Notice This presentation contains certain forward-looking statements and there are risks that actual results may differ materially from those contemplated by these forward-looking statements. Readers should consult Manitoba Telecom Services Inc. s filings with the Canadian securities commissions for further information on these risks. 1
Introduction Bill Fraser President & CEO Wayne Demkey Executive Vice-President Finance & CFO Cheryl Barker President & COO MTS Communications Inc Brad Woods Director Investor Relations Strategic Position Dominant Position in Manitoba Strong & Growing Cash Flows Industry-Leading Profitability Excellent Financial Flexibility Bell West Put Option 2
MTS Strategy EXPAND DEFEND TRANSFORM Strategic Elements Defend Local Long Distance Directory Transform Wireless Internet Expand Digital TV 3
Leadership Position - Manitoba The MTS Advantage Full Service Provider Customer Ownership/Relationship Brand Recognition Pervasive Infrastructure Defendable Market Leadership Position - Manitoba Lines of Business Local Long Distance Wireless Internet ** Market Share * 97% 76% 68% 55% * December31, 2003 **Combined high-speed & dial-up 4
Core Lines of Business Revenue Generating Units 1,200,000 NAS Wireless Internet TV 1,000,000 800,000 600,000 400,000 200,000 0 Q4 2000 Q4 2001 Q4 2002 Q4 2003 Wireless Growth (%) Revenue Customers 22.1 7.0 17.7 11.6 13.9 13.4 16.0 9.2 2000 2001 2002 2003 5
Wireless ARPU* $56 $49 $50 $50 $60 Aliant Rogers AT&T Bell Canada MTS Telus Mobility Three months ended Sept 30 th, 2003 *Average monthly revenue per customer Wireless Postpaid Churn Rate* 1.1% 1.3% 1.8% MTS Bell Canada Rogers AT&T *Nine months ended Sept 30 th, 2003. 6
Wireless Manitoba Network Extensive Network Coverage 96% of population CDMA 800 MHz -- Winnipeg, Brandon & secondary locations CDMA 1.9 GHz -- Winnipeg Digital network supports wireless data applications Wireless Future Growth Drivers Increased penetration Wireless Data Launched 1xRTT Q4/02 in Winnipeg Allows for data transmission speeds up to 144 kbs; facilitates improvements in voice efficiencies Text messaging, downloadable ring tones, Camera phones, games 7
Wireless Penetration Rates 32% 36% 43% Manitoba 2003 Manitoba 2004 Canada 2004 Broadband Initiative Bandwidth enhancements for business & residential customers Matching investment to customer demand Major win; Manitoba government data network $50 M over 5 years; opportunity to expand High-speed Network Footprint Manitoba 79% Winnipeg & Brandon 96% 8
High-Speed Internet Market Share* 42% 46% 2002 *At December 31 2003 High-Speed Internet Customers * *At December 31 61,628 77,643 11,157 34,015 2000 2001 2002 2003 2004E Mid-Teen Growth 9
Internet Revenues ($ Millions) 14.6 20.8 26.8 36.0 44.8 24% 1999 2000 2001 2002 2003 High-Speed Service Offerings Residential DSL Starter Plan (128 Kbps) DSL High-Speed (up to 1.5 mbps) Price/Month $26.95 $39.95 Business Professional (up to 5.0 mbps) Network * (up to 5.0 mbps) Price/Month $69.95-$139.95 $119.95-$219.95 * Includes router to create high-speed network connection 10
Broadband Growing Opportunities $220 $200 $180 VOD Interactive Entertainment Monthly Revenue Per Customer $160 $140 $120 $100 $80 $60 $40 $20 Telephony Basic Local Enhanced Long Distance Wireless Internet HSI Digital TV $0 Digital Television Opportunity Digital Television Opportunity Rationale Profitable growth opportunity First to market triple play: Voice, Internet & Television Excellent value proposition Leverages existing network, back office & brand strength Customer demand for alternative provider 11
Digital Television Winnipeg TV Market Distribution Cable + Satellite Satellite Antenna 9% Digital Wire line 20% 6% 3% Market Size No TV 3% Winnipeg Q3 2003 Analog Cable 59% $100M+ MTS TV Over 200 TV channels currently Single set-top box Three simultaneous video signals High-speed Internet through same box On-screen calling features Fully digital MTS Portal Interactive guide 12
Digital Television MTS TV / High-Speed Internet Bundle Basic plus 6 channels & full high-speed Internet $69.95 per month ($10 savings) Launched October 2003 MTS TV customers with High-Speed Internet: Sept 30, 2003-44% Dec 31, 2003 49% Digital Television Customers 26,000-28,000 200 4,809 8,693 Jan 2003 Sept 2003 Dec 2003 2004E 13
Digital Television Network Coverage Targets * 2002 9% 2003 2004E 42% 66% 2005E 85% *Percentage of Winnipeg at Dec 31st Digital Television Financial Projections 2004 Revenues EBITDA Positive $12-$14 M 2005 Net Income Positive 2005 14
Bell West Put Option Rationale Exercised February 2, 2004 Estimated proceeds of $645 million Pretax gain in Q1/04 of $230 million Tax estimated at $43 million Attractiveness of the Return 24% on Bell Intrigna transaction 8% on all Bell West funding Proceeds due by August 3, 2004 Notice This presentation contains certain forward-looking statements and there are risks that actual results may differ materially from those contemplated by these forward-looking statements. Readers should consult Manitoba Telecom Services Inc. s filings with the Canadian securities commissions for further information on these risks. 15
This slide intentionally left blank This slide intentionally left blank 16
Financial Overview Baseline* 2003 Performance EPS 4.6% $1.83 EBITDA Revenues 2.1% 1.1% $448.4 M $844.7 M *Excludes impact from western operations and one-time charges Baseline Financial Performance ($ Millions) Revenues EBITDA EPS ($) 900 800 700 600 500 400 300 200 100 0 ** 1997 1998 1999 2000 2001 2002 2003** *2002 excludes restructuring charge ** 2003 excludes restructuring charges 2.50 2.00 1.50 1.00 0.50 0.00 17
Financial Overview Baseline Operations Expense Per RGU* Twelve months ended December 31 $459 $436 $390 $390 $375 $362 1998 1999 2000 2001 2002 2003 *Revenue Generating Units (NAS, Wireless, Internet,TV) Financial Overview Continual Focus on Profitability Baseline Cost Reductions: Re-engineering Initiatives Contract Renegotiations Workforce Reductions Bell Alliance Synergies 18
Debt Ratio 100% 39.1* 36.8 34.1 31.3 29.7 30.1 34.7 37.3 *Proforma 1996 1996 1997 1997 1998 1998 1999 1999 2000 2000 2001 2001 2002 2002 2003 2003 Total LT Debt * <5 Years Debt Portfolio Term To Maturity Schedule for LT Debt $461.3 M Weighted Average Cost - 6.69% $379.4 M 5-7 Years >7 Years * At December 31, 2003 $81.9 M $ 0.0 M Average Term to Maturity - 3.16 years 19
Balance Sheet Strength 13.7 EBITDA/Interest* 9.0 6.7 4.6 Manitoba Telecom BCE Aliant Telus A A A BBB MTS Aliant BCE Telus Rogers BB+ * EBITDA/Interest 9 months ended Sept 30, 2003. ** Standard & Poors long-term ratings as of Jan.27 2004 Financial Overview Baseline CAPEX ($ Millions) 264 214 208 210 2001 2002 2003 2004F 20
Baseline Capital Intensity * (Percent) 60 50 40 30 20 10 24% NexGen MTS (ex-nexgen) Long-Term Canadian Average 1990-2002 ** 0 1997 1998 1999 2000 2001 2002 2003 2004E 2005E *Capex as a % of revenues **Source: RBC Capital Markets Sept. 2003 Baseline Free Cash Flow * (Millions) 60 50 40 30 20 10 0 $31 M $36 M * After dividends and excluding changes in working capital $45-50 M 2002 2003 2004E 21
Cash Utilization Debt Reduction Share Buybacks Dividend Increases Accretive Core Acquisition with Identifiable Synergies Invest in Core Business for Growth Dividend Track Record ($/share) Quarterly Dividend Annualized 0.76 0.88 1.00 47% * Q4 01 Q4 02 Q4 03 *Since inception 22
Share Buybacks Repurchased 7.4 Million Shares Since 1999 Cash Utilization Cash Deployed Share Buybacks * Dividends Paid ** * From 1999 to March 2003 ** Dividends paid since 1997 $178 M $353 M $531 M 23
Baseline Financial Outlook 2004F EPS EBITDA Revenues 6-8% 3-5% 3-5% Summary Market Leader in Manitoba Industry Leading Profitability Proven Value Creation Strategies Return-Based investment Philosophy Attractive Risk Profile 24
Summary Strong Balance Sheet Excellent Credit Ratings Growing Cash Flows Consistent Cash Utilization Policy 25