Telecommunications
SECTOR PRESENTATION BY:
WILLIAM SANTOSO, MANISH KUMAR, &
SARAH RIESKE
Presentation Outline:
 Industry Information
 Analyses:
 Business
 Economic
 Financial Performance
 Valuation
 Recommendations
 Questions
Sector Information
Sector Information: Composition
 Sectors:
 Telecommunications Domestic


Telecommunications Foreign


AT&T
 Landlines, cell phones, wireless internet
China Mobile
 Landlines, cell phones, wireless internet
Wireless communications

NII Holdings
 Cell phones, M2M, other VAS
Sector Information: Size
Industry Information
Name
SIM Holding Information
Name
Market
Cap
Telecom - Domestic
Market
Cap
299.5B
AT&T
150.16B
Telecom - International
3047.1B
China Mobile Ltd.
201.75 B
Wireless Communications 657.1B
NII Holdings, Inc.
3.72B
Total
Total
355.63B
4003.7B
Largest Companies in Sector:
America Mobil
China Mobile, Ltd.
AT&T
Nippon Telegraph & Telephone
Telefonica SA
Verizon
Sector Information: Size
S&P 500
SIM Portfolio
Sector Information: Performance
 YTD performance
 (12%)
 Relative to S&P

(4.99%)
 QTD performance
 (10%)
 Relative to S&P

1.86%
Business Analysis
Profitability: Porter’s 5 Forces
 Buyer Power: Moderate
 Low switching costs for individuals, higher for companies
 Supplier Power: Low
 Enough vendors to dilute supplier power
 Threat of New Entrants: Low
 Substantial start up costs (exacerbated by poor credit markets)
& regulation
 Substitute Products: Low
 Many products, commodity-type attitude, low switching costs
 Rivalry: Cut throat
 Lower margins result from increased price competition
Other Factors
 Economic – defensive industry
 Cheap relative to the S&P 500 & on an absolute basis
 Rapidly evolving industry/high competition
 Risk of obsolescence
 Shrinking margins
 Deregulation
 Mature in the business cycle:
 Established networks and low maintenance costs, little need
for increased capital spending
Economic Analysis
Influencing Factors
Positive Effect
Negative Effect
 Population Growth
 Inflation
 GDP Growth
 Material Costs
 Disposable Income
 Labor Costs
Unemployment (Current) V. Telecommunication
Unemployment (June 1998 – June 2008) V.
Telecommunication
Consumer Confidence V. Telecommunication
Nominal GDP V. Telecommunication
Real GDP V. Telecommunication
Financial Performance Analysis
EBITDA (Relative to S&P 500)
ROE (Relative to S&P 500)
Net Profit margin (Relative to S&P 500)
EPS against (Relative to S&P 500)
Dividend Yield (Relative to S&P 500)
Valuation Analysis
(Relative to S&P 500)
P/Forward E
P/Trailing E
Price/Book
Price/Sales
Price/EBITDA
Summary
T e l e com S e ct or is




Slightly undervalued ( 0.99), Defensive, Cheap
relative to S&P 500
Potential growth in wireless and data division
Cut throat competition in the growth areas
Uncertainty in global financial market
Recommendations
Recommendation

Do nothing and wait for



Break through product/technology
Economic recovery (Increase corporate spending)
OR Increase SIM portfolio by 11 basis points to
make it equal to S&P (3.39%)
Questions?
What Questions do you have ?