The Mobile Internet Report Key Themes*

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Social Networking – Global Phenomenon, Facebook Leading, Though Many Regional Strongholds Global Social Networking Web Sites* 830MM Unique Users, +20% Y/Y; 188MM Total Minutes, +25% Y/Y, 10/09 Facebook 430MM users +137% Y/Y MySpace 110MM users -14% since 10/08 Twitter 58MM users, +1238% Y/Y Hi5 47MM users -18% Y/Y Orkut 54MM users +20% Y/Y Skyrock 21MM users +10% Y/Y Vkontakte 23MM users +22% Y/Y Baidu Space 63MM users +33% Y/Y Kaixin001 25MM users +325% Y/Y Friendster 18MM users -47% Y/Y QQ (Alumni + Mini) – Tencent 68MM users +138% Y/Y 1 CyWorld 21MM users +4% Y/Y Mixi 14MM users +4% Y/Y * Global social networking websites exclude application-based networks such as IM networks. 1) QQ.com social networks (Tencent properties) Y/Y growth since 1/09, data unavailable prior to 1/09 for QQ.com Mini. Usage stats are ‘unique visitors’, per comScore global 10/09, may differ materially from company-disclosed ‘registered accounts’ stats. Other notable social networks include Windows Live Profiles, 56.com, Deviantart, Digg, Buzz Media, and Bebo. Source: comScore 10/09, Morgan Stanley Research. 248
Facebook Platform – A Hub for Communications Facebook - with its large and rapidly growing base of users (430MM global users, +137% Y/Y, 10/09, per comScore) – is changing the way a generation of younger people communicate - as an 18-year old acquaintance of ours says, “if it’s not on Facebook, it didn’t happen.” When Facebook opened its APIs in 4/07, developers took to the platform like ducks to water and applications growth / usage exploded. Essence of this trend is that consumers expect to have the option to be connected in an ultra personalized real-time way (on their terms) 24x7. Facebook is monetizing its platform through advertising partnerships with likes of Microsoft and sale of virtual goods (like virtual chips and virtual gifts). We believe Facebook has created an environment that will increasingly be target rich for advertisers (plus shoppers) and, in spirit, may develop in a way similar to Google’s sponsored search monetization where users welcome the right ads in the right place at the right time. As Facebook increasingly becomes the userpreferred repository of content (user generated + professional), the importance of ‘search‘ will likely continue to rise for Facebook. Facebook, with its large user + application base + growth, in our view, has built barriers to entry with its ecosystem of users / connections / developers / applications. While an estimated ~17% of Facebook users (65MM mobile users) currently access the service via mobiles, we assume this number will rise to +90% within five years. Thus creating an even more powerful network – an extremely important mobile communication platforms. Source: Facebook, comScore, Morgan Stanley Research 249
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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
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Mobile Devices + Infrastructure Ena
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Cloud-Based Content / App Services
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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
Page 197 and 198: Apple = Likely Well Positioned to N
Page 199 and 200: Do Incumbents Have Apple-Like Poten
Page 201 and 202: Smartphones Not Relevant in Emergin
Page 203 and 204: Retail Sales (Not Carrier Sales) -
Page 205 and 206: Apple’s Success Has Been Proven i
Page 207 and 208: Buddhist Phone White-Box “Shanzha
Page 209 and 210: Don’t Expect Apple to Stand Still
Page 211 and 212: Carrier Exclusivity Limits Apple’
Page 213 and 214: iPhone Price Cut to $99 Would Elimi
Page 215 and 216: Ending Carrier Exclusivity = Could
Page 217 and 218: Battery Technology Constraining iPh
Page 219 and 220: Implications of New Horizontal Busi
Page 221 and 222: Apple’s Vertical Handset Model =
Page 223 and 224: Apple iPhone + iTouch = On Track to
Page 225 and 226: Apple iTouch - Key Companion to iPh
Page 227 and 228: RIM’s Vertical Handset Model = Pr
Page 229 and 230: Threats from RIM’s Vertical Integ
Page 231 and 232: Horizontal Handset Model Finally Em
Page 233 and 234: Opportunities / Benefits from Horiz
Page 235 and 236: Key Theme #4 235
Page 237 and 238: Key Theme #4 - Game-Changing Commun
Page 239 and 240: Facebook and Apple iPhone / iTouch
Page 241 and 242: Facebook + Apple iPhone / iTouch =
Page 243 and 244: Social Networks - Underpinning of I
Page 245 and 246: Social Networking Driving Consumer
Page 247: Social Networks - Gaining Material
Page 251 and 252: Facebook - Next Generation Portal f
Page 253 and 254: Facebook - Largest Share Gainer of
Page 255 and 256: Facebook / Twitter Replacing Tradit
Page 257 and 258: Communication on Twitter Not Only C
Page 259 and 260: Facebook Users = Heavy Content Crea
Page 261 and 262: Top 10 Facebook Applications - Game
Page 263 and 264: Facebook = A Platform for Advertise
Page 265 and 266: Facebook - Opportunity for Advertis
Page 267 and 268: Facebook - Advertiser / Vendor Succ
Page 269 and 270: Social Networks in General = Platfo
Page 271 and 272: LinkedIn - Social Network for Profe
Page 273 and 274: Like Twitter and Facebook, Foursqua
Page 275 and 276: Advertising Follows Eyeballs - Glob
Page 277 and 278: Facebook - Vibrant Developer / Appl
Page 279 and 280: Developer / Application Success on
Page 281 and 282: China Serves as Proxy & Leads World
Page 283 and 284: Tencent Business Model Overview - H
Page 285 and 286: Mobile = Future of Social Networks
Page 287 and 288: Mobile Social Networking in Japan ~
Page 289 and 290: Facebook Symbiotic with Mobile - Sh
Page 291 and 292: Carriers’ ‘Walled Gardens’ =
Page 293 and 294: Apple Unshackled Developers + Consu
Page 295 and 296: Mobile Commerce = Accelerator for O
Page 297 and 298: 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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The Mobile Internet Report Key Themes*

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