Update Report #1:
The End of the VelaTel 1.0 (The Chinacomm JV) and Beginning of VelaTel 3.0:
The Global Emerging Market B2C/B2B 4G LTE Carrier 

The short-version on Chinacomm JV: With CECT-Chinacomm and VelaTel at an impasse since early 2011 over Chinacomm’s request to remove dual-signatory requirements from the JV agreement, something had to give. VelaTel had a fiduciary responsibility to safeguard the assets contributed to the JV.

When it was discovered that Chinacomm had illegally removed VelaTel president Colin Tay’s signature from the funds deposited by VelaTel for down payments on ZTE base station equipment, VELA had no choice but to seek an injunction to insure the safe return on its money.

VELA made its case to the local Hong Kong magistrate (i.e. showing the court the existing contracts and agreements and events where Chinacomm had violated the agreements) and was granted an immediate injunction securing the cash on deposit in the Standard Chartered bank domiciled in Hong Kong.

With Chinacomm reportedly to be stripped of its 29-city wireless broadband license by China’s telecom agency (MIIT) for not following the agencies request for a 12 city first phase deployment (Chinacomm only deployed Beijing and Shanghai), the JV arrangement appears to have ended.

The VelaTel 1.0 era—developing the Chinacomm Network and right to acquire a 49% interest in that wireless broadband network, is closed.

What emerges from the ashes of that JV will not be known till the judges render a decision. By all accounts it is most likely the deposit will be returned to VelaTel and the remaining asset—the Beijing network operating center—is up for grabs.

VelaTel 2.0—the move to add additional operating units OUTSIDE the Chinacomm JV (i.e. GBNC 4G network development JV, Sino Crossing fiber optic network) now looks quite prescient (understatement of the year).

The GOOD news from the apparent demise of the Chinacomm JV (and the addition of multiple NEW 4G network development deals closed or announced/anticipated to close in the next 30-45 days) creates the emergence of “VelaTel 3.0: The International Emerging Market B2C and B2B 4G TD-LTE Carrier.”

Reality Check: In today’s global environment, successful start-up companies have to learn to “pivot”—that is be ready, willing and able to change their business plan and strategy to adapt to the world as it IS, not as they originally hoped it would be.

We believe VelaTel has successfully pivoted its plan and strategy into a 4G carrier development and operating company employing multiple 4G network development and operating strategies.

1. The Insurgent B2C Low-CAPEX/Low-Cost 4G LTE network developer/operator in emerging market countries
   (e.g. the Go-Movil network in Peru, GBNC dual band 4G network in China, the East Europe/Balkan networks under LOI, the Russian 4G network LOI, etc.)
2. The B2B/Carrier’s Carrier Private Network Developer/Operator
   (i.e. the CAST and NGSN private 4G networks under development in China, Sino Crossing fiber network in China)
3. The 4G Ancillary Equipment/Service Developer/Distributor
   (e.g. VN Tech, the wholly owned subsidiary that manufactures fuel-cell based back up batteries for wireless network towers

We will go into greater detail on the terms and structure of the new VelaTel 3.0 in a later report, but the simple story for VelaTel and shareholders for the new China B2B network agreements is as follows:

1. Better Partners:
   $Billion State-Owned Enterprises with over 150,000 employees and tens of thousands of subsidiaries/sister-organizations under their umbrella—CAST alone with over $10 billion in annual revenues/$1 billion profits. CAST also owns over 2000 subsidiary companies in China…they have a huge national footprint in which to resell the CAST TD-LTE 4G network owned and operated by VelaTel.
   
   
2. Better Economics:
   VELA inherits over $40 million in “anchor tenant” existing revenues DAY ONE upon hand-off of the existing CAST/NGSN networks and facilities. Both networks should be cash flow positive from day one.

   100% of revenues consolidate to VELA income statement.

   In the CAST network, VelaTel retains 75% of all revenue and 85% of the equity. In the NGSN, VelaTel retains 65% of all revenues and equity UNTIL an IPO—where NGSN gets an additional 10% equity for the successful listing of the company.

3. Preferred Return on CAPEX:
   VELA receives a preferred return on all its CAPEX investments…and 65% of the profits of NGSN after preferred return on CAPEX and 75% of revenues from CAST.

   Key Point: The pre-existing and paid for 29-city pre-deployment assets owned by VelaTel are being contributed to the two new private TD-LTE network development deals with major state-owned enterprises (SOEs) in China: Aerostrong Company Limited, a subsidiary of $10 billion revenue China Aerospace Science and Technology Group (CAST) www.spacechina.com and New Generation Special Network Communication Technology Co., Ltd. (NGSN).
   http://www.newgsn.com.cn/en/index.php

   It is the 2-year head start on upgrading the existing B2B networks that made VelaTel the perfect partner for these giant SOEs: No other company on earth could build these 4G networks as quickly and cheaply as VelaTel for their SOE partners.

   In technology, 2 years is forever.

4. Significant Upside:
   As opposed to 49% minority share in the Chinacomm B2C 4G network, the B2B networks appears to pro-forma at least similar EBITDA results vs. the initial 12-city deal with Chinacomm.  Each of the B2B networks will also present literally thousands of special projects for custom and proprietary 4G based applications and data center cloud computing services. ALL of these special projects will have both one-time and recurring revenues for VELA. We expect a pro-forma from both networks in early January.
   
   
5. Both Networks Bring Opportunity to Build and deliver a “Carrier-Class Cloud” Service to thousands of SOE and private enterprise companies.

   There is a massive opportunity in China to bring “carrier grade” cloud computing and services to the CAST and NGSN ecosystem of subsidiaries and related companies. Carrier-grade networks are known for their high reliability and

   availability and their fast fault recovery—all benefits NOT available to most companies in China. The VelaTel carrier class cloud:

   • Ensures quality of experience with carrier-grade service level agreements (SLAs)
   • Offers low latency
   • Can deliver carrier grade voice, video, and data over a national VPN network at much lower price points
   • Supports on-demand, pay-per-use and automated self-service models
   • Enables widespread access and elastic availability
   • Supports open innovation through web APIs
   • Supports integrated IaaS, PaaS, SaaS
   
   
6. IPO Exits for Both Networks:
   E each entity that own and operate the B2B 4G networks are registered for IPOs on the Hong Kong exchange. Our assumption is after 3 years or so we would see at least one of the networks IPO…probably NGSN network but that is only our assumption.
   
   
7. Deeper Relationship with ZTE: 
   ZTE Corporation (http://wwwen.zte.com.cn/en/about/corporate_information/) is expanding the scope and depth of its partnership with VelaTel by becoming a 15% partner in the private CAST 4G TD-LTE network deals.

According to Mr. Alvarez

“We have been said in our statements and filings that we would not continue with Chinacomm if we did not continue to have 2 signatures for each individual operating checking account. We ended the impasse when we found out they removed (illegally) Colin Tay as signer and we were forced to file for protective injunction.

The courts will figure out our damages and decide what to do with our stock in Chinacomm.

In the mean time we obtained new contracts with NGSN, CAST, Sino Crossing and GBNC to revamp and greatly improve our China game plan—all with superior economics and 100% consolidating revenues to VELA in 2012 versus our Chinacomm deal negotiated in 2008 when JV laws and wireless technologies were much different.”

NGSN and Aerostrong Deal Highlights

1. VelaTel will get the keys to existing Aerostrong and NGSN operations to upgrade and operate.  For example, China Aerospace ("CAST") will hand over its data center in Beijing to VelaTel and ZTE to upgrade and operate.
   
   
2. VELA estimates CAST and NGSN will assign over $10MM in quarterly 100% consolidating revenues from day ONE of network hand-off to VELA.
   
   
3. ZTE will own 15% of VelaTel’s 75% ownership in CAST network.
   
   
4. VelaTel owns 75% of NGSN network equity until milestones are met then dilutes to 65% equity until IPO is filed and concluded (where an additional 10% equity goes to NGSN).
   
   
5. Isaacs will provide $1MM for each operation to get each JV started.  After that municipalities, ZTE financing and earnings will fund expansion.
   
   
6. VelaTel will get a preferred return on all its contributed CAPEX at full value on both ventures.
   
   
7. Both registered for HK IPO.
   
   
8. Look for proformas for both networks in early January 2012.

Next Update:
The Big Picture: VelaTel 3.0 to Pro-Forma $100 Million+ in Revenues for 2012