Exhibit
99.1
  
 
 
 
 
 
 
 
 **CALL-NET
ENTERPRISES INC.**
 
 
 
 
 **ANNUAL
INFORMATION FORM**
 **(AIF)**
 
 
 
 
 **March
22, 2005**
 
 **2235
Sheppard Avenue East**
 **Suite
1800**
 **Toronto,
Ontario**
 **M2J
5G1**
 
 **Tel:
(416) 718-6400**
 **Fax:
(416) 718-6477**
 
 
 
 
 **TABLE
OF CONTENTS**
 
 **CORPORATE
      STRUCTURE**
    
    
    **1****GENERAL
      DEVELOPMENT OF THE BUSINESS**
    
    
    **1**INTRODUCTION
    
    
    1*The
      Canadian Telecommunications Market*
    
    
    *1*SIGNIFICANT
      DEVELOPMENTS IN 2004
    
    
    2*Corporate
      Realignment*
    
    
    *2**Broadband
      Phone Service Launch*
    
    
    *2**Local
      Telephone Service in Ontario and Quebec Expanded*
    
    
    *2**Repurchases
      Senior Secured Notes*
    
    
    *2*SIGNIFICANT
      DEVELOPMENTS - 2003 AND 2002
    
    
    2*IP
      Enabled Solutions*
    
    
    *2**Share
      Offering*
    
    
    *2**Securitization
      of Receivables*
    
    
    *3**Wireless
      Services*
    
    
    *3**Plan
      of Arrangement*
    
    
    *3**Repurchase
      of Debt*
    
    
    *3**Various
      360networks Inc. Fibre Transactions*
    
    
    *4*THE
      SPRINT ALLIANCE
    
    
    4ACQUISITIONS
    
    
    4*Acquisition
      of Customer Base of 360networks/Group Telecom in Eastern
      Canada*
    
    
    *4**Acquisition
      of eForce*
    
    
    *4**Acquisition
      of Time iCR Inc.*
    
    
    *5***BUSINESS
      DESCRIPTION**
    
    
    **5**GENERAL
    
    
    5*Operating
      Strategy*
    
    
    *5**Call-Net's
      Network*
    
    
    *6*PRODUCT/MARKET
      SEGMENTS
    
    
    7*Local
      and Long Distance Services*
    
    
    *7**Residential
      Local or Home Phone Service*
    
    
    *7**Residential
      Long Distance Services*
    
    
    *7**Wireless
      Services*
    
    
    *7**Residential
      Data Services*
    
    
    *7**Business
      Local and Long Distance Services*
    
    
    *8**Business
      Data Services and IP Services*
    
    
    *8*RISK
      FACTORS
    
    
    8*Operational
      Risks*
    
    
    *8**Technology
      Risks*
    
    
    *9**Financial
      Risks*
    
    
    *9**Currency
      Risks*
    
    
    *10**Regulatory
      Risks*
    
    
    *10*OVERVIEW
      OF THE REGULATION OF CANADIAN TELECOMMUNICATIONS INDUSTRY
    
    
    10*The
      CRTC and Legislation*
    
    
    *10**Canadian
      Regulatory Overview*
    
    
    *10**Canadian
      Regulation of International Traffic*
    
    
    *11**United
      States Regulatory Environment*
    
    
    *11**International
      Regulatory Environment*
    
    
    *12***DIVIDEND
      POLICY**
    
    
    **12****DESCRIPTION
      OF CAPITAL STRUCTURE**
    
    
    **12**GENERAL
      DESCRIPTION OF CAPITAL STRUCTURE
    
    
    12*Common
      Shares*
    
    
    *12**Class
      B Non-Voting Shares*
    
    
    *12**Preferred
      Shares*
    
    
    *12*CONSTRAINTS
    
    
    13*Compliance
      with the Telecommunications Act (Canada)*
    
    
    *13*RATINGS
    
    
    13*Secured
      Notes*
    
    
    *13***MARKET
      FOR SECURITIES**
    
    
    **14**TRADING
      PRICE AND VOLUME
    
    
    14FON
      - MONTHLY TRADING ACTIVITY FOR 2004
    
    
    14FON.NV.B
      - MONTHLY TRADING ACTIVITY FOR 2004
    
    
    15**DIRECTORS
      AND EXECUTIVE OFFICERS**
    
    
    **15**DIRECTORS
    
    
    15EXECUTIVE
      OFFICERS
    
    
    16**LEGAL
      PROCEEDINGS**
    
    
    **17****AUDITORS,
      TRANSFER AGENT AND REGISTRAR**
    
    
    **17****AUDIT
      COMMITTEE INFORMATION**
    
    
    **17**AUDIT
      COMMITTEE TERMS OF REFERENCE
    
    
    17AUDIT
      COMMITTEE COMPOSITION
    
    
    17PRINCIPAL
      ACCOUNTANT FEES AND SERVICES
    
    
    18PREAPPROVAL
      POLICIES AND PROCEDURES
    
    
    18**ADDITIONAL
      INFORMATION**
    
    
    **18****APPENDIX
      A - AUDIT COMMITTEE TERMS OF REFERENCE**
    
    
    **19****GLOSSARY**
    
    
    **21**


**CORPORATE
STRUCTURE**
  Call-Net
Enterprises Inc. (Call-Net or the Corporation) with its head office at 2235
Sheppard Avenue East, Atria II, Suite 1800, Toronto, Ontario M2J 5G1 is a
holding company that conducts its telecommunications business primarily through
its wholly-owned operating subsidiaries: Call-Net Communications Inc. (CNCI),
Call-Net Technology Services Inc. (CNTS), Sprint Canada Inc. (Sprint Canada),
AlternaCall Inc. (AlternaCall), and CNCS Inc. (CNCS). All of the aforementioned
subsidiaries are either incorporated or amalgamated under the laws of Canada
except for CNCS, which is incorporated under the laws of Delaware, USA. The
registered and principal offices of Call-Net and the aforementioned Call-Net
subsidiaries are located at 2235 Sheppard Avenue East, Atria II, Suite 1800,
Toronto, Ontario, Canada M2J 5G1, except that the address of the principal
office of CNCS is 303 South Broadway, Suite 480, Tarrytown, New York, 10591. The
Corporation owns and operates an extensive national fibre network and maintains
network facilities in the United States and the United Kingdom. It also has
switching centres in Vancouver, Calgary, Toronto and Montreal, and call centres
in Montreal and Toronto. The Corporation operates a local services network in 33
municipalities through 151 ILEC switch co-location sites in five major urban
areas. The Corporation has approximately 1,800 employees.
  The
following chart illustrates the organizational structure of Call-Net and its
wholly owned operating subsidiaries, including their jurisdictions of
incorporation.
  
  ****
 **GENERAL
DEVELOPMENT OF THE BUSINESS**
  **Introduction**
  The
Corporation, primarily through its wholly-owned subsidiary Sprint Canada, is a
leading Canadian integrated communications solutions provider of home phone,
wireless, long distance (LD) and IP services to households, and local, long
distance, toll free, enhanced voice, data and IP services to businesses and
governments across Canada.
  *The
Canadian Telecommunications Market* **
  The
total telecommunications market in Canada is estimated to be approximately $34
billion, and is currently segmented into long distance services, local services,
wireless services and data services. Each of these market segments may be
further divided into business and residential sub-segments.
  **Canadian
Telecommunications Market**
  **(Billions
      of Canadian dollars)**
    
    **Business**
    
    **Residential**
    
    **Total**Long
      distance services
    
    
    2.8
    
    
    15
    %
    
    2.7
    
    
    18
    %
    
    5.5
    
    
    16
    %Local
      services
    
    
    4.3
    
    
    23
    %
    
    4.7
    
    
    31
    %
    
    9.0
    
    
    27
    %Data
      services
    
    
    7.9
    
    
    43
    %
    
    2.5
    
    
    16
    %
    
    10.4
    
    
    30
    %Wireless
      services
    
    
    3.6
    
    
    19
    %
    
    5.4
    
    
    35
    %
    
    9.0
    
    
    27
    %**TOTAL**
    
    
    **18.6**
    
    
    
    
    
    **15.3**
    
    
    
    
    
    **33.9**
 
 Call-Net,
primarily through its wholly-owned subsidiary Sprint Canada, offers long
distance, home phone, dial-up Internet, and wireless services to residential
customers in Canada’s largest metropolitan areas, and long distance, local,
enhanced voice, and wireless services, and data services and Internet Protocol
(IP) solutions services to Canadian businesses and all levels of government. The
Corporation estimates that it has approximately 3.3 per cent of the Canadian
long distance, data and local services markets and 2.4 per cent of the total
Canadian telecommunications market.
  Call-Net
      Enterprises Inc.
    1
 
 
 **Call-Net
      Market Share Estimate**
    
    **Business**
    
    **Residential**Long
      distance services
    
    
    10.0
    %
    
    5.5
    %Local
      services
    
    
    1.2
    %
    
    2.7
    %Data
      services
    
    
    2.4
    %
    
    0.5
    %Wireless
      services
    
    
    0.0
    %
    
    0.2
    %**Call-Net's
      Share of Total Telecommunications Market Share**
    
    
    **2.4**%****
    ****
 
 **Significant
Developments in 2004**
  *Corporate
Realignment*
  On
September 29, 2004 the Corporation announced a realignment of its organizational
structure designed to improve organizational effectiveness. The business
solution and wholesale carrier services business units were consolidated into
one organization. In addition, Call-Net consolidated its corporate, operations,
marketing and provisioning functions, and eliminated the positions of chief
operating officer, chief legal counsel and business unit
presidents.
  *Broadband
Phone Service Launch*
  On
July 22, 2004 Sprint Canada launched Sprint Canada Internet Phone Service, its
broadband phone service for households and small office home offices. Sprint
Canada Internet Phone Service (IPS) uses voice over Internet protocol (VoIP)
technology to transmit local and long distance calls over high-speed Internet
networks and Sprint Canada's national local service network.
  *Local
Telephone Service in Ontario and Quebec Expanded*
  On
April 29, 2004 Sprint Canada opened 14 new wire centres in April 2004 and three
new wire centres in October 2004 allowing it to offer local home and business
telephone service to more communities in Southern Ontario and the Greater
Montreal Area. The Corporation ended the year with 151 ILEC switch co-location
sites serving 33 municipalities across Canada.
  *Repurchases
Senior Secured Notes*
  On
March 2, 2004 Call-Net repurchased for cancellation a total of U.S.$76.4 million
of its 10.625 per cent senior secured notes, due December 31, 2008 leaving
U.S.$223.1 million outstanding. The cost of these purchases was U.S.$79.5
million, including commissions. The purchases were funded from cash on hand. The
purchase of these notes will reduce Call-Net's annual interest expense by
U.S.$8.1 million.
  **Significant
Developments - 2003 and 2002**
  *IP
Enabled Solutions*
  On
September 24, 2003, Sprint Canada announced the launch of its *IP
Enabled Solutions* ,
a portfolio of integrated access services. The new technology allows businesses
to easily establish new IP based services and to transition from existing
networks to IP. For the first time in Canada, business customers were able to
inter-operate a disparate network designed for different purposes or networks
acquired through mergers and acquisitions, as one seamless network, without the
need for additional capital outlay. *IP
Enabled Solutions* offer highly reliable and secure connectivity and provide the opportunity for
ongoing cost savings and more efficient management of resources, enabling
businesses to more effectively re-deploy their information technology (IT)
resources.
  Sprint
Canada *IP
Enabled Solutions* allow both asynchronous transfer mode (ATM) frame relay and customer provided
equipment (CPE) based Virtual Private Network (VPN) networks to run on one
seamless network. Furthermore, they offer business customers the flexibility to
choose the most suitable access technology for connectivity to all sites from
their head office, as well as to home and branch offices. Sprint Canada *IP
Enabled Solutions* deliver the benefits of IP networking with a simple and reliable architecture,
preserving a customer's existing investment in its network while significantly
enhancing network capabilities and bandwidth.
  *Share
Offering*
  On
September 9, 2003, the Corporation completed a share offering of 10,000,000
Class B Shares at a price of $3.75 per share for gross proceeds of $37.5
million. The offering was underwritten by a syndicate led by BMO Nesbitt Burns
Inc. and CIBC World Markets Inc., and included TD Securities Inc. and National
Bank Financial Inc. On September 30, 2003, the underwriters of its public
offering exercised the over-allotment option granted to them purchasing an
additional 1,500,000 Class B Shares at a price of $3.75 per Class B Non-Voting
Share for aggregate gross proceeds of $5.625 million bringing the total proceeds
to $43.125 million. The over-allotment option exercise transaction was completed
on October 2, 2003.
  Call-Net
      Enterprises Inc.
    2
 
  
  *Securitization
of Receivables*
 On
July 23, 2003, the Corporation announced that its wholly-owned subsidiary,
Sprint Canada, entered into an agreement with a securitization trust, which is
arm’s length to the Corporation, under which Sprint Canada is able to sell an
interest in certain accounts receivable. The five-year agreement provided cash
proceeds to Call-Net of up to $55.0 million. Under the terms of the
securitization agreement, Sprint Canada will sell a co-ownership interest in the
accounts receivable of domestically originated and cross-border accounts of its
residential and business units in exchange for cash. On August 12, 2003,
Call-Net sold a co-ownership interest in certain accounts receivable and
received $10.0 million under the securitization agreement. On February 13, 2004
and March 19, 2004, the Corporation sold additional receivables and received a
further $33.7 million and $11.3 million, respectively.
  *Wireless
Services*
  In
June 2003, Sprint Canada entered into a two-year agreement with Microcell
Solutions Inc., a national provider of Personal Communications Services (PCS)
under the Fido ® brand to bring Canadian consumers a residential wireline-wireless bundled
service. On November 8, 2004 Microcell was acquired by Rogers Wireless, a
subsidiary of Rogers Communications Inc. Both parties have expressed an interest
in renewing the terms of the agreement and have agreed to extend the term of the
existing agreement until December 31, 2005 to allow sufficient time to negotiate
a new agreement.
  Under
the terms of the agreement, Sprint Canada co-markets Fido service to current and
potential home phone service customers across Canada in locations where Sprint
Canada provides local service, including Vancouver, Calgary, Toronto, the Ottawa
Region, Montreal and several cities in Southern Ontario, representing a total
area of four million residential households. Microcell provides technical
support service and Sprint Canada provides sales, marketing, customer support,
billing and payment processing services. By year-end, Sprint Canada had more
than 30,000 wireless lines and in the fourth quarter of 2004, revenue for
wireless had grown to exceed revenue from the Corporation's dial-up Internet
service.
  Sales
of Fido wireless bundled with Sprint Canada local and long distance residential
plans began in late August 2003. The time from concept development, through to
launch was three months, and the total first year capital commitment was less
than $3.0 million. The wireless bundle is a good example of the benefits of a
partnership with established operations in related categories. Such partnerships
have the potential advantages of requiring an absolute minimum development time,
capital commitment, brand development and permit instead a focus on the
development of customer features and benefits.
  The
Sprint Canada home phone and wireless bundle is targeted at young, suburban
families who are purchasing their first cell phone and at those families
desiring to add a second or third wireless phone to their existing sets.
Customers experience significant monthly savings over the cost of buying the
lines separately, additional savings from wireless long distance plans priced at
the same rates as wireline long distance plans, the convenience of a single call
centre agent to resolve all customer needs, and the simplicity of one monthly
statement for up to five lines of each type. Customers can also add The MostTM
Online (TMO) residential Internet services to this offering for a four part
bundle. Sprint Canada customers enter into a two-year contract for the bundle
and this has had a positive impact in reducing Sprint Canada's customer churn.
  *Plan
of Arrangemen* *t*
  On
April 10, 2002, the Corporation completed a Plan of Arrangement pursuant to
Section 192 of the *Canada
Business Corporations Act* to
surrender all of the Corporation’s $2.6 billion in principal amount of Senior
Notes and Senior Discount Notes in exchange for U.S.$377.0 million of new 10.625
per cent Secured Notes due 2008, U.S.$81.9 million in cash, and 80 per cent of
the equity in the recapitalized company. The Corporation’s existing shareholders
retained 20 per cent of the re-capitalized equity. As part of the Plan of
Arrangement the new Common Shares and new Class B Non-Voting Shares (Class B
Shares) were immediately consolidated on a one for 20 basis.
  Simultaneous
with the announcement of the Plan of Arrangement, the Corporation announced an
agreement in principle with Sprint Communications Company L.P. (Sprint) to enter
into a new 10-year branding and technology services agreement (The New Sprint
Agreement). Sprint also committed to invest $25.0 million to purchase a five per
cent equity interest in the Corporation after the implementation of the Plan of
Arrangement. The Sprint Agreement became effective as of April 1,
2002.
  On
April 3, 2002, the Corporation’s debt holders and shareholders voted
overwhelmingly in favour of the Plan of Arrangement and related resolutions at
two separate meetings. More than 97 per cent of votes cast by debt holders and
more than 98 per cent of votes cast by shareholders were in favour of the Plan
of Arrangement. On April 5, 2002, a Final Order of the Ontario Superior Court of
Justice was received to implement the Plan of Arrangement effective April 10,
2002. On April 15, 2002, the Corporation’s Common and Class B Shares began
trading on the Toronto Stock Exchange (TSX) under the symbols FON and FON.B (now
FON.NV.B), respectively.
  *Repurchase
of Debt*
  On
September 26, 2002, the Corporation repurchased U.S.$77.5 million of Secured
Notes, and on March 2, 2004, the Corporation purchased for cancellation a
further U.S.$76.4 million, leaving U.S.$223.1 million outstanding.
    Call-Net
      Enterprises Inc.
    3
 
   *Various
360networks Inc. Fibre Transactions*
 In
September 2002, the Corporation entered into a Global Settlement Agreement with *360networks* and *360networks* '
former parent company, Ledcor Industries Limited, (Ledcor) in which, among other
things, *360networks* and Ledcor paid the Corporation U.S.$2.5 million to be released from their
obligations to the Corporation to make certain right-of-way payments and deliver
certain fibre routes. The Corporation and *360networks* also terminated an escrow agreement resulting in the Corporation's receipt of an
additional $1.7 million. Among other things, the Corporation: (a) paid *360networks* U.S.$600,000 for the delivery of a certain fibre route; and (b) committed to
purchase U.S.$8.0 million in products and services from *360networks* and affiliates between September 2002 and December 2005.
  **The
Sprint Alliance**
  Effective
April 1, 2002, the Corporation entered into a new 10-year Technology and
Services Provisioning Agreement (Sprint Agreement) with Sprint replacing the old
agreement executed in October 1993. Sprint is a global integrated communications
provider serving more than 26 million customers in over 100 countries. With
approximately 60,000 employees worldwide and over U.S.$27 billion in annual
revenues in 2004, Sprint is widely recognized for developing, engineering and
deploying state-of-the-art network technologies, including the United States'
first nationwide all-digital, fibre-optic network and an award-winning Tier 1
Internet backbone. Sprint provides local communications services in 39 states
and the District of Columbia and operates the largest 100 per cent digital,
nationwide PCS wireless network in the United States. In December 2004, Sprint
announced a merger with Nextel, a U.S. wireless operator that focuses on
wireless business applications. Both Sprint and Nextel announced that each would
own 50 per cent of the new company to be called Sprint Nextel. Sprint intends to
spin off its local business division to the shareholders of Sprint Nextel
following closing of the merger deal. The Corporation does not expect the merger
to have any negative impact on the Sprint Agreement. For more information on
Sprint and the Sprint Nextel merger, visit www.sprint.com.
  The
Sprint Agreement provides the Corporation the rights to the Sprint brand,
technology and know-how for wireline services in Canada. The Sprint Agreement
also makes provision for the circumstances in which it will be extended to
wireless services. The overarching objective of the Sprint Agreement is for both
companies to create an integrated and seamless network in North America and a
portfolio of commonly branded services. In addition both companies have
committed to be the 'preferred supplier' to the other in each of their
respective national markets and to jointly pursue and sell their commonly
branded services to multi-national corporations.
  In
connection with the granting of the technology license and the trademark
license, Call-Net pays a royalty to Sprint during the first five years of the
agreement of 2.5 per cent of Call-Net’s consolidated gross revenue, following
which the rate will be reduced to 2.0 per cent. There are limited exclusions to
the application of the royalty, such as revenue for services provided to Sprint
and non-Sprint-branded, non-telecommunications revenue.
  **Acquisitions**
  *Acquisition
of Customer Base of 360networks/Group Telecom in Eastern
Canada*
  On
November 20, 2004, the Corporation completed a transaction to acquire certain
assets of *360networks* from Bell Canada, including significant portions of its business customer base
and specific network facilities in Eastern Canada (Ontario, Quebec and Atlantic
Canada). Taking acquisition costs into account, Call-Net's acquisition price for
the business customer base is expected to be approximately $17.6 million and
will be paid in installments over a two-year period. As part of the transaction,
Call-Net entered into a two-year transitional services agreement with Bell
Canada who will provide technical and operational services to the newly acquired
customer base and in exchange will be paid approximately 70 per cent of the
total retail revenue with a minimum monthly payment of approximately $2.0
million. In addition, Call-Net entered into an option agreement with Bell Canada
to acquire CLEC network assets at the end of the transitional services
agreement. The CLEC assets include access to over 1,000 office buildings. As
consideration for the option, Call-Net will pay up to $2.3 million or 7.5 per
cent of the expected $30 million maximum price payable for the CLEC network
assets in the second quarter of fiscal 2005.
  This
new business customer base in Eastern Canada is expected to add $60 million
annually, principally in local and data services, to the Corporation's business
services revenue.
  *Acquisition
of eForce*
  On
July 15, 2003, Call-Net’s wholly-owned subsidiary AlternaCall completed the
acquisition of certain assets of Mosaic Performance Solutions Canada (MPS
Canada), a private label consumer services company, from Mosaic Group Inc.
(which was restructuring under the *Companies’
Creditors Arrangement Act* (Canada) and United States Bankruptcy Code Chapter 11). The purchase price for
the assets was $19.7 million including working capital. MPS Canada, renamed
eForce, a division of AlternaCall, resells long distance service through
consumer services companies who wish to complement their own product offerings
to their existing customers. In addition, MPS Canada pioneered the 'rate and
compare' billing technology that automatically selects the lowest long distance
rates matched to a customer’s calling patterns.
   Call-Net
      Enterprises Inc.
    4
  
  
  *Acquisition
of Time iCR Inc.*
 In
September 2002, Call-Net acquired a 75 per cent interest in Time iCR Inc., a
provider of customized, managed and hosted call processing solutions. Time iCR
develops enhanced interactive voice response (IVR) applications for large call
centre operations throughout Canada. Call-Net and Time iCR are jointly marketing
a bundled offer into the major account market which includes Sprint Canada’s
toll free services and Time iCR’s IVR applications. In December 2003, Call-Net
gave notice of its intention to exercise its option to acquire the remaining 25
per cent interest of Time iCR. As a result, Time iCR became a wholly-owned
subsidiary of Call-Net in February 2004.
  **BUSINESS
DESCRIPTION**
  **General**
  Over
the past three years, the Corporation has been diversifying its revenue stream
by building scale in local services and to a lesser extent data services to
better balance the opportunities and risks inherent in long distance
services.
  **Revenue
      Breakdown**
    
    
    **2004**
    
    
    **2003**
    
    
    **2002**Long
      distance service revenue
    
    
    52
    %
    
    60
    %
    
    63
    %Local
      service revenue
    
    
    22
    %
    
    15
    %
    
    9
    %Data
      service revenue
    
    
    25
    %
    
    25
    %
    
    28
    %Wireless
      service revenue
    
    
    1
    %
    
    0
    %
    
    0
    %**Total**
    
    
    **100**
    **%**
    
    **100**
    **%**
    
    **100**
    **%**
 **
 *Operating
Strategy*
  Primarily
through Sprint Canada, Call-Net is one of Canada's leading national facilities
based providers of local access, long distance, and data and Internet services
to Canadian consumers and businesses. The Corporation plans to increase revenue
by attaining a substantial share of the residential market and by exploiting
niche markets focusing on small to medium sized enterprises (SME) and
multi-national corporations (MNC) with differentiated products. Leveraging its
existing network and customer base, Call-Net focuses its investments and
resources on customers situated within its 'on-net' areas - areas where it
provides facilities-based service. This on-net strategy has allowed Call-Net to
grow local customers and revenue while maintaining cash flow self-sufficiency.
  In
2004, Call-Net invested $55.4 million in capital assets in support of its
strategy, as compared to $44.1 million in 2003, and $78.4 million in 2002. The
2004 investment program covered expanding capacity and increasing the
capabilities of the Corporation's network to support its products and services;
improving operational support systems; introducing new products such as the
wireline-wireless bundle and IP-enabled services; and implementing customer
related solutions. In 2004, Call-Net deployed 17 new co-locations to extend its
addressable market to 4.4 million residential and 2.9 million business lines
through 151 co-locations. In 2002 and 2003, Call-Net’s capital programs were
targeted at the addition of new co-locations in areas contiguous to the
co-location sites already in place and to enter into new local services market,
such as Ottawa, and in the purchase and installation of asymmetrical digital
subscriber line (ADSL) equipment in 50 co-location sites .
  Within
its on-net footprint, Call-Net is targeting residential, small office home
office (SOHO) and SME business customers. It plans to meet the needs of these
core customer segments by offering attractively priced simple bundles of
products. These bundles include a combination of local services, long distance
services and data and Internet services, including ADSL for business customers.
  With
regard to larger enterprises, the Corporation's focus is on providing voice,
data, and *IP
Enabled Solutions* to Canadian business customers in specific market segments. Sprint Canada is
uniquely positioned to service business customers with North American and global
networking requirements based on the long-term technology and business
partnership with Sprint. In this marketplace, Sprint and Sprint Canada stand
alone as the only branded North American solution with a long-term partnership
in place and working - a significant advantage for North American based
multi-national corporations. In order to leverage its position in this market,
the Corporation is expanding its existing product suite for larger business
customers with advanced
  *IP
Enabled Solutions* and value-added services developed by Sprint. Call-Net's goal is to provide
ubiquitous and seamless North American telecommunication solutions to its large
Canadian customers and American companies with operations in
Canada.
  For
the broader business market segment, Call-Net is focused on niches, such as the
contact centre market and has developed innovative solutions for customers with
sophisticated contact centre requirements. Call-Net’s voice portfolio now
includes new capabilities such as speech recognition, professional services, and
other value added solutions along with network services to provide integrated
solutions for customers. Call-Net has also expanded its IP-based data service
offerings in the business market, providing its customers with products designed
to allow them to benefit from the power and flexibility inherent in IP-based
communications, without having to replace legacy data systems.
  Telecommunications
is a business with high capital and fixed costs. There are also significant
servicing costs associated with each customer, particularly in the residential
market. Furthermore, the cost associated with 'churn' (the movement of a
customer from one telecommunications provider to another) has been a major issue
for telecommunications providers. Call-Net's geographic focus and bundled
product strategy addresses these key economic issues. By concentrating
investment in areas where
  Call-Net
      Enterprises Inc.
    5
 
 
 the
Corporation already has a significant customer base, the incremental return on
capital deployed is expected to be attractive and the payback period shortened.
The Corporation's experience indicates that churn is substantially reduced when
products and services are bundled. In addition, the net profit per customer for
bundled telecommunications offerings, after provisioning and customer care
costs, is higher than that for a one-product customer. Call-Net’s
facilities-based approach, where it owns all of the switching intelligence also
enables Call-Net to sell additional features to local customers that, on an
incremental basis, produce relatively high profit margins.
  A
geographic focus also improves revenue opportunities from large business
customers by reducing the cost structure and enhancing the competitiveness of
Call-Net's data network solutions. This allows the Corporation to focus
investment in areas that support both residential and business customers while
focusing the organization on selling to the right accounts.
  *Call-Net's
Network* **
  To
provide local service, Call-Net co-locates its equipment in the switch centres
of the incumbent Local Exchange Carriers (incumbents or ILECs). At December 31,
2004, Call-Net was active in 151 co-locations in 33 municipalities in five of
Canada's most populous urban areas around Vancouver, Calgary, Toronto, Ottawa,
and Montreal. In Montreal, Vancouver, Ottawa, and Toronto, many of these
co-locations are connected to Call-Net's local switches by metro area fibre
networks (MANs).
  In
addition to operating a national Silver Certified Cisco IP network in Canada,
Call-Net operates a North American transcontinental fibre optic network
extending over 14,000 route kilometres (8,600 route miles). This network
provides a significant North American geographic footprint connecting Canada's
largest markets while also reaching key U.S. markets. In Canada, the network
extends from Vancouver in the West to Quebec City in the East. Call-Net, through
its Bell/360 acquisition, also has access to the GT CLEC network in Eastern
Canada, allowing it access to network all the way to St. John’s, Newfoundland
and Labrador. Call-Net is seamlessly interconnected to the network of Sprint
through multiple interconnection points across the Canada/U.S. border. The
Corporation’s network extends into the United States from Vancouver south to
Seattle in the West, from the Manitoba-Minnesota border, through Minneapolis,
Milwaukee and Chicago in the mid-West and from Toronto through Buffalo and
Montreal through Albany to New York City in the East. Call-Net also has
connected its North American network with Europe through international gateway
switches in New York City, London and a leased trans-Atlantic fibre facility
recently upgraded to synchronous transport module level 4 (STM4)
capacity.
  Call-Net’s
network is characterized by:
  •
    *Advanced
      technology*.
      Call-Net has installed state-of-the-art switching technology and advanced
      fibre optic cable and electronic equipment offering dense wave division
      multiplexing (DWDM) and synchronous optical network (SONET) ring
      protection. The Corporation has an advanced network management system that
      gives it the ability to monitor network performance, access and
      utilization. The network is capable of high capacity transmission
      utilizing OC-48 and OC-192 technologies;•
    *High
      security and reliability*.
      Call-Net’s fibre optic network features physical route diversity with
      SONET protection thereby offering superior security and reliability due to
      its bi-directional SONET ring architecture (a 'self-healing' system that
      allows for instantaneous rerouting, virtually eliminating downtime in the
      event of a fibre cut); and•
    *Additional
      capacity and flexibility*.
      Call-Net has generally installed more fibre optic capacity than it expects
      to need for its own use. This will allow the Corporation to generate
      revenue from the sale of capacity to others or to increase the size and
      breadth of its network by swapping excess fibre for capacity on other
      routes.
 
 Call-Net
believes that its fibre optic telecommunications network provides many benefits.
First, the availability of a low cost, high capacity transmission source enables
the Corporation to maintain low per unit carrier costs. Second, by having
control over its network platform and infrastructure, the Corporation is able to
design custom product offerings. Third, the Corporation has additional low cost
network transmission capacity available to support data services products with
high bandwidth requirements.
  Call-Net
has a data networking infrastructure that provides IP, frame relay, and ATM
services to Canadian businesses and consumers. Data networking equipment
deployments are concentrated in the major switching facilities located in
Toronto, Montreal, Calgary, and Vancouver. Smaller aggregation nodes are located
in Halifax, Ottawa, Chicago, New York, Kitchener, Winnipeg and Quebec City. The
IP, frame relay, and ATM services offer high availability as a result of the
mated pair architecture of core network elements, multiple egress routes, and
the use of SONET transport facilities for all on and off-net trunk routes. The
fibre optic network is leveraged to extend on-net coverage for data networking
products. Agreements with other carriers extend the product reach
globally.
  Call-Net
operates digital switching centres located throughout North America including
Vancouver, Calgary, Toronto, Montreal, Buffalo and New York City. The
Corporation has connected its network with the United Kingdom through
international gateway switches in New York City and London, United Kingdom. In
New York City, the Corporation has connected its international gateway switch
with leased capacity via an international undersea cable to a Corporation-owned
switch in the United Kingdom. The Corporation has received appropriate
authorizations in the United States and the United Kingdom to allow it to
provide services using these facilities.
  Call-Net
offers local services through a hybrid carrier strategy. It has deployed its own
scalable switching and intelligent services infrastructure while using
connections between its co-located equipment and customer premises, provided
largely by other carriers. The Corporation has expanded certain of its existing
switch sites to accommodate local network infrastructure.
  Call-Net
      Enterprises Inc.
    6
 
 
 Call-Net
has deployed Lucent 5ESS switches in Vancouver, Calgary, Toronto, and Montreal.
The Corporation also offers symmetrical DSL (SDSL) and ADSL for the business
market in those same areas by co-locating DSL equipment in 50 ILEC central
offices.
  **Product/Market
Segments** ****
  *Local
and Long Distance Services* **
  Call-Net
offers local and long distance services across Canada, primarily using the
Sprint Canada® brand, to residential customers, and small, medium and large
businesses. Large businesses include financial institutions and national
retailers as well as other large users of telecommunications services, such as
other communications companies and various levels of government.
  The
Corporation is well positioned to leverage its legacy long distance customer
base to deliver more value-added services and bundled local access, long
distance and data products.
  By
optimizing the use of its existing capabilities, network and related assets,
Sprint Canada has marketed profitable bundled products. It has continued its
push into the residential local marketplace in 2004 by bundling local lines with
innovative long distance service offerings and other products such as wireless
and Internet access. These bundled solutions provide the customer with all
services on one bill, offering a seamless communication solution.
  *Residential
Local or Home Phone Service*
  Sprint
Canada entered the local services market in 1999 through an initial launch in
Calgary, Alberta. By that year’s end the Corporation had introduced local
services in several other metropolitan areas. The Corporation’s local service
offering provided businesses, SOHO and residential consumers with a simplified
rate structure, enhanced calling features, and consolidated billing.
  By
December 31, 2004, Call-Net had a presence in 151 ILEC wire centres, passing 4.4
million households in major geographic centres such as, Vancouver, Calgary,
Toronto and the Golden Horseshoe, Ottawa and Montreal. In 2004, Sprint Canada
added over 100,000 net new residential lines to finish 2004 with about 311,000
residential and SOHO lines in service. In 2004 for the first time, revenue from
home phone service exceeded revenue from residential long distance.
  Process
improvements in provisioning reduced service order intervals by as much as 50
per cent, meaning new customers could get activated in as little as four days.
Additional focus on retention meant that the customer service channel became the
second largest sales channel, just behind inbound sales driven by advertising.
This improvement, coupled with strong sales via the Corporation's fully
transactional website, enabled Sprint Canada to reduce the cost of acquiring new
customers. Significant improvements were also made to local customer churn in
2004, with churn dropping by more than 10 per cent versus 2003.
  *Residential
Long Distance Services* **
  In
the residential long distance market, efforts continue to be primarily aimed at
adding customers bundled with local and other services to increase revenue per
customer and total customer life through reduced churn. The Corporation’s
experience is that bundled customers generate approximately three times the
revenue per month of stand-alone long distance customers, and churn at a lower
rate.
  Sprint
Canada’s long distance rates are in the mid-market range, offering better value
than the best published ILEC rates, and seeking to match prices from other
resellers. Sprint Canada attempts to differentiate its offerings with bundled
service values, and avoids direct competition with lower priced competitors such
as dial-around and prepaid phone card companies.
  In
2004, Call-Net successfully developed a number of new plans that offer
competitive per minute rates within North America and
internationally.
  In
addition to traditional long distance services, Call-Net, through its
wholly-owned subsidiary AlternaCall Inc., also offers 'dial-around' services
using a separate brand, Buck-a-CallTM, or 101-55-66TM as well as services provided
by eForce, a long distance reseller with a unique ‘rate-and-compare’ strategy
that is wholly-owned by AlternaCall.
  ** *Wireless
Services*
  Through
its unique partnership with Microcell, Sprint Canada continued to offer wireless
phone services bundled with home phone service. By year-end, Sprint Canada had
more than 30,000 wireless lines, and 28,900 customers and in the fourth quarter
of 2004, revenue for wireless had grown to exceed revenue from the Corporation's
dial-up Internet service. Wireless customers sign a two year contract and are
billed on their Sprint Canada home phone bill.
  *Residential
Data Services*
  Dial-up
Internet service (The Most Online or TMO) continues to be a profitable niche in
the residential portfolio, and services principally long distance customers
living outside access zones of broadband, as well as urban dwellers with simple
economical Internet access needs. More than 51,000 TMO customers will be good
prospects for the Corporation's high-speed Internet product, expected to be
launched in mid 2005.
  Call-Net
      Enterprises Inc.
    7
 
 **
 *Business
Local and Long Distance Services*
  In
2004, local and long distance bundles continued to play a key role in the
mid-market success of the Corporation's business services group. The
Corporation's value proposition behind these bundles - pricing, convenience of
dealing with one provider, accountability from a single organization and
enhanced usage reporting options - received a positive response from the SME
market segment. Local and long distance services are also provided to the large
business market although these bundles are delivered as more customized
solutions including integrated services digital network primary rate interface
(ISDN PRI) and Centrex services to meet the specific business requirements of
large organizations.
  Bill
analysis software continues to be a popular value-added feature supporting
Call-Net’s local and long distance services. Using this web-based application,
customers can quickly and easily monitor, analyze and share their cost and usage
information at a detailed or summary level facilitating allocation, capacity and
business decision making. We believe that the Corporation continues to lead the
Canadian market with its bill analysis software capability.
  Enhanced
voice services (EVS) was a key area of growth and driver of long distance and
toll free minutes for the Business and Carrier Services division in 2004. EVS
provides high value, customizable in and out-bound voice applications on a
hosted basis including hosted IVR and speech recognition capabilities. The
Corporation expects additional growth in this area in 2005.
  *Business
Data Services and IP Services*
  The
Corporation markets a full range of data and IP services, attractive to all
business segments, for multi-site connectivity, remote access to corporate
information resources and Internet access. Value-added services such as managed
network services (MNS) and bundled applications such as video conferencing
enable the Corporation to tailor solutions specifically to customers’ business
needs.
  The
Corporation’s data services portfolio includes: basic transport services such as
digital private line, frame relay and ATM; data services such as transparent LAN
services (TLS), IP VPN for remote access service and IP VPN for multi-site
networks; and MNS such as router management and reporting and frame relay
management and reporting. The Corporation’s business Internet access portfolio
(including ADSL, SDSL and dedicated Internet access) targets both the Internet
service provider (ISP) market and the retail business market.
  The
Corporation was first in Canada to launch remote access IP VPN and is now
growing its business IP VPN portfolio to support hybrid networks, providing a
migration path from established services such as frame relay to services based
on IP. This is an important consideration for businesses that are beginning to
consider advanced applications on a converged wide area network.
  After
the launch of *IP
Enabled Solutions* in late 2003, the Corporation saw growth in this area in 2004 as it began to
focus on IP as a dominant networking solution. This technology allows our
customers to leverage the benefits of IP technology through hybrid networks. The
Corporation’s solution offers several advantages:
  •
    a
      single flexible network that encompasses a range of access types from xDSL
      to Ethernet allowing a customer to tailor a solution to precisely match
      the requirements of each site;•
    a
      migration path from legacy frame relay services, which delivers more
      bandwidth, more flexibility and a platform for emerging converged IP
      applications; and•
    an
      opportunity to simplify customers’ data solutions, moving from disparate
      services to a single IP platform.
 
 In
2004, the Corporation further expanded its North American data and Internet
services portfolio in partnership with Sprint. This joint effort targets North
American MNCs through a proposition that includes seamless technical
interworking and single North American point of contact, or local in-country
account management, billing and contract options. The Corporation is unique in
the Canadian market with a single branded cross-border service and intends to
further develop this competitive advantage in 2005 with further expansion of the
cross-border product offerings and joint sales efforts with Sprint in the U.S.
  **Risk
Factors**
  The
international telecommunications industry is changing rapidly due to
deregulation, privatization, technological improvements, expansion of
infrastructure and the globalization of the world's economies. In order to
compete effectively, the Corporation must adjust its contemplated plan of
development to meet changing market conditions.
  *Operational
Risks*
  Operational
risks inherent in executing Call-Net's strategy include:
  •
    a
      continuing or accelerated erosion in average revenue per long distance
      minute. Each 10 per cent decline in average revenue per minute reduces
      Call-Net's revenue by approximately $43****million;•
    acquiring
      and retaining local customers at an economically viable cost;•
    competing
      effectively with competitors, many of whom have larger operational and
      financial resources than Call-Net, including the risk that Call-Net will
      not be able to effectively participate in the consolidation of the
      industry;
  Call-Net
      Enterprises Inc.
    8
 
 
 
  •
    profitably
      developing, marketing and provisioning new products on a timely basis that
      are acceptable to its target markets;•
    hiring
      and retaining qualified management and staff;•
    maintaining
      and protecting the key assets of Call-Net, including both its network and
      the Sprint® brand from damage or loss;•
    Call-Net’s
      reliance on its agreement with Sprint in respect of its SprintTM trademark
      as well as certain long distance and data services technology and know
      how;•
    Call-Net's
      ability to execute its strategy depends on the effective implementation of
      its relationship with Sprint and on Sprint's ability to overcome its own
      operational risks; and•
    Call-Net's
      reliance on other competitive carriers to access its customers or to
      deliver its data and voice traffic.Call-Net
      uses a variety of strategies to mitigate these operational risks where
      possible including:•
    transitioning
      its marketing focus away from long distance and towards its local, data
      and IP offerings;•
    launching
      a variety of new long distance residential products to meet the needs of a
      broad range of consumers, as well as transitioning the majority of its
      marketing and advertising budget to promote its bundled local
      offering;•
    entering
      into an expanded technological agreement with Sprint to improve its access
      to new technology on a timely and cost-effective basis;•
    developing
      and sustaining a strong operational relationship with
    Sprint;•
    improving
      its demographic market information by obtaining information on the
      specific needs and wants of its target markets;•
    designing
      a competitive compensation package and training programs, as well as other
      human resource related strategies, to maintain Call-Net's ability to hire
      and retain qualified management and staff; and•
    designing
      and implementing an effective risk management program, including
      purchasing an appropriate level of general and business interruption
      insurance.
  However,
investors should recognize that a number of the operating risks are not within
Call-Net's control and such risks could adversely affect its financial condition
and operating results.
  *Technology
Risks* **
  One
of the biggest forces for potential change in the telecommunications industry is
the threat of substitution of the traditional wireline telephone by new
technologies.
  Wireless
is often cited as an eventual replacement for the standard home telephone,
although experience shows that mobile phones are used primarily as second lines.
The popularity of mobile phones among younger generations has resulted in some
abandonment of wireline service, but these preferences are not likely to
challenge the prominence of the traditional wireline phone for many years, if at
all. To benefit from the popularity of mobile phones as a second line, Call-Net
introduced a bundled wireline-wireless service in 2003.
  A
more recently cited threat to the standard wireline home telephone is telephone
service over the Internet, commonly referred to as 'voice over IP' (VoIP). This
service is generally less reliable than the standard telephone, though there may
be potential cost savings for users. To meet the demands of those who want
Internet telephony, Call-Net introduced VoIP service for consumers in July 2004.
In 2005, cable television companies are also expected to begin to offer local
and long distance services to Canadian consumers on their own networks using a
version of VoIP. Cable telephony, will have advantages over other forms of IP
telephony in that it will be able to provide a higher quality of service, in
general, than other VoIP competitors, although not as high as traditional
wireline telephony.
  In
the business market, there is a continuing shift from ATM and frame relay (two
common data networks) to IP delivered through VPN services. This transition
results in lower costs for both users and carriers. Call-Net is well positioned
to benefit from this trend with one of the most advanced IP networking solutions
available.
  *Financial
Risks*
  *Availability
of Capital Resources* :
Call-Net currently has a significant risk associated with the level of debt on
its consolidated balance sheet and the debt servicing costs associated with the
debt. In spite of extinguishing $2.6 **** billion
of debt by way of the Plan of Arrangement, if Call-Net's plans change or its
projections prove inaccurate and the funds currently available as cash, cash
equivalents and short-term investments prove insufficient to fully fund its
business plan, then Call-Net may be required to seek additional financing sooner
than it currently expects. Additional sources of financing may include public or
private equity or debt financing, capital and operating leases and other
financing arrangements. To the extent sufficient funding is not available,
Call-Net may be required to limit the markets it enters and the degree to which
it penetrates a particular market.
   Call-Net
      Enterprises Inc.
    9
  
 
 Call-Net
can give no assurance that such additional financing will be available to it or,
if available, that it can be obtained on a timely basis and on acceptable terms
or within the limitations contained in Call-Net's financing arrangements.
Failure to obtain such financing could result in the delay or abandonment of
some or all of Call-Net's business plans, or limit its ability to make principal
and interest payments on its indebtedness.
  *Currency
Risks* **
  Call-Net's
revenue is generated primarily in Canadian dollars, while substantial amounts of
its current and future liabilities, including interest and principal obligations
on its long-term debt, are and will be payable in U.S. dollars. As at December
31, 2004, Call-Net had no cross-currency swaps on its outstanding U.S. dollar
denominated debt. Based on its December 31, 2004 balances, a one cent change in
the foreign currency exchange rate between the Canadian and U.S. dollar would
have an impact of approximately $3.3 million on its long-term debt. Any
substantial increase in the U.S. dollar relative to the Canadian dollar could
affect Call-Net's financial condition and operating results and its ability to
meet its future payment obligations on its long-term debt.
  *Regulatory
Risks* **
  Call-Net's
retail and wholesale services have been deregulated by the CRTC. Nevertheless,
the CRTC continues to retain broad regulatory powers over Call-Net under the *Telecommunications
Act (Canada)* ,
in particular with respect to interconnection to Call-Net’s networks. However,
Call-Net’s major competitors, the ILECs, remain subject to CRTC regulation with
respect to many of their services. How the ILECs comply with regulation as well
as how the CRTC enforces its regulation against the ILECs could impact
Call-Net’s operations and financial condition. Because neither the CRTC nor the
courts have interpreted certain aspects of the *Telecommunications
Act (Canada)* and its regulations, it is impossible to predict what impact, if any, these
provisions will have on Call-Net. Moreover, any change in policy, regulations or
interpretations could have a material adverse effect on Call-Net's operations
and financial condition and operating results. In addition, the CRTC's decisions
are subject to review under the *Telecommunications
Act (Canada)* at any time and may be appealed to the Federal Court of Appeal (Canada) within
30 days of a decision or challenged by a petition to the Federal Cabinet of
Canada within 90 days of a decision. The CRTC's decisions necessary to implement
competition in the long distance and local services markets may be appealed or
challenged or changed upon review.
  **Overview
of the Regulation of Canadian Telecommunications Industry** ****
  *The
CRTC and Legislation* **
  The
CRTC is an agency of the Canadian federal government charged under the *Telecommunications
Act* with
the regulation of companies, such as Call-Net, that offer telecommunications
services crossing provincial or international borders and that own or operate
transmission facilities. The *Telecommunications
Act* requires
that rates charged by carriers must be 'just and reasonable' and that services
must not be unjustly discriminatory or unduly preferential.
  Under
the *Telecommunications Act* ,
the CRTC has the power to exempt any class of Canadian carrier from the
application of the legislation ** if
the CRTC is satisfied that such an exemption is consistent with Canadian
telecommunications policy objectives. The CRTC also has the power to forbear
from regulating certain services or classes of services provided by individual
carriers. If the CRTC finds that a service or class of services provided by a
carrier is subject to a degree of competition that is sufficient to protect the
interests of users, the CRTC is required to forbear from regulating those
services unless such an order would be likely to unduly impair the establishment
or continuance of a competitive market for those services.
  The *Telecommunications
Act* also
implements the Canadian government's policy of promoting Canadian ownership and
control of the country's telecommunications infrastructure. Specifically, 80 per
cent of the voting shares of a carrier subject to the *Telecommunications
Act* must
be owned and controlled by Canadians. In the case of a company that wholly owns
a carrier, not less than 66 2/3 per cent of the voting shares of that company
must be owned and controlled by Canadians. In addition, carriers may not
'otherwise be controlled' by non-Canadians and not less than 80 per cent of the
board of directors of a company operating as a carrier must be Canadian. The
Corporation must report to the CRTC annually with respect to its compliance with
these foreign ownership requirements. Sprint owns approximately 6.63 per cent of
the equity of Call-Net. The Corporation believes that it is currently in
compliance with such restrictions.
  *Canadian
Regulatory Overview*
  Competition
in the long distance services and local services markets is guided to a large
extent by the principles set out in Telecom Decision CRTC 92-12, Telecom
Decision CRTC 94-19, and Telecom Decision CRTC 97-8. This latter decision, along
with certain other decisions issued concurrently or shortly after May 1, 1997
(collectively the 'local decisions'), set out the terms and conditions for
competitive entry into the market for local services. Three other key local
decisions that impacted the Corporation's local business plans were Telecom
Decision CRTC 97-15, which enabled competitors to co-locate transmission
equipment in the incumbents' local central switching offices, Telecom Decision
CRTC 98-22, which established the rate that competitive local exchange carriers
(CLECs) must pay to the incumbents to lease the incumbents' unbundled local
loops, and Telecom Decision CRTC 99-20, which modified one of the local loop
price components set out in Telecom Decision CRTC 98-22 referred to above.
Another key decision was Telecom Decision CRTC 2000-745, in which the CRTC
ordered that the existing per-minute contribution regime be replaced by a
revenue tax applicable to all telecommunications service providers (TSPs) in
  Call-Net
      Enterprises Inc.
    10
 
 
 Canada
effective January 1, 2001. This decision had far-reaching implications for all
service providers in Canada. In May 2002, the CRTC issued Telecom Decision
2002-34 after completing its review of the price cap regulatory regime that it
established for the ILECs in 1998. In Telecom Decision 2002-34, the Commission
established a separate basket consisting of carrier services purchased by
competitors from the ILECs, and ordered that they be priced at incremental cost
plus a 15 per cent mark-up. Telecom Decision 2002-34 and associated follow-up
proceedings had significant immediate and potential impact on competitors,
especially in reducing competitors’ carrier costs. Starting in late 2002, the
CRTC issued a series of decisions that were intended to enforce competitive
safeguards in the market in relation to the ILECs. These decisions limited the
manner in which the ILECs can target competitors’ local customers for winback
(Telecom Decision 2002-73), strengthens the rules regulating the manner in which
they can bundle tariffed services with untariffed services (Telecom Decision
2002-58), suspended the ILECs’ rights to offer price promotions in respect of
local services (PN 2003-1.1) and constrain the ability of the ILECs to use
unregulated affiliates to avoid the competitive safeguards (Telecom Decision
2002-76).
  The
CRTC also released certain decisions in 2004 that were intended to further
facilitate competition in the market. These include Telecom Decision CRTC 2004-4
in which the Commission granted Call-Net’s request to extend the ILECs’ winback
restrictions from three months to 12 months and approved an education program to
inform consumers of the existence of local competition; Telecom Decision CRTC
2004-5 in which the Commission directed the major ILECs to file ethernet access
and transport tariffs for use by competitors; and Telecom Decisions 2004-21 and
2004-22 in which the CRTC directed Aliant and Bell Canada respectively to cease
and desist violating the service bundling rules.
  The
CRTC continues to emphasize its commitment to ensuring sustainable
facilities-based competition in the Canadian telecommunications sector. It also
continues to engage the public in dialogue to determine the most efficient
regulatory framework to reach that goal. In 2004 the CRTC conducted two key
public proceedings that may impact the Corporation’s operations in the future.
First, in Telecom Public Notice 2003-10, the CRTC initiated a proceeding to
impose new or modified price floor regulation on the ILECs with the view to
limit or prevent predatory pricing behaviour. Second, in Telecom Public Notice
2004-2 the CRTC conducted a proceeding to determine how VoIP should be
regulated. This proceeding raises the crucial issue of whether and how the
ILECs’ VoIP services should be regulated.
  In
late 2004, the CRTC released its fourth annual report to Cabinet on the state of
competition in the Canadian telecommunications sector. This is pursuant to the
CRTC’s mandate to assess and report on the state of competition in the industry
on an annual basis. The CRTC’s conclusion is that overall, competition remains
much further behind where it expects it to be at this stage, and that the
Commission will continue to remove obstacles to fair and sustainable
competition, including barriers to access and assuring regulatory
compliance.
  On
February 3, 2005, the CRTC released Telecom Decision CRTC 2005-6 (Decision
2005-6) with respect to the ILECs’ Competitive Digital Network services (CDN).
The decision concludes the process that was initiated by the second Price Cap
decision. In Decision 2005-6, the CRTC set the terms and conditions, as well as
the rates that competitors will pay the incumbent telephone companies (ILECs)
for digital network services they rely on to provide services to their
customers. In arriving at the decision, the Commission took into account: a) the
competitors’ reliance on the telephone companies’ network facilities and
services; b) the competitive supply that exists in the market place; c) the
constraints competitors face in building their own networks; and d) the state of
competition in the local market. Rates for access to low-speed services, which
are legacy copper-based, were set at cost plus 15 per cent, while rates for
high-speed services, which are generally fibre-based and easier to replicate,
were reduced from their prior market level to cost plus a margin above 15 per
cent. The CRTC found that competitors still rely heavily on the facilities of
the telephone companies and that by reducing the prices for underlying
facilities, competitors will be able to offer services to more customers and in
more regions and growth in their customer base and revenues will facilitate the
expansion of their own networks.
  *Canadian
Regulation of International Traffic* **
  On
January 1, 1999, the CRTC instituted a new regulatory regime for international
telecommunications. Under this regime, any carrier that transports international
telecommunications traffic over a Canadian border requires a Class A license
from the CRTC. Any domestic carrier that originates or terminates, but does not
carry over the border, international telecommunications traffic requires a Class
B license from the CRTC. Both types of licensees are subject to minimal
reporting requirements and are prevented from acting in an anti-competitive
manner. The Corporation has obtained three Class B licenses (for Sprint Canada,
Call-Net and AlternaCall) as well as one Class A license (for
CNTS).
  *United
States Regulatory Environment* **
  The
Federal Communications Commission (FCC) is an independent agency of the United
States (U.S.) federal government charged under the *Communications
Act of 1934* ,
as amended, and the *Telecommunications
Act (U.S.)* (collectively ' *Communications
Act'* )
with regulation of carriers providing interstate or international
telecommunications services in the United States. The *Communications
Act* requires that rates charged by long distance telephone companies must be 'just
and reasonable' and may not be unreasonably discriminatory or unduly
preferential. Consumers or other carriers may file complaints with the FCC
regarding any unjust or unreasonable practices by common carriers.
  Carriers
seeking to provide international services must obtain authorization from the FCC
pursuant to Section 214 of the *Telecommunications
Act (U.S.)* prior to offering international services.
  Call-Net
      Enterprises Inc.
    11
 
 
 Telecommunications
services providers in the United States are also regulated at the state level by
state public utilities commissions (PUCs) and/or other authorities. State
regulations apply only to intra-state services and not to international or
inter-state services.
  The
Corporation believes that it operates in full compliance with all rules,
regulations and policies of the FCC, the state regulators and other
communications regulatory agencies in the United States. Some of these rules,
regulations and policies are extremely complex and are rapidly changing. While
the Corporation is making its best efforts to fully comply, it can give no
assurance that the FCC or other agencies, and reviewing courts, will agree with
its good faith interpretations of certain complex rules, regulations and
policies. Moreover, as noted above, the Corporation can give no assurance that
these rules, regulations and policies will not change in the future in a manner
that would have a material adverse effect on the Corporation.
  *International
Regulatory Environment*
  The
Corporation originally obtained an International Facilities Licence (IFL) in the
United Kingdom that allows it to operate as a facilities-based carrier or a
reseller of international telecommunications. In 2004, the new U.K. regulatory
agency - OfCom - introduced a new regime under which carriers are no longer
required to be licensed in order to operate. The Corporation will obtain other
licenses to serve other foreign jurisdictions, as needed, if it expands its
foreign operations.
  **DIVIDEND
POLICY**
  Under
the indenture governing the Corporation's 10.625 per cent Secured Notes due in
December 31, 2008, there are certain limitations and restrictions on the payment
of dividends and corporate distributions. The Corporation has never paid
dividends on any of its issued shares and does not currently contemplate paying
dividends on any of its issued shares for the foreseeable future.
  **DESCRIPTION
OF CAPITAL STRUCTURE**
  **General
Description of Capital Structure** ****
  The
authorized share capital of the Corporation consists of Common Shares, Class B
Shares and Preferred Shares. The following summary describes the rights,
privileges, restrictions and conditions that attach to the Common Shares, the
Class B Shares and the Preferred Shares.
  *Common
Shares*
  The
Corporation is authorized to issue an unlimited number of its Common Shares. The
holders of the Common Shares are entitled to one vote for each share held at any
meeting of the shareholders of the Corporation. The Common Shares are
convertible, at the option of the Common Shareholders, at any time into Class B
Shares on a share-for-share basis. The Common Shares rank *pari
passu* with the Class B Shares on a per share basis with respect to payment of
dividends and the right to participate in a distribution of assets of the
Corporation on winding up, dissolution or otherwise.
  *Class
B Non-Voting Shares*
  The
Corporation is authorized to issue an unlimited number of Class B Non-Voting
Shares. The holders of the Class B Shares are not entitled to vote at any
meeting of shareholders of the Corporation except for votes affecting the Class
B Non-Voting Shares. The Class B Shares are convertible, at the option of the
Class B Shareholders, at any time into Common Shares on a share-for-share basis,
in the following circumstances: (a) upon the provision by a Class B Shareholder
of a Residency Declaration to the Corporation and the Transfer Agent stating
that the holder is a Canadian (as such term is defined in the *Telecommunications
Act* );
(b) upon the Board of Directors, by resolution, allowing the conversion, from
time to time, of such number of Class B Shares as will not, in the sole
discretion of the Board of Directors, place the Corporation at risk of
non-compliance with the foreign ownership restrictions of the *Telecommunications
Act* ,
provided that such conversion right is made available on a pro rata basis to all
Class B Shareholders; (c) upon a take-over bid being made for the Common Shares
for the purposes of allowing the Class B Shares to tender to such bid; or (d)
without restriction, upon the foreign ownership restrictions in the *Telecommunications
Act (Canada)* being removed to the satisfaction of the Board of Directors. For the purposes of
paragraph (b), the Board of Directors shall consider at least once in each
calendar year whether to allow such conversion. Notwithstanding the foregoing,
the Board of Directors shall only allow for such conversion if, at the time of
conversion, at least 1 per cent of the then outstanding Class B Shares can be
converted. The Class B Shares rank *pari
passu* with the Common Shares on a per share basis with respect to the payment of
dividends and the right to participate in a winding up, dissolution or
otherwise.
  *Preferred
Shares* **
  The
Corporation is authorized to issue an unlimited number of the Preferred Shares.
As part of the consideration for entering into the Sprint Agreement, Sprint was
issued one Preferred Share (for a value of $1.00) and is the first and only
holder of Preferred Shares at December 31, 2004. The Preferred Shares are
generally non-voting, except (i) as a class pursuant to any rights granted under
the CBCA, (ii) as a class in respect of amendments to the minimum or maximum
number of directors and (iii) with respect to the election of two directors. The
Preferred Shares entitle the holder to nominate and elect two directors of the
Corporation. The Preferred Shares have no rights to dividends. The Preferred
Shares have a priority right over all other
  Call-Net
      Enterprises Inc.
    12
 
 
 classes
of shares to receive a return of capital equal to $1.00 per Preferred Share upon
the liquidation, dissolution or winding up of the Corporation. The Corporation
may redeem all Preferred Shares for $1.00 per Preferred Share upon the sale,
transfer or assignment of the Preferred Shares by the first holder to a third
party that is not an affiliate of the first holder or the subsequent transfer by
such affiliate, or any other affiliate of the first holder who from time to time
holds the Preferred Shares, to a non-affiliate of the first holder, or upon any
affiliate of the first holder who holds the Preferred Shares no longer being an
affiliate of the first holder, or in the event that the Sprint Agreement is
Terminated. ‘‘Terminated’’ for this purpose, means terminated for a reason other
than the default of the Corporation, and where the termination of the agreement
has been disputed by either party, the Sprint Agreement shall be deemed not to
have been terminated until the parties agree that such termination shall have
occurred or until the dispute has been resolved through a final, non-appealable
decision.
  **Constraints**
  *Compliance
with the Telecommunications Act (Canada)*
  To
ensure compliance with the foreign ownership restrictions contained in the *Telecommunications
Act* ,
for so long as the *Telecommunications
Act* applies to the Corporation, the Corporation has the right, in addition to any
other rights under the *Telecommunications
Act* ,
to sell the Common Shares of a Common shareholder who is not a Canadian (as such
term is defined in the *Telecommunications
Act* ),
subject to the provisions of the CBCA and the *Telecommunications
Act* .
In addition, the directors of the Corporation may refuse to issue a Common
Share, or register the transfer of a Common Share, in a circumstance where to do
so otherwise would result in the Corporation’s non-compliance with the foreign
ownership restrictions of the *Telecommunications
Act* .
  **Ratings**
  *Secured
Notes*
  As
at December 31, 2004, there was outstanding U.S.$223.1 million 10.625 per cent
Secured Notes due in 2008 issued pursuant to a note indenture (the 'Indenture')
between Call-Net, CIBC Mellon Trust Company and The Bankers Trust Company (now
Deutsche Bank Trust Company Americas) dated April 5, 2002. There was initially
U.S.$377.0 million of Secured Notes issued under the Indenture. On September 26,
2002, the Corporation repurchased U.S.$77.5 million of Secured Notes and on
March 2, 2004, the Corporation purchased for cancellation a further U.S.$76.4
million, leaving U.S.$223.1 million outstanding.
  The
Corporation's Secured Notes have received the following ratings:
 
 **Approved
      Rating Organization**
    
    **Long
      Term Debt**Dominion
      Bond Rating Service Limited
    
    
    BMoody's
      Investors Service
    
    
    Caa3Standard
      & Poor's
    
    
    B
      (minus
    )
 
 On
March 10, 2005 the Dominion Bond Rating Service Limited (DBRS) upgraded the
rating of the Corporation’s Secured Notes from B (low) to B. As a result of the
upgrade, the trend has been moved to ‘Stable’ from ‘Positive’. DBRS’ rating
scale consists of the following categories: AAA - Highest Credit Quality, AA -
Superior Credit Quality, A - Satisfactory Credit Quality, BBB - Adequate Credit
Quality, BB - Speculative, B - Highly Speculative, CCC, CC and C are all rated
Very Highly Speculative. ‘High’ and ‘Low’ grades are used to indicate the
relative standing within a particular rating. A B rating is defined as highly
speculative and there is a reasonably high level of uncertainty which exists as
to the ability of the entity to pay interest and principal on a continuing basis
in the future, especially in periods of economic recession or industry
adversity.
  In
its rating considerations DBRS identifies the following strengths: (1) revenue
gains through increases in the Corporation’s residential access line base has
resulted in a better revenue mix by customer segment and product; (2) the recent
acquisition of the 360networks’s eastern Canadian business has improved
economies of scale; (3) the recent CRTC decision to be implemented will decrease
network charges by $25M on an annual basis, thus increase cash flow from
operations in the future; and (4) with the Corporation maintaining its low
capital intensity hybrid network strategy, Call-Net has a greater likelihood of
maintaining its self-funding model going forward.
  DBRS
identifies the following challenges facing the Corporation: (1) Call-Net still
operates in a highly competitive environment and has relatively small market
share; (2) susceptibility to pressure in the long-distance market where pricing
continues to decline; (3) aggressive competitor offerings along with the
introduction of VoIP will put further pressure on long distance pricing and
negatively impact Call-Net’s future local access line growth; and (4) the
carrier services segment will still be subject to the oversupply conditions that
exist in the wholesale market, with further revenue and margin pressure
expected.
  On
June 17, 2004, Moody’s Investors Service (Moody’s) affirmed its previous rating
for the Corporation’s Secured Notes at Caa3, and the outlook has been changed to
'stable' from 'negative'. Moody’s rating scale consists of the following
categories: Aaa, Aa, A, Baa, Ba, B, Caa, Ca and C. The numbers 1, 2 and 3 are
used to indicate the relative standing within a particular rating with 1
indicating a ranking at the higher end of the particular category, 2 indicating
a mid-range ranking and 3 a ranking in the lower end of the category. Moody’s
judges obligations rated as Caa to be of poor standing and subject to very high
credit risk.
  Call-Net
      Enterprises Inc.
    13
 
 
 The
stable outlook reflects Moody’s expectation that (1) in the near term,
improvements in local customer revenues will continue to offset reductions in
the carrier segment, allowing Call-Net to generate near break-even free cash
flow; (2) debt level will remain relatively constant; and (3) liquidity will
remain adequate to fund the company’s business plan over the next 12 to 18
months.
  In
its review, Moody's states that the rating is supported by factors such as the
Corporation's relationship with Sprint and associated brand recognition, and an
improvement in free cash flow over the last several quarters. Moody's believes
that the Corporation’s rating is constrained by the following factors: (1)
Call-Net’s customer value proposition is not very strong compared to the
incumbents; (2) the entrance of new competitors into the local and long distance
telephony markets will further erode Call-Net’s competitive stance; (3) the long
distance segment may face an accelerated decline; (4) the Corporation has very
limited alternative funding prospects; (5) returns will be limited by the fact
Call-Net rents the local loop connection to its customers; and (6) the
Corporation's relatively limited liquidity.
  On
December 1, 2004 Standard & Poor’s rated the Corporation’s long term debt at
B (minus). Standard & Poor’s rating scheme consists of: AAA, AA, A, BBB, BB,
B, CCC, CC and C. A 'B' minus rating means to Standard & Poor’s that the
obligor currently has the capacity to meet its financial commitments on its
obligations, but adverse business, financial or economic conditions would likely
impair capacity or willingness of the obligor to meet its financial commitments
on the obligation.
  Standard
& Poor's points out that its outlook reflects its view that the Corporation
will continue to be negatively affected by continued pricing pressure in long
distance services and expectations for increased competition in residential
local services in 2005.
  These
ratings should be construed solely as statements of opinion by the respective
rating organization and not statements of fact or recommendations to buy, sell
or hold securities. The ratings may be subject to revision or withdrawal by the
rating organization at any time.
  **MARKET
FOR SECURITIES**
  **Trading
Price and Volume**
  The
outstanding common shares of the Corporation (the Common Shares) and Class B
Shares are listed for trading on the TSX under the symbols 'FON' and 'FON.NV.B',
respectively.
  **FON
- Monthly trading activity for 2004**
  Date
    
    Open
    
    High
    
    Low
    
    Close
    
    VolumeDec
      04
    
    
    2.98
    
    
    3.65
    
    
    2.88
    
    
    3.04
    
    
    6,957Nov
      04
    
    
    2.41
    
    
    3.15
    
    
    2.40
    
    
    2.94
    
    
    7,163Oct
      04
    
    
    2.79
    
    
    3.00
    
    
    2.31
    
    
    2.50
    
    
    4,860Sep
      04
    
    
    2.50
    
    
    2.90
    
    
    2.45
    
    
    2.84
    
    
    2,466Aug
      04
    
    
    2.90
    
    
    2.90
    
    
    2.13
    
    
    2.70
    
    
    7,190Jul
      04
    
    
    4.00
    
    
    4.24
    
    
    2.63
    
    
    2.63
    
    
    12,119Jun
      04
    
    
    4.50
    
    
    4.60
    
    
    3.97
    
    
    4.05
    
    
    6,522May
      04
    
    
    4.15
    
    
    4.65
    
    
    3.65
    
    
    4.50
    
    
    11,340Apr
      04
    
    
    4.30
    
    
    4.59
    
    
    3.85
    
    
    4.02
    
    
    5,266Mar
      04
    
    
    4.45
    
    
    4.90
    
    
    3.91
    
    
    4.30
    
    
    13,030Feb
      04
    
    
    5.50
    
    
    5.50
    
    
    4.25
    
    
    4.60
    
    
    15,640Jan
      04
    
    
    4.95
    
    
    5.98
    
    
    4.81
    
    
    5.45
    
    
    24,571
   **FON.NV.B
- Monthly trading activity for 2004**
  Date
    
    Open
    
    High
    
    Low
    
    Close
    
    VolumeDec
      04
    
    
    2.90
    
    
    3.49
    
    
    2.81
    
    
    3.03
    
    
    41,590Nov
      04
    
    
    2.54
    
    
    3.15
    
    
    2.40
    
    
    2.95
    
    
    69,150Oct
      04
    
    
    2.86
    
    
    2.95
    
    
    2.10
    
    
    2.50
    
    
    56,410Sep
      04
    
    
    2.80
    
    
    2.92
    
    
    2.35
    
    
    2.86
    
    
    106,695Aug
      04
    
    
    2.80
    
    
    2.94
    
    
    2.25
    
    
    2.80
    
    
    72,895Jul
      04
    
    
    3.95
    
    
    4.00
    
    
    2.60
    
    
    2.60
    
    
    248,528Jun
      04
    
    
    4.50
    
    
    4.61
    
    
    3.95
    
    
    4.00
    
    
    163,486May
      04
    
    
    4.00
    
    
    4.70
    
    
    3.76
    
    
    4.45
    
    
    246,935Apr
      04
    
    
    4.20
    
    
    4.58
    
    
    3.85
    
    
    4.00
    
    
    279,538Mar
      04
    
    
    4.40
    
    
    4.70
    
    
    3.85
    
    
    4.35
    
    
    218,934Feb
      04
    
    
    5.25
    
    
    5.40
    
    
    4.25
    
    
    4.59
    
    
    396,665Jan
      04
    
    
    5.05
    
    
    6.00
    
    
    4.73
    
    
    5.35
    
    
    625,885
 
 *
Average daily volume
   Call-Net
      Enterprises Inc.
    14
 
 
 
 **DIRECTORS
      AND EXECUTIVE OFFICERS**
      ****
      **Directors**
      ****
      The
      name, municipality of residence, position with the Corporation and
      principal occupation for the last five years of each of the current
      directors and executive officers of the Corporation are as
      follows:**Name
      and Position and/or Office with the Corporation and Significant
      Affiliates**
    **Principal
      Occupation, Business or Employment and Name and**
      **Principal
      Business of Employer**
    **Period*
      Served as a Director**
    **Number
      of shares of the Corporation beneficially owned, directly or indirectly,
      or over which control or direction is exercised as at March 22,
      2005****Common**
      **Shares**
    **Class
      B Shares**
    **DSUs****(**)**
    **Unvested
      RSU's**WILLIAM
      W. LINTON
      Toronto,
      ON Canada
    President
      and Chief Executive Officer
      Call-Net
      Enterprises Inc. (telecommunications)
      •previously
      President and Chief Executive Officer, Prior Data Sciences, Inc.;
      Executive VP and CFO, SHL Systemhouse Inc.
    2000
    258,883
    17,000
    43,790
    72,667S.
      DENNIS BELCHER(1)
      (7)
      Oakville,ON
      Canada
    Corporate
      Director, Foamex International Inc.; Viatel Holdings (Bermuda) Ltd., Rand
      McNally & Company and Care Canada (Global Development Group)
      •previously
      Executive Vice President, The Bank of Nova Scotia
    2002
    0
    0
    10,266
    0ROBERT
      M. FRANKLIN(2)
      (3)
      Toronto,
      ON Canada
    Chairman
      and Corporate Director
      Placer
      Dome Inc. (mining); Director, Torment Industries and Great Lakes Carbon
      Income Fund
    2002
    25,000
    15,000
    2,565
    0ROBERT
      T.E. GILLESPIE(2)
      (5)
      Mississauga,ON
      Canada
    President,
      Gilvest Inc., Chairman and Corporate Director of Husky Injection Molding
      Systems Ltd. and Spinrite Inc. (consumer goods), Corporate Director,
      Genworth Canada (insurance)
      •previously
      Chairman and Chief Executive Officer, General Electric Canada Inc.
      (manufacturing, technology)
    1999
    0
    10,000
    10,266
    0WENDY
      A. LEANEY(1)
      (3)
      Toronto,ON**Canada
    President,
      Wyoming Associates Ltd., (investment and consulting), Corporate Director
      of Corus Entertainment Inc. (media, broadcasting) and Canadian Western
      Bank (commercial banking)
      •previously
      Managing Director of the Communications Group for TD Securities
      Inc.
    2002
    20,000
    2,000
    0
    0DAVID
      A. RATTEE(1)(6)
      Toronto,ON**Canada
    Chairman,
      President & Chief Executive Officer, CIGL Holdings Ltd.; President and
      Chief Executive Officer MICC Investments Limited (investment), Corporate
      Director of Bank of New York Trust Company of Canada, Northstar Aerospace
      Inc., Pet Value Inc. and Open Access Limited
    2002
    750
    0
    10,266
    0LAWRENCE
      G. TAPP
      Langley,
      BCCanada
    Chairman,
      Call-Net Enterprises Inc. (telecommunications), Chairman and director of
      Automation Tooling Systems Inc., Talisman Energy, Director, CCL
      Industries, Mainstreet Equities and Wescast Industries
      •previously
      Dean,Richard
      Ivey School of Business, University ofWestern
      Ontario (business education)
    1996
    0
    10,294
    5,133
    0JOSEPH
      H. WRIGHT(2)
      (3)
      Toronto,ON**Canada
    Corporate
      Director, Loblaw Companies Limited; President’s Choice Bank; Chairman
      & Trustee, O&Y REIT; Director, ROC Capital Corp., Trustee: BFI
      Canada Income Fund and CSH Reit; Board of Advisors, CC&L Tigers Trust
      and CC&L Prints Trust (investment)
      •previously
      President and Chief Executive Officer SwissBank (Canada); Managing Partner, Crosbie & Company
Inc.
    2002
    1,000
    10,000
    5,135
    0ARTHUR
      B. KRAUSE(1)
      (4)
      Naples,
      Florida, U.S.A.
    Corporate
      Director of Westar Energy (electric power) and Inergy GP MLP (propane
      distribution)
      •previously
      Executive Vice President, Chief Financial Officer, Sprint Corp.
      (telecommunications)
    1999
    0
    0
    0
    0LESLIE
      H. MEREDITH(3)
      (4)
      Kansas
      City, Missouri, U.S.A.
    Vice
      President Mergers & Acquisitions & Risk Management, Sprint Corp.
      (telecommunications)
    2002
    0
    0
    0
    0
  Notes:*
    All
      directors' terms expire at the end of each Annual General Meeting, held
      each year.**
    Directors
      may elect to take up to 100 per cent of their annual retainer in the form
      of Deferred Share Units pursuant to the Deferred Share Unit Plan adopted
      in 2003.
  Call-Net
      Enterprises Inc.
    15
 
 
  (1)
    Denotes
      member of the Audit Committee of the Board of Directors.(2)
    Denotes
      member of the Corporate Governance and Nominating Committee of the Board
      of Directors.(3)
    Denotes
      member of the Compensation and Human Resources Committee of the Board of
      Directors.(4)
    Denotes
      directors elected by Sprint as the holder of a Preferred
      Share.(5)
    Mr.
      Gillespie was a director of Bramalea Inc. at the time it filed for
      protection under the *Companies Creditors Arrangement Act*(Canada)**(the ‘CCAA’) on April 1, 1995. Mr. Gillespie
      was a director of Atlas Cold Storage Income Trust in December 2003 at
      which time all of the directors and officers were subject to a cease trade
      order, which is no longer in effect, as a result of failing to file
      quarterly financial reports and Management's Discussion and Analysis
      within the time requirements mandated by Canadian securities
      laws.(6)
    Mr.
      Rattee was a director of TDZ Holdings Inc. from April 1999 to August 2001.
      On July 21, 2001, various provincial securities commissions issued orders
      ceasing the trading of TDZ Holdings Inc.’s shares as a result of a failure
      to file December 31, 2000 and March 31, 2001 financial statements within
      the prescribed filing periods. Such financial statements were subsequently
      filed and the order was lifted. On February 26, 1997 CIGL Holdings Ltd., a
      company of which Mr. Rattee was a director and officer, obtained court
      approval in respect of a proposal filed under the Bankruptcy and
      Insolvency Act (Canada).(7)
    Mr.
      Belcher was a director of Slater Steel Inc., which filed for protection
      under the CCAA on June 2, 2003. Mr. Belcher was also a director of
      Consumers Packaging Inc. at the time it filed for protection under the
      CCAA on May 23, 2001. On January 20, 2003, various provincial securities
      commissions issued orders ceasing the trading of Consumers Packaging
      Inc.’s shares as a result of a failure to file December 31, 2001 and
      September 30, 2001, March 31, 2002, June 30, 2002 and September 30, 2002
      financial statements within the prescribed filing periods. In addition,
      Mr. Belcher was a director of White Rose Crafts and Nursery Sales Ltd.
      immediately prior to its voluntary assignment into bankruptcy under the
      Bankruptcy and Insolvency Act (Canada) on June 20, 2002. Finally, Mr.
      Belcher was a director of Richtree Inc. which was subject to a cease trade
      order in 2003. On February 26, 2004 the cease trade order was lifted. This
      company filed for protection under the CCAA on October 18,
      2004.(8)
    Mr.
      Franklin ceased to be the Chairman and corporate director of Eli Eco Logic
      Inc. in October, 2004.
   **Executive
Officers****Name
      of Officer**
    **Office
      Held**
    **Number
      of shares of the Corporation beneficially owned, directly or indirectly,
      or over which control or direction is exercised as at March 22,
      2005****Common**
      **Shares**
    **Class
      B**
      **Shares**
    **DSU'S**
    **Unvested
      RSU's**WILLIAM
      W. LINTON
      Toronto,
      ON Canada
    President
      and Chief Executive Officer
      Call-Net
      Enterprises Inc. (telecommunications)
      •previously
      President and Chief Executive Officer, Prior Data Sciences, Inc.;
      Executive Vice President and CFO, SHL Systemhouse Inc.
    258,883
    17,000
    43,790
    72,667LAWRENCE
      G. TAPP
      Langley,
      BCCanada
    Chairman
      Call-Net
      Enterprises Inc. (telecommunications)
      •previously
      Dean, Richard Ivey School of Business, University of Western Ontario
      (business education)
    0
    10,294
    5,133
    0SERGE
      BABIN
      Ajax,
      ON Canada
    Senior
      Vice President and Chief Technology Officer,
      Sprint
      Canada Inc. (telecommunications)
    17,042
    20,500
    0
    8,000JEAN
      BRAZEAU
      Toronto,
      ON Canada
    Senior
      Vice President, Regulatory Affairs and Strategic Partnerships, Call-Net
      Enterprises Inc.(telecommunications)
    19,650
    6,000
    0
    8,000ERIC
      DOBSON
      Toronto,
      ON Canada
    Senior
      Vice President, Business and Carrier Services
      Sprint
      Canada Inc. (telecommunications)
    32,665
    120,000
    0
    8,000ROY
      GRAYDON
      Toronto,
      ON Canada
    Executive
      Vice President & Chief Financial Officer
      Call-Net
      Enterprises Inc. (telecommunications)
      •previously
      Managing Partner, VGC Capital Partners, Vice President, Relationship
      Investing, Ontario Teachers’ Pension Plan Board
    12,050
    38,000
    0
    0PHIL
      HARTLING
      Toronto,
      ON Canada
    Senior
      Vice President, Consumer SOHO Services
      Sprint
      Canada Inc. (telecommunications)
      •previously
      Director, Business Planning and Market Management, Aliant
      Telecommunications Inc. (telecom)
    0
    0
    0
    0JIM
      LARAMIE
      Toronto,
      ON Canada
    Senior
      Vice President, Finance
      Sprint
      Canada Inc. (telecommunications)
      •previously
      Executive Vice President and CFO Primus Telecommunications Canada
      Inc.
    0
    20,000
    0
    0DUNCAN
      MCEWAN*
      Toronto,
      ON Canada
    Executive
      Vice President & Chief Strategy Officer
      Call-Net
      Enterprises Inc. (telecommunications)
      •previously
      President & COO Sprint Canada Inc.; CEO NorthPoint Canada; COO,
      President & CEO, Canadian Satellite Communications
      (Cancom)
    94,666
    18,000
    0
    44,334
 
 *Mr.
McEwan ceased to be Executive Vice President & Chief Strategy Officer on
February 28, 2005 but will remain in an advisory capacity for a period of six
months to further develop the Corporation's strategy.
  Call-Net
      Enterprises Inc.
    16
 
 
 The
directors and executive officers of the Corporation own, directly or indirectly
a total number of 481,706 Common Shares and 286,794 Class B Shares which
represent 11.4 per cent and 0.9 per cent respectively of the issued and
outstanding shares.
 
 **LEGAL
PROCEEDINGS**
  On
March 1, 2002, the Corporation was notified of an appeal to the Superior Court
of Ontario decision with respect to an application brought by Montreal Trust
Company of Canada (now Computershare Investor Services Inc.) on April 27, 2000
concerning the payment of $30.0 million held in trust under a 'change in control
agreement' with certain former senior management dated September 9, 1999. The
Superior Court of Ontario ruled that no change of control had occurred. The
funds held in trust by the Corporation were released later that year. The
Corporation vigorously defended its interests at the appeal held on February 17,
2004. On February 20, 2004 the Court of Appeal issued a written judgement
upholding the trial judge's findings and dismissing the appeal. The 60-day
period in which the Appellants had to seek leave to appeal to the Supreme Court
of Canada expired on April 20, 2004. As this matter is now at an end, the
Corporation reversed a $4.7 million provision related to this action during
2004.
  In
the ordinary course of business activities, the Corporation may be contingently
liable for litigation and claims with customers, suppliers and former employees.
Management believes that adequate provisions have been recorded in the accounts
where required. Although it is not possible to estimate the potential costs and
losses, if any, management believes that the ultimate resolution of such
contingencies will not have a material adverse effect on the consolidated
financial position of the Corporation.
 
 **AUDITORS,
TRANSFER AGENT AND REGISTRAR**
  The
auditors of Call-Net are KPMG LLP at its principal offices in the City of
Toronto. They were appointed by the Board of Directors effective March 22, 2004
and were re-appointed as auditors of the Corporation May 6, 2004 at the 2004
annual and special meeting of shareholders of the Corporation.
  The
registrar and transfer agent for the Common Shares and Class B Shares is CIBC
Mellon Trust Company at its principal offices in the City of
Toronto.
 ****
 **AUDIT
COMMITTEE INFORMATION**
  **Audit
Committee Terms of Reference**
 
 The
Board of Directors reviews and approves the Audit Committee Terms of Reference
annually. The Audit Committee Terms of Reference as approved by the
Corporation's Board of Directors on February 22, 2005 is included in Appendix A.
  **Audit
Committee Composition**
 
 The
members of the Audit Committee, and their relevant education and experience
are:
 
 1)
    David
      A. Rattee (Audit Committee Chair)•
    Currently
      holds B.COM, C.A. and MBA with financial experience of 35
      years•
    Currently
      president & chief executive officer of MICC Investments
      Limited•
    Currently
      chairman, president & chief executive officer of CIGL Holdings Ltd.2)
    S.
      Dennis Belcher•
    Graduate
      of the Stonier Graduate School of Banking (Rutgers/ABA) United
      States•
    Associate
      of the Institute of Bankers (England)•
    Currently
      director of Foamex International Inc. and Viatel Holdings (Bermuda) Ltd.•
    Previously
      executive vice president, credit and risk management at Scotiabank for 11
      years3)
    Arthur
      B. Krause•
    Bachelor
      of Science in Accounting, Marquette University•
    Currently
      corporate director of Westar Energy•
    Currently
      corporate director of Inergy GP MLP•
    Previously
      executive vice president and chief financial officer, Sprint Corp. for 14
      years4)
    Wendy
      Leaney•
    Currently
      president of Wyoming Associates Ltd.•
    Currently
      director of Corus Entertainment Inc. and Canadian Western
    Bank•
    Previously
      managing director of TD Securities Inc.
  All
members of the Audit Committee are financially literate. A majority of the Audit
Committee members are independent. David A. Rattee (the Chair), S. Dennis
Belcher and Wendy A. Leaney are independent. The Corporation relies on the
exemption provided in MI 52-110 at Section 3.6 ( *Temporary
Exemption for Limited and Exceptional Circumstances* )
for Arthur B. Krause.
  Mr.
Krause was appointed to the Board of Directors by Sprint as holder of the
Preferred Share. Sprint has a major commercial relationship with the Corporation
as it is a party to the Sprint Agreement. Sprint owns only 6.63 per cent of the
Shares in the Corporation. He is the former CFO of Sprint having retired in June
2002. Mr. Krause is not otherwise precluded
   Call-Net
      Enterprises Inc.
    17
  
 
 from
being a member of the Audit Committee by any other requirement of MI 52-110. The
Board of Directors has determined that Mr. Krause is able to exercise the
impartial judgement required to fulfil his duties and responsibilities as an
audit committee member. And, further that his appointment is in the best
interests of the Corporation and its shareholders because being a former CFO of
a world leading telecommunications company he provides valuable experience and
insights to the Audit Committee in the discharge of its duties and
responsibilities.
  **Principal
Accountant Fees and Services**
  The
aggregate fees for professional services rendered by the Corporation's external
auditors in each of the last two years are as follows:
 
  YEAR
      ENDED
    
    YEAR
      ENDED2004
    
    2003Audit
      Fees(1)
    
    $
    662,410.00
    
    $
    784,000.11Audit-Related
      Fees(2)
    
    
    41,096.00
    
    
    175,465.00Tax
      Fees(3)
    
    
    55,885.00
    
    
    63,900.00All
      Other Fees(4)
    
    
    2,625.00
    
    
    0**Total**
    
    **$**
    **762,016.00**
    
    **$**
    **1,023,365.11**
 
 Notes:(1)
    Includes
      professional services rendered by the external auditors for the audit of
      the Corporation’s annual financial statements and services provided in
      connection with our statutory and regulatory filings or
      engagements.(2)
    Includes
      assurance and related services reasonably related to the performance of
      the audit or review of the annual statements and are not reported under
      ‘Audit Fees’ above, principally for consultation concerning financial
      accounting and reporting standards.(3)
    Tax
      fees were for tax compliance, tax advice and tax planning professional
      services. These services consisted mainly of tax planning and advisory
      services relating to domestic income tax.(4)
    Includes
      fees for forensic services.
 
 **Preapproval
Policies and Procedures**
  It
is within the mandate of Call-Net's Audit Committee to approve all audit and
non-audit related fees. The Audit Committee has adopted procedures to
pre-approve all non-audit services to be rendered by the external auditors. The
Chair of the Audit Committee has been delegated authority to pre-approve
individual assignments up to a maximum cost of $75,000. All other assignments
must be pre-approved by the Audit Committee. The auditors also present the
estimate for the annual audit related services to the Committee for approval
prior to undertaking the annual audit of the financial statements. In December
of 2002, the external auditors were retained to perform non-audit services
dealing with calculation of tax loss pools and this engagement was approved by
the Board of Directors. Those services commenced in 2002 and the engagement
finished during the year ending December 31, 2003.
 
 **ADDITIONAL
INFORMATION**
  Additional
information relating to the Corporation may be found on SEDAR at www.sedar.com .
  Additional
information concerning the Corporation including directors’ and officers’
remuneration and indebtedness, principal holders of securities, options to
purchase securities and interests of insiders in material transactions, where
applicable, is contained in the Corporation’s Management Proxy Circular dated
March 22, 2005 for the annual and special meeting of shareholders to be held on
May 4, 2005.
  Additional
financial information is provided in the Corporation’s consolidated financial
statements as at December 31, 2004 and the accompanying report of auditors
thereon, as well as any interim financial statements issued since that time and
Management's Discussion and Analysis. Copies of such documents as well as the
Corporation’s Annual Information Form (AIF) can be found at www.
sedar.com.
  The
Corporation will provide to any person, upon request to the Secretary of the
Corporation, when the securities of the Corporation are in the course of a
distribution pursuant to a short form prospectus or a preliminary short form
prospectus has been filed in respect of a distribution of its securities, the
following:
  •
    one
      copy of the AIF, together with one copy of any document, or the pertinent
      pages of any documents incorporated by reference in the
    AIF;•
    one
      copy of the comparative financial statements for the most recently
      completed financial year, together with the accompanying report of the
      auditors, and one copy of any interim financial statements subsequent to
      the financial statements for its most recently completed financial
      year;•
    one
      copy of the information circular in respect of the most recent annual
      meeting of shareholders that involved the election of directors;
      and•
    one
      copy of any other documents that are incorporated by reference into the
      preliminary short form prospectus or the short form prospectus and are not
      required to be provided under clause 4 (a) (i), (ii) and (iii)
      above;
      or
 
 at
any other time, one copy of all documents referred to in clause 4 (a) (i), (ii)
and (iii), provided that the Corporation may require the payment of a reasonable
charge if the request is made by a person or company who is not a security
holder of the Corporation.
 
 Call-Net
      Enterprises Inc.
    18
 
 
 **APPENDIX
A - Audit Committee Terms of Reference** ****
  ***Scope
and Purpose of the Committee***
  Call-Net
management has the primary responsibility for the financial reporting process.
The Board of Directors and its Audit Committee (the ‘Committee’) are responsible
for overseeing the financial reporting process and ensuring its credibility. The
Committee will also assume specified responsibilities beyond those overseeing
the reporting process.
  The
Committee will recommend to the Board of Directors for approval the appointment
of external auditors as well as the compensation for the external auditors. The
Committee will also review and recommend to the Board of Directors for approval
the annual audited consolidated financial statements of Call-Net, the quarterly
unaudited consolidated financial statements, and related documents (including
press releases) before publication. The Committee will discuss with the external
auditors the scope of their examination, monitor the progress of the independent
audit and ensure the adequacy of accounting controls (which are the
responsibility of management). The Committee will review the scope, results and
performance of the Corporation’s internal audit department.
  The
Committee will be provided with a copy of the minutes of Committee meetings of
the Corporation’s major subsidiaries and joint ventures and be apprised of
significant internal control and other recommendations made by the auditors
(both external and internal) of the subsidiaries/joint ventures.
  The
Committee will review quarterly the expenses of the Chair of the Board of
Directors and the President of the Corporation.
  ***Membership***
  The
Committee shall consist of a minimum of three directors of the Corporation,
including the Chair of the Committee, all of whom are independent and
financially literate, as those terms are defined in MI 52-110. The Chair and the
CEO shall receive notice of and be entitled to attend meetings of the Committee,
except in camera sessions to be held as part of every meeting.
  Duties
and Responsibility
  1.
    The
      Committee shall review and recommend to the Board of Directors for
      approval:(a)
    the
      annual audited consolidated financial statements.(b)
    the
      quarterly reports to the shareholders and the unaudited consolidated
      financial statements contained therein.(c)
    documents
      referencing, containing, extracting or incorporating by reference the
      annual audited consolidated financial statements or interim financial
      results (e.g. prospectuses, press releases with financial results and
      Annual Information Form) prior to their release.(d)
    the
      management discussion and analysis (MD&A) for release to shareholders
      and third parties.(e)
    as
      to the appointment or reappointment of external auditors and the
      remuneration of external auditors. If a change in external auditors is
      proposed, the Committee will enquire as to the reasons for the change,
      including the response of the incumbent auditors.2.
    The
      Committee, in fulfilling its mandate, will:(a)
    obtain
      confirmation from the external auditors that it ultimately is accountable,
      and will report directly to the Committee.(b)
    review
      the scope of the external audit, including the fees
    involved.(c)
    review
      factors that might impair, or be perceived to impair, the independence of
      the external auditors, including a review annually of any non-audit
      service provided by the external auditors and the fees related
      thereto.(d)
    oversee
      the external auditors and the resolution of any disagreements between
      management and the external auditors regarding financial
      reporting.(e)
    be
      satisfied that adequate procedures are in place for the review of all
      public disclosure of financial information extracted or derived from the
      financial statements and periodically asses the adequacy of those
      procedures.(f)
    establish
      procedures for:(i)
    the
      receipt, retention and treatment of complaints received regarding
      accounting, internal accounting controls or auditing matters;
      and(ii)
    the
      confidential, anonymous submission by employees of concerns regarding
      questionable accounting or auditing matters.(g)
    review
      and approve hiring policies regarding partners, employees and former
      partners and employees of the present and former external
      auditors.(h)
    review
      the report of the external auditors on the annual audited consolidated
      financial statements.(i)
    review
      any problems found in performing the audit, such as limitations or
      restrictions imposed by management or situations where management seeks a
      second opinion on a significant accounting issue.(j)
    review
      major positive and negative observations of the external auditors during
      the course of the audit.(k)
    review
      with management and the external auditors the Corporation’s major
      accounting policies, including the impact of alternative accounting
      policies and key management estimates and judgements that can materially
      affect the financial results.
  Call-Net
      Enterprises Inc.
    19
 .
 
 
  (l)
    review
      emerging accounting issues and their potential impact on the Corporation’s
      financial reporting.(m)
    review
      with management, the external auditors and legal counsel, any litigation,
      claims or other contingency, including tax assessments, that could have a
      material affect upon the financial position or operating results of the
      Corporation, and whether these matters have been appropriately disclosed
      in the financial statements.(n)
    review
      the conclusions reached in the evaluation of management’s internal control
      systems by either the internal or external auditors, and management’s
      responses to any identified weaknesses.(o)
    review
      the scope of responsibilities and effectiveness of the internal audit
      group, including internal audit reporting lines and their working
      relationship with the external auditors.(p)
    review
      ‘comprehensive’ or ‘value for money’ audits designed to report on
      management’s representations on the effectiveness and efficiency of
      selected programs or departments.(q)
    review
      with management their approach to controlling corporate assets and
      information systems, the adequacy of staffing of key functions and their
      plans for improvements.(r)
    review
      with management their approach with respect to business ethics and
      corporate conduct, written codes of conduct established by management and
      the program used by management to monitor compliance with the
      code.(s)
    review
      annually the code of ethics and legal and regulatory requirements that, if
      breached, could have a [significant] impact on the Corporation’s published
      financial reports or reputation.(t)
    review
      and pre-approve all non-audit services to be provided by the external
      auditors, and may delegate such pre-approval function to one or more
      independent members of the Committee in which case the pre-approval shall
      be presented to the Committee at its first scheduled meeting following
      such pre-approval.(u)
    review
      the expenses of the Chair and President of the Corporation
      quarterly.(v)
    review
      with management relationships with regulators, and the accuracy and
      timeliness of filing with regulatory authorities.(w)
    review
      the minutes of any Committee meetings of the Corporation’s major
      subsidiaries and joint ventures, and review any significant issues raised
      and recommendations made by the internal and external
      auditors.(x)
    review
      annually the business continuity plans for the
  Corporation.(y)
    review
      the annual audit plans of the internal and external auditors of the
      Corporation.(z)
    review
      annually general insurance coverage of the Corporation to ensure adequate
      protection of major corporate assets.(aa)
    perform
      such other duties as required by the Canada Business Corporations Act and
      applicable securities legislation and
policies.
 
 ***Authority***
  The
Committee may:
 
 (a)
    engage
      independent counsel and other advisors as it deems necessary to carry out
      its duties.(b)
    establish
      and pay the compensation for any advisors it engages.(c)
    communicate
      directly with the internal and external auditors.
 ******
 ***Meetings***
  1.
    The
      Committee shall meet at such times and places as the Committee may
      determine, but no less than four times per year. At least annually, the
      Committee shall meet separately with management and with the external
      auditors.2.
    Meetings
      may be conducted with members present, in person, by telephone or by video
      conference facilities.3.
    A
      resolution in writing signed by all the members of the Committee is valid
      as if it had been passed at a meeting of the Committee.4.
    The
      external auditors or any member of the Committee may call a meeting of the
      Committee.5.
    The
      external auditors will receive notice of every meeting of the
      Committee.6.
    The
      internal auditors shall report quarterly to the Committee on the results
      of internal audit activities and have a right of access to the Chair of
      the Committee should the need arise.7.
    The
      Board of Directors shall be kept informed of the Committee’s activities by
      a report following each Committee meeting.
 
 ***Quorum***
  A
quorum is established with a minimum of three Committee members.
 
 
 Call-Net
      Enterprises Inc.
    20
  
 
 
 **GLOSSARY**
  Set
forth below are the meanings of certain terms used in this Annual Information
Form.
  ***ADSL*** (Asymmetrical Digital Subscriber Line) means an Internet and network access
technology providing speeds of up to 50 times dial-up Internet access over a
standard phone line.
  ***A*** ***TM*** (Asynchronous Transfer Mode) means a data services technology which allows the
transmittal of many small, fixed-sized cells of data at very high
speeds.
  ***Broadband*** means a network capable of transporting voice, data and IP services at higher
capacities than traditional telephone networks.
  ***Centrex*** (central
office exchange service) means a service from local telephone companies in North
America in which up-to-date phone facilities at the phone company's central
(local) office are offered to business users so that they don't need to purchase
their own private branch exchange (PBX).
  *Co-Location* means the leasing of space in an ILEC central office by a CLEC to install
multiplexing and other telecom equipment to provide services to its end
customers.
  ***CLEC*** (Competitive Local Exchange Carrier) means a CRTC authorized provider of
telecommunications services in Canada.
  ***CPE*** means customer provided equipment, or customer premises equipment.
  ***CRTC*** (Canadian Radio-television and Telecommunications Commission) means the
governmental body in Canada which oversees the regulation of the
telecommunications industry.
  ***DBRS*** means Dominion Bond Rating Service Limited.
  ***DSL*** (Digital Subscriber Line) means a family of evolving digital services provided
over local switched telephone networks generally associated with high-speed
Internet services.
  ***DWDM*** means Dense Wave Division Multiplexing.
  ***Ethernet*** means  a
network standard of communication using either coaxial or twisted pair cable. It
is the most widely used form of LAN communication. Ethernet provides for
transmission speeds ranging from 10 Megabits (million bits) per second (Mbps) to
speeds in the Gigabit (billion bits) per second (Gbps) range.
  ***EVS*** means Enhanced Voice Services.
  ***FCC*** (Federal Communications Commission), means an independent agency of the United
States (U.S.) federal government charged under the Communications Act of 1934,
as amended, and the Telecommunications Act (U.S.) (collectively 'the
Communications Act').
  ***IFL*** means International Facilities Licence.
  ***ILEC*** (incumbent Local Exchange Carrier) means one of the telecommunications providers
in Canada which operated prior to the deregulation of the long distance market
in 1992, in respect of the geographic market in which the carrier then provided
telecommunications services.
  ***Incumbent*** means former monopoly phone companies (those Canadian telecommunications
companies that were members of the alliance known as Stentor Canadian Network
Management, or *Stentor* ,
an organization formed by the nine major provincial and regional Canadian
telephone companies, and Telesat Canada, the monopoly provider of satellite
broadcasts in Canada).
  ***IP
Network*** means an infrastructure dedicated to the transport, routing and management of
Internet protocol data.
  ***IP
VPN*** (Internet Protocol - Virtual Private Network) means a service used to connect
branch offices and remote workers over a single provider’s IP network or through
several networks (the Internet). Data traverses a public data infrastructure,
but offers the appearance, functionality and usefulness of a dedicated
network.
  ***ISP*** means Internet service provider.
  ***ISDN*** Integrated
Services Digital Network - a digital standard set in 1984 to allow for
wide-bandwidth digital transmission using the public switched telephone
network
  ***IVR*** means Interactive Voice Response.
  ***LAN*** (Local
Area Network) means a short distance data communications network (typically
within a building or campus) used to link together computers and peripheral
devices under some form of standard protocol ***.***
  ***LEC*** (Local Exchange Carrier) means a telecommunications company offering local
services.
  ***Local
Services*** means the Canadian local telephone services, including local network services
(such as dial tone, enhanced calling features and data services), network access
services and other services (such as the publication of telephone
directories).
  ***MAN*** means operational Metro Area Network.
  Call-Net
      Enterprises Inc.
    21
 
 
 ***MNS*** (Managed Network Services) means the outsourcing to a telecommunications
provider of certain complex hosting solutions including enterprise network
monitoring, network security and network architecture, design and
implementation.
  ***MPLS*** (multi
protocol label switching) refers to a protocol used in IP transmission that
simplify and improve IP packet exchange within a particular ISP’s network.
  ***PCS*** (Personal Communications Service) means a low-powered wireless communications
technology similar to cellular.
  ***PRI*** (Primary
Rate Interface) is a type of ISDN service that provides 23 voice or data
channels and 1 signalling channel.
  ***PUC*** (Public Utilities Commission) means Telecommunications regulators in the United
States at the state level
  ***SDSL*** means symmetrical DSL.
  ***SME*** (Small and Medium-sized Enterprise) means businesses ranging in size from 5 to
500 employees, requiring a range of communications products.
  ***SOHO*** (Small Office, Home Office) means the customer segment made up of businesses
with fewer than 10 employees requiring unique communications
solutions.
  ***SONET*** (Synchronous Optical Network) means an international standard for transmitting
digital signals over fibre optic networks.
  ***STM-4:*** Synchronous
Transport Module level 4 - A European standard that defines a set of rate and
format standards that are transmitted using optical signals over fiber. STM-4 is
equivalent to an OC-12 in terms of bandwidth.
  ***TLS*** (Transparent
LAN Service) means a service that provides connectivity between a company’s
remote LAN without the need for conversion of LAN data to a different Wide Area
Network protocol (such as frame relay). All users appear to be on the same LAN
regardless of their location.
  ***xDSL
means any of various versions of Digital Subscriber Line, including ADSL and
SDSL***