Global Wireless Data Market 2009 1 H Update Sept 2009 Chetan Sharma Consulting

Global Wireless Data Market 1H 2009 Update Chetan Sharma Consulting

Global Wireless Data Market – 1H 2009 Update Executive Summary The Global Wireless Markets continued to grow rapidly especially in India and China where the carriers (together) are adding around 20M new subscriptions every month. China crossed the 700M subscriptions mark in July while India's total went past 450 in Aug. Overall, the global subscriptions penetration is above 64%. During 2009, services revenues further tilted towards data services, increasing 21% from 2008 EOY. The overall global mobile revenues (including equipment) for the year are expected to stay flat as the impact of recession was felt in many geographies in the first half of 2009. While countries like US, Japan, China, and India showed very little signs of pullback, most of Europe (except France) and the developing world are expected to experience a decline in overall service revenues in 2009. For the first time, mobile data contributes approximately quarter or 25% of the total global service revenues. Additionally, except for India, all major markets have their data contribution percentages above 10%. For some leading operators, data is now contributing over 40% of the overall revenues. However increase in data ARPU is not completely offsetting the drop in voice ARPU for most operators. From the true and tested SMS messaging to the new services such as Mobile Advertising, Social Networking, Commerce, Mobile Wallet, and others, different services helped in adding billions to the revenues generated in 2009. US continues to lead Japan and China in total mobile data revenues by a healthy margin. NTT DoCoMo continues to dominate the carrier ranking in terms of mobile data service revenues, however, Verizon Wireless which became #2 replacing China Mobile is slowly edging towards the #1 spot and is likely to overtake DoCoMo within the next few quarters. The velocity with which the smartphones are being introduced into the market, one wonders if in five years, we will be using the moniker to describe devices and if the "dumbness" in the device market will be practically eliminated. Led by Apple's Appstore success, significant investments are pouring into the appstore world. In parallel, the debate over apps vs. mobile web is intensifying. The implications of the transition will be significant on the ecosystem on many levels. Though 4G as a standard hasn't been defined yet, the discussions around LTE (and to some extent WiMAX) grew intense and started climbing the slippery slope of the hype curve. Many prominent operators have come out in support of LTE with Verizon being the most aggressive in launching their next generation network in 2010. Chetan Sharma Consulting conducted its semiannual study on the global mobile data industry. We studied wireless data trends in over 40 major countries - from developed and mature markets such as Japan, Korea, UK, and Italy to hyper growth markets such as China and India. This note summarizes the findings from the research with added insights from our work in various All Rights markets.2009 http://www.chetansharma.com 2 © Chetan Sharma Consulting, global Reserved, Sept 2009

Global Wireless Data Market – 1H 2009 Update Impact of Global Recession • Telecom in general fared better than other industries. In some regions, it hardly caused a tremor. However, in most nations, the impact was acutely felt by the operators. Amongst the operators we studied, only 3, SK Telecom, O2 UK, Telefonica, T-Mobile Germany and Austria, Vodafone Germany and Italy, KTF experienced increase in both the data ARPU and overall ARPU during 1H09 (and some of increase was due to the fluctuation in international currencies). • Looking at the data at a country level, almost all nations noted a decline in overall ARPU and majority in data ARPU. However, almost everywhere data for 1H09 improved over 2H08 indicating that the recession had a worse impact on the wireless sector last year compared to this year and in general the conditions in the telecom microcosm are improving globally. • Rule of Three is kicking in most markets with smaller players having to consider the M&A option to remain viable. T-Mobile/Orange, Bharti/MTN tie-ups are just the start of that process Service Revenues • US extended its lead over Japan as the most valuable mobile data market in service revenue with US adding $20.6B vs. $16B for Japan in 1H 2009. China with $8.6B was ranked number 3. US registered the highest growth amongst the top 3 with over 39% increase from EOY 2008 levels followed by Japan and China at 5%. • The top 10 nations by service revenues are: US, China, Japan, France, Italy, UK, Germany, India, Spain, and Brazil. • The top 10 nations by data service revenues are: US, Japan, China, UK, Italy, Germany, France, Korea, Spain, and Australia. • NTT DoCoMo continues to dominate the wireless data revenues rankings with almost $8B in data services revenue in 1H09. Almost 45% of its overall revenue now comes from data services. DoCoMo also crossed the 50M or 90% 3G mark in June. • NTT DoCoMo was followed by Verizon Wireless, China Mobile, AT&T, KDDI, Sprint Nextel, Softbank Mobile, T-Mobile USA, O2 UK, and China Unicom to round up the top 10 operators by wireless data service revenues. • The top 10 global operator groups now account for over 63% of the global mobile data revenues. • Each of the top 5 carriers are expected to exceed $10B in yearly mobile data service revenues in 2009 • Data revenues for the top 10 operators increased 10% from 2H 2008 and now account for almost 48% of the global mobile data revenues though their subscriber share is around 30%. • The biggest jump in data revenues was experienced by Verizon, AT&T and Softbank. DoCoMo suffered a 2% decline compared to 2H08. • Most of the operators in developed nations are contemplating future strategies to boost data revenues such that the decline in voice revenues is at least compensated for. There are very few operators who have experienced increase in overall ARPU. • China reported approximately $8.5B in data revenues for 1H09 and the percentage contribution from data services is around 28%, data ARPU is around $2.7. For India, data ARPU continues to stay around $0.50 as most of the new adds are voice only subscribers and there is continued price pressure in the market. http://www.chetansharma.com 3 © Chetan Sharma Consulting, All Rights Reserved, 2009 Sept 2009

Global Wireless Data Market – 1H 2009 Update • China Mobile remains the most valuable telecom operator with over $200B in market cap. It is followed by Vodafone at around $122B. Telecom groups in mature markets are under enormous pressure to either come up with a global expansion strategy or accelerate their existing plans. • In 2009, SMS’s vice like grip on data revenues continues to loosen a bit with many carriers seeing an increase in non-SMS data revenues. On an average, Japan and Korea have over 70-75% of their revenue coming from non-SMS data applications, US around 50-60%, and Western Europe around 20-40%. • NTT DoCoMo has been at the cutting edge of the mobile data evolution by creating new markets. They are exploring new technologies and social experiments ahead of almost anybody else in the market. Our long history with the Japanese and Korean markets has taught us that while the individual strategies in each market will differ, one should study the trends, technologies, and ecosystem dynamics in these markets to get a sense of what’s coming. ARPU • Most of the major operators around the world have double digit percentage contribution to their overall ARPU from data services. Operators like DoCoMo, and Softbank are over 44%. KDDI, 3 Australia, 3 Italy, 3 UK, Vodafone UK, O2 UK, KTF, Telstra, and 3 Sweden exceeded 30% and many others are on the verge of crossing the 30% mark. • 3 Australia reported the highest increase in data ARPU from 2008 with 31% growth. Other notable percentage increases in ARPU were from 3 Italy, SK Telecom, KTF, T-Mobile Germany, 3 Sweden, and T-Mobile Austria. The Japanese operators saw a decline in ARPU by 3%. In terms of absolute dollar amount, NTT DoCoMo leads the pack with $25 data ARPU. • The biggest percentage contribution by data ARPU has been consistently registered (since mid 2002) by two Philippines carriers – Smart Communications and Globe Telecom with over 56% (or $3) contribution coming from the data services. Philippines is also the most active messaging nations where users average a message/hr round the clock though US txters have had the most acceleration in use. Mobile Data Traffic • We have been calling attention to the tremendous increase in mobile data traffic for some time. The discussion has hit mainstream and many operators are scrambling to nail-down their short-term and long-term strategies to manage the data traffic growth in their networks. See our paper on the subject "Managing growth and profits in the yottabyte era." The recommendations discussed in the paper are slowly been adopted by various vendors and operators worldwide. • The global mobile data traffic is expected to exceed an Exabyte for the first time in 2009. In fact, the data usage is growing so fast that next year, the two territories experiencing the most growth - North America and Western Europe are going to exceed an Exabyte in mobile data traffic. • 2010 will also mark the first year when the total number of mobile broadband connections will exceed the total number of fixed broadband connections. http://www.chetansharma.com 4 © Chetan Sharma Consulting, All Rights Reserved, 2009 Sept 2009

Global Wireless Data Market – 1H 2009 Update Subscriptions • The global mobile market continues to grow at an explosive pace and is expected to go past 4.5B subscriptions in 2009 and is likely cross the 5B mark in 2010. The global mobile subscriptions now represent over 64% of human population on Earth. • China and India continued their red-hot growth in 1H09. Combined, they added 132M new subscriptions with India easily surpassing China in each of the last 12 months in terms of net-adds. • China crossed the 700M subscription mark in July while India's total went past 450 in Aug. In total, China is still years ahead. In the meantime, US crossed the 90% subscriptions mark earlier this year. • In the last 10 years, the growth patterns in the mobile industry have completely reversed. In 1998, the developed world accounted for 76% of the subscriber base, in 2008; the percentages have flipped with developing world now accounting for 76% of the subscriber base and are likely to increase to 85% by 2018. • The top 10 nations by subscriptions are: China, India, US, Russia, Brazil, Indonesia, Japan, Germany, Pakistan and Italy. • China Mobile became the first operator (and likely to be the only one for a very long time) to cross the 500M mark. It remains the #1 carrier in terms of the total number of subscriptions followed by Vodafone at 264M. Telefonica, América Móvil, Telenor, T-Mobile, China Unicom, TeliaSonera, Orange, and Bharti Airtel round up the top 10 largest telecom groups in the world. Others • Messaging still accounts for the lion-share of data service revenues. However, other services such as Mobile Music, Mobile TV and video streaming, Voice navigation, PNDs, Mobile Games, IMS, LBS, Mobile advertising, and others have gradually chipped away the share from messaging. Alternate devices with wholesale cellular agreements are also flooding the market. In Japan, Mobile Commerce is expected to do much better than Mobile Advertising. Though not much talked about, enterprise applications are also being adopted widely esp. in North America as more workers become mobile and corporations seek efficiencies in their operations and supply-chain. • After falling below the 100M/quarter in Q1, Nokia rebounded to sell 103M units in Q2 09. Samsung also exceeded 50M with a strong second finish at 52M. LG finished a strong third with almost 30M in its bag and Motorola showed signs of strength by selling close to 15M units. • The second quarter was dominated by two blockbuster launches of iPhone 3GS and Palm Pre. While iPhone continued to attract new customers, Pre suffered from a less than adequate launch strategy. By lowering the 3G device price to $99, Apple set the new bar in smartphone pricing leaving the rivals scrambling for response. The release of a slew of Android handsets sets up the stage for fierce competition during the holiday season and into 2010. http://www.chetansharma.com 5 © Chetan Sharma Consulting, All Rights Reserved, 2009 Sept 2009

Global Wireless Data Market – 1H 2009 Update • China and India represent the biggest opportunities for the Infrastructure providers. China launched 3G across the three operators earlier this year. India is also going through its 3G spectrum policy and is likely to resolve some of the contentious issues shortly. Some of the biggest infrastructure contracts are coming from these two countries as they look to expand coverage into rural areas. • Deployment of 3.5G technologies is in full swing. However, it is the discussion of 4G that is occupying the headlines, even though 4G hasn't been fully defined yet and the current candidates for 4G are nowhere near the performance goals of 4G (150Mbps/50+Mbps). Many larger operators have laid out their plans for deploying LTE starting next year. As usual, we will be keeping a close eye on the trends in the wireless data sector in our blog, twitter feeds, future research reports, and articles. The next US Wireless Data Market update will be released in Nov 2009. The next Global Wireless Data Market update will be issued in March 2010. Your feedback is always welcome. Thanks. Chetan Sharma Disclaimer: Some of the companies mentioned in this note are our clients. http://www.chetansharma.com 6 © Chetan Sharma Consulting, All Rights Reserved, 2009 Sept 2009

Mobile Markets: The New World Order Rank By Subs By Data Revenue By Service Revenue 1 China US US 2 India Japan China 3 US China Japan 4 Russia UK France 5 Brazil Italy Italy 6 Indonesia Germany UK 7 Japan France Germany 8 Germany Korea India 9 Pakistan Spain Spain 10 Italy Australia Brazil Arrows indicate change in position from 2008 http://www.chetansharma.com 7 © Chetan Sharma Consulting, All Rights Reserved, 2009 Sept 2009

Wireless Data ARPU in different global markets (2009 1H) Japan ($24, 44%) Philippines ($1.2, 47%) 40% Austria Indonesia New Zealand UK China Germany HongKong US Italy Singapore Data as a % of total revenues (average Czech Norway Portugal Belgium Switzerland Canada across carriers in the country) Malaysia Sweden France 20% Finland Netherlands Spain Denmark Israel South Korea Turkey Greece Russia Mexico Thailand Source: Chetan Sharma Consulting, 2009 Brazil 10% India Asia Europe Americas $5 $10 $20 Average Wireless Data ARPU (USD) for carriers in a country http://www.chetansharma.com 9 © Chetan Sharma Consulting, All Rights Reserved, 2009 Sept 2009

Wireless Data ARPU of major global carriers (2009 1H) SMART ($3, 56%) 50% Softbank NTT DoCoMo A KDDI 3 Sweden 40% 3 UK O2 UK Data as a % of total 3 Italy Vodafone Germany revenues AT&T Verizon 3 Australia O2 Germany Vodafone UK Sprint Vodafone Italy China Unicom SK Telecom T-Mobile UK China MobileKTF T-Mobile US B Source: Chetan Sharma Consulting, 2009 T-Mobile Germany Orange - UK 20% Rogers Vodafone Spain Orange France Bharti Vodafone India Asia Reliance Europe C Americas $10 $20 $30 Wireless Data ARPU (USD) http://www.chetansharma.com 10 © Chetan Sharma Consulting, All Rights Reserved, 2009 Sept 2009

chetansharma.com twitter.com/chetansharma chetansharma.com/blog facebook: chetansharma mobilebreakfastseries.com twitter.com/mobileseries http://www.chetansharma.com 17 © Chetan Sharma Consulting, All Rights Reserved, 2009 Sept 2009

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Global Wireless Data Market 2009 1 H Update Sept 2009 Chetan Sharma Consulting

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