Student International Business Council

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Student International Business Council

• Verizon

Buy Side November 19, 2006 Kristin
DeAmbrosioMatt BrownschidleHarrison Chilton
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Student International Business Council
Telecommunications Industry Overview
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Student International Business Council
Telecom Industry

• 2005 Telecommunications revenues 1.7 trillion
• Expected to reach 2.2 trillion by 2010
• Chinese deregulation of telecommunication
  industry

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Student International Business Council
Telecom Industry

• Consolidation
• Need for innovation
• Convergence

Dow Jones U.S. Fixed Line Communications Index
vs. SP500
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Telecom Industry

• Wireless replaces wireline
• Broadband wireless and text messaging gain
  momentum
• Cost intensive
• Importance of marketing
• Vast amount of money spent on infrastructure

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Company Overview
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Verizon A Brief History

• 1913- Bell System is a legally regulated monopoly
• Jan. 1, 1984- Breakup of Ma Bell
• June 1994- Bell Atlantic forms joint partnership
  with NYNEX merge entire operations April 1996
• 2000- Verizon Communications created from merger
  of Bell Atlantic Corp. and GTE Corp.
• April 2004- Added to the Dow Jones Industrial
  Average
• Acquired MCI in 2006 for about 8.5 billion

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Verizon Today

• Headquartered in New York
• Generates annual consolidated operating revenues
  of approximately 90 billion
• Serves 57 million customers nationwide
• Operates three network based businesses
• Verizon Wireless
• Domestic Telecom
• Verizon Business

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CEO Ivan Seidenberg

• Co-CEO when Verizon formed
• Sole CEO April 1, 2002
• Chairman of the board in 2004
• Decline of 20 in share price
• Has had leadership positions at ATT and NYNEX

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Porter Model
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Buyers
Consumer Market

• Wireless division focus on retail customers
• Expanding distribution to more Target stores
  nationwide
• Innovative consumer products and services
• Chocolate
• V Cast
• 1.9 million net customer additions 3rd qtr 2006
• Bundling of services directed at retail customers

Student International Business Council
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Student International Business Council
Buyers
Business Market

• Business Data Services
• Business data revenues driven by managed
  services and IP
• Strategic Services Revenues increased 17 Y/Y
• Growth opportunities in managed security and
  hosting
• Verizon Business Unit
• MCI acquisition spur growth
• IP and managed services grew nearly 25 3rd qtr
  2006
• Relationships
• Serves 94 of the Fortune 500 companies

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Buyers
Global Market

• International revenues increased by 179 million,
  or 8.9 in 2005
• Only 2.9 of total revenues
• Significant new accounts in Europe
• Queen Elizabeth II Conference Centre
• Worldline
• London Stock Exchange
• Acer Europe Services
• Expansion of Ethernet capabilities in Europe
• Sale of interests in some Latin American
  operations

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Student International Business Council
Suppliers

• Cell site and switching equipment
• Lucent, Nortel and Motorola (cell site only)
• Major technology supplier is Qualcomm
• Extended relationships with these suppliers 3rd
  quarter 2006
• Reliant on technological innovation
• Multiple other diverse suppliers

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Student International Business Council
Substitutes

• Expansion in Video Broadband
• MVNOs such as ESPN and Disney
• VoIP - Internet Communication Services
• 24m residential subscribers last year
• Skype (an eBay
• company)

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Student International Business Council
Barriers to Entry

• High fixed infrastructure costs
• Necessary RD and technology innovation
• Legal barriers
• FCC Regulations
• Oligopoly
• A few large competitors dominate market
• Difficult to enter market without strong brand
  name recognition

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Student International Business Council
Competition

• Highly Competitive
• Drives prices and profits down
• Mergers create a few superpowers
• These companies have large amount of control
• Regional and National Competitors
• ATT
• Sprint Nextel
• Qwest

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Student International Business Council
ATT

• Possible acquisition of Bell South
• Largest telecommunication company in terms of
  market capitalization
• Strong quarterly revenue growth
• Growing market share
• New online banking features from Cingular
• Largest competition for Verizon

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Student International Business Council
Sprint Nextel

• Possible acquisition of Comcast
• Consistently missing earning expectations
• High churn rate (2.4)
• In coordination with Microsoft, marketing new
  cellular internet search software

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SWOT Analysis
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Strengths

• Wireless division 2nd largest US carrier
• Large established network
• Image of quality
• Low churn rate
• 2.2 billion in ads
• Strong financial position
• Spin-off of Information Services

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Weaknesses

• Wire line division
• Installation costs
• Landline phone services
• Low ARPU
• Inferior wireless access service
• EV-DO slower than Cingulars UMTS
• Largely dependent on domestic revenues

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Opportunities

• FIOS (broadband internet television)
• Still domestic areas to develop
• Develop in areas of internet and TV
• Related markets
• Wireless broadband
• Bundling
• Recently bundled with DirectTV

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Threats

• Substitutes
• Internet communications/VoIP
• MVNOs
• Cable companies
• Triple threat packages
• Competition
• Possible industry consolidation
• Pending lawsuits
• Technology risk

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Financial Information
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Internal Competition
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Financial Snapshot
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Trading Multiples
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Model Highlights
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Dupont Analysis
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Share Price FCF Value
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Share Price PE Multiplier
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Share Price - Conclusions

• Current Share Price
• 35.81
• Predicted Share Price Range
• 43.00 48.00
• Recommendation
• BUY