Mexico: Regulatory Reforms Driving Compe&&on and Connec&vity

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1 1_Q&A

2 Mexico: Regulatory Reforms Driving Compe&&on and Connec&vity Cris&na Ruiz de Velasco Execu&ve Director, Interna&onal External Affairs AT&T, Mexico

3 Outline AT&T in Mexico Mexico Telecommunica&ons Market Structure Telecom & Media Reform Market Trends in Mexico

4 AT&T in Mexico: Connec&ng Locally, Thinking Globally Crea&ng a North American network with world- class mobile service Why Mexico? To create the first- ever North American Mobile Service area covering over 400 million consumers and businesses in Mexico and the United States Mexico has the second largest economy and one of the highest per capita GDPs in La&n America Why Now? The reforms encourage more compe&&on and more investment to flow into the country Mexico s strong economic outlook, growing popula&on and growing middle class What can we expect? Deploy 4G LTE network to cover 100 million people in Mexico by the end of 2018 Invest about $3 billion dollars from 2015 to late 2018 Provide the same mobile experience for customers and businesses in Mexico and the United States

5 Mx Telecom Index ( ) Mexican Telecom Sector is more dynamic than the whole economy Source: Data from The Compe&&ve Intelligence Unit and INEGI, 2015

6 Telecommunica&ons Market Value: Perspec&ves Mobile segment represents 57% of the Telecom Sector and is growing at faster rates than the whole Industry Revenues Annual Growth Mobile 8.6% 2.6% - 1.0% 1.7% 5.7% Segment Fixed - 5.6% 0.2% 1.7% - 5.9% - 3.6% Pay TV 11.2% 9.6% 14.2% 7.5% 12.7% Total Telecom 4.0% 2.7% 1.7% 0.2% 4.1% 100% 80% 60% Telecommunica+on Sector: Annual Revenues Distribu+on (billions of pesos) % 20% 0% Source: The Compe&&ve Intelligence Unit with data from Mexican network operators, Segmento Fixed Fijo Segmento Mobile Móvil Segmento Pay TV TV de Paga

7 Main Objec&ves of Telecom & Media Reform Telecommunica&ons Reform made AT&T s entry into the market possible Promo&ng long term benefits for users. Crea&ng condi&ons for the expansion of broadband services. Suppor&ng the freedom of speech and informa&on, as well as access to Informa&on and Communica&on Technologies (ICT). Encouraging compe&&on in the broadcast and telecommunica&ons sectors.

8 Main Changes in the Legal & Regulatory Framework Reforms introduced efficiencies to the telecommunica&ons sector in Mexico Foreign Investment Limits 100% in telecommunica&on services 49% in broadcas&ng services (subject to reciprocity) IFT New Injunc&ons environment Regulatory decisions cannot be suspended Crea&on of specialized courts Exclusive compe&&on authority for telecommunica&ons and broadcas&ng industries License gran&ng and spectrum management IFT Powers Declara&on of dominant/preponderant agents and other an&- trust mahers Asymmetric regula&on, entry barriers removal and ordering dives&ture of assets Sanc&ons (in some cases based on a percentage of revenues)

9 Decrease in the Prices of Mobile Services The AT&T disrup&ve offers have accelerated the decline of prices Na&onal Consumer Price Index, Mobile Communica&ons Services Component Entry into force of the Reform Decrease of 8.6% in prices of Mexican mobile communica+on since the enactment of the Reform Launch of service packaging strategies and disrup+ve offerings Source: The Compe&&ve Intelligence Unit with data from INEGI, 2015

10 Broadband Subscrip&ons Fixed & Wireless Growing trajectory in mobile broadband adop&on is superior to any other telecom service 35 In 2013, mobile broadband subscrip&ons overcame those of fixed broadband 2 years later, mobile broadband subscribers will reach 32.6 million Broadband Subscrip+ons (millions) * Source: The Compe&&ve Intelligence Unit, 2015 Fixed Broadband Wireless Wireless Vroadband Broadband

11 Smartphone Penetra&on & Total Mobile Lines in Mexico The growing adop&on of Smartphones will accelerate the use of mobile broadband 2.63% ( % ( % ( % ( % ( % ( % ( % ( % ( % ( Q15 2Q15 3Q % % % % % % % 2015* 70% *Forecast Source: The Compe&&ve Intelligence Unit, 2015 Smartphones penetra&on over total mobile lines has doubled in the last 3 years The growth has been driven by the increasing variety of devices offered in the market and price decreases due to brand compe&&on and technological development

12 Tablet Adop&on in the Mexican Market Growing adop&on of tablets will also accelerate the use of mobile broadband Millions Q12 2Q12 3Q12 4Q12 1Q13 2Q13 3Q13 4Q13 1Q14 2Q14 3Q14 4Q14 1Q15 2Q15* 3Q15* 4Q15* Poten&al market: million people over 9 years old Tablet penetra&on 3Q15: 13.9% Annual Growth: 82% Country Tablet Penetra+on Brazil 11.4% Argen+na 10.3% Latam 10.1% Source: The Compe&&ve Intelligence Unit, 2015 *Forecast

13 App Adop&on by Mexican Consumers Mexican popula&on shows digital skills for the use of all mobile services Applica&ons adop&on is highly correlated with expansion of mobile devices penetra&on (Smartphones and Tablets) 70% Applica&ons Adop&on 64.5% 120% Penetra&on 60% 50% 40% 30% 20% 10% 109% 9.4% 64% 19.7% 28.5% 42.4% 45% 49% 52% 100% 80% 60% 40% 20% Growth Rate 0% * 0% *Forecast Penetra&on Growth Rate Source: The Compe&&ve Intelligence Unit, 2015

14 Social Network Growth in Mexico Use of social networks is one of the most important drivers for mobile broadband adop&on Social Network Access by Mobile Device Social Network Penetra&on by Age 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% 82% 77% 15% 1% 1% % 64.3% 67.0% 62.9% 56.0% % More than % Source: The Compe&&ve Intelligence Unit, 2015

15 Outcomes Arising from Market Trends Adop&on trends in services and devices exhibit robust growth of the mobile market in Mexico The increasing adop&on of mobile broadband services, coupled with compe&&ve offers from AT&T will drive growth in connec&vity The growing adop&on of smartphones in the Mexican market will facilitate the consump&on of mobile services, par&cularly mobile broadband Although the tablet market in Mexico remains small, forecasts show higher consump&on of mobile services The Mexican market shows no serious restric&on on digital skills: society does not register major skills obstacles to adopt mobile services Another important growth driver of the mobile market is the widespread adop&on of social networks and instant messaging The mobile phone is becoming the main access to these services.

16 Conclusions It s the right moment to create a world- class mobile service in Mexico AT&T arrived in the Mexican market at the right &me (&me to market) The reform has generated significant changes In the short &me that AT&T has been in the Mexican mobile market, it has transformed the market with disrup&ve commercial offerings AT&T will bring world- class mobile services that will make this innova&on We set ourselves the goal of being the leading operator in Mexico over the next 10 years

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