Wireless Telecommunication Industry Overview

Columbia Graduate Consulting Club February 13, 2012

Pablo Prieto-Muoz
COLUMBIA UNIVERSITY Civil Engineering and Engineering Mechanics

Global mobile phone subscribers

Five Forces Industry Competition

Threat of New Entrants

Bargaining Power of Suppliers

Rivalry Among Existing Competitors

Bargaining Power of Buyers

Threat of Substitute Products of Services

Current Market
Life Cycle Emerging? Mature? Declining? Recent Performance?

Major Players Industry Changes Profitability

Market Share New Players Innovation Regulation Margins Costs vs. Revenues

Telecommunications Industry
Number
U.S. Telecommunications Industry Revenues Worldwide Telecommunications Industry Revenues 985 3.1

Unit
Bil. US$ Tril. US$

Year
2010 2010

Landline
Households with Wired Subscribership, U.S. Landline Revenue, U.S. 113.5 286.6 Mil. Bil. US$ 10-Jul 2010

Wireless
Annualized Total Wireless Service Revenues, U.S. Annualized Wireless Data Revenues, U.S. Number of Wireless Connections, U.S. Market Penetration, U.S. Portion of Mobile Consumers with a Smart Phone, U.S. Cellular & Other Wireless Revenue, U.S. Mobile Advertising Revenue, North America, 2010 Mobile Advertising Revenue, North America, 2011** Wi-Fi & Cellular Device Shipments, U.S. Mobile Cellular Service Subscriptions, Worldwide* Individual Subscribers, Worldwide** Mobile Broadband (3G) Subscribers, Worldwide SMS Messages Sent, Worldwide Handset Sales 2010, Worldwide 2010 Mobile Advertising Revenue, Worldwide Mobile Application Downloads, Worldwide ** Mobile Application Revenue, Worldwide (Includes Purchases & Ad Revenue)** 2010 Smart Phone Sales, Worldwide Employment in the Telecommunications Industry, U.S. 159.9 50.1 302.9 96 31 184.4 304.3 701.7 247 5.3 4.2 940 6.1 1.6 1.6 17.7 15.1 296.6 899.7 Bil. US$ Bil. US$ Mil. % % Bil. US$ Mil. US$ Mil. US$ Mil. Units Bil. Bil. Mil. Tril. Bil. Units Bil. US$ Bil. Bil. US$ Mil. Units Thous. 2010 2010 10-Dec 10-Dec 10-Dec 2009 2010 2011 2010 11-Mar 11-Jun 2010 2010 2010 2010 2011 2011 2010 10-Dec

CURRENT MARKET: Life Cycle

Industry Growth
350 180 160 300 140 250 Number of Subscribers (Million) 120

200

100

150

80

60 100 40 50 20

0 1994

1995

1996

1997

1998

1999

2000

2001

2002

2003 Year

2004

2005

2006

2007

2008

2009

2010

2011

0 2012

Subscribers

US Population

Revenue

Revenue (Bil$)

CURRENT MARKET: Life Cycle

350

Industry Growth Typical Lifecycle

180

160 300 140 250 Number of Subscribers (Million) 120

200

100

150

80

60 100 40 50 20

0 1994

1995

1996

1997

1998

1999

2000

2001

2002

2003 Year

2004

2005

2006

2007

2008

2009

2010

2011

0 2012

Subscribers

US Population

Revenue

Revenue (Bil$)

CURRENT MARKET: Life Cycle

Industry Growth
350 180 160 300 140 250 Number of Subscribers (Million) 120

200

100

150

80

60 100 40 50 20

0 1994

1995

1996

1997

1998

1999

2000

2001

2002

2003 Year

2004

2005

2006

2007

2008

2009

2010

2011

0 2012

Subscribers

US Population

Revenue

Revenue (Bil$)

CURRENT MARKET: Major Players

Major Players
108.7 Million 103.2 Million 51 Million 34 Million 17.75 Million 9 Million 6 Million 6 Million 32.4% 30.7% 15.2% 10.1% 5.3% 2.7% 1.8% 1.8% CDMA GSM CDMA GSM GSM/CDMA CDMA CDMA CDMA

CURRENT MARKET: Major Players

Major Players
108.7 Million 32.4% CDMA vs. 103.2 Million 30.7% GSM CDMA Cellular Networks GSM
GSM Global System for Mobile Communications: Standard 51 Million 15.2% World top 15 World carriers use GSM
Serve 80% of the global market

CDMA GSM

34 Million

10.1%

CDMA Code Division Multiple Access: Differentiation inMillion its use of Multiple Access, allows 17.75 5.3% GSM/CDMA
different users to share the same physical channel

9 Million 6 Million 6 Million

2.7% 1.8% 1.8%

CDMA CDMA CDMA

CURRENT MARKET: Major Players

Major Players - Carriers

108.7 Million 103.2 Million 51 Million 34 Million 17.75 Million 9 Million 6 Million 6 Million 32.4% 30.7% 15.2% 10.1% 5.3% 2.7% 1.8% 1.8% CDMA GSM CDMA GSM GSM/CDMA CDMA CDMA CDMA

CURRENT MARKET: Major Players

Major Players Cell Phones

Vendor Nokia Samsung LG Apple ZTE Research In Motion HTC Motorola Huawei Device Sony Ericsson Others 2Q11 Units 2Q11 Market 2Q10 Units 2Q10 Market Share (%) Share (%) 97,869.3 22.8 111,473.7 30.3 69,827.6 24,420.8 19,628.8 13,070.2 12,652.3 11,016.1 10,221.4 9,026.1 7,266.5 153,662.1 428,661.2 16.3 5.7 4.6 3.0 3.0 2.6 2.4 2.1 1.7 35.8 100.0 65,328.2 29,366.7 8,743.0 6,730.6 11,628.8 5,908.8 9,109.4 5,276.4 11,008.5 103,412.6 367,986.7 17.8 8.0 2.4 1.8 3.2 1.6 2.5 1.4 3.0 28.1 100.0

Total

CURRENT MARKET: Industry Changes

Innovation
Applications Mobile App downloads will increase to 25 Bil. in 2015 from 2.6 Bil. in 2009 1 in 4 American adults actively use apps By 2016 more than 44 billion apps will have been downloaded 270 Mil. data capable devices were in the hands of consumers >630 Different handsets 35% of Americans own smartphones Over 40,000 wireless-related patents in the last 20 years Wifi/hybrid cellphones - $19/month

Devices

Patents New Players

CURRENT MARKET: Industry Changes

Research & Development Patent

CURRENT MARKET: Industry Changes

Increasing Data Growth

CURRENT MARKET: Industry Changes

Spectrum Availability & Pipeline

As the demand increases, and the benefits are more compelling by the day, its all the more reason why unleashing more spectrum must be a national priority. Thats what I want to talk about today: four core reasons why spectrum is at the top of my agenda -- American competitiveness, opportunity, the enormous dollar benefits of freeing up spectrum and the enormous costs of delay. FCC Chairman Julius Genachowski International CTIA WIRELESS 2011 Show

CURRENT MARKET: Industry Changes

Virtuous Cycle
Spectrum is available

Consumers continue to consume & want more

Since networks can handle more

So app/content developers are creating new apps/content

Device manufacturers offer new capabilities

CURRENT MARKET: Industry Changes

Spectrum Auctions
Auctions generate billions of dollars in revenues to U.S. - 700 MHz and AWS 1 auction raised $30B for U.S. Taxpayers

PROFITABILITY
Profit Margin

Revenues

Profit Margin

Revenues

ATT merger with T-Mobile

In 2011 ATT (#2) made a $39 Bil. bid on TMobile (#4)
Would have extended 4G to 97.3% from 80% Fought off by Justice Department (who filed a federal antitrust lawsuit) and Sprint Would have delayed the spectrum shortage Ended Dec 19th 2011 After spending $4 Bil.

Five Forces Industry Competition

Threat of New Entrants

Bargaining Power of Suppliers

Rivalry Among Existing Competitors

Bargaining Power of Buyers

Threat of Substitute Products of Services

Five Forces Industry Competition

Bargaining Power of Buyers - Rising power due to increased number of telecom products Bargaining Very little Power of Buyers differentiation - Switching costs are low for residential customers, but may be high for corporations

Threat of New Entrants - Access to finance (high fixed costs) - Entrants are subject to financial state - FCC Still gives telecom licenses Threat of New - Good RadioEntrants spectrum

Bargaining Power of Supplier - Many vendors are availableBargaining (infrastructure, fiber opticPower cables,of Suppliers software,) - Limit on personnel, talented managers and engineers

Competitive Rivalry - Cut Throat Rivalry - New technology Among is creating substitute Existing services Competitors - Market is nearly at capacity

Threat of Threat of Substitute Products Substitute Products - Cable TV and Satellite compete of Services - Internet voice Internet telephony

Questions?