Rogers Orders Modems, IP Gear from Terayon

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In deals last week, Terayon Communication Systems
significantly expanded its already substantial reach into the rapidly growing Canadian
market for broadband data and telephony services.

The company landed a contract to supply Rogers Cablesystems
Ltd., Canada's largest MSO, with standards-based cable modems and headend equipment,
broadening Terayon's presence to MSOs that cover two-thirds of the Canadian market
and that have aggressively been rolling out high-speed Internet-access services.

Equally significant was a separate $45 million deal with
Rogers Communications Inc. to jointly develop standards-based cable-telephony products and
to speed their commercial deployment -- another area where Canadian MSOs want to go
full-bore.

"Our overall strategy is predicated on grabbing as
much market share as soon as possible," said Alek Krstajic, vice president and
general manager of Rogers@Home. "Everything that we do is toward that end."

The modem deal means that Rogers will phase out its current
offering of Bay Networks Inc.'s LANcity equipment by July 1, gradually ramping up
availability of Terayon modems to meet demand that is averaging 2,000 to 3,000
installations per week. Rogers@Home expects to finish March with about 76,000 subscribers.

Although Terayon so far has deployed cable modems and
related headend equipment based on proprietary platforms, the company agreed to accelerate
its development of standards-based equipment in order to support Rogers' strategy of
moving entirely to Data Over Cable Service Interface Specification gear.

Terayon initially planned to introduce equipment aimed at
meeting the advanced DOCSIS 1.2 protocols that it is developing with Broadcom Corp. and
Cable Television Laboratories Inc.

But the company now believes that it can't afford to
wait while competitors conduct valuable development work in trying to meet the current 1.0
and upcoming 1.1 standards.

Instead, Terayon this year will submit DOCSIS 1.2
"capable" modems for certification under 1.0 or 1.1, incorporating enhanced
features that are necessary to support cable telephony.

"We will be offering DOCSIS solutions in 1999,"
said Zaki Rakib, Terayon's CEO. "To some extent, in order to be first to market
with DOCSIS 1.2, we have to be thrown into this ocean of DOCSIS earlier and learn how to
swim."

Rogers will deploy proprietary equipment in the interim and
migrate to DOCSIS as soon as possible, setting the stage for a planned systemwide retail
deployment by year's end.

"What this allows me to do is to continue this massive
market-share grab and continue to move toward DOCSIS," Krstajic said. "When
DOCSIS becomes a product that is bulletproof and childproof, we'll switch entirely to
DOCSIS."

The market-share strategy reflects the heated competition
by Canadian MSOs to roll out high-speed-data services and advanced platforms like
Internet-protocol telephony, spurred partly by the aggressive rollouts of rival
digital-subscriber-line services from incumbent phone operators.

Rakib claimed that some 38 percent of all @Home Network
subscribers last year came from Canada, with Shaw Communications Inc. alone accounting for
about 21 percent of the @Home total.

"And they're maybe one-seventh the size of TCI
[Tele-Communications Inc., now AT&T Broadband & Internet Services]," Rakib
said of Shaw. "You look at the Canadians, and they have been very aggressive. The
competition in Canada has just been more intense."

Terayon last year landed a three-year cable-modem-supply
agreement with Shaw, which passes some 2 million homes. And earlier this year, the vendor
announced a deployment of modem systems with Access Communications Inc., another top 10
MSO.

Earlier this month, Samsung Telecommunications America Inc.
won a contract to supply Canada's Le Groupe Vidéotron Itée with cable modems for
Internet-telephony service, which the Quebec-based MSO plans to launch in the first
quarter of next year.

And rival Cogeco Cable Canada Inc. said it could launch
commercial cable telephony in the fourth quarter of this year.

Under the product-development pact, Terayon will issue
Rogers one-year warrants to buy 2 million Terayon shares at a discount to the current
market price.

In return, it gets intellectual property stemming from
Rogers' earlier cable-telephony work, plus assistance in testing and characterizing
Terayon telephony gear in the Rogers lab and over its hybrid fiber-coaxial networks

The companies want to accelerate the availability of
products that meet the interoperability and features standards under the industry's
PacketCable and DOCSIS protocols, with Terayon additionally gaining telephony-market
cachet through potentially huge deployments with Rogers.

"Until today, we were not a name in the industry in
terms of the voice business: That was Cisco [Systems Inc.] and Lucent
[Technologies]," Rakib said. "My way of combating that is accelerating the
credibility of Terayon's voice products by developing them with a leading operator
like Rogers."

Rogers regards the ability to offer telephony based on the
capabilities incorporated into the developing PacketCable standards as a key weapon for
differentiating itself from incumbent local phone companies.

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