The Mobile Internet Report Key Themes*

…10 Attributes of Winning Wireless Carriers in Mobile Internet Era
6) Pricing models - Japan and the US are the leading markets for wireless data revenue. They both share a
post-paid contract business model. Contract pricing allows carriers to subsidize expensive smartphones in
return for multi-year commitments for consumers to pay a monthly recurring charge. Tiered data (and
voice) plans are also important drivers of industry growth. Many emerging markets are primarily driven by
prepaid which can make data pricing more challenging for carriers. Other pricing distinctions such as
calling party pays, or unlimited on net calling, can impact revenues, as can usage caps in a data world.
7) Backhaul - Cisco recently predicted mobile data traffic volumes would grow 66x from 2008 to 2013E. This
will put a huge strain on wireless networks. Perhaps the weakest link in the chain is wireless backhaul,
connecting the tower to the rest of the carrier’s network. Currently, the majority of towers are connected
with copper, which is fine for voice traffic, but is already struggling to cope with rising data traffic. Carriers
are looking at alternative backhaul solutions - primarily fiber and microwave.
8) (Exclusive) Devices - In many markets we are seeing device manufacturers sign exclusive deals with
certain carriers. The Apple iPhone (with AT&T) is the most obvious example of this, and the deals have
often been an important driver of market share gains (and losses). The carriers have had to agree to
improved economics for the handset manufacturer to access these exclusive deals, which could lead in the
long-term to a shifting of the economic surplus from the carriers to the handset manufacturer.
9) Regulation - Wireless regulations often differ widely from country to country driving significant differences in
returns. Availability and cost of spectrum is a key factor. Anti-trust policy is also important as carriers seek
to consolidate. Inter-connection, roaming and termination rates have been a huge issue in a number of
markets, particularly in Europe, and have arguably hindered growth in wireless traffic.
10) Brand, Customer Service, Distribution - Wireless carriers often rival some of the largest consumer brands
such as car makers and fast food outlets when it comes to brand advertising spending.
Source: Simon Flannery, Nick Delfas, Morgan Stanley Research.
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