The Mobile Internet Report Key Themes*

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With VoIP, a Phone Is Still a Phone, but Very Different Skype VoIP (521MM Users, +41% Y/Y, CQ3) on Multiple IP-Enabled Devices Skype on PC / Laptop Skype on Netbooks / <strong>Internet</strong> Tablets 3 SkypePhone Skype on … Cordless Phone Wi-Fi Phone Skype on Smartphones Source: Skype / eBay. 112
VoIP = Material Impact on Traditional Switched Access Lines 17MM+ Lines Lost to Cable / VoIP (1) in USA Since CQ2:01 USA Total Switched Access Line Losses, CQ1:04 – CQ3:09 Quarterly Switched Access Line Net Loss (000) 1Q04A 4Q04A 3Q05A 2Q06A 1Q07A 4Q07A 3Q08A 2Q09A 0 (500) (1,000) (1,500) (2,000) (2,500) Net Lines Lost to Wireless + Others (3,000) Net Lines Lost to Cable (VoIP) Y/Y growth 0% -2% -4% -6% -8% -10% -12% Switched Access Line Y/Y Growth (%) Note: (1) 17MM cumulative cable telephony net adds in USA from CQ2:01 to CQ3:09, all cable telephony operates on VoIP technology. Source: Morgan Stanley Telecom Research. 113
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The Mobile Internet Report Key Them
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What You are Reading - The Mobile I
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Key Mobile Internet Themes 1) Wealt
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…Key Mobile Internet Themes… 3)
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…Key Mobile Internet Themes 6) Ma
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Key Theme #1 11
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Key Theme #1 - Wealth Creation / De
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Wealth Creation / Destruction Is Ma
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Winners of Each New Cycle Often Cre
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NCR Won Big in Mainframe Era, DEC W
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Compaq + Microsoft Won Big in PC Er
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Net, New Computing Cycles Create /
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New Computing Cycle Characteristics
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12,000,000 Mobile Internet Traffic
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Pace of company change related to m
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Rapid Pace of Corporate M&A Related
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Technology Companies Created > Weal
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Top Internet-Related Tech Wealth Cr
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We Know What Happened Over Past 15
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Mobile Internet Likely to Follow Ti
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2009 Global Top 30 TMT Companies by
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Key Theme #2 43
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Key Theme #2 - Mobile Ramping Faste
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Apple iPhone + iTouch = Fastest new
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Mobile Internet Outpaces Desktop In
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Tech Cycles Tend to Last Ten Years
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User-Interface Revolutions (Overlai
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Broad base of IP-based mobile usage
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Wireless Network Primer GPS - Glob
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Increasingly, Mobile Phone Usage is
Page 61 and 62: Mobile Devices + Infrastructure Ena
Page 63 and 64: Cloud-Based Content / App Services
Page 65 and 66: Machine to Machine (M2M) Takes on N
Page 67 and 68: Rapid growth in number / type of mo
Page 69 and 70: GPS proliferation (and related loca
Page 71 and 72: GPS = 421MM Chipsets Sold in 2008E
Page 73 and 74: WIRED Magazine - “Inside the GPS
Page 75 and 76: 3G proliferation is a big deal. 75
Page 77 and 78: 3G = Key to Enabling Internet Usage
Page 79 and 80: 3G Penetration Inflection Points Va
Page 81 and 82: 3G Growth Still Concentrated in Dev
Page 83 and 84: USA Likely to Remain Most Dynamic 3
Page 85 and 86: Wi-Fi proliferation is a big deal.
Page 87 and 88: Wi-Fi’s High Speed + Wide Availab
Page 89 and 90: 100,000 Wi-Fi Households (USA) = 20
Page 91 and 92: Bluetooth proliferation is a big de
Page 93 and 94: Bluetooth = 1.3B Chipsets Sold in 2
Page 95 and 96: What Is a ‘Smartphone’ We defi
Page 97 and 98: Smartphone of 2009 = As Powerful as
Page 99 and 100: Mobile Internet - Leveraging the Ev
Page 101 and 102: Notebook PC + Smartphone Shipments
Page 103 and 104: Impressive / Rapid Growing Smartpho
Page 105 and 106: Consumer Internet-Enabled Devices -
Page 107 and 108: Significant Growth in 3G + Smartpho
Page 109 and 110: Unified Communication (UC) Voice (~
Page 111: If VoIP Leader Skype Were a Carrier
Page 115 and 116: Google Voice Putting User in Contro
Page 117 and 118: Social Networking - Global Phenomen
Page 119 and 120: Facebook = Garnering Rising Share o
Page 121 and 122: Powerful Devices (like iPhone) + Ne
Page 123 and 124: Video = High Usage + High Bandwidth
Page 125 and 126: Mobile Ramping Faster than Desktop
Page 127 and 128: Key Theme #3 1) Wealth Creation / D
Page 129 and 130: Apple Leading in Mobile Innovation
Page 131 and 132: Apple’s Impressive Share Likely M
Page 133 and 134: iTunes App Store = Shot Heard ‘Ro
Page 135 and 136: iTunes App Store = The Killer Mobil
Page 137 and 138: Mobile App Definition A mobile appl
Page 139 and 140: Users / Developers / Apple = Likely
Page 141 and 142: Apple iPhone / iTouch = 2B+ App Dow
Page 143 and 144: Most Downloaded Free iPhone Apps -
Page 145 and 146: iPhone Apps for Nearly Everyone - L
Page 147 and 148: Mobile Developer Mind Share / Focus
Page 149 and 150: Powerful mobile device usage trends
Page 151 and 152: iPhone / Android Gaining Mobile Int
Page 153 and 154: Mobile Internet Operating System Co
Page 155 and 156: Handset Device Price / Volume Pyram
Page 157 and 158: High-End Quickly Becomes Low-End -
Page 159 and 160: iPhone 3G BOM = 33% Lower than iPho
Page 161 and 162: Apple iTunes App Revenue = Could Su
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Apple leads race for handset profit
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Apple + RIM = 13% Share of Handset
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Apple / RIM - Smartphone Leaders Co
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PC Platform Leaders (Microsoft + In
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Apple iPhone Base Case + Upside Cas
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Scenarios for Apple iPhone Market S
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The Apple Tablet Potential Should N
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Apple - Potential Long-Term Challen
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Google Android’s Open + Low Cost
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Apple may believe its platform mana
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In Technology, Products with Most /
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Multitudes of Android Phones - Tens
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Android’s Conundrum Open-Source S
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Next Generation Android Smartphones
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Apple’s Potential Long-Term Chall
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Native Apps Benefits Challenges For
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Native Apps Should Always Have Perf
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Apple = Likely Well Positioned to N
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Do Incumbents Have Apple-Like Poten
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Smartphones Not Relevant in Emergin
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Retail Sales (Not Carrier Sales) -
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Apple’s Success Has Been Proven i
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Buddhist Phone White-Box “Shanzha
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Don’t Expect Apple to Stand Still
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Carrier Exclusivity Limits Apple’
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iPhone Price Cut to $99 Would Elimi
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Ending Carrier Exclusivity = Could
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Battery Technology Constraining iPh
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Implications of New Horizontal Busi
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Apple’s Vertical Handset Model =
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Apple iPhone + iTouch = On Track to
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Apple iTouch - Key Companion to iPh
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RIM’s Vertical Handset Model = Pr
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Threats from RIM’s Vertical Integ
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Horizontal Handset Model Finally Em
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Opportunities / Benefits from Horiz
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Key Theme #4 235
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Key Theme #4 - Game-Changing Commun
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Facebook and Apple iPhone / iTouch
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Facebook + Apple iPhone / iTouch =
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Social Networks - Underpinning of I
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Social Networking Driving Consumer
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Social Networks - Gaining Material
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Facebook Platform - A Hub for Commu
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Facebook - Next Generation Portal f
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Facebook - Largest Share Gainer of
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Facebook / Twitter Replacing Tradit
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Communication on Twitter Not Only C
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Facebook Users = Heavy Content Crea
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Top 10 Facebook Applications - Game
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Facebook = A Platform for Advertise
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Facebook - Opportunity for Advertis
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Facebook - Advertiser / Vendor Succ
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Social Networks in General = Platfo
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LinkedIn - Social Network for Profe
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Like Twitter and Facebook, Foursqua
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Advertising Follows Eyeballs - Glob
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Facebook - Vibrant Developer / Appl
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Developer / Application Success on
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China Serves as Proxy & Leads World
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Tencent Business Model Overview - H
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Mobile = Future of Social Networks
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Mobile Social Networking in Japan ~
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Facebook Symbiotic with Mobile - Sh
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Carriers’ ‘Walled Gardens’ =
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Apple Unshackled Developers + Consu
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Mobile Commerce = Accelerator for O
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15 Years for Online to Reach 4% of
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Mobile Revolutionizing Commerce - W
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Deep Discounts - Invitation-Only Ti
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Traditional Retailers Using Pings t
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Key Theme #5 305
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Key Theme #5 Growth / Monetization
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Japan has led world by 5-10 years i
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ROW’s Mobile Internet Revenue Mix
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Mobile Revenue (ex. Data Access) pe
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3G Penetration - …Developed / Eme
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Why Has Japan Led the World in Mobi
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Rich Content / Apps / Services - Ja
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Powerful / Internet-Enabled Handset
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Japan Mobile Online Commerce / Paid
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Japan Mobile Online Commerce / Paid
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Japan as Proxy for Technology’s R
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Japan mobile monetization models pr
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Japan’s Mobile Online Commerce /
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Mobile Online Commerce - Promising
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Japan - Physical Products Gaining S
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ROW Also Making Inroads into Mobile
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ROW - Branded Mobile Apps Could Dri
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Digital Content (Music / Video / Ap
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Digital Content - Mobile Games / Mu
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Tencent Business Model Overview - H
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Japan - Virtual / Digital Goods on
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China Serves as Proxy & Leads World
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Developer / Application Success on
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Japan Mobile Paid Services 5 Years
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Rakuten Travel - Mobile Gross Hotel
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Mobile Advertising - Personalizatio
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Japan - Mobile Advertising - 24% CA
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Upside to Mobile Search Advertising
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Heavy Search / Display Advertising
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Interactive Video Advertising Revol
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Desktop Internet Monetization Evolu
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…While Premium Content Revenue (U
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At Margin, Advertising + Online Com
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Users Often Pay for Content as Long
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View of Paid vs. Ad-Supported Conte
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Media Time Spent vs. Ad Spend Out o
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History Proves That Ads Follow Eyeb
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Global Mobile Advertising Scenario
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Global Mobile Online Commerce / Pai
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Global Mobile Internet Ecosystem -
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Global Mobile Internet Ecosystem Re
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Mobile Internet Revenue Mix Shiftin
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Google - Internet Search Innovation
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Amazon.com - Online Shopping Experi
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Some companies can benefit from tec
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How Mobile Internet Revenue May Evo
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Key Theme #6 1) Wealth Creation / D
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Key Theme #6 - Massive Data Growth
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The Carriers’ Capex Conundrum…
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Massive Data Growth Driving Carrier
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Global Mobile Data Trends Imply Ong
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Global Mobile Data Users - 29% CAGR
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Global Mobile Data Users - 55% CAGR
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Company- and Product-level Mobile D
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AT&T = 50x Mobile Data Traffic Incr
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Data = Increasingly Dominating Netw
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European Market Supporting Data and
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Smartphone Data Usage Will Rise wit
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Near Term, Mobile Internet Usage Su
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European Mobile Network Utilization
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As Data Usage Becomes More Importan
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Aggregate Mobile Data Network Suppl
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Network Congestion in High Density
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Total Network Capacity on a Cell Si
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However, As Smartphone Penetration
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Overview of a Mobile Data Network T
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Wireless Capacity - Where Does It L
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Network Improvement Timeline Step A
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Short-Term Network Improvements - H
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Short-term Network Improvements - W
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Wireless Backhaul Capacity Expected
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Mobile Internet Implications for Wi
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Wi-Fi Moves from Carrier Foe to Fri
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Wi-Fi Significantly Cheaper for Car
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Wi-Fi Network Coverage in Home and
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~7,000 AT&T Wi-Fi Access Points at
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Wi-Fi Case Study #2 - Boosting Valu
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Bottom Line = Wi-Fi Offload Will Be
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HSPA + Backhaul Upgrades Should Red
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Long-term Network Improvements - Ne
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Good News = Proprietary Network Opt
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Long-term Network Improvements - Up
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HSPA / LTE Buildout Roadmap - Succe
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LTE = 24x Theoretical Bandwidth of
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39 Operators in 19 Countries Alread
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LTE Introduction Cost Should Be Low
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New Lower Spectrum Allocations, Suc
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Spectral Efficiency ((Bit/S)/Hz), p
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What effect will long-term network
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Raw Network Capacity Improvement Ca
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Underlying Technology Improvements
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Case Study - 2010E Capex Analysis f
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AT&T Plans to Increase Capacity in
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Network Sharing Is Becoming Increas
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In the USA and W. Europe, Carrier V
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Premium Voice + SMS Revenue Share L
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Rapid Consumer / Business Adoption
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VoIP International Long Distance (I
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Mobile Texting Revenue Growth Slowi
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Global Mobile Voice TTM Revenue of
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Mobile Data Pricing Models in Flux
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Flat-Rate Pricing = Necessary for U
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Flat-Rate Wireless Data Plans - Pro
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Flat-Rate Pricing May Also Encourag
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Wireline Broadband Tiered Pricing C
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KDDI Tiered Flat-Rate Pricing Cater
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Bell Canada Combo Plans Bring Tiere
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Base Case USA / W. Europe Carrier O
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Key Scenario Drivers for US Wireles
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USA Wireless Revenue Base Case Scen
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Total ARPU Expected to Decline Slig
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Non-Text Revenue = Key to Data Reve
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W. Europe* Wireless Service Revenue
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Implied W. Europe Wireless Carrier
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Scale, Access to Spectrum and Capit
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…10 Attributes of Winning Wireles
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Scale = Key Competitive Advantage f
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USA Spectrum Holdings - Larger Carr
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Exclusive Devices (such as iPhone)
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But Carrying the iPhone Is Mixed Bl
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Competitive Share Gain Opportunitie
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Scenario: AT&T Loses iPhone Exclusi
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Opportunities for Network Equipment
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Total Wireless Equipment Revenue Ex
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Network Services Is Now ~$80B Addre
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Mobile / 3G Subscriber Trends by Co
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…Mobile / 3G Subscriber Trends by
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…Mobile / 3G Subscriber Trends by
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Key Theme #7 563
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Key Theme #7 - Compelling Opportuni
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Emerging Markets = Significant Long
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Emerging Markets = Significant Long
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At Inflection Point, Long-Term EM O
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Opportunities Could Be Significant
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Over Time, Impact of Mobile Interne
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…Caused in Part by Sub-20% Fixed-
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3G / Wireless = ‘Only Choice’ f
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Vibrant Mobile Value-Added Services
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Emerging Asia VAS Revenue Share Alr
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Emerging Market Carriers Adapted to
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Bharti-Airtel = Cost Savings from O
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Compressing Wireless Data Could Red
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Emerging Markets - Some Near-Term 3
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Near-Term 3G Adoption Barriers = Lo
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Low Post-Paid Ratio + Low GDP per C
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High Monthly Data Plan Costs = Near
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Emerging Markets Regional Analysis
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Regional Analysis / Forecast - Chin
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Chinese Consumers Are Ready for 3G
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3G Creates New Battle Ground for Ch
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iPhone Costs Too High for Majority
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Key Scenario Drivers for China Wire
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China Wireless Revenue Base Case Sc
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Data ARPU Growth Expected to Partia
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India - Near-term Barriers to 3G Ad
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India - Upcoming Auction to Bring 3
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Base Case: Winning 3G Spectrum Does
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Capex Required for 3G Network Could
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Other Emerging Asia - Low Fixed-Lin
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Philippines - Mobile Overtook Fixed
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Indonesia - Mobile Could Accelerate
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WiMAX in Emerging Asia - Still in N
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EEMEA - Carriers Leverage Cost-Effe
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Africa - Mobile Broadband Prolifera
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Middle East + Africa Have the Lowes
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Key Scenario Drivers for Russia Wir
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Key Theme #8 639
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Key Theme #8 - Regulators Can Help
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Net Neutrality - Key to Decentraliz
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In the US, FCC Has Issued a “Noti
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Both Sides of Net Neutrality Debate
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What Could Regulators Do to Acceler
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Lower Mobile Data Roaming Fees = En
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“Not in My Back Yard” (NIMBY) P
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3G Licenses Reshape China’s Compe
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USA Recent Developments - USA F
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Recent Developments - China / India
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Disclosure Section (cont.) Morgan S
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Disclosure Section (cont.) Within t
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Disclosure Section (cont.) Analyst
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Disclosure Section (cont.) Stock Pr
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Disclosure Section (cont.) Importan
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Disclosure Section (cont.) MTN does
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