1. The Adoption of Mobile Phones in Emerging Markets—Global Diffusion and the Rural Challenge Kas Kalba, Ph.D. 6 th Annual Global Mobility Roundtable Center for Telecom Management University of Southern California Marina Del Ray, CA June 2, 2007

2. Agenda 1.Examine Selected Adoption and Diffusion Issues in Emerging Markets 2. Explain Differences and “Anomalies” –High-fixed China vs. leapfrogging India –Ageing Eastern Europe vs. youthful Latin America 3. Address the Rural Challenge Ahead Kalba International, Inc.

3. Some Adoption Indicators/Drivers Disposable income Legacy service ? Income distribution ? Proximity to high- adoption markets ? Demographics Traffic/crime/climate? Culture? Kalba International, Inc. Competition (no. of operators) Prepaid and CPP Asymmetric interconnection fees Technical standards? Population density Spectrum allocation?

4. Emerging vs. Developed Market Factors Developed: Adoption 1.Income per cap., yes 2.Legacy service, yes 3.Income distribution, maybe 4.Extreme climate, maybe Developed: Diffusion 1.No. of competitors ?? 2.Population density? 3.Tower permits? Emerging: Adoption ? Emerging: Diffusion ?

5. Adoption Issues in Emerging Markets Does the income effect decline? Does “legacy” become irrelevant? What is the role of prepaid? Do more operators equal more adopters? Kalba International, Inc.

6. Income still a big factor Kalba International, Inc. Data Source: ML

7. The more legacy, the more mobile Kalba International, Inc. Data Source: ML

8. Legacy effect in low-income markets-- Kalba International, Inc. Data Source: ITU, 2005

9. Prepaid is inverse to income Kalba International, Inc. Data Source: Merrill Lynch

10. HH size is inverse to adoption Kalba International, Inc. Data Source: Merrill Lynch and UN

11. More operators = more adopters? Kalba International, Inc. Data Source: ML

12. Why China Has Led India China 35% mobile, end of 2006 High economic growth—and lower prices But.. Govt.-owned operators (2+) Extensive fixed lines: 26.6% High savings rate Older population No CPP (until 2007) Kalba International, Inc. India 13.2% mobile, 2006 Large “middle class” More young people Private operators (up to 6) Few fixed lines: 3.8% But.. Low GDP per capita Only recent reduction of prices

13. HH size is inverse to adoption Kalba International, Inc. Data Source: Merrill Lynch and UN

14. Latin America vs. Eastern Europe Eastern Europe Ageing population (c.20% >60) High legacy phones (c.30%) But.. High mobile: Poland 94.3%, Russia 103.8%, 2006 Proximity to explosive W. Europe markets and regulation Positive geography? Kalba International, Inc. Latin America Twice as many young people— half as many older Asymmetric regimes But.. < 55% mobile (Brazil and Mexico, 2006) Larger households Fewer legacy phones (c.20%)

15. The Rural Challenge The Situation 3 billion of world’s 6.7B inhabitants live in rural areas Limited progress since Maitland Commission Supply Challenge Low density, remote, rugged topography, etc. High rollout and maintenance costs Demand Challenge Rural populations often much poorer than urban Over 1B have never held a mobile phone (guestimate) Kalba International, Inc. Kalba International, Inc. Data Source: Merrill Lynch

16. The Rural Promise The Promise: Increasing rural coverage in Africa; India starting to work on the problem Output-Based Aid (OBA) projects being organized across the globe Cheaper technology: $10 phone/$1 ARPU, WiMAX? The Bottom line: Will the global market continue to grow new subscriptions by 25%, as it has in recent years, in which case the whole world could be mobile by 2010—or will it take a decade or more to roll out the infrastructure and attract adopters in the rural areas of the developing world?? Kalba International, Inc.