The Economics of Mobility Mark Roettgering Senior Director, Corporate Strategy & Analysis T-Mobile USA © 2009 T-Mobile USA, Inc.

The Economics of Mobility Is the traditional economic structure of the wireless communications space finally coming to an end? What is the potential for reshuffling the margin pools in the industry and how can emerging communications players from across the value system survive and thrive? In this talk, we examine the fundamental sources of value creation in the mobile value system and consider what changes are on the horizon © 2009 T-Mobile USA, Inc. Slide:

Is the traditional economic structure of the wireless communications space finally coming to an end?

What is the potential for reshuffling the margin pools in the industry and how can emerging communications players from across the value system survive and thrive?

In this talk, we examine the fundamental sources of value creation in the mobile value system and consider what changes are on the horizon

Traditional View: Communications Market is Maturing Proliferation of regional providers has given way to consolidation New entrants & new business models (Leap, Metro, Clearwire) MNO’s share a $150B revenue pool, and enjoy 20% FCF margins. ARPU has declined from $137 to the low $50’s (1997 - 2007). Despite 90M industry gross adds in 2007, net adds have declined 2 years running Source: US Census, CTIA, Merrill Lynch, T-Mobile estimates © 2009 T-Mobile USA, Inc. Slide: US wireless penetration and ARPU trends $1 $51 $137 87% Wireless Penetration ARPU $0 $0 $0 $0 $0 $1 $1 $1 $1 $1 1985 1990 1995 2000 2005 2010 $0.00 $20.00 $40.00 $60.00 $80.00 $100.00 $120.00 $140.00 $160.00 100 827 3.7 Mb Data usage 1 MOU 1 1985 1990 1995 2000 2005 2010 Monthly MOU and data usage

Proliferation of regional providers has given way to consolidation

New entrants & new business models (Leap, Metro, Clearwire)

MNO’s share a $150B revenue pool, and enjoy 20% FCF margins.

ARPU has declined from $137 to the low $50’s (1997 - 2007).

Despite 90M industry gross adds in 2007, net adds have declined 2 years running

A broader view shows colliding industries… Fixed broadband network operator TV creation & distribution Search Other CE creation & distribution Software & applications Fixed narrowband network operator Social Networking ePayments Home networking & automation Games Fixed video network operator Music creation & distribution Print creation & distribution Movie creation & distribution Mobile device creation & distribution MNO © 2009 T-Mobile USA, Inc. Slide:

U.S. Communications Value Chain Today Product Retail/Service IP Web 2.0 app / service players (000s) © 2009 T-Mobile USA, Inc. Slide:

Consumer demand driving high investment $58B Source: T-Mobile estimates Includes wireless “Big 6” 2001-2004 and “Big 4” 2005-2008 “ Big 2” cable – Comcast, Time Warner, “Big” satellite – DirectTV Top 2 RBOCs – AT&T & VZ Total U.S. Communications Capex + Spectrum Spend Leading national players Wireless CapEx Wireless Spectrum $20B $17B $19B $22B $22B $18B $21B $19B $20B $29B $30B $18B 2002 2003 2004 2005 2006 2007 $53B $47B $34B $33B $33B Other CapEx © 2009 T-Mobile USA, Inc. Slide:

Communications space defined The purest – and highest value – communication is the exchange of information between specific senders and specific receivers Broadcast Specific Sender Anonymous Receiver Specific Anonymous Information content / retrieval Direct communication Direct communication © 2009 T-Mobile USA, Inc. Slide:

The purest – and highest value – communication is the exchange of information between specific senders and specific receivers

Consumer willingness to pay (per bit) falls quickly as we move away from direct communication Cost and Revenue figures are crude estimates for illustrative purposes only Note that mobile advertising is a business model change rather than an economic windfall © 2009 T-Mobile USA, Inc. Slide: Method Size (kB) Cost Revenue Margin % Margin $ Mobile Payment 1 $0.00 $0.25 100% $0.25 SMS 0 $0.00 $0.05 100% $0.05 Text eMail 5 $0.00 $0.02 98% $0.02 3min Voice Call 150 $0.02 $0.15 90% $0.14 Picture Message 100 $0.01 $0.07 86% $0.06 Web Page Load 200 $0.02 $0.05 60% $0.03 3min MP3 3,000 $0.30 $0.25 -20% ($0.05) 3min Video 8,000 $0.80 $0.25 -220% ($0.55)

Note that mobile advertising is a business model change rather than an economic windfall

The Communications Ecosystem: Who is in control ? The state of the ecosystem is dictated by the level of ownership at control points 3 rd - party Carriers OEMs “ Closed Access” “ Open Access” “ Closed Development ” “ Open Development” Communications Ecosystem © 2009 T-Mobile USA, Inc. Slide: Control Points Distribution/Sales Applications Network Access UI OS Hardware Development

The state of the ecosystem is dictated by the level of ownership at control points

Industry evolution is certain – direction not fully known Status quo modes of communication and entertainment Status quo applications / services Dedicated devices / use cases New modes of communication / entertainment Rich applications / services Device convergence Fixed-mobile convergence Integration Low competition Asset scarcity Closed networks/devices/OS Significant barriers Open standards Open networks/devices/OS High competition Substitutability / modularity Low barriers Competitiveness / industry structure Consumer needs / service convergence “ Integrators rule” B “ Communications 2.0” C “ Simple services bazaar” D “ No news” A 2008 2013 © 2009 T-Mobile USA, Inc. Slide:

Matching consumer needs with system economics will determine direction of emerging communications Status quo modes of communication and entertainment Status quo applications / services Dedicated devices / use cases New modes of communication / entertainment Rich applications / services Device convergence Fixed-mobile convergence Integration Low competition Asset scarcity Closed networks/devices/OS Significant barriers Competitiveness / industry structure Consumer needs / service convergence “ Integrators rule” B “ Communications 2.0” C “ Simple services bazaar” D “ No news” A Open standards Open networks/devices/OS High competition Substitutability / modularity Low barriers 3 rd - party Carriers OEMs “ Closed Access” “ Open Access” “ Closed Development ” “ Open Development” Device Ecosystem B A D C © 2009 T-Mobile USA, Inc. Slide:

Consumer / Economics matching process is a funnel 1 2 3 4 Critical value chain position Bottleneck for customer need Barriers to entry - modularization Growth Synergies with partners Category/revenue synergies Cost synergies Fit with strategy On position / segment Delivers against brand aspiration MNO Options to pursue Build / innovate Partner Buy Ignore Opportunity T-Mobile Committed to Open Development © 2009 T-Mobile USA, Inc. Slide:

Critical value chain position

Bottleneck for customer need

Barriers to entry - modularization

Growth

Synergies with partners

Category/revenue synergies

Cost synergies

Fit with strategy

On position / segment

Delivers against brand aspiration

MNO Options to pursue

Build / innovate

Partner

Buy

Ignore

T-Mobile thanks eComm sponsors for making this conference possible… © 2009 T-Mobile USA, Inc. Slide: