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Wireless Telephone Data Networks - Yesterday, Today and Tomorrow and How to Value It Kevin Snow AT&T December 4, 2012. History. Wireless Networks were voice centric, extremely limited data 1G – Analog - voice 2G – Digital – voice

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  1. Wireless Telephone Data Networks - Yesterday, Today and Tomorrow and How to Value ItKevin SnowAT&T December 4, 2012

  2. History • Wireless Networks were voice centric, extremely limited data • 1G – Analog - voice • 2G – Digital – voice • CDPD for data, “1 Adam 12” – police running license plate #’s • CDMA, GSM, TDMA • 2.5G –Digital – circuit switch voice + data (3x dial up) • 1XRTT-CDMA; GSM-GPRS/EDGE; TDMA – DEAD* • 3G – Broadband Data (DSL speed but voice via circuit switch) • CDMA-EVDO & RevA, UMTS-HSPA • * Acronym for DEAD – none – literally means dead

  3. Current • Data centric but still with circuit switched voice • 3.5G – Broadband Data (cable modem speed, voice via circuit; • UMTS-HSPA+, CDMA EVDO-Rev B, not deployed ) AT&T is double trouble, has 2 circuit switch networks –GSM & UMTS • That will both transition to LTE VOLTe • And now three data networks – EDGE/HSPA+ transitioning to LTE • 4G – Broadband Data (cable modem+ speed, voice as packet -VOLTe LTE (some carriers have not yet deployed VOLTe) • GSM-UMTS path To LTE • CDMA path to EVDO Rev C – DBA* so LTE • * DBA Acronym (Dead Before Arrival) – never will be deployed

  4. Characteristics of the Wireless Industry • Highly competitive • Not regulated as to prices or rates of return • Rapidly changing technology due to competition & customer demand for more service capability • Declining voice demand • Messaging at risk from various data apps • Exploding demand for high volume data due to smart phones and computer applications

  5. Where We Are • Voice Network • A circuit switched TDM network – based on a mature technology • A reliable infrastructure optimized to support circuit voice • Difficult to support non circuit voice applications • Circuit switch/TSI based infrastructure is harder to scale • Data Network • A packet switched network – based on emerging technology • Optimized for non-delay sensitive (best effort) applications • Support data/audio/video as data application • Packet based infrastructure offers greater scalability • Two separate networks, each designed/optimized to support different applications (AT&T actually 5 different networks including LTE) • Even without “4G”, technology has advanced where the “circuit switch Voice Network” is being replaced • TRFO (transcoder free operation) • MPLS (multi-protocol layered system) • We are already packetizing all switches and any new switch builds are 100% packet • DACS are sunsetted and “5E” class switches are planned for removal

  6. Network Overview • The current AT&T network is comprised of different generations of equipment installed over more than a decade. • A high level view of the current AT&T Mobility network is represented below:

  7. State of the Industry • Approaching Maturity, Growth is Slowing Except for Data • Over-penetration • Mid Year 2012 321,716,905 Total Connections (CTIA Estimate) • Customers with two or more mobile devices • M2M • Increased usage • Data Usage Up Double Digits During last 12 month period • Innovation • Robust data networks • New product • Streaming Video • Wireless house/security/more wireless car apps coming • Industry Convergence • Highly Competitive • Consolidation

  8. Mobile Wireless Internet Access Subscribers and Devices in Use[1] • AT&T 3rd Q 2012 – • 18.3 percent growth in wireless data revenues, up more than $1 billion versus the year-earlier quarter • Strong smartphone sales of 6.1 million postpaid • Smartphones represented 81 percent of postpaid device sales. • 63.8 percent of AT&T’s postpaid subscribers had smartphones, up from 52.6 percent, a year earlier and up 1.4 million from the second quarter. • AT&T’s ARPU for smartphones is twice that of non-smartphone subscribers • [1] Commission estimates based on Form 477 data. Mobile wireless Internet access subscribers include subscribers whose device and subscription plan allow them to access to the lawful Internet content of their choice at over 200 kbps in at least one direction.

  9. Mobile Data Service Adoption Rates Among Cell Phone Users[1] [1]Mobile Access 2010, at 7; Wireless Internet Use, at 16.

  10. Total Wireless Data Traffic (CTIA)

  11. Data Evolution • 2G systems, some limited circuit switch data was possible • Cell sites had CDPD cabinets, maximum speed 19.6 kb/s, ran in reality no more than 14.4 kb/s, very little revenue with it • Depending on the chosen technology- • 2002/2003/2004 – CDMA carriers 1X RTT(2.5G) • GPRS them EDGE – GSM carriers • that incorporated packet data at a maximum speed of 144 kb/s, ran at approximately 90kb/s • Use of 2.5G packet data grew significantly into 4th Q 2006 and has declined since to almost zero • Broadband data (3G-EVDO) is currently experiencing tremendous growth but has started its rapid decline • 2010 – 4G LTE launched Verizon • Late 2011 launched AT&T

  12. Switching Equipment (Note rows of equipment replaced by 1 cabinet) depreciation & trending tables that are applied to wireless equipment do not take into account technology differences or pricing declines of electronics. Application of typical depreciation & trending tables to the historical acquisition costs would result in the above 2G equipment having a higher value per unit of capacity than 3G equipment that would operate far more efficiently and have greater functionality.

  13. Base Station/Cell Site RF Changing Technology/Smaller, less expensive/more Not ONLY GENERATION TO GENERATION, BUT WITHEN A GENERATION GSM BASE STATIONUMTS BASE STATION UMTS NODE Blte - EnODE B

  14. GSM BASE STATION • 6 foot “refrigerator” size cabinet

  15. UMTS BASE STATION • First Type of UMTS deployed – also a 6 foot sized “refrigerator” cabinet • Had more than double the capacity of the GSM and also did broadband data

  16. New UMTS – NODE B • A one-one ½ foot plug in that takes the place of an entire 6 foot cabinet

  17. LTE E-NODE B • LTE – a two foot cabinet (outside cabinet) that is 50% vacant • (the equipment only is 1 foot high) • Has more than double the capacity of even the UMTS Node B and is capable of doing voice as a data packet

  18. LTE and New UMTS (inside configuration) • LTE and UMTS mounted together in a “rack” • UMTS about 1.5feet high • LTE about 1 foot high

  19. New UMTS • Close up of the 1.5 foot high equipment

  20. LTE • Close up of the 1 foot high LTE

  21. Current – Future 4G LTE Buildouts LTE – Long Term Evolution 4G radio technology of choice for ALL Standardized under 3GPP All-IP IMS core network supports LTE What is 4G: Fourth Generation System Comprehensive IP Solution – Voice, Data, Streamed Multimedia can be given to users “Anytime & Anywhere”, ALL IP SYSTEM Based on OFDMA Capabilities Minimum 100 Mbits/sec indoors & outdoors, premium quality & high security Technologies WiMax (IEEE 802.16e) “going, going ………….gone” LTE (Long Term Evolution (3GPP) UMB (Ultra Mobile Broadband, formerly EV-DO Rev C, 3GPP2 ) Officially DOA (“dead on arrival” – actually DBA – “dead before arrival”

  22. Verizon's 4G LTE Rollout Will Be Complete By Mid-2013 -On an investor call earlier this morning, Verizon Wireless CFO Fran Shammo said that the carrier's buildout of its 4G LTE network will be completed by mid-2013. This is after an earlier estimate of the end of 2013, putting the company a full six months ahead of schedule. Right now, Verizon's LTE network already covers 250 million people; And as we know, Verizon will also begin its VoLTE (voice over LTE) rollout some time before the end of 2013, which will almost certainly make it America's first VoLTE network of any substantial size. This puts Verizon on the fast track to begin phasing out its CDMA equipment Verizon Wireless CTO Nicola Palmer announced that 35 percent of the carrier's overall data traffic traveled over its LTE network at the end of September 2012. She said that in "a few months" a majority of the carrier's traffic would be transmitted over its LTE network. Palmer said it took Verizon eight years to reach this milestone with its 3G CDMA network, but it only took the carrier two years to reach the goal with its LTE network

  23. SPRINT: Customers in Atlanta, Baltimore, Dallas/Fort Worth, Houston, Kansas City, San Antonio and Waco are already experiencing 4G LTE service. Stay tuned - over 100 new markets are expected to launch in the coming months. T-Mobile,MetroPCS Deal Is About LTE The merger of T-Mobile and MetroPCS is foremost about an LTE network and all it enables, Deutsche Telekom (DT) and MetroPCS, in the opening paragraph of an Oct. 3 statement announcing a "definitive agreement" to merge the small but notable carrier with DT's American brand, T-Mobile, First, they said, the transaction will create a "clear-cut technology path to one common LTE network." Long Term Evolution technology is critical to T-Mobile's ability to compete against the nation's top three carriers; is necessary for it to offer an Apple iPhone; and is the only network technology that it has in common with MetroPCS, as the latter's legacy network is based on Code Division Multiple Access (CDMA) technology. While T-Mobile has said it will begin offering LTE in early 2013, MetroPCS, which in Sept. 2010 jumped ahead of Verizon to offer the first commercial LTE deployment, completed its LTE rollout in March 2011. In August 2012, MetroPCS was the world's first carrier to offer voice-over LTE.

  24. NOT ONLY THE BIG BOYS (and GIRLS) US Cellular announced on Wednesday that it will increase its LTE network coverage by 30 new markets on November 5th. Tier 2 carrier U.S. Cellular is accelerating its plans to deploy LTE. The company, which had originally planned to deploy the next-generation technology in 2012, announced it will deploy LTE in 24 markets by November, covering approximately 25 percent to 30 percent of its total subscriber base. The company will outfit around 1,250 cell sites with LTE using its 700 MHz spectrum. Leap's LTE rollout to start next week October 10, 2012 SAN DIEGO--Cricket provider Leap Wireless (NASDAQ:LEAP) plans to begin turning on its LTE network starting next week. The carrier said it will flip the switch on one LTE market next week and will then announce additional markets in November. Leap spokesman Greg Lund said the carrier plans to have 21 million POPs covered by year-end and two-thirds of its current network footprint covered with LTE by 2015. Cellular South details network enhancements ahead of LTE launch August 19, 2011 | Cellular South said its plan to deploy an LTE network late this year is on schedule.. Cellular South plans to launch an LTE network in 700 MHz spectrum in the fourth quarter of 2011. Cellular South intends to use Voice over LTE technology and will continue its LTE deployment into 2012.

  25. Radio Interface Progression 2005 2006 2007 2008 2009 2010 • EV-DO Rev C • (UMB) (“DBA”) • 1.25-20 MHz FDD • 70+/30+ Mbps • 850/1900 MHz • EV-DO Rev 0 • 2x 1.25 MHz FDD • 2.4/0.15 Mbps (DL/UL) • 850/1900 MHz • EV-DO Rev A • 2x 1.25 MHz FDD • 3.1/1.8 Mbps • 850/1900 MHz • EV-DO Rev B • 1.25-20 MHz FDD • 4.9/1.8 Mbps • 850/1900 MHz Cellular • LTE • 1.25-20 MHz • 100/50 Mbps • WCDMA • 2x 5 MHz FDD • 0.384/0.384 Mbps • 850/1900 MHz • HSDPA • 2x 5 MHz FDD • 14.4/2.0 Mbps • 850/1900 MHz • HSUPA • 2x 5 MHz FDD • 14.4/5.8 Mbps • 850/1900 MHz • HSPA+ • 2x 5 MHz FDD • 40/10 Mbps • 850/1900 MHz • Fixed WiMAX • 1x 10 MHz TDD • 15/5.3 Mbps • 2.5/5.8 GHz • Mobile WiMAX • 1x 10 MHz TDD • 14/5.3 Mbps • 2.5 GHz • Mobile WiMAX • 1x 10 MHz TDD • 32/7 Mbps • 2.5 GHz WiMAX Note: All speeds are theoretical maximums. Device and deployment configurations will constrain attainable throughput capabilities. Radio Interface

  26. e LTE Transforms Wireless Access and Core Networks to All-IP Voice Circuit Switched Core (Voice) SMS 2G GSM EDGE 3G UMTS Voice Channels Packet Switched Core Email VPN Internet Separate Voice / IP Air Channels Separate CS / PS Core Networks 3G UMTS Voice Circuit Switched Core (Voice) SMS 4G LTE WIMAX Packet Switched Core Email VPN Internet Voice SMS/MMS VoIP / IMS Enhanced Packet Core (IP) Video Telephony IP Channel Email VPN Internet Common Enhanced (IP) Packet Core IP Video Common Packet (IP) Air Channel End-to-End IP Service Delivery 26 |

  27. 3G to 4G Migration: Efficient Spectrum Migration • For a 3G to 4G OFDMA migration, a ~2-3 year “phased transition” period can be planned, where both technologies are deployed (to ease subscriber migration). • This requires separate spectrum to be assigned to 3G and 4G technologies • 3G traffic will initially grow, peak, and ultimately decline as 4G traffic grows • 4G traffic will then take off and continue after migration • Efficient spectrum utilization is very important during this migration period To leverage OFDM benefits, a minimum starting bandwidth of 5 MHz is recommended. Smaller allocations are possible. 4G spectrum (carriers) +4G 5MHz 4G Total Traffic 4G traffic 10MHz spectrum utilization 3G spectrum (carriers) Re-scale to 10MHz4G +1 4G 1.4MHz Re-scale to 3MHz4G 3G traffic 5MHz - Time 3G provides a smooth, efficient spectrum migration to 4G

  28. What Does LTE Mean to End Users & Service Providers? Comparisons based on average aggregate performance Technology innovation significantly improves performance, which translates to better quality of experience for the end user

  29. Spectral Efficiencies The promise of 4G isn’t average spectral LINK efficiency…it’s in frequency-domain aggregation and scheduling (and therefore total throughput), and to a lesser extent, peak spectral link efficiency.

  30. Average Throughput Mbps 8 7 6 5 4 3 2 1 0 5 x 5 10 x 10 LTE-SpeedDependent on how much spectrum

  31. FUTURE • Actually, right down the road* • LTE Advanced • 100% Data Centric with voice as just a data packet • Technical Specifications: • In LTE-Advanced focus is on higher capacity: • Increased peak data rate, DL 3 Gbps, UL 1.5 Gbps (“actual” goal 1Gps Down, 500m up) • Higher spectral efficiency, from a maximum of 16bps/Hz in R8 to 30 bps/Hz in R10 • Increased number of simultaneously active subscribers • Improved performance at cell edges, e.g. for DL 2x2 MIMO at least 2.40 bps/Hz/cell. • The main new functionalities introduced in LTE-Advanced are Carrier Aggregation (CA), enhanced use of multi-antenna techniques and support for Relay Nodes (RN). • *The technology received its first commercial implementation in October 2012 by Russian network Yota • Yota Networks launched the technology LTE Advanced, which will provide data rates up to 300 Mbit / s on the user's device. LTE Advanced technology currently implemented by 11 base stations. LTE Advanced, п. The first consumer devices that support LTE Advanced, will have virtual network operator Yota Networks in the first half of 2013.

  32. Growth Drives Changes in Network CapacitiesLatency/Year of RolloutWCDMA = 150 ms (2003/4) HSPA = 100 ms (2005/6 HSDPA, 2007/8 HSUPA)HSPA+ = 50 ms (2008/9)LTE = ~10 ms(2009/10 LTE Advanced = less than 5msAccording to Cisco, Mobile video will grow at a CAGR of 90 percent between 2011 and 2016Mobile video traffic exceeded 50 percent for the first time in 2011Last year’s mobile data traffic was eight times the size of the entire global Internet in 2000In 2011, a fourth-generation (4G) connection generated 28 times more traffic on average than a non-4GGlobal mobile data traffic will increase 18-fold between 2011 and 2016Two-thirds of the world’s mobile data traffic will be video by 2016Cisco estimates that traffic in 2012 will grow 2.1-fold

  33. AT&T Mobile Data Volumes Estimated to Grow 10X Over Five Year Period Petrabytes/Month 2012 2013 2014 2015 2016 Mobile Data Volumes Estimated to Grow 10X Over Five Year Period 2012 2013 2014 2015 2016

  34. AT&T Recent Announcement 4G LTE Extending Our Buildout Expand build plan to 300M POPs U.S. coverage by Year‐End 2014 Densification of wireless grid Enhances AT&T’s ability to offer voice and data services Supports launching Voice over LTE Multiple technology deployments*: 10,000+ new macro sites 1,000+ distributed antenna systems 40,000+ small cells *Over plan period

  35. PARADIGM CHANGING TECHNOLOGY:THE ELIMINIATION OF THE CELL TOWER The “lightRadio Cube” … A small antenna and radio that has shrunk the regular workings of a conventional cell phone base station and antenna and could, as soon as mid-2012, replace those unsightly cell phone towers. Photo courtesy of Bell Labs / Alcatel-Lucent

  36. PARADIGM CHANGING TECHNOLOGY:THE ELIMINIATION OF THE CELL TOWER • The “lightRadio Cube” • Three 2-inch, stacked circuit boards for the antenna, radio, and network connection, replacing the conventional antenna system that connects every cell phone call. • Could radically transform the model for wireless networks and could actually change the way the wireless industry operates," per Dan Hays, Telecommunications Consultant with PRTM of Washington, D.C. • Developed by Bell Labs. • Could replace wireless towers blanketing urban areas and the countryside. • Can be positioned nearly anywhere: • Sides of buildings. • Light poles. • Arranged in grids for more strength. • Implication: Lowers the barriers for competitors to inexpensively gain entry into markets by [1] eliminating the need to obtain permission to place towers or [2] placing additional antennas on existing towers. These scenarios could be exploited as competitive threats which, in turn, translates into greater risk.

  37. WIRELESS SUBSCRIBERS BY TECHNOLOGYSource: Technology Futures, Inc.

  38. Summary Wireless Changing Technology • Analog – No longer in Service • TDMA – No longer in Service • GSM – In service but going, going…. Not capable of high volume data • UMTS – Now widely used for data and voice • HSPA – Software upgrades to improve data • HSPA+ - Additional software upgrades to further increase speed • It too is starting to be phased out • LTE (Long Term Evolution)4-G – Currently being deployed to enhance and replace 3G because of data demand. Based on IP technology. Relies on typical servers and routers for much of its infrastructure. • LTE Advanced – coming right on down the road

  39. VALUATION VALUATION VALUATION

  40. Valuation / Depreciation Issues • The introduction of a next generation of technology / equipment does not mean that the old equipment or technology is immediately removed from service. • Generations of equipment and technology are “layered,” meaning that customers are “migrated” from older generations and technologies to newer ones over a period or time. • During that process of migration, layers of overlapping equipment and old technologies are captured in the historical costs that are carried on the General Ledger and in the Fixed Asset Register. • The historical costs do not reflect the cost efficiencies and capacity improvements of newer technologies (i.e., functional obsolescence). • Wireless equipment depreciation factors that are applied to historical costs need to take into account the embedded inefficiencies and the layers of overlapping equipment / older technologies in order to derive an appropriate value. • Wireless equipment depreciation factors should also take into account: • Price declines of wireless electronics impacted by technology • Cost efficiencies and capacity improvements of newer technologies

  41. Principle of Substitution • States that a buyer will not pay more for a particular property if it costs less to buy a similar property of equal utility and desirability. People prefer the less expensive price if all other things are considered equal. • The maximum value of a property tends to be set by the cost of acquiring an equally desirable substitute property. • A prudent investor would pay no more for a property than the cost of acquiring an equally acceptable alternative property on a timely basis REPLACEMENT COST– ASA “is the current cost of a similar new item having the nearest equivalent utility as the item being appraised” – constructing a property with the same function/utility as the subject using current prices for labor and materials

  42. Replacement Cost • Principle of Substitution • Even if Replacement Cost used – it only eliminates excess capital costs • Subject property still has obsolescence • Excess operating costs (reduces margins) • Lacks ability to do streaming video (reduces potential revenue/income)

  43. Next Generation Technologies Result in Improved Network Performance & Lower Unit Costs

  44. RCN Impacts: Pricing Decline Technology Price Trends Electronic Price Trends

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