S&P2

Industry Surveys
Telecommunications: Wireless
James Moorman, CFA, Wireless Telecom Services Analyst January 20, 2011

Current Environment ............................................................................................ 1 Industry Profile .................................................................................................... 10 Industry Trends ................................................................................................... 13 How the Industry Operates ............................................................................... 20 Key Industry Ratios and Statistics................................................................... 26 How to Analyze a Wireless Telecom Company ............................................ 28 Glossary................................................................................................................ 33 Industry References........................................................................................... 36 Comparative Company Analysis ......................................................... Appendix
This issue updates the one dated July 22, 2010. The next update of this Survey is scheduled for July 2011.

CONTACTS: INQUIRIES & CLIENT RELATIONS 800.852.1641 clientrelations@ standardandpoors.com MEDIA Michael Privitera 212.438.6679 michael_privitera@ standardandpoors.com REPLACEMENT COPIES 800.852.1641 Standard & Poor’s Equity Research Services 55 Water Street New York, NY 10041

Topics Covered by Industry Surveys
Aerospace & Defense Airlines Alcoholic Beverages & Tobacco Apparel & Footwear: Retailers & Brands Autos & Auto Parts Banking Biotechnology Broadcasting, Cable & Satellite Chemicals Communications Equipment Computers: Commercial Services Computers: Consumer Services & the Internet Computers: Hardware Computers: Software Computers: Storage & Peripherals Electric Utilities Environmental & Waste Management Financial Services: Diversified Foods & Nonalcoholic Beverages Healthcare: Facilities Healthcare: Managed Care Healthcare: Products & Supplies Heavy Equipment & Trucks Homebuilding Household Durables Household Nondurables Industrial Machinery Insurance: Life & Health Insurance: Property-Casualty Investment Services Lodging & Gaming Metals: Industrial Movies & Entertainment Natural Gas Distribution Oil & Gas: Equipment & Services Oil & Gas: Production & Marketing Paper & Forest Products Pharmaceuticals Publishing & Advertising Real Estate Investment Trusts Restaurants Retailing: General Retailing: Specialty Savings & Loans Semiconductor Equipment Semiconductors Supermarkets & Drugstores Telecommunications: Wireless Telecommunications: Wireline Transportation: Commercial

Global Industry Surveys
Airlines Autos & Auto Parts Banking Food Retail Foods & Beverages Media Oil & Gas Pharmaceuticals Telecommunications Tobacco

Standard & Poor’s Industry Surveys
55 Water Street, New York, NY 10041
E XECUTIVE E DITOR : E ILEEN M. B OSSONG -M ARTINES A SSOCIATE E DITOR : C HARLES M AC V EIGH S TATISTICIAN : S ALLY K ATHRYN N UTTALL

C LIENT S UPPORT : 1-800-523-4534. ISSN 0196-4666. USPS N O . 517-780. V ISIT THE S TANDARD & P OOR ’ S W EBSITE : http://www.standardandpoors.com
STANDARD & POOR’S INDUSTRY SURVEYS (ISSN 0196-4666) is published weekly. Annual subscription: $10,500. Please call for special pricing: 1-800-852-1641, option 2. Reproduction in whole or in part (including inputting into a computer) prohibited except by permission of Standard & Poor’s. Executive and Editorial Office: Standard & Poor’s, 55 Water Street, New York, NY 10041. Officers of The McGraw-Hill Companies, Inc.: Harold McGraw III, Chairman, President, and Chief Executive Officer; Kenneth M. Vittor, Executive Vice President and General Counsel; Jack F. Callahan, Jr., Executive Vice President and Chief Financial Officer; John Weisenseel, Senior Vice President, Treasury Operations. Periodicals postage paid at New York, NY 10004 and additional mailing offices. Postmaster: Send address changes to Standard & Poor’s, Industry Surveys, Attn: Mail Prep, 55 Water Street, New York, NY 10041. Information has been obtained by Standard & Poor’s INDUSTRY SURVEYS from sources believed to be reliable. However, because of the possibility of human or mechanical error by our sources, INDUSTRY SURVEYS, or others, INDUSTRY SURVEYS does not guarantee the accuracy, adequacy, or completeness of any information and is not responsible for any errors or omissions or for the results obtained from the use of such information. Copyright © 2011 Standard & Poor’s Financial Services LLC, a subsidiary of The McGraw-Hill Companies, Inc. All rights reserved. STANDARD & POOR’S, S&P and S&P 500 are registered trademarks of Standard & Poor’s Financial Services LLC. S&P MIDCAP 400 and S&P SMALLCAP 600 are trademarks of Standard & Poor’s Financial Services LLC.

CURRENT ENVIRONMENT
Wireless industry: growth should continue, despite a high penetration rate
The wireless penetration rate in the United States hit 93% by the end of June 2010, and we believe it has increased since then. Despite the high level of penetration, the US wireless market continues to grow (albeit at a slower rate), rising from roughly 91% at year-end 2009 and approximately 66% at the end of June 2005, based on subscriber estimates from industry group CTIA-The Wireless Association. (Penetration measures the subscriber base as a percentage of the total population.) While we expect postpaid subscriber growth to slow as the penetration rate approaches 100%, overall growth will continue well past 100% penetration, in our view, due in part to connected devices such as ereaders and gaming devices, as well as additional data plans for wireless devices such as media tablets. Wireless penetration exceeds 100% in various countries around the world: Argentina, for example, has a wireless penetration rate that we believe exceeds 120% and is still growing. As US service providers continue to tap into new markets, such as providing service to other devices, and as consumers use multiple devices, the US penetration rate may well exceed 100%. We note that subscriber growth has become a little more difficult to track, as many carriers now include connected devices and data plans in their subscriber counts. The trend throughout 2010 was slowing growth in postpaid users (which exhibit higher average revenue per user—ARPU—than other subscriber plans), but strong growth in prepaid subscribers and connected devices. We believe this trend will continue as the market penetration rate approaches 100% and new, high-speed 4G networks usher in continued innovation in connected devices. We believe that US wireless carriers will continue to look for growth through further consolidation, cost reduction measures, product innovation, and extensive capital investments to improve infrastructure and service. Media tablets and smartphones should drive data growth and transform the industry While we believe that service providers will continue to use smartphones to lure subscribers, we believe the arrival of higher-speed networks and media tablets will help to transform the industry in 2011. While Apple Inc. was the first to introduce a media tablet—the iPad—in April 2010, we believe the floodgates will open in 2011. The proliferation of media tablets and the continued technological advances in smartphones, along with the upgrade of wireless networks to 4G, will cause a dramatic change in the wireless landscape, in our view. It is our opinion that service providers will struggle with data pricing in the initial stages, as they look to balance network optimization with generating a respectable return on their 4G investments. In addition, the US government and service providers may face the quandary of scouring for wireless spectrum, which could become a rare commodity due to our expectations for a dramatic increase in data usage. The growth in wireless data transmission is a natural evolution as technology advances during the transition from 2/2.5G to 3G and now to 4G. In 2009, US wireless service revenues were just over $152.5 billion, up 3.0% from 2008, while wireless data revenues grew 28.5% to $41.5 billion and accounted for 27.2% of service revenue, up from 21.8% of service revenue at the end of December 2008, according to the CTIA. Wireless data continued its strong growth throughout the first nine months of 2010, with the majority of service providers seeing data increasing its share of service revenues. We believe that the proliferation of new wireless devices, such as tablets and higher-end smartphones, will help this trend continue. The wireless industry is on the verge of significant changes, in our view, due to the proliferation of data. Despite the economic slowdown, smartphone growth has continued at a rapid pace, due not only to the previously mentioned transition to 3G and 4G, but also to innovations such as high-end operating systems and new applications, and to the availability of more affordable smartphones. We believe the entry of prepaid carriers (with their less expensive price plans) into the smartphone arena will further the adoption of smartphones in the coming year.
INDUSTRY SURVEYS TELECOMMUNICATIONS: WIRELESS / JANUARY 20, 2011 1

The FCC may vote on several issues in the coming year The Federal Communications Commission (FCC) has been rather quiet under the leadership of Julius Genachowski, who was appointed by President Obama in 2009. However, there are several issues important to the president that could come to the forefront in 2011. Net neutrality is the hot button item that the FCC passed in late December 2010, although it could be challenged in 2011. This issue is highly topical given the increase in Internet usage via both wireless broadband and fixed broadband. The controversy centers on control of the Internet pipes by service providers, who in many cases compete with some of their customers. Other important issues include intercarrier compensation, the Universal Service Fund (which helps subsidize telecom service in rural areas), and wireless spectrum scarcity.

AT&T, VERIZON WIRELESS STILL REIGN, BUT GROWTH IS IN LOWER REVENUE-PRODUCING CONNNECTED DEVICES
AT&T and Verizon Wireless (a joint venture of Verizon Communications Inc. and Vodafone Group PLC) continued to increase their large lead over the rest of the wireless field in the third quarter of 2010, with a combined 64.7% of total wireless subscribers, up from 64.1% at the end of the first quarter. Their combined share of the postpaid market is even more dominant as the prepaid carriers gain prominence and other carriers continue to struggle at retaining postpaid subscribers. However, AT&T appears to be growing net additions more through connected devices and wholesale subscribers as postpaid subscribers accounted for 28% of AT&T’s third-quarter 2010 net additions, versus 66% in third-quarter 2009. During 2010, we think that the two carriers shifted tactics from attacking one another to refocusing their efforts on the buildout of their own 3G/4G networks and on populating their smartphone lineups. However, it remains to be seen how the two carriers will interact if Verizon Wireless introduces a version of the iPhone in early 2011. This could have a direct effect on AT&T’s ability to add subscribers and could end the peace. We believe that the continuing evolution and competition in the smartphone vendor market will reduce the frequency of exclusivity deals and give most of the larger carriers full access to new, cutting-edge smartphones. Further, we believe the entrance of prepaid carriers into the smartphone market with their low, all-inclusive prices could begin to have an impact on a price-conscious consumer that wants to migrate to a smartphone but doesn’t want to be tied down to a two-year contract. While AT&T and Verizon Wireless continue to have a commanding lead over the rest of the field, we believe this lead could begin to erode slowly over the next several quarters. AT&T got an incredible advantage over the rest of the field with an exclusive deal to sell, first, the revolutionary iPhone, and then the 3G iPhone (the latter for $199 on July 11, 2008). It followed these with the 3GS handset in late June 2009 and the 4GS in June 2010. However, we believe this exclusivity could end in early 2011. In our opinion, AT&T has done a good job in diversifying its handset portfolio with top items from other vendors and this should help lessen the blow. In terms of media tablets, vendors seem to be taking a more equal distribution approach, but it is still very early in the game. Apple has released the iPad to AT&T and Verizon Wireless, while Samsung has distributed its Galaxy Tab to most service providers in the US, including regional providers such as US Cellular Corp. We believe this strategy could prove smart, considering the onslaught of tablet introductions that we expect in 2011. In a like manner, we believe competition among handset vendors has allowed a more equal distribution of smartphones among the four national providers, with the current exception of the iPhone. In early 2010, HTC Corp. released three similar devices—HD2, Incredible, and EVO—with T-Mobile USA, Verizon, and Sprint Nextel, respectively. We believe this practice will become more the industry norm. Verizon has aggressively marketed the Motorola Droid (Android OS), and Sprint Nextel now offers several Android handsets. We believe competition among handset vendors could help level the playing field among the service providers.

2

TELECOMMUNICATIONS: WIRELESS / JANUARY 20, 2011

INDUSTRY SURVEYS

As of the third quarter of 2010, AT&T reported 92.8 million subscribers, while Verizon Wireless had 93.2 million. In that period, these two carriers also achieved the lowest churn rates among the national carriers: 1.36% for Verizon Wireless and 1.32% for AT&T. (Churn rate is the percentage of subscribers that terminate wireless service.) However, the gap between these two and the third and fourth players was significant. Sprint Nextel Corp. had 48.8 million subscribers and 1.93% retail postpaid churn, while No. 4 T-Mobile USA (the US operation of T-Mobile International AG & Co., which is owned by Deutsche Telekom AG) reported 33.8 million subscribers, with a 2.40% churn rate for postpaid subscribers (3.4% for all subscribers).

SPRINT NEXTEL: MAKING STRIDES AND PLANNING TO RESTRUCTURE ITS NETWORK
After losing roughly 3.5 million postpaid subscribers in 2009, Sprint Nextel is turning the corner, in our view. The company saw significant postpaid loss improvement in the second and third quarters of 2010. Postpaid subscriber losses improved from 578,000 losses in the first quarter of 2010 to 228,000 in the second quarter. It then went to 107,000 losses in the third quarter, but we believe the company will generate positive postpaid net additions in the first quarter of 2011. On the prepaid side, the company continues to do well, adding roughly 943,000 subscribers in the first nine months of 2010; we expect 1.393 million additions for full-year 2010. The company’s positive prepaid performance has been achieved in spite of large losses at its iDEN network: iDEN prepaid lost 700,000 subscribers in the third quarter of 2010 and 1.209 million in the first nine months. We believe the turnaround of Sprint Nextel’s prepaid segment began with the introduction in early 2009 of its Boost Mobile product on its iDEN network. Boost was the first in the prepaid side with an unlimited plan for $50 that included all taxes and fees; this plan has been very popular with customers. The company now offers this plan on its CDMA network, where it had a very strong first quarter of 2010, while the iDEN prepaid product lost 44,000 subscribers. Following the integration of Virgin Mobile, Sprint Nextel also expanded its prepaid offering with multiple brands. We believe that the company will have to continue to balance its attempt to resurrect its postpaid side while also building its prepaid base. In December 2010, the company announced a major restructuring of its network in a three-to-five-year network deployment schedule it calls Network Vision. The plan calls for the company to install multimode base stations that operate on Sprint’s various spectrums. This will allow it to consolidate to one network and to phase out its iDEN network starting in 2013. The new base stations will let the company use its more efficient 800 Mhz spectrum in more areas, allowing for greater spectrum efficiencies. Under the plan, Sprint plans to spend $4 billion–$5 billion over the next three to five years to achieve its goal and estimates it will reap $10 billion–$11 billion in cost savings. Sprint’s Push-To-Talk (PTT) service will be enhanced and will be launched on the CDMA network in 2011. The base stations will also be equipped with LTE head radios, allowing the possibility of a deployment of LTE if the company changes from WiMAX. Stay with 4G/WiMAX network or switch to LTE? In May 2008, Sprint Nextel announced another transformational plan—the combination of its WiMAX business with Clearwire Corp., a wireless broadband provider. (WiMAX is a wireless technology that provides broadband wireless connectivity to fixed and mobile users.) The deal was approved, and Sprint Nextel and Clearwire announced that the deal closed at the end of November 2008. With the closing of the deal, Sprint Nextel contributed its 2.5 GHz spectrum and its WiMAX-related assets, and the consortium of Intel Corp., Comcast Corp., Time Warner Cable Inc., Google Inc., and Bright House Networks LLC contributed a $3.2 billion investment. Sprint now has a 54% equity interest. However, Clearwire recently raised $1.2 billion in the sale of private debt and could require additional funding. To deal with its funding needs, Clearwire announced, on November 5, 2010, that it would lay off roughly 15% of its 4,200 employees, cut back on marketing and suspend the opening of new retail operations, and possibly sell excess spectrum. The company has launched in 68 markets and expected to cover 120 million people by the end of 2010. We believe Sprint Nextel is planning to continue using WiMAX as its primary 4G strategy, but the new Network Vision allows a backup plan for migrating to LTE, which could be a longer-term solution plan,
INDUSTRY SURVEYS TELECOMMUNICATIONS: WIRELESS / JANUARY 20, 2011 3

although we believe that step would require a significant investment. We believe WiMAX could ultimately be used for Clearwire’s customers and for wholesale purposes. Sprint continues to improvise with smartphones We believe Sprint Nextel has experienced success with its turnaround plan due in large part to its focus on improving its handset portfolio. In June 2010, the company launched the first 4G phone, the HTC EVO. This was just the beginning as the company continued to broaden its smartphone collection, which already includes high-end smartphones such as Android devices from HTC Corp. and Samsung, as well as nonAndroid smartphones from HTC, Samsung, Motorola, Palm, and Research In Motion Ltd. The HTC EVO was introduced with very positive reviews and was priced at $200 (following a $100 mail-in rebate) with a two-year contract. The EVO has been highly touted as the first 4G handset and includes many cutting-edge features, such as a 1 gigahertz (GHz) processor that makes the phone very fast in running applications. The handset also has a 4.3-inch screen that we believe is one of the largest on the market and an 8 megapixel (MP) camera and a 1.3MP front-facing camera that will allow video conferencing. The EVO also has Wi-Fi hotspot capabilities that allow it to connect up to eight Wi-Fi–enabled devices, a feature that we believe will become very important as media tablets become more prevalent. The company is advertising 4G speeds of over 10 megabits per second (Mbps) on the download, with average download speeds of 3–6 Mbps and peak upload speeds of up to 1 Mbps. Sprint Nextel continued to broaden its smartphone portfolio with the Blackberry Style featuring the new Blackberry 6 OS, the LG Optimus S featuring Android 2.2, and the Intercept and Transform, both from Samsung and running Android 2.1. We expect Sprint Nextel to continue to broaden its offering of smartphones throughout 2011 and to add additional WiMAX handsets to its 4G service. Sprint Nextel unveils new multibrand prepaid strategy We believe Sprint Nextel is starting to see strength again in its prepaid strategy following a disappointing 2010 second quarter. In November 2009, Sprint Nextel had made an aggressive move in terms of its prepaid strategy by acquiring the outstanding shares of Virgin Mobile USA Inc. that it did not already own for roughly $483 million in equity. Virgin Mobile was one of the larger prepaid providers, with some five million subscribers at the end of the second quarter of 2009 (most of which were prepaid, with some postpaid subscribers from its earlier acquisition of Helio). With the integration of Virgin Mobile, Sprint Nextel formed a new prepaid group and named Dan Schulman, former CEO of Virgin Mobile as president of the group. In May 2010, the company then unveiled its new prepaid strategy, organizing its operations into four distinct brands that will target distinct customer segments based on type of usage. The Virgin Mobile brand was maintained and will target data-intensive users with its “Beyond Talk” family plans that offer unlimited messaging and data, with a bucket of voice minutes ranging from 300 to unlimited for between $25 and $60 a month; the plans can be used with a Blackberry device for an additional $10 a month. Sprint Nextel will continue to offer its popular Boost Mobile plan offering unlimited voice, data, and messaging for $50 a month, including taxes and fees. In October 2010, the company added a loyalty program to the Boost plans that reduces the monthly $50 bill by $5 for every six on-time payments, up to a maximum discount of $15 per month. Its third brand is the new Assurance Wireless product that provides free wireless for eligible lowincome households and was available in markets in 12 states as of November 2010. The company will also provide its pay-by-the-minute prepaid program, which will be distributed through retailers in 16 markets. We believe the diversity of these offerings will allow Sprint Nextel to better compete in a competitive prepaid market.

T-MOBILE USA’S 4G BRANDING COUP AND ITS NEED FOR SPECTRUM
T-Mobile USA Inc. (the US operation of T-Mobile International AG, which is owned by Deutsche Telekom AG) added 137,000 subscribers in the third quarter of 2010, for a total of 33.8 million subscribers, up 1.0% from the year-ago period, largely due to prepaid net additions. This was the first quarter showing positive net additions since the fourth quarter of 2009, when the company rolled our its new pricing plans— “Even More” and “Even More Plus”—that provide unlimited voice, data, and text.
4 TELECOMMUNICATIONS: WIRELESS / JANUARY 20, 2011 INDUSTRY SURVEYS

We believe the company continues to struggle with the problem of how to differentiate itself from the other carriers. This resulted in postpaid losses of 60,000 in the third quarter, though the company’s results were helped by connected device net additions, which it includes with postpaid customers. The company continues to offer low-cost price plans and has undercut the major carriers in its pricing of mobile data. However, we believe the company needs to establish more of an identity: we expect competition to remain fierce with the national providers, and we believe the prepaid carriers are starting to steal T-Mobile’s thunder at the low end. Despite its late entry in the 3G race, T-Mobile is rapidly deploying the next evolution, known as HSPA+ (high-speed packet access plus), with plans to cover more than 100 metropolitan markets and 200 million people by the end of 2010. We believe a rapid move to HSPA+ will be vital, given the company’s late start with 3G and the need to offset some of the marketing blitz that will come as other service providers launch 4G technologies. As of September 30, 2010, the company had 7.2 million of its subscribers using smartphones, up from 2.8 million a year earlier. We believe the company has acquired a large selection of smartphones and has a large selection of Android smartphones. In addition, the company offers smartphones from Research In Motion, LG, HTC, Samsung, and Motorola. A rose by any other name T-Mobile has taken the aggressive step (in our opinion) of fighting other carriers’ 4G marketing blitz by labeling its HSPA+ network a 4G network, which we think has raised the ire of its competitors. We believe the company would be better served completing the rapid deployment of HSPA+ and then setting its sights on LTE, but it could be limited by the lack of spectrum. In our view, if T-Mobile is to better compete with the larger carriers and have the spectrum to roll out 4G, the company may need to grow through acquisitions. While acquiring a company like Sprint Nextel might do the trick, this may not be very likely due to potential Department of Justice and foreign ownership difficulties, and a weak bargaining position for Sprint Nextel. We think a more likely scenario would be for T-Mobile to acquire regional carriers or possibly some of the prepaid carriers. Prepaid carriers such as Leap Wireless and MetroPCS (as well as Sprint) offer the complexity of differing technologies. T-Mobile operates a GSM/GPRS/HSDPA/HSPA+ network, while Sprint Nextel operates a CDMA network. (GSM is a global system for mobile communications; GPRS is a general packet radio service; and HSDPA is high-speed downlink packet access.) While it may not seem feasible to wait for other carriers to convert to LTE, it is possible: MetroPCS is planning an aggressive LTE strategy and, by the time any potential deal would close, it may be largely complete. The other option would a network sharing or wholesale agreement. We believe that this could be a possibility with Clearwire, but there could be technology and handset issues. Whatever the solution, we believe that T-Mobile may need to act by the end of 2011, as other carriers begin to deploy LTE networks at a quicker pace and as higher-use devices such as tablets and smartphones begin to strain networks.

MEDIA TABLETS SHOULD ARRIVE IN FULL FORCE IN 2011
The introduction of Apple’s iPad on January 27, 2010, was well received and has spurred substantial demand for media tablets from consumers and, to a lesser extent, enterprises. While still a nascent technology, we believe tablet demand will reach a fevered pitch in 2011 as additional vendors introduce a wide selection of media tablets. Market research firm IDC estimates that 13.1 million devices shipped in 2010 worldwide and expects that number to more than double to 29.7 million units in 2011. Further, IDC estimates media tablet shipments will grow at a 44.7% compound annual growth rate (CAGR) worldwide between 2010 and 2014, and by 23.5% in the US in the same period. However, IDC expects the AsiaPacific region to be the fastest growing geographic region, at a 65% CAGR. While the tablet market is still in its infancy, we expect many manufacturers to begin releasing tablets in early 2011 in an attempt to win market share away from Apple’s iPad. In 2010, many tablets have entered the market but failed to make a significant impact, such as Hewlett-Packard Co.’s HP Slate, the ViewSonic ViewPad, and the Toshiba Folio. The tablet that we believe has provided the iPad with the greatest competition to date is the Samsung Galaxy Tab, a seven-inch wide device that runs on Android 2.2 and made it debut on September 2, 2010. As of December 9, 2010, Samsung had sold over one million tablet
INDUSTRY SURVEYS TELECOMMUNICATIONS: WIRELESS / JANUARY 20, 2011 5

devices, according to a company press release. In comparison, the iPad has sold over 7.5 million devices, as Apple Corp. stated in its September 2010 quarterly report. Both Research In Motion (RIM) and Hewlett-Packard Co. (HP) planned to launch tablet products in early 2011—the PlayBook tablet from RIM and the Palm Pad from HP. We believe others will follow with similar products. It is our opinion that many of the newer devices will attempt to break into the market by differentiating themselves from the iPad. For example, some manufacturers are utilizing two cameras, while the iPad doesn’t use a camera currently. Perhaps one of the most critical points of differentiation is the size of the screen. While some use a seven-inch screen, others have opted for screen sizes ranging between seven and 10 inches. While we believe the screen resolution plays a more significant role in the device, smaller screens may be better for MEDIA TABLET OVERVIEW, BY VENDOR storage purposes, while larger screens could be AT&T WIRELESS SPRINT T-MOBILE VERIZON US CELLULAR favorable for TABLETS Apple iPad Yes No No Yes No productivity. However, Connectivity Embedded/ … … Wi-Fi … we believe that Apple Wi-Fi will provide an updated Table B16: MEDIA Yes Galaxy Tab Yes Yes Yes Yes version of the iPad in Connectivity TABLET OVERVIEW, Embedded/ Embedded/ Embedded/ Embedded/ Embedded/ 2011 that could further BY VENDOR Wi-Fi Wi-Fi Wi-Fi Wi-Fi Wi-Fi raise the stakes.
DATA PLANS ($ per month)

While it is our opinion that media tablets are initially targeting the consumer market, it won’t be long before they begin to target the enterprise market. Apple has traditionally developed and released devices for the everyday consumer, who looks for innovative and fashionable products. As such, it is no surprise that consumers represent the majority of the tablet consumer market to date. IDC estimates that the consumer accounted for roughly 97.5% of tablets shipped in 2010, but expects to see a decline to 94.3% in 2011. We believe the enterprise market presents a significant market for tablet vendors, one they will rigorously pursue. However, penetration of this market, in our opinion, typically takes longer as companies must test the operating systems to make sure they have the adequate software security and can pass their internal IT requirements. We believe Apple is looking to penetrate this market. It would also make sense for RIM, given its tie to the enterprise market with its line of Blackberry smartphones. Likewise, in early 2011, we expect Cisco Systems Inc. to introduce the Cius tablet, a portable, business tablet that provides access to business applications and technologies. While we expect tablets to have a bigger impact on the consumer market in 2011, these new enterprise-oriented devices could have an impact as well. Similar to the case with smartphones, we believe that the use of particular operating systems (OSs) in media tablets could influence their purchase. We think that brand loyalty will have an impact: consumers that have had a favorable experience with a smartphone OS may allow that familiarity to play a part in their tablet purchase decisions. This is especially true with Apple consumers, who may require an OS that will allow them to access iTunes. The other determining factor is getting developers to agree to develop applications (apps) for the OS. Smartphone apps don’t transfer well to tablets, so entirely new apps need to be developed for tablets. This means that their adoption by developers is critical, as with smartphones. IDC estimates that the market share of the iOS (the iPad’s operating system) will decline from 88.0% in 2010 to 80.5% in 2011, while it expects Google’s Android share to increase from 11.8% in 2010 to 16.0% in 2011. We believe that 2011 will be the make-or-break year for many of the other OSs to claim a share of the market. We believe the adoption of media tablets will continue to drive data growth. These devices make it easier to surf the Internet, download movies and content, and watch streaming video. While many carriers used to offer unlimited data, we believe a substantial increase in usage will drive many carriers to adopt tiered pricing. This makes sense since, as usage increases, carriers will most likely have to make investments in
6 TELECOMMUNICATIONS: WIRELESS / JANUARY 20, 2011 INDUSTRY SURVEYS

200 MB 14.99* † 24.99 † 14.99 2GB 25.00 29.99 † ‡20.00/35.00 † 5GB 60.00 59.99 39.99 50.00 54.99 *For 250 MB. †No plan offered at this specific level, although other plans may be offered. ‡$20 for 1GB, $35 for 3GB. Source: Company reports.

their networks to maintain the same level of quality. In the near term, though, we believe the new pricing structures could confuse and frustrate consumers, as they may be hit with overage charges. We believe carriers that stick with unlimited usage or offer prepaid data plans could benefit in the near term. Media tablets typically connect to the Internet using Wi-Fi or with an embedded mobile broadband chip using either 3G or 4G technology. Subscribers can also access carrier networks for a fee, using a hotspot device with a Wi-Fi connection. We believe that initially consumers may opt for the Wi-Fi version, as it allows them to shop around for the best data price and possibly to switch carriers, rather than being tied to a two-year contract. However, some carriers are offering tablets with embedded devices at a discount along with a two-year contract. IDC estimates that 66.8% of tablets shipped in 2010 were Wi-Fi–only, but that this share will decline to 60.9% in 2011. We believe that subscribers will move to embedded mobile broadband over time as the costs of embedded mobile broadband modules decline and as subscribers become more comfortable with data plan pricing.

SMARTPHONES, MEGA SMARTPHONES CHANGE LANDSCAPE AND DEFY A DIFFICULT ECONOMY
We believe that growth in wireless handsets is slowing due to higher wireless penetration rates and a drawnout replacement cycle due in part to the unfavorable economic environment; however, strong growth in smartphones should bolster growth. In September 2010, market research firm IDC noted that it expected a 6.9% increase in 2011 for worldwide mobile phone shipments and a 7.5% compound annual growth rate (CAGR) for the period from 2009 to 2014. In the US, IDC ESTIMATED GLOBAL SMARTPHONE expected a 1.8% increase in 2011 and a 0.3% CAGR for MARKET SHARES 2009–14. The smartphone segment, however, provides a (Ranked by third-quarter 2010 market share) sharp contrast: IDC expected the worldwide converged MARKET UNIT device (smartphone) market to increase by 24.5% in 2011, --- SHARE (%) --- GROWTH with a five-year CAGR of 24.9%, with the US market Table Q3 '09 Q3 '10 B02: VENDOR (%) increasing by 28.3% in 2011, and a five-year CAGR of Nokia 32.7 61.6 ESTIMATED 38.3 21.0%. This is very significant, in our view, considering Apple 17.4 17.3 90.5 SMARTPHONE that smartphones tend to be more expensive, on average, Research In Motion 15.3 19.9 45.9 MARKET than typical handsets: the higher-end devices such as the 4G Samsung 8.9 3.0 453.8 SHARES iPhone and the HTC EVO are being offered for roughly HTC 7.2 4.9 176.2 $200 with a two-year contract and a subsidy from a service Others 18.6 16.6 112.7 provider. Total 100.0 100.0 89.5 Given the attractive dynamics of the smartphone market, it’s no surprise that the number of devices and sector competition have increased substantially over the past year. In a market once dominated by Nokia Corp., companies such as Research In Motion (Blackberry) and Apple Inc. have been gaining ground. The market has also witnessed the re-emergence of vendors such as Palm and Motorola, which increases the competition in an already crowded space. In July 2010, Palm was acquired by Hewlett-Packard Co., whose deep pockets could help it become more aggressive. Nokia and Research In Motion both experienced large share losses in the third quarter of 2010, year over year, but Apple was relatively flat despite its significant growth. The smaller vendors showed the most improvement in the third quarter of 2010, year over year, reflecting growth in the use of the Android OS, which could continue if demand for its Android devices continues to grow. In particular, Samsung saw its share increase to 8.9% in the third quarter of 2010 from 3.0% in the year-ago period, and HTC’s share rose to 7.2% from 4.9% during the same period. We view these large increases for both Samsung and HTC as the result of both companies being more aggressive in getting their handsets to as many vendors as possible, as quickly as possible. This was evident at HTC as it released the HD2 with T-Mobile USA, the Incredible with Verizon Wireless, and the EVO with Sprint Nextel. While there are differences in these handsets—different operating systems, slight differences in the cameras, and certain other features—the overall hardware is very similar, in our view. We think that increasing competition in the handset sector and the constant desire for new devices will start to limit exclusive deals, if not put an end to them altogether. We believe this factor will help level the playing field among the larger carriers, as vendors move to get their new handsets into as many hands as possible as quickly as possible.
INDUSTRY SURVEYS TELECOMMUNICATIONS: WIRELESS / JANUARY 20, 2011 7
Source: IDC.

We believe that the increased number of devices is good for the carriers and even better for consumers. While carriers used to battle for the exclusive control of the hot new phones, we believe service providers are now opting for a portfolio approach, rather than tying their success to one device. This is evident as the majority of national service providers offer smartphones from at least three to four vendors, and all of the major national providers offer at least one Android device. We believe the portfolio effect, coupled with the rapid evolution to what we call “mega” smartphones, will ultimately shorten the shelf life of these devices. We use the term “mega” smartphones to include handsets that incorporate very fast processing speeds, have large screens (such as EVO’s 4.3-inch screen), and include extras such as video conferencing. We believe the rise of 4G technology and faster network speeds will generate subscriber demand for the new high-end devices, which will lead to a rapid turnover in supply as newer and faster devices are constantly being introduced. This also will be an overall positive to service providers in terms of increased data consumption. In our opinion, the enterprise component of the overall smartphone industry will continue to grow, particularly as individuals start using smartphones for corporate purposes and as more companies allow their use. IDC estimates that consumers made up roughly 48.6% of the US business device market in 2009 and expects this category to grow at a CAGR of 18.4% until 2014. The individual-liable (IL) category— individuals who buy their own devices and use them for business—was roughly 27% of the US business device market in 2009 and is expected to grow at a CAGR of 23.8% until 2014, according to IDC. IDC estimates the corporate-liable group was 24.4% of the US business device market in 2009 and is expected to grow at a 15.0% CAGR until 2014. We believe that increases in IL purchases will benefit higher-end smartphones, but this does not necessarily mean there will be a sharp decline in sales at vendors such as Research In Motion. We think that devices such as the iPhone will be incorporated by individuals for business use, but there will still be plenty of use for devices such as the Blackberry. We believe the businessuse category will continue to be an important segment; IDC expects the total segment to grow at a 19.2% CAGR in the US until 2014.

INDUSTRY OUTLOOK NEUTRAL
As of November 2010, our fundamental outlook for the wireless telecommunications sector was neutral. We believe that the major wireless service providers in developed countries will generate strong cash flows, despite high wireless market penetration. Wireless providers in emerging markets should continue to realize doubledigit subscriber and revenue growth in 2011, with improving margins and profitability. In these areas, wireless carriers are investing in their networks mostly for geographic expansion or higher teledensity, but in many cases, they are also investing in 3G enhanced networks for data and video services capability. Despite a slowdown in net subscriber additions, wireless telecom will continue to be viewed as the growth arm of the telecom industry, in our view. New fuel for growth should come from enhanced nonvoice services, such as text messaging and web-based broadband services, which should stimulate network usage and higher ARPU. Pricing should remain stable; enhanced services aid US companies The continued migration to 3G handsets and the start of the migration to 4G handsets that could begin to occur in 2011 will be a positive catalyst for the US wireless industry during 2011, in our view. This should support stable ARPUs in the range of $45 to $55, despite carriers’ strong promotion of family plans and lower-priced unlimited plans that cause downward pressures on ARPUs. We believe that the US pricing environment has become more stable, with the continued adoption of smartphones (and the underlying higher-priced service plans) making up for any deterioration in voice revenues. The four national wireless carriers, which account for roughly 93% or more of the US market’s total subscribers, have kept their prices relatively stable. Verizon Wireless and AT&T Wireless lowered their unlimited voice price; however, their package of unlimited data, messaging and voice is still about $20 above the other two national providers. Other small changes include Sprint Nextel lowering its unlimited texting option by $10, T-Mobile reducing its already low broadband data package by $10 to $39.99 and reducing the cost of an additional line for its family plans by $5 to $5. We expect more changes to occur in data pricing in the near future. With 4G arriving in 2011, and many new devices such as tablets and mega smartphones encouraging increased data usage, we believe carriers
8 TELECOMMUNICATIONS: WIRELESS / JANUARY 20, 2011 INDUSTRY SURVEYS

will try to make pricing more usage-based. However, we also think that some carriers may use the change in pricing as a chance to lure customers from other carriers by maintaining an unlimited data offering as long as financially possible. While the prepaid or “value” carriers have been relatively quiet recently, they have focused on increasing customer loyalty and reducing churn. Boost Mobile unveiled a loyalty plan that reduces a subscriber’s bill by $5 for every six months that he pays the bill on time, with a maximum monthly reduction of $15. We believe another area where prepaid carriers will look for a competitive advantage to the national carriers is smartphones. Some carriers such as MetroPCS have started offering lower-end smartphones at reasonable, unsubsidized prices in conjunction with their low-cost unlimited plans, which have no required contract. We believe that as smartphone penetration increases, prepaid carriers could benefit significantly. Although the major carriers now offer unlimited plans from $100 to $120 that include unlimited voice and data, we believe that in most cases, the plans are causing more subscribers to move upstream, and carriers are actually experiencing a slight increase in ARPUs. We think the bigger concern is the increase in handset subsidies and the effect on margins. In 2011, we expect wireless companies to see growing cash flow and higher returns on investment. AT&T and Verizon Wireless look to maintain their lead While AT&T and Verizon Wireless have distanced themselves from the other carriers (such as Sprint Nextel, T-Mobile USA, and the regional carriers), we believe that distance could begin to narrow as smartphones become more in vogue and are offered by a greater number of carriers. We believe the competition will be more broad-based as all carriers will start to fend for themselves and stress the decisions they made regarding network upgrades. We believe network speed and new devices will be the focal points of competition in 2011 and that carriers are not likely to cut pricing, given the potential negative impact that such a move would have on operating earnings and operating cash flow. Further, we believe carriers will essentially raise data pricing as they begin to phase out unlimited data plans. In 2011, wireless carrier EBITDA (earnings before interest, taxes, depreciation, and amortization) and net earnings may increase in the mid-single digits, compared with historical double-digit rates. Nevertheless, we see opportunities to use growing free cash flow to invest in advanced technologies such as broadband wireless data and video services. We believe the tower providers will continue to be a beneficiary of the move to new technologies, continued increase in cell site coverage, and the strong growth in minutes of use and data traffic. We expect continued strong cash flow growth for the group. 

INDUSTRY SURVEYS

TELECOMMUNICATIONS: WIRELESS / JANUARY 20, 2011

9

INDUSTRY PROFILE
Wireless industry: growth is slowing, but still solid
There were just under 293 million US wireless subscribers as of June 2010, a 5.8% increase from June 2009, according to estimates from industry group CTIA-The Wireless Association. Although the absolute number of US subscribers continues to rise, the rate of growth is lagging. At June 2006, for instance, there were 220 million US subscribers, up roughly 13% from a year earlier. Revenues for US wireless services totaled $155.8 billion in 2010, a 3.0% rise from 2009, according to CTIA. This was down compared to 9.0% in 2006 and down from 13.6% in 2005. We believe the revenue decline from 2005 is due to lower voice average revenue per user (ARPU) and a younger demographic that tends to prefer prepaid or less expensive plans.
US WIRELESS INDUSTRY STATISTICS
1990 1995 2000 2003 2004 2005 2006 2007 2008 2009

Total service revenues (billion $) 4.5 19.1 52.5 Table B06: US WIRELESS Ending subscribers (in millions) 5.3 33.8 109.5 INDUSTRY STATISTICS Subscriber growth from prior year (%) 50.6 40.0 27.2 Cumulative capital investment (billion $) 6.3 24.1 89.6 Average local monthly phone bill* ($) 80.90 51.00 45.27 *Excludes roaming charges, toll services, and taxes. Sources: Cellular Telecommunications & Internet Association.

87.6 158.7 12.7 145.9 49.91

102.1 180.5 13.7 173.8 50.64

113.5 207.9 15.2 199.0 49.98

125.5 233.0 12.1 223.0 50.56

138.9 255.4 9.6 244.1 49.79

148.1 270.3 5.8 264.2 50.07

152.6 285.6 5.7 284.6 48.16

THE TOP FOUR CARRIERS MAINTAIN THEIR LEAD
AT&T Inc. and Verizon Wireless (a joint venture of Verizon Communications Inc. and Vodafone Group PLC) led the US wireless industry, in both subscribers and total revenues, in the third quarter of 2010. Between them, the two carriers had close to 186 million subscribers, or roughly 65% of all US subscribers. Verizon Wireless’ revenues reached $62.1 billion in 2009, a 4.3% increase from 2008 (pro forma to include results of ALLTEL Corp., which it acquired in January 2009). AT&T Wireless had revenues of $53.5 billion in 2009, up 8.8% from 2008. In the third quarter of 2010, AT&T’s revenues rose 10.5% year on year, while Verizon Wireless’ revenues were up 7.7%. T-Mobile USA and Sprint Nextel Corp. have not seen the strong market share gains of the top two carriers and now lag by a large margin. We believe the gap will stop growing and could start to close slightly, although they may need to make acquisitions to achieve significant progress. Sprint Nextel, with 48.8 million subscribers at the end of the third quarter of 2010, trailed Verizon Wireless by roughly 44 million subscribers and AT&T by 44 million subscribers. T-Mobile USA placed at No. 4, with 33.8 million subscribers at the end of the third quarter of 2010 and its subscriber base is less than half of AT&T and Verizon Wireless. Overview of important players in the wireless market  AT&T. Following major acquisitions in 2004 and 2006, AT&T has been relatively quiet on the acquisition front, save the November 2009 agreement to acquire regional service provider Centennial Communications, which also provided service in Puerto Rico. In May 2009, AT&T had announced that it planned to acquire roughly 1.5 million subscribers in 79 markets over 18 states from the ALLTEL deal from Verizon Wireless for $2.35 billion in cash; the deal closed in the second quarter of 2010. AT&T has spent more of its time on upgrading its network while it has enjoyed a boost in its sales from the exclusive agreement to provide Apple’s iPhone. The popularity of the iPhone and the amount of data its users consume have improved the company’s ARPU, but we believe it has strained its network at times. We believe the AT&T will continue to focus on its network and look to upgrade to LTE in the future.
10 TELECOMMUNICATIONS: WIRELESS / JANUARY 20, 2011 INDUSTRY SURVEYS

 Verizon Wireless. This company is a joint venture created in 2000 by Verizon Communications Inc. (55% ownership) and Vodafone (45%), and combined the wireless operations of Bell Atlantic, GTE Wireless, AirTouch Communications, and PrimeCo. Under the joint venture agreement, Vodafone had the right to require Verizon Communications to purchase up to an aggregate of $20 billion worth of Vodafone’s stake at select times between 2003 and 2007. Vodafone management has stated that it is happy with the arrangement. We note that Vodafone management gave its blessing for Verizon Wireless to make a bid to acquire ALLTEL Corp. (Verizon Wireless closed on the acquisition of privately held ALLTEL Corp. in January 2009.) This deal made Verizon Wireless the largest wireless provider in the US.
PROFILE OF LEADING US WIRELESS CARRIERS (Third quarter of 2010, ranked by number of subscribers)
NUMBER OF SUBSCRIBERS† MARKET SHARE (%) QUARTERLY NET ADDS (THOUS.) % OF SERVICE TOTAL REVENUES ADDS (MIL.$) ARPU CHURN‡ ($) (%) CAPITAL EXPENDITURES (MIL.$)

CARRIER

Verizon Wireless 93,170,000 32.4 997 22.7 14,168 50.94 1.36 2,173 AT&T 92,761,000 32.3 2,631 59.9 13,675 49.91 1.32 E2,179 Table B07: PROFILE OF Sprint Nextel 48,813,000 17.0 644 14.7 6,435 55.00 1.93** 341 LEADING US WIRELESS T-Mobile 33,757,000 11.7 137 3.1 4,708 47.00 3.40 643 CARRIERS US Cellular 6,103,000 2.1 (41) (0.9) 984 53.53 1.60** 125 Metro PCS 7,857,384 2.7 223 5.1 942 39.69 3.80 233 Leap Wireless 5,088,208 1.8 (200) (4.6) 565 37.02 5.50 104 Total 287,549,592 100.0 4,391 100.0 41,477 … … 5,798 Note: Totals may not add due to rounding. †Directly owned customers (excl. proportionate customers in affiliates and equity investments). ARPU-Average revenue per user. ‡Average monthly churn: the number of customers terminating service in the quarter, divided by 3, as a percentage of total customers for the period. *ARPU reflects revenue from direct postpaid users. **Churn rate is for postpaid subscribers. E-Estimated. Source: Company reports.

 Sprint Nextel. This carrier continued to struggle in 2008 and 2009, but saw improvement throughout 2010, and we expect positive postpaid net subscribers in the first quarter of 2011. We believe the loss of customers is due to what we view as a stringent credit policy, poor customer service, confusing rate plans, a lack of attractive handsets, and network issues. The carrier had issues because it was running two different networks: Sprint’s code division multiple access (CDMA) network and Nextel’s integrated dispatch enhanced network (iDEN), the latter of which had technical issues that caused some customers to flee. In December 2010, the company announced its Network Vision plan that calls for an overhaul to its wireless network that will eventually eliminate the iDEN network and save it the expense of running two separate wireless networks. This will allow it to streamline its operations and the network upgrade will allow it the opportunity to upgrade to LTE if it so chooses in the future. A significant portion of its subscriber losses have come from the iDEN network, and this move could further enhance subscriber retention. The company has also initiated several steps to stem further subscriber losses, which include simplified rate plans, improvements to customer service, a new prepaid strategy following the integration of Virgin Mobile, the launch of its WiMAX network, and the release of several handsets, including the HTC EVO, the first 4G handset. Sprint Nextel invested an additional $1.18 billion in Clearwire Corp. in early November 2009 to further fund the buildout of the WiMAX network. (WiMAX is a wireless technology that provides broadband wireless connectivity to fixed and mobile users). Sprint Nextel owns roughly 54% of Clearwire Corp. The spin-off of the WiMAX operations has allowed management more time to concentrate on the basics of running a wireless business.  T-Mobile USA. Founded in 1996 as VoiceStream, this company was acquired by the German phone giant Deutsche Telekom AG in 2001. In 2002, the VoiceStream brand was renamed T-Mobile, Deutsche Telekom’s uniform global wireless brand. As Deutsche’s domestic fixed-line business lags, corporate management is counting on the continued growth of its wireless unit, T-Mobile International Group. TMobile USA has been a key revenue driver for this group, but growth has faltered recently. Historically, TMobile has focused mostly on the consumer market, especially the youth segment.
INDUSTRY SURVEYS TELECOMMUNICATIONS: WIRELESS / JANUARY 20, 2011 11

We believe the company has continued to struggle in the face of competition in the first nine months of 2010: however, its postpaid subscribers stabilized at 79% of the subscriber base at the end of the third quarter of 2010, after falling in 2009. T-Mobile added roughly 39,000 prepaid subscribers in the first nine months of 2010, but lost 73,000 postpaid subscribers. The company has altered its pricing plans, but we think the company has struggled since the changes. We feel that the company’s late entry into 3G has hurt its position vis-à-vis the larger national providers. However, the company has aggressively ramped up its network to 3G and is now rapidly upgrading the network to HSPA+ (high-speed packet access plus) and will cover 200 million people by the end of 2010. The company covered roughly 75 major metropolitan areas with HSPA+ by the end of September 2010. Pros and cons of allying with wireline Of the four leading US carriers, Sprint is the only company that can be considered a standalone wireless company (although it retains a wireline long-distance unit). The other wireless carriers have wireline telco affiliations or ownership that give them opportunities to leverage sales through bundled wireless, fixed-line, Internet, and TV services. The size of the affiliated telco companies has been advantageous for wireless carriers: the telcos’ deep pockets provide the resources to purchase 4G licenses, develop infrastructure, invest in technologies, and compete vigorously. As a disadvantage, telcos carry heavy overhead costs, and they have huge investments in established infrastructure that will be cannibalized by emerging technologies. To compete in the rapidly evolving, increasingly complex wireless business, telcos have been forced to become more agile and efficient in strategic planning and execution. Although the incumbent telcos had a head start with their mobile units several years ago, their wireless markets are now highly penetrated and face rising competition from other wireless companies, cable companies, and resellers.

REGIONAL CARRIERS SEEK WAYS TO SURVIVE
The drive toward national footprints has led to consolidation within the wireless world. In November 2009, Centennial Communications was acquired by AT&T and Virgin Mobile was acquired by Sprint Nextel.  Leap Wireless International Inc. Leap offers digital wireless service in the US under the Cricket and Jump Mobile brand names with largely prepaid service plans to 5.1 million subscribers at the end of September 2010. The company has been expanding rapidly by launching service in markets such as Las Vegas, Chicago, Philadelphia, Washington, D.C., and Baltimore. However, Leap has struggled in recent quarters and lost 200,000 net subscribers in the third quarter of 2010, as we believe the company was slow in adopting innovative rate plans.  MetroPCS. MetroPCS serves a similar customer with similar rate plans to Leap. PCS offers digital wireless services in the US under the MetroPCS brand to roughly 7.9 million subscribers at the end of the third quarter of 2010. Until recently, MetroPCS and Leap covered mutually exclusive territories; however, this changed when both carriers launched services in Las Vegas and Philadelphia. MetroPCS has been aggressively building out its licenses as well as launching networks in major cities such as New York and Boston and their surrounding areas, so we expect expansion to continue. We believe a majority of PCS’s customers are in the lower-income bracket, making it difficult for the company to expand its revenue per user metrics. The company plans an aggressive launch of Long Term Evolution (LTE, the next proposed step in technology, also called 4G). We believe this offering, along with smartphones and new pricing plans, could help it to differentiate itself from the competition.   United States Cellular. This company (82%-owned by Telephone and Data Systems Inc.) offered wireless service to 6.1 million subscribers in 26 states, primarily in the Midwest and South.  Others. A number of smaller regional wireless players operate in the telecommunications industry. Among the publicly held regional carriers are NTELOS Holdings Corp. and Atlantic Tele-Network Inc. On June 9, 2009, Atlantic announced that it planned to acquire, from Verizon Wireless, licenses in six states
12 TELECOMMUNICATIONS: WIRELESS / JANUARY 20, 2011 INDUSTRY SURVEYS

and the network which includes roughly 800,000 subscribers and, upon closing, the company would have roughly 1 million subscribers. The deal closed in April 2010. Smaller carriers must carve out specific market niches rather than go head-to-head against the likes of Verizon Wireless and other major competitors. To survive in today’s competitive environment, smaller regionals must carve out a distinctive business strategy or a distinct brand in their markets. For example, Leap, which does business under the Cricket brand, targets underserved markets overlooked by bigger carriers, such as the youth market, as well as lowincome and ethnic groups. Instead of charging for minutes, it offers flat rate, unlimited packages at rates ranging from $30 to $60 per month.

INDUSTRY TRENDS
The number of wireless subscribers in the United States exploded in the decade between June 2000 and June 2010, rising from 97.0 million to roughly 292.8 million, according to CTIA-The Wireless Association. During 2010, the industry has experienced growing competition, lower prices, increased service availability, technological innovation, and a widening variety of product offerings. With wireless becoming increasingly convenient and affordable, calling volumes remain on the rise. Standard & Poor’s believes that the availability of 3G and 4G wireless data products, as well as integrated electronic devices for music, pictures, and Internet access, are generating consumer excitement. Based on its annual survey of wireless carriers, the CTIA reported that the wireless industry’s average local monthly bill decreased, from $49.57 in June 2009 to $47.47 in June 2010. (The CTIA reports on average local monthly bills, rather than ARPU, and its figures exclude roaming revenues; its figures are consistent with Standard & Poor’s postpaid ARPU statistics.)

UNLIMITED PLANS CONTINUE TO BE A HIT
What started out as a visionary endeavor, when Verizon Wireless introduced unlimited voice plans and then unlimited voice, text, and data, has now become rather commonplace. The postpaid carriers continue to use it as a selling point, particularly Sprint Nextel with its “Simply Everything” plan for $100, which includes unlimited voice and data, in an effort to flaunt its extensive 3G coverage. T-Mobile USA has matched Sprint Nextel at the $100 level now that its 3G coverage is starting to hit critical mass, but we believe it still lags the other carriers. We believe AT&T has also matched Sprint at $100, while Verizon Wireless remains at $119.99, as we believe carriers see more opportunity in data and realize that they may have to sacrifice a little in voice. While these plans may seem aggressive, they do not represent a price war based on current data consumption. Although we still have relatively limited data, we believe carriers are actually seeing more subscribers moving up the ladder rather than down, and they are not expecting a significant impact on ARPU. In fact, the growing trend in smartphones could help maintain or even increase ARPU as subscriber must take higher-priced plans in order to get a smartphone and they might increasingly take the unlimited option. The more worrisome elements in the pricing market has been the unlimited plans offered by prepaid carriers for much lower prices and the possible cannibalization of subscribers when the larger carriers offer both options (i.e., prepaid and postpaid). While Sprint Nextel offers a $99.99 unlimited plan, its prepaid subsidiaries offer a range of new plans to cater to the specific needs of different audiences. The company continues to offer its Boost Mobile product that, for $50, provides unlimited voice, data, and text (including taxes and fees). Boost also has a loyalty program that can lower the monthly payment to $35 if subscribers pay their monthly bill on time. América Móvil (through its US subsidiary, TracFone Wireless Inc.), uses the Verizon and AT&T networks and offers unlimited plans for $45. MetroPCS offers an unlimited voice, text, and data plan for $40, including taxes and fees, but unlimited e-mail is extra. We believe the increasing move to smartphones could actually lead to rate increases as carriers attempt to balance revenue and capital expenditures as customers become more data-centric.

INDUSTRY SURVEYS

TELECOMMUNICATIONS: WIRELESS / JANUARY 20, 2011

13

We believe the biggest change in pricing going forward will be in data. Carriers will be forced to account for increased usage due to higher-speed networks and more data-intensive devices. Some carriers have started to offer prepaid and postpaid data plans as consumers develop a feel for being charged based on usage rather than unlimited usage. We believe some prepaid wireless carriers may stick with unlimited plans to limit customers’ confusion and to help steal subscribers from other carriers. Further, as smartphones become more prevalent and as prepaid providers offer attractively priced smartphones and unlimited plans, these could prove very attractive to subscribers that are switching to smartphones for the first time. Despite unlimited plans, wireless calling plans still target market segments Wireless carriers have developed calling plans to meet the needs of different customers. Prepaid plans are effective for lower income groups and the youth market. Family plans are affordable and help drive subscriber growth. Meanwhile, messaging and data plans are becoming more popular.  Prepaid plans. Prepaid mobile plans have helped to spark the growth of wireless communications in the US. According to our estimates, there were roughly 60 million prepaid subscribers at the end of the third quarter of 2010. IDC, a market research firm, expects the market to grow to roughly 71.8 million subscribers by the end of 2013.
COMPARISON OF NATIONAL WIRELESS PLANS*
PLAN AT&T/CINGULAR WIRELESS SPRINT NEXTEL T-MOBILE USA† VERIZON WIRELESS

Basic plan ($39.99/month), number of minutes Basic plan ($59.99/month), number of minutes Family plan ($69.99/month, 2 lines), no. of minutes Table B10: Cost of adding additional line ($) COMPARISON OF Prepaid plans

NATIONAL WIRELESS PLANS

450 450 900 900 700 700 9.99 9.99 $0.10/minute for $0.10/minute nationwide calls; for nationwide offers unlimited calls; offers nationwide calls unlimited and text nationwide messaging for calls, $2/day messaging and web for $2/day. Plan includes Boost Walkie Talkie for $1/day

500 Unlimited 750/$59.99 5.00 $0.10 to $0.33 per minute, depending on number of minutes purchased; or $1 for every day of usage, with free evening and night calls to other TMobile accounts and $0.10/minute for other calls

450 900 700 9.99 $0.25/minute with no daily access charge. Unlimited mobile2mobile and $0.10/minute on nights and weekends when paying $0.99 per day. Uunlimited mobile2mobile, nights and weekends and texting when paying $1.99/day.

Wireless broadband card (5GB of data) ($/mo.) 60.00 59.99** 39.99 59.99 Unlimited text, picture and video messaging ($/mo.) 20.00 10.00 10.00 20.00 Unlimited voice, data, messaging and text for smartphones ($/mo.) 99.99 99.99 99.99 119.98 *As of December 2010. †T-Mobile also offers "My Faves" plans that include unlimited calls to any five US domestic numbers, with certain exclusions, in addition to a designated number of minutes. **4G data is unlimited. Source: Company reports.

New prepaid customers buy a start-up kit, including a phone, airtime minutes of use, and a phone number. The minutes are replenished by purchasing cards in varying cash amounts online, by phone, or at retail locations. Although prepaid plans benefit customers by giving them access to wireless service without a restrictive contract or monthly bill, disadvantages include usage fees that may be higher than postpaid plans, expiration of unused minutes, and unsubsidized handset costs. In the past, prepaid plans were targeted at people with poor credit histories and were priced at extremely high rates; now, however, they’re focused on younger customers and those with different usage patterns. Sprint’s Boost Mobile and Virgin Mobile pitch their prepaid wares to the youth market by offering “cool” phones, easy access to entertainment and games, and flexible prepaid plans.

14

TELECOMMUNICATIONS: WIRELESS / JANUARY 20, 2011

INDUSTRY SURVEYS

 Family plans. Another way carriers are working to increase wireless penetration is through family plans, in which additional phones can be added for $10 each and users share a bucket of minutes. Most carriers offer 700 minutes for $69.99 a month for two phones, although T-Mobile charges $59.99 for 750 minutes and charges $5 to add an additional line. Family plans continue to drive growth in the US market. One problem with family plans is that they can cut significantly into ARPU. The average wireless customer generates $40 to $50 a month in revenue, while an additional family plan phone may account for $10 a month. On the other hand, minutes of use increase, customer acquisition costs are lower, and family plans reduce churn. For these reasons, family plans appear to be a significant way for carriers to increase penetration for the foreseeable future.  Messaging. Once used primarily by teenagers, text messaging has become more popular among US adult users, especially as new rate plans have reduced prices. Most carriers offer unlimited text, picture, and video message packages for $20 a month (T-Mobile is the lowest, at $10). According to the CTIA, 1.81 trillion text messages were sent in the United States for the 12 months ending June 2010, versus 57 billion sent in the 12 months ending June 2005.

PREPAID WIRELESS COULD PLAY A PIVOTAL ROLE IN SMARTPHONES AND TABLETS
With US subscriber growth slowing, we believe there was concern that the national wireless service providers would aggressively move into the space and exacerbate the pricing competition in the prepaid segment. Although the success experienced by wireless prepaid providers in 2008 and early 2009 seems to have piqued the interest of national providers, we do not expect them to aggressively increase their exposure as they have long had a significant presence in the prepaid space. We do expect the prepaid carriers to remain competitive, which we believe will lead to further US PREPAID WIRELESS MARKET SHARE— consolidation and more rational pricing.
THIRD QUARTER, 2010
PREPAID SUBSCRIBERS MARKET Table B08: US PREPAID(THOUS.) SHARE (%)

VENDOR

However, we estimate that 37% of net additions during the third quarter of 2010 came from prepaid, down from 53% in the fourth quarter of 2009. We believe the decline in prepaid net additions in the third quarter of 2010 was partly due to the sharp increase in connected devices, slowing market launches at several prepaid carriers and prepaid losses at Leap Wireless. However, we do note that AT&T is accounting for tablet data plans as prepaid, which could boost prepaid in 2011. However, Verizon Wireless lost 126,000 prepaid subscribers in the third quarter, and other than the area of tablets, we believe the prepaid market is not a concern for the two largest national players. The prepaid market continues to be dominated by América Móvil (through its US subsidiary, TracFone Wireless Inc.), which uses other carriers’ networks, including AT&T Wireless and Verizon. Similarly, Sprint Nextel has become a major prepaid player as well, in part through the acquisition of Virgin Mobile. Therefore, while we believe many investors are fearful that the national carriers will invade the prepaid space and increase the competitive pressure for the pure prepaid carriers, we argue that they are already embedded in the market and may not want to become significantly further involved. Where is the prepaid market going? We believe the bigger threat than the national providers getting into prepaid, is prepaid developing into a postpaid hybrid. Many prepaid carriers now offer unlimited voice, messaging, and data plans, and have started to offer smartphones as well. In the beginning, these smartphones were not heavily subsidized like their postpaid brethren, but now the prices on the new lowINDUSTRY SURVEYS TELECOMMUNICATIONS: WIRELESS / JANUARY 20, 2011 15

America Movil WIRELESS16,657 28.0 Sprint Nextel MARKET 11,631 19.5 SHARE MetroPCS 7,857 13.2 T-Mobile 7,065 11.9 AT&T * 6,209 10.4 Leap Wireless 5,088 8.5 Verizon Wireless 4,477 7.5 Other 604 1.0 Total 59,589 100.0 *Estimated. Sources: Company reports; Estimates by Standard & Poor's.

National providers continued to garner the lion’s share of net additions in the third quarter of 2010. Verizon Wireless and AT&T led the way in the third quarter with a combined 3.6 million net additions. The top four national carriers accounted for over 100% of third-quarter net additions, as several small providers lost subscribers in the quarter.

end smartphones approximate the cost of higher-end, subsidized models, and carry monthly fees that are much lower. Carriers such as Leap Wireless offer prepaid broadband data packages, and MetroPCS plans to be one of the first wireless carriers (other than Verizon Wireless) to offer LTE. We believe that the smartphone evolution and data craze will push the prepaid carriers to offer these services, but we expect them to continue to do so free of contracts and with relatively unsubsidized handsets. We also believe that unlimited, lower-priced data plans such as Virgin Mobile’s $40-per-month unlimited data plan could be attractive for Wi-Fi tablet purchasers who do not want to be locked into a contract.

DATA GROWTH AND PRICING COULD EXPERIENCE TURBULENCE DURING 3G/4G TRANSITION
Data services continue to be a powerful driver of US wireless revenues. AT&T reported that data accounted for 34.8% of total wireless service revenue in the third quarter of 2010, up from 29.5% a year earlier. Verizon Wireless posted similar results for the same period, with data making up 35.7% of service revenues, compared with 30.5% a year earlier. We believe that for T-Mobile, data grew 25% in the third quarter of 2010 and accounted for 27% of total wireless service revenue, up from 21% in the third quarter of 2009. Carriers offer a variety of data plans. Typically, the monthly fee for 5 gigabyte (GB) of data services for a personal computer (PC) via high-speed wireless broadband is about $60. (T-Mobile lowered its rate by $10 to remain the lowest at $30.) However, with tablets arriving in force in 2011, carriers are offering a wider selection of data plans. We believe that high-growth rates in smartphones, the emergence of “mega” smartphones, and faster networks will lead to an explosion in data growth. IDC estimates that—between 2009 and 2014— converged mobile devices will grow at a 21.0% compound annual growth rate (CAGR) in the US, and that touchscreen smartphone mobile Internet users will grow at a 36.5% CAGR. IDC also notes mobile Internet users on touchscreen smartphones consume as much as 20 times the data used by a feature phone. In addition to the devices, we believe the continued proliferation of applications, and especially streaming video, with the help of higher-speed 4G networks, will cause data usage to skyrocket. The rise of media tablets such as Apple’s iPad and a slew of other tablets expected to hit the market could really cause data and the use of streaming video to grow rapidly. IDC estimates that media tablets will grow at a 44.7% CAGR worldwide between 2010 and 2014, and by 23.5% in the US in same period. We believe that media tablets will accelerate data growth as their larger screen sizes and form factors are more fitted to lengthy data sessions and streaming video than the typical smartphone. Further, IDC estimates the mobile broadband market will grow at a 36.1% CAGR between 2010 and 2014, from a base of 6.5 million subscribers in 2009. We believe the advent of streaming video will be the stimulus for wireless carriers to adopt usage-based data pricing in favor of unlimited data pricing. We believe this will be a key component as carriers look to balance usage, revenue, and capital expenditures, as high amounts of data usage will most likely require additional capacity to be added to their networks. So what will carriers charge for data as data usage grows dramatically? We believe that will be the overriding question for the next several years. While most carriers have already capped broadband plans at 5GB of data, most still offer unlimited data with smartphones. AT&T Wireless was the first to end this as it rolled out its new smartphone data plans ahead of the launch of the iPhone 4G. AT&T now offers 200 MB of data for $15, and its DataPro package offers 2 GB for $25 per month; users can buy an additional 1 GB for $10. As shown in the “Comparison of National Wireless Plans” table on page 14, carriers now offer a wide array of metered pricing, but the carriers that continue to offer unlimited data have the potential to be disruptive, in our view. We believe data plans could change significantly and often, as service providers get a better feel for how much data users will consume on tablets over 4G networks.

MOBILE OPERATING SYSTEMS COULD RETURN TO OBSCURITY
Historically, consumers used to select a mobile phone based on its appearance and on which handsets were available from their service provider; gradually, however, the functionality of the phone took on greater importance in the decision-making process. The first major change came with the appearance of color screens and large screens. Next, cameras (with an increased number of megapixels) and GPS became
16 TELECOMMUNICATIONS: WIRELESS / JANUARY 20, 2011 INDUSTRY SURVEYS

available. Now that smartphones have essentially become mini-mobile computers, functionality has become the most important determinant. In addition, the increasing popularity of applications and their continuing development have highlighted the importance of the operating system. We believe the field of mobile smartphone operating systems will become more level as new operating systems (OSs) especially designed for new smartphones become more popular. This field was largely dominated by the Symbian OS, with a 44.9% share in 2009, due in part to its ties to Nokia Corp., which had a leading worldwide market share in smartphones. The Blackberry OS scored a 19.9% share of the worldwide market in 2009 as the WORLDWIDE MOBILE DEVICE OPERATING SYSTEM MARKET SHARE device itself and its operating system (In percent) became very popular with enterprise users and, eventually, consumers as 2009 2010 2011 2012 2013 2014 SMARTPHONES well. We believe the Apple iPhone’s Android 4.1 16.3 21.3 23.0 23.8 24.6 MAC OS X truly introduced radical Blackberry OS 19.9 18.0 17.2 17.2 17.5 17.3 functionality with its touchscreen Table B12: WORLDWIDE Linux 6.1 DEVICE 3.0 2.4 2.2 2.0 1.7 technology. Now the Android OS is MOBILE Mac OS X 14.5 12.8 12.3 11.6 10.9 OPERATING 14.7 SYSTEM gaining a lot of attention as its multiMaemo/Meego 0.1 0.3 0.8 1.2 1.6 2.0 MARKET SHARE vendor, global appeal has allowed it to Palm OS 0.3 0.0 0.0 0.0 0.0 0.0 spread quickly around the world. Symbian 44.9 40.1 35.8 33.9 33.0 32.8 Research In Motion introduced its webOS 0.9 0.9 0.8 0.9 0.9 0.9 long-awaited Blackberry 6 and will Windows Mobile 9.3 6.8 8.8 9.4 9.7 9.8 release its new QNX OS for its MEDIA TABLETS PlayBook and eventually, we believe, Android NA 11.8 16.0 25.4 31.2 36.2 for smartphones as well. Blackberry OS NA 0.0 0.4 0.6 0.8 0.8 We believe that customers became aware of their OS for the first time as vendors touted their superiority and there was indeed a distinct difference in the functionality. However, we believe that customers will become less likely to brag that they have an Android phone as all OSs become more comparable and probably once again commoditized in three to five years. While the Android OS has been growing rapidly, we believe its market share gains will start to slow in 2013 and 2014. By that time, the number of applications associated with each OS should reach critical mass and significant advantages in the number of applications will begin to dissipate, in out opinion. Tablets, however, present a new opportunity for OSs and applications alike. Smartphone apps don’t really work as well on tablets, so new, tablet-friendly applications must be developed. By gaining a significant first-mover advantage in the tablet market, Apple’s Mac OS X is expected to have a dominating tablet market share of 88% in 2010, according to IDC. While this commanding lead is expected to decline to 80% in 2011 and to 58.4% in 2014, its early lead should give it a significant share in what is largely a duopolistic market. Apple is also working hard at bolstering its app inventory and now has over 34,000 tablet apps available, according to its third-quarter 2010 conference call. While IDC expects Android to garner an 11.8% share in 2010, a 16% share in 2011, and then jump to 36.2% by 2014, it does not expect other operating systems to exceed a 5% share by 2014.
Chrome NA 0.2 0.4 iOS NA 88.0 80.5 MeeGo NA 0.0 0.4 webOS NA 0.0 1.8 Windows Embedded NA 0.0 0.5 Totals may not add due to rounding. Source: IDC's September 2010 forecast report. 0.1 70.6 0.2 2.6 0.5 0.0 64.1 0.0 3.3 0.6 0.0 58.4 0.0 4.0 0.7

APPLICATIONS ARE BECOMING A KEY DRAW FOR VENDORS, SERVICE PROVIDERS, CONSUMERS
As mobile Internet technology advances, more content is becoming available, along with increased capability to make transactions. IDC expects the number of downloaded apps worldwide to grow rapidly from 10.9 billion in 2010 to 76.9 billion in 2014, a 62.9% CAGR. For the US, IDC expects downloaded apps to increase from 3.7 billion in 2010 to 16.3 billion in 2014, a 44.6% CAGR. Applications for mobile devices have emerged as hot new accessories to mobile phones and have become an additional differentiating feature that continues to prevent mobile service from becoming a commodity
INDUSTRY SURVEYS TELECOMMUNICATIONS: WIRELESS / JANUARY 20, 2011 17

product. Applications are being designed for just about everything, from creating your own personalized radio station, to finding restaurants based on your location, to downloading GPS-based golf course maps. Most carriers have ramped up their focus on applications and many have opened app stores. The Apple App Store was the first to open (in July 2008) and clearly took the early lead in the apps game. While Apple’s success may have drawn numerous competitors, we believe Apple remains in control, hitting the 300,000 applications mark in October 2010. Android’s adoption by multiple vendors has started to produce benefits, as the platform boasted over 100,000 apps in November 2010, according to IDC. Other major app stores include BlackBerry App World, Google’s Android Market, Palm App Catalog, Windows Marketplace for Mobile, and Nokia Ovi Store, many of which just opened over the past year. BlackBerry launched its first app store in April 2009, and has been rapidly launching app stores around the world; it launched its latest store in Japan in June 2010. Nokia launched its Ovi App Store in May 2009. Most app stores offer a range of applications from free to $9.99 and at much higher prices in some cases. Overall, we believe app stores will become even more popular and will most likely influence a consumer’s decision regarding handsets and service providers.

NETWORK UPGRADES SUPPORT MOBILE DATA SERVICES
Since 2003, US wireless carriers have upgraded their networks with next-generation technologies to allow for faster mobile Internet access. This supports the growth of mobile data services, which is defined as the delivery of nonvoice, broadband information to a mobile device. Three major 3G wireless platforms are wideband code division multiple access (WCDMA); universal mobile telecommunications system (UMTS), which is essentially equivalent to WCDMA; and CDMA2000 1xEVDO (Rev. A). (EV-DO stands for “evolution-data optimized,” and Rev. A is the next generation of EV-DO technology). Some carriers have also deployed high-speed downlink packet access (HSDPA) to enhance their 3G networks and high-speed packet access plus (HSPA+) as a further spend enhancement. The next step forward is 4G, for which development has already started and we believe will accelerate in 2011. There are two competing technologies—Long Term Evolution (LTE) and WiMAX (which is currently being used by Clearwire and Sprint Nextel). The migration to 4G is significant in that it will mark the first time in the US that the majority of service providers will be using a common network. This should allow devices to be more interchangeable and possibly result in some carrier consolidation. The 4G network will also bring faster speeds that will enable the use of a wider variety of mobile applications. Rapid migration to 3G and the advent of 4G In the United States, Verizon Wireless and Sprint Nextel have rapidly migrated their second-generation (2G) CDMA platforms to 3G CDMA2000 1xEV-DO (Rev. A). AT&T and T-Mobile are in the process of upgrading their networks to HSPA+, an advanced version of 3G.
WIRELESS BROADBAND COVERAGE (As of December 2010)
POPS COVERED Table (MIL.)

VENDOR

B15: TECHNOLOGY

Sprint Nextel’s wireless broadband network has nationwide coverage with 3G and has 4G/WiMAX coverage in roughly 68 markets; the company planned to cover 120 million people by the end of 2010 in conjunction with Clearwire. Verizon Wireless offers BroadbandAccess and V CAST services on a 3G CDMA EV-DO platform, and planned to launch commercially 4G/LTE in select markets, covering 38 markets and 110 million people, by the end of 2010. The company expects to complete the network to nationwide coverage in 2013.

Verizon Wireless 110 4G WIRELESSLTE Sprint Nextel 120 4G BROADBAND AT&T* 246 HSPA+ COVERAGE T-Mobile 200 HSPA+ *Estimated. LTE-Long term evolution. HSPA-High-speed packet access. Sources: Company reports; Estimates by Standard & Poor's.

The full deployment of 4G in the US will enable the transmission of advanced multimedia services, such as streaming video, to customer devices. Many carriers are just starting to roll out 4G networks or will start later in 2011. Thus, many will continue to rely on their 3G networks for the bulk of their traffic.

18

TELECOMMUNICATIONS: WIRELESS / JANUARY 20, 2011

INDUSTRY SURVEYS

AT&T took its 3G HSPA 7.2 deployment nationwide in January 2010, which could provide peak speeds of 7.2 Megabits per second (Mbps) and further upgraded with a HSPA+ software upgrade in late 2010. AT&T plans to further enhance the network by enhancing its cell site backhaul connections in 2010 and 2011 to further increase network speeds. Further, AT&T has been trialing 4G or LTE in Dallas and Baltimore, and will follow with commercial deployment starting in mid-2011, covering between 70 million and 75 million people by the end of 2011. T-Mobile USA acquired 3G spectrum in the FCC auction in 2006 and introduced 3G services to New York City in May 2008; we believe it had HSPA+ coverage of 200 million people at the end of 2010. HSPA+ can deliver data at theoretical rates of 42 Mbps on the downlink, according to Wireless Intelligence, as sourced by the GSM Association, a trade group.

INCREASED DATA USAGE TO BENEFIT CELL TOWER PROVIDERS
The number of cell sites in the US increased from 178,025 in June 2005 to 251,618 at the end of June 2010. Similarly, minutes of use increased from 1.3 trillion in June 2005 to roughly 2.3 trillion for the 12 months ended June 2010. The driving factors behind cell site growth are the number of service providers, quality of
WIRELESS TECHNOLOGY STANDARDS GENERATION ACCESS TECHNOLOGY SPEEDS GSM 14.4 kbps 2G cdmaOne (IS-95A)Table B14: kbps 14.4 Wireless ADVANTAGES/DISADVANTAGES Widely deployed, allows international roaming. Stronger security features, longer handset battery life, more efficient use of bandwidth than GSM. Disadvantages include lack of global roaming capabilities, narrow deployment, fewer equipment suppliers, proprietary technology.

technology standards
2.5G For GSM

GPRS EDGE

For CDMA 3G

cdmaOne (IS-95B) W-CDMA

TD-SCDMA

CDMA2000 1X (Release 0) CDMA 1X EV-DO (Evolution-Data Optimized) CDMA 1X EV-DV (Evolution-Data/Voice) 3.5G For GSM/W- HSPA (High-Speed CDMA Packet Access) For CDMA CDMA 1X EV-DO Revision A (EvolutionData Optimized) LTE (Long-Term Evolution)

“Always on” allows easier Internet browsing. Bandwidth shared with other users a disadvantage. 384 kbps peak, 140- Allows greater data rates per timeslot than GSM/GPRS. 160 kbps more likely 64 kbps peak, 14.4 4 to 5 times capacity of GSM systems. kbps typical 2 Mbps peak, 400 Faster data speeds and greater capacity than CDMA2000 1x. kbps typical. More expensive to deploy than CDMA2000 1x. Not compatible with earlier GSM networks. 2 Mbps peak, 1.2 Excellent for transmitting Internet data. Wide coverage area, Mbps typical. more efficient use of spectrum for one-way transfer. Disadvantages include no commercial deployments, few equipment vendors. 307 kbps peak, 144 Greater voice and data transmission capacity than CDMAone kbps typical. using same bandwidth. 2.4 Mbps peak, 750 Faster data speeds, handsets compatible with earlier CDMA kbps typical. networks. 3.1 Mbps peak Able to deliver real time video streaming.

64 kbps

14 Mbps future potential, currently 3.6 - 7.2 Mbps 3.1 Mbps peak download speed, 1.8 Mbps upload

Delivers streaming video, interactive gaming, and multimedia music tracks at speeds almost 3 times faster than W-CDMA. Compatible with GSM/W-CDMA. Revision A is an upgrade for CDMA 1X EV-DO. Compatible with CDMA networks.

4G Optimal future speeds of 100 Mbps download, 50 Mbps upload 100 Mbps for high WiMAX (Worldwide mobility, 1 Gbps for Interoperability for low mobility, both for Microwave Access) 802.16m. Sources: CDMA Development Group; GSM Association; IEEE. Delivers streaming video, interactive gaming, and multimedia music tracks at very high data rates. Backwards compatible with GSM and HSPA. 802.16e is the current standard and is geared largely towards data cards and tablets, 802.16m is the mobile version that will be most comparable to LTE.

INDUSTRY SURVEYS

TELECOMMUNICATIONS: WIRELESS / JANUARY 20, 2011

19

service (since the number of cell sites generally correlates with quality of service), and minutes of use. Generally, the greater the amount of traffic, the more cell sites or equipment on cell towers are needed in order to maintain the quality of service. Tower providers lease space on their towers to wireless service providers that then place their equipment for operating the cellular site. Various developments require additional cell sites and capacity in cellular towers, including spectrum auctions, new technologies, and an increase in data. As new technologies are developed or as new spectrum is auctioned off, new equipment must be placed in the towers to accommodate the transition. There have been several spectrum auctions that include the AWS auction and the most recent 700 megahertz (MHz) auction. Several carriers such as Leap Wireless and MetroPCS participated in the AWS auction and are currently building out new markets that require either that new cell towers be built or that space be leased on existing towers. With carriers starting to launch fourth-generation (4G) technology on the 700 MHz spectrum, they will either have to build new cell sites or place the equipment necessary to transmit at the new spectrum. Both will most likely require additional space in the near term even if carriers eventually replace the older technology equipment with 4G. Carriers such as Clearwire are creating a new network based on the WiMAX technology that will most likely need new infrastructure. The Clearwire deal with Sprint Nextel closed at the end of November 2008, and Clearwire received a $3.2 billion investment from a group of investors that includes Comcast, Intel, Time Warner Cable, Google, and Bright House Networks. Clearwire provides WiMAX coverage to roughly 68 markets with plans to cover 120 million people by the end of 2010. This gradual buildout should bring additional revenue to the tower providers. The boom of the iPhone, other smartphones, and media tablets should increase the demand for data products and eventually require service providers to add more capacity to existing cell sites or to build new cell sites. The tower providers are similar to the pick and shovel providers during the California Gold Rush—it does not matter who discovers gold as everyone is looking for it.

HOW THE INDUSTRY OPERATES
Wireless communication allows people to stay in touch anytime and almost anywhere through hand-held telephones. Unconstrained by wires, mobile system users can communicate while traveling as fast as about 60 miles per hour. The wireless phone converts the speaker’s voice into radio waves that travel through the air until they reach a receiver at a nearby base station. The base station then sends the call through the telephone network to the intended recipient. Born from radio dispatch technology and developed by Bell Laboratories in the 1960s, mobile communication began with analog transmission and evolved into digital technology. It is now progressing into broadband wireless services. Consumer services originated in specialized mobile radio (SMR) service, an analog technology initially used in automotive telephony. In the 1980s, cellular telephone service was initiated in the United States through an analog technology called advanced mobile phone service (AMPS). Cellular service derives its name from the small geographic regions, called cells, into which a service area is divided. By the late 1980s, second-generation (2G) mobile services—digital cellular services and personal communications services (PCS)—were launched. Older cellular services were allocated frequencies in the 800 megahertz (MHz) to 900 MHz range. Because PCS operates at a higher frequency—1.8 gigahertz (GHz) to 2.0 GHz—it can operate at lower power levels, and it uses its capacity more efficiently. Consequently, PCS networks are cheaper to operate than cellular systems. However, PCS cells are smaller, so more cell sites are needed to cover a given area. The added equipment requirements usually make PCS networks more expensive to build.

20

TELECOMMUNICATIONS: WIRELESS / JANUARY 20, 2011

INDUSTRY SURVEYS

Today, PCS is the leading sector of the global wireless telecommunications industry; it is the largest in terms of both subscribers and revenues. Cellular wireless services (including both digital and analog, and enhanced SMR) make up a smaller segment of the industry. The industry is actively implementing the third generation of wireless service, known as 3G technology. In early 2008, the Federal Communications Commission (FCC) conducted Auction 73, in which licenses at the 700 MHz frequency band were sold for roughly $19.6 billion. The spectrum had previously been used for ultra–high frequency (UHF) or analog television broadcasting. The spectrum was divided into five blocks, and we believe the carriers that won licenses will use the spectrum to deploy fourth-generation (4G) technology in the next couple of years.

WHY DIGITAL WIRELESS?
The initial impetus for developing and marketing wireless telecommunications systems was to offer consumers mobility. At first, many consumers were not enticed enough by this capability to pay the high cost of wireless service compared with wireline. However, that differential declined as companies created national networks and began offering pricing plans without roaming fees (charges for calls outside the carrier’s service area). Wireless phone users in the United States, unlike most countries in the world, incur charges whether the call is incoming or outgoing, which has kept the total cost higher. The full-feature capabilities of digital phones, along with declining service charges, have reduced the importance of pagers to the wireless industry. The introduction of two-way paging (which enables users to receive, store, and play digitized voice messages) met with a disappointing response. PCS is far more versatile in comparison. On a global basis, short message service (SMS), which is based on global system for mobile communications (GSM) technology, is one of the most popular services in wireless communications today. SMS permits users to send and receive text messages using mobile telephones. The text can include words, numbers, or an alphanumeric combination. The first short message may have been sent in December 1992 from a personal computer to a mobile phone on Vodafone Group PLC’s GSM network in the United Kingdom. The fundamentals of wireless Digital wireless telephony converts continuous analog voice signals (sound waves) into bits of data (the 0s and 1s of computer binary language). These bits are “packetized” (broken down into smaller pieces of information), transmitted via radio waves, and reassembled as analog signals at the point of reception. (Internet and digital wireline transmissions also use packetized data.) Digital wireless technology offers numerous advantages compared with analog cellular. One is clarity. Because the digital signal is less subject to fading, static, and general noise interference, digital wireless telephony is closer in quality to wireline phone service. Digital wireless telephony also offers major capacity gains because it allows multiple users to employ each channel simultaneously. Furthermore, digital makes it cost effective for carriers to offer such value-added services as caller ID, call waiting, and voice mail. These services are now standard features of calling plans that package “buckets” of minutes. In order to offset the cost of subsidized or free digital handsets, carriers sell these services through contracts that extend for one or two years. Carriers in select markets around the globe are still materially subsidizing handsets. With ongoing industry consolidation in the US market, we expect handset subsidies to continue as carriers work to retain existing subscribers or acquire new subscribers.

MULTIPLE TECHNOLOGY PLATFORMS
A technology platform refers to the equipment that transmits telecommunications signals in a wireless network. These platforms operate according to one of several electronic protocols, or standards, which determine how the network is configured and how signals are processed within it. For this reason, roaming users with digital standards that differ from that of an area they have entered must have their signal converted to analog, which is done automatically by the network. At this point, PCS services can no longer be provided. To allow customers to communicate through PCS services, several companies offer handsets
INDUSTRY SURVEYS TELECOMMUNICATIONS: WIRELESS / JANUARY 20, 2011 21

with tri-mode capabilities that can connect analog, the 800 MHz–900 MHz band, and the 1.8 GHz or 1.9 GHz band. Many countries have adopted a single standard for nationwide use, but the US market currently employs several standards. Nevertheless, different platforms are increasingly becoming compatible with one another. At present, most US carriers use either GSM or code division multiple access (CDMA). The former Nextel Communications, now a part of Sprint Nextel Corp., uses a proprietary technology called integrated dispatch enhanced network (iDEN).
TECHNOLOGY PLATFORMS USED BY MAJOR US CARRIERS—2010
2G GSM CDMA iDEN WCDMA/HSPA 3G CDMA2000 (EV-DO) / REV. A 4G LTE WiMAX

AT&T/Cingular Alltel Wireless Sprint Nextel AT&T/Cingular Alltel Wireless Verizon Wireless Clearwire Table B09 Technology T-Mobile Sprint Nextel T-Mobile Sprint Nextel AT&T Sprint Nextel Verizon Wireless platforms Verizon Wireless MetroPCS US Cellular US Cellular GSM-Global system for mobile communications. CDMA-Code division multiple access. EV-DO-Evolution data-optimized. iDEN-Integrated dispatch enhanced network. WCDMA-Wideband code division multiple access. HSPA-High-Speed Packet Access. REV.A-Revision A. LTE-Long term evolution. WiMAX-Wireless-integrated Multiple Access. Source: Company reports.

First-generation digital systems First-generation digital infrastructures supported voice communications using varied technologies to separate multiple conversation transmissions over a finite frequency allocation of through-the-air bandwidth. One of the most important of these first-generation digital technologies was time division multiple access (TDMA), which achieved a threefold capacity increase from analog technology by sending multiple, interwoven signals through a single channel. By allocating time slots to each user within the channel, it allowed a large number of users to access a single radio frequency in sequence without interference. However, more advanced systems have eclipsed TDMA. Operators that invested in TDMA, such as AT&T Mobility, spent billions of dollars to transform these networks to GSM/GPRS (general packet radio service) systems, then added wideband CDMA (WCDMA) upgrades to their networks. According to AT&T, the company completely shut down its TDMA network in February 2008, and its network now consists of GSM/GPRS and HSDPA (High-Speed Downlink Packet Access, the upgrade to WCDMA). Second-generation and intermediate digital systems Second-generation (2G) and intermediate (2.5G) systems support voice and certain data services.  GSM. As the 2G standard adopted in the European Union, GSM is the most widely used wireless technology in the world. GSM uses 2G digital technology, TDMA transmission methods, and a digital encoder that emulates the characteristics of human speech. A very efficient data rate/information content ratio is achieved with this method of transmission. According to the GSM Association, a trade group, there were over 3 billion GSM subscribers in 219 countries as of June 2010.  CDMA. The CDMA standard sends multiple signals using an encryption method based on the unique signal of each handset. It is also known as spread spectrum multiple access (SSMA), because each signal is spread across a broad segment of spectrum. CDMA was developed by Qualcomm Inc. and first introduced commercially in Hong Kong in 1995. It is currently used predominantly in China, India, Japan, South Korea, and North America. There were 550 million CDMA subscribers in the world in the second quarter of 2010, according to trade organization CDMA Development Group. When implemented in a cellular network, 2G CDMA technology offers numerous benefits to the cellular operators and their subscribers. It can increase capacity eight to 10 times that of an AMPS analog system

22

TELECOMMUNICATIONS: WIRELESS / JANUARY 20, 2011

INDUSTRY SURVEYS

and four to five times that of a GSM digital system. Initially, CDMA did not fully live up to its promise of greater capacity, but ongoing improvements have been made.  Intermediate (2.5G) technologies. As carriers worldwide plot migration paths toward 3G infrastructure, they typically seek to build upon existing networks rather than purchase all new equipment. This process generally involves making software upgrades to existing hardware, such as network switching, base station, power amplifier, and antenna systems. However, customers must purchase new handsets to use 2.5G (as well as 3G) platforms. While these 2.5G technologies have slower bit rate or transmission speeds than 3G, they nonetheless save the expense of replacing a still-functioning network. They also allow value-added services such as voice mail, call waiting, short messaging, and dial-up online connections. In addition, by segregating data from voice transmissions, they provide faster data rates and increased voice capacity. The two main intermediate platforms today are GPRS (used for existing GSM systems) and 1xRTT (for CDMA). To upgrade TDMA, operators must totally replace the equipment with GSM/GPRS (2.5G) and EDGE (2.5G data service) before moving later to 3G. (EDGE stands for “enhanced data rates for GSM evolution.”) TDMA networks still exist in certain countries in Latin America. Third-generation digital systems Carriers worldwide aim to provide service using more advanced 3G technology. At present, 3G technology comprises three main platforms: CDMA2000 1xEV-DO, WCDMA, and universal mobile telecommunications system (UMTS). (EV-DO stands for “evolution-data optimized.”) These technologies allow digital telecom networks to provide value-added services such as voice mail, call waiting, short messaging, and dial-up online connections, as well as voice SELECTED 3G ATTRIBUTES AND CAPABILITIES communications. Perhaps most significantly, Capability to support circuit and packet data at high bit rates: their data transfer speeds are much faster than • 144 kilobits/second or higher in high mobility (vehicular) traffic those of earlier technologies. • 384 kilobits/second for pedestrian traffic
• 2 megabits/second or higher for indoor traffic Interoperability and roaming

Table B05: 3G Common billing/user profiles: • Sharing attributes information between service providers of usage/rate
• Standardized call detail recording • Standardized user profiles Capability to determine geographic position of a mobile device and report it to both the network and the mobile terminal Support of multimedia services/capabilities: • Fixed and variable rate bit traffic • Bandwidth on demand • Asymmetric data rates in the forward and reverse links • Multimedia mail store and forward • Broadband access up to 2 megabits/second Source: Federal Communications Commission.

3G platforms allow wireless operators to meet the tremendous demand for new services, such as high-quality voice, high-speed data, and multimedia services. Operators are looking to provide these new services to many more subscribers at reasonable prices. Issues of interoperability of 3G standards with each other and with older technologies are being resolved.

NTT DoCoMo Inc. began offering initial 3G WCDMA services in Japan in October 2001, featuring always-connected, high-speed video, data, and voice services. Between 2001 and 2003, many wireless operators in Europe and North America cut back their spending, having previously taken on too much long-term debt, which pressured their cash flows and balance sheets. However, by 2006, many 3G systems were in place in Europe, with about 50 million 3G subscribers, as reported by industry group UMTS Forum. In 2006, many operators deployed 3G services in major cities around the world. The 2G networks using GSM are being replaced by WCDMA or UMTS, while CDMA is being replaced by CDMA2000.  CDMA2000. Based on the CDMA system, CDMA2000 exists as EV-DO, which is backward compatible with CDMA and CDMA2000 1xRTT. EV-DO delivers peak data speeds of 2.4 megabits per second (Mbps) and supports applications such as MP3 transfers and video conferencing. Carriers such as Verizon Wireless and Sprint Nextel have implemented an

INDUSTRY SURVEYS

TELECOMMUNICATIONS: WIRELESS / JANUARY 20, 2011

23

enhancement to CDMA EV-DO known as Revision A (Rev. A). Revision A increases the data speed and capacity of EV-DO networks, reaching theoretical limits of 3.1 Mbps downstream and 1.8 Mbps upstream.  WCDMA. This technology, on which 3G GSM services will be delivered, is built around a core GSM network with a wideband CDMA air interface. WCDMA has been developed as an open standard supported by operators with the 3G GSM standards development organization. WCDMA uses a new spectrum with a five MHz bandwidth, providing data transfer rates 50 times faster than present GSM networks and 10 times faster than GPRS networks. The operator can gradually migrate from GSM to WCDMA, protecting investments by reusing the GSM core network and 2G/2.5G services. Operators such as AT&T and T-Mobile are adding a protocol known as high-speed downlink packet access (HSDPA) Release 7.2 to their WCDMA networks to improve data transmission speeds to up to 7.2 Mbps. A further release of HSPA+ is also being deployed with theoretical speeds of up to 42 Mbps.  UMTS. Designed to avoid problems of incompatibility with evolving broadband technology, UMTS is Europe’s approach to standardizing 3G cellular systems. Essentially equivalent to WCDMA, it allows for the transition from all major existing 2G standards to CDMA-based next-generation standards. UMTS was the outcome of a 1999 agreement to define a single 3G standard that was sponsored by the International Telecommunication Union, a public/private association that coordinates global telecom networks. A previous agreement to standardize all European 2G networks around GSM aided the development of the wireless telecommunications market in Europe.

THE NETWORK BUILDOUT
Depending on the topography and population density of the area served, the radius of a rural cell, or service area, can be 10 miles or larger. However, in large cities, microcells (cells with a radius of 500 feet or less) are often needed to provide seamless coverage. Because handsets have trouble picking up signals inside buildings, dedicated transmitters/antennas are needed to provide indoor service to such locations as tall office buildings or underground garages. Ideally, coverage of a service area should be complete yet unduplicated; in reality, cells frequently overlap, and obstructions such as buildings can cause gaps in service. As companies build and expand their networks, their focus will shift toward managing their systems. They will need to bill not only their own customers for using their service, but other wireless and wireline providers as well. When customers roam, signals can be handed off from one company’s cell site to another’s. When this occurs, a fee is charged, although these roaming charges have become less common in recent years, as carriers have consolidated or formed alliances to carry one another’s traffic. The transmission network of a telephony system is managed by an operations control center, which keeps track of performance, collects billing data, and picks up any alarms. Computer systems that are connected to switches, cell sites, and other network equipment, monitor performance and relay detailed information about traffic patterns and bandwidth availability to the control center. Network employees can thus be made immediately aware of any equipment failures and often can correct potential problems before the customer experiences any decline in service. Management networks—the total infrastructure for transmitting phone messages—must oversee equipment from many vendors deployed across a telephony system, while at the same time facilitate seamless connections with other carriers’ systems. Software programs built into today’s intelligent management networks can provide platforms for fraud control, customer interface, inter-network communications, and other sophisticated administrative, maintenance, and operating functions. These programs are increasingly being loaded with marketing and strategic planning functions as well. Wireless systems must be designed to connect with the landline infrastructure already in place, as this is where much traffic originates and terminates. In the United States, where the existing infrastructure is extensive, carriers are attempting to create flexible wireless systems that can function across analog and digital platforms, low and high frequencies, and a variety of equipment from many vendors. Ideally, these
24 TELECOMMUNICATIONS: WIRELESS / JANUARY 20, 2011 INDUSTRY SURVEYS

new systems will be open to expansion, technological enhancement, and the convergence of voice, data, and video services. Tower providers: the wireless “pick and shovel” companies At the heart of the wireless network are the cellphone towers. These structures can accommodate a varying amount of antennas depending on their height, location, and other variables. Tower providers charge rent to service providers to place antennas and other equipment in their towers. The multiple tenants that towers generally accommodate are typically bound by five- to 10-year contracts. The amount of the rent depends on the number of antennas and other equipment, and leases usually include a 3%–5% annual rent escalator. Tower providers acquired their portfolio of towers by building on demand for service providers, acquiring towers from service providers trying to raise capital, and consolidating. There are four major tower providers: American Tower Corp., Crown Castle International Corp., SBA Communications Corp., and Global Tower Partners. In addition, there are small independent tower owners and wireless service providers that own their own towers. Tower companies are a direct offshoot of the growth in the wireless service industry. The main factors affecting growth are the increase in cell sites, the gain in tenants per tower, the growth in subscribers, and the rise in voice and data usage that require additional capacity. While wireless subscriber growth has started to slow as the US penetration rate surpassed 90%, cell site growth continues at a steady pace, as service providers continue to build out networks to increase coverage and network capacity, and to improve the quality of service. According to CTIA-The Wireless Association, an industry group, the number of cell sites in the US has grown from 159,645 at the end of June 2000 to 251,618 as of June 2010. Similarly, total annualized minutes of use have risen from 1.3 trillion as of June 2005 to roughly 2.3 trillion at the end of June 2010. In addition, we believe the auctioning of new spectrum as well as the introduction of 3G and 4G services will require additional cell sites and equipment at existing sites. Furthermore, the increase in voice usage from unlimited voice plans and the rise in data usage from the proliferation of smartphones will continue to cause minutes of use to expand, resulting in a need for additional capacity, in our opinion.

BANDWIDTH IS ALL THE RAGE
In the wireless industry, coverage (the area a company serves) is king. However, bandwidth (the amount of data that can be carried by a channel, measured in bits per second) is close to the throne. Bandwidth determines the depth and level of the services that a company can provide, and today’s high-speed, graphicsrich data transmissions require significantly more bandwidth than voice communications. Currently, global wireless networks are straining to cope with the onrush of data traffic; they do not have enough bandwidth or network facilities to meet demand. As a result of this imbalance, bandwidth has become one of the most important ingredients in the delivery mix. Not only does greater bandwidth raise a channel’s capacity, it also greatly increases the quality and speed of the transmission. However, from the carrier’s perspective, all of the bandwidth on the planet will get you nowhere if your processor (base station equipment) cannot handle the information. Accordingly, some equipment manufacturers are developing receivers that can process thousands of times the bandwidth of an analog base station. We believe that future demand for wireless data services will begin to gather momentum in the next year or two; while the types of services that customers will embrace is yet to be determined, we see great promise in Internet usage and the potential for mobile TV to have a significant impact. Also, equipment manufacturers are working on scalable products that enable service providers to expand their networks progressively as demand grows.

FEDERAL REGULATION
At the federal level, the primary regulatory body is the FCC, which oversees US wireless telephony communications along with wireline telecommunications services. In 2009, the FCC underwent leadership changes as Kevin J. Martin resigned after leading the commission for close to four years; newly appointed FCC chairman nominee Julius Genachowski was confirmed in June and took over from acting chairman
INDUSTRY SURVEYS TELECOMMUNICATIONS: WIRELESS / JANUARY 20, 2011 25

Michael J. Copps in the summer of 2009. Although the FCC is not a legislative body, it creates and defines regulations, and is responsible for implementing laws enacted by Congress and the president. The list of notable rulings by the FCC this decade includes local number portability, 911 service availability, spectrum auction participation, and universal service funding contributions. Separately, the antitrust division of the US Department of Justice (DOJ) is responsible for protecting the public from antitrust violations and other anticompetitive practices in telecom and other industries; as such, it weighs in on proposed mergers, including, in recent years, the combinations of AT&T Wireless–Cingular and Sprint–Nextel. Government controls the licenses Access to radio frequencies for transmission is the main regulatory barrier to entering the wireless telecommunications business. The portion of the spectrum that can be used for radio signals extends from below-AM radio frequencies up to infrared frequencies. As technology has improved, wireless operators have moved up the spectrum into higher-frequency bands. In the United States, the FCC assigned a number of narrow frequency bands to paging channels, from below 100 MHz up to 900 MHz. Enhanced specialized mobile radio was given the 800 MHz–900 MHz band. Cellular wireless telephony received the 824 MHz–849 MHz and 869 MHz–894 MHz bands, and PCS providers were assigned the 1850 MHz–1990 MHz band. In January and February 2005, the FCC auctioned 242 licenses in small to medium-sized markets around the country. The FCC auctioned more than 1,000 licenses for advanced wireless systems in August 2006. In January 2008, the FCC auctioned spectrum at the 700MHz frequency that was broken into five blocks. We believe service providers will use the spectrum to roll out 4G services over the next several years. A license and a dream When wireless telephony was first introduced, governments gave away licenses to operate the networks. More recently, they have auctioned the licenses for designated parts of the spectrum through public auctions, raising considerable cash in the process. In 1981, the US government finalized its grand scheme to launch mobile wireless telephone service across the United States. Under the plan, the FCC established 305 designated metropolitan statistical areas (MSAs), each as a cellular duopoly—a district containing two competitors. In each MSA, one license was granted to the common carrier already providing local wireline service in that market. The second was sold (at a price predetermined by the government) via a lottery. In 1989, service started in the 305th and last MSA. Licensing of the bulk of the 428 rural service areas (RSAs) was completed that same year. Initially, most rural markets were served by a single operator. However, following the opening of the market with the 1996 Telecommunications Act, the FCC began licensing broadband PCS competitors. Any given market can now have as many as nine wireless operators, including resellers and one provider of an enhanced specialized mobile radio (ESMR). Operators may own their own equipment or share it among themselves. Licenses for these and other wireless services are sold at auction.

KEY INDUSTRY RATIOS AND STATISTICS
 Performance by market leaders. The US wireless telecommunications industry is still in a growth phase, making it difficult to analyze industry performance using typical ratios and statistics. One way to chart the industry’s growth is to track its most active participants in the US and other countries. The following companies can serve as proxies on a global scale. In Asia, significant firms are NTT DoCoMo Inc. (Japan), KT Corp. and SK Telecom Co. Ltd. (South Korea), and China Telecom Corp. Ltd. and China Unicom Ltd. (China). In Europe, we look at Vodafone Group PLC (United Kingdom), Orange SA (France), TeliaSonera AB (Sweden), Telecom Italia Mobile (Italy), Telefónica Móviles SA (Spain), and T-Mobile
26 TELECOMMUNICATIONS: WIRELESS / JANUARY 20, 2011 INDUSTRY SURVEYS

(Germany). In Latin America, important companies are América Móvil SA (Mexico) and Tele Norte Celular Participações SA (Brazil). In the US, we look at Verizon Wireless, AT&T Wireless, Sprint Nextel, and TMobile USA. The successes and failures of these firms are indicative of the trends and issues affecting the entire industry.  Gross domestic product (GDP). Gross domestic product, the broadest measure of aggregate economic activity, is the market value of all goods and services produced by labor and capital in a country. The economy’s growth is measured by changes in inflation-adjusted (or real) GDP. Consumption—spending by domestic households on final goods and services—accounts for approximately one-half to two-thirds of GDP across a broad spectrum of countries. Consequently, changes in GDP are an excellent measure of consumer markets. The economic recession in the 1980s and 1990s did not restrict growth in the wireless communications industry. In the current decade, the rate of growth has slowed partly due to a high penetration rate, but the industry did not experience a decline in the number of subscribers or minutes of use as of the end of December 2009. Thus, cyclical patterns—the degree to which changes in real GDP affect industry results— have not been tested. The long-running economic expansion of the 1990s may have helped to spur market penetration rates. In that case, a severe economic downturn would likely slow industry growth. The degree to which demand varies with GDP will depend partly on whether wireless service is perceived as a luxury or a necessity. This, in turn, varies according to demographics and wireline penetration. In 2009, US real GDP declined by 2.6%. As of December 2010, Standard & Poor’s was projecting a real GDP increase of 2.8% for 2010 and 2.6% for 2011.  Market penetration. Market penetration is a measure of the subscriber base as a percentage of the total number of potential customers, or overall population (POPs). Calculated as a percentage, market penetration shows how deeply wireless service has entered a market and, thus, suggests how much growth potential remains in the subscriber base.  Average revenue per user (ARPU). A prime indicator of operating performance, ARPU gauges the average monthly revenue generated for each customer unit, such as a wireless phone or pager, that is in service. Increases in minutes of use and in value-added services, including data, are considered drivers of ARPU growth. From 1987 to 1998, the industry’s ARPUs declined, reflecting heavy competition to acquire new customers and consequent price cuts by providers. Since then, the aggregate average local monthly bill for the industry has risen from $39.88 in June 1998 to $47.47 in June 2010, according to the trade group CTIA-The Wireless Association. Higher usage and data-related services drove the increase. However, rates have been roughly flat since December 2002, as we believe that the increase in data ARPU has offset the decline in voice ARPU. (Rather than ARPU, CTIA reports the average local monthly bill, which excludes roaming revenues. CTIA figures are consistent with Standard & Poor’s postpaid ARPU statistics.)  Churn. A metric used to monitor the stability of a customer base, churn is the percentage of subscribers that terminate wireless service with the carrier on a monthly basis—the lower the churn, the less pressure on a carrier to add new subscribers to generate revenues. A churn rate lower than 2% is better than average for wireless carriers. Churn rates among the seven largest wireless carriers ranged from 1.3% to 5.5% as of the third quarter of 2010.  Net subscriber additions. A prime indicator of the success of a carrier’s marketing programs, net subscriber additions is the number of new customers added, less customers that terminated service with the carrier. It is typically calculated on a quarterly basis.

INDUSTRY SURVEYS

TELECOMMUNICATIONS: WIRELESS / JANUARY 20, 2011

27

 Demographics. Demand for telephone service is related to population growth. Having more people in a region or country tends to generate a greater need for telephones. Demographic information can be found at the US Census Bureau’s website (www.census.gov).  Cost per gross subscriber addition (CPGA). This is an indicator of the average cost of signing a new subscriber. It is calculated by adding selling and marketing costs, as well as handset and accessory subsidy costs (excluding costs unrelated to initial customer acquisition), and dividing the total by new subscribers during the period (or gross adds).  Cash cost per user (CCPU). A benchmark used to measure the average monthly cost of serving subscribers. CCPU is calculated as total operating expenses less equipment revenue, depreciation, and amortization expenses, and the costs of acquiring new subscribers, which is then divided by the average number of subscribers for the period. CCPU is commonly used within the industry as an indicator of the cash expenses associated with ongoing business operations, on a per handset basis.  Free cash flow. This important liquidity metric is calculated as the net cash provided by operating activities of continuing operations, less cash payments for capital expenditures and other additions. Free cash flow provides useful information about how a company generates cash from operations after interest and dividends and how it funds debt maturities and other financing activities, such as debt refinancing or debt retirement and investments.

HOW TO ANALYZE A WIRELESS TELECOM COMPANY
When analyzing a wireless telecom company, the three primary areas to address concern market composition, quality of service, and financial performance.

KEY MARKET VARIABLES
The markets that are served by a company’s wireless network help define the company’s strategic direction and focus that are employed to expand its market presence. Thorough analysis requires a study of a company’s geographic footprint, market penetration, the breadth of its service offerings, and the level of competition in its markets. Penetration and share Market penetration is defined as the subscriber base as a percentage of a population (POPs, which are customers or potential customers within a licensed area)—the actual versus the potential customer base. Penetration varies from region to region, with some countries approaching saturation. This is particularly true in Europe, where average penetration is greater than 95% (many markets have penetration greater than 100%). The wireless penetration rate in the United States hit 93% by the end of June 2010, and we believe it has increased since then. For an individual company, market penetration is comparable to market share. This percentage should be compared with those of a company’s peers and with the industry average. Market maturity In the last few years, wireless operators have adjusted their growth strategies. Rather than seek market penetration at any cost, they are now favoring higher quality, profitable growth with higher customer retention, lower customer churn, and more focus on market segmentation. National and regional wireless operators have moved in this direction, while certain carriers are addressing the underserved prepaid market, which has a low market penetration. Companies that are just beginning to operate in a market new to them typically are not profitable in the short term, but analysts must gauge longer-term revenue potential from reasonable estimates of market penetration and average revenue per user (ARPU). Analysts must be mindful of companies that seek to increase penetration rates too aggressively by offering overly generous terms to new subscribers: doing so may stimulate higher subscriber growth, but the higher marketing costs may narrow operating margins and drain available funds.
28 TELECOMMUNICATIONS: WIRELESS / JANUARY 20, 2011 INDUSTRY SURVEYS

Profitability with strong top-line growth is key for companies operating as nationwide or regional operators. In any given region, the first people to subscribe to wireless service tend to be business customers, whose accounts are highly profitable for providers. As market penetration increases, new subscribers tend to consist of customers who want cheaper services. Nonetheless, companies can grow service revenues and expand ARPU by offering new services and tailoring their offerings to the different customer segments. We estimate that the monthly ARPU for the industry was approximately $47.58 in the quarter ended September 2010, of which $12.40 to $18.20 was realized from mobile data, ringtone, and gaming services. Depth of coverage In assessing the depth of coverage that a company offers, the analyst needs to consider its footprint, size, and competitors, and whether it is part of a larger alliance.  Geographic footprint. In assessing a company’s footprint (or licensed and developed geographic territory), primary consideration should be given to the market type: major metropolitan, suburban, or rural. The capital costs of putting up cell sites, the economies of scale that can be realized in providing service, and the income levels and spending patterns of inhabitants are factors that determine a market’s desirability. The value of any given POP varies from one geographic region to the next. For example, potential customers in a wealthy, densely inhabited city will be more lucrative for a wireless company than will POPs with low per capita income who are scattered across a broad rural region. Ever-widening footprints create the potential for larger customer bases and greater network efficiency. Larger carriers have negotiating power with vendors and can leverage information technology (IT) facilities such as billing and network management systems. They can more easily retain customers by eliminating roaming fees over a broader area.  Scale and scope. In terms of overall market strategy, competitive approaches vary widely with regard to company scale (size of territory) and scope (extent of coverage within that territory). Nationwide and regional wireless operators have strong brands and economies of scale that enable them to offer more comprehensive services to varied customer segments. Smaller, rural operators have to economize on network expansion and marketing to potential customers who often are widely dispersed in large, geographic areas. In the past, the drive for scale and scope stimulated merger and acquisition activity between carriers of a similar size; more recently, it has fostered acquisitions of roaming partners by the large carriers. The analyst should verify that acquisitions and partnerships are consistent with an overall strategy and that they will provide firm synergies and improve operating performance. Do the merging companies use compatible technologies? Do they operate on the same spectrum? Do they have overlapping networks with redundant cell sites, or does the merger fill geographic gaps in coverage? The pros and cons of marketing alliances should be similarly assessed. Competition Wireless markets are highly competitive. When analyzing a company’s competitive position, questions to ask include the following. Who are the major competitors in its markets? What are their competitive advantages and disadvantages? Which company can bundle other services, such as local and long-distance wireline services or Internet connectivity? What service offerings and pricing packages do competitors offer? Are these companies able to support a price advantage in wireless services and handset subsidies, funded by the cash flows generated from other businesses?

CONGLOMERATES VERSUS PURE PLAYS
For the large wireline companies, wireless affiliates represent a significant source of growth, far surpassing that of their mature traditional businesses. Therefore, a key determinant of the companies’ future growth will be derived from the wireless market. With the promise of rapid growth, wireless is a good place to invest cash flows from mature wireline businesses, but the large capital investments required mean higher expectations for above-average returns on
INDUSTRY SURVEYS TELECOMMUNICATIONS: WIRELESS / JANUARY 20, 2011 29

investment. Some of the largest wireline companies, such as Verizon Communications Inc. and AT&T Inc., are considering more closely integrating their wireless and wireline businesses. To offset customer migration, other wireline carriers, such as Qwest Communications International Inc., are reselling wireless service as part of their bundle of services. Qwest announced in May 2008 that it would begin to market and sell Verizon Wireless service in its bundle rather than its prior strategy of reselling another carrier’s service under the Qwest brand. For pure-play wireless companies, analysis must take into account other factors. The value of an established pure-play wireless company today depends on its perceived ability to generate future cash flows on its licenses. Comparative analysis must take into consideration its scale, network reach, marketing, technology, cost structure, and business strategy. As of September 2010, Sprint Nextel was the only pure play among the big four US wireless carriers. At the regional level, however, there were more: United States Cellular (82%-owned by Telephone and Data Systems), Leap Wireless, and MetroPCS Communications.

MARKETING IS CRUCIAL
In the wireless industry’s mad dash to market, companies that establish a strong, loyal customer base will be the most likely winners. In this environment, marketing strategy is of primary importance. Its success may be deduced from the number of customer additions. A company analysis should include an understanding of the firm’s specific marketing strategy and programs, including branding, pricing, distribution channels, partnerships, and other related areas. How well is a company able to package multiple service plans to different customer segments, such as businesses, government, professionals, upper-income households, and consumers with high credit risks? A company’s advertising program is a key component of its marketing plan, particularly in the mass market. The effectiveness of marketing can be gauged in terms of gains in penetration and net subscriber additions relative to expenditures. Historically, many wireless companies have subsidized handset sales as a means of attracting new subscribers to their services. As markets mature and approach saturation, companies are trying to balance customer acquisition and retention more carefully. Some companies have set up wholesale channels to drive resale traffic onto their networks. The replacement cycle for new handsets with more enriched features (such as color, multimedia, photo/video, short messaging, and web browsing capabilities) has helped wireless operators retain their best customers. However, operators must still aggressively subsidize these advanced handsets. With the advent of third-generation (3G) technology, wireless companies are beginning to offer more real-time data and video services. They have been surprised and rewarded by the broad demand for smartphone features available through network downloads. Their focus has clearly shifted toward receiving more revenue from existing subscribers and selectively and profitably acquiring new subscribers.

KEEPING THE CUSTOMER HAPPY
Quality of service is a key ingredient in telecommunications services. Because the market has become more competitive in recent years, customer satisfaction and retention are primary drivers in fostering long-term revenue growth. Staying connected Companies target call completion rates of 95% and higher, so that nearly every time a subscriber dials, the connection is made. Values less than 3% are targeted for dropped calls—calls disconnected before either party hangs up. These ratios provide standards for assessing service quality, which can be compared with the industry average. They also translate into customer churn and retention, as discussed below. Minimizing churn Just as important as securing customers is retaining them. Churn is the number of subscribers that terminate wireless service with a carrier on a monthly basis, and it is an indicator of customer satisfaction. A
30 TELECOMMUNICATIONS: WIRELESS / JANUARY 20, 2011 INDUSTRY SURVEYS

company’s churn rate can influence profitability and should be measured against the industry average to gauge its relative performance. Most companies have average churn rates for postpaid customers of 1% to 2%. Results from the quarter ended September 2010 showed a relatively stable performance for most carriers: Verizon Wireless, AT&T, and United States Cellular Corp. each had 1.3% to 1.6% customer churn. Less efficient carriers, such as Sprint Nextel and T-Mobile USA Inc., had churn rates higher than 1.9%. Carriers that focus on the prepaid market, such as Leap Wireless, have churn rates above 3.5%. What steps has a company taken to promote customer satisfaction? Price, quality, and service reliability are basics in keeping customers happy. In addition, functions that are inherent to the wireless carrier’s operations, such as efficient and accurate billing systems and fraud control, also influence customer relations. Operators with dynamic, creative approaches to these areas will generally outperform. Product and service innovation is also crucial to minimize churn. Data services such as short message service (SMS), e-mail, digital photographs, and video streaming are considered hot applications in the transition to next-generation wireless. As companies move toward 4G services, they must provide customers with the means to interconnect with existing networks at a reasonable cost. In addition, offering more dynamic handsets with new bells and whistles is one way to delight customers.

TOP-LINE EXPANSION, ARPU KEY
A key financial metric is forecasting service revenues. Top-line growth is especially important for the wireless services industry because large up-front costs (for equipment deployment, spectrum rights, and branding) create significant operating leverage. Service revenue forecasts are based on expectations for market penetration rates, net customer additions, and the average monthly bill (as measured by ARPU). For established operators, the growth curve will flatten as the customer and revenue bases become larger and more mature. An analyst must address the following questions when evaluating a company’s outlook: At what customer level will the company likely reach the break-even point, based on current ARPU trends and cost structure? Given reasonable expectations regarding net customer additions, when might that occur? A sharply declining ARPU is typically a negative sign: it may indicate that a carrier is adding too many low-margin customers, cutting its prices too much, or losing its best customers. Prepaid wireless customers generally have much lower ARPUs than postpaid customers. Historically, prepaid customers have been either low-usage subscribers (focused on emergency use) or applicants with poor credit. These groups have tended to offer carriers minimal profitability along with significant churn. More recently, however, carriers have begun focusing on prepaid accounts for young subscribers who have no credit history. If costs can be kept appropriately low, the prepaid youth market could offer new opportunities for profitability. Every customer market segment generates a different ARPU. Decisions regarding the pursuit of business and government versus residential customers, and of prepaid versus postpaid will clearly have an impact on revenue per subscriber. Another wrinkle to ARPU trends is the rapid pace of family plans that allow customers to pay $9.99 monthly for the third (or more) family member on a carrier’s service. Of course, each of these decisions affects a firm’s cost structure as well, and the analyst should evaluate each firm’s ARPU in light of its strategy and cost structure. One should continuously monitor ARPU rates (released quarterly with earnings results) for indications of short-term competitive pressures and longer-term profitability trends.

VALUATION: FROM POPS TO P/Es
When a new wireless service provider is issued a license, the license’s valuation may be expressed in terms of the potential size of the market based on its population, which is compared with wireless subscriber penetration rates over time. At this point in a company’s development, there frequently is no other available valuation measure.
INDUSTRY SURVEYS TELECOMMUNICATIONS: WIRELESS / JANUARY 20, 2011 31

Start-up wireless carriers take on heavy debt loads to purchase licenses and build networks. It usually takes several years, and significant marketing outlays, to cultivate a customer base yielding substantial revenues. As a result, price per POP (the cost per potential customer that the company paid in obtaining its license) reflects prospects for cash flows far in the future. At this early stage of a company’s development, stock market prices tend to fluctuate sharply with changes in expectations and investor sentiment. As operating income increases, analysts turn from per-POP comparisons to valuation measures based on sales or earnings before interest, taxes, depreciation, and amortization (EBITDA). Typically, for the first several years of operation in new markets, wireless companies experience net losses—even with EBITDA margins in the range of 30% to 45%—and have significant debt obligations on their balance sheets. As of September 2010, most operators had enterprise values-to-EBITDA multiples (stock price plus long-term liabilities minus cash, divided by sales) in the mid-single-digit range. Standard valuations based on P/E ratios (price divided by net earnings) can be used for more developed, publicly held wireless companies. EBITDA is the most popular metric for evaluating enterprise value, although most US wireless service providers do show net profits or have material earnings contributions. Free cash flow In the end, valuation of wireless phone companies is similar to any other business—it is an exercise in forecasting and discounting cash flows. The analyst’s objective is to obtain a free cash flow (FCF) estimate for the total enterprise, including equity and debt holders. Free cash flow can be calculated by subtracting capital expenditures from an after-tax estimate of EBITDA. Historically, capital expenditures have exceeded EBITDA for most firms because the industry required large up-front investments and was still in the growth phase of its development. However, as the industry has grown and capital spending has leveled off, significant FCF has been realized in each year since 2003. Projections must assume reasonable anticipated growth rates based on market penetration, total covered POPs, churn trends, net customer additions, and ARPU trends. 

32

TELECOMMUNICATIONS: WIRELESS / JANUARY 20, 2011

INDUSTRY SURVEYS

GLOSSARY
1xEV-DO technology—An evolution of 1xRTT that boosts data rates into true third-generation (3G) high-bandwidth speeds; also known as CDMA 2000 1xEV-DO, or simply EV-DO (evolution-data optimized). As the technology is deployed over the next few years, it is expected to provide data speeds as fast as the digital subscriber lines (DSL) and cable modems that consumers use. 1xEV-DO, which is capable of data transfer speeds of up to 2.5 megabits per second (Mbps), is the version currently available in the United States. EV-DO Revision A (Rev. A) was first deployed in 2006 and can reach 3.1 Mbps downstream and 1.8 Mbps upstream. 1xEV-DV, which provides integrated voice and data at speeds of up to 3.09 Mbps, has largely been preempted by EV-DO (Rev. A). Both 1xEV-DO and 1xEV-DV are backward compatible with 1xRTT and CDMA. 1xRTT technology—The term for the faster, 2.5G version of CDMA, the official name of which is Interim Standard (IS) 95B; data speeds are similar to those of a dial-up modem (less than 100 Kbps). 1xRTT is being replaced by 3G technologies. 2.5G technologies—Telecommunications systems based on second-generation (2G) digital platforms, which enable “always on” connections and certain wireless data transmissions. Carriers may deploy these transitional technologies as an interim step toward building advanced 3G networks. The main 2.5G standards for GSM (global system for mobile communications) platforms are enhanced data rates for GSM evolution (EDGE) and general packet radio service (GPRS). For code division multiple access (CDMA) networks, 2.5G technologies are 1xRTT and high data rate (HDR) technology. 3G technologies—DMA2000 and WCDMA are generally considered the third generation of wireless telecommunications technologies. Analog and digital voice services were the first generation; personal communications services (PCS) voice and data services were the second. The 3G technologies enable multimedia applications by integrating mobile technology with high datatransmission capacity. Among 3G carriers, NTT DoCoMo has had WCDMA up and running in Japan since 2001. In 2006, WCDMA was deployed throughout Europe, with about 50 million 3G subscribers. In the United States, most companies are in the process of upgrading to CDMA2000 1xEV-DO (Rev. A) and WCDMA. Advanced mobile phone service (AMPS)—The technological specifications for transmitting signals via analog cellular telephone. Airtime—Duration of a customer’s wireless phone calls. Average minutes of use (AMOU)—The average number of minutes a customer spends accessing the network over a specific period of time, usually a month. Used in determining network capacity and in setting pricing packages. Average revenue per user (ARPU)—The average monthly bill per wireless customer; used in sequential fashion to measure price trends. Bandwidth—The amount of data that can be transmitted in a fixed period of time. For digital devices, bandwidth is usually expressed in bits (or bytes) per second (bps). For analog devices, bandwidth is expressed in cycles per second, or Hertz (Hz). The bandwidth needed to send a given signal depends on the amount of information the signal contains. FM radio takes 10 times as much bandwidth per station as AM radio, a differential that explains FM’s higher fidelity; a TV channel requires 33 times the bandwidth of an FM station. In telecommunications, bandwidth measures two characteristics of an electronic transmission: range and capacity. Range refers to the spectrum of electrical frequencies (from short to long waves) that a device can handle without distortion: the higher the bandwidth, the better the quality of the voice or data transmission. Capacity refers to the kinds of communications that can be carried on a channel (voice, data, video). A voice-grade bandwidth is four kilohertz. Base station—The fixed device that intercepts signals sent by a mobile radio transmitter/receiver (or transceiver). Bluetooth—A short-range wireless networking technology that is designed to replace cables linking high-tech devices. It may be used to connect headsets to cellphones or cellphones to laptops. Broadband—A bandwidth greater than four kilohertz (the minimum for transmitting voice communications), which can allow transmission of numerous voice, video, and data channels simultaneously.
INDUSTRY SURVEYS TELECOMMUNICATIONS: WIRELESS / JANUARY 20, 2011 33

Cell site—The location of the wireless antenna and network communications equipment. Churn rate—The percentage of a carrier’s subscribers that terminate wireless service in a given month, or the average monthly rate for a given year. Code division multiple access (CDMA)—A second-generation (2G) digital wireless technology that is used primarily in China, India, Japan, South Korea, and North America; also called CDMAOne. Invented by Qualcomm Inc., CDMA allows several users to share the same radio channel, providing up to 10 times the capacity of analog wireless. Its transitional (2.5G) version is 1xRTT. There are two advanced third-generation (3G) versions: CDMA2000, based on the CDMA platform and wideband CDMA (WCDMA), based on GSM technology. (See 1xEVDO technology and Wideband code division multiple access.) Converged mobile device—A wireless telephone equipped with computer-enabled features such as wireless e-mail, Internet access, and data transfer with other devices; also known as a smartphone. Digital technology—The use of a binary code to represent and transmit information from electronic equipment. In digital wireless telephony, sound and data are transformed electronically from analog signals into a digital pulse (an on-and-off series of coded ones and zeroes) that is transmitted via radio wave and reconverted into an analog signal at the point of reception. In contrast, analog technology relies on variable electrical signals—radio waves—that remain unchanged from origination to termination of a call and are more vulnerable to interference. Wireless telephony, which today is predominantly digital, transmits signals through the atmosphere rather than via copper wire or fiber-optic lines. Distortion—The loss or corruption of information in a signal during transmission. In telecommunications, the term typically refers to analog signals. Dual band—A wireless phone that can operate on 800 MHz or 1900 MHz frequencies as needed. Dual mode—A wireless phone that works on both analog and digital networks. Enhanced specialized mobile radio (ESMR)—A digital network providing voice, dispatch, messaging, and data services. It operates with multiple low-power transmitters that reuse frequencies to mimic cellular service. General packet radio service (GPRS)—A transitional (2.5G) version of GSM that speeds up data reception and transmission as well as voice, GPRS operates at speeds similar to those of a dial-up modem (well below 100 Kbps). It is being replaced by much faster, third-generation (3G) data technologies. Global system for mobile communications (GSM)—Functionally similar to TDMA, GSM is a second-generation digital technology that is mostly used for voice transmissions. It has been adopted by the European Union and is currently the most widely used digital cellular standard worldwide. Hertz (Hz)—Cycles per second, a measure of radio frequency. Kilohertz (kHz) = thousands; megahertz (MHz) = millions; gigahertz (GHz) = billions; terahertz (THz) = trillions. High-speed downlink packet access (HSDPA)—A wireless protocol built on top of WCDMA-based systems to increase data transmission speeds up to eight to 10 megabits per second. Also known as 3.5G, HSDPA will allow for faster and better quality video and audio, as well as greater network capacity. Among major carriers, it is being deployed by Cingular Wireless and T-Mobile in the United States, NTT DoCoMo Inc. in Japan, and T-Mobile and Vodafone PLC in several European countries. Integrated dispatch enhanced network (iDEN)—A wireless technology developed by Motorola, iDEN operates in the 800 MHz, 900 MHz, and 1.5 GHz radio bands. Through a proprietary handset, iDEN supports voice (in the form of dispatch radio and wireless and wireline interconnection), numeric paging, and short messaging for text, data, and fax transmission. Mobile virtual network operators (MVNOs)—Wireless service providers that own minimal or no facilities, but resell capacity on other service providers’ networks. Net subscriber additions—A growth metric that is equal to the number of wireless customers that add service during a period, minus those that terminate service.
34 TELECOMMUNICATIONS: WIRELESS / JANUARY 20, 2011 INDUSTRY SURVEYS

Number portability—A network feature that enables mobile or wireline users to retain their geographic or nongeographic telephone number when they change location, service provider, or type of service. Number portability was first made available to toll-free numbers, then to long-distance services, and eventually to wireless and wireline services. Personal communications services (PCS)—A term encompassing a wide range of digital wireless mobile technologies, chiefly two-way paging and cellularlike phone services. These services are transmitted at lower power and higher frequencies (1,900 MHz) than digital voice services (850 MHz). Carriers can choose from among various CDMA- and GSM-related technologies to support these services. Population (POPs)—A cellular industry term for customers or potential customers within a licensed area as surveyed by the US Census. One POP is one member of the population. Radio frequency—The part of the electromagnetic spectrum used for transmitting radio signals. Revision A —An enhancement to CDMA 1xEV-DO that increases the efficiency, data speed, and capacity of EV-DO networks, reaching theoretical limits of 3.1 megabits per second downstream and 1.8 Mbps upstream; it is usually referred to as Rev. A. Ringtone—An audible, call-progress signal connector that indicates the called station is being rung. Wireless service providers offer a wide selection of music and tones that customers may use to personalize their ringtone signal. Roaming—A service offered by most wireless providers that allows subscribers to use cellular service while traveling outside their home service area. Roaming requires an agreement between operators of technologically compatible systems in individual markets to permit customers of either operator to access the other’s system. Roaming areas and costs vary by service provider. Short message service (SMS)—A feature supported by GSM and other mobile systems that permits wireless phones to send brief text messages (140 to 160 characters). Unlike paging services, short messages are stored and forwarded in SMS centers. GSM transmits short messages on a separate signaling path, simultaneously with voice, data, and fax. Smartphone—See Converged mobile device. Time division multiple access (TDMA)—A first-generation digital cellular technology that offered a threefold increase in capacity over analog technology. Carriers with TDMA networks are in the process of switching to transitional GSM/GPRS platforms, after which they will upgrade to 3G via WCDMA. Traffic—Electronic signals containing sound, data, or visual communications. Universal mobile telecommunications system (UMTS)—A technology, adopted under the aegis of the International Telecommunication Union, that facilitates the transition of all major platforms through 2.5G technology to 3G. It is essentially equivalent to WCDMA as deployed by European wireless networks. UMTS can support data transfer rates of 144 Kbps to two Mbps in support of mobile access of multimedia Internet applications. Wideband code division multiple access (WCDMA)—A 3G technology that increases data transmission rates in GSM systems by using the CDMA air interface instead of TDMA. Wireless fidelity (Wi-Fi)—A wireless technology providing Internet access at speeds of up to 11 megabits per second. Also known as 802.11b, this radio technology has limited reach to connect laptops or portable devices with a Wi-Fi card to a Wi-Fi access node in the network. Worldwide interoperability for microwave access (WiMAX)—A wireless technology providing broadband wireless connectivity to fixed and mobile users. It uses the 802.16 technology standard for two GHz to 11 GHz within a wireless metropolitan area network, has a service range of up to 50 kilometers, and provides data rates of up to 280 megabits per second per base station. WiMAX is the ultimate complement to Wi-Fi, in our opinion, capable of being used to connect wireless hotspots and wireless LANs to the Internet, provide campus connectivity, and create a wireless alternative to cable and DSL for last-mile broadband access. 

INDUSTRY SURVEYS

TELECOMMUNICATIONS: WIRELESS / JANUARY 20, 2011

35

INDUSTRY REFERENCES
PERIODICALS Communications Daily http://www.warren-news.com Daily; coverage of the entire telecom industry. Connected Planet http://connectedplanetonline.com Weekly: provides news and feature articles on the telecom services and equipment industries. Network World http://networkworld.com Weekly; provides comprehensive news and analysis of the networking industry. RCR Wireless News http://www.rcrnews.com Weekly publication covering the wireless industry. Telecommunications http://www.telecommagazine.com Monthly; covers telecommunications, voice, and data service fields. Telecommunications Reports http://www.aspenpublishers.com Biweekly newsletter; covers telecommunications, voice, record, and data service fields. Wireless Week http://www.wirelessweek.com Weekly; covers business, technology, and regulatory news on services that include cellular, personal communications, paging, and specialized mobile radio. BOOKS The Essential Guide to Telecommunications, 4th Ed. Annabel Z. Dodd Upper Saddle River, NJ: Prentice-Hall, 2005 Wireless Communications: Principles and Practice, 2nd Ed. Theodore S. Rappaport Upper Saddle River, NJ: Prentice-Hall, 2002 TRADE ASSOCIATIONS CDMA Development Group http://www.cdg.org Consortium of companies that have joined together to lead the adoption and evolution of code division multiple access (CDMA) wireless systems around the world. CTIA-The Wireless Association http://www.ctia.org International membership organization representing all sectors of wireless communications. Compiles comprehensive data on industry revenues, market penetration, pricing, and other cellular industry issues; also provides books, video, and online services. GSM Association http://www.gsmworld.com Dedicated to the development, deployment, and evolution of the Global System for Mobile Communications (GSM) standard for digital wireless technology and for the promotion of the GSM platform. Personal Communications Industry Association (PCIA) http://www.pcia.com Major international trade association for wireless communications and infrastructure; provides market forecasts, spectrum management programs, seminars, technical certification programs, and industry trade shows. Telecommunications Industry Association (TIA) http://www.tiaonline.org Leading trade association for the telecommunications and communications industries. UMTS Forum http://www.umts-forum.org Open, international body for promoting the global uptake of UMTS third-generation (3G) mobile systems and services. Wi-Fi Alliance http://www.wi-fi.org Nonprofit international association formed in 1999 to certify interoperability of wireless local area network products based on the IEEE 802.11 specification for Wi-Fi. The alliance’s goal is to enhance the user experience through product interoperability.

36

TELECOMMUNICATIONS: WIRELESS / JANUARY 20, 2011

INDUSTRY SURVEYS

WiMAX Forum http://www.wimaxforum.org Nonprofit industry group working to facilitate the deployment of broadband wireless networks based on the IEEE 802.16 standard by helping to ensure the compatibility and interoperability of broadband wireless access equipment. GOVERNMENT AGENCIES Federal Communications Commission (FCC) http://www.fcc.gov US agency in charge of regulating the telecommunications industry. Industry Canada http://strategis.ic.gc.ca Government agency designed to foster a growing, competitive, knowledge-based Canadian economy. Among its activities is setting telecommunications policy. International Telecommunication Union (ITU) http://www.itu.int Leading United Nations agency for information and communication technology issues; coordinates global telecom networks and services, and organizes worldwide and regional exhibitions and forums. RESEARCH FIRMS comScore Inc. http://www.comscore.com Provides a variety of data, information, and insights regarding a number of different aspects of the Internet economy, with a focus on e-commerce and audience measurement. Dell’Oro Group Inc. http://www.delloro.com Specializes in strategic competitive analysis in the networking and telecommunications industries. Forrester Research Inc. http://www.forrester.com Independent research firm that analyzes technology’s impact on businesses. IDC http://www.idc.com Provides market analysis for the information technology and communications industries in the US and worldwide.

IHS Global Insight Inc. http://www.globalinsight.com Provides economic, financial, and political coverage of countries, regions, and industries. In-Stat http://www.instat.com Offers a broad range of information and analysis of technology markets and products; a unit of Reed Elsevier PLC. M:Metrics Inc. http://www.mmetrics.com Provides market measurement and analysis of the mobile industry. Strategy Analytics Inc. http://www.strategyanalytics.net Provides research and consulting on business strategy and technology issues. TeleGeography Research http://www.telegeography.com Provides research, statistics, and analysis of the communications industry; a division of PriMetrica Inc. Wireless Intelligence https://www.wirelessintelligence.com Global database for mobile market information. World Cellular Information Service http://www.wcisdata.com Focuses on the wireless industry, with a database dating from 1986. The Yankee Group http://www.yankeegroup.com Provides communications and networking research and consulting, focusing on the areas of strategic planning, tactical decision support, technology forecasting, and industry analysis.

INDUSTRY SURVEYS

TELECOMMUNICATIONS: WIRELESS / JANUARY 20, 2011

37

COMPARATIVE COMPANY ANALYSIS — TELECOMMUNICATIONS: WIRELESS
Operating Revenues
Million $ Ticker Company Yr. End DEC DEC DEC DEC DEC DEC DEC DEC DEC DEC DEC DEC DEC DEC DEC DEC DEC 2009 1,724.1 3,480.5 549.7 32,260.0 483.0 A 5,020.7 A 289.7 123,018.0 A 241.7 413.8 4,973.2 A 1,336.0 2,117.9 595.8 12,311.0 107,808.0 A 2,996.6 2008 1,593.5 2,751.5 539.8 35,635.0 506.4 5,092.0 359.4 124,028.0 A 207.3 A 349.7 2,598.4 1,403.0 2,237.0 575.4 A 13,475.0 97,354.0 3,171.5 D 2007 1,456.6 2,235.7 500.4 40,146.0 377.5 A 4,829.0 A 424.6 118,928.0 A 186.7 280.0 2,562.7 A 1,348.6 A 2,249.3 A 520.3 A 13,778.0 93,469.0 D 3,247.5 385.8 1,385.5 A 1,630.8 780.5 408.2 3,946.3 2006 1,317.4 1,546.9 440.1 41,028.0 D 339.4 A 4,364.5 497.7 63,055.0 A 155.4 A 213.9 2,445.8 1,270.1 2,025.4 C,D 477.5 13,923.0 88,144.0 A,C 3,033.3 A 348.3 788.2 A 1,167.2 716.9 A,C 351.1 A 3,473.2 2005 944.8 A 1,038.4 264.5 34,680.0 A 341.8 3,953.0 618.6 43,862.0 A 102.3 159.1 2,443.4 1,209.6 2,162.5 D 443.0 13,903.0 C 75,112.0 2,923.5 326.8 676.8 A,C 914.7 825.1 A 260.0 D 3,030.8 2004 706.7 D NA NA 27,428.0 332.4 A 3,720.4 490.2 A 40,787.0 D 88.3 113.3 2,410.9 1,207.1 2,193.0 424.8 13,809.0 71,283.0 D 2,933.5 302.7 603.9 D 826.0 473.9 A 231.5 D 2,837.6 1999 258.1 A NA NA 17,016.0 D NA 1,963.1 D 641.8 A 49,489.0 A,C 85.1 A NA 1,676.7 1,131.1 A 1,087.4 279.2 13,182.0 33,174.0 NA 193.6 345.8 3.9 292.5 87.0 1,417.2 D C C C WIRELESS TELECOMMUNICATION SERVICES‡ AMT [] AMERICAN TOWER CORP PCS [] METROPCS COMMUNICATIONS INC NTLS § NTELOS HOLDINGS CORP S [] SPRINT NEXTEL CORP SVR † SYNIVERSE HOLDINGS INC TDS USMO † TELEPHONE & DATA SYSTEMS INC § USA MOBILITY INC CAGR (%) 10-Yr. 5-Yr. 1-Yr. 20.9 19.5 8.2 NA NA 26.5 NA NA 1.8 6.6 3.3 (9.5) NA 7.8 (4.6) 9.8 6.2 (1.4) (7.6) (10.0) (19.4) 9.5 11.0 NA 11.5 1.7 6.9 7.9 (0.7) 12.5 NA 6.0 17.2 NM 6.9 20.4 11.5 24.7 22.3 29.6 15.6 2.0 (0.8) 16.6 18.3 91.4 (4.8) 2009 668 ** ** 190 ** 256 45 249 284 ** 297 118 195 213 93 325 ** Index Basis (1999 = 100) 2008 617 ** ** 209 ** 259 56 251 244 ** 155 124 206 206 102 293 ** 2007 564 ** ** 236 ** 246 66 240 220 ** 153 119 207 186 105 282 ** 2006 510 ** ** 241 ** 222 78 127 183 ** 146 112 186 171 106 266 ** 2005 366 NA NA 204 NA 201 96 89 120 NA 146 107 199 159 105 226 NA

INTEGRATED TELECOMMUNICATION SERVICES‡ T [] AT&T INC ATNI § ATLANTIC TELE-NETWORK INC CBEY § CBEYOND INC CTL [] CENTURYLINK INC CBB † CINCINNATI BELL INC FTR GNCMA Q VZ WIN [] § [] [] [] FRONTIER COMMUNICATIONS CORP GENERAL COMMUNICATION -CL A QWEST COMMUNICATION INTL INC VERIZON COMMUNICATIONS INC WINDSTREAM CORP

(0.7) (5.3) 7.0 3.5 (2.3) (8.6) 8.6 10.7 0.4 (5.5) 2.7 (11.1) 22.8 10.4 23.6 21.7 3.7 (36.3) 19.1 17.0 8.2 (0.7)

OTHER COMPANIES WITH SIGNIFICANT WIRELESS TELECOMMUNICATIONS OPERATIONS ALSK ALASKA COMMUNICATIONS SYS GP DEC 346.5 389.6 A CCI CROWN CASTLE INTL CORP DEC 1,685.4 1,526.5 LEAP LEAP WIRELESS INTL INC DEC 2,383.2 1,958.9 A PWAV POWERWAVE TECHNOLOGIES INC DEC 567.5 890.2 SBAC SBA COMMUNICATIONS CORP DEC 555.5 475.0 USM US CELLULAR CORP DEC 4,214.6 4,243.2

A A A A

179 201 199 180 169 487 441 401 228 196 60,997 50,137 41,741 29,874 23,411 194 304 267 245 282 639 546 469 404 299 297 299 278 245 214

Note: Data as originally reported. CAGR-Compound annual growth rate. ‡S&P 1500 index group. []Company included in the S&P 500. †Company included in the S&P MidCap 400. §Company included in the S&P SmallCap 600. #Of the following calendar year. **Not calculated; data for base year or end year not available. A - This year's data reflect an acquisition or merger. B - This year's data reflect a major merger resulting in the formation of a new company. C - This year's data reflect an accounting change. D - Data exclude discontinued operations. E - Includes excise taxes. F - Includes other (nonoperating) income. G - Includes sale of leased depts. H - Some or all data are not available, due to a fiscal year change.

TELECOMMUNICATIONS: WIRELESS INDUSTRY SURVEY

Data by Standard & Poor's Compustat — A Division of The McGraw-Hill Companies

Net Income
Million $ Ticker Company Yr. End DEC DEC DEC DEC DEC DEC DEC DEC DEC DEC DEC DEC DEC DEC DEC DEC DEC 2009 238.4 176.8 63.3 (2,436.0) 66.3 193.9 67.6 12,535.0 35.5 (2.2) 511.3 89.6 120.8 3.5 662.0 3,651.0 334.5 2008 236.3 149.4 47.2 (2,796.0) 78.5 93.5 (157.1) 12,867.0 34.8 3.7 365.7 102.6 182.7 (1.9) 681.0 6,428.0 434.9 2007 92.7 100.4 32.5 (29,580.0) 52.4 343.3 (5.2) 11,951.0 37.9 21.5 418.4 73.2 214.7 13.7 2,917.0 5,510.0 917.1 2006 28.3 53.8 (7.2) 995.0 89.7 161.8 40.2 7,356.0 23.5 7.8 370.0 86.3 254.0 18.5 593.0 5,480.0 445.6 20.0 (47.5) (25.0) (137.5) (133.4) 179.5 2005 (143.9) 198.7 1.1 1,801.0 9.8 649.0 12.9 4,786.0 13.6 3.7 334.5 (64.5) 200.2 20.8 (757.0) 7,397.0 381.7 (41.6) (393.4) 30.0 50.6 (94.6) 155.0 2004 (239.2) NA NA (1,012.0) 15.1 42.6 12.2 4,979.0 12.1 (11.5) 337.2 64.2 72.2 21.3 (1,794.0) 7,261.0 386.3 (39.3) (306.9) 904.6 (72.1) (144.0) 109.0 1999 (49.4) NA NA 1,736.0 NA 314.2 (289.2) 6,573.0 9.7 NA 239.8 38.0 117.1 (9.2) 1,102.0 4,208.0 NA (22.2) (94.3) (164.6) 20.3 (33.4) 300.8 10-Yr. NM NA NA NM NA (4.7) NM 6.7 13.9 NA 7.9 9.0 0.3 NM (5.0) (1.4) NA NM NM NM NM NM (3.3) WIRELESS TELECOMMUNICATION SERVICES‡ AMT [] AMERICAN TOWER CORP PCS [] METROPCS COMMUNICATIONS INC NTLS § NTELOS HOLDINGS CORP S [] SPRINT NEXTEL CORP SVR † SYNIVERSE HOLDINGS INC TDS USMO † TELEPHONE & DATA SYSTEMS INC § USA MOBILITY INC CAGR (%) 5-Yr. NM NA NA NM 34.5 35.4 40.9 20.3 24.0 NM 8.7 6.9 10.9 (30.2) NM (12.8) (2.8) NM NM NM NM NM 14.7 1-Yr. 0.9 18.3 34.1 NM (15.5) 107.3 NM (2.6) 2.1 NM 39.8 (12.7) (33.9) NM (2.8) (43.2) (23.1) NM NM NM NM NM 554.8 2009 NM ** ** (140) ** 62 NM 191 368 ** 213 236 103 NM 60 87 ** NM NM NM (28) NM 72 Index Basis (1999 = 100) 2008 NM ** ** (161) ** 30 NM 196 360 ** 153 270 156 NM 62 153 ** NM NM NM (1,721) NM 11 2007 NM ** ** (1,704) ** 109 NM 182 393 ** 174 193 183 NM 265 131 ** NM NM NM (1,527) NM 105 2006 NM ** ** 57 ** 51 NM 112 243 ** 154 227 217 NM 54 130 ** NM NM NM (679) NM 60 2005 NM NA NA 104 NA 207 NM 73 141 NA 140 (170) 171 NM (69) 176 NA NM NM NM 250 NM 52

INTEGRATED TELECOMMUNICATION SERVICES‡ T [] AT&T INC ATNI § ATLANTIC TELE-NETWORK INC CBEY § CBEYOND INC CTL [] CENTURYLINK INC CBB † CINCINNATI BELL INC FTR GNCMA Q VZ WIN [] § [] [] [] FRONTIER COMMUNICATIONS CORP GENERAL COMMUNICATION -CL A QWEST COMMUNICATION INTL INC VERIZON COMMUNICATIONS INC WINDSTREAM CORP

OTHER COMPANIES WITH SIGNIFICANT WIRELESS TELECOMMUNICATIONS OPERATIONS ALSK ALASKA COMMUNICATIONS SYS GP DEC (3.3) (10.1) 144.1 CCI CROWN CASTLE INTL CORP DEC (114.3) (48.9) (222.8) LEAP LEAP WIRELESS INTL INC DEC (239.5) (147.8) (75.9) PWAV POWERWAVE TECHNOLOGIES INC DEC (5.7) (348.7) (309.5) SBAC SBA COMMUNICATIONS CORP DEC (140.9) (46.8) (77.9) USM US CELLULAR CORP DEC 216.0 33.0 314.7

Note: Data as originally reported. CAGR-Compound annual growth rate. ‡S&P 1500 index group. []Company included in the S&P 500. †Company included in the S&P MidCap 400. §Company included in the S&P SmallCap 600. #Of the following calendar year. **Not calculated; data for base year or end year not available.

TELECOMMUNICATIONS: WIRELESS INDUSTRY SURVEY

Data by Standard & Poor's Compustat — A Division of The McGraw-Hill Companies

Return on Revenues (%)
Ticker Company Yr. End DEC DEC DEC DEC DEC DEC DEC 2009 13.8 5.1 11.5 NM 13.7 3.9 23.3 2008 14.8 5.4 8.7 NM 15.5 1.8 NM 2007 6.4 4.5 6.5 NM 13.9 7.1 NM 2006 2.2 3.5 NM 2.4 26.4 3.7 8.1 2005 NM 19.1 0.4 5.2 2.9 16.4 2.1 2009 2.9 2.6 6.6 NM 5.3 2.5 29.7 WIRELESS TELECOMMUNICATION SERVICES‡ AMT [] AMERICAN TOWER CORP PCS [] METROPCS COMMUNICATIONS INC NTLS § NTELOS HOLDINGS CORP S [] SPRINT NEXTEL CORP SVR † SYNIVERSE HOLDINGS INC TDS USMO † TELEPHONE & DATA SYSTEMS INC § USA MOBILITY INC

Return on Assets (%)
2008 2.9 2.4 5.1 NM 6.8 1.1 NM 2007 1.1 2.0 3.6 NM 5.5 3.3 NM 2006 0.3 1.7 NM 1.0 11.5 1.5 6.6 2005 NM NA NA 2.5 0.7 6.1 1.8 2009 7.6 8.2 36.8 NM 11.5 5.1 45.1

Return on Equity (%)
2008 7.9 7.7 27.9 NM 15.6 2.4 NM 2007 2.5 8.9 20.1 NM 11.8 9.2 NM 2006 0.6 13.8 NM 1.9 24.3 4.7 8.0 2005 NM NA NA 5.5 5.2 19.8 2.4

INTEGRATED TELECOMMUNICATION SERVICES‡ T [] AT&T INC ATNI § ATLANTIC TELE-NETWORK INC CBEY § CBEYOND INC CTL [] CENTURYLINK INC CBB † CINCINNATI BELL INC FTR GNCMA Q VZ WIN [] § [] [] [] FRONTIER COMMUNICATIONS CORP GENERAL COMMUNICATION -CL A QWEST COMMUNICATION INTL INC VERIZON COMMUNICATIONS INC WINDSTREAM CORP

DEC DEC DEC DEC DEC DEC DEC DEC DEC DEC

10.2 14.7 NM 10.3 6.7 5.7 0.6 5.4 3.4 11.2

10.4 16.8 1.1 14.1 7.3 8.2 NM 5.1 6.6 13.7

10.0 20.3 7.7 16.3 5.4 9.5 2.6 21.2 5.9 28.2

11.7 15.1 3.6 15.1 6.8 12.5 3.9 4.3 6.2 14.7

10.9 13.3 2.3 13.7 NM 9.3 4.7 NM 9.8 13.1

4.7 8.2 NM 3.3 3.8 1.8 0.3 3.3 1.7 3.9

4.8 9.1 1.8 4.4 4.5 2.6 NM 3.2 3.3 5.4

4.4 11.7 12.5 5.4 3.1 3.1 1.4 13.3 2.9 11.3

3.5 8.8 6.0 4.9 3.9 3.8 2.1 2.8 3.1 6.9

3.8 6.6 3.5 4.3 NM 3.1 2.4 NM 4.4 7.6

12.6 14.7 NM 8.1 NA 28.5 1.3 NA 8.8 130.4

12.2 15.9 2.7 11.1 NA 24.1 NM NA 13.9 91.4

10.4 19.6 19.7 12.7 NA 20.9 5.5 NA 11.1 156.8

8.6 16.0 9.4 10.9 NA 24.2 7.5 NA 12.4 22.5

10.1 12.1 737.6 9.5 NA 16.7 8.7 NA 19.2 10.6

OTHER COMPANIES WITH SIGNIFICANT WIRELESS TELECOMMUNICATIONS OPERATIONS ALSK ALASKA COMMUNICATIONS SYS GP DEC NM NM 37.4 CCI CROWN CASTLE INTL CORP DEC NM NM NM LEAP LEAP WIRELESS INTL INC DEC NM NM NM PWAV POWERWAVE TECHNOLOGIES INC DEC NM NM NM SBAC SBA COMMUNICATIONS CORP DEC NM NM NM USM US CELLULAR CORP DEC 5.1 0.8 8.0

5.7 NM NM NM NM 5.2

NM NM 3.3 6.1 NM 5.1

NM NM NM NM NM 3.8

NM NM NM NM NM 0.6

23.5 NM NM NM NM 5.6

3.5 NM NM NM NM 3.2

NM NM 1.3 4.7 NM 2.9

NM NM NM NA NM 6.5

NM NM NM NM NM 1.0

584.5 NM NM NM NM 10.2

NA NM NM NM NM 6.3

NA NM 2.0 9.2 NA 5.8

Note: Data as originally reported. ‡S&P 1500 index group. []Company included in the S&P 500. †Company included in the S&P MidCap 400. §Company included in the S&P SmallCap 600. #Of the following calendar year.

TELECOMMUNICATIONS: WIRELESS INDUSTRY SURVEY

Data by Standard & Poor's Compustat — A Division of The McGraw-Hill Companies

Current Ratio
Ticker Company Yr. End DEC DEC DEC DEC DEC DEC DEC 2009 1.7 1.9 1.5 1.3 2.9 2.1 3.2 2008 1.6 1.4 1.6 1.3 3.5 2.1 2.2 2007 0.8 3.0 1.5 1.0 2.1 1.4 1.6 2006 0.9 1.7 1.3 1.1 1.9 1.4 1.5 2005 0.5 2.6 1.1 1.4 1.9 1.7 1.2 2009 55.5 56.4 74.6 45.0 41.8 23.1 0.0 WIRELESS TELECOMMUNICATION SERVICES‡ AMT [] AMERICAN TOWER CORP PCS [] METROPCS COMMUNICATIONS INC NTLS § NTELOS HOLDINGS CORP S [] SPRINT NEXTEL CORP SVR † SYNIVERSE HOLDINGS INC TDS USMO † TELEPHONE & DATA SYSTEMS INC § USA MOBILITY INC

Debt / Capital Ratio (%)
2008 59.1 55.7 77.9 43.9 45.9 24.9 0.0 2007 58.6 58.2 77.6 40.0 50.2 24.1 0.0 2006 42.8 70.3 79.3 24.9 42.7 33.8 0.0 2005 43.1 47.8 98.2 24.4 49.5 38.8 0.0 2009 NM 522.5 NM NM 326.1 172.8 0.0

Debt as a % of Net Working Capital
2008 NM NM NM NM 260.1 189.5 0.0 2007 NM 259.1 NM NM 700.1 151.7 0.0 2006 NM 799.0 NM NM 630.3 295.0 0.0 2005 NM 239.8 NM 409.2 629.4 468.5 0.0

INTEGRATED TELECOMMUNICATION SERVICES‡ T [] AT&T INC ATNI § ATLANTIC TELE-NETWORK INC CBEY § CBEYOND INC CTL [] CENTURYLINK INC CBB † CINCINNATI BELL INC FTR GNCMA Q VZ WIN [] § [] [] [] FRONTIER COMMUNICATIONS CORP GENERAL COMMUNICATION -CL A QWEST COMMUNICATION INTL INC VERIZON COMMUNICATIONS INC WINDSTREAM CORP

DEC DEC DEC DEC DEC DEC DEC DEC DEC DEC

0.7 2.4 1.3 0.7 1.0 1.7 2.0 0.9 0.8 2.1

0.5 2.7 1.3 1.2 1.0 1.2 1.4 0.8 1.0 1.1

0.6 2.6 1.3 0.4 1.0 1.2 1.4 0.8 0.8 0.8

0.6 2.6 1.3 0.5 1.1 3.0 2.2 0.7 0.7 1.3

0.6 1.4 1.3 0.6 1.1 0.9 2.0 0.7 0.7 1.1

33.9 18.1 0.0 38.2 150.0 81.9 70.2 110.4 34.7 79.3

34.5 20.2 0.0 45.1 157.1 79.9 70.0 112.2 34.1 80.2

29.0 16.7 0.0 39.3 150.0 73.5 61.1 95.7 22.4 74.7

25.9 18.7 0.0 38.4 162.1 73.9 59.6 111.7 23.5 78.9

27.0 27.8 0.0 35.6 152.0 74.5 60.2 126.6 26.4 5.4

NM 87.3 0.0 NM NM NM 773.0 NM NM 839.9

NM 87.9 0.0 NM NM NM NM NM NM NM

NM 68.0 0.0 NM NM NM NM NM NM NM

NM 89.1 0.0 NM NM 526.4 519.8 NM NM NM

NM 382.2 0.0 NM NM NM 620.4 NM NM 765.1

OTHER COMPANIES WITH SIGNIFICANT WIRELESS TELECOMMUNICATIONS OPERATIONS ALSK ALASKA COMMUNICATIONS SYS GP DEC 1.0 1.2 1.5 CCI CROWN CASTLE INTL CORP DEC 1.6 0.6 1.3 LEAP LEAP WIRELESS INTL INC DEC 1.5 1.6 2.1 PWAV POWERWAVE TECHNOLOGIES INC DEC 2.5 1.9 1.8 SBAC SBA COMMUNICATIONS CORP DEC 1.5 1.7 2.8 USM US CELLULAR CORP DEC 1.6 1.4 1.4

1.2 4.0 1.5 2.1 2.2 1.0

1.4 0.5 2.1 2.8 2.5 0.8

94.2 65.7 57.5 99.8 80.4 17.9

97.8 64.7 57.4 105.2 83.8 21.1

85.4 61.4 51.0 47.8 85.0 20.9

106.0 76.2 46.2 33.6 80.1 21.7

104.4 56.6 26.2 36.1 90.6 25.3

NM NM NM 153.3 NM 240.3

NM NM 921.1 171.1 NM 467.5

NM NM 534.7 182.1 NM 437.3

NM 586.4 905.3 132.3 NM NM

NM NM 244.3 85.8 979.9 NM

Note: Data as originally reported. ‡S&P 1500 index group. []Company included in the S&P 500. †Company included in the S&P MidCap 400. §Company included in the S&P SmallCap 600. #Of the following calendar year.

TELECOMMUNICATIONS: WIRELESS INDUSTRY SURVEY

Data by Standard & Poor's Compustat — A Division of The McGraw-Hill Companies

Price / Earnings Ratio (High-Low)
Ticker Company Yr. End DEC DEC DEC DEC DEC DEC DEC 2009 73 - 42 38 - 11 17 9 NM - NM 20 - 11 20 512 3 2008 77 - 32 51 - 24 29 - 16 NM - NM 20 6 82 - 26 NM - NM 2007 NM - NM NM - 47 42 - 21 NM - NM 24 - 13 25 - 18 NM - NM 2006 NM - NM NA - NA NM - NM 79 - 47 18 9 40 20 25 11 2005 NM NA NA 31 NM 16 85 NM NA NA 25 NM 6 51 WIRELESS TELECOMMUNICATION SERVICES‡ AMT [] AMERICAN TOWER CORP PCS [] METROPCS COMMUNICATIONS INC NTLS § NTELOS HOLDINGS CORP S [] SPRINT NEXTEL CORP SVR † SYNIVERSE HOLDINGS INC TDS USMO † TELEPHONE & DATA SYSTEMS INC § USA MOBILITY INC

Dividend Payout Ratio (%)
2009 0 0 71 NM 0 24 68 2008 0 0 79 NM 0 51 NM 2007 0 NA 65 NM 0 13 NM 2006 0 NA NM 29 0 27 248 2005 NM NA NA 34 0 8 319 2009 0.0 0.0 7.8 0.0 0.0 0.0 0.0 4.3 0.0 0.0

Dividend Yield (High-Low, %)
2008 0.0 0.0 4.9 0.0 0.0 1.9 21.8 0.0 0.0 2.8 0.0 0.0 0.6 9.5 2007 0.0 NA 3.1 0.8 0.0 0.0 NA 1.5 0.4 0.0 2006 0.0 NA 0.0 0.6 0.0 0.0 NA 0.0 0.4 0.0 2005 0.0 NA NA 1.4 0.0 1.2 6.2 0.0 NA NA 1.1 0.0 0.5 3.8

2.0 - 1.2 23.1 - 14.2

0.7 - 0.5 28.0 - 12.6

1.1 - 0.7 23.0 - 12.2

INTEGRATED TELECOMMUNICATION SERVICES‡ T [] AT&T INC ATNI § ATLANTIC TELE-NETWORK INC CBEY § CBEYOND INC CTL [] CENTURYLINK INC CBB † CINCINNATI BELL INC FTR GNCMA Q VZ WIN [] § [] [] [] FRONTIER COMMUNICATIONS CORP GENERAL COMMUNICATION -CL A QWEST COMMUNICATION INTL INC VERIZON COMMUNICATIONS INC WINDSTREAM CORP

DEC DEC DEC DEC DEC DEC DEC DEC DEC DEC

14 - 10 25 6 NM - NM 15 9 10 3 23 NM 13 27 15 14 54 8 20 8

19 16 NM 12 12 -

10 7 63 6 4

22 16 60 13 25 25 62 724 8-

16 9 35 10 17 19 29 4 19 6

19 17 NM 14 17 19 47 30 21 15 -

13 9 33 10 10 15 30 16 16 12

18 - 15 16 - 10 NM - 70 14 - 12 NM - NM 24 - 20 30 - 21 NM - NM 15 - 11 NA - NA

77 33 NM 110 0 263 0 84 144 132

74 37 0 61 0 172 NM 82 77 101

73 18 0 7 0 154 0 0 87 52

70 30 0 8 0 127 0 0 86 48

91 42 0 9 NM 169 0 NM 60 NA

7.6 5.5 0.0 12.0 0.0 -

5.6 1.3 0.0 7.5 0.0

7.7 5.1 0.0 10.6 0.0 15.7 0.0 15.6 7.6 15.7 -

3.8 2.4 0.0 5.2 0.0 7.7 0.0 4.5 3.9 7.1

4.4 1.9 0.0 0.7 0.0 8.3 0.0 0.0 4.6 8.1 -

3.3 1.1 0.0 0.5 0.0 6.2 0.0 0.0 3.6 6.4

5.5 3.4 0.0 0.8 0.0 8.4 0.0 0.0 5.4 4.1 -

3.7 1.7 0.0 0.6 0.0 6.7 0.0 0.0 4.2 3.1

5.9 4.2 0.0 0.8 0.0 8.3 0.0 0.0 5.5 NA -

5.0 2.6 0.0 0.7 0.0 7.1 0.0 0.0 3.9 NA

22 - 11 NM - NM 18 5 20 - 10 14 6

18.8 - 11.3 0.0 - 0.0 11.2 - 6.6 7.1 - 5.3 15.9 - 8.6

OTHER COMPANIES WITH SIGNIFICANT WIRELESS TELECOMMUNICATIONS OPERATIONS ALSK ALASKA COMMUNICATIONS SYS GP DEC NM - NM NM - NM 54 CCI CROWN CASTLE INTL CORP DEC NM - NM NM - NM NM - NM LEAP LEAP WIRELESS INTL INC DEC NM - NM NM - NM NM - NM PWAV POWERWAVE TECHNOLOGIES INC DEC NM - NM NM - NM NM - NM SBAC SBA COMMUNICATIONS CORP DEC NM - NM NM - NM NM - NM USM US CELLULAR CORP DEC 19 12 NM 72 29 19

33 NM NM NM NM 34 -

20 NM NM NM NM 24

NM - NM NM - NM 79 - 46 28 - 14 NM - NM 32 23

NM NM NM NM NM 0

NM NM NM NM NM 0

25 NM NM NM NM 0

179 NM NM NM NM 0

NM NM 0 0 NM 0

17.5 0.0 0.0 0.0 0.0 0.0 -

8.7 0.0 0.0 0.0 0.0 0.0

10.7 0.0 0.0 0.0 0.0 0.0 -

5.7 0.0 0.0 0.0 0.0 0.0

6.8 0.0 0.0 0.0 0.0 0.0 -

5.0 0.0 0.0 0.0 0.0 0.0

9.1 0.0 0.0 0.0 0.0 0.0 -

5.4 0.0 0.0 0.0 0.0 0.0

10.2 0.0 0.0 0.0 0.0 0.0 -

6.7 0.0 0.0 0.0 0.0 0.0

Note: Data as originally reported. ‡S&P 1500 index group. []Company included in the S&P 500. †Company included in the S&P MidCap 400. §Company included in the S&P SmallCap 600. #Of the following calendar year.

TELECOMMUNICATIONS: WIRELESS INDUSTRY SURVEY

Data by Standard & Poor's Compustat — A Division of The McGraw-Hill Companies

Earnings per Share ($)
Ticker Company Yr. End DEC DEC DEC DEC DEC DEC DEC 2009 0.60 0.50 1.50 (0.84) 0.96 1.77 2.95 2008 2007 2006 0.06 0.16 (0.95) 0.34 1.34 1.39 1.47 2005 (0.47) 0.58 0.03 0.88 0.09 5.63 0.47 WIRELESS TELECOMMUNICATION SERVICES‡ AMT [] AMERICAN TOWER CORP PCS [] METROPCS COMMUNICATIONS INC NTLS § NTELOS HOLDINGS CORP S [] SPRINT NEXTEL CORP SVR † SYNIVERSE HOLDINGS INC TDS USMO † TELEPHONE & DATA SYSTEMS INC § USA MOBILITY INC

Tangible Book Value per Share ($)
2009 (1.19) (0.52) (3.99) (1.81) (4.32) 15.09 7.05 2008 2.03 (1.11) (4.50) (1.15) (3.93) 14.13 5.85 2007 2.09 (0.67) (4.95) (2.14) (5.53) 14.47 6.17 2006 5.17 (10.63) (6.32) (2.39) (2.37) 11.80 10.61 2005 5.81 (2.08) (38.53) 0.86 (3.41) 9.37 12.60 2009 43.84 - 25.45 18.98 - 5.65 24.80 - 13.66 5.94 - 1.83 19.56 - 10.81 35.98 - 22.01 14.10 - 8.67

Share Price (High-Low, $)
2008 46.10 - 19.35 21.86 - 10.23 32.10 - 18.07 13.16 - 1.35 22.93 - 6.80 66.19 - 21.24 14.72 - 6.43 2007 46.53 40.87 33.02 23.42 19.04 36.34 13.77 16.60 12.96 9.93 2006 38.74 NA 18.02 26.89 24.59 26.66 NA 10.97 15.92 12.15 2005 28.33 - 16.28 NA NA NA NA 27.20 - 21.57 21.42 - 10.64 88.44 - 35.86 39.75 - 24.02

0.60 0.22 0.43 0.29 1.12 0.78 (0.98) (10.31) 1.16 0.78 0.81 (5.83) 2.92 (0.19)

73.67 - 53.02 28.46 - 12.85

55.22 - 35.14 29.81 - 15.87

INTEGRATED TELECOMMUNICATION SERVICES‡ T [] AT&T INC ATNI § ATLANTIC TELE-NETWORK INC CBEY § CBEYOND INC CTL [] CENTURYLINK INC CBB † CINCINNATI BELL INC FTR GNCMA Q VZ WIN [] § [] [] [] FRONTIER COMMUNICATIONS CORP GENERAL COMMUNICATION -CL A QWEST COMMUNICATION INTL INC VERIZON COMMUNICATIONS INC WINDSTREAM CORP

DEC DEC DEC DEC DEC DEC DEC DEC DEC DEC

2.12 2.33 (0.08) 2.55 0.37 0.38 0.07 0.38 1.29 0.76

2.17 2.29 0.13 3.57 0.39 0.58 (0.04) 0.39 2.26 0.99

1.95 2.50 0.77 3.82 0.25 0.65 0.26 1.59 1.90 1.94

1.89 1.73 0.29 3.17 0.31 0.79 0.34 0.31 1.88 0.94

1.42 1.09 0.14 2.55 (0.30) 0.59 0.38 (0.41) 2.67 0.80

(5.62) 11.73 5.47 (7.48) (4.82) (8.20) (0.45) (0.68) J (19.60) (7.64)

(6.65) 10.02 5.05 (10.39) (4.55) (7.98) 3.64 (0.85) J (9.68) (7.01)

(2.27) 10.02 4.51 (7.51) (3.95) (6.66) (0.12) 0.32 J (2.25) (6.11)

(1.90) 7.85 3.32 (2.68) (4.39) (4.01) 0.06 (0.76) J (3.18) (5.44)

8.29 6.05 2.81 0.90 (3.82) (4.38) 0.07 (1.72) J (4.80) NA

29.46 58.51 20.80 37.15 3.66 -

21.44 13.93 11.01 23.41 1.23

41.94 - 20.90 35.52 - 16.33 39.62 - 8.16 42.00 - 20.45 4.84 - 1.37 12.94 - 6.35 11.00 - 4.50 7.07 - 2.05 44.32 - 23.07 14.05 - 6.37

42.97 39.21 46.51 49.94 6.25 -

31.94 23.71 26.80 39.91 4.18

36.21 - 24.24 29.99 - 15.20 34.48 - 9.45 44.11 - 32.54 5.22 - 3.21 14.95 16.09 9.22 38.95 14.43 11.97 10.12 5.10 30.04 11.13

25.98 - 21.75 18.00 - 10.97 13.87 - 9.85 36.50 - 29.55 4.88 - 3.35 14.05 - 12.08 11.31 - 8.00 5.95 - 3.30 41.06 - 29.13 NA NA

8.87 - 5.32 8.76 - 3.76 4.87 - 2.86 34.76 - 26.10 11.65 - 6.28

16.05 - 12.03 16.10 - 7.51 10.45 - 6.23 46.24 - 35.60 15.63 - 12.38

OTHER COMPANIES WITH SIGNIFICANT WIRELESS TELECOMMUNICATIONS OPERATIONS ALSK ALASKA COMMUNICATIONS SYS GP DEC (0.08) (0.23) 3.38 0.48 CCI CROWN CASTLE INTL CORP DEC (0.47) (0.25) (0.87) (0.33) LEAP LEAP WIRELESS INTL INC DEC (3.30) (2.17) (1.13) (0.41) PWAV POWERWAVE TECHNOLOGIES INC DEC (0.04) (2.66) (2.37) (1.19) SBAC SBA COMMUNICATIONS CORP DEC (1.20) (0.43) (0.74) (1.36) USM US CELLULAR CORP DEC 2.48 0.38 3.59 2.05

(1.04) (2.03) 0.50 0.49 (1.28) 1.79

0.07 (4.97) (8.85) 0.00 (7.15) 16.99

(0.46) (6.31) (9.78) (0.14) (7.94) 14.55

0.33 (5.24) (8.94) (0.27) (4.91) 13.78

(2.00) 1.81 (4.39) 0.55 (3.21) 11.25

(1.89) 3.91 2.41 2.09 0.58 9.76

9.85 - 4.92 39.99 - 15.40 42.47 - 11.98 1.79 - 0.22 35.88 - 15.85 47.95 - 29.62

15.18 - 8.05 43.24 - 8.75 61.67 - 14.18 5.30 - 0.34 38.50 - 9.49 85.85 - 27.18

17.15 43.16 99.04 7.64 38.50 -

12.60 30.42 29.87 3.80 25.76

15.86 - 9.40 35.83 - 26.41 61.90 - 34.54 15.76 - 5.87 29.41 - 17.77 70.42 - 49.49

11.90 - 7.81 29.20 - 15.40 39.45 - 23.00 13.92 - 6.64 19.47 - 7.97 56.60 - 41.20

104.74 - 67.70

Note: Data as originally reported. ‡S&P 1500 index group. []Company included in the S&P 500. †Company included in the S&P MidCap 400. §Company included in the S&P SmallCap 600. #Of the following calendar year. J-This amount includes intangibles that cannot be identified.

The analysis and opinion set forth in this publication are provided by Standard & Poor’s Equity Research Services and are prepared separately from any other analytic activity of Standard & Poor’s. In this regard, Standard & Poor’s Equity Research Services has no access to nonpublic information received by other units of Standard & Poor’s. The accuracy and completeness of information obtained from third-party sources, and the opinions based on such information, are not guaranteed.

TELECOMMUNICATIONS: WIRELESS INDUSTRY SURVEY

Data by Standard & Poor's Compustat — A Division of The McGraw-Hill Companies