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WI Snapshot — Issue #64 Thursday 22 October 2009

Consumer loyalty patterns reflecting intense competition in mobile

New study highlights link between churn levels and multiple connections ownership

New research suggests that mobile consumers in Western Europe are displaying less loyalty than those in North
America by spreading their mobile connections across multiple operators. The new study, commissioned by Wireless
Intelligence, aims to identify the impact that multiple mobile connections per user is having on customer loyalty
patterns (a mobile connection is defined as either a SIM card or a unique mobile phone number in markets where
SIM cards are not used).

More than two thirds of users with multiple mobile connections in the US and Canada remained loyal to a single
mobile operator, while less than 40 percent of consumers in the ‘big five’ European markets (UK, France, Germany,
Italy and Spain) were likely to keep all their mobile connections with one operator.

The least ‘loyal’ market in the study was Italy - a market where the vast majority of consumers maintain more than
one mobile connection (around 1.77 SIM cards per user). According to the study, 81 percent of Italians spread their
mobile connections across different network providers with only 19 percent remaining loyal. This trend is magnified
by the absence of handset subsidies and the large prepaid connections base (prepaid accounted for 84 percent of
Italian mobile connections in 2Q09). This has led to a price war in the prepaid segment, which is driving down effective
price per minute and voice revenues. In order to differentiate and generate additional profits, Italian operators are
now focusing on value-added services and innovative propositions to push their brands forward. In this context, our
research also found that Italy has is approaching saturation with ‘real’ penetration currently at 85 percent - compared
to reported per-connections penetration at 151 percent. The study found that Italian women were less loyal than
men (83 percent compared to 78 percent), and that users in the 20 to 30 year age range were least likely to stay loyal
to a single operator.

In Germany and the UK, only a third of consumers with more than one connection are using the same network
provider for all their connections. These two countries average 1.4 SIM cards per user and real penetration has
reached just over 90 percent, suggesting user saturation is also forcing operators to address consumer needs and
increase marketing efforts. In order to fight churn and remain competitive, operators are being required to move
away from being a pipeline to deliver voice-centric propositions in order to focus on maximising VAS opportunities.

In Western Europe, total churn rates are reflecting intense competition in most markets, which has led to mobile
operators seeking to shore up or improve their market positions by constantly launching innovative offers in both
prepaid and postpaid segments. Churn levels in the region increased to 2.16 percent in 2Q09 from 1.97 percent
a year ago. Postpaid churn levels are more stable than prepaid mainly because mobile operators have developed
sophisticated customer loyalty programs to retain their high-value customers. They have also launched innovative
offers such as SIM-only offers - with monthly payments and no contracts - which help them to attract new customers
and balance their postpaid market share.

North America is currently displaying more customer loyalty than Europe due to unique market dynamics such as its
high proportion of postpaid customers and its relatively low level (by European standards) of multiple connection
ownership. Postpaid connections accounted for 82 percent of total connections in North America in 2Q09 and,
according to our research, users in the region maintain an average of 1.3 connections each. Prepaid connections
increased by 19 percent in the year to 2Q09, compared to just 2 percent postpaid growth over the same period.
This suggests that, while North American consumers currently appear more loyal than in Western Europe, this could
change in line with the growth in prepaid connections.

Joss Gillet, Senior Analyst, Wireless Intelligence: “The findings of our primary research highlight that mobile growth
in developed markets is being driven by demand and consumer needs rather than supply and technology. Over
the past few years, most operators in Western Europe have focused on attracting subscribers and pushing new
technology to them. Most of these markets have now reached user saturation and mobile operators have had to
drill into consumer segmentation and niche market opportunities to differentiate and re-invent traditional business
models. In Japan, for example, we have seen SoftBank disrupt a crowded and saturated market by rationalising and
simplifying its portfolio of services, which led to an increase in market share and profitability over the past two years.
In the UK, we have seen 3 and INQ partner to launch a number of handsets dedicated to specific social networking
tools such as Facebook, Twitter or Skype. More recently, Vodafone has announced the upcoming launch of Vodafone
360, a suite of services designed to “put the user in control.” These trends and radical changes in strategies clearly
confirm that mobile operators are willing to move away from a voice-centric delivery model to a model influenced
by media and data consumption. In order to do so, mobile operators and their partners will have to push their brands
forward and launch innovative propositions to re-direct the factors that underpin customer loyalty.”

Research conducted by Consumer Analysis Limited, August 2009

Consumer loyalty by market by multiple connections per user

Source: Wireless Intelligence

About Snapshot

Snapshot is a media service from the Wireless Intelligence team dedicated to delivering timely market intelligence and analysis for the
global mobile industry. Published every week, Snapshot is designed to offer an instant insight into the latest developments affecting
the fast-moving mobile market.

To speak to a Wireless Intelligence analyst on this week’s topic please e-mail: info@wirelessintelligence.com.

About Wireless Intelligence

Wireless Intelligence is a database on the global mobile market. It covers all mobile technologies and includes 2,215,000 individual
data points spanning 670 mobile network operators and 1300 networks in over 200 countries. It is the de facto industry tool for market
intelligence with a subscriber base of over 500 of the world’s mobile operators and leading equipment manufacturers.

Wireless Intelligence is part of GSM Media LLC, a wholly owned subsidiary of GSMC Limited, the organisation behind the GSMA Mobile
World Congress and GSMA Mobile Asia Congress. GSM Media also publishes the Mobile Business Briefing daily industry newsletter, and
the official Show Daily news publications at GSMA events.

For more information visit: wirelessintelligence.com or e-mail: info@wirelessintelligence.com.