Global Wireless Data Market 2009 Update Chetan Sharma Consulting

1. Global Wireless Data Market2009 UpdateChetan Sharma Consulting

2. Global Wireless Data Market –2009 Update Executive Summary The Global Wireless Markets continued to grow rapidly especially in India and China where the carriers (combined) are adding almost 30M new subscriptions every month. Amongst the two, India is outpacing China 2:1. China touched 750M subscriptions while India crossed 525M by the end of 2009. With 4.6B subscriptions, the global subscriptions penetration was above 68%. The global mobile data revenues reached $220B and mobile data now contributes 26% of the overall global mobile service revenues. As expected, the overall global mobile revenues stayed pretty flat for the year at around $1.1 trillion as many regions were hit by the recession and the competition pushed the ARPU lower for many operators. While the countries like US, Japan, China, and India showed very little signs of pullback, most of Europe and the developing world experienced a decline in overall service revenues in 2009. Additionally, all the major markets have their data contribution percentages above 10% now. For some of the leading operators, data is now contributing almost 50% of the overall revenues. However, the increase in data ARPU is not completely offsetting the drop in voice ARPU for most operators. NTT DoCoMo continues to dominate the carrier ranking in terms of the mobile data service revenues, Verizon Wireless which became #2 replacing China Mobile and is slowly edging towards the #1 spot and is likely to overtake DoCoMo within the next few quarters. Though 4G as a standard hasn't been defined yet, the discussions around LTE and WiMAX deployments grew intense. TeliaSonera became the first operator to commercially launch LTE. At CTIA, Sprint/HTC became the first players to launch a WiMAX smartphone and MetroPCS/Samsung took the honors for the LTE smartphone. 2009 also marked the year when the global data traffic (monthly) exceeded the global voice traffic. In the US, the yearly mobile data traffic exceeded the voice traffic for the first time. We are also entering the phase of global mega-mergers in telecom. BhartiAirtel of India just acquired Kuwait-based Zain Group to become the 5th largest telecom group in the world (at the end of 2009, it was #9). There are now 14 telecom groups with 100M or more subscriptions. While China Mobile’s ARPU is 1/5th of its western counterparts, it operates its business at higher margin, around 51%. There are a number of global players mainly in Europe and Asia who have mastered the art of running lean operations and if they have good bank balance they are going to go shopping in the days ahead. From the revenue perspective, the $50 billion revenue club is more exclusive with China Mobile, Vodafone, AT&T Mobility, and Verizon Wireless as its sole members. As we sit at the cusp of the iPad era, there is a bigger transformation taking place and that is of the connected consumer electronic devices (CEDs). Few years from now, most popular CEDs will have connectivity. We are also approaching the start of phase where pricing of access will start to morph - we will see the introduction of family data plans (something we have been advocating for some time), ability to connect multiple devices to the same GB plan, more granular use plans (per session/day/week/mo/yr etc, roll-over GBs anyone?). As the number of connected devices/consumer increases, we will start worrying about Average Margin Per User (AMPU) or Average Margin Per Connection (AMPC) because ARPU won’t quite capture the dynamics of the industry.

3. Global Wireless Data Market – 2009 Update Exciting times indeed. Chetan Sharma Consulting conducted its semiannual study on the global mobile data industry. We studied wireless data trends in over 40 major countries - from developed and mature markets such as Japan, Korea, UK, and Italy to hyper growth markets such as China and India. This note summarizes the findings from the research with added insights from our work in various global markets. Impact of Global Recession • Telecom in general fared better than other industries. In some regions, it hardly caused a tremor. However, in most nations, the impact was felt by the operators. Amongst the 40 major operators we studied, SK Telecom, 3 Australia, KTF, T-Mobile Netherlands, Rogers, Softbank Japan, Singtel, Vodafone Italy, T-Mobile Germany, 3 Sweden, Telstra, China Unicom, and Vodafone Germany experienced increase in both the data ARPU and the overall ARPU during 2009. Some of increase was due to the fluctuation in international currencies e.g. Korea. • Looking at the data at a country level, most nations noted a decline in overall ARPU. Only Venezuela, Pakistan, Argentina, Bangladesh, Australia, and Poland showed positive increase in ARPU since 2008. • Rule of Three is kicking in most markets with smaller players having to consider the M&A option to remain viable. T-Mobile/Orange, Bharti/Zain tie-ups are just the start of that process. We are likely to see many international mergers in 2010 and beyond as power in the mobile ecosystem self-adjusts. • 5 new players joined the 100M subscriptions club. The new members are: Bharti Airtel (India), MTN Group (South Africa), Orascom (Egypt), Etisalat (UAE), and MTS (Russia). The top 9 telecom groups in the world are: China Mobile, Vodafone, Telefonica, America Movil, Telenor, T-Mobile, China Unicom, TeliaSonera, and Orange. Service Revenues • US extended its lead over Japan as the most valuable mobile data market in service revenue with US adding $44.56B vs. $32.5B for Japan in 2009. China with $20.3B was ranked number 3. US registered the highest growth amongst the top 3 with over 40% increase from EOY 2008 levels followed by Japan and China. • The top 10 nations by service revenues are: US, China, Japan, France, Italy, UK, Germany, Brazil, Spain, and India. • The top 10 nations by data service revenues are: US, Japan, China, UK, Italy, Germany, France, Australia, Spain, and Korea. • NTT DoCoMo continues to dominate the wireless data revenues rankings with over $16B in data services revenue in 2009. Almost 46% of its overall revenue now comes from data services. DoCoMo also crossed the 95% 3G mark. • NTT DoCoMo was followed by Verizon Wireless, China Mobile, AT&T, KDDI, Sprint Nextel, Softbank Mobile, T-Mobile USA, O2 UK, and China Unicom to round up the top 10 operators by wireless data service revenues. • Each of the top 5 carriers exceeded $10B in yearly mobile data service revenues in 2009 • Data revenues for the top 10 operators now account for almost 43% of the global mobile data revenues.

4. Global Wireless Data Market – 2009 Update • The biggest jump in data revenues was experienced by Verizon, Softbank, and AT&T. DoCoMo saw an 11% increase for the year. • Most of the operators in the developed nations are contemplating future strategies to boost data revenues such that the decline in voice revenues is at least compensated for. There are very few operators who have experienced increase in overall ARPU. • China reported approximately $20.3B in data revenues for 2009 and the percentage contribution from data services is around 32%, data ARPU is around $3.2. For India, data ARPU continues to stay below $0.50 as most of the new adds are voice only subscribers and there is continued price pressure in the market. • China Mobile remains the most valuable telecom operator with over $195B in market cap. It is followed by Vodafone at around $122B. Telecom groups in mature markets are under enormous pressure to either come up with a global expansion strategy or accelerate their existing plans. • In 2009, SMS’s vice like grip on data revenues continues to loosen a bit with many carriers seeing an increase in non-SMS data revenues. On an average, Japan and Korea have over 70-75% of their revenue coming from non-SMS data applications, US around 50-60%, and Western Europe around 20-40%. • NTT DoCoMo has been at the cutting edge of the mobile data evolution by creating new markets. They are exploring new technologies and social experiments ahead of almost anybody else in the market. Our long history with the Japanese and Korean markets has taught us that while the individual strategies in each market will differ, one should study the trends, technologies, and ecosystem dynamics in these markets to get a sense of what’s coming. • From the revenue perspective, the $50 billion revenue club has limited membership with China Mobile, Vodafone, AT&T Mobility, and Verizon Wireless as its sole members. ARPU • Most of the major operators around the world have double digit percentage contribution to their overall ARPU from data services. Operators like DoCoMo, and Softbank are over 46%. KDDI, 3 Australia, 3 Italy, 3 UK, Vodafone UK, O2 UK, Telstra, and 3 Sweden exceeded 35% and many others are on the verge of crossing the 30% mark. • NTT DoCoMo reported the highest data ARPU for the year while Rogers took away the honors for the highest overall ARPU. Other notable percentage increases in ARPU were from 3 Italy, SK Telecom, KTF, T-Mobile Germany, 3 Sweden, and T-Mobile Austria. The Japanese operators saw a decline in ARPU by 3%. • The biggest percentage contribution by data ARPU has been consistently registered (since mid 2002) by two Philippines carriers – Smart Communications and Globe Telecom with over 53% (or $2) contribution coming from the data services. • Softbank of Japan looks set to be the first major operator (outside of Philippines) with more revenues coming from data services than voice.

5. Global Wireless Data Market – 2009 Update Mobile Data Traffic • We have been calling attention to the tremendous increase in mobile data traffic for some time. The discussion has hit mainstream and many operators are scrambling to nail-down their short-term and long-term strategies to manage the data traffic growth in their networks. See our paper on the subject "Managing growth and profits in the Yottabyte era." The recommendations discussed in the paper are slowly being adopted by various vendors and operators worldwide. • The global mobile data traffic exceeded an Exabyte for the first time in 2009. In fact, the data usage is growing so fast that this year, the two territories experiencing the most growth - North America and Western Europe are both going to exceed an Exabyte in mobile data traffic. • 2009 also marked the year when the global data traffic (monthly) exceeded the global voice traffic. • For many of the superphone heavy operators, devices like iPhone and Android account for more than 50% of their total data traffic. • 2010 will mark the first year when the total number of mobile broadband connections will exceed the total number of fixed broadband connections. • For more mobile data traffic analysis, please stay tuned for the second edition of our Yottabyte research Subscriptions • India continues to be the hottest market on the planet in terms of net-adds with (again) a world record-setting month in Jan 2010 with 19.9 million net adds. To give you a perspective, this is almost 1.5 times  the number of subscribers US added in the whole year. It is like adding a Canadian wireless market every month. For the year 2009, India added 177 million subs vs. 106 million for China. Combined, one year of growth in these two market is equivalent to the size of the third largest market - the US, to date. Making money on the net-adds is a different proposition all together (more discussion on the international market in our global market update later this month) • Thanks to the explosive growth in the emerging markets, the global mobile market went past 4.6B in 2009 and is likely to cross the 5B mark in 2010. The global mobile subscriptions now represent over 68% of human population on planet earth. • China crossed the 700M subscription mark in July while India's total went past 500 in Nov. In the meantime, US crossed the 90% subscriptions mark in 2009. • In the last 10 years, the growth patterns in the mobile industry have completely reversed. In 1998, the developed world accounted for 76% of the subscriber base, in 2008; the percentages have flipped with developing world now accounting for 76% of the subscriber base and are likely to increase to 85% by 2018. • The top 10 nations by subscriptions are: China, India, US, Russia, Brazil, Indonesia, Japan, Germany, Pakistan and Italy.

6. Global Wireless Data Market – 2009 Update Mobile Apps • The total number of app downloads in 2009 reached 7 billion resulting in approximately $4.1B in revenues 12% of which was from mobile advertising. • The number of non-carrier appstores jumped to 38 from 8 in the previous year. • While Asia had the highest percentage of the download share, North America had the highest share of the apps revenue accounting for over 50% of the total revenue. • The paid ASP in 2009 was approximately $1.9 and the advertising revenue generated from the free applications was approximately $0.09/user/app/year • For a more detailed analysis of the mobile apps market, please see our paper “Sizing the Global Mobile Apps Market” Others • Messaging still accounts for the lion-share of data service revenues. However, other services such as Mobile Music, Mobile TV and video streaming, Voice navigation, PNDs, Mobile Games, IMS, LBS, Mobile advertising, and others have gradually chipped away the share from messaging. Alternate devices with wholesale cellular agreements are also flooding the market. In Japan, Mobile Commerce is expected to do much better than Mobile Advertising. Though not much talked about, enterprise applications are also being adopted widely esp. in North America as more workers become mobile and corporations seek efficiencies in their operations and supply-chain. • Nokia dominated the year as usual but the revenue share is shrinking and so is the lucrative smartphone share. Apple, RIM, and Google are relentlessly attacking the top tier while Samsung, LG, and others giving a tough fight for the bottom tier. We see a new middle tier emerging that has the form factor of a featurephone and functionality of a smartphone. The smartphone category is getting further split into regular qwerty smartphones like Blackberry and the touch and full browser based superphones like the iPhone and Droid. • The year was dominated by several blockbuster device launches like the iPhone 3GS. • Next few years will be big for infrastructure providers as many countries both developed and developing get into upgrading their infrastructure. • Willcom, the small Japanese carrier that started the flat-rate unlimited phenomenon filed for bankruptcy last month. • In the US, the increase in messaging volume catapulted US as the number one texting nation by messages/user/month going past the long-time leader Philippines. • Deployment of 3.5G technologies is in full swing. However, it is the discussion of 4G that is occupying the headlines, even though 4G hasn't been fully defined yet and the current candidates for 4G are nowhere near the performance goals of 4G (150Mbps/50+Mbps). Many larger operators have laid out their plans for deploying LTE starting this year.

7. Global Wireless Data Market – 2009 Update • We are also seeing regulators playing an active role in making the markets competitive and attractive in the long-term. • The velocity with which the smartphones are being introduced into the market esp. the western markets, one wonders if in five years, we will be using the moniker to describe devices and if the "dumbness" in the device market will be practically eliminated. Led by Apple's Appstore success, significant investments are pouring into the appstore world. In parallel, the debate over apps vs. mobile web is intensifying. The implications of the transition will be significant on the ecosystem on many levels. 2010 will be a critical year on many fronts. As usual, we will be keeping a close eye on the trends in the wireless data sector in our blog, twitter feeds,future research reports, and articles. The next US Wireless Data Market update will be released in May 2010. The next Global Wireless Data Market update will be released in Sept 2010. Your feedback is always welcome. Thanks. Chetan Sharma Disclaimer: Some of the companies mentioned in this note are our clients.

8. Mobile Markets: The New World Order Arrows indicate change in position in 2009

9. Mobile Revenue Distribution

10. Recession, Competition or Both?

11. Wireless Data ARPU in Different Global Markets (2009)

12. Wireless Data ARPU of Major Global Carriers (2009)

13. Size of the Global Mobile Market (2009) Global Population approx 7B Each dude represents approx 100M subs

14. Top 3 nations: Wireless Data Service Revenues

15. Monthly Net Adds: India vs. China

16. Mobile subscriber growth in top 3 markets

17. Top Carriers by Wireless Data Revenues

18. Top Telecom Groups by Subscriptions

19. Top Telecom Groups by Revenue

20. http://www.chetansharma.com

21. Announcing Sept 8th, 2010 Seattle An Event to Explore the Future of Mobile. Inspire, Educate, and Collaborate.

22. Confirmed Speakers Steve Elfman, President, Sprint Glenn Lurie, President, AT&T, Subba Rao, CEO, TataDoCoMo, Mike Sievert, Chief Commercial Officer, Clearwire Stephen David, Former CIO, Proctor & Gamble, Bud Albers, CTO, Disney, Louis Gump, VP Mobile, CNN, Paul Palmieri, Founder and CEO, Millennial Media, Dr. Sailesh Chutani, CEO, Mobisante, Abhi Ingle, VP, AT&T Wireless, Henry Tirri, SVP, Head of Research, Nokia, Ken Denman, CEO, Openwave, Amir Mashkoori, CEO, Kovio, Dr. Genevieve Bell, Intel Fellow, User Experience, Intel, Hank Skorny, SVP, Real Networks, Jon Stross, VP & GM - Babycenter, Johnson & Johnson, Dr. Suzanne Sysko, Chief Medical Officer, WellDoc, Dr. Boris Nikolic, Sr. Program Officer, Bill & Melinda Gates Foundation, Krishna Vedati, SVP & GM - Mobile, AT&T Interactive, Chris Dean, Chief Strategy Officer, Skype, Russ McGuire, VP, Sprint Nextel, David Weiden, General Partner, Khosla Ventures …. others to be confirmed Generous Sponsors Platinum Sponsors for sponsorship and speaker opportunities please visit www.mobilefutureforward.com

23. Next Mobile Breakfast Series Event June 10, 2010 • Startup Nation • Mobile industry through the eyes of Startup CEOs • Olga Kharif, Senior Writer, Bloomberg Businessweek (moderator) • Paul Griff, CEO, Root Wireless • Dr. Sailesh Chutani, CEO, Mobisante • Paul Palmieri, CEO, Millennial Media • Mike McSherry, CEO, Swype …More Speaker(s) to be announced Registration is Open Now www.mobilebreakfastseries.com

24. chetansharma.com twitter.com/chetansharma chetansharma.com/blog facebook: chetansharma mobilebreakfastseries.com twitter.com/mobileseries mobilefutureforward.com twitter.com/mfutureforward