Market Assessment for Frisbees in Bolivia

1
Market Assessment for Frisbees in Bolivia

• December 2002

2
PURPOSE
To discuss current situation in Bolivia and come
to agreement on entrance strategy for Transport
products

• Regulatory Conditions
• Market Environment
• Market Size
• Reasons for Entry
• Cost of Entry
• Opportunity and Customer Potential
• Next Steps

3
REGULATORY SITUATION
According to the regulations in Bolivia a
Frisbee provider must be Bolivian owned and
controlled to provide Frisbee services. There are
2 potential solutions that will meet this
regulatory condition.

• Form A Joint Venture
• Must be majority owned (60) by Bolivians, enter
  into a JV with a Bolivian company to comply.
• Products Enabled
• All Products
• Implications
• Cost of setting up and running a JV

• Resell of Services
• Sell services from a sanctioned company
• Product Enabled
• Any product the Reseller offers.
• Implications
• Low Margin business

There has been positive indications that the
regulatory climate will change in Bolivia, but in
the Reselling is the most cost effective way to
proceed that enables the most products.
4
Bolivian Market Environment
There are 5 major competitors that have had
various degrees of success. Their total revenues
were 21.3B in 2001. These will form the major
competitors in the market. Similar to the rest
of the world there are financial troubles that
are effecting some of the suppliers.

• Competitor 1
• Revenues 13B
• Market Strength
• Central and Eastern Bolivia
• Products
• Frisbees
• Bomerangs
• Tennis balls
• Training Services

• Competitor 2
• Revenues 4.6B
• Market Strength
• Western Boliva
• Products
• Frisbees
• Bomerangs
• Tennis balls

21.3B
Comp 11
Comp 10
Comp 9
4,614 M
Comp 8 (7190M)
Comp 7 (379M)
Comp 6 (442M)
Comp 5 (695M)
Comp 4 (885M)
Comp 3 (980M)
12,956 M
Comp 2 (4.614M)
Comp 1 (12.956M)
5
Canadian Market Environment
Comp 9 is trying to become a consolidator of
assets. They have recently put in an offer for
Comp 8 which will strengthen their metro
footprint and are rumored to be in discussions
with Comp 7.

• Competitor 3
• Revenues 950M
• Market Strength
• General distribution
• Products
• Frisbees
• Tennis Balls
• Currently going through capital restructuring due
  to missing 52m in Bond payments in Sept
• Comp 9 is rumored to be interested in Comp 3

• Competitor 8
• Revenues. 590M
• Market Strength
• General distribution
• Products
• Frisbees
• Comp 9 is rumored to be interested in the Comp
  8

• Competitor 9
• Recent Emergence from Chapter 11
• Strong penetration in the cities
• Products
• Frisbees
• Acquiring Comp 8 for 167M but currently have
  only 100M in cash on hand.
• Rumored to be going to acquire Comp 8 and Comp 7

6
Market Size Frisbees in Bolivia
When looking at this established market, we are
considering ourselves as new entrants into a
market that is currently contracting due to the
highly competitive market environment and
oversupply of capacity. The value of the market
is expect to shrink 20 in 2003 and then return
to a 3-5 CAGR.

• TDS 2002 Fisbee market size for services to be
  110M annually

Value of Fribees in Bolivia
200
0.6
180
0.5
160
140
0.4
120
Cash Revenues (m)
100
0.3
Frisbee Price ()
80
0.2
60
40
0.1
20
0
0
2000
2001
2002
2003
2004
2005
2006
Source Taipei Data Security Company 2002
7
Supply and Demand
The demand of frisbees is estimated to grow at
19 per annum through 2007. Combining the market
size with the estimated demand leads to the
conclusion that the price per firsbee will
decline between 18-31 over the next 5 years.

• TDS 2002 frisbee demand will increase from 150
  units to 500 units in the next 5 years.

Source Taipei Data Security Company 2002
8
Art of Control International Inc and Bolivia
There are 4 major markets in Bolivia

• Nempnet Throbwell
• This is the major market for services within
  Bolivia and can be served from the existing
  distribution channels that are in place.
• La Paz
• This is identified as the second major market in
  Bolivia and can be served from the existing
  distribution channels that are in place.
• Huancha
• This is the third major border crossing for
  traffic from the West Coast of the US.
  Currently, Art of Control, Inc has no existing
  facilities into this area. Art of Control, Inc
  will be able to extend our network from Seattle
  to this market using a reselling relationship
• New Chicago
• This is one of the main intra Canada markets and
  Art of Control, Inc will be able to serve this
  market from our base in Toronto, Montreal or
  Seattle on a reseller basis.

70
9
Reasons for and Implications of Entry
There is little to no capital outlay depending
upon the market, therefore it is easy to
recommend that we should enter in with our
limited existing footprint and strategic
interconnect agreements in place with the major
Bolivia. This action will potentially have some
impacts on the market and relationships
Competitive Response
Reasons for Entry
Customer Response
Increase in for frisbess as new market
potential is realized and Reciprocal business
orders are placed by Bolivian Providers

• A of C is making a limited play and Comp 9 has
  already dropped prices in the market therefore A
  of C will have little impact
• A of C is a competitive threat and we need to
  stop them immediately

• Service existing customer base
• Develop reciprocal business with Low Capital
  Costs

• Price Compression post entrance Art of Control
  is going to have little impact on this aspect as
  Comp 9 is already compressing prices
  drastically.
• Mild Competitive Response is expected
• If Art of Control enters into Bolivia with a
  targeted focus on Nempnet Throbwell we will be
  perceived as only a limited threat.
• Art of Control is addressing US and EU customers
  in Bolivia and not attacking the residential and
  imbedded Bolivian customer base.

10
Cost of Entry into Canada
Considering each of our target markets we have a
variety of costs associated with entrance and
making these facilities Frisbee capable. The OPEX
is fully dependent upon how successful we are in
Bolivia. With the current projections there is
no incremental OPEX. Adding an additional node
into the systems requires minimal efforts

• Nempnet Throbwell
• Product Offering
• Frisbee
• Bomerang
• Tennis Balls
• Current Capabilities
• none
• Distribution
• Take a success based approach

• La Paz
• Product Offering
• Frisbee
• Current Capabilities
• none
• Distribution
• Take a success based approach

Incremental Capital Cost 500k
Incremental Capital Cost 200k
11
Opportunity Quantification
There is 200k in identified opportunities that
we could potentially address. In addition 400k
of opportunities that are partially qualified.
Of our existing target customer base there is the
potential for servicing the targeted segments
more fully.
Short Term Billy Bob Billy Joe Buffalo
Chip Nittany Lion
200k MRR
Long Term Opportunity
Bolivian Companies Juan Valdez Don Quixote Don
Juan Don Corleone Lucretia Borgia
US Companies Boston College Eagles Nebraska Corn
Huskers Syracuse Orangemen Drew Rangers
400k MRR
??? MRR
12
Recommended Actions and Next Steps
Develop a phased approach into entering the
Bolivia Market with day one distribution in
Nempnet Throbwell with reselling services on into
the rest of Bolivia.

• Pre-Launch Activities
• Pricing analysis for all products for entrance
  into Bolivia where do we want to price compared
  to the competition
• Develop system support
• Pricing analysis for all product

• Phase 1 Feb 2002
• Negotiate the Definitive agreement with our
  consortium partners TARGETED completion Jan
  15th, 2003
• Launch in Art of Control in Nempnet Throbwell
  Market only
• Resell services into the rest of Bolivia

• Phase 2 -- SBC
• Take a success-based approach to La Paz, if there
  is enough demand from Phase 1 activities deploy
  the capital needed in La Paz
• Resell services into the rest of Bolivia