The Mobile Internet Report Key Themes*

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Technology Cycles - Wealth Creation / Destruction New Companies Often Win Big in New Cycles While Incumbents Often Falter Mainframe Computing 1960s Mini Computing 1970s Personal Computing 1980s Desktop Internet Computing 1990s Mobile Internet Computing 2000s New Winners IBM NCR Control Data Sperry Honeywell Burroughs New Winners Digital Equipment Data General HP Prime Computervision Wang Labs New Winners Microsoft Cisco Intel Apple Oracle EMC Dell Compaq New Winners Google AOL eBay Yahoo! Yahoo! Japan Amazon.com Tencent Alibaba Baidu Rakuten Note: Winners from 1950s to 1980s based on Fortune 500 rankings (revenue-based), desktop Internet winners based on wealth created from 1995 to respective peak market capitalizations. Source: FactSet, Fortune, Morgan Stanley Research. 16
Winners of Each New Cycle Often Create More Market Capitalization than Winners of Prior Cycles 10,000,000 Cumulative Market Capitalization of Top 5 Computing Companies from Each Computing Cycle, 1962 – 2009YTD Desktop Internet PC Market Cap ($MM) 1,000,000 100,000 Mainframe Minicomputer 10,000 '62 '65 '68 '71 '74 '77 '80 '83 '86 '89 '92 '95 '98 '01 '04 '07 Note: Dashed lines indicate when new cycle becomes wealth creation driver (in reality, cycles overlap somewhat). Companies include: Mainframe – IBM, Sperry, Honeywell, NCR, Unisys; Minicomputer – IBM, Honeywell, HP, DEC, Wang Labs; PC – IBM, 17 Microsoft, Intel, Cisco, Sun Microsystems; Internet – IBM, Microsoft, Google, Apple, Yahoo!. Source: FactSet, Bloomberg, S&P Stock Guide, Morgan Stanley Research.
Page 1 and 2: The Mobile Internet Report Key Them
Page 3 and 4: What You are Reading - The Mobile I
Page 5 and 6: Key Mobile Internet Themes 1) Wealt
Page 7 and 8: …Key Mobile Internet Themes… 3)
Page 9 and 10: …Key Mobile Internet Themes 6) Ma
Page 11 and 12: Key Theme #1 11
Page 13 and 14: Key Theme #1 - Wealth Creation / De
Page 15: Wealth Creation / Destruction Is Ma
Page 19 and 20: NCR Won Big in Mainframe Era, DEC W
Page 21 and 22: Compaq + Microsoft Won Big in PC Er
Page 23 and 24: Net, New Computing Cycles Create /
Page 25 and 26: New Computing Cycle Characteristics
Page 27 and 28: 12,000,000 Mobile Internet Traffic
Page 29 and 30: Pace of company change related to m
Page 31 and 32: Rapid Pace of Corporate M&A Related
Page 33 and 34: Technology Companies Created > Weal
Page 35 and 36: Top Internet-Related Tech Wealth Cr
Page 37 and 38: We Know What Happened Over Past 15
Page 39 and 40: Mobile Internet Likely to Follow Ti
Page 41 and 42: 2009 Global Top 30 TMT Companies by
Page 43 and 44: Key Theme #2 43
Page 45 and 46: Key Theme #2 - Mobile Ramping Faste
Page 47 and 48: Apple iPhone + iTouch = Fastest new
Page 49 and 50: Mobile Internet Outpaces Desktop In
Page 51 and 52: Tech Cycles Tend to Last Ten Years
Page 53 and 54: User-Interface Revolutions (Overlai
Page 55 and 56: Broad base of IP-based mobile usage
Page 57 and 58: Wireless Network Primer GPS - Glob
Page 59 and 60: 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
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Rapid growth in number / type of mo
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GPS proliferation (and related loca
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GPS = 421MM Chipsets Sold in 2008E
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WIRED Magazine - “Inside the GPS
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3G proliferation is a big deal. 75
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3G = Key to Enabling Internet Usage
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3G Penetration Inflection Points Va
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3G Growth Still Concentrated in Dev
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USA Likely to Remain Most Dynamic 3
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Wi-Fi proliferation is a big deal.
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Wi-Fi’s High Speed + Wide Availab
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100,000 Wi-Fi Households (USA) = 20
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Bluetooth proliferation is a big de
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Bluetooth = 1.3B Chipsets Sold in 2
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What Is a ‘Smartphone’ We defi
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Smartphone of 2009 = As Powerful as
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Mobile Internet - Leveraging the Ev
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Notebook PC + Smartphone Shipments
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Impressive / Rapid Growing Smartpho
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Consumer Internet-Enabled Devices -
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Significant Growth in 3G + Smartpho
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Unified Communication (UC) Voice (~
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If VoIP Leader Skype Were a Carrier
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VoIP = Material Impact on Tradition
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Google Voice Putting User in Contro
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Social Networking - Global Phenomen
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Facebook = Garnering Rising Share o
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Powerful Devices (like iPhone) + Ne
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Video = High Usage + High Bandwidth
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Mobile Ramping Faster than Desktop
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Key Theme #3 1) Wealth Creation / D
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Apple Leading in Mobile Innovation
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Apple’s Impressive Share Likely M
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iTunes App Store = Shot Heard ‘Ro
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iTunes App Store = The Killer Mobil
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Mobile App Definition A mobile appl
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Users / Developers / Apple = Likely
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Apple iPhone / iTouch = 2B+ App Dow
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Most Downloaded Free iPhone Apps -
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iPhone Apps for Nearly Everyone - L
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Mobile Developer Mind Share / Focus
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Powerful mobile device usage trends
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iPhone / Android Gaining Mobile Int
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Mobile Internet Operating System Co
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Handset Device Price / Volume Pyram
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High-End Quickly Becomes Low-End -
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iPhone 3G BOM = 33% Lower than iPho
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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
Page 671:
Disclosure Section (cont.) MTN does
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