Interview with: Peter Aronstam, CFO - featuring: their fixed and wireless voice and data systems and solutions, including Voice Over IP (VoIP) and strong wireless product roadmap that includes offerings compliant with the 802.11 a/b/g and the WiMAX 802.16-2004 standard.

Airspan Networks Inc. (AIRN-NASDAQ)

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Airspan Networks’s WiMAX technology will give phone companies and ISPs the opportunity to provide their mobile customers with the ability to connect and enjoy the full broadband experience over the internet

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Wireless Communications

Airspan Networks Inc.

777 Yamato RoadSuite 310
Boca Raton, FL 33431
Phone: 561-893-8670

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Peter Aronstam
Chief Financial Officer

Interview conducted by:
Lynn Fosse, Senior Editor
October 12, 2006

Peter Aronstam joined Airspan in March 2001 as Senior Vice President and Chief Financial Officer. From 1983 to 2001, Mr. Aronstam served in a variety of positions at Nortel Networks Limited, the last as Vice President, Customer Financing of Nortel’s Caribbean and Latin America region. From 1978 to 1980, he worked at Bank of Montreal in its international banking division, and from 1981 to 1983 at Bank of America in its Canadian corporate banking group. He received B.Com., LLB and PhD. degrees in 1971, 1973 and 1978, respectively, from the University of the Witwatersrand in Johannesburg, South Africa.

Company Profile:
Airspan Networks provides fixed and wireless voice and data systems and solutions, including Voice Over IP (VoIP). Its wireless products serve operators around the world in both licensed and unlicensed frequency bands between 700 MHz and 6 GHz, including both PCS and 3.5GHz international bands. Airspan has a strong wireless product roadmap that includes offerings compliant with the 802.11 a/b/g and the WiMAX 802.16-2004 standard, including software upgradeability to Mobile WiMAX (the 802.16e-2005 standard). Airspan is on the Board and is a founding member of the WiMAX Forum and a member of the Wi-Fi Alliance. The Company has deployments with more than 350 operators in more than 100 countries. Airspan's wireless systems are based on radio technology that delivers excellent area coverage, high security and resistance to fading. These systems can be deployed rapidly and cost effectively, providing an attractive alternative to traditional wired communications networks. Airspan's new AS.TONE VoIP system is a carrier class, turnkey solution that provides carriers with Class 4, Class 5 and IP-Centrex solutions and has a Softswitch and Gateways supporting SIP/H323 and SIP. AS.TONE's design provides customers, carriers, next-generation telcos, cellular providers and ITSP with a wide range of solutions with the best price/performance system for IP telephony. Airspan also offers radio planning, network installation, integration, training and support services to facilitate the deployment and operation of its systems. Airspan is headquartered in Boca Raton, Florida with its main operations center in Uxbridge, United Kingdom.

CEOCFO: Mr. Aronstam, what attracted you to the company and how has it changed since you have been there?
Mr. Aronstam: “The attraction was to be in a company which I would describe as a pioneer in a sector that was going to take advantage of the explosion of broadband. At the highest level, the attraction was that broadband connection to homes and businesses were growing rapidly when I joined five years ago and we expected that growth to continue, which it has done. We had a product, which was ideally suited to take advantage of that growth in broadband, particularly in parts of the world in both developing and developed countries where there was no access to broadband, where the existing copper, fiber or cable infrastructure either couldn’t reach homes and businesses, or was incapable of reaching them. Airspan’s product looked to me to be a perfect solution for this growth in broadband. What has happened over the past 5 years is that Airspan has gone through two or two and a half evolutions or revolutions in its product cycle. When I joined, the company only has one product, which was a basic DSL type wireless product. DSL would enable all phone company subscribers to connect to the internet via a DSL speed connection; usually 512 kilobits a second. It would also give our subscribers one or two voice lines. The company has now grown from that product alone to products that often run on what is called the internet protocol. Today, a substantial amount of our business is through sales of internet protocol IP based product, which we make a coding to this new standard called the WiMAX standard. Therefore, we have gone from one product only, which was made according to proprietary standard, which means a product designed by Airspan for Airspan products only, to today where we sell multiple products that work primarily according to the internet standard and our WiMAX product, which works to an open standard and also the internet.”

CEOCFO: You are in more than 100 companies; what do you actually provide to your customers?
Mr. Aronstam: “We sell a combination of both hardware and software. Our customers are generally phone companies. They are the incumbent phone companies or competitive phone companies. From time to time we will also sell to ISPs (Internet Service Providers) and occasionally corporate users as well, who are looking to build phone networks. We sell the access portion of the network. The access portion is the connection from the end subscriber to the core of the telephone company network. It is sometimes called the last mile, although it may extend more than a mile. It is that connection between the phone company infrastructure of core and the subscriber premises. We sell the hardware and it allows subscribers to connect wirelessly to the core of the networks. We also sell the management system to allow the phone companies to configure and manage these networks and then we sell related services. We do everything from the early planning for our customers such as radio planning, so they know how to design and deploy these networks. We sell them training services, and installation services if they require it. We also sell them the post-installation, warranty and maintenance services.”

CEOCFO: What is the competitive landscape like, and why are people choosing Airspan?
Mr. Aronstam: “It is fierce competition. There are companies who compete directly with us that make wireless products for the last mile access. We compete with the traditional manufacturers of wired technology; any company that provides a hookup between a subscriber and a communications company. It could be manufacturers of copper or fiber cable, or even HFC cable for the television industry. However, we believe we win more projects than we loose. There is a cost advantage with our products verses some of those more traditional wired solutions. There is also efficiency with the products we sell; wireless products have to be very efficient in how they use the spectrum and how they deliver the information. We believe we have the best spectral efficiency of all of the products we compete against. We were the first company to introduce in 2005, an end-to-end certified WiMAX broadband solution. Most companies were looking for certified WiMAX product, could come to only one company to get end-to-end, meaning everything from the equipment that goes to the subscriber premises all the way to the equipment that is located at the edge of the core phone company network. Those are the most important factors.”

CEOCFO: Will you tell us about WiMAX in general?
Mr. Aronstam: “WiMAX was and idea by Intel Corporation (INTC); an idea to compete against the incumbent technology called 3-G wireless who’s main sponsor is QUALCOM Inc. (NASDAQ: QCOM). What Intel was looking for was an alternative to the QUALCOM technologies to give mobile broadband users the ability to access the internet using wireless. Before the coming of WiMAX, the only way that mobile subscribers could hook onto the internet was to use 3-G technology for which QUALCOM is the main proponent and main patent holder. Intel was looking for some sort of alternative that would be open to all users and a technology that would piggyback off the internet. Intel came to us and a couple of our competitors 4 years ago, and said that it would help us develop this WiMAX standard for broadband wireless connections and help us by developing silicon at an attractive price for us to put into that technology if the wireless manufacturers came up with a 4th generation of radio technology that could carry the signal. Intel was looking for a technology that was better than the 3-G technologies, better in the sense that it could carry more traffic more reliably over greater distances.

There were about 5 of us with Intel that formed the WiMAX forum in 2002, and we came up with a couple of standards for the development and deployment of WiMAX space networks. They all go by the number 802.16, so we came up with a first standard in 2004, which is sometimes called the 802.16 D standard, which is fixed WiMAX network; fixed means subscribers are stationary; they are fixed in offices or homes and have no mobility. In 2005, the WiMAX forum introduced the 802.16 E mobile standard, and that is the standard that will give WiMAX users the ability to be mobile with their devices. Where WiMAX will take users in a couple of years, when our device is ready, is give them the ability of using mobile devices with your laptop, PDA, and ultimately their cell phones, the ability to connect anywhere in the WiMAX network, to the internet and to enjoy the full broadband experience of the internet over the WiMAX radio wave. It is a technology that will compete with the existing 3-G wireless technologies.  We believe its attributes are so much more superior. It will give the end subscribers a much more enjoyable and useful experience. The customer for WiMAX will be the same as our existing customer and we currently sell the WiMAX technology to phone companies and Internet Service Providers (ISPs) around the world.”

CEOCFO: How much focus is there for the company on R&D?
Mr. Aronstam: “It is an all consuming focus; it is our biggest single expenditure in our profit and loss statement. We have invested very heavily over the last two years in creating this WiMAX standard and developing product for the WiMAX standard. That two-year investment is just starting to bear fruit, and 2006 will be the first meaningful year of sales of WiMAX technologies and we certainly expect our WiMAX revenues this year to be more than half of the company’s total revenues, whereas in 2005 it was less than 5%. Without the R&D and the spending on the engineering and the development in WiMAX, I really do not think this company would have a future because the phone companies are now insisting on a WiMAX type technology for deployment of wireless broadband; they do not want to use the older technology.”

CEOCFO: Would this be replacing what they have with WiMAX or would this be an addition?
Mr. Aronstam: “It is typically an addition. WiMAX tends to do one of two things, it either extends the reach of an existing wired network; copper and fiber are economical to deploy in a network only to a certain physical point and to go an extra mile is just economically unviable to use copper or fiber. Where the wired infrastructure ends, WiMAX wireless becomes a cost effective enabler to extend the reach of the network with broadband, so that is one solution that we use. In places like the U.S., that tends to be rural deployment, so most of our revenues and deployments that we do in the US are into rural communities where it is just economically unattractive for the phone companies to run fiber long distances to reach isolated towns or isolated suburbs. A radio link becomes a much more cost-effective solution. The other situation where we deployed broadband wireless is where there is an existing network; it is usually a copper network buried in the ground in a telephone network. The copper is typically so old that it is just incapable of carrying broadband effectively. What our customers very often do in that situation is they leave the copper network in the ground to carry voice traffic because copper tends to handle voice traffic reliably even if it’s very old. They then overlay the existing copper network with the wireless broadband network so that they can give their subscribers broadband connection as well. The subscribers would be doing their voice calls over the copper network and their internet connectivity wirelessly. At the end of the day, they get the full service package from the phone companies.”

CEOCFO: What is the financial picture?
Mr. Aronstam: “I would describe it as solid. We are on the verge to getting to profitability. We said on our most recent earnings conference call that we expect to break even sometime in the first half of 2007. To do that, 3 things will have to happen; first, revenues will have to increase. We have said publicly that our breakeven level for revenues have to be in the $35 to $37 million per quarter range. We need gross margins of around 36% to get to breakeven and then we have to reduce our operating expenses somewhere between $ 13 and $14 million a quarter to achieve the breakeven level. We mentioned on the earnings call that the company is undergoing a restructuring program; we are reducing the headcount and operating expenses by around 25%. We are probably three quarters of the way through that program. The rest of it will happen by the end of the year. The profitability and revenue picture doesn’t look too bad. We have virtually no debt in the company. We are in the process of doing a new round of equity; we hope and expect our shareholders will approve a vote to allow us to raise an additional $29 million of equity by the end of September. Therefore, the combination of achievement of profitability next year and the raise of additional equity in the 3rd Quarter this year, we believe will put us on a very sound economic footing to go forward and continue the WiMAX rollout and start to return some money to our shareholders.”

CEOCFO: In closing, why should potential investors be interested and what is overlooked about Airspan that people should focus on?
Mr. Aronstam: “What excited me was we are a company that has technology today which is poised to take advantage of the continuing explosion in broadband around the world. It is a company with a portfolio that exists today that will be deployed in a number of markets, cities, towns, countries that currently don’t have broadband. The top line growth looks pretty rosy. That should take the company from where it is today to something profitable. That EPS should translate into an increased share price. I think there is potential for growth in the share price of the company. Maybe what is overlooked today, is that the share price in the last few months has taken a bit of a beating from some of the problems we have had with a major customer in Japan. Publicly we have said in a recent conference that we have honored our side of the bargain in doing everything we can do to fix the problems with that customer’s network, so we believe those problems are behind us as well. We believe that general expectation that the company will grow and will become profitable, should translate into a growing share price. We also believe that any of the problems that we had in 2006 with customers, should be behind us.”


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“We believe we have the best spectral efficiency of all of the products we compete against. We were the first company to introduce in 2005, an end-to-end certified WiMAX broadband solution. Most companies were looking for certified WiMAX product, could come to only one company to get end-to-end, meaning everything from the equipment that goes to the subscriber premises all the way to the equipment that is located at the edge of the core phone company network. Those are the most important factors.” - Peter Aronstam does not purchase or make
recommendation on stocks based on the interviews published.