Paul E. Taboada

 

 

Marketing Letter

 

THE COMPANY

 

On May 5, 2002 American Diversified Group, Inc. (“ADGI”) announced that their two wholly owned subsidiaries Global Transmedia Communications Corporation (“ADGI”) and NCI Telecom, Inc. are being merged into the parent company. This merger will significantly improve administrative controls and accounting procedures of ADGI going forward while simplifying management’s chain of command with leaderships under one team.  ADGI’s primary business is the international sale of telecommunications services, primarily involving Internet Protocol technology. ADGI has established telecommunications facilities in New York, Miami, Los Angeles, Mexico, Malaysia, Australia, Brazil, Venezuela and the Caribbean.

 

The Evolution of the Telecommunications Industry

 

Until 1982, the U.S. telecommunications industry was essentially controlled by AT&T. AT&T owned more than 98% of the telecommunications market at that time and it was fully integrated vertically. It owned operating subsidiaries that provided local telephone services under the Bell brand.  It owned Western Electric, a principal manufacturer of telephone hardware and owned Bell Laboratories, a research subsidiary that developed new telecommunication products.  AT&T itself provided long-distance services that interconnected the various Bell subsidiaries.

 

In 1982, AT&T agreed to the entry of a consent decree in U.S. Courts that divided the company into several components.  One part consisted of AT&T, Bell Laboratories and Western Electric.  The individual Bell telephone companies were spun off as independently owned and operated units, now referred to as the Regional Bell Operating Companies ("RBOCs”).

 

The long-distance network that AT&T built over several decades turned out to be its Achilles’ heel.  The original network was almost totally analog based and not digital.  Many remember when it was possible to tell the difference between local and long distance calls by the hiss on the line caused by amplifiers that not only amplified the caller’s voice but also the random line noise.

 

The aspect of the 1982 consent decree that allowed competition in the marketplace for long distance telephone services worked a sea change in the telecommunications industry.  One example was the virtual overnight expansion of a small communications company that provided trucking companies with the ability to communicate with their drivers on the road between St. Louis and Chicago.    The company was then called Microwave Communications Incorporated, which later became known by its initials, MCI.  This is just one example of a successful entrant into the business of providing long distance telephone services.

 

The entry of competitors into the long distance market would have been greatly slowed, and might not have even happened, were it not for the advent of digital telecommunications. One key issue was how to develop nationwide communications without building a network that duplicated AT&T’s.   This is where the new digital technology shone.  It allowed companies like MCI, US Sprint, LDDS and many others to construct networks that not only cost much less but also provided better service.  The “upstart” companies like MCI and Sprint were able to gain a foothold in the long distance marketplace and became the billion-dollar companies that exist today.

 

Digital telecommunications technology has continued to improve the quality and variety of services offered to customers.  Today, for example, telephone callers sound as if they are down the street, even if actually they are “down under” in Australia!  Telephone calls can be forwarded; electronic mail and faxes can be received on digital handheld phones that can also browse the Web, etc.  But digital telecommunications technology is about to undergo another sea change; a paradigm shift in the way information is transmitted and used.

 

The Internet, which over the last twenty or so years has evolved from a network used principally for information exchanges by universities to a mass media accessible by anyone having access to a computer, has already caused many changes.  People communicate by e-mail as often as they use their telephones, perhaps more often.  Many buy and sell goods on-line.  It’s possible to read a newspaper published halfway around the world anytime one feels like doing so.

 

Transmission of data across a public network like the Internet is done by means of a set of rules called a “protocol.”  The most common one is called, appropriately enough, Internet protocol or IP.  IP can be thought of as an envelope for a packet of data.  Just like a U.S. Postal Service envelope, the IP “envelope” adheres to a standard set of rules that allow its contents to be delivered to the intended party.  The IP “envelope” can contain any type of data – an e-mail message, a piece of a voice telephone call or even a picture.

 

While IP has many advantages for data transmission, it has one serious drawback as calling traffic volume increases.  The contents of an IP “envelope” are treated as data once the envelope enters a network until it is delivered.  This means it is subject to delays as it is routed around the country or around the world.  Packets that contain the voice of a telephone caller may be delayed until all of them have been assembled, so the called party can hear the entire message just as the caller spoke it.  This can result in a delay of several seconds in the worst case.  Often this can be seen while viewing a Web page; it may take several seconds to load a web page, due to buffering in the Internet because of congestion.  This is acceptable with data, but imagine a long distance call where one party speaks, then there is a delay of 20 seconds with neither party able to talk to the other while the buffered information is assembled and delivered!  This is why less than 5% of current international calls use IP.

 

ADGI’s solution to this problem will be the construction of Super Hubs around the world that will provide the ability to handle, without buffering delays, the large amounts of data involved in voice and video communications.  Combined with ADGI’s IP-based ESP (Enhanced Services Platform), ADGI will not only be able to deliver traditional services like voice, fax, voicemail and email, but will also be able to make conversions between these services.  A customer can notify the ESP that he or she will be traveling; the ESP then receives e-mail for the customer.  If the customer has told the ESP to forward mail, the ESP will call the customer’s mobile phone or beep a pager to notify the arrival of mail.  The customer calls into the ESP and listens to the e-mail message, which the ESP has converted to a voice message. If desired, the customer records a voice reply, and the ESP records the message and attaches it to a reply e-mail as an audio file.  The message is returned to the original sender who double-clicks on the audio file to hear the recorded reply.  The ESP can also convert fax to e-mail, voice to fax and so forth. The evolution of IP networks will provide the fuel for the next generation carriers like ADGI.  Services like the ESP system are only the beginning of the next wave of communication technology.

 

ADGI’s Telecommunications Operations

 

ADGI is a facilities-based carrier (a telecommunications carrier that owns its equipment and has its own dedicated equipment locations) of long-distance communications with Section 214 authority from the Federal Communications Commission to provide International Telecommunication Services.  .

 

ADGI is a provider of carrier class, international telecommunications services concentrating its operations in deregulated, rapid growth, emerging markets. Currently, ADGI conducts its international calling business primarily through the operation of international private networks.  ADGI’s core business development focus is on the expansion of its networks and high profit call origination (that is, calls from an international destination to the United States and other countries) capabilities in its targeted markets.  ADGI offers to its customers a full portfolio of telecommunications services including:

 

-     carrier class voice and data services

-     international prepaid calling services;

-     a package of enhanced services, unified messaging, 

      follow-me-find-me, fax forwarding, and voice e-mail;

-     international subscription programs for international calling.

 

ADGI develops its telecommunications service business by fostering joint ventures and strategic alliances with a variety of in-country partners including incumbent carriers and telecommunication service providers. The customer base to which ADGI offers its services includes carriers, telecommunication service providers, small and medium businesses and multinational corporations.  The company is currently planning expansion of its service offerings and its network operations to additional countries, using its present infrastructure and experience in Mexico and Venezuela as a spring-board to create connected international telecommunications hubs in Central America and South America and expansion in Asia through its initial operations in Malaysia and strategic alliance in Australia. 

 

New Technologies: Voice over Internet Protocol (VoIP)  

Both the telecommunications industry and the investment community agree that one of the most promising new technologies in the telecommunications market remains Voice-over-Internet-Protocol.

 

This impressive growth rate is due to the following factors:

 

·        VoIP networks are significantly less capital intensive to build, much quicker to construct and much less expensive to operate, maintain and upgrade than the legacy networks (traditional circuit-switched networks) of all the major carriers.  Lower capital investment translates to much lower amortized fixed costs for services rendered.

 

·        VoIP makes far more efficient use of bandwidth than traditional circuit-based telephony systems.  VoIP networks are able to transport higher volumes of calling traffic and data at much greater speeds over appreciably less bandwidth at significantly lower costs per minute.

 

·        Since VoIP networks are based on Internet Protocol, the platform on which data-based networks operate, they seamlessly and cost-effectively interface with the high technology, productivity-enhancing services shaping today’s business landscape.  For example, Global Transmedia offers a proprietary enhanced services platform, “The Virtual Office,” that bundles together unified messaging packages, integrating voice, fax, data and interactive voice response (IVR) into one platform on our VoIP network that interconnects with the existing telecommunications infrastructure.

 

Foreign Market Deregulation

 

VoIP’s ability to offer low-cost high-quality telecommunications services makes the technology attractive in all markets particularly those markets where telecommunication costs are still high and the availability of affordable bundled services is limited.  ADGI is taking optimum advantage of this tremendous business opportunity.  The crucial factor that has made this opportunity feasible is the deregulatory trends that have been and are currently occurring around the world.

 

Another aspect of the monopoly legacy is the teledensity around the world. In Latin America, for example, before the introduction of wide scale cellular telephone service and the current deregulation that requires new licensees to provide expanded basic local services, the Latin America teledensity was very low.  Taken as a whole, Latin America had only 14-fixed wire telephone lines per 100 inhabitants.  In specific countries there were 11.4 telephone lines per 100 inhabitants in Mexico, 11.7 in Venezuela and 17.6 in Colombia.  These numbers can be compared to the U.S. that has a teledensity of 65 telephone lines per 100 inhabitants.  The local companies were also reluctant to provide fixed wire telephone lines to consumers since the costs of providing services were very high.  These high costs translated into low usage, and the local telco’s also feared the accumulation of bad debt.  As a result of limited access to calling and the high prices for fixed wire services, public telephones and pre-paid calling constituted the only alternative access to calling services for the overwhelming majority of the population in Latin America. 

 

With the increasing teledensity, both land lines and cellular telephones, increasing deregulation and investment in infrastructure required by the new entrants, the historical broad acceptance of prepaid calling and the rapidly growing demand for all forms of communications services, the Latin American telecom markets have become very dynamic.  They are generating increasingly high volumes of traffic, continuing to maintain high growth rates, and continuing to supply unsatisfied current demand and fostering a continuing high growth potential.  For example, Mexico’s telecommunications market has grown four times faster than the entire Mexican economy over the last decade.

 

Another important reason for the vitality of the Latin American international telecommunication market is the high rates of migration between countries in Latin America and migration from Latin America to the U.S.  For example, large numbers of Venezuelans and Colombians immigrate to the U.S. which, when combined with a large population of Colombians living in Venezuela, creates a highly active triangle of international calling traffic, a very lucrative market for a company like ADGI which continues developing operations which connect all three countries.

 

The scarcity of value added services is another characteristic of the Latin American markets.  A number of value added services such as follow-me-find-me calling, voice e-mail, fax mail, broadcast fax, store-and-forward fax, etc., are in ADGI’s service offering which are attractive to business consumers and are still generally not available to the Latin American consumer.

 

ADGI’s End-to-End Network Services

 

ADGI designs, deploys and operates VoIP networks providing end-to-end solutions for our individual subscribers and telecommunications carrier customers, including “The Virtual Office”, our proprietary enhanced services platform. 

 

Prepaid Calling Card Services

 

Prepaid calling sold in foreign markets is the initial part of the core business of ADGI’s overseas operations.  It permits the purchaser to use ADGI’s network from any telephone – home, office, public pay phone or cellular.  Since all calling privileges are paid for in advance of services being rendered, there are no billing,  collection expenses or bad debt losses, thus resulting in significantly reduced operating overhead, investment and financing costs in each country.  These cost reductions and protection against losses allow ADGI to offer very aggressive pricing while maintaining profitability. 

 

ADGI’s prepaid calling cards are currently offered in two formats.  First, they provide cards for worldwide calling services and, second, they can brand cards that provide special reduced rates between specific markets, such as Australia, Brazil, Malaysia, Mexico, and Venezuela. 

 

The ADGI Networking Strategy

 

ADGI’s business model is focused on capitalizing on the opportunities resulting from the previously mentioned characteristics of the Latin American, Asian, and other emerging profitable markets.  Two strategic principles guide the business model.  First, ADGI is developing technological and strategic capacities, providing high margin origination minutes for in-country partners to sell. Second, ADGI is developing the ability to enter multiple markets (pre-paid, business-to-business and wholesale,) through the use of a common infrastructure based on VoIP technology providing a set of high-end enhanced services.

 

Strategic Objectives

 

ADGI is establishing itself as a full service international telecommunications company offering a full array of communications services in the world markets.  By utilizing state-of-the-art VoIP technology, ADGI is able to effectively and efficiently deploy, manage and scale its high performance proprietary VoIP network.  ADGI’s goals are:

• Capture a significant portion of international long-distance calling in deregulating foreign country markets;

• Expand network capabilities through partnerships and alliances with domestic and foreign telephone and telecommunication companies with solid customer bases and established local network technical support services;

• Expand its customer base and capture a portion of long distance calling    within each country through agreements with the incumbent carriers;

• Provide its customers and partners with access to ADGI’s international calling network and use of ADGI’s Virtual Office Services.

• Overlay the VoIP networks with the Virtual Office Platform to create an IP Super Hub Structure, capable of delivering streaming rich content such as; voice, video, high speed data, broadcast media and interactive services.

• ADGI is successfully meeting its strategic goals, positioning itself as a cutting-edge next generation telecommunications carrier.

Execution – Strategy Details:

 

Building the Infrastructure. ADGI is building its network to connect these high margin markets around the world.  The company establishes a central operating node in each country.  From this central location, ADGI can expand into other cities in-country using private channels and through agreements with the local telephone companies.  To connect these country nodes to the entire ADGI network, ADGI provisions high-capacity low-cost international private lines (bandwidth) as the backbone for its system.  The network is designed to support international calling traffic for several types of customers: pre-paid calling services for individuals, prepaid calling and enhanced services to small to medium businesses, wholesale services for carriers, and multiple advanced enhanced calling, messaging and data services for business-to-business connectivity for multinational corporations operating in various ADGI network countries.  Presently all services are offered in ADGI’s markets.  Pre-paid calling and carrier services develop most quickly while multi-national corporate services develop over a longer period of time following ADGI into new countries as the network continues to expand.

 

Seeking out partners. ADGI seeks out in-country strategic alliance partners that have a strong financial base, possess operating licenses, a proven strong technological background and operating history, demonstrate both a well established distribution network and track record for successfully selling communication products and services, a well established customer base that demonstrates a continued growing demand for telecommunications services that can be satisfied by ADGI’s products, and well developed customer support services.  In turn, ADGI offers to these strategic partners high quality low cost telecommunication services and products with unique value added services that these partners can sell to their customers and to the market, in general, at very attractive prices well below the current market for competing standard calling services, all at extremely attractive profit levels for the partner.  ADGI products and services also help establish a distinguishing market presence for the partner separating it from competitors who are all essentially offering the standard services. 

 

Entering interconnected markets.  ADGI’s approach to the expansion of its networks and services is to first establish a strong presence in primary locations and then expand from that foundation into new, interconnected markets.  Unlike prominent carriers and telecommunications services providers of recent times, ADGI adheres to an operational philosophy of incremental development and adaptability rather than encompassing global expansion under a single master plan. 

 

In selecting locations for expansion, ADGI emphasizes the interconnection of calling patterns between geographical markets.  Mexico, for example, with its high amounts of traffic passed into and out of the United States (4.03 billion minutes per year) was clearly the first logical target for ADGI’s first international network location.  Large volumes of traffic are also passed between the United States and Venezuela (288 million minutes) and Venezuela and Mexico (5 million minutes), therefore, expansion into Venezuela was the next logical step in network development and for establishing a foundation in South America.  The fact that ADGI has operations in the United States, Mexico and Venezuela makes it possible for it to obtain a share of the lucrative international calling market between all three countries.  This principle is now extended for the planned expansion into Colombia.  Due to a large population of Colombians in Venezuela, Colombia is the second most called country for Venezuela (32.4 million minutes pass between the two countries every year) with the United States being first.  In broader perspective, for Mexico - the United States, Colombia, and Venezuela, together constitute 92% of Mexico’s international traffic.  For Colombia – the United States, Mexico, and Venezuela, together constitute 61% of the total international calling market, while for Venezuela – the United States, Colombia, and Mexico together make up 73% percent of the total international calling market.  Having operations in all four countries makes it possible for ADGI to have the opportunity to capture high volumes of calling traffic exchanged between, as well as within, these countries.

 

Network Build-Out Plan

 

The underlying principle of ADGI’s network is simple: to install our proprietary VoIP system in locations that provide the greatest earnings potential at the lowest possible investment costs and risks.  We have selected developing countries in newly deregulated markets for our initial sites.  Country selection is based on current infrastructure capabilities, favorable regulatory environment, calling traffic patterns and market growth potential.  These countries give ADGI access to under-serviced and highly profitable international calling markets.  Construction of the ADGI network is being developed in phases under a three-stage plan.

 

STAGE I.  Establishment of point-to-point VoIP networks: To date, ADGI has installed and is operating facilities in several countries: Mexico, Venezuela, Brazil and Malaysia.  Networks under construction are Malaysia and Colombia.  These countries have been selected as the foundation nodes and core countries of ADGI’s network in their geographic regions due to the large volumes of telecommunications traffic that passes back and forth with the United States.  Additionally, the United States, Mexico and Venezuela, pass large volumes of calling traffic among themselves.  ADGI has also developed POPs in New York and Los Angeles.  Multiple United States locations enable flexibility for customers to connect to ADGI’s international network and for ADGI to receive calling traffic from other U.S. telecommunications service providers.

 

STAGE II.  Deployment of ADGI’s Virtual Office Platform:  ADGI has contracts to deploy its Enhanced Services Platform (ESP) to deliver its Virtual Office Services to Brazil, Malaysia, Mexico, Australia and Venezuela.  This platform will overlay the VoIP networks and offers several advantages over standard VoIP networks.  This IP based system will provide ADGI and its foreign partners marketing and sales abilities that go far beyond international calling.  This system gives ADGI a layer of intelligence in its IP network that will allow ADGI to connect to IP based products and services to not only provide the Virtual Office products, but create an IP Super Hub.

 

STAGE III.  Deployment of the IP Super Hub Structure:  ADGI will deploy IP Super Hubs that will over-lay our VoIP networks with a high speed IP highway that will transmit everything from voice, video to interactive services.  Unlike the Public Internet, our IP Super Hub will provide “streaming connectivity” to virtually every part of the world.  The local partners of these hubs will act as NAP’s ( Network Access Points) to allow neighboring countries to connect to the Super Structure.  The partners of these hubs will profit from each “bit” of traffic that flows through their hub, no matter where it originated from or terminates to.  This network will be the super-highway for the carriers or service traffic of the world.  Traffic like international voice traffic, corporate and public data services (such as e-mail or video conferencing), interactive services such as Sony Playstation or Nintendo, movies and full motion video, etc.    It will not house websites or commerce sites that add to the congested nature of the current Public Internet and will be constructed to handle “rich content”.  This super-structure will have portals that will allow access to and from the Public Internet to give access to the world for interactive services.  Think of it as the Interstate Highway system that will allow high-speed access without having to go down the country road to get there.  It will be a network that will service the service providers of the world.

 

ADGI – The Competitive Edge

 

Given the market conditions specified above, ADGI’s business model has strong prospects for success.  The factors that make ADGI particularly well situated and qualified to successfully carry out the strategy are the following:

• ADGI’s management team has a long track record for successfully developing and conducting business in international markets.  Its team members have backgrounds in one or more of the following areas: new business and project development, international partnership management, international project management, telecommunications infrastructure management, international operations, and venture capital start-ups and finance.

• ADGI has its own running networks.  Consequently, ADGI is free to deliver multiple services, cooperate with multiple partners, develop independent pricing without being dependent on the fluctuations of international wholesale prices.

• ADGI has strategic relationships with licensed carriers and telecommunication companies. This affords the company a legal right to operate in those countries, providing it with in-country staff on the spot managing the networks that maintain its services, and giving it access to the strategic partner’s marketing and sales base.

• ADGI enjoys cost advantages by transporting traffic over VoIP networks, reducing the overhead of its operations.  Investment outlays for the construction of new IP networks are dramatically smaller than traditional circuit-switched networks.  Lower capital investment translates into much lower amortized fixed costs for superior services rendered.  In addition, as VoIP makes far more efficient use of bandwidth than traditional circuit-based telephony systems, ADGI is able to send higher volumes of network traffic over appreciable less bandwidth at much greater speeds and at significantly lower costs per minute.  ADGI’s VoIP network has a much greater per minute capacity at a much lower per unit investment cost than the major international carriers with their inefficient circuit-switched legacy networks.

• ADGI’s strategy makes it easier for the company to expand its business from one geographical market to the next.  In the expansion efforts ADGI follows its customer base.  For example, when moving into a new country ADGI follows the calling patterns of its established markets.  ADGI leverages the relationships with its existing partners in the established markets with new partnerships in new countries.  The fact that ADGI has been working successfully with their colleagues constitutes a strong recommendation of the services offered and for forming new strategic relationships.

• In contrast to the major telecom companies that offer their customers set menus of services, ADGI offers a wide array of choices to satisfy its customers’ demands.  The versatility of ADGI’s infrastructure makes it easy to select different product and service offerings and to add new services as developed.

• Low overhead costs make it possible for ADGI to move into a new market quickly and acquire market share much faster than the larger companies.  This is clear in Mexico and Venezuela where major companies, due to large inefficient infrastructures and overhead costs, are moving much slower in the deregulating markets.  ADGI enters into a niche market first and then adapts its services rapidly for the general population.

• Ultimately, ADGI’s established operations, array of services and customer base will make it an attractive potential takeover target for the large international telecoms.  Due to their tremendous infrastructure costs in legacy networks, these telcos will find it much more attractive to acquire established next generation telcos than to build new networks from scratch and look for new customers.  The benefits of this for ADGI’s shareholders and investors are obvious.

Summary of Key Management Personnel

 

ADGI’s management team differs greatly from the competition.  Its management possesses the technological capabilities, the successful business development experience, the managerial skills and the insight necessary to achieve the goals set by ADGI for its international VoIP network.

 

Drawing on decades of a wide range of commercial experience and technologies in both voice and data companies, international marketing and international finance, ADGI has brought together extensive knowledge and expertise, combining business opportunities with the technical requirements of voice and data as a single discipline, to form a highly respected team and successful business.  The unique ability to move ADGI’s business fluidly across international boundaries and between voice and data technologies is the critical factor in its ability to successfully develop, deploy and manage high volume VoIP networks. 

 

Catalysts

American Diversified Group Inc. is committed to its investors to build a highly profitable international telecommunications company, maintaining a strong financial position and maximizing shareholder value.  ADGI is positioned as a premiere provider of communication products and enhanced value-added services, investing in its commitment to deliver superior service in high margin foreign markets to a diverse international customer base through expansion of its network worldwide utilizing state-of-the-art Voice-over-Internet-Protocol (VoIP) technology.  Despite the recent slowdown in the technology sector, the international long-distance calling business is in the midst of one of the greatest long-term business expansions in modern history.  Accelerating technological innovation and changing institutions are stimulating unprecedented demand for telecommunication services around the world and providing business opportunities for companies like ADGI.  In particular, the emergence of Voice-over-Internet-Protocol technology and foreign market deregulation have provided ADGI with solid opportunities for business expansion. We believe ADGI is positioned to exploit the upside potential of the vast expansion of the Internet.