March 1, 2018

Patrick Brogan, VP Industry Analysis

pbrogan@ustelecom.org

202-326-7282

Contains revisions as of October 18, 2018

USTelecom Industry Metrics and Trends 2018

Contents

1. The Transition from Legacy Voice Networks to Mobile and Internet Communications

2. Broadband Investment, Deployment and Adoption

3. Internet Traffic Growth and Drivers

Note on data and projections: Unless otherwise noted, the data in this presentation are based on sources that are current through year-end 2016. Projections are denoted with a “P”. In the first two sections, projections for 2017 and 2018 are USTelecom straight-line estimates based on the most recent 6-month trends. Accuracy of projections is not guaranteed, and may depend on factors such as level of aggregation, technological maturity, and adoption curves. In the third section, projection are provided directly by our source.

Note on terminology: As used in this presentation, broadband includes fixed and mobile services. Mobile broadband is provided over cellular wireless networks. Wired broadband is a subset of fixed broadband and predominantly includes services using fiber, DSL, and cable technologies. Fixed broadband includes wired broadband plus fixed wireless and, sometimes, satellite. The broadband deployment data below exclude satellite from fixed broadband while the broadband connections data include satellite in fixed broadband.

2

The Transition from Legacy Voice Networks to Mobile and Internet Communications

3

Dramatic Decline in Traditional Wired Voice Connections Continues

4

186182

177170

163156

148

137

124

111

99

89

7970

6255

4942

35

~120 -125

94 89

82 73

64 56

48 42

35 30

26 23 19 16

0

20

40

60

80

100

120

140

160

180

200

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017P2018P

Source: FCC and USTelecom analysis. Includes primary and non-primary lines. Excludes ILEC VoIP and UNE-L (unbundled loops). Projections based on most recent 6-month straight-line run rates. Pre-2005, carriers with <10,000 lines did not report and FCC did not report residential lines.

ILEC Switched Access Lines 2000 – 2018 Projected (millions)

Residential Retail87% Projected Loss

Total Retail and Wholesale81% Projected Loss

Wired Voice Alternatives Are Growing

5

14.9

19.7

24.9

29.832.9

44.345.9

52.253.9

56.558.2 57.5

60.063.0

0.51.2

2.94.7

6.99.0 11.3

12.613.1

0

10

20

30

40

50

60

70

80

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

Source: FCC and USTelecom analysis. Includes primary and non-primary lines. Includes non-ILEC lines using ILEC wholelsale lines. Pre-2005, carriers with <10,000 lines did not report and FCC did not report residential lines. 2005-7 Non-ILEC data excluded due to data reliability issues. Projections based on most recent 6-month straight-line trend.

Non-ILEC Lines and ILEC VoIP 2000 – 2018 Projected (millions)

Non-ILEC Lines(VoIP + Switched)

ILEC VoIP Lines

Wireless Voice Connections Are Growing Rapidly

6

101

124139

157

181

204

230

249261

274285

297 305 311323

335 341 348 356

0

50

100

150

200

250

300

350

400

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017P2018P

Source: FCC and USTelecom analysis. Projections based on most recent 6-month straight-line run rates.

Wireless Voice Connections 2000 – 2018 Projected (millions)

Non-ILECs Have a Greater Share of Wired Voice Lines Than ILECs

7

1520

2530 33

44 4652 54 56 58 57 60

6366 68

178172

164

153145 144

139130

118

10797

8982

7569 64

5852

46

0

20

40

60

80

100

120

140

160

180

200

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017P2018P

Source: FCC and USTelecom analysis. Pre-2005, carriers with <10,000 lines did not report. Pre-2008 data exclude VoIP. ILEC lines exclude wholesale. 2005-7 Non-ILEC data excluded due to data reliability issues. Projections are straight-line based on most recent 6-mnth trend.

ILEC and Non-ILEC Retail Swiched and VoIP Lines 2000 – 2018 Projected (millions)

ILECSwitched and VoIP

Non-ILECSwitched and VoIP

Non-ILECs Have Also Surpassed ILECs in Wired Voice Even When Considering Wholesale Lines

8

186 182 177170

163153

144134

124

112102

9486

7973

6762

55 49

7 10 12 13 15

38 4147 49 52 54 54

56 59

62 65

0

20

40

60

80

100

120

140

160

180

200

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017P2018P

Source: FCC and USTelecom analysis. Pre-2005, carriers with <10,000 lines did not report. Pre-2008 data exclude VoIP. ILEC lines exclude wholesale. 2005-7 Non-ILEC data excluded due to data reliability issues. Projections are straight-line based on most recent 6-month trend.

ILEC and Non-ILEC Switched and VoIP Lines 2000 – 2018 Projected (millions)

ILEC Switcvhed and VoIP, including switched wholesale

Non-ILEC Switcvhed and VoIP, excluding resold ILEC switched lines

There Are Three Times as Many Wireless as Wired Voice Connections in the U.S.

9

61%

7%3%

5%

15%

34%

76%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

2H00 2H18P

Wireless

Non-ILEC

ILEC VoIP 3%

ILEC Switched

Source: FCC, USTelecom Analysis. Incudes residential and business. Projections are straight-line based on most recent 6-month trend.

Change in Share of Total U.S. Voice Connections, 2000 to 2018 Projected

Households Have Shifted to Wireless and IP Voice

10

93% 89%84%

76%68%

60%54%

46%39%

33%27%

22% 19% 16% 14% 11%

3%4%

6%

10%

15%

18%

20%

23%

26%

28%

29%

30%31%

30%29%

29%

5% 7% 10%13%

17%22%

26%31%

36%40%

44%48% 50% 53%

57% 60%

2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017P 2018P

Sources: FCC, CDC, Census, USTelecom Analysis (2008-15P); and FCC, CDC, NCTA, Financial Reports, USTelecom Analysis (2003-7); projections based on six-month run rates.

Wireless-Only

ILEC SwitchedLandline

Landline Other Than ILEC Switched

U.S. Household Voice Service Penetration and Projections(Percent of Telephone Households)

Broadband Investment, Deployment and Adoption

11

Competing Broadband Providers Have Invested More Than $1.6 Trillion in Capital since 1996

12

Data includes wireline, wireless, and cable providers.

Revised October 18, 2018

55.3

65.3

72.1

91.8

118.1

111.5

72.0

57.0 57.562.1

70.1 70.4 71.1

64.567.9 68.1 69.6

76.0 78.0 77.5 74.8 76.3

1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

U.S. Broadband Provider Capital Expenditures,1996-2017 ($ billions)

Source: USTelecom (1996-present) and Yankee Group (1996-2010). Figures are rounded.

Network Capital Investment

More than

$1.6 Trillionfrom 1996-2017

Broadband Investment by Competitive Providers Has Brought Near-Nationwide Deployment

13

0.4% 1% 3%

9%

87%

0

1

2

3

4+

U.S. Wireless LTE Broadband Choices Available (% of Housing Units, Year-End 2016)

2%

8%

90%

0

1

2+

U.S. Fixed Broadband Choices Available at Any Speed (% of Housing Units, Year-End 2016)

Source: FCC, USTelecom, and Telcodata CensusNBM.com.

Investment Has Enabled Widespread and Ongoing Broadband Adoption

14

U.S. Fixed Broadband Connections(Millions of “High Speed” Connections)

27

12

19

28

37

48

60

70

7680

8588

9396 98

102106

109112

2 5 11

17

26

35

44

56

6569

7377

8184

88 8993

97100

103

0

20

40

60

80

100

120

1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017P 2018P

Source: FCC. Based on “high-speed services” > 200 kbps downstream. Projections are staright-line based on most recent 6-month trend.

Total

Residential

Fixed Broadband Penetration Is Nearing Four-Fifths of U.S. Households

15

Estimated U.S. Residential Fixed Broadband Penetration(Percentage of U.S. Households with “High Speed” Connections )

2%5%

10%

16%

23%

31%

39%

48%

56%59%

62%64%

67%69%

71% 72%74%

77%79%

81%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017P 2018P

Source: FCC, Census, and USTelecom Analysis. Based on “high-speed services” > 200 kbps downstream. Projections based on most recent 6-month trend.

Mobile Broadband is Growing Rapidly

16

U.S. Fixed and Mobile Broadband Connections(Millions of “High Speed” Connections)

27

56

98

142

170

197

223

253

270281

291

2 712

1928

3748

6070

76 80

85

88 93 96 98 102 106 109 112

0

50

100

150

200

250

300

350

1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017P 2018P

Source: FCC. Based on “high-speed services” > 200 kbps downstream.

Mobile

Fixed

U.S. smartphone adoption estimates range from 77% of adults (Pew Internet, January 2018) to 82% of households (Consumer Technology Association, January 2018)

Providers Are Deploying Networks Capable of Providing Higher Speeds

17

94% 92%

85%

49%45%

10%

0%

96% 96% 94%91% 90%

83%

11%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

>768 kbps > 3 mbps > 10 mbps > 25 mbps > 50 mbps > 100 mbps > 1 gbps

1H2010

2H2016

Broadband Availability by Download Speed for Wired Technologies , 2010-2016(Percent of Housing Units)

Source: NTIA National Broadband Map, USTelecom, and Telcodata CensusNBM.com. Percentages in bar chart are cumuliatve.

Fourth generation mobile broadband was available to less than 1% of Americans in 2010 and 99.6% of Americans in 2016 Speeds are in excess of 10 mbps, in some cases approaching 20 mbps (opensignal.com)

Consumer Are Choosing Services withHigher Speeds

18

U.S. Residential Fixed Broadband Connections by Speed and Households(Millions of Connections)

25

11

17

26

35

44

56

6569

7377

8184

88 8993

97100

103

29

3742

47

60

7278

85

91

97102

64

72

78

85

92

41

52

59

67

75

104107 109 111 112 113 114 116 117 117 117 119 121 122 123 124 126 126 127 128

9

15

24

35

47

0

20

40

60

80

100

120

Source: FCC, Census, USTelecom. "At least" lower-speed categories are inclusive of higher-speed categories. Projections based on most recent 6-month trend.

At least 200 kpbs in one direction

At least 3 mpbs down / 1 mbps up

At least 10 mpbs down / 1 mbps up

At least 25 mpbs down / 3 mbps up

Estimated Households

At least 100 mbps down

Broadband Has Been a Competitive Industry from Its Inception

19

U.S. Fixed Broadband Connections by Technology(Millions of “High Speed” Connections)

27

12

19

28

37

48

60

7076

8085

8893

96 98102

106109

112

0.4 0.5 0.7 1 1 1 2 2 2 2 3 3 3 3 3 21115

20

2630 31 32 32 32 32 32

29 29 2725

230.1

0.2

0.3

1

2 34 5 6 7 8 9 10 12 14 16

16

21

27

32

37

4042

4548

5254 56

6063

6771

0

20

40

60

80

100

120

1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017P 2018P

Source: FCC. Based on “high-speed services” > 200 kbps downstream

Total

Wireline - Fiber

Wireline - DSL & Other

Satellite & Fixed Wireless

Cable Modem

Core Competitive Broadband Infrastructure Is Widely Available

20

3%

11%

86%

0

1

2+

U.S. Wired Broadband Choices Available at Any Speed (% of Housing Units, Year-End 2016)

Source: FCC, USTelecom, and Telcodata CensusNBM.com.

As shown above, mobile wireless broadband is also competitively deployed with 96 percent of Americans able to choose among three or more providers. The next several charts focus narrowly on wired broadband competition due to historical data limitations. Fixed broadband, which includes fixed wireless services, would show even greater competitive overlap.

Competitive Availability Varies with Speed

21

1%

5%

18%

9%

60%

7%

2%

8%

31%

10%

47%

3%Nonrural 0

Rural 0

Nonrural 1

Rural 1

Nonrural 2+

Rural 2+

1%2% 3%

7%

75%

12%

Source: FCC, USTelecom, and Telcodata CensusNBM.com.

U.S. Wired Broadband Choices Available at Different Speed Tiers(% of Housing Units, Year-End 2016)

Any Speed 10 mbps Down / 1 mbps Up 25 mbps Down / 3 mbps Up

In a continual process of competitive leap-frog, wired broadband providers are at different stages of ongoing network upgrades

As Providers Invest in Network Upgrades…Competition at Higher Speed Is Growing

22

59%63%

67%

25%

31%

50%

0%

10%

20%

30%

40%

50%

60%

70%

Year-End 2012 Year-End 2014 Year-End 2016

Two+ at 10 mbpsDL / 1 mbps UL*

Two+ at 25 mbpsDL / 3 mbps UL

U.S. Broadband Competition: Services Deployed Widely and Speeds Growing Rapidly(% of U.S. Housing Units with Two or More Wired Broadband Options Available at Selected Speed Tiers, 2012 to 2016)

Sources: FCC, NTIA, USTelecom, and Telcodata CensusNBM.com.

*10 megabit per second download / 1 megabit per second upload estimated for 2012 based on 10m download / 768 kilobit upload data available from NTIA. Data were adjusted proportionately according to FCC 2016 reported data for 10m DL / 1m UL and 10m DL / 768k UL.

Two or more wired broadband providers are available to 86 percent of Americans and at least one option is available to 97 percent. Competition occurs dynamically over time as providers upgrade network speed and quality. In addition to wired options from telecom, cable, and others, multiple satellite and wireless options are available to nearly all Americans.

U.S. Invests More in Broadband than Most Industrialized Nations

23

Average Annual Telecommunications Capital Investment Per Capita 1997-2013 (US Dollars)

Source: OECD and USTelecom Analysis.

296

269258

245

220

204198

191184 182

157 155 155 152 148 147 143137 131 129 128 127 125 123

115 110 109 10393

77 74 7158

38 35

0

50

100

150

200

250

300

350

U.S. Investment Has Yielded More Competitive Choice than Europe

24

86%

14%2+

1 or 0

U.S. Wired Broadband Choices Available at Any Speed (% of Housing Units, 2016)

Source: FCC, USTelecom, and Telcodata CensusNBM.com.

44%

56%

2+

1 or 0

EU28 Broadband Choices Available at Any Speed (% of Households, 2016)

Source: European Union, USTelecom, and IHS Markit.

Broadband Gaps Remain in High-Cost Rural Areas

25

97% 95%94%

90%

74%

11%

86%

82%

75%

62%

39%

8%

99% 99% 99% 98%

83%

11%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Any Speed > 3 M DL /768 K UL

> 10 M DL /1 M UL

> 25 M DL /3 M UL

> 100 M DL /10 M UL

> 1 G DL /Any Speed UL

Total

Rural

Non-Rural

U.S. Wired Broadband Availability by Speed and Geographic Area, Year-End 2016(Percentage of Housing Units)

Source: FCC, USTelecom, and Telcodata CensusNBM.com

USTelecom supports direct, non-duplicative government support to broadband providers as the most economically and administratively efficient way to close broadband gaps

Fixed Wireless Eliminates Some Rural Coverage Gaps

26

These data include fixed terrestrial wirelessUSTelecom supports flexible, cost-effective policies that do not impose rigid technology and speed requirements

98% 98% 96%92%

74%

11%

94%90%

83%

68%

40%

8%

100% 99% 99%98%

83%

12%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Any Speed > 3 M DL /768 K UL

> 10 M DL /1 M UL

> 25 M DL /3 M UL

> 100 M DL /10 M UL

> 1 G DL /Any Speed UL

Total

Rural

Non-Rural

U.S. Fixed Broadband Availability by Speed and Geographic Area, Year-End 2016(Percentage of Housing Units)

Source: FCC, USTelecom, and Telcodata CensusNBM.com

Broadband Capex Fell in 2015 and Resumed Growth in 2017 in Step with Title II Regulatory Expectations

27

Addressing rural broadband gaps and maintaining international leadership will require increased broadband investment under an even-handed, light-touch regulatory framework

Revised October 18, 2018

70.4 71.1

64.567.9 68.1 69.6

76.078.0 77.5

74.8 76.3

'07 '08 '09 '10 '11 '12 '13 '14 '15 '16 '17

U.S. Broadband Provider Capital Expenditures, 2007-2017 ($ billions)

Source: USTelecom. Figures are rounded.

Recession

Internet Traffic Growth and Drivers

28

Internet Protocol Traffic Continues Rapid Growth

29

Estimated U.S. Internet Protocol Traffic, 1996-2021 (Petabytes per Month and Annualized DVD Equivalent)

2 4 8 17 36 74 150 234 348 612 1,035 1,7912,990

4,6096,314

9,35112,400

15,16218,127

23,443

31,352

39,344

48,272

58,279

69,084

79,640

0

10,000

20,000

30,000

40,000

50,000

60,000

70,000

80,000

90,000

218billion

DVDs per year

100 million DVDs per

year

2billion DVDs

per year

17billion

DVDs per year

86billion

DVDs per year

Source: Cisco Visual Networking Index and USTelecom Analysis. DVD equivalents are annualized, rounded, and assumed to store atwo-hour movie. The 2012 figure is revised from previously

reported volumes based on Cisco VNI statements and is a rounded estimate.

U.S. IP traffic is projected to grow 2.5x in the next five years

Video is the Biggest Driver of IP Traffic

30

Source: Cisco Visual Networking Index and USTelecom analysis. Mobile and business include video; consumer data includes all consumer non-video.

U.S. Internet Protocol Traffic, 2016-2021 (Petabytes per Month)

2016 2017 2018 2019 2020 2021

Mobile 1,322 1,819 2,475 3,306 4,346 5,644

Fixed Consumer Data and Business 6,315 7,809 9,260 10,870 12,582 14,362

Fixed Consumer Video 23,715 29,716 36,537 44,104 52,157 59,634

Total 31,352 39,344 48,272 58,279 69,084 79,640

31,352

39,344

48,272

58,279

69,084

79,640

-

10,000

20,000

30,000

40,000

50,000

60,000

70,000

80,000

Mobile and Wi-Fi Are Growing but Fixed Networks Remain Essential for All Traffic

31

61%50%

35%

43%

4% 7%

2016 2021

Fixed-WiFi

Fixed-Wired

Mobile Cellular

Source: Cisco Visual Networking Index

Percent Share of U.S. IP Traffic, 2016 and 2021 Projected

The U.S. Is a Global Leader in IP Traffic

32

U.S. and Global Internet Protocol Traffic, 2016 - 2021 Projected (Petabytes per Month)

96,054

121,694

150,910

186,453

228,411

278,108

31,352 39,344

48,272 58,279

69,084 79,640

0

50,000

100,000

150,000

200,000

250,000

300,000

2016 2017P 2018P 2019P 2020P 2021P

Source: Cisco Visual Networking Index.

Global

U.S.

The U.S. is home to 4.4% of the world’s population, but it generates nearly one-third of global IP traffic

North America Leads in IP Traffic per Capita

33

93.4

33.6

12.7

9.4 8.31.8

0

10

20

30

40

50

60

70

80

90

100

North America Western Europe Central and EasternEurope

Latin America Asia Pacific Middle East andAfrica

IP Traffic per Capita (Gigabytes per Month, 2016)

Source: Cisco Visual Networking Index (VNI), USTelecom Analysis

World 2016Weighted Average

12.9

North America Leads in IP Traffic per User

34

106.0

41.2

21.4 20.2 17.9

8.4

0

20

40

60

80

100

120

North America Western Europe Central and EasternEurope

Asia Pacific Latin America Middle East andAfrica

IP Traffic per Internet User (Gigabytes per Month, 2016)

Source: Cisco Visual Networking Index (VNI), USTelecom Analysis

World 2016Weighted Average

29.5

The U.S. Leads Other Industrialized Nations in IP Traffic per Internet User

35

IP Traffic per Capita (Gigabytes per Month, 2009, 2016, and 2021 Projected)

Source: Cisco Visual Networking Index, USTelecom Analysis

15

33

15

n/a10

n/a8 11 10

4

97

7663 61 60

4235 33

26 24 17

237

172

143

114

158

126113

8574 67

50

0

50

100

150

200

250

UnitedStates

SouthKorea

Canada Sweden UnitedKingdom

Australia Japan France Germany Spain Italy

2009

2016

2021P

World 2021Weighted Average

36

n/a

The U.S. Has Surpassed Former Leader South Korea and Now Leads the World in Internet Traffic per User

36

19

26

38

51

59

66

82

109

41

4954

58 60

6871

83

0

20

40

60

80

100

120

2009 2010 2011E 2012 2013 2014 2015 2016

United States

South Korea

U.S. and South Korea IP Traffic per Internet User 2009-2016 (Gigabytes per Month)

Source: Cisco Visual Networking Index, USTelecom Analysis. USTelecom did not collect data for 2011. The 2011 estimatre is the 2010-2012 midpoint.

Where Are We Headed?

• Continued migration of analog world online, from video to the Internet of Things

• Rationalization of networks

o More fiber closer to network end-points for efficient multi-purpose use

o Dynamic, software-based network operation and management

• Convergence of wireline and wireless with fiber and 5G

o Cloud migrating closer to the user

o Network functions migrating back to the data center

o Lower latency as well as higher speeds

o New forms of competition

• New networked applications

o The usual suspects: autonomous vehicles, artificial intelligence, augmented reality/virtual, big data analytics, the Industrial Internet, the Internet of Things, smart cities, telemedicine

o The unknown …

37

Additional USTelecom Industry Analysis Resources

• USTelecom Research Brief: U.S. Broadband Availability Year-End 2016 (February 22, 2018)

• USTelecom Research Brief: U.S. Internet Usage and Global Leadership Are Expanding (November 27, 2017)

• USTelecom Research Brief: Broadband Investment Continued Trending Down in 2016 (October 31, 2017)

• USTelecom Blog: Achieving the Promise of Fiber-Enabled 5G Networks(October 27, 2017)

• USTelecom Research Brief: U.S. Broadband Availability Mid-2016 (August 25, 2017)

38