US Wireless Data Market Q Update

© Chetan Sharma Consulting, All Rights Reserved Aug, US Wireless Market – Q Update Executive Summary The US wireless data market grew 6% Q/Q and 22% Y/Y to exceed $13.2B in mobile data service revenues in Q on track so far to meet our initial estimate of $54B for the year. Having narrowly edged NTT DoCoMo last quarter for the first time, Verizon Wireless continued to maintain its number one ranking for the 1H 2010 in terms of the operator with the most mobile data revenues (though the difference was thinner than the amoeba membrane). The total wireless connections for Verizon were almost 100M with 92.1M being the traditional subscriber base. Rest of the 3 top US operators also maintained leading positions amongst the top 10 global mobile data operators. Sprint had the first positive netadd quarter in 3 years and has been slowly and steadily turning the ship around. T- Mobile did better on the postpaid netadds but overall additions declined again. The larger question for the market is if 4 large players can stay competitive. Generally, the answer is no. But these are different times and there are a number of permutations and combinations that are possible. The US subscription penetration crossed 95% at the end of Q If we take out the demographics of 5 yrs and younger, the mobile penetration is now past 100%. While the traditional net-adds have been slowing, the “connected device” segment is picking up so much that both AT&T and Verizon added more connected devices than postpaid subs in Q Given the slow postpaid growth, operators are fiercely competing in prepaid, enterprise, connected devices, and M2M segments. Data traffic continued to increase across all networks. By 1H 2010, the average US consumer was consuming approximately 230 MB/mo up 50% in 6 months. US has become ground zero for mobile broadband consumption and data traffic management evolution. While it lags Japan and Korea in 3G penetration by a distance, due to higher penetration of smartphones and datacards, the consumption is much higher than its Asian counterparts. Given that it is also becoming the largest deployment base for HSPA+ and LTE, most of the cutting edge research in areas of data management and experimentation with policy, regulations, strategy, and business models is taking place in the networks of the US operators and keenly watched by players across the global ecosystem. As we had forecasted, the tiered pricing structure for mobile broadband touched the US shores with AT&T becoming the first major operator to change its pricing plan based on consumer consumption. We will see the pricing evolve over the next 2-4 quarters as the US mobile ecosystem adjusts to the new realities and strategies for mobile data consumption.

© Chetan Sharma Consulting, All Rights Reserved Aug, US Wireless Market – Q Update In the connected device category, iPad like its flashy cousin dominated the headlines, the sales numbers, and the industry profits. The device sent every slate maker back to the drawing board, many projects were cancelled and strategies are still being formulated to capture a new burgeoning space and Apple again has a massive lead of mindshare and pocketbook. Kids of the now generation are growing with connected electronics that is fundamentally altering the behaviors and expectations of interaction, communication, consumption, and monetization. All this has setup an absolutely fascinating period in the communication/computing industry. Convergence is everywhere and is leading to fundamental reset of the value chains and ecosystems. We are going to be discussing the ins and outs of how the industry is going to evolve in the next decade in our Sept 8 th event – Mobile Future Forward which is bringing exceptional industry thought-leaders, inventors, and doers to brainstorm, discuss, and debate what’s next. Hope you can join the discussion.Mobile Future Forward

© Chetan Sharma Consulting, All Rights Reserved Aug, US Wireless Market – Q Update What to expect in the coming months? 31% of the US subscription base is now smartphones. The pace of product introduction is accelerating with each quarter. Devices of all shapes and sizes are coming into the market literally every week. Players are having to re-evaluate their businesses and long-term strategies. Several new impressive devices got introduced during the course of 1H of 2010 including the iPad and EVO. There are several players whose future is at stake (to put it mildly). The competition has grown fierce and companies are finding it hard to take ideas from R&D to products in market in a short amount of time. Microsoft announced its comeback with the W7 commercial launch imminent. The change in UI was refreshing and the expectations are quite high. W7 v2 is likely around the corner to update on the flaws of v1. HP acquired Palm in an attempt to become relevant again in the mobile device space. It has been an action packed 1H 2010 and we can expect more of the same for the remainder of the year has also been active on the regulatory front as the national broadband plan was unveiled in March and the subsequent debate over the course of nations broadband future kept the spectrum, net-neutrality, and exclusivity issues at the forefront. To start planning for 4G, 5G, and beyond, US should think about rolling a 50 year broadband plan. While more spectrum is always helpful, will we have all the spectrum we need in 2050? or do we need to invent new technologies and business models that use spectrum more wisely? This topic will keep the industry occupied for some time to come. (We will be going in-depth into this subject at our Sept event with some very senior and experienced executives)very senior and experienced executives 2010 is also the year of network rollouts. T-Mobile has been rolling out HSPA+ at an impressive rate, Clearwire announced its intention to move to LTE, Verizon is betting big on LTE and looking for competitive marketing advantage over the course of the next 12 months. AT&T has been adding backhaul, upgrading to HSPA+ and planning for LTE all at once. Even the smaller carriers like MetroPCS are looking for competitive advantage with quicker LTE launch and beat others by carrying the first LTE smartphone. (We will be releasing the next edition of our “State of the “Mobile” Broadband Nation” paper later this year)“State of the “Mobile” Broadband Nation” As we had mentioned last year, the mobile data traffic kept on growing disproportional to the revenues. A series of solutions have come into the market from players big and small. We released the second edition of our in-depth research paper on data growth - "Managing Growth and Profits in the Yottabyte Era" last quarter.Managing Growth and Profits in the Yottabyte Era We will be keeping a very close eye on the micro- and macro-trends and reporting on the market on a regular basis in various private and public settings.

© Chetan Sharma Consulting, All Rights Reserved Aug, US Wireless Market – Q Update Against this backdrop, the analysis of the Q US wireless data market is: Service Revenues (Slides 7, 16) The US Wireless data service revenues grew 6% Q/Q to $13.2B in Q210. Compared to Q209, the mobile data service revenues grew 22%. Verizon and AT&T accounted for 75% of the increase in data revenues in Q T-Mobile’s 3G drive is starting to pay off. While the net-adds were still in the red, its data growth is starting to match with its peers. The 20% 3G smartphone base definitely helps. Verizon Wireless again nudged past NTT DoCoMo in overall mobile data revenues by a whisker. By the end of the year, China Mobile and AT&T are also likely to cross their Japanese counterpart in quarterly mobile data service revenues. AT&T and Verizon now account for 70% of the market data services revenues and 62% of the subscription base. ARPU (Slides 8-11) The Overall ARPU increased by $0.46 reversing the declining trend of the past three quarters. Average voice ARPU declined by $0.13 while the average data ARPU grew by $0.58 or 4% Q/Q. The average industry percentage contribution of data to overall ARPU is now 31% in Q210. Verizon led in data ARPU with $17.37 followed by AT&T and Sprint. In terms of % contribution, all the top three operators exceeded the 30% mark. T-Mobile ended the quarter with approximately 25% of its revenue coming from data services. Subscribers (Slides 12-14) Overall netadds stayed stable at just over 3M with AT&T gaining the lion-share (though their count now includes the connected devices while other operators don’t specifically include that in the calculations). The texting see-saw between US and Philippines continued in Q210. US averaged around 639 messages/user/mo marginally behind Philippines. For the third straight quarter, AT&T reported more net-adds from connected devices than postpaid subs. Connected devices are now 7% of AT&T’s subscription base. Sprint got back into the positive net-adds territory again after 3 years. T-Mobile’s net-adds continued to decline. T-Mobile’s 20% and Sprint’s 23% subscriber base is now prepaid. The national prepaid penetration is touching 20%.

© Chetan Sharma Consulting, All Rights Reserved Aug, US Wireless Market – Q Update Applications and Services Non-messaging services continues to grab 60-65% of the data revenues for the US carriers. There is a significant shift taking place in terms of app revenues. In 2010, there will be more revenues generated (globally) from off- deck than on-deck for the first time and while the on-deck revenues are in billions, the decline trend looks irreversible. In the US, this shift will occur next year. (We released our mobile apps economy research paper earlier this year)mobile apps economy research paper The usage and data consumption trends are enabling carriers to accelerate their 3.5G/4G plans and develop long-term business and technical strategies. Handsets Nokia sold 111M units in Q amounting for 36% of the market share. Samsung again had a solid quarter with 64M devices sold with the share at 21%. LG Electronics at 10%, Sony Ericsson and RIM at 3.6% rounded up the top 5. Apple shipped 8.4M iPhones in Q2 but the criticism over the antenna design took some shine out from yet another home run. Smartphone penetration increased to 31% in the US market Data Traffic (Slide 15) As we noted in our last update, the data traffic is now significantly more than the voice traffic. By 1H 2010, the average US consumer was consuming approximately 230 MB/mo up 50% in 6 months. The good news is that there are several solutions available and are being invented that will help manage the data growth starting with the tiered pricing plans. We will be keeping a close eye on the trends in the wireless data sector in our blog, twitter feeds, future research reports, and articles. The next US Wireless Data Market update will be released in Nov The next Global Wireless Data Market update will be issued in Sept 2010.blogtwitter feedsfuture research reportsarticles Your feedback is always welcome. Should you have any questions about navigating or understanding the economic and competitive icebergs, please feel free to drop us a line. Thanks. Chetan Sharma Disclaimer: Some of the companies mentioned in this note are our clients.clients

© Chetan Sharma Consulting, All Rights Reserved Aug, US Wireless Data Service Revenues

© Chetan Sharma Consulting, All Rights Reserved Aug, US Wireless Carriers: Data ARPU Trends

© Chetan Sharma Consulting, All Rights Reserved Aug, US Wireless Carriers: Data ARPU Trends

© Chetan Sharma Consulting, All Rights Reserved Aug, US Wireless Carriers: Data ARPU Trends

© Chetan Sharma Consulting, All Rights Reserved Aug, US Wireless Carriers: ARPU Trends

© Chetan Sharma Consulting, All Rights Reserved Aug, US Wireless Carriers: Net Adds Share

© Chetan Sharma Consulting, All Rights Reserved Aug, US Market: Carrier Market share (Q210)

© Chetan Sharma Consulting, All Rights Reserved Aug, US Market: Carrier Market share

© Chetan Sharma Consulting, All Rights Reserved Aug, Mobile Network Traffic Growth

© Chetan Sharma Consulting, All Rights Reserved Aug, Top Carriers by Wireless Data Revenues * - Estimated

© Chetan Sharma Consulting, All Rights Reserved Aug, we invite u 2 produced by

© Chetan Sharma Consulting, All Rights Reserved Aug, Mobile Future Forward Sept 8 th, 2010 Seattle An Executive Summit to Explore the Future of Mobile. Inspire, Educate, and Collaborate.

© Chetan Sharma Consulting, All Rights Reserved Aug, Glenn Lurie, President, AT&T, Danny Bowman, President, Sprint, Shi Lirong, President, ZTE, Bob Azzi, SVP, Sprint, Subba Rao, CEO, TataDoCoMo, Anand Chandrasekher, SVP and GM, Intel, Wims Sweldons, President, Alcatel-Lucent, Brian Shepherd, President, Amdocs, Takayuki Hoshuyama, CEO, D2 Communications, Matt Bross, CTO, Huawei, Mike Sievert, Chief Commercial Officer, Clearwire, Stephen David, Former CIO, Procter & Gamble, Tony Lewis, VP, Verizon Wireless, Mario Queiroz, VP, Google, Louis Gump, VP Mobile, CNN, Paul Palmieri, Founder and CEO, Millennial Media, Dr. Sailesh Chutani, CEO, Mobisante, John Zehr, SVP, ESPN Digital, Neville Ray, Chief Network Officer, T-Mobile, Abhi Ingle, VP, AT&T Wireless, Ken Denman, CEO, Openwave, Amir Mashkoori, CEO, Kovio, Dr. Genevieve Bell, Intel Fellow, User Experience, Intel, Dr. Greg Brandenberg, CEO, Columbia Basin Health Association, Hank Skorny, SVP, Real Networks, Jon Stross, VP & GM - Babycenter, Johnson & Johnson, Dr. Suzanne Sysko, Chief Medical Officer, WellDoc, Dr. Boris Nikolic, Sr. Program Officer, Bill & Melinda Gates Foundation, Krishna Vedati, SVP & GM - Mobile, AT&T Interactive, Christopher Dean, Chief Strategy Officer, Skype, Rob Glaser, Chairman, Real Networks, Jack Kennedy, EVP, News Corp, David Weiden, General Partner, Khosla Ventures, Erick Tseng, Head of Mobile, Facebook, Sean Cai, VP – Advanced Technology, ZTE, Chris Murphy, Head of Digital Strategy, adidas, Tim Chang, Partner, NVP, Mark Selby, VP, Nokia, David Marcus, CEO, Zong, Prashant Fuloria, Director – Facebook Credits, Facebook, Omar Javaid, VP, Motorola, Joe Sims, Partner, Booz&Co. … And more Subscribe to announcements A confluence of leaders, visionaries, and doers from around the globe

© Chetan Sharma Consulting, All Rights Reserved Aug, Who are you going to meet & hear from

© Chetan Sharma Consulting, All Rights Reserved Aug, chetansharma.com twitter.com/chetansharma chetansharma.com/blog facebook: chetansharma mobilebreakfastseries.com twitter.com/mobileseries mobilefutureforward.com twitter.com/mfutureforward