CLIENT NAME

Report
United States | Equity Research
Telecom and Data Center Services
Data Centers
Towers
RBOCs & Wireless
September 18, 2013
Jonathan Schildkraut
Managing Director
(212) 497 0864
[email protected]
Marc Albanese, CFA
Vice President
(212) 497 0821
[email protected]
Robert Gutman
Snr. Associate
(212) 497 0877
[email protected]
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2014 Outlook: Telecom Advertising

Overall, we expect a combination of improving macro trends and increasing
competition in wireless to drive an increase in advertising vs. 2013
– U.S. Telco service revenue expected to grow 1.5% in 2014 to $345B
U.S. Telco Service Revenue Estimate, 2014 (IDC)
Wireless
Residential
Enterprise

Three Sectors:
– Wireless: $212B, 61% of 2014 estimate U.S. Telco spending
– Residential: $76B, 22% of 2014 estimate U.S. Telco spending
– Enterprise: $57B, 17% of 2014 estimate U.S. Telco spending
1
Wireless in 2014

Increasingly Competitive Environment Driven by:
– Recapitalized Sprint
– Re-energized T-Mobile USA

Slowing Subscriber Growth, Increasing Smartphone
Penetration, Handset Parity

Emphasis on New Revenue Opportunities - Tablets,
Digital Life, the Wireless Internet of Things
2
Wireless in 2014: Increasingly Competitive Environment

VZ and T continue aggressive competition with emphasis on high-end of the market

S is recapitalized following a significant investment from SoftBank
– Emphasis over last 18 months has been on "iDEN recapture" as the company transitioned
customers off of its old network and onto its new CDMA/LTE network. iDEN shuttered
on June 30, 2013 - all subscriber growth going forward will be external. Emphasis on
advertising increases dramatically
– S to launch hybrid FD/TD LTE Network in 2014. Once network reaches critical mass
(expected 2Q14), expect significant increase in marketing

TMUS completed band harmonization in mid-2013, relaunched brand "uncarrier" and
began to offer the iPhone

T faces competition at the high-end from VZ and at the low-end from TMUS

Dual messages to market - network quality and value pricing
3
Wireless in 2014: Other Competitive Issues
Annual Subscription Growth
14.0%

Slowing subscriber growth
12.0%
10.0%
8.0%
6.0%
4.0%
2.0%
2006
Smartphone Penetration
2007
2008
2009
2010
2011
2012
100%
Smartphones
90.0%
87.0% 86.0%
90%
85.0% 84.0%
82.0%
80%
79.0%
77.0%
75.0%
72.5%
65.5%
60.0%
60%
VZ iPhone
40%
52.2%
47.8%
40.0%
30%
34.5%
20%
10%
57.0%
S iPhone
50%
10.0%
13.0%
14.0% 15.0%
16.0%
18.0%
21.0%
23.0% 25.0%
27.5%
Increasing
TMUS iPhone
70.0%
70%
Traditional Phones
43.0%
45.1%
56.0%
58.5%
smartphone penetration
61.0% 62.0%
50.4%
49.6%
54.9%
44.0%
41.5%
39.0%
38.0%
30.0%
0%
Q2:08 Q3:08 Q4:08 Q1:09 Q2:09 Q3:09 Q4:09 Q1:10 Q2:10 Q3:10 Q4:10 Q1:11 Q2:11 Q3:11 Q4:11 Q1:12 Q2:12 Q3:12 Q4:12 Q1:13 Q2:13

Handset parity - with TMUS beginning to offer the iPhone, carriers
have less differentiation on handset and must emphasize other
points of differentiation, which may be less tangible
– Network quality is hard to measure, and pricing plans are difficult to
compare
4
Wireless in 2014: Emphasis on New Revenue Opportunities

Tablets
– T: Of the 847K net adds in 1H13, 763K were tablets (+90%)
– VZ: Tablets made up +44% of postpaid net adds in 1Q
(300K out of 677K)
– Shift to shared data plans (18% of postpaid accounts at T and
36% at VZ) help to nudge subscribers into connecting tablets
to wireless data plans

Digital Life, Cars, The Internet of Things
5
Residential in 2014


Residential remains fiercely competitive, but more local in
nature

OTT offerings pushes companies to increasingly promote
brands out-of-region
Tied to new home formation - which looks
to improve with the macro environment
6
Enterprise in 2014

Enterprise continues to lag as economic weakness has
hurt spending and elongated sales cycles

Wireline operations highly levered to improvements in
enterprise spending

Expect meaningful increases in spending
should macro progress continue
7
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