The Mobile Internet Report Key Themes*

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Mobile Voice Revenue Likely to Decline as Market Matures + Competition Increases Mobile Voice Revenue, USA vs. Western Europe*, 2007 – 2012E 07-12E CAGR $130 Total Wireless Voice Revenue ($MM) $125 $120 $115 $110 $105 USA W. Europe W. Europe -4% USA -2% $100 2007 2008 2009E 2010E 2011E 2012E Note: *Western Europe revenues include top five markets (Germany / Italy / UK / Spain / France). 498 Source: Simon Flannery, Nick Delfas, Morgan Stanley Research estimates.
Rapid Consumer / Business Adoption of VoIP + Wi-Fi Could Further Pressure Carriers’ Voice Revenue 521MM Global Skype Users, +41% Y/Y in CQ2:09; surpassed China Mobile as the largest global ‘carrier’ in CQ3:09E; 26B Skype-to-Skype (free) minutes, +72% Y/Y; 3B SkypeOut minutes (low-cost Skype to phone), +57% Y/Y 35% of Skype’s registered accounts are business users 12MM+ Skype downloads on Windows Mobile Phones; 5MM+ downloads on iPhone + iTouch; Skype mobile application available on 89% of smartphone platforms Skype now allowed to run on AT&T’s 3G network for VoIP calling, 10/09 ~60% of 45MM iPhone + iTouch usage on Wi-Fi, 31% of USA household (36MM) Wi-Fi penetration, creating easy environment for mobile VoIP usage $0.20 Skype Provides Compelling Value for Users vs. Traditional Telecom Offerings, Cost per Minute Benchmark, Skype vs. USA / Singapore / UK Wireless Industry Average, 2008 $0.190 Cost per Minute ($) $0.15 $0.10 $0.05 $0.00 $0.080 $0.060 $0.021 Free Skype-to-Skype SkypeOut USA Wireless Singapore Wireless UK Wireless Source: FCC CRMS Report, 1/09, Morgan Stanley Research. 499
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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
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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
Page 447 and 448: Wireless Backhaul Capacity Expected
Page 449 and 450: Mobile Internet Implications for Wi
Page 451 and 452: Wi-Fi Moves from Carrier Foe to Fri
Page 453 and 454: Wi-Fi Significantly Cheaper for Car
Page 455 and 456: Wi-Fi Network Coverage in Home and
Page 457 and 458: ~7,000 AT&T Wi-Fi Access Points at
Page 459 and 460: Wi-Fi Case Study #2 - Boosting Valu
Page 461 and 462: Bottom Line = Wi-Fi Offload Will Be
Page 463 and 464: HSPA + Backhaul Upgrades Should Red
Page 465 and 466: Long-term Network Improvements - Ne
Page 467 and 468: Good News = Proprietary Network Opt
Page 469 and 470: Long-term Network Improvements - Up
Page 471 and 472: HSPA / LTE Buildout Roadmap - Succe
Page 473 and 474: LTE = 24x Theoretical Bandwidth of
Page 475 and 476: 39 Operators in 19 Countries Alread
Page 477 and 478: LTE Introduction Cost Should Be Low
Page 479 and 480: New Lower Spectrum Allocations, Suc
Page 481 and 482: Spectral Efficiency ((Bit/S)/Hz), p
Page 483 and 484: What effect will long-term network
Page 485 and 486: Raw Network Capacity Improvement Ca
Page 487 and 488: Underlying Technology Improvements
Page 489 and 490: Case Study - 2010E Capex Analysis f
Page 491 and 492: AT&T Plans to Increase Capacity in
Page 493 and 494: Network Sharing Is Becoming Increas
Page 495 and 496: In the USA and W. Europe, Carrier V
Page 497: Premium Voice + SMS Revenue Share L
Page 501 and 502: VoIP International Long Distance (I
Page 503 and 504: Mobile Texting Revenue Growth Slowi
Page 505 and 506: Global Mobile Voice TTM Revenue of
Page 507 and 508: Mobile Data Pricing Models in Flux
Page 509 and 510: Flat-Rate Pricing = Necessary for U
Page 511 and 512: Flat-Rate Wireless Data Plans - Pro
Page 513 and 514: Flat-Rate Pricing May Also Encourag
Page 515 and 516: Wireline Broadband Tiered Pricing C
Page 517 and 518: KDDI Tiered Flat-Rate Pricing Cater
Page 519 and 520: Bell Canada Combo Plans Bring Tiere
Page 521 and 522: Base Case USA / W. Europe Carrier O
Page 523 and 524: Key Scenario Drivers for US Wireles
Page 525 and 526: USA Wireless Revenue Base Case Scen
Page 527 and 528: Total ARPU Expected to Decline Slig
Page 529 and 530: Non-Text Revenue = Key to Data Reve
Page 531 and 532: W. Europe* Wireless Service Revenue
Page 533 and 534: Implied W. Europe Wireless Carrier
Page 535 and 536: Scale, Access to Spectrum and Capit
Page 537 and 538: …10 Attributes of Winning Wireles
Page 539 and 540: Scale = Key Competitive Advantage f
Page 541 and 542: USA Spectrum Holdings - Larger Carr
Page 543 and 544: Exclusive Devices (such as iPhone)
Page 545 and 546: But Carrying the iPhone Is Mixed Bl
Page 547 and 548: 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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