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Trends in Mobile Communications and Technology
March 2012
Evercore - Confidential
� Relentless migration of data and entertainment consumption to mobile
– Mobile data volumes have grown 33-fold in the last five years, and are projected to grow 18-fold in the next five years
– Video traffic, which is now 50% of mobile traffic and will be 70% by 2016 has surged due to the proliferation of OTT and time/device
shifts in content viewing habits, forcing over 40% of traffic off traditional wireless networks to WiFi networks
– WiFi is delivering almost twice as much mobile data to users as the AT&T and Verizon cellular networks combined
� Relentless migration of mobile devices to smartphones
– Smartphone penetration in North America has grown from 26% in 2009 to 75% expected by 2013, while global penetration has grown from 15% in 2009 to 42% expected in 2012
– 2012 sales of tablets and laptops in the U.S. is estimated to total $33.2bn vs. $33.7bn for smartphones
� Increasing wireless bandwidth constraints
– Despite this traffic growth, delays in spectrum allocation and carrier uncertainty regarding data intensive business models have contributed to a lack of increase in carrier capex
– Carriers outside the US, Japan and Korea have been slow to deploy new LTE networks
– Big winners have been tower, DAS, Wi-Fi and “small cell” related companies
� High-end smartphone duopoly squeezing carrier margins through subsidies
– In the U.S., subsidies now exceed annual capex; this trend is not likely sustainable, and may force carriers towards lower cost solutions
– Subsidies paid by AT&T and Verizon have doubled in 2 years: from ~$10.3bn in 2009 to an expected ~$21.2bn in 2012
– In five short years the profit pool in the handset area has seen a dramatic shift, with Apple now garnering 79% of profits and Nokia having
gone from a 60% profit share to zero; Apple gets a higher subsidy than all other products, hence a dependency on the status quo
– Most of the future growth will come from low end smartphones (under $150)
– Given that Asia and Africa have smartphone penetration below the global average, as well as the need for new web entrants (e.g., Facebook
and Amazon) to penetrate those territories with affordable products, future low cost disruption is possible through Android and HTML5-based ecosystems
1
Executive Summary
Evercore - Confidential
� Driven by accelerating take-up of smartphones, adoption of mobile broadband and shifts in consumer usage behavior (i.e. strong appetite for streaming video and social networking sites)
The Unprecedented Surge in Mobile Traffic is Expected to Continue
2
Sources: Jefferies research report “WiFi: Revenge of the Fixed Line Network,” dated January 25, 2012 and Cisco Visual Networking Index Forecasts dated February 14, 2012
Per Device Usage (MB per month): 2011 to 2016
Global Mobile Data Traffic, 2007-2010 (MB per month)
-
1,000
2,000
3,000
2007 2008 2009 2010
0.6 1.32.4
4.2
6.9
10.8
0
5
10
15
2011 2012 2013 2014 2015 2016
Global Mobile Data Traffic, 2011-2016 (EB per month)� Global mobile data traffic is expected to increase 18-fold
between 2011 and 2016
� According to Cisco, average mobile network connection speeds will increase 9-fold by 2016, due to 4G, a similar improvement as what occurred in the 3G transition
� Mobile video content will generate much of the mobile traffic data growth through 2016― This trend in mobile video will still leave carriers looking for
ways to offload the traffic congesting their networks
� Global mobile data traffic grew 33-fold between 2007 and 2010
� Much of the rise was due to the rapid deployment of 3G, which increased network speeds ~10-fold over 2G (e.g. 270 kbps for GSM to 2Mbps for WCDMA)
� Growth in tablets and cellular enabled laptops have been driving usage
� The average traffic per device is expected to increase rapidly― The average smartphone will generate 2.6 GB of traffic per
month in 2016, a 17-fold increase over the 2011 average of 150 MB per month
4.3 150 517 2,131 108
2,576
4,223
6,942
0
2,000
4,000
6,000
8,000
Basic/FeaturePhone
Smartphone Tablet Laptop and netbook
2011 2016
“The Obvious”
Evercore - Confidential
� Unlicensed WiFi spectrum accounted for 39% of data delivered to mobile devices, up from 32% two months earlier
� WiFi is delivering almost twice as much mobile data to users as the AT&T and Verizon cellular networks combined
� “The bullish view on WiFi substitution sometimes argues that WiFi is a way for operators to “save” capex. We do not subscribe to this view. Wifi is a safety valve relieving pressure on mobile networks as mobile data traffic grows exponentially.” – Jefferies, “WiFi: Revenge of the Fixed Line Network” (1/12/12)
– Carriers have already begun to rely on offloading, and this trend is only expected to grow
� The prevalence of data consumption indoors has enabled offloading – WiFi becomes a viable substitute to the mobile network in many instances
− Cisco projects that mobile offload as a percent of total mobile data traffic from all mobile-connected devices (not just handsets) will increase from 11% in 2011 to 22% in 2016
Sources: Jefferies research report “WiFi: Revenge of the Fixed Line Network,” dated January 25, 2012 and Cisco Visual Networking Index Forecasts dated February 14, 2012
WiFi Offloading is Critical to Meet Growing Traffic Needs
Consumers are using more applications that are suited to being relatively stationary (i.e. reading a web page, watching video clip) as opposed to truly mobile; but they want this access from “portable” devices
Wireless Data Usage is Moving Indoors. . .
US Wireless Usage by Data Session Location
. . . Due to Evolution of Device Portfolio
US WiFi Usage by Device Type
Mobile35%
Indoor65%
February 2011
Laptops 65%
Smartphones & Tablets
35%
June 2010
Mobile43%
Indoor57%
January 2010
Laptops 37%
Smartphones & Tablets
63%
June 2011
3
Help from WiFi
Evercore - Confidential
WiFi Substitution Has Been Driven by a Confluence of Developments
� Public WiFi hotspots are expected to grow nearly 500% worldwide
Proliferation of WiFi Hotspots, Especially Public Greater Penetration of WiFi in Households
Global # of public hotspots (mm) Global # of private hotspots (mm)
Source: Jefferies research report “WiFi: Revenge of the Fixed Line Network,” dated January 25, 2012, Cisco Visual Networking Index Forecast dated February 14, 2012
US Households with WiFi
with WiFi5%
No WiFi95%
2003
with WiFi34%
No WiFi66%
2011
0.5 0.81.3
2.1
3.3
4.5
5.8
0.0
2.0
4.0
6.0
8.0
2009 2010 2011 2012 2013 2014 2015
233282
345416
492571
646
0
200
400
600
800
2009 2010 2011 2012 2013 2014 2015
� In the US, more than one in three homes have WiFi today and this number is expected to roughly double over the next 2-4 years
4
Rise in Mobile Video
� In 2011, over 50% of all mobile data traffic was due to video consumption; by 2016 it will be 70%
Video '11-'15 CAGR 90.0%
Total '11-'15 CAGR 78.4%
PB per M
onth
WiFi27%
CMRS Networks
73%
March 2010
WiFi39%
CMRS Networks
61%
November 2011
� Wireless users are accessing the Internet via WiFi in ever greater numbers
Leading to Growing Usage of WiFi by Consumers
Wireless Access by Network Platform
Problems Find Solutions
Evercore - Confidential
The majority of smartphone growth is projected to come from the low-end segment, particularly in emerging markets; while the largest value segment of the market remains the high end
81 120 146 170 286481 624 750 849 927
9161,032 1,051 1,020
1,069
1,0531,006
949901 866
0
500
1,000
1,500
2,000
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
Smartphone Basic and Feature Phones
$1 $4 $5 $8 $15 $23 $37 $7 $22 $33 $54
$71 $77
$78
$50 $69
$116
$139
$149 $161
$170
$0
$50
$100
$150
$200
$250
$300
2009 2010 2011E 2012E 2013E 2014E 2015E
Low End (<$150) Mid End ($150-$250) High End (>$250)
Source: BAML Global Wireless Matrix 4Q11, Morgan Stanley Internet Media and eCommerce deck dated January 18, 2012, Credit Suisse Smartphones report dated June 21, 2011
Global Handset Sales by Type (mm)
Global Smartphone Dollar Volumes by Price Point ($bn)
Global Smartphone Penetration
15%
26%
17%12%
42%
75%
54%
40%
0%
10%
20%
30%
40%
50%
60%
70%
80%
WW NA Europe Asia
2009 2010 2011E 2012E 2013E
Smartphone '11-'15 CAGR: 17.8%
Total Market '11-'15 CAGR: 4.0%
Low End '11-'15 CAGR 62.9%Mid End '11-'15 CAGR 23.6%High End '11-'15 CAGR 10.0%
5
Global Smartphone Unit Sales by Price Point (mm)
9 33 42 62 113 198
316
35 103 156
252 338
370
371
126
162
285
341
368
400
426
0
200
400
600
800
1,000
1,200
2009 2010 2011E 2012E 2013E 2014E 2015E
Low End (<$150) Mid End ($150-$250) High End (>$250)
Low End '11-'15 CAGR 65.6%Mid End '11-'15 CAGR 24.2%High End '11-'15 CAGR 10.6%
Saturated
Powerful New Trend: Low End Smartphones
Evercore - Confidential
Data Has Been the Growth Engine for Wireless Operators…
“At the FCC, we’ve recognized that for mobile carriers, like other businesses, matching price to cost can yield efficiency and other benefits. ... We recognize that investment won’t occur without revenue and without returns on investment — and that is why we haven’t prohibited usage-based pricing.“ -- Julius Genachowski, Mobile World Congress in Barcelona, February 29, 2012
� In the U.S., non-voice (including text) reached 31% of US wireless revenues in 2010, up from 7% in 2005
� In Western Europe, data revenue including SMS has been growing at a stable 10-13% annual growth rate over the last 2 years and non-SMS revenues have been growing at ~20%, driven by rising smartphone penetration
U.S. Mobile Non-Voice Revenue ($bn)
� But threats are looming
− “Dumb pipe” phenomenon as SMS revenues are dis-intermediated by “bring your own” messaging (e.g. iMessage)
− Pricing pressure or substitution due to WiFi
− Voice apps (Skype, Vonage, Google) accelerate mobile voice revenue declines
− Who owns the hotspot, and who ultimately is the initiator of the offload session could influence whether WiFi is a complement or a substitute for mobile operator networks. At the moment WiFi appears to be more of a necessity for mobile operators than a significant threat
Western Europe Data Revenue Growth
$4.6 $8.6
$15.2
$23.2
$32.2
$41.3
$50.1
2004 2005 2006 2007 2008 2009 2010
(10.0%)
(5.0%)
0.0%
5.0%
10.0%
15.0%
20.0%
25.0%
30.0%
35.0%
40.0%
2Q08 3Q08 4Q08 1Q09 2Q09 3Q09 4Q09 1Q10 2Q10 3Q10 4Q10 1Q10
SMS Data Non-SMS Data Total Data
Source: Jefferies TMT Mobility research report dated September 7, 2011
6
How will revenue models evolve with UBP, data caps, RCS (rich communication services), QoS, etc.?
How Will Operators Reinvent the Data Revenue Stream?
Evercore - Confidential
0
1
2
3
4
5
6
7
8
9
10
Subscribers (B
illions)
1G 2G 3G 4G
� 2G technologies, now more than 20 years old, will not peak until this year
� 3G technologies are not expected to peak for another 5 years. By 2020, the vast majority (56%) of subscribers will still be 3G
� LTE is in its infancy today. Only 35 operators have launched LTE networks with about 6-7 million subscribers (vs. 5 billion users world wide). By the end of 2012, it is estimated that there will be 100 LTE networks with ~60M subscribers
Build-outs of LTE/4G May Not Be Sufficient to Handle Bandwidth Growth, Unless Accelerated
Global Subscribers by Network Technology, 1985 – 2020E
Sources: Evercore Technology and Telecom Equipment research report dated November 20, 2011 and Jefferies TMT Mobility research report dated September 7, 2011
2G subs exceed 1G
subs more than 10
years after
inception of
industry
Growth of 2G
peaks more than 20
years after it was
first introduced
1G2G
3G
4G
7
Share of Operator RAN Investments
2G 3G 4G
North America 18% 59% 23%
Latin America 40% 60% 0%
N. Europe / C. Asia 38% 57% 5%
W. and C. Europe 33% 67% 0%
Mediterranean 29% 71% 0%
Sub-Sahara Africa 67% 33% 0%
Middle East 35% 60% 5%
India 56% 44% 0%
South East Asia 40% 60% 0%
China & NE Asia 41% 52% 7%
To meet demand, we need more spectrum and more “small cell” technologies
Adoption of New Technology Takes a Decade
Evercore - Confidential
� As operators deliver higher speeds via 4G/LTE, networks will requires a combination of more sites and/or more spectrum. But with limited spectrum, increased cell site density becomes increasingly expensive unless spectrum becomes more abundant than it is today
� On February 17, 2012, the US House and Senate passed long-awaited spectrum legislation that authorizes the FCC to conduct voluntary incentive auctions of 100+ MHz of broadcast spectrum in the 700MHz and other bands
– However, missing from this piece of legislation is the reallocation of 25MHz of spectrum by the Department of Defense, what was viewed as a key target of wireless carriers. In general, many industry participants are skeptical
– In addition, a recent revival of over-the-air-TV (pitched to consumers as a way of complementing online video) has the potential to undercut part of the FCC’s rationale for selling off this broadcast spectrum to free up spectrum for wireless carriers
– Further, broadcast spectrum sales are voluntary and expected to happen over 5-10 years; in other words, little new spectrum will be available in the US in the near term
� Currently there is a global spectrum shortage, making further LTE roll-outs difficult
� “The biggest concern facing many operators now is the squeeze on available spectrum” (ABI Research)
In the U.S., There is a Clear Spectrum Shortage
8
Technology Improvements Provide Only Part of the Solution
Evercore - Confidential
� Carriers have a handful of tools at their disposal to limit the growing congestion on their networks: 1) utilizing more spectrum, 2) upgrading core network technology (i.e. LTE/4G), 3) employing offloading technologies, and 4) adding more cell sites
� In addition to WiFi offloading, carriers will rely on network upgrades and adding tower cell sites to ease congestion
� Another topology is the use of distributed antenna systems (“DAS”) which is a solution for spectral capacity issues
9
Cell Splitting Provides Part of the Solution
Towers, DAS, Wi-Fi and “Small Cell” Related Companies Are the Big Winners
U.S. Tower and Cell Site Forecast
104,922
107,306
110,844
116,610
117,600
120,000
122,400
125,400
128,400
131,400
183,689
195,613
213,299
242,130
247,081
259,081
271,081
286,081
301,081
316,081
1.751.82 1.92
2.082.10
2.16
2.212.28
2.342.41
1.50
1.60
1.70
1.80
1.90
2.00
2.10
2.20
2.30
2.40
2.50
0
50,000
100,000
150,000
200,000
250,000
300,000
350,000
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
Towers Cell Sites Cell Sites/Tower
CAGR
2005-2011 2011-2014
Towers 2.7% 2.4%
Cell Sites 11.2% 7.5%
Cell Sites/Tower 4.0% 2.9%
3/6/09 10/9/09 5/19/10 12/24/10 8/1/11 3/8/1250%
100%
150%
200%
250%
300%
252.68
Tower Index
Tower Share Price Performance
The Physics of 4G Require Significant Incremental Cell Sites
Technology Year # of
Antennae # of Cell Sites (K) Height
Analog 1994 3 130–140 200
Digital 2G 1996 6 50 150
GSM / CDMA 2.5 2001 9–12 165–175 120
3G 2006 12 250 100
4G 2011 8–14 365 80
Evercore - Confidential
Subsidy % of
revenues
10% 12% 15% 15% 15%
Subsidy /
Gross Add
$242.16 $312.28 $387.04
$5,182
$7,178
$9,260 $10,117 $10,190
5,928
9,136 9,759
10,570 10,722
$0
$2,000
$4,000
$6,000
$8,000
$10,000
$12,000
$14,000
2009 2010 2011 2012 2013
Subsidy % of
revenues
8% 9% 13% 15% 15%
Subsidy /
Gross Add
$245.76 $258.97 $414.04
$5,093 $5,536
$9,054
$11,100 $11,900
$6,935
$8,140
$8,973 $9,601 $9,793
$0
$2,000
$4,000
$6,000
$8,000
$10,000
$12,000
$14,000
2009 2010 2011 2012 2013
Despite Network Constraints, Carriers Are Spending More on Subsidies Than Capex
AT&T Total Subsidy Cost vs. Wireless Capex Verizon Total Subsidy Cost vs. Wireless Capex
Source: Oppenheimer Capex and Wireless Outlook dated February 2, 2012, JP Morgan Wireless Smartphone Update dated January 31, 2012 and Morgan Stanley research models
Subsidy Wireless Capex
� Subsidies paid by AT&T and Verizon have almost doubled in the last two years. Verizon’s total subsidy cost in 2011 was greater than its total wireless capex spending, and AT&T’s subsidy cost was almost equal to its wireless capex spend
– Apple has benefited disproportionately from these subsidies ($450 per device) versus other high end vendors ($350 per device)
� Analysts are projecting that smartphone subsidies as a % of total wireless revenues are peaking this year, at 15%
� Verizon has transitioned 50% of its android base to its LTE network freeing up CDMA capacity
– When the iPhone 5 (LTE) comes out (in September?) Verizon will have 270mm POPs covered vs. 120-150mm for AT&T
– Verizon started 2011 with 27.4mm CDMA smartphone subscribers and ended with 38.1mm; LTE subs grew to 4.8mm by the end of the year
– Meanwhile AT&T started 2011 with 29.1mm HSPA/3G smartphone subscribers and ended with 39.4mm; AT&T had to build out 3G legacy
capacity to meet demand; AT&T released its first LTE handsets in November 2011
10
% of Smartphones on LTE
Q1 Q2 Q3 Q4
Android Smartphones 6.6% 16.6% 21.4% 47.1%
Total Smartphones 4.7% 10.6% 13.1% 18.7%
iPhone introduced
# of Subscribers (mm)
2009 2010 2011
Android Smartphones 7.3 7.9 13.3
Apple Smartphones 11.6 21.1 26.0
Value Is Shifting from Networks to Devices
iPhone has driven the
subsidy/gross add
significantly higher
($mm) ($mm)
Evercore - Confidential
As Subsidies Have Driven Down Margins for Carriers
AT&T % EBITDA Margin (Service Revenue Only) Verizon % EBITDA Margin (Service Revenue Only)
44%43%
35%
38%
43%
40%
40%41%
45%
43%
38%
38%
39%
41%
44%
29%
25%
30%
35%
40%
45%
50%
1Q08
2Q08
3Q08
4Q08
1Q09
2Q09
3Q09
4Q09
1Q10
2Q10
3Q10
4Q10
1Q11
2Q11
3Q11
4Q11
45%
46%
44%
47%
46%
46%46%
45%
46%
47%47%47%
44%
45%
48%
42%
25%
30%
35%
40%
45%
50%
1Q08
2Q08
3Q08
4Q08
1Q09
2Q09
3Q09
4Q09
1Q10
2Q10
3Q10
4Q10
1Q11
2Q11
3Q11
4Q11
Q4’11: iPhone
4S (Oct. ’11)Q2’10: iPhone
4 (June ’10)Q2’09: iPhone
3GS (June ’09)
Q3’08: iPhone
3G (July ’08)
Q1’11: iPhone 4 (Feb. ’11) Q4’11: iPhone
4S (Oct. ’11)
� Carrier margins are impacted by the introduction of new devices as these subsidies are expensed in the quarter of the upgrade; thus what appears to be a “one-time” effect, is actually a recurring effect
� Note: Wireless carriers’ accounting policy requires that handset costs be expensed in the period in which they are sold, and notamortized over the life of a subscriber
Other VZ smartphone releases:
Samsung Galaxy S2: May 2011
Motorola Droid RAZR: Nov. 2011
HTC Rezound: Nov. 2011
Source: Company filings and Morgan Stanley research models
11
Carrier Business Models Remain Challenged
2008 2009 2010 2011
Wireless EBITDA $17,644 $19,886 $21,754 $21,631
% Growth 12.7% 9.4% (0.6%)
2008 2009 2010 2011
Wireless EBITDA $22,090 $23,668 $26,080 $26,489
% Growth 7.1% 10.2% 1.6%
Aggregate EBITDA
continues to grow, but at
declining rates (AT&T
declined in 2011)
Evercore - Confidential
From a Profit Perspective, the Smartphone Handset Market has Become a Duopoly
Source: Asymco research, Gartner Mobile Communication Devices Forecast, Bernstein research dated February 24, 2012
12
Apple and Samsung command ~90% of the operating profit in the global smartphone market
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
Nokia Motorola Samsung Sony-Ericsson LG RIM Apple HTC
Nokia is struggling to reinvent itself and depending on Windows Phone to regain share and relevance
0%
20%
40%
60%
80%
100%
2009A 2010A 2011A 2012E 2013E 2014E 2015E
Android BlackBerry OS Symbian iOS Windows Others
Worldwide Smartphone OS
Market Share
� In 5 years, the industry has shifted from Nokia having 60% of profits, to Apple having 79% and Nokia having zero
– Margins have declined despite an estimated 35% drop in the industry’s combined R&D spend over the last five years
� Qualcomm’s operating profit has gone from $2.9bn to $5.3bn, and with MediaTek ($0.4bn in operating profit) a distant “number 2” baseband supplier
Manufacturers are increasingly dependent on flagship products
Galaxy S6%
iPhone24%
Other70%
Galaxy S10%
iPhone43%
Other47%
Galaxy S8%
iPhone79%
Other13%
Smartphone Unit Share Smartphone Value Share Smartphone Operating Profit Share
Global Profit Share
Device Manufacturers May Have a Challenged Future
Evercore - Confidential
Combination of Handset Duopoly and High Subsidies Make the Market Ripe for Disruption
� This situation has created an opportunity for low cost Android handset vendors to storm the US market with the blessing of carriers, in exchange for very limited subsidies
� Carriers may also try to regain margins by creating potential new revenue streams from app developers and rolling off unlimited data plans
� Apple has the most to lose in any disruptive scenario, given its focus on the high end segment that is heavily reliant on subsidies, but we are not predicting Apple’s demise
– Apple’s industry leading customer stickiness statistics suggest more subscription-like profits, and thus more resiliency against negative macro forces; further, the anticipated iPhone5 (LTE) will drive a massive upgrade cycle
– While risking some cannibalization, Apple could pivot and enter the low-end market, and launch a smaller, cheaper phone to protect its share if needed
– Additionally, Apple has meaningful share expansion opportunity through new carriers (China Mobile, Docomo, T-Mobile, etc.)
� As the market is moving towards low-end smartphones, a new competitor is emerging – Chinese OEMs
81%
46% 43% 45%24%
17%
43%36% 29%
52%
2% 11% 21% 26% 24%
0%
20%
40%
60%
80%
100%
Apple HTC Blackberry Nokia All Others
Will buy again Unsure Will Switch
While Repurchase Intentions are the Highest for Apple…
Source: Bernstein research on AAPL dated February 6, 2012; BMO research dated February 24, 2012, Strategy Analytics research
13
Historically There has been a 10-Year Life Cycle for a Smartphone OS…
…And Chinese OEMs Now Lead in Low-End Smartphones
41%
0%
20%
40%
60%
80%
100%
1Q09A 2Q09A 3Q09A 4Q09A 1Q10A 2Q10A 3Q10A 4Q10A 1Q11A 2Q11A 3Q11A 4Q11A
Nokia RIM Chinese OEMs Samsung Other
0%
10%
20%
30%
40%
50%
Year 1 Year 5 Year 10
Symbian Apple Palm Microsoft Android Blackberry OSNorth American M
arket Share
The Only Constant in the Device Business is Periodic Disruption
Evercore - Confidential
2011A YoY Total
FB Growth Smart Smart Penetration
Users in FB Handset Phone Phones Smart(mm) Users ASP ASP (mm) Phone FB
MEA 56 91.0% $87 $265 30 2% 4%
APAC 197 87.6% $104 338 184 5% 5%
Latin America 148 105.0% $103 242 34 6% 25%
Europe 223 37.8% $150 270 117 14% 27%
North America 175 17.1% $209 302 107 31% 50%
Should Google and Apple be Wary of Facebook? Low Cost Devices With Android or HTML5-Based Ecosystem Could Abruptly Democratize the Global Market
14
Source: Gartner, BAML HTML5 report dated February 17, 2012, Internet World Stats research
0
400
800
1,200
1,600
2,000
2010 2011 2012 2013 2014 2015 2016
Global H
andset Units (m
n)
HTML5 capable handsets Total Global handsets
85%77%
69%
60%
42%
21%7%
Handsets with HTML5 Compatible Browsers
� While Facebook is the most successful/downloaded app on Android/iOS, they also have exponential growth in under-penetrated markets, APAC, MEA and Latin America
� Facebook could fill the gap between the handset ASP and smartphone ASP in developing markets with a lower-cost device
– Users could spend even more time within Facebook’s walled garden, which is a direct threat to Google’s search/ad business
� Facebook could offer a viable alternative for differentiated and desirable devices with deep social integration, without the “Apple tax” on carriers in the form of subsidies
– Can the North America and European market continue supporting
the latest iPhone models, effectively subsidizing older models for
the rest of the world?
– A low-cost phone conceptually similar to a Chromebook, with a
browser-based OS and HTML-based app platform, could cause
substitution away from generic, low-end Android phones
� Regardless of Facebook’s support, an HTML5-based ecosystem could shift both economics and control away from Apple and Google
– Microsoft, Amazon and RIM also stand to gain from the creation of a cross platform HTML5-based ecosystem
– Opportunities for new entrants offering tools for content creation,
advertising and analytics
� Mozilla has recently announced its own efforts for an open HTML-5
based app store, potentially leading to this disruption
Facebook Potential Market Opportunity
With lower cost smartphones, Facebook could materially increase its penetration
Disruptive Forces May Have Powerful “New Entrant” Friends
Evercore - Confidential
The Growth in Apple’s Revenue Share Has Boosted Its Stock; Google is Investing in Android With A View Towards Monetizing Mobile Search Revenue
Relative Share Price Performance vs. Market Share
15
Index
ed Share Price
Perform
ance
Source: FactSet, Gartner research, Oppenheimer research dated November 13, 2011, Bernstein research dated February 24, 2012
27.7%
31.8%
43.0%
2.5%
16.1%
38.0%
Dec-09 Dec-10 Dec-11
0.0%
5.0%
10.0%
15.0%
20.0%
25.0%
30.0%
35.0%
40.0%
45.0%
50.0%
0.0
100.0
200.0
300.0
400.0
500.0
600.0
700.0539%
102%
AAPL Stock Price
iPhone Market Share - by revenue
GOOG Stock Price
Android Smartphone Market Share - by installed base
Global Smartphone Installed Base Market Share
3%12%
19%14%16% 15% 17%
8%
38%
17%12%
3%
50%
19%8% 6%
54%
20%
7% 12%
0%
20%
40%
60%
80%
100%
Android iPhone OS BlackBerry OS Windows Mobile
2009A 2010A 2011A 2012E 2013E
� Apple’s disproportionate revenue share versus its units share has been reflected in its stock price trajectory
� Google’s unit share growth has not yet translated to material mobile-based revenue, which is reflected in its stock price
Win-Mo displaces RIM as “3rd” ecosystem. . . for now
Two Different Strategies by the Leaders: Profit Now vs. Market Share Now
Jan-09
Evercore - Confidential
16
Google Has Acted Preemptively to Protect its Search Share from the Smartphone Tsunami
Source: Bernstein research dated February 10, 2012, Gartner research, eMarketer research, Evercore research dated March 5, 2012(1) Chart excludes queries from tablets
� Google is poised to capture share shift as queries shift from the desktop to mobile devices along with improvement in mobile CPCs
– The 2011 U.S. average revenue per search user was $63 for the desktop and $13 for mobile; they are both expected to converge to approximately $70 by 2017
– Commercial search queries (e.g. local restaurants, comparison shopping of a bar coded item) will migrate faster towards mobile devices
– Google has agreed to generous revenue share arrangements with carriers, browsers and online portals to protect its share in search
● According to rumors: Verizon received ~80% of ad revenues from DROID, Mozilla (the leader in mobile HTML5 adoption) received ~$100mm per year to keep Google as its default search engine, and recently renewed this deal to receive ~$300mm per year; Apple received ~90% of Google search revenues generated on iOS devices
� Google’s early strategic moves have effectively relegated Microsoft/Bing to a distant second place
– Google holds ~65% share of the US desktop search queries, but ~95% of the US mobile search revenue
– A substantial proportion of its queries come from iOS devices
● Android provides Google with a hedge if (WHEN!) Apple leverages its own assets (e.g. Siri) to dampen Google’s rise or switches its default search to Bing
� Google has already recognized its next point of vulnerability – vertical-specific search apps – leading to its acquisitions like Zagat and ITA, and the launch of Google Offers
� The HTML5 “promise” potentially enables Google to provide a single cross-platform search app that bypasses control by carriers and OEMs
� Google’s strategy is to expand ARPU after gaining market share; mobile is expected to steadily contribute an increasing proportion of Google’s search revenue
Total U.S. Mobile Ad Spend ($mm)
$1,451 $2,611
$4,309
$6,463
$8,660
$10,825
$0
$4,000
$8,000
$12,000
2011A 2012E 2013E 2014E 2015E 2016E
Google’s O/S Market Share Will Lead to Future Mobile Search Profits
Mobile as % of Google’s U.S. Search RevenueGlobal Fixed vs. Mobile Search Queries(1)
30% 37% 43% 49% 54% 59%
70% 63% 57% 51% 46% 41%
0%
20%
40%
60%
80%
100%
2011A 2012E 2013E 2014E 2015E 2016E
Global mobile queries Global desktop queries
$15.3 $17.5
$20.0 $22.5
$25.2
$28.3
$31.7
$0.0
$5.0
$10.0
$15.0
$20.0
$25.0
$30.0
$35.0
2011A 2012E 2013E 2014E 2015E 2016E 2017E
US Desktop Search Revenue US Mobile Search Revenue
7.3%
33.4%
Total US Sea
rch Reven
ue ($bn)
Mobile search is driving Google’s growth
Evercore - Confidential
� Disrupting established ecosystems is difficult – all the players in the value chain are intertwined and bound together
� HTML5 still has a ways to go to before it generates user “pull”
– User experience is still superior on native apps
– Users still prefer to store at least some data locally for use when they don’t have an internet connection
� Amongst all the potential champions of HTML5, Facebook is in a unique position because it exerts tremendous user pull on its own, and can negotiate its way into a new ecosystem by providing preferred access to its user base, or withholding accessto the same
– An HTML5-based ecosystem would strengthen Facebook’s negotiating position vis-a-vis hardware and OS vendors
– A smartphone optimized for Facebook could be subsidized by Facebook itself to attract carrier interest
� Google is also building a multi-layered strategy so it can pivot to whichever way the market ultimately moves
– Android if native prevails, or a Chromebook-like smartphone if HTML5 prevails
– Google’s ownership of MMI gives it a “stick” to ensure that Android OEMs minimize fragmentation and continue to innovate on the hardware front
● Assuming Android fragmentation persists, Google could potentially execute a “Kindle Fire-like” disruptive strategy in the smartphone market, essentially pursuing a low-price (potentially subsidized)approach to handsets, just as Amazon is believed to be doing with tablets. Moreover, this approach could be justified by what's at stake in its core search business, should Android continue to fragment or prove to have less platform leverage than that held by the device provider or carrier
17
But Disruption is Not Easy
A Successful Ecosystem Needs Hardware, Software, Network and User “Pull”
Evercore - Confidential
� The only constant in the handset market has been periodic disruption
– Just as no retailer has been dominant from one generation to the next, no handset manufacturer or OS has commanded leading market share for more than a decade; the mobile market is still young, with much innovation and “integration” (M2M) to occur
– How will handset providers, already hurting from “forced standards” (other than Apple) and commoditized offerings reinvent the delivery of their value add?
– Carriers will welcome handset disruption to break the subsidy model, and they can strongly promote new ecosystems (e.g., as Verizon did with Droid)
– Will Android “catch up” with Apple technologically; will Apple offer lower cost models that reduce their dependence on subsidies; what will the impact of lower cost models be on Apple’s GM’s over time?
– How will HTML5 or Android empower “an” Amazon or “a” Facebook to disrupt the current ecosystems?
– Microsoft is still a “new” entrant; if WinMo fails to gain “sufficient” scale via Nokia, what will Microsoft do next?
� With Google as Apple’s true competitor, and Google’s monetization of mobile coming through Search, will Apple enter search (through Siri)?
– Ultimately, Apple’s goal is to marginalize Google’s source of strength – its search dominance – in any way possible; Apple does not need to build its own search engine, but can simply promote other forms of search by default, or siphon off Google’s search economics as they are currently doing
– Apple could monetize commercial queries through a “70/30” style revenue share with the best of breed vertical search platforms that it leverages (e.g. Yelp), rather than following Google’s model of directly targeting ads to search users
– What will be Google’s next moves to protect search share?
– What will be Apple’s next moves to protect device price points and its gross margins?
18
So, What Does This All Mean?
Evercore - Confidential
� The growing importance of WiFi has led to changes in data consumption patterns, proliferation of urban hotspots, and innovation in longer range WiFi technology
– In the U.S., will cable deploy WiFi more ubiquitously? How will other small cell technologies be employed?
– Providers of cable pipes and WiFi hardware will be the beneficiaries of WiFi substitution
� How will carrier business models evolve with the pending threats of VoLTE, “bring your own messaging” (e.g. Apple’s iMessage, Samsung’s ChatON), and ever increasing subsides?
– Lower cost handsets will mitigate the subsidy cost
– But, how soon will usage-based pricing/data caps, Rich Communication Services (e.g, QoS, low latency services, bandwidth on demand) drive incremental revenue sources?
19
So, What Does This All Mean?
NET, NET: The Status Quo is Unlikely to be Preserved
Appendix: OTT Update
Evercore - Confidential
Cable Growth Driven by WiFi Proliferation and Emergence of OTT
Growth in Over-the-Top Households
Netflix Has More Subscribers than Pay-TV
� In 2011, Netflix revenues were $3.2bn compared to HBO’s of $5.0bn
� Netflix’s 24mm subscribers have overtaken Comcast’s (22.5mm), leading Comcast to offer its Xfinity streaming video-service and TV Everywhere
� YouTube accounts for 18.2% of peak period traffic on North America's mobile access networks (behind only HTTP and Facebook)
Source: Gartner, Wall Street research
0
5
10
15
20
25
30
Netflix ComcastDirecTV Dish TimeWarnerCable
Charter Verizon AT&TCablevision
Curren
t US video
su
bscribers
(Units in millions, unless otherwise noted)
� Pay TV growth stalled as household formation stalled� But OTT has helped extend cable’s lead in broadband,
and will help usher in usage-based pricing and data caps
92.5 94.0 96.0 96.6 96.8 96.9
0.0%
1.0%
2.0%
3.0%
70
80
90
100
2007 2008 2009 2010 2011 2012Video Subscribers y/y % growth
Video Subscriber Trends
(1,000)
(500)
0
500
1,000
1Q09 2Q09 3Q09 4Q09 1Q10 2Q10 3Q10 4Q10 1Q11 2Q11 3Q11E 4Q11E
Cable Satellite Telecom
Cable, Satellite, and Telecom Video Net Adds (000s)
2.5
4.56.6
8.610.4
12.1
0.0%
5.0%
10.0%
15.0%
0
5
10
15
2010 2011E 2012E 2013E 2014E 2015E
% of Total Households
Number of OTT
Substitute H
ousehlds
Total OTT Households % of Total Occupied Households
20
While OTT Has Grown Rapidly, the Pay-TV Market Has Not Lost Subscribers
OTT Landscape Cable Landscape
OTT Is Not a Threat to Multi-Channel Ecosystem
Evercore - Confidential
Fears of Cord Cutting Are Overblown
� As global smartphone and broadband penetration increases, communication spending by households is expected to increase as well
� Device proliferation has led to increasing video consumption
� This trend favors OTT providers, who benefit from increasingly fast streaming speeds and overall penetration
� However, two key factors indicate that fears of cord cutting are overblown…
Source: JP Morgan Telecom Industry report dated January 10, 2012, Morgan Stanley Media & Cable Survey dated May 15, 2011, Deutsche Bank Media Spotlight report dated August 23, 2010, SNL Kagan industry data
Communications Spend as % of Household Budgets
1.50%
2.00%
2.50%
3.00%
3.50%
4.00%
4.50%
5.00%
1/80 1/83 1/86 1/89 1/92 1/95 1/98 1/01 1/04 1/07 1/10 1/13 1/16
Telephone AgeCellular phone /
InternetBroadband Age
Evolution of mobile
1. Access to live sports remains a high priority
– ~60% of TV viewers watch ESPN at least once in 3 days
– These viewers are willing to pay a premium for live sports, as ESPN charges the highest per-household subscription fee of any cable channel (~$4.70 per month, up 42% since 2006)
2. There is a meaningful proportion of OTT users that
simultaneously keep their Pay-TV subscriptions
– Survey data has shown that NFLX subscribers spend more time watching movies, and approximately the same time watching TV than non-NFLX subscribers through Pay-TV subscriptions
Viewership of ESPNWillingness to Pay
(per Month for ESPN)
41%
19%
11%
3%
11%
16%
0% 10% 20% 30% 40% 50%
Daily
Once in 3 Days
Once per Week
Once in 15 Days
Once in a Month
Never
36%
13%
10%
9%
6%
3%
4%
19%
0% 10% 20% 30% 40%
$2.00
$4.00
$6.00
$8.00
$12.00
$20.00
$30.00
Others
0 5 10 15 20 25
TV
Computer
Tablet
Smartphone
All Platforms
0 5 10 15 20
TV
Computer
Tablet
Smartphone
All Platforms
Mean Weekly Hours Spent Watching TV Shows
Mean Weekly Hours Spent Watching Movies
21
“Traditional Video”, Driving By Sports, Is Still Demanded by Consumers
Evercore - Confidential
Operators are Responding to Over-the-Top
22
� Operators are keenly focused on the OTT threat and have a formidable collection of tools at their disposal to combat and profit from it, including:
– Business innovations such as TV Everywhere, which offers ubiquitous subscriber access to programming (now deployed in limited regions by Comcast, Time Warner Cable and Verizon) and UltraViolet (cloud-based ecosystem)
– Control of standards such as Enhanced Binary Interchange Format (EBIF) for advanced advertising (now deployed on most digital set-top boxes), which offers advertisers and consumers internet-like interactive (and, eventually, targeting) capabilities
– Control of subsidized STBs, which many outsiders have acknowledged as presenting a formidable obstacle to disruptive replacement technologies, as many unsuccessful manufacturer forays have demonstrated
– Ownership and control of the largest ISP operations, which are essential to the OTT model, along with lobbying power and a political climate inclined to oppose any new net neutrality actions that might limit their ability to leverage control of this infrastructure to their
advantage
– Partnerships with OTTs, which are beneficial to both parties (i.e., Google TV / Dish Network)
– Usage-based pricing
Source: Gartner
Recent Operator Initiatives
Distributor Product Offering
Operator
Initiatives
Comcast Xfinity Streampix streaming-video service, TV Everywhere partnership with Time Warner, 75k on-demand shows and movies on TV or streaming online, viewing capability on iPhone and iPad and manage DVR from smartphone devices
Verizon Redbox partnership to offer Netflix-like content streaming, 35k on-demand titles monthly, multi-room DVR functionality, ability to stream on Xbox
AT&T Manage DVR from smartphone devices, ability to stream on Xbox
Dish Network Partnership with Google TV to promote OTT offerings, 3D on-demand content, search functionality of online content
DirecTV Ad sales partnership with Google, multi-room start/stop DVR capability, manage DVR from smartphone devices, viewing ability to on iPhone and iPad
Time Warner Cable 10k on-demand shows and movies, manage DVR from smartphone devices (TV Everywhere)
Charter 10k on-demand shows and movies
Cablevision 3D on-demand content, manage DVR online; TV Everywhere
Broadband Benefits from New Offerings
Evercore - Confidential
Too Little Attention has been Focused on the Vulnerability of Existing Pay TV Models to a Decline in the Consumer’s Purchasing Power
“Liberty Media Corp. Chief Executive Greg Maffei described the
rising cost of ESPN as a "tax on every American household." He
said the cost increases create an opportunity for alternative TV
offerings that could undercut the way cable channels are packaged—
as bundles of different programming…. ESPN charges the highest
per-household subscription fee of any cable channel, according to
SNL Kagan, which estimates its monthly per-subscriber fees for the
flagship channel have risen 42% to $4.69 since 2006. The average
cable channel fee rose 24% over that same period to 26 cents a
month.” – Wall Street Journal
Pay TV ARPU from 2005 to 2010 (1)Average Expenditure on Cable and Satellite TV Services as a Percentage of Disposable Income
$59.82
$64.27
$67.48
$71.53
$73.75
$77.43
$50
$55
$60
$65
$70
$75
$80
2005 2006 2007 2008 2009 2010
Source: Bernstein Research report dated May 2011, “U.S. Telecommunications and Cable & Satellite: The Poverty Problem”(1) Weighted average of data from Comcast, Time Warner Cable, Cablevision, DirecTV, and Dish Network
3.7%
1.9%
1.3%
1.0%
0.6%
0.0%
0.5%
1.0%
1.5%
2.0%
2.5%
3.0%
3.5%
4.0%
Lowest Quintile Quintile 2 Quintile 3 Quintile 4 Quintile 5
Expenditure on Cable and Satellite
TV Services as a Percen
tage of
Post-T
ax Inco
me
Lowest Quintile: Expenditure Breakdown of Income (2009)
Lowest Quintile: Expenditures as % of Total
Housing(ex-telecom)
38%
Food16%
Transportation13%
Healthcare8%
Entertainment5%
Education3%
Other17%
$9,956
$2,855
$1,628
$3,501
$8,290
($6,318)
($8,000)
($4,000)
$0
$4,000
$8,000
$12,000
Post-tax inco
me
Food
Housing (ex
-teleco
m)
Transp
ortation
Hea
lthca
re
Rem
ainder
� While food and shelter alone exceed available income, leaving the bottom quintile to dip into savings, entertainment still comprises almost 5% of total spending
23
Escalating Sports Costs May Price Some Consumers Out of MCC Market
Evercore - Confidential
DBS Providers
TV Stations
DVD Retailers/DVD Rentailers
Broadcast Networks
Next-Gen Ad Agencies
Data Equipment Vendors
Cable Networks
MSOs
TV/Film Studios
24
� DBS Providers
– Lack of broadband as a defensive strategy
� TV Stations
– Migration online will reduce CPMs as overall traditional viewer base declines
� DVD Retailers / Rentailers
– Proliferation of web-based video and content delivery (e.g., Netflix via Samsung or PlayStation)
– Consumer patterns show that DVD rental growth is far outpacing DVD sales
� Cable Networks
– Extension of brands (CNN, MSNBC and Fox News, Weather Channel, ESPN)
– Monetization remains difficult (sizable presence but low portion of revenues)
� Telcos
– Where plant is adequate to support bandwidth, will be successful
– Higher programming costs than cable but they remain a small part of the overall costs relative to cable
– Need a ‘device shifting’ strategy
� Cable
– Usage-based pricing and models would mitigate cord cutting
– Might be better off even if relegated to dumb pipe
– Need a ‘device shifting’ strategy
– Regulatory risk given future broadband pricing uncertainty
� Broadcast Networks
– Sites like Hulu may offer a digital strategy that generates incremental revenue
� Apple, Netflix, Amazon
– Strategies allow for monetization of professionally produced content
– Need bundled content to be a game changer
� TV and Film Studios
– Flexibility to adjust business models
� Google/YouTube?
� New Content and Aggregation Entrants
– Most of these will fail, but some will succeed and previously there was essentially little value in even trying
� Next-Gen Advertisers
– More eyeballs/discretionary income = higher CPMs, more clicks and more $
� Data Equipment Vendors
– IP video is the biggest driver for network equipment spending
Losers TBD Winners
Preliminary Winners and Losers: OTT Evolution (Evercore View: Summer 2010)
Evercore - Confidential
DBS Providers
TV Stations
DVD Retailers/DVD Rentailers
Broadcast Networks
Next-Gen Ad Agencies
Data Equipment Vendors
Cable Networks
MSOs
TV/Film Studios
25
� DBS Providers
– Lack of broadband as a defensive strategy
– Reinvention with wireless?
� TV Stations
– Migration online will reduce CPMs as overall traditional viewer base declines
� DVD Retailers / Rentailers
– Proliferation of web-based video and content delivery (e.g., Netflix via Samsung or PlayStation)
– Consumer patterns show that DVD rental growth is far outpacing DVD sales
� Cable Networks
– “Live” shows (CNN, MSNBC and Fox News, Weather Channel, ESPN) have a distinct advantage
– But will revenues keep pace with (sports costs)?
� Broadcast Networks
– Sites like Hulu may offer a digital strategy that generates incremental revenue
� TV and Film Studios
– Flexibility to adjust business models
– Film is still a “VC” business
� Netflix
� Wireless Telcos
– Where plant is adequate to support bandwidth, will be successful
– Higher programming costs than cable but they remain a small part of the overall costs relative to cable
– Need a ‘device shifting’ strategy
– Need new data revenue streams
� New Content and Aggregation Entrants
– Most of these will fail, but some will succeed and previously there was essentially little value in even trying
� Next-Gen Advertisers
– More eyeballs/discretionary income = higher CPMs, more clicks and more $
� Data Equipment Vendors
– IP video is the biggest driver for network equipment spending
� Cable
– Usage-based pricing provides upside
– Potentially better FCF if relegated to dumb pipe
– Need a ‘device shifting’ and out of home strategy
– Regulatory risk given future broadband pricing uncertainty
� Apple
– If they continue to innovate, protect their gross margins, and the carriers accept the status quo of subsidies
� Google/YouTube
� Sports Rights
– When will the public revolt?
� Specialized Wi-Fi Companies
– E.g. Boingo
Losers TBD Winners
Preliminary Winners and Losers: OTT Evolution (Evercore View: Today)
Evercore - Confidential
Description
AT&T
� Significantly ahead of its competitors in using WiFi offload as a network management solution
� Has the largest WiFi network deployed at key locations that already help manage data traffic and optimize the customer experience
– Almost 30,000 WiFi hotspots including the development of entire “hot zones” in congested outdoor urban areas
� Have encouraged customers to move their traffic to AT&T’s own WiFi network or some other WiFi. Due in part to aggressive WiFi build, network performance as measured by statistics such as dropped calls has improved materially over the last several quarters
� Consideration: Customers have avoided moving up to higher tier data plans by utilizing WiFi. It could become more difficult for AT&T and other mobile carriers to move customers into higher usage tiers
Verizon
� Offers free Wi-Fi to its residential broadband customers (FiOS and DSL) and will soon expand offering to wireless customers (according to CTO). Has traditionally made limited use of Wi-Fi, preferring to focus on its cellular network
� Currently does not have any Wi-Fi hotspots of its own, primarily offering Wi-Fi services to broadband customers through a resale agreement with Boingo
� Has indicated plans to implement Wi-Fi strategically in high-traffic locations for 3G and 4G offload
Cable (all)
� Cablevision, Time Warner Cable and Comcast have been deploying WiFi hotspots in shopping centers, restaurants, cafes train stations, marinas, malls and sports fields
� Cablevision and Time Warner Cable in particular have been extremely aggressive in deploying their WiFi network in the densely populated New York metro area, available to broadband customers for free
� The three companies allow each other’s subscribers to freely roam on their WiFI networks without any incremental charge
Cablevision
� Has been granted a patent for a technology that could allow it to offers its Optimum subscribers access to a WiFi-based mobile phone service
� Will rely on its extensive WiFi network in the New York metropolitan area to carry mobile phone traffic, and roaming agreements with other carriers in areas that aren’t covered by WiFi
� Consideration: Challenge of obtaining handsets it could offer to subscribers, and striking roaming deals with carriers
Service Providers are Focused on WiFi Strategies
26
Evercore - Confidential
Description
BT
� Aggressive WiFi buildout, including partnership with WiFi-sharing platform FON, enables BT to monetize incremental revenue streams without fear of cannibalization (unlike mobile operators)
� Can differentiate its fixed-line broadband products by bundling widespread WiFi access into offers
Iliad � Installed base of ~4 million WiFi access points supports its greenfield mobile project
� WiFi fill-in is particularly valuable to Iliad as it is facing a lack of digital dividend spectrum and relies heavily on national roaming
Boingo
� Leading provider of Wi-Fi services, with > 400,000 global hotspots, 257,000 subscribers, 21mm network connections and partnerships with > 125 network operators including Verizon, BT, China Telecom, KT Corp, France Telecom, and T-Mobile
� Boingo’s wholesale services (46% of revenue) include roaming, platform services (i.e. resale), DAS infrastructure, and turn-key solutions for venue partners. Boingo is Verizon’s key Wi-Fi partner and is T-Mobile’s key Wi-Fi roaming partner
� Boingo’s strategy is to continue to expand its network into international airports, QSRs, arenas and malls, which allows it to offer subscribers and wholesale customers a more ubiquitous offering
– Added 2 airports in Rome and 10 in Portugal, increasing number of managed airport networks to over 60 globally. Boingo has also announced shopping center deals with 3 partners, increasing the number of managed shopping centers to 33
Other
� Republic Wireless: In November 2011, this start-up company began offering a smartphone that searches for a WiFi network first. It uses a cellular network (via wholesale agreement with Sprint) as back-up only where a WiFi connection cannot be obtained. Service costs $19/month for unlimited talk, text and data. “Republic’s bet is that ultimately WiFi networks will be nearly ubiquitous, and that, as a result, cellular usage by its community will ultimately be manageable” (Jefferies)
� Alcatel/Lucent: Announced in February 2012 the lightRadio product. It seamlessly finds and connects end users (smartphones/tablets etc.) with the best available wireless network, while helping carriers extend their reach by integrating Wi-Fi directly into their service offerings
Service Providers are Focused on WiFi Strategies (Cont’d)
27
Evercore - ConfidentialEvercore: One of the Most Active M&A Advisors in the Technology Sector
2011
Advised
on its successful defense from
2011
Advised
on its $333 million
acquisition of
2011
Advised
on its$230 million sale to
2011
Advising
on its pending $860 million sale to
2011
Advised
on its acquisition of
2011
Advising
on its review of strategic
alternatives
2011
Advised
on its sale to
2011
Advised
on its sale to
2011
Advised
on its $1.15 billion acquisition of
2011
Advised
on its $367 million sale to
2011
Advised
on its acquisition of
2011
Advised
on its sale to
2011
Advised
on its sale to
2012
Advised
on its sale to
2011
Advised
on their $2.0 billion acquisition of
and
on its $30 million equity investment
from
2012
Advised
on its pending acquisition of
2012
Advising
on its pending $300 million acquisition of
2012
Advising
28
Evercore - Confidential
� Breadth of experience in Technology Sector
� Strong track record in Wireless/Telecom Sector
� Deep experience in IPR and Mobile Computing
on its $2.6 billion acquisition of
2010
Advised
on its $805 million sale to
Advised
2005
on its $1.4 billion acquisition of the Wireless Solutions Business of
Advised
2010
on its $200 million sale of its wireless modem business to
and on its intellectual property rights negotiation with
Advised
2010 and 2008
on its $367 millionsale to
2011
Advised
on its $333 million acquisition of
2011
Advised
and
on their $2.0 billion acquisition of
Advised
2011
on its pending $860 millionsale to
2011
Advising
on its sale to
2011
Advised
on its $196 millionequity investment into
Advised
2009
on its $2.8 billionsale to
Advised
20082010
on its$22.4 billion merger with
Advised
on its acquisitions of
Advising/Advised
2004/2005/2006
now
on its $8.3 billion sale to
Advised
2009
on its $13.9 billion sale to
Advised
2008
on its $230 million sale to
Advised
2011
Note: Red box denotes a 2011 announced transaction
on its $29.0 billionsale to
Advised
2007
on its $1.15 billionacquisition of
2011
Advising
now
on its
acquisitions of
2003-2011
Advised
� One of the most active M&A advisors in Technology Sector in 2011
Breadth of Technology Expertise
on its acquisition of
2011
Advised
29
Evercore - Confidential
on their $3.0 billionacquisition of
on its $1.2 billion sale to
Advised
2007
30
$306.4 million IPOCo-Manager
Advised
2011
2011
$750.0 million Senior NotesSenior Co-Manager
Advised
on its $4.1 billion merger with
Advised
2005
on its sale to
Advised
2011
in connection with $7.5 billionPut Right to Sprint (Nextel)
Advised
2005
on its $2.8 billion sale to
Advised
2009
on its attempted $39.0 billion acquisition of
Advised
2011
Advised
2007
on its $460 million sale to
Advised
2010
on its $22.4 billion merger with
Advised
2011
on its $170 million acquisition of
Advised
2010
on its $516 million sale to
Advised
2010
on its $1.4 billion acquisition of
Advised
2007
on its $8.6 billion acquisition of access lines from
Advised
2010
on its $89.4 billionacquisition of
Advised
2006
on Cingular’s $47 billionacquisition of
Advised
2004
on its $42.1 billion separation from
Advised
2008
ILEC CLEC Wireless Data Center Other
from
$270.4 million IPOCapital Markets Advisor
Advised
2011
Note: Red box denotes a 2010/2011 announced transaction
on its $22 billion acquisition of
Advised
2005
Evercore: One of the Most Active M&A Advisors in All Telecom Sub-Sector