Let me stop here and do my first poll using the One Touch panels you have in front of you. Please respond to the following question:

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1 Polycom & PictureTel: An Industry Insider s View By: S. Ann Earon, Ph.D. Telemanagement Resources International Inc. Presented at Polycom Global Community Conference New Orleans, August 2001 When I was called and asked if I would provide my incite into the pending acquisition of PictureTel by Polycom, my initial reaction was sure. This could be fun. So as I present my viewpoint, try to educate you, and inform -- remember one thing: When chaos arises and things look bad, there is always one individual who perceives a solution and is willing to take command. Very often, that individual is crazy. On that note, I begin. Let me start by stating that I think many of you, while waiting to see if this merger will happen, are suffering from the FUD factor fear, uncertainty, and doubt. Let me stop here and do my first poll using the One Touch panels you have in front of you. Please respond to the following question: Are you buying equipment now, waiting to see what happens, or buying some equipment now, but waiting to see what happens until you make major purchases? If you are waiting to see if the merger happens and what impact that will have on you, I would suggest if you have a compelling business need to use videoconferencing, and I assume most of you do or you wouldn t be here, that you stop waiting and start buying. This is a great time to get attractive pricing because the vendors are hungry. Even though the PictureTel 900 series is relatively new, don t be afraid to try something new. Remember, amateurs built the ark and professionals built the Titanic. This is not to imply that PictureTel is populated by a bunch of amateurs. To the contrary, there are many brilliant, skilled engineers at PictureTel. And although you the customers may not always see these elusive engineers, you must remember that engineers are always honest in matters of technology and human relationships. That s why engineers are kept away from customers, romantic interests, and other people who can t handle the truth. We all know that the most powerful force in the universe is gossip. August, 2001 S. Ann Earon speech at APUG 1

2 This is especially true in this incestuous industry. Before I present you my gossip, let me provide you with background on the Hart- Scott Rodino act, suggest what you should be asking of Polycom and PictureTel, provide you with my viewpoint, and finally take a look into the future. Hart-Scott Rodino I, like many of you, have been interviewed by the justice department regarding this pending merger. Since they decided to take up much of my time, and even managed to give me their telephone number; in preparation for this presentation, I decided to use their time to find out how they view the Hart-Scott process. I thought it might be helpful to present their process to you. When a company decides to acquire or merge with another company the firms must file documentation with the FTC (Federal Trade Commission) and DOJ (Department of Justice) to comply with the Hart-Scott Rodino act. A 30 day clock starts to tick after the filing. The preliminary investigation is done by either the FTC or DOJ when they are assigned the case. In most instances an initial review indicates no overlap and thus no action is taken. However, if overlap exists (as in this case), a preliminary investigation is opened and interviews are made with competitors, customers, analysts, etc. At the end of the 30 days a decision is made on whether to issue a second request for more information or to let the merger/acquisition proceed. In the case of Polycom and PictureTel a second request for additional information has been made by the DOJ. While the second request does not mean a challenge to the merger, depending on how much additional information is requested, a second request can take 1-12 months to complete. The clock for the second request in this case started ticking on Monday, August 13 th. There is a standard form one must follow in the second request, along with separate questions that must be answered. The case may even get closed before the parties completely reply to the second request. When I asked the DOJ representative what determines the length of time, he answered how cooperative are the parties and how fast do they act. After all material has been submitted, it can take another days for the government to challenge the merger. Usually, if this happens, the parties fold and walk away. However, the situation can move to a preliminary injunction in court, a discovery period, and a trial. I do not want any of you going away thinking that the current situation will either drag on forever or go to trial. I don t think that will be the case. August, 2001 S. Ann Earon speech at APUG 2

3 Now before I move on to life after the merger, I d like to do a quick poll. Please use your One Touch panels to respond to the following question: Are you for the merger, against the merger, or don t care one way or another? Let s look at what happens if the merger does or does not take place and the impact it will have on customers. Merger Goes Forward If the acquisition of PictureTel by Polycom proceeds there will be a digestion process. As the dust settles customers should demand better products that include converged (voice, data and video) technology, and are introduced faster into the marketplace. I would expect that you will also see acquisitions of other firms by Polycom. Firms that allow Polycom to expand into other aspects of conferencing like networking and control. I also think you will see merger pains. These always result when two firms come together and hopefully, the pending merger will appear as smoothly as the Polycom/Accord merger has appeared. Merger Doesn t Take Place If the merger does not take place, Polycom and PictureTel will remain competitors and PictureTel will end up with $50M of Polycom s money. What you may not realize, is that $15M has already been given to PictureTel by Polycom, $2M is being given each quarter, and in year 2, the balance of $29M will be given. This is done REGARDLESS of whether or not the merger happens. If I were PictureTel, if the merger doesn t happen, I would use a good chunk of this money to market myself everywhere. And I will stand up and say, watch out Polycom, since I believe PictureTel has very sound products using ipower and as companies understand the value of collaboration, the ipower architecture will be viewed even more positively. On the other hand, there is always the chance that someone else might buy PictureTel. I also believe that both firms, together or apart, face competition from others. Firms like Tandberg, Sony, Microsoft with XP, Viseon (formerly RSI) and Gentner. While the Polycom/PictureTel merge will create a firm with 2/3 market share, firms like Tandberg and Sony will benefit, since customers want alternatives and want to August, 2001 S. Ann Earon speech at APUG 3

4 ensure competitive pricing. Firms like VTEL, VCON and Zydacron may be hurt. But, if they continue to listen to customers, communicate regularly the good and the bad and introduce new products and updates (that work) on a regular basis, they can remain successful. What is sadly missing is a concerted industry effort to get beyond the Fortune 250. Without this effort, the industry will never leap forward. Polycom Challenges Before we leave discussion of the Polycom and PictureTel merger and move to the future, I d like to take this opportunity to make a few comments about Polycom. In my book, Polycom needs to improve communications. It is not enough to have a great web site proliferated with information, much of this information needs to be pushed to the conferencing community. In fact, all the vendors need to improve communication. The videoconferencing industry has always been made up of loyal customers. To retain that loyalty it is important to keep customers, distributors, consultants, and analysts informed. And, we want both good and bad information. Just a little secret to all of you, if you want the bad, talk with engineers and distributors. They both tend to be very forthcoming with their comments, if asked. Additionally, I would like Polycom to take a long, hard look at its sales model. Make it easier for customers to do business with you. Put together a clear, powerful sales and marketing campaign behind ipower. Look long and hard at the distribution process. The current distribution strategy does not offer a clear path to success. The buy it anywhere approach won t work with ipower. I also encourage Polycom to increase development. Their new level of products being introduced has come to a screeching halt. I hope Polycom will put PictureTel in charge of development, push down prices, and help customers integrate these technologies with their network. It is time to make H.323 easy and allow firms to create multimedia rooms, not just videoconferencing rooms. Here I think PictureTel can help with ipower. And my final thought on Polycom, is that they too could be acquired by another. While I will make no prediction if and when it will August, 2001 S. Ann Earon speech at APUG 4

5 happen, I think you as customers should be prepared for anything in this marketplace. Remember, Polycom is concerned about return on investment and shareholder value. If they can achieve this through acquisitions or by being acquired, they will. Now, let s move on to my view of the future. And to do this, I want to present a few statistics to you that I have gathered in surveys I have recently completed. I thank those of you who take the time to answer my call and respond to my questions. The Future Though the numbers I present may be skewed, because those of you I interview are skewed by tending to be the leaders in videoconferencing adoption and usage, I think they (the numbers) are still informative and relevant. As I talk about the future, I think it is helpful to look at budgets, IP plans & roadblocks, and your own internal problems. The encouraging point I am hearing about budgets, is that 80% of those I surveyed indicate budgets continue to grow with a range of budgets from $45K - $10M a year and a median of $500K. These facts should be encouraging to PictureTel, Polycom and any other vendor present. For the fun of it, let s see where you fall in this spectrum of budget growth. Please use your One Touch panel to answer the following question. Is your budget for videoconferencing growing, declining, or staying the same? Of those I have recently interviewed, 90% of you plan to implement IP and 62% will do it within 2 years 30% of you are doing it now. Again, use your One Touch panel and let me know your plans: Are you implementing IP now Within one year Within 2 years Unknown When I asked users the biggest roadblocks they see to IP implementation, they stated bandwidth/infrastructure and quality of service were the greatest concerns. August, 2001 S. Ann Earon speech at APUG 5

6 So what lessons did these users share regarding implementation of videoconferencing, especially as it relates to IP: o Video applications require a lot of memory o Training is necessary to ensure usage o Set up room and camera ahead of time o The number of multipoint conferences is usually underestimated o Transition from ISDN to IP will occur over many years o Collaboration, streaming, and remote presentations will become dominant applications o Users need a process that works better, they don t need videoconferencing and collaboration per se. And what lessons can you take away from this presentation: Merger or no merger, life will go on. If you have a need for videoconferencing today, install it now. It s a great time to bargain. The videoconferencing industry will continue to growth at a nice, but not explosive rate. Those of you responsible for deploying videoconferencing technology are safe in your jobs. Remember, it will take you a few years to explain to those in the IT/IS department who didn t previously want video, but now may be inheriting it, what it is all about. The chaos of deploying IP will provide interest and headaches, but job security as well. And even if you don t know why people really want videoconferencing, the vendors will keep throwing new applications on the technology hoping something will stick. August, 2001 S. Ann Earon speech at APUG 6