Dennis Weller Chief Economist Verizon Mobile Economics ARCEP 26 March 2007 Mobile Markets: The US Experience

2 Verizon: Profile t Verizon Wireless 359 million subscribers t Verizon Telecom 345 million lines 37 million broadband customers: ä700,000 FiOS Internet ä189,000 FiOS TV t Verizon Business 3Operations in 150 countries 3Serves 97% of Fortune 500 3World’s most connected IP network

3 Verizon Wireline Footprint in US

4 Capital Expenditures of US Companies Sources: Reuters data; company reports. *Excludes Verizon. Data for JPMorgan & Chase are not available. Companies in the Dow Jones Industrial Average: 3M, AIG, Alcoa, Altria, American Express, AT&T, Boeing, Caterpillar, Citigroup, Coca-Cola, DuPont, Exxon Mobil, GE, GM, Hewlett-Packard, Home Depot, Honeywell, IBM, Intel, Johnson & Johnson, JPMorgan & Chase, McDonald's, Merck, Microsoft, Pfizer, Procter & Gamble, United Technologies, Verizon, Wal-Mart, and Walt Disney. Companies in the Fortune 10: Exxon Mobil, Wal-Mart, GM, Chevron, Ford, ConocoPhillips, GE, Citigroup, AIG, and IBM.

5 Market Structure of US Wireless t Verizon t AT&T t Sprint/Nextel t T-Mobile t Alltel t Other players 3Cable consortium 3Regional carriers

6 1990s Reform of US Wireless Policies t Increased spectrum, capacity, competition t “Light touch” regulation 3Preemption of states t Flexibility in technology 3Verizon, Sprint, Alltel are CDMA 3AT&T, T-Mobile are GSM t Flexibility in use of spectrum 3Development of secondary market 33G service without 3G license

7 Compensation for Wireless Termination in the US Market t A “calling party pays” system t Local traffic from a wireline carrier pays $ per minute for wireless termination. t Wireless carriers have commercial agreements to exchange traffic on a “bill and keep” basis t Long distance carriers do not pay to terminate traffic on wireless carriers

8 Wireless Termination in Europe and the US Termination rate in US cents per minute

9 Performance of US Wireless Market t Rapid growth in subscription 319% annual growth over last decade 3233 million subscribers 3More wireless than wireline t Lower prices 3Flat-rated packages include nationwide calling t Increased usage 3Average usage per wireless handset: ä832 minutes/month in US ä149 minutes/month in Europe 3More total wireless minutes in US than wireline

10 US Retail Market for Wireless t Most offers count minutes in and out 3But some offers count only minutes out t Flat rate offers for “buckets” of minutes 3Unlimited off-peak minutes 3Unlimited on-net minutes 3Nationwide coverage 3Most roaming is free 3“Family share” plans t Handsets are subsidized t Numbers are portable 3Geographic numbers from same pool as wireline t MVNOs are common

11 Future Development and New Services t Broadband t Video t Shopping t Gaming t Payment t Integration between wireline and wireless 3New solutions for business t IP

12 Growth of Wireless Broadband t In 1H06, total high-speed lines grew 26%, from 51.2 million to 64.6 million lines t 59% of all adds were mobile wireless subscriptions. t From June 2005 to June 2006: 3Mobile wireless’ share of total broadband lines rose from 1% to 17% of total broadband lines. High Speed Net Adds by Type, Dec – June 2006

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14 Pricing of VCAST Service V CAST VPak $15 per Month Mobile Web 2.0 VZW Today Unlimited Browsing Unlimited Data Transport Get It Now services Get Games** Get Tones** Get Wallpaper** Get Going** Unlimited Basic Video Clips News Sports Entertainment Weather Access to Premium Content Partners include Comedy Central, MTV, News Corp, 20 th Century Fox NBC News tailored for mobile Exclusive mini-episodes of popular TV shows More than 300 clips updated daily

15 Verizon iobi Home IP Enabled Telephone Service

16 VerizonOne Concept 2-way Multimedia Communication

17 Access Point - Client CALL LOGS CONTACTS SEND MESSGAGES CALL FORWARDING VOICE MAIL iobi desktop client allows users to manage their communications from their PC Most convenient access point from your office or home PC Send SMS or s with a mouse click View your weather information

18 Service Control ISCP™ VM Outlook PSTN/VoIP Call Control iobi End User Portal Addr book Calendar Content Directories Conferencing And Collaboration Web Sharing IM SMS Messaging VM Alert VM Retrieval Broadsoft Application Server MGC SIP Proxy TG MSC MSC SSP SSP Internet L1 Gateway EPG

19 Traffic Flows Among 20,000 Autonomous Networks on the Internet

20 Lost?

21 STM-1 IP Transit Prices in London

22 VOIP Peering t VOIP traffic exchange: 3Some services (e.g. SKYPE) don’t use telephone numbers – route IP to IP 3Today, services that use phone numbers (e.g. Vonage) usually route through PSTN, even if both customers are VOIP t “VOIP peering” will allow VOIP to be exchanged on an IP basis, even if phone number is used 3Data base lookup provides concordance between telephone number and IP address of recipient 3Several systems now under development 3Depends on what service customer buys, or on agreements among providers

23 Challenges for Future of IP Market t Threat of regulation 3As next-generation platforms converge with Internet, collision between Internet traffic model and traditional regulation of voice traffic exchange t Adding new dimensions to Internet market model 3Quality 3SMS 3VOIP 3Content 3Security and privacy