Mavam brasil 062011 ok ing

BRAZIL Prepared by

8th EDITION

MAVAM Acision Monitor for Mobile VAS

Š Copyright Acision June 2011

MAVAM | Acision Monitor for Mobile VAS

Editorial Eighteen months ago Acision launched MAVAM to furnish the industry with a periodic tool on the evolution of the value added industry in Brazil. Notwithstanding that, the initiative has recently extended further to include more Latin American countries. We currently have MAVAM Argentina and MAVAM Mexico, which will be presenting its second edition next week.

Over the last few years, MAVAM has come a long way, both by adding countries and by expanding the size of the sample of surveys conducted, and even more by generating data which make it possible to compare the similarities and differences in the demand for value added services. Each edition reinforces MAVAM’s commitment with a higher understanding of the user’s behavior and with providing more information on the volume of value added businesses.

However, it is important to highlight a few key events of the last two years. Brazil exceeded 100% penetration; value added services grew by almost 60% in contribution to the operator’s revenues, and they currently amount to 18% of the net sales of mobile services.

Rafael Steinhauser Acision President Latin America

The SMS market increased from 10 SMS per user to 22 SMS per user in average in the first quarter of 2011. It is estimated that this market will keep on growing as a result of the efforts made by the operators which are active as to the generation of attractive offers to foster the implementation of this service, which is almost as massive as the voice service in many countries.

Mobile Internet amounts to 48% of the net revenues from VAS en Brazil; a particular case in the region where, except for Chile and Colombia, the highest contribution from VAS arises out of messaging services (SMS + MMS). The volume of net Internet VAS sales in the first quarter was equal to USD 615 million, thus placing Brazil as the country accountable for 45% of the mobile Internet business in Latin America. In Brazil, out of the 6.8 million minimodems currently in existence, 4.8 million are 3G modems. These figures place Brazil as the country accountable for 47% of the mini-modem industry in Latin America. In addition to that, the growth in the sales of smartphones which arrive at the market at prices that are increasingly accessible for consumers, together with the data packages offered by the operators have turned Brazil into the most important market for the development of mobile broadband, and that is the reason why mobile Broadband is the special topic of this edition.

At Acision, we are very pleased to make this tool available to get people to know value added users deeper and to help accelerate the evolution of value added services. If the current growth trends continue, value added services may amount to 50% of the sales of Latin American operators by 2015.

Have a nice reading!

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MAVAM | Acision Monitor for Mobile VAS

Index 2

Editorial

5

1. Introduction

6

1.1. Value added services in the world

10

1.2. Value Added Services in Latin America

14

1.3. Value Added Services in Brazil

20

2. MAVAM (Acision Monitor for Mobile VASl)

22

3. Special Topic: Mobile Broadband

23

3.1. Mobile broadband in Brazil

26

3.2. Mobile Internet (via telephone)

29

3.3. Mobile Broadband (through dongle to connect netbook/laptop and/or using the phone as a modem)

31

3.4. Conclusions

32 32 33 35 37 38 39

4. MAVAM Brazil 4.1. Message services 4.1.1. SMS 4.1.2. MMS 4.1.3. Instant Messages (IM) 4.1.4. Voice Mail 4.1.5. e-mail

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MAVAM | Acision Monitor for Mobile VAS

39 41 42 43 44 45 45

4.2. Entertainment 4.2.1. Games (Use and downloads) 4.2.2. Music (downloads) 4.2.3. Ringtones (downloads) 4.2.4. Images (downloads) 4.2.5. Video (downloads) 4.2.6. Mobile TV (visualization)

46

4.3. Social networking

48

4.4 Mobile Marketing

49

4.5 Mobile Banking

49

4.6 GPS e Maps

50

5. Final conclusions

51

6. Glossary

54

7. Methodology

55

8. Team

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MAVAM | 1. Introduction

1

Introduction By the closing of the first quarter of 2011, there were 5,6 billons1 connections in the world, out of which 581.52 million were in Latin America. There are still people in the world to be connected to the mobile phone service; market players ensure that by 2015 there will be one terminal per inhabitant.

Notwithstanding that, mobile broadband is becoming increasingly important. At the closing of this study, Wireless Intelligence assessed that by June 2011, the HSPA (3G) connections would exceed 500 million and that the LTE connections, after a year from the launching of the first business networks it has already reached a million connections.

At the same time, IDC assessed that terminal manufacturers will distribute 472 million Smartphones in the world this year (54% more than in 2010). The same consulting firm assesses that 1 thousand million smartphones a year will be delivered worldwide by the end 2015. Smartphones represent about 26% of phone devices sold in the world, and in the first quarter of 2011 there were more sales of smartphones than of computers.

In parallel with the growth of terminals and data connections, there is also an increase in the VAS contribution percentage to the total revenues of the operator. It is estimated that such percentage is currently 29%3 worldwide; for some operators, such as NTT Docomo with 54% of VAS contribution to its revenues.

The increase in data connections, in addition to the operators’ need to increase the risks posed by the value added services, is speeding the discussions and processes up for new spectrum allocations, practically in the whole world. In addition to that, the governmental authorities speed the plans up to reduce the digital gap, including mobile networks as relevant infrastructure to meet their objectives.

Tablets burst into the market and the market is expectant to see which will be the actual use of these devices, which will be the demand they will eventually meet. There is no doubt that tablets are new devices whose uses may not be similar to any of the uses we already know.

1 Source: Wireless Intelligence

To all these positive facts which forecast an increase in value added services and data consumption, it must be added the HTML 5 that will facilitate the creation of applications.

Also the interest of other industries in mobile services is growing fast; such as the financial industry, which analyzes mobile services as a tool to include more people in the financial system, the healthcare industry thinking of mobility solutions which may help improve the patients’ quality of life, to prevent and diagnose remotely, thus reaching zones that are currently unattended, the energy industry including chips in the meters to manage consumption, among others.

2 Source: Convergencia Research. Includes South America, Central America, Caribbean.

3 Source: Pyramid Research – Data for 2010.

As a conclusion, the industry is already in the path of value added growth, adding more people, increasing the use of VAS and adding new connected devices.

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MAVAM | 1. Introduction

1

1. Value added services in the world In order to analyze the global impact of value added services on the mobile business, a sample of seven operators in different countries was selected (See chart 2). Changes in total revenue and in Value Added Services (VAS) revenue between Q1 2010 and Q1 2011 were analyzed for each company.

Value added services (VAS) mainly comprise: SMS and MMS (messaging), music, videos, games, ringtones (entertainment), payments and mobile money transactions (mobile Money), broadband and mobile Internet, social networks and mobile marketing/advertising.

Chart 1.

Operators Analyzed • América Móvil - Latin America • AT&T - United States • France Telecom France Telecom France • NTT Docomo - Japan • Telefónica Telefónica Spain Telefónica Ireland Telefónica Latin America • Verizon – United States • Vodafone Vodafone Great Britain Vodafone Germany Vodafone India

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MAVAM | 1. Introduction

Variation in Voice revenue contribution vs. VAS revenue contribution In Q1 2011, a downward trend in voice services contribution to total services´ revenue and an upward trend in value added services revenue contribution were identified among the analyzed operators. Within this sample, voice services reduced their contribution to operators’ total Average Revenue per User (ARPU) from 19% (in Telefónica Ireland) to 2% (in Verizon USA). Vodafone India was the only exception with an increase of 3% in Voice Service´s contribution. This is consistent with a market that has a 60% penetration of mobile lines on a population that still has a margin for growth in subscribers.

Chart 2.

Variation Voice and VAS revenue contribution to ARPU Q1 2010 - Q1 2011

Source: Convergencia Research on the basis of the financial reports of the operators.

In some cases, VAS revenue already makes up for the drop in voice services revenues. For instance, Vodafone´s balance sheet stresses that this is the first time that data revenue increase exceeds voice revenue decline4.

4 Vodafone Preliminary Results 31/1/2011 page 9: ¨ First year that Group data revenue increase exceeds voice revenue decline.

In more mature markets (European Union, the United States and Japan), operators showed growth in value added services contribution below 5% compared to Q1 2010. In the cases of América Móvil and Telefónica (Movistar) Latin America these services increased its contribution by 8% and 7%, respectively.

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MAVAM | 1. Introduction

SMSs are important within VAS for emerging and developing countries operators, while, in developed countries, where smartphones penetration is much higher5 than in the former, SMSs are losing ground to other data services.

Chart 3.

Total ARPU vs. Mobile Penetetration Source: Convergencia Research

5 One example of smartphones penetration growth is the following: in Q1 2011, 32% of

S

In this operators sample, value added services vary between 13% and 54%. As regards NTT Docomo (Japan), value added services already represent 54% of the operator’s revenue. In European Union countries, value added services vary between 25% (Telefónica Spain) and 45% (Vodafone Great Britain), while in the United States, value added services represent 38.3% of Verizon´s revenue.

Verizon Wireless´s post-paid customer phone base were smartphones; up 4% from 2010.

Verizon Q1 Highlights Page 5. ¨At the end of Q1, 32% of Verizon Wireless’ retail postpaid customer phone base were smartphones, up from 28% at the end of Q4 2010”.

Value added services already represent 25% of total revenue in the cases of América Móvil and Telefónica (Latin America) and China likewise.

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MAVAM | 1. Introduction

Chart 4.

Analysis of VAS contribution to mobile ARPU

In developed countries, mobile operators’ ARPU growth opportunities are almost exclusively based on state-of-the-art VAS (those related to the use of mobile Internet) and it is through these services that companies expect to recover voice losses.

December 2010

Source: Convergencia Research on the basis of operators’ balance sheets.

3

A good example is that of AT&T, that, in the first quarter of the year sold more than 5.5 million smartphones, thus reaching the third-highest growth quarter. AT&T Investor Briefing Q1 2011 Page 3. ¨THIRD-

As regards European Union and United States operators, it is worth mentioning that their ARPU is clearly higher than that of other operators worldwide, enabling them to introduce new and more sophisticated VAS faster and giving rise to more revenue generation opportunities. The quick adoption of advanced mobile devices6, Smartphones and tablets, is fundamental to the introduction of these new value added services.

Operators in emerging and developing countries are focused on sustaining revenue by increasing voice service penetration and introducing mobile phones that would enable operators to deliver more and better value added services. Since ARPU in these countries is lower (USD 10-15 approximately), the challenge is having both smartphones and other phones that, despite not being smartphones, have friendly interfaces and features to stimulate value added use.

HIGHEST SMARTPHONE SALES QUARTER EVER: AT&T had another strong quarter of Smartphone sales.

Value-added services expected to continue to grow in all markets thanks to the promotion of services and the introduction of new billable services to keep the business vitality.

(Smartphones are voice and data devices with an advanced operating system to better manage data and Internet access.) More than 5.5 million Smartphone were sold in Q1, the

In the coming years, mobile operators will have to change their business structure to maintain VAS contribution to their revenue. Much of their future will depend on how the changes are made and how these changes will, in business terms, be applied to customers.

third-highest quarter ever.

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MAVAM | 1. Introduction

1

2. Value Added Services in Latin America By the closing of Q1 2011, Latin America had 581.5 million Mobile Phone customers7 which amount to a 98% penetration on the people of the region8, 9 percentage points in respect of the penetration registered in March 2010, when there were about 9 lines per inhabitant. These data show that over the 12-month period from March 2010 to March 2011, 50.2 million new lines were introduced, which amount to 137 thousand net registrations per day.

7 Estimation made by Convergencia Research on the basis of the Balance sheets drafted by Operators, Regulators, Institutions of

19% of the lines in the region operate under the Postpayment method. Despite the fact that, in most countries, the percentage of postpaid lines is not far from such 19%, there are also particular markets, such as Puerto Rico, where postpaid lines (based on agreements), amount to 76.6% or Jamaica, where these lines amount to just 3.5% of the total customers.

Statistics, Related Ministries and of its own information. This figure does not include Nextel’s Trunking customers in Argentina, Brazil, Chile, Mexico and Peru, or Avantel’s customers in Colombia, which amount to

The pobile phone services business receives revenues which may be grouped under four big items: Voice services, such as the traffic of minutes, Value Added Services, which include Internet, messaging and other VAS (content, applications and voice VAS), the revenues from the sales of terminals and accessories, and other general revenues9.

9.5 million customers.

8 Source: ECLAC – The Economic Commission for Latin America and the Caribbean www.eclac.org. Population in Latin America: 594 million inhabitants (including all the countries and all the islands of the Caribbean).

9 The other revenues from mobile phone services are lower in proportion and as they are generally in comprised in the revenues

Over the first three months of 2011, the mobile phone industry in Latin America10 generated revenues for USD 21,475 million. The voice services11 contributed USD 14,832 million (69%), the VAS USD 4,973 million (23%), and the sale of terminals the remaining USD 1,670 million (8%). The growth of the industry, as compared to the first quarter of 2010, when total invoicing reached USD 19,440 million, was equal to 10%. VAS are the services which best explain the variation in the revenues obtained from the industry, which experienced a 33%-increase over the last 12 months. Just below the VAS, there is another factor: technological change supporting the VAS represented by the terminals, and which registered an 18%-increase.

from voice serveces, we have decided to group them the same way in this report.

10 Estimation made by Convergencia Research on the basis of the Balance sheets drafted by Operators,, Regulators, Institutions of Statistics, Related Ministries and of its own information. This figure does not include Nextel’s Trunking customers in Argentina, Brazil, Chile, Mexico and Peru, or Avantel’s customers in Colombia, which amount to USD 1.500 million.

11 Includes the “Other revenues” item.

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MAVAM | 1. Introduction

Chart 5.

Increase in the revenues from mobile services in Latin America From Q1 2010 and Q1 2011

Chart 6.

Variation in the revenues obtained from the mobile services in Latin America From Q1 2010 and Q1 2011 In million USD

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MAVAM | 1. Introduction

Value Added Services are the main characters of this report and of the current condition of mobile services both in our region and in the entire world. We can see, on a daily basis, how the offers of most of the operators are increasingly focused on fostering the use of these new services. These offers are always based on two sales arguments; the product with its packaged services and the accompanying Smartphone12, thus increasing the exposition of these phone devices.

During the first quarter of 2011, the use of Value Added Services by mobile subscribers generated revenues of USD 4,973 million in Latin America, which is 33% higher than the USD 3,743 million of the first quarter of the previous year. Of the USD 4,973 million invoiced during the first quarter, SMS and MSS contributed USD 3,024 million (61%), Internet USD 1.371 (28%) and Others USD 578 (12%).

Chart 7.

Distribution of mobile services ´revenue in Latin America As of Q1 2011 in million USD

6 Os telefones inteligentes ou smartphones, entre outras características, são os que dispõem de algum tipo de conectividade, seja por GPRS, 2G ou 3G e/ou Wi-Fi.

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MAVAM | 1. Introduction

Chart 8.

Services ARPU13: VAS vs Voice Service ARPU in Latin America As of the first quarter of 2011 in USD.

13 Services ARPU do not include device´s sales, therefore it is lower than total ARPU. Total ARPU is the ARPU reported by operators´ in their financial statements.

Costa Rica has the highest ARPU in USD in the context of the other countries in the region, in spite of the fact that its position as far as mobile service penetration is concerned is practically the opposite (57%). This is mainly the consequence of the fact that this market has not adopted the prepaid method until 2010, and at the same time, there is just one operator (ICE), although Claro and Movistar will also be operating by the end of 2011.

Chart 9.

VAS ARPU and evolution in the region As of the first quarter of 2011.

As regards the relative value of VAS ARPU in respect of service total ARPU, Argentina is the leading country in the region with a 42% contirbution. Panama is at the bottom of this comparison with a VAS ARPU equal to 12% of its service ARPU.

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MAVAM | 1. Introduction

1

3. Value Added Services in Brazil In this edition, we have introduced some modifications to sales figures, focusing our analysis on the revenues from sales for services net of taxes (liquid sales from services) in order to make comparisons with the rest of the Latin American countries. In addition to that, we are using figures denominated in Brazilian Reales and their equivalent in US dollars, for the same purpose of making comparisons among countries easier.

At the closing of the first quarter, Brazil had more than 208,714 million mobile lines (108.4% penetration). Measured in number of lines, the Brazilian market is equivalent to 36% of the total of Latin America15. Prepaid users represent 82.13% of the total of subscribers; such values are aligned with the prepaid average in Latin America.

14 Source: Operator´s Financial Statements.

Numbers have small difference with Anatel

The total average ARPU16 of Brazil, during the first quarter was equal to R$ 21.2 (US$ 12.7).

Measured in dollars, the ARPU is slightly above the regional average. In spite of the fact that there was a 7.4% fall in the total ARPU in Reales, with respect to the ARPU for the first quarter of 2010, in dollars the values remained almost unaltered due to the exchange rate. The service ARPU17 (without considering the sale of terminals) was equal to R$19.4 (US$ 11.4).

number which is 210 millions subscribers.

Convergencia Reseach prefers to use balance

Chart 10.

sheets in order to maintain consistency with

Mobile phone lines per operator

other indicators such is income and ARPU.

As of Q1 2010 and Q1 2011.

15 Latin America: This MAVAM edition comprises all the South American countries, the countries of Central America, Mexico and the Caribbean, including Puerto Rico, Cuba and the islands of the Caribbean, which do not speak Spanish.

16 Total ARPU: Includes data and voice services and the sale of terminals. Source: Balance sheets of operators 17 Service ARPU: net sales for voice services + net sales for data services. Source: Convergencia Research on the basis of the data obtained from the balance sheet and of its own information. The service ARPU constitutes the basis to assess the volume of value added sales; therefore, the differentiation thereof is relevant.

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MAVAM | 1. Introduction

The sales for services (net of taxes) of the first quarter amounted to R$ 12,979.5 million (US$ 7,635 million), and they represent 35% of the total of the mobile business in the region.

The increase in the sales net of taxes for mobile services, as measured in US$ volume, as compared to the first quarter of 2010 amounted to 16% (6 percentage points above the average increase of the business in Latin America). The increase in dollars is affected by the exchange rate.

With a 33% market share, Vivo is still the el operator with the highest number of lines in Brazil, even though the number of lines has been reduced by 2.8%. TIM was the operator with the highest growth (25%), followed by Claro (17%) and OĂ­ (13%).

Chart 11.

Market share in number of lines

Q1 2010

Q1 2011

Over the 12-month period from March 2010 to March 2011, the market shares of the operators suffered significant alterations. Claro currently has a 26% share, and thereby it lowered the 7 percentage points that separated it from Vivo to 3 percentage points. If this trend goes on, it is possible that by the closing of the first quarter of 2012 there may be an equal share in the market between those operators (or maybe even before). Given such possibility, the piece of information to be taken into account shall be each company’s ARPU.

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MAVAM | 1. Introduction

Chart 12.

Total ARPU of the main operators At the closing of Q1 of 2010 and of Q1 of 2011, in USD.

USD

18 Estimate made by Convergencia Research on the basis of the Balance Sheets of the

R$

At the closing of the first quarter of 2011, all the operators had their total ARPU reduced.

Vivo was the operator with the lowest reduction in the total ARPU total (-1%). Vivo´s customer also has the highest ARPU of Brazil with USD 14.7 (R$ 24.60). Claro, which follows it in rank in number of customers, has a total ARPU which is 37% lower than Vivo’s total ARPU, which is also the lowest ARPU in the market, equal to R$ 18.00 (USD 10.8).

Operators, ANATEL, and of its own information. Liquid revenues, net of taxes.

This figure does not include the revenues from Nextel Trunking equal to USD 780 million (R$ 1,302.60 million).

The mobile phone business in Brazil generated revenues net of taxes for USD 7,63518 million (R$ 12,750million). The sale of terminals represent 7% of the revenues, with USD 511 million (R$ 853 million). The remaining USD 7,124 million (R$ 11,897 million) pertain to the VAS and to the voice services.

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MAVAM | 1. Introduction

Chart 13.

Gross revenues vs. net revenues for services

At the closing of Q1 of 2010 and of Q1 of 2011, in USD and R$.

R$

USD

Chart 14.

VAS revenue as percentage of total services net revenues Q1 2009-Q1 2011.

The net sales for value added services (assessed in US$) were the highestgrowing items (41%)19, followed by the sales of terminals (32%). They are both related because the operators are focusing on the sale of smart devices which, in addition to being more expensive, are the engine fostering the most advanced value added services.

The revenues from VAS in Brazil represent 18% of the net invoicing for services. Such value Is 5 percentage points below the average regional contribution

Source: 2009-Q32010, MAVAM Teleco – Q42010 and Q12011 Convergencia Research 19 31% of growth in Brazilean reales.

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In the first quarter of 2010, the VAS amounted to 15% of the net invoicing for services, and in the first quarter of 2009, such percentage was equal to 12%. This means that the VAS share in the business was increased by almost 60% in 2 years.

MAVAM | 1. Introduction

Chart 15.

Sales of VAS as a percentage of net services revenue20

As regards the share in the revenues from VAS with respect to the total invoicing for services, Vivo is the leader again with 22%, although as compared to the previous quarter, it had a 1 percentage point reduction. Then, TIM and Oi, show the same 15% distribution.

They both grew as a result of VAS contribution to the total revenues, but TIM grew by 1 percentage point and Oi by 3 percentage points. The share of the VAS for Claro is assessed in values around 15% of its net sales for services.

Chart 16.

Distribution of TM’s revenues from services in Brazil As of Q1 11 in million USD.

20 Source: 2009-Q32010, MAVAM Teleco – Q42010 and Q12011 Convergencia Research on the basis of the balance sheets of operators.

Claro is not included because it does not break the information down in the balance sheet. Its share is estimated.

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MAVAM | 1. Introduction

Chart 17.

Operator´s average minutes of use per user (MOU)

Practically in opposition to what is going on in the other Latin American countries (except for Chile and Colombia), 48% of the revenues from VAS arise out of the Internet item and 41% of the messaging services; the remainder consists of other revenues from VAS. Internet keeps the growing trend in its contribution to VAS and places Brazil as the country responsible for the 45% of the net sales for mobile Internet services in the region.

Given the fact that the contribution from VAS is still lower than 20%, it is important to keep on monitoring some indicators of the Voice business. The net sales from voice services grew by 11% (in US$) and from the three major operators of the country, two operators had their MOUs21 increased (Vivo and TIM), and Claro had a slight reduction.

The voice indicators show that such question is still the main focus of the competition among companies.

Chart 18.

Net sales VAS

21 MOUs = Minutes of Use. They represent the amount of minutes per month used in average for each line.

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MAVAM | 2. MAVAM (Acision Monitor for Mobile VAS)

2

MAVAM (Acision Monitor for Mobile VAS) MAVAM aims at analyzing the trends of value-added services in Latin America. Since 2009, this study is carried out in Brazil. In 2010 Acision launched its Mobile Value Added Service in Mexico, while, in 2011, the survey started in Argentina.

This new Brazil’s MAVAM edition methodologically differs from previous editions in that:

Brazil: Geographical regions

a. The number of respondents increased and 1,494people were actually surveyed; 1,294 of these respondents were contacted through Computer-Assisted Web Interviewing (CAWI) and 200 through Computer-assisted telephones interviewing (CATI).

Brazilian regions 3%

North North East

18%

South East

56%

South

16%

Center West

8%

b. An extensive geographical area was covered to include all the regions of Brazil. The sample was selected by weighting the number of inhabitants, their level of income and the use of the Internet (the survey is taken over the Internet) to enhance the country’s representation. c. Data collection was changed. The survey was taken over the Internet (CAWI) following the Income Level, Age and Sex categories that keep the existing proportions among the Brazilian population.

As the number of Web users (almost 80 million) is less than the number of mobile users (208,7 million), the change in data collection means that the surveyed population is familiar with technology. This means that some data can be applicable to all mobile users while other cannot.

We explain, in each case, where the data only represent this sample and where they represent all mobile users in Brazil. d. Internet-based surveys were supplemented by phone surveys (CATI) to have a data control and comparison group.

1 Convergencia Research com base em World Stats e NIC.br. A diferença com os 60 milhões de usuários da edição anterior não significa crescimento e sim correção do dado.

e. The data collection survey has also been changed to allow newmeasuring and analysis methods other than those used in prior editions.

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MAVAM | 2. MAVAM (Acision Monitor for Mobile VAS)

f. The services analyzed in this edition include: • Messages • SMS • MMS • E-mail • Instant messages • Voice mail

• Internet access (Special topic) • Social networking • Application download (new topic) • Location Based Services (LBS) • Payments and banking • Marketing (Special topic)

• Entertainment • Musica • Images • Games • Ringtones • TV • Video

This This edition was prepared by Convergencia Research and Quanti Pesquisa de Mercado between February and May.

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MAVAM | 3. Mobile Broadband

3

Mobile Broadband

SPECIAL TOPIC In Latin America, with the launch of 3G networks in 2007, the industry has discussed which is the role played by mobile broadband; whether its use must be considered to be intended to replace or to supplement fixed broadband or how will these two data consumption methods through mobile networks will coexist. The truth is that to date, the operators and statistics centers pertaining to different countries have not yet come to one and the same conclusion on how to assess the evolution of mobile broadband.

N

What has been found out so far is that there are 3 different uses of mobile data networks: the use which may be carried out through computers (netbook, notebook), by means of a USB modem or through Phone-as-Modem (Tethering), which is enabled by means of the use of telephones, and of new mobile devices such as tablets. In the case of the first two types of use, both consumers and operators have already gone part of the way; in the case of tablets, the first steps are just being made and it is important to observe how and for which purpose people use these new mobile devices. Such consumer devices as, for example, photo cameras, digital portraits and connected industrial devices or M2M (Machine to Machine), whose business models are still different, though they are currently on a growing trend must be added to those three types of devices we already know today.

O

E

S

At the closing of this study there were 500 million HSPA (3G)1 connections in the world, which amounts to about 10% of the world’s mobile connections.

1 Source: Wireless Intelligence.

In this edition we are focusing on the use of the mobile network to connect netbooks/notebooks by means of USB modems or dongles, and on the use of Internet services through mobile telephones. Before addressing the information obtained, it is necessary to make some clarifications about the users surveyed. On the one side, it is worth mentioning that the sample used shows special characteristics, on the grounds that users have become familiar with the use of such technology and with surfing the Web, since the survey is itself conducted on the Internet. On the other side, since the accesses of the type referred to in this document are not massively used, in some of the analysis conducted, the data cannot be considered representative, given the reduced number of responses. In those cases, the possible reading level will be explained.

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MAVAM | 3. Mobile Broadband

3.1. Mobile broadband in Brazil By the end of March 2011 there were 14.49 million fixed broadband accesses in Brazil2, with average speeds around 2Mbps per connection. Pursuant to the estimations made by Convergencia Research in Brazil there were also about 803 million Internet users through computers as of the first quarter.

For the same period, there were 22.9 million4 3G mobile data devices in Brazil. Within those connections, 4.8 were 3G minimodems. Although not all 3G devices, such as Smartphones, are tied to Internet browsing plans, it is estimated5 that by March 2011 approximately 50% of those devices had a data plan. Pursuant to the estimations made by Convergencia Research, the current range of USB-modems in Brazil amounts to about 47% of the total number of mini-modems in Latin America6.

Chart 19.

Brazil: Access and range of mobile and fixed broadband Q1 2011

2 Fixed broadband technologies are: xDSL, modem cable, wireless/fixed wimax, and satellite broadband. Source for the number of accesses: Anatel.

3 Source: Estimated by Convergencia Research base don Internet World Stats, Nic.br and others.

4 Source: Anatel and Teleco. Total number of mobile data devices is 24.4 million, but only 22.9 of them are 3G 5 Source: Convergencia Research based on enquiries to operators and organizations in the industry.

6 Source: Convergencia Research, quarterly

The dramatic rise in the sale of 3G telephones and data terminals (mini-modems) drove an increase in data traffic, which in the last twelve months has increased between 130% and 150% according to different measurements. It is estimated that the growth in data traffic will be about 140% per year until 2015.

follow-up of mobile broadband access.

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MAVAM | 3. Mobile Broadband

Chart 20.

Composition of the range of terminals in Brazil Q1 2011

At the global level, with the expansion of 3G networks and the increase in the range of available mini-modems, new service quality issues came up because mini-modem users consume 10 times more than 3G phone users, and therefore since the end of 2009 we started noting a trend by operators to foster the use of 3G phones rather than USB modems. At the same time, the offer of applications and contents adapted for mobile use was increased, operators started questioning flat rates ´business models; and at the same time a spectrum opened in several countries throughout the world to face the traffic demand of mobile data.

This same trend may be observed in Brazil. For over a year now, the main operators started decreasing their promotional efforts into the sale of mini-modems and driving resources towards stimulating growth in the range of available smartphones. This tendency is confirmed, for instance, by the fact that from March 2011 to March 2010, the range of 3G telephones increased by only by 37.5% while 3G phones grew almost 3 times.

Convergencia Research’s projections indicate that in the next 5 years, fixed broadband in Brazil will grow at annual rates of between 15% and 17%, while the range of mobile broadband terminals (3G telephones and data devices) will be around 80% per year. In the mobile segment, telephones and at a slower rate tablets7, will be the devices with the highest number of users; these devices will turn mobile Internet into a ¨Personal Mobile Internet¨, with a different use from the use of computers, and even with use preferences that are still beyond our imagination. That is why we think that Internet access through telephone devices or through Tablets is a phenomenon of a new market and does not amount to a supplement or replacement for access through computers.

7 Since the last quarter of 2010, adds promoting the launching of tablets were published in most markets in Latin America.

The biggest brands accelerated their launches starting in March 2011 and the most advanced markets such as Argentina, Chile, Brazil and Mexico already have offers in their

At the same time, access through mini-modems will be a supplement for fixed broadband for users in large and medium-sized cities and a replacement in areas with low levels of competition or low coverage of landline services. Part of the growth in the market of minimodems in Latin America is tied to governmental plans for the reduction of the gap which include the distribution of netbooks and mini-modems for students and/or areas with low financial resources or areas with no effective competition.

points of sale from brands that are not so well known or brands produced locally, although not all of them with access through cellular networks.

In the case of Brazil, the next football world cup evidenced the importance of granting a new spectrum and accelerated discussions about future bidding processes to meet the peak demand triggered by that event. For illustration purposes, in the last similar world events

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MAVAM | 3. Mobile Broadband

voice traffic in the places where they were held increased by 200%, while the volume of SMS grew 30 times more than usual and the data traffic recorded peaks of up to 500% above normal levels.

Revenues from mobile data (mobile broadband and/or Internet) in the first quarter amounted to approximately US$ 615, equivalent to almost 8% of net sales for services of mobile companies. Net sales for Internet and mobile data services in Brazil represent 45% of the mobile Internet industry in Latin America.

It is interesting to look at current mobile broadband offers of the main operators. For instance, Claro has several plans offering from 250 Mb to 10 Gb, with speeds of 1Mbps and costs ranging from US$ 30.5 to US$ 122.2 per month. In addition to that, in order to promote the use of mobile broadband services, it launched a weekly subscription plan for the sale of mobile content last April. In this case, the plan has been specifically designed for games, with a price below the market’s average price. The weekly cost of this “games club" is US$ 2.43, and provides the right to download one cell phone game per week. It must be considered that, pursuant to MAVAM, games are the contents for which there is a higher tendency to pay and for which there is a greater awareness of price by users.

In turn, Vivo also expects to be the leader in the mobile broadband market. In this scenario, the operator recently launched a post-paid mobile broadband plan for Desktops and Laptops at a monthly rate of US$ 17 - a price similar to that the government intends to set for the National Broadband Plan. The plan provides the user a plan to browse at a maximum speed of 1 Mbps up to a total of 150 Mb traffic. When this maximum is running out, the customer will be notified and will have the option to reduce the access speed (to 32 Kbps), or continue at the same speed by paying an extra US$ 0.2 per Mb exceeding the maximum limit.

TIM was the first operator that decided to prioritize the commercialization of mobile broadband, launching a plan for US$ 0.30 per day for access, regardless of the browsing time at a speed of 300 Kbps, considered ideal for browsing through contents adapted for cell phones. This operator was also the first operator to launch hourly mobile broadband plans, ranging from 20-hour plans (10 free hours) for US$ 20.11 up to 120 hours for US$ 61.08.

In the case of Oi, the operator has a wide range of plans, one of which stands out, offering 30 Mb of data for US$ 12.1, up to 20 Gb.

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MAVAM | 3. Mobile Broadband

3.2. Mobile Internet (via telephone) 72% of the total number of users surveyed stated that their devices are mobile Internetenabled. This information is significant because it means that users have incorporated in their minds the concept that mobile telephones enable Internet access. The interpretation of this figure is relevant to acknowledge that the range of Internet-enabled devices is far higher than the range of those not providing such access. This is so partly due to the service's demand and price, and partly due to the fact that most of these devices are not user friendly or do not make browsing easier, and there are devices which are rather old (for instance, the so called feature phones which operate with 2G technology). Notwithstanding the fact that such factors are taken into account, the number of Internet-enabled terminals has increased by 15%, as compared to MAVAM’s seventh edition.

Chart 21.

Internet use and devices

Out of the 72% users claiming to have Internet-enabled devices, only 35.4% has accessed the Internet over the last three months, another 16.7% has used the Internet via their cell phones but not that allows access to Internet during the last three months and the rest has never used the Internet through their mobiles. The data above show that 25% of respondents have used mobile Internet over the last three months. The values are slightly high for Brazil, where only 8% of users have 35 devices and an estimated of around 15% have smartphones or phones with advanced technology (the total of 2G and 3G telephone devices and those feature phones positioned in the use of mobile data), that is to say those we can considered as devices enabled for the use of mobile Internet.

MAVAM shows that 13% of the respondents are active mobile internet users, because they access more than once a week.

Respondents who own a mobile Internet-enabled device but who have not used it over the last three months mentioned that they had no need to use that service as the main barrier and price as the second barrier. The lack of need for a service is an issue in terms of demand. For instance, in other studies of

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MAVAM | 3. Mobile Broadband

Convergencia Research in several countries in the region, when users who own a computer and/or fixed broadband and do not use it were asked about the reasons for not using it, the most frequent response is also the lack of need.

The creation of the need can be stimulated through digital alphabetization, both in the case of telephones as in the case of computers, but it is also very related to obtaining a critical mass of users (network economies) which will create or force the need for use among those who have not found it yet.

Chart 22.

Reasons for not using the Internet through a mobile telephone Basis: those who own an Internetenabled telephone and have not used it over the last three months = 36% of the basis.

Multiple choice answers.

Those not using mobile Internet but owning an Internet-enabled device were consulted on their opinions regarding use in the following 12 months. Opportunities come from those responses. 25% think they need more information before making a decision, which tells us about the importance of working on stimulating demand and on the communication of the product. 8% think they will connect even knowing that the cost will be increased, and this tells us that there is already a group of people wishing to hire the service, leaving price issues aside. 23% would use the service, if prices were lower. Another 26% may consider hiring that service after 12 months and 18% think they don't need it.

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MAVAM | 3. Mobile Broadband

Chart 23.

Future behavior of the use of mobile Internet Basis = those who own a device enabled for mobile Internet and have not accessed = 36% of the basis.

Multiple choice answers.

Among those who have used mobile Internet in the three months, 76% use more time for personal reasons than for professional reasons (24%).

Chart 24.

Time spent for personal and professional uses Basis: Those who used mobile Internet over the last three months.

Those who have accessed mobile Internet were asked to divide use according to the type of activities they carried out the most. The greatest amount of time is dedicated to accessing social networks (32%) followed by Web browsing (19%) and replying e-mails (17%). The responses confirm the trend towards mobile Internet for personal activities.

31% of the user who accessed mobile Internet represented to have used it half an hour a day in average and a similar percentage (31.6%) between half an hour and one hour. The average time according to this sample is slightly over one hour per day.

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MAVAM | 3. Mobile Broadband

Chart 25.

Time spent on mobile Internet according to activity Basis = those who accessed the Internet through their mobile phone over the last three months.

3.3. Mobile Broadband (through dongle to connect netbook/laptop and/or using the phone as a modem) In order to simplify the consistency of responses, users were shown an image with the different types of wireless and/or mobile connection through a laptop, netbook or Tablet.

Afterwards, they were asked their connectivity of choice, allowing them to provide as many responses as necessary.

Fixed wireless broadband

Wi-Fi

Only 25% of respondents do not own a notebook/netbook or tablet themselves. 57% uses Wi-Fi connectivity. 19% only accesses the Internet through the fixed Mobile broadband broadband network.

3G Modem

Using my mobile device as a modem (Tethering)

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Only 20% connected through a modem using the operator’s mobile network and 3% have used their mobile phones as a modem (Tethering). Values are for reference only and cannot be projected to the level of total mobile users in Brazil,

MAVAM | 3. Mobile Broadband

since they are representative only to those who own a notebook/netbook and/or. Even so, they are only a reference or orientation on how mobile connectivity is being used to access through portable computers.

Chart 26.

Users who connect their netbook/laptop or tablet through wireless and/or mobile networks Basis = Total number of respondents. (Multiple choice).

Among the users who have connected their Notebooks, Netbooks or Tablets to the Internet via mobile devices (3G), 85% have used a modem, 9.4% have used Tethering and 5% have used both.

Chart 27.

Which of the following alternatives do you use for your internet connection? (laptop, netbook, tablet)

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MAVAM | 3. Mobile Broadband

Chart 28.

Time spent on the Internet Basis: 22.7% of the sample.

Users who use mobile broadband.

Multiple choice questions.

The connection is mainly due to personal reasons (53.2%) more than professional reasons (46.8%).

On a netbook connected via wireless or mobile, 22.2% of the time is dedicated to replying e-mails, 20% to Web browsing and 20.2% of the time is spent on social networks. These data shows that the use of mobile broadband for the computer is even more similar to the use in a desktop computer (reading e-mails/browsing), while for mobile telephones, as shown in the previous paragraph, social networks account for most of the time (32%).

7.1% of the connection time in average is dedicated to commercial mobile applications, such as Skype, Shazan or Google Maps, while 6.9% of that time is dedicated to sales software, school or university education systems, etc.

3.4. Conclusions Even with low levels of penetration, there are two trends of consumption in mobile broadband services.

Chart 29.

Time spent on the Internet Basis: 22.7% of the sample. Users who use mobile broadband accesses.

Through mobile telephones, access is mainly motivated by personal use and social networks account for most of the time of use.

With the growth of smartphones and applications, probably the use of Internet in mobile devices will drift apart from what we now know as the Internet.

On computers, uses for personal and professional reasons are distributed relatively evenly, although personal use tends to prevail.

In this case, most of the time is dedicated to replying e-mails, but social networks account for the s2011.

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MAVAM | 4. MAVAM Brazil

4

MAVAM Brazil 4.1. Message Services Short messages, multimedia messages, mobile e-mail and mobile message services can be grouped under the heading “Message Services�. Pursuant to data provided by several consultancy agencies1, this group of services represents a global market of between US$ 180 thousand million and US$ 200 thousand million sales per year.

Within Message Services, text messaging is the most popular message service. In Brazil, the SMS and MMS (multimedia messages) segment, generated sales for about US$ 526 million dollars (R$ 889 million) during Q1 2011. As previously stated in prior editions of MAVAM, the SMS market in Brazil still has a broad margin of growth taking into consideration that the global average of SMS is above 100 messages per month per user, and in Brazil it is around 22 SMS per month per user.

The low usage of SMS in Brazil results from a combination of factors. In general, several participants relieve that the average price of US$ 0.20 – 0.18 per unit is a barrier, especially in lower social classes, combined with others such as aggressive voice services offers and the still low diversity of offers to stimulate use such as unlimited-use packages, among others.

However, since 2010 we started noticing a change in SMS offers available. For instance, since the end of 2010 TIM, with its Infinity Pre campaign, provides the alternative of sending unlimited SMS at a rate of US$ 0.30 per day. Vivo has also increased its aggressive approach in the sale of SMS packages; in this case we can also cite as an example the Vivo On campaign (www.vivoon.com.br) which is addressed to young users.

With this offer customers have direct access to social networks free of charge and unlimited SMS based on the value of the recharge made. In the case of Claro, the operator offers three SMS packages for prepaid services users, at different discount margins: 20 SMS for US$ 2.30 (R$ 3.90), equivalent to a 35% discount; 40 SMS for US$ 3.27 (R$ 6.90), a 43% discount; or 80 SMS for US$ 7.36 (R$ 11.90), a 50% discount.

N

E

O

S

1 Differences vary pursuant to the source and calculation method used.

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MAVAM | 4. MAVAM Brazil

4.1.1. SMS This edition of MAVAM shows that almost 90% of users have used SMS over the last 3 months. These values are 2 percentage points (p.p) above those obtained through MAVAM’s research in the prior edition, where 88% of respondents had used SMS services.

The percentage of those sending more than one SMS per day increased from 35.9% to 46.2%, thus confirming the upward trend in the frequency of use of SMS in MAVAM’s prior edition. This increase in use reduced the percentage of respondents rarely using SMS (27.4%) and also of those using SMS only once a day (26.4%).

Chart 30.

Used SMS in the last 3 months Basis: Those who use the service.

Reasons why respondents don’t use SMS

Frequency of use of SMS Basis: Those who use SMS.

Basis: Those who make little or no use of SMS.

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MAVAM | 4. MAVAM Brazil

Among those who “Rarely use SMS� and those who do not use the service at all, there is a higher percentage of answers evidencing a lack of interest in the service or a preference for making phone calls (81.4%). These barriers are followed by the cost of the service, with 12.1% of the answers provided by this group, both because they think that the value of each SMS is expensive in itself and because they think it is expensive compared to the cost of a phone call plan.

Regarding future use of SMS, 51.4% of the sample thinks that an increase is possible. Only 14.3% of respondents said that the use of this service will decrease. The figures confirm an upwards trend in the use of SMS observed for the prior quarter.

Chart 31.

Future use of SMS - Momentum

Pursuant to the sample studied in this research, users send an average of 62 SMS per month, almost 50% of the 41 SMS average per month obtained for surveys in the prior edition. As previously stated in the prior edition of MAVAM, respondents are more familiar with the technology and therefore the use of SMS has increased in our sample in relation to general estimates for the total in Brazil and is around 22 SMS per month per user.

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MAVAM | 4. MAVAM Brazil

If we analyze the frequency of use for respondents surveyed by MAVAM, we observe four large groups. The greatest part is concentrated in those sending 1 SMS per day (36%), the following Group, with 14% sending an average of 5 SMS per day and lastly 10% for those sending an average of 3 SMS per day and the same percentage (10%) for those sending 10 SMS per day. Statistically the values are only a reference and can be applied to the total in Brazil, but are a good indicator on how use is increasing, with 30 SMS per month as the figure that could be reached before year-end.

To sum up, the results of MAVAM show an increase in the use of SMS in Brazil partly as a consequence of new offers made available by operators.

However, to understand the current status of the SMS segment we need to go beyond the individu8als (also known as peer to peer, or P2P communication). In Brazil, as in other parts of the world, SMS is starting to spread within the entrepreneurial world applications in segments such as banks, energy, transportation, government, etc. by enabling, for instance, transactions such as for taxi-cab fare payment, for vehicle fleets, to confirm services registrations, for use by health-care entities to confirm appointments, among many other uses linked to the increase in productivity.

4.1.2. MMS 70% of respondents have MMS-enabled phones. However, only 21.7% use MMS. In MAVAM’s edition for March 2011, the percentage of users who have sent MMS was 17%, and the figures in this edition show an increase for those sending MMS during the last three months of almost 5 percentage points, that is to say almost 42%.

However, half of those using MMS only use this service sporadically. Figures are similar to those for the prior quarter. However, the number of respondents who send more than one MMS per week has tripled, and the number of those sending one MMS per week has increased by 30%.

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MAVAM | 4. MAVAM Brazil

Chart 32.

Use of MMS

When it comes to MMS, it is important to take into consideration that users who are not familiar with the technology jargon, that is to say, those who do not necessarily know if they are sending an MMS, do know that they are exchanging pictures and multimedia messages with other users, that is to say that some may be considering uploading a photo to Facebook via their mobile device as MMS. When reading results, the important thing is that the number of users exchanging images and multimedia via their Mobile phone is increasing rapidly.

From the perspective of the alternatives available for the user when consuming MMS, we start to notice offers such as in the case of Vivo, that packages multimedia messages with SMS, and therefore grouping messages as a service including more than text.

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MAVAM | 4. MAVAM Brazil

4.1.3. Instant Messages (IM) 55% of respondents said they have a phone through which they can access instant messaging. 27.7% of users have used instant messaging services over the last 3 months. This represents an increase of 42% as compared to the prior edition of MAVAM, in which only 19.5% of users had used the instant messaging service. These values are only for reference purposes; that is to say, they imply that the use of instant messaging is accelerating for the group of users under analysis, although the increase for the whole market may have different rates than those for users that are more familiarized with the technology, the values are a good statistical indicator of the current trend.

For instant messaging services, MAVAM defines active users as those users accessing instant messaging on a daily basis, several times or at least once a week. The frequency of use is important because the volume in the segment increases if both the number of uses and the use increase.

For this research, those that can be considered active users of the service represent 18.2% of respondents; that is to say almost 25% more users than in MAVAM's prior edition (14.5%).

The increase confirms what has been pointed out in the prior report on the potential incentive in the demand of this service.

Chart 33.

Frequency of use of Instant Messages

Among active users, men (36%) tend to use instant messaging more than women (30%).

As regards ages, the group that most uses the service is the age group ranging from 25 to 34 years old (37%) followed by individuals between 18 and 24 years old (36%).

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MAVAM | 4. MAVAM Brazil

The percentage of users is similar for those who have post-paid plans and those who have pre-paid plans, although daily use is higher for post-paid plans. The fact that the percentage of active users is identical for pre-paid and post-paid services may be indicating a high potential for spreading; spreading will depend on the models to be implemented by operators.

Chart 34.

Instant messaging users profile by plan, age and gender Basis: Total sample.

4.1.4. Voice Mail Out of the surveyed users, 66% used the voice mail service over the last three months, representing a 12%-increase in relation to MAVAM’s prior edition. On average, these users receive between one and two messages per week. 40.7% of those who have this service do not pay for it (because it is free or because it is not discriminated in the plan and therefore users tend to think of it as a free service), while 39.4% say they don't know the cost of the service. The use and expense figures are similar to those in the seventh edition of MAVAM (data for the fourth quarter of 2010).

Use percentages are slightly higher in the case of men (67%) as compared to women (65%). In terms of age groups, the use of voice mail services has increased to 69% for users between 25 and 45 years of age. The use of voice mail services tends to be higher for post-paid service users (77%).

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MAVAM | 4. MAVAM Brazil

4.1.5. e-mail In this survey, 61.8% of users have cell phones enabled to receive e-mails but only 39.2% have set up an e-mail account.

Slightly less than half of those users have push-type connectivity (43.9%).

Chart 35.

Use of e-mail in cell phone

If we take into account the total number of respondents, push e-mail is being used by 10.5%, while 13.6% of respondents use a browser to receive e-mails. Figures are stable with respect to MAVAM’s prior Edition.

4.2. Entertainment As clarified in the prior Edition, given that respondents are more familiarized with this technology, access to entertainment via mobile phones is usually higher than in the case of those who do not use the Internet frequently.

Chart 36.

Mobile entertainment (Download)

During the first quarter, 21.6% of respondents have at least once downloaded some kind of entertainment feature over the last three months. Music and images downloading are still leading the list of preferences when compared with the prior edition of this study.

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MAVAM | 4. MAVAM Brazil

The trend for downloading free entertainment features remains stable, and this is a challenge for operators' models and content producers. Game downloading appears not only as the leading entertainment content in the segment of paid downloads, but also as

Chart 37.

Entertainment: Free downloads vs. paid downloads

the segment for which users are most aware of costs.

Music Frequency of downloads per month Average download price 2

2 Dado o baixo número de usuários que consomem entretenimento pago, os dados relativos ao custo de downloads e o número de downloads são meramente ilustrativos, e não podem ser consideradas representativos da amostra total.

Ringtones

Games

Video

Images

6

4

3

5

5

R$ 4.4

R$ 4.5

R$ 1.9

R$ 6

R$ 6.6

Given the small number of users who consume paid entertainment, the data for downloading costs and number of downloads are for illustration purposes only and cannot be considered as representative of the total for Brazil. However, results are consistent with the results for the prior study, with 3 to 6 downloads per month. The amounts paid for paid downloads have increased in the case of Ringtones, video and images. The variability in these data is affected by the small number of users downloading paid downloadable items and who are capable of remembering or estimating the price paid for those downloads.

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MAVAM | 4. MAVAM Brazil

4.2.1. Games

(use and downloads)

88% of respondents know they can access games through their mobile phones, but only 59% of respondents use the games installed in their cell phones. The numbers indicate that there is a wide range of gaming-enabled cell phones with users who have not been interested in using that service yet.

For the use of games, MAVAM defines active users as those users who do not use the service daily and/or several times a week, and we found that 44.9% of users fall into that group. The average use of preloaded games is once every three days, equivalent to at least 10 times a month.

The use of games is higher among men than among women and almost non-existent among users older than 45. When analyzed by type of plan there are almost no differences among pre-paid and post-paid users.

Chart 38.

Mobile games: Frequency of use Basis: Users of games pre-loaded on the phone. (59% of total sample).

As regards downloading of games, 12% of the sample said they have performed at least one download over the last 3 months, representing a figure similar to the figure in the prior edition. However, 44% of those users download less than one item per month, and the figure goes down to 5.7% if we only take into consideration those who have downloaded an average of between one and 10 games per month (active users). 73.9% of those who downloaded games only download games once a month.

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MAVAM | 4. MAVAM Brazil

Two out of three of average downloads per month were free downloads. The average cost of each game was R$ 1.9 per download. Games are also the entertainment content for which users are most aware of number of downloads and price (only 3.9% of those who download are not aware of the value of those downloads), and this information can influence the decision to download and must be taken into consideration when preparing paid games downloading proposals.

4.2.2. Music

(downloads)

Mobile music and radio results from the wide range of MP3 and radio enabled devices. Thus, 78.9% of respondents indicate that they can hear the radio in their devices, and 71.6% stated they can play MP3 audio files.

Music is the leader as regards preference for the type of downloaded contents, representing 21.6% of the total sample. However, those who are not active (download on a daily basis, several times a week or once a week) represent only 8% of the total number of respondents.

Even if the numbers have decreased compared to the prior quarter, the variation is not statistically significant since the number of users downloading music is still low in relation to the total study.

Chart 39.

Mobile music: Download frequency Basis: 21.6% of the sample (those who downloaded music over the last three months)

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MAVAM | 4. MAVAM Brazil

Downloading consists mainly in searching for free music contents (57.1%), with 12.1% of total users for whom the download implied some kind of expense, which amounted to an average R$ 4.4 per downloaded unit.

Users who download music (21.6%) download contents 7 times per month on average, which is equivalent to about once every 4 days. Music downloading tends to concentrate in two groups: active users (48%) and users who download only once per month or less (45%).

Music downloading tends to be higher for pre-paid than for post-paid users (remember that downloads are mainly free downloads) and it is focused on the age group of users between 25 and 44 years old.

4.2.3. Ringtones (downloads) 10.2% of respondents remembered having downloaded at least one Ringtone over the last 3 months. Of such 10.2%, half did it once a month on average. This content is mainly free and only 19.6% of those who downloaded ringtones have paid for them, which represents the second highest percentage of paid downloading of the sample. Compared with the prior quarter, the numbers remain constant.

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MAVAM | 4. MAVAM Brazil

4.2.4. Images

(downloads)

21% of respondents downloaded images over the last three months, together with music this is the most popular type of mobile content or entertainment in Brazil. Of the total sample, 7.8% of active users who download images (daily, several times a week or at least once a week).

There was an average of five downloads per month. In 57.8% of the cases, downloads are free downloads and 37.1% does not know the cost. Those who paid for downloading images remember an average cost of R$ 6.6 (figures are only for reference because 5.1% of respondents who download music remember the average cost).

Chart 40.

Images & Pictures: Download frequency Basis: 21% of the sample (those who downloaded images over the last three months)

As in the case of music downloading, the frequency of images downloading is divided among active users (37%) and those who rarely download (44%).

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MAVAM | 4. MAVAM Brazil

4.2.5. Video

(downloads)

Those who remember having downloaded videos over the last 3 months represent 12% of the total sample. Now, those who download actively (daily, several times a week or once a week) represent only 5% of the number of respondents. Compared with the prior quarter, the numbers remain constant.

Respondents have downloaded 5 videos per month on average, and in 56.7% of the cases they downloaded free content. Only 8.9% of those who download video can remember an average price for downloading, for which the amount received is R$ 6.

As a reference, we can cite that men (15%) download more video contents than women (9%) and the age group with more downloads is the group of those between 25 and 34 years of age (14%). Video downloading is higher for post-paid services users (14%) than for pre-paid services users (11%).

4.2.6. Mobile TV

(Visualization)

In this edition of MAVAM we improved the method to ask about mobile TV in order to help users identify the service and differentiate it from video downloads. Based on the experience of Convergencia Research for MAVAM and for other studies, it is important to note that users do not differentiate consumption of a video from what in technological terms we may consider a mobile TV transmission. This is why the results of all those surveys attempting to investigate the use of Mobile TV must be reviewed carefully. In our case, when changing the question the results cannot be compared with MAVAM’s prior edition.

Pursuant to this Edition of MAVAM, about 15% of users have devices enabled to tune open digital TV. Almost all respondents stated they have watched mobile TV over the last quarter. Active users (those who watch TV on their mobiles daily or at least once a week) represent about 9%.

They watch TV contents in their mobile phones once every three days on average, equivalent to about 10 times a month. TV consumption for this sample is focused on news and information (25%) and soap operas (19.5%).

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MAVAM | 4. MAVAM Brazil

4.3. Social networks To contextualize the relevance of the mobile social networking market in Brazil, it is important to remember that pursuant to the last report issued by Comscore, in March 2010 social networks accounted for 25 thousand million web page views and that almost 99% of the on-line population (Internet users) use social networks. On average, pursuant to the same study, Brazilians visit social network sites 30.6 times. Figures place Brazil as the third most important audience in the world for social networks.

29.4% of respondents accessed a social network through their cell phones over the last three months. The numbers obtained represent a 39%-increase compared to the fourth quarter of 2010, when only 22% of respondents had used social networks in their mobile phones.

Since our survey is carried out via the Internet, we make calculations and estimates (See Technical Data Sheet – Methodology) to avoid methodological bias and set forth suggested values of the percentage of social networks’ users over the total of mobile users.

Convergencia Research estimates that about 12% of mobile users in Brazil use social networks in their mobiles.

Chart 41.

Use of social networks

Given the intensive use of social networks through computers, it is interesting to look at offers by mobile operators to capture the demand of access to social networks in mobile devices and incorporating the combination of access to the network with the use of SMS. For instance, Claro offers access to Twitter via SMS for R$ 2.99 per week, and access to Facebook for R$ 0.29 via SMS, R$ 0.60 via MMS, or from the portal in the cell phone browser for R$ 9 per MB, or other cost depending on the data plan hired. In turn, Tim launched in 2010 the Twitter SMS, Facebook SMS, o.facebook.com, Orkut SMS services, as an attempt to simplify access to social networks. In addition, it has a social network integrator, the “TIM Social Box” package, for R$ 0.31 plus taxes per day. “Posts” are charged at the same rate, and reply comments or posts are received via SMS. The sending of images or videos via MMS costs R$ 0.49. In the case of Vivo, all phones have access to social networks and this service can be charged based on data traffic or packages.

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MAVAM | 4. MAVAM Brazil

Back to our survey, in 82.2% of the cases Orkut is the social network with the most visits, followed by Facebook and Twitter, with 75.4 and 57.2% of the total sample, respectively.

Compared with the last quarter of 2010, we note a 9%- increase in access to Facebook and a 7% fall in access to Twitter and Orkut.

Facebook is the network with most frequency of access (45% access daily) and Linked In is the network with the less frequency, with users accessing once every three days on average.

Orkut and Twitter have a frequency of access of once every two days on average.

In 43% of the cases, users stated to have dedicated about half an hour a day interacting in social networks through their mobile phones. The number is somehow high, and it must be interpreted as the user's perception of the time invested. Probably 30 minutes is the total time dedicated in general to social networks, that is to say both in the computer and the mobile phone.

Chart 42.

Mostly used social networks Basis: Social networks users (29.4%).

Multiple option.

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MAVAM | 4. MAVAM Brazil

4.4. Mobile marketing 91.2% of respondents received at least one SMS or MMS with promotional content to their cell phones, almost three percentage points above the figures recorded by the end of 2010.

Messages received in general are to promote the operator hired itself. This is true in 55.5% of the cases. As the main minorities, the answers that relate SMS or MMS received to a service-rendering company (8.2%) or to a company advertising consumer products (9.8%) appear.

Chart 43.

Issuer of mobile marketing/ advertising

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MAVAM | 4. MAVAM Brazil

4.5. Mobile banking 6.9% of respondents use their mobile phones to access a bank or financial system. The leading use is to consult bank balances, with 6.5% of respondents, followed by transfers (4.5%) and for the payment of bills (3.8%).

Chart 44.

Use of mobile banking services

N

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O S

4.6. GPS e Maps 9.6% of the total number of respondents said they have used GPS services on their cell phones over the last three months. They used it 6 times a month on average. Taking into consideration that 18% of the sample stated that their phones were GPS-enabled, the percentage of users is relatively low.

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MAVAM | 5. Final Conclusions

5

Final Conclusions This MAVAM edition ratifies the progress of value added in Brazil.

Value added services during the first quarter of 2011 amounted to 18% of the net sales for the operators’ services. The volume of net sales of VAS was equal to R$ 1,282 million, which amounts to 33% above the figure pertaining to the first quarter of 2011.

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Mobile Internet represents 48% of the sales for value added services in Brazil. The Brazilian market of mobile Internet amounts to 45% of the total market in Latin America.

S

By the end of the first quarter, the range of data devices, phone devices and mini-modems was equal to 24.4 million; mostly 3G (22.9 million). Mini-modems reached 6.8 million (out of which 4.8 are 3G) amounting to 47% in Brazil of the range of mini-modems de Latin America.

Mobile Internet on the phone is mostly used for personal purposes (76%). The most timeinsuming activity on the Internet, as accessed via cell phone is the visit to social networks (32%).

Mobile broadband through computers is used in almost equal proportions for personal or professional purposes; notwithstanding that, the use for personal purposes prevails. Most of the time it is used to answer e-mails (22.2%), and there are other activities that are equivalent as to the use of time, which are surfing the Web and visiting social networks (20% each). The uses of mobile connection in netbooks tend to reply the use of computers on the fixed broadband.

The use of SMS grows as the offers from operators grow in this type of services. It is estimated that average users send 22 SMS per month. The revenues from SMS and MMS amount to 41% of the revenues from VAS, equivalent to USD 523 million. Brazil has a 17% share in the SMS business in Latin America.

The use of MMS shows a trend toward an increase in picture exchange.

Downloads related to entertainment still rank music and picture downloading first in the list of preferences. The demand is focused on the age group of users between 25 and 44 years old.

Downloading of games is the service with the highest percentage of paid downloads, and it is the entertainment content for which users are most aware of the price paid for the service.

Notwithstanding that, the downloading percentages are still low.

The number of user which received promotional content to their cell phones via SMS or MMS was increased by two percentage points, and the operator is still the main generator of promotional messages (mobile marketing).

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MAVAM | 6. Glossary

6

Glossary The description of the services presented in this report is presented in the following sections.

Messages The services in this category can be defined as: SMS (Short Message Services): sends short text messages.

MMS (Multimedia Message Service): sends short text messages with image, photo, or video.

E-mail: receives or sends emails via cell phone. Receiving or sending can be done manually, in other words by user’s initiative, or can be activated through the push mechanism, which periodically and automatically receives and sends mail.

Instant Messages: service which permits access to instant messaging systems like MSN or Yahoo.

Answering Machine or Voice Messaging: gives access to the automatic messages recording service offered by the carrier, in case of receiving calls that can’t be answered.

Entertainment The services in this category can be defined as: Music: service which provides the download of songs to be played in the cell phone. The handset must be able to play several music formats such as MP3, AAC, MP4, WAV, among others.

Ringtone: service which provides the download of ringtones to be used in the handset.

The cell phone must be able to play multiple formats of ringtones, such as MIDI, AAC, MP3, MP4, WAV, among others.

Images: service which provides the download of images and photos to be displayed on the cell phone. The handset must be able to display several formats of pictures and images such as JPEG, GIF, among others.

Games: service which provides the download of games to be played on the cell phone, individually, or through internet or Bluetooth connections, in groups. The cell phone must

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MAVAM | 6. Glossary

be able to run the games available in the device and also the downloaded ones, and additionally provide Bluetooth or data connectivity for internet access (eg.: EDGE, EVDO, or 3G).

Video: service which provides the download of videos or video streaming to be played on cell phone. The handset must be able to play downloaded videos or received video streaming.

The cell phone must be able to play videos in 3GP, MP4, WMV, AVI, among others.

Open TV: This feature is present in some cell phones and permits user to watch free TV programs with the handset acting as an analogue or digital TV receptor and capturing contents through the same signals (frequencies) received by traditional TV’s at home.

Internet and Location The services in this category can be defined as: Internet Access: service which provides broadband access to the Internet via cell phone or modem. In both cases users must have a data plan contract with the mobile operator.

This service has the following characteristics: Cell phone: the internet access from cell phone can be done in the following ways: 1. Using a browser to access the same websites accessed by fixed internet through a computer. Examples of browsers: the ones offered by the cell phone or smartphone (Internet Explorer Mobile, for Windows Mobile), or alternative browsers such as Skyfire or Opera.

2. Accessing the WAP websites inside the Carrier network through WAP browser.

3. Through specific programs installed in the handset (Widget, Web-App) provided by companies like Yahoo Mobile.

Modem: devices which can be connected to desktop computers or notebooks. Provides Internet broadband connection using a computer browser (Internet Explorer, Firefox, and others).

Social Networks: service which includes all the necessary elements to provide access to social networks such as Orkut, Twitter, Facebook, and others. This access can be done

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MAVAM | 6. Glossary

through browser and internet access, both present on cell phones, or through a specific application provided by mobile operators or other companies.

Payments and Banking: usually offered by banks or other credit institutions, which allows the access to users accounts in these institutions. These services can range from simple balance consults to the payment of bills or conclusion of investment transactions.

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Location Based Services: service which provides users’ geographic location. These services have the following characteristics: Location: can be provided as the following: 1. Through a process of triangulation using information from cell sites and application systems provided by the operator for this purpose; 2. Through the GPS installed in the cell phone.

Offered Services: 1. Location: service usually offered by the mobile operator which allows informing the geographic location of a particular subscriber. Eg.: service hired by parents to monitor their children’s habits, or with the purpose of promoting safety.

2. Maps: service offered by other companies providing maps on cell phones, usually to locate addresses, and also permits to locate users in the map if their handsets have a built-in GPS. 3. Contextual Filter: permits the mobile operator, or other service providers, to offer addresses or other types of promotions at stores, restaurants, movies, among others, based on the instant location of users.

Mobile Marketing The services in this category can be defined as: Mobile Marketing: these services are implemented by mobile operators, to advertise the operator itself or other companies for the subscriber base. Usually these ads are sent via SMS. The advertisements can also be sent directly by competitor carriers or other companies, again using SMS messages.

Mobile Advertising: similar to Mobile Marketing, Mobile Advertising is also an advertising service implemented by mobile operators or other companies. If the subscribers agree to receive it they can participate of promotions such as free minutes, free SMS packages, and others, as a reward for receiving advertisements.

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MAVAM | 7. Methodology

7 Objective

Data collection method

Sample

Data collection period

Target

Sample frame

Methodology To asses evolution of value added services in Latin America (Brazil, Mexico, and Argentina).

Carried out via Web (CAWI) with SEL, age and sex shares. IPC of Brazil's geographic regions.

1,494 interviews = 1,294 CAWI + and 200 CATI. Statistics error margin: ± 2.5 p.p.

May 13 to May 30. (Results on Q1 11 – MAVAM 8th Edition).

Both sexes, between 18 and 65 years old. Class status A/B/C (Critério Brasil), mobile phone users.

People mostly related to technology. Therefore, some results of this study are expected to be higher than those found out in the common population in general.

People registered in the access panel of Quanti Pesquisa de Mercado.

*Source: IPC-Target

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MAVAM | 8. Team

8

Team Rafael Steinhauser | President Latin America Jorge Leonel | VP Marketing and Business Development Edson Melo | Marketing Manager Latam

Mariana Rodriguez Zani | Director Ines Leopoldo | External International Advisor Matías Guardiola | Research Manager Pablo Castro | Analyst Mónica Perez Serantes | Designer

Humberto Perissé | Director José Vasquez Fernandez | Statistics Zil Neumann | Commercial

Fabio Cardo | Antonio Costa Filho |

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