iPhone For LATAM

Comverse Proprietary and Confidential Market Analysis - iPhone in Latin America Raúl Castañón Martínez – April 2008

The iPhone hype

Innovations in User Interface

Operator agreements

Market Analysis for iPhone

Pricing Strategy

Promotion

User Feedback

Competition

Market Update and Results

Market Outlook for Latin America

Comverse Solution

The iPhone hype

“ The iPhone is the most sophisticated, outlook-challenging piece of electronics to come along in years. It does so many things so well, and so pleasurably, that you tend to forgive its foibles.” - David Pogue The US technology writer as Apple's iPhone hit US shelves, June 2007

iPhone Introduction

First launched in June 07 by AT&T in the USA.

Europe launch followed

UK, Germany, France

Press release September 19 th , launched in November

Austria launch April 2008

Aggressive launch with plenty of marketing activities

Share Your iPhone Story

Suggest new features

The iPhone hype in a nutshell

Innovative Multimedia Handset

Touch screen & Visual Voice Mail

Lacks 3G connectivity, video capture, push mail

Revenue contribution for Apple - 6% in 08; 13% in 09

H/S gross margin ~ $ 330 (50%-55%)

The 8GB iPhone gross margin is ~ $140 (~35%-40%)

Unlocked iPhones are biting Apple's profits

Over 1M iPhones were likely to be sold and unlocked

Key success factor: Innovative UI

iPhone is considered a big success despite lack of 3G capability and other advanced features Disruptive revenue share business model… but operators are still lining up

The iPhone User Experience

The best user interfaces are those that bring advanced features within the easy reach of inexperienced users.

iPhone as a Phone

Calls

Visual Voicemail

SMS

Photos

iPhone as iPod

Music, Video

iPhone as Internet device

Safari Browser

Mail

Widgets

Bruce Tognazzini Founder of the Apple Human Interface Group “ What strikes me about the iPhone interface in general is that it gives ordinary people access to features that have been the private purview of the young and the geeky. For example, cell phones have long had contact lists, but they were typically difficult to build, maintain, and sync.”

iPhone VVM - Main Functions Navigation Touch screen New Messages Notifications Create VM Greeting Full Support Unheard Messages Notification Skip option Skip option to any point in a message by dragging the playhead on the scrubber bar. Video Support No Contacts From HS Message Listening Users can listen over the speakerphone or use earphones for a more private listening Message Options Call Back, Delete Folders Inbox, trash, greetings

iPhone revenue deals

Exclusivity with operators

Exclusivity has proven a problem in some countries

Unlocked phones reportedly represent a huge loss for Apple.

However, the unlock frenzy contributes to the hype.

Revenue share

RS for new customers and existing customers that switch to iPhone plan.

Revenue share for data

Mobile handsets are becoming a personal device combining various functions such as Wi-Fi and third-party applications.

Mobile phones will be treated as consumer electronics Operators will have less incentive to hand out phones Handsets – Market dynamics Operators will tend to subsidize less and focus more on services as handsets become more of a personal device. Vendors will be more involved in marketing, setting up demo booths and even sales showrooms. Handset vendors are becoming more involved in distribution ” Pre-iPhone Latin America: The High-End Handsets Market”, Yankee Group Research, Inc., 2007

The iPhone Revolution

Apple controls all distribution for the iPhone.

In the US, it is sold in its Apple stores, on its Web site and through the stores and Web site of its partner Cingular.

Although none of its separate applications are new, this is the first time all are together in the same device with an exciting graphic UI.

Mobile phones as consumer electronics The mobile phone as a personal device

2008 Mobile World Congress

Nokia unveils the N96, a top-of-the-line model that comes with features the iPhone lacks:

Faster third-generation mobile data connections

Video recording

A slot for additional memory

The ability to watch live TV in parts of Europe and Asia.

CTIA 2008: iPhone casts a long shadow

Sprint’s big announcement was around the Samsung Instinct, clearly an iPhone competitor.

Other operators and handset vendors showed an array of devices that mimic certain aspects of the iPhone.

According to OVUM, none of the devices shown at CTIA come close to the features that people love about the iPhone: the design, UI, browser, ease of use.

“ CTIA: iPhone casts a long shadow”, Ovum, 2008

Instinct vs. iPhone

Sprint Instinct PR

Response to the iPhone iPhone Instinct Voyager Operator AT&T Sprint Verizon Handset vendor Apple Samsung LG Touch screen Yes Yes Yes Icon based menu Yes Yes Yes Launch Jun-07 Jun-08 Nov-07 Wi-Fi Yes No GPS Yes Yes Yes Camera 2 megapixels 2 megapixels Video recording No Yes Yes 3G No Yes Yes MMS No Yes Yes Music player Yes Yes Yes Music Store iTunes Sprint Music Store V Cast music store Stereo Bluetooth No Yes Yes IM No No Yes Visual Voice Mail Yes Yes Threaded SMS Yes Yes Price $299.99* $299.99

Target Market

"iPhone fence-sitters“

Users who like the idea of the iPhone, but don't want to switch to AT&T.

Users who like idea of the iPhone, but don't want to fork over the cash for it.

iPhone forecasts

Sub forecast: 10M sub by end 08

3G version: during 2008

Not announced at Macworld

No official announcement but it is rumored that it is coming June 08

Americas next step:

Rogers Wireless

LA – no official announcement

APAC – during 2008

Market Analysis for iPhone

Summary of iPhone offering in USA – AT&T *More SMS text messages can be added to any plan. Minimum new 2-year wireless service plan and activation fee required to activate iPhone features. Monthly Price $59.99 $79.99 $99.99 $119.99 Minutes 450 900 1350 Unlimited Unlimited Data (Email/Web)     Visual Voicemail     SMS Text Messages* 200 200 200 200 Nights & Weekends 5000 Unlimited Unlimited Unlimited Rollover® Minutes     Unlimited Mobile to Mobile    

Summary of iPhone offerings in Europe (1) Source: OVUM, “The iPhone in Europe – operator strategies”, November 2007 *12-mo plans cost additional €4.50 per month Orange France T-Mobile Germany O2 UK

€ 399

€ 549 w/o iPhone plan

€ 649 w/o any plan.

€ 399

Unlocked €999

Plus one-time setup fee €29.

£269 (€376)

unlocked n/a

Device cost

All plans include unlimited data (500MB fair usage).

All plans include unlimited data.

All plans include unlimited data.

Data

Includes ten hours of WiFi access, or 100 hours on €119 rate plan.

Includes free roaming on over 8,000 T-Mobile WiFi hotspots.

Includes free WiFi access on UK Cloud hotspots.

WiFi

12/24 mos*

24 month plan

18 month plan

Plan

Summary of iPhone offerings in Europe (2) Orange France T-Mobile Germany O2 UK Source: OVUM, “The iPhone in Europe – operator strategies”, November 2007 Monthly charge Minutes/Text £35 (€49) £45 (€63) £55 (€77) 200/200 600/500 1,200/500 Monthly charge Minutes/Text € 49 € 69 € 89 100/40 200/150 1000/300 Monthly charge Minutes/Text € 49 € 59 € 79 € 119 120/50 180/100 300/150 480/1000

Initial Offering – Pricing

Initial Offering – Pricing T-Mobile Germany: 2 Tariff Plans Only

Initial Offering – Pricing Orange France T-Mobile Germany “… customers appreciate unlimited e-mail and Visual Voicemail.” Orange FR PR 5/12/07 Visual Voicemail is part of the iPhone Plan = no extra charges

iPhone VVM Promotion

Visual Voicemail enjoys the hype and buzz created around iPhone by both Apple and the operators

One of the features that Apple heavily promoting is Visual Voicemail

AT&T launched a dedicated Visual Voicemail advertisement

AT&T and O2 invested millions in massive ATL campaign

iPhone Launch in the US Steve Jobs Announcement

iPhone Visual Voicemail TV campaign TV Campaign “… One of the greatest advancements…”

iPhone Visual Voicemail - Apple’s web-site

02 UK iPhone Awareness Campaign

18 th Sept:

PR announcement

Apple Store on Regent Street event

Joint Press Release

o2.co.uk Getting Ready pages

20 th Sept:

SMS to 3.0M Postpaid customers

Email to 1.6M Postpaid customers

22 nd October:

2 weeks outdoor campaign “The wait is nearly over”

Email to registering customers

2 nd Nov:

TV breaks

TV and cinema teaser campaign

9 th Nov:

Launch campaign through to Christmas

Outdoor – “Say Hello to iPhone”

TV and cinema campaign

O2 UK – iPhone Buzz…

Orange France – iPhone pre launch buzz Orange Store on Champs-Elysées Orange: iPhone pre-launch web campaign

T-Mobile Stores and Outdoors Advertisements

T-Mobile Germany iPhone’s Buzz Using Celebrities : German TV personality showing off her iPhone… 1 st person to buy an iPhone from T-Mobile Germany

Visual Voicemail Key Campaign’s Messages

Unique and innovative

Functional – “just like email”

Select and listen to voicemail messages in whatever order you want

In you control – “what ever order you want”

Visual Voicemail is positioned as New, Functional and maximizing Personalization

What O2UK customers think of Visual Voicemail “ I love the voicemail. It is brilliant” “ Just seems so simple and was already set-up” “ How voicemail should have worked from the beginning” “ It’s great, I can decide which messages I listen to 1st ” “ I love the little red dot which appears to show you how many new messages you have” “ I didn’t use voicemail before, now I love it”

iPhone’s Visual Voicemail User-Satisfaction Bloggs and Testimonials

“ my single most favorite iPhone feature … If I have a 58 second voicemail, it takes me precisely 58 seconds. Its wonderful” David Bujnowski, Coburn Ventures

“ I have NEVER used my VM password thanks to visual voicemail…Gosh I love Visual Voicemail!” http://forums.macrumors.com/showthread.php?t=438351

“ … the ability to pick and choose which message to listen to...To rewind in ipod style to pickup that number that they speak too quickly to hear the first time around...Priceless innovation...” http://www.avforums.com/forums/showthread.php?t=650303&page=2

iPhone Competition – Handset Vendors

Some vendors are coming out with handsets that have similar features: touch screen, visual interfaces

Samsung F700

LG KE850

Nokia Aeon Concept Phone

Neonode N2 TouchScreen

BenQ-Siemens Black Box

iPhone Competition – Operators

Operators not launching iPhone are looking for ways to compete.

Strategies for competition include VI apps as well as handsets

The Voyager by Verizon, made by LG is the strongest competitor.

Sprint announced at CTIA the launch of the Samsung Instinct.

AT&T itself has the LG VU as an option to the iPhone.

It is expected that in Latin America pricing will be a key competition strategy.

iPhone Competition – New Players

T-Mobile Android Phone Release Seen Bringing 'Avalanche‘ – cellular news, 4/24/08

With T-Mobile USA preparing to ship out its first cellphones built on Google's open Android platform later this year, wireless carriers are expecting an avalanche of innovation from users - and radical changes to what customers expect and demand.

T-Mobile tips broad push for open platforms – eeTimes, 04/22/2008

Sayeed Choudhury (Qualcomm), said his company is working with OEMs on more than five handsets that will use Android. They should ship in 12-18 months.

He said the Android phones will have similar features to the iPhone but priced closer to mass market feature phones.

Market Update and Results

“ Mr. Jobs announced that Apple hoped to capture 1% of the mobile phone market in calendar 2008, a percentage that equates to ten million unit sales. Apple sold 270,000 iPhones in the first 30 hours following its launch on June 29, 2007 and 1.1 million units in the September quarter..” - Charlie Wolf Investment Analyst at Needham & Company, January 2008

M:Metrics: iPhone Hype Holds Up

According to M:Metrics, the iPhone is already the most popular device for accessing news and information on the mobile Web:

85 percent of iPhone users browse the mobile Web

30.9 percent of iPhone owners watched mobile TV or video, versus a 4.6 market average, and more than double the rate for all smartphone users.

Usage of social networking is also popular among iPhone users: 49.7 percent accessed a social networking site in January, nearly twelve times the market average.

Mark Donovan, Senior Analyst, 2008 “ The iPhone has certainly delivered on its hype. Beyond a doubt, this device is compelling consumers to interact with the mobile Web, delivering off-the-charts usage from everything to text messaging to mobile video.”

Mobile Content Consumption *Smartphones include devices running Windows, Symbian, RIM or Apple operating systems. Source: M:Metrics, Inc., Copyright © 2008. Survey of U.S. mobile subscribers. Data based on three-month moving average for period ending 31st January 2008. Activity iPhone Smartphone* Market Any news or info via browser 84.80% 58.20% 13.10% Accessed web search 58.60% 37.00% 6.10% Watched mobile TV and/or video 30.90% 14.20% 4.60% Watched on-demand video or TV programming 20.90% 7.00% 1.40% Accessed Social Networking Site or Blog 49.70% 19.40% 4.20% Listened to music on mobile phone 74.10% 27.90% 6.70%

Demographic Composition of iPhone Users

M:Metrics revealed the demographic composition of iPhone users, which are similar to the demographics of other smartphone owners.

They are more likely to be

Male

Aged 25-34

Earn more than $100,000

Have a college degree

The European Market

While the scenes of mild hysteria that greeted the US launch were absent, sales were good.

T-Mobile Germany sold 10,000 units by 8pm on the day of launch.

O2 only commented that it sold ‘tens of thousands’ of iPhones.

René Obermann, CEO of Deutsche Telekom AG stated that i n Germany, T-Mobile had sold 70,000 iPhones with contracts (Jan 2008).

According to Obermann, the iPhone is helping drive up mobile data usage as much as 30 times higher than on other phones.

René Obermann, CEO of Deutsche Telekom AG, 2008 "iPhone customers retrieve weather reports, stock prices, and YouTube videos from the Internet on the go -- all as a matter of course. "The average Internet usage for an iPhone customer is more than 100 MBytes. This is 30 times the use for our average contract-based consumer customers."

RBC Market and Financial update

European iPhone Momentum Better Than Thought

Contrary to concerns over a soft European launch, evidence points to solid European iPhone momentum.

Compelling Design Overcomes Flaws.

Despite lacking features demanded by the European market (3G/HSDPA, advanced Bluetooth, high price), iPhone appears to be an early hit with consumers, taken with its compelling design and UI.

Outselling Competitor Smartphones.

iPhone outsells smartphones at 02, Orange and T-mobile stores (Nokia N95 and E-Series, Samsung BlackJack, LG Prada).

3G Upside Significant.

Once Apple launches 3G (expected 1H/CY08) and the iPhone in other countries, European iPhone sales appear poised for improvement in demand and momentum.

Charlie Wolf, Needham & Company, 2008 “ The iPhone has redefined the smart phone market …. The real value-creation potential of the iPhone lies in the exclusive distribution deals Apple is signing with carriers. The carriers are skipping their traditional handset subsidies, paying Apple an equivalent amount; and these payments are pure profit. Our forecast has the iPhone capturing 15% of its target market, consisting of carriers who generate high ARPU and view the iPhone as their ticket to subscriber share growth.”

The iPhone in Europe - Key messages

The iPhone is a key differentiator

Exclusivity has given operators a huge amount of press coverage.

Operators must use the opportunity well.

The increased number of consumers at their stores a great opportunity to upsell the iPhone or to sell a different, cheaper option.

Competition will be fierce

Other operators will think hard about their response to the iPhone.

Many will come out with strong mobile data bundles, and pushing handsets with similar functionality.

Many will use the iPhone’s premium price as a key differentiator.

It should stimulate the mobile data market in each country

The iPhone should have a positive effect for all operators attempting to sell mobile Internet services.

Pricing is likely to be an issue for some consumers.

Market Outlook for Latin America

Latin America: The High-End Handset Market

Although the iPhone is not yet officially available in LA, its launch is capturing the attention of the market.

America Movil officially announced it will distribute the iPhone in LA (May 7, 2008)

The hype surrounding the iPhone shows that users are willing to pay top dollar for a device based on status.

This highlights the gap between consumers’ expenditures on services and what is spent on products in this region.

” Pre-iPhone Latin America: The High-End Handsets Market”, Yankee Group Research, Inc., 2007

Low ARPU but Interest In High-End Devices

Latin America is considered a low-end market based on ARPU comparisons with other regions.

NA ARPU is 3.5 times higher than LA.

ARPU in LA is 32% lower than the average global ARPU

However, an analysis of handset portfolios in Brazil shows a different scenario.

60% of mobile devices in Brazil are not low-end,

This represents 37% of new handset sales.

Brazilian Mobile Devices Market Total >US$550 US $275 to US$550 <US$275 Device Brand 28 11 8 9 Nokia 25 5 11 9 Motorola 24 4 10 10 Samsung 16 2 4 10 LG 14 2 9 3 Sony Ericsson 9 0 4 5 Gradiente 7 0 1 6 Benq-Siemens 5 5 0 0 RIM BlackBerry 4 4 0 0 Qtek 3 0 0 3 Pantech 2 2 0 0 Palm 2 0 0 2 Alcatel 1 1 0 0 HP 1 1 0 0 Mio 1 1 0 0 Elef 142 38 (27%) 47 (33%) 57 (40%) TOTAL

High End Handset Market Analysis for LA

Market Leaders

Nokia & Motorola lead the pack with a large portfolio of devices, strong relationship with carriers, high brand awareness.

Nokia allowed Wi-Fi connections and created a content network for its Nseries and Eseries devices. Tentative plans with Telefonica for content distribution on Nokia’s Ovi platform in Latin America.

Motorola also has a complete line of handsets available but it hasn’t gotten the attention of Nokia’s high-end smart phones.

Market Challengers

LG, Sony Ericsson, Gradiente, Samsung have also been able to harness LA’s mobile boom. For this group retail experience is also a factor, with ample experience in retail electronics.

Enterprise smart phones is a growing sector that has caught the attention of mobile operators. With a monthly ARPU 2.5 times higher than the consumer segment, enterprise plans and accounts are a strategic stronghold for all operators.

Comverse Solution

Comverse Solution to the iPhone Client

Comverse developed the server side solution to the iPhone Visual Voicemail Product.

Fully standard & compliant with iPhone specifications, Comverse’s development approach doesn’t require from iPhone any adaptation.

Supports all iPhone Product Visual Voicemail feature-set.

Planned to support iPhone Product Visual Voicemail future feature set & evolutions

Comverse VVM References iPhone launch in Germany iPhone launch in UK iPhone launch in Austria iPhone additional launch- soon VVM launch planned H2 2008 VVM deployment (few devices) - Tier 1 operator - to be launched soon iPhone – to be launched during 2008 Ongoing processes – to be launched during 2008 Europe America Ongoing processes planned launch H2 2008 APAC

Thank you Raúl Castañón Martínez PRODUCT MARKETING [email_address] www.comverse.com

Backup slides

Summary of iPhone offerings in Europe (1) Source: OVUM, “The iPhone in Europe – operator strategies”, November 2007 Notes Mins/Text Monthly charge Plan Device cost Operator

Unlocked - n/a

All plans include unlimited mobile data.

Includes free WiFi access on UK Cloud hotspots.

200/200

600/500

1,200/500

£35 (€49)

£45 (€63)

£55 (€77)

18 mos.

£269 (€376)

O2 UK

Also a one-time set-up fee of €29.

All plans include unlimited data

Includes free roaming on over 8,000 T-Mobile WiFi hotspots

100/40

200/150

1000/300

€ 49

€ 69

€ 89

24 mos.

€ 399

Unlocked €999; €600 to unlock previously purchased device

T-Mobile Germany

Summary of iPhone offerings in Europe (2) Source: OVUM, “The iPhone in Europe – operator strategies”, November 2007 *12-mo plans cost additional €4.50 per month Notes Mins/Text Monthly charge Plan Device cost Operator