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M A Y   2 0 0 7
T E L E C O M S E C T O R    O V E R V I E W
Presentation to FIN 824 (SPRING QUARTER) Marc
Reitter Siddhesh Sankulkar
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Telecom Sector Overview

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Sector Overview
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Sector Weights SIM v SP 500
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Size Composition
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Sector Performance
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Economic Analysis
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Financial Analysis
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T E L E C O M S E C T O R
Valuation Analysis
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Domestic MA Activity
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Recommendation
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Sector overview defined
SP Telecom Sector

• The Telecom sector is grouped into two primary
  segments
• Telecommunications Equipment
• Wireless, Satellite Network
• Telecommunications Services
• Cable Satellite, Data Services, Wireless
  Communications
• Telecom Industry Growth
• The worldwide telecom industry is in a strong
  growth mode, and overall industry revenue is
  expected to climb to 1.3 Trillion in 2007.
• Strong growth in wireless is leading the way as
  wireless service revenues are expected to grow at
  a compounded rate of nearly 10 percent over the
  next few years.

T E L E C O M S E C T O R
Source Insight Research Corp. 2007 industry
review
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Sector weights SIM vs. SP 500
SIM overview

• Current holdings
• Current holdings

SIM overweight Telecom by 3.43
T E L E C O M S E C T O R
SP 500 overview
YTD Return
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Sector overview company analysis
Size composition

• Telecom defined within the SP 500
• Current SIM holdings

T E L E C O M S E C T O R
Source Yahoo Finance Bloomberg
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Sector overview performance strength
Performance of SP Telecom Services (SP50)
Strength of SP Telecom Services (SP50)
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Sector Overview Economic Analysis
Telecom Sector Outlook is positive in the recent
past and for the foreseeable future

• In 2006, the U.S telecommunications market grew
  at its fastest rate since 2000.
• TIA states that the U.S Market grew 9.3 in 2006
  to total 923 billion in revenue.
• Projected revenue for the U.S Market in 2007 is
  at 1025 billion at 11.05
• Major drivers of high growth rates are expansion
  of wireless communication and broadband access.
• Wireline is losing ground to wireless and VoIP

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Sector Overview Economic Analysis
United States market is looking good but the real
growth is overseas

• Growth is expected in VoIP, as the
  broadband-based phone technology is forecast to
  make up 34 of all U.S residential landlines by
  2010, up from just 10 in 2006.
• Overall, the international market grew 12.1
  percent in 2006. Middle East/Africa was the
  fastest growing region, expanding at 21.6
• By 2010, the global market is expected to reach
  4.3 trillion in revenue, up from 3 trillion in
  2006.

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Sector Overview Economic Analysis
Non-voice revenues on the rise

• While growth in voice traffic continues to
  stimulate the wireless market, data and
  multimedia applications will drive wireless
  revenues in the future.
• The number of broadband subscribers increased
  from fewer than 5 million in 2000 to nearly 57
  million in 2006.
• Dial-up subscribers fell to 35 million from a
  peak of 47 million in 2006.
• With nearly 80 of all households already online
  and the majority of online households already
  having a broadband subscription, overall
  subscriber growth and broadband subscriber growth
  will necessarily slow.

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Sector Overview Economic Analysis
Key Economic Drivers

• Sector growth is correlated with
• GDP ()
• Population Growth ()
• Unemployment Rate (-) Most pronounced
• Wireline growth is more strongly correlated with
  above than wireless

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Sector Overview Economic Analysis
Key Economic Drivers Unemployment Rate (-)
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Sector Overview Financial Analysis
SP-50 Income Statement Analysis
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Sector Overview Financial Analysis
SP-50 Cash Flow Statement Analysis
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Sector Overview Financial Analysis
SP-50 Income Statement Ratios
SP-50 Cash Flow Statement Ratios
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Sector Overview Financial Analysis
SP-50 Prospective Growth and Margin Data
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Sector Overview Valuation Analysis
SP-50 Historical Sector Performance (5 Years)
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Sector Overview Valuation Analysis
Price/Yr-Forward Earnings relative to SP 500
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Sector Overview Valuation Analysis
Price/EBITDA relative to SP 500
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Sector Overview Valuation Analysis
Price/Sales relative to SP 500
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Sector Overview Valuation Analysis
Price/Book Value relative to SP 500
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Sector Overview Valuation Analysis
Price/Cash Flow Adjusted to SP 500
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MA activity
A look at what is happening to the Industry in
the US before we recommend
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Sector Overview Recommendations

• Hold current SIM overweight position of 3.43
• Divest holdings in Wireline companies which have
  no wireless component e.g. Windstream
  Corporation.
• Invest more in US companies offering integrated
  telecom services i.e. wireless, wireline,
  broadband and video services. We see brightest
  prospects for the national carriers (ATT,
  Sprint/Nextel, Verizon) which are able to market
  on a nationwide basis, offer nationwide calling
  plans, and carry most traffic on their own
  networks. They get to exploit both economies of
  scale and economies of scope.
• Invest more in Wireless providers in emerging
  markets. General consensus of industry experts is
  that these providers will continue to realize
  double-digit subscriber and revenue growth in
  2007, improving margins and profitability.

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Sector Overview Questions

• Questions?

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