Analysis: Global cellular market trends and insight, Q4 2011

© Wireless Intelligence 2012

Wireless Intelligence

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

© Wireless Intelligence 2012 2

World

Connections (million) Market penetration (%)Global mobile connections surpass 6 billion• 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

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)

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%

t2011

Technology split

2016

CDMA (Family)

LTE

OtherWCDMA (Family)GSM


Africa and Middle East

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

Number of Connections (million)

Total 811.1 908.4 943.6

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(million)

Total 35.0 27.5 35.3

Contract 2.1 4.3 2.7

Prepaid 32.9 23.1 32.4

Growth Rate, Sequential (%)

Total 5 3 4

Contract 2 4 3

Prepaid 5 3 4

Growth Rate, Year-on-Year (%)

Total 17 17 16

Contract 13 15 15

Prepaid 18 17 16

Market Penetration (%) 60 66 68

ARPU (US$) 11.62 10.81 10.89

2015

CDMA (Family)

LTEWCDMA (Family)GSM

2011

Technology split

2016


Africa and Middle East

Solid growth continues despite economic and political troubles

Steady connections growth overall but several operators lose subscribers• Of the 236 operators active in the Middle East/Africa at the end of Q3 2011,

206 saw positive quarterly net additions representing a total of 37.3 million connections, while 28 operators recorded subscriber losses totalling 2 million

• Egypt saw the highest absolute connections growth adding 3.65 million in the quarter, followed by South Africa (2.87 million) and Iran (2.80 million)

• In terms of operators, MCI (TCI) Iran again witnessed the largest subscriber gain in the quarter (1.62 million); Vodafone Egypt was next (1.58 million)

• We expect a broadly similar level of growth in Q4, with total connections for the region increasing by 35.4 million to 979 million

Airtel plans 3G rollout across Africa while Kuwait gets LTE network• October was a busy month for 3G launches in Africa, with WCDMA networks

going live for MTN and NetOne in Swaziland and Zimbabwe respectively, and new HSPA+ (Etisalat) and EV-DO Rev. B (Starcomms) networks in Nigeria

• October also saw Airtel (Bharti Airtel) launch HSPA+ in Congo (Brazzaville), and the operator has signed a deal with vendor NSN to develop further 3G networks in Kenya, Madagascar, Malawi, Tanzania, Uganda and Zambia

• Viva (KTC) was the first operator to launch LTE in Kuwait during December

Arab Spring effect continues to reshape the industry in North Africa• Etisalat’s (Egypt) IPO was postponed due to economic and political

uncertainty• The Algerian government is to nationalise its largest operator Djezzy by

acquiring a 51% stake, but is set to keep VimpelCom on as operator• A national holding company will be set up in Tunisia to manage the 25%

stake in Tunisiana and the 51% share in Orange Tunisia that were seized by the government from the family of the ousted President Ben Ali

Operators move to sell off infrastructure as economic slowdown bites• Orange (France Telecom) and Etisalat have both sold towers in African

markets• Bahrain’s Batelco is also reported to be looking at a sale and lease-back deal

for its tower assets in Bahrain and Jordan

Insight: Price wars ending in Africa as data becomes new battleground

The intense competition on voice tariffs that has typified the East African mobile markets over the past year or so looks to be easing. In Tanzania, regulator TCRA has even come under pressure to cap voice prices, a situation which would have been unimaginable just six months ago when the country had one of the lowest tariffs in the whole of Africa - in some cases as little as TZS1 (US$0.0006) per second. However, market shares remain largely unchanged from a year ago despite the period of frenetic discounting, and a number of operators have cancelled promotions in recent months. Subsequently, Tanzanians are now facing a rise in mobile phone tariffs at a time of rising inflation and currency depreciation.

As recently as June 2011, Warid Telecom (Abu Dhabi) in Uganda charged just UGX1 (US$0.0004) per second while competitor UT Mobile (Uganda Telecom) offered unlimited on-network calls all day for UGX500 (US$0.21). However, in September market leader MTN moved to prevent the industry from self-destruction by doubling its tariff to UGX4 (US$0.0017) per second for on-net calls. Second-placed Airtel (Bharti Airtel) quickly followed suit. As in Tanzania, while such price increases were essential, they have come about at a time of rising fuel and food prices and thus will not guarantee increased revenues.

Operators in these markets can look to Safaricom in neighbouring Kenya, which has also been in the midst of a price war since Airtel took control of Zain’s African operations in 2010 and promptly halved its voice tariffs from KES6 (US$0.07) to KES3 (US$0.04) per minute – subsequently doubling its subscriber base in the space of six months. Yet a further price cut to just KES1 (US$0.01) per minute at the start of 2011 failed to make further inroads into Safaricom’s market share, despite the market leader’s refusal to drop its own tariffs in line with its competitor. Instead, Safaricom remained competitive by launching daily low-denomination data bundles to make it more affordable to access the internet, engaging the youth market through internet media and social networking and expanding its M-PESA mobile payment system. Although Safaricom’s voice revenue continues to decline (down 5.5% yoy in Q3 2011), 30.4% and 49.3% rises in data and M-PESA revenues, respectively, continue to contribute to positive total revenue growth, and data subscribers are up by 43% over the same period to 5.1 million.


Americas



Total 545.3 596.7 614.5

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


Total 13.2 14.4 17.8


Prepaid 9.3 10.1 12.9


Total 2 2 3

Contract 4 4 4

Prepaid 2 2 3


Total 11 12 13

Contract 16 18 18

Prepaid 10 11 12


ARPU (US$) 13.52 13.21 13.38

CDMA (Family)

LTE


2011 2016

Technology split


Americas

Data networks support the next wave of growth opportunities

Faster cellular growth driving encouraging revenue trends• Year-on-year, the Americas grew total connections by 13% in Q3 2011 – the

third-fastest growing region globally• The Americas is the second-fastest growing region annually in terms of

WCDMA/HSPA connections; rising 86% in Q3 2011• During Q3 2011, ARPU grew by US$0.27, compared to a global decline of

US$0.02

Faster migration to next-generation networks, away from CDMA• Operators are speeding up the migration away from CDMA2000 (1X, EV-DO,

Rev. A) connections to WCDMA/HSPA and LTE networks• CDMA2000 connections fell from 6% of total regional connections in Q4 2009

to 4% in Q4 2010 and 2% in Q4 2011• CDMA connections declined by 17.5 million between Q4 2009 and Q4 2011• There were 64 million WCDMA/HSPA net additions during the same period• In December, Movistar (Telefónica) closed its CDMA2000 1X network in

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

June 2012

Faster deployments of HSPA+ and LTE networks continues• During the second half of 2011, operators deployed HSPA+ in 12 markets:

Argentina, Aruba, Bahamas, Barbados, Brazil, Cayman Islands, Chile, Curaçao, Ecuador, Panama, Paraguay and Peru

• LIME (Cable & Wireless) is rolling out HSPA+ in 12 markets across the Caribbean in partnership with Ericsson

• In Q4 2011, three operators commercially launched the first LTE networks in the Americas: UNE (EPM) in Colombia, AT&T Mobility in Puerto Rico and Ancel (Antel) in Uruguay

Insight: LTE spectrum auctions act as prerequisite to data revenue growth

High connections growth in the Americas is driving operators’ revenue: Telefónica reported that the region remains the group’s main growth engine and the largest contributor to consolidated revenues (46%), while America Móvil reported that good economic momentum kept subscriber and top line growth in the region at sound levels.

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 offsetting the lower contribution by Telefónica Spain (-2.1pp) and Telefónica Europe (-0.2pp).

Telefónica noted that, in the Americas, mobile broadband and contract segments have sequentially increased their importance, representing 9% and 21% of group total connections respectively in Q3 2011. Similarly, America Móvil observed that the expansion of its 3G network coverage and data capabilities led to its contract base growing twice as fast as its prepaid base in Q3 2011.

To sustain the next wave of network deployments in the region, spectrum is 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 in December. Anatel plans to launch three separate spectrum auctions this year in various bands: 2500 MHz to support LTE deployments, 450 MHz spectrum to provide rural coverage, and further capacity in the 3500 MHz band.

Similarly, Chile launched its LTE spectrum auction in November. The country’s regulator, Subtel, is auctioning three 20MHz blocks in the 2600 MHz band with a maximum of one block to be awarded to each applicant. Meanwhile, following the auction of 1900 MHz spectrum in August, Colombia’s MinTic announced in January 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.


Asia Pacific



Total 2,463.3 2,817.4 2,908.5

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


Total 113.5 104.2 91.1

Contract 12.2 12.8 13.8

Prepaid 101.3 91.4 77.4


Total 5 4 3

Contract 3 3 3

Prepaid 5 4 3


Total 23 20 18

Contract 11 12 12

Prepaid 27 22 19


ARPU (US$) 11.13 10.15 9.81

CDMA (Family)

LTE

TD-SCDMAOtherWCDMA (Family)

GSM

2011 2016

Technology split


Asia Pacific

Operators expanding 3G network coverage

China paves the way for LTE with network capacity expansion• China Telecom has partnered with Alcatel-Lucent to expand its 3G coverage,

doubling the capacity of its existing network• China Unicom has signed an agreement with ZTE to improve its 3G network

capacity, including new transmission equipment in 15 provinces

HSPA gaining traction in SE Asia • In Indonesia, Axis has partnered with Huawei to expand its HSPA network to

45% of its footprint, adding 5,000 cell sites of which 4,000 are WCDMA/HSPA• In South Korea, all three operators – KT, SK Telecom, LG Uplus – expect to

have nationwide LTE coverage by the end of H1 2012• In Malaysia, DiGi has expanded its 3G network, covering around 46% of

Sabah’s population• In the Philippines, both Smart (PLDT) and Globe Telecom claimed that their

HSPA network roll-outs doubled during H2 2011• Smart increased its number of HSPA+ base stations from 500 to over 1,200

between September and October 2011

Network investment across the region • In the Philippines, Next Mobile (ICTV) has partnered with Huawei to roll out

its network infrastructure nationwide; ICTV is reportedly planning to invest up to US$915,000 over the next two years for the rollout of Next Mobile

• 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 installed over 1,000 HSPA+ cell towers

• Competitor Vibo Telecom will invest US$66 million for the roll out of 7,000 3G base stations this year and has reportedly planned the procurement of close to 300,000 smartphones, including low-tier models priced at US$135

Insight: Data traffic offload solution on the horizon

Between July 2011 and January 2012, five operators launched LTE in Asia Pacific - all three South Korean operators, Telstra in Australia and SingTel in Singapore. LTE networks have been launched in the 800 MHz, 1800 MHz and 1800/2600 MHz bands, which has increased regional LTE spectrum fragmentation (NTT Docomo and Smart (PLDT) having already launched LTE in the 2100 MHz band).

Data traffic offload is a hot topic with many operators in the region looking into Wi-Fi hotspots as an immediate solution. Yet, in markets like South Korea, the co-existence of LTE with legacy networks through multi-mode devices will play an important role. KT recently announced that LTE will offload WCDMA traffic from H2 2012; from 2013, LTE and WCDMA will carry similar levels of traffic; from 2014 onwards, LTE traffic will surpass WCDMA traffic. In parallel, the operator has redefined its WiMAX strategy, boosting investment and device procurement to allow WiMAX to offload some of the LTE data traffic. The need for interoperability between WiMAX and LTE smartphones is likely to also be a challenge for Japan’s KDDI, which has recently introduced six new WiMAX devices including one Wi-Fi router and a tablet with a view to “promote data offloading”.

According to our latest forecasts, South Korea will migrate half of its user base to LTE networks by late 2014, compared to early 2017 for Japan. Both markets are setting an early regional benchmark for multi-mode devices as a solution against their congested data networks.

Meanwhile, China crossed the 200 million 3G connections mark in Q4 2011, with 3G now accounting for 22% of the country’s connections base. China’s 3G growth has been triggered by network expansion and the rapid adoption of smartphones. The country’s regulator (MIIT) announced that there were around 814,000 3G towers 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.


Eastern Europe



Total 504.2 519.7 529.0

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


Total 7.9 8.2 9.3


Prepaid 6.6 6.8 7.8


Total 2 2 2

Contract 1 1 1

Prepaid 2 2 2


Total 5 5 5

Contract 9 5 5

Prepaid 4 5 5


ARPU (US$) 10.59 10.27 10.48

CDMA (Family)

LTE


2011 2016

Technology split


Eastern Europe

Regulators plot additional spectrum auctions in 2012

Highest number of subscriber net additions for two years• Over 9 million connections added in Q3 2011 with over one third in Russia• More than 1 million net adds in both Kazakhstan and the Ukraine in Q3• Only 19 operators reported subscriber connection declines

Polish telecom landscape reshaped• Sale of Poland’s Plus (Polkomtel) to Zygmunt Solorz-Zak completed in

November while Aero2 was acquired by NFI Midas in December• TeliaSonera to acquire a further 49% of Kcell Kazakhstan ahead of an IPO• 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

government holding in MTS Belarus delayed after offers deemed too low• Rostelecom moving forward with plans to acquire SkyLink

Russian operators form two LTE camps• Yota (Scartel) reached agreements with MegaFon and Rostelecom to utilise

their infrastructure to launch its Russian LTE network, while VimpelCom and MTS have agreed to a joint LTE infrastructure rollout

• During December VivaCell (MTS) Armenia launched LTE in Yerevan, while Yota Belarus launched LTE in Minsk and Grodno

• Orange (France Telecom) Romania and Si.Mobile (Telekom Austria) Slovenia both launched 42 Mb/s dual-carrier HSPA+ networks in October

• IT CDMA (Intertelecom) Ukraine launched 14.7 Mb/s EV-DO Rev. B in October – the first Rev. B network to be deployed in Eastern Europe

• Azercell and Bakcell both launched 3G services in Azerbaijan in November

Spectrum sale plans move ahead though new entrants appear wary• Spectrum auctions planned during early 2012 in Hungary, Latvia, Lithuania

and Slovakia• Auction of additional licence for a new entrant in Bulgaria cancelled due to

lack of interest• Albania plan to award a third 3G licence in Q1 2012

Insight: Polish billionaire helps define global LTE deployment plans

Until recently, few in the telecoms industry would have known much of Zygmunt Solorz-Zak. That changed when he was declared the winner of the auction of Plus (Polkomtel), sold by a consortium of investors including Vodafone for PLN15.1 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, adding to his less high-profile controlling interests in NFI Midas (the owner of CenterNet Mobile, Mobyland and Aero2) and quad-play provider Cyfrowy Polsat. NFI Midas also recently completed the acquisition of Aero2, following on from its acquisition of Mobyland (itself previously controlled by Aero2) in June.

Through his various mobile interests, Solorz-Zak has set a number of industry milestones and has been at the forefront of a number of trends during the year. 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 the world’s first TD-LTE network back in May. Meanwhile, CenterNet Mobile and Mobyland have been pioneers of LTE technology since jointly launching LTE services in September 2010. At the time they were responsible for the first 1800 MHz LTE deployment in the world, yet the 1800 MHz spectrum band has since been utilised for LTE deployments by 14 further operators across the globe and is increasingly being seen as one of the primary LTE deployment bands.

Until recently the CenterNet Mobile/Mobyland LTE network was mainly used by Solorz-Zak’s Cyfrowy Polsat via an MVNO agreement. However, in a demonstration of his growing influence in the Polish telecoms market, in late November Plus launched LTE services using the CenterNet Mobile/Mobyland network - thus becoming the first major Polish operator to provide LTE services. Plus also implemented network sharing with Aero2 to extend its HSPA+ coverage using Aero2’s 900 MHz spectrum, supplementing its existing 2100 MHz coverage. During 2011 Solorz-Zak has helped achieve a number of industry breakthroughs while putting together a highly complementary group of mobile assets. The Plus purchase will give him the ability to leverage these with his media content and distribution interests held by Cyfrowy Polsat. It will pay to watch what Solorz-Zak has in store for 2012.


Western Europe



Total 519.3 529.8 535.7

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


Total 3.4 1.9 5.9


Prepaid -0.6 -0.2 2.3


Total 1 0 1

Contract 2 1 1

Prepaid 0 0 1


Total 1 3 3

Contract 7 5 5

Prepaid -5 0 1


ARPU (US$) 32.71 30.90 30.95

CDMA (Family)

LTE


2011 2016

Technology split


Western Europe

LTE deployments and spectrum auctions dominate operator strategies

LTE gathers momentum as initial markets see universal deployments• 15 commercial LTE networks launched in W. Europe by end 2011 (close to

one third of global deployments), including four launches during Q4 2011• Finland and Sweden first to see all major operators offering LTE• All live LTE networks currently utilise the 2600 MHz spectrum band either

solely or in combination with 800 MHz and/or 1800 MHz spectrum bands

France Telecom announces first disposal, further market consolidation expected• Sale of Orange Switzerland to Apex agreed for CHF 2 billion (EUR 1.6 billion),

joining rival Sunrise in private equity hands; future merger possible• Reports that 3 (Hutchison) is to acquire Orange Austria and planned disposal

of some assets to A1 Telekom (Telekom Austria), including Yesss!• Meanwhile, investor Ronny Pecik acquired a 16% stake in Telekom Austria

in November with the backing of Orascom founder Naguib Sawiris, amid speculation of further corporate activity

• Merger discussions between Vodafone and WIND Greece continue

LTE launches feature in network upgrades• 3 (Hutchison) Sweden launched a dual-mode FDD/TDD LTE network in

Stockholm, Gothenburg and Malmo during December• TDC Denmark launched LTE in the country’s ten largest cities in October

while 3 (Hutchison) Austria launched LTE in Vienna in November• 3 Austria also launched to 42 Mb/s dual-carrier HSPA+ while dual-carrier 42

Mb/s HSPA+ and LTE were deployed by DNA Finland in December• Telenor launched 21 Mb/s HSPA+ in Norway during October

Spectrum auctions continue to meet government financial expectations• Italy auctioned 900/1800/2600 MHz spectrum raising EUR 3.9 billion, while

France raised EUR 2.6 billion from the auction of 800 MHz spectrum and Sweden awarded 1800 MHz spectrum for SEK 3.9 billion (EUR 429 million)

• Greece picked up EUR 380 million for 900/1800 spectrum, while Belgium sold 2600 MHz spectrum for EUR 78 million

Insight: The party is over for SMS as messaging goes over the top

In October the Dutch regulator OPTA published data that confirming what many operators had feared for some time – that the traditional operator cash-cow of messaging appears to have peaked in the face of competition from OTT messaging services from BlackBerry, Facebook and Twitter. OPTA noted that H1 2011 was the first six-month period in which the number of SMS messages sent 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 and Portugal suggesting the start of a wider trend rather than simply a blip.

If there was any remaining doubt then data from operators over the traditional Christmas/New Year peak messaging period puts it largely beyond question. Figures published by Finnish operators showed marked declines in SMS volumes. Customers of Sonera sent 8.5 million SMS messages on Christmas Eve 2011 (down from 10.9 million in 2010, a 22% decline) while DNA subscribers sent 5.6 million (down from 5.9 million, a 5% fall). Developed Asian mobile markets also showed significant declines with Hong Kong regulator OFTA reporting 21.6 million SMS 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 regulator KCC found 68% of smartphone subscribers claimed they use SMS less than previously, highlighting the challenges European operators are likely to face.

However, it is not all bad news for operators as the OPTA Netherlands figures also confirmed that the revenue from data services exceeded that from messaging for the first time. Figures from Telia Sweden also highlighted the growing impact smartphones are having on customer behaviour, as visits to Facebook and Twitter 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 customers used 600% more data on New Year’s Eve in 2011 than they did the year before. Total data usage on the network was 80 TB, up from 14 TB on the same day in 2010, and usage was also up on New Year’s Day, hitting 74 TB compared to 14 TB in 2011. These rates of data traffic growth highlight why operators are currently focussed on deploying LTE networks.


USA/Canada



Total 329.9 352.1 359.5

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


Total 6.6 6.5 7.5


Prepaid 1.1 1.3 1.4


Total 2 2 2

Contract 1 1 1

Prepaid 2 2 3


Total 7 9 9

Contract 3 2 2

Prepaid 23 14 15


ARPU (US$) 50.31 49.79 50.18

CDMA (Family)

LTE


2011 2016

Technology split


USA/Canada

Smartphone demand goes into overdrive in USA

AT&T adds 2 million new subscribers while Canada passes 75% penetration• Of the 32 operators active in the region at the end of Q3 2011, 27 witnessed

positive quarterly net additions representing a total of 7.56 million connections, while 5 operators recorded subscriber losses totalling 108,000

• AT&T saw the highest absolute connections growth adding 2.12 million in the quarter, followed by Clearwire (1.89 million) and Verizon (1.40 million)

• The trend continued for Q4 2011 with Verizon and AT&T reporting strong net additions (1 million and 2.5 million respectively), driven primarily by smartphones (out of an estimated regional total of 7.2 million net additions)

• Market penetration passed 75% in Canada during Q3, compared to 106% in US

Launch of iPhone 4S in October further boosts smartphone sales• iPhone sales for Verizon jumped from 2.0 million in Q3 to 4.3 million in Q4, as

total smartphone sales for the quarter hit 7.7 million• AT&T sold more than 1 million iPhone 4S handsets in the week after launch

and 7.6 million iPhones (the majority being the 4S) during the quarter• A total of 9.4 million smartphones sales - 56.8% of AT&T contract subscribers

are now smartphone users and 80% of new contract sales are smartphones• At the end of Q3, T-Mobile reported 10.1 million smartphone users (30%

penetration) compared to 7.2 million a year previously, while MetroPCS also reported 30% smartphone penetration

Fourth LTE network goes live in USA• Cricket (Leap Wireless) launched LTE in Tucson, Arizona in December• Plans to deploy LTE networks have also been announced by Sprint, Clearwire,

Alaska Communications, C-Spire Wireless, SaskTel, SpeedConnect, United Wireless, MTS Wireless, O2 Secure Wireless and Pioneer Cellular

• In September, MetroPCS began deploying EV-DO Rev. A in around 20% of its cell sites to augment its existing CDMA2000 1X service

Canadian ARPU up due to seasonal effects• Blended ARPU in Canada saw a quarterly increase to US$60 in Q3• At the regional level, blended ARPU remained stable year-on-year at US$50

Insight: Verizon embraces LTE while T-Mobile slips away from AT&T

It looks as though a clear LTE front-runner has emerged in in the USA in the shape of Verizon Wireless. Although Verizon was not the first operator to launch LTE in the country (that honour goes to second-tier player MetroPCS), in just under 13 months since launching the network it has expanded coverage to 194 cities and 122 major airports, covering 200 million people. Alongside tablets, notebook computers, Wi-Fi routers and USB modems, the operator is now able to offer ten LTE-compatible smartphones, having launched three new models during Q4 2011 - the HTC Rezound, Motorola Droid Razr and Samsung Galaxy Nexus - and is currently tempting customers to migrate to the new technology with a ‘double data’ promotion only available on LTE models, with plans ranging from 4GB for US$30 per month to 20GB for US$80 per month.

These efforts have helped Verizon to take full advantage of getting its launch in ahead of primary competitor AT&T (who deployed their first LTE networks in September 2011) - and the operator passed the 5 million LTE subscriber milestone in Q4 2011. Subsequently the new technology accounts for an estimated 5% of Verizon’s total customer base, a fairly rapid migration when compared to the early days of the operator’s EV-DO network, which only represented 3% of the operator’s total after its first year. Indeed we estimate that at 6.4 million connections in Q4, LTE accounted for 2% of total connections in the USA (only in South Korea is LTE penetration higher) with Verizon making up 84% of those. Subsequently we 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.

There was further bad news for AT&T in Q4, when the Federal Communications Commission (FCC) published a report that was highly critical of its proposed US$39 billion takeover of T-Mobile USA – originally tabled in March 2011. With the US Department of Justice already having filed an antitrust lawsuit to block the deal, the operator was eventually forced to withdraw the offer for its rival - and pay out 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, however the FCC has since approved the operator’s US$2 billion purchase of spectrum in the 700MHz band from microchip-vendor Qualcomm.


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Analysis: Global cellular market trends and insight, Q4 2011

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