Axia NetMedia 2008 Progress Report


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2008 progress report for Axia NetMedia Corporation (TSX: AXX)

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Axia NetMedia 2008 Progress Report

  1. 1. Growing 1 Axia progress report 2008
  2. 2. Axia NetMedia Corporation All around the world high performance digital networks are being recognized as critical infrastructure to compete in the modern global economy. Progressive regions are and will be investing in these networks. 2
  3. 3. Axia offers unlimited access to the global gateway through an uncompromised, Real BroadbandTM network model. A model that is truly open, without conflict and that offers limitless possibilities for growth. 1
  4. 4. Axia NetMedia Corporation growing our French business Early stage active networks Construction phase Arras Networks Moselle Telecom Participation SEM@FOR77 (Seine-et-Marne) 3CNET (Cosne sur Loire) Creusot Montceau Networks Grand Chalon Networks Grand Angoulême Networks Clermont Communauté Networks Garonne Networks Hérault Participation Coval Networks (Sicoval) We are active in France through Covage, a French company jointly owned by Axia Networks France, a wholly owned subsidiary of Axia, and our French partner, VINCI Networks, a wholly owned subsidiary of VINCI Construction France. Covage is involved in the acquisition, development, operation and ownership of no conflict Open Access Next Generation (“OAN NextGen”) networks in France. It currently has 12 networks — nine networks of which are active or in the early stages of activation and three are in the construction phase. In fiscal 2008 we embarked on a national fibre backbone connectivity project that will utilize 1,800 kilometres of existing dark fibre infrastructure creating a ringed network from Arras in northern France to Montpellier in the south of France. On completion in mid-calendar 2009, this project will connect Covage’s existing networks to each other and to the main interconnect points in Paris. This national infrastructure project will improve Covage’s service offering to its current and prospective customers by enabling customers to connect directly to Paris, the global gateway for France, and enhance Covage’s competitive position with respect to new net- work prospects. We believe that the development and operation of IP-based networks in France represents a significant growth opportunity, which will unfold over the next several years. 2
  5. 5. 31,000 businesses 1,791 communities 4.56 million people France The Cheminée de Moretti à la Défense is a well-known architectural sculpture in the la Défense area in Paris. Created by French painter Raymond Moretti, the “Cheminée d’aération” is a 30-metre-tall parking vent, clad in coloured glass fibre tubes.
  6. 6. Axia NetMedia Corporation Our business in France continues to evolve and Covage is creating competition, which supports local access operators and Retail Service Providers (RSPs) as they deliver their IP services to business and retail custom- ers. Covage is targeting different types of RSPs: (i) small local RSPs offering services on only one network; (ii) regional and national RSPs offering services on several of Covage’s networks; and (iii) large international RSPs who target medium and large customers. 4
  7. 7. market 2007 2008 addressable 4,000 out of 31,000 15,000 out of 31,000 0 5 10 2.5 7.5 Gbps 10 6.2 bandwidth 0 10 20 30 40 RSPs 26 10 The table to the side depicts Covage’s growth in bandwidth as well as the number of RSP customers. In terms of Covage’s business metrics, we measure market penetration by tracking Broadband revenue in the context of Covage’s addressable market. We define addressable market as business and govern- ment sites that have at least one employee within 500 metres from the existing network. As at June 30, 2008, the addressable market was approximately 15,000. Covage expects that its addressable market will be approximately 31,000 upon completion of the currently planned network investments. When all of Covage’s networks are operational, we expect that with an adoption of 3% to 5% of the addressable market, our Broadband revenue will cover our operating costs. With 15% of the addressable market, we 5 would earn approximately a 20% return before tax on our capital investment.
  8. 8. Alberta Axia NetMedia Corporation 429 communities 2,073 learning facilities 309 library facilities 400 health facilities 1,300 government facilities 6
  9. 9. critical infrastructure for a progressive province Fibre Network Wireless The Government of Alberta (GoA) had a vision to make global connectivity available to all Albertans whether they lived in rural or urban areas. Thanks to Axia’s innovative solution, the GoA has a state-of-the-art IP network that connects 429 communities and provides direct connectivity to over 4,200 government, learn- ing, health, library and municipal locations. The Alberta SuperNet uses Axia’s OAN NextGen model which has created a competitive environment for RSPs who want to deliver ultra-high-speed services, including Internet access, to their retail and business customers even in rural areas. In fiscal 2008, we placed substantial focus on connecting new customers to the Alberta SuperNet and increasing bandwidth commitments from existing customers. As a result, we are experiencing growth in bandwidth usage in the government and RSP sectors. 7
  10. 10. Axia NetMedia Corporation non- bandwidth government RSPs with # of communities This table highlights our progress as we connect more customers to the Alberta SuperNet and grow Gbps bandwidth active with RSPs Gbps connections 60 14 70 260 2008 58 254 67 13.2 55 13 65 250 bandwidth commitments from existing customers. 50 12 60 240 50 59 11.7 225 45 11 55 220 2007 40 10 50 200 8
  11. 11. Using the Alberta SuperNet as their backbone, RSPs are penetrating the Alberta resource and enterprise sector. RSPs are an important component of the Alberta SuperNet’s future growth and we are working closely with them to grow their bandwidth requirements. 9
  12. 12. future Axia NetMedia Corporation 10
  13. 13. We are pursuing opportunities on a similar or larger scale than the Alberta SuperNet. Real Broadband™ is recognized as critical infrastructure for staying competitive in the 21st century digital economy. Axia’s no conflict OAN NextGen model is gaining worldwide recognition. As a result of our success in Alberta and France, we are pursuing potential OAN NextGen opportunities of varying stages in other jurisdictions around the world. Currently these opportunities consist of bid and proposal responses in Singapore and Australia. We also continue to have preliminary discussions in the Middle East and North America. 11
  14. 14. Axia NetMedia Corporation letter to shareholders Dear Fellow Shareholders: The evolution of the telecom sector is driven by the ever-growing consumer demand for web services that depend on global digital IP connectivity. It is clear that, from cost, connectivity and performance perspec- tives, region-wide fibre grids combined with wireless technologies for local connectivity create a future-proof technical and commercial approach. End users do not want the challenge of integrating technology to make it work; they want easy to use, high-performing, low-cost services targeted at their needs. The new success stories in the Internet sector have a growing dependence on no-compromise ubiquitous connectivity between service providers and end users. End users and new web service providers like Google and Facebook are influencing public policy. Separating the transport/connectivity role from the web services role is now topical in progressive jurisdictions. Axia’s business is strategically aligned with the above fundamentals. We use a no-conflict open access approach to the transport/connectivity segment. This enables the role of fibre optic technology to be optimized while complementing the role of wireless technology. It also enables the web services sector to offer services to end users without having to compete with the transport/connectivity sector. These two sectors – the trans- port/connectivity sector and the web services sector – depend on different core competencies and focus and are naturally complementary if one thinks of the end user first. This approach also allows the appropriate regulatory oversight on the transport/connectivity services while allowing competition and the entrepreneurial evolution of web services based on the choice of the end users. Axia has proved that applying these principles in the rural/remote sector is working through the Alberta SuperNet. Axia is on plan for demonstrating that our approach is successful in medium density regions through Covage’s operations in France. We are confident that the same fundamentals, which we have incorporated into our Singapore proposal, are the key to successful Next Generation Network implementations in metropolitan centres. The Alberta SuperNet The Alberta SuperNet is an excellent reference point on how Axia’s OAN NextGen network model can bridge the Digital Divide between rural and urban communities. Operationally this year, we placed substantial focus on connecting new customers to the Alberta SuperNet and increasing bandwidth commitments from existing customers which resulted in increased bandwidth usage by the government and RSP sectors. 12
  15. 15. We launched a Gigabit Ethernet Service for our government customers who require large amounts of band- width and a Critical Infrastructure Service for customers who need a SuperNet connection with 99.999% ac- cess and network availability. In the RSP and enterprise sector, we launched Axia Broadband Connection Services to facilitate connec- tions to the Alberta SuperNet and we are working closely with them to grow their bandwidth requirements. New regional and national RSPs were recruited in 2008 and we anticipate that this will significantly enhance the growth potential of the Alberta SuperNet. France – Covage In France, our OAN NextGen model provides transport/connectivity services through regional networks. Nine networks are active or in the early stages of activation. We expect to activate Grand Angoulême and SEM@FOR77 in the fall of 2008 and Hérault Participation in the summer of 2009. Our results from Covage increased dramatically since fiscal 2007 which reflect both the increase in the number of networks reporting revenue as we have now transferred the majority of our network interests into Covage and from bandwidth sales to our RSPs. In fiscal 2008 we increased the number of Covage’s RSP customers from 10 to 26 and grew our bandwidth to 10 Gbps from 6.2 Gbps at the end of fiscal 2007. We continued to strengthen our France business with Covage’s national fibre backbone connectivity project. The project will be completed by mid-calendar 2009 and utilize 1,800 kilometres of existing dark fibre infrastructure to create a ringed network from Arras in northern France to Montpellier in the south of France. We believe that the national network will create an attractive value proposition for national operators and large corporate and government customers. Currently, Covage has four additional OAN NextGen bids outstanding with decisions expected by the end of calendar 2008. Covage continues to review new opportunities in light of the capital markets and the slowdown in the French economy. Potential opportunities are selected if they complement Covage’s existing operations, the national backbone from a geographical perspective and their economic potential given the investment climate. 13
  16. 16. Axia NetMedia Corporation International Business Development As a result of our success in Alberta and France, we are pursuing potential OAN NextGen opportunities in other jurisdictions around the world. Currently these opportunities consist of bid and proposal responses in Singapore and Australia. We also continue to have preliminary discussions in the Middle East and North America. Axia is the lead member of the OpenNet consortium with a 30% interest. Our partners are Singapore Tele- communications Limited (30%), Singapore Press Holdings (25%) and SP Telecommunications Pte Ltd (15%). OpenNet has submitted a response to the Infocomm Development Authority (“IDA”) of Singapore’s RFP for the rights to construct and provision passive fibre grid services throughout Singapore. This is the first part of the IDA’s competitive bid process for a complete Next Generation National Broadband Network. We are qualified to respond to the second RFP for the provision of active broadband services over the fibre grid with submis- sions due before the end of this calendar year. In April 2008, the Government of Australia issued a Request for Proposal to roll out and operate a national network. We have qualified to respond to an RFP for Next Generation Network implementation(s) in Australia. Submissions are now expected to be delivered in late calendar 2008. Axia’s people One of the highlights this year was Axia being named Canada’s Best Small and Medium Employer in a nation- wide study. At Axia, we believe that to be a successful, high-performing company we must excel when judged from the perspective of our customers, shareholders and employees. Our team approach and our employees’ sharing of intellectual capital and knowledge are crucial to the success of our business. We continually strive to create collaborative high-performing teams composed of individuals with comple- mentary knowledge and skills. Axia has business unit teams in Alberta and France that are supported by a tight corporate group. We believe that this approach reinforces our customer focus and recognizes each market’s local character. Each time Axia is successful in securing an OAN NextGen opportunity in a new market, we will add another dedicated business unit team while maintaining the same organizational approach. 14
  17. 17. Outlook Next Generation Network opportunities typically involve deploying substantial capital in return for long-term reliable profits. The opportunities available to Axia are growing at a time when traditional debt and equity capital markets are, to say the least, unreliable. Axia’s Management and Board assess the attractiveness of each new opportunity taking into account the value of momentum and market position and Axia’s role with respect to deploying capital. At the same time, Axia’s Management and Board remains vigilant in considering the potential dilution shareholders may face as a consequence of Axia choosing to raise capital in the current environment. Axia plans to maintain its strong balance sheet approach. Management and the Board will consider all these factors as the Corporation seeks the path that it believes will maximize shareholder value. On behalf of the Board of Directors, I would like to take this opportunity to thank our customers who continue to experience the value in our solutions, our dedicated employee team for their contributions and our shareholders for their support. Art Price, Chairman and CEO September 18, 2008 15
  18. 18. Axia NetMedia Corporation Axia provides Real Broadband™ IP services and solutions through planning, designing and operating no conflict Open Access Next Generation Networks. We lead by example having created the Alberta SuperNet, which we believe is the world’s best regional IP broadband network. We are now exporting our solution to France and other regions around the world. 16
  19. 19. corporate information corporate directors lawyers Art Price (Chairman) McCarthy Tétrault LLP Charles W. Brown Calgary, Alberta C. Kent Jespersen Robert L. Phillips auditors John Read KPMG LLP Calgary, Alberta William Smith, QC (Corporate Secretary) stock exchange listing executive team Toronto Stock Exchange “AXX” Art Price – Chief Executive Officer Peter L. McKeown – Chief Financial Officer head office Mark Blake – Vice-President, Global Business Axia NetMedia Corporation Development and Marketing 3300 450 1st Street SW, Calgary, AB T2P 5H1 Corinne Hua – Vice-President, Finance and Controller T 403.538.4000 Jim Lindberg – Vice-President, Alberta Operations F 403.538.4100 Drew McNaughton – Chief Technology Officer For more information: Dave Mullins – Vice-President, Alberta Sales Jean-Michel Soulier – President, Axia Networks France Nicole Springer – Vice-President and General Counsel Dawn Tinling – Vice-President, Investor Relations annual meeting and Communications Thursday, November 13, 2008 3:00 p.m. (Mountain) Calgary Chamber of Commerce transfer agent 100 6th Avenue SW, Computershare Trust Company of Canada Calgary, Alberta Calgary, Alberta bankers HSBC Bank Canada Calgary, Alberta Axia’s Management’s Discussion & Analysis, Audited Consolidated Financial Statements and Notes for the year ended June 30, 2008 have been reviewed and approved by the Corporation’s Audit Committee and Board of Directors. These reports were filed on SEDAR and posted to on September 22, 2008. design and production by Equicom, a TMX Company.
  20. 20. Axia NetMedia Corporation 3300 450 1st Street SW, Calgary, AB T2P 5H1 T 403.538.4000 F 403.538.4100 For more information: