Global Cellular Market Trends and Insight, Q4 2011 January 2012

Wireless Intelligence

Analysis: Global cellular market trends and insight, Q4 2011 January 2012

Global mobile connections surpass 6 billion Connections (million) Market penetration (%) • Total cellular connections in Q3 2011 reached 5.9 billion; in Q4 2011 we estimate the quarter closed at 6.1 billion • The 6 billion connection milestone was passed at the end of November 2011, the fastest one billion net additions to date, reached in just 17 months • The industry took two decades to reach the first billion connections, from 1979 to 2002

Networks and spectrum at the forefront of operators’ agenda • 28 markets announced the results of planned spectrum auctions during the quarter, the majority of which are refarmed or digital dividend allocations • LTE fragmentation remains a key issue and we predict 38 different frequency combinations in use by 200 LTE and TD-LTE networks by 2015 • 13 LTE network launches during Q4 2011, bringing the year-end total to 46

Smartphone and apps growth continues • Global smartphone penetration is nearing 10% • Singapore the first country to cross the 50% threshold (4.4 million smartphones, over 60% penetration) • Canada has the second-highest smartphone penetration at around 40%, while the Chinese market boasts 35% in urban areas, yet just 8% overall • Google reported 200 million activated Android devices in November and Technology split 700,000 newly activated devices per day over Christmas • Apple’s App Store boasts over 500,000 apps (October), while Google’s Android Market runs close behind with 400,000 (January 2012) • Microsoft’s store now has 40,000 apps (December), while Amazon has reached 14,000 (August) 2011 2016t Quarterly forecast accuracy • Our estimates are replaced during the quarter by the actual results reported by the operator and regulatory community • The delta between our estimates at the beginning of the quarter and the actual results for Q3 2011 stood at just -0.19%

CDMA (Family) GSM Other WCDMA (Family) LTE

Q3 2010 Q2 2011 Q3 2011 Connections (million) Market penetration (%)

Number of Connections Total 811.1 908.4 943.6 (million) Contract 92.2 103.4 106.1

Prepaid 718.5 804.6 837.0

CDMA (Family) 22.8 23.7 23.6

GSM 724.5 788.4 812.1

WCDMA (Family) 63.0 95.4 107.1

Net Additions Total 35.0 27.5 35.3 (million) Contract 2.1 4.3 2.7

Prepaid 32.9 23.1 32.4

Growth Rate, Total 5 3 4 Sequential (%) Contract 2 4 3 Technology split Prepaid 5 3 4

Growth Rate, Total 17 17 16 Year-on-Year (%) Contract 13 15 15 20152016 2011 Prepaid 18 17 16

Market Penetration (%) 60 66 68

ARPU (US$) 11.62 10.81 10.89

CDMA (Family) GSM WCDMA (Family) LTE

Solid growth continues despite economic and political troubles Insight: Price wars ending in Africa as data becomes new battleground Steady connections growth overall but several operators lose subscribers The intense competition on voice tariffs that has typified the East African mobile • Of the 236 operators active in the Middle East/Africa at the end of Q3 2011, markets over the past year or so looks to be easing. In Tanzania, regulator TCRA has 206 saw positive quarterly net additions representing a total of 37.3 million even come under pressure to cap voice prices, a situation which would have been connections, while 28 operators recorded subscriber losses totalling 2 million unimaginable just six months ago when the country had one of the lowest tariffs • Egypt saw the highest absolute connections growth adding 3.65 million in in the whole of Africa - in some cases as little as TZS1 (US$0.0006) per second. the quarter, followed by South Africa (2.87 million) and Iran (2.80 million) However, market shares remain largely unchanged from a year ago despite • In terms of operators, MCI (TCI) Iran again witnessed the largest subscriber the period of frenetic discounting, and a number of operators have cancelled gain in the quarter (1.62 million); Vodafone Egypt was next (1.58 million) promotions in recent months. Subsequently, Tanzanians are now facing a rise in • We expect a broadly similar level of growth in Q4, with total connections for mobile phone tariffs at a time of rising inflation and currency depreciation. the region increasing by 35.4 million to 979 million As recently as June 2011, Warid Telecom (Abu Dhabi) in Uganda charged just UGX1 Airtel plans 3G rollout across Africa while Kuwait gets LTE network (US$0.0004) per second while competitor UT Mobile (Uganda Telecom) offered • October was a busy month for 3G launches in Africa, with WCDMA networks unlimited on-network calls all day for UGX500 (US$0.21). However, in September going live for MTN and NetOne in Swaziland and Zimbabwe respectively, and market leader MTN moved to prevent the industry from self-destruction by new HSPA+ (Etisalat) and EV-DO Rev. B (Starcomms) networks in Nigeria doubling its tariff to UGX4 (US$0.0017) per second for on-net calls. Second-placed • October also saw Airtel (Bharti Airtel) launch HSPA+ in Congo (Brazzaville), Airtel (Bharti Airtel) quickly followed suit. As in Tanzania, while such price increases and the operator has signed a deal with vendor NSN to develop further 3G were essential, they have come about at a time of rising fuel and food prices and networks in Kenya, Madagascar, Malawi, Tanzania, Uganda and Zambia thus will not guarantee increased revenues. • Viva (KTC) was the first operator to launch LTE in Kuwait during December Operators in these markets can look to Safaricom in neighbouring Kenya, which Arab Spring effect continues to reshape the industry in North Africa has also been in the midst of a price war since Airtel took control of Zain’s African • Etisalat’s (Egypt) IPO was postponed due to economic and political operations in 2010 and promptly halved its voice tariffs from KES6 (US$0.07) to uncertainty KES3 (US$0.04) per minute – subsequently doubling its subscriber base in the • The Algerian government is to nationalise its largest operator Djezzy by space of six months. Yet a further price cut to just KES1 (US$0.01) per minute at the acquiring a 51% stake, but is set to keep VimpelCom on as operator start of 2011 failed to make further inroads into Safaricom’s market share, despite • A national holding company will be set up in Tunisia to manage the 25% the market leader’s refusal to drop its own tariffs in line with its competitor. stake in Tunisiana and the 51% share in Orange Tunisia that were seized by Instead, Safaricom remained competitive by launching daily low-denomination the government from the family of the ousted President Ben Ali data bundles to make it more affordable to access the internet, engaging the youth market through internet media and social networking and expanding its Operators move to sell off infrastructure as economic slowdown bites M-PESA mobile payment system. Although Safaricom’s voice revenue continues • Orange (France Telecom) and Etisalat have both sold towers in African to decline (down 5.5% yoy in Q3 2011), 30.4% and 49.3% rises in data and M-PESA markets revenues, respectively, continue to contribute to positive total revenue growth, • Bahrain’s Batelco is also reported to be looking at a sale and lease-back deal and data subscribers are up by 43% over the same period to 5.1 million. for its tower assets in Bahrain and Jordan

Q3 2010 Q2 2011 Q3 2011 Connections (million) Market penetration (%)

Number of Connections Total 545.3 596.7 614.5 (million) Contract 96.1 108.4 113.3

Prepaid 449.3 488.3 501.2

CDMA (Family) 23.9 17.9 16.3

GSM 473.5 506.3 515.6

WCDMA (Family) 38.8 62.3 72.1

Net Additions Total 13.2 14.4 17.8 (million) Contract 3.9 4.3 4.9

Prepaid 9.3 10.1 12.9

Growth Rate, Total 2 2 3 Sequential (%) Contract 4 4 4 Technology split Prepaid 2 2 3

Growth Rate, Total 11 12 13 Year-on-Year (%) Contract 16 18 18 2011 2016 Prepaid 10 11 12

Market Penetration (%) 92 100 103

ARPU (US$) 13.52 13.21 13.38

CDMA (Family) GSM Other WCDMA (Family) LTE

Data networks support the next wave of growth opportunities Insight: LTE spectrum auctions act as prerequisite to data revenue growth Faster cellular growth driving encouraging revenue trends High connections growth in the Americas is driving operators’ revenue: Telefónica • Year-on-year, the Americas grew total connections by 13% in Q3 2011 – the reported that the region remains the group’s main growth engine and the largest third-fastest growing region globally contributor to consolidated revenues (46%), while America Móvil reported that • The Americas is the second-fastest growing region annually in terms of good economic momentum kept subscriber and top line growth in the region at WCDMA/HSPA connections; rising 86% in Q3 2011 sound levels. • During Q3 2011, ARPU grew by US$0.27, compared to a global decline of US$0.02 At Telefónica, the region’s contribution to consolidated revenues in organic terms has increased by 5 percentage points between Q3 2010 and Q3 2011, further Faster migration to next-generation networks, away from CDMA offsetting the lower contribution by Telefónica Spain (-2.1pp) and Telefónica • Operators are speeding up the migration away from CDMA2000 (1X, EV-DO, Europe (-0.2pp). Rev. A) connections to WCDMA/HSPA and LTE networks • CDMA2000 connections fell from 6% of total regional connections in Q4 2009 Telefónica noted that, in the Americas, mobile broadband and contract segments to 4% in Q4 2010 and 2% in Q4 2011 have sequentially increased their importance, representing 9% and 21% of group • CDMA connections declined by 17.5 million between Q4 2009 and Q4 2011 total connections respectively in Q3 2011. Similarly, America Móvil observed that • There were 64 million WCDMA/HSPA net additions during the same period the expansion of its 3G network coverage and data capabilities led to its contract • In December, Movistar (Telefónica) closed its CDMA2000 1X network in base growing twice as fast as its prepaid base in Q3 2011. Ecuador, while Alegro (Telecsa) is still migrating its CDMA users to WCDMA • In Brazil, Vivo (Telefónica) has delayed the closure of its CDMA network to To sustain the next wave of network deployments in the region, spectrum is June 2012 being auctioned in Brazil. The country’s regulator, Anatel, raised US$132 million through the government’s auction of additional spectrum in the 1800 MHz band Faster deployments of HSPA+ and LTE networks continues in December. Anatel plans to launch three separate spectrum auctions this year • During the second half of 2011, operators deployed HSPA+ in 12 markets: in various bands: 2500 MHz to support LTE deployments, 450 MHz spectrum to Argentina, Aruba, Bahamas, Barbados, Brazil, Cayman Islands, Chile, Curaçao, provide rural coverage, and further capacity in the 3500 MHz band. Ecuador, Panama, Paraguay and Peru • LIME (Cable & Wireless) is rolling out HSPA+ in 12 markets across the Similarly, Chile launched its LTE spectrum auction in November. The country’s Caribbean in partnership with Ericsson regulator, Subtel, is auctioning three 20MHz blocks in the 2600 MHz band with a • In Q4 2011, three operators commercially launched the first LTE networks in maximum of one block to be awarded to each applicant. Meanwhile, following the the Americas: UNE (EPM) in Colombia, AT&T Mobility in Puerto Rico and Ancel auction of 1900 MHz spectrum in August, Colombia’s MinTic announced in January (Antel) in Uruguay that it will be issuing concessions for two sets of paired frequencies: 1710-1755 MHz with 2110-2155 MHz and 1850-1990 MHz with 2500-2690 MHz. In Uruguay, the government announced in November its plan to auction 900 MHz, 1900 MHz and 1700/2100 MHz spectrum. Similar developments are expected in Peru and Argentina, setting the tone for the upcoming wave of LTE launches.

Q3 2010 Q2 2011 Q3 2011 Connections (million) Market penetration (%)

Number of Connections Total 2,463.3 2,817.4 2,908.5 (million) Contract 443.0 482.1 495.9

Prepaid 2,020.3 2,335.2 2,412.6

CDMA (Family) 263.0 293.1 302.3

GSM 1,955.9 2,192.9 2,239.3

WCDMA (Family) 220.4 287.3 313.6

Net Additions Total 113.5 104.2 91.1 (million) Contract 12.2 12.8 13.8

Prepaid 101.3 91.4 77.4

Growth Rate, Total 5 4 3 Sequential (%) Contract 3 3 3 Technology split Prepaid 5 4 3

Growth Rate, Total 23 20 18 Year-on-Year (%) Contract 11 12 12 2011 2016 Prepaid 27 22 19

Market Penetration (%) 65 73 76

ARPU (US$) 11.13 10.15 9.81

CDMA (Family) GSM TD-SCDMA WCDMA (Family) Other LTE

Operators expanding 3G network coverage Insight: Data traffic offload solution on the horizon China paves the way for LTE with network capacity expansion Between July 2011 and January 2012, five operators launched LTE in Asia Pacific • China Telecom has partnered with Alcatel-Lucent to expand its 3G coverage, - all three South Korean operators, Telstra in Australia and SingTel in Singapore. doubling the capacity of its existing network LTE networks have been launched in the 800 MHz, 1800 MHz and 1800/2600 MHz • China Unicom has signed an agreement with ZTE to improve its 3G network bands, which has increased regional LTE spectrum fragmentation (NTT Docomo capacity, including new transmission equipment in 15 provinces and Smart (PLDT) having already launched LTE in the 2100 MHz band).

HSPA gaining traction in SE Asia Data traffic offload is a hot topic with many operators in the region looking into • In Indonesia, Axis has partnered with Huawei to expand its HSPA network to Wi-Fi hotspots as an immediate solution. Yet, in markets like South Korea, the 45% of its footprint, adding 5,000 cell sites of which 4,000 are WCDMA/HSPA co-existence of LTE with legacy networks through multi-mode devices will play • In South Korea, all three operators – KT, SK Telecom, LG Uplus – expect to an important role. KT recently announced that LTE will offload WCDMA traffic have nationwide LTE coverage by the end of H1 2012 from H2 2012; from 2013, LTE and WCDMA will carry similar levels of traffic; from • In Malaysia, DiGi has expanded its 3G network, covering around 46% of 2014 onwards, LTE traffic will surpass WCDMA traffic. In parallel, the operator has Sabah’s population redefined its WiMAX strategy, boosting investment and device procurement to • In the Philippines, both Smart (PLDT) and Globe Telecom claimed that their allow WiMAX to offload some of the LTE data traffic. The need for interoperability HSPA network roll-outs doubled during H2 2011 between WiMAX and LTE smartphones is likely to also be a challenge for Japan’s • Smart increased its number of HSPA+ base stations from 500 to over 1,200 KDDI, which has recently introduced six new WiMAX devices including one Wi-Fi between September and October 2011 router and a tablet with a view to “promote data offloading”.

Network investment across the region According to our latest forecasts, South Korea will migrate half of its user base to • In the Philippines, Next Mobile (ICTV) has partnered with Huawei to roll out LTE networks by late 2014, compared to early 2017 for Japan. Both markets are its network infrastructure nationwide; ICTV is reportedly planning to invest setting an early regional benchmark for multi-mode devices as a solution against up to US$915,000 over the next two years for the rollout of Next Mobile their congested data networks. • In Taiwan, Chunghwa Telecom will invest around US$200 million in network upgrades this year compared to US$160 million last year, and has now Meanwhile, China crossed the 200 million 3G connections mark in Q4 2011, with 3G installed over 1,000 HSPA+ cell towers now accounting for 22% of the country’s connections base. China’s 3G growth has • Competitor Vibo Telecom will invest US$66 million for the roll out of 7,000 3G been triggered by network expansion and the rapid adoption of smartphones. The base stations this year and has reportedly planned the procurement of close country’s regulator (MIIT) announced that there were around 814,000 3G towers to 300,000 smartphones, including low-tier models priced at US$135 deployed in the country at the end of 2011. The largest operator by subscribers, China Mobile, has 220,000; China Unicom has 270,000 and China Telecom 324,500. With regards to smartphones, it has been reported that just over a third (35%) of urban Chinese consumers own smartphones. China ranks behind Singapore (62%) and Australia (37%) according to a Google/Ipsos survey last November.

Q3 2010 Q2 2011 Q3 2011 Connections (million) Market penetration (%)

Number of Connections Total 504.2 519.7 529.0 (million) Contract 105.2 108.6 110.1

Prepaid 399.0 411.0 418.8

CDMA (Family) 6.4 7.6 7.7

GSM 439.9 437.4 440.0

WCDMA (Family) 57.3 74.0 80.5

Net Additions Total 7.9 8.2 9.3 (million) Contract 1.3 1.4 1.5

Prepaid 6.6 6.8 7.8

Growth Rate, Total 2 2 2 Sequential (%) Contract 1 1 1 Technology split Prepaid 2 2 2

Growth Rate, Total 5 5 5 Year-on-Year (%) Contract 9 5 5 2011 2016 Prepaid 4 5 5

Market Penetration (%) 124 127 130

ARPU (US$) 10.59 10.27 10.48

CDMA (Family) GSM Other WCDMA (Family) LTE

Regulators plot additional spectrum auctions in 2012 Insight: Polish billionaire helps define global LTE deployment plans Highest number of subscriber net additions for two years Until recently, few in the telecoms industry would have known much of Zygmunt • Over 9 million connections added in Q3 2011 with over one third in Russia Solorz-Zak. That changed when he was declared the winner of the auction of Plus • More than 1 million net adds in both Kazakhstan and the Ukraine in Q3 (Polkomtel), sold by a consortium of investors including Vodafone for PLN15.1 • Only 19 operators reported subscriber connection declines billion (EUR 3.4 billion), giving him control of Poland’s second-largest operator. The deal capped a busy year for the Polish billionaire media and telecoms investor, Polish telecom landscape reshaped adding to his less high-profile controlling interests in NFI Midas (the owner of • Sale of Poland’s Plus (Polkomtel) to Zygmunt Solorz-Zak completed in CenterNet Mobile, Mobyland and Aero2) and quad-play provider Cyfrowy Polsat. November while Aero2 was acquired by NFI Midas in December NFI Midas also recently completed the acquisition of Aero2, following on from its • TeliaSonera to acquire a further 49% of Kcell Kazakhstan ahead of an IPO acquisition of Mobyland (itself previously controlled by Aero2) in June. • OTE announced sale of its 20% stake in Telecom Srbija back to the state • Sale of PTK Kosovo postponed by corruption scandal, while sale of Through his various mobile interests, Solorz-Zak has set a number of industry government holding in MTS Belarus delayed after offers deemed too low milestones and has been at the forefront of a number of trends during the year. • Rostelecom moving forward with plans to acquire SkyLink In September, Aero2 deployed the world’s first dual-mode FDD/TDD LTE network. The network utilises 2500 MHz spectrum and follows on from Aero2’s launch of Russian operators form two LTE camps the world’s first TD-LTE network back in May. Meanwhile, CenterNet Mobile and • Yota (Scartel) reached agreements with MegaFon and Rostelecom to utilise Mobyland have been pioneers of LTE technology since jointly launching LTE their infrastructure to launch its Russian LTE network, while VimpelCom and services in September 2010. At the time they were responsible for the first 1800 MTS have agreed to a joint LTE infrastructure rollout MHz LTE deployment in the world, yet the 1800 MHz spectrum band has since • During December VivaCell (MTS) Armenia launched LTE in Yerevan, while Yota been utilised for LTE deployments by 14 further operators across the globe and is Belarus launched LTE in Minsk and Grodno increasingly being seen as one of the primary LTE deployment bands. • Orange (France Telecom) Romania and Si.Mobile (Telekom Austria) Slovenia both launched 42 Mb/s dual-carrier HSPA+ networks in October Until recently the CenterNet Mobile/Mobyland LTE network was mainly used by • IT CDMA (Intertelecom) Ukraine launched 14.7 Mb/s EV-DO Rev. B in October Solorz-Zak’s Cyfrowy Polsat via an MVNO agreement. However, in a demonstration – the first Rev. B network to be deployed in Eastern Europe of his growing influence in the Polish telecoms market, in late November Plus • Azercell and Bakcell both launched 3G services in Azerbaijan in November launched LTE services using the CenterNet Mobile/Mobyland network - thus becoming the first major Polish operator to provide LTE services. Plus also Spectrum sale plans move ahead though new entrants appear wary implemented network sharing with Aero2 to extend its HSPA+ coverage using • Spectrum auctions planned during early 2012 in Hungary, Latvia, Lithuania Aero2’s 900 MHz spectrum, supplementing its existing 2100 MHz coverage. and Slovakia During 2011 Solorz-Zak has helped achieve a number of industry breakthroughs • Auction of additional licence for a new entrant in Bulgaria cancelled due to while putting together a highly complementary group of mobile assets. The Plus lack of interest purchase will give him the ability to leverage these with his media content and • Albania plan to award a third 3G licence in Q1 2012 distribution interests held by Cyfrowy Polsat. It will pay to watch what Solorz-Zak has in store for 2012.

Q3 2010 Q2 2011 Q3 2011 Connections (million) Market penetration (%)

Number of Connections Total 519.3 529.8 535.7 (million) Contract 244.0 252.7 256.3

Prepaid 272.4 274.0 276.2

CDMA (Family) 0.5 0.6 0.6

GSM 326.7 303.9 298.7

WCDMA (Family) 192.1 225.2 236.1

Net Additions Total 3.4 1.9 5.9 (million) Contract 3.7 2.0 3.6

Prepaid -0.6 -0.2 2.3

Growth Rate, Total 1 0 1 Sequential (%) Contract 2 1 1 Technology split Prepaid 0 0 1

Growth Rate, Total 1 3 3 Year-on-Year (%) Contract 7 5 5 2011 2016 Prepaid -5 0 1

Market Penetration (%) 126 128 129

ARPU (US$) 32.71 30.90 30.95

CDMA (Family) GSM Other WCDMA (Family) LTE

LTE deployments and spectrum auctions dominate operator strategies Insight: The party is over for SMS as messaging goes over the top LTE gathers momentum as initial markets see universal deployments In October the Dutch regulator OPTA published data that confirming what • 15 commercial LTE networks launched in W. Europe by end 2011 (close to many operators had feared for some time – that the traditional operator cash- one third of global deployments), including four launches during Q4 2011 cow of messaging appears to have peaked in the face of competition from OTT • Finland and Sweden first to see all major operators offering LTE messaging services from BlackBerry, Facebook and Twitter. OPTA noted that H1 • All live LTE networks currently utilise the 2600 MHz spectrum band either 2011 was the first six-month period in which the number of SMS messages sent solely or in combination with 800 MHz and/or 1800 MHz spectrum bands fell relative to the previous six-month period. Wireless Intelligence also identified falls in SMS volumes over the same period in markets such as France, Ireland, Spain France Telecom announces first disposal, further market consolidation and Portugal suggesting the start of a wider trend rather than simply a blip. expected • Sale of Orange Switzerland to Apex agreed for CHF 2 billion (EUR 1.6 billion), If there was any remaining doubt then data from operators over the traditional joining rival Sunrise in private equity hands; future merger possible Christmas/New Year peak messaging period puts it largely beyond question. • Reports that 3 (Hutchison) is to acquire Orange Austria and planned disposal Figures published by Finnish operators showed marked declines in SMS volumes. of some assets to A1 Telekom (Telekom Austria), including Yesss! Customers of Sonera sent 8.5 million SMS messages on Christmas Eve 2011 (down • Meanwhile, investor Ronny Pecik acquired a 16% stake in Telekom Austria from 10.9 million in 2010, a 22% decline) while DNA subscribers sent 5.6 million in November with the backing of Orascom founder Naguib Sawiris, amid (down from 5.9 million, a 5% fall). Developed Asian mobile markets also showed speculation of further corporate activity significant declines with Hong Kong regulator OFTA reporting 21.6 million SMS • Merger discussions between Vodafone and WIND Greece continue were sent on Christmas Day 2011 (down 14% from 2010) and 26.6 million on New Year’s Day 2012 (a fall of 7%). Meanwhile, a recent survey by the South Korean LTE launches feature in network upgrades regulator KCC found 68% of smartphone subscribers claimed they use SMS less • 3 (Hutchison) Sweden launched a dual-mode FDD/TDD LTE network in than previously, highlighting the challenges European operators are likely to face. Stockholm, Gothenburg and Malmo during December • TDC Denmark launched LTE in the country’s ten largest cities in October However, it is not all bad news for operators as the OPTA Netherlands figures also while 3 (Hutchison) Austria launched LTE in Vienna in November confirmed that the revenue from data services exceeded that from messaging • 3 Austria also launched to 42 Mb/s dual-carrier HSPA+ while dual-carrier 42 for the first time. Figures from Telia Sweden also highlighted the growing impact Mb/s HSPA+ and LTE were deployed by DNA Finland in December smartphones are having on customer behaviour, as visits to Facebook and Twitter • Telenor launched 21 Mb/s HSPA+ in Norway during October doubled in the four weeks prior to Christmas whilst total data traffic on its network increased by 34% during 2011. Meanwhile, figures from 3 UK showed that Spectrum auctions continue to meet government financial expectations customers used 600% more data on New Year’s Eve in 2011 than they did the year • Italy auctioned 900/1800/2600 MHz spectrum raising EUR 3.9 billion, while before. Total data usage on the network was 80 TB, up from 14 TB on the same day France raised EUR 2.6 billion from the auction of 800 MHz spectrum and in 2010, and usage was also up on New Year’s Day, hitting 74 TB compared to 14 Sweden awarded 1800 MHz spectrum for SEK 3.9 billion (EUR 429 million) TB in 2011. These rates of data traffic growth highlight why operators are currently • Greece picked up EUR 380 million for 900/1800 spectrum, while Belgium sold focussed on deploying LTE networks. 2600 MHz spectrum for EUR 78 million

Q3 2010 Q2 2011 Q3 2011 Connections (million) Market penetration (%)

Number of Connections Total 329.9 352.1 359.5 (million) Contract 240.8 244.5 245.9

Prepaid 49.6 55.4 56.8

CDMA (Family) 176.8 187.1 188.8

GSM 75.4 58.1 58.7

WCDMA (Family) 63.0 88.2 90.5

Net Additions Total 6.6 6.5 7.5 (million) Contract 1.8 1.5 1.4

Prepaid 1.1 1.3 1.4

Growth Rate, Total 2 2 2 Sequential (%) Contract 1 1 1 Technology split Prepaid 2 2 3

Growth Rate, Total 7 9 9 Year-on-Year (%) Contract 3 2 2 2011 2016 Prepaid 23 14 15

Market Penetration (%) 96 101 103

ARPU (US$) 50.31 49.79 50.18

CDMA (Family) GSM Other WCDMA (Family) LTE

Smartphone demand goes into overdrive in USA Insight: Verizon embraces LTE while T-Mobile slips away from AT&T AT&T adds 2 million new subscribers while Canada passes 75% penetration It looks as though a clear LTE front-runner has emerged in in the USA in the shape • Of the 32 operators active in the region at the end of Q3 2011, 27 witnessed of Verizon Wireless. Although Verizon was not the first operator to launch LTE in positive quarterly net additions representing a total of 7.56 million the country (that honour goes to second-tier player MetroPCS), in just under 13 connections, while 5 operators recorded subscriber losses totalling 108,000 months since launching the network it has expanded coverage to 194 cities and • AT&T saw the highest absolute connections growth adding 2.12 million in 122 major airports, covering 200 million people. Alongside tablets, notebook the quarter, followed by Clearwire (1.89 million) and Verizon (1.40 million) computers, Wi-Fi routers and USB modems, the operator is now able to offer ten • The trend continued for Q4 2011 with Verizon and AT&T reporting strong LTE-compatible smartphones, having launched three new models during Q4 net additions (1 million and 2.5 million respectively), driven primarily by 2011 - the HTC Rezound, Motorola Droid Razr and Samsung Galaxy Nexus - and smartphones (out of an estimated regional total of 7.2 million net additions) is currently tempting customers to migrate to the new technology with a ‘double • Market penetration passed 75% in Canada during Q3, compared to 106% in data’ promotion only available on LTE models, with plans ranging from 4GB for US US$30 per month to 20GB for US$80 per month.

Launch of iPhone 4S in October further boosts smartphone sales These efforts have helped Verizon to take full advantage of getting its launch • iPhone sales for Verizon jumped from 2.0 million in Q3 to 4.3 million in Q4, as in ahead of primary competitor AT&T (who deployed their first LTE networks in total smartphone sales for the quarter hit 7.7 million September 2011) - and the operator passed the 5 million LTE subscriber milestone • AT&T sold more than 1 million iPhone 4S handsets in the week after launch in Q4 2011. Subsequently the new technology accounts for an estimated 5% of and 7.6 million iPhones (the majority being the 4S) during the quarter Verizon’s total customer base, a fairly rapid migration when compared to the early • A total of 9.4 million smartphones sales - 56.8% of AT&T contract subscribers days of the operator’s EV-DO network, which only represented 3% of the operator’s are now smartphone users and 80% of new contract sales are smartphones total after its first year. Indeed we estimate that at 6.4 million connections in Q4, • At the end of Q3, T-Mobile reported 10.1 million smartphone users (30% LTE accounted for 2% of total connections in the USA (only in South Korea is LTE penetration) compared to 7.2 million a year previously, while MetroPCS also penetration higher) with Verizon making up 84% of those. Subsequently we reported 30% smartphone penetration forecast Verizon will have 12.9 million LTE subscribers by the end of 2012 (11% of its customer base), compared to just 4.4 million (4%) for AT&T. Fourth LTE network goes live in USA • Cricket (Leap Wireless) launched LTE in Tucson, Arizona in December There was further bad news for AT&T in Q4, when the Federal Communications • Plans to deploy LTE networks have also been announced by Sprint, Clearwire, Commission (FCC) published a report that was highly critical of its proposed US$39 Alaska Communications, C-Spire Wireless, SaskTel, SpeedConnect, United billion takeover of T-Mobile USA – originally tabled in March 2011. With the US Wireless, MTS Wireless, O2 Secure Wireless and Pioneer Cellular Department of Justice already having filed an antitrust lawsuit to block the deal, • In September, MetroPCS began deploying EV-DO Rev. A in around 20% of its the operator was eventually forced to withdraw the offer for its rival - and pay out cell sites to augment its existing CDMA2000 1X service US$4 billion in cash and spectrum to T-Mobile USA’s owners Deutsche Telekom as compensation. Thus AT&T must look elsewhere to expand its congested network, Canadian ARPU up due to seasonal effects however the FCC has since approved the operator’s US$2 billion purchase of • Blended ARPU in Canada saw a quarterly increase to US$60 in Q3 spectrum in the 700MHz band from microchip-vendor Qualcomm. • At the regional level, blended ARPU remained stable year-on-year at US$50

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Joss Gillet Will Croft Jon Groves Calum Dewar Senior Analyst Analyst Analyst Analyst

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