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M A Y 2 0 0 7 T E L E C O M S T O C K :    R E C O M M E N D A T I O N Presentation to FIN 824 (SPRING QUARTER) Marc Reitter Siddhesh Sankulkar T E L E C O M S T O C K R E C O M M E N D A T I O N Telecom Stock Recommendation Overview: 1

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M A Y2007

T E L E C O M S T O C K :   R E C O M M E N D A T I O N

Presentation to FIN 824 (SPRING QUARTER)

Marc Reitter

Siddhesh Sankulkar

T E L E C O M S T O C K R E C O M M E N D A T I O N


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Telecom Stock Recommendation Overview:

1

Sector Recommendation Recap

2

2

Current Holdings & Recommended Action

3

3

America Movil Overview & Analysis

4-10

MetroPCS Overview & Analysis

11-13

Company Risks

14

Action Recommendation

15

T E L E C O M S T O C K R E C O M M E N D A T I O N

1


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Sector weights – SIM vs. S&P 500

SIM overview: Maintain Overweight Position

  • Current holdings:

  • Current holdings:

SIM overweight Telecom by 3.43%

S&P 500 overview:

T E L E C O M S T O C K R E C O M M E N D A T I O N

2


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Current Position – company analysis

Current Holdings

Source: Yahoo Finance & Bloomberg

Recommendation

T E L E C O M S T O C K R E C O M M E N D A T I O N

  • Sell Windstream

  • Sell Sprint

  • Increase position in America Movil

  • Buy MetroPCS Communications

3


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Company overview – America Movil

  • America Movil through its subsidiaries, provides wireless communications services primarily in Latin America.

  • Operations in 15 countries in the Americas

  • More than 124 million mobile customers

    • Dominant position in Mexico and Central America

    • Third largest Wireless company in Brazil (South America’s largest economy)

  • Coverage for a combined population of 770 million

  • Carlos Slim – Owns 65% of the voting rights of America Movil, also is the 3rd richest individual in the world.

  • T E L E C O M S T O C K R E C O M M E N D A T I O N

    4


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    Catalysts – America Movil

    • Positioned well throughout Latin America to take advantage of Emerging Markets

      • America Movil's economies of scale help it squeeze operating profits out of every market in which it offers service.

  • Low penetration rates (approximately 43%) throughout Latin America means a cornucopia of subscribers are still out there.

  • Renewed focus on operating costs

    • Strict control over overhead costs

  • Growth via Acquisition

    • Looking to continue adding assets in the near term as this has been the means of their growth over the years

    • Recently acquired Verizon’s Puerto Rico operations

    • Carlos Slim

  • T E L E C O M S T O C K R E C O M M E N D A T I O N

    5


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    Financial Analysis – America Movil

    T E L E C O M S T O C K R E C O M M E N D A T I O N

    6


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    Financial Analysis – America Movil

    AMX Relative to S&P 500 (SP5A)

    T E L E C O M S T O C K R E C O M M E N D A T I O N

    7


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    Valuation Analysis – America Movil

    T E L E C O M S T O C K R E C O M M E N D A T I O N

    8


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    DCF Analysis – America Movil

    T E L E C O M S T O C K R E C O M M E N D A T I O N

    10


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    Company overview – MetroPCS Communications

    • MetroPCS began trading on the NYSE on April 19, 2007 following the completion of the company’s IPO

    • MetroPCS offers wireless service that is designed to extend benefits of mobility to the mass market by offering wireless service that is:

      • Simple to understand and use

      • Priced competitively with traditional landline service

      • Service allows customers to make unlimited calls within a local calling area

  • MetroPCS boasts a differentiated low-cost wireless subscriber model with approximately 3.4 million subscribers.

  • T E L E C O M S T O C K R E C O M M E N D A T I O N

    Source: Company reports

    11


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    Catalysts – MetroPCS Communications

    • Maintaining low operating expense is Key for MetroPCS success

    • Continue with the “Market Clustering” strategy in densely populated areas with limited cell sites which minimizes network expenses

      • Core Markets: Atlanta, Dallas/Ft. Worth, Detroit, Miami, San Francisco, Sacramento, Tampa/Sarasota/Orlando, and Los Angeles

  • Continue to minimize marketing costs with low handset subsidies, owing to the absence of service contracts.

    • Consumers pay flat monthly fee for unlimited use within service area

    • The company sells its products and services to customers indirectly through approximately 2,000 independent retail outlets under the MetroPCS brand, as well as directly through 95 company-operated retail stores

  • Continue with the “Market Clustering” strategy in densely populated areas with limited cell sites which minimizes network expenses

  • T E L E C O M S T O C K R E C O M M E N D A T I O N

    12


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    DCF Analysis – MetroPCS Communications

    T E L E C O M S T O C K R E C O M M E N D A T I O N

    13


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    Company Risks

    America Movil

    • Country Risk Primarily in Brazil and Mexico

      • Brazil's local monetary policy is a bit nonexistent and its tax laws are draconian.

      • Lack of transparency in financial reporting is concerning.

  • Currency risk and associated inflation concerns throughout Latin America

  • Intense competition from Rival Telefonica (Acquired 2nd largest company in Brazil)

  • Rising penetration rates throughout Latin America

  • MetroPCS Communications

    T E L E C O M S T O C K R E C O M M E N D A T I O N

    • Primary risk continues to be execution risk and competitive response form national carriers

    • Build-out of 40 million Points of Presence (Towers and Connection Points) in the FCC Auction 66 markets by early 2009

    • Increased churn due to an economic downturn

    • The possibility of a dilutive acquisition

    14


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    Action Recommendation

    • Sell 100% Windstream & Sprint

    • Action Scenario 1 – Use 50% proceeds to buy AMX and 50% proceeds to buy PCS

    • Action Scenario 2 – Use 75% proceeds to buy AMX and 25% proceeds to buy PCS

    T E L E C O M S T O C K R E C O M M E N D A T I O N

    15



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