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Industry Report - Telecommunications - December 2010

A Company and Industry Analysis December 2010

CONTENTS

Current Environment – US

• Sector Overview• Sector Performance• Leading Companies• Mergers and Acquisitions

Current Environment – Canada

• Sector Overview• Sector Performance• Leading Companies• Mergers and Acquisitions

Industry Profile – US

• Industry Size and Value - Mobile Market - Broadband Market• Sector Investment• Research and Development• Policy and Regulatory Environment

Industry Profile – Canada

• Industry Size and Value• Sector Investment• Research and Development• Policy and Regulatory Environment

Market Trends and Outlook – US

• Demand for Android-based Smartphones Grows

• Mobile Gaming Market Gains in Popularity

• Mobile Broadband Phones to See Growth

• Mobile Digital TV Adoption on the Rise

• Mobile Advertising Spending to Increase

• Market Outlook

Market Trends and Outlook –

Canada

• Mobile Advertising on the Rise in Canada

• BlackBerry Smartphone Software to be Replaced

• LTE Could Reach Canada by 2012• Market Outlook

Currency Conversion Table

The Scope of this Report

Comparative Data

Key References

Reports Coverage

Current Environment — Key Points

• US telecoms company sales showed signs of picking up over the six months to October, amid data suggesting that the economy was growing in the US.

• In the wireline segment, revenues declined steadily in the second and third quarter of 2010, with AT&T reporting a 3% drop, Verizon 3.6%, and Sprint Nextel 11%.

• In the US, data services continued to be a top priority for leading service providers such as AT&T and Verizon Wireless.

• In line with the broader equities market rebound, US telecom stock prices gained 12.73% on average over the six months to October 2010.

• However, Canadian telecoms company revenues declined over the six months, with the exception of BCE Inc, Telus Corp, Rogers Communications Inc and Shaw Communications Inc.

• Over the six months ended October 5, leading Canadian telco share prices declined by an average of 0.17%, down from the period of October 2009 to April 2010, when share prices rose by 13.06%.

Industry Profile — Key Points

• Wireless data revenues for the last half of 2010 amounted to 31% of all wireless service revenues, representing consumers’ use of non-voice services such as short messaging services (SMS) or multimedia messaging services (MMS).

• To date, the Department of Commerce’s National Telecommunications and Information Administration (NTIA) has provided grants to support the deployment of broadband infrastructure throughout the country.

• The US telecoms industry still views R&D investment as necessary to encourage productivity, with leading telecommunication companies investing in various segments of their organizations.

• Wireless phone subscribers in Canada numbered 23.4 million at the end of June 2010, with wireless service providers reporting a net addition of 352,000 new subscribers.

Market Trends and Outlook — Key Points

• Smartphones using Google’s Android operating system are now rated as the most popular devices in the US among new smartphone buyers.

• Casual gaming on mobile platforms are driving the adoption of mobile games to more than a quarter of mobile subscribers and more than one in five of the US population.

• While mobile advertising is a popular marketing tool, it has yet to reach its target as a billion-dollar business in the US in the immediate future.

• Due to the further adoption of smartphones this year, spending on wireless data is likely to more than double in the next three years.

• Mobile advertising revenues are growing throughout Canada, with SMS advertising generating most of the revenue.

• For the full year of 2010 the outlook for the telecoms sector is relatively positive, but not strong as modest price rises and rising costs limit future profit growth.

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North AmericaTelecommunications Sectors

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Current EnvironmentUnited States

US telecoms company sales showed signs of picking up over the six months to October, amid data suggesting that the economy was growing in the US. While the Organisation for Economic Co-operation and Development’s (OECD) overall evaluation was that GDP would continue to grow at a moderate pace in the US when compared to other countries, such as a slower recovery in Japan, there were lingering concerns including the unemployment rate, which is likely to stay above the pre-crisis level for an extended period of time. With the economy growing at a modest pace and despite overall low consumer spending, telco shares maintained their momentum as customers continued to embrace new technologies, especially in the wireless and mobile device segments.

For this reason, following the successful launch of the iPhone 3G by Apple Inc (NASDAQ: AAPL) last year, the manufacturer, along with leading US telco AT&T Inc (NYSE:T), launched the iPhone 4, an upgrade from the former model. With the iPhone 4, there are new features such as Face Time for video calling, and a new Retina display which doubles the pixels in each direction — 960 x 640 resolution — for a four times overall pixel count increase. The camera function of the smartphone was also upgraded to five megapixels with LED flash and a backside illumination sensor. The carrier launched the new device after recording a total of 3.2 million iPhone activations in the second quarter of 2010 and subsequently sold 5.2 million iPhones in the third quarter.

With technologies continuing to evolve at a fast pace and with hit products continuing to have a short shelf life, most telecoms carriers maintained plans to shift their focus from the struggling US wireline phone segment to the wireless market. With the wireline market remaining saturated, the revenues of the top three telcos declined steadily in the second and third quarter of 2010, with AT&T reporting a 3% drop, Verizon Communications Inc (NYSE: V) down 3.6%, and Sprint Nextel Corp (NYSE: S) down 11%. AT&T’s third quarter wireline revenues included growth in consumer trends for the first time in more than two years, further expansion in AT&T U-verse services, and continued growth in business products such as Ethernet, virtual private networks (VPNs) and hosting and application services. As expected, lower voice revenues offset these

gains, reflecting the continuing migration by consumers to wireless and IP-based platforms.

Data services continued to be top priority for leading service providers such as AT&T and Verizon Wireless. AT&T saw a 30.5% increase to US$4.8 billion in wireless data revenues in the third quarter of 2010, compared with the corresponding quarter in 2008, marking the carrier’s 20th consecutive quarter of wireless data revenue growth. This reflected the continuous rapid expansion in wireless data services from messaging, internet access, and access to applications and related services. Data provided 35% of AT&T’s total wireless service revenues, up from 29.8% in the third quarter of 2009. Verizon Wireless’ data revenues were up 26.3% over the previous year, contributing US$5.1 billion to total wireless revenues of US$16.25 billion.

The US remained one of the world leaders in leveraging broadband infrastructure with a distinct competitive advantage. The Cellular Telecommunications Industry Association (CTIA), the US wireless association, reported that in the first half of 2010 there was 27% growth in wireless data service revenues compared with the first half of 2009. This shows that US consumers continued to utilize wireless devices to access the internet, download music and send text messages for the past year. It also suggests that, even though the instability of the economy in the last half of 2009 had affected the wireless data market, especially the infrastructure and handset segments, to date consumers have not reduced their mobile data spending.

Sector Performance

In line with the broader equities market rebound, US telecom stock prices gained 12.73% on average over the six months to October 2010. This was an improvement on the 11.54% share price gain from April to October 2009. In early October 2010, AT&T’s share price rose because its third quarter profit was higher than analysts’ estimates, after strong sales of the new iPhone 4 and devices such as the eReaders helped boost the carrier’s wireless subscriber growth. AT&T’s share price rose to a high of US$29.36 on October 5 in New York trading, after AT&T was selected for a major contract by Japan-based Nitto Denko Corporation (TSE: 6988) for the deployment of

Sector Overview



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Current Environment - United States

its global communications network. Further boosting its share price, was the carrier’s 100% score on the Human Rights Campaign’s 2011 Corporate Equality Index, thus investors have been ensured of AT&T’s equality practices in the company. Other phone companies’ share prices also recorded a steady rise over the six-month period. This included Verizon, which rose by 16.77%, while Sprint’s climbed 13.94% and Qwest Communications (NYSE: Q) gained 21.84% to US$6.36.

Over the six-month period, L-3 Communications (NYSE: LLL) was the only leading telco to record a decline — 24.7% — in its share price. L-3 Communications, a supplier of products and services used in a number of aerospace and defense platforms, was suspended by the US Air Force earlier this year. This was due to allegations of its use of a military computer network to conduct email surveillance of its workers and those of the Government and other contractors. This resulted in the supplier losing a SOFSA (Special Operations Forces Support Authority) contract to a competitor, costing L-3 as much as US$150 million from its full year sales. The loss in confidence from its investors also led to the eventual decline in share price over the six-month period. In contrast, the best performing telco stock was Motorola Inc (NYSE: MOT), the price of which rose by 25.04%, amid successful sales of its Android-powered smartphones.

Leading Companies

AT&T Inc

AT&T is the leading telecommunications services company and the second largest wireless carrier by number of customers in the US. It posted a net profit of US$12.3 billion in the third quarter of 2010, a fourfold increase from US$3.2 billion in the third quarter of the previous year. Sales in the third quarter saw a less dramatic increase, with AT&T’s revenues up 2.8%, from US$30.7 billion in the corresponding period of 2009 to US$31.6 billion. This marks the company’s third consecutive quarter with a year-on-year revenue increase.

AT&T sustained strong wireless growth, including a substantial rise in retail postpaid subscriber additions and continuous growth in wireless data revenues. In the third quarter, the number of wireless subscribers rose by 2.6 million quarter-over-quarter to 85.12 million, a rise of nearly six million so far this year. This was the third highest quarterly net addition, reflecting rapid adoption of smartphones, increases in prepaid subscribers and growth in connected devices such as eReaders and security systems. Progress in these areas and solid cost management in the third quarter largely offset economic pressures, competition and technology shifts.

Table 1: Leading Company Share Price Movements in the Six Months from April 27 to October 5, 2010

Company Ticker Exchange

Share Price

on April 27,

2010

Share Price

on October

5, 2010

Rise / Fall

(in US$)

Rise / Fall

%

AT&T Inc T NYSE US$25.95 US$29.36 3.41 13.14%

Verizon Communications Inc VZ NYSE US$28.75 US$33.57 4.82 16.77%

Sprint Nextel Corp S NYSE US$4.09 US$4.66 0.57 13.94%

Motorola Inc MOT NYSE US$6.91 US$8.64 1.73 25.04%

L-3 Communications Holdings Inc LLL NYSE US$93.82 US$70.65 -23.17 -24.70%

Qwest Communications International Inc Q NYSE US$5.22 US$6.36 1.14 21.84%

Qualcomm Inc QCOM NASDAQ US$37.92 US$44.26 6.34 16.72%

CenturyLink Inc CTL NYSE US$33.67 US$40.09 6.42 19.07%

Average Rise / Fall % 12.73%

Source: Mergent analysis



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Verizon Communications Inc

Verizon, the largest US wireless carrier, had 93.2 million wireless subscribers at the end of the third quarter of 2010, up from 87 million during the year-earlier period. Verizon became the largest wireless phone company in the US following its acquisition of Alltel for US$28.1 billion in January 2009, which gave it 13 million extra customers. This reflected well on the company’s net profit of US$2.92 billion in the third quarter of 2010, an improvement from US2.89 billion the year earlier. While the carrier’s wireless revenues continued to grow, up 7.7% year-on-year to US$14.17 billion in the third quarter, its traditional landline revenues declined, as more customers switched to wireless services.

Its quarterly wireline operating revenues declined 3.6% year-on-year, from US$10.67 billion in the third quarter of 2009 to US$10.29 billion, despite recording increases in the additions of new customer for segments FiOS TV and FiOS Internet. FiOS TV and FiOS Internet’s addition of new customers during the quarter totaled 204,000 and 226,000 respectively. This was up from the third quarter of 2009, when FiOS TV recorded 191,000 new customers during that period, while FiOS Internet added 198,000 new subscribers.

Sprint Nextel Corp

Sprint Nextel Corp, the third biggest mobile phone operator in the US, posted another quarterly net loss in the second quarter of 2010, after it wrote off the remaining value of its 2005 purchase of Nextel Communications. The operator subsequently continued to lose overall subscribers and revenue on a quarterly basis. Its revenue was down 1% to US$8.03 billion, from US$8.14 billion the year earlier. The year-on-year decline was primarily due to a lower contribution from postpaid wireless service revenues and wireline revenues, which declined by 7.3% to US$5.47 million, mainly due to the further loss of postpaid subscribers. Another reason was lower wireline revenues as a result of reduced voice revenues, which were down 11.8% over the year to US$568 million, and data revenues, which dropped by 22.2% to US$133 million. Sprint posted a US$760 million loss in the second quarter, nearly 100% more than the net loss of US$384 million in the second quarter of 2009.

At the end of the second quarter of 2010, Sprint had 48.17 million wireless customers, compared with 48.83 million the

year earlier. Despite the weak results, during the quarter, its wireless postpaid churn was 1.85%, compared with 2.05% the year earlier. The year-on-year improvement in churn was primarily due to the improved customer experience that resulted in higher levels of customer satisfaction.

Motorola Inc

Motorola, which is no longer the top five largest mobile phone vendor in the world, as a result of its slow capitalization on the booming smartphone market. The manufacturer eventually released its first Android-based smartphone in late 2009, which resulted in a net profit US$162 million in the second quarter, an improvement from the earnings of US$26 million made in the second quarter of 2009. However, the manufacturer saw a 1.53% decline in revenue, from US$5.5 billion in June 2009 to US$5.41 billion. This was due to a 44% drop in mobile phone unit sales to 8.3 million units in the second quarter, which caused a 6% decline in its mobile device division revenues to US$1.7 billion.

Despite the fall in sales, Motorola recently introduced several new Android-based smartphones, thus providing consumers with more choices when selecting devices that meet their needs. The following range of smartphones include Citrus, Spice, Bravo, Flipside, and Defy. These new lines of smartphones, which are either of the touchscreen or QWERTY keyboard design, or both, are to compete with other manufacturers’ Android-based smartphones.

In another attempt to improve revenues in the near future, Motorola and Nokia Oyj (HEX: NOK1V) jointly entered a 4G license agreement. Under the terms of the agreement, Motorola and Nokia extended the companies’ existing intellectual property licensing agreement to include 4G cellular technologies, such as LTE, WiMAX and LTE-Advanced. Motorola has the aim of upgrading from its current 2G and 3G networks to produce 4G-enabled smartphones and to better compete with its top rival, Apple’s iPhones.

Mergers and Acquisitions

As the US economy eventually started to grow again in the post-financial crisis period, telecom companies became more confident about involving themselves in mergers and acquisitions (M&As). Larger and more powerful telcos continued to acquire other smaller companies in an attempt to improve their product or service lines. An example was



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Motorola’s recent acquisition of Aloqa, a German-based developer of location-based programs for smartphone users.

Integrated into the Motorola Mobility business, Aloqa’s program will complement the handset maker’s existing on-demand product line, the Motoblur software, which combines handphone users’ social networking applications in a single and easy-to-view interface. As for Aloqa’s software, it can identify handphone users’ locations, allowing advertisers to send them information about places, events or promotions in the region. With the addition of Aloqa’s software, Motorola can further strengthen its position as a leader in location-based software and thereby compete with other smartphone platforms such as Google Inc’s (NASDAQ: GOOG) Android.



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Current EnvironmentCanada

As was the case in the US, Canada’s telecoms companies’ revenues picked up steadily over the six months to April 2010, with the exception of Nortel, which had been under bankruptcy protection since the beginning of 2009. These positive results occurred as the OECD indicated that private consumption positively affected consumer spending in the telecoms sector, remaining resilient throughout the recession the previous year. This was partly the result of a healthier banking sector that continued to extend credit to households following a strong 6.2% growth during the first three months of 2010. At the same time, Canada is one of the top ten countries for broadband penetration, ranking ninth out of 31 OECD countries, with 10.5 million broadband subscribers as of June 2010, or 31.1% per 100 inhabitants.

Canada remains the country with the highest proportion of households with broadband connections among the G7 countries: France, Germany, Italy, Japan, the UK, and the US. Broadband to the home in Europe arrives primarily via digital subscriber line (DSL) technology over fixed telephone lines, but in Canada, consumers have more choice, as broadband delivery is widely available over both cable and DSL.

The nation went up ten places from June 2009 to the 15th position in the developed world in terms of high-speed internet services. OECD data shows that as of October 2009 the fastest speed offered by a phone company in Canada was up to 19.57 Mbps. Factors such as improved pricing and network capacity helped in the country’s rise through the ranks. Other factors that would help improve speeds and broadband pricing in the long run include an order recently approved by the Canadian Radio-television and Telecommunications Commission (CRTC) regarding the issue of incumbent telecoms and cable companies controlling 95% of the residential broadband market.

The order will generally give smaller internet service providers (ISPs) the right to sell the same speeds as telcos BCE Inc (TSX: BCE) and Telus Corp (TSX: T), and cable companies such as Rogers Communications Inc (TSX: RCI-A), Shaw Communications Inc (TSX: SJR-B), Videotron Ltd and Cogeco Inc (TSX: CGO). As a result, smaller ISPs can now upgrade their internet speed services

from their previous five megabits per second (Mbps) to 25 and 15 Mbps, as is currently offered by Bell and Telus, respectively.

Mobile phone ownership in Canada continued to grow, with 75% of consumers owning a handset, according to the Canadian Wireless Telecommunications Association (CWTA). Smartphone adoption also rose, with at least 30% of mobile users owning a smartphone. The use of smartphones in Canada has grown more quickly with the advent of multiple advanced wireless networks. These networks generally transmit data more quickly and let smartphone users benefit from the wide range of software applications available.

The smartphone market, which was on an upward trend in Canada in the six months to October 2010, should continue to do so throughout the year because of ongoing price cuts and the further launch of new devices on the market. In the last six months, advanced wireless networks launched by Bell and Telus helped boost demand for smartphones, especially Apple’s iPhone range. Rogers also helped promote smartphone adoption by having offered the iPhone package since 2008.

Sector Performance

Over the six months to October 5, leading Canadian telcos’ share prices declined by an average 0.17%, down from the October 2009 to April 2010 period, when share prices rose by 13.06%. Telus, a wireline and wireless telecommunications products and services provider, enjoyed the highest rise, 22.13%. Its operating subsidiaries provide services ranging from video and entertainment services to business telecommunications and internet portals. Its net profit increased to C$296 million (US$288.19million) in the second quarter of 2010, from C$244 million (US$237.56 million) the year earlier. Its share price increased by nearly C$2 (US$1.95) when it announced this in August, and maintained an average of at least C$43 (US$41.86) to early October — higher than the average share price of C$36 (US$35.05) in the previous six months.

Research In Motion Ltd (RIM) (TSX: RIM) recorded the highest share price decline on the Toronto Stock Exchange,

Sector Overview



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Current Environment - Canada

30.29%, from October 2009 to April 2010. Factors contributing to the decline included the fall in global share of the smartphone market for the manufacturer. RIM’s share slid to 18.2% in the second quarter from 19% the year earlier as Apple’s share rose to 14.2% from 13%, while Google’s Android jumped to 17.2% from 1.8%. RIM also missed analyst expectations in the second quarter when it added 4.5 million net new subscribers, instead of the projected five million. As the handset maker focused more on the high end of the smartphone market, particularly in the US, where RIM has lost share to rivals, it focused on plans to concentrate more on the international market, such as Malaysia, Indonesia and China.

Leading Companies

BCE Inc

BCE, Canada’s leading telecommunications company, saw its second quarter revenue rise 3.3% to C$4.44 billion (US$4.32 billion), from C$4.3 billion (US$4.19 billion) the year earlier. The increase in revenues was mainly due to higher revenues from its subsidiary, Bell. The growth in revenue led to BCE earning C$590 million (US$574.42 million) in the second quarter of 2010, an improvement from the C$346 million (US$336.87 million) profit made in the corresponding period of 2009.

Postpaid net activations in the Bell Wireless segment rose by 60.1% from the year-earlier period to 103,000 due to the success of Bell’s new HSPA handset lineup, which includes Apple’s iPhone and RIM’s BlackBerry Bold, and a growth

in demand for wireless internet USB sticks. Bell Wireless’ operating revenues were up 9.6% to C$1.21 billion (US$1.18 billion), following a rise in wireless service revenues of 10.8% to C$1.11 billion (US$1.08 million). This was due to subscriber growth, the acquisition of the remaining 50% of Virgin Mobile Canada and wireless data revenues growth of 45% during the quarter.

Rogers Communications Inc

Rogers, a diversified Canadian communications and media company, enjoyed 5% growth in quarterly operating revenue to C$3.03 billion (US$2.95 billion) in the second quarter of 2010, up from C$2.89 billion (US$2.81 billion) in the corresponding period of 2009. The carrier recorded a net profit of C$451 million (US$439.09 million) — 21% higher than the year-earlier period’s earnings of C$374 million (US$364.13 million). Wireless subscriber postpaid net additions totaled 98,000, while postpaid subscriber monthly churn rose to 1.06%, from 1% in the second quarter of 2009. Postpaid monthly ARPU was up 0.4% year-on-year to C$73.54 (US$71.6), driven in part by higher wireless data, feature and long-distance revenues.

Nortel Networks Corp

Telecom equipment vendor Nortel, which is currently under bankruptcy protection, reported 85.6% revenue drop in the second quarter, from C$1.04 billion (US$1.01 billion) in the same period of 2009 to C$148.93 million (US$145 million). The drop in revenue was mainly due to the liquidation of some business units and the uncertainty

Table 2: Leading Company Share Price Movements from April 27, 2010, to October 5, 2010

Source: Mergent analysis

Company Ticker Exchange

Share Price

on April 27,

2010

Share Price

on October

5, 2010

Rise / Fall

(in US$)

Rise / Fall

%

BCE Inc BCE TSX C$30.87 C$33.20 US$2.27 7.55%Quebecor Inc QBR.A TSX C$35.86 C$34.00 -US$1.81 -5.19%Telus Corp T TSX C$38.10 C$46.53 US$8.21 22.13%Rogers Communications Inc RCI-A TSX C$36.12 C$40.44 US$4.21 11.96%Shaw Communications Inc SJR-B TSX C$19.28 C$22.78 US$3.41 18.15%Research In Motion Ltd RIM TSX C$72.59 C$50.60 -US$21.41 -30.29%Manitoba Telecom Services Inc MBT TSX C$32.49 C$28.94 -US$3.46 -10.93%Aastra Technologies Ltd AAH TSX C$28.15 C$24.00 -US$4.04 -14.74%

Average Rise / Fall % -0.17%



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Current Environment - Canada

created by the creditor protection proceedings, which resulted in a drop in customer spending. However, the company’s second quarter net loss was C$1.54 billion (US$1.5 billion), compared with a net loss of C$281.43 billion (US$274 million) the year earlier.

The increase in net losses included a loss from discontinued operations of C$122.22 million (US$119 million) and C$171.53 million (US$167 million) in equity from its European, Middle Eastern and African (EMEA) subsidiaries. There was also a loss from reorganization items of C$1.44 billion (US$1.4 billion), primarily related to the profit from the C$1.23 billion (US$1.2 billion) sale of the CDMA/LTE Access assets to Ericsson AB (OMX: ERIC.B). Nortel is still accountable for other expenses, including an interest expense of C$76 million (US$74 million), C$77.03 million (US$75 million) in income tax expenses and C$28.76 million (US$28) million in currency exchange losses.

Telus Corp

Telus, Canada’s second largest telephone company, reported second quarter 2010 revenues of C$2.4 billion (US$2.34 billion), an increase of 0.9% from C$2.38 billion (US$2.32 billion) the year earlier. Its net profit for the second quarter ended June 30 was C$296 million (US$288.19 million), a rise of 21.3% from C$244 million (US$237.56 million) in the same period of 2009. The increase came in the wake of an expanding customer base, with the number of net wireless additions up 12% from the previous year to 124,000. There were 109,000 postpaid subscribers, an increase of 15% from the year earlier, while the number of prepaid customers declined by 6.3% to 15,000.

Its wireless data revenue was up C$57 million (US$55.5 million), or 26%, to C$273 million (US$265.79 million) in the second quarter of 2010. This was mainly due to the increase in smartphone service revenues and text messaging driven by the further market penetration of smartphones, higher adoption rates of data plans, as well as increased mobile internet keys. However, ARPU declined by 1.9% from C$58.61 (US$57.06) in the second quarter the previous year to C$57.47 (US$55.95), due to the decline of voice ARPU.

Research In Motion Ltd

RIM, a world leader in the mobile communications market, and the creator of the BlackBerry phone series, added 4.5

million new BlackBerry subscribers in the second quarter of 2010. Its revenue for the quarter was C$4.75 billion (US$4.62 billion), up 31% from C$3.63 billion (US$3.53 billion) in the corresponding quarter of the previous year. The revenue breakdown was 79% for devices, 17% for services, 1% for software, and 3% for other revenue. During the quarter, RIM shipped 12.1 million devices, with its net income totaling C$818.29 million (US$796.7 million), a 67.5% increase from C$488.49 million (US$475.6 million) in the corresponding quarter of the previous year.

Mergers and Acquisitions

Over the six months under review, M&A activity in the telecoms sector remained generally constant, with companies on the lookout for opportunities to expand their market shares. The telcos that participated in M&As included RIM and BCE. In August, RIM acquired Cellmania, a Californian-based application store infrastructure developer. Cellmania generally operates online software application stores for a number of wireless carriers globally. The acquisition will allow RIM to improve its BlackBerry App World, which has been less popular with consumers than application stores maintained by Apple and Google for their devices. As for BCE, it focused on acquiring 100% of CTV, the Canadian leader in specialty television, digital media, conventional TV and radio broadcasting. The transaction would be beneficial to BCE in the near future as it will accelerate growth in its video segment across all three media — mobile, online and TV — and simultaneously achieve a competitive cost structure.



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Industry ProfileUnited States

Mobile Market

Wireless data service revenues for the first half of 2010 showed moderate year-on-year gains, rising to nearly US$25 billion, a 27% increase from the first half of 2009, according to CTIA data. Wireless data revenues for June 2010 amounted to 31% of all wireless service revenues, representing consumers’ use of non-voice services such as short messaging services (SMS) or multimedia messaging services (MMS). In addition, carrier networks delivered more than 161.5 million megabytes (MB) of data over the first half of the year, compared to 108 million MB during the last half of 2009. The rapid growth in data services was due to a wave of data-capable devices, of which US consumers now own more than 264.5 million, the survey found, up from 257 million at the end of 2009. Of these devices, smartphones and wireless-enabled PDAs also grew over the past year from 40.7 million in June 2009 to 61.2 million in the first half of this year.

In the US, smartphone demand has now matched the demand for standard feature phones as Google’s Android smartphone operating system continued its upward climb in the US consumer mobile phone market. Android is currently the leader among operating systems in handsets sold to US consumers. Despite the ongoing popularity of the BlackBerry and iPhone series, Android accounted for 33% of all smartphones purchased in the second quarter, ahead of RIM, which accounted for 28% and Apple with 22%, according to the CTIA.

In spite of an overall decline in the number of mobile phones purchased year-on-year, the demand for both messaging phones and smartphones — which are more costly than standard feature phones — resulted in slightly higher prices for all mobile phones in the second and third quarters. As of June, the average selling price for all mobile phones reached US$90 — a 3% increase from the year-earlier period. For smartphones, by comparison, unit prices averaged US$143 in the second quarter of this year, a 9% drop over the previous year.

According to the CTIA, the US had more than 292.8 million wireless customers as of June 2010, a year-on-year increase of about 16 million subscribers — two

million more than the increase of nearly 14 million to June 2009. This shows that although there was an overall lack of consumers spending in the country, the US consumer demand for wireless services was once again on the rise, due partly to the slowly recovering economy. However, the wireless services market is nearing saturation due to maturity, as there has been high take-up in the past. The industry’s record of 12-month subscriber growth was last set in 2005, when 25.7 million new users went online.

A CTIA survey shows text messaging continues to be popular among US users. The CTIA estimates networks carried 1.8 trillion text messages during the first half of 2010 — amounting to 10 billion messages per day — more than double the 740 billion text messages reported in the first six months of 2009. Although still not as popular as text messaging, the survey found there was a sudden jump in the number of pictures and other multimedia messages sent by wireless subscribers via their mobile devices, compared to previous years.

According to the CTIA, subscribers sent more than 56.3 billion MMS in the first half of 2010 — five times more than the 10.3 billion reported the year earlier. This did not mean less use of non-messaging functions, as wireless subscribers used 2.26 trillion minutes as of June 2010, double the 1.1 trillion minutes in the first half of 2009 — with an average of 12.6 billion minutes-of-use a day. Non-messaging functions generated six-month wireless service revenues of over US$79 billion in the first half of 2010 — up from US$75 billion the previous year.

Broadband Market

In the second quarter of 2010, broadband growth in the US fell from the higher levels seen in the previous nine years. A survey of the top 19 US providers by Leichtman Research Group (LRG) showed that they added 336,000 broadband customers in the second quarter of 2010, a decline from the second quarter of 2009, when there were 634,000 net broadband additions. Overall, broadband additions in the second quarter of this year were 53% lower than in the corresponding quarter the previous year. These providers accounted for some 93% of the US market — 73.5 million subscribers. Cable companies had the majority of

Industry Size and Value



11

Industry Profile - United States

broadband customers, 40.5 million, while telcos had nearly 33 million subscribers. Quarterly net broadband additions were down from the 1.4 million recorded in the first quarter of 2010. The maturing of the market for broadband resulted in a declining rate of adoption, leading to a further waning of broadband additions towards the end of the year.

In addition to having growth problems, the US lags far behind other countries in broadband speeds. An October 2009 survey by the OECD ranked the US 23rd globally in average advertised broadband download speeds, further down the list compared to the 19th ranking in the June 2009 survey. The average download speed for the country was 14.62 Mbps (megabits per second), while in first-ranked Japan, the speed was 107.73 Mbps, or seven times faster than in the US. The US also trails Portugal, at 103.72 Mbps, France at 54.55 Mbps and South Korea at 52.77 Mbps, while 18 other countries have faster broadband download speeds than the US. One of the reasons the US lags behind other countries is that 18% of internet connections surveyed had download speeds slower than 768 Kbps (kilobits per second). The US Federal Communications Commission (FCC) says that this does not qualify as basic broadband. At the current rate, the US will take more than ten years to match Japan’s broadband internet speeds.

Sector Investment

The Department of Commerce’s National Telecommunications and Information Administration (NTIA) provides grants to support the deployment of broadband infrastructure throughout the country. For example, in an aim to bridge the technological divide and increase economic opportunities, NTIA recently invested nearly US$10.6 million and US$9 million in the states of New Mexico and Illinois respectively. The grant to the North Central New Mexico Economic Development District will fund the deployment of high-speed internet infrastructure across its counties and tribal communities. As for Chicago, the investment will allow the city to add or upgrade over 3,300 computer workstations at more than 150 locations, including city libraries, workforce centers, public housing sites and others.

Other grants given by the NTIA included the US$50.6 million received by the Motorola Solutions business of Motorola and the Public Safety Agencies within the greater San Francisco Bay Area. This grant will be used to fund the Bay Area wireless Enhanced Broadband (BayWEB) program through the Broadband Technology Opportunities

(BTOP), which provides grants to support the deployment of broadband infrastructure to connect community institutions such as schools, libraries, hospitals and public safety facilities. The Public Safety subsystem will be using Long Term Evolution (LTE) technology operating on 700 MHz frequencies to provide mobile broadband service to public safety responders. This BayWEB project will directly address the challenges faced by public safety in the Bay Area, by providing first responders with a public safety network that will be available in emergencies, natural disasters and catastrophic events, while at the same time allowing the general public users to have affordable internet access services.

Aside from the previously mentioned states that will receive funding from the NTIA, 88 other American Recovery and Reinvestment Act projects received funding throughout the country. This will fund projects that will allow for enhanced high-speed internet access to millions of households and businesses and link thousands of schools, hospitals, libraries, and public safety offices to the information superhighway. These new investments came at a time when NTIA attempted to meet the September 30, 2010, deadline to award all the money it had been charged to disperse. Out of these 88 investments, there will be funding of 43 new broadband infrastructure projects through the Broadband Initiatives Program (BIP), while there have been 35 awards from the NTIA’s BTOP.

Research and Development

The US telecoms industry still views R&D as necessary to encourage productivity, with leading telecommunication companies continuously investing in various segments of their organizations. Within this context, AT&T has further developed its innovation with mobile barcodes by making it available on free mobile applications to read barcodes through a variety of mobile devices across different platforms, including Android and BlackBerry. In an effort to develop mobile barcodes into a direct response solution for brands and their consumers, the operator is investing in AT&T Mobile Barcode Services. This is generally a set of products and services that enables marketers to provide more measurable experiences with their target audience. The AT&T Mobile Barcode Services include the AT&T Code Scanner, AT&T Create-a-Code and the Code Management Platform. The main service is the AT&T Code Scanner, a mobile application that provides an easy way to scan 2D (QR and datamatrix codes) and 1D (UPC and EAN) barcodes found in magazines, stores, and online.



12

Industry Profile - United States

This emerging mobile technology has high potential in that it allows consumers to directly go online on their handsets to find out more about the scanned products. AT&T has continued to develop consumer barcode scanning as it represents the next generation of interactive targeted marketing, enabling advertisers to deliver relevant content and offers to consumers. It is also a valuable and efficient tool for consumers to search for promotions such as redeemable coupons and discounts, and information using their mobile device. This may soon be offered by other operators in the country, with a recent US consumer survey showing 80% of respondents indicated an interest in scanning barcodes with their mobile phones.

Policy and Regulatory Environment

As mobile devices become more multifaceted, consumers are tending to have more complex plans, choices and bills. This has led to a common occurrence in the US telecoms industry whereby subscribers experience “bill shocks”. Bill shocks happen when there is a sudden, unexpected increase in their mobile bill from one month to the next. Bill shocks can result from a number of causes, including promotional rates that unexpectedly expire, unclear advertising, or taxes or fees that were not disclosed at the point of sale. According to the FCC, instances such as unexpected increases from roaming fees or exceeding a monthly allotment of voice minutes, text, or data consumption are common. This is because mobile service providers do not always provide subscribers with the tools needed to monitor and control their usage or give them complete information concerning the tools that are available.

In order to prevent bill shocks for subscribers in future, the FCC has proposed rules that are intended to help mobile phone users avoid costly unexpected charges not covered by monthly plans. Following the European Union’s effective method, the FCC also plans to mandate that carriers provide automatic alerts to let consumers know when they are approaching the limits of their text, voice, and data plans, and when they are about to incur roaming charges. These alerts could be sent via text messages or voice mails, and would allow consumers to stop sending texts or using the mobile internet before they incurred unexpected fees. In addition to helping to prevent voice, text and roaming overcharges — the most common and expensive forms of bill shock — alerts could also help avoid other kinds of bill shock. For example, a consumer can be alerted when they think they are using free Wi-Fi when they are actually being billed data charges. These

rules are still under discussion by the FCC and have yet to be voted on prior to becoming law.



13

Industry ProfileCanada

The Canadian telecoms industry is one of the most developed mobile markets in the world, with Canadian consumers continuing to adopt wireless at a healthy pace. This has resulted in more than half of all phone connections in Canada being wireless. The CWTA estimates wireless phone customers in Canada numbered 23.4 million at the end of June 2010, or about 75% of the population. In the second quarter of 2010, wireless service providers reported the addition of 351,649 new subscribers, with a total of 472,350 new subscribers added to date in 2010. At the end of the first half of 2010, Canada had a national wireless penetration rate of 75%. As the wireless market sector revenues are the largest component — 41% — of total telecommunications revenues, this has resulted in Canada’s wireless carriers investing more than C$1 billion (US$973.6 million) in mobile phone communications infrastructure each year.

At the end of the second quarter, 80% of all wireless phone subscribers were on postpaid plans, with the remaining 20% subscribing to prepaid services. CWTA statistics show Canadians have adapted well to wireless data services such as mobile web browsing, email, text messaging, multimedia messaging and various multimedia entertainment content. Canadians are now sending an average of 135.4 million text messages a day, according to the CWTA. In the first quarter alone of 2010, 12.1 billion person-to-person text messages were sent among Canadian users. This represented an average of 183 messages sent per subscriber per month in the quarter ending March, up from 165 messages per user per month in the previous quarter. With more than half of the total wireless subscriber base sending person-to-person text messages in the first quarter, the CWTA estimates messages sent during that period represented more than one third of the 2009 total of 35.3 billion.

However, Canada’s broadband pricing continues to be relatively expensive by OECD standards, with average monthly subscription costs of C$62.95 (US$61.29). Greek consumers pay an average of C$32.46 (US$31.60) per month — C$30.49 (US$29.69) less than the amount Canadians have to pay when subscribing to broadband networks. In terms of average advertised download speed

the country is comparatively slow, with a speed of only 19.57 Mbps, compared to Japan that has an average speed of 107.73 Mbps. As other developed countries such as France, Portugal and Japan continue to improve their download speeds, Canada is falling further behind as the average speed gap with other OECD countries continues to grow every year. When factors involving price and high-speed connections are combined, Canada is near the bottom of the OECD rankings. When measuring price for speed, Canada ranks 25th out of 30 countries, according to OECD data, ahead of countries such as Sweden and Poland.

Sector Investment

With the lack of competition in Canada’s telecom sector resulting in high broadband prices, the CRTC recently set a requirement that involves large telecommunications providers rebating C$310.8 million (US$302.59) to their urban home telephone customers. In addition to rebates, the CRTC approved a plan for the deployment of broadband internet services to 287 rural and remote communities. This will be implemented over the next four years, with broadband internet service rolled out to communities where it is currently not available. This service will be compatible to urban areas and fast enough to connect residents to telehealth services and bring about business and educational opportunities for users.

The large telecommunications providers will use funds they have accumulated in their deferral accounts to pay for these initiatives. The companies, including BCE (Bell Canada) and Bell Aliant Regional Communications (TSX: BA.UN), will collectively invest C$421.9 million (US$410.76 million) to expand their networks and connect 112 communities in Ontario and Quebec. Other telcos such as Telus will connect 159 communities in British Columbia, Alberta and Quebec while MTS Allstream Inc will connect 16 communities in Manitoba. The remaining funds are to be allocated for rebates for the companies’ existing customers residing in urban areas. The CRTC ordered the rebates to be credited within the next five months and will range from approximately C$25 (US$24.34) to C$90 (US$87.62) per subscriber. Other investments already made from the

Industry Size and Value



14

Market Trends & Outlook - United States

deferral accounts include the C$35 million (US$34.08 million) the companies invested for initiatives designed to make telecommunications services more accessible to Canadians living with disabilities.

Other investments included those made by venture fund BlackBerry Partners Fund, which invested in one of the world’s largest open app stores and content marketplace PocketGear Inc. The funding of C$15 million (US$14.6 million) was made in participation with Trident Capital and is expected to assist PocketGear in scaling up its technical operations, building its sales and marketing team and expanding its global reach to capitalize on the growing mobile application market. With the mobile application marketplace growing, venture funds such as BlackBerry Partners Fund are increasingly investing in the expectation that it will benefit its main company, RIM. The aim is to develop a relationship so that in future PocketGear can collaborate with RIM’s own mobile applications store, the Blackberry App World, to better serve its own customers.

Research and Development

Canada lags behind in several major technological and communications fields, leading to debate as to whether the country can stay competitive in these fields. This has spurred debate that telcos such as Telus should put more effort into developing communications technology to keep Canada ahead of other developed countries.

One such recent development by Telus was upgrading its fast 3G+ wireless data network access speeds by using high-tech HSPA+ (Evolved High-Speed Packed Access) Dual Cell technology. With this new technology, speeds can be increased to up to 42 Mbps when commercial deployment is complete in Canadian cities and towns. This HSPA+ Dual Cell technology basically uses advanced multiplexing techniques to combine two wireless data carriers, operating at speeds of up to 21 Mbps each, into a single carrier with manufacturer-rated downlink speeds of up to 42 Mbps.

As this new technology is mainly developed for Telus’ clients with Dual Cell compatible devices, users will be able to take advantage of the new network capabilities as soon as next year. The Telus HSPA+ Dual Cell technology laboratory testing was completed in early July and is expected to be made commercially available during the first quarter of 2011. To date, Telus has no immediate

competitor in Canada except for Telstra in Australia, which deployed the HSPA+ Dual Cell technology in August of 2010. Policy and Regulatory Environment

In an attempt to encourage competition and investment in the telecoms industry, the CRTC recently made it a requirement that large telecommunications companies must make their existing internet access services available to alternate ISPs. The speeds made available to other ISPs should match those offered to their own retail customers. This requirement aims to ensure that alternate ISPs can continue to give Canadians more choice by offering competing and innovative internet services.

As large telecommunications providers have been investing in upgrades and expanding their networks, the CRTC will allow them to charge competitors an additional 10% mark-up over their costs for the use of their wholesale internet services’ higher-speed options. However, the CRTC denied the alternate ISPs’ requests that the large telecommunications providers reconfigure their networks.

Although these reconfigurations may have permitted alternate ISPs to offer additional services to consumers, the CRTC believes this constitutes a disincentive to network investment without necessarily enhancing innovation or competition. Overall, the current wholesale framework allows ISPs to pay for the right to use large companies’ networks to serve their own customers. The CRTC wants the market to be less reliant on authorized internet access services when other alternatives, such as wireless or satellite internet services, become more accepted as substitutes.



15

Market Trends & OutlookUnited States

Smartphones using Google’s Android operating system are among the most popular devices in the US for smartphone buyers. Figures from surveys conducted by various firms including Nielsen and NPD have shown that Android handsets have outsold Apple’s iPhone devices since April 2010, despite record sales of the iPhone 4 after its release in June this year. This has also been the case with devices running on RIM’s BlackBerry operating system (OS) that have failed to match the sales of Android-powered devices to date.

Android has gained popularity in recent months mainly because the software is open source and free to any company that wants to develop a phone running the OS. This has led to manufacturers ranging from Motorola to HTC Corporation (TWSE: 2498) having adopted the Android OS. Aside from the various choices of handsets based on the OS that is made available to consumers, another reason for Android’s sudden growth over the past six months has been due to its wide distribution. Android handsets are available across all four of the major domestic mobile operators in the US, while the iPhone continues to be tied exclusively to telecoms incumbent, AT&T.

At this rate, Android sales may comprise half of all OS market sales in the next five years. For now, the next six months could see Android-based smartphones continue to be the top seller in the US, with iPhone and BlackBerry phones trailing behind and with Nokia’s Symbian OS barely making an impact on the US market.

Mobile Gaming Market Gains in Popularity

Gaming on mobile platforms is driving the adoption of mobile games, with some estimates suggesting more than a quarter of mobile subscribers and more than one in five people in the US embracing it. Earlier this year, 64 million people were estimated to have played mobile games at least on a monthly basis, a number that could rise to above 90 million by 2014, according to the Chief Marketing Officer (CMO) Council. While games are currently popular on both smartphones and feature phones, the composition of the mobile gaming audience could shift further towards smartphones as they increase in penetration across the US population. As smartphone gamers now account for 42%

of the total, it has been forecast that revenues from mobile gaming could reach nearly US$850 million in 2010, with the majority coming from paid downloads, according to the CMO Council.

In general, smartphones are popular because they offer a more accessible and compelling mobile gaming experience that is enabling adoption even among consumers who have not traditionally been gamers. The ascent of the mobile gaming market depends not only on smartphone subscribers’ higher propensity to play games on their mobile devices, but also heavier gaming activity across nearly every dimension. Smartphone subscribers are three times more likely than feature phone subscribers to play games on their devices at least once a month. They are also more than five times as likely to play games almost every day, and far surpass their feature phone counterparts across various methods of game play, thus encouraging future growth of mobile gaming revenues.

Mobile Broadband Phones to See Growth

Offering mobile broadband services is becoming essential for companies wanting to remain competitive in emerging markets. This is increasingly becoming a substitute for fixed broadband, with mobile broadband traffic expected to overtake the former in the next six months. As the trend of owning more portable internet-capable devices arises, notebook and netbook ownership levels could start to decline, in favor of consumers purchasing smaller devices in the form of mobile broadband-capable phones. Examples of these phones include Apple’s iPhone and RIM’s BlackBerry. This has led to forecasts that mobile phones could take up two thirds of mobile broadband traffic within the next five years up from 49% currently, thus reflecting the centering of mobile broadband upon phones.

However, this does not mean that mobile phones will immediately dominate the mobile broadband device segment. Carriers and content providers are currently facing a challenge with the fact that only half of consumers in the US with internet-enabled phones actually use them to access the internet. Although there is the potential to encourage users to use mobile broadband through their phones, organizations will still need to move people from

Demand for Android-based Smartphones Grows



16

Market Trends & Outlook - United States

ownership into integrating their devices into their everyday lives. Thus telecoms companies will have to educate consumers into understanding the value of adapting mobile phone broadband into their lifestyles in order to increase usage among them.

Mobile Digital TV Adoption on the Rise

The mobile digital TV (DTV) trend began in 2009, when US television stations switched from analog to digital broadcasts. The mobile DTV platform generally enables local TV stations to deliver live, digital content to mobile and video devices with ATSC (Advance Television Systems Committee) standard capability on mobile phones, and more recently, to smartphones. Other ATSC-capable mobile devices include portable media players, laptop computers and personal navigation devices.

Another association, the Open Mobile Video Coalition, which consists of a group of 800 broadcasters, has been testing mobile DTV around Washington DC and has claimed positive results. According to the group, 65% of the people during their testing used mobile DTV on a daily basis, with 22% accessing it three or more times a day. The test also found that local news viewership dominated all categories.

The jump in demand for mobile content services such as mobile DTV is indirectly influenced by the technological advancements in smartphones. As recently as 2009, smartphone sales totaled approximately 30.7 million nationwide and grew by 7.3% over the year, according to the Telecommunications Industry Association (TIA). At this rate, the total number of smartphone users could grow by more than ten million users annually. As a result, by the end of 2011, or by the first half of 2012, more than half of the US population is expected to take up mobile DTV services offered by various telco operators.

Mobile Advertising Spending to Increase

While mobile advertising was a popular marketing tool this year, it has yet to become a billion-dollar business in the US. US mobile advertising spending is likely to total over US$700 million this year, up nearly 80% from US$416 million the previous year, according to media research company eMarketer. That growth is expected to slow slightly while maintaining double-digit rates as spending is forecast to be over US$$1.1 billion in 2011 and more than US$2.5 billion by 2014. This trend is being driven by

the expansion of the smartphone market and the attractive use and demographic profile of smartphone owners. This is prompting marketers to focus more on mobile advertising.

Video, display and search advertising spending on mobile could also double this year, while growth in messaging advertising (SMS) will lag behind other more sophisticated mobile formats even though SMS is still the largest format used by most marketers. Despite the popularity of SMS advertising, growth of other types of ads, backed by growing smartphone use, new ad formats and ad networks will soon put them ahead of text advertising. It is therefore likely that those marketers who had previously not considered mobile advertising, will become more eager to venture into the market, partly due to the attention to this medium given by large companies such as Apple and Google.

Market Outlook

Due to the further adoption this year of smartphones, spending on wireless data could more than double in the next three years from US$43 billion to US$93 billion in 2013, according to the TIA. However, while wireless data spending should rise, voice services revenue is expected to decline slightly, from US$118 million to US$117.5 million over the same period

As for the country’s wireless subscription penetration rate, it reached 90% at the end of 2009 and is expected to reach 95% by 2013. This suggests that the rate of wireless subscriber growth is expected to slow down, as the base of potential customers shrinks. At the same time, wireless equipment spending that declined 13.5% in 2009 due to the poor economic conditions is now expected to improve in the post-recession years. Overall spending in the wireless equipment segment is projected to grow 7.7% during the next three years, from US$17.3 billion to US$23.3 billion in 2013.



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Market Trends & OutlookCanada

Mobile advertising revenues are growing throughout Canada, with SMS advertising generating most of the revenue. The Interactive Advertising Bureau (IAB) of Canada announced in June 2010 that mobile advertising revenue grew from C$2.7 million (US$2.63 million) in 2007 to just over C$11.9 million (US$11.59 million) in 2008. ). Although this exceeded analyst expectations of C$5.2 million (US$5.06 million), the recession most likely had a dampening effect on growth figures, thus preventing it from generating more than the forecast revenue. It had also forecast it would rise by 50% in 2009, rising to an estimated C$18 million (US$17.52 million), while recording a slight rise in 2010 to C$25 million (US$24.34 million. Standard SMS advertising programs currently generate 75% of total Canadian mobile advertising revenue, with the remainder divided across premium SMS, mobile content, mobile (display) advertising, mobile search and mobile applications.

While mobile advertising revenue is growing exponentially compared with other major media — 347% between 2007 and 2008, compared with the 3.9% growth rate of all major media and online advertising’s 29% growth over the same period — this is to be expected, given mobile’s relatively small advertising revenue base. However, even with this growth, the mobile segment has possible constraints in the immediate term, with the small mobile internet-enabled audience, the revenue-building restrictions imposed by the current carrier or provider business model and the severe recession between 2008 and 2009 as the main obstacles to overcome in the short term.

Nevertheless, the results of the study show not only the growth of the market to date, but also that mobile marketing could be poised to move from one-off experimental campaigns to becoming an important part of the overall interactive marketing mix. It is anticipated that further smartphone utilization by consumers could produce sustained demand for the segment of mobile advertising services, moving mobile from the fringes into more of a mainstream advertising expenditure. Moreover, as multimedia and network capabilities evolve, the nature of the advertising offer will evolve as well, moving well beyond current SMS programs into more sophisticated and

personal mobile content, video and application campaigns across an even wider range of advertiser categories.

BlackBerry Smartphone Software to be Replaced

In late September, RIM released its BlackBerry Playbook tablet that runs on software recently bought as part of a C$205.42 million (US$200 million) acquisition in April. It is now considering using the same OS in its BlackBerry smartphone line. The reason for the change to bring the QNX software into RIM’s phones instead of using the current BlackBerry OS, is due to the latter now losing market share to rivals such as Google’s Android and Apple’s iPhone. This is especially the case with Android phones, which are attractive to consumers because of their wider range of games, news and other downloadable software. With these features, the Google-designed OS is expected to overtake BlackBerry’s market share by the end of 2010.

This QNX software, which was bought from Harman International Industries Inc (NYSE: HAR), has a higher level of reliability than rival OS built for smartphones and adapted for tablet devices. This is due to the fact that it is also used in the control systems for nuclear power plants, the US Army’s Crusher tank, car audio systems and in other products from US-based companies such as Caterpillar Inc (NYSE: CAT) and General Electric Co (NYSE: GE). In addition, as both the QNX and Android software share the same programming standard, Posix (Portable Operating System Interface for Unix), implementing the QNX software into BlackBerry handsets can allow applications built for Android to be easily ported or downloaded to RIM devices.

LTE Could Reach Canada by 2012

Long Term Evolution, or LTE, is a new standard in mobile network technology. As it has not been available in Canada to date, only recently have two carriers started trials on the LTE network. This was the case with Rogers Communications when in October it launched the LTE wireless network technical trial with Ericsson in the Ottawa Research and Development facility. The trial involved comparing speeds and the performance of LTE technology

Mobile Advertising on the Rise in Canada



18

Market Trends & Outlook - Canada

in multiple frequency bands. Rogers will later expand on testing and move to a comprehensive technical trial of LTE on both low and high band frequencies in Ottawa, Canada’s capital.

Rogers is testing a theoretical maximum wireless transfer LTE speed of 150 Mbps. The performance will be evaluated in urban, suburban and rural areas, with the carrier also assessing its interoperability with its existing HSPA+ network. The spectrum to be used by Rogers for the trial is the Advanced Wireless Services (AWS), which was recently acquired in an auction. Rogers is also currently working with Industry Canada to secure a development license to use the 700 MHz (megahertz) spectrum for the trial.

Also working with Ericsson is BCE, which began testing on the LTE network in the middle of this year. The carrier has completed a technical testing phase of LTE data transmission and is currently conducting trials under actual network conditions in Montreal and Hamilton of Canada. The wireless division of BCE now plans on conducting additional tests with Nokia Siemens Networks, as it extends its trial period. As a result, the carrier expects its commercial LTE launch to be at the earliest in 2012.

Market Outlook

For the rest of this year the outlook for the telecoms sector is relatively positive, but not strong as modest price rises and rising costs limit profit growth. Over the past year, new products such as smartphones and digital TV and the growing use of wireless services have helped the telecoms industry through the recession. Telecom profits surpassed C$7.19 billion (US$7 billion) last year, slightly above during the 2008 period, according to the Conference Board of Canada. Industry revenues are being driven by growth in subscriber numbers, roaming revenues and the growing use of data services such as SMSes and MMSes.

However, costs are also likely to rise by 5% in the next three months from October, resulting in a slight drop in profits during the next quarter. This is mainly due to rising interest rates, network and technology upgrades and aggressive mobile phone subsidies in light of intensified competition. Although profit growth is expected to resume next year, it will take another two years to recover to last year’s level.



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Currency Conversion Table

Source: Federal Reserve Bank of New YorkNote: Base currency is US dollars

Currency exchange rates as of October 22, 2010

Currency Unit Units per US$ US$ per Unit

US Dollar (US$) 1 1

Canadian Dollar (C$) 1.0271 0.9736



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The Scope Of This Report

This report examines the telecommunications industries in the United States and Canada. The industry can be broadly

broken into two categories: services and manufacturing. However, the communications media has diversified and a

number of companies that include providers of both voice and data services, wireless service providers and equipment

makers have broadened the industry. The report also examines the current environment for the sector, profiles the industry

and discusses market trends and outlook. Key financial results for leading companies are presented in the comparative

data tables on proceeding pages.

Research analysts draw on a range of credible industry and company data sources as well as news and information

services to research and analyze the current trading environment, industry landscape and market trends and outlook for a

particular sector. Primary sources are used, unless otherwise indicated, which include company data, e.g. annual reports

and company financial results; macroeconomic and trade data; data and information from global and country regulatory,

industry and trade bodies; government data; and reports from industry organizations and private research organizations.

Industries covered by the industry reports are defined by standard industry classification systems and leading companies are

identified on this basis. The following SIC codes are relevant to the industry: 3661 (Telephone and Telegraph Apparatus),

3663 (Radio and TV Communications Equipment), and 3669 (Communications Equipment) for the manufacturing

segment and 4812 (Radiotelephone Communications), 4813 (Telephone Communications), 4822 (Telegraph and Other

Communications), 4899 (Communications Services) and 7375 (Information Retrieval Services) for the services side.



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Key References

Global

The Cellular Telecommunications and Internet Association (CTIA)

CTIA is an international non-profit membership organization founded in 1984, representing all sectors of wireless communications — cellular, personal communication services and enhanced specialized mobile radio.http://www.ctia.org

The Chief Marketing Officer (CMO) Council

The CMO Council is an international non-profit membership organization founded in 2001, dedicated to high-level knowledge exchange, thought leadership and personal relationship building among senior corporate marketing leaders and brand decision-makers across a wide-range of global industries. http://www.cmocouncil.org

International Telecommunication Union (ITU)

The ITU is an independent international organization established to promote standardized telecommunications on a worldwide basis.http://www.itu.int

Organisation for Economic Cooperation and Development (OECD)

An international organization that helps governments tackle the economic, social and governance challenges of a globalized economy.http://www.oecd.org

World Economic Forum (WEF)

The World Economic Forum is an independent international organization committed to improving the state of the world by engaging leaders in partnerships to shape global, regional and industry agenda.http://www.weforum.org/

United States

Federal Communications Commission (FCC)

The FCC is the US Government’s telecommunications regulatory authority.http://www.fcc.gov

Telecommunications Industry Association (TIA)

The TIA represents providers of communications and information technology products and services through standards development and domestic and international advocacy. The TIA strives to further members’ business opportunities through the development of a competitive and innovative market and trade promotion programs.http://www.tiaonline.org

United States Telecom Association (USTA)

The USTA is the premier trade association representing broadband service providers, manufacturers and suppliers providing advanced applications and entertainment.http://www.ustelecom.org/

National Telecommunications and Information Administration (NTIA)

The NTIA is the President’s principal advisory body on telecommunications and information policy.http://www.ntia.doc.org



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US Census Bureau

The Census Bureau is a government agency that produces US demographics data at the national, state and county level.http://www.census.gov

Communications Workers of America (CWA)

CWA, America’s largest communications and media union, represents over 700,000 men and women in both private and public sectors, including over half a million workers who are building the information highway.http://www.cwa-union.org

The Information Technology and Innovation Foundation (ITIF)

ITIF is a non-partisan research and educational institute whose mission is to formulate and promote public policies to advance technological innovation and productivity internationally, in Washington, and in the states.http://www.itif.org

Canada

Canadian Radio-Television and Telecommunications Commission (CRTC)

The CRTC is an independent agency responsible for regulating Canada’s broadcasting and telecommunications systems.http://www.crtc.gc.ca

Communications Research Centre Canada (CRC)

CRC is the Federal Government’s main research center for communications technology R&D. http://www.crc.ca

Statistics Canada

Statistics Canada is the national statistics agency that is the official source for Canadian social and economic statistics and products.http://www.statcan.ca

Canadian Wireless Telecommunications Association (CWTA)

The CWTA is the authority on wireless issues, developments and trends in Canada.http://cwta.ca

The Canadian Telecommunications Consultants Association (CTCA)

The CTCA is Canada’s only professional association of independent telecommunications consultants.http://www.ctca.ca

Invest in Canada

Invest in Canada is the Government of Canada’s one-stop center for investment services.http://www.investincanada.gc.ca



23

Notes to Comparative Data

- All figures are in United States dollars.

- All figures are as reported by the company.- N/A = Data Not Available.

- N/L = Not Listed.

- Companies ranked by total revenue for the full year most recently reported.

Definitions- Total Revenue = All revenues, including net sales, operating revenues, interest income, royalties, excise taxes etc.

- EBITDA = Earnings before interest, taxes, depreciation and amortization.

- EPS Cont Operations = Earnings Per Share as reported by company excluding extraordinary items.

- Total Current Assets = All assets expected to be realized within the next year, includes cash, accounts receivable and inventories.

- Long Term Debt = Debt due to be paid at a date more than one year in the future.

- Return on Equity = The company’s earnings divided by its equity (book value).

- Profit Margin = The company’s net income as a percent of revenues.

Comparative Company Data | UNITED STATES

Company Country Ticker Exchange Primary SIC Other SICs

AT&T Inc United States T NYSE 4813 4899 2741 2721 6719

Verizon Communications Inc United States VZ NYSE 4813 4812 7378

Sprint Nextel Corp United States S NYSE 4812 4813 4822 3577 6719

Motorola Inc United States MOT NYSE 3663 3571 3812 3661 3694

Directv United States DTV NYSE 4899

L-3 Communications Holdings United States LLL NYSE 3663 3812 3845 6719

Qwest Communications International United States Q NYSE 4813 4899

Qualcomm Inc United States QCOM NASDAQ 3663 3669 4899

Virgin Media Inc United States VMED NSM 4813 4841 7375

Embarq Corp United States EQ NYSE 4813 4899

Company Total Revenue - FYE - 1 Total Revenue - FYE - 2 Total Revenue - FYE - 3 EBITDA - FYE - 1 EBITDA - FYE - 2 EBITDA - FYE - 3

AT&T Inc $123,018,000,000 $124,028,000,000 $118,928,000,000 $42,092,000,000 $43,437,000,000 $43,483,000,000

Verizon Communications Inc $107,808,000,000 $97,354,000,000 $93,469,000,000 $31,127,000,000 $31,936,000,000 $30,583,000,000

Sprint Nextel Corp $32,260,000,000 $35,635,000,000 $40,146,000,000 $5,372,000,000 $5,709,000,000 -$19,409,000,000

Motorola Inc $22,044,000,000 $30,146,000,000 $36,622,000,000 $718,000,000 -$1,850,000,000 $436,000,000

Directv $21,565,000,000 $19,693,000,000 $17,246,000,000 $4,808,000,000 $4,966,000,000 $4,098,000,000

L-3 Communications Holdings $15,615,000,000 $14,901,000,000 $13,961,000,000 $1,969,000,000 $1,956,000,000 $1,728,000,000

Qwest Communications International $12,311,000,000 $13,475,000,000 $13,778,000,000 $4,303,000,000 $4,474,000,000 $4,218,000,000

Qualcomm Inc $10,416,000,000 $11,142,000,000 $8,871,000,000 $2,735,000,000 $4,304,000,000 $4,020,000,000

Virgin Media Inc $6,161,533,122 $5,503,934,765 $1,916,100,422 $2,136,227,050 $1,203,876,432 $644,873,166

Embarq Corp $6,124,000,000 $6,365,000,000 $6,363,000,000 $2,640,000,000 $2,564,000,000 $2,585,000,000

Company Net Income - FYE - 1 Net Income - FYE - 2 Net Income - FYE - 3 EPS - FYE - 1 EPS - FYE - 2 EPS - FYE - 3

AT&T Inc $12,843,000,000 $13,128,000,000 $12,147,000,000 $2.12 $2.17 $1.95

Verizon Communications Inc $10,358,000,000 $12,583,000,000 $10,574,000,000 $1.29 $2.26 $1.91

Sprint Nextel Corp -$2,436,000,000 -$2,796,000,000 -$29,444,000,000 -$0.84 -$0.98 -$10.24

Motorola Inc -$28,000,000 -$4,240,000,000 -$35,000,000 -$0.02 -$1.87 -$0.02

Directv $1,007,000,000 $1,613,000,000 $1,462,000,000 $0.96 $1.37 $1.21

L-3 Communications Holdings $911,000,000 $949,000,000 $754,000,000 $7.65 $7.67 $5.92

Qwest Communications International $662,000,000 $652,000,000 $2,890,000,000 $0.38 $0.38 $1.57

Qualcomm Inc $1,592,000,000 $3,160,000,000 $3,303,000,000 $0.96 $1.94 $1.99

Virgin Media Inc -$579,486,003 -$1,340,717,005 -$231,363,660 -$1.77 -$4.08 -$0.71

Embarq Corp $769,000,000 $683,000,000 $784,000,000 $5.27 $4.50 $5.26

CompanyTotal Current Assets -

FYE - 1

Total Current Assets -

FYE - 2


FYE - 3

Long-Term Debt -

FYE - 1

Long-Term Debt -

FYE - 2

Long-Term Debt -

FYE - 3

AT&T Inc $24,334,000,000 $22,556,000,000 $24,686,000,000 $64,720,000,000 $60,872,000,000 $57,255,000,000

Verizon Communications Inc $22,608,000,000 $26,075,000,000 $18,698,000,000 $55,051,000,000 $46,959,000,000 $28,203,000,000

Sprint Nextel Corp $8,593,000,000 $8,642,000,000 $8,661,000,000 $20,293,000,000 $20,992,000,000 $20,469,000,000

Motorola Inc $16,032,000,000 $17,363,000,000 $22,222,000,000 $3,365,000,000 $4,092,000,000 $3,991,000,000

Directv $5,055,000,000 $4,044,000,000 $3,146,000,000 $7,037,000,000 $6,267,000,000 $3,347,000,000

L-3 Communications Holdings $5,151,000,000 $4,961,000,000 $4,763,100,000 $4,128,000,000 $4,511,000,000 $4,472,000,000

Qwest Communications International $4,614,000,000 $2,970,000,000 $902,000,000 $12,004,000,000 $12,735,000,000 $13,650,000,000

Qualcomm Inc $12,570,000,000 $11,872,000,000 $8,821,000,000 N/A N/A N/A

Virgin Media Inc $1,688,251,006 $1,538,181,303 $1,909,783,714 $9,609,782,562 $8,932,672,775 $11,878,602,281

Embarq Corp $890,000,000 $986,000,000 $1,051,000,000 $5,743,000,000 $5,779,000,000 $6,421,000,000

Company Return on Equity (Most Recent Yr) Profit Margin (Most Recent Yr) Date FYE - 1 Date FYE - 2 Date FYE - 3

AT&T Inc 12.60 10.44 31-Dec-2009 31-Dec-2008 31-Dec-2007

Verizon Communications Inc 24.90 9.61 31-Dec-2009 31-Dec-2008 31-Dec-2007

Sprint Nextel Corp -13.46 -7.55 31-Dec-2009 31-Dec-2008 31-Dec-2007

Motorola Inc -0.29 -0.13 31-Dec-2009 31-Dec-2008 31-Dec-2007

Directv 34.59 4.67 31-Dec-2009 31-Dec-2008 31-Dec-2007

L-3 Communications Holdings 13.87 5.83 31-Dec-2009 31-Dec-2008 31-Dec-2007

Qwest Communications International N/A N/A 31-Dec-2009 31-Dec-2008 31-Dec-2007

Qualcomm Inc 7.84 15.28 27-Sep-2009 28-Sep-2008 30-Sep-2007

Virgin Media Inc -23.99 -9.40 31-Dec-2009 31-Dec-2008 31-Dec-2007

Embarq Corp N/A N/A 31-Dec-2008 31-Dec-2007 31-Dec-2006



24

Comparative Company Data | CANADA

Notes to Comparative Data

- All figures are in United States dollars.

- All figures are as reported by the company.- N/A = Data Not Available.

- N/L = Not Listed.

- Companies ranked by total revenue for the full year most recently reported.

Definitions- Total Revenue = All revenues, including net sales, operating revenues, interest income, royalties, excise taxes etc.

- EBITDA = Earnings before interest, taxes, depreciation and amortization.

- EPS Cont Operations = Earnings Per Share as reported by company excluding extraordinary items.

- Total Current Assets = All assets expected to be realized within the next year, includes cash, accounts receivable and inventories.

- Long Term Debt = Debt due to be paid at a date more than one year in the future.

- Return on Equity = The company’s earnings divided by its equity (book value).

- Profit Margin = The company’s net income as a percent of revenues.

Company Country Ticker Exchange Primary SIC Other SICs

BCE Inc Canada BCE TSX 4813 4899 3663 3669

Research in Motion Ltd Canada RIM TSX 3661 4813 4899 3669

Rogers Communications Inc Canada RCI-A, RCI-B TSX 4812 4841 7374 4899 4832 4833

Telus Corp Canada T, T-A TSX 4813

Quebecor Inc Canada QBR-A, QBR-B TSX 4899 4841 4833 2711 2731 2721

Shaw Communications Inc Canada SJR.B TSX 4841 4833 4899 6719

Manitoba Telecom Services Inc Canada MBT TSX 4899 4813

Saskatchewan Telecommunications Canada N/L N/L 4899 4813 7382 6719

Aastra Technologies Ltd Canada AAH TSX 4899 3669

Glentel Inc Canada GLN TSX 3669 4899

Company Total Revenue - FYE - 1 Total Revenue - FYE - 2 Total Revenue - FYE - 3 EBITDA - FYE - 1 EBITDA - FYE - 2 EBITDA - FYE - 3

BCE Inc $16,916,261,434 $14,390,162,190 $17,368,807,905 $6,241,895,394 $4,791,017,138 $8,892,845,342

Research in Motion Ltd $14,953,224,000 $11,065,186,000 $6,009,395,000 $3,882,131,000 $3,128,259,000 $1,987,886,000

Rogers Communications Inc $11,189,436,869 $9,235,744,772 $9,929,657,335 $4,317,056,625 $3,179,345,046 $3,093,760,667

Telus Corp $9,162,537,769 $7,865,253,135 $8,900,692,547 $2,799,505,346 $2,672,540,172 $3,057,467,343

Quebecor Inc $3,606,449,646 $3,039,281,127 $3,301,613,516 $996,185,139 $100,464,696 $804,632,808

Shaw Communications Inc $3,069,710,714 $2,919,472,368 $2,921,898,620 $1,403,484,029 N/A $1,315,533,396

Manitoba Telecom Services Inc $1,726,345,733 $1,521,310,901 $1,823,592,408 $487,695,769 $469,894,487 $285,540,181

Saskatchewan Telecommunications $1,099,572,255 $928,108,833 $1,041,461,462 $322,943,688 $261,624,572 $276,070,566

Aastra Technologies Ltd $794,446,202 $677,969,665 $595,003,548 $82,471,424 $39,988,697 $63,665,357

Glentel Inc $235,748,191 $217,360,719 N/A $10,888,157 $16,180,937 N/A

Company Net Income - FYE - 1 Net Income - FYE - 2 Net Income - FYE - 3 EPS - FYE - 1 EPS - FYE - 2 EPS - FYE - 3

BCE Inc $1,657,765,005 $768,355,300 $3,979,513,959 $2.01 $0.83 $4.79

Research in Motion Ltd $2,457,144,000 $1,892,616,000 $1,293,867,000 $4.35 $3.35 $2.31

Rogers Communications Inc $1,409,767,939 $816,428,431 $624,833,717 $2.27 $1.28 $0.98

Telus Corp $955,742,541 $921,537,480 $1,233,973,024 $3.00 $2.87 $3.72

Quebecor Inc $264,879,944 $153,182,181 -$950,688,915 $4.12 $2.38 -$14.78

Shaw Communications Inc $484,538,793 $631,464,006 $409,125,520 $1.13 $1.47 $0.95

Manitoba Telecom Services Inc $97,005,006 $117,331,032 $166,458,841 $1.50 $1.82 $2.56

Saskatchewan Telecommunications $123,053,283 $100,707,506 $82,512,382 $0.00 $0.00 $0.00

Aastra Technologies Ltd $42,551,527 $9,351,446 $35,083,874 $3.11 $0.60 $2.19

Glentel Inc $7,759,329 $10,374,986 N/A $0.73 $0.99 N/A

CompanyTotal Current Assets -

FYE - 1


FYE - 2


FYE - 3

Long-Term Debt -

FYE - 1

Long-Term Debt -

FYE - 2

Long-Term Debt -

FYE - 3

BCE Inc $3,132,393,716 $4,544,947,891 $5,124,225,024 $9,823,545,334 $8,228,653,415 $10,560,376,456

Research in Motion Ltd $5,812,656,000 $4,841,586,000 $3,477,354,000 N/A N/A $7,259,000

Rogers Communications Inc $2,150,897,634 $1,870,778,121 $2,102,070,105 $8,072,304,512 $6,930,678,874 $5,916,792,753

Telus Corp $1,074,971,899 $1,233,605,433 $1,315,387,779 $5,808,854,363 $5,172,342,992 $4,496,448,604

Quebecor Inc $1,060,092,075 $692,171,609 $2,390,651,077 $3,635,923,144 $3,590,899,937 $3,124,364,768

Shaw Communications Inc $685,899,239 $380,316,862 $621,613,739 $2,415,953,284 $2,544,930,777 $2,918,603,323

Manitoba Telecom Services Inc $412,056,664 $183,329,737 N/A $1,004,388,119 $362,748,440 N/A

Saskatchewan Telecommunications $130,327,228 $109,908,215 $147,478,414 $229,042,460 $269,375,753 $321,541,197

Aastra Technologies Ltd $387,712,891 $389,361,400 $348,155,974 $15,796,459 $28,955,506 $7,754,020

Glentel Inc $81,320,183 $81,323,531 N/A $1,926,184 $3,256,590 N/A

Company Return on Equity (Most Recent Yr) Profit Margin (Most Recent Yr) Date FYE - 1 Date FYE - 2 Date FYE - 3

BCE Inc 10.24 9.80 31-Dec-2009 31-Dec-2008 31-Dec-2007

Research in Motion Ltd 32.32 16.43 27-Feb-2010 28-Feb-2009 1-Mar-2008

Rogers Communications Inc 34.59 12.60 31-Dec-2009 31-Dec-2008 31-Dec-2007

Telus Corp 13.23 10.43 31-Dec-2009 31-Dec-2008 31-Dec-2007

Quebecor Inc 23.73 7.34 31-Dec-2009 31-Dec-2008 31-Dec-2007

Shaw Communications Inc 21.43 15.78 31-Aug-2009 31-Aug-2008 31-Aug-2007

Manitoba Telecom Services Inc 7.72 5.62 31-Dec-2009 31-Dec-2008 31-Dec-2007

Saskatchewan Telecommunications 15.89 11.19 31-Dec-2009 31-Dec-2008 31-Dec-2007

Aastra Technologies Ltd 14.73 5.36 31-Dec-2009 31-Dec-2008 31-Dec-2007

Glentel Inc N/A N/A 31-Dec-2008 31-Dec-2007 N/A



25

Notes



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