1. © Analysys Mason Limited 2011 The Connected Consumer Survey 2012: mobile broadband Research Report The Connected Consumer Survey 2012: mobile broadband December 2011 Martin Scott

2. © Analysys Mason Limited 2011 The Connected Consumer Survey 2012: mobile broadband Contents 5.Executive summary 6.Executive summary 7.Recommendations 8.Recommendations [1] 9.Recommendations [2] 10.Introduction 11.Introduction 12.Denmark 13.France 14.Germany 15.Poland 16.Spain 17.UK 18.USA 21.Results 22.Results: Mobile operators are struggling to limit broadband churn and should segment the market 23.Service providers are struggling to retain mobile broadband customers 24.Casual mobile broadband users are not currently well catered for 25.Divide and conquer: mobile broadband has three distinct use cases that should be treated differently 26.Results: Large-screen replacement mobile broadband: dissatisfied customers so far 27.Fixed–mobile broadband replacement will continue, but at a slightly slower rate 2 28.Replacement mobile broadband has clear appeal for young people who live alone in rented accommodation 29.Replacement mobile broadband has fewer low-value customers than complementary mobile broadband 30.Replacement mobile broadband users are more likely to use more- advanced mobile services and are less interested in TV 31.Customers who rely solely on mobile broadband for connectivity are less satisfied than other customers 32.Customers are in little doubt that fixed broadband is currently superior to mobile broadband – and the impact of LTE may be slow to take effect 33.Results: Large-screen complementary broadband: operators must better cater for casual users 34.Mobile broadband is complementary to fixed broadband in Western markets, and this is unlikely to change 35.Further complementary mobile broadband growth will be due to improved tariffs that better suit how customers use mobile broadband 36.The most important factor for mobile broadband is not speed, reliability or even price – it is customer service 37.Complementary mobile broadband appeals to some of the same demographics as multi-play bundles 38.Fixed–mobile bundling can become an effective strategy for promoting mobile broadband growth, if tariffs cater better for light users 39.Results: Mid-screen mobile broadband: new opportunities for broadband growth 40.Mid-screen devices, such as the Apple iPad, present new opportunities for mobile broadband growth Slide no.

3. © Analysys Mason Limited 2011 The Connected Consumer Survey 2012: mobile broadband Contents 41.Early adopters consume higher volumes of media, but spend less time watching video – a potential relief for mobile broadband providers 42.Streaming is the most popular form of video delivery to a tablet, but this will primarily be over Wi-Fi 43.Achieving successful growth in mid-screen mobile broadband subscriptions will require tariff innovation 44.Results: Selling mobile broadband to consumers who say that they are not interested 45.Of consumers who do not take mobile broadband, 65% are not interested in doing so 46.Fixed broadband is sufficient for most consumers who do not currently take mobile broadband 47.Consumers confirm that fixed–mobile bundling could incentivise them to take up mobile broadband 3 48.Methodology 49.Methodology 50.About the author and Analysys Mason 51.About the author 52.About Analysys Mason 53.Research from Analysys Mason 54.Consulting from Analysys Mason Slide no.

4. © Analysys Mason Limited 2011 The Connected Consumer Survey 2012: mobile broadband List of figures Figure 1: Selected statistics from the Connected Consumer Survey 2012: mobile broadband Figure 2: Survey respondents’ demographic data: Denmark Figure 3: Survey respondents’ demographic data: France Figure 4: Survey respondents’ demographic data: Germany Figure 5: Survey respondents’ demographic data: Poland Figure 6: Survey respondents’ demographic data: Spain Figure 7: Survey respondents’ demographic data: UK Figure 8: Survey respondents’ demographic data: USA Figure 9: Percentage of subscribers that would like to change service provider in the next six months, by country and service Figure 10: Relative use of mobile broadband in different locations, by whether the respondent also has a fixed broadband connection Figure 11: Frequency of mobile broadband use, by whether the respondent also has a fixed broadband connection Figure 12: Mobile broadband subscribers by device and use type, Europe, 2005–2016 Figure 13: Population penetration of replacement mobile broadband, various countries, 2005–2016 Figure 14: Demographic breakdown of replacement mobile broadband users, compared to all respondents Figure 15: Distribution of monthly spend on mobile broadband (EUR PPP), by type of mobile broadband Figure 16: Selected activity and device usage statistics among replacement mobile broadband users compared to all respondents Figure 17: Overall customer satisfaction with broadband and voice services 4 Figure 18: Consumer perception of fixed and mobile broadband services, Europe and the USA Figure 19: Consumer perception of fixed and mobile broadband services, Denmark Figure 20: Breakdown of mobile broadband users by fixed broadband ownership Figure 21: Future plans for fixed and mobile broadband, by type of broadband to which currently subscribed Figure 22: Population penetration of complementary mobile broadband, various countries, 2005–2016 Figure 23: Metrics on aspects of mobile broadband customer satisfaction among customers that also have fixed broadband, Europe and the USA Figure 24: Demographic breakdown of complementary mobile broadband users compared to all respondents Figure 25: Population penetration of mid-screen mobile broadband, various countries, 2009–2016 Figure 26: Selected statistics regarding the activities and demographics of tablet owners Figure 27: Consumption of video content by delivery method and device type Figure 28: Future plans of consumers that are aware of mobile broadband, but do not subscribe to it, various countries, Figure 29:Preferred subscription type of consumers that are interested in mobile broadband, various countries Figure 30: Reasons given by consumers for not being interested in mobile broadband Figure 31: Factors that would motivate consumers to buy mobile broadband as a percentage of respondents who are interested in taking the service

5. © Analysys Mason Limited 2011 The Connected Consumer Survey 2012: mobile broadband 5 Executive summary Recommendations Introduction Results Methodology About the author and Analysys Mason

6. © Analysys Mason Limited 2011 The Connected Consumer Survey 2012: mobile broadband Executive summary  In 2011, 11% of mobile broadband users surveyed intended to give up the service completely. Although this is an improvement on the 13% figure we recorded in 2010, it presents a daunting challenge for MNOs. The potential churn rate for mobile broadband is twice as high as those for other services: 26% of users would like to change provider.  One significant reason why such a large percentage of customers intend to drop mobile broadband is because there is a discontinuity between how consumers use mobile broadband and how many tariffs are composed.  The mobile broadband market can be segmented into three different use cases. In each of these cases, the volume of traffic, frequency and location of use, and needs and expectations of the user are different, namely:  complementary mobile broadband  replacement mobile broadband  mid-screen mobile broadband.  Service providers should approach these use cases differently. In this report, we present consumer satisfaction, intentions and demographics for these use cases and present strategic recommendations accordingly. 6 Figure 1: Selected statistics from the Connected Consumer Survey 2012: mobile broadband [Source: Analysys Mason, 2011] 1 1 Various questions; n = 7485. of mobile broadband subscribers would like to change provider in the next six months of consumers with complementary mobile broadband use it solely at home of respondents that do not take mobile broadband would consider doing so of respondents believe that mobile broadband is superior to fixed of replacement mobile broadband customers use Wi-Fi hotspots (compared with 26% of our sample) of all consumers that are interested in buying mobile broadband would be motivated by improved fixed–mobile bundles

7. © Analysys Mason Limited 2011 The Connected Consumer Survey 2012: mobile broadband 7 Executive summary Recommendations Introduction Results Methodology About the author and Analysys Mason

8. © Analysys Mason Limited 2011 The Connected Consumer Survey 2012: mobile broadband Recommendations [1]  Operators should segment the mobile broadband customer base according to use case. The mobile broadband market can be segmented into three different use cases: mid-screen, large-screen replacement and large-screen complementary. In each of these cases, the volume of traffic, frequency and location of use, and needs and expectations of the user are different. Service providers should approach these use cases differently.  Mobile operators with fixed operations should revise their fixed–mobile broadband strategies to increase the ‘stickiness’ of mobile broadband. The most popular approach to bundling fixed and mobile broadband services is to set the incremental cost of the latter at about 65% of its standalone price.  Mobile operators that lack fixed operations must accept that mobile broadband is not yet a credible substitute for fixed services. They should focus their marketing on the two key factors that differentiate mobile broadband from its fixed counterpart. Firstly, price – particularly in countries, such as Spain, where fixed broadband churn rates are higher and affordability is a greater barrier to entry, affordable low-usage tariffs for mobile broadband can significantly undercut fixed alternatives. Secondly, mobility – the key differentiator for mobile broadband. Most mobile broadband usage takes place in the home or office, but the utility of mobility is greater than that of mobile broadband in a fixed location and is highly valued by consumers.  Operators must prepare a strategy for migrating replacement mobile broadband customers to other services if their usage needs change. Mobile operators with a fixed arm logically should offer the option of a smooth transition from replacement mobile broadband to complementary mobile broadband as part of a bundle. They could also potentially offer one-off discounts on their fixed broadband product to mobile broadband customers looking to cancel their service. Mobile operators looking to implement a mobile-only strategy to combat structural churn may choose to offer free or discounted Mi-Fi devices (and, in countries where bandwidth is tiered, faster speeds).  Operators must focus on customer service as much as network performance. Overall satisfaction with mobile broadband services has a strong correlation with customer service satisfaction. The fundamental customer service that operators should look to address is to ensure that any communication between the operator and the customer is as efficient as possible (whether with a real customer care agent or with a software agent). 8

9. © Analysys Mason Limited 2011 The Connected Consumer Survey 2012: mobile broadband Recommendations [2]  Operators must cater for casual users and introduce lower-priced low-usage services. Frequent users of mobile broadband are much more satisfied with the service than infrequent users. This impression is probably due to a poor match between the terms of the tariff that these less-frequent subscribers are on and their usage patterns. Some operators are already taking this issue into account and offer low-usage contract tariffs (from 100MB upwards) to cater for users who want mobile broadband as a complement to fixed broadband.  Operators should not view ensuing decreases in ARPU negatively. Compared with mobile voice or fixed broadband, mobile broadband is well suited to occasional use. Operators should encourage the take-up of packages that meet this need, despite any negative impact on ARPU. Data volumes will also be low and will not have a negative impact on margins, if managed correctly.  Mobile operators must focus on encouraging tablet use outside of the home or the office. If the majority of tablet usage, at least for more traffic-heavy applications, is via in-home Wi-Fi then mobile operators must focus on encouraging use outside of the home or the office. We believe that they can achieve this through the promotion of low-cost, entry-level mobile broadband tariffs. Some operators are already experimenting with offers of this type – for example, Vodafone’s lowest-entry offer for mobile broadband starts at GBP3 (EUR3.4) per month for a 300MB allowance. A low entry price should encourage users to take a data plan and, for many, 300MB would exceed their monthly requirement for cellular data.  Operators should experiment with multi-device tariffs. These would enable consumers to pay one mobile data subscription that they could use across multiple devices, such as smartphones and tablets and would fit well with the high correlation that we observed between tablet and smartphone ownership. In the UK, Orange is offering a unique bundle of an iPhone 4 and an iPad 2 for an initial payment of GBP149 (EUR170) (GBP99 (EUR113) to existing Orange customers) followed by GBP65 (EUR74) per month for 24 months. This particular plan from Orange may or may not be successful, but as more cellular-enabled consumer electronics come along, service providers need to offer a way of combining the different items in a single plan. Operators need to start experimenting with different plans to see what does and does not work, just as Orange is doing.  Operators should aim to offer attractively priced bundles of subsidised tablets and network access. The high retail price of tablets, and the incremental price for integrated 3G capability, continues to act as a barrier to entry for consumers. In the case of the iPad, operators may struggle to manage this because it is controlled by Apple, although bundled offers may at least help to disguise these price differences. 9

10. © Analysys Mason Limited 2011 The Connected Consumer Survey 2012: mobile broadband 10 Executive summary Recommendations Introduction Results Methodology About the author and Analysys Mason

11. © Analysys Mason Limited 2011 The Connected Consumer Survey 2012: mobile broadband Introduction  To maintain an up-to-date snapshot of consumer usage and demand, Analysys Mason’s annual Connected Consumer Survey tracks the telecoms and media usage of consumers in six European markets – Denmark, France, Germany, Poland, Spain and the UK – as well as the USA.  This iteration of the survey was conducted during September–October 2011, in association with Survey Sampling International.  The survey covers a wide range of topics and issues related to the adoption and usage of, and attitudes towards, all telecoms services, including fixed and mobile broadband, fixed and mobile voice, and TV and video services. 11

12. © Analysys Mason Limited 2011 The Connected Consumer Survey 2012: mobile broadband Denmark  Denmark is an addition to this iteration of the Connected Consumer Survey. The country is one of Europe’s smallest in terms of population, but has one of the highest GDP per capita rates in the region.  Fixed broadband speeds are high in Denmark and prices are less of a barrier to entry for all telecoms and media services here than they are in other countries. Denmark has one of the highest broadband penetration rates in Europe, in terms of both fixed and mobile broadband.  Telia has launched LTE services in Denmark, so the country may serve as an indicator of other markets’ reactions to next-generation mobile data services.  Price competition is also strong in Denmark, where disruptive players such as Hi3G Denmark have launched services. 12 Figure 2: Survey respondents’ demographic data: Denmark [Source: Analysys Mason, 2011] Number of respondents: 1057 Employment Full-time employment = 48% Part-time employment = 9% Retired = 26% Student = 9% Unemployed = 9% Gender Male = 48% Female = 52% Age range 18–24 = 9% 25–34 = 17% 35–44 = 19% 45–54 = 18% 55–64 = 17% 65+ = 19% Note that percentages may not add up to 100% because of rounding.

13. © Analysys Mason Limited 2011 The Connected Consumer Survey 2012: mobile broadband France  France has the third-largest telecoms market in Western Europe in terms of retail revenue. We estimate that consumers in France will have spent about EUR38.4 billion on telecoms services in 2011 – which is just behind the UK figure.  The French fixed-line market is technologically advanced: it has more fixed infrastructure competition, higher broadband speeds and greater take-up of value-added services (such as IPTV, online music and media centres) than similar European markets.  By contrast, the country’s mobile market is not as competitive. Prices for mobile services continue to be high for both voice and broadband and, as a result, France has experienced mobile–fixed substitution in the voice market (that is, the relative percentage of all calls that are made on the fixed line has increased in 2011).  The penetration rate for triple-play packages is higher in France than in neighbouring countries. French operators have tended to price bundles at a benchmark rate of EUR29.90 per month, which usually included unlimited calls to fixed lines in a large number of countries. This model has been somewhat disrupted by tariff revisions in 2011, which have pushed the average value of triple-plays even higher. 13 Figure 3: Survey respondents’ demographic data: France [Source: Analysys Mason, 2011] Number of respondents: 1141 Employment Full-time employment = 36% Part-time employment = 16% Retired = 27% Student = 6% Unemployed = 14% Gender Male = 46% Female = 54% Age range 18–24 = 12% 25–34 = 19% 35–44 = 19% 45–54 = 18% 55–64 = 15% 65+ = 18% Note that percentages may not add up to 100% because of rounding.

14. © Analysys Mason Limited 2011 The Connected Consumer Survey 2012: mobile broadband Germany  Germany is the most-populous country in Western Europe: it had about 82 million inhabitants at the end of 2011. It is also the most-valuable telecoms market in Europe in terms of retail revenue.  The penetration rates for services other than fixed voice are notably lower than those in many other Western European countries. Fixed broadband and mobile SIM penetration rates lag European averages. Furthermore, mobile voice usage is relatively low and fixed–mobile substitution has been slow to take effect. Price reductions in the fixed market, as well as relatively high levels of fixed-line penetration, have contributed to fixed voice service usage remaining relatively high as a proportion of voice service usage overall in Germany.  The German market is characterised by low-cost multi-channel pay-TV services. IPTV services are starting to gain popularity. 14 Figure 4: Survey respondents’ demographic data: Germany [Source: Analysys Mason, 2011] Number of respondents: 1026 Employment Full-time employment = 42% Part-time employment = 16% Retired = 28% Student = 6% Unemployed = 8% Gender Male = 47% Female = 53% Age range 18–24 = 10% 25–34 = 15% 35–44 = 21% 45–54 = 16% 55–64 = 17% 65+ = 21% Note that percentages may not add up to 100% because of rounding.

15. © Analysys Mason Limited 2011 The Connected Consumer Survey 2012: mobile broadband Poland  Poland is the sixth-largest country in the European Union (EU) in terms of population, and 60% of its inhabitants live in urban areas. Prior to the recession, Poland had experienced remarkable economic growth.  The country’s mobile market is highly competitive and dominates the Polish telecoms market in terms of both connections and call volumes. About 45% of households are mobile-only.  Multi-play services have been available from altnets since 2004, and from Telekomunikacja Polska (TP), the incumbent, since 2006.  The Polish mobile market consists of three MNOs of comparable size and a fourth UMTS-only player, Play, that has had a significant impact on the market because of its very aggressive pricing strategy.  Polish Internet users tend to be younger, more wealthy and more ‘tech-savvy’. This will introduce some bias into the results of our survey because it was an online-only panel. 15 Figure 5: Survey respondents’ demographic data: Poland [Source: Analysys Mason, 2011] Number of respondents: 1028 Employment Full-time employment = 48% Part-time employment = 11% Retired = 20% Student = 10% Unemployed = 12% Gender Male = 49% Female =51% Age range 18–24 = 14% 25–34 = 19% 35–44 = 18% 45–54 = 22% 55–64 = 20% 65+ = 7% Note that percentages may not add up to 100% because of rounding.

16. © Analysys Mason Limited 2011 The Connected Consumer Survey 2012: mobile broadband Spain  Spain is the fifth-largest market in Western Europe in terms of population: it had an estimated 46 million people at the end of 2011. It is also the fifth-largest telecoms market in Europe in terms of retail revenue.  The incumbent, Telefónica España, continues to dominate the country’s fixed and mobile telecoms markets in terms of both the number of subscribers and revenue.  International players France Telecom (Orange) and Vodafone also offer a full array of fixed and mobile services over their own networks, and because of this do not suffer as a result of fixed–mobile substitution. Contenders ONO and its smaller rival Jazztel own broadband access infrastructure and have launched mobile virtual network operators (MVNOs), but their approach to mobile services is understandably complementary rather than substitutive.  Spain was hit hard by the recession. As a result, its consumers are facing more austere circumstances and are reducing their spending. Higher-than-average numbers of consumers are considering changing or giving up telecoms services, and price is the most important factor in their buying decisions. Furthermore, a not-insignificant number of consumers intend to use fixed services for a larger share of their voice calls. 16 Figure 6: Survey respondents’ demographic data: Spain [Source: Analysys Mason, 2011] Number of respondents: 960 Employment Full-time employment = 45% Part-time employment = 13% Retired = 14% Student = 7% Unemployed = 20% Gender Male = 49% Female = 51% Age range 18–24 = 10% 25–34 = 21% 35–44 = 20% 45–54 = 22% 55–64 = 20% 65+ = 8% Note that percentages may not add up to 100% because of rounding.

17. © Analysys Mason Limited 2011 The Connected Consumer Survey 2012: mobile broadband UK  The UK is the third-largest country in Western Europe in terms of population, and has the third-highest level of telecoms spending.  Our respondent panel covers Great Britain, rather than the whole of the United Kingdom – that is, it does not include Northern Ireland. However, Great Britain continues to serve as an adequate proxy for UK consumer behaviour.  Large players of comparable size dominate the country’s mobile and fixed telecoms markets: the mobile sector has four major MNOs, while three Internet service providers (ISPs) account for about three quarters of all fixed broadband subscribers. This has resulted in a diverse range of pricing and service options, as providers attempt to differentiate their offerings.  Take-up of mobile broadband services is growing rapidly in the UK market, partly as a result of attractive pricing: the country has some of the lowest-priced USB modems in Europe.  IPTV and other entertainment services are relatively underdeveloped because of cableco Virgin Media’s and satellite player and ISP BSkyB’s strong presence in the pay-TV market. 17 Figure 7: Survey respondents’ demographic data: UK [Source: Analysys Mason, 2011] Number of respondents: 1113 Employment Full-time employment = 47% Part-time employment = 17% Retired = 21% Student = 6% Unemployed = 9% Gender Male = 47% Female = 53% Age range 18–24 = 11% 25–34 = 19% 35–44 = 19% 45–54 = 17% 55–64 = 14% 65+ = 20% Note that percentages may not add up to 100% because of rounding.

18. © Analysys Mason Limited 2011 The Connected Consumer Survey 2012: mobile broadband USA  The USA had a population of about 315 million at the end of 2011, which is roughly the combined size of France, Germany, Spain and the UK. Its economy is the largest in the world (its nominal GDP stood at an estimated USD15.2 trillion (EUR11.4 trillion) in 2010), followed by those of Japan and China.  The US telecoms industry will have generated an estimated USD334 billion (EUR251 billion) in retail revenue in 2011.  The mobile market accounts for almost half of telecoms revenue in the USA, although PSTN services continue to be a large business (fixed voice will have accounted for about 32% of telecoms retail revenue in the USA in 2011). The revenue from fixed broadband and video services combined is greater than that from PSTN. The average revenue per user (ARPU) rates for all services in the USA are strikingly high in comparison with those in other surveyed markets.  The US telecoms market is highly consolidated. Six operators account for more than two thirds of total telecoms revenue. The country no longer has a national incumbent, but AT&T and Verizon account for about half of all revenue. 18 Figure 8: Survey respondents’ demographic data: USA [Source: Analysys Mason, 2011] Number of respondents: 1160 Employment Full-time employment = 49% Part-time employment = 9% Retired = 27% Student = 4% Unemployed = 11% Gender Male = 47% Female = 53% Age range 18–24 = 9% 25–34 = 18% 35–44 = 20% 45–54 = 18% 55–64 = 15% 65+ = 21% Note that percentages may not add up to 100% because of rounding.

19. © Analysys Mason Limited 2011 The Connected Consumer Survey 2012: mobile broadband 19 Executive summary Recommendations Introduction Results Methodology About the author and Analysys Mason

20. © Analysys Mason Limited 2011 The Connected Consumer Survey 2012: mobile broadband 20 Results Mobile operators are struggling to limit broadband churn and should segment the market Large-screen replacement mobile broadband: dissatisfied customers so far Large-screen complementary broadband: operators must better cater for casual users Mid-screen mobile broadband: new opportunities for broadband growth Selling mobile broadband to consumers who say that they are not interested

21. © Analysys Mason Limited 2011 The Connected Consumer Survey 2012: mobile broadband Service providers are struggling to retain mobile broadband customers  In 2011, 11% of mobile broadband users surveyed intended to give up the service completely. Although this is an improvement over the 13% figure we recorded in 2010, it presents a daunting challenge for MNOs. The potential churn rate for mobile broadband is twice as high as those for other services: 26% of users would like to change provider.  MNOs with fixed operations should revise their fixed–mobile broadband strategies to increase the ‘stickiness’ of mobile broadband. The most popular approach to bundling fixed and mobile broadband services is to set the incremental cost of the latter at about 65% of its standalone price.  MNOs that lack fixed operations must accept that mobile broadband is not yet a credible substitute for fixed services. They should focus their marketing on the two key factors that differentiate mobile broadband from its fixed counterpart:  price – particularly in countries where fixed broadband churn rates are higher and affordability is a greater barrier to entry, such as Spain, affordable low-usage tariffs for mobile broadband can significantly undercut fixed alternatives  mobility – the key differentiator for mobile broadband. Most mobile broadband usage takes place in the home or office, but the utility of mobility is greater than that of using mobile broadband in a fixed location and is highly valued by consumers. 21 Figure 9: Percentage of subscribers that would like to change service provider in the next six months, by country and service [Source: Analysys Mason, 2011] 1 1 Various questions; n = various.

22. © Analysys Mason Limited 2011 The Connected Consumer Survey 2012: mobile broadband Casual mobile broadband users are not currently well catered for  One significant reason why such a large percentage of customers intend to drop mobile broadband is because there is a discontinuity between how consumers use mobile broadband and how many tariffs are composed.  Few mobile broadband tariffs cater cost-effectively for casual users, by which we mean users who use the service less than once per week. Many customers must either commit to a monthly contract (which may have a needlessly high usage cap) or a prepaid tariff that has a higher charge per gigabyte and for which credit potentially expires if not used within a certain (short) time-frame  the percentage of mobile broadband users who use the service only casually is high – 10% of customers who use mobile broadband as their only broadband connection, and 19% of consumers who also have a fixed broadband connection, use it less than once per week  also, 34% of consumers who use mobile broadband, but also have a fixed broadband connection, use mobile broadband only at home or at work.  We believe that in order to reduce the number of disconnections, as well as to attract new customers to mobile broadband, operators will need to introduce more-flexible tariffs that suit the behaviour of casual users like those described above (a subject that we will discuss in more depth later in this report). 22 Figure 10: Relative use of mobile broadband in different locations, by whether the respondent also has a fixed broadband connection [Source: Analysys Mason, 2011] 1 1 Question: “Where do you use mobile broadband?”; n = 2260. 2 Question: “How often do you use mobile broadband?”; n = 2260. Figure 11: Frequency of mobile broadband use, by whether the respondent also has a fixed broadband connection [Source: Analysys Mason, 2011] 2

23. © Analysys Mason Limited 2011 The Connected Consumer Survey 2012: mobile broadband Divide and conquer: mobile broadband has three distinct use cases that should be treated differently  The mobile broadband market can be segmented into three different use cases. In each of these the volume of traffic, frequency and location of use, and needs and expectations of the user are different. Service providers should approach these use cases differently.  Large screen replacement – mobile broadband used as an alternative to fixed broadband, where fixed broadband is also available, or as a primary broadband connection where fixed broadband is not available. This is currently more common in CEE, although the roll-out of LTE may create a window for stronger fixed–mobile broadband substitution as performance improves to match ADSL2+ services.  Large screen complementary – mobile broadband for occasional use when fixed broadband is unavailable or to add mobility to a customers’ fixed broadband service. These subscriptions are frequently low/occasional use only. This group accounts for the largest proportion of mobile broadband customers.  Mid-screen – Mobile broadband for tablets, and potentially other products, like e-readers and games consoles. The number of mid-screen mobile broadband subscribers has yet to peak. We believe that 2012 will be the key year for sales – by this time, the iPad will have a greater number of compelling and cheaper alternatives. Also, by this time operators will have developed their offers better to meet the demands of the prepaid tablet market. 23 Figure 12: Mobile broadband subscribers by device and use type, Europe, 2005–2016 [Source: Analysys Mason, 2011] 1 1 See Analysys Mason’s Forecast Report Mobile broadband in Europe: forecasts and analysis 2011–2016.

24. © Analysys Mason Limited 2011 The Connected Consumer Survey 2012: mobile broadband 24 Results Mobile operators are struggling to limit broadband churn and should segment the market Large-screen replacement mobile broadband: dissatisfied customers so far Large-screen complementary broadband: operators must better cater for casual users Mid-screen mobile broadband: new opportunities for broadband growth Selling mobile broadband to consumers who say that they are not interested

25. © Analysys Mason Limited 2011 The Connected Consumer Survey 2012: mobile broadband Fixed–mobile broadband replacement will continue, but at a slightly slower rate  We estimate that the number of people taking mobile broadband as their primary broadband service will approximately double in both Europe and the USA from the end of 2011 to the end of 2016. We refer to this category as (large-screen) replacement mobile broadband.  Take-up of replacement mobile broadband has historically been much more common in CEE than in WE and the USA because of the lower availability and higher relative cost of fixed broadband. This is particularly apparent when comparing the penetration of the service in Poland to that in the other countries featured in our survey (see Figure 13).  The roll-out of LTE may create a window for stronger fixed– mobile broadband substitution in WE, however, as this brings the mobile broadband experience closer to that of ADSL2+ services. Denmark, as a market which benefitted from an early LTE launch, to some extent serves as an indicator of this impact (though, as we will find later, customers in Denmark are still quite unimpressed with their mobile broadband experience). Approximately 4% of the Danish population took mobile broadband as their only broadband service at the end of 2011. 25 Figure 13: Population penetration of replacement mobile broadband, various countries, 2005–2016 [Source: Analysys Mason, 2011] 1 1 See Analysys Mason’s Forecast Report Mobile broadband in Europe: forecasts and analysis 2011–2016.

26. © Analysys Mason Limited 2011 The Connected Consumer Survey 2012: mobile broadband Replacement mobile broadband has clear appeal for young people who live alone in rented accommodation  Mobile broadband provides an attractive level of flexibility for consumers with a higher-than-average degree of uncertainty about their earnings or place of residence. Trends to this effect include a preference for replacement mobile broadband among people who rent, rather than own, accommodation.  The most significant indicator of mobile broadband is household type. People who live alone are less limited by single-device mobile broadband solutions and so constitute a larger percentage of replacement mobile broadband users than there are people living alone in our sample.  This demographic mix is likely to change as LTE is rolled out and mobile broadband becomes a credible alternative to fixed broadband. The age 65+ market, late adopters of broadband, is potentially an untapped market for low- frequency-use mobile broadband services.  Young renters that live alone inevitably age, often start a family and sometimes buy a house. As their lifestyle changes so will the way in which they use mobile broadband change. The number of devices that they wish to connect will increase and it is likely that, once they plan to live in a place for a longer period of time, that they will acquire a fixed broadband connection. 26 Figure 14: Demographic breakdown of replacement mobile broadband users, compared to all respondents [Source: Analysys Mason, 2011] 1 1 Various questions; n = various.  To cater for this, mobile operators with a fixed arm logically should offer the option of a smooth transition from replacement mobile broadband to complementary mobile broadband as part of a bundle. They could also potentially offer one-off discounts on their fixed broadband product to mobile broadband customers looking to cancel their service.  Mobile operators looking to implement a mobile-only strategy to combat structural churn may choose to offer free or discounted Mi-Fi devices (and, in countries where bandwidth is tiered, faster speeds). 0%20%40%60% Rent Own Full-time employment Retired 25-34 65+ Live alone Live as a couple Live in a larger household Live in a family-like situation Percentage of respondents All respondents Respondents with mobile broadband only Household type Age range Household status Employment

27. © Analysys Mason Limited 2011 The Connected Consumer Survey 2012: mobile broadband Replacement mobile broadband has fewer low-value customers than complementary mobile broadband  Replacement mobile broadband services can sometimes be seen as a low-value service – they appeal more to lower- income demographics that cannot necessarily afford fixed broadband. However, the services themselves can be more lucrative than complementary services.  There is a significant difference in the distribution of spend between mobile broadband that is bought as a primary (replacement) service and that which is bought as a secondary (complementary) service. This suggests that operator strategies for tiered pricing are working to some extent – some customers are prepared to pay more for higher-specification services. Furthermore, higher-spend customers are marginally more satisfied than those that spend less – the average satisfaction of customers that paid up to EUR10 per month was 3.32 out of 5 compared to 3.63 out of 5 for those that paid between EUR50 and EUR60 per month.  Of replacement mobile broadband customers, 39% pay between EUR10 and EUR20 per month for their service, compared to 23% of mobile broadband customers who also have a fixed broadband connection. 2  There are far fewer low-value replacement mobile broadband customers – 11% of such customers pay under EUR10 per month for their service, compared to 21% of customers that take mobile broadband as a complementary service. 27 Figure 15: Distribution of monthly spend on mobile broadband (EUR PPP), by type of mobile broadband [Source: Analysys Mason, 2011] 1,2 1 Question: “How much do you spend each month on mobile broadband in [local currency]”; n = 1676. 2 Normalising for purchasing power parity (PPP) allows us more-fairly to compare affordability between different countries.

28. © Analysys Mason Limited 2011 The Connected Consumer Survey 2012: mobile broadband Replacement mobile broadband users are more likely to use more- advanced mobile services and are less interested in TV  One strong argument against current-generation mobile broadband services is their inability to support a high quality of experience for streaming video content. It is notable among replacement mobile broadband users interviewed in our panel that ownership of more-advanced TV-connected devices, such as consoles and PVRs, was much lower than among the sample population as a whole (this trend was consistent in individual countries).  Smartphone ownership by replacement mobile broadband users was also consistently four to six percentage points higher than in the sample population – arguably because of the age demographic of the former (skewed towards 25–34 year-olds). The exception was in the USA, where around 66% of replacement mobile broadband users also used a smartphone.  Replacement mobile broadband users appear to have lower usage of Wi-Fi hotspots away from their homes (22% had used a Wi-Fi hotspot in the preceding three months, compared with 26% of our panel). Many operators have focused recently on the issue of mobile traffic and the potential of Wi-Fi to offload traffic from the mobile network. Mobile broadband users have moved in the opposite direction: if they already have mobile broadband, then they have not been using Wi-Fi hotspots as frequently. Seamless hand-over to suitable operator-partnered Wi-Fi hotspots may need to be implemented in software to have any significant impact. 28 1 Various questions; n = 7485. Figure 16: Selected activity and device usage statistics among replacement mobile broadband users compared to all respondents [Source: Analysys Mason, 2011] CharacteristicPercentage of all respondents Percentage of mobile broadband- only users Variance Usage of Internet on handset 39%48%+9% Ownership of a smartphone 40%46% +6% Usage of Wi-Fi hotspots 26%22%–4% Admitted usage of BitTorrent/ Megaupload 16%/12%11%/6%–4%/–7% Ownership of a games console 34%25% –9% Ownership of an STB or PVR 76%66% –10% Ownership of a digital TV set 70%58%–12%

29. © Analysys Mason Limited 2011 The Connected Consumer Survey 2012: mobile broadband Customers who rely solely on mobile broadband for connectivity are less satisfied than other customers  Customer satisfaction levels for mature telecoms services, including fixed and mobile voice and fixed broadband, are similarly distributed. Mean satisfaction levels are 3.6–3.7 out of 5 and a similar percentage of people, around 12%, are dissatisfied with each service and rate it as 1 or 2 out of 5.  Mobile broadband has a notably poorer level of customer satisfaction (and an associated higher churn rate), primarily because it is a new service and lack of familiarity means that customer expectations do not yet match real-world performance.  Satisfaction with replacement mobile broadband (3.3) is even less than with complementary mobile broadband (3.4). Also, 20% of replacement mobile broadband customers are dissatisfied with the service because they expect it to provide an experience comparable to that of fixed broadband.  It is likely that, as consumers become more familiar with mobile broadband’s capabilities, satisfaction levels will normalise with other services. In particular, LTE will improve performance both deeper inside buildings and when travelling at speed, which should take performance to near-fixed- broadband levels.  Operators’ greatest opportunity in this less-satisfied market is to be the one leading the normalisation of this satisfaction curve: greater customer satisfaction than competitors will reduce churn and increase market share. 29 Figure 17: Overall customer satisfaction with broadband and voice services [Source: Analysys Mason, 2011] 1 Question: “How would you score your satisfaction with the following aspects of your [name of service] service? – Overall”; n = various.

30. © Analysys Mason Limited 2011 The Connected Consumer Survey 2012: mobile broadband Customers are in little doubt that fixed broadband is currently superior to mobile broadband – and the impact of LTE may be slow to take effect  About half of respondents in the countries that we surveyed in 2011 perceived fixed broadband to be superior to mobile, so while LTE may improve the relative performance of mobile broadband compared to fixed, widespread deployment of LTE also risks coming to many markets too late. Only 5.5% of respondents believed that mobile broadband was superior to fixed in 2011.  LTE will arrive after the broadband market is largely saturated in most mature markets. For example, we forecast that 70% of households in Western Europe will take fixed broadband services by 2014 – the earliest by which operators in most markets will be able to achieve widespread LTE deployments.  It also appears to take a while for the effect of superior network performance to filter through to the customer’s perception of their experience. In Denmark, where Telia launched LTE services in 2010, perceptions of mobile broadband are no better than elsewhere. In fact, a slightly smaller proportion of consumers in Denmark considered mobile broadband superior to fixed broadband (at 5.2%).  Mobile broadband is unlikely to become the de-facto broadband connectivity method in the long term. Shorter-range wireless communication methods, such as Wi-Fi, are likely to become near-ubiquitous in urban areas. 30 Figure 18: Consumer perception of fixed and mobile broadband services, Europe and the USA [Source: Analysys Mason, 2011] 1 1 Question: “Comparing fixed and mobile broadband, which service do you feel provides a better experience in terms of the following factors - Overall”; n = 6583 (all countries), 1009 (Denmark). Figure 19: Consumer perception of fixed and mobile broadband services, Denmark [Source: Analysys Mason, 2011] 1 Mobile is superior About the same Fixed is superior

31. © Analysys Mason Limited 2011 The Connected Consumer Survey 2012: mobile broadband 31 Results Mobile operators are struggling to limit broadband churn and should segment the market Large-screen replacement mobile broadband: dissatisfied customers so far Large-screen complementary broadband: operators must better cater for casual users Mid-screen mobile broadband: new opportunities for broadband growth Selling mobile broadband to consumers who say that they are not interested

32. © Analysys Mason Limited 2011 The Connected Consumer Survey 2012: mobile broadband Mobile broadband is complementary to fixed broadband in Western markets, and this is unlikely to change 32 Figure 21: Future plans for fixed and mobile broadband, by type of broadband to which currently subscribed [Source: Analysys Mason, 2011] 2 1 Questions: “Are you aware of mobile broadband?” and “Do you have a fixed broadband connection (that is, one that comes into your home by a wire, though it may then be distributed around your home by Wi-Fi)?”; n = 2260. 2 Question: “What are your plans for your broadband services?”; n = various.  About 86% of mobile broadband users in our survey base also have a fixed broadband connection. This proportion is unlikely to change significantly. Only 7% of consumers that take both fixed and mobile broadband services are planning to give up their fixed line, whereas 21% of consumers that have only mobile broadband are considering also taking up fixed broadband.  Consumers that lack a mobile broadband service have split affiliations. About 48% of consumers that plan to take up mobile broadband intend to use it as their only broadband service. The challenge for MNOs after they win these customers will be to convince them that mobile broadband is sufficient. Figure 20: Breakdown of mobile broadband users by fixed broadband ownership [Source: Analysys Mason, 2011] 1

33. © Analysys Mason Limited 2011 The Connected Consumer Survey 2012: mobile broadband Further complementary mobile broadband growth will be due to improved tariffs that better suit how customers use mobile broadband  We forecast that large-screen complementary mobile broadband will continue to account for the largest proportion of mobile broadband connections through to 2016, though growth rates will decline.  The take-up of such services will be driven by a number of factors:  improved fixed–mobile broadband bundling  more-attractive tariffs for light and casual users  decreasing ARPU  higher-performance networks, particularly in-building performance. 33 Figure 22: Population penetration of complementary mobile broadband, various countries, 2005–2016 [Source: Analysys Mason, 2011] 1 1 See Analysys Mason’s Forecast Report Mobile broadband in Europe: forecasts and analysis 2011–2016.

34. © Analysys Mason Limited 2011 The Connected Consumer Survey 2012: mobile broadband The most important factor for mobile broadband is not speed, reliability or even price – it is customer service  As with fixed broadband, customer service is the most influential factor in the overall mobile broadband experience. Speed, reliability and the price of a service are less relevant to subscribers once they have taken up a service.  Customer service (either on the phone or at a provider’s retail outlet) provides a customer’s principal point of human contact with his or her service provider at any time after initial service installation. Therefore, this interaction has a significant influence on the overall perception of the provider.  Operators should seek to address a fundamental point of customer service by ensuring that any communication with the customer, through a real customer care agent or a software agent, is as efficient as possible. This can be achieved by:  ensuring that the set-up process is as simple as possible  managing seamless hand-over between mobile broadband and Wi-Fi hotspots without asking the customer to sign in or asking technical questions with which they might need help  reducing pick-up time on call centre calls  implementing software on the laptop to improve the handling of support calls. For example, software could identify the category of a fault and offer a shortcut dial code to reduce manual navigation of the care line’s phone menu. 34 1 Question: “How would you score your satisfaction with the following aspects of your mobile broadband service? – [aspect]”; n = 2162 Figure 23: Metrics on aspects of mobile broadband customer satisfaction among customers that also have fixed broadband, Europe and the USA [Source: Analysys Mason, 2011] 1 AspectAverage customer satisfaction Correlation with overall Variance Speed3.360.671.30 Reliability3.400.681.26 Price3.040.661.48 Usage restrictions3.260.671.53 Brand3.590.741.04 Customer service3.380.751.35 Overall3.421.001.05  Customer service has the highest statistical correlation with overall customer satisfaction. This means that a change in satisfaction with customer service is more likely to affect overall satisfaction than a change in satisfaction with any other service aspect.

35. © Analysys Mason Limited 2011 The Connected Consumer Survey 2012: mobile broadband Complementary mobile broadband appeals to some of the same demographics as multi-play bundles  Consumers who take complementary mobile broadband services have demographic characteristics different from those who take the service as a replacement for fixed broadband.  Firstly, their household set-up is markedly different. Complementary mobile broadband users most frequently live in a family-like situation, where children are present. This is consistent with the higher take-up of multi-play bundles in family homes and notably different to replacement mobile broadband, which is favoured by people who live alone. We can also ascertain that mobile broadband usage is not stimulated simply by living with a larger number of people, as respondents living in a larger non-family household did not appear more likely to use mobile broadband.  Complementary mobile broadband is notably favoured by men, rather than women, a demographic different from that of replacement mobile broadband (which is gender balanced). It is also favoured by consumers aged 25–44. These traits are quite standard ‘early majority’ adoption traits. However, complementary mobile broadband subscribers have fewer life-status changes ahead of them and, as a result, it is likely that they will keep the service as they age, provided they are satisfied with the performance of mobile broadband, broadening the audience for mobile broadband. 35 Figure 24: Demographic breakdown of complementary mobile broadband users compared to all respondents [Source: Analysys Mason, 2011] 1 Various questions; n = 1934 (complementary mobile broadband users). 0%20%40%60% With parents Rent Own Halls Council Other Male Female Full-time employment Retired Part-time employment Unemployed currently Student 18-24 25-34 35-44 45-54 55-64 65+ Live alone Live as a couple Live in a larger household Live in a family-like situation Household status Sex Employmen t Age range Household type Percentage of respondents All respondentsRespondents with mobile and fixed broadband

36. © Analysys Mason Limited 2011 The Connected Consumer Survey 2012: mobile broadband Fixed–mobile bundling can become an effective strategy for promoting mobile broadband growth, if tariffs cater better for light users  It costs consumers little to drop complementary mobile broadband. Customer retention must become a top priority for operators focusing on the complementary mobile broadband market. Consumers have the ‘safety net’ of fixed broadband to fall back on and therefore, if they do not feel that mobile broadband delivers adequate utility, they are prepared to drop the service.  Service bundling does not yet appear to have helped to reduce mobile broadband churn. Around one-third of consumers who take both fixed and mobile broadband take both services from the same provider. Complementary mobile broadband appeals to demographics similar to those of buyers of triple-play (and multi-play) bundles, but customers that buy both fixed and mobile broadband from the same supplier are no less likely to churn than those that do not.  However, service bundling will become more effective if it is combined with more-flexible pricing options. Frequent users of mobile broadband are much more satisfied with the service than infrequent users. Consumers that used the service every day had a mean satisfaction score of 3.55 out of 5, compared to 3.1 out of 5 for infrequent users (those who used the service less than once per month). This is probably because these less frequent subscribers are on tariffs that have terms unsuitable for their usage patterns. Some operators are already taking this issue into account and offering low-usage contract tariffs (from 100MB upwards) to cater for users who want mobile broadband as a complement to fixed broadband. A1 Telekom Austria, Orange (France) and Vodafone (Ireland) all offer to their fixed broadband customers low-usage mobile broadband tariffs that are not available to the rest of the market.  Operators should not view ensuing decreases in ARPU negatively. Mobile broadband is well suited to occasional use, compared with mobile voice or fixed broadband. Operators should encourage the take-up of packages that meet this need, despite any negative impact on ARPU. Data volumes will also be low and will not have a negative impact on margins, if managed correctly. 36

37. © Analysys Mason Limited 2011 The Connected Consumer Survey 2012: mobile broadband 37 Results Mobile operators are struggling to limit broadband churn and should segment the market Large-screen replacement mobile broadband: dissatisfied customers so far Large-screen complementary broadband: operators must better cater for casual users Mid-screen mobile broadband: new opportunities for broadband growth Selling mobile broadband to consumers who say that they are not interested

38. © Analysys Mason Limited 2011 The Connected Consumer Survey 2012: mobile broadband Mid-screen devices, such as the Apple iPad, present new opportunities for mobile broadband growth  Mid-screen devices (and particularly tablets such as the Apple iPad) present the largest new opportunity for mobile operators to grow their RGUs. We forecast that the number of active mid-screen device connections (that is, those for tablets and similar devices, such as e-readers) in Europe will grow at a CAGR of 32% during the next five years to reach 35 million by 2016. By comparison, the number of active large-screen mobile broadband connections will grow at a CAGR of only 11% over the same period.2  We estimate that mid-screen devices will gain a significant portion of the average user’s time in the next five years, creating an opportunity for operators to sell mobile broadband subscriptions, if they can persuade users that tablets are more than just Wi-Fi devices. However, such devices will require MNOs to establish lighter tariffs suitable for casual users that primarily use their mid-screen devices from fixed locations with Wi-Fi enabled. 38 Figure 25: Population penetration of mid-screen mobile broadband, various countries, 2009–2016 [Source: Analysys Mason, 2011] 1 2 These are clearly early days for mid-screen devices. Information about adoption and usage is sparse and, because it relates only to the early adopters, may be misleading as a guide to later users. Our mid-screen forecast includes a number of assumptions about the adoption of tablets that are as yet unsubstantiated. These assumptions also depend on the actions of operators to encourage people to use tablets on mobile networks, not just Wi-Fi. Because of this uncertainty, the forecasts in this chart should be treated with some caution. We will revise our forecast early in 2012 to account for the most recent developments. 1 See Analysys Mason’s Forecast Report Mobile broadband in Europe: forecasts and analysis 2011–2016

39. © Analysys Mason Limited 2011 The Connected Consumer Survey 2012: mobile broadband Early adopters consume higher volumes of media, but spend less time watching video – a potential relief for mobile broadband providers  The majority of connected mid-screen devices in the next five years will be tablets. The demographic profile of consumers who buy tablets will change, moving closer to the market average, over the next five years. However, looking at the demographic breakdown of early users may present us with a clearer idea of the potential market segments to target for mid-screen mobile broadband.  Early tablet adopters consume much higher volumes of telecoms and media than the overall population. They spend an average of 10.6 hours consuming media and communicating, compared to an average of 8.8 hours across our entire sample. It is unlikely that the tablet is driving an increase in overall telecoms and media time – these consumers were probably higher-volume users to begin with.  However, tablet users watch less video content per day than the market average. This suggests that video consumption will be a lower priority for potential mid-screen mobile broadband users. Current-generation mobile broadband can struggle to support streaming video adequately.  Tablets are being used as family devices – 48% of tablet users live in a family-like situation – well above the population average. It is logical to assume that use of the tablet is shared by people in the house – this could explain why the incidence of tablet use is higher among people living in family homes. 39 Figure 26: Selected statistics regarding the activities and demographics of tablet owners [Source: Analysys Mason, 2011] 1 Various questions; n = 7485. of respondents that owned a tablet also owned a smartphone of tablet users live in a family-like situation (compared with 33% of our panel) of tablet users live alone (compared with 22% of our panel) Median age of tablet users Median age of our survey panel Median age of smartphone users Median age of e-reader users Average additional hours that tablet users spend on media and communications each day

40. © Analysys Mason Limited 2011 The Connected Consumer Survey 2012: mobile broadband Streaming is the most popular form of video delivery to a tablet, but this will primarily be over Wi-Fi  Tablet users consume fewer hours of video content than the market average. However, the profile of the video that they consume on tablets is considerably different from that consumed on other devices.  Only half of consumers side-load or download paid-for content onto their tablets (we refer to this as ‘locally stored’ content). In contrast, more than 90% of consumers stream video to these devices. The limited built-in storage capacity of many devices also drives consumer demand for streaming and cloud services. This high propensity to stream video content may concern mobile operators, as QoE for streaming video is variable on mobile networks.  Tablet users’ video habits will affect how they use their devices in different locations – the majority of tablets will be connected to home Wi-Fi and consumers will use this connection in preference to mobile broadband for video streaming. They may defer watching content until they are able to connect to Wi-Fi. This potentially negates the impact of streaming video on mid-screen mobile broadband traffic and, therefore, has an effect on the structure of tariffs: if consumers defer usage of more-demanding applications until they are connected to Wi-Fi, then their resulting mobile data traffic requirements will be much lower. 40 Figure 27: Consumption of video content by delivery method and device type [Source: Analysys Mason, 2011] 1 1 Question: “Please tick each box that represents a combination of a type of video and a type of device that you have watched in the past three months”; n = 6540.

41. © Analysys Mason Limited 2011 The Connected Consumer Survey 2012: mobile broadband Achieving successful growth in mid-screen mobile broadband subscriptions will require tariff innovation  If the majority of tablet usage, at least for more traffic-heavy applications, is over in-home Wi-Fi, then mobile operators must focus on encouraging use outside of the home or the office. We believe that they can achieve this through the promotion of low-cost, entry-level mobile broadband tariffs. Some operators are already experimenting with offers of this type – for example, Vodafone’s lowest-entry offer for mobile broadband starts at GBP3 (EUR3.4) per month for a 300MB allowance. A low entry price should encourage users to take a data plan and, for many, 300MB would exceed their monthly requirement for cellular data.  Operators should also experiment with multi-device tariffs, which would enable consumers to pay one subscription for mobile data that they could use across multiple devices, such as smartphones and tablets – this would fit well with the high correlation that we observe between tablet and smartphone ownership. In the UK, Orange is offering a unique bundle of an iPhone 4 and an iPad 2 for an initial payment of GBP149 (EUR170) (GBP99 (EUR113) to existing Orange customers) followed by GBP65 (EUR74) per month for 24 months. This particular plan from Orange may or may not be successful, but as more cellular-enabled consumer electronics come along, service providers need to offer a way of combining the different items into a single plan. Operators need to start experimenting with different plans to see what does and does not work, just as Orange is doing.  The high retail price of tablets, and the incremental price for integrated 3G capability, continues to act as a barrier to entry for consumers. In the case of the iPad, operators may struggle to manage this because it is controlled by Apple, although bundled offers may at least help to disguise these price differences. For this reason, operators should aim to offer attractively priced bundles of subsidised tablets and network access. 41

42. © Analysys Mason Limited 2011 The Connected Consumer Survey 2012: mobile broadband 42 Results Mobile operators are struggling to limit broadband churn and should segment the market Large-screen replacement mobile broadband: dissatisfied customers so far Large-screen complementary broadband: operators must better cater for casual users Mid-screen mobile broadband: new opportunities for broadband growth Selling mobile broadband to consumers who say that they are not interested

43. © Analysys Mason Limited 2011 The Connected Consumer Survey 2012: mobile broadband Of consumers who do not take mobile broadband, 65% are not interested in doing so 43 Figure 29:Preferred subscription type of consumers that are interested in mobile broadband, various countries [Source: Analysys Mason, 2011] 2 1 Question: “What are your plans for your broadband services?”; n = 5225 (2011). 2 Question: “If you were to take a mobile broadband service, how would you prefer to pay for it?”; n = 1828.  In 2011, only 35% of respondents who did not take mobile broadband would consider doing so, down from 43% in 2010. This apparent rise in disinterest is due to familiarity – most consumers who wanted to try out mobile broadband have done so and hence apparent disinterest has increased.  Consumers who would consider taking mobile broadband are predominantly interested in doing so under a monthly contract. There is a significant preference for lower prices, even if it means committing to a minimum contract term.  Among those considering taking prepaid mobile broadband, there is a strong preference for time-based billing, rather than per-gigabyte. Figure 28: Future plans of consumers that are aware of mobile broadband, but do not subscribe to it, various countries, [Source: Analysys Mason, 2011] 1 0%25%50%75%100% 2011 2010 2011 2010 2011 2010 2011 2010 2011 2010 2011 2010 2011 2010 2011 Percentage of respondents Plan to take as first broadband service Plan to take (and give up fixed broadband) Plan to take (and keep fixed broadband) Would consider Not interested Poland Spain Total USA Germany France UK Denmark

44. © Analysys Mason Limited 2011 The Connected Consumer Survey 2012: mobile broadband Fixed broadband is sufficient for most consumers who do not currently take mobile broadband  Investigating further why consumers are not interested in taking mobile broadband, it is clear that the majority of consumers are simply happy with their fixed broadband service. These consumers see no gain in utility over fixed broadband and for that reason are very hard to sell to. Such customers will fall into two categories:  those who would gain utility from mobile broadband, but are not well-enough informed of the benefits – these consumers will either gradually gain information by word of mouth or may receive specific promotions through targeted marketing material  those who have no need of any of the aspects that differentiate mobile from fixed, notably mobility (and to a lesser extent price). Successful sales to such consumers are unlikely.  Coverage, speed and reliability can be handled either directly (by network upgrades) or through canny marketing (the US mobile operators, for example, use the term ‘4G’ with increasing flexibility and regularly cite breadth of coverage and reliability as their key differentiators from other operators).  Price can be addressed indirectly through service bundling, either with devices or with other services, such as mobile voice or with a triple-play of fixed services. 44 Figure 30: Reasons given by consumers for not being interested in mobile broadband [Source: Analysys Mason, 2011] 1 Question: “Why are you not interested in mobile broadband?”; n = 3397.

45. © Analysys Mason Limited 2011 The Connected Consumer Survey 2012: mobile broadband Consumers confirm that fixed–mobile bundling could incentivise them to take up mobile broadband  Improved fixed–mobile service bundling would motivate an average of 44% of all consumers interested in taking mobile broadband to buy the service:  particularly in France, which has a history of attractive multi-play bundles, it would motivate 61% of people  as mentioned earlier, an increasing number of operators, such as A1 Telekom Austria and Orange France, offer reduced- or light-use mobile broadband services at small incremental prices above triple-play services.  Price reductions continue to motivate consumers to subscriber to, or at least to try, new services, though it is notable that mobile broadband is already cheaper than fixed broadband in most Western markets.  Interest in bundling mobile broadband with laptop PCs fell year on year, from 29% in 2010 to 24% in 2011. This fall could indicate a growing disinterest in device–service bundling, but it is more likely that some demand is being transferred to considering the take-up of mobile broadband bundled with a tablet (about which we did not ask in this year’s survey). 45 Figure 31: Factors that would motivate consumers to buy mobile broadband as a percentage of respondents who are interested in taking the service [Source: Analysys Mason, 2011] 1 Question: “Please indicate up to three factors that would most motivate you to buy mobile broadband.”; n = 1828.

46. © Analysys Mason Limited 2011 The Connected Consumer Survey 2012: mobile broadband 46 Executive summary Recommendations Introduction Results Methodology About the author and Analysys Mason

47. © Analysys Mason Limited 2011 The Connected Consumer Survey 2012: mobile broadband Methodology  The iteration of the Connected Consumer Survey featured in this report was conducted during September–October 2011, in association with Survey Sampling International (SSI).  Process – Respondents were selected from SSI’s online survey panel until nationally representative quotas for gender, age range and employment status (as well as geographical region in the case of the USA) were reached. Respondents were then asked to complete a 20-minute questionnaire, Analysys Mason’s Connected Consumer Survey. Questions took the form of yes/no, multiple choice, text and numerical input cells, sliders and simple Flash-based questions that allowed respondents to drag-and-drop answers that required them to place responses in order of priority.  Panel – The survey group comprised 7485 individuals aged 18 years and over, and was representative of the demographic characteristics of Internet users in each country, which closely matches the national demographic characteristics of Denmark, France, Germany, the UK and the USA. The Internet penetration rates in Poland and Spain are marginally lower than those in the other five countries, so the demographics of these respondents may be biased towards the socio-economic demographic groups that are more likely to have access to an Internet connection.  Language – The questionnaire text for the Connected Consumer Survey was translated from the original English into Danish, French, German, Polish and Spanish by professional translators and checked by native language speakers in-house. The text was also converted into US English by our US-based analysts. Non-technical language was used in the survey to enable a broad range of people with differing backgrounds to answer the questions. As a result, the terms used in the survey were not necessarily those used commonly within the telecoms industry.  Filtering data – On occasion, despite maintenance of the survey panel base and the filtering out of respondents that had provided inconsistent results to previous surveys, a minority of respondents occasionally provided anomalous results (referred to as ‘outliers’) that would suggest that they had made an error or experienced technical difficulties. Such outliers were filtered from aggregate results as appropriate and the number or respondents (‘n’) reported beside each question in this report takes this filtering into account. 47

48. © Analysys Mason Limited 2011 The Connected Consumer Survey 2012: mobile broadband 48 Executive summary Recommendations Introduction Results Methodology About the author and Analysys Mason

49. © Analysys Mason Limited 2011 The Connected Consumer Survey 2012: mobile broadband About the author Martin Scott (Principal Analyst) leads Analysys Mason’s Fixed Broadband research programme. His primary areas of specialisation include fixed broadband retail pricing and bundling, and customer satisfaction and consumer-facing marketing strategy. Martin also specialises in statistics, surveys and the analysis of primary research, and he co-ordinates Analysys Mason’s Connected Consumer series. He has produced research for Analysys Mason on different aspects of broadband (next-generation) access, consumer demand for present and next-generation services, and the business case for value-added services, such as videotelephony and three-screen advertising. Martin has a Master’s degree in Mathematics from Oxford University. 49 Published by Analysys Mason Limited Bush House North West Wing Aldwych London WC2B 4PJ UK Tel: +44 (0)845 600 5244 Fax: +44 (0)845 528 0760 Email: research@analysysmason.com www.analysysmason.com/research Registered in England No. 5177472 © Analysys Mason Limited 2011. All rights reserved. No part of this publication may be reproduced, stored in a retrieval system or transmitted in any form or by any means – electronic, mechanical, photocopying, recording or otherwise – without the prior written permission of the publisher. Figures and projections contained in this report are based on publicly available information only and are produced by the Research Division of Analysys Mason Limited independently of any client- specific work within Analysys Mason Limited. The opinions expressed are those of the stated authors only. Analysys Mason Limited recognises that many terms appearing in this report are proprietary; all such trademarks are acknowledged and every effort has been made to indicate them by the normal UK publishing practice of capitalisation. However, the presence of a term, in whatever form, does not affect its legal status as a trademark. Analysys Mason Limited maintains that all reasonable care and skill have been used in the compilation of this publication. However, Analysys Mason Limited shall not be under any liability for loss or damage (including consequential loss) whatsoever or howsoever arising as a result of the use of this publication by the customer, his servants, agents or any third party.

50. © Analysys Mason Limited 2011 The Connected Consumer Survey 2012: mobile broadband About Analysys Mason The only constant is change. What worked yesterday won’t necessarily work today. That’s why we look beyond the obvious, seeing things from a client’s perspective so that a truly effective solution is delivered every time. A key part of this is our international perspective. Business never sleeps, and with offices spanning six time zones, neither does Analysys Mason. 50 Telecoms, media and technology (TMT) are our world; we live and breathe TMT. This total immersion in our subject underpins and informs everything we do, from the strength and reliability of our market analysis, to improving business performance for clients in more than 100 countries around the world. At the core of our approach is a simple, but enormously powerful idea: applied intelligence. By harnessing our collective brainpower we can solve real-world problems and deliver tangible benefits for our customers. As a Japanese proverb says, ‘all of us are smarter than any of us’. We’re passionate about what we do, with the focus and determination to take on and solve the toughest problems to help our clients. We’ll rise to the challenge and enjoy it. In fact when it comes to problem solving, there’s a real sense of ‘the tougher the better’. It’s this unique combination of our applied intelligence, effective problem solving and the ability to look closer and see further that makes Analysys Mason special.

51. © Analysys Mason Limited 2011 The Connected Consumer Survey 2012: mobile broadband Research from Analysys Mason Our subscription research programmes address key industry dynamics in order to help clients interpret the changing market. The programmes focus on five key practice areas: 51 We analyse, track and forecast consumer and enterprise services, as well as the software, infrastructure and technology that underpin the delivery of those services. Subscribing to our research programmes gives you regular and timely intelligence. It also provides direct access to our team of analysts – that is, the opportunity to engage one-to-one with our subject experts for insight, opinion and practical advice relating to your most-critical business decisions. To find out more, please visit www.analysysmason.com/research.

52. © Analysys Mason Limited 2011 The Connected Consumer Survey 2012: mobile broadband Consulting from Analysys Mason For more than 25 years, our consultants have been bringing the benefits of applied intelligence to enable clients around the world to make the most of their opportunities. 52 Unlike some consultancies, our focus is exclusively on TMT. We advise clients on regulatory matters, support multi-billion dollar investments, advise on network performance and recommend commercial partnering options and new business strategies. Such projects result in a depth of knowledge and a range of expertise that sets us apart. We blend our range of skills each day, every day, to solve our clients’ most-complex challenges. Our skill set is broad. It has to be. Our clients in the TMT sectors operate in dynamic markets where change is constant. We help shape their understanding of the future so they can thrive in these demanding conditions. To do that we have developed rigorous methodologies that deliver real-world results for clients around the world. To find out more, please visit www.analysysmason.com/consulting.