Telecommunications David Lazarus Dongjun(Donny) Ma Stock presentation March 8, 2005.

Telecommunications

David Lazarus

Dongjun(Donny) Ma

Stock presentationMarch 8, 2005

Outline

• Sector Recap

• SIM holding and performance

• Analysis on stocks

• Candidates in future

• Recommendation

Business Trends

• Deregulation• Price Wars• Oligopolies• M&A (US and International)• Voice over Internet (VoIP) • Wireless Video• MP3/Internet/Camera Phones• Fiber Optic Cable• Video on Demand

Sector Outlook• Market Cap: $360 Billion• Local and Long Distance Phone Services,

Wireless Networks, Internet/Broadband Services, Directory Publishing, Business Services

• Voice over Internet (VoIP) increasing market share

• Industry depends on low interest rates to fuel heavy capital expenditures

Consolidation Continues…

•Consolidation has led to fewer carriers in local phone markets. Soon there will be just 3 or 4 large telecom providers of local phone service.

•Wireless providers are also looking for partners, as large capital expenditures force them to seek economies of scale through acquisitions.

Verizon Communications

• Verizon Communications Inc. is a provider of communications services with four operating segments: Domestic Telecom, Domestic Wireless, Information Services and International

• Domestic Telecom services principally represent Verizon's telephone operations that provide local telephone services in 29 states and the District of Columbia

• Domestic Wireless products and services include wireless voice and data services and equipment sales across the United States

• International segment has wireline and wireless communications operations and investments primarily in the Americas

• 100 Billion Market Cap, $71 Billion in sales• Currently in talks to purchase MCI for $6.7 Billion

Business Segments

Segment InformationVERIZON COMMUNICATIONS CORP (VZ) StockVal ®

FY 2003Business Segment Sales $M Sales % Profits $M Profits %

Domestic Telecom 39,602 58.1% 3,335 47.5%

Domestic Wireless 22,489 33% 1,083 15.4%

Information Services 4,114 6% 1,206 17.2%

International 1,949 2.9% 1,392 19.8%

Total 68,154 100% 7,016 100%

Geographic Segment Sales $M Sales % Profits $M Profits %

Domestic 65,303 96.4%

Other 2,449 3.6%

Total 67,752 100% 100%

Information services is only 6% of sales, yet makes up 17% of profits.

Wireless is 33% of sales and accounts for only 15% of profits!

Price History (5 yr)VERIZON COMMUNICATIONS CORP (VZ)StockVal® PRICE 36.2 DATE 02-25-2005

2000 2001 2002 2003 2004 20052828

3030

3232

3434

3737

40404242

4646

4949

5252

5656

6060

6464

69

74

The Ohio State UniversityFisher College of Business

PRICE MOMENTUM INDEX (OVERBOUGHT/OVERSOLD)-2-2

-1-1

00

+1+1

+2+2

MCI Deal Announced

Verizon vs S&P 100 (3yr)StockVal®

2002 2003 200458

61

64

67

70

73

76

80

84

88

92

96

100

105

110 02/28/02 - 02/28/05

SP1

VZ

TOTAL RETURN COMPARISONFEB 2002 = 100 ANNUAL RATE CUMULATIVE

S&P 100 COMPOSITE INDEX (SP1) +1.2% +3.6%VERIZON COMMUNICATIONS CORP (VZ) -4.4% -12.8%

Verizon Compared to Telecom (3yr)

StockVal®

2002 2003 200454

57

60

63

66

70

74

78

82

86

90

95

100

105 02/28/02 - 02/28/05

S50

VZ

TOTAL RETURN WITH REINVESTMENT COMPARISONFEB 2002 = 100 ANNUAL RATE CUMULATIVE

S&P TELECOM SERVICES SECTOR (S50) -2.7% -7.9%VERIZON COMMUNICATIONS CORP (VZ) -4.4% -12.6%

Verizon Compared to Telecom (2yr)

StockVal®

Q1/03 Q2/03 Q3/03 Q4/03 Q1/04 Q2/04 Q3/04 Q4/04 Q1/0592

96

100

104

108

112

116

121

126

131

136

141

146

152 02/28/03 - 02/28/05

S50

VZ

TOTAL RETURN WITH REINVESTMENT COMPARISONFEB 2003 = 100 ANNUAL RATE CUMULATIVE

S&P TELECOM SERVICES SECTOR (S50) +18.6% +40.6%VERIZON COMMUNICATIONS CORP (VZ) +6.7% +13.7%

Revenue growth and earnings flat…

Income StatementVERIZON COMMUNICATIONS CORP (VZ) StockVal ®

FYE Dec

2003 % Chg 2002 % Chg 2001 % Chg 2000 % Chg 1999

Revenues ($ Mil) 67752.0 1 67304.0 1 66713.0 4 64236.0 11 57823.0

Cost of Goods & Services

Gross Profit

S G & A Expense

R&D Expense

Interest Expense 2797.0 -11 3130.0 -4 3276.0 -6 3490.0 33 2616.0

Pre-Tax Income 4761.0 -24 6258.0 129 2731.0 -85 17819.0 35 13168.0

Taxes 1252.0 -22 1597.0 -26 2147.0 -69 7009.0 44 4872.0

Net Income Reported ($ Mil) 3077.0 -25 4079.0 949 389.0 -97 11797.0 43 8260.0

Net Income Adjusted 7283.0 -14 8449.0 -4 8768.0 4 8463.0 14 7445.0

EPS Reported 1.11 -26 1.49 964 0.14 -97 4.31 45 2.97

EPS Adjusted 2.62 -15 3.08 -4 3.21 4 3.09 15 2.68

Shares Outstanding (Thou) 2789000 2 2745000 1 2730000 0 2737000 -1 2777380

Dividends Common (Per Shr) 1.54 0 1.54 0 1.54 0 1.54 0 1.54

Dividends Preferred ($ Mil) 0.0 0.0 0.0 0.0 0.0

2004: 2.79 2005E: 2.552006E: 2.66

Margins falling…Prospective Growth & Margin Check StockVal ®

VERIZON COMMUNICATIONS CORP (VZ)Price 36.200 02/25/05

Percent Change Actual Year Profit Momentum %

Quarter Revenue REV RPS EARN EPS EPS Ago Margin % SF REV EPS

Mar 03 16,490.0 1 -1 -3 -5 0.69 0.73 11.6 +2 +1 -5

Jun 03 16,829.0 0 -1 -11 -13 0.68 0.78 11.3 0 0 -13

Sep 03 17,155.0 0 -1 -12 -13 0.67 0.77 10.9 +1 0 -14

Dec 03 17,278.0 1 1 -31 -30 0.57 0.82 9.1 0 +1 -35

Mar 04 17,136.0 4 3 -17 -17 0.57 0.69 9.3 0 +4 -18

Jun 04 17,838.0 6 5 -5 -6 0.64 0.68 10.1 +1 +6 -6

Sep 04 18,206.0 6 6 -4 -4 0.64 0.67 9.9 0 +6 -5

Dec 04 18,263.0 6 4 15 12 0.64 0.57 9.9 0 +6 +12

T4Q 71,443.0 5 4 -4 -5 2.49 9.8

Mar 05 E 18,093.5 6 5 6 5 0.60 0.57 9.4 +5 +5

Jun 05 E 18,676.3 5 4 1 0 0.64 0.64 9.7 +5 0

Sep 05 E 19,005.8 4 4 2 2 0.65 0.64 9.7 +4 +2

Dec 05 E 19,147.9 5 5 2 2 0.65 0.64 9.6 +5 +2

F4Q E 74,923.5 5 4 3 2 2.54 9.6

Point-to-Point Growth Rates (%) Long-Term Growth Rate Estimates (%)

Years REV RPS EARN EPS Median Estimate 5.0%

1 5 4 -4 -5 Number of Estimates 10

3 2 1 -7 -8 Standard Deviation 6

5 4 4 -1 -2 Default GRE Estimate 2.0%

10 4 4 3 2 Analyst GRE Estimate 2.0%

15 3 3 4 3

20 4 3 4 3 Expected Report Date 04/27/05

Cash flows uncertain…Cash Flow Analysis

VERIZON COMMUNICATIONS CORP (VZ) StockVal ®

FYE Dec

2003 % Chg 2002 % Chg 2001 % Chg 2000 % Chg 1999

Net Income Reported ($ Mil) 3077.0 -25 4079.0 949 389.0 -97 11797.0 43 8260.0

Accounting Adjustment 4206.0 -4 4370.0 -48 8379.0 -3334.0 -309 -815.0

Net Income Adjusted 7283.0 -14 8449.0 -4 8768.0 4 8463.0 14 7445.0

Depreciation & Amort 13617.0 2 13290.0 -2 13523.0 10 12261.0 24 9890.0

Cash Flow Adjusted 20900.0 -4 21739.0 -2 22291.0 8 20724.0 20 17335.0

Capital Expenditures 11884.0 -9 13061.0 -29 18369.0 4 17633.0 36 13013.0

Free Cash Flow Adjusted 9016.0 4 8678.0 121 3922.0 27 3091.0 -28 4322.0

Dividends Common ($ Mil) 4295.1 2 4227.3 1 4204.2 0 4215.0 -1 4277.2

Free Cash Flow After Dividends 4720.9 6 4450.7 -282.2 75 -1124.0 44.8

Net Cash From Operations 22482.0 2 22099.0 13 19526.0 23 15827.0 -7 17017.0

Net Cash From Investing -12246.0 -80 -6800.0 68 -21324.0 -33 -16055.0 8 -17420.0

Net Cash From Financing -10959.0 26 -14809.0 1973.0 -1048.0 1732.0

Other Cash Flows 0.0 0.0 0.0 0.0 0.0

Change In Cash & Equiv -723.0 490.0 180 175.0 -1276.0 1329.0

Capital expenditures totaled $13.3 billion in 2004, compared with $11.9 billion in 2003. In 2005, overall capital spending is

expected to increase approximately 10 % to $14.6 billion!

And this stock is not cheap…

2003 2004 2005N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D

StockVal®

VERIZON COMMUNICATIONS CORP (VZ)First Call FY1 Mean Estimate

PRICE32

34

36

38

40

42 HI 42LO 32ME 37CU 36GR -5.0%

01-03-200302-25-2005

FY1 MEAN ESTIMATE (FYE DEC 2005)2.4

2.5

2.6

2.7

2.8

2.9 HI 2.95 LO 2.43 ME 2.64 CU 2.55 GR -6.3%

01-31-200302-25-2005

FY1 PE RATIO11

12

13

14

15 HI 15.9 LO 11.7 ME 14.1 CU 14.2

01-31-200302-25-2005

On a positive note…

• Dividend yield of 4.36 %• # 2 in US wireless market with 44 million customers• Merger with MCI will increase business-access lines to 18.5

million• Leader in high speed wireless internet and video services• This company is making money, although earnings growth is

expected to be only 2 - 4%• Should be one of the few left standing

DCF AnalysisVZ

(000,000s) FY04 FY03 FY02 FY01 FY00

Net income 3,077 3,509 4,661 590 10,810

Depreciation 13,617 13,617 13,290 13,657 12,261

Capital expenditures (11,884) (11,884) (11,984) (17,371) (17,633)

Free Cash Flow of Firm 5,504$ 5,242$ 5,967$ (3,124)$ 5,438$

DCFTerminal Value 136,937$

Value of VZTotal Value of Equity 95,000$ # of shs outstanding (mill) 2,769 Value of One Share 34.31$

Cost Of EquityBeta 1.00Risk Free Rate (10 yr treasury) 4.24%Mkt Risk Premium 5.19%CAPM = Expected return=R(f)+beta (Mkt Prem) 9.43%# of shs outstanding (000,000's) 2,769 Recent Price (3/4/05) 36.42$ Current Mkt Value of Equity ($ mill) 100,847$

Long term rate of growth 5.20%

Mkt PremiumRecent Price 36.42$ Div/Sh (2004) 1.54$ Long term rate of growth 5.20%K 9.43%Mkt Premium (K-Risk Free Rate) 5.19%

Recommendation

• Reduce

ALLTEL--Stock performance

2001 2002 2003 2004 2005 2006

ALLTEL CORPORATION (AT)PRICE 57.3 DATE 02-25-2005 QR 3.0 NET 4.5%StockVal® EPS Lagged 1-Year

2828

3030

3232

35353737

4040

4343

4646

50505353

5757

6161

66

71

76


THE G-MODEL

IR 3.89 3.89

K 5.11 5.11

K' 0.00 0.00

NE 3.55 3.71PE 16.2 15.5

WPE 15.1 15.1

WP 53 56

AP -7% -2%

Expected Return 1-Yr 0%

First Call Data 2005 2006 2007

Mean Estimate 3.44 3.68 3.80Change +2% +7% +3%

High 3.54 4.02 4.04

Low 3.24 3.34 3.56

Total 24 16 2

# Up 9 6 0

# Down 13 4 0

House Estimate

PE Ratio 16.6 15.6 15.1

2005 3.52

2006 3.682007 3.85

2008 4.02

2009 4.20

2010 4.39

2011 4.59

2012 4.79

Normalized Earnings

FYE December

Alltel --Financial Analysis (1)

Income StatementALLTEL CORPORATION (AT) StockVal ®

FYE Dec

2004 % Chg 2003 % Chg 2002 % Chg 2001 % Chg 2000

Revenues ($ Mil) 8246.1 3 7979.9 12 7112.4 8 6615.8 5 6308.9

Cost of Goods & Services 3449.7 4 3317.1 13 2930.3 8 2707.7

Gross Profit 4796.4 3 4662.8 11 4182.1 7 3908.1

S G & A Expense 1524.2 2 1498.1 16 1297.0 8 1201.1 -12 1369.1

R&D Expense

Interest Expense 369.2 -6 393.8 6 371.0 32 281.6 -1 284.3

Pre-Tax Income 1592.0 4 1534.1 13 1360.3 -17 1631.0 -49 3208.0

Taxes 565.3 -3 580.6 14 510.2 -22 653.0 -51 1325.3

Net Income Reported ($ Mil) 1046.2 -21 1330.1 44 924.3 -13 1067.0 -45 1928.8

Net Income Adjusted 1038.1 9 954.4 5 906.9 -1 913.3 31 699.1

EPS Reported 3.39 -20 4.25 44 2.96 -13 3.40 -44 6.08

EPS Adjusted 3.37 10 3.05 5 2.90 0 2.91 32 2.20

Shares Outstanding (Thou) 308400 -1 312800 0 312300 0 313500 -1 317200

Dividends Common (Per Shr) 1.49 5 1.42 4 1.37 3 1.33 3 1.29

Dividends Preferred ($ Mil) 0.1 0 0.1 0 0.1 0 0.1 0 0.1

• Expansion trend in sales, but slow down in 2004

(Sector is declining)

• Solid operating margin 24%

(Sector is 15% in 2003)

Balance SheetALLTEL CORPORATION (AT) StockVal ®

FYE Dec

2004 % Chg 2003 % Chg 2002 % Chg 2001 % Chg 2000

Cash & Equivalents ($ Mil) 484.9 -26 657.8 389 134.6 58 85.3 27 67.2

Accounts Receivable 912.7 3 890.0 -13 1018.3 -18 1241.2 -3 1273.6

Inventories 156.8 28 122.1 -12 138.5 -15 163.8 -32 239.9

Other Current Assets 62.4 5 59.2 -90 577.1 108 277.5 39 200.0

Total Current Assets 1616.8 -6 1729.1 -7 1868.5 6 1767.8 -1 1780.7

Plant & Equipment Gross 15836.3 6 14909.9 4 14320.1 9 13082.0 8 12113.4

Accumulated Depreciation 8288.2 14 7289.1 8 6756.4 7 6300.7 13 5564.4

Plant & Equipment Net 7548.1 -1 7620.8 1 7563.7 12 6781.3 4 6549.0

Other Long-Term Assets 7438.8 2 7311.2 7 6812.4 72 3951.6 5 3757.5

Total Long-Term Assets 14986.9 0 14932.0 4 14376.1 34 10732.9 4 10306.5

Total Assets 16603.7 0 16661.1 3 16244.6 30 12500.7 3 12087.2

Accounts Payable 448.2 -7 479.8 16 413.7 -21 522.1 -24 688.4

Short-Term Debt 225.0 -19 277.2 -44 494.7 859 51.6 -24 68.3

Other Current Liabilities 787.1 7 735.7 -17 882.3 24 711.4 -6 759.2

Total Current Liabilities 1460.3 -2 1492.7 -17 1790.7 39 1285.1 -15 1515.9

Long-Term Debt 5352.4 -4 5581.2 -9 6145.4 59 3861.5 -16 4611.7

Deferred Income Taxes 1715.1 21 1417.7 27 1115.4 51 738.0 240 217.0

Other Long-Term Liabilities 947.2 -17 1147.3 -4 1195.0 14 1050.3 62 647.2

Total Long-Term Liabilities 8014.7 -2 8146.2 -4 8455.8 50 5649.8 3 5475.9

Total Liabilities 9475.0 -2 9638.9 -6 10246.5 48 6934.9 -1 6991.8

Minority Interest

Preferred Equity 0.3 -25 0.4 0 0.4 0 0.4 -20 0.5

Common Equity 7128.4 2 7021.8 17 5997.7 8 5565.4 9 5094.9

Total Equity 7128.7 2 7022.2 17 5998.1 8 5565.8 9 5095.4

Total Liab & Equity 16603.7 0 16661.1 3 16244.6 30 12500.7 3 12087.2


• Significant increase in cash since 2003.

• Need at least 1 billion cash to acquire Western.

• Will be less liquid in short-term.

Cash Flow AnalysisALLTEL CORPORATION (AT) StockVal ®

FYE Dec

2004 % Chg 2003 % Chg 2002 % Chg 2001 % Chg 2000

Net Income Reported ($ Mil) 1046.2 -21 1330.1 44 924.3 -13 1067.0 -45 1928.8

Accounting Adjustment -8.1 98 -375.7 -2056 -17.4 89 -153.7 88 -1229.7

Net Income Adjusted 1038.1 9 954.4 5 906.9 -1 913.3 31 699.1

Depreciation & Amort 1299.7 4 1247.7 14 1095.5 1 1082.0 9 988.4

Cash Flow Adjusted 2337.8 6 2202.1 10 2002.4 0 1995.3 18 1687.5

Capital Expenditures 1157.7 -3 1194.4 -2 1213.2 -3 1250.6 7 1164.7

Free Cash Flow Adjusted 1180.1 17 1007.7 28 789.2 6 744.7 42 522.8

Dividends Common ($ Mil) 459.5 3 444.2 4 427.9 3 417.0 2 409.2

Free Cash Flow After Dividends 720.6 28 563.5 56 361.3 10 327.7 188 113.6

Net Cash From Operations 2466.8 0 2474.7 3 2392.2 27 1882.1 26 1496.3

Net Cash From Investing -1258.4 1 -1265.9 72 -4494.6 -953 -427.0 66 -1264.3

Net Cash From Financing -1381.2 -13 -1218.2 2079.5 -1479.5 -707 -183.4

Other Cash Flows -0.1 532.6 465 94.3 91 49.3 4830 1.0

Change In Cash & Equiv -172.9 523.2 633 71.4 187 24.9 -50 49.6


• Solid operating cash flow in accordance with stable operating income

-- Quality of core earnings

StockVal®ALLTEL CORPORATION (AT) Price 57.32001 2002 2003 2004 2005 2006

PRICE / YEAR-FORWARD EARNINGS12

15

18

21

24

HI 22.5 LO 12.1 ME 16.0 CU 16.5

02-23-200102-25-2005

PRICE / YR-FORWARD EPS ESTS / GRE1

2

3

4

HI 3.4 LO 1.1 ME 1.9 CU 2.5

02-23-200102-25-2005

PRICE / SALES1

2

3

4

HI 3.10 LO 1.73 ME 2.10 CU 2.14

02-23-200102-25-2005

PRICE / CASH FLOW ADJUSTED4

6

8

10

12

HI 11.4 LO 5.8 ME 7.5 CU 7.5

02-23-200102-25-2005

Alltel --Valuation Analysis (Absolute

Multiple)

• P/E, P/S and P/Cash at average position in 4-yr.

• PEG at relatively higher position

StockVal®ALLTEL CORPORATION (AT) Price 57.32001 2002 2003 2004 2005 2006

PRICE / YEAR-FORWARD EARNINGS RELATIVE TO S&P TELECOM SERV. SECTOR COMPOSITE A (SP-50) M-Wtd0.3

0.6

0.9

1.2

1.5

HI 1.21 LO 0.55 ME 0.96 CU 1.00

02-23-200102-25-2005

PRICE / YR-FORWARD EPS ESTS / GRE RELATIVE TO S&P TELECOM SERV. SECTOR COMPOSITE A (SP-50)0.4

0.8

1.2

1.6

2.0

HI 1.61 LO 0.53 ME 0.97 CU 0.92

02-23-200102-25-2005

PRICE / SALES RELATIVE TO S&P TELECOM SERV. SECTOR COMPOSITE A (SP-50) M-Wtd1.0

1.2

1.4

1.6

1.8

HI 1.76 LO 1.09 ME 1.43 CU 1.43

02-23-200102-25-2005

PRICE / CASH FLOW ADJUSTED RELATIVE TO S&P TELECOM SERV. SECTOR COMPOSITE A (SP-50) M-Wtd1.2

1.4

1.6

1.8

2.0

HI 1.87 LO 1.25 ME 1.43 CU 1.44

02-23-200102-25-2005

Alltel --Valuation Analysis (Relative

Multiple)

• All on average level

• Correctly priced relative to sector

More on Alltel

• On Jan 6, 2005, the company announced to acquire Western Wireless (WWCA)

• This event became major driver of the stock performance in short run

• Deal to be closed in mid-year

8/04 9/04 10/04 11/04 12/04 1/05 2/05 3/05

ALLTEL CORPORATION (AT)PRICE 57.3 DATE 02-25-2005StockVal®

5353

5454

5555

5656

5757

5858

5959

6060

6161

62

63

Volume in Thousands of Shares00

954954

19081908

28622862

38163816

47704770

5724 60 Day Avg. Volume 1,979

8/04 9/04 10/04 11/04 12/04 1/05 2/05 3/05

WESTERN WIRELESS CORPORATION (WWCA)PRICE 39.2 DATE 02-25-2005StockVal®

2424

2626

2828

3030

3232

3434

3636

3838

4040

42

44

Volume in Thousands of Shares00

20002000

40004000

60006000

80008000

1000010000

12000 60 Day Avg. Volume 2,527

After combined• Fifth-largest U.S. wireless company• coverage over one-fourth of the United

States' population• 10 billion revenue• 10 million domestic wireless customers in 33

states customers • 1.6 million international wireless in six

countries • 3 million wireline customers in 15 states.

Detail of the deal

• Purchase price: $ 39.25 per share

0.535 shares of Alltel stock plus $9.25 in cash for each Western share.

• Western shareholders will have an option for all cash or all stock subject to proration.

• Deal to be closed in mid-year

WWCA current price is $ 39.30, with P/E (forward) of 18.28 which is a little bit higher than Alltel’s

Is it a good deal for Alltel?

Western Wireless

2001 2002 2003 2004 2005 2006

WESTERN WIRELESS CORPORATION (WWCA)PRICE 39.2 DATE 02-25-2005StockVal®

11

22

44

66

1010

1616

2828

48

84


Price Change % Diff SP5

1-Day 0.95 0.02

1-Week 1.92 1.04

4-Weeks 4.03 0.89

QTD 33.92 33.97

YTD 33.92 33.97

2004 59.59 50.59

2003 246.42 220.03

2002 -81.24 -57.87 FYE Dec 2003 EPS -0.08

First Call Data 2004 2005 2006

Mean Estimate 1.52 2.13 2.02Change NMN +40% -5%

High 1.65 2.87 2.25

Low 1.46 1.52 1.78

Total 5 9 2

# Up 0 2 1

# Down 4 5 0

House Estimate

PE Ratio 25.8 18.4 19.4

Revenues ($Mil) 1,823

Market Value ($Mil) 3,922

Shares Out (Mil) 100.0

Daily Volume (Thou) 2,527

Daily Volume ($Mil) 99.1

Dividend Estimate None

Payout Ratio

Retention Rate

Dividend Yield

Data Page # 1

$2.5 to $39

1400% return in 2.5 years !!!

Income StatementWESTERN WIRELESS CORPORATION (WWCA) StockVal ®

FYE Dec

2003 % Chg 2002 % Chg 2001 % Chg 2000 % Chg 1999

Revenues ($ Mil) 1501.3 27 1186.6 14 1038.0 24 835.0 33 626.8

Cost of Goods & Services 583.6 22 479.3 23 391.2 74 224.8 37 164.6

Gross Profit 917.7 30 707.3 9 646.8 6 610.1 32 462.2

S G & A Expense 473.0 19 398.4 -4 416.6 41 296.1 35 220.0

R&D Expense

Interest Expense 158.6 1 156.7 -3 161.9 6 152.2 52 100.0

Pre-Tax Income 36.9 -92.1 36 -143.6 65.4 -148.8

Taxes -35.0 123.3 0.0 0.0 0.0

Net Income Reported ($ Mil) -0.3 100 -185.7 -20 -155.1 65.4 -148.8

Net Income Adjusted -9.8 92 -115.1 -2 -113.1 42.8 -48.1

EPS Reported 0.00 -2.35 -19 -1.97 0.81 -1.94

EPS Adjusted -0.12 92 -1.46 -1 -1.44 0.53 -0.63

Shares Outstanding (Thou) 82824 5 78955 0 78625 -2 80303 5 76775

Dividends Common (Per Shr) 0.00 0.00 0.00 0.00 0.00

Dividends Preferred ($ Mil)

• Loss in 2002 and 2001, because of one-time or special charge

• Rapid growth in sales

• Solid operating margin

Western Wireless

Balance SheetWESTERN WIRELESS CORPORATION (WWCA) StockVal ®

FYE Dec

2003 % Chg 2002 % Chg 2001 % Chg 2000 % Chg 1999

Cash & Equivalents ($ Mil) 128.6 106 62.4 38 45.1 94 23.3 -46 42.7

Accounts Receivable 215.8 35 160.0 9 147.3 31 112.1 48 75.8

Inventories 30.2 23 24.5 -28 33.8 96 17.2 78 9.7

Other Current Assets 23.1 -57 53.3 -24 70.4 25 56.1 85 30.3

Total Current Assets 397.7 32 300.2 1 296.5 42 208.7 32 158.6



Plant & Equipment Net 901.9 5 855.6 4 823.0 41 581.7 57 369.5

Other Long-Term Assets 1222.2 -2 1243.2 -1 1250.9 4 1206.0 46 824.4


Total Assets 2521.7 5 2399.0 1 2370.4 19 1996.5 48 1352.6

Accounts Payable 100.7 70 59.4 -27 80.9 314 19.6 64 11.9

Short-Term Debt 47.3 -67 141.9 174 51.7 1734 2.8 0.0

Other Current Liabilities 234.8 12 209.6 -21 266.2 62 164.2 122 73.9

Total Current Liabilities 382.8 -7 410.9 3 398.8 114 186.6 117 85.8

Long-Term Debt 2172.9 -6 2317.1 5 2215.6 15 1926.4 33 1450.0

Deferred Income Taxes 151.0 25 120.7 0.0 0.0 0.0

Other Long-Term Liabilities 39.6 182 14.0 -54 30.2 0.0 0.0

Total Long-Term Liabilities 2363.4 -4 2451.8 9 2245.8 17 1926.4 33 1450.0

Total Liabilities 2746.2 -4 2862.7 8 2644.6 25 2113.0 38 1535.8

Minority Interest 22.1 -3 22.7 -9 25.1 13 22.2 1444 1.4

Preferred Equity

Common Equity -246.6 49 -486.4 -63 -299.3 -116 -138.7 25 -184.7

Total Equity -246.6 49 -486.4 -63 -299.3 -116 -138.7 25 -184.7

Total Liab & Equity 2521.7 5 2399.0 1 2370.4 19 1996.5 48 1352.6

Western Wireless

• Improved in liquidity

Western Wireless Cash Flow Analysis

WESTERN WIRELESS CORPORATION (WWCA) StockVal ®

FYE Dec

2003 % Chg 2002 % Chg 2001 % Chg 2000 % Chg 1999

Net Income Reported ($ Mil) -0.3 100 -185.7 -20 -155.1 65.4 -148.8

Accounting Adjustment -9.4 70.6 68 42.0 -22.6 100.7

Net Income Adjusted -9.8 92 -115.1 -2 -113.1 42.8 -48.1

Depreciation & Amort 276.4 13 244.2 14 214.6 67 128.2 20 106.7

Cash Flow Adjusted 266.6 106 129.2 27 101.5 -41 171.0 192 58.6

Capital Expenditures 250.1 -17 300.4 -21 378.2 44 262.6 56 168.2

Free Cash Flow Adjusted 16.6 -171.3 38 -276.8 -202 -91.5 16 -109.6

Dividends Common ($ Mil) 0.0 0.0 0.0 0.0 0.0

Free Cash Flow After Dividends 16.6 -171.3 38 -276.8 -202 -91.5 16 -109.6

Net Cash From Operations 324.1 122 145.9 100 72.9 -56 167.0 74 95.7

Net Cash From Investing -180.6 41 -304.3 30 -432.9 33 -644.3 -38 -467.1

Net Cash From Financing -84.9 171.7 -55 381.7 -17 457.8 11 412.0

Other Cash Flows 7.6 85 4.1 9999 0.0 0.0 0.0

Change In Cash & Equiv 66.2 281 17.3 -20 21.8 -19.5 40.5

• Solid operating cash in-flow

Western WirelessStockVal®WESTERN WIRELESS CORPORATION (WWCA) Price 39.2

2001 2002 2003 2004 2005 2006

PRICE / YEAR-FORWARD EARNINGS RELATIVE TO S&P TELECOM SERV. SECTOR COMPOSITE A (SP-50) M-Wtd0.6

0.9

1.2

1.5

1.8

HI 99.90 +LO 0.74 ME 0.92 CU 1.13

02-23-200102-25-2005

PRICE / YR-FORWARD EPS ESTS / GRE RELATIVE TO S&P TELECOM SERV. SECTOR COMPOSITE A (SP-50)0

2

4

6

8

HI 99.90 +LO 0.16 ME 0.46 CU 0.48

02-23-200102-25-2005

PRICE / SALES RELATIVE TO S&P TELECOM SERV. SECTOR COMPOSITE A (SP-50) M-Wtd0.0

0.5

1.0

1.5

2.0

HI 1.89 LO 0.12 ME 0.88 CU 1.42

02-23-200102-25-2005

PRICE / CASH FLOW ADJUSTED RELATIVE TO S&P TELECOM SERV. SECTOR COMPOSITE A (SP-50) M-Wtd0

1

2

3

4

HI 4.87 LO 0.43 ME 1.31 CU 1.60

02-23-200102-25-2005

• Multiples at relatively higher position

Pro Forma Combined Financial Measures

Western Wireless (Pre-Synergy) OIBDA for the twelve months ended December 31:(Dollars in millions) 2005 2006 Operating income under GAAP* 445.0$ 509.0$ Depreciation and amortization* 292.0 310.0 OIBDA* 737.0$ 819.0$ *-Amounts based on average of Wall Street analyst estimates (Merrill Lynch, Bear Stearns and Lehman Brothers.

Segment OIBDA for the twelve months ended September 30, 2004: Western(Dollars in millions) ALLTEL Wireless Pro Forma % of total Wireless segment income under GAAP 991.7$ 321.3$ 1,313.0$ Depreciation & amortization 720.5 256.1 976.6 Wireless OIBDA 1,712.2 577.4 2,289.6 59.6%

Wireline segment income under GAAP 927.2 - 927.2 Depreciation & amortization 520.5 - 520.5 Wireline OIBDA 1,447.7 - 1,447.7 37.7%

Communications support services segment income under GAAP 66.4 - 66.4 Depreciation & amortization 35.1 - 35.1 Communications support services OIBDA 101.5 - 101.5 2.6% Total Business Segments OIBDA 3,261.4$ 577.4$ 3,838.8$ 100.0%

Adjusted OIBDA for Western Wireless International Operationsfor the nine months ended September 30:(Dollars in millions) 2003 2004 International operations segment income under GAAP (37.2)$ 67.0$ Depreciation and amortization 51.4 66.4 Stock-based compensation, net - 11.3 Adjusted OIBDA for international operations 14.2$ 144.7$

Valuation on Acquisition

• Synergy: Revenue: opportunity to increase penetration;

opportunity to offer high-value service plans; expanded roaming relationships

Operating expenses: corporate overhead; IT operations; network operations; sales and marketing; handset/network purchasing

Operating synergies: $50M-$60M in 2006, $60M-$70M in 2007, and $70M-$80M in 2008

• Special charge for restructuring in 2005• Fair acquisition? Some analysts estimate

that the stand-alone value of WWCA is around $39 per share

Summary on Alltel

• Cost of acquiring Western is close to fair value, at least close to its stand-alone value

• Market over-reacted to this acquisition, but it will take time for the market to get the confidence back

• Restructuring cost in short run, synergy in long run. Less surprise before second quarter of 2006.

• Unlikely to surge before the acquisition is closed—limit potential in 1-year horizon

Recommendation– sell 50%

Look For Other Candidates

Portrait of Targets of acquisition:

• Wireless, long distance business or international business

• Attractive customer base

• Improving (or stable) operating cash flow—solid business operation

• Middle or large market cap.

Look for Potential Targets (1)

330 Public companies in Telecom Service sector

•Market cap >2 billion

•Excluding ADRs

•Not involved large M&As recently

13 companies qualified

•Business Analysis

4 companies

•Financial Analysis

•Detail Business analysis

1 candidate to watch

They are: BCE,CTL,CZN,USM

USM

Look for potential targets (2)Ticker Name Market Cap Sales P/E P/S P/Cash

BLS BellSouth Corporation 46,948.04 20,300.00 13.86 2.35 6.73

BCE BCE Inc. (USA) 22,095.86 15,882.99 18.5 1.38 5.61

TU TELUS Corporation (USA) 10,670.63 6,273.75 23.79 1.68 5.76

RGRogers Communications Inc. (USA) 10,029.79 4,641.05 NA 1.42 6.66

TDS Telephone & Data Systems 4,841.64 3,720.39 117.51 1.33 6.72

CTL CenturyTel, Inc. 4,483.91 2,407.37 13.83 1.95 5.59

CZN Citizens Communications 4,432.90 2,202.04 53.65 1.86 6.24

AMT American Tower Corporation 4,330.61 769.86 NA 5.37 37.5

USMUnited States Cellular Corporation 4,218.55 2,837.62 39.59 1.52 7

TLWT Telewest Global, Inc. 4,044.95 2,430.63 NA 1.67 7.42

NIHD NII Holdings, Inc. 3,934.26 1,174.80 NA 3.54 72.98

CCICrown Castle International Corp. 3,633.36 696.44 NA 5.18 NA

SSI SpectraSite Inc. 2,927.59 337.475 71.95 9.51 22.23

Analysis on USM--Profile

United States Cellular Corporation (USM)Seventh-largest wireless service provider A business unit of Telephone and Data

Systems, Inc. [AMEX: TDS], which owns 82% of the company

4,409,000 customers in 26 states 182 majority-owned wireless licenses CDMA technology

Analysis on USM--Segment

(IN THOUSANDS) 2003 2002 2001

Retail service 1,984,671 1,682,020 1,408,253

Inbound roaming 221,737 255,443 272,361

Long-distance and other 217,381 161,430 145,771

Service Revenues 2,423,789 2,098,893 1,826,385

Equipment sales 158,994 98,693 68,445

Total Operating Revenues

2,582,783 2,197,586 1,897,830

Analysis on USM--Balance sheet

Balance SheetUNITED STATES CELLULAR CORP (USM) StockVal ®

FYE Dec

2003 % Chg 2002 % Chg 2001 % Chg 2000 % Chg 1999

Cash & Equivalents ($ Mil) 9.8 -34 14.9 -49 28.9 -77 124.3 -37 197.8

Accounts Receivable 287.0 -9 315.3 27 247.4 13 219.0 12 195.7

Inventories 71.0 28 55.5 -1 56.0 15 48.8 63 30.0

Other Current Assets 56.3 -17 67.7 -6 71.6 315 17.3 -32 25.3

Total Current Assets 424.1 -6 453.3 12 404.0 -1 409.4 -9 448.8



Plant & Equipment Net 2173.9 7 2033.8 43 1419.3 24 1145.6 7 1071.0

Other Long-Term Assets 2325.7 5 2212.8 14 1935.9 -1 1946.2 -3 2014.5


Total Assets 4923.6 5 4699.8 25 3759.2 7 3501.2 -1 3534.2

Accounts Payable 285.6 -7 306.9 56 196.8 -7 212.3 44 147.1

Short-Term Debt 108.0 -79 505.2 91 264.0 380 55.0 0.0

Other Current Liabilities 188.3 11 169.1 45 116.4 -11 131.0 64 79.9

Total Current Liabilities 581.9 -41 981.2 70 577.1 45 398.3 75 227.0

Long-Term Debt 1144.3 42 806.5 100 403.2 -10 448.8 -18 546.3

Deferred Income Taxes 443.0 23 359.4 -7 388.3 9 357.8 -11 402.0

Other Long-Term Liabilities 198.1 139 82.7 877 8.5 -82 46.8 8 43.3

Total Long-Term Liabilities 1785.5 43 1248.6 56 799.9 -6 853.3 -14 991.6

Total Liabilities 2367.4 6 2229.7 62 1377.1 10 1251.7 3 1218.6

Minority Interest 60.1 9 55.1 19 46.4 33 34.9 -15 41.0

Preferred Equity

Common Equity 2496.2 3 2415.0 3 2335.7 5 2214.6 -3 2274.6

Total Equity 2496.2 3 2415.0 3 2335.7 5 2214.6 -3 2274.6

Total Liab & Equity 4923.6 5 4699.8 25 3759.2 7 3501.2 -1 3534.2

Need cash!

Analysis on USM--Annual Report

Operating income decreased 58% in 2003 and 11% in 2002. Due to:Loss on impairment of intangible assets

Increased costs of acquiring, serving and retaining U.S. Cellular’s customers,

Ongoing development of the Chicago market Losses on assets held for sale related to the

exchange and sale transactions entered into with AT&T Wireless

Increased costs related to the acquisition of and subsequent brand launch in the Chicago market.

Will TDS SELL USM ?

In 2003, USM contributes to TDS:

• Provides 74.8% of TDS' consolidated revenues

• Provides 52.8% of TDS’ consolidated operating income

Will TDS SELL USM ?

Your industry keeps on consolidating. Would you sell U.S. Cellular?

I’m not the guy that would consider it. The company is heavily owned by TDS, and they would make that decision. As of right now and as far as I know, there is no interest in selling. I’m not advising them to do that. But I’ve worked in industry long enough that I’ve had three companies acquired out from under me. So I know the realities of life. If somebody decides they got an offer they can’t refuse, I’m sure that the TDS board would give it consideration, and so would our board.

--JOHN ROONEY, CEO of USMApril, 2004

Recommendation on Sector• Underweight

• S&P 500: 3.1%• SIM: 4.7%

• Reduce to 2.0%

Recommendation

Sell sector to underweight:

• Sell 50% Alltel

• Sell 50% Verizon

Watch:

• USM

• Nokia

Telecommunications David Lazarus Dongjun(Donny) Ma Stock presentation March 8, 2005.

Documents

Transcript of Telecommunications David Lazarus Dongjun(Donny) Ma Stock presentation March 8, 2005.