E

MARCH 27, 2000

THE WALL STREET

TRANSCRIPT
Questioning Market Leaders For Long Term Investors
THE FOLLOWING REPORT IS EXCERPTED FROM THE WALL STREET TRANSCRIPT

CEO/COMPANY INTERVIEW

PETER KEELER Next Level Communications, Inc.

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Next Level Communications, Inc. (NXTV)

PETER KEELER is Co-founder, CEO and Chairman of Next Level Communications, Inc. He has over 20 years experience in the fiber optics and telecommunications industry. Prior to Next Level, Mr. Keeler held the position of Vice President of Business Development with DSC, where he built and directed an organization that managed marketing, product management, customer and field service functions, and later negotiated over $1 billion of telecommunications equipment contracts. Before DSC, Mr. Keeler worked for the 3M Company, where he held a variety of marketing and international business positions. Mr. Keeler has a BSEE and an MBA degree.

SECTOR NETWORKING of 1995 at a time when there was a convergence of & COMMUNICATIONS telephone companies and cable TV companies, (JAR615) TWST: Could you begin by giving us highlighted by the Bell Atlantic-TCI proposed a brief overview of Next Level Communications, merger. At that time, General Instrument, which and then describe what you see as the business was the leader in CATV systems, felt it needed to and company today? understand more about teleMr. Keeler: The phony. We started Next Level Highlights company was founded in the with the idea of growing a summer of 1994 by myself telephony, data and video Next Level Communications supplies the worlds first fully integrated unified access and my partner, Tom Eames. system together, so GI came platform to support both narrowband and Both of us came from a comin and purchased us. broadband requirements for any network pany called DSC, which was After GI bought us, deployment. CEO Peter Keeler says the companys product is a high-speed data later sold to Alcatel. As a TCI and Bell Atlantic broke and video interactive DSL broadband group, we created a product up and both the cable indussystem that allows people who own twisted pair to become full-service called The Lite Span, which try and telephone companies network providers, delivering voice, video was very successful in the redecided to build networks on and data services to the home with a single bit stream, all managed by one gional Bell operating compatheir own and compete system. Next Level has blended privacy nies and is now one of the against each other. At that and technology in a software package leading digital loop carrier point, GI really didnt need called PrivacySafeguard. He believes that the race to build broadband pipes has products in the country. It to own Next Level because it already begun and Next Level has no was after DSC that we started wasnt going to be addressintention of losing that race. this company, Next Level, in ing the telco market. We the summer of 1994. We sold build systems for people who the company to General Instrument in September own or have access to twisted pair, not co-ax. So

Investors Brief Ticker (exchange) Next Level Price close 3/22/00 Communications 12 Months Price Range
Corporate Headquarters
6085 State Farm Drive Rohnert Park, California 94928

NXTV (NASDAQ) 159 13/16 46 1/16 - 202

Corporate Officers
Peter Keeler Chairman, CEO and President James Wandrey SVP, CFO, Treasurer William Weeks SVP and Chief Strategic Officer A. Pachynski SVP-Marketing Frank Tuhy SVP-Technology

Phone: Fax: Web:

(707) 584-6820 (707) 588-9324 nlc.com

Investor Relations Contact

James Wandrey

Corporate Profile
Next Level Communications is an industry leader in developing and supplying a single access platform to address the many strategic service and deployment issues facing the local exchange providers. Next Level supplies the worlds first fully integrated unified access platform to economically support both narrowband and broadband requirements for any network deployment.

Products
Next Level Communications provides NLevel3 The Unified Access Platform. This fully-integrated system provides Digital Loop Carrier, Fiber-to-the-Curb (FTTC), Fiber To The Node (FTTN), Digital Subscriber Line Access Multiplexer (DSLAM) and full-service broadband access capabilities for the delivery of voice, data and video services over fiber optic and copper twisted pair networks. Next Level also provides broadband management systems and customer premises equipment (CPE) for both high speed data and video services. The advanced features and unique integrated design of the Next Level system gives service providers an economic, future-proof strategy for deploying traditional telephone services as well as advanced data and video services

The combination of our CherryPicker with Next Levels interactive DSL broadband system will provide telco operators with greater bandwidth and increased efficiency over traditional DSL video delivery systems, said Stephen King, general manager of Terayons digital video systems product line. CherryPickers unique capabilities for managing digital video have already been embraced by cable television operators, and together with Next Level, we will now enable telco operators to cost-effectively deliver video services over DSL to their customers. Next Levels interactive DSL broadband system allows integrated voice, data and video services to be distributed over standard telephone wires to Next Levels N3 Residential Gateways located within the home. The N3 Residential Gateway is a single set-top box that provides the connection to multiple appliances in the home, including telephones, PCs and TVs. Offering the most complete set of services from a single platform, the Residential Gateway allows multiple TVs to independently tune to hundreds of digital video channels, provides a separate high-speed DSL port for Internet connection and displays telephony features such as caller ID and message waiting. US WEST and Bell Canada are currently deploying the same system in the Phoenix, Arizona and Toronto, Canada areas. Our ability to provide low-cost interoperable video solutions to our customers is enhanced with the use of Terayons CherryPicker product. said Bill Weeks, chief strategic officer of Next Level. The low video channel cost and robust functionality of this technology in conjunction with our field-proven DSL broadband system will allow us to enter new markets more quickly and serve our existing customers more efficiently. This partnership is part of an overall program that Next Level is undertaking to bring cost-effective video services to network providers.

Next Level and Terayon Partner to Provide End-to-End Digital Video Systems for DSL
ROHNERT PARK, Calif. March 3, 2000 - Next Level Communications, Inc. announced that they are partnering with Terayon (NASDAQ: - TERN) to develop an end-to-end digital video delivery system that enables telephone companies to offer video services over DSL (Digital Subscriber Line) more affordably than traditional methods. To accomplish this, Terayons CherryPicker digital video management system will be combined with Next Levels advanced interactive DSL broadband system. This integrated system will eliminate the costly digital-to-analog conversions and provide seamless MPEG-2 digital feeds from the video head-end to the consumers TV. With its unique statistical re-multiplexing technology, the CherryPicker digital video management system gives network operators unprecedented flexibility in managing their digital video content. For instance, operators can cherry pick to create custom channel line-ups using content from a variety of sources - such as satellite broadcast and local services - to better serve their subscribers. In addition to its programming customization capabilities, CherryPicker can also be used to manage Video-on-Demand (VOD) services and to insert local advertisements into digital channels.

Next Level and VideoTele.com Bring Low Cost Interactive DSL Video Services to Europe
Over 60% Reduction in Standard Head-End Costs allow Communications Companies to Cost-Effectively Deliver Digital Video to the Home
CeBIT 2000, Hanover, Germany, February 24, 2000 Next Level Communications, Inc. and VideoTele.com, a Tektronix company announced that they are jointly providing integrated digital video headend and interactive broadband DSL solutions to communications companies for the delivery of digital video and high speed Internet services to the home. The 60% reduction in costs made by VideoTele.com in digital video head-end equipment coupled with Next Levels cost effective broadband DSL system have made it economical for communications companies to now offer new video and Internet services to their customers. Next Level and Video.Tele.com will be demonstrating their products at CeBIT 2000 The VideoTele.com video head-end solution is a very economical way to integrate video and audio feeds into the broadband signal delivered to the home by Next Levels system, said Pat Pachynski, senior vice president of marketing for Next Level. As a result, it puts these new interactive video and Internet services within the reach of even the smallest local telephone companies, continued Pachynski.

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The product that the company has developed is a fully integrated, voice, high-speed data and video interactive DSL broadband system. We allow people who own twisted pair to become full-service network providers, delivering all three services (voice, data and video) over a single twisted pair to the home with a single bit stream, all managed by one system.

The product that the company has developed is a fully integrated, voice, high-speed data and video interactive DSL broadband system. We allow people who own twisted pair to become fullservice network providers, delivering all three services (voice, data and video) over a single twisted pair to the home with a single bit stream, all managed by one system. Our largest customer is U.S. West, which has agreed to merge with Qwest. Today, U.S. West has over 20,000 customers online in Phoenix, with over 300,000 customers passed at the remote terminal. U.S. West has also been granted franchises in Denver, so theyre moving into a new city with broadband services. We have trials in place with a number of large telcos, including France Telecom, Telefonica, Bell

Copyrighted material: For reproduction permission contact Peter McLaughlin (212) 952-7440

GI decided to continue to fund us and put us into a limited partnership in January of 1998 with the intent of going public. That would allow Next Level to operate independently, and GI would recoup its investment as a shareholder. We went public on November 10, 1999 and shortly after that General Instrument was purchased by Motorola. So our big financial sponsor changed from General Instrument to Motorola. Today, Motorola owns about 65% of the fully diluted shares of the company. Were publicly traded under the symbol NXTV. Thats the short version of the history of our company.

Canada, and GTE. Were also selling to a growing number of independent telephone companies, with a total of 30 accounts buying our products for commercial deployment. Thats the status of the company today. TWST: One of the big questions today is how soon is everything going to happen, that people will be pointing to technology a little faster than we anticipate? But there are technological risks, there are market risks. Whats your outlook on how quickly you can achieve the goals that you have for Next Level, and what will have the most influence on the rate of that success occurring? Mr. Keeler: We believe that the race to build big broadband pipes to consumers has already begun. Big companies and big alliances like Qwest and MCI/WorldCom have already built big broadband pipes between central offices, states and countries. Now they need to build big bandwidth pipes between central offices and customers to fill the long haul pipes, because no one lives in the central office. Theres a pent-up demand to expand the bits going into the home. We think that the race is fundamentally between cable companies and telcos. U.S. West has started offering broadband to Phoenix and is moving into Denver, one of its most strategic cities. We think Denver is ground zero for the cable/telephony fight, because thats where TCI is headquartered. Were also seeing a lot of increased activity in the largest telcos. Theyre looking at this technology and seriously considering becoming fullservice network providers. How that turns into actual deployment is a timing issue affected by regulation, and if telcos can convince their shareholders to let them spend the capital to broaden their network. We think all of this is advancing now, and should accelerate over the next few years. In fact,

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we believe that U.S. West is already moving in that direction and moving aggressively.

We have trials in place with a number of large telcos, including France Telecom, Telefonica, Bell Canada, and GTE. Were also selling to a growing number of independent telephone companies, with a total of 30 accounts buying our products for commercial deployment.

TWST: What are the limitations as that rollout continues or what are the hurdles ahead that you feel Next Level can address or control? Mr. Keeler: We want to create a cost structure so that telephone companies can have the same cost as cable companies because this is a commodity business, this is the bits business. Voice, data and video have been separate businesses. Thats an old view. Its all moving toward the bits business, all services, one bit stream, one network provider. Our first job at Next Level is to help create an entire cost structure that is at least at parity with the cable companies costs. We think weve done that. Therefore, telephone companies now can be competitive if they enter the business. Cable companies are in the video business; telephone companies arent. So we have to provide video at low volumes at the same cost that cable companies have in high volumes. And weve been able to do that. Weve been able to achieve this cost breakthrough. Thats very important. Another issue is installing the product. We want telephone companies to use their existing workforce. This is important because installation costs and mistakes with a product that is too complicated, too foreign, will far outweigh any savings in product costs. So we had to create something that could be easily deployed consistently with

their current skill sets. Weve been able to do that. U.S. West has installation times down in the fourhour range and getting lower, which is very respectable. Customer satisfaction is very high. Those two points, together with cost and ease of installation, are very important and we think that the Phoenix situation proves that out. TWST: When you look at broadband today and interactivity in particular, the issues tend to be from the distributor marketers viewpoint, being able to target his audience. But from the consumers or customers viewpoint, the privacy issues and the personalization issues tend to be paramount. How much does that impact what Next Level is all about? Mr. Keeler: Hugely. In the first instance, we have a system that develops services that does not raise privacy concerns. You want to speak on the telephone, we delivery high-quality telephone service. You want to watch TV, we deliver highquality entertainment TV. You want to pay for a movie, we deliver pay-per-view movies. Services that exist today are the standard voice, data and video bits. None of those services creates privacy problems. It involves switching the consumer from the incumbent network provider, and providing better services and more choices. But once you get that system in place, you can then deal with the issue of how do you enhance the service. This is where you encounter the problem of enhancement potentially invading peoples privacy. Next Level put out a press release on the privacy issue just recently, part of what we call our responsible technology campaign. We think that theres a blend between privacy and technology and we have created, along with a company called TPL, a software package called PrivacySafeguard. It allows network providers to take national ads and target them to

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individuals. This is not local ad insertion, this is not watching the six oclock news in San Francisco and getting a local ad put in. This is taking national ads and targeting them to the individual consumer. The way the system does it is by monitoring viewing habits at the central office. It stores those viewing habits in a private server. We are developing patented software that correlates habits to get a feel for what the person would want to see. Because this is a switched system, not a broadcast system, the network provider can individually target ads that correspond to the shows that people watch. Now, this is an opt-in, not an opt-out type of service and thats a big deal concerning privacy rights. The network provider then knocks on a consumers door and asks if she would like to have a discount on her television service in return for participating in this targeted ad service. The system will then store her viewing habits, but no advertiser has access to that data. The viewing habits are stored in a server where they get matched against the demographics of an ad, and the consumer sees the targeted ad, but her privacy is never surrendered. The consumer receives lower-cost video and useful advertising. And should the consumer later elect to opt-out, the system will erase the database. This combination of new technology and privacy rights is very important. Privacy is already a big issue. This is an area weve created intellectual property that allows for privacy, yet allows consumers to get discounted services and more valuable ads. Over the next decade, responsive service providers will bring high-quality services to consumers without invading their privacy. TWST: Focusing more on Next Level directly today, when you look at your management team, do you feel that you have on board

the skill sets and the bench strength necessary for these great opportunities? What areas are you looking at for changes or additions? Mr. Keeler: Were not looking at any changes. We have a great management team. We were part of a big publicly traded company the last three years. Over $500 million has been spent on our endeavor. Weve solved the big problem of integrating all systems into one platform. So as we arrive today as a public company, we have had a lot of mentoring, a lot of money put into us and a lot of time to develop the product and to develop the customer relationships. We have a team of Senior Vice Presidents who we think really fit the bill for growing into the next very large access company in this country. We dont have a sense of management needing to be altered or changed, and to a large extent, we see additions of the staff really underneath the current Vice Presidents as we expand our business.

We think that theres a blend between privacy and technology and we have created, along with a company called TPL, a software package called PrivacySafeguard. It allows network providers to take national ads and target them to individuals. We are developing patented software that correlates habits to get a feel for what the person would want to see. Because this is a switched system, not a broadcast system, the network provider can individually target ads that correspond to the shows that people watch.

TWST: Having just come out of the IPO process recently, even though your company has a history behind it, what would you have changed in that process? What expectations did you have? Did you meet all of those expectations or were there any lessons learned? Mr. Keeler: It was a great IPO. We established a price of $10 going into it. We raised it to

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$20. I think we netted around $180 million, which is very good. We traded up to the $50s the day of the IPO. People who believed in this company saw immediate returns. We have had a nice steady uptick since then. We have over 100 million fully diluted shares. Weve delivered great results since the IPO, and we had a successful fourth quarter. I see the IPO not as a point in time, but as a continuous contract with investors to be with us for the long term. We have been at this for six years with lots of money and lots of people. Its a big carrier-class problem and we have big, sophisticated customers who take a long time to get into commercial deployment. Our view is that this is a long-term play. That isnt to say it doesnt have short-term benefits. Weve shown that. If you bought it at $20, the stock is trading at over $100. But were going to make decisions based upon being around for a long time because were solving the mass deployment problem. We feel that investors bought into that, obviously, because the stock has traded up. I think you get rewarded if you can talk about the longterm model while the short-term model is exciting. And our view right now is people want to own the company for a long time. We think theyll be rewarded in the short term, but also in the long term. TWST: Thats sort of a counter to what a lot of the Internet space and telecommunications spaces are saying today, particularly when things change and technology and the pace of innovation is very fast. Can you distill a fiveyear and then a 10-year vision outside of just that ubiquitous broadband supplier? Mr. Keeler: What I can talk about is having the basic intellectual property that we believe has captured most of the significant technological changes that will occur over the next five years. It means we can incorporate changes in enabling

technologies as they occur. We have the right software, you have the right hardware platform. This is the case weve made to the investment community, and we think that concept has been well understood.

Our view is that this is a long-term play. That isnt to say it doesnt have short-term benefits. Weve shown that. If you bought it at $20, the stock is trading at over $100. But were going to make decisions based upon being around for a long time because were solving the mass deployment problem.

TWST: The flip side of that is what dont they understand after you explain it? What are the misperceptions that they walk away with or the misperceptions that you see to confront? Mr. Keeler: I dont think its a misconception as much as just a timing issue. Our investors may believe that we have such a sophisticated product with so much carrier-class software and that no competitors are in the rearview mirror. So we didnt have many investors saying, Okay, whos going to be on the scene competing with you in a year? We had the issue of the timing of when telephone companies are really going to start building out fullservice networks. Since the IPO weve seen increasing evidence that the broadband build is occurring. This means that over the next one to three years, we think a growing number of telephone companies will be moving into this space. And since the IPO, U.S. West has filed for full-service franchises in Denver. Thats a huge move forward. Weve had a great release from Bell Canada about how successful the trial was in Toronto and in their words, The customer reception was overwhelming. We

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just had a release from France Telecom that theyre testing our system. So were seeing big network providers telling investors that video, or more importantly, the bits business, is a place where they want to stand up and be counted. And so we again say, we believe that over the next one to three years, significant movement toward full-service network deployment will occur.

We believe the race to build broadband pipes has begun. And we have no intention of losing that race. Thats our value proposition. Everything flows from that. Youve got to believe its begun and youve got to believe that were going to win.

TWST: What role, at this point, can mergers and acquisitions play? Is the industry moving toward forming partnerships and alliances or toward building integrated, full-service organizations? Mr. Keeler: Yes, and we believe thats very important for us. We had releases with IBMs Home Director, Liberate, which does interactive client software, and Motorola and Proxim on inhome wireless networks. Weve been working with a lot of folks in the home to create a better viewing experience to bring a broad array of services from better programming and the better look and feel of the TV, to the ability to have multiple Internet sessions. So if you come home from work and someone is on your main computer, you can get on your laptop in your bedroom and with wireless could connect into our system and check your email. Next Level is the portal for all these new ap-

plications. Were the gateway back into the public switched network. We enable all these applications and thats where were doing a lot of our partnering. We believe that over time, acquisitions could certainly help broaden our technology. But as we sit here today, this outside development has been mostly through technology partnerships. TWST: For an investor today, whats a summary statement, the short list of strengths and highlights that you feel convince the investor to buy in? Mr. Keeler: We believe the race to build broadband pipes has begun. And we have no intention of losing that race. Thats our value proposition. Everything flows from that. Youve got to believe its begun and youve got to believe that were going to win not place or show. Were going to win and we believe that. TWST: Thank you. PETER KEELER Chairman & CEO Next Level Communications, Inc. 6085 State Farm Drive Rohnert Park, CA 94928 (707) 584-6820 (707) 584-6852 FAX Each Executive who is the featured subject of a TWST Interview is offered the opportunity to include an Investors Brief or other highlight material to be provided and sponsored by and for the company. This Interview with Peter Keeler, Chairman, Co-founder & CEO of Next Level Communications, Inc., is accompanied by an Investors Brief containing corporate information.