The Mobile Internet Report Key Themes*

Bear Case: Winning 3G Spectrum Does Not Equal Easy Profits as
High Capex + Moderate Incremental Revenue = Long Payback Periods
Depending on auction price, initial capital investment on spectrum could take between 6
and 12 years to pay back with ten carriers entering the market – In our base case spectrum
pricing scenario, we estimate spectrum license costs will be ~$1B and that it will take
roughly five to seven years to recoup investment on spectrum and network equipment. Our
bear case assumes an auction price of $1.3B, owing to increased competition for 3G
licenses bidding up the spectrum price, which translates into a longer pay back period of 8
to 12 years.
Morgan Stanley Estimate of Average Payback Years for Spectrum + Network Capex – 10 Carriers
Mininmum Spectrum Price
Case (Spectrum = $802MM)
Base Spectrum Price Case
(Spectrum = $1,000MM)
Maximum Spectrum Price Case
(Spectrum = $1,300MM)
Investment in Spectrum 8,020 8,020 8,020 10,000 10,000 10,000 13,000 13,000 13,000
Investment on Network 4,570 4,570 4,570 4,570 4,570 4,570 4,570 4,570 4,570
Total Capital Expenditure 12,590 12,590 12,590 14,570 14,570 14,570 17,570 17,570 17,570
Incremental ARPU $4 $5 $6 $4 $5 $6 $4 $5 $6
Incremental EBITDA ($MM)* 1,535 1,919 2,303 1,535 1,919 2,303 1,535 1,919 2,303
Payback Years 8.2 6.6 5.5 9.5 7.6 6.3 11.4 9.2 7.6
Source: Vinay Jaising, Morgan Stanley Research estimates.
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