Global cellular market trends and insight, Q2 2011

World

WCDMA HSPA fastest growing cellular technology * WCDMA HSPA connections reached an installed base of 500 million during June, making it the fastest growing cellular technology ever * HSPA now accounts for 47% of all mobile broadband technology connections * LTE also achieved its first milestone, reaching one million connections 18 months after the launch of the first commercial networks * Total world connections surpassed 5.5 billion by the end of the quarter, growing by 157 million net additions

HSPA+ deployments lead the charge in network ugprades * 11 HSPA+ upgrades during the quarter, of which STC (Saudi Telecom), Saudi Arabia and Vip (Telekom Austria), Serbia were 42 Mb/s. Play (P4), Poland was the only operator to deploy outside of 2100 MHz, using the 900 MHz band * Two new LTE networks went live at the beginning of the year; Glo Mobile (Globacom), Nigeria in January and VivaCell (MTS), Armenia made services commercially available in February after a December soft-launch

Smartphone penetration drives data growth * Deutsche Telekom: 43% of all devices sold in Europe (21% in 2010) * France Telecom: 58% of contract gross additions in France and Spain are smartphones, double a year-ago (29%) * Vodafone: 50% of shipments in Europe are smartphones (38% worlwide), but just 10% prepaid smartphone penetration (18.7% overall) * In the U.S., AT&T reported that 46% of all contract subscribers are using a smartphone, versus 32% on Verizon * For T-Mobile U.S., 75% of all equipment sales came from smartphones * In Singapore, 80% of new contracts with SingTel were sold with smartphones and overall penetration is now 50% of the contract base

Quarterly forecast accuracy * Our estimates are replaced during the quarter by the actual results reported by the operator and regulatory community * The delta between our estimates at the beginning of the quarter and the actual results for Q1 2011 stood at an all time low of just -0.05%

Africa

Trends: Dust settles on political troubles and SIM registration declines

SIM registration challenges remain problematic * 2.5 million unregistered SIMs were deactivated in Ghana as of April and will be disconnected in September if they remain unregistered * 2.1 million SIMs disconnected since February deadline in Zimbabwe * Q1 results for MTN Cameroon were hit by the disconnection of 306,000 unregistered connections following a regulatory deadline at the end of March * Plans to introduce registration in Rwanda by June 2012

Price war and regulatory declines * The fierce price war previously highlighted in Tanzania has resulted in further declines for five operators (losses totalling 500,000 connections) as customers churn to Tigo (Millicom) and Vodacom * Millicom's success wasn't mirrored in DRC however where the introduction of a higher minimum tariff for all operators in December resulted in a drop of 6,000 connections during Q1

Political instability leaves operations on uneven ground * Despite the resolution of political troubles in Cote d'Ivoire, the effects of the civil unrest remain problematic for MTN. Orange has quickly turned performance around from Q4, however, and has now taken pole position in the market from MTN (a 29.4% market share versus 27.6%) * In Egypt, all operators were forced to suspend services for several days in January due to the revolution in the country * Nedjma (Wataniya) lost 166,000 connections due to political unrest in Algeria while Djezzy (Orascom) better managed its churn, reclaiming market share

Network investment maintains pace * Econet Wireless grew its connections base 40% year-on-year in Zimbabwe having invested US$270 million during FY 2011 in its 3G/WiMAX network which has re-launched with significantly increased capacity. The operator now has a 65% market share with 5.5 million connections * Three new WiMAX network launches in Cameroon, Mozambique and Uganda

Insight: Pricing and revenue pressure remain constant

The precise impact of political unrest continues to ripple out for several operators in Western and Northern Africa despite early indications of limited influence. In Cote d'Ivoire, MTN was only marginally able to increase its subscriber base while Orange seized the opportunity to move 300,000 connections ahead of their long-term rivals having weathered earlier sabotage damage. Their success came at a cost however as the operation reported a 2.3% downtown in revenue for the quarter from Q1 2010. Deterioration in Egypt which led to France Telecom's temporary closure of Mobinil's (ECMS) partner network similarly affected revenue, down 4.5% also from the year-ago quarter in local currency. Revenue growth for France Telecom in the region remained strong however, growing 23.8% across its “new operations” (Kenya, Guinea, Guinea-Bissau, Niger, CAR and Uganda). Typically, mandatory prepaid registration leads to an uneven decline across operators and certainly, in South Africa, MTN anticipates few disconnections come June 30. The operator has already registered 93% of its prepaid base and 98% of contract connections. The group continues to maintain its success in promoting data usage in South Africa (growing 10.7% sequentially, excluding SMS), highlighting the prevalence of smartphone uptake in both the prepaid (1.5% smartphone penetration) and contract (11%) base. Furthermore, its mobile money service has now attracted 4.6 million subscribers across 12 markets, of which five are currently trials. In Uganda, revenue from the service contributed 3.5% of total country revenue. In a similar vein, Vodacom South Africa registered a 34.6% annual uplift in data connections (nine million total) and an 84.2% increase in smartphones (13.6% penetration), driven by its low-cost $100 device. Data now accounts for 12.4% of revenue and Vodacom aims to reach 25 million data connections by 2013. Despite pricing pressure in many markets, the initial cost of a handset and SIM remains a barrier which Movirtu aims to tackle with its new ‘Cloud Phone'. The service, launched with Airtel (Bharti Airtel) Madagascar in June, allows customers to share a single GSM phone while retaining their own number, contacts, call forwarding and mobile money services, all of which are retrieved using an email address and PIN.

 Americas

Trends: Brazil and Mexico power region

Strong connections growth continues * All four major Brazilian operators added over 1.5 million net additions in Q1 along with Telcel (América Móvil) Mexico * Only seven operators in the region reported negative net additions

New multi-play challenger emerges in Mexico as MVNOs focus on Latin America * Grupo Televisa announced it planned to acquire 50% of Iusacell Mexico for US$1.6 billion allowing it to add mobile to its multi-play offerings * Portugal Telecom completed the US$5 billion acquisition of a 25% stake in Oi (Telemar Norte Leste) Brazil * Insurance company Porto Seguro announced plans to launch Brazil's first MVNO following an agreement with TIM. The Brazilian Post Office Correios is also planning to launch an MVNO * Virgin Mobile announced ambitious plans to invest US$300 million over the next 5 years to launch MVNOs across the region * CellularOne Bermuda merged with M3 Wireless while Cable & Wireless completed its planned acquisition of 51% of BTC Bahamas

Operators' trial upgrades though backhaul challenges hold deployments back * Oi Brazil announced a LTE trial while Vivo (Telefónica) Brazil began testing 21 Mb/s HSPA+, though cited a lack of backhaul capacity in Brazil as key * NII Holdings (Nextel) announced that Huawei will supply its planned 3G networks in Brazil and Mexico * Entel Bolivia launched 21 Mb/s HSPA+ while revealing it is also trialling LTE. Ancel (Antel) Uruguay is also trialling LTE prior to a 2012 launch

Brazil and Argentina move ahead with additional spectrum auctions * Brazil announced plans to auction 3.5 GHz spectrum for TD-LTE/WiMAX while an 800 MHz and 1900 MHz auction is expected in Argentina during H2 2011 * Voila (Comcel) Haiti was granted a 3G licence while it was reported that that South Korea's SK Telecom may be issued a 4G licence in Brazil * Argentina announced plans to launch MNP in December while SIM registration is being introduced from August in El Salvador

Insight: Mexican regulators slim down as rivals look to seize their chance

With a market share of over 70%, it has been a while since Mexican billionaire Carlos Slim's América Móvil Group has faced a significant competitive challenge in its home market. However, recent moves by local regulators to take a significantly harder line over Telcel's (mobile) and Telmex's (fixed) market dominance and by competitors are likely to pose a bigger threat to its market leading position. Although the hardening stance of local regulators towards América Móvil has been apparent for some time it still came as a shock when the competition regulator COFECO fined Telcel US$1 billion for anti-competitive practices on the back of its investigation into mobile termination rates. The competition regulator found Telcel abused its market power by overcharging competitors to connect to its network. Damningly COFECO noted that the interconnection rates charged to rival operators were higher than the price Telcel charged its own subscribes to make calls. In a further blow, telecom regulator COFITEL subsequently announced that it will introduce new regulations to reduce Telcel's interconnection fees. Telcel's argument that in Latin America the cost of mobile calls has declined regardless of whether interconnection rates have been reduced is likely to fall on deaf ears. In another blow, América Móvil's request to enter the pay-TV market was also rejected, blocking its long-held goal to offer quad-play services. Clearly sensing that the regulatory situation has been turning in their favour América Móvil's rivals have been positioning themselves to challenge its long-held dominance. Media giant Grupo Televisa agreed to acquire 50% of Iusacell for US$1.6 billion that will allow it to add mobile to its existing triple-play services. Meanwhile, Nextel (NII Holdings) - that Televisa cancelled plans to partner with to launch 3G services last year - awarded its 3G network deployment to Huawei that will see it broaden its services beyond its existing iDEN niche. Additionally, triple-play operator Megacable announced plans to enter the mobile market imminently via an MVNO agreement with Telefónica and is planning to target families - a market it currently considers as underserved. Aware that it will be facing greater challenges for growth in its home market América Móvil indicated it is reviewing its investment priorities to potentially refocus on markets it believes will provide it greater opportunities. However, despite the reinvigorated competition América Móvil is unlikely to be seriously challenged for market leadership anytime soon.

Asia Pacific

Trends: Changing market dynamics drive investment in network quality

Double digit growth underpinned by seasonal factors * Overall, 60% of the operators that reported total connections in Q1 2011 have registered double digit yearly growth * In Malaysia and Indonesia, Maxis and XL (Axiata) both lost over one million connections between Q4 2010 and Q1 2011 due to data policy clean-up * In China, operators have benefited from seasonality following the New Year promotional activities. China Mobile added 17 million connections in the quarter compared to 10 million for China Unicom which reported an encouraging uptake of data services. The country has passed 150 million 3G connections in Q2 2011 with China Telecom passing 100 million CDMA2000 connections during Q1 itself

Network expansion efforts fuel regional revenue growth * India's Uninor (Unitech Wireless) and MTS (Sistema Shyam TeleServices) as well as North Korea's Koryolink (Orascom) have registered the fastest yearly revenue growth in Q1 helped by aggressive network expansion strategies * In Indonesia, Mobile-8 and Smart Telecom have merged to form Smartfren. The company plans to invest US$450 million in network expansion to increase the number of base stations from 1,500 to 4,500 * In Thailand, Thai Mobile (TOT) is expected to invest US$350 million in network expansion - installing 4,772 base stations - with services reaching Greater Bangkok and 13 major provinces before year end * Both Smartfren and Thai Mobile are expected to disrupt 3G competition in their respective markets

Mobile broadband network deployments steam ahead * In Singapore, M1 switched on commercial LTE services in June, claiming to be the first to do so in Southeast Asia * Rival Singtel has confirmed it will launch LTE services in the city-state before year-end. SingTel has previously said it was working on a “regionally compatible LTE network” that will cover its Asia-Pacific footprint across Singapore, Indonesia, Australia and the Philippines * Alcatel Lucent trialed TD-LTE in Shanghai with China Mobile in May 2011 and also trialed LTE on both 700 MHz and 2600 MHz bands with Chungwa Telecom in Taiwan in April * LTE trials are also underway by both Dialog (Axiata) and Mobitel in Sri Lanka

Insight: Data demand forces operators' mobile broadband network expansion

In Indonesia and Thailand, incumbent operators have reported that data services contributed to strong customer growth. Telkomsel's BlackBerry customers reached 1.6 million in Q1 2011 while local rival XL (Axiata) revenues from data and VAS grew by 44% and contributed 16% to total revenues. Growth was mainly driven by the increasing popularity of RSS news feeds and social networking applications such as Facebook, Twitter and IM, as well as operators' data-bundled device packages (including prepaid micro-SIM cards for smartphones and tablets). In Australia, Vodafone Hutchison (VHA) continues to suffer from “operational issues” which resulted in a 5% quarterly decline in connections in Q1. VHA's network has been experiencing technical difficulties which led to dropped calls or slowdowns in download rates which raised complaints from consumers. Nevertheless, the operator has started upgrading its 2G and 3G networks in April to boost both coverage and the download speeds on offer. The operator also intends to commercialise LTE services before year end. Beeline (VimpelCom) has been focusing on its overseas operations over the first half of the year. In Cambodia, VimpelCom noted that effective marketing campaigns and a proactive approach to distribution helped to drive growth and generate substantial cash flows during the quarter. The operator also agreed to finance the further development of its operations in Vietnam. At present, its network covers approximately 57% of the total population with commercial activity in 51 out of 63 provinces. VimpelCom has also developed a strategy that includes more focused investments in its network and a comprehensive commercial re-launch. In India, Aircel (Maxis) has been reported to have launched 3G services in at least 11 circles during the first half of the year, compared to nine for Airtel (Bharti), Idea Cellular and Reliance Communications. Vodafone has launched its 3G network in March 2011 in Uttar Pradesh (East) and in Kolkata in May. Meanwhile, MTS has deployed its CDMA2000 1xEV-DO Rev. A network in four additional circles and is planning on upgrading its network to EV-DO Rev. B starting in Rajasthan. Idea Cellular launched 3G services in March and added one million 3G users within a month with 3G users already accounting for 20% of total mobile data usage. Similarly, Airtel (Bharti Airtel) had garnered two million 3G users in April.

Eastern Europe

Trends: Eastern Europe reports flat connections in Q1 2011

MTS Turkmenistan closure hits regional growth * Connections growth hit by the forced closure of MTS Turkmenistan and connection declines in Romania amid a poor macroeconomic climate * Overall, 31 operators reported negative net additions with most citing intense competition and subdued economic activity across a number of markets including Romania, Hungary, Czech Republic and Slovakia * Strongest growth in Uzbekistan with over one million net additions while solid growth also continued across Kazakhstan, Kyrgyzstan and Tajikistan

Russian regional operators consolidate * Rostelecom completed its reorganisation including the merger with Svyazinvest while MTS completed its merger with fixed-line player Comstar * Regional consolidation in Russia continued as VimpelCom acquired 90% of New Telephone Company while Tele2 announced an offer for SMARTS * Austrian private equity firm Epic acquired Ukrtelecom Ukraine for US$1.3 billion and promptly announced plans to sell its mobile arm, Utel * The auction for Polkomtel in Poland is down to a final shortlist while two potential acquirers of Vala (PTK) Kosovo have also been shortlisted * Sale of Telekom Srbija cancelled despite interest from Telekom Austria

LTE deployments grow in the Baltics * TeliaSonera launched LTE in Lithuania (Omnitel) in April, Latvia (LMT) in June * Nar Mobile (Azerfon) Azerbaijan announced plans to deploy LTE by end-2011 while Vipnet (Telekom Austria) Croatia intends to deploy LTE in 2012 * LTE trials were announced by T-Mobile Croatia, Vodafone Hungary, Orange Romania and T-Mobile Slovakia and Mobitel (Telekom Slovenije) Slovenia * Vip (Telekom Austria) Serbia launched dual carrier 42 Mb/s HSPA+ while Tele2 Croatia and T-Mobile Slovakia launched a 21 Mb/s HSPA+ service

Regulators release additional spectrum in Belarus and Hungary * Belarus announced a tender for 2600 MHz LTE spectrum while Hungary plans to auction additional 900 MHz spectrum in Q3 2011 * MNP began in Albania and Georgia. SIM registration commenced in Bulgaria

Insight: Rostelecom's reorganisation prompts further Russian consolidation

On top of difficult macroeconomic conditions in a number of markets the Turkmenistan government's shutdown of MTS over claims of unreasonably high tariffs and a lack of reinvestment in its network significantly contributed to the flat regional performance as 2.4 million subscribers were left without service. State-owned operator TM-Cell (Altyn Asyr), found itself in an unexpected monopoly position, and has been unable to meet the ensuing demand. Etisalat reportedly had meetings with the government about taking over the network though any move will be complicated by MTS challenging the closure through the courts. In Russia, MTS merged with fixed-line operator Comstar in April allowing it to pursue a converged services strategy. Russian fixed-line operator Rostelecom also completed its planned reorganisation and merger with the former Syvazinvest regional operators transforming it into Russia's fifth largest mobile operator with 13 million subscribers. The new national operator announced aggressive plans to focus on data services and growing its market share of wireless broadband to 22% by 2015. This goal will be greatly assisted by its intention to also eventually merge with SkyLink. While Rostelcom remains a long way behind Russia's ‘big three' (MTS, MegaFon and VimpelCom) it stands to benefit from its ability to offer converged services through its existing market leading positions in fixed-line phone and broadband services. VimpelCom and, in particular, MegaFon face the greatest threats from customer demand for converged services due to their smaller presence in these areas. The new found status of Rostelecom was confirmed by its equal involvement with the ‘Big Three' in the government backed agreement to support a wholesale LTE deployment by Yota (Scartel), while Tele2 (the fourth ranked operator) was excluded despite its appeals to be included. Meanwhile, the Rostelecom reorganisation appears to have triggered off a wave of merger activity in Russia as operators seek to fill gaps in their regional coverage and service offerings. All of the ‘Big Three' operators have been busy growing their ability to provide converged offerings through a number of strategic regional acquisitions. VimpelCom also confirmed it had completed the acquisition of 90% of New Telephone Company that operates in Far East Russia from South Korea's KT, ahead of compulsorily acquiring the rest. This followed the announcement that Tele2 planned to acquire regional operator SMARTS that will give it access to an additional 16 regions, significantly increasing its operational footprint.

Western Europe

Trends: Intense competition and seasonality affect prepaid market

Seasonal effects dampen quarterly subscriber growth * Of the 97 operators active at the end of Q1 2011, 76 witnessed positive quarterly net additions representing a total of 4.0 million connections, while 20 operators recorded subscriber losses totalling 1.8 million * Losses were mainly attributed to intense competition, particularly in the prepaid sector, and the continuing economic stagnation in many countries * Seasonality led to slower quarterly growth, exacerbated by market saturation. In Q2 2011, we expect total connections to increase 4.3 million to 530 million

Encouraging contract trends offset prepaid flat growth * The total number of prepaid connections for the region was virtually unchanged from Q4 2010, but was down 2.9% year-on-year * However, contract subscribers increased by 1.1% on Q4 2010 and 6.1% year-on-year as operators focused on attracting higher-value customers

Quarterly revenues dip due to seasonal slowdown * Of the 43 operators that reported, 38 suffered a decline in recurring revenue from Q4 2010 - an overall net decrease of EUR 1.3 billion to EUR 29.4 billion * Recurring revenue also declined by 1.2% on annual basis, with losses for 27 of the 43 operators leading to an overall net decrease of EUR 370 million

Smartphone demand boosts data revenues * Of 15 operators that reported, 13 saw data revenue increases on Q4 2010 * Data now accounts for over 25% of Vodafone Germany's service revenue, and more than 18% of that of Orange France, O2 (Telefónica) Germany and Vodafone UK

Germany gets second LTE network * Deutsche Telekom launched Germany's second LTE network in April * The quarter also saw the launch of 18 MVNOs across the region, including five in the UK, three in Germany and a further three in the Netherlands

Insight: Operators speed to adoption of rate-based tiered data plans

Growth in demand for smartphones continued apace in Western Europe during the quarter, with several major operators reporting increased sales. O2 (Telefónica) UK had the highest level of smartphone penetration at the end of Q1 with 33% (up from 29% in Q4 2010), closely followed by competitor Vodafone on 31%. Meanwhile Vodafone Netherlands also reached 31% (up from 18% a year ago), closely followed by Orange France on 30% (from 17%). Tele2 in Sweden also registered smartphone penetration of 30%, and projects that this will rise to 55% in 2014 on the basis that nine out of ten handsets sold during the quarter were smartphones. These figures demonstrate how unlimited data plans have helped operators to generate mass demand for mobile broadband services, yet the downside of this demand is of course the considerable strain placed on 3G networks. Subsequently, the switch to tiered and more recently speed-based pricing has enabled operators to make more effective use of their infrastructure and available spectrum in terms of revenue generation. A pioneer of this approach is Vodafone, which launched its LTE network in Germany in Q4 2010 and expects to have national coverage by the end of 2011. Tariffs range from EUR 40 per month for a speed of 7.2 Mb/s with a cap of 10 GB, rising to EUR 70 for 50 Mb/s capped at 30 GB. Should users exceed these caps their connections return to 3G speeds for the remainder of the month. Similarly, earlier this month Telenor announced a range of new tariffs for its HSPA network in Norway. As well as its standard mobile broadband package, which offers data allowances ranging from 200 MB to 4 GB (EUR 5-25 per month) at a speed of up to 2 Mb/s, users can also opt for one of two ‘Mobile Super Broadband' packages. For EUR 38 per month, ‘Super M' provides an allowance of 8 GB at up to 6 Mb/s, while heavier still users can opt for the ‘Super L' package of 20 GB at up to 10 Mb/s, for a price of EUR 51. Thus Telenor's heaviest mobile broadband users will be paying more than ten times that of its entry-level subscribers, with four other price points in between. We expect the breadth of the operator's tariff range to expand further when its LTE network launches in 2012.

Middle East

Trends: Solid overall growth led by less-penetrated markets

Iran leads the way as solid subscriber growth continues * Of the 53 operators active at the end of Q1 2011, 43 witnessed positive quarterly net additions representing a total of 8.2 million connections, while 9 operators recorded subscriber losses totalling 950,000 * Iran saw the highest absolute connections growth, with both MTN Irancell and MTI (TCI) adding more than 1.5 million subscribers in the quarter * Although it added 300,000 contract subscribers in Q1, Turkcell blamed intense competition for the loss of 700,000 prepaid connections * Overall we expect a similar level of growth in Q2, with total connections for the region increasing by 7 million to 315 million

Successful HSPA+ launch for Zain in Jordan shows 3G potential in region * Zain Jordan launched its HSPA+ network in March, with 100,000 mobile broadband customers signing up within the first month * Roshan (TDCA) expects to begin rollout of its 3G network in Afghanistan in late 2011/early 2012, while Etisalat also plans to launch a 3G network this year * In Israel, MIRS (Altice) was awarded a 3G licence and selected NSN as vendor * Both operators in Lebanon are now expected to launch 3G networks in the summer of 2011

Operators firm up LTE plans * Etisalat UAE plans to launch the region's first LTE network in Q3 with Alcatel-Lucent as vendor, and expects to have 80% coverage by the end of 2011 * However, competition for that honour will come from Mobily Saudi Arabia, who have also scheduled a Q3 2011 launch with vendors Huawei and Samsung * Etisalat's domestic rival Du has also announced that its LTE network will go live before the end of 2011

Zain Saudi Arabia sale held up due to management dispute * The proposed sale of Zain Group's 25% stake in its Saudi Arabian subsidiary to Bahrain's Batelco has reportedly been delayed due to a dispute about management control of the company

Insight: Political turmoil and increased competition affect mobile markets

Although mobile has played a significant role in bringing the recent political unrest in countries across the Middle East and North Africa to the world's attention, the effects on markets and individual operators have not been so positive. This is particularly true of Syria where, in April, ongoing protests against the rule of President Bashar al Assad forced the planned auction of the country's third GSM mobile licence to be postponed indefinitely. The auction had already attracted controversy after three bidders – Etisalat, France Telecom and Turkcell - pulled out of the process, leaving only Saudi Telecom and Qtel from the original list of interested parties. While Turkcell declined to give a reason for its exit from the process, both Etisalat and France Telecom cited not the political upheaval in Syria but rather the terms of the licence award, in particular a condition that the winner pay a 25% revenue share to the government. Other conditions of the award that raised concerns with bidders were the requirement to submit a business plan with revenue projections, and the government's plan to regulate roaming agreements with the country's incumbent operators MTN and Syriatel. While Saudi Telecom and Qtel remain committed to their bids, if and when the auction goes ahead, one of them will pay a minimum reserve of EUR 90 million to operate in what could be by then be a very different environment. Elsewhere in Bahrain, incumbent operators Batelco and Zain continued to lose market share at the hands of recent entrant Viva. The Saudi Telecom owned start-up now controls an estimated 31.5% of the market after Q1 saw Batelco lose 25,000 subscribers and Zain 23,000, the latter now having dropped to third place. Overall, the market contracted by 1.8% in the quarter and we expect a further slowdown in Q2, not least because of the country being in a state of emergency law for 11 weeks from March through May due to pro-democracy demonstrations. Yemen has also witnessed political unrest, with protests against President Ali Abdullah Saleh having been ongoing for several months. Despite having a penetration rate of only 43% the market expanded by just 3.1% in Q1, with market leader Sabafon recording zero growth.

USA/Canada

Trends: Prepaid growth is providing new competitive pressures

Encouraging prepaid growth accelerating regional maturity * One third of operators in the region reported a double digit yearly connections growth in Q1 2011, a similar trend than a year ago * 40% of operators that reported total connections in Q1 2011 mentioned intensifying competition as a reason for stalling quarterly growth in certain consumer segments * In the U.S, market growth was driven by prepaid demand which grew by 5% in Q1 2011 sequentially compared to 0.2% for contract connections * In Canada, both prepaid and contract segments grew at similar pace in Q1 2011 (1% sequentially)

Tier 2 operators and new entrants reshuffle churn rates * Churn increased to 1.76% in Canada in Q1 2011 from 1.62% a year ago while the U.S market registered a 0.1 percentage point yearly decline to 1.9% * Tier 2 operators and new entrants are providing strong competition in both markets, especially in the prepaid consumer segment * In the U.S, MetroPCS and Cricket Communications (Leap Wireless) registered sharp annual churn declines in Q1 2011 with 0.6pp and 1.4pp respectively, driving total churn down to 3.1% for both companies * In Canada, total churn at Bell Mobility (BCE) increased annually by 0.1pp to 1.9% while Telus Mobility increased by 0.15pp to 1.7% and Rogers Wireless to 1.71% (+0.17pp)

Smartphone sales put pressure on margins despite non-voice revenues growth * AT&T Mobility and Verizon Wireless added almost US$1 billion each in non-voice revenues between Q1 2010 and 2011 * Both companies have generated just over US$5 billion in Q1 2011 in non-voice revenues * Higher smartphone sales are driven by high operator subsidies which translated into a 2pp annual increase in opex as a share of total revenues in the region to 69% in Q1 2011 * In turn, EBITDA margin declined by 3pp annually in the region to 31%

Insight: The smartphone battle intensifies, sidelined by prepaid growth

In the region, tier 1 operators are focusing on contract customer retention and face intense competition from tier 2 operators – including new entrants in Canada – which are aggressively pushing competitive prepaid offers. In Canada, Bell Mobility (BCE) and Telus Mobility reported an increased competitive marketing intensity from new entrants and new incumbent brands not in, or fully in, the market one year ago. In contrast, new entrant WIND Mobile (Globalive) subscribers have exceeded a quarter of a million by the end of Q1 2011 reflecting the uptake of the operator's innovative tariffs. At Bell Mobility, smartphones represent 34% of contract base (up from 20% in Q1 2010) compared to 38% for Telus Mobility (up 22%) and 45% for Rogers Wireless (up 33%). In the U.S., smartphones represent 46% of AT&T's contract base compared to 32% for rival Verizon Wireless. The average ARPU for smartphones on AT&T's network is 1.8 times that of the company's other devices while more than 80% of its smartphone subscribers are on FamilyTalk and/or business discount plans. MetroPCS grew its customer base by 725,945 connections between Q4 2010 and Q1 2011, a growth it explains by a continued interest in its Wireless for All plans and in the significant uptake of Android devices. Meanwhile, rival Cricket Communications – which added its one-millionth smartphone customer in Q1 2011 - increased upgrades to its new data devices during the quarter and the continued adoption of its new service plans drove voice churn down to 2.8% and increased ARPU by US$1.21 over Q4 2010. Finally, Sprint Nextel is poised to begin rebuilding its market share, helped by strong growth in its prepaid and wholesale businesses, and the launch of a raft of new devices available for its WiMAX network (running on partner Clearwire's network), which is helping to limit postpaid subscriber losses.