The Mobile Internet Report Key Themes*

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USA Wireless Carrier Service Revenues – Upside / Base / Downside Cases at a Glance USA Wireless Carriers Service Revenues, C2002 – C2015E USA Wireless Carrier Service Revenues ($B) $250 $225 $200 $175 $150 $125 $100 $75 $50 2002 $90B 2003 2004 $115B 2005 2006 $141B 2007 2008 (6.7% '09-'15E CAGR) $236B (2.5% '09-'15E CAGR) $175B $181B $168B $156B (-2.1% '09-'15E CAGR) $132B 2009E 2010E 2011E 2012E 2013E 2014E 2015E Note: Revenue forecast excludes M2M (machine to machine) wireless data revenues. Source: CTIA, Simon Flannery, Morgan Stanley Research estimates. 522
Key Scenario Drivers for US Wireless Industry Service Revenue Upside Case Base Case Downside Case 6.7% ’09-’15E Service Revenue CAGR 2.5% ’09-’15E Service Revenue CAGR -2.1% ’09-’15E Service Revenue CAGR Data takes off and helps wireless service revenues hold in the mid to high single digits of growth. The advent of tiered data pricing helps push data penetration higher. This is further supported by the launch of 4G networks. Wireless broadband speeds on 4G networks satisfy consumer bandwidth needs, setting the stage for wireless broadband substitution. We estimate a 20.1% ’09-’15 data revenue CAGR. Subscriber growth continues to slow and penetration (excluding M2M) reaches 97% by 2015. Voice increasingly becomes commoditized and the rise of unlimited voice packages drives price/MOU from $0.051 in 2008 to $0.036 in 2015. We estimate a -3.1% ’09-’15 voice revenue CAGR. Carriers push to get subscribers on text messaging bundles is successful and by 2011 the market reaches maturation. We estimate text messaging to fall to 16% of data revenues from roughly 30% today and to have 2.0% ’09-’15 CAGR. Non-messaging data revenue represents the main growth engine for service revenue growth, driven by rising smartphone adoption and data card uptake. Smartphone and feature phone penetration reaches 60% penetration by 2015. 4G network coverage becomes more ubiquitous by 2013 and a tiered pricing structure begins to emerge. The lines between data and voice begin to become blurred as VoIP becomes more prevalent yet the current pricing structure for separate voice and data packages still dominates. Wireless price wars plague the industry. Voice becomes highly commoditized and is the main lever the carriers pull to wage the war. We estimate a -6.1% ’09-’15 voice revenue CAGR. Carriers enabling VoIP applications over their networks are the best equipped to survive, benefitting from the more cost efficient IP architecture. Data is also faced with intense pricing competition and the carriers ultimately move towards the dumb pipe model. Source: Simon Flannery, Morgan Stanley Research estimates. 523
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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
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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
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 and 498: Premium Voice + SMS Revenue Share L
Page 499 and 500: Rapid Consumer / Business Adoption
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: Base Case USA / W. Europe Carrier O
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
Page 549 and 550: Scenario: AT&T Loses iPhone Exclusi
Page 551 and 552: Opportunities for Network Equipment
Page 553 and 554: Total Wireless Equipment Revenue Ex
Page 555 and 556: Network Services Is Now ~$80B Addre
Page 557 and 558: Mobile / 3G Subscriber Trends by Co
Page 559 and 560: …Mobile / 3G Subscriber Trends by
Page 561 and 562: …Mobile / 3G Subscriber Trends by
Page 563 and 564: Key Theme #7 563
Page 565 and 566: Key Theme #7 - Compelling Opportuni
Page 567 and 568: Emerging Markets = Significant Long
Page 569 and 570: Emerging Markets = Significant Long
Page 571 and 572: 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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