Transcript Global Telecommunications

Global Telecommunications
Presented by:
Ben Asuncion
Olga Ryabchinskaya
Murtaza Dhanani
Ali Shahkarami
OVERVIEW
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Introduction to the Telecommunications Industry
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Manitoba Telecom
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British Telecom
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Sprint-Nextel
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Summary
Telecommunications History
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Prior to modern communications
Morse & Vail
Telegraph
Register
Smoke &
Drums
Early History
1792
Claude Chappe
Fixed Telegraphy
1838
Transatlantic
Telegraph Cable
1839
Wheatstone &
Cooke
Electrical Telegraph
1866
Commercial
Telephone
1876
Bell
Conventional
Telephone
1878
1901
Marconi
Transatlantic Wireless
Communication
Telecom Monopolies
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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 (AT&T)
began buying up rivals
AT&T
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Formation of government regulated “natural
monopoly”
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“One Policy, One System, Universal Service”
Gov’t raised barriers to entry
The more difficult it was to launch competitive
service, the more secure was the company’s
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
AT&T
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1970: FCC allows competition into the long
distance services
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Local service was still protected
Mid 1970: US Justice Department files
antitrust lawsuit based on complaints by MCA
& other long distance service providers
1982: AT&T settled with government
requiring them to divest their local operating
companies, and restrict its services to the
long distance market
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Formation of the “Baby Bells”
AT&T
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“Baby Bells”
Allowed to keep local services
 SBC, Verizon, BellSouth and Qwest
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$.62/min
$.20/min
US Telecom Statistics
Canadian Telecom Statistics
Telecommunications History
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Key Telecom Metrics
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Current Telecommunications Industry
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Wired Telecommunications Carriers
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Wireless Telecommunications Carriers
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Cable and other Program Distribution
Telecom Metrics
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EBITDA Margin
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EBITDA / Total Revenue
Churn Rate (1 - Retention Rate)
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Proportion of contractual customers or subscribers who leave a
carrier during a given time period
Reduced by creating barriers to exit
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ARPU
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Contracts
Proprietary technology
Loyalty programs
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
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Average Margin per User
Alternative to ARPU, which focuses narrowly on revenue per unit
Margin is based on profitability of customers
Wired Telecommunications
Oldest & once largest sector of industry
 Wires & Cables connecting to central
offices maintained
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All transmissions
routed through
switching
equipment
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
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Mainly transmitted over internet
 Efficiencies through technology
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Wired Telecommunications
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Packet Switching Networks
Traditional One-Path Switching
Wired Telecommunications
Voice requires small capacity compared
to data, video, and graphics
 Bandwidth
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Frequency band: specific range of
frequencies in the radio frequency
spectrum (RF)
 Voice signal = 3 kHz
 Analog TV signal = 6 MHz (2000x as wide)
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Channel Capacity: amount of discrete
info reliably transmitted over a channel
Wired Telecommunications
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Improvements from Telecom Co’s
Replacing copper wires with fibre optic
 Allows for 25 times more data than cable
 Allowing for transmission of new services
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 Cable
TV, Video-on-Demand, High-speed
internet, and telephone
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Mostly, carrier’s leverage existing copper
lines to provide DSL
 Lower
transmission capacity & speed
 Less capital expenditures
Global Telephone Calls
Wired Telecommunications
Wireline CapEx$
Wireless Telecommunications
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Transmit voice, graphics, data, and
internet access through the
transmission of signals over networks
of radio towers
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Signal is transmitted through an antenna
into the wireline network
New technologies allow them to
compete with wireline
How it works
Wireless Telecommunications
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Generations of Wireless Access
0G – mobile radio telephone systems that
preceded modern cellular mobile
technology
 1G – Analog cellphone standards that
were introduced in the 1980’s
 2G – PCS – second-generation wireless
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 Difference:
radio signals are digital VS analog
 More efficient and greater reception
 Intermediate advancements: 2.5G, 2.75G
Wireless Telecommunications
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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
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Canada ~ License Costs
US ~ License Costs
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License term usually 15 years
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One of 8 similar auctions conducted
Wireless Telecommunications
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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
Wireless Telecommunications
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4G – Fourth Generation
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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
Wireless Telecommunications
Wireless Service Revenues & ARPU
1999 - 2004
Revenue
$ Billions
ARPU ($)
12.0
70.0
$59.3
10.0
$53.9
$53.8
$51.0
$55.7
60.0
$47.4
50.0
8.0
40.0
6.0
$9.5
4.0
2.0
$7.2
$5.4
$4.6
30.0
$8.1
20.0
$6.0
10.0
-
1999
2000
2001
Wireless Service Revenue
Source: CRTC data collection
2002
2003
2004
ARPU
International Wireless
Investment
Where is the industry now?
Product Mix
Profitability
Capital Expenditures
Cable & Other Service Providers
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Provide television & other services
Generate revenue through subscriptions & service
fees
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Primarily installation & advertising sales
Charge a fee for services
Transmission of programming
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Cable Systems: fiber optic & coaxial cables
Direct Broadcasting Satellite (DBS)
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Orbiting satellites to customers’ receivers (mini-dishes)
Voice over IP
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Using existing networks to infiltrate the telecom industry
Third largest national provider in Canada
MTS AllStream
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Table of contents
Current Financial Position
 Company History and Overview
 Company Analysis
 Financial Analysis
 Forecasting and Recommendations
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Current Market Position
10/28/06
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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)
Return on MTS compared to TSX
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Share Performance This graph compares the cumulative total return on MTS’s
Common Shares over the last nine years with the cumulative total return of the
S&P/TSX Composite Index, assuming a $100 investment at the initial offering price of
$13.00 and reinvestment of dividends.
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.
History on MTZ
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Manitoba Telecom Services Inc. (MTS) was founded by the Manitoba
government in 1908.
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In 1996 Manitoba was privatized.
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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.
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In August 1999 MTS completed work on a new trunked (digital) radio
system known as FleetNet 800 , technology licensed from neighboring
Sasktel
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2000 Initiated broadband service in Manitoba
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In 2004, MTS acquired Allstream (formerly AT&T 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
History Cont.
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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.
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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.
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September 12, 2006 MTS Allstream acquires Valley Cable Vision (local cable
company serving 3700 cable customers)
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October 02, 2006 MTS Allstream announces Voluntary Reduction Program for
Manitoba Employees. Part of TP2.
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 Bell’s 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.
Key Individuals cont.
Thomas E. Stefanson
Current Positions:
Manitoba Telecom Services Inc., chr. &
dir.
Associations:
Fellow 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
Company Analysis
Manitoba network coverage
across Canada.
Manitoba network coverage in Canada runs across majority of the country,
with services in several fields
Operating Revenue 2001-2005
2500
2000
1500
Revenue in
Millions
1000
500
0
2001 2002 2003 2004 2005
Revenue Breakdown per
Segment 2001-2005
700
600
Data Revenues
500
Local Voice
Revenues
Long Distance
Revenues
Wireless
Revenues
400
300
200
100
0
2001 2002 2003 2004 2005
% change in revenue
Customer Growth
Enterprise Solution Customer
base
MTS Consumer and B2B
solutions
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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.
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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.
Consumer Market Division
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MTS’s Consumer Markets division, is one of Canada’s strongest
communications franchises.
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During 2005, there was overall growth from its operations, with
particularly strong performance from wireless, Internet and
digital television services.
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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.
Future Goals to Increase
Profitability
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In the fourth quarter of 2005, MTS launched its Transition Phase II – a twoyear, $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.
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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.
EPS trend for the last 5 years
The Sharp incline in EPS from 03 to 04 was due to the acquisition of Allstream
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 Allstream’s financial
results beginning June 4, 2004, together with growth in our Manitoba division and
synergies realized.
EBITDA for the 5 year period
ended 2005
Restructuring costs
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.
Competition
Stock Price Analysis
MBT Vs Telus.
MBT vs BCE
Information for 2006
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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
Expected Financials for 2006
MTS Allstream Income Trust?
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In evaluating a possible conversion to an income trust, management
and the Board of Directors carried out an extensive review.
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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.
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These include capital expenditures, interest expense, deferred charges
and net funding of the MTS pension plan.
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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)
MTS Take over?
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With recent announcements regarding no tax protection for
income trusts. MTS is becoming an attractive target to take
over.
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RBC Capital Markets analyst Jonathan Allen increased his price
target from $50 to $54 on speculation the company would be a
takeover target.
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"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.
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In the absence of a take over bid Manitoba Tel shares are
valued at $46 per share as a going concern.
Fisher’s Valuation Approach
Criteria
Details
Superiority in Financial skills,
Production, Marketing,
Research
-Clear strongly positioned Annual Reports
-CapEx, Asset Impairment costs: Fairly High
-R&D: Moderate to High
People Factor
-Management: Knowledgeable in the field, top management with plenty of experience. And
history of long term presence within a company.
Investment Characteristics
-Good Market position
-Wireless Growth, Data tech growth, cable tv growth
P/E Ratio
P/E 29.8
Stock Price over 9 years
Recommendation
Speculative
Buy
British Telecom
Company Snapshot
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BT Group plc is
a public limited company
registered in England and Wales and listed on the London
stock Exchange and NYSE
Price US$ 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
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Shares
Weighted Average Number of Shares
8,377 8,668
6,642 6,592
1998
1999
8,676
8,581 8,422
7,406 7,383
2000
2001
2002
Year
2003
2004
2005
2006
BT
BT vs. FTSE350
BT vs. DOW
Average Revenue per Customer
275
271
270
265
265
265
260
255
254
251
250
245
240
2002
2003
2004
2005
2006
BT History
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1981- Formation of British Telecom
1982- End of BT’s monopoly w/grant of a license to Mercury
Communications
1984- Privatization
1990’s 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
Governance
Chairman
Sir Christopher Bland
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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
Governance
CEO
Ben Verwaayen
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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 vicepresident )
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.
Governance
CFO
Hanif Lalani
Since joining BT in 1983, he has held a variety of roles in the
BT’s 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.
Market Position & Power
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1984’s the Telecommunications Act
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1984-1900 only BT and Mercury were licensed to
provide fixed line telecom networks in the UK.
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1990s, new national Public Telecommunications
companies entered the market.
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BT’s operations regulated by British telecoms
operator Ofcom (imposing obligations such as meeting reasonable requests to
supply services and not to discriminate)
Current Market Share Data
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The FTSE 350 Index incorporates the largest 350 companies by capitalization which
have their primary listing on the London Stock Exchange
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 customer’s needs)
 IT
BT Group
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BT Retail-retail telecoms to consumers
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BT Wholesale- Wholesale telecoms core trunk network
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Openreach- fenced-off wholesale division, tasked with ensuring that all rival operators have
equality of access to BT's own local network
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BT Global Services- Business services and solutions (formerly BT Ignite and BT Syntegra)
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BT Exact- Consultancy and internal IT solutions.
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Group operations- handles security, research and development, and other functions for BT
Group Plc such as legal services
Connections
Broadband and Retail Connections
35000
30000
25000
Broadband customers ('000)
20000
Retail connections (retail &
residentials, in 000's)
15000
10000
5000
0
2003
2004
2005
2006
BT's recent developments
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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.
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BT is investing 75% of its total capital spending, in its
new Internet protocol(IP) based 21st Century Network
(21CN)
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In June 2006, BT launched BT Total Broadband - new
broadband packages
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BT Vision (a broadband Television service )
Strategy
Financial Analysis
Headline financials - historical
summary
Operation Analysis
Revenue Breakdown (2006)
Revenue by customer segment
0%
26%
35%
Major corporate
Business
Consumer
Wholesale
Other
27%
12%
Revenue Breakdown per
Segment 2002-2006
in millions
Revenue by Customer Segment
8,000
7,000
6,000
5,000
4,000
3,000
2,000
1,000
0
2002
2003
Major corporate
2004
Business
Consumer
2005
Wholesale
2006
Other
financials - lines of business
* Before specific items
** Operating free cash flow (EBITDA less capital expenditure)
Company Analysis
As of Q1 ended 30 June ’06:
Free Cash Flow
Free Cash Flow Chart
Year ended 31 March ’06
* Before specific items
 Free cash flow £1.6bn for 2006
 Profit before tax* £2.2bn up 5% on last year
Earnings per Share Analysis
Earnings per Share Analysis
CapEx & Profit
Revenue, Operating Profit, Net Cash inflow from Operating
activities, CapEx
25,000
20,000
Revenue
15,000
Operating Profit
10,000
Net cash inflow from
operating activities
5,000
Capital expenditure
0
-5,000
2002
2003
2004
2005
2006
Performance
Fisher’s Valuation Approach
Fisher’s Valuation Approach
Criteria
Details
Superiority in Financial skills,
Production, Marketing,
Research
-Clear Annual Reports
-Britain’s first Wi-Fi cities & 3G
-CapEx, Asset Impairment costs: reasonable
-R&D: 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
Recommendation
Buy
Agenda
1.
2.
3.
4.
5.
Company Background
Products/services
Financial analysis
Fisher’s valuation approach
Recommendation
1. Company Background
Company Snapshot
Ticker Symbol: S
 Index Membership:
S&P 500
S&P 100
S&P 1500 Super Comp
 Sector: Technology
 Industry: Diversified Communication
 Full Time Employees: 79, 900
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Company Snapshot
Using avg growth based on Q3 results:
(As of Nov 6/06)
Last Quote 19.05
P/E
40.53
# of Shares 2987.5M
52wk Range
Volume
Market Cap
Rev.
NI
EPS
Div/Share
Yield
% Held by Insiders
1.25
% Held by Institutions 86
40 778.67B
1 381.33M
0.47
0.01
0.5%
15.95-26.89
33 962 100
55.46B
Stock Price Behavior Daily
(1985-2006)
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Stock Price Behavior 1985-present
Sprint-Nextel vs. S&P Telecom
5-yr Daily (2001-2006)
Sprint-Nextel vs. NASDAQ
Composite 5-yr Daily (2001-2006)
Sprint-Nextel vs S&P 500
5yr Daily (2001-2006)
General Background
Founded: 1899, Cleyson Brown, landline telephone
(Bell System’s 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
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General
Background Con’t
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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
General
Background Con’t
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Sprint-Nextel merger Aug. 12/05
Shareholders “overwhelmingly approved”
Affiliates “strongly opposed” ($19.58B in problems over 3 yrs)
Post-Merger: Forced Acquisitions
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$1.3B: Sprint’s PCS affiliate US Unwired (2005);
0.5M direct customers
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$4.3B (announce): PCS affiliate Alamosa Holdings
(2005); 1.48M potential customers
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$98M: Enterprise Communications (2006); 52K
customers to Wireless division
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$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
Competition
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)
Strategy
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Customer experience
Innovation, R&D: pioneer in industry
Focus on wireless, broadband
Operational efficiencies: restructuring, costsavings, R&D direction: -ve EBIT
Key Awards
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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%
Management
Corporate Governance Quotient:
“Sprint-Nextel is better than 45.6% of
S&P500 companies and 96.6% of
Telecom. Services companies as of Oct
06.”
Management
Timothy M. Donahue
Executive Chairman
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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 AT&T Wireless Services operations
(1991-1996)
On the Boards of Kodak, John Carroll Univ., NVR, Inc.
Management
Gary D. Forsee
President and Chief Executive Officer
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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 AT&T and Southwestern Bell
VP of gov’t sales and programs (AT&T's Federal Systems)
Management
Paul Saleh
Chief Financial Officer
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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
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
187,876,882
6.37%
Jun. 30/06
Growth Fund of America Inc.
54,221,007
1.84%
Jun. 30/06
All Insiders and 5% Owners
Institutional, Mutual Fund Owners
1.25%
86%
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)
Not Compatible Networks
 2.5, 2.75, 3G CDMA (Sprint) (voice networks)
- marketing costs 2008 for conversion

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!
2. Products & Services
Segments
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Wireless: strong growth
Local: spun off 2006: EMBARQ
Long Distance: losing money
Wireless Segment

Voice
Local
 Long distance
 Walkie-talkie
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
Data transmission
Wireless imaging
 Internet access
 Messaging and email services
 Wireless entertainment

Local Segment
Voice services
 Data services
 Sale of communication equipt.
 Switched access services

Long Distance Segment

Internet service
End user ISP
 Backbone operations
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Data services
ATM
 Frame relay

Revenues & Costs

Total
2001, 17%
2001, 24%
2002, 23%
2003, 23%
2002, 18%
2004, 23%
2005, 24%
39%
26%
30%
33%
39%
37%
51%
37%
47%44%
Total
Revenues
2003, 17%
Total Costs
2004, 16%
2005, 15%
Wireless
Long Distance
Local
44%
36%
36%
38%
20%
46%
65% 46% 47%
39%
Wireless
Long Distance
Local
Revenues & Costs

Wireless
Wireless Costs
2001, 21%
Costs of
services and
products
2002, 20%
2003, 20%
2004, 20%
1%
2005, 23%
3%
34%
34%
50% 51%
43% 46% 51%
Selling,
general and
administrative
Restructuring
26%
29%
28%
Depreciation
Revenues & Costs
2001 13%
2002 13%
Local
Revenues
2003 12%
9%
10%
12%
13%
2004 17%
2005
19%

Local
Voice
15%
66%
Data
70%
76%
Other
77%
78%
Local Costs
Costs of
services and
products
2001, 25%
2002, 26%
2003, 25%
2004, 23%
2005, 23%
1% 2%
1%
2%
1%
25%
29%
50%
47%
44%
44% 45%
Selling,
general and
administrative
Restructuring
30%
29%
28%
Depreciation
Revenues & Costs
5%
2001, 10%
4%
2002, 11%
Long Distance
Revenues
2%
2003, 12%
3%
2004, 11%

Long Distance
2005
19% 21% 23% 24% 24%
Voice
61%
Data
62%
63%
Internet
64%
66%
Other
Long Distance Costs
2001, 11%
2002, 16%
2003, 15%
14%
2%
2004, 10%
17%
2005, 8%
34%
23%
69% 38% 44% 55% 50%
Costs of
services and
products
Selling,
general and
administrative
Restructuring
18%
24%
27%
25%
Depreciation
Decreasing Long-Distance Voice Revenues
(US$, millions)
$7,000
$6,000
$5,000
$4,000
$3,000
$2,000
$1,000
$0
2000
2001
2002
2003
2004
2005
2006
Cost (US$, millions)
Long Distance: Restructuring Costs
4,000
3,661
3,000
2,000
1,688
1,000
1,564
194
15
0
2001
2002
2003
Year
2004
2005
3. Financial Analysis
P/E 40
Revenues and Relationships from CF statement
US$ in Millions
40,000
30,000
20,000
10,000
0
-10,000
2000 2001 2002 2003 2004 2005
-20,000
Years
CF from Op.
Activities
Net Cash Used in
Investing Activities
Net Cash Used in
Financing Activities
Net Increase in Cash
& Equivalents
Revenues
Observations
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Revenue growth: slow down
Misleading revenues; Rev > 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)
Interest Expense, Cap Ex, Net Investments (Cash)
$4,000
Expenditure (millions)
$2,000
Interest expense
$0
2000
2001 2002
2003
-$2,000
2004 2005
Capital expenditures
-$4,000
Net cash used in investing
activities
-$6,000
Net income/loss
-$8,000
-$10,000
Time
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

Observations Con’t
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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
Dividends & Earnings
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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: ≈
$16-17)
2006 shares 2987.5M (due to merger)
BUT: cannot afford to buy back
Dividends & Earnings
Value (US$)
Dividends/Share vs EPS
1.25
1.00
0.75
0.50
0.25
0.00
-0.25
-0.50
-0.75
-1.00
-1.25
2000
2001
2002
2003
Year
2004
2005
Diluted EPS (common)
Dividends/common share
More Observations
Merger: double cash (buy back $6B)
 Cost of merger: goodwill, FCC licenses,
customer relationships

Rev, Op Costs, Op Income, NI,
CapEx Relationships
Snapshot of Relationships
40,000
Operating Revenues
US$ in Millions
30,000
20,000
Operating Costs
10,000
0
-10,000
2000 2001 2002 2003 2004 2005
Operating
Income/Loss
Net Income/Loss
-20,000
CapEx
-30,000
-40,000
Years
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

4. Fisher’s Valuation Approach
Fisher: Superiority in Financial skills,
Production, Marketing, Research
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Annual reports: clear, desired info
past 2000; prior: not enough info
Cost control: COGS, interest expense
Restructuring, Asset Impairment
costs, CapEx
Innovation: high R&D
Large mkt campaigns: not always
meet expectations
Overall: 1.5/5
Fisher: People Factor
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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
Fisher: Investment Characteristics of
Some Business
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Position in market
Market share
Tier 1 implications
Less licensing from others; more to
firm
Wireless growth, WiMax potential
Overall 4/5
Fisher: P/E Ratio
Expected vs. realistic growth:
P/E 40.53 (NI for Earnings, 2006 data)
 DDM: 9.75%
 Overall: 0/5

5. Recommendation
Not Buy
…in 1.5yrs at a cheaper price?
SUMMARY
APPENDIX CHARTS
Wireline Local & Long Distance Revenues
1993 - 2004
$ Billions
16.0
14.0
12.0
10.0
$8.7
$8.4
$7.9
$7.9
$7.7
$5.1
$5.4
$5.9
1993
1994 1995 1996
Local services
$8.7
$8.7
$7.1
$6.7
$6.5
$5.9
$6.9
$7.3
8.0
6.0
4.0
2.0
$6.4
$5.3
$6.5
$6.5
$6.9
$6.8
1998
1999 2000 2001 2002
Long distance services
2003
1997
* 1997 local services decrease is due to survey method change
Source: CRTC data collection
Wired Access Lines
1993 - 2004
Million Lines
25.0
20.0
15.0
5.1
5.4
5.7
5.9
11.6
11.8
12.0
12.2
6.2
6.6
12.2
12.4
7.2
7.6
7.4
7.2
7.3
7.1
13.2
12.8
12.8
12.7
12.5
10.0
5.0
12.7
1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004
Residential line
Source: CRTC data collection
Business line
Internet Service Subscribers
2000 - 2004
Thousands
3,500
3,000
2,500
2,933
2,969
2,483
2,025
2,000
1,500
943
1,000
500
412
0
2000
2001
Dial up
Source: CRTC data collection
2002
Cable
2003
2004
DSL
AT&T