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Ourworld Global Network

Information Memorandum

TABLE OF CONTENTS
Corporate Directory

1. 2. 3. 4. 5.

Overview Ownership and Funding Board and Management Mission & Goals Ourworld Global Network History Our Network Business Plan Auslink Communications Pty Ltd Corporate Internet Service Provider Wholesale Internet Service Provider AUIX Limited Business Model Value added Internet Products The Controversy Market Structure & Growth The Internet Internet Growth Industry Participants Internet Service Providers Risk Factors Containment actions for Major Exposures Valuation Financial history, projections and assumptions

6.

7.

8. 9.

Appendices Appendix 1: Appendix 2: Appendix 3: OGNs organisation chart Extracts of OGNs shareholders agreements Glossary

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CORPORATE DIRECTORY

Directors

Richard Graham Kent Binet (Chairman) Thomas Peter Koltai (Chief Executive) Albert Yue Ling Wong Bruce David Burrell Level 5, 77 Weymouth Street Adelaide SA 5000 Telephone (08) Facsimile Level 7 Skygarden 77 Castlereagh Street Sydney NSW 2000 Telephone (02) 9223 2777 Facsimile (02) 9223 2666 Price Waterhouse 201 Kent Street Sydney NSW 2000 Citibank Limited 53 Martin Place Sydney NSW 2000

Secretary Registered Office

Head Office

Auditors

Bankers

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1. Overview
Information is currently the most valuable commodity in the world. The majority of business enterprises currently rely on the processing of data as opposed to material objects. Accessing information has never been so important, yet the demand for online communications services presently outstrips the ability of providers to supply them adequately. The explosive growth of the Internet has clearly demonstrated that the world is ready for the Information Superhighway, yet even a superficial examination of our telecommunications systems reveals how unsuitable they are to fulfil this dream. Internet connectivity between nations is often poor due to the haphazard growth of this network. It is somewhat ironic that even the simplest electronic mail message is sometimes transmitted between two nearby locations in Asia via a link to the USA. Telephony, Internet access and broadband services such as television are currently supplied through separate networks that seem difficult to integrate in the short term. Clearly, there will be serious problems in trying to supply highquality information services with our current range of service providers. OGN was formed in 1996 to take advantage of this. Addressing many of the problems that have plagued the growth of information services in Australia, Asia and the rest of the world, OGN is ready to deliver services that the market already requires, and provide a better alternative than existing suppliers.

The Benefits
Computers are now an essential feature of not only businesses but homes. Furthermore, todays computer environment is a networked one, from small intranets within firms to the Internet, a vast world-spanning network of networks that holds tens of millions of users. In Australia, the Internet has grown from eleven service providers in December 1994 to two hundred and eighty seven on June 16, 1996. The amazing growth in networking is not without its reasons. Communications breaks down the barriers of geography that have traditionally isolated Australia from its major trading partners. The tyranny of distance can be eliminated. Electronic mail breaks down not only distance but time, allowing documents and collaborative ventures to pass quickly between day and night. Send a message to a different time zone before you leave work at night, and an answer will be waiting for you the next morning. Live communications across applications such as Iphone, Web Phone and Powwow offer the demonstrated advantages of collaborative networking in a cheaper format. The power of these applications is demonstrated by the fact that users of traditional office communications equipment such as telephones and fax machines will use the Internet in preference to these long-established devices. Online databases and services such as the World Wide Web provide more than 50 million pages of information that can be instantly accessed across the Internet. Corporate information can be cheaply distributed to anyone in the world and instantly updated at the users discretion. Online commercial systems can make the Internet a storefront to the entire world. The future promises even more exciting applications for the Internet and online services, such as sophisticated shared environments similar to virtual reality.

About OGN
OGN was founded in 1996 by Thomas P. Koltai to offer high-speed access to the Internet through existing cable and Radio Frequency systems allowing a Telstra local bypass. OGN provides a communications network that will supply all of the applications of the Internet today. It has been developed for the future, when more users and applications appear. OGN provides a multi-tiered delivery of:

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Internet via wholesale of Australias largest Internet backbone; International wholesale of South East Asias largest Internet backbone; Retail delivery of Microwave Internet to metropolitan high density commercial and residential; Retail delivery to Australias larger regional centres; Telephony bypass switching (1 Jan 1998).

Ourworld Global Network Pty Ltd

100%

100%

Auslink Communications Pty Ltd

AUIX Ltd

Business Description
OGN is currently an Australian corporation doing business predominantly in the Pacific Asian region utilising services leased from major carriers to provide IP access to ISPs (Internet Service Providers), commercial organisations (banks, insurance companies, legal offices, accountants), and Government bodies. Through a subsidiary company, (Auslink Communications) OGN provides retail dial-up access to the Internet. Another subsidiary, AUIX Limited, provides an Australia wide Internet Exchange for ISPs to use as a Multi-Lateral Peering Point that lowers the cost of Internet traffic to them, thereby enabling them to have higher profit margins. In five months of trading, OGN has developed a customer base that is being billed $300K per month and is growing that customer base at twenty-five percent per month. This growth is due to a pro-active sales team combined with a rapidly growing global network. The OGN business model is to provide a Quality of Service (QoS) network backed by a strong consumer billing system allowing OGN to offer to its wholesale ISP and service Provider customer base, value added communications oriented revenue generating services. This is covered under revenue models, but can be best precised by nominating consumer telephone over IP, PABX to PABX connections, calling cards and guaranteed QoS for intercompany computer networks.

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The Current Market


The current Internet bandwidth wholesale market is dominated by legacy carriers, (MCI, BT, Sprint, AT&T, Telstra, NZ Telecom, Deutsche Telekom) and is being challenged by UUNet and now OGN. In Australia, the market is dominated by Telstra Internet Services (TIS), with other wholesalers being Connect.Com and AccessOne.

Target Audience
This document is aimed at financiers and prospective shareholders. It is not intended for widespread distribution.

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2. OWNERSHIP & FUNDING


Ourworld Global Network Pty Ltd (OGN) was incorporated in November 1996 and funded in February 1997 with $2 million committed by Barton Capital Holdings Ltd (Barton Capital) a company listed on the Australian Stock Exchange. In March-April 1997, OGN reached agreements to purchase the businesses of two ISPs, Aussie.Net Pty Ltd and iiNet Pty Ltd. OGNs current ownership structure is : Ordinary shares: Holder Barton Capital Tom Koltai Aussie.Net principals iiNet Principals Total Number 2,000,000 247,000 100,000 25,000 2,372,000 Percent 84.3% 10.4% 4.2% 1.1% 100%

There are also 22.475m options exercisable at $1 per share issued to various parties. Options: Holder Barton Capital Tom Koltai Rob Bridger Other Managers iiNet Principals Aussie.Net principals Total Number 8,000,000 12,000,000 1,000,000 1,300,000 150,000 25,000 22,475,000

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3. BOARD AND MANAGEMENT


Board of Directors
OGNs board consists of Thomas Koltai as executive director and Albert Wong and Graham Binet as non executive directors appointed by Barton Capital.

Richard Graham Kent Binet - Non Executive Director


Graham Binet is a Chartered Accountant and was a partner of Price Waterhouse from 1970 to December 1995. He is also a director of Barton Capital Holdings.

Thomas P. Koltai - Chief Executive Officer


Thomas Koltai is the former Managing Director and architect of AUSNet services Pty Ltd, Australias first national and international commercial Internet Service Provider. In this capacity, he carried out several pioneering achievements in the development of the Internet in Australia. He established the first national frame relay network in Australia and founded Australias first and largest Internet magazine. He was also the first Australian to open offices in the USA and to sell Internet Access to North America.

Albert Yue Ling Wong - Non Executive Director


Albert Wong is a member of the Australian Stock Exchange (ASX) and was formerly the principal shareholder of Intersuisse limited, a corporate member of ASX. He established Barton Capital and became its managing director in 1995. Bartons activities include corporate advisory and stockbroking related services. Mr Wong holds a Bachelor of Commerce degree from the University of NSW and is an Associate of the Securities Institute of Australia.

Management
Ourworld Global Network has recruited a team of industry professionals to help steer its growth.

Robert Bridger - Managing Director


Mr Bridger was part of the original start up team at Optus Communications and the former manager for Internet and Online Services with Optus Communications. He has also worked as the Director of Strategic Planning with the advertising agency J Walter Thompson for thirteen years. Mr Bridger holds a degree in Politics, Philosophy and Economics.

Dr Rex di Bona - Technical Director


Dr di Bona is the only PhD graduate in TCP/IP in Australia. He has had several years experience in postgraduate research, and has lectured on Unix security at the Basser School of Computer Science of the University of Sydney. Dr di Bona has developed his own world recognised Internet firewall system and implemented Internet gateways for multi-national corporations, government department and hospitals.

Amanda Wilson - Business Development Director


Ms Wilson was instrumental in the start-ups of Ausnet Services Pty. Ltd. and One.Tel's new Internet division, one.net Pty. Ltd., both of which she served in the capacity of General Manager. Ms Wilson has three years experience with developing and delivering commercial Internet products in both the Australian and USA Internet markets.

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John Lindsay - Business Manager SA


A founding partner of iiNet in South Australia, Mr Lindsay has worked in technical and sales roles in the computer industry and has twelve years of experience as a professional programmer. He is also on the executive committee of the Australian Internet Alliance and the South Australian Internet Association.

Leigh Hart - Technical Manager SA


Mr Hart experience includes assisting in the development of roughly one dozen start up ISPs and constructing the first rural Internet Service in South Australia while serving as technical manager for another large Adelaide based ISP. He has also developed corporate Internet solutions and served as an IT project officer for the South Australian Government.

See Appendix 1 for an organisation chart.

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4. Mission & Goals


Ourworld Mission Statement
Ourworld Global Network is Australias global IP carrier, delivering low cost, high speed data transit around the world. We aim to lead the market in the application of new technologies to enable secure, high quality global data transit, electronic commerce, and digital communication. Ourworlds commitment to meeting customer needs is supported by both a guarantee of service quality, and the company's leading technical expertise.

Auslink Mission Statement


Auslink Communications is dedicated to providing affordable Internet Services to new users in the Australian market, through simple, easy to use technologies and outstanding customer support. Auslink will deliver the benefits of the latest Internet applications and content to both the commercial and residential markets Auslink aims to demystify the Internet for new users and make it relevant, valuable and of genuine practical use.

Goals For Customers


Quality of Service: Our customers value our guaranteed levels of service which provide much needed support to them in serving their customers Informed Purchasing: Easy access to information on products, connectivity options & pricing will enable our customers to make smart purchasing decisions. Customers Income Potential: Our customers maximise their income potential through competitively priced entry level and ongoing network management service options

Goals for Shareholders


Shareholder Value: Shareholders are delighted with the growth in value of the investment. The business produces a return of more then three fold to the seed investors at the end of 1997. Prestige Image: Ourworld is recognised as the global IP carrier. Partnering: Creative partnerships enhance our capacity as a market maker.

Goals for Staff


Quality Career Opportunity: Staff consider that Ourworld is a great place to work for. We are approached by high quality individuals seeking to join a winning organisation. Staff Education: Staff of Ourworld should learn something new everyday regarding the industry or our business. Communication: Develop staff to communicate effectively in work and social business functions. Support: Ourworld staff will work together and encourage others in the "Ourworld" team.

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Goals for Excellence


Innovation: Ourworld provocatively recognises & takes early advantage of emerging niche opportunities. This is supported by our Best of Breed capability in engineering global IP telecommunications. Global Presence: Agreements with other carriers & our engineering smarts have resulted in a case study for world wide access and network topology. Best Practice: Our business is the industry leader, deploying uniform operations globally & setting performance levels for requirements specifications, delivery, billing & help desk support.

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5. OURWORLD GLOBAL NETWORK


History
OGN was started with a goal to provide network solutions to its clients, including the analysis, design, and connectivity of networks to the growing Internet. By utilising leading edge technologies to facilitate this demand, OGN has developed one of the largest and most advanced networks in the Australasian region. Initially, primary connectivity was achieved through several high speed connections leased from BT/Concert. Since then, OGN has deployed a private, nationwide DS-3 ATM network providing dedicated access for organisations across the country. The major Network Access Points are linked by a fully meshed DS-3 ATM network, utilising advanced routing and switching solutions for the delivery of data. OGN also has a multiple E1 Frame Cloud operational for customer traffic, as well as fall-over and redundancy to the ATM fabric. Multiple circuits into the Internet are also maintained via physically diverse carriers for redundancy. OGN also intends to spend considerable amounts of additional resources to maintain the quality of its commercial grade network, and for expansion into larger commercial markets.

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Our Network
OGN uses and maintains a privately-funded, high speed, nationwide Internet Protocol network. This network is constructed on a fully meshed, fault tolerant Frame Relay backbone that is directly connected to all Australias major Network Access Points.

Ourworld Global Network National Access Points (NAP) Connectivity

LINX London PAIX Palo Alto CIX San Francisco MaeWest San Jose

Ameritech Chicago

MaeEast Washington

AUIX Perth AUIX Adelaide

AUIX Brisbane AUIX Sydney AUIX Melbourne

To facilitate exchange of Internet traffic, OGN has negotiated a number of critical international peering arrangements (allowing the private exchange of traffic) with other major network providers. GN currently peers at MAE-WEST and PAIX in the USA, LINX in the UK and runs the UAIX in Australia. Agreements are in place to allow OGN to peer at the STIX in Singapore and the HKIX in Hong Kong. This will mean that OGN is the only network peering at all major peering points in the world. With carriage agreements in place with AAPT AT&T BT/Concert/MCI Connect.com GlobalOne IDB-Worldcomm OPTUS Communications PACBELL T.I.S. Total Carriage 5 x 1024 kbps 1 x 256 kbps 6 x 256 kbps 2 x 2048 kbps 1 x 2048 kbps 1 x 2048 kbps 1 x 2048 kbps 1 x 4096 kbps 2 x 2048 kbps 23 Mbps

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And Transit agreements in place with Visi.net UUNet Hurricane.net Pacbell Internet 1 x 104240 kbps 1 x 1534 kbps 1 x 10240 kbps 1 x 45000 kbps

OGN peers with these network providers in five countries with meshed redundancies being provided between Australia and the USA via Asia and Europe. The internal network runs on a fast and clear 100 megabit switched backbone. 100 megabit full-duplex switches work in conjunction (at 200 megabits full-duplex between them) with 10 megabit switches to segment internal traffic and keep latency at a minimum. All internal equipment resides on switched devices.
64/1024 128/1024
Co-Lo Co-Lo AUIX Co-Lo Co-Lo

As at 29th July 1997


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OGN's goal is to provide fast and reliable, end-to-end Network Solutions for our customers. OGN has pioneered the use of advanced technologies like SMDS and ATM for IP transit. We help our customers establish a presence in the Internet community by providing the highest quality support and most advanced technology available -- in short, by providing the knowhow and how-to necessary to deliver the what they want from the Internet.

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Business Plan
The OGN business plan has four complementary components: 1. 2. 3. 4. Retail Internet Service Provider - Auslink Communications Pty Ltd Corporate Internet Service Provider Wholesale Internet Service Provider/Internet Protocol Carrier Internet Exchange Point AUIX Limited

Retail ISP Auslink Communications Pty Ltd


In the first quarter of 1997 OGN purchased the assets of Aussie.net Pty Ltd and iiNet (SA) Pty Ltd now merged and renamed Auslink Communications Pty Ltd (Auslink). Auslink is now an Internet Service Provider with 2,300 customers and points of presence in Sydney, Melbourne, Brisbane, Adelaide, Perth and Palo Alto. Auslinks primary business is Internet access provision to individual customers and to small and medium size businesses through dial up and permanent connections. As part of this business, Auslink also offers customers products such as equipment, software, and consulting services.

Wholesale Internet Service Provider - IP Carrier


OGN is Australias first global Internet Protocol (IP) carrier with points presence around the world. This is achieved through a high performance IP network using leased capacity from British Telecom, AAPT, Optuss Asynchronous Transfer Mode (ATM) network, and OGNs own Australian Internet Exchange (AUIX) network. OGN has developed considerable intellectual property in managing an IP network. This network is based around route arbitration, peering, compression and caching technologies developed by OGN which allows ISPs to reduce their communications costs by some 50 per cent whilst improving the speed and quality of transmission. This is significant given that telecommunication costs account for between 30 per cent and 60 per cent of the total costs of a large ISP and between 40 per cent and 70 per cent of the total costs of a small ISP. To date, 140 ISPs have expressed an interest in joining OGNs network, and 39 have already signed as customers of OGNs network. Network Operations Centre OGN currently operates a 7x12 (becoming a 7x24 by June 30, 1997) Network Operations Centre (NOC) at its 77 Castlereagh Street office in Sydney, NSW. This facility is connected by multiple, physically diverse carriers to the rest of the OGN backbone. It is also served by UPS and a 7 day on-site diesel generator. OGN's NOC staff is known for their technical expertise as well as their problem resolution capability. Network monitoring is facilitated by advanced network management tools to diagnose and prevent trouble before it happens.

Internet Exchange Point AUIX Limited


In the USA Internet Exchange Points have been operational for over 10 years. These exchange points allow ISP's to come together in one location to pier and exchange traffic. These exchange points offer considerable savings against traditional inter connect methodologies namely a reduction in tail circuit charges as well as a reduction in the cost to "by" traffic from other ISP's. AUIX Ltd. is constituted as an independent association, which currently runs as a non-forprofit UN-listed public company, AUIX Ltd.

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OGN has formed AUIX to allow Australian ISP's to peer and therefore reduce the Australian ISP industry's utilisation of bandwidth. The AUIX allows for settlement free peering to all members. By interconnecting each AUIX National Access Point (NAP), ISP's are able to peer on a national basis. The AUIX has been recognised around the world as the first national peering network. The methodology and technologies for creating this national peering network has been presented at the NANOG industry forum and can now be used as a model for exchange points around the world. Through AUIX, Australian ISP's have improved access and higher performance connections to the Global Internet. Furthermore, by encouraging the participation of both research networks and commercial network service providers (eg. Universities and Commercial IAPs) AUIX is able to assess the needs of a wide variety of member providers and contribute to the development of competitive services in Australia by providing low-cost internal data transit. AUIX can exchange traffic with other major IP NAPs within Australia and plans to form reciprocal arrangements with other similar organisations world wide. AUIX Ltd. will also be an active partner in the further development of the Internet within Australia. AUIX does not enforce any restrictions on the traffic being transmitted. Each member has the right to restrict traffic into its own network, but there are no limitations (or appropriate use policies) on the backbone. The first stage of the project will not allow traffic between an individual IAP POPs. AUIX development will follow a stage implementation with the first stage being a Commercial NAP and subsequent stages being bandwidth re-selling and value-added services and business goals. AUIX is designed so that small to medium sized IAPs are placed in a more strategic position to meet their future challenges. It should be noted, that membership of AUIX Ltd. should not be viewed as an investment, AUIX Ltd. is designed to re-invested any surplus earnings back into its network ensuring continued benefits for its members. Project Stages Stage 1 Stage 2 Stage 3 Stage 4 Commercial NAP Inter-POP Access for IAPs National / International bandwidth purchase International associations

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Tpical Rack
Telco Rack (DDS/PAPL/ISDN) Wireless/MDS Route Server

AUIX Interstate Peering Network

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Brisbane NAP 64 Kb

Perth NAP 64 Kb Adelaide NAP 64 Kb Melbourne NAP 64 Kb Sydney NAP 64 Kb

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Risks The main risk for AUIX Ltd. is the lack of members. A minimum amount of members are required in each geographical area and nationally to ensure that the members receive the full benefits for Zero Cost transit. Also, to achieve cost-effective bandwidth sales, a minimum bandwidth purchase requirement must be in place with members. After the success of the Melbourne NAP, the Management Committee believes that it has enough potential members to proceed with Stage 2. Other risks include lack of finance to meet future network growth. The committee feels that this has been met by adding a growth factor into the monthly pricing paid by members. Management Committee The initial Management Committee is formed by the following members. CEO Thomas P. Koltai Network Architect Andrew Khoo

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Forecast Profit And Loss Statement Date17th June 1997

Period Covered: 12 months ending 30th June 1998

$
SALES Connection Fees Monthly Access Fees 100,000 500,000

#
100 500

TOTAL SALES Less Cost of Goods Sold Equipment Purchases Inter-POP transit GROSS PROFIT Less Expenses Wages (including contractor fees) Professional Fees Office expenses Telephone Rent Interest & Bank Charges Repair & Maintenance Sundries Subtotal TOTAL EXPENSES NET PROFIT/LOSS

600,000

300,000 160,000 140,000

6 6

60,000 3,000 2,000 1,000 66,000 2,000 4,000 2,000

100,000 0

Assumptions Made AUIX Ltd. operates 6 POPs Inter-POP transit will be supplied by a minimum 256K CIR Frame Relay

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Future Opportunities Providing a business model for ISPs


OGN will offer ISPs on its network, hardware and software to set up their business, advice on their business, as well as products and services to support their business model. These Products and services enhance ISPs revenues and reduce their costs. Cost reducing products providing smaller ISPs with ISP hosting (virtual ISP) and billing services. Revenue enhancing involves providing ISPs with products such as telephone calling cards, GSM mobile, Internet telephony and fax, and web hosting services to on sell to their client base.

Corporate Financing Opportunity


This involves offering a customer, usually a small or medium sized business Internet access and the equipment required to access the Internet in one package. The client who buys the package for a monthly fee will get Internet connection, the routers, modems and other equipment needed to access the Internet as well as start up and ongoing support. As customers become accustomed to the Internet, they are upgraded to higher bandwidth, better equipment and other services. This service is augmented with web hosting, and content provision such as news and games.

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Business Model
The OGN business model is based on a diversified income stream consisting of:

1. The Internet
High Speed Backbone Services; Internet Access; PSTN dial-up, terrestrial leased line, MDS delivery, Internet Consulting; solution sales, firewalls, EDI product development, Internet Web database development, sales and cached global delivery.

2. Value added Internet Products


Electronic Data Interchange. Client agents. (Vertical specific subject based News Delivery) GSM and RF IP Network connectivity Video Content on Demand.

3. Telephony
Internet phone, Discounted third party services, GSM integration with 1. International (VON) Frame Relay interconnect points. PDA satellite integration services

4. Financing
Loyalty cards, finance programs, EDI transaction services, transaction software development.

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The Controversy
A venture as ambitious as OGN cannot be expected to appear without generating controversy. Given the importance of the services OGN plans to deliver, concern over their delivery and control enters from several angles. Some industry visionaries have suggested that because the Internet enables everyone to become producers, it is threatening the established hierarchy and order of media networks. Therefore, such networks will attempt to take over the Internet, and if that fails, they may try to crush it. Established networks, such as the television networks and telcos, have an interest in being the sole producers/providers of media content. Likewise, the same may hold true for the established suppliers of information services, such as the leading on-line services and database research companies. The Internet may threaten telecommunications providers, because it is possible to route a phone call or a video conference over the Internet as well. Today, we can already see the established networks and providers reacting to the threat of the Internet by beginning to enter it and dominate the market. The leading media networks are all going on-line. The on-line services have all begun to integrate with the Internet. The major American telecommunications providers (most notably AT&T, MCI and Sprint) have started to market Internet products and services. In each of these cases, however, the organisations in question are still attempting to apply existing distribution paradigms to the Internet. They are trying to bring non-interactive business models into an interactive arena. This is evident not only in their pricing models, but also in their attempts to control the flow and use of information through their networks. Existing distribution paradigms are changing however. Unless the established content providers and distributors can quickly adapt, they may become minor players in an increasingly diverse global information economy. In this new arena, media content will no longer be produced and distributed by a few large sources. Instead, content will be created by everyone and distributed by everyone. Furthermore, transaction fees will become much smaller yet more frequent as consumers pay for metered bits of information. Collaboration will increase and "publishing" will evolve into a dynamic activity that combines the ongoing input of both authors/producers and readers/audience. Finally, our understanding of intellectual property, design, and production may change radically. Publishers and network providers need to wake up to these realities if they want to succeed on-line. Even if the established media players survive in the Internet age, it is unlikely that they will be able to maintain their traditional control over media content, distribution, and usage. Just as we have seen in the case of on-line services, even the largest monopoly is still quite small when compared to the overwhelming size and growth of the Internet. Yet, what exactly will replace the old order is still unknown. We believe that the Internet will evolve into a new form of free market economy---an economy of information. In this new environment, information and information processing will be the prime commodities. The major opportunities will therefore be in the areas of information distribution, transaction processing, information processing technologies, and information processing services. New ways of buying, protecting, distributing, and selling information will be necessary to facilitate such an economy. As this global information economy matures we will witness profound changes in the legal and financial infrastructures that support it. For example, intellectual property laws and banking systems are already starting to evolve in light of the Internet. A number of "virtual money" systems have been unveiled to enable commerce on

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the Web. Meanwhile content providers are struggling with how to protect their information and still distribute it widely enough to profit. These are both obstacles and major opportunities. Although it is difficult to predict how the future will look, we do know that because the Internet is truly interactive it has an advantage over competing mediums. Unlike other options, the Internet already enables mass-market international interactive communication. Using the Internet it is already feasible to provide global access to customer service, virtual reality, shopping, distance learning, marketing, discussion groups, multi-player games, and groupware. It will be many years at best before any other medium develops sufficiently to be a serious alternative to the Internet, and by then the Internet will also have grown and advanced as well. Presently, a number of technological projects are underway to advance the scope and power of the Internet. Within the next decade the Internet will be augmented by a number of extremely high-capacity networks such as the NREN (National Research and Education Network), the Mbone, and a number of private networks from major telecommunications and computer companies. There is also a significant amount of work being done to connect the Internet with the cable television networks. Cable to Internet connections may increase the "bandwidth" into the home, enabling faster connections to the Internet for applications such as video, animation, and sound. In addition, there are numerous projects underway to develop more efficient compression schemes to speed up data transmission on the Internet. It is likely that in the first decade of the next century we will be able to watch television, make phone calls, videoconference, listen to music, and meet in virtual reality. The world of commerce has been through three major transformations. First came the agrarian revolution, which in turn permitted the industrial revolution. Analysts generally agree that we are witnessing the birth of the information revolution. There is no better moment in history to invest in this field, and OGN is clearly poised to seize the moment.

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6. MARKET STRUCTURE AND GROWTH


The Internet Description
The Internet is a complex network of interlinked computers using a common computer language (TCP/IP) to communicate. The best known component of the Internet is the graphical sub-network known as the world wide web (www or the web). The web is a medium through which PC users can access information such as text, pictures, data, voice and movies from around the world in a graphical multimedia environment. Figure x below depicts a simplified diagrammatic representation of the Internet highlighting the linkages and sites that play a part when, for example, an Australian Internet user connects to Harvard Universitys web site.
Diagram of Internet sites and linkages
Home / office Computer with TCP/IP software eg Netscape Local loop Retail ISP eg Ozemail Other Computers/ISPs

Key Modem Translates data to be sent over communication network Routers Directs data according to URL eg. Cisco Other ISPs Computers contain data / pictures/software eg. IBM/Sun Communication network carries data / voice/ pictures eg. Copper cable, ISDN, DDS,T1,T3, STM 1, microwave, satellite

National loop Australian Internet Protocol Carrier eg Telstra/OGN International Link US Internet Protocol Carrier eg MCI,Sprint

Other ISPs

National Loop US ISP eg America Online Local Loop Harvard University Web site Other Computers/ISPs

Internet growth
The Internet has grown from virtual obscurity to an estimated world wide industry of 30 to 50 million users, 16 million hosts and 1 million web sites in 1997 (Morgan Stanley Technology Research). The Australian industry has grown in parallel to 1.1 million users (640k commercial and 460k academic users), 30,000 web sites, 515,000 hosts and 450 Internet Service Providers as at Jan 1997 (www.consult). Figure x shows the growth of commercial Internet users in Australia.

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Australian Commercial Internet Users * (cumulative average growth rate 10% per month)

700 600 500


Thousands 400 (K) 370K 230K 172K 550K

640K

Business

300 200 100 0 Sep-95

Consumer

Dec-95

Apr-96

Oct-96

Jan-97

* Excludes academic use and non-Internet Email-only use Source: www.consult

The phenomenal growth of the Internet is attributable to the utility of the world wide web to consumers, businesses and governments. Consumers have been using the Internet to access educational content and references, software, entertainment, news, sports and a wide variety of other information. Small and medium sized businesses have been using the Internet for Email to save money on communication costs, and to access information ranging from weather to business sources to government statistics. Governments and large businesses have used the Internet to save money on a range of activities including product distribution, product support, customer assistance and information distribution.

Industry Participants
Industry participants include hardware vendors such as Sun Microsystems, IBM and Cisco, software vendors such as Microsoft and Netscape, content providers such as Pointcast and NBC, Internet Protocol carriers such as Telstra and MCI, and Internet Service Providers such as Ozemail and Connect.com.

Internet Service Providers


Users with a computer and modem access the web through an Internet Service Provider (ISP) who provides a gateway for users on the Internet. The essential role of ISPs is to customise Internet access and services for individual customers. ISPs buy telecommunications capacity in bulk, and package it together with software, services and support in a one stop shop to suit various customer needs, preferences and budgets. ISPs offer customers software such as browsers and games, services ranging from web hosting to re-engineering corporate processes, and support ranging from Internet access set up to twenty four hour help desks. Each ISP has six possible sources of revenues 1. Dial up consumer accounts, 2. Dial up business accounts, 3. Permanent connection accounts, 4. Wholesale bandwidth sales, 5. Integration services (mail, security, web development, hosting, DNS registration), and 6. Publishing, advertising and web based services. The Australian ISP industry employs more than 2,000 staff and has revenues in excess of $15 million per month (Feb 1997), growing by 4% to 5% per month (www.consult). The Australian ISP industry has grown rapidly since 1993 to approximately 450 firms.

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Number of Australian ISPs


450

320

120 32 16

1993

1994

1995

1996

1997

Source: www.consult

ISPs range from large full service firms providing Internet access as well as a range of services to small no frills operators offering access but few services. These latter ISPs are perhaps better referred to as Internet Access Providers (IAPs). Some ISPs such as Telstra On line and Connect.com are affiliated with telecommunication companies, others such as IBM Network and Compuserve are affiliated with Hardware and Software companies whilst others such as Ozemail and the smaller players are independent. Figure x shows the distribution of ISPs by total subscriber base.
Distribution of ISPs by number of subscribers base size
30% 25% 20% Per cent of ISP's 15% 10% 5% 0% >20k 1020k 5k1k50010k 5k 1k Subscriber base (k = 1000) 200500 100200 50100 <50
2.5% 2.9% 2.9% 16% 9.5% 7.5% 9.6% 22% 27%

As at Oct 1996. Based on a representative survey of ISPs. Source: www.consult

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7. Risk Factors
Competitive risks
There is a risk that another organisation will repeat OGNs strategy by duplicating its IP Carrier technology. However, OGN has considerable lead time over its competitors. It has spent considerable time and resources to develop its technology, and to its knowledge, there are no other organisations developing this type of technology. Since OGNs IP carrier strategy is based on reducing ISPs communications costs, there is the possibility that the other IP carriers, Telstra for example, will reduce their charges thereby reducing OGNs competitiveness. However, since OGN will be able to access carriers networks at the same price offered to other ISPs, and OGNs strategy depends on caching and arbitration, means that OGN will be able to maintain its advantage relative to Telstra and other carriers.

Technology risk
The Internet industry is a fast growing, changing industry. There are risks that technologies will develop which will threaten OGNs business. This risk is mitigated by the depth of knowledge of OGNs management and their position at the forefront of industry developments not only in Australia but worldwide.

Market risks
OGN has to manage its growth whilst keeping customer churn down. This risk is managed by OGNs detailed management reporting system and the experience of management with high growth businesses.

Internet Access Rationalisation


Other risk factors include a potential decrease in Internet access demand within the next eighteen months; the lack of sufficiently trained engineers to maintain a high growth Quality of Service Internet organisation and the rapidly escalating bottleneck of insufficient global fibre optic cable capacity to meet bandwidth demand. In Australia, Telstra, the dominant general telecommunication carrier is attempting to implement timed data calls which will detract in the revenues for downstream customers obviously affecting the long term viability of smaller ISPs. This will cause a rationalisation in the ISP industry and will force prices up.

Dependence on Third Parties


OGN is dependent on third party suppliers of equipment, services and software. In the recent history of Internet growth, the unheralded demand has caused shortages and slow deliveries of Internet related equipment, like modems, routers and servers. OGN is also dependent on telecommunication carriers in several countries to facilitate traffic settlements and services. Occasionally, these carriers may not supply these requirements in a timely manner thereby due to regulatory changes or capacity shortages causing OGN to forego or delay revenue opportunities.

Rapid Technological Change


The Internet is also undergoing rapid technological change and while the Directors of OGN have attempted to accurately forecast new technologies being implemented and their effect on OGNs business model, no guarantees can be offered as to future technological developments.

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Regulatory
The company is subject to regulatory environments in several countries and will have to form subsidiary entities to work within foreign regulatory frameworks. e.g.: In the USA it will be necessary to become a licensed long distance carrier to ensure better tariff rates on infrastructure.

Additional Capital for Growth


While OGN expects that this offering will be sufficient to capitalise the growth of the company until revenues are sufficient to meet its operating costs, it is recognised that additional capital will need to be raised to progress the rapid global deployment required to retain a market leadership position.

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Containment actions for Major Exposures


Risk Category Containment Actions Proposed

Markets and Customers

Business Environment

Regulation & Government Logistics & Production

Partners & Suppliers Products & Infrastructure

Personnel

Competitors

Enforce tight information security. Trail all marketing concepts. Ensure strong value propositions for content provision. All business models to be sustainable at large discounts to current street prices. Mount capital raising with significant lead times. Ensure ability to list as soon as possible. Build prestige image to support dialogue with potential investors. Pro-actively structure global operations to minimise tax. Select overseas partners carefully. Apply project management disciplines for logistics projects. Ensure supply agreements incorporate turnaround times and measure these. Develop alternative supply methodologies to minimise provision times for Telco services. Build and systematically manage multi-tiered. relationships with partners and major suppliers. Apply project management disciplines on product review development projects. Build POP fall back positions for locations Trial new technologies. Maintain industry networks to keep abreast of technology trends. Ensure effective communications with staff and input into decision making. Provide performance incentives. Identify key personnel well ahead of the need to fill positions. Mount ongoing competitor surveillance (from customers, sales force and media. Anticipate structure changes to the industry and reposition well ahead of time.

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8. Valuation
OGN is valued by valuing three separate business lines: 1. Retail ISP 2. Corporate ISP 3. Wholesale ISP/IP carrier IP Network ISP Business model

Retail ISP
Auslink Communications is valued by the revenue multiple and subscriber multiple methodologies. Revenue and subscriber multiple methodologies are used because of the lack of profitability in the ISP industry.

Valuation methodology
Four listed retail ISPs, namely, Ozemail, Netcom, America Online, and Mindspring Inc were used as valuation benchmarks. Two other listed ISPs, BBN and PSI Net, being wholesale and corporate ISPs were excluded from the benchmarking analysis. The methodology calculates the enterprise value of these companies in the months March to April 1997 by adjusting their market capitalisation by cash, debt, preferred equity and minorities. Revenue multiples are calculated by reference to three month revenues to March 97 and subscriber multiples by reference to the number of subscribers as at March 97. The following table details retail ISPs valuation benchmark:

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Retail ISP valuation model


ISP Valuation Model No shares outstanding (000) Share Price High Mar-Apr 97 USD Share Price Low Mar-Apr 97 USD Exchange rate (USD/AUD) Share Price High Mar-Apr 97 AUD Share Price Low Mar-Apr 97 AUD Market Cap High AUD (000) Market Cap Low AUD (000) Adjustments Mar 97 (000) Cash Long Term Debt Preferred equity Minorities Enterprise Value High Enterprise Value Low Revenue Multiple Revenues 3 Months Mar 97 (000) Revenue growth (y/y) Revenue Multiple High Revenue Multiple Low Subscriber Multiple Subscribers Mar 97 Subscriber Multiple High Subscriber Multiple Low Cross check Est 1 Month Revenues (000) No of Subscibers Revenue per sub per month 1. AOL subscriber numbers estimated. 2. MSPG data as at Dec 96 Ozemail 10,350 8.50 6.50 0.78 10.90 8.33 112,788 86,250 (38,006) 223 75,005 48,467 Retail ISP Netcom AOL (1) 11,665 113,789 16.00 50.00 15.00 40.00 0.78 0.78 20.51 64.10 19.23 51.28 239,282 224,327 (92,365) 3,942 150,859 135,904 7,294,167 5,835,333 (253,633) 23,758 1 6,490 7,070,782 5,611,949 MSPG(2) 7,478 10.25 6.65 0.78 13.14 8.53 98,273 63,757 (8,001) 2,829 93,101 58,586 Average

10,752 165% 6.98 4.51

50,006 61% 3.02 2.72

489,085 199% 14.46 11.47

10,928 440% 8.52 5.36

8.24 6.02

119,535 627 722

580,000 260 387

7,000,000 1,010 834

121,794 764 523

666 616

3,584 119,535 $ 30.0

16,669 580,000 28.7

163,028 7,000,000 $ 23.3

3,643 121,794 $ 29.9

28.0

Of the four retail ISPs, Netcom and Mindspring have US subscribers whereas America Online has about 90% of its subscribers in the US with the balance being international subscribers, Ozemail has Australian/New Zealand subscribers. All these ISPs derive over 90% of their revenues from retail customers which is reflected in the low $20-$30 revenue per customer figures. This compares to revenue per subscriber of $500 which is more common to ISPs specialising in the corporate sector (see table x below). Of the four ISPs Ozemail and America Online trade at a high multiples because of their market dominance and high growth rates, whilst Netcom trades at low multiples because it is non dominant and slower growing. Mindspring, although small, has very high growth rates, which is reflected in its trading multiples.

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Corporate ISP
This business is valued by the discounted cash flow methodology and cross checked by a Revenue and subscriber multiple methodology. Corporate ISP valuation model
No shares outstanding (000) Share Price High Mar-Apr 97 USD Share Price Low Mar-Apr 97 USD Exchange rate (USD/AUD) Share Price High Mar-Apr 97 AUD Share Price Low Mar-Apr 97 AUD Market Cap High AUD (000) Market Cap Low AUD (000) Cash Long Term Debt Preferred equity Minorities Enterprise Value High Enterprise Value Low Revenue Multiple Revenues 3 Months Mar 97 (000) Revenue growth (y/y) Revenue Multiple High Revenue Multiple Low Subscriber Multiple Subscribers Mar 97 Subscriber Multiple High Subscriber Multiple Low Cross check Est 1 Month Revenues (000) No of Subscibers Revenue per sub per month PSI NET 40,158 8.00 6.00 0.78 10.26 7.69 411,877 308,908 (76,671) 34,994 370,200 267,231 BBN 21,220 28.00 27.00 0.78 35.90 34.62 761,744 734,538 (133,900) 113,415 10,256 751,515 724,310 Average

32,871 49% 11.26 8.13

122,949 58% 6.20 5.97

8.73 7.05

20,900 17,713 14,780

2,000 375,758 367,269

10,957 20,900 $ 524.3

40,983 2,000 $ 20,491

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9. Financial history, projections and assumptions

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10.

Appendix 1 :

Organisation Chart of OGN

Board

Tom Koltai CEO

Rob Bridger MD

Technical Team

Charlles Sant Accountant

GM Auslink

Amanda Wilson Dir Bus Develop

OGN Adelaide

Rex di Bona Tech Director

Three Assistants

Miles Phillips NOC Support

Josephin Lane Sales

John Lindsay Bus Mgr

Chris Boyle Network Engineer Three Assistants

Marlene Regimbal Sales

Lisa Davis Graphics/Ad

Leigh Hart Tech Mgr

Two Assistants

Michael Abramivich Web Dev

Rachael Stead Marketing

Geeta Lala Sales Exec

Matt Herreen Corp sales

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11.

Appendix 2

The following is an extract of some relevant sections of OGNs shareholders agreement:

On 31 January 1997, Barton Capital Holdings Ltd and Tom Koltai signed OGN's shareholders agreement. This agreement contains the following provisions:

Restriction of OGNs business to conducting an Internet backbone wholesale services and other telecommunications businesses in accordance with OGNs business plan. Pre-emptive rights apply to transfer of shares in OGN until July 1997 to any party with the exception of transfers of shares to Optus Communications Pty Ltd and United International Holdings. Shareholders wishing to dispose of their shares after July 1997 may serve a notice on other shareholders specifying the price at which they which to sell their shares and options. The shareholder receiving the notice must notify the serving shareholder that he wishes to purchase all the shares offered or sell all his shares and options to the serving shareholder at the price specified by the serving shareholder. Board decisions by majority of directors. Certain matters decided by a resolution of the board including: - Issue or repurchase of securities by OGN - Declaration of any dividend - Any change of business outside the telecommunication sector - Any acquisition or disposal of an asset exceeding $50,000 in value which is outside the current business plan. - The entry into or termination of any contract which contains an exposure for OGN of more than $25,000. - The voluntary liquidation of OGN - Any guarantee by OGN of a third party (including a shareholder) - The approval of accounts - Any borrowing exceeding $150,000 which are either outside the current business plan or outside short term working overdraft. - The chief executives remuneration In the event of a default by a shareholder including events of bankruptcy, insolvency, winding up or breach of commercial significance under the shareholders agreement or a change of effective control, the other shareholders will have the option to purchase all the shares of the defaulting shareholder at a valuation either agreed to or determined by a valuer.

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12.

Appendix 3:

Glossary of terms
ATM Asynchronous Transfer Mode is a high speed, high volume packet switched ISDN transmission protocol. A software program that takes pages (hypertext files) from web servers and displays them on screen on a computer with a graphical user interface (GUI) like the Windows or Mac system. Eg. Netscape. Expressed in Bps (bits per second) this refers to the speed by which information can be sent or received in a network. In Internet terms, the higher the bandwidth, the better, ie 128k is better than 64k bandwidth while 1Mb is even better. Storing or buffering data in a temporary location, so that it can be retrieved quickly by an application. A connection between computers established over a normal phone line. Domain Name. The unique name that identifies an Internet site. Eg microsoft.com. A binary digit, either a zero or a one. The fundamental unit that a computer uses in its operation. A byte is typically composed of 8 bits. Bits per second, Kilo bits per second (thousand bits) and Mega bits per second (Million bits). Cookies are identification codes given to a visitor when they enter a web site. They allow the web site to passively track and evaluate a visitors response to content and advertisements. Data, Information and opinion published on the web Rhyming with Literati, the elite of the computer world. Mail sent electronically over the Internet A message designed to "burn" the addressee. Usually rudely and in public. When the addressee responds in kind and the whole thing escalates, it's called a "flame war". Not an uncommon thing on newsgroups. Frequently Asked Questions Any computer on a network that is a repository for services available to other computers on the network. hypertext transfer protocol, the protocol used on the world wide web Internet Access Provider. Provides access to the Internet but few services. Internet Service Provider. Provides access to the Internet plus a range of other value added services.

Browser

Bandwidth

Caching

Dial up DN

Bits Bytes

Bps/KBps/MBps

Cookie

Content Digerati Email Flame

FAQ Host

http IAP ISP

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ISDN

Integrated Services Digital Network is a digital telephonic system made up of two 64 kbps B data channels and one D traffic messaging channel. An ISDN connection is approximately 20 times faster than an analogue connection. Modulator-Demodulator, a device for converting data so it can be sent through telephone lines. A new Internet user. Persons uninitiated in the ways of the Internet The name for discussion groups on the Internet. The method used to move data around on the Internet. In packet switching, all the data coming out of a machine are broken down into pieces or packets, each packet has the address for where it came from and where it is going. This enables packets o data from many different sources to comingle on the same lines and be sorted and directed to different destinations by routers along the way. Personal Computer A special purpose computer (or software package) that handles the connection between two or more networks. Routers spend all their time looking at the destination addresses (URLs) of the packets passing through them and deciding which route to send them on. A program that searches the indices of addresses using keywords to find what you are looking for. Regular mail sent through the post office. To send unsolicited bulk Email pronounced "tee-see-pip", stands for Transmission Control Protocol/ Internet Protocol used in combination is the networking method used by computers to communicate with each other over the Net. Universal Resource Locator - The pathname of a document on the Internet. World Wide Web, is the network of all connected hypertext documents and related material available on the Internet.

Modem

Newbies Newsgroups Packet switching

PC Router

Search Engine

Snail mail Spamming TCP/IP

URL WWW or the web

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