Rural Cellular Association 2010 Business and Technical Conference October 12-14, 2010 Bruce Falkenberg www.falkenbergcapital.com bruce@fcapital.com (303) 320-4800
Overview Spectrum market is active across all bands Merger and Acquisition noticeably improved over last nine (9) months. Verizon and AT&T are active. Financial buyers have been sidelined by tight lending markets and inability to acquire meaningful foot prints. Values are generally good to strong 12 months ago market was very weak Market can change quickly Data centric business models and proliferation of smart phones should enhance spectrum value over time Negatives to spectrum value LTE deployment will increase network capacity Government efforts to free larger blocks of additional spectrum Industry consolidation 2
Agenda 1. 850 Mhz- Cellular Operating Company Transactions 2. 700 MHz Auction Prices Spectrum Transactions 3. PCS- 1900 MHz Auction Prices Spectrum Transactions Operating Company Transactions 4. AWS Auction Prices Spectrum Transactions 5. Current Public Company Valuations 6. Closing Remarks 3
850 MHz- Cellular Little spectrum remains under independent ownership Secondary Market Most sought after spectrum Pricing based upon operational statistics with a premium for scarcity Factors impacting pricing Revenue components Well run businesses Underperforming businesses Alltel l acquisition iti by Verizon AT&T acquisition of Centennial 4
850 MHz- Cellular Transactions Recent tmajor Transactions AT&T acquired Alltel Wireless overlap assets from Verizon in a forced divestiture. Announced May 8, 2009 $2.35 billion deal Estimates suggest approximately 2x revenues Estimates suggest less than 5x EBITDA 1.5 million subscribers 79 service areas Closed June 22, 2010 Atlantic Tele-Network acquired Alltel Wireless excess overlap assets from Verizon in a forced divestiture. Announced June 9, 2009 Total Enterprise value of $200 million Less than 0.5x revenue 800,000 subscribers Rural markets in Georgia, North Carolina, South Carolina, Illinois, Ohio and Idaho Closed April 26, 2010 Source: Public Filings 5
850 MHz- Cellular Transactions Recent tmajor Transactions (continued) AT&T to acquire Centennial Communications Announced November 7, 2008 Total Enterprise Value of $2.8 billion 2.8x Revenue 7.3x EBITDA 1.1 million subscribers Closed November 6, 2009 Verizon acquired Alltel l for $28B Announced June 5, 2008 Largely 850 MHz spectrum Verizon largest U.S. wireless ess operator o surpassing ss AT&T Total Enterprise Value 3.2x Revenue 8.9x EBITDA Closed January 9, 2009 Source: Public Filings 6
700 MHz Three (3) FCC auctions for 700 MHz spectrum. Little attention paid to 700 MHz during Auction 44 and Auction 49. Average price per MHz pops for Auction 44 was $0.04 04 Average price per MHz pops for Auction 49 was $0.01 Competitive and aggressive bidding in Auction 73. Average price per MHz pops for Auction 73 was $0.84. Chicago, IL CMA B-Block sold for nearly $9.00 per MHz pops (Verizon) Secondary Market Currently seeing an active secondary market with strong pricing i Large volume of activity leading up to Auction 73 In markets up to 250k pops, the 2008 average price per MHz pops was $1.33, while in 2009 average price has been $0.90. Significant premiums for larger markets (top 50) Volume slowed in 2008, but picked up in 2009 and continuing into 2010 7
700 MHz Auction Pricing Simple Average Price per MHz Pops- Market Size $1.80 $1.60 Market $1.40 Size 0-250M $1.20 250-500M 500-750M $1.00 750-1MM $0.80 1-2MM 2MM+ $0.60 All Markets $0.40 $0.20 $0.00 Auction 44-2002 Auction 49-2003 Auction 73-2008 8
700 MHz Secondary Pricing Simple Average Price per MHz Pops- Market Size $1.40 $1.20 $1.00 $0.80 $0.60 $0.40 Market Size 0-250M 250-500M 500-1MM 1-2MM 2MM+ All Markets $0.20 $0.00 2003 2004 2005 2006 2007 2008 2009 2010 9
PCS Nine (9) FCC auctions for PCS spectrum. Auction 35 (2001) saw highest average price across all market sizes with $1.96 average price Most recent Auction 78 (2008) had average price of $0.19 General market decline but market desirability also plays a role in price difference Secondary Market Spectrum deals came to a standstill at the end of 2008 and into 2009 Significant increase in transactions during 2010 PCS values are strong is they address a near term strategic need. Otherwise, values are soft In a recently announced deal, Sprint will acquire sixteen (16) 10 MHz PCS licenses 10
PCS Auction Pricing Simple Average Price per MHz Pops- Market Size $6.00 $5.00 $4.00 $3.00 $2.00 Market Size 0-250M 250-500M 500-750M 750-1MM 1-2MM 2MM+ All Markets $1.00 $0.00 Auction ction4-1995 Auction ction5-1996 Auction 10- Auction 22- Auction 35- Auction 58- Auction 71- Auction ction78-1996 1999 2001 2005 2007 2008 11
PCS Secondary Pricing Simple Average Price per MHz Pops- Market Size $3.50 $3.00 Market Size $2.50 0-250M 250-500M $2.00 500-1MM 1-2MM $1.50 2MM+ All Markets $1.00 $0.50 $0.00 2003 2004 2005 2006 2007 2008 2009 2010 Note 2004- largely driven by one transaction in which Verizon paid $4.74 per MHz pops for the New York BTA. 2005- Made up of only one transaction, Verizon bought the San Francisco BTA for $3.14 per MHz pops. 12
Operating Companies Transactions Non 850 MHz Transactions PCS Sprint Nextel to acquire Virgin Media Announced July 29, 2009 Total Enterprise Value of $680 million (0.5x Revenue, 5.9x EBITDA) Closed November 24, 2009 Sprint Nextel to acquire ipcs Announced October 18, 2009 Total Enterprise Value of $833 million (1.5x Revenue, 7.9x EBITDA) Closed November 25, 2009. Source: Public Filings 13
AWS Two (2) FCC auctions for AWS spectrum. Auction 66 (2006) saw highest average price across all market sizes with $0.19 average price Most recent Auction 78 (2008) had average price of $0.09 Secondary Market Until recently, relatively l few transactions have taken place Little public information on pricing for these transactions that have occurred Recently, transactions volume and pricing has picked up. Sellers have received meaningful premiums to auction prices Prices quoted in relation to Auction 66 14
AWS Auction Pricing Simple Average Price per MHz Pops- Market Size $0.60 $0.50 $0.40 $0.30 $0.20 Market Size 0-250M 250-500M 500-750M 750-1MM 1-2MM 2MM+ All Markets $0.10 $0.00 Auction 66-2006 Auction 78-2008 15
Current Public Company Valuation Public Company Valuations tric only meaningful for M&A transacti (In millions, except per share data) Stock Price % Change from 52- Week Market Enterprise Revenue EBITDA EV / Revenue EV / EBITDA Ticker Company Name 9/8/2010 High Low Cap Value (1) LTM LTM LTM LTM National Carriers T AT&T, Inc. 27.44-4.5% 15.4% 161,138.4 230,196.4 123,285.0 41,992.0 1.9x 5.4x VZ Verizon Communications Inc. 30.40-10.9% 17.0% 85,424.1 182,886.1 108,042.0 35,367.0 1.7x 5.1x S Sprint Nextel Corp. 4.43-16.6% 59.4% 13,131.9 29,155.9 32,020.0 5,968.0 0.9x 5.8x Max 30.40-4.5% 59.4% 161,138.4 230,196.4 123,285.0 41,992.0 1.9x 5.8x Median 27.44-10.9% 17.0% 85,424.1 182,886.1 108,042.0 35,367.0 1.7x 5.4x Min 4.43-16.6% 15.4% 13,131.9 29,155.9 32,020.0 5,968.0 0.9x 5.1x Mean 20.76-10.7% 30.6% 86,564.8 147,412.8 87,782.3 27,775.7 1.5x 5.4x Regionals LEAP Leap Wireless International Inc. 10.42-51.7% 9.6% 821.7 3,065.1 2,486.3 509.3 1.2x 6.0x PCS MetroPCS Communications, Inc. 9.64-9.5% 74.6% 3,351.3 5,949.8 3,808.6 1,025.6 1.6x 5.8x NTLS NTELOS Holdings Corp. 16.70-17.9% 18.4% 690.6 1,256.9 538.9 214.5 2.3x 5.9x USM United States Cellular Corp. 44.09-8.1% 30.3% 3,759.2 4,317.6 4,171.9 821.1 1.0x 4.7x SHEN (2) Shenandoah Telecommunications Co. 18.25-13.8% 17.3% 426.8 431.0 164.2 71.8 2.6x 6.0x Max 44.09-8.1% 74.6% 3,759.2 5,949.8 4,171.9 1,025.6 2.6x 6.0x Median 16.70-13.8% 18.4% 821.7 3,065.1 2,486.3 509.3 1.6x 5.9x Min 9.64-51.7% 9.6% 426.8 431.0 164.2 71.8 1.0x 4.7x Mean 19.82-20.2% 30.0% 1,809.9 3,004.1 2,234.0 528.5 1.8x 5.7x Notes: (1) Enterprise Value = Market Cap + Total Debt - Cash & Equiv. + Minority Interest (2) SHEN receives approx. 70% from wireless services. 16
Closing Remarks Spectrum Transactions National Carriers Acquiring spectrum to achieve depth in all markets and fill gaps in footprint. Positioning for migration to 4G (700 MHz). Regional companies acquiring spectrum contiguous to current footprint. U.S. Cellular, Metro PCS, and Leap No new territories are being acquired. 850MHz remains most sought after band. 700 MHz pricing is very strong and activity is high. Spectrum (1900 MHz) values are strong if the spectrum addresses a buyers near term strategic need. Spectrum in sparsely populated areas challenging to sell. Values are well off the market lows but also well below levels seen in 2000 and 2001 Selecting opportune time to buy and sell spectrum will become increasingly important in maximizing value. 17
Appendix 18
PCS Auction Pricing Price per MHz Pops by Market Size Simple Average Price per MHz Pops Auction 4-1995 Auction 5-1996 Auction 10-1996 Auction 22-1999 Auction 35-2001 Auction 58-2005 Auction 71-2007 Auction 78-2008 0-250M $0.09 $0.57 $1.11 $0.22 $1.09 $0.32 $0.28 $0.16 250-500M $0.89 $1.56 $0.43 $1.37 $0.25 $0.29 $0.22 500-750M $0.08 $0.97 $1.72 $0.43 $1.77 $0.43 $0.27 750-1MM $1.32 $0.32 $3.29 $0.26 1-2MM $0.28 $1.36 $2.08 $0.35 $3.50 $0.86 2MM+ $0.50 $1.74 $2.11 $0.44 $4.34 $1.23 All Markets $0.44 $0.78 $1.55 $0.29 $1.96 $0.56 $0.28 $0.19 Weighted Average Price per MHz Pops Auction 4-1995 Auction 5-1996 Auction 10-1996 Auction 22-1999 Auction 35-2001 Auction 58-2005 Auction 71-2007 Auction 78-2008 0-250M $0.05 05 $0.61 $1.21 $0.06 06 $1.14 14 $0.26 $0.14 $0.17 250-500M $0.92 $1.51 $0.08 $1.35 $0.24 $0.21 $0.21 500-750M $0.08 $0.98 $1.72 $0.10 $1.79 $0.45 $0.24 750-1MM $1.33 $0.14 $3.15 $0.26 1-2MM $0.26 $1.37 $2.08 $0.17 $3.56 $0.88 2MM+ $0.52 $1.76 $2.09 $0.31 $5.45 $1.34 All Markets $0.51 $1.33 $1.94 $0.16 $4.18 $0.98 $0.19 $0.20 Notes- All Data as reported by the FCC. Population as reported by FCC at time of auction. Price per MHz pop calculated from the Net Winning Bid Amount which takes into account any bidding credits utilized by winning bidder. 19
PCS Auction Pricing Weighted Average Price per MHz Pops- Market Size $6.00 $5.00 $4.00 $3.00 $2.00 Market Size 0-250M 250-500M 500-750M 750-1MM 1-2MM 2MM+ All Markets $1.00 $0.00 Auction 4- Auction 5- Auction 10- Auction 22- Auction 35- Auction 58- Auction 71- Auction 78-1995 1996 1996 1999 2001 2005 2007 2008 20
PCS Auction Pricing Price per MHz Pops by Block Simple Average Price per MHz Pops A-Block B-Block C-Block D-Block E-Block F-Block Auction 4-1995 $0.43 $0.45 Auction 5-1996 $0.78 Auction 10-1996 $1.55 Auction 22-1999 $0.08 $0.07 $0.02 Auction 35-2001 $1.64 $3.64 Auction 58-2005 $0.15 $0.57 $0.42 $0.47 $0.75 Auction 71-2007 $0.93 $0.24 $0.11 Auction 78-2008 $0.22 $0.08 $0.13 $0.18 Weighted Average Price per MHz Pops A-Block B-Block C-Block D-Block E-Block F-Block Auction 4-1995 $0.48 $0.54 Auction 5-1996 $1.33 Auction 10-1996 $1.94 Auction 22-1999 $0.16 $0.11 $0.02 Auction 35-2001 $3.99 $5.45 Auction 58-2005 $0.15 $0.93 $0.33 $0.47 $2.64 Auction 71-2007 $0.30 $0.20 $0.05 Auction 78-2008 $0.21 $0.08 $0.13 $0.20 Notes- All Data as reported by the FCC. Population as reported by FCC at time of auction. Price per MHz pop calculated from the Net Winning Bid Amount which takes into account any bidding credits utilized by winning bidder. 21
PCS Auction Pricing Simple Average Price per MHz Pops- By Block $4.00 $3.50 $3.00 $2.50 $2.00 $1.50 $1.00 Auction Auction 4-1995 Auction 5-1996 Auction 10-1996 Auction 22-1999 Auction 35-2001 Auction 58-2005 Auction 71-2007 Auction 78-2008 $0.50 $0.00 A-Block B-Block C-Block D-Block E-Block F-Block 22
PCS Auction Pricing Weighted Average Price per MHz Pops- By Block $6.00 $5.00 $4.00 $3.00 $2.00 Auction Auction 4-1995 Auction 5-1996 Auction 10-1996 Auction 22-1999 Auction 35-2001 Auction 58-2005 Auction 71-2007 Auction 78-2008 $1.00 $0.00 A-Block B-Block C-Block D-Block E-Block F-Block 23
AWS Auction Pricing Price per MHz Pops by Market Size Simple Average Price per MHz Pops Auction 66-2006 Auction 78-2008 0-250M $0.12 $0.07 250-500M $0.13 $0.09 500-750M $0.17 750-1MM $0.19 1-2MM $0.32 2MM+ $0.51 $0.07 All Markets $0.19 $0.07 Weighted Average Price per MHz Pops Auction 66-2006 Auction 78-2008 0250M 0-250M $0.12 $0.0707 250-500M $0.13 $0.11 500-750M $0.17 750-1MM $0.20 1-2MM $0.33 2MM+ $0.65 $0.07 All Markets $0.54 $0.0808 Notes- All Data as reported by the FCC. Population as reported by FCC at time of auction. Price per MHz pop calculated from the Net Winning Bid Amount which takes into account any bidding credits utilized by winning bidder. 24
AWS Auction Pricing Weighted Average Price per MHz Pops- Market Size $0.70 $0.60 $0.40 $0.30 Market Size 0-250M $0.50 250-500M 500-750M 750-1MM 1-2MM 2MM+ $0.20 All Markets $0.10 $0.00 Auction 66-2006 Auction 78-2008 25
AWS Auction Pricing Price per MHz Pops by Block Simple Average Price per MHz Pops A-Block B-Block C-Block D-Block E-Block F-Block Auction 66-2006 $0.16 $0.22 $0.23 $0.42 $0.39 $0.53 Auction 78-2008 $0.09 $0.09 $0.04 $0.04 $0.02 $0.05 Weighted Average Price per MHz Pops A-Block B-Block C-Block D-Block E-Block F-Block Auction 66-2006 $0.40 $0.43 $0.51 $0.59 $0.60 $0.73 Auction 78-2008 $0.08 $0.09 $0.05 $0.06 $0.02 $0.05 Notes- All Data as reported by the FCC. Population as reported by FCC at time of auction. Price per MHz pop calculated from the Net Winning Bid Amount which takes into account any bidding credits utilized by winning bidder. 26
AWS Auction Pricing Simple Average Price per MHz Pops- By Block $0.60 $0.50 $0.40 $0.30 Auction Auction 66-2006 Auction 78-2008 $0.20 $0.10 $0.00 A-Block B-Block C-Block D-Block E-Block F-Block 27
AWS Auction Pricing Weighted Average Price per MHz Pops- By Block $0.80 $0.70 $0.60 $0.50 $0.40 Auction Auction 66-2006 Auction 78-2008 $0.30 $0.20 $0.10 $0.00 A-Block B-Block C-Block D-Block E-Block F-Block 28
700 MHz Auction Pricing Price per MHz Pops by Market Size Simple Average Price per MHz Pops Auction 44-2002 Auction 49-2003 Auction 73-2008 0-250M $0.05 $0.01 $0.59 250-500M $0.04 $0.01 $0.74 500-750M $0.03 $0.01 $0.87 750-1MM $0.03 $0.04 $1.04 1-2MM $0.04 $0.03 $1.25 2MM+ $0.03 $0.01 $1.80 All Markets $0.04 $0.01 $0.84 Weighted Average Price per MHz Pops Auction 44-2002 Auction 49-2003 Auction 73-2008 0250M 0-250M $0.03 03 $0.03 03 $0.56 250-500M $0.02 $0.02 $0.83 500-750M $0.02 $0.03 $0.97 750-1MM $0.03 $0.06 $1.23 1-2MM $0.04 $0.04 $1.41 2MM+ $0.03 $0.03 $1.37 All Markets $0.03 03 $0.03 03 $1.28 Notes- All Data as reported by the FCC. Population as reported by FCC at time of auction. Price per MHz pop calculated from the Net Winning Bid Amount which takes into account any bidding credits utilized by winning bidder. 29
Transactions - Cellular Clll Cellular transaction ti values Pi Price per Pop $450 $400 $363 $393 $350 $300 $259 $250 $219 $200 $169 $157 $160 $194 $150 $124 $120 $100 $92 $95 $87 $95 $50 $0 2002 2003 2004 2005 2006 2007 2008 Wtd. Average Simple Average High Low
Transactions 700 MHz, PCS and AWS per megahertz pop values 08 0.8 0.7 0.6 0.5 0.4 0.3 0.2 0.1 0 2002 2003 2004 2005 2006 2007 2008 YTD 2009 AWS PCS 700 MHz 31