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Telecom Sector (SP-50)

August 2007. George Andress Brandi Bennington. Telecom Sector (SP-50). Recap of Sector Presentation Sprint (S) Metro PCS (PCS) Recommendation. Agenda. Sector Weights-SIM portfolio. Sector Weight- S&P 500. Size and Composition. Telecom sector composition. Current SIM Holdings.

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Telecom Sector (SP-50)

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  1. August 2007 George Andress Brandi Bennington Telecom Sector (SP-50)

  2. Recap of Sector Presentation Sprint (S) Metro PCS (PCS) Recommendation Agenda

  3. Sector Weights-SIM portfolio

  4. Sector Weight- S&P 500

  5. Size and Composition • Telecom sector composition CurrentSIM Holdings

  6. Defensive Sector Cheap sector relative to the S&P 500 Trending toward consolidation Opportunities in new technologies Opportunities in international growth Increase overweight in SIM portfolio by 100 basis points Results in a total overweight to the Telecom Sector of 2.01% Sector Decision and Reasoning

  7. Hold America Movil Sell Sprint Nextel Buy Metro PCS Recommended Actions

  8. Sprint Nextel

  9. Growth Prospects WiMax-high-speed broadband service over large areas Possible buy-out or merger candidate Risk/Concerns Unable to recognize benefit of merger with Nextel Lower APRU and higher Churn Qualcomm Chips Loss of customers due to increased technology Poor Customer Service Sprint Nextel-SELL

  10. Sprint-Valuation

  11. Current Price-$19.49 DCF- $16.66 Valuation- $15.35 Average Price-$16.00 Overvalued by 18% Valuation

  12. Metro PCS Communications

  13. Supply wireless service on a no contract basis Cheap, easy, no-frills service (Plans start at $30,range to $50 for long-distance, internet, and text messaging Prepaid plan that minimizes credit risk to Metro PCS Provides unlimited calls within the local calling area Set to compete with local wireline on a wireless network Limited handset subsidies Target large metro areas Metro PCS Communications

  14. Growth Prospects Launching into Los Angeles market by the end of the third quarter Expects to enter Las Vegas, Philadelphia, Boston, and New York in future Cheap and easy for young, poor, and irresponsible Speculation of merger with Leap in long-term future Metro PCS-BUY

  15. Risks/Concerns Downturn in the market could result in low subscriber additions and high churn Inability to maintain low operating expenses Increased competition from top 3 wireless providers Ability to grow and maintain infrastructure to attract new markets Metro PCS-BUY

  16. Current Price-$28.00 DCF-$45.86 Absolute valuation-$29.17 Dividend Discount Model-$40.56 Average Price-$38.53 Undervalued by 37% Valuation

  17. Metro PCS Valuation

  18. Recommendation • Sell 100% of Sprint-84 basis points • Buy 184 basis points of Metro PCS

  19. Questions ?

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