Stock Presentation: Telecommunication Services Stock Presentation: Telecommunication Services Jun Song James Liu March 2007 The data from StockVal© are as of Feb 10, Other data are as of Jan 31, 2007 unless otherwise stated. All rights preserved.

Telecom Recap: Sector Allocation Recommendation Given the facts that  Price multiples become less attractive after the 2006 rally  Less foreseeable growth/cost incentives from the macro-eco analysis  The sector, especially the predominant composite companies, is stepping into the mature stage  The sector growth rate is reverting to the mean of that of the S&P 500 Our Recommendation  Sell SIM Telecom Holding  by 300 bps ~ 400 bps, to a position close to the S&P 500 sector allocation

Telecom Recap: SIM Portfolio Holdings Portfolio Holdings, as of Jan 31, 2007 Telecom Holdings The current SIM portfolio significantly overweighs on the telecom sector. Asset Allocation

Telecom Recommendation #1: Sell America Movil SA NYSE: AMX Price as of 03/02/07: $ 41.89

Telecom America Movil SA

Telecom AMX DCF

Telecom Recommendation #2: Sell Verizon Communications NYSE: VZ Price as of 03/02/07: $ 35.83

Telecom Verizon

Telecom Recommendation #3: Buy Sprint Nextel NYSE: S Price as of 03/02/07: $ 35.83

Telecom Sprint Nextel

Telecom Sprint Nextel Multiple Factor average price: $25.75 DCF target price: $23.50 Our target Price: $24

Telecom Sprint Nextel Fundamentals Fourth-quarter profits rose 33% on stronger revenue Revenue for the quarter rose 6% to $10.44 billion from $9.79 billion, surpassing analysts' prediction of $10.39 billion, it added. The company's customer base grew by 1.3 million customers during the quarter, to end the year at 53.1 million It laid off 5000 employees last December but enhanced its market force Sprint expects wireless capital expenditures to hit $5.4 billion this year, including existing network upgrades and work on its forthcoming "fourth- generation" WiMax network, which will launch in Chicago and Washington, D.C., by the end of the year. Sprint expects to spend between $2.5 billion and $3 billion total on its WiMax network, which could reach as many as 100 million people by 2008, threatening telcos and cable companies. Sprint could be a potential acquisition target.

Telecom Sprint vs Sp500

Telecom Sprint vs Telecom Sector

Telecom Sprint vs Verizon

Telecom Recommendation #4: Buy Idearc Inc. NYSE: IAR Price as of 03/02/07: $ Key Stock Statistics

Telecom IAR: Company Highlights  Spun-off from Verizon Inc. in November 2006  Multi-platform media strategies  Second largest directory company in the U.S.  SuperPages.com: #1 Internet yellow pages  Official print publisher of Verizon Yellow Pages  30-year agreement  Recent partnership with Yahoo and Google on the internet directory business

Telecom IAR: Directory Industry and IAR Revenue Assumptions Online local advertising size ($ Bil.) U.S. print directory revenue ($ Bil.) CAGR 19.4% Source: The Kelsey Group (October 2005) Source: Average of values from Borrell Associates (May 2006), eMarketer (June 2006), Jupiter Research (July 2005), and The Kelsey Group (February 2006) IAR Revenue Growth Assumptions

Telecom IAR: Leverage and Negative Book Value Long-term Debt Schedule without Earlier Repayment  As of 12/31/06, the book value is -$8,846 MM. due to the seven folds of Long-term-debt- to-asset leverage inherited from the spin-off  Assumed that the company was fairly valued, if the company effectively pay down the $9.1 B debt inherited from the spin-off, the market capitalization, currently at roughly $4.5 B, would increase accordingly.

Telecom IAR: Implied Value from DCF Model Intrinsic Value from DCF Model Sensitivity analysis of implied equity value/share

Telecom IAR: Target prices implied from multiples MultiplesTarget Prices Note: Because the stock’s trading history is less than four months, I use the sector mean as the target multiples. The results confirm that the target price is in the $ 40 ~ $50 range, which is in line with The DCF model.

Telecom Recommendation #5: Hold Windstream Corp. NYSE: WIN Price as of 03/02/07: $ Key Stock Statistics

Telecom WIN: Company Highlights  Formed by the combination of Alltel Corp.'s fixed-line phone unit and Valor Communications Group Inc. (2005~2006)  Positioning: local communications and entertainment products and services, focusing on rural American  Business lines: phone, and broadband and satellite TV services  Decline in phone and TV access  Gain on broadband subscribers  Planning to spin-off the directory business

Telecom WIN: Implied Value from DCF Model Intrinsic Value from DCF Model Sensitivity analysis of implied equity value/share

Telecom WIN: Analysis of Multiples MultiplesTarget Prices The current P/E and P/S seem to be in line with the historical mean, slightly on the high sides. Cash flow and book value multiples are distorted by the spin-off and merger.

Telecom Telecom Sector Reallocation Summary

Telecom Thank you ! & Questions?