The document discusses trends in the global telecommunications industry from 1999-2015 based on analysis from IBM. It notes that more change has occurred in telecoms in the past 10 years than the previous 100. While access has increased 350% to nearly 70% globally, growth is stalling due to declining mobile and emerging market expansion. The future of telecom revenues and profits is uncertain due to factors like the rise of over-the-top services and data traffic exceeding voice revenues. The document outlines four potential industry scenarios for 2015.

1. Rob van den Dam , Global Telecommunications Sector Leader IBM Institute for Business Value

2. More change in telecommunications over the past 10 years than in the previous 100 Source: International Telecommunications Union (ITU) ICT Statistics Database available at http://www.itu.int/ITU-D/icteye/Indicators/Indicators.aspx . 2009 figures are estimated published in ITU, “The world in 2009: ICT Facts and Figures”; ITU Geneva 2009, available at http://www.itu.int/ITU-D/ict/material/Telecom09_flyer.pdf Telecom Penetration 1999 - 2009 Over a century after it was first invented, less than 1 in 6 of the world’s population had access to a telephone. In the last decade, however, this increased approx. 350% and now nearly 7 in 10 people have access to telephony

3. However, the key engines of growth - mobile telephony and emerging market expansion – appear to be losing and growth has begun to stall Telecom Services Revenue Growth 2004 - 2014 Source : IDATE, in "World Telecom Service Market", 2008 Edition - January 2009, revision in July 2009; Global Wireless Matrix 2Q10, Merrill Lynch; IBM Institute for Business Value (IBV) Analysis Mobile Growth Forecast Emerging Asia

4. 2 trends - shift to the Open Internet and to collaborative communication - are altering the competitive landscape in communications Open and Free Gated Communities Shared Social Space Traditional Communications Provider-Controlled 1:1/1:N Fixed Voice Mobile Voice SMS Mobile Social Networking / Telco Walled Gardens M:N Communication Pattern Open Internet Communication Environment Market direction

5. While overall communication have increased, much of the growth has been over-the-top with share of traditional unchanged Notes: (1) An SMS/MMS or e-mail is considered as a 30 second call. FRANCE TOTAL COMMUNICATIONS MARKET (billions of call minutes and equivalents ¹) Stable use of traditional communications services Increased share of communication services by Internet Communication services providers Source: Idate: Telco’s views of Openess, Digiworld Summit 2009 Source: Ronald Montagne “Telcos’ views of openness”, IDATE, October 2009 0 200 400 600 1000 1200 800

6. And Asians love over-the-top communication over the open Internet as well Social Networking in Asian Countries Average Minutes per Visitor Average Visits Per Visitor 148.9 15.1 Country Asia Pacific % reach of Social Networking 50.8 http://www.comscore.com/Press_Events/Press_Releases/2010/4/Social_Networking_Across_Asia-Pacific_Markets 332.2 26.3 Philippines 90.3 228.0 20.9 Australia 89.6 324.4 22.6 Indonesia 88.6 226.0 22.3 Malaysia 84.7 217.5 20.3 New Zealand 81.2 131.3 18.3 Taiwan 75.9 223.3 25.4 Hong Kong 75.4 130.1 13.0 India 68.5 131.4 16.0 South Korea 63.5 49.5 7.2 Vietnam 46.1 Source: comScore World Metric, February 2010 Japan 42.3 120.5 14.0

7. And this communication is increasingly augmented with videos, photos and other multimedia content resulting in phenomenal growth of data traffic Global Consumer Internet Traffic, 2008–2013 Petabytes/ month Mobile Internet /Data Traffic Petabytes/ month 40% CAGR 135% CAGR SOUTHEAST ASIA 2007: 75% of traffic was fixed/mobile voice 2012: 90% of traffic is fixed/mobile data ( 2/3 of which is mobile data ) Source: Cisco Visual Networking Index, June 2009, IDATE, IBM institute for Business Value (IBV) Analysis

8. However, telecom revenues do not track the increases in network traffic anymore Traffic Telecom Revenue Voice Dominant Data Dominant Source: Nokia-Siemens; IBM Institute for Business Value (IBV) Analysis Time Traffic Volume / Revenue Network Cost (future technologies) Network Cost (existing technologies) Value Opportunity Ecosystem Revenue

9. Telco 2015 – five telling years, four future scenarios Scenario Envisioning Primary Research Consumer Survey (9 countries) Telco Provider Interviews (±60) Macro Economic Trends Industry Data/ Analysis (IDATE) Secondary Research Industry Trends Forces Shaping Telecom Uncertainties Scenarios & Outcomes Implications Challenges & Trends SURVIVOR CONSOLI-DATION CLASH OF GIANTS MARKET SHAKEOUT GENERATIVE BAZAAR Telco 2015 Strategic Imperatives Critical attributes for success Potential capability gaps by Operator Scenario-specific recommendations Cross-scenario recommendations IBM Institute for Business Value Analysis Scenario Revenues and Profitability Revenues Free Cash Flow (EBITDA - Capex) 1,541 CEO interviews from Global CEO Study; ~80 from CSPs

10. There are a number of Forces shaping the future of telecommunications into 2015 ACCESS BUSINESS MODEL INDUSTRY STRUCTURE USAGE/ SERVICES Source: IBM Institute for Business Value (IBV) Analysis PSTN decline accelerates VOIP (incl. mobile VOIP) grow Ubiquitous and seamless access High digital content consumption Multiple communication tools Broadband pervasive as TV Mobile broadband favors LTE Ultra low-cost devices grow One in three devices is smartphone, MID, or Netbook Voice monetized as a feature of connectivity Green Telecom revenues 3 rd – party connectivity revenues New infrastructure competition from government, municipality Net Neutrality remains Mobile and fixed termination converge Pure plays disappear

11. In addition to these trends there are a number of potentially high-impact variables that are, as yet, uncertain Vertical vs. Horizontal Integration Regulation Network sharing vs. Outsourcing Open vs. Closed devices User vs. 3 rd Party / ad funded Addressable Market Growth Competition/ Integration Structure OTT vs. Network optimized content Silo vs. unified communications The Future of Voice Expansion into Adjacent Verticals Premium Connectivity Source: IBM Institute for Business Value (IBV) and IDATE Analysis Service Pricing Model Machine-to-Machine (M2M) communications Ultra-fast Broadband Availability

12. The interplay of these critical variables / uncertainties produces four distinct future industry scenarios SURVIVOR CONSOLIDATION Spectrum Passive Infrastructure Active Network Support Infrastructure Retail Channels Devices Customer Few large players dominate Market MARKET SHAKEOUT Spectrum Passive Infrastructure Active Network Support Infrastructure Retail Channels Devices Brand Brand Customer Customer Many players - Fragmented GENERATIVE BAZAAR Enabling the two-sided business Declining/ Stagnant Expanding Addressable Market Growth Concentrated / Vertical Fragmented /Horizontal Competition/Integration Structure CLASH OF GIANTS Telco OTT/ OEM Spectrum Passive Infrastructure Active Network Support Infrastructure Retail Channels Devices Customer Spectrum Passive Infrastructure Active Network Support Infrastructure Retail Channels Devices Customer

13. And represents the most optimistic outlook for telecoms, relative to the IMF’s global GDP forecast for 2010 - 2014 Global GDP vs.. Telecom Services Growth Scenarios Source: International Monetary Fund (IMF), World Economic Outlook Database, October 2009; http://imf.org/external/pubs/ft/weo/2009/01/weodata/index.aspx , IBM Institute for Business Value (IBV) and IDATE Analysis, 2004 - 2009 growth forecasts are based on IDATE "World Telecom Service Market", 2008 Edition - January 2009, revision in July 2009. 2010 -2015 are IBM Telecom 2015 scenario forecasts Generative Bazaar Clash of Giants Market Shakeout Survivor Consolidation 2009 – 2015 Telecom Growth Scenarios Global GDP Global Telecom 5.3% 3.3% 1.8% 0.2% 4.5% Growth Developing Asia GDP 8,6%

14. Growth opportunities in Clash of Giants (Asia focus) Innovative network-optimized Services Industry Collaboration Compete against OTT 0.8 billion > $40/day 1.5 billion $4 - 40/day 1.3 billion $4/day 1.4 billion $2/day 1.3 billion $1/day Expand customer base to BoP as penetration ULC handsets increases Packaged end-to-end services meeting needs/tastes of lower-income consumers Emerging market providers enter mature markets

15. Growth opportunities in Generative Bazaar (Asia Focus) Stimulate a range of new and exciting next gen Services by OPEN INNOVATION such as telemedicine, HD video conferencing and immersive learning applications. Singapore Next Gen NBN iN2015 Healthcare Two-sided Business Model Deploy ultra-fast broadband

16. Making ‘dumb’ pipes smarter – and more profitable too Providing pervasive and open access connectivity for any person, solution/service provider, object and a multitude of devices Premium connectivity may include shared capabilities (e.g. presence, location, contact list), guaranteed low latency, security, CDN, network/customer insight by analytics, etc. UP STREAM DOWN STREAM Telco Banking & Finance Electric Utilities Health Care Telecom Retail Media Companies Application Developers Device OEMs $ $ Comms-enabled Applications/ Solutions EXTENDED SOLUTION / SERVICE PROVIDERS CONSUMERS / BUSINESS OPEN PLATFORM $

17. Take actions in the context of the data traffic / revenue dilemma, that might include finding a commercial framework for free-riding services Attitude towards mobile VoIP Partner with VoIP provider Impose a surcharge Challenger Leader Prohibit use of VoIP Allow use with data plan Mobile VoIP: Strategies of leaders versus challengers Access Wireless and Fixed Internet Access providers CDN Large network and cache of a variety of content Internet Core Global networks transporting Internet traffic OTT Providers Content, media and Application providers End Customer End Customer Advertisers Subscriptions Pay per Use Typically no charge Peering charges for access to content Charges for amount of data cached Possibly charges for bandwidth used Variety of transactions/models Per click or basic ad revenue Peering/CoLo charges to shift content around CDN Business models that capture more value from OTT traffic & enhance user experience

18. Key contacts Ekow Nelson Global Telecommunications Industry, IBM Corporation [email_address] Rob van den Dam Global Telecom Industry Lead , IBM Institute for Business Value [email_address] Nick Gurney Global Telecom Industry Leader Global Business Services [email_address] www.ibm.com/iibv Thank you! http://www-935.ibm.com/services/us/gbs/bus/html/ibv-telco2015.html?cntxt=a1000065 http://www-935.ibm.com/services/us/gbs/bus/html/gbs-telcos-socialnetworking.html?cntxt=a1000065