awe blue atlantic 10162003

US Mobile Telecom Industry: AT&T Wireless (AWE) Research Report

October 16, 2003

BLUEATLANTIC

2BLUEATLANTIC

Executive SummaryExecutive Summary

US Mobile Telecom OutlookUS Mobile Telecom Outlook

AT&T Wireless ValuationAT&T Wireless Valuation

AppendixAppendix

1

2

3

4

3BLUEATLANTIC

We see AWE as attractive for long term appreciation driven by solid earnings and free cash flow growth over the 2002-07 timeframe.

Industry Outlook We see subscriber growth at 8.5%p.a. over the next 5

years, with penetration reaching 70% by 2007 Revenue growth is forecast at 9.5%p.a. in the same

period, as data adoption and wireline substitution offset lower prices and lower quality net adds to drive avg. revenue per user (ARPU) marginally higher

Near term catalysts: + Net adds at 16-16.5M in 2003, up from 12.3 in

2002 is helping carriers post strong results+ Data adoption is starting to have a positive impact,

with carriers reporting strong ARPU numbers- Wireless number portability (WNP) may increase

churn near term (we see LT impact to be neutral)

Investment Opinion AWE is attractive on valuation, trading at 20% discount

to book value and 30% discount to our DCF based intrinsic value, the company is well positioned for strong growth in earnings and free cash flow:

– Third largest US carrier with strong brand name recognition well positioned to grow subscribers and revenues at 8%p.a. in the forecast horizon

– EBITDA margins seen expanding from 30% to 39%, as company transitions to GSM platform and focuses on improving operating metrics

– Capital expenditure seen dropping to 17-19% of revenues in 2003-07 from 37% in 2002 as GSM build-out is largely over

– Expanding margins and improving capital efficiency seen driving solid earnings (48%p.a.) and free cash flow (25%p.a.) growth

Near term catalysts:+ Strong 3Q report expected+ GoPhone offer seen driving market share gains- NWP overhang

Price history

0

2

4

6

8

10

12

Jan-02

Mar-02

May-02

Jul-02

Sep

-02

No

v-02

Jan-03

Mar-03

May-03

Jul-03

Sep

-03

Income Statement 2002 2003 2004

Total Revenues 15,631 16,628 17,614

EBITDA 3,822 4,751 5,402

Net Income (2,342) 624 1,071

Earnings per sh (0.87) 0.23 0.39

Balance Sheet

Cash 2,353 2,504 3,685

LT Debt 11,057 11,057 11,057

Shr. Equity 27,361 27,985 29,056

Summary Forecast

October 15, 2003

STOCK DATA

Ticker Simbol AWE

Price $8.32

52-Week Range $4.21-9.18

Shares Outstanding (mil) 2,713

Volume (mil) 10

Short Interest N/A

Market Cap (mil) $22,574

Price Target $12.00

FUNDAMENTALS

P/E (12/03e) 36X

P/E (12/04e) 21X

EV/EBITDA (12/03e) 6.6X

EV/EBITDA (12/04e) 5.5X

Book Value/Share $10.30

Price/Book Value 0.81

ROE (12/03e) 2.2%

ROE (12/04e) 3.7%

Net LT Debt to Capital 23%

Rev Growth Est. (4yr) 8%

EPS Growth Est. (4yr) 48%

4BLUEATLANTIC

AWE is undervalued relative to industry comparables on an EV/EBITDA basis.

Company Market ValueComments Rating

Name Ticker Price Mkt Cap (m) Enterpr. Value EV/EBITDA

ATT Wireless AWE $8.40 $2,791 $29,823 6.6X

+Third largest US carrier+Conservatively financed+Well positioned for margin expansion+May benefit from number portability

Buy

Sprint PCS PCS $5.75 $5,948 $22,968 7.0X

+High operating leverage and capital efficiency going forward

- High churn/low customer satisfaction make PCS vulnerable to WNP

- Tracking stock (like fantasy football)

Buy

Nextel NXTL $22.12 $22,906 $33,978 8.5X

+Outstanding recent performance- Vulnerable to PTT competition- No path to 3G - Overvalued given risks

Sell

US Cellular USM $34.64 $2,984 $4,374 6.7X• Regional player with limited float (80% owned by TDS) N/R

Western Wireless WWCA $20.25 $1,606 $3,956 9.9X • Turnaround play N/R

Dobson DCEL $9.03 $814 $2,322 8.3X • Regional player N/R

Nextel Partners

NXTP $9.12 $2,290 $3,826 28.1X • Nextel affiliate Sell

Triton TPC $4.89 $333 $1,661 6.2X • Regional player N/R

Selected US Mobile Telecom Pure Plays – Oct. 15th 2003

Sources: Company reports, BlueAtlantic Analysis.

5BLUEATLANTIC




AppendixAppendix

1

2

3

4

6BLUEATLANTIC

Over the 2003-07 period we see opportunity for the mobile telecom industry to make the transition from high growth phase to solid free cash generation.

• Subscriber base seen growing 8.5% to 212M in 2007 from 141M in 2002, with penetration reaching 70%

• Service revenue seen growing at 9.5% p.a. to $132B in 2007 driven by increase in subscribers and higher average revenue per user (ARPU)

• EBITDA margins to expand from 30% in 2002 to 40% by 2007 driven by economies of scale and benefits from next generation networks (3G)

• Capital expenditure requirements should fall from 30% of revenues in 2002 to 14% of revenues by 2007 as carriers complete their migration to 3G networks

• The absence of future consolidation however, poses a long term threat to industry profitability, as the market remains too fragmented.

7BLUEATLANTIC

• Offer designs targeted at under-penetrated segments of population such as youth and credit challenged (e.g. AT&T’s GO Phone, family plans, etc)

• Introduction of compelling data applications (picture messaging, music downloads, games, location based information services) and snazzy handsets (color screen, MP3 player, digital camera, PDA) will drive incorporation of mobility “anywhere/anytime” into life-styles, increasing usage and reinforcing wireless/ wireline substitution

• Introduction of data only terminals/service offers targeted at enterprise applications, including high speed internet access

Key Drivers

Subscriber base seen growing 8.5% to 212M in 2007from 141M in 2002, with penetration reaching 70%.

US Mobile Telecom Subscribers – (EOP)

Sources: CTIA, Bureau of Census, CIA Factbook, BlueAtlantic Analysis.

69.2

86.0

110.0

128.4140.7

157.3

171.0184.4

197.9

211.7

70%66%

62%58%

54%

29%

45%49%

24%

39%

1998 1999 2000 2001 2002 2003 2004 2005 2006 2007

19.4%CAGR

8.5%CAGR

Forecast

278.1 280.9 283.7 286.8 289.9 292.4 294.8 297.4 299.9 302.4

13.9 16.8 24.0 18.4 12.3 16.5 13.7 13.3 13.6 13.8

Pops

Net Adds

- 5% 10% 6% 4% 5% 4% 4% 4% 4%Increm Penetr

Penetration (%)

Subscribers (millions)

Benchmark: Penetration Vs. Income Level

Note: Bubble proportionate to subscriber base.

Hong Kong

40%

60%

80%

100%

15 20 25 30 35 40

Mobile Penetration (%)

Per Capita GDP (000s of US$)

US

Portugal

France

Switzerland

U.K.

Sweden

Spain

Italy

S. Korea

Germany

Netherlands

Avg:$30k

Avg:60%Japan

8BLUEATLANTIC

• Increase in number of subscribers to 212M by 2007, up from 141M in 2002

• Monthly ARPU rises from $51 to $54 driven by increase in usage of both voice and data services offsetting lower prices and lower quality users:

– We estimate data services to easily account for 12% of ARPU by 2007 driven by adoption of new offerings, including: Multimedia messaging Interactive games MP3 and video downloads Location based services Video calls Internet access, etc.

Key Drivers

Service revenue to grow at 9.5% p.a. to $132B in 2007 driven by increase in subscribers and marginally higher average revenue per user (ARPU).

Mobile Telecom Service Revenue – $ billions

3139

55

70

8292

103112

122

132

1998 1999 2000 2001 2002 2003 2004 2005 2006 2007

Sources: FCC, CTIA, Company Reports, BlueAtlantic Analysis.

27.5%CAGR

9.9%CAGR

Forecast

- 25% 39% 29% 17% 12%

43.0 43.0 47.0 49.5 51.0 51.5

Rev. Growth

ARPU

- - - 0.5% 1.0% 1.5%%Data

11%

52.0

2.5%

9%

52.5

9%

53.0

10%

8%

53.6

12%5.0%

1%

20%

16% 16%

10%

US Japan Germany UK France

Benchmark: Data as % of ARPU

9BLUEATLANTIC

Sources: CTIA, Company reports, BlueAtlantic analysis.

Key Drivers

• Consolidation of network infrastructures acquired as a result of consolidation (T-Mobile) or migration to GSM (ATT, Cingular) will contribute to lower costs: one network technology, one billing system, one CRM platform should reduce complexity and improve efficiency across the organization.

• Transition from a period of fast growth and accelerated network rollout to a phase of slower, albeit healthy, growth will allow management to focus on operating efficiency metrics (learning curve benefits)

• Additionally, 3G networks are expected to provide higher capacity at reduced operating costs.

38% 40% 39%

50%

38%

Verizon Nextel Vodafone TelecomItalia

Orange

Benchmark: Selected EBITDA Margin

7.4 8.9

13.1

18.6

24.7

29.5

34.8

40.3

46.3

52.7

40%38%

36%34%

32%

23%

27%

30%

24% 24%

1998 1999 2000 2001 2002 2003 2004 2005 2006 2007

35.2%CAGR

15.6%CAGR

Forecast

- 20% 48% 42% 33% 19% 18% 16% 15% 14%

- -1.0% 1.0% 3.0% 3.0% 2.0% 2.0% 2.0% 2.0% 2.0%

EBITDA GrowthMargin

Exp.

Mobile Telecom EBITDA

EBITDA Margin (%)

EBITDA ($ billion)

EBITDA margins to expand from 30% in 2002 to 40% by 2007 driven by economies of scale and benefits from next generation networks (3G).

10

BLUEATLANTIC

Key Drivers

• The bulk of the investment for migrating networks to the 3G standard have been completed, allowing carriers to limit future network capital expenditures to capacity expansion, maintenance and software upgrades.

• Two of the top three operators in the US representing 30% market share have chosen to migrate to GSM, a move expected to improve their capital efficiency by 10-15%.

• Additionally, recent network sharing, collocation and roaming agreements should improve capital efficiency at the industry level.

11%

16% 17%

13%

9%

TotalGermany

VodafoneUK

VodafoneItaly

OrangeUK

OrangeFrance

Benchmark: Capex/Revenue (2002/03)

Capital expenditure requirements should fall from 30% of revenues in 2002 to 14% of revenues by 2007 as carriers complete their migration to 3G networks.

Sources: CTIA, Company reports, BlueAtlantic analysis.

14.5 15.0

22.3

27.0

25.024.0

21.0

19.0 19.0 19.0

14%16%17%20%

26%

38% 38%

30%

46%

41%

1998 1999 2000 2001 2002 2003 2004 2005 2006 2007

Forecast

65.9 81.7 104.3 127.5 139.3 158.2 177.6 194.5 213.1 231.2

1.05 1.05 1.05 1.01 1.01 0.99 0.96 0.95 0.93 0.92

Cellsites (‘000)

Mobile Telecom Capex

Capex as % of revenue

Capex ($ billion)

Subs/Cel(millio

n)

11

BLUEATLANTIC

The absence of future consolidation however, poses a long term threat to industry profitability, as the market remains too fragmented.

Mobile telecom market share - 2002

Sources: FCC, Company reports, BlueAtlantic Analysis.

• The US market is the most fragmented in the world with over 15 facility based operators while most other developed countries have 3 to 4.

• Over the past 2-3 years the US mobile market experienced periods of intense price competition which stimulated subscriber growth and higher usage, with limited negative impact on revenue growth and ARPU stability.

• In the absence of consolidation however, predatory pricing remains a long term threat to industry profitability/ attractiveness.

Comments

94.7% 89.3%82.6%

71.1%

25.4%68.5%

87.8%

4.4%

34.6%

79.8%

3 or More 4 or More 5 or More 6 or More 7 or More

Markets with 3 or more operators

% of covered pops

2000

2002

Operator Subs (M)Market Share

Cummulative Share

Verizon Wireless 32,491 23.1% 23.1%

Cingular Wireless 21,900 15.6% 38.6%

AT&T Wireless 20,900 14.8% 53.5%

Sprint PCS 14,760 10.5% 64.0%

Nextel 10,612 7.5% 71.5%

T-Mobile 9,913 7.0% 78.6%ALLTEL 7,600 5.4% 84.0%

US Cellular 4,103 2.9% 86.9%

Leap Wireless 1,512 1.1% 87.9%

Western Wireless 1,197 0.9% 88.8%

Qwest 1,034 0.7% 89.5%

Centennial (1) 897 0.6% 90.2%

Nextel Partners 877 0.6% 90.8%

Triton PCS 830 0.6% 91.4%

Dobson Comm. 768 0.5% 91.9%

Rural Cellular 722 0.5% 92.4%

American Cellular 690 0.5% 92.9%

Alamosa PCS 622 0.4% 93.4%

AirGate 589 0.4% 93.8%

US Unwired 561 0.4% 94.2%

Other 8,189 5.8% 94.6%

Total 140,767 100.0% -

12

BLUEATLANTIC

Mobile data impact on revenue growth may lead to an upside surprise whereas excessive price competition poses the biggest threat to the downside.

Downside:

• Slower subscriber growth with penetration falling short of 70% by 2007

• Wireless number portability (WNP) may lead to higher churn, increased price competition and lower industry ARPU.

• Technology disruption (e.g. potential impact of WiFi on data revenues)

• Regulatory disruption (e.g. will the FCC allow the industry to earn a return on capital?)

Upside:

• Mobile data adoption has the potential to lift industry ARPU and drive revenue growth above current expectations as new and compelling applications are launched, including:

– Picture messaging– Games– Video calling– Music downloads– Location based services, etc

• Consolidation may improve industry profitability and capital efficiency

Forecast Risks

13

BLUEATLANTIC




AppendixAppendix

1

2

3

4

14

BLUEATLANTIC

We see AWE benefiting from favorable industry fundamentals to grow EBITDA at 17%p.a. and free cash flow at 25% in the 2003-2007 period.

• Subscriber growth at AWE is estimated at 8.0%p.a. in the forecast horizon based on market share at around 14.5% and churn at 2.1% per month.

• Revenue growth is estimated at 7.9%p.a. driven by growth in subscriber base and stable ARPU at around $61 per month.

• EBITDA growth is seen at 16.9%p.a. driven by rising revenues and margins as AWE reduces its cash cost per user (CCPU) in line with its key competitors.

• Capital expenditure requirements should come down significantly from 37% in 2002 to 15% in 2007, spurring 25%p.a. growth in free cashflow.

• Our DCF model indicates a value of $11.70 per AWE share which would still leave it trading at a discount to Nextel’s current EV/EBITDA ratio.

AWE is well positioned to leverage its brand name and GSM network to earn its cost of capital, but pricing pressures due to industry fragmentation and unpredictable regulatory environment remain a notable threat to our forecast.

15

BLUEATLANTIC

Subscriber growth at AWE is estimated at 8.0%p.a. in the forecast horizon based on market share at around 14.5% and churn at 2.1% per month.

• WIP

AWE Subscribers - EOP


15.2

18.0

20.922.5

24.526.5

28.630.6

14.5%14.4%14.4%14.1% 14.3% 14.4%

13.9%

14.8%

2000 2001 2002 2003 2004 2005 2006 2007

17.3%CAGR

8.0%CAGR

Forecast

-

-

Growth

Net Add (m)*

-Net Add Share*

Market Share (%)

Subscribers (millions)

Key Drivers

19.0%

2.9

15.3%

15.6%

2.8

22.7%

8.0%

1.7

10.1%

9.0%

2.0

14.7%

8.2%

2.0

15.0%

7.7%

2.0

15.0%

7.2%

2.1

15.0%

• We expect AWE subscriber base to grow in line with the overall industry, slowing down to an annual rate of 7.9% over the next 5 years, from 17.3% over the last 3 years, as the US market approaches saturation (i.e. which we expect to happen at the 70% penetration level in the US).

• We see AWE leveraging its competitive strengths to sustain its overall market share at current levels, in particular:

– Solid brand name recognition and reputation for superior quality of service

– GSM network Handset availability at lower prices and

faster product cycles (faster, cheaper, better models) due to global scale

Worldwide roaming capability– Leading position in the implementation of

compelling data offer designs (e.g. first to introduce txt messaging interoperability in the US, partnership with NTT-DoCoMo)

• We see churn at AWE maintaining its recent downward trend despite Wireless Number Portability (WNP) as network quality improves and underlying causes of churn are addressed through increased retention efforts.

* Includes acquisitions (e.g.Telecorp, etc.)

2.9%Churn 2.9% 2.6% 2.2% 2.3% 2.1% 2.1% 2.1%

16

BLUEATLANTIC

7163 62

52 49 48

Nextel Sprint AT&T Cingular T-Mobile Verizon

Revenue growth is estimated at 7.9%p.a. driven by growth in subscriber base and stable ARPU at around $61 per month.

• WIP

AWE Service Revenues


9.4

12.5

14.515.7

16.718.1

19.621.2

9.8%

7.5%

5.2%

1.8%3.1%0.8%

2000 2001 2002 2003 2004 2005 2006 2007

24.2%CAGR

7.9%CAGR

Forecast

-

63.2

Rev Growth

ARPU

Data Share (%)

Service Revenues - $B

Key Drivers

33.7%

62.9

15.6%

62.0

8.6%

59.4

5.9%

61.6

8.7%

60.9

8.4%

61.1

8.0%

60.4

• We see service revenue growth averaging 7.9% in the 2003-07 period driven by underlying subscriber growth and stable ARPU.

• We expect ARPU to remain stable at current levels as increased overall usage (MOU) and ramp up of data revenues offsets lower prices and penetration into lower value segments (i.e. youth and credit challenged)

– Data is forecasted to account for 10% of revenues by 2007, up from less than 1% in 2002

– MOU is expected to maintain current trend line growth driven by wireless/wireline substitution.


-MOU 382 477 539 582 594 606 617

Benchmark: ARPU

2002

17

BLUEATLANTIC

19.9

23.6 24.025.7

31.4 32.3

Verizon T-Mobile Cingular Nextel AT&T Sprint

EBITDA growth is seen at 16.9%p.a. driven by rising revenues and margins as AWE reduces its cash cost per user (CCPU) in line with its key competitors.

• WIP

AWE EBITDA


1.9

3.1

3.8

4.85.4

6.4

7.3

8.3

39%37%

35%32%

30%26%

25%

20%

2000 2001 2002 2003 2004 2005 2006 2007

41.4%CAGR

16.9%CAGR

Forecast

EBITDA Margin (%)

EBITDA - $B

Key Drivers

65%

32.73

23%

32.03

24%

31.04

14%

29.14

18%

28.05

15%

27.02

14%

26.02

• We see EBITDA growth averaging 16.9% in the forecast horizon driven by revenue growth and expanding margins.

• We expect EBITDA margins to reach 39% by 2007 driven by lower cash cost per user (CCPU) and marginally lower cash cost per gross add (CPGA)

– Lower CCPU will result from:transition to the 3GSM (WCDMA) standard and

consequent rationalization of operations around one (lower cost) network platform (AWE today operates two).

Lower roaming costsManagement focus shifting from growth to cash

generation mode (learning curve)


EBITDA Growth

CCPU $/m

CPGA $334 $377 $365 $338 $347 $350 $354

Benchmark: CCPU

2002

18

BLUEATLANTIC

Capital expenditure requirements should come down significantly from 37% in 2002 to 15% in 2007, spurring 25%p.a. growth in free cashflow.

• WIP

AWE Capital Expenditure Requirements

3.6

5.2 5.3

3.02.8 2.9 2.9

3.2

15%15%16%17%19%

37%

42%38%

2000 2001 2002 2003 2004 2005 2006 2007

Forecast

% of Revenue

Capex - $B

Key Drivers

• We see capex requirements falling to 15% of revenues by 2007 from an average of close to 40% in the recent past, following completion of most of the GSM/GPRS network overlay in 2002.

• Going forward most of the capex requirements will be associated with capacity expansion to accommodate increase in traffic, maintenance and software upgrades to enhance data speeds (e.g. EDGE).

$1,805

$0.20

$1,886

$0.14

$1,796

$0.11

$1,402

$0.12

$1,447

$0.16

$1,448

$0.16

$1,539

$0.17

Capex/Net Add

Capex/ Ad Minute

Minutes (bn) 76 113 140 164 182 200 219

1.32.1 2.4 2.8 3.2

-3.0

2002 2003 2004 2005 2006 2007

AWE Free Cash Flow

25%p.a.

19

BLUEATLANTIC

AWE Target Price

Recent Price--

Our DCF model indicates a value of $11.70 per AWE share which would still leave it trading at a discount to Nextel’s current EV/EBITDA ratio.

DCF Valuation

Key Ratios 1999-02 2003-07

Revenue growth (CAGR) 28.5% 7.9%

Ebit/Revenues 7.9% 20.2%

Revenues/Inv. Capital (pre-Goodwill) 0.9 0.9

ROIC (after tax, pre-Goodwill) 4% 13%

WACC 10% 10%

DCF Rationale

• We have performed a discounted cash flow (DCF) analysis of AWE’s mobile telephony business based on a detailed forecast of key operating metrics in the 2003-07horizon and using a 5% perpetual growth rate of free cash flow thereafter discounted at a rate of 10% to arrive at the operating value for the business of $39.2 billion.

• We have added cash and financial investments and deducted debt, preferred stock and minority interests to arrive at the equity value which divided by number of shares yield 11.78 per share.

• Our DCF based value of $11.70 per share would leave AWE trading at a slight discount to Nextel's 7.6x Enterprise Value to 2004 EBITDA ratio.

Comparable EV/EBITDA* Multiples

Share Price: $8.3 $12 $5.7 $21.5

*2004 EBITDA

7.6x

5.5x

7.3x

5.5x

AWE AWE PCS NXTL

Value of EquityOperating Value 39,211 Excess Cash/Mkt Securities 4,000 Financial Investments 2,225 Enterprise Value 45,436 Debt (11,302) Capitalized Operating Leases (2,292) Preferred Stock (151) Minority Interest (48) Stock options - Equity Value 31,643 No. shares (Billions) 2,713 Value per Share 11.66

20

BLUEATLANTIC

AWE is well positioned to leverage its brand name and GSM network to earn its cost of capital, but pricing pressures due to industry fragmentation and unpredictable regulatory environment remain a notable threat to our forecast.

Weaknesses: • Higher cash cost per user than most

competitors makes AWE vulnerable to increase in competitive pressures

• Transition from TDMA to GSM leaves AWE vulnerable to network coverage/quality issues in the short term

Strengths:• Brand name recognition and reputation for

quality• Solid market share of high value segments • GoPhone offer may allow profitable penetration

of low value segments with potential upside impact on market share.

• Adoption of dominant GSM network standard create opportunity to reduce operating costs and capital expenditure requirements and handset procurement costs

• Conservative balance sheet

Threats:

• Wireless number portability (WNP) could potentially increase internal industry rivalry and lead to higher churn and lower ARPU

• Long term technology disruption (e.g. impact of WiFi on data revenue)

• Regulatory environment may prevent AWE from earning an adequate return on capital (e.g. spectrum availability, mandatory requirements such as E911 and WNP, etc.)

Opportunities:

• US subscriber penetration has room to grow as youth, credit challenged and old age

• Mobile data adoption and associated revenue stream could exceed expectations by a very wide margin

• Potential consolidation may improve overall industry profitability/attractiveness

21

BLUEATLANTIC




AppendixAppendix

1

2

3

4

22

BLUEATLANTIC

Pro-forma Income Statement forecast.

Income Statement ($Million) 1999 2000 2001 2002 2003 2004 2005 2006 2007Total Revenues 7,627 10,446 13,610 15,631 16,628 17,614 19,081 20,675 22,316 Service Revenues 6,823 9,374 12,532 14,483 15,728 16,656 18,105 19,629 21,200 Equipment Revenues 804 1,072 1,078 1,148 901 958 977 1,046 1,116 Cost of Service (2,530) (3,017) (3,991) (4,558) (4,722) (4,724) (4,871) (4,993) (5,096) Selling, Gen & Admin Expenses (2,641) (3,512) (4,482) (4,977) (5,186) (5,394) (5,719) (6,101) (6,482) Other Oper Expense (1,266) (2,041) (2,037) (2,274) (1,969) (2,093) (2,135) (2,287) (2,440) Reported EBITDA 1,190 1,876 3,100 3,822 4,751 5,402 6,356 7,294 8,298 Depreciation Expense (1,231) (1,245) (1,760) (2,366) (2,765) (2,803) (2,779) (2,799) (2,824) Amortization of Goodwill 0 (73) (135) 0 0 0 0 0 0 Intangibles Amort. (Excl. Goodwill) 0 (321) (607) (385) 0 0 0 0 0 Reported EBIT (41) 237 598 1,071 1,987 2,599 3,577 4,495 5,474 Non-Oper Income 122 390 77 (225) (225) (225) (225) (225) (225) Interest Income 0 146 278 74 20 41 96 136 169 Interest Expense (136) (85) (386) (669) (891) (885) (875) (825) (755) Restructuring Charges (528) 0 0 0 0 0 0 0 0 Special Items 0 0 0 (1,329) 0 0 0 0 0 Earnings Before Taxes (583) 688 567 (1,078) 891 1,530 2,573 3,581 4,663 Income Taxes 257 (246) (311) (55) (267) (459) (772) (1,253) (1,632) Minority Interest 0 (2) 19 28 0 0 0 0 0 Income Before Extraordinary Items (326) 440 275 (1,105) 624 1,071 1,801 2,328 3,031 Extraordinary Items (After Tax) (79) 218 (1,162) (1,219) 0 0 0 0 0 Net Income (405) 658 (887) (2,324) 624 1,071 1,801 2,328 3,031 Preference dividends (56) (130) (76) (18) 0 0 0 0 0 Earnings for common shareholders (461) 528 (963) (2,342) 624 1,071 1,801 2,328 3,031 Common dividends 0 0 0 0 0 0 0 0 0 Retained profit (461) 528 (963) (2,342) 624 1,071 1,801 2,328 3,031

Earnings per share (US$) 0 0.21 (0.38) (0.87) 0.23 0.39 0.66 0.86 1.12 Earnings per share - fully diluted (US$) 0 0.21 (0.38) (0.87) 0.23 0.39 0.66 0.86 1.12

23

BLUEATLANTIC

Pro-forma Balance Sheet forecast.

Balance Sheet ($Million) 2000 2001 2002 2003 2004 2005 2006 2007Operating Cash 62 352 353 472 500 543 589 636 Excess Marketable Securities 0 3,000 2,000 2,033 3,186 4,532 5,624 7,454 Accounts Receivable 1,865 2,026 2,215 2,359 2,498 2,716 2,944 3,180 Inventories 335 307 325 315 333 362 393 424 Other Current Assets 292 612 388 472 500 543 589 636 Total Current Assets 2,554 6,297 5,281 5,650 7,017 8,696 10,138 12,330 Net Property Plant and Equipment 9,231 12,956 16,263 16,487 16,349 16,466 16,611 16,967 Goodwill 4,644 4,712 7,199 7,199 7,199 7,199 7,199 7,199 Other Intangible Assets 13,403 13,100 13,959 13,959 13,959 13,959 13,959 13,959 Other Operating Assets 1,096 897 879 879 879 879 879 879 Investments 3,385 3,672 2,225 2,225 2,225 2,225 2,225 2,225 Deferred tax asset 0 0 0 0 0 0 0 0 Other Non-operating Assets 989 88 0 0 0 0 0 0 Total Assets 35,302 41,722 45,806 46,398 47,627 49,425 51,011 53,560

Short term debt 747 263 245 0 0 0 0 0 Accounts Payable 1,949 1,628 1,418 1,573 1,666 1,810 1,963 2,120 Tax payable 0 280 375 375 375 375 375 375 Dividends payable 0 0 0 0 0 0 0 0 Other Current Liabilities 958 1,261 1,055 1,101 1,166 1,267 1,374 1,484 Total Current Liabilities 3,654 3,432 3,093 3,049 3,206 3,453 3,712 3,979

Balancing Debt 0 0 0 0 0 0 0 0 Long Term Debt 1,800 6,617 11,057 11,057 11,057 10,807 9,807 9,057 Deferred Income Taxes 4,659 4,352 3,788 3,788 3,788 3,788 3,788 3,788 Other Operating Liabilities 271 330 308 308 308 308 308 308 Minority Interest 41 46 48 48 48 48 48 48 Preferred Stock 3,000 0 151 164 164 164 164 164 Total Common Equity 21,877 26,945 27,361 27,985 29,056 30,857 33,185 36,216 Total Liabs and Equity 35,302 41,722 45,806 46,398 47,627 49,425 51,011 53,560

24

BLUEATLANTIC

Pro-forma Free Cash Flow forecast.

Free Cash Flow ($Million) 2001 2002 2003 2004 2005 2006 2007NOPLAT 849 204 1,445 1,870 2,558 3,026 3,662 Depreciation 1,760 2,366 2,765 2,803 2,779 2,799 2,824 Gross Cash Flow 2,609 2,570 4,210 4,673 5,337 5,825 6,486

Increase in Working Capital (481) (305) (136) (56) (87) (91) (94) Capital Expenditures (5,205) (5,302) (2,988) (2,665) (2,897) (2,944) (3,180) Incr in other operating assets/liabilities (22) (375) 0 0 0 0 0 Inv in Operating Leases 48 365 192 100 0 0 0 Gross Investment (5,660) (5,617) (2,932) (2,621) (2,984) (3,036) (3,274) Free Cash Flow Excl. Goodwill (3,051) (3,047) 1,278 2,052 2,353 2,789 3,212

awe blue atlantic 10162003

Documents

us mobile telecom industry

s of us

strong growth

revenue growth

subscriber growth

largest us carrier

free cash flow growth

us cellular usm