JPM Initiation AMT

North America Equity Research
13 January 2011
U.S. Telecom Services & Towers

Initiating Coverage with Favorable View as Data
Trends Drive Demand
We are initiating coverage on 14 US telecom and wireless tower stocks with a
favorable view on investment in the industry due to strong cash flow characteristics,
stable business trends and potential improvements as the economy rebounds, and the
potential for data demand (wired and wireless) to drive traffic and revenue higher in
the next few years. While some carriers will continue to see heavy competition, we see
little irrational competition in either wireless or wireline today.
Wireless fundamentals shift to data from voice. We expect wireless voice adds to
decline again in 2011, and forecast only 2.8 million postpaid adds among the Big 4
carriers, down from 3.7 million in 2010. Instead, data should be the main driver of
value creation from here, as consumers upgrade to smartphone plans with higher
monthly bills and add 3G-enabled tablets and MiFi devices to their everyday lives.
An improving economy could benefit all carriers, but particularly those that target
lower demographics like Leap Wireless and MetroPCS. The move to data is also
driving an upgrade cycle of hardware at the cell site, which should continue to
support strong growth for tower companies in 2011 and 2012.
Wireline trends are stabilizing, led by data and video. While only a few years ago
the wireline business looked terminal, today access line trends are slowly improving
and data/video businesses have become big enough to drive growth in some
companies consumer wireline revenue. Despite constant legacy revenue pressure,
carriers have managed to cut costs and maintain margins to support their large
dividends, which we believe are sustainable. As consolidation continues, we expect
merger synergies to allow companies like Frontier to expand margins.
2H10 stock performance leads to some caution near term. Many telecom stocks
outperformed the S&P 500 in the second half of 2010 as investors looked for
defensiveness in high-dividend-paying stocks and worries about a dividend tax hike
faded. As we enter 2011 we expect these stocks to lag the market somewhat (as has
happened in the last few years), as investors view them as a source of funds, but still
see significant upside for investors willing to hold through any volatility.
In telecom we favor stocks with highest cash flow yields (AT&T, Frontier) and
potential turnaround stories (Sprint, Leap Wireless). Among the largest telecom
players, we prefer AT&T over Verizon given its better cash flow profile and low
multiples, which we believe offset the risks created by the loss of iPhone exclusivity.
Not only should AT&Ts EPS grow faster in 2011, but the multiple should also
expand once iPhone risk has been quantified. Among the wireless names, we like the
risk/reward on Sprint as it continues to turn around and recommend Leap Wireless
and MetroPCS into the companies traditionally strong first quarters, though we
prefer Leap Wireless given its earlier-stage turnaround. We would avoid US Cellular
given its high multiple, weak cash flow, and controlled status.
Telecom Services & Towers

AC
Philip Cusick, CFA
(1-212) 622-1444
philip.cusick@jpmorgan.com
Richard Choe
(1-212) 622-6708
richard.choe@jpmorgan.com
Manish Jain
(1-212) 622-8692
manish.x.jain@jpmorgan.com
Derya Erdemli
(1-212) 622-8529
derya.erdemli@jpmorgan.com
J.P. Morgan Securities LLC
Coverage Universe
Ticker
T
VZ
S
CLWR
LEAP
PCS
NTLS
USM
TDS
FTR
WIN
AMT
CCI
SBAC
Price
(1/12/11)
$28.04
$35.47
$4.41
$5.70
$13.19
$12.97
$19.68
$50.30
$36.28
$9.43
$13.37
$50.70
$42.09
$40.19
JPM
Rating
OW
N
OW
N
OW
OW
N
UW
N
OW
N
OW
OW
OW
YE11
Target
$33
$38
$7
$6
$16
$16
$22
$45
$42
$11
$14
$60
$55
$53
Source: J.P. Morgan.

Note: J.P. Morgan ratings: OW Overweight;
N Neutral; UW Underweight.
Tower group remains attractive. Though there are small differences in strategy,
the wireless tower business is fundamentally homogenous and exposed to strong
secular tailwinds. We recommend all three companies, American Tower, Crown
Castle, and SBA Communications, with Overweight ratings, and among them prefer
SBA Communications given its higher growth potential and flexibility.
See page 307 for analyst certification and important disclosures.

J.P. Morgan does and seeks to do business with companies covered in its research reports. As a result, investors should be aware that the firm may
have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their
investment decision.
Philip Cusick, CFA

(1-212) 622-1444

13 January 2011
Equity Ratings and Price Targets

Company
AT&T Inc.
Verizon Communications
Sprint Nextel
Clearwire
Leap Wireless International
MetroPCS
NTelos Holdings Corporation
US Cellular
Telephone & Data Systems
Frontier Communications
Windstream Corp
American Tower
Crown Castle International
SBA Communications
Symbol
T
VZ
S
CLWR
LEAP
PCS
NTLS
USM
TDS
FTR
WIN
AMT
CCI
SBAC
Mkt Cap
($ mn)
166,501.52
100,380.10
13,185.90
5,619.13
1,001.98
4,591.43
821.60
4,347.33
3,820.21
9,326.27
6,413.59
20,455.17
12,042.75
4,611.72
Price($)
28.04
35.47
4.41
5.70
13.19
12.97
19.68
50.30
36.28
9.43
13.37
50.70
42.09
40.19
Sourc e: Company data, Bloomberg, J.P. Morgan es timates. n/c = no change. All pric es as of 12 Jan 11.
Rating
Cur
OW
N
OW
N
OW
OW
N
UW
N
OW
N
OW
OW
OW
Prev
Price Target
Cur
Prev
33.00
38.00
7.00
6.00
16.00
16.00
22.00
45.00
42.00
11.00
14.00
60.00
55.00
53.00
Philip Cusick, CFA

(1-212) 622-1444

13 January 2011
Table of Contents
Investment Conclusion ............................................................5
Wireless Industry....................................................................13
Wireless Key Investment Points ................................................................................15
Wireless Stock Recommendations.............................................................................15
Wireless Investment Risks.........................................................................................17
Wireless Industry Overview ......................................................................................18
Handsets Smartphone Share Is Growing.................................................................27
Emerging Devices to Augment Growth.....................................................................43
Competition and New Entrants ..................................................................................45
Spectrum Auctions Will Come Eventually ................................................................47
2011 Is the Year of 4G Transitions............................................................................49
Cash Flow Solid Across Wireless Space ...................................................................52
Wireline Industry ....................................................................53

Wireline Key Investment Points ................................................................................55
Wireline Stock Recommendations.............................................................................56
Wireline Investment Risks.........................................................................................57
Wireline Industry Overview ......................................................................................57
Consumer Buoyed by Data, Video ............................................................................62
Business, Regulatory 60%+ of Wired Revs...............................................................67
Consolidation to Insulate Cash Flow .........................................................................71
Tower Industry........................................................................75
Tower Key Investment Points....................................................................................77
Tower Stock Recommendations ................................................................................78
Tower Investment Risks ............................................................................................79
Tower Industry Overview ..........................................................................................80
Wireless Tower Overview .........................................................................................98
Large Cap Integrated Telecom Operators ..........................109

AT&T Inc. ...............................................................................................................111
Verizon Communications ........................................................................................123
Sprint Nextel ............................................................................................................139
Clearwire..................................................................................................................151
Leap Wireless International .....................................................................................161
MetroPCS ................................................................................................................171
NTELOS Holdings Corp..........................................................................................179
US Cellular Corp .....................................................................................................185
Telephone & Data Systems......................................................................................191
Wireline Operators ...............................................................197

Frontier Communications Corp ...............................................................................199
Windstream Communications..................................................................................209
Philip Cusick, CFA

(1-212) 622-1444

13 January 2011
Wireless Tower Operators ...................................................217

American Tower ......................................................................................................219
Crown Castle International ......................................................................................225
SBA Communications .............................................................................................231
Company Models..................................................................237
AT&T Model ...........................................................................................................239
Verizon Model .........................................................................................................245
Sprint Nextel Model.................................................................................................251
Clearwire Model ......................................................................................................257
Leap Wireless Model ...............................................................................................261
MetroPCS Model .....................................................................................................265
NTELOS Model.......................................................................................................269
US Cellular Model ...................................................................................................275
TDS Model ..............................................................................................................279
Frontier Model .........................................................................................................283
Windstream Model ..................................................................................................287
American Tower Model...........................................................................................291
Crown Castle Model ................................................................................................295
SBA Communications Model ..................................................................................303
Philip Cusick, CFA

(1-212) 622-1444

13 January 2011
Investment Conclusion
We believe that worries around slowing growth in the wireless space and destructive
competition in wired data and video are overblown. In our view, additional data
services (including video) and devices (like tablets, smartphones, and machinemachine) represent a tremendous opportunity for the telecom industry and will drive
continued revenue and subscriber growth. In regards to competition, wireless data
capacity is barely keeping up with demand, so we see no reason for meaningful price
reductions in 2011, and on the wired side the telecom and cable companies seem
very rational and recently have been raising, rather than reducing, prices.
Fundamentals look favorable in the telecom industry
In general we are favorable on investment in the telecom industry due to strong cash
flow characteristics, stabilized business trends and potential improvements as the
economy rebounds, and the potential for data demand (wired and wireless) to drive
traffic and revenue higher in the next few years. While some carriers (Leap Wireless
and MetroPCS in particular) likely will continue to see heavy competition, we see
little irrational competition in either wireless or wireline for the time being.
Wireless fundamentals shift to data from voice
We expect wireless voice adds to decline again in 2011, and forecast only 2.8 million
postpaid adds among the Big 4 carriers, down from 3.7 million in 2010. Instead, data
should be the big driver of value creation from here, as consumers trade up to
smartphone plans with higher monthly bills and add 3G-enabled tablets and MiFi
devices to their everyday usage list. An improving economy could also benefit
carriers that target lower demographics like Leap Wireless and MetroPCS. The move
to data is also driving an upgrade cycle of hardware at the cell site, which should
continue to support growth for tower companies in 2011 and 2012.
Wireline trends are stabilizing, led by data and video
While only a few years ago the wireline business looked terminal, today access line
trends are slowly improving and data/video businesses have started to actually drive
growth in some companies consumer wireline revenue. Despite constant revenue
pressure, carriers have managed to cut costs and maintain margins to support their
large dividends, which we believe are sustainable. As consolidation continues, we
expect merger synergies to allow companies like Frontier to expand margins.
Recent stock performance leads to some caution near term
Many telecom stocks outperformed the S&P 500 in the last six months, as investors
looked for defensiveness in high-dividend-paying stocks like AT&T, Verizon,
Frontier, and Windstream and worries about a dividend tax hike faded. As we get
into 2011 we expect some of these stocks to lag the market somewhat (as has
happened in the last few years), as investors view them as a source of funds into the
new year, but still see significant upside for investors willing to hold through any
volatility.
In addition, we believe that expectations of a Verizon iPhone announcement have
driven that stocks outperformance lately, to levels that we find unattractive.
Philip Cusick, CFA

(1-212) 622-1444

13 January 2011
Figure 1: AT&T and Verizon Forward P/E Multiple vs. S&P 500 P/E Multiple
17.0
16.0
15.0
14.0
13.0
12.0
11.0
VZ PER
T PER
12/31/2010
12/17/2010
12/3/2010
11/19/2010
11/5/2010
10/22/2010
10/8/2010
9/24/2010
9/10/2010
8/27/2010
8/13/2010
7/30/2010
7/16/2010
7/2/2010
6/18/2010
6/4/2010
5/21/2010
5/7/2010
4/23/2010
4/9/2010
3/26/2010
3/12/2010
2/26/2010
2/12/2010
1/29/2010
1/15/2010
1/1/2010
10.0
SPX PER
Source: Bloomberg.
Telecommunications Stocks
Among telecom companies, we favor stocks with the highest cash flow yields (AT&T,
Frontier) and potential turnaround stories (Sprint), as well as seasonally strong
players like MetroPCS and Leap Wireless. We would avoid Verizon given its high
EPS multiple and iPhone excitement, and US Cellular given its high multiple and
controlled status.
AT&T Initiating coverage with Overweight rating and $33 YE11 price target
AT&T is well positioned on the wireless side to capture the coming wave of data
devices and currently supports both Apples iPad as well as all of the eReaders that
are sold wirelessly enabled in the US. We expect postpaid wireless subscribers to
grow more slowly than the industry in 2011 due to AT&T losing exclusivity on the
iPhone, but still expect wireless top-line growth of 5.5% and EBITDA growth of
10% as a result of additional margin expansion. In wireline, AT&T has seen slowing
consumer revenue losses as data and video become more important, and stabilization
in enterprise trends which should improve with the economy.
Among the largest telecom players, we prefer AT&T over Verizon given its better
cash flow characteristics and far lower EPS multiple, which we believe offset the
risks created by the changes in iPhone exclusivity. Not only should AT&Ts EPS
grow faster in 2011 but the multiple should also expand once the iPhone risk has
been quantified. We model $2.50 in EPS for AT&T in 2011, which represents 9%
growth from estimated 2010 EPS of $2.29.
Philip Cusick, CFA

(1-212) 622-1444

13 January 2011
Verizon Initiating with Neutral rating and $38 YE11 price target
Verizon is also in a strong position in the wireless space, and postpaid subscriber
growth should exceed that of the industry in 2011 due to both its overall network
quality and the addition of the iPhone to its handset lineup. Margins though are likely
to compress somewhat with higher smartphone subsidy costs, so we expect no
wireless EBITDA growth vs. top-line growth of 7%. In wireline, we also see
stabilizing revenue trends as video and data growth should outweigh voice losses,
and we expect some rebound in margins.
While we like Verizons business, the recent move in the stock price to 16.1x 2011E
EPS forces us to recommend avoiding the stock. We would consider coming back to
the stock once the excitement about the iPhone has receded further and if the stock
retreats to more attractive multiples of EPS and free cash flow. We model $2.23 in
2011 EPS, or 4% growth from estimated 2010 EPS of $2.14 (ex SpinCo).
Sprint Initiating with Overweight rating and $7 YE11 price target
We see Sprint as the stock in our universe with the largest potential upside due to its
continued operational turnaround and opportunity to expand margins from the
current industry-low level. While we expect that margin expansion to happen in
2012-13 rather than 2011, the company should be able to stabilize margins here
given a stable top line. We also expect cash flow generation of $1.2 billion in 2011
(9% yield) which should go to paying down debt or possibly further investment in
Clearwire, once the companies iron out their differences. We model EBITDA of
$5.55 billion in 2010 and $5.42 billion in 2011.
MetroPCS Initiating with Overweight rating and $16 YE11 price target
MetroPCS has executed well in the last 12 months despite broad secular concerns
regarding competition. The company has managed to improve its churn and ARPU
profile, while growth has slowed but remained fairly robust. From a profitability and
cash flow perspective, Metro is in an attractive position as pricing should remain
stable, supporting EBITDA growth. Free cash flow, however, is likely to ramp more
meaningfully as capital expenditures decline and move closer to maintenance levels.
Despite outperforming its closest peer, Leap Wireless, and the wireless group in
2010, MetroPCS has additional upside in 2011, in our view. We model $1.18 billion
in adjusted EBITDA in 2010 and $1.35 billion in 2011, and $394 million in free cash
flow in 2011, or an 8.5% yield at current prices.
Leap Wireless Initiating with Overweight rating and $16 YE11 price target
Leap executed poorly through most of 2010 but changes started in 3Q and completed
in 4Q put the company back on a growth path in 4Q10, which should accelerate in
1Q11. From a profitability and cash flow perspective, Leaps margins have been
under pressure through the transition, but as churn comes down and ARPU rebounds,
it appears poised for margin expansion. Free cash flow is likely to ramp meaningfully
in 2011 as well, as capital expenditures decline and move closer to maintenance
levels. We model $533 million in adjusted EBITDA in 2010 and $608 million in
2011.
We recommend owning shares of Leap Wireless and MetroPCS into the companies
traditionally strong first quarters, though we prefer Leap Wireless given its earlierstage turnaround.
Philip Cusick, CFA

(1-212) 622-1444

13 January 2011
Clearwire Initiating with Neutral rating and $6 YE11 price target

In our view, Clearwire has a tremendous competitive advantage in its deep wireless
spectrum portfolio and wholesale relationships with Sprint, Comcast, and Time
Warner Cable, but these are being diluted by strategic confusion and an overly
aggressive retail effort. In addition, we forecast the company will need another
$7 billion in capital to complete a buildout of 225 million pops and reach positive
free cash flow. Until Sprint and Clearwire get their build efforts on the same page,
we see significant risks to Clearwire from a fundamental standpoint and recommend
staying on the sidelines.
nTelos Initiating with Neutral rating and $22 YE11 price target
Improved execution in wireless combined with accretive wireline acquisitions should
drive better financial trends in 2011. In addition, management recently announced
plans to separate its wireless and wireline businesses, both of which we believe are
attractive strategic assets. However, at current prices, much of the fundamental
upside potential to nTelos is already priced in, we believe, and with transaction
restrictions after the planned spinoff, we recommend staying on the sidelines and
looking for a better entry point.
US Cellular Initiating with Underweight rating and $45 YE11 price target
We expect US Cellulars wireless business to struggle to grow; while recent moves
to improve subscriber and margin performance should help to some degree, we do
not expect a meaningful change given heavy competition. In addition, shares trade at
a premium valuation of 6.0x 2011E EBITDA, free cash flow is weak, and there is no
dividend. Finally, the Carlson family controls US Cellular through TDS, a structure
we believe is unlikely to change.
Telephone & Data Systems Initiating with Neutral rating and $42 YE11 target
For Telephone & Data Systems (TDS), the companys 83% stake in US Cellular
represents 94% of its enterprise value, leaving the implied wireline business trading
at only 1.0x 2010E EBITDA. This represents a big discount to the group and an
attractive level, despite the family control, so we rate TDS shares Neutral.
Frontier Initiating with Overweight rating and $11 YE11 price target
We prefer Frontier within our RLEC coverage as we find the 7.8% dividend yield,
the highest within our telecom coverage universe and the highest in the S&P 500,
attractive and believe it is sustainable. The company is undergoing a major transition
to integrate the acquired Verizon assets, which increases its risk profile, though early
signs from initial integration milestones have been comforting. Nevertheless, we
expect Frontier to put in the necessary capital investment as well as implement its
local engagement strategies to begin turning around these markets as early as 1H11.
The roadmap to an operational turnaround, likely upward revisions on synergy
guidance, as well as an attractive dividend make Frontier our top pick within RLECs.
Windstream Initiating with Neutral rating and $14 YE11 price target
Windstream has a rural footprint with the lowest access line density within our
RLEC coverage, which has enabled the company to deliver better operating metrics
than its peers. Moreover, management has been shifting its revenue stream away
from the declining consumer voice business and towards business and data segments,
which we think positions the company well for top-line stabilization when macro
trends improve. While the current dividend yield of 7.4% remains one of the highest
within telecom, the companys higher leverage and EV/EBITDA multiple compared
to those of wireline peers, as well as ongoing acquisition risk, keep us sidelined.
8
Philip Cusick, CFA

(1-212) 622-1444

13 January 2011
Wireless Tower Stocks

Though there are small differences in strategy, fundamentally the wireless tower
business remains more or less homogenous and exposed to strong secular tailwinds.
We recommend all three companies, American Tower, Crown Castle, and
SBA Communications, with Overweight ratings, and among them prefer
SBA Communications given its higher growth potential and flexibility.
American Tower Initiating with Overweight rating and $60 YE11 price target
American Tower, with its scale, conservative financial position, and focus on
profitability, has been the most stable tower company and offers an attractive
risk/reward at this level, in our view. International opportunities could drive higher
returns in comparison to those in domestic markets and the company has diversified
into eight countries already, with no country but the US accounting for more than
10% of revenue. The firms relatively low leverage at 4x EBITDA provides us with
additional comfort and gives the company the ability to consider a larger tower deal
or buy back stock. Finally, we see REIT conversion as the most likely case for
American Tower and include it in our target valuation of $60 per share; however, if
this does not occur, our estimated YE11 valuation for the company would be only
$45, implying 11% downside from the current level.
Crown Castle International Initiating with Overweight rating $55 YE11 target
Crown Castle has substantial scale and an attractive tower portfolio in the top 100
markets. We are confident Crown Castle will be able to turn the positive business
trends into solid revenue, EBITDA, and cash flow growth and view shares of the
company as attractive at current levels. In addition, leverage at Crown Castle is
relatively modest at about 5x, which provides us with additional comfort and gives
the company the ability to execute a larger tower deal or buy back stock. Finally, we
see REIT conversion as the most likely case for Crown Castle given NOLs are
forecast to run out in 2016 and include it in our target valuation of $55 per share. We
see little downside risk to our valuation if a conversion is delayed due to minimal net
impact of tax changes.
SBA Communications Initiating with Overweight rating and $53 YE11 target
SBA has been a superior operating and financial performer; as a result, we believe
SBA warrants a premium valuation. SBA has decided to not sign a master lease
agreement (MLA) with AT&T, and so should report faster growth in 2H11 and 2012
than its peers as AT&T signs LTE amendments. SBA has started to expand
internationally with a focus on markets that are fairly mature but still offer higher
growth and better return prospects than the US. While we see REIT conversion as a
possibility when the companys NOLs run out, we dont think this will happen in our
forecasting time frame (before 2020).
Philip Cusick, CFA

(1-212) 622-1444

13 January 2011
Telecom and Tower Sector Risks

High competition in wireless and wireline telecom spaces
The telecom sector remains one of high and aggressive competition. In wireless
especially, there are an average of 5-6 players per market and Clearwire and
Lightsquared represent two potential new entrants that may have a lower cost
structure than incumbent players. In the fixed broadband/video universe, cable and
telecom companies aggressively target each others customers and temporary price
discounts are the norm.
Slowing subscriber growth
The pay TV, fixed broadband, and wireless voice markets are essentially saturated,
and we expect share shifts to prove more important than industry growth as a driver
of carrier success. As the pie of new subscribers shrinks, there is risk that weaker
players could get more aggressive on price and drive down margins across the
industry.
High capital intensity with steady upgrade cycles
The telecom space generally requires large fixed costs in terms of spectrum
acquisition and network build, so a struggling entity will often find it better to cut
prices to a marginally positive (or potentially negative) cash return than exit the
business. Given the ongoing shift to 4G technology in wireless, we expect capital
intensity to increase at most carriers in the next two years. Finally, while Verizon has
taken the hit on its wireline fiber upgrade and can expect to see lower wireline capital
intensity going forward, AT&T has taken a more gradual approach and we expect its
capex levels to remain elevated. Wireless carriers may also require additional
spectrum to support the rapidly increasing demand for data services.
Consolidation potential
The telecom space remains fragmented, and we expect to see additional wireless
consolidation as well as regional wireline roll-up in the next five years. We would
view another major merger as a long-term negative for the tower companies. In
addition, with the US market saturated, international acquisition risk is likely higher,
as domestic growth slows and cash flows are strong. The major independent tower
operators either own towers already or could consider acquiring towers in
international markets. Building up a bigger presence in any emerging market, in
which the wireless industry is still developing and country-specific risks are very
different from those in the United States, could negatively impact a companys risk
profile and multiple.
iDEN shutdown could be a 3%-plus headwind for the tower industry
We expect Sprint Nextel to shut down its 20,000 iDEN cell sites in the 2012-2016
time frame, with the bulk coming in 2013-2015. We model iDEN site shutdowns
weighing on our base-case revenue scenario of 68,000 sites by 4% in 2012, and we
expect an incremental ~600 bps in dilution annually until 2015. Peak dilution of 26%
is expected in 2016, a substantial negative impact if CDMA augmentations do not
partially offset the revenue loss. We believe the wireless tower industry could lose
about 3% or more in site revenue from Sprint Nextel once its network is fully
optimized.
10
Philip Cusick, CFA

(1-212) 622-1444

13 January 2011
Tower debt refinancing could be at risk if credit markets close or tighten

The tower companies have substantial leverage that ranges from 4 times to 7 times
with debt maturities in the 2014-20 time frame. The companies need to be able to
refinance debt as it matures. If the credit markets were closed or refinanced debt bore
substantially higher interest rates, the tower companies would be negatively affected.
High multiple valuations could come under pressure in a volatile environment
The tower companies have high forward EV/EBITDA and EV/revenue multiples of
about 14-17x and 9-11x, respectively, substantially higher than those for the
S&P 500. Disruptions in the financial markets or negative earnings results could
dramatically reduce the multiples investors are willing to pay for tower company
stocks. Any operational missteps could also lead to a higher risk profile for the tower
companies, especially given their reputation for stability.
11
Philip Cusick, CFA

(1-212) 622-1444

13 January 2011
Table 1: Telecom Valuation Comparison

($ in millions, except per share data)
Company
Rating/PT
Price
1/12/11
OW - $33.00
$28.85
Fundamentals
Upside
52-Week
to Target
Range
2010
Return
YTD
Return
Current
Sh Out
Market
Cap
Valuation and Leverage

2010E
Adj. Ent. Net Debt/
Value
EBITDA
Net Debt
Dividend
Net Debt/
Capital
Dividend
Yield
Payout Ratio
2011E
2012E
2010E
EPS
2011E
2012E
Earnings Multiples
P/E Ratio
2010E
2011E
Operational Metrics
2012E
Relative P/E Multiple

2011E
2012E
2010E
2011E
2012E
Diversified Telecom Carriers

AT&T (T)
30-24
4.8%
-1.8%
5,938
171,311
66,073
227,754
1.5x
29%
1.72
6.0%
70%
65%
2.29
2.50
2.64
12.6x
11.5x
10.9x
0.77x
0.84x
Verizon Communications (VZ) - ex Vodafone
N - $38.00
35.93
6%
38-25
15.6%
0.4%
2,830
101,682
40,316
137,019
1.7x
29%
1.95
5.4%
90%
128%
2.27
2.23
2.45
15.8x
16.1x
14.7x
1.08x
1.12x
Ntelos (NTLS)
N - $22.00
19.51
14%
13%
20-16
7.0%
2.4%
42
815
693
1,507
2.7x
46%
1.12
5.7%
62%
54%
1.07
1.70
2.06
18.3x
11.4x
9.5x
0.77x
0.72x
Telephone & Data Systems (TDS)
N - $42.00
35.94
17%
38-29
7.8%
-1.7%
106
3,798
693
4,491
0.6x
15%
0.45
1.3%
29%
24%
1.44
1.66
1.92
25.0x
21.7x
18.8x
1.45x
1.43x
Wireless Carriers
Clearwire (CLWR)
Wireless Subscribers (m)

N - $6.00
5.61
7%
9-5
-23.8%
8.9%
986
5,530
2,853
8,384
-2.3x
34%
(1.79)
(2.74)
(2.35)
NM
NM
NM
NM
NM
Leap Wireless (LEAP)
OW - $16.00
13.72
17%
19-10
-30.1%
11.9%
76
1,042
2,256
3,298
3.7x
68%
(9.15)
(2.87)
(1.36)
NM
NM
NM
NM
NM
5.5
5.9
MetroPCS (PCS)
OW - $16.00
12.95
24%
14-6
65.5%
2.5%
356
4,616
3,289
7,905
2.4x
42%
0.34
0.86
1.10
38.5x
15.0x
11.8x
1.00x
0.90x
8.2
4.3
9.0
9.7
Sprint Nextel (S)
OW - $7.00
4.68
50%
5-3
15.6%
10.6%
2,988
13,983
15,443
24,898
2.8x
62%
(1.14)
(0.45)
(0.08)
NM
NM
NM
NM
NM
49.6
51.4
53.2
US Cellular (USM)
UW - $45.00
49.52
-9%
51-34
17.8%
-0.8%
87
4,291
820
5,111
1.0x
16%
1.69
1.93
2.34
29.4x
25.7x
21.1x
1.72x
1.61x
6.1
6.1
6.2
Rural Carriers
Frontier Communications Corp. (FTR)
Windstream Corp. (WIN)
8.9
13.5
6.3
Access Lines (m)

OW - $11.00
9.59
15%
10-7
24.6%
-1.4%
989
9,485
7,930
17,414
3.0x
46%
0.75
7.8%
70%
70%
0.36
0.38
0.42
26.7x
25.0x
22.7x
1.68x
1.73x
5.1
4.9
4.7
N - $14.00
13.51
4%
14-6
26.8%
-3.1%
480
6,481
6,490
12,971
3.3x
50%
1.00
7.4%
70%
72%
0.83
0.84
0.85
16.2x
16.2x
15.9x
1.08x
1.21x
3.3
3.2
3.1
Wireless Towers
Towers (k)
American Tower (AMT)
OW - $60.00
50.50
19%
54-38
403
20,374
4,299
24,674
26.6x
3.18x
2.03x
34.0
34.7
35.3
Crown Castle (CCI)
OW - $55.00
42.60
29%
44-34
12.3%
-2.8%
286
12,189
6,007
18,195
4.8x
33%
(1.22)
0.33
0.61
NM
NM
NM
NM
NM
23.9
24.0
24.2
SBA Communications (SBAC)
OW - $53.00
39.66
34%
41-30
19.8%
-3.1%
115
4,551
2,709
7,260
6.3x
37%
(1.60)
(0.80)
(0.61)
NM
NM
NM
NM
NM
8.8
9.1
9.3
1,287-1,011
12.8%
1.1%
61.77
85.30
97.18
20.6x
14.9x
13.1x
1.00x
1.00x
S&P 500
1,271.50
19.5%
-2.2%
2.8x
17%
1.9%
0.95
1.07
1.90
NM
47.4x
Valuation Ratios
Financial Highlights and Profitability

Revenue
Company
Revenue Growth
2010E
2011E
2012E
124,125
124,628
125,696
75,136
77,570
78,439
3.2%
546
636
656
16.6%
4,990
5,032
5,100
0.8%
EBITDA
EBITDA Growth
11E/10E
12E/11E
2010E
2011E
2012E
0.4%
0.9%
42,543
44,234
45,253
1.1%
23,606
23,080
24,471
3.2%
218
257
279
17.6%
1.4%
1,101
1,136
1,198
3.1%
Free Cash Flow
FCF Growth
11E/10E
12E/11E
2010E
2011E
2012E
11E/10E
4.0%
2.3%
13,890
14,567
15,642
-2.2%
6.0%
9,057
6,151
4,323
8.6%
58
75
86
30.5%
5.4%
153
165
200
8.0%
Free Cash Flow Yield
EV/EBITDA
EV/Revenue
Operational Valuation
Price/FCF
12E/11E
2011E
2012E
2010E
2011E
2012E
2010E
2011E
2012E
2011E
2012E
4.9%
7.4%
8.5%
-32.1%
-29.7%
6.0%
4.3%
1.8x
1.8x
1.7x
5.8x
5.9x
5.6x
14.0%
9.3%
10.6%
9.1%
1.8x
2.8x
1.8x
2.4x
1.8x
2.3x
5.4x
6.9x
5.1x
5.9x
5.0x
5.4x
11.8x
10.8x
11.0x
16.5x
9.5x
20.9%
4.4%
5.3%
0.9x
0.9x
0.9x
4.1x
4.0x
3.8x
23.0x
23.5x
19.0x
2011E
2012E
Diversified Telecom Carriers

AT&T (T)
Verizon Communications (VZ) - ex Vodafone
Ntelos (NTLS)
Telephone & Data Systems (TDS)
Wireless Carriers
Clearwire (CLWR)
EV/Subscriber
560
1,352
2,305
141.6%
70.4%
(1,264)
(1,268)
(1,034)
NM
NM
(3,579)
(2,772)
(2,808)
NM
NM
NM
NM
15.0x
6.2x
3.6x
NM
NM
NM
NM
NM
Leap Wireless (LEAP)
2,521
2,847
3,066
12.9%
7.7%
533
608
716
14.1%
17.8%
(13)
14
18
NM
NM
1.4%
1.7%
1.3x
1.2x
1.1x
6.2x
5.4x
4.6x
73.3x
59.3x
557
522
MetroPCS (PCS)
4,060
4,548
4,909
12.0%
7.9%
1,177
1,349
1,515
14.7%
12.3%
(12)
394
585
NM
NM
8.5%
12.7%
1.9x
1.7x
1.6x
6.7x
5.9x
5.2x
11.7x
7.9x
883
816
Sprint Nextel (S)
32,354
32,405
32,794
0.2%
1.2%
5,551
5,420
5,670
-2.4%
4.6%
1,799
1,276
1,219
-29.1%
-4.5%
9.1%
8.7%
0.8x
0.8x
0.8x
4.5x
4.6x
4.4x
11.0x
11.5x
484
468
4,183
4,229
4,300
1.1%
1.7%
825
858
919
4.0%
7.2%
56
51
92
-8.8%
81.4%
1.2%
2.1%
1.2x
1.2x
1.2x
6.2x
6.0x
5.6x
84.5x
46.6x
831
829
US Cellular (USM)
Rural Carriers
946
621
EV/Access Line
Frontier Communications Corp. (FTR)
5,685
5,383
5,192
-5.3%
-3.6%
2,703
2,646
2,624
-2.1%
-0.8%
836
1,064
1,067
27.3%
0.3%
11.2%
11.2%
3.1x
3.2x
3.4x
6.4x
6.6x
6.6x
8.9x
8.9x
3,581
3,713
Windstream Corp. (WIN)
3,864
3,827
3,800
-1.0%
-0.7%
1,945
1,946
1,929
0.1%
-0.9%
600
686
668
14.4%
-2.6%
10.6%
10.3%
3.4x
3.4x
3.4x
6.7x
6.7x
6.7x
9.4x
9.7x
4,108
4,229
Wireless Towers
EV/Tower
American Tower (AMT)
1,976
2,277
2,422
6.4%
1,344
1,562
1,667
16.3x
710,676
698,603
Crown Castle (CCI)
1,871
2,003
2,119
7.1%
5.8%
1,165
1,262
1,359
8.3%
7.7%
634
727
830
14.8%
14.2%
6.0%
6.8%
9.7x
9.1x
8.6x
15.6x
14.4x
13.4x
16.8x
14.7x
757,038
750,791
624
675
727
8.1%
7.7%
385
429
471
11.3%
9.9%
220
261
301
18.3%
15.4%
5.7%
6.6%
11.6x
10.8x
10.0x
18.9x
16.9x
15.4x
17.5x
15.1x
802,165
781,442
SBA Communications (SBAC)
(1) Adjusted EV excludes a value for investments that do not contribute to revenue and EBITDA.
(2) Free cash flow before dividends. Free cash flow for towers is recurring free cash flow, excluding impact of discretionary capital expenditures.
(3) EPS from operations for T, VZ, NTLS, TDS, LEAP, PCS, S, USM
(4) Share count is last reported; net debt is 2010E
Source: Company reports and J.P. Morgan estimates.
12
15.2%
16.2%
6.8%
1,027
1,139
1,253
11.0%
10.0%
5.6%
6.2%
12.5x
10.8x
10.2x
18.4x
15.8x
14.8x
17.9x

13 January 2011
Wireless Industry
Wireless Industry
Philip Cusick, CFA

(1-212) 622-1444
13
Philip Cusick, CFA

(1-212) 622-1444
14

13 January 2011
Philip Cusick, CFA

(1-212) 622-1444

13 January 2011
Wireless Key Investment Points

Wireless fundamentals shift to data from voice
We expect wireless voice adds to decline again in 2011, and forecast only 2.8 million
postpaid adds among the Big 4 carriers, down from 3.7 million in 2010. Instead, data
should be the big driver of value creation, as consumers trade up to smartphone plans
with higher monthly bills and add 3G-enabled tablets and MiFi devices to their
everyday usage list. An improving economy could also benefit carriers that target
lower demographics like Leap Wireless and MetroPCS.
iPhone exclusivity will slow AT&T growth, but expect impact to be moderate
Verizon will begin selling the iPhone on February 10, and we model AT&T losing
100k postpaid subs in 1Q and 300k in 2Q before slowly turning back to positive
adds. We model AT&T Mobility margins expanding by 160 basis points in 2011 on
slower growth and upgrade expense, while we expect Verizon Wirelesss to contract
by 265 basis points as faster upgrades and smartphone mix raise subsidy expense.
We expect that AT&Ts aggressive move to get customers on contract, high
enterprise and family plan mix, and superior iPhone capabilities will keep customer
churn to a reasonable level.
Sprint turnaround to continue; network transition impacts minimal in 2011
We expect Sprint to add postpaid subscribers in 4Q10 for the first time in over three
years on slowly moderating churn and improved CDMA gross add traffic. While we
expect capex to expand to $2.8 billion in 2011, the company should still generate
$1.2 billion in FCF on stable EBITDA, or an 8.8% yield. Given the continued
turnaround, we look at Sprint as a great secular holding in the telecom space, with
the greatest potential for stock price appreciation over the next two years.
We favor stocks with highest cash flow yields (AT&T) and potential turnaround
stories (Sprint, Leap Wireless)
cash flow characteristics and low EPS multiple, which we believe offset the risks
created by the loss of iPhone exclusivity. Not only should AT&Ts EPS grow faster
in 2011 but the multiple should also expand once the iPhone risk has been quantified.
Among the wireless names, we like the risk/reward on Sprint as the company
continues its turnaround, and also recommend owning Leap Wireless and MetroPCS
into the companies traditionally strong first quarters, though we prefer Leap
Wireless given its earlier-stage turnaround.
Wireless Stock Recommendations

15
Philip Cusick, CFA

(1-212) 622-1444

13 January 2011
been quantified. We model $2.50 in EPS for AT&T in 2011, which represents 9%
the stock once the excitement about the iPhone has receded further and the stock
Sprint Initiating with Overweight rating and $7 YE11 price target
We see Sprint as the stock in our universe with the largest potential upside due to its
continued operational turnaround and opportunity to expand margins from the
current industry-low level. While we expect that margin expansion to happen in
2012-13 rather than 2011, the company should be able to stabilize margins here
given a stable top line. We also expect cash flow generation of $1.2 billion in 2011
(9% yield) which should go to paying down debt or possibly further investment in
Clearwire, once the companies iron out their differences. We model EBITDA of
$5.55 billion in 2010 and $5.42 billion in 2011.
MetroPCS Initiating with Overweight rating and $16 YE11 price target
MetroPCS has executed well in the last 12 months despite broad secular concerns
regarding competition. The company has managed to improve its churn and ARPU
profile, while growth has slowed but remained fairly robust. From a profitability and
cash flow perspective, Metro is in an attractive position as pricing should remain
stable, supporting EBITDA growth. Free cash flow, however, is likely to ramp more
2010, MetroPCS has additional upside in 2011, in our view. We model $1.18 billion
in adjusted EBITDA in 2010 and $1.35 billion in 2011, and $394 million in free cash
flow in 2011, or an 8.5% yield at current prices.
Leap Wireless Initiating with Overweight rating and $16 YE11 price target
Leap executed poorly through most of 2010 but changes started in 3Q and completed
in 4Q put the company back on a growth path in 4Q10, which should accelerate in
1Q11. From a profitability and cash flow perspective, Leaps margins have been
under pressure through the transition, but as churn comes down and ARPU rebounds,
it appears poised for margin expansion. Free cash flow is likely to ramp meaningfully
in 2011 as well, as capital expenditures decline and move closer to maintenance
16
Philip Cusick, CFA

(1-212) 622-1444

13 January 2011
levels. We model $533 million in adjusted EBITDA in 2010 and $608 million in
2011.
We recommend owning Leap Wireless and MetroPCS into the companies
traditionally strong first quarters, though we prefer Leap Wireless given its earlierstage turnaround.
Clearwire Initiating with Neutral rating and $6 YE11 price target
In our view, Clearwire has a tremendous competitive advantage in its deep wireless
spectrum portfolio and wholesale relationships with Sprint, Comcast, and Time
Warner Cable, but these are being diluted by the companys governance distractions
and an overly aggressive retail effort. In addition, we forecast the company will need
another $7 billion in capital to complete a buildout of 225 million pops and reach
positive free cash flow. Until Sprint and Clearwire get their build efforts on the same
page, we see significant risks to Clearwire from a fundamental standpoint and
recommend staying on the sidelines.
nTelos Initiating with Neutral rating and $22 YE11 price target
Improved execution in wireless combined with accretive wireline acquisitions should
drive better financial trends in 2011. In addition, management recently announced
plans to separate its wireless and wireline businesses, both of which we believe are
attractive strategic assets. However, at current prices, much of the fundamental
upside potential to nTelos is already priced in, we believe, and with transaction
restrictions after the planned spinoff, we recommend staying on the sidelines and
looking for a better entry point.
US Cellular Initiating with Underweight rating and $45 YE11 price target
We expect US Cellulars wireless business to struggle to grow; while recent moves
to improve subscriber and margin performance should help to some degree, we do
not expect a meaningful change given the heavy competition. In addition, shares
trade at a premium valuation of 6.0x 2011E EBITDA, free cash flow is weak, and
there is no dividend. Finally, the Carlson family controls US Cellular through TDS, a
structure we believe is unlikely to change.
Wireless Investment Risks

High competition
The telecom sector remains one of high and aggressive competition. In wireless
especially, there are an average of 5-6 players per market and Clearwire and
Lightsquared represent two potential new entrants that may have a lower cost
structure than incumbent players. In addition, the rise of MVNO wireless companies
has lowered barriers to entry for specialized retailers like Wal-Mart and Best Buy to
enter the market, potentially trimming off some of the largest sales channels for
prepaid carriers. In the fixed broadband/video universe, cable and telecom companies
aggressively target each others customers and temporary price discounts are the
norm.
Slowing subscriber growth
The pay TV, fixed broadband, and wireless voice markets are essentially saturated,
and we expect share shifts to prove more important than industry growth as a driver
17
Philip Cusick, CFA

(1-212) 622-1444

13 January 2011
of carrier success. As the pie of new subscribers shrinks, there is risk that weaker
players could get more aggressive on price and drive down margins across the
industry.
High capital intensity with steady upgrade cycles
The telecom space generally requires large fixed costs in terms of spectrum
acquisition and network build, so a struggling entity will often find it better to cut
prices to a marginally positive (or potentially negative) cash return than exit the
business. Given the ongoing shift to 4G technology in wireless, we expect capital
intensity to increase at most carriers in the next two years. Finally, while Verizon has
taken the hit on its wireline fiber upgrade and can expect to see lower wireline capital
intensity going forward, AT&T has taken a more gradual approach and we expect its
capex levels to remain elevated.
Additional spectrum spending may be necessary
Wireless carriers may require additional spectrum to support the rapidly increasing
demand for data services. While new 4G networks help, we expect additional
spectrum to come to market in the next five years which could cost the carriers in the
tens of billions of dollars. If existing carriers choose not to buy such spectrum, there
is further risk that its availability could spark another new entrant to the space.
Consolidation potential
The telecom space remains fragmented, and we expect to see additional wireless
consolidation as well as regional wireline roll-up in the next five years. In addition,
with the US market saturated, international acquisition risk is likely higher, as
domestic growth slows and cash flows are strong.
Wireless Industry Overview

We expect that total wireless industry additions increased in 2010 to 16.4 million
from 15.3 million in 2009, but look for a decline in 2011 to 12.7 million as postpaid
subscriptions decline faster and prepaid unlimited growth falls off. Within postpaid,
we look for 2.8 million additions in 2011, down from 3.7 million in 2010 and
4.6 million in 2009. There could be downside risk to our postpaid estimate if the
economy weakens further, but we think higher total customer additions are more
likely, as second devices, such as iPad, Kindle, and 4G MiFi devices, start to gain
mass-market adoption and add to prepaid and wholesale subscriber counts.
In our view, carriers with the greatest downside risk in postpaid are AT&T (due to
iPhone exclusivity loss) and T-Mobile USA (which is struggling for relevance),
while our estimates for Sprint dont assume much further improvement in churn or
gross add traction, and Verizon could do better on the iPhone launch and drive
incremental growth in data devices with its 4G efforts.
In the following sections, we look at the current state of the wireless industry and
how the industry has evolved, sources of future growth including both subscribers
and revenue per user, and some important potential drivers of market share shift such
as the end of iPhone exclusivity, the growth of emerging devices, and the shift to 4G.
18
Philip Cusick, CFA

(1-212) 622-1444

13 January 2011
Figure 2: We Expect Wireless Industry Reported Penetration Levels to Exceed 100% by 2012
Penetration
100%
Net Adds
30,000
25,000
80%
20,000
60%
15,000
40%
10,000
20%
5,000
0%
20
11
20
12
20
08
20
09
20
10
20
04
20
05
20
06
20
07
20
01
20
02
20
03
19
97
19
98
19
99
20
00
19
94
19
95
19
96
19
90
19
91
19
92
19
93
19
87
19
88
19
89
19
85
19
86
Source: Company reports, CTIA, and J.P. Morgan estimates.
How Did We Get to 97% Penetration? Where Can It Go?

We estimate that at the end of 2010 there were 302 million wireless devices in the
United States, out of a total population of 310 million. While this reported
penetration is 97% of the US population, we believe that double-counting, in the
form of people carrying a regular voice phone or smartphone in addition to a
Blackberry, 3G tablet, or laptop card, as well as machine-to-machine
communications, accounts for 15-20% of reported subscribers. In addition, the overreporting of subs due to inactive customers counted in the base, which have not yet
been churned off, likely accounts for another ~3-4% of subscribers, indicating actual
penetration of around 75-80%.
Many Asian and European countries report penetration of well over 100% as
customers carry multiple SIM cards to arbitrage price depending on who theyre
calling. We dont expect that to ever be a significant issue in the US.
Figure 3: Postpaid Represents ~83% of Wireless Market; Substantial Unlimited Growth Since 08
100%
95%
90%
Unlimited
85%
Prepaid
80%
Postpaid
75%
70%
2004
2005
2006
2007
2008
2009
2010E
Source: Company reports and J.P. Morgan.
Population growth, wireline substitution, data devices dominate wireless growth

Our thesis from here is that wireless penetration of the population will increase only
slowly, and that most of the incremental postpaid voice growth will come from
population growth. On the data side, 2009 and 2010 saw the introduction of eReaders
and tablet devices but we expect a major broadening of offers in 2011 and beyond,
and look for people carrying a tablet or MiFi device as well as a cell phone to drive
subscriber growth higher.
19
Philip Cusick, CFA

(1-212) 622-1444

13 January 2011
Across other categories of wireless, there can be incremental voice penetration in

prepaid, we believe, as more customers migrate to wireless from landlines for
unlimited offers or USF-subsidized lines such as Assurance from Sprint or Safe Link
from Tracfone. In addition, data devices that come through the prepaid or wholesale
subscriber lines, such as iPad, Kindle, and GPS devices, can continue to ramp, and
we see no reason that total penetration has to stop growing.
In the table below, we break down our estimates of current real penetration and how
that translates across age groups, and our expectations for 2016.
Table 2: Estimated Wireless Penetration by Age Group
Age Group
Under 5 years
5 to 9 years
10 to 14 years
15 to 19 years
20 to 24 years
25 to 29 years
30 to 34 years
35 to 39 years
40 to 44 years
45 to 49 years
50 to 54 years
55 to 59 years
60 to 64 years
65 to 69 years
70 to 74 years
75 to 79 years
80 to 84 years
85 to 89 years
90 to 94 years
95 to 99 years
100 years and over
Total
Double Counting
Total
% of Population by
Age Group (2008) Population (2010)
6.8%
21,045
6.9%
21,402
7.2%
22,421
7.3%
22,549
6.9%
21,429
6.4%
19,842
6.8%
21,039
7.5%
23,235
8.1%
25,042
7.5%
23,324
6.6%
20,566
5.4%
16,709
4.2%
13,019
3.5%
10,755
3.0%
9,450
2.6%
8,193
1.9%
5,781
1.0%
3,178
0.5%
1,433
0.1%
447
0.0%
90
100.0%
310,950
Est. 2010
Wireless
Pen.
0%
50%
80%
92%
92%
92%
92%
92%
92%
92%
92%
92%
92%
92%
60%
60%
60%
60%
60%
50%
50%
79%
18%
97%
2010E
Wireless
Subs.
10,701
17,937
20,746
19,714
18,255
19,356
21,376
23,039
21,458
18,920
15,372
11,978
9,895
5,670
4,916
3,469
1,907
860
224
45
245,836
55,971
301,807
Population
(2016)
22,208
22,584
23,659
23,795
22,612
20,938
22,201
24,518
26,425
24,613
21,701
17,631
13,738
11,349
9,972
8,645
6,101
3,354
1,512
472
95
328,124
Est. 2016
Wireless
Pen.
0%
55%
85%
95%
95%
95%
95%
95%
95%
95%
95%
95%
95%
95%
70%
70%
70%
65%
65%
55%
55%
83%
26%
109%
2016E
Wireless
Subs.
12,421
20,110
22,605
21,482
19,891
21,091
23,292
25,104
23,382
20,616
16,750
13,051
10,782
6,980
6,052
4,270
2,180
983
260
52
271,355
86,264
357,618
Source: J.P. Morgan estimates.
Postpaid Subscriber Growth Moves from Voice to Data

We calculate there are currently more than 210 million postpaid customers in the US,
the vast majority of which represent voice-enabled devices. Our postpaid thesis is
that wireless voice penetration of the population will increase only slowly, and that
most of the incremental postpaid voice growth will come from population expansion
which, at the current rate of ~0.9% with 210 million postpaid subs currently, implies
postpaid voice adds of 2 million in 2011. From there, it is not hard to envision that
growth in the number of people who carry a tablet or MiFi device as well as a cell
phone can translate to our postpaid growth estimate of 2.8 million, and we believe
there could be upside to our estimate.
The reported growth of postpaid subscribers will depend very much on providers
focus and willingness to get involved in the data business. Verizon, for example,
already has the biggest datacard/MiFi business in the US with 5.5 million
subscribers, and we expect that to grow as the company introduces LTE devices and
an aggressive 4G marketing campaign. AT&T, however, is focused on enhancing its
network rather than aggressively going after datacard business.
20
Philip Cusick, CFA

(1-212) 622-1444

13 January 2011
Sprint has an interesting situation as well. Its datacard business has ramped nicely in
the last year as it has pushed 3G/4G laptop cards and the Overdrive MiFi device,
and recently started to sell tablet devices such as the Samsung Galaxy Tab. The data
usage on these, however, often goes to the Clearwire network, of which Sprint owns
more than 50%. This relationship, however, has been bumpy and we wonder if Sprint
may start to rethink how aggressively it drives customers to Clearwires network.
Table 3: Postpaid Net Adds Across Big 4
1Q09
2Q09
3Q09
4Q09
1Q10
2Q10
3Q10
4Q10E
1Q11E
2Q11E
3Q11E
4Q11E
Net Adds
AT&T Mobility
Verizon Wireless
Sprint Nextel
T-Mobile USA
897
936
(1,250)
160
1,128
1,044
(991)
56
1,333
901
(801)
(140)
841
1,106
(504)
(117)
512
412
(578)
(119)
496
661
(228)
106
745
584
(107)
(60)
525
700
25
30
(100)
650
(25)
25
(300)
750
100
13
200
500
50
0
300
400
100
63
Net Add Share

AT&T Mobility
Verizon Wireless
Sprint Nextel
T-Mobile USA
121%
126%
-168%
22%
91%
84%
-80%
5%
103%
70%
-62%
-11%
63%
83%
-38%
-9%
226%
181%
-255%
-52%
48%
64%
-22%
10%
64%
50%
-9%
-5%
41%
55%
2%
2%
-18%
118%
-5%
5%
-53%
133%
18%
2%
27%
67%
7%
0%
35%
46%
12%
7%
Postpaid market share has been stable at the top, shifting at the bottom
In addition to overall industry growth, the shifting share of churn and gross additions
among the postpaid players has become increasingly important. For example, from
2006 to 2008 Sprint went from adding 279,000 net customers in 2006 to losing over
4 million postpaid customers in 2008. At the same time, the industry went from
adding 14 million postpaid subs in 2006 to only 8.5 million in 2008, but because of
Sprints deterioration the other carriers growth was impacted only minimally. Now,
however, Sprint is on track to lose only ~900k subscribers in 2010 and add subs in
2011, as industry postpaid growth dropped to only ~3.7 million in 2010. Thus, the
other carriers went from adding 12 million postpaid subs in 2008 to only 4.6 million
in 2010 and an estimated 2.5 million in 2011.
This market share shift toward Sprint since 2008 has been driven by improvements in
the companys network, handset selection, and customer service, as well as steady
reduction in price. On the gross add side, as Sprints share rebounded from 12% in
3Q08 to over 18% in 3Q10, the loss was split evenly between AT&T and Verizon
while T-Mobiles share remained steady at 19%. Sprints share of disconnects fell a
similar 600 basis points, from 28% to 22% in the same period, again with AT&T and
Verizon making up the majority of the share shift.
Unfortunately for Sprint, the companys churn is still nearly double that for the
postpaid bases of AT&T and Verizon. If it cannot start to reduce churn from the
recent 1.9% level to at least the mid-1% range, the potential for the company to ever
grow subscribers or hold margins is tentative, in our view.
21
Philip Cusick, CFA

(1-212) 622-1444

13 January 2011
Figure 4: Sprints Postpaid Gross Add Share Has Rebounded
Figure 5: And Churn Has Come Down Significantly
100%
3.0%
80%
2.5%
2.0%
60%
1.5%
40%
1.0%
20%
0.5%
0%
2006
2007
T
2008
VZ
2009
2010E
0.0%
1Q06 3Q06 1Q07 3Q07 1Q08 3Q08 1Q09 3Q09 1Q10 3Q10
2011E
TM-USA
VZ
TM-USA
Figure 6: Resulting in a Slowdown in Net Sub Losses

2,500
2,000
Postpaid Net Adds
1,500
1,000
500
0
(500)
(1,000)
(1,500)
1Q06
2Q06
3Q06
4Q06
1Q07
2Q07
3Q07
4Q07
1Q08
T
VZ
2Q08
S
3Q08
4Q08
1Q09
2Q09
3Q09
4Q09
1Q10
2Q10
3Q10
TM-USA
Prepaid Industry Increasingly Reliant on Data

Prepaid and pay in advance monthly plans today represent 21% of wireless
industry subscribers and in the last 12 months contributed 45% of industry growth.
These customers are broken up into three main categories the highest-spending
tend to be on pay-in-advance monthly plans in the $30-60 range, the middle tier tend
to buy minutes upfront and spend $15-30 per month, and the lowest are given service
for free through federal and state lifeline programs from which the carrier gets ~$10
per month.
22
Philip Cusick, CFA

(1-212) 622-1444

13 January 2011
Table 4: Prepaid Net Adds Across the Industry

Thousands
1Q08
2Q08
3Q08
4Q08
2008
1Q09
2Q09
3Q09
4Q09
2009
1Q10
2Q10
3Q10
4Q10E
2010E
Prepaid net adds

AT&T Mobility
% of total CNG net adds
118
9%
12
1%
(36)
-2%
(23)
-1%
71
1%
(155)
-13%
(412)
-30%
(176)
-9%
(58)
-2%
(801)
-11%
24
1%
300
19%
321
12%
450
17%
1,095
13%
Sprint-Nextel
% of total S net adds
(200)
16%
(138)
17%
(329)
23%
(314)
19%
(981)
19%
674
-152%
777
1407%
666
-214%
435
-630%
2,552
-278%
348
-151%
173
-315%
471
129%
450
95%
1,442
260%
T-Mobile
% of total T-Mobile net adds
306
31%
143
21%
377
56%
355
57%
1,181
40%
255
61%
268
83%
63
-82%
488
132%
1,074
104%
41
-53%
(199)
214%
197
144%
270
90%
309
116%
Verizon
% of total VZW net adds
352
20%
127
7%
85
5%
171
10%
735
10%
268
22%
48
4%
15
1%
51
2%
382
7%
(146)
-10%
(207)
-15%
(137)
-14%
(80)
-6%
(570)
-11%
US Cellular
% of total USM net adds
14
19%
1
5%
(15)
83%
(8)
-40%
(8)
-9%
3
6%
(27)
31%
(14)
0%
13
130%
(25)
45%
33
236%
29
-264%
0
0%
20
100%
82
-456%
Leap Wireless
% of total LEAP net adds
230
100%
171
100%
263
100%
385
100%
1,049
100%
493
100%
203
100%
116
100%
298
100%
1,110
100%
446
100%
(112)
100%
(200)
100%
50
100%
184
100%
MetroPCS
% of total PCS net adds
452
100%
184
100%
249
100%
520
100%
1,404
100%
684
100%
206
100%
66
100%
317
100%
1,272
100%
692
100%
303
100%
223
100%
350
100%
1,568
100%
381
100%
1,671
43%
-29%
43,131
17%
23%
213
100%
601
18%
-50%
43,774
17%
21%
341
100%
932
24%
-10%
44,741
17%
20%
743
100%
2,045
44%
-25%
46,794
18%
17%
1,678
100%
5,253
33%
-28%
46,794
18%
17%
567
100%
2,655
65%
59%
49,318
19%
14%
730
100%
1,523
42%
153%
50,680
19%
16%
712
100%
1,624
42%
74%
51,961
19%
16%
1,199
100%
2,743
48%
34%
54,465
20%
16%
3,208
100%
8,696
47%
66%
54,639
20%
17%
1,052
100%
2,489
59%
-6%
57,130
21%
16%
460
100%
747
25%
-51%
57,915
20%
14%
745
100%
1,620
39%
0%
59,504
21%
15%
750
100%
2,260
44%
-18%
61,764
21%
13%
3,007
100%
7,117
43%
-18%
61,937
21%
13%
Tracfone
% of total TF net adds
PREPAID NET ADDS
% of total
% change, y-t-y
Total prepaid ending subs
% of total
% change, y-t-y
Voice and text commoditized as barriers to entry disappear

At the low end of the wireless market, voice and text offerings in the $30-40 range
have become heavily commoditized with virtual operators like Tracfone and WalMart pressuring pricing at the facilities-based operators like Leap Wireless,
MetroPCS, and Sprints Boost and Virgin offerings. Whereas two years ago
consumers had to spend $40+ for unlimited voice and text service, this can mostly be
had today for as little as $30 per month. This has driven the facilities-based operators
to offer a higher handset mix and data options to differentiate from the MVNOs.
Prepaid Android devices are
flying off the shelves
Better handsets, data plans could reflate ARPU

Until a year ago the prepaid and pay in advance markets were strictly focused on
voice and text, offering a low-end handset and service at low prices. As weve seen
in the past though, the last year has demonstrated that the low-end consumer wants
access to many of the same services (internet, music, etc.) and handset options
(QWERTY, touch, etc.) that attract the postpaid customer. Carriers like MetroPCS
and Leap Wireless that offer an attractive handset like an Android touch device have
seen far faster uptake than they expected, and a nice lift in ARPU from those
customers.
While MetroPCS does not forecast any increase in ARPU going forward, it does
expect to be able to hold the ~$40 level, and Leap Wireless has said that it expects
ARPU uplift from 3Q10 levels as data customers at the $50-60 level replace churn in
the$30-40 range.
23
Philip Cusick, CFA

(1-212) 622-1444

13 January 2011
Figure 7: Cricket Partial Handset Lineup
Samsung Stunt
$40/Free After Rebate
Samsung Messager
Touch
$160/$80
Huawei Ascend
(Android)
$160/$100
Blackberry Curve
8530
$300/$180
Sanyo ZIO by Kyocera

(Android) $250/$130
Source: Company reports (used with permission).
Figure 8: MetroPCS Partial Handset Lineup
Huawei M228
$10 After Instant
Savings
LG Select
$59
LG Baanter Touch
$149
Samsung Craft $299

After Instant Savings
How long the facilities-based carriers have this data business to themselves is a big
question. Tracfones Straight Talk brand already offers a number of low-end
QWERTY and touch devices, and at some point we expect carriers like T-Mobile
and Verizon to enable their MVNOs to offer postpaid-equivalent data applications.
AT&T and Verizon put little effort
into prepaid voice
AT&T and Verizon prepaid voice offers continue to drift

Verizon recently lowered its branded prepaid price from $4 to $2 per day for
unlimited voice calling to make it comparable with AT&Ts, but both are still far
more expensive than most prepaid offerings. We see these offers as targeted to
prepaid-credit-quality customers who care about being on the high-quality Verizon
and AT&T networks, but dont expect them to return to growth any time soon.
AT&T prepaid growth totally iPad-driven
In addition to the prepaid voice offers that have typically made up this category at
AT&T and Verizon, AT&T in 2010 started to offer a prepaid data plan on Apple
iPads sold with a 3G modem. We estimate that AT&T added about 400,000 3G iPad
customers in each of the second and third quarters of 2010, and likely substantially
more in 4Q10. These typically come with a $25 ARPU, which is slightly dilutive to
AT&Ts traditional ARPU for prepaid in the high $20s.
ARPU Trends Mixed Data Drives Postpaid, but Additional

Devices Dilute Headline Numbers
Average revenue for all users has fallen steadily by 1-2% in each of the last few
years, and we expect this to continue as industry growth is increasingly driven by
prepaid voice subs at the low end and second data devices with lower-than-average
prices at the high end. Offsetting this is the trend toward increasing postpaid ARPU
(especially at AT&T and Verizon) as customers increasingly trade up to smartphones
with $15-30 data plans, driving increases of ~2% annually.
24
Philip Cusick, CFA

(1-212) 622-1444

13 January 2011
Figure 9: Total ARPU Has Been on a Steady Decline

$65
$60
$55
$54.30
$54.73
$54.63
$52.24
$51.88
$51.19
$51.53
$50
$50.86 $49.86
$48.73
VZ
Sprint Nex tel
TM-USA
20
10
20
09
20
08
20
07
20
06
20
05
20
04
20
03
20
02
20
01
$45
National carrier av erage
Drop in voice ARPU driven more

by dilution than price drop
Voice ARPU continues down due to family plan dilution, high-end price cuts
Wireless voice ARPU continues to decline, driven by price declines at the high end,
family plan expansion, and dilution from data-only devices like laptop cards and
MiFi. We estimate that postpaid voice ARPU is $37 currently, down from $50+
levels five years ago.
For individuals, while standard postpaid price levels at the low end have stayed
relatively flat at $35-60 as more and more minutes have been bundled into the plan,
at the high end unlimited voice plan prices from postpaid carriers have tumbled from
$200-300 three years ago to $60-100 today. Unlimited voice can be had from
postpaid players for as little as $60 at T-Mobile or $70 at Verizon Wireless.
In addition, most incremental postpaid voice subscribers in the last few years have
come in on family plans, on which the family can share a single bucket of minutes
for an additional $0-10 per line. Our checks indicate that family plan customers (both
the core and the add-on lines) now make up 50-70% of postpaid customers at each of
the Big 4 carriers, with the highest penetration at AT&T and Verizon Wireless.
Fortunately, most of these incremental family customers also sign up for an SMS or
data package, and we believe total incremental ARPU from a family plan customer is
roughly $30.
Figure 10: Voice Accounts for ~65% of Total Postpaid ARPU
90%
85%
80%
75%
70%
65%
60%
55%
2006
2007
T
2008
VZ
2009
TM-USA
2010E
2011E
AVERAGE
25
Philip Cusick, CFA

(1-212) 622-1444

13 January 2011
Data-only connections are dilutive to voice ARPU

CTIA estimates there are 13.0 million data-only laptop cards and MiFi devices in use
in the US, up 20% from 10.8 million two years ago.
Verizon has 5.5 million laptop
customers to AT&Ts 1.5 million
Verizon internet device growth diluted voice ARPU by 1% in last 12 months.

Verizon Wireless has roughly 5.5 million internet-only devices on its network (data
cards, MiFi, and netbooks), up from 4.5 million a year ago. These additional devices
(~1 million) count as part of the companys postpaid net additions in the last year,
and account for 15% of the companys reduction of $2.50 in voice ARPU during the
same period.
Connected devices diluted AT&T consolidated ARPU by 5% in 2010. At AT&T,
the company has roughly 1.5 million laptop card-like devices, a level that has
remained fairly steady through the last couple of years, and we estimate that postpaid
subscriber growth and ARPU have been generally unaffected. At the total subscriber
and ARPU level, however, the company added 4.5 million connected devices in
the last 12 months, all at an ARPU of only $3-4 per device. We estimate that the
majority of these were Kindle or similar eReader devices (AT&T also supports the
other big eReaders including Barnes & Nobles Nook and Sonys eReader). Thus,
these connected devices made up 52% of total subscriber growth at AT&T in the
last 12 months and we estimate diluted total ARPU by 500 basis points. In other
words, if we counted only the retail business at AT&T, ARPU would have been up
1.8% from 3Q09 to 3Q10 instead of down 2.3% as reported.
but data is now 32% of total ARPU for the Big 4
Spending on data, including SMS, smartphones, data cards, etc., represented 32% of
industry service revenue in the third quarter of 2010, up from 23.2% in 3Q09. This
has been a function both of more customers signing up for SMS and data plans and
$25-30 smartphone data plans penetrating the mass market of wireless subscribers as
well as the early adopters. With new smartphones and data devices coming to market
almost every week, we expect data penetration and spending to continue to increase
in 2011. We delve more into the drivers of this phenomenon in the smartphone and
emerging devices sections, below.
Figure 11: Growth in Data ARPU Supports Wireless ARPU Growth
Postpaid data ARPU ($)
$30.00
$25.00
$20.00
$15.00
$10.00
$5.00
2006
2007
T
26
2008
VZ
2009
TM-USA
2010E
AVERAGE
2011E

13 January 2011
Figure 12: Data Is Driving Wireless Revenue Growth

50,000
$ (m)
Philip Cusick, CFA

(1-212) 622-1444
40,000
30,000
Data rev
Voice rev
20,000
10,000
1Q06
3Q06
1Q07
3Q07
1Q08
3Q08
1Q09
3Q09
1Q10
3Q10 1Q11E 3Q11E
Handsets Smartphone Share Is Growing

Carriers Are Close to Smartphone Parity
Leaving the iPhone aside, the US wireless carriers have all improved their handset
offerings in the past year, to the point where customers looking for a Blackberry or
Android device do not need to exclude any carrier. While the Big 4 have gotten
better, the biggest changes have come at the regional level where carriers like Leap,
MetroPCS, US Cellular, and nTelos have improved dramatically.
27
Philip Cusick, CFA

(1-212) 622-1444

13 January 2011
Figure 13: Smartphone Lineup Across Carriers
AT&T
Smartphone
/Tablet
Samples
iPhone 4 16/32 GB $199-$299
HTC Aria $129
Blackberry Torch $100
iPad 16/32/64 GB $629/$729/$829
Droid X by Motorola $199
Blackberry Bold 9650 $100
LG Vortex $40
Samsung Galaxy Tab $600
HTC EVO 4G $199
Samsung Epic 4G
Samsung Galaxy Tab $400
T-Mobile myTouch 4G $200
Samsung Vibrant free
Dell Inspiron Mini 10 4G $230
Verizon
Smartphone
/Tablet
Samples
Sprint
Smartphone
/Tablet
Samples
T-Mobile
Smartphone
/Tablet
Samples
Smartphones 43% of 3Q Sales at VZW, ~70% at AT&T

As the quality of smartphones has improved, customers are finding more utility in
them, and the share of smartphones as a percentage of handset sales has expanded
dramatically in the last year.
Verizon smartphones ramp with Android. At Verizon in particular, smartphones
represented 43% of postpaid handset sales in the third quarter of 2010, up from just
23% in 3Q09. A year ago that 23% was dominated by Blackberry devices like the
Curve and Storm, but starting with the Motorola Droid which launched in 4Q09
Android-based devices now dominate smartphone sales at Verizon, we believe. We
28
Philip Cusick, CFA

(1-212) 622-1444

13 January 2011
forecast that by 4Q11 smartphones will account for 75% of postpaid handset sales,
including 30% of sales for iPhones.
Table 5: Handset Sales Split at Verizon
Smartphone (iPhone)
Smartphone (non-iPhone)
3G Multimedia
Internet
Feature phone
Postpaid handset sales
1Q09
0.0%
26.0%
3.0%
5.0%
66.0%
100.0%
2Q09
0.0%
21.0%
17.0%
6.0%
56.0%
100.0%
3Q09
0.0%
23.0%
30.0%
6.0%
41.0%
100.0%
4Q09
0.0%
30.0%
34.0%
6.0%
30.0%
100.0%
1Q10
0.0%
36.0%
24.0%
7.0%
33.0%
100.0%
2Q10
0.0%
40.0%
17.0%
6.0%
37.0%
100.0%
3Q10
0.0%
43.0%
13.0%
7.0%
37.0%
100.0%
4Q10E
0.0%
52.5%
15.3%
8.6%
23.5%
99.8%
1Q11E
20.0%
36.1%
0.3%
8.6%
33.7%
100.0%
2Q11E
30.0%
35.9%
3.4%
8.2%
21.2%
100.0%
3Q11E
30.0%
38.1%
-1.7%
9.0%
23.1%
100.0%
4Q11E
30.0%
45.4%
-4.4%
9.5%
17.9%
100.0%
iPhone drove AT&T share far higher. At AT&T, the companys iPhone franchise
drove smartphone share high earlier than at Verizon. In 3Q10 we estimate that 80%
of postpaid handset sales were 3G integrated devices, which include smartphones
as well as dumb touch and QWERTY devices, and we estimate that true
smartphones made up close to 70% of sales, including iPhone sales which
represented 48% of total postpaid sales. This is up from 68% integrated in 3Q09
when true smart phones represented roughly 50% of postpaid handset sales.
Table 6: Handset Sales Split at AT&T
iPhone
3G Integrated devices (non-iPhone)
Laptop cards
Feature
1Q09
20.6%
36.4%
5.9%
1.4%
35.7%
100.0%
2Q09
27.8%
32.2%
0.0%
2.5%
37.5%
100.0%
3Q09
33.2%
34.8%
1.4%
1.8%
28.8%
100.0%
4Q09
34.0%
36.0%
0.0%
1.6%
28.4%
100.0%
1Q10
34.6%
35.4%
0.0%
1.9%
28.1%
100.0%
2Q10
38.5%
33.5%
0.0%
1.5%
26.5%
100.0%
3Q10
48.1%
31.9%
0.0%
1.2%
18.8%
100.0%
4Q10E
42.6%
38.4%
0.0%
1.4%
17.6%
100.0%
1Q11E
36.4%
46.6%
0.0%
1.7%
15.3%
100.0%
2Q11E
38.3%
44.7%
0.0%
1.5%
15.5%
100.0%
3Q11E
41.1%
43.9%
0.0%
1.3%
13.7%
100.0%
4Q11E
36.9%
48.1%
0.0%
1.4%
13.6%
100.0%
Average Subsidies Should Increase with Smart Share

Smartphones have driven up handset subsidies in the last three years, and we expect
this trend to continue as the mix skews more to smartphones. We have also seen
carriers save some money as feature phone prices have dropped and carriers use
fewer of their subsidy dollars to upgrade customers who are not willing to step up
into a big data plan.
The iPhone from Apple is possibly the most heavily subsidized handset in the US
certainly on a gross dollar basis if not per device. We estimate that AT&T pays
Apple $425-650 per handset depending on the version a subsidy of approximately
$325-350 compared to the average postpaid subsidy which we estimate to be
~$200-250. AT&T sees this as a good trade though, given these customers generate
~1.7x average postpaid ARPU with lower churn.
Table 7: Subsidy Analysis at AT&T
iPhone
Laptop cards
Feature
Total postpaid subsidy
1Q09
$350
$250
$100
$100
$57
$191
2Q09
$350
$180
$100
$100
$65
$182
3Q09
$325
$175
$100
$100
$68
$192
4Q09
$325
$125
$100
$100
$54
$173
1Q10
$325
$135
$100
$100
$57
$178
2Q10
$325
$160
$100
$100
$61
$196
3Q10
$350
$250
$100
$100
$52
$259
4Q10E
$325
$225
$100
$100
$54
$236
1Q11E
$325
$200
$100
$100
$143
$235
2Q11E
$325
$200
$100
$100
$53
$224
3Q11E
$325
$200
$100
$100
$61
$231
4Q11E
$325
$200
$100
$100
$81
$228
Aggregate handset subsidy expense

% of service revenue
1,439
12.4%
1,507
12.6%
1,738
14.0%
1,494
11.9%
1,307
10.2%
1,502
11.4%
2,550
18.7%
2,038
14.8%
1,803
13.0%
1,787
12.7%
2,125
14.9%
1,952
13.8%
29
Philip Cusick, CFA

(1-212) 622-1444

13 January 2011
At Verizon, we estimate that postpaid subsidy will rise from ~$150 in 3Q10 to more
than $200 once it has sold the iPhone for a full quarter.
Table 8: Subsidy Analysis at Verizon
iPhone subsidy
Smartphone subsidy (non-iPhone)
3G Multimedia subsidy
Internet subsidy
Feature phone subsidy
1Q09
$350
$250
$100
$100
$147
$170
2Q09
$350
$250
$100
$100
$194
$184
3Q09
$350
$250
$100
$100
$200
$176
4Q09
$350
$250
$100
$100
$242
$187
1Q10
$350
$250
$100
$100
$140
$167
2Q10
$350
$250
$100
$100
$131
$171
3Q10
$350
$250
$125
$125
$69
$158
4Q10E
$350
$230
$110
$125
$54
$161
1Q11E
$350
$225
$100
$120
$44
$177
2Q11E
$350
$200
$100
$120
$51
$201
3Q11E
$350
$200
$100
$120
$56
$203
4Q11E
$350
$180
$100
$100
$51
$201
Aggregate handset subsidy expense

1,647
12.9%
1,696
13.1%
1,802
13.7%
1,908
14.5%
1,654
12.3%
1,756
12.7%
1,740
12.3%
1,690
11.9%
2,017
14.1%
2,485
17.0%
2,335
15.6%
2,215
14.8%
Upgrades, Not Gross Adds, Drive Majority of Handset Sales

As churn has declined and customers have spent more time with a carrier in the last
five years, weve not seen a corresponding increase in the life of a handset. Instead,
carriers have become more willing to offer an upgraded handset to existing
customers, and this trend has accelerated as smartphones from Android and Apple hit
mass-market prices and consumers are willing to step up to a higher-priced data plan
to offset the carriers cost.
Upgrades were >60% of 2010
handset sales
We estimate that currently ~61% of handset sales by the Big 4 carriers are actually
upgrades rather than phones for new customers coming in the door, and that the
average handset life in the US is 18-24 months for a handset, and at the low end of
this range for a smartphone.
Upgrades % of handset sales
Figure 14: Upgrades Account for an Increasing Proportion of Handset Sales

75%
65%
55%
45%
35%
25%
2003
2004
2005
Big 4 av erage
2006
T
2007
VZ
2008
S
2009
2010
2011
TM-USA
Unlocked Handsets Still DOA

For a little while in 2008 and 2009 carriers were encouraging customers to bring in
their own handsets in exchange for an activation discount or contract flexibility, but
this never really went anywhere.
Americans are well trained to not
pay full price for a handset
30
In 2008, MetroPCS rolled out MetroFlash, which allowed customers who brought in
old CDMA handsets to pay only US$30 for activation and the first month of service,
compared to what is typically a US$100 handset cost for new customers. This
business, however, essentially died when MetroPCS moved to eliminate free-firstmonth pricing and switched to discount handsets instead. Verizon Wireless also
Philip Cusick, CFA

(1-212) 622-1444

13 January 2011
started allowing customers to bring in their own phones to get postpaid-level pricing
on service on a month-to-month basis, with the option to drop off the service
whenever they like, but the company rarely mentions the program. Finally, Google
launched the Nexus One in January 2010, selling the phone exclusively through its
website with no attached subsidy. While the Nexus One generated significant
excitement, the high price ($599) and limited carrier usefulness resulted in few actual
sales.
The bottom line is that as long as carriers will subsidize handsets in the US by $50400 every 12-24 months, consumers have little reason to pay full price for a device.
We dont expect this to change any time soon, and even as wireless technologies
converge, the different spectrum bands for US carriers likely will keep handsets
mostly tied to a single carrier.
iPhone Exclusivity to End in February

In 2007 AT&T was the carrier launch partner for Apple (AAPL, rated Overweight by
J.P. Morgan IT Hardware analyst, Mark Moskowitz) to bring the iPhone to market in
the US. That deal was exclusive to AT&T in the US for the last few years, even as
once-exclusive countries in Western Europe went non-exclusive. Now, AT&Ts
exclusivity is ending, as Verizon begins offering the phone in early February, and
possibly other carriers later in the year.
AT&T ended 2010 with nearly
20 million iPhone customers
How big is iPhone at AT&T today?

AT&T today has roughly 20 million iPhone customers in its base, who we estimate
spend ~$90 per month, churn at about two-thirds of the postpaid average, and use an
average of around 350 MB per month on the 3G network vs. 200 MB on average. We
estimate that, after selling roughly 14 million iPhones in 2010 and another 10 million
in 2009, AT&T will have nearly 20 million iPhone users at the end of 2010, of which
more than 90% are on contract.
Table 9: AT&T iPhone Sales and Subscribers Analysis

Apple reported iPhone sales
% sold through AT&T
1Q08
1,703
53.7%
2Q08
717
118.5%
3Q08
6,892
34.8%
4Q08
4,363
43.5%
2008
13,675
44.4%
1Q09
3,793
42.2%
2Q09
5,208
46.1%
3Q09
7,367
43.4%
4Q09
8,737
35.5%
2009
25,105
41.0%
1Q10
8,752
30.9%
2Q10
8,398
38.1%
3Q10
14,102
36.9%
4Q10E
9,403
42.5%
2010E
40,655
37.1%
1Q11E
8,656
35.8%
2Q11E
8,783
38.7%
3Q11E
9,970
42.1%
4Q11E
10,748
32.6%
iPhone handset sales

% of AT&T handset sales
% new to AT&T
iPhone as % of gross adds
915
10.5%
40.0%
13.2%
850
9.7%
40.0%
12.6%
2,400
22.4%
40.0%
25.8%
1,900
18.7%
40.0%
22.6%
6,065
15.8%
40.0%
19.3%
1,600
18.2%
40.0%
21.5%
2,400
26.0%
33.0%
25.6%
3,200
32.1%
40.0%
37.0%
37%
3,100
31.8%
33.0%
33.6%
10,300
27.3%
36.3%
29.7%
2,700
32.1%
35.0%
36.4%
3,200
35.0%
27.0%
34.6%
4,000
39.3%
25.0%
34.9%
3,400
38.1%
25.0%
33.3%
4,200
39.5%
25.0%
38.2%
3,500
34.1%
25.0%
31.8%
265
848
6.4%
265
1,060
7.7%
15,100
38.7%
26.9%
36.9%
4,057.00
265
4,002
7.5%
3,100
34.4%
25.0%
30.3%
265
716
5.6%
5,200
46.2%
24.0%
40.9%
36.5%
265
1,378
10.1%
265
822
5.9%
265
901
6.4%
265
1,113
7.8%
265
928
6.5%
iPhone subsidy per device

Total iPhone subsidies
Margin impact from iPhone subsidies
0.25%
(16)
1.27%
0.25%
(22)
1.14%
0.25%
(27)
1.30%
0.25%
(43)
1.30%
0.2%
(108)
1.25%
0.70%
(148)
1.22%
0.70%
(165)
1.14%
0.70%
(197)
1.24%
0.70%
(242)
1.27%
0.6%
(752)
1.22%
0.70%
(281)
1.18%
0.70%
(298)
1.11%
0.70%
(327)
1.31%
0.70%
(386)
1.34%
0.6%
(1,291)
1.24%
1.05%
(623)
1.40%
1.40%
(835)
1.40%
1.05%
(632)
1.35%
1.00%
(628)
1.29%
iPhone replacement rate

iPhone replacements
1.0%
(62)
1.0%
(87)
3.0%
(329)
3.0%
(513)
1.8%
(991)
3.0%
(634)
3.0%
(707)
3.0%
(845)
3.0%
(1,039)
2.6%
(3,225)
4.0%
(1,604)
3.5%
(1,489)
4.5%
(2,105)
4.0%
(2,203)
3.7%
(7,401)
4.0%
(2,373)
4.0%
(2,385)
4.5%
(2,708)
4.5%
(2,824)
iPhone subs
iPhone additions
% of postpaid on iPhone
Average iPhone subs
2,912
837
5.2%
2,493
3,653
741
6.4%
3,282
5,696
2,044
9.8%
4,674
7,041
1,345
11.8%
6,369
7,041
4,966
11.8%
4,558
7,859
818
13.0%
7,450
9,387
1,528
15.2%
8,623
11,545
2,158
18.3%
10,466
13,364
1,818
20.7%
12,454
13,364
6,323
20.7%
10,202
14,179
816
21.8%
13,771
15,593
1,413
23.3%
14,886
18,360
2,768
27.1%
16,976
19,771
1,411
29.0%
19,066
19,771
6,408
29.0%
16,568
19,876
105
29.2%
19,824
20,056
180
29.6%
19,966
20,917
861
30.8%
20,486
20,966
49
30.7%
20,941
0%
0%
40%
2,279
70%
4,929
80%
6,288
85%
7,979
86%
9,929
88%
11,760
11,760
90%
12,761
92%
14,345
95%
17,442
96%
18,981
18,981
97%
19,280
98%
19,655
100%
20,917
100%
20,966
$90.00
1,262
11.2%
$56.56
$90.00
1,720
14.9%
$56.31
$90.00
2,012
17.3%
$55.24
$90.00
2,328
19.5%
$55.72
$90.00
2,826
22.8%
$55.88
$90.00
3,363
26.7%
$54.62
iPhone churn rate

iPhone disconnects
non-iPhone postpaid churn rat
iPhone 3G mix
3G+ iPhones
iPhone ARPU
iPhone service revenue
% of total service revenue
non-iPhone postpaid ARPU
$90.00
673
6.3%
$56.76
$90.00
886
8.1%
$57.23
$90.00
4,922
11.1%
$56.46
$90.00
11,018
22.7%
$54.83
31
Philip Cusick, CFA

(1-212) 622-1444

13 January 2011
Figure 15: AT&T Is Also Important to Apple

16,000
140%
14,000
120%
12,000
100%
10,000
80%
8,000
60%
6,000
4,000
40%
2,000
20%
0%
1Q
08
2Q
08
3Q
08
4Q
08
1Q
09
2Q
09
3Q
09
4Q
09
1Q
10
2Q
10
3Q
10
4Q
10
E
1Q
11
E
2Q
11
E
3Q
11
E
4Q
11
E
Apple iPhone Sales
AT&T iPhone Sales
AT&T share of total
iPhones generate highest revenue at AT&T, and heaviest data users

At a roughly $90 ARPU and low churn, these 20 million customers (~29% of
postpaid customers) contribute 37% of AT&Ts wireless service revenue, by our
estimates.
We also estimate that the gross margin is as high or higher on iPhone customers as
on typical non-iPhone postpaid subscribers. While the extra ~150 MB of data is a
burden, we dont estimate it costs anywhere near the $30 ARPU premium for the
network to support, and think our iPhone margin numbers below look conservative.
By comparison, AT&T is willing to sell laptop usage to customers at $60 per month
for an estimated average of 1 GB of usage ($0.06/MB) or a maximum of 5 GB
($0.012/MB).
Table 10: AT&T Subscriber Metrics
Avg. iPhone Sub-Exclusive
$90
$550
$36
60%
Avg. Postpaid Sub

$60
$300
$24
60%
Non-iPhone Postpaid Sub

$55
$258
$22
60%
Churn
Lifetime (months)
Lifetime (years)
0.55%
181.8
15.2
1.10%
90.9
7.6
1.19%
83.8
7.0
Recurring subsidy
Upgrades (18 months)
Upgrade cost per month
$300
9.1
$15.02
$100
4.1
$4.46
$66
3.7
$2.88
$250
$200
$192
10.0%
$3,185
10.0%
$1,734
10.0%
$1,575
ARPU
CPGA
CCPU
Pre-marketing margin
Marketing cost per gross add

Discount rate
Customer NPV
iPhones generate ~45% of data usage on AT&Ts wireless network

Our checks indicate the typical iPhone customer uses ~350 MB of data each month
on average, roughly 1.6x that of a typical non-iPhone smartphone user, and the
iPhone base contributes roughly 47% of total wireless network data. While other
carriers have not had to deal with this level of usage or growth, AT&T also doesnt
have as large a number of heavy laptop users as Verizon.
32
Philip Cusick, CFA

(1-212) 622-1444

13 January 2011
Table 11: Data Usage at AT&T

Postpaid data usage (MB)
iPhone
Laptop cards
Feature
Average postpaid sub (MB)
Total monthly subscriber data demand (GB)
% change y/y
iPad analysis (in prepaid business)
iPad device net adds
iPad embedded base
iPad data usage (MB)
Total monthly iPad data usage on network
Total network data usage/month (GB)
% change y/y
iPhone as % of data usage
1Q09
300
150
50
1,000
20
89
5,411
5,411
2Q09
300
175
50
1,000
20
104
6,401
3Q09
300
200
50
1,000
20
122
7,690
4Q09
325
200
50
1,000
20
139
8,997
6,401
7,690
8,997
37%
38%
43%
2Q09
150
100
50
1,600
20
125
9,799
3Q09
200
100
50
1,700
20
130
10,310
4Q09
250
150
50
1,800
20
150
12,049
1Q10
325
200
50
1,000
20
149
9,695
79%
2Q10
325
225
50
1,000
20
161
10,796
69%
3Q10
350
225
50
1,000
20
181
12,249
59%
4Q10E
350
275
50
1,000
20
203
13,868
54%
1Q11E
350
300
50
1,000
20
215
14,674
51%
2Q11E
375
325
50
1,000
20
238
16,148
50%
3Q11E
400
350
50
1,000
20
261
17,735
45%
4Q11E
425
375
50
1,000
20
285
19,460
40%
9,695
79%
45%
400
400
600
240
11,036
72%
43%
400
800
600
480
12,729
66%
46%
600
1400
600
840
14,708
63%
45%
350
1750
600
1050
15,724
62%
44%
300
2050
600
1230
17,378
57%
43%
250
2300
600
1380
19,115
50%
42%
300
2600
600
1560
21,020
43%
42%
1Q10
300
175
50
1,900
20
170
13,748
51%
2Q10
325
200
50
2,000
20
189
15,434
57%
3Q10
350
200
50
2,000
20
199
16,334
58%
4Q10E
350
225
50
2,100
20
223
18,463
53%
1Q11E
350
225
50
2,200
20
244
19,617
43%
2Q11E
400
250
50
2,300
20
282
21,438
39%
3Q11E
400
275
50
2,400
20
315
23,259
42%
4Q11E
425
300
50
2,500
20
351
25,283
37%
1,900
2,000
2,000
3,500
2,078
3,700
2,128
4,000
2,137
4,200
2,074
4,200
1,915
16,334
58%
40.0%
126
18,337
52%
50.0%
363
19,254
40%
55.0%
733
20,705
34%
60.0%
1,515
21,744
33%
65.0%
2,540
22,744
24%
Table 12: Data Usage at Verizon

Data usage (MB)
3G iPhones
3G Smartphones (ex-iPhone)
3G Multimedia
Internet*
Feature
Average postpaid sub
Total subscriber data demand (GB)
% change y/y
1Q09
100
100
50
1,500
20
118
9,112
LTE internet device MB/mo (on all networks)

3G internet device MB/mo
% of data use on LTE network for LTE devices
LTE Monthly network data usage (GB)
3G monthly network data usage (GB)
% change y/y
9,112
9,799
10,310
12,049
13,748
51%
15,434
57%
Verizon iPhone is here

On January 11, Verizon and Apple announced the availability of a CDMA iPhone.
Eligible existing Verizon customers can pre-order the device on February 3, and
devices will be available and officially activated for new and existing customers on
February 10. The device is essentially the same iPhone 4 available on AT&T today,
yet there is only CDMA functionality. Given the extra size necessary for additional
antenna and power amplifier in the CDMA/WCDMA Bold, Apple may have chosen
small size over global roaming ability for the first iteration. However, Verizon will
be including mobile hotspot capabilities. Data pricing and hotspot pricing were not
announced, but we would not expect major differences with current plan pricing on
other smartphones.
Apple share of handset sales
Apple has received 30-40% of AT&Ts postpaid handsets in the last year, and this
spiked to 48% in 3Q10 on the iPhone 4 as AT&T tried to lock down its base into the
likely loss of exclusivity in 1Q. We expect Apples share at AT&T to retreat to 40%
in 4Q10 and dip back to the mid-30% range in 1H11. Beyond that we expect Apples
share at AT&T to continue in the mid-30% range as AT&T pushes Android and
WP7 devices somewhat harder than in the past. Overall, we expect an 8% reduction
in iPhone sales at AT&T in 2011, and flat total handset sales due to more non-iPhone
integrated devices.
33
Philip Cusick, CFA

(1-212) 622-1444

13 January 2011
Table 13: Handset Sales Split at AT&T

Handset sales split
iPhone
Laptop cards
Feature
1Q09
1,552
2,744
446
104
2,691
7,537
2Q09
2,304
2,665
208
3,105
8,282
3Q09
3,008
3,160
128
159
2,616
9,071
4Q09
2,945
3,114
136
2,460
8,656
1Q10
2,538
2,593
141
2,058
7,330
2Q10
2,944
2,563
118
2,023
7,648
3Q10
4,732
3,146
119
1,851
9,848
4Q10E
3,680
3,323
119
1,524
8,645
1Q11E
2,790
3,577
129
1,175
7,671
2Q11E
3,060
3,573
120
1,239
7,991
3Q11E
3,780
4,039
120
1,260
9,198
4Q11E
3,150
4,116
120
1,162
8,548
iPhone
Laptop cards
Feature
1Q09
20.6%
36.4%
5.9%
1.4%
35.7%
100.0%
2Q09
27.8%
32.2%
0.0%
2.5%
37.5%
100.0%
3Q09
33.2%
34.8%
1.4%
1.8%
28.8%
100.0%
4Q09
34.0%
36.0%
0.0%
1.6%
28.4%
100.0%
1Q10
34.6%
35.4%
0.0%
1.9%
28.1%
100.0%
2Q10
38.5%
33.5%
0.0%
1.5%
26.5%
100.0%
3Q10
48.1%
31.9%
0.0%
1.2%
18.8%
100.0%
4Q10E
42.6%
38.4%
0.0%
1.4%
17.6%
100.0%
1Q11E
36.4%
46.6%
0.0%
1.7%
15.3%
100.0%
2Q11E
38.3%
44.7%
0.0%
1.5%
15.5%
100.0%
3Q11E
41.1%
43.9%
0.0%
1.3%
13.7%
100.0%
4Q11E
36.9%
48.1%
0.0%
1.4%
13.6%
100.0%
36.1%
46.4%
48.8%
48.6%
49.5%
53.5%
60.1%
52.6%
43.8%
46.1%
48.3%
43.4%
iPhone as % of integrated sales
Verizon has a more developed

non-iPhone smartphone lineup
than AT&T
We expect Verizon to sell 12.8 million iPhones in 2011. We expect Apples share
at Verizon to jump to 20% in 1Q10 (even assuming sales in only ~1/2 of the quarter)
and peak at 30% in 2Q10 assuming supplies are full. This would put Apple at 36% of
estimated 1Q smartphone sales at Verizon and 45% in the 2Q-3Q time frame before
backing off. While not as high a share as Apple gets at AT&T, Verizon has a more
established non-Apple offering in the Droid franchise and wed expect Blackberry to
keep a high-single-digit percentage of sales as well. The companys smartphone
share of sales has been ramping and was 43% in 3Q10 we expect it to pop to 66%
once the iPhone is available. (We estimate that >70% of AT&Ts handsets sold in
3Q10 were integrated devices.)
Table 14: Handset Sales Split at Verizon

Handset sales split
Smartphone (iPhone)
3G Multimedia
Internet
Feature phone
1Q09
2,520
291
485
6,398
9,693
2Q09
1,936
1,568
553
5,164
9,221
3Q09
2,359
3,077
615
4,205
10,257
4Q09
3,054
3,461
611
3,054
10,178
1Q10
3,562
2,375
693
3,265
9,895
2Q10
4,096
1,741
614
3,789
10,239
3Q10
4,731
1,430
770
4,071
11,002
Smartphone (iPhone)
3G Multimedia
Internet
Feature phone
0.0%
26.0%
3.0%
5.0%
66.0%
100.0%
0.0%
21.0%
17.0%
6.0%
56.0%
100.0%
0.0%
23.0%
30.0%
6.0%
41.0%
100.0%
0.0%
30.0%
34.0%
6.0%
30.0%
100.0%
0.0%
36.0%
24.0%
7.0%
33.0%
100.0%
0.0%
40.0%
17.0%
6.0%
37.0%
100.0%
0.0%
43.0%
13.0%
7.0%
37.0%
100.0%
4Q10E
5,513
1,607
899
2,469
10,507
0.0%
52.5%
15.3%
8.6%
23.5%
99.8%
1Q11E
2,283
4,122
31
980
3,850
11,414
2Q11E
3,710
4,443
424
1,019
2,626
12,368
3Q11E
3,446
4,381
(197)
1,030
2,656
11,486
4Q11E
3,306
5,003
(486)
1,051
1,976
11,020
20.0%
36.1%
0.3%
8.6%
33.7%
100.0%
30.0%
35.9%
3.4%
8.2%
21.2%
100.0%
30.0%
38.1%
-1.7%
9.0%
23.1%
100.0%
30.0%
45.4%
-4.4%
9.5%
17.9%
100.0%
Potential for iPhone to be offered at other carriers?

In the past, once a device has moved beyond exclusivity at one carrier in a country,
most carriers in a market have typically also offered the device within a year. There
have been numerous industry reports speculating that the iPhone could be offered by
Sprint and other CDMA carriers or T-Mobile. Apple indicated that it has a multiyear, non-exclusive deal in place with Verizon, enabling other carrier to offer the
device.
From a technological perspective, Sprint could use the exact same iPhone as Verizon
for 2011. However, at T-Mobile USA the device would need an AWS-band radio to
access its 3G network. While Verizon may have a few months before other CDMA
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Philip Cusick, CFA

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13 January 2011
carriers get the device, we would consider this to be a function of natural migration
of a handset. In our view, it would make sense for Apple to be sure it can fill
inventory at Verizon and satisfy demand before releasing the device to other carriers.
Finally, J.P. Morgans handset supply chain analysts in Asia estimate Apple could
build as many as 20 million CDMA iPhones in 2011 vs. the 12-13 million that we
estimate Verizon could sell and the additional one million it might need to hold in
inventory. If accurate, build volumes this high could indicate CDMA distribution
could potentially be wider than just Verizon.
Gross add share likely to shift from AT&T
Since launching the iPhone in 2007, AT&Ts share of industry postpaid gross
additions has risen from the mid-20% range to the low 30s and AT&T and Verizon
have separated themselves from the pack as the largest carriers and the destination
for the highest-quality customers. With iPhone exclusivity ending, however, the big
question is then how much share of gross additions AT&T could lose, and how much
its churn could rise.
Figure 16: Postpaid Gross Add Share Among Big 4
Figure 17: Postpaid Net Add Share Among Big 4
50%
40%
150%
30%
50%
20%
-50%
10%
-150%
0%
1Q07
4Q07
3Q08
T
2Q09
S
1Q10
4Q10E
TM-USA
3Q11E
VZ
-250%
1Q07
4Q07
T
3Q08
2Q09
S
1Q10
4Q10E
TM-USA
3Q11E
VZ
We calculate that in the last 12 months the iPhone accounted for 36.5% of AT&Ts
gross additions, representing 11.2% share of industry postpaid additions. In our base
case we estimate that roughly one in four of those iPhone customers new to AT&T
came exclusively for the device, and will take AT&Ts share of industry gross adds
to 27.4% in 2Q11 (from 30.7% in 3Q10) the first full quarter of sales at Verizon.
This should rebound somewhat to over 29% in 3Q11 as AT&T gets an updated
iPhone, and settle at 28-29% in 2012 and beyond.
Verizon should pick up some share. We believe that Verizon will initially take
some gross add share from AT&T and from Sprint and T-Mobile as well. While
Sprint and T-Mobile USA customers generally spend less than they would have to at
Verizon, some would like an iPhone but havent switched to AT&T due to networkquality concerns. This expected share gain at Verizon isnt as evident in the figure
above, however, because of Sprints forecast steady grind higher in gross addition
share which would otherwise cut more into Verizons share. We expect any Sprint
and T-Mobile gross add share loss to be short-lived.
What if Sprint were also to carry iPhone? Note that if Sprint were also to carry the
iPhone, say roughly in mid-summer, we anticipate it could pick up perhaps as much
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Philip Cusick, CFA

(1-212) 622-1444

13 January 2011
~100 basis points of share against AT&T and perhaps a little more against T-Mobile,
and return to its 3Q10 share against VZ.
Churn shifts could be more significant than gross adds
At AT&T, iPhone contract levels are high, but so is dissatisfaction. AT&T in the
last year has made an aggressive push to get its iPhone customers on contract. In
May 2010 AT&T raised its contract termination fee from $200 to $325, and when the
iPhone 4G came out last summer the company offered a very aggressive policy to
allow 3G and 3GS customers to upgrade early in exchange for a new contract. The
company recently dropped the price of the iPhone 3GS to $49 from $99, which could
be a last effort to saturate the iPhone demand while it has exclusivity. While this
large contract percentage should insulate AT&T somewhat from competitive iPhone
offerings, historical customer dissatisfaction and record-low Consumer Reports
ratings recently have us concerned that some customers may be willing to drop their
contract and switch carriers.
On average we estimate that over 80% of AT&Ts postpaid customers are on
contract, and that this over-indexes to iPhone subs given the companys aggressive
push to upgrade in the last year. By contrast, a larger percentage of off-contract
customers are likely to still be using voice and text-based feature phones and likely
arent interested in new services. After considering the number of customers who are
with an enterprise and cant churn (~66%) or are on a family plan (~70%) with
someone on a contract (or enterprise), we believe the immediate churn potential is far
less than the 20% of customers off contract.
We estimate >90% of iPhone
customers are on contract
For iPhone subscribers, if we assume that 92% are on contract, that implies there are
roughly 1.5 million off-contract iPhone subs, likely split between two buckets, plus a
third bucket of on-contract iPhone subs.
Those most at risk signed with AT&T more than two years ago and are likely still
carrying an iPhone 3G despite an ability to get a subsidized upgrade to an
iPhone 3GS or iPhone 4 for as little as $49 in exchange for a new contract. Their
unwillingness to sign a new contract with AT&T probably indicates they are
dissatisfied with the service, and are likely to churn quickly once Verizon offers
the device. We estimate such subscribers could represent more than half of the
~1.5 million off-contract iPhone subscribers.
The second group, possibly less at risk, comprises customers who have activated
an older iPhone that was either passed on from a friend or bought through a
channel like eBay. These retread handsets accounted for 9% of the 5.2 million
iPhones activated on the AT&T network in 3Q10 and we estimate totaled one
million activations in the last year. While some of these customers are probably
on contract (from a subsidy on a different device) and just using the phone until
they qualify for a subsidy, we estimate that half are off contract and prefer not to
pay even the subsidized iPhone price.
Finally, iPhone customers on contract would need to pay a disconnect fee,
something between $200 and $325 depending on when they signed the contract,
to switch carriers. While some customers likely will be willing to walk away
from their contract and pay the disconnect fee (or perhaps think they can get
away without paying), the size of disconnect fee plus the prospect of another
handset fee at Verizon is likely too high for most to stomach and we dont expect
many of these subscribers to switch.
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Philip Cusick, CFA

(1-212) 622-1444

13 January 2011
Table 15: iPhone Retread Analysis 9% of iPhone Activations in 3Q10 Were Retreads
Total retail handset sales
1Q09
8,769
7,537
2Q09
9,232
8,282
3Q09
9,976
9,071
4Q09
9,735
8,656
1Q10
8,406
7,330
2Q10
9,137
7,648
3Q10
11,265
9,848
4Q10E
10,191
8,645
1Q11E
9,015
7,671
2Q11E
8,934
7,991
3Q11E
10,627
9,198
4Q11E
10,276
8,548
iPhone subscribers
iPhone handset activations
retread %
# retreads
7,859
1,600
3%
48
9,387
2,400
4%
96
11,545
3,200
6%
192
13,364
3,100
5%
155
14,179
2,700
6%
162
15,593
3,200
8%
256
18,360
5,200
9%
468
19,771
4,000
8%
320
19,876
3,100
10%
310
20,056
3,400
10%
340
20,917
4,200
10%
420
20,966
3,500
10%
350
Verizon churn to AT&T could drop marginally. AT&T garners 44% of nonVerizon gross additions in the postpaid space. Assuming that every postpaid
disconnect at Verizon ends up as a postpaid gross add someplace else, customers
churning from Verizon contribute ~40% of non-Verizon industry gross additions, or
~17% of AT&Ts gross addition traffic. One has to assume that many of these
customers are leaving Verizon the highest-quality network in the US with prices
similar to AT&Ts to get the iPhone.
Sprint, T-Mobile USA could see some churn, but we dont expect much. Some
Sprint and T-Mobile customers may have bee on the fence about going to Verizon,
and were waiting for the company to get the iPhone before moving. However, we
dont think this is a significant number given Verizons higher prices, but such
subscribers could impact churn at Sprint and T-Mobile USA in the first half of 2011.
Note that Sprint continues to have a smaller percentage of on-contract customers than
AT&T or Verizon, so Sprint customers that did want to switch carriers likely would
have a better chance of being able to leave immediately.
Net-net, we expect AT&T to lose subs in 1H11 and add only 100k in 2011
By our model, between fewer gross adds and higher churn, AT&Ts postpaid
business should lose subscribers in 1Q and 2Q 2011, and then get back to even by the
end of the year resulting in 0.15% subscriber growth in 2011, after 6% growth in
2010. Key variables will include not just the timing of Verizons iPhone but its
pricing, any promotions, and AT&Ts reaction.
Table 16: AT&T Postpaid Overview
Postpaid
Beginning subscribers
+ Gross additional subscribers
- Disconnects
+ Acquisition subscribers
Ending subscribers
% change, y-t-y
% of Total subs
1Q10
64,627
2,594
(2,082)
0
65,108
8%
74.8%
2Q10
65,108
2,497
(2,001)
1,366
66,970
9%
74.3%
3Q10
66,970
3,048
(2,303)
0
67,688
8%
73.0%
4Q10E
67,688
2,869
(2,344)
0
68,213
6%
71.6%
2010E
64,627
11,008
(8,730)
1,366
68,213
6%
71.6%
1Q11E
68,213
2,558
(2,658)
0
68,113
5%
70.5%
2Q11E
68,113
2,554
(2,854)
0
67,813
1%
69.8%
3Q11E
67,813
2,747
(2,547)
0
68,013
0%
69.1%
4Q11E
68,013
2,754
(2,454)
0
68,313
0%
68.1%
2011E
68,213
10,613
(10,513)
0
68,313
0%
68.1%
Average subs
64,868
66,039
67,329
67,951
66,420
68,163
67,963
67,913
68,163
68,263
Churn rate, monthly
1.07%
1.01%
1.14%
1.15%
1.10%
1.30%
1.40%
1.25%
1.20%
1.28%
Net additional subscribers

% change, y-t-y
% of total net adds
512
-43%
27.6%
496
-56%
31.8%
745
-44%
28.3%
525
-38%
20.4%
2,278
-46%
26.4%
(100)
NM
NM
(300)
NM
NM
200
-73%
16.3%
300
-43%
15.8%
100
-96%
2.0%
Upgrade rates likely to pick up

overall
We expect Verizons upgrade rate to ramp up for two quarters. The company
was already running at a 9.5% upgrade rate in 3Q10 very high by historical levels,
but we expect that to pop to 10% in 1Q11 and 11% in 2Q11 as customers shift over
to iPhone. This will depend somewhat on how willing Verizon is to allow customers
on contract to upgrade. The company doesnt appear to be subsidizing quick
upgrades, but may be willing to in certain situations depending on the competitive
situation. In general, we dont expect Verizon to allow upgrades nearly as early as
AT&T did recently with the iPhone 4 launch.
37
Philip Cusick, CFA

(1-212) 622-1444

13 January 2011
We expect AT&Ts upgrade rate to drop back to the 1H10 level, but not much
below. AT&T should continue its aggressive push to upgrade customers, and is
likely to offer good discounts on competitive devices to keep customers interested.
We expect to see a marginal shift to other handsets like those with the Windows
Phone 7 operating system, but dont see new AT&T customers abandoning the
iPhone just because AT&T isnt likely to push it as aggressively. We model AT&Ts
quarterly upgrade rate declining to 7.7% on average in the first half of 2011 versus
the very high 10.1% in 3Q10. With a typical iPhone refresh in mid-summer the
upgrade rate and Apple share will likely rebound but not should not be as extreme as
in 3Q10 as AT&T tried to lock down its base.
What will be the impact on carrier financials?
We expect AT&T margins to rebound ~600 basis points from 3Q10 levels.
AT&T should see some benefit from lower subsidies as sales shift to other devices
and the upgrade rate slows. The company should also see some benefit from slower
growth and lower gross adds. Overall, we expect the total subsidy amount that
AT&T pays peaked in 3Q10 at $2.55 billion and will decline to closer to $1.8 billion
per quarter in 1H11, for a pickup of about 500-600 basis points in EBITDA margin.
Given AT&Ts large customer base and heavily recurring revenue nature, our EPS
estimate for AT&T is not drastically impacted by more or fewer customer additions.
Table 17: AT&T Handset Analysis

iPhone
Laptop cards
Feature
1Q09
1,552
2,744
435
104
2,702
7,537
2Q09
2,304
2,665
208
3,105
8,282
3Q09
3,008
3,160
138
159
2,606
9,071
4Q09
2,945
3,114
136
2,460
8,656
1Q10
2,538
2,593
141
2,058
7,330
2Q10
2,944
2,563
118
2,023
7,648
3Q10
4,732
3,146
119
1,851
9,848
4Q10E
3,680
3,323
119
1,524
8,645
1Q11E
2,790
3,577
129
1,175
7,671
2Q11E
3,060
3,573
120
1,239
7,991
3Q11E
3,780
4,039
120
1,260
9,198
4Q11E
3,150
4,116
120
1,162
8,548
Handset sales split

iPhone
Laptop cards
Feature
20.6%
36.4%
5.8%
1.4%
35.8%
100.0%
27.8%
32.2%
0.0%
2.5%
37.5%
100.0%
33.2%
34.8%
1.5%
1.8%
28.7%
100.0%
34.0%
36.0%
0.0%
1.6%
28.4%
100.0%
34.6%
35.4%
0.0%
1.9%
28.1%
100.0%
38.5%
33.5%
0.0%
1.5%
26.5%
100.0%
48.1%
31.9%
0.0%
1.2%
18.8%
100.0%
42.6%
38.4%
0.0%
1.4%
17.6%
100.0%
36.4%
46.6%
0.0%
1.7%
15.3%
100.0%
38.3%
44.7%
0.0%
1.5%
15.5%
100.0%
41.1%
43.9%
0.0%
1.3%
13.7%
100.0%
36.9%
48.1%
0.0%
1.4%
13.6%
100.0%
iPhone as % of integrated sales
36.1%
46.4%
48.8%
48.6%
49.5%
53.5%
60.1%
52.6%
43.8%
46.1%
48.3%
43.4%
Subsidy analysis
iPhone
Laptop cards
Feature
$350
$250
$100
$100
$58
$191
$350
$180
$100
$100
$65
$182
$325
$175
$100
$100
$68
$192
$325
$125
$100
$100
$54
$173
$325
$135
$100
$100
$57
$178
$325
$160
$100
$100
$61
$196
$350
$250
$100
$100
$52
$259
$325
$225
$100
$100
$54
$236
$325
$200
$100
$100
$143
$235
$325
$200
$100
$100
$53
$224
$325
$200
$100
$100
$61
$231
$325
$200
$100
$100
$81
$228
Aggregate handset subsidy expense (million

1,439
12.4%
1,507
12.6%
1,738
14.0%
1,494
11.9%
1,307
10.2%
1,502
11.4%
2,550
18.7%
2,038
14.8%
1,803
13.0%
1,787
12.7%
2,125
14.9%
1,952
13.8%
38
Philip Cusick, CFA

(1-212) 622-1444

13 January 2011
We expect higher subsidies to cut ~500 basis points from Verizons margin.
Verizon should see some commensurate pressure on margins from faster growth and
upgrades, as well as ramping smartphone share and higher subsidies on iPhones. We
estimate that the companys gross subsidy expense will increase to $2.5 billion in
2Q11 from $1.7 billion per quarter in 2H10. While this is somewhat due to iPhone,
the companys shift to more expensive smartphones is equally to blame. In 2010
Verizon was able to maintain margins by cutting other costs to offset higher subsidy
expense, and our estimate of a 500 basis point hit could be conservative.
Table 18: Verizon Handset Analysis
Handset sales split
Smartphone (iPhone)
3G Multimedia
Internet
Feature phone
1Q09
2,520
291
485
6,398
9,693
2Q09
1,936
1,568
553
5,164
9,221
3Q09
2,359
3,077
615
4,205
10,257
4Q09
3,054
3,461
611
3,054
10,178
1Q10
3,562
2,375
693
3,265
9,895
2Q10
4,096
1,741
614
3,789
10,239
3Q10
4,731
1,430
770
4,071
11,002
Smartphone (iPhone)
3G Multimedia
Internet
Feature phone
0.0%
26.0%
3.0%
5.0%
66.0%
100.0%
0.0%
21.0%
17.0%
6.0%
56.0%
100.0%
0.0%
23.0%
30.0%
6.0%
41.0%
100.0%
0.0%
30.0%
34.0%
6.0%
30.0%
100.0%
0.0%
36.0%
24.0%
7.0%
33.0%
100.0%
0.0%
40.0%
17.0%
6.0%
37.0%
100.0%
0.0%
43.0%
13.0%
7.0%
37.0%
100.0%
iPhone as % of smartphone sales
4Q10E
5,513
1,607
899
2,469
10,507
1Q11E
2,283
4,122
31
980
3,850
11,414
2Q11E
3,710
4,443
424
1,019
2,626
12,368
3Q11E
3,446
4,381
(197)
1,030
2,656
11,486
4Q11E
3,306
5,003
(486)
1,051
1,976
11,020
0.0%
52.5%
15.3%
8.6%
23.5%
99.8%
20.0%
36.1%
0.3%
8.6%
33.7%
100.0%
30.0%
35.9%
3.4%
8.2%
21.2%
100.0%
30.0%
38.1%
-1.7%
9.0%
23.1%
100.0%
30.0%
45.4%
-4.4%
9.5%
17.9%
100.0%
0.0%
0.0%
35.6%
45.5%
44.0%
39.8%
iPhone subsidy
Smartphone subsidy (non-iPhone)
Internet subsidy
Feature phone subsidy
1Q09
$350
$250
$100
$100
$147
$170
2Q09
$350
$250
$100
$100
$194
$184
3Q09
$350
$250
$100
$100
$200
$176
4Q09
$350
$250
$100
$100
$242
$187
1Q10
$350
$250
$100
$100
$140
$167
2Q10
$350
$250
$100
$100
$131
$171
3Q10
$350
$250
$125
$125
$69
$158
4Q10E
$350
$230
$110
$125
$54
$161
1Q11E
$350
$225
$100
$120
$44
$177
2Q11E
$350
$200
$100
$120
$51
$201
3Q11E
$350
$200
$100
$120
$56
$203
4Q11E
$350
$180
$100
$100
$51
$201
Aggregate handset subsidy expense (million

1,647
12.9%
1,696
13.1%
1,802
13.7%
1,908
14.5%
1,654
12.3%
1,756
12.7%
1,740
12.3%
1,690
11.9%
2,017
14.1%
2,485
17.0%
2,335
15.6%
2,215
14.8%
Sprint and T-Mobile should not see any material change in financials. If Sprint were
to get the iPhone at some point mid-year, its upgrade rates and subsidies would not
be expected to increase substantially since they are already very high.
New HSPA+ iPhone in mid-2011 could mitigate AT&Ts pain
We expect Apple to introduce the next version of the GSM/HSPA iPhone on its
typical upgrade schedule of mid-summer. We would not expect to see an updated
CDMA iPhone at that time rather we would expect Apple to likely stagger versions
with Verizon possibly getting a CDMA upgrade (with a slim possibility of including
LTE) in early 2012. The LTE question likely will be a big topic of debate in 2H11.
The latest iPhone is already HSPA 7.2, and an upgrade could move to HSPA version
14.4 or even 21, for significantly higher speeds than Verizons CDMA network can
support. If AT&Ts iPhone offering had a great new feature set that isnt available on
the CDMA version, it could mitigate somewhat AT&Ts subscriber loss in 2H10, but
also may keep more of a lid on margins than we currently model. We would not
expect an LTE-enabled iPhone in 2011 since the global ecosystem is very new, but
think one could be introduced as early as 2012.
39
Philip Cusick, CFA

(1-212) 622-1444

13 January 2011
Smartphones Are Driving Network Data Usage Higher

We expect Verizon to have the capacity to support the iPhone
We estimate that the average AT&T iPhone uses ~350 MB/month on the 3G network
vs. ~400 MB for Android devices and ~50-100 MB for Blackberrys. Given Verizons
rapidly increasing smartphone adoption rate in the last year which started with the
Droid, we believe that Verizon is prepared for the demands that will be created by a
shift to iPhone as well as continued ramp in smartphone penetration in general.
The key to Verizons performance will be capacity on its CDMA network since we
do not expect an LTE iPhone in 2011. While the company will offer some LTEenabled smartphones in mid-2011 (these are dual-chip devices the single-chip
CDMA/LTE devices wont be available until 2012), we dont expect them to be
significant enough sellers to reduce demand on the CDMA network. What could be
important, however, is the upcoming shift in datacards at Verizon from CDMA to
LTE-enabled. While Android devices typically use ~400 MB/month or higher on
average, datacard usage at most carriers (not including Clearwire) has averaged 12 GB/month, so getting that demand off the CDMA network and on to LTE would
create significant capacity. Verizon has 5.5 million datacards in its base each using
an average of more than 2 GB per month a substantial amount of use such that the
iPhone likely wont be a big incremental burden.
40
Philip Cusick, CFA

(1-212) 622-1444

13 January 2011
Table 19: Verizon 3G Network Capacity Demand Grew >50% TTM

Subscribers
Smartphone (iPhone)
3G Multimedia
Internet*
Feature
Total postpaid base
Data usage (MB)
3G iPhones
3G Multimedia
Internet*
Feature
Total subscriber data demand (GB)
% change y/y
1Q09
2Q09
3Q09
4Q09
1Q10
2Q10
3Q10
4Q10E
8,664
4,641
64,204
77,354
9,407
1,568
4,704
62,716
78,395
10,652
5,013
4,595
59,111
79,371
12,345
8,632
4,818
54,700
80,495
14,137
10,828
5,113
50,833
80,912
16,234
12,126
5,311
47,902
81,573
18,681
12,956
5,524
45,096
82,257
1Q09
100
100
50
1,500
20
118
9,112
2Q09
150
100
50
1,600
20
125
9,799
3Q09
200
100
50
1,700
20
130
10,310
4Q09
250
150
50
1,800
20
150
12,049
1Q10
300
175
50
1,900
20
170
13,748
51%
2Q10
325
200
50
2,000
20
189
15,434
57%
1,900
2,000
LTE internet device MB/mo (on all networks)

3G internet device MB/mo
% of data use on LTE network for LTE devices
3G monthly network data usage (GB)
% change y/y
LTE mix within handset sales
Smartphone (iPhone)
3G Multimedia
Internet*
Feature
Total LTE mix of sales
LTE handset sales
Smartphone (iPhone)
3G Multimedia
Internet*
Feature
Total LTE handset sales
% of postpaid handset sales
LTE subs
Smartphone (iPhone)
3G Multimedia
Internet*
Feature
Total LTE subs
LTE mix of subs
Smartphone (iPhone)
3G Multimedia
Internet*
Feature
Total LTE subs
9,112
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
9,799
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
10,310
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
12,049
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
21,129
13,671
5,800
42,257
82,857
1Q11E
2,283
21,934
12,944
6,013
40,334
83,507
2Q11E
5,724
22,924
12,639
6,235
36,736
84,257
3Q11E
8,494
23,714
11,866
6,442
34,242
84,757
4Q11E
10,798
24,968
11,070
6,642
31,678
85,157
3Q10
350
200
50
2,000
20
199
16,334
58%
4Q10E
350
225
50
2,100
20
223
18,463
53%
1Q11E
350
225
50
2,200
20
244
19,617
43%
2Q11E
400
250
50
2,300
20
282
21,438
39%
3Q11E
400
275
50
2,400
20
315
23,259
42%
4Q11E
425
300
50
2,500
20
351
25,283
37%
2,000
3,500
2,078
3,700
2,128
4,000
2,137
4,200
2,074
4,200
1,915
50.0%
363
19,254
40%
55.0%
733
20,705
34%
60.0%
1,515
21,744
33%
65.0%
2,540
22,744
24%
13,748
51%
15,434
57%
16,334
58%
40.0%
126
18,337
52%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
10.0%
0.0%
0.9%
0.0%
0.0%
0.0%
20.0%
0.0%
1.7%
0.0%
10.0%
0.0%
30.0%
0.0%
6.1%
0.0%
30.0%
0.0%
50.0%
0.0%
15.9%
0.0%
25.0%
0.0%
80.0%
0.0%
19.0%
90
90
0.9%
196
196
1.7%
444
306
750
6.1%
1,314
515
1,830
15.9%
1,251
841
2,092
19.0%
90
90
274
274
444
544
989
1,690
989
2,679
2,681
1,701
4,382
0.0%
0.0%
1.5%
0.0%
0.1%
0.0%
0.0%
0.0%
4.6%
0.0%
0.3%
0.0%
1.9%
0.0%
8.7%
0.0%
1.2%
0.0%
7.1%
0.0%
15.3%
0.0%
3.2%
0.0%
10.7%
0.0%
25.6%
0.0%
5.1%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
In addition, we believe that Verizon has an advantage with a CDMA iPhone in that
it can only conduct a voice or data session at any one time, not both. AT&T has
indicated that the demand on its network from a simultaneous voice and data session
(talking on the phone and surfing the web at the same time) is far more than just
double the capacity demand, and when a third app kicks in (like a scheduled
automated weather or email update request) the complexity expands exponentially.
41
Philip Cusick, CFA

(1-212) 622-1444

13 January 2011
While AT&T has a marketing advantage over Verizon with simultaneous voice and
data, we dont believe that many consumers find it practical.
Verizons 3G network load is
~20% higher than AT&Ts
AT&T network data capacity demand is less than Verizons, even with iPhone
While AT&T has far more smartphone customers than Verizon, it has a much
smaller number of laptop customers, and those customers use only ~1 GB of data per
month vs. ~2 GB at Verizon. The result is that we estimate AT&T supports about 1415 terabytes of data per month vs. more than 18 terabytes per month for Verizon in
4Q10.
Table 20: AT&T Data Usage Trends

Postpaid subscribers
iPhone
Laptop cards
Feature
Total postpaid base
Postpaid data usage (MB)
iPhone
Laptop cards
Feature
Average postpaid sub (MB)
Total monthly subscriber data demand (GB)
% change y/y
iPad analysis (in prepaid business)
iPad device net adds
iPad embedded base
iPad data usage (MB)
Total monthly iPad data usage on network
% change y/y
iPhone as % of data usage
1Q09
7,859
5,112
6,218
1,300
40,045
60,535
2Q09
9,387
7,021
5,785
1,400
38,054
61,647
3Q09
11,545
9,371
5,527
1,445
35,072
62,961
4Q09
13,364
11,740
5,142
1,465
32,917
64,627
1Q10
14,179
14,039
4,857
1,488
30,545
65,108
2Q10
15,593
15,355
4,681
1,487
29,855
66,970
3Q10
18,360
16,058
4,367
1,487
27,416
67,688
4Q10E
19,771
17,336
4,161
1,487
25,457
68,213
1Q11E
19,876
18,516
3,838
1,497
24,386
68,113
2Q11E
20,056
20,056
3,288
1,497
22,916
67,813
3Q11E
20,917
20,830
3,142
1,497
21,627
68,013
4Q11E
20,966
22,700
2,787
1,497
20,363
68,313
300
150
50
1,000
20
91
5,536
300
175
50
1,000
20
105
6,495
300
200
50
1,000
20
123
7,761
325
200
50
1,000
20
140
9,072
325
200
50
1,000
20
150
9,758
76%
325
225
50
1,000
20
162
10,841
67%
350
225
50
1,000
20
182
12,293
58%
350
275
50
1,000
20
204
13,892
53%
350
300
50
1,000
20
216
14,688
51%
375
325
50
1,000
20
238
16,159
49%
400
350
50
1,000
20
261
17,744
44%
425
375
50
1,000
20
285
19,467
40%
9,758
76%
46%
400
400
600
240
11,081
71%
44%
400
800
600
480
12,773
65%
47%
600
1400
600
840
14,732
62%
45%
350
1750
600
1050
15,738
61%
44%
300
2050
600
1230
17,389
57%
43%
250
2300
600
1380
19,124
50%
43%
300
2600
600
1560
21,027
43%
42%
5,536
6,495
7,761
9,072
40%
40%
45%
Figure 18: Network Usage Trends at T and VZ

30,000
25,000
20,000
15,000
10,000
5,000
1Q09 2Q09 3Q09 4Q09 1Q10 2Q10 3Q10 4Q10E 1Q11E 2Q11E 3Q11E 4Q11E
VZ
Expect Continued Move to Capped Data Plans

We expect wireless data packages to increasingly skew toward usage caps and/or
speed throttles for heavy users. In our view, the potential for abuse is just too high,
and customers who abuse the network can use a massive amount of data if left
unchecked.
42
Philip Cusick, CFA

(1-212) 622-1444

13 January 2011
Note that we dont see carriers trying to reduce usage for the vast majority of
customers, and think the art in caps will be in finding and explaining levels that most
customers realize they will never reach. The worst abusers, however, often are doing
more than just watching video on their cell phones AT&T believes that the worst
abusers have jail-broken their phones and are likely running some kind of
networked application or group server off the device.
AT&Ts top 1% of users each generate ~4 GB/month of traffic
AT&T has said that the top 1% of users account for 20% of data usage, and the top
3% use 40% of capacity. Using our estimate of ~15 terabytes of data traffic per
month in 4Q10 (see above table) implies that the top 1% of customers is each using
~4 GB of data, the next 2% about 2.5 GB, and the other 97% an average of only 115130 MB/month.
Clearwires 7 GB/month average
is >3x greater than that of
Verizons laptop customers
Clearwire has had to add capacity far earlier than expected

While Clearwires original build called for such a dense network that it did not
expect to increase capacity for years, the company has already had to go back and
add capacity in some areas far earlier than we originally expected. This could be
partly due to better customer uptake overall, but we think it is mostly due to the very
high usage the company is seeing upwards of 7 GB/month per customer. While this
represents mostly broadband laptop and desktop customers rather than smartphones,
it is a tremendous amount of data to support on a wireless network.
Emerging Devices to Augment Growth

We consider emerging wireless devices to be everything from wireless-enabled
dog collars to smart utility meters and 3G iPads. From the carriers perspective, the
big categories we see are 1) consumer devices that will be directly billed by carriers
like the iPad or other tablets, 2) consumer devices that have a middleman like
Amazons Kindle, and 3) enterprise devices that are mostly run by third-party firms
like utilities and security firms. While the biggest number of connections are likely to
come from the third category (e.g., thousands of utility meters), these generate very
little data or revenue per connection, and even less for the carrier after a middleman
takes a large slice. Instead, for the carrier the vast majority of revenue is likely to be
generated from consumer devices like tablets and GPS machines which the consumer
pays directly to the carrier.
Can generate better margins depending on the sales model
Wholesale relationships require no upfront subsidies or follow-on customer service
or billing. We estimate margins are likely in the 50-80% range depending on the
business vs. 20-40% for retail wireless.
Consumer Devices Are the Most Important for Revenue

Netbooks, laptop cards, tablets command $15-80/month
We expect the most common consumer data devices to be products like tablets that
are wirelessly enabled, such as the iPad or Kindle, laptop cards/MiFi devices that add
connectivity to one or many externally purchased devices, and GPS dashboard
devices that add wireless connectivity for information, such as traffic reports and
weather.
43
Philip Cusick, CFA

(1-212) 622-1444

13 January 2011
Among tablets, the most successful so far have been Amazons Kindle (reported as
wholesale) and Apples iPad (reported as prepaid), which are good examples of the
different ways these devices can be booked. At this years CES, though, tablets were
the key device rolled out by almost every handset and PC vendor, so we expect a lot
of fragmentation from here.
Verizon and AT&T both sell iPad, but book subscriber and revenue differently
The 3G iPad, which is sold mostly through consumer electronics retailers but also
through AT&T on an unsubsidized basis, has an option for a $25/month prepaid data
plan that gives the user up to 2 GB/month. Because it is prepaid, the payment is
reported through AT&Ts prepaid subscriber line; we estimate the iPad accounted for
~400,000 net adds in 2Q and 3Q 2010, and we expect higher sales in 4Q10. While
the iPad ARPU is similar to AT&Ts typical prepaid ARPU of ~$28, this is
obviously a very different customer as the device uses no voice but a potentially
large amount of data, but also requires no upfront subsidy or commission from the
carrier.
Verizon charges premium to
bundle iPad and MiFi
Verizon also sells the iPad, but today at least this is a WiFi-only device and comes
bundled with a Verizon 3G MiFi device to give it wireless connectivity if the
customer wishes. Verizon has said it will sell a 3G iPad in the future. The
combination costs $130 more than a comparable iPad alone (vs. free for the MiFi
device alone on the Verizon website) and requires a postpaid contract of $20-80 per
month for 1-10 GB of data. We would not be surprised to see Apple eventually build
a CDMA or LTE-based iPad to sell through Verizon without the MiFi, but to date the
companies have not indicated the potential for such a device.
Table 21: Verizon iPad and MiFi Pricing
Data Cap
Monthly Plan Price
Overage
1GB
$20
$20
3GB
$35
$10
5GB
$50
$10
10GB
$80
$10
iPad has cannibalized Kindle

less than we expected
44
The Kindle is a usage-based wholesale device

In contrast with iPad, the Kindle is a device sold by Amazon with an optional 3G
data connection, in which the 3G relationship is invisible to the customer. Instead,
Amazon pays the carrier a one-time activation fee plus a monthly amount based on
how much data the device consumes. The carrier does not have to manage or bill the
customer, and the customer only pays for the content downloaded not the
transmission. Kindle was first sold with a CDMA connection on Sprints network,
but devices sold in the last year have been WCDMA-enabled on AT&Ts network
instead. Both carriers report revenue from the devices as a wholesale relationship,
AT&T under a special category called Connected Devices. We estimate AT&T gets
$3-4 per month for each Kindle subscriber.
Philip Cusick, CFA

(1-212) 622-1444

13 January 2011
Figure 19: iPad, Galaxy Tab, and Kindle
iPad
Galaxy Tab
Kindle
Competition and New Entrants

The wireless industry remains highly competitive, though less so for the best
customers who mostly choose between AT&T and Verizon.
We see the possibility of consolidation among traditional players outside of AT&T
and Verizon, but emphasize that we dont think it is likely any time soon. In our
view, consolidation would likely be a function of higher stock prices as companies
could consider paying substantial premiums with a strong equity currency, rather
than out of weakness. Note that balance sheets in the wireless industry have never
been stronger traditional carriers have little risk of a near-term cash crunch and
most have record cash levels. Maturities have been pushed out and covenants are
almost non-existent.
Emerging Carriers Prospects for Clearwire and

Lightsquared
In our view, other companies considering 4G wireless wholesale deals like T-Mobile
USA, DTV, and DISH could lean toward Clearwire rather than Lightsquared, given
the greater risk of growing pains.
Clearwire has some excellent anchor tenants
We believe that Clearwire is a very important strategic asset for Sprint and only
slightly less so for the cable partners. With Sprint as the anchor tenant, the company
has been adding wholesale customers very quickly and we believe that eventually the
majority of Sprint customers will have 4G capabilities.
We remain wary of Clearwires
retail strategy
On the retail side we remain wary. We think the company will struggle to grow in the
retail business in a saturated broadband and wireless voice market against very strong
incumbents. The planned launch of its own smartphones will likely be a challenge to
Clearwires financials as upfront subsidies and commissions to sales channels
increase in hopes for higher long-term ARPU.
We believe that Clearwire is likely to take additional equity from Sprint and possibly
from additional wholesale partners. Clearwire has also stated that it is the process of
evaluating the sale of some of its spectrum. We would not expect the company to sell
spectrum unless it was the only funding opportunity as this would likely create
additional competition (or reduce wholesale partner potential) in the long term and
possibly increase the cost of adding capacity.
45
Philip Cusick, CFA

(1-212) 622-1444

13 January 2011
We expect Lightsquared to struggle

The company as yet does not have an anchor tenant, and the timing to high capacity
coverage could keep any potential big anchor tenant from committing significant
capital.
Financing still a significant hurdle. In 2010 Lightsquared announced two funding
rounds the first in July of up to $1.75 billion in additional debt and equity
financing, and in October a debt round of $850 million. While the debt is backed by
the companys spectrum, the company also has a very aggressive buildout
requirement to keep that spectrum. However, Lightsquared expects to eventually
need a total of ~$5 billion for the full buildout, including $1.75 billion raised in July
2010.
We believe that Lightsquared will eventually need at least ~$5 billion for the full
buildout, including $1.75b raised in July 2010. This is less than we expect Clearwire
to need, but by not pursuing a retail strategy Lightsquared can avoid the expensive
marketing and store build that Clearwire plans. There may be some potential for
vendor financing (Nokia Siemens Networks is building the network), but likely a
small minority and probably not cash.
Lightsquared has access to 59 MHz of spectrum. Lightsquared claims access to
59 MHz of spectrum in the US. This is broken down between 28 MHz of L-Band
(1.6 GHz) bought with SkyTerra, 18 MHz of L-Band leased from Inmarsat, 8 MHz
of 1.4 GHz terrestrial spectrum leased from Terrestar, and 5 MHz of terrestrial
spectrum owned in the 1.6 GHz band. The network will focus on the 46 MHz of
L-Band with 6 MHz allocated to the satellite link and 40 MHz for terrestrial uses.
Buildout requirements are a whip behind the network build. Lightsquareds
build requirements include four cities (Baltimore, Phoenix, Denver, and Las Vegas)
to be launched by 2H11, 100 million pops covered with terrestrial service by 2H12,
and 92% pop coverage by 2015. Nokia Siemens Networks got to work planning the
network after being named the vendor in July, and it appears the build is progressing
with tower leases being signed currently.
Satellite issues have cleared up. Lightsquared launched its first satellite in
November. While it originally had problems opening its arms, this seems to have
been resolved. The company has another satellite that was reserved for capacity that
it could launch in 2011. Each satellite acts like ~300 cell sites, directing beams of
data to different parts of the country, though at lower bit rates than terrestrial LTE.
With 23 meter mirrors, these antennas are the biggest ever deployed on commercial
satellites.
46
Philip Cusick, CFA

(1-212) 622-1444

13 January 2011
Spectrum Auctions Will Come Eventually

Spectrum is the lifeblood of the wireless industry a finite resource that is hard to
come by and guarded carefully once it is won. In the US there currently is roughly
214 MHz of spectrum allocated to the 2G and 3G technologies, while the 4G
allocation is roughly 300 MHz depending on how one counts it.
Table 22: Wireless Spectrum Summary
Common band name
Cellular
PCS
AWS
700
2.5/2.6
1.4-1.5 GHz
2G/3G total
4G total
Frequency
Bandwidth (MHz) 2G/3G/4G
800/850 MHz
64
2G/3G
1900 MHz
130
2G/3G
1.7/2.1 GHz
90
3G/4G
700 MHz
52
4G
2.5/2.6 GHz
150
4G
1.4/1.5 GHz
59
4G
~214
~300
Comments
50 MHz given to industry in the 80's. 14 MHz owned by Sprint through Nextel spectrum swap
120 MHz auctioned in mid-90's. Includes 10 MHz of G-Block spectrum owned by Sprint not in use.
2006 Auction. T-Mobile owns ~30 MHz for 3G, VZ and T own ~30 MHz for 4G, cable owns ~20 MHz unbuilt
2008 Auction. Mostly owned by AT&T, Verizon, Echostar
Owned by Clearwire, allocated to 4G
Owned by Lightsquared, allocated to 4G
In general, the lower the frequency the farther a signal will travel and be useful
(propagate) at a given power. Thus, lower frequencies like 700 MHz and 800 MHz
bands are better for covering large distances and penetrating buildings than the PCS
or AWS bands. More debatable is the value of high-frequency spectrum when trying
to cover an urban area that needs high cell-site density anyway. How well
Clearwires 4G network loads and its economies over time will be interesting to
watch against Verizons lower-frequency 700 MHz build.
Figure 20: Illustration of Signal Propagation at 800 MHz and 1900 MHz
47
Philip Cusick, CFA

(1-212) 622-1444

13 January 2011
Spectrum Spending History Done for Now

Spectrum expense is mostly behind us
Since 2005 the US wireless carriers spent roughly US$38 billion in major sales of
spectrum in the PCS, AWS, and 700 MHz bands. Spectrum spending is almost
always a contra to valuation in our models. While there has been speculation about
more spectrum coming to market, we estimate it could be 2012 or later before
substantial blocks of spectrum come to market.
Table 23: Major Wireless Spectrum License Spending by Carrier, 2005-Present
$ millions
Company
Auction 58
AT&T
184
Verizon Wireless
697
252
T-Mobile USA
SpectrumCo LLC (Cable co's)
Sprint
194
Echostar
Qualcomm*
MetroPCS
Leap Wireless
235
Cox Wireless
US Cellular
152
Cellular South
CenturyLink
1714
AWS
1400
2809
4182
2378
1391
1076
170
13406
700 MHz Aloha (700) QCOM (700)

6637
2500
1925
9363
Total
12646
12869
4434
2378
194
712
558
1704
1311
305
622
192
149
37516
712
558
313
305
300
192
149
18529
2500
1925
* Later sold to AT&T

Source: Company reports and FCC.
Table 24: History of Spectrum Prices in Major Transactions, 2001-2010
AT&T/Qualcomm sale
Auction 73 (700 MHz)
AT&T/Aloha
Auction 66 (AWS)
Auction 58 (PCS)
Auction 35 (PCS, cancelled)
Date Frequency Total $ amount ($m)

2010
700 MHz
1,925
2008
700 MHz
14,827
2007
700 MHz
2,500
2006 1.7/2.1 GHz
13,879
2005 1900 MHz
2,250
2001 1900 MHz
16,300
$/MHz/pop
$0.86
$1.29
$1.06
$0.54
$1.06
$2.11
Source: FCC and J.P. Morgan estimates.
We do not expect a major

spectrum auction for 2-3 years
What Spectrum Bands Are Likely to Come? And When

Could They Be Available?
The national broadband plan was delivered to Congress in March 2010. It
recommends finding 500 MHz of new spectrum for broadband services 300 MHz
in the next five years and another 200 MHz in the five years after that. We think that
finding 300 MHz in the next five years will be a real challenge for the FCC.
700 MHz Auction 92. The FCC has scheduled Auction 92 for July 2011, but the
spectrum for sale represents the remnants of licenses that either didnt sell in the
last 700 MHz auction or were turned back in to the Commission already. Most
are rural and have little impact on the overall spectrum market, by our analysis.
700 MHz D-Block. This 10 MHz block did not hit the minimum bid requirement
in the 2008 auction, and has been in limbo since. There is movement in Congress
48
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13 January 2011
to give this spectrum to public safety instead of auctioning it, so we do not count
on it coming to market.
Lower 700 MHz band. One source of very good spectrum could be to repurpose
more spectrum from the TV broadcasters in the 700 MHz band. Channels 52-69
were the sources for the 2008 700 MHz auction (6 MHz per channel), and
channels 31-51 could yield another 120 MHz. However, most of the big
broadcasters have pushed back against this, and some argue that they could better
use the spectrum for mobile video than could the wireless carriers. Whichever
way this is decided its likely to be a battle, and we dont expect a resolution for
3-5 years.
AWS bands. Another source could be additional AWS spectrum. AWS-2 is two
5 MHz pairs (H-block is 1915-1920/1995-2000 and J-block is 2020-2025/21752180) that are close to Sprints PCS spectrum and werent auctioned in the 2006
AWS-1 auction. AWS-3 is an unpaired 20 MHz that could be paired with lowerband military spectrum to make it more attractive.
Microwave? Additional commercial microwave could also be sourced, pushing
the microwave broadcasters further up the bands. This, however, is not seen as
very attractive spectrum by the carriers but could become more so if it was paired
with something in a lower band.
Satellite spectrum? Thus far the FCC has not talked about re-allocating any
satellite spectrum for terrestrial uses, but given Lightsquareds recent request to
make its system a totally terrestrial application rather than have the satellite
option, the FCC could decide to count Lightsquareds 40 MHz against the
300 MHz. However, given that Lightsquareds previous entities were given that
spectrum rather than having it go through a public auction, we would expect the
wireless carriers to protest against such a giveaway.
Government bands. Finally, there is a lot of spectrum that currently is being
used (or at least allocated to) the Federal government. However, entities like the
FBI, the Department of Defense, and others are likely to lobby heavily against
being moved from their current bands and it would take congressional action to
move most of this into the FCCs domain.
2011 Is the Year of 4G Transitions

Although no one can seem to agree on a definition for 4G, we consider it to be the
next evolution of wireless data speeds from the 100 Kpbs to 1.5 Mbps speeds of 3G,
to a data connection that is steadily above 1 Mbps and can burst to 20 Mbps or
higher. Eventually, 4G will enable both data and voice at faster speeds, lower
latency, and lower cost to support than current 3G technologies.
31 flavors of 4G
There are two main flavors of 4G supported by two different standards bodies. The
Third Generation Partnership Project (3GPP) likely will be the most common and is
constructed of traditional wireless cellular vendors and operators. It has shepherded
the GSM standard through 3G with WCDMA and into what is now known as LTE or
Long Term Evolution. Alternatively, the Institute of Electrical and Electronic
Engineers (IEEE) supports a technology called WiMAX (Worldwide Interoperability
for Microwave Access) which we expect to remain the smaller standard.
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The standards, however, are very similar in that both work best on wide spectrum
channels and utilize the same technologies like Orthogonal Frequency Division
Multiplexing (OFDM), Multiple-In/Multiple-Out (MIMO) antennas, and 64QAM
which work together to deliver higher speeds and an incrementally more-efficient
wireless experience.
Note, however, that some carriers have been claiming 4G speeds even without
having the above technologies. T-Mobile USA, which has a WCDMA/HSPA 14.4
network, claims today to have Americas largest 4G network because its real-world
speeds rival those of Clearwires and Verizons network. While we dont consider
T-Mobiles network to be true 4G, the speeds are close enough that T-Mobile can
likely minimize any marketing disadvantage it may have had, and muddy the waters
for Clearwire and Verizon as they try to differentiate on network speeds.
Our 4G network is capable of theoretical speeds up to 21 Mbps and we have seen
average download speeds approaching five Mbps on our myTouch 4G phone in some
cities with peak speeds of nearly 12 Mbps. Further, independent reviewers have seen
average download speeds on our webConnect Rocket between 5 and 8 Mbps with
peak speeds up to 8-10Mbps. Neville Ray, Chief Technology Officer, T-Mobile
USA
Figure 21: Wireless Technologies Converging Towards LTE
US/
Lat Am
iDen
US/Asia
cdmaOne
Japan
PDC
Global
GSM
US/
Lat Am
TDMA
2001
1XRTT
GPRS
1X EVDO
WiMAX
W-CDMA
HSPA+
Likely evolution
EDGE
2003-2005
2006-2007
2008
LTE
Unlikely evolution
2009
2010+
What Speeds Can We Expect from 4G?

Since the launch of Verizons LTE network press reports have been flooded with
anecdotal stories of speeds up to 20 Mbps. While these speeds are possible on a
brand-new network that is virtually empty of other users, we expect real-world
mature speeds on Verizons network to be more in the 2-6 Mbps range once the
network is loaded. Similarly, we have experienced speeds on Clearwires 4G
WiMAX network in the range of 1-8 Mbps depending on the time of day and
location, with an average in the 1-3 Mbps range.
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13 January 2011
Few applications run differently

at 4G vs. 3G speeds
So who uses all this speed?

The debate about wireless speeds for 4G today is somewhat counterproductive, in
our view. For handsets, there are few common applications for which users will
notice a difference between a speed of 1 Mbps and 5 Mbps. And for laptop-toting
customers, Verizons faster 4G speed is a great help in getting customers to their
5GB or 10 GB monthly limit faster, after which extra GBs are available for $10 each.
We think that in the near term the great 4G debate will be won by the carrier with the
most attractive devices an area in which Sprint and Clearwire have some advantage
over Verizon at least to mid-2011, but in which T-Mobile USA may actually be best
off because it can claim 4G speeds but on lower-priced 3G device technology and
scale.
Carrier Upgrade Paths to 4G

The ease of the upgrade path to 4G depends on a carriers current network
technology, the age of the equipment, and its available spectrum. Today more than
80% of carriers worldwide run 3GPP-standard GSM/WCDMA networks, with which
LTE is designed to be backwards-compatible. While some very new WCDMA
networks have the ability to easily upgrade to LTE with minimal changes, most
WCDMA carriers will need additional network hardware at the base station, on the
tower, and at the switch to enable LTE.
Of the remaining 20% of carriers globally, most are on the CDMA standard. This
standard has no easy upgrade path to 4G and will require a full network overlay of
LTE or WiMAX to get to LTE. This is already in the works at most CDMA carriers
MetroPCS and Verizon have launched their LTE networks in some cities and
Sprint continues to work with Clearwire to roll out WiMAX. We would not be
surprised to see Clearwire eventually throw WiMAX over for LTE as well.
Spectrum determines ease of and performance of 4G deployment
4G can be rolled out on as little as 3 MHz of free spectrum, but true 4G speeds
require 10+ MHz. Some carriers like AT&T, Clearwire, and Verizon already have
substantial allocations of empty spectrum that they can use, while T-Mobile and
others will need to re-farm spectrum that is currently in use or buy more in
upcoming auctions.
Table 25: US Carrier 4G Deployment Status
Company
AT&T
Verizon Wireless
T-Mobile USA
Sprint
Clearwire
Echostar
MetroPCS
Leap Wireless
Cox Wireless
US Cellular
Cellular South
Legacy network
WCDMA/HSPA
CDMA
WCDMA/HSPA
NA
CDMA
WiMax
NA
CDMA
CDMA
CDMA
CDMA
CDMA
4G Status
75M pops LTE EOY 2011, Complete 2013
38 live markets
HSPA+ for now
NA
WiMax with CLWR
120 M pops today
NA
LTE deployed today
2011 LTE trials
NA
2011 LTE trials
4Q11 LTE target
4G spectrum plan
30-40 MHz in AWS and 700 bands
Refarm 2G/3G spectrum
20 MHz AWS
Clearwire, refarm 2G/3G spectrum
~150 MHz
~10 MHz of PCS or AWS
Refarm PCS/AWS
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Philip Cusick, CFA

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13 January 2011
Cash Flow Solid Across Wireless Space

Wireless margins are a story of haves, have-nots
Margins in the wireless space have diverged in the last three years, with AT&T and
Verizon margins strengthening while those at Sprint, T-Mobile, and lesser carriers
have in general shrunk. In some cases this is a function of disappearing roaming
revenue (T-Mobile and US Cellular), while Sprint has seen substantial negative
leverage as its customer base shrank.
Cash EBITDA margin
Figure 22: Wireless EBITDA Margin by Carrier 2007 vs. 2010

60%
50%
40%
30%
20%
10%
0%
45% 47%
38% 41%
55% 56%
32%
32% 29%
17%
Verizon
AT&T
Sprint
Wireless
Mobility
Nex tel
T-Mobile
28%
33% 30%
21%
US
nTelos
MetroPCS
Cellular
2007
28%
23%
Leap
Wireless
2010E
Capital intensity has moderated

Capital spending as a percentage of revenue has generally declined in the industry, as
businesses have scaled and technology transitions been less painful.
Figure 23: Wireless Capital Spending by Carrier 2007 vs. 2010E
Capex % of revenue
50%
40%
40%
30%
20%
17% 15%
10%
16%
17%
16% 15%
15% 15%
T-Mobile
US
17%
22%
18%
6%
10%
0%
Verizon
AT&T
Sprint
Wireless
Mobility
Nex tel
Cellular
2007
52
36%
30%
2010E
nTelos
MetroPCS
Leap
Wireless

13 January 2011
Wireline Industry
Wireline Industry
Philip Cusick, CFA

(1-212) 622-1444
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54

13 January 2011
Philip Cusick, CFA

(1-212) 622-1444

13 January 2011
Wireline Key Investment Points

Consumer revenue losses have been well below access line losses, as data
revenue growth provides cushion
Within the consumer revenue stream, telecom companies have been proactive to
offset the secular headwinds facing consumer access lines. Carriers have enhanced
their value offerings by bundling voice with high-speed internet and video. Not only
are bundles accretive to ARPU, as consumers sign up for additional services
providing carriers with a higher share of their telecom/cable spending, but they also
lower churn significantly and help minimize subscriber losses to cable competitors.
Video remains an opportunity
Video rollout through fiber deployment has been a major growth driver for AT&T
and Verizon over the past two years, and both companies have generated significant
traction. Although most of the network buildout phase for both companies is
expected to end in 2011, significant growth opportunity exists as both T and VZ
expect to reach 30%+ video penetration in the regions in which the product is
marketed.
Increasing exposure to business revenues provides leverage to an eventual
macro turnaround
Through acquisitions of CLECs and datacenters serving business customers, as well
as internal initiatives through a marketing focus, some wireline providers have
shifted their business model to be increasingly leveraged to business vs. consumer.
While there has yet to be a meaningful macroeconomic recovery, the business
segments at wireline carriers have started to stabilize as y/y comparisons have
become easier. With unemployment still hovering near 10% and businesses cautious
with their spending, we expect this segment to remain stable over the next few
quarters but grow meaningfully with any macroeconomic rebound.
Ongoing industry consolidation has stabilized EBITDA with synergies driving
savings
The secular shift away from consumer voice, exacerbated by tough macro conditions,
has accelerated the consolidation wave in the wireline industry. Despite ongoing
pressure on the top line, M&A activity has helped to keep margins stable and
allowed companies to maintain their cash flow and dividend levels.
Rurals better on operating metrics, opportunity to drive further penetration
Given a lower level of competition in their operating markets and their local
marketing approach, rural carriers have maintained much better operating metrics,
with access line loss rates as much as 500-600 bps below those of their more urban
counterparts. As the industry consolidation trend within RLECs has expanded to
include more urban assets (CenturyLink buying Qwest following Embarq, Frontier
buying Verizon assets), we see significant opportunity for increased data penetration
levels and carriers to keep access line losses under control. We have seen a good
turnaround in the acquired urban markets in Embarq territories, and would expect
RLECS local engagement approach and increasing broadband reach to help improve
operating metrics in acquired regions in a meaningful way.
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Philip Cusick, CFA

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13 January 2011
Wireline Stock Recommendations

Among the largest telecom players we prefer AT&T over Verizon given its better
been quantified. We model $2.50 in EPS for AT&T in 2011 which represents 9%
the stock once the excitement about the iPhone has receded further and if the stock
Frontier Initiating with Overweight rating and $11 YE11 price target
We prefer Frontier within our RLEC coverage as we find the 7.8% dividend yield,
the highest within our telecom coverage universe and the highest in the S&P 500,
attractive and believe it is sustainable. The company is undergoing a major transition
to integrate the acquired Verizon assets, which increases its risk profile, though early
guidance, as well as an attractive dividend make Frontier our top pick within RLECs.
Windstream Initiating with Neutral rating and $14 YE11 price target
Windstream has a rural footprint with the lowest access line density within our
RLEC coverage, which has enabled the company to deliver better operating metrics
than its peers. Moreover, management has been shifting its revenue stream away
from the declining consumer voice business and towards business and data segments,
which we think positions the company well for top-line stabilization when macro
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13 January 2011
trends improve. While the current dividend yield of 7.4% remains one of the highest
within telecom, the companys higher leverage and EV/EBITDA multiple compared
to those of wireline peers, as well as ongoing acquisition risk, keep us sidelined.
Wireline Investment Risks

Further deterioration in economic fundamentals could impact revenue
Further deterioration in economic fundamentals poses risk to access line and revenue
trends as consumer markets could continue to deteriorate at current high levels and
the expected recovery in business markets could be pushed further out. This would
decrease the traction telecoms could capture with their video and broadband growth
initiatives.
Further acquisitions could be risky for near-term free cash flow
The potential for additional acquisitions poses risk for the wireline companies. While
we typically like consolidators within the deteriorating wireline industry from a
synergy realization and margin maintenance perspective, a potential acquisition in
the near to medium term could impact near-term free cash flow fundamentals and
could increase risks around dividends.
Regulatory revenue declines could be significant
Wireline companies have significant exposure to regulatory revenue, which increases
the more rural a companys footprint gets. While we expect the regulatory revenue
stream to continue to diminish gradually rather than see a major short-term
disruption, a faster-than-expected decline in USF subsidies and access rates could
cause a significant hit to top lines and detract from companies ability to maintain
dividends.
Wireline Industry Overview

Negative Voice Trends Persisted Through Past Decade
Access line losses to wireless substitution and cable VoIP competition have been the
overarching challenge facing the wireline industry over the past decade. Wireline
providers have seen a significant secular decline over this period, with telecom
penetration levels dropping to ~40% of homes in urban regions. Further, the secular
shift was exacerbated by tough macro conditions in the past few years. Consolidation
and merger synergies, as well as significant organic cost reductions, were the main
initiatives taken by wireline carriers which battled to preserve their dividends and
cash flow.
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Figure 24: Y/Y Access Line Losses in 3Q10 Were Worst at More Urban Carriers
0.0%
-2.0%
-4.0%
-6.0%
-3.7%
-4.3%
-8.0%
-6.9%
-10.0%
-7.8%
-9.3%
-12.0%
WIN
CNSL
CBB
FTR
CTL
-8.5%
VZ
-11.3%
T
-10.4%
Q
Y/Y CHANGE IN ACCESS LINES

Source: Company reports.
Voice now 60-70% of wireline industry consumer revenues, with battles for
share between telecom and cable
Over the last decade the wireline space has mostly been a battle of telecom vs. cable,
and the distinction between the bundles offered by the two has diminished further
recently, as telecoms have been rolling out video service, traditionally dominated by
the cable MSOs and satellite companies. Cable has already captured a significant
market share in consumer voice and is more recently showing more presence in the
small/medium business and enterprise segments which have bee served traditionally
by telecoms.
Telecom still dominates a smaller voice pie. Currently telecom and cable split
access lines with roughly 70% and 30% share, respectively, and we believe the
market is near equilibrium for cable stealing access lines from telecom. However, we
expect the pie to continue to contract due to ongoing wireless substitution. We
estimate that currently over 30% of urban territories are wireless-only households,
and we expect ongoing wireless substitution to drive a 40%+ wireless-only ratio in
urban regions by 2012, with ~25% level in rural territories.
58
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13 January 2011
300
Wireless -Subs
250
200
Wireline -Access
Lines
150
100
50
20
12
E
20
10
E
20
08
20
06
20
04
20
02
20
00
19
98
19
96
19
94
19
92
19
90
19
88
19
86
0
19
84
Access Lines & SUbscribers (m)
Figure 25: Wireless Subscriptions Have Been Replacing Access Lines
Source: Company reports and FCC.
Cable voice gains have stabilized

Cable MSOs initially attacked the telecom space by rolling out voice over internet
protocol (VoIP) service in 2004, and have reached ~20% penetration across their
markets since then. Their bundled offerings typically include voice as a $10 add-on
for a triple play with a data and video plan. The highly regulated telecom incumbents
had very little ability to fight back given the low price offered by cable. With much
of the regulation around voice pricing relaxed in recent years, and the availability of
a VoIP solution within the U-verse and FiOS product suites, line losses to cable have
contracted.
Figure 26: Cable Providers Have Gained Meaningful Share of the Voice Market
100.0%
80.0%
60.0%
40.0%
20.0%
0.0%
1Q07
2Q07
3Q07
4Q07
1Q08
2Q08
3Q08
Telco
4Q08
1Q09
2Q09
3Q09
4Q09
1Q10
2Q10
3Q10
Cable
Wireless substitution continues to be key to voice access line losses

Wireless substitution has been a material component of access line loss trends, and
became the major source of line losses over the past couple of years as telecom/cable
share has essentially stabilized but unlimited wireless continued to gain traction.
Leaps and Metros aggressive builds in 2009, increasing unlimited voice plan offers
by MVNOs, Life Line substitution offers from Assurance and Safe Link, as well as
tough macro conditions have kept wireless substitution trends robust. We estimate
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Philip Cusick, CFA

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13 January 2011
Wireless is gaining ground in

even the lowest-credit wireline
segment
that presently ~30% of households across the US have disconnected wireline service
altogether, and we expect wireless substitution to become more prevalent as the
population ages, housing moves rebound, and unlimited wireless offers become more
competitive.
Figure 27: Telecoms Continue to Lose Access Lines, Though Cable Gains Are Well Below Historical Levels
2,000
1,000
0
(1,000)
(2,000)
(3,000)
2Q07
3Q07
4Q07
1Q08
2Q08
3Q08
4Q08
1Q09
Telco
Cable
2Q09
3Q09
4Q09
1Q10
2Q10
3Q10
Rural voice has performed better going local is key

Access line losses at rural carriers have been much lower than peer levels, while
broadband penetration levels are also tracking higher. A major component of this is
the lower level of cable competition as well as weaker wireless coverage in regions
with lower population density. Nevertheless, the most rural player within our
coverage, Windstream, has ~65% cable VoIP alternative coverage as well as ~7580% broadband alternative coverage. We believe a major component of the better
operating metrics for the rural carriers is the local management and marketing
approach they implement in their markets.
We expect access line trends as well as broadband penetration levels to improve
significantly in the urban territories of the acquired Embarq markets after
CenturyLink implemented its local strategy. As rural players continue to acquire
more urban assets Frontiers acquisition of Verizon assets and CenturyLinks
pending acquisition of Qwest we will watch the metrics in the more urban regions
for evidence the acquirers are capitalizing on the opportunity to turn around the
urban markets. We expect to see meaningful improvements in Frontiers acquired
Verizon territories as early as 1H11 as we believe the companys handholding
strategy coupled with aspirational gift campaigns, such as computers for new
customers, will resonate well with customers.
Local approach has helped rurals on the business front as well. Over the past
couple of years cable MSOs have started marketing to the SMB customer, though
telecoms have not lost meaningful share on the SMB front. We believe the local
approach by telecoms has been a significant driver in the maintenance of market
share.
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13 January 2011
Figure 28: Access Line Losses as of 3Q10

0.0%
-2.0%
-4.0%
-6.0%
-3.7%
-4.3%
-8.0%
-6.9%
-7.8%
-10.0%
-9.3%
-12.0%
WIN
CNSL
CBB
FTR
CTL
-8.5%
VZ
-11.3%
T
-10.4%
Q
Y/Y CHANGE IN ACCESS LINES

High-Speed-Internet Split More Even Between Telco, Cable
We believe HSI penetration can

exceed 100% of voice lines
On the high-speed-internet (HSI) front, we see the current split of ~50%/50%

telco/cable as a reasonable equilibrium point. While cable has been the dominant
winner in this area over the past decade, telecom initiatives to deploy high-capacity
fiber across their footprints has stemmed the losses to cable and we expect
improvements in copper line capacity starting in 2011 to improve non-fiber market
metrics as well. While we continue to expect fluctuations on the share front as certain
players promote heavily in any given period, we believe the currently comparable
cable and telecom offers will keep overall market share near current levels.
Figure 29: HSI Penetration of Access Lines
50%
45%
44%
39%
40%
37%
36%
35%
31%
VZ
29%
30%
34%
32%
25%
20%
15%
10%
5%
0%
CNSL
WIN
CTL
FTR
CB B
61
Philip Cusick, CFA

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13 January 2011
Telco Video Is Just Getting Warmed Up

Over the past two years AT&T and Verizon have conducted major builds for video
service. Since the beginning of 2009, T and VZ cumulatively added 3 million subs,
while cable (CMCSA, TWC, CHTR, and CVC) cumulatively lost 2.2 million subs,
~5% of their base, and satellite held its own with 1.9 million subscriber additions.
We expect telecom to double its current 7.3% share of the pay TV market over the
next few years. In their respective regions, Verizon and AT&T are expected to reach
~35% and ~30% terminal video penetration.
Consumer Buoyed by Data, Video

Voice Has Fallen to 60-70% of Consumer Wireline Revenue
As wireline voice service has lost value from a consumer standpoint, consumer voice
revenue has also become less relevant for the financial performance of wireline
providers. As we see little differentiation between a typical triple-play offer from a
telecom or cable MSO, retaining the existing customer base and upselling higher
bundles has become the key focus to minimize top-line losses in the industry.
Cables move into the voice space was the initial dominant force affecting the
cable/telecom landscape; however, over the past two years larger telecoms have
expanded their video offerings through aggressive fiber rollouts that compete directly
with those of cable companies. AT&T and Verizon are pushing video content to
homes, and Qwest is enabling speeds for over-the-top video.
AT&T and Verizon currently hold ~5% of the total pay TV subscriber base, which
we think could double over the next 18 months. AT&T is expecting to pass
30 million homes with fiber by the end of 2011 and we expect its current low-teens
penetration level with U-verse to reach ~30% over time. Verizon currently has
12.5 million homes open for sale for FiOS broadband and 12.1 million for video, and
plans to pass ~70% of its homes. Penetration levels in territories that have been open
for sale for 24 months have reached 30%, and management expects markets could
see 40-50% penetration levels over time. Qwests fiber footprint has reached
4.5 million homes, with a rate of 1 million incremental homes per year. CenturyLink
is testing video deployments more cautiously and expects to pass 1 million homes by
the end of 2011.
Despite the crowding in the video space created by the entrance of telecoms, the
pricing environment has remained healthy and we have not seen cable battling back
with price cuts to maintain subscriber base. We expect pricing to remain healthy
going forward, and expect to see further price increases as programming costs
continue to ramp in the cable landscape.
62
Philip Cusick, CFA

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13 January 2011
Figure 30: HSI Penetration of Total Access Lines

50%
Figure 31: Video Penetration of Total Access Lines
44%
39%
40%
14%
37%
29%
30%
13%
12%
36%
32%
31%
34%
12%
12%
11%
10%
10%
9%
8%
20%
6%
4%
10%
3%
2%
0%
0%
CNSL
WIN
CTL
FTR
VZ
CBB
WIN
CNSL
VZ
FTR
CB B
Video/Broadband Should Offset Consumer Voice Declines

While we expect the consumer voice revenue erosion to continue, we believe video
and broadband revenue gains will meaningfully offset the loss. Currently wireline IP
revenue (U-verse plus non-U-verse broadband) drives more than 42% of AT&Ts
consumer wireline revenues, and FiOS-related revenues constitute about half of
Verizons consumer revenue base. Verizons more aggressive push with its FiOS
service offering could increase penetration levels to 40%+ in its mature markets,
while at AT&T we look for penetration levels of ~30%.
Broadband Key Driver of Revenue, Customer Retention

Broadband drives a significant portion of consumer revenues, and has become the
mainstream solution offered by telecoms to fight the secular shift away from wireline
voice. We estimate broadband revenues currently make up ~20% of total consumer
wireline revenues. At AT&T U-verse and DSL, which represent total wireline
consumer IP revenue, now represent more than 42% of total consumer revenue. The
higher ARPU on higher-speed subscribers along with relatively low penetration of
higher speeds present a significant revenue opportunity for wireline players, in our
view, which will be key to offsetting the expected losses from the shrinking
consumer voice revenue stream.
63
Philip Cusick, CFA

(1-212) 622-1444

13 January 2011
Figure 32: Telecom and Cable Both See Growth on HSI

3,000
2,500
2,000
1,500
1,000
500
0
(500)
2Q06
3Q06
4Q06
1Q07
2Q07
3Q07
4Q07
1Q08
2Q08
3Q08
Telco
Cable
4Q08
1Q09
2Q09
3Q09
4Q09
1Q10
2Q10
3Q10
Source: Company data and J.P. Morgan.
Naked/Semi-Naked DSL as Well as Bundles for Retention

The telecom carriers primary focus is to increase the competitiveness of their
offerings through triple-play bundles that include a voice line, high-speed internet,
and video (core offers or as resellers) as well as wireless in some cases. For those
households that have cut the cord completely, however, most telcos have introduced
a naked DSL offering, which includes a broadband line usually paired with a
metered emergency voice line.
Wireless-only voice subs still

need a hard-line HSI connection
For example, Windstreams Greenstreak offer bundles naked DSL with an

emergency line that charges ~$0.10/minute for outgoing calls and enables free
incoming calls. Such offers have been in the market since 2007-2008. These products
are marketed to a targeted customer base, usually by direct mail, in order to not
cannibalize other wired voice subs, and they enable value-oriented customers to
decrease their monthly bill to less than US$35, which is the minimum they likely
would have to pay for cable. We estimate that naked DSL customers constitute a
low-single-digit percentage of customers in most rural regions in which the service is
offered and a high-single-digit percentage in more urban areas, but ongoing wireless
substitution could drive penetration to ~10%+ over time.
Telco Fiber in Urban Regions Going Head-to-Head with

Cable
AT&T and Verizon are on track to pass 60-65% of their footprints with fiber (for
Verizon) or enhanced copper service (for A&T) by the end of 2011. Qwest has also
been deploying a fiber-to-the-node (FTTN) strategy in its footprint and reached
~4.5 million homes, with plans to reach ~ 6 million homes (over half of its footprint
of 11 million homes). AT&Ts FTTN offer and Verizons fiber-to-the-home (FTTH)
strategy which goes all the way to the premise enable the companies to compete
head-to-head with the cable companies video offers. While Qwest is not pushing
video content, its broadband speeds are sufficient for over-the-top video streaming.
64
Philip Cusick, CFA

(1-212) 622-1444

13 January 2011
Growth Coming from Video Opportunity

Video offers have been a typical addition to the telco triple-play bundles, and have
been essential to minimize subscriber churn. Video solutions offered by telco
providers vary from facility-based video products such as Verizons FiOS which
takes content all the way to the home, AT&Ts U-verse, and CenturyLinks IPTV
trials, to satellite resale offers with DirecTV or DISH which are insignificant to
revenue but critical from a customer retention perspective.
Over the past couple of years AT&T and Verizon have implemented aggressive
video builds, and gained significant traction with their offerings. AT&T expects to
pass 30 million homes by the end of 2011, and continue to extend to adjoining areas
thereafter, with the current low-teens penetration expected to reach ~30% over time.
Verizon currently has 12.5 million homes open for sale for data and 12.1 million for
video, and plans to pass ~70% of its footprint with fiber. CenturyLink is testing video
deployments more cautiously and expects to pass 1 million homes by the end of
2011.
Penetration levels in territories that have been open for sale for 24 months have
reached 30%, and management expects markets could see 40-50% penetration levels
over time. Despite the increasing crowdedness in the video space created by the
entrance of telcos, the pricing environment has remained healthy and we have not
seen cable battling back with price cuts to maintain subscriber base. Overall, we
expect telcos to hold a mid-teens share of the video market by 2016.
Bundling mobile with video could create telco advantage. Telcos have an
opportunity to innovate and provide themselves an edge over cable MSOs by
creating better value for consumers through more integrated services which bring
video content on the go from home DVRs to mobile devices like smartphones and
tablets. This likely would enable carriers to further increase prices, rather than
compete on price, which we have yet to see in the video space.
Satellite remains partner outside of fiber footprint. Where a facility-based video
offer is not a feasible solution due to heavy capital requirements, telcos are
partnering with satellite players to include video as an add-on to their offers, which
makes their bundles more comparable to the triple-play offers from cable companies.
Moreover, fixed-price agreements for a customers lifetime for voice/HSI are
resonating well with customers, and telcos can add video to the fixed-price voice/HSI
bundles, subject to price changes by satellite providers.
65
Philip Cusick, CFA

(1-212) 622-1444

13 January 2011
Table 26: Estimated Terminal Penetration of Voice, Video, and Data by Technology
VZ-In Build (15.4m homes today)
No subscription
Voice
Data
TV
AT&T-In Build (26m homes passed today)
0%
10%
5%
No subscription
Voice
Data
TV
0%
10%
5%
Wireless
40%
5%
NA
Wireless
40%
5%
NA
Copper (circuit switched and DSL)
25%
0%
NA
20%
5%
NA
Satellite
Cable
NA
NA
25%
Satellite
20%
45%
35%
Cable
FiOS
15%
40%
35%
19.0
100%
100%
100%
VZ-Out of Build (11.6 mm lines today)
Voice
Data
TV
0%
10%
15%
No subscription
U-Verse
NA
NA
25%
25%
50%
40%
15%
30%
30%
31.3
100%
100%
100%
AT&T-Out of Build (20mm today)
Voice
Data
TV
0%
10%
15%
No subscription
Wireless
30%
5%
NA
Wireless
30%
5%
NA
40%
35%
NA
40%
40%
NA
Satellite
Cable
FiOS
NA
NA
35%
Satellite
30%
50%
50%
Cable
NA
NA
NA
7.7
100%
100%
100%
VZ-Average lines
U-Verse
NA
NA
40%
30%
45%
45%
NA
NA
NA
21.7
100%
100%
100%
Voice
Data
TV
0.0
5.3
4.8
Voice
Data
TV
AT&T-Average lines
No subscription
0.0
2.7
2.1
No subscription
Wireless
9.9
1.3
Wireless
19.0
2.7
7.8
2.7
15.0
10.3
Cable
6.1
12.4
10.5
14.3
25.4
FiOS
2.9
7.6
6.7
4.7
9.4
9.4
26.7
26.7
26.7
26.7
53.0
53.0
53.0
Satellite
7.5
Satellite
16.5
Cable
U-Verse
53.0
22.3
Figure 33: Telcos Video Offering Gaining Share from Cable

100.0%
80.0%
60.0%
40.0%
20.0%
0.0%
1Q07
2Q07
3Q07
4Q07
1Q08
2Q08
3Q08
4Q08
1Q09
2Q09
3Q09
4Q09
1Q10
2Q10
3Q10
Satellite
35.1%
35.3%
35. 5%
35.8%
35.8%
35. 8%
35.9%
36.0%
36.1%
36. 2%
36.5%
39.0%
39.1%
39.2%
40.3%
Cable
64.5%
64.0%
63. 5%
62.8%
62.4%
61. 9%
61.4%
60.6%
60.0%
59. 2%
58.5%
55.2%
54.7%
54.1%
52.4%
Telco
0.4%
0.7%
1.0%
1.4%
1.8%
2.2%
2.8%
3.4%
3.9%
4.5%
5.0%
5.7%
6.2%
6.6%
7.3%
66
Philip Cusick, CFA

(1-212) 622-1444

13 January 2011
Figure 34: Telcos Winning Video Share from Cable and Satellite
800
600
400
200
0
(200)
(400)
(600)
1Q07
2Q07
3Q07
4Q07
1Q08
2Q08
3Q08
Telco
4Q08
Cable
1Q09
2Q09
3Q09
4Q09
1Q10
2Q10
3Q10
Satellite
Business, Regulatory 60%+ of Wired Revs

Business, regulatory, and wholesale revenue now make up over 60% of wireline
industry revenues within our coverage, with AT&T and Verizon having the highest
levels and the rest of the wireline providers closer to 55%. In the business space,
enterprise continues to be dominated by AT&T and Verizon, while the small and
medium-sized business space has become somewhat more competitive as cable has
entered the mix. On the regulatory side, we expect USF revenues to remain under
pressure. Wholesale revenues though are growing on the strategic side as the cell
backhaul business attracts any carrier with a nearby fiber footprint to light up as
many sites as it can.
Small/Medium Business Seeing Increasing Push from Cable

Although the capabilities required by small and medium-sized businesses (515 lines) are similar those for consumers, the public cable players have been much
slower to create a presence in SMB market than on the consumer side. While their
push into this segment has been more meaningful recently, they have still yet to
achieve significant market share. The lack of competition that RBOCs have seen in
this space, other than the presence of CLECs, has enabled higher margins on
products like T-1 data and voice lines than seen in the consumer space.
We see cable MSOs marketing more towards the low-end SMB market, with usually
5-10 lines, which could impact the rural players business revenue stream more
meaningfully than those of the larger telcos whose urban markets have been under
attack by CLECs for years.
67
Philip Cusick, CFA

(1-212) 622-1444

13 January 2011
Figure 35: SMBs Account for 13% of AT&Ts
Figure 36: And 7% of Verizons LTM Revenue
GEM
Consumer
solutions
35%
Other
2%
Global
26%
Consumer
Wholesale
32%
Serv ices
Small
20%
business &
alternate
channels
13%
Mass
Global
enterprise
solutions
Source: Company data, October 2008.
23%
Markets
Other
1%
2%
Global
Enterprise
SME
39%
7%
Source: Company data, October 2008.
Enterprise Dominated by the Big Two

Unlike the consumer and SMB spaces, the crowd in the enterprise market remains
small essentially a duopoly between AT&T and Verizon. Outside the big two,
Sprint has some presence (~5-6% share) and Qwest is positioned as the #2 or #3
telecom provider to its local Fortune 500 companies, holding ~4% of the enterprise
market. CenturyLink currently holds ~2% share of the enterprise market as legacy
Embarq properties have some exposure to enterprises in Las Vegas, Orlando, Florida,
and Carolina regions.
The global footprint and quality of service (QOS) requirements of the enterprise
customer act as barriers to entry for cable or smaller telco players. While pricing has
been stable and data volumes have been growing meaningfully, this segment has
seen some negative revenue trends in the past couple of years, largely from
enterprises cutting back on headcount as well as telecom spending budgets, and
demand shifting towards lower-priced IP products. On the competition front though,
we have heard very few complaints lately about aggressive pricing to steal customer
wins.
AT&Ts business revenue <40% voice. Currently voice represents less than 40% of
AT&Ts business revenue. From older offerings (circuit-switched voice) and legacy
packet technologies (ATM and frame relay), there has been a strong uptake of IPbased services for voice and data to the point that over 80% of AT&Ts enterprise
customers are on IP technologies today. Data revenues continue to gain importance,
as IP-based services and managed services grow in volume. As companies move
more of their applications and their content into the cloud, hosting and cloud
computing are becoming more important as well.
68
Philip Cusick, CFA

(1-212) 622-1444

13 January 2011
Business Revenues Should Grow Following a Macro

Recovery
Business revenues have seen significant pressure due to the challenging
macroeconomic environment. Pressure on volumes given low business activity from
customers, who have been deferring potentially costly initiatives and being cautious
on headcount, has been exacerbated by pressure on the pricing front as the migration
to IP from ATM and Packet has progressed. There has yet to be a meaningful
comeback on the macro front, though we expect volumes to come back as
unemployment trends improve. With the migration to lower-cost IP-based services
close to completion, pricing should stabilize as well, which positions business
revenues to potentially see top-line growth, possibly as early as 2H11.
Nevertheless, largely from easier comparisons, y/y changes have shown some
recovery in the past few quarters, and we look for further stabilization, and
eventually growth, following a macroeconomic stabilization.
Figure 37: Unemployment Rate Is Hovering at ~10%
15%
500
13%
400
300
9%
7%
200
5%
100
y/y change (bps)
Unemployment
11%
3%
0
1%
-1%
-100
Jan 07
Jun 07 Nov 07 Apr 08
Sep 08 Feb 09
Jul 09
Unemploy ment
Dec 09 May 10 Oct 10
y /y change
Source: BLS and J.P. Morgan.
Figure 38: Unemployment
Figure 39: Y/Y Change in Unemployment (bps)
30%
10
Se
p
ay
10
M
Ja
n1
0
09
Se
p
ay
09
10
Se
p
Ja
n1
0
M
ay
10
09
Se
p
08
Ja
n0
9
M
ay
09
Se
p
Ja
n0
8
M
ay
08
0%
10%
Ja
n0
9
700
500
300
100
-100
20%
16-19 y ears
20-24 y ears
16-19 y ears
20-24 y ears
25-34 y ears
Population
25-34 y ears
Population
69
Philip Cusick, CFA

(1-212) 622-1444

13 January 2011
Figure 40: Unemployment
Figure 41: Y/Y Change in Unemployment (bps)
African American
Hispanic
Population
ay
M
African American
10
Se
p
10
0
n1
Ja
09
M
ay
n0
Ja
Se
p
10
M
ay
n1
Ja
Se
p
09
ay
M
n0
Ja
Se
p
08
ay
M
n0
Ja
Population
Se
p
-100
9
0.0%
10
100
5.0%
09
300
10.0%
08
500
15.0%
09
20.0%
Hispanic
Regulatory Revenue Is a Diminishing Stream

Regulatory revenues have been a steadily diminishing revenue stream as lower
access minutes of use and access rates have pressured switched access revenues.
Over the past couple of years there has been a lot of noise on the regulatory front, as
inter-carrier compensation and USF subsidies were under review for potential
reform, and as the national broadband plan was proposed.
A key risk for most of the rural telcos has been inter-carrier compensation reform,
which could lower access rates to a fixed level well below current rates, and hit
access revenues in a major way.
USF support likely to shift from voice to data
On the USF subsidies front, the increased focus on broadband will likely result in
reallocation of subsidy money away from rural voice and towards broadband
providers.
On the flip side though, the broadband stimulus plan has provided opportunity for
telcos to apply for grant money to increase broadband reach in rural territories.
Windstream, for example, has applied for broadband stimulus money and won
$180 million in grants which it must match with only $60 million of its own
spending.
Nevertheless, as the FCC plans to reduce the funding allocated to voice service and
shift it to broadband, rural carriers should eventually take some level of hit.
Generally, the more rural a carriers footprint, the higher the reliance on regulatory
revenues. Network access revenue accounts for ~16% of CenturyLinks revenue, and
is composed of intercarrier compensation and USF funds. The pending merger with
Qwest will decrease net exposure to this revenue stream significantly, making
Windstream the most highly exposed player within our coverage. Frontier had ~17%
exposure to this stream before the Verizon transaction, but has reduced its exposure
significantly, to ~10% after the deal.
Table 27: Regulatory Revenue Exposure of Wireline Providers
Switched access and
USF exposure
FTR
CTL
WIN
<6% switched acces

and <4% USF
~16%
net payer of switched

access, <3% USF
~16%
70
Philip Cusick, CFA

(1-212) 622-1444

13 January 2011
While we havent gotten a firm answer on the USF and ICC fronts, we expect
ongoing discussions on the topics will continue to pose risk factors for the free cash
flow prospects of the RLECs, especially given the high-margin structure of
regulatory revenues. Nevertheless, we do not expect to see a resolution or an
implementation that should impact the carriers over the next year. While ongoing
modest declines in this revenue stream would likely not be a trigger for dividend
cuts, any change in regulation could be significantly detrimental to free cash flow in
the medium term. We model this revenue stream to continue to grind down over the
next decade, at a high-single-digit rate, as the FCC implements its broadband plan.
Special Access Revs to Grow with Fiber Rollout to Cell

Sites
Carriers receive special access revenues from wholesale customers (usually wireless
carriers in region) for providing backhaul services over their copper or fiber
footprints. Special access revenues are following a healthy growth trajectory, and
despite some slowdown in the growth in a tough macro environment, we expect
growth to reaccelerate as data needs of wireless carriers are consistently growing.
Rural players such as Windstream mostly offer special access service on a copper
footprint but, given the necessity of extra bandwidth for data usage on cell sites, the
companies have initiatives to extend fiber plant to cell sites. Qwest has outlined a
major fiber-to-the-cell-site initiative, and it has signed contracts for 4,000 of the
17,000 sites in territory. These contracts provide 5-10 years of guaranteed minimum
payments a high margin and stable cash flow.
Consolidation to Insulate Cash Flow

RLEC Consolidation Could See a Short Pause
The wireline industry has been going through a wave of consolidation as access line
losses caused significant top-line pressure and squeezed profitability prospects. In
order to scale up and generate synergies, larger players in the segment have emerged
as repeated acquirers. CenturyLink has quadrupled in size over the past four years
with its Madison River (2006) and Embarq (2009) acquisitions, and is in the process
of closing its acquisition of Qwest which was 1.5x its size. Frontier recently acquired
Verizon access lines which have tripled the size of the company, and Windstream
continues to acquire and integrate tuck-in deals while looking opportunistically at
further deals.
While the main rationale for RLEC acquisitions has typically been cost savings
through headcount reduction as well as the transfer of traffic to more efficient
networks, there have also been efforts to gain more exposure to the more sticky
business revenue stream, which was a catalyst for Windstreams recent CLEC/data
center acquisitions which have replaced RLEC tuck-ins over the past year.
While there has been a significant amount of M&A in the RLEC space over the past
18 months, we expect a slowdown on this front for most of 2011. With Frontiers and
CenturyLinks hands full with integration of their large acquisitions, and Windstream
turning more towards CLEC acquisitions which would increase its presence on the
71
Philip Cusick, CFA

(1-212) 622-1444

13 January 2011
business services front, we do not expect any large RLEC deals over the next 12
months.
CLEC Acquisitions Pose New Growth Opportunities

At the end of 2009 Windstream announced its acquisition of NuVox, a competitive
local exchange carrier (CLEC), followed by the acquisition of another CLEC, as well
as a data center, in an effort to increase its exposure to business customers.
CLEC business is inherently a lower-margin business than RLEC operations, and
this business line faces more competition from larger carriers. However, there is
significant opportunity for growth in business revenues, which makes these assets
more valuable. Moreover, as we have seen with Windstream, acquiring CLEC assets
with a complementary footprint allows the acquirer to strengthen its local presence in
existing territories and positions the company better for growth opportunities in the
small and medium-sized business segments.
Given the increasing pressure in the consumer business, we view Windstreams
potential reorientation toward business markets as an attractive medium-term
strategy. We believe Windstreams recent initiative could eventually be replicated by
other RLECs as the consumer space continues to get tougher. CenturyLink already
has CLEC operations in 12 states and has explicitly committed to a CLEC edge-out
strategy, while Frontier screens as a less likely prospect as it sold its Electric
Lightwave CLEC business and has its hands full with Verizon integration.
Margins Stabilizing, Cash Flow to Recover Somewhat

Wireline cash flow has been under substantial pressure over the past couple of years.
As revenue losses pressured margins across the industry, carriers have rationalized
their cost bases to minimize margin pressures. For AT&T and Verizon, top-line
pressures and pension costs were exacerbated by the opex component of U-verse and
FiOS deployments, which resulted in ~300 bps of margin declines from 2008 levels.
While we do not expect margins to recover to historical levels, we do model a
modest ~30-40 bps of margin recovery for the two carriers for 2011 and another
~50 bps for 2012 from 2010 levels, which likely would look conservative if the
economy rebounds. For Ts and VZs wireline operations combined, we look for
0.6% and 1.3% EBITDA growth for 2011 and 2012, respectively.
For the wireline-only players, we look for margin expansion as well, especially for
Frontier, as we expect significant synergies from the acquisition of Verizon access
lines coupled with some level of macroeconomic relief to more than offset the
ongoing top-line pressures over the next few years.
Table 28: EBITDA Trends Across Wireline Carriers
AT&T
T Margin
1Q09
5,234
32.4%
2Q09
5,069
31.7%
3Q09
4,991
31.7%
4Q09
4,984
31.9%
2009
20,278
31.9%
1Q10
4,809
31.2%
2Q10E
5,007
32.5%
2Q10E
4,957
32.5%
3Q10E
4,753
31.5%
2010E
19,526
31.9%
1Q11E
4,767
31.9%
2Q11E
4,799
32.1%
3Q11E
4,831
32.3%
4Q11E
4,809
32.4%
2011E
19,205
32.2%
1Q12E
4,843
32.6%
2Q12E
4,850
32.6%
3Q12E
4,884
32.8%
4Q12E
4,859
32.9%
2012E
19,436
32.7%
Verizon
VZ Margin
2,401
22.6%
2,329
22.0%
2,266
21.2%
2,243
21.2%
9,239
21.8%
2,008
19.4%
2,133
20.8%
2,164
21.0%
2,234
21.8%
8,539
20.7%
2,220
21.8%
2,232
21.9%
2,254
22.0%
2,315
22.8%
9,021
22.1%
2,286
22.7%
2,305
22.8%
2,270
22.3%
2,294
22.7%
9,154
22.6%
Frontier
FTR Margin
753
48.2%
737
47.8%
733
48.4%
655
45.0%
2,878
47.4%
679
46.6%
639
44.6%
574
40.9%
640
46.0%
2,532
44.5%
644
47.0%
643
47.0%
632
47.5%
629
47.5%
2,548
47.2%
629
47.7%
630
48.0%
624
48.5%
621
48.5%
2,503
48.2%
Windstream
Win Margin
Total
Change y/y
470
46.9%
8,858
453
45.7%
8,588
441
45.0%
8,431
467
47.4%
8,349
1,830
46.3%
34,225
469
48.2%
7,964
-10.1%
459
47.9%
8,239
-4.1%
462
47.8%
8,157
-3.3%
474
49.0%
8,100
-3.0%
1,863
48.2%
32,460
-5.2%
469
48.7%
8,100
1.7%
459
48.4%
8,133
-1.3%
462
48.3%
8,179
0.3%
474
49.5%
8,227
1.6%
1,865
48.7%
32,639
0.6%
464
48.5%
8,221
1.5%
454
48.2%
8,239
1.3%
459
48.3%
8,236
0.7%
471
49.5%
8,245
0.2%
1,847
48.6%
32,941
0.9%
72
Philip Cusick, CFA

(1-212) 622-1444

13 January 2011
Capital spending ready to ease in wireline. The major part of U-verse and FiOS
build phases is expected to finish in 2011. We expect capex to remain under control
for the rest of wireline space as well, given that Qwest is more than two-thirds
complete with its fiber deployment, CenturyLink is maintaining its cautious stance
on IPTV, and Windstream will be deploying success-based capex to enhance its
broadband availability but has no plans to push video content. Frontier plans to ramp
capex over the next few quarters to increase broadband availability as quickly as
possible, but eventually expects capex levels around 10% of revenues. Net-net, we
look for capex to decline 8% in 2011 and 4% in 2012.
We expect Verizon wireline

capex to decline 12% in 2011
Table 29: Capex Trends Across Wireline Carriers

AT&T Inc.
% of rev
Verizon
% of rev
Frontier PF
% of rev
Windstream
% of rev
Total
Change y/y
1Q09
2,479
15%
2,003
19%
190
12%
101
10%
4,773
2Q09
2,706
17%
2,338
22%
200
13%
103
10%
5,347
3Q09
2,536
16%
2,273
21%
191
13%
94
10%
5,094
4Q09
3,336
21%
2,278
22%
231
16%
114
12%
5,959
2009
11,057
17%
8,892
21%
812
13%
412
10%
21,173
1Q10
2,122
14%
1,566
15%
166
11%
67
7%
3,921
-18%
2Q10E
2,535
16%
1,781
17%
195
14%
104
11%
4,615
-14%
2Q10E
2,796
18%
1,751
17%
175
12%
113
12%
4,835
-5%
3Q10E
3,275
22%
1,844
18%
290
21%
120
12%
5,529
-7%
2010E
10,728
18%
6,942
17%
825
15%
404
10%
18,900
-11%
1Q11
2,388
16%
1,527
15%
202
15%
103
11%
4,221
8%
2Q11E
2,389
16%
1,529
15%
201
15%
102
11%
4,221
-9%
3Q11E
2,388
16%
1,537
15%
196
15%
102
11%
4,223
-13%
4Q11E
2,959
20%
1,523
15%
197
15%
102
11%
4,782
-14%
2011E
10,124
17%
6,116
15%
796
15%
410
11%
17,447
-8%
1Q12
2,352
16%
1,510
15%
176
13%
102
11%
4,140
-2%
2Q12E
2,357
16%
1,515
15%
175
13%
101
11%
4,148
-2%
3Q12E
2,359
16%
1,524
15%
171
13%
101
11%
4,155
-2%
4Q12E
2,342
16%
1,510
15%
171
13%
102
11%
4,125
-14%
2012E
9,410
16%
6,059
15%
692
13%
407
11%
16,567
-5%
73
Philip Cusick, CFA

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74

13 January 2011

13 January 2011
Tower Industry
Tower Industry
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13 January 2011
Philip Cusick, CFA

(1-212) 622-1444

13 January 2011
Tower Key Investment Points

Sprints Network Vision plan could drive upside to 2011-12 activity
While the iDEN shutdown will eventually reduce tower demand, in the near term
Sprint will need to augment all of its 48,000 remaining cell sites to enable the
800 MHz frequency band for its CDMA network. We expect Sprint to start
augmenting its cell sites in 2011 and finish in 2013, and model a tower lease expense
increase of 6.5% in revenue in 2011 and 2.2% in 2012. We expect Sprint to begin
taking down iDEN cell sites in 2014 with the full impact in 2016 when net dilution is
16% to our base case with CDMA augmentations adding 10 percentage points and
iDEN dilution of 26 percentage points. We believe the industry could lose about 3%
or more in site revenue from Sprint Nextel once its network is fully optimized.
Strong growth continues from increased density of 3G network and 4G builds
We forecast strong wireless capacity demand growth driven by subscriber adoption
of smartphones and data devices like tablets and wireless broadband. 4G network
builds have begun in earnest and amendment activity should drive tower revenue
growth through 2013. Verizon has driven most amendment activity so far but we
expect Sprint and AT&T amendments to accelerate in 2011. Clearwire has stalled
lately but could reaccelerate its WiMAX build with additional funding. We dont
expect much from Lightsquared, but if it finds partners and funding this could be a
significant driver in 2012.
International expansion driven by higher potential returns
Some tower companies have looked to international markets for growth as the
domestic market has matured. With fewer opportunities to build towers in the US
and recent domestic deals commanding multiples as high as ~20x tower cash flow,
tower companies are looking to international markets for higher rates of return.
Although we consider these investments higher-risk than domestic towers, a diverse
portfolio of international markets can spread risk and allow investors to focus more
on IRRs as much as 7-9% higher than those for domestic towers.
REIT conversion should lead to continued low effective tax rates
Tower companies have historically used the fast depreciation of tower assets to lower
effective tax rates. As operating losses run out for American Tower in the next two
years, we expect AMT to convert to REIT status to continue its low effective tax
rates. Interestingly, REIT companies tend to trade at higher multiples than tower
companies, despite tower companies better growth and customer base. The
J.P. Morgan REIT coverage universe is trading at 20.8x on a price-to-2011E AFFO
basis versus about 20.0x for the tower companies on a price-to-2011E RFCF basis
(net of straight-line impacts). American Tower has the biggest potential downside
risk if it does not convert to a REIT due to its potential tax liabilities. We value AMT
at $60 per share assuming REIT conversion versus $45 without conversion.
Improved debt structures after 2010 refinancing actions
During the financial crisis, the tower companies were faced with not being able to
raise debt at all and only later at unattractive rates with near-term maturities
weighing on the companies. The highly leveraged, high-multiple tower stocks fell
51-72% vs. the S&P 500 down 38%. While the tower companies remain leveraged at
4-7x, all the companies have taken advantage of a friendly debt financing
environment and have raised a total of $6.3 billion of fixed-rate debt with an average
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Philip Cusick, CFA

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13 January 2011
rate of 4.9% since the start of 2010. In addition, maturities were extended and the
first tranches are not due until 2015 and some do not mature until 2020. Each
company has laddered out debt schedules so an overbearing amount of principal does
not come due in one year.
Tower Stock Recommendations

American Tower Initiating with Overweight rating and $60 YE11 price target
American Tower, with its scale, conservative financial position, and focus on
profitability, has been the most stable tower company and offers an attractive
risk/reward at this level, in our view. International opportunities could drive higher
returns in comparison to those in domestic markets and the company has diversified
into eight countries already, with no country but the US accounting for more than
10% of revenue. The firms relatively low leverage at 4x EBITDA provides us with
additional comfort and gives the company the ability to consider a larger tower deal
or buy back stock. Finally, we see REIT conversion as the most likely case for
American Tower and include it in our target valuation of $60 per share; however, if
this does not occur, our estimated YE11 valuation for the company would be only
$45, implying 11% downside from the current level.
Crown Castle International Initiating with Overweight rating $55 YE11 target
Crown Castle has substantial scale and an attractive tower portfolio in the top 100
markets. We are confident Crown Castle will be able to turn the positive business
trends into solid revenue, EBITDA, and cash flow growth and view shares of the
company as attractive at current levels. In addition, leverage at Crown Castle is
relatively modest at about 5x, which provides us with additional comfort and gives
the company the ability to execute a larger tower deal or buy back stock. Finally, we
see REIT conversion as the most likely case for Crown Castle given NOLs are
forecast to run out in 2016 and include it in our target valuation of $55 per share. We
see little downside risk to our valuation if a conversion is delayed due to minimal net
impact of tax changes.
SBA Communications Initiating with Overweight rating and $53 YE11 target
SBA has been a superior operating and financial performer; as a result, we believe
SBA warrants a premium valuation. SBA has decided to not sign a master lease
agreement (MLA) with AT&T, and so should report faster growth in 2H11 and 2012
than its peers as AT&T signs LTE amendments. SBA has started to expand
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Tower Investment Risks

iDEN shutdown could be a 3%-plus headwind for the tower industry
We expect Sprint Nextel to shut down its 20,000 iDEN cell sites in the 2012-2016
time frame with the bulk coming in 2013-2015. We model iDEN site shutdowns
dragging our base-case revenue scenario of 68,000 sites by 4% in 2012, and we
expect an incremental ~600 bps in dilution annually until 2015. Peak dilution is
expected in 2016 at 26%, a substantial negative impact if CDMA augmentations do
not partially offset the revenue loss. We believe the tower industry could lose about
3% or more of gross industry revenue once Sprint Nextels network is fully
optimized.
Carrier consolidation likely would reduce growth
While we do not expect near-term consolidation for major national wireless carriers,
we would view another major merger as a long-term negative for tower companies.
Consolidation of a regional carrier could be a small headwind for tower companies,
but a large national consolidation likely would have a significant negative impact.
The last substantial merger that led to cell site and tower consolidations was AT&T
Wireless and Cingular, which shaved off about a percentage point in growth for the
tower companies for about five years.
Debt refinancing could be at risk if credit markets close or tighten
The tower companies have substantial leverage that ranges from 4-7 times with debt
maturities in the 2014-2020 time frame. The companies need to be able to refinance
their debt as it matures. If the credit markets were closed or refinanced debt bore
substantially higher interest rates, the tower companies would be negatively affected.
International expansion could create uncertainty
The major independent tower operators either own towers already or could consider
acquiring towers in international markets. We believe that site management and
ownership in foreign markets offer an opportunity for growth but could also bring
incremental risks not experienced in the United States. The tower ownership model
in the US is clear in terms of the structure of leases, pricing, operating and capital
costs, property ownership rights, and zoning issues. This model has not been as well
defined in other developing countries. Building up a bigger presence in any emerging
market, in which the wireless industry is still developing and country-specific risks
are very different from those in the United States, could negatively impact a
companys risk profile and multiple.
Wireless technology innovation could lead to less reliance on towers
Technological advances in wireless equipment could reduce the number of sites
required or the amount of space needed on a tower. The unlimited carriers have used
Distributed Antennae Systems (DAS) to build out parts of some markets, instead of
traditional tower and rooftop builds. Being able to share one antenna for multiple
wireless technologies is another potential risk for the tower companies. Other
innovations in technology and equipment could lead to negative impacts for the
tower companies.
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High multiple valuations could come under pressure in a volatile environment

The tower companies trade at high forward EV/EBITDA and EV/revenue multiples
of about 14-17x and 9-11x, respectively, substantially higher than those of the
S&P 500. Disruptions in the financial markets or negative earnings results could
dramatically reduce the multiples investors are willing to pay for tower company
stocks. Any operational missteps could also lead to a higher risk profile for the tower
companies, especially given their reputation for stability.
Tower Industry Overview

The wireless transmission tower companies continue to benefit from solid
momentum due to positive wireless industry trends. Data growth is driving tower
revenue with more robust 3G network builds and new 4G builds. Carriers continue to
expand wireless coverage and improve network quality to reduce churn. We expect
the continued adoption of smartphones and expansion of network capacity to support
data usage to drive the need for more towers and equipment on existing towers.
AT&T and Verizon are leading the way with robust 3G and 4G activity and other
carriers are a distant third, but could provide incremental upside. Until AT&T or
Verizon slow down their leasing activity, the tower companies will continue to face a
positive operating environment, in our view.
Carriers Continue to Spend on Wireless Networks

Growing data use and new
technologies keep tower traffic
high
The wireless industry remains extremely competitive and key differentiators include
network quality, capacity, and speed. The rapid adoption of smartphones has
burdened the data capacity of wireless networks, which were originally optimized for
voice services. Carriers are racing to upgrade their wireless networks to be able to
handle the data demand generated by smartphone usage. Furthermore, new 4G
networks are being built with the main purpose of being able to handle faster data
speeds and higher capacity.
Table 30: US Carrier 4G Deployment Status
Company
AT&T
Verizon Wireless
T-Mobile USA
Sprint
Clearwire
Echostar
MetroPCS
Leap Wireless
Cox Wireless
US Cellular
Cellular South
Legacy network
WCDMA/HSPA
CDMA
WCDMA/HSPA
NA
CDMA
WiMax
NA
CDMA
CDMA
CDMA
CDMA
CDMA
80
4G Status
75M pops LTE EOY 2011, Complete 2013
38 live markets
HSPA+ for now
NA
WiMax with CLWR
120 M pops today
NA
LTE deployed today
2011 LTE trials
NA
2011 LTE trials
4Q11 LTE target
4G spectrum plan
Refarm 2G/3G spectrum
20 MHz AWS
Clearwire, refarm 2G/3G spectrum
~150 MHz
~10 MHz of PCS or AWS
Refarm PCS/AWS
Philip Cusick, CFA

(1-212) 622-1444

13 January 2011
Table 31: Capex by Carrier

In millions
Verizon Wireless
AT&T Mobility
Sprint Nextel
T-Mobile
US Cellular
nTelos
MetroPCS
Leap Wireless
Total
National carrier total
2008
6,510
5,869
2,259
3,603
586
88
1,201
796
20,911
18,241
2009
7,152
5,907
1,161
3,662
547
45
832
807
20,112
17,882
2010E
8,405
8,521
1,471
2,741
589
45
810
418
23,001
21,138
2011E
8,842
8,740
2,350
2,850
620
46
698
450
24,596
22,782
2012E
9,228
8,745
2,850
2,850
620
50
676
555
25,573
23,673
Amendment Activity Should Dominate Again in 2011

Carriers that want to change out the equipment on their tower lease may have to pay
an amendment fee to the tower company that is tacked on to the monthly lease
payment and is usually subject to the same annual escalators as the lease. As Verizon
and AT&T overlay their networks with LTE, they often need larger or heavier
antennas as well as more ground space for the extra base station. These typically cost
$300-500 per tower per month to add to the lease. We expect Sprint to start
amendment activity in 2011 as well and need larger antennas as well as add a
Remote Radio Head (RRH) to the antenna array which adds weight and cost to the
lease.
2010 closed strong; 2011 outlook driven by VZ, with T pulled forward
Site rental revenue grew an estimated 10% for the tower industry in 2010 and we
forecast 8% growth in 2011. For 2010, this broke down to 2% escalator growth (net
of 1% churn), 4% tower portfolio growth, 3% amendment-related growth, and 1%
from Clearwire, for 10% growth. For 2011, we forecast a slower growth rate for
tower builds and lower amendment benefit due to the pull-forward of AT&T into
2010. Verizon should continue a high level of amendment activity in 2011 due to the
continued buildout its LTE network. We model 2% escalator growth (net of 1%
churn), 3% tower portfolio growth, 2% amendment growth, and 1% from Clearwire,
for 8% net growth. Upside could come from significant activity from T-Mobile USA,
Sprint amendments, LightSquared expansion, or additional coverage builds by Leap
Wireless or MetroPCS.
Master lease agreement amendment for AT&T pulled revenue into 2010
A major carrier (we believe AT&T) signed new Master Lease Agreements (MLAs)
with American Tower and Crown Castle in 3Q10 to accelerate its LTE overlay.
While the individual agreements vary somewhat, the major provisions seem likely to
have a similar impact on each companys revenue.
Use fee tacked on to escalator for roughly six years. The MLA is structured to
add an additional use fee of ~3% to the regular ~3.5% lease escalator for six years
which allows the carrier to add whatever is necessary to its existing towers and RAD
centers during that period, after which the escalator drops back to the standard
~3.5%. Thus, rather than renegotiating the lease for a specific equipment package on
a site-by-site basis, the carrier can change out equipment much faster with a similar
overall cost during the period in which the use fee is accruing.
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On at least one of the MLAs the carrier can only do this work for free on its towers
during the six years in which the use fee is accruing. If it doesnt update the towers
during that six years and wants to at a later date, that would require an additional
amendment process and most likely payment.
We do not think that any
significant upfront cash came
with the new MLAs
Straight-line accounting will drag 2011+ revenue for AMT, CCI. Because of
straight-line accounting rules, AMT and CCI calculate the total incremental revenue
created by the MLA over the lease period and recognize it on a straight-line basis
through the contract. Thus, American Tower guided to $21 million in additional
revenue in 4Q10 due to accounting on the new MLA, but we believe this will not
have any cash impact on its business near term. Assuming the 3% additional use fee
applies for six years of a ten-year average lease life results in incremental revenue of
12.6%. Now that the revenue has been booked upfront for all AT&T amendments,
however, the new MLAs will negatively impact GAAP revenue growth for CCI and
AMT from 2H11.
We expect SBA to come out inline or ahead after not signing

the MLA
SBA prefers pay-as-you-go approach. SBA Communications has chosen to not

sign a similar MLA as have CCI and AMT, and noted that it believes it could see a
better outcome by completing one-by-one augmentations in a short amount of time.
Our analysis estimates that a site-by-site augmentation that hit 100% of sites over
five years could mean 16.8% more revenue for SBA from that carrier, better than the
12.6% return of the new MLAs for CCI and AMT. However, a ten-year lease-up
scenario would lower the return to 10.6%, about 200bps below those estimated for
the new MLAs. We estimate the breakeven scenario of the new MLAs versus a siteby-site lease up is about 7-8 years.
Some may ask if AMT and CCI could potentially attract more business from the
carrier because of the new MLAs. While AT&T may be able to hit the CCI or AMT
sites earlier in its 4G overlay because of pricing and the MLAs, we expect that over
time AT&T will need to upgrade nearly 100% of its towers for 4G, whether they
belong to SBA, AMT, or CCI. Since that 4G upgrade probably hits 90%+ in the next
3-5 years, we cant fault SBA for holding back.
Table 32: Comparison of New MLA for AMT and CCI vs. Base Case
Base tower rent ($2000 month)
Escalator
Use fee
Base case (3.5% escalator)
Base case (3.5% escalator and 3% use fee for 6 years)
$24,000
3.50%
3.00%
0
1
$24,000 $24,840
$24,000 $25,560
2
$25,709
$27,221
3
$26,609
$28,991
4
$27,541
$30,875
5
$28,504
$32,882
6
$29,502
$35,019
7
$30,535
$36,245
8
$31,603
$37,514
9
$32,710
$38,827
Total
$281,553
$317,134
Annual
$28,155
$31,713
Monthly
$2,346
$2,643
CDMA Augmentations Reduce iDEN Pain

The market so far appears to
have ignored the potential
positive from Sprints network
upgrade for towers
Sprint Nextel currently has the largest tower lease count of any American carrier
68,000 sites even though it has only about 50% of the customers of Verizon
(43,000 sites). This excess tower count is due to the still-unconsolidated combination
of Nextels iDEN network, which was built very densely in the early 2000s to add
capacity, and Sprints CDMA network in the 1900 MHz band which required more
sites for coverage than a cellular (800 MHZ) network.
Sprint recently announced its Network Vision blueprint a full modernization of its
network that will entail upgrading site and core network hardware. The plan includes
putting CDMA service on Nextels 800 MHz spectrum for higher quality and
coverage, deploying next-generation PTT service on CDMA, and starting to shut
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13 January 2011
down cell sites on its iDEN network in 2013. The company has a goal to eliminate
roughly 20,000 of its 68,000 sites late in that transition, and we believe the majority
of sites would roll off in the 2013-2015 period. The iDEN network could go
completely dark in 2015-2016, 3-4 years after Sprint starts the migration process.
Table 33: Sprint Nextel Exposure by Tower Company as % of Total Revenue
American Tower
Crown Castle
SBA Communications
Sprint Nextel Exposure

18%
22%
22%
iDEN Exposure
Less than 3%
Less than 3%
Less than 3%
Sprints Network Vision plan could drive 6.5% upside to 2011 Sprint lease
spend
The near-term impact of Sprints Network Vision plan could actually drive upside to
tower company results. Sprint will need to augment all of its 48,000 remaining cell
sites to handle the 800 MHz frequency band for its CDMA network. We expect
Sprint to start augmenting these cell sites in 2011 and finish the majority in 2013,
and begin taking down iDEN cell sites in 2012 with final shutdowns in 2016. While
the net negative impact will be greater from shutting down 20,000 iDEN sites,
CDMA augmentations should come first and soften the effects of iDEN cell site
decommissions.
iDEN shutdown is four-plus
years away
iDEN shutdown could cut Sprint tower spending by 26%...

In our iDEN shutdown scenario, we model Sprint Nextel shutting down 20,000
iDEN cell sites from 2012 to 2016 with the bulk coming in 2013-2015. In 2012, we
model iDEN site shutdowns dragging our base-case revenue scenario of 68,000 sites
by 4% and we expect an additional ~600 bps in dilution a year until 2015. Peak
dilution is expected in 2016 at 26%, a substantial negative impact if CDMA
augmentations do not lessen the blow.
but net impact closer to 16%, translating to ~3% of tower industry revenue
Sprint Nextels CDMA augmentations could add about 10% in revenue to our basecase scenario starting in 2013, which partially offsets the losses from the iDEN site
shutdowns. On a net basis, we see low-single-digit revenue gains in 2011 and 2012
with only 1% dilution in 2013. The full impact of the iDEN shutdown is likely to be
felt in 2016 with net dilution of 16%, with iDEN dilution of 26 percentage points and
CDMA augmentations adding 10 percentage points. Overall these estimates translate
into the industry possibly losing a net 3% or more in site revenue once Sprints
network is fully optimized.
In the table below we outline the impact of the CDMA augmentation spending as
well as the iDEN rolloff. We start with a base case of 68,000 sites with a 3%
escalator as if nothing would change from here. We then add the CDMA
augmentation assuming 16,000 sites amended each year from 2011 to 2013 at
$300 per amendment, which also grows at the standard escalator. Finally, we start
removing iDEN sites in 2012 with 2,000 sites, but ramp that to 5,000 sites each year
from 2013 to 2015.
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(1-212) 622-1444

13 January 2011
Table 34: Net Effect of Sprints Network Vision Is ~16% Reduction in Site Leasing Expenses
A - Base Case
Sprint Nextel sites
Annual lease cost
Revenue from sites
Escalator
2010
68,000
$24,000
1,632,000,000
3%
2011
2012
2013
1,680,960,000
1,731,388,800
1,783,330,464
2011
16,000
$3,600
57,600,000
2012
2013
59,328,000
16,000
$3,600
57,600,000
2010
B - CDMA Augs.
Annual amendment fee
48,000
57,600,000
2010
116,928,000
2011
2012
(3,000)
$24,000
(72,000,000)
C - iDEN shutdown
$24,000
(20,000)
B&C net impact

A
Resulting annual Sprint revs
% change y/ y
1,632,000,000
1,632,000,000
2014
2015
2016
2017
2018
2019
2020
2021
1,891,935,289
1,948,693,348
2,007,154,148
2,067,368,773
2,129,389,836
2,193,271,531
2,259,069,677
2014
2015
2016
2017
2018
2019
2020
2021
61,107,840
62,941,075
64,829,307
66,774,187
68,777,412
70,840,735
72,965,957
75,154,935
77,409,583
59,328,000
16,000
$3,600
57,600,000
178,035,840
61,107,840
62,941,075
64,829,307
66,774,187
68,777,412
70,840,735
72,965,957
75,154,935
59,328,000
183,376,915
61,107,840
188,878,223
62,941,075
194,544,569
64,829,307
200,380,906
66,774,187
206,392,334
68,777,412
212,584,104
70,840,735
218,961,627
72,965,957
225,530,476
2013
2014
2015
2016
2017
2018
2019
2020
2021
(74,160,000)
(5,000)
$24,000
(120,000,000)
(76,384,800)
(78,676,344)
(81,036,634)
(83,467,733)
(85,971,765)
(88,550,918)
(91,207,446)
(93,943,669)
(123,600,000)
(5,000)
$24,000
(120,000,000)
(127,308,000)
(131,127,240)
(135,061,057)
(139,112,889)
(143,286,276)
(147,584,864)
(152,012,410)
(123,600,000)
(5,000)
$24,000
(120,000,000)
(127,308,000)
(131,127,240)
(135,061,057)
(139,112,889)
(143,286,276)
(147,584,864)
(123,600,000)
(2,000)
$24,000
(48,000,000)
(127,308,000)
(131,127,240)
(135,061,057)
(139,112,889)
(143,286,276)
1,836,830,378
(49,440,000)
(50,923,200)
(52,450,896)
(54,024,423)
(55,645,156)
(72,000,000)
(194,160,000)
(319,984,800)
(449,584,344)
(511,071,874)
(526,404,031)
(542,196,151)
(558,462,036)
(575,215,897)
(592,472,374)
57,600,000
1,680,960,000
1,738,560,000
6.5%
44,928,000
1,731,388,800
1,776,316,800
2.2%
(16,124,160)
1,783,330,464
1,767,206,304
-0.5%
(136,607,885)
1,836,830,378
1,700,222,493
-3.8%
(260,706,121)
1,891,935,289
1,631,229,168
-4.1%
(316,527,305)
1,948,693,348
1,632,166,043
0.1%
(326,023,124)
2,007,154,148
1,681,131,024
3.0%
(335,803,818)
2,067,368,773
1,731,564,955
3.0%
(345,877,932)
2,129,389,836
1,783,511,904
3.0%
(356,254,270)
2,193,271,531
1,837,017,261
3.0%
(366,941,898)
2,259,069,677
1,892,127,779
3.0%
3.4%
0.0%
3.4%
6.8%
-4.2%
2.6%
10.0%
-10.9%
-0.9%
10.0%
-17.4%
-7.4%
10.0%
-23.8%
-13.8%
10.0%
-26.2%
-16.2%
10.0%
-26.2%
-16.2%
10.0%
-26.2%
-16.2%
10.0%
-26.2%
-16.2%
10.0%
-26.2%
-16.2%
10.0%
-26.2%
-16.2%
Accretion
Dilution
Net
Most of Sprints iDEN customers

will naturally migrate off in the
next 2-4 years
Who are Sprints 11 million remaining iDEN customers?

As of 3Q10, Sprint Nextel reported almost 11 million customers that rely on the
iDEN network with 6.1 million postpaid iDEN customers, 440,000 Power Source
customers (CDMA/iDEN), and 4.5 million prepaid subscribers. The most important
segment of the iDEN customer base is the postpaid customers, comprising roughly
50% enterprise and SMB subscribers and 50% government and public safety-related
customers. The company lost 383,000 postpaid iDEN customers in 3Q10 and we
expect its base to continue to dwindle, but Sprint needs to minimize this loss both
before and during the network transition.
We estimate that by the end of 2014 the company will be down to ~2 million
postpaid iDEN (and no Powersource) customers, which it can then start migrating
over to the next-generation Q-CHAT service on CDMA. Prepaid iDEN subscribers
as well should be quickly migrated over from iDEN due to normally high churn and
handset replacement rates.
Table 35: iDEN Subscriber Model

Beginning iDEN subscribers
+ iDEN gross adds
- Disconnects
Ending iDEN subscribers
Implied net additional iDEN subcribers
iDEN churn
PowerSource subs
PowerSource net adds
iDEN legacy
iDEN legacy net adds
% change y/y
2002
8,666
4,346
(2,400)
0
10,612
1,946
2.1%
2003
10,612
4,507
(2,237)
0
12,882
2,270
1.6%
84
2004
12,882
4,790
(2,625)
0
15,047
2,165
1.6%
2005
15,047
5,015
(3,304)
0
16,758
1,711
1.7%
0
0
16,758
16,758
2006
16,758
3,428
(2,647)
2,092
17,600
781
1.2%
100
100
17,500
742
2007
17,600
(125)
(4,404)
0
13,246
(4,529)
2.4%
1,400
1,300
11,846
(5,654)
-32.3%
2008
13,246
(8)
(3,629)
0
9,609
(3,637)
2.7%
1,400
0
8,209
(3,637)
-30.7%
2,009
9,609
141
(2,495)
0
7,255
(2,354)
2.5%
725
(675)
6,530
(1,679)
-20.5%
2010E
7,255
196
(1,765)
0
5,642
(1,569)
2.3%
339
(386)
5,303
(1,227)
-18.8%
2011E
5,642
543
(1,368)
0
4,817
(825)
2.2%
0
(339)
4,817
(486)
-9.2%
2012E
4,817
426
(1,126)
0
4,117
(700)
2.1%
0
0
4,117
(700)
-14.5%
2013E
4,117
362
(962)
0
3,517
(600)
2.1%
0
0
3,517
(600)
-14.6%
2014E
3,517
(803)
(697)
0
2,017
(1,500)
2.1%
0
0
2,017
(1,500)
-42.6%
2015E
2,017
(1,068)
(332)
0
617
(1,400)
2.1%
0
0
617
(1,400)
-69.4%
2016E
617
(581)
(36)
0
0
(617)
2.1%
0
0
0
(617)
-100.0%
Philip Cusick, CFA

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13 January 2011
What is required before Sprint can shut down the iDEN network?
Sprint is currently nearing completion of the spectrum swap with public safety in the
800 MHz band, after which it will have 14 MHz of contiguous spectrum in that band.
While the pre-swap spectrum was good only for the iDEN technology, this new
spectrum is excellent, paired spectrum that can be used for standard wireless
technologies like CDMA or LTE. The company has already reserved some of this
spectrum for CDMA service, and is testing the CDMA radios in the field today.
Table 36: Spectrum Swap Changes for Legacy Nextel Position
Pre-swap Spectrum Holdings
Final Settlement
700 MHz
4 Contiguous
0
800 MHz
18.5: 10 Contiguous
14 Contiguous
900 MHz
4 Non-contiguous
4 Non-contiguous
1.9 GHz
0
10 Contiguous
The laws of physics dictate that, all else being equal, a signal on a lower frequency
will travel further and penetrate buildings better than a higher-frequency signal.
Sprints service in marginal areas is disadvantaged by its use of 1900 MHz spectrum
vs. the 850 MHz that AT&T and Verizon use, and the company spends ~$1 billion
annually on roaming with Verizon to augment its coverage. While unlimited capital
spending could fix this problem, that is unfeasible, and we believe that only by
deploying CDMA in the 800 MHz band can Sprint improve its coverage offering, as
well as penetrate deeper into buildings to improve in-home quality. That this
possibility is finally close to coming true, five years after the merger of Sprint and
Nextel, could be the help that Sprint needs to move into the ranks of high-quality
carriers, in our view.
Figure 42: Illustration of Signal Propagation at 800 MHz and 1900 MHz
This CDMA at 800 MHz rollout will be part of Sprints Network Vision plan that
will start in 2011 and end in the 2014 time frame, but likely covering the majority of
the country by 2013. At the same time, Sprint will begin to address its handset lineup
and start offering CDMA handsets with wider 800 MHz capability. Sprints devices
can look at the 800 MHz cellular frequencies today where Verizon runs its CDMA
network, but new devices will need to be retuned to access the Nextel spectrum as
well. We expect Sprint to start selling these devices into its base in the second half of
2011.
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CDMA at 800 MHz should boost

Sprints network quality
dramatically
Note that CDMA handsets with wider 800 MHz capability offered in 2011 and 2012
are likely to have better CDMA coverage, but arent likely to offer the nextgeneration Q-CHAT technology until the CDMA at 800 MHz overlay is mostly
complete. Once that is mostly done in 2014 we estimate Sprint Nextel could still
have 2-3 million postpaid iDEN customers and begin an aggressive handset
migration effort to get them off the network by the end of 2015. As a result, we do
not see a full iDEN network shutdown until at least 2016, but the company should be
able to remove capacity sites starting in 2012.
Finally, Sprint Nextel will have to decide whether to let leases expire or pay the
termination fee. Our checks in the tower industry have not indicated any holding off
of re-signing iDEN tower leases, and we estimate the average iDEN tower still has 57 years remaining on its lease. Alternatively, Sprint could choose to pay to terminate
the leases, which is typically the NPV of the remaining lease payments.
International Expansion Offers Growth, with Some More

Risk
Some tower companies are looking to international markets for growth as the US
market continues to mature. With fewer opportunities to build towers in the US and
recent small deals commanding multiples of roughly 20x tower cash flow, American
Tower and SBA Communications are turning to international markets for higher
rates of return. Crown Castle has a sizable Australian portfolio, but has not
completed any significant international tower transactions recently.
Build or buy? Here or there? A tower company has four options to expand its
tower portfolio, build in the US or internationally or buy in the US or internationally.
Below we have provided a framework as an example of how a tower company could
analyze a build-versus-buy decision in the US and internationally. Given our
assumptions, a tower company would see the highest returns from either building or
buying internationally with domestic returns being 700-900bps lower.
Table 37: Potential Return Scenarios for Domestic and International Towers
Acquisition multiple
Starting tenant leases
Annual Lease-Up
Tenant target
Ending Annualized Revenue
Operating Cost
Tower Cash Flow
Tower Cash Flow Margin
Avg. New Build or Acquisition Cost per Tower
Monthly Rent per Tenant
Escalator
Terminal Multiple
Implied Leveraged IRR
US Tower
NA
1.0
0.2
2.5
$45,000
11,000
34,000
76%
$287,500
$1,500
3.0%
15.0x
21%
Acquired US Tower
20x
2.5
0.1
3.5
$62,607
11,000
51,607
82%
$680,000
$1,500
3.0%
15.0x
14%
International Tower
NA
1.0
0.2
2.5
$33,750
5,500
28,250
84%
$150,000
$1,125
3.0%
12.5x
28%
Acquired International Tower

15x
1.5
0.2
3.0
$40,658
5,500
35,158
86%
$221,250
$1,125
3.0%
12.5x
23%
Note: We assume 50% leverage at a 6% interest rate.

US build-versus-buy assumptions
New tower build opportunities remain limited, but we estimate an attractive
IRR. We assume a new tower costs $250,000-325,000 to develop and the tower
starts with a single anchor tenant. We model an average lease-up rate of 0.2 per year
at a final 2.5 tenancy at $1,500 in monthly rent per tenant. Our tower operating cost
estimate of $11,000 a year ($917/month) remains relatively flat regardless of
tenancy. The ending new tower cash flow margin would then be 76%. Given our
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assumptions, we model an IRR of 21% for a new tower build with 50% financing at
a 6% interest rate.
Recent domestic deals have
been fairly small, but also
expensive given high demand,
limited supply
Domestic deals have occurred at ~20x TCF. The market for smaller private tower
acquisitions has returned to robust levels and asking prices are high. We estimate a
20x purchase price of tower cash flow or $680,000 for a mature tower with a tenancy
of 2.5, and assume that increases to 3.5 over ten years. With the same general
assumptions of a new tower build, we estimate an IRR of 14%.
The higher price and lower lease-up potential of an acquired tower make the build
decision a better one for a tower company, given our assumptions. Unfortunately, the
opportunity for attractive US tower builds continues to shrink, leaving acquisitions as
the alternative domestically.
Incremental tenants increase the return on a tower. We assume one (1.0) incremental
tenant per tower in our base case. For a 2.0 incremental tenant lease-up scenario, our
IRRs go to 27% and 15% from 21% and 14%, respectively, in our build vs. acquire
scenarios.
Table 38: Potential Return Scenarios for Building or Acquiring Domestic Tower
Annual Lease-Up
Tenant target
Operating Cost
Tower Cash Flow
Escalator
Terminal Multiple
Implied Leveraged IRR (1)
US Tower
NA
1.0
0.2
2.5
$45,000
11,000
34,000
76%
$287,500
$1,500
3.0%
15.0x
21%
Base Case
Acquired US Tower
20x
2.5
0.1
3.5
$62,607
11,000
51,607
82%
$680,000
$1,500
3.0%
15.0x
14%
Higher Lease-Up
US Tower
Acquired US Tower
NA
20x
1.0
2.5
0.33
0.2
3.5
4.5
$62,550
$80,214
11,000
11,000
51,550
69,214
82%
86%
$287,500
$680,000
$1,500
$1,500
3.0%
3.0%
15.0x
15.0x
27%
15%

International offers higher returns to offset higher country risks

The public tower companies expect higher potential returns from international tower
builds or purchases, despite higher risk. New builds are cheaper due to lower soft and
construction costs. In addition, many markets are still developing and need new
tower builds. Collocation in some markets is starting to be adopted by more carriers
and some carriers are selling tower portfolios to focus on core strategies, like most
US carriers. Our analysis sees a substantially higher return potential (difference of
700-900 bps) for international sites than domestic ones.
Opportunities for new tower builds are substantially greater than in the US. We
assume a significantly lower tower development cost, mostly due to lower soft costs
(site acquisition, zoning, etc.) and construction costs. We model an international
tower could only cost $130,000-190,000, or about 50% less than a US tower. In
addition, we assume a lower rent rate of about $1,125 per tenant, 75% of the US
rental rate, and a lower operating cost structure of $5,500 annually ($458/month),
about 50% less than in the US. At an ending tenancy of 2.5, we calculate a tower
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cash flow margin of 84% vs. 76% for a US tower build. Given our assumptions, we
model an IRR of 28% for a new tower build with 50% financing at a 6% interest rate.
The public tower companies see ample opportunities to partner or purchase carrier
tower portfolios internationally, especially in Central and South America, Africa, and
parts of Asia. In some international wireless markets, collocation is still a new
market dynamic and is starting to gain acceptance, providing an opportunity for an
independent third party, such as the US public tower companies, to run a tower
portfolio. For an international acquired tower, we estimate a 15x purchase price of
tower cash flow or $221,250 for a tower. In our international scenario, we assume a
tower is purchased with 1.5 tenants and we model an average lease-up rate of 0.2 to
3.0 ending tenants in ten years. With the same general assumptions of a new tower
build, we estimate an IRR of 23%.
Incremental tenants increase the return on a tower. We assume one (1.0)
incremental tenant per tower in our base case. For a 2.0 incremental tenant lease-up
scenario, our IRRs go to 35% and 26% from 28% and 23%, respectively, in our build
vs. acquire scenarios.
Table 39: Potential Return Scenarios for Building or Acquiring International Tower
Annual Lease-Up
Tenant target
Operating Cost
Tower Cash Flow
Escalator
Terminal Multiple
Implied Leveraged IRR
Base Case
International Tower
Acquired International
Tower
NA
15x
1.0
1.5
0.2
0.2
2.5
3.0
$33,750
$40,658
5,500
5,500
28,250
35,158
84%
86%
$150,000
$221,250
$1,125
$1,125
3.0%
3.0%
12.5x
12.5x
28%
23%
Higher Lease-Up
International Tower
Acquired International
Tower
NA
15x
1.0
1.5
0.33
0.3
3.5
4.0
$46,913
$53,863
5,500
5,500
41,413
48,363
88%
90%
$150,000
$221,250
$1,125
$1,125
3.0%
3.0%
12.5x
12.5x
35%
26%

We use some broad assumptions as a base example, knowing actual scenarios in each
country around the world could be dramatically different from our assumptions. In
addition, we are not providing a framework that includes demographics, political
environment, regulations, wireless market structure, and other country-specific issues
that could impact wireless tower returns.
American Tower has most aggressive international expansion plan
American Tower now has 28% of its wireless towers in Mexico, Brazil, Chile, Peru,
Colombia, and India. In addition, the company has agreed to purchase towers from
Cell C in South Africa and announced a joint venture with MTN Group in Ghana
called TowerCo Ghana (51% ownership) to purchase MGN Ghanas existing towers.
Both deals are expected to close in early 2011. All in all, total international tower
count for AMT could near 50% of total towers by the end of 2011. In 2009,
international site leasing revenue accounted for about 15% of revenue, but we expect
it to be closer to 20% in 2011.
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13 January 2011
Table 40: American Tower Global Tower Portfolio and Credit Metrics by Country
US
International
Mexico
Brazil
Chile
Peru
Colombia
India
South Africa
Ghana
Towers
20,333
12,347
2,619
1,659
113
131
225
7,600
1,400*
1,876*
S&P Debt Rating

AAA
5-Yr CDS Spread

41
BBB
BBBA+
BBBBBBBBBBBB+
B
113
110
85
113
112
NA
125
NA
* Denotes pending acquisition.

Note: American Tower has 199 broadcast towers in Mexico and 2 DAS networks.
Source: Company reports, Bloomberg, and J.P. Morgan estimates.
Crown Castles international assets

Crown Castle has 1,595 towers, or about 7% of its tower portfolio, in Australia. The
sites generate about 5% of Crown Castles site revenue. The company has not started
further international expansion at this time. The majority of Crown Castles
Australian towers were purchased in 2000 and 2001 from Optus and Vodafone,
respectively. On average, the revenue per tower is $57,162 vs. $74,337 in the US and
the gross margin is 68.2% vs. 73.7%.
Table 41: Crown Castle Global Tower Portfolio and Credit Metrics by Country
US
Australia
Towers
22,265
1,595
S&P Debt Rating

AAA
AAA
5-Yr CDS Spread

41
49
SBA so far has been cautious

about international expansion
SBAs international assets

SBA Communications has international assets mainly in Panama and Canada. The
company is also starting very small operations in El Salvador and Costa Rica. SBAs
international strategy is to focus on more mature and developed markets in which
development and zoning restrictions enable a stable, predictable return. The company
acquired Jade Tower in May 2009, giving SBA a foothold in Canada with 52 owned
towers and 360 managed communications sites. In Panama, SBA has a backlog of
290 potential tower acquisitions and it plans on building 100 towers in Costa Rica
with others in Canada and Central America.
Table 42: SBA Global Tower Portfolio and Credit Metrics by Country
US
International
Canada
Costa Rica
El Salvador
Panama
Towers
8,538
167
52
4
10
101
S&P Debt Rating

AAA
5-Yr CDS Spread

41
AAA
BB
BB
BBB-
NA
NA
NA
99
89
Philip Cusick, CFA

(1-212) 622-1444

13 January 2011
REIT Conversion Impact

The tower operators, as has long been discussed, are prime candidates for converting
their organizational structures to real estate investments trusts (REITs). We anticipate
that some tower companies will opt for REIT structures over the next few years at
varying times, once available net operating losses are fully utilized and they are in a
position to pay corporate cash taxes. Though they are enablers of wireless and
broadcast services, the tower companies are essentially owners of real estate assets,
including the physical towers and increasingly the land beneath the towers. A REIT
structure likely would shield the companies from paying most if not all corporate
taxes.
AMT should be the first tower

company to run through its NOLs
SBA likely will not work through

its NOLs for ten-plus years
AMT is expected to convert in 2012; valuation starting to reflect change

We expect American Tower to be the first tower company to opt to convert to a Real
Estate Investment Trust (REIT) structure to lower taxes as its NOL balance runs out,
which we expect to happen in early 2012, and the company has said it is exploring
the option. The company could hold a vote at its annual shareholder meeting in May
2011 for actual conversion in 2012 or beyond. The J.P. Morgan REIT coverage
universe is trading at 20.8x on a price-to-2011E AFFO basis versus about 20.0x for
the tower companies on a price-to-2011E RFCF basis. American Tower has the
biggest potential downside risk if it does not convert to a REIT due to its potential
tax liabilities. We value AMT at $60 per share with REIT conversion versus $45
without conversion.
CCI could convert in 2017; SBAC probably avoids REIT status
Crown Castle is unlikely to run out of its NOLs until after 2016 and we think Crown
Castle could then convert into a REIT. Our valuation for the company is $55 with
REIT conversion versus $54 without conversion due to the minimal net impact of
out-year tax changes. Finally, we do not forecast SBA running out of its NOL
position before 2020 and expect no change in status for the foreseeable future.
Below we address concerns over REIT requirements, potential challenges to
pursuing investments, potential changes to investor bases, valuation, and possible
delays to conversion.
REIT requirements
In order for a corporation to qualify for REIT classification, the company must meet
a variety of criteria. Below we highlight some key requirements:
Taxes. Perhaps most attractive about the REIT structure, no less than 90% of
taxable income must be distributed as dividends to equity holders. Any remaining
taxable income would face standard corporate taxes. With the remaining 10%, a
company would have to consider the tax consequences in any decision to invest
(at a taxed level) rather than return cash to shareholders untaxed.
Ownership. The shareholder base of a REIT must consist of at least 100 different
equity holders. In addition, 50% of the equity cannot be held among five owners
or less. American Towers top five owners control about 23% of shares
outstanding.
Real estate tests. At least 75% of gross income (defined as revenue and passive
income) as well as company assets must be attributed to property or interest on
loans for property. Income from other businesses, unrelated to real estate, cannot
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Philip Cusick, CFA

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13 January 2011
represent more than 5% of total revenue, though passive income such as

dividends and interest on bank deposits can contribute up to 20%. However,
REITs can hold ownership in taxable subsidiaries, which are excluded from
standard REIT rules, though the value of such subsidiaries cannot represent more
than 25% of the REITs total asset value. In other words, the majority of the
companys assets must fall under a REIT classification, while a minority could be
held within a taxable subsidiary.
Treatment of ancillary businesses. We believe the tower operators would likely
elect to place a portion of their assets in a taxable subsidiary, within the 25%
threshold. For example, the tower operators are involved in ancillary businesses
that do not derive income directly from their real estate assets. The network
development services, network services, and site development businesses for
American Tower, Crown Castle, and SBA, respectively, primarily consist of
consulting and construction services, though this varies among each operator.
Each of these businesses represents 3-14% of consolidated revenue for the
operators.
Table 43: Services Business Contribution
$ in millions
AMT
CCI
SBAC
2010 Revenue
Site Leasing/Rental Revenue
Site Development/Services Revenue
Total 2010 Revenue
$1,924.7
51.7
1,976.4
$1,697.9
173.2
1,871.1
$535.4
88.8
624.3
Revenue Breakdown
Site Leasing/Rental Revenue
Site Development/Services Revenue
Total
97%
3%
100%
91%
9%
100%
86%
14%
100%
In addition, a portion of the companies international operations may be candidates

for placement in a taxable subsidiary. We estimate American Towers international
operations represented approximately 15% of site leasing revenue in 2010, though
this is expected to grow in the future, while 5% of Crown Castles site leasing
revenue was generated outside the United States.
Table 44: International Business Contribution
$ in millions
2010 Site Leasing Revenue

US
International
Total 2010 Site Leasing Revenue
Breakdown
US
International
Total
AMT
CCI
SBAC
$1,636.0
288.7
1,924.7
$1,607.4
90.5
1,697.9
$530.1
5.4
535.4
85%
15%
100%
95%
5%
100%
99%
1%
100%
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13 January 2011
Payout ratio limits capital for growth, but high cash flow more than enough
The primary reason to opt for a REIT structure is the tax efficiency it provides.
REITs are required to distribute 90% of taxable income as dividends to shareholders,
limiting taxes payable. However, this could also potentially impact cash available to
pursue growth opportunities or reinvest in the business, which we consider to be the
primary drawback of converting to a REIT. For the towers specifically, we do not
believe this is a significant concern. Current taxable income is limited by heavy
levels of depreciation, driven by the size of the companies tower real estate holdings
which are depreciated over 15-20 years However, on a cash flow basis, we believe
there is ample cushion to support current and, if necessary, elevated capital spending
levels.
Figure 43: Capital Spending as % of Depreciation Tower Capex Continues to Run Below Depreciation
100%
80%
60%
40%
20%
0%
2007
2008
American Tow er
2009
Crow n Castle
2010E
SBA Communications
We estimate that American Tower, Crown Castle, and SBA Communications might
only allocate 20-50% of cash flow after dividends towards capital expenditures in
2010. After including acquisitions, both Crown Castle and SBA have substantial cash
flow, though American Towers investments exceed estimated cash flow. However,
both Crown and SBA participated in fewer M&A deals through 3Q10, relative to
typical levels, as they addressed leverage challenges. American Tower has kept
leverage at the low end of target levels, limiting excess capital. It is unclear to us how
leverage would be handled as a REIT. It is possible that rating agencies could be
more stringent compared to today, given that the companies would be forced to pay
dividends, driving less of a cash cushion.
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13 January 2011
Table 45: Investment Activity Compared to Available Cash Flow

$ in millions
AMT
$587.2
528.5
90%
CCI
$90.3
81.2
90%
SBAC
($127.7)
0.0
0%
58.7
22.3
38%
9.0
3.4
38%
0.0
0.0
0%
Investable Net Income

Depreciation and amortization
Stock-based compensation
Cash Flow after Dividends
Estimated 2010 Maintenance Capital Expenditures
Investable Cash Flow
Estimated 2010 Discretionary Capital Expenditures
Excess Cash Flow
Estimated 2010 Acquisitions
Cash Flow after Acquisitions
36.4
463.2
56.1
555.8
(42.9)
512.9
(271.9)
241.0
(584.3)
(343.2)
5.6
550.1
36.7
592.4
(21.7)
570.7
(197.9)
372.8
(127.0)
518.2
0.0
276.2
10.3
286.5
(10.0)
276.4
(62.1)
214.3
(281.5)
200.8
Capital Spend % of Cash Flow after Dividends

Estimated 2010 Maintenance Capital Expenditures
Estimated 2010 Capital Expenditures
Estimated 2010 Acquisitions
Total % of Cash Flow after Dividends
7.7%
48.9%
105.1%
161.8%
3.7%
33.4%
21.4%
58.5%
3.5%
21.7%
98.3%
123.4%
Adjusted 2010 Taxable Income

Minimum Dividend Distribution
% of Taxable Income
Remaining Taxable Income
Corporate Taxes
Tax Rate
Note: We do not expect SBAC to generate positive normalized taxable income in 2010.
Investor base implications

Should the tower equities convert to REIT structures, there could be a shift in the
investor base. The potential investor base could actually expand, as the companies
join REIT indices. In fact, American Tower and Crown Castle could be two of the
larger REITs in the market, with market capitalizations of approximately
$19.5 billion and $12.2 billion, respectively, representing approximately 10% of the
MSCI US REIT Index on a pro forma basis.
However, the stocks in general could also experience some volatility as non-REIT
funds may be forced to sell holdings. Unfortunately, it is tough to gauge the potential
risk or upside, as disclosures of top holders do not specify whether ownership is held
by a REIT fund or telecom fund within a larger family of funds.
There are already 15 REITS in
the S&P 500; AMT is bigger than
14 of them
For American Tower specifically, its membership in the S&P 500 is unlikely to be
affected, in our view. Given it already has membership and it would not be
undergoing any significant restructuring or change in its business model, we
anticipate it likely would be kept in the index. However, future admission into the
S&P 500 as REITs could be more difficult for Crown Castle or SBA, as additional
REIT representation could be offered to larger REIT operators instead.
93
Philip Cusick, CFA

(1-212) 622-1444

13 January 2011
Table 46: REITs in the S&P 500 Index

REIT
Apartment Investment & Management Co
AvalonBay Communities Inc
Boston Properties Inc
Equity Residential
HCP Inc
Health Care REIT Inc
Host Hotels & Resorts Inc
Kimco Realty Corp
Plum Creek Timber Co Inc
ProLogis
Public Storage
Simon Property Group Inc
Ventas Inc
Vornado Realty Trust
Weyerhaeuser Co
Weighting in S&P 500

2.7%
8.5%
10.6%
13.1%
11.7%
6.0%
10.4%
6.4%
5.3%
7.2%
12.4%
25.6%
7.3%
11.9%
8.9%
Other scenarios
A variety of factors could slow the process of the tower companies converting to
REITS. The tower operators could pursue additional acquisitions, which could
increase net operating losses, delaying the need for conversion. In addition, if
leverage were to increase, we could see a larger drag from interest expense,
increasing losses. Finally, should leasing revenue growth slow more than expected, it
would take longer for the companies to consume their NOLs.
Valuation as a REIT
We believe many investors already compare the tower equities to REITS, using
recurring cash flow as a benchmark for adjusted funds from operations (AFFO). We
calculate recurring cash flow as Adjusted EBITDA less the total of net interest
expense, cash taxes, preferred dividends, and maintenance capital expenditures, as a
standardized measure of cash flow across the tower operators.
REIT-specific cash flow measures, such as funds from operations (FFO) and adjusted
funds from operations (AFFO), are similar. FFO is calculated by taking net income
and adding depreciation and amortization, but deducting preferred dividends. AFFO
adjusts FFO by subtracting straight-line rent and maintenance capital expenditures.
We cannot include the impact of straight-line rent in our recurring cash flow
calculation as all of the tower operators do not provide the data.
When comparing tower valuations to REIT valuations, the tower equities continue to
appear very attractive. REITS are trading at 20.8x on a price-to- 2011E AFFO basis
using J.P. Morgans REIT team estimates, while the tower stocks are trading at 20.0x
recurring cash flow (net of straight-line impacts). However, we expect tower
recurring cash flow to grow 8.9% while AFFO growth for the REITS is expected to
be 8.4%.
94
Philip Cusick, CFA

(1-212) 622-1444

13 January 2011
Table 47: Tower Valuation Summary

$ in millions
AMT
$50.50
387
$19,540
4,184
23,724
CCI
$42.60
286
$12,192
5,531
17,723
SBAC
$39.66
114
$4,540
2,853
7,393
$36,272
12,568
48,840
13.8%
16.2%
6.8%
15.0%
8.3%
7.7%
13.7%
11.3%
9.9%
14.3%
12.4%
7.5%
EV / Adj. EBITDA - 2010E

17.6x
15.2x
14.2x
15.2x
14.0x
13.0x
19.2x
17.3x
15.7x
16.9x
15.0x
14.0x
Recurring Cash Flow - 2010E

946
1,026
1,164
602
638
761
228
269
309
1,775
1,933
2,235
Recurring Cash Flow Y/Y Growth - 2010E

12.3%
8.4%
13.5%
17.9%
6.1%
19.3%
12.2%
18.0%
15.0%
14.1%
8.9%
15.6%
20.7x
19.0x
16.8x
20.3x
19.1x
16.0x
19.9x
16.9x
14.7x
23.1x
20.0x
16.7x
Recent Price
Shares outstanding
Market Cap- Equity
Year-end Net Debt (Cash)
Enterprise Value
Adj. EBITDA Y/Y Growth - 2010E
Price / Recurring Cash Flow - 2010E

Group

Note: Pricing as of 1/7/2011. Share count and net debt 2011E.
Table 48: REIT Industry Summary Valuation

Property Type
Health Care
Industrial
Lodging
Manufactured Housing
Multifamily
Office
Regional Mall
Self Storage
Strip Center
Triple Net Lease
REIT Industry Weighted
Average
EV/
EBITDA
16.5x
17.1x
23.2x
15.4x
20.3x
15.4x
16.1x
17.6x
15.8x
12.9x
16.9x
P/FFO
2011E
2012E
14.6x
13.4x
20.9x
18.9x
19.0x
14.4x
13.5x
12.6x
20.3x
18.5x
14.6x
13.7x
15.0x
14.3x
18.0x
16.8x
15.9x
15.1x
12.7x
12.6x
P/AFFO
2011E
2012E
15.9x
15.1x
30.9x
26.8x
24.1x
19.6x
15.3x
14.2x
24.6x
21.9x
21.8x
20.5x
18.4x
17.5x
19.7x
18.3x
20.1x
19.0x
13.2x
12.9x
2010E Growth
FFO
AFFO
3.9%
4.2%
11.8% (35.6%)
6.7%
13.6%
0.0%
0.3%
(0.9%)
(3.2%)
6.7%
0.6%
(5.3%)
(9.6%)
(0.0%)
(2.0%)
(1.8%) (18.2%)
0.4%
(5.9%)
2011E Growth
FFO
AFFO
11.9%
12.4%
10.9%
22.7%
24.1%
29.8%
9.6%
10.1%
8.9%
9.6%
3.3%
2.4%
9.6%
7.2%
7.9%
9.7%
4.3%
0.0%
5.3%
6.1%
2012E Growth
FFO
AFFO
8.7%
5.7%
10.0%
15.4%
34.2%
41.7%
6.6%
7.7%
10.2%
12.4%
7.0%
6.6%
4.8%
4.7%
7.3%
7.7%
4.6%
5.7%
0.6%
2.5%
16.3x
20.8x
1.8%
8.3%
8.5%
15.0x
19.2x
(4.3%)
8.4%
9.2%
Source: FactSet, SNL Financial, and J.P. Morgan REIT team estimates. As of 01/10/2010.
High Leverage, but Manageable Debt Structures

During the financial crisis, the tower companies were faced with not being able to
raise debt at almost any rate as near-term maturities weighed on the companies. The
highly leveraged, high-multiple tower stocks fell 51-72% vs. the S&P 500 down
38%.
95
Philip Cusick, CFA

(1-212) 622-1444

13 January 2011
Figure 44: Stock Prices for the Public Tower Companies from 2007 to 2010
60%
SBAC, 48%
40%
AMT, 35%
CCI, 36%
20%
0%
S&P 500, -11%
-20%
-40%
-60%
AMT
96
CCI
SBAC
S&P 500
11/3/2010
9/3/2010
7/3/2010
5/3/2010
3/3/2010
1/3/2010
11/3/2009
9/3/2009
7/3/2009
5/3/2009
3/3/2009
1/3/2009
11/3/2008
9/3/2008
7/3/2008
5/3/2008
3/3/2008
1/3/2008
11/3/2007
9/3/2007
7/3/2007
5/3/2007
3/3/2007
1/3/2007
-80%
Philip Cusick, CFA

(1-212) 622-1444

13 January 2011
Figure 45: Tower Company Trailing-Twelve-Month Leverage from 2007 to 2010

12.0x
10.0x
8.0x
6.0x
4.0x
2.0x
0.0x
1Q07
2Q07
3Q07
4Q07
1Q08
2Q08
3Q08
American Tow er
4Q08
1Q09
Crow n Castle
2Q09
3Q09
4Q09
1Q10
2Q10
3Q10
4Q10E
SBA Communications
While the tower companies remain leveraged at 4-7x, all the companies have taken
advantage of a friendly debt financing environment and have raised a total of
$6.3 billion of fixed-rate debt with an average rate of 4.9% since the start of 2010. In
addition, maturities were extended and the first tranches are not due until 2014 and
some do not mature until 2020. Each company has laddered out debt schedules so an
overbearing amount of principal does not come due in one year.
Figure 46: Tower Company Debt Maturity Schedule
$ millions
4000
3000
2000
1000
0
2010
2011
2012
2013
2014
AMT
2015
CCI
2016
2017
2018
2019
2020
SBAC
97
Philip Cusick, CFA

(1-212) 622-1444

13 January 2011
Of the three public tower companies, American Tower or Crown Castle could
increase leverage some, in our view, to either purchase towers more aggressively or
buy back more stock. SBA is at about 7x levered already and we do not think
management wants to increased leverage to 8-10x unless a transformative tower deal
was available. In our view, American Tower has the ability to lever up by 1 or 2
multiple points to 5-6x net debt/EBITDA from 4x today, which translates into $23 billion or more of additional debt capacity with no acquired EBITDA. At current
prices, this could allow AMT to repurchase approximately 7-14% of its outstanding
stock. We think Crown Castle could add about one additional turn of leverage to 6x
from about 5x today or about $1.2 billion more debt capacity. At that level, the
company could repurchase about 10% of its outstanding stock at current prices.
Wireless Tower Overview

We estimate that there are between 100,000 and 120,000 leaseable towers in the US
today. For purposes of our tower industry model, we use about 112,000 wireless
towers with about 46% being owned by the three public tower companies. AT&T,
T-Mobile, Verizon, and US Cellular have carrier tower portfolios adding up to about
23% of the total. Two large private tower companies are Global Tower and TowerCo
with 4,400 and 3,200 towers, respectively. The remaining towers are generally
owned by mom-and-pop owners. We forecast that the independent tower operators
could build 2,500-3,000 leaseable towers for 3G/4G purposes over the next few
years.
The wireless industry has added 73,593 sites over the past five years. This includes
sites on rooftops, collocations on existing towers, anchor tenants on newly built
towers, and collocations on newly built towers. We have used the Cellular
Telecommunications Industry Associations (CTIAs) published figures (the results
of CTIAs semiannual survey) to track cell sites, which at the end of June 2010
totaled 251,618 cell sites in the United States. These are total cell sites and we
assume 25% are on rooftops and other alternative structures to towers, leaving about
75% on towers. We estimate the average tenant per tower in the US at ~1.7.
98
Philip Cusick, CFA

(1-212) 622-1444

13 January 2011
Table 49: Tower Industry Model

Towers
1Q09
Crown Castle
22,481
American Tower
14,339
AT&T Towers
9,676
SBA Communications
7,805
T-Mobile Towers
5,820
Verizon Wireless Towers
5,570
US Cellular Towers
4,210
Global Tower Partners
3,650
TowerCo
3,120
Mobilite LLC
2,761
Other
22,500
Total
101,932
y/y % change
3.8%
q/q % change
0.5%
Market share
Crown Castle
American Tower
AT&T Towers
SBA Communications
T-Mobile Towers
US Cellular Towers
TowerCo
Mobilite LLC
Total
1Q09
22.1%
14.1%
9.5%
7.7%
5.7%
5.5%
4.1%
3.6%
3.1%
2.7%
100.0%
2Q09
22,425
14,339
9,726
7,924
5,855
5,575
4,225
3,750
3,140
2,766
22,800
102,525
3.2%
0.6%
3Q09
22,385
16,039
9,776
8,004
5,890
5,580
4,240
3,850
3,160
2,771
23,100
104,795
4.3%
2.2%
4Q09
22,365
18,039
9,826
8,241
5,925
5,585
4,255
3,950
3,180
2,776
23,400
107,542
6.1%
2.6%
2009
22,365
18,039
9,826
8,241
5,925
5,585
4,255
3,950
3,180
2,776
23,400
107,542
6.1%
6.1%
1Q10
22,338
20,039
9,876
8,296
5,955
5,590
4,270
4,050
3,190
2,781
23,700
110,085
8.0%
2.4%
2Q10
22,321
20,162
9,926
8,502
5,985
5,595
4,285
4,150
3,202
2,786
24,000
110,914
8.2%
0.8%
3Q10
22,265
20,333
9,976
8,618
6,000
5,600
4,300
4,400
3,217
2,791
24,150
111,650
6.5%
0.7%
4Q10E
22,280
20,383
10,026
8,742
6,015
5,605
4,315
4,450
3,232
2,796
24,300
112,144
4.3%
0.4%
2010E
22,280
20,383
10,026
8,742
6,015
5,605
4,315
4,450
3,232
2,796
24,300
112,144
4.3%
4.3%
2Q09
21.9%
14.0%
9.5%
7.7%
5.7%
5.4%
4.1%
3.7%
3.1%
2.7%
100.0%
3Q09
21.4%
15.3%
9.3%
7.6%
5.6%
5.3%
4.0%
3.7%
3.0%
2.6%
100.0%
4Q09
20.8%
16.8%
9.1%
7.7%
5.5%
5.2%
4.0%
3.7%
3.0%
2.6%
100.0%
2009
20.8%
16.8%
9.1%
7.7%
5.5%
5.2%
4.0%
3.7%
3.0%
2.6%
100.0%
1Q10
20.3%
18.2%
9.0%
7.5%
5.4%
5.1%
3.9%
3.7%
2.9%
2.5%
100.0%
2Q10
20.1%
18.2%
8.9%
7.7%
5.4%
5.0%
3.9%
3.7%
2.9%
2.5%
100.0%
3Q10
19.9%
18.2%
8.9%
7.7%
5.4%
5.0%
3.9%
3.9%
2.9%
2.5%
100.0%
4Q10E
19.9%
18.2%
8.9%
7.8%
5.4%
5.0%
3.8%
4.0%
2.9%
2.5%
100.0%
2010E
19.9%
18.2%
8.9%
7.8%
5.4%
5.0%
3.8%
4.0%
2.9%
2.5%
100.0%
99
Philip Cusick, CFA

(1-212) 622-1444

13 January 2011
Table 50: Cell Sites by Tower Company

CTIA
244,021 245,912
Sites on towers
183,016 184,434
Tenants
1.80
1.80
246,497
184,872
1.76
247,081
185,311
1.72
247,081
185,311
1.72
249,350
187,012
1.70
251,618
188,714
1.70
245,818
184,364
1.65
248,018
186,014
1.66
248,018
186,014
1.66
Cell sites by tower compan

1Q09
Crown Castle
59,799
American Tower
35,977
AT&T Towers
9,676
SBA Communications
19,289
T-Mobile Towers
7,566
5,570
US Cellular Towers
4,210
4,745
TowerCo
4,368
Mobilite LLC
2,761
Other
29,055
Total
183,016
2Q09
59,987
35,145
9,726
19,750
7,612
5,575
4,225
4,875
4,553
2,766
30,221
184,434
3Q09
60,216
38,486
9,776
20,010
7,657
5,580
4,240
5,005
4,740
2,771
26,392
184,872
4Q09
60,497
42,789
9,826
20,602
7,703
5,585
4,255
5,135
4,929
2,776
21,215
185,311
2009
60,497
42,789
9,826
20,602
7,703
5,585
4,255
5,135
4,929
2,776
21,215
185,311
1Q10
60,759
48,094
9,876
20,741
7,742
5,590
4,270
5,265
5,104
2,781
16,791
187,012
2Q10
61,048
48,389
9,926
21,255
7,781
5,595
4,285
5,395
5,283
2,786
16,971
188,714
3Q10
61,229
46,766
9,976
21,545
7,800
5,600
4,300
5,720
5,469
2,791
13,168
184,364
4Q10E
61,604
46,881
10,026
21,854
7,820
5,605
4,315
5,785
5,818
2,796
13,510
186,014
2010E
61,604
46,881
10,026
21,854
7,820
5,605
4,315
5,785
5,818
2,796
13,510
186,014
2Q09
32.5%
19.1%
5.3%
10.7%
4.1%
3.0%
2.3%
2.6%
2.5%
1.5%
16.4%
100.0%
3Q09
32.6%
20.8%
5.3%
10.8%
4.1%
3.0%
2.3%
2.7%
2.6%
1.5%
14.3%
100.0%
4Q09
32.6%
23.1%
5.3%
11.1%
4.2%
3.0%
2.3%
2.8%
2.7%
1.5%
11.4%
100.0%
2009
32.6%
23.1%
5.3%
11.1%
4.2%
3.0%
2.3%
2.8%
2.7%
1.5%
11.4%
100.0%
1Q10
32.5%
25.7%
5.3%
11.1%
4.1%
3.0%
2.3%
2.8%
2.7%
1.5%
9.0%
100.0%
2Q10
32.3%
25.6%
5.3%
11.3%
4.1%
3.0%
2.3%
2.9%
2.8%
1.5%
9.0%
100.0%
3Q10
33.2%
25.4%
5.4%
11.7%
4.2%
3.0%
2.3%
3.1%
3.0%
1.5%
7.1%
100.0%
4Q10E
33.1%
25.2%
5.4%
11.7%
4.2%
3.0%
2.3%
3.1%
3.1%
1.5%
7.3%
100.0%
2010E
33.1%
25.2%
5.4%
11.7%
4.2%
3.0%
2.3%
3.1%
3.1%
1.5%
7.3%
100.0%
Market share
Crown Castle
American Tower
AT&T Towers
SBA Communications
T-Mobile Towers
US Cellular Towers
TowerCo
Mobilite LLC
Other
Total
1Q09
32.7%
19.7%
5.3%
10.5%
4.1%
3.0%
2.3%
2.6%
2.4%
1.5%
15.9%
100.0%
Positive characteristics of investing in tower companies

Tower ownership offers investors a scalable model with long-term contracted
revenues with built-in escalators from a diverse, creditworthy customer base and
effectively fixed direct operating costs and overhead costs. Tower companies provide
a mission-critical service to the operation of wireless networks, so churn rates are
very low and generally not even reported. We estimate industry churn rates at about
1% per annum (not to be confused with monthly churn rates) which are typically
driven today by broadcast and paging, not wireless, companies exiting. As a result,
we expect these companies to experience solid top-line growth and expanding cash
flow margins over the next several years. Almost all capital expenditures for tower
assets are discretionary and immediately provide incremental operating cash flow.
Towers ride the wireless growth
wave, without the competition
100
The tower sector is often compared to other industries that generally are better
understood by investors, including broadcasting, outdoor advertising, and real estate.
We maintain that the fundamental characteristics of the tower industry are superior to
those of all of the above-mentioned sectors. Below we compare these characteristics
with those of the wireless telephony business.
Philip Cusick, CFA

(1-212) 622-1444

13 January 2011
Table 51: Wireless Towers vs. Telephony

Characteristic
Towers
Wireless Telephony
Pricing
Increasing pricing for new tenants. Declining per-minute pricing model.

Existing tenant leases have built-in
price escalators.
Technology
Technology-agnostic. The greater

number of technologies used, the
better.
Technology choice creates risk of

obsolescence and requires
upgrades.
Churn
Less than 1% per annum.
20%-25% per annum.
Surety of Revenues
Based on long-term contracts

(average five years with multiple
automatic renewals).
Revenues generally based on

usage.
Potential EBITDA margins
70%-80%.
30%-40%.
Customer Base
National and regional wireless

providers. Service is critical to
wireless carriers network
operation.
Businesses with pricing power.
Access to capital/critical mass.
Multiple competitors licensed in

each market.
Barriers to Entry
Zoning/regulation.
Individuals.
With few exceptions, the stock prices of public independent tower operators have
tracked each other fairly closely. In our opinion, part of the reason for this is that the
market is not distinguishing the different approaches and growth strategies that each
company has employed to take advantage of the tower ownership model. Key items
that differentiate these businesses include critical mass to achieve economies of
scale, liquidity position and access to capital, percentage of revenues and cash flow
from site leasing, tower build component of tower addition strategy, and sources of
acquired towers. We believe that all three public tower companies will benefit from
estimated solid demand for tower space for at least the next few years.
History of Towers
The original tower owners
The original owners of towers were mostly wireless network operators and
broadcasters. These companies viewed towers as a capital cost and an integral,
strategic part of their networks. Accordingly, carriers and broadcasters generally did
not allow competitors to collocate transmission equipment on their towers. The
mindset was that the carriers and broadcasters would provide their rivals with a cost
advantage by allowing them to avoid the cost of zoning, developing, and constructing
towers. Although collocation was a potential incremental source of revenue, it fell
below most carriers and broadcasters radar screens. With the introduction of several
new wireless competitors to each market throughout the US (mostly PCS licensees),
network operators, broadcasters, and others recognized the monetization opportunity
in their towers. In addition, zoning of new sites became increasingly difficult as
communities fought the proliferation of towers. This served to raise the value of
existing towers with excess capacity by forcing new wireless entrants and existing
carriers expanding their footprints to devise creative ways to add sites for both
network capacity and geographical coverage.
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Enter the independent tower operators

In the mid- and late 1990s, several entrepreneurs recognized the financial opportunity
in owning wireless transmission towers. Although it is a capital-intensive business,
they saw the potential demand for tower space, the potential for high margins, the
recurring revenue model, the pricing power, and the formidable barriers to entry.
These entrepreneurs had varied backgrounds, including wireless, broadcasting, cable,
real estate, and technology. In 1999 and 2000 alone, the five public independent
operators raised, in the aggregate, more than $13 billion in new capital and capital
commitments, by our estimates. These companies have raised capital from just about
every source available, including bank debt, high-yield debt, convertible debt,
preferred securities, private equity, and public equity. Even in difficult markets, they
have demonstrated the ability to secure significant amounts of capital. Each of the
three public companies has approached the tower opportunity in a different way, but
all have adhered to the same general guiding concepts that tower ownership is crucial
and that the best existing sites cannot be replicated.
Carrier deals transform the tower sector
Although conversations between wireless carriers and independent tower operators
about the transfer of tower ownership had been going on for years before, in 1999
and 2000 the carrier tower transactions became a reality. In that period, Bell Atlantic,
BellSouth, SBC, Powertel, Nextel, GTE, AirTouch, Triton PCS, Dobson Cellular,
ALLTEL, and other carriers all announced deals to sell their towers. These deals
transformed the tower industry. Wireless carriers recognized that tower ownership
and management was not a core competency and was, therefore, a good outsourcing
opportunity. The tower monetization relieved the carriers of tower operating costs
and provided capital to invest in their core business adding subscribers and driving
minutes of use through their networks.
Previously, the tower industry had been considered too small-cap for institutional
investors to consider. Suddenly, these companies were raising hundreds of millions
of dollars and garnering multi-billion-dollar valuations in the public market.
Management teams were (and continue to be) generally stretched to focus on
capitalizing on the land grab opportunity for the best towers in the country.
We maintain that many of the towers originally built and operated by wireless
carriers are among the best towers an independent tower operator can own. We
particularly like carrier towers for three main reasons.
1. These towers tend to be well-clustered around major markets and are often in
locations where the construction of a new tower would be virtually impossible.
2. These towers tend to be overbuilt. The capacity of towers built for cellular
networks was usually in excess of what was needed. As a result, these towers
generally have excess capacity and the ability to add multiple incremental
broadband tenants with no or minimal incremental capital expenditure.
3. Carrier towers tend to be underutilized because, under the carriers watch,
collocation attempts by competing wireless carriers often were ignored, if not
rebuffed. There is usually pent-up demand for space on carrier towers when they
are transferred to an independent tower operator, so, when a major carriers
portfolio of towers is sold to an independent tower operator, the tower company
often experiences strong initial lease-up rates.
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Tower companies turn to integration and execution

In 1999 and 2000, most of the public independent tower companies made companyaltering acquisitions and built towers in order to gain critical mass, including several
carrier tower deals and intra-industry combinations. The goal of the major tower
companies from that point was to integrate those acquisitions and demonstrate the
ability to execute on the lease-up potential of existing towers (2000 was supposed to
be the year of execution and integration, but the large carrier tower deals kept
coming). This integration process included hiring senior managers to handle the
added complexity of these companies and field workers to perform due diligence,
site management, and site-related services.
From boom to bust (almost)
The independent tower companies stock prices peaked in 2000 and started their
downward march through 2002, losing over 95% of their equity value from peak to
trough. Furthermore, Pinnacle Holdings and SpectraSite filed for bankruptcy. The
performance largely mirrors that of the dot-com, technology, and telecom companies
of the time. The tower companies suffered from slowing business conditions, heavy
debt burdens, and reduced capital spending from wireless carriers trying to remain
free cash flow positive. While operating performance for the tower companies
continued to improve, they were unable to grow fast enough to support untenable
capital structures. In 2003, the long road to recovery started for the tower companies.
The road to recovery
From 2003 to 2007, the tower companies addressed their once-toxic capital structures
and started to deleverage from double-digit net leverage. The companies underwent a
virtuous cycle of growing EBITDA, reducing interest expense and debt levels, and
reached positive free cash flow, which enabled the companies to further improve
their capital structures. As result of both financial recovery and continued operational
improvements, wireless carriers experienced solid growth with follow-on benefits for
the tower companies. By the end of 2007 the stocks of tower companies had come
back to 80-100% of their peak 2000 values with substantially improved balance
sheets, financials, and operational fundamentals.
Back from the brink of the financial crisis, and stronger too
The financial crisis of 2008 closed the credit markets to the tower companies, which
had substantial leverage and looming debt maturities. The fear of debt default
gripped investors and the tower stocks fell 40-75% from peaks to their 2008 troughs
vs. the S&P 500 which declined as much as 50% in the same period. American
Tower preformed the best in part due to its lower leverage. As the government
stepped in and credit markets improved, the tower companies started to recover and
Crown Castle was one of the first companies to raise new debt and re-open the credit
markets in 2009. Promisingly, through the decline the tower companies continued to
see relatively stable business trends, despite some pullback in builds from smaller
carriers.
The stock prices of the tower companies recovered to peak 2008 prices by early 2010
due to excitement about carrier health, LTE amendments at Verizon, and the
potential for new carriers like Clearwire and Lightsquared. The tower companies
have been able to take advantage of favorable credit markets and they refinanced
$6.3 billion of debt in 2010 at an average fixed interest rate of 4.9%. In addition,
maturities were extended and the first tranches are not due until 2015 and some do
not mature until 2020. Each company has laddered out debt schedules so an
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overbearing amount of principal does not come due in one year. Finally, the tower
companies have started to look to international markets for incremental growth
opportunities as the domestic wireless market continues to mature. The tower
companies have been able to weather the financial crisis storm and now have come
out stronger on the other end.
Basic Tower Economics

Towers are a key component of any wireless communications network. Every
terrestrial wireless system consists of a network of cell sites on which antennae and
other electronic equipment are placed. Because these antennae must be elevated in
order for their signal to propagate to provide coverage, the majority of wireless
transmission antennae are located on existing structures such as rooftops. However,
if there is no available structure high enough that an antenna can be attached to it
within a particular cell, a tower must be erected to provide the requisite elevation.
The need for incremental sites to provide both coverage and capacity and the difficult
zoning environments are the two main drivers of demand for collocation and,
therefore, the value of wireless transmission towers. Competition among wireless
service providers appears to have migrated from pricing to the quality of coverage, a
situation that has greatly benefited the independent tower operators. As wireless
telephony subscriber penetration has accelerated, demand for cell sites and, thus,
towers has exploded. Wireless service providers are not only playing catch-up to
provide competitive coverage for todays voice and circuit-switched data offerings,
but are also trying to achieve the necessary cell site density to accommodate
continued subscriber growth and higher data speeds as 3G and 4G networks are
planned and developed. In addition, all cell sites require zoning approval from local
municipalities, and communities throughout the country have been fighting the
proliferation of towers, often delaying or blocking zoning approval.
A wireless carriers top network development priority is to deploy its sites in as
quick and cost-efficient a manner as possible, and the only two ways to provide
coverage are either to get new cell sites zoned or to rent space, or collocate, on
existing sites. Collocation provides faster network development time and significant
capital cost savings and is therefore almost always preferable.
Sources of revenue
A towers primary source of revenue is rental income from the leasing of tower space
to wireless service providers and broadcasters onto which those companies attach
antennae. A tower operators goal, therefore, is to lease up its towers by adding as
many collocation tenants onto each tower as possible to maximize leasing revenue.
The market for lessees is vast because potential tenants include any user of wireless
spectrum, including cellular, PCS, paging, wireless data, radio dispatch, radio and
TV broadcasting, and government and private networks. Lessees pay a fixed monthly
rent regardless of technology, coverage, or minutes of use. Commercial tenant leases
average around five years in duration and usually have multiple automatic renewals
and periodic rate escalations. Rental rates differ from location to location and from
market to market based on demand for the site and the local zoning environment.
The rule of thumb for rental rates for a wireless carrier tenant (cellular, PCS, etc.) is
generally $2,000 per month, although tougher zoning environments and carriers
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urgent need to add sites has boosted the average rent for some towers and markets.
Typical rental rates for the increasingly scarce narrowband tenants (paging) average
around $500 per month, and radio and TV broadcasters rents generally range from
$5,000 to $10,000 per month. Lease rates for new wireless technology providers vary
significantly, but are often priced favorably for the tower owner relative to a
broadband equivalent on a lease rate-to-load ratio. Lease rates usually escalate on an
annual basis at a fixed rate of about 3-5% or at a variable rate based on an index such
as the CPI.
All three of the public independent tower operators also provide wireless network
development services, most of which are associated with the development of new
towers or the modification of existing antenna configurations. These services include
RF engineering, site acquisition, site development, site construction, and line and
antenna installation and modification. These services provide lower gross margins
than the site leasing business, but offer incremental cash flow.
We believe there are significant potential operating synergies from both owning
wireless transmission towers and providing these network development services. For
instance, providing site acquisition services to a wireless carrier can enhance the
companys relationship with the carrier and the companys knowledge of the
carriers network build plan, potentially driving lease-up of the companys owned
towers. Conversely, ownership of a multi-tenant tower on which an incremental
carrier wants to collocate gives the company leverage to provide and charge for line
and antenna installation service.
Network development revenues should continue to grow
Just a couple of years ago, the common view of network development services was
that it was a fee-based, project-type business that would shrink and possibly
disappear over time as the PCS buildout matured and the BTS model became more
prevalent. At any point in time over the past ten years it was assumed that network
development services revenue would diminish substantially in the following three to
five years. Our view is that, although network development revenues are not as
consistent as site leasing revenues, the independent tower operators will continue to
have significant and growing network development revenues. We expect these
revenues to rise as the tower companies expand their tower footprints and further
solidify their relationships with the major wireless carriers. As wireless networks
become denser and more complex, the need for incremental equipment modifications
at the tower will increase. Nonetheless, we believe that network development
services will become a smaller percentage of total revenues, as site leasing revenues
are expected to grow at much higher rates than network development revenues.
Critical mass provides economies of scale
Another fundamental aspect of the tower ownership model is that the direct operating
costs for a tower are low and essentially fixed, regardless of the number of tenants on
the tower. Although tower operating costs vary, they average around $10,000-12,000
per year per site (assuming the tower company leases the land). Substantially all
incremental revenue from the collocation of additional tenants on a tower, therefore,
falls to the tower cash flow line. Key tower operating expenses include the ground
lease, site maintenance, insurance, and utilities, with the cost of the ground lease
usually making up two-thirds or more of the total. Typically, the independent tower
owner does not own the swatch of land on which the tower stands, although all of the
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major independent tower operators are slowly acquiring the land beneath their towers
or extending lease lengths if that makes more sense.
The table below demonstrates the ability to leverage the fixed nature of direct tower
operating expenses and the capacity to accommodate multiple tenants to drive tower
cash flow margins (tower leasing revenues less direct cash tower costs) to as high as
70-85%.
Table 52: Tower Unit Economics
Annual Lease-Up
Tenant target
Operating Cost
Tower Cash Flow
Escalator
Terminal Multiple
Implied Leveraged IRR (1)
Anchor Tenant
Only
NA
1.0
0
1.0
$18,000
11,000
7,000
39%
$287,500
$1,500
3.0%
15.0x
3%
Low
Lease-Up
NA
1.0
0.133
2.0
$35,955
11,000
24,955
69%
$287,500
$1,500
3.0%
15.0x
17%
Mature
Tower
NA
1.0
0.266
3.0
$53,910
11,000
42,910
80%
$287,500
$1,500
3.0%
15.0x
24%

Similar economies also are achievable across a portfolio of towers because the
marginal overhead expenses related to adding a new tower to a portfolio are minimal.
The consolidation of the industry over the past few years has been driven by the goal
of gaining critical mass to attain economies of scale in operating costs and cost of
capital. Overhead expenses of the major tower operators have increased over the past
few years as these companies have invested in core internal systems, personnel, and
regional offices to accommodate their ongoing rapid growth. We expect these
expenses to continue to grow modestly as the tower operators go through this highgrowth phase and as large acquisitions, both domestic and international, are
integrated into existing systems. In addition, we anticipate that incremental overhead
expenses will be required as these companies augment their network services
businesses.
Tower ownership is critical
The model we have described is exclusively for owned towers, not site management.
Independent tower operators often maintain and manage for collocation towers and
other sites they do not own. In these cases, tower operators share revenues with
property owners, but also avoid the operating costs related to site ownership. The
property owners, which are often commercial building owners renting space on the
rooftop, generally take the lions share of the revenue. Although the revenue split is
negotiated for each site, the site manager generally only gets about 15-40% of the
lease revenue. As a result, the operating cash flow margins to the site manager are
generally much lower, and the revenue growth opportunity for managed sites is
limited. Still, the major tower consolidators frequently enter into tower and rooftop
management agreements with tower and real estate owners for two main reasons:
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1. Adding managed towers to a tower portfolio of owned sites in a market can

increase the marketability and, as a consequence, the lease-up potential for the
entire market footprint, including owned sites.
2. Adding managed sites to a tower portfolio can provide incremental cash flow
with limited upfront capital costs for the sites.
Tower development
Building towers generally is the most capital-efficient way to accumulate towers,
allowing independent tower operators to lower blended capital costs per tower
addition. Below is a breakdown of the capital costs to zone, develop, and construct a
typical multi-tenant, self-supporting lattice tower:
Table 53: Tower Development Costs of a Typical Multi-Tenant Tower
Soft Costs (site acquisition, zoning, etc.)
Materials
Construction
Total Development Costs
US
$50,000-70,000
$60,000-80,000
$140,000-175,000
$250,000-325,000
The tower company should have the requisite knowledge of the local wireless market
and existing coverage by local wireless carriers as well as relationships with wireless
carriers to know whether they would consider collocating on a given tower and, if so,
the timing of those collocations. Meticulous due diligence is required to measure the
potential lease-up of any tower. The greatest risk in the tower business is building a
tower and not being able to lease it up. It is those companies with superior market
knowledge and relationships with wireless carriers that will achieve the highest
returns, in our view. The combination of tower companies avoiding towers in
locations they believe to be uneconomical and negligible churn rates leads us to
believe that the likelihood of an overbuild of towers in the US is very low.
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13 January 2011
Large Cap Integrated Telecom Operators
Large Cap Integrated Telecom Operators
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13 January 2011
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AT&T Inc.
Initiate with Overweight Rating and $33 YE11 Price Target
We initiate coverage on AT&T with an Overweight rating and year-end 2011 price
target of $33, implying 14% upside from current levels in addition to an estimated
6.0% dividend yield. In our view, the companys low EPS and free cash flow
multiples and continued improvements in the wireline business as well as wireless
margins offset the risk of a wireless slowdown as AT&T loses exclusivity on the
iPhone in February. In addition to an attractive yield, investors, we believe, could see
more upside in AT&T shares relative to Verizons, which have outperformed in
recent months.
Overweight
AT&T Inc. (T;T US)
Company Data
Price ($)
Date Of Price
52-week Range ($)
Mkt Cap ($ bn)
Fiscal Year End
Shares O/S (mn)
Price Target ($)
Price Target End
Date
28.04
12 Jan 11
30.10 23.78
166.50
Dec
5,938
33.00
31 Dec 11
EPS ($)
Q1 (Mar)
Q2 (Jun)
Q3 (Sep)
Q4 (Dec)
FY
2009A
2010E
2011E
0.53
0.54
0.54
0.51
2.12
0.59A
0.61A
0.55A
0.55A
2.29A
0.62
0.65
0.62
0.61
2.50
Source: Company dat a, Bloomberg, J.P. Morgan estimates. Note: EPS figures based on adjust ed results.
Key Investment Points

Strong cash flow should continue in 2011
AT&T trades at 11.5x our 2011 EPS estimate compared to the S&P 500 and Verizon
multiples of 14.9x and 16.1x, respectively, and 11.8x 2011E free cash flow or a yield
of 8.5%. Our 2011 EPS estimate of $2.50 represents 9.2% growth over 2010E EPS
almost all of it organic and assumes 0.4% consolidated revenue growth and slight
expansion in margins at the wireless and wireline levels.
Wireless opportunity remains despite iPhone challenges
We believe that the major reason for AT&Ts current discount to Verizon is the
companys pending loss of exclusivity for the iconic Apple iPhone. By now though,
in our view, most of the potential price impact is already reflected in AT&T stock
and most investors expect AT&T to lose some amount of postpaid wireless
customers in 2011. Our model assumes that AT&T sees an increase in churn, a drop
in gross add share, and an overall gain of 100K postpaid subs in 2011 vs. an
estimated increase of 2.3 million in 2010. Despite this, we look for wireless revenue
growth of 4% (vs. 9% in 2010E) as postpaid ARPU grows and prepaid subscribers
increase with iPad sales. We note that even with an incremental gain or loss of one
million iPhone customers compared to our assumptions, our revenue forecasts do not
exhibit a large amount of sensitivity. Finally, we assume that wireless margins
increase to 42.6% in 2011 from 41.0% in 2010 due to fewer gross adds and handset
subsidies as well as scaling.
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Video rollout, network data demand help to stabilize consumer and enterprise
wireline revenue from here
Revenue in AT&Ts wireline business declined 6.4% in 2009 but is tracking down
only -3.0% by 3Q10. We expect 2011 revenue to decrease 2.4%, but conservatively
model 30 basis points of margin expansion so EBITDA should fall only -1.6%.
While consumer access lines continue to fall at an 11%+ pace, the primary drivers of
AT&Ts revenue stabilization have been the companys success in consumer
broadband and video (consumer revenue began to grow again in 3Q10) and
stabilization in business. Business revenue losses peaked at 8.4% y/y in 3Q09 and
contracted to 3.9% by 3Q10.
Buyback is 0.8% accretive to 2011E EPS; assume another 0.7% in 2012E,
despite spectrum acquisition
AT&T authorized an $8 billion buyback program in December 2010 and we expect
the company to exercise enough of it to maintain leverage at a level of 1.4x
EBITDA. Even with the $1.9 billion spectrum acquisition that AT&T also
announced in December, we expect the company to repurchase $2.5 billion in stock
in 2011 and $4.0 billion in 2012.
Investment Risks
iPhone exclusivity loss comes at same time that network is getting poor
customer satisfaction scores
AT&T will lose its exclusive relationship with Apple for selling the iPhone in early
February. This iconic device was part of what made AT&T one of the top two
wireless carriers for growth in the last four years, and its loss could allow some
iPhone loyalists to leave AT&T and cause others to not subscribe to its service. In
addition, the loss comes at a time when AT&T is under pressure for its poor network
quality (real or perceived) and customer satisfaction (as measured by Consumer
Reports), so there could be a bigger impact to customer stats than we model.
Enterprise and small business revenue remains heavily exposed to any economic
weakness
AT&T has seen the benefit of the economic stabilization in the last year through
slowing revenue losses in its enterprise and small/medium-sized business divisions.
While we do not model a significant economic recovery, if the economy starts to
fade again or unemployment ramps back up, AT&T could see a re-acceleration in
revenue losses and margin compression.
Additional spectrum acquisition is possible; could slow buyback
AT&T recently acquired spectrum from Qualcomm for $1.9 billion, which we expect
to close in 2011. There are more blocks of similar spectrum held by smaller entities
that AT&T could choose to purchase if it becomes available. In addition, we expect
the FCC to eventually find more spectrum to auction, and that AT&T would likely
participate.
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Valuation and Price Target Methodology

We are establishing a year-end 2011 price target of $33/share for AT&T. We based
our target price primarily on a discounted cash flow analysis that assumes a 7.5%
WACC and a 0.5% perpetual growth rate. We also give AT&T credit for its
approximately 9% stake in America Movil (AMX, rated Overweight by J.P. Morgan
Latin American Telecom analyst Andre Baggio) and 10% stake in Telmex (TMX,
rated Underweight by J.P. Morgan Latin American Telecom analyst Andre Baggio).
AT&T shares also look attractive on an EV/EBITDA basis. Shares currently trade at
5.1x our 2011 estimate, compared to Verizon at 5.9x. We show our full discounted
cash flow analysis following our earnings and cash flow forecast.
Company Description
AT&T is the largest telecommunications company in the US and one of the largest in
the world, offering wireless and wireline voice, data, and video to consumers and
businesses. The company is the result of the combinations in the last ten years of
AT&T, SBC, BellSouth, AT&T Wireless, and Cingular. It supports over 92 million
wireless customers and its wireline network passes over 52 million homes in the US.
Both businesses cater to consumer and enterprise customers. Of approximately
$124 billion in revenue, wireless and wireline each contribute 48%, with the wireless
piece growing faster than wireline business.
Figure 47: AT&T Revenue Breakdown
Mass Markets,
Figure 48: AT&T EBITDA Breakdown
Adv ertising and
Adv ertising,
Publishing, 3%
Publishing, and
Other, 1%
Other, 4%
1%
Business
Wireless
Solutions, 30%
Serv ice, 43%
Wireline, 48%
Consumer,
Wireless
17%
Equipment, 5%
Source: 3Q10 Company reports.
Wireless, 50%
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Wireless Growth Stutter Likely in First Half of 2011

We estimate AT&T added
8.6 million wireless subscribers
in 2010
AT&T Mobility is the second-largest wireless carrier in the US by subscribers and

service revenue, and reported approximately 41% EBITDA margins in the last year.
While the companys growth has been very strong in the last few years, we expect
2011 to come with slower subscriber growth but higher margins than 2010 due to the
loss of iPhone exclusivity.
Figure 49: Wireless Subscriber Breakdown
Connected
Dev ices,
8%
Reseller,
12%
Prepaid,
7%
Postpaid,
73%
Figure 50: AT&T Voice Coverage Map
Source: Company website (used with permission).
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Loss of iPhone exclusivity expected to drive subscriber slowdown

Verizon and Apple recently confirmed that the iPhone will be available to Verizon
customers in early February and no longer exlusive to AT&T. Verizon will begin
selling a CDMA version in early February.
While management has noted that it expects to keep churn low even after the
exclusivity periods end, as 80% of its contracted customers are on family plans or
business discount plans, we model an increase in postpaid churn to 1.3% in 1Q11,
1.4% in 2Q11, and 1.3% for full-year 2011, from 1.1% in 3Q10.
In addition, we estimate that the iPhone has enabled AT&T to capture substantially
more gross add share than it would have without the device. As Verizon and
potentially other US carriers start selling the iPhone, we expect AT&Ts share of
postpaid gross additions to decline to 28.5% in 2011 from 30.7% in 3Q10 and a peak
of 33.8% in 3Q09.
Table 54: Big 4 Postpaid Gross Add Share and Churn Trends
1Q09
2Q09
3Q09
4Q09
1Q10
2Q10
3Q10
4Q10E
1Q11E
2Q11E
3Q11E
4Q11E
Gross add share

AT&T Mobility
Verizon Wireless
Sprint Nextel
T-Mobile USA
30.6%
36.5%
12.2%
20.8%
32.7%
35.8%
12.2%
19.3%
33.8%
34.6%
13.8%
17.8%
30.3%
36.1%
16.3%
17.3%
29.5%
33.6%
18.1%
18.7%
28.0%
32.9%
18.2%
21.0%
30.7%
32.4%
18.2%
18.8%
29.9%
32.1%
19.4%
18.7%
27.9%
33.8%
18.7%
19.5%
27.4%
33.7%
19.7%
19.1%
29.4%
32.5%
19.2%
18.9%
29.4%
31.4%
19.7%
19.5%
Churn
AT&T Mobility
Verizon Wireless
Sprint Nextel
T-Mobile USA
1.15%
1.13%
2.25%
2.30%
1.07%
1.00%
2.05%
2.18%
1.14%
1.12%
2.17%
2.44%
1.15%
1.05%
2.11%
2.30%
1.07%
1.05%
2.15%
2.20%
1.01%
0.93%
1.85%
2.20%
1.14%
1.07%
1.93%
2.40%
1.15%
1.00%
1.85%
2.20%
1.30%
0.98%
1.75%
2.20%
1.40%
0.95%
1.75%
2.20%
1.25%
1.00%
1.75%
2.20%
1.20%
1.00%
1.75%
2.20%
Margins expected to widen somewhat in 2011 as iPhone sales slow

When the iPhone 3G was released in June 2008, the terms of Apples contract with
AT&T changed to allow AT&T to subsidize the device for customers signing twoyear contracts. As a result of the revised structure, iPhone prices dropped to the sweet
spot of handset sales and sales jumped upwards, but AT&Ts wireless service
margins took a large hit, falling to just over 35% from 43% the previous quarter.
AT&T aggressively upgraded
customers, and extended
contracts, in 3Q10
As the high-ARPU iPhone base has scaled, margins have generally recovered to over
40.0%, though results ebb and flow depending upon iPhone volumes in any given
quarter and typically are lowest when a new iPhone is released usually in the
third quarter. For example, in 3Q10 the iPhone 4 was launched and in addition to the
typical upgrade cycle, AT&T also more aggressively allowed customers to upgrade
to the device and iPhone activations hit 5.2 million in the quarter.
115
Philip Cusick, CFA

(1-212) 622-1444

13 January 2011
Figure 51: iPhone Sales vs. Wireless Margins

Sales in thousands
50%
6,000
5,000
44%
43%
40%
4,000
3,000
2,000
44%
43%
38%
40%
43%
43%
41%
38%
39%
44%
42%
41%
35%
45%
40%
35%
1,000
0
30%
1Q08 2Q08 3Q08 4Q08 1Q09 2Q09
3Q09 4Q09 1Q10 2Q10 3Q10 4Q10E 1Q11E 2Q11E 3Q11E 4Q11E
iPhone sales
Wireless serv ice margin %
AT&T is targeting margins in the low-40% range for full-year 2010, and
management continues to target long-term margins in the mid-40s. Although
pressures from subsidies on escalating smartphone sales, operating expenses related
to LTE build plans, and Alltel-related integration costs are likely to provide some
continued pressure, we believe AT&T should be able to attain the companys longterm margin goals.
AT&T needs LTE on new
spectrum to relieve 3G network
congestion
AT&T has accelerated its 4G plans, bringing LTE forward faster

AT&T recently accelerated its 4G LTE plans, we believe to gain access to the
700 MHz and AWS spectrum that it has acquired and reserved for that technology.
The company had previously guided to a meaningful LTE rollout in 2012 with an
aggressive rollout of HSPA 3G software in the meantime. However, in September
AT&T announced plans to launch 4G service across 75 million pops by the end of
2011, and later said the entire LTE network will be upgraded by the end of 2013. In
addition, the company plans to offer two 4G smartphones in 1Q11, five to seven
devices in 1H11, and 20 devices by year-end. We believe this dramatic change in
strategy was driven by the rapidly increasing data usage on its 3G network and its
need to get customers over to new spectrum bands and a more efficient wireless data
technology.
To date, the company has launched HSPA 7.2 in almost all markets and is now
rolling out HSPA+ (version 14.4), which provides double the peak speeds. While
these speeds are slower than the LTE speeds on Verizons new network, the fact is
that there are few (or no) applications on smartphones for which a user can
differentiate between a 2-5 Mbps stream and a 5-10 Mbps stream, and AT&T doesnt
really compete in the laptop card/MiFi device area for which the speeds will be most
evident.
As part of its plans to roll out LTE quickly, AT&T recently signed amendment
contracts with the two biggest US tower vendors, American Tower and Crown
Castle. These contracts will allow AT&T to add LTE and new frequency gear to its
existing towers across the AMT and CCI footprints, rather than having to negotiate
each lease amendment on a one-off basis.
116
Philip Cusick, CFA

(1-212) 622-1444

13 January 2011
AT&T supports every wireless

eReader in the US
AT&T so far leads in the emerging devices battle

In addition to traditional handset-based voice and data customers, AT&T has been
aggressively adding other customer types. Devices used by these customers include
tablets, eReaders, alarm monitoring tools, navigation devices, and other automobilebased products. For example, we believe AT&T added approximately 400k 3G
Apple iPads in each of the last two quarters (counted as prepaid subs) at an ARPU of
around $25, and expect an even bigger number in 4Q10. The company has also
activated a significant number of Amazon Kindles (counted as wholesale subs) with
ARPU around $3-4, and currently is the network for every 3G-enabled eReader
selling in the US. Finally, connected devices, such as utility meters and tracking
devices that also generate ARPU of around $3 each, increased by over 4 million in
the last four quarters.
Though the revenue and EBITDA contributions from wholesale and connected
devices are likely to remain modest relative to overall results, we expect this segment
to be a healthy supporter of wireless growth and cash flow.
Table 55: Prepaid, Wholesale, and Connected Device Subscriber Trends

Subscribers in thousands
1Q08
Ending Subscribers
Prepaid
Wholesale
Connected Devices
Net Adds
Prepaid
Wholesale
Connected Devices
Estimated Churn
Prepaid
Wholesale
Connected Devices
2Q08
3Q08
4Q08
1Q09
2Q09
3Q09
4Q09
1Q10
2Q10
3Q10
4Q10E
6,085
7,750
1,815
6,139
7,865
2,160
6,112
8,005
2,399
6,106
8,589
2,661
5,961
8,931
2,805
5,558
9,286
3,109
5,386
9,934
3,315
5,350
10,439
4,704
5,377
10,717
5,785
5,881
10,597
6,682
6,209
11,021
7,843
6,659
11,321
9,143
118
280
156
12
109
345
(36)
134
239
(23)
579
263
(155)
337
144
(412)
348
304
(176)
634
235
(58)
484
1,394
24
269
1,052
300
(130)
896
321
406
1,159
450
300
1,300
8.9%
0.5%
0.5%
8.5%
0.5%
0.5%
8.4%
0.5%
0.5%
8.5%
0.5%
0.5%
7.7%
0.5%
0.5%
7.9%
0.5%
0.5%
6.6%
0.5%
0.5%
7.1%
0.5%
0.5%
6.5%
0.5%
0.5%
7.0%
0.5%
0.5%
6.0%
0.4%
0.5%
5.7%
0.3%
0.5%
Wireline
AT&Ts wireline business makes up 48% of the companys consolidated revenue,
and is split between consumer, wholesale, small business, and enterprise businesses.
The company today is the largest provider of local wireline service with
approximately 25 million consumer access lines and the largest global provider of
enterprise telecommunications.
117
Philip Cusick, CFA

(1-212) 622-1444

13 January 2011
Figure 52: Wireline Revenue Breakdown

%
Mass Markets,
2%
Other, 1%
Consumer,
35%
Business
Solutions, 62%
AT&T and Verizon have an

enterprise duopoly
Enterprise recovery will take time

AT&Ts overall Business Solutions segment continues to face headwinds, driven
primarily by weakness in the global economy. Declining volumes are impacting
voice revenue, while business customers have also generally delayed major new
projects. Customer migrations to lower-cost IP-based services have also had some
impact, but this should be mostly complete and we expect the incremental impact
from here to be small.
All in all, Business Solutions revenue (comprising Enterprise, Wholesale, and Small
Business segments) has declined for the last several quarters. However, the yearover-year reduction has slowed over the past year, and we expect to see further
stabilization in coming quarters. In the third quarter management noted recent new
contracts with orders worth $1 billion over time.
118
Philip Cusick, CFA

(1-212) 622-1444

13 January 2011
Figure 53: Business Revenue and Growth

Revenue in millions
11,000
10,500
10,000
-4%
-6%
-4%
-4%
-6%
-5%
-6%
9,500
-5%
-4%
-3%
-2%
-3%
-1%
0%
-2%
-4%
-4%
-6%
-6%
-8%
9,000
-8%
8,500
-10%
1Q08 2Q08 3Q08 4Q08 1Q09 2Q09 3Q09 4Q09 1Q10 2Q10 3Q10 4Q10E 1Q11E 2Q11E 3Q11E 4Q11E
AT&T Business Solutions
% change, y -t-y
U-verse gaining scale, with IP now 42% of consumer revenue

After the Business Solutions segment, the Consumer business is the next-largest
contributor to AT&Ts wireline revenue. The Consumer business continues to face
secular challenges, driven by access line disconnects as customers drop wireline
voice connections and instead rely solely on wireless connectivity or move to cable
VoIP lines. In the last year, retail consumer primary lines (including VoIP and legacy
circuit switched) declined by 10.7% only somewhat slower than the 11.7% peak in
1Q09.
Figure 54: Consumer Access Line Trend
Revenue in millions
35,000
-11.4%
30,000
-11.1%
-11.3%
-11.4%
-11.0%
-11.4%
25,000
20,000
15,000
-11.2%
-11.4%
-11.8%
-11.9%
-11.6%
-11.8%
-12.1%
10,000
-12.0%
-12.3%
5,000
-12.2%
-12.4%
4Q08
1Q09
2Q09
3Q09
4Q09
Consumer Access Lines
1Q10
2Q10
3Q10
4Q10E
% change, y -t-y
AT&Ts DSL business has also faced some challenges, particularly in areas in which
the company does not offer U-verse broadband services and is therefore more
exposed to higher-speed cable offers. However, the U-verse business, which relies on
fiber-to-the-node technology to deliver video, broadband, and voice, has become a
significant contributor to the Consumer segment since the service was first rolled out
in late 2006. U-verse and DSL, which represent total wireline consumer IP revenue,
now account more than 42% of total consumer revenue although U-verse broadband
penetration is only approximately 10% vs. the nearly 30% market share we expect
eventually. Management expects U-verse to represent a $5 billion annual revenue
119
Philip Cusick, CFA

(1-212) 622-1444

13 January 2011
stream by year-end and to generate positive EBITDA. Given the higher ARPU on
U-verse subscribers, we believe growth in this business will be key to offsetting
some of the secular pressures facing the company.
Figure 55: Broadband Growth Trend
Revenue in millions
600
16%
500
400
300
14%
14%
200
12%
10%
11%
100
8%
8%
(100)
6%
7%
5%
(200)
6%
5%
5%
(300)
4%
4%
(400)
1Q08
2Q08
3Q08
DSL Additions
4Q08
1Q09
2Q09
3Q09
4Q09
U-Verse Additions (estimated)
1Q10
3%
3%
2Q10
3Q10
3%
2%
0%
4Q10E
Broadband % y -t-y change
Industry-best wireline margins, and holding steady

Across large integrated players, AT&T generates the best wireline margins, which
have been consistently in the 31-32% range since 1Q09. This margin level is
approximately 1,000 bps higher than Verizons, though in fairness Verizons
enterprise business started as MCI, which had EBITDA margins of 10% before being
acquired in 2005 vs. far higher legacy margins at AT&T before it was acquired by
SBC.
We expect wireline margins to dip slightly going into the fourth quarter to 31.5%,
from 32.5% in the third quarter, primarily due to seasonal pressures. However, in
2011, we are forecasting margins to expand 30 bps. We believe increasing
contributions from U-verse will be a significant driver. Should employment or
business revenue in the US or globally begin to recover in a meaningful way, it likely
would drive performance above our forecast.
Operating and Financial Outlook

We expect AT&T to experience a sharp slowdown in wireless subscriber growth in
2011, driven by substantially weaker postpaid net additions. We forecast 5.2% total
subscriber growth in 2011 and 4.3% in 2012, with the bulk of net additions coming
from the connected device category. As these low-ARPU customers become a larger
part of the base, overall ARPU is expected to continue falling; postpaid ARPU
should exhibit modest growth as customers continue to migrate to data plans. Our
wireless operating forecasts drive estimated service revenue growth of 5.5% in 2011
and 3.4% in 2012, down from 10.1% in 2010.
120
Philip Cusick, CFA

(1-212) 622-1444

13 January 2011
We believe certain wireline trends will improve from 2010, driving a deceleration in
wireline revenue declines. We expect data revenue to exceed voice revenue in 2011,
as U-verse becomes a larger piece of the pie. Improvement in enterprise revenue
growth should also help. As a result, we estimate wireline revenue to decline 2% in
2011 and remain flat in 2012, compared to a 4% decline in 2010.
Earnings and Cash Flow Forecast

As gross additions fall, particularly iPhone adds, AT&Ts wireless margins should
continue to expand toward the mid-40% level over time, in our view. We estimate
160 bps of margin expansion in 2011 to 42.6% and another 30 bps of expansion in
2012 to 42.9%. For wireline, we forecast modest margin expansion in 2011 to just
over 32.2%, as revenue trends improve and more profitable businesses contribute a
greater portion of revenue. We expect margins to gain an incremental 50 bps in 2012,
approaching 33.0%. Our segment forecasts drive consolidated EPS estimates of
$2.50 in 2011 and $2.64 in 2012, representing growth of approximately 9.0% in 2011
and 6% in 2012. Improved margin trends, partially offset by rising wireless capital
spending, should drive robust cash flow. Free cash flow growth of 4.9% in 2011 and
7.4% in 2012 should more than support the companys recently announced share
repurchase program (up to 300 million shares) as well as additional dividend hikes.
121
Philip Cusick, CFA

(1-212) 622-1444

13 January 2011
Table 56: AT&T Forecasts and Valuation Analysis

$ in millions
2006
2007
2008
2009
60,962
12.6%
6,892
37.7%
1.8%
$49.09
33,773
10.2%
11,168
24%
33.1%
7,039
20.8%
70,052
14.9%
7,315
6.1%
1.7%
$50.15
38,678
14.5%
14,734
32%
38.1%
3,745
9.7%
77,009
9.9%
6,699
-8.4%
1.7%
$50.40
44,249
14.4%
17,630
20%
39.8%
5,869
13.3%
85,120
10.5%
7,248
8.2%
1.5%
$50.51
48,563
9.7%
19,844
13%
40.9%
5,907
12.2%
30,838
23,484
0%
12,170
23%
3
NM
33,851
70%
11,715
22,811
-2.9%
14,156
27%
231
7600%
41,630
23%
24,075
106%
71,583
5%
25,406
93%
35%
13,972
20%
21,826
-4.3%
15,077
29%
1,045
352%
37,322
-10%
24,415
1%
67,889
-5%
23,848
-6%
35%
13,398
20%
118,928
89%
41,981
108%
35%
21,577
6,253
34%
17,888
$1.89
$1.89
$1.33
$1.95
$1.94
$1.42
NPV of wireless EBITDA 12E -- 20E

NPV of wireless taxes paid 12E -- 20E
NPV of wireless capex 12E -- 20E
NPV of wireless free cash flow 12E -- 20E
NPV of wireless 2020 terminal value @ 3.7x EBITDA
PMV of wireless operations
2011E
201,193
(89,855)
(65,342)
45,996
104,881
150,877
2011E
177,163
(78,843)
(56,602)
41,718
104,881
146,599
NPV of AT&T Inc. EBITDA 12E -- 20E

NPV of AT&T Inc. taxes paid 12E -- 20E
NPV of AT&T Inc. Capex 12E -- 20E
NPV of AT&T Inc. free cash flow 12E -- 20E
NPV of AT&T Inc. 2020 terminal value @ 5.7x EBITDA
PMV of AT&T Inc.
356,643 312,409
(75,309) (67,352)
(140,770) (121,114)
140,563 123,943
150,950 150,950
291,514 274,893
Wireless
Subscribers
% change, y/y
% change, y/y
Churn rate, monthly
ARPU, monthly
Service revenue
% change, y/y
EBITDA (operating cash flow)
% change, y/y
EBITDA margin
Capital Spending
CAPEX/Service revenue
Wireline
Retail consumer access lines
% change, y/y
Retail business access lines
% change, y/y
Total broadband connections
% change, y/y
U-verse video connections
% change, y/y
Voice Revenue
% change, y/y
Data Revenue
% change, y/y
Total Wireline Revenue
% change, y/y
% change, y/y
EBITDA margin
Capital Spending
CAPEX/revenue
68,250
13,131
25%
6,499
10%
Consolidated Revenue
% change, y/y
EBITDA
% change, y-t-y
EBITDA margin
Depreciation & Amortization
Taxes
Implied tax rate
Capital expenditures
63,055
20,195
32%
9,907
3,525
32%
Reported EPS - Basic

Reported EPS - Diluted
Dividend Per Share
Private Market Valuation Summary
2010E
2011E
2012E
2013E
2014E
2015E
2016E
2017E
95,336
12.0%
8,635
19.1%
1.3%
$49.48
53,456
10.1%
21,924
10%
41.0%
8,521
15.9%
100,336
5.2%
5,000
-42.1%
1.3%
$48.19
56,386
5.5%
24,030
10%
42.6%
8,740
15.5%
104,669
4.3%
4,333
-13.3%
1.3%
$47.42
58,297
3.4%
25,024
4%
42.9%
8,745
15.0%
108,519
3.7%
3,850
-11.1%
1.3%
$46.95
60,045
3.0%
26,336
5%
43.9%
8,586
14.3%
112,112
3.3%
3,593
-6.7%
1.2%
$46.48
61,521
2.5%
27,234
3%
44.3%
8,613
14.0%
115,078
2.6%
2,966
-17.4%
1.2%
$46.01
62,717
1.9%
28,069
3%
44.8%
8,780
14.0%
117,844
2.4%
2,766
-6.7%
1.1%
$45.55
63,657
1.5%
28,688
2%
45.1%
8,912
14.0%
120,333 122,566
2.1%
1.9%
2,489
2,233
-10.0%
-10.3%
1.1%
1.1%
$45.10
$44.65
64,443
65,064
1.2%
1.0%
28,961
29,137
1%
1%
44.9%
44.8%
9,022
9,109
14.0%
14.0%
27,332
-11.4%
20,106
-7.9%
15,789
30%
2,064
98%
32,324
-13%
25,561
5%
63,514
-6%
20,278
-15%
32%
11,057
17%
24,258
-11.2%
18,763
-6.7%
16,225
31%
2,944
43%
28,308
-12%
27,441
7%
61,186
-4%
19,528
-4%
32%
10,728
18%
22,271
-8.2%
17,835
-4.9%
16,675
32%
3,784
29%
25,531
-10%
28,772
5%
59,578
-3%
19,169
-2%
32%
10,124
17%
21,271
-4.5%
17,515
-1.8%
17,035
32%
4,584
21%
23,570
-8%
29,966
4%
58,810
-1%
19,246
0%
33%
9,410
16%
20,771
-2.4%
17,259
-1.5%
17,395
33%
5,384
17%
21,900
-7%
31,327
5%
58,501
-1%
19,773
3%
34%
9,360
16%
20,471
-3.8%
17,054
-1.2%
17,665
33%
6,184
15%
20,462
-7%
32,510
8%
58,247
-1%
19,979
4%
34%
9,320
16%
20,381
-0.4%
16,890
-1.0%
17,868
34%
6,984
13%
19,204
-6%
33,550
3%
58,029
0%
20,194
1%
35%
9,285
16%
20,341
-0.2%
16,790
-0.6%
18,019
34%
7,784
11%
18,077
-6%
34,575
3%
57,927
0%
20,448
1%
35%
9,268
16%
20,341
0.0%
16,690
-0.6%
18,133
34%
8,184
5%
17,289
-4%
35,437
2%
58,001
0%
20,764
2%
36%
9,280
16%
124,028
4%
42,946
2%
35%
19,883
7,036
35%
19,961
123,018
-1%
41,206
-4%
33%
19,714
6,156
33%
17,151
124,125
1%
42,543
3%
34%
19,483
7,282
35%
19,646
124,628
0%
44,234
4%
35%
19,532
7,957
35%
19,656
125,696
1%
45,253
2%
36%
19,345
8,611
36%
18,946
126,938
1%
47,044
4%
37%
19,139
9,634
37%
18,739
127,963
2%
48,100
6%
38%
19,063
10,122
37%
18,724
128,741
1%
49,107
2%
38%
18,995
10,598
37%
18,857
129,377
0%
49,937
2%
39%
18,953
11,006
37%
18,972
$2.17
$2.16
$1.61
$2.12
$2.12
$1.65
$2.30
$2.29
$1.69
$2.51
$2.50
$1.74
$2.65
$2.64
$1.80
$2.90
$2.88
$1.85
$3.10
$3.08
$1.91
$3.30
$3.28
$1.96
$3.48
$3.46
$2.02
$28.85
$33.21
2009
13.6x
15.7x
2010E
12.6x
14.5x
2011E
11.5x
13.3x
2012E
10.9x
12.6x
227,074
252,980
5.5x
6.1x
5.3x
5.9x
5.1x
5.7x
5.0x
5.6x
Valuation Multiples
Current Price PER
Price Target PER
Current EV/EBITDA
Price Target EV/EBITDA
Wireless Valuation Method:
1
Corporate Valuation Method:
1
Plus (less): investments

Less: net debt, end of period
PMV -- Equity
9,630
(66,073)
235,071
9,630
(65,393)
219,130
Current shares outstanding

Shares to be issued/warrants/options
Fully diluted shares outstanding
5,907
29
5,936
5,909
29
5,938
PMV per share

Private to public discount
Year-end 2011 fair value per share
Plus annual dividend
Total upside to current level
$39.60
10%
$35.64
$36.90
10%
$33.21
$1.74
21.2%
Consolidated Valuation Based on Consolidated Forward P/E Multiple

2009
Consolidated EBITDA
41,206
AT&T Inc. EBITDA
21,362
$33.21
6.5%
7.0%
7.5%
8.0%
8.5%
2011E
44,234
20,204
2012E
45,253
20,229
$2.12
13.6x
$2.29
12.6x
$2.50
11.5x
$2.64
10.9x
Consolidated Free Cash Flow
17,850
14,479
15,359
16,434
AT&T Inc. FCF / diluted share

AT&T Inc. Current FCF yield
Current FCF multiple
$3.01
10.4%
9.6x
$2.44
8.5%
11.8x
$2.61
9.1%
11.0x
$2.85
9.9%
10.1x
AT&T Inc. dividend/share

Dividend yield
Target price dividend yield
$1.65
5.7%
5.0%
$1.69
5.9%
5.1%
$1.74
6.0%
5.3%
$1.80
6.2%
5.4%
122
1 = DCF from above @ 7.5% discount rate (adjust below)

2 = 6.5x forward EBITDA multiple
6.5x
AT&T Valuation Grid - Sensitivity to DCF per Share

Terminal Growth Rate (across) on 2020E FCF, Discount Rate (down)
2010E
42,543
20,619
Reported EPS, diluted

Consolidated PER

7.2x
-0.5%
36
33
30
28
26
0.0%
38
34
32
29
27
0.5%
40
36
$33.21
30
28
1.0%
43
39
35
32
29
1.5%
46
41
37
34
31
Valuation Grid - year-end value per share

P/E Multiple on Continuing Earnings Per Share
10x
12x
15.0x
16x
18x
2010E
23
27
$34.29
37
41
10x
12x
14.0x
16x
18x
2011E
25
30
$34.99
40
45
2018E
2019E
2020E
124,462
1.5%
1,896
-15.1%
1.1%
$44.31
65,674
0.9%
29,368
1%
44.7%
9,194
14.0%
126,235
1.4%
1,774
-6.4%
1.1%
$43.98
66,150
0.7%
29,481
0%
44.6%
9,261
14.0%
20,341
0.0%
16,690
0.0%
18,219
34%
8,584
5%
16,765
-3%
35,984
2%
58,023
0%
21,062
1%
36%
9,284
16%
20,341
0.0%
16,690
0.0%
18,283
34%
8,784
2%
16,390
-2%
36,490
1%
58,154
0%
21,401
2%
37%
9,305
16%
20,341
0.0%
16,690
0.0%
18,331
35%
8,984
2%
16,182
-1%
36,909
1%
58,365
0%
21,770
2%
37%
9,338
16%
130,114
1%
50,486
1%
39%
18,948
11,301
37%
19,094
130,638
0%
50,922
1%
39%
18,934
11,562
37%
19,185
131,262
0%
51,455
1%
39%
18,943
11,854
37%
19,291
131,837
0%
51,904
1%
39%
18,969
12,112
37%
19,391
$3.64
$3.62
$2.08
$3.79
$3.77
$2.15
$3.96
$3.94
$2.21
$4.12
$4.10
$2.28
CAGR
10E-20E
3%
-15%
-1%
0%
3%
1%
-2%
-1%
1%
12%
-5%
3%
0%
1%
0%
1%
2%
0%
0%
6%
3%
Philip Cusick, CFA

(1-212) 622-1444

13 January 2011
Verizon Communications
Initiate with Neutral Rating and $38 YE11 Price Target
We initiate coverage on Verizon with a Neutral rating and a year-end 2011 price
target of $38, implying 5.8% upside from current levels in addition to an estimated
dividend yield of 5.4%. In our view, the company already trades at relatively high
multiples of EPS and free cash flow due to upcoming availability of the iPhone on its
network. We believe that the Street already expects strong corresponding subscriber
growth and some offsetting margin compression, and dont foresee the
outperformance likely necessary to drive meaningful incremental upside from current
levels relative to other names under coverage.
Neutral
Verizon Communications (VZ;VZ US)
Company Data
Price ($)
Date Of Price
52-week Range ($)
Mkt Cap ($ bn)
Fiscal Year End
Shares O/S (mn)
Price Target ($)
Price Target End
Date
35.47
12 Jan 11
37.70 24.75
100.38
Dec
2,830
38.00
31 Dec 11
EPS ($)
Q1 (Mar)
Q2 (Jun)
Q3 (Sep)
Q4 (Dec)
FY
Bloomberg EPS FY ($)
2009A
2010E
2011E
0.63
0.63
0.60
0.54
2.40
2.41
0.56A
0.58A
0.56A
0.56A
2.27A
2.21A
0.54
0.50
0.59
0.60
2.23
2.25
Source: Company dat a, Bloomberg, J.P. Morgan estimates. 'Bloomberg' above denotes Bloomberg
consensus estimates .

High multiples of cash flow, EPS, and EBITDA
Verizon trades at 16.1x our 2011 EPS estimate compared to S&P 500 and AT&T
multiples of 14.9x and 11.5x, respectively, and 16.5x free cash flow, or a yield of
6.0%. Our 2011 EPS estimate of $2.23 indicates growth of only 4.2% over 2010 and
assumes 3.2% consolidated revenue growth and slight growth in wireline margins
but margin compression at the wireless level due to higher subsidies.
Wireless top line to shine in 2011, but expect margins to compress near term
We believe that the major reason for Verizons current premium to AT&T is the
buildup of expectations that it will sell the iconic Apple iPhone, and that this product
will drive significant outperformance in postpaid adds in 2011 we model
2.3 million postpaid adds for Verizon in 2011. In addition, we and the Street expect
postpaid ARPU to increase as smartphones drive customers to higher-rate plans and
we look for top-line growth of 7% at Verizon Wireless in 2011. Unfortunately
though, the iPhone story has been so heavily reported in the press that we believe the
likely price impact is already baked in, and dont see enough real value being created
by the iPhone to drive incremental multiple expansion from current levels.
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Philip Cusick, CFA

(1-212) 622-1444

13 January 2011
Wired video rollout drives consumer revenue growth; wholesale and enterprise
stable
Revenue in Verizons wireline business declined 3.6% in the year to 3Q10 but we
expect that to stabilize in the next 12 months or so. The consumer business is already
growing, driven by strong video traction even as access lines continue to drop.
Enterprise is shrinking at a slower rate and should improve with the economy, while
wholesale was down significantly in 3Q10 due to pricing actions but should stabilize
as well on a sequential basis in 2011. Wireline margins also seem to have finally
stabilized, and we model margins of 22.1% in 2011 vs. 21.0% in 3Q10.
Cash flow to improve in 2011 but remain weak given low wireline margins
We estimate Verizon will generate $6.1 billion in cash in 2011 only a 6.0% yield
on the current stock price. At these levels, and compared to AT&T with an estimated
cash flow yield of 8.5%, we dont find Verizon an attractive investment.
Investment Risks
Upside risks
Verizon getting the iPhone could drive a higher share of additions and better
growth than we model
While we already model Verizons churn decreasing and gross add share increasing
once it starts selling the iPhone, the customer impact of the iPhone has often been
underestimated. If churn declines more or gross adds increase more than we expect,
the companys top line could grow faster than we expect.
Enterprise and economic recovery could drive wireline margins higher than we
forecast and increase EPS and possibly the multiple as well
Verizons wireline business is highly exposed to domestic GDP growth and
employment, as well as global economic growth. This business has seen the benefit
of economic stabilization in the last year through slowing revenue losses in enterprise
and small/medium-sized business divisions. While we do not model a significant
economic recovery, if the economy rebounds Verizon could see an acceleration in
revenue growth and margin expansion.
Downside risks
4G handset availability is likely to be weak and prices high through 2011
Verizon has put a large piece of its capital spending and marketing power into
advertising its 4G network, but LTE devices for Verizon remain very limited and we
expect LTE devices to remain limited and expensive through 2011. The higher prices
of LTE handsets, plus the more expensive Apple handsets that we expect to ramp in
1Q11, could impact our wireless margins even more than the 270 basis points that we
already model.
Verizon could pay a premium to purchase parts of Vodafones ownership in
Verizon Wireless
Vodafone owns 45% of Verizon Wireless the most profitable and fastest-growing
of the Verizon entities. We assume that the Verizon/Vodafone relationship remains
static, with no change in Vodafones ownership. However, as Verizon gets closer to
2012 when it has said it may begin paying a wireless dividend, the company may
seek instead to buy Vodafones stake in Verizon Wireless. If Verizon were keen to
effect a transaction, it could pay a significant premium to the current valuation and a
transaction could increase Verizons leverage substantially.
124
Philip Cusick, CFA

(1-212) 622-1444

13 January 2011

We establish a year-end 2011 price target of $38/share for Verizon. We based our
target price primarily on a discounted cash flow analysis of the consolidated
company, which assumes a 7.5% WACC and 0.5% perpetual growth rate. We
subtract $96 billion to account for Vodafones 45% stake in Verizon Wireless, but
give Verizon $5 billion of credit for its 23% stake in Italys Omnitel based on 11x
the $440 million annual dividend Verizon received in 2010. In addition, Verizon
appears expensive on an EV/EBITDA basis as well. Shares trade at 5.9x our 2011
estimate, compared to 5.1x for AT&T.
Company Description
Verizon is one of the largest telecommunications companies in the world with assets
that include US landlines (formerly GTE and Bell Atlantic), 55% of the largest US
wireless carrier (Vodafone owns 45%), and a global enterprise business that came
from the MCI acquisition in 2005. The company serves approximately 12.8 million
households of the 26.4 million in its territory with landline service and is currently
selling to 12.1 million of those with its FiOS fiber-optic network, while Verizon
Wireless reports over 93 million wireless customers. Verizon is using its new fiberoptic network to offer high-speed data and video applications to customers. The
companys wireless network is based on CDMA technology, with 3G EVDO Rev A
services. Recently the company began launching a 4G LTE network which currently
covers 130 million people.
125
Philip Cusick, CFA

(1-212) 622-1444

13 January 2011
Figure 56: Verizon Revenue Breakdown

Global
Figure 57: Verizon EBITDA Breakdown
Other, 1%
Other, 1%
Wholesale,
Wireline, 24%
8%
Global
Enterprise,
15%
Mass
Wireless
Markets, 15%
Serv ice, 53%
Wireless
Equipment
Wireless, 74%
and Other, 8%
Figure 58: Verizon Revenue Breakdown (Excluding Vodafone Stake)

Global
Figure 59: Verizon EBITDA Breakdown (Excluding Vodafone Stake)
Other, 1%
Other, 2%
Wholesale,
11%
Wireline, 37%
Wireless
Global
Serv ice, 41%
Enterprise,
21%
Mass
Markets, 21%
Wireless, 61%
Wireless
Equipment
and Other, 5%
126
Philip Cusick, CFA

(1-212) 622-1444

13 January 2011
Wireless Strong and iPhone in the Wings

Verizon Wireless is the largest wireless company in the US with over 93 million
customers and approximately 46% EBITDA margins the highest in the US wireless
space. The company is 55% owned by Verizon and 45% by Vodafone.
Wholesale,
Prepaid, 5%
7%
Postpaid ,
88%
Figure 61: Verizon Wireless Coverage Map
127
Philip Cusick, CFA

(1-212) 622-1444

13 January 2011
Table 57: Verizon Wireless DCF Analysis

$ in millions
2011E
201,376
(48,031)
(61,557)
91,788
125,036
216,824
926
217,750
(97,987)
119,762
NPV of wireless EBITDA 12E-20E

NPV of wireless taxes paid 12E-20E
NPV of wireless capex 12E-20E
NPV of wireless free cash flow 12E-20E
NPV of wireless 2020 terminal value @ 4x EBITDA
Plus: Verizon Wireless net cash (debt), end of period
PMV Equity
Less 45% Vodafone Ownership
PMV of Wireless to Verizon Equity
We expect the majority of

Verizons iPhone sales to be
upgrades, not new customers
iPhone to be focus of attention in first half of 2011

On January 11, Verizon announced that the iPhone would be available on its network
in early February. To date, Verizons smartphone penetration significantly lags that
of AT&T, but recent success with Android-based devices has helped to accelerate
penetration. Given Verizons industry-leading brand, we expect the company to see
strong sales of the iPhone once it becomes available. We believe market share
growth will be fueled by existing iPhone customer defections from AT&T, while
Sprint and T-Mobile could lose some customers to Verizon as well. However, the
bulk of iPhone adopters are likely to be existing Verizon customers upgrading their
handsets. As a result, the primary benefit may be lower churn, not increased gross
additions.
At the same time, we expect the strong iPhone adoption, combined with a continued
move toward more expensive smartphones as a share of handset sales, will pressure
Verizon Wireless margins in the first half of 2011. We model margins falling to
41.9% in 2Q11, which we expect to be the quarter with the biggest impact.
Verizon postpaid ARPU grew an

estimated 1.6% in 2010; could
accelerate in 2011
ARPU to grow with smartphone penetration; set for accelerated revenue growth
Verizons average postpaid revenue per user lags AT&Ts somewhat due to lower
smartphone and 3G penetration. 3G smartphones and integrated devices made up
38.5% of Verizons postpaid base in 3Q10 vs. 51% at AT&T, and smartphones at
Verizon represented only 22.7% vs. AT&T with just iPhone representing nearly 27%
of postpaid customers. As Verizon handsets sales increasingly shift to smartphones,
this percentage should eventually catch up to AT&Ts, and the company should
somewhat close the gap with AT&T on data ARPU.
Table 58: ARPU Breakdown
Wireless ARPU
Postpaid Wireless ARPU
Postpaid Data ARPU ex-Laptop Card
Postpaid Voice ARPU ex-Laptop Card
1Q09
$50.49
$52.11
$13.54
$38.70
2Q09
$50.85
$52.41
$14.14
$38.42
3Q09
$50.77
$52.60
$14.89
$37.87
4Q09
$50.02
$52.22
$15.47
$36.89
1Q10
$49.92
$52.41
$16.31
$36.26
2Q10
$50.35
$53.17
$17.38
$36.01
3Q10
$50.94
$53.66
$18.44
$35.49

Note: Ex-Laptop card ARPU is estimated.
Interestingly, Verizon has had good progress with smartphone sales even without the
iPhone the carrier has been good at selling Blackberry but the focus has turned to
aggressively pushing smartphones based on Googles Android operating system, and
take rates have increased significantly since the launch of the Motorola Droid in
128
4Q10E
$50.39
$53.32
$18.83
$34.75
Philip Cusick, CFA

(1-212) 622-1444

13 January 2011
4Q09. In 3Q10, 43% of new sales were smartphones, up from 23% in 3Q10. As a
result, total smartphone penetration of the base was 22.7%, up from 13.4% in 3Q09.
As Verizon grows its smartphone base of users, the company should see accelerating
postpaid ARPU growth and we model growth of 2.3% in 2011 vs. 1.6% in 2010.
Given our estimate for growth of more than 3% at AT&T, there could be upside to
our estimate for Verizon as well.
Figure 62: Device Sales Mix
100%
90%
80%
70%
60%
50%
40%
30%
20%
10%
0%
1Q09
2Q09
3Q09
4Q09
1Q10
2Q10
3Q10
4Q10E
1Q11E
2Q11E
3Q11E
4Q11E
Feature phone
66.0%
56.0%
41.0%
30.0%
33.0%
37.0%
37.0%
23.8%
33.7%
21.2%
22.6%
17.9%
Internet
5.0%
6.0%
6.0%
6.0%
7.0%
6.0%
7.0%
8.5%
8.6%
8.2%
8.4%
9.5%
3G Multimedia
3.0%
17.0%
30.0%
34.0%
24.0%
17.0%
13.0%
15.3%
0.3%
3.4%
0.0%
0.0%
26.0%
21.0%
23.0%
30.0%
36.0%
40.0%
43.0%
52.2%
36.1%
35.9%
38.1%
45.4%
Smartphone (iPhone)
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
20.0%
30.0%
30.0%
30.0%
Figure 63: Device ARPU Mix

$100.00
$90
$90
$70
$80.00
$54
$50
$60.00
$34
$40.00
$20.00
$0.00
Smartphone
Smartphone
(iPhone)
(non-iPhone)
3G Multimedia
Internet*
Feature
Total postpaid
base
We expect Verizon to follow

AT&T with smartphone usage
caps
Tiered data pricing on smartphones likely to provide additional fuel to growth

There has been significant discussion by Verizon and other industry players
regarding tiered data pricing. AT&T took the first steps last summer, establishing
$15 and $25 plans for usage of 200 MB and 2 GB, respectively, and eliminating the
unlimited usage plan for new smartphone customers.
More recently, Verizon followed with slightly different plans for smartphone users.
The company maintained an unlimited plan for $30 but also launched a 150 MB plan
for $10. Both carriers believe that the pricing changes will be accretive to ARPU,
with the benefit of users migrating from lower-ARPU devices to the $10 or $15 plans
offsetting migrations down from unlimited plans. In addition, as devices and
129
Philip Cusick, CFA

(1-212) 622-1444

13 January 2011
applications continue to advance and network speeds improve, these users are likely
to exceed the introductory data caps and require plans with more bandwidth cushion.
A similar thought process applies to Verizons recently introduced pricing for LTE
data cards. The company is offering 5 GB of monthly data usage for $50, a $10
discount to 3G pricing, and 10 GB for $80. However, with the very fast speeds of
4G, some users have used up their entire 5 GB allotment in less than an hour. We
expect that the company established this $50 plan to attract current 3G users to 4G
(and off the 3G network), but to then up-sell them to the $80 plan over time.
Margins to compress as handset sales mix shifts to iPhone, smartphones
Given the iPhones popularity, we expect high sales volume at Verizon, though not
the ~30-40% share that AT&T has seen over the last year. Regardless of whether
sales are in the form of upgrades or purchases by new customers, the bulk of iPhone
sales will carry a Verizon subsidy a subsidy we estimate will be $100 more than
Verizons already-high ~$250 average smartphone subsidy.
Note that we expect iPhone prices to Verizon to be somewhat higher than those to
AT&T given Verizons expected smaller scale in iPhone handset sales. We estimate
that, given its scale, selling 30%-plus of iPhones in any given quarter, AT&T likely
receives better pricing than any other carrier globally. In addition, we dont expect
Apple to charge AT&T any less than before, despite the ending of the exclusivity
agreement.
Figure 64: Subsidy by Device
$400
$350
$300
$250
$200
$350
$150
$250
$100
$50
$125
$125
Internet subsidy
$0
iPhone subsidy
Smartphone subsidy
(non-iPhone)
In periods of strong sales, AT&T saw significant hits to its margins because of
upfront costs. We expect Verizon to also see some margin compression, though less
than did AT&T given its already-high smartphone sales mix, smaller iPhone share,
and ongoing efforts to reduce costs to offset ramping subsidy expense. The worst of
this compression is expected to occur in 2Q11 and we expect margins to move back
above 45% in 2012.
130
Philip Cusick, CFA

(1-212) 622-1444

13 January 2011
Figure 65: Verizon Wireless Net Add and Margin Forecasts

$ in millions, subscribers in thousands
800
48.0%
600
46.0%
44.0%
400
42.0%
200
40.0%
38.0%
1Q10
2Q10
3Q10
4Q10E 1Q11E 2Q11E 3Q11E 4Q11E 1Q12E 2Q12E 3Q12E 4Q12E

Postpaid Net Adds
Wireless Serv ice Margins
We expect Verizons 3G network

demand to grow 55% 2010 and
57% in 2011
LTE shift offsets some iPhone network demand; 3G should still grow 57% in
2011
Verizon was the first national carrier to launch LTE with coverage of 110 million
pops in early December 2010 and plans to cover 200 million by mid-2012 and the
entire country by the end of 2013. Speeds on the network early on are bursting above
20 Mbps but as the network loads we expect average speeds of 5-10 Mbps,
substantially higher than the speeds of roughly 1 Mbps on the companys 3G EVDO
Rev A network.
In terms of devices, the company currently only offers two laptop dongles, but will
begin offering four smartphones, two tablets, and two mobile hotspots in 1H11. As
the mix of sales shifts toward 4G from 3G, we expect data demand growth on the
companys 3G network to slow in 2011 and for the network to start to shrink in a few
years.
Table 59: Data Usage by Device and in Total

MB for individual devices, GB for total monthly usage
3G iPhones
3G Multimedia
Internet*
Feature
3G Monthly network data usage (GB)
1Q09
100
100
50
1,500
20
118
2Q09
150
100
50
1,600
20
125
3Q09
200
100
50
1,700
20
130
4Q09
250
150
50
1,800
20
150
1Q10
300
175
50
1,900
20
170
2Q10
325
200
50
2,000
20
189
3Q10
350
200
50
2,000
20
199
9,112
9,799
10,310
12,049
13,748
15,434
16,334
4Q10E
350
225
50
2,100
20
223
127
18,358
1Q11E
350
225
50
2,200
20
244
363
20,077
2Q11E
400
250
50
2,300
20
282
734
23,021
3Q11E
400
275
50
2,400
20
315
1,517
25,171
4Q11E
425
300
50
2,500
20
351
2,543
27,365
131
Philip Cusick, CFA

(1-212) 622-1444

13 January 2011
Figure 66: LTE % of Sub Base and Handset Sales

6.0%
19%
5.0%
16%
15.0%
4.0%
3.0%
10.0%
2.0%
6%
1.0%
0.0%
20.0%
1%
4Q10E
5.0%
2%
1Q11E
LTE % of Sub Base
0.0%
2Q11E
3Q11E
4Q11E
LTE % of Handset Sales
Vodafone ownership stake in Verizon Wireless we assume status quo

Vodafone (VOD, rated Overweight by J.P. Morgan European Telecoms analyst Paul
Howard) owns 45% of Verizon Wireless, which it has held since Verizon Wireless
was created in 2000. Despite its ownership, Vodafone exercises little control over the
joint venture and has never received a substantial cash disbursement from the
company. Recently, however, managements of both Verizon and Vodafone have
made public comments that the company could pay a dividend once its debt is fully
paid down in 2012.
Aside from the dividend, we assume that the Verizon/Vodafone relationship remains
static, with no change in Vodafones ownership. While we believe that Verizon
would gladly buy the rest of the company at the right price, Vodafone appears to
have no pressing need for the money, there could be potentially onerous tax
consequences, and we dont believe that Verizon would be so keen as to pay a high
multiple.
Wireless cash flow expected to be re-directed in 2011 and 2012. In the last few
years the majority of Verizon Wireless cash flow has gone to pay down its intercompany debt owed to Verizon which was generated to pay for the $28 billion
acquisition of Alltel in early 2009. That debt has now declined from $20.8 billion in
2Q09 to only $12.5 billion in 3Q10, and we expect it to be repaid in 2011. After the
inter-company debt is fully paid down, Verizon Wireless is likely to instead stream
cash to both parents in the form of a dividend assuming a 90% payout ratio this
could total $16.8 billion in 2012 (at 5% entity tax rate), or $9.2 billion to Verizon and
$7.6 billion to Vodafone.
132
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13 January 2011
Wireline
Consumer wireline revenue now dominated by broadband, video
Verizons consumer business has been plagued by voice line disconnects, driven by
wireless substitution and cable competition. Customers are finding both alternatives
to be more economical. An estimated 25% of all voice customers nationwide use
wireless service exclusively. Cable competitors often benefit from having higher
broadband speeds to bundle with their voice and video offerings, particularly in nonFiOS markets. As a result, Verizon has experienced a 10-12% rate of line loss for
several quarters, contributing to compound annual revenue decline of 10% from 2005
to 2009.
FiOS is moving from buildout to
focus on penetration
FiOS now available for sale in 12.5 million of 17.0 million planned homes, with
build nearly complete. Outside of voice, however, Verizons broadband adds have
remained fairly steady and in recent quarters the companys FiOS business, which
offers both higher-speed data and video, has gained scale. Now available for sale in
12.5 million homes and with 3.9 million Internet and 3.3 million TV customers,
FiOS is a $6.7 billion business and growing at approximately 29% year-over-year.
FiOS now represents 50% of overall consumer revenue.
Table 60: Verizon FiOS Modeling Assumptions

Revenue in $ millions, subscribers in thousands
2009
3,286
805
32%
2010E
4,065
779
24%
2011E
4,727
662
16%
2012E
5,257
530
11%
2013E
5,707
450
9%
2014E
6,090
383
7%
2015E
6,415
325
5%
2016E
6,692
277
4%
FiOS Homes Passed (data)

Net New Homes Passed
FiOS Homes Open for Sale (data)
FiOS Data Penetration
15,400
2,700
12,500
26%
16,750
1,350
13,000
31%
17,750
1,000
14,000
34%
18,750
1,000
18,600
28%
19,000
250
18,620
31%
19,600
600
19,208
32%
19,600
19,208
33%
19,600
19,208
35%
Video
FiOS TV Subscribers
Net FiOS TV Subscribers Adds
% change y/y
2,750
832
43%
3,465
715
26%
4,107
642
19%
4,621
514
13%
5,057
437
9%
5,429
371
7%
5,744
316
6%
6,012
268
5%
FiOS Homes Passed (TV)

FiOS Homes Open for Sale (TV)
FiOS TV Penetration
14,700
2,000
11,500
24%
16,050
1,350
12,600
27%
17,050
1,000
13,600
30%
19,600
2,550
18,000
26%
19,600
18,000
28%
19,600
18,000
30%
19,600
18,000
32%
19,600
18,000
33%
Triple Play Data/Video ARPU

Triple Play Data/Video Revenue
ARPU - FiOS Internet Only Subs
$122.55
3,432
$94.55
$122.55
4,570
$94.55
$120.40
5,470
$92.40
$116.77
6,115
$88.77
$112.27
6,520
$84.27
$107.92
6,790
$79.92
$103.69
6,951
$75.69
$99.59
7,025
$71.59
FiOS Internet Subscribers

Net FiOS Internet Subscribers Adds
% change y/y
Broadband, video now 50% of Verizons consumer business. Net-net, we

estimate that Verizons consumer revenue has shifted from 86% voice in 2006 to an
estimated 37% in 3Q10. Further, we expect the broadband and video businesses to
continue to grow, and for voice losses to tail off as Verizons weaker markets were
let go in the Frontier spinoff and its core market dynamics are improved by the
presence of FiOS.
133
Philip Cusick, CFA

(1-212) 622-1444
Figure 67: Verizon FiOS
134

13 January 2011
Philip Cusick, CFA

(1-212) 622-1444

13 January 2011
Enterprise showing signs of life

Verizons enterprise business has suffered along with the rest of the economy. As
enterprises curtailed telecom spending and pared payrolls, large projects were halted
and voice volumes fell significantly. However, recent trends at Verizon suggest the
business is stabilizing, with the return of some large deals and improved hiring
trends. In addition, CPE spending has picked up as enterprises begin making
necessary equipment purchases.
In the second quarter of 2010, enterprise revenue grew for the first time after steady
declines throughout 2009. We believe trends will continue to depend upon global
macro conditions, and economic improvement may be ahead but is unlikely to
happen quickly, in our view. Nonetheless, stabilizing enterprise trends should help
support revenue stability in the overall wireline business, while stemming expected
pressure on margins.
Figure 68: Verizon Enterprise Revenue and Growth
4,050
4%
2%
0%
-2%
-4%
-6%
-8%
-10%
-12%
4,000
3,950
3,900
3,850
3,800
3,750
1Q09 2Q09 3Q09 4Q09 1Q10 2Q10 3Q10 4Q10E 1Q11E 2Q11E 3Q11E 4Q11E
Enterprise rev enue
y /y change
Margins stabilizing
Verizons wireline margins have declined significantly over the past several quarters,
from 27% in early 2008 to close to a low of 19.4% in 1Q10. However, wireline
margin finally expanded in 2Q10 and then ticked up again in 3Q10, indicating that
the companys massive cost-cutting initiatives in the last couple years are finally
getting expenses under control. Early in 2010, management targeted $1.5-2.0 billion
of potential savings from moves to reduce the cost structure. Verizon has reduced
headcount by approximately 20k since 3Q09, and the company will likely recognize
the full benefit of these reductions in the first quarter of 2010. Though the workforce
is clearly the largest identifiable reduction, other actions including the rationalization
of real estate should also help and we believe management is on track to achieve
savings goals.
In addition, higher-margin businesses such as FiOS and strategic enterprise services
are becoming larger contributors to the top line, while management is also
eliminating certain wholesale streams which are low-margin in nature. These growth
areas are beginning to offset the impact of secularly driven double-digit declines in
access lines. Specifically, for enterprise, which is now almost as large as the mass
markets business, on the whole business trends appear to be stabilizing, though
additional economic strength is likely necessary for revenue growth. We estimate
margins will continue to improve to just over 22% by year-end 2011, however there
135
Philip Cusick, CFA

(1-212) 622-1444

13 January 2011
could be upside to our expectations if management can continue to find ways to

reduce the cost structure and if enterprise revenue trends improve more
meaningfully.
Wireline cash flow expected to expand to $2.4 billion in 2011
With declining EBITDA margins and heavy FiOS capital spending, the wireline side
of Verizon has seen operating margins dwindle since late 2007 to negative territory
in 1Q10, and cash flow from the wireline business was minimal in 2010
($351 million). In 2011, however, we expect wireline margins to stabilize and even
grow somewhat, and wireline capital spending to decline from $6.9 billion in 2010
(and $11.0 billion in the peak year of 2007) to $6.1 billion. As a result, we expect the
Verizon wireline business to generate cash flow of $1.2 billion in 2011 and
$1.0 billion in 2012, up from $0.4 billion in 2010.

We expect Verizon to maintain strong postpaid subscriber growth, though a
deceleration in wholesale growth could drive total net additions to fall year-overyear. Success with the iPhone will be critical to achieving our forecasts, which call
for growth of 4.6% in 2011 and 3.3% in 2012. As a result of the strong postpaid
additions, we expect overall ARPU to grow, despite dilution from lower-ARPU
wholesale subscribers. Modest ARPU growth and strong subscriber growth are
expected to drive a 200 bps acceleration in service revenue growth to 7% in 2011,
though this growth should slow as the iPhone benefit wears off in 2012 and beyond.
We believe certain wireline trends will improve from 2010, driving a deceleration in
wireline revenue declines. We expect access line losses to remain high, but
broadband should maintain decent traction. We expect slowing FiOS adds and
slowing DSL disconnects to drive 270k broadband adds, roughly flat with the
expected 2010 level. Similar to our FiOS broadband forecast, we expect a modest
decline in TV adds as well. On the business side, we expect a meaningful bounce
back to positive growth, as recent improvements continue. Collectively, these
individual business trends drive an estimated 1% decline in wireline revenue, a
deceleration from the expected 3% fall in 2010.

As iPhone sales ramp, we believe Verizons wireless service margins should see
some impact given the high-subsidy nature of the device. Though still industryleading, margins are forecast to fall to 43.9% in 2011, from 46.6% in 2010. However,
given managements focus on maintaining mid- to high-40s margins, we expect a
recovery to 45.8% in 2012. While wireless margins should contract, we believe
wireline margins will continue to improve as Verizon recognizes a full year of force
reductions and high-margin enterprise revenue trends improve. We forecast wireline
margin of 22.1% in 2011, reflecting the first year of margin growth since 2007. We
expect further margin expansion to 22.6% in 2012.
Our segment forecasts drive consolidated EPS estimates of $2.23 in 2011 and $2.45
in 2012. Excluding $0.13 of earnings from divested operations in 1H10, our forecasts
imply 4.2% growth in 2011 (including some dilution from iPhone) and 10.0%
growth in 2012 (as iPhone dilution falls away). Free cash flow comparisons between
2011 and 2010 suffer due to the divestiture of wireline assets to Frontier as well as
the divestiture of certain Alltel properties in 2010. However, our forecast for
136
Philip Cusick, CFA

(1-212) 622-1444

13 January 2011
$13.6 billion in free cash flow in 2011 reflects a decline in total capital expenditures
offset by lower wireless profitability due to iPhone pressures.
Table 61: Financial Forecasts

$ in millions except per share and per sub values, subs in thousands
Wireless
Subscribers
% change, y/y
% change, y/y
Churn rate, monthly
ARPU, monthly
Service revenue
% change, y/y
% change, y/y
EBITDA margin
Capital Spending
Wireline
Residential Voice Subscribers
% change, y/y
Business Voice Subscribers
% change, y/y
Total Broadband Subscribers
% change, y/y
FiOS TV Subscribers
% change, y/y
Total Wireline Revenue
% change, y/y
% change, y/y
EBITDA margin
Capital Spending
CAPEX/revenue
% change, y/y
EBITDA
% change, y-t-y
EBITDA margin
EBIT
Taxes on EBIT @ 32.0%
Implied tax rate
EPS - Basic
EPS - Diluted
Dividend Per Share
2006
2007
2008
2009
59,052
15.0%
7,691
3%
1.2%
$49.74
32,796
18%
14,513
20%
44.3%
6,618
20.2%
65,707
11.3%
6,653
-13%
1.2%
$50.92
38,016
15%
16,966
17%
44.6%
6,503
17.1%
85,275
29.8%
7,005
5%
1.4%
$50.84
49,717
33%
22,848
35%
46.0%
6,510
13.1%
89,172
4.6%
5,657
-19%
1.4%
$50.21
52,046
3%
23,668
4%
45.5%
7,152
13.7%
94,590
6.1%
5,304
-6%
1.3%
$50.41
55,627
5%
25,875
9%
46.5%
8,405
15.1%
26,762
-10%
16,476
NM
6,786
32%
207
NM
49,504
23,910
-8%
15,863
-4%
8,013
18%
943
356%
49,129
-1%
13,421
1%
27.3%
10,956
22%
20,956
-10%
14,966
-6%
8,673
8%
1,918
103%
48,214
-2%
12,893
-4%
26.7%
9,797
20%
15,618
-24%
12,540
-16%
8,160
-6%
2,750
43%
42,451
-12%
9,239
-28%
21.8%
8,892
21%
30%
14,264
10,458
3,347
32.0%
17,101
92,375
11%
30,665
24%
33%
14,120
16,545
5,294
32.0%
17,538
97,096
5%
32,572
6%
34%
14,505
18,067
5,781
32.0%
17,238
107,808
11%
35,695
10%
33%
16,215
19,480
6,234
32.0%
17,047
$1.32
$1.31
$1.61
$2.39
$2.39
$1.64
$2.54
$2.54
$1.75
$2.40
$2.40
$1.86
13,325
26.9%
10,259
21%
83,410
24,722
2010E
2012E
2013E
2014E
2015E
2016E
2017E
2018E
2019E
2020E
98,956
4.6%
4,366
-18%
1.3%
$50.66
58,945
7%
25,854
0%
43.9%
8,842
15.0%
102,265
3.3%
3,309
-24%
1.3%
$50.92
61,522
3%
28,152
9%
45.8%
9,228
15.0%
105,116
2.8%
2,850
-14%
1.3%
$51.04
63,545
3%
29,986
7%
47.2%
9,214
14.5%
107,446
2.2%
2,330
-18%
1.3%
$51.17
65,287
3%
31,137
4%
47.7%
9,467
14.5%
109,348
1.8%
1,902
-18%
1.3%
$51.17
66,581
2%
31,762
2%
47.7%
9,654
14.5%
110,897
1.4%
1,549
-19%
1.3%
$51.17
67,636
1%
32,477
2%
48.0%
9,807
14.5%
112,247
1.2%
1,350
-13%
1.3%
$51.17
68,524
1%
33,113
2%
48.3%
9,936
14.5%
113,421
1.0%
1,174
-13%
1.3%
$50.86
68,881
1%
33,317
1%
48.4%
9,988
14.5%
114,439
0.9%
1,017
-13%
1.3%
$50.56
69,131
0%
33,447
0%
48.4%
10,024
14.5%
115,316
0.8%
878
-14%
1.3%
$50.25
69,286
0%
33,513
0%
48.4%
10,047
14.5%
14,112
-8%
11,803
-6%
8,440
3%
3,465
26%
41,184
-3%
8,539
-8%
20.7%
6,942
17%
12,862
-10%
11,213
-5%
8,710
3%
4,107
19%
40,775
-1%
9,021
6%
22.1%
6,116
15%
11,962
-8%
10,672
-5%
8,953
3%
4,621
13%
40,393
-1%
9,139
1%
22.6%
6,059
15%
11,142
-8%
10,247
-4%
9,171
2%
5,057
9%
40,259
0%
9,350
2%
23.2%
6,039
15%
10,522
-6%
9,950
-3%
9,368
2%
5,429
7%
40,152
0%
9,566
2%
23.8%
6,023
15%
10,022
-6%
9,550
-4%
9,545
2%
5,744
6%
39,852
-1%
9,614
1%
24.1%
5,978
15%
9,642
-4%
9,312
-2%
9,704
2%
6,012
5%
39,580
-1%
9,667
1%
24.4%
5,541
14%
9,502
-2%
9,212
-1%
9,848
1%
6,240
4%
39,432
0%
9,749
1%
24.7%
5,323
14%
9,502
0%
9,212
0%
9,977
1%
6,434
3%
39,543
0%
9,896
1%
25.0%
5,141
13%
9,502
0%
9,212
0%
10,093
1%
6,599
3%
39,747
1%
10,066
2%
25.3%
5,167
13%
9,502
0%
9,212
0%
10,197
1%
6,739
2%
39,953
1%
10,238
2%
25.6%
5,194
13%
106,437
-1%
35,420
-1%
33%
16,256
19,164
6,132
32.0%
16,121
108,190
2%
34,714
-2%
32%
16,397
18,317
5,861
32.0%
15,894
110,078
2%
37,140
7%
34%
16,445
20,695
6,622
32.0%
16,223
111,829
2%
39,018
5%
35%
16,713
22,305
7,138
32.0%
16,189
113,890
2%
40,385
4%
35%
16,899
23,485
7,515
32.0%
16,425
114,978
1%
41,058
2%
36%
17,027
24,031
7,690
32.0%
16,568
115,841
1%
41,826
2%
36%
17,125
24,701
7,904
32.0%
16,284
116,651
1%
42,544
2%
36%
17,200
25,344
8,110
32.0%
16,195
117,181
0%
42,894
1%
37%
17,207
25,688
8,220
32.0%
16,064
117,687
0%
43,195
1%
37%
17,199
25,996
8,319
32.0%
16,127
118,094
0%
43,432
1%
37%
17,179
26,253
8,401
32.0%
16,176
$2.27
$2.27
$1.91
2011E
$2.23
$2.23
$1.96
$2.45
$2.45
$1.98
$2.63
$2.63
$2.02
$2.82
$2.82
$2.06
$2.90
$2.90
$2.10
$3.01
$3.01
$2.14
$3.11
$3.11
$2.19
$3.18
$3.18
$2.23
$3.25
$3.25
$2.27
$3.32
$3.32
$2.32
CAGR
10E-20E
2%
-16%
0%
2%
3%
2%
-4%
-2%
2%
7%
0%
2%
-3%
1%
2%
0%
4%
2%
137
Philip Cusick, CFA

(1-212) 622-1444

13 January 2011
Table 62: Verizon DCF Analysis

Plus: Verizon Wireless net cash (debt), end of period
PMV -- Equity
Less 45% Vodafone Ownership
PMV of Wireless to Verizon Equity
2010E
149,459
(35,338)
(47,080)
67,040
164,395
231,435
(13,037)
218,398
(98,279)
120,119
2011E
201,376
(48,031)
(61,557)
91,788
125,036
216,824
926
217,750
(97,987)
119,762
NPV of Verizon Corp. EBITDA 12E -- 20E

NPV of Verizon Corp. taxes paid 12E -- 20E
NPV of Verizon Corp. Capex 12E -- 20E
NPV of Verizon Corp. free cash flow 12E -- 20E
NPV of Verizon Corp. 2020 terminal value @ 6.2x EBITDA
PMV of Verizon Corporation
Less 45% Vodafone Ownership of Verizon Wireless
PMV of consolidated operations
195,413
(35,512)
(81,965)
77,936
173,694
251,630
(98,279)
153,351
260,993
(48,906)
(103,728)
108,360
141,194
249,553
(97,987)
151,566
Plus (less): investments

Less: net debt, end of period (2)
PMV -- Equity
4,979
(45,540)
112,791
4,979
(37,502)
119,043
2,832
2,837
0
2,837
$35.93
$37.76
2008
14.2x
14.9x
2009
15.0x
15.8x
2010E
15.8x
16.6x
2011E
16.1x
16.9x
2012E
14.7x
15.4x
134,471
139,662
4.1x
4.3x
5.4x
5.7x
5.7x
5.9x
5.8x
6.1x
5.5x
5.7x
4.9%
4.6%
5.2%
4.9%
5.3%
5.1%
5.4%
5.2%
5.5%
5.2%
Valuation Multiples
Current Price P/E
Target Price P/E
Current EV/EBITDA
Target Price EV/EBITDA
Current Dividend Yield
Target Price Dividend Yield
1

Shares to be issued/warrants/options (1)
2,832
Corporate Valuation Method:

1

6.0x
Verizon Valuation Grid - Sensitivity to corproate DCF per Share

Terminal Growth Rate (across) on 2020E corporate FCF, Discount Rate (down)
$37.76
6.5%
7.0%
7.5%
8.0%
8.5%
$39.83
10%
$35.84
$41.95
10%
$37.76
$1.96
10.5%
2010E
35,420
23,777
2011E
34,714
23,080
2012E
37,140
24,471
EPS, diluted
Current consolidated P/E
$2.27
15.8x
$2.23
16.1x
$2.45
14.7x

Verizon Corp Free Cash Flow (excludes VOD portion of VZW)
Verizon Corp. FCF / diluted share
Verizon Corp. FCF yield (current)
FCF multiple
16,407
9,057
$3.20
8.9%
11.2x
13,591
6,151
$2.17
6.0%
16.6x
12,747
4,323
$1.52
4.2%
23.6x
8.2x
8.9%
9.9x
6.0%
10.5x
4.2%
PMV per share

Year-end 2011 fair value per share
Total upside to current level

8.0x
-0.5%
43
37
32
27
23
0.0%
47
40
35
30
25
0.5%
51
44
$37.76
32
28
1.0%
57
49
41
35
30
1.5%
63
54
46
39
33
Consolidated Valuation Based on Consolidated Forward P/E Multiple

Consolidated EBITDA (includes 100% of VZW)
Verizon Corp EBITDA (excludes VOD portion of VZW)
EV/FCF
FCF Yield

P/E Multiple on Continuing Earnings Per Share
12x
14x
16.0x
18x
20x
138
10x
12x
14.0x
16x
18x
2011E
22
27
$31.20
36
40

Operational Free Cash Flow Multiple
10x
12x
15.0x
17x
20x
2010E
27
32
$36.30
41
45
2010E
Diluted
32
38
$47.97
54
64
10x
12x
15.0x
17x
20x
2011E
Diluted
32
38
$47.97
54
64
Philip Cusick, CFA

(1-212) 622-1444

13 January 2011
Sprint Nextel
We initiate coverage on Sprint with an Overweight rating and year-end 2011 price
target of $7, implying 50% upside from current levels. In our view, the companys
continued operational turnaround offers investors an excellent risk/reward and we see
Sprint as the stock in our coverage with the largest potential upside over the next 13 years. We expect Sprint to add postpaid subscribers for the first time in three years
in 4Q10 and to grow from there, and for margins to stabilize near recent levels for
2011.
Overweight
Sprint Nextel (S;S US)
Company Data
Price ($)
Date Of Price
52-week Range ($)
Mkt Cap ($ bn)
Fiscal Year End
Shares O/S (bn)
Price Target ($)
Price Target End Date
4.41
12 Jan 11
5.31 - 3.10
13.19
Dec
3
7.00
31 Dec 11
EPS ($)
Q1 (Mar)
Q2 (Jun)
Q3 (Sep)
Q4 (Dec)
FY
2009A
2010E
2011E
(0.21)
(0.13)
(0.17)
(0.34)
(0.85)
(0.52)
(0.29)A
(0.25)A
(0.30)A
(0.29)A
(1.14)A
(1.14)A
(0.11)
(0.10)
(0.09)
(0.15)
(0.45)
(0.67)
Source: Company dat a, Bloomberg, J.P. Morgan estimates. Not e: EPS f igures bas ed on GAAP results.
'Bloom berg' abov e denot es Bloomberg cons ensus est imat es .

Continued turnaround to drive improvements in subscriber trends
Sprint in the last three years has managed to improve its customer satisfaction scores,
handset offering, and network quality dramatically and we expect this to continue in
2011. The result has been improvements in gross addition share and churn rates, and
the stabilization of ARPU at the $55 level from what had once been mid-single-digit
percentage annual declines. Using a recent Consumer Reports survey as an indicator,
we expect continued improvements in 2011 and beyond.
Top-line improvement leads to margin stability or better
We expect Sprint wireless service revenue to grow by 1.4% in 2011 as subscribers
grow, which should reduce the pressure on margins. We dont model margin
expansion as the cost of handsets and early network transition efforts will keep costs
up, but believe there could be upside to our forecast if postpaid churn declines more
than the 18 basis points we model. While our EBITDA estimate is somewhat below
Street consensus, we see more upside than downside risk to our model from here.
Free cash flow still substantial as EBITDA stabilizes but capex ramps
We expect Sprint to increase capital spending by 37% to $2.8 billion in 2011 and
further to $3.2 billion in 2012. This is offset somewhat by ~$500 million of spectrum
swap spend in 2010 that will not recur, and we model $1.3 billion in cash generation
in 2011 (a 9.1% yield at current levels) and $1.2 billion in 2012 (8.7% yield).
139
Philip Cusick, CFA

(1-212) 622-1444

13 January 2011
Network modernization offers long-term benefits but near-term financial drag

Sprint will start in 2011 to roll out a three- to five-year network upgrade. Early on we
expect margin headwinds including tower amendment costs but by late 2012 the
company should see improved coverage and the start of roaming savings. Sprints
guidance implies EBITDA margin in the mid-20s to 30% long term, which would
offer substantial upside to our model (20-21% long-term margins).
Expect additional Clearwire investment, eventually
Clearwires recent debt raise takes some of the pressure off, but we eventually expect
Sprint to contribute more cash to fund further 4G buildouts. The relationship,
unfortunately, has been bumpy, and both companies need to be building faster to
keep up with competitive offers and network demands.
Investment Risks
Clearwire issues remain unresolved
Clearwire needs substantial capital, and with Sprint owning 54% of the company, we
think it is unlikely to attract enough from anyone other than Sprint. Until the
relationship is clarified, the risk of substantial further investment and duplicative
capital spending efforts likely will be a drag on both companies stocks. We believe
the worst case could be that Sprint is forced to consolidate Clearwire for accounting
purposes (potentially creating issues with its debt covenants), but not really be able
exert control over the company and its spending.
Verizon takes significant share with iPhone
When Verizon launches the iPhone in early February, it could impact Sprints ability
to generate subscriber growth, as Apple fans that werent willing to go to AT&T
could leave Sprint for Verizon. In addition, we assume that Sprint is able to sell the
iPhone as well eventually, which could prove inaccurate.
Network modernization effort could be delayed or take more capital than
planned
Sprints network modernization effort includes a number of new technologies that
could perform worse than expected or fail entirely. In addition, the network transition
could cost more in terms of Opex and Capex than we and the company expect or
impact network quality and subscriber experience.
Company Description
Sprint is the third-largest wireless company in the US and also owns a global longdistance and internet backbone. Over 87% of revenue comes from wireless. The
company is the result of the merger of Sprint and Nextel in 2005 as well as the
acquisition of a number of affiliates, including Alamosa and iPCS, and Virgin
Mobile which was purchased in 2009. With a national footprint running on CDMA
technology, the company has close to 49 million wireless subscribers and has
stabilized that base from a high-single-digit percentage loss rate in 2008 to a lowsingle-digit rate year to date in 2010. Sprint also holds a non-controlling 54% stake
in Clearwire, which is currently building a 4G network using WiMAX technology.
140
Philip Cusick, CFA

(1-212) 622-1444

13 January 2011

We establish a year-end 2011 price target of $7/share for Sprint. We base our target
price primarily on a discounted cash flow analysis that assumes an 8.5% WACC for
the wireless business and 7.5% WACC for wireline. We also use perpetual growth
rates of 1.0% and 0.0% for wireless and wireline, respectively. Finally, we give
Sprint credit for $3.4 billion in NOLs and its 54% stake (pre-conversion of recently
issued out-of-the-money exchangeable notes) in Clearwire based on the current
$5.61 price of CLWR shares. Shares also appear attractive on an EV/EBITDA basis,
trading at 4.6x our 2011E EBITDA, compared to wireless peers at 5.1x and AT&T
and Verizon at an average of 5.9x.
Poised for Continued Postpaid Improvement

Though better, Sprints churn is
still 2x Verizons
Subscriber trends have improved

Sprint has demonstrated steady improvement in its share of industry postpaid gross
additions, which has risen from 12.2% in 2Q09 to 18.2% in 3Q10, and we expect
Sprint to garner share roughly 19% in 4Q10. Unfortunately, however, the company
continues to lose subscribers as its churn of 1.93% in 3Q10, although down from the
mid-2% highs, is still nearly twice that at AT&T and Verizon. Sprint is faced with
the task of continuing to grow gross additions, while reducing churn, and managing
all of this while keeping an eye on EBITDA margins.
Wholesale,
8.5%
Postpaid
iDEN, 12.3%
Prepaid
CDMA,
14.6%
Prepaid
iDEN, 9.2%
Postpaid
CDMA,
55.3%
Table 63: Postpaid Subscriber Metrics

In thousands
Postpaid Gross Adds
Postpaid Disconnects
Postpaid Net Adds
1Q09
1,184
(2,434)
(1,250)
2Q09
1,157
(2,148)
(991)
3Q09
1,415
(2,216)
(801)
4Q09
1,636
(2,140)
(504)
1Q10
1,594
(2,172)
(578)
2Q10
1,619
(1,847)
(228)
3Q10
1,810
(1,917)
(107)
4Q10E
1,860
(1,835)
25
1Q11E
1,711
(1,736)
(25)
2Q11E
1,838
(1,738)
100
3Q11E
1,792
(1,742)
50
4Q11E
1,846
(1,746)
100
141
Philip Cusick, CFA

(1-212) 622-1444

13 January 2011
Figure 70: Share of Big 4 Postpaid Gross Adds and Disconnects

40.0%
35.3%
35.0%
30.7%
27.8% 27.1% 27.1%
26.2%
30.0%
24.7% 24.6% 25.4%
25.0%
23.4%
21.8% 21.8%
20.2% 19.9% 20.3% 20.5%
20.0%
15.0%
18.5%
15.8%
10.0%
11.8% 12.1% 12.2% 12.2%
13.8%
16.3%
18.1% 18.2% 18.2%
19.4% 18.7% 19.7% 19.2% 19.7%
1Q10
4Q10E 1Q11E 2Q11E 3Q11E 4Q11E
5.0%
0.0%
1Q08
2Q08
3Q08
4Q08
1Q09
2Q09
3Q09
Postpaid Gross Adds
4Q09
2Q10
3Q10
Postpaid Disconnects
Sprint nearly tied with Verizon

on customer score
Customer satisfaction surging. We believe that Sprints rebound in gross additions

can be attributed to a number of factors including a better handset selection,
improved network performance, and better customer service experience. As a result,
Sprints overall customer score (as measured by Consumer Reports) surged from 67
(out of 100) to 73 in the last year only one point off Verizons and compared to 69
at T-Mobile and 60 at AT&T.
Can share gains continue?
Given the trailing nature of customer satisfaction surveys and Sprints steady
improvement thus far, we believe the company needs to continue to gain gross add
share and reduce churn from here. In addition, with widespread complaints regarding
the AT&T and T-Mobile networks, Sprint should have the chance to benefit as
contracts for customers currently at those two carriers expire, giving dissatisfied
consumers an opportunity to switch.
However, the company may face some headwinds in early 2011. Although Sprint
offers lower smartphone monthly price plans, some customers may be tempted to
make the switch to Verizon and the iPhone, which will be launched in early
February. Some customers who would like an iPhone may have held off making a
switch to AT&T, given perceptions of network issues at that carrier.
iPhone could come to Sprint, perhaps as early as mid-2011
We would not be surprised to see Sprint gain access to the CDMA iPhone, perhaps
as early as mid-2011 after Apple has ramped up Verizon inventory and made sure it
can satisfy demand there (unlike T-Mobile and AT&T, Sprint can use the exact same
phone as Verizon with full functionality). Historically, once a device has moved
beyond exclusivity at one carrier, most carriers have typically also offered the device
within a year. While there is the prospect that Sprint may have to pay somewhat
more than Verizon for the already expensive device, recent high-end handsets sold at
Sprint that have WiMAX as well as CDMA already wholesale in the $550-600 range,
and the average iPhone shouldnt cost much more.
142
Philip Cusick, CFA

(1-212) 622-1444

13 January 2011
Apple is unlikely to make a WiMAX version, in our view, and Sprint could fall
behind again with Apple if it and Clearwire stick with WiMAX while the global
evolution moves toward LTE.
In the meantime, we believe Sprint needs to continue pushing its new, attractive
handsets. Launches on the Android platform, particularly the EVO with WiMAX,
over the past several months have helped take Sprint up to parity with AT&T and
Verizon (aside from the iPhone of course), and we believe to a somewhat better
position than T-Mobile.
Figure 71: Sprint Nextel Smartphones
HTC EVO 4G $199.99
Samsung Epic 4G $249.99
Motorola i1 $149.99
HTC Hero $149.99
Samsung Intercept $99.99
Samsung Transform $49.99
LG Optimus S $0
Sanyo Zio $0
Prepaid Less of a Driver Going Forward

Boost iDEN seems to be falling
off
Reinvigorated competitor offerings provide a challenge

When Sprint initially rolled out its Boost Mobile unlimited pay-by-the-month offer in
January 2009, the company had the competitive advantage of offering a nationwide
network. The companys main competitors at the time, Leap Wireless and
MetroPCS, could not match the offer. However, over time that advantage has
dissipated. In addition, through its wholesale relationship with Verizon (and now
AT&T and T-Mobile as well), Tracfone rolled out a nationwide offer (Straight Talk)
at a discount to the Boost plan. Also, MetroPCS and Leap have signed extensive
roaming agreements that effectively give them the ability to market nationwide
coverage. Their offers, as well as Tracfones, are priced at a $5-$10 discount relative
to the $50 price for new Boost customers.
143
Philip Cusick, CFA

(1-212) 622-1444

13 January 2011
Table 64: Prepaid Pricing Comparison

LD
X
X
X
X
SMS
X
X
X
X
Data
$35
$45
$55 Android
$55 Blackberry
Talk
X
X
X
X
X
X
X
Taxes
~10%
$35.00
$45.00
$55.00
$55.00
$40
$45
$50
$60
$60 Blackberry
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
$40.00
$45.00
$50.00
$60.00
$60.00
$50
$50.00
Talk
$0.10/min
1500 Talk
X
X
LD
X
X
X
Text
X
X
X
X
Data
$15
$30
$50
$70
30 MB data
100 MB data
2 GB data
$25
$40
$60
Talk
300
1200
X
LD
X
X
X
SMS
X
X
X
Web
X
X
X
$27.50
$44.00
$66.00
$30
$45
1000
X
X
X
1000
X
30 MB
X
$33.00
$49.50
$15
$30
200
500
X
X
$16.50
$33.00
$10
$20
$30
50
125
200
X
X
X
$11.00
$22.00
$33.00
$10
$25
$50
$30
$45
100
400
1000
1200
unlimited
X
X
X
X
X
$10.00
$25.00
$50.00
$30.00
$45.00
Leap
PCS
Boost
T-Mobile
Virgin Mobile
Taxes
$16.50
$33.00
$55.00
$77.00
Straight Talk
Net-10
TracFone Value Plans
Page Plus
1200
X
50 MB
20MB
Source: Company websites.
Price war for unlimited pay-by-the-month market on hold for now

After a roughly 18-month period of price competition, the prepaid pricing
environment appears to have stabilized for now. However, share gains across all
competitors could slow, with limited points of differentiation across the market.
Instead, competitors are likely to pursue remaining industry growth in the prepaid
market and use promotions from time to time to win incremental share. We believe
Sprint management prefers to see stable ARPU trends rather than outsized subscriber
gains for what is considered to be a non-core prepaid business.
144
Philip Cusick, CFA

(1-212) 622-1444

13 January 2011
Figure 72: Prepaid Net Adds

In thousands
1,000
800
777
674
666
600
435
400
471
450
3Q10
4Q10E
348
173
200
0
1Q09
2Q09
3Q09
4Q09
1Q10
2Q10
Sprints other prepaid brands

However, to some degree, Sprint has tried to respond to the competition with
differentiated offerings through its Virgin Mobile and Assurance brands. The Virgin
Mobile offers are priced lower and put more emphasis on unlimited messaging
services and data, while limiting minutes of use. We believe Sprint is using the
Virgin brand for discounted pricing to avoid pricing down its existing base of Boost
customers at the $40-50 price point.
Assurance ARPU is only
~$10/month
Assurance represents the majority of prepaid growth

Sprint is also targeting the very low end of the market with its Assurance offer,
which offers customers who qualify for USF Lifeline service a free handset and
250 minutes per month. Assurance is now available in 15 states after three were
added in 4Q10 and one thus far in 2011, and we believe has roughly 1-2 million
customers. Assurance competes primarily with Tracfones Safe Link, which has had
to increase the number of minutes it offers to keep up with growth in Assurances
offer.
4G Rollout Slowing Creates Competitive Questions

Slower Clearwire build could
create 3G congestion
Clearwire still an overhang, but less so

Sprints investment in Clearwire still represents its 4G strategy. Through its 54%
ownership and wholesale agreement, Sprint utilizes Clearwires spectrum and
network (Clearwire leverages Sprints network as well for roaming), which has
grown from covering 45 million to 120 million people in the past 12 months. Even at
that coverage breadth though, Sprint still needs Clearwire to continue building its
network and adding capacity and coverage to launched markets.
Unfortunately, funding has been and somewhat remains the primary hurdle for
Clearwire adding more markets. Clearwire recently raised $1.3 billion of convertible
debt and secured debt funding, which we estimate will be enough to get to positive
free cash flow if the company stops adding new markets and just increases
penetration in cities in which it has already launched. To grow aggressively again in
2011, Clearwire will need substantial additional funding, which could come in the
form of a spectrum sale, or an equity infusion from Sprint or a new strategic partner.
145
Philip Cusick, CFA

(1-212) 622-1444

13 January 2011
Sprint may be hesitant to make additional investments

Sprint has the cash to invest in Clearwire, but we believe the two partners disagree on
critical matters, including wholesale pricing for smartphones and Clearwires retail
strategy. Without more control, Sprint seems to be reluctant to continue to fund
Clearwire significantly more than it has already.
Although Sprint does not control Clearwire, it does have >50% ownership and under
the most conservative accounting could be required to consolidate Clearwire
financials for accounting purposes. While its auditor KPMG did not require this in
2009, if this were to change, Sprint could break the 4.5x leverage covenant on its
$2.1 billion revolving credit facility triggering the need to renegotiate the terms or
possibly pay a fee.
Clearwire slowdown could impede Sprints marketing, clog 3G network
After the recent debt offering, Clearwire management (which detailed a goingconcern risk in its third quarter 10-Q) has more breathing room, but still needs more
cash to expand as aggressively as it and Sprint would like.
Without additional funding, Clearwire would have to survive on its latest round of
funding, which would limit expansion. Sprint though is aggressively selling
smartphones that include WiMAX for a large premium, which is wasted on
customers that buy the device outside of a Clearwire market. Even worse, in our
view, in those non-Clearwire markets, Sprint may be spending fairly little on 3G
capacity in anticipation of its network modernization plan, and could start to see
network congestion as its smartphone mix increases.
Network Revamp to Generate Savings and Improve

Performance
Network modernization plan will improve coverage, lower costs
Sprint recently confirmed plans to swap out its 3G network and decommission its
iDEN network over time. The company plans to reduce its iDEN footprint by
eliminating sites in limited use and eventually phasing out all iDEN sites, and
believes it can reduce its total cell site footprint by 20k, from 68k today.
As part of the network modernization (officially called Network Vision), Sprint will
install new equipment that utilizes a single base station for multiple frequency bands;
the multi-modal equipment will work with all of the companys 800 and 1900 MHz
spectrum frequencies (and possibly Clearwires 2500 MHz spectrum eventually). In
addition, with the multi-modal equipment, Sprint can begin offering CDMA services
on the 800 MHz spectrum, achieving better propagation (signal strength) and inbuilding penetration.
Meaningful long-term expense savings after extra upfront spend of $4-5 billion
Today, Sprint needs to use dedicated equipment for each spectrum band, resulting in
duplicative maintenance capital and tower rent expenses. The new multi-modal
equipment, however, will enable site decommissioning and thus reduced cell site
expense. In addition, with the 800 MHz spectrum, Sprint can also reduce its need to
roam on other carriers networks given the signal strength of the frequency we
estimate that Sprint currently spends in the range of $1 billion on roaming annually.
146
Philip Cusick, CFA

(1-212) 622-1444

13 January 2011
To achieve this goal, Sprint will need to spend $4-5 billion in incremental capital
expenditure and operating expenses over a three- to five-year period. However, the
company estimates savings of $10-11 billion over the expected seven-year time
horizon to complete the project. While spending on the network is likely to start in
the second half of 2011, we dont expect to see any margin improvement until 2013
when CDMA coverage at 800 MHz and new handsets to access it are substantially
rolled out.
Figure 73: Network Transition Plan Spectrum Reconfiguration
Source: Sprint website (used with permission).
$10-11 billion in savings could translate to low- to mid-20s EBITDA margins

Using Sprints $10-11 billion in expected savings, we estimate that the company
expects to save $1-2 billion annually in the mid- to later years of deployment, which
we would consider 2014 and 2015. On our current $23 billion wireless service
revenue estimate in 2014 that would imply margin expansion of 400-800 basis points
from the roughly 17% levels recently, or a low- to mid-20s margin. Instead, we
conservatively estimate wireless margins of only 20% in that year, and only 21%
peak margins when the project is complete.
147
Philip Cusick, CFA

(1-212) 622-1444

13 January 2011
Figure 74: Network Transition Plan Base Station Reconfiguration
Source: Sprint website (used with permission).
Implications for existing iDEN customers

We estimate that at year-end 2010 Sprint had 10.1 million iDEN customers, down
from 12.9 million 12 months ago. Although this decline is likely to continue as the
network modernization plan begins, the 6.0 million postpaid iDEN customers, in our
view, are particularly important from a strategic standpoint, as many are public safety
and other government employees, and Sprint will work to ensure that they are served
on CDMA. We expect it to take several years for this transition from iDEN to
CDMA to occur, with the shutdown beginning in 2013 and completion in 2017.
The first Q-Chat was doomed by
weak CDMA coverage
148
Second coming of Q-Chat to enable transition

In order to serve iDEN customers on CDMA, Sprint plans to implement a secondgeneration version of the Q-Chat (developed by Qualcomm) software, which enables
push-to-talk (PTT) capabilities on the CDMA technology. Sprint first launched
Q-Chat in mid-2008, but with the weaker CDMA coverage there was limited
adoption and Sprint eventually stopped selling most of the phones (the Motorola
Renegade V950 was launched in September 2008 and is the last CDMA PTT
available). Many push-to-talk users, given the critical nature of their work, need
ubiquitous coverage and the 1900 MHz spectrum used for CDMA services is not
sufficient in some circumstances. However, once Sprint offers CDMA on 800 MHz,
the company expects the push-to-talk abilities to maintain the same dependability
available currently with iDEN.
Philip Cusick, CFA

(1-212) 622-1444

13 January 2011
Expect free cash flow to decline as margins remain tight, capex ramps
Between continued aggressive handset sales and heavy roaming expense, we model
Sprint wireless EBITDA margins to contract to 17.0% for 2011, from an estimated
17.3% for 2010. At the same time, we model consolidated capital spending
increasing to $2.8 billion in 2011 and $3.2 billion in 2012 as Sprint gets into the
heart of its network upgrade. Net-net, we estimate free cash flow for Sprint will
decline to $1.3 billion in 2011 ($0.43 per share or a 9.1% yield) from $1.8 billion in
2010 and $2.7 billion in 2009.
Table 65: Free Cash Flow Trends
$ millions, except per share data
Free Cash Flow
FCF per share
% y-t-y change
2008
1,496
$0.52
-95.3%
2009
2,697
$0.94
78.9%
2010E
1,799
$0.60
-35.7%
2011E
1,276
$0.43
-29.2%
2012E
1,219
$0.41
-4.5%

We expect Sprint to generate meaningful wireless subscriber growth in 2011,
following a return to positive territory in 2010. Most importantly, while prepaid grew
in 2009 and 2010, we expect postpaid to finally generate positive net additions for
the full year in 2011. Specifically, we forecast 225k postpaid net adds in 2011 and
modest improvement in out years, compared to a loss of 888k in 2010. For prepaid,
we forecast 1,250k adds in 2011, down from 1,442k in 2010. Prepaid should
continue to slow in out years, in line with general industry trends. While subscriber
trends should improve, we do not expect meaningful ARPU growth as data
penetration helps to offset dilution from continued prepaid outperformance. Our
operating forecasts drive estimated service revenue growth of 1% in 2011 and 2% in
2012.
On the wireline side, revenue declines are likely to persist with secular pressures
driving less voice spending. In addition, the gradual reduction in business from Time
Warner Cable will also have an impact. However, improved Internet trends should
help support a deceleration in top-line declines. We forecast wireline revenue to fall
8% in 2011 and 3% in 2012, compared to 12% in 2010.

We believe Sprint has put a significant amount of effort into trimming its cost
structure. With the return of revenue growth, we expect wireless service margins to
begin to stabilize. The company is unlikely to see flat or expanding margins until the
second half of 2011, as gross adds drive some near-term dilution. As a result, we
estimate 30 bps of service margin pressure in 2011 and then 30 bps of expansion in
2012. In line with revenue pressure, the wireline business is expected to see
continued pressure on margins. Sprint recently announced plans to modernize its
network, which will put upward pressure on capital spending. Continued EBITDA
pressure and approximately $700 million of incremental capital expenditures in 2011
are expected to cause a 42% decline in free cash flow in 2011, though we expect cash
flow to remain flat in 2012 as EBITDA growth offsets further increases in capital
spending.
149
Philip Cusick, CFA

(1-212) 622-1444

13 January 2011
Table 66: Sprint Nextel Financial Forecasts and DCF

$ millions except per share and per sub values, subs in thousands
CAGR
08-20E
2007
2008
2009
2010E
2011E
2012E
2013E
2014E
2015E
2016E
2017E
2018E
2019E
2020E
Wireless
Direct ending subscribers
% change, y-t-y
Postpaid
Prepaid
Direct net adds
Postpaid
Prepaid
Postpaid churn rate, monthly
Service revenue
% change, y-t-y
Postpaid ARPU, monthly
% change, y-t-y
EBITDA margin
Pre-tax income
Estimated taxes (paid)/benefit
Tax rate
45,329
-1%
40,751
4,578
(658)
(1,224)
566
2.2%
31,044
0%
$59
9,914
-15%
30.9%
5,314
17%
339
(563)
166%
40,275
-11%
36,678
3,597
(5,054)
(4,073)
(981)
2.2%
27,492
-11%
$56
6,776
-32%
23.8%
2,259
8%
(2,095)
652
31%
44,655
11%
33,967
10,688
(994)
(3,546)
2,552
2.1%
25,286
-8%
$55
5,163
-24%
20.0%
1,161
5%
(3,084)
934
30%
45,160
1%
33,079
12,081
554
(888)
1,442
1.9%
25,623
1%
$54
4,468
-13%
17.3%
1,471
6%
(2,510)
966
39%
46,635
3%
33,304
13,331
1,475
225
1,250
1.7%
25,979
1%
$55
4,465
0%
17.0%
2,350
9%
(873)
336
39%
47,960
3%
33,604
14,356
1,325
300
1,025
1.8%
26,589
2%
$55
4,647
4%
17.3%
2,850
11%
119
(46)
39%
49,360
3%
34,004
15,356
1,400
400
1,000
1.8%
27,136
2%
$55
4,979
7%
18.2%
2,985
11%
904
(348)
39%
50,760
3%
34,504
16,256
1,400
500
900
1.8%
27,750
2%
$55
5,447
9%
19.5%
2,775
10%
1,759
(677)
39%
52,060
3%
35,004
17,056
1,300
500
800
1.8%
28,363
2%
$55
5,901
8%
20.6%
2,553
9%
2,371
(913)
39%
53,160
2%
35,504
17,656
1,100
500
600
1.8%
28,926
2%
$55
6,046
2%
20.7%
2,603
9%
2,695
(1,038)
39%
54,160
2%
36,004
18,156
1,000
500
500
1.8%
29,438
2%
$55
6,170
2%
20.8%
2,649
9%
3,016
(1,161)
39%
55,160
2%
36,504
18,656
1,000
500
500
1.8%
29,934
2%
$55
6,261
1%
20.8%
2,694
9%
3,322
(1,279)
39%
56,160
2%
37,004
19,156
1,000
500
500
1.8%
30,429
2%
$55
6,353
1%
20.7%
2,739
9%
3,646
(1,404)
39%
57,160
2%
37,504
19,656
1,000
500
500
1.8%
30,925
2%
$55
6,447
1%
20.7%
2,783
9%
3,991
(1,537)
39%
Wireline
Revenue
% change, y-t-y
EBITDA
% change, y-t-y
EBITDA Margin
6,463
-2%
1,074
10%
17%
632
10%
6,332
-2%
1,175
9%
19%
495
8%
5,629
-11%
1,221
4%
22%
258
5%
4,951
-12%
1,071
-12%
22%
218
4%
4,564
-8%
980
-8%
21%
228
5%
4,424
-3%
929
-5%
21%
177
4%
4,332
-2%
910
-2%
21%
173
4%
4,214
-3%
885
-3%
21%
169
4%
4,156
-1%
873
-1%
21%
166
4%
4,153
0%
872
0%
21%
166
4%
4,163
0%
874
0%
21%
167
4%
4,183
0%
878
0%
21%
167
4%
4,215
1%
885
1%
21%
169
4%
4,256
1%
894
1%
21%
170
4%
Consolidated
Revenue
% change, y-t-y
EBITDA
% change, y-t-y
EBITDA margin of service revenue
40,149
-2%
10,800
-15%
29%
35,635
-11%
7,664
-29%
23%
32,260
-9%
6,407
-16%
21%
32,354
0%
5,551
-13%
18%
32,405
0%
5,420
-2%
18%
32,794
1%
5,670
5%
18%
33,161
1%
5,972
5%
19%
33,670
2%
6,404
7%
20%
34,279
2%
6,835
7%
21%
34,877
2%
6,968
2%
21%
35,435
2%
7,082
2%
21%
35,993
2%
7,167
1%
21%
36,561
2%
7,254
1%
21%
37,140
2%
7,346
1%
21%
0%
GAAP EPS, diluted
($10.27)
($0.98)
($0.85)
($1.14)
($0.45)
($0.08)
$0.15
$0.33
$0.45
$0.52
$0.60
$0.66
$0.74
$0.82
0%
14,008
20,485
2010E
NM
NM
2011E
NM
NM
2012E
NM
NM
2013E
30.7x
30.7x
4.6x
5.7x
4.7x
5.9x
4.5x
5.6x
4.3x
5.3x
12.5%
8.5%
8.8%
6.0%
8.0%
5.5%
9.8%
6.7%

2010E
39,240
(4,783)
(19,166)
15,291
13,071
28,362
2011E
34,775
(5,119)
(16,816)
12,840
14,678
27,519
NPV of Wireline cash EBIT 12E -- 20E

NPV of Wireline taxes paid 12E -- 20E
NPV of Wireline and corporate capex 12E -- 20E
NPV of Wireline free cash flow 12E -- 20E
NPV of Wireline 2020 terminal value @ 7x EBITDA
PMV of Wireline operations (ex corporate capex)
NPV of NOLs
6,663
(1,199)
(1,311)
4,154
3,120
7,274
3,046
38,682
5,683
(1,052)
(1,082)
3,548
3,120
6,668
3,476
37,662
Plus (less): investments (1)

PMV -- Equity
2,787
(15,443)
22,980
2,787
(14,212)
22,761


Shares to be issued/warrants/options
2,988
3
2,991
2,990
3
2,993
PMV per share

Target Price - Year-end 2011
Upside to Target Price
$7.68
10%
$6.92
$7.60
10%
$6.84
46.2%
Valuation Multiples
Current Price P/E
Fair Value P/E
$4.68
$6.84
25,433
31,911
Current EV/EBITDA
Fair value EV/EBITDA
Current FCF yieWireline
Fair value FCF yieWireline

6.0x
1
Wireline Valuation Method:

6.0x
100%
Assign % of Market For Clearwire Stake (0-100%)
Sprint Nextel Valuation Grid - Sensitivity to Wireless DCF per Share

Terminal Growth Rate (across) on 2012E Wireless FCF, Discount Rate (down)
$6.84
7.5%
8.0%
8.5%
9.0%
9.5%
0.0%
7
7
6
6
5
0.5%
8
7
7
6
6
1.0%
8
7
$6.84
6
6
1.5%
9
8
7
7
6
Consolidated Valuation Based on Forward FCF Multiple

Consolidated EBITDA
Consolidated FCF / diluted share
Consolidated FCF yield (current)
FCF multiple
EV/FCF
150
2010E
5,551
1,799
2011E
5,420
1,276
2012E
5,670
1,219
$0.60
12.9%
7.8x
$0.43
9.1%
11.0x
$0.41
8.7%
11.5x
14.1x
19.9x
20.9x

Operational Free Cash Flow Multiple
8x
10x
12.0x
15x
20x
2010E
Diluted
5
6
$7.23
9
12
10x
12x
15.0x
20x
25x
2011E
Diluted
4
5
$6.40
9
11
2.0%
9
8
8
7
6
3%
NM
1%
0%
0%
-8%
-3%
-2%
-9%
0%
Philip Cusick, CFA

(1-212) 622-1444

13 January 2011
Clearwire
Initiating with Neutral Rating and $6 YE11 Price Target
We initiate coverage of Clearwire with a Neutral rating and a December 2011 price
target of $6.00/share, implying approximately 7% upside from current levels. In our
view, the company has a tremendous asset base in its wireless spectrum and
wholesale relationships, which are being diluted by an overly aggressive retail effort
that is actually preparing to ramp further in 2011. This, combined with the
companys continuing funding needs if it wants to continue to build out, forces us to
the sidelines.
Neutral
Clearwire (CLWR;CLWR US)
Company Data
Price ($)
Date Of Price
52-week Range ($)
Mkt Cap ($ bn)
Fiscal Year End
Shares O/S (mn)
Price Target ($)
5.70
12 Jan 11
8.82 - 4.63
5.62
Dec
986
6.00
31 Dec 11
EPS ($)
Q1 (Mar)
Q2 (Jun)
Q3 (Sep)
Q4 (Dec)
FY
2009A
2010E
2011E
(0.38)
(0.38)
(0.43)
(0.55)
(1.75)
(1.40)
(0.48)A
(0.13)A
(0.58)A
(0.60)A
(1.79)A
(2.18)A
(0.70)
(0.71)
(0.75)
(0.60)
(2.74)
(1.95)

Clearwires spectrum is great asset and competitive advantage
Clearwire has an average of roughly 140 MHz of spectrum across the United States
the deepest spectrum portfolio of any consumer wireless company. While the
spectrum is in a band in which no other US carrier operates, that band is also a global
standard for 4G services and we think that over time Clearwire has a chance to be
successful using it.
Operations have been a commercial success so far
Clearwire currently has 2.8 million customers split between 1.8 million wholesale
customers (mostly from Sprint) and 1.0 million retail broadband customers, and has
raised guidance each quarter in 2010. While Clearwires retail subs are to be
expected given its substantial build and aggressive retail efforts, the wholesale
subscriber ramp is a testament to how much partners Sprint, Comcast, and Time
Warner Cable (among others) want to market the companys 4G services.
Clearwire needs $7 billion to complete buildout and operate to positive FCF
After raising $1.4 billion in December in a debt and convert offering, Clearwire
currently has roughly $2.0 billion in estimated cash. If it cuts expansion capex and
instead continues to market only its current footprint, Clearwire should be able to
operate for years, but the greater opportunity for the company a national 4G
network with tremendous capacity and large, dedicated wholesale channels likely
would be squandered. Instead, we model that Clearwire will need an additional
$7 billion in cash to build another 105 million pops before reaching positive FCF in
2016.
151
Philip Cusick, CFA

(1-212) 622-1444

13 January 2011
Sprint relationship needs clarification for both companies to move forward

Sprint owns 54% of Clearwires shares from an asset swap in 2008, but does not
have effective control of the company (this is not counting the conversion of recently
issued out-of-the-money exchangeable notes). This has resulted in a duplicative build
effort for Clearwire and Sprint, which needs to upgrade its network with similar
equipment to that in Clearwires build. In addition, Sprint (and most other strategic
investors) would like Clearwire to focus its spending more on network coverage and
less on retail efforts, and in particular to pull back from launching smartphones. We
believe that Clearwire may need to either raise cash away from Sprint if possible, or
integrate its plans more closely with Sprint to maximize value for both companies
shareholders.
Investment Risks
Upside risks
Sprint could seek full control of Clearwire sooner than expected or at premium
There have been reports that Sprint could seek full control of Clearwire (such as a
September 15, 2010 Financial Times article) as a clean resolution the relationships
issues. However, Sprint has indicated that it has no immediate plans to do so but is
likely to continue to infuse some equity over the coming years and maybe some way
down the road take control of it. Sprint could seek control of Clearwire sooner than
expected, or pay a premium to do so.
Another large wholesale partner could invest in Clearwire
Instead of Sprint, other large potential wholesale partners could choose to invest in
Clearwire to expand the build and get preferential access to the companys network.
If this were to happen it could put a comp on the spectrum value, and assuage
funding concerns as well as worries about the Sprint relationship.
Clearwire could sell spectrum at a premium
Clearwire has stated that it is the process of evaluating the sale of some of its
spectrum. Were that to happen at a premium, it could put a public comp on the
spectrum that indicates substantially more value than the current enterprise value of
$0.22/MHz/pop.
Downside risks
Clearwire may have to stand on its own
If Clearwire cannot find additional near-term funding it will need to halt its buildout
and possibly reduce marketing spending to preserve cash while it works toward
getting to positive FCF. This would impact our growth expectations substantially.
Lightsquared may sign meaningful partnerships, reducing potential wholesale
business for Clearwire
A new carrier called Lightsquared is working to build a national 4G LTE network
using a combination of satellite and terrestrial platforms. If it is successful in
building and attracting wholesale partners, Lightsquared could either win away or
compete down pricing for incremental wholesale partners at Clearwire.
152
Philip Cusick, CFA

(1-212) 622-1444

13 January 2011
Sprint could choose to build its own 4G network, relying on Clearwire only for
excess capacity
Sprint and Clearwire are currently in a dispute about how much Sprint owes
Clearwire for smartphone wholesale service a dispute that Clearwire could lose.
Furthermore, the mismatched strategies between Sprint and Clearwire could drive
Sprint to put 4G service on its own network as part of its modernization. While
Sprint does not have enough spectrum long term, reducing Clearwire roaming
substantially could meaningfully impact Clearwires revenue stream.
Company Description
Clearwire is an emerging wireless carrier, focused on providing 4G wireless
broadband services. The company currently offers its services to approximately
120 million people with its WiMAX network, up from 45 million 12 months ago. In
addition to operating its own retail business, the company leverages a variety of
wholesale partners to expand distribution. These wholesale partners include equity
investors Sprint Nextel, Comcast, and Time Warner Cable as well as non-investors
Best Buy and cBeyond. Other investors in the company include Intel, Google, and
Bright House Networks. For the third quarter, the company reported a subscriber
base of 2.8 million, including 1.0 million retail subscribers and 1.8 million wholesale
subscribers. Revenue on that base was $147 million, representing year-over-year
growth of 114%.

We establish a year-end 2011 price target of $6.00/share for Clearwire. We based our
target price primarily on a discounted cash flow analysis that assumes a 10% WACC
and 5.0% perpetual growth rate. Our $6.00 target price also implies a value of
$0.31/MHz/pop for Clearwires spectrum assuming all cash is spent a substantial
discount to recent transactions and spectrum auctions. Unfortunately, because the
company is forecast encounter heavy EBITDA losses for the next few years at least,
we are unable to evaluate the company on a multiples basis relative to peers.
In Need of CashAgain
Current equity ownership structure still has Sprint >50%
Clearwires investor base consists of a variety of investors including Sprint Nextel,
which holds a 54% stake, and Comcast, Time Warner Cable, Bright House
Networks, Intel, Google, and Eagle River, which collectively hold a 31% stake.
The remaining 15% public float is heavily shorted short interest was 24 million
shares (approximately 10% of float) on November 30, before the recent convert
offering, and rose to over 31 million (13% of the float) as of December 15.
Clearwire can operate existing
markets, but not build, at its
current funding level
Funding remains primary dilemma

Funding continues to be Clearwires biggest near-term hurdle, despite the companys
recent issuance of $1.4 billion in convertible and secured debt in December. While
we believe that cash could get the company through if it stopped building cities, if
management intends to launch new markets in the next couple of years, we expect it
to need more capital. In addition, in order to eliminate the current funding overhang
on the shares, we believe that Clearwire will need substantially more capital.
153
Philip Cusick, CFA

(1-212) 622-1444

13 January 2011
We estimate at least $3.0 billion of incremental cash is needed for the company to
comfortably build additional markets (30-50 million pops) through the end of 2012,
though almost $7 billion may be needed to build to our estimated terminal coverage
of 225 million pops from the 120 million covered by year-end 2010 and make it to
FCF breakeven. We model Clearwire building 30 million pops in 2011, 30 million in
2012, 20 million in 2013, 10 million in each 2014 and 2015, and another 5 million in
2016.
Table 67: Clearwire Sources and Uses of Cash
$ millions
EBITDA
Interest expense
2011E
(1,613)
(395)
2012E
(1,388)
(539)
2013E
(678)
(723)
2014E
134
(843)
2015E
1,159
(843)
2016E
1,898
(843)
Cumulative
(490)
(4,188)
Cash from operations
(1,561)
(1,471)
(934)
(237)
797
1,547
(1,859)
Maintenance capex
CPE capex
Buildout capex
Capitalized interest
Total capex
(135)
(166)
(750)
(160)
(1,211)
(230)
(197)
(750)
(160)
(1,337)
(330)
(220)
(500)
(120)
(1,170)
(490)
(221)
(250)
0
(961)
(673)
(217)
(250)
0
(1,140)
(845)
(209)
(125)
0
(1,179)
(2,704)
(1,231)
(2,625)
(440)
(6,999)
FCF
Debt Issuance
Equity Issuance
(2,772)
1,200
1,800
(2,808)
1,200
1,800
(2,104)
0
0
(1,198)
0
0
(344)
0
0
367
0
0
(8,859)
2,400
3,600
Net Cash Flow
228
192
(2,104)
(1,198)
(344)
367
(2,859)
Additional equity investment from Sprint is one possible solution

We believe Clearwire has a few different potential sources of additional capital. An
additional equity investment may be the most likely, but the likelihood of this
happening in the near term is by no means certain. The most probable investor likely
would be Sprint, given the companys current 54% ownership and public
commitment to using Clearwires 2.5 GHz spectrum for 4G services. Management at
Sprint has stated publicly that it is willing to allocate capital to future investments in
the company.
However, we believe the two partners disagree on critical operational matters, while
agreement on equity valuation also appears to be an ongoing source of conflict.
Without serious competing interest from other potential strategic investors, we do not
expect Sprint to easily agree on valuation with Clearwire management.
Nonetheless, in the long run, we do think Sprint is likely to eventually seek control
of all of Clearwires assets. In order to effectively and efficiently drive its 4G
strategy, Sprint likely would need control, in our view. Currently, Clearwires board
and management can operate independently. Recently, three members of Sprint
management were forced to resign from Clearwires board due to potential conflicts
of interest. Therefore, Sprint now only holds the right to nominate seven of 12
independent board members, but does not have any direct voting rights. Most of the
remaining board members are also independent.
154
Philip Cusick, CFA

(1-212) 622-1444

13 January 2011
Other strategic investors unlikely for now

Given a mostly independent board, Clearwire could sign a wholesale agreement with
virtually any party it sees fit. Unfortunately, there does not appear to be a surplus of
substantial interest, and Clearwire may have to bide its time for now. The current
cable strategic partners have all indicated an unwillingness to commit further capital
to the joint venture. T-Mobile USA, as confirmed by management and press reports,
has expressed interested, but has also said that it sees no need to partner or acquire
4G capacity for 2-3 years.
Exploring a spectrum sale
Outside of an equity investment, Clearwire is contemplating selling a portion of its
spectrum and has stated that it is in the process of evaluation. Notably, the sale of this
spectrum would not violate any equity-holder rights of the companys strategic
partners because it is not deemed to be critical to offering current or future services.
Clearwire is currently holding an auction process, which we believe is likely entering
the later stages and could be completed by the first quarter of 2011. Management is
open to selling the spectrum in pieces to a variety of partners, which should bring
flexibility to the process.
Overall, though, we would not expect a significant amount of interest in this
spectrum and would not be surprised to see Clearwire eventually pull back from a
sale.
Significant spectrum sale seems unlikely. Management has indicated a willingness
to sell up to $2 billion or up to 20% of its spectrum holdings, representing what
management believes to be excess spectrum. A successful sale could result in a
premium spectrum valuation that could cause shares of Clearwire to be re-rated
higher. However, we do not expect a sale of this magnitude. Though the industry
clearly needs additional spectrum over the long run, current market prices for some
pieces of spectrum remain somewhat depressed relative to historical auction and
transaction values. This seems to be particularly true in second-tier markets which do
not face as many bandwidth constraints.
Furthermore, if no other funding sources are available, a sale could enable a longterm competitor for the company or reduce the companys ability to partner with
additional wholesalers. In addition, a reduced supply of spectrum could increase the
cost of adding additional capacity down the line. Management has already had to add
capacity to the network far earlier than originally expected.
Previous spectrum sales are
poor comps to Clearwires
2.5 GHz spectrum
Table 68: Prior Spectrum Transactions
History of spectrum prices

AT&T/Qualcomm sale
Auction 73 (700 MHz)
AT&T/Aloha
Auction 66 (AWS)
Auction 58 (PCS)
Auction 35 (PCS, cancelled)
Date Frequency Total $ amount ($m)

2010
700 MHz
1,925
2008
700 MHz
14,827
2007
700 MHz
2,500
2006 1.7/2.1 GHz
13,879
2005 1900 MHz
2,250
2001 1900 MHz
16,300
$/MHz/pop
$0.86
$1.29
$1.06
$0.54
$1.06
$2.11
Source: FCC, Company reports, and J.P. Morgan estimates.
155
Philip Cusick, CFA

(1-212) 622-1444

13 January 2011
Clearwires Retail Initiatives Dilute Wholesale Value

We are generally favorable on the Clearwire 4G buildout and wholesale opportunity,
but believe there is less need for the company to have an aggressive retail effort. In
the retail market, the company must either compete as a wireless carrier against huge
and well-funded incumbents (including Sprint) in a saturated market in which are all
talking about 4G as well, or position itself as a broadband alternative against wellfunded and entrenched incumbents (including its investors Time Warner Cable and
Comcast) in an already saturated broadband market.
Most of Clearwires strategic partners would prefer the company to capitalize on its
opportunity as a carriers carrier for 4G, and keep losses at the retail effort to a
minimum.
Clearwire, Sprint, and cable partners all selling mobile broadband services
Clearwire is currently running a retail business, selling similar services to those sold
by its wholesale partners. These products and services include 3G/4G USB dongle
data devices for mobile broadband use, mobile hotspot devices that can create a
mobile WiFi network, and residential modems for fixed broadband.
In addition to these data-only devices, Sprint also sells smartphones that can access
Clearwires network. The three to date are the HTC EVO and Samsung EPIC, as well
as the recently launched EVO Shift. Clearwires cable partners primarily sell the
mobile broadband services at varying price points with required bundles.
Retail is a drag on cash
Aside from the duplicative services being offered, Clearwire must also build and
support a store and distribution network to support its retail efforts. Thus far, our
store checks reveal little traffic in the companys stores. In our view, Clearwires
investment in its own retail distribution system is unlikely to justify the sales volume
it is likely to see, particularly over the long run. The company is likely to struggle to
grow the retail business in a saturated broadband and wireless voice market against
very strong, established incumbents.
Many of Clearwires wholesale partners share the same sentiment, creating a
significant point of contention among the parties. Managements view is that the
retail business helps justify economic terms for the wholesale business, as the
strategic partners compensate Clearwire for network use by paying retail terms less
some discount. However, the company could also consider setting these terms
through a far less aggressive retail rollout and advertising campaign.
Smartphones seem a move away
from Clearwires competitive
advantage
156
Offering smartphones will increase retail cash drag

Management believes smartphones will be an important component to the retail
business, and 4G generally. Smartphone economics, however, are different relative to
those for a traditional mobile broadband data card or dongle business. Unlike a
dongle which Clearwire can give the customer upfront and charge $45 per month to
recoup its cost, smartphones are heavily competitive and small carriers generally
have little room to raise prices. Instead, smartphones require large upfront subsidies,
which can be as much as $300-400 for national carriers, in order to entice customers
to sign a two-year contract. As a much smaller operator, Clearwire is likely to be
charged higher wholesale prices for devices, relative to those given to national
carriers.
Philip Cusick, CFA

(1-212) 622-1444

13 January 2011
In addition, we believe most of what remains of Clearwires network speed and

capacity advantage is likely to be lost in the smartphone market, in which few
applications will drive the need for >5 Mbps speeds and unlimited capacity that
Clearwire offers. The company is also likely to see a price disadvantage to
companies such as T-Mobile and AT&T that offer smartphone service on a standard
3G handset which is far less expensive that the CDMA/WiMAX handsets that
Clearwire will need.
Smartphone Wholesale Dispute with Sprint

In the third quarter, Clearwire recognized $4.46 of wholesale ARPU, reflecting a mix
of revenue on wholesale smartphone and data card customers. However,
management noted that ARPU would have been closer to $9.00, reflecting an
incremental $17 million in revenue, if not for a dispute regarding wholesale revenue
received from Sprint. Specifically, the disagreement deals with smartphones, which
drive lower ARPU than data cards but we expect to represent a significant portion of
future wholesale sales. We believe smartphone revenue consists of set payments
Sprint must make per subscriber as well as usage-based payments. However, in this
scenario, it is unclear if it is the fixed pricing or usage component that is driving the
discrepancy.
Significant revenue and margin implications
If the two parties cannot agree on revised wholesale terms, the disagreement is likely
to be resolved through arbitration in the first half of 2011. Given rising smartphone
data usage across the industry, we believe the outcome has significant implications
for Clearwires profitability. Smartphones are likely to represent the majority of the
companys wholesale subscriber base in the long run, and wholesale should represent
the vast majority of the companys total subscribers. Therefore, we think it is critical
that Clearwire extract adequate revenue from Sprint, or future profitability could be
significantly depressed.
WiMAX vs. LTE Not Much Debate Anymore

We expect Clearwire to move to
LTE in the next two years
There are two main flavors of 4G LTE which is likely to be used by the majority of
wireless carriers globally and WiMAX which was a little faster to market but which
we expect to fade over time. Clearwires original expectation was that its choice of
WiMAX technology would allow it to come to market far faster than LTE carriers,
but between the companys delays in getting to market and the faster LTE ramp from
companies like Verizon, we see Clearwire as having only a small advantage in
devices today and expect that to fade by the end of 2011 as the LTE ecosystem grows
to dominate the 4G landscape.
Trialing LTE in Phoenix
Clearwire has rolled out 4G coverage to 120 million people using the WiMAX
technology. However, the company is also currently trialing two flavors of LTE in its
Phoenix market. Specifically, the company has tested the ability for WiMAX and
LTE to coexist under Frequency Division Duplex (FDD) and Time Division Duplex
(TDD) implementations. The FDD configuration, termed LTE 2X, would use
40 MHz of spectrum, consisting of two paired 20 MHz channels, while the TDD
configuration would use just a 20 MHz channel that does both upload and download.
157
Philip Cusick, CFA

(1-212) 622-1444

13 January 2011
Eventual LTE upgrade is logical; most equipment can be re-used

We believe it is in Clearwires (as well as Sprints) best interests to ultimately pursue
LTE as a replacement for WiMAX. Clearwire may decide to pursue this route, but is
waiting to complete testing and more importantly must resolve funding concerns.
Most of the equipment that Clearwire is rolling out today is either upgradable to LTE
(through an additional card in the case of a base station) or is technology-agnostic
and can be re-used with no changes, e.g., antennas and backhaul.
We expect new coverage deployed with LTE to cost the same as the $25 per pop
Clearwire spends to build a market today, and a fraction of that to upgrade markets
that have already been covered with WiMAX.
LTE may also make it much more feasible for potential wholesale partners to work
with and perhaps invest in Clearwire. Most smaller operators, including T-Mobile
USA, US Cellular, MetroPCS, and Leap Wireless, have already committed to using
LTE for their 4G strategy.

Clearwires subscriber additions and revenue ramp will largely depend on the
companys ability to continue building out its network, as well as its relationship
with its strategic partners. We expect rapid subscriber growth to continue, though at a
modestly slower pace than in 2010. We forecast net adds of 4,600k in 2011 and
4,634k in 2012, with the majority coming from wholesale partners. We expect retail
ARPU to remain relatively stable at approximately $43. However, wholesale ARPU
could have greater variability. We expect Sprint smartphone subscribers to account
for a large part of Clearwires wholesale business, and currently the two partners are
disputing economics on these subscribers. The outcome of those negotiations could
have a large impact on the companys growth trajectory. Currently, we forecast
wholesale ARPU to climb to the $9.50 range in 2001 from $6.59 in 2010. On a
consolidated basis, we forecast revenue growth of 142% in 2011 and 70% in 2012.

Given heavy operating and capital investments due to startup build and marketing
costs, as well as an expensive retail business, we do not expect Clearwire to generate
positive EBITDA or free cash flow for a few years. We expect 2011 to reflect peak
EBITDA loss for the entire business, though 2012 and 2013 are expected to show
heavy operating investments as well. The business could turn EBITDA positive in
2014, depending on the timing of additional market launches. Management has stated
that markets on average should reach positive EBITDA with 18 months. Positive free
cash flow positive should be generated in 2016, a couple of years after EBITDA
breakeven, as capital spend begins to approach maintenance levels.
158
Philip Cusick, CFA

(1-212) 622-1444

13 January 2011
Table 69: Clearwire Financial Forecasts and DCF

Covered pops
2005
3,788
2006
5,882
Retail metrics
Ending subscribers
% change, y-t-y
Retail penetration
Net adds
Churn
ARPU
56
184
228%
1.5%
2.1%
56
128
2.0%
1.7%
$31.99 $36.53
2007
13,900
2008
16,800
2009
44,700
350
90%
2.5%
166
1.9%
$40.66
475
36%
2.8%
74
3.7%
$40.71
688
45%
1.5%
170
3.2%
$44.84
Service revenue
% change, y-t-y
Cash EBITDA (operating cash flow)
% change, y-t-y
Cash EBITDA margin
Taxes paid
EPS - diluted
Capital Expenditures and Spectrum
CAPEX/service revenue
Less: exchangeable debt (1)

Less: net long-term debt, end of period (2)
PMV of equity
Year-end 2011 shares outstanding
Additional shares from exchangeable debt (1)
Shares to be issued from warrants/options/convert (3)
DCF Value per Share
Private-public discount of 10%
Price Target
Upside %
CAGR
09-20E
16%
2,013
63%
1.3%
775
3.5%
$42.78
3,013
50%
1.7%
1,000
3.0%
$43.21
4,213
40%
2.1%
1,200
2.7%
$43.63
5,413
28%
2.6%
1,200
2.5%
$43.41
6,573
21%
3.0%
1,160
2.4%
$43.19
7,693
17%
3.4%
1,120
2.3%
$42.97
8,773
14%
3.9%
1,080
2.2%
$42.75
9,813
12%
4.4%
1,040
2.1%
$42.54
10,813
10%
4.8%
1,000
2.0%
$42.32
11,773
9%
5.2%
960
2.0%
$42.11
0%
46
$22.10
3,029
6485%
3%
2,983
$6.59
6,854
126%
5%
3,825
$8.27
10,488
53%
6%
3,634
$9.39
13,758
31%
7%
3,270
$9.50
16,701
21%
8%
2,943
$9.45
19,533
17%
10%
2,832
$9.40
21,965
12%
11%
2,432
$9.35
23,997
9%
13%
2,032
$9.31
25,629
7%
15%
1,632
$9.26
27,061
6%
17%
1,432
$9.21
28,493
5%
19%
1,432
$9.17
734
55%
1.6%
216
192%
4,267
481%
3.6%
3,657
1593%
8,867
108%
5.9%
4,600
26%
13,501
52%
7.5%
4,634
1%
17,971
33%
9.0%
4,470
-4%
22,114
23%
10.5%
4,143
-7%
26,106
18%
11.9%
3,992
-4%
29,658
14%
13.2%
3,552
-11%
32,770
10%
14.6%
3,112
-12%
35,442
8%
15.8%
2,672
-14%
37,874
7%
16.8%
2,432
-9%
40,266
6%
17.9%
2,392
-2%
44%
68
136
216
268
560
101%
59%
24%
109%
700%
(194)
(289)
(387)
(781) (1,264)
-79%
-49%
-34%
-102%
-62%
-287.4% -213.0% -178.9% -291.8% -225.9%
(1)
(3)
(5)
(5)
(1)
(1)
1,352
142%
(1,268)
0%
-93.7%
-
2,305
70%
(1,034)
NM
-44.9%
-
3,299
43%
(315)
NM
-9.5%
-
4,260
29%
507
3728%
11.9%
-
5,179
22%
1,544
148%
29.8%
-
6,036
17%
2,294
45%
38.0%
-
6,819
13%
2,933
22%
43.0%
-
7,529
10%
3,289
15%
43.7%
-
8,179
9%
3,621
13%
44.3%
-
8,790
7%
3,908
11%
44.5%
-
37%
46
62
1.6%
56
206
231%
3.5%
128
128%
350
70%
2.5%
166
29%
475
36%
2.8%
74
-55%
8
NM
(109)
($1.97)
($3.13)
($4.58)
($2.96)
($1.75)
($1.79)
($2.74)
($2.35)
($1.82)
($1.52)
($1.01)
($0.71)
($0.40)
($0.24)
($0.07)
$0.10
133
1570.5%
192
283.7%
389
286.4%
261
120.9%
1,183
442.1%
2,461
439.8%
1,051
77.8%
1,177
51.1%
1,050
31.8%
961
22.6%
1,140
22.0%
1,179
19.5%
1,175
17.2%
1,208
16.0%
1,299
15.9%
1,391
15.8%

NPV of Cash EBITDA 12E -- 20E
NPV of taxes paid 12E -- 20E
NPV of spectrum acquisitions 12E -- 20E
NPV of capex 12E -- 20E
NPV of free cash flow 12E -- 20E
NPV of 2020 terminal value @ 6.7x EBITDA
PMV of operations
2011E
2012E
2013E
2014E
2015E
2016E
2017E
2018E
2019E
2020E
150,000 180,000 200,000 210,000 220,000 225,000 225,000 225,000 225,000 225,000
1,238
80%
1.0%
674
3.3%
$43.43
Wholesale metrics
Ending subscribers
% change, y-t-y
Wholesale penetration
Net adds
ARPU
Consolidated metrics
Ending subscribers
% change, y-t-y
Penetration (of cov. pops)
% change, y-t-y
2010E
120,000
Current Share Price Multiples @

2010E 2011E
6,809
8,077
0
0
0
0
(7,567) (6,515)
(757) 1,562
10,656 10,656
9,898 12,217
(3,406)
6,493
986
3
989
$6.57
10%
$5.91
EV EOY @ current price

Domestic Licensed Pops (mm)
EV/MHz/Pop (dom)
EV/Subscriber
EV/Revenue
EV/EBITDA
2008
6,158
285
$0.14
$5.61
2009
6,869
285
$0.16
2010E
10,099
285
$0.23
2011E
11,071
285
$0.26
2012E
12,079
285
$0.28
2013E
14,183
285
$0.33
2014E
15,381
285
$0.36
2015E
15,725
288
$0.37
2016E
15,358
288
$0.36
$12,965
28.5x
NM
$9,359
25.7x
NM
$2,367
18.0x
NM
$1,249
8.2x
NM
$895
5.2x
NM
$789
4.3x
NM
$696
3.6x
30.3x
$602
3.0x
10.2x
$518
2.5x
6.7x
5,738
$0.13
6,449
$0.15
9,678
$0.23
10,650
$0.25
11,658
$0.27
13,762
$0.32
14,961
$0.35
15,304
$0.36
14,937
$0.35
(729)
(3,112)
8,376
EV EOY @ target price

Target Price EV/MHz/Pop
1,286
0
3
1,289
Valuation Grid - DCF Value per Share

$6.50
10%
$5.85
4%
6
8.5%
9.5%
10.5%
11.5%
12.5%
2.0%
7
5
4
3
2
3.0%
9
7
5
3
2
4.0%
11
8
$5.85
4
3
5.0%
15
10
7
5
4
29%
17%
-1%
37%
-8%
NM
1%
6.0%
22
14
9
6
5
(1) Exchangeable debt convertible at average $7.08 counted as 0 million dilutive shares and $729 million debt.
(2) Debt is net of cash and cash equivalents.
(3) 3.0 million dilutive options/warrants net of 3.5 million shares redeemed (treasury method).
159
Philip Cusick, CFA

(1-212) 622-1444
160

13 January 2011
Philip Cusick, CFA

(1-212) 622-1444

13 January 2011
Leap Wireless International

We initiate coverage of Leap Wireless with an Overweight rating and a year-end
2011 price target of $16/share, implying 17% upside from current levels. Leap has
executed poorly in the last 12 months but changes started in 3Q and completed in 4Q
should put the company back on a growth path in 1Q11. From a profitability and
cash flow perspective, Leaps margins have been under pressure through the
transition, but as churn comes down and ARPU rebounds, it appears poised for
margin expansion. Free cash flow is likely to ramp meaningfully in 2011 as well, as
capital expenditures decline and move closer to maintenance levels.
Overweight
Leap Wireless International (LEAP;LEAP US)
Company Data
Price ($)
13.19
Date Of Price
12 Jan 11
19.11 - 9.51
52-week Range ($)
Mkt Cap ($ bn)
1.00
Fiscal Year End
Dec
76
Shares O/S (mn)
Price Target ($)
16.00
Price Target End Date 31 Dec 11
EPS ($)
Q1 (Mar)
Q2 (Jun)
Q3 (Sep)
Q4 (Dec)
FY
2009A
2010E
2011E
(0.74)
(0.89)
(0.85)
(0.82)
(3.30)
(3.06)
(0.85)A
(0.24)A
(7.06)A
(0.99)A
(9.15)A
(4.44)A
(0.86)
(0.51)
(0.64)
(0.85)
(2.87)
(1.78)

Theres nothing wrong with playing follow the leader
Leap Wireless revamped its price and handset offering in the second half of 2010,
with pricing very similar to changes made by MetroPCS in 1Q10 that were very
successful. This was evidenced somewhat by the 115k net additions in 4Q10 that
Leap announced on January 4, and we expect that between a stronger prepaid
environment in 1Q and the vastly improved handset lineup Leap will be able to add
175k customers in 1Q11 and 400k in 2011.
Better subs, ARPU increases, churn declines, capex declines all indicators of
wireless stock outperformance
Leap has struggled in the last year but the companys traction with new pricing
should increase subscriber growth through both better gross addition traction and
lower real and false churn. In addition, Leap expects ARPU to increase as
customers come in on $50-60 rate plans vs. the ~$30 level at which incremental
customers were joining in 1H10. Finally, capital spending should decline somewhat
in 2011 as Leaps 3G expansion pauses and the company waits to ramp an LTE
overlay until handset prices start to scale.
3G network will be an advantage in 2011 vs. competitors pushing 4G ecosystem
Leap has a CDMA EVDO Rev A network that can offer data speeds in the ~1 Mbps
range a decent speed on a data card and we believe plenty on a smartphone. The
CDMA handset ecosystem is very mature and we believe that handset prices could
come down dramatically for Leap in 2011, allowing the companys customers to
upgrade to an attractive data-capable handset for as little as $50 by the end of 2011.
This should help support ARPU through 2011.
161
Philip Cusick, CFA

(1-212) 622-1444

13 January 2011
Investment Risks
Prepaid wireless remains highly competitive and heavily levered to employment
and economic levels
The prepaid and pay-in-advance industry has experienced a variety of pricing moves
over the past two years. We believe such moves were brought on by competition, as
players aggressively tried to maintain growth. Leap recently took action to follow the
market by bundling taxes and fees into its rate plans. In addition, employment levels
remain subdued and if employment were to start to fade again Leaps low-credit
demographic could be impacted disproportionately. Should the company need to
make additional pricing changes, profitability and cash flow could be negatively
affected.
Tight spectrum market could create additional costs
Leap is likely to encounter capacity constraints in some markets, as its 3G network is
filled up and it wants to roll out 4G service. The company needs to purchase
additional spectrum, yet we remain concerned that attractive spectrum is likely to be
either unavailable or too expensive. As a result, the company could find itself
overpaying for spectrum resources, investing more capital in its existing network to
increase capacity, or limiting customer usage levels further.
MVNO agreement creates $300 million liability to Sprint
Leap signed an MVNO agreement in 3Q10 to offer service outside its core that
guarantees Sprint a minimum of $300 million over the next five years. Leap does not
expect to ramp this effort until 2H11 and if it is not successful Leap will still owe
Sprint the balance. This agreement could be looked at as a debt-like obligation.
Billing system transition creates risk for cash flow, business model stagnation as
it happens
Leap is in the process of updating its billing system and expects to transition in the
second quarter of 2011. Billing systems transitions create inherent risk in services
companies and have been responsible for high customer service call rates, billing
errors, and higher opex. In addition, Leap will need to freeze its pricing offers for
some time while the transition happens, which could lead to the company being less
than competitive or management distraction in 2011.

We establish a year-end 2011 price target of $16/share for Leap Wireless. We based
our target price primarily on a discounted cash flow analysis that assumes a 10%
WACC and 2.5% perpetual growth rate. In addition, Leap currently trades at 5.4x our
2011 EBITDA forecast, in line with the wireless industry average despite offering
higher growth. Leaps closest peer, MetroPCS, trades at 5.9x our 2011 estimate. In
our view, both companies offer attractive growth which we believe justifies higher
multiples.
162
Philip Cusick, CFA

(1-212) 622-1444

13 January 2011
Company Description
Leap Wireless is one of two companies in our coverage that focus on unlimited
wireless voice and data services on a pay-in-advance basis for $35-60 per month. The
company has historically targeted the low-income, minority, and youth
demographics, though increasingly other customers are also signing on to the service.
While Leap started as a local carrier, it today covers about 94 million pops in markets
including Las Vegas, Phoenix, Denver, Washington, D.C., Baltimore, Philadelphia,
and Chicago and offers free roaming to customers in most of the country through
roaming partnerships. Leap today has 4.8 million voice customers and 600k data
customers who pay an average of $36.71 per month. The company emerged from
bankruptcy in 2004.
Figure 75: Leap Wireless Coverage Map Including Roaming
163
Philip Cusick, CFA

(1-212) 622-1444

13 January 2011
Leap Follows Metros Lead on Voice Pricing

In early August at the companys analyst day, Leap management announced new
voice and mobile broadband price plans. The voice plans essentially mimic pricing
established by MetroPCS in early January, with a focus on moving customers upmarket to better phones and services.
The new plan lineup consists of four all inclusive price points ($35, $45, $55, and
$60) that include taxes and fees. The notable exclusion is a $40 price point, which is
a popular price point offered by Metro as well as Tracfone (Straight Talk). In
addition to new pricing, Leap also eliminated offering the first month of service free
but redirected that money to handset subsidies, which effectively equalizes pricing
for new and existing customers. These changes were driven by three motivations:
driving improved market share, lowering churn, and raising ARPU.
Table 70: Pay-in-Advance and Prepaid Price Comparison Summary
LD
X
X
X
X
SMS
X
X
X
X
Data
$35
$45
$55 Android
$55 Blackberry
Talk
X
X
X
X
X
X
X
Taxes
~10%
$35.00
$45.00
$55.00
$55.00
$40
$45
$50
$60
$60 Blackberry
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
$40.00
$45.00
$50.00
$60.00
$60.00
$50
$50.00
Talk
$0.10/min
1500 Talk
X
X
LD
X
X
X
Text
X
X
X
X
Data
$15
$30
$50
$70
30 MB data
100 MB data
2 GB data
$25
$40
$60
Talk
300
1200
X
LD
X
X
X
SMS
X
X
X
Web
X
X
X
$27.50
$44.00
$66.00
$30
$45
1000
X
X
X
1000
X
30 MB
X
$33.00
$49.50
$15
$30
200
500
X
X
$16.50
$33.00
$10
$20
$30
50
125
200
X
X
X
$11.00
$22.00
$33.00
$10
$25
$50
$30
$45
100
400
1000
1200
unlimited
X
X
X
X
X
$10.00
$25.00
$50.00
$30.00
$45.00
Leap
PCS
Boost
T-Mobile
Virgin Mobile
Taxes
$16.50
$33.00
$55.00
$77.00
Straight Talk
Net-10
TracFone Value Plans
Page Plus
Source: Company websites.
164
1200
X
50 MB
20MB
Philip Cusick, CFA

(1-212) 622-1444

13 January 2011
4Q trends saw turnaround in voice additions

Third quarter results remained weak, with Leap losing 200k subscribers, including
28k broadband and 172k voice customers. However, the new price plans were not
fully rolled out until the middle of the third quarter and handset supply issues in the
second quarter carried into 3Q. Without much traction in the new price plans, ARPU
also remained under pressure, falling 6.4% year-over-year.
However, management has already preannounced 115k net additions for 4Q10,
including 163k voice adds and 48k broadband losses, and noted that late-quarter
trends reflected better performance, especially around churn. Handset supply,
including availability of smartphones, increased and helped drive adoption and take
rates of the higher-priced plans improved. Gross adds remain depressed though, as
customers (including existing) found less incentive to sign up for service or
upgrade (false gross add) without the initial month of free service.
Financials expected to be mixed. ARPU may rebound somewhat given new pricing
but likely will remain depressed as a result of the late-quarter growth, as well as the
acquisition of low-ARPU Pocket subscribers. However, given the better handset
selection and lower prices, we expect handset upgrade rates to rise dramatically to
the double-digit levels (MetroPCS peaked around 12%) and high marketing costs as
well. This is likely to drive 4Q margins substantially below 3Qs 21.8%, and we
model 19.6% in 4Q with a rebound to 22.4% in 1Q.
likely setting Leap up for a strong 1Q
The fourth quarter is usually a good one for prepaid wireless, but the first quarter is
typically Leaps best period, with the target low-income subscriber base having more
discretionary capital due to tax returns which are issued in late January through early
March. With the false churn hangover washed through the system in 4Q and a strong
handset selection, net adds should be significantly higher as gross add volume
improves and churn continues to fall.
We forecast 1Q11 net adds of 175k, driven by a 7% sequential increase in gross adds
to 790k and a 70 bps sequential (and year-over-year) decline in churn to 3.8%. Given
how quickly Leap has achieved high penetration with smartphones, we expect ARPU
to increase year-over-year for the first time since late 2007.
Figure 76: Net Adds and Churn
500
400
300
200
100
0
(100)
6.00%
5.50%
5.40%
5.50%
5.00%
4.70%
5.00%
4.50%
4.50%
4.40%
4.50%
3.80%
4.00%
3.50%
(200)
(300)
3.00%
2Q09
3Q09
4Q09
1Q10
Net adds
2Q10
3Q10
4Q10E
1Q11E
Reported churn
165
Philip Cusick, CFA

(1-212) 622-1444

13 January 2011
Figure 77: ARPU and Growth

$42.00
$40.74
$38.00
$36.00
3.1%
$39.24
$40.00
$37.94
$36.43
-3.8%
-5.9%
$34.00
-7.1%
-9.3%
$37.61
-7.7%
$37.31
$36.71
$37.58
-1.7%
-6.4%
$32.00
$30.00
2Q09
3Q09
4Q09
ARPU
1Q10
2Q10
3Q10
4Q10E
6%
4%
2%
0%
-2%
-4%
-6%
-8%
-10%
-12%
1Q11E
% y-t-y change
Competition remains intense; price war truce for now

After a roughly 18-month period of price competition, the prepaid pricing
environment appears to have stabilized for now. However, share gains across all
competitors could slow, with limited points of differentiation across the market,
particularly at the $40 price level. Instead, competitors are likely to pursue remaining
industry growth in the prepaid market and use promotions from time to time to win
incremental share. We believe Leap management prefers to see improved ARPU
trends and lower volatility (churn) rather than outsized subscriber gains.
Broadband to Fade to Background

We expect Leap to de-emphasize
the broadband business
Leap saw significant adoption of mobile broadband since the companys launch of
3G services and topped out at 663k customers, but from 2Q10 through 4Q10, the
company lost 115k customers in total. The company historically received only $35$40 per month, but new broadband plans launched in August have prices of $40, $50,
and $60 with varying usage caps. All three offer a 1.4 Mbps download speed, but
varying usage caps of 2.5 GB, 5 GB, and 7.5 GB, respectively. After passing the cap,
customers are throttled back to 56 Kbps until their next billing cycle or forced to
take a higher plan.
We believe Leap hopes to both reduce network usage and increase profits by forcing
its highest-usage customers off the service to free up capacity for smartphone
customers instead. Management has said that its network can support a maximum of
900k broadband customers at current usage levels, or 2.3 million smartphones at
expected levels. The broadband base stood at approximately 600k as of 3Q10, but we
expect that to fall and would not be surprised to see another price increase. We model
the broadband base remaining flat going forward, as new growth offsets expected
disconnects.
Table 71: Old vs. New Broadband Pricing
Broadband Pricing
Usage Cap
Speed
166
Old
$40
5GB
1.4 Mbps
$40
2.5GB
1.4 Mbps
New
$50
5GB
1.4 Mbps
$60
7.5GB
1.4 Mbps
Philip Cusick, CFA

(1-212) 622-1444

13 January 2011
Figure 78: Broadband Subscribers and % of Total Base

11%
600
525
10%
9%
12%
9%
450
375
10%
8%
300
6%
225
150
3%
4%
75
2%
0
2008
2009
2010E
Broadband subscribers
2011E
2012E
% of total
Smartphone Strategy Working Quickly

Leap saw great traction with the
Huawei Ascend in December
Leap introduced several smartphones, including Blackberry and Android devices, in

the third quarter and early fourth quarter. The company started selling the Blackberry
Curve 8530 (originally at $299.99, now $249.99) and Android-based Sanyo ZIO
(originally $249.99, now $199.99) in August, and also the much more inexpensive
Android-based Huawei Ascend ($149.99) in October. Prices are even cheaper with
web-only discounts. Notably, Android devices require the $55 rate plan and
Blackberry the $60 plan, which should help drive ARPU upside.
Take rates on smartphones give us confidence. Leap has stated that 35% of phone
sales (including sales to existing customers) were smartphones through the second
half of October, following the launch of the Ascend, and this percentage was slightly
higher in November and December. These take rates are up from low-double-digit
levels when only the $250 and $300 devices were available. In addition to the
Ascend, Leap has been able offer affordable price points on other devices, with basic
QWERTY devices starting at only $80 ($30 on web) to the Blackberry Curve 8530 at
$230 ($179 web price).
Figure 79: Handset Mix as % of New Sales and Upgrades
167
Philip Cusick, CFA

(1-212) 622-1444

13 January 2011
We estimate that subsidies on Leaps highest-end handset are in the $100 range, with
the Huawei device wholesaling for $225-250 vs. a retail price of $150 ($130 web
special). As component prices for handsets like touch screens and NAND ease with
additional capacity in 2011, we expect these prices to come down even farther, and
Leap has said it expects to be able to buy some Android devices for <$150 in 2011.
Figure 80: LEAP Partial Handset Lineup
Samsung Stunt
$40/Free After Rebate
Samsung Messager
Touch
$160/$80
Huawei Ascend
(Android)
$160/$100
Sanyo ZIO by Kyocera

(Android) $250/$130
Blackberry Curve
8530
$300/$180
MVNO Agreement with Sprint Offers Growth Opportunity

At its August analyst day Leap announced an MVNO agreement with Sprint that
effectively gives the company a nationwide network and the ability to market its
services outside of its footprint. Leap will pay a minimum of $300 million over a
five-year period, providing the right for its customers to use Sprints network for
voice and 3G data services. Leap aims to use the arrangement to grow its subscriber
base beyond covered markets, reduce churn for customers in fringe markets, and
improve the overall competitive positioning of its product.
We expect out-of-network customers to start to grow in the second half of 2011.
4G Will Require Additional Spectrum

Leap management has committed to rolling out 4G LTE services. Specifically, we
expect Leap to build some trial markets in 2011 and fully launch additional markets
in 2012. As a result, we dont expect a significant spike in capital expenditures in
2011. However, more importantly, we believe the companys 4G efforts will be
severely limited until management acquires additional spectrum. The company may
consider any spectrum Clearwire decides to sell, but we do not sense much interest in
bidding aggressively.
168
Philip Cusick, CFA

(1-212) 622-1444

13 January 2011
Table 72: LEAP Spectrum Holdings

Pops in thousands
Market
Pops
PCS
AWS
700 MHz
Total
Chicago, IL
8,886
10
Philadelphia, PA
5,995
20
20
Houston, TX
4,975
10
10
20
Washington, DC
4,686
20
20
Phoenix, AZ
3,387
10
10
20
Seattle, WA
3,245
30
30
Minneapolis, MN
3,212
30
30
San Diego, CA
2,959
10
20
30
St Louis, MO
2,862
30
30
Denver, CO
2,629
10
10
20
Baltimore, MD
2,578
20
20
Pittsburgh, PA
2,446
10
10
20
Portland, OR
2,098
20
20
Kansas City, MO
2,056
10
20
30
Charlotte, NC
2,034
10
10
20
San Antonio, TX
1,861
10
10
20
Milwaukee, WI
1,851
20
20
Norfolk, VA
1,751
10
10
Nashville, TN
1,727
15
10
25
Salt Lake City, UT
1,593
15
10
25
10
Source: FCC and J.P. Morgan estimates.

Leap has suffered subscriber losses in recent quarters, however operations reversed
course in 4Q10 as recent pricing changes improved retention and drew in new
customers. After adding 249k subscribers in 2010, Leap is expected to generate 400k
net additions in 2011 and another 400k in 2012. Though significantly lower than
historical levels, ARPU preservation and growth is more critical at this stage for
Leap, in our view. We expect ARPU to return to growth in 2011 after several
quarters of declining trends. Our operating forecasts drive estimated service revenue
growth of 10% in 2011 and 8% in 2012, versus 9% in 2010.

As a result of recent subscriber woes and ARPU compression, Leaps margins have
expanded much less than expected. The company was also working through dilution
from recently launched markets and its relatively new broadband business. We
expect margin expansion to pick up, as the company gains scale and top-line growth
accelerates. Our margin assumptions of 23.8% and 26.0% in 2011 and 2012
represent expansion of 90 bps and 220 bps, respectively. In 2010, Leap generated
positive free cash flow for the first time, though in only two of the quarters. We
expect the company to report positive free cash for the full year 2011, though free
cash may turn negative in some quarters depending on the timing of capital
investments. Free cash generation should continue into 2012 and beyond, though we
will closely monitor the companys LTE build plans and resulting capital needs.
169
Philip Cusick, CFA

(1-212) 622-1444

13 January 2011
Table 73: Leap Wireless Financial Forecasts and DCF

Ending subscribers
% change, y-t-y
% change, y-t-y
Churn rate, monthly
Total revenue
% change, y-t-y
ARPU, monthly
% change, y-t-y
% change, y-t-y
EBITDA margin
Adjusted EBITDA (ex. non-cash comp.)
% change, y-t-y
EBITDA margin
Taxes (paid)/benefit
Implied tax rate
Capital Expenditures
EPS - Reported
Cash EPS - diluted
2006
2,260
35%
6.1%
623
431%
3.8%
1,137
24%
$41.27
5.0%
256
NM
26.4%
276
1%
28.4%
(9)
-66%
595
($0.07)
$0.28
2007
3,001
33%
6.2%
741
19%
3.9%
1,622
43%
$44.47
7.7%
363
42%
25.9%
392
42%
27.9%
(37)
-97%
505
($1.13)
($0.87)
2008
4,018
34%
5.8%
1,049
42%
3.8%
1,973
22%
$38.28
-13.9%
392
8%
22.8%
428
9%
24.8%
(39)
-41%
796
($1.97)
($1.65)
2009
4,954
23%
5.4%
1,110
6%
4.5%
2,383
21%
$32.66
-14.7%
443
13%
20.7%
486
14%
22.7%
(41)
-20%
807
($3.30)
($2.94)

NPV of EBITDA 12E -- 20E
NPV of 2020 terminal value@ 14x FCF
PMV of operations
Plus (less): NPV of NOLs
Less: assumed spectrum spending needs for continued growth
PMV of equity
DCF Value per Share
Price Target
Upside to price target
170
2010E
5,523
11%
5.9%
249
-78%
4.7%
2,521
6%
$37.24
14.0%
497
12%
21.2%
533
10%
22.8%
(30)
-4%
418
($9.15)
($8.86)
2011E
5,923
7%
6.3%
400
61%
4.1%
2,847
13%
$37.44
0.5%
568
14%
22.1%
608
14%
23.6%
(44)
-25%
450
($2.87)
($2.55)
2012E
6,323
7%
6.6%
400
0%
4.0%
3,066
8%
$37.75
0.8%
676
19%
24.4%
716
18%
25.8%
(44)
-74%
555
($1.36)
($1.04)
2013E
6,723
6%
7.0%
400
0%
4.0%
3,256
6%
$37.64
-0.3%
727
8%
24.7%
767
7%
26.0%
(44)
-563%
530
($0.68)
($0.36)
2014E
7,043
5%
7.3%
320
-20%
4.0%
3,421
5%
$37.53
-0.3%
787
8%
25.4%
827
8%
26.7%
(44)
84%
465
$0.11
$0.43
Current Price Multiples @

2011E
4,989
(253)
(2,781)
1,955
1,945
3,900
146
(471)
(2,242)
1,333
75.9
$17.57
10%
$15.81
15%
$13.72
EV ($b)
3.14
Current EV/Cash EBITDA

Current PER
Price Target EV/Cash EBITDA
Spectrum needs estimate

Price per pop
MHz needed
2015E
7,363
5%
7.5%
320
0%
4.0%
3,570
4%
$37.41
-0.3%
824
5%
25.5%
864
5%
26.7%
(44)
49%
420
$0.61
$0.93
3.77
2016E
7,663
4%
7.8%
300
-6%
4.0%
3,711
4%
$37.30
-0.3%
860
4%
25.6%
900
4%
26.8%
(44)
35%
437
$1.08
$1.40
2017E
7,963
4%
8.0%
300
0%
4.0%
3,848
4%
$37.19
-0.3%
894
4%
25.6%
934
4%
26.8%
(44)
27%
453
$1.54
$1.86
2018E
8,263
4%
8.3%
300
0%
4.0%
3,985
4%
$37.08
-0.3%
928
4%
25.7%
968
4%
26.8%
(44)
22%
469
$2.00
$2.32
2019E
8,463
2%
8.4%
200
-33%
4.0%
4,090
3%
$36.97
-0.3%
973
5%
26.2%
1,013
5%
27.3%
(44)
18%
482
$2.59
$2.91
2020E
8,663
2%
8.5%
200
0%
4.0%
4,176
2%
$36.86
-0.3%
989
2%
26.1%
1,029
2%
27.2%
(44)
17%
492
$2.81
$3.13
2009
6.5x
NM
2010E
5.9x
NM
2011E
5.2x
NM
2012E
4.4x
NM
2013E
4.1x
NM
7.8x
7.1x
6.2x
5.3x
4.9x
$0.50
10
Valuation Grid - DCF Value of Equity

16
1.5%
2.0%
2.5%
3.0%
3.5%
8.0%
26
29
32
36
41
9.0%
18
21
23
26
29
10.0%
13
14
$15.81
18
20
11.0%
8
9
10
12
13
12.0%
4
5
6
7
8
CAGR
08-20E
7%
-13%
6%
0%
8%
8%
-4%
NM
NM
Philip Cusick, CFA

(1-212) 622-1444

13 January 2011
MetroPCS
We initiate coverage of PCS with an Overweight rating and a year-end 2011 price
target of $16/share, implying 24% upside from current levels. MetroPCS has
executed well in the last 12 months despite broad secular concerns regarding
competition. The company has managed to improve its churn and ARPU profile,
while growth has slowed but remained fairly robust. From a profitability and cash
flow perspective, Metro is in an attractive position as pricing should remain stable,
supporting EBITDA growth. Free cash flow, however, is likely to ramp more
2010, shares of MetroPCS have additional upside in 2011, in our view.
Overweight
MetroPCS (PCS;PCS US)
Company Data
Price ($)
12.97
Date Of Price
12 Jan 11
14.40 - 5.52
52-week Range ($)
Mkt Cap ($ mn)
4,591.43
Fiscal Year End
Dec
354
Shares O/S (mn)
Price Target ($)
16.00
EPS ($)
Q1 (Mar)
Q2 (Jun)
Q3 (Sep)
Q4 (Dec)
FY
2009A
2010E
2011E
0.12
0.11
0.21
0.12
0.55
0.45
0.06A
0.23A
0.22A
(0.17)A
0.34A
0.68A
0.16
0.25
0.23
0.22
0.86
0.96

Good execution to continue despite competitive environment
MetroPCS has exhibited strong performance over the past few quarters, after seeing
macro and competitor-driven weakness in 2009. We expect the company to continue
performing relatively well, and expect good growth in 1Q. However, we believe
Street estimates for 2011 may be somewhat aggressive. We expect net additions to
slow as general prepaid growth experiences a secular slowdown, and we forecast net
adds of 800k adds for 2011, down from 1.5 million in 2010. Despite the slower
subscriber growth, ARPU and churn appear to be on good trajectories, which should
help overall profitability.
4G improves data availability but will be a small part of handset mix in 2011
Metro was the first carrier in the US to launch 4G LTE services, and to date has
rolled out the service to nine markets. In addition, Metro also launched the first LTE
smartphone, the Samsung Craft, late in the third quarter and we expect additional
LTE smartphones in 2011. Handsets will be expensive for some time until the
technology gains some scale as other carriers launch their own offerings. However,
having a 4G smartphone may help the carrier improve its marketing capabilities in an
increasingly data-centric environment.
171
Philip Cusick, CFA

(1-212) 622-1444

13 January 2011
Significant cash cushion to use for spectrum purchases

We expect Metro to end the year with approximately $1 billion in cash. With no
significant market buildout plans on the horizon and LTE not far from completion,
Metro has excess capital at its disposal, by our estimates. A share repurchase at this
point is unlikely, in our view. We believe the company may seek to purchase certain
small regional operators and spectrum assets to support a future ramp in 4G data
traffic, particularly in its top markets. The source of potential spectrum, however,
remains a question mark. The company could purchase spectrum through Clearwires
auction process or possibly buy Terrestars spectrum as was detailed in recent press
reports (WSJ MetroPCS Mulls Deal, 12/17/10). However, we do not believe either
is very attractive to management. For now, the company should be fine in most
markets, but over time spectrum will become an increasingly greater issue. We
include an estimated NPV of approximately $500 million for assumed spectrum
purchases in our valuation.
Turning into an FCF story; model 8.5% yield in 2011 and 12.7% in 2012
MetroPCS is poised to generate significant cash flow over the next several years. The
company has completed most of its expansion efforts, with only smaller markets
remaining at this point. In addition, its LTE build will mostly be completed in 1H11.
With more stable operating performance, profitability should improve. This, in
conjunction with declining capital investments, should result in substantial free cash
flow.
Investment Risks
Pricing pressure
The prepaid and pay-in-advance industry has experienced a variety of pricing moves
over the past two years. We believe such moves were brought on by competition, as
players aggressively tried to maintain growth. MetroPCS, in particular, took action
by bundling taxes and fees into its rate plans. Should the company need to make
additional pricing changes, profitability and cash flow could be negatively affected.
Tight spectrum market could create additional costs
MetroPCS is likely to encounter capacity constraints in some markets, especially
Philadelphia where it has only 10 MHz of spectrum. As data traffic grows on the
companys 4G network and penetration rises on its legacy network, Metro is likely to
see bandwidth shrink further. The company needs to purchase additional spectrum,
yet we remain concerned that attractive spectrum is likely to be either unavailable or
too expensive. As a result, the company could find itself overpaying for spectrum
resources, investing more capital in its existing network to increase capacity, or
limiting customer usage levels.
LTE ecosystem takes time to scale
We believe Metro could eventually derive a significant competitive advantage from
having a 4G network. However, until LTE smartphones become more affordable for
Metros target demographic, the company likely will have difficulty driving high
rates of adoption. Our concern is that handset pricing may not fall quickly enough
before competitors launch their own LTE services, eliminating any lead Metro
currently has.
172
Philip Cusick, CFA

(1-212) 622-1444

13 January 2011
Company Description
MetroPCS is one of two companies in our coverage that focus on unlimited wireless
voice and data services on a pay-in-advance basis for $35-60 per month. The
company has historically targeted the low-income, minority, and youth
demographics, though increasingly other customers are also signing on to the service.
While MetroPCS started as a local carrier, it today covers about 125 million pops in
markets including Las Vegas, Miami, Dallas, Detroit, Philadelphia, Los Angeles, and
New York, and offers free roaming to customers in most of the country through
roaming partnerships. MetroPCS today has 7.9 million voice and data customers who
pay an average of $39.70 per month. The company went public in 2007.

We establish a year-end 2011 price target of $16/share for MetroPCS. We based our
target price primarily on a discounted cash flow analysis that assumes a 9% WACC
and 2.5% perpetual growth rate. In addition, MetroPCS currently trades at 5.9x our
2011 EBITDA forecast, compared to the wireless industry average of 5.5x. Metros
closest peer, Leap Wireless, also trades at 5.4x our 2011 estimate. In our view, both
companies offer attractive growth which we believe justifies higher multiples than
the industry average.
Potential Leader in Competitive Prepaid Market

Coverage improved in 4Q
MetroPCS has exhibited strong performance over the past few quarters, after seeing
some demand and competitor-driven weakness in 2009. Despite lacking a nationwide
footprint through the third quarter of 2010, Metros share of new customers is not far
behind those of Tracfones Straight Talk (which is offered through multiple national
carriers) and Sprints Boost Unlimited, by our estimates.
Figure 81: MetroPCS Quarterly Net Adds
In thousands
800
600
692
435
303
400
205
200
223
298
13
0
(54)
(200)
1Q09
2Q09
3Q09
4Q09
1Q10
2Q10
3Q10
4Q10
In November 2010, Metro broadened its coverage network for customers to more
than 90% of the US, which should improve sales in what had been marginal coverage
areas.
173
Philip Cusick, CFA

(1-212) 622-1444

13 January 2011
Figure 82: Coverage Map, Including Roaming
Distribution focused on dedicated stores rather than big-box retailers

Interestingly, Metro focuses on generating most of its growth from smaller, indirect
distribution points and avoiding national, big-box chains. Therefore, there is no headto-head competition with Straight Talk, which is distributed exclusively through
Walmart. As a result, Boost Unlimited may be Metros biggest competitor; however,
we note that Sprint appears to be taking emphasis off that product line and focusing
on other lower-priced offerings.
Coming into the sweet spot of prepaid growth
We expect Metro to continue performing relatively well, and see good growth in 1Q,
after preannouncing net adds of 298k for 4Q, followed by seasonal weakness in 2Q
and 3Q. While 4Q was weaker than many expected, we are not surprised given
reports of high-end handset shortages in December. While handset inventory still
sounds tight, we expect Metro to have fixed that problem by the time the business
really ramps up in late January.
In total, our net add estimate of 800k in 2011 is somewhat more conservative than
consensus of over 1 million net adds, as we expect some level of incremental
competition for data plans and devices in Metros demographic. In an extremely
competitive prepaid market, competition for Metros highest-ARPU customers is
coming from low-end postpaid offerings and competition for the companys low-end
customers is coming from tradition pay-by-the-minute or pay-by-the-day offerings.
174
Philip Cusick, CFA

(1-212) 622-1444

13 January 2011
4G Offers Limited Differentiation in 2011

4G handsets will remain limited
and expensive in 2011
Metro has lagged the industry on the technology front, opting to skip launching 3G
services, while the companys closest peer Leap Wireless aggressively rolled out
EVDO and EVDO Rev A. However, Metro was the first carrier to launch 4G LTE
services. Although we do not believe the companys iteration of the service is as
robust as Verizons, the service offers a new point of differentiation that no other
prepaid operator can match for the time being. Metro has launched LTE in nine
markets, including Boston, New York, Sacramento, Dallas-Fort Worth, Detroit, Las
Vegas, Los Angeles, Philadelphia, and San Francisco, and plans to expand coverage
to its entire footprint by the end of 2011.
Metro launched the first LTE smartphone, the Samsung Craft, late in the third
quarter; the device is priced at $299 (likely $400-450 wholesale) and requires a $55
or $60 price plan. However, it remains early stages on the device front for LTE.
Handsets should remain expensive for some time until the technology gains some
scale, as other carriers launch their own offerings. We expect Metro to offer
additional LTE smartphones in 2011. These are likely to remain at a $100+ premium
to similar 3G devices well into 2012, so for the time being those that can offer 3G
smartphones are likely to have the advantage.
In addition, while Metro can offer nationwide voice, text, and data roaming on
partners 1XRTT 2G networks, no one else has an LTE network like Metros, so
nationwide LTE coverage is unlikely for some time.
Figure 83: MetroPCS Partial Handset Lineup
Huawei M228 $10

LG Select
$59
LG Baanter Touch
$149
Samsung Craft $299

Significant Cash Pile, but Limited Spend Ahead

We expect Metro to end 2010 with approximately $1 billion in cash. With no
significant market buildout plans on the horizon and LTE capital needs ramping
down in 2011, Metro has excess capital at its disposal, by our estimates. A share
repurchase at this point is unlikely, in our view. We think it is more likely that the
company continues to stockpile funds for potential tuck-in transactions and potential
spectrum acquisitions.
Pursuing spectrum where it is available
We believe MetroPCS will need to add spectrum depth to support a future ramp in
4G data traffic, especially in some markets like Philadelphia where it has only
10 MHz. In July and August, Metro purchased or exchanged for an additional
10 MHz of spectrum in the Orlando and Tampa markets, where it had also been at
only 10 MHz. In exchange, it had to give up spectrum in non-core markets Salt Lake
City and Portland. Metro also purchased 10 MHz of AWS spectrum in the Northeast
metropolitan area in the fourth quarter. Specific markets in which the company may
need additional spectrum include areas, such as Boston and New York, in which
spectrum has been very expensive in the past.
175
Philip Cusick, CFA

(1-212) 622-1444

13 January 2011
The source of potential spectrum, however, remains a question mark. The company
could consider purchasing 2.5 GHz spectrum through Clearwires auction process;
however, the LTE ecosystem is at an early stage and it will take some time before
compatible handsets are available. Another option could be to consider purchasing
Terrestars S-band spectrum; however, that asset may be highly encumbered and the
ecosystem for satellite-compatible LTE devices is at an even earlier stage in
development. The FCCs planned Auction 92 in 2011 does not provide for spectrum
in top metropolitan areas, and major progress on pulling additional broadcast
spectrum is likely to take several years. Therefore, we believe Metro could face
significant hurdles in finding additional capacity. For now, the company should be
fine in most markets, but as smartphone penetration ramps in 2011 and into 2012,
spectrum should become an increasingly greater issue.

We forecast Metro to maintain healthy subscriber growth. We currently estimate
subscriber growth of 10% in 2011 and 8% in 2012. ARPU stability, in our view, is
more critical to the companys success. As customers continue to migrate to higher
price points introduced in early 2010 and adoption of smartphone and Blackberry
plans increases, we expect ARPU to be stable in 2011. We forecast a modest decline
in ARPU in out years, though we believe this could be conservative as the subscriber
base is likely to transition to smartphones well into 2012 and 2013. Our operating
metric forecasts drive estimated top-line growth of 13% in 2011 and 8% in 2012.

As Metro re-priced its subscriber base and altered the way it subsidized customers in
2010, margin expansion was somewhat limited. However, we expect pricing to
remain stable for 2011 and LTE operating expenditures to begin tapering off, paving
the way for accelerated margin expansion in 2011. We forecast almost 200 bps of
improvement in 2011 and roughly 100 bps of additional growth in 2012. Improved
EBITDA trends, as well as a decline in capital expenditures, should drive significant
free cash flow generation, by our estimates. We forecast negative cash flow in 2010,
despite positive contributions in 1Q and 2Q, yet we expect levered free cash to jump
to $394 million in 2011 (an 8.5% yield on the current share price) and $585 million
in 2012 (12.7% yield).
176
Philip Cusick, CFA

(1-212) 622-1444

13 January 2011
Table 74: MetroPCS Financial Forecasts and DCF

CAGR
08-20E
8%
Ending subcribers
% change, y-t-y
% change, y-t-y
Churn rate, monthly
2007
3,963
35%
5.7%
1,022
-16%
4.7%
2008
5,367
35%
8.4%
1,404
37%
4.7%
2009
6,640
24%
7.6%
1,272
-9%
5.4%
2010E
8,155
23%
8.0%
1,516
19%
3.6%
2011E
8,955
10%
8.4%
800
-47%
3.7%
2012E
9,685
8%
9.1%
730
-9%
3.7%
2013E
10,342
7%
9.7%
657
-10%
3.7%
2014E
10,933
6%
10.3%
591
-10%
3.7%
2015E
11,466
5%
10.8%
532
-10%
3.7%
2016E
11,945
4%
11.2%
479
-10%
3.7%
2017E
12,376
4%
11.6%
431
-10%
3.7%
2018E
12,764
3%
12.0%
388
-10%
3.7%
2019E
13,113
3%
12.3%
349
-10%
3.7%
2020E
13,427
2%
12.6%
314
-10%
3.7%
Revenue
ARPU, monthly
% change, y-t-y
Service revenue
% change, y-t-y
Total revenue
% change, y-t-y
$42.89
0.2%
1,918
49%
1,918
49%
$41.30
-3.7%
2,437
27%
2,437
27%
$40.02
-3.1%
3,130
28%
3,130
28%
$39.07
-2.4%
3,688
18%
3,688
18%
$39.41
0.9%
4,172
13%
4,172
13%
$39.21
-0.5%
4,503
8%
4,503
8%
$39.02
-0.5%
4,810
7%
4,810
7%
$38.82
-0.5%
5,081
6%
5,081
6%
$38.63
-0.5%
5,319
5%
5,319
5%
$38.44
-0.5%
5,529
4%
5,529
4%
$38.24
-0.5%
5,714
3%
5,714
3%
$38.05
-0.5%
5,875
3%
5,875
3%
$37.86
-0.5%
6,016
2%
6,016
2%
$37.67
-0.5%
6,138
2%
6,138
2%
-1%
Adjusted EBITDA (operating cash flow)

% change, y-t-y
Cash EBITDA margin
Depreciation
Tax expense
667
69%
34.8%
178
(123)
783
17%
32.1%
255
(117)
956
22%
30.5%
378
(87)
1,177
23%
31.9%
450
(162)
1,349
15%
32.3%
525
(197)
1,515
12%
33.6%
547
(252)
1,627
7%
33.8%
547
(297)
1,725
6%
34.0%
547
(336)
1,810
5%
34.0%
547
(369)
1,883
4%
34.1%
547
(398)
1,945
3%
34.0%
547
(423)
1,999
3%
34.0%
547
(444)
2,044
2%
34.0%
547
(462)
2,081
2%
33.9%
547
(477)
8%
Capital expenditures/ service revenue
% change, y-t-y
768
40%
44%
1,201
49%
56%
832
27%
-31%
810
22%
-3%
698
17%
-14%
676
15%
-3%
721
15%
7%
711
14%
-1%
745
14%
5%
774
14%
4%
800
14%
3%
822
14%
3%
842
14%
2%
859
14%
2%
$0.46
$0.55
$0.86
$1.10
$1.29
$1.46
$1.61
$1.73
$1.84
$1.93
$2.01
$2.08
2009
7.9x
23.1x
2010E
6.4x
38.3x
2011E
5.6x
14.9x
2012E
5.0x
11.7x
9.0x
28.4x
7.3x
47.0x
6.4x
18.3x
5.7x
14.3x
Earnings per share (diluted)
$0.28
$0.34
Price Multiples @
NPV of Cash EBITDA 12E -- 20E

NPV of 2020 terminal value@ 6x EBITDA
PMV of operations
2009
9,229
(1,634)
(4,388)
3,208
7,105
10,313
2010E
7,947
(1,457)
(3,505)
2,984
7,105
10,089
2011E
10,835
(2,207)
(4,552)
4,076
5,548
9,624
Less: NPV of potential spectrum spending

Plus: NPV of NOL
PMV of equity
497
(2,716)
8,093
330
(3,289)
7,130
(486)
133
(2,895)
6,375

Shares to be issued from warrants/options (2)
349
7
356.2
353
7
361
354
7
361
DCF Value per Share

Discount
Price Target per share
Upside to price target
$22.72
10%
$20.45
$19.77
10%
$17.80
2010E
1,177
(12)
($0.03)
2011E
1,349
394
$1.09
-0.3%
-624.9x
-0.2%
8.4%
19.2x
6.9%
$12.95
EV ($b)
7.57
Current EV/Cash EBITDA

Current PER
Price Target EV/Cash EBITDA
Current PER
Spectrum acquisition
Price per pop
MHz needed
8.63
-12%
8%
8%
7%
NM
-3%
13%
$0.50
10
MetroPCS Valuation Grid - DCF Value of Equity

16
7.0%
8.0%
9.0%
10.0%
11.0%
$17.66
10%
$15.89
23%
1.5%
22
17
14
11
9
2.0%
24
19
15
12
10
2.5%
27
20
$15.89
13
10
3.0%
30
22
17
14
11
3.5%
34
25
19
15
12
Valuation Based on Forward FCF Multiple

EBITDA
Levered Free Cash Flow
FCF / diluted share
2009
956
88
$0.24
Current FCF Yield

EV/FCF
Target FCF Yield
2012E
1,515
585
$1.62
12.5%
12.9x
10.2%
2013E
1,627
653
$1.81
14.0%
11.6x
11.4%
2014E
1,725
427
$1.18
9.1%
17.7x
7.4%
* 2014 is first year at full cash tax rate.

Free Cash Flow Multiple
10x
11x
12.0x
13x
15x
2011
11
12
$13.09
14
16
2012
16
18
$19.44
21
24
Valuation Based on Forward P/E Multiple

EBITDA
EPS - Diluted
2009
956
$0.55
2010E
1,177
$0.34
2011E
1,349
$0.86
2012E
1,515
$1.10
2013E
1,627
$1.29
2014E
1,725
$1.46
Current PER
Target PER
23.4x
28.7x
38.5x
47.2x
15.0x
18.4x
11.8x
14.5x
10.0x
12.3x
8.9x
10.9x

P/E Multiple
10x
12x
15.0x
17x
20x
2011
9
10
$12.97
15
17
2012
11
13
$16.50
19
22
177
Philip Cusick, CFA

(1-212) 622-1444
178

13 January 2011
Philip Cusick, CFA

(1-212) 622-1444

13 January 2011
NTELOS Holdings Corp.

We initiate coverage of NTELOS with a Neutral rating and a year-end 2011 price
target of $22/share, implying 13% upside from current levels. Improved execution
combined with accretive acquisitions should drive moderately better financial trends.
In addition, management recently announced plans to separate its wireless and
wireline assets, both of which we believe are attractive strategic assets. We believe
the two businesses are likely to be worth more separately than together. Although
shares provide a nice yield, upside is likely to be limited near term, as operating
trends are unlikely to provide upside surprise, in our view. We believe investors will
find the potential for better upside with other telecom equities.
Neutral
NTelos Holdings Corporation (NTLS;NTLS US)
Company Data
Price ($)
Date Of Price
52-week Range ($)
Mkt Cap ($ bn)
Fiscal Year End
Shares O/S (mn)
Price Target ($)
Price Target End
Date
19.68
12 Jan 11
20.35 15.84
0.82
Dec
42
22.00
31 Dec 11
EPS ($)
Q1 (Mar)
Q2 (Jun)
Q3 (Sep)
Q4 (Dec)
FY
2009A
2010E
2011E
0.41
0.41
0.34
0.34
1.50
1.41
0.30A
0.27A
0.26A
0.22A
1.07A
1.13A
0.39
0.40
0.45
0.44
1.70
1.35
Source: Company dat a, Bloomberg, J.P. Morgan estimates.

Note: EPS figures based on G AAP results. 'Bloomberg' above denotes Bloomberg cons ensus estim ates .

Subscriber trends improving in the wireless business
NTELOS wireless business returned to positive postpaid subscriber growth in the
second quarter after losing subscribers for four straight quarters. The improvement is
the result of lower churn, while gross additions remain depressed. We believe the
improvement in churn is sustainable and gross additions could begin to grow in 4Q
given the companys more attractive handset lineup and competitive pricing plans.
On the other hand, we remain concerned about the lower-value prepaid business,
which has lost a meaningful number of subscribers in the past two quarters. In
addition, ARPU has declined significantly for several quarters. Though management
is addressing the issues, we do not expect meaningful improvement to take place
quickly. We forecast only 3.2% wireless growth in 2011.
Sprint wholesale volumes increasing; could drive upside to margins in 2011
Sprint and NTELOS have a contract in place that permits Sprint CDMA customers to
roam onto the NTELOS network. In exchange, Sprint pays NTELOS for the minutes
and bandwidth used. While the contract stipulates that NTELOS receive monthly
minimum revenue of $9 million, October was the first time in several quarters that
Sprints volumes were high enough that NTELOS received more than the minimum.
We attribute the increase to subscriber stabilization and increased data use at Sprint.
In line with our belief that Sprints subscriber trends will continue to improve, while
data traffic in general grows organically, we expect wholesale revenue from
NTELOS to continue growing. We expect wholesale to drive the bulk of wireless
179
Philip Cusick, CFA

(1-212) 622-1444

13 January 2011
growth in 2011, with margins on that revenue tracking significantly higher than
overall wireless margins.
Both wireline and wireless pieces are attractive strategic assets
In December, NTELOS management made the decision to spin its wireline assets
into a separate public entity with current shareholders receiving shares in the new
company a split that we expect to be completed in 2H11. We believe both pieces
are attractive strategic assets, the value of which may become more apparent after the
split occurs. Sprint has a wholesale relationship with NTELOS in the wireline
business, and both Frontier and Windstream operate in adjacent markets to those that
the companys wireline segment serves.
Return-of-capital story remains positive after split
We expect dividend strategies at the entities to diverge from what is in place today.
Given that pure-play wireless peers typically dont pay a dividend, we would expect
the wireless business to pay at best a nominal yield. NTELOS wireline business has
transformed from a mainly rural operator to a majority competitive carrier, with
heavy emphasis on fiber-based services for enterprise customers. While many
competitive carriers do not pay dividends, NTELOS has low leverage and excellent
cash flow so we expect its high payout ratio likely will continue. Windstream has
implemented a similar strategy, yet the company maintains a very attractive 6.1%
yield.
Investment Risks
Upside risks
NTELOS steals significant share
As NTELOS improves its execution, the company could be better positioned to take
share from competitors. To the extent that management can meaningfully
differentiate the companys offerings and draw customers from competitors, there
could be a significant ramp in gross additions, driving accelerated revenue growth.
Split takes place sooner
Should management receive necessary regulatory approvals sooner than expected,
NTELOS could split the two businesses earlier than the 2H11 target. The expected
value of separating the businesses would be achieved sooner, and could open the
door for a revaluation of these two strategic assets.
Downside risks
Sprint turnaround reverses course
We expect increased revenue from the wholesale agreement with Sprint to be a
growth driver going forward. Should Sprint hit major roadblocks in its turnaround,
revenue to NTELOS could fall back below the monthly minimum of $9 million. As a
result, wireless growth for NTELOS could be closer to flat, limiting interest in the
story relative to other opportunities in wireless.
Competition intensifies
We are forecasting modestly improved wireless operating trends beyond 2010. To
the extent that management is unable to sustain recent improvements in churn, our
forecasts could be too optimistic. Continued losses of postpaid customers likely
would drive negative wireless revenue growth.
180
Philip Cusick, CFA

(1-212) 622-1444

13 January 2011
Integration of FiberNet hits obstacles

NTELOS recent acquisition, FiberNet, is expected to be a large contributor to
overall wireline revenue going forward. Management expects cost synergies of $69 million once FiberNet is fully integrated. In addition, the companys fiber-based
offerings are expected to drive most of the growth for the wireline business. As a
result, delays in integrating FiberNet or realizing synergy potential would negatively
affect revenue and profitability trends for the wireline business.
Company Description
NTELOS is a diversified regional telecommunications carrier that operates in
Virginia and West Virginia. Nearly three-fourths of the companys revenue is
derived from wireless sales, with the company serving nearly 434k postpaid and
prepaid customers in Virginia and West Virginia paying an average of $50.45 per
month. Its wireless network covers 5 million of the 8.7 million people under its
licenses. Within the wireline business, the company supports approximately 36k
access lines through its rural local exchange carrier (RLEC) business and an
additional 49k lines through its CLEC subsidiary, which predominantly targets
businesses. NTELOS came public in 2006 and private equity company Quadrangle
still owns 27% of the company. NTELOS in December 2010 announced a plan to
split its wireless and wireline divisions and expects to close that deal in the second
half of 2011.

We establish a year-end 2011 price target of $22/share for NTELOS. We based our
target price primarily on a discounted cash flow analysis that assumes an 8.5%
WACC and 0.5% perpetual growth rate. In addition, NTELOS currently trades at
5.9x our 2011 EBITDA forecast, compared to an average of 5.2x for other integrated
carriers. Finally, we use a sum-of-the-parts analysis to support our DCF analysis.
Assuming a multiple of 6.5x 2011E EBITDA for wireless and 5.0x for wireline, we
arrive at a similar valuation.
Wireless/Wireline Split Has Finally Come

NTELOS management and investors have long discussed the possibility of splitting
the companys wireless and wireline businesses. As public entities, the two sides
offer different cash flow and growth profiles and therefore are likely more suitable
for different types of investors. In addition, the telecom space continues to
consolidate, and the assets could prove attractive strategically, given scarcity value.
In December, NTELOS management made the decision to spin its wireline assets
into a separate public entity, with current shareholders receiving shares in the new
company. The transaction is expected to take place in the second half of 2011,
following regulatory approvals. For two years following the agreement, the wireline
business will have access to certain key corporate management members, including
the CEO and CFO.
181
Philip Cusick, CFA

(1-212) 622-1444

13 January 2011
Implications for the operating performance of the businesses

We do not expect any major impact to the way the two businesses operate after the
split occurs. Financially, both pieces could lose some benefit compared to being an
integrated entity. For example, there are certain systems, support functions, and other
administrative aspects of the business shared by both wireless and wireline today. In
addition, NTELOS has integrated selling of the services in some respects.
However, we believe that, from a revenue and cost perspective, the financial impact
will be minimal. The two businesses operate fairly independently, and the transaction
should give both an opportunity to expand upon that independence. Specifically,
management teams of both will have the autonomy to make capital allocation
decisions without concern about how that fits into a consolidated wireless/wireline
budget.
Both wireline and wireless pieces are attractive strategic assets
We believe both pieces are attractive strategic assets, the value of which may become
more apparent after the split occurs. Sprint has a wholesale relationship with
NTELOS in the wireline business, and both Frontier and Windstream operate in
adjacent markets to those that the companys wireline segment serves.
Return-of-capital implications
NTELOS currently supports an annual dividend of $50 million annual ($1.12/share),
representing a 5.7% yield and 62% payout ratio. In addition, the company currently
has a $40 million share repurchase program which has bee in place since August
2009; $17 million of the plan was completed in 2009 but the company has not
repurchased any shares since then. However, as separate companies, the growth
profiles and peer groups of the wireless and wireline businesses could promote
different return-of-capital strategies. Management is targeting leverage of 3.25x or
lower on an LTM basis for the wireless business, as per covenant requirements, and
leverage of 3.00x for the wireline business.
For the purposes of our analysis, we use 2011E EBITDA given expected timing for
the transaction. Assuming 3.00x net leverage for the wireline business, we estimate
the segment could support $290 million of debt and the resulting wireless leverage
would be 2.6x a very reasonable level, in our view.
Given that pure-play wireless peers typically dont pay a dividend, we would expect
the wireless business to pay a nominal yield, but for the wireline business to pay out
a large percentage of cash flow, with the remainder left to use on small acquisitions.
Dividend policies of wireline peers vary significantly, with payout ratios typically in
the 60-80% range and yields in the range of 6-8% for Windstream, CenturyLink, and
Frontier, while competitive carriers often do not pay any dividends. NTELOS
wireline business has transformed from a mainly rural operator to a majority
competitive carrier, with heavy emphasis on fiber-based services for enterprise
customers. The wireline business is expected to continue investing aggressively. That
being said, Windstream has implemented a similar strategy, yet the company
maintains a very attractive 7.4% yield. We would expect NTELOS management to
follow a similar strategy, given the cash flow potential for the business.
182
Philip Cusick, CFA

(1-212) 622-1444

13 January 2011
Price target of $22 still implies attractive yields post-split; limited share upside
In the table below, we outline how we see the company paying out cash after the
split. We assume a current value for the wireless business of 5.5x EBITDA a
reasonable level given current wireless comps resulting in an implied valuation of
6.9x EBITDA for the wireline business. Our target price is commensurate with the
wireless valuation expanding modestly to 6.0x, and the wireline valuation remaining
fairly constant at 7.0x. Assuming a 3x net debt-to-EBITDA ratio for the wireline
business implies an 8.3% dividend yield at a 78% payout ratio.
Table 75: Post-Split Leverage and Return of Capital at Current and Target Prices
In millions
Current Price
Stock price
Equity value
EBITDA
Net debt
Net debt/EBITDA
EV
EV/EBITDA
2011 Target Price

Consolidated
$19.51
822
251
Wireless
$10.81
455
158
Wireline
$8.70
366
93
693
2.8x
413
2.6x
280
3.0x
Net debt
Net debt/EBITDA
1,514
6.0x
869
5.5x
646
6.9x
EV
EV/EBITDA
Stock price
Equity value
EBITDA
Consolidated
$21.54
907
251
Wireless
$12.69
534
158
Wireline
$8.85
373
93
693
2.8x
413
2.6x
280
3.0x
1,600
6.4x
948
6.0x
652
7.0x
Dividend ($m)
Dividend yield
50
6.1%
19
4.2%
31
8.5%
Dividend ($m)
Dividend yield
50
5.5%
19
3.6%
31
8.3%
Free cash flow

Payout ratio
75
66.4%
36
53.5%
40
77.9%
Free cash flow

Payout ratio
75
66.3%
36
53.5%
40
77.7%

We forecast NTELOS to drive improved subscriber growth. We currently estimate
net additions of 9.5k in 2011 and 11.5k in 2012, driven by better postpaid trends. In
addition, ARPU trends should also improve. We forecast flat postpaid ARPU,
compared to declines in recent quarters. Prepaid ARPU declines have been
significant over the past several quarters, and we expect a sharp deceleration as
management places emphasis on higher-ARPU plans. Our operating metric forecasts
drive estimated wireless top-line growth of 3.2% and 3.5% in 2011 and 2012,
respectively. On the wireline side, we expect the competitive carrier side of the
business to drive most of the growth. We forecast low- to mid-single digit growth,
although our estimates could prove conservative should NTELOS aggressively win
new business.

NTELOS management has demonstrated an ability to preserve and expand margins
despite operating headwinds. As wireless top-line growth returns, we expect service
margins to move back to the low-40% range over the next couple of years. We
expect wireline margins to move from 56% in 2010 to 50% in 2011 and 51% in
2012, driven by the acquisition of the lower-margin FiberNet business. However,
wireless margin expansion should help offset this dilution, driving modest
consolidated margin growth. In addition, NTELOS has historically generated
attractive free cash flow, supporting its dividend, and we would expect double-digit
growth to continue over the next couple of years. We do not expect any meaningful
changes to the companys capital investment program, with the only major new
initiative being spend related to the integration of FiberNet.
183
Philip Cusick, CFA

(1-212) 622-1444

13 January 2011
Table 76: NTELOS Financial Forecasts and DCF

2007
367
9%
4.2%
31
-10%
0.6%
3.2%
$53
1%
322
15%
112
37.2%
25%
407
11%
4.7%
40
28%
0.8%
2.8%
$56
5%
378
17%
142
40.0%
27%
435
7%
5.0%
28
-29%
0.6%
2.9%
$55
-1%
416
10%
163
41.8%
15%
439
1%
5.0%
4
-88%
0.1%
3.3%
$53
-3%
425
2%
162
40.6%
-1%
440
0%
5.1%
1
-69%
0.0%
3.1%
$50
-6%
405
-5%
147
38.8%
-9%
449
2%
5.2%
10
780%
0.2%
3.0%
$50
0%
417
3%
158
40.3%
7%
461
3%
5.3%
12
21%
0.2%
2.9%
$50
0%
430
3%
170
41.8%
7%
471
2%
5.4%
10
-13%
0.2%
2.8%
$50
0%
438
2%
171
41.3%
1%
479
2%
5.5%
8
-20%
0.2%
2.6%
$50
0%
445
2%
175
41.5%
2%
485
1%
5.6%
6
-25%
0.1%
2.5%
$50
0%
451
1%
179
41.6%
2%
489
1%
5.6%
4
-33%
0.1%
2.4%
$50
0%
455
1%
181
41.8%
2%
493
1%
5.7%
4
0%
0.1%
2.3%
$50
0%
458
1%
184
41.9%
1%
497
1%
5.7%
4
0%
0.1%
2.2%
$50
0%
462
1%
186
42.0%
1%
501
1%
5.8%
4
0%
0.1%
2.0%
$50
0%
464
1%
187
42.0%
1%
505
1%
5.8%
4
0%
0.1%
1.9%
$50
0%
467
1%
189
42.1%
1%
Wireline revenue
ILEC access lines
CLEC access lines
EBITDA
% margin
% change, y-t-y
117
45
47
65
56%
5%
122
44
49
65
54%
0%
123
41
50
69
56%
6%
125
38
50
72
57%
4%
140
45
140
78
56%
9%
219
43
142
106
48%
35%
226
41
143
116
51%
10%
227
39
144
118
52%
1%
229
37
145
119
52%
1%
229
35
146
121
53%
1%
230
33
148
121
52%
0%
230
31
149
120
52%
0%
230
29
150
119
52%
-1%
229
27
151
118
51%
-1%
229
25
152
117
51%
-1%
5%
-6%
1%
4%
Consolidated revenue
EBITDA
% change, y-t-y
EBITDA margin
440
159
8.5%
36.2%
500
198
24.4%
39.6%
540
223
12.7%
41.4%
550
222
-0.6%
40.4%
546
213
-4.2%
39.0%
636
251
18.0%
39.5%
656
273
8.8%
41.6%
665
273
0.0%
41.0%
675
279
2.2%
41.4%
681
284
1.8%
41.7%
685
286
0.8%
41.8%
689
288
0.6%
41.8%
692
289
0.3%
41.8%
694
290
0.2%
41.7%
696
290
0.1%
41.7%
2%
3%
(6)
87
19.7%
($0.18)
($0.66)
$0.00
(16)
110
21.9%
$0.77
$0.87
$0.00
(24)
132
24.5%
$1.12
$1.20
$0.70
(29)
99
18.1%
$1.50
$1.62
$1.06
(24)
92
16.9%
$1.07
$1.19
$1.12
(29)
99
15.6%
$1.70
$1.79
$1.20
(43)
97
14.8%
$2.06
$2.15
$1.24
(43)
99
14.9%
$2.06
$2.13
$1.27
(45)
95
14.0%
$2.16
$2.22
$1.31
(46)
96
14.1%
$2.24
$2.30
$1.35
(47)
92
13.4%
$2.27
$2.34
$1.39
(48)
92
13.4%
$2.30
$2.36
$1.43
(48)
88
12.7%
$2.31
$2.38
$1.48
(48)
88
12.7%
$2.32
$2.39
$1.52
(48)
88
12.7%
$2.33
$2.39
$1.57
Cash taxes paid

CAPEX/revenue
Earnings per diluted share
Cash EPS
Dividend per share
2008

NPV of 2020 terminal value @ 6x EBITDA
PMV of operations
2011E
1,764
(286)
(584)
894
826
1,721

PMV of equity
(693)
1,028
Shares outstanding
Shares to be issued from warrants/options (2)
2010E
2011E
Multiples @
Current EV/EBITDA
Current P/E
2012E
2013E
$19.51
Target EV/EBITDA
Target P/E
2014E
2015E
2016E
Current
2010
7.1x
5.5x
7.6x
$24.41
10%
$21.97
1.12
18%
2011
6.0x
5.5x
6.1x
2010E
7.1x
16.4x
2011E
6.0x
10.9x
2012E
5.5x
9.1x
7.3x
13.5x
7.6x
18.5x
6.4x
12.2x
5.9x
10.2x
Consolidated multiple
Estimated wireline multiple
Implied wireless multiple
Price Target
2010
2011
7.6x
6.4x
6.0x
6.0x
8.1x
6.4x

Cash EBITDA
Cash EPS - Diluted
2010E
213
$1.19
2011E
251
$1.79
2012E
273
$2.15
Tax-affected NOL's remaining per share

EOY 2009E cash levels per share
Current stock value ex. cash and NOL's
Adjusted price / diluted EPS
0.44
$0.75
$18.32
15.4x
0.22
$1.35
$17.94
10.0x
0.17
$0.00
$19.34
9.0x
2010E
31
58
$1.39
2011E
57
75
$1.81
2012E
91
86
$2.06

P/E Multiple on 2011E EPS
Normalized
Diluted
+NOL's
12x
22
10x
18
14x
25
12x
22
15.0x $26.90
15.0x
$27.12
16x
29
16x
29
18x
32
18x
33

Cash EBITDA
Free Cash Flow
FCF / diluted share
Present value of tax-affected NOL's remaining per s $0.44

EOY 2009E cash levels per share
$0.75
Current stock value ex cash and NOL's
$18.32
Adjusted price / FCF
13.2x
FCF Yield
7.1%
$0.22
$1.35
$17.94
9.9x
9.3%
184
$0.17
$0.00
$19.34
9.4x
10.6%

Free Cash Flow Multiple on 2011 FCF
21x
22x
23x
24x
25x
26x
2011E
38
40
$41.55
43
45
47
2017E
2009
6.8x
12.0x
Valuation Grid - DCF Value per Share

0.0%
0.5%
1.0%
1.5%
22 -0.5%
6.5%
27
29
31
33
36
7.5%
22
23
24
26
28
8.0%
20
21
$21.97
23
25
9.0%
16
17
18
19
20
10.0%
13
14
15
15
16
41.7
0.4
42.1
DCF Value per Share

Private-public discount of 10%
Price target
Upside to target
2009
21x
22x
23x
24x
25x
26x
Normalized
+NOL's
38
40
$41.77
44
45
47
2018E
2019E
2020E
CAGR
10E-20E
2006
Wireless
Ending subscribers
% change, y-t-y
% change, y-t-y
Penetration gain (of cov. pops)
Churn rate, monthly
LocaL ARPU, monthly
% change, y-t-y
Total revenue
% change, y-t-y
EBITDA
% margin
% change, y-t-y
1%
14%
0%
1%
3%
0%
7%
Philip Cusick, CFA

(1-212) 622-1444

13 January 2011
US Cellular Corp
Initiate with Underweight Rating and $45 YE11 Price Target
We initiate coverage of US Cellular with an Underweight rating and a year-end 2011
price target of $45/share, implying 9% downside from current levels. We expect the
business to continue to struggle to grow; while recent moves to improve subscriber
and margin performance should help to some degree, we do not expect a meaningful
change. We believe US Cellulars positioning in the industry provides the company
with limited protection against price competition, and we think many potential
customers could opt for a pay-in-advance operator or postpaid competitor. In
addition, shares trade at a premium valuation, free cash flow is weak, there is no
dividend, and the Carlson family controls US Cellular, all of which we believe justify
our Underweight rating.
Underweight
US Cellular (USM;USM US)
Company Data
Price ($)
Date Of Price
52-week Range ($)
Mkt Cap ($ mn)
Fiscal Year End
Shares O/S (mn)
Price Target ($)
Price Target End
Date
50.30
12 Jan 11
50.85 33.84
4,347.33
Dec
86
45.00
31 Dec 11
EPS ($)
Q1 (Mar)
Q2 (Jun)
Q3 (Sep)
Q4 (Dec)
FY
P/E FY
2009A
2010E
2011E
0.97
0.96
0.41
0.14
2.48
20.3
0.55A
0.47A
0.43A
0.23A
1.69A
29.8A
0.51
0.36
0.47
0.59
1.93
26.1

Belief Project benefits likely to be modest
US Cellulars postpaid subscriber growth has been negative through the first three
quarters of 2010. At the beginning of the fourth quarter, management launched the
Belief Project to address these trends. The new campaign introduces new price plans
and handsets, as well as features to alleviate customer complaints. Though the
offerings seem to have improved retention efforts in 4Q, we are cautious on the
ability for US Cellular to gain much traction in gross additions. Given its positioning
in the market, the company faces intense competition from high-end national carriers
as well as low-end prepaid players, some of which have superior brands.
Low smartphone penetration creates opportunity for existing base
Only 20% of US Cellulars postpaid customers have smartphones or other devices
that require data plans, well behind similar metrics at AT&T and Verizon. The
companys smaller scale, and thus late adoption of the devices, is the primary reason
behind the lower penetration. Recent take rates, driven by Android device adoption,
are encouraging; the company currently has five Android devices for sale. As
additional devices are rolled out in 2011, take rates could grow, which would also
support ARPU as customers purchase data plans. However, we believe this will
primarily be driven by existing customer upgrades, rather than new customers. In
addition, a Verizon iPhone could have a large impact on US Cellular, in particular.
As a result, we forecast only modest ARPU growth in 2011.
185
Philip Cusick, CFA

(1-212) 622-1444

13 January 2011
Wireless margin improvement will be difficult

Wireless EBITDA margins fell 450 bps from 2007 to 2009, and we expect another
220 bps of incremental decline in 2010. Although there could be some stabilization
in subscriber trends and margins in 2011, we believe handset subsidies will continue
to weigh on margins. As management aims to push smartphones into customers
hands, it will need to subsidize these more than lower-end devices. In addition, as
part of its loyalty program, the company is likely to make new handsets available
earlier over the life of a contract than it has previously. As a result, we forecast
limited margin improvement in 2011.
US Cellular is controlled by the

Carlson family
Public shareholders have limited influence on direction

US Cellular is 83% owned by Telephone & Data Systems, while TDS is controlled
through super-voting shares by the founding Carlson family. Although US Cellular
has struggled for relevance and shareholders have at times called for a sale of the
company, we see no evidence that the family wants to sell in the near term.
Premium valuation tough to justify
Though US Cellular could have some success in coming quarters as execution
improves with a new CEO and with continued emphasis on the Belief Project, we are
skeptical that a turnaround can come quickly. As a result, we see limited upside to
our forecasts and anticipate growth well below peer levels. With shares trading at
6.0x our 2011E EBITDA, we believe wireless investors will find more interesting
upside stories in Sprint Nextel, Leap Wireless, and MetroPCS, which trade at 4.6x,
5.4x, and 5.9x, respectively. If investors do want exposure to US Cellular, we believe
it would be better to invest in Telephone & Data Systems which trades at 4.0x total
EBITDA (and an implied 1.1x wireline EBITDA excluding its USM stake) despite
generating approximately 84% of its revenue from US Cellular.
Investment Risks
Return of wholesale bodes well for wireless growth and margins
In the third quarter, US Cellular reported growth in roaming revenue, after six
quarters of declines on a year-over-year basis. The prior declines were caused by
reduced business as a result of the Verizon/Alltel merger, but that impact has now
cycled through and growth could continue going forward as data traffic continues to
accelerate. Improved roaming results will be a critical component of revenue growth
and profitability for US Cellular in coming quarters, and results could exceed our
expectations.
Belief Project and ramping smartphone penetration drive subscriber revenue
US Cellulars new Belief Project marketing campaign introduces new handset
pricing and more consumer-friendly contract structures. The Belief Project seems to
have stemmed churn somewhat in 4Q10 and if it succeeds in driving gross add share
as well could increase wireless top-line revenue trends. In addition, smartphone
penetration at US Cellular is very low and could grow more quickly than we assume,
increasing ARPU and potentially margins.
US Cellular owns valuable 850 MHz wireless licenses
by the founding Carlson family. While the company has faced customer defections
and significant margin pressure over the past several quarters, US Cellular does own
valuable 850 MHz wireless licenses, which are strategically important and attractive.
186
Philip Cusick, CFA

(1-212) 622-1444

13 January 2011

We establish a year-end 2011 price target of $45/share for US Cellular. We base our
target price primarily on a discounted cash flow analysis that assumes an 8.5%
WACC and 1.0% perpetual growth rate. In addition, US Cellular currently trades at
6.0x our 2011 EBITDA forecast, compared to an average of 5.5x for other wireless
carriers. Given our forecasts for limited growth, we believe investors will find better
opportunities elsewhere in the wireless space. We prefer Sprint Nextel, Leap
Wireless, and MetroPCS.
Company Description
US Cellular is a regional wireless carrier and the sixth-largest operator in the country.
The company operates a CDMA network, also enabled for EVDO 3G services,
covering 26 states. The company currently has 6.1 million customers, including
5.2 million postpaid and 500k prepaid customers, resulting in a 13.1% penetration
rate across its markets. These customers spend on average $47.13 a month.
US Cellular is an 83%-owned subsidiary of Telephone & Data Systems, which is
controlled by the Carlson family.
Table 77: USM and TDS Ownership
Name
Position with TDS, USM and Principal Occupation
LeRoy T. Carlson
Chairman and Director Emeritus of TDS

Director of USM
President and Chief Executive Officer of TDS
Director of TDS
Director and Chairman of the Board of USM
LeRoy T. (Ted) Carlson, Jr.
Age
Director Since
TDS
USM
93
NA
1987
63
1968
1984
Letitia G. Carlson, M.D.
Director of TDS.
Physician and Associate Clinical Professor at George
Washington University Medical Center
49
1996
NA
Prudence E. Carlson
Walter C.D. Carlson
Director of TDS and Private Investor

Director and non executive Chairman of the Board of TDS
Director of USM
Partner, Sidley Austin LLP, Chicago, Illinois
58
56
2008
1981
NA
1989
Table 78: USM and TDS Shares and Voting Rights

USM
Shares
Votes
Adj. Votes
Series A
33.0
10
330.1
86.1%
Common
Shares
53.4
53.4
13.9%
61.8%
86.4
383.5
100.0%
100.0%
Float
15.6
TDS ownership
Series A
70.8
Common
37.8
Shares
TDS
33.0
Voting %
Economic
Ownership %
38.2%
15.6
4.1%
18.1%
367.8
95.9%
81.9%
10
1
330.1
86.1%
38.2%
100.0%
37.8
9.9%
43.7%
70.7%
Votes
Adj. Votes
Voting %
% of
class
114.7
100.0%
Economic
Ownership %
100.0%
Common
49.8
49.8
43.4%
47.2%
Special
49.3
0.0%
46.7%
Series A
6.5
10
64.9
56.6%
6.1%
64.6
56.3%
13.8%
Shares
% of
class
105.6
29.3%
Carlson Voting
14.6
Common
0.7
0.7
0.6%
0.7%
1.5%
Special
7.5
0.0%
7.1%
15.2%
Series A
6.4
10
63.9
55.7%
6.1%
98.4%
187
Philip Cusick, CFA

(1-212) 622-1444

13 January 2011

We forecast US Cellular to show modestly improved subscriber growth in 2011 and
2012, relative to subscriber losses in 2009 and 2010. We currently estimate net
additions of 25k in 2011 and 20k in 2012, driven by better retail execution through
implementation of the Belief Project. In addition, ARPU trends should also improve
as smartphone adoption accelerates, and we forecast ARPU growth of 1% in 2011
and 2% in 2012. Our operating metric forecasts drive estimated wireless top-line
growth of 1% in 2011 and 2% in 2012.

Limited subscriber and ARPU growth, offset somewhat by smartphone costs, drive
our wireless service margin forecasts of 21.5% in 2011 and 22.6% in 2012, up
slightly from 21.0% in 2010. Timing and magnitude of an LTE launch could cause
downside to our forecasts, however. We factored in a slow LTE rollout, and expect a
modest increase in wireless capital spend in 2011 and 2012. As a result, cash flow
should stay relatively flat in 2011, though EBITDA growth could drive a nice boost
in 2012.
188
Philip Cusick, CFA

(1-212) 622-1444

13 January 2011
Table 79: US Cellular Financial Forecasts and DCF

Subscribers
% change, y-t-y
Penetration
% change, y-t-y
Penetration gain
Churn rate, monthly
2006
5,815
6%
12.6%
2007
6,102
5%
13.0%
2008
6,196
2%
13.0%
2009
6,141
-1%
12.8%
2010E
6,123
0%
12.6%
2011E
6,148
0%
12.6%
2012E
6,168
0%
12.5%
2013E
6,186
0%
12.5%
2014E
6,203
0%
12.5%
2015E
6,219
0%
12.5%
2016E
6,233
0%
12.5%
2017E
6,246
0%
12.5%
2018E
6,258
0%
12.5%
2019E
6,268
0%
12.5%
2020E
6,277
0%
12.5%
310
-35%
0.7%
281
-9%
0.6%
94
-67%
0.2%
(55)
-159%
-0.1%
(18)
-67%
0.0%
25
-239%
0.1%
20
-20%
0.0%
18
-10%
0.0%
17
-6%
0.0%
16
-7%
0.0%
14
-8%
0.0%
13
-9%
0.0%
12
-10%
0.0%
10
-11%
0.0%
9
-11%
0.0%
CAGR 10-20E
0%
0%
SM
1.8%
2.1%
1.9%
2.1%
1.9%
1.9%
1.9%
1.8%
1.8%
1.8%
1.8%
1.8%
1.8%
1.8%
1.8%
3,473
14%
$41.39
4%
3,946
14%
$44.25
7%
4,243
8%
$46.51
5%
4,215
-1%
$46.95
1%
4,183
-1%
$47.12
0%
4,229
1%
$47.59
1%
4,300
2%
$48.07
1%
4,366
2%
$48.55
1%
4,392
1%
$48.55
0%
4,418
1%
$48.55
0%
4,444
1%
$48.55
0%
4,466
0%
$48.55
0%
4,487
0%
$48.55
0%
4,507
0%
$48.55
0%
4,527
0%
$48.55
0%
1%
865
24%
26.9%
1,033
19%
28.1%
1,015
-2%
25.8%
926
-9%
23.6%
825
-11%
21.0%
858
4%
21.5%
919
7%
22.6%
1,043
13%
25.2%
1,111
7%
26.7%
1,136
2%
27.1%
1,159
2%
27.5%
1,171
1%
27.6%
1,183
1%
27.8%
1,194
1%
27.9%
1,206
1%
28.1%
4%
EBIT
% change, y-t-y
290
56%
443
53%
28
-94%
326
1078%
229
-30%
261
14%
317
22%
416
31%
472
14%
485
3%
496
2%
495
0%
495
0%
494
0%
492
0%
8%

Depreciation
% change, y-t-y
Amortization
539
12%
36
554
3%
36
541
-2%
36
535
-1%
36
561
5%
36
560
0%
37
563
0%
40
583
4%
45
594
2%
45
606
2%
45
618
2%
45
631
2%
45
643
2%
45
656
2%
45
669
2%
45
2%
Taxes Paid
% change, y-t-y
(120)
-36%
(217)
-80%
(8)
96%
(114)
-1317%
(101)
12%
(112)
-11%
(136)
-22%
(175)
-29%
(203)
-16%
(216)
-6%
(230)
-6%
(240)
-5%
(252)
-5%
(266)
-5%
(281)
-6%
11%
Capital expenditures/service revenue
584
18.2%
566
15.4%
586
14.9%
547
13.9%
589
15.0%
620
15.6%
620
15.3%
620
15.0%
600
14.4%
600
14.3%
580
13.8%
560
13.2%
540
12.7%
520
12.2%
500
11.6%
-2%
EPS
$2.00
$3.02
$0.36
$2.48
$1.69
$1.93
$2.34
$3.02
$3.50
$3.73
$3.96
$4.15
$4.36
$4.59
$4.85
2010E
6.0x
29.4x
2011E
5.7x
25.7x
2012E
5.3x
21.1x
2013E
4.7x
16.4x
2014E
4.4x
14.1x
2015E
4.3x
13.3x
5.5x
26.6x
5.3x
23.3x
4.9x
19.1x
4.3x
14.9x
4.1x
12.8x
4.0x
12.0x
Revenue
% change, y-t-y
Local ARPU, monthly
% change, y-t-y
% change, y-t-y
EBITDA margin
Valuation Multiples @
NPV of cash EBITDA 12E -- 20E

NPV of 2020 terminal value
2011E
6,780
(1,305)
(3,546)
1,930
2,859
4,788
PMV -- minority stakes

Total PMV of Cellular Operations
695
5,483

PMV -- Equity
(637)
4,846

Shares to be issued/warrants/options (2)
EBITDA
Free Cash Flow
FCF / diluted share
Current EV/EBITDA
Current PER
EBITDA
EPS - Normalized diluted
% change, y-t-y
2%
Valuation Grid - 2011E DCF Value per Share

Terminal Growth Rate (across) on 2020 EBITDA, Discount Rate (down)
45
6.5%
7.5%
8.5%
9.5%
10.5%
0.0%
56
47
41
36
33
0.5%
59
50
43
38
34
1.0%
63
52
$44.87
39
35
1.5%
68
56
47
41
36
2.0%
73
59
50
42
37
$56.09
20%
$44.87
2010E
825
56
$0.64
2011E
858
51
$0.59
2012E
919
92
$1.07
2013E
1,043
177
$2.04

Free Cash Flow Multiple on FCF
12x
15x
20.0x
22x
25x
4,514

Target PER
86.0
0.4
86.4
PMV per share

12-month DCF value per share
$49.52
EV
4,915
0%
2010E
825
$1.69
Tax-affected NOL's remaining per share
2011E
858
$1.93
2012E
919
$2.34
2013E
1,043
$3.02
$0.00
$0.00
$0.00
2011
7
9
$11.75
13
15
2012
13
16
$21.31
23
27

P/E Multiple on fully-taxed EPS
$0.00
12x
15x
20.0x
22x
25x
2011
23
29
$38.52
42
48
2012
28
35
$46.87
52
59
189
Philip Cusick, CFA

(1-212) 622-1444
190

13 January 2011
Philip Cusick, CFA

(1-212) 622-1444

13 January 2011
Telephone & Data Systems

We initiate coverage of Telephone & Data Systems with a Neutral rating and a yearend 2011 price target of $42/share, implying 17% upside from current levels.
US Cellular represents TDSs wireless business and main financial driver, and we
expect the business to continue to struggle. New initiatives to improve subscriber and
margin performance should help to some degree, but we do not expect meaningful
change. In addition, we expect TDSs wireline business result to remain at current
levels, as broadband penetration offsets traditional voice pressures. Our Neutral
rating for TDS primarily reflects a more attractive valuation relative to USM,
although we believe there are better opportunities elsewhere in the telecom sector.
Neutral
Telephone & Data Systems (TDS;TDS US)
Company Data
Price ($)
Date Of Price
52-week Range ($)
Mkt Cap ($ mn)
Fiscal Year End
Shares O/S (mn)
Price Target ($)
Price Target End
Date
36.28
12 Jan 11
37.91 28.84
3,820.21
Dec
105
42.00
31 Dec 11
EPS ($)
Q1 (Mar)
Q2 (Jun)
Q3 (Sep)
Q4 (Dec)
FY
P/E FY
2009A
2010E
2011E
0.66
0.66
0.33
0.15
1.80
20.2
0.46A
0.38A
0.39A
0.20A
1.44A
25.2A
0.43
0.34
0.40
0.49
1.66
21.9

Belief Project benefits likely to be modest
US Cellulars postpaid subscriber growth has been negative through the first three
quarters of 2010. At the beginning of the fourth quarter, management launched the
Belief Project to address these trends. The new campaign introduces new pricing
plans and handsets, as well as features, to alleviate customer complaints. Though the
offerings could improve retention efforts and drive share gains, to some extent, we
are cautious on the ability for US Cellular to gain much traction. Given its
positioning in the market, the company faces intense competition from high-end
national carriers as well as low-end prepaid players, some of which have superior
brands.
Low smartphone penetration creates opportunity for existing base
Only 20% of US Cellulars postpaid customers have smartphones or other devices
that require data plans, well behind similar metrics for AT&T and Verizon. The
companys smaller scale, and thus late adoption of the devices, is the primary reason
behind the lower penetration. Recent take rates, driven by Android device adoption,
are encouraging; the company currently has five Android devices for sale. As
additional devices are rolled out in 2011, take rates could grow, which would also
support ARPU as customers purchase data plans. However, we believe this will
primarily be driven by existing customer upgrades, rather than new customers. In
addition, the Verizon iPhone could have a large impact on US Cellular, in particular.
As a result, we forecast only modest ARPU growth in 2011.
191
Philip Cusick, CFA

(1-212) 622-1444

13 January 2011
Wireless margin improvement will be difficult

Wireless EBITDA margins fell 450 bps from 2007 to 2009, and we expect another
220 bps of incremental decline in 2010. Though there could be some stabilization in
subscriber trends in 2011, we believe handset subsidies will continue to weigh on
margins. As the company aims to push smartphones into customers hands, it will
need to subsidize these more than lower-end devices. In addition, as part of its
loyalty program, the company is likely to make new handsets available earlier over
the life of a contract than it has previously. As a result, we forecast limited margin
improvement in 2011.
Wireline results to reflect access line drag offset by broadband
We expect the TDS wireline business to reflect little, if any, growth. Modest
broadband growth is offsetting mid-single-digit declines in access lines. The
broadband business has also been helped by customers taking higher-speed, higherARPU offerings, but with the business at 43% penetration we are somewhat
concerned that growth will taper off. In addition, the CLEC business, which is
typically a growth driver at other wireline operators, continues to report declining
revenue trends. This is largely because of the businesss embedded residential base
of subscribers which continue to disconnect. Going forward, we expect management
to invest further in its broadband network to roll out higher speeds, which could limit
free cash flow from the business in 2011.
Public shareholders have limited influence on direction
TDS is controlled through super-voting shares by the founding Carlson family.
Though US Cellular has struggled for relevance and shareholders have at times
called for a sale of the company, we see no evidence that the family wants to sell in
the near term.
Investment Risks
Upside risks
Return of wholesale bodes well for wireless growth and margins
In the third quarter, US Cellular reported growth in roaming revenue, after six
quarters of declines on a year-over-year basis. The prior declines were caused by
reduced business as a result of the Verizon/Alltel merger, but that impact has now
cycled through and growth could continue going forward as data traffic continues to
accelerate. Improved roaming results will be a critical component of revenue growth
and profitability for US Cellular in coming quarters, and results could exceed our
expectations.
Belief Project and ramping smartphone penetration drive subscriber revenue
US Cellulars new Belief Project marketing campaign introduces new handset
pricing and more consumer-friendly contract structures. The Belief Project seems to
have stemmed churn somewhat in 4Q10 and if it succeeds in driving gross add share
as well could increase wireless top-line revenue trends. In addition, smartphone
penetration at US Cellular is very low and could grow more quickly than we assume,
increasing ARPU and potentially margins.
192
Philip Cusick, CFA

(1-212) 622-1444

13 January 2011
US Cellular owns valuable 850 MHz wireless licenses

by the founding Carlson family. While the company has faced customer defections
and significant margin pressure over the past several quarters, US Cellular does own
valuable 850 MHz wireless licenses, which are strategically important and attractive.
Downside risks
Wireless competition intensifies
The US wireless industry is very competitive, with arguably a surplus of players in
any given market. As growth continues to decelerate, there is potential for
competitors to aggressively pursue share by lowering price. As a regional operator,
TDSs wireless business is disproportionately exposed to national carrier
competition. Should additional pricing pressures occur, we would expect downside
risk to our current wireless forecasts.
Free cash flow impacts return of capital
TDS currently pays roughly $48 million in dividends each year, and is also
repurchasing shares under a $250 million program that was established in November
2009 and expires in November 2012. Though current free cash generation is ample,
should the companys wireless and wireline businesses deteriorate significantly, we
believe management would need to alter its return-of-capital strategy. Potential
capital investment plans could also have an impact, as management intends to
expand availability of higher broadband speeds on the wireline side and an LTE
rollout in late 2011 or early 2012 is also likely.

TDS trades at less than 2x
EBITDA excluding its USM
ownership
We establish a year-end 2011 price target of $42/share. We use a discounted cash

flow analysis to arrive at our target and assume an 8.5% WACC and 0.5% perpetual
growth rate. TDS trades at 4.0x our 2011 EBITDA estimate compared to other
integrated carriers at 5.2x, while the company only pays a 1.3% dividend yield
compared to 5.7% for peers. Though this represents a sharp valuation gap, we believe
most of it is attributable to a control discount. In addition, most of the potential
upside in TDS shares likely would come from its wireless business, and we do not
currently hold a positive view on USM.
Company Description
TDS is a regional integrated telecom operator providing service predominantly in the
Midwest. The vast majority of approximately $5.0 billion in revenue comes from the
companys 83% ownership stake in publicly traded subsidiary US Cellular.
US Cellular is a regional wireless operator with over 6.0 million customers. The
balance of revenue, approximately 16%, comes from the companys wireline
business. Wireline, including both the ILEC and CLEC businesses, have almost
1.1 million access line customers and approximately 270k broadband customers.
TDS is controlled by the Carlson family.
193
Philip Cusick, CFA

(1-212) 622-1444

13 January 2011
Table 80: USM and TDS Ownership

Name
Position with TDS, USM and Principal Occupation
LeRoy T. Carlson
Chairman and Director Emeritus of TDS

Director of USM
President and Chief Executive Officer of TDS
Director of TDS
Director and Chairman of the Board of USM
LeRoy T. (Ted) Carlson, Jr.
Age
Director Since
TDS
USM
93
NA
1987
63
1968
1984
Letitia G. Carlson, M.D.
Director of TDS.
Physician and Associate Clinical Professor at George
Washington University Medical Center
49
1996
NA
Prudence E. Carlson
Walter C.D. Carlson
Director of TDS and Private Investor

Director and non executive Chairman of the Board of TDS
Director of USM
Partner, Sidley Austin LLP, Chicago, Illinois
58
56
2008
1981
NA
1989
Table 81: USM and TDS Shares and Voting Rights

USM
Shares
Votes
Adj. Votes
Series A
33.0
10
330.1
86.1%
Common
Shares
53.4
53.4
13.9%
61.8%
86.4
383.5
100.0%
100.0%
Float
15.6
TDS ownership
Series A
70.8
Common
37.8
Shares
TDS
33.0
Voting %
Economic
Ownership %
38.2%
15.6
4.1%
18.1%
367.8
95.9%
81.9%
10
1
330.1
86.1%
38.2%
100.0%
37.8
9.9%
43.7%
70.7%
Votes
Adj. Votes
Voting %
% of
class
114.7
100.0%
Economic
Ownership %
100.0%
Common
49.8
49.8
43.4%
47.2%
Special
49.3
0.0%
46.7%
Series A
6.5
10
64.9
56.6%
6.1%
64.6
56.3%
13.8%
Shares
% of
class
105.6
29.3%
Carlson Voting
14.6
Common
0.7
0.7
0.6%
0.7%
1.5%
Special
7.5
0.0%
7.1%
15.2%
Series A
6.4
10
63.9
55.7%
6.1%
98.4%

We forecast US Cellular to show modestly improved subscriber growth in 2011 and
2012, relative to subscriber losses in 2009 and 2010. We currently estimate net
additions of 25k in 2011 and 20k in 2012, driven by better retail execution through
implementation of the Belief Project. In addition, ARPU trends should also improve
as smartphone adoption accelerates, and we forecast ARPU growth of 1% in 2011
and 2% in 2012. Our operating metric forecasts drive estimated wireless top-line
growth of 1% in 2011 and 2% in 2012.
On the wireline side, we expect the ILEC side of the business to drive most of the
growth, while CLEC weakness continues. We forecast 1% ILEC revenue growth in
2011 and 2012, while we estimate continued mid-single-digit declines for the CLEC
business. Our US Cellular and TDS Telecom forecasts drive estimated total TDS
revenue growth of approximately 1% in each of 2011 and 2012.
194
Philip Cusick, CFA

(1-212) 622-1444

13 January 2011

Limited subscriber and ARPU growth, offset somewhat by smartphone costs, drive
our wireless service margin forecasts of 21.5% in 2011 and 22.6% in 2012, up
slightly from 21.0% in 2010. Timing and magnitude of an LTE launch could cause
downside risk to our forecasts, however. We factored in a slow LTE rollout, and
expect a modest increase in wireless capital spend in 2011 and 2012. As a result,
cash flow should stay relatively flat in 2011, though EBITDA growth could drive a
nice boost in 2012. We forecast modest wireline margin expansion in 2011 and 2012,
as expense reductions help to offset top-line pressure. Our US Cellular and TDS
Telecom forecasts drive estimated total TDS EBITDA margins of 22.6% and 23.5%
in 2011 and 2012, respectively, up from 22.1% in 2010. We expect consolidated
capital expenditures to remain relatively flat in 2011 and 2012, resulting in estimated
free cash flow growth of 8% and 21%, respectively.
195
Philip Cusick, CFA

(1-212) 622-1444

13 January 2011
Table 82: TDS Forecasts and DCF

2006
WIRELESS
Subscribers
% change, y-t-y
Penetration
% change, y-t-y
Penetration gain
Churn rate, monthly
2007
2008
2009
2010E
2011E
2012E
2013E
2014E
2015E
2016E
2017E
2018E
2019E
2020E
CAGR 1020E
5,815
6%
12.6%
6,102
5%
13.0%
6,196
2%
13.0%
6,141
-1%
12.8%
6,123
0%
12.6%
6,148
0%
12.6%
6,168
0%
12.5%
6,186
0%
12.5%
6,203
0%
12.5%
6,219
0%
12.5%
6,233
0%
12.5%
6,246
0%
12.5%
6,258
0%
12.5%
6,268
0%
12.5%
6,277
0%
12.5%
0%
310
-35%
0.67%
281
-9%
0.60%
94
-67%
0.20%
(55)
-159%
-0.11%
(18)
-67%
-0.04%
25
-239%
0.05%
20
-20%
0.04%
18
-10%
0.04%
17
-6%
0.03%
16
-7%
0.03%
14
-8%
0.03%
13
-9%
0.03%
12
-10%
0.02%
10
-11%
0.02%
9
-11%
0.02%
SM
1.8%
2.1%
1.9%
2.1%
1.9%
1.9%
1.9%
1.8%
1.8%
1.8%
1.8%
1.8%
1.8%
1.8%
1.8%
-1%
3,473
14%
$41
4%
3,946
14%
$44
7%
4,243
8%
$47
5%
4,215
-1%
$47
1%
4,183
-1%
$47
0%
4,229
1%
$48
1%
4,300
2%
$48
1%
4,366
2%
$49
1%
4,392
1%
$49
0%
4,418
1%
$49
0%
4,444
1%
$49
0%
4,466
0%
$49
0%
4,487
0%
$49
0%
4,507
0%
$49
0%
4,527
0%
$49
0%
1%
865
24%
26.9%
1,033
19%
28.1%
1,015
-2%
25.8%
926
-9%
23.6%
825
-11%
21.0%
858
4%
21.5%
919
7%
22.6%
1,043
13%
25.2%
1,111
7%
26.7%
1,136
2%
27.1%
1,159
2%
27.5%
1,171
1%
27.6%
1,183
1%
27.8%
1,194
1%
27.9%
1,206
1%
28.1%
4%
456
2%
435
-5%
393
-10%
356
-9%
331
-7%
308
-7%
286
-7%
269
-6%
256
-5%
245
-4%
236
-4%
229
-3%
222
-3%
215
-3%
209
-3%
-5%
646
-3%
668
4%
611
-9%
600
-2%
615
3%
621
1%
629
1%
636
1%
643
1%
651
1%
656
1%
657
0%
655
0%
654
0%
652
0%
1%
265
-14%
41.1%
299
13%
44.8%
260
-13%
42.5%
234
-10%
39.1%
244
4%
39.7%
250
2%
40.2%
255
2%
40.6%
258
1%
40.6%
261
1%
40.6%
264
1%
40.6%
266
1%
40.6%
266
0%
40.6%
266
0%
40.6%
265
0%
40.6%
265
0%
40.6%
1%
456
2%
435
-5%
393
-10%
356
-9%
331
-7%
308
-7%
286
-7%
269
-6%
256
-5%
245
-4%
236
-4%
229
-3%
222
-3%
215
-3%
209
-3%
-5%
Revenue
% change, y-t-y
236
2%
237
0%
220
-7%
199
-9%
188
-6%
177
-6%
166
-6%
158
-5%
152
-4%
148
-3%
144
-3%
141
-2%
138
-2%
136
-2%
133
-2%
-3%

% change, y-t-y
EBITDA margin
23
87%
9.8%
38
64%
16.0%
42
10%
18.9%
28
-32%
14.1%
27
-4%
14.3%
26
-2%
15.0%
25
-6%
15.0%
24
-5%
15.0%
23
-4%
15.0%
22
-3%
15.0%
22
-3%
15.0%
21
-2%
15.0%
21
-2%
15.0%
20
-2%
15.0%
20
-2%
15.0%
-3%
CONSOLIDATED
% change, y-t-y
EBITDA margin
1,150
11%
26.4%
1,373
19%
28.2%
1,317
-4%
25.9%
1,194
-9%
23.8%
1,101
-8%
22.1%
1,136
3%
22.6%
1,198
5%
23.5%
1,323
10%
25.6%
1,393
5%
26.8%
1,420
2%
27.2%
1,445
2%
27.5%
1,457
1%
27.7%
1,468
1%
27.8%
1,478
1%
27.9%
1,489
1%
28.0%
3%
10%
Revenue
% change, y-t-y
Local ARPU, monthly
% change, y-t-y
% change, y-t-y
EBITDA margin
ILEC
Access lines
% change, y-t-y
Revenue
% change, y-t-y
% change, y-t-y
EBITDA margin
CLEC
Access line equivalents
% change, y-t-y
Taxes Paid
% change, y-t-y
0%
(116)
-17%
(269)
131%
(30)
-89%
(135)
348%
(115)
-14%
(135)
17%
(155)
15%
(198)
28%
(227)
15%
(241)
6%
(255)
6%
(265)
4%
(277)
4%
(290)
5%
(304)
5%
727
700
732
671
743
738
732
732
712
713
693
673
652
631
609
-2%
EPS
Diluted EPS, reported
$1.39
$1.39
$3.25
$3.23
$0.81
$0.80
$1.80
$1.80
$1.44
$1.44
$1.67
$1.66
$1.92
$1.92
$2.50
$2.49
$2.92
$2.91
$3.16
$3.15
$3.41
$3.40
$3.62
$3.61
$3.86
$3.84
$4.12
$4.10
$4.42
$4.40
12%
12%
2009
3.7x
20.0x
2010E
4.0x
25.0x
2011E
3.9x
21.7x
2012E
3.7x
18.8x
2013E
3.3x
14.4x
4.2x
0.0x
4.6x
0.0x
4.5x
0.0x
4.2x
0.0x
3.8x
0.0x
Current
$49.52
86.4
71.6
3,544
637
4,181
Targets
$44.87
86.4
71.6
3,212
637
3,848
4,421
240
0.9x
5,061
1,212
4.5x
2011E
8,510
(1,447)
(4,231)
2,832
3,306
6,137

PMV -- minority stakes
Less: US Cellular public shareholder stake
PMV -- Equity
695
(665)
(637)
5,530
Current TDS shares outstanding

Current TDS.S shares outstanding
57
48
105
$52.52
20%
$42.01
$0.47
18%
PMV per share

Upside to target

EBITDA
Free Cash Flow
FCF / diluted share
EV/FCF
FCF yield

EBITDA
EPS - Continuing
% change, y-t-y
2010E
1,101
153
$1.45
28.9
4.0%
2011E
1,136
165
$1.57
26.7
4.4%
2012E
1,198
200
$1.90
22.1
5.3%
2013E
1,323
279
$2.65
15.9
7.4%
2010E
1,101
$1.44
-20%
2011E
1,136
$1.66
15%
2012E
1,198
$1.92
15%
2013E
1,323
$2.49
30%
Note: Dollars in millions, subscribers and pops in thousands except where noted.
(1) We assume that funding needs are met with debt. Debt is net of cash and cash equivalents.
196
Current EV/EBITDA
Current PER
Target PER
$35.94
EV
4,421
5,061
TDS Value Check @ USM Price:

USM diluted shares outstanding
USM shares owned by TDS
USM equity value in TDS
USM-level net debt
USM EV in TDS
TDS EV
Wireline EV
Wireline EV/EBITDA

42 -0.5%
0.0%
0.5%
1.0%
1.5%
6.5%
52
55
59
63
67
7.5%
45
47
49
52
55
8.5%
39
40
$42.01
44
46
9.5%
34
35
37
38
40
10.5%
30
31
32
33
34
10x
15x
20.0x
22x
25x
2011
16
24
$31.42
35
39
2012
19
28
$37.97
42
47

P/E Multiple on fully-taxed EPS
10x
15x
20.0x
22x
25x
2011
17
25
$33.19
37
41
2012
19
29
$38.32
42
48

13 January 2011
Wireline Operators
Wireline Operators
Philip Cusick, CFA

(1-212) 622-1444
197
Philip Cusick, CFA

(1-212) 622-1444
198

13 January 2011
Philip Cusick, CFA

(1-212) 622-1444

13 January 2011
Frontier Communications Corp

We prefer Frontier within our RLEC coverage, as we find the 7.8% dividend yield,
the highest within our telecom coverage and the highest in the S&P 500, attractive
and believe it is sustainable. The company is undergoing a major transition to
integrate the acquired Verizon assets, which increases its risk profile, though early
guidance, as well as its attractive dividend make Frontier our top pick within RLECs.
Overweight
Frontier Communications (FTR;FTR US)
Company Data
Price ($)
Date Of Price
52-week Range ($)
Mkt Cap ($ bn)
Fiscal Year End
Shares O/S (mn)
Price Target ($)
9.43
12 Jan 11
9.84 - 6.96
9.33
Dec
989
11.00
31 Dec 11
EPS ($)
Q1 (Mar)
Q2 (Jun)
Q3 (Sep)
Q4 (Dec)
FY
2009A
2010E
2011E
0.12
0.09
0.17
0.01
0.38
0.55
0.14A
0.11A
0.03A
0.09A
0.36A
0.42A
0.10
0.10
0.09
0.09
0.38
0.37
Source: Company dat a, Bloomberg, J.P. Morgan estimates. Not e: EPS f igures bas ed on Adjusted Proforma.

Long road of integration ahead
Frontiers recent acquisition of Verizon wireline assets has initiated a long and
potentially cumbersome integration period though we are getting more comfortable
as the company meets timeline requirements and beats synergy targets. The company
has successfully completed the integration of its first market, West Virginia, with
minimal disruption. While the integration of the remaining 13 states will be a major
effort, and a large portion of the synergies will be realized upon full conversion, we
look for upward revisions on the synergy number as 2011 progresses and
management finds additional pockets of savings.
A turnaround likely in acquired markets
While commentary around performance in acquired markets has been promising, we
have yet to see a meaningful operational improvement driven by Frontiers execution
and local marketing approach. We expect to see top-line synergies come from FTRs
broadband rollout in these regions and look for access line trends to improve
meaningfully in 2011.
Frontiers management team has demonstrated strong execution
The legacy Frontier markets have demonstrated some of the lowest access line loss
rates within RLECs, of ~6%, and generated industry-high margins of ~55% in 2009.
Frontier is now in the process of system conversions as well as implementation of its
local engagement approach at the recently acquired Verizon assets, which present
significant opportunity for improvement given the much worse access line losses of
~11% y/y as of 3Q10.
199
Philip Cusick, CFA

(1-212) 622-1444

13 January 2011
Moving towards investment-grade metrics

Frontiers balance sheet has improved significantly since the close of the transaction,
with leverage decreasing from 4x trailing EBITDA to ~2.9x currently. While we
expect a high ~80% payout ratio for 4Q10, we believe the $0.75 dividend is
sustainable and we model that equating to a payout ratio of ~65% in 2013, as
synergies come through and capex overhang diminishes.
Pause on acquisitions, for a while
Frontier will have limited ability to engage in further consolidation over the next
18 months, as management has its hands full with the integration process, and the
Reverse Morris Trust structure of the deal doesnt allow Verizon shareholders
ownership to fall below 50% of the company. We expect management could start
evaluating new acquisition opportunities as early as late 2011.
Investment Risks
Large transaction; integration could be cumbersome
The Verizon transaction, which closed on July 1, has tripled the size of Frontier. The
company has delivered a smooth transition in its West Virginia market, representing
~13% of its total acquired access lines, which it committed to integrate prior to the
close of the deal. The conversion of the remaining 13 states is expected to start in
2011, and any operational disruptions could be costly from a financial or customer
retention perspective.
Further deterioration in economic fundamentals could impact revenue
Further deterioration in economic fundamentals poses risk to access line and revenue
trends as consumer markets could continue to deteriorate at current high levels and
the expected recovery in business markets likely would be pushed further out. This
could decrease the traction the company could get with its strategic broadband and
business growth initiatives.
Roughly 12% of Frontiers pro forma revenues (including surcharges) rely on
regulatory streams, with 6% of revenues coming from switched access and 4% of
revenues from USF. Year to date regulatory revenues are down 9% y/y, and we
expect this revenue stream to continue to diminish gradually. While concerns around
a sudden disruption to regulatory revenues have abated somewhat, policy reform that
would decrease USF revenue faster than expected or significant access rate cuts
could still significantly affect the top line.
200
Philip Cusick, CFA

(1-212) 622-1444

13 January 2011
Company Description
Frontier is the fifth-largest wireline provider based on access lines. The companys
footprint is mostly rural, with access line density of 24 lines (13 lines before Verizon
transaction). Serving ~6 million access lines and 1.7 million HSI connections in 27
states, the company is in a phase of transformation. Legacy Frontier had operations
in 24 states, serving ~2 million access lines, 647k Internet subs, and 176k video subs.
The company acquired wireline assets from Verizon in a $3.2 billion deal that closed
on July 1, 2010, which tripled the size of the company. Frontier was called Citizens
Communications until July 31, 2008.
The Verizon deal: Legacy Frontier acquired ~4 million access lines from Verizon in
a stock deal that closed at the end of 2Q10. The acquired properties also had
1.1 million HSI and 117k FiOSTV customers as well as 200k+ DirecTV wholesale
subscribers. These landline operations pass ~5.1 million homes in Arizona, Idaho,
Illinois, Indiana, Michigan, Nevada, N. Carolina, Ohio, Oregon, S. Carolina,
Washington, W. Virginia, and Wisconsin, as well as portions of California bordering
Arizona, Nevada, and Oregon.
Figure 84: Frontier Footprint

We establish a year-end 2011 price target of $11. We reach our price target using our
discounted cash flow analysis, which assumes a terminal growth rate of -1% and a
discount rate of 6.7%. Our price target, together with the annual dividend of $0.75,
implies an expected total return of 22% over the next 12 months. Our price target of
$11 implies an EV/EBITDA multiple of 7xour 2011 adjusted EBITDA estimate.
201
Philip Cusick, CFA

(1-212) 622-1444

13 January 2011
Table 83: Frontier Pro Forma Access Line Breakdown by State

Access line trends in the
acquired territories
should recover in 2011
West Virginia
Indiana
New York
Illinois
Ohio
Washington
Michigan
Pennsylvania
Wisconsin
Oregon
North Carolina
Minnesota
California
10.8%
10.2%
9.7%
9.5%
9.0%
8.2%
7.5%
6.1%
4.9%
4.6%
3.7%
3.0%
2.4%
Arizona
Idaho
South Carolina
Tennessee
Nevada
Iowa
Nebraska
Alabama
Utah
Georgia
New Mexico
Montana
Mississippi
Florida
2.2%
1.9%
1.8%
1.1%
0.8%
0.6%
0.6%
0.4%
0.3%
0.3%
0.1%
0.1%
0.1%
0.1%
Legacy Territories Tracking Well

Legacy Frontiers access line loss trends are towards the lower end of the wireline
peer group, given the rural profile of 13 access lines per square mile. The company
has seen a gradual improvement in legacy access line loss trends over the past year,
exiting 3Q10 at a loss rate of 6% vs. 6.1% in 2009 and 7.2% in 2008. In 3Q10, y/y
residential line losses came in at 7.4%, the same as in 3Q09, but better sequentially
compared to the 2Q10 level. Increased bundled sales and price protection plans, as
well as a low number of housing moves in the region, have helped keep disconnects
under control. Business line loss trends have also been on a trajectory of gradual
improvements in y/y trends, and after seven consecutive quarters of reduced y/y
losses, the loss rate was only 3.5% exiting 3Q10.
We look for ongoing gradual improvement in both residential and business access
line trends in legacy markets, and look for loss rates of 6.4% and 2.3%, respectively,
exiting 2011.
Figure 86: Y/Y Access Line Losses at Legacy FTR
change y/y
Figure 85: Frontier Access Line Breakdown
Business
36%
0.0%
-2.0%
-4.0%
-6.0%
-8.0%
-10.0%
64%
2Q
08
3Q
08
4Q
08
1Q
09
2Q
09
3Q
09
4Q
09
1Q
10
2Q
10
3Q
10
4Q
10
E
Residential
Access lines
202
Residential
Business
Philip Cusick, CFA

(1-212) 622-1444

13 January 2011
Executing Towards an Inflection Point in Acquired Markets

The relatively more urban assets acquired from Verizon, with 37 lines per square
mile, are tracking at a line loss rate of 10.9%, faster than legacy Frontier (6%) as well
as the more urban Verizon territories (8.5%). Frontiers management believes it can
drive 200-300 bps of improvement in access line loss trends in acquired territories in
the near term, by increasing broadband reach and implementing its local market
approach. The absolute line losses in these territories have shown some level of
improvement after the deal closed. There was a meaningful improvement in
disconnects upon closing of the transaction, though gross adds came in light in 3Q.
We expect to see more meaningful improvement in subscriber trends in 2011, when
Frontiers marketing push gains traction and investment starts to bear fruit. We
expect the access line loss trends in these territories to come in at ~9% in 2011, and
decline to ~8% in 2012.
Increasing Broadband Reach Should Lead to Positive

Trends
Frontier legacy markets have ~92% broadband reach. Broadband availability at the
acquired Verizon territories, however, is well below those levels. Those markets had
~63% reach at the time of acquisition, and Frontier is committed to raising reach to
85%, which should drive penetration levels much higher. Management plans to
expand broadband reach in the acquired territories to near levels in the companys
legacy markets over a three- to five-year time frame.
In the first quarter after the closing of the deal, Frontier increased broadband
availability by 27k households, and expects this to increase to 300k (a ~6%
improvement in reach in acquired regions) by the end of 2010. We expect the
company to continue aggressively deploying broadband in its acquired footprint in
2011.
Verizon had built but not

marketed DSL territories
Spinco saw tough FiOS trends

Internet trends in the acquired territories have seen significant deterioration, with
FiOS adds slowing significantly and broadband incurring net sub losses over the past
few quarters, as Verizon neglected marketing in those territories and cable was
aggressive. The acquired territories have FIOS built in Indiana (early build), Oregon,
and Washington (later builds).
We expect broadband trends to improve significantly in 2011 as Frontiers local
engagement approach and increased broadband reach bear fruit. We model
broadband penetration of access lines in legacy markets to reach 38% in 2012 from
30% in 2009, and the penetration in Spinco markets to reach 36% from 25% in 2009.
We look for 35k HSI adds in Spinco territories in 2011, providing 3%+ growth y/y,
but believe our estimate could be too conservative. We model terminal penetration of
access lines reaching 50%+ in both legacy and acquired territories.
203
Philip Cusick, CFA

(1-212) 622-1444

13 January 2011
Figure 87: HSI Trends in Legacy FTR Markets

140
120
100
80
60
40
20
0
Figure 88: HSI Trends in Acquired Territories

50%
40%
150
50%
40%
100
30%
20%
10%
0%
2007
2008
2009 2010E 2011E 2012E 2013E 2014E

HSI adds
30%
50
20%
10%
0%
-50
2007
2008
HSI penetration
2009 2010E 2011E 2012E 2013E 2014E

HSI adds
HSI penetration
Spinco Head-to-Head with DOCSIS 3.0-Enabled Cable

In Frontiers legacy footprint, the company mainly competes with Time Warner
Cable (~35% overlap), followed by Comcast at ~15%, Charter at 10%, and other at
<10%. The acquired territories have a much heavier overlap with Comcast; as a
result, the company now faces competition from Comcast in 32% of its overall
footprint, followed by TWC and Charter at 23% and 14%, respectively.
The high overlap with Comcast exposes acquired properties to a head-to-head
competition with DOCSIS 3.0-enabled cable lines. However, the highest exposure to
DOCSIS 3.0 is observed in Washington, Oregon, and Indiana, which are Frontiers
FIOS markets, as well as Ohio. The acquired territories only have 50% cable VoIP
overlap (vs. legacy markets at ~73%), which provides opportunity for higher
penetration levels through bundling in these regions.
Failures of Verizons Prior Spinouts Keep Skeptics Bearish

Fairpoints 2008 acquisition of Verizon access lines and the sale of Verizons lines in
Hawaii to private equity firm Carlyle (Hawaii Telecom) in 2005 both resulted in the
spinout company filing for bankruptcy. In our view, the main issue in both of these
deals was the integration or spinout of access lines, which was executed poorly, with
customers experiencing significant disruption, leading to rising churn rates.
Execution issues, combined with very high leverage, contributed eventually to filing
for bankruptcy. In 2006 Verizon spun out its yellow pages business, Idearc, which
also filed for bankruptcy in 2009.
Table 84: Verizon Has Had Three Spin-Off/Asset Sales that Resulted in Chapter 11 Filings
Time
Acquirer
Acquired asset
2008
Fairpoint
Verizon's Maine, New Hampshire and Vermont

properties:1.6m access lines, ~230k DSL subs
2005
Carlyle (Hawaii Telecom)
Verizon's Hawaii assets: 715,000 access lines
2006
Idearc
Yellow pages business
204
Payment
US$2.715bn- $1.015 bn of
FairPoint common stock, $1.7 bn
cash& debt
Subsequent events
Stock traded as low as -20%, closed -12% on the day.
Major service and tech issues. Filed Chapter 11 in
October 2009
Transition issues, financial/customer service problems. In
US$1.65bn in cash
3 years the company lost 21% of customer base. Filed
Chapter 11 in December 2008.
The spun-off company was loaded Filed Chapter 11 in March 2009. Reemerged as
with ~US$9bn debt
SuperMedia in December 2009.
Philip Cusick, CFA

(1-212) 622-1444

13 January 2011
Integration risk is far smaller for Frontier

We view Frontiers transaction to be significantly different from Fairpoints, placing
Frontiers a lot more favorably. On the systems conversion front, Frontier had to
convert only the West Virginia state prior to the closing of the deal, which it was able
to accomplish with little disruption on the customer end.
For the other 13 states that were acquired, Frontier will owe Verizon $94 million
annually (a flat rate; it does not scale down until the end) to manage the customer
service and billing systems as it gradually transfers customers to its own systems.
The company has up to five years to complete the conversion, which should provide
ample time for transition, but we expect the process to be completed by the end of
2012. Fairpoints outsourcing agreement was much more expensive and had a rising
cost structure over time, while Frontiers only increase will be CPI adjustments.
On the leverage front, the Verizon transaction was a significantly deleveraging one
for Frontier, allowing the company to attain investment-grade-like metrics post close.
Frontiers leverage of ~4x trailing EBITDA decreased to ~2.9x post close. By
contrast, the Fairpoint transaction was a levering one that limited the companys
financial flexibility in a significant way.
Financial Outlook
We expect synergy guidance to
steadily increase through 2011
Expect further upside to synergies

Frontier reported that it has already reached $252 million of annual run-rate
synergies as of the end of 3Q10, and management increased its annual Opex synergy
target from $500 million to $550 million, and reiterated that the companys internal
targets are much higher. We estimate ~$750 million in annual synergies eventually.
Note that this represents Opex only, and does not include any revenue improvements
that Frontier can make to the Verizon properties, which could drive significant
upside for the company.
By the end of 2010 Frontier expects to reach $300 million in annual run-rate
synergies and, of the rest ($250 million remaining), $94 million will go away on the
last day of conversion when the payment to Verizon for the 13 states finishes. The
company expects near-term synergies from circuits and traffic moving from the
Verizon network to owned backbone, and switching long-distance calling from MCI
to another provider, which represent total annual costs of ~$60-70 million. The 1,700
contractors who came over from Verizon should see salary reductions that total a run
rate of ~$86 million. On top of that, vendor and lease rationalization should drive
further savings. The company expects to reach $400 million in run-rate synergies in
2011, mainly from offloading of traffic, which should occur on a straight-line basis
through the year, representing roughly an incremental $6 million per quarter.
We expect to see additional cost synergies from further personnel cost rationalization
that is not assumed in current synergy guidance. Frontier has committed to
maintaining some IT personnel such as fixed technicians and cost service
representatives for an 18-month period after the closing of the deal, and these
employees will be redundant once the conversion period ends, providing opportunity
for further Opex rationalization.
205
Philip Cusick, CFA

(1-212) 622-1444

13 January 2011
While we do not model for revenue to recover, we expect to see some level of topline synergies as well. Frontier has committed to increase its broadband reach in the
Verizon properties from 63% to 85% and we expect reach could eventually expand
to ~92%, comparable to the level at legacy Frontier. This should help Frontier
achieve a major improvement in line loss rates, from the current run rate of ~11% to
~8% by 2012E, and drive customer ARPU well above current levels.
Leverage improving
The acquisition of Verizon lines was a deleveraging transaction for Frontier, taking
leverage from 4x trailing EBITDA before the transaction to ~2.9x at the end of
3Q10. However, we estimate the transaction raises the payout ratio to a high 75%+
for 4Q, despite the 25% dividend cut from $1.00 to $0.75. Despite the dividend cut,
which lowered the yield from 13% to 7.8%, the yield still remains the highest in
S&P 500. We model payout ratio declining to mid-60% as synergies come through.

Capex should ramp up near to medium term
Verizon spent only ~9% of run-rate revenue on maintenance capex in the Spinco
territories, compared to Frontiers 12% in legacy territories. Frontier will need to
make significant upfront investments to help improve the access line performance in
the underinvested Verizon markets and increase broadband reach. Moreover, we
expect some FiOS investment in acquired territories in states in which Verizon has
already rolled out service.
Management expects 12% of revenue plus $100 million annually will be sufficient
for the networks, FiOS, and Frontiers ongoing investments for the next three years,
or roughly $700 million annually, excluding integration capex. Thereafter,
management believes the capex level could fall below 12%, possibly to 10% of
revenue. We model capex eventually declining to 11% of service revenue.
206
Philip Cusick, CFA

(1-212) 622-1444

13 January 2011
Table 85: Frontier Valuation Model

2009
2010E
2011E
2012E
2013E
2014E
2015E
2016E
2017E
2018E
2019E
2020E
Access lines
% change, y-t-y
Additional lines
6,315
NM
5,744
-9.1%
(572)
5,304
-7.7%
(440)
4,938
-6.9%
(366)
4,710
-4.6%
(228)
4,526
-3.9%
(183)
4,396
-2.9%
(130)
4,296
-2.3%
(101)
4,227
-1.6%
(69)
4,171
-1.3%
(56)
4,124
-1.1%
(47)
4,078
-1.1%
(46)
HSI connections
% change, y-t-y
Additional lines
1,696
NM
1,696
0.0%
(1)
1,749
3.1%
53
1,802
3.0%
53
1,848
2.6%
46
1,888
2.2%
40
1,921
1.7%
32
1,946
1.3%
26
1,967
1.1%
21
1,984
0.8%
17
1,997
0.7%
13
2,007
0.5%
11
Voice Revenue
% change, y-t-y
3,119
NM
2,807
-10.0%
2,560
-8.8%
2,362
-7.7%
2,215
-6.2%
2,110
-4.7%
2,029
-3.9%
1,966
-3.1%
1,918
-2.5%
1,881
-1.9%
1,849
-1.7%
1,819
-1.6%
Data and Internet Revenue

% change, y-t-y
1,844
NM
1,841
-0.2%
1,839
-0.1%
1,881
2.3%
1,928
2.4%
1,967
2.1%
1,999
1.6%
2,023
1.2%
2,041
0.8%
2,052
0.6%
2,059
0.3%
2,062
0.2%
768
NM
682
-11.2%
627
-8.0%
590
-6.0%
554
-6.0%
521
-6.0%
490
-6.0%
460
-6.0%
433
-6.0%
415
-4.0%
399
-4.0%
383
-4.0%
% change, y-t-y
6,071
NM
5,685
-6.4%
5,383
-5.3%
5,192
-3.6%
5,058
-2.6%
4,962
-1.9%
4,884
-1.6%
4,819
-1.3%
4,764
-1.2%
4,724
-0.8%
4,685
-0.8%
4,647
-0.8%

% change, y-t-y
EBITDA margin
2,878
NM
47.4%
2,532
-12.0%
44.5%
2,546
0.5%
47.3%
2,524
-0.9%
48.6%
2,554
1.2%
50.5%
2,496
-2.3%
50.3%
2,447
-2.0%
50.1%
2,410
-1.5%
50.0%
2,377
-1.4%
49.9%
2,353
-1.0%
49.8%
2,329
-1.0%
49.7%
2,305
-1.0%
49.6%
Adj. EBITDA (operating cash flow)

% change, y-t-y
Adj. EBITDA margin
2,968
NM
48.9%
2,703
-8.9%
47.6%
2,646
-2.1%
49.2%
2,624
-0.8%
50.5%
2,634
0.4%
52.1%
2,576
-2.2%
51.9%
2,527
-1.9%
51.7%
2,490
-1.5%
51.7%
2,457
-1.3%
51.6%
2,433
-1.0%
51.5%
2,409
-1.0%
51.4%
2,385
-1.0%
51.3%
Capital expenditures/revenue
790
13.0%
720
12.7%
715
13.3%
692
13.3%
625
12.4%
551
11.1%
507
10.4%
499
10.4%
492
10.3%
487
10.3%
482
10.3%
477
10.3%
Regulatory Revenue
% change, y-t-y
EPS
Dividend per share
$
$
0.44 $
1.00 $
0.36 $
0.88 $
0.38 $
0.75 $
0.42 $
0.75 $
2011E
13,399
(1,586)
(3,045)
8,768
9,802
18,570
2012E
11,034
(1,375)
(2,397)
7,262
9,802
17,063
2011E
16,618
(2,014)
(3,599)
11,005
8,803
19,809
Less: net long-term debt, end of period

PMV -- Equity
(6,959)
11,611
(8,336)
8,727
(7,684)
12,125
989
0
989
987
0
987
989
0
989

Shares to be issued from warrants/options
$11.74
10%
$10.57
PMV per share

Plus dividend
12 month return
2011E
Free Cash Flow

FCF / diluted share
FCF yield
Dividend
Dividend yield
Payout ratio
0.52 $
0.75 $
0.55 $
0.75 $

0.50 $
0.75 $
2012E
1,064
$1.08
11%
$
$8.84
10%
$7.96
0.75
2013E
1,067
$1.08
11%
Current EV/Adj EBITDA

Current PER
Current Dividend yield
Free cashflow yield
Price Target EV/Adj EBITDA
Target PER
Expected Dividend yield
Free cashflow yield
2014E
$9.68
EV
17,257
18,596
0.63 $
0.75 $
2011E
6.5x
25.2x
7.7%
11.1%
7.0x
27.5x
6.8%
10%
0.67 $
0.75 $
0.69 $
0.75 $
2012E
2013E
6.6x
6.6x
22.9x
19.3x
7.7%
7.7%
11.1%
11.8%
7.1x
25.0x
6.8%
10%
7.1x
21.1x
6.8%
10%
0.71
0.75
2014E
6.7x
18.5x
7.7%
12.2%
7.2x
20.2x
6.8%
11%

11 -3.0%
-2.0%
-1.0%
0.0%
1.0%
4.7%
13
15
17
20
24
5.7%
11
12
13
15
18
6.7%
9
10
$11.03
12
14
7.7%
8
8
9
10
11
8.7%
7
7
8
8
9
$12.26
10%
$11.03
0.75
22%
1,131
$1.14
12%
0.59 $
0.75 $
2015E
1,167
$1.18
12%
2016E
1,182
$1.20
12%
2017E
1,168
$1.18
12%
2018E
1,155
$1.17
12%
1,152
$1.16
12%
0.75 $
7.7%
0.75 $
7.7%
0.75 $
7.7%
0.75 $
7.7%
0.75 $
7.7%
0.75 $
7.7%
0.75 $
7.7%
0.75
7.7%
70%
70%
66%
64%
63%
64%
64%
64%

8x
9x
10x
11x
12x
2011
9
10
$10.76
12
13
2018
9
10
$11.65
13
14
207
Philip Cusick, CFA

(1-212) 622-1444
208

13 January 2011
Philip Cusick, CFA

(1-212) 622-1444

13 January 2011
Windstream Communications
Access line losses have
shown improvement and
are lowest among peers
We initiate coverage of Windstream with a Neutral rating and a year-end 2011 price
price of $14 per share, implying expected total return of 13% including the
companys US$1/share annual dividend. Windstream has a rural footprint with the
lowest access line density within our RLEC coverage, which has enabled the
company to deliver better operating metrics than its peers. Moreover, management
has been shifting its revenue stream away from the declining consumer voice
business and towards business and data revenues, which positions the company well
for top-line stabilization when macro trends improve. Windstream has been one of
the best-performing stocks within telecom over the past year, with a total return of
37% including its dividend (vs. total return of 15% for the S&P 500). While the
current dividend yield of 7.4% remains one of the highest within telecom, the
companys higher leverage and EV/EBITDA multiple compared to those of wireline
peers, as well as ongoing acquisition risk, keep us sidelined.
Neutral
Windstream Corp (WIN;WIN US)
Company Data
Price ($)
13.37
Date Of Price
12 Jan 11
14.40 - 6.02
52-week Range ($)
Mkt Cap ($ bn)
6.41
Fiscal Year End
Dec
480
Shares O/S (mn)
Price Target ($)
14.00
EPS ($)
Q1 (Mar)
Q2 (Jun)
Q3 (Sep)
Q4 (Dec)
FY
2009A
2010E
2011E
0.20
0.21
0.18
0.17
0.76
0.82
0.17A
0.17A
0.18A
0.21A
0.73A
0.77A
0.21
0.20
0.21
0.22
0.84
0.80
Source: Company dat a, Bloomberg, J.P. Morgan estimates. Not e: EPS f igures bas ed on adjusted proforma
res ults. 'Bloomberg' above denotes Bloomberg c onsensus estimates.

Rural footprint enables best-in-class metrics
With an access line density of 17 pops per square mile, Windstream has the most
rural footprint in our coverage, which has resulted in industry-low access line losses
of 3.7%, as well as HSI penetration of 39% and video penetration of 13% of total
access lines, both at the high end of the peer group. The increase in broadband
penetration, coupled with tuck-in acquisitions of RLECs and CLECs, has helped
keep revenue losses at a minimum.
Acquisitions targeted to business
For the past couple of years, while its peers were engaging in transformative (in
terms of size) RLEC consolidation, Windstream adopted an acquisition strategy more
focused on smaller, tuck-in RLEC deals and increasing its business-revenue exposure
through CLEC/data center acquisitions. Overall, the companys revenue from
business and broadband has risen from 38% in 2007 to 58% most recently. The
increased exposure to stickier revenue streams which should see growth following a
macro turnaround position the company well for the medium term, in our view.
209
Philip Cusick, CFA

(1-212) 622-1444

13 January 2011
FCF offset by higher leverage and risk profile

We estimate Windstream will generate a free cash flow yield of 11.5% in 2011, and
pay out ~65% of free cash as its $1.00/share dividend. While the 11.5% yield is at
the high end of the telecom peer group, Windstream screens as one of the more
highly levered telcos (net debt of 3.4x trailing EBITDA, vs. the rest of RLECs below
3.0x). Its EV/EBITDA multiple of 6.9x 2011E EBITDA is at the higher end of its
RLEC peers, providing little valuation upside, in our view, especially given the lack
of opportunity for meaningful margin expansion.
Ongoing acquisitions an opportunity as well as risk
Despite its already high leverage, Windstrems positioning within the RLECs places
it as a likely consolidator of assets in 2011. With CTLs and FTRs hands likely full
with the integration of their recent large acquisitions, if a major transaction were to
occur in the space, we would expect Windstream could be involved. While, in
general, we view such consolidation opportunities positively from a long-term
perspective, the risk associated with a transaction likely would be negative for nearterm stock performance.
Investment Risks
Upside risks
Earlier-than-expected recovery in economic fundamentals could drive growth in
business revenues
Through acquisitions Windstream has increased its exposure to business markets,
positioning itself well for an eventual macroeconomic recovery. If macro trends were
to improve significantly in 2011, Windstream could see a meaningful growth on the
business revenue front, and our current revenue estimates could be too conservative.
Improvement in access line and HSI trends could drive revenue and cash flow
above expectations
If Windstreams access line losses were to improve more meaningfully, or data
revenue growth came in better than expected, consumer revenues could come in
better than we expect. Moreover, the improved trends could reflect well on margins,
rendering our cash flow estimates too conservative.
Downside risks
Further acquisitions could be risky for near-term free cash flow
The potential for additional acquisitions is another area of risk for the companys
cash flow prospects. While, in general, we like consolidators within the deteriorating
wireline industry from a synergy realization and margin maintenance perspective, a
potential acquisition in the near to medium term could take Windstreams leverage
above the companys historical levels of around 3.2x. This could raise companys
cost of capital and potentially limit its financial flexibility.
Windstreams regulatory revenue exposure is toward the high end of its peer group.
While we expect that revenue stream to continue to diminish gradually rather than
see a major short-term disruption, a faster-than-expected decline in USF subsidies
and access rates could result in a significant hit to the top line and affect the
companys ability to maintain its dividend.
210
Philip Cusick, CFA

(1-212) 622-1444

13 January 2011
Company Description
Windstream, previously Alltels local wireline business, was merged into Valor in
July 2006, and acquired CTC in 2007. The company currently operates in 16 states,
covering about 3 million access lines, 2 million long distance customers, around
1 million HSI customers, and 300,000-plus digital TV customers to whom it resells
DISH satellite service. Windstream spun off its Directory and Publishing business in
2007 and has closed six tuck-in acquisitions since 2009, most recently Iowa
Telecom, Lexcom, D&E, and NuVox. The companys largest market is Georgia,
followed by Kentucky, Texas, Ohio, and Nebraska, which cumulatively account for
60%+ of access lines.
Figure 89: Windstream Footprint

We initiate coverage of Windstream with a Neutral rating and establish a year-end
2011 price target of $14 per share. Our target price is based on our DCF analysis,
which assumes a -1% terminal growth rate and 7.2% discount rate. Our target price
implies a dividend yield of 6.9% and an EV/EBITDA multiple of 7x our 2011E
EBITDA estimate.
211
Philip Cusick, CFA

(1-212) 622-1444

13 January 2011
Buying Assets on Business Side

Windstream followed an active acquisition strategy on the RLEC front, until
November 2009, when the company announced its acquisition of NuVox, a CLEC in
the Southeastern United States and the Midwest, with overlapping footprint.
Windstream leveraged NuVoxs existing billing systems; rather than integrating
NuVox into legacy operations, it transitioned its legacy CLEC customers onto
NuVoxs billing system. With its recent QComm acquisition Windstream continued
to grow broadband and business revenues, and more than doubled its existing fiber
footprint, enabling the company to better serve the business segment, as well as
expanding transport services for wireless carriers.
We expect Windstream to continue to be one of the major consolidators in the
wireline industry, and the company has indicated it will pursue more CLEC and
potentially data center acquisitions, such as Nuvox, KDL, and Hosting, as well as
tuck-in RLEC acquisitions, such as D&E, Lexcom, and Iowa Telecom, when the
pricing is reasonable.
Windstreams sweet spot when it comes to RLEC acquisitions is 100,000-plus
incremental access line from well-run companies in rural regions that would be
accretive to cash flow in the first year. While the company lately has turned to a
more aggressive acquisition strategy on the business lateral, we expect it to continue
to be involved in the RLEC consolidation wave, though at a more selective and
moderate pace.
Table 86: Windstreams 2009-2010 Acquisitions
Acquisition
Price, Close date Revenue OIBDA
Hosted Solutions
310m, 4Q10
51.7m 25.7m
Q-Comm
786m, 4Q10
231m 92.8m
Iowa
1.1bn, 2Q10
275m
130m
Nuvox
647m, 4Q09
561m
115m
Lexcom
141m, 4Q09
44m
24m
D&E
333m, 4Q09
145m
64m
Synergy
1.5m
25m
35m
30m
5m
25m
Access line overview

5 data centers in Raleigh, Charlotte (NC) and Boston, serving 600 customers
Fiber provider in 23 states, CLEC serving 5,500 SMB customers primarily in Midwest
Iowa, Minnesota, 256k access lines, 95k HSI, 26k digital TV
90k business customers in complementary markets in 16 states
Neighboring N. Carolina locations, 23k access lines, 9k HSI, 12k cable TV customers
Pennsylvania,114k ILEC, 46k HSI lines, 47k CLEC
Given the increasing pressure in the consumer voice business, we view Windstreams
reorientation toward business markets as an attractive medium-term strategy. The
company has explicitly stated its interest in shifting its revenue mix toward
broadband and business and has increased the mix of these revenue streams from
38% in 2007 to 58% pro forma for the trailing twelve months.
212
Philip Cusick, CFA

(1-212) 622-1444

13 January 2011
Figure 90: WINs DSL Penetration Has Been Ramping
50.0%
40
40.0%
30
30.0%
20
20.0%
10
10.0%
0.0%
2Q08
4Q08
2Q09
4Q09
DSL adds
2Q10 4Q10E 2Q11E 4Q11E
DSL penetration of access lines
Higher Leverage than Peers

We estimate that Windstream will generate a free cash flow yield of 11.5% in 2011,
and will pay out around 65% of that as its US$1.00/share dividend. The company has
taken on more leverage than peers, with net debt of 3.4x TTM EBITDA, the highest
among RLECS. This, coupled with the lack of meaningful synergies relative to
EBITDA, would create relatively higher risk to the companys dividend if an internal
or external factor were to hurt the companys FCF prospects. While we do not find
the companys ability to maintain its dividend in the near term or its level of leverage
worrisome, as the company does not have any significant maturities until 2013,
Windstreams dividend could be subject to higher risk compared to those of its
RLEC peers.
Wireline Trends Better

Windstreams more rural footprint has helped it maintain industry-low line loss
levels. The company has been losing access lines at a 4-5% rate since its formation in
2006 and lost 3.7% in 3Q10.
On the residential voice front, the introduction of the price for life promotion
helped improve trends starting in 3Q09. The price for life promotion provides a
wireline and broadband package with a lifetime price guarantee that, in an
environment with potential price hikes from cable MSOs, has resonated well with
Windstreams customer base. However, given the ongoing macro challenges and the
secular trends, there has not been a material improvement from a 4% loss rate in
consumer voice.
We model access line losses to continue to moderate, and expect the company to exit
2011 with an overall line loss rate of 3.4% (vs. 3.7% in 3Q10) and residential line
loss rate of 3.9% (vs. 4% in 3Q10).
213
Philip Cusick, CFA

(1-212) 622-1444

13 January 2011
Upselling opportunity for higher speeds

With the majority of Windstreams existing customer base at the 1.5 Mbps
broadband speed, and 90%+ of gross adds selecting 3 Mbps speeds or higher,
Windstream is on a trajectory to increase data revenue as its customer base moves to
higher speeds. With broadband stimulus money of $180 million in grants plus its
$60 million internal contribution, the company plans to increase broadband reach
from 90%, and upgrade speeds in its footprint. Currently each speed increment sells
for $5 higher, and the companys top seller is the 6 Mbps plan.
With only 17 pops per square mile, Windstreams rural footprint sees minimal
competition from cable, and cable VOIP is available across only ~63% of the
companys footprint, with Time Warner Cable having the most overlap. There is a
broadband alternative for 75-80% of Windstreams lines, with cable available to
85%. We expect the voice competition from cable providers to increase from the
current 64% level and eventually top out in the low 70s. We estimate Windstreams
exposure to wireless substitution is ~20% and should remain below national averages
going forward.
Financial Outlook
Acquisitions and data growth offset voice revenue losses
Windstream sees a pro forma access line loss rate of ~3.7%, the lowest among its
peer group. Moreover, its increasing data penetration and video resale revenue are
helping keep organic revenue losses to a minimum. Data and special access revenue
accounts for ~40% of service revenue today, up from around 26% in 2008 and 23%
in 2007. We expect the line losses to continue to decline and model Windstream to
exit 2011 at a 3.4% y/y loss rate. We model 69k HSI sub additions for 2011, which
would bring penetration to ~44% of access lines.
Windstream has closed six acquisitions since the beginning of 2009, which add
around $1.3 billion in annual revenue and about $485 million in adjusted OIBDA.
Two of these acquisitions, Nuvox and QComm, were CLECs and one, Hosted
Solutions, was a data center. These acquisitions have helped increase business and
broadband revenue exposure to 58% pro forma, up from 38% in 2007, increasing the
stability of the top line for Windstream. We look for ~1.2% loss on the top line for
2011, excluding the acquisitions of QComm and Hosted Solutions. We look for a
~6.4% y/y decline in voice revenues, partly offset by 4.8% growth in data and
integrated solutions revenue.
214
Philip Cusick, CFA

(1-212) 622-1444

13 January 2011
Figure 91: WIN 2007 Revenue Breakout
Figure 92: WIN LTM Pro Forma Revenue Breakout

Wholesale
17%
Wholesale
Broadband
28%
and business
38%
Broadband
Residential
and business
25%
58%
Residential
34%

Managements 2010 FCF guidance implies a payout ratio in the 59-62% range, given
its $1.00/share dividend, and we model 61% payout ratio for 2010, supporting a
7.4% dividend yield at the high end of the range for its peers.
As more of the synergies from recent acquisitions come through, Windstreams
margins should expand in 2011, and we model 48.7% EBITDA margins (50.9% adj.
EBITDA). Net-net, we look for 2011 EBITDA to be essentially flat y/y.
Windstreams net leverage is 3.3x TTM EBITDA, vs. the rest of RLECs at or below
3.0x. The company has maintained a disciplined approach to leverage, capping
leverage at around 3.2x since its spinoff from Alltel in July 2006. We expect the
company to allocate excess FCF to decrease leverage to historical levels unless an
attractive acquisition opportunity arises.
Figure 93: Upcoming Maturities
$ (m)
2,000
$1,746.0
1,500
$1,500.0
$1,421.0
$1,254.0
$1,100.0
1,000
500
$131.0
$47.0
$11.0
0
2011
2012
2013
2014
2015
2016
2017.00
Thereafter
215
Philip Cusick, CFA

(1-212) 622-1444

13 January 2011
Table 87: Windstream Valuation Model

2009
2010E
2011E
2012E
2013E
2014E
2015E
2016E
2017E
2018E
2019E
2020E
CAGR
10E-20E
Residential voice lines

% change, y-t-y
Additional lines
Business voice lines
% change, y-t-y
Additional lines
Total Access lines
% change, y-t-y
Additional lines
2,134
NM
(117)
1,011
NM
(47)
3,392
NM
(161)
2,045
-4.2%
(89)
974
-3.7%
(37)
3,269
-3.6%
(123)
1,965
-3.9%
(80)
940
-3.4%
(33)
3,157
-3.4%
(112)
1,893
-3.7%
(72)
920
-2.1%
(20)
3,067
-2.9%
(90)
1,828
-3.4%
(65)
908
-1.3%
(12)
2,992
-2.5%
(75)
1,770
-3.2%
(58)
898
-1.2%
(11)
2,924
-2.3%
(68)
1,718
-3.0%
(52)
890
-0.9%
(8)
2,864
-2.0%
(60)
1,670
-2.8%
(47)
882
-0.8%
(7)
2,810
-1.9%
(54)
1,662
-0.5%
(8)
876
-0.7%
(6)
2,796
-0.5%
(14)
1,658
-0.2%
(4)
870
-0.7%
(6)
2,787
-0.3%
(10)
1,655
-0.2%
(4)
865
-0.6%
(5)
2,778
-0.3%
(9)
1,651
-0.2%
(4)
860
-0.5%
(5)
2,770
-0.3%
(8)
-2%
HSI connections
% change, y-t-y
Additional lines
% change, y-t-y
% change, y-t-y
% change, y-t-y
EBITDA margin
1,224
NM
194
NM
3,957
NM
1,830
NM
46.3%
1,323
8%
99
-49%
3,864
-2.3%
1,863
2%
48.2%
1,392
5%
69
-30%
3,827
-1.0%
1,865
0%
48.7%
1,447
4%
55
-20%
3,800
-0.7%
1,847
-1%
48.6%
1,491
3%
44
-20%
3,787
-0.3%
1,837
-1%
48.5%
1,527
2%
35
-20%
3,766
-0.5%
1,824
-1%
48.4%
1,555
2%
28
-20%
3,748
-0.5%
1,811
-1%
48.3%
1,578
1%
23
-20%
3,715
-0.9%
1,792
-1%
48.2%
1,596
1%
18
-20%
3,689
-0.7%
1,775
-1%
48.1%
1,611
1%
15
-20%
3,671
-0.5%
1,763
-1%
48.0%
1,622
1%
12
-20%
3,653
-0.5%
1,750
-1%
47.9%
1,631
1%
9
-20%
3,634
-0.5%
1,738
-1%
47.8%
2%

% change, y-t-y
EBITDA margin
1,958
NM
49.5%
1,945
-1%
50.3%
1,946
0%
50.9%
1,929
-1%
50.8%
1,919
-1%
50.7%
1,905
-1%
50.6%
1,893
-1%
50.5%
1,873
-1%
50.4%
1,857
-1%
50.3%
1,845
-1%
50.2%
1,832
-1%
50.2%
1,819
-1%
50.1%
-1%
Taxes Paid
Tax rate
(242)
37%
(228)
37%
(236)
37%
(239)
37%
(245)
37%
(250)
37%
(254)
37%
(255)
37%
(258)
37%
(261)
37%
(264)
37%
(267)
37%
2%
412
404
10.5%
428
11.2%
425
11.2%
424
11.2%
421
11.2%
401
10.7%
397
10.7%
394
10.7%
392
10.7%
390
10.7%
388
10.7%
0%
0.95
1.00
(480)
1%
0%
0%
EPS
Dividend per share
Dividend paid
$
$
0.95 $
1.00 $
(437)

PMV -- Equity
PMV per share
Plus dividend
12-Month return
216
0.83 $
1.00 $
(464)
0.84 $
1.00 $
(480)
0.85 $
1.00 $
(480)
0.87 $
1.00 $
(480)
0.89 $
1.00 $
(480)
0.90 $
1.00 $
(480)
2011E
11,626
(1,637)
(2,624)
7,365
6,516
13,881
(6,203)
7,678
480
3
483
$15.91
10%
$14.32
$1.00
13.4%
Current EV/EBITDA
Current PER
Current Free Cashflow yield
Target PER
Expected Free cash flow yield
0.91 $
1.00 $
(480)
$13.51
EV
12,723
7.1%
13,113
0.91 $
1.00 $
(480)
0.93 $
1.00 $
(480)
0.94 $
1.00 $
(480)
2011E
6.8x
16.2x
7.4%
11.5%
2012E
6.9x
15.9x
7.4%
11.2%
2013E
6.9x
15.5x
7.4%
11.0%
2014E
7.0x
15.2x
7.4%
10.7%
7.0x
17.1x
6.9%
10.8%
7.1x
16.8x
6.9%
11.2%
7.1x
16.4x
6.9%
11.0%
7.2x
16.2x
6.9%
10.8%

14 -1.5%
-1.0%
-0.5%
0.0%
0.5%
6.0%
15
16
18
19
21
6.5%
14
15
16
17
18
7.0% 12.4
13.2
$14.03
15
16
7.5%
11
12
13
13
14
8.0%
10
11
11
12
13
-1%
-2%
-1%
-1%

13 January 2011
Wireless Tower Operators
Wireless Tower Operators
Philip Cusick, CFA

(1-212) 622-1444
217
Philip Cusick, CFA

(1-212) 622-1444
218

13 January 2011
Philip Cusick, CFA

(1-212) 622-1444

13 January 2011
American Tower
We are initiating coverage of American Tower with an Overweight rating and a yearend 2011 price target of $60. American Tower, with its scale, conservative financial
position, and focus on profitability, has been the most stable tower company and
offers an attractive risk/reward at this level, in our view. International opportunities
could drive higher returns for American Tower in comparison to those in domestic
markets and the company has diversified into eight countries already, with no
country but the US accounting for more than 10% of revenue. The firms relatively
low leverage at 4x EBITDA provides us with additional comfort and gives the
company the ability to do a larger tower deal or buyback stock. Finally, we see REIT
conversion as the most likely case for American Tower and include it in our target
valuation of $60 per share; however, if this does not occur, our estimated YE11
valuation for the company would be only $45, implying 11% downside risk from the
current level.
Overweight
American Tower (AMT;AMT US)
Company Data
Price ($)
Date Of Price
52-week Range ($)
Mkt Cap ($ mn)
Fiscal Year End
Shares O/S (mn)
Price Target ($)
Price Target End
Date
50.70
12 Jan 11
53.52 38.09
20,455.17
Dec
403
60.00
31 Dec 11
EPS ($)
Q1 (Mar)
Q2 (Jun)
Q3 (Sep)
Q4 (Dec)
FY
2009A
2010E
2011E
0.14
0.14
0.17
0.16
0.61
0.62
0.24A
0.25A
0.23A
0.24A
0.95A
0.93A
0.25
0.26
0.27
0.28
1.07
1.13
Source: Company dat a, Bloomberg, J.P. Morgan G AAP es timates . 'Bloomberg' above denotes Bloomberg
consensus estimates .

Solid revenue and adjusted EBITDA growth from positive operating trends
We model American Tower revenue growth of 15.2% and adjusted EBITDA growth
of 16.2% in 2011, after revenue growth of 14.6% in 2010, due to revenue growth
from incremental acquisitions as well as continued strength in lease-ups,
augmentations, and portfolio growth. There could be upside to our 2011 estimate
once Sprint Nextel starts to augment its CDMA sites for 800 MHz capability or if
Clearwire reaccelerates its network build. T-Mobile, Leap Wireless, and MetroPCS
could have an impact if any significant network investments are made. We expect
continued strength from Verizon LTE augmentations, but note that AT&Ts are now
built in to GAAP revenue.
Solid recurring FCF (RFCF) growth of 11.5% in 2011
We estimate solid RFCF growth of 11.0% to $1.1 billion in 2011, from $1.0 billion
in 2010. We model a 7% organic CAGR longer term. Our year-end 2011 price target
of $60 per share implies a yield of 4.8% on our 2011 RFCF estimate of $2.90 per
share.
219
Philip Cusick, CFA

(1-212) 622-1444

13 January 2011
Low relative leverage gives American Tower flexibility, buyback potential

American Tower has a net leverage ratio of 3.9x versus 5.2x for Crown Castle and
7.3x for SBA Communications. The lower relative leverage allows the company to
potentially take on substantial debt for either a large tower purchase or stock
buyback. American Tower has already made some significant international moves
recently with a joint venture (TowerCo Ghana) and the purchase of Cell C towers in
South Africa. Large domestic tower portfolios are probably not as attractive at
current prices to American Tower, which leaves continued stock buyback as an
alternative. In our view, American Tower has the ability to lever up by 1-2 turns of
EBITDA to buy back $1.4-2.8 billion in stock, and will likely authorize more after it
completes the $450 million remaining on its current $1.5 billion authorization
(expiring July 2011).
International tower expansion could bring greater returns
American Tower sees higher potential returns from international tower builds or
purchases. While we expect international towers to have higher operating and
currency risks than domestic towers, American Towers international diversification
across eight countries is slowly reducing the risks. New builds are cheaper due to
lower soft and construction costs, and many markets are still developing and need
more new towers built than in the US. Collocation in some markets is starting to be
adopted by more carriers and some carriers are selling tower portfolios to focus on
core strategies. Our analysis currently indicates a substantially higher return potential
internationally than domestically (difference of 700-900bps).
Target of $60 assumes REIT conversion; fair value $45 without conversion
We expect American Tower to be the first tower company to opt to convert to a Real
Estate Investment Trust (REIT) structure to lower taxes as its NOL balance runs out,
which we expect could occur in early 2012. The company could hold a vote at its
annual shareholder meeting in May 2011 for actual conversion in 2012 or beyond. If
the company does not convert to a REIT and has to start paying a full cash tax rate in
2012 our valuation falls to $45 per share compared to $60 assuming REIT
conversion.
Investment Risks
High multiples could contract
We estimate AMT trades at 15.8x on an EV/2011E EBITDA basis and 10.8x on an
EV/2011E revenue basis, substantially higher than the S&P 500 on both metrics. On
a relative basis, the company trades in line with peers on an EV/2011E EBITDA
basis (15.8x versus average of 15.7x). Since 2002, the tower companies have gone
from trading at less than 10x forward EBITDA to ~15x-20x today.
iDEN shutdown could be a 3%-plus headwind for the industry
We see Sprint Nextel shutting down its 20,000 iDEN cell sites in the 2012-2016 time
frame with the bulk coming in 2013-2015. We model iDEN site shutdowns dragging
our base-case revenue scenario of 68,000 sites by 4% in 2012, and we expect an
incremental ~600 bps in Sprint revenue dilution annually until 2015. Peak dilution is
expected in 2016 at 26%, a substantial negative impact if CDMA augmentations do
not partially offset the revenue loss. We believe the industry could lose about 3% or
more in gross site revenue from Sprint Nextel once its network is fully optimized.
220
Philip Cusick, CFA

(1-212) 622-1444

13 January 2011
Further carrier consolidation would impact growth

Debt refinancing risk
American Tower has leverage of 3.9x and most of its debt matures in the 2014 to
2020 time frame. The largest maturity of $1.75 billion comes due in 2014, and
represents about 30% of the companys total debt. If the credit markets were closed
or refinanced debt bore substantially higher interest rates, American Tower would be
negatively affected.
The company could become more aggressive in its international efforts in Mexico,
Brazil, Chile, Peru, Colombia, India, South Africa, or Ghana. While we do not model
substantial further investment in these or other countries, American Tower could
make a major move, which could negatively affect FCF through higher capex and
thus reduce potential stock buybacks. Building up a bigger presence in any emerging
market, in which the wireless industry is still developing and country-specific risks
are very different from those in the United States, could negatively impact the
companys risk profile and multiple.
Company Description
American Tower owns 20,333 US wireless towers, 12,347 wireless towers outside
the US in Mexico, Brazil, Chile, Peru, Colombia, and India, as well as 234 US
broadcast towers and 199 Mexican broadcast towers. The company has 204 inbuilding networks in the US and two in Mexico. Also, American Tower has
announced plans to acquire up to 1,400 sites in South Africa from Cell C and a joint
venture in Ghana with MTN Group called TowerCo Ghana for 1,876 towers.
American Tower, originally a subsidiary of American Radio Systems, was spun off
when American Radio Systems was acquired by CBS in 1998. In 2005, American
Tower purchased SpectraSite Holdings for $3.8 billion. SpectraSite began 1999 with
about 100 towers and, pro forma for all acquisitions, owned 8,191 towers in the US
at the end of 2000 after buying most of them from Nextel and SBC Communications;
at the time of acquisition, it had 7,400 towers.
Table 88: Revenues by Carrier, 2009

AT&T
Sprint Nextel
Verizon
T-Mobile
Total
Total Revenue
19%
18%
15%
9%
61%
221
Philip Cusick, CFA

(1-212) 622-1444

13 January 2011

Our main valuation methodology is based upon our discounted cash flow (DCF)
analysis. We also provide recurring free cash flow (RFCF) and EV/EBITDA multiple
analyses, so investors can evaluate relative valuation metrics. Our year-end 2011
price target of $60 per share is based upon our DCF analysis, using a discount rate of
8.1%, a terminal growth rate of 3.0% in 2020, and a 10% private-to-public discount.
At our price target, American Tower would trade at 23.0x 2011E RFCF and 18.3x
EV/EBITDA. Risks to our target price include lower-than-expected lease-up rates,
tower builds, and augmentations, higher interest rates, wireless carrier consolidation,
and disruptions in the companys international businesses.
Table 89: DCF Sensitivity Analysis

60
2.0%
2.5%
3.0%
3.5%
7.0%
66
72
80
90
7.5%
59
64
70
78
8.0%
53
57
62
68
8.1%
52
56
$60.41
66
8.6%
47
50
54
58
4.0%
104
87
75
73
64
Table 90: Valuation Multiples Analysis

$50.50
EV ($b)
23.7x
Current EV/Adjusted EBITDA

Current PER (adjusted)
Current Price/RFCF per share (reported)
Current Price/RFCF per share (JPM)
Current Price/RFCF per share (JPM) (net of SL)
Price Target EV/Adj. EBITDA

27.6x
Price Target PER (adjusted)
Price Target/RFCF per share (reported)
Price Target/RFCF per share (JPM)
Price Target/RFCF per share (JPM) (net of SL)
2009
20.1x
70.6x
25.3x
24.1x
24.4x
2010E
17.6x
50.5x
22.3x
19.8x
21.6x
2011E
15.2x
47.4x
20.2x
17.4x
19.3x
2012E
14.2x
40.8x
17.2x
15.3x
16.5x
2013E
13.4x
35.6x
15.0x
13.7x
14.4x
23.3x
84.4x
30.3x
28.9x
29.2x
20.5x
60.4x
26.7x
23.7x
25.8x
17.6x
56.8x
24.2x
20.8x
23.1x
16.5x
48.9x
20.6x
18.4x
19.8x
15.5x
42.6x
18.0x
16.4x
17.3x

Note: Using 2011E Net Debt and Share Count.

We model American Tower growing its tower base by 2.1% in 2011 and 1.7% in
2012 due mostly to new builds. Acquisitions could drive upside to our estimates, but
we do not model acquisitions until they are announced and expected to close. We
estimate revenue growth of 15.2% in 2011 and 6.4% in 2012 to $2.3 billion and
$2.4 billion, respectively. Revenue per tower could reach $64,643 and $67,551 in
2011 and 2012, up 0.5% and 4.5%, respectively. The lower average revenue per
tower in 2011 is being negatively impacted by lower-revenue international towers
acquired in 2010. Our model estimates adjusted EBITDA of $1.6 billion in 2011, up
16.2% year-over-year, and $1.7 billion in 2012, up 6.8% year-over-year. We estimate
an adjusted EBITDA margin of 68.8% in 2011 and 68.6% in 2012.
222
Philip Cusick, CFA

(1-212) 622-1444

13 January 2011

We model EPS of $1.07 in 2011 and $1.90 in 2012, up 11.7% and 78.0%,
respectively. EPS for 2012E benefits from a 5% assumed tax rate in REIT status
versus 38% prior to REIT status. For 2011, we estimate capex of $377 million, or
about 17.0% of leasing revenue. Our 2012 capex estimate falls to $357 million due to
slightly lower tower builds, implying 15.1% capex to leasing revenue. Our recurring
free cash flow estimate (net of straight-line impacts) of $1.0 billion in 2011 is up
9.0% year-over-year, and our 2012 estimate is 13.4% higher at $1.2 billion. On a pershare basis, we estimate RFCF of $2.61 in 2011, up 11.5%, and $3.06 in 2012, up
17.1%.
223
Philip Cusick, CFA

(1-212) 622-1444

13 January 2011
Table 91: Valuation Summary

CAGR
2020E 11E-20E
38,279
1%
0.9%
$87,745
3%
3.0%
3,344
5%
3.9%
64
2%
-1.3%
3,407
5%
3.8%
2,403
5%
3.9%
70.5%
2007
22,807
1.8%
$63,322
9.0%
1,426
10.2%
31
-90.2%
1,457
-9.3%
980
-14.5%
67.3%
2008
23,740
4.1%
$66,660
5.3%
1,547
8.5%
46
51.8%
1,594
9.4%
1,092
11.5%
68.5%
2009
27,256
14.8%
$65,682
-1.5%
1,668
7.8%
56
19.9%
1,724
8.2%
1,181
8.1%
68.5%
2010E
34,019
24.8%
$64,343
-2.0%
1,925
15.4%
52
-7.1%
1,976
14.6%
1,344
13.8%
68.0%
2011E
34,719
2.1%
$64,643
0.5%
2,222
15.4%
56
7.4%
2,277
15.2%
1,562
16.2%
68.6%
2012E
35,319
1.7%
$67,551
4.5%
2,366
6.5%
57
2.2%
2,422
6.4%
1,667
6.8%
68.8%
2013E
35,819
1.4%
$70,455
4.3%
2,506
5.9%
60
5.9%
2,566
5.9%
1,777
6.6%
69.2%
2014E
36,219
1.1%
$73,272
4.0%
2,639
5.3%
63
5.3%
2,703
5.3%
1,881
5.8%
69.6%
2015E
36,579
1.0%
$75,690
3.3%
2,755
4.4%
66
4.4%
2,821
4.4%
1,973
4.9%
69.9%
2016E
36,919
0.9%
$77,961
3.0%
2,865
4.0%
66
-0.3%
2,931
3.9%
2,060
4.4%
70.3%
2017E
37,259
0.9%
$80,299
3.0%
2,978
4.0%
66
-0.6%
3,044
3.9%
2,141
3.9%
70.3%
2018E
37,599
0.9%
$82,708
3.0%
3,096
3.9%
65
-0.8%
3,161
3.8%
2,225
3.9%
70.4%
2019E
37,939
0.9%
$85,190
3.0%
3,218
3.9%
64
-1.0%
3,282
3.8%
2,313
3.9%
70.5%
Less: Depreciation and Amortization

EBIT
Less: Taxes on EBIT @ 5.0%
Unlevered Net Income
Add: Depreciation and Amortization
Less: Capital Expenditures
Capex as % of leasing revenue
523
457
(60)
397
523
154
10.8%
405
687
(136)
551
405
243
15.7%
415
766
(183)
584
415
250
15.0%
463
881
(188)
693
463
315
16.4%
524
1,038
(257)
781
524
377
17.0%
545
1,122
(38)
1,084
545
357
15.1%
571
1,206
(42)
1,163
571
338
13.5%
595
1,286
(46)
1,240
595
318
12.0%
614
1,359
(50)
1,309
614
315
11.4%
630
1,430
(54)
1,376
630
317
11.1%
639
1,502
(58)
1,444
639
325
10.9%
648
1,577
(62)
1,516
648
334
10.8%
656
1,656
(66)
1,590
656
343
10.7%
664
1,739
(70)
1,668
664
353
10.6%
Unlevered Free Cash Flows

Recurring Free Cash Flows
y/y % change
Recurring Free Cash Flows (net of straight-line)
y/y % change
766
816
-28.8%
796
-30.6%
713
769
-5.8%
746
-6.2%
748
852
10.8%
842
12.9%
842
1,027
20.5%
946
12.3%
929
1,139
11.0%
1,026
8.4%
1,272
1,253
10.0%
1,164
13.5%
1,396
1,356
8.2%
1,289
10.7%
1,516
1,454
7.2%
1,410
9.4%
1,608
1,542
6.0%
1,521
7.8%
1,689
1,626
5.4%
1,612
6.0%
1,758
1,704
4.8%
1,692
5.0%
1,829
1,785
4.8%
1,776
4.9%
1,903
1,869
4.7%
1,863
4.9%
1,980
1,957
4.7%
1,954
4.9%
RFCF per share - reported

RFCF per share - JPM
RFCF per share - JPM (net of straight-line)
$0.69
$1.90
$1.85
$1.61
$1.84
$1.79
$1.99
$2.09
$2.07
$2.26
$2.54
$2.34
$2.50
$2.90
$2.61
$2.93
$3.29
$3.06
$3.36
$3.68
$3.50
$3.80
$4.08
$3.95
$4.25
$4.47
$4.41
$4.67
$4.89
$4.84
$5.09
$5.31
$5.27
$5.55
$5.78
$5.75
$6.06
$6.30
$6.28
$6.62
$6.87
$6.86
11%
10%
11%

Adjusted EPS - Diluted
$0.14
$0.33
$0.83
$0.62
$0.61
$0.72
$0.95
$1.00
$1.07
$1.06
$1.90
$1.24
$2.18
$1.42
$2.47
$1.61
$2.77
$1.80
$3.08
$2.01
$3.42
$2.23
$3.80
$2.48
$4.22
$2.75
$4.69
$3.06
18%
12%
$50.50
EV ($b)
23.7x
2009
20.1x
70.6x
25.3x
24.1x
24.4x
2010E
17.6x
50.5x
22.3x
19.8x
21.6x
2011E
15.2x
47.4x
20.2x
17.4x
19.3x
2012E
14.2x
40.8x
17.2x
15.3x
16.5x
2013E
13.4x
35.6x
15.0x
13.7x
14.4x

27.6x
23.3x
84.4x
30.3x
28.9x
29.2x
20.5x
60.4x
26.7x
23.7x
25.8x
17.6x
56.8x
24.2x
20.8x
23.1x
16.5x
48.9x
20.6x
18.4x
19.8x
15.5x
42.6x
18.0x
16.4x
17.3x
Ending sites
y/y % change
Annual Revenue per site
y/y % change
Rental and management revenue
y/y % change
Network development services
y/y % change
Revenue
y/y % change
Adjusted EBITDA
y/y % change
Adjusted EBITDA margin

PMV of operations
PMV of equity
DCF Value per Share
Price Target
Upside to target
2011E
12,456
(324)
(2,073)
10,059
20,099
30,157
0
(4,184)
25,974
384.1
2.9
386.9
$67.13
10%
$60.41
19.6%
224
REIT Conversion Impact:

yes
Yes = tax rate goes to 5.0% (adjust below). WACC, taxes affected.
No = tax rate = 38.0%. WACC lower, taxes higher.
5%

60
2.0%
2.5%
3.0%
3.5%
7.0%
66
72
80
90
7.5%
59
64
70
78
8.0%
53
57
62
68
8.1%
52
56
$60.41
66
8.6%
47
50
54
58
4.0%
104
87
75
73
64
3%
6%
3%
-1%
9%
6%
7%
Philip Cusick, CFA

(1-212) 622-1444

13 January 2011
Crown Castle International

We are initiating coverage of Crown Castle with an Overweight rating and a yearend 2011 price target of $55. Crown Castle has substantial scale and an attractive
tower portfolio in the top 100 markets. We are confident Crown Castle will be able to
turn the positive business trends into solid revenue, EBITDA, and cash flow growth
and view shares of the company as attractive at current levels. In addition, leverage at
Crown Castle is relatively modest at about 5x, which provides us with additional
comfort and gives the company the ability to do a larger tower deal or buy back
stock. Finally, we see REIT conversion as the most likely case for Crown Castle after
NOLs are forecast to run out in 2016 and include it in our target valuation of $55 per
share. We see little downside risk to our valuation if a conversion is delayed due to
minimal net impact of tax changes.
Overweight
Crown Castle International (CCI;CCI US)
Company Data
Price ($)
Date Of Price
52-week Range ($)
Mkt Cap ($ bn)
Fiscal Year End
Shares O/S (mn)
Price Target ($)
Price Target End
Date
42.09
12 Jan 11
44.46 34.12
12.04
Dec
286
55.00
31 Dec 11
EPS ($)
Q1 (Mar)
Q2 (Jun)
Q3 (Sep)
Q4 (Dec)
FY
2009A
2010E
2011E
0.02
(0.41)
(0.13)
0.04
(0.47)
(0.34)
(0.43)A
(0.36)A
(0.49)A
0.06A
(1.22)A
(0.80)A
0.06
0.06
0.10
0.11
0.33
0.52

Positive operating trends drive strong 2011 revenue and adjusted EBITDA
We see Crown Castle revenue growth of 7.1% in 2011 and adjusted EBITDA growth
of 8.3% due to continued strength in lease-ups, augmentations, and domestic tower
portfolio growth. There could be upside to our 2011 estimate if Sprint Nextel
augments its CDMA sites for 800 MHz capability or if Clearwire reaccelerates its
network build. T-Mobile, Leap Wireless, and MetroPCS could have an impact if any
significant network investments are made. We expect continued strength from
Verizon LTE augmentations, but note that AT&Ts are now built in to GAAP
revenue.
We estimate solid RFCF growth of 14.8% to $727 million in 2011, from
$634 million in 2010. We model an 8% organic CAGR longer term. Our year-end
2011 price target of $55 per share implies a yield of 4.6% on our 2011 RFCF
estimate of $2.54 per share.
225
Philip Cusick, CFA

(1-212) 622-1444

13 January 2011
Potential operating improvement

We expect Crown Castle to expand EBITDA margins from about 62.1% in 2010 to
63.9% in 2011. Longer term, we see Crown Castle improving its margins to about
66-67%, implying a 77% incremental EBITDA margin, which is in line with SBAs
long-term margins and lower than American Towers 72% margins. Any
outperformance would represent upside to our estimates.
Crown Castles 5.2x leverage provides some flexibility, buyback potential
Crown Castle has a net leverage ratio of 5.2x versus 7.3x for SBA Communications,
but higher than American Towers 3.9x. The lower relative leverage allows the
company to potentially take on some debt for either a modest private tower portfolio
purchase or stock buyback. Large domestic tower portfolios are probably not very
attractive at current prices to Crown Castle, which leaves a stock buyback as a
potential alternative. In our view, the company has the ability to lever up by one turn
of adjusted EBITDA to buy back $1.2 billion in stock.
CCI could convert to REIT in 2017; valuation of $55/share assuming conversion
We anticipate Crown Castle opting to convert to a Real Estate Investment Trust
(REIT) structure to lower taxes as its NOL balance runs out, which we expect could
occur after 2016. Our valuation for the company is $55 assuming REIT conversion
versus $53 without conversion due to the minimal expected net tax impact.
Investment Risks
We estimate CCI trades at 14.4x on an EV/2011E EBITDA basis and 9.1x on an
a relative basis, the company trades below its peers on an EV/2011E EBITDA basis
(14.4x versus an average of 15.7x). Since 2002, the tower companies have gone from
trading at less than 10x forward EBITDA to ~15x-20x today.
incremental ~600 bps in dilution annually until 2015. Peak dilution is expected in
2016 at 26%, a substantial negative impact if CDMA augmentations do not partially
offset the revenue loss. We believe the industry could lose about 3% or more in site
revenue from Sprint Nextel once its network is fully optimized.
Further carrier consolidation would reduce growth
Crown Castle has leverage of 5.2x and most of its debt matures in the 2014 to 2020
time frame. The company has $2.25 billion coming due in 2020, representing 34% of
the companys total debt. If the credit markets were closed or refinanced debt bore
substantially higher interest rates, Crown Castle would be negatively affected.
226
Philip Cusick, CFA

(1-212) 622-1444

13 January 2011
Company Description
Crown Castle has the largest portfolio of wireless towers in the US with 22,265
towers and 529 towers in Puerto Rico. It also has 1,595 wireless towers in Australia.
In addition, the company manages 2,000 rooftop and tower sites.
Crowns primary strategy has been to acquire the towers of wireless carriers, and a
great portion of its towers are former carrier towers or towers built for carriers.
Crown Castle has acquired towers from several wireless carriers, including Bell
Atlantic, BellSouth, GTE, Powertel, and Vodafone Australia. In October 2006, the
company purchased Global Signal, which had 10,800 towers. Of Global Signals
towers, approximately 60% are under a master lease agreement with Sprint Nextel.
Total Revenue
20%
22%
18%
13%
73%
AT&T
Sprint Nextel
Verizon
T-Mobile
Total

At our price target, Crown Castle would trade at 24.6x 2011E RFCF and 17.0x
EV/EBITDA. Risks to our target price include lower-than-expected lease-up rates,
tower builds, and augmentations, higher interest rates, wireless carrier consolidation,
and disruptions in the companys Australian businesses.

55
7.4%
7.9%
8.4%
9.4%
10.4%
2.0%
59
52
47
38
31
2.5%
65
57
50
40
33
3.0%
72
63
$54.89
43
35
3.5%
81
69
60
47
37
4.0%
92
78
67
51
40
227
Philip Cusick, CFA

(1-212) 622-1444

13 January 2011
Table 94: Valuation Multiples Analysis

$42.60
EV ($b)
17.72

Current Price/RFCF per share (JPM) (net of SL**)
21.43
Price Target/RFCF per share (JPM) (net of SL**)
2009
17.5x
NM
22.7x
23.7x
24.0x
2010E
15.2x
NM
18.7x
19.3x
20.3x
2011E
14.0x
226.7x
16.6x
16.8x
19.1x
2012E
13.0x
113.6x
14.7x
14.7x
16.0x
2013E
12.3x
82.0x
13.3x
13.2x
14.0x
21.2x
NM
29.3x
30.5x
30.9x
18.4x
NM
24.1x
24.8x
26.1x
17.0x
292.1x
21.3x
21.6x
24.6x
15.8x
146.3x
18.9x
18.9x
20.6x
14.8x
105.7x
17.2x
17.0x
18.0x


We model Crown Castle growing its tower base by 0.7% in 2011 and 0.8% in 2012
due mostly to new builds. Acquisitions could drive upside to our estimates, but we
do not model acquisitions until they are announced and expected to close. We
estimate revenue growth of 7.1% in 2011 and 5.8% in 2012 to $2.0 billion and
$2.1 billion, respectively. Revenue per tower could reach $76,569 and $81,097 in
2011 and 2012, up 7.8% and 5.9%, respectively. Our model estimates adjusted
EBITDA of $1.3 billion in 2011, up 8.3% year-over-year, and $1.4 billion in 2012,
up 7.7% year-over-year. We estimate an adjusted EBITDA margin of 63.0% in 2011
and 64.1% in 2012.

We model EPS of $0.33 in 2011 and $0.61 in 2012. For 2011, we estimate capex of
$271 million, or about 14.8% of leasing revenue. Our 2012 capex estimate is flat at
$272 million, implying 13.9% capex to leasing revenue. Our recurring free cash flow
(net of straight-line impacts) estimate of $638 million in 2011 is up 6.1% year-overyear, and our 2012 estimate is 19.3% higher at $761 million. On a per-share basis,
we estimate RFCF of $2.23 in 2011, up 6.3%, and $2.66 in 2012, up 19.2%.
228
Philip Cusick, CFA

(1-212) 622-1444

13 January 2011

CAGR
2020E 11E-20E
25,835
1%
0.8%
$107,551
4%
3.0%
2,768
5%
3.8%
221
3%
3.8%
$2,989
5%
3.8%
1,988
5%
3.8%
66.5%
2007
23,846
0.7%
$54,191
6.7%
1,286
7.8%
99
8.2%
$1,385
7.8%
762
14.4%
55.0%
2008
24,079
1.0%
$58,562
8.1%
1,403
9.0%
124
25.2%
$1,527
10.2%
839
10.2%
55.0%
2009
23,957
-0.5%
$64,242
9.7%
1,543
10.0%
142
14.7%
$1,685
10.4%
1,013
20.7%
60.1%
2010E
23,875
-0.3%
$71,027
10.6%
1,698
10.0%
173
21.8%
$1,871
11.0%
1,165
15.0%
62.3%
2011E
24,035
0.7%
$76,569
7.8%
1,834
8.0%
169
-2.2%
$2,003
7.1%
1,262
8.3%
63.0%
2012E
24,235
0.8%
$81,097
5.9%
1,957
6.7%
162
-4.3%
$2,119
5.8%
1,359
7.7%
64.1%
2013E
24,435
0.8%
$85,123
5.0%
2,071
5.8%
166
2.2%
$2,237
5.6%
1,445
6.3%
64.6%
2014E
24,635
0.8%
$88,925
4.5%
2,182
5.3%
175
5.3%
$2,356
5.3%
1,531
6.0%
65.0%
2015E
24,835
0.8%
$92,368
3.9%
2,285
4.7%
183
4.7%
$2,467
4.7%
1,613
5.4%
65.4%
2016E
25,035
0.8%
$95,505
3.4%
2,381
4.2%
190
4.2%
$2,572
4.2%
1,692
4.9%
65.8%
2017E
25,235
0.8%
$98,384
3.0%
2,473
3.8%
198
3.8%
$2,670
3.8%
1,768
4.5%
66.2%
2018E
25,435
0.8%
$101,350
3.0%
2,567
3.8%
205
3.8%
$2,773
3.8%
1,847
4.5%
66.6%
2019E
25,635
0.8%
$104,405
3.0%
2,666
3.8%
213
3.8%
$2,879
3.8%
1,916
3.8%
66.6%

EBIT
540
222
94
316
540
300
23.3%
526
313
104
417
526
451
32.1%
530
484
76
560
530
174
11.2%
550
615
21
636
550
220
12.9%
611
651
(6)
645
611
271
14.8%
625
734
(10)
723
625
272
13.9%
649
796
(14)
782
649
273
13.2%
683
848
(16)
831
683
283
13.0%
716
897
(19)
878
716
292
12.8%
746
946
(22)
924
746
301
12.7%
774
993
(25)
968
774
310
12.5%
804
1,043
(27)
1,015
804
319
12.4%
835
1,081
(30)
1,051
835
328
12.3%
867
1,121
(32)
1,089
867
337
12.2%

y/y % change
y/y % change
556
373
-20.3%
373
-20.3%
493
435
16.8%
435
16.8%
916
518
19.1%
510
17.3%
967
634
22.3%
602
17.9%
984
727
14.8%
638
6.1%
1,077
830
14.2%
761
19.3%
1,159
923
11.1%
872
14.5%
1,231
1,015
10.0%
983
12.8%
1,301
1,104
8.8%
1,091
11.0%
1,368
1,190
7.8%
1,184
8.5%
1,433
1,274
7.1%
1,270
7.3%
1,501
1,361
6.9%
1,360
7.1%
1,558
1,439
5.7%
1,441
5.9%
1,619
1,520
5.6%
1,524
5.8%

$1.39
$1.33
$1.33
$1.61
$1.53
$1.53
$1.87
$1.80
$1.77
$2.28
$2.21
$2.10
$2.57
$2.54
$2.23
$2.91
$2.90
$2.66
$3.20
$3.22
$3.04
$3.49
$3.54
$3.43
$3.77
$3.85
$3.80
$4.04
$4.15
$4.12
$4.30
$4.43
$4.42
$4.57
$4.74
$4.73
$4.80
$5.01
$5.01
$5.04
$5.28
$5.30
8%
8%
10%

($0.87)
($0.24)
($0.35)
($0.04)
($0.47)
$0.02
($1.22)
($0.27)
$0.33
$0.19
$0.61
$0.38
$0.84
$0.52
$1.02
$0.64
$1.20
$0.76
$1.38
$0.88
$1.56
$0.99
$1.75
$1.11
$1.90
$1.21
$2.05
$1.31
23%
24%
$42.60
EV ($b)
17.72
2009
17.5x
NM
22.7x
23.7x
24.0x
2010E
15.2x
NM
18.7x
19.3x
20.3x
2011E
14.0x
226.7x
16.6x
16.8x
19.1x
2012E
13.0x
113.6x
14.7x
14.7x
16.0x
2013E
12.3x
82.0x
13.3x
13.2x
14.0x

21.43
21.2x
NM
29.3x
30.5x
30.9x
18.4x
NM
24.1x
24.8x
26.1x
17.0x
292.1x
21.3x
21.6x
24.6x
15.8x
146.3x
18.9x
18.9x
20.6x
14.8x
105.7x
17.2x
17.0x
18.0x
Ending sites
y/y % change
y/y % change
y/y % change
y/y % change
Revenue
y/y % change
Adjusted EBITDA
y/y % change

Less: preferred stock
PMV of equity
2011E
10,103
(125)
(1,828)
8,150
15,027
23,177
125
(316)
(5,531)
17,454
286.2
286.2

yes
DCF Value per Share

Price Target
Upside to target
6%
4%
2%
6%
9%
10%

PMV of operations
4%
6%
$60.99
10%
$54.89
28.8%
** Estimated straight line effects.
Yes = tax rate remains 5.0% (adjust below). WACC, taxes affected.
No = tax rate goes to 38% when NOLs end. WACC lower, taxes higher.
5%

55
7.4%
7.9%
8.4%
9.4%
10.4%
2.0%
59
52
47
38
31
2.5%
65
57
50
40
33
3.0%
72
63
$54.89
43
35
3.5%
81
69
60
47
37
4.0%
92
78
67
51
40
229
Philip Cusick, CFA

(1-212) 622-1444
230

13 January 2011
Philip Cusick, CFA

(1-212) 622-1444

13 January 2011
SBA Communications
We are initiating coverage of SBA Communications with an Overweight rating and a
year-end 2011 price target of $53. The company has been a superior operating and
financial performer and, as a result, we believe warrants a premium valuation to
American Tower and Crown Castle. SBA has not signed a master lease agreement
with a major carrier, and so should report faster growth in 2H11 and 2012 than its
peers as the carrier signs LTE amendments. SBA has started to expand
Overweight
SBA Communications (SBAC;SBAC US)
Company Data
Price ($)
Date Of Price
52-week Range ($)
Mkt Cap ($ mn)
Fiscal Year End
Shares O/S (mn)
Price Target ($)
Price Target End
Date
40.19
12 Jan 11
41.29 30.47
4,611.72
Dec
115
53.00
31 Dec 11
EPS ($)
Q1 (Mar)
Q2 (Jun)
Q3 (Sep)
Q4 (Dec)
FY
2009A
2010E
2011E
(0.15)
(0.25)
(0.43)
(0.37)
(1.20)
(1.03)
(0.32)A
(0.72)A
(0.30)A
(0.25)A
(1.60)A
(1.52)A
(0.21)
(0.20)
(0.20)
(0.19)
(0.80)
(0.63)

Fastest grower and most aggressive operator
We see SBA Communications as the most aggressive tower company with regard to
acquisitions, use of leverage and equity, and guidance for 2011. Managements
ability to outgrow its peers and continuously deliver strong results supports its
premium valuation, in our view. We believe managements lease-up ability and
tower acquisitions give it confidence in a guidance range, which it could very well
beat.
Strong revenue and adjusted EBITDA growth for 2011
We see SBA Communications revenue growth of 8.1% in 2011 and adjusted
EBITDA growth of 11.3% due to continued strength in lease-ups, augmentations,
and domestic tower portfolio growth. There could be upside to our 2011 estimate if
Sprint Nextel augments its CDMA sites for 800 MHz capability or if Clearwire
reaccelerates its network build. T-Mobile, Leap Wireless, and MetroPCS could have
an impact if any significant network investments are made. We expect continued
strength from Verizon and AT&T LTE augmentations, and note that unlike its peers
SBA will report AT&T augmentation growth as leases are signed.
231
Philip Cusick, CFA

(1-212) 622-1444

13 January 2011

We estimate solid RFCF growth of 18.3% to $261 million in 2011, from
$220 million in 2010. We model a 9% organic CAGR longer term. Our year-end
2011 price target of $53 per share implies a yield of 4.3% on our 2011 RFCF
estimate of $2.27 per share.
International tower expansion could bring greater returns
SBA Communications sees higher potential returns from international tower builds
or purchases, despite higher risk. SBA has started to expand its international
operations in more mature markets, but still with higher growth and better return
prospects than in the US. New builds are cheaper due to lower soft and construction
costs. In addition, many markets are still developing and need new tower builds.
Collocation in some markets is starting to be adopted by more carriers and some
carriers are selling tower portfolios to focus on core strategies, like most US carriers.
Our analysis currently indicates a substantially higher return potential internationally
than domestically (difference of 700-900bps).
Potential to benefit from scarcity value as smallest tower company
As the smallest tower company in a more consolidated industry, SBA could benefit
from scarcity value, supporting a premium valuation. Although the company is still
in its growth phase, over the long term other players may find SBAs assets
strategically attractive. Historically strategic assets have changed hands for as much
as 20-25x RFCF.
Investment Risks
We estimate SBAC trades at 16.9x on an EV/2011E EBITDA basis and 10.8x on an
a relative basis, the company trades at a premium to its peers on an EV/2011E
EBITDA basis (16.9x versus an average of 15.7x). Since 2002, the tower companies
have gone from trading at less than 10x forward EBITDA to ~15x-20x today.
incremental ~600 bps in dilution annually until 2015. Peak dilution is expected in
2016 at 26%, a substantial negative impact if CDMA augmentations do not partially
offset the revenue loss. We believe the industry could lose about 3% or more of site
revenue from Sprint Nextel once its network is fully optimized.
Further carrier consolidation would reduce growth
232
Philip Cusick, CFA

(1-212) 622-1444

13 January 2011

SBA Communications has leverage of 7.3x and most of its debt matures in the 2013
to 2019 time frame. The company has $550-680 million of debt maturing in each
year starting in 2013 and ending in 2015. If the credit markets were closed or
refinanced debt bore substantially higher interest rates, SBA Communications would
be negatively affected.
The company could become more aggressive in its international efforts in Panama
and Costa Rica. We view its Canada operations as relatively stable and comparable
to those in the US. While we do not model substantial further investment in these or
other countries, SBA Communications could make a major move, which could
negatively affect FCF through higher capex and thus reduce potential stock
buybacks. Building up a bigger presence in any emerging market, in which the
wireless industry is still developing and country-specific risks are very different from
those in the United States, could negatively impact the companys risk profile and
multiple.
Company Description
SBA Communications has about 8,700 US wireless towers and is the smallest of the
public independent tower companies. SBA has stayed away from the large carrier
tower deals. The company plans to build 200-240 towers in 2010 and it has stated a
target of growing its tower builds by about 10% per annum.
The company has traded some of the benefits of economies of scale for what we
consider to be the most capital-efficient tower addition strategy of the public
independent tower companies. SBAs tower addition strategy has combined building
towers, acquiring mom-and-pop towers, and executing smaller carrier transactions.
The company consistently has led the sector in terms of organic lease-up rates and
same-tower revenue growth. SBA was founded as a site acquisition firm and has
developed a strong reputation in network development services, having participated
in the development of more than 14,000 sites. In 1997, the company decided to
expand the business to include tower ownership.
AT&T
Sprint Nextel
Verizon
T-Mobile
Total
24%
22%
15%
14%
75%

At our price target, SBA Communications would trade at 22.6x 2011E RFCF (net of
233
Philip Cusick, CFA

(1-212) 622-1444

13 January 2011
straight-line impacts) and 20.4x EV/EBITDA. Risks to our target price include
lower-than-expected lease-up rates, tower builds, and augmentations, higher interest
rates, wireless carrier consolidation, and disruptions in the companys international
businesses.

53
2.5%
3.0%
3.5%
4.0%
4.5%
7.5%
58
64
73
84
98
8.0%
50
55
62
70
80
8.5%
44
48
$53.09
59
67
9.5%
34
37
40
44
49
10.5%
26
28
31
33
37
Table 98: Valuation Multiples Comparison

$39.66
EV ($b)
7.20

Current Price/EFCF per share (reported)
8.73
Price Target/EFCF per share (reported)
2009
21.3x
23.4x
23.6x
22.9x
2010E
18.7x
20.7x
20.8x
20.1x
2011E
16.8x
17.4x
17.5x
16.9x
2012E
15.3x
14.9x
14.9x
14.5x
2013E
14.1x
13.0x
13.0x
12.7x
25.8x
31.3x
31.7x
30.7x
22.7x
27.7x
27.8x
27.0x
20.4x
23.3x
23.4x
22.7x
18.6x
19.9x
20.0x
19.5x
17.1x
17.4x
17.4x
17.0x


We model SBA Communications growing its tower base by 2.5% in 2011 and 2.7%
in 2012 due mostly to new builds. Acquisitions could drive upside to our estimates,
but we do not model acquisitions until they are announced and expected to close. We
estimate revenue growth of 8.1% in 2011 and 7.7% in 2012 to $675 million and
$727 million, respectively. Revenue per tower could reach $65,641 and $68,923 in
2011 and 2012, up 5.0% in both years. Our model estimates adjusted EBITDA of
$429 million in 2011, up 11.3% year-over-year, and $471 million in 2012, up 9.9%
year-over-year. We estimate an adjusted EBITDA margin of 63.9% in 2011 and
65.1% in 2012.

We model negative EPS of $0.80 in 2011 and $0.61 in 2012. For 2011, we estimate
capex of $134 million, or about 22.8% of leasing revenue, and 2012 capex of
$144 million, or 22.8% of leasing revenue. Our recurring free cash flow estimate (net
of straight-line impacts) of $269 million in 2011 is up 18.0% year-over-year, and our
2012 estimate is 15.0% higher at $309 million. On a per-share basis, we estimate
RFCF of $2.34 in 2011, up 18.9%, and $2.73 in 2012, up 16.5%.
234
Philip Cusick, CFA

(1-212) 622-1444

13 January 2011

CAGR
11E-20E
2%
2007
6,220
12.1%
$54,680
-5.5%
322
25.6%
86
-9.0%
408
16.3%
211
31.6%
53.9%
2008
7,854
26.3%
$57,002
4.2%
396
22.9%
79
-8.1%
475
16.4%
270
27.7%
57.8%
2009
8,324
6.0%
$59,501
4.4%
477
20.6%
79
-1.1%
556
17.0%
339
25.4%
61.6%
2010E
8,830
6.1%
$62,515
5.1%
535
12.2%
89
13.2%
624
12.4%
385
13.7%
62.1%
2011E
9,050
2.5%
$65,641
5.0%
587
9.6%
88
-0.9%
675
8.1%
429
11.3%
63.9%
2012E
9,290
2.7%
$68,923
5.0%
632
7.7%
95
7.7%
727
7.7%
471
9.9%
65.1%
2013E
9,550
2.8%
$72,025
4.5%
679
7.3%
102
7.3%
780
7.3%
510
8.2%
65.7%
2014E
9,830
2.9%
$74,906
4.0%
726
7.0%
109
7.0%
835
7.0%
552
8.3%
66.4%
2015E
10,070
2.4%
$77,528
3.5%
771
6.3%
116
6.3%
887
6.3%
593
7.4%
67.1%
2016E
10,270
2.0%
$79,853
3.0%
812
5.3%
122
5.3%
934
5.3%
623
5.1%
67.0%
2017E
10,430
1.6%
$82,249
3.0%
851
4.8%
128
4.8%
979
4.8%
652
4.7%
66.9%
2018E
10,570
1.3%
$84,716
3.0%
890
4.5%
133
4.5%
1,023
4.5%
681
4.4%
66.8%
2019E
10,690
1.1%
$87,258
3.0%
928
4.3%
139
4.3%
1,067
4.3%
709
4.2%
66.8%
2020E
10,790
0.9%
$89,876
3.0%
965
4.1%
145
4.1%
1,110
4.1%
738
4.0%
66.7%

EBIT
Less: Taxes on EBIT @ -1.0%
169
42
(1)
41
169
48
14.8%
211
59
(1)
58
211
56
14.2%
259
80
(0)
80
259
67
14.0%
276
109
(1)
108
276
92
17.2%
290
138
(1)
137
290
134
22.8%
309
162
(1)
161
309
144
22.8%
328
182
(0)
181
328
154
22.7%
346
205
(0)
205
346
164
22.6%
364
229
(0)
229
364
150
19.4%
378
245
0
245
378
136
16.7%
392
261
0
261
392
121
14.3%
404
277
0
277
404
115
12.9%
416
293
1
294
416
109
11.7%
427
310
1
311
427
102
10.6%

y/y % change
y/y % change
163
99
49.2%
104
50.9%
213
151
51.5%
153
47.5%
271
197
30.4%
203
32.4%
292
220
12.2%
228
12.2%
294
261
18.3%
269
18.0%
326
301
15.4%
309
15.0%
355
338
12.2%
346
11.9%
388
378
11.8%
386
11.6%
443
416
10.3%
424
10.0%
487
445
6.8%
453
6.7%
531
472
6.1%
480
6.0%
566
498
5.6%
506
5.5%
601
524
5.3%
533
5.2%
636
550
4.9%
558
4.9%
EFCF per share - reported

$1.14
$0.95
$0.99
$1.48
$1.37
$1.39
$1.70
$1.68
$1.73
$1.92
$1.91
$1.97
$2.28
$2.27
$2.34
$2.66
$2.66
$2.73
$3.06
$3.05
$3.12
$3.50
$3.49
$3.56
$3.95
$3.94
$4.02
$4.32
$4.31
$4.39
$4.71
$4.69
$4.77
$5.10
$5.07
$5.16
$5.52
$5.48
$5.56
$5.96
$5.91
$5.99
11%
11%
11%
Reported EPS
Adjusted EPS
($0.74)
($0.74)
($0.43)
($0.59)
($1.20)
($1.13)
($1.60)
($1.20)
($0.80)
($0.49)
($0.61)
($0.37)
($0.44)
($0.27)
($0.23)
($0.14)
($0.01)
($0.00)
$0.15
$0.09
$0.32
$0.20
$0.50
$0.30
$0.69
$0.42
$0.90
$0.55
NM
NM
$39.66
EV ($b)
7.20
2009
21.3x
23.4x
23.6x
22.9x
2010E
18.7x
20.7x
20.8x
20.1x
2011E
16.8x
17.4x
17.5x
16.9x
2012E
15.3x
14.9x
14.9x
14.5x
2013E
14.1x
13.0x
13.0x
12.7x

8.73
25.8x
31.3x
31.7x
30.7x
22.7x
27.7x
27.8x
27.0x
20.4x
23.3x
23.4x
22.7x
18.6x
19.9x
20.0x
19.5x
17.1x
17.4x
17.4x
17.0x
Ending sites
y/y % change
y/y % change
y/y % change
y/y % change
Revenue
y/y % change
Adjusted EBITDA
y/y % change
2011E
3,649
0
(835)
2,813
6,597
9,410

PMV of equity
0
(2,657)
6,752

114.5
114.5
DCF Value per Share

Price Target
Upside to target
6%
6%
6%
6%
4%
9%
10%
-3%
9%
9%
8%

PMV of operations
4%
$58.99
10%
$53.09
33.9%
no
Yes = tax rate goes to 5.0% (adjust below), WACC, taxes affected.
No = tax rate = -1.0%, WACC lower, taxes higher.
5%

53
2.5%
3.0%
3.5%
4.0%
4.5%
7.5%
58
64
73
84
98
8.0%
50
55
62
70
80
8.5%
44
48
$53.09
59
67
9.5%
34
37
40
44
49
10.5%
26
28
31
33
37
235
Philip Cusick, CFA

(1-212) 622-1444
236

13 January 2011

13 January 2011
Company Models
Company Models
Philip Cusick, CFA

(1-212) 622-1444
237
Philip Cusick, CFA

(1-212) 622-1444
238

13 January 2011
Philip Cusick, CFA

(1-212) 622-1444

13 January 2011
AT&T Model
Table 100: AT&T Wireless Operating Statistics
$ millions, except per subscriber and per share figures
- Disconnects
Ending subscribers
% change, y-t-y
1Q09
77,009
4,856
(3,633)
2Q09
78,232
4,872
(3,504)
3Q09
79,600
5,429
(3,433)
78,232
10%
79,600
9%
81,596
9%
4Q09
81,596
6,212
(3,551)
863
85,120
11%
2009
77,009
21,369
(14,121)
863
85,120
11%
1Q10
85,120
5,213
(3,356)
86,987
11%
2Q10
86,987
4,989
(3,427)
1,581
90,130
13%
3Q10
90,130
6,252
(3,621)
4Q10E
92,761
6,243
(3,668)
92,761
14%
95,336
12%
2010E
85,120
22,697
(14,072)
1,581
95,336
12%
1Q11E
95,336
5,048
(3,828)
2Q11E
96,556
4,428
(3,778)
3Q11E
97,206
5,192
(3,962)
4Q11E
98,436
5,925
(4,025)
96,556
11%
97,206
8%
98,436
6%
100,336
5%
2011E
95,336
20,593
(15,593)
0
100,336
5%
Churn rate, monthly
1.6%
1.5%
1.4%
1.4%
1.5%
1.3%
1.3%
1.3%
1.3%
1.3%
1.3%
1.3%
1.4%
1.4%
1.3%

% change, y-t-y
1,223
-6%
1,368
3%
1,996
1%
2,661
27%
7,248
8%
1,857
52%
1,562
14%
2,631
32%
2,575
-3%
8,635
19%
1,220
-34%
650
-58%
1,230
-53%
1,900
-26%
5,000
-42%
77,621
306,000
78,916
306,000
80,598
306,000
83,358
306,000
80,123
306,000
86,054
307,000
88,559
307,000
91,446
307,000
94,049
307,614
90,027
307,154
95,946
308,537
96,881
309,462
97,821
310,236
99,386
310,857
97,509
309,773
25.6%
1.60%
26.0%
1.79%
26.7%
2.61%
27.8%
3.48%
27.8%
2.37%
28.3%
2.42%
29.4%
2.04%
30.2%
3.43%
31.0%
3.35%
31.0%
2.81%
31.3%
1.58%
31.4%
0.84%
31.7%
1.59%
32.3%
2.44%
32.3%
1.61%
Calculated ARPU
% change, y-t-y
Reported ARPU
% change, y-t-y
$50.01
0.0%
$50.02
0.1%
$50.52
0.3%
$50.60
0.5%
$51.17
1.0%
$51.10
1.0%
58.86
$50.33
-0.5%
$50.60
-0.3%
$50.51
0.2%
$50.51
0.2%
$49.78
-0.5%
$49.81
-0.4%
$49.63
-1.8%
$50.02
-1.1%
$48.71
-3.2%
$48.71
-3.7%
$49.48
-2.0%
$49.48
-2.0%
$48.28
-3.0%
$48.28
-3.1%
$48.39
-2.5%
$48.39
-3.3%
$48.60
-2.5%
$48.60
-2.6%
$47.50
-2.5%
$47.50
-2.5%
$48.19
-2.6%
$48.19
-2.6%
Data
Annual data revenue
Average revenue per user
Data as % of ARPU
3,175
$13.64
27.3%
3,444
$14.57
28.8%
3,644
$15.05
29.4%
3,871
$15.56
30.9%
14,134
$14.70
29.1%
4,122
$15.98
32.1%
4,380
$16.61
33.5%
$49.85
-2.6%
$49.91
-2.3%
59.93
1.8%
4,754
$17.35
34.8%
4,989
$17.68
36.3%
18,245
$16.89
34.1%
5,253
$18.25
37.8%
5,457
$18.78
38.8%
5,677
$19.34
39.8%
5,778
$19.38
40.8%
22,165
$18.94
39.3%
Postpaid
- Disconnects
Ending subscribers
% change, y-t-y
% of Total subs
59,653
2,970
(2,073)
0
60,535
9%
77.4%
60,535
3,089
(1,961)
0
61,647
9%
77.4%
61,647
3,464
(2,131)
0
62,961
8%
77.2%
62,961
3,042
(2,201)
825
64,627
8%
75.9%
59,653
12,565
(8,366)
825
64,627
8%
75.9%
64,627
2,594
(2,082)
0
65,108
8%
74.8%
65,108
2,497
(2,001)
1,366
66,970
9%
74.3%
66,970
3,048
(2,303)
0
67,688
8%
73.0%
67,688
2,869
(2,344)
0
68,213
6%
71.6%
64,627
11,008
(8,730)
1,366
68,213
6%
71.6%
68,213
2,558
(2,658)
0
68,113
5%
70.5%
68,113
2,554
(2,854)
0
67,813
1%
69.8%
67,813
2,747
(2,547)
0
68,013
0%
69.1%
68,013
2,754
(2,454)
0
68,313
0%
68.1%
68,213
10,613
(10,513)
0
68,313
0%
68.1%
Average subs
Average subscribers
Pops
Ending penetration
Annual penetration gain
60,094
61,091
62,304
63,794
62,140
64,868
66,039
67,329
67,951
66,420
68,163
67,963
67,913
68,163
68,263
Churn rate, monthly
1.15%
1.07%
1.14%
1.15%
1.12%
1.07%
1.01%
1.14%
1.15%
1.10%
1.30%
1.40%
1.25%
1.20%
1.28%

% change, y-t-y
% of total net adds
897
21%
73.3%
1,128
30%
82.5%
1,333
-19%
66.8%
841
-34%
31.6%
4,199
-7%
57.9%
512
-43%
27.6%
496
-56%
31.8%
745
-44%
28.3%
525
-38%
20.4%
2,278
-46%
26.4%
(100)
NM
(300)
NM
200
-73%
16.3%
300
-43%
15.8%
100
-96%
2.0%
ARPU
% change, y-t-y
Data ARPU
% change, y-t-y
Voice ARPU
% change, y-t-y
$59.55
2.2%
$16.48
26.8%
$43.98
-4.1%
$60.56
2.4%
$17.72
26.0%
$43.77
-4.3%
$61.61
3.9%
$18.43
25.4%
$44.20
-2.8%
$61.53
2.6%
$19.16
17.5%
$43.31
-2.4%
$60.60
2.5%
$62.63
3.4%
$21.07
18.9%
$42.51
-2.9%
$62.84
2.0%
$22.02
19.5%
$41.74
-5.6%
$62.61
1.8%
$23.00
20.0%
$40.49
-6.5%
$62.52
3.2%
$63.00
1.8%
$63.85
1.9%
$64.77
3.1%
$63.92
2.1%
$64.04
2.4%
NM
-100.0%
-100.0%
-100.0%
-100.0%
NM
NM
$61.89
3.9%
$20.13
22.1%
$42.73
-2.8%
NM
-100.0%
-100.0%
-100.0%
-100.0%
NM
Prepaid
- Disconnects
Ending subscribers
% change, y-t-y
% of Total subs
6,116
1,232
(1,387)
0
5,961
-2%
7.6%
5,970
950
(1,362)
0
5,558
-9%
7.0%
5,562
904
(1,080)
0
5,386
-12%
6.6%
5,386
1,079
(1,137)
22
5,350
-12%
6.3%
6,106
4,165
(4,966)
22
5,350
-12%
6.3%
5,353
1,076
(1,052)
0
5,377
-10%
6.2%
5,377
1,489
(1,189)
204
5,881
6%
6.5%
5,888
1,417
(1,096)
0
6,209
15%
6.7%
6,209
1,546
(1,096)
0
6,659
24%
7.0%
5,350
5,528
(4,433)
204
6,659
24%
7.0%
6,659
1,344
(1,044)
0
6,959
29%
7.2%
6,959
943
(793)
0
7,109
21%
7.3%
7,109
1,429
(1,279)
0
7,259
17%
7.4%
7,259
1,728
(1,428)
0
7,559
14%
7.5%
6,659
5,444
(4,544)
0
7,559
14%
7.5%
Average subs
6,039
5,764
5,474
5,368
5,728
5,365
5,629
6,049
6,434
6,005
6,809
7,034
7,184
7,409
7,109
7.7%
7.9%
6.6%
7.1%
7.2%
6.5%
7.0%
6.0%
5.7%
6.2%
5.1%
3.8%
5.9%
6.4%
5.3%

% change, y-t-y
% of total net adds
(155)
NM
-12.7%
(412)
NM
-30.1%
(176)
-389%
-8.8%
(58)
-152%
-2.2%
(801)
NM
-11.1%
24
NM
1.3%
300
NM
19.2%
321
NM
12.2%
450
NM
17.5%
1,095
NM
12.7%
300
1150%
24.6%
150
-50%
23.1%
150
-53%
12.2%
300
-33%
15.8%
900
-18%
18.0%
ARPU
% change, y-t-y
$27.50
-2.3%
$27.50
3.3%
$27.50
-5.2%
$27.50
-5.2%
$27.50
-2.5%
$27.50
0.0%
$27.50
0.0%
$27.50
0.0%
$27.50
0.0%
$27.50
0.0%
$27.00
-1.8%
$27.00
-1.8%
$27.00
-1.8%
$27.00
-1.8%
$27.00
-1.8%
Reseller
- Disconnects
Ending subscribers
% change, y-t-y
% of Total subs
8,589
468
(131)
0
8,931
15%
11.4%
8,931
485
(137)
0
9,286
18%
11.7%
9,286
778
(144)
0
9,934
24%
12.2%
9,934
637
(153)
21
10,439
22%
12.3%
8,589
2,368
(565)
21
10,439
22%
12.3%
10,439
412
(143)
0
10,717
20%
12.3%
10,717
14
(144)
10
10,597
14%
11.8%
10,597
519
(113)
0
11,021
11%
11.9%
11,021
401
(101)
0
11,321
8%
11.9%
10,439
1,346
(501)
10
11,321
8%
11.9%
11,321
369
(69)
0
11,621
8%
12.0%
11,621
170
(70)
0
11,721
11%
12.1%
11,721
271
(71)
0
11,921
8%
12.1%
11,921
372
(72)
0
12,221
8%
12.2%
11,321
1,182
(282)
0
12,221
8%
12.2%
Average subs
8,760
9,109
9,610
10,187
9,514
10,578
10,657
10,809
11,171
10,880
11,471
11,671
11,821
12,071
11,771
0.5%
0.5%
0.5%
0.5%
0.5%
0.5%
0.5%
0.4%
0.3%
0.4%
0.2%
0.2%
0.2%
0.2%
0.2%

% change, y-t-y
% of total net adds
337
20%
27.6%
348
219%
25.4%
634
373%
31.8%
484
-16%
18.2%
1,803
64%
24.9%
269
-20%
14.5% NM
(130)
NM
406
-36%
15.4%
300
-38%
11.7%
845
-53%
9.8%
300
12%
24.6%
100
NM
15.4%
200
-51%
16.3%
300
0%
15.8%
900
7%
18.0%
ARPU
% change, y-t-y
Connected Devices
- Disconnects
Ending subscribers
% change, y-t-y
% of Total subs
$4.00
-14.0%
$3.90
-13.3%
$3.80
-32.2%
$3.70
-32.8%
$3.85
-24.0%
$4.00
0.0%
$3.90
0.0%
$3.80
0.0%
$3.80
2.7%
$3.88
0.6%
$3.80
-5.0%
$3.70
-5.1%
$3.60
-5.3%
$3.60
-5.3%
$3.68
-5.2%
2,661
185
(41)
0
2,805
55%
3.6%
2,805
348
(44)
0
3,109
44%
3.9%
3,109
283
(48)
0
3,315
38%
4.1%
3,315
1,454
(60)
(6)
4,704
77%
5.5%
2,661
2,271
(194)
(6)
4,704
77%
5.5%
4,704
1,131
(79)
0
5,785
106%
6.7%
5,785
990
(94)
1
6,682
115%
7.4%
6,682
1,268
(109)
0
7,843
137%
8.5%
7,843
1,427
(127)
0
9,143
94%
9.6%
4,704
4,816
(409)
1
9,143
94%
9.6%
9,143
777
(57)
0
9,863
70%
10.2%
9,863
761
(61)
0
10,563
58%
10.9%
10,563
745
(65)
0
11,243
43%
11.4%
11,243
1,070
(70)
0
12,243
34%
12.2%
9,143
3,354
(254)
0
12,243
34%
12.2%
2,733
2,957
3,212
4,010
3,683
5,245
6,234
7,263
8,493
6,924
9,503
10,213
10,903
11,743
10,693
0.5%
0.5%
0.5%
0.5%
0.4%
0.5%
0.5%
0.5%
0.5%
0.5%
0.2%
0.2%
0.2%
0.2%
0.2%

% change, y-t-y
% of total net adds
144
-8%
11.8%
304
-12%
22.2%
235
-2%
11.8%
1,394
430%
52.4%
2,077
107%
28.7%
1,052
631%
56.7%
896
195%
57.4%
1,159
393%
44.1%
1,300
-7%
50.5%
4,407
112%
51.0%
720
-32%
59.0%
700
-22%
107.7%
680
-41%
55.3%
1,000
-23%
52.6%
3,100
-30%
62.0%
ARPU
% change, y-t-y
$3.00
0.0%
$3.00
0.0%
$3.00
0.0%
$3.00
0.0%
$3.00
0.0%
$3.00
0.0%
$3.10
3.3%
$3.10
3.3%
$3.10
3.3%
$3.08
2.5%
$3.20
6.7%
$3.30
6.5%
$3.30
6.5%
$3.30
6.5%
$3.28
6.5%
Churn rate, monthly
Churn rate, monthly
Average subs
Churn rate, monthly
NM
NM
NM
239
Philip Cusick, CFA

(1-212) 622-1444

13 January 2011
Table 101: AT&T Wireless Cost Metrics and Income Statement

1Q09
2Q09
3Q09
4Q09
2009
1Q10
2Q10
3Q10
4Q10E
2010E
1Q11E
2Q11E
3Q11E
4Q11E
2011E
691
703
687
670
660
661
662
662
662
662
662
4,202
4,567
8,769
0%
-14%
4,039
5,193
9,232
5%
5%
4,368
5,607
9,976
-7%
8%
4,121
5,614
9,735
-4%
-2%
3,671
4,735
8,406
-4%
-14%
3,986
5,151
9,137
-1%
9%
4,465
6,800
11,265
13%
23%
4,415
5,776
10,191
5%
-10%
661
108.0%
16,536
22,462
38,999
3%
3%
662
Gross adds - direct

Postpaid upgrades
Total retail unit sales
% change, y-t-y
% change, sequential
688
103.3%
16,730
20,981
37,711
-2%
-2%
3,902
5,112
9,015
7%
-12%
3,497
5,437
8,934
-2%
-1%
4,175
6,452
10,627
-6%
19%
4,482
5,794
10,276
1%
-3%
662
108.4%
16,057
22,795
38,852
0%
0%
Upgrade formula
% of base upgraded
% base w new handsets
1.09x
7.6%
11.3%
1.29x
8.5%
11.7%
1.28x
9.0%
12.4%
1.36x
8.8%
11.7%
1.25x
33.8%
47.1%
1.29x
7.3%
9.8%
1.29x
7.8%
10.3%
1.52x
10.1%
12.3%
1.31x
8.5%
10.8%
1.36x
33.8%
43.3%
1.31x
7.5%
9.4%
1.55x
8.0%
9.2%
1.55x
9.5%
10.9%
1.29x
8.5%
10.3%
1.42x
33.4%
39.8%
Eq. cost / postpaid unit

Eq. rev. / postpaid unit
Handset subsidy in postpaid
$349
$158
$191
$334
$152
$182
$330
$138
$192
$315
$142
$173
$331
$147
$184
$321
$143
$178
$335
$138
$196
$412
$153
$259
$365
$130
$236
$362
$141
$221
$364
$129
$235
$347
$123
$224
$358
$127
$231
$361
$132
$228
$357
$128
$230
20.5%
28.3%
$10.27
20.9%
33.9%
$10.58
17.9%
38.3%
$9.16
16.6%
29.4%
$8.34
18.9%
32.6%
$9.56
18.5%
-0.8%
$9.22
19.7%
7.3%
$9.76
16.7%
5.2%
$8.32
20.0%
4.0%
$9.74
18.7%
16.6%
$9.26
19.5%
31.5%
$9.41
19.0%
8.9%
$9.19
19.0%
72.5%
$9.23
19.0%
-14.0%
$9.02
19.1%
26.5%
$9.22
Eq. rev./gross add (handset price)

Eq. cost/gross add (handset cost)
Handset subsidy
Cost of eq. as % of eq. revenue
$136
$300
$164
221%
$137
$300
$163
219%
$126
$300
$174
238%
$127
$280
$153
221%
$131
$295
$164
225%
$125
$280
$155
225%
$116
$280
$164
242%
$134
$360
$226
269%
$110
$310
$200
282%
$121
$311
$190
256%
$110
$310
$200
282%
$110
$310
$200
282%
$110
$310
$200
282%
$110
$300
$190
273%
$110
$307
$197
279%
Customer acquisition cost (per gross add)

Marketing/gross add
Marketing as % of service revenue
$420
$256
9%
$440
$277
9%
$420
$246
8%
$440
$287
12%
$431
$267
9%
$388
$233
8%
$380
$216
8%
$450
$224
8%
$400
$200
8%
$407
$217
8%
$410
$210
7%
$410
$210
6%
$400
$200
6%
$400
$210
8%
$405
$207
7%
G&A cost/subscriber/month
G&A as % of service revenue
$8.43
15%
$9.26
16%
$10.77
19%
$10.44
18%
$9.76
17%
$10.30
18%
$10.00
18%
$10.00
18%
$9.65
17%
$9.99
18%
$9.60
18%
$9.60
17%
$9.60
17%
$9.60
18%
$9.60
18%
CCPU (Cash cost per user)

% change, y-t-y
$18.70
0%
$19.84
1%
$19.93
4%
$18.78
1%
$19.32
8%
$19.52
4%
$19.76
0%
$18.32
-8%
$19.39
3%
$19.25
0%
$19.01
-3%
$18.79
-5%
$18.83
3%
$18.62
-4%
$18.82
-2%
879
9%
7.5%
1,340
-13%
11.2%
1,495
-9%
12.1%
2,193
17%
17.4%
5,907
1%
12.2%
1,218
39%
9.5%
2,174
62%
16.5%
2,518
68%
18.4%
2,611
19%
19.0%
8,521
44%
16%
2,154
77%
15.5%
2,180
0%
15.5%
2,211
-12%
15.5%
2,195
-16%
15.5%
8,740
3%
16%
1Q09
11,646
1,192
12,838
9%
2Q09
11,960
1,262
13,222
10%
3Q09
12,372
1,255
13,627
8%
4Q09
12,585
1,232
13,817
8%
2009
48,563
4,941
53,504
9%
1Q10
12,850
1,047
13,897
8%
2Q10
13,186
1,056
14,242
8%
3Q10
13,675
1,505
15,180
11%
4Q10E
13,745
1,121
14,866
8%
2010E
53,456
4,729
58,185
9%
1Q11E
13,897
992
14,889
7%
2Q11E
14,065
983
15,047
6%
3Q11E
14,263
1,169
15,432
2%
4Q11E
14,162
1,130
15,292
3%
2011E
56,386
4,274
60,660
4%
Cost of service
General & administrative
Pre-marketing cash flow
Pre-marketing cash flow margin
% change, y-t-y
2,390
1,742
7,514
64.5%
10%
2,505
1,940
7,515
62.8%
9%
2,215
2,294
7,863
63.6%
9%
2,085
2,293
8,207
65.2%
9%
9,195
8,268
31,099
64.0%
9%
2,381
2,332
8,137
63.3%
8%
2,594
2,337
8,255
62.6%
10%
2,284
2,419
8,972
65.6%
14%
2,749
2,399
8,596
62.5%
5%
10,007
9,488
33,961
63.5%
9%
2,710
2,433
8,755
63.0%
8%
2,672
2,454
8,938
63.6%
8%
2,710
2,477
9,076
63.6%
1%
2,691
2,515
8,956
63.2%
4%
10,783
9,878
35,725
63.4%
5%
Cost of equipment
Marketing costs
Total operating expenses
EBITDA margin
% change, y-t-y
2,631
1,123
7,886
4,952
42.5%
7%
2,769
1,214
8,428
4,794
40.1%
2%
2,993
1,143
8,645
4,982
40.3%
26%
2,726
1,598
8,701
5,116
40.7%
18%
11,119
5,078
33,660
19,844
40.9%
13%
2,354
1,117
8,183
5,714
44.5%
15%
2,558
1,073
8,562
5,680
43.1%
18%
4,055
1,282
10,040
5,140
37.6%
3%
3,159
1,168
9,476
5,390
39.2%
5%
12,127
4,639
36,261
21,924
41.0%
10%
2,795
983
8,920
5,969
42.9%
4%
2,770
894
8,790
6,257
44.5%
10%
3,294
984
9,465
5,966
41.8%
16%
3,083
1,166
9,454
5,838
41.2%
8%
11,941
4,027
36,630
24,030
42.6%
10%

Operating income
Operating income margin
% change, y-t-y
1,499
3,453
26.9%
-6%
1,504
3,290
24.9%
-11%
1,490
3,492
25.6%
17%
1,550
3,566
25.8%
8%
6,043
13,801
25.8%
1%
1,558
4,156
29.9%
20%
1,578
4,102
28.8%
25%
1,640
3,500
23.1%
0%
1,640
3,750
25.2%
5%
6,416
15,508
26.7%
12%
1,640
4,329
29.1%
4%
1,640
4,617
30.7%
13%
1,640
4,326
28.0%
24%
1,640
4,198
27.5%
12%
6,560
17,470
28.8%
13%
Equity in net income(loss) of affiliates

Segment income
3,453
3,290
3,492
9
3,575
9
13,810
13
4,169
7
4,109
(6)
3,494
(6)
3,744
8
15,516
(6)
4,323
(6)
4,611
(6)
4,320
(6)
4,192
(24)
17,446
Revenue and minutes of use

Total minutes of use
Operating expenses
Cost of service as % of service revenue
Incremental cost of service %
Cost of service/subscriber/month
Cost of service/minute of use
Capital Expenditures (wireless)

% change, y-t-y
Service revenue
Equipment revenue
Total revenue
% change, y-t-y
240
Philip Cusick, CFA

(1-212) 622-1444

13 January 2011
Table 102: AT&T Wireline Operating Statistics

1Q09
29,969
-12.3%
-2.8%
(869)
26,780
-11.7%
-2.5%
(699)
394
9750%
76%
170
2Q09
29,048
-12.1%
-3.1%
(921)
26,008
-11.4%
-2.9%
(772)
570
1800%
45%
176
3Q09
28,098
-11.8%
-3.3%
(950)
25,205
-11.0%
-3.1%
(803)
735
607%
29%
165
4Q09
27,332
-11.4%
-2.7%
(766)
24,562
-10.6%
-2.6%
(643)
954
326%
30%
219
2009
27,332
-11.4%
2Q10
25,780
-11.3%
-3.2%
(853)
23,264
-10.6%
-3.0%
(730)
1,328
133%
16%
183
3Q10
24,908
-11.4%
-3.4%
(872)
22,509
-10.7%
-3.2%
(755)
1,494
103%
13%
166
4Q10E
24,258
-11.2%
-2.6%
(650)
21,970
-10.6%
-2.4%
(539)
1,638
72%
10%
144
2010E
24,258
-11.2%
(3,506)
24,562
-10.6%
-10.6%
(2,917)
954
326%
326%
730
1Q10
26,633
-11.1%
-2.6%
(699)
23,993
-10.4%
-2.3%
(569)
1,145
191%
20%
191
(3,074)
21,970
-10.6%
-10.6%
(2,592)
1,638
72%
72%
684
1Q11E
23,758
-10.8%
-2.1%
(500)
21,545
-10.2%
-1.9%
(425)
1,785
56%
9%
147
2Q11E
23,258
-9.8%
-2.1%
(500)
21,120
-9.2%
-2.0%
(425)
1,932
45%
8%
147
3Q11E
22,758
-8.6%
-2.1%
(500)
20,695
-8.1%
-2.0%
(425)
2,079
39%
8%
147
4Q11E
22,271
-8.2%
-2.1%
(488)
20,283
-7.7%
-2.0%
(413)
2,226
36%
7%
147
(1,988)
20,283
-7.7%
-7.7%
(1,688)
2,226
36%
36%
588
3,189
-18%
-5%
(170)
3,040
-18%
-5%
(149)
2,893
-18%
-5%
(147)
2,770
-18%
-4%
(123)
2,770
-18%
-18%
(589)
2,640
-17%
-5%
(130)
2,517
-17%
-5%
(124)
2,399
-17%
-5%
(117)
2,288
-17%
-5%
(111)
2,288
-17%
-17%
(482)
2,213
-16%
-3%
(75)
2,138
-15%
-3%
(75)
2,063
-14%
-4%
(75)
1,988
-13%
-4%
(75)
1,988
-13%
-13%
(300)
13,344
6.4%
2.9%
3,303
13,454
6.9%
0.8%
110
13,550
6.4%
0.7%
96
13,717
5.7%
1.2%
151
13,717
5.7%
5.7%
3,660
13,989
4.8%
2.0%
255
13,925
3.5%
-0.5%
(92)
14,092
4.0%
1.2%
148
14,217
3.6%
0.9%
125
14,217
3.6%
3.6%
436
14,367
2.7%
1.1%
150
14,467
3.9%
0.7%
100
14,542
3.2%
0.5%
75
14,667
3.2%
0.9%
125
14,667
3.2%
3.2%
450
Satellite connections
% change, y-t-y
% change, q-t-q
Net change
2,205
-1%
1%
15
2,210
-1%
0%
5
2,195
1%
-1%
(15)
2,174
-1%
-1%
5
2,174
-1%
-1%
10
2,127
-4%
-2%
(47)
2,053
-7%
-3%
(74)
1,994
-9%
-3%
(59)
1,935
-11%
-3%
(59)
1,935
-11%
-11%
(239)
1,888
-11%
-2%
(47)
1,841
-10%
-3%
(47)
1,793
-10%
-3%
(47)
1,746
-10%
-3%
(47)
1,746
-10%
-10%
(189)
U-verse video connections

% change, y-t-y
% change, q-t-q
Net change
Average U-verse subs
1,329
251%
27%
284
1,187
1,577
187%
19%
248
248
1,816
133%
15%
239
239
2,064
98%
14%
250
1,940
2,064
98%
98%
1,019
1,555
2,295
73%
11%
231
2,180
2,504
59%
9%
209
2,400
2,739
51%
9%
235
2,622
2,944
43%
7%
205
2,842
2,944
43%
43%
880
2,504
3,154
37%
7%
210
3,049
3,364
34%
7%
210
3,259
3,574
30%
6%
210
3,469
3,784
29%
6%
210
3,679
3,784
29%
29%
840
3,364
U-verse Homes Passed (TV)

U-verse TV Penetration
18,350
1,350
7.2%
19,700
1,350
8.0%
21,050
1,350
8.6%
22,400
1,350
9.2%
22,400
5,400
9.2%
23,750
1,350
9.7%
25,100
1,350
10.0%
26,000
900
10.5%
27,350
1,350
10.8%
27,350
4,950
10.8%
28,150
800
11.2%
28,950
800
11.6%
29,750
800
12.0%
30,550
800
12.4%
30,550
3,200
12.4%
Total consumer revenue connections

% change, y-t-y
% change, q-t-q
Net change
46,847
-5%
0%
(198)
46,289
-4%
-1%
(558)
45,659
-4%
-1%
(630)
45,287
-4%
-1%
(372)
45,287
-4%
-4%
(1,758)
45,044
-4%
-1%
(243)
44,262
-4%
-2%
(782)
43,733
-4%
-1%
(529)
43,354
-4%
-1%
(379)
43,354
-4%
-4%
(1,933)
43,167
-4%
0%
(187)
42,930
-3%
-1%
(237)
42,667
-2%
-1%
(262)
42,468
-2%
0%
(200)
42,468
-2%
-2%
(886)
Switched access lines

Total homes passed
% change, y-t-y
52,000
0.0%
52,000
0.0%
52,000
0.0%
52,000
0.0%
52,000
0.0%
52,000
0.0%
52,000
0.0%
52,000
0.0%
52,000
0.0%
52,000
0.0%
52,520
1.0%
52,520
1.0%
52,520
1.0%
52,520
1.0%
52,520
1.0%
Retail consumer primary

% change, y-t-y
% change, q-t-q
Net change
26,386
-13%
NM
(869)
25,438
-13%
-4%
(948)
24,470
-13%
-4%
(968)
23,608
-13%
-4%
(862)
23,608
-13%
-13%
(3,647)
22,848
-13%
-3%
(760)
21,936
-14%
-4%
(913)
21,015
-14%
-4%
(921)
20,333
-14%
-3%
(682)
20,333
-14%
-14%
(3,275)
19,761
-14%
-3%
(572)
19,189
-13%
-3%
(572)
18,617
-11%
-3%
(572)
18,057
-11%
-3%
(560)
18,057
-11%
-11%
(2,276)
3,194
-17%
-5%
(169)
3,025
-18%
-5%
(169)
2,856
-19%
-6%
(169)
2,687
-20%
-6%
(169)
2,687
-20%
-20%
(676)
2,518
-21%
-6%
(169)
2,349
-22%
-7%
(169)
2,180
-24%
-7%
(169)
2,011
-25%
-8%
(169)
2,011
-25%
-25%
(676)
1,867
-26%
-7%
(144)
1,724
-27%
-8%
(144)
1,580
-28%
-8%
(144)
1,436
-29%
-9%
(144)
1,436
-29%
-29%
(575)
Retail business
% change, y-t-y
% change, q-t-q
Net change
21,364
-6%
-2%
(462)
20,864
-7%
-2%
(500)
20,464
-8%
-2%
(400)
20,106
-8%
-2%
(358)
20,106
-8%
-8%
(1,720)
19,854
-7%
-1%
(252)
19,465
-7%
-2%
(389)
19,089
-7%
-2%
(376)
18,763
-7%
-2%
(326)
18,763
-7%
-7%
(1,343)
18,462
-7%
-2%
(301)
18,186
-7%
-1%
(276)
17,935
-6%
-1%
(251)
17,835
-5%
-1%
(100)
17,835
-5%
-5%
(928)
Total retail access lines

% change, y-t-y
% change, q-t-q
Net change
50,944
-10%
-3%
(1,500)
49,327
-11%
-3%
(1,617)
47,790
-11%
-3%
(1,537)
46,401
-12%
-3%
(1,389)
46,401
-12%
-12%
(6,043)
45,220
-11.2%
-3%
(1,181)
43,750
-11%
-3%
(1,471)
42,284
-12%
-3%
(1,466)
41,107
-11%
-3%
(1,177)
41,107
-11%
-11%
(5,294)
40,090
-11%
-2%
(1,017)
39,098
-11%
-2%
(992)
38,132
-10%
-2%
(967)
37,329
-9%
-2%
(803)
37,329
-9%
-9%
(3,778)
Wholesale access lines

% change, y-t-y
% change, q-t-q
Net change
Total switched access lines
% change, y-t-y
Net change
% change, y-t-y
3,053
-11%
-4%
(117)
53,992
-11%
(1,622)
2,961
-9%
-3%
(92)
52,379
-11%
(1,613)
2,936
-8%
-1%
(25)
50,833
-11%
(1,546)
2,908
-8%
-1%
(28)
49,392
-11%
(1,441)
2,908
-8%
-8%
(262)
49,309
-11%
(6,305)
2,741
-10%
-6%
(167)
48,083
-11%
(1,309)
48,083
2,641
-11%
-4%
(100)
46,558
-11%
(1,525)
2,605
-11%
-1%
(36)
45,108
-11%
(1,450)
2,515
-14%
-3%
(90)
43,622
-12%
(1,486)
2,515
-14%
-14%
(393)
43,622
-12%
(5,687)
2,448
-11%
-3%
(68)
42,538
-12%
(1,084)
2,380
-10%
-3%
(68)
41,478
-11%
(1,059)
2,313
-11%
-3%
(68)
40,444
-10%
(1,034)
2,245
-11%
-3%
(68)
39,574
-9%
(871)
2,245
-11%
-11%
(270)
39,574
-9%
(4,048)
Total wired broadband connections

Penetration of homes passed
% change, y-t-y
% change, q-t-q
Net change
15,436
30%
5%
2%
359
15,548
30%
6%
1%
112
15,638
30%
5%
1%
90
15,789
30%
5%
1%
151
15,789
30%
5%
5%
712
16,044
31%
4%
2%
255
15,952
31%
3%
-1%
(92)
16,100
31%
3%
1%
148
16,225
31%
3%
1%
125
16,225
31%
3%
3%
436
16,375
31%
2%
1%
150
16,475
31%
3%
1%
100
16,550
32%
3%
0%
75
16,675
32%
3%
1%
125
16,675
32%
3%
3%
450
14,220
-1%
1%
101
14,169
12,697
1,472
54%
14,107
-1%
-1%
(113)
14,163
14,163
0
55%
13,980
-1%
-1%
(127)
14,043
14,043
0
57%
13,905
-2%
-1%
(74)
13,943
13,943
0
59%
13,905
-2%
-2%
(213)
14,012
12,540
1,472
59%
13,951
-2%
0%
45
13,928
13,928
0
61%
13,668
-3%
-2%
(282)
13,809
13,809
0
62%
13,603
-3%
0%
(66)
13,636
13,636
0
65%
13,541
-3%
0%
(62)
13,572
13,572
0
67%
13,541
-3%
-3%
(364)
13,723
13,723
0
67%
13,500
-3%
0%
(41)
13,521
13,521
0
68%
13,409
-2%
-1%
(91)
13,455
13,455
0
70%
13,293
-2%
-1%
(116)
13,351
13,351
0
71%
13,227
-2%
0%
(66)
13,260
13,260
0
73%
13,227
-2%
-2%
(314)
13,384
13,384
0
73%
14,220
0
14,107
0
13,980
0
13,905
0
13,905
0
13,951
0
13,668
0
13,603
0
13,541
0
13,541
0
13,500
0
13,409
0
13,293
0
13,227
0
13,227
0
1,196
251%
27%
256
1,068
1,419
187%
19%
223
1,308
1,634
133%
15%
215
1,527
1,858
98%
14%
223
1,746
1,858 0
98%
98%
917 0
1,399
2,066
73%
11%
208
1,962
2,254
59%
9%
188
2,160
2,465
51%
9%
212
2,359
2,650
43%
7%
185
2,557
2,650 0
43%
43%
792 0
2,254
2,839
37%
7%
189
2,744
3,028
34%
7%
189
2,933
3,217
30%
6%
189
3,122
3,406
29%
6%
189
3,311
3,406
29%
29%
756
3,028
20
67%
11%
2
22
57%
10%
2
24
50%
9%
2
26
44%
8%
2
26
44%
44%
8
28
40%
8%
2
30
36%
7%
2
32
33%
7%
2
34
31%
6%
2
34
31%
31%
8
36
29%
6%
2
38
27%
6%
2
40
25%
5%
2
42
24%
5%
2
42
24%
24%
8
Retail consumer access lines

% change, y-t-y
% change, q-t-q
Net change
Retail consumer primary lines (switched/VOIP)
% change, y-t-y
% change, q-t-q
Net change
VOIP lines (U-Verse voice)
% change, y-t-y
% change, q-t-q
Net change
Retail consumer secondary lines (switched/VOIP)
% change, y-t-y
% change, q-t-q
Net change
Consumer broadband connections
% change, y-t-y
% change, q-t-q
Net change
Retail consumer additional

% change, y-t-y
% change, q-t-q
Net change
DSL subs
% change, y-t-y
% change, q-t-q
Net change
Average DSL subs
Average consumer DSL subs
Average business DSL subs
Consumer DSL penetration of primary lines
Consumer DSL subs
Business DSL subs
U-verse broadband connections
% change, y-t-y
% change, q-t-q
Net change
Average U-verse broadband subs
Satellite broadband subs
% change, y-t-y
% change, q-t-q
Net change
2011E
22,271
-8.2%
241
Philip Cusick, CFA

(1-212) 622-1444

13 January 2011
Table 103: AT&T Wireline Revenue by Segment

REVENUE BY CUSTOMER TYPE
Households in service
% change, y-t-y
% change, q-t-q
Net change
Average lines
1Q09
28,057
-8.5%
-1.5%
(413)
28,264
2Q09
27,505
-8.0%
-2.0%
(552)
27,781
3Q09
26,948
-7.4%
-2.0%
(557)
27,227
4Q09
26,527
-6.8%
-1.6%
(421)
26,738
2009
26,527
-6.8%
-6.8%
(1,943)
27,499
1Q10
26,155
-6.8%
-1.4%
(411)
26,341
2Q10
25,521
-7.2%
-2.4%
(401)
25,838
3Q10
25,144
-6.7%
-1.5%
(391)
25,333
4Q10E
24,814
-6.5%
-1.3%
(330)
24,979
2010E
24,814
-6.5%
-6.5%
(1,713)
25,671
1Q11E
24,504
-6.3%
-1.2%
(310)
24,659
2Q11E
24,214
-5.1%
-1.2%
(290)
24,359
3Q11E
23,924
-4.9%
-1.2%
(290)
24,069
4Q11E
23,634
-4.8%
-1.2%
(290)
23,779
2011E
23,634
-4.8%
-4.8%
(1,180)
24,224
ARPU
% change, y-t-y
% change, q-t-q
$63.29
1.9%
0.2%
$64.24
2.0%
1.5%
$65.01
2.3%
1.2%
$65.50
3.8%
0.8%
$64.50
2.3%
2.3%
$66.99
5.9%
2.3%
$69.05
7.5%
3.1%
$70.03
7.7%
1.4%
$70.28
7.3%
0.4%
$68.93
6.9%
6.9%
$70.34
5.0%
0.1%
$71.81
4.0%
2.1%
$72.48
3.5%
0.9%
$72.74
3.5%
0.4%
$71.81
4.2%
4.2%
5,366
-6.9%
5,354
-6.4%
5,310
-5.5%
5,254
-3.6%
21,284
-5.6%
5,294
-1.3%
5,352
0.0%
5,322
0.2%
5,267
0.2%
21,235
-0.2%
5,204
-1.7%
5,247
-2.0%
5,234
-1.7%
5,189
-1.5%
20,874
-1.7%
Global enterprise solutions

Voice & other revenue
% change, y-t-y
% change, q-t-q
1,739
-8.6%
-2.7%
1,692
-10.0%
-2.7%
1,651
-12.0%
-2.4%
1,559
-12.8%
-5.6%
6,641
-10.8%
NM
1,528
-12.1%
-1.9%
1,467
-13.3%
-4.0%
1,419
-14.1%
-3.3%
1,409
-9.6%
-0.7%
5,823
-12.3%
NM
1,390
-9.0%
-1.3%
1,357
-7.5%
-2.4%
1,341
-5.5%
-1.1%
1,321
-6.3%
-1.5%
5,409
-7.1%
NM
Data revenue
% of enterprise revenue
% change, y-t-y
% change, q-t-q
2,104
55%
-5%
-2%
2,069
55%
-6%
-2%
2,039
55%
-8%
-1%
2,130
58%
-1%
4%
8,342
56%
-5%
-5%
2,111
58%
0%
-1%
2,111
59%
2%
0%
2,129
60%
4%
1%
2,114
60%
-1%
-1%
8,465
59%
1%
1%
2,176
61%
3%
3%
2,168
62%
3%
0%
2,189
62%
3%
1%
2,202
63%
4%
1%
8,735
62%
3%
3%
Global enterprise solutions revenue

% change, y-t-y
3,843
-6.6%
3,761
-8.0%
3,690
-10.0%
3,689
-6.1%
14,983
-7.7%
3,639
-5.3%
3,578
-4.9%
3,548
-3.8%
3,523
-4.5%
14,288
-4.6%
3,566
-2.0%
3,524
-1.5%
3,530
-0.5%
3,523
0.0%
14,144
-1.0%
Small business & alternate channels

Retail business access lines
% change, y-t-y
% change, q-t-q
Net change
Average lines
21,364
-5.6%
-2.1%
(462)
21,595
20,864
-7.0%
-2.3%
(500)
21,114
20,464
-7.6%
-1.9%
(400)
20,664
20,106
-7.9%
-1.7%
(358)
20,285
20,106
-7.9%
-7.9%
(1,720)
20,966
19,854
-7.1%
-1.3%
(252)
19,980
19,465
-6.7%
-2.0%
(389)
19,660
19,089
-6.7%
-1.9%
(376)
19,277
18,763
-6.7%
-1.7%
(326)
18,926
18,763
-6.7%
-6.7%
(1,343)
19,435
18,462
-7.0%
-1.6%
(301)
18,613
18,186
-6.6%
-1.5%
(276)
18,324
17,935
-6.0%
-1.4%
(251)
18,061
17,835
-4.9%
-0.6%
(100)
17,885
17,835
-4.9%
-4.9%
(928)
18,299
ARPU
% change, y-t-y
% change, q-t-q
$34.65
1.2%
2.2%
$34.18
1.3%
-1.4%
$34.02
-1.5%
-0.5%
$34.66
2.2%
1.9%
$34.29
0.2%
0.2%
$35.09
1.2%
1.2%
$35.00
2.4%
-0.3%
$35.29
3.7%
0.8%
$35.52
2.5%
0.7%
$35.27
2.8%
2.8%
$35.96
2.5%
1.2%
$35.70
2.0%
-0.7%
$36.00
2.0%
0.8%
$36.23
2.0%
0.7%
$35.82
1.6%
1.6%
1,545
-6%
0%
1,481
-7%
-4%
1,400
-13%
-5%
1,358
-12%
-3%
5,784
-10%
NM
1,333
-14%
-2%
1,278
-14%
-4%
1,212
-13%
-5%
1,198
-12%
-1%
5,021
-13%
NM
1,190
-11%
-1%
1,160
-9%
-3%
1,150
-5%
-1%
1,141
-5%
-1%
4,640
-8%
NM
700
31%
1%
2%
684
32%
0%
-2%
709
34%
1%
4%
751
36%
9%
6%
2,844
33%
3%
3%
770
37%
10%
3%
786
38%
15%
2%
829
41%
17%
5%
819
41%
9%
-1%
3,204
39%
13%
13%
818
41%
6%
0%
803
41%
2%
-2%
801
41%
-3%
0%
803
41%
-2%
0%
3,224
41%
1%
1%
2,245
-3.9%
2,165
-5.0%
2,109
-8.7%
2,109
-5.7%
8,628
-5.8%
2,103
-6.3%
2,064
-4.7%
2,041
-3.2%
2,017
-4.4%
8,225
-4.7%
2,008
-4.5%
1,962
-4.9%
1,950
-4.4%
1,944
-3.6%
7,865
-4.4%
Wholesale & GEM solutions

% change, y-t-y
% change, q-t-q
2,123
-4%
-6%
2,135
-6%
1%
2,108
-8%
-1%
1,981
-12%
-6%
8,347
-8%
NM
1,908
-10%
-4%
1,918
-10%
1%
1,854
-12%
-3%
1,835
-7%
-1%
7,515
-10%
NM
1,769
-7%
-4%
1,799
-6%
2%
1,804
-3%
0%
1,780
-3%
-1%
7,153
-5%
NM
Data revenue
% of wholesale revenue
% change, y-t-y
% change, q-t-q
1,996
48%
-1%
-5%
2,018
49%
-4%
1%
2,009
49%
-5%
0%
2,086
51%
-1%
4%
8,109
49%
-3%
-3%
2,022
51%
1%
-3%
2,045
52%
1%
1%
2,090
53%
4%
2%
2,069
53%
-1%
-1%
8,227
52%
1%
1%
2,003
53%
-1%
-3%
2,045
53%
0%
2%
2,061
53%
-1%
1%
2,046
53%
-1%
-1%
8,155
53%
-1%
-1%
4,119
-2.8%
4,153
-4.8%
4,117
-6.7%
4,067
-6.8%
16,456
-5.3%
3,930
-4.6%
3,963
-5.5%
3,944
-5.5%
3,904
-4.0%
15,741
-4.3%
3,773
-4.0%
3,844
-3.0%
3,865
-2.0%
3,826
-2.0%
15,308
-2.8%
10,207
-4.5%
10,079
-6.1%
9,916
-8.4%
9,865
-6.3%
40,067
-6.3%
9,672
-5.2%
9,605
-4.7%
9,533
-3.9%
9,444
-4.3%
38,254
-4.5%
9,347
-3.4%
9,331
-2.9%
9,346
-2.0%
9,293
-1.6%
37,317
-2.5%
961
19%
997
14%
1,046
15%
1,087
16%
4,091
16%
1,104
15%
1,155
15%
1,207
15%
1,249
15%
4,715
15%
1,214
10%
1,271
10%
1,328
10%
1,374
10%
5,186
10%
521
-28%
-9%
480
-29%
-8%
446
-29%
-7%
409
-29%
-8%
1,856
-29%
NM
377
-28%
-8%
344
-28%
-9%
333
-25%
-3%
296
-28%
-11%
1,350
-27%
NM
290
-23%
-2%
265
-23%
-9%
256
-23%
-3%
228
-23%
-11%
1,039
-23%
NM
0
0%
NM
NM
0
0%
NM
NM
0
0%
NM
NM
0
0%
NM
NM
0
0%
NM
NM
0
0%
NM
NM
0
0%
NM
NM
0
0%
NM
NM
0
0%
NM
NM
0
0%
NM
NM
0
0%
NM
NM
0
0%
NM
NM
0
0%
NM
NM
0
0%
NM
NM
0
0%
NM
NM
521
-28%
480
-29%
446
-29%
409
-29%
1,856
-29%
377
-28%
344
-28%
333
-28%
296
-28%
1,350
-27%
290
-23%
265
-23%
256
-23%
228
-23%
1,039
-23%
68
NM
16,162
-6%
76
NM
15,989
-7%
77
NM
15,749
-8%
86
682%
15,614
-6%
307
NM
63,514
-6%
78
15%
15,421
-5%
95
25%
15,396
-4%
87
13%
15,275
-3%
87
1%
15,094
-3%
347
13%
61,186
-4%
87
12%
14,928
-3%
87
-8%
14,930
-3%
87
0%
14,923
-2%
87
0%
14,797
-2%
348
0%
59,578
-3%
Consumer markets revenue

% change, y-t-y

% change, y-t-y
% change, q-t-q
Data revenue
% of business in-region revenue
% change, y-t-y
% change, q-t-q
Small business & alternate channels revenue
Wholesale & GEM solutions revenue

% change, y-t-y
AT&T business solutions
% change, y-t-y
Strategic business services
% change, y-t-y
National mass markets
% change, y-t-y
% change, q-t-q
Data revenue
% of national mass markets revenue
% change, y-t-y
% change, q-t-q
National mass markets revenue
% change, y-t-y
Other
% change, y-t-y
Wireline operating revenues
% change, y-t-y
242
Philip Cusick, CFA

(1-212) 622-1444

13 January 2011
Table 104: AT&T Wireline Income Statement

Customer
Consumer
Business Solutions
Mass Markets
Other
Operating
Voice
Data
Other
Total revenue
% change, y-t-y
Cost of sales
SG&A
EBITDA margin
% change, y-t-y
Operating income
1Q09
2Q09
3Q09
4Q09
2009
1Q10
2Q10
3Q10
4Q10E
2010E
1Q11E
2Q11E
3Q11E
4Q11E
2011E
5,366
10,207
521
68
5,354
10,079
480
76
5,310
9,916
446
77
5,254
9,865
409
86
21,284
40,067
1,856
307
5,294
9,672
377
78
5,352
9,605
344
95
5,322
9,533
333
87
5,267
9,444
296
87
21,235
38,254
1,350
347
5,204
9,347
290
87
5,247
9,331
265
87
5,234
9,346
256
87
5,189
9,293
228
87
20,874
37,317
1,039
348
8,503
6,282
1,377
16,162
-5.7%
8,255
6,323
1,411
15,989
-6.6%
7,943
6,448
1,358
15,749
-7.7%
7,623
6,508
1,483
15,614
-5.7%
32,324
25,561
5,629
63,514
-6.4%
7,479
6,631
1,311
15,421
-4.6%
7,219
6,848
1,329
15,396
-3.7%
6,973
6,928
1,374
15,275
-3.0%
6,637
7,034
1,424
15,094
-3.3%
28,308
27,441
5,438
61,186
-3.7%
6,573
7,083
1,272
14,928
-3.2%
6,486
7,155
1,289
14,930
-3.0%
6,349
7,241
1,333
14,923
-2.3%
6,123
7,293
1,381
14,797
-2.0%
25,531
28,772
5,275
59,578
-2.6%
7,696
3,232
10,928
5,234
32.4%
-12.5%
7,570
3,350
10,920
5,069
31.7%
-19.5%
7,403
3,355
10,758
4,991
31.7%
-16.4%
7,304
3,326
10,630
4,984
31.9%
-11.1%
29,974
13,262
43,236
20,278
31.9%
-15.0%
7,266
3,346
10,612
4,809
31.2%
-8.1%
7,048
3,341
10,389
5,007
32.5%
-1.2%
6,912
3,406
10,318
4,957
32.5%
-0.7%
6,898
3,441
10,339
4,755
31.5%
-4.6%
28,123
13,535
41,658
19,528
31.9%
-3.7%
6,792
3,374
10,166
4,762
31.9%
-1.0%
6,763
3,374
10,138
4,793
32.1%
-4.3%
6,730
3,373
10,103
4,820
32.3%
-2.8%
6,659
3,344
10,003
4,794
32.4%
0.8%
26,945
13,465
40,409
19,169
32.2%
-1.8%
3,176
2,058
3,196
1,873
3,228
1,763
3,243
1,741
12,843
7,435
3,099
1,710
3,123
1,884
3,118
1,839
3,155
1,600
12,495
7,033
3,120
1,642
3,120
1,672
3,119
1,701
3,093
1,702
12,452
6,717
Table 105: AT&T Consolidated Income Statement

1Q09
2Q09
3Q09
4Q09
2009
1Q10
2Q10
3Q10
4Q10E
2010E
1Q11E
2Q11E
3Q11E
4Q11E
2011E
11,646
1,192
0
11,960
1,262
0
12,372
1,255
0
12,585
1,232
0
48,563
4,941
0
12,850
1,047
0
13,186
1,056
0
13,675
1,505
0
13,745
1,121
0
53,456
4,729
0
13,897
992
0
14,065
983
0
14,263
1,169
0
14,162
1,130
0
56,386
4,274
0
8,503
6,282
1,377
(1)
8,255
6,323
1,411
0
7,943
6,448
1,358
0
7,623
6,508
1,483
(2)
32,324
25,561
5,629
(3)
7,479
6,631
1,311
0
7,219
6,848
1,329
0
6,973
6,928
1,374
0
6,637
7,034
1,424
0
28,308
27,441
5,438
0
6,573
7,083
1,272
0
6,486
7,155
1,289
0
6,349
7,241
1,333
0
6,123
7,293
1,381
0
25,531
28,772
5,275
0
1,249
0
1,211
0
1,162
0
1,102
0
4,724
0
1,041
0
1,007
0
961
0
959
0
3,968
0
958
0
947
0
932
0
930
0
3,766
0
323
0
30,571
-0.6%
313
(1)
30,734
-0.4%
317
0
30,855
-1.6%
325
2
30,858
-0.7%
1,278
1
123,018
0.4%
290
0
30,649
0.3%
163
0
30,808
0.2%
165
0
31,581
2.4%
169
0
31,087
0.7%
787
0
124,125
0.9%
151
0
30,926
0.9%
155
0
31,079
0.9%
157
0
31,443
-0.4%
161
0
31,180
0.3%
623
0
124,628
0.4%
Total Revenues - Reported

Wireless service
Voice
Data
Directory
Other
Total revenue
% change, y-t-y
11,646
8,503
6,281
1,249
2,892
30,571
-1%
11,960
8,255
6,323
1,211
2,985
30,734
0%
12,372
7,943
6,448
1,162
2,930
30,855
-2%
12,585
7,622
6,507
1,102
3,042
30,858
-1%
48,563
32,323
25,559
4,724
11,849
123,018
-1%
12,850
7,479
6,631
1,041
2,648
30,649
0%
13,186
7,219
6,848
1,007
2,548
30,808
0%
13,675
6,973
6,928
961
3,044
31,581
2%
13,745
6,637
7,034
959
2,714
31,087
1%
53,456
28,308
27,441
3,968
10,954
124,125
1%
13,897
6,573
7,083
958
2,414
30,926
1%
14,065
6,486
7,155
947
2,427
31,079
1%
14,263
6,349
7,241
932
2,659
31,443
0%
14,162
6,123
7,293
930
2,672
31,180
0%
56,386
25,531
28,772
3,766
10,172
124,628
0%
Cost of services and sales

SG&A
EBITDA margin
% change, y-t-y
12,195
7,753
19,948
10,623
34.7%
-2%
12,550
7,775
20,325
10,409
33.9%
-10%
12,897
7,660
20,557
10,298
33.4%
-3%
12,844
8,138
20,982
9,876
32.0%
-1%
50,486
31,326
81,812
41,206
33.5%
-4%
12,329
7,484
19,813
10,836
35.4%
2%
12,381
7,475
19,856
10,952
35.5%
5%
13,519
7,707
21,226
10,355
32.8%
1%
12,962
7,725
20,687
10,400
33.5%
5%
51,191
30,391
81,582
42,543
34.3%
3%
12,434
7,494
19,929
10,997
35.6%
1%
12,341
7,427
19,768
11,311
36.4%
3%
12,866
7,536
20,402
11,042
35.1%
7%
12,566
7,729
20,295
10,885
34.9%
5%
50,208
30,185
80,394
44,234
35.5%
4%
4,886
5,737
18.8%
-4%
4,903
5,506
17.9%
-16%
4,910
5,388
17.5%
-4%
5,015
4,861
15.8%
-1%
19,714
21,492
17.5%
-7%
4,826
6,010
19.6%
5%
4,838
6,114
19.8%
11%
4,891
5,464
17.3%
1%
4,928
5,472
17.6%
13%
19,483
23,060
18.6%
7%
4,892
6,105
19.7%
2%
4,891
6,420
20.7%
5%
4,888
6,154
19.6%
13%
4,861
6,024
19.3%
10%
19,532
24,703
19.8%
7%
Int. (expense) income, net
(849)
(879)
(853)
(798)
(3,379)
(767)
(754)
(729)
(713)
(2,963)
(710)
(703)
(693)
(704)
(2,811)
Equity in net income(loss) of affiliates

Other, net
Income before taxes
137
(90)
4,935
231
(47)
4,811
181
(56)
4,660
185
37
4,285
734
(156)
18,691
217
(109)
5,351
195
(78)
5,477
217
47
4,999
217
47
5,023
846
(93)
20,850
217
0
5,612
180
0
5,897
180
0
5,641
180
0
5,499
757
0
22,649
(1,809)
3,126
(1,613)
3,198
(1,468)
3,192
(1,266)
3,019
0
(6,156)
12,535
(1,880)
3,471
(1,884)
3,593
(1,753)
3,246
(1,765)
3,258
0
(7,282)
13,568
(1,972)
3,640
(2,072)
3,825
(1,982)
3,659
(1,932)
3,567
0
(7,957)
14,692
Weighted average shares, basic

Stock options
Other stock-based compensation
Weighted average shares, fully diluted
5,896
15
11
5,922
5,900
15
8
5,923
5,901
15
6
5,922
5,902
15
6
5,923
5,900
15
8
5,923
5,905
15
15
5,935
5,909
15
13
5,937
5,909
15
14
5,938
5,906
15
14
5,935
5,907
15
14
5,936
5,881
15
14
5,910
5,856
15
14
5,885
5,839
15
14
5,868
5,822
15
14
5,851
5,849
15
14
5,878
EPS (loss), basic

EPS (loss), fully diluted
% change, y-t-y
$0.53
$0.53
-8%
$0.54
$0.54
-15%
$0.54
$0.54
-1%
$0.51
$0.51
26%
$2.12
$2.12
-2%
$0.59
$0.59
12%
$0.61
$0.61
12%
$0.55
$0.55
1%
$0.55
$0.55
8%
$2.30
$2.29
8%
$0.62
$0.62
4%
$0.65
$0.65
7%
$0.63
$0.62
14%
$0.61
$0.61
11%
$2.51
$2.50
9%
Dividend Paid Per Share

Payout ratio (dividend + buyback)
$0.41
$0.41
$0.41
$0.42
$1.65
$0.42
61%
$0.42
64%
$0.42
59%
$0.43
115%
$1.69
70%
$0.43
82%
$0.43
79%
$0.43
77%
$0.45
96%
$1.74
83%
Operating Revenues
Wireless
Service revenue
Equipment revenue
Eliminations
Wireline
Voice
Data
Other
Eliminations
Advertising & Publishing
Total revenue
Eliminations
Other
Total revenue
Eliminations
Total Revenues - From Segments
% change, y-t-y

Operating income
% change, y-t-y
One-time gains (loss)

Tax benefit (expense)
Net income (Loss)
243
Philip Cusick, CFA

(1-212) 622-1444

13 January 2011
Table 106: AT&T Balance Sheet

Assets
Cash and cash equivalents
Accounts receivable
Prepaid expenses
Deferred income taxes
Other current assets
Total current assets
Net PPE
1Q09
2Q09
3Q09
4Q09
2009
1Q10
2Q10
3Q10
4Q10E
2010E
1Q11E
2Q11E
3Q11E
4Q11E
2011E
3,812
14,965
1,704
957
2,083
23,521
7,348
14,846
1,786
964
1,996
26,940
6,167
14,796
1,791
991
2,176
25,921
3,741
14,845
1,562
1,247
3,792
25,187
3,741
14,845
1,562
1,247
3,792
25,187
2,617
14,167
1,820
1,293
2,465
22,362
1,377
13,780
1,666
1,225
3,344
21,392
3,246
13,606
1,686
1,059
2,380
21,977
2,893
13,606
1,686
1,059
2,380
21,624
2,893
13,606
1,686
1,059
2,380
21,624
3,592
13,606
1,686
1,059
2,380
22,323
4,458
13,606
1,686
1,059
2,380
23,189
3,458
13,606
1,686
1,059
2,380
22,189
3,573
13,606
1,686
1,059
2,380
22,304
3,573
13,606
1,686
1,059
2,380
22,304
98,339
98,229
98,321
100,053
100,053
99,360
100,302
101,475
100,649
100,649
100,300
99,978
99,689
99,982
99,982
71,694
47,461
9,605
5,797
2,413
5,528
264,358
71,691
47,674
8,682
5,773
2,749
6,180
267,918
71,727
47,946
7,814
5,656
2,813
6,370
266,568
72,782
48,741
7,393
5,494
2,921
6,275
268,846
72,782
48,741
7,393
5,494
2,921
6,275
268,846
73,052
49,028
6,624
5,680
3,278
6,317
265,701
73,484
49,957
6,047
5,539
4,346
6,489
267,556
73,447
50,113
5,369
5,525
4,544
6,802
269,252
73,447
50,113
5,369
5,525
4,544
6,802
268,073
73,447
50,113
5,369
5,525
4,544
6,802
268,073
73,447
50,113
5,369
5,525
4,544
6,802
268,423
73,447
50,113
5,369
5,525
4,544
6,802
268,967
73,447
50,113
5,369
5,525
4,544
6,802
267,678
73,447
50,113
5,369
5,525
4,544
6,802
268,086
73,447
50,113
5,369
5,525
4,544
6,802
268,086
10,790
17,359
4,065
2,399
2,419
37,032
10,155
18,046
3,932
1,667
2,419
36,219
6,755
18,093
4,036
1,965
2,419
33,268
7,361
21,260
4,170
1,681
2,479
36,951
7,361
21,260
4,170
1,681
2,479
36,951
9,437
18,087
4,061
2,639
2,482
36,706
9,721
18,157
3,943
1,879
2,482
36,182
6,426
18,417
3,933
1,416
2,482
32,674
6,426
18,417
3,933
1,416
2,482
32,674
6,426
18,417
3,933
1,416
2,482
32,674
6,426
18,417
3,933
1,416
2,482
32,674
6,426
18,417
3,933
1,416
2,482
32,674
6,426
18,417
3,933
1,416
2,482
32,674
6,426
18,417
3,933
1,416
2,482
32,674
6,426
18,417
3,933
1,416
2,482
32,674
Long-term debt
Postemployment benefit obligation
Other noncurrent liabilities
Total liabilities
63,560
19,376
32,032
14,663
166,663
66,565
20,354
31,985
13,783
168,906
65,909
22,279
31,750
13,361
166,567
64,720
23,781
27,847
13,226
166,525
64,720
23,781
27,847
13,226
166,525
60,024
25,520
27,709
13,276
163,235
60,277
25,615
27,421
14,578
164,073
62,540
20,651
27,071
13,023
155,959
62,540
20,651
27,071
13,023
155,959
62,540
20,651
27,071
13,023
155,959
62,540
20,651
27,071
13,023
155,959
62,540
20,651
27,071
13,023
155,959
62,540
20,651
27,071
13,023
155,959
62,540
20,651
27,071
13,023
155,959
62,540
20,651
27,071
13,023
155,959
Common shares issued ($1 par value)

Capital in excess of par value
Retained earnings
Treasury shares (at cost)
Accumulated other comprehensive loss
Shareholder's equity
Total liabilities and shareholder's equity
6,495
91,638
37,296
(21,283)
(16,451)
97,695
264,358
6,495
91,637
38,069
(21,284)
(15,905)
99,012
267,918
6,495
91,678
38,841
(21,280)
(15,733)
100,001
266,568
6,495
91,707
39,366
(21,260)
(13,987)
102,321
268,846
6,495
91,707
39,366
(21,260)
(13,987)
102,321
268,846
6,495
91,557
39,373
(21,137)
(13,822)
102,466
265,701
6,495
91,628
40,909
(21,134)
(14,415)
103,483
267,556
6,495
91,748
50,751
(21,112)
(14,589)
113,293
269,252
6,495
91,748
49,572
(21,112)
(14,589)
112,114
268,073
6,495
91,748
49,572
(21,112)
(14,589)
112,114
268,073
6,495
91,748
49,922
(21,112)
(14,589)
112,464
268,423
6,495
91,748
50,466
(21,112)
(14,589)
113,008
268,967
6,495
91,748
49,177
(21,112)
(14,589)
111,719
267,678
6,495
91,748
49,585
(21,112)
(14,589)
112,127
268,086
6,495
91,748
49,585
(21,112)
(14,589)
112,127
268,086
Goodwill
Licenses
Customer lists and relationships - net
Other intangible assets - net
Investments in equity affiliates
Postemployment benefit
Other assets
Total assets
Liabilities and Shareowners' Investment
Current liabilities
Debt maturing within one year
Accounts payable and accrued liabilities
Advanced billing and customer deposits
Accrued taxes
Dividends payable
Total current liabilities
Table 107: AT&T Cash Flow Statement

QUARTERLY
Cash Flows From Operating Activities
Net Income
Adjustments to reconcile net income to net cash provided by
Undistributed earnings from investments in equity affiliates
Provision for uncollectible accounts
Deferred income tax expense (benefit)
Net gain on sales of investments
Gain on license exchange
Changes in operating assets and liabilities:
Accounts receivable
Stock-based compensation tax benefit
Other - net
Net cash provided by operating activities
1Q09
2Q09
3Q09
4Q09
2009
1Q10
2Q10
3Q10
4Q10E
2010E
1Q11E
2Q11E
3Q11E
4Q11E
2011E
3,126
3,351
3,275
3,091
12,843
2,562
4,101
12,417
3,258
22,338
3,640
3,825
3,659
3,567
14,692
4,886
(137)
509
126
82
-
4,903
467
618
(8)
-
4,910
137
408
1,830
15
-
5,015
(419)
379
(470)
(397)
-
4,826
(201)
350
1,612
50
-
4,812
(177)
321
464
(691)
-
4,891
(153)
302
(6,222)
(105)
-
4,928
-
4,891
-
4,888
-
4,861
-
(347)
3
460
(1,560)
7,887
(359)
(183)
526
(880)
9,679
(321)
(67)
2,733
(580)
8,964
461
88
(2,084)
(87)
(324)
7,253
(67)
301
(979)
(78)
550
8,557
(128)
106
202
165
(1,935)
9,540
8,186
19,457
(531)
973
(4,146)
(746)
266
495
(2,861)
(1,709)
33,536
4,892
-
573
(108)
(1,347)
205
7,915
19,714
(419)
1,763
2,104
(308)
(454)
(355)
2,372
(2,815)
34,445
8,532
8,716
8,547
8,429
19,532
34,223
Cash Flows From Investing Activities

Interest during construction
Acquisitions, net of cash acquired
Dispotions
Proceeds from sale of securities, net of investments
Other
Net cash used in investing activities
(3,173)
(185)
181
(10)
30
(3,157)
(3,863)
(183)
(55)
18
(11)
8
(4,086)
(4,031)
(185)
(129)
6
7
6
(4,326)
(5,528)
(187)
(799)
82
69
7
(6,356)
(16,595)
(740)
(983)
287
55
51
(17,925)
(3,156)
(184)
(178)
1
(20)
8
(3,529)
(4,700)
(195)
(2,376)
13
(525)
9
(7,774)
(5,314)
(198)
(61)
1,807
108
5
(3,653)
(5,887)
(5,887)
(19,057)
(577)
(2,615)
1,821
(437)
22
(20,843)
(4,543)
(4,543)
(4,569)
(4,569)
(4,598)
(1,925)
(6,523)
(5,155)
(5,155)
(18,864)
(1,925)
(20,789)
Cash Flows From Financing Activities

Net change in short-term borrowings with original maturities o
Issuance of long-term debt
Repayment of long-term debt
Purchase of treasury shares
Issuance of treasury shares
Dividends paid
Stock-based compensation tax benefit
Other
Net cash provided by (used in) financing activities
(3,909)
5,450
(1,261)
1
(2,416)
(603)
(2,738)
(6)
2,711
(776)
3
(2,418)
221
(265)
(3)
(4,133)
4
(2,418)
16
(6,534)
2,957
(2,149)
2
(2,481)
(291)
(1,962)
(3,313)
2,235
(619)
19
(2,476)
136
(4,018)
(100)
(2,552)
(2,652)
(33)
2,235
(5,280)
(100)
24
(9,988)
(399)
(13,541)
(750)
(2,541)
(3,291)
(750)
(2,530)
(3,280)
(500)
(2,523)
(3,023)
(500)
(2,659)
(3,159)
(2,500)
(10,254)
(12,754)
2,020
1,792
3,812
3,536
3,812
7,348
(1,181)
7,348
6,167
(3,910)
8,161
(8,654)
28
(9,670)
(465)
(14,510)
0.34
2,010
1,792
3,802
323
(2,512)
3
(2,479)
(244)
(4,909)
Increase (decrease) in cash and cash equivalents

Cash and cash equivalents, beginning of period
Cash and cash equivalents, end of period
8
(2,484)
20
(2,418)
(99)
(4,973)
1.27%
(2,365)
6,167
3,802
(1,185)
3,802
2,617
(1,179)
2,617
1,438
1,869
1,377
3,246
(353)
3,246
2,893
(848)
3,802
2,954
698
2,893
3,592
867
3,592
4,458
(1,000)
4,458
3,458
115
3,458
3,573
680
2,893
3,573
244
Philip Cusick, CFA

(1-212) 622-1444

13 January 2011
Verizon Model
Table 108: Verizon Wireless Operating Statistics
1Q09
83,425
4,931
(3,711)
(9)
84,636
6%
2Q09
84,636
4,514
(3,424)
1
85,727
5%
3Q09
85,727
4,968
(3,783)
78
86,990
4%
4Q09
86,990
5,835
(3,673)
20
89,172
5%
2009
83,425
20,248
(14,591)
90
89,172
5%
1Q10
89,172
5,199
(3,670)
4
90,705
7%
2Q10
90,705
4,785
(3,427)
Churn rate, monthly
1.44%
1.34%
1.46%
1.39%
1.41%

% change, y-t-y
1,220
-31%
1,090
-38%
1,185
-33%
2,162
28%
5,657
-19%
85,900
311,033
92%
286,150
85,182
311,033
92%
286,150
86,359
311,033
92%
286,150
88,081
311,033
92%
286,150
Ending penetration (licensed pops)

Annual penetration gain (licensed pops)
27.2%
1.57%
27.6%
1.40%
28.0%
1.52%
Ending penetration (covered pops)

Annual penetration gain (covered pops)
29.6%
1.71%
30.0%
1.52%
ARPU, reported
% change, y-t-y
ARPU, monthly
% change, y-t-y
$50.49
0.6%
$49.38
-1.6%
ARPU - Voice
% change, y-t-y
ARPU - Data reported
% change, y-t-y
Retail postpay subs
- Disconnects
Ending subscribers
% change, y-t-y
% of Total subs
- Disconnects
Ending subscribers
% change, y-t-y
Average subscribers
Licensed pops (excl. affiliates)
Percent covered
Covered pops
4Q10E
93,170
5,109
(3,689)
92,063
7%
3Q10
92,063
4,776
(3,779)
110
93,170
7%
1Q11E
94,590
5,100
(3,800)
2Q11E
95,890
4,901
(3,620)
3Q11E
97,171
4,710
(3,893)
4Q11E
97,988
4,808
(3,840)
94,590
6%
2010E
89,172
19,869
(14,565)
114
94,590
6%
95,890
6%
97,171
6%
97,988
5%
98,956
5%
2011E
94,590
19,520
(15,154)
0
98,956
5%
1.36%
1.25%
1,529
25%
1,358
25%
1.36%
1.31%
1.32%
1.33%
1.25%
1.33%
1.30%
1.30%
997
-16%
1,420
-34%
5,304
-6%
1,300
-15%
1,281
-6%
817
-18%
968
-32%
4,366
-18%
86,380
311,033
92%
286,150
89,941
311,033
92%
286,150
91,384
311,033
92%
286,150
92,617
311,033
92%
286,150
93,880
311,033
92%
286,150
91,955
311,033
92%
286,150
95,240
311,033
92%
286,150
96,531
311,033
92%
286,150
97,580
311,033
92%
286,150
98,472
311,033
92%
286,150
96,956
311,033
92%
286,150
28.7%
2.78%
28.7%
1.82%
29.2%
1.97%
29.6%
1.75%
30.0%
1.28%
30.4%
1.83%
30.4%
1.71%
30.8%
1.67%
31.2%
1.65%
31.5%
1.05%
31.8%
1.24%
31.8%
1.40%
30.4%
1.66%
31.2%
3.02%
31.2%
1.98%
31.7%
2.14%
32.2%
1.90%
32.6%
1.39%
33.1%
1.98%
33.1%
1.85%
33.5%
1.82%
34.0%
1.79%
34.2%
1.14%
34.6%
1.35%
34.6%
1.53%
$50.85
0.1%
$50.83
0.1%
$50.77
-1.3%
$50.75
-1.5%
$50.02
-1.9%
$49.89
-2.0%
$50.21
-1.2%
$50.21
-1.2%
$49.92
-1.1%
$49.91
1.1%
$50.35
-1.0%
$50.34
-1.0%
$50.94
0.3%
$50.99
0.5%
$50.39
0.7%
$50.39
1.0%
$50.41
0.4%
$50.41
0.4%
$50.16
0.5%
$50.16
0.5%
$50.60
0.5%
$50.60
0.5%
$51.25
0.6%
$51.25
0.5%
$50.64
0.5%
$50.64
0.5%
$50.66
0.5%
$50.66
0.5%
$35.29
-9.2%
$14.09
24.6%
$35.92
-6.9%
$14.91
22.4%
$35.28
-8.6%
$15.47
19.7%
$33.96
-9.1%
$15.93
17.9%
$35.10
-8.4%
$15.11
20.8%
$33.36
-5.5%
$16.55
17.5%
$32.99
-8.1%
$17.35
16.4%
$32.79
-7.1%
$18.20
17.6%
$31.90
-6.1%
$18.49
16.1%
$32.75
-6.7%
$17.66
16.9%
$31.45
-5.7%
$18.71
13.0%
$31.67
-4.0%
$18.93
9.1%
$32.10
-2.1%
$19.15
5.2%
$31.27
-2.0%
$19.37
4.7%
$31.62
-3.4%
$19.04
7.8%
76,423
3,542
(2,606)
(5)
77,354
7%
91.4%
78,395
3,551
(2,650)
75
79,371
4%
91.2%
79,371
3,624
(2,518)
18
80,495
3%
90.3%
76,423
14,098
(10,111)
85
80,495
3%
90.3%
80,495
2,954
(2,542)
5
80,912
5%
89.2%
80,912
2,928
(2,267)
0
81,573
4%
88.6%
81,573
3,215
(2,631)
100
82,257
4%
88.3%
82,257
3,178
(2,478)
0
82,957
3%
87.7%
80,495
12,275
(9,918)
105
82,957
3%
87.7%
82,957
3,098
(2,448)
0
83,607
3%
87.2%
83,607
3,143
(2,393)
84,357
3%
86.8%
84,357
3,038
(2,538)
0
84,857
3%
86.6%
84,857
2,952
(2,552)
0
85,257
3%
86.2%
82,957
12,232
(9,932)
0
85,257
3%
86.2%
Churn rate, monthly
1.13%
77,354
3,380
(2,336)
(3)
78,395
6%
91.4%
943
1.00%
1.12%
1.05%
1.07%
1.05%
0.93%
1.01%
0.98%
0.95%
1.00%
1.00%
0.98%
936
-35%
1,044
-36%
901
-48%
1,106
-25%
3,987
-36%
412
-56%
661
-37%
1.07%
684
584
-35%
1.00%

% change, y-t-y
700
-37%
2,357
-41%
650
58%
750
13%
500
-14%
400
-43%
2,300
-2%
Average postpay subscribers
76,886
77,875
78,883
79,933
78,394
80,706
81,243
81,970
82,607
81,631
83,282
83,982
84,607
85,057
84,232
Postpay ARPU, monthly

% change, y-t-y
$52.11
1.2%
$52.41
0.6%
$52.60
0.1%
$52.22
0.0%
$52.20
-0.2%
$52.41
0.6%
$53.17
1.5%
$53.66
2.0%
$53.32
2.1%
$53.03
1.6%
$53.34
1.8%
$54.09
1.7%
$55.06
2.6%
$54.55
2.3%
$54.26
2.3%
Retail prepaid subs

- Disconnects
Ending subscribers
% change, y-t-y
% of Total subs
4,562
1,336
(1,068)
(4)
4,826
8%
5.7%
4,826
1,099
(1,051)
4
4,877
6%
5.7%
4,877
1,108
(1,093)
3
4,897
4%
5.6%
4,897
1,158
(1,107)
2
4,950
2%
5.6%
4,869
4,701
(4,319)
5
4,950
2%
5.6%
4,950
915
(1,061)
(1)
4,803
0%
5.3%
4,803
877
(1,084)
0
4,603
-6%
5.0%
4,603
916
(1,053)
10
4,477
-9%
4.8%
4,477
1,027
(1,107)
4,397
1,135
(1,235)
4,297
912
(1,099)
4,111
1,095
(1,219)
3,987
1,072
(1,144)
4,397
4,215
(4,696)
4,397
-11%
4.6%
4,950
3,735
(4,305)
9
4,397
-11%
4.6%
4,297
-11%
4.5%
4,111
-11%
4.2%
3,987
-11%
4.1%
3,915
-11%
4.0%
3,915
-11%
4.0%
Churn rate, monthly
7.58%
7.22%
7.46%
7.49%
7.44%
7.25%
7.68%
7.73%
8.31%
7.73%
9.47%
8.71%
10.03%
9.65%
9.46%

% change, y-t-y
% of net adds
268
-24%
22.0%
48
-62%
4.4%
15
-82%
1.3%
51
-70%
2.4%
382
-48%
6.8%
(146)
NM
NM
(207)
NM
NM
(137)
NM
NM
(80)
NM
NM
(570)
NM
NM
(100)
32%
NM
(186)
10%
NM
(123)
10%
NM
(72)
10%
NM
(482)
16%
NM
4,694
4,852
4,887
4,924
4,839
4,877
4,703
4,540
4,437
4,639
4,347
4,204
4,049
3,951
4,138
$32.22
7%
$30.71
2%
$28.75
-10%
$28.25
-11%
$29.98
-3%
$28.25
-12%
$28.25
-8%
$29.00
1%
$27.00
-4%
$28.13
-6%
$27.75
-2%
$27.75
-2%
$27.75
-4%
$27.75
3%
$27.75
-1%
Wholesale subs
- Disconnects
Ending subscribers
% change, y-t-y
% of Total subs
2,441
53
(37)
(1)
2,456
3%
2.9%
2,456
35
(37)
1
2,455
3%
2.9%
2,455
308
(39)
(2)
2,722
15%
3.1%
2,722
1,052
(48)
1
3,727
53%
4.2%
2,441
1,448
(161)
(1)
3,727
53%
4.2%
3,727
1,330
(67)
0
4,990
103%
5.5%
4,990
980
(83)
0
5,887
140%
6.4%
5,887
644
(94)
(1)
6,436
136%
6.9%
6,436
905
(105)
3,727
3,859
(349)
7,236
866
(116)
7,986
845
(128)
8,704
577
(137)
9,144
785
(145)
7,236
3,073
(525)
7,236
94%
7.6%
7,236
94%
7.6%
7,986
60%
8.3%
8,704
48%
9.0%
9,144
42%
9.3%
9,784
35%
9.9%
9,784
35%
9.9%
Churn rate, monthly
0.50%
0.50%
0.50%
0.50%
0.50%
0.51%
0.51%
0.51%
0.51%
0.51%
0.51%
0.51%
0.51%
0.51%
0.51%
16
NM
(2)
50%
269
NM
1,004
1421%
1,286
NM
1,263
7794%
897
NM
550
104%
800
-20%
3,510
173%
750
-41%
717.6
-20%
440
-20%
640
-20%
2,548
-27%
Average subscribers
2,449
2,456
2,589
3,225
2,679
4,359
5,439
6,162
6,836
5,699
7,611
8,345
8,924
9,464
8,586
Wholesale ARPU, monthly

% change, y-t-y
$8.58
-5%
$8.67
-4%
$7.50
-17%
$9.25
3%
$8.50
-6%
$11.00
28%
$12.00
38%
$13.50
80%
$15.00
62%
$12.88
51%
$15.00
36%
$15.00
25%
$14.50
7%
$14.50
-3%
$14.75
15%
Average subscribers
Prepaid ARPU, monthly
% change, y-t-y

% change, y-t-y
245
Philip Cusick, CFA

(1-212) 622-1444

13 January 2011
Table 109: Verizon Wireless Income Statement

Service revenue
Equipment revenue and other
Total revenue
% change, y-t-y
Cost of service
Cost of equipment
Marketing costs
EBITDA margin
% change, y-t-y
1Q09
12,725
1,965
14,690
6%
2Q09
12,989
2,040
15,029
4%
3Q09
13,149
2,182
15,331
2%
4Q09
13,183
2,092
15,275
0%
2009
52,046
8,279
60,325
3%
1Q10
13,466
1,846
15,312
4%
2Q10
13,802
1,895
15,697
4%
3Q10
14,168
2,082
16,250
6%
4Q10E
14,191
1,979
16,170
6%
2010E
55,627
7,802
63,429
5%
1Q11E
14,331
2,261
16,592
8%
2Q11E
14,652
2,393
17,045
9%
3Q11E
15,002
2,267
17,269
6%
4Q11E
14,960
2,179
17,139
6%
2011E
58,945
9,100
68,045
7%
1,740
2,600
2,812
1,726
8,878
5,812
45.7%
8%
1,787
2,593
2,936
1,738
9,054
5,975
46.0%
6%
1,920
2,511
3,009
1,888
9,328
6,003
45.7%
5%
1,944
2,028
3,200
2,225
9,397
5,878
44.6%
-4%
7,391
9,733
11,957
7,576
36,657
23,668
45.5%
4%
1,975
2,621
2,700
1,871
9,167
6,145
45.6%
6%
1,885
2,633
2,851
1,818
9,187
6,510
47.2%
9%
2,112
2,737
2,997
1,848
9,694
6,556
46.3%
9%
2,100
2,690
2,852
1,865
9,507
6,664
47.0%
13%
8,072
10,680
11,400
7,403
37,555
25,875
46.5%
9%
2,135
2,695
3,455
1,913
10,197
6,395
44.6%
4%
2,183
2,712
4,055
1,960
10,910
6,135
41.9%
-6%
2,235
2,726
3,778
1,884
10,624
6,645
44.3%
1%
2,229
2,737
3,571
1,923
10,460
6,679
44.6%
0%
8,783
10,869
14,858
7,680
42,191
25,854
43.9%
0%
246
Philip Cusick, CFA

(1-212) 622-1444

13 January 2011
Table 110: Verizon Wireline Operating Statistics

1Q09
2Q09
3Q09
4Q09
2009
1Q10
2Q10
3Q10
4Q10E
2010E
1Q11E
2Q11E
3Q11E
4Q11E
2011E
17,199
(3,757)
-25.9%
16,677
(522)
-25.7%
16,105
(572)
-25.5%
15,618
(487)
-25.5%
15,618
(5,338)
-25.5%
15,201
(417)
-11.6%
14,828
(373)
-11.1%
14,465
(363)
-10.2%
14,112
(353)
-9.6%
14,112
(1,506)
-9.6%
13,762
(350)
-9.5%
13,412
(350)
-9.5%
13,137
(275)
-9.2%
12,862
(275)
-8.9%
12,862
(1,250)
-8.9%
Homes Passed
26,400
26,400
26,400
26,400
26,400
26,400
26,400
26,400
26,400
26,400
26,715
26,715
26,715
26,715
26,715
Primary Lines
Net Primary Adds
% change y/y
Secondary Lines
Net Secondary Adds
% change y/y
Penetration of secondary lines
14,747
(3,336)
-25.0%
1,087
(421)
-47.1%
7.4%
14,391
(356)
-24.7%
921
(166)
-53.2%
6.4%
14,030
(361)
-24.3%
710
(211)
-58.7%
5.1%
13,662
(368)
-24.4%
591
(119)
-60.8%
4.3%
13,662
(4,421)
-24.4%
591
(917)
-60.8%
4.3%
13,351
(311)
-9.5%
485
(106)
-55.4%
3.6%
13,085
(266)
-9.1%
378
(107)
-59.0%
2.9%
12,825
(260)
-8.6%
275
(103)
-61.3%
2.1%
12,585
(240)
-7.9%
162
(113)
-72.6%
1.3%
12,585
(1,077)
-7.9%
162
(429)
-72.6%
1.3%
12,285
(300)
-8.0%
112
(50)
-76.9%
0.9%
11,935
(350)
-8.8%
112
-70.4%
0.9%
11,660
(275)
-9.1%
112
-59.3%
1.0%
11,385
(275)
-9.5%
112
-30.9%
1.0%
11,385
(1,200)
-9.5%
112
(50)
-30.9%
1.0%
Public
Net Public Adds
% change y/y
207
(32)
-26.9%
196
(11)
-28.2%
179
(17)
-29.5%
165
(14)
-31.0%
165
(74)
-31.0%
153
(12)
-26.1%
138
(15)
-29.6%
126
(12)
-29.6%
116
(10)
-29.7%
116
(49)
-29.7%
111
(5)
-27.5%
106
(5)
-23.2%
101
(5)
-19.8%
96
(5)
-17.2%
96
(20)
-17.2%
Business
Net Business Adds
% change y/y
13,139
(1,827)
-16.2%
12,924
(215)
-16.9%
12,719
(205)
-16.3%
12,540
(179)
-16.2%
12,540
(2,426)
-16.2%
12,365
(175)
-5.9%
12,172
(193)
-5.8%
11,953
(219)
-6.0%
11,803
(150)
-5.9%
11,803
(737)
-5.9%
11,653
(150)
-5.8%
11,503
(150)
-5.5%
11,353
(150)
-5.0%
11,213
(140)
-5.0%
11,213
(590)
-5.0%
2,257
(110)
-16.2%
30,545
(5,616)
-21.7%
2,152
(105)
-16.5%
29,797
(748)
-21.8%
2,052
(100)
-16.8%
29,003
(794)
-21.8%
1,952
(100)
-17.5%
28,323
(680)
-21.7%
1,952
(415)
-17.5%
28,323
(7,838)
-21.7%
1,842
(110)
-18.4%
27,719
(604)
-9.3%
1,732
(110)
-19.5%
27,138
(581)
-8.9%
1,622
(110)
-21.0%
26,544
(594)
-8.5%
1,512
(110)
-22.5%
26,031
(513)
-8.1%
1,512
(440)
-22.5%
26,031
(2,292)
-8.1%
1,402
(110)
-23.9%
25,526
(505)
-7.9%
1,292
(110)
-25.4%
25,021
(505)
-7.8%
1,182
(110)
-27.1%
24,591
(430)
-7.4%
1,072
(110)
-29.1%
24,171
(420)
-7.1%
1,072
(440)
-29.1%
24,171
(1,860)
-7.1%
7,896
(777)
-5%
8,063
167
-3%
8,119
56
-4%
8,160
41
-6%
8,160
(513)
-6%
8,241
81
4%
8,279
38
3%
8,340
61
3%
8,440
100
3%
8,440
280
3%
8,505
65
3%
8,565
60
3%
8,620
55
3%
8,710
90
3%
8,710
270
3%
DSL Subs
Net DSL Adds
% change y/y
5,243
(949)
-19%
5,121
(122)
-19%
4,983
(138)
-20%
4,874
(109)
-21%
4,874
(1,318)
-21%
4,775
(99)
-9%
4,620
(155)
-10%
4,455
(165)
-11%
4,375
(80)
-10%
4,375
(499)
-10%
4,287
(88)
-10%
4,183
(104)
-9%
4,046
(137)
-9%
3,983
(63)
-9%
3,983
(392)
-9%
FiOS Internet Subscribers

Net FiOS Internet Subscribers Adds
% change y/y
2,653
172
48%
2,942
289
49%
3,136
194
43%
3,286
150
32%
3,286
805
32%
3,466
180
31%
3,659
193
24%
3,885
226
24%
4,065
180
24%
4,065
779
24%
4,218
153
22%
4,382
164
20%
4,574
192
18%
4,727
153
16%
4,727
662
16%
FiOS Homes Passed (data)

FiOS Homes Open for Sale (data)
FiOS Data Penetration
13,300
600
10,400
25.5%
14,000
700
11,000
26.7%
14,500
500
12,500
25.1%
15,400
900
12,500
26.3%
15,400
2,700
12,500
26.3%
15,600
200
12,600
27.5%
15,900
300
12,900
28.4%
15,400
(500)
12,500
31.1%
16,750
1,350
13,000
31.3%
16,750
1,350
13,000
31.3%
17,000
250
13,250
31.8%
17,250
250
13,500
32.5%
17,500
250
13,750
33.3%
17,750
250
14,000
33.8%
17,750
1,000
14,000
33.8%
Video
FiOS TV Subscribers
Net FiOS TV Subscribers Adds
% change y/y
2,130
212
77%
2,414
284
75%
2,601
187
61%
2,750
149
43%
2,750
832
43%
2,914
164
37%
3,086
172
28%
3,290
204
26%
3,465
175
26%
3,465
715
26%
3,613
148
24%
3,772
159
22%
3,958
186
20%
4,107
148
19%
4,107
642
19%
FiOS Homes Passed (TV)

FiOS Homes Open for Sale (TV)
FiOS TV Penetration
13,200
500
9,700
22.0%
13,500
300
10,000
24.1%
14,000
500
11,000
23.6%
14,700
700
11,500
23.9%
14,700
2,000
11,500
23.9%
14,900
200
12,000
24.3%
15,200
300
12,400
24.9%
14,700
(500)
12,100
27.2%
16,050
1,350
12,600
27.5%
16,050
1,350
12,600
27.5%
16,300
250
12,850
28.1%
16,550
250
13,100
28.8%
16,800
250
13,350
29.7%
17,050
250
13,600
30.2%
17,050
1,000
13,600
30.2%
ARPU and Revenue Calculations

Consumer Retail Revenues (Legacy Verizon)
% change y/y
3,248
-11.5%
3,294
-11.3%
3,327
-11.7%
3,333
-11.4%
13,202
-11.5%
3,320
2.2%
3,350
1.7%
3,364
1.1%
3,364
0.9%
13,398
1.5%
3,362
1.3%
3,376
0.8%
3,339
-0.7%
3,295
-2.1%
13,372
-0.2%
$72.52
17.9%
NM
$75.35
18.0%
3.9%
$78.04
17.1%
3.6%
$80.23
17.2%
2.8%
$69.31
6.6%
-13.6%
$81.93
13.0%
NM
$84.48
12.1%
3.1%
$86.55
10.9%
2.5%
$88.25
10.0%
2.0%
$85.07
22.7%
-3.6%
$90.12
10.0%
NM
$92.93
10.0%
3.1%
$94.34
9.0%
1.5%
$95.31
8.0%
1.0%
$92.98
9.3%
-2.5%
262
-31.9%
237
-31.5%
197
-40.1%
169
-43.9%
865
-36.4%
147
-43.9%
140
-40.9%
128
-35.0%
113
-33.2%
528
-39.0%
98
-33.4%
96
-31.6%
87
-31.8%
73
-35.0%
354
-32.9%
480
0.8%
500
-4.6%
523
-1.5%
545
-3.2%
2,913
-15.7%
561
16.9%
580
16.0%
581
11.1%
594
9.0%
2,316
-20.5%
603
7.5%
621
7.0%
622
7.0%
636
7.0%
2,481
7.1%
742
-13.8%
737
-15.3%
720
-16.3%
714
-17.4%
2,913
-15.7%
708
-4.6%
720
-2.3%
709
-1.5%
707
-1.0%
2,844
-2.4%
701
-1.0%
716
-0.5%
709
0.0%
709
0.3%
2,835
-0.3%
3,918
-7.1%
3,878
-10.1%
3,958
-9.2%
3,913
-7.8%
15,667
-8.6%
3,868
-1.3%
3,911
0.9%
3,926
-0.8%
3,933
0.5%
15,638
-0.2%
3,926
1.5%
3,989
2.0%
4,024
2.5%
4,031
2.5%
15,970
2.1%
Global Wholesale Services Revenues

% change y/y
2,269
-14.3%
2,291
-12.7%
2,307
-11.6%
2,288
-10.2%
9,155
-12.2%
2,210
-2.6%
2,100
-8.3%
2,072
-10.2%
2,059
-10.0%
8,441
-7.8%
2,011
-9.0%
1,974
-6.0%
1,968
-5.0%
1,946
-5.5%
7,899
-6.4%
Other Revenues
% change y/y
463
-26.3%
363
-38.4%
355
-36.9%
333
-33.3%
1,514
-33.6%
269
-41.9%
196
-46.0%
215
-39.4%
183
-45.0%
863
-43.0%
183
-32.0%
137
-30.0%
204
-5.0%
174
-5.0%
698
-19.1%
Wireline Cost Drivers

% of revenue
% change y/y
5,668
53.3%
-6.8%
5,701
54.0%
-4.9%
5,978
56.0%
-2.9%
5,853
55.3%
-3.1%
23,200
54.7%
-4.4%
5,892
56.8%
4.0%
5,762
56.1%
1.1%
5,803
56.4%
-2.9%
5,758
56.2%
-1.6%
23,215
56.4%
0.1%
5,702
56.0%
-3.2%
5,688
55.8%
-1.3%
5,706
55.7%
-1.7%
5,605
55.2%
-2.7%
22,702
55.7%
-2.2%
Selling, general & administrative expense

% of revenue
% change y/y
2,571
24.2%
-4.6%
2,533
24.0%
-9.8%
2,423
22.7%
-9.9%
2,485
23.5%
-12.9%
10,012
23.6%
-9.4%
2,475
23.9%
-3.7%
2,382
23.2%
-6.0%
2,319
22.5%
-4.3%
2,254
22.0%
-9.3%
9,430
22.9%
-5.8%
2,261
22.2%
-8.7%
2,273
22.3%
-4.6%
2,285
22.3%
-1.5%
2,234
22.0%
-0.9%
9,052
22.2%
-4.0%
Depreciation and amortization expense

% of revenue
% change y/y
1,998
18.8%
-9.6%
2,039
19.3%
-9.2%
2,075
19.5%
-8.5%
2,126
20.1%
-7.9%
8,238
19.4%
-8.8%
2,063
19.9%
3.3%
2,100
20.4%
3.0%
2,145
20.9%
3.4%
2,145
20.9%
0.9%
8,453
20.5%
2.6%
2,145
21.1%
4.0%
2,145
21.0%
2.1%
2,145
20.9%
0.0%
2,145
21.1%
0.0%
8,580
21.0%
1.5%
Capital Expenditures (wireline)

% change y/y
% of revenue
2,003
-16%
18.8%
2,338
-5%
22.1%
2,273
-8%
21.3%
2,278
-8%
21.5%
8,892
-9%
20.9%
1,566
-22%
15.1%
1,781
-24%
17.3%
1,751
-23%
17.0%
1,844
-19%
18.0%
6,942
-22%
16.9%
1,527
-2%
15.0%
1,529
-14%
15.0%
1,537
-12%
15.0%
1,523
-17%
15.0%
6,116
-12%
15.0%
Switched access lines in service (000)

Voice
Residence-switched access lines
Net Residental Adds
% change y/y
Wholesale voice connections

Net Wholesale Adds
% change y/y
Total Voice Access Lines (excl Wholesale)
Quarterly change (000)
% change y/y
Broadband
Broadband connections
Net Broadband Adds
% change y/y
Consumer Retail ARPU (reported) per Primary Line

% change y/y
% change q/q
Other Wireline Revenue Drivers
Former MCI Mass Markets Revenues
% change y/y
Other Mass Markets Revenues
% change y/y
SME
% change y/y
Global Enterprise Revenues
% change y/y
247
Philip Cusick, CFA

(1-212) 622-1444

13 January 2011
Table 111: Verizon Wireline Income Statement

1Q09
2Q09
3Q09
4Q09
2009
1Q10
2Q10
3Q10
4Q10E
2010E
1Q11E
2Q11E
3Q11E
4Q11E
2011E
Operating Revenues
Mass Markets
% change y/y
Consumer
% change y/y
SME
% change y/y
Global Enterprise
% change y/y
Global Wholesale Services
% change y/y
Other
Total Operating Revenues
% change y/y
3,990
-12.0%
3,248
-11.5%
742
-13.8%
3,918
-7.1%
2,269
-14.3%
463
10,640
-11.5%
4,031
-12.1%
3,294
-11.3%
737
-15.3%
3,878
-10.1%
2,291
-12.7%
363
10,563
-12.8%
4,047
-12.5%
3,327
-11.7%
720
-16.3%
3,958
-9.2%
2,307
-11.6%
355
10,667
-12.3%
4,047
-12.5%
3,333
-11.4%
714
-17.4%
3,913
-7.8%
2,288
-10.2%
333
10,581
-11.2%
16,115
-12.3%
13,202
-11.5%
2,913
-15.7%
15,667
-8.6%
9,155
-12.2%
1,514
42,451
-12.0%
4,028
1.0%
3,320
2.2%
708
-4.6%
3,868
-1.3%
2,210
-2.6%
269
10,375
-2.5%
4,070
1.0%
3,350
1.7%
720
-2.3%
3,911
0.9%
2,100
-8.3%
196
10,277
-2.7%
4,073
0.6%
3,364
1.1%
709
-1.5%
3,926
-0.8%
2,072
-10.2%
215
10,286
-3.6%
4,071
0.6%
3,364
0.9%
707
-1.0%
3,933
0.5%
2,059
-10.0%
183
10,246
-3.2%
16,242
0.8%
13,398
1.5%
2,844
-2.4%
15,638
-0.2%
8,441
-7.8%
863
41,184
-3.0%
4,063
0.9%
3,362
1.3%
701
-1.0%
3,926
1.5%
2,011
-9.0%
183
10,183
-1.9%
4,092
0.6%
3,376
0.8%
716
-0.5%
3,989
2.0%
1,974
-6.0%
137
10,193
-0.8%
4,048
-0.6%
3,339
-0.7%
709
0.0%
4,024
2.5%
1,968
-5.0%
204
10,245
-0.4%
4,004
-1.6%
3,295
-2.1%
709
0.3%
4,031
2.5%
1,946
-5.5%
174
10,155
-0.9%
16,207
-0.2%
13,372
-0.2%
2,835
-0.3%
15,970
2.1%
7,899
-6.4%
698
40,775
-1.0%
Operating Expenses
Gross Income
Gross Margin
5,668
4,972
46.7%
5,701
4,862
46.0%
5,978
4,689
44.0%
5,853
4,728
44.7%
23,200
19,251
45.3%
5,892
4,483
43.2%
5,762
4,515
43.9%
5,803
4,483
43.6%
5,758
4,488
43.8%
23,215
17,969
43.6%
5,702
4,481
44.0%
5,688
4,505
44.2%
5,706
4,538
44.3%
5,605
4,549
44.8%
22,702
18,073
44.3%
2,571
1,998
10,237
2,533
2,039
10,273
2,423
2,075
10,476
2,485
2,126
10,464
10,012
8,238
41,450
2,475
2,063
10,430
2,382
2,100
10,244
2,319
2,145
10,267
2,254
2,145
10,157
9,430
8,453
41,098
2,261
2,145
10,108
2,273
2,145
10,106
2,285
2,145
10,136
2,234
2,145
9,984
9,052
8,580
40,334
2,401
22.6%
2,329
22.0%
2,266
21.2%
2,243
21.2%
9,239
21.8%
2,008
19.4%
2,133
20.8%
2,164
21.0%
2,234
21.8%
8,539
20.7%
2,220
21.8%
2,232
21.9%
2,254
22.0%
2,315
22.8%
9,021
22.1%
403
3.8%
290
2.7%
191
1.8%
117
1.1%
1,001
2.4%
(55)
-0.5%
33
0.3%
19
0.2%
89
0.9%
86
0.2%
75
0.7%
87
0.9%
109
1.1%
170
1.7%
441
1.1%
Selling, general & administrative expense

Total Operating Expenses
EBITDA
EBITDA Margin
Operating Income
Operating Income Margin
248
Philip Cusick, CFA

(1-212) 622-1444

13 January 2011
Table 112: Verizon Consolidated Income Statement

1Q09
2Q09
3Q09
4Q09
2009
1Q10
2Q10
3Q10
4Q10E
2010E
1Q11E
2Q11E
3Q11E
4Q11E
2011E
4,924
3,743
2,389
511
4,959
3,704
2,409
416
4,947
3,797
2,426
399
4,925
3,744
2,413
374
19,755
14,988
9,637
1,700
4,585
3,993
2,347
307
4,619
4,036
2,232
225
4,073
3,926
2,072
215
4,071
3,933
2,059
183
17,348
15,888
8,710
930
4,063
3,926
2,011
183
4,092
3,989
1,974
137
4,048
4,024
1,968
204
4,004
4,031
1,946
174
16,207
15,970
7,899
698
13,075
2,047
(98)
26,591
12.8%
25,263
-1.9%
13,349
2,131
(107)
26,861
11.3%
25,511
-3.2%
13,525
2,272
(101)
27,265
10.2%
25,934
-4.3%
13,548
2,184
(97)
27,091
9.9%
25,803
-4.6%
53,497
8,634
(403)
107,808
11.0%
102,511
-3.5%
13,845
1,938
(102)
26,913
1.2%
25,635
1.5%
14,046
1,960
(345)
26,773
-0.3%
25,644
0.5%
14,168
2,082
(52)
26,484
-2.9%
26,484
2.1%
14,191
1,979
(149)
26,267
-3.0%
26,267
1.8%
56,250
7,959
(648)
106,437
-1.3%
104,030
1.5%
14,331
2,261
(162)
26,613
-1.1%
26,613
3.8%
14,652
2,393
(177)
27,061
1.1%
27,061
5.5%
15,002
2,267
(135)
27,379
3.4%
27,379
3.4%
14,960
2,179
(156)
27,138
3.3%
27,138
3.3%
58,945
9,100
(630)
108,190
1.6%
108,190
4.0%
Operating Expense - Before Special Items

Cost of Service and Sales
SG&A
Depreciation and Amortization
10,247
7,421
3,983
21,651
10,457
7,389
4,000
21,846
10,914
7,340
4,076
22,330
11,004
7,341
4,156
22,501
42,622
29,491
16,215
88,328
10,565
7,518
4,093
22,176
10,467
7,420
4,151
22,038
10,540
7,101
3,997
21,638
10,375
7,030
4,015
21,421
41,947
29,069
16,256
87,273
10,956
7,090
4,101
22,147
11,586
7,174
4,100
22,860
11,374
7,112
4,097
22,583
11,066
7,117
4,100
22,283
44,983
28,493
16,397
89,873
Operating Income
Wireless
% margin
Wireline
% margin
Other
Total Operating Income
% margin
4,165
27.5%
691
6.0%
84
4,940
18.6%
4,344
28.1%
555
4.8%
116
5,015
18.7%
4,474
28.3%
444
3.8%
17
4,935
18.1%
4,301
27.3%
291
2.5%
(2)
4,590
16.9%
17,284
27.6%
1,981
2.4%
215
19,480
18.1%
4,554
28.9%
172
1.5%
11
4,737
17.6%
4,842
30.3%
214
1.9%
(321)
4,735
17.7%
4,695
28.9%
19
0.2%
132
4,846
18.3%
4,803
29.7%
89
0.9%
(45)
4,846
18.4%
18,894
29.2%
494
0.2%
(223)
19,164
18.0%
4,447
26.8%
75
0.7%
(56)
4,466
16.8%
4,187
24.6%
87
0.9%
(72)
4,201
15.5%
4,697
27.2%
109
1.1%
(10)
4,795
17.5%
4,730
27.6%
170
1.7%
(46)
4,855
17.9%
18,060
26.5%
441
1.1%
(184)
18,317
16.9%
EBITDA
Wireless
% service margin
Wireline
% margin
Other
Total EBITDA
% margin
5,958
45.6%
2,906
25.1%
59
8,923
33.6%
6,163
46.2%
2,815
24.5%
37
9,015
33.6%
6,232
46.1%
2,746
23.7%
33
9,011
33.0%
6,097
45.0%
2,636
23.0%
13
8,746
32.3%
24,450
45.5%
11,103
21.8%
142
35,695
33.1%
6,366
46.0%
2,440
21.7%
24
8,830
32.8%
6,669
47.5%
2,521
22.7%
(304)
8,886
33.2%
6,556
46.3%
2,164
21.0%
123
8,843
33.4%
6,664
47.0%
2,234
21.8%
(36)
8,861
33.7%
26,255
46.5%
9,359
20.7%
(193)
35,420
33.3%
6,395
44.6%
2,220
21.8%
(48)
8,567
32.2%
6,135
41.9%
2,232
21.9%
(66)
8,301
30.7%
6,645
44.3%
2,254
22.0%
(7)
8,892
32.5%
6,679
44.6%
2,315
22.8%
(39)
8,955
33.0%
25,854
43.9%
9,021
22.1%
(161)
34,714
32.1%
Operating income impact of divested operations

Equity in earnings of unconsolidated businesses
Other income and (expense), net
Interest expense
Minority interest
Income Before Taxes, Discontinued Ops, Other
128
55
(717)
(1,698)
2,708
128
11
(740)
(1,713)
2,701
166
13
(704)
(1,885)
2,525
131
13
(686)
(1,810)
2,238
553
92
(2,847)
(7,106)
10,172
133
45
(680)
(1,875)
2,360
121
17
(679)
(1,745)
2,449
141
(50)
(597)
(2,039)
2,301
120
(50)
(545)
(2,005)
2,366
515
(38)
(2,501)
(7,664)
9,476
114
50
(526)
(1,869)
2,235
114
50
(503)
(1,774)
2,088
114
50
(481)
(2,016)
2,462
114
50
(457)
(2,047)
2,514
456
200
(1,967)
(7,706)
9,300
Provision for income taxes

Income Before Discontinued Ops
Income Tax %
(917)
1,791
33.9%
(905)
1,796
33.5%
(833)
1,692
33.0%
(712)
1,526
31.8%
(3,367)
6,805
33.1%
(757)
1,603
32.1%
(820)
1,629
33.5%
(717)
1,584
31.1%
(757)
1,609
32.0%
(3,051)
6,425
32.2%
(715)
1,520
32.0%
(668)
1,420
32.0%
(788)
1,674
32.0%
(805)
1,710
32.0%
(2,976)
6,324
32.0%
Income from discontinued operations, net of tax

Net Income Before Special Items
1,791
1,796
1,692
1,526
6,805
1,603
1,629
1,584
1,609
6,425
1,520
1,420
1,674
1,710
6,324
Average Shares Outstanding (Basic)

Diluted Shares Outstanding
2,841
2,841
2,841
2,841
2,841
2,841
2,841
2,841
2,841
2,841
2,837
2,837
2,827
2,827
2,829
2,830
2,834
2,834
2,832
2,832
2,835
2,835
2,837
2,837
2,838
2,838
2,839
2,839
2,837
2,837
Earnings Per Share (Basic)

Earnings Per Share (Diluted)
$0.63
$0.63
$0.63
$0.63
$0.60
$0.60
$0.54
$0.54
$2.40
$2.40
$0.56
$0.56
$0.58
$0.58
$0.56
$0.56
$0.57
$0.57
$2.27
$2.27
$0.54
$0.54
$0.50
$0.50
$0.59
$0.59
$0.60
$0.60
$2.23
$2.23
EPS - ex discontinued ops, other (Basic)

EPS - ex discontinued ops, other (Diluted)
$0.63
$0.63
$0.63
$0.63
$0.60
$0.60
$0.54
$0.54
$2.40
$2.40
$0.56
$0.56
$0.58
$0.58
$0.56
$0.56
$0.57
$0.57
$2.27
$2.27
$0.54
$0.54
$0.50
$0.50
$0.59
$0.59
$0.60
$0.60
$2.23
$2.23

Wireless capex
Wireline capex
Other capex
Total capex
% of total revenue
$0.46
1,551
2,003
153
3,707
13.9%
$0.46
1,783
2,338
266
4,387
16.3%
$0.46
1,800
2,273
4,356
16.0%
$0.48
2,018
2,278
301
4,597
17.0%
$1.86
7,152
8,892
1,003
17,047
15.8%
$0.47
1,770
1,566
120
3,456
12.8%
$0.48
2,262
1,781
186
4,229
15.8%
$0.47
2,173
1,751
234
4,158
15.7%
$0.49
2,200
1,844
234
4,278
16.3%
$1.91
8,405
6,942
774
16,121
15.1%
$0.49
2,150
1,527
234
3,911
14.7%
$0.49
2,198
1,529
234
3,961
14.6%
$0.49
2,250
1,537
234
4,021
14.7%
$0.50
2,244
1,523
234
4,001
14.7%
$1.96
8,842
6,116
936
15,894
14.7%
2,713
131.9%
48.2%
3,330
34.0%
78.5%
4,625
62.4%
84.8%
3,850
33.7%
136.9%
14,518
54.7%
36.3%
3,661
34.9%
36.8%
5,527
66.0%
48.7%
4,182
-9.6%
96.5%
3,037
-21.1%
178.3%
16,407
13.0%
33.0%
3,401
-7.1%
40.6%
3,250
-41.2%
85.1%
3,441
-17.7%
120.6%
3,499
15.2%
158.7%
13,591
-17.2%
40.9%
Operating Revenues
Wireline - Telecom
Mass Markets
Global Enterprise
Global Wholesale Services
Other
Wireless
Service revenue
Equipment revenue and other
Other
Total Reported Revenues
% change y/y
Total PF Revenues
% change y/y
Free Cash Flow

% change y/y
Payout Ratio
283
249
Philip Cusick, CFA

(1-212) 622-1444

13 January 2011
Table 113: Verizon Balance Sheet

1Q09
2Q09
3Q09
4Q09
2009
1Q10
2Q10
3Q10
4Q10E
2010E
1Q11E
2Q11E
3Q11E
4Q11E
2011E
4.9%
3,979
372
11,989
2,195
3,343
21,878
820
360
12,170
2,775
5,339
21,464
1,216
474
12,489
2,554
5,290
22,023
2,009
490
12,573
2,289
5,247
22,608
2,009
490
12,573
2,289
5,247
22,608
3,037
520
11,969
1,113
5,766
22,405
4,761
464
12,058
985
2,793
21,061
5,394
581
11,973
1,010
2,383
21,341
7,049
581
11,973
1,010
2,383
22,996
7,049
581
11,973
1,010
2,383
22,996
9,068
581
11,973
1,010
2,383
25,015
10,935
581
11,973
1,010
2,383
26,882
12,993
581
11,973
1,010
2,383
28,940
15,087
581
11,973
1,010
2,383
31,034
15,087
581
11,973
1,010
2,383
31,034
221,500
131,645
89,855
224,150
133,848
90,302
226,470
135,636
90,834
228,518
137,052
91,466
228,518
137,052
91,466
231,771
139,937
91,834
234,727
142,626
92,101
217,859
130,429
87,430
222,137
134,444
87,693
222,137
134,444
87,693
226,048
138,545
87,503
230,009
142,645
87,364
234,030
146,741
87,288
238,031
150,841
87,189
238,031
150,841
87,189
Investments in unconsolidated businesses

Wireless licenses
Goodwill
Other intangible assets, net
Other investments
Other assets
Total Assets
3,574
70,873
22,531
7,299
10,841
226,851
3,513
71,708
22,189
7,232
8,591
224,999
3,808
71,899
22,190
6,948
8,702
226,404
3,535
72,067
22,472
6,764
8,339
227,251
3,535
72,067
22,472
6,764
8,339
227,251
3,685
72,256
22,472
6,510
8,185
227,347
3,797
72,435
22,467
6,324
8,066
226,251
3,832
72,719
21,933
5,915
7,682
220,852
3,832
72,719
21,933
5,915
7,682
222,770
3,832
72,719
21,933
5,915
7,682
222,770
3,832
72,719
21,933
5,915
7,682
224,599
3,832
72,719
21,933
5,915
7,682
226,327
3,832
72,719
21,933
5,915
7,682
228,309
3,832
72,719
21,933
5,915
7,682
230,305
3,832
72,719
21,933
5,915
7,682
230,305
Liabilities and Shareowners' Investment

Current liabilities
Debt maturing within one year
Liabilities related to assets held for sale
Other
13,459
14,403
7,207
35,069
5,440
14,685
5,443
14,643
7,205
15,223
7,129
14,569
5,810
16,092
5,810
16,092
5,810
16,092
5,810
16,092
6,708
29,136
6,365
28,063
6,865
28,767
6,865
28,767
5,810
16,092
6,865
28,767
5,810
16,092
7,219
27,305
7,874
16,905
7,055
31,834
5,810
16,092
6,243
26,368
7,205
15,223
6,708
29,136
6,865
28,767
6,865
28,767
6,865
28,767
6,865
28,767
5,810
16,092
6,865
28,767
Long-term debt
Employee benefit obligations
Other liabilities
55,674
32,149
16,998
6,407
59,469
32,162
17,737
6,442
57,374
31,881
18,652
6,610
55,051
32,622
19,310
6,765
55,051
32,622
19,310
6,765
54,424
31,770
21,665
6,773
49,594
32,435
21,324
6,591
47,360
31,915
21,772
6,414
47,360
31,915
21,772
6,414
47,360
31,915
21,772
6,414
47,360
31,915
21,772
6,414
47,360
31,915
21,772
6,414
47,360
31,915
21,772
6,414
47,360
31,915
21,772
6,414
47,360
31,915
21,772
6,414
Minority interest
38,703
40,149
41,396
42,761
42,761
44,190
45,219
46,707
48,712
48,712
50,581
52,355
54,371
56,418
56,418
297
40,108
19,588
(13,387)
(4,837)
297
40,102
19,765
(12,742)
(4,836)
297
40,100
19,591
(12,058)
(4,834)
297
40,108
17,592
(11,479)
(5,000)
297
40,108
17,592
(11,479)
(5,000)
297
40,108
16,658
(11,442)
(5,277)
297
40,108
15,117
(11,140)
(5,277)
297
37,921
14,621
(9,835)
(5,276)
82
41,851
226,851
86
42,672
224,999
90
43,186
226,404
88
41,606
227,251
88
41,606
227,251
118
40,462
227,347
149
39,254
226,251
189
37,917
220,852
297
37,921
14,534
(9,835)
(5,276)
0
189
37,830
222,770
297
37,921
14,534
(9,835)
(5,276)
0
189
37,830
222,770
297
37,921
14,494
(9,835)
(5,276)
0
189
37,790
224,599
297
37,921
14,448
(9,835)
(5,276)
0
189
37,744
226,327
297
37,921
14,414
(9,835)
(5,276)
0
189
37,710
228,309
297
37,921
14,363
(9,835)
(5,276)
0
189
37,659
230,305
297
37,921
14,363
(9,835)
(5,276)
0
189
37,659
230,305
2011E
Assets
Current assets
Short-term investments
Accounts receivable, net
Inventories
Assets held for sale
Prepaid expenses and other
Plant, property and equipment (Gross)
Less accumulated depreciation
Net PPE
Shareowners' investment
Common stock
Contributed capital
Reinvested earnings
Accumulated other comprehensive loss
Common stock in treasury, at cost
Deferred compensation - employee
stock ownership plans and other
Total shareowners' investment
Total Liabilities and Shareowners' Investment
Table 114: Verizon Cash Flow Statement

QUARTERLY
Cash Flows From Operating Activities
Net Income
Adjustments to reconcile net income to net cash
Loss on sale of discontinued operations
Employee retirement benefits
Equity in earnings of unconsolidated businesses, net of
Extraordinary item, net of tax
Cumulative effect of accounting change, net of tax
changes in current assets and liabilities, net of
Other, net
Net cash provided by operating activities - continuing operatio
Net cash provided by (used in) operating activities - discontinu
Net cash provided by operating activities
1Q09
2Q09
3Q09
4Q09
2009
1Q10
2Q10
3Q10
4Q10E
2010E
1Q11E
2Q11E
3Q11E
4Q11E
3,210
3,160
2,887
1,101
10,358
2,284
1,547
2,920
1,609
8,360
1,520
1,420
1,674
1,710
6,324
4,028
502
604
358
(117)
(393)
(1,772)
6,420
6,420
4,091
918
692
285
290
(1,677)
(42)
7,717
7,717
4,172
1,113
1,376
274
(152)
(267)
(422)
8,981
8,981
4,241
2,562
(1,288)
389
368
(174)
1,248
8,447
8,447
16,532
5,095
1,384
1,306
389
(2,511)
(988)
31,565
31,565
4,121
667
2,389
371
(120)
(1,043)
(1,552)
7,117
7,117
4,176
1,851
(1,035)
309
(107)
2,545
470
9,756
9,756
4,022
1,391
978
242
309
(862)
(660)
8,340
8,340
4,015
1,391
250
50
7,315
7,315
16,334
5,300
2,582
972
82
640
(1,742)
32,528
32,528
4,101
1,391
250
50
7,312
7,312
4,100
1,391
250
50
7,211
7,211
4,097
1,391
250
50
7,462
7,462
4,100
1,391
250
50
7,501
7,501
16,397
5,564
1,000
200
29,485
29,485
Cash Flows From Investing Activities

Capital expenditures (including capitalized software)
Acquisitions of businesses and licenses, net of cash acquired,
Net change in short-term investments and other current invest
Other, net
Net cash used in investing activities - continuing operations
Net cash used in investing activities - discontinued operations
(3,707)
(5,118)
80
(14)
(8,759)
(8,759)
(4,387)
(249)
39
78
(4,519)
(4,519)
(4,356)
(260)
(41)
(13)
(4,670)
(4,670)
(4,597)
(331)
6
(461)
(5,383)
(5,383)
(17,047)
(5,958)
84
(410)
(23,331)
(23,331)
(3,456)
(274)
(40)
114
(3,656)
(3,656)
(4,229)
2,330
23
(77)
(1,953)
(1,953)
(4,158)
(489)
(17)
114
(4,550)
(4,550)
(4,278)
(4,278)
(4,278)
(16,121)
1,567
(34)
151
(14,437)
(14,437)
(3,911)
(3,911)
(3,911)
(3,961)
(3,961)
(3,961)
(4,021)
(4,021)
(4,021)
(4,001)
(4,001)
(4,001)
(15,894)
(15,894)
(15,894)
Cash Flows From Financing Activities

Proceeds from long-term borrowings
Repayments of long-term borrowings and capital
Increase (decrease) in short-term obligations, excluding
Dividends paid
Proceeds from sale of common stock
Purchase of common stock for treasury
Other, net
Net cash provided by (used in) financing activities - continuing
Net cash used in financing activities - discontinued operations
Net cash provided by (used in) financing activities
7,052
(16,865)
7,908
(1,307)
(252)
(3,464)
(3,464)
4,988
(1,308)
(8,011)
(1,307)
(719)
(6,357)
(6,357)
(793)
(1,351)
(1,306)
(465)
(3,915)
(3,915)
(294)
(198)
(1,351)
(428)
(2,271)
(2,271)
12,040
(19,260)
(1,652)
(5,271)
(1,864)
(16,007)
(16,007)
(519)
(97)
(1,347)
(470)
(2,433)
(2,433)
(4,075)
(1,343)
(661)
(6,079)
(6,079)
(3,347)
(1,000)
(1,344)
2,534
(3,157)
(3,157)
(1,382)
(1,382)
(1,382)
(7,941)
(1,097)
(5,416)
1,403
(13,051)
(13,051)
(1,382)
(1,382)
(1,382)
(1,383)
(1,383)
(1,383)
(1,383)
(1,383)
(1,383)
(1,405)
(1,405)
(1,405)
(5,554)
(5,554)
(5,554)
(5,803)
9,782
3,979
(3,159)
3,979
820
396
820
1,216
793
1,216
2,009
(7,773)
9,782
2,009
1,028
2,009
3,037
1,724
3,037
4,761
633
4,761
5,394
1,655
5,394
7,049
5,040
2,009
7,049
2,019
7,049
9,068
1,867
9,068
10,935
2,058
10,935
12,993
2,094
12,993
15,087
8,038
7,049
15,087
Increase (decrease) in cash and cash equivalents

Cash and cash equivalents, beginning of period
Cash and cash equivalents, end of period
250
Philip Cusick, CFA

(1-212) 622-1444

13 January 2011
Sprint Nextel Model

Table 115: Sprint Nextel Wireless Operating Statistics
1Q09
2Q09
3Q09
4Q09
1Q10
2Q10
3Q10
4Q10E
2010E
1Q11E
2Q11E
3Q11E
4Q11E
2011E
35,428
2.25%
(1,250)
1,184
34,437
2.05%
(991)
1,157
33,636
2.17%
(801)
1,415
33,967
2.11%
(504)
1,636
33,967
2.11%
(3,546)
5,391
33,389
2.15%
(578)
1,594
33,161
1.85%
(228)
1,619
33,054
1.93%
(107)
1,810
33,079
1.85%
25
1,860
33,079
1.93%
(888)
6,883
33,054
1.75%
(25)
1,711
33,154
1.75%
100
1,838
33,204
1.75%
50
1,792
33,304
1.75%
100
1,846
33,304
1.75%
225
7,187
4,271
6.9%
674
1,484
5,048
6.4%
777
1,669
5,714
6.7%
666
1,740
10,688
5.6%
435
1,803
10,688
4.8%
2,552
6,695
11,036
5.7%
348
2,218
11,209
5.6%
173
2,045
11,631
5.3%
471
2,294
12,081
5.5%
450
2,406
12,081
5.5%
1,442
8,963
12,481
5.4%
400
2,390
12,681
5.4%
200
2,238
12,881
5.4%
200
2,271
13,331
5.4%
450
2,573
13,331
5.4%
1,250
9,471
39,699
(576)
2,667
2.7%
39,485
(214)
2,826
2.6%
39,350
(135)
3,154
2.8%
44,655
(69)
3,439
2.8%
44,655
(994)
12,086
2.6%
44,425
(230)
3,813
3.0%
44,370
(55)
3,664
2.8%
44,685
364
4,104
2.8%
45,160
475
4,266
2.8%
45,160
554
15,846
2.8%
45,535
375
4,101
2.7%
45,835
300
4,076
2.8%
46,085
250
4,062
2.8%
46,635
550
4,419
2.8%
46,635
1,475
16,658
2.8%
394
(182)
(43)
(257)
(410)
(545)
(79)
(148)
(138)
(1,132)
155
(75)
166
111
Direct postpaid ARPU

% change, y-t-y
Direct postpaid ARPU (reported)
$56.06
0.4%
$56.00
$56.27
0.3%
$56.00
$55.81
0.0%
$56.00
$54.69
-1.9%
$55.00
$54.75
-2.2%
$54.82
-2.2%
$55.00
$54.79
-2.6%
$55.00
$54.77
-1.9%
$55.00
$54.53
-0.3%
$54.33
-0.8%
$54.55
-0.5%
$54.51
-0.5%
$54.77
0.0%
$54.53
0.0%
$54.52
0.3%
Wireless EBITDA
EBITDA margin
$1,449
22.0%
$1,413
21.7%
$1,184
18.5%
$1,117
17.6%
$5,163
20.0%
$1,196
18.5%
$1,224
19.0%
$1,065
16.6%
$983
15.2%
$4,468
17.3%
$1,139
17.5%
$1,158
17.7%
$1,172
17.8%
$996
15.1%
$4,465
17.0%
291
77
197
3.1%
17
321
47
227
3.6%
47
431
72
310
5.0%
49
554
62
427
6.8%
65
1,597
258
1,161
4.6%
178
419
56
311
4.8%
52
437
49
319
5.0%
69
462
59
341
5.3%
62
616
54
500
7.8%
62
1,934
218
1,471
5.7%
245
609
59
500
7.8%
50
608
58
500
7.7%
50
756
56
650
10.0%
50
804
54
700
10.7%
50
2,778
228
2,350
9.0%
200
36,678
1,184
(2,434)
35,428
-10.7%
35,428
1,157
(2,148)
34,437
-11.5%
34,437
1,415
(2,216)
33,636
-11.0%
33,636
1,636
(2,140)
835
33,967
-7.4%
36,678
5,391.3
(8,937)
835
33,967
-7.4%
33,967
1,594
(2,172)
33,389
-5.8%
33,389
1,619
(1,847)
33,161
-3.7%
33,161
1,810
(1,917)
33,054
-1.7%
33,054
1,860
(1,835)
33,079
-2.6%
33,967
6,883.1
(7,771)
0
33,079
-2.6%
33,079
1,711
(1,736)
33,054
-1.0%
33,054
1,838
(1,738)
33,154
0.0%
33,154
1,792
(1,742)
33,204
0.5%
33,204
1,846
(1,746)
33,304
0.7%
33,079
7,186.7
(6,962)
0
33,304
0.7%
WIRELESS KEY MODEL METRICS

Postpaid direct ending subscribers
Postpaid churn rate
Net additions (postpaid direct)
Gross additions (postpaid direct)
Prepaid direct ending subscribers
Prepaid churn rate
Prepaid net additions (direct)
Prepaid gross additions (direct)
Direct ending subscribers
Direct net additions
Direct gross additions
Direct churn
Wholesale net adds
Total net additions
Total capital spending

Wireline capex
Wireless capex (2G/3G/4G)
Wireless capex/service revenue
Corporate
Subscriber model
- Disconnects
Direct ending postpaid subscribers
% change, y-t-y
Churn rate, monthly (direct postpaid)
Avg. customer life
2009
280
644
280
755
881
1,435
100
475
100
400
100
350
100
650
400
1,875
2.25%
44
2.05%
49
2.17%
46
2.11%
47
2.11%
47
2.15%
47
1.85%
54
1.93%
52
1.85%
54
1.93%
52
1.75%
57
1.75%
57
1.75%
57
1.75%
57
1.75%
57
27,069
1,098
(1,629)
0
26,538
(531)
2.0%
26,538
1,137
(1,530)
0
26,145
(393)
1.9%
26,145
1,391
(1,662)
0
25,874
(271)
2.1%
25,874
1,625
(1,622)
835
26,712
3
2.1%
27,069
5,250
(6,442)
835
26,712
(1,192)
2.0%
26,712
1,535
(1,666)
0
26,581
(131)
2.1%
26,581
1,537
(1,401)
0
26,717
136
1.8%
26,717
1,774
(1,498)
0
26,993
276
1.9%
26,993
1,842
(1,442)
0
27,393
400
1.8%
26,712
6,688
(6,007)
0
27,393
681
1.9%
27,393
1,623
(1,373)
0
27,643
250
1.7%
27,643
1,690
(1,390)
0
27,943
300
1.7%
27,943
1,657
(1,407)
0
28,193
250
1.7%
28,193
1,673
(1,423)
0
28,443
250
1.7%
27,393
6,643
(5,593)
0
28,443
1,050
1.7%
9,609
86
(805)
0
8,890
(719)
2.9%
1,200
(200)
8,890
21
(619)
0
8,292
(598)
2.4%
1,020
(180)
8,292
24
(554)
0
7,762
(530)
2.3%
870
(150)
7,762
11
(518)
0
7,255
(507)
2.3%
725
(145)
9,609
141
(2,495)
0
7,255
(2,354)
2.5%
725
(675)
7,255
59
(506)
0
6,808
(447)
2.4%
607
(118)
6,808
82
(446)
0
6,400
(364)
2.3%
517
(90)
6,400
36
(419)
0
6,017
(383)
2.3%
439
(78)
6,017
18
(393)
0
5,642
(375)
2.3%
339
(100)
7,255
196
(1,765)
0
5,642
(1,569)
2.3%
339
(386)
5,642
88
(363)
0
5,367
(275)
2.2%
239
(100)
5,367
148
(348)
0
5,167
(200)
2.2%
139
(100)
5,167
134
(334)
0
4,967
(200)
2.2%
39
(100)
4,967
173
(323)
0
4,817
(150)
2.2%
0
(39)
5,642
543
(1,368)
0
4,817
(825)
2.2%
0
(339)
Average direct postpaid subscribers

Avg. CDMA subscribers
Avg. iDEN subscribers
% CDMA
% iDEN
Avg. affiliate/wholesale
36,053
26,804
9,250
74.3%
25.7%
9,187
34,933
26,342
8,591
75.4%
24.6%
9,363
34,037
26,010
8,027
76.4%
23.6%
9,136
33,802
26,293
7,509
77.8%
22.2%
6,205
35,323
26,891
8,344
76.1%
23.9%
6,234
33,678
26,647
7,032
79.1%
20.9%
3,556
33,275
26,649
6,604
80.1%
19.9%
3,716
33,108
26,855
6,209
81.1%
18.9%
3,964
33,067
27,193
5,830
82.2%
17.8%
4,268
33,523
27,053
6,418
80.7%
19.3%
3,943
33,067
27,518
5,505
83.2%
16.8%
4,458
33,104
27,793
5,267
84.0%
16.0%
4,558
33,179
28,068
5,067
84.6%
15.4%
4,658
33,254
28,318
4,892
85.2%
14.8%
4,758
33,192
27,918
5,183
84.1%
15.9%
4,608
Ending subscribers (total)

Ending subscribers (Boost)
Ending subscribers (wholesale/affiliate)
Ending subscribers (postpaid)
49,083
4,271
9,384
35,428
48,826
5,048
9,341
34,437
48,281
5,714
8,931
33,636
48,133
10,688
3,478
33,967
48,133
10,688
3,478
33,967
48,058
11,036
3,633
33,389
48,169
11,209
3,799
33,161
48,813
11,631
4,128
33,054
49,568
12,081
4,408
33,079
49,568
12,081
4,408
33,079
50,043
12,481
4,508
33,054
50,443
12,681
4,608
33,154
50,793
12,881
4,708
33,204
51,443
13,331
4,808
33,304
51,443
13,331
4,808
33,304
Net additional subscribers (total)

Net additional subscribers (Boost)
Net additional subscribers (wholesale/affliate)
Net additional subscribers (Postpaid)
% change, y-t-y
(182)
674
394
(1,250)
-16.8%
(257)
777
(43)
(991)
-27.7%
(545)
666
(410)
(801)
28.6%
(148)
435
(79)
(504)
54.4%
(1,132)
2,552
(138)
(3,546)
12.9%
(75)
348
155
(578)
53.8%
111
173
166
(228)
77.0%
644
471
280
(107)
86.6%
755
450
280
25
NM
1,435
1,442
881
(888)
75.0%
475
400
100
(25)
95.7%
400
200
100
100
NM
350
200
100
50
NM
650
450
100
100
300.0%
1,875
1,250
400
225
NM
3,597
1,484
(810)
4,271
1,669
(892)
5,048
1,740
(1,074)
11,036
2,045
(1,872)
12,481
2,238
(2,038)
12,681
2,271
(2,071)
12,881
2,573
(2,123)
11,036
158.4%
11,209
122.0%
12,081
13.0%
10,688
8,963
(7,521)
(49)
12,081
13.0%
12,081
2,390
(1,990)
5,714
46.1%
11,209
2,294
(1,823)
(49)
11,631
103.6%
11,631
2,406
(1,956)
5,048
19.1%
3,597
6,695
(4,143)
4,539
10,688
197.1%
10,688
2,218
(1,870)
4,271
-2.4%
5,714
1,803
(1,368)
4,539
10,688
197.1%
12,481
13.1%
12,681
13.1%
12,881
10.7%
13,331
10.3%
12,081
9,471
(8,221)
0
13,331
10.3%
6.9%
674
6.4%
777
6.7%
666
5.6%
435
4.8%
2,552
5.7%
348
5.6%
173
5.3%
471
5.5%
450
5.5%
1,442
5.4%
400
5.4%
200
5.4%
200
5.4%
450
5.4%
1,250
3,934
39,987
10.6%
4,660
39,592
12.6%
5,381
39,418
14.4%
8,201
42,003
24.0%
7,143
42,465
23.2%
10,862
44,540
24.7%
11,123
44,398
25.2%
11,420
44,528
26.0%
11,856
44,923
26.8%
11,385
44,908
26.5%
12,281
45,348
27.4%
12,581
45,685
27.7%
12,781
45,960
28.0%
13,106
46,360
28.6%
12,706
45,898
28.7%
$31
6.9%
366
$34
13.3%
475
$35
12.9%
565
$31
3.3%
763
$33
9.2%
2,169
$27
-12.9%
880
$28
-17.6%
934
$28
-20.0%
959
$28
39.0%
1,005
$28
-15.1%
3,778
$28
3.7%
1,032
$28
0.0%
1,057
$28
0.0%
1,074
$28
-0.9%
1,101
$28
0.7%
4,263
774
(90)
3,497
764
613
(161)
4,435
938
478
(135)
5,236
801
5,000
4,522.0
5,688.0
452
5,000
4,136
5,688
2,955
5,300
300
5,736
48
6,000
700
5,209
(527)
7,121
1,121
4,510
(699)
7,621
500
4,460
(50)
7,621
2,621
4,460
(1,228)
8,121
500
4,360
(100)
8,621
500
4,060
(300)
9,121
500
3,760
(300)
9,621
500
3,710
(50)
9,621
2,000
3,710
(750)
Beginning CDMA subscribers

+ CDMA gross adds
- Disconnects
Ending CDMA subscribers (incl. Powersource)
Implied net additional CDMA subcribers
CDMA churn
Beginning iDEN subscribers
+ iDEN gross adds
- Disconnects
Ending iDEN subscribers
Implied net additional iDEN subcribers
iDEN churn
PowerSource subs
PowerSource net adds
Prepaid subscribers
- Disconnects
Ending subscribers
% change, y-t-y
Prepaid churn rate, monthly
Average Prepaid subscribers
Average direct subscribers
Prepaid as % of total direct subs
Direct prepaid ARPU
% change, y-t-y
Period revenue
Prepaid CDMA ending subs
Prepaid CDMA net adds
Prepaid iDEN ending subs
Prepaid iDEN net adds
251
Philip Cusick, CFA

(1-212) 622-1444

13 January 2011
Table 116: Sprint Nextel Wireless Segment Metrics

Calculated direct postpaid ARPU
% change, y-t-y
1Q09
$56.06
0.4%
2Q09
$56.27
0.3%
3Q09
$55.81
0.0%
4Q09
$54.69
-1.9%
2009
$54.75
-2.2%
1Q10
$54.82
-2.2%
2Q10
$54.79
-2.6%
3Q10
$54.77
-1.9%
4Q10E
$54.53
-0.3%
2010E
$54.33
-0.8%
1Q11E
$54.55
-0.5%
2Q11E
$54.51
-0.5%
3Q11E
$54.77
0.0%
4Q11E
$54.53
0.0%
2011E
$54.52
0.3%
Postpaid Data ARPU

% change, y-t-y
% of total ARPU
$14.52
26.2%
25.9%
$15.55
26.9%
27.6%
$16.08
19.1%
28.8%
$16.80
15.9%
30.7%
$15.19
19.3%
27.7%
$16.96
16.8%
30.9%
$17.20
10.6%
31.4%
$17.45
8.5%
31.9%
$17.73
5.5%
32.5%
$17.21
13.3%
31.7%
$17.94
5.8%
32.9%
$18.13
5.4%
33.3%
$17.26
-1.1%
31.5%
$18.45
4.1%
33.8%
$17.92
4.2%
32.9%
CDMA ARPU
CDMA Voice ARPU
% change, y-t-y
CDMA data ARPU
% change, y-t-y
% of total ARPU
$57.50
$40.21
-3.6%
$17.29
20.9%
30.1%
$57.81
$39.31
-3.4%
$18.50
20.9%
32.0%
$57.16
$38.01
-3.8%
$19.15
16.1%
33.5%
$55.86
$36.31
-8.1%
$19.55
10.1%
35.0%
$57.08
$39.17
-3.4%
$17.91
13.7%
31.4%
$56.00
$36.34
-9.6%
$19.66
13.7%
35.1%
$56.00
$36.20
-7.9%
$19.80
7.0%
35.4%
$56.00
$36.06
-5.2%
$19.94
4.2%
35.6%
$56.00
$35.91
-1.1%
$20.09
2.7%
35.9%
$56.00
$36.28
-7.4%
$19.72
10.1%
35.2%
$56.00
$35.81
-1.5%
$20.19
2.7%
36.1%
$56.00
$35.71
-1.4%
$20.29
2.5%
36.2%
$56.00
$35.60
-1.3%
$20.40
2.3%
36.4%
$56.00
$35.52
-1.1%
$20.48
1.9%
36.6%
$56.00
$35.66
-1.7%
$20.34
3.2%
36.3%
iDEN ARPU
iDEN Voice ARPU
% change, y-t-y
iDEN data ARPU
% change, y-t-y
% of total ARPU
$51.87
$45.39
-9.7%
$6.48
27.2%
12.5%
$51.54
$45.02
-11.7%
$6.53
21.0%
12.7%
$51.43
$44.86
-9.7%
$6.57
14.6%
12.8%
$50.61
$43.95
-3.4%
$6.66
9.3%
13.2%
$47.79
$41.23
-17.4%
$6.55
18.2%
13.7%
$50.36
$43.66
-3.8%
$6.71
3.5%
13.3%
$50.07
$43.32
-3.8%
$6.75
3.4%
13.5%
$49.84
$43.05
-4.0%
$6.80
3.4%
13.6%
$48.07
$41.23
-6.2%
$6.84
2.7%
14.2%
$47.75
$40.98
-0.6%
$6.77
3.3%
14.2%
$47.73
$40.87
-6.4%
$6.86
2.3%
14.4%
$47.12
$40.25
-7.1%
$6.86
1.7%
14.6%
$48.44
$48.42
12.5%
$0.02
-99.7%
0.0%
$46.50
$39.61
-3.9%
$6.89
0.7%
14.8%
$47.52
$42.33
3.3%
$5.20
-23.2%
10.9%
Per direct subscriber cost metrics

COS per direct subscriber
COS/service revenue
G&A per direct subscriber
CCPU, calculated
$17.27
32.3%
$9.14
$26.42
$17.79
33.2%
$8.92
$26.71
$18.30
34.6%
$7.97
$26.27
$16.15
32.6%
$7.96
$24.11
$16.45
33.2%
$8.05
$24.50
$15.32
31.8%
$7.95
$23.27
$15.51
32.3%
$7.57
$23.08
$16.00
33.5%
$7.22
$23.21
$15.94
33.5%
$7.40
$23.34
$15.59
32.8%
$7.48
$23.07
$15.87
33.5%
$7.40
$23.27
$15.82
33.5%
$7.40
$23.22
$15.85
33.5%
$7.40
$23.25
$15.75
33.5%
$7.40
$23.15
$15.80
33.5%
$7.39
$23.19
Handset sales
Postpaid gross additions
Replacements as % of postpaid base
Postpaid replacement handsets
1,184
8.6%
3,101
1,157
9.0%
3,144
1,415
9.4%
3,199
1,636
9.0%
3,042
5,391
35.3%
12,486
1,594
9.0%
3,031
1,619
9.0%
2,995
1,810
10.0%
3,311
1,860
10.0%
3,307
6,883
37.7%
12,643
1,711
9.0%
2,976
1,838
9.0%
2,979
1,792
9.0%
2,986
1,846
9.5%
3,159
7,187
36.5%
12,101
Boost handset sales

Replacements as % of prepaid base
Prepaid replacement handsets
Total new handsets
1,484
3.0%
118
5,886
1,669
3.0%
140
6,110
1,740
3.0%
161
6,515
1,803
3.0%
246
6,727
6,695
9.3%
665
25,238
2,218
3.0%
326
7,170
2,045
3.0%
334
6,992
2,294
3.0%
343
7,757
2,406
3.0%
356
7,929
8,963
11.9%
1,358
29,847
2,390
3.0%
368
7,445
2,238
3.0%
377
7,433
2,271
3.0%
383
7,432
2,573
3.0%
393
7,971
9,471
12.0%
1,522
30,281
CDMA handset sales

iDEN handset sales
3,671
2,215
3,771
2,339
4,096
2,419
4,254
2,473
15,792
9,446
4,200
2,970
4,202
2,790
4,728
3,029
4,833
3,096
17,962
11,885
4,374
3,070
4,470
2,963
4,464
2,968
4,646
3,325
17,955
12,326
Cost of adding and maintaining customers

Eq. revenue per handset sold
Eq. cost per handset sold
Subsidy per handset sold
$77
$219
$142
$81
$220
$138
$81
$227
$146
$71
$213
$142
$77
$220
$142
$79
$218
$139
$81
$226
$145
$95
$233
$138
$95
$233
$138
$88
$228
$140
$90
$225
$135
$90
$225
$135
$90
$225
$135
$90
$225
$135
$90
$225
$135
Sales & marketing per gross addition

CPGA
$422
$565
$381
$519
$367
$513
$358
$500
$380
$522
$309
$448
$310
$455
$293
$430
$292
$430
$300
$440
$290
$425
$290
$425
$295
$430
$295
$430
$293
$428
Total 2G/3G capital expenditures

197
3.1%
227
3.6%
310
5.0%
427
6.8%
1,161
4.6%
311
4.8%
319
5.0%
341
5.3%
500
7.8%
1,471
5.7%
500
7.8%
500
7.7%
650
10.0%
700
10.7%
2,350
9.0%
Table 117: Sprint Nextel Wireless Income Statement

Total service revenue
% change, y-t-y
1Q09
6,420
-9.9%
2Q09
6,366
-9.1%
3Q09
6,261
-8.0%
4Q09
6,239
-4.9%
2009
25,286
-8.0%
1Q10
6,432
0.2%
2Q10
6,397
0.5%
3Q10
6,380
1.9%
4Q10E
6,414
2.8%
2010E
25,623
1.3%
1Q11E
6,443
0.2%
2Q11E
6,470
1.1%
3Q11E
6,525
2.3%
4Q11E
6,541
2.0%
2011E
25,979
1.4%
Equipment revenue
Affiliate/other revenue
Total revenue
% change, y-t-y
453
162
7,035
-11.7%
497
141
7,004
-9.5%
529
141
6,931
-8.0%
475
102
6,816
-5.2%
1,954
546
27,786
-8.7%
567
49
7,048
0.2%
566
51
7,014
0.1%
740
55
7,175
3.5%
753
55
7,222
6.0%
2,626
210
28,459
2.4%
670
55
7,168
1.7%
669
55
7,194
2.6%
669
55
7,249
1.0%
717
55
7,313
1.3%
2,725
220
28,925
1.6%
2,072
67.7%
1,097
3,251
50.6%
-7.3%
2,113
66.8%
1,060
3,193
50.2%
-6.6%
2,164
65.4%
943
3,154
50.4%
-4.4%
2,035
67.4%
1,003
3,201
51.3%
-2.0%
8,384
66.8%
4,103
12,799
50.6%
-5.2%
2,047
68.2%
1,062
3,323
51.7%
2.2%
2,066
67.7%
1,008
3,323
51.9%
4.1%
2,137
66.5%
964
3,279
51.4%
4.0%
2,149
66.5%
997
3,268
51.0%
2.1%
8,399
67.2%
4,031
13,193
51.5%
3.1%
2,158
66.5%
1,007
3,278
50.9%
-1.4%
2,168
66.5%
1,014
3,289
50.8%
-1.0%
2,186
66.5%
1,020
3,319
50.9%
1.2%
2,191
66.5%
1,029
3,320
50.8%
1.6%
8,703
66.5%
4,070
13,206
50.8%
0.1%
1,291
1,126
5,586
1,449
22.0%
-19.5%
1,342
1,076
5,591
1,413
21.7%
-24.4%
1,482
1,158
5,747
1,184
18.5%
-28.1%
1,430
1,231
5,699
1,117
17.6%
-23.5%
5,545
4,591
22,623
5,163
20.0%
-24%
1,566
1,177
5,852
1,196
18.5%
-17.5%
1,580
1,136
5,790
1,224
19.0%
-13.4%
1,808
1,201
6,110
1,065
16.6%
-10.1%
1,848
1,245
6,239
983
15.2%
-12.0%
6,802
4,760
23,991
4,468
17.3%
-13%
1,675
1,189
6,029
1,139
17.5%
-4.8%
1,672
1,182
6,036
1,158
17.7%
-5.4%
1,672
1,198
6,077
1,172
17.8%
10.1%
1,794
1,304
6,317
996
15.1%
1.3%
6,813
4,873
24,460
4,465
17.0%
0%
Cost of service
Gross margin (of service revenue)
% change, y-t-y
Cost of equipment
Marketing costs
% change, y-t-y
252
Philip Cusick, CFA

(1-212) 622-1444

13 January 2011
Table 118: Sprint Nextel Long Distance Income Statement

Voice
Y/Ygrowth
1Q09
660
-19.9%
2Q09
644
-18.1%
3Q09
648
-14.2%
4Q09
611
-14.4%
2009
2,563
-16.8%
1Q10
585
-11.4%
2Q10
568
-11.8%
3Q10
554
-14.5%
4Q10E
517
-15.4%
2010E
2,224
-13.2%
1Q11E
499
-14.6%
2Q11E
476
-16.2%
3Q11E
455
-17.9%
4Q11E
482
-6.7%
2011E
1,912
-14.0%
Data
Y/Ygrowth
199
-25.5%
171
-32.1%
150
-35.1%
142
-32.1%
662
-31.0%
138
-30.7%
133
-22.2%
125
-16.7%
99
-30.0%
495
-25.2%
104
-25.0%
100
-25.0%
94
-25.0%
75
-25.0%
372
-25.0%
Internet
Y/Ygrowth
577
16.3%
583
10.4%
585
5.2%
548
-3.5%
2,293
6.8%
553
-4.2%
552
-5.3%
535
-8.5%
501
-8.5%
2,141
-6.6%
570
3.0%
569
3.0%
551
3.0%
516
3.0%
2,205
3.0%
Other
Y/Ygrowth
29
-32.6%
30
-23.1%
28
-17.6%
24
-20.0%
111
-24.0%
21
-27.6%
19
-36.7%
31
10.7%
20
-17.0%
91
-18.1%
17
-18.0%
16
-18.0%
25
-18.0%
16
-18.0%
75
-18.0%
Operating Statistics
Costs of services and products
% of LD Revenue
953
65.1%
899
63.0%
924
65.5%
887
66.9%
3,663
65.1%
846
65.2%
847
66.6%
822
66.0%
751
66.0%
3,266
66.0%
786
66.0%
766
66.0%
743
66.0%
719
66.0%
3,013
66.0%
SG&A
% of LD Revenue
226
15.4%
177
12.4%
163
11.6%
179
13.5%
745
13.2%
172
13.3%
152
11.9%
152
12.2%
139
12.2%
615
12.4%
149
12.5%
145
12.5%
141
12.5%
136
12.5%
570
12.5%
One time items

% of LD Revenue
73
5.0%
(2)
-0.1%
(18)
-1.3%
21
1.6%
74
1.3%
(3)
-0.2%
(84)
-6.6%
0
0.0%
0
0.0%
(87)
-1.8%
0
0.0%
0
0.0%
0
0.0%
0
0.0%
0
0.0%
Cap-Ex (LD)
% of LD Revenue
77
5.3%
47
3.3%
72
5.1%
62
4.7%
258
4.6%
56
4.3%
49
3.9%
59
4.7%
54
4.7%
218
4.4%
59
5.0%
58
5.0%
56
5.0%
54
5.0%
228
5.0%
Depreciation
% of LD Revenue
131
8.9%
146
10.2%
147
10.4%
144
10.9%
568
10.1%
134
10.3%
134
10.5%
140
11.2%
128
11.2%
536
10.8%
107
9.0%
104
9.0%
101
9.0%
98
9.0%
411
9.0%
1Q09
660
199
577
29
1,465
-10.1%
2Q09
644
171
583
30
1,428
-11.0%
3Q09
648
150
585
28
1,411
-10.5%
4Q09
611
142
548
24
1,325
-12.9%
2009
2,563
662
2,293
111
5,629
-11.1%
1Q10
585
138
553
21
1,297
-11.5%
2Q10
568
133
552
19
1,272
-10.9%
3Q10
554
125
535
31
1,245
-11.8%
4Q10E
517
99
501
20
1,137
-14.2%
2010E
2,224
495
2,141
91
4,951
-12.0%
1Q11E
499
104
570
17
1,190
-8.3%
2Q11E
476
100
569
16
1,160
-8.8%
3Q11E
455
94
551
25
1,125
-9.6%
4Q11E
482
75
516
16
1,089
-4.2%
2011E
1,912
372
2,205
75
4,564
-7.8%

SG&A
EBITDA margin of total revenue
% change, y-t-y
953
226
1,179
286
19.5%
-0.3%
899
177
1,076
352
24.6%
17.7%
924
163
1,087
324
23.0%
23.2%
887
179
1,066
259
19.5%
-20.6%
3,663
745
4,408
1,221
21.7%
3.9%
846
172
1,018
279
21.5%
-2.4%
847
152
999
273
21.5%
-22.4%
822
152
974
271
21.8%
-16.4%
751
139
890
248
21.8%
-4.4%
3,266
615
3,881
1,071
21.6%
-12.3%
786
149
934
256
21.5%
-8.4%
766
145
911
249
21.5%
-8.8%
743
141
883
242
21.5%
-10.9%
719
136
855
234
21.5%
-5.5%
3,013
570
3,584
980
21.5%
-8.5%
One time items

Depreciation & amortization
EBIT
EBIT margin
% change, y-t-y
73
131
155
11%
-0.6%
(2)
146
206
14%
28.8%
(18)
147
177
13%
47.5%
21
144
115
9%
-34.7%
74
568
653
12%
6.7%
(3)
134
145
11%
-6.5%
(84)
134
139
11%
-32.5%
0
140
131
11%
-26.0%
0
128
120
11%
4.1%
(87)
536
535
11%
-18.1%
0
107
148
12%
2.4%
0
104
145
12%
4.1%
0
101
140
12%
7.1%
0
98
136
12%
13.6%
0
411
569
12%
6.5%
LD Income Statement
Voice
Data
Internet
Other
Total Revenue
% change, y-t-y
253
Philip Cusick, CFA

(1-212) 622-1444

13 January 2011
Table 119: Sprint Nextel Consolidated Income Statement

1Q09
6,420
1,465
7,885
-9.9%
2Q09
6,366
1,428
7,794
-9.5%
3Q09
6,261
1,411
7,672
-8.4%
4Q09
6,239
1,325
7,564
-6.4%
2009
25,286
5,629
30,915
-8.6%
1Q10
6,432
1,297
7,729
-2.0%
2Q10
6,397
1,272
7,669
-1.6%
3Q10
6,380
1,245
7,625
-0.6%
4Q10E
6,414
1,137
7,551
-0.2%
2010E
25,623
4,951
30,574
-1.1%
1Q11E
6,443
1,190
7,633
-1.2%
2Q11E
6,470
1,160
7,630
-0.5%
3Q11E
6,525
1,125
7,650
0.3%
4Q11E
6,541
1,089
7,630
1.0%
2011E
25,979
4,564
30,543
-0.1%
Equipment revenue
Affiliate/other revenue
Eliminations
Total revenue
% change, y-t-y
453
162
(291)
8,209
-12.1%
497
141
(291)
8,141
-10.1%
529
141
(300)
8,042
-8.8%
475
102
(273)
7,868
-6.7%
1,954
546
(1,155)
32,260
-9.5%
567
49
(260)
8,085
-1.5%
566
51
(261)
8,025
-1.4%
740
55
(268)
8,152
1.4%
753
55
(268)
8,092
2.8%
2,626
210
(1,057)
32,354
0.3%
670
55
(271)
8,087
0.0%
669
55
(271)
8,083
0.7%
669
55
(271)
8,103
-0.6%
717
55
(271)
8,132
0.5%
2,725
220
(1,083)
32,405
0.2%

SG&A
EBITDA margin of total revenue
% change, y-t-y
Restructuring & asset impairments
EBIT
EBIT margin
% change, y-t-y
4,026
2,460
6,486
1,723
21.0%
21.9%
-14.2%
327
1,883
(487)
-6.2%
2.2%
4,061
2,311
6,372
1,769
21.7%
22.7%
-15.6%
(29)
1,911
(113)
-1.4%
46.2%
4,269
2,267
6,536
1,506
18.7%
19.6%
-17.4%
(60)
1,820
(254)
-3.3%
-23.9%
4,079
2,415
6,494
1,409
17.9%
18.6%
-18.8%
116
1,802
(544)
-7.2%
68.5%
16,435
9,453
25,888
6,407
19.9%
20.7%
-16.4%
354
7,633
(1,398)
-4.5%
47.1%
4,198
2,409
6,607
1,478
18.3%
19.1%
-14.2%
(17)
1,675
(180)
-2.3%
63.0%
4,230
2,294
6,524
1,501
18.7%
19.6%
-15.1%
(71)
1,635
(63)
-0.8%
44.2%
4,496
2,317
6,813
1,339
16.4%
17.6%
-11.1%
4,477
2,382
6,858
1,233
15.2%
16.3%
-12.5%
4,346
2,354
6,699
1,388
17.2%
18.2%
-6.1%
4,332
2,350
6,682
1,401
17.3%
18.4%
-6.7%
4,327
2,368
6,696
1,408
17.4%
18.4%
5.1%
4,430
2,478
6,908
1,223
15.0%
16.0%
-0.8%
1,552
(213)
-2.8%
16.1%
1,503
(270)
-3.6%
50.4%
17,401
9,402
26,802
5,551
17.2%
18.2%
-13.4%
(88)
6,359
(726)
-2.4%
48.1%
1,203
185
2.4%
NM
1,190
211
2.8%
NM
1,158
250
3.3%
NM
1,126
98
1.3%
NM
17,435
9,550
26,986
5,420
16.7%
17.7%
-2.4%
0
4,677
743
2.4%
NM
Net interest expense

Equity in unconsolidated affiliates
Other, net
Income before taxes
(352)
(285)
0
(1,124)
(350)
(146)
0
(609)
(355)
(156)
0
(765)
(359)
(93)
0
(996)
(1,390)
(680)
0
(3,494)
(361)
(253)
0
(794)
(374)
(276)
0
(713)
(353)
(292)
0
(858)
(328)
(232)
0
(830)
(1,359)
(1,053)
0
(3,195)
(325)
(146)
0
(286)
(318)
(137)
0
(245)
(311)
(144)
0
(205)
(306)
(186)
0
(394)
(1,261)
(613)
0
(1,131)
Tax benefit/(expense)
Net income
% change, y-t-y
530
(594)
-17.6%
225
(384)
-11.6%
287
(478)
-46.6%
16
(980)
39.5%
1,058
(2,436)
12.9%
(71)
(865)
-45.6%
(47)
(760)
-97.9%
(53)
(911)
-90.6%
(50)
(880)
10.2%
(221)
(3,416)
-40.2%
(50)
(336)
61.1%
(50)
(295)
61.2%
(50)
(255)
72.0%
(50)
(444)
49.5%
(200)
(1,331)
61.0%
0
0
(594)
0
0
(384)
0
0
(478)
0
0
(980)
0
0
(2,436)
0
0
(865)
0
0
(760)
0
0
(911)
0
0
(880)
0
0
(3,416)
0
0
(336)
0
0
(295)
0
0
(255)
0
0
(444)
0
0
(1,331)
Restructuring & asset impairments, net of taxes

Merger & integration, net of taxes
Other, net of taxes
Adj. net income
Amortization, net of taxes
Adj. net income before amortization
Weighted average shares outstanding basic
Weighted average shares outstanding fully diluted
210
0
175
(209)
283
74
2,867
2,867
(18)
0
83
(319)
275
(44)
2,872
2,872
15
0
97
(366)
206
(160)
2,877
2,877
24
22
357
(577)
195
(382)
2,899
2,899
231
22
712
(1,471)
959
(512)
2,879
2,879
(11)
0
0
(876)
243
(633)
2,983
2,983
(44)
0
0
(804)
227
(577)
2,988
2,988
0
0
0
(911)
151
(760)
2,990
2,990
0
0
0
(880)
337
(543)
2,990
2,990
(55)
0
0
(3,471)
958
(2,513)
2,988
2,988
0
0
0
(336)
112
(224)
2,990
2,990
0
0
0
(295)
112
(183)
2,990
2,990
0
0
0
(255)
112
(143)
2,990
2,990
0
0
0
(444)
112
(332)
2,990
2,990
0
0
0
(1,331)
448
(883)
2,990
2,990
GAAP EPS - basic

GAAP EPS - diluted
($0.21)
($0.21)
($0.13)
($0.13)
($0.17)
($0.17)
($0.34)
($0.34)
($0.85)
($0.85)
($0.29)
($0.29)
($0.25)
($0.25)
($0.30)
($0.30)
($0.29)
($0.29)
($1.14)
($1.14)
($0.11)
($0.11)
($0.10)
($0.10)
($0.09)
($0.09)
($0.15)
($0.15)
($0.45)
($0.45)
Adj. EPS before amortization

% change, y-t-y
FCF/Share
$0.03
-34.4%
$0.28
($0.02)
NM
$0.23
($0.06)
NM
$0.21
($0.13)
-1884.3%
$0.21
($0.18)
NM
$0.94
($0.21)
NM
$0.17
($0.19)
-1154.8%
$0.24
($0.25)
-358.2%
$0.12
($0.18)
-37.7%
$0.07
($0.84)
-372.8%
$0.60
($0.08)
64.6%
$0.14
($0.06)
68.3%
$0.14
($0.05)
81.2%
$0.11
($0.11)
38.8%
$0.04
($0.30)
64.9%
$0.43
Wireless Service revenue

Long Distance revenue
% change, y-t-y
Extraordinary gain/(loss)
Discontinued operations
Income (loss) attributable to common
Table 120: Sprint Nextel Cash Flow Statement

Net income
Share based compensation
Equity in (income) loss from unconsol bus
Dividends from unconsolidated investments
Other
1Q09
(594)
1,883
76
25
(456)
285
0
144
1,363
2Q09
(384)
1,911
71
19
(310)
146
0
(301)
1,152
3Q09
(478)
1,820
119
17
(227)
156
0
(246)
1,161
4Q09
(980)
1,802
132
18
143
93
0
7
1,215
2009
(2,436)
7,633
398
79
(850)
680
0
(396)
5,108
1Q10
(865)
1,675
111
18
75
253
0
(145)
1,122
2Q10
(760)
1,635
108
18
35
276
0
(57)
1,255
3Q10
(911)
1,552
98
19
86
292
0
(165)
971
4Q10E
(880)
1,503
110
20
0
232
0
(50)
935
2010E
(3,416)
6,359
427
75
196
1,053
0
(417)
4,277
1Q11E
(336)
1,203
110
20
0
146
0
(75)
1,068
2Q11E
(295)
1,190
110
20
0
137
0
(75)
1,088
3Q11E
(255)
1,158
110
20
0
144
0
(75)
1,101
4Q11E
(444)
1,126
110
20
0
186
0
(50)
947
2011E
(1,331)
4,677
440
80
0
613
0
(275)
4,204
Change in working capital/other

Cash after working capital requirements
0
1,363
0
1,152
0
1,161
0
1,215
0
5,108
0
1,122
0
1,255
0
971
0
935
0
4,283
0
1,068
0
1,088
0
1,101
0
947
0
4,204
377
(190)
796
388.3%
$0.28
384.9%
340
(138)
674
NM
$0.23
NM
402
(143)
616
-39.9%
$0.21
-40.4%
484
(120)
611
89.8%
$0.21
87.1%
1,603
(591)
2,697
80.3%
$0.94
78.9%
505
(115)
502
-36.9%
$0.17
-39.4%
417
(133)
705
4.6%
$0.24
0.5%
490
(108)
373
-39.4%
$0.12
-41.7%
616
(100)
219
-64.1%
$0.07
-65.2%
2,028
(456)
1,799
-33.3%
$0.60
-35.7%
609
(50)
408
-18.7%
$0.14
-18.9%
608
(50)
430
-39.1%
$0.14
-39.1%
756
(25)
320
-14.2%
$0.11
-14.2%
804
(25)
118
-46.2%
$0.04
-46.2%
2,778
(150)
1,276
-29.1%
$0.43
-29.2%
Less: Dividends
Free Cash Flow After Dividends
0
796
0
674
0
616
0
611
0
2,697
0
502
0
705
0
373
0
219
0
1,799
0
408
0
430
0
320
0
118
0
1,276
Change in total debt

Change in equity
Business acquisitions
Business sales
Other
Net change in cash
0
0
0
0
(161)
635
(605)
0
0
0
(131)
(62)
694
0
0
0
(661)
649
(1,012)
4
(1,118)
0
(170)
(1,685)
(923)
4
(1,118)
0
(1,123)
(463)
0
0
0
0
(63)
439
(805)
0
0
0
(129)
(229)
(1)
0
0
0
(91)
281
0
0
0
0
0
219
(806)
0
0
0
(283)
710
0
0
0
0
0
408
0
0
0
0
0
430
0
0
0
0
0
320
0
0
0
0
0
118
0
0
0
0
0
1,276
1,363
(377)
(190)
0
0
0
796
1,152
(340)
(138)
0
0
2
676
1,161
(402)
(143)
51
0
(3)
664
1,215
(484)
(120)
0
0
55
666
4,891
(1,603)
(591)
51
0
54
2,802
1,122
(505)
(115)
0
0
4
506
1,255
(417)
(133)
0
0
4
709
971
(490)
(108)
0
0
4
377
935
(616)
(100)
0
0
4
223
4,283
(2,028)
(456)
0
0
16
1,815
1,068
(609)
(50)
0
0
4
412
1,088
(608)
(50)
0
0
4
434
1,101
(756)
(25)
0
0
4
324
947
(804)
(25)
0
0
4
122
4,204
(2,778)
(150)
0
0
16
1,292
Less: Capital expenditures

Less: Spectrum swap/auction payments
Free Cash Flow
% change, y-t-y
FCF/Share
% change, y-t-y
Reported Free Cash Flow (per Sprint)

Cash from operating activities
Less:Capital expenditure
Less:FCC licence expense
Proceeds from sale of investments and assets
Less:Dividend paid
Less:Other investing activites,net
Free Cash Flow
254
Philip Cusick, CFA

(1-212) 622-1444

13 January 2011
Table 121: Sprint Nextel Balance Sheet

1Q09
4,536
3,122
510
95
640
8,903
2Q09
4,609
3,202
575
98
614
9,098
3Q09
5,943
3,155
485
98
578
10,259
4Q09
3,924
2,996
628
295
750
8,593
2009
3,924
2,996
628
295
750
8,593
1Q10
4,374
2,893
526
273
769
8,835
2Q10
4,277
2,957
675
243
803
8,955
3Q10
4,666
3,042
562
215
770
9,255
4Q10E
4,666
3,042
562
215
770
9,255
2010E
4,666
3,042
562
215
770
9,255
1Q11E
4,666
3,042
562
215
770
9,255
2Q11E
4,666
3,042
562
215
770
9,255
3Q11E
4,666
3,042
562
215
770
9,255
4Q11E
4,666
3,042
562
215
770
9,255
2011E
4,666
3,042
562
215
770
9,255
21,270
22,627
3,784
641
57,225
20,143
22,304
3,882
458
55,885
19,100
22,097
3,732
460
55,648
18,280
23,462
5,089
0
55,424
18,280
23,462
5,089
0
55,424
17,411
23,162
4,874
0
54,282
16,771
22,905
4,595
0
53,226
15,961
22,761
4,297
0
52,274
19,964
22,761
4,297
0
51,980
19,964
22,761
4,297
0
51,980
19,964
22,761
4,297
0
56,277
19,964
22,761
4,297
0
56,277
19,964
22,761
4,297
0
56,277
19,964
22,761
4,297
0
51,980
19,964
22,761
4,297
0
51,980
1,225
2,105
3,635
6,965
1,373
2,061
3,479
6,913
765
2,161
3,422
6,348
768
2,267
3,750
6,785
768
2,267
3,750
6,785
3,384
2,282
2,415
8,081
1,758
2,494
3,421
7,673
1,758
2,423
3,366
7,547
1,758
2,439
3,366
7,563
1,758
2,439
3,366
7,563
1,758
2,382
3,366
7,506
1,758
2,377
3,366
7,501
1,758
2,381
3,366
7,505
1,758
2,457
3,366
7,581
1,758
2,457
3,366
7,581
Long-term debt
Deferred taxes
Other
Total liabilities
20,376
6,770
4,075
38,186
19,618
6,613
4,023
37,167
20,892
6,385
3,789
37,414
20,293
6,693
3,558
37,329
20,293
6,693
3,558
37,329
18,639
6,733
3,586
37,039
18,543
6,719
3,798
36,733
18,540
6,785
3,788
36,660
18,351
6,785
4,547
37,246
18,351
6,785
4,547
37,246
17,948
6,785
9,640
41,879
17,523
6,785
10,366
42,174
17,208
6,785
10,931
42,430
17,120
6,785
7,091
38,577
17,120
6,785
7,091
38,577
Common shareholders' equity

Total liabilities and shareholders' equity
19,039
57,225
18,718
55,885
18,234
55,648
18,095
55,424
18,095
55,424
17,243
54,282
16,493
53,226
15,614
52,274
14,734
51,980
14,734
51,980
14,398
56,277
14,103
56,277
13,847
56,277
13,403
51,980
13,403
51,980
Net debt
17,065
16,382
15,714
17,137
17,137
17,649
16,024
15,632
15,443
15,443
15,040
14,615
14,300
14,212
14,212
Nextel spectrum swap credit letter

Gross debt
2,000
23,601
1,900
22,891
1,800
23,457
1,700
22,761
1,700
22,761
1,600
23,623
1,500
21,801
1,400
21,698
1,300
21,409
1,300
21,409
1,175
20,881
1,050
20,331
925
19,891
850
19,728
850
19,728
7,378
3.2x
7,051
3.2x
6,733
3.5x
6,407
3.6x
6,407
3.6x
6,162
3.8x
5,894
3.7x
5,727
3.8x
5,551
3.9x
5,551
3.9x
5,461
3.8x
5,361
3.8x
5,430
3.7x
5,420
3.6x
5,420
3.6x

Inventories
Deferred tax asset
Net PP&E
Net intangibles
Investments
Other assets
Total assets
Short-term debt
Accounts payable
Other
Current liabilities
TTM EBITDA
Gross debt/TTM EBITDA
255
Philip Cusick, CFA

(1-212) 622-1444
256

13 January 2011
Philip Cusick, CFA

(1-212) 622-1444

13 January 2011
Clearwire Model
Table 122: Clearwire Subscriber Model and Operating Statistics
1Q09
2Q09
3Q09
4Q09
2009
1Q10
2Q10
3Q10
4Q10E
2010E
1Q11E
2Q11E
3Q11E
4Q11E
2011E
19,800
23,100
51,500
120,000
120,000
125,000
130,000
140,000
150,000
150,000
KEY METRICS AND DRIVERS

Covered Pops
25,400
44,700
44,700
62,000
70,500
RETAIL
Subscribers ending
Net additions
Churn rate
450
26
2.6%
2.0%
462
13
2.8%
1.8%
506
44
3.1%
1.8%
688
87
3.6%
1.4%
688
170
3.1%
1.4%
814
172
3.0%
1.5%
940
127
3.2%
1.4%
1,013
150
3.5%
1.4%
1,238
225
3.5%
1.0%
1,238
674
3.3%
1.0%
1,438
200
3.5%
1.1%
1,593
155
3.8%
1.2%
1,778
185
3.5%
1.2%
2,013
235
3.2%
1.3%
2,013
775
3.5%
1.3%
WHOLESALE
Subscribers ending
Net additions
Gross additions
Churn rate
0
0
0
0.0%
0.00%
0
0
0
0.0%
0.00%
5
5
5
0.0%
0.02%
46
41
41
0.0%
0.10%
46
46
46
0.0%
0.10%
157
111
119
2.7%
0.30%
752
595
636
3.0%
1.21%
1,829
1,077
1,127
1.3%
2.59%
3,029
1,200
1,280
1.1%
2.52%
3,029
2,983
3,163
1.4%
2.52%
4,079
1,050
1,157
1.0%
3.26%
4,854
775
909
1.0%
3.73%
5,754
900
1,091
1.2%
4.11%
6,854
1,100
1,365
1.4%
4.57%
6,854
3,825
4,521
1.2%
4.57%
Total Net Adds

% Retail
% Wholesale
26
100%
0%
13
100%
0%
49
90%
10%
128
68%
32%
216
79%
21%
283
61%
39%
722
18%
82%
1,227
12%
88%
1,425
16%
84%
3,657
18%
82%
1,250
16%
84%
930
17%
83%
1,085
17%
83%
1,335
18%
82%
4,600
17%
83%
Total Ending Subscribers

% Retail
% Wholesale
450
100%
0%
462
100%
0%
511
99%
1%
734
94%
6%
734
94%
6%
971
84%
16%
1,692
56%
44%
2,842
36%
64%
4,267
29%
71%
4,267
29%
71%
5,517
26%
74%
6,447
25%
75%
7,532
24%
76%
8,867
23%
77%
8,867
23%
77%
59
60
69
80
268
107
123
147
183
560
254
301
367
431
1,352
126%
135%
$148
$466
135%
141%
$152
$524
142%
135%
$160
$563
212%
134%
$194
$624
158%
136%
$165
$563
136%
112%
$151
$439
213%
111%
$176
$443
164%
83%
$152
$505
140%
72%
$137
$365
161%
91%
$153
$431
120%
55%
$129
$400
110%
52%
$124
$400
100%
50%
$124
$400
95%
45%
$120
$400
104%
50%
$124
$400
Cash EBITDA
(144)
-259%
(147)
-265%
(194)
-318%
(296)
-452%
(781)
-1294%
(252)
-250%
(363)
-310%
(331)
-233%
(318)
-174%
(1,264)
-966%
(315)
-126%
(306)
-103%
(318)
-87%
(329)
-77%
(1,268)
-393%
112
180.2%
251
394.7%
410
595.8%
410
513.0%
1,183
431.0%
690
646.8%
622
507.7%
763
519.2%
386
210.5%
2,461
439.8%
189
74.6%
193
64.1%
328
89.4%
341
79.2%
1,051
77.8%
(256)
(275)
(398)
(357)
(604)
(503)
(706)
(788)
(1,964)
(1,923)
(942)
(887)
(985)
(1,041)
(1,094)
(869)
(705)
(783)
(3,725)
(3,579)
(504)
(617)
(499)
(612)
(646)
(759)
(670)
(784)
(2,319)
(2,772)
475
65
(39)
450
54
(41)
462
94
(50)
506
150
(63)
688
237
(65)
814
212
(85)
940
250
(100)
1,013
343
(118)
1,238
340
(140)
1,438
328
(173)
1,593
362
(177)
1,778
417
(182)
Service revenue
Costs
CCPU
CPGA
EBITDA less capital expenditures

Cash Spend
RETAIL
Beginning retail subscribers
- Disconnects
Ending retail subscribers
% change, y-t-y
450
15%
462
13%
506
21%
688
45%
475
363
(193)
0
688
45%
814
81%
940
103%
1,013
100%
1,238
80%
688
1,042
(368)
0
1,238
80%
1,438
77%
1,593
69%
1,778
76%
2,013
63%
1,238
1,447
(672)
0
2,013
63%
Churn rate reported, monthly

Calculated Churn rate, monthly
2.6%
2.8%
2.8%
3.0%
3.1%
3.4%
3.6%
3.5%
3.1%
3.2%
3.0%
2.9%
3.2%
3.2%
3.5%
3.4%
3.5%
3.5%
3.3%
3.3%
3.5%
3.5%
3.8%
3.8%
3.5%
3.5%
3.2%
3.2%
3.5%
3.5%
Retail net adds

% change, y-t-y
26
-38%
13
-28%
44
389%
87
1640%
170
130%
172
562%
127
877%
150
241%
225
159%
674
296%
200
16%
155
22%
185
23%
235
4%
775
15%
Average retail subscribers calculated

Covered pops
% covered
Pop penetration
463
19,800
7%
456
23,100
8%
484
25,400
9%
597
44,700
16%
500
44,700
16%
751
51,500
18%
877
62,000
22%
977
70,500
25%
1,126
120,000
42%
933
120,000
42%
1,338
125,000
44%
1,516
130,000
46%
1,686
140,000
49%
1,896
150,000
53%
1,609
150,000
53%
2.3%
0.13%
2.0%
0.06%
2.0%
0.17%
1.5%
0.19%
1.5%
0.06%
1.6%
0.33%
1.5%
0.20%
1.4%
0.21%
1.0%
0.19%
1.0%
0.24%
1.2%
0.16%
1.2%
0.12%
1.3%
0.13%
1.3%
0.16%
1.3%
0.27%
$44.78
9.6%
$39.52
7%
$46.49
16.3%
$39.47
0%
$43.61
5.2%
$39.71
-2%
$44.62
10.0%
$39.86
0%
$44.84
10.1%
$39.64
1%
$41.68
-6.9%
$42.77
8%
$41.68
-10.3%
$41.58
5%
$41.99
-3.7%
$42.74
8%
$42.50
-4.8%
$42.50
7%
$43.43
-3.1%
$42.40
7%
$42.51
2.0%
$42.51
-1%
$42.52
2.0%
$42.52
2%
$42.83
2.0%
$42.83
0%
$43.14
1.5%
$43.14
1%
$42.78
-1.5%
$42.75
1%
Retail Revenue
% change, y-t-y
62
NM
64
NM
63
NM
80
NM
269
NM
94
51%
110
72%
123
94%
144
80%
470
75%
171
82%
193
76%
217
76%
245
71%
826
76%
WHOLESALE
Beginning wholesale subscribers
- Disconnects
Ending wholesale subscribers
% change, y-t-y
5
41
46
119
(8)
157
636
(41)
752
1,127
(50)
1,829
1,280
(80)
3,029
1,157
(107)
4,079
909
(134)
4,854
1,091
(191)
5,754
1,365
(265)
157
NM
752
NM
1,829
36480%
3,029
6485%
46
3,163
(180)
0
3,029
6485%
4,079
2498%
4,854
545%
5,754
215%
6,854
126%
3,029
4,521
(696)
0
6,854
126%
Retail ARPU calculated, monthly (ex. other)

% change, y-t-y
Retail ARPU reported
% change y-t-y
0
NM
0
NM
5
NM
46
NM
0
46
0
0
46
NM
Churn rate, monthly
0.0%
0.0%
0.0%
0.0%
0.00%
2.7%
3.0%
1.3%
1.1%
1.40%
1.0%
1.0%
1.2%
1.4%
1.2%
Wholesale net adds

% change, y-t-y
0
NM
0
NM
5
NM
41
NM
46
NM
111
NM
595
NM
1,077
21440%
1,200
2827%
2,983
6385%
1,050
846%
775
30%
900
-16%
1,100
-8%
3,825
28%
$22.05
$22.99
Wholesale ARPU, monthly

% change, y-t-y
% discount to retail data pricing
Wholesale Revenue
% change, y-t-y
TOTAL
Beginning retail subscribers
- Disconnects
Ending total subscribers
% change, y-t-y
0
0
0
0
0
5
$21.40
$21.96
45%
45%
45%
45%
$22.10
176%
35%
$12.51
-43%
66%
$4.87
-79%
87%
$4.46
-79%
88%
$4.52
-79%
88%
$6.59
-70%
82%
$7.15
-43%
81%
$7.49
54%
80%
$9.02
102%
76%
$9.42
109%
75%
$8.27
25%
78%
0
NM
2
NM
2
NM
3
NM
4
NM
17
5196%
33
1860%
57
2776%
76
2175%
100
2132%
143
768%
178
441%
498
770%
475
26
-
450
13
-
462
94
(45)
511
128
-
475
261
(45)
734
357
(74)
971
850
(128)
1,692
1,383
(156)
2,842
1,623
(198)
734
4,214
(557)
4,267
1,497
(247)
5,517
1,237
(307)
6,447
1,453
(368)
7,532
1,782
(447)
4,267
5,969
(1,369)
450
15%
462
13%
511
22%
734
55%
8,867
108%
Churn rate reported, monthly

Total net adds
% change, y-t-y
3.1%
26
13
49
128
734
55%
971
116%
1,692
266%
2,842
456%
4,267
481%
4,267
481%
5,517
468%
6,447
281%
7,532
165%
8,867
108%
0.7%
2.9%
3.2%
2.3%
1.9%
2.3%
1.7%
1.7%
1.8%
1.8%
216
283
722
1,227
1,425
3,657
1,250
930
1,085
1,335
4,600
1,332
2,267
3,555
2,001
4,892
5,982
6,990
8,200
6,516
1.8%
Average subscribers
463
456
487
623
507
853
Pop penetration
2.3%
0.1%
2.0%
0.1%
2.0%
0.2%
1.6%
0.3%
1.6%
0.5%
1.9%
0.5%
2.7%
1.2%
4.0%
1.7%
3.6%
1.2%
3.6%
3.0%
4.4%
1.0%
5.0%
0.7%
5.4%
0.8%
5.9%
0.9%
5.9%
3.1%
$39.40
$39.48
NM
$29.30
$32.06
NM
$20.90
$21.19
-46%
$17.20
$17.20
NM
$22.62
$22.62
NM
$17.30
$17.30
-56%
$16.75
$16.75
-48%
$17.51
$17.51
-17%
$17.50
$17.50
2%
$17.29
$17.29
-24%
Consolidated ARPU calculated, monthly

Consolidated ARPU reported, monthly
% change, y-t-y
$41.80
$39.58
257
Philip Cusick, CFA

(1-212) 622-1444

13 January 2011
Table 123: Clearwire Expense Statistics and Income Statement

Cost of service/sub/month
Cost of service/pop (annualized)
CCPU
1Q09
119%
$53.07
$14.88
2Q09
128%
$59.37
$14.06
127%
$53.07
$56.84
$109.91
133%
$59.37
$62.04
$121.41
3Q09
142%
$66.80
$15.35
135%
$66.80
$63.42
$130.22
4Q09
212%
$90.91
$15.19
134%
$90.91
$57.55
$148.46
2009
154%
$69.40
$9.44
133%
$69.40
$59.81
$129.21
1Q10
136%
$56.54
$11.23
112%
$56.54
$46.84
$103.38
2Q10
213%
$65.23
$16.81
111%
$65.23
$33.93
$99.16
3Q10
164%
$35.48
$13.69
83%
$35.48
$17.93
$53.42
4Q10E
140%
$24.08
$8.56
72%
$24.08
$12.38
$36.47
2010E
161%
$37.61
$7.53
91%
$37.61
$21.21
$58.82
1Q11E
120%
$20.76
$9.75
55%
$20.76
$9.51
$30.27
2Q11E
110%
$18.43
$10.18
52%
$18.43
$8.71
$27.14
3Q11E
100%
$17.51
$10.49
50%
$17.51
$8.75
$26.26
4Q11E
95%
$16.63
$10.91
45%
$16.63
$7.88
$24.50
2011E
104%
$18.05
$9.41
50%
$18.05
$8.61
$26.66
Marketing/gross add
Marekting as % of service revenue
R&D as % of service revenue
$455
48%
0%
$526
45%
0%
$561
77%
0%
$624
117%
0%
$563
74%
0%
$439
97%
0%
$443
77%
0%
$505
86%
0%
$365
68%
0%
$431
80%
0%
$400
54%
0%
$400
44%
0%
$400
39%
0%
$400
39%
0%
$400
43%
0%
Spectrum lease expense

% change, y-t-y
64.4
81%
64.3
125%
64.4
100%
66.2
-13%
259.4
50%
66.7
3%
68.2
6%
72.8
13%
73.0
10%
280.6
8%
74.0
11%
75.0
10%
76.0
4%
77.0
5%
302.0
8%
65
15.0%
85.0%
54
15.0%
85.0%
94
15.0%
85.0%
150
15.0%
85.0%
363
15.0%
85.0%
237
15.0%
85.0%
212
15.0%
85.0%
250
15.0%
85.0%
343
15.0%
85.0%
1,042
15.0%
85.0%
340
15.0%
85.0%
328
15.0%
85.0%
362
15.0%
85.0%
417
15.0%
85.0%
1,447
15.0%
85.0%
$72
0.7
$66
0.5
$151
2.1
$135
3.0
$81
6.4
$103
3.7
$56
1.8
$134
5.0
$135
6.9
$28
17.4
$135
6.9
$135
6.6
$135
7.3
$135
8.4
$20
29.3
Gross adds
% of gross adds purchasing CPE
% of subscribers renting CPE
CPE cost/unit
CPE up front revenue
Capitalized CPE expense
4.0
3.0
12.1
17.2
36.3
20.7
10.1
28.5
39.4
98.8
39.1
37.6
41.5
47.8
166.1
Cap-ex / service revenue
112
180.2%
251
394.7%
410
595.8%
410
513.0%
1,183
431.0%
690
646.8%
622
507.7%
763
519.2%
386
210.5%
2,461
439.8%
189
74.6%
193
64.1%
328
89.4%
341
79.2%
1,051
77.8%
0
0.0%
0
0.0%
0
0.0%
0
0.0%
0
0.0%
0
0.0%
0
0.0%
0
0.0%
0
0.0%
0
0.0%
0
0.0%
0
0.0%
0
0.0%
0
0.0%
0
0.0%
1Q09
57.8
0.7
3.6
62.1
0.0
2Q09
59.8
0.5
3.3
63.6
0.0
4Q09
76.8
3.2
0.0
79.9
1.7
62.1
21%
63.6
9%
3Q09
61.2
2.1
0.0
63.3
0.3
5.2
68.8
13%
79.9
34%
2009
255.5
6.5
6.9
269.0
2.0
5.2
274.5
19%
1Q10
90.2
3.7
0.0
93.9
3.3
9.4
106.7
72%
2Q10
107.9
1.8
0.0
109.7
4.5
8.4
122.5
93%
3Q10
118.0
5.0
0.0
123.0
16.5
7.4
147.0
114%
4Q10E
148.3
6.9
0.0
143.5
32.9
7.0
183.4
130%
2010E
464.5
17.4
0.0
470.1
57.3
32.2
559.6
104%
1Q11E
175.2
6.9
0.0
170.7
76.2
7.0
253.9
138%
2Q11E
197.6
6.6
0.0
193.3
100.3
7.0
300.6
145%
3Q11E
220.7
7.3
0.0
216.6
143.5
7.0
367.1
150%
4Q11E
249.1
8.4
0.0
245.3
178.2
7.0
430.5
135%
2011E
842.6
29.3
0.0
825.8
498.3
28.0
1,352.1
142%
Cost of service
Cost of equipment
Marketing costs
R&D expense
Spectrum lease expense
Non-cash compensation
EBITDA margin
% change, y-t-y
73.6
0.0
78.9
29.6
0.0
64.4
0.0
246.5
(184.4)
-296.8%
-51%
81.2
0.0
84.9
28.4
0.0
64.3
0.0
258.7
(195.1)
-306.9%
-82%
97.5
0.0
92.6
52.7
0.0
64.4
0.0
307.2
(238.4)
-346.4%
-137%
169.8
0.0
107.5
93.6
0.0
66.2
0.0
437.1
(357.2)
-446.9%
-76%
422.1
0.0
363.8
204.3
0.0
259.4
0.0
1,249.5
(975.1)
-355.3%
-83%
144.6
0.0
119.8
104.0
0.0
66.7
0.0
435.1
(328.4)
-307.9%
-78%
260.6
0.0
135.5
93.9
0.0
68.2
0.0
558.2
(435.6)
-355.6%
-123%
241.3
0.0
122.0
126.3
0.0
72.8
0.0
562.3
(415.4)
-282.6%
-74%
256.8
0.0
132.1
125.3
0.0
73.0
0.0
587.1
(403.7)
-220.1%
-13%
903.3
0.0
509.4
449.4
0.0
280.6
0.0
2,142.7
(1,583.1)
-282.9%
-62%
304.6
0.0
139.6
136.2
0.0
74.0
0.0
654.4
(400.6)
-157.8%
-22%
330.7
0.0
156.3
131.1
0.0
75.0
0.0
693.1
(392.5)
-130.6%
10%
367.1
0.0
183.5
144.8
0.0
76.0
0.0
771.4
(404.3)
-110.1%
3%
409.0
0.0
193.7
166.8
0.0
77.0
0.0
846.5
(416.0)
-96.6%
-3%
1,411.4
0.0
673.2
578.9
0.0
302.0
0.0
2,965.5
(1,613.4)
-119.3%
-2%
Non-cash stock comp

Non-cash tower rent expense
Non-cash spectrum lease expense
Cash EBITDA (ex. non-cash comp.)
Cash EBITDA margin
5.9
12.8
21.7
(144.0)
-259.1%
10.6
12.6
24.7
(147.2)
-265.1%
7.7
22.3
14.6
(193.8)
-317.7%
3.3
30.3
27.8
(295.7)
-452.4%
27.5
78.1
88.7
(780.7)
-284.5%
19.7
32.5
24.6
(251.6)
-249.7%
10.9
42.3
19.2
(363.2)
-310.4%
9.8
50.6
24.3
(330.7)
-232.6%
9.8
50.6
24.8
(318.5)
-173.7%
50.1
176.1
92.9
(1,264.0)
-225.9%
9.8
50.6
25.3
(314.9)
-125.6%
9.8
50.6
25.8
(306.3)
-103.0%
9.8
50.6
26.3
(317.6)
-87.2%
9.8
50.6
26.8
(328.8)
-76.8%
39.1
202.6
104.2
(1,267.5)
-93.7%

Operating income
% change, y-t-y
48.5
(232.9)
-419.3%
-55%
46.3
(241.4)
-434.7%
-77%
52.9
(291.3)
-477.6%
-125%
60.5
(417.7)
-638.9%
-69%
208.3
(1,183.3)
-431.2%
-79%
78.8
(407.2)
-404.1%
-75%
85.1
(520.8)
-445.0%
-116%
124.3
(539.7)
-379.7%
-85%
146.7
(550.4)
-300.2%
-32%
435.0
(2,018.1)
-360.6%
-71%
190.4
(591.0)
-235.7%
-45%
210.4
(602.9)
-202.8%
-16%
238.6
(642.9)
-176.6%
-19%
258.3
(674.3)
-157.5%
-23%
897.7
(2,511.2)
-185.7%
-24%
Spectrum acquisitions
Spectrum acquired/service revenue
CONSOLIDATED INCOME STATEMENT
Data revenue
CPE up front revenue
Legacy revenue
Total retail revenue
Wholesale revenue
Acquired companies & other revenue
% change, y-t-y
(24.3)
(14.0)
(9.6)
(11.8)
(59.8)
(32.6)
(23.0)
(25.2)
(41.4)
(122.2)
(97.4)
(97.8)
(98.3)
(98.8)
(392.2)
Other income/(expense)
Income before taxes
(3.3)
(260.6)
(8.5)
(263.9)
(4.6)
(305.6)
6.4
(423.1)
(10.0)
(1,253.1)
0.9
(438.8)
(3.2)
(546.9)
0.3
(564.7)
0.0
(591.9)
(2.0)
(2,142.3)
0.0
(688.3)
0.0
(700.8)
0.0
(741.2)
0.0
(773.1)
0.0
(2,903.4)
Non-controlling interests
Net income
Net income before non-controlling interests
0.0
0.1
189.4
(71.1)
(260.5)
0.0
(0.1)
190.7
(73.4)
(264.0)
0.0
0.2
223.0
(82.4)
(305.4)
0.0
(0.9)
325.2
(98.7)
(423.9)
0.0
(0.7)
928.3
(325.6)
(1,253.8)
0.0
(0.6)
345.3
(94.1)
(439.4)
0.0
(0.2)
421.2
(125.9)
(547.1)
0.0
0.1
425.2
(139.4)
(564.6)
0.0
0.0
445.6
(146.2)
(591.9)
0.0
(0.7)
1,637.4
(505.6)
(2,143.0)
0.0
0.0
518.3
(170.1)
(688.3)
0.0
0.0
527.6
(173.1)
(700.8)
0.0
0.0
558.1
(183.1)
(741.2)
0.0
0.0
582.1
(191.0)
(773.1)
0.0
0.0
2,186.1
(717.3)
(2,903.4)
192
706
195.1
723
195
724
196
809
195
741
199
936
205
977
242
986
242
986
222
971
242
986
0
6.00
0
242
986
0
6.00
0
242
986
0
6.00
0
242
1,286
300
6.00
1,800
242
1,061
300
6.00
1,800
EPS (loss), basic

% change, y-t-y
($0.37)
($0.38)
NM
($0.38)
($0.38)
0%
($0.42)
($0.43)
-13%
($0.55)
($0.55)
-28%
($1.67)
($1.75)
41%
($0.47)
($0.48)
NM
($0.61)
($0.13)
73%
($0.58)
($0.58)
-350%
($0.60)
($0.60)
-4%
($2.28)
($1.79)
-2%
($0.70)
($0.70)
NM
($0.71)
($0.71)
-2%
($0.76)
($0.75)
-6%
($0.79)
($0.60)
20%
($2.96)
($2.74)
-53%
Cash EPS (loss), basic

Cash EPS (loss), fully diluted
% change, y-t-y
($0.37)
($0.10)
NM
($0.38)
($0.10)
-1%
($0.42)
($0.11)
-12%
($0.50)
($0.12)
-7%
($1.67)
($0.44)
79%
($0.47)
($0.10)
NM
($0.61)
($0.13)
-28%
($0.58)
($0.14)
-10%
($0.60)
($0.15)
-5%
($2.28)
($0.52)
-18%
($0.70)
($0.17)
NM
($0.71)
($0.18)
-2%
($0.76)
($0.19)
-6%
($0.79)
($0.15)
20%
($2.96)
($0.68)
-30%
Reported EPS (loss), diluted

Reported EPS (loss), pro forma options expense
% change, y-t-y
($0.38)
($0.38)
NM
($0.38)
($0.38)
0%
($0.43)
($0.43)
-13%
($0.55)
($0.55)
-28%
($1.75)
($1.75)
41%
($0.48)
($0.48)
NM
($0.13)
($0.13)
73%
($0.58)
($0.58)
-350%
($0.60)
($0.60)
-4%
($1.79)
($1.79)
-2%
($0.70)
($0.70)
NM
($0.71)
($0.71)
-2%
($0.75)
($0.75)
-6%
($0.60)
($0.60)
20%
($2.74)
($2.74)
-53%

New Shares Issued
Issue Price
Issue Amount
258
Philip Cusick, CFA

(1-212) 622-1444

13 January 2011
Table 124: Clearwire Balance Sheet and Cash Flow Statement

Clearwire
Consolidated Balance Sheet
Cash
Cash equivalents
Accounts recievable
Inventory
Prepaid and other assets
Property, plant and equipment, net
Network and base station equipment
Customer premise equipment
Furniture, fixtures, equipment
Leasehold improvements
Construction in progress
Gross PP&E
Accumulated depreciation
Net PP&E
Gross intangibles
Accumulated amortization
Net intangibles
Restricted cash and long-term investments
Other assets
Total assets
AP, other and current LT debt
Current portion of capital leases
Other current liabilities
1Q09
171
2,664
2Q09
755
3Q09
483
1,476
4Q09
1,698
2,107
2009
1,698
2,107
6
13
46
2,113
5,983
1Q10
629
2,368
2,997
7
20
54
2,374
5,451
2Q10
255
1,981
2,236
12
19
74
5
2,345
3Q10
78
1,303
1,381
22
21
99
5
1,529
4Q10E
694
1,303
1,997
22
21
99
5
2,144
2010E
694
1,303
1,997
22
21
99
5
2,144
1Q11E
77
1,303
1,380
22
21
99
5
1,527
2Q11E
(535)
1,303
768
22
21
99
5
915
3Q11E
(1,294)
1,303
9
22
21
99
5
156
4Q11E
922
1,303
2,225
22
21
99
5
2,372
2011E
922
1,303
2,225
22
21
99
5
2,372
6
13
46
2,113
5,983
2,725
5,560
1,771
2,526
5
6
36
5
2,011
394
27
192
13
852
1,478
(97)
1,381
223
(9)
4,587
22
29
11,580
463
30
191
14
1,026
1,724
(177)
1,591
223
(19)
4,578
10
44
8,750
527
42
193
17
1,338
2,117
(175)
1,942
223
(29)
4,586
9
61
8,609
902
60
217
18
1,624
2,820
(224)
2,597
223
(38)
4,587
93
115
13,375
902
60
217
18
1,624
2,820
(224)
2,597
223
(38)
4,587
93
115
13,375
1,106
81
223
25
2,065
3,499
(224)
3,206
223
(38)
4,477
58
224
13,416
1,369
91
224
29
2,312
4,024
(224)
3,664
223
(38)
4,535
71
136
10,752
2,221
119
263
34
2,108
4,745
(224)
4,278
223
(38)
4,510
37
135
10,489
5,131
(224)
4,907
223
(38)
4,510
37
135
11,733
5,131
(224)
4,907
223
(38)
4,510
37
135
11,733
5,321
(224)
5,097
223
(38)
4,510
37
135
11,306
5,513
(224)
5,290
223
(38)
4,510
37
135
10,887
5,842
(224)
5,618
223
(38)
4,510
37
135
10,455
6,183
(224)
5,959
223
(38)
4,510
37
135
13,013
6,183
(224)
5,959
223
(38)
4,510
37
135
13,013
14
0
165
179
14
0
198
212
14
0
294
308
0
0
543
543
0
0
543
543
15
0
598
613
463
0
18
481
660
0
20
681
660
0
20
711
660
0
20
711
660
0
20
792
660
0
20
839
660
0
20
934
660
0
132
1,025
660
0
132
1,025
Long-term debt
Exchangeable debt
Capital lease obligations
Deferred taxes, other liabilities
Total liabilities
1,366
1,381
1,395
2,715
2,715
2,716
2,748
2,801
0
122
1,667
0
154
1,747
0
197
1,900
0
237
3,495
0
237
3,495
0
290
3,619
0
358
3,587
0
420
3,902
3,476
714
0
1,523
6,423
3,476
714
0
1,523
6,423
3,476
714
0
1,702
6,684
3,476
714
0
1,937
6,966
3,476
714
0
2,152
7,276
4,676
714
0
4,191
10,606
4,676
714
0
4,191
10,606
Minority interest
Preferred stock
Non-controlling interests
0
0
1,970
5,278
8,916
0
0
1,901
5,102
8,750
0
0
1,828
4,881
8,609
0
0
1,591
6,182
11,268
0
0
1,591
6,182
11,268
0
0
1,580
5,849
11,049
0
0
1,753
5,413
10,753
0
0
1,623
4,993
10,517
0
0
1,477
4,547
12,447
0
0
1,477
4,547
12,447
0
0
1,307
4,029
12,020
0
0
1,133
3,501
11,600
0
0
950
2,943
11,169
0
0
759
2,361
13,726
0
0
759
2,361
13,726
Net cash (debt)
1,456
(640)
549
1,090
1,090
265
(975)
(2,080)
(2,140)
(2,140)
(2,757)
(3,369)
(4,128)
(3,112)
(3,112)
Net income
Allowance for doubtful accounts
Amortization of licenses
Amort. Of deferred financing cost
Deferred income tax
Share based compensation
Other-than-temporary impairment loss on investments
Other
Cash Flow Before Working Capital Requirements
1Q09
(260)
49
2
22
0
(0)
6
1
34
(147)
2Q09
(264)
46
(2)
25
0
0
11
7
34
(143)
3Q09
(305)
53
0
15
0
0
8
1
47
(182)
4Q09
(424)
61
0
(3)
0
1
3
0
124
(239)
2009
(1,254)
208
0
58
0
1
28
10
239
(710)
1Q10
(439)
79
0
14
0
1
20
0
51
(275)
2Q10
(547)
85
0
14
0
(0)
11
0
132
(305)
3Q10
(565)
124
0
16
0
(0)
10
0
98
(317)
4Q10E
(592)
147
0
15
0
(0)
10
0
85
(336)
2010E
(2,143)
435
0
59
0
(1)
50
0
367
(1,233)
1Q11E
(688)
190
0
15
0
0
10
0
86
(387)
2Q11E
(701)
210
0
15
0
0
10
0
86
(379)
3Q11E
(741)
239
0
15
0
0
10
0
87
(391)
4Q11E
(773)
258
0
15
0
0
10
0
87
(403)
2011E
(2,903)
898
0
60
0
0
39
0
346
(1,561)
Change in Working Capital

Net Cash from operating activities
(14)
(161)
15
(127)
64
(118)
172
(67)
238
(472)
44
(231)
(22)
(327)
35
(282)
0
(336)
56
(1,176)
0
(387)
0
(379)
0
(391)
0
(403)
0
(1,561)
Free Cash Flow
115
(275)
230
(357)
385
(503)
721
(788)
1,450
(1,923)
655
(887)
713
(1,041)
587
(869)
447
(783)
2,403
(3,579)
229
(617)
233
(612)
368
(759)
381
(784)
1,211
(2,772)
Dividends
0
(275)
0
(357)
0
(503)
0
(788)
0
(1,923)
0
(887)
0
(1,041)
0
(869)
0
(783)
0
(3,579)
0
(617)
0
(612)
0
(759)
0
(784)
0
(2,772)
(4)
(4)
(4)
1,263
1,252
(20)
20
(22)
675
653
1,200
1,200
Change in equity
10
1,481
1,494
13
290
56
358
1,800
1,800
(5)
(767)
0
0
0
5
(766)
(7)
954
0
0
0
(2)
945
(0)
227
0
0
0
3
230
(35)
(705)
0
0
0
0
(740)
(47)
(291)
0
0
0
6
(331)
(10)
(227)
0
0
0
62
(175)
(1)
407
0
0
0
(50)
356
0
672
0
0
0
(13)
659
0
0
0
0
0
10
10
(11)
852
0
0
0
9
850
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
Net change in cash
(1,035)
584
(274)
1,216
492
(1,069)
(374)
(176)
616
(1,004)
(617)
(612)
(759)
2,216
228
Calculated cash balance

Reported cash balance
Cash equivalents
Cash, cash equivalents, short-term investments
171
171
2,664
2,836
755
755
0
755
482
483
1,476
1,959
1,698
1,698
2,107
3,805
1,698
1,698
2,107
3,805
629
629
2,368
2,997
255
255
1,981
2,236
78
78
1,303
1,381
694
694
1,303
1,997
694
694
1,303
1,997
77
77
1,303
1,380
(535)
(535)
1,303
768
(1,294)
(1,294)
1,303
9
922
922
1,303
2,225
922
922
1,303
2,225
Clearwire
Consolidated Cash Flow Model
+ Purchase of Spectrum Licenses

+ Net Purchase of Short term investments
+ Acquisitions net of cash
+ Net Investments Equity Investee
+ Deferred Financing Fees
+ Others
Others
259
Philip Cusick, CFA

(1-212) 622-1444
260

13 January 2011
Philip Cusick, CFA

(1-212) 622-1444

13 January 2011
Leap Wireless Model

Table 125: Leap Wireless Summary Subscriber and Operating Statistics
1Q09
2Q09
3Q09
4Q09
2009
1Q10
2Q10
3Q10
4Q10E
2010E
1Q11E
2Q11E
3Q11E
4Q11E
2011E
Service Revenue
Calculated ARPU
% change, y-t-y
514
$42.21
-6%
542
$40.73
-7%
541
$39.60
-8%
547
$38.66
-9%
2,144
$32.66
-15%
585
$37.96
-10%
597
$37.61
-8%
565
$37.02
-7%
594
$37.31
-3.5%
2,341
$37.24
14.0%
633
$37.58
-1.0%
643
$37.61
0.0%
645
$37.76
2.0%
650
$37.31
0.0%
2,571
$37.44
0.5%
Costs
CCPU reported
CCPU calculated
CPGA reported
$20.03
$19.06
$202
$18.42
$18.42
$201
$17.73
$17.63
$208
$17.10
$17.59
$181
$14.74
$18.31
$194
$17.41
$17.27
$171
$17.51
$17.51
$215
$19.83
$19.53
$219
$19.77
$221
$18.48
$203
$18.66
$220
$18.67
$220
$18.72
$220
$18.59
$210
$18.60
$217
CONSOLIDATED KEY MODEL METRICS
Adjusted EBITDA
96.8
18.8%
136.5
25.2%
121.5
22.4%
130.8
23.9%
485.7
22.7%
123.0
21.0%
172.0
28.8%
123.2
21.8%
114.5
19.3%
532.8
22.8%
141.0
22.3%
167.5
26.0%
157.9
24.5%
141.6
21.8%
608.0
23.6%
Subscribers
Average subscribers
Churn rate
4,511
4,937
3.3%
4,540
5,377
4.4%
4,656
5,757
5.4%
4,954
6,161
4.7%
4,954
5,470
4.6%
5,400
5,177
4.5%
5,288
5,291
5.0%
5,088
5,132
5.5%
5,523
5,306
4.0%
5,523
5,239
4.7%
5,698
5,611
3.8%
5,698
5,698
4.2%
5,698
5,698
4.5%
5,923
5,811
3.8%
5,923
5,723
4.1%
Total net additions

Voice net additions
Broadband net additions
493
370
123
203
159
44
116
19
97
298
229
69
1,110
777
333
446
249
197
(112)
(73)
(39)
(200)
(172)
(28)
115
163
(48)
249
167
82
175
150
25
0
25
(25)
0
25
(25)
225
200
25
400
400
0
Total gross additions

% change q/q
890
11%
791
-11%
851
8%
968
14%
3,500
1,133
17%
683
-40%
644
-6%
752
17%
3,212
815
8%
718
-12%
769
7%
887
15%
3,189
Total disconnects
(397)
(588)
(735)
(670)
(2,390)
(687)
(795)
(844)
(637)
(2,963)
(640)
(718)
(769)
(662)
(2,789)
202
39%
224
41%
259
48%
122
22%
807
38%
107
18%
88
15%
104
18%
119
20%
418
18%
108
17%
109
17%
116
18%
117
18%
450
18%
4,018
915
(422)
4,511
788
(585)
4,540
861
(745)
4,656
975
(678)
4,954
1,133
(687)
5,400
683
(794)
5,288
644
(847)
5,698
769
(769)
5,698
887
(662)
4,656
28%
4,954
23%
5,400
20%
5,288
16%
5,088
9%
4,954
3,212
(2,964)
320
5,523
11%
5,698
718
(718)
4,540
35%
5,088
752
(637)
320
5,523
11%
5,523
815
(640)
4,511
41%
4,018
3,539
(2,430)
0
4,954
23%
5,698
6%
5,698
8%
5,698
12%
5,923
7%
5,523
3,189
(2,789)
0
5,923
7%
CONSOLIDATED MARKET MODEL

- Disconnects
Ending subscribers
% change, y-t-y
Churn rate, monthly
3.3%
4.4%
5.4%
4.7%
4.5%
4.5%
5.0%
5.5%
4.0%
4.7%
3.8%
4.2%
4.5%
3.8%
4.1%

% change, y-t-y
493
114%
203
18%
116
-56%
298
-23%
1,110
6%
446
-10%
(112)
NM
(200)
NM
115
-61%
249
-78%
175
-61%
0
-100%
0
-100%
225
96%
400
61%
Average subscribers
Licensed pops
Percent covered
Covered pops
Penetration of covered pops
4,264
109,788
83%
91,000
4.96%
4,432
113,788
80%
91,100
4.98%
4,598
113,788
80%
91,100
5.11%
4,805
128,788
73%
94,200
5.26%
4,486
128,788
71%
91,850
5.39%
5,177
129,188
73%
94,200
5.73%
5,291
129,488
73%
94,200
5.61%
5,132
129,788
73%
94,200
5.40%
5,306
130,088
72%
94,200
5.86%
5,239
130,088
72%
94,200
5.86%
5,611
130,488
72%
94,388
6.04%
5,698
130,788
72%
94,577
6.02%
5,698
131,003
72%
94,766
3.00%
5,811
131,278
72%
94,956
6.24%
5,723
131,278
72%
94,672
6.26%
$40.18
-10.7%
$40.74
-3.8%
$39.24
-5.9%
$37.94
-7.1%
$39.83
-3.1%
$37.66
-6.3%
$37.61
-7.7%
$36.71
-6.4%
$37.31
-1.7%
$37.24
-6.5%
$37.58
-0.2%
$37.61
0.0%
$37.76
2.9%
$37.31
0.0%
$37.44
0.5%
1Q09
133
146
(23)
2Q09
256
94
(50)
3Q09
300
162
(65)
4Q09
397
144
(75)
1Q10
466
261
(64)
2Q10
663
112
(151)
3Q10
624
111
(139)
4Q10E
596
64
(112)
2Q11E
573
76
(101)
3Q11E
548
71
(96)
4Q11E
523
105
(80)
300
2041%
397
635%
466
250%
663
159%
624
108%
596
50%
548
18%
2010E
466
547
(465)
0
548
18%
1Q11E
548
126
(101)
256
8427%
2009
133
546
(213)
0
466
250%
573
-14%
548
-12%
523
-12%
548
0%
2011E
548
378
(378)
0
548
0%
4.0%
6.0%
6.2%
5.8%
5.9%
3.8%
7.8%
7.6%
6.5%
7.7%
6.0%
6.0%
6.0%
5.0%
5.8%
123
3993%
97
143%
69
-13%
333
150%
197
60%
(39)
NM
(28)
NM
(48)
NM
82
-75%
25
-87%
(25)
36%
(25)
11%
25
NM
0
-100%
194
44
300%
-64%
278
348
431
299
564
643
610
572
507
560
560
535
535
548
$40.00
#DIV/0!
$35.00
-2.8%
$35.00
-2.8%
$35.00
-2.8%
$36.25
0.7%
$34.30
-14.3%
$14.53
$142.00
(5)
$34.30
-2.0%
$13.60
$189.00
17
$33.56
-4.1%
$15.68
$183.00
12
$33.56
-4.1%
$33.93
-6.4%
$34.30
0.0%
$34.30
0.0%
$34.23
2.0%
$34.23
2.0%
$34.27
1.0%
1Q09
3,934
769
(399)
2Q09
4,304
694
(535)
3Q09
4,463
699
(680)
4Q09
4,482
831
(602)
1Q10
4,711
775
(526)
2Q10
4,960
569
(641)
3Q10
4,887
533
(708)
4Q10E
4,715
688
(525)
2Q11E
5,028
642
(617)
3Q11E
5,053
698
(673)
4Q11E
5,078
782
(582)
4,463
31%
4,482
24%
4,711
20%
4,960
15%
4,887
9%
4,715
5%
4,878
4%
2010E
4,711
2,565
(2,400)
0
4,878
4%
1Q11E
4,878
689
(539)
4,304
33%
2009
3,934
2,993
(2,217)
0
4,711
20%
5,028
1%
5,053
3%
5,078
8%
5,278
8%
2011E
4,878
2,811
(2,411)
0
5,278
8%
Churn rate, monthly
3.3%
4.3%
5.3%
4.6%
4.4%
3.8%
4.6%
5.2%
3.7%
4.2%
3.6%
4.0%
4.3%
3.7%
3.9%

% change, y-t-y
370
63%
19
-91%
229
-25%
777
-15%
249
-33%
(73)
NM
(172)
NM
163
-29%
167
-78%
150
-40%
25
NM
25
NM
200
23%
400
139%
4,070
159
-1%
-57%
4,155
4,250
4,374
4,187
4,613
4,648
4,522
4,734
4,732
5,050
5,138
5,163
5,275
5,175
$40.19
-6.8%
$41.13
14.2%
$39.58
10.0%
$38.23
6.2%
$40.08
6.1%
$38.42
-4.4%
$38.17
-7.2%
$37.48
-5.3%
$37.76
-1.2%
$37.59
-6.2%
$37.94
-1.2%
$37.97
-0.5%
$38.13
1.7%
$37.62
-0.4%
$37.78
0.5%
ARPU
% change, y-t-y
BROADBAND Minimodel
- Disconnects
Ending subscribers
% change, y-t-y
Churn rate, monthly
% change, y-t-y
Average subscribers
ARPU
% change, y-t-y
CCU
CPGA
Adj. OIBDA
VOICE Minimodel
- Disconnects
Ending subscribers
% change, y-t-y
Average subscribers
ARPU
% change, y-t-y
261
Philip Cusick, CFA

(1-212) 622-1444

13 January 2011
Table 126: Leap Wireless Expense Operating Statistics

1Q09
2Q09
3Q09
4Q09
2009
1Q10
2Q10
3Q10
4Q10E
2010E
1Q11E
2Q11E
3Q11E
4Q11E
2011E
$11.28
28.1%
$11.62
28.5%
$11.36
29.0%
$10.64
28.0%
$11.31
28.4%
$10.68
28.4%
$11.08
29.4%
$11.69
31.9%
$11.94
32.0%
$11.32
30.4%
$11.65
31.0%
$11.66
31.0%
$11.71
31.0%
$11.57
31.0%
$11.61
31.0%
$7.52
19%
$6.84
17%
$6.31
16%
$5.85
15%
$6.66
17%
$5.94
16%
$5.60
15%
$5.79
16%
$5.80
16%
$5.77
15%
$5.50
15%
$5.50
15%
$5.50
15%
$5.50
15%
$5.48
15%
Less: Share based comp in CoS & G&A/sub/month

Plus: Cost of upgrades/sub/month
CCU (Cash cost per user)
Reported CCU
% change, y-t-y
$0.79
$1.05
$19.06
$20.03
-10%
$0.67
$0.63
$18.42
$18.42
-12%
$0.60
$0.56
$17.63
$17.73
-19%
$0.13
$1.23
$17.59
$17.10
-13%
$0.54
$0.88
$18.31
$14.74
-11%
$0.39
$1.04
$17.27
$17.41
-9%
$0.56
$1.39
$17.51
$17.51
-5%
$0.48
$2.52
$19.53
$19.83
11%
$0.47
$2.50
$19.77
$0.47
$1.86
$18.48
$0.49
$2.00
$18.66
$0.49
$2.00
$18.67
$0.49
$2.00
$18.72
$0.48
$2.00
$18.59
$0.48
$1.99
$18.60
12%
1%
8%
7%
-4%
-6%
1%
CPGA Calculation
Selling and marketing expense
Less: share based comp in S&M
Plus: net equipment cost
Less: net cost of equipment upgrades and commissions
Total costs in CPGA
Gross additions
CPGA
Reported CPGA
103.52
1.58
84.81
13.45
173.31
915.18
$189
$202
96.69
1.47
71.95
8.39
158.78
787.84
$202
$201
111.70
9.14
75.30
7.71
170.16
861.10
$198
$208
99.65
9.14
89.86
17.76
162.61
975.28
$167
$181
411.56
21.33
321.93
47.31
664.85
3,539.41
$188
$194
111.88
1.11
98.92
16.14
193.56
1,133.00
$171
$171
96.45
1.83
74.50
22.03
147.09
683.32
$215
$215
98.94
1.58
82.80
38.83
141.33
644.39
$219
$219
109.75
1.58
96.17
39.79
164.55
751.68
$219
$221
417.02
6.09
352.38
116.79
646.52
3,212.38
$201
$203
118.12
1.70
94.76
33.66
177.52
814.62
$218
$220
104.11
1.70
88.04
34.19
156.26
717.97
$218
$220
111.54
1.70
91.88
34.19
167.54
769.26
$218
$220
119.80
1.70
101.42
34.86
184.66
887.42
$208
$210
453.57
6.80
376.10
136.91
685.97
3,189.27
$215
$217
$63
5.00%
213
1,128
$63
3.00%
133
921
$56
3.00%
138
999
$74
5.00%
240
1,216
$65
16.15%
724
4,264
$78
4.00%
207
1,340
$83
5.00%
265
948
$76
10.00%
513
1,158
$75
10.00%
531
1,282
$77
28.93%
1,515
4,728
8.00%
449
1,263
8.00%
456
1,174
8.00%
456
1,225
8.00%
465
1,352
31.90%
1,825
5,015
Eq. revenue/handset sold (handset price)

Eq. cost/handset sold (handset cost)
Handset subsidy
Cost of eq. as % of eq. revenue
$65
$140
$75
216%
$61
$139
$78
229%
$58
$134
$75
229%
$43
$117
$74
272%
$56
$132
$76
235%
$52
$125
$74
243%
$39
$117
$79
304%
$32
$104
$72
321%
$29
$104
$75
360%
$38
$113
$75
296%
$55
$130
$75
236%
$55
$130
$75
236%
$55
$130
$75
236%
$55
$130
$75
236%
$55
$130
$75
236%
Reported CPGA
Customer acquisition cost (per gross add)
Marketing/gross add
Marketing as % of service revenue
$202
$202
$127
20%
$201
$201
$123
18%
$208
$208
$133
21%
$181
$181
$107
18%
$194
$194
$118
19%
$171
$171
$97
19%
$215
$215
$136
16%
$219
$219
$147
18%
$221
$146
18%
$203
$129
18%
$220
$145
19%
$220
$145
16%
$220
$145
17%
$210
$135
18%
$217
$142
18%
202
39%
224
41%
259
48%
122
22%
807
38%
107
18%
88
15%
104
18%
119
20%
418
18%
108
17%
109
17%
116
18%
117
18%
450
18%
CCU Calculation
Estimated subsidy/commission per handset upgrade

Replaced as % of average customers
Estimated handsets replaced
Total handsets sold
Total capital expenditures

Table 127: Leap Wireless Consolidated Income Statement

Equipment revenue
Total revenue
% change, y-t-y
1Q09
514
73
587
25%
2Q09
542
56
598
26%
3Q09
541
58
599
20%
4Q09
547
52
599
13%
2009
2,144
239
2,383
21%
1Q10
585
69
654
11%
2Q10
597
37
634
6%
3Q10
565
37
603
1%
4Q10E
594
37
631
5%
2010E
2,341
180
2,521
6%
1Q11E
633
69
702
7%
2Q11E
643
65
707
12%
3Q11E
645
67
713
18%
4Q11E
650
74
725
15%
2011E
2,571
276
2,847
13%
Cost of service
% change, y-t-y
144
96
273
53.2%
29%
155
91
296
54.7%
34%
157
87
297
55.0%
35%
153
84
309
56.6%
24%
609
358
1,177
54.9%
30%
166
92
327
55.9%
19%
176
89
332
55.7%
12%
180
89
296
52.4%
-1%
190
92
311
52.5%
1%
712
363
1,266
54.1%
8%
196
93
344
54.4%
5%
199
94
350
54.4%
5%
200
94
351
54.4%
19%
202
96
353
54.3%
13%
797
376
1,398
54.4%
10%
Cost of equipment
Marketing costs
Non-cash compensation (pre-tax)
% change, y-t-y
158
104
0
502
85
16.6%
-22%
128
97
0
470
128
23.6%
28%
134
112
0
489
110
20.4%
19%
142
100
0
479
120
21.9%
31%
561
412
0
1,940
443
20.7%
13%
168
112
0
538
116
19.8%
36%
111
96
0
472
161
27.0%
26%
120
99
0
488
114
20.2%
3%
133
110
0
525
106
17.8%
-12%
533
417
0
2,024
497
21.2%
12%
164
118
0
571
131
20.7%
13%
153
104
0
550
157
24.5%
-2%
159
112
0
565
148
22.9%
29%
176
120
0
593
132
20.2%
25%
652
454
0
2,279
568
22.1%
14%
Adjusted EBITDA (ex. non-cash comp.)

Adjusted EBITDA margin of service revenue
% change, y-t-y
97
18.8%
-18%
137
25.2%
28%
121
22.4%
20%
131
23.9%
30%
486
22.7%
14%
123
21.0%
27%
172
28.8%
26%
123
21.8%
1%
115
19.3%
-12%
533
22.8%
10%
141
22.3%
15%
167
26.0%
-3%
158
24.5%
28%
142
21.8%
24%
608
23.6%
14%

Operating income
% change, y-t-y
90
(5)
-0.9%
NM
100
28
5.2%
112%
108
3
0.5%
-61%
113
6
1.2%
-57%
411
32
1.5%
-47%
109
7
1.1%
NM
111
51
8.5%
81%
114
0
0.0%
-92%
114
(8)
-1.4%
NM
448
49
2.1%
51%
130
1
0.2%
-78%
130
28
4.3%
-45%
130
18
2.8%
9087%
129
2
0.3%
NM
518
50
1.9%
2%
Interest income
Interest expense
Income before taxes
1
(42)
(41)
2
(43)
1
(49)
(48)
(29)
(49)
1
(59)
(58)
1
(55)
1
(60)
(59)
2
(51)
4
(210)
(207)
(24)
(199)
0
(60)
(60)
0
(53)
0
(60)
(60)
4
(6)
0
(60)
(60)
(481)
(541)
0
(57)
(57)
1
(64)
1
(238)
(237)
(477)
(665)
0
(57)
(57)
1
(55)
0
(57)
(57)
1
(28)
0
(57)
(57)
1
(38)
0
(57)
(57)
1
(54)
1
(229)
(228)
4
(174)
Net income
(7)
(50)
(13)
(63)
(9)
(65)
(11)
(62)
0
(41)
(239)
(11)
(65)
(12)
(18)
5
(536)
(11)
(75)
0
(30)
(694)
(11)
(66)
(11)
(39)
(11)
(49)
(11)
(65)
0
(44)
(218)
Weighted average shares outstanding

Diluted shares outstanding
68
68
71
71
76
76
76
76
72
72
76
76
76
76
76
76
76
76
76
76
76
76
76
76
76
76
76
76
76
76
($0.74)
($0.74)
-175%
($0.74)
-175%
($0.89)
($0.89)
-131%
($0.89)
-131%
($0.85)
($0.85)
-30%
($0.85)
-30%
($0.82)
($0.82)
-24%
($0.82)
-24%
($3.30)
($3.30)
-68%
($3.30)
-68%
($0.85)
($0.85)
-16%
($0.85)
-16%
($0.24)
($0.24)
73%
($0.24)
73%
($7.06)
($7.06)
-726%
($7.06)
-726%
($0.99)
($0.99)
-22%
($0.99)
-22%
($9.15)
($9.15)
-177%
($9.15)
-177%
($0.86)
($0.86)
-1%
($0.86)
-1%
($0.51)
($0.51)
-114%
($0.51)
-114%
($0.64)
($0.64)
91%
($0.64)
91%
($0.85)
($0.85)
14%
($0.85)
14%
($2.87)
($2.87)
69%
($2.87)
69%
EPS
EPS - diluted
% change, y-t-y
EPS - continuing
% change, y-t-y
262
Philip Cusick, CFA

(1-212) 622-1444

13 January 2011
Table 128: Leap Wireless Balance Sheet

Marketable securities
Net PP&E
Accumulated amortization
Net intangibles
Other assets
Total assets
1Q09
182
306
168
656
1,957
(996)
2,351
88
5,051
2Q09
330
384
177
891
2,062
(970)
2,377
100
5,429
3Q09
223
391
190
804
2,093
(975)
2,379
93
5,369
4Q09
175
389
224
788
2,121
(981)
2,379
84
5,372
2009
175
389
224
788
2,121
(981)
2,379
84
5,372
1Q10
171
353
181
705
2,094
(986)
2,377
84
5,260
2Q10
280
271
164
714
2,077
(991)
2,376
89
5,257
3Q10
308
256
205
769
2,015
(997)
1,945
82
4,811
4Q10E
227
256
205
688
2,223
(1,002)
2,344
82
5,337
2010E
227
256
205
688
2,223
(1,002)
2,344
82
5,337
1Q11E
224
256
205
685
2,206
(1,008)
2,339
82
5,313
2Q11E
247
256
205
707
2,191
(1,013)
2,334
82
5,315
3Q11E
252
256
205
713
2,183
(1,018)
2,328
82
5,307
4Q11E
241
256
205
702
2,176
(1,024)
2,323
82
5,283
2011E
241
256
205
702
2,176
(1,024)
2,323
82
5,283
Current portion of L.T. debt

14
514
528
6
482
488
7
462
469
8
507
515
8
507
515
16
460
476
14
452
466
12
538
550
12
538
550
12
538
550
12
538
550
12
538
550
12
538
550
12
538
550
12
538
550
2,561
311
3,400
2,754
315
3,557
2,753
331
3,553
2,735
359
3,610
2,735
359
3,610
2,726
377
3,579
2,726
389
3,582
2,727
389
3,666
2,727
389
3,666
2,727
389
3,666
2,727
389
3,666
2,727
389
3,666
2,727
389
3,666
2,727
389
3,666
2,727
389
3,666
75
0
78
0
76
0
72
0
72
0
52
0
53
0
51
0
51
0
51
0
51
0
51
0
51
0
51
0
51
0
0
1,845
(5)
(264)
1,576
5,051
0
2,117
0
(324)
1,794
5,429
0
2,134
0
(395)
1,740
5,369
0
2,255
1
(459)
1,691
5,372
0
2,255
1
(459)
1,691
5,372
0
2,260
1
(524)
1,629
5,260
0
2,165
(1)
(543)
1,621
5,257
0
2,171
(1)
(1,077)
1,094
4,811
0
2,171
(1)
(1,152)
1,620
5,337
0
2,171
(1)
(1,152)
1,620
5,337
0
2,171
(1)
(1,218)
1,595
5,313
0
2,171
(1)
(1,257)
1,597
5,315
0
2,171
(1)
(1,305)
1,589
5,307
0
2,171
(1)
(1,370)
1,566
5,283
0
2,171
(1)
(1,370)
1,566
5,283
Long-term debt
Total liabilities
Minority interest
Preferred stock
Common Stock
Additional Paid-In Capital
Other
Retained earnings (accumulated deficit)
Table 129: Leap Wireless Cash Flow Statement

Net income
Plus: Depreciation and amortization
Plus: Share based compensation
Plus: cash paid for income taxes
Plus: Other
Net Cash from operating activities
1Q09
(50)
90
12
1
61
100
2Q09
(63)
100
9
1
7
44
3Q09
(65)
108
11
1
8
51
4Q09
(62)
113
11
1
38
89
2009
(239)
411
43
3
113
284
1Q10
(65)
109
7
1
41
94
2Q10
(18)
111
11
1
7
111
3Q10
(536)
114
9
1
534
122
4Q10E
(75)
114
9
1
30
79
2010E
(694)
448
36
4
611
405
1Q11E
(66)
130
10
1
30
105
2Q11E
(39)
130
10
1
30
132
3Q11E
(49)
130
10
1
30
122
4Q11E
(65)
129
10
1
30
106
2011E
(218)
518
40
4
120
464

Free Cash Flow
202
(102)
224
(180)
259
(208)
122
(33)
807
(522)
107
(14)
88
23
104
18
119
(40)
418
(13)
108
(2)
109
22
116
6
117
(11)
450
14
Less: Dividends
0
(102)
0
(180)
0
(208)
0
(33)
0
(522)
0
(14)
0
23
0
18
0
(40)
0
(13)
0
(2)
0
22
0
6
0
(11)
0
14
Plus: Purchase of Wireless Licenses & Spectrum costs

Plus: Net Purchase of investments
Plus: Change in total debt
Plus: Change in equity
Plus: Proceeds from Sale of Licenses & Assets
Plus: Other
Net change in cash
(3)
(235)
(4)
1
3
163
(176)
(29)
89
167
265
(1)
(163)
148
1
(7)
(2)
(0)
3
(1)
(214)
(4)
3
(18)
1
(2)
5
(48)
(35)
(150)
143
267
3
4
(290)
(1)
(122)
(2)
(21)
0
158
(2)
1
(179)
(2)
22
0
242
106
(3)
441
(2)
(2)
0
(426)
27
0
(38)
0
0
0
0
(78)
(3)
102
(6)
(1)
0
(26)
54
0
0
0
0
0
0
(2)
0
0
0
0
0
0
22
0
0
0
0
0
0
6
0
0
0
0
0
0
(11)
0
0
0
0
0
0
14
Cash balance
Reported cash balance
182
182
330
330
116
223
68
175
(149)
175
173
171
278
280
305
308
227
227
195
227
224
224
247
247
252
252
241
241
155
241
263
Philip Cusick, CFA

(1-212) 622-1444
264

13 January 2011
Philip Cusick, CFA

(1-212) 622-1444

13 January 2011
MetroPCS Model
Table 130: MetroPCS Operating Statistics
Consolidated subscriber model
% change, y-t-y
% change, q-t-q
- Disconnects
Ending subscribers
% change, y-t-y
1Q09
2Q09
3Q09
4Q09
2009
1Q10
2Q10
3Q10
4Q10E
2010E
1Q11E
2Q11E
3Q11E
4Q11E
2011E
5,367
1,540
61%
18%
(856)
0
6,051
37%
6,051
1,276
61%
-17%
(1,071)
0
6,256
36%
6,256
1,160
25%
-9%
(1,094)
0
6,322
30%
6,322
1,348
4%
16%
(1,030)
0
6,640
24%
5,367
5,324
34%
34%
(4,052)
0
5,965
13%
6,640
1,471
-4%
9%
(771)
0
7,331
21%
7,331
1,095
-14%
-26%
(792)
0
7,634
22%
7,634
1,104
-5%
1%
(882)
0
7,857
24%
7,857
1,138
-16%
3%
(841)
0
8,155
23%
6,640
4,809
-10%
-10%
(3,286)
0
8,155
37%
8,155
1,251
-15%
10%
(876)
0
8,530
16%
8,530
1,053
-4%
-16%
(928)
0
8,655
13%
8,655
1,145
4%
9%
(1,045)
0
8,755
11%
8,755
1,130
-1%
-1%
(930)
0
8,955
10%
8,155
4,578
-5%
-5%
(3,778)
0
8,955
10%
435
-4%
13
-93%
(54)
NM
205
-55%
598
-54%
692
59%
303
2283%
223
NM
298
45%
1,516
153%
375
-46%
125
-59%
100
-55%
200
-33%
800
-47%
5.0%
5.8%
5.8%
5.3%
5.5%
3.7%
3.3%
3.8%
3.5%
3.6%
3.5%
3.6%
4.0%
3.5%
3.7%

% change, y-t-y
Churn rate, monthly
Average subscribers
Licensed pops
Percent covered
Covered pops
5,686
6,153
6,289
6,481
6,152
102,401 104,475 106,551 108,626 108,626
80%
80%
80%
80%
80%
82,376
84,037
85,698
87,360
87,360
6,949
8,000
7,735
8,006
7,672
146,000 146,000 146,000 146,365 146,365
64%
65%
66%
66%
66%
94,000
95,000
97,000
97,243
97,243
8,343
8,593
8,705
8,855
8,624
149,831 150,205 150,581 150,957 150,957
65%
65%
65%
65%
65%
97,486
97,729
97,974
98,219
98,219
Ending penetration (licensed pops)

Annual penetration gain (licensed pops)
5.9%
0.42%
6.0%
0.01%
5.9%
-0.05%
6.1%
0.19%
5.5%
0.55%
5.0%
0.47%
5.2%
0.21%
5.4%
0.15%
5.6%
0.20%
5.6%
1.04%
5.7%
0.25%
5.8%
0.08%
5.8%
0.07%
5.9%
0.13%
5.9%
0.53%

7.3%
0.53%
7.4%
0.02%
7.4%
-0.06%
7.6%
0.23%
6.8%
0.68%
7.8%
0.74%
8.0%
0.32%
8.1%
0.23%
8.4%
0.31%
8.4%
1.56%
8.8%
0.38%
8.9%
0.13%
8.9%
0.10%
9.1%
0.20%
9.1%
0.81%
$40.40
$40.40
-5.2%
$40.52
$39.39
-5.5%
$41.08
$40.51
-0.7%
$40.70
$39.95
-0.9%
$40.06
-3.0%
$39.83
$39.79
-1.5%
$39.84
$37.43
-5.0%
$39.69
$39.69
-2.0%
$39.48
-1.2%
$39.07
-2.5%
$39.43
-0.9%
$39.44
5.4%
$39.49
-0.5%
$39.28
-0.5%
$39.41
0.9%
Activation revenue per gross add
$3.90
$3.92
$4.31
$4.45
$4.13
$0.00
$0.00
$0.00
$0.00
$0.00
$0.00
$0.00
$0.00
$0.00
$0.00
Regulatory ARPU
$1.86
$1.88
$2.28
$2.15
$2.05
$1.14
$0.99
$0.92
$0.92
$0.99
$0.90
$0.90
$0.90
$0.90
$0.90
Reported ARPU
Calculated ARPU
% change, y-t-y
CCPU Calculation
COS/service revenue
COS/sub/month
G&A/sub/month
Less: stock comp in CoS, G&A
Net retention spend/sub/month
CCPU, calculated
CCPU, reported
33.8%
35.0%
36.7%
37.3%
35.8%
33.4%
33.4%
33.3%
34.0%
33.5%
34.0%
34.0%
34.0%
34.0%
34.0%
$12.49
$3.59
($0.62)
$1.51
$16.97
$16.69
$12.68
$3.69
($0.69)
$1.49
$17.18
$16.82
$13.53
$3.47
($0.66)
$1.23
$17.58
$17.27
$13.66
$3.62
($0.62)
$1.50
$18.17
$18.06
$13.11
$3.59
($0.65)
$1.43
$17.49
$12.52
$3.39
($0.55)
$3.43
$18.79
$18.79
$11.85
$3.02
($0.50)
$2.46
$16.83
$17.90
$12.60
$3.19
($0.51)
$3.18
$18.47
$18.47
$12.82
$3.10
($0.49)
$3.33
$18.76
$12.44
$3.17
($0.51)
$3.09
$18.19
$12.81
$3.10
($0.47)
$3.84
$19.28
$12.82
$3.10
($0.46)
$3.20
$18.66
$12.83
$3.10
($0.45)
$3.20
$18.68
$12.76
$3.10
($0.44)
$3.84
$19.26
$12.81
$3.10
($0.45)
$3.52
$18.97
80
105
89
117
86
90
48
233
77
178
1,348
$132
$138
302
350
12
170
884
276
743
5,324
$140
63
314
135
214
1,471
$146
$146
54
235
113
172
1,095
$157
$164
73
79
0
54
256
128
177
1,104
$161
$161
71
86
0
61
278
141
182
1,138
$160
$160
319
372
0
233
1,083
517
746
4,809
$155
81
100
0
69
322
165
206
1,251
$165
$165
74
86
0
59
273
142
179
1,053
$170
$170
80
89
0
60
287
144
195
1,145
$170
$170
73
102
0
73
317
175
186
1,130
$165
$165
309
377
0
262
1,198
626
766
4,578
$167
CPGA Calculation
Sales & marketing
Less: equipment revenues
Plus: promotional impact to service revenue
Plus: retention equipment revenue
Plus: cost of equipment
Less: retention equipment costs
Total costs in CPGA
Gross additions
CPGA
Reported CPGA
75
69
74
93
41
225
67
205
1,540
$133
$134
42
227
69
181
1,276
$142
$160
73
83
12
39
199
62
178
1,160
$153
$154
Acquisition eq. revenue per gross add

Acquisition eq. cost per gross add
Subsidy per gross add
Acquisition equipment costs
$18
$103
$85
131
$40
$123
$83
107
$38
$119
$80
93
$44
$120
$76
98
$34
$115
$81
428
$37
$122
$85
125
$33
$111
$79
86
$22
$116
$94
104
$22
$120
$98
112
$29
$118
$89
426
$25
$125
$100
125
$25
$125
$100
105
$25
$125
$100
114
$25
$125
$100
113
$25
$125
$100
458
$49
$58
$63
$59
$57
$61
$79
$66
$62
$66
$65
$70
$70
$65
$67
26
28
23
29
106
71
59
74
80
284
96
82
83
102
364
Eq. revenue per upgrade

Eq. cost per upgrade
Subsidy per upgrade
$136
$221
$85
$126
$209
$83
$133
$213
$80
$125
$200
$76
$130
$210
$81
$75
$160
$85
$72
$151
$79
$69
$163
$94
$69
$160
$91
$71
$159
$87
$69
$165
$96
$69
$165
$96
$69
$165
$96
$69
$165
$96
$69
$165
$96
Estimated upgrades
% of subscriber base
303
5.3%
332
5.4%
291
4.6%
386
6.0%
1,312
21.3%
840
12.1%
751
9.4%
784
10.1%
881
11.0%
3,256
42.4%
1,001
12.0%
859
10.0%
871
10.0%
1,063
12.0%
3,793
44.0%

Cap-ex / service revenue
Cap-ex / local service revenue
313
43%
45%
142
19%
20%
181
22%
24%
195
24%
25%
832
27%
28%
139
16%
17%
176
19%
20%
233
25%
25%
262
27%
28%
810
22%
23%
182
18%
18%
177
17%
17%
169
16%
16%
171
16%
16%
698
17%
17%
Marketing per gross add

Net equipment retention costs
265
Philip Cusick, CFA

(1-212) 622-1444

13 January 2011
Table 131: MetroPCS Consolidated Income Statement

Subscriber revenue
Pass-thru charges
1Q09
689
32
727
2Q09
727
35
767
3Q09
764
43
812
4Q09
777
42
824
2009
2,957
151
3,130
1Q10
830
24
853
2Q10
898
24
922
3Q10
921
21
942
4Q10E
948
22
970
2010E
3,597
91
3,688
1Q11E
987
23
1,009
2Q11E
1,017
23
1,040
3Q11E
1,031
24
1,055
4Q11E
1,044
24
1,067
2011E
4,078
93
4,172
Equipment and other revenue

Total revenue
% change, y-t-y
69
795
20%
93
860
27%
83
896
30%
105
930
29%
350
3,481
26%
117
971
22%
90
1,013
18%
79
1,021
14%
86
1,056
14%
372
4,060
17%
100
1,110
14%
86
1,126
11%
89
1,144
12%
102
1,169
11%
377
4,548
12%
Cost of service
Gross margin
246
66.2%
269
65.0%
298
63.3%
307
62.7%
1,120
64.2%
285
66.6%
308
66.6%
314
66.7%
330
66.0%
1,236
66.5%
343
66.0%
354
66.0%
359
66.0%
363
66.0%
1,418
66.0%

% change, y-t-y
62
420
57.7%
33%
68
430
56.1%
29%
65
449
55.2%
34%
70
447
54.2%
23%
265
1,745
55.7%
30%
71
498
58.3%
19%
72
542
58.7%
26%
74
555
58.8%
24%
74
566
58.3%
27%
292
2,160
58.6%
24%
78
589
58.3%
18%
80
606
58.3%
12%
81
615
58.3%
11%
82
622
58.3%
10%
321
2,432
58.3%
13%
Cost of equipment
Sales and marketing
EBITDA margin
% change, y-t-y
225
75
607
188
25.9%
11%
227
74
638
221
28.8%
11%
199
73
636
260
32.0%
37%
233
80
691
239
29.0%
30%
884
302
2,572
909
29.0%
22%
314
89
758
212
24.9%
13%
235
86
702
310
33.7%
40%
256
73
717
303
32.2%
17%
278
71
752
304
31.3%
27%
1,083
319
2,930
1,130
30.6%
24%
322
81
824
286
28.4%
35%
273
74
781
345
33.2%
11%
287
80
806
337
32.0%
11%
317
73
835
334
31.3%
10%
1,198
309
3,246
1,302
31.2%
15%
Non-cash comp
Adjusted EBITDA
EBITDA margin
Incremental margin
% change, y-t-y
11
199
27.4%
12.9%
12%
13
234
30.5%
14.1%
11%
12
272
33.5%
35.4%
36%
12
251
30.5%
36.0%
29%
48
956
30.5%
25.0%
22%
11
224
26.2%
19.5%
12%
12
322
35.0%
57.0%
38%
12
315
33.4%
33.1%
16%
12
315
32.5%
44.1%
26%
47
1,177
31.9%
39.5%
23%
12
298
29.5%
47.6%
33%
12
357
34.3%
29.3%
11%
12
349
33.1%
30.0%
11%
12
346
32.4%
31.0%
10%
47
1,349
32.3%
35.7%
15%

Operating income
% change, y-t-y
82
107
13.4%
-5%
91
130
15.1%
-6%
99
161
18.0%
31%
106
133
14.4%
17%
378
531
15.2%
9%
108
104
10.8%
-2%
109
201
19.9%
55%
114
190
18.6%
18%
119
185
17.5%
39%
450
680
16.7%
28%
124
162
14.6%
56%
129
216
19.2%
8%
134
203
17.8%
7%
139
195
16.7%
5%
525
777
17.1%
14%

Income before taxes
(58)
(2)
47
(70)
(15)
45
(70)
(3)
88
(70)
(5)
59
(268)
(25)
238
(67)
(0)
37
(65)
(3)
133
(65)
(16)
108
(71)
0
114
(268)
(20)
392
(68)
0
94
(68)
0
148
(68)
0
135
(68)
0
127
(272)
0
505
Dividends on preferred stock
Net income
25
(28)
0
44
11
(19)
0
37.658
0
(14)
0
74
9
(26)
0
42
45
(87)
0
197
1
(15)
0
23
1
(53)
(0)
81
18
(49)
0
77
(130)
(44)
0
(61)
(111)
(162)
(0)
120
0
(37)
0
58
0
(58)
0
90
0
(53)
0
83
0
(50)
0
78
0
(197)
0
308
Weighted average shares outstanding

Diluted shares outstanding
351
356
351
357
352
355
352
354
352
356
353
354
353
356
354
356
354
356
353
356
354
356
354
356
354
356
354
356
354
356
$0.12
$0.12
-17%
$0.11
$0.11
-42%
$0.21
$0.21
63%
$0.12
$0.12
191%
$0.56
$0.55
21%
$0.06
$0.06
-48%
$0.23
$0.23
115%
$0.22
$0.22
4%
($0.17)
($0.17)
NM
$0.34
$0.34
-39%
$0.16
$0.16
153%
$0.26
$0.25
12%
$0.23
$0.23
8%
$0.22
$0.22
NM
$0.87
$0.86
157%
EPS
EPS - diliuted
% change, y-t-y
266
Philip Cusick, CFA

(1-212) 622-1444

13 January 2011
Table 132: MetroPCS Balance Sheet

Inventory
1Q09
1,075
103
231
1,409
2Q09
870
100
425
1,394
3Q09
1,181
88
201
1,469
4Q09
929
147
415
1,491
2009
929
147
415
1,491
1Q10
915
118
506
1,538
2Q10
777
195
516
1,488
3Q10
1,902
126
217
2,246
4Q10E
1,032
126
217
1,375
2010E
1,032
126
217
1,375
1Q11E
1,084
126
217
1,427
2Q11E
1,199
126
217
1,543
3Q11E
1,315
126
217
1,659
4Q11E
1,426
126
217
1,769
2011E
1,426
126
217
1,769
Net PP&E
2,993
3,039
3,098
3,252
3,252
3,264
3,306
3,424
3,636
3,636
3,694
3,742
3,777
3,809
3,809
PCS licenses
2,440
2,447
2,452
2,470
2,470
2,471
2,472
2,491
2,391
2,391
2,391
2,391
2,391
2,391
2,391
Restricted cash and investments

Long-term investments
Other assets
Total assets
0
5
125
6,971
0
4
126
7,011
0
4
141
7,163
0
6
166
7,386
0
6
166
7,386
0
6
178
7,457
0
6
207
7,479
14
6
141
8,321
14
6
141
7,563
14
6
141
7,563
14
6
141
7,673
14
6
141
7,837
14
6
141
7,987
14
6
141
8,130
14
6
141
8,130
466
18
172
6
661
435
18
172
5
630
483
18
164
5
671
558
19
188
32
797
558
19
188
32
797
552
20
204
29
804
426
20
197
34
678
419
20
198
52
689
419
20
198
52
689
419
20
198
52
689
419
20
198
52
689
419
20
198
52
689
419
20
198
52
689
419
20
198
52
689
419
20
198
52
689
Long-term debt, net

Minority interest
Other long-term liabilities
Total liabilities
3,591
0
628
4,880
3,589
0
645
4,865
3,591
0
667
4,929
3,626
0
674
5,098
3,626
0
674
5,098
3,631
0
699
5,134
3,629
0
756
5,063
4,314
0
811
5,814
4,314
0
811
5,814
4,314
0
811
5,814
4,314
0
811
5,814
4,314
0
811
5,814
4,314
0
811
5,814
4,314
0
811
5,814
4,314
0
811
5,814
Preferred stock, Series D

Preferred stock, Series E
0
0
2,091
6,971
0
0
2,146
7,011
0
0
2,234
7,163
0
0
2,288
7,386
0
0
2,288
7,386
0
0
2,322
7,457
0
0
2,417
7,479
0
0
2,507
8,321
0
0
1,749
7,563
0
0
1,749
7,563
0
0
1,859
7,673
0
0
2,023
7,837
0
0
2,173
7,987
0
0
2,316
8,130
0
0
2,316
8,130
Net debt
Working capital change
Book value per share
2,533
309
$5.87
2,738
(222)
$6.01
2,428
277
$6.29
2,716
(148)
$6.47
2,716
(163)
$6.43
2,736
161
$6.56
2,872
(214)
$6.79
2,419
379
$7.03
3,289
0
$4.91
3,289
109
$4.92
3,237
325
$5.22
3,122
0
$5.67
3,006
0
$6.10
2,895
0
$6.50
2,895
0
$6.50
Accounts payable and accrued expenses

Current portion of long-term debt
Deferred revenue
267
Philip Cusick, CFA

(1-212) 622-1444

13 January 2011
Table 133: MetroPCS Cash Flow Statement

1Q09
44
82
0
2
(25)
27
11
11
151
2Q09
38
91
0
3
14
18
13
10
187
3Q09
74
99
0
3
3
40
12
9
240
4Q09
42
106
0
3
4
25
12
11
202
2009
197
378
0
11
(5)
110
48
41
781
1Q10
23
108
(0)
3
(1)
14
11
6
165
2Q10
81
109
0
3
3
52
12
8
267
3Q10
77
114
(0)
4
(18)
48
12
23
259
4Q10E
(61)
119
0
4
0
44
12
0
118
2010E
120
450
0
14
(16)
159
47
37
809
1Q11E
58
124
0
4
0
37
12
0
234
2Q11E
90
129
0
4
0
58
12
0
292
3Q11E
83
134
0
4
0
53
12
0
285
4Q11E
78
139
0
4
0
50
12
0
281
2011E
308
525
0
15
0
197
47
0
1,092
Plus: Changes in working capital

Cash from operating activities
155
306
(16)
171
73
313
(73)
129
139
920
60
225
(154)
113
83
341
0
118
(11)
798
0
234
0
292
0
285
0
281
0
1,092

Free Cash Flow
313
(6)
142
28
181
132
195
(66)
832
88
139
86
176
(63)
233
109
262
(144)
810
(12)
182
52
177
116
169
116
171
111
698
394
0
(6)
0
28
0
132
0
(66)
0
88
0
86
0
(63)
0
109
0
(144)
0
(12)
0
52
0
116
0
116
0
111
0
394
(7)
(224)
374
3
2
11
152
(3)
0
96
4
16
(111)
31
(4)
(13)
(106)
1
(13)
89
86
0
(249)
115
(3)
0
186
(17)
(15)
(487)
480
5
5
174
252
0
(50)
(54)
(1)
0
4
(15)
(2)
(23)
(35)
1
6
(21)
(137)
(2)
(714)
719
3
1
(3)
113
0
(47)
(680)
0
0
0
(871)
(4)
(834)
(51)
3
8
(20)
(910)
0
0
0
0
0
0
52
0
0
0
0
0
0
116
0
0
0
0
0
0
116
0
0
0
0
0
0
111
0
0
0
0
0
0
394
1,075
870
1,181
929
929
915
777
1,902
1,032
1,032
1,084
1,199
1,315
1,426
1,426
Net income
Plus: Depreciation and amortization
Plus: Provision for uncollectible accounts receivable
Plus: Non-cash interest expense
Plus: Loss on disposal of assets
Plus: Deferred income taxes
Plus: Stock-based compensation expense
Plus: Other
Cash flow before working capital requirements
Less: Dividends
Plus: Purchase of FCC Licenses
Plus: Net Purchase of investments
Plus: Change in total debt
Plus: Change in equity
Plus: Proceeds from Sale of Assets
Plus: Others
Net change in cash
Calculated cash balance
268
Philip Cusick, CFA

(1-212) 622-1444

13 January 2011
NTELOS Model
Table 134: NTELOS Subscriber Model and Operating Statistics
1Q09
2Q09
3Q09
4Q09
2009
1Q10
2Q10
3Q10
4Q10E
2010E
1Q11E
2Q11E
3Q11E
4Q11E
2011E
72
$54.58
-4.2%
72
$53.49
-2.0%
69
$53.22
-3.4%
68
$51.48
-5.2%
280
$53.46
-3.5%
68
$51.25
-6.1%
66
$49.93
-6.7%
66
$50.62
-4.9%
66
$50.23
-2.4%
266
$50.41
-5.7%
66
$50.31
-1.8%
66
$50.16
0.5%
67
$50.70
0.2%
68
$50.73
1.0%
268
$50.21
-0.4%
Costs
35.8%
$4.34
34.4%
$4.36
37.2%
$3.99
39.5%
$4.04
36.7%
$4.22
37.5%
$5.02
35.9%
$4.43
36.9%
$4.48
39.0%
$4.49
37.3%
$4.61
36.3%
$4.23
36.3%
$4.18
36.3%
$4.17
36.3%
$4.28
36.3%
$4.19
Wireless EBITDA
Wireless EBITDA margin of service revenue
43
42.0%
44
42.8%
39
40.1%
36
37.3%
162
40.6%
38
39.7%
38
40.8%
37
38.5%
34
36.2%
147
38.8%
38
39.9%
39
40.3%
40
40.5%
40
40.3%
158
40.3%
Ending subscribers
Net additions (total)
Gross additions
Churn rate
444
9
50
3.1%
0.19%
442
(2)
38
3.0%
-0.05%
438
(4)
43
3.6%
-0.08%
439
0
44
3.4%
0.00%
439
4
176
3.3%
0.07%
445
7
48
3.1%
0.13%
439
(6)
33
3.0%
-0.12%
434
(3)
39
3.4%
-0.11%
437
4
44
3.1%
0.07%
440
1
164
3.1%
0.02%
441
4
44
3.0%
0.08%
442
1
41
3.0%
0.02%
443
1
40
3.0%
0.01%
447
4
44
3.0%
0.08%
449
10
169
3.0%
0.19%
Wireless capital expenditures

12
11.8%
17
16.2%
8
8.0%
8
8.7%
45
11.2%
18
18.7%
10
10.5%
10
10.2%
8
8.5%
45
12.0%
10
10.4%
10
10.3%
12
12.1%
14
14.0%
46
11.7%
435
50
41
9.5
444
38
40
-2.4
442
43
47
-3.8
438
44
44
0.2
435
176
173
3.5
439
48
41
6.7
445
33
39
-5.9
439
39
45
-3.2
434
44
40
3.5
439
164
166
1.1
437
44
40
4.0
441
41
40
1.0
442
40
40
0.5
443
44
40
4.0
440
169
159
9.5
Ending Subscribers
444.5
442.1
438.3
438.5
438.5
445.3
439.3
433.7
437.2
439.6
441.2
442.2
442.7
446.7
449.1
Average subscribers
Churn
440
3.1%
443
3.0%
440
3.6%
438
3.4%
437
3.3%
442
3.1%
442
3.0%
437
3.4%
435
3.1%
439
3.1%
439
3.0%
442
3.0%
442
3.0%
445
3.0%
444
3.0%
Wireless Subscriber Revenue

ARPU
% change y-t-y
Total Data ARPU
% change y-t-y
Total Voice ARPU
% change y-t-y
Wireless roaming revenue
% change y-t-y
72
$54.39
-4.0%
8.78
72
$53.86
-1.4%
8.96
69
$52.29
-5.1%
9.33
68
$51.51
-4.2%
9.84
280
$53.46
-3.5%
68
$51.08
-6.1%
10.83
66
$49.91
-7.3%
11.53
66
$50.45
-3.5%
12.43
66
$50.23
-2.5%
266
$50.41
-5.7%
66
$50.31
-1.5%
66
$50.16
0.5%
67
$50.70
0.5%
68
$50.73
1.0%
268
$50.21
-0.4%
45.61
-8.0%
30.0
22.3%
44.90
-5.3%
31.3
24.9%
42.96
-9.7%
28.5
1.0%
41.67
-9.1%
28.4
-14.8%
118.3
6.4%
40.25
-11.8%
28.3
-5.6%
38.38
-14.5%
28.0
-10.4%
38.02
-11.5%
28.7
0.7%
29.0
2.0%
114.0
-3.6%
29.8
5.3%
30.8
9.8%
31.2
8.6%
32.0
10.4%
124.6
9.2%
Blended roaming yield

% change y-t-y
$0.042
6.2%
$0.043
8.5%
$0.039
-9.6%
$0.038
-23.4%
$0.040
-6.1%
$0.035
-15.1%
$0.034
-19.3%
$0.035
-9.4%
$0.035
-8.5%
$0.035
-13.3%
$0.033
-6.1%
$0.034
-1.9%
$0.034
-3.1%
$0.034
-1.7%
$0.034
-2.6%
Roaming minutes (mm)

% change y-t-y
718
15.1%
28.83
12
79.9%
3
14.2%
9
187.3%
734
15.2%
29.89
13
83.7%
3
14.3%
10
132.2%
738
11.8%
22.00
5
-50.7%
3
15.0%
1
-78.8%
748
11.3%
23.29
5
-65.4%
3
18.3%
2
-85.6%
2,937
13.3%
816
11.1%
24.49
6
-56.1%
4
11.6%
2
-79.4%
820
11.2%
26.19
7
40.0%
4
19.2%
3
88.5%
833
11.4%
28.97
10
90.7%
5
50.6%
5
170.8%
3,267
11.2%
27
-22.5%
16
22.0%
11
-49.5%
895
12.1%
29.81
10
83.7%
5
48.5%
5
149.6%
913
11.9%
30.77
10
74.2%
5
40.4%
5
137.1%
919
12.1%
31.19
11
58.4%
6
39.6%
5
86.2%
936
12.4%
31.99
11
15.8%
6
15.0%
5
16.7%
3,662
12.1%
35
-7.7%
13
15.4%
22
-15.1%
798
11.2%
23.85
5
-57.3%
3
5.8%
2
-79.8%
4
13
4
13
4
13
4
14
17
52
4
14
4
14
5
15
5
15
18
59
5
15
6
15
5
15
5
16
21
62
Ending licensed pops

% penetration
8,700
5.1%
8,700
5.1%
8,700
5.0%
8,700
5.0%
8,700
5.0%
8,700
5.1%
8,700
5.0%
8,700
5.0%
8,700
5.0%
8,700
5.1%
8,700
5.1%
8,700
5.1%
8,700
5.1%
8,700
5.1%
8,700
5.2%
Ending covered pops

% penetration
5,000
8.9%
5,000
8.8%
5,000
8.8%
5,000
8.8%
5,000
8.8%
5,000
8.9%
5,000
8.8%
5,000
8.7%
5,000
8.7%
5,000
8.8%
5,000
8.8%
5,000
8.8%
5,000
8.9%
5,000
8.9%
5,000
9.0%
Equipment revenue/gross add

Equipment cost/postpaid gross add
Subsidy per gross addition
$140
$196
$56
$147
$236
$88
$146
$196
$51
$133
$183
$50
$141
$201
$60
$159
$173
$14
$149
$181
$32
$137
$186
$50
$133
$186
$53
$145
$181
$37
$137
$190
$53
$137
$190
$53
$137
$190
$53
$137
$190
$53
$137
$190
$53
Cost of Sales - Access & Other

% of wireless service revenue
% change y-t-y
11
10.8%
-17.6%
11
10.5%
-4.6%
11
11.7%
-7.6%
11
11.0%
-7.6%
44
11.0%
-9.7%
9
9.6%
-16.3%
9
10.0%
-13.2%
10
10.2%
-15.1%
11
11.5%
2.9%
39
10.3%
-10.6%
10
10.1%
5.6%
10
10.1%
4.2%
10
10.1%
3.3%
10
10.1%
-7.1%
40
10.1%
1.2%
Maintenance and Support

% of local subscriber revenue
% change y-t-y
14
20.0%
17.3%
15
20.5%
17.3%
15
21.7%
11.3%
15
22.3%
7.0%
59
21.1%
13.0%
15
22.2%
4.6%
15
23.2%
5.0%
16
24.0%
5.8%
16
23.8%
3.6%
62
23.3%
4.7%
15
23.2%
2.5%
15
23.2%
0.1%
16
23.2%
-1.6%
16
23.2%
0.5%
62
23.2%
0.4%
Customer Operations
% change y-t-y
25
25.0%
12.3%
25
23.9%
10.7%
25
25.6%
9.2%
27
28.5%
2.0%
102
25.7%
8.2%
27
27.9%
5.1%
24
25.9%
-0.6%
25
26.7%
1.5%
26
27.5%
-5.2%
103
27.0%
0.1%
25
26.2%
-6.0%
25
26.2%
4.3%
26
26.2%
2.4%
26
26.2%
0.8%
103
26.2%
0.2%
Corporate Operations
% change y-t-y
6
5.6%
-2.1%
6
5.6%
-2.6%
5
5.4%
-13.7%
5
5.5%
-11.5%
22
5.5%
-7.5%
7
6.9%
16.4%
6
6.2%
1.2%
6
6.2%
11.5%
6
6.2%
10.3%
24
6.4%
9.8%
6
5.8%
-16.3%
6
5.7%
-5.6%
6
5.6%
-5.7%
6
5.7%
-2.7%
22
5.7%
-7.9%
Capital spending
% change y-t-y
12
11.8%
13%
17
16.2%
-16%
8
8.0%
-75%
8
8.7%
-68%
45
11.2%
-49%
18
18.7%
50%
10
10.5%
-41%
10
10.2%
25%
8
8.5%
-4%
45
12.0%
2%
10
10.4%
-44%
10
10.3%
1%
12
12.1%
24%
14
14.0%
75%
46
11.7%
1%
KEY METRICS AND DRIVERS

Revenue
Local ARPU
% change y-t-y
Total Wireless Subscribers

Beginning Subscribers
Gross Additions
Disconnections
Net Additions
Other roaming revenue (CDMA, data)

% change y-t-y
Home data
% change y-t-y
Travel data
% change y-t-y
Travel roaming revenue
Home roaming revenue
41
51.6%
22
34.0%
20
77.4%
269
Philip Cusick, CFA

(1-212) 622-1444

13 January 2011
Table 135: NTELOS Wireless Income Statement

1Q09
2Q09
3Q09
4Q09
2009
1Q10
2Q10
3Q10
4Q10E
2010E
1Q11E
2Q11E
3Q11E
4Q11E
2011E
Wireless Operations
Subscriber Revenues
Wholesale/Roaming Revenues, net
Service revenue
% change y-t-y
72
30
102
7%
72
31
103
9%
69
29
98
-1%
68
28.4
96
-6%
280
118
398
1.9%
68
28
96
-6%
66
28
94
-8%
66
29
95
-3%
66
29
95
-2%
266
114
380
-4.7%
66
30
96
0%
66
31
97
3%
67
32
99
4%
68
32
100
6%
268
125
392
3.3%
Equipment Revenues
Other Revenues
Wireless revenue
% change y-t-y
7
0
109
7%
6
0
109
9%
6
0
104
-1%
6
0
102
-6%
25
1
425
2%
8
0
104
-5%
5
0
100
-9%
5
0
100
-4%
6
0
101
-2%
24
1
405
-5%
6
0
102
-2%
6
0
103
4%
6
0
105
4%
6
0
106
6%
23
1
417
3%
10
11
14
25
6
66
43
42.0%
7%
42%
9
11
15
25
6
65
44
42.8%
6%
30%
9
11
15
25
5
65
39
40.1%
-6%
214%
8
11
15
27
5
67
36
37.3%
-11%
69%
35
44
59
102
22
263
162
40.6%
-1%
-21%
8
9
15
27
7
66
38
39.7%
-11%
81%
6
9
15
24
6
61
38
40.8%
-13%
65%
7
10
16
25
6
64
37
38.5%
-7%
94%
8
11
16
26
6
67
34
36.2%
-5%
103%
30
39
62
103
24
258
147
38.8%
-9%
77%
8
10
15
25
6
64
38
39.9%
1%
309%
8
10
15
25
6
64
39
40.3%
2%
26%
8
10
16
26
6
65
40
40.5%
10%
87%
8
10
16
26
6
66
40
40.3%
18%
112%
32
40
62
103
22
259
158
40.3%
7%
84%
Wireless costs
Cost of Sales - Equipment
Cost of Sales - Access & Other
Maintenance and Support
Customer Operations
Corporate Operations
Wireless total costs
Wireless EBITDA
% change y-t-y
Incremental margin
270
Philip Cusick, CFA

(1-212) 622-1444

13 January 2011
Table 136: NTELOS Wireline Operating Statistics

1Q09
2Q09
3Q09
4Q09
2009
1Q10
2Q10
3Q10
4Q10E
2010E
1Q11E
2Q11E
3Q11E
4Q11E
2011E
40.3
-0.8
-7%
39.6
-0.7
-7%
38.9
-0.8
-7%
38.2
-0.6
-7%
38.2
-2.9
-7%
37.7
-0.5
-7%
37.1
-0.6
-6%
36.2
-0.8
-7%
45.2
9.0
18%
45.2
7.0
18%
44.7
-0.5
19%
44.2
-0.5
19%
43.7
-0.5
21%
43.2
-0.5
-4%
43.2
-2.0
-4%
$121.38
9.5%
$120.55
4.3%
$122.30
3.1%
$119.00
-1.6%
$120.33
2.7%
$125.80
3.6%
$119.68
-0.7%
$126.71
3.6%
$117.81
-1.0%
$111.80
-7.1%
$122.03
-3.0%
$117.29
-2.0%
$124.17
-2.0%
$115.46
-2.0%
$119.75
7.1%
25.5%
25.8%
23.1%
26.2%
25.1%
29.5%
25.3%
24.6%
27.4%
26.7%
26.0%
26.0%
26.0%
26.0%
26.0%
49.5
-0.4
0%
49.2
-0.3
-1%
49.3
0.1
-1%
49.7
0.4
0%
50
-0.2
0%
49.5
-0.2
0%
49.4
49.4
0%
49.5
0.0
0%
140.5
91.0
183%
140
90.8
183%
140.8
0.3
184%
141.1
0.3
186%
141.4
0.3
186%
141.7
0.3
1%
142
1.2
1%
$112.08
5.0%
$111.95
5.1%
$114.77
7.1%
$115.08
5.2%
$112.52
4.6%
$128.82
14.9%
$129.17
15.4%
$133.91
16.7%
$92.07
-20.0%
$73.95
-34.3%
$87.60
-32.0%
$89.13
-31.0%
$93.73
-30.0%
$96.67
5.0%
$91.79
24.1%
59.2%
59.4%
55.7%
55.1%
57.3%
55.4%
54.2%
53.8%
59.5%
56.0%
64.5%
63.0%
61.0%
60.5%
62.2%
Dial-up internet subscribers

Net additions
% change y-t-y
14.3
-1.5
-30%
12.8
-1.5
-31%
11.3
-1.5
-34%
9.8
-1.5
-38%
9.8
-6.0
-38%
8.3
-1.5
-42%
6.8
-1.5
-47%
5.3
-1.5
-53%
3.8
-1.5
-61%
3.8
-6.0
-61%
3.1
-0.8
-63%
2.3
-0.8
-66%
1.6
-0.8
-70%
0.8
-0.8
-78%
0.8
-3.0
-78%
RLEC Broadband Connections

Net additions
% change y-t-y
13.8
0.4
12%
14.0
0.2
10%
14.2
0.2
9%
14.4
0.2
8%
14.4
1.0
8%
14.5
0.1
5%
14.5
0.2
4%
14.6
14.6
2%
14.8
0.2
3%
14.8
0.4
3%
15.0
0.2
3%
15.2
0.2
4%
15.4
0.2
5%
15.6
0.2
5%
15.6
0.8
5%
Broadband Connections
Net additions
% change y-t-y
22.8
0.3
9%
22.8
-0.1
7%
23.1
0.4
6%
23.5
0.3
4%
23.5
1.0
4%
24.2
0.7
6%
24.8
0.6
9%
25.3
0.5
9%
25.5
0.2
9%
25.5
2.0
9%
25.8
0.3
7%
26.1
0.3
5%
26.4
0.3
4%
26.7
0.3
5%
26.7
1.2
5%
Long Distance Subscribers

Net additions
% change y-t-y
48.2
-0.4
-1%
48.0
-0.2
-2%
47.8
-0.3
-3%
47.6
-0.2
-2%
47.6
-1.1
-2%
49.5
1.9
3%
49.5
0.0
3%
49.5
0.0
4%
50.7
1.2
7%
50.7
3.1
7%
50.8
0.1
3%
50.9
0.1
3%
51.0
0.1
3%
51.1
0.1
1%
51.1
0.4
1%
Wireline capital spending

% change y-t-y
Corporate capital spending
3
9.7%
-72%
8
12
38.8%
33%
9
10
30.5%
5%
4
6
18.1%
-7%
3
30
24.3%
-14%
24
10
30.5%
234%
3
9
28.8%
-22%
3
8
22.9%
-19%
2
8
19.7%
44%
3
35
25.2%
17%
12
10
16.0%
-2%
4
10
16.0%
7%
4
10
17.8%
29%
3
10
17.8%
25%
2
40
18.3%
13%
13
Customer Summary Table

Wireless PCS Digital Subscribers
RLEC Access Lines
RLEC Access Lines
CLEC Access Lines
Dial Up Internet Subscribers
RLEC Broadband Connections
Broadband Connections
Long Distance Subscribers
Video Subs
1Q09
444
40
26
49
14
14
23
48
1
2Q09
442
40
25
49
13
14
23
48
2
3Q09
438
39
25
49
11
14
23
48
2
4Q09
439
38
24
50
10
14
23
48
2
2009
439
38
24
50
10
14
23
48
2
1Q10
445
38
2Q10
439
37
3Q10
434
36
4Q10E
437
45
2010E
440
45
1Q11E
441
45
2Q11E
442
44
3Q11E
443
44
4Q11E
447
43
2011E
449
43
50
8
14
24
49
2
49
7
15
25
49
2
49
5
15
25
49
3
140
4
15
26
51
140
4
15
26
51
141
3
15
26
51
141
2
15
26
51
141
2
15
26
51
142
1
16
27
51
142
1
16
27
51
RLEC Drivers
RLEC Access Lines

Net additions
% change y-t-y
RLEC ARPU
% change y-t-y
RLEC costs / revenue
CLEC Drivers
CLEC Access Lines

Net additions
% change y-t-y
CLEC ARPU
% change y-t-y
CLEC costs / revenue
Additional details
Table 137: NTELOS Wireline Income Statement

1Q09
2Q09
3Q09
4Q09
2009
1Q10
2Q10
3Q10
4Q10E
2010E
1Q11E
2Q11E
3Q11E
4Q11E
2011E
Wireline Operations
RLEC revenue
CLEC revenue
Wireline revenue
% change y-t-y
15
17
31
4%
14
17
31
1%
14
17
31
1%
14
17
31
-2%
57
67
125
0.9%
14
19
33
7%
13
19
33
5%
14
20
34
8%
14
26
41
32%
56
84
140
12.7%
16
37
53
60%
16
38
53
64%
16
40
56
66%
15
41
56
38%
64
155
219
56.0%
RLEC costs
CLEC costs
Wireline total costs
4
10
14
4
10
14
3
9
13
4
9
13
14
39
53
4
11
15
3
10
14
3
11
14
4
16
20
15
47
62
4
24
28
4
24
28
4
24
28
4
25
29
17
97
113
RLEC EBITDA
CLEC EBITDA
Wireline EBITDA
% of wireline revenue
% change y-t-y
Other Operations
Other operations revenue
Other operations costs
Other operations EBITDA
11
7
18
56.6%
4%
11
7
17
56.3%
0%
11
7
19
59.2%
8%
10
8
18
57.8%
2%
43
29
72
57.5%
4%
10
9
19
55.7%
5%
10
9
19
57.7%
8%
11
9
20
58.2%
6%
10
11
21
51.9%
18%
41
37
78
55.7%
9%
12
13
25
47.4%
36%
12
14
26
47.9%
36%
12
15
28
49.2%
40%
11
16
27
48.8%
30%
47
59
106
48.3%
35%
0
3
1
(3)
0
1
2
(3)
0
1
1
(2)
0
2
2
(3)
0
7
5
(11)
0
3
1
(4)
0
3
1
(4)
0
1
1
(2)
0
1
1
(2)
0
7
6
(13)
0
2
1
(3)
0
2
1
(3)
0
2
1
(3)
0
2
1
(3)
0
7
6
(13)
271
Philip Cusick, CFA

(1-212) 622-1444

13 January 2011
Table 138: NTELOS Consolidated Income Statement

Revenue
Wireless
Wireline
Other
Total revenue
% change y-t-y
Operating costs
Wireless
Wireline
Other
Total operating costs
1Q09
2Q09
3Q09
4Q09
2009
1Q10
2Q10
3Q10
4Q10E
2010E
1Q11E
2Q11E
3Q11E
4Q11E
2011E
109
31
0
141
6%
109
31
0
140
7%
104
31
0
136
0%
102
31
0
133
-5%
425
125
0
550
2%
104
33
0
138
-2%
100
33
0
132
-6%
100
34
0
134
(0)
101
41
0
142
6%
135
405
140
0
546
-1%
102
53
0
156
13%
103
53
0
157
18%
105
56
0
161
20%
106
56
0
163
15%
417
219
0
636
17%
626
66
14
3
83
65
14
1
80
65
13
1
79
67
13
2
81
263
53
7
323
66
15
3
83
61
14
3
78
64
14
1
79.183
67
20
1
87
258
62
7
327
64
28
2
94
64
28
2
94
65
28
2
95
66
29
2
97
259
113
7
379
EBITDA
Wireless
Wireline
Other
Total EBITDA
% of total revenue
% change y-t-y
43
18
(2)
(1)
57
40.6%
5%
44
17
(1)
(2)
59
42.0%
5%
39
19
(1)
(1)
56
41.2%
-2%
36
18
(2)
(2)
50
37.8%
-10%
162
72
(6)
(5)
222
40.4%
-1%
38
19
(2)
(1)
53
38.5%
-7%
38
19
(3)
(1)
53
40.2%
-10%
37
20
(1)
(1)
54
40.0%
-4%
Total cash EBITDA

% of total revenue
% change y-t-y
58
41.3%
5%
60
43.1%
4%
57
41.7%
-1%
52
39.1%
-8%
227
41.3%
0%
54
39.4%
-7%
55
41.3%
-9%
55
41.1%
-3%

Asset Impairment Charges and other
Operating Income (Loss)
23
0
34
Interest expense, net

Gain on sale of assets
Other (expenses) income
Income before taxes
(5)
1
0
29
Minority Interests in Losses of Subsidiaries
Net income (loss)
EPS (loss), basic
% change, y-t-y
Cash EPS (loss), basic
Cash EPS (loss), fully diluted
% change, y-t-y
Reported EPS (loss), basic
Reported EPS (loss), fully diluted
% change, y-t-y
147
78
(7)
(6)
213
39.0%
-4%
38
25
(2)
(1)
60
38.8%
14%
39
26
(2)
(1)
62
39.3%
16%
40
28
(2)
(1)
65
40.1%
20%
40
27
(2)
(1)
65
39.7%
22%
218
40.0%
-4%
62
39.7%
14%
63
40.2%
15%
66
41.0%
20%
66
40.6%
21%
158
106
(7)
(6)
251
39.5%
18%
254
257
40.4%
18%
23
0
35
23
0
33
23
(0)
27.85
92
1
130
22
0
31
22
0
31
22
1
31
23
0
30
88
2
123
22
0
38
22
0
39
22
0
42
22
0
42
88
1
162
(6)
1
(0)
29
(9)
1
(1)
24
(9)
0
19
(30)
2
(1)
101
(10)
0
21
(10)
(0)
21
(11)
(1)
19
(13)
16
(45)
(1)
78
(13)
25
(13)
26
(13)
29
(13)
29
(53)
109
(12)
(0)
17
(12)
(0)
17
(10)
(0)
14
(4)
(0)
14
(37)
(1)
64
(9)
(0)
13
(9)
(1)
11
(8)
(0)
11
(7)
9
(32)
(1)
44
(8)
16
(9)
17
(10)
19
(10)
(1)
18
(37)
(1)
71
42
42
42
42
42
42
42
42
42
42
41
42
41
42
41
42
41
42
41
42
41
42
41
42
41
42
41
42
41
42
$0.41
$0.41
101.9%
$0.41
$0.41
-10.5%
$0.34
$0.34
10.0%
$0.34
$0.34
123.7%
$1.51
$1.50
34.6%
$0.30
$0.30
-26.5%
$0.28
$0.27
-32.8%
$0.26
$0.26
-22.1%
$0.22
$0.22
-34.8%
$1.08
$1.07
-28.9%
$0.39
$0.39
28.5%
$0.41
$0.40
47.5%
$0.45
$0.45
72.5%
$0.44
$0.44
98.9%
$1.72
$1.70
59.8%
$0.44
$0.44
88.3%
$0.45
$0.44
-10.6%
$0.36
$0.35
11.7%
$0.38
$0.38
135.2%
$1.63
$1.62
34.5%
$0.33
$0.33
-24.0%
$0.31
$0.31
-30.1%
$0.30
$0.30
-15.7%
$0.24
$0.24
-36.3%
$1.20
$1.19
-26.6%
$0.41
$0.41
24.0%
$0.43
$0.43
37.7%
$0.48
$0.47
59.5%
$0.47
$0.46
91.0%
$1.81
$1.79
51.1%
$0.41
$0.41
101.9%
$0.41
$0.41
-10.5%
$0.34
$0.34
10.0%
$0.34
$0.34
123.7%
$1.51
$1.50
34.6%
$0.30
$0.30
-26.5%
$0.28
$0.27
-32.8%
$0.26
$0.26
-22.1%
$0.22
$0.22
-34.8%
$1.08
$1.07
-28.9%
$0.39
$0.39
28.5%
$0.41
$0.40
47.5%
$0.45
$0.45
72.5%
$0.44
$0.44
98.9%
$1.72
$1.70
59.8%
$0.26
$0.26
$0.26
$0.28
$1.06
$0.28
$0.28
$0.28
$0.28
$1.12
$0.30
$0.30
$0.30
$0.30
$1.20
272
34
21
(1)
(1)
53
37.3%
5%
51.2
54
38.4%
4%
Philip Cusick, CFA

(1-212) 622-1444

13 January 2011
Table 139: NTELOS Balance Sheet and Cash Flow Statement

Inventories
Net PP&E
Other assets
Total assets
Current portion of L.T. debt
Long-term debt
Total liabilities
Cash EBITDA
Cash interest expense
Tax benefit/(paid)
Changes in working capital
Discretionary cash flow
Discretionary cash flow/ per share
% change, y-t-y
1Q09
66
10
57
132
2Q09
65
10
58
133
3Q09
87
8
57
152
4Q09
51
11
62
124
2009
51
11
62
124
1Q10
52
8
62
122
2Q10
60
5
60
125
3Q10
189
6
66
261
4Q10E
31
6
66
104
2010E
31
6
66
104
1Q11E
37
6
66
109
2Q11E
43
6
66
116
3Q11E
51
6
66
123
4Q11E
57
6
66
129
2011E
57
6
66
129
458
4
948
476
4
964
478
15
992
501
14
981
501
14
981
508
13
982
511
13
985
512
15
1,121
505
15
957
505
15
957
503
15
960
501
15
965
501
15
972
503
15
980
503
15
980
7
86
93
7
87
93
7
74
81
7
76
83
7
76
83
7
82
89
7
79
86
8
78
86
8
(85)
(77)
8
(85)
(77)
8
(86)
(78)
8
(86)
(78)
8
(85)
(77)
8
(82)
(74)
8
(82)
(74)
600
84
776
598
93
785
624
104
809
622
100
804
622
100
804
621
94
803
620
97
802
741
111
939
741
111
776
741
111
776
741
111
775
741
111
775
741
111
776
741
111
778
741
111
778
180
183
964
992
2Q09
3Q09
60
57
(6)
(9)
(10)
(8)
0
0
(38)
(21)
6
19
0.15
0.45
-22.2% 1251.9%
176
981
4Q09
52
(9)
(2)
0
(17)
24
0.57
90.4%
176
981
2009
227
(30)
(29)
0
(99)
69
1.64
76.9%
178
982
1Q10
54
(10)
(7)
0
(32)
6
0.14
-70.5%
182
985
2Q10
55
(10)
(7)
0
(22)
16
0.39
160.2%
183
1,122
3Q10
55
(11)
(6)
0
(20)
18
0.44
-2.7%
181
957
4Q10E
54
(13)
(5)
0
(19)
17
0.41
-27.3%
181
957
2010E
218
(45)
(24)
0
(92)
58
1.39
-16.4%
185
960
1Q11E
62
(13)
(6)
0
(24)
18
0.43
205.2%
190
965
2Q11E
63
(13)
(7)
0
(24)
19
0.45
17.0%
196
972
3Q11E
66
(13)
(8)
0
(25)
20
0.47
6.9%
202
980
4Q11E
66
(13)
(8)
0
(26)
19
0.45
8.6%
202
980
2011E
257
(53)
(29)
0
(99)
75
1.81
30.5%
172
949
1Q09
58
(5)
(10)
0
(23)
20
0.48
17.0%
Assets (purchased)/sold
Equity (repurchased)/issued
Dividends
Net cash flow/(funding deficit)
(11)
9
(11)
(5)
2
(11)
8
15
(12)
12
(45)
24
(12)
(6)
(12)
4
(12)
7
(163)
(12)
(157)
(47)
(152)
(13)
6
(13)
6
(13)
7
(13)
6
(50)
25
Debt, beginning
Net debt added/(retired)
Debt, ending
601
(1)
600
600
(2)
598
598
25
624
624
(1)
622
601
21
622
622
(1)
621
621
(1)
620
620
122
741
741
741
622
119
741
741
741
741
741
741
741
741
741
741
741
273
Philip Cusick, CFA

(1-212) 622-1444
274

13 January 2011
Philip Cusick, CFA

(1-212) 622-1444

13 January 2011
US Cellular Model
Table 140: US Cellular Subscriber Model
KEY MODEL METRICS
Service revenue
Local ARPU, monthly
% change, y-t-y
1Q09
2Q09
3Q09
4Q09
2009
1Q10
2Q10
3Q10
4Q10E
2010E
1Q11E
2Q11E
3Q11E
4Q11E
2011E
$46.85
1.4%
$46.85
0.8%
$46.98
-0.1%
$47.14
1.7%
$46.95
0.9%
$46.91
0.1%
$46.82
0.0%
$47.13
0.3%
$47.61
1.0%
$47.12
0.3%
$47.38
1.0%
$47.29
1.0%
$47.60
1.0%
$48.09
1.0%
$47.59
1.0%
Costs
CCPU
CPGA
$23.41
$629
$22.64
$755
$24.31
$748
$24.46
$775
$23.70
$727
$24.67
$758
$26.25
$683
$26.91
$701
$26.91
$715
$26.18
$714
$25.82
$735
$25.89
$720
$26.00
$720
$26.11
$755
$25.96
$733
255
25.9%
282
28.9%
209
21.2%
181
18.4%
926
23.6%
227
23.5%
209
21.5%
207
21.0%
182
18.2%
825
21.0%
220
22.4%
196
19.8%
212
21.1%
230
22.8%
858
21.5%
6,243
1.9%
1.5%
47
63
(16)
404
47,600
6,155
2.2%
1.7%
(88)
(59)
(29)
317
47,600
6,131
2.2%
1.7%
(24)
(6)
(18)
386
47,600
6,141
2.1%
1.6%
10
39
(29)
399
48,011
6,141
2.1%
1.6%
(55)
37
(92)
1,506
48,011
6,155
1.6%
1.4%
6
24
(10)
317
48,011
6,144
2.0%
1.4%
(11)
7
(18)
349
48,011
6,103
2.1%
1.6%
(41)
(25)
(16)
338
48,011
6,123
1.9%
1.5%
20
25
(5)
387
48,426
6,123
1.9%
1.5%
(26)
31
(49)
1,391
48,426
6,141
1.7%
1.4%
18
30
(13)
330
48,910
6,148
2.0%
1.5%
8
20
(13)
376
48,910
6,146
2.0%
1.5%
(3)
10
(13)
366
48,910
6,148
1.8%
1.4%
3
15
(13)
334
48,910
6,148
1.9%
1.5%
25
75
(50)
1,407
48,910
138
14.0%
91
9.4%
129
13.1%
189
19.2%
547
13.9%
91
9.4%
134
13.7%
125
12.7%
240
23.9%
589
15.0%
145
14.8%
145
14.6%
145
14.5%
185
18.3%
620
15.6%
SUBSCRIBER MODEL
- Disconnects
+ Acquisition subs
Ending subscribers
% change, y-t-y
6,196
404
(357)
0
6,243
1%
6,243
317
(405)
0
6,155
-1%
6,155
386
(410)
0
6,131
-1%
6,131
399
(389)
0
6,141
-1%
6,196
1,506
(1,561)
0
6,141
-1%
6,141
317
(303)
0
6,155
-1%
6,155
349
(360)
0
6,144
0%
6,144
338
(379)
0
6,103
0%
6,103
387
(367)
0
6,123
0%
6,141
1,391
(1,409)
0
6,123
0%
6,123
330
(313)
0
6,141
0%
6,141
376
(369)
0
6,148
0%
6,148
366
(369)
0
6,146
1%
6,146
334
(332)
0
6,148
0%
6,123
1,407
(1,382)
0
6,148
0%
Churn rate, monthly
1.9%
2.2%
2.2%
2.1%
2.1%
1.6%
2.0%
2.1%
2.0%
1.9%
1.7%
2.0%
2.0%
1.8%
1.9%

% change, y-t-y
47
-36%
(88)
NM
(24)
-33%
10
-50%
(55)
NM
14
-70%
(11)
88%
(41)
-71%
20
100%
(18)
67%
18
25%
8
NM
(3)
94%
3
-88%
25
NM
6,220
47,600
6,199
47,600
6,143
47,600
6,136
48,011
6,174
48,011
6,148
48,011
6,150
48,011
6,124
48,011
6,113
48,426
6,134
48,426
6,132
48,910
6,144
48,910
6,147
48,910
6,147
48,910
6,142
48,910
13.1%
0.39%
12.9%
-0.74%
12.9%
-0.20%
12.8%
0.08%
12.8%
-0.11%
12.8%
0.12%
12.8%
-0.09%
12.7%
-0.34%
12.6%
0.17%
12.6%
-0.04%
12.6%
0.14%
12.6%
0.06%
12.6%
-0.02%
12.6%
0.02%
12.6%
0.05%
60
63
3
(16)
(32)
(59)
(27)
(29)
8
(6)
(14)
(18)
26
39
13
(29)
62
37
(25)
(92)
(9)
24
33
(10)
(22)
7
29
(18)
(25)
(25)
0
(16)
5
25
20
(5)
(51)
31
82
(49)
10
30
20
(13)
20
20
0
(13)
15
10
(5)
(13)
0
15
15
(13)
45
75
30
(50)
REVENUE MODEL
ARPU, monthly
% change, y-t-y
$52.62
1%
$52.41
-2%
$53.44
-2%
$53.58
2%
$53.01
0%
$52.33
-1%
$52.72
1%
$53.54
0%
$54.65
2%
$53.31
1%
$53.42
2%
$53.76
2%
$54.31
1%
$54.81
0%
$54.08
1%
ARPU - Voice
ARPU - Data
Data revenue
% of total services revenue
$38.43
$8.42
157
16.0%
$37.94
$8.91
166
17.0%
$37.36
$9.62
177
18.0%
$36.96
$10.18
187
19.0%
$37.74
$9.22
683
17.4%
$36.00
$10.91
201
21.0%
$35.16
$11.67
215
22.1%
$34.67
$12.46
229
23.3%
$34.21
$13.40
246
24.5%
$35.01
$12.11
891
22.7%
$33.55
$13.83
254
25.9%
$33.18
$14.12
260
26.3%
$33.29
$14.31
264
26.4%
$33.55
$14.53
268
26.5%
$33.39
$14.20
1,047
26.3%
Local ARPU, monthly

% change, y-t-y
$46.85
1%
$46.85
1%
$46.98
0%
$47.14
2%
$46.95
1%
$46.91
0%
$46.82
0%
$47.13
0%
$47.61
1%
$47.12
0%
$47.38
1%
$47.29
1%
$47.60
1%
$48.09
1%
$47.59
1%
60
-17%
62
-26%
50
-46%
57
-28%
229
-30%
52
-14%
61
-2%
73
45%
77
35%
263
14%
68
30.0%
76
25.0%
80
10.0%
81
5.0%
304
16%
EBITDA
EBITDA margin
Subscribers
Churn rate
Postpaid churn rate
Net additions
Retail net adds
Wholesale net adds
Gross additions
Average subscribers
Pops
Ending penetration
Annual penetration gain
Net additional postpaid subscribers
Net postpaid additional subscribers
Net prepaid additional subscribers
Net wholesale additional subscribers
Roaming revenue
% change, y-t-y
ARPU breakout
Voice and other retail service
Data ARPU
Total retail service ARPU
Roaming revenue/avg sub/mo
Other
$ 38.47 $ 38.11 $ 37.48 $ 36.75

$ 8.40 $ 8.71 $ 9.46 $ 10.30
$ 46.87 $ 46.82 $ 46.94 $ 47.05
$ 3.21 $ 3.35 $ 3.73 $ 3.35
$ 2.56 $ 2.21 $ 2.74 $ 3.08
$ 36.06 $ 35.14 $ 34.66

$ 10.93 $ 11.67 $ 12.46
$ 46.99 $ 46.81 $ 47.12
$ 2.83 $ 3.30 $ 3.97
$ 2.61 $ 2.60 $ 2.44
275
Philip Cusick, CFA

(1-212) 622-1444

13 January 2011
Table 141: US Cellular Income Statement

Local revenue (retail service)
Other revenue
Roaming revenue
Equipment revenue
Total revenue
% change, y-t-y
1Q09
874
48
60
982
71
1,053
1%
2Q09
871
41
62
975
68
1,043
-2%
3Q09
866
69
50
985
73
1,058
-3%
4Q09
868
62
57
986
75
1,061
1%
2009
3,479
220
229
3,928
287
4,215
-1%
1Q10
865
48
52
965
59
1,024
-3%
2Q10
864
48
61
973
57
1,030
-1%
3Q10
866
45
73
984
77
1,061
0%
4Q10E
873
52
77
1,002
66
1,069
1%
2010E
3,468
193
263
3,924
260
4,183
-1%
1Q11E
872
44
68
983
58
1,041
2%
2Q11E
872
43
76
991
63
1,054
2%
3Q11E
878
44
80
1,001
62
1,064
0%
4Q11E
887
43
81
1,011
59
1,070
0%
2011E
3,508
174
304
3,986
243
4,229
1%
Cost of service
% change, y-t-y
200
237
545
55.5%
0%
195
226
554
56.8%
-1%
205
243
537
54.5%
-7%
196
254
536
54.3%
-1%
797
959
2,172
55.3%
-2%
207
248
510
52.9%
-6%
214
271
488
50.2%
-12%
218
276
489
49.7%
-9%
218
275
509
50.8%
-5%
857
1,070
1,996
50.9%
-8%
206
269
508
51.7%
0%
208
269
514
51.8%
5%
210
269
522
52.1%
7%
212
269
529
52.4%
4%
837
1,076
2,073
52.0%
4%
Cost of equipment
Marketing costs
EBITDA margin
% change, y-t-y
186
176
0
798
255
25.9%
-4%
156
184
0
761
282
28.9%
5%
189
212
0
850
209
21.2%
-23%
212
217
0
880
181
18.4%
-13%
743
789
0
3,288
926
23.6%
-9%
161
181
0
797
227
23.5%
-11%
162
175
0
821
209
21.5%
-26%
189
171
0
854
207
21.0%
-1%
196
197
0
887
182
18.2%
0%
708
723
0
3,358
825
21.0%
-11%
170
177
0
822
220
22.4%
-3%
185
196
0
858
196
19.8%
-6%
182
190
0
852
212
21.1%
2%
179
179
0
840
230
22.8%
26%
717
742
0
3,371
858
21.5%
4%

Gain/(loss) on asset disposals, net
Operating income
138
(2)
115
139
(2)
141
148
(3)
58
147
(22)
13
571
(29)
326
143
(5)
79
144
(1)
64
145
(2)
60
155
0
27
587
(8)
229
149
0
70
149
0
47
149
0
62
149
0
81
597
0
261
Investment income
Interest expense
Gain/(loss) on investments
Other income
Minority interests
Income before extraordinary gains
0
(19)
0
25
(6)
116
1
(19)
0
25
(6)
141
1
(19)
0
24
(6)
58
1
(19)
0
24
(4)
15
4
(76)
0
98
(22)
330
0
(16)
1
25
(6)
82
1
(16)
0
26
(5)
69
1
(16)
0
23
(6)
62
1
(16)
0
23
(1)
33
3
(65)
1
98
(18)
247
0
(18)
0
23
(3)
73
1
(17)
0
23
(2)
52
2
(17)
0
23
(3)
67
3
(17)
0
23
(5)
85
6
(69)
0
93
(13)
278
Extraordinary income/loss
Income before income taxes
0
116
0
141
0
58
0
15
0
330
0
82
0
69
0
62
0
33
0
247
0
73
0
52
0
67
0
85
0
278
Net income, continuing
Net income, reported
(31)
85
85
(58)
83
83
(23)
36
36
(3)
12
12
(114)
216
216
(34)
48
48
(28)
41
41
(25)
37
37
(13)
20
20
(101)
146
146
(29)
44
44
(21)
31
31
(27)
40
40
(34)
51
51
(112)
166
166
Weighted avg shares out. (basic)

Weighted avg shares out. (fully diluted)
87
87
87
87
87
87
87
87
87
87
87
87
86
87
86
86
86
86
86
87
86
86
86
86
86
86
86
86
86
86
$0.97
$0.97
21%
$0.96
$0.96
16%
$0.41
$0.41
-60%
$0.14
$0.14
NM
$2.48
$2.48
588%
$0.56
$0.55
-43%
$0.47
$0.47
-51%
$0.43
$0.43
6%
$0.23
$0.23
61%
$1.69
$1.69
-32%
$0.51
$0.51
-9%
$0.36
$0.36
-23%
$0.47
$0.47
8%
$0.59
$0.59
156%
$1.94
$1.93
14%
EPS, basic
EPS, diluted
% change, y-t-y
276
Philip Cusick, CFA

(1-212) 622-1444

13 January 2011
Table 142: US Cellular Cost Metrics, Balance Sheet, and Cash Flow Statement
1Q09
2Q09
3Q09
4Q09
2009
1Q10
2Q10
3Q10
4Q10E
2010E
1Q11E
2Q11E
3Q11E
4Q11E
2011E
$10.72
20.4%
$12.69
$23.41
$10.48
20.0%
$12.16
$22.64
$11.15
20.9%
$13.16
$24.31
$10.67
19.9%
$13.80
$24.46
$10.75
20.3%
$12.95
$23.70
$11.23
21.5%
$13.44
$24.67
$11.58
22.0%
$14.67
$26.25
$11.87
22.2%
$15.04
$26.91
$11.91
21.8%
$15.00
$26.91
$11.65
21.8%
$14.54
$26.18
$11.22
21.0%
$14.60
$25.82
$11.29
21.0%
$14.60
$25.89
$11.40
21.0%
$14.60
$26.00
$11.51
21.0%
$14.60
$26.11
$11.36
21.0%
$14.60
$25.96
176
127
(48)
254
184
98
(43)
239
212
125
(48)
289
217
142
(50)
309
789
492
(190)
1,092
181
94
(34)
240
175
99
(35)
239
171
112
(46)
237
197
120
(41)
277
723
425
(156)
992
177
101
(35)
243
196
115
(39)
271
190
112
(38)
264
179
109
(35)
252
742
436
(148)
1,030
Equipment subsidy per gross addition

Marketing/gross add
CPGA, calculated
% change, y-t-y
$194
$435
$629
4%
$175
$580
$755
7%
$198
$550
$748
0%
$230
$545
$775
4%
$201
$524
$725
4%
$188
$570
$758
20%
$183
$500
$683
-10%
$196
$505
$701
-6%
$205
$510
$715
-8%
$194
$520
$714
-2%
$200
$535
$735
-3%
$200
$520
$720
5%
$200
$520
$720
3%
$220
$535
$755
6%
$205
$527
$732
3%

Cap-ex % of service revenue
138
14.0%
91
9.4%
129
13.1%
189
19.2%
547
13.9%
91
9.4%
134
13.7%
125
12.7%
240
23.9%
589
15.0%
145
14.8%
145
14.6%
145
14.5%
185
18.3%
620
15.6%
1Q09
192
608
800
2Q09
276
696
972
3Q09
405
709
1,114
4Q09
294
711
1,006
2009
294
711
1,006
1Q10
290
733
1,023
2Q10
233
803
1,036
3Q10
269
829
1,099
4Q10E
181
829
1,010
2010E
181
829
1,010
1Q11E
206
829
1,035
2Q11E
218
829
1,048
3Q11E
240
829
1,069
4Q11E
232
829
1,061
2011E
232
829
1,061
176
2,623
1,948
4
192
2,578
1,947
4
177
2,562
1,946
4
161
2,601
1,934
4
161
2,601
1,934
4
179
2,578
1,936
4
69
5,620
38
5,731
38
5,842
39
5,745
39
5,745
38
5,758.3
164
2,571
1,942
4
41
38
5,796
177
2,554
1,446
4
46
38
5,363
177
2,648
1,613
4
46
38
5,490
177
2,648
1,613
4
46
38
5,490
177
2,653
1,604
4
46
38
5,511
177
2,658
1,595
4
46
38
5,519
177
2,663
1,585
4
46
38
5,536
177
2,708
1,576
4
46
38
5,564
177
2,708
1,576
4
46
38
5,564
10
560
570
10
562
572
10
606
616
0
644
645
0
644
645
84
535
619
0
634
634
91
527
618
91
527
618
91
527
618
91
527
618
91
527
618
91
527
618
91
527
618
91
527
618
Long-term debt/(cash)
Minority Interest
Other non-current liabilities
Total liabilities
998
53
718
2,338
998
56
742
2,368
998
60
769
2,443
868
52
776
2,340
868
52
776
2,340
868
55
774
2,316
868
1
771
2,274
868
1
829
2,316
956
1
829
2,404
956
1
829
2,404
931
1
829
2,380
919
1
829
2,368
898
2
829
2,347
905
2
829
2,355
905
2
829
2,355

3,282
5,620
3,363
5,731
3,399
5,842
3,404
5,744
3,404
5,744
3,443
5,758.3
3,521
5,796
3,543
5,859
3,086
5,490
3,086
5,490
3,131
5,511
3,151
5,519
3,189
5,536
3,209
5,564
3,209
5,564
1Q09
255
0
(5)
(2)
(19)
(31)
(138)
60
2Q09
282
1
(5)
(2)
(19)
(58)
(91)
107
3Q09
209
1
(5)
(2)
(19)
(23)
(129)
32
4Q09
181
1
(4)
(2)
(19)
(3)
(189)
(34)
2009
926
3
(20)
(8)
(76)
(114)
(547)
165
1Q10
227
0
(5)
0
(16)
(34)
(91)
80
2Q10
209
1
(5)
0
(16)
(28)
(134)
27
3Q10
207
1
(5)
0
(16)
(25)
(125)
36
4Q10E
182
1
(1)
0
(16)
(13)
(240)
(88)
2010E
825
2
(17)
0
(65)
(101)
(589)
56
1Q11E
220
0
(3)
0
(18)
(29)
(145)
25
2Q11E
196
1
(2)
0
(17)
(21)
(145)
12
3Q11E
212
1
(3)
0
(17)
(27)
(145)
21
4Q11E
230
2
(5)
0
(17)
(34)
(185)
(8)
2011E
858
6
(12)
0
(69)
(112)
(620)
51
Other investments/(sales)
Equity issued/(repurchased)
Net cash flow
(13)
46
(6)
100
(1)
32
(34)
0
0
(20)
144
80
27
36
(88)
0
0
0
56
25
12
21
(8)
0
0
0
51
Debt, beginning
Ending debt
997
1
998
998
0
998
998
(0)
998
998
(130)
868
997
(129)
868
868
0
868
868
0
868
868
(0)
868
868
88
956
868
89
956
956
(25)
931
931
(12)
919
919
(21)
898
898
8
905
956
(51)
905
Pre-marketing costs
Cost of service/service revenue
CCPU, calculated
Gross add costs
Marketing costs for gross adds
Cost of equipment for gross adds
Revenues from equipments sales to gross adds
Total cost for gross add
United States Cellular

BALANCE SHEET
Investment in affiliates
Net PP&E
Intangibles, net
Notes, interest receivables
LT investment in liquid securities
Other assets
Total assets
Current portion of debt
United States Cellular

CASH FLOW MODEL
Cash EBITDA
Investment income
Minority interest payments
Change in working capital
Interest expense
Taxes expense
277
Philip Cusick, CFA

(1-212) 622-1444
278

13 January 2011
Philip Cusick, CFA

(1-212) 622-1444

13 January 2011
TDS Model
Table 143: TDS Operating Statistics
% change, y-t-y
1Q09
777
1.3%
2Q09
776
0.2%
3Q09
773
-0.1%
4Q09
776
-0.1%
2009
776
0%
1Q10
779
0.2%
2Q10
779
0.4%
3Q10
774
0.1%
4Q10E
777
0.2%
2010E
777
0%
1Q11E
779
0%
2Q11E
779
0%
3Q11E
774
0%
4Q11E
777
0%
2011E
777
0%
Local revenue per ALE

% change, y-t-y
20.84
-7.0%
20.14
-8.1%
20.04
-9.2%
19.46
-8.7%
20.11
-7.8%
19.07
-8.5%
19.57
-2.9%
19.54
-2.5%
19.02
-2.3%
19.30
-4.0%
18.31
-4.0%
18.78
-4.0%
18.76
-4.0%
18.26
-4.0%
18.52
-4.0%
Access lines
% change, y-t-y
557
-3.9%
548
-5.0%
539
-5.2%
536
-5.3%
536
-5.3%
530
-4.7%
525
-4.2%
517
-4.2%
515
-4.0%
515
-4.0%
509
-4.0%
504
-4.0%
496
-4.0%
494
-4.0%
494
-4.0%
Local revenue per ALE

% change, y-t-y
29.08
-2.0%
28.52
-3.1%
28.71
-4.3%
28.16
-3.7%
29.09
-2.8%
28.00
-3.7%
29.04
1.8%
29.25
1.9%
28.72
2.0%
29.14
0.2%
28.00
0.0%
29.04
0.0%
29.25
0.0%
28.72
0.0%
29.14
0.0%
DSL customers
% change, y-t-y
DSL penetration
DSL ARPU
% change, y-t-y
188
21.5%
33.8%
45.63
-3.6%
197
20.1%
36.0%
45.31
-0.3%
202
18.2%
37.5%
43.16
-5.5%
208
17.0%
38.8%
45.35
-1.8%
208
17.0%
38.8%
41.48
-1.6%
217
15.6%
41.0%
44.32
-2.9%
223
13.2%
42.5%
49.43
9.1%
225
11.5%
43.6%
48.02
11.3%
233
12.0%
45.3%
46.26
2.0%
233
12.0%
45.3%
44.50
7.3%
242
11.5%
47.6%
44.76
1.0%
248
11.0%
49.2%
49.92
1.0%
250
11.0%
50.4%
48.50
1.0%
257
10.0%
51.9%
46.72
1.0%
257
10.0%
51.9%
45.59
2.4%
Construction expenditures ($mm)

% of revenue
21
14.2%
26
17.7%
24
15.9%
27
17.8%
98
16.4%
26
17.4%
28
18.3%
33
21.0%
38
25%
126
20.4%
23
15%
24
15%
23
15%
23
15%
93
15.0%
CLEC operating data

% change, y-t-y
381
-10.7%
372
-10.8%
364
-9.6%
356
-9.4%
356
-9.4%
349
-8.3%
343
-7.8%
339
-7.0%
331
-7.0%
331
-7.0%
325
-7.0%
319
-7.0%
315
-7.0%
308
-7.0%
308
-7.0%
CLEC revenue per ALE

% change, y-t-y
44.78
2.1%
44.85
0.4%
45.00
-0.6%
45.84
1.4%
46.68
0.1%
45.56
1.7%
45.98
2.5%
46.29
2.9%
46.30
1.0%
47.35
1.4%
46.02
1.0%
46.44
1.0%
46.76
1.0%
46.76
1.0%
47.83
1.0%
DSL customers
% change, y-t-y
40
-7.9%
39
-8.9%
38
-8.7%
37
-8.0%
37
-8.0%
39
-2.5%
35
-9.6%
34
-9.8%
33
-9.8%
33
-9.8%
36
-7.5%
32
-7.5%
31
-7.5%
31
-7.5%
31
-7.5%
Construction expenditures ($mm)

% of revenue
5
10%
6
11%
5
10%
7
14%
22
13%
6
12%
5
11%
6
12%
8
18%
25
15%
5
12%
5
12%
5
12%
5
12%
21
14%
CLEC expenses as % of revenue
86.2%
87.7%
85.4%
84.5%
85.9%
83.8%
85.5%
86.7%
86.7%
85.7%
85.0%
85.0%
85.0%
85.0%
85.0%
279
Philip Cusick, CFA

(1-212) 622-1444

13 January 2011
Table 144: TDS Telecom Segment Income Statements

ILEC MODEL
Voice
Data
Network access
Miscellaneous
Total revenue
% change, y-t-y
1Q09
49
25
68
9
150
-1%
2Q09
47
25
67
9
148
-3%
3Q09
46
26
67
10
150
-2%
4Q09
45
27
69
10
151
-1%
2009
187
104
271
37
600
-2%
1Q10
45
28
68
9
150
0%
2Q10
46
32
67
10
154
4%
3Q10
45
32
69
11
157
5%
4Q10E
44
32
67
10
153
1%
2010E
180
125
271
39
615
3%
1Q11E
43
32
68
10
153
2%
2Q11E
44
37
67
10
158
2%
3Q11E
44
36
66
10
156
-1%
4Q11E
43
36
67
10
155
1%
2011E
173
140
268
40
621
1%
Network operations (cost of service)

Customer operations
Corporate expenses
EBITDA margin
% change, y-t-y
48
41
0
89
61
40.9%
-5%
48
46
0
94
54
36.4%
-17%
50
41
0
92
58
38.7%
-11%
48
43
0
91
61
40.2%
-7%
194
171
0
365
234
39.1%
-10%
46
42
0
88
62
41.1%
0%
49
44
0
93
61
39.4%
13%
52
43
0
95
62
39.6%
8%
50
44
0
94
59
38.6%
-3%
198
173
0
371
244
39.7%
4%
49
42
0
91
61
40.2%
0%
50
44
0
94
63
40.2%
4%
50
43
0
93
63
40.2%
0%
50
43
0
93
62
40.2%
6%
199
173
0
371
250
40.2%
2%

Operating income
36
25
35
19
36
22
36
25
143
91
37
25
37
24
38
25
38
22
149
95
35
27
35
29
35
28
35
28
138
112
Total revenues
% change, y-t-y
1Q09
51
-9%
2Q09
50
-10%
3Q09
49
-10%
4Q09
49
-8%
2009
199
-9%
1Q10
48
-7%
2Q10
47
-6%
3Q10
47
-4%
4Q10E
46
-6%
2010E
188
-6%
1Q11E
45
-6%
2Q11E
44
-6%
3Q11E
44
-6%
4Q11E
43
-6%
2011E
177
-6%
Expenses excluding D&A

EBITDA margin
% change, y-t-y
44
7
13.8%
-45%
44
6
12.3%
-36%
42
7
14.6%
-26%
41
8
15.5%
-19%
171
28
14.1%
-32%
40
8
16.2%
9%
40
7
14.5%
11%
41
6
13.3%
-13%
40
6
13.3%
-20%
161
27
14.3%
-4%
38
7
15.0%
-13%
38
7
15.0%
-3%
38
7
15.0%
6%
37
6
15.0%
6%
150
26
15.0%
-2%
CLEC MODEL

Operating income
6
1
6
(0)
6
1
6
1
1Q09
(2)
(2)
0
(4)
2
-100.0%
11%
2Q09
(2)
(2)
0
(5)
2
-100.0%
41%
3Q09
(2)
(2)
0
(5)
2
-100.0%
35%
4Q09
(2)
(2)
0
(5)
2
-100.0%
54%
1Q09
199
131
69
34.4%
-11%
2Q09
196
136
60
30.7%
-19%
3Q09
197
131
65
33.1%
-13%
42
(0)
26
42
(0)
18
1Q09
5
6
(2)
-38.8%
NM
24
4
6
1
6
1
6
0
6
0
25
2
6
1
6
1
6
1
6
0
24
2
2009
(9)
(9)
0
(18)
9
-100.0%
34%
1Q10
(2)
(2)
0
(5)
2
-100.0%
15%
2Q10
(2)
(2)
0
(5)
2
-100.0%
2%
3Q10
(2)
(2)
0
(5)
2
-100.0%
5%
4Q10E
(2)
(2)
0
(5)
2
-100.0%
1%
2010E
(10)
(10)
0
(19)
10
-100.0%
6%
1Q11E
(2)
(2)
0
(5)
2
-100.0%
0%
2Q11E
(2)
(2)
0
(5)
2
-100.0%
1%
3Q11E
(2)
(2)
0
(5)
2
-100.0%
0%
4Q11E
(2)
(2)
0
(5)
2
-100.0%
0%
2011E
(10)
(10)
0
(19)
10
-100.0%
0%
4Q09
198
130
68
34.6%
-8%
2009
790
528
262
33.2%
-13%
1Q10
196
126
69
35.5%
1%
2Q10
199
132
68
33.9%
12%
3Q10
202
133
69
34.0%
5%
4Q10E
197
132
65
33.1%
-5%
2010E
793
523
271
34.1%
3%
1Q11E
195
127
68
34.9%
-2%
2Q11E
200
130
70
35.1%
4%
3Q11E
198
128
69
35.1%
1%
4Q11E
196
127
69
35.1%
6%
2011E
788
512
276
35.0%
2%
42
(1)
22
42
(1)
26
167
(2)
93
43
(0)
26
43
(0)
24
44
(0)
25
44
0
22
2Q09
4
2
2
47.4%
497%
3Q09
4
3
1
18.3%
NM
4Q09
4
0
3
90.2%
NM
2009
16
12
4
26.0%
452%
1Q10
3
2
1
37.2%
NM
2Q10
3
1
2
53.9%
-11%
3Q10
4
2
1
37.8%
90%
4Q10E
4
2
1
37.8%
-60%
2010E
13
8
6
41.4%
32%
1Q11E
4
2
1
37.8%
19%
2Q11E
4
2
1
37.8%
-19%
3Q11E
4
4
(0)
-11.0%
NM
4Q11E
4
4
(0)
-11.0%
NM
2011E
14
12
2
13.4%
-65%
3
(0)
(5)
3
(0)
(1)
3
(0)
(2)
3
(0)
1
12
(0)
(8)
95
3
0
(2)
3
(0)
(1)
3
(0)
(1)
3
0
(1)
11
0
(5)
3
0
(1)
3
0
(1)
3
0
(3)
3
0
(3)
10
0
(9)
138
26
1
165
13%
91
32
1
124
10%
129
28
1
158
13%
189
34
1
224
18%
547
120
4
671
13%
91
32
1
124
10%
134
34
1
168
14%
125
39
0
163
13%
240
47
1
288
23%
589
151
3
743
15%
145
28
1
174
14%
145
29
1
175
14%
145
29
1
175
14%
185
28
1
214
17%
620
114
4
738
15%
CORPORATE ELIMINATIONS MODEL

Revenue
Cost of service and equipment
SG&A
EBITDA margin
% change, y-t-y
TDS TELECOM
Revenue
Expenses
EBITDA margin
% change, y-t-y
Operating income
174 ##
(1)
96
41
0
28
41
0
30
41
0
29
41
0
28
162
0
114
OTHER OPERATIONS
Revenue
Expenses
EBITDA margin
% change, y-t-y
Operating income
USM capex
TDS capex
Other capex
Consolidated capex
% of total revenue
280
Philip Cusick, CFA

(1-212) 622-1444

13 January 2011
Table 145: TDS Consolidated Income Statement

TDS CONSOLIDATED MODEL
1Q09
1,258
475
460
323
25.7%
-6%
2Q09
1,242
441
458
344
27.7%
0%
3Q09
1,259
485
499
274
21.8%
-21%
4Q09
1,263
495
515
253
20.1%
-10%
2009
5,022
1,896
1,932
1,194
23.8%
-9%
1Q10
1,223
452
473
298
24.4%
-8%
2Q10
1,232
463
491
279
22.6%
-19%
3Q10
1,266
498
492
277
21.8%
1%

Operating income
183
(2)
140
183
(2)
158
192
(5)
78
192
(22)
39
750
(32)
413
189
(5)
103
190
(2)
87
191
(2)
83
201
0
47
Equity in earnings of uncons. entities

Interest and dividend income
Interest income (expense)
Gain/(loss) on investments
Other income
Income before taxes and minority interest
25
2
(30)
0
0
138
18
3
(32)
0
(0)
147
23
3
(30)
0
1
75
24
3
(32)
0
0
34
91
11
(125)
0
2
392
25
2
(28)
0
(0)
102
26
3
(29)
0
(2)
84
24
3
(28)
0
(0)
81
Tax benefit/ (expense)

Income before minority interest
(42)
96
(53)
94
(28)
47.265
(12)
23
(135)
257
(38)
63
(31)
53
Minority interests
Net Income
(21)
74
(21)
73
(12)
36
(6)
17
(60)
197
(14)
49
Preferred dividend payments

Net income available to common
(0)
74
(0)
73
(0)
36
(0)
17
(0)
197
Weighted avg shares out. (basic)

Weighted avg shares out. (fully diluted)
112
112
111
111
108
109
106
106
EPS, continuing operations

Diluted EPS, continuing operations
% change, y-t-y
$0.66
$0.66
7%
$0.66
$0.66
-13%
$0.33
$0.33
-62%
$0.11
$0.11
$0.11
Revenue
Cost of service and equipment
SG&A
EBITDA margin
% change, y-t-y
4Q10E
1,269
502
518
249
19.6%
-2%
2010E
4,990
1,915
1,974
1,101
22.1%
-8%
1Q11E
1,240
461
490
289
23.3%
-3%
2Q11E
1,258
479
511
268
21.3%
-4%
3Q11E
1,265
478
507
280
22.2%
1%
4Q11E
1,269
475
495
299
23.5%
20%
2011E
5,032
1,893
2,003
1,136
22.6%
3%
772
(9)
320
192
0
97
192
0
75
192
0
88
192
0
106
769
0
366
22
2
(28)
0
(0)
43
97
10
(114)
0
(3)
310
23
2
(30)
0
(0)
91
23
2
(30)
0
(0)
70
23
2
(29)
0
(0)
83
23
2
(29)
0
(0)
102
92
8
(118)
0
(2)
346
(29)
53
(17)
26
(115)
195
(36)
56
(27)
43
(32)
51
(40)
62
(135)
211
(12)
40
(12)
41
(5)
21
(43)
152
(10)
45
(7)
36
(9)
41
(12)
50
(39)
173
(0)
49
(0)
40
(0)
41
(0)
21
(0)
152
(0)
45
(0)
36
(0)
41
(0)
50
(0)
173
109
110
106
106
106
106
105
105
105
105
105
106
104
105
104
104
103
104
103
103
104
104
$0.16
$0.15
NM
$1.80
$1.80
123%
$0.47
$0.46
-30%
$0.38
$0.38
-42%
$0.39
$0.39
18%
$0.21
$0.20
32%
$1.44
$1.44
-20%
$0.44
$0.43
-7%
$0.34
$0.34
-11%
$0.40
$0.40
3%
$0.49
$0.49
138%
$1.67
$1.66
15%
$0.11
$0.43
$0.11
$0.11
$0.11
$0.12
$0.45
$0.12
$0.12
$0.12
$0.12
$0.47
281
Philip Cusick, CFA

(1-212) 622-1444

13 January 2011
Table 146: TDS Consolidated Balance Sheet and Cash Flow Model
Liquid investment in LT cash and cash equiv.
1Q09
810
765
1,575
2Q09
801
855
1,656
3Q09
778
1,000
1,778
4Q09
671
977
1,648
2009
671
977
1,648
1Q10
645
994
1,639
2Q10
758
809
1,566
3Q10
779
864
1,643
4Q10E
779
864
1,643
2010E
779
864
1,643
1Q11E
779
864
1,643
2Q11E
779
864
1,643
3Q11E
779
864
1,643
4Q11E
779
864
1,643
2011E
779
864
1,643
108
121
121
121
121
121
121
121
121
2,623
933
2,193
225
106
7,654
2,578
925
2,190
234
75
7,658
2,562
911
2,187
220
76
7,733
2,601
907
2,177
204
76
7,612
2,601
907
2,177
204
76
7,612
2,578
871
2,192
221
99
7,601.02
2,571
863
2,201
200
101
7,610
2,554
891
2,172
214
98
7,694
2,648
900
2,172
214
98
7,797
2,648
900
2,172
214
98
7,797
2,653
894
2,172
214
98
7,796
2,658
889
2,172
214
98
7,795
2,663
883
2,172
214
98
7,794
2,708
877
2,172
214
98
7,833
2,708
877
2,172
214
98
7,833
17
685
703
17
664
681
15
759
774
3
792
794
3
792
794
2
755
758
2
749
751
2
756
758
2
746
748
2
746
748
2
736
738
2
726
728
2
716
718
2
706
708
2
706
708
Deferred liabilities and credits

Long-term debt/(cash)
Forward contracts
Minority Interest
Other non-current liabilities
Total liabilities
851
1,619
0
658
0
3,831
869
1,619
0
674
0
3,843
883
1,621
0
679
1
3,958
891
1,493
0
663
1
3,842
891
1,493
0
663
1
3,842
878
1,493
0
672
0
3,800
886
1,493
0
669
1
3,799
957
1,492
0
661
1
3,869
957
1,594
0
661
1
3,961
957
1,594
0
661
1
3,961
957
1,567
0
661
1
3,924
957
1,551
0
661
1
3,898
957
1,529
0
661
1
3,866
957
1,537
0
661
1
3,864
957
1,537
0
661
1
3,864
Preferred shares
1
3,822
7,654
1Q09
323
27
(21)
(10)
(30)
(42)
(165)
82
1
3,814
7,658
2Q09
344
21
(21)
(10)
(32)
(53)
(124)
125
1
3,774
7,733
3Q09
274
27
(12)
(10)
(30)
(28)
(158)
63
1
3,769
7,612
4Q09
253
26
(6)
(10)
(32)
(12)
(224)
(4)
1
3,769
7,612
2009
1,194
102
(60)
(40)
(125)
(135)
(671)
266
1
3,800
7,601.02
1Q10
298
27
(14)
(10)
(28)
(38)
(124)
110
1
3,810
7,610
2Q10
279
29
(12)
(10)
(29)
(31)
(168)
56
1
3,824
7,694
3Q10
277
27
(12)
(10)
(28)
(29)
(163)
61
1
3,836
7,797
4Q10E
249
24
(5)
(10)
(28)
(17)
(288)
(74)
1
3,836
7,797
2010E
1,101
107
(43)
(40)
(114)
(115)
(743)
153
1
3,872
7,796
1Q11E
289
25
(10)
(10)
(30)
(36)
(174)
54
1
3,897
7,795
2Q11E
268
25
(7)
(10)
(30)
(27)
(175)
43
1
3,929
7,794
3Q11E
280
25
(9)
(10)
(29)
(32)
(175)
50
1
3,969
7,833
4Q11E
299
25
(12)
(10)
(29)
(40)
(214)
19
1
3,969
7,833
2011E
1,136
100
(39)
(40)
(118)
(135)
(738)
165
0
(12)
(12)
57
0
(93)
(12)
20
0
(1)
(12)
51
0
0
(12)
(16)
0
(177)
(47)
112
0
(15)
(12)
83
0
(15)
(12)
29
0
(20)
(12)
30
0
(15)
(12)
(102)
0
(64)
(48)
41
0
(15)
(12)
27
0
(15)
(12)
16
0
(15)
(12)
22
0
(15)
(12)
(9)
0
(60)
(49)
57
1,637
0
1,637
1,637
(0)
1,637
1,637
(1)
1,636
1,636
(141)
1,495
1,637
(141)
1,495
1,495
(0)
1,495
1,495
(0)
1,495
1,495
(1)
1,494
1,494
102
1,596
1,495
100
1,596
1,596
(27)
1,569
1,569
(16)
1,553
1,553
(22)
1,531
1,531
9
1,539
1,596
(57)
1,539
Net PP&E, US Cellular

Net PP&E, TDS Telecom & other
Intangibles, net
Investments in unconsolidated entities
Other assets
Total assets
Current portion of debt
EBITDA
Investment income
Minority interest payments
Interest expense
Taxes expense
Construction expenditures
Equity issued/(repurchased)
Dividends
Net cash flow
Debt, beginning
Ending debt
282
Philip Cusick, CFA

(1-212) 622-1444

13 January 2011
Frontier Model
Table 147: Frontier Valuation Model
2009
2010E
2011E
2012E
2013E
2014E
2015E
2016E
2017E
2018E
2019E
2020E
Access lines
% change, y-t-y
Additional lines
6,315
NM
5,744
-9.1%
(572)
5,304
-7.7%
(440)
4,938
-6.9%
(366)
4,710
-4.6%
(228)
4,526
-3.9%
(183)
4,396
-2.9%
(130)
4,296
-2.3%
(101)
4,227
-1.6%
(69)
4,171
-1.3%
(56)
4,124
-1.1%
(47)
4,078
-1.1%
(46)
HSI connections
% change, y-t-y
Additional lines
1,696
NM
1,696
0.0%
(1)
1,749
3.1%
53
1,802
3.0%
53
1,848
2.6%
46
1,888
2.2%
40
1,921
1.7%
32
1,946
1.3%
26
1,967
1.1%
21
1,984
0.8%
17
1,997
0.7%
13
2,007
0.5%
11
% change, y-t-y
6,071
NM
5,685
-6.4%
5,383
-5.3%
5,192
-3.6%
5,058
-2.6%
4,962
-1.9%
4,884
-1.6%
4,819
-1.3%
4,764
-1.2%
4,724
-0.8%
4,685
-0.8%
4,647
-0.8%

% change, y-t-y
EBITDA margin
2,878
NM
47.4%
2,532
-12.0%
44.5%
2,546
0.5%
47.3%
2,524
-0.9%
48.6%
2,554
1.2%
50.5%
2,496
-2.3%
50.3%
2,447
-2.0%
50.1%
2,410
-1.5%
50.0%
2,377
-1.4%
49.9%
2,353
-1.0%
49.8%
2,329
-1.0%
49.7%
2,305
-1.0%
49.6%

% change, y-t-y
Adj. EBITDA margin
2,968
NM
48.9%
2,703
-8.9%
47.6%
2,646
-2.1%
49.2%
2,624
-0.8%
50.5%
2,634
0.4%
52.1%
2,576
-2.2%
51.9%
2,527
-1.9%
51.7%
2,490
-1.5%
51.7%
2,457
-1.3%
51.6%
2,433
-1.0%
51.5%
2,409
-1.0%
51.4%
2,385
-1.0%
51.3%
790
13.0%
720
12.7%
715
13.3%
692
13.3%
625
12.4%
551
11.1%
507
10.4%
499
10.4%
492
10.3%
487
10.3%
482
10.3%
477
10.3%
EPS
Dividend per share
$
$
0.44 $
1.00 $
0.36 $
0.88 $
0.38 $
0.75 $
0.42 $
0.75 $

2012E
11,034
(1,375)
(2,397)
7,262
9,802
17,063
2011E
16,618
(2,014)
(3,599)
11,005
8,803
19,809

PMV -- Equity
(6,959)
11,611
(8,336)
8,727
(7,684)
12,125
989
0
989
987
0
987
989
0
989

$11.74
10%
$10.57
PMV per share

Plus dividend
12 month return
2011E
Free Cash Flow

FCF / diluted share
FCF yield
Dividend
Dividend yield
Payout ratio
0.52 $
0.75 $
0.55 $
0.75 $
2011E
13,399
(1,586)
(3,045)
8,768
9,802
18,570
0.50 $
0.75 $
2012E
1,064
$1.08
11%
$
$8.84
10%
$7.96
0.75
2013E
1,067
$1.08
11%
Current EV/Adj EBITDA

Current PER
Free cashflow yield
Price Target EV/Adj EBITDA
Target PER
Free cashflow yield
1,131
$1.14
12%
$9.68
EV
17,257
18,596
0.63 $
0.75 $
2011E
6.5x
25.2x
7.7%
11.1%
7.0x
27.5x
6.8%
10%
0.67 $
0.75 $
0.69 $
0.75 $
2012E
2013E
6.6x
6.6x
22.9x
19.3x
7.7%
7.7%
11.1%
11.8%
7.1x
25.0x
6.8%
10%
7.1x
21.1x
6.8%
10%
0.71
0.75
2014E
6.7x
18.5x
7.7%
12.2%
7.2x
20.2x
6.8%
11%

11 -3.0%
-2.0%
-1.0%
0.0%
1.0%
4.7%
13
15
17
20
24
5.7%
11
12
13
15
18
6.7%
9
10
$11.03
12
14
7.7%
8
8
9
10
11
8.7%
7
7
8
8
9
$12.26
10%
$11.03
0.75
22%
2014E
0.59 $
0.75 $
2015E
1,167
$1.18
12%
2016E
1,182
$1.20
12%
2017E
1,168
$1.18
12%
2018E
1,155
$1.17
12%
1,152
$1.16
12%
0.75 $
7.7%
0.75 $
7.7%
0.75 $
7.7%
0.75 $
7.7%
0.75 $
7.7%
0.75 $
7.7%
0.75 $
7.7%
0.75
7.7%
70%
70%
66%
64%
63%
64%
64%
64%

8x
9x
10x
11x
12x
2011
9
10
$10.76
12
13
2018
9
10
$11.65
13
14
283
Philip Cusick, CFA

(1-212) 622-1444

13 January 2011
Table 148: Frontier Operating Metrics

Access lines
Legacy Frontier
Residential
Net line losses
change q/q
change y/y
1,427
-27
-1.9%
-8.1%
1,405
-22
-1.5%
-7.3%
1,375
-30
-2.2%
-7.4%
1,350
-25
-1.8%
-7.2%
-7.2%
1,350
-105
Business
Net line losses
change q/q
change y/y
790
-10
-1.3%
-5.2%
784
-6
-0.7%
-4.9%
777
-7
-0.9%
-4.3%
768
-9
-1.1%
-4.0%
-4.0%
Beginning of period
Net access line losses
End of period legacy access lines
change q/q
change y/y
Average access lines
2,254
-38
2,217
-1.7%
-7.1%
2,236
2,217
-28
2,189
-1.2%
-6.5%
2,203
2,189
-37
2,152
-1.7%
-6.3%
2,170
2,152
-34
2,118
-1.6%
-6.1%
2,135
3,085
768
-32
2254
-137
2,118
-6.1%
2,186
1,323
-27
-2.0%
-7.3%
1,296
-26
-2.0%
-7.7%
1,273
-23
-1.8%
-7.4%
1,250
-23
-1.8%
-7.4%
-7.4%
1,250
-100
1,230
-20
-1.6%
-7.0%
1,210
-20
-1.6%
-6.7%
1,190
-20
-1.7%
-6.5%
1,170
-20
-1.7%
-6.4%
-6.4%
760
-8
-1.0%
-3.7%
756
-5
-0.6%
-3.6%
750
-6
-0.7%
-3.5%
745
-6
-0.7%
-3.1%
-3.1%
740
-4
-0.6%
-2.6%
736
-4
-0.6%
-2.6%
731
-4
-0.6%
-2.5%
727
-4
-0.6%
-2.4%
-2.4%
2,118
-35
2,083
-1.6%
-6.0%
2,100
2,083
-31
2,052
-1.5%
-6.3%
2,067
2,052
-29
2,023
-1.4%
-6.0%
2,038
2,023
-29
1,994
-1.4%
-5.8%
2,009
1,994
-24
1,970
-1.2%
-5.4%
1,982
1,970
-24
1,946
-1.2%
-5.2%
1,958
1,946
-24
1,921
-1.3%
-5.0%
1,933
1,921
-24
1,897
-1.3%
-4.9%
1,909
2,669
-84
-3.1%
-13.5%
2,567
-102
-3.8%
-13.7%
2,462
-105
-4.1%
-13.7%
2,367
-95
-3.9%
-14.0%
2,287
-80
-3.4%
-14.3%
2,207
-80
-3.5%
-14.0%
2,127
-80
-3.6%
-13.6%
2,057
-70
-3.3%
-13.1%
1,420
-25
-1.7%
-6.7%
1,395
-25
-1.7%
-6.7%
1,390
-5
-0.3%
-5.4%
1,382
-8
-0.6%
-4.3%
1,374
-8
-0.6%
-3.2%
1,366
-8
-0.6%
-2.1%
1,358
-8
-0.6%
-2.3%
1,350
-8
-0.6%
-2.3%
4,198
-109
4,089
-2.6%
-11.2%
4,089
-127
3,962
-3.1%
-11.4%
3,962
-110
3,852
-2.8%
-10.9%
3,852
-103
3,749
-2.7%
-10.7%
3,749
-88
3,661
-2.3%
-10.5%
3,661
-88
3,573
-2.4%
-9.8%
3,573
-88
3,485
-2.5%
-9.5%
3,485
-78
3,407
-2.2%
-9.1%
-10.7%
3,992
-111
-2.7%
-11.5%
3,863
-128
-3.2%
-11.8%
54%
3,735
-128
-3.3%
-11.7%
-9.1%
3,617
-118
-3.2%
-11.8%
-11.8%
3,517
-100
-2.8%
-11.9%
3,417
-100
-2.8%
-11.6%
3,317
-100
-2.9%
-11.2%
3,227
-90
-2.7%
-10.8%
-10.8%
2,180
-33
-1.5%
-5.7%
2,150
-29
-1.3%
-5.6%
2,140
-10
-0.5%
-4.7%
2,127
-14
-0.6%
-3.9%
2,114
-12
-0.6%
-3.0%
2,102
-12
-0.6%
-2.3%
2,090
-12
-0.6%
-2.4%
2,077
-12
-0.6%
-2.3%
6,171
-144
-2.3%
-9.6%
6,243
6,014
-158
-2.6%
-9.7%
6,093
5,875
-138
-2.3%
-9.3%
5,945
5,744
-132
-2.2%
-9.1%
5,810
5,631
-112
-2.0%
-8.8%
5,687
5,519
-112
-2.0%
-8.2%
5,575
5,406
-112
-2.0%
-8.0%
5,463
5,304
-102
-1.9%
-7.7%
5,355
$38.55
-2.69%
0.7%
$38.79
0.63%
-1.6%
$38.86
0.18%
-0.2%
$39.22
0.92%
-1.0%
$38.85
$38.36
-2.20%
-0.5%
$38.60
0.63%
-0.5%
$38.66
0.18%
-0.5%
$39.02
0.92%
-0.5%
$38.65
644
3
647
0.5%
5.5%
647
3
651
0.5%
4.7%
651
5
656
0.8%
3.1%
636
20
656
664
2
666
0.3%
2.8%
666
2
668
0.3%
2.6%
668
6
674
0.9%
2.7%
656
18
674
3.1%
656
8
664
1.2%
3.1%
745
-23
2118
-123
1,994
-5.8%
2,053
1,170
-80
1,152
-18
-1.5%
-6.3%
1,134
-18
-1.6%
-6.3%
1,116
-18
-1.6%
-6.2%
1,098
-18
-1.6%
-6.2%
-6.2%
723
-4
-0.5%
-2.3%
720
-4
-0.5%
-2.2%
716
-4
-0.5%
-2.0%
713
-4
-0.5%
-1.9%
-1.9%
1,897
-22
1,875
-1.1%
-4.8%
1,886
1,875
-22
1,854
-1.1%
-4.7%
1,864
1,854
-22
1,832
-1.2%
-4.6%
1,843
1,832
-22
1,811
-1.2%
-4.5%
1,821
1,993
-64
-3.1%
-12.9%
1,929
-64
-3.2%
-12.6%
1,865
-64
-3.3%
-12.3%
1,809
-56
-3.0%
-12.1%
-12.1%
1,342
-8
-0.6%
-2.3%
1,334
-8
-0.6%
-2.3%
1,326
-8
-0.6%
-2.4%
1,318
-8
-0.6%
-2.4%
-2.4%
3,407
-72
3,335
-2.1%
-8.9%
3,335
-72
3,263
-2.2%
-8.7%
3,263
-72
3,191
-2.2%
-8.4%
3,191
-64
3,127
-2.0%
-8.2%
-8.2%
3,145
-82
-2.5%
-10.6%
3,063
-82
-2.6%
-10.4%
2,981
-82
-2.7%
-10.1%
2,907
-74
-2.5%
-9.9%
-9.9%
2,066
-12
-0.6%
-2.3%
2,054
-12
-0.6%
-2.3%
2,043
-12
-0.6%
-2.2%
2,031
-12
-0.6%
-2.2%
-2.2%
5,210
-94
-1.8%
-7.5%
5,257
5,117
-94
-1.8%
-7.3%
5,164
5,023
-94
-1.8%
-7.1%
5,070
4,938
-86
-1.7%
-6.9%
4,981
-6.9%
5,118
$38.16
-2.20%
-0.5%
$38.40
0.63%
-0.5%
$38.47
0.18%
-0.5%
$38.83
0.92%
-0.5%
$38.46
682
2
684
0.3%
2.7%
684
2
686
0.3%
2.7%
686
6
692
0.9%
2.7%
674
18
692
2.7%
674
8
682
1.2%
2.7%
2.7%
727
-18
1994
-98
1,897
-4.9%
1,946
1,098
-72
713
-14
1897
-86
1,811
-4.5%
1,854
Acquired Properties
Residential
Net line losses
change q/q
change y/y
#DIV/0!
#DIV/0!
2,976
-108
-3.5%
#DIV/0!
2,854
-122
-4.1%
#DIV/0!
2,753
-101
-3.5%
#DIV/0!
Business
Net line losses
change q/q
change y/y
1,522
1,522
#DIV/0!
#DIV/0!
1,495
-27
-1.8%
#DIV/0!
1,469
-26
-1.7%
#DIV/0!
1,444
-25
-1.7%
#DIV/0!
4,766
-160
4,606
-3.4%
-11.2%
4,606
-135
4,471
-2.9%
-11.6%
4,471
-147
4,324
-3.3%
-11.5%
4,324
-126
4,198
-2.9%
-11.9%
Beginning of period
Net line losses
EOP Access lines
change q/q
change y/y
2,753
-331
#DIV/0!
1,444
1,444
#DIV/0!
4766
-569
4,198
-11.9%
2,367
-386
-14.0%
1,382
-62
-4.3%
4198
-449
3,749
2,057
-310
-13.1%
1,350
-32
-2.3%
3749
-342
3,407
1,809
-248
1,318
-32
3407
-280
3,127
Total company
Residential
Net line losses
change q/q
change y/y
#DIV/0!
#DIV/0!
4,381
-130
-2.9%
#DIV/0!
4,229
-152
-3.5%
#DIV/0!
4,103
-126
-3.0%
#DIV/0!
Business
Net line losses
change q/q
change y/y
#DIV/0!
#DIV/0!
2,279
-33
-1.4%
#DIV/0!
2,246
-33
-1.4%
#DIV/0!
2,212
-34
-1.5%
#DIV/0!
Total access lines

Net line losses
change q/q
change y/y
6,823
-198
-2.8%
-9.9%
6,922
6,660
-163
-2.4%
-10.0%
6,742
6,475
-185
-2.8%
-9.8%
6,568
6,315
-160
-2.5%
-10.0%
6,395
Voice ARPU
change q/q
change y/y
High-speed Internet customers
$38.28
5.13%
4.9%
$39.41
2.93%
6.8%
$38.93
-1.22%
5.3%
$39.61
1.76%
8.8%
$39.05
580
20
600
3.5%
10.5%
600
14
614
2.3%
9.7%
614
8
621
1.2%
8.6%
621
15
636
2.3%
9.6%
580
56
636
9.6%
636
8
644
1.3%
7.3%
Beginning of period HIS subs

Net adds
EOP HSI subs
Change y/y
Penetration of access lines
1,010
19
1029
7.6%
22.3%
1,029
19
1048
8.8%
23.4%
1,048
7
1055
6.9%
24.4%
1,055
6
1061
5.0%
25.3%
1,010
51
1,061
5.0%
25.3%
1,061
8
1068
3.8%
26.1%
1,068
-18
1050
0.2%
26.5%
1,050
-8
1042
-1.2%
27.1%
1,042
-2
1,040
-1.9%
27.7%
1,061
-20
1,040
-1.9%
27.7%
1,040
5
1,045
-2.2%
28.5%
1,045
5
1,050
0.0%
29.4%
1,050
10
1,060
1.7%
30.4%
1,060
15
1,075
3.4%
31.6%
1,040
35
1,075
3.4%
31.6%
1,075
5
1,080
3.3%
32.4%
1,080
5
1,085
3.3%
33.3%
1,085
10
1,095
3.3%
34.3%
1,095
15
1,110
3.3%
35.5%
1,075
35
1,110
3.3%
35.5%
Total HIS subs

Beginning of Period
Net adds
End of Period
Average HIS subs
Change y/y
Penetration
1,590
39
1,629
1,574
9.2%
1,629
33
1,662
1,535
2.4%
1,662
15
1,676
1,662
9.1%
1,676
20
1,696
1,633
8.9%
1,590
107
1,696
1,601
7.4%
1,696
16
1,712
1,686
7.1%
1,712
-14
1,698
1,651
7.5%
1,698
-5
1,693
1,698
2.2%
1,693
3
1,696
1,695
3.8%
1,696
-1
1,696
1,682
5.1%
1,696
13
1,709
1,694
0.5%
1,709
7
1,716
1,703
3.1%
1,716
12
1,728
1,716
1.1%
1,728
21
1,749
1,712
1.0%
1,696
53
1,749
1,706
1.4%
1,749
13
1,762
1,738
2.6%
1,762
7
1,769
1,729
1.5%
1,769
12
1,781
1,769
3.1%
1,781
21
1,802
1,765
3.1%
1,749
53
1,802
1,750
2.6%
$98.04
10.05%
7.4%
$100.95
2.96%
10.1%
$91.68
-9.18%
1.0%
$93.69
2.19%
5.2%
$95.98
$90.53
-3.37%
-7.7%
$93.47
3.25%
-7.4%
$88.94
-4.85%
-3.0%
$91.81
3.23%
-2.0%
$91.17
$90.67
1.17%
-3.0%
$88.05
-2.89%
-1.0%
$90.89
3.23%
-1.0%
-1.5%
$89.62
-1.40%
0.0%
$89.76
0.15%
-1.0%
$88.05
-1.91%
0.0%
$90.89
3.23%
0.0%
$89.58
-5.0%
$89.62
-2.38%
-1.0%
$89.81
4.9%
120
26
146
176
322
146
11
157
188
346
157
7
165
196
360
165
8
173
201
374
120
53
173
201
374
173
3
176
207
383
176
4
180
208
387
180
4
182
214
395
182
4
185
219
404
173
14
185
219
404
185
4
189
223
412
189
4
193
225
418
193
4
197
227
424
197
4
200
229
429
185
15
200
229
429
200
3
203
233
436
203
3
206
235
441
206
3
209
237
446
209
3
212
239
451
200
12
212
239
451
87
409
103
448
107
467
111
485
111
485
7.1%
19.8%
7.9%
20.8%
8.5%
21.5%
9.1%
22.1%
9.1%
22.1%
114
497
$33
11
9.6%
22.3%
117
505
$33
11
10.0%
22.8%
120
516
$33
12
10.6%
23.4%
123
527
$33
12
11.2%
23.8%
123
527
$33
46
11.2%
23.8%
125
537
$33
12
11.7%
24.1%
126
544
$33
12
12.2%
24.3%
127
551
$33
13
12.8%
24.5%
128
557
$33
13
13.3%
24.5%
128
557
$33
50
13.3%
24.5%
130
566
$33
13
13.9%
24.8%
131
572
$33
13
14.4%
24.9%
132
578
$33
13
15.0%
25.1%
133
584
$33
13
15.5%
25.0%
133
584
$33
52
15.5%
25.0%
Legacy Frontier
Beginning of period
Net high-speed Internet additions
End of period HSI customers
change q/q
change y/y
4,512
2,311
4,103
-409
#DIV/0!
2,212
-99
#DIV/0!
6,315
-706
-10.0%
6,657
6.4%
3,617
-486
2,127
-86
-3.9%
5,744
-572
-9.1%
6,023
-0.5%
3,227
-390
2,077
-50
-2.3%
5,304
-440
-7.7%
5,520
-0.5%
2,907
-320
2,031
-46
4,938
-366
-0.5%
Acquired properties
Data ARPU
change q/q
change y/y
Legacy digital satellite television customers
Beginning of period
Net digital satellite TV adds
End of period video subs
End of period acquired properties satellite subs
Total satellite subs
End of period FIOSTV subs
Total video subs
FIOS video ARPU
FIOS video rev
Video penetration of residential access lines
Penetration of DSL
284
-0.3%
Philip Cusick, CFA

(1-212) 622-1444

13 January 2011
Table 149: Frontier Revenue Breakout

Revenue breakout
Local and long distance services
% of Service Rev
change q/q
change y/y
795
58.1%
219.8%
201.6%
797
58.9%
0.3%
204.6%
767
58.2%
-3.8%
198.3%
760
60.1%
-0.9%
205.7%
Data and Internet services

% of Service Rev
change q/q
change y/y
463
33.8%
200.8%
217.2%
465
34.4%
0.4%
206.6%
457
34.7%
-1.7%
196.7%
459
36.3%
0.4%
198.2%
Access services (Regulatory)

% of Service Rev
change q/q
change y/y
193
14.1%
100.3%
79.0%
189
14.0%
-2.1%
87.1%
196
14.9%
3.7%
96.9%
190
15.0%
-3.1%
97.2%
28
2.0%
1.7%
-2.2%
27
2.0%
-3.6%
-7.1%
26
2.0%
-3.7%
-7.6%
26
2.1%
0.0%
-5.5%
Other
% of Total Rev
change q/q
change y/y
83
5.3%
294.9%
258.3%
63
4.1%
-24.1%
228.0%
68
4.5%
7.9%
257.9%
19
1.3%
-72.1%
-9.6%
Total revenues and sales

change q/q
change y/y
Customer Revenue
% of Total Rev
1,562
185.4%
174.4%
1,369
87.6%
1,541
-1.3%
173.9%
1,352
87.7%
1,514
-1.8%
171.4%
1,318
87.1%
1,454
-4.0%
165.6%
1,264
86.9%
change q/q
change y/y
203.5%
196.7%
-1.2%
192.9%
-2.5%
187.6%
Directory services
% of Service Rev
change q/q
change y/y
3,119
58.8%
722
57.0%
-5.0%
-9.2%
709
56.3%
-1.8%
-11.0%
693
55.8%
-2.3%
-9.6%
683
55.3%
-1.4%
-10.1%
458
36.2%
-0.2%
-1.1%
463
36.7%
1.1%
-0.4%
453
36.5%
-2.2%
-0.9%
467
37.8%
3.0%
1.7%
190
15.0%
0.0%
-1.6%
174
13.8%
-8.4%
-7.9%
162
13.1%
-6.9%
-17.3%
156
12.6%
-3.8%
-18.0%
25
1.9%
-5.3%
-12.1%
24
1.9%
-1.1%
-9.9%
27
2.2%
11.0%
3.8%
27
2.2%
0.0%
3.8%
61
4.2%
221.1%
-26.5%
64
4.5%
4.9%
1.6%
68
4.8%
6.3%
0.0%
59
4.2%
-13.4%
210.0%
171.4%
5,303
87.3%
1,456
0.1%
-6.8%
1,266
86.9%
1,434
-1.5%
-6.9%
1,260
87.9%
1,403
-2.2%
-7.3%
1,241
88.5%
1,392
-0.8%
-4.3%
1,236
88.8%
-4.1%
180.2%
189.4%
0.1%
-7.6%
-0.4%
-6.8%
-1.5%
-5.8%
202.5%
1,844
34.8%
204.5%
768
14.5%
89.8%
107
2.0%
-5.6%
233
3.8%
182.8%
6,071
2,807
56.1%
654
54.7%
-4.3%
-9.4%
646
53.9%
-1.4%
-9.0%
634
53.6%
-1.8%
-8.6%
627
53.1%
-1.1%
-8.3%
456
38.1%
-2.4%
-0.5%
463
38.7%
1.7%
0.0%
453
38.3%
-2.1%
0.1%
467
39.6%
3.0%
0.0%
175
14.6%
12.2%
-8.0%
160
13.4%
-8.4%
-8.0%
149
12.6%
-6.9%
-8.0%
143
12.1%
-3.8%
-8.0%
24
2.0%
-11.6%
-3.0%
24
2.0%
-1.1%
-3.0%
26
2.2%
11.0%
-3.0%
26
2.2%
0.0%
-3.0%
62
4.5%
5.6%
2.0%
65
4.8%
4.9%
2.0%
69
5.2%
6.3%
2.0%
60
4.5%
-13.4%
2.0%
-6.4%
5,003
88.0%
1,371
-1.5%
-5.8%
1,196
87.2%
1,358
-1.0%
-5.3%
1,198
88.2%
1,331
-1.9%
-5.1%
1,182
88.8%
1,323
-0.6%
-4.9%
1,180
89.2%
-0.4%
-2.2%
-5.7%
-3.2%
-5.5%
0.1%
-5.0%
-1.3%
-4.7%
-10.0%
1,841
36.8%
-0.2%
682
13.6%
-11.2%
103
2.1%
-3.8%
252
4.4%
8.1%
5,685
2,560
53.8%
602
52.1%
-4.0%
-8.0%
595
51.7%
-1.2%
-7.8%
585
50.9%
-1.6%
-7.6%
580
50.5%
-0.9%
-7.5%
467
40.4%
0.1%
2.6%
466
40.5%
-0.4%
0.5%
467
40.7%
0.4%
3.1%
481
41.9%
3.0%
3.1%
1,881
40.9%
164
14.2%
14.6%
-6.0%
150
13.1%
-8.4%
-6.0%
140
12.2%
-6.9%
-6.0%
135
11.7%
-3.8%
-6.0%
590
12.8%
23
2.0%
-11.6%
-3.0%
23
2.0%
-1.1%
-3.0%
25
2.2%
11.0%
-3.0%
25
2.2%
0.0%
-3.0%
63
4.8%
5.6%
2.0%
67
5.1%
4.9%
2.0%
71
5.5%
6.3%
2.0%
61
4.8%
-13.4%
2.0%
-5.3%
4,756
88.3%
1,320
-0.2%
-3.7%
1,156
87.6%
1,300
-1.5%
-4.2%
1,150
88.4%
1,289
-0.9%
-3.2%
1,149
89.1%
1,283
-0.5%
-3.1%
1,148
89.5%
-3.6%
4,602
88.6%
-0.2%
-4.5%
-4.9%
-2.0%
-3.4%
-0.5%
-4.0%
-0.1%
-2.9%
0.0%
-2.7%
-3.2%
-8.8%
1,839
38.7%
-0.1%
627
13.2%
-8.0%
100
2.1%
-3.0%
257
4.8%
2.0%
5,383
2,362
51.3%
-7.7%
2.3%
-6.0%
97
2.1%
-3.0%
262
5.0%
2.0%
5,192
Table 150: Frontier Income Statement

Income Statement
1Q09
2Q09
3Q09
4Q09
2009
1Q10
2Q10
3Q10
4Q10E
2010E
1Q11E
2Q11E
3Q11E
4Q11E
2011E
1Q12E
2Q12E
3Q12E
4Q12E
2012E
Service revenues
Product sales
1479
83
1562
1478
63
1541
1446
68
1514
1435
19
1454
5838
233
6071
1395
61
1456
1370
64
1434
1335
68
1403
1333
59
1392
5433
252
5685
1309
62
1371
1292
65
1358
1262
69
1331
1263
60
1323
5126
257
5383
1257
63
1320
1234
67
1300
1218
71
1289
1222
61
1283
4930
262
5192
150
10.1%
172.7%
147.7%
1412
90.4%
809
753.0
48.2%
159.0%
146.6%
51.5%
46.5%
148
10.0%
-1.3%
174.0%
1393
90.4%
804
737.0
47.8%
-2.1%
140.7%
52.8%
45.2%
145
10.1%
-1.8%
177.0%
1369
90.4%
781
733.0
48.4%
-0.5%
142.8%
52.9%
46.0%
140
9.7%
-4.0%
153.8%
1314
90.4%
799
655.0
45.0%
-10.6%
125.3%
52.6%
40.8%
583
10.0%
137
10.0%
-1.5%
-7.3%
1297
90.4%
795
639.3
44.6%
-5.8%
-13.3%
53.1%
39.8%
134
10.0%
-2.2%
-7.7%
1269
90.4%
829
574.0
40.9%
-10.2%
-21.7%
50.8%
44.0%
134
10.1%
0.3%
-3.7%
1257
90.3%
752
640.3
46.0%
-5.6%
-2.2%
545
10.0%
131
10.1%
-1.0%
-4.4%
1226
90.3%
720
638.1
47.0%
-1.0%
-0.2%
129
10.2%
-1.9%
-4.1%
1203
90.3%
699
632.4
47.5%
-0.9%
10.2%
128
10.1%
-0.6%
-4.9%
1195
90.3%
692
631.2
47.7%
-0.2%
-1.4%
0.5%
128
10.1%
-0.2%
-3.7%
1193
90.3%
687
633.7
48.0%
0.4%
-1.6%
126
10.2%
-1.5%
-4.2%
1175
90.3%
676
624.2
48.0%
-1.5%
-2.2%
124
10.2%
-0.9%
-3.2%
1164
90.3%
664
625.0
48.5%
0.1%
-1.2%
124
10.1%
-0.5%
-3.1%
1159
90.3%
641
641.4
50.0%
2.6%
1.6%
502
10.2%
-12.0%
132
10.1%
-1.5%
-4.8%
1238
90.3%
727
644.3
47.0%
0.6%
-5.1%
520
10.1%
139.0%
52.5%
44.7%
139
10.0%
-0.3%
-7.2%
1316
90.4%
777
678.6
46.6%
3.6%
-9.9%
52.5%
43.4%
Adjustments to EBITDA
Adj. EBITDA
Adj. EBITDA margin
11.0
764.0
48.9%
8.0
745.0
48.3%
3.0
736.0
48.6%
68.0
723.0
49.7%
90.0
2,968.0
48.9%
18.0
696.6
47.9%
16.0
655.3
45.7%
97.0
671.0
47.8%
40.0
680.3
48.9%
171.0
2,703.3
47.6%
25.0
669.3
48.8%
25.0
663.1
48.8%
25.0
657.4
49.4%
25.0
656.2
49.6%
100.0
2,646.0
49.2%
25.0
658.7
49.9%
25.0
649.2
49.9%
25.0
650.0
50.4%
25.0
666.4
51.9%
100.0
2,624.3
50.5%

Operating income
Operating margin
394
359.0
23.0%
399
338.0
21.9%
367
366.0
24.2%
345
310.0
21.3%
1505
1373
22.6%
344
334.6
23.0%
346
293.3
20.5%
340
234.0
16.7%
335
305
21.9%
1365
1167
20.5%
325
319
23.3%
325
313
23.1%
325
307
23.1%
325
306
23.1%
1300
1246
23.1%
310
324
24.5%
310
314
24.2%
310
315
24.4%
310
331
25.8%
1240
1284
24.7%
Other income (expense), net

Interest expense
One-time items
Pretax Income
8
(158)
0
209
3
(167)
0
174
5
(168)
0
203
(52)
(170)
88
-36
-663
0
674
7
(165)
0
177
10
(166)
0
137
3
(167)
0
70
3
-167
0
141
23
-665
0
525
0
-167
0
152
0
-166
0
147
0
-165
0
142
0
-164
0
142
0
-662
0
584
0
-162
0
161
0
-161
0
153
0
-159
0
156
0
-158
0
174
0
-640
0
644
Income taxes
Tax rate
Net Income before extraordinary items
(71)
34%
138
(61)
35%
113
(74)
36%
129
(35)
40%
53
-241
36%
433
(85)
48%
92
(47)
34%
90
(40)
57%
30
-49
35%
92
-221
42%
304
-53
35%
99
-51
35%
95
-50
35%
93
-50
35%
93
-204
35%
379
-56
35%
105
-54
35%
100
-54
35%
101
-61
35%
113
-225
35%
419
0
92
0
90
51
81
0
92
51
355
0
99
0
95
0
93
0
93
0
379
0
105
0
100
0
101
0
113
0
419
Network access
change q/q
change y/y
Gross Profit
Gross margin
Total expenses excluding depreciation and amortizatio
EBITDA
EBITDA margin
change q/q
change y/y
Legacy margin
Spinco margin
Extraordinary items
Net income
162.5%
5488
90.4%
3,193
2,878.0
47.4%
-6.5%
5140
90.4%
3,153
2,532.3
44.5%
-4.6%
4863
90.3%
2,837
2,546.0
47.3%
-3.6%
4691
90.3%
2,668
2,524.3
48.6%
-0.9%
0
138
0
113
0
129
0
53
0
433
Minority interest
Net income to shareholders
1
137.3
0
112.6
129.0
0.767
52.2
433.0
91.6
90.3
81.0
91.8
354.8
98.8
95.5
92.6
92.6
379.4
104.8
99.7
101.2
112.9
418.6
EPS adjusted
$0.14
$0.11
$0.13
$0.05
$0.44
$0.09
$0.09
$0.08
$0.09
$0.36
$0.10
$0.10
$0.09
$0.09
$0.38
$0.11
$0.10
$0.10
$0.11
$0.42
DPS
$0.25
$0.25
$0.25
$0.25
$1.00
$0.25
$0.25
$0.19
$0.19
$0.88
$0.19
$0.19
$0.19
$0.19
$0.75
$0.19
$0.19
$0.19
$0.19
$0.75
Average shares outstanding - Diluted

interest rate on debt
988
13.1%
988
14.1%
989
14.0%
989
14.0%
989
13.8%
989
13.7%
989
13.3%
989
8.1%
989
8.1%
989
10.8%
989
8.1%
989
8.1%
989
8.1%
989
8.1%
989
8.1%
989
8.1%
989
8.1%
989
8.1%
989
8.1%
989
8.1%
Table 151: Frontier Balance Sheet

Balance Sheet
Current assets
Accounts receivable, less allowances of 26,456 and
Prepaid expenses and other current assets
1Q09
2Q09
3Q09
4Q09
2009
1Q10
2Q10
3Q10
4Q10E
2010E
1Q11E
2Q11E
3Q11E
4Q11E
2011E
1Q12E
2Q12E
3Q12E
4Q12E
2012E
177
218
70
465
164
222
82
468
436
222
130
789
359
321
0
680
359
321
0
680
331
296
0
627
231
202
207
640
351
569
216
1,136
351
569
216
1,136
351
569
216
1,136
351
569
216
1,136
351
569
216
1,136
351
569
216
1,136
351
569
216
1,136
351
569
216
1,136
351
569
216
1,136
351
569
216
1,136
351
569
216
1,136
351
569
216
1,136
351
569
216
1,136
Goodwill, net
Other intangibles, net
Investments
Other assets
Total assets
2,642
315
3
172
6,800
2,642
360
0
179
6,889
2,642
360
0
865
6,998
2,642
360
0
743
6,878
2,642
360
0
743
6,878
2,642
360
0
3,051
6,794
2,642
360
0
3,051
6,796
0
0
0
9,283
17,995
0
0
0
9,283
18,285
0
0
0
9,283
18,285
0
0
0
9,283
18,487
0
0
0
9,283
18,687
0
0
0
9,283
18,883
0
0
0
9,283
19,080
0
0
0
9,283
19,080
0
0
0
9,283
19,256
0
0
0
9,283
19,429
0
0
0
9,283
19,600
0
0
0
9,283
19,771
0
0
0
9,283
19,771
4
322
326
4
379
383
7
352
359
7
385
393
7
385
393
7
319
326
7
357
364
80
1,248
1,328
80
1,248
1,328
80
1,248
1,328
80
1,248
1,328
80
1,248
1,328
80
1,248
1,328
80
1,248
1,328
80
1,248
1,328
80
1,248
1,328
80
1,248
1,328
80
1,248
1,328
80
1,248
1,328
80
1,248
1,328

Other liabilities
Long-term debt
Total liabiliites
677
584
4,721
6,307
670
584
4,722
6,359
670
643
4,898
6,570
1,352
4,794
6,539
1,352
0
4,794
6,539
1,363
0
4,796
6,486
1,363
-409
5,206
6,524
3,151
0
8,182
12,661
3,151
270
8,201
12,951
3,151
270
8,201
12,951
3,151
533
8,140
13,153
3,151
790
8,084
13,353
3,151
1,051
8,019
13,549
3,151
1,312
7,955
13,746
3,151
1,312
7,955
13,746
3,151
1,565
7,877
13,922
3,151
1,811
7,804
14,095
3,151
2,066
7,721
14,266
3,151
2,332
7,626
14,437
3,151
2,332
7,626
14,437
Total shareholder's equity

Noncontrolling interest in a partnership
Total liabilities and equity
482
11
6,800
519
11
6,889
429
0
6,998
339
0
6,878
339
0
6,878
308
0
6,794
272
0
6,796
5,334
0
17,995
5,334
0
18,285
5,334
0
18,285
5,334
0
18,487
5,334
0
18,687
5,334
0
18,883
5,334
0
19,080
5,334
0
19,080
5,334
0
19,256
5,334
0
19,429
5,334
0
19,600
5,334
0
19,771
5,334
0
19,771
Liabilities and shareholders' equity

Current liabilities
Long-term debt due within one year
Accounts payable and other current liabilities
285
Philip Cusick, CFA

(1-212) 622-1444

13 January 2011
Table 152: Frontier Cash Flow Statement

Quarterly Cash Flow Statement
Net income
Deduct: Income from discontinued operations, net
Stock based compensation expense
Pension expense
Other non-cash adjustments
Change in accounts receivable
Change in accounts payable and other liabilities
Change in other current assets
1Q09
37
0
138
2
8
-4
4
9
-47
0
147
2Q09
28
0
133
2
8
-2
4
1
26
-18
183
3Q09
53
0
103
2
8
-2
103
7
-32
18
260
4Q09
5
0
103
2
10
10
-50
4
67
46
198
Cash flows from investing activities:

Cash paid for acquisitions (net of cash acquired)
Other assets (purchased) distributions received, ne
Cash from investing activities
0
-55
0
0
-54
0
-56
0
0
-55
0
-54
0
0
-54
Cash flows from financing activities:

Repayment of customer advances for construction
Long-term debt borrowings
Long-term debt payments
Financing costs paid
Issuance of common stock
Common stock repurchased
Dividends paid
Premium paid to retire debt
Other
Cash from financing activities
0
0
-1
0
1
0
-78
0
0
-79
-2
539
-309
-1
0
0
-78
0
0
149
0
0
-46
0
0
0
-78
0
0
-124
286
2009
1Q10
43
0
101
3
7
-2
8
1
-63
24
123
2Q10
36
0
100
2
5
-1
-2
-8
38
24
194
3Q10
30
0
340
5
12
9
4
-7
191
-15
569
4Q10E
92
0
335
5
12
9
4
0
0
0
457
0
-91
0
0
-92
0
-70
0
0
-69
0
-86
-126
0
-212
0
-175
43
-117
-248
1
579
-671
3
0
0
-78
0
0
-167
-2
-1
0
0
0
0
-78
0
0
-81
0
-2
-309
-1
0
0
-78
0
-2
-392
-1
3
303
-11
0
0
-186
0
2
110
2010E
1Q11E
99
0
325
5
7
9
4
0
0
0
449
2Q11E
95
0
325
5
5
9
4
0
0
0
443
3Q11E
93
0
325
5
12
9
4
0
0
0
447
4Q11E
93
0
325
5
12
9
4
0
0
0
447
0
-290
0
0
-290
0
-202
0
0
-202
0
-200
0
0
-200
0
-196
0
0
-196
0
0
0
0
0
0
-186
0
0
-186
0
0
0
0
0
0
-186
0
0
-186
0
0
0
0
0
0
-186
0
0
-186
0
0
0
0
0
0
-186
0
0
-186
2011E
1Q12E
105
0
310
5
7
9
4
0
0
0
440
2Q12E
100
0
310
5
5
9
4
0
0
0
432
3Q12E
101
0
310
5
12
9
4
0
0
0
441
4Q12E
113
0
310
5
12
9
4
0
0
0
453
0
-197
0
0
-197
0
-176
0
0
-176
0
-173
0
0
-173
0
-171
0
0
-171
0
-172
0
0
-172
0
0
0
0
0
0
-186
0
0
-186
0
0
0
0
0
0
-186
0
0
-186
0
0
0
0
0
0
-186
0
0
-186
0
0
0
0
0
0
-186
0
0
-186
0
0
0
0
0
0
-186
0
0
-186
2012E
Philip Cusick, CFA

(1-212) 622-1444

13 January 2011
Windstream Model
Table 153: Windstream Valuation Model
2009
2010E
2011E
2012E
2013E
2014E
2015E
2016E
2017E
2018E
2019E
2020E
CAGR
10E-20E
Residential voice lines

% change, y-t-y
Additional lines
% change, y-t-y
Additional lines
Total Access lines
% change, y-t-y
Additional lines
2,134
NM
(117)
1,011
NM
(47)
3,392
NM
(161)
2,045
-4.2%
(89)
974
-3.7%
(37)
3,269
-3.6%
(123)
1,965
-3.9%
(80)
940
-3.4%
(33)
3,157
-3.4%
(112)
1,893
-3.7%
(72)
920
-2.1%
(20)
3,067
-2.9%
(90)
1,828
-3.4%
(65)
908
-1.3%
(12)
2,992
-2.5%
(75)
1,770
-3.2%
(58)
898
-1.2%
(11)
2,924
-2.3%
(68)
1,718
-3.0%
(52)
890
-0.9%
(8)
2,864
-2.0%
(60)
1,670
-2.8%
(47)
882
-0.8%
(7)
2,810
-1.9%
(54)
1,662
-0.5%
(8)
876
-0.7%
(6)
2,796
-0.5%
(14)
1,658
-0.2%
(4)
870
-0.7%
(6)
2,787
-0.3%
(10)
1,655
-0.2%
(4)
865
-0.6%
(5)
2,778
-0.3%
(9)
1,651
-0.2%
(4)
860
-0.5%
(5)
2,770
-0.3%
(8)
-2%
HSI connections
% change, y-t-y
Additional lines
% change, y-t-y
% change, y-t-y
% change, y-t-y
EBITDA margin
1,224
NM
194
NM
3,957
NM
1,830
NM
46.3%
1,323
8%
99
-49%
3,864
-2.3%
1,863
2%
48.2%
1,392
5%
69
-30%
3,827
-1.0%
1,865
0%
48.7%
1,447
4%
55
-20%
3,800
-0.7%
1,847
-1%
48.6%
1,491
3%
44
-20%
3,787
-0.3%
1,837
-1%
48.5%
1,527
2%
35
-20%
3,766
-0.5%
1,824
-1%
48.4%
1,555
2%
28
-20%
3,748
-0.5%
1,811
-1%
48.3%
1,578
1%
23
-20%
3,715
-0.9%
1,792
-1%
48.2%
1,596
1%
18
-20%
3,689
-0.7%
1,775
-1%
48.1%
1,611
1%
15
-20%
3,671
-0.5%
1,763
-1%
48.0%
1,622
1%
12
-20%
3,653
-0.5%
1,750
-1%
47.9%
1,631
1%
9
-20%
3,634
-0.5%
1,738
-1%
47.8%
2%

% change, y-t-y
EBITDA margin
1,958
NM
49.5%
1,945
-1%
50.3%
1,946
0%
50.9%
1,929
-1%
50.8%
1,919
-1%
50.7%
1,905
-1%
50.6%
1,893
-1%
50.5%
1,873
-1%
50.4%
1,857
-1%
50.3%
1,845
-1%
50.2%
1,832
-1%
50.2%
1,819
-1%
50.1%
-1%
Taxes Paid
Tax rate
(242)
37%
(228)
37%
(236)
37%
(239)
37%
(245)
37%
(250)
37%
(254)
37%
(255)
37%
(258)
37%
(261)
37%
(264)
37%
(267)
37%
2%
412
404
10.5%
428
11.2%
425
11.2%
424
11.2%
421
11.2%
401
10.7%
397
10.7%
394
10.7%
392
10.7%
390
10.7%
388
10.7%
0%
0.95
1.00
(480)
1%
0%
0%
EPS
Dividend per share
Dividend paid
$
$
0.95 $
1.00 $
(437)

PMV -- Equity
PMV per share
Plus dividend
12-Month return
0.83 $
1.00 $
(464)
0.84 $
1.00 $
(480)
0.85 $
1.00 $
(480)
0.87 $
1.00 $
(480)
0.89 $
1.00 $
(480)
0.90 $
1.00 $
(480)
2011E
11,626
(1,637)
(2,624)
7,365
6,516
13,881
(6,203)
7,678
480
3
483
$15.91
10%
$14.32
$1.00
13.4%
Current EV/EBITDA
Current PER
Current Free Cashflow yield
Target PER
Expected Free cash flow yield
0.91 $
1.00 $
(480)
$13.51
EV
12,723
13,113
0.91 $
1.00 $
(480)
0.93 $
1.00 $
(480)
0.94 $
1.00 $
(480)
2011E
6.8x
16.2x
7.4%
11.5%
2012E
6.9x
15.9x
7.4%
11.2%
2013E
6.9x
15.5x
7.4%
11.0%
2014E
7.0x
15.2x
7.4%
10.7%
7.0x
17.1x
6.9%
10.8%
7.1x
16.8x
6.9%
11.2%
7.1x
16.4x
6.9%
11.0%
7.2x
16.2x
6.9%
10.8%
-1%
-2%
-1%
-1%

14 -1.5%
-1.0%
-0.5%
0.0%
0.5%
6.0%
15
16
18
19
21
6.5%
14
15
16
17
18
7.0% 12.4
13.2
$14.03
15
16
7.5%
11
12
13
13
14
8.0%
10
11
11
12
13
287
Philip Cusick, CFA

(1-212) 622-1444

13 January 2011
Table 154: Windstream Operating Metrics

1Q09
2Q09
3Q09
4Q09
2009
1Q010
2Q10
3Q10
4Q10E
2010E
1Q11E
2Q11E
3Q11E
4Q11E
2011E
1Q12E
2Q12E
3Q12E
4Q12E
3,065
-47
3,506
-46
3,460
-32
3,429
-37
3,065
-161
3,392
-27
3,365
-34
3,331
-31
3,301
-31
3,392
-123
3,269
-24
3,245
-30
3,214
-28
3,186
-28
3,269
-112
3,157
-19
3,139
-25
3,114
-23
3,090
-23
3,157
-90
3,506
14.4%
-4.7%
3,286
3,460
-1.3%
-4.9%
3,483
3,429
-0.9%
-4.8%
3,445
3,392
-1.1%
-4.5%
3,410
3,392
3,331
-1.0%
-3.7%
3,348
3,301
-0.9%
-3.7%
3,316
3,269
-1.0%
-3.6%
3,285
3,269
3,214
-0.9%
-3.5%
3,230
3,186
-0.9%
-3.5%
3,200
3,157
-0.9%
-3.4%
3,172
-3.4%
3,213
3,139
-0.6%
-3.3%
3,148
3,114
-0.8%
-3.1%
3,126
3,090
-0.8%
-3.0%
3,102
3,067
-0.8%
-2.9%
3,079
3,067
-3.6%
3,331
3,245
-0.7%
-3.6%
3,257
3,157
10.7%
3,229
3,365
-0.8%
-4.0%
3,379
-2.9%
3,112
3,329
-50
3,279
-47
3,232
-32
3,200
-38
3,329
-168
3,162
-28
3,134
-35
3,099
-33
3,066
-33
3,162
-129
3,033
-25
3,008
-31
2,976
-30
2,947
-30
3,033
-115
2,917
-19
2,898
-26
2,872
-24
2,848
-24
2,917
-94
3,279
-1.5%
-5.6%
3,304
3,232
-1.4%
-5.8%
3,256
3,200
-1.0%
-5.4%
3,216
3,162
-1.2%
-5.0%
3,181
3,162
3,134
-0.9%
-4.4%
3,148
3,099
-1.1%
-4.1%
3,116
3,066
-1.1%
-4.2%
3,082
3,033
-1.1%
-4.1%
3,049
3,033
-4.1%
3,097
3,008
-0.8%
-4.0%
3,020
2,976
-1.0%
-3.9%
2,992
2,947
-1.0%
-3.9%
2,961
2,917
-1.0%
-3.8%
2,932
2,917
#DIV/0!
3,245
-3.8%
2,975
2,898
-0.7%
-3.7%
2,907
2,872
-0.9%
-3.5%
2,885
2,848
-0.8%
-3.4%
2,860
2,824
-0.9%
-3.2%
2,836
-3.2%
2,870
Consumer voice lines

Net adds (losses)
change q/q
change y/y
2,211
-40
2.6%
2,175
-36
-1.6%
2,156
-19
-0.9%
2,134
-22
-1.0%
2,134
-117
2,118
-16
-0.7%
-4.2%
2,094
-25
-1.2%
-3.7%
2,070
-24
-1.2%
-4.0%
2,045
-24
-1.2%
-4.2%
2,031
-14
-0.7%
-4.1%
2,009
-22
-1.1%
-4.1%
1,987
-22
-1.1%
-4.0%
1,965
-22
-1.1%
-3.9%
1,952
-13
-0.7%
-3.9%
1,932
-20
-1.0%
-3.8%
1,913
-20
-1.0%
-3.7%
1,893
-20
-1.0%
-3.7%
-3.7%

Net adds (losses)
change q/q
change y/y
1,049
-10
2.2%
1,039
-10
-0.9%
1,027
-12
-1.2%
1,011
-16
-1.5%
1,011
-47
1,000
-11
-1.1%
-4.7%
991
-9
-0.9%
-4.6%
982
-8
-0.8%
-4.3%
974
-8
-0.9%
-3.7%
964
-10
-1.0%
-3.6%
956
-8
-0.8%
-3.5%
948
-8
-0.8%
-3.5%
940
-8
-0.8%
-3.4%
934
-6
-0.6%
-3.0%
929
-5
-0.5%
-2.7%
925
-5
-0.5%
-2.4%
920
-5
-0.5%
-2.1%
-2.1%
Wholesale voice lines

Net adds (losses)
change q/q
change y/y
19
-1
-5.9%
19
0
-2.1%
17
-2
-7.9%
17
-1
-4.6%
17
-3
16
-1
-4.2%
-17.6%
14
-2
-10.1%
-24.3%
14
0
-2.8%
-20.1%
14
0
-2.9%
-18.7%
13
0
-3.6%
-18.2%
12
-1
-8.6%
-16.9%
12
0
-2.4%
-16.5%
11
0
-2.4%
-16.1%
11
0
-3.0%
-15.5%
10
-1
-7.1%
-14.2%
10
0
-1.9%
-13.8%
10
0
-2.0%
-13.4%
Voice ARPU -local

change q/q
change y/y
$42.29
-0.85%
0.4%
$42.19
-0.24%
-2.0%
$41.53
-1.57%
-2.7%
$41.00
-1.28%
-3.9%
$41.68
$40.62
-0.91%
-3.9%
$40.34
-0.70%
-4.4%
$39.90
-1.09%
-3.9%
$39.36
-1.35%
-4.0%
$39.61
0.64%
-2.5%
$39.33
-0.70%
-2.5%
$38.90
-1.09%
-2.5%
$38.37
-1.35%
-2.5%
$39.08
$38.74
-0.70%
-1.5%
$38.32
-1.09%
-1.5%
$37.80
-1.35%
-1.5%
$38.50
-2.5%
$39.01
1.67%
-1.5%
Data and integrated solutions

High-speed Internet customers
Beginning of period
Net high-speed Internet additions
Acquired/divested lines
End of period
change q/q
change y/y
1,030
121
1,151
17
1,168
28
1,195
28
1,030
194
1,224
36
1,260
15
1,275
16
1,291
32
1,224
99
1,323
25
1,348
10
1,358
11
1,369
22
1,323
69
1,392
20
1,412
8
1,420
9
1,429
18
1,392
55
1,151
11.8%
10.9%
32.8%
1,168
1.4%
9.7%
33.7%
1,195
2.4%
8.9%
34.9%
1,224
2.4%
9.6%
36.1%
1,224
1,275
1.2%
9.2%
38.3%
1,291
1.2%
8.0%
39.1%
1,323
2.5%
8.1%
40.5%
1,323
8.1%
40.5%
1,348
1.9%
7.0%
41.5%
1,358
0.8%
6.6%
42.3%
1,369
0.8%
6.1%
43.0%
1,392
1.6%
5.2%
44.1%
1,392
18.8%
36.1%
1,260
3.0%
9.5%
37.4%
5.2%
44.1%
1,412
1.5%
4.8%
45.0%
1,420
0.6%
4.6%
45.6%
1,429
0.6%
4.4%
46.2%
1,447
1.3%
4.0%
47.2%
4.0%
47.2%
Access lines
Beginning of period
End of period
change q/q
change y/y
VOICE
Voice lines
Beginning of period
End of period
change q/q
change y/y
-0.9%
2,045
-89
-4.2%
974
-37
-3.7%
14
-3
-18.7%
$40.08
-3.8%
1,965
-80
-3.9%
940
-33
-3.4%
11
-2
-16.1%
2012E
2,824
1,893
-72
920
-20
10
-2
-13.4%
-1.5%
1,447
Advanced data and integrated solutions

Beginning of period
Net adds
End of period
change q/q
change y/y
137
6
143
0
144
1
144
1
137
9
146
0
146
0
145
0
146
0
146
0
146
0
146
0
146
0
146
0
146
0
146
0
146
0
146
0
146
0
146
0
143
4.7%
15.2%
144
0.2%
12.5%
144
0.4%
7.9%
146
1.0%
3.8%
146
146
0.0%
1.6%
145
-0.3%
1.1%
146
0.5%
1.2%
146
0.0%
0.2%
146
146
0.0%
0.2%
146
0.0%
0.5%
146
0.0%
0.0%
146
0.0%
0.0%
146
146
0.0%
0.0%
146
0.0%
0.0%
146
0.0%
0.0%
146
0.0%
0.0%
0.0%
Average data connections

Data ARPU
change q/q
change y/y
1,231
$70.32
-0.41%
-1.7%
1,303
$66.98
-4.75%
-3.6%
1,326
$66.31
-0.99%
-3.9%
1,355
$65.76
-0.84%
-6.9%
1,268
$69.16
1,388
$65.15
-0.92%
-7.3%
1,413
$65.21
0.09%
-2.6%
1,428
$65.70
0.75%
-0.9%
1,453
$65.15
-0.84%
-0.9%
1,419
$65.37
1,499
$64.56
0.09%
-1.0%
1,510
$65.04
0.75%
-1.0%
1,527
$64.49
-0.84%
-1.0%
-1.0%
1,548
$63.86
-0.99%
-1.0%
1,562
$63.91
0.09%
-1.0%
1,571
$64.39
0.75%
-1.0%
1,584
$63.85
-0.84%
-1.0%
1,565
$64.04
-5.5%
1,481
$64.50
-0.99%
-1.0%
1,503
$64.69
-2.0%
80
0
84
1
84
0
85
1
80
1
85
1
86
2
87
2
89
2
85
6
91
0
91
1
92
1
93
1
91
4
94
0
95
1
96
1
97
1
94
3
84
5.0%
1.7%
84
0.5%
2.2%
85
0.4%
1.4%
85
0.6%
1.4%
85
86
0.7%
2.1%
87
2.0%
3.7%
89
1.8%
5.2%
91
1.8%
6.5%
91
6.5%
91
0.5%
6.2%
92
1.3%
5.5%
93
1.2%
4.9%
94
1.2%
4.2%
94
6.5%
4.2%
95
0.4%
4.1%
96
1.0%
3.8%
97
0.9%
3.5%
98
0.9%
3.3%
3.3%
317
47
364
14.7%
38.9%
340
10.4%
31.6%
364
14
378
3.9%
35.4%
371
10.9%
32.3%
378
11
389
3.0%
30.7%
383
11.3%
32.5%
389
10
399
2.7%
25.9%
394
11.8%
32.6%
399
13
412
3.2%
13.3%
406
12.2%
32.7%
412
8
420
2.0%
11.3%
416
12.6%
33.0%
420
13
433
3.1%
11.4%
427
13.1%
33.6%
433
12
445
2.8%
11.5%
439
13.6%
33.7%
445
10
455
2.2%
10.4%
450
14.0%
33.7%
455
6
461
1.3%
9.7%
458
14.3%
33.9%
461
10
471
2.1%
8.7%
466
14.8%
34.4%
471
9
480
1.9%
7.8%
475
15.2%
34.5%
480
6
486
1.2%
6.8%
483
15.5%
34.4%
486
4
489
0.8%
6.1%
487
15.7%
34.4%
489
6
495
1.2%
5.2%
492
16.0%
34.7%
495
5
501
1.1%
4.3%
498
16.3%
34.6%
5,021
6,846
$47.60
1.76%
0.6%
5,006
7,111
$45.27
-4.89%
-4.4%
5,013
7,081
$45.03
-0.53%
-3.8%
5,015
7,068
$45.34
0.69%
-3.1%
5,037
7,068
$44.77
-1.26%
-5.9%
5,026
7,068
$44.32
-1.01%
-2.1%
5,024
7,057
$44.35
0.07%
-1.5%
5,037
7,058
$44.47
0.26%
-1.9%
5,037
7,061
$44.49
5,048
7,065
$44.26
-0.47%
-1.1%
5,034
7,059
$43.83
-0.98%
-1.1%
5,026
7,044
$43.97
0.33%
-0.9%
5,029
7,037
$44.09
0.27%
-0.9%
5,029
7,049
$44.05
5,036
7,033
$44.07
-0.03%
-0.4%
5,024
7,015
$43.74
-0.76%
-0.2%
5,015
6,989
$43.99
0.57%
0.0%
5,015
6,970
$44.19
0.46%
0.2%
5,015
7,000
$44.01
1Q010
384
40.4%
-1.9%
-8.5%
2Q10
377
40.1%
-1.7%
-8.5%
3Q10
369
39.3%
-2.2%
-7.9%
4Q10E
360
38.2%
-2.4%
-8.0%
2010E
1,490
39.5%
1Q11E
359
38.3%
-0.3%
-6.5%
2Q11E
353
38.0%
-1.6%
-6.4%
3Q11E
346
37.2%
-2.1%
-6.3%
4Q11E
338
36.3%
-2.3%
-6.2%
2011E
1,395
37.4%
1Q12E
340
36.6%
0.8%
-5.2%
2Q12E
335
36.4%
-1.5%
-5.0%
3Q12E
329
35.6%
-1.9%
-4.9%
4Q12E
322
34.8%
-2.2%
-4.7%
2012E
1,326
35.9%
90
9.4%
-1.1%
3.5%
90
9.6%
0.7%
1.7%
92
9.8%
1.7%
5.8%
94
10.0%
2.8%
4.0%
365
9.7%
95
10.1%
0.8%
6.0%
96
10.3%
0.7%
6.0%
99
10.6%
3.6%
8.0%
102
10.9%
2.8%
8.0%
391
10.5%
102
11.0%
0.8%
8.0%
103
11.2%
0.7%
8.0%
107
11.6%
3.6%
8.0%
110
11.9%
2.8%
8.0%
422
11.4%
271
28.6%
1.5%
4.5%
276
29.4%
1.9%
5.6%
282
30.0%
1.8%
6.8%
284
30.2%
0.8%
6.2%
1,113
29.5%
287
30.6%
1.0%
5.7%
290
31.3%
1.3%
5.0%
295
31.7%
1.5%
4.7%
295
31.7%
0.3%
4.0%
1,167
31.3%
297
31.9%
0.4%
3.5%
300
32.5%
1.0%
3.2%
303
32.9%
1.3%
3.0%
303
32.8%
0.0%
2.7%
1,203
32.5%
161
16.9%
-4.2%
-2.5%
153
16.2%
-5.1%
-2.4%
152
16.2%
-0.5%
-5.4%
159
16.9%
4.7%
-5.4%
624
16.6%
154
16.5%
-2.9%
-4.0%
147
15.8%
-5.1%
-4.0%
146
15.7%
-0.5%
-4.0%
153
16.4%
4.7%
-4.0%
600
16.1%
148
15.9%
-2.9%
-4.0%
141
15.3%
-5.1%
-4.0%
140
15.2%
-0.5%
-4.0%
147
15.9%
4.7%
-4.0%
576
15.6%
44
4.6%
-0.9%
-6.6%
44
4.6%
-1.4%
-7.1%
45
4.8%
3.7%
0.0%
45
4.7%
-1.3%
0.0%
177
4.7%
43
4.6%
-2.9%
-2.0%
43
4.6%
-1.4%
-2.0%
44
4.8%
3.7%
-2.0%
44
4.7%
-1.3%
-2.0%
174
4.7%
42
4.6%
-2.9%
-2.0%
42
4.5%
-1.4%
-2.0%
43
4.7%
3.7%
-2.0%
43
4.6%
-1.3%
-2.0%
23
2.3%
-0.9%
-6.6%
20
2.1%
-13.2%
-16.1%
27
2.8%
35.4%
10.3%
25
2.6%
-5.6%
10.0%
25
2.6%
-0.9%
10.0%
22
2.3%
-13.2%
10.0%
28
2.9%
28.0%
4.0%
26
2.7%
-5.6%
4.0%
26
2.7%
-2.8%
2.0%
22
2.4%
-13.2%
2.0%
28
3.0%
28.0%
2.0%
27
2.8%
-5.6%
2.0%
972
-1.2%
-3.0%
949
97.7%
-1.3%
-2.9%
960
-1.3%
-3.0%
940
97.9%
-1.0%
-2.7%
966
0.6%
-1.5%
939
97.2%
-0.1%
-1.8%
967
0.1%
-1.8%
941
97.4%
0.3%
-2.1%
963
-0.4%
-0.9%
938
97.4%
-0.4%
-1.2%
950
-1.4%
-1.0%
928
97.7%
-1.1%
-1.2%
957
0.8%
-0.9%
929
97.1%
0.1%
-1.0%
957
0.0%
-1.0%
931
97.3%
0.2%
-1.1%
955
-0.2%
-0.8%
930
97.3%
-0.1%
-0.9%
943
-1.3%
-0.8%
920
97.6%
-1.0%
-0.8%
951
0.9%
-0.7%
922
97.0%
0.2%
-0.7%
951
0.0%
-0.6%
924
97.2%
0.2%
-0.7%
Special access circuits (business)

Beginning of period
Net adds
End of period
change q/q
change y/y
Digital satellite television customers (consumer)
Beginning of period
Net digital satellite TV adds
End of period
change q/q
change y/y
Average TV customers
Penetration of TV to DSL subs
Total consumer connections (EOP)

Total consumer connections (average)
Average revenue per connection
change q/q
change y/y
6.4%
317
82
399
25.9%
358
11.8%
32.6%
5,015
6,807
$47.27
0.8%
0.2%
399
46
445
11.5%
422
13.6%
33.7%
-5.9%
0.0%
445
35
480
7.8%
463
15.2%
34.5%
-1.0%
146
-1.0%
98
480
21
501
4.3%
490
16.3%
34.6%
-0.1%
Table 155: Windstream Revenue Breakdown

Revenue breakout
Voice
% of Service Rev
change q/q
change y/y
1Q09
419
42.9%
6.0%
1.3%
2Q09
412
42.7%
-1.7%
0.5%
3Q09
401
41.9%
-2.8%
-0.2%
4Q09
391
40.7%
-2.4%
-1.1%
2009
1,623
42.0%
Special access
% of Service Rev
change q/q
change y/y
87
8.8%
8.3%
11.8%
89
9.2%
2.4%
15.7%
87
9.1%
-2.3%
11.2%
91
9.4%
4.5%
13.3%
352
9.1%
Data and integrated solutions

% of Service Rev
change q/q
change y/y
260
26.6%
6.1%
14.4%
262
27.1%
0.8%
14.9%
264
27.6%
0.7%
13.3%
267
27.8%
1.3%
9.2%
1,052
27.3%
Switched access and USF

% of Service Rev
change q/q
change y/y
165
16.9%
2.2%
-7.2%
157
16.2%
-5.2%
-10.2%
161
16.8%
2.6%
-4.6%
168
17.5%
4.7%
4.0%
650
16.8%
Miscellaneous
% of Service Rev
change q/q
change y/y
47
4.8%
14.8%
-3.5%
47
4.8%
-0.8%
-3.5%
45
4.7%
-3.6%
-0.9%
45
4.6%
-1.3%
8.3%
184
4.8%
Product sales
% of Total Rev
change q/q
change y/y
24
2.4%
-6.2%
5.6%
24
2.4%
-3.3%
-16.9%
24
2.5%
3.0%
-21.4%
23
2.3%
-5.3%
-11.5%

change q/q
change y/y
Service revenue
% of Total Rev
change q/q
change y/y
1,002
5.6%
3.5%
978
97.6%
5.9%
3.4%
989
-1.3%
2.5%
966
97.6%
-1.2%
3.0%
981
-0.9%
2.5%
957
97.5%
-1.0%
3.3%
984
0.4%
3.8%
961
97.7%
0.5%
4.2%
288
0.1%
13.0%
12.9%
-4.7%
-0.2%
95
2.4%
-12.1%
3,957
3.0%
3,861
97.6%
3.5%
-8.2%
3.7%
5.8%
-3.9%
-3.5%
95
2.5%
-0.6%
3,864
-2.3%
3,770
97.5%
-2.4%
-6.4%
7.0%
4.8%
-4.0%
-2.0%
101
2.6%
6.7%
3,827
-1.0%
3,726
97.4%
-1.2%
-5.0%
8.0%
3.1%
-4.0%
170
4.6%
-2.0%
103
2.7%
2.0%
3,800
-0.7%
3,697
97.3%
-0.8%
Philip Cusick, CFA

(1-212) 622-1444

13 January 2011
Table 156: Windstream Income Statement

Service revenues
Product sales
change q/q
change y/y
Total expenses excluding depreciation and amo
1Q09
978
24
1,002
5.6%
3.5%
2Q09
966
24
989
-1.3%
2.5%
3Q09
957
24
981
-0.9%
2.5%
4Q09
961
23
984
0.4%
3.8%
2009
3,861
95
3,957
1Q010
949
23
972
-1.2%
-3.0%
2Q10
940
20
960
-1.3%
-3.0%
3Q10
939
27
966
0.6%
-1.5%
4Q10E
941
25
967
0.1%
-1.8%
2010E
3,770
95
3,864
532
537
540
518
2,126
503
500
504
493
2,001
494
490
1,830
46.3%
1,863
48.2%
3.0%
-2.3%
1Q11E
938
25
963
-0.4%
-0.9%
2Q11E
928
22
950
-1.4%
-1.0%
3Q11E
929
28
957
0.8%
-0.9%
4Q11E
931
26
957
0.0%
-1.0%
2011E
3,726
101
3,827
495
483
1,963
492
489
492
480
1,952
-1.0%
1Q12E
930
26
955
-0.2%
-0.8%
2Q12E
920
22
943
-1.3%
-0.8%
3Q12E
922
28
951
0.9%
-0.7%
4Q12E
924
27
951
0.0%
-0.6%
2012E
3,697
103
3,800
-0.7%
EBITDA
EBITDA margin
change q/q
change y/y
Incremental margin
470
46.9%
2.3%
-0.3%
-3.6%
453
45.7%
-3.7%
-3.1%
-61.2%
441
45.0%
-2.5%
-2.1%
-40.2%
467
47.4%
5.8%
1.7%
21.6%
469
48.2%
0.4%
-0.2%
3.7%
459
47.9%
-2.0%
1.5%
-22.8%
462
47.8%
0.5%
4.6%
-134.4%
474
49.0%
2.6%
1.5%
-39.4%
459
48.4%
-2.1%
0.0%
-1.0%
462
48.3%
0.6%
0.1%
-6.7%
474
49.5%
2.5%
0.0%
-0.3%
0.1%
-3.2%
464
48.5%
-2.2%
-1.2%
73.8%
454
48.2%
-2.1%
-1.2%
74.6%
459
48.3%
1.1%
-0.7%
48.3%
471
49.5%
2.5%
-0.6%
49.5%
1,847
48.6%
1.8%
-35.6%
469
48.7%
-1.0%
0.1%
-5.4%
1,865
48.7%
-1.0%
-15.0%
Adjusted EBITDA
499
49.8%
483
48.8%
477
48.6%
498
50.6%
1,958
49.5%
489
50.3%
480
50.0%
482
49.9%
494
51.1%
1,945
50.3%
490
50.8%
480
50.5%
482
50.4%
494
51.6%
1,946
50.9%
484
50.7%
475
50.3%
479
50.4%
491
51.6%
1,929
50.8%
190
191
192
190
763
189
183
180
178
730
176
175
173
171
695
169
168
166
164
667
280
27.9%
261
26.4%
250
25.5%
277
28.1%
1,067
27.0%
280
28.8%
276
28.8%
282
29.2%
296
30.6%
1,134
29.3%
293
30.4%
285
30.0%
289
30.2%
303
31.6%
1,170
30.6%
294
30.8%
286
30.4%
293
30.8%
306
32.2%
1,180
31.1%
Other income (expense), net

Interest expense
One-time items
Pretax Income
1
-100
0
181
1
-98
-1
163
-2
-98
-1
149
-1
-410
-2
654
0
-123
0
157
-1
-124
0
152
-3
-132
0
146
0
-133
0
162
-4
-512
0
617
0
-133
0
160
0
-133
0
152
0
-133
0
156
0
-133
0
169
0
-533
0
637
0
-133
0
161
0
-133
0
153
0
-133
0
160
0
-133
0
173
0
-533
0
647
Income taxes
Tax rate
Net Income before extraordinary items
-67
37%
114
-60
37%
102
-55
37%
94
0
-115
0
161
0
-60
37%
102
-242
37%
412
-58
37%
99
-56
37%
96
-54
37%
92
-60
37%
102
-228
37%
389
-59
37%
101
-56
37%
96
-58
37%
98
-63
37%
107
-236
37%
401
-60
37%
101
-57
37%
96
-59
37%
101
-64
37%
109
-239
37%
408
Extraordinary items
Net income
Average shares outstanding - Diluted
0
114
436
0
102
432
0
94
433
0
102
430
0
412
433
0
99
445
0
96
462
0
92
480
0
102
480
0
389
467
0
101
480
0
96
480
0
98
480
0
107
480
0
401
480
0
101
480
0
96
480
0
101
480
0
109
480
0
408
480
Adjusted EPS
$0.26
$0.24
$0.22
$0.24
$0.95
$0.22
$0.21
$0.19
$0.21
$0.83
$0.21
$0.20
$0.21
$0.22
$0.84
$0.21
$0.20
$0.21
$0.23
$0.85
Dividend per share

Payout ratio
$0.25
72%
$0.25
52%
$0.25
62%
$0.25
37%
$1.00
53%
$0.25
98%
$0.25
62%
$0.25
86%
$0.25
66%
$1.00
75%
$0.25
63%
$0.25
65%
$0.25
65%
$0.25
63%
$1.00
64%
$0.25
65%
$0.25
67%
$0.25
66%
$0.25
64%
$1.00
66%

Operating income
Operating margin
-0.9%
62.6%
Table 157: Windstream Balance Sheet

Current assets
Cash and short-term investments
Accounts receivable
Inventories
Net property, plant and equipment
Investments and other assets
Investments
Goodwill
Other intangibles
Other assets
Total assets
Liabilities and shareholders' equity
Current liabilities
Current maturities of long-term debt
Accounts payable
Advance payments and customer deposits
Accured Taxes
Accured Dividends
Accrued interest
Long-term debt
Other liabilities
Total liabiliites
Shareholder's equity
Common stock
Additional paid-in capital
Treasury stock
Parent company investment
Unrealized holding loss on investment
Foreign currency translation adjustment
Retained earnings (deficit)
Total shareholder's equity
Total liabilities and equity
1Q09
2Q09
3Q09
4Q09
2009
1Q010
2Q10
3Q10
4Q10E
2010E
1Q11E
2Q11E
3Q11E
4Q11E
2011E
1Q12E
2Q12E
3Q12E
4Q12E
2012E
312
288
24
63
687
245
296
31
56
629
290
295
24
70
679
1,063
292
26
75
1,456
1,063
292
26
75
1,456
580
321
32
83
1,016
54
343
35
147
578
155
349
34
170
707
196
349
34
170
747
196
349
34
170
747
249
349
34
170
801
297
349
34
170
849
346
349
34
170
897
401
349
34
170
953
401
349
34
170
953
449
349
34
170
1,001
492
349
34
170
1,044
537
349
34
170
1,089
589
349
34
170
1,140
589
349
34
170
1,140
3,835
3,799
3,752
3,993
3,993
4,167
4,468
4,439
4,380
4,380
4,307
4,235
4,164
4,095
4,095
4,028
3,962
3,897
3,835
3,835
2,198
1,112
72
7,905
2,198
1,092
72
7,790
2,198
1,073
67
7,768
2,344
1,253
99
9,145
0
2,344
1,253
99
9,145
2,640
1,409
95
9,327
3,208
1,724
108
10,087
3,188
1,682
117
10,132
3,188
1,682
117
10,114
0
3,188
1,682
117
10,114
3,188
1,682
117
10,095
3,188
1,682
117
10,070
3,188
1,682
117
10,048
3,188
1,682
117
10,035
0
3,188
1,682
117
10,035
3,188
1,682
117
10,016
3,188
1,682
117
9,992
3,188
1,682
117
9,973
3,188
1,682
117
9,961
0
3,188
1,682
117
9,961
24
117
93
72
110
66
90
571
24
120
92
54
109
132
95
627
24
132
92
43
109
64
108
572
24
159
95
61
109
156
106
709
24
159
95
61
109
156
106
709
28
179
111
88
114
109
94
721
28
182
122
81
121
150
102
787
131
137
121
71
121
107
176
865
131
137
121
71
121
107
176
865
131
137
121
71
121
107
176
865
131
137
121
71
121
107
176
865
131
137
121
71
121
107
176
865
131
137
121
71
121
107
176
865
131
137
121
71
121
107
176
865
131
137
121
71
121
107
176
865
131
137
121
71
121
107
176
865
131
137
121
71
121
107
176
865
131
137
121
71
121
107
176
865
131
137
121
71
121
107
176
865
131
137
121
71
121
107
176
865
5,355
1,105
650
7,682
5,202
1,111
623
7,563
5,199
1,178
630
7,578
6,271
1,372
532
8,885
6,271
1,372
532
8,885
6,267
1,413
524
8,925
6,564
1,541
554
9,445
6,556
1,564
533
9,517
6,556
1,564
515
9,499
6,556
1,564
515
9,499
6,556
1,564
495
9,479
6,556
1,564
470
9,455
6,556
1,564
448
9,433
6,556
1,564
435
9,419
6,556
1,564
435
9,419
6,556
1,564
416
9,400
6,556
1,564
392
9,377
6,556
1,564
373
9,357
6,556
1,564
362
9,346
6,556
1,564
362
9,346
0
84
0
0
-327
0
466
223
0
77
0
0
-299
0
448
226
0
64
0
0
-293
0
419
190
0
84
0
0
-208
0
385
261
0
84
0
0
-208
0
385
261
0
268
0
0
-211
0
345
403
0
551
0
0
-213
0
304
642
0
556
0
0
-209
0
268
615
0
556
0
0
-209
0
268
615
0
556
0
0
-209
0
268
615
0
556
0
0
-209
0
268
615
0
556
0
0
-209
0
268
615
0
556
0
0
-209
0
268
615
0
556
0
0
-209
0
268
615
0
556
0
0
-209
0
268
615
0
556
0
0
-209
0
268
615
0
556
0
0
-209
0
268
615
0
556
0
0
-209
0
268
615
0
556
0
0
-209
0
268
615
0
556
0
0
-209
0
268
615
7,905
7,790
7,768
9,145
9,145
9,327
10,087
10,132
10,114
10,114
10,095
10,070
10,048
10,035
10,035
10,016
9,992
9,973
9,961
9,961
289
Philip Cusick, CFA

(1-212) 622-1444

13 January 2011
Table 158: Windstream Cash Flow Statement

1Q09
2Q09
3Q09
4Q09
1Q010
2Q10
3Q10
4Q10E
1Q11E
2Q11E
3Q11E
4Q11E
1Q12E
2Q12E
3Q12E
4Q12E
88
0
0
0
0
132
9
5
25
36
2
91
0
0
0
0
133
12
5
24
-9
0
80
0
0
0
0
134
11
4
24
65
3
76
0
0
0
0
139
12
3
24
4
2
74
0
0
0
0
155
9
4
15
7
3
79
102
0
0
0
0
178
0
5
16
0
0
101
0
0
0
0
176
0
5
16
0
0
96
0
0
0
0
175
0
5
16
0
0
98
0
0
0
0
173
0
5
16
0
0
107
0
0
0
0
171
0
5
16
0
0
101
0
0
0
0
169
0
5
16
0
0
96
0
0
0
0
168
0
5
16
0
0
101
0
0
0
0
166
0
5
16
0
0
109
0
0
0
0
164
0
5
16
0
0
19
-17
-73
24
-30
-6
215
-20
3
66
-18
5
-8
284
-10
12
-68
-11
11
-13
242
7
12
79
18
2
4
379
2
-17
-48
20
-26
-23
174
168
11
4
15
-6
3
0
-9
-11
0
30
3
-2
285
85
0
0
0
0
180
14
5
16
59
-36
0
-21
-7
-43
0
7
-7
253
0
0
0
0
0
0
301
0
0
0
0
0
0
297
0
0
0
0
0
0
290
0
0
0
0
0
0
291
0
0
0
0
0
0
298
0
0
0
0
0
0
291
0
0
0
0
0
0
284
0
0
0
0
0
0
287
0
0
0
0
0
0
294
Cash Flows from Investing Activities:

Additions to property, plant and equipment
Acquisitions
Disposition of wireless business
Disposition of publishing business
Cash acquired from Valor
Disposition of acquired assets held for sale
Other, net
-63
0
0
0
0
0
0
-63
-77
0
0
0
0
0
0
-76
-67
0
0
0
0
0
0
-67
-91
-195
0
0
0
0
0
-287
-61
-198
0
0
0
0
1
-258
0
-99
-254
0
0
0
0
3
-350
-113
0
0
0
0
0
0
-114
-120
0
0
0
0
0
0
-120
-108
0
0
0
0
0
0
-108
-107
0
0
0
0
0
0
-107
-107
0
0
0
0
0
0
-107
-107
0
0
0
0
0
0
-107
-107
0
0
0
0
0
0
-107
-106
0
0
0
0
0
0
-106
-106
0
0
0
0
0
0
-106
-106
0
0
0
0
0
0
-107
Cash Flows from Financing Activities:

Dividends paid on common shares
Dividends paid to Alltel pursuant to spin off
Dividends paid to Alltel prior to spin off
Stock repurchase
Repayment of debt
Debt issued, net of issuance costs
Other, net
Net cash used in financing activities
-110
0
0
-21
-4
0
-2
-137
-110
0
0
-12
-154
0
1
-275
-109
0
0
-11
-4
0
-7
-130
-109
0
0
-78
-196
1,050
13
680
-109
0
0
0
-285
-4
0
-398
0
-114
0
0
0
-708
375
-15
-462
-121
0
0
0
-343
425
1
-38
-120
0
0
0
0
0
0
-120
-120
0
0
0
0
0
0
-120
-120
0
0
0
0
0
0
-120
-120
0
0
0
0
0
0
-120
-120
0
0
0
0
0
0
-120
-120
0
0
0
0
0
0
-120
-120
0
0
0
0
0
0
-120
-120
0
0
0
0
0
0
-120
-120
0
0
0
0
0
0
-120
Cash Provided from Operations:

Net income
Adjustments to reconcile net income to net cash
Gain on sale of publishing business, net asse
Extraordinary item, net of income taxes
Loss on sale of wireless business
Provision for doubtful accounts
Stock-based compensation expense
Pension and post retirement benefits expense
Deferred taxes
Other, net
Changes in operating assets and liabilities, net:
Accounts receivable
Accounts payable
Accrued interest
Accrued taxes
Other, net
Net cash provided from operations
Effect of exchange rate on changes in cash and

Net change in cash
2010E
2011E
16
-67
45
772
-483
-527
102
61
69
63
64
71
64
58
61
67
290
2009
2012E
Philip Cusick, CFA

(1-212) 622-1444

13 January 2011
American Tower Model

Table 159: American Tower Valuation Summary
CAGR
2020E 11E-20E
38,279
1%
0.9%
$87,745
3%
3.0%
3,344
5%
3.9%
64
2%
-1.3%
3,407
5%
3.8%
2,403
5%
3.9%
70.5%
2007
22,807
1.8%
$63,322
9.0%
1,426
10.2%
31
-90.2%
1,457
-9.3%
980
-14.5%
67.3%
2008
23,740
4.1%
$66,660
5.3%
1,547
8.5%
46
51.8%
1,594
9.4%
1,092
11.5%
68.5%
2009
27,256
14.8%
$65,682
-1.5%
1,668
7.8%
56
19.9%
1,724
8.2%
1,181
8.1%
68.5%
2010E
34,019
24.8%
$64,343
-2.0%
1,925
15.4%
52
-7.1%
1,976
14.6%
1,344
13.8%
68.0%
2011E
34,719
2.1%
$64,643
0.5%
2,222
15.4%
56
7.4%
2,277
15.2%
1,562
16.2%
68.6%
2012E
35,319
1.7%
$67,551
4.5%
2,366
6.5%
57
2.2%
2,422
6.4%
1,667
6.8%
68.8%
2013E
35,819
1.4%
$70,455
4.3%
2,506
5.9%
60
5.9%
2,566
5.9%
1,777
6.6%
69.2%
2014E
36,219
1.1%
$73,272
4.0%
2,639
5.3%
63
5.3%
2,703
5.3%
1,881
5.8%
69.6%
2015E
36,579
1.0%
$75,690
3.3%
2,755
4.4%
66
4.4%
2,821
4.4%
1,973
4.9%
69.9%
2016E
36,919
0.9%
$77,961
3.0%
2,865
4.0%
66
-0.3%
2,931
3.9%
2,060
4.4%
70.3%
2017E
37,259
0.9%
$80,299
3.0%
2,978
4.0%
66
-0.6%
3,044
3.9%
2,141
3.9%
70.3%
2018E
37,599
0.9%
$82,708
3.0%
3,096
3.9%
65
-0.8%
3,161
3.8%
2,225
3.9%
70.4%
2019E
37,939
0.9%
$85,190
3.0%
3,218
3.9%
64
-1.0%
3,282
3.8%
2,313
3.9%
70.5%

EBIT
523
457
(60)
397
523
154
10.8%
405
687
(136)
551
405
243
15.7%
415
766
(183)
584
415
250
15.0%
463
881
(188)
693
463
315
16.4%
524
1,038
(257)
781
524
377
17.0%
545
1,122
(38)
1,084
545
357
15.1%
571
1,206
(42)
1,163
571
338
13.5%
595
1,286
(46)
1,240
595
318
12.0%
614
1,359
(50)
1,309
614
315
11.4%
630
1,430
(54)
1,376
630
317
11.1%
639
1,502
(58)
1,444
639
325
10.9%
648
1,577
(62)
1,516
648
334
10.8%
656
1,656
(66)
1,590
656
343
10.7%
664
1,739
(70)
1,668
664
353
10.6%

y/y % change
y/y % change
766
816
-28.8%
796
-30.6%
713
769
-5.8%
746
-6.2%
748
852
10.8%
842
12.9%
842
1,027
20.5%
946
12.3%
929
1,139
11.0%
1,026
8.4%
1,272
1,253
10.0%
1,164
13.5%
1,396
1,356
8.2%
1,289
10.7%
1,516
1,454
7.2%
1,410
9.4%
1,608
1,542
6.0%
1,521
7.8%
1,689
1,626
5.4%
1,612
6.0%
1,758
1,704
4.8%
1,692
5.0%
1,829
1,785
4.8%
1,776
4.9%
1,903
1,869
4.7%
1,863
4.9%
1,980
1,957
4.7%
1,954
4.9%

$0.69
$1.90
$1.85
$1.61
$1.84
$1.79
$1.99
$2.09
$2.07
$2.26
$2.54
$2.34
$2.50
$2.90
$2.61
$2.93
$3.29
$3.06
$3.36
$3.68
$3.50
$3.80
$4.08
$3.95
$4.25
$4.47
$4.41
$4.67
$4.89
$4.84
$5.09
$5.31
$5.27
$5.55
$5.78
$5.75
$6.06
$6.30
$6.28
$6.62
$6.87
$6.86
11%
10%
11%

$0.14
$0.33
$0.83
$0.62
$0.61
$0.72
$0.95
$1.00
$1.07
$1.06
$1.90
$1.24
$2.18
$1.42
$2.47
$1.61
$2.77
$1.80
$3.08
$2.01
$3.42
$2.23
$3.80
$2.48
$4.22
$2.75
$4.69
$3.06
18%
12%
$50.79
EV ($b)
23.84
2009
20.2x
71.0x
25.5x
24.3x
24.5x
2010E
17.7x
50.8x
22.4x
20.0x
21.7x
2011E
15.3x
47.7x
20.3x
17.5x
19.4x
2012E
14.3x
41.1x
17.3x
15.4x
16.6x
2013E
13.4x
35.8x
15.1x
13.8x
14.5x

27.57
23.3x
84.5x
30.3x
28.9x
29.2x
20.5x
60.4x
26.7x
23.8x
25.8x
17.7x
56.8x
24.2x
20.8x
23.1x
16.5x
48.9x
20.6x
18.4x
19.8x
15.5x
42.6x
18.0x
16.4x
17.3x
Ending sites
y/y % change
y/y % change
y/y % change
y/y % change
Revenue
y/y % change
Adjusted EBITDA
y/y % change

PMV of operations
PMV of equity
DCF Value per Share
Price Target
Upside to target
3%
6%
3%
-1%
9%
6%
7%

2011E
12,457
(324)
(2,073)
10,059
20,108
30,167
0
(4,184)
25,984
384.1
2.9
386.9
$67.15
10%
$60.44
19.0%

yes
Yes = tax rate goes to 5.0% (adjust below). WACC, taxes affected.
No = tax rate = 38.0%. WACC lower, taxes higher.
5%

60
2.0%
2.5%
3.0%
3.5%
7.0%
66
72
80
90
7.5%
59
64
70
78
8.0%
53
57
62
68
8.1%
52
56
$60.44
66
8.6%
47
50
54
58
4.0%
104
87
75
73
64
291
Philip Cusick, CFA

(1-212) 622-1444

13 January 2011
Table 160: American Tower Operating Statistics

(Dollars in millions, except per tower amounts)
Site Data
Beginning Sites
Net New Sites
Ending Sites
y/y % change
Average Sites
y/y % change
Monthly Revenue/Site
Rental and Management Revenue
y/y % change
y/y $ change
Capital Expenditure
Corporate
Capital improvements
Redevelopment
Discretionary - land/ground lease purchases
Discretionary - new tower build and in-building
Captial Expenditure
Capital Expenditures % of Leasing Revenue
Annualized Maintenance/ Tower
Capital Expenditures as % of Leasing Revenue
Corporate
Redevelopment
Discretionary - ground lease purchases
Total Captial Expenditure
Capital Expenditures as % of Total
Corporate
Redevelopment
Discretionary - ground lease purchases
1Q09
2Q09
3Q09
4Q09
2009
1Q10
2Q10
3Q10
4Q10E
2010E
1Q11E
2Q11E
3Q11E
4Q11E
2011E
1Q12E
2Q12E
3Q12E
4Q12E
2012E
23,740
192
23,932
3.8%
23,932
1,870
25,802
11.5%
25,802
572
26,374
12.9%
26,374
882
27,256
14.8%
23,740
3,516
27,256
14.8%
27,256
405
27,661
15.6%
27,661
374
28,035
8.7%
28,035
5,284
33,319
26.3%
33,319
700
34,019
24.8%
27,256
6,763
34,019
24.8%
34,019
175
34,194
23.6%
34,194
175
34,369
22.6%
34,369
175
34,544
3.7%
34,544
175
34,719
2.1%
34,019
700
34,719
2.1%
34,719
150
34,869
2.0%
34,869
150
35,019
1.9%
35,019
150
35,169
1.8%
35,169
150
35,319
1.7%
34,719
600
35,319
1.7%
23,836
24,867
26,088
26,815
25,402
27,459
27,848
30,677
33,669
29,913
34,107
34,282
34,457
34,632
34,369
34,794
34,944
35,094
35,244
35,019
$66,445
1.9%
$5,537
$65,428
-1.7%
$5,452
$66,011
-2.7%
$5,501
$64,918
-3.1%
$5,410
$65,682
-1.5%
$5,473
$64,653
-2.7%
$5,388
$65,568
0.2%
$5,464
$65,172
-1.3%
$5,431
$62,322
-4.0%
$5,193
$64,343
-2.0%
$5,362
$63,360
-2.0%
$5,280
$64,584
-1.5%
$5,382
$65,172
0.0%
$5,431
$65,438
5.0%
$5,453
$64,643
0.5%
$5,387
$66,211
4.5%
$5,518
$67,490
4.5%
$5,624
$68,105
4.5%
$5,675
$68,382
4.5%
$5,699
$67,551
4.5%
$5,629
396
5.9%
22
407
5.8%
22
431
9.2%
36
435
10.4%
41
1,668
7.8%
121
444
12.1%
48
456
12.2%
50
500
16.1%
69
525
20.5%
89
1,925
15.4%
256
540
21.7%
96
554
21.3%
97
561
12.3%
62
567
8.0%
42
2,222
15.4%
297
576
6.6%
36
590
6.5%
36
598
6.4%
36
603
6.3%
36
2,366
6.5%
144
0.8
6.4
10.1
9.0
23.3
49.6
12.5%
$1,217
1.9
9.1
8.9
8.5
35.8
64.2
15.8%
$1,768
3.8
8.2
6.0
17.6
32.9
68.6
15.9%
$1,836
1.6
8.8
5.7
13.9
37.8
67.8
15.6%
$1,554
8.1
32.5
30.7
49.1
129.8
250.3
15.0%
$1,600
1.6
6.8
5.7
8.8
32.1
55.1
12.4%
$1,231
2.8
5.0
5.2
17.8
46.8
77.5
17.0%
$1,117
3.4
9.2
5.8
23.3
54.3
96.0
19.2%
$1,646
5.5
8.5
15.0
10.0
47.3
86.3
16.4%
$1,663
13.3
29.6
31.6
59.8
180.5
314.7
16.4%
$1,433
5.4
10.8
10.8
13.5
52.5
93.0
17.2%
$1,901
5.5
11.1
11.1
13.8
52.5
94.0
17.0%
$1,938
5.6
11.2
11.2
14.0
52.5
94.6
16.9%
$1,955
5.7
11.3
11.3
14.2
52.5
95.0
16.8%
$1,963
22.2
44.4
44.4
55.5
210.0
376.6
17.0%
$1,939
5.8
11.5
11.5
14.4
45.0
88.2
15.3%
$1,986
5.9
11.8
11.8
14.7
45.0
89.2
15.1%
$2,025
6.0
12.0
12.0
14.9
45.0
89.8
15.0%
$2,043
6.0
12.1
12.1
15.1
45.0
90.2
15.0%
$2,051
23.7
47.3
47.3
59.1
180.0
357.4
15.1%
$2,027
0.2%
1.6%
2.5%
2.3%
5.9%
12.5%
0.5%
2.2%
2.2%
2.1%
8.8%
15.8%
0.9%
1.9%
1.4%
4.1%
7.6%
15.9%
0.4%
2.0%
1.3%
3.2%
8.7%
15.6%
0.5%
2.0%
1.8%
2.9%
7.8%
15.0%
0.4%
1.5%
1.3%
2.0%
7.2%
12.4%
0.6%
1.1%
1.1%
3.9%
10.2%
17.0%
0.7%
1.8%
1.2%
4.7%
10.9%
19.2%
1.0%
1.6%
2.9%
1.9%
9.0%
16.4%
0.7%
1.5%
1.6%
3.1%
9.4%
16.4%
1.0%
2.0%
2.0%
2.5%
9.7%
17.2%
1.0%
2.0%
2.0%
2.5%
9.5%
17.0%
1.0%
2.0%
2.0%
2.5%
9.4%
16.9%
1.0%
2.0%
2.0%
2.5%
9.3%
16.8%
1.0%
2.0%
2.0%
2.5%
9.5%
17.0%
1.0%
2.0%
2.0%
2.5%
7.8%
15.3%
1.0%
2.0%
2.0%
2.5%
7.6%
15.1%
1.0%
2.0%
2.0%
2.5%
7.5%
15.0%
1.0%
2.0%
2.0%
2.5%
7.5%
15.0%
1.0%
2.0%
2.0%
2.5%
7.6%
15.1%
1.7%
12.9%
20.3%
18.2%
46.9%
100.0%
2.9%
14.2%
13.9%
13.2%
55.7%
100.0%
5.5%
12.0%
8.8%
25.7%
48.0%
100.0%
2.4%
12.9%
8.4%
20.5%
55.7%
100.0%
3.2%
13.0%
12.3%
19.6%
51.9%
100.0%
2.9%
12.4%
10.3%
16.0%
58.4%
100.0%
3.6%
6.5%
6.7%
22.9%
60.4%
100.0%
3.5%
9.6%
6.0%
24.3%
56.6%
100.0%
6.4%
9.9%
17.4%
11.6%
54.8%
100.0%
4.2%
9.4%
10.0%
19.0%
57.3%
100.0%
5.8%
11.6%
11.6%
14.5%
56.4%
100.0%
5.9%
11.8%
11.8%
14.7%
55.8%
100.0%
5.9%
11.9%
11.9%
14.8%
55.5%
100.0%
6.0%
11.9%
11.9%
14.9%
55.3%
100.0%
5.9%
11.8%
11.8%
14.7%
55.8%
100.0%
6.5%
13.1%
13.1%
16.3%
51.0%
100.0%
6.6%
13.2%
13.2%
16.5%
50.4%
100.0%
6.7%
13.3%
13.3%
16.6%
50.1%
100.0%
6.7%
13.4%
13.4%
16.7%
49.9%
100.0%
6.6%
13.2%
13.2%
16.5%
50.4%
100.0%
292
Philip Cusick, CFA

(1-212) 622-1444

13 January 2011
Table 161: American Tower Income Statement

1Q09
2Q09
3Q09
4Q09
2009
1Q10
2Q10
3Q10
4Q10E
2010E
1Q11E
2Q11E
3Q11E
4Q11E
2011E
1Q12E
2Q12E
3Q12E
4Q12E
2012E
395.9
5.9%
12.7
55.2%
3.2%
408.7
6.9%
406.8
5.8%
16.6
77.0%
4.1%
423.4
7.5%
430.5
9.2%
13.6
-8.7%
3.2%
444.1
8.5%
435.2
10.4%
12.8
-8.8%
2.9%
448.0
9.7%
1,668.4
7.8%
55.7
19.9%
3.3%
1,724.1
8.2%
443.8
12.1%
10.6
-16.6%
2.4%
454.4
11.2%
456.5
12.2%
13.5
-19.0%
2.9%
469.9
11.0%
499.8
16.1%
13.5
-0.6%
2.7%
513.3
15.6%
524.6
20.5%
14.2
10.9%
2.7%
538.7
20.3%
1,924.7
15.4%
51.7
-7.1%
2.7%
1,976.4
14.6%
540.2
21.7%
13.5
27.2%
2.5%
553.8
21.9%
553.5
21.3%
13.8
2.8%
2.5%
567.3
20.7%
561.4
12.3%
14.0
4.0%
2.5%
575.4
12.1%
566.6
8.0%
14.2
0.0%
2.5%
580.7
7.8%
2,221.7
15.4%
55.5
7.4%
2.5%
2,277.3
15.2%
575.9
6.6%
13.8
2.3%
2.4%
589.8
6.5%
589.6
6.5%
14.2
2.3%
2.4%
603.7
6.4%
597.5
6.4%
14.3
2.2%
2.4%
611.9
6.3%
602.5
6.3%
14.5
2.1%
2.4%
617.0
6.2%
2,365.6
6.5%
56.8
2.2%
2.4%
2,422.3
6.4%
Rental and management COO

Network development services COO
Total Costs of Operations
90.1
7.6
97.7
92.3
10.2
102.6
101.1
7.5
108.6
100.4
7.1
107.5
384.0
32.4
416.4
100.4
6.0
106.5
105.8
6.4
112.2
115.4
7.6
123.0
123.3
8.2
131.4
444.9
28.2
473.1
124.3
7.7
132.0
127.3
7.9
135.2
129.1
8.0
137.1
130.3
8.1
138.4
511.0
31.7
542.7
132.5
7.9
140.3
135.6
8.1
143.7
137.4
8.2
145.6
138.6
8.2
146.8
544.1
32.4
576.4
Rental and management GM

Network development services GM
Total Gross Margin
y/y % change
305.9
5.1
311.0
6.6%
314.4
6.4
320.8
8.1%
329.4
6.1
335.5
9.9%
334.8
5.7
340.5
9.9%
1,284.4
23.3
1,307.7
8.6%
343.4
4.6
348.0
11.9%
350.7
7.0
357.7
11.5%
384.4
5.9
390.3
16.3%
401.3
6.0
407.3
19.6%
1,479.8
23.5
1,503.3
15.0%
416.0
5.8
421.8
21.2%
426.2
6.0
432.2
20.8%
432.3
6.0
438.3
12.3%
436.2
6.1
442.3
8.6%
1,710.7
23.9
1,734.6
15.4%
443.5
5.9
449.4
6.5%
454.0
6.1
460.1
6.5%
460.1
6.2
466.3
6.4%
463.9
6.2
470.2
6.3%
1,821.5
24.4
1,845.9
6.4%
Rental and management GM%

Network development services GM%
Total Gross Profit Margin %
77.2%
40.2%
76.1%
77.3%
38.3%
75.8%
76.5%
45.0%
75.5%
76.9%
44.7%
76.0%
77.0%
41.9%
75.8%
77.4%
43.1%
76.6%
76.8%
52.2%
76.1%
76.9%
43.8%
76.0%
76.5%
42.3%
75.6%
76.9%
45.4%
76.1%
77.0%
43.0%
76.2%
77.0%
43.0%
76.2%
77.0%
43.0%
76.2%
77.0%
43.0%
76.2%
77.0%
43.0%
76.2%
77.0%
43.0%
76.2%
77.0%
43.0%
76.2%
77.0%
43.0%
76.2%
77.0%
43.0%
76.2%
77.0%
43.0%
76.2%
Operating Expenses
Rental and management SG&A
Network development services SG&A
Corpororate expense
International business development expense
SG&A and development expense (incl. stock-based comp)
Depreciation, amortization and accretion
Adjusted operating expenses
Impairments, net (gain) loss on sale of long-lived assets, restructuring
17.6
1.5
13.0
1.1
24.3
57.6
99.9
255.2
3.2
258.4
23.6
1.4
10.9
1.1
12.8
49.9
102.5
254.9
2.0
256.9
22.3
1.4
10.2
1.0
13.0
47.9
105.5
262.0
3.0
265.0
22.7
1.4
11.7
0.0
10.5
46.3
106.7
260.6
10.9
271.5
86.2
5.8
45.8
3.2
60.7
201.7
414.6
1,032.7
19.2
1,051.9
23.2
1.6
15.2
0.0
13.6
53.5
110.8
270.8
4.8
275.6
23.3
1.5
15.5
0.0
13.2
53.6
110.4
276.2
5.0
281.2
27.3
1.4
15.2
0.0
13.4
57.3
115.4
295.7
4.3
300.0
29.9
2.0
17.0
0.0
16.0
64.9
126.6
322.9
0.0
322.9
103.8
6.5
62.9
0.0
56.1
229.3
463.2
1,165.6
14.1
1,179.7
28.6
1.7
15.5
0.0
14.3
60.1
127.4
319.4
0.0
319.4
29.3
1.7
15.5
0.0
14.3
60.8
130.5
326.5
0.0
326.5
29.8
1.8
15.5
0.0
14.3
61.3
132.4
330.7
0.0
330.7
30.0
1.8
15.5
0.0
14.3
61.5
133.6
333.5
0.0
333.5
117.8
6.9
62.0
0.0
57.0
243.7
523.8
1,310.1
0.0
1,310.1
29.9
1.6
15.8
0.0
14.3
61.5
132.7
334.6
0.0
334.6
30.7
1.6
15.8
0.0
14.3
62.3
135.8
341.8
0.0
341.8
31.1
1.6
15.8
0.0
14.3
62.7
137.7
346.0
0.0
346.0
31.3
1.7
15.8
0.0
14.3
63.0
138.8
348.6
0.0
348.6
123.0
6.5
63.0
0.0
57.0
249.5
545.0
1,371.0
0.0
1,371.0
EBITDA
y/y % change
Margin
250.2
3.4%
61.2%
268.9
5.7%
63.5%
284.6
10.0%
64.1%
283.2
10.2%
63.2%
1,086.9
7.4%
63.0%
289.7
15.8%
63.7%
299.1
11.2%
63.7%
328.8
15.5%
64.0%
342.4
20.9%
63.6%
1,260.0
15.9%
63.7%
361.7
24.9%
65.3%
371.3
24.1%
65.5%
377.1
14.7%
65.5%
380.8
11.2%
65.6%
1,490.9
18.3%
65.5%
387.9
7.2%
65.8%
397.8
7.1%
65.9%
403.5
7.0%
66.0%
407.2
6.9%
66.0%
1,596.4
7.1%
65.9%
Adjusted EBITDA
y/y % change
Margin
281.2
7.1%
68.8%
287.3
5.5%
67.9%
304.2
9.6%
68.5%
308.2
10.1%
68.8%
1,180.9
8.1%
68.5%
311.5
10.8%
68.5%
321.0
11.7%
68.3%
350.0
15.1%
68.2%
361.9
17.4%
67.2%
1,344.4
13.8%
68.0%
379.5
21.8%
68.5%
389.1
21.2%
68.6%
394.8
12.8%
68.6%
398.5
10.1%
68.6%
1,561.9
16.2%
68.6%
405.6
6.9%
68.8%
415.5
6.8%
68.8%
421.3
6.7%
68.9%
424.9
6.6%
68.9%
1,667.4
6.8%
68.8%
Operating Income
y/y % change
Margin
150.3
3.7%
36.8%
166.4
7.5%
39.3%
179.1
16.0%
40.3%
176.4
15.5%
39.4%
672.3
10.8%
39.0%
178.8
19.0%
39.4%
188.7
13.4%
40.2%
213.4
19.2%
41.6%
215.8
22.3%
40.1%
796.7
18.5%
40.3%
234.4
31.0%
42.3%
240.8
27.6%
42.5%
244.7
14.7%
42.5%
247.2
14.6%
42.6%
967.1
21.4%
42.5%
255.2
8.9%
43.3%
261.9
8.8%
43.4%
265.9
8.6%
43.5%
268.3
8.5%
43.5%
1,051.3
8.7%
43.4%
Adjusted Operating Income

y/y % change
Margin
157.0
5.2%
38.4%
172.0
8.2%
40.6%
185.7
16.1%
41.8%
190.9
16.3%
42.6%
705.6
11.6%
40.9%
187.1
19.2%
41.2%
197.3
14.7%
42.0%
221.3
19.2%
43.1%
219.3
14.9%
40.7%
825.0
16.9%
41.7%
237.9
27.1%
43.0%
244.3
23.8%
43.1%
248.2
12.2%
43.1%
250.7
14.3%
43.2%
981.1
18.9%
43.1%
258.7
8.8%
43.9%
265.4
8.6%
44.0%
269.4
8.5%
44.0%
271.8
8.4%
44.1%
1,065.3
8.6%
44.0%
Interest income
Interest expense
Other income (expense)
Minority interest in net earnings of subsidiaries
Income on equity method investments
Adjusted Pre-tax Income
Interest income, TV Azteca, net
Loss on retirement of long-term obligations
Pre-tax Income
0.5
(61.6)
0.1
0.0
0.0
96.0
3.5
0.0
92.8
0.5
(62.7)
1.0
0.0
0.0
110.9
3.6
(6.0)
102.8
0.7
(64.1)
0.0
0.0
0.0
122.3
3.6
(0.4)
118.9
0.0
(61.5)
0.2
0.0
0.0
129.7
3.5
(11.8)
106.9
1.7
(249.8)
1.3
0.0
0.0
458.9
14.2
(18.2)
421.5
0.5
(58.4)
0.4
0.0
0.0
129.6
3.5
0.0
124.8
0.7
(56.1)
(6.7)
0.0
0.0
135.2
3.6
(0.0)
130.2
2.0
(62.9)
8.2
0.0
0.0
168.5
3.6
0.0
164.2
0.6
(66.1)
0.0
0.0
0.0
153.8
3.5
0.0
153.8
3.8
(243.5)
1.9
0.0
0.0
587.2
14.2
(0.0)
573.1
1.9
(78.4)
0.0
0.0
0.0
161.4
3.5
0.0
161.4
1.9
(78.4)
0.0
0.0
0.0
167.9
3.5
0.0
167.9
1.9
(78.4)
0.0
0.0
0.0
171.8
3.5
0.0
171.8
2.0
(78.4)
0.0
0.0
0.0
174.3
3.5
0.0
174.3
7.7
(313.5)
0.0
0.0
0.0
675.4
14.0
0.0
675.4
2.0
(78.4)
0.0
0.0
0.0
182.3
3.5
0.0
182.3
2.1
(78.4)
0.0
0.0
0.0
189.2
3.5
0.0
189.2
2.2
(78.4)
0.0
0.0
0.0
193.2
3.5
0.0
193.2
2.3
(78.4)
0.0
0.0
0.0
195.8
3.5
0.0
195.8
8.6
(313.5)
0.0
0.0
0.0
760.4
14.0
0.0
760.4
Income tax benefit (provision), reported

Tax rate
Income from continuing operations, reported
(37.1)
-40.0%
55.7
(51.4)
-50.0%
51.4
(51.3)
-43.2%
67.6
(42.7)
-39.9%
64.2
(182.6)
-43.3%
238.9
(28.4)
-22.7%
96.4
(30.4)
-23.3%
99.8
(70.6)
-43.0%
93.6
(58.5)
-38.0%
95.4
(187.8)
-32.8%
385.2
(61.3)
-38.0%
100.1
(63.8)
-38.0%
104.1
(65.3)
-38.0%
106.5
(66.2)
-38.0%
108.1
(256.6)
-38.0%
418.7
(9.1)
-5.0%
173.2
(9.5)
-5.0%
179.7
(9.7)
-5.0%
183.5
(9.8)
-5.0%
186.0
(38.0)
-5.0%
722.4
Revenues
Rental and management
y/y % change
y/y % change
Network Services and Other % of Site Rental
Total operating revenues
y/y % change
(Income) Loss from Discontinued Operations

Net income, reported
Net income, adjusted
Net income attributable to non-controlling interest
Net income attributable to AMT, reported
Net income attributable to AMT, adjusted
Reported EPS - Basic
3.1
5.1
(0.0)
0.1
8.2
0.0
(0.0)
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
58.7
63.2
56.5
65.3
67.6
72.1
64.3
91.2
247.1
291.8
96.5
103.0
99.8
106.8
93.6
99.5
95.4
95.4
385.3
404.8
100.1
100.1
104.1
104.1
106.5
106.5
108.1
108.1
418.7
418.7
173.2
113.1
179.7
117.3
183.5
119.8
186.0
121.4
722.4
471.5
(0.2)
(0.2)
(0.2)
0.0
(0.5)
(0.2)
(0.2)
(0.2)
(0.2)
(0.6)
(0.2)
(0.2)
(0.2)
(0.2)
(0.6)
(0.2)
(0.2)
(0.2)
(0.2)
(0.6)
58.6
63.0
56.3
65.1
67.4
71.9
64.3
91.3
246.6
291.2
96.3
102.9
99.7
106.7
93.4
99.4
95.2
95.2
384.6
404.1
99.9
99.9
103.9
103.9
106.3
106.3
107.9
107.9
418.1
418.1
173.1
112.9
179.6
117.1
183.4
119.6
185.8
121.2
721.8
470.8
$0.15
$0.14
$0.14
$0.14
$0.17
$0.17
$0.16
$0.16
$0.62
$0.61
$0.24
$0.24
$0.25
$0.25
$0.23
$0.23
$0.24
$0.24
$0.96
$0.95
$0.25
$0.25
$0.27
$0.26
$0.27
$0.27
$0.28
$0.28
$1.07
$1.07
$0.45
$0.45
$0.47
$0.47
$0.49
$0.48
$0.50
$0.49
$1.91
$1.90
$1.25
$1.24
Adjusted EPS - Basic

$0.16
$0.15
$0.16
$0.16
$0.18
$0.18
$0.23
$0.22
$0.73
$0.72
$0.26
$0.25
$0.26
$0.26
$0.25
$0.25
$0.24
$0.24
$1.01
$1.00
$0.25
$0.25
$0.27
$0.26
$0.27
$0.27
$0.28
$0.28
$1.07
$1.06
$0.30
$0.29
$0.31
$0.31
$0.32
$0.32
$0.32
$0.32
EPS - Basic, Discontinued Operations

EPS - Diluted, Discontinued Operations
$0.01
$0.01
$0.01
$0.01
($0.00)
($0.00)
$0.00
$0.00
$0.02
$0.02
$0.00
$0.00
($0.00)
($0.00)
$0.00
$0.00
$0.00
$0.00
$0.00
$0.00
$0.00
$0.00
$0.00
$0.00
$0.00
$0.00
$0.00
$0.00
$0.00
$0.00
$0.00
$0.00
$0.00
$0.00
$0.00
$0.00
$0.00
$0.00
$0.00
$0.00
Average diluted shares
408.3
408.8
405.7
405.7
407.1
406.1
405.0
403.5
400.4
403.7
397.4
394.4
391.4
388.4
392.9
385.4
382.4
379.4
376.4
380.9
293
Philip Cusick, CFA

(1-212) 622-1444

13 January 2011
Table 162: American Tower Cash Flow Statement

1Q09
58.7
2Q09
56.5
3Q09
67.6
4Q09
64.3
2009
247.1
1Q10
96.5
2Q10
99.8
3Q10
93.6
4Q10E
95.4
2010E
385.3
1Q11E
100.1
2Q11E
104.1
3Q11E
106.5
4Q11E
108.1
2011E
418.7
1Q12E
173.2
2Q12E
179.7
3Q12E
183.5
4Q12E
186.0
2012E
722.4

Depreciation, amortization, and accretion
Deferred income taxes related to discontinued operations
Non-cash tax provision and other in statement of operations
Increase in restricted cash
Increase in net deferred rent asset
Other
24.3
99.9
0.0
38.7
(9.6)
(2.7)
0.0
209.3
12.8
102.5
(3.2)
50.4
11.4
(2.6)
0.0
227.8
13.0
105.5
(0.0)
58.1
2.4
(3.0)
0.0
243.5
10.5
106.7
0.0
39.1
3.4
(1.4)
0.0
222.7
60.7
414.6
(3.1)
186.2
7.6
(9.7)
0.0
903.4
13.6
110.8
0.0
34.6
(2.9)
(6.4)
0.0
246.2
13.2
110.4
0.0
40.2
(4.7)
(12.8)
0.0
246.1
13.4
115.4
0.0
69.8
4.7
(30.1)
0.0
266.7
16.0
126.6
0.0
46.5
0.0
(31.5)
0.0
253.0
56.1
463.2
0.0
191.1
(3.0)
(80.9)
0.0
1,011.9
14.3
127.4
0.0
48.8
0.0
(31.1)
0.0
259.4
14.3
130.5
0.0
51.3
0.0
(31.8)
0.0
268.3
14.3
132.4
0.0
52.8
0.0
(25.3)
0.0
280.6
14.3
133.6
0.0
53.7
0.0
(25.5)
0.0
284.2
57.0
523.8
0.0
206.6
0.0
(113.6)
0.0
1,092.5
14.3
132.7
0.0
0.0
0.0
(24.5)
0.0
295.7
14.3
135.8
0.0
0.0
0.0
(25.1)
0.0
304.8
14.3
137.7
0.0
0.0
0.0
(19.7)
0.0
315.7
14.3
138.8
0.0
0.0
0.0
(19.9)
0.0
319.2
57.0
545.0
0.0
0.0
0.0
(89.1)
0.0
1,235.3
Decrease (increase) in assets

Increase in liabilities
Cash from operations after working capital
y/y % change
(23.4)
19.9
205.9
0.1
(8.2)
(16.2)
203.4
0.2
(17.7)
14.3
240.0
0.1
6.9
(36.9)
192.7
0.0
(42.4)
(18.9)
842.1
8.9%
(23.1)
30.6
253.6
0.2
(10.8)
27.5
262.7
0.3
(22.7)
14.2
258.2
7.6%
5.0
0.0
258.0
33.9%
(51.6)
72.2
1,032.6
22.6%
0.0
0.0
259.4
2.3%
0.0
0.0
268.3
2.1%
0.0
0.0
280.6
8.7%
0.0
0.0
284.2
10.1%
0.0
0.0
1,092.5
5.8%
0.0
0.0
295.7
14.0%
0.0
0.0
304.8
13.6%
0.0
0.0
315.7
12.5%
0.0
0.0
319.2
12.3%
0.0
0.0
1,235.3
13.1%
Free Cash Flow
y/y % change
49.6
156.3
13.4%
64.2
139.2
12.1%
68.6
171.5
7.6%
67.8
124.9
15.1%
250.3
591.8
11.7%
55.1
198.6
27.1%
77.5
185.3
33.1%
96.0
162.2
-5.4%
86.3
171.7
37.5%
314.7
717.8
21.3%
93.0
166.4
-16.2%
94.0
174.3
-5.9%
94.6
186.0
14.6%
95.0
189.2
10.2%
376.6
715.9
-0.3%
88.2
207.5
24.7%
89.2
215.5
23.7%
89.8
225.9
21.5%
90.2
229.0
21.0%
357.4
877.9
22.6%
Dividends
0.0
877.9
Net income
0.0
156.3
0.0
139.2
0.0
171.5
0.0
124.9
0.0
591.8
0.0
198.6
0.0
185.3
0.0
162.2
0.0
171.7
0.0
717.8
0.0
166.4
0.0
174.3
0.0
186.0
0.0
189.2
0.0
715.9
0.0
207.5
0.0
215.5
0.0
225.9
0.0
229.0
(1.2)
43.7
(97.2)
23.4
(31.2)
14.3
(78.4)
498.3
1,000.0
1,434.3
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
Change in equity
4.2
(53.9)
(104.0)
6.4
(147.3)
(11.4)
(99.1)
(117.7)
(150.0)
(378.1)
(150.0)
(150.0)
(150.0)
(150.0)
(600.0)
(150.0)
(150.0)
(150.0)
(150.0)
(600.0)
Other
0.8
(108.6)
(64.2)
(137.1)
(309.1)
(95.9)
(57.9)
(483.1)
0.0
(636.9)
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
Net Change in Cash
160.1
20.4
(94.0)
17.6
104.2
105.6
(50.0)
59.8
1,021.7
1,137.1
16.4
24.3
36.0
39.2
115.9
57.5
65.5
75.9
79.0
277.9
Beginning Cash and Cash Equivalents

Ending cash balance
143.1
303.2
303.2
323.6
323.6
229.6
229.6
247.3
143.1
247.3
247.3
352.8
352.8
302.8
302.8
362.6
362.6
1,384.4
247.3
1,384.4
1,384.4
1,400.8
1,400.8
1,425.1
1,425.1
1,461.1
1,461.1
1,500.2
1,384.4
1,500.2
1,500.2
1,557.7
1,557.7
1,623.2
1,623.2
1,699.2
1,699.2
1,778.1
1,500.2
1,778.1
Recurring Cash Flow (JPM)

Adjusted EBITDA
Cash taxes
Maintenance capex
Recurring Cash Flow
y/y % change
Shares outstanding
Recurring Cash Flow per Share (JPM)
y/y % change
281.2
(61.1)
(7.5)
(7.3)
205.4
15.2%
408.3
$0.50
19.0%
287.3
(62.2)
(11.5)
(11.0)
202.7
6.2%
408.8
$0.50
9.5%
304.2
(63.4)
(13.8)
(12.0)
215.1
8.1%
405.7
$0.53
11.0%
308.2
(61.5)
(7.5)
(10.4)
228.9
13.9%
405.7
$0.56
14.8%
1,180.9
(248.1)
(40.2)
(40.6)
852.0
10.8%
407.1
$2.09
13.5%
311.5
(57.9)
(7.9)
(8.5)
237.2
15.5%
406.1
$0.58
16.1%
321.0
(55.4)
(3.4)
(7.8)
254.5
25.5%
405.0
$0.63
26.7%
350.0
(61.0)
(11.6)
(12.6)
264.8
23.1%
403.5
$0.66
23.8%
361.9
(65.5)
(12.0)
(14.0)
270.4
18.2%
400.4
$0.68
19.7%
1,344.4
(239.7)
(34.9)
(42.9)
1,026.9
20.5%
403.7
$2.54
21.6%
379.5
(76.5)
(12.5)
(16.2)
274.3
15.6%
397.4
$0.69
18.1%
389.1
(76.5)
(12.5)
(16.6)
283.5
11.4%
394.4
$0.72
14.4%
394.8
(76.4)
(12.5)
(16.8)
289.0
9.2%
391.4
$0.74
12.5%
398.5
(76.4)
(12.5)
(17.0)
292.7
8.2%
388.4
$0.75
11.6%
1,561.9
(305.8)
(50.0)
(66.7)
1,139.5
11.0%
392.9
$2.90
14.0%
405.6
(76.3)
(9.1)
(17.3)
302.9
10.4%
385.4
$0.79
13.9%
415.5
(76.3)
(9.5)
(17.7)
312.1
10.1%
382.4
$0.82
13.5%
421.3
(76.2)
(9.7)
(17.9)
317.5
9.9%
379.4
$0.84
13.3%
424.9
(76.1)
(9.8)
(18.1)
321.0
9.7%
376.4
$0.85
13.2%
1,667.4
(304.9)
(38.0)
(71.0)
1,253.5
10.0%
380.9
$3.29
13.5%
(2.6)
200.1
7.3%
$0.49
10.7%
3.0
(1.2)
287.3
(62.7)
0.5
(11.5)
(9.0)
6.4
(8.9)
(9.1)
(1.9)
191.1
14.0%
408.8
$0.47
17.6%
(3.0)
212.1
9.3%
$0.52
12.2%
2.4
(0.6)
304.2
(64.1)
0.7
(13.8)
(9.8)
6.8
(6.0)
(8.2)
(3.8)
206.0
16.3%
405.7
$0.51
19.3%
(1.4)
227.5
16.7%
$0.56
17.7%
4.4
0.3
308.2
(61.5)
0.0
(7.5)
(7.6)
6.2
(5.7)
(8.8)
(1.6)
221.8
23.9%
405.7
$0.55
24.9%
(9.7)
842.3
12.9%
$2.07
15.6%
Recurring Cash Flow (Reported)

Adjusted EBITDA
Interest expense
Interest income
Cash paid for income taxes
Straight-line revenue
Straight-line expense
Redevelopment capital expenditure
Capital improvement capital expenditure
Corporate capital expenditure
Recurring Free Cash Flow
y/y % change
Shares outstanding
Recurring Cash Flow per Share (Reported)
y/y % change
(2.7)
202.6
18.6%
$0.50
22.5%
4.2
0.5
281.2
(61.6)
0.5
(7.5)
(9.9)
7.2
(10.1)
(6.4)
(0.8)
192.6
28.9%
408.3
$0.47
33.1%
1,180.9
(249.8)
1.7
(40.2)
(36.3)
26.6
(30.7)
(32.5)
(8.1)
811.6
20.5%
407.1
$1.99
23.5%
(6.4)
230.8
13.9%
$0.57
14.5%
(3.7)
(0.0)
311.5
(58.4)
0.5
(7.9)
(13.6)
7.2
(5.7)
(6.8)
(1.6)
225.1
16.9%
406.1
$0.55
17.5%
(12.8)
241.6
20.8%
$0.60
21.9%
(9.8)
(0.4)
321.0
(56.1)
0.7
(3.4)
(18.8)
6.0
(5.2)
(5.0)
(2.8)
236.4
23.7%
405.0
$0.58
24.9%
(31.1)
243.2
5.4%
$0.61
7.7%
(22.9)
(1.8)
379.5
(78.4)
1.9
(12.5)
(36.5)
5.4
(10.8)
(10.8)
(5.4)
232.4
3.2%
397.4
$0.58
5.5%
(31.8)
251.7
4.2%
$0.64
7.0%
(18.5)
(0.5)
389.1
(78.4)
1.9
(12.5)
(37.4)
5.5
(11.1)
(11.1)
(5.5)
240.6
1.8%
394.4
$0.61
4.5%
(113.6)
1,025.8
8.4%
$2.61
11.5%
(31.3)
(1.4)
1,561.9
(313.5)
7.7
(50.0)
(135.9)
22.2
(44.4)
(44.4)
(22.2)
981.4
7.3%
392.9
$2.50
10.3%
(24.5)
278.4
14.5%
$0.72
18.0%
6.2
0.4
405.6
(78.4)
2.0
(9.1)
(30.2)
5.8
(11.5)
(11.5)
(5.8)
266.9
14.8%
385.4
$0.69
18.4%
(25.1)
287.1
14.1%
$0.75
17.6%
6.4
0.4
415.5
(78.4)
2.1
(9.5)
(31.0)
5.9
(11.8)
(11.8)
(5.9)
275.3
14.4%
382.4
$0.72
18.0%
(89.1)
1,164.3
13.5%
$3.06
17.1%
23.1
1.4
1,667.4
(313.5)
8.6
(38.0)
(112.8)
23.7
(47.3)
(47.3)
(23.7)
1,117.0
13.8%
380.9
$2.93
17.4%
(9.8)
6.8
-2.3%
1.6%
(7.6)
6.2
-1.7%
1.4%
(36.3)
26.6
-2.2%
1.6%
(13.6)
7.2
-3.1%
1.6%
(18.8)
6.0
-4.1%
1.3%
(104.5)
23.6
-5.4%
1.2%
(36.5)
5.4
-6.8%
1.0%
(37.4)
5.5
-6.8%
1.0%
(31.2)
5.7
-5.5%
1.0%
(135.9)
22.2
-6.1%
1.0%
(30.2)
5.8
-5.3%
1.0%
(31.0)
5.9
-5.3%
1.0%
(19.7)
297.8
12.9%
$0.78
16.5%
5.2
0.4
421.3
(78.4)
2.2
(9.7)
(25.7)
6.0
(12.0)
(12.0)
(6.0)
285.8
13.2%
379.4
$0.75
16.8%
(25.2)
(25.7)
6.0
-4.3%
1.0%
(19.9)
301.1
12.7%
$0.80
16.3%
5.3
0.4
424.9
(78.4)
2.3
(9.8)
(25.9)
6.0
(12.1)
(12.1)
(6.0)
289.0
13.0%
376.4
$0.77
16.6%
(9.0)
6.4
-2.2%
1.6%
(25.3)
263.8
12.4%
$0.67
15.9%
4.5
0.4
394.8
(78.4)
1.9
(12.5)
(30.9)
5.6
(11.2)
(11.2)
(5.6)
252.5
10.3%
391.4
$0.65
13.7%
(30.3)
(30.9)
5.6
-5.5%
1.0%
(25.5)
267.2
11.8%
$0.69
15.2%
5.6
0.4
398.5
(78.4)
2.0
(12.5)
(31.2)
5.7
(11.3)
(11.3)
(5.7)
255.8
14.2%
388.4
$0.66
17.8%
(9.9)
7.2
-2.5%
1.8%
(31.5)
239.0
5.0%
$0.60
6.4%
(29.1)
(1.0)
361.9
(66.1)
0.6
(12.0)
(36.7)
5.2
(15.0)
(8.5)
(5.5)
224.0
1.0%
400.4
$0.56
2.3%
(5.11)
(36.7)
5.2
-7.0%
1.0%
(80.9)
946.0
12.3%
$2.34
13.2%
(68.2)
(2.9)
1,344.4
(243.5)
3.8
(34.9)
(104.5)
23.6
(31.6)
(29.6)
(13.3)
914.4
12.7%
403.7
$2.26
13.6%
Straight-line revenue (% of site leasing revenue)
Straight-line expense (% of site leasing revenue)
(30.1)
234.6
10.7%
$0.58
11.3%
(25.6)
(1.6)
350.0
(62.9)
2.0
(11.6)
(35.4)
5.3
(5.8)
(9.2)
(3.4)
228.9
11.1%
403.5
$0.57
11.7%
(25.6)
(35.4)
5.3
-7.1%
1.1%
(25.9)
6.0
-4.3%
1.0%
(112.8)
23.7
-4.8%
1.0%
Net of straight-line revenue and expense

RFCF (net of straight-line)
y/y % change
RFCF per share (net of straight-line)
y/y % change
Table 163: American Tower Balance Sheet

1Q09
2Q09
3Q09
4Q09
2009
1Q10
2Q10
3Q10
4Q10E
2010E
1Q11E
2Q11E
3Q11E
4Q11E
2011E
1Q12E
2Q12E
3Q12E
4Q12E
2012E
303.0
61.5
1.0
60.1
70.2
164.0
659.7
323.6
50.8
9.0
72.5
71.0
191.2
718.1
229.7
50.8
3.8
71.3
78.7
191.6
625.9
247.3
47.8
9.8
67.9
89.1
189.5
651.4
247.3
47.8
9.8
67.9
89.1
189.5
651.4
352.9
49.8
18.9
73.5
107.2
216.8
819.2
302.9
52.6
27.9
48.9
113.8
224.5
770.5
371.9
69.2
42.7
92.9
157.4
210.2
944.3
1,393.6
69.2
42.7
92.9
157.4
210.2
1,966.0
1,393.6
69.2
42.7
92.9
157.4
210.2
1,966.0
1,410.0
69.2
42.7
92.9
157.4
210.2
1,982.4
1,434.3
69.2
42.7
92.9
157.4
210.2
2,006.7
1,470.3
69.2
42.7
92.9
157.4
210.2
2,042.7
1,509.5
69.2
42.7
92.9
157.4
210.2
2,081.9
1,509.5
69.2
42.7
92.9
157.4
210.2
2,081.9
1,567.0
69.2
42.7
92.9
157.4
210.2
2,139.4
1,632.5
69.2
42.7
92.9
157.4
210.2
2,204.9
1,708.4
69.2
42.7
92.9
157.4
210.2
2,280.8
1,787.4
69.2
42.7
92.9
157.4
210.2
2,359.8
1,787.4
69.2
42.7
92.9
157.4
210.2
2,359.8
Property, plant and equipment , net
3,003.2
3,087.8
3,128.1
3,175.5
3,175.5
3,179.2
3,188.5
3,494.4
3,454.0
3,454.0
3,419.7
3,383.2
3,345.5
3,306.9
3,306.9
3,262.4
3,215.8
3,167.9
3,119.3
3,119.3
Goodwill
Notes receivable and other long-term assets
Total assets
2,186.3
1,532.8
349.4
594.4
8,325.9
2,232.8
1,547.9
267.4
632.6
8,486.5
2,239.4
1,532.4
225.7
643.2
8,394.8
2,237.9
1,598.6
198.2
651.1
8,512.7
2,237.9
1,598.6
198.2
651.1
8,512.7
2,246.2
1,655.6
106.0
668.1
8,674.252
2,255.9
1,596.5
96.4
678.1
8,585.9
2,459.0
1,777.8
52.5
720.9
9,449.0
2,459.0
1,777.8
52.5
720.9
10,430.3
2,459.0
1,777.8
52.5
720.9
10,430.3
2,459.0
1,777.8
52.5
720.9
10,412.4
2,459.0
1,777.8
52.5
720.9
10,400.2
2,459.0
1,777.8
52.5
720.9
10,398.5
2,459.0
1,777.8
52.5
720.9
10,399.1
2,459.0
1,777.8
52.5
720.9
10,399.1
2,459.0
1,777.8
52.5
720.9
10,412.1
2,459.0
1,777.8
52.5
720.9
10,431.0
2,459.0
1,777.8
52.5
720.9
10,459.0
2,459.0
1,777.8
52.5
720.9
10,489.3
2,459.0
1,777.8
52.5
720.9
10,489.3
144.3
48.0
1.5
125.5
319.3
172.7
26.8
22.6
126.0
348.0
166.0
47.3
7.7
120.1
341.0
185.1
23.5
70.5
112.0
391.2
185.1
23.5
70.5
112.0
391.2
183.9
44.0
77.9
117.0
422.8
205.0
23.7
1.6
128.5
358.8
246.0
49.8
178.7
140.5
614.9
246.0
49.8
178.7
140.5
614.9
246.0
49.8
178.7
140.5
614.9
246.0
49.8
178.7
140.5
614.9
246.0
49.8
178.7
140.5
614.9
246.0
49.8
178.7
140.5
614.9
246.0
49.8
178.7
140.5
614.9
246.0
49.8
178.7
140.5
614.9
246.0
49.8
178.7
140.5
614.9
246.0
49.8
178.7
140.5
614.9
246.0
49.8
178.7
140.5
614.9
246.0
49.8
178.7
140.5
614.9
246.0
49.8
178.7
140.5
614.9
4,331.0
593.5
5,243.8
4,421.7
625.7
5,395.5
4,179.0
639.6
5,159.7
4,141.1
662.2
5,194.5
4,141.1
662.2
5,194.5
4,152.0
641.6
5,216.4
4,152.0
645.1
5,155.9
4,626.3
754.2
5,995.3
5,626.3
735.5
6,976.7
5,626.3
735.5
6,976.7
5,626.3
717.6
6,958.8
5,626.3
705.4
6,946.6
5,626.3
703.6
6,944.8
5,626.3
704.2
6,945.4
5,626.3
704.2
6,945.4
5,626.3
717.2
6,958.4
5,626.3
736.1
6,977.3
5,626.3
764.2
7,005.4
5,626.3
794.5
7,035.7
5,626.3
794.5
7,035.7
Assets
Current assets
Restricted cash
Short-term investments and available-for- sale securities
Prepaid and other current assets
Liabilities and shareowners' equity

Current liabilities
Accrued interest
Current portion of long-term obligations
Unearned revenue
Long-term obligations
Total liabilities
Minority interest in subsidiaries
3.2
3.3
3.3
3.0
3.0
2.9
3.0
3.1
3.1
3.1
3.1
3.1
3.1
3.1
3.1
3.1
3.1
3.1
3.1
3.1
Shareowners' equity
3,078.9
3,087.8
3,231.8
3,315.1
3,315.1
3,454.9
3,427.0
3,450.6
3,450.6
3,450.6
3,450.6
3,450.6
3,450.6
3,450.6
3,450.6
3,450.6
3,450.6
3,450.6
3,450.6
3,450.6
Total liabilities and shareowners' equity
8,325.9
8,486.5
8,394.8
8,512.7
8,512.7
8,674.251
8,585.9
9,449.0
10,430.3
10,430.3
10,412.4
10,400.2
10,398.5
10,399.1
10,399.1
10,412.1
10,431.0
10,459.0
10,489.3
10,489.3
294
Philip Cusick, CFA

(1-212) 622-1444

13 January 2011
Crown Castle Model

Table 164: Crown Castle Valuation Summary
CAGR
2020E 11E-20E
25,835
1%
0.8%
$107,551
4%
3.0%
2,768
5%
3.8%
221
3%
3.8%
$2,989
5%
3.8%
1,988
5%
3.8%
66.5%
2007
23,846
0.7%
$54,191
6.7%
1,286
7.8%
99
8.2%
$1,385
7.8%
762
14.4%
55.0%
2008
24,079
1.0%
$58,562
8.1%
1,403
9.0%
124
25.2%
$1,527
10.2%
839
10.2%
55.0%
2009
23,957
-0.5%
$64,242
9.7%
1,543
10.0%
142
14.7%
$1,685
10.4%
1,013
20.7%
60.1%
2010E
23,875
-0.3%
$71,027
10.6%
1,698
10.0%
173
21.8%
$1,871
11.0%
1,165
15.0%
62.3%
2011E
24,035
0.7%
$76,569
7.8%
1,834
8.0%
169
-2.2%
$2,003
7.1%
1,262
8.3%
63.0%
2012E
24,235
0.8%
$81,097
5.9%
1,957
6.7%
162
-4.3%
$2,119
5.8%
1,359
7.7%
64.1%
2013E
24,435
0.8%
$85,123
5.0%
2,071
5.8%
166
2.2%
$2,237
5.6%
1,445
6.3%
64.6%
2014E
24,635
0.8%
$88,925
4.5%
2,182
5.3%
175
5.3%
$2,356
5.3%
1,531
6.0%
65.0%
2015E
24,835
0.8%
$92,368
3.9%
2,285
4.7%
183
4.7%
$2,467
4.7%
1,613
5.4%
65.4%
2016E
25,035
0.8%
$95,505
3.4%
2,381
4.2%
190
4.2%
$2,572
4.2%
1,692
4.9%
65.8%
2017E
25,235
0.8%
$98,384
3.0%
2,473
3.8%
198
3.8%
$2,670
3.8%
1,768
4.5%
66.2%
2018E
25,435
0.8%
$101,350
3.0%
2,567
3.8%
205
3.8%
$2,773
3.8%
1,847
4.5%
66.6%
2019E
25,635
0.8%
$104,405
3.0%
2,666
3.8%
213
3.8%
$2,879
3.8%
1,916
3.8%
66.6%

EBIT
540
222
94
316
540
300
23.3%
526
313
104
417
526
451
32.1%
530
484
76
560
530
174
11.2%
550
615
21
636
550
220
12.9%
611
651
(6)
645
611
271
14.8%
625
734
(10)
723
625
272
13.9%
649
796
(14)
782
649
273
13.2%
683
848
(16)
831
683
283
13.0%
716
897
(19)
878
716
292
12.8%
746
946
(22)
924
746
301
12.7%
774
993
(25)
968
774
310
12.5%
804
1,043
(27)
1,015
804
319
12.4%
835
1,081
(30)
1,051
835
328
12.3%
867
1,121
(32)
1,089
867
337
12.2%

y/y % change
y/y % change
556
373
-20.3%
373
-20.3%
493
435
16.8%
435
16.8%
916
518
19.1%
510
17.3%
967
634
22.3%
602
17.9%
984
727
14.8%
638
6.1%
1,077
830
14.2%
761
19.3%
1,159
923
11.1%
872
14.5%
1,231
1,015
10.0%
983
12.8%
1,301
1,104
8.8%
1,091
11.0%
1,368
1,190
7.8%
1,184
8.5%
1,433
1,274
7.1%
1,270
7.3%
1,501
1,361
6.9%
1,360
7.1%
1,558
1,439
5.7%
1,441
5.9%
1,619
1,520
5.6%
1,524
5.8%

$1.39
$1.33
$1.33
$1.61
$1.53
$1.53
$1.87
$1.80
$1.77
$2.28
$2.21
$2.10
$2.57
$2.54
$2.23
$2.91
$2.90
$2.66
$3.20
$3.22
$3.04
$3.49
$3.54
$3.43
$3.77
$3.85
$3.80
$4.04
$4.15
$4.12
$4.30
$4.43
$4.42
$4.57
$4.74
$4.73
$4.80
$5.01
$5.01
$5.04
$5.28
$5.30
8%
8%
10%

($0.87)
($0.24)
($0.35)
($0.04)
($0.47)
$0.02
($1.22)
($0.27)
$0.33
$0.19
$0.61
$0.38
$0.84
$0.52
$1.02
$0.64
$1.20
$0.76
$1.38
$0.88
$1.56
$0.99
$1.75
$1.11
$1.90
$1.21
$2.05
$1.31
23%
24%
2009
17.7x
NM
23.2x
24.1x
24.5x
2010E
15.4x
NM
19.1x
19.7x
20.7x
2011E
14.2x
231.2x
16.9x
17.1x
19.5x
2012E
13.2x
115.8x
15.0x
15.0x
16.3x
2013E
12.4x
83.7x
13.6x
13.5x
14.3x
21.2x
NM
29.4x
30.5x
31.0x
18.4x
NM
24.1x
24.9x
26.2x
17.0x
292.7x
21.4x
21.6x
24.7x
15.8x
146.6x
18.9x
19.0x
20.7x
14.9x
105.9x
17.2x
17.1x
18.1x
Ending sites
y/y % change
y/y % change
y/y % change
y/y % change
Revenue
y/y % change
Adjusted EBITDA
y/y % change

PMV of operations
Less: preferred stock
PMV of equity
2011E
10,106
(125)
(1,829)
8,153
15,061
23,214
125
(316)
(5,531)
17,492
286.2
286.2


21.46
yes
DCF Value per Share

Price Target
Upside to target
$61.11
10%
$55.00
26.6%
** Estimated straight line effects.
$43.45
EV ($b)
17.97
4%
6%
6%
4%
2%
6%
9%
10%
Yes = tax rate remains 5.0% (adjust below). WACC, taxes affected.
No = tax rate goes to 38% when NOLs end. WACC lower, taxes higher.
5%

55
7.4%
7.9%
8.4%
9.4%
10.4%
2.0%
59
53
47
38
31
2.5%
65
57
51
40
33
3.0%
72
63
$55.00
43
35
3.5%
81
70
60
47
37
4.0%
93
78
67
51
40
295
Philip Cusick, CFA

(1-212) 622-1444

13 January 2011
Table 165: Crown Castle US Operating Statistics and Income Statement

UNITED STATES
Starting Sites
Sites Added
Sites Constructed
Sites Acquired/Divested
Net Adjustments
Ending Sites
y/y % change
q/q % change
1Q09
2Q09
3Q09
4Q09
2009
1Q10
2Q10
3Q10
4Q10E
2010E
1Q11E
2Q11E
3Q11E
4Q11E
2011E
22,489
(8)
15
(23)
22,481
0.3%
0.0%
22,481
(56)
11
(3)
(64)
22,425
-0.2%
-0.2%
22,425
(40)
12
(2)
(50)
22,385
-0.4%
-0.2%
22,385
(20)
8
(0)
(28)
22,365
-0.6%
-0.1%
22,489
(124)
47
(5)
(165)
22,365
-0.6%
-0.6%
22,365
(27)
7
(34)
22,338
-0.6%
-0.1%
22,338
(17)
8
(25)
22,321
-0.5%
-0.1%
22,265
15
15
22,280
-0.4%
0.1%
22,365
(85)
38
(123)
22,280
-0.4%
-0.4%
22,280
40
40
22,320
-0.1%
0.2%
22,320
40
40
22,360
0.2%
0.2%
22,360
40
40
22,400
0.6%
0.2%
22,400
40
40
22,440
0.7%
0.2%
22,280
160
160
22,440
0.7%
0.7%
22,485
22,453
22,405
22,375
22,430
22,352
22,330
22,321
(56)
8
(64)
22,265
-0.5%
-0.3%
0.10%
22,293
22,273
22,312
22,293
22,340
22,380
22,420
22,358
$62,387
8.0%
$63,869
8.9%
$67,171
13.4%
$68,130
12.9%
$65,385
10.8%
$68,720
10.2%
$69,504
8.8%
$74,337
10.7%
$75,624
11.0%
$72,042
10.2%
$74,218
8.0%
$75,065
8.0%
$80,284
8.0%
$81,674
8.0%
$77,817
8.0%
5.2
5.3
5.6
5.7
21.8
5.7
5.8
6.2
6.3
24.0
6.2
6.3
6.7
6.8
25.9
350.7
8.3%
-73.5%
33.5
40.3%
-70.5%
384.1
10.5%
-73.3%
9.5%
$26.9
358.5
9.0%
2.2%
32.1
18.8%
-4.0%
390.6
9.7%
1.7%
9.0%
$29.6
376.2
13.1%
4.9%
31.2
11.5%
-2.8%
407.4
13.0%
4.3%
8.3%
$43.5
381.1
12.3%
1.3%
37.8
9.3%
21.2%
418.9
12.1%
2.8%
9.9%
$41.8
1,466.5
10.7%
10.7%
134.5
18.7%
18.7%
1,601.1
11.3%
11.3%
9.2%
$141.9
384.0
9.5%
0.8%
34.8
4.0%
-7.9%
418.8
9.0%
0.0%
9.1%
$33.3
388.0
8.2%
1.0%
44.3
38.0%
27.3%
432.3
10.7%
3.2%
11.4%
$29.5
414.3
10.1%
6.8%
42.5
36.2%
-4.1%
456.8
12.1%
5.7%
10.3%
$38.1
421.1
10.5%
1.6%
42.1
11.4%
-0.9%
463.2
10.6%
1.4%
10.0%
$40.0
1,607.4
9.6%
9.6%
163.7
21.7%
21.7%
1,771.1
10.6%
10.6%
10.2%
$140.8
413.6
7.7%
-1.8%
38.5
10.5%
-8.6%
452.1
8.0%
-2.4%
9.3%
$29.6
419.2
8.1%
1.4%
39.0
-12.0%
1.4%
458.2
6.0%
1.4%
9.3%
$31.2
449.2
8.4%
7.1%
41.8
-1.7%
7.1%
491.0
7.5%
7.1%
9.3%
$34.9
457.8
8.7%
1.9%
42.6
1.1%
1.9%
500.4
8.0%
1.9%
9.3%
$36.7
1,739.8
8.2%
8.2%
161.8
-1.2%
-1.2%
1,901.7
7.4%
7.4%
9.3%
$132.5
Gross Margin
Site Rental
Network Services and Other
Gross Margin
245.7
12.5
258.2
250.5
12.2
262.7
267.7
10.5
278.1
269.2
11.0
280.2
1,033.1
46.2
1,079.3
277.0
10.5
287.5
279.3
15.8
295.1
305.3
17.3
322.6
307.4
13.9
321.3
1,169.0
57.5
1,226.5
306.1
13.5
319.6
310.2
13.6
323.9
332.4
14.6
347.0
338.8
14.9
353.7
1,287.5
56.6
1,344.1
Gross Margin %
Site Rental
Gross Margin %
70.1%
37.5%
67.2%
69.9%
38.0%
67.3%
71.1%
33.5%
68.3%
70.6%
29.1%
66.9%
70.4%
34.3%
67.4%
101%
72.1%
30.2%
68.6%
72.0%
35.7%
68.3%
73.7%
40.7%
70.6%
73.0%
33.0%
69.4%
72.7%
35.1%
69.3%
74.0%
35.0%
70.7%
74.0%
35.0%
70.7%
74.0%
35.0%
70.7%
74.0%
35.0%
70.7%
74.0%
35.0%
70.7%
Operating Expenses
Site Rental Cost of Operations
Network Services Cost of Operations
General and administrative
Stock-based compensation (included in above)
105.0
20.9
33.3
7.0
159.2
108.0
19.9
34.1
8.1
162.0
108.6
20.7
36.4
6.8
165.7
111.9
26.8
37.2
7.4
175.9
433.4
88.4
140.9
29.2
662.7
107.0
24.3
35.0
8.3
166.3
108.7
28.5
36.9
9.9
174.1
109.0
25.2
37.5
8.0
171.7
113.7
28.2
38.7
8.0
180.6
438.4
106.2
148.1
34.2
692.7
107.5
25.0
39.3
7.8
171.8
109.0
25.3
39.8
7.8
174.1
116.8
27.2
42.6
7.8
186.6
119.0
27.7
43.4
7.8
190.1
452.4
105.2
165.1
31.0
722.6
Site Rental (% of Rental Revenue)

Network Services (% of Network Revenue)
General and administrative (% of Total Revenue)
29.9%
62.5%
8.7%
30.1%
62.0%
8.7%
28.9%
66.5%
8.9%
29.4%
70.9%
8.9%
29.6%
65.7%
8.8%
27.9%
69.8%
8.4%
28.0%
64.3%
8.5%
26.3%
59.3%
8.2%
27.0%
67.0%
8.4%
27.3%
64.9%
8.4%
26.0%
65.0%
8.7%
26.0%
65.0%
8.7%
26.0%
65.0%
8.7%
26.0%
65.0%
8.7%
26.0%
65.0%
8.7%
EBITDA
y/y % change
q/q % change
Margin
224.9
16.7%
-71.7%
58.6%
228.6
17.7%
1.6%
58.5%
241.8
21.6%
5.7%
59.3%
243.0
16.6%
0.5%
58.0%
938.4
18.1%
18.1%
58.6%
252.5
12.3%
3.9%
60.3%
258.2
12.9%
2.3%
59.7%
285.1
17.9%
10.4%
62.4%
282.5
16.3%
-0.9%
61.0%
1,078.3
14.9%
14.9%
60.9%
280.3
11.0%
-0.8%
62.0%
284.1
10.0%
1.4%
62.0%
304.4
6.8%
7.1%
62.0%
310.2
9.8%
1.9%
62.0%
1,179.0
9.3%
9.3%
62.0%
Adjusted EBITDA
y/y % change
q/q % change
Margin
231.9
17.0%
-71.7%
60.4%
236.7
17.8%
2.1%
60.6%
248.5
21.1%
5.0%
61.0%
250.4
15.9%
0.7%
59.8%
967.6
18.0%
18.0%
60.4%
260.8
12.5%
4.2%
62.3%
268.1
13.3%
2.8%
62.0%
293.1
17.9%
9.3%
64.2%
290.5
16.0%
-0.9%
62.7%
1,112.5
15.0%
15.0%
62.8%
288.1
10.5%
-0.9%
63.7%
291.9
8.9%
1.3%
63.7%
312.1
6.5%
7.0%
63.6%
318.0
9.4%
1.9%
63.5%
1,210.0
8.8%
8.8%
63.6%
Average Sites
Annualized Revenue/Site
y/y % change
Revenue
Site Rental
y/y % change
q/q % change
y/y % change
q/q % change
Total Revenues
y/y % change
q/q % change
y/y Site Rental $ change
296
Philip Cusick, CFA

(1-212) 622-1444

13 January 2011
Table 166: Crown Castle Australia Operating Statistics and Income Statement
Starting Sites
Sites Added
Sites Constructed
Net Adjustments
Ending Sites
y/y % change
q/q % change
Average Sites
y/y % change
Revenue
Site Rental
y/y % change
q/q % change
y/y % change
q/q % change
Total Revenues
y/y % change
q/q % change
y/y Site Rental $ change
1Q09
1,590
1,590
10.4%
0.0%
2Q09
1,590
1
1,591
9.8%
0.1%
3Q09
1,591
4
1,595
0.1%
0.3%
4Q09
1,595
(3)
1,592
0.1%
-0.2%
2009
1,590
2
1,592
0.1%
0.1%
1Q10
1,592
1,592
0.1%
0.0%
2Q10
1,592
1
1,593
0.1%
0.1%
3Q10
1,593
2
1,595
0.0%
0.1%
4Q10E
1,595
1,595
0.2%
0.0%
2010E
1,592
3
1,595
0.2%
0.2%
1Q11E
1,595
1,595
0.2%
0.0%
2Q11E
1,595
1,595
0.1%
0.0%
3Q11E
1,595
1,595
0.0%
0.0%
4Q11E
1,595
1,595
0.0%
0.0%
2011E
1,595
1,595
0.0%
0.0%
1,590
1,591
1,593
1,594
1,592
1,592
1,593
1,594
1,595
1,593
1,595
1,595
1,595
1,595
1,595
$42,697
-27.8%
$45,100
-16.8%
$50,790
-9.2%
$53,969
36.3%
$48,143
-7.3%
$57,467
34.6%
$54,332
20.5%
$57,162
12.5%
$58,287
8.0%
$56,813
18.0%
$59,766
4.0%
$56,505
4.0%
$59,448
4.0%
$60,618
4.0%
$59,085
4.0%
3.6
3.8
4.2
4.5
4.0
4.8
4.5
4.8
4.9
4.7
5.0
4.7
5.0
5.1
4.9
17.0
-20.3%
-78.2%
1.8
2.2%
-83.0%
18.8
-18.6%
-78.8%
10.6%
(4.3)
17.9
-8.4%
5.7%
1.3
-66.5%
-25.7%
19.3
-18.2%
2.7%
7.4%
(1.6)
20.2
-4.9%
12.8%
1.4
-40.7%
6.5%
21.6
-8.5%
12.4%
7.0%
(1.0)
Gross Margin
Site Rental
Gross Margin
12.3
0.7
12.9
12.5
0.2
12.8
13.9
0.5
14.4
Gross Margin %
Site Rental
Gross Margin %
72.2%
36.3%
68.8%
69.9%
17.9%
66.3%
76.6
-1.6%
-1.6%
7.6
-27.6%
-27.6%
84.3
-4.7%
-4.7%
10.0%
(1.3)
22.9
34.8%
6.4%
2.7
48.2%
-14.4%
25.5
36.0%
3.8%
11.6%
5.9
21.6
20.6%
-5.4%
2.2
64.9%
-17.3%
23.8
23.7%
-6.7%
10.2%
3.7
22.8
12.6%
5.3%
2.3
62.9%
5.2%
25.1
15.9%
5.3%
10.1%
2.6
23.2
8.1%
2.0%
2.3
-25.0%
0.6%
25.6
3.9%
1.9%
10.0%
1.7
90.5
18.1%
18.1%
9.5
24.1%
24.1%
100.0
18.7%
18.7%
10.5%
13.9
23.8
4.2%
2.5%
1.9
-28.2%
-18.0%
25.7
0.8%
0.7%
8.0%
1.0
22.5
4.2%
-5.5%
1.8
-17.9%
-5.5%
24.3
2.1%
-5.5%
8.0%
0.9
23.7
4.1%
5.2%
1.9
-17.9%
5.2%
25.6
2.0%
5.2%
8.0%
0.9
24.2
4.0%
2.0%
1.9
-16.8%
2.0%
26.1
2.1%
2.0%
8.0%
0.9
94.2
4.1%
4.1%
7.5
-20.5%
-20.5%
101.8
1.8%
1.8%
8.0%
3.7
14.8
1.8
16.6
53.5
3.2
56.7
16.1
0.7
16.8
14.9
0.8
15.6
15.5
0.7
16.3
16.5
0.9
17.5
63.1
3.1
66.2
15.4
0.7
16.1
14.5
0.6
15.1
15.2
0.7
15.8
15.5
0.7
16.2
60.6
2.6
63.2
68.7%
38.6%
66.7%
68.8%
58.1%
67.5%
69.8%
42.3%
67.3%
70.5%
24.8%
65.7%
68.7%
35.0%
65.6%
68.2%
32.2%
64.9%
71.1%
40.0%
68.3%
69.7%
32.7%
66.1%
64.8%
35.0%
62.6%
64.2%
35.0%
62.0%
64.0%
35.0%
61.9%
64.0%
35.0%
61.9%
64.3%
35.0%
62.1%
4.7
1.1
3.3
0.9
9.2
5.4
1.1
4.0
1.4
10.5
6.3
0.9
2.9
0.4
10.1
6.7
1.3
1.7
(1.7)
9.7
23.1
4.4
11.9
1.1
39.5
6.8
2.0
4.5
1.1
13.2
6.8
1.4
3.7
0.0
11.8
7.2
1.6
3.9
0.7
12.7
6.7
1.4
4.3
0.7
12.4
27.5
6.4
16.3
2.5
50.2
8.4
1.2
3.8
0.9
13.4
8.1
1.2
3.6
0.9
12.9
8.5
1.2
3.9
0.9
13.6
8.7
1.3
3.9
0.9
13.9
33.7
4.9
15.2
3.7
53.8
Site Rental (% of Rental Revenue)

Network Services (% of Network Revenue)
General and administrative (% of Total Revenue)
27.8%
63.7%
17.7%
30.1%
82.1%
20.9%
31.3%
61.4%
13.3%
31.2%
41.9%
6.9%
30.2%
57.7%
14.2%
29.5%
75.2%
17.5%
31.3%
65.0%
15.3%
31.8%
67.8%
15.6%
28.9%
60.0%
16.7%
30.3%
67.3%
16.3%
35.2%
65.0%
14.6%
35.8%
65.0%
15.0%
36.0%
65.0%
15.1%
36.0%
65.0%
15.1%
35.7%
65.0%
14.9%
EBITDA
y/y % change
q/q % change
Margin
9.6
-20.8%
-78.2%
51.0%
8.7
-21.5%
-8.7%
45.4%
11.6
-1.8%
32.4%
53.4%
14.9
66.0%
28.8%
60.6%
44.8
1.8%
1.8%
53.1%
12.3
28.5%
-17.4%
48.2%
12.0
37.1%
-2.6%
50.3%
12.4
6.9%
3.3%
49.3%
13.2
-11.5%
6.6%
51.6%
49.8
11.3%
11.3%
49.8%
12.4
0.5%
-6.2%
48.0%
11.4
-4.4%
-7.4%
47.0%
12.0
-3.2%
4.6%
46.8%
12.2
-7.4%
2.0%
46.8%
48.0
-3.7%
-3.7%
47.2%
Adjusted EBITDA
y/y % change
q/q % change
Margin
10.5
-18.3%
-77.6%
55.9%
10.2
-15.7%
-3.0%
52.8%
12.0
-4.3%
18.1%
55.4%
13.2
40.1%
10.0%
53.7%
45.8
-2.1%
-2.1%
54.4%
13.5
28.3%
1.9%
52.7%
12.0
17.8%
-10.9%
50.3%
13.0
8.6%
8.8%
52.0%
13.9
4.9%
6.2%
54.2%
52.3
14.1%
14.1%
52.3%
13.3
-1.3%
-4.1%
51.6%
12.4
3.2%
-6.9%
50.8%
12.9
-1.1%
4.3%
50.4%
13.1
-5.2%
1.8%
50.3%
51.7
-1.3%
-1.3%
50.8%
Operating Expenses
Site Rental Cost of Operations
Network Services Cost of Operations
21.5
36.4%
6.3%
3.1
27.4%
118.5%
24.6
35.2%
13.6%
14.4%
5.7
297
Philip Cusick, CFA

(1-212) 622-1444

13 January 2011
Table 167: Crown Castle Consolidated Operating Statistics

United States
Australia
Starting Sites
United States
Australia
Sites Constructed
United States
Australia
United States
Australia
Net Adjustments
United States
Australia
Sites Added
United States
Australia
Ending Sites
y/y % change
q/q % change
1Q09
22,489
1,590
24,079
15
0
15
0
0
(23)
0
(23)
(8)
0
(8)
22,481
1,590
24,071
0.90%
0.0%
2Q09
22,481
1,590
24,071
11
0
11
(3)
0
(3)
(64)
0
(64)
(56)
1
(55)
22,425
1,591
24,016
0.44%
-0.2%
3Q09
22,425
1,591
24,016
12
0
12
(2)
0
(2)
(50)
0
(50)
(40)
4
(36)
22,385
1,595
23,980
-0.38%
-0.1%
4Q09
22,385
1,595
23,980
8
0
8
(0)
0
(0)
(28)
0
(28)
(20)
(3)
(23)
22,365
1,592
23,957
-0.51%
-0.1%
2009
22,385
1,595
23,980
47
0
47
(5)
0
(5)
(165)
0
(165)
(124)
2
(122)
22,365
1,592
23,957
-0.5%
-0.5%
1Q10
22,365
1,592
23,957
7
0
7
0
0
(34)
0
(34)
(27)
0
(27)
22,338
1,592
23,930
-0.59%
-0.1%
2Q10
22,338
1,592
23,930
8
0
8
0
0
(25)
0
(25)
(17)
1
(16)
22,321
1,593
23,914
-0.42%
-0.1%
3Q10
22,321
1,593
23,914
8
0
8
0
0
0
(64)
0
(64)
(56)
2
(54)
22,265
1,595
23,860
-0.5%
-0.2%
4Q10E
22,265
1,595
23,860
15
0
15
0
0
0
0
0
0
15
0
15
22,280
1,595
23,875
-0.3%
0.1%
Average Sites
24,075
24,044
23,998
350.7
17.0
367.7
6.6%
$22.6
$61,087
5.6%
358.5
17.9
376.4
8.0%
$27.9
$62,627
7.3%
376.2
20.2
396.5
12.0%
$42.5
$66,083
12.0%
23,969
24,021
23,944
23,922
23,887
381.1
21.5
402.6
13.4%
$47.6
$67,188
13.9%
1,466.5
76.6
1,543.2
10.0%
$140.6
$64,242
9.7%
384.0
22.9
406.9
10.7%
$39.2
$67,972
11.3%
388.0
21.6
409.6
8.8%
$33.2
$68,494
9.4%
414.3
22.8
437.1
10.2%
$40.6
$73,191
10.8%
United States
Australia
Network Services Revenue
y/y % change
33.5
1.8
35.2
37.7%
32.1
1.3
33.4
7.9%
31.2
1.4
32.6
7.4%
37.8
3.1
40.9
10.6%
134.5
7.6
142.2
14.7%
34.8
2.7
37.5
6.3%
44.3
2.2
46.5
39.1%
United States
Australia
Site Rental Gross Margin
y/y % change
245.7
12.3
258.0
10.9%
250.5
12.5
263.1
12.0%
267.7
13.9
281.6
18.2%
269.2
14.8
284.0
17.9%
1,033.1
53.5
1,086.6
14.8%
277.0
16.1
293.1
13.6%
United States
Australia
Network Services Gross Margin
y/y % change
12.5
0.7
13.2
83.7%
12.2
0.2
12.4
35.5%
10.5
0.5
11.0
12.0%
11.0
1.8
12.8
-16.5%
46.2
3.2
49.4
19.1%
United States
Australia
Adjusted EBITDA
y/y % change
y/y $ change
231.9
10.5
242.4
14.9%
$31.4
236.7
10.2
246.9
15.9%
$33.8
248.5
12.0
260.5
19.7%
$42.8
250.4
13.2
263.6
17.0%
$38.2
Revenue enhancing on existing sites
Land purchases
New site construction
Sustaining capital expenditures
Total Capital Expenditures
Capital Expenditures % or Leasing Revenue
24.7
3.4
6.2
5.0
39.3
10.7%
28.2
1.7
4.6
5.1
39.6
10.5%
21.2
1.0
4.7
5.5
32.4
8.2%

Land purchases
6.7%
0.9%
1.7%
1.4%
10.7%
7.5%
0.5%
1.2%
1.4%
10.5%
63.0%
8.6%
15.7%
12.7%
100.0%
10.7%
United States
Australia
Site Rental Revenue
y/y % change
y/y $ change
y/y % change
Capital Expenditures as % of Total

Land purchases
Capital Expenditures (% of Rental Revenue)
2010E
22,265
1,595
23,860
38
0
38
0
0
(123)
0
(123)
(85)
3
(82)
22,280
1,595
23,875
-0.3%
-0.3%
1Q11E
22,280
1,595
23,875
40
0
40
0
0
0
0
0
0
40
0
40
22,320
1,595
23,915
-0.1%
0.2%
2Q11E
22,320
1,595
23,915
40
0
40
0
0
0
0
0
0
40
0
40
22,360
1,595
23,955
0.2%
0.2%
3Q11E
22,360
1,595
23,955
40
0
40
0
0
0
0
0
0
40
0
40
22,400
1,595
23,995
0.6%
0.2%
4Q11E
22,400
1,595
23,995
40
0
40
0
0
0
0
0
0
40
0
40
22,440
1,595
24,035
0.7%
0.2%
23,868
23,905
23,888
23,935
23,975
24,015
23,953
421.1
23.2
444.3
10.4%
$41.7
$74,465
10.8%
1,607.4
90.5
1,697.9
10.0%
$154.7
$71,027
10.6%
413.6
23.8
437.5
7.5%
$30.6
$73,253
7.8%
419.2
22.5
441.8
7.8%
$32.1
$73,828
7.8%
449.2
23.7
472.9
8.2%
$35.8
$78,898
7.8%
457.8
24.2
482.0
8.5%
$37.6
$80,275
7.8%
1,739.8
94.2
1,834.1
8.0%
$136.2
$76,569
7.8%
42.5
2.3
44.8
37.4%
42.1
2.3
44.4
8.6%
163.7
9.5
173.2
21.8%
38.5
1.9
40.4
7.8%
39.0
1.8
40.8
-12.3%
41.8
1.9
43.7
-2.5%
42.6
1.9
44.5
0.2%
161.8
7.5
169.3
-2.2%
279.3
14.9
294.2
11.8%
305.3
15.5
320.8
14.0%
307.4
16.5
323.9
14.1%
1,169.0
63.1
1,232.0
13.4%
306.1
15.4
321.5
9.7%
310.2
14.5
324.7
10.4%
332.4
15.2
347.6
8.3%
338.8
15.5
354.2
9.4%
1,287.5
60.6
1,348.1
9.4%
10.5
0.7
11.2
-15.3%
15.8
0.8
16.6
33.4%
17.3
0.7
18.0
64.0%
13.9
0.9
14.8
15.8%
57.5
3.1
60.6
22.7%
13.5
0.7
14.1
26.6%
13.6
0.6
14.3
-13.8%
14.6
0.7
15.3
-15.3%
14.9
0.7
15.6
5.1%
56.6
2.6
59.3
-2.2%
967.6
45.8
1,013.4
16.9%
$146.3
260.8
13.5
274.3
13.1%
$31.9
268.1
12.0
280.1
13.5%
$33.2
293.1
13.0
306.1
17.5%
$45.6
290.5
13.9
304.4
15.5%
$40.8
1,112.5
52.3
1,164.9
14.9%
$151.5
288.1
13.3
301.3
9.9%
$27.1
291.9
12.4
304.2
8.6%
$24.1
312.1
12.9
325.0
6.2%
$18.9
318.0
13.1
331.1
8.8%
$26.7
1,210.0
51.7
1,261.7
8.3%
$96.8
27.0
19.4
3.2
12.6
62.2
15.4%
101.1
25.5
18.6
28.2
173.5
11.2%
9.3
20.2
2.8
4.6
36.9
9.1%
16.0
30.8
3.2
4.9
54.9
13.4%
22.1
26.1
3.1
5.1
56.4
12.9%
18.5
39.8
6.0
7.1
71.4
16.1%
65.9
116.9
15.1
21.7
219.6
12.9%
17.5
26.2
16.0
5.7
65.4
15.0%
17.7
26.5
16.0
5.7
65.9
14.9%
18.9
28.4
16.0
6.1
69.4
14.7%
19.3
28.9
16.0
6.3
70.5
14.6%
73.4
110.0
64.0
23.8
271.3
14.8%
5.3%
0.3%
1.2%
1.4%
8.2%
6.7%
4.8%
0.8%
3.1%
15.4%
6.6%
1.7%
1.2%
1.8%
11.2%
2.3%
5.0%
0.7%
1.1%
9.1%
3.9%
7.5%
0.8%
1.2%
13.4%
5.1%
6.0%
0.7%
1.2%
12.9%
4.2%
9.0%
1.4%
1.6%
16.1%
3.9%
6.9%
0.9%
1.3%
12.9%
4.0%
6.0%
3.7%
1.3%
15.0%
4.0%
6.0%
3.6%
1.3%
14.9%
4.0%
6.0%
3.4%
1.3%
14.7%
4.0%
6.0%
3.3%
1.3%
14.6%
4.0%
6.0%
3.5%
1.3%
14.8%
71.2%
4.4%
11.6%
12.9%
100.0%
65.4%
3.1%
14.5%
17.0%
100.0%
43.4%
31.2%
5.1%
20.3%
100.0%
58.3%
14.7%
10.7%
16.3%
100.0%
25.2%
54.7%
7.6%
12.5%
100.0%
29.1%
56.1%
5.8%
8.9%
100.0%
39.2%
46.3%
5.5%
9.0%
100.0%
25.9%
55.8%
8.4%
10.0%
100.0%
30.0%
53.2%
6.9%
9.9%
100.0%
26.7%
40.1%
24.5%
8.7%
100.0%
26.8%
40.2%
24.3%
8.7%
100.0%
27.2%
40.9%
23.0%
8.9%
100.0%
27.4%
41.0%
22.7%
8.9%
100.0%
27.0%
40.6%
23.6%
8.8%
100.0%
10.5%
8.2%
15.4%
11.2%
9.1%
13.4%
12.9%
16.1%
12.9%
15.0%
14.9%
14.7%
14.6%
14.8%
298
2011E
22,400
1,595
23,995
160
0
160
0
0
0
0
160
0
160
22,440
1,595
24,035
0.7%
0.7%
Philip Cusick, CFA

(1-212) 622-1444

13 January 2011
Table 168: Crown Castle Consolidated Income Statement

Dollars in Millions, Except Per Share Data
1Q09
2Q09
3Q09
4Q09
2009
1Q10
2Q10
3Q10
4Q10E
2010E
1Q11E
2Q11E
3Q11E
4Q11E
2011E
Revenue
Site Rental
y/y % change
y/y % change
Total revenue
y/y % change
367.7
6.6%
35.2
37.7%
402.9
8.7%
376.4
8.0%
33.4
7.9%
409.9
8.0%
396.5
12.0%
32.6
7.4%
429.1
11.6%
402.6
13.4%
40.9
10.6%
443.5
13.1%
1,543.2
10.0%
142.2
14.7%
1,685.4
10.4%
406.9
10.7%
37.5
6.3%
444.3
10.3%
409.6
8.8%
46.5
39.1%
456.1
11.3%
437.1
10.2%
44.8
37.4%
481.9
12.3%
444.3
10.4%
44.4
8.6%
488.8
10.2%
1,697.9
10.0%
173.2
21.8%
1,871.1
11.0%
437.5
7.5%
40.4
7.8%
477.8
7.5%
441.8
7.8%
40.8
-12.3%
482.6
5.8%
472.9
8.2%
43.7
-2.5%
516.6
7.2%
482.0
8.5%
44.5
0.2%
526.5
7.7%
1,834.1
8.0%
169.3
-2.2%
2,003.4
7.1%
Costs of operations (exclusive of D&A):

Site Rental
Total cost of operations
109.7
22.1
131.8
113.4
21.0
134.4
114.9
21.6
136.5
118.6
28.1
146.7
456.6
92.8
549.4
113.8
26.3
140.1
115.5
29.9
145.4
116.2
26.8
143.0
120.4
29.6
150.0
465.9
112.6
578.5
115.9
26.2
142.2
117.1
26.5
143.6
125.3
28.4
153.7
127.7
28.9
156.6
486.0
110.1
596.1
Gross Margin
Site Rental
Total Gross Margin
y/y % change
258.0
13.2
271.2
13.1%
263.1
12.4
275.5
17.2%
281.6
11.0
292.6
22.9%
284.0
12.8
296.8
20.2%
1,086.6
49.4
1,136.0
18.3%
293.1
11.2
304.3
12.2%
294.2
16.6
310.7
12.8%
320.8
18.0
338.9
15.8%
323.9
14.8
338.7
14.1%
1,232.0
60.6
1,292.6
13.8%
321.5
14.1
335.7
10.3%
324.7
14.3
339.0
9.1%
347.6
15.3
362.9
7.1%
354.2
15.6
369.8
9.2%
1,348.1
59.3
1,407.3
8.9%

Corporate Development
Restructuring charges
Asset write-down charges
Integration costs
36.6
0.0
133.2
7.9
301.6
0.0
4.1
0.0
305.7
38.1
0.0
131.6
9.5
304.1
0.0
7.3
0.0
311.4
39.2
0.0
131.5
7.2
307.2
0.0
3.1
0.0
310.3
39.1
0.0
133.5
5.7
319.3
0.0
4.8
0.0
324.1
153.1
0.0
529.7
30.3
1,232.2
0.0
19.2
0.0
1,251.4
39.5
0.0
132.9
9.4
312.4
0.0
1.6
0.0
314.0
40.6
0.0
134.4
9.9
320.4
0.0
2.6
0.3
323.2
41.4
0.0
136.2
8.7
320.6
0.0
4.4
0.9
325.9
43.0
0.0
146.6
8.7
339.7
0.0
0.0
0.0
339.7
164.5
0.0
550.1
36.7
1,293.1
0.0
8.6
1.1
1,302.8
43.0
0.0
145.7
8.7
330.9
0.0
0.0
0.0
330.9
43.4
0.0
147.2
8.7
334.2
0.0
0.0
0.0
334.2
46.5
0.0
157.6
8.7
357.7
0.0
0.0
0.0
357.7
47.4
0.0
160.6
8.7
364.6
0.0
0.0
0.0
364.6
180.3
0.0
611.0
34.7
1,387.5
0.0
0.0
0.0
1,387.5
EBITDA
y/y % change
Margin
230.4
14.6%
57.2%
230.1
20.1%
56.1%
250.3
26.6%
58.3%
252.9
26.1%
57.0%
963.7
21.8%
57.2%
263.241
14.2%
59.2%
267.3
16.2%
58.6%
292.2
16.7%
60.6%
295.7
16.9%
60.5%
1,118.5
16.1%
59.8%
292.7
11.2%
61.2%
295.5
10.6%
61.2%
316.4
8.3%
61.2%
322.4
9.0%
61.2%
1,227.0
9.7%
61.2%
Adjusted EBITDA
y/y % change
Margin
242.4
14.9%
60.2%
246.9
20.9%
60.2%
260.5
25.4%
60.7%
263.450
21.8%
59.4%
1,013.3
20.7%
60.1%
274.3
13.1%
61.7%
280.1
13.5%
61.4%
306.1
17.5%
63.5%
304.4
15.5%
62.3%
1,164.9
15.0%
62.3%
301.3
9.9%
63.1%
304.2
8.6%
63.0%
325.0
6.2%
62.9%
331.1
8.8%
62.9%
1,261.7
8.3%
63.0%
Operating Income (Loss)

y/y % change
Margin
97.2
40.9%
24.1%
98.5
64.8%
24.0%
118.8
80.0%
27.7%
119.4
71.1%
26.9%
434.0
64.0%
25.7%
130.4
34.1%
29.3%
132.9
34.9%
29.1%
156.0
31.3%
32.4%
149.1
24.8%
30.5%
568.3
31.0%
30.4%
146.9
12.7%
30.7%
148.4
11.7%
30.7%
158.8
1.8%
30.7%
161.9
8.6%
30.7%
616.0
8.4%
30.7%
Adjusted Operating Income (Loss)

y/y % change
Margin
109.2
38.3%
27.1%
115.3
59.4%
28.1%
129.1
69.9%
30.1%
129.9
52.0%
29.3%
483.5
54.6%
28.7%
141.4
29.4%
31.8%
145.7
26.4%
31.9%
169.9
31.6%
35.3%
157.8
21.4%
32.3%
614.7
27.1%
32.9%
155.6
10.0%
32.6%
157.0
7.8%
32.5%
167.5
-1.4%
32.4%
170.5
8.1%
32.4%
650.6
5.8%
32.5%
Adjusted OI (Loss) with stock comp.

y/y % change
Margin
101.3
39.2%
25.2%
105.8
63.4%
25.8%
121.9
76.9%
28.4%
124.2
60.2%
28.0%
453.2
59.6%
26.9%
131.9
30.2%
29.7%
135.8
28.3%
29.8%
161.3
32.3%
33.5%
149.1
20.0%
30.5%
578.0
27.5%
30.9%
146.9
11.4%
30.7%
148.4
9.3%
30.7%
158.8
-1.5%
30.7%
161.9
8.6%
30.7%
616.0
6.6%
30.7%
Interest and other income (expense)

Interest exp and amort deferred financing costs
Adjusted Pretax Income
One time items
Impairment of available for sale securities
Pretax Income
(0.2)
(105.6)
(4.5)
17.1
0.0
8.6
3.2
(110.3)
(1.2)
(158.2)
0.0
(166.7)
2.6
(111.2)
13.3
(63.2)
0.0
(53.0)
(0.2)
(118.9)
5.2
20.2
0.0
20.6
5.4
(445.9)
12.7
(184.0)
0.0
(190.5)
0.4
(120.8)
11.5
(139.7)
0.0
(129.7)
(0.2)
(120.3)
15.2
(114.6)
0.0
(102.3)
0.8
(123.2)
38.9
(176.4)
0.0
(142.7)
0.9
(125.3)
24.7
0.0
0.0
24.7
1.9
(489.7)
90.3
(430.7)
0.0
(350.1)
1.1
(125.3)
22.6
0.0
0.0
22.6
1.3
(125.3)
24.3
0.0
0.0
24.3
1.5
(125.3)
34.9
0.0
0.0
34.9
1.7
(125.3)
38.2
0.0
0.0
38.2
5.5
(501.4)
120.0
0.0
0.0
120.0
Benefit (provision) for income taxes

Tax Rate
Minority interest
Income (loss) from continuing operations
1.5
17.4%
54.9
-33.0%
21.8
-41.2%
(1.9)
-9.1%
76.4
-40.1%
10.3
-8.0%
4.7
-4.6%
7.6
-5.3%
(1.2)
-5.0%
21.4
-6.1%
(1.1)
-5.0%
(1.2)
-5.0%
(1.7)
-5.0%
(1.9)
-5.0%
(6.0)
-5.0%
10.0
(111.8)
(31.1)
18.7
(114.1)
(119.4)
(97.6)
(135.2)
23.4
(328.7)
21.5
23.1
33.2
36.3
114.0
Income (loss) from discontinued operations
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
10.0
5.1
(111.8)
(3.6)
(31.1)
12.3
18.7
12.8
(114.1)
26.5
(119.4)
(30.6)
(97.6)
(22.6)
(135.2)
(18.5)
23.4
15.3
(328.7)
(56.4)
21.5
14.0
23.1
15.1
33.2
21.7
36.3
23.7
114.0
74.4
Net income (loss), reported

Net income (loss), adjusted
Net income attributable to the noncontrolling interest
0.5
0.3
(0.5)
(0.6)
(0.2)
0.1
0.1
0.1
0.1
0.5
0.1
0.1
0.1
0.1
0.6
Net income attributable to CCI, reported

Net income attributable to CCI, adjusted
10.6
5.6
(111.4)
(3.3)
(31.6)
11.8
18.1
12.2
(114.3)
26.3
(119.3)
(30.5)
(97.5)
(22.5)
(135.0)
(18.4)
23.6
15.4
(328.3)
(56.0)
21.7
14.2
23.2
15.2
33.3
21.8
36.4
23.8
114.6
75.0
Dividends on preferred stock

Net income after preferred stock, reported
Net income after preferred stock, adjusted
(5.2)
5.4
0.4
(5.2)
(116.6)
(8.8)
(5.2)
(36.8)
7.1
(5.2)
12.9
7.6
(20.8)
(135.2)
6.2
(5.2)
(124.5)
(35.7)
(5.2)
(102.7)
(27.8)
(5.2)
(140.2)
(23.7)
(5.2)
18.4
10.1
(20.8)
(349.1)
(77.1)
(5.2)
16.5
9.0
(5.2)
18.0
9.9
(5.2)
28.1
16.5
(5.2)
31.2
18.5
(20.8)
93.8
53.8

$0.02
$0.00
($0.41)
($0.03)
($0.13)
$0.02
$0.04
$0.03
($0.47)
$0.02
($0.43)
($0.12)
($0.36)
($0.10)
($0.49)
($0.08)
$0.06
$0.04
($1.22)
($0.27)
$0.06
$0.03
$0.06
$0.03
$0.10
$0.06
$0.11
$0.06
$0.33
$0.19
287.6
286.4
286.7
290.5
287.8
288.5
286.1
286.1
286.1
286.7
286.1
286.1
286.1
286.2
286.1
299
Philip Cusick, CFA

(1-212) 622-1444

13 January 2011
Table 169: Crown Castle Consolidated Cash Flow Statement

(Dollars in millions, except per share amounts)
1Q09
2Q09
3Q09
4Q09
2009
1Q10
2Q10
3Q10
4Q10E
2010E
1Q11E
2Q11E
3Q11E
4Q11E
2011E
Net income
10.0
(111.8)
(31.1)
18.7
(114.1)
(119.4)
(97.6)
(135.2)
23.4
(328.7)
21.5
23.1
33.2
36.3
114.0
133.2
131.6
131.5
133.5
529.7
132.9
134.4
136.2
146.6
550.1
145.7
147.2
157.6
160.6
611.0
(3.2)
(56.5)
(23.8)
9.7
(73.8)
(13.8)
(8.6)
(12.0)
0.0
(34.3)
0.0
0.0
0.0
0.0
0.0
Other
(2.3)
144.6
180.8
152.2
81.3
164.6
3.0
172.4
262.8
633.8
161.0
168.9
135.5
173.6
203.3
200.5
0.0
178.7
499.8
721.8
0.0
175.9
0.0
178.9
0.0
199.4
0.0
205.5
0.0
759.8
Increase (decrease) in liabilities

Decrease (increase) in assets
Cash after working capital requirements
y/y % change
(22.3)
(4.3)
118.1
74.1%
22.3
(31.2)
143.3
2.7%
3.2
(35.5)
132.3
10.6%
56.6
(51.3)
177.6
12.3%
59.8
(122.3)
571.2
17.8%
(47.1)
(37.6)
84.3
-28.6%
25.1
(34.8)
164.0
14.4%
13.7
(54.7)
159.4
20.5%
0.0
0.0
178.7
0.6%
(8.3)
(127.1)
586.4
2.6%
0.0
0.0
175.9
108.8%
0.0
0.0
178.9
9.1%
0.0
0.0
199.4
25.1%
0.0
0.0
205.5
15.0%
0.0
0.0
759.8
29.6%
Free Cash Flow
39.3
78.8
39.6
103.7
32.4
99.9
62.2
115.4
173.5
397.7
58.7
25.6
55.5
108.4
34.1
125.4
71.4
107.3
219.7
366.7
65.4
110.5
65.9
113.0
69.4
130.0
70.5
135.1
271.3
488.5
Dividends on Preferred Stocks

5.0
73.8
5.0
98.7
5.0
95.0
5.0
110.4
19.9
377.9
5.0
20.6
5.0
103.4
5.0
120.4
5.2
102.1
20.1
346.6
5.2
105.3
5.2
107.8
5.2
124.8
5.2
129.9
20.8
467.7
0.0

Deferred income tax (benefit) provision
Proceeds from investments and disposition of proper
2.4
0.7
0.2
0.6
4.0
1.7
0.2
(25.2)
0.0
(23.2)
0.0
0.0
0.0
0.0
Payments for acquisitions
0.0
(1.7)
(0.8)
(0.0)
(2.6)
0.0
0.0
(127.0)
0.0
(127.0)
0.0
0.0
0.0
0.0
0.0
Change in equity
3.0
5.5
7.0
26.5
42.0
(101.9)
(36.6)
7.9
(3.8)
(134.4)
2.0
2.0
2.0
2.0
8.0
416.0
(331.3)
(162.0)
436.1
358.7
(253.9)
(4.5)
148.7
0.0
(109.6)
0.0
0.0
0.0
0.0
0.0
Other
(39.7)
(53.1)
2.8
(76.4)
(166.5)
(35.3)
(217.2)
(63.6)
0.0
(316.1)
0.0
0.0
0.0
0.0
0.0
Effect of exchange rate changes on cash

Cash flows from discontinued operations
Net increase (decrease) in cash and cash equival
(1.4)
0.0
454.1
(1.3)
0.0
(282.5)
(0.1)
0.0
(58.1)
0.2
0.0
497.3
(2.6)
0.0
610.9
0.1
0.0
(368.7)
(0.8)
0.0
(155.4)
0.7
0.0
61.9
0.0
0.0
98.3
(0.1)
0.0
(363.8)
0.0
0.0
107.3
0.0
0.0
109.8
0.0
0.0
126.8
0.0
0.0
131.9
0.0
0.0
475.7
Cash and cash equivalents at beginning of period

Cash and cash equivalents at end of period
Cash and cash equivalents including restricted cash
146.1
600.2
768.4
600.2
317.8
525.9
317.8
259.7
451.5
259.7
757.0
979.7
146.1
757.0
979.7
766.1
397.5
446.4
397.5
242.1
446.4
242.1
304.0
511.0
304.0
402.3
609.4
766.1
402.3
609.4
402.3
509.6
716.7
509.6
619.4
826.4
619.4
746.2
953.2
746.2
878.0
1,085.1
402.3
878.0
1,085.1

Adjusted EBITDA
Net Interest Expense
Cash taxes
Maintenance Capex
Preferred Dividends
Recurring Cash Flow
y/y % change
Weighted Average Shares Outstanding
Recurring Cash Flow per Share
y/y % change
242.4
105.8
2.2
5.0
5.2
124.2
8.7%
287.6
$0.43
5.5%
246.9
107.0
2.2
5.1
5.2
127.3
23.6%
286.4
$0.44
24.5%
260.5
108.6
0.7
5.5
5.2
140.5
28.9%
286.7
$0.49
27.5%
263.5
119.0
0.5
12.6
5.2
126.1
15.9%
290.5
$0.43
14.0%
1,013.3
440.5
5.6
28.2
20.8
518.2
19.1%
287.8
$1.80
17.6%
274.3
120.4
1.4
4.6
5.2
142.7
14.9%
288.5
$0.49
14.6%
280.1
120.6
0.8
4.9
5.2
148.6
16.7%
286.1
$0.52
16.8%
306.1
122.3
0.0
5.1
5.2
173.5
23.4%
286.1
$0.61
23.7%
304.4
124.4
(1.2)
7.1
5.2
168.9
33.9%
286.1
$0.59
35.9%
1,164.9
487.8
1.0
21.7
20.8
633.6
22.3%
286.7
$2.21
22.8%
301.3
124.3
(1.1)
5.7
5.2
167.3
17.3%
286.1
$0.58
18.3%
304.2
124.1
(1.2)
5.7
5.2
170.4
14.7%
286.1
$0.60
14.7%
325.0
123.9
(1.7)
6.1
5.2
191.5
10.4%
286.1
$0.67
10.4%
331.1
123.7
(1.9)
6.3
5.2
197.9
17.2%
286.2
$0.69
17.1%
1,261.7
495.9
(6.0)
23.8
20.8
727.1
14.8%
286.1
$2.54
15.0%

y/y % change
y/y % change
(1.8)
122.3
7.1%
$0.43
4.0%
(1.9)
125.5
21.8%
$0.44
22.7%
(2.0)
138.6
27.0%
$0.48
25.7%
(2.0)
124.1
14.0%
$0.43
12.2%
(7.7)
510.5
17.3%
$1.77
15.8%
(2.0)
140.6
15.0%
$0.49
14.6%
(2.0)
146.5
16.8%
$0.51
16.9%
(2.2)
171.3
23.6%
$0.60
23.9%
(25.5)
143.3
15.5%
$0.50
17.2%
(31.8)
601.8
17.9%
$2.10
18.3%
(24.1)
143.2
1.9%
$0.50
2.7%
(24.3)
146.1
-0.3%
$0.51
-0.3%
(20.1)
171.4
0.1%
$0.60
0.1%
(20.5)
177.4
23.8%
$0.62
23.7%
(88.9)
638.2
6.1%
$2.23
6.2%
Recurring Cash Flow - CCI Calculation

Adjusted EBITDA
Interest exp and amort deferred financing costs
Recurring Cash Flow - CCI Calculation
y/y % change
242.4
(105.6)
(5.0)
131.8
11.6%
246.9
(110.3)
(5.1)
131.5
19.1%
260.5
(111.2)
(5.5)
143.9
26.8%
263.5
(118.9)
(12.6)
132.0
13.8%
1,013.3
(445.9)
(28.2)
539.2
17.7%
274.3
(120.8)
(4.6)
148.9
12.9%
280.1
(120.3)
(4.9)
154.8
17.7%
306.1
(123.2)
(5.1)
177.8
23.6%
304.4
(125.3)
(7.1)
171.9
30.3%
1,164.9
(489.7)
(21.7)
653.5
21.2%
301.3
(125.3)
(5.7)
170.3
14.4%
304.2
(125.3)
(5.7)
173.1
11.8%
325.0
(125.3)
(6.1)
193.5
8.8%
331.1
(125.3)
(6.3)
199.5
16.0%
1,261.7
(501.4)
(23.8)
736.5
12.7%
Weighted Average Shares Outstanding
287.6
286.4
286.7
290.5
287.8
288.5
286.1
286.1
286.1
286.7
286.1
286.1
286.1
286.2
286.1
Recurring Cash Flow per Share - CCI Calculation

y/y % change
$0.46
8.4%
$0.46
19.9%
$0.50
25.4%
$0.45
11.9%
$1.87
16.2%
$0.52
12.6%
$0.54
17.9%
$0.62
23.9%
$0.60
32.3%
$2.28
21.7%
$0.60
15.4%
$0.61
11.8%
$0.68
8.8%
$0.70
16.0%
$2.57
12.9%
(7.4)
5.5
-2.0%
1.5%
(7.5)
5.6
-2.0%
1.5%
(7.9)
5.9
-2.0%
1.5%
(8.1)
6.0
-2.0%
1.5%
(30.9)
23.1
-2.0%
1.5%
(8.1)
6.1
-2.0%
1.5%
(8.2)
6.1
-2.0%
1.5%
(8.7)
6.6
-2.0%
1.5%
(30.0)
4.4
-6.8%
1.0%
(55.1)
23.2
-3.2%
1.4%
(28.4)
4.4
-6.5%
1.0%
(28.7)
4.4
-6.5%
1.0%
(24.8)
4.7
-5.3%
1.0%
(25.3)
4.8
-5.3%
1.0%
(107.3)
18.3
-5.8%
1.0%
300
Philip Cusick, CFA

(1-212) 622-1444

13 January 2011
Table 170: Crown Castle Consolidated Balance Sheet

1Q09
2Q09
3Q09
4Q09
2009
1Q10
2Q10
3Q10
4Q10E
2010E
1Q11E
2Q11E
3Q11E
4Q11E
2011E
609.3
159.0
33.5
105.5
29.4
936.8
335.0
190.9
35.9
106.5
72.9
741.2
268.8
182.7
33.4
91.2
99.2
675.3
766.1
213.5
44.4
95.9
76.1
1,196.0
766.1
213.5
44.4
95.9
76.1
1,196.0
397.5
174.7
41.3
90.1
110.5
814.1
242.1
204.3
49.1
83.3
93.5
672.2
304.0
207.1
55.2
95.4
92.7
754.3
402.3
207.1
55.2
95.4
92.7
852.6
402.3
207.1
55.2
95.4
92.7
852.6
509.6
207.1
55.2
95.4
92.7
959.9
619.4
207.1
55.2
95.4
92.7
1,069.7
746.2
207.1
55.2
95.4
92.7
1,196.5
878.0
207.1
55.2
95.4
92.7
1,328.3
878.0
207.1
55.2
95.4
92.7
1,328.3
5.0
156.7
0.0
4,992.1
1,984.0
2,514.0
161.3
10,749.9
5.0
185.2
0.0
4,964.1
1,984.2
2,478.8
194.0
10,552.4
5.0
0.0
0.0
4,926.6
1,984.2
2,443.1
449.0
10,483.2
5.0
0.0
0.0
4,896.0
1,984.8
2,405.4
469.4
10,956.6
5.0
0.0
0.0
4,896.0
1,984.8
2,405.4
469.4
10,956.6
5.0
0.0
0.0
4,842.4
1,984.8
2,385.9
528.3
10,560.5
5.0
0.0
0.0
4,786.6
1,984.8
2,351.5
552.4
10,352.4
0.0
0.0
0.0
4,897.3
2,029.1
2,338.5
633.9
10,653.2
0.0
0.0
0.0
4,822.1
2,029.1
2,338.5
633.9
10,676.3
0.0
0.0
0.0
4,822.1
2,029.1
2,338.5
633.9
10,676.3
0.0
0.0
0.0
4,741.8
2,029.1
2,338.5
633.9
10,703.3
0.0
0.0
0.0
4,660.5
2,029.1
2,338.5
633.9
10,731.8
0.0
0.0
0.0
4,572.4
2,029.1
2,338.5
633.9
10,770.5
0.0
0.0
0.0
4,482.3
2,029.1
2,338.5
633.9
10,812.2
0.0
0.0
0.0
4,482.3
2,029.1
2,338.5
633.9
10,812.2
26.1
259.2
225.5
48.3
559.1
27.3
294.6
248.7
161.8
732.5
149.0
170.1
113.1
212.6
644.7
197.1
179.6
217.2
160.1
754.1
197.1
179.6
217.2
160.1
754.1
157.0
171.7
19.6
279.1
627.4
163.0
180.9
20.8
207.8
572.5
179.9
232.9
22.0
234.9
669.8
179.9
232.9
22.0
234.9
669.8
179.9
232.9
22.0
234.9
669.8
179.9
232.9
22.0
234.9
669.8
179.9
232.9
22.0
234.9
669.8
179.9
232.9
22.0
234.9
669.8
179.9
232.9
22.0
234.9
669.8
179.9
232.9
22.0
234.9
669.8
Long-term debt, less current maturities

Deferred income tax liability
Other liabilities
Total liabilities
6,277
33.2
790.2
7,659.2
6,025
72.7
483.7
7,313.6
6,022
95.2
553.9
7,316.3
6,362
74.1
514.7
7,704.9
6,362
74.1
514.7
7,704.9
6,369
107.1
454.2
7,557.5
6,368
76.6
537.2
7,554.4
6,594
87.9
604.2
7,955.9
6,594
87.9
627.2
7,979.0
6,594
87.9
627.2
7,979.0
6,594
87.9
654.2
8,006.0
6,594
87.9
682.8
8,034.5
6,594
87.9
721.4
8,073.1
6,594
87.9
763.1
8,114.9
6,594
87.9
763.1
8,114.9
Minority interests
Redeemable preferred stock
Stockholders' equity
(0.5)
315.0
2,776.3
(1.0)
315.2
2,924.7
(0.7)
315.4
2,852.2
(0.2)
315.7
2,936.2
(0.2)
315.7
2,936.2
(0.1)
315.9
2,687.2
(0.2)
316.1
2,482.1
(0.4)
316.3
2,381.4
(0.4)
316.3
2,381.4
(0.4)
316.3
2,381.4
(0.4)
316.3
2,381.4
(0.4)
316.3
2,381.4
(0.4)
316.3
2,381.4
(0.4)
316.3
2,381.4
(0.4)
316.3
2,381.4
10,749.9
10,552.4
10,483.2
10,956.6
10,956.6
10,560.5
10,352.4
10,653.2
10,676.3
10,676.3
10,703.3
10,731.8
10,770.5
10,812.2
10,812.2
Assets
Current assets
Restricted cash
Receivables, net of allowance for doubtful accounts
Prepaid expenses and other current assets
Deferred income tax asset and other current assets
Restricted cash
Deferred site rental receivable
Available-for-sale securities
Property and equipment, net
Goodwill
Deferred financing costs and other assets, net
Total assets
Liabilities and stockholders' equity
Current liabilities
Accounts payable
Deferred rental revenues and other accrued liabilities
Short term debt and current maturities of long-term d
Total liabilities and shareowners' equity
301
Philip Cusick, CFA

(1-212) 622-1444
302

13 January 2011
Philip Cusick, CFA

(1-212) 622-1444

13 January 2011
SBA Communications Model

Table 171: SBA Communications Valuation Summary
CAGR
11E-20E
2%
2007
6,220
12.1%
$54,680
-5.5%
322
25.6%
86
-9.0%
408
16.3%
211
31.6%
53.9%
2008
7,854
26.3%
$57,002
4.2%
396
22.9%
79
-8.1%
475
16.4%
270
27.7%
57.8%
2009
8,324
6.0%
$59,501
4.4%
477
20.6%
79
-1.1%
556
17.0%
339
25.4%
61.6%
2010E
8,830
6.1%
$62,515
5.1%
535
12.2%
89
13.2%
624
12.4%
385
13.7%
62.1%
2011E
9,050
2.5%
$65,641
5.0%
587
9.6%
88
-0.9%
675
8.1%
429
11.3%
63.9%
2012E
9,290
2.7%
$68,923
5.0%
632
7.7%
95
7.7%
727
7.7%
471
9.9%
65.1%
2013E
9,550
2.8%
$72,025
4.5%
679
7.3%
102
7.3%
780
7.3%
510
8.2%
65.7%
2014E
9,830
2.9%
$74,906
4.0%
726
7.0%
109
7.0%
835
7.0%
552
8.3%
66.4%
2015E
10,070
2.4%
$77,528
3.5%
771
6.3%
116
6.3%
887
6.3%
593
7.4%
67.1%
2016E
10,270
2.0%
$79,853
3.0%
812
5.3%
122
5.3%
934
5.3%
623
5.1%
67.0%
2017E
10,430
1.6%
$82,249
3.0%
851
4.8%
128
4.8%
979
4.8%
652
4.7%
66.9%
2018E
10,570
1.3%
$84,716
3.0%
890
4.5%
133
4.5%
1,023
4.5%
681
4.4%
66.8%
2019E
10,690
1.1%
$87,258
3.0%
928
4.3%
139
4.3%
1,067
4.3%
709
4.2%
66.8%
2020E
10,790
0.9%
$89,876
3.0%
965
4.1%
145
4.1%
1,110
4.1%
738
4.0%
66.7%

EBIT
Less: Taxes on EBIT @ -1.0%
169
42
(1)
41
169
48
14.8%
211
59
(1)
58
211
56
14.2%
259
80
(0)
80
259
67
14.0%
276
109
(1)
108
276
92
17.2%
290
138
(1)
137
290
134
22.8%
309
162
(1)
161
309
144
22.8%
328
182
(0)
181
328
154
22.7%
346
205
(0)
205
346
164
22.6%
364
229
(0)
229
364
150
19.4%
378
245
0
245
378
136
16.7%
392
261
0
261
392
121
14.3%
404
277
0
277
404
115
12.9%
416
293
1
294
416
109
11.7%
427
310
1
311
427
102
10.6%

y/y % change
y/y % change
163
99
49.2%
104
50.9%
213
151
51.5%
153
47.5%
271
197
30.4%
203
32.4%
292
220
12.2%
228
12.2%
294
261
18.3%
269
18.0%
326
301
15.4%
309
15.0%
355
338
12.2%
346
11.9%
388
378
11.8%
386
11.6%
443
416
10.3%
424
10.0%
487
445
6.8%
453
6.7%
531
472
6.1%
480
6.0%
566
498
5.6%
506
5.5%
601
524
5.3%
533
5.2%
636
550
4.9%
558
4.9%
EFCF per share - reported

$1.14
$0.95
$0.99
$1.48
$1.37
$1.39
$1.70
$1.68
$1.73
$1.92
$1.91
$1.97
$2.28
$2.27
$2.34
$2.66
$2.66
$2.73
$3.06
$3.05
$3.12
$3.50
$3.49
$3.56
$3.95
$3.94
$4.02
$4.32
$4.31
$4.39
$4.71
$4.69
$4.77
$5.10
$5.07
$5.16
$5.52
$5.48
$5.56
$5.96
$5.91
$5.99
11%
11%
11%
Reported EPS
Adjusted EPS
($0.74)
($0.74)
($0.43)
($0.59)
($1.20)
($1.13)
($1.60)
($1.20)
($0.80)
($0.49)
($0.61)
($0.37)
($0.44)
($0.27)
($0.23)
($0.14)
($0.01)
($0.00)
$0.15
$0.09
$0.32
$0.20
$0.50
$0.30
$0.69
$0.42
$0.90
$0.55
NM
NM
$40.76
EV ($b)
7.32
2009
21.6x
24.0x
24.3x
23.5x
2010E
19.0x
21.3x
21.4x
20.7x
2011E
17.1x
17.9x
17.9x
17.4x
2012E
15.6x
15.3x
15.3x
14.9x
2013E
14.4x
13.3x
13.4x
13.1x

8.73
25.8x
31.3x
31.7x
30.7x
22.7x
27.7x
27.8x
27.0x
20.4x
23.3x
23.4x
22.7x
18.6x
19.9x
20.0x
19.5x
17.1x
17.4x
17.4x
17.0x
Ending sites
y/y % change
y/y % change
y/y % change
y/y % change
Revenue
y/y % change
Adjusted EBITDA
y/y % change
2011E
3,649
0
(835)
2,813
6,597
9,410

PMV of equity
0
(2,657)
6,752

114.5
114.5
DCF Value per Share

Price Target
Upside to target
6%
6%
6%
6%
4%
9%
10%
-3%
9%
9%
8%

PMV of operations
4%
$58.99
10%
$53.09
30.3%
no
Yes = tax rate goes to 5.0% (adjust below), WACC, taxes affected.
No = tax rate = -1.0%, WACC lower, taxes higher.
5%

53
2.5%
3.0%
3.5%
4.0%
4.5%
7.5%
58
64
73
84
98
8.0%
50
55
62
70
80
8.5%
44
48
$53.09
59
67
9.5%
34
37
40
44
49
10.5%
26
28
31
33
37
303
Philip Cusick, CFA

(1-212) 622-1444

13 January 2011
Table 172: SBA Communications Operating Statistics

(Dollars in millions, except per tower amounts)
Site Data
Beginning Sites
Net New Sites
Ending Sites
y/y % change
Average Sites
1Q09
2Q09
3Q09
4Q09
2009
1Q10
2Q10
7,854
30
7,884
24.6%
7,884
120
8,004
16.1%
8,004
81
8,085
8.0%
8,085
242
8,324
6.0%
7,854
473
8,324
6.0%
8,324
56
8,380
6.3%
8,380
208
8,588
7.3%
3Q10
8,538.0
8,588
117
8,705
7.7%
4Q10E
2010E
1Q11E
2Q11E
3Q11E
4Q11E
2011E
8,705
125
8,830
6.1%
8,324
506
8,830
6.1%
8,830
55
8,885
6.0%
8,885
55
8,940
4.1%
8,940
55
8,995
3.3%
8,995
55
9,050
2.5%
8,830
220
9,050
2.5%
7,869
7,944
8,045
8,205
8,089
8,352
8,484
8,647
8,768
8,577
8,858
8,913
8,968
9,023
8,940
$58,700
3.0%
4,892
2.47
-1.4%
19,447
23.7%
1,979.4
4.5%
2.50
115.5
29.2%
26.1
$59,085
4.2%
4,924
2.49
-2.2%
19,800
17.5%
1,975.5
6.5%
2.50
117.3
25.2%
23.6
$59,942
7.2%
4,995
2.50
-2.2%
20,111
9.4%
1,998.1
9.6%
2.50
120.6
19.9%
20.0
$60,277
3.3%
5,023
2.50
-0.9%
20,511
6.0%
2,009.2
4.2%
2.47
123.6
10.5%
11.7
$59,501
4.4%
4,914
2.47
-1.2%
19,967
13.6%
1,990.8
6.1%
$62,112
5.1%
5,176
2.50
0.3%
21,210
7.1%
2,070.4
4.8%
2.50
131.7
12.3%
14.4
$62,769
4.7%
5,231
2.50
0.0%
21,616
7.5%
2,092.3
4.7%
2.50
135.7
12.6%
15.1
$63,894
6.0%
5,324
2.50
0.0%
21,919
6.9%
2,129.8
6.0%
$62,515
5.1%
5,202
2.50
1.1%
21,406
7.2%
2,084.4
4.7%
$64,351
5.0%
5,363
2.53
1.0%
22,365
7.1%
2,123.8
4.0%
$65,217
5.0%
5,435
2.53
1.0%
22,504
6.1%
2,152.4
4.0%
$65,908
5.0%
5,492
2.53
1.0%
22,643
4.7%
2,175.2
4.0%
$67,088
5.0%
5,591
2.53
1.0%
22,782
3.9%
2,214.1
4.0%
$65,641
5.0%
5,471
2.53
1.2%
22,574
5.5%
2,166.6
3.9%
477.0
20.6%
81.5
$61,287
4.4%
5,107
2.50
1.2%
20,880
7.4%
2,042.9
3.2%
2.47
128.0
10.8%
12.5
140.0
13.3%
16.4
535.4
12.2%
58.4
142.5
11.4%
14.5
145.3
10.3%
13.6
147.8
8.9%
12.1
151.3
8.1%
11.3
586.9
9.6%
51.5
Capital Expenditure
Tower new build construction:
Operating tower expenditures:
Tower upgrades/augmentations
Maintenance/improvement
General corporate expenditures
Tower and Land Acquisitions (cash portion)
Capital Expenditures and Acquisitions
Total Non-discretionary expenditures
Land acquisitions
Capital Expenditures and Land Acqs.
5.1
2.4
0.9
1.5
0.1
7.6
4.1
11.7
1.6
5.0
12.6
9.4
4.1
2.5
1.6
0.6
14.1
25.4
39.5
2.2
5.0
19.1
7.9
4.3
2.4
1.9
0.3
12.5
22.8
35.3
2.2
5.0
17.5
7.9
4.1
2.5
1.6
0.7
12.6
123.9
136.5
2.3
5.0
17.6
30.2
14.9
8.3
6.6
1.6
46.7
176.3
223.0
8.3
20.0
66.7
8.1
3.6
1.9
1.7
0.5
12.2
30.3
42.5
2.2
5.0
17.2
10.6
4.2
2.2
2.0
0.6
15.3
81.7
97.0
2.6
5.0
20.3
14.9
5.1
2.9
2.2
0.4
20.5
59.4
79.9
2.7
5.0
25.5
18.0
6.0
3.6
2.4
0.2
24.2
110.0
134.2
2.6
5.0
29.2
51.6
18.9
10.5
8.3
1.7
72.1
281.4
353.6
10.0
20.0
92.1
22.0
5.6
3.1
2.4
0.7
28.3
55.0
83.3
3.1
5.0
33.3
22.0
5.7
3.2
2.5
0.7
28.4
5.0
33.4
3.2
5.0
33.4
22.0
5.8
3.3
2.5
0.7
28.5
5.0
33.5
3.3
5.0
33.5
22.0
5.9
3.3
2.6
0.8
28.7
5.0
33.7
3.3
5.0
33.7
88.0
22.9
12.9
10.0
2.9
113.8
70.0
183.8
12.9
20.0
133.8
Capital expenditure % of Leasing Revenue
6.5%
12.0%
10.3%
10.2%
9.8%
9.5%
11.6%
15.1%
17.3%
13.5%
19.8%
19.5%
19.3%
18.9%
19.4%
4.4%
0.8%
1.3%
0.1%
6.5%
3.6%
10.1%
1.4%
10.9%
8.0%
2.1%
1.4%
0.5%
12.0%
21.7%
33.7%
1.9%
16.3%
6.5%
2.0%
1.6%
0.2%
10.3%
18.9%
29.3%
1.8%
14.5%
6.4%
2.0%
1.3%
0.6%
10.2%
100.2%
110.4%
1.9%
14.3%
6.3%
1.7%
1.4%
0.3%
9.8%
37.0%
46.7%
1.7%
14.0%
6.3%
1.5%
1.3%
0.4%
9.5%
23.7%
33.2%
1.7%
13.4%
8.0%
1.7%
1.5%
0.4%
11.6%
62.0%
73.6%
2.0%
15.4%
11.0%
2.1%
1.7%
0.3%
15.1%
43.8%
58.9%
2.0%
18.8%
12.9%
2.6%
1.7%
0.1%
17.3%
78.5%
95.8%
1.9%
20.8%
9.6%
2.0%
1.6%
0.3%
13.5%
52.6%
66.0%
1.9%
17.2%
15.4%
2.2%
1.7%
0.5%
19.8%
38.6%
58.4%
2.2%
23.3%
15.1%
2.2%
1.7%
0.5%
19.5%
3.4%
23.0%
2.2%
23.0%
14.9%
2.2%
1.7%
0.5%
19.3%
3.4%
22.7%
2.2%
22.7%
14.5%
2.2%
1.7%
0.5%
18.9%
3.3%
22.2%
2.2%
22.2%
15.0%
2.2%
1.7%
0.5%
19.4%
11.9%
31.3%
2.2%
22.8%
y/y % change
Tenant/site
y/y % change
Tenants
y/y % change
Monthly Revenue/Tenant
y/y % change
Reported tenants/site
Site Rental Revenue
y/y % change
y/y $ change

Tower new build construction:
Tower upgrade/augmentation
Maintenance
General corporate expenditures
Tower and Land Acquisitions (cash portion)
Capital Expenditures and Acquisitions
Total Non-discretionary expenditures
304
Philip Cusick, CFA

(1-212) 622-1444

13 January 2011
Table 173: SBA Communications Income Statement

1Q09
2Q09
3Q09
4Q09
2009
1Q10
2Q10
3Q10
4Q10E
2010E
1Q11E
2Q11E
3Q11E
4Q11E
2011E
115.5
29.2%
19.6
-4.7%
16.9%
135.1
22.9%
2.0
3.4
117.3
25.2%
18.9
3.5%
16.1%
136.2
21.7%
1.7
3.1
120.6
19.9%
18.7
3.2%
15.5%
139.3
17.4%
1.4
3.1
123.6
10.5%
21.3
-5.2%
17.3%
145.0
7.8%
1.1
3.0
477.0
20.6%
78.5
-1.1%
16.5%
555.5
17.0%
6.2
12.5
128.0
10.8%
20.0
2.2%
15.6%
148.0
9.6%
1.0
3.0
131.7
12.3%
22.8
20.8%
17.3%
154.5
13.5%
1.2
3.3
135.7
12.6%
23.0
22.5%
16.9%
158.6
13.9%
1.5
2.7
140.0
13.3%
23.1
8.3%
16.5%
163.2
12.5%
1.0
3.0
535.4
12.2%
88.8
13.2%
16.6%
624.3
12.4%
4.8
12.0
142.5
11.4%
21.4
6.9%
15.0%
163.9
10.8%
1.0
3.0
145.3
10.3%
21.8
-4.3%
15.0%
167.1
8.2%
1.0
3.0
147.8
8.9%
22.2
-3.5%
15.0%
169.9
7.1%
1.0
3.0
151.3
8.1%
22.7
-1.8%
15.0%
174.0
6.7%
1.0
3.0
586.9
9.6%
88.0
-0.9%
15.0%
674.9
8.1%
4.0
12.0
27.6
17.0
44.5
27.5
16.4
43.9
28.6
16.6
45.3
28.1
18.7
46.8
111.8
68.7
180.5
29.2
17.9
47.1
30.0
20.0
50.0
30.3
20.3
50.6
31.2
20.3
51.6
120.7
78.5
199.2
31.8
18.8
50.6
32.4
19.2
51.6
32.9
19.5
52.5
33.7
20.0
53.7
130.9
77.5
208.3
Site leasing GM
Site development GM
Total Gross Margin
y/y % change
87.9
2.6
90.5
29.9%
89.8
2.5
92.3
27.2%
91.9
2.1
94.0
22.6%
95.5
2.6
98.1
11.7%
365.2
9.8
375.0
22.2%
98.8
2.1
100.9
11.5%
101.7
2.8
104.6
13.3%
105.4
2.7
108.0
14.9%
108.8
2.8
111.6
13.7%
414.7
10.4
425.1
13.4%
110.7
2.6
113.3
12.3%
112.9
2.6
115.5
10.5%
114.8
2.7
117.5
8.7%
117.6
2.7
120.3
7.8%
456.0
10.6
466.6
9.8%
Site leasing GM%

Site development GM%
Total Gross Margin %
76.1%
13.3%
67.0%
76.6%
13.2%
67.8%
76.2%
11.2%
67.5%
77.3%
12.2%
67.7%
76.6%
12.5%
67.5%
77.2%
10.5%
68.2%
77.2%
12.4%
67.7%
77.6%
11.7%
68.1%
77.7%
12.0%
68.4%
77.4%
11.7%
68.1%
77.7%
12.0%
69.1%
77.7%
12.0%
69.1%
77.7%
12.0%
69.1%
77.7%
12.0%
69.1%
77.7%
12.0%
69.1%
Operating expenses:
Selling, general and administrative
Franchise taxes (included in SG&A)
Depreciation, accretion and amortization
Restructuring credits, acquisition related expenses
12.1
0.2
1.6
63.7
120.3
0.0
120.3
13.2
0.3
2.3
64.3
121.3
1.3
122.6
13.2
0.5
1.9
64.9
123.4
0.9
124.3
14.3
0.7
2.3
65.7
126.9
6.0
132.9
52.8
1.7
8.1
258.5
491.9
8.3
500.1
14.5
0.4
2.6
67.4
129.0
2.1
131.1
14.3
0.5
2.8
68.8
133.1
1.4
134.5
14.4
0.0
2.5
69.7
134.7
3.2
138.0
14.8
0.0
2.5
70.2
136.6
0.0
136.6
58.1
0.9
10.3
276.2
533.4
6.7
540.1
13.8
0.5
2.6
70.5
134.8
0.0
134.8
14.0
0.5
2.6
71.9
137.5
0.0
137.5
14.3
0.5
2.6
73.1
139.8
0.0
139.8
14.6
0.5
2.6
74.8
143.2
0.0
143.2
56.7
1.8
10.4
290.2
555.3
0.0
555.3
Tower Cash Flow

y/y % change
Margin
89.3
31.9%
78.7%
91.3
27.2%
78.9%
93.6
22.2%
78.6%
97.4
13.4%
79.5%
371.5
23.0%
78.9%
100.8
12.9%
79.4%
103.8
13.7%
79.5%
106.5
13.8%
79.4%
110.8
13.8%
79.7%
421.9
13.6%
79.5%
112.7
11.8%
79.7%
114.9
10.7%
79.6%
116.8
9.7%
79.6%
119.6
7.9%
79.5%
464.0
10.0%
79.6%
EBITDA
y/y % change
Margin
78.4
32.5%
58.1%
77.8
29.7%
57.2%
79.9
24.5%
57.4%
77.7
4.2%
53.6%
313.9
21.7%
56.5%
84.3
7.5%
57.0%
88.9
14.1%
57.5%
90.4
13.1%
57.0%
96.7
24.4%
59.3%
360.3
14.8%
57.7%
99.5
18.0%
60.7%
101.5
14.2%
60.7%
103.2
14.2%
60.7%
105.7
9.2%
60.7%
409.9
13.8%
60.7%
Adjusted EBITDA
y/y % change
Margin
81.7
32.9%
61.4%
83.3
31.1%
61.9%
85.0
27.2%
61.7%
88.7
13.3%
61.6%
338.7
25.4%
61.6%
91.4
11.9%
62.2%
95.5
14.7%
62.3%
97.3
14.5%
62.0%
100.8
13.6%
62.1%
385.0
13.7%
62.1%
104.2
14.0%
64.0%
106.2
11.1%
63.9%
107.9
10.8%
63.9%
110.4
9.5%
63.8%
428.6
11.3%
63.9%
Operating income
y/y % change
Margin
14.8
24.9%
10.9%
13.6
26.0%
10.0%
15.0
30.8%
10.7%
12.1
-3.8%
8.3%
55.4
18.9%
10.0%
16.9
14.2%
11.4%
20.0
47.3%
13.0%
20.7
38.2%
13.0%
26.6
120.6%
16.3%
84.2
52.0%
13.5%
29.1
72.1%
17.7%
29.6
48.0%
17.7%
30.1
45.8%
17.7%
30.9
16.1%
17.7%
119.7
42.2%
17.7%
Adjusted operating income

y/y % change
Margin
14.8
24.9%
10.9%
14.9
38.2%
10.9%
15.9
38.7%
11.4%
18.1
34.2%
12.5%
63.6
33.9%
11.5%
18.9
28.1%
12.8%
21.4
43.7%
13.9%
23.9
50.8%
15.1%
26.6
46.9%
16.3%
90.9
42.7%
14.6%
29.1
53.4%
17.7%
29.6
38.3%
17.7%
30.1
26.1%
17.7%
30.9
16.1%
17.7%
119.7
31.7%
17.7%
Interest income
Interest expense
Non-cash interest expense
Amortization of deferred financing fees
Other
Total other expense
Adjusted pre-tax income (loss)
Write-off of deferred financing fees and extinguishment of debt
Pre-tax income (loss)
0.3
(26.7)
(9.0)
(2.6)
0.0
(37.9)
(23.2)
5.9
(17.2)
0.3
(30.1)
(12.5)
(2.8)
(0.0)
(45.2)
(30.3)
2.4
(29.2)
0.3
(36.4)
(14.0)
(2.6)
0.1
(52.6)
(36.8)
(12.5)
(50.2)
0.2
(37.5)
(14.5)
(2.5)
0.1
(54.2)
(36.1)
(1.5)
(43.6)
1.1
(130.7)
(50.0)
(10.5)
0.2
(189.9)
(126.3)
(5.7)
(140.2)
0.1
(37.1)
(14.9)
(2.5)
0.3
(54.1)
(35.1)
(0.1)
(37.3)
0.2
(37.7)
(14.8)
(2.2)
(0.4)
(55.0)
(33.5)
(48.9)
(83.9)
0.1
(37.6)
(15.1)
(2.2)
0.2
(54.5)
(30.6)
0.0
(33.9)
0.1
(37.9)
(14.9)
(2.5)
0.2
(55.0)
(28.4)
0.0
(28.4)
0.5
(150.3)
(59.6)
(9.4)
0.3
(218.5)
(127.7)
(49.1)
(183.4)
0.1
(37.4)
(12.5)
(2.5)
0.0
(52.4)
(23.3)
0.0
(23.3)
0.0
(37.4)
(12.5)
(2.5)
0.0
(52.4)
(22.8)
0.0
(22.8)
0.1
(37.4)
(12.5)
(2.5)
0.0
(52.4)
(22.2)
0.0
(22.2)
0.1
(37.4)
(12.5)
(2.5)
0.0
(52.4)
(21.5)
0.0
(21.5)
0.2
(149.7)
(50.0)
(10.0)
0.0
(209.5)
(89.8)
0.0
(89.8)
Provision for income taxes

Tax %
Net income (loss) inc. noncontrolling interest, reported
(0.2)
1.4%
(17.5)
(0.2)
0.8%
(29.4)
(0.0)
0.0%
(50.2)
(0.0)
0.0%
(43.6)
(0.5)
0.4%
(140.7)
(0.1)
0.3%
(37.4)
0.0
0.0%
(83.9)
(0.7)
2.1%
(34.6)
(0.3)
1.0%
(28.7)
(1.1)
0.6%
(184.5)
(0.2)
1.0%
(23.5)
(0.2)
1.0%
(23.0)
(0.2)
1.0%
(22.5)
(0.2)
1.0%
(21.7)
(0.9)
1.0%
(90.7)
Revenues:
Site leasing
y/y % change
Site development
y/y % change
Site developent % of Site Leasing
Total revenues
y/y % change
Non-cash leasing revenue
Non-cash ground lease expense
Site leasing COR
Site development COR
Cost of revenues
Net loss attributable to noncontrolling interest
0.0
(0.1)
(0.1)
(0.1)
(0.2)
0.1
(0.2)
(0.1)
0.5
0.3
0.4
0.4
0.4
0.4
1.5
(17.5)
(21.1)
(29.4)
(30.1)
(50.1)
(41.8)
(43.5)
(38.9)
(140.4)
(132.0)
(37.5)
(36.2)
(83.7)
(52.6)
(34.5)
(32.5)
(29.2)
(17.6)
(184.8)
(138.9)
(23.9)
(14.8)
(23.4)
(14.1)
(22.8)
(14.2)
(22.1)
(13.3)
(92.2)
(56.5)
EPS - reported
EPS - adjusted
($0.15)
($0.18)
($0.25)
($0.26)
($0.43)
($0.36)
($0.37)
($0.33)
($1.20)
($1.13)
($0.32)
($0.31)
($0.72)
($0.46)
($0.30)
($0.28)
($0.25)
($0.15)
($1.60)
($1.20)
($0.21)
($0.13)
($0.20)
($0.12)
($0.20)
($0.12)
($0.19)
($0.12)
($0.80)
($0.49)
118.0
117.1
116.7
116.9
117.2
117.1
115.7
114.7
115.0
115.0
114.9
114.8
114.7
114.5
114.7
Net income (loss), reported

Net income (loss), adjusted
305
Philip Cusick, CFA

(1-212) 622-1444

13 January 2011
Table 174: SBA Communications Cash Flow Statement

1Q09
2Q09
3Q09
4Q09
2009
1Q10
2Q10
3Q10
4Q10E
2010E
1Q11E
2Q11E
3Q11E
4Q11E
Net loss
(17.5)
(29.4)
(50.1)
(43.5)
(140.4)
(37.5)
(83.7)
(34.5)
(29.2)
(184.8)
(23.9)
(23.4)
(22.8)
(22.1)
2011E
(92.2)
Depreciation, accretion and amortization

Non-cash interest expense, tax provision and other
Loss from write-off of deferred financing fees and ext. of debt
63.7
4.3
3.0
53.5
64.3
17.7
(2.4)
50.2
64.9
18.4
12.5
45.7
65.7
23.4
1.5
47.1
258.5
63.7
14.6
196.5
67.4
8.4
0.1
38.5
68.8
27.6
48.9
61.6
69.7
19.7
0.0
54.9
70.2
6.9
0.0
47.9
276.2
62.6
49.1
202.9
70.5
6.6
0.0
53.1
71.9
6.6
0.0
55.1
73.1
6.6
0.0
56.8
74.8
6.6
0.0
59.3
290.2
26.3
0.0
224.3

Cash from operations after working capital
(3.8)
49.7
8.1
58.2
16.7
62.4
2.8
49.9
23.8
220.2
(1.2)
37.3
(0.7)
60.9
(10.6)
44.3
0.0
47.9
(12.5)
190.4
0.0
53.1
0.0
55.1
0.0
56.8
0.0
59.3
0.0
224.3
Free Cash Flow
7.6
42.2
14.1
44.2
12.5
50.0
12.6
37.2
46.7
173.5
12.2
25.2
15.3
45.5
20.5
23.9
24.2
23.7
72.1
118.3
28.3
24.8
28.4
26.7
28.5
28.3
28.7
30.6
113.8
110.4
(20.0)
Change in equity
1.4
48.9
1.2
2.4
53.8
(3.9)
(86.5)
5.7
0.0
(84.6)
(5.0)
(5.0)
(5.0)
(5.0)
Change in debt
(35.0)
181.1
77.6
(34.3)
189.4
0.0
233.7
(0.8)
0.0
233.0
0.0
0.0
0.0
0.0
0.0
2.8
(189.7)
(17.0)
(129.7)
(333.6)
(64.4)
(164.6)
(59.4)
(110.0)
(398.5)
(55.0)
(5.0)
(5.0)
(5.0)
(70.0)
NET DECREASE IN CASH AND CASH EQUIVALENTS
11.4
84.5
111.7
(124.4)
83.1
(43.1)
28.2
(30.6)
(86.3)
(131.9)
(35.2)
16.7
18.3
20.6
20.4
CASH AND CASH EQUIVALENTS:

Beginning of period
End of period
78.9
90.2
90.2
174.7
174.7
286.4
286.4
162.0
286.4
162.0
162.0
118.9
118.9
147.0
147.0
116.4
116.4
30.1
116.4
30.1
30.1
(5.0)
(5.0)
11.6
11.6
29.9
29.9
50.6
29.9
50.6
Adjusted EBITDA
Net Interest Expense
Cash taxes
Maintenance Capex
Recurring Cash Flow
y/y % change
Shares Outstanding
Recurring Cash Flow per Share (JPM)
y/y % change
y/y % change
y/y % change
81.7
(27.0)
(0.8)
(1.6)
52.3
52.9%
118.0
$0.44
40.6%
1.4
53.7
55.3%
$0.45
42.8%
83.3
(30.4)
(0.3)
(2.2)
50.4
44.7%
117.1
$0.43
32.4%
1.5
51.8
46.2%
$0.44
33.8%
85.0
(36.8)
(0.7)
(2.2)
45.4
21.9%
116.7
$0.39
12.2%
1.7
47.0
23.7%
$0.40
13.8%
88.7
(37.7)
(0.2)
(2.3)
48.5
9.0%
116.9
$0.41
8.8%
1.9
50.4
11.3%
$0.43
11.2%
338.7
(131.9)
(2.0)
(8.3)
196.5
30.4%
117.2
$1.68
22.6%
6.4
202.9
32.4%
$1.73
24.5%
91.4
(37.2)
(0.7)
(2.2)
51.3
-1.9%
117.1
$0.44
-1.2%
2.0
53.3
-0.7%
$0.46
0.1%
95.5
(37.9)
(1.2)
(2.6)
53.8
6.8%
115.7
$0.47
8.1%
2.0
55.9
7.7%
$0.48
9.0%
97.3
(37.7)
(0.8)
(2.7)
56.1
23.8%
114.7
$0.49
25.9%
1.2
57.3
21.8%
$0.50
23.9%
100.8
(38.0)
(1.0)
(2.6)
59.2
22.0%
115.0
$0.51
24.1%
2.0
61.2
21.5%
$0.53
23.5%
385.0
(150.8)
(3.8)
(10.0)
220.4
12.2%
115.0
$1.91
13.7%
7.2
227.6
12.2%
$1.97
13.7%
104.2
(37.5)
(1.3)
(3.1)
62.3
21.4%
114.9
$0.54
23.7%
2.0
64.3
20.6%
$0.56
22.9%
106.2
(37.5)
(1.3)
(3.2)
64.2
19.3%
114.8
$0.56
20.2%
2.0
66.2
18.6%
$0.58
19.5%
107.9
(37.5)
(1.3)
(3.3)
65.9
17.4%
114.7
$0.57
17.5%
2.0
67.9
18.5%
$0.59
18.6%
110.4
(37.5)
(1.3)
(3.3)
68.3
15.4%
114.5
$0.60
15.9%
2.0
70.3
14.9%
$0.61
15.4%
428.6
(150.0)
(5.0)
(12.9)
260.7
18.3%
114.7
$2.27
19.2%
8.0
268.7
18.0%
$2.34
18.9%
Equity Free Cash Flow (SBA Calculation)

Adjusted EBITDA
Non-discretionary cash capital expenditures
Cash taxes paid
Equity free cash flow
y/y % change
Shares Outstanding
Equity Free Cash Flow per Share
y/y % change
81.7
(26.5)
(1.6)
(0.8)
52.8
37.9%
118.0
$0.45
26.8%
83.3
(29.8)
(2.2)
(0.3)
51.0
0.3
117.1
$0.44
22.9%
85.0
(36.1)
(2.2)
(0.7)
46.0
17.3%
116.7
$0.39
8.0%
88.7
(37.3)
(2.3)
(0.2)
48.9
1.9%
116.9
$0.42
1.8%
338.7
(129.7)
(8.3)
(2.0)
198.7
21.6%
117.2
$1.70
14.3%
91.4
(37.0)
(2.2)
(0.7)
51.5
-2.4%
117.1
$0.44
-1.7%
95.5
(37.5)
(2.6)
(1.2)
54.2
6.3%
115.7
$0.47
7.6%
97.3
(37.5)
(2.7)
(0.8)
56.4
22.5%
114.7
$0.49
24.5%
100.8
(37.8)
(2.6)
(1.0)
59.4
21.4%
115.0
$0.52
23.5%
385.0
(149.8)
(10.0)
(3.8)
221.4
11.4%
115.0
$1.92
13.0%
104.2
(37.4)
(3.1)
(1.3)
62.4
21.3%
114.9
$0.54
23.6%
106.2
(37.4)
(3.2)
(1.3)
64.3
18.7%
114.8
$0.56
19.6%
107.9
(37.4)
(3.3)
(1.3)
66.0
17.1%
114.7
$0.58
17.2%
110.4
(37.4)
(3.3)
(1.3)
68.4
15.3%
114.5
$0.60
15.7%
428.6
(149.5)
(12.9)
(5.0)
261.2
18.0%
114.7
$2.28
18.9%
(2.0)
3.4
-1.7%
2.9%
(1.7)
3.1
-1.4%
2.6%
(1.4)
3.1
-1.2%
2.6%
(1.1)
3.0
-0.9%
2.4%
(6.2)
12.5
-1.3%
2.6%
(1.0)
3.0
-0.8%
2.4%
(1.2)
3.3
-0.9%
2.5%
(1.5)
2.7
-1.1%
2.0%
(1.0)
3.0
-0.7%
2.1%
(4.8)
12.0
-0.9%
2.2%
(1.0)
3.0
-0.7%
2.1%
(1.0)
3.0
-0.7%
2.1%
(1.0)
3.0
-0.7%
2.0%
(1.0)
3.0
-0.7%
2.0%
(4.0)
12.0
-0.7%
2.0%
Other
Table 175: SBA Communications Balance Sheet

1Q09
2Q09
3Q09
4Q09
2009
1Q10
2Q10
3Q10
4Q10E
2010E
1Q11E
2Q11E
3Q11E
4Q11E
2011E
89.8
0.2
36.6
14.1
20.1
160.7
174.2
3.8
36.8
13.6
18.5
246.9
285.8
6.3
26.5
15.6
20.4
354.7
161.3
5.4
30.3
19.6
20.2
236.8
161.3
5.4
30.3
19.6
20.2
236.8
118.3
3.6
27.1
14.8
20.8
184.5
227.9
4.2
28.1
17.1
25.8
303.1
197.2
3.6
30.1
19.0
28.3
278.2
110.9
3.6
30.1
19.0
28.3
191.9
110.9
3.6
30.1
19.0
28.3
191.9
75.8
3.6
30.1
19.0
28.3
156.7
92.5
3.6
30.1
19.0
28.3
173.4
110.7
3.6
30.1
19.0
28.3
191.7
131.4
3.6
30.1
19.0
28.3
212.3
131.4
3.6
30.1
19.0
28.3
212.3
1,483.0
1,405.4
26.6
96.4
3,172.0
1,478.3
1,400.0
31.1
99.2
3,255.5
1,469.1
1,385.2
39.9
102.7
3,351.6
1,496.9
1,435.6
37.9
106.4
3,313.6
1,496.9
1,435.6
37.9
106.4
3,313.6
1,472.7
1,420.5
40.3
152.6
3,270.6
1,490.5
1,433.1
49.2
157.7
3,433.7
1,498.2
1,437.6
47.2
162.8
3,423.9
1,452.2
1,437.6
47.2
162.8
3,291.7
1,452.2
1,437.6
47.2
162.8
3,291.7
1,410.0
1,437.6
47.2
162.8
3,214.3
1,366.5
1,437.6
47.2
162.8
3,187.5
1,322.0
1,437.6
47.2
162.8
3,161.2
1,275.8
1,437.6
47.2
162.8
3,135.7
1,275.8
1,437.6
47.2
162.8
3,135.7
6.0
28.9
8.2
48.7
91.8
6.0
30.6
9.2
51.2
97.0
0.0
34.7
26.8
52.7
114.3
28.6
37.3
35.6
57.2
158.7
28.6
37.3
35.6
57.2
158.7
29.1
33.4
24.4
52.3
139.2
29.6
35.3
32.0
59.9
156.8
30.1
39.5
24.7
60.9
155.2
30.1
39.5
24.7
60.9
155.2
30.1
39.5
24.7
60.9
155.2
30.1
39.5
24.7
60.9
155.2
30.1
39.5
24.7
60.9
155.2
30.1
39.5
24.7
60.9
155.2
30.1
39.5
24.7
60.9
155.2
30.1
39.5
24.7
60.9
155.2
Long-term liabilities:
Long-term debt
Deferred revenue
Total long-term liabilities
2,348.1
15.8
66.2
2,430.1
2,383.6
0.0
87.8
2,471.4
2,508.4
0.0
91.0
2,599.4
2,460.4
0.0
94.6
2,555.0
2,460.4
0.0
94.6
2,555.0
2,472.2
0.0
96.9
2,569.1
2,777.8
0.0
101.2
2,879.0
2,792.4
0.0
104.4
2,896.9
2,792.4
0.0
(27.9)
2,764.6
2,792.4
0.0
(27.9)
2,764.6
2,792.4
0.0
(105.2)
2,687.2
2,792.4
0.0
(132.0)
2,660.4
2,792.4
0.0
(158.3)
2,634.2
2,792.4
0.0
(183.8)
2,608.6
2,792.4
0.0
(183.8)
2,608.6
Shareholders' equity
650.1
3,172.0
687.1
3,255.5
638.0
3,351.6
599.9
3,313.6
599.9
3,313.6
562.3
3,270.6
397.8
3,433.7
371.9
3,423.9
371.9
3,291.7
371.9
3,291.7
371.9
3,214.3
371.9
3,187.5
371.9
3,161.2
371.9
3,135.7
371.9
3,135.7
ASSETS
Current assets:
Short term investments
Restricted cash
Accounts receivable
Property and equipment, net
Intangible assets, net
Deferred financing fees, net
Other long-term assets
Total assets
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Long-term debt, current portion
Interest payable
306
Philip Cusick, CFA

(1-212) 622-1444

13 January 2011
Analyst Certification:
The research analyst(s) denoted by an AC on the cover of this report certifies (or, where multiple research analysts are primarily
responsible for this report, the research analyst denoted by an AC on the cover or within the document individually certifies, with
respect to each security or issuer that the research analyst covers in this research) that: (1) all of the views expressed in this report
accurately reflect his or her personal views about any and all of the subject securities or issuers; and (2) no part of any of the research
analysts compensation was, is, or will be directly or indirectly related to the specific recommendations or views expressed by the
research analyst(s) in this report.
Important Disclosures
Market Maker: JPMS makes a market in the stock of Clearwire, Leap Wireless, MetroPCS, SBA Communications.
Lead or Co-manager: J.P. Morgan acted as lead or co-manager in a public offering of equity and/or debt securities for American
Tower, AT&T, Clearwire, Frontier, MetroPCS, SBA Communications, Sprint Nextel, Verizon, Windstream within the past 12
months.
Director: A senior employee, executive officer or director of JPMorgan Chase & Co. and/or J.P. Morgan is a director and/or officer
of Verizon.
Client of the Firm: American Tower is or was in the past 12 months a client of JPM; during the past 12 months, JPM provided to
the company investment banking services, non-investment banking securities-related service and non-securities-related services.
AT&T is or was in the past 12 months a client of JPM; during the past 12 months, JPM provided to the company investment banking
services, non-investment banking securities-related service and non-securities-related services. Clearwire is or was in the past 12
months a client of JPM; during the past 12 months, JPM provided to the company investment banking services, non-investment
banking securities-related service and non-securities-related services. Crown Castle is or was in the past 12 months a client of JPM;
during the past 12 months, JPM provided to the company non-investment banking securities-related service. Frontier is or was in the
past 12 months a client of JPM; during the past 12 months, JPM provided to the company investment banking services, noninvestment banking securities-related service and non-securities-related services. Leap Wireless is or was in the past 12 months a
client of JPM. MetroPCS is or was in the past 12 months a client of JPM; during the past 12 months, JPM provided to the company
investment banking services, non-investment banking securities-related service and non-securities-related services. NTELOS is or
was in the past 12 months a client of JPM; during the past 12 months, JPM provided to the company investment banking services,
non-investment banking securities-related service and non-securities-related services. SBA Communications is or was in the past 12
months a client of JPM; during the past 12 months, JPM provided to the company investment banking services, non-investment
banking securities-related service and non-securities-related services. Sprint Nextel is or was in the past 12 months a client of JPM;
during the past 12 months, JPM provided to the company investment banking services, non-investment banking securities-related
service and non-securities-related services. Telephone & Data Systems is or was in the past 12 months a client of JPM. US Cellular
is or was in the past 12 months a client of JPM. Verizon is or was in the past 12 months a client of JPM; during the past 12 months,
JPM provided to the company investment banking services, non-investment banking securities-related service and non-securitiesrelated services. Windstream is or was in the past 12 months a client of JPM; during the past 12 months, JPM provided to the
company investment banking services, non-investment banking securities-related service and non-securities-related services.
Investment Banking (past 12 months): J.P. Morgan received, in the past 12 months, compensation for investment banking services
from American Tower, AT&T, Clearwire, Frontier, MetroPCS, NTELOS, SBA Communications, Sprint Nextel, Verizon,
Windstream.
Investment Banking (next 3 months): J.P. Morgan expects to receive, or intends to seek, compensation for investment banking
services in the next three months from American Tower, AT&T, Clearwire, Frontier, MetroPCS, NTELOS, SBA Communications,
Sprint Nextel, Verizon, Windstream.
Non-Investment Banking Compensation: JPMS has received compensation in the past 12 months for products or services other
than investment banking from American Tower, AT&T, Clearwire, Crown Castle, Frontier, MetroPCS, NTELOS, SBA
Communications, Sprint Nextel, Verizon, Windstream. An affiliate of JPMS has received compensation in the past 12 months for
products or services other than investment banking from American Tower, AT&T, Clearwire, Crown Castle, Frontier, MetroPCS,
SBA Communications, Sprint Nextel, Telephone & Data Systems, US Cellular, Verizon, Windstream.
MSCI: The MSCI sourced information is the exclusive property of Morgan Stanley Capital International Inc. (MSCI). Without prior
written permission of MSCI, this information and any other MSCI intellectual property may not be reproduced, redisseminated or
used to create any financial products, including any indices. This information is provided on an 'as is' basis. The user assumes the
entire risk of any use made of this information. MSCI, its affiliates and any third party involved in, or related to, computing or
compiling the information hereby expressly disclaim all warranties of originality, accuracy, completeness, merchantability or fitness
for a particular purpose with respect to any of this information. Without limiting any of the foregoing, in no event shall MSCI, any of
its affiliates or any third party involved in, or related to, computing or compiling the information have any liability for any damages
of any kind. MSCI, Morgan Stanley Capital International and the MSCI indexes are services marks of MSCI and its affiliates.
307
Philip Cusick, CFA

(1-212) 622-1444

13 January 2011
American Tower (AMT) Price Chart

90
75
60
OW $38
W $50
OW
N $30
OW $36
OW $48
Price($) 45
Date
Rating
03-Oct-06
Share Price
($)
Price Target
($)
50.00
OW
35.81
19-Sep-07 OW
41.46
--
18-Dec-08 N
28.68
30.00
24-Jun-09
OW
29.83
36.00
30-Jul-09
OW
34.37
38.00
25-Jan-10
OW
43.20
48.00
Date
Rating
Share Price Price Target

($)
($)
02-Jun-08
OW
39.90
24-Jul-08
31.70
--
23-Oct-08
23.78
27.00
29-Jan-09
24.71
24.00
25-Feb-09
OW
23.71
28.00
23-Apr-09
OW
25.50
30.00
30
15
0
Oct
06
Jul
07
Apr
08
Jan
09
Oct
09
Jul
10
Source: Bloomberg and J.P. Morgan; price data adjusted for stock splits and dividends.
Break in coverage Oct 29, 2002 - Aug 16, 2004, and Sep 08, 2004 - Nov 30, 2004, and Oct 08, 2010 - Jan 13, 2011. This
chart shows J.P. Morgan's continuing coverage of this stock; the current analyst may or may not have covered it over the
entire period.
J.P. Morgan ratings: OW = Overweight, N = Neutral, UW = Underweight.
AT&T (T) Price Chart

72
N $27
60
48
OW $44
OW $30
OW $28
N $29
N $24 N $28
N $28
Price($) 36
24
12
0
Oct
06
Jul
07
Apr
08
Jan
09
Oct
09
Jul
10
Break in coverage Jan 27, 2003 - Nov 07, 2003, and May 31, 2008 - Jun 02, 2008, and Oct 08, 2010 - Jan 13, 2011. This
entire period.
308
44.00
07-May-09 N
25.45
28.00
24-Jul-09
25.45
29.00
29-Jan-10
25.36
28.00
Philip Cusick, CFA

(1-212) 622-1444

13 January 2011
Clearwire (CLWR) Price Chart
52
N
39
OW
Date
Rating
Share Price
($)
17-Apr-07
OW
Price Target
($)
18.61
02-Dec-08 N
7.48
6.00
26-Jan-09
4.17
--
Date
Rating

($)
($)
N $6
Price($)
26
13
0
Mar
07
Dec
07
Sep
08
Jun
09
Mar
10
Dec
10
Break in coverage Oct 08, 2010 - Jan 13, 2011. This chart shows J.P. Morgan's continuing coverage of this stock; the
current analyst may or may not have covered it over the entire period.
Crown Castle (CCI) Price Chart
75
N $23
N $22
60
OW
45
N $23
N $29
N $25
N $43
Price($)
30
16-May-07 OW
35.52
--
18-Dec-08 N
18.07
23.00
26-Feb-09
17.76
22.00
21-Apr-09
22.77
23.00
24-Jun-09
22.07
25.00
30-Jul-09
29.09
29.00
25-Jan-10
38.05
43.00
15
0
Oct
06
Jul
07
Apr
08
Jan
09
Oct
09
Jul
10
309
Philip Cusick, CFA

(1-212) 622-1444

13 January 2011
Frontier (FTR) Price Chart

Date
Rating
Share Price
($)
02-Jun-08
28
21
N
N $9
Price Target
($)
11.66
--
11-Nov-08 N
8.23
9.00
09-Jul-10
7.39
7.50
Date
Rating

($)
($)
N $7.5
Price($)
14
0
Oct
06
Jul
07
Apr
08
Jan
09
Oct
09
Jul
10
entire period.
Leap Wireless (LEAP) Price Chart
N $16
155
OW
OW $38
UW $11
N $22 UW $10
124
OW $119
OW $56 OW $50
OW $22N $12
UW
Price($) 93
62
31
0
Oct
06
Jul
07
Apr
08
Jan
09
Oct
09
Break in coverage Apr 28, 2003 - Jul 28, 2005, and Oct 08, 2010 - Jan 13, 2011. This chart shows J.P. Morgan's
continuing coverage of this stock; the current analyst may or may not have covered it over the entire period.
310
Jul
10
17-Aug-07 OW
62.72
19-Sep-07 OW
77.68
--
09-Sep-08 OW
46.01
56.00
26-Jan-09
OW
24.14
50.00
27-Feb-09
OW
27.11
38.00
07-Aug-09 OW
17.06
22.00
01-Oct-09
17.42
22.00
16-Oct-09
14.41
16.00
06-Nov-09 N
13.03
12.00
05-Feb-10
UW
14.59
10.00
07-May-10 UW
14.26
11.00
08-Oct-10
12.07
--
UW
119.00
Philip Cusick, CFA

(1-212) 622-1444

13 January 2011
MetroPCS (PCS) Price Chart

Date
70
N
N $10
56
42
OW $22
OW $11
Rating
N $7
N
N $5
Price($)
28

($)
($)
31-Aug-07 N
27.29
09-Sep-08 OW
17.17
22.00
07-Aug-09 OW
8.99
11.00
01-Oct-09
10.00
9.36
06-Nov-09 N
5.98
--
25-Jan-10
5.88
5.00
26-Feb-10
6.48
--
07-May-10 N
7.15
7.00
Date
Share Price
($)
Price Target
($)
02-Jun-08 OW
27.92
32.00
02-Mar-09 OW
19.17
22.00
20-Apr-09 N
17.92
16.00
01-Mar-10 N
17.07
15.00
14
0
Apr
07
Jan
08
Oct
08
Jul
09
Apr
10
Jan
11
NTELOS (NTLS) Price Chart

55
44
N $16
OW $32
33
OW $22
N $15
Rating
Price($)
22
11
0
Oct
06
Jul
07
Apr
08
Jan
09
Oct
09
Jul
10
Initiated coverage Jun 02, 2008. Break in coverage Oct 08, 2010 - Jan 13, 2011. This chart shows J.P. Morgan's
311
Philip Cusick, CFA

(1-212) 622-1444

13 January 2011
SBA Communications (SBAC) Price Chart
70
OW $31
56
42
UW
OW $24 OW $28
OW $44
Price($)
Date
Rating

($)
($)
03-Oct-06
UW
23.97
18-Dec-08 OW
16.50
24.00
05-May-09 OW
25.23
28.00
30-Jul-09
OW
25.44
31.00
25-Jan-10
OW
34.50
44.00
Date
Rating
Share Price
($)
Price Target
($)
12-Jan-07
25.00
28
14
0
Oct
06
Jul
07
Apr
08
Jan
09
Oct
09
Jul
10
Sprint Nextel (S) Price Chart
40
N
30
OW $25
OW
N $4
Price($)
20
10
0
Oct
06
Jul
07
Apr
08
Jan
09
Oct
09
Jul
10
entire period.
312
OW
17.44
19-Sep-07 OW
17.90
--
02-Jun-08
9.36
--
10-Nov-08 N
3.37
4.00
10-Dec-08 N
2.54
--
Philip Cusick, CFA

(1-212) 622-1444

13 January 2011
Telephone & Data Systems (TDS) Price Chart

126
105 UW
84
Price($) 63
42
21
0
Oct
06
Jul
07
Apr
08
Jan
09
Oct
09
Jul
10
Break in coverage Sep 20, 2007 - Jan 13, 2011. This chart shows J.P. Morgan's continuing coverage of this stock; the
US Cellular (USM) Price Chart

182
156
UW
130
104
Price($)
78
52
26
0
Sep
05
Jun
06
Mar
07
Dec
07
Sep
08
Jun
09
Mar
10
Dec
10
Break in coverage Sep 20, 2007 - Jan 13, 2011. This chart shows J.P. Morgan's continuing coverage of this stock; the
313
Philip Cusick, CFA

(1-212) 622-1444

13 January 2011
Verizon (VZ) Price Chart

Date
OW $39
72
OW $43
60
OW $46
48
Rating
N $34
N $32
OW $36
N $30
N $28
Price($)
36
24

($)
($)
02-Jun-08
OW
38.47
46.00
29-Jul-08
OW
33.60
43.00
09-Oct-08
OW
27.73
39.00
28-Jan-09
OW
29.96
36.00
07-May-09 N
29.86
32.00
28-Jul-09
31.00
34.00
27-Jan-10
30.17
30.00
13-Jul-10
26.49
28.00
Date
Rating
Share Price
($)
Price Target
($)
12
0
Oct
06
Jul
07
Apr
08
Jan
09
Oct
09
Jul
10
entire period.
Windstream (WIN) Price Chart
28
OW $11
21
UW
Price($)
N $10
N $10
14
18-Dec-07 UW
13.06
02-Jun-08
13.34
10-Nov-08 N
8.55
10.00
20-Nov-08 OW
7.76
11.00
07-Jun-10
10.60
10.00
0
Oct
06
Jul
07
Apr
08
Jan
09
Oct
09
Jul
10
Break in coverage May 31, 2008 - Jun 02, 2008, and Oct 08, 2010 - Jan 13, 2011. This chart shows J.P. Morgan's
Explanation of Equity Research Ratings and Analyst(s) Coverage Universe:

J.P. Morgan uses the following rating system: Overweight [Over the next six to twelve months, we expect this stock will outperform the
average total return of the stocks in the analysts (or the analysts teams) coverage universe.] Neutral [Over the next six to twelve
months, we expect this stock will perform in line with the average total return of the stocks in the analysts (or the analysts teams)
coverage universe.] Underweight [Over the next six to twelve months, we expect this stock will underperform the average total return of
the stocks in the analysts (or the analysts teams) coverage universe.] J.P. Morgan Cazenoves UK Small/Mid-Cap dedicated research
analysts use the same rating categories; however, each stocks expected total return is compared to the expected total return of the FTSE
All Share Index, not to those analysts coverage universe. A list of these analysts is available on request. The analyst or analysts teams
coverage universe is the sector and/or country shown on the cover of each publication. See below for the specific stocks in the certifying
analyst(s) coverage universe.
314
Philip Cusick, CFA

(1-212) 622-1444

13 January 2011
J.P. Morgan Equity Research Ratings Distribution, as of December 31, 2010
J.P. Morgan Global Equity Research Coverage

IB clients*
JPMS Equity Research Coverage
IB clients*
Overweight
(buy)
46%
53%
43%
71%
Neutral
(hold)
42%
50%
49%
63%
Underweight
(sell)
12%
38%
8%
59%
*Percentage of investment banking clients in each rating category.

For purposes only of FINRA/NYSE ratings distribution rules, our Overweight rating falls into a buy rating category; our Neutral rating falls into a hold
rating category; and our Underweight rating falls into a sell rating category.
Valuation and Risks: Please see the most recent company-specific research report for an analysis of valuation methodology and risks on
any securities recommended herein. Research is available at http://www.morganmarkets.com , or you can contact the analyst named on
the front of this note or your J.P. Morgan representative.
Analysts Compensation: The equity research analysts responsible for the preparation of this report receive compensation based upon
various factors, including the quality and accuracy of research, client feedback, competitive factors, and overall firm revenues, which
include revenues from, among other business units, Institutional Equities and Investment Banking.
Other Disclosures
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and its subsidiaries.
Options related research: If the information contained herein regards options related research, such information is available only to persons who
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Standardized Options, please contact your J.P. Morgan Representative or visit the OCCs website at
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member of the London Stock Exchange and is authorized and regulated by the Financial Services Authority. Registered in England & Wales No.
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315
Philip Cusick, CFA

(1-212) 622-1444

13 January 2011
Country and Region Specific Disclosures

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Copyright 2011 JPMorgan Chase & Co. All rights reserved. This report or any portion hereof may not be reprinted, sold or
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North America Equity Research

U.S. Telecom Services & Towers

Telecom Services & Towers

Philip Cusick, CFA

Source: J.P. Morgan.

See page 307 for analyst certification and important disclosures.

Philip Cusick, CFA

North America Equity Research

Equity Ratings and Price Targets

Philip Cusick, CFA

North America Equity Research

Wireline Industry ....................................................................53

Large Cap Integrated Telecom Operators ..........................109

Wireline Operators ...............................................................197

Philip Cusick, CFA

North America Equity Research

Wireless Tower Operators ...................................................217

Philip Cusick, CFA

North America Equity Research

Philip Cusick, CFA

North America Equity Research

Philip Cusick, CFA

North America Equity Research

Philip Cusick, CFA

North America Equity Research

Clearwire Initiating with Neutral rating and $6 YE11 price target

Philip Cusick, CFA

North America Equity Research

Wireless Tower Stocks

Philip Cusick, CFA

North America Equity Research

Telecom and Tower Sector Risks

Philip Cusick, CFA

North America Equity Research

Tower debt refinancing could be at risk if credit markets close or tighten

Philip Cusick, CFA

North America Equity Research

Table 1: Telecom Valuation Comparison

Valuation and Leverage

Relative P/E Multiple

Diversified Telecom Carriers

Verizon Communications (VZ) - ex Vodafone

Telephone & Data Systems (TDS)

Wireless Subscribers (m)

Leap Wireless (LEAP)

Sprint Nextel (S)

Access Lines (m)

American Tower (AMT)

Crown Castle (CCI)

SBA Communications (SBAC)

Financial Highlights and Profitability

Free Cash Flow

Free Cash Flow Yield

Diversified Telecom Carriers

Leap Wireless (LEAP)

Sprint Nextel (S)

Frontier Communications Corp. (FTR)

Windstream Corp. (WIN)

American Tower (AMT)

Crown Castle (CCI)

SBA Communications (SBAC)

Source: Company reports and J.P. Morgan estimates.

North America Equity Research

Philip Cusick, CFA