TMT Outlook 2017: A new wave of advances offer opportunities and challenges

1. TMT outlook 2017: A new wave of advances offer opportunities and challenges The Technology, Media and Telecommunications series Sandra Shirai. Principal, Deloitte Consulting LLP Scott Lippstreu, Principal, Deloitte Consulting LLP Paul Sallomi, Partner, Deloitte Tax LLP Craig Wigginton, Partner, Deloitte & Touche LLP February 8, 2017

2. TMT outlook 2017: A new wave of advances offer opportunities and challenges Copyright © 2017 Deloitte Development LLC. All rights reserved. 2 Media and entertainment outlook Scott Lippstreu, Deputy US Media and Entertainment Practice Leader Deloitte Consulting LLP

3. TMT outlook 2017: A new wave of advances offer opportunities and challenges Copyright © 2017 Deloitte Development LLC. All rights reserved. 3 14–18 19–25 26–32 30% 29% 28% 32% 38% 31% Millennials spend more time streaming content than watching live television Live programming Streaming Deloitte’s Digital Democracy Survey, 10th Edition, 2016

4. TMT outlook 2017: A new wave of advances offer opportunities and challenges Copyright © 2017 Deloitte Development LLC. All rights reserved. 4 10% Smartphone 8% Tablet 38% Laptop/ desktop Other devices 9% Smartphone 8% Tablet 39% Laptop/ desktop Other devices 44% Television 56% 44% Television 56% Movies TV shows Millennials aged 19-25 spend more time watching content on devices other than TVs Deloitte’s Digital Democracy Survey, 10th Edition, 2016

5. TMT outlook 2017: A new wave of advances offer opportunities and challenges Copyright © 2017 Deloitte Development LLC. All rights reserved. 5 Streaming services are growing rapidly, especially among Millennials Average number of paid video subscription services by generation Two Two Three Two Two One 46%of US consumers 61%of Millennials subscribe to a streaming video service 14–18 19–25 26–32 33–49 50–68 69+ & Deloitte’s Digital Democracy Survey, 10th Edition, 2016

6. TMT outlook 2017: A new wave of advances offer opportunities and challenges Copyright © 2017 Deloitte Development LLC. All rights reserved. 6 Home Internet Pay TV Streaming Video Services 95% of US consumers 79% of US consumers 61% of US consumers 92% 94% 94% 64% 61% 68% 66% 78% 56% 14–18 19–25 26–32 14–18 19–25 26–32 14–18 19–25 26–32 Millennials value their streaming video subscriptions more than Pay TV Deloitte’s Digital Democracy Survey, 10th Edition, 2016

7. TMT outlook 2017: A new wave of advances offer opportunities and challenges Copyright © 2017 Deloitte Development LLC. All rights reserved. 7 49%Only channels I watch Traditional Pay TV packages are losing their appeal with consumers as alternative models gain ground 39%Traditional package of channels Deloitte’s Digital Democracy Survey, 10th Edition, 2016

9. TMT outlook 2017: A new wave of advances offer opportunities and challenges Copyright © 2017 Deloitte Development LLC. All rights reserved. 9 How many activities do you typically engage in while watching TV? • One • Two • Three • Four • Five or more • Don’t know/don’t multitask while watching TV Poll question #1

10. TMT outlook 2017: A new wave of advances offer opportunities and challenges Copyright © 2017 Deloitte Development LLC. All rights reserved. 10 69% of US consumers & 77% of Millennials Pay more attention to digital ads over TV ads Four Millennials Consumers pay more attention to digital ads than TV ads and Millennials are the most distracted while watching TV Average number of additional activities while watching TV Deloitte’s Digital Democracy Survey, 10th Edition, 2016

11. TMT outlook 2017: A new wave of advances offer opportunities and challenges Copyright © 2017 Deloitte Development LLC. All rights reserved. 11 73%Online reviews within social media circle 39%Television advertising The buying influence of online reviews in social media has surpassed TV ads for 19-32 year olds Deloitte’s Digital Democracy Survey, 10th Edition, 2016

13. TMT outlook 2017: A new wave of advances offer opportunities and challenges Copyright © 2017 Deloitte Development LLC. All rights reserved. 13 Do you own a VR headset? • Yes • No • No, but I plan to purchase one in the next 12 months • No, but I might purchase when more content is available • I don’t know what a VR headset is Poll question #2

14. TMT outlook 2017: A new wave of advances offer opportunities and challenges Copyright © 2017 Deloitte Development LLC. All rights reserved. 14 Technologies driving change in Media & Entertainment Virtual Reality As of October 2015, 234 companies working on VR had raised a total of $3.8 billion in capital according to VentureBeat, with a combined market value of $13 billion. Future of Mobility In the US, roughly 160 million hours are spent driving from point A to B annually.1 That’s 46 minutes per person, every day. 1AAA 2015 Driving Survey Telecom Auto TechMedia

15. TMT outlook 2017: A new wave of advances offer opportunities and challenges Copyright © 2017 Deloitte Development LLC. All rights reserved. 15 Telecommunications Outlook Craig Wigginton, US and Global Telecommunications Leader Deloitte & Touche LLP

16. TMT outlook 2017: A new wave of advances offer opportunities and challenges Copyright © 2017 Deloitte Development LLC. All rights reserved. 16 Today’s Coverage of 2017 Telecom Outlook Items Device usage Smartphone addiction Phone purchase channels Second-Hand Phones Connectivity Biometrics Mobile operators Content- Based Telcos SDN/NFV Mobile payments Mobile Virtual Reality Media usage on phones Data privacy Digital Trans- formation Mobile advertising Apps Privacy and security Smartphone brand loyalty Smartphone Hub Enterprise Mobility M&A Wearables IoT 5G Small Cells Deloitte’s Digital Democracy Survey, 10th Edition, 2016

18. TMT outlook 2017: A new wave of advances offer opportunities and challenges Copyright © 2017 Deloitte Development LLC. All rights reserved. 18 Nearly 50% of consumers surveyed look at their phone within 5 minutes of waking up. At night, consumers are slightly less phone-tethered Source: USA edition, Deloitte Global Mobile Consumer Survey Base: Smartphone owners 2014: 2015: 1,458, 2016: 1,530 Typically how long is the interval between waking up and looking at your phone for the first time? Longer than 3 hours Within 5 minutes Immediately Within 15 minutes Within 30 minutes Within 2-3 hours Within an hour 20162015 96% 41% 17% 59% 73% 93% 88% 97% 43% 18% 62% 76% 93% 88% Longer than 3 hours Within 5 minutes Immediately Within 15 minutes Within 30 minutes Within 2-3 hours Within an hour 20162015 96% 32% 12% 50% 64% 87% 79% 95% 35% 15% 54% 68% 89% 81% At the end of the day, typically how long is the interval between looking at your phone for the last time and preparing to sleep?

19. TMT outlook 2017: A new wave of advances offer opportunities and challenges Copyright © 2017 Deloitte Development LLC. All rights reserved. 19 33 66 44 32 24 16 12 46 84 58 44 30 22 19 47 82 64 51 35 20 16 - 10 20 30 40 50 60 70 80 90 2014 2015 2016 The 18-24 year old age group still dominates when it comes to how many times a phone is looked at in a given day Source: USA edition, Deloitte Global Mobile Consumer Survey, June 2016 Base Graph 1: Smartphone owners 2014: 2015: 1,458, 2016: 1,530 # of Smartphones Source: Statista, 2015 How many times would you estimate you look at your phone in a day? 6% 32% 25% 16% 10% 4% 3% 4% 2% 21% 27% 21% 13% 7% 4% 6% 1% 21% 27% 21% 14% 6% 4% 5% 0% 5% 10% 15% 20% 25% 30% 35% Never Under 10 times Between 11 and 25 times Between 26 and 50 times Between 51 and 100 times Between 101 and 200 times Over 200 times I don't know 2014 2015 2016 With approximately 200 million smartphone users in the U.S., this means we look at our smartphones nearly 9 billion times per day! Total 18-24 25-34 35-44 45-54 55-64 65-74

20. TMT outlook 2017: A new wave of advances offer opportunities and challenges Copyright © 2017 Deloitte Development LLC. All rights reserved. 20 Surprisingly, ½ of consumers check their phones in the middle of the night. Reasons vary, but they’re primarily personal activities Source: UK edition, Deloitte Global Mobile Consumer Survey, May - Jun 2016 Base: All smartphone owners 1530 50% 1% 7% 7% 7% 8% 8% 11% 11% 13% 16% 16% 19% 20% 31% 0% 10% 20% 30% 40% 50% 60% I don't check my phone during the night Don't know Respond to work email Check other apps Respond to personal emails Read a book Check games notifications Read news Read work email Respond to instant messages Play games Check for personal emails Check social media notifications Check instant messages Check the time Which of the following activities do you do if you check your phone in the middle of the night?

21. TMT outlook 2017: A new wave of advances offer opportunities and challenges Copyright © 2017 Deloitte Development LLC. All rights reserved. 21 Penetration in the smartphone market continues to increase, particularly for the older age group demographics 58% 76% 72% 64% 51% 42% 70% 89% 85% 77% 65% 53% 77% 88% 86% 84% 75% 62% 15% 8% 9% 15% 21% 21% 0% 5% 10% 15% 20% 25% 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% Growthrate Penetrationrate Smartphone penetration by age group 2014 2015 2016 CAGR Source: Deloitte Global Mobile Consumer Survey, USA edition, Aug 2014, August 2015, August 2016 Base: All respondents USA, 2014: 2001, 2015: 2069, 2016: 2000 Total 18-24 25-34 35-44 45-54 55+ Which, if any, of the following devices do you own or have ready access to?

23. TMT outlook 2017: A new wave of advances offer opportunities and challenges Copyright © 2017 Deloitte Development LLC. All rights reserved. 23 Biometric security reaches the billions Prints charming:

24. TMT outlook 2017: A new wave of advances offer opportunities and challenges Copyright © 2017 Deloitte Development LLC. All rights reserved. 24 Mainstream adoption of smartphone biometrics will act as a catalyst for the deployment of biometric sensors in other environments • Access to building • Register exit • Check in and out of classes • Payment of food and stationery supplies • Fraud detection, access to or opening of new accounts, payment authorization • Alternative to PIN entry in ATMs • Authorization process for high value B2B transfers • Tax payments, access to medial records, e-voting (might encourage younger people to vote) • National identity schemes • India: facial, fingerprint and iris data; 2016: 1 billion registrants. • Access to data • Alternative to entering a password to get access to email or intranet • Physical security: a way of controlling entry into a building Schools Financial institutions Government Enterprises Deloitte’s Digital Democracy Survey, 10th Edition, 2016

25. TMT outlook 2017: A new wave of advances offer opportunities and challenges Copyright © 2017 Deloitte Development LLC. All rights reserved. 25 How important would a faster wireless network (such as 5G) be to you? • Very Important — Today’s 4G speeds simply aren’t fast enough • Fairly Important — 4G is okay, but I could use faster speeds • Not Very Important — 4G speeds are sufficient most of the time • Not At All Important — Today’s network meets all of my needs • Don’t know/Don’t understand Polling Question #3

27. TMT outlook 2017: A new wave of advances offer opportunities and challenges Copyright © 2017 Deloitte Development LLC. All rights reserved. 27 In 2017, we expect to see continued progress toward 5G rollout through completing market trials and beginning initial full-scale market rollouts Higher capacity: LTE-A Pro offers 10 times the capacity of the fist 4G standard. • Smaller cells – Allows for base stations to be placed in stores in shopping malls, lamp posts • Carrier aggregation • MIMO • Greater capacity edges and hot-spots • Higher frequency bands/higher speeds Lower latency: • LTE-A Pro – 600 microseconds • LTE – 8,000 microseconds Dedicated support for IoT: Low-Power Wide Area Network – low bandwidth connections to a large number of smaller, connected devices • low-power transmission • low-frequency transmission (for basements and inside buildings) ‫‏‬What 5G Offers

28. TMT outlook 2017: A new wave of advances offer opportunities and challenges Copyright © 2017 Deloitte Development LLC. All rights reserved. 28 Based on Deloitte’s 2016 Global Mobile Consumer Survey, more than half of consumers believe 5G to be important. Specific demographics have even greater levels of interest in 5G. If your carrier offered next generation wireless data speeds (e.g. 5G) how important would this be for you? Source: US edition, Deloitte Global Mobile Consumer Survey Base: All Adults, 18-75 27% 29% 24% 14% 6% Very important Fairly important Not very important Not at all important Don't know Category Value % Diff from Next Highest Age Group Age 25-34 19% Region Northeast 4% Household Couple with children 8% Bought phone in… 2016 17% Income $250K-$299K 9% IoT ownership Connected car & wearables (tie) 9% Top interested demographics

29. 29 Meeting with incoming RBC US General Counsel Copyright © 2015 Deloitte Development LLC. All rights reserved. Small Cells: Big impact on seamless connectivity Why small cells now? Achieving advances in capacity and network speed will require densification of networks consistent with a 5G strategy over both licensed and unlicensed spectrums—to patch coverage holes, to optimize signal strength, and to increase capacity to meet consumer demand. Globally 10+million Small Cells have been deployed so far. The demand for network densification is only going to increase exponentially in the future. Small cell equipment market revenue was around $2 billion in 2014 and is expected to approach $10 billion by 2019. Evolving organizational capabilities The processes and tools for overseeing conventional network deployment and rollout might not work so effectively in the new era of small cells. Impact on network design Shifting from‫‏‬a‫“‏‬macro‫‏‬tower‫‏‬only”‫‏‬mindset‫‏‬to‫‏‬a‫“‏‬connect‫‏‬everything”‫‏‬ mindset will require looking beyond conventional ways of thinking about network design and engineering, site selection, and deployment. How innovation helps Small cells offer the potential of providing speeds that pave the way for wireline broadband substitution and enable the creation of a mesh network, offering direct connectivity to the rapidly growing number of Internet of Things (IoT) devices. Small Cell Deployed on Street Lights Electric Poles Traffic Light Poles $10 billion 2019 $2 billion 2014 A diverse and potentially new set of capabilities will be needed, from such as process automation, mobile apps to support field workers, regulatory processes, and real- time performance monitoring and analytics, just to name a few.

30. TMT outlook 2017: A new wave of advances offer opportunities and challenges Copyright © 2017 Deloitte Development LLC. All rights reserved. 30 Technology Outlook Paul Sallomi, US and Global Technology Industry Leader Deloitte Tax LLP

31. TMT outlook 2017: A new wave of advances offer opportunities and challenges Copyright © 2017 Deloitte Development LLC. All rights reserved. 31 Tech outlook 2017 Flexible Consumption Model offerings will have significant impact on tech companies and their customers and will drive tremendous business and operating model transformation Cognitive Computing will enhance a wide array of enterprise and consumer applications Digitization of the enterprise will open new markets and create new ecosystems Cyber Security products and services are addressing the increasing threat of attacks New partnerships and collaborations across tech and other industries are critical for driving topline growth Mergers, Acquisitions, & Divestitures are on the rise as tech companies choose to focus on what they do best Exponential technologies, flexible consumption business models, cyber security and ecosystem partnerships offer a continued set of opportunities and transformational challenges for technology companies

32. TMT outlook 2017: A new wave of advances offer opportunities and challenges Copyright © 2017 Deloitte Development LLC. All rights reserved. 32 Which trend do you predict will drive the largest growth opportunity in the tech market? • Cognitive computing • Cyber security advancement • Automatic Emergency Brakes/Automotive technologies • It-as-a-Service/Flexible Consumption models • Mergers, Acquisitions, & Divestitures • Don’t know/Not applicable Polling question #4

33. TMT outlook 2017: A new wave of advances offer opportunities and challenges Copyright © 2017 Deloitte Development LLC. All rights reserved. 33 Deloitte Global predicts by the end of 2018, spending on IT-as-a- Service for data centers, software and services will be just under $550 billion worldwide. IT-as-a-Service is the fastest growing example of Flexible Consumption Models IT-as-a-Service: the half trillion dollar ‘niche’ A subset of flexible consumption models, potentially able to procure every aspect of IT on a “you get what you pay for’ basis. 13% of companies using FCM for more than half of their IT needs 23% of companies using FCM for more than half of their IT needs

34. TMT outlook 2017: A new wave of advances offer opportunities and challenges Copyright © 2017 Deloitte Development LLC. All rights reserved. 34 Who it is that makes the decision to move to the alternative model seems to depend on the industry: Adoption varies in a number of ways IT-as-a-Service: the half trillion dollar ‘niche’ Healthcare Industrial products Technology Financial Services IT departments initiate the move 31% of companies moved on their own initiative. 8% of companies moved because of pressure from vendors. 13% of companies moved on their own initiative. 33% of companies moved because of pressure from vendors. Media and entertainment In other industries the change is led by the vendor: $1-5 billion revenue +$5 billion revenue Public cloud 7% 7% On premise 19% 32% Enterprise size also plays a role:

35. TMT outlook 2017: A new wave of advances offer opportunities and challenges Copyright © 2017 Deloitte Development LLC. All rights reserved. 35 Deloitte Global predicts that over 300 million smartphones (more than a fifth of units sold in 2017) will have on-board neural network machine learning capabilities. Brains at the edge: machine learning goes mobile Computer models that mimic aspects of the human brain’s structure and function Allows smartphones to perform machine learning tasks

36. TMT outlook 2017: A new wave of advances offer opportunities and challenges Copyright © 2017 Deloitte Development LLC. All rights reserved. 36 The technology behind it Brains at the edge: machine learning goes mobile GPUs (graphic processing units) CPUs (central processing units) FPGAs (field- programmable gate arrays) Neural networks that fit smartphones Machine learning on-the-go will not be limited to smartphones. Mobile phones are becoming critical devices in our daily lives, and need to be able to perform machine learning tasks all the time. Special software emulators

37. TMT outlook 2017: A new wave of advances offer opportunities and challenges Copyright © 2017 Deloitte Development LLC. All rights reserved. 37 Deloitte Global estimates that, by 2022, a sixth of the US cars and light trucks will be equipped with automatic emergency braking (AEB). AEB will contribute to a reduction of annual US motor vehicle fatalities by 6,000. Safety first: the road to self-driving starts with a stop 16% decline on the likely death toll as compared to 2017 Forward-facing cameras Millimeter wave radars Laser ranging and imaging systems (LIDAR) Associated vision processing systems AEB technologies

38. TMT outlook 2017: A new wave of advances offer opportunities and challenges Copyright © 2017 Deloitte Development LLC. All rights reserved. 38 The bottom line Safety first: the road to self-driving starts with a stop • AEB is a critical first step towards the fully autonomous vehicle • Technology sector stands to benefit with wider deployment −Automotive semiconductor market growing faster than rest of chip market at 6% annually until 2019 • AEB will not require rewriting laws, regulations and liability −It could be a successful transition technology • Telecom implications: cars in 2020 may be connected to the network or to other cars generating 0.6 exabytes per month in the US or 9% of all wireless traffic

39. TMT outlook 2017: A new wave of advances offer opportunities and challenges Copyright © 2017 Deloitte Development LLC. All rights reserved. 39 Deloitte Global predicts that in 2017 Distributed Denial-of-Service (DDoS) attacks will become larger in scale, harder to mitigate and more frequent. DDoS attacks enter the terabit era 1 Tbit/s attacks per month +10 million attacks in total Average attack size of 1.25 – 1.5 Gbit/s (enough to take many organizations offline)

40. TMT outlook 2017: A new wave of advances offer opportunities and challenges Copyright © 2017 Deloitte Development LLC. All rights reserved. 40 The bottom line DDoS attacks enter the terabit era Organizations increasing its dependence on the Internet should be aware of a potential spike in the impact of DDoS attacks They should consider a range of options to mitigate the impact: • Decentralizing • Bandwidth oversubscription • Testing • Dynamic defense • Fallbacks • Protecting • Detecting • Repelling DDoS attacks are likely to increase in intensity in 2017 and beyond

41. TMT outlook 2017: A new wave of advances offer opportunities and challenges Copyright © 2017 Deloitte Development LLC. All rights reserved. 41 The new growth strategy Partnerships, M&A and Divestiture Activity Efforts to advance new technology fields and build end-to-end customer solutions are driving: • Unprecedented wave of partnerships between technology companies and other industries • New forms of consortiums and collaborations • Partnerships between traditional competitors in emerging fields • Increased M&A and divestiture activity Companies that are open and adept at this type of teaming or restructuring will be able to find a broader network of growth opportunities for their products and services

43. TMT outlook 2017: A new wave of advances offer opportunities and challenges Copyright © 2017 Deloitte Development LLC. All rights reserved. 43 Join us April 26 at 1 p.m. ET as our Technology, Media & Telecommunications series presents: Media consumption trends: Multigenerational perspectives and implications

44. TMT outlook 2017: A new wave of advances offer opportunities and challenges Copyright © 2017 Deloitte Development LLC. All rights reserved. 44 Eligible viewers may now download CPE certificates. Click the CPE icon in the dock at the bottom of your screen. CPE

45. TMT outlook 2017: A new wave of advances offer opportunities and challenges Copyright © 2017 Deloitte Development LLC. All rights reserved. 45 Contact information Sandra Shirai Principal Deloitte Consulting LLP sshirai@deloitte.com Paul Sallomi Partner Deloitte Tax LLP psallomi@deloitte.com Scott Lippstreu Connect with me on LinkedIn Connect with me on LinkedIn Connect with me on LinkedIn Connect with me on LinkedIn Principal Deloitte Consulting LLP slippstreu@deloitte.com Craig Wigginton Partner Deloitte & Touche LLP cwigginton@deloitte.com

46. TMT outlook 2017: A new wave of advances offer opportunities and challenges Copyright © 2017 Deloitte Development LLC. All rights reserved. 46 This communication contains general information only, and none of Deloitte Touche Tohmatsu Limited, its member firms or their related entities (collectively, the "Deloitte Network"), is, by means of this communication, rendering professional advice or services. Before making any decisions or taking any action that may affect your finances, or your business, you should consult a qualified professional adviser. No entity in the Deloitte Network shall be responsible for any loss whatsoever sustained by any person who relies on this communication.

47. Copyright © 2017 Deloitte Development LLC. All rights reserved. 36 USC 220506 About Deloitte As used in this document, “Deloitte” means Deloitte Consulting LLP, Deloitte Tax LLP, and Deloitte & Touche LLP which are separate subsidiaries of Deloitte LLP. Please see www.deloitte.com/us/about for a detailed description of our legal structure. Certain services may not be available to attest clients under the rules and regulations of public accounting.

TMT Outlook 2017: A new wave of advances offer opportunities and challenges

TMT Outlook 2017: A new wave of advances offer opportunities and challenges

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TMT Outlook 2017: A new wave of advances offer opportunities and challenges