mts allstream 1x1 book. final mts... · detailed sales and marketing plan rfp bids must meet hurdle...

11

June 2011

www.mtsallstream.com

22

Safe harbour notice

This presentation contains certain forward-looking information.Material factors or assumptions were applied in drawing conclusions ormaking a forecast or projection reflected in such forward information.

Actual results may differ materially from a conclusion, forecast orprojection in such forward-looking information. Additional information

about such material factors and assumptions can be found in MTS’filings with the Canadian securities regulatory authorities. Except as

required by law, MTS disclaims any intention or obligation to update orrevise any forward-looking statements, whether as a result of new

information, future events or otherwise.

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MTS Allstream is a leading telecommunicationsprovider in Canada.

MTSWireless

High-speed Internet

IPTV

Converged IP

Unified communications,security and monitoring

Local access

Long distance and legacy data

AllstreamConverged IP

Unified communicationsand security

Local access

Long distance and legacy data

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2011 strategic priorities

Be the Manitoba leader in home servicethrough unique bundle offerings

Drive growth in high-margin, on-net IP-based servicesto improve profitability

Deliver superior customer service,while aggressively improving our cost structure

…to produce strong cash flowsin support of our dividend policy.

6

Broadband and

converged IP

20%

All other revenues

14%

Local access

29%

Wireless

37%

MTS is positioned for market leadership for years to come.

6

Strong revenue growth in Q1 2011 over Q1 2010:Wireless up 9.7%, driven by 40.5% data revenue growth

Internet up 3.8%

IPTV up 17.3%

MTS revenue and EBITDA both grew 3% in Q1 2011 over Q1 2010

MTS: The market leader in Manitoba

Wireless revenues represent 37%MTS revenues in Q1 2011.

MTS revenue mixQ1 2011

7

INNOVATIVE SERVICE BUNDLES

Customers on a bundle generate higher average revenue per user (“ARPU”)and are less likely to switch to a competitors’ services.


MTS is the only provider in Manitoba able to offer awireless bundle or a four-service bundle.

In the first quarter 2011, customers on abundle increased by 6.1%, while ARPUincreased by 5.1%1.

On average, the churn rate for customerson a bundle is over 60% lower thanthe churn rate for those not on a bundle.

1 Q1 2011 vs. Q1 2010

8

• 4G network• Wireless high-speed data coverage is now

available to 97% of Manitobans, up from 72%with EVDO

• Capable of cost-effective upgrade to LTE

• Over 185 MTS Wi-Fi hotpots across Manitoba• Available to wireless and Internet subscribers• Improved customer experience with

increased upload/download speeds


MTS has the best wireless coverage in Manitobathrough Wi-Fi, 4G and CDMA-EVDO networks.

Network CoverageNetwork Coverage

Delivers wireless high-speed datato 97% of Manitoba’s population

Wireless data revenues grew 46.2% in 2010.1Strong demand for high-speed wireless data

is expected to continue in 2011.

1 Full-year 2010 vs. full-year 2009

9

MTS’s timely investments in broadband continue toposition the company for future growth.

25 new communities will have fibre to the home by 2013.

Deep fibre penetration allows us to provide innovativeservices and enhances our bundle offering.


65% of Manitoba households willhave access to our Ultimate TV

and high-speed Internet servicesonce our FTTH deployment is complete.

10

Internet

WirelessWireline

1 Greater Winnipeg market

34%

60%

55%78%

IPTV1

Strong market share in Manitoba


MTS is leveraging its competitive advantages to maintainstrong market share across all segments and growwireless, high-speed Internet and IPTV revenues.

MTS’s competitive advantages

Top brand recognition Strong, exclusive distributers Product leadership Unmatched bundles

These competitive advantagescreate customer value andloyalty which contribute tostrong results.

12

0

200

400

600

800

2010 2011E 2012E 2013E 2014E 2015E

Local Access Converged IP Legacy & Other

In Q1 2011, IP revenue grew 7.9%and IP-based services generated28% of Allstream revenues.

IP is Allstream’s highest-marginproduct with average grossmargin of over 72%.

EBITDA increased 17% in Q11,due to growth in converged IPand aggressive costmanagement.

Double-digit IP revenuegrowth is expected in 2011,in line with market forecasts

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Allstream is strategically positioned to benefit from thegrowing IP market.

Allstream: Driving growth in IP

Allstream revenue trends

1 Q1 2011 vs. Q1 2010; normalized for restructuring costs.

Allstream’s revenue declines in 2011/2012are planned as we shift our focus to IPand exit low-margin lines of business.We expect a return to revenue growthin 2013.

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We have made changes to support the transition to IP.Strong management teamDetailed sales and marketing plan

RFP bids must meet hurdle rates for high-margin, on-net businessLead generation program, targeting on-net and colo footprintFocus on repeatable business to lower reliance on large complex customers

Margin-based compensation in the sales forceTargeted, success-based capital investments

Allstream is shifting its focus to high-margin, on-net IPrevenues to increase profitability.

14

Since June 2010, IP sales levels have returned topre-recession levels.

0 200 400 600

Average IP monthly recurring revenue

Jan-May

2010

Jan-May2011


The 30% increase in sales levels position Allstreamfor double-digit IP revenue growth in 2011.

30% increase

15

63%

17%

20%

0%

20%

40%

60%

80%

100%

Off-Net

Colo

On-Net


Allstream is increasing the proportion of IP salesthat are on our network.

In 2010, 63% of new IP circuitswere On-Net!IP margins are 3x higher whentraffic is on our network.In the base of IP circuits, on-netcircuits increased 4%, while off-net decreased 3%.

Circuits added in 2010

This shift to more on-net IP circuits added +1% to our IP margins.

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73

120

160

208

10 6 9 15 21

March-10 Q2-10 Q3-10 Q4-10 Q1-11

# Buildings

# Buildings with multiple customers

IP margins are 3x higher when traffic is on our network.In total, 2,164 fibre-fed buildings are connected to our network1.

Since March 2010, Allstream has connected 208 buildingsto its network as part of a targeted, success-basedinvestment program.


Cumulative number of buildings added to the network since March 2010as part of a targeted, success-based investment program

1 As at March 31, 2011.

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104%110%107%

Large Mid Small

Value scale:

RCV = Below 98%Below Parity

RCV = 98% to 102%Parity

RCV = 103% to 110%Above Parity

RCV = 111% and higherWorld Class

Combined RCV for the past 5 quarters

Allstream’s Relative Customer Value score of 108%puts Allstream “above parity” in all segments.


Q1 2011 RCV by market size

Allstream delivers superiorcustomer service

while reducing costs.

112% 111%107% 106% 108%

Q1-2010 Q2-2010 Q3-2010 Q4-2010 Q1-2011

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(in millions $) Converged IPUC andsecurity

Localaccess

LD andlegacydata Other Q1 2011 Q1 2010

Operating revenues 57.5 22.1 50.3 56.1 18.7 204.7 214.3

Cost of goods sold (15.8) (16.1) (22.6) (21.4) (13.8) (89.7) (98.1)

Gross margin 41.7 6.0 27.7 34.7 4.9 115.0 116.2

Gross margin % 72.5% 27.1% 55.1% 61.9% 26.2% 56.2% 54.2%Other operatingexpenses (86.2) (103.4)

EBITDA 28.8 12.8

EBITDA margin % 14.1% 6.0%

At Allstream, we have made decisions to improverevenue mix and grow EBITDA.

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We are growing our high-margin, on-net IP revenues,while phasing out other low-margin lines of business.


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Allstream is managing legacy services for profitability andreinvesting these cash flows in IP services.

IP revenues are expected to represent nearly 40%of Allstream’s revenue mix by 2013.

2010 201326%

24%10% 23%

11%

26%

Converged IP Local Access UC & Security LD & Legacy Data & Other

37% 28%

11% 24%

Q1 201140%


40%

20

Consolidated financial results

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MTS Allstream’s 2011 financial outlook reflectedexpectations of improved performance in 2011.

Consolidated, in accordance with IFRS

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2011 financial outlook

Revenues

EBITDA

Earnings per share

Free cash flow

Capital expenditures

$1.665 B to $1.765 B

$550 M to $590 M

$2.00 to $2.45

$110 M to $150 M

16% to 18% of revenues

MTS Allstream: Strong foundation, strong future

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17.1%Capital expenditures/ revenue

20.6Free cash flow

0.42EPS ($)

130.6EBITDA

442.0Revenue

Q1 2010(in millions $, except EPS)

Consolidated, in accordance with IFRS

Q1 2011

439.3

149.8

0.67

24.4

15.4% 1.7

18.4

59.5

14.7

Significant EBITDA, EPS and free cash flow growthin Q1 2011 was in line with outlook expectations.

(0.6)

% change


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ReducedCapital

Spending

IncreasedEBITDA

ReducedPensionSolvencyPayments

ReducedRestructuring

Costs

2010Free Cash Flow

2011Free Cash Flow

$34.1 M

$110-$150M

New federal funding regulations implemented effective April 1, 2011Q1 pension solvency funding of $24.4MNo further cash funding requirements in 2011Reduced funding risk for future years

Q1 results on target to support our dividend and achieve2011 free cash flow guidance. Consolidated free cash flowis expected to improve significantly in 2011.


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Investment-grade debt ratings“BBB/Stable” for both DBRS and S&P

Stable consolidated EBITDA margins reflect prudent cost managementand are expected to continue in 2011

$325 million tax asset means no cash tax payments until 2019

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MTS Allstream delivers solid financial performance.


*Estimated, in accordance with IFRS

33%29%

2008* 2009*

32%

2010

34%

Q1 2011

Stable EBITDA margins

2525

Strong Q1 performanceMTS delivers 3% growth in revenue and EBITDAAllstream delivers 17% growth in EBITDAFree cash flow increases by 18.4%

On track to achieve guidance for 2011 and support our dividend

Making investments in support of long-term strategy4G wireless network launchedFibre to the homeExpanding fibre network with more on-net buildings

Demonstrated stability over time based on strong fundamentals,regional market strengths and strong financial metrics

In summary, MTS Allstream is well positionedfor future growth.


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Appendix – Definitions

• EBITDA – We define EBITDA as earnings before interest, taxes,depreciation and amortization, and other income. EBITDA should notbe construed as an alternative to operating income or to cash flowsfrom operating activities (as determined in accordance withInternational Financial Reporting Standards) as a measure of liquidity.

• Free cash flow – We define free cash flow as cash flow from operatingactivities, less capital expenditures, and excluding changes in workingcapital. Free cash flow is the amount of discretionary cash flow thatwe have for purchasing additional assets beyond our annual capitalexpenditure program, paying dividends, buying back shares, and/orretiring debt.

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