SECTOR PRESENTATION BY: WILLIAM SANTOSO, MANISH KUMAR, & SARAH RIESKE Telecommunications

Presentation Outline: Industry Information Analyses:  Business  Economic  Financial Performance  Valuation Recommendations Questions

Sector Information

Sector Information: Composition Sectors:  Telecommunications Domestic  AT&T Landlines, cell phones, wireless internet  Telecommunications Foreign  China Mobile Landlines, cell phones, wireless internet  Wireless communications  NII Holdings Cell phones, M2M, other VAS

Industry Information SIM Holding Information NameMarket Cap Telecom - Domestic299.5B Telecom - International3047.1B Wireless Communications657.1B Total4003.7B NameMarket Cap AT&T150.16B China Mobile Ltd B NII Holdings, Inc.3.72B Total355.63B Sector Information: Size Largest Companies in Sector: America MobilNippon Telegraph & Telephone China Mobile, Ltd.Telefonica SA AT&TVerizon

S&P 500 SIM Portfolio Sector Information: Size

Sector Information: Performance YTD performance (12%) Relative to S&P (4.99%) QTD performance (10%) Relative to S&P 1.86%

Business Analysis

Profitability: Porter’s 5 Forces Buyer Power: Moderate  Low switching costs for individuals, higher for companies Supplier Power: Low  Enough vendors to dilute supplier power Threat of New Entrants: Low  Substantial start up costs (exacerbated by poor credit markets) & regulation Substitute Products: Low  Many products, commodity-type attitude, low switching costs Rivalry: Cut throat  Lower margins result from increased price competition

Other Factors Economic – defensive industry Cheap relative to the S&P 500 & on an absolute basis Rapidly evolving industry/high competition  Risk of obsolescence  Shrinking margins  Deregulation Mature in the business cycle:  Established networks and low maintenance costs, little need for increased capital spending

Economic Analysis

Positive Effect Negative Effect Population Growth GDP Growth Disposable Income Inflation Material Costs Labor Costs Influencing Factors

Unemployment (Current) V. Telecommunication

Unemployment (June 1998 – June 2008) V. Telecommunication

Consumer Confidence V. Telecommunication

Nominal GDP V. Telecommunication

Real GDP V. Telecommunication

Financial Performance Analysis

EBITDA (Relative to S&P 500)

ROE (Relative to S&P 500)

Net Profit margin (Relative to S&P 500)

EPS against (Relative to S&P 500)

Dividend Yield (Relative to S&P 500)

Valuation Analysis (Relative to S&P 500)

P/Forward E

P/Trailing E

Price/Book

Price/Sales

Price/EBITDA

Telecom Sector is  Slightly undervalued ( 0.99), Defensive, Cheap relative to S&P 500  Potential growth in wireless and data division  Cut throat competition in the growth areas  Uncertainty in global financial market Summary

Recommendation  Do nothing and wait for  Break through product/technology  Economic recovery (Increase corporate spending)  OR Increase SIM portfolio by 11 basis points to make it equal to S&P (3.39%) Recommendations

What Questions do you have ? Questions?