Comparison of Technology Adoption Rates for Terrestrial Wireless Services

1. Comparison of Technology Adoption Rates for Terrestrial Wireless Services GVF Regulatory Working Group 10 October 2007

2. Agenda • Background • Project Objective and Overview • Methodology • Preliminary Findings • Wireless Local Loop (WLL) • Third Generation Cellular (3G) • Worldwide Interoperability for Microwave Access (WiMAX) • Next steps

3. Study Objective • The ITU’s World Radiocommunication Conference 2007 (WRC-07) in October, Agenda Item 1.4 will “consider frequency-related matters for the future development of IMT-2000 and systems beyond IMT-2000.” • IMT-2000 refers to the International Mobile Telecommunications-2000 global standard for third generation (3G) wireless telecommunications. • The ITU will evaluate the reallocating extended C-band spectrum from its current use by the satellite community for use by terrestrial wireless operators. • The conclusions from the discussions will influence national decision-makers, with potentially far-reaching implications for the future of key satellite operations. • In preparation for this debate, the Global VSAT Forum (GVF) is conducting, with support from Futron Corporation, an “Analysis of Technology Adoption Rates for Advanced Terrestrial Wireless Services” to quantify adoption rates of advanced terrestrial wireless services • Review and compare forecast and actual adoption of three “hyped” terrestrial wireless services, WLL, 3G and WiMAX • Evaluate common issues resulting in inaccurate trending, analysis and forecasts

4. Study Tasks • Collect and analyze information on the forecast – current and past -- rollout of advanced terrestrial wireless services • Utilize ITU documentation and other public source material, including published research and forecasts used during the debate to date. • Organize this data into a simple MS Excel database format • Purchase research reports as needed • Tabulate actual numbers for the technologies reviewed (actual) • Compare forecast uptake with actual adoption • Draft presentation and corresponding White Paper

5. Process Reviewed publicly available information for research material Utilized Futron’s telecoms library and other sources for information Based on information collected, purchased additional material in “fill the gaps” Organized forecasts in database and Methodology Define 3G as WCDMA and cdma2000 EV-DO (excludes 1x) In cases when companies issue sequential forecasts, e.g., quarterly WLL by Pyramid Research, we took the most recent forecast In cases when companies forecast high, medium, low ranges, we used the medium range We are not using any forecasts from defunct companies A few comments on methodology…

6. Technology Adoption 101 defines the concept of innovation as the process by which, over time, new products and services are introduced into and accepted by the market • Innovators promote demand for a new product/service, e.g., creating technology demonstrations or pilots • Early adaptors set up small commercial systems to test technology and consumer acceptance, e.g., beta pilots • Early majority represent the first wave of users • The late majority represent a large user base that only slowly adopt the new technology • Laggards represent a disinterested or economically unviable consumer segment S-curve Impact Users • Innovators represent slow initial growth • Early adaptors create an inflection point where slow growth rates rapidly increase • Early majority keep growth rates high until this market segment becomes saturated • The late majority, once saturated, represent an decline in growth representative of mature markets • Laggards represent a disinterested or economically unviable consumer segment

7. Users Examples of actual forecasts illustrate the difference curve associated with forecasts Standard S-curve Actual s-curves have different slopes, which represent uptake of the new service After the curve hits its apex, the number of subscribers falls, as is the case for analogue cellular

8. Migration of Wireless Standards UMB WLL MMDS LMDS MSS FSS http://www.wimaxtrends.com/aboutwimax; adapted by Futron Looking at the big picture for wireless markets – both fixed and mobile – there is a clear progression of overlapping and competing technologies, standards, and business models • Distinct barriers between fixed and mobile are blurring • No clear-cut technology winners … but many losers • The best technology doesn’t always win • Technology migration tends to be evolutionary rather than revolutionary

9. Wireless Local Loop (WLL) • 9

10. Wireless Local Loop Latest Forecast vs Actuals, 1999 - 2004 150 Actuals Most recent available forecast 100 Global Subscribers (M) 50 - 2000 1999 2003 2004 2002 2001 Year The results of our comparison of forecast and actual adoption suggest a mismatch between initial industry perception and commercial acceptance of WLL technology

11. Thus, the initial hype of around WLL was never realized • In the mid-1990s WLL was a highly hyped fixed wireless access technology with huge potential as a cost effective means of meeting unmet demand • Touted for its significantly lower cost of installation • Targeted as a solution for developing markets • Hailed as a particularly well suited for rural environments • Many dozens of trials and a dozens commercial operations were initiated • Qualcomm installed WLL systems in Russia and India, and trials in Bangladesh, Nigeria, the Philippines, and the Ukraine. • Ericsson has supplied some 150K WLL to Sri Lanka • There are several dozen ongoing commercial installations globally • Initial forecasts predicted hundreds of millions of subscribers • Actual numbers in the tens of millions • Pakistan (population 165M M) passed the 1M WLL mark in Sept 2006 • India (population 1.1B) has about 5M WLL subscribers, adding about 100K per month (as compared to 4M+ new cellular subs each month) • Why didn’t the market materialize? • Divergent standards/technologies • Delays in licensing, spectrum allocation and regulation • Competition from cellular services

12. Quotable Quotes - WLL “What I can tell you off the top of my head is that the forecasts we were making in Latam, at least, ended up being overly aggressive often because of government licensing issues (either delays of the auctions, or consortia spent too much getting the license then couldn't raise enough cash to actually build out the networks, etc.), and in the case of WLL... cellular penetration (and skipping land-lines altogether to just get a prepaid cellphone) definitely hampered its uptake/relevance in the consumer market.” former Pyramid Research Forecaster • 12

13. Third Generation Cellular (3G) • 13

14. 3G services are experiencing growth globally but there remains a significant gap – some 100M users -- between initial expectations and actual adoption rates

15. Our findings highlight that the original expectation of 3G did not match actual subscribers terms of the cut-over of service as well as customer acceptance • In early 2000s, European companies spent more than 100B Euros to purchase 3G licenses, and industry expectations were that Asia would quickly follow • Early forecasts predicted a cut-over of service 2000, with 100M+ subs by 2005 • In some large Asian markets, 3G has not been successfully deployed • In the Philippines (Pop 91M), cellcos are focusing on mobile TV after 3G fails to attract a significant number of subscribers, in part due to dropped calls and technical glitches • As of Sept 2007, plans for 3G in Thailand (Pop 65M) may be delayed due to a failed financial transaction between TOT and CAT Telecom • India (Pop1.1B) hasn’t introduced 3G and planning remains in the very early stages • So why has technology adoption been slower than anticipated? • Operators “overbid” for spectrum which resulted in lower capex, reduced coverage and lower investment in content, marketing, and product development • Handsets and service are more expensive than anticipated, in part driven by lower handsets production and higher service costs • Consumers not as willing to pay for additional data services and there has been general lack of buy-in by from 2G mobile users to upgrade to 3G services • WAP experience may have lowered consumer excitement

16. In their own words … in 1999 the initial 3G forecasts were focused on Europe and produced relatively modest projections • Early 3G forecasts were based on a series of reports written by an industry user group, the UMTS forum, initially supported by GSM operators and equipment manufacturers. • Initial forecasts were base on 3G technology adoption rates using overall mobile wireless subscriber numbers • These preliminary forecasts focused on Europe and produced relatively modest projections for initial uptake • European 3G penetration was initially forecast at 23% by 2010 Report 6 - UMTS/IMT-2000 Spectrum, July 1999; MM refers to multimedia services later called 3G

17. Aug 2000 In their own words … By mid-2000 the initial forecasts were raised, in part due to industry reports and forecasts Report 6 - UMTS/IMT-2000 Spectrum, July 1999 • An August 2001 Report by the UMTS Forum suggest that original analysis was too conservative and increased the rate of 3G adoption based on current market drivers • “It was estimated [in Report 9] that 28% of the total worldwide mobile subscribers will be served over a 3G network by 2010”

18. Aug 2001 In their own words … by mid-2001, however, initial 3G targets were missed, but the Forum predicted higher update would validate its previous forecast • By August 2001, however, initial 3G technology adoption was lower than previous report as highlighted by slower-than anticipated installation of 3G networks • However, the Forum suggested there will be a higher initial uptake (rate of adoption) so the initial forecasts would still be accurate over time Source: Report No. 17, Report from the UMTS Forum, The UMTS Third Generation, Market Study Update, August 2001

19. Feb 2002 In their own words … In it’s first Post-9/11 report, the Forum focused on rapid 2G expansion and highlighting “3G Network Access” rather than subscribers to 3G services Source: Report 18, Report from the UMTS Forum, Long Term Potential Remains High For 3G Mobile Data Services, February 2002 • According to the report, by 2010 28% of the world’s mobile subscribers would have access to 3G networks, and coined this “a conservative assumption” • This figure doesn’t predict what presentation of this target market would opt for 3G

20. In their own words .. Key findings for this 2002 report highlight important facets to predicting technology adoption rates • “Several key economic factors have been re-examined in light of the events of September 11, 2001 and other current economic trends. In the final analysis, even as more details regarding EOY 2001 results are being announced, we believe the revised worldwide forecast in Report 17 is still valid. This is largely due to the fact that the forecast is based on an assumption of slow adoption in the first five years. As yet, the industry and financial community have not suggested that the current economic environment will continue for the long term. Therefore, for the near term, the conservative and fact-based methodology used for the forecast is being validated by recent events.” • It is important to note that subsequent UMTS reports forecast total mobile subscribers, and do not break out 3G • “The UMTS Forum market studies have consistently assumed that 3G adoption will be slow in the early years and will only be used by less than 30% of the worldwide mobile-subscriber base by 2010. Slow early adoption is to be expected for any new technology, especially one that requires new end user behaviour and the forging of new business relationships. Due to the 2001 economic climate, the August 2001 forecast in Report 17 modified the 3G-adoption curve used in Reports 9 and 13 to be slower in the initial years.” Source: Report 18, Report from the UMTS Forum, Long Term Potential Remains High For 3G Mobile Data Services, February 2002

21. Quotable Quotes – 3G “3G Wireless Will Completerly Redefine Telecom … Traditional telecom models will be replaced … this report shows how 3G wireless services will reach 25M subscribers by the end of 2002.”, Datacomm Research Report, 27 Nov 01 “Cellcos focus on mobile TV after 3G fails to excite: Filipino mobile operators Smart Communications and Globe Telecom have admitted 3G demand has yet to pick up in the country since it was introduced at the start of 2006. The Manila Times reports that problems with dropped calls, high handset prices and other technical glitches have left the 3G boom nowhere in sight, despite all the hype. Smart and Globe each won one of the four hotly-contested 3G licences issued by the government but are uncertain when the market will begin to blossom. Smart president Napoleon Nazareno said take-up will only begin when the price of handsets comes down: ‘It’s really a handset driven [market],’ he told the paper. His comments were echoed by Ferdinand de la Cruz, the head of Globe’s consumer wireless group… Globe says that of the 250,000 3G phones on its network, only 50,000 to 60,000 actually use the service. Smart meanwhile, says that it has around 500,000 3G-enabled phones on its network with only 200,000 counted as actual users.”, Telegeography’s Comms Update, 17 Sept 2007 “3G dream turns into nightmare for TOT: Thai state-run telco TOT’s ambition to launch a 3G mobile network has been thrown into doubt after sister operator CAT Telecom refused to complete an earlier agreement to sell its 42% stake in joint venture GSM provider Thai Mobile to TOT for USD75.4 million, according to TOT board spokesman Djit Laowattana, quoted by the Bangkok Post. Negotiations for TOT to buy CAT’s stake in the debt-ridden minor player have dragged on for several years…”, Telegeography’s Comms Update, 24 Sept 07 • 21

22. Worldwide Interoperability for Microwave Access (WiMAX) • 22

23. Industry excitement for WiMAX is very high, but since the technology is in the early stages, it is unclear whether or not actual rates adoption will meet expectations

24. Preliminary Findings: predictions for WiMAX have oversold initial uptake • Since the early 2000s, WiMAX has been a highly hyped fixed and mobile wireless access technology • There have been numerous trials and the installation of a few commercial operations • Initial forecasts predicted significant market uptake beginning in 2009 • Recent subscriber numbers suggest initial adoption may occur at a slightly rate lower than many forecasts

25. In their own words...A recent WiMAX Forum Report suggests that some market forecasts for WiMAX services are significantly above their own internal forecast • Key findings of the report suggest that operators would need a minimum of 30 MHz of spectrum to handle traffic in urban areas based on traffic studies through 2015 • “It could be argued that spectrum requirements for initial roll-out may be less than 30 MHZ per operator as traffic volumes begin to grow. Advanced antenna technologies are not immediately available however. Consequently it may be prudent to commence operations using 30 MHz per operator and assume that a trade-off will arise whereby the use of advanced antenna technology becomes viable in time to meeting rising traffic demands. Source: TeleCompetion Group, A Review of Spectrum Requirements for Mobile WiMAX Equipment to Support Wireless Personal Broadband Services, WiMAX Forum, September 2007

26. While WiMAX may be the next big thing, there remains a high degree of uncertainly around the technology’s ultimate level of commercial success • WiMAX forecasts may be overly aggressive for several reasons: • Consumers may not be interested in upgrading services • Similar to the on-going 2G – 3G migration, where some customers are less interested than anticipated in migrating to new technology • Growth of 3G and 3.5G subscriber base may reduce demand for WiMAX • Misread of consumer interest and/or willingness-to-pay for mobile broadband services • Market potential may be limited by a commonly-held technology misconception that WiMAX is capable of delivery speeds at 70 Mbps over 50 kilometers • Both statements are true in ideal circumstances but mutually exclusive, e.g., WiMAX cannot deliver 70 Mbps at a distance of 50 kilometers • Similar to DSL whereby bandwidth speeds degrade over distance • Technology leap-frogging whereby WiMAX could be surpassed by newer technology • The CDMA Development Group has proposed a Ultra Mobile Broadband (UMB) standard that the group hopes with trump WiMAX • UMB enables 288 Mbps in a 20-megaherz bandwidth based on Orthognal Frequency Division Multiple Access (OFDMA) • Marketplace hype may be driven by proponents of the technology and companies that would likely benefit from deployments • Divergent global and regional standards could reduce foreseen economies of scale • Government constraints may delays commercial rollout – license, auctions, et al

27. Quotable Quotes - WiMAX “WiMAX is the new hype child of the wireless industry”, Yankee Group, Finding a Place for WiMAX in the Broadband Market, 2005 “Only about 5 percent of Europeans expressed interest in watching television or video on their cellphones in the next 12 months…At the same time some 20 percent of Asians said they would watch TV on their phone screens.”, Gartner study on Europe, Sept 07 “Proposed ‘WiMAX Killer’ Standard Unveiled”, TelecomWeb 25 Sept 07 (see next page) • 27

28. Details on UMB • Proposed 'WiMAX Killer' Standard Unveiled • September 25, 2007 • The CDMA Development Group (CDG) and the Third Generation Partnership Project 2 (3GPP2) today released their proposed Ultra Mobile Broadband (UMB) standard, the technology they hope will trump the mobile iterations of IEEE 802.16e-2005 (so-called mobile WiMAX) and Long-Term Evolution (LTE) as the world's eventual 4G standard. • The proposal now needs to undergo final standardization, which backers predict will be a rapid process. In the United States, UMB is scheduled to emerge as Telecommunications Industry Association (TIA) standard TIA-1121. • The UMB proposal is an Orthogonal Frequency Division Multiple Access (OFDMA) solution that uses "sophisticated" control and signaling mechanisms; radio resource management (RRM); adaptive reverse link (RL) interference management; and such advanced antenna techniques as Multiple Input Multiple Output (MIMO), Space Division Multiple Access (SDMA) and beamforming. It supports inter-technology handoffs and seamless operation with existing CDMA2000 1X and 1xEV-DO systems. • It claims to be able to deliver both high-capacity voice and broadband data in all environments, including fixed, pedestrian and fully mobile in excess of 300 km/hr. It supports, proponents say, as many as 1,000 simultaneous VoIP users within a single sector, using 20 megahertz of bandwidth. Average latency is 14.3 mSec over-the-air to support VoIP, push-to-talk and other delay-sensitive applications with minimal jitter. • The unveiling of the UMB proposal, an IP-based mobile broadband standard alleged to enable peak download data rates of 288 Mb/s in a 20-megahertz bandwidth, this week is clearly no accident - the timing is designed to rain on the parade at a WiMAX show taking place in Chicago, with evidence that a 4G technology potentially four times as fast as mobile WiMAX is almost market-ready. The CDG and 3GPP2 estimate initial commercial availability at the first half of 2009, and they clearly hope to convince carriers looking at 802.16 to instead wait just a little longer what the CDG fancies is a technology that will "leapfrog other wireless broadband technologies to become the leading standard adopted for next generation mobile telecommunications." • And, of course, all the players - including UMB, LTE and the mobile WiMAX camp - are in a death match for designation as the official definition of wireless 4G technology. That definition won't be released until the 2008/09 timeframe, in the form of the International Telecommunication Union's (ITU) IMT-Advanced requirements. However, some folks, like those at research house In-Stat, also think initial implementations of LTE, UMB and 802.16 WiMAX may fall short of throughput and other expectations, with later enhancements or even some type of technology combination actually bringing real 4G to the table. • But that's not what the corporate backers of each of the technologies really wants (Qualcomm is behind UMB, which it considers a member of the CDMA 2000 family; Ericsson is touting LTE; and Intel has spent uncounted millions singing the glories of WiMAX). Each wants its technology to be "the one" - thus the faster the push to get UMB at least certified as a TIA standard before the ITU acts, the better to compete with the fact there is an IEEE designation for the foundation technology behind what is being called WiMAX (without, interestingly, the official permission of the IEEE). • "It is expected that the UMB specification will be quickly converted into an official global standard by the 3GPP2 organizational partners," the 3GPP2 said in its statement unveiling the final UMB proposal. It also noted that those "organization partners" include the Association of Radio Industries and Businesses (ARIB) in Japan, China Communications Standards Association (CCSA), TIA in North America, the Telecommunications Technology Association (TTA) in South Korea and the Telecommunications Technology Committee (TTC) in Japan.