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Dragonwave Inc (NASDAQ:DRWI)

June 13, 2013 10:00 am ET

Executives

Russell James Frederick - Chief Finance Officer, Vice President of Finance, Secretary, Director and Member of Disclosure Committee

Claude Carman Haw - Chairman of The Board, Chairman of Compensation Committee, Chairman of Nominating & Governance Committee, Chairman of Strategy Committee and Member of Audit Committee

Peter Allen - Chief Executive Officer, President, Director and Member of Disclosure Committee

Russell James Frederick

Well, good morning, everybody. Thank you for being here on this beautiful morning here in Canada. My name is Russell Frederick, I'm DragonWave's Chief Financial Officer. We are going to move quickly to the formal part of our meeting, and so I will introduce the Chairman of DragonWave's Board of Directors, who will chair the meeting this morning, Mr. Claude Haw. Claude?

Claude Carman Haw

Thanks, Russell. Good morning, ladies and gentlemen. Welcome to all those shareholders in the room today and those listening in on the call. It's my pleasure to be standing here as Chairman after attending the meeting for the past 9 years as a board member.

Before getting to the formal matters of the meeting, I would like to begin by providing a few comments on the company's journey over the past year. It's been a very challenging year for the company, and Peter Allen and his team are to be commended for their focus on the integration efforts, rightsizing the organization and moving DragonWave into a truly global enterprise with significant business on all the major continents.

Subsequent to year end, you will have seen the recent announcements on the company's renegotiation of the Nokia Siemens Networks relationship, as well as the structural adjustments the company made to position itself for the future.

There's still work to be done, but we feel strongly that we have taken and we'll continue to take steps to reposition the company. The board truly appreciates the support and commitment of the shareholders of DragonWave through this period of transition.

We have a couple of resolutions that will require ballots. So once the ballots have been collected regarding special business for the meeting today, Peter Allen will address the meeting to provide additional detail about DragonWave's business. So now to the formal matters.

I call the 2013 Annual General and Special Meeting of the Shareholders of DragonWave to order. My name is Claude Hawe, and I'm the Chairman of the Board of DragonWave, and I will act as Chairman of the meeting. I'm pleased to have board member Cesar Cesaratto, is present; and of course, Peter Allen, DragonWave's President and CEO; and Russell Frederick, DragonWave's Chief Financial Officer, both board members are here as well. Representing the management team today, lots of people out on the road, but Dave Farrar, who runs operations within the company is here. And we also have other people from the management team from within the company.

Since Tom Manley is not standing for nomination as a board member this year, I want to acknowledge his service on the board and thank him for his contributions over the past 3 years. I'm pleased to have Ms. Lori O'Neill, who is in attendance today, has agreed to stand as a management nominee for election of the board. DragonWave will undoubtedly benefit from her extensive financial and audit experience and her strong accounting background. Thank you, Laurie.

Also here are Dave Walsh and John Durbin of Ernst & Young, and Andrea Johnson from our Canadian Council, Dentons, who's also our Corporate Secretary. Andrea will act as secretary of the meeting. Lara Vos Smith of Dentons is also here, and Matt Leivo of our U.S. legal counsel at DLA Piper are also in attendance. Representatives of Computershare Trust Company will act as scrutineers.

The scrutineers have provided us with the preliminary report on attendance. And I declare that a quorum is present and the meeting is properly constituted. At this year's meeting, we will deal with the standard annual business, including the presentation of financial statements, election of directors and appointment of auditors. Most of you are probably familiar with these meetings and know that a majority of shares represented at the meeting are represented by proxies given to management.

As of the record date, approximately 38 million common shares of the company were outstanding. I'm advised by the scrutineer that management has received proxies representing more than 97% of the votes cast in favor of the election of the individual director nominees proposed by management and the appointment of Ernst & Young LLP as auditors for the ensuing year. We thank you for your confidence. There will not be a ballot on the election of directors or appointment of auditors as a result.

Here, today, we also have some special business to address, consisting of: first, the approval of an amendment to DragonWave's Fifth Amended and Restated Key Employees Stock Option Plan, which for the rest of the meeting, I will simply refer to as the Stock Option Plan, to provide for the replenishment of the stock option pool when options are exercised; and two, the approval of all unallocated options under the Stock Option Plan. A ballot will be taken on each of the items of special business dealing with the Stock Option Plan.

You will see that the scrutineers have already distributed ballots dealing with the Stock Option Plan resolution to each shareholder and proxy holder who is eligible to vote. In order to keep the meeting moving along, we will conduct ballots on the 2 Stock Option Plan resolutions at the same time. I will now take a few moments to address some voting procedures.

Only shareholders of record, as at May 13, 2013, which was the record date for the meeting or their proxy holders or their corporate representatives are entitled to speak or vote upon matters at the meeting. Each shareholder represented in person is entitled to one vote for each share held. Each proxy holder is entitled to one vote for each share represented by any proxy that was deposited before the proxy deadline. Shareholders who have not already voted by proxy should not complete -- sorry, shareholders who have already voted by proxy should not complete a ballot unless they want to change their proxy vote. A person who vote shares that he or she represents by proxy, in accordance with the instructions given in the proxy -- sorry, a person must vote shares that he or she represents by proxy in accordance with the instructions given in the proxy. Proxy holders who hold proxies for more than one shareholder or who have received contrary instructions on any resolution will need to fill out more than one ballot on that resolution.

If anyone has any questions on the voting procedures, please speak to me or to the scrutineers. After the resolutions on the special business have been moved and seconded, and the ballot on the Stock Option Plan resolutions are collected, we will conduct a business presentation while the ballots are tabulated. After the results are reported and the formal part of the meeting is over, we will hold a question-and-answer period. Shareholders may make comments appropriate to each resolution. But on general matters, they should hold their comments until the question-and-answer period, please.

Notice of meeting. The notice calling the meeting together with the form of proxy and the management proxy circular were sent to all the shareholders of DragonWave entitled to vote on May 13, 2013. The secretary has provided me with proof of service of the notice of meeting, which is available for inspection.

Would someone please move the adoption of a resolution dispensing with the reading of the notice of the meeting?

Unknown Shareholder

I'll vote.

Claude Carman Haw

Thank you, Patrick [ph]. May I have a seconder?

Unknown Shareholder

I second the motion.

Claude Carman Haw

Thank you, Ruth [ph]. All those in favor of the resolution, please raise your hand. Any contrary? The resolution is carried.

Next, the presentation of the financial statements for the fiscal year ended February 28, 2013. I now present to the meeting the audited financial statements of DragonWave for the financial year ending February 28, 2013. A copy of which, has been sent to the shareholders. There will not be a formal vote on the financial statements. However, any shareholder -- if any shareholder has any questions or comments regarding the financials, we would be pleased to address them during the question-and-answer period.

The next item of business is the election of 6 directors. The nominees of management of DragonWave were identified in the circular mailed to shareholders. I will now entertain a motion nominating those persons as directors of the company for the ensuing year.

Unknown Shareholder

I nominate the following persons as director of the company: Peter Allen, Cesar Cesaratto, Jean-Paul Cossart, Russell Frederick, Claude Haw and Lori O'Neill.

Claude Carman Haw

Thank you, Nadine [ph]. May I have a seconder?

Unknown Shareholder

I second the motion.

Claude Carman Haw

Thank you, Patrick [ph]. Are there any further nominations? As there have been no further nominations, would someone please move the adoption of a resolution confirming the election of the nominees as directors of the company for the ensuing year or until their successors are elected or appointed?

Unknown Shareholder

So moved.

Claude Carman Haw

Thank you, Nadine [ph]. May I have a seconder?

Unknown Shareholder

I second the motion.

Claude Carman Haw

Thank you, Ruth [ph]. Are there any questions regarding the election of directors before moving to a vote?

[Voting]

Claude Carman Haw

Seeing none, all those in favor of the resolution, please raise your hand.

[Voting]

Claude Carman Haw

Contrary, if any?

[Voting]

Claude Carman Haw

Seeing none, I declare the resolution carried.

The next item of business is the appointment of an auditor for the current year. I now declare the meeting open for appointment of an auditor. Would someone please move the adoption of a resolution appointing Ernst & Young LLP as the auditor of the company until the close of the next annual meeting of shareholders or until a successor is appointed?

Unknown Shareholder

So moved.

Claude Carman Haw

Thank you, Ruth [ph]. May I have a seconder?

Unknown Shareholder

I second the motion.

Claude Carman Haw

Thank you, Chris [ph]. Are there any questions or comments regarding the appointment of an auditor before moving to a vote?

Seeing no questions, all those in favor of the resolution, please raise your hand.

[Voting]

Claude Carman Haw

Contrary?

[Voting]

Claude Carman Haw

Seeing none, I declare the resolution carried.

The next item of business is to consider a resolution to approve a change to DragonWave's Stock Option Plan. As set out in the circular, the board has, subject to shareholder approval, approved the change to the Stock Option Plan, called the Evergreen Amendment in the circular. To provide that the stock option pool be replenished when options are exercised. This change is discussed in the circular and is contained in the Stock Option Plan attached to the circular as Appendix C. The board has determined that this change to the Stock Option Plan is in the best interest of DragonWave and its shareholders.

The text of the resolution addressing the Evergreen Amendment is attached as Appendix A to the circular. Would someone please move the adoption of the resolution approving the change to the Stock Option Plan in Appendix A to the circular?

Unknown Shareholder

So moved.

Claude Carman Haw

Thank you, Chris [ph]. May I have a seconder?

Unknown Shareholder

I second the motion.

Claude Carman Haw

Thank you, Ruth [ph]. Are there any questions or comments regarding the Evergreen Amendment to the Stock Option Plan before moving to a vote?

As previously indicated, you have been provided with a pink ballot marked Motion #3, approval of a change of the Stock Option Plan. I would now ask you to record your vote in respect of this resolution by marking an x in the box under the word "For" if you will vote -- if you wish to vote for the resolution, and under the word "Against" if you wish to vote against the resolution and complete the ballot by signing and printing your name on the appropriate lines. We will carry on with the business of the meeting while the ballots are being marked.

The next item of business is to consider a resolution to approve all unallocated options under the Stock Option Plan. As set out in the circular in accordance with the rules of the Toronto Stock Exchange, all unallocated stock options under a rolling maximum plan must be approved by shareholders every 3 years. The Stock Option Plan is a rolling maximum plan with a stock option pool equal to 10% of the company's issued and outstanding shares from time to time. The board has determined that the Stock Option Plan is in the best interest of DragonWave and its shareholders.

The text of the resolution approving the unallocated options under the Stock Option Plan is attached as Appendix D to the circular. Would someone please move the adoption of the resolution approving the unallocated stock options in Appendix B to the circular?

Unknown Shareholder

So moved.

Claude Carman Haw

Thank you, Nadine [ph]. May I have a seconder?

Unknown Shareholder

I second the motion.

Claude Carman Haw

Thank you, Chris [ph]. Are there any questions or comments regarding the approval of the unallocated options before moving to a vote?

As previously indicated, you have been provided with a yellow ballot marked Motion #4, approval of unallocated stock options. Once again, I would now ask you to record your vote in respect of this resolution by marking an x in the box under the word "For" if you wish to vote for the resolution, or under the word "Against" if you wish to vote against the resolution and complete the ballot by signing and printing your name on the appropriate lines. Please complete your ballots dealing with the Stock Option Plan resolutions. The scrutineers will collect the 2 ballots. And while the scrutineers are tabulating the voting results, the business presentation will get underway. We ask that you refrain from leaving the meeting, as a formal part of the meeting is still open.

So at this point, I'll turn it over to Peter to give us a bit of an update on the company and a bit of a look ahead. Peter?

Peter Allen

Thank you, Claude, and let me add my welcome to everybody here and everybody joining us on the call today. I'm going to provide a few comments about DragonWave in the last year. A little bit of a look forward, in terms of some of the market dynamics that shape the industry that we serve.

When I reflect on last year, we came into the year as a very -- a company that was very North American-centric. We had grown up in the North American market, of course, that's the adjacent. The U.S. market is adjacent to where we live. And we've had some limited success, I would say, in penetrating beachheads internationally. But to be truly successful in this market, one has to serve global companies in international markets.

So through the transaction that we did with Nokia Siemens, we hope to achieve a couple of things. Firstly, by working with a base station and broader mobile broadband solutions company, we hoped to be able to access those carriers whose purchasing behavior was looking for solutions or the ability to buy from large companies. At the same time, we leave open the opportunity for us to serve those customers that want to buy equipment directly from manufacturers, so it gave us the options of both business models.

Secondly, it immediately gave us international reach. And today, we have the situation where our business is truly global. We have a group proportion of activity in Asia, in the Middle East. Africa is an important market for us and growing. And of course, we retained our presence in the Americas.

And at the same time, now, we have our equipment in a very large number of Tier 1 operators around that world. And so we've been able to transcend from a situation where very North American-centric to this global footprint and opportunity set.

This, of course, has required a considerable amount of effort in terms of restructuring the company in order to face that new reality where we now have a much more distributed presence around the world, but also in terms of dealing with the changing circumstances as you move through the integration phase looking to get the synergies associated with the opportunity and then benefiting from those synergies as required ongoing -- and continues to require ongoing management focus to bring about that opportunity.

In doing that integration, we're very focused that our forward investments have to be steely focused on where the market growth drivers are. And those drivers are certainly around the growth in the network -- supporting the growth in the network that will come from more advanced mobile broadband solutions, LTE. And secondly, the associated need, which I'll just talk about in a lot more detail in what is known as a small-scale market.

So this is a unique construct in the industry. If you look at the other solution providers, most of them are -- the others are vertically integrated with their microwave capability. We are virtually integrated with our partner, Nokia Siemens. And so, I think we're the only company in the market that is truly able to offer that diversity of channel path to reflect the customer's chosen part of procurement activity. So if they want a solution or a bundled offer, we can participate in that. If they want a direct offer, we can participate that. We are here to serve the customers in a way they wish to be served, not limit them by our channel.

So this was -- this has not been completely smooth. I doubt there has ever been an acquisition in history that was completely smooth, and certainly this one wasn't either. And I would say we've made a lot of progress. Obviously, the point I made earlier about the global diversification of the company is worth repeating. I think the product portfolio, the extended or the wider product portfolios that we have as a result of that, are valuable in their own right, but we have a nice path to synergize those portfolios into a better place in the future where, the way I describe it is, we're able to build upon the highest common denominator of the features in the portfolio that came from both of the -- both of our, the [indiscernible] and Nokia Siemens. So the combined portfolios are strong in their own right and offer more promise in the future. And I think that portfolio is being honed nicely, in respect of the forward market drivers that I referred to earlier.

The challenges, I would say, is they took a long time to get the transaction, though it is a very complex transaction. There are many, many facets of it, from IP to manufacturing to supply to assets and so on. So very complicated transaction. And during that period, it certainly gave, should we say, room for us to be attacked because of the uncertainty that was being caused by the lengthy transaction cycle.

There have been a number of structural impediments that we found. The end-to-end processes between us and NSN have needed to be addressed, and there have been some misalignment, should we say, between the incentives and the interest of different communities, and perhaps to work hard to bring all of that together.

Manufacturing. We've been -- we're on a path to reduce the number of, I think, sources of manufacturing from, I think, 5 originally, essentially down to 1. And so that's not without its challenges.

And lastly, we found that the environment in Italy was very, very complicated and difficult. In the original -- in the transaction, we had taken a service from NSN for R&D primarily, but our operations and some product management work in Italy, but primarily R&D during the period in which NSN was conducting their own restructuring of their overall Italian activities. And during that period, it became very difficult for us to receive those services in a productive manner. And so all of these challenges led to us working with NSN to come up with a renewed framework for the transaction which was announced in early April.

I'll give you an update now on where we've progressed since then. So as a part of that renewed framework, we discontinued that arrangement by which the Italian -- the R&D, some of those products we've done in Italy and we no longer receive service, and we've made adjustments in our Ottawa and Shanghai facilities to accommodate the tasks that were previously being done in Italy.

Our manufacturing transition is making some very good progress. We've already discontinued manufacturing in a couple of the previous factories and migrating and starting up the activity nicely in our target contract manufacturer in Penang, Malaysia. So that's going quite well.

As a result of the completion of some integration tasks, many integration tasks, and as a result of the change in business dynamics, we've streamlined our organization.

Today, as I said on our results call last time, we've already reduced our expense base by some 40% since the middle of last year. And some of the things that we've already done will filter into further cost reductions in the next quarter. So you'll see some more benefit from actions already taken in subsequent quarters.

But probably, and the most importantly now for DragonWave, we've worked very hard and we have now a strong alignment with NSN on the sales environment and getting the misalignments out of the way when working through them as a [indiscernible] -- which are those customers who want bundled or integrated solutions.

And so, as part of that, NSN have very strongly reaffirmed that micro transport is an integral part of having a mobile broadband solution set, and it is for them. We are aligned on how microwave is stimulated in their environments. In the South, the language they talk is sales push. We're aligned on the business model that surrounds that. And they've even provided some unique sales incentives to recognize these points to try and get the right behavior in their -- correct behavior in the sales team. That said, being fully in place since around the time that we announced the renewed framework. And next week, I will be meeting with senior executives at NSN to review the status of how that's all proceeding.

I still think that the -- I think I've shown this chart before. The leverage benefit of this partnership has multiple facets. But for me, it comes down to -- it really allows us to serve the customers in the way they wish to be served. And many, many customers wish to be served with a broader solution set or by a smaller number of larger companies. And that certainly, this arrangement certainly provides for that ability to do so.

I want to move on to a little bit of why this market is important and exciting. And this chart tries to represent what's really going on with the demand drivers for networks.

If you look at the curve, the red curve, this is a consequence of the fact that all of us love these smart phones and they are being sold in ever-increasing numbers. And the reason we like these smartphones, it gives us the opportunity to increase our consumption of the Internet and the information contained, and it allows us to do that wherever we wish. Sometimes not in rural Canada, of course, but the idea is wherever we wish. And that, the fact that we all like doing that is driving the demand curve up dramatically. You can see in the numbers of Apple in Samsung with the handsets.

And the effect on the network is pretty significant, and you can't keep delivering more and more bandwidth to mobile users in the same way if you don't change anything. I'm sorry, I said that wrong. Let me say it another way. If you'd only try to deliver the bandwidth in the same way, there will be a gap. There will be insufficient capacity in the network to meet the demand that's being created by our behavior in wanting to see more and more network bandwidth in a mobile environment.

And what this chart tries to represent is how big that capacity gap is. And as you get more and more competent mobile broadband technologies, in other words, ones that will go faster and carry more capacity, that gap gets bigger, and LTE certainly makes that bigger pretty significant.

So what that means is, we have to do something different to be able to close that gap. And the way we do that is with the introduction of outdoor small cells. Now small cells is a term that is very broad. You will hear lots of people talk about small cells. Some people mean indoor small cells, that's nothing to do with what I'm talking about here. What we are focused on is outdoor small cells. So without an outdoor small cell, the operator has the choice to deliver capacity to all of us wanting to use mobile broadband solutions by building more and more cell towers. That's expensive.

Secondly, the underlying constraining element is spectrum. There is not enough spectrum to keep building more and more macro small cell towers. So what people have to do is make the cells smaller, so we can get greater consumption. And so that drives us to wanting to take the cell diameters that exist today and make them smaller, but we don't want to make investment associated with lots and lots of macro towers. So the idea is that we will create a underlay to the network of small cells that will have a significant increase in the capacity of ratable to users to meet that demand that is missing.

And so a lot of the drive in the investment that we are making, as a company and others, is to solve this capacity issue, partly by having higher capacity products for macro cell deployment and in part to have products that are available for small cell deployment. And the challenges are different. In small cell deployments we're often being asked to be deployed on alternate structures to the normal cell towers. This could be lamp posts, it could be the side of buildings, it could be behind advertising holdings. And so those environments are very different than the macro cell environment. But this is where we think a lot of the growth in the industry will come, from users demanding more and more mobile broadband.

So the requirements for this market is -- has to support all-out door deployment on, as I said, nontraditional structures. Increasingly, that gets you into the area where municipalities, cities will have zoning requirements. What they permit to be hung on their posts, for example. It has to be simple to deploy, maintain and obviously operate with the maximum possible of coordination and integration. We think it requires, in microwave terms, both products that support line of sight, just like the majority of our microwave products today, but also products that support non-line-of-sight capability typically below 6 gigahertz. And of course, every market will be different, so there will have to be a wide range of frequency bands. And all of this is driven by the higher capacity capability of LTE. And so, the small cell solutions will also have to meet those LTE requirements. And in particular, that's one of those that is very key, is latency or network delay. Having very good non-line-of-sight products or point-to-multipoint products in the small cell arena that don't meet the network, the ultimate LTE network requirement, is not going to take the operator any further forward in their ability to solve this capacity challenge.

As we look at this, I think the DragonWave portfolio is already strong in being able to meet this. We already have announced a range of products to address this demand. With the Avenue Link Lite is our new product that operates in frequencies below 6 gigahertz. This is a new area for DragonWave, and we're -- I'm already seeing considerable interest in a large number of -- in a wide range of customers around the world.

In our traditional area, we have Avenue Link. And we've always had products that are all outdoor in nature. So when you're thinking about nontraditional structures, you certainly don't have a telecom to cut it to put things in. So all outdoor products is important and it needs to be small. We've made it small by making sure that we have our own custom-based integrated antennas.

And lastly, the last link of the store, we have our range of products in the 60 gigahertz and above area. These products, by their very nature are, carry higher capacity than the others. Capacity is one of the drivers, remember? The challenges or the trade off or the thing that needs to be considered when you're deploying 60 to 88 gigahertz products is, firstly, the distance is -- that can be accommodated are smaller. But secondly, the tolerance to some of the ultimate structures may be less. So they can't handle as much sway from the structure they're mounted on. So our view is that all of them have their merit. And to really serve the small outdoor small cell market as it evolves, one will have to have multiple tools in the tool kit. We think we have both tools today and we think we have the ability to improve those tools by -- certainly by working closely with our key partners on how to optimize the total solution of our part of the outdoor small cell world backhaul and their part of the outdoor small cell world, which is the base station part.

So I'm quite pleased by the starting point that we have for this journey. And I would tell you already that we have some momentum in Asia with a major deployment of planned-out small cells, and we've just managed to get our first pilot order for that deployment. So this is just -- the deployment of small cells, in general, will be paced by the demand of capacity on the operator's network, but we're seeing the leading edge of this requirement in at least one of our markets.

So as I think about this, how -- where do these products go forward around the world? Our key focus, I think, or the key growth for us in the Americas is twofold. Firstly, we have strong position in the channel business in North America. We can get stronger in the public safety critical communications vertical, which is a focus of ours right now. I'm excited by the, what I hope is, the end of the discussions around the combination of Sprint and Clearwire, which looks to me to be moving towards a situation where Softbank is successful in their acquisition.

The reason I'm excited is we believe that, that will be the catalyst for future network investment. To some extent, both Sprint and Clearwire have, over recent years, been constrained about the amount of network investment they can make. We think Softbank, coming to the table, acts as a catalyst to all of that, and we are very hopeful. And of course, I've made the point again, but I can't resist, that all of those companies are customers of DragonWave.

In India -- I'm sorry, in Asia. Firstly, in India, we're hopeful of being involved in a very large refill build. We have strong focus on what our essential market's for us. Myanmar is opening up, and there's a lot of activity in that market as 3 licenses are being let for operators. And we're looking to have our first involvement in the Philippines. And as I mentioned earlier, this is the area where we're getting our first momentum around the small cell story.

In the Middle East and North Africa, we have a couple of things going on. One is, it's an area where we have another second base station channel working, and there's certainly a strong funnel there. I will say however, the Middle East is a market where there are variable, often variable time scales involved. It also has, in this area, a very important expansion market umping out, which is Libya. And there's a number of large network build that we are involved with, competing for at this time, that would represent growth for us.

I would say, in Europe, Europe remains difficult, particularly in the Southern European countries. The economies there are ones that are probably not stimulating the highest amount of mobile broadband growth right now, with difficult economies in Spain, Portugal, Italy, Greece and so forth. But where I am seeing some strengthening in the investment profile from some of the operators in the Western European countries. So that's, shall we say, some light on a dark, on a far horizon in Europe.

And in Africa, I personally stayed in Africa recently looking at some opportunities in East Africa. I think there are, there are certainly modernization and network growth possibilities in both East Africa and South Africa. We already have some business in Nigeria today, which is one of the largest economies in Africa. So we're trying to build on that with -- build on our base by growth in these areas. Using the product portfolio, that I talked about, will be stimulated by the growth drivers in the market.

So finally, I think the opportunity remains a strong one. We have products today in the areas where we had historically have been strong. High capacity all out [ph] the products are a good fit for what those future markets require. Our relationship with Nokia Siemens I think is unique in the industry and gives the choice of how people want to be served to the customer.

We have a management team that is working incredibly hard on all of the day-to-day challenges, trying to serve these different requirements, all within the context of the business that is trying to drive the breakeven in the next couple of quarters, and we continue on that journey. I understand I have to hand back to the Chairman, but I'll be certainly available later for questions.

Claude Carman Haw

Yes. Thanks, Peter. That concludes the business presentation. We'll hold our Q&A session following the completion of the formal part of the meeting. So I'd like to return now to the matters voted on by ballot.

I declare that each of the 2 resolutions submitted to a ballot have been carried. Any shareholder who's interest in the exact number of votes cast in favor out or against the resolution submitted to a ballot at this meeting, he or she may obtain the details on inquiry from the secretary of the meeting. I direct that the scrutineers report the annex to the minutes of this meeting.

Is there any further business today? As there's no further business, will someone please move that the meeting be terminated?

Unknown Shareholder

So moved.

Claude Carman Haw

Thank you, Ruth [ph]. May I have a seconder?

Unknown Shareholder

I second the motion.

Claude Carman Haw

Thank you, Patrick [ph]. All those in favor of the resolution, please raise your hand.

[Voting]

Claude Carman Haw

Contrary?

[Voting]

Claude Carman Haw

Thank you. I declare this meeting to be terminated.

We'll now proceed with the Q&A session. And if I could ask, if you have questions, if you could please come up to one of the mics so that the people listening in can hear the question.

Question-and-Answer Session

Russell James Frederick

Any questions for -- anyone?

Unknown Analyst

Joe Pal [ph] is my name, and a pleasure being here today. Just a couple of basic questions that I've had. The publicity that's been over the last 2 or 3 years has been on one of the subjects dealing with existing cell towers, base stations that need to be converted to modern microwave backhaul. So one of my questions would be on that topic. How do you see that basic theme that's been in the news media for the last couple of years, the conversion of those cell towers, as well as what is your projections on the new cell towers and base stations that have been discussed in the media as well? How do you see the growth in terms of the those types of new cell towers and stations? And then the follow-up question would be, on the pent up backhaul, one of the publicity that I see in the media deals with the many carriers in the world maybe getting into trouble with not having sufficient backhaul. They're caught with either maybe licensing issues, they may be caught up with issues over what technology they should deploy. So the next question I would have and follow-up would be, what is your overall view of the pent-up backhaul demand in the world?

Peter Allen

Sure. Thank you. Thank you, Joe, and welcome to Ottawa. If you -- we need to kind of start from the beginning. And many of the cell towers that exist today were put in place when the thing that we used to carry around was a cell phone. And the base stations that were put on those towers were essentially base stations that supported 2G traffic that was almost 100% voice traffic. So in those days, the amount of capacity needed as a base station was quite low because it was only supporting voice traffic. And most, many, many cell towers that exist around the world today still has only 2G traffic on them. The backhaul for 2G, I'll use United States as a proxy, the backhaul for 2G was largely done with copper wires. Because the capacity required for voice traffic is so much lower, you could accommodate the backhaul without a more advanced technology than copper. And so operators carried on nicely for many, many years, and voice remains a principal revenue-generating engine for those operators. So a really important part of their network. Now as you move -- and just general characteristic, if you look at Europe at the same time, Europe's backhaul was still a lot of copper but a much higher proportion of microwave. And the reason Europe was different is the charges per month for copper access from operators in Europe was so much more expensive than it was in North America. So operators were incented to move from copper to something else much earlier in Europe than they were in North America. So you see regional differences. But in general, the point remains the same that whatever was put in place for 2G really only serves a fairly low-capacity voice-centric environment. As you now make the journey through -- from 2G to enhanced 3G, all the varied versions up until 4G and LTE, progressively, the demands on your backhaul change, because as they move from being dominated by voice requirements to dominated by data requirements. Now from the operator standpoint, the business model is challenging, because they started off in a world where we used to pay per minute of call for our voice traffic. That's how it was 10 years ago. Increasingly, we pay all you can need for our voice. It's okay for them. That's okay, because it doesn't drive a lot of traffic. They don't -- an investment cycle is not stimulated by more voice traffic. But increasingly, as we move voice to data and as we move data from useful data, and as we move data from our PC connected to some landline from our house to our mobile, there is an investment cycle generated for the operators that none of us want to pay by the minute for. So they have a very challenging business case. So they're looking for the most competent technology. So as they face that, they will make a decision as to whether or not a base station, as they move it from 2G to 3G to 4G, needs to be backhauled by, "Can they live with the copper? Are we up to a point? Do they put in their own microwave? Or do they put in a fiber connection that either from one of their own, or one that is leased from somebody else?" The good news is that as they look at that, there's a trade off. Fiber can be leased, so it's not an upfront capital expense. Often, it can be leased. But they don't get the full benefit of what is known as owner economics. So they can't get the ultimate lowest cost, which is necessary, because none of us want to pay bit-by-bit for our consumption of the Internet. So as the operators look at the market, they will make the decision tactically and economically as to how much of the cell sites are going to be backhauled by fiber, how much of it is going to be backhauled by microwave. And you see them behave. If you look at Clearwire, Clearwire took the position. Everything is going to be done by microwave, very little fiber. You look at some of their other carriers, AT&T, a lot of it's done by microwave. So depending on your balance sheet, depending on where your starting point is, depending if you have other reasons that have fiber out there, you can land in different places. In terms of, I think, the second part of your question, which is the backhaul challenge. Yes, I mean, the entire environment can firstly be dominated by spectrum. So one of the great reasons that -- and firstly, I'll talk about access spectrum, the ability to send signals down to cell phones. If you look at the stimulus for the Softbank interest in Sprint and dish interest in Sprint and Clearwire, is because Sprint and Clearwire hold an enormous amount of spectrum that would allow people to deliver, that allows people to deliver services, broadband services. And if you don't have that spectrum, you are going to be limited in ultimately how much service you can deliver and it's going to force you into smaller cells. Obviously, the more you've got, the less you have to do that, but everybody is going to have to do it. So spectrum is a fundamental enabler, a foundation, if you wish, for the market access spectrum. The second part, in some markets, you actually need -- you need backhaul spectrum as well. So in the United States, it's where you can get, it's done on a link-by-link basis. You can just do it with the SEC. But in other markets, they handle that differently. So the operator really, I think the biggest challenge is how does he kind of get all of his timing right between a very difficult, a very constrained business model where he wants to make -- he wants to support the traffic, but he wants to make sure that because the traffic is not as strongly revenue generating as voice used to be, he has to do that in a much more productive way. And so he's going to time his investments more closely to the traffic growth. At the same time, in many, many markets around the world, most of these markets are prepaid markets. There is this not this tie-in between you have a 3-year contract and he bills you once a month from what is an exorbitant amount of money, and then we move on. And in most of these markets, it's prepaid. So the way you retain a prepaid customer is about the quality of experience he's having with the network. Because if he doesn't have the right quality of experience, guess what? He's a prepaid customer from somebody else's network who does give him the right experience. So the stickiness of a prepaid customer is very different to the stickiness of a -- sorry, of a post -- of a prepaid company is different from a postpaid customer. When that's important? It comes back to my point about this challenge of the operator is very tough. He doesn't want to make his investments too early because of a tough business model. He doesn't want to make them too late because he will affect the customer experience and therefore his ability to retain and grow a subscriber base. And of course, a lot of us are on -- wants to be on the Internet because of the content, and the content guys are getting to charge, and the network guys who are making the investment aren't always getting charged. So the business model -- there are business model drivers here that are causing the behavior that you see. But overall, everybody is interested in being able to maintain a customer base because your revenue -- the operator's revenue generation comes, still, all primarily from voice. But the voice -- the people who pay the voice bills are the ones who want the mobile broadband as well. So keeping the mobile broadband customer base helps you secure your revenue base. So everybody's competing for consumers. And ultimately, all of them are facing the challenge of we want to have more and more mobile broadband. And unless you have a network and a spectrum environment that supports that, they won't be able to retain those customers. So that's why the driver is there and the cell sites are a collateral impact from that overall driver. I hope that answered your question.

Russell James Frederick

Any other questions?

Peter Allen

Very long-winded, I know. I'm sorry.

Russell James Frederick

No other questions? Okay. Well, I think the management team and the board members will stay around for a while if there are any other questions. But I thank you for attending today, and I hope you have a good day. Enjoy the nice weather in Ottawa. Thank you. Okay [indiscernible].

Unknown Executive

The meeting is now adjourned.

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