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Market Analysis

2011 Predictions

December 21, 2010

By The Maravedis Team

Before we offer predictions for the coming year, it is worthwhile to take a look at how our forecasts for the current year have worked out.

Trend #1 Device innovations will increase.

2010 was indeed a year of accelerated device innovation:

- Sprint introduced the HTC EVO 4G, which upped the competition between Android and Apple's iPhone.
- Motorola increased their success in Droid-branded Android WebPhones, winning back some of the market share lost to Apple during the previous three years.
- Apple came out with the improved '4G' iPhone, iPad, and iPods including more efficient batteries, higher resolution screens and camera/video.
- Samsung upped the ante in display-driven features with Vibrant, Captivate, Epic phone models.
- Dell, Samsung, Apple, and a flurry or other competitors increased offerings in pad devices.
- Google announced their foray into pad and laptop OS markets with the official introduction of Chrome. While slated for market impact in 2011, Chrome rides on the coattails of success for Android based pad devices.

Trend #2 Applications stores proliferate to the point of market confusion.

Verizon, China Mobile, and Google Chrome were among the many examples of operators and market makers who made enhanced efforts to establish online mobile applications stores. Several European operators announced efforts to push back against the dominance of Apple and Google in terms of applications and mobile services.

Trend #3 US government broadband spending will lift small boats.

While temporary, US government spending helped keep smaller BWA equipment suppliers afloat during a year of increased competition with mainstream operators and suppliers.

Trend #4 Cloud 4G (cloud computing/ICT) will take center stage as a major theme for wireless operators.

"Cloud 4G" has increased in visibility but cannot yet be said to be a stand-alone market driver. The market remains focused on devices and building out networks needed to position Cloud 4G as an increasingly pivotal aspect of operators' revenue models.

Trend #5 Clearwire-Sprint will meet their goals of coverage of over 100 million POPs by year end.

Done.

Trend #6 Clearwire-Sprint and their cable partners will move into a more competitive position vis-a-vis mobile operators in 'hot' device availability.

Only partially the case: while Sprint and Clearwire benefitted from new devices, particularly the EVO 4G, raising the stature of the WiMAX '4G' network, revenue growth was not up to the level required to stave off the need for an additional capital infusion, nor was raising such funds an easy matter.

Trend #7 Legal battles between mobile device, PC and consumer electronics suppliers will continue.

And so they did: Apple and Nokia expanded their legal and trade battles to include a broader scope of patents and jurisdictions. Wi-LAN, Interdigital, Intel, Qualcomm, Ericsson, Nokia, Samsung, Huawei, Microsoft, and ZTE were among companies pursuing increased visibility for patent positions in 3.5G and 4G wireless, devices and IP networking. In addition, consortia have formed to commercialize IPR and bring forward products in Asia and India, and to continue the shift toward patent pooling.

Trend #8 Verizon will not officially open their LTE network until late 2010.

Verizon chose to launch its LTE network with data only, slating the launch of mobile devices for the 1st half of 2011. We have learned that VZW will show off several devices in Janurary at CES- some due for launch as early as January.

Trend #9 Verizon and AT&T will continue to do battle over coverage and devices.

Indeed, the marketing tempo has picked up speed as Verizon prepares to launch LTE. Expectations for iPhone and iPad availability from VZW have increased, with a Verizon Apple iPad anticipated in the first quarter of 2011. Meanwhile, AT&T has increased the number of Android and new Windows mobile 7 based devices. Complimenting this trend, AT&T will acquire Qualcomm's 700 MHz spectrum for US$1.9 billion, giving the company a broader coverage map to contend with coverage leader Verizon.

And now, here are the trends we are predcting for 2011:

Trend #1 Pads will proliferate and diversify.

The mobile device market will continue to see increased competition among WebPhones, partially masking the emergence of a more capable and diversified field of tablets/pads and 'transformer' devices that covers the span between notebooks and smartphones. This trend will be driven by the growing functionality of combined devices and services; more powerful performance yet longer battery life combined with the thirst for higher bandwidth applications will enable market growth.

Trend #2 Emergence of multiple device attachment.

Although it has been part of the justification for HSPA/HSPA+ and LTE evolution, market awareness of multiple device usage is lagging. Most consumers think of wireless in terms of one device per user, but this will start to change in 2011 as the focus shifts from the dominance of WebPhones to the multiple device market environment.

Trend #3 The friction between LTE/HSPA and WiMAX will fade.

Due to convergence of devices and networks and operators' focus on delivering competitive services, media and industry focus will be less on the debate between the two technology camps and more on the delivery of profitable common attributes of broadband and multi-service IP environments.

Trend #4 Android will continue to gain ground on Apple.

Google-led Android and sister effort Chrome OS and app stores will gain market share and recognition to end the year more as equals. Android/Chrome will largely overcome an image problem: while Android devices now outnumber the iPhone and applications have swelled, Apple starts the year with the impression it remains the clear market innovator- this will have changed by year's end.

Trend #5 Growth outside of North America and Europe will become more profound.

While the focus on LTE developments in the US and Japan will capture many headlines, the influence of populous regions outside of developed markets will shift the balance of industry influence. Indian operators' decisions will come down on the side of LTE rather than WiMAX, and further defections are likely. China and India will shape up as innovators in low cost WebPhones and tablets and the applications that help drive them.

Below we provide some more specific 4G predictions and forecasts by category:

LTE

The worldwide LTE subscriber base will reach 6.52 million in 2011. Leading LTE operators will be Verizon Wireless (USA) and NTT DoCoMo (Japan), with 2.66 million and 2 million subscribers respectively.

There will be a cumulative number of 219 LTE commitments, 71 trials and 57 commercial deployments for the FDD-LTE standard; and 26 commitments, 12 trials and 4 deployments for TDD-LTE.

TDD-LTE will be used as an extender of network capacity in 2011 (TDD femto/picocells will be implemented). Telefonica O2 (Germany) could become the first commercial adopter of this approach, using FDD for outdoor coverage and LTE TDD for urban capacity.

Europe and North America will be the leading regions in terms of commercial LTE deployments, accounting for 22 and 15 respectively.

WiMAX

The Global WiMAX subscriber base will reach 18.87 million in 2011. The regions with the greatest contribution of WiMAX subscribers will be North America and Asia-Pacific, with 8.5 million and 4.74 million subscribers respectively.

The number of WiMAX deployments will slightly decrease for the first time ever in Europe. The failure of several greenfield operators to run profitable WiMAX services, and the momentum of LTE gaining commitments from all mobile carriers, are the reasons for this decrease from the current 164 to 159. However, the number of subscribers will increase considerably, from 1.38 million to 2 million, because of Yota's delayed switch to FDD-LTE.

Backhaul

Wireless backhaul will recover from the market size reduction it has suffered in 2010. Innovative wireless backhaul technologies such as e-band, free space optics and NLOS backhaul (point-to-multipoint) will help to increase market size to close to US$ 5 billion.

TD-LTE (2.3 and 2.6 GHz) and NLOS backhaul (also in 3.5 GHz) systems will make use of the spectrum left vacant by former WiMAX deployments. NLOS backhaul will focus on 3.5 GHz (available worldwide except in the US), since it is the only band among those covered by WiMAX that is not being addressed by TD-LTE. However, the deployment of TD-LTE by most of 2.6 GHz spectrum licensees is not certain, so there are also chances for NLOS backhaul deployments in that band. The 2.3 GHz band, under-utilized in the US, poses another good opportunity for both technologies.

Femtocells

There are many indications from major mobile operators such as China Mobile, NTT DoCoMo in Japan, and Taiwan's Chunghwa Telecom that femtocells will play a big part in their network rollout strategy starting next year. Maravedis predicts that this larger group of operators will boost the adoption of femtocells across the world more quickly than originally anticipated. Femtocell pricing will continue to be a barrier for widespread adoption. However, we expect the price to fall to as low as US$70-80 in 2011 from its current US$100 price. We further expect the demand for femtocells will be highest in 2012, when upfront payment is expected to be below US$50.

Devices

We expect smartphones to come to dominate the device market over the next five years. Market share leadership will, in turn, be driven by the success of the individual ecosystems. We believe that market support exists only for a limited number of ecosystems. Consumers will not adopt new closed ecosystems when compared with the choice of the leading ecosystem, Apple (which happens to be closed) or an open ecosystem. We expect RIM and HP Palm to fail to bring new customers to their solutions, or even to maintain their current market share. With regard to new open ecosystem entrants such as MeeGo and Windows Phone 7, we believe that the key to their success will be the creation of holistic ecosystems involving deep media and application libraries, consumer and enterprise product tie-ins, and integrated cloud services. Although this is a difficult challenge for both companies, Microsoft appears to be much better equipped for this task than Nokia.

Tablets are another new element of the smartphone revolution, and it is still unclear whether this is a completely new product segment or rather a replacement of some of the laptop market. Regardless, Apple has again shown with its iPad that there is a tremendous opportunity for vendors who are able to create innovative and compelling products. Tablets also help to bolster the ecosystems for which they are designed by providing another channel for application sales- one that commands higher prices than the handheld channel.

The changes in the device industry since the introduction of the iPhone have been striking and it is difficult in the midst of such disruption to predict an outcome. 2010 has been a year during which the players have appeared to solidify and publicize their strategic plans. However, we expect many aspects of the industry to be in flux throughout 2011, setting the stage for dramatic changes.

MARAVEDIS is a premier global provider of market intelligence and advisory services focusing on 4G and broadband wireless technologies, regulation and markets.

Source: MARAVEDIS

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