Global Telecommunications

1
Global Telecommunications

• Ben Asuncion Murtaza Dhanani
• Olga Ryabchinskaya Ali Shahkarami

Presented by
2
OVERVIEW

• Introduction to the Telecommunications Industry
• Manitoba Telecom
• British Telecom
• Sprint-Nextel
• Summary

3
Telecommunications History

• Prior to modern communications

4
Telecom Monopolies

• Alexander Graham Bell patented the telephone on
  March 7, 1876
• Once the Bell patents expired in 1894, thousands
  of competitors began wiring the nation
• By 1907, Bell rivals controlled 51 percent of
  local service
• In response to the burgeoning competition,
  American Telephone and Telegraph (ATT) began
  buying up rivals

5
ATT

• Formation of government regulated natural
  monopoly
• One Policy, One System, Universal Service
• Govt raised barriers to entry
• The more difficult it was to launch competitive
  service, the more secure was the companys market
  share
• Competition resulted in duplication of
  investment, and that states were justified in
  denying requests by rivals to deploy new lines
• Firms that enjoy government protection from
  competition, and for whom rates of return are
  guaranteed through regulation, face less
  financial pressure to innovate or operate
  efficiently

6
ATT

• 1970 FCC allows competition into the long
  distance services
• Local service was still protected
• Mid 1970 US Justice Department files antitrust
  lawsuit based on complaints by MCA other long
  distance service providers
• 1982 ATT settled with government requiring them
  to divest their local operating companies, and
  restrict its services to the long distance market
• Formation of the Baby Bells

7
ATT

• Baby Bells
• Allowed to keep local services
• SBC, Verizon, BellSouth and Qwest

8
US Telecom Statistics
9
Canadian Telecom Statistics
10
Telecommunications History

• Key Telecom Metrics
• Current Telecommunications Industry
• Wired Telecommunications Carriers
• Wireless Telecommunications Carriers
• Cable and other Program Distribution

11
Telecom Metrics

• EBITDA Margin
• EBITDA / Total Revenue
• Churn Rate (1 - Retention Rate)
• Proportion of contractual customers or
  subscribers who leave a carrier during a given
  time period
• Reduced by creating barriers to exit
• Contracts
• Proprietary technology
• Loyalty programs
• ARPU
• Avg Revenue Per Unit OR Avg Revenue per User
• Includes revenues billed to each customer for
  usage
• Also includes revenue generated from incoming
  calls
• ARMU
• Average Margin per User
• Alternative to ARPU, which focuses narrowly on
  revenue per unit
• Margin is based on profitability of customers

12
Wired Telecommunications

• Oldest once largest sector of industry
• Wires Cables connecting to central offices
  maintained

• All transmissions routed through switching
  equipment

13
Wired Telecommunications

• Traditionally, voice used to be main type of data
  transmitted over wires
• Now include transmission of all types of graphic,
  video, and electronic data
• Mainly transmitted over internet
• Efficiencies through technology

14
Wired Telecommunications

• Packet Switching Networks

15
Wired Telecommunications

• Voice requires small capacity compared to data,
  video, and graphics
• Bandwidth
• Frequency band specific range of frequencies in
  the radio frequency spectrum (RF)
• Voice signal 3 kHz
• Analog TV signal 6 MHz (2000x as wide)
• Channel Capacity amount of discrete info
  reliably transmitted over a channel

16
Wired Telecommunications

• Improvements from Telecom Cos
• Replacing copper wires with fibre optic
• Allows for 25 times more data than cable
• Allowing for transmission of new services
• Cable TV, Video-on-Demand, High-speed internet,
  and telephone
• Mostly, carriers leverage existing copper lines
  to provide DSL
• Lower transmission capacity speed
• Less capital expenditures

17
Global Telephone Calls
18
(No Transcript)
19
Wired Telecommunications
20
Wireline CapEx
21
Wireless Telecommunications

• Transmit voice, graphics, data, and internet
  access through the transmission of signals over
  networks of radio towers
• Signal is transmitted through an antenna into the
  wireline network
• New technologies allow them to compete with
  wireline

22
How it works
23
Wireless Telecommunications

• Generations of Wireless Access
• 0G mobile radio telephone systems that preceded
  modern cellular mobile technology
• 1G Analog cellphone standards that were
  introduced in the 1980s
• 2G PCS second-generation wireless
• Difference radio signals are digital VS analog
• More efficient and greater reception
• Intermediate advancements 2.5G, 2.75G

24
Wireless Telecommunications

• 3G Third Generation
• Ability to transfer simultaneously both voice and
  non-voice data
• Momentous capacity and broadband capabilities to
  support greater numbers of voice and data
  customers higher data rates at lower
  incremental cost than 2G
• Radio spectrum bands are subsequently licensed to
  operators (5MHz channel)
• Greater capacity and improved spectrum efficiency

25
Canada License Costs
26
US License Costs

• License term usually 15 years
• One of 8 similar auctions conducted

27
Wireless Telecommunications

• High input fees for the 3G service licenses
• Great differences in the licensing terms
• Current high debt of many telecommunication
  companies, making it more of a challenge to build
  the necessary infrastructure for 3G
• Health aspects of the effects of electromagnetic
  waves
• Lack of 2G mobile user buy-in for 3G wireless
  service
• High prices of 3G mobile services in some
  countries, including Internet access

28
Wireless Telecommunications

• 4G Fourth Generation
• Spectrally efficient system
• High network capacity (at least 10 times greater
  than 3G)
• Nominal data rate at high speeds (100 Mbps at
  stationary conditions and 20 Mbps at
  100 miles/hr)
• Smooth handoff across heterogeneous network
• Seamless connectivity and global roaming across
  multiple networks
• High quality of service for next generation
  multimedia support (real time audio, high speed
  data, HDTV video content, mobile TV, etc)
• Interoperable with the existing wireless
  standards
• All IP system, packet switched network

29
Wireless Telecommunications
30
(No Transcript)
31
International Wireless Investment
32
Where is the industry now?
33
Product Mix
34
Profitability
35
Capital Expenditures
36
Cable Other Service Providers

• Provide television other services
• Generate revenue through subscriptions service
  fees
• Primarily installation advertising sales
• Charge a fee for services
• Transmission of programming
• Cable Systems fiber optic coaxial cables
• Direct Broadcasting Satellite (DBS)
• Orbiting satellites to customers receivers
  (mini-dishes)
• Voice over IP
• Using existing networks to infiltrate the telecom
  industry

37
Third largest national provider in Canada
38
MTS AllStream

• Table of contents
• Current Financial Position
• Company History and Overview
• Company Analysis
• Financial Analysis
• Forecasting and Recommendations

39
Current Market Position10/28/06

• Industry Telecom
• Ticker Symbol MBT-T
• Share Price 43.15
• P/E 29.80
• EPS 1.45
• Dividend 2.6 (Yield, 5.66)
• Shares Outstanding 68,098,707
• Dividend payout expected 175 million (2006)

40
Return on MTS compared to TSX

• Share Performance This graph compares the
  cumulative total return on MTSs Common Shares
  over the last nine years with the cumulative
  total return of the SP/TSX Composite Index,
  assuming a 100 investment at the initial
  offering price of 13.00 and reinvestment of
  dividends.

41
MTS Allstream Focused Markets
MTS offers a full suite of wireline voice,
high-speed Internet and data, next generation
wireless, directory, digital television, security
and alarm monitoring services.
42
History on MTZ

• Manitoba Telecom Services Inc. (MTS) was founded
  by the Manitoba government in 1908.
• In 1996 Manitoba was privatized.
• In January 1999 MTS partnered with Bell Canada to
  form Intrigna, which was a company created to
  expand telecommunications options for the
  business market in Alberta and British Columbia.
• In August 1999 MTS completed work on a new
  trunked (digital) radio system known as FleetNet
  800 , technology licensed from neighboring
  Sasktel
• 2000 Initiated broadband service in Manitoba
• In 2004, MTS acquired Allstream (formerly ATT
  Canada) for 1.7 billion and merged both
  companies. This acquisition made MTS the third
  largest national telecom in Canada. MTS also
  ended its strategic alliance with bell in 2004

43
History Cont.

• July, 2005 MTS Allstream acquired Delphi
  Solutions Corp by purchasing its outstanding
  shares for 15 million in cash. The acquisition
  was an important step in positioning the company
  to take advantage of the migration of customer
  networks to converged Internet Protocol (IP)
  technologies.
• Dec 7th, 2005 former BCE executive Pierre Blouin
  was named new Chief Executive Officer of Manitoba
  Telecom Services Inc. and MTS Allstream Inc,
  replace longtime CEO Bill Fraser.
• September 12, 2006 MTS Allstream acquires Valley
  Cable Vision (local cable company serving 3700
  cable customers)
• October 02, 2006 MTS Allstream announces
  Voluntary Reduction Program for Manitoba
  Employees. Part of TP2.

44
Key Individuals
Pierre Blouin CEO 2005 a seasoned telecommunications executive, who spent 20 years at BCE Inc. 2003 - 2005 Group President, Consumer Markets, Bell Canada. Responsible for all of Bells consumer products nearly 10 billion in business annually. 2002 - 2003 CEO of BCE Emergis 2000 - 2002 CEO of Bell Mobility
Kelvin A. Shepherd. President, MTS (Manitoba) 2006 CTO of MTS 2000 2005 20 years with Saskatchewan Telecom.
45
Key Individuals cont.
Thomas E. Stefanson Current PositionsManitoba Telecom Services Inc., chr. dir. AssociationsFellow of the Institute of Chartered Accountants - F.C.A. Officer since 1989.
Wayne S. Demkey, CA Executive Vice President, Finance CFO Joined MTS in 1996 1996. 11 years as senior manager at KPMG
46
Company Analysis
47
Manitoba network coverage across Canada.
Manitoba network coverage in Canada runs across
majority of the country, with services in several
fields
48
Operating Revenue 2001-2005
49
Revenue Breakdown per Segment 2001-2005
50
change in revenue
51
Customer Growth
52
Enterprise Solution Customer base
53
MTS Consumer and B2B solutions

• Consumer MTS provides several services for its
  consumer based market. The major accountability
  for future growth in the consumer brand is from
  wireless services, IP-based data connectivity,
  high-speed internet and digital television.
• B2B Operating under the Allstream brand,
  Enterprise Solutions division is a strong
  national competitor in the Canadian
  telecommunications market. This division has a
  solid track record of developing innovative
  solutions that help mid-sized and large
  businesses compete more effectively.

54
Consumer Market Division

• MTSs Consumer Markets division, is one of
  Canadas strongest communications franchises.
• During 2005, there was overall growth from its
  operations, with particularly strong performance
  from wireless, Internet and digital television
  services.
• In total revenues from these growth services grew
  by 18 in 2005. Wireline telephony business faced
  competition from the long-anticipated entry of
  the cable companies in this market.

55
Future Goals to Increase Profitability

• In the fourth quarter of 2005, MTS launched its
  Transition Phase II a two-year, 100 million
  cost reduction (now raised to 120 million)
  initiative designed to align its cost structure
  to the new market realities, and increase
  profitability. MTS has already achieved 30
  million in annualized expense savings as at
  January 31, 2006. On 30th Sept they had reached
  78 million of these savings.
• On February 28, 2006, MTS announced the
  implementation of a new management structure that
  will help the team become a more cohesive
  organization, move closer to cost savings target,
  and drive more profitable growth in the
  marketplace.

56
EPS trend for the last 5 years
The Sharp incline in EPS from 03 to 04 was due to
the acquisition of Allstream
57
MTS EPS Analysis
For the twelve months ended December 31, 2005,
EPS from continuing operations climbed to 2.74,
which is up by 10.9 or 0.27 from 2004. This
increase is primarily attributable to the
consolidation of Allstreams financial results
beginning June 4, 2004, together with growth in
our Manitoba division and synergies realized.
58
EBITDA for the 5 year period ended 2005
59
Restructuring costs
60
Reason for sharp increase in restructuring cost.

• Total predicted acquisition of Allstream would
  be approximately 90 million.
• These expenses included severance and other
  employee-related costs, as well as costs to
  consolidate facilities, systems and operations.
• This amount includes (i) costs of 24.0 million
  that were incurred and included in the accounting
  for the acquisition of Allstream (ii) 23.0
  million that was expensed and 23.0 million that
  was capitalized for restructuring and integration
  costs incurred in 2004 and 2005 and (iii) 19.7
  million restructuring and integration costs that
  were recorded as a liability as part of the
  purchase price allocation.

61
Competition
62
Stock Price AnalysisMBT Vs Telus.
63
MBT vs BCE
64
Information for 2006

• Third Quarter dividend 0.65
• FCF increase 24.1 (191.8 million)
• Cost reduction under TP2 70 million
• Revenue increase due to Growth (15) 44 million
• Data Connectivity Revenue Increase 58.9
• Wireless Revenue Increase 12.9
• Increase in Cellular Customers 11.6
• Digital Television Customer Increase 36.8
• High-Speed Internet Customer Increase 18.2
• No Tax expense until 2014, due to Purchase of
  Allstream

65
Expected Financials for 2006
66
MTS Allstream Income Trust?

• In evaluating a possible conversion to an income
  trust, management and the Board of Directors
  carried out an extensive review.
• An analysis of MTS's current and future cash
  flows and requirements to sustain the Company was
  carried out. In addition to ongoing operations
  expenses included in EBITDA, MTS also incurs
  additional significant cash costs.
• These include capital expenditures, interest
  expense, deferred charges and net funding of the
  MTS pension plan.
• The Board believes long-term shareholder value
  can best be achieved by continuing to follow
  MTS's proven strategies for delivering value to
  shareholders. (2004)

67
MTS Take over?

• With recent announcements regarding no tax
  protection for income trusts. MTS is becoming an
  attractive target to take over.
• RBC Capital Markets analyst Jonathan Allen
  increased his price target from 50 to 54 on
  speculation the company would be a takeover
  target.
• "We believe MTS's tax losses of 2.7 billion
  including depreciation have become more much
  attractive and there is a high probability of MTS
  being acquired over the next year in our view,"
  Allen wrote in a note to clients.
• In the absence of a take over bid Manitoba Tel
  shares are valued at 46 per share as a going
  concern.

68
Fishers Valuation Approach
Criteria Details
Superiority in Financial skills, Production, Marketing, Research -Clear strongly positioned Annual Reports -CapEx, Asset Impairment costs Fairly High -RD Moderate to High
People Factor -Management Knowledgeable in the field, top management with plenty of experience. And history of long term presence within a company.
Investment Characteristics Good Market position Wireless Growth, Data tech growth, cable tv growth
P/E Ratio P/E  29.8
69
Stock Price over 9 years
70
Recommendation

• Speculative Buy

71
British Telecom
72
Company Snapshot

• BT Group plc is a public limited company
  registered in England and Wales and listed on the
  London stock Exchange and NYSE
• Price US 54.380
• P/E  15.70
• Dividend Yield 2.83 (5.30)
• Current Number of shares held (millions) 8,876
• Full Time Employees 104,400

73
Shares
74
BT
75
BT vs. FTSE350
76
BT vs. DOW

77
Average Revenue per Customer
78
BT History

• 1981- Formation of British Telecom
• 1982- End of BTs monopoly w/grant of a license
  to Mercury Communications
• 1984- Privatization
• 1990s joint venture with Electricity Supply
  Board
• 1991- trading name Change to 'BT'
• 1991- The remaining state holdings in the company
  were sold
• 1994- Joint venture with MCI Concert
  Communication Services
• 2001- demerger
• 2005- BT acquired El Segundo, California-based
  telecoms giant Infonet
• 2005- Openreach segment was opened
• 2006- BT acquired online electrical retailer
  Dabs.com

79
Governance

• Chairman
• Sir Christopher Bland
• Member of the Prime Minister's Advisory Panel on
  the Citizen's Charter
• 1996-2001 chairman of the BBC Board of Governors
• 1982-1994 chairman of the Hammersmith and Queen
  Charlotte's Hospitals
• 1995-1996 chairman of the Private Finance Panel
• 1977-1985 chairman of printers and publishers Sir
  Joseph Causton Sons
• 1972-1979 deputy chairman of the Independent
  Broadcasting Authority and chairman of its
  Complaints Review Board

80
Governance

• CEO
• Ben Verwaayen
• Since joining BT Group 1997, he had been with
  Lucent Technologies Inc ( his position on leaving
  was was vice chairman of the management board,
  he previously was executive vice-president )
• Prior to joining Lucent, Ben worked for KPN in
  the Netherlands for nine years as president and
  managing director of its subsidiary PTT Telecom
• Education Master's degree in law and
  international politics from the State University
  of Utrecht, Holland.

81
Governance

• CFO
• Hanif Lalani
• Since joining BT in 1983, he has held a variety
  of roles in the
• BTs UK and international divisions
• 1998, finance director BT Northern Ireland
• 1999, was appointed chief executive of BT
  Northern Ireland
• 1999-2000, chairman of OCEAN Communications (BT's
  subsidiary in the Republic of Ireland)
• 2002, was appointed managing director BT Regions.
  
• 2002, Hanif returned to London as chief finance
  officer for BT Wholesale
• Education BA Honours degree in mathematics,
  operations, research and economics from Essex
  University.

82
Market Position Power

• 1984s the Telecommunications Act
• 1984-1900 only BT and Mercury were licensed to
  provide fixed line telecom networks in the UK.
• 1990s, new national Public Telecommunications
  companies entered the market.
• BTs operations regulated by British telecoms
  operator Ofcom (imposing obligations such as
  meeting reasonable requests to supply services
  and not to discriminate)

83
Current Market Share Data
84
Current Technologies

• Traditional
• Telephone exchanges or switches, trunk network
  and local loop connections
• Universal Service Obligation (USO)
• Newer
• Broadband internet service
• Bespoke solutions ( made to fit customers needs)
• IT

85
BT Group

• BT Retail-retail telecoms to consumers
• BT Wholesale- Wholesale telecoms core trunk
  network
• Openreach- fenced-off wholesale division, tasked
  with ensuring that all rival operators have
  equality of access to BT's own local network
• BT Global Services- Business services and
  solutions (formerly BT Ignite and BT Syntegra)
• BT Exact- Consultancy and internal IT solutions.
• Group operations- handles security, research and
  development, and other functions for BT Group Plc
  such as legal services

86
Connections
87
BT's recent developments

• BT has recently announced its first step into 3G
  with the launch of a combined Wi-Fi, 3G and GPRS
  tariff, known as BT Datazone.
• BT is investing 75 of its total capital
  spending, in its new Internet protocol(IP) based
  21st Century Network (21CN)
• In June 2006, BT launched BT Total Broadband -
  new broadband packages
• BT Vision (a broadband Television service )

88
Strategy
89
Financial Analysis
90
Headline financials - historical summary
91
Operation AnalysisRevenue Breakdown (2006)
92
Revenue Breakdown per Segment 2002-2006
93
financials - lines of business
Before specific items Operating free cash
flow (EBITDA less capital expenditure)
94
Company Analysis

• As of Q1 ended 30 June 06

95
Free Cash Flow
96
Free Cash Flow Chart

• Year ended 31 March 06
• Before specific items

97
Earnings per Share Analysis
98
Earnings per Share Analysis
99
CapEx Profit
100
Performance
101
Fishers Valuation Approach
102
Fishers Valuation Approach
Criteria Details
Superiority in Financial skills, Production, Marketing, Research -Clear Annual Reports -Britains first Wi-Fi cities 3G -CapEx, Asset Impairment costs reasonable -RD Moderate
People Factor -Management Knowledgeable in the field, long-term managers -Long-term management employees ( Training the management from within the org)
Investment Characteristics of Some Business Strong Market position power G3 IT sectors potentials Wireless Growth Dow Jones Telecom Sustainable Index Award winner for last five years
P/E Ratio P/E  15.70
103
Recommendation

• Buy

104
(No Transcript)
105
Agenda

• 1. Company Background
• 2. Products/services
• 3. Financial analysis
• 4. Fishers valuation approach
• 5. Recommendation

106
1. Company Background
107
Company Snapshot

• Ticker Symbol S
• Index Membership
• SP 500
• SP 100
• SP 1500 Super Comp
• Sector Technology
• Industry Diversified Communication
• Full Time Employees 79, 900

108
Company Snapshot

• Using avg growth based on Q3 results
• (As of Nov 6/06)
• Last Quote 19.05 52wk
  Range 15.95-26.89
• P/E 40.53
  Volume 33 962 100
• of Shares 2987.5M Market
  Cap 55.46B
• Rev. 40 778.67B
  Held by Insiders 1.25
• NI 1 381.33M
  Held by Institutions 86
• EPS 0.47
  
• Div/Share 0.01
• Yield 0.5

109
Stock Price Behavior Daily(1985-2006)

• Stock Price Behavior 1985-present

110
Sprint-Nextel vs. SP Telecom 5-yr Daily
(2001-2006)
111
Sprint-Nextel vs. NASDAQ Composite 5-yr Daily
(2001-2006)
112
Sprint-Nextel vs SP 5005yr Daily (2001-2006)
113
General Background

• Founded 1899, Cleyson Brown, landline telephone
• (Bell Systems competitor) HQ
  Virginia
• Steady growth through acquisitions
• Enter long-distance voice acquire ISACOMM
  (1981), US Tel. (1984)
• Sprint-MCI 129B merger (1995) falls through
• Mission To be No. 1 in providing a simple,
  instant, enriching and productive customer
  experience.
• Global Tier 1 backbone operator
• 3rd largest wireless network in US 51.9M
  subscribers (668 in revenues / subscriber in
  2005)
• Largest independent local telephone provider
• Industry pioneer
• Secured spot in 2.5Ghz range

114
General Background Cont

• Founded 1987, Morgan O'Brien
• Focus on wireless
• 5th leading provider in US mobile phone industry
• 18.5M subscribers southern US-popular
• Market-defining innovation
• Loyal customer base

115
General Background Cont

• Sprint-Nextel merger Aug. 12/05
• Shareholders overwhelmingly approved
• Affiliates strongly opposed (19.58B in
  problems over 3 yrs)

116
Post-Merger Forced Acquisitions

• 1.3B Sprints PCS affiliate US Unwired (2005)
  0.5M direct customers
• 4.3B (announce) PCS affiliate Alamosa Holdings
  (2005) 1.48M potential customers
• 98M Enterprise Communications (2006) 52K
  customers to Wireless division
• 6.5B (announce) the largest of Nextel's
  affiliates to end Nextel Partners' opposition to
  any changes by Sprint in relation to the NEXTEL
  merger (2006) 2M direct customers

117
Competition
118
Timeline Sprint, Nextel

• 1976 1bil. Rev (Sprint- S)
• 1980s Enter long distance leader fiber-optic
  network packet data
• network (S)
• 1990s Global leader voice data services (S)
• 1992 Internet pioneer (S)
• 1993 First provider local, long dist.,
  wireless (S)
• 1996 1st Digital wireless network (S)
• 1996 iDen tech. talk of the industry
  (Nextel-N)
• 1998 Fiber-optic connection (N)
• 2000 Worldwide service largest digital
  wireless coverage (N)
• 2001 Walkie-talkie 1st Java phone (N)
  Transatlantic IP backbone (S)
• 2002 1st Wireless national network (S) 1st
  GPS phone (S)
• 2003 1st To begin conversion to
  next-generation packet network (S)
• 2004 NASCAR partnership (N) EV-DO plans (S)

119
Strategy

• Customer experience
• Innovation, RD pioneer in industry
• Focus on wireless, broadband
• Operational efficiencies restructuring,
  cost-savings, RD direction -ve EBIT

120
Key Awards

• Innovation
• - Outstanding Corporate Innovator 2005
• - 1st In innovation category 2006
• Management
• - 2nd most admired company in Telecom
• - Institutional Investor 1 in Telecom
  most
• shareholder-friendly
• Fortune Magazine 2006 59/100 of best companies
  to work for
• Credit risk management
• HRC's Corporate Equality Index 100

121
Management

• Corporate Governance Quotient
• Sprint-Nextel is better than 45.6 of SP500
  companies and 96.6 of Telecom. Services
  companies as of Oct 06.

122
Management

• Timothy M. Donahue
• Executive Chairman
• Nextel Jan. 1996
• President and Chief Operating Officer
• Fortune 200 record-setting performance
• Forbes top-rated CEO in Telecom. 2005
• John Carroll University, BA (Eng. Literature)
• NE regional president for ATT Wireless Services
  operations (1991-1996)
• On the Boards of Kodak, John Carroll Univ., NVR,
  Inc.

123
Management

• Gary D. Forsee
• President and Chief Executive Officer
• Sprint May 2003
• Appointed to National Security Telecom. Advisory
  Committee by Bush in 2004
• BusinessWeek 1 of best leaders 2005, 1 of 19
  best managers 2004
• Sprint emerges as 1 of strongest competitors
• Sprint's equity value rises 72
• University of Missouri (BS in engineering)
• Awarded an honorary Doctor of Engineering degree
  (2005)
• 18 years at ATT and Southwestern Bell
• VP of govt sales and programs (ATT's Federal
  Systems)

124
Management

• Paul Saleh
• Chief Financial Officer
• Nextel Sept. 2001 Executive VP and CFO
• Institutional Investor best Telecom. CFO 2004,
  2005, 2006
• Treasury Risk Management 2005 1 of 100 most
  influential people in finance
• Public Company CFO of the Year Award 2003, 2006
• Univ. of Michigan (MBA-Finance MS, BS in
  electrical engineering)
• VP, CFO Walt Disney Int. (1997-2001)
• Senior VP, Treasurer The Walt Disney Company

125
Major holders Major holders Major holders Major holders Major holders
Holder Position Shares Reported
Foresee CEO 1,514,910 0.051 Aug 12/06
Donahue Executive Chairman 902,316 0.030 Aug 12/06
Saleh CFO 626,383 0.021 Aug 12/06
Capital Research Mng Company Capital Research Mng Company 187,876,882 6.37 Jun. 30/06
Growth Fund of America Inc. Growth Fund of America Inc. 54,221,007 1.84 Jun. 30/06
All Insiders and 5 Owners 1.25
Institutional, Mutual Fund Owners 86
126
Current Technologies

• 3G wireless networks (EV-DO) (data network)
• - upgrade Ev-Do Rev A (2007) faster speeds
• - old 2.4Mbs download, 0.15Mbs upload
• - new 3.1Mbs download, 1.8 upload
• - CapEx 7B by 2007
• 2G iDEN (Nextel)
• 2.5, 2.75, 3G CDMA (Sprint) (voice networks)
• - marketing costs 2008 for conversion

Not Compatible Networks
127
Future Technologies

• VoIP
• Mobile TV
• WiMax (4G 15Mbits)
• Data netowrk
• Pioneer
• 3 CapEx
• 100M people by 2008
• Broader coverage
• Competitive edge
• Implications
• Operate on 2.5Ghz

Excited?
Not So Much!
128
2. Products Services
129
Segments

• Wireless strong growth
• Local spun off 2006 EMBARQ
• Long Distance losing money

130
Wireless Segment

• Voice
• Local
• Long distance
• Walkie-talkie
• Data transmission
• Wireless imaging
• Internet access
• Messaging and email services
• Wireless entertainment

131
Local Segment

• Voice services
• Data services
• Sale of communication equipt.
• Switched access services

132
Long Distance Segment

• Internet service
• End user ISP
• Backbone operations
• Data services
• ATM
• Frame relay

133
Revenues Costs

• Total

134
Revenues Costs

• Wireless

135
Revenues Costs

• Local

136
Revenues Costs

• Long Distance

137
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139
3. Financial Analysis
140
P/E 40.53
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Observations

• Revenue growth slow down
• Misleading revenues Rev gt CF from Op. Act.
• Losing , often saved by tax savings
• Growing revenues, CF from Op. Activities
• Good underlying business
• Lose from asset impairment, restructuring
• - 1.66B litigation (2001)
• - 1.2B BRS spectrum fair value decline
• (2003)
• - 3.54B equipment (2004)

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Financing Activities

• Constant interest expense
• Cash from financing activities used mainly to
  fund capital investments, working capital
  requirements, retire debt (2005)
• 2003-4 borrow little due to lower CapEx
  (mostly), continuously improving Operating CF
• CapEx is expected to increase

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Observations Cont

• Large CapEx vs. CF from Op. Activities
• CapEx
• - 3B always there (to maintain network
• reliability, upgrade capabilities for
  providing new
• products/services, meet capacity demands)
• - iDen/CDMA tech, mkt, 7B Ev-Do Rev. A
  (2007)
• - 3B WiMax (2006-8)
• - 19.58B in acquisitions due to merger
  (2005-2007)
• - TOTAL 29.58B/4yrs 7.4B/yr 3B/yr
  
• 10.4B/yr
• Borrow more debt to finance CapEx

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Dividends Earnings

• Div 2006 0.10
• Buyback 6B common shares over 18 months
  (starting Aug 2006)
• Q3 91M common shares for 1.5B (16.48/sh Aug.
  market price/share 16-17)
• 2006 shares 2987.5M (due to merger)
• BUT cannot afford to buy back

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Dividends Earnings
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More Observations

• Merger double cash (buy back 6B)
• Cost of merger goodwill, FCC licenses, customer
  relationships

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Rev, Op Costs, Op Income, NI, CapEx Relationships
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2006 Expectations

• Net Revenue 41M
• Wireless high single-low double digit growth
• Long distance mid single digit loss
• CapEx 6.3B
• 14.5B NPV synergies from Nextel merger

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4. Fishers Valuation Approach
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Fisher Superiority in Financial skills,
Production, Marketing, Research

• Annual reports clear, desired info past 2000
  prior not enough info
• Cost control COGS, interest expense
• Restructuring, Asset Impairment costs, CapEx
• Innovation high RD
• Large mkt campaigns not always meet expectations
• Overall 1.5/5

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Fisher People Factor

• Fair treatment pleased employees
• HRC's Corporate Equality Index 100 score
  Fortune 2006 59 (from 67) Top 100 companies to
  work for
• Corp. Gov fair treatment shareholders,
  directors composition
• Corporate Governance Quotient score
• Overall 4.5/5

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Fisher Investment Characteristics of Some
Business

• Position in market
• Market share
• Tier 1 implications
• Less licensing from others more to firm
• Wireless growth, WiMax potential
• Overall 4/5

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Fisher P/E Ratio

• Expected vs. realistic growth
• P/E 40.53 (NI for Earnings, 2006 data)
• DDM 9.75
• Overall 0/5

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5. Recommendation
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• Not Buy

in 1.5yrs at a cheaper price?
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SUMMARY
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APPENDIX CHARTS
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ATT
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