US Wireless Data Market Q Update

© Chetan Sharma Consulting, All Rights Reserved Nov, US Wireless Market – Q Update Executive Summary The US wireless data market grew 7% Q/Q and 25% Y/Y to exceed $14B in mobile data service revenues in Q on track to meet (and most likely exceed) our initial estimate of $54B for the year. Sprint had a second straight positive net-add quarter. T-Mobile also reversed its losses and had a net-positive quarter though postpaid additions were down for both the carriers is shaping up to be an interesting year with some big M&As on the cards. The launch of 4G networks provides an opportunity to realign the industry. The US subscription penetration crossed 96% at the end of Q If we take out the demographics of 5 yrs and younger, the mobile penetration is now past 101%. While the traditional net-adds have been slowing, the “connected device” segment is picking up so much that AT&T, T-Mobile, and Sprint 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. The role of connected devices In the connected device category, tablets led almost singlehandedly by the iPad is taking away the lion share of the revenues. The whole category is catching up speed in the US with 12% growth Q/Q - much higher than in the postpaid segment which has trickled down to 1% Q/Q growth by Q We expect that in less than 5 years, the connected devices category will generate more revenue for the operators than the entire prepaid segment in the US. While today, connected devices represent only 3% of the quarterly data revenues, this segment didn’t really exist a few months ago and will keep on gaining strength every year for the foreseeable future. In terms of financials, the addition of connected devices units and revenues to the mix masks the tremendous growth in smartphone related data revenues. For example, T-Mobile lost 360K postpaid subs but added 300K connected devices for a net loss of 60K subscriptions. Because of lower ARPU, Connected devices have a dilutive impact on the revenues and ARPU so the overall ARPU for postpaid segment for T-Mobile was $52 instead of $55. iPad literally created a new category and rest of the industry is scrambling to respond. Some just want to follow Apple’s trail to cash in while others don’t want to competing head-to-head with Apple so they are launching smaller sized units. There will be others who will launch devices at every inch increments just to see what sticks. However you might slice and dice the market, the segment is here to stay and as we had mentioned before, Netbooks will take a hit as the category was the creature of a falling economy and with a viable alternate, the need for Netbooks diminishes.

© Chetan Sharma Consulting, All Rights Reserved Nov, US Wireless Market – Q Update Mobile Data Consumption Data traffic continued to increase across all networks. There are some superphones that are routinely average more than 1 GB/mo, superphones as a category is averaging MB/mo. By the end of 2010, we expect the average US consumption to be approximately 325 MB/mo up 112% from This puts US right behind Sweden in the top two by per capita mobile data consumption. While the US 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 expanded further with Verizon and T-Mobile following AT&T in deploying policy management strategies for controlling data margins. 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 Nov, US Wireless Market – Q Update What to expect in the coming months? Kids of the now generation are growing with connected electronics that is fundamentally altering the behaviors and expectations of interaction, communication, consumption, and monetization. Microsoft launched its much anticipated Windows Phone 7 in a bid to recapture the mind- and unit-share. By taking a different UI route, it actually has a shot to be a viable third option to iPhone and Android and pushing RIM from the top 3. All this has setup an absolutely fascinating 2011 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 15 th event – Mobile Future Forward which is bringing exceptional industry thought-leaders, inventors, and doers to brainstorm, discuss, and debate what’s next. More details to come. We will also be discussing the trends and opportunities in our Dec Mobile Breakfast Series event.Mobile Future ForwardMobile Breakfast Series US is also leading the way in smartphone sales. In Q3 2010, 47% of the devices sold in the US were smartphones compared to 24% globally. The fast pace of device introduction has catapulted the agile players like Samsung and HTC to the forefront while others like LG and Sony Ericsson have lost ground. By focusing singularly on Android and by broadening the device portfolio, Motorola has written a great comeback script. 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. 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. While 2010 started quite active on the regulatory front as the national broadband plan was unveiled in March little substantive progress has been made w.r.t. the spectrum, net-neutrality, and other broadband related issues. 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. ITU christened LTE-A and Wireless MAN-Advanced as the “official” 4G technologies but the marketing departments cared less. (We will be releasing the next edition of our “State of the “Mobile” Broadband Nation” in the coming months.“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" earlier this year.Managing Growth and Profits in the Yottabyte Era Finally, operators are starting to diversify more aggressively than in the past. AT&T’s mobile enterprise business is a leading indicator of this trend. Their focus by verticals has yielded new revenue streams and positioning them to become a one-stop shop for devices, access, and services in the enterprise market. 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 Nov, US Wireless Market – Q Update Against this backdrop, the analysis of the Q US wireless data market is: Service Revenues (Slides 7, 17) The US Wireless data service revenues grew 7% Q/Q to $14B in Q310. The mobile data revenues for the US market are likely to reach $55B in Verizon and AT&T accounted for 85% of the increase in data revenues in Q T-Mobile’s 3G drive is starting to pay off. While the postpaid net-adds were still in the red, its data growth is starting to match with its peers. The 21% 3G smartphone base definitely helps. 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 decreased by $0.17. Average voice ARPU declined by $0.99 while the average data ARPU grew by $0.82 or 5% Q/Q. The average industry percentage contribution of data to overall ARPU is now 33% in Q310. Verizon led in data ARPU with $18.61 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 27% of its revenue coming from data services. Subscribers (Slides 12-15) Helped by the growth in connected devices, the overall net-adds increased by 4.5M. For the fourth straight quarter, AT&T reported more net-adds from connected devices than postpaid subs. Connected devices are now 8% of AT&T’s subscription base. Overall, Verizon and AT&T are tied in terms of total connected devices on the network thought AT&T has a much more diverse and revenue- rich base. The connected device segment grew 12% Q/Q and 42% Y/Y. Sprint extended its streak of positive net-adds to two quarters by adding over 600 subs while T-Mobile reversed its customer losing streak thanks to the growth in the prepaid and connected devices segments. The national prepaid penetration is touching 20%.

© Chetan Sharma Consulting, All Rights Reserved Nov, 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 110.4M units in Q amounting for 32% of the market share. Samsung continues to be one of the most agile players shipping a whopping 71.4M for a 21% share of the market. Apple also edged past RIM to be in the top 5. While rest of the industry counts units, Apple counts $ and leads in the revenue share. It shipped 9.1M iPhones in Q3 despite the backlash over the antenna design. Data Traffic (Slide 16) As we noted in our previous updates, the data traffic is now significantly more than the voice traffic. By end of 2010, we expect the average US consumer was consuming approximately 325 MB/mo up 112% in 12 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 Mar2011. The next Global Wireless Data Market update will be issued in Dec Be sure to participate in our annual mobile industry predictions survey coming out in Dec 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 Nov, US Wireless Data Service Revenues

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

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

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

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

© Chetan Sharma Consulting, All Rights Reserved Nov, Connected Device Growth

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

© Chetan Sharma Consulting, All Rights Reserved Nov, US Market: Carrier Market share (Q310)

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

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

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

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