Smartphones are Still Dominating Handset Sales –

Will Android be the Beginning of the End for

Licensed Operating Systems?

Todd Day, Industry Analyst

Mobile & Wireless

December 16, 2010

2

Functional Expertise

As an Industry Analyst in Frost & Sullivan’s Mobile & Wireless Communications Group, Mr. Todd Day

researches and analyzes emerging, next generation wireless technologies & applications that enable the

mobile Internet revolution. The scope of his work deals with all aspects of the mobile value chain; from

delivery infrastructure and communication management, to end user content and applications.

Industry Expertise

Since joining Frost & Sullivan in November 2006, Day has completed numerous consulting projects and

research studies on the following: U.S. Mobile Operator Profiles, Next-Generation Wireless Network

Technologies, North American Smartphones Market, Optimizing Backhaul for Wireless Carriers,

Application Storefronts Market, white papers on Mobile Application Development and Mobile Search, and

assisted on several other private consulting projects relating to custom web portals development and

database applications.

What I bring to the Team

• Mobile & Wireless Expertise & Thought Leadership

• Project Management & Strategic Consulting Experience

• Market Engineering, Competitive Benchmarking, Forecast Modelling

• Network Engineering & Infrastructure Experience

Career Highlights

Prior to this, Day was a Network Engineer for a triple play provider in Texas where he worked with

numerous network technologies including: Fiber, HFC, SS7, RF, ATM, TDM, and VoIP. He brings with

him a strong technical background, along with real-world experience of various network technologies.

Education

BBA from Texas State University – San Marcos, San Marcos, TX, United States

Todd DayIndustry Analyst

Mobile & Wireless

Frost & Sullivan

North America

Today’s Presenters

3

Focus Points

Definition and Market Segmentation

Smartphone Growth

Smartphone Economic Ecosystem

Operating Systems Analysis

Smartphone OS Strengths & Weaknesses

4

Smartphone Definition, Market

Segmentation, Growth, and Ecosystem

5

Definition and Market Segmentation

Definition of a Smartphone:

A category of mobile device that provides advanced capabilities beyond a typical mobile phone. Smartphones run complete operatingsystem software that provides a standardized interface and platform for application developers.

Smartphone operating systems covered in this study include: iOS, Android, BlackBerry, webOS, Symbian, and Windows Mobile (alsoreferred to as Windows Phone 7).

Market Segmentation

Device Manufacturers

• Apple

• HP

• HTC

• LG

• Motorola

• Nokia

• RIM

• Samsung

• Etc.

Operating Systems

• Android

• BlackBerry

• iOS

• Symbian

• webOS

• Windows Mobile

Operators

• North America

• AT&T

• Sprint

• T-Mobile

• Verizon Wireless

• Others

• Canada

• Bell Mobility

• Rogers

• TelusConsumer Segment

Enterprise Segment

6

Definition and Market Segmentation (Contd...)

Closed Environment Open Environment

Application Storefront

Operating System

Device Manufacturer

Application Storefront

Operating System

Application Storefront

Operating System

Application Storefront

Operating System

Device Manufacturer

Apple iOS

• Apple has a completely closedenvironment – they develop theOS, manufacture the iPhoneand iOS products, and maintainthe Application Storefront

• iOS applications can only besold via the Apple App Store

RIM BlackBerry OS

• RIM has a closed environment –they develop theOS, manufacture BlackBerrydevices, and maintain AppWorld

• BlackBerry applications can besold via App World or third-party/independent applicationstorefronts

Google Android OS

• Google has an openenvironment – they develop theOS, provide their OS to OEMpartners for free, and maintainAndroid Market

• Android applications can besold via Android Market orthird-party/independentapplication storefronts

Microsoft Windows Mobile OS

• Microsoft has an openenvironment – they develop theOS, license their OS to OEMpartners for a fee, and maintainMarketplace

• Windows Mobile applicationscan be sold via Marketplace orthird-party/independentapplication storefronts

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Smartphone Growth Forecast

Device growth remains steady.

Device growth in North America remains at asteady 1.9% Compound Annual Growth Rate(CAGR) in a saturated market.

Smartphones are expected to grow rapidlythrough 2015.

With the recent success of theiPhone, Android, and BlackBerry products in theNorth American market, smartphones are expectedto grow at an annual rate of 21.0% - 21.1% in theUnited States, and 19.9% in Canada. At this growthrate, smartphones are expected to surpass featurephones between 2012 and 2013.

North American market is likely to exceed 320million connections by 2015.

By 2015, the North American market should growto over 320 connected feature and smartphones.However, this number does not include theM2M, notebooks, tablets, and other connecteddevices.

2009 2010 2011 2012 2013 2014 2015

Smartphones 68.9 89.1 117.3 144.3 171.2 193.5 216.6

Feature Phones 218.9 202.1 177.9 157.3 136.3 120.7 106.3

Feature Phones

Smartphones

0

50

100

150

200

250

300

350

Mo

bile

Su

bsc

rib

ers

(M

illio

ns)

Mobile Device Connections Forecast (North America), 2009-2015

23.9%

76.1%

67.1%

32.9%

Note: All figures are rounded; the base year is 2009. Source: Frost & Sullivan

8

Smartphones

3G/4G Infrastructure

Vendors

Device Manufacturers

OS Vendors

Application Stores

Mobile Advertisers & Developers

Mobile Operators

Smartphones Economic Ecosystem

9

Smartphone Operating Systems Analysis

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Android – Google Inc.

Developed by Google, the Android Operating System is completely open, allowing developers to use any of the phones core functionalityfrom an application, including placing calls, sending SMS or MMS messages, capturing pictures or video, and utilizing GPS coordinates forLocation Based Services (LBS). While the license is free for the OS, Google plans to drive advertising through the platform via mobilesearch.

Pros:

Cost – Android is distributed under an open sourcelicense, meaning that the cost to use it is free.

Application performance – Android was built to allow equalaccess and performance to any and all applications for a device.

Cons:

Security – Because Android is an open source operatingsystem, unlocking, hacking, and viruses could pose more of athreat than it would to a closed operating system.

Notes:

There are approximately 100 different Android phones availableglobally from 15 different manufacturers.HTC, Motorola, Samsung are currently the top Android OEMpartners with 19, 17, and 11 different devices availablerespectively.

Android is currently the fastest growing operating system;growing its market share from 2% in 2009 to 17.8% after Q32010. This growth launched Android into the third largestmarket share behind only BlackBerry and Symbian.

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Android Global Market Share by Manufacturer (August,

2010)

Android Manufacturer Phone Count

Manufacturer Available Coming Soon Total

HTC 18 1 19

Samsung 17 3 20

Motorola 14 3 17

Huawei 8 2 10

LG 6 1 7

Acer 5 2 7

Dell 3 0 3

Sony Ericsson 3 1 4

Garmin-Asus 2 1 3

i-Mobile 2 0 2

Alcatel 1 0 1

Gigabyte 1 0 1

Pantech 1 0 1

Philips 1 1 2

Vodafone 1 0 1

ZTE 1 0 1

Total 84 15 99

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Android – Google Inc. (Contd...)

Android Smartphones by RegionRegion Operator Count

Africa/MEViva 1

Total 1

APAC

China Mobile 10

China Telecom 3

Chungha Telecom 1

i-Mobile 2

SKT 5

Total 21

Europe

O2 5

Orange 7

T-Mobile 7

Tre 2

Virgin Mobile 13

Vodafone 13

Yoigo 1

Total 48

Latin America

Claro 1

Telcel 3

Total 4

North America

AT&T 8

Boost Mobile 1

Cincinnati Bell 1

Sprint 7

T-Mobile, USA 14

U.S. Cellular 2

Verizon Wireless 7

Total 40

Note: Operator list is likely to increase with time and does not include all operators that are selling Android devices. It does include most of the Tier 1 Operators. Source: Frost & Sullivan

Android Availability – by Region and Operator (World), August 2010

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iPhone OS (iOS) – Apple, Inc.

Developed by Apple, the iPhone Operating System is a proprietary operating system only used on Apple’s own iPhone and iPod Touchdevices. Although early on, the iPhone OS was closed to developers, it is now open to registered iPhone developers.

Pros:

Applications – The iPhone store has approximately 285,000iPhone applications available for download on its applicationstore.

Performance – Equipped with a full web browser, richmedia, fast processor, and plenty of memory, the iPhone is oneof the top phones in the industry.

Ease of Use – One of the biggest contributing factors in thesuccess of the iPhone is that consumers have been able to usethe device easily.

Cons:

Availability – Currently, the iPhone is available in the U.S. onlyon AT&T’s network. This is limiting the adoption rate of theproduct.

Notes:

The iPhone OS, or iOS, runs on four abstract layers: Core OSlayer, Core Services layer, Media layer, and Cocoa Touch layer.These layers allow the iPhone to handle multiple taskssimultaneously, providing a better user experience.

iOS is only manufactured on Apple devices which reduces thespeed at which it can be adopted, however, it also helps to keepthe quality of the applications and the user experience high. Upto this point, consumers have chosen the quality of the iPhone.

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iPhone OS (iOS) – Apple Inc. (Contd...)

• iPhone sales have continuedto grow since first releasedin the second quarter of2007, growing from justover 1.1 million iPhonessold during its first fullquarter to 14.1 millioniPhones sold during its mostrecent quarter.

• Each new iPhone modelthat has been released hasseen immediate success.

• A CDMA version of theiPhone is highlyanticipated, and expectedto be available on VerizonWireless sometime duringthe first quarter of 2011.This may possibly vault iOSinto the second largestmarket share.

iPhone launchJune 29, 2007

iPhone 3GJune 11, 2008

iPhone 4June 24, 2010

Source: Frost & Sullivan

iPhone 3GSJune 19, 2009

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BlackBerry OS – Research In Motion (RIM)

Developed by Research In Motion (RIM), the BlackBerry Operating System is a proprietary operating system only used on RIM’s ownBlackBerry devices. RIM became the kings of email when their first BlackBerry products came out. Their OS provides security andenterprise integration that has helped make BlackBerry the most widely used Enterprise mobility product on the planet.

Pros:

Security – The BlackBerry OS was designed for security in anenterprise environment. Although today, that same security isnice to have for consumers as well.

Enterprise Connectivity – Email, Mobile Web, Mobile ResourceManagement (MRM), and Location Based Services (LBS) all workvery well with the BlackBerry OS.

Cons:

Variety – Although RIM has recently been more focused onproviding more variety in the product lines, most of theBlackBerry products have a similar look and feel.

Notes:

The BlackBerry OS is only manufactured on RIM devices whichreduces the variety of the available products, however, it alsohelps to keep the quality of the applications and performancehigh.

RIM has seen a successful launch of the BlackBerry 6.0 OS in2010, however, future devices will likely be migrated to the QNXoperating system as it offers more capabilities for a smartphoneor tablet device.

16

Symbian OS – Symbian Ltd.

Symbian OS has the largest market share worldwide. Much of this is attributed to the connection between Symbian Ltd. and Nokia.Although, Symbian is also used by companies such as LG, Motorola, Samsung, and Sony Ericsson.

Pros:

Economies of Scale – Because of the large number of devicesrunning Symbian OS, it reduces the costs significantly to use it.Although licensing costs don’t come into play much, theresearch & development costs associated with manufacturing anew device on a new OS can increase.

Cons:

Enterprise Support – Applications that run on a mobile phonepowered by the Symbian OS have to be signed.Furthermore, Nokia has been unsuccessful in the Enterprisearea in the past. As a result, Symbian has been unable tobecome a widely spread OS in North America due to thelimitations in functionality for Enterprise Applications.

Notes:

Nokia, once Symbian’s largest customer bought Symbian in2008. However, Nokia turned over the intellectual property tothe Symbian Foundation in order to ensure the furtherdevelopment of the OS.

It is expected that Nokia will begin to replace the Symbian OSwith MeeGo in their higher end smartphones. Symbian will stillmaintain a large market share from the high volume sales oflower end/less expensive smartphones fromNokia, however, their market share is expected to decreasethrough 2015.

17

webOS – HP

The webOS developed by Palm was released in 2009 along side Palm’s new Palm Pre smartphone. The webOS is a closed sourceoperating system with some components of it open source. The webOS was designed to make use of web technologies like CSS, HTML5, JavaScript, etc. In 2010, Palm was purchased by HP for $1.2 billion.

Pros:

Usability – The webOS was designed to function efficientlyand yet effectively. The OS interacts with the webdirectly, allowing the web servers to handle the transactionsand thus requiring less processing power. This in turn alwayssaves on battery life (the holy grail of the wireless industry).

Synergy – This feature integrates data from multiple websources into one screen or application area in order to createa very sophisticated user experience.

Cons:

Undecided Future – After being purchased by HP, the webOShas had little attention. To date, developers and consumersare unsure as to the level of support they will receive in thenear future.

Notes:

Palm stood firm to the idea of continuing to develop its webOSand future products internally. Ultimately, this didn’t turn outto be the best strategy. However, with HP’s market capital anddevice manufacturing muscle, webOS may see a resurgence in2011.

HP may decide to invest heavily with webOS into a turnkeycloud-based interface for enterprise and consumer marketsalike.

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Windows Mobile – Microsoft

Windows Mobile is currently up to Windows Mobile 7, or rather the newly coined “Windows Phone 7.” The Windows mobile operatingsystem developed by Microsoft was long thought to be the future of the smartphone OS. However, licensing fees and performanceproblems have caused Windows Mobile to have a decreased market share in recent years.

Pros:

Microsoft Connectivity – With many enterprises using Microsoftproducts like Windows, Outlook, Exchange Server, WindowsServer, etc., there is a Microsoft connectivity advantage builtinto OS that many enterprise customers find advantageous.

Cons:

Licensing Fees – Sticking with the classic Microsoft licensing feemodel has proven troublesome for the adoption rate ofWindows Mobile. Unless this model is changed, WindowsMobile is expected to continue to see a loss in market share.

Notes:

Windows Mobile has been passed by both Android and iOS overthe past year, dropping it down to the 5th largest market share –leading only webOS. Although Windows Phone 7 is expected tomake a big splash during the last quarter of 2010, and all of2011, it is unlikely that Windows Mobile will passAndroid, Symbian, Apple, or BlackBerry due to licensing feesassociated with the OS.

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Smartphone OS Strengths & Weaknesses

20

OS/Device Ecosystem

Cosmetics

Ease of Use

Enterprise Support

Applications

Operator Availability

Brand Recognition

Licensing Model

Multitasking

Quality/Performance

Security

OS Fragmentation

Average Score

Weighted

Value

10%

15%

10%

5%

10%

10%

10%

5%

5%

10%

5%

5%

100%

Smartphone OS Strengths and Weaknesses Ratings

10

9

9

5

10

3

10

8

4

9

6

10

8.2

10

8

8

4

8

9

9

10

7

9

5

4

8.0

8

6

7

10

6

9

10

8

4

9

10

10

7.9

3

6

7

3

7

4

4

8

4

6

7

7

5.5

4

7

7

4

4

6

5

5

9

7

6

8

6.0

6

7

9

8

5

7

9

3

7

6

8

5

6.8

Apple Google RIM Symbian Palm MicrosoftNorth American Smartphone

Market:

OS Strengths & Weaknesses

Analysis (North America), 2010

Weakness Strength1 5 10

Source: Frost & SullivanNote: Scores are based on analyst opinion in the context of the North America smartphone market.

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For Additional Information

Jake Wengroff

Corporate Communications

ICT

(210) 247-3806

Jake.wengroff@frost.com

Craig Hays

Sales Manager

ICT

(210) 247-2460

Craig.hays@frost.com

Brent Iadarola

Global Director – Mobile & Wireless

ICT

(210) 481-0752

Brent.iadarola@frost.com

Todd Day

Industry Analyst – Mobile & Wireless

ICT

(956) 572-6116

Todd.day@frost.com