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What are the revenue incentives and investment implications for operators
who adopt LTE?
What is the LTE market opportunity and implications for the broader
ecosystem, including equipment providers, operators, and device
manufacturers?
How could the current economic climate impact the overall LTE business
case?
LTE Evolution
Carriers are beginning the transition to 4G
EVDO-Rev B HSPA+
fo r
ly Path an
UMTS / HSDPA Lik e
Am e
ric
rs
North Operato
A
CDM
EVDO-Rev A
1.0
3G
EVDO
0.1
EDGE
0.01
$50
ARPU
ARPU
$20 (~40%)
D ir
_ Recurring ect
Margin ion
$30
$1,200 al
CCPU
CCPU x Customer
60 Lifetime Value
$850
months
Customer
Customer
_ Net Customer
Lifetime
Lifetime Lifetime Value
$350 ~$300 B
Total
Total Value
Value
CPGA
CPGA x (pre-tax,
(pre-tax,
unlevered)
unlevered) ???
~270 MM, U.S.
ROI
ROI
## Subscribers
Subscribers ???
Capital
Capital
Investment
Investment
Value-added applications
ARPU
ARPU
Advertising revenues
Broadband device proliferation
_ Recurring
Margin
CCPU
CCPU x Customer
Lifetime Value
Customer
Customer
_ Net Customer
Lifetime
Lifetime Lifetime Value
CPGA
CPGA x Total
Total Value
Value
ROI
ROI
## Subscribers
Subscribers
Capital
Capital
Investment
Investment
- 4G Application Enablers -
Rich
Rich Multimedia
Multimedia Content
Content
Real-time
Real-time Interactivity
Interactivity
Greater
Greater User
User Concurrency
Concurrency
LTE
More
More Simultaneous
Simultaneous Sessions
Sessions
New
New Computational
Computational Alternatives
Alternatives
Greater
Greater Mobility,
Mobility, Availability
Availability
Network-based
Network-based Location
Location // Presence
Presence
Better
Better Physical
Physical World
World Awareness
Awareness
Confidential - Do Not Reproduce 1/29/2009 9
ARPU: Average ARPU Components
Value-added applications offset ARPU declines in other price components
Consider the opportunity cost of inaction
Illustrative,
Illustrative,
Directional
Directional
$55
$52 Consumer
$50 Interactive gaming
Apps
Mobile TV
($10)
Social multi-user video
Mobile commerce
Business
VoIP Collaboration
Voice
Voice LTE? ($20) Tele-presence
($37)
($47) Telemedicine
M2M
Fleet management
Asset tracking
Interactive sales
Data
Cross-Segment
Data ($25)
Customized bandwidth
($13) Remote monitoring
Data ($5)
GPS/Navigation
2005 2008 2011
Example
Category
Companies
Collaboration
Application
Horizontal
Emergency Response
Pattern Recognition
Vertical Applications
All-IP networks
ARPU
ARPU
Backhaul
Network virtualization
Migration, multiple networks, OSSs, etc.
_ Recurring
Margin
CCPU
CCPU x Customer
Lifetime Value
Customer
Customer
_ Net Customer
Lifetime
Lifetime Lifetime Value
CPGA
CPGA x Total
Total Value
Value
ROI
ROI
## Subscribers
Subscribers
Capital
Capital
Investment
Investment
$25
50% reduction to backhaul costs
$20
$16 $16 Predicated Cost Savings
$14.0
$15 Gross margin increases to 65% from
60%
$10 EBITDA margin improvement of 5%
(~40% to ~45%)
$5
Cost savings create EBITDA contribution
$0 equivalent to ~15% growth in revenue
Current With Cost Equivalent
Savings EBITDA without
Cost Savings
Sources: Cisco
1/29/2009 14
Economic Drivers: Churn
Customer lifetime may improve, but the outlook remains ambiguous
Sticky 4G applications
More devices per user
Slippery open-access environments
ARPU
ARPU New non-contract pricing models
_ Recurring
Margin
CCPU
CCPU x Customer
Lifetime Value
Customer
Customer
_ Net Customer
Lifetime
Lifetime Lifetime Value
CPGA
CPGA x Total
Total Value
Value
ROI
ROI
## Subscribers
Subscribers
Capital
Capital
Investment
Investment
Unclear about benefits (costs, ROI) 3.5 4 Cost and Return on Investment
Creating a wireless organization could mean a substantial
Hard to develop a mobility strategy for
our size business
3.3 investment in technology upgrades of the business
Flexibility 3.4
5 Business flexibility
Business
- 1 2 3 4 5
Economies of scale
ARPU
ARPU
Customer acquisition
Higher subsidies open may offset
_ Recurring
Margin
CCPU
CCPU x Customer
Lifetime Value
Customer
Customer
_ Net Customer
Lifetime
Lifetime Lifetime Value
CPGA
CPGA x Total
Total Value
Value
ROI
ROI
## Subscribers
Subscribers
Capital
Capital
Investment
Investment
1,600
1,400
1,200
1,000
GSM/WCDMA
800 Handsets
600
400
200
CDMA
Handsets
0
2002 2003 2004 2005 2006 2007 2008 2009 2010
CPGA: Smartphones
Yet, greater adoption of smartphones and other advanced devices may offset
benefits from scale economies, at least in the near-term
1,206
Consumer Wireless Devices (M)
1,006
806
606
406
206
6
2008 2009 2010 2011 2012
ARPU
ARPU
Greater bandwidth targets performance hold-outs
Machines
MIDs
_ Recurring
Margin
CCPU
CCPU x Customer
Lifetime Value
Customer
Customer
_ Net Customer
Lifetime
Lifetime Lifetime Value
CPGA
CPGA x Total
Total Value
Value
ROI
ROI
## Subscribers
Subscribers
Capital
Capital
Investment
Investment
Economies of scale
All-IP network & spectral efficiency
Network virtualization
ARPU
ARPU Multiple networks in transition
_ Recurring
Margin
CCPU
CCPU x Customer
Lifetime Value
Customer
Customer
_ Net Customer
Lifetime
Lifetime Lifetime Value
CPGA
CPGA x Total
Total Value
Value
ROI
ROI
## Subscribers
Subscribers
Capital
Capital
Investment
Investment
Maintenance
60%
1/29/2009 22
CapEx: Impact of Spectral Efficiency
Improved spectral efficiency of LTE promises to further enhance the capital
efficiency of LTE investments
LTE 3G Comparison
Expected Speed DL- 5 Mbps DL- 400 kbps DL- 900 kbps
Spectrum
Efficiency
~3-5 bps/Hz ~1-2 bps/Hz ~1-3 bps
Channel 5 MHz
Bandwidth
1.25-20 MHz 1.25 MHz
(Future plans for 10 MHz)
1-30 Miles
Range 1-5 Miles 1-5 Miles
(theoretical)
Source: Ericsson, Alcatel, Qualcomm, Wireless World, AV&Co. interviews with RF engineers
1/29/2009 23
Macroeconomic Considerations
Investments may be impacted by the current economic climate
Barriers
Drivers
Wildcards
Economic stimulus
Cost of capital
Macroeconomic Considerations
Despite economic headwinds, participants across the ecosystem are gearing up
for LTE
December 08: Qualcomm laid out an aggressive LTE roadmap (expect to have samples ready
by Q209)
November 08: Motorola completed its first field test for LTE expect limited LTE deployments
in 2009
November 08: HTC introduced MAX 4G, the worlds first GSM & WiMAX enabled handset in
Russia
October 08: ZTE increases LTE R&D investment as they believe the global recession will not
dampen equipment demand for LTE
November 08: T-Mobile announced plans to forego additional investment into HSPA+ and
focus exclusively on LTE
December 08: Verizon states that LTE service will be launched in 2009 in select U.S. markets
Value-added applications
ARPU Advertising revenues
Broadband device proliferation
All-IP networks
Backhaul
CCPU Network virtualization
Migration, multiple networks, OSSs, etc.
Sticky 4G applications
Customer More devices per user
Slippery open-access environments
Lifetime New non-contract pricing models
Economies of scale
CPGA Customer acquisition
Higher subsidies open may offset
Sub- Greater bandwidth targets performance hold-outs
scribers Machines
MIDs
Economies of scale
CapEx
All-IP network & spectral efficiency
Network virtualization
Multiple networks in transition