC has implemented a number of reforms to increase competition in the marketplace.
Additional factors affecting the competitiveness of the cable industry relative to satellite
broadcasting include the damaged relationships with the multi-dwelling unit property owners
and managers, the poor packaging of channels, negative optioning of new packages
introduced, and a general disdain among consumers towards large companies with
monopoly power. Analog technologies used to distribute cable signals are also highly
restrictive, in that they produce inferior quality video and sound compared to digital
technologies, and their capacity is limited. Digital cable services will expand channel
capacity and improve quality, but will not be available to multi-dwelling unit subscribers in
the near future (in order to provide digital cable to an entire building, all residents would
have to subscribe to the high-priced service and rent a set-top decoder due to the fact a
building cannot be wired partially with analog technology and partially with digital
technology). These services are just starting to be introduced in Canada.
OFF-AIR BROADCASTERS send signals over the air which are received by traditional
television antennas. Signals are accessible to anyone with an antenna, and programming is
funded by advertisers. Given the limited range of off-air broadcasting, it is suitable only for a
local audience, confining most applications to news and weather. Audio and video quality is
limited, and service can be adversely affected by weather or by buildings blocking a signal.
MMDS AND LMDS microwave technology is a hybrid of off-air broadcasting and satellite
broadcasting. These services transmit digital audio, video and, in some cases, data over
the air in scrambled form, and subscribers receive the signals through an antenna and
decode the signal using a set top box analogous to those used by satellite broadcasters.
Their drawback is the fact that they require a direct line of sight to the customer, which limits
their range and there are very few operating in Canada serving regional markets only..
For the provision of high-speed Internet services, MDU faces competition pressures from:
CABLE MODEMS transmit data to and from a PC via existing television cable. Download
transmission speeds are theoretically 3 Mbps, and upload speeds range from 128 Kbps-3
Mbps. However, as the number of users in a given area increases, individual performance
decreases rapidly so that in many cases, cable modems are actually only marginally faster
than dial-up lines. There are also security issues associated with sharing cable lines. Key
players in this field are the cable companies that are using the @Home or RoadRunner
services.
ASYNCHRONOUS DIGITAL SUBSCRIBER LINE (ADSL) delivers medium speed data
transmission via existing copper phone lines. Speed ranges from 1 -8 Mbps downloading
and ranges from 0.5-1 Mbps uploading. Speed is a direct function of distance from the
telephone central office in that the further away the consumer is the slower the connection.
Phone companies are just starting to roll out this service and therefore there is limited
availability and higher cost in some areas. Local phone companies are the primary
providers of this service.
MARKETING STRATEGY
Our unique strategy and willingness to primarily deploy systems and services on a
competitive basis with existing service providers in multi-dwelling unit properties, rather than
on an exclusive basis, has enabled MDU to secure a significant number of access
agreements and solidify its position as the largest supplier of digital satellite television
services to this market in Canada, within a short six month time frame. As mentioned
earlier, the MDU access agreement gives MDU a significant advantage over potential new
entrants attempting to provide competitive services to this market.
MDU Communications' marketing strategy is to focus initially on a highly concentrated
market of multi-dwelling unit properties and residents. By concentrating efforts in specific
markets, a significant portion of the potential MDU market can be secured. More than half
the Canadian population can be found in just nine cities.
Rental, condominium and co-op apartments account for more than a quarter of the
Canadian housing market. The marketing strategy of the Company is to promote strategic
relationships property owners and managers and provide new and superior technologies to
the residents of these properties through these relationships.
MDU promotes its service on the basis of its flexibility:
· neither landlords nor tenants incur any upfront costs in setting up the system
· the property is enhanced due to the introduction of choice and new services
· subscribers pay only for the channels they want and can opt to have their service
temporarily disconnected while they are on vacation
· there are no conditional sales or service contracts to sign, and
· technology upgrades are provided free of charge as they become available
Perhaps most importantly, MDU's services can be provided without disrupting existing
services - no tenant is obliged to subscribe to Star Choice if they would prefer to remain
with cable, regardless of whether their neighbours are subscribers.
MDU has already proven that the market is ready for our services. Because this market is
comprised of a relatively small group of decision makers, our marketing plan focuses on
reaching these decision makers in the shortest possible time frame.
MDU currently has sales offices in Calgary, Edmonton, Winnipeg, Toronto, Ottawa and
Halifax in addition to its Head Office in Richmond, B.C.. Regional sales managers carry out
the function of marketing MDU to property owners and managers. Direct sales managers in
each area focus on the relationships with the resident managers at the actual install sites
and coordinate, train and deploy aggressive direct sales teams. These direct sales teams
have the responsibility of in-suite marketing and presentations of the MDU services to the
residents. Currently, MDU has 65 direct sales team members serving its regional sales
offices. This number is expected to grow to 150 over the next few months.
MDU commenced its marketing efforts in December of 1998.
MANAGEMENT TEAM
SHELDON NELSON, PRESIDENT & DIRECTOR
BACKGROUND: Mr. Nelson is one of the pioneers in the Canadian satellite industry, with
over 20 years experience with satellite technology. He operated one of the largest satellite
master antenna televison (SMATV) operations in Canada, supplying service to
multi-dwelling unit owners and managers throughout Canada. Mr. Nelson has a wealth of
experience in marketing and with industry and regulatory issues regarding this market.
GARY MONAGHAN, VICE PRESIDENT - MARKETING
BACKGROUND: Mr. Monaghan has over 14 years experience in the telecommunications
field as a sales and marketing ma |
