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					Who: Andy Lees, President, Mobile Communications Business

When: Monday, February 14, 2011

Where: Financial Analyst Briefing, Mobile World Congress 2011 - Barcelona, Spain

ZON ELLIS: Hello, everybody. Thank you for joining us. Those of you here in Barcelona, I
hope you enjoy the room upgrade. I would also like to say welcome to the people that are
joining us via webcast.

I need to make our disclaimers. We may make forward-looking statements in the course of
the presentation. These are subject to risks and uncertainties that are outlined in our most
recent 10-Q filing, 10-K, and other SEC filings. We are under no requirement to make any
updates to these statements.

I would also like to remind everyone that this is being webcast, so if you do ask questions,
you will be a part of the webcast, as well as part of the transcript that will be available from
the Microsoft Investor Relations website.

With those disclaimers out of the way, I would like to welcome President of the Microsoft
Mobile Communications Business, Mr. Andy Lees.


ANDY LEES: Well, good afternoon, everybody. It's always a fantastic opportunity to
connect with this audience at Mobile World Congress. I think this is the third time that I've
had the pleasure of addressing this group. We would like to make this as interactive as we

Just a quick show of hands, how many people actually saw the main presentation by Steve
Ballmer? (Show of hands.) Okay, that's helpful. So, I'm going to make a few sort of
summary of what Steve showed. I'm also going to give you a demo, just to make your day
exciting, very quickly. I've asked Joe Belfiore to go through and do that, and then we'll
move to Q&A.

It was one year ago when we first announced Windows Phone 7. We showed the product
for the very first time. The anniversary is actually today. So, it's been a very big year for
us. We were in market in November. So, that was exciting. The feedback from end users
has been fantastic. We have a 93 percent satisfaction rating. Nine out of ten of the users
recommend the phone to other potential users, which is fantastic. We have a 66 percent
very satisfied rating as well. So, really the feedback has been great as we start to build
reputation for this new platform.

Another important part of success is support of the ecosystem. So, we measured out, for
example, in the number of applications, we have about 8,000 applications in the store in
just three months. That's the fastest adoption of any new platform ever in smart phone
history, which we're very, very excited about. We haven't just gone for volume. We've also
specifically gone for differentiated applications, particularly in games with the power of
Xbox. Really the phone is designed to be easy to use, and then to integrate the key things
that we have from across the company and from third parties.

In many respects, the year ago signaled that mobile went from being a product to a
company strategy, as we're bringing together all of the things from across Microsoft, as well
as the ecosystem together to enable users to do more with their digital life. And their
digital life spans what they do on the phone, and on the PC, and in the cloud, and
increasingly on the television. So, it's an exciting time for us.

Steve today went through and announced some new things. He talked about the timing for
the first update that we're providing to the phone. We're fairly unique in the platform about
how we do these updates, so we can push them out by collaborating with operators. And so
the first one will go out in the first couple of weeks of March, which includes copy and paste,
and also some enhancements to performance. And then we also gave a sneak peek of
some new capabilities that will be out later this year with a significant release that we're
providing later in the calendar year.

So, what I thought I'd do, I was going to ask Joe - rather than describe them - to give us a
quick sneak of some of those capabilities that were in Steve's keynote. So, please welcome
Joe Belfiore.

JOE BELFIORE: Hello. (Applause.)

So, I'm going to try to walk you really quickly through four feature areas in sort of demo
form to show you some of what's coming in this free update later this year. I'm going to go
through Office, IE, some development fundamentals that allow for app multi-tasking, and
then some cool Xbox stuff.

So, let's start over here, switch over to the demo. The first thing I want to show you that
we have announced is that in the free update later this year, we're going to add support for
SkyDrive to Windows Phone as a native part of the Office Hub. As you're probably aware
already today, we have these seven hubs in Windows Phone. The idea is, it brings together
everything that a user wants or needs, integrating third party apps, third party services,
and our own experience on the phone in a single place.

So, the Office Hub, for example, gives you one place to take care of all your productivity
stuff. You have your notes panel in the middle, your documents panel, and then over here
on the right, different locations that you can open documents from. Today on Windows
Phone 7 we support documents on SharePoint servers within a corporation, and what we're
announcing and what I'm going to show you now is support for SkyDrive.

SkyDrive, as you know, is free. There are about 70 million, a little more than 70 million
people, who have started using it today, along with the free Office Web Companion that
shipped as part of Office 2010. So, lots of people are creating documents using the Web, or
using their rich clients, and saving them to SkyDrive.

When they get their Windows Phone 7 update, they'll be able to, without installing an app,
or doing a separate login, just browse through the Office Hub and open their SkyDrive. In
this case, I'm going to go to My Documents, I'm hitting the Internet, I'm pulling down the
list of my documents, and now I can open a document, work on it on the phone, save it
back to the cloud. The phone effectively connects directly to the cloud. The user doesn't
need to do any extra work or set up to make that happen. It just works right out of the

Another really cool thing about SkyDrive - there is one user scenario about safety and
convenience of keeping my documents in the cloud. Another good scenario for use of the
cloud from the phone is collaboration and sharing. So, we set up an example here. You can
see the second item in my SkyDrive is a folder called Project Xfiles, which was shared to me
by Augusto Valdez.

And if I open that up, what's happened is he has been using maybe his PC to create some
documents, and save them on SkyDrive, and then he's authorized me to have access to
those documents as well. The cloud service puts that item in my phone for me so I don't
have to know its whereabouts, I don't have to type a URL. I don’t have to do anything
fancy or difficult, I can just browse to it, download, open documents, and edit them using
the built-in Word, Excel, PowerPoint and OneNote applications on the phone. That's our
first example of some cool integration that's coming in this update later this year.

The second thing I want to talk about and walkthrough is IE9. As many of you are probably
aware, let's actually switch to the PC. We'll get to that in a second. As many of you are
probably aware, IE9 has been shipping versions for people to download and try for quite a
while. And IE9 released their release candidate late last week. IE9 - it's important for a
number of reasons, but two in particular. The first is it has very good standards support. It
supports HTML 5. It supports the video tag. It supports SVG. It supports Canvas. It has
really good CSS compatibility. That standard support is important to developers who are
writing websites.

The second thing that it has is it very uniquely takes advantage of the graphics hardware.
What we've shown so far is that <IE9 uses> graphics hardware on the PC to do hardware
acceleration of very rich animated type websites. But what the user experiences is the Web
kind of in a way they haven't experienced it before - it's the Web as a multimedia
experience like it was a rich client app.

The first thing I am going to show you is how IE9 looks on the PC. You may have seen
some of these before. This is the Fish IE site, which shows tons and tons of fish on IE9
versus the same Web page on Firefox. Now, the video is going to loop through a number of
sites, all of which you can try yourself by downloading IE9 and going to the IE9 test drive
site. And the point of this is to see both how it compares to other browsers, and how
cinematic and fluid and rich this Web-based experience is when you take full advantage of
the graphics capabilities - in this case on the PC.

Now, what we're doing with IE9 on the phone is taking that same IE9 browsing engine – the
same code - and building it simultaneously for the desktop and for the phone. So, I want to
show you now IE9, this is IE9 running on Windows Phone, showing that same Fish IE page.
In this case, we have 50 fish. IE9 is taking full advantage of the hardware acceleration on
the phone. You get the same great standards support. You get the same great
performance. And what I want to do sort of by way of comparison is show you how the
same HTML looks on a different browser. So, I'm going to zoom out here, and I've got a
Windows Phone 7 device, and an iPhone 4 running the current Safari. And this is looking at
the same exact Web page.

You can see down there on Windows Phone 7, 50 fish swimming along like they have no
care in the world. That’s us on top and Safari is struggling a bit to manage a frame rate that
makes this look like fish actually swimming.

The point is, when you have this hardware acceleration, the user really gets a much more
cinematic and rich experience. I'm going to give you one other example here. I'm going to
browse to a different site. You saw on the video an example of IMDB authored in HTML 5.
This is the same site, but modified to fit the phone. So, it works with touch and it works on
the screen size. You can see here as I touch different items, they animate really smoothly.
I can push the play button here and IMDB goes into sort of an automatic carousel mode. I
can press the pause button here, navigate around to the movie, and one of the other cool
things about HTML 5, as I said, is it has standard support that helps website authors build
sites that have rich capabilities for multimedia, without needing to use extra plug-ins like

So as a real world example, sites that implement HTML 5 on the PC, or the phone, can
implement video in a way that's naturally integrated with HTML. And here you see on IMDB
I've clicked and item and I'm playing streaming H.264 video naturally and without needing
any special plug-in on the phone. It looks nice. It's very easy for the user to use. Of
course, you have transport controls and so on. You get the idea. So, that is IE9.

Now, I'm going to switch over here. I'm going to find my cable. I'm going to switch over
here and give you a quick preview of another feature area that we talked about in the
keynote this morning, which is that our update for Windows Phone 7 will also include
support for third party application multi-tasking. And I'm going to give you a walk-through
of some scenarios and how that delivers user benefit. So, I'm going to start by launching
an app.

The app I'm launching here is Rise of Glory. It's an Xbox Live game that's out on the
marketplace today. So, if you have a Windows Phone, you can go download and try it. It's
a pretty fun game. It takes advantage of the accelerometer. In fact, I'm going to turn up
the volume here when I get going so you can hear it. It takes advantage of the
accelerometer and the graphics to let you play a sort of World War I flying ace airplane
game. So, I'll hold this up to my mike so you can get the full experience.

So, here I go. Now I'm flying my plane. Okay. So, I'm using the accelerometer. I will
probably get shot down as I try to demo this for you and play at the same time. Now, the
reason why I'm showing you this is that today on Windows Phone 7 we make optimizations
to ensure that the user gets very predictable long battery life. And if you navigate away
from a third party app, which we can't know what it's doing today. It might be sucking the
battery. We take that app and put it into deep hibernation.

So, if I do something like press the start button and navigate away, on Windows Phone 7
that app is effectively shut down and put into deep hibernation. So, if you press the back
button, it might take three seconds, four seconds, maybe eight, nine seconds depending on
how big the app is, to resume it. And while that's pretty good, we thought we could do a lot
better. So, our multitasking capability and this update supports our focus on the battery,
but gives you instant resume.

So, watch, I'm going to press the back button. Here we go, back, and boom, I'm back in
the game. I'll press the continue button and now I'm playing again. It's super fast. I'm
going to do that one more time. I'll press start. Now imagine I'm going to make a phone
call, I've got to check my e-mail. I've got to get some stuff done. I press back. I press
back. I press back one more time. We're right back into the game, boom. And the game
politely pauses for me so I can press the continue button when I'm ready to go. That's the
first scenario. Getting apps back instantaneously.

The second scenario, once you have the capability for apps to come back instantaneously,
we thought -- that's bad. We thought it would make sense to let people have -- for the
power users who are going to do this very frequently, a little bit more comprehensive UI for
choosing the app you want to go back to. So, imagine I'm playing this. I could hit the back
button, back, back, back. I can go back, back, back, but instead let's say I want to go back
a few apps ago. I'm going to press and hold the back button to display sort of a visual
back stack of the apps I've been running.

So, there's Rise of Glory. There's my e-mail. There's Fruit Ninja, and there's our Groupon
app. These were all apps that we ran before we set up the demo, so we could give you an
illustration of how this multitasking works. And the whole time I was playing that game
those apps were suspended in the background ready for me to go back to them. In this
case I'm going to choose Fruit Ninja. We get instant resume. I'll choose classic, and now
I'm killing fruit.

If I want to switch back to Rise of Glory, I can press and hold the back button, or I could
just press back. Press Rise of Glory, and now I'm back in my flying game. So, think about
those teenagers who have incredible ability to multitask in their brains. Now they can try
playing more than one game at a time. Here I'm flying a plane. I press and hold back. I
pivot over and now I'm chopping fruit. You get the idea. So, that's the second scenario,
having a nice task-switching user experience for going between these things.

There's a third scenario I want to show and then I'm going to wrap up the discussion on
multitasking, and that is enabling users to place third party music services in the
background while they use all the other aspects of their phone. Today, if you use our built-
in Zune capability, you can play music and navigate all through the phone. But, if you run a
third party app, we made the same tradeoff today to protect the user's battery, and we
don't enable stuff to play in the background.

In this example I've launched Slacker. Slacker is a free streaming service. I'm going to
press today's hits to stream music and start playing this radio station. So, I get this song
100 Pianos, it's playing. You can probably hear the music through my mike, there. And
today on Windows Phone 7 if I navigate away from this app in the foreground, the music
will stop, because the app is put into that hibernation stage. Well, not so anymore. Now, if
I, for example, press and hold the back button, you can see the third party app goes into
my task switcher. I can pan over. I'll choose e-mail and now I'm checking my e-mail,
navigating around, doing all my e-mail and the music continues playing.

So, the user gets a full, smooth, seamless experience. The back button keeps working the
way you would expect. Nothing about it changes or is different. If I press back I go back to
where I was, that's Slacker. And now I can navigate around in the Slacker UI and change
the radio station or do lots of things. If I press the start button I can navigate around and
start other apps.

The music will keep playing in the background, and of course we want the user to stay in
control while this is happening in the background. So, if I press the volume button the
systems volume controls now work against the third party apps, as well. You can see there
I get a skip forward, a skip back, and I can press pause to stop the music. The idea is that
simple, seamless, does what the user expects all at the same time, keeping the battery life
as much as we possibly can. So, that's my third scenario.

So far I've covered IE, how we worked with the IE team to add capabilities; Office and how
we've improved some of the Office support; and the way we develop apps, to make them
multitask. I've got one more thing to show you. And by the way, I should mention, this is
not all of the features of the update. These are just the features that we're announcing
today. We will have more to talk about later.
The last thing I want to show is some work that the Xbox team has done, in conjunction
with our mobile team, to deliver a scenario that we think is pretty darn cool, and different
than anything you've seen before.

As you know, Kinect was the hottest selling consumer electronics product this holiday
season, and Kinect lets one person stand up and act in real life as the controller. But, we
thought, wouldn't it be cool if you could do multiplayer gaming with other people controlling
the game via their Windows Phone, competing against the person standing up and playing

So, what I'm going to show you is a video of real code. This is not a sort of made-up thing.
It's real code showing Windows Phone as a companion to Kinect. It's a technology preview
showing you the kinds of gaming experiences that we'll be working on. So, here we go.
This is the Windows Phone with Kinect.

(Video segment.)

All right. So, that's a quick look at some of the stuff we have coming up this year, and
thanks a lot.


ANDY LEES: I think what's interesting about the demos is that we sometimes get
questions about where we've come from a standing start, and how quickly we'll be able to
move ahead, I think. IE9 shows you how we're able to utilize the development that we're
doing on the PC and very rapidly put it onto the phone. It shows you what we're doing with
Office and taking the millions of users that we have with Office and how we can go through
and add value to them uniquely, because it's not available in any other phone, and Xbox, et
cetera. So, I think it's a good sort of worthwhile thing to look at the strategy.

The other thing that we announced at Mobile World Congress is the partnership with Nokia.
Our ecosystem is very important for the success of the phone. Nokia sold about 100 million
smart phones over the last 12 months, and they are putting Windows Phone as their
primary smart phone platform going forward. They'll still continue to sell Symbian during a
transition period. So, it will carry on in parallel for a while, but nonetheless, it's a strong
commitment to the ecosystem.

And that's going to have a big acceleration for us. That's going to have benefits for
Microsoft, and actually for the ecosystem - that includes operators, ISVs, developers, and
even, in many respects, the other OEMs. When speaking with the other OEMs, they're
excited about the competition in many respects, because it will broaden the overall size of
the market, and <it will broaden> the adoption of Windows Phone by users and, therefore,
the breadth of the ecosystem that supports it.

It's a very good arrangement for ourselves, and it's also good for Nokia. Nokia does a wide
variety of things, not just the handset; they innovate in lots of different ways. And they're
going to be able to bring those <innovations> to the Windows Phone ecosystem. For
example, the agreement includes mapping. We will adopt Nokia's core mapping technology,
which really is second to none. Bing will be integrated across everything that Nokia does.
Their location services will generate advertising revenue for Nokia, not only on their phones,
but actually across where those same location services are used on other phones, and even
on the PC and other devices.
It's a multi-faceted agreement, and it includes royalty payments for our software. It
includes joint marketing and, as I mentioned, significant revenue opportunities.
Considering the size of the smart phone market is growing to being in excess of half a billion
phones over the next few years as a run rate, and an install base that will very quickly
reach over a billion smart phones, you can see how the opportunity for them not only to sell
more devices through the differentiation that they provide and the collaboration that we do
to enable that, but also to add-on through these individual services.

So, one year on, things have gone incredibly well. We're very excited about where we're at.
Mobile is an important part of our long-term success, and I think we've shown a continued
investment, even though in many respects we showed just a small percentage of the
innovation that will be coming out later this year.

And with that, what I'm going to do is hand over to questions, so that we can move to that.

ZON ELLIS: One moment. First, I'll ask people to ask through the microphones, so we can
capture this on webcast. Second is that there are quite a few attendees here, and we have
a very limited amount of time, so I'm going to ask you to limit yourself to one question
without follow-up so that we can address as many questions as possible.

QUESTION: My question would be related to the Nokia licensing agreement. Do you see
Nokia as a more important licensee to Windows Phone 7 than others? And are they going to
have any special treatment when it comes to royalty fees? Thank you.

ANDY LEES: So, first of all, it's a much broader agreement than being a licensee. It
includes an element where they are a licensee but, as I described before, it incorporates a
wide variety of things like mapping, location-based services, advertising, search, joint
marketing, and joint development. Because of the footprint of Nokia, and the overall unit
volume that they represent, the multi-faceted element of this agreement is unique.

Having said that, we do continue to support other OEMs. They're excited about the impact
that that's going to have on the ecosystem. They also have the ability to differentiate and
compete. So, yes, the agreement is very unique, because it's multifaceted and very broad
with Nokia, and that's part of the reason why I think it's going to be good for them. But
also, we know that an important element is to have competition, and Nokia recognizes that,
and it's an important part for them that the ecosystem is healthy.

QUESTION: (Off mike.)

ANDY LEES: Royalty search share - we're not commenting on the specifics.

QUESTION: Just a quick one on when we would see Chassis 2, or the sort of next version
beyond the incremental upgrades you've had? Can you give us a sense of whether we'll see
a completely new sort of refreshed Windows Phone platform before the end of this 2011
calendar year?

ANDY LEES: I should have mentioned that we'll have low-priced phones in the market this
year, and importantly, we'll be in a lot more languages and a lot more countries. To put it
in perspective, today we actually target - with the countries that we're in and the languages
that we're in - what represents about 40 percent of the smart phones. That will actually
increase to in excess of 86-87 percent by the end of this year, and our price points will
come down, which also increases the total size of the addressable market that we have.
So, yes, you'll see more things coming to market this year, increasing the total opportunity
for ourselves and, indeed, the ecosystem.

QUESTION: I was wondering if you could help us understand a little bit about the
timeframe for the design cycle for a new Windows Phone?

ANDY LEES: It varies a lot by OEM. If you were to start completely from scratch, it takes
a while, 18 months. But, you don't often need to start from scratch. If you're asking
specifically with Nokia, Nokia has lots of components that they can use in order to get a
much faster start. So, it depends on how far progressed you already are, and how much is
transferable with that.

One of the things that we did in Windows Phone 7 is to design much more of the totality of
the core system, which does improve overall quality, and the predictability of the
experience, but it has a nice side effect of being a much faster operating system for people
to come on stream with. So, that's an advantage of Windows Phone versus other options.

QUESTION: Nokia said that Microsoft will transfer billions to kind of get this ecosystem
going. I'm just wondering what your priorities might be in terms of jumpstarting the
initiative, where those billions might be spent, and also if you now have feedback from
carriers of what they might be saying about the combination?

ANDY LEES: So, in terms of the agreement, it's a long-term multi-faceted agreement, as
I've just said. It includes search revenue transfer, advertising revenue transfer, location-
based services revenue transfer, royalty payments for software, and it includes joint
marketing. There are lots of facets of the deal. We're not going into the numbers for each
one of those things. Given the size of the total market, there is very substantial opportunity
both for Nokia and for ourselves in order to grow units, revenue, and margin. We're not
predicting that, obviously. So, we see it as a good opportunity for us.

And I think Nokia went through a very rigorous evaluation process. Certainly from the
conversations we had with them, and being involved in the process in that way, they did an
evaluation that included the technology, a strategic evaluation of long-term roadmap and
differentiation that they can provide, assets that they have that they can apply, and then, of
course, an economic return through our businesses. And they chose this. They could have
chosen whatever one, so they must think it's the best opportunity for them going forward
having done that, and I would say it was a very, very rigorous evaluation done over actually
a few months. And it was probably one of the most rigorous things I've been involved in in
that way.

QUESTION: What are the minimum hardware requirements for Windows Phone 7?

ANDY LEES: It's a very long document that incorporates all sorts of things like a minimum
amount of memory. We require a graphics processor on the chip. The price of those chips
is coming down dramatically. So, it includes touch, how the touch screen works, how the
touch controller works. One of the things that we want to do is make sure all of those
games work at 60 frames per second on all of the hardware, et cetera. Now, me saying
that says, whoa, this sounds like a really expensive phone.

One of the great things about this movement to a thing called system-on-a-chip is that as
long as you work whit the silicon providers early on, and we actually have been working
with them for the past couple of years, then they can integrate all of this stuff very
effectively and build it into that roadmap and that just means that the price point of that
capability gets solidified. It actually has other benefits like battery life, performance, et
cetera. And we've been working with the silicon providers on that.

So, we're very excited about the roadmap and it enables us to take that experience to
cheaper phones. So, it's a very multi-faceted sort of list of things that are in there. But,
the main thing we want to do is get the price down but keep the experience up.

ZON ELLIS: We just have enough time for like two more questions, and then we have to
wrap it up.

QUESTION: Just a quick one on sortre of skins and customization. I just wondered
whether Nokia would be able to customize the devices that they offer with Windows Phone
7. And then related to that, whether there was an issue with Qt for Windows 7, or whether
it wasn't a problem, because I think Stephen Elop last night said that Qt wouldn't be
available for Win 7. Thank you.

ANDY LEES: So, the first question is about differentiation. Yes, we'll enable
differentiation. What we don't want to do, though, is fragment the ecosystem. And
fragment it for developers, or indeed for end users. So, we have a collaborative
development process with OEMs, and in this case particularly with Nokia, to be able to listen
to what it is they want to do and then make a joint decision. And what they know is
fragmentation in the ecosystem is ultimately a significant problem. And so they don't want
that. And so having change for the sake of change, which is what does happen in other
places, is sometimes a negative thing. So, yes, they can differentiate, yes they can add
value, yes, they can enhance in that way. However, we want to make sure that we are

And then the second question was to do with Qt. Qt is a development part of Symbian. It
is not a development part of Windows Phone. We will be helping developers with Nokia,
who want to do that transition. But, they will be transitioning from Qt to Windows Phone.
They will carry on development of Symbian for a number of -- quite a period of time. They
have a huge install base and developers will want to go through and continue to address

So, they'll continue to enhance and support Qt for quite some time. I think they've
predicted that they will be selling, even from this day forward, about 150 million copies of
Symbian over the next few years. So, it's not that it's a dramatic change over - it's that
there will be an evolution and we'll help developers with that transition.

QUESTION: Can you summarize for us your message to the operators as Stephen Elop put
it earlier today, the most operator-friendly ecosystem?

ANDY LEES: Yes, if you look at the choices that operators have in terms of fully fledged
ecosystems, the conversations we've had with operators is that they have been ecstatic
without exception, and I mean so much so that what they have said to us is that this is
strategically important for us. They would like to have a balance of ecosystems. They want
to bet on having a balance of ecosystems in their network and therefore, they will
disproportionately work to help make sure this ecosystem is successful.

One of the things they are finding is that increasingly the other ecosystems appear more
and more hostile, with the people that are working on those using it as a way to control
revenue flow and to control relationships with customers.
That's not our strategy and our strategy is to be a full-fledged ecosystem. We're not trying
to own the customer in the place of somewhere else, we're not trying to stop other people
from making revenue on the phone. An ecosystem is all about people working together and
that means making money together and dealing with customers together. So, that really is
our strategy. We are therefore very operator-friendly. So is Nokia. And that really helps
us, I think, quite a lot in getting their support.

Okay. So, thank you very much, again, for the time and the opportunity. I realize it's a
little over. So, I'll look forward to your feedback on the event, and continue to talk with
you. Thanks very much.


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