Comparative Company Analysis

Comparative Company Analysis

Industry Surveys Telecommunications January 2019 Keith Snyder Equity Analyst

Jia Yi Young Industry Analyst

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Industry Snapshot

Financial Metrics

Key Industry Drivers

Industry Trends

How the Industry Operates

How to Value a Company In This Industry

Glossary

Industry References

Comparative Company Analysis

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EXECUTIVE SUMMARY

CFRA has a neutral outlook on the Telecommunications Industry. Here are the key themes we have highlighted for 2018 and our outlook for 2019.

Large M&A deals were all the rage.

2018 saw a number of large completed and announced M&A deals as the industry continues to consolidate. AT&T finally completed its $85 billion acquisition of Time Warner after over 600 days of reviews and litigation. Meanwhile, Sprint and T-Mobile announced their third merger attempt in a $26.5 billion deal, which is still under FCC review that would combine the third and fourth largest wireless providers. Verizon closed its $3.1 billion purchase of Straight Path Communications after winning a month-long bidding war with AT&T. 2019 should see a slowdown in large M&A deals, excluding the closure of the Sprint/T-Mobile, which we currently see as having a 50% chance of receiving regulatory approval, as companies focus on digesting the purchases made in 2018.

The battle of 5G network superiority has just begun.

2018 was a year of lots of talk surrounding 5G deployments with very little in the way of actual deployments outside of a number of test networks and small deployments in some select cities. 2019 will be the year consumers get their first taste of mobile 5G technology. We expect service providers will begin shifting spending towards 5G radio access deployments as the first 5G handsets hit the market early in the year. While a small group of “power users” will be quick to adopt this new technology, we believe mass adoption will occur at a much slower rate as most consumers won’t be able to justify purchasing a new handset. In addition, Apple has stated that it won’t release a 5G phone until 2020 or later.

Data traffic will continue to grow are a rapid rate.

Mobile data traffic has exploded in recent years as consumers consumed a greater amount of video on their devices. According to Cisco Systems, 78% of the world’s mobile data traffic will be video by 2021, up from 50% currently. By 2021, the average smartphone will generate 6.8 GB of traffic per month, a four-fold increase over the 1.6 GB in 2016. To cope with this traffic growth, service providers will continue to invest in fiber deployments, network capacity and small cell antenna deployments.

Competition for wireless subscribers will remain fierce, while wireline continues to drop.

While new 5G networks will be all the talk among service providers, maintaining and expanding existing networks will be critical in attracting wireless subscribers. We expect continuing growth in the number of device connections as consumers increasingly adopt tablets and smartwatches, while pricing and availability of unlimited plans being the key to keeping churn low. T-Mobile should continue to gain market share as its network reaches parity with AT&T and Verizon in terms of speed and coverage. CFRA sees wireline revenue dropping in 2019, similar to the trend in 2017 and 2018 due to the ongoing decline of legacy and access revenues; however, we expect wireline companies to invest heavily in strategic revenue opportunities, such as broadband, video, and data center services.

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INDUSTRY SNAPSHOT

TELECOMMUNICATION SERVICES Outlook: Neutral

KEY TAKEAWAYS We anticipate low single-digit wireless subscriber growth in 2019, but expect fierce competition among the large providers to pressure prices. Within wireline, broadband subscriber gains should remain stable but

legacy voice offerings will continue to experience declines.

NEAR-TERM THEMES: 5G NEAR-TERM THEMES: RISING INTEREST RATES  New technological opportunities

5G will usher in a number of new technologies including smart cities, augmented and virtual reality and autonomous vehicles, all of which present new revenue streams for network operators.

 Borrowing more expensive Businesses are discouraged to increase investment spending.

 Increased investment needed 5G network deployments will require substantial investments in new antennas, stronger data backhaul infrastructure and network cores to facilitate growing data traffic and an increase in the number of connected devices.

 Decrease in consumer spending Consumers may increase savings to receive higher rates of return.

2019 PREVIEW Revenue Growth Forecast: 3.7% EBITDA Margin Growth (bps): +36 bps Expected Growth in Wireless Postpaid

Customers 2% to 3%

Industry-Focused Exchange Traded Funds (ETFs):

Vanguard Communication Services (VOX), iShares U.S. Telecommunications (IYZ), iShares Global Telecom (IXP)

2018 REVIEW Telecommunication Services Industry Index Performance: -11.6% S&P 500 Index Performance: -6.2% Revenue Growth (preliminary) 8.6% EBITDA Growth (preliminary): +196 bps

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INDUSTRY FINANCIAL METRICS

Revenue Growth EBITDA & EBITDA Margin

 We project revenue growth for constituents in the

S&P Composite 1500 Telecommunication Services index of 3.7% in 2019 and 0.4% in 2020.

 We project EBITDA growth for constituents in the S&P Composite 1500 Telecommunication Services index of 4.8% in 2019 and 0.7% in 2020.

 We project EBITDA Margin growth for constituents in the S&P Composite 1500 Telecommunication Services index of 39 bps in 2019 and 10 bps in 2020.

Levered Free Cash Flow Margin Long Term Debt-to-Capitalization

 Both Verizon and AT&T will likely generate enough

cash flow to meet future dividend obligations, despite a greater willingness to leverage their balance sheet recently.

 CFRA sees limited potential for dividend increases as telecom providers look to sustain high dividend yields while also be aggressive on capital investments to remain competitive.

 As long as interest rates remain favorable, CFRA thinks telecom providers may increase debt toward future acquisitions and spectrum purchases, among other things.

 We note AT&T’s acquisition of Time Warner Inc. in June 2018 has added around $65.4 billion of net debt to AT&T’s balance sheet, raising its net debt to $180.4 billion.

 To a lesser extent, CenturyLink’s acquisition of Level 3 Communications has also added significant leverage.

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KEY INDUSTRY DRIVERS

Total Wireless Subscribers Postpaid Average Revenue per User (ARPU)

 Verizon and AT&T have established themselves as the clear industry leaders, with the best and most extensive networks and have the largest share of subscribers as a result.

 However, Sprint and T-Mobile have considerably closed both the network coverage/availability gap, as well as the speed and reliability gap.

 ARPU for the top telecom companies had been on a downward trend since 2014, which we attribute to the adoption of unlimited data plans which offer many services free of charge and the intense competition to attract customers.

 We expect ARPU will continue its downward trend as companies aggressively compete on package price to retain customers.

Capital Spending and Intensity Postpaid Churn Rate

 Capital expenditures have started to increase again on fiber, spectrum deployments and new services in anticipation of 5G deployment with providers shifting spending away from upgrades to older networks.

 CFRA expects wireless spending to remain at elevated levels into 2019. With mass 5G expansion expected in the next few years, this will likely pave the way for a new period of capital spending.

 We think overall capital intensity-levels will remain elevated, but service providers will increasingly look to be more efficient with spending plans.

 The industry is experiencing unprecedented levels of customer loyalty, as subscribers are holding on to their phones longer, which reduces their inclination to switch carriers.

 T-Mobile had seen a tremendous improvement in its postpaid churn rate, from having the highest churn rate among the top telecom companies in 2010, to beating Verizon’s and AT&T’s numbers in the third quarter of 2018.

 We think this is due to its various initiatives to attract more loyal customers, including bundling Netflix subscriptions with its T-Mobile One plan.

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INDUSTRY TRENDS

Competitive Environment

Harvard Professor Michael Porter developed a methodology to understand the competitiveness of industries by identifying and assessing “five forces” that shape and drive them. Porter’s five forces are industry rivalry, threat of new entrants, threat of substitutes, power of suppliers, and power of customers.

Industry Rivalry In the telecommunication services industry, competition is cutthroat. The wave of deregulation in the industry coupled with the accommodative capital markets in the late 1990s opened the floodgates for many new entrants. A raft of new substitute services is being created thanks to technological advances. The saturation of mobile devices and broadband internet is forcing firms to fight for market share by lowering prices and investing in infrastructure to provide more exciting services. We think the high exit barriers of the industry (you can’t turn off part of a network or reduce the variable costs easily) will force the major telecom companies to continue to operate, even in times of stress, keeping the competitive pressure strong.

Threat of New Entrants Unsurprisingly, the biggest barrier to new entrants in this capital-intensive industry is access to capital. Due to the high fixed costs of operating and building an extensive network infrastructure to provide fixed line and wireless services, potential newcomers typically require a lot of cash. The level of threat depends on the accommodativeness of capital markets; when markets are generous, the threat of new entrants escalates, and vice versa. The fact that telecom companies are required to own a telecom license to operate represents another barrier to entry. Even an emerging telecom company needs to obtain the FCC’s approval and licensing. There is also only a limited amount of “good” radio spectrum applicable to mobile voice and data applications. Finally, solid operating skills and management expertise are scarce, keeping the threat of new entrants low.

Threat of Substitutes Telecom operators are facing serious threats of product and service substitutes from non- traditional telecom industries. Cable TV and satellite operators are competing with telecom companies for customers with their own direct lines into homes, broadband internet services, and satellite links. Railway and energy utility companies are building high-capacity telecom networks alongside their tracks and pipelines. On top of that, as cut-rate or even free internet voice calls become more reliable, telecom companies are at risk of losing their core voice revenues share to Internet telephony.

Power of Suppliers Some might think that telecom equipment suppliers have a substantial bargaining power over telecom operators, as equipment such as high-tech broadband switching equipment and fiber- optic cables are a necessity for operators to transmit voice and data from place to place. However, there is actually a sufficient number of large equipment makers to materially dilute that bargaining power. In addition, given the scarce talent pool for professionals proficient in the latest technologies, equipment makers are in a weak position in terms of hiring and salaries.

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Power of Customers The power of customers increases as they get more choices of telecom products and services. Basic services are becoming like a commodity (there are not many differences at all between telephone and data services provided by the companies), so customers seek the lowest prices and sign up with the telecom company that provides the most reliable services. However, the power of customers somewhat differs between market segments. The switching costs for a residential customer are relatively low when compared with larger business customers, especially if they depend on customized products and services.

Wireline Competition Heats Up with Mergers Over the years, the U.S. wireline business has shrunk to three dominant players: AT&T Inc., Verizon Communications Inc., and CenturyLink Inc., along with a host of mid-sized regional carriers. Of the seven original Regional Bell operating companies (RBOCs), only Qwest Communications International Inc. remained separate from AT&T and Verizon, until its acquisition by CenturyLink in April 2011.

The rest of the telecommunications industry is comprised of mid-sized independent local carriers, which over the years have acquired smaller wireline telecommunications companies (telcos) that were not part of the AT&T monopoly; as such, they are exempt from certain regulations.

 AT&T Inc. AT&T is currently the largest telecommunications provider in the U.S.

On June 14, 2018, AT&T completed its acquisition of media company, Time Warner in a stock-and- cash transaction. The U.S. Department of Justice filed a lawsuit in November 2017 to block AT&T’s bid to buy Time Warner, claiming the deal violates antitrust law, given AT&T’s ownership of both DirecTV and Time Warner. However, in June 2018, the deal was approved by the federal judge with no major conditions imposed. The merger is deemed accretive to AT&T’s adjusted earnings per share and free cash flow, according to the company. In addition, it is expected to generate $1.5 billion in annualized cost synergies and $1 billion of annualized revenue synergies by the end of the merger’s third year. CFRA thinks the acquisition of Time Warner could unlock new growth avenues and positions AT&T to meet the growing demand of TV Everywhere.

 Verizon Communications Inc. Verizon is the second-largest integrated telecommunications provider in the U.S.

In June 2017, Verizon completed the acquisition of tech company Yahoo Inc. for $4.5 billion. The acquisition price was lowered by $350 million in February 2017, from the initial $4.8 billion, after Yahoo disclosed two massive cyber-attacks on its platform. Shortly after the acquisition, Verizon integrated both Yahoo and AOL into a new subsidiary company known as Oath. Oath is currently a diverse house of more than 50 media and technology brands that engages over a billion people around the world. Verizon acquired AOL Inc., a pioneer in dial-up Internet access, in June 2015 for $3.8 billion. The transaction helped expand the company into two key areas: mobile and video.

On December 14, 2017, Verizon completed the $225 million purchase of certain fiber-optic network assets serving the Chicago market from WideOpenWest Inc., as part of Verizon’s plan to accelerate the deployment of next-generation broadband services. On February 1, 2017, Verizon completed the acquisition of XO Communications, LLC (XO) fiber-optic network business for $1.5 billion. The transaction granted Verizon access to XO’s fiber-based Internet Protocol (IP) and Ethernet networks that will better serve Verizon’s enterprise and wholesale customers. In addition, the fiber facilities are expected to help Verizon to densify its cell network, as well as the deployment of new 5G technologies.

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 CenturyLink Inc. CenturyLink has grown via acquisitions to become the third-largest telecom provider in the U.S., offering services to both residential and business customers.

In November 2017, CenturyLink completed its acquisition of Level 3 Communications for about $34 billion, including debt. We see the acquisition as positive, giving CenturyLink a greater geographic footprint and economies of scale, as well as some cost synergies and higher free cash flow. However, Level 3 also faces some of the same structural declines and slowing growth as CenturyLink.

 Other notable carriers. In addition to the three dominant players described above, several other companies are important factors in the U.S. wireline industry.

 Windstream Holdings Inc. was formed in mid-2006 through the combination of ALLTEL Corp.’s wireline business with Valor Communications Group Inc. and has since made additional acquisitions. In February 2017, Windstream completed its acquisition of EarthLink via a stock deal worth $1.1 billion. Then in late July 2017, Windstream completed its acquisition of Broadview Networks Holdings, a leading provider of cloud-based unified communications solutions to small and medium-sized businesses, in an all cash transaction valued at $227.5 million.

 Frontier Communications Corp. more than doubled in size with the acquisition of assets from Verizon in mid-2010. In October 2014, the company purchased $2.0 billion in assets from AT&T in Connecticut, and in April 2016 it acquired $10.5 billion in assets from Verizon. The Verizon assets again doubled Frontier’s scale.

Wireless In the third quarter of 2018, AT&T and Verizon Wireless led the U.S. wireless industry, in both subscribers and total revenues. Between them, the two carriers had 267 million subscribers in the U.S. (excluding 17.3 million Mexican subscribers from AT&T), or roughly two-thirds of all U.S. subscribers. AT&T had almost 13.6 million satellite subscribers in Latin America, as it expanded outside the U.S. via multiple acquisitions in Latin America.

On February 28, 2018, Verizon Communications completed its acquisition of Straight Path Communications, Inc. in an all-stock transaction for $184 per share, or a total consideration of $3.1

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billion. Straight Path holds an extensive portfolio of 39 GHz and 28 GHz wireless spectrum licenses which would be advantageous in the development of 5G network.

Despite lagging in market share, T-Mobile USA and Sprint Corp. will likely see the greatest momentum in the coming years. CFRA sees a widening gap in new subscriber additions between the value service providers, T-Mobile and Sprint, and industry leaders.

 Sprint. CFRA is encouraged by the recent momentum in postpaid phone additions, and we think turnaround efforts, as well as leasing programs, has helped stabilize the subscriber base. We think Sprint is finding some success through enhanced value product offerings and cost-cutting initiatives. In the six months ended September 30, 2018, Sprint’s consolidated wireless and wireline net operating revenues increased 2.9% to $16.6 billion from $16.1 billion in the prior-year period amidst stable subscription growth. CFRA thinks the competitive pressure has resulted in Sprint increasing promotional activities at the expense of lower average revenue per user (ARPU), in attempt to expand its subscribers base while reducing churn rate.

The company has initiated several steps to stem further subscriber losses. These steps include simplified rate plans, improvements to customer service, and the aforementioned push to the be the lowest cost plan for unlimited data with free Hulu TV and movie streaming service and free high-definition video streaming. Despite the various promotions being offered, Sprint’s net additions were still outpaced by T-Mobile. Sprint had net losses of 20,000 subscribers in the third quarter of 2018, compared with net additions of 57,000 subscribers in the previous quarter. On the other hand, T-Mobile had net additions of around 1.6 million subscribers in the third quarter of 2018. We are positive on Sprint’s value proposition; however, we think Sprint will continue to struggle for customers with the other carriers offering superior network service and speeds.

 T-Mobile US. In the third quarter of 2018, T-Mobile reported a net addition of 1.6 million subscribers, the 22nd consecutive quarter of more than one million added subscribers (excludes the removal of 4.5 million Lifeline customers in the second quarter of 2017 due to regulatory changes to the Lifeline program). The company’s fourth-generation (4G) LTE network is continually expanding, with 324 million people covered as of September 30, 2018; the company targets to reach 325 million by the end of 2018. T-Mobile completed the deployment of its 700 MHz spectrum for its Extended Range LTE service in 2017, which covered 271 million people, and has begun expanding the service

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using its 600 MHz spectrum acquired in April 2017. As of September 2018, the 600 MHz Extended Range LTE has been rolled out in 1,500 cities and towns across 37 states and Puerto Rico, according to the company’s press release.

Unlike Verizon, which is connecting fiber lines directly to homes, AT&T is primarily using a fiber- to-the-node (FTTN) deployment. Despite getting a late start on its rollout, the company completed the first wave of its planned buildout in less time and, overall, it has required less invested capital than a fiber-to-the-premises (FTTP) overbuild. However, since expanding to 16.4 million broadband connections in 2013, AT&T has shed Internet subscribers in the succeeding years. After suffering from three straight years of net broadband subscriber losses—397,000 in 2014, 250,000 in 2015 and 173,000 in 2016— the company added 114,000 net broadband subscribers in 2017, bringing its total broadband connection count to about 15.7 million. In the first three quarters of 2018, AT&T had net broadband subscriber additions of 28,000.

Wireless Substitution Has Affected Wireline Voice and Broadband For the past few years, wireless has been one of the growth areas for the telecommunications industry. While wireless has been a highly profitable component for carriers such as AT&T and Verizon that own their wireless operations, it has also hurt companies with traditional wireline business. With wireless plans offering unlimited minutes that can be used for local or long-distance calls along with unlimited Internet connections, and the increased popularity of prepaid wireless service without a contract, this should not be surprising. Every wireless carrier offers a bundle of unlimited voice, web surfing, email, and text messaging. Mobile Internet users on touchscreen smartphones consume vastly more data than those on traditional wireless phones.

The main driver of gains in average revenue per user (ARPU) for carriers has been data revenue growth. In addition to voice minutes shifting to wireless, the wireline carriers are losing access lines as some customers, particularly members of the younger generation, use only mobile phones. When they move into new homes or apartments, these early adopters of wireless often forgo landline connections in favor of mobile phones. In the first half of 2018 (latest available), approximately 54.9% of households were wireless-only, according to the National Center for Health Statistics. The U.S. wireless penetration rate (the subscriber base as a percentage of the total population) was 120.7% in 2017 (latest available), up marginally from 120.6% in 2016, CTIA estimated (rates above 100% are due to people owning more than one connected device.)

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Competition from Cable over Broadband Extending to Wireless Services Cable companies are the industry leaders in broadband connections. The challenge for both telecom and cable companies is that penetration rates of their customers’ bases is relatively high and so revenue growth needs to stem from faster connections.

In addition to broadband service, cable companies are also competing with telcos via their own Voice over Internet Protocol (VoIP)-oriented cable telephony offerings. VoIP turns the human voice into digitized units, which are then bundled into packets that can stream over a network at high speeds. At the receiving end, the packets are reassembled into an analog voice signal.

Cable operators are also starting to compete with telecom carriers in another field: wireless services. The top two cable companies in the U.S., Comcast and Charter, are poised to take on the telcos, as the operators have mobile virtual network operator (MVNO) reseller agreements with Verizon.

In May 2017, Comcast and Charter agreed to collaborate on their respective wireless business plans, particularly to accelerate their entry into the wireless market. Then in July 2017, Charter announced that they intend to launch a wireless service in 2018 through the MVNO agreement with Verizon. In April 2018, Charter and Comcast announced that they have formed a 50/50 joint venture to cost- effectively develop and design back-end systems that support Comcast’s Xfinity Mobile and Charter’s Spectrum Mobile offerings. The operating platform will also serve as the systems interface for current and any future MVNO partners.

Comcast introduced its new wireless service using a hybrid of the cable operator’s Wi-Fi hotspots and Verizon’s network— Xfinity Mobile—in April 2017 and completed its nationwide rollout in August 2017. Xfinity Mobile, available to Comcast’s Internet customers, provides 4G LTE network for up to five lines with unlimited nationwide talk and text, no line access fees, along with access to 18 million Xfinity Wi-Fi hotspots nationwide. Each Xfinity Mobile customer can choose between paying only for the data used at $12 per GB, or unlimited data for $45 per line but with speeds reduced after 20 GB. Comcast claimed that most consumers can save 30% on their wireless bill with Xfinity Mobile compared to other providers. As of the third quarter of 2018, Xfinity Mobile had more than one million subscribers.

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Emergence of Phone Leasing and Upgrade Programs Amid Demise of Subsidies Handset subsidies, or wireless operators’ practice of shouldering some of the costs of selling flagship smartphones to reduce the initial sticker price of the phones to $200 or less, provided carriers with significant customer additions but harmed their margins. Large subsidies are needed to pay for high-end smartphones, which also bring in high ARPU and low-churn subscribers, whose two-year contracts and payments allow carriers to recover the costs. This arrangement had prevented companies such as Sprint and T-Mobile from carrying those phones, leading to higher churn and lower net additions.

In the past few years, wireless operators have dropped their two-year contracts and the device subsidies that come with plans. T-Mobile eliminated subsidies altogether in 2013, and now offers customers a choice of bringing in their own smartphones, paying the total cost upfront, or financing the smartphones over a two-year period. AT&T stopped offering two-year contracts in January 2016, while Sprint removed phone subsidies in the same month, only to reinstate the offer in February 2016. Verizon was the last major carrier to formally end phone subsidies, after eliminating two-year contracts in January 2017. As of March 2017, Sprint confirmed that it no longer offers two-year contracts.

All major U.S. wireless carriers have programs for phone upgrades, which involve leases and trade-in options for smartphones. In July 2017, Sprint introduced the Sprint Flex financing program, an 18- months leasing plan that allows customers to upgrade their devices after making 12 monthly payments or purchase the device at the end of the lease term by one lump sum payment or six monthly payments. In June 2016, AT&T introduced two phone upgrade plans called AT&T Next and AT&T Next Every Year, which allows customers to spread the cost of device over 30 and 24 monthly installments, respectively. Customers who opt for the AT&T Next plan could trade in their phone for a newer model after paying 80% of the device price, while customers under the AT&T Next Every Year plan are eligible for trade in after 50% of the device price is paid. Verizon also started offering upgrades to iPhone models and Samsung Galaxy phones through the Verizon Annual Upgrade Program launched in March 2016, which allows for phone upgrade after 30 days provided that 50% of the phone’s retail price has been paid. T-Mobile’s JUMP! On Demand, which launched in June 2015, offers an 18-month leasing plan, with the option to upgrade the device once every 30 days. At the end of the lease term, customers can choose to upgrade, return or purchase the device via a single payment or nine monthly payments.

Operating Environment

Over the past few years telecom companies have increasingly been forced to compete on price due to nearly identical products offered by each company (as the network performance gap closes, customers are increasingly less concerned about coverage and reliability). Telecom companies have high fixed costs and low marginal costs, which also naturally leads each to compete on price as it incentivizes companies to cut prices below their average total cost and near the marginal cost to win customers. The most extreme example of this was in 2017 when Sprint trialed a promotion that gave customers a free year of unlimited cellular service (voice, text, and data) just for switching from a competitor. These “price wars” have been harmful to the industry as they transfer profits directly from the industry to consumers.

However, we do see other forces beginning to stabilize the industry. We think threat of entry is low given the economies of scale in the business. Any competitor would have to come in at scale, building a multi-billion-dollar broadband and/or wireless network. We think the recent merger and acquisition activity is indicative of the maturing industry and will strengthen the competitive

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positioning of the major players. Further, vertical integration, such as the AT&T-Time Warner deal, may bring new or innovative ways to grow.

Wireless Price Wars Will Continue but the Battle Will Shift to Additional Services The past year has seen competitive pressures between the big four wireless carriers intensify, with Sprint and T-Mobile continuing to push unlimited data plans and forcing Verizon and AT&T to respond. CFRA thinks a recent shift toward unlimited data plans will create the need for more capacity. Wireless operators may have limited capacity due to their finite amounts of spectrum, and the increased consumption of data has the potential to slow down carriers’ networks during peak hours. We also note unlimited plans are increasingly coming with additional restrictions in the fine print and throttled speeds after certain thresholds. This should help carriers control costs and network congestion.

The mobile price wars of 2017 were even specifically mentioned by the Federal Reserve chairwoman Janet Yellen as contributing to part of the low inflation readings. Although the price wars seemed to have abated since July 2017, prices seemed to be declining again as the consumer price index for wireless phone service in November 2018 was down 2.2% from the prior month. Although we think competition will remain intense, we foresee mobile phone carriers will switch to moving the war from monthly prices to various value-added services. Additional differentiating services include streaming video in high-definition, use of mobile hotspots, cloud storage, and additional media content subscriptions such as HBO or Pandora. We think this pivot will be positive for carriers as it not only slows the price erosion for monthly plans but will also lower churn rate as consumers will want to stay with their preferred additional services.

Growth in Wireline Broadband Is the Key to Offsetting Voice Declines Broadband has become a focus for telecom carriers in the telecommunication services sector. Hurt by regulators, innovators, and consolidators, the local voice telephone market has been under pressure, with access lines for telecom carriers declining, but the overall market has shown some signs of stability. Telephone penetration, defined as the percentage of U.S. households with access to telephone services (including cellphones), reached 96.4% as of September 2017 (latest available), according to the “Universal Service Monitoring Report 2017” from the FCC.

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The total number of landlines or access lines has been in decline across the telecommunications industry for many years because of competition from wireless and cable companies, and lower consumer spending. However, increased penetration of VoIP phone services has partially offset these access line declines. Importantly, monthly revenue per household served—the sum of revenues from voice lines, high-speed Internet, and video services—is rising on an annual basis for many telecom carriers.

The 14 largest cable and telecom providers in the U.S.—representing about 95% of the market— had about 2.1 million new broadband subscribers in 2017, which was 78% of the net broadband additions in 2016, according to industry research provider Leichtman Research Group (LRG) Inc. In 2016, net broadband additions was 2.7 million, which is 87% of the net additions in 2015. In the third quarter of 2018, the top broadband providers in the U.S. had about 580,000 net broadband additions, 49% higher relative to the 390,000 net broadband additions for the same period last year.

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While the rate of growth has slowed due to high penetration rates, there is still room to grow as service is deployed to new markets. LRG reported that broadband subscribers in the U.S. totaled 97.7 million as of the third quarter of 2018, with top cable companies comprising 63.6 million broadband subscribers, and top telephone companies accounting for 34.1 million. The U.S. consumer fixed broadband services subscriptions are projected to grow at a compounded annual growth rate (CAGR) of 1.2% from 2017 to 2022, according to forecasts by International Data Corp. (IDC) as of January 2018. Meanwhile, only 8% of Americans do not have access to both fixed 25 Mbps/3 Mbps and mobile LTE at speeds of 5 Mbps/1 Mbps, according to the “2018 Broadband Deployment Report” by the FCC (latest available).

In addition to benefiting as the overall broadband market expands, telecommunications carriers are seeking to take market share from local cable providers by increasing connection speeds and offering discounted service bundles with price security. The carriers have long competed on price, but CFRA sees a shift toward competing on speed. In the past few years, telcos made investments aimed at more than doubling the broadband connection speeds available to householders, thus bringing the telcos’ speeds more in line with those offered by competitors. The larger carriers have also extended fiber across a large portion of their respective service areas to bring high-speed broadband and video to subscribers. The small and mid-sized carriers have increased speeds as well.

In early 2018, home broadband subscription in the U.S. decreased to 65% from 73% in late 2016 according to a study by the Pew Research Center. On the other hand, about 20% of Americans do not have home broadband subscription and only use their smartphones for Internet access, compared with 12% in 2016. Nonetheless, both wireless and wireline broadband speeds will likely continue to increase due to demand. Not only is content continuing to become richer and more data intensive (such as high-definition video), but data that was previously consumed offline is moving online and requiring broadband. For example, storage and backups moving to the cloud, television and radio being delivered “over the top” and even very large video games that were once delivered on disks are now being directly downloaded. Wireline broadband subscribership will likely also continue to grow due to a combination of faster speeds and the rise in home Wi-Fi usage to avoid extra data usage costs on capped wireless data plans. Increasing broadband speeds and coverage across the U.S. is a priority for the FCC.

CFRA thinks broadband services will provide top-line growth for the U.S. wireline carriers, as the U.S. is nearing full employment. Consumer spending will likely pick up on the back of a stronger jobs market and higher wages through this year, and consumers will likely continue to pay a premium for faster home broadband connections for multiple devices at home. However, we do note the current credit and consumer spending cycle is getting stretched, with many consumers becoming more leveraged.

Fiber Buildouts The transition to bandwidth-rich fiber technologies is allowing the telecommunications carriers to bundle video along with voice; it also allows high-speed Internet providers to be stronger competitors to the cable and satellite operators. The launch of video capability has included competitive enhanced services such as video on demand (VoD) and high-definition television (HDTV).

CFRA sees continued growth opportunities for fiber-to-the-home (FTTH) services. Among the telcos, Verizon has been the most active in offering FTTH, also known as FTTP, to the markets in its operating territory. The company’s fiber-optic service (FiOS) is a broadband service designed to provide Internet access with maximum connection speeds, depending on the service selected. The fiber technology provides Internet connectivity speeds that are up to 20 times faster than traditional broadband data connections. To deploy the service, a technician extends the fiber-optic cable from

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the curb to the home (either in the air or buried). A piece of equipment, included in the price of the service, is then installed at the home; this equipment converts optical signals to electrical signals.

Traditional providers face challenges and opportunities due to digital and wireless technology, while relatively recent-entry cable providers have increased their market share. Data traffic is quickly becoming the voice of the future with the proliferation of the Internet. In addition, many consumers are turning to wireless telecom now that it is more affordable and incorporates Internet, video, and messaging features.

5G Wireless Network Expansion Represents an Opportunity While standards for 5G are being established, AT&T and Verizon revealed their plans for upcoming 5G networks. Verizon aims to launch its 5G mobile solution immediately after the planned commercial launch of 5G residential broadband service in four U.S. markets (including Los Angeles and Sacramento) in October 2018. Verizon has successfully trialed 5G residential applications in 11 markets in 2017.

Meanwhile, at the end of 2018, AT&T said its standard-based, mobile 5G services went live in a dozen cities including Dallas, Atlanta and Waco. The carrier conducted a series of 5G network tests since late 2016, started with the industry’s first fixed wireless 5G business customer trial with Ericsson, using millimeter wave (mmWave) technology to power a 5G network experience in one of Intel’s Austin offices. In June 2017, AT&T launched its second 5G trial, streaming its DirecTV Now video service over a fixed wireless 5G connection in Austin, Texas. The company also launched its 5G Evolution technology in 23 major metros in 2017 and has expanded the technology to 117 new markets in April 2018, bringing the total number of markets served to 141. In February 2018, T-Mobile disclosed plans to build out 5G networks in 30 cities with deployments beginning in 2019 , while Sprint aims to launch its own 5G mobile network in the first half of 2019, in collaboration with Japanese carrier SoftBank, its parent company, and electronics maker Qualcomm.

The wireless operators’ race to launch 5G networks has extended to the M&A field. The company emerging from the T-Mobile-Sprint combination, with a broader and deeper spectrum portfolio, will invest up to $40 billion to build a world-leading 5G network by 2021. The merger transaction is expected to complete by the first half of 2019.

Regulatory Environment

The telecommunications industry remains one of the most regulated of industries, with the FCC spearheading oversight. While the rules of the road can make investors’ eyes glaze over, it is important to have an understanding of the regulations since they can affect a company’s ability to generate earnings.

FCC Reform of Rural Service Funding In May 2016, the FCC approved a reverse auction that aims to boost funding for rural broadband providers by $2 billion over the next 10 years through the Connect America Fund II (CAF II). The FCC set new rules for the auction in February 2017, while also approving another auction for $4.5 billion in funding for the commission’s Mobility Fund Phase II (MF II) program, which aims to expand and preserve 4G LTE coverage to rural America. In April 2017, FCC Chairman Ajit Pai formed a task force that will implement the two upcoming auctions.

In June 2018, the FCC identified 220 applicants that are qualified to bid in the CAF II auction, which is scheduled to begin on July 24, 2018. In August 2018, the FCC announced that 103 bidders had won $1.5 billion, far below the $2 billion, over the next decade, to provide fixed broadband and

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voice services to over 700,000 homes and small business in unserved high-cost areas in 45 states. The FCC released the final list of census blocks eligible for the CAF II auction in December 2017, along with the census block groups and associated reserve prices.

Net Neutrality Rules Reversed, But We See Business as Usual On December 14, 2017 the FCC voted 3 to 2 along party lines, under new Republican leadership and the appointment of Ajit Pai as chairman, to reverse the net neutrality rules put in place in 2015. The net neutrality rules have officially been scrapped on June 11, 2018. Various states (including California) have since created their own net neutrality rules.

Specifically, the repeal of net neutrality rules restored the classification of broadband Internet access service as an “information service” under Title I of the Communications Act, rather than the Title II classification it was put under in 2015; it also reinstated mobile broadband Internet service as a private mobile service. By classifying the Internet service providers (ISPs) under Title II of the Communications Act of 1934, the FCC would be able to impose strict regulations against certain acts, as it did before for telephone services. The rules suggest that there should be no paid prioritization having certain online traffic (i.e., no “fast lanes”), no blocking of websites and services as long as the content is legal, no throttling (a process that intentionally slows down or speeds up content) and increased transparency of ISPs. In general, the rules require Internet providers to treat all traffic equally and to prevent the ISPs from controlling the Internet by blocking out competitors and by demanding fees to provide fast access to certain websites or applications.

Overall, we think the move from Title II classification back to Title I is a positive for ISPs and carriers, who at the very minimum will face less legal risk and expense as they expand, adjust, or experiment with their business models. It may also allow further innovation and customer value propositions through services like “zero rating” plans where certain products or apps like Netflix may not count toward data limits. However, it remains to be seen whether large service providers will take advantage of the rollback and engage in practices such as throttling internet speeds for certain website or blocking them entirely. We think some providers may experiment with some of these practices as they have in the past, but after the concerted effort by many activists to inform consumers about the practice, this could have a negative backlash effect.

Spectrum Sale to Enhance Networks, M&A Potential for Industry In April 2018, the FCC announced two auctions for the 28 GHz and 24 GHz mmWave band, with an aggregate of 1.55 GHz of spectrum to be offered, to support the deployment of 5G wireless and Internet of Things (IoT) services. On November 14, 2018, the FCC began auctioning spectrum for 5G services. Bidding commenced for spectrum in the 28 GHz band, comprising 3,074 country- based licenses, and will be followed by bidding for spectrum in the 24 GHz band, comprising 2,912 licenses. Cox Communications was the only major U.S. cable operator to enter into the auction, bidding alongside with telecom companies including Dish Network, AT&T, Verizon, T-Mobile and Windstream in the 24GHz auction. The telecom companies were also bidding for 28 GHz licenses in the mmWave auction.

In May 2018, the FCC adopted a Notice of Proposed Rulemaking (NPRM) to consider updating the framework for licensing of Educational Broadband Services (EBS) spectrum in the 2.5 GHz band to allow more efficient and effective use. The 2.5 GHz band constitutes the single largest band of contiguous spectrum below 3 GHz and is a prime spectrum for 5G wireless services, according to the FCC. Meanwhile, in July 2018, the FCC issued an Order and NPRM to identify potential opportunities for flexible use in up to 500 MHz of mid-band spectrum between 3.7 and 4.2 GHz, which are also suitable for 5G services.

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CFRA thinks the end of the latest spectrum auction will lead to the beginning of M&A discussions from the major wireless carriers, which have been active in deal talks in the past few years. Auction participants include major telecom players such as AT&T (which purchased DirecTV and Time Warner), Verizon (which bought AOL and Yahoo), and T-Mobile (which acquired MetroPCS and is in merger talks with Sprint). Pay-TV providers such as Comcast, which recently formed a strategic partnership with Charter for wireless business, are also involved in the auction. We think Sprint, the only major wireless non-participant in the latest concluded auction, and Dish, a major satellite TV provider that has amassed significant spectrum, could be targeted by wireless carriers for their spectrum.

M&A Environment

The industry has undergone significant changes through consolidating merger and acquisition activity. While the AT&T/Time Warner (2018) and Verizon/Yahoo! (2017), both discussed in Competitive Environment, soaked up much of the press, CFRA expects to see continued movement in the M&A arena.

Indeed, after two failed attempts to merge, T-Mobile and Sprint—the third and fourth largest U.S. wireless carriers, respectively—had on April 29, 2018 announced that they have entered into a definitive agreement to merge in an all-stock transaction, to form a larger U.S. wireless carrier in attempt to rival market leaders, AT&T and Verizon. Under the terms of the merger, each Sprint shareholder will receive a fixed exchange ratio of 0.10256 T-Mobile shares, representing a total implied enterprise value of about $59 billion for Sprint and approximately $146 billion for the combined company, with T-Mobile being the surviving entity (new T-Mobile). Deutsche Telekom and SoftBank—the parent companies of T-Mobile and Sprint, respectively—will hold about 42% and 27%, respectively, of the fully diluted shares of new T-Mobile common stock, and the remaining 31% will be held by public stockholders.

In February 2017, Verizon completed its $1.8 billion purchase of XO Communications, gaining fiber assets that can be used for 5G networks. Then in February 2018, Verizon completed its $3.1 billion acquisition of Straight Path Communications Inc., after outbidding AT&T in May 2017. Straight Path owns a large amount of spectrum in the 28 GHz and 39 GHz ranges which are configured for 5G wireless services. Most notably, its holdings in the 39 GHz bands is more than 12x the sum of what all other U.S. operators have, according to IDC. Verizon, on the other hand, already owns a substantial amount of 28 GHz spectrum and the acquisition of Straight Path will boost its holdings of 28 GHz spectrum by an additional 20%. With a nationwide portfolio of mmWave spectrum, Verizon will be able to accelerate the deployment of 5G.

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HOW THE INDUSTRY OPERATES

Wireline Continues to Change

Wireline telecommunication companies, or telcos, are primarily service organizations. They employ a wide range of predominantly unionized workers, including engineers, computer programmers, service technicians, sales agents, and marketers.

The wireline telecommunications business has been undergoing deregulation and change since the 1980s. The monopoly held by AT&T Corp. was broken by a court-issued Modified Final Judgment (MFJ) in 1984, which split the company into eight parts: AT&T and seven separate Regional Bell operating companies (RBOCs, or Baby Bells). In late 2005, the remaining AT&T Corp. was acquired by SBC Communications Inc., which renamed itself AT&T Inc. (Telecom regulation is discussed in detail later in this section.)

After 1984, some large U.S. telcos provided local phone service, while others offered long-distance service. Independent telephone companies, such as the company that has since been renamed Frontier Communications Corp., were allowed to sell out-of-state, long-distance service from within their territories.

U.S. TELECOM CONSOLIDATION

DIVESTITURE M&A* M&A* M&A* MID-2006 2007 2009 2011 2018

BellSouth BellSouth BellSouth BellSouth BellSouth

Southw estern Bell SBC SBC SBC AT&T Inc. AT&T Inc. AT&T Inc. AT&T Inc. AT&T Inc.

Pacif ic Telesis Embarq Corp. Level 3

Ameritech Ameritech AT&T CenturyLink CenturyLink CenturyLink CenturyLink

AT&T Corp. AT&T Corp. AT&T Corp.

US West US West US West Qw est Qw est Qw est Qw est

Bell Atlantic Verizon Verizon Verizon Verizon Verizon Verizon Verizon Verizon

NYNEX

GTE . GTE

MCI . MCI MCI

NO. OF MAJOR COMPANIES

3 10 8 6 4 4 5 4 4 3

*M&A activity: Mid-1990s through 2006. Source: CFRA, pow ered by data from S&P Global Market Intelligence.

The Telecommunications Act of 1996 opened the floodgates to diversity and competition, and fundamentally altered the depth of telco product offerings. While the long-distance market had been competitive since 1984, the local market was not opened to competitors until the 1996 telecom law was passed.

Local and Long Distance: What’s in a Name?

Following is a brief description of local and long-distance markets. The distinctions between them became increasingly blurred due to mergers, competitive initiatives, the relaxation of regulatory restrictions, and wireless and VoIP services that provide local and long-distance services for a flat fee. Nonetheless, it is still crucial to understand the segmentation of the wireline markets.

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Local Exchange Service Local exchange carriers (LECs) provide telephone service within their local access and transport areas (LATAs) through their own lines, which connect customer locations with central office switches or leased facilities (for some competitive newcomers). LATAs were originally outlined in the 1984 MFJ.

These companies can be incumbent LECs (ILECs)—meaning the historical players, including the RBOCs and independent ILECs—or competitive LECs (CLECs), which are newer entrants to the local market. Most local telephone companies offer an optional bundle of local exchange and local toll service for a single monthly fee.

Long-Distance Service Long-distance toll (inter-LATA) service includes all calls outside the local exchange and local toll service areas, calls that originate in one LATA and terminate in another, and international calls. Long-distance toll calls can be between two LATAs in the same state (e.g., a call from San Diego to San Francisco) or between LATAs in different states. Long-distance toll service includes international service, except in Hawaii, where international service is separate from long-distance service. The FCC regulates long-distance toll service between states, and international service and usage of long-distance service helps to calculate universal service charges.

Wholesale interexchange carriers (IXCs) primarily sell fiber-optic network capacity to other IXCs and LECs. Level 3 Communications Inc. (which was acquired by Century Link) is an example of a wholesale IXC.

Facilities-Based LECs Facilities-based LECs own transmission facilities, which they lease to long-distance companies or to large corporations that use them as private communications networks. Leasing transmission facilities is a commodity-like business in which competition centers primarily on price. In the case of facilities-based CLECs, most do not provide switched service, nor do they generally market to residential customers.

On the Local Front: Services

In the local wireline market, the telcos perform basic telecommunication services: hooking up customers to the network; providing switched (public network) and nonswitched (special) local telephone services; and connecting their local customers with long-distance carriers and with wireless networks. Most of the local carriers also offer related services such as operator assistance, telephone directory publishing, and enhanced calling features (e.g., caller ID, call forwarding, voice mail, etc.).

Local telephone companies also provide long-distance service for calls that both originate and terminate within the same LATA. Long-distance calls that cross LATA boundaries (i.e., inter-LATA calls) are handled by national long-distance IXCs, independent ILECs, and by Bell operators. By the end of 2003, the Bells had received long-distance approval in all of their states.

Calling Long Distance

The intense competition in the long-distance market undermined the profitability of that segment—leading major providers in the U.S. to initially refocus their businesses on more dynamic activities, including data traffic, the Internet, and wireless communications. At the same time, the

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Bells made significant inroads into the long-distance market by bundling local and long-distance service under one plan. The Bells’ strong customer relationships, marketing presence, and price discounting allowed BellSouth, SBC, Qwest, and Verizon to attain market shares of as much as 60% in key markets. The independence of the pure long-distance providers disappeared as AT&T Corp. became part of SBC, MCI merged with Verizon, and Sprint Corp.’s long-distance business became a smaller segment of Sprint Nextel Corp.

Regulating the U.S. Telecom Market

The U.S. telecommunications industry is regulated by both the federal and state governments.

Federal Regulation At the federal level, the primary regulatory body is the FCC, although the judicial system has also played a key role in telecom industry regulation and oversight.

 The FCC. The Federal Communications Commission (FCC) is an independent agency of the U.S. government, created, directed, and empowered by congressional statute and with the majority of its commissioners appointed by the current President. It oversees U.S. interstate and international telecommunication services and has responsibility for TV and radio broadcasting, and for the public use of the radio spectrum (including the spectrum licensed for wireless telephony and satellite communications). The FCC works toward strategic goals in six areas: broadband, competition, spectrum, the media, public safety, and homeland security, as well as modernizing the FCC. In February 1996, for only the second time in 62 years, the Congress and the President revamped U.S. telecom law by passing the Telecommunications Act of 1996 (described in detail later in this section).

State Regulation State legislatures also play an important role in regulating local telecommunications. Their relationship with the PSCs and the PUCs is similar to that of the Congress with the FCC. The legislatures pass telecommunication laws that are then administered by the commissions, which promulgate their own regulations as well.

Local telcos are governed by regulations from both the FCC and state authorities. States regard their regulatory role as important, as they derive significant telecommunications-related revenues by collecting a percentage of intrastate service revenues. In addition, states have local considerations that must be administered separately. The state legislatures are playing an increasingly important role as the telcos look for statewide franchise approval to enter the video market for their fiber- based services. Beginning with Texas in 2005, a number of states have passed such bills, enabling companies such as Verizon and AT&T to better compete with cable companies.

Multiple Technology Platforms

A technology platform refers to the equipment that transmits telecommunication signals in a wireless network. These platforms operate according to one of several electronic protocols, or standards, which determine how the network is configured and how signals are processed within it. For this reason, roaming users with digital standards that differ from that of an area they have entered must have their signal converted to analog, which is done automatically by the network. At this point, personal communications services (PCS) can no longer be provided. To allow customers to communicate through PCS, several companies offer handsets with tri-mode capabilities that can connect analog, the 800 MHz–900 MHz band, and the 1.8 GHz or 1.9 GHz band.

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Many countries have adopted a single standard for nationwide use, but the U.S. market currently employs several standards. Nevertheless, different platforms are increasingly becoming compatible with one another. At present, most U.S. carriers use either global system for mobile (GSM) or code division multiple access (CDMA).

 Global System for Mobile. As the 2G standard adopted in the European Union (EU), Global System for Mobile Communications (GSM) is the most widely used wireless technology in the world. GSM uses 2G digital technology, TDMA transmission methods, and a digital encoder that emulates the characteristics of human speech. A very efficient data rate/information content ratio is achieved with this method of transmission.

 Code Division Multiple Access. The code division multiple access (CDMA) standard sends multiple signals using an encryption method based on the unique signal of each handset. It is also known as spread spectrum multiple access (SSMA), because each signal is spread across a broad segment of spectrum. Developed by Qualcomm Inc., CDMA was first introduced commercially in Hong Kong in 1995. It is currently used predominantly in China, India, Japan, South Korea, and North America.

When implemented in a cellular network, 2G CDMA technology offers numerous benefits to the cellular operators and their subscribers. It can increase capacity eight to 10 times that of an advanced mobile phone service (AMPS) analog system and four to five times that of a GSM digital system. Initially, CDMA did not fully live up to its promise of greater capacity, but ongoing improvements have been made.

 Intermediate (2.5G) technologies. As carriers worldwide plot migration paths toward 3G infrastructure, they typically seek to build upon existing networks rather than purchase all new equipment. This process generally involves making software upgrades to existing hardware, such as network switching, base station, power amplifier, and antenna systems. However, customers must purchase new handsets to use 2.5G (as well as third-generation or 3G) platforms.

While these 2.5G technologies have slower bit rate or transmission speeds than 3G, they nonetheless save the expense of replacing a still-functioning network. They also allow value-added services such as voice mail, call waiting, short messaging, and dial-up online connections. In addition, by segregating data from voice transmissions, they provide faster data rates and increased voice capacity.

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WIRELESS TECHNOLOGY STANDARDS

ACCESS TRANSMISSION GENERATION TECHNOLOGY SPEEDS ADVANTAGES/DISADVANTAGES

2G GSM 14.4 kbps Widely deployed, allows international roaming cdmaOne (IS-95A)

14.4 kbps Stronger security features, longer handset battery life, more efficient use of bandwidth than GSM. Disadvantages include lack of global roaming capabilities, narrow deployment, fewer equipment suppliers, proprietary technology.

2.5G For GSM GPRS 64 kbps “Always on” allows easier Internet browsing. Bandwidth shared with other users a disadvantage.

EDGE 384 kbps peak, 140-160 kbps more likely.

Allows greater data rates per timeslot than GSM/GPRS.

For CDMA cdmaOne (IS-95B)

64 kbps peak, 14.4 kbps typical.

4 to 5 times capacity of GSM systems.

3G WCDMA 2 Mbps peak, 400 kbps typical.

Faster data speeds and greater capacity than CDMA2000 1X. More expensive to deploy than CDMA2000 1X. Not compatible with earlier GSM networks.

TD-SCDMA 2 Mbps peak, 1.2 Mbps typical.

Excellent for transmitting Internet data. Wide coverage area, more efficient use of spectrum for one-way transfer. Disadvantages include no commercial deployments, few equipment vendors.

CDMA2000 1X(Release 0) 307 kbps peak, 144 kbps typical.

Greater voice and data transmission capacity than cdmaOne using same bandwidth.

CDMA 1X EV-DO (Evolution-Data/Optimized)

2.4 Mbps peak, 750 kbps typical.

Faster data speeds, handsets compatible with earlier CDMA networks.

CDMA 1X EV-DV (Evolution-Data/Voice)

3.1 Mbps peak Able to deliver real-time video streaming.

3.5G For GSM/ WCDMA

HSDPA (High-Speed Downlink Packet Access)

14 Mbps future potential, currently 3.6 Mbps

Delivers streaming video, interactive gaming, and multimedia music WCDMA tracks at speeds almost 3 times faster than WCDMA. Compatible with GSM/WCDMA.

For GSM/W- CDMA

HSPA+ R8 (High-Speed Packet Access Plus)

Enhances rates up to 42 Mbps; future potential to 84 Mbps and beyond

Doubles data capacity over HSPA, more than doubles voice capacity over WCMDA. Enhances end-user experience, improved “always-on” experience.

For CDMA CDMA 1X EV-DO Revision A (Evolution-Data Optimized)

3.1 Mbps peak download speed, 1.8 Mbps upload

Revision A is an upgrade for CDMA 1X EV-DO. Compatible with CDMA networks.

4G For GSM/ WCDMA

LTE (Long-Term Evolution)

100 Mbps peak download, 50 Mbps

l d

Widely supported by equipment suppliers and wireless operators. Compatible with GSM/WCDMA.

LTE-Advanced 1 Gbps peak download, 500Mbps upload

Compatible with GSM/WCDMA/LTE.

For CDMA UMB (Ultra Mobile Broadband)

288 Mbps peak download, 75 Mbps

Compatible with CDMA networks. Disadvantages on fewer equipment suppliers. Discontinued.

WiMAX 128 Mbps peak download, 100 Mbps

l d

High power consumption a disadvantage.

Sources: CDMA Development Group; GSM Association.

3G Digital Systems Carriers worldwide aim to provide service using more advanced third-generation (3G) technology. At present, 3G technology comprises three main platforms: CDMA2000 1xEV-DO, WCDMA, and Universal Mobile Telecommunications System (UMTS). (EV-DO stands for “evolution-data optimized.”) These technologies allow digital telecom networks to provide value-added services such as voice mail, call waiting, short messaging, and dial-up online connections, as well as voice communications. Perhaps most significantly, their data transfer speeds are much faster than those of earlier technologies were. Today 3G platforms allow wireless operators to meet the tremendous demand for new services, such as high-quality voice, high-speed data, and multimedia services. The 2G networks using GSM are being replaced by WCDMA or UMTS, while CDMA is being replaced by CDMA2000.

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 CDMA2000. Based on the CDMA system, CDMA2000 exists as EV-DO, which is backward compatible with CDMA and CDMA2000 1xRTT.

EV-DO delivers peak data speeds of 2.4 megabits per second (Mbps) and supports applications such as MP3 transfers and video conferencing. Carriers such as Verizon Wireless and Sprint have implemented Revision A (Rev. A), an enhancement to CDMA EV-DO. Rev. A increases the data speed and capacity of EV-DO networks, reaching theoretical limits of 3.1 Mbps downstream and 1.8 Mbps upstream.

 Wideband Code Division Multiple Access. This technology, used in 3G mobile networks, is built around a core GSM network with a wideband CDMA air interface. Wideband Code Division Multiple Access (WCDMA) has been developed as an open standard supported by operators with the 3G GSM standards development organization. WCDMA uses a new spectrum with a five-MHz bandwidth, providing data transfer rates 50 times faster than present GSM networks and 10 times faster than GPRS networks.

The operator can gradually migrate from GSM to WCDMA, protecting investments by reusing the GSM core network and 2G/2.5G services. Operators such as AT&T and T-Mobile are adding a protocol known as HSDPA Release 7.2 to their WCDMA networks to improve data transmission speeds to up to 7.2 Mbps. A further release of Evolved High-Speed Packet Access (HSPA+) has been deployed with theoretical speeds of up to 42 Mbps.

 Universal Mobile Telecommunications System. Designed to avoid problems of incompatibility with evolving broadband technology, the Universal Mobile Telecommunications System (UMTS) is Europe’s approach to standardizing 3G cellular systems. Essentially equivalent to WCDMA, it allows for the transition from all major existing 2G standards to CDMA-based next-generation standards. UMTS was the outcome of a 1999 agreement to define a single 3G standard that was sponsored by the International Telecommunication Union (ITU), a public/private association that coordinates global telecom networks.

4G Digital Systems These platforms allow wireless operators to meet the booming demand for new services, such as high- speed data and multimedia services. There are two competing fourth-generation (4G) technologies: Long-Term Evolution (LTE) and Worldwide Interoperability for Microwave Access (WiMAX).

 Long-Term Evolution. This technology is the latest standard in the mobile network technology tree that produced GSM/EDGE and UMTS/HSPA network technologies. Long-Term Evolution (LTE) is expected to significantly improve end-user throughputs, with optimal future speeds of 100 Mbps on the downlink and 50 Mbps on the uplink. It is deployed by many of the national carriers in the U.S., including Verizon, Sprint, and AT&T.

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SELECTED 4G ATTRIBUTES AND CAPABILITIES Successor to the 2G and 3G families of standards. Requirements for 4G Standards:

• 100 Mbit/second for high mobility (vehicular) traffic • 1 Gbit/second for low mobility traffic • Smooth handovers across heterogeneous networks • Ability to offer high quality of service for next generation

multimedia support. WiMAX

• 802.16 Family • Primarily used for Mobile Internet • Utilizes MIMO-SOFDMA radio technology • 128 Mbit/s downlink speeds; 56 Mbit/s uplink speeds • WiMAX update IEEE 802.16m expected to offer peak rates of

at least 1 Gbit/s fixed speeds and 100Mbit/s to mobile users. LTE

• UMTS/4GSM Family • Primarily used for General 4G services • Utilizes OFDMA/MIMO/SCFDMA radio technology • 100 Mbit/s downlink speeds; 50 Mbit/s uplink speeds • LTE-Advanced update expected to offer peak rates up to

1 Gbit/s fixed speeds and 100 Mb/s to mobile users. Source: International Telecommunication Union.

 Worldwide Interoperability for Microwave Access. This is a wireless broadband access technology based on the 802.16 family, and is intended to serve as an alternative to wire technologies. Worldwide Interoperability for Microwave Access (WiMAX) offers optimal future speeds of 100 Mbps for high mobility and up to 1 Gigabit per second (Gbps) for fixed or low mobility. WiMAX is currently being deployed by Sprint, in conjunction with Clearwire.

Upcoming 5G Systems Following the launch of 4G networks across the U.S. in the past few years, wireless operators are preparing for upgrades to a higher mobile network standard referred to as fifth-generation (5G) technologies. The initial specifications for 5G were announced in December of 2017 by the key industry body 3GPP, and then further confirmed in June of 2018 with the approval of “Release 15.” Actual speeds in real-world uses will vary and will also be lower than theoretical speeds much like 4G. However, the International Telecommunication Union (ITU) suggested that a 5G network should deliver Internet speeds of at least 20 Gbps for downloads and 10 Gbps for uploads. The 5G network should also be able to support at least one million connected devices per square kilometer, according to a draft paper that the ITU released in February 2017. Latency (or the amount of time it takes for data to be stored or retrieved) will also be very low, with a minimum of 5 milliseconds (down from 4G LTE’s 20 milliseconds). This will allow for better video calls and online games. Final specifications for the 5G standard will likely be finalized in 2019.

The Network Buildout: Managing the System

Depending on the topography and population density of the area served, the radius of a rural cell, or service area, can be 10 miles or larger. However, in large cities, microcells (cells with a radius of 500 feet or less) are often needed to provide seamless coverage. Because handsets have trouble

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picking up signals inside buildings, dedicated transmitters/antennas are needed to provide indoor service to such locations as tall office buildings or underground garages. Ideally, coverage of a service area should be complete yet unduplicated; in reality, cells frequently overlap, and obstructions such as buildings can cause gaps in service.

As companies build and expand their networks, their focus will shift toward managing their systems. They will need to bill not only their own customers for using their service, but other wireless and wireline providers as well. When customers roam, signals can be handed off from one company’s cell site to another’s. When this occurs, a fee is charged, although these roaming charges have become less common in recent years, as carriers have consolidated or formed alliances to carry one another’s traffic.

The transmission network of a telephony system is managed by an operations control center, which keeps track of performance, collects billing data, and picks up any alarms. Computer systems that are connected to switches, cell sites, and other network equipment, monitor performance and relay detailed information about traffic patterns and bandwidth availability to the control center. Network employees can thus be made immediately aware of any equipment failures and often can correct potential problems before the customer experiences any decline in service.

Management networks—the total infrastructure for transmitting phone messages—must oversee equipment from many vendors deployed across a telephony system, while at the same time facilitate seamless connections with other carriers’ systems. Software programs built into today’s intelligent management networks can provide platforms for fraud control, customer interface, inter-network communications, and other complex administrative, maintenance, and operating functions. These programs are increasingly being loaded with marketing and strategic planning functions as well.

Wireless systems must be designed to connect with the landline infrastructure already in place, as this is where much traffic originates and terminates. In the U.S., where the existing infrastructure is extensive, carriers are attempting to create flexible wireless systems that can function across analog and digital platforms, low and high frequencies, and a variety of equipment from many vendors. Ideally, these new systems will be open to expansion, technological enhancement, and the convergence of voice, data, and video services.

Bandwidth Is All the Rage

In the wireless segment, coverage (the area a company serves) is king. However, bandwidth (the amount of data that can be carried by a channel, measured in bits per second) is close to the throne. Bandwidth determines the depth and level of the services that a company can provide, and today’s high-speed, graphics-rich data transmissions require significantly more bandwidth than voice communications.

Currently, global wireless networks are straining to cope with the onrush of data traffic; they do not have enough bandwidth or network facilities to meet demand. This imbalance has made bandwidth one of the most important ingredients in the delivery mix. Greater bandwidth both raises a channel’s capacity and greatly increases the quality and speed of the transmission. However, from the carrier’s perspective, all of the bandwidth on the planet will get you nowhere if your processor (base station equipment) cannot handle the information. Accordingly, some equipment manufacturers are developing receivers that can process thousands of times the bandwidth of an analog base station.

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HOW TO VALUE A COMPANY IN THIS INDUSTRY

The condition of the telecommunications industry is not easily measured by industrywide ratios and statistics. Rather, the best way to gauge the industry’s health is to look at market leaders, assess their individual prospects, and draw an overall conclusion based on this analysis.

Industry Drivers

 Gross domestic product. The broadest measure of aggregate economic activity, gross domestic product (GDP), is the market value of all goods and services produced by labor and capital in a country. The economy’s growth is measured by changes in inflation-adjusted (or real) GDP. Consumption—spending by domestic households on final goods and services—accounts for approximately one-half to two-thirds of GDP across a broad spectrum of countries. Consequently, changes in GDP are an excellent measure of consumer markets.

The degree to which demand varies with GDP will depend partly on whether wireless service is perceived as a luxury or a necessity. This, in turn, varies according to demographics and wireline penetration.

 Unemployment rate. This rate measures the number of unemployed as a percentage of the labor force. As unemployment rises, the telecom traffic that an enterprise customer generates declines as fewer phones are used. Those unemployed workers may also restrict their own telecom spending, often eliminating a second household phone line or drop enhanced services.

 Interest rates and inflation. Because telephone companies are highly capital intensive, interest rates are an important factor, as they affect the cost of capital. Lower rates tend to stimulate investment, unless the credit markets are as tight as they were in the second half of 2008.

Inflation is a further consideration: as inflation rises, so do interest rates. In the extreme, this has the potential to choke off investment spending. Lower levels of inflation, however, can aid capital-intensive businesses, as rising nominal cash flows can more easily pay off prior debt obligations. The key determinant of whether inflation is advantageous or harmful for a business is the company’s relative pricing power. Given increasing levels of competition and a low capacity utilization level for broadband networks, the U.S. wireline industry does not have significant pricing power. Inflation in the U.S. economy is measured by the consumer price index (CPI).

 Demographics and housing starts. Demand for telephone service is related to population growth. Having more people in a region or country tends to generate a greater need for telephones. As with economic growth, regional population growth is a more relevant statistic for local telephone companies in the U.S., while national growth is of greater importance to the major wireless carriers.

Housing starts are a good measure of population density and can be an indicator of demand for new access line and broadband services.

 Market penetration. Market penetration is a measure of the subscriber base as a percentage of the total number of potential customers, or overall population. Calculated as a percentage, market penetration shows how deeply wireless service has entered a market and, thus, suggests how much growth potential remains in the subscriber base.

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 Average revenue per user. A prime indicator of operating performance, average revenue per user (ARPU) gauges the average monthly revenue generated for each customer unit, such as a wireless phone, which is in service. Increases in minutes of use and in value-added services, including data, are considered drivers of ARPU growth.

 Average revenue per account. Similar to ARPU, average revenue per account (ARPA) is an indicator of operating performance for carriers with shared data plans. ARPA gauges the average monthly revenue generated for each account rather than per user. Increases in data allotments and additional devices are drivers of ARPA growth.

 Churn. A metric used to monitor the stability of a customer base, churn is the percentage of subscribers that terminate wireless service with the carrier on a monthly basis—the lower the churn, the less pressure on a carrier to add new subscribers to generate revenues. A churn rate lower than 2% is better than average for wireless carriers.

 Net subscriber additions. A prime indicator of the success of a carrier’s marketing programs, net subscriber additions is the number of new customers added, less customers that terminated service with the carrier. It is typically calculated on a quarterly basis.

 Cost per gross subscriber addition. Cost per gross subscriber addition (CPGA) is an indicator of the average cost of signing a new subscriber. It is calculated by adding selling and marketing costs, as well as handset and accessory subsidy costs (excluding costs unrelated to initial customer acquisition), and dividing the total by new subscribers during the period (or gross adds).

 Cash cost per user. A benchmark used to measure the average monthly cost of serving subscribers. Cash cost per user (CCPU) is calculated as total operating expenses less equipment revenue, depreciation, and amortization expenses, and the costs of acquiring new subscribers, which is then divided by the average number of subscribers for the period. CCPU is commonly used within the industry as an indicator of the cash expenses associated with ongoing business operations, on a per handset basis.

 Free cash flow. This important liquidity metric is calculated as the net cash provided by operating activities of continuing operations, less cash payments for capital expenditures (capex) and other additions. Free cash flow provides useful information about how a company generates cash from operations after interest and dividends and how it funds debt maturities and other financing activities, such as debt refinancing or debt retirement and investments.

Company Analysis

After gaining an understanding of the industry’s drivers, analysts should then focus on company- specific analysis. Company-specific analysis focuses on a range of factors and should be used to evaluate a firm’s strengths and weaknesses, as well as assess its overall position within the overall retail landscape

Wireline

In a diverse and converging communications market, it is becoming more difficult to analyze the wireline segment separately from other telecommunication services. Nevertheless, wireline communications have several unique characteristics that affect the analysis of industry groups and of individual companies.

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Complicating analytical efforts, many companies maintain significant interests across different lines of business. For example, Verizon Communications Inc., the nation’s second-largest Regional Bell operating company (RBOC), acquired long-distance provider MCI Inc. in early 2006. Verizon also owns Verizon Wireless, and has a growing broadband and video subscriber base. Despite the blurring of lines in telecommunications, valuations of domestic wireline carriers are different for various types of firms. All companies in this industry have unique competitive and regulatory issues that differentiate the methods by which they should be valued.

A Local View: Access Line Trends

Traditional basic measures of a local carrier’s health have been the growth or stability of its access lines—the actual telephone lines that run into customers’ homes and businesses. These physical assets are simply the means whereby the company provides service and generates revenue.

In the 1990s and early 2000s, access line growth in the highly saturated residential market came from existing customers that ordered additional lines. Demand drivers included a desire to accommodate talkative children and extra lines for Internet access, online services, and telecommuting. Beginning in 2004, and going into 2009, competition and technology substitution slowed demand (in both the residential and business sectors), leading to access line losses for most carriers. Growth in digital subscriber line (DSL) subscriber bases helped as an offset for total customer connection counts and increasing speed offerings have helped average revenue per user (ARPU).

 Regional Bell Operating Companies. For a time, dominant Regional Bell Operating Companies’ (RBOCs) control of the last mile of communication into homes and businesses allowed them to slow the progress of newcomers, and thus extended their virtual monopoly. Local access lines, however, have been under increasing pressure from wireless, cable telephony, DSL, and other data services.

 Independent incumbent local exchange carriers. Independent incumbent local exchange carriers (ILECs) are similar to RBOCs, but with two important distinctions. First, the independents do not have the same level of regulatory restrictions; and second, cable competition is more limited in rural markets than in urban markets served by the RBOCs.

Local Competition and Regulation Although competition is creating opportunities in the telecommunications industry (as well as risks as new entrants offer telephony service), entering new markets as a telecom provider can bring additional expenses, and the risk of an inadequate return. The better-managed companies will realize that, just because a door is open, they do not have to walk through it. For those that do, investors must assess both the risks and potential rewards of new growth initiatives. In evaluating a carrier’s future prospects in the local market, it is crucial to keep a close eye on legal developments, and federal and state regulatory rulings.

The Broadband Market: Growing and Competitive

From 2000 through 2005, dial-up service through an existing landline was the affordable choice for consumer Internet access in the U.S. More recently, however, price reductions for broadband service coupled with demand for faster connections to support working from home, online gaming, and watching videos, have caused the number of high-speed lines that connect homes and

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businesses to increase. Understanding how a carrier competes with cable companies that split market share can help in analyzing the carrier’s prospects.

Enterprise Market Developments The aforementioned metrics provide some of the necessary tools to understand the consumer market served by the telecom providers. Nevertheless, it is important to focus also on enterprise and government contract wins, as well as whether sizable workforce reductions have been made in the operating territory of a telecom company. The telecom providers are increasing their capabilities to provide data transport and Internet security for small, medium-sized, and large business customers, and the status of key corporate customers could help or hurt the phone company.

Take a Hard Look at Cash Flow

Despite the differences among wireline telecommunication companies (telcos), they have some common characteristics. An important measure of any telco’s financial health is growth in operating cash flow. The measure that historically has been used as a proxy for operating cash flows is earnings before interest, taxes, depreciation, and amortization (EBITDA). This figure can be calculated by adding back depreciation and amortization (D&A) charges to reported operating income.

EBITDA has gained widespread acceptance in the market because it eliminates some accounting problems that might arise, since most discretionary expenses come after EBITDA. It is also useful in analyzing new companies that are not profitable. It should be noted, however, that companies have manipulated EBITDA, giving it different treatments according to their interests. Another drawback is the sizable amount of industry debt, and, therefore, sizable interest expense. A large part of cash flow is being eaten up by interest payments, which limits EBITDA’s value as a measure of a company’s profitability.

The trend in cash flow is an important indicator of where a company is in its business plan. If cash flows are not growing, it will be more difficult for the company to fund its capital spending or dividend payments. Questions that should also come to mind include: Where is the company investing? What are the chances of the investment being successful? Are revenues from wireline voice services being used to subsidize other businesses that will become the foundation for further growth?

Watch Out! Companies record special charges for unusual or infrequent items, e.g., restructuring charges. Such charges are often excluded from non-GAAP earnings, and therefore provide dishonest management with the ability to enhance analysts’ perception of its profitability through aggressive use of these special charges.

Watch Out! Companies can boost current earnings by shifting interest costs to the balance sheet by capitalizing these costs as part of fixed assets. To detect potential manipulation of capitalized interest, investors can analyze trends in capitalized interest relative to total interest costs as well as capitalized interest relative to total capital expenditures. If these ratios are increasing, a company may be manipulating earnings by capitalizing interest costs that are normally expensed.

Watch Out! Similar to the capitalization of interest, telecom service providers can capitalize operating costs incurred for the construction of an asset, and certain contract acquisition and fulfilment costs under the new revenue recognition standard. For example, labor costs may be capitalized if an employee is directly working on the construction of the network. Capitalized operating costs will be recorded on the balance sheet versus flowing through the current period income statement, providing a boost to current period income. In addition, cash flow from operations will be boosted as these capitalized costs are shifted to cash flow from investing from cash flow from

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operations. Once the network is completed, depreciation expense will include a portion of the capitalized costs.

Valuation Methods

In gauging the attractiveness of an established telephone company’s common stock, the enterprise value (EV)-to-EBITDA ratio is a key valuation tool. The multiple can be calculated by dividing the EV (market capitalization plus net debt) by next year’s projected EBITDA. The company’s multiple can then be compared with those of its peers. Some telcos may have wireless operations that can be reviewed separately when evaluating future prospects.

Another technique is to calculate the company’s intrinsic value. In general, a company’s intrinsic value equals the present value of its future cash earnings, or free cash flows. Free cash flow consists of after-tax net income plus D&A, less capital expenditures (capex), plus increases in working capital (current assets minus current liabilities). These figures are available from a company’s balance sheets and cash flow statements. CFRA expects that most telcos will have low-single-digit percentage cash flow growth over the next few years, even as competitive pressures remain high.

Wireless

When analyzing a wireless telecom company, the three primary areas to address concern market composition, quality of service, and financial performance.

Key Market Variables

The markets that are served by a company’s wireless network help define the company’s strategic direction and focus that are employed to expand its market presence. Thorough analysis requires a study of a company’s geographic footprint, market penetration, the breadth of its service offerings, and the level of competition in its markets.

Penetration and Share Market penetration is defined as the subscriber base as a percentage of a population (POP)— customers or potential customers within a licensed area—the actual versus the potential customer base. Penetration varies from region to region, with some countries approaching saturation. For an individual company, market penetration is comparable to market share. This percentage should be compared with those of a company’s peers and with the industry average.

Market Maturity In the last few years, wireless operators have adjusted their growth strategies. Rather than seek market penetration at any cost, they are now favoring higher quality, profitable growth with higher customer retention, lower customer churn, and more focus on market segmentation. National and regional wireless operators have moved in this direction, while certain carriers are addressing the underserved prepaid market, which has a low market penetration.

Companies that are just beginning to operate in a market new to them typically are not profitable in the short term, but investors must gauge longer-term revenue potential from reasonable estimates of market penetration and ARPU. Investors must be mindful of companies that seek to increase penetration rates too aggressively by offering overly generous terms to new subscribers: doing so may stimulate higher subscriber growth, but the higher marketing costs may narrow operating margins and drain available funds.

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Profitability with strong top-line growth is key for companies operating as nationwide or regional operators. In any given region, the first people to subscribe to wireless service tend to be business customers, whose accounts are highly profitable for providers. As market penetration increases, new subscribers tend to consist of customers who want cheaper services.

Depth of Coverage In assessing the depth of coverage a company offers, the investor needs to consider its footprint, size, and competitors, and whether it is part of a larger alliance.

 Geographic footprint. In assessing a company’s footprint (or licensed and developed geographic territory), primary consideration should be given to the market type: major metropolitan, suburban, or rural. The capital costs of putting up cell sites, the economies of scale that can be realized in providing service, and the income levels and spending patterns of inhabitants are factors that determine a market’s desirability. The value of any given POP varies from one geographic region to the next. For example, potential customers in a wealthy, densely inhabited city will be more lucrative for a wireless company than will POPs with low per capita income who are scattered across a broad rural region.

Ever-widening footprints create the potential for larger customer bases and greater network efficiency. Larger carriers have negotiating power with vendors and can leverage information technology (IT) facilities such as billing and network management systems. They can more easily retain customers by eliminating roaming fees over a broader area.

 Scale and scope. In terms of overall market strategy, competitive approaches vary widely with regard to company scale (size of territory) and scope (extent of coverage within that territory). Nationwide and regional wireless operators have strong brands and economies of scale that enable them to offer more-comprehensive services to varied customer segments. Smaller rural operators have to economize on network expansion and marketing to potential customers who often are widely dispersed in large geographic areas.

In the past, the drive for scale and scope stimulated merger and acquisition (M&A) activity between carriers of a similar size; more recently, it has fostered acquisitions of roaming partners by the large carriers. The investor should verify that acquisitions and partnerships are consistent with an overall strategy and that they will provide firm synergies and improve operating performance. Do the merging companies use compatible technologies? Do they operate on the same spectrum? Do they have overlapping networks with redundant cell sites, or does the merger fill geographic gaps in coverage? The pros and cons of marketing alliances should be similarly assessed.

Competition Wireless markets are highly competitive. When analyzing a company’s competitive position, questions to ask include the following. Which are the major competitors in its markets? What are their competitive advantages and disadvantages? Which company can bundle other services, such as local and long-distance wireline services or Internet connectivity? What service offerings and pricing packages do competitors offer? Are these companies able to support a price advantage in wireless services and handset subsidies, funded by the cash flows generated from other businesses?

Top-Line Expansion, ARPU Key

A key financial metric is service revenues. Top-line growth is especially important for the wireless services industry because large upfront costs (for equipment deployment, spectrum rights, and branding) create significant operating leverage. Service revenue forecasts are based on expectations

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for market penetration rates, net customer additions, and the average monthly bill (as measured by the average revenue per user, or ARPU). For established operators, the growth curve will flatten as the customer and revenue bases become larger and more mature.

Watch Out! Wireline service providers charge their customers to activate their service. The activation fee revenue and related costs are deferred and subsequently recognized in income over the customer service period. Because the length of the service period is an estimate provided by management, revenues can be boosted by shortening the length of the service period. The benefit may last for as long as new account growth continues to increase. However, as growth slows, revenues will suffer more than normal as there are fewer new accounts to offset the revenues pulled forward.

An investor must address the following questions when evaluating a company’s outlook: At what customer level will the company likely reach the break-even point, based on current ARPU trends and cost structure? Given reasonable expectations regarding net customer additions, when might that occur? A sharply declining ARPU is typically a negative sign: it may indicate that a carrier is adding too many low-margin customers, cutting its prices too much, or losing its best customers.

Prepaid wireless customers generally have much lower ARPUs than postpaid customers do. Historically, prepaid customers have been either low-usage subscribers (focused on emergency use) or applicants with poor credit. These groups have tended to offer carriers minimal profitability along with significant churn.

Every customer market segment generates a different ARPU. Decisions regarding the pursuit of business and government versus residential customers, and of prepaid versus postpaid will clearly have an impact on revenue per subscriber. One should continuously monitor ARPU rates (released quarterly with earnings results) for indications of short-term competitive pressures and longer-term profitability trends.

Watch Out! While Non-GAAP operating metrics are important to the analysis of business trends, analysts should remember to proceed with caution around operational and non-GAAP metrics (in particular, ones that companies emphasize to investors as measures of their financial health) as they are not subject to rigorous audit procedures and can therefore easily be manipulated. Additionally, whenever management changes the metrics by which it evaluates itself, analysts should understand the reason for the change and determine whether the change conceals deterioration.

Valuation

When a new wireless service provider is issued a license, the license’s valuation may be expressed in terms of the potential size of the market based on its population, which is compared with wireless subscriber penetration rates over time. At this point in a company’s development, there frequently is no other available valuation measure.

Start-up wireless carriers take on heavy debt loads to purchase licenses and build networks. It usually takes several years, and significant marketing outlays, to cultivate a customer base yielding substantial revenues. As a result, price per POP (the cost per potential customer that the company paid in obtaining its license) reflects prospects for cash flows far in the future. At this early stage of a company’s development, stock market prices tend to fluctuate sharply with changes in expectations and investor sentiment.

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Free Cash Flow In the end, valuation of wireless phone companies is similar to any other business—it is an exercise in forecasting and discounting cash flows. The investor’s objective is to obtain a free cash flow (FCF) estimate for the total enterprise, including equity and debt holders. FCF can be calculated by subtracting capex from an after-tax estimate of EBITDA. Historically, capex has exceeded EBITDA for most firms because the industry required large upfront investments and was still in the growth phase of its development. However, as the industry has grown and margins have improved, more carriers are generating FCF. Projections must assume reasonable anticipated growth rates based on market penetration, total covered POPs, churn trends, net customer additions, and ARPU trends.

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GLOSSARY

1xEV-DO technology—An evolution of 1xRTT that boosts data rates into true third-generation (3G) high-bandwidth speeds; also known as CDMA 2000 1xEV-DO, or simply EV-DO (evolution-data optimized). As the technology is deployed over the next few years, it is expected to provide data speeds as fast as the digital subscriber lines (DSL) and cable modems that consumers use. 1xEV-DO, which is capable of data transfer speeds of up to 2.5 megabits per second (Mbps), is the version currently available in the U.S. EV-DO Revision A (Rev. A) was first deployed in 2006 and can reach 3.1 Mbps downstream and 1.8 Mbps upstream. 1xEV-DV, which provides integrated voice and data at speeds of up to 3.09 Mbps, has largely been preempted by EV-DO (Rev. A). Both 1xEV-DO and 1xEV-DV are backward compatible with 1xRTT and CDMA.

2.5G technologies—Telecommunications systems based on second-generation (2G) digital platforms, which enable “always on” connections and certain wireless data transmissions. Carriers may deploy these transitional technologies as an interim step toward building advanced 3G networks. The main 2.5G standards for GSM (global system for mobile communications) platforms are enhanced data rates for GSM evolution (EDGE) and general packet radio service (GPRS). For code division multiple access (CDMA) networks, 2.5G technologies are 1xRTT and high data rate technology.

Access line—A fixed or wireless local access connection between a customer’s premises and a carrier’s central office switch.

Advanced mobile phone service (AMPS)—Technological specifications for transmitting signals via analog cellular telephone.

Average revenue per user (ARPU)—The average monthly bill per telecom customer; used in sequential fashion to measure price trends.

Bandwidth—The amount of data that can be transmitted in a fixed period of time. For digital devices, bandwidth is usually expressed in bits (or bytes) per second (bps). For analog devices, bandwidth is expressed in cycles per second, or Hertz (Hz). The bandwidth needed to send a given signal depends on the amount of information the signal contains. FM radio takes 10 times as much bandwidth per station as AM radio, a differential that explains FM’s higher fidelity; a TV channel requires 33 times the bandwidth of an FM station. In telecommunications, bandwidth measures two characteristics of an electronic transmission: range and capacity. Range refers to the spectrum of electrical frequencies (from short to long waves) that a device can handle without distortion: the higher the bandwidth, the better the quality of the voice or data transmission. Capacity refers to the kinds of communications that can be carried on a channel (e.g., voice, data, video). A voice-grade bandwidth is four kilohertz.

Base station—The fixed device that intercepts signals sent by a mobile radio transmitter/receiver (or transceiver).

Broadband—A bandwidth greater than four kilohertz (the minimum for transmitting voice communications), which can allow transmission of numerous voice, video, and data channels simultaneously.

Broadband network—A high-speed network that carries multiple transmissions over a single path, such as coaxial cable or fiber-optic lines.

Carrier—A telephone company that owns and operates its own network and provides transmission services to other service providers through its facilities; also called a facilities-based carrier.

Cell site—The location of the wireless antenna and network communications equipment.

Central office (CO)—The area where customer lines terminate in switching equipment.

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Churn rate—The percentage of a carrier’s subscribers that terminate wireless service in a given month, or the average monthly rate for a given year.

Code division multiple access (CDMA)—A second-generation (2G) digital wireless technology that is used primarily in China, India, Japan, South Korea, and North America; also called CDMAOne. Invented by Qualcomm Inc., CDMA allows several users to share the same radio channel, providing up to 10 times the capacity of analog wireless. Its transitional (2.5G) version is 1xRTT. There are two advanced third-generation (3G) versions: CDMA2000, based on the CDMA platform and wideband CDMA (WCDMA), based on GSM technology. (See 1xEVDO technology and Wideband code division multiple access.)

Digital subscriber line (DSL)—A family of technologies that enable digital data transmission over the wires of a local telephone network and increase the capacity of copper telephone lines. Over limited distances, DSL uses a different part of the phone line’s bandwidth to provide “always on” data services.

Digital technology—The use of a binary code to represent and transmit information from electronic equipment. In digital wireless telephony, sound and data are transformed electronically from analog signals into a digital pulse (an on-and-off series of coded ones and zeroes) that is transmitted via radio wave and reconverted into an analog signal at the point of reception. In contrast, analog technology relies on variable electrical signals—radio waves—that remain unchanged from origination to termination of a call and are more vulnerable to interference. Wireless telephony, which today is predominantly digital, transmits signals through the atmosphere rather than via copper wire or fiber-optic lines.

Distortion—The loss or corruption of information in a signal during transmission. In telecommunications, the term typically refers to analog signals.

Enhanced data rates for GSM evolution (EDGE)—Also known as Enhanced GPRS (EGPRS), or IMT Single Carrier (IMT-SC), or Enhanced Data rates for Global Evolution. It is digital mobile phone technology, which allows improved data transmission rates as a backward-compatible extension of GSM.

Fiber-to-the-premises (FTTP)—A technology that brings fiber-optic connections (rather than copper wire) directly into homes and businesses to enable a broad array of voice, data, and video applications.

General packet radio service (GPRS)—A transitional (2.5G) version of GSM that speeds up data reception and transmission as well as voice, GPRS operates at speeds similar to those of a dial-up modem (well below 100 Kbps). It is being replaced by much faster, third-generation (3G) data technologies.

Global system for mobile communications (GSM)—Functionally similar to TDMA, GSM is a second-generation digital technology that is mostly used for voice transmissions. It has been adopted by the European Union (EU) and is currently the most widely used digital cellular standard worldwide.

Hertz (Hz)—Cycles per second, a measure of radio frequency. Kilohertz (kHz) = thousands; megahertz (MHz) = millions; gigahertz (GHz) = billions; terahertz (THz) = trillions.

High-speed downlink packet access (HSDPA)—A wireless protocol built on top of WCDMA-based systems to increase data transmission speeds up to eight to 10 megabits per second. Also known as 3.5G, HSDPA will allow for faster and better quality video and audio, as well as greater network capacity. Among major carriers, it is being deployed by Cingular Wireless and T-Mobile in the U.S., NTT DoCoMo Inc. in Japan, and T-Mobile and Vodafone PLC in several European countries.

Integrated dispatch enhanced network (iDEN)—A wireless technology developed by Motorola, iDEN operates in the 800 MHz, 900 MHz, and 1.5 GHz radio bands. Through a proprietary handset, iDEN supports voice (in the form of dispatch radio and wireless and wireline interconnection), numeric paging, and short messaging for text, data, and fax transmission.

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Interconnection—The linking of networks belonging to different operators to allow access to customers and callers. Interconnection fees or charges are an important source of revenue for local exchange carriers (LECs), particularly incumbents, whose networks extend to the last mile. In the U.S., the ease of interconnection was one of the criteria used in evaluating Regional Bell operating company (RBOC) requests for authorization to provide long-distance service. High interconnection fees are seen as a barrier to competition and have been the object of international dispute.

Internet Protocol (IP)—The set of rules that defines how information is packetized and addressed for delivery across the Internet. Most networks combine IP with a higher-level protocol called Transport Control Protocol (TCP), which establishes a virtual connection between a destination and a source so that they can communicate with each other. VoIP technology uses the Internet to transmit telephone calls.

Internet service provider (ISP)—A company that offers businesses and consumers access to the Internet and other related services.

Modified Final Judgment (MFJ)—U.S. court order issued in 1984 that resulted in AT&T Corp.’s divestiture of its Baby Bells.

Net subscriber additions—A growth metric that is equal to the number of wireless customers that add service during a period, minus those that terminate service.

Number portability—A network feature that enables mobile or wireline users to retain their geographic or nongeographic telephone number when they change location, service provider, or type of service. Number portability was first made available to toll-free numbers, then to long-distance services, and eventually to wireless and wireline services.

Personal communications services (PCS)—A term encompassing a wide range of digital wireless mobile technologies, chiefly two-way paging and cellular-like phone services. These services are transmitted at lower power and higher frequencies (1,900 MHz) than digital voice services (850 MHz). Carriers can choose from among various CDMA- and GSM-related technologies to support these services.

Population (POPs)—A cellular industry term for customers or potential customers within a licensed area as surveyed by the U.S. Census. One POP is one member of the population.

Radio frequency—The part of the electromagnetic spectrum used for transmitting radio signals.

Regional Bell Operating Companies (RBOCs, or Baby Bells)—The Regional Bell Operating Companies that were spun off from AT&T in 1984. As of late December 2007, mergers have reduced the seven original RBOCs to three: AT&T Inc., Qwest Communications International Inc., and Verizon Communications Inc.

Revision A—An enhancement to CDMA 1xEV-DO that increases the efficiency, data speed, and capacity of EV-DO networks, reaching theoretical limits of 3.1 megabits per second downstream and 1.8 Mbps upstream; it is usually referred to as Rev. A.

Roaming—A service offered by most wireless providers that allows subscribers to use cellular service while traveling outside their home service area. Roaming requires an agreement between operators of technologically compatible systems in individual markets to permit customers of either operator to access the other’s system. Roaming areas and costs vary by service provider.

Smartphone—A wireless telephone equipped with computer-enabled features such as wireless email, Internet access, and data transfer with other devices; also known as a converged mobile device.

Time division multiple access (TDMA)—A first-generation digital cellular technology that offered a threefold increase in capacity over analog technology. Carriers with TDMA networks are in the process of switching to transitional GSM/GPRS platforms, after which they will upgrade to 3G via WCDMA.

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Traffic—Electronic signals containing sound, data, or visual communications.

Universal mobile telecommunications system (UMTS)—A technology, adopted under the aegis of the International Telecommunication Union (ITU), that facilitates the transition of all major platforms through 2.5G technology to 3G. It is essentially equivalent to WCDMA as deployed by European wireless networks. UMTS can support data transfer rates of 144 Kbps to two Mbps in support of mobile access of multimedia Internet applications.

Voice over Internet Protocol (VoIP)—Internet telephony; refers to communications services (voice, facsimile, and/or voice-messaging applications) that are transported via the Internet, rather than the public switched telephone network (PSTN).

Wideband code division multiple access (WCDMA)—A 3G technology that increases data transmission rates in GSM systems by using the CDMA air interface instead of TDMA.

Wireless Fidelity (Wi-Fi)—A wireless technology providing Internet access at speeds of up to 11 megabits per second. Also known as 802.11b, this radio technology has limited reach to connect laptops or portable devices with a Wi-Fi card to a Wi-Fi access node in the network.

Worldwide interoperability for microwave access (WiMAX)—A wireless technology providing broadband wireless connectivity to fixed and mobile users. It uses the 802.16 technology standard for two GHz to 11 GHz within a wireless metropolitan area network, has a service range of up to 50 kilometers, and provides data rates of up to 280 megabits per second per base station. WiMAX is the ultimate complement to Wi-Fi, in our opinion, capable of being used to connect wireless hotspots and wireless LANs to the Internet, provide campus connectivity, and create a wireless alternative to cable and DSL for last-mile broadband access.

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INDUSTRY REFERENCES

PERIODICALS

Communications Daily http://www.communicationsdaily.com News source for communications regulation.

RCR Wireless News http://www.rcrwireless.com/rcr-wireless-news Publication covering the wireless industry.

Telecom Engine http://www.telecomengine.com Covers telecommunications, voice, and data service fields.

Wireless Week http://www.wirelessweek.com Covers business, technology, and regulatory news on services that include cellular, personal communications, paging, and specialized mobile radio.

BOOKS

The Essential Guide to Telecommunications, 5th Ed. Annabel Z. Dodd Prentice Hall, 2012 Comprehensive guide to telecommunications technologies, laws, and marketing programs, written for those with limited technical background.

TRADE ASSOCIATIONS

CTIA http://www.ctia.org International membership organization representing all sectors of wireless communications. Compiles comprehensive data on industry revenues, market penetration, pricing, and other cellular industry issues.

GSMA http://www.gsma.com Dedicated to the development, deployment, and evolution of the Global System for Mobile Communications (GSM) standard for digital wireless technology and for the promotion of the GSM platform.

IEEE Standards Association http://standards.ieee.org Consensus-building organization that nurtures, develops, and advances global technologies.

Telecommunications Industry Association (TIA) http://www.tiaonline.org Leading trade association for the telecommunications industry.

The United States Telecom Association (USTelecom) http://www.ustelecom.org Association representing telecommunications industry service providers and suppliers. Provides updates on policy issues and industry news through daily and weekly newsletters.

Wi-Fi Alliance http://www.wi-fi.org Nonprofit international association formed in 1999 to certify interoperability of wireless local area network products based on the IEEE 802.11 specification for Wi-Fi. The alliance’s goal is to enhance the user experience through product interoperability.

WiMAX Forum http://www.wimaxforum.org Nonprofit industry group working to facilitate the deployment of broadband wireless networks based on the IEEE 802.16 standard by helping to ensure the compatibility and interoperability of broadband wireless access equipment.

Wireless Infrastructure Association (WIA) http://www.wia.org Major international trade association for wireless communications and infrastructure; provides market forecasts, spectrum management programs, seminars, technical certification programs, and industry trade shows.

RESEARCH FIRMS

comScore Inc. http://www.comscore.com Provides a variety of data, information, and insights regarding a number of different aspects of the Internet economy, with a focus on e-commerce and audience measurement.

41 TELECOMMUNICATIONS / JULY 2018 INDUSTRY SURVEYS

Dell’Oro Group http://www.delloro.com Specializes in strategic competitive analysis in the networking and telecommunications fields.

Forrester Research Inc. http://go.forrester.com Independent research firm that analyzes technology’s impact on businesses.

Frost & Sullivan http://ww2.frost.com Consultant covering various industries, including Information & Communication Technologies.

GSMA Intelligence http://www.gsmaintelligence.com Global database for mobile market information.

IDC Research Inc. http://www.idc.com Provides market analysis for information technology and communications in the U.S. and worldwide.

Leichtman Research Group Inc. (LRG) http://www.leichtmanresearch.com Provides research on broadband, media, and entertainment.

OpenSignal http://www.opensignal.com Provides crowdsourced wireless network coverage maps and quality reports.

Strategy Analytics http://www.strategyanalytics.com Provides research and consulting on business strategy and technology issues.

TeleGeography http://www.telegeography.com Provides research, statistics, and analysis of the telecommunications industry. Also produces interactive internet and submarine cable maps.

World Cellular Information Service (WCIS) http://ovum.informa.com/products-and- services/data-services/world-cellular-information- service Focuses on the wireless industry, with a database dating from 1986.

GOVERNMENT AGENCIES

Federal Communications Commission (FCC) http://www.fcc.gov U.S. government agency that develops and implements policy concerning interstate and international communications.

Innovation, Science and Economic Development Canada http://www.ic.gc.ca/eic/site/icgc.nsf/eng/home A government agency that sets telecommunications policy and is designed to foster a growing competitive, knowledge-based Canadian economy.

International Telecommunication Union (ITU) http://www.itu.int Leading United Nations agency for information and communication technology issues; coordinates global telecommunication networks and services, and organizes worldwide and regional exhibitions and forums.

National Association of Regulatory Utility Commissioners (NARUC) http://www.naruc.org State-oriented commission focused on achieving uniformity of regulation of public utility carriers.

National Telecommunications and Information Administration (NTIA) http://www.ntia.doc.gov Executive-branch agency in the U.S. Department of Commerce that advises the President on telecommunications and information technology issues, with a focus on expanding broadband access and adoption, and ensuring that the Internet remains an engine for innovation and growth.

Wireline Competition Bureau http://www.fcc.gov/wireline-competition Part of the FCC, this bureau works to ensure that all Americans have access to robust, affordable broadband and voice services.

INDUSTRY SURVEYS TELECOMMUNICATIONS / JANUARY 2019 42

COMPARATIVE COMPANY ANALYSIS

Ticker Company Yr. End 2017 2016 2015 2014 2013 2012 2007 10-Yr. 5-Yr. 1-Yr. 2017 2016 2015 2014 2013 2012 INTEGRATED TELECOMMUNICATION SERVICES T [] AT&T INC. DEC 160,546.0 163,786.0 146,801.0 132,447.0 128,752.0 127,434.0 118,928.0 3.0 4.7 (2.0) 135 138 123 111 108 107 ATNI § ATN INTERNATIONAL, INC. DEC 481.2 457.0 355.4 336.3 292.8 277.8 186.7 9.9 11.6 5.3 258 245 190 180 157 149 CBB § CINCINNATI BELL INC. DEC 1,288.5 1,185.8 1,167.8 1,161.5 1,073.4 1,473.9 1,348.6 (0.5) (2.7) 8.7 96 88 87 86 80 109 CNSL § CONSOLIDATED COMMUNICATIONS HOLDINGS, INC. DEC 1,059.6 743.2 775.7 635.7 601.6 477.9 329.2 12.4 17.3 42.6 322 226 236 193 183 145 FTR § FRONTIER COMMUNICATIONS CORPORATION DEC 9,128.0 8,896.0 5,576.0 4,772.0 4,762.0 5,011.9 2,288.0 14.8 12.7 2.6 399 389 244 209 208 219

VZ [] VERIZON COMMUNICATIONS INC. DEC 126,034.0 125,980.0 131,620.0 127,079.0 120,550.0 115,846.0 93,469.0 3.0 1.7 0.0 135 135 141 136 129 124

ALTERNATIVE CARRIERS CTL [] CENTURYLINK, INC. DEC 17,656.0 17,470.0 17,900.0 18,031.0 18,095.0 18,376.0 2,656.2 20.9 (0.8) 1.1 665 658 674 679 681 692 CCOI § COGENT COMMUNICATIONS HOLDINGS, INC. DEC 474.3 437.8 400.6 379.8 348.0 317.0 185.7 9.8 8.4 8.3 255 236 216 205 187 171 IRDM § IRIDIUM COMMUNICATIONS INC. DEC 448.0 433.6 411.4 408.6 382.6 383.5 0.0 NA 3.2 3.3 NA NA NA NA NA NA VG § VONAGE HOLDINGS CORP. DEC 1,002.3 955.6 895.1 868.9 829.1 849.1 828.2 1.9 3.4 4.9 121 115 108 105 100 103

WIRELESS TELECOMMUNICATION SERVICES TDS † TELEPHONE AND DATA SYSTEMS, INC. DEC 5,044.0 5,155.0 5,210.0 5,009.0 4,901.2 5,345.3 4,829.0 0.4 (1.2) (2.2) 104 107 108 104 101 111 SPOK § SPOK HOLDINGS, INC. DEC 171.2 179.6 189.6 200.3 209.8 219.7 424.6 (8.7) (4.9) (4.7) 40 42 45 47 49 52

OTHER TELECOMMUNICATIONS CARRIERS ALSK ALASKA COMMUNICATIONS SYSTEMS GROUP, INC. DEC 226.9 226.9 232.8 314.9 348.9 367.7 350.5 (4.3) (9.2) 0.0 65 65 66 90 100 105 CCI [] CROWN CASTLE INTERNATIONAL CORP. (REIT) DEC 4,355.6 3,921.2 3,663.9 3,538.8 2,865.8 2,432.7 1,385.5 12.1 12.4 11.1 314 283 264 255 207 176 S SPRINT CORPORATION # MAR 32,406.0 33,347.0 32,180.0 34,532.0 35,493.0 35,345.0 40,146.0 (1.8) (1.2) 3.6 81 83 80 86 88 88 SBAC [] SBA COMMUNICATIONS CORPORATION DEC 1,727.7 1,633.1 1,638.5 1,527.0 1,304.9 954.1 408.2 15.5 12.6 5.8 423 400 401 374 320 234 TMUS T-MOBILE US, INC. DEC 40,324.0 37,242.0 32,053.0 29,564.0 24,420.0 19,719.0 19,288.0 7.7 15.4 8.3 209 193 166 153 127 102

USM UNITED STATES CELLULAR CORPORATION DEC 3,890.0 3,990.0 4,031.0 3,893.0 3,918.8 4,452.1 3,946.3 (0.1) (2.7) (2.5) 99 101 102 99 99 113

Note: Data as originally reported. CAGR-Compound annual grow th rate. []Company included in the S&P 500. †Company included in the S&P MidCap 400. §Company included in the S&P SmallCap 600. #Of the follow ing calendar year. Souce: S&P Capital IQ.

Million $ Operating Revenues

Index Basis (2007=100)CAGR(%)

43 TELECOMMUNICATIONS / JANUARY 2019 INDUSTRY SURVEYS

Ticker Company Yr. End 2017 2016 2015 2014 2013 2012 2007 10-Yr. 5-Yr. 1-Yr. 2017 2016 2015 2014 2013 2012 INTEGRATED TELECOMMUNICATION SERVICES T [] AT&T INC. DEC 29,450.0 12,976.0 13,345.0 6,442.0 18,418.0 7,264.0 11,951.0 9.4 32.3 127.0 246 109 112 54 154 61 ATNI § ATN INTERNATIONAL, INC. DEC 31.5 12.1 16.9 48.2 311.7 48.9 37.9 (1.8) (8.4) 160.2 83 32 45 127 822 129 CBB § CINCINNATI BELL INC. DEC 35.1 102.1 353.7 75.6 (54.7) 11.2 73.2 (7.1) 25.7 (65.6) 48 139 483 103 (75) 15 CNSL § CONSOLIDATED COMMUNICATIONS HOLDINGS, INC. DEC 64.9 14.9 (0.9) 15.1 30.8 5.6 11.4 19.0 63.0 335.0 569 131 (8) 132 270 49 FTR § FRONTIER COMMUNICATIONS CORPORATION DEC (1,804.0) (373.0) (196.0) 133.0 113.0 136.6 214.7 NA NM 383.6 (840) (174) (91) 62 53 64

VZ [] VERIZON COMMUNICATIONS INC. DEC 30,101.0 13,127.0 17,879.0 9,625.0 11,497.0 875.0 5,521.0 18.5 102.9 129.3 545 238 324 174 208 16

ALTERNATIVE CARRIERS CTL [] CENTURYLINK, INC. DEC 1,389.0 626.0 878.0 772.0 (239.0) 777.0 418.4 12.7 12.3 121.9 332 150 210 185 (57) 186 CCOI § COGENT COMMUNICATIONS HOLDINGS, INC. DEC 5.9 14.9 4.9 0.8 56.7 (4.3) (35.4) NA NM (60.6) (17) (42) (14) (2) (160) 12 IRDM § IRIDIUM COMMUNICATIONS INC. DEC 233.9 111.0 7.1 75.0 62.5 64.6 (0.0) NA 29.3 110.6 NM NM NM NM NM NM VG § VONAGE HOLDINGS CORP. DEC (33.9) 13.2 22.7 20.3 28.3 36.6 (267.4) (18.7) NM NM 13 (5) (8) (8) (11) (14)

WIRELESS TELECOMMUNICATION SERVICES TDS † TELEPHONE AND DATA SYSTEMS, INC. DEC 153.0 43.0 219.0 (136.0) 141.9 81.9 386.1 (8.8) 13.3 255.8 40 11 57 (35) 37 21 SPOK § SPOK HOLDINGS, INC. DEC (15.3) 14.0 80.2 20.7 27.5 27.0 (5.2) 11.4 NM NM 294 (269) NM (399) (530) (519)

OTHER TELECOMMUNICATIONS CARRIERS ALSK ALASKA COMMUNICATIONS SYSTEMS GROUP, INC. DEC (6.1) 2.4 13.0 (2.8) 158.5 17.4 144.1 NA NM NM (4) 2 9 (2) 110 12 CCI [] CROWN CASTLE INTERNATIONAL CORP. (REIT) DEC 444.6 357.0 1,521.0 390.5 90.1 188.6 (222.8) NA 18.7 24.5 (200) (160) (683) (175) (40) (85) S SPRINT CORPORATION # MAR 7,389.0 (1,206.0) (1,995.0) (3,345.0) (3,018.0) (4,353.0) (29,444.0) (27.4) (22.6) (39.5) (25) 4 7 11 10 15 SBAC [] SBA COMMUNICATIONS CORPORATION DEC 103.7 76.2 (175.7) (24.3) (55.9) (181.0) (91.5) NA NM 36.0 (113) (83) 192 27 61 198 TMUS T-MOBILE US, INC. DEC 4,536.0 1,460.0 733.0 247.0 35.0 (7,336.0) 1,574.0 11.2 NM 210.7 288 93 47 16 2 (466)

USM UNITED STATES CELLULAR CORPORATION DEC 12.0 48.0 241.0 (43.0) 140.0 111.0 314.7 (27.9) (35.9) (75.0) 4 15 77 (14) 44 35

Note: Data as originally reported. CAGR-Compound annual grow th rate. []Company included in the S&P 500. †Company included in the S&P MidCap 400. §Company included in the S&P SmallCap 600. #Of the follow ing calendar year. Souce: S&P Capital IQ.

CAGR(%)Million $ Net Income

Index Basis (2007=100)

INDUSTRY SURVEYS TELECOMMUNICATIONS / JANUARY 2019 44

Ticker Company Yr. End 2017 2016 2015 2014 2013 2012 2017 2016 2015 2014 2013 2012 2017 2016 2015 2014 2013 2012 INTEGRATED TELECOMMUNICATION SERVICES T [] AT&T INC. DEC 18.3 7.9 9.1 4.9 14.3 5.7 6.6 3.2 3.3 2.2 6.6 2.7 22.4 10.8 12.8 7.4 20.3 7.6 ATNI § ATN INTERNATIONAL, INC. DEC 6.5 2.6 4.8 14.3 106.4 17.6 2.6 1.0 1.8 5.2 36.3 5.4 6.0 3.1 4.3 8.1 6.8 6.4 CBB § CINCINNATI BELL INC. DEC 2.7 8.6 30.3 6.5 NM 0.8 1.6 6.6 24.5 4.2 NM 0.4 NM NM NM NM NM NM CNSL § CONSOLIDATED COMMUNICATIONS HOLDINGS, INC. DEC 6.1 2.0 NM 2.4 5.1 1.2 1.7 0.7 NM 0.7 1.8 0.3 17.4 7.1 NM 6.4 20.8 5.4 FTR § FRONTIER COMMUNICATIONS CORPORATION DEC NM NM NM 2.8 2.4 2.7 NM NM NM 0.7 0.7 0.8 NM NM NM 3.4 2.8 3.6

VZ [] VERIZON COMMUNICATIONS INC. DEC 23.9 10.4 13.6 7.6 9.5 0.8 11.7 5.4 7.3 4.1 4.2 0.4 88.9 65.0 116.6 21.9 26.0 12.3

ALTERNATIVE CARRIERS CTL [] CENTURYLINK, INC. DEC 7.9 3.6 4.9 4.3 NM 4.2 1.8 1.3 1.8 1.6 NM 1.4 7.5 4.6 6.0 4.8 NM 3.9 CCOI § COGENT COMMUNICATIONS HOLDINGS, INC. DEC 1.2 3.4 1.2 0.2 16.3 NM 0.8 2.0 0.7 0.1 7.5 NM NM NM 13.7 0.6 32.1 NM IRDM § IRIDIUM COMMUNICATIONS INC. DEC 52.2 25.6 1.7 18.4 16.3 16.9 6.2 3.2 0.2 2.6 2.7 3.4 15.9 8.6 0.6 6.9 6.9 8.2 VG § VONAGE HOLDINGS CORP. DEC NM 1.4 2.5 2.3 3.4 4.3 NM 1.4 2.9 3.0 4.4 6.7 NM 3.2 6.8 8.7 8.9 11.8

WIRELESS TELECOMMUNICATION SERVICES TDS † TELEPHONE AND DATA SYSTEMS, INC. DEC 3.0 0.8 4.2 NM 2.9 1.5 1.6 0.5 2.3 NM 1.6 0.9 3.3 1.1 5.7 NM 3.6 2.6 SPOK § SPOK HOLDINGS, INC. DEC NM 7.8 42.3 10.4 13.1 12.3 NM 3.6 20.8 6.1 8.4 8.4 NM 4.3 26.4 7.6 10.6 10.8

OTHER TELECOMMUNICATIONS CARRIERS ALSK ALASKA COMMUNICATIONS SYSTEMS GROUP, INC. DEC NM 1.1 5.6 NM 45.4 4.7 NM 0.5 2.8 NM 21.2 2.8 NM 1.4 8.9 NM 315.1 NM CCI [] CROWN CASTLE INTERNATIONAL CORP. (REIT) DEC 10.2 9.1 41.5 11.0 3.1 7.8 1.4 1.6 6.9 1.8 0.4 1.2 4.5 4.9 7.6 5.1 1.2 7.1 S SPRINT CORPORATION # MAR 22.8 NM NM NM NM NM 8.6 NM NM NM NM NM 32.6 NM NM NM 0.0 NM SBAC [] SBA COMMUNICATIONS CORPORATION DEC 6.0 4.7 NM NM NM NM 1.4 1.0 NM NM NM NM NM NM NM NM NM NM TMUS T-MOBILE US, INC. DEC 11.2 3.9 2.3 0.8 0.1 NM 6.4 2.2 1.2 0.4 0.1 NM 22.2 8.4 4.5 1.7 0.3 NM

USM UNITED STATES CELLULAR CORPORATION DEC 0.3 1.2 6.0 NM 3.6 2.5 0.2 0.7 3.4 NM 2.2 1.7 0.4 1.4 7.2 NM 4.0 3.8

Note: Data as originally reported. CAGR-Compound annual grow th rate. []Company included in the S&P 500. †Company included in the S&P MidCap 400. §Company included in the S&P SmallCap 600. #Of the follow ing calendar yea Souce: S&P Capital IQ.

Return on Revenues (%) Return on Assets (%) Return on Equity (%)

45 TELECOMMUNICATIONS / JANUARY 2019 INDUSTRY SURVEYS

Ticker Company Yr. End 2017 2016 2015 2014 2013 2012 2017 2016 2015 2014 2013 2012 2017 2016 2015 2014 2013 2012 INTEGRATED TELECOMMUNICATION SERVICES T [] AT&T INC. DEC 1.0 0.8 0.8 0.9 0.7 0.7 46.9 48.6 49.7 46.2 43.3 42.0 NM NM NM NM NM NM ATNI § ATN INTERNATIONAL, INC. DEC 2.1 2.4 5.6 4.3 3.9 3.4 14.9 15.1 3.4 4.3 0.0 39.9 79.9 66.5 6.9 9.4 0.0 64.2 CBB § CINCINNATI BELL INC. DEC 2.0 1.0 0.8 0.7 1.0 0.9 109.4 112.0 134.4 162.9 142.9 135.3 469.8 NM NM NM NM NM CNSL § CONSOLIDATED COMMUNICATIONS HOLDINGS, INC. DEC 0.8 0.9 0.9 0.9 0.7 0.8 80.0 88.7 84.6 80.2 88.9 89.9 NM NM NM NM NM NM FTR § FRONTIER COMMUNICATIONS CORPORATION DEC 0.5 0.7 5.4 0.9 1.2 1.3 88.2 79.5 73.4 72.0 66.0 67.0 NM NM 188.2 NM 2481.8 1570.6

VZ [] VERIZON COMMUNICATIONS INC. DEC 0.9 0.9 0.6 1.1 2.6 0.8 71.8 81.6 85.4 89.3 48.7 36.1 NM NM NM 7346.2 205.0 NM

ALTERNATIVE CARRIERS CTL [] CENTURYLINK, INC. DEC 0.9 1.0 0.6 0.7 0.9 0.8 61.3 57.6 57.1 57.0 54.0 50.1 NM NM NM NM NM NM CCOI § COGENT COMMUNICATIONS HOLDINGS, INC. DEC 4.1 4.8 3.6 5.6 2.5 5.4 122.4 110.5 102.8 83.9 55.9 61.7 242.1 215.6 244.2 158.7 116.5 112.2 IRDM § IRIDIUM COMMUNICATIONS INC. DEC 1.9 6.2 4.7 5.6 3.6 4.1 53.8 55.2 53.1 51.2 52.5 46.2 893.3 382.2 365.4 274.3 387.7 269.9 VG § VONAGE HOLDINGS CORP. DEC 0.7 0.5 0.7 0.6 0.8 0.8 31.3 40.7 33.4 28.4 22.5 4.2 NM NM NM NM NM (38.7)

WIRELESS TELECOMMUNICATION SERVICES TDS † TELEPHONE AND DATA SYSTEMS, INC. DEC 2.1 2.3 2.3 1.7 1.8 2.0 33.2 33.9 34.1 30.3 26.9 27.0 232.5 207.6 201.0 247.1 188.7 175.2 SPOK § SPOK HOLDINGS, INC. DEC 2.9 2.8 3.0 2.9 2.6 1.6 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0

OTHER TELECOMMUNICATIONS CARRIERS ALSK ALASKA COMMUNICATIONS SYSTEMS GROUP, INC. DEC 1.1 1.3 1.3 0.9 1.1 1.0 51.8 52.8 56.2 75.4 76.7 106.8 3715.4 1200.3 1166.5 NM 4945.4 NM CCI [] CROWN CASTLE INTERNATIONAL CORP. (REIT) DEC 0.9 1.4 1.1 1.4 1.2 1.3 56.5 61.5 62.9 63.7 62.3 78.7 NM 3321.2 9567.9 3365.3 8430.9 3180.3 S SPRINT CORPORATION # MAR 1.3 1.1 0.6 0.9 1.2 1.2 58.6 65.6 59.7 59.8 55.7 55.6 1084.9 2162.6 NM NM 1689.9 1340.2 SBAC [] SBA COMMUNICATIONS CORPORATION DEC 0.9 0.4 1.1 1.0 0.5 0.4 138.8 132.4 125.4 109.2 93.8 88.0 NM NM 42408.4 NM NM NM TMUS T-MOBILE US, INC. DEC 0.8 1.6 1.6 1.6 2.1 1.0 53.1 59.1 60.5 58.0 58.6 72.5 NM 507.0 473.6 413.8 309.0 NM

USM UNITED STATES CELLULAR CORPORATION DEC 2.0 2.2 2.2 1.6 1.4 1.5 30.5 30.7 31.3 25.3 20.4 18.7 213.4 190.6 176.3 221.2 212.7 207.2

Note: Data as originally reported. CAGR-Compound annual grow th rate. []Company included in the S&P 500. †Company included in the S&P MidCap 400. §Company included in the S&P SmallCap 600. #Of the follow ing calendar year. Souce: S&P Capital IQ.

Current Ratio Debt/Capital Ratio (%) Debt as a % of Net Working Capital

INDUSTRY SURVEYS TELECOMMUNICATIONS / JANUARY 2019 46

Ticker Company Yr. End 2017 2016 2015 2014 2013 2012 INTEGRATED TELECOMMUNICATION SERVICES T [] AT&T INC. DEC 9 – 7 21 – 16 15 – 13 30 – 26 11 – 10 31 – 23 41 91 76 148 53 141 6.4 – 5.1 6.0 – 4.6 5.7 – 4.4 5.9 – 5.2 5.8 – 5.0 5.4 – 4.6 ATNI § ATN INTERNATIONAL, INC. DEC 44 – 26 111 – 85 79 – 59 24 – 18 3 – 2 14 – 10 61 173 113 36 4 38 1.4 – 1.0 2.5 – 1.1 2.1 – 1.6 1.9 – 1.5 2.2 – 1.6 2.8 – 1.8 CBB § CINCINNATI BELL INC. DEC 42 – 28 11 – 7 2 – 2 13 – 9 NM – NM 1416 – 744 30 10 3 14 NM 93 0.0 – 0.0 0.0 – 0.0 0.0 – 0.0 0.0 – 0.0 0.0 – 0.0 0.0 – 0.0 CNSL § CONSOLIDATED COMMUNICATIONS HOLDINGS, INC. DEC 26 – 11 104 – 65 NM – NM 83 – 53 26 – 21 130 – 88 145 525 NM 414 201 959 14.8 – 11.4 11.8 – 5.5 8.4 – 5.2 8.2 – 5.4 8.4 – 5.4 10.4 – 8.0 FTR § FRONTIER COMMUNICATIONS CORPORATION DEC NM – NM NM – NM NM – NM 55 – 34 45 – 34 39 – 24 NM NM NM 302 354 292 0.0 – 0.0 26.1 – 0.0 13.5 – 7.3 9.3 – 5.0 9.1 – 5.6 10.5 – 8.0

VZ [] VERIZON COMMUNICATIONS INC. DEC 7 – 6 18 – 14 12 – 10 21 – 19 13 – 10 154 – 120 31 71 48 81 52 598 5.1 – 4.3 5.4 – 4.2 5.1 – 4.0 5.3 – 4.4 4.6 – 4.1 5.0 – 3.8

ALTERNATIVE CARRIERS CTL [] CENTURYLINK, INC. DEC 12 – 6 28 – 19 26 – 15 31 – 21 NM – NM 34 – 29 105 186 136 159 NM 233 15.6 – 10.7 15.9 – 7.9 9.7 – 6.6 8.8 – 5.3 7.7 – 5.2 9.0 – 5.7 CCOI § COGENT COMMUNICATIONS HOLDINGS, INC. DEC 411 – 291 130 – 91 366 – 240 2484 – 1716 33 – 18 NM – NM 1390 457 1245 5459 44 NM 4.8 – 3.7 4.6 – 3.4 5.0 – 3.4 5.7 – 3.8 4.6 – 1.4 2.1 – 1.5 IRDM § IRIDIUM COMMUNICATIONS INC. DEC 6 – 4 11 – 6 NM – NM 15 – 8 13 – 8 11 – 7 2 14 217 16 11 2 0.0 – 0.0 0.0 – 0.0 0.0 – 0.0 0.0 – 0.0 0.0 – 0.0 0.0 – 0.0 VG § VONAGE HOLDINGS CORP. DEC NM – NM 118 – 64 65 – 36 50 – 32 29 – 17 19 – 10 0 0 0 0 0 0 0.0 – 0.0 0.0 – 0.0 0.0 – 0.0 0.0 – 0.0 0.0 – 0.0 0.0 – 0.0

WIRELESS TELECOMMUNICATION SERVICES TDS † TELEPHONE AND DATA SYSTEMS, INC. DEC 24 – 18 81 – 54 15 – 12 NM – NM 24 – 16 38 – 26 45 151 28 NM 39 65 2.6 – 2.2 2.5 – 1.8 2.7 – 1.9 2.3 – 1.8 2.4 – 1.8 2.5 – 1.6 SPOK § SPOK HOLDINGS, INC. DEC NM – NM 31 – 23 6 – 4 20 – 14 12 – 9 12 – 8 NM 74 14 52 45 61 3.6 – 2.8 3.4 – 2.2 3.2 – 2.4 3.2 – 2.4 3.9 – 2.6 4.5 – 3.2

OTHER TELECOMMUNICATIONS CARRIERS ALSK ALASKA COMMUNICATIONS SYSTEMS GROUP, INC. DEC NM – NM 41 – 30 10 – 6 NM – NM 1 – 0 9 – 5 0 0 0 0 0 52 0.0 – 0.0 0.0 – 0.0 0.0 – 0.0 0.0 – 0.0 0.0 – 0.0 12.1 – 0.0 CCI [] CROWN CASTLE INTERNATIONAL CORP. (REIT) DEC 113 – 83 108 – 82 20 – 17 81 – 66 302 – 252 111 – 68 346 359 76 171 0 1 4.2 – 3.7 4.7 – 3.5 4.7 – 3.5 4.3 – 1.7 2.0 – 1.7 0.0 – 0.0 S SPRINT CORPORATION # MAR NM – NM NM – NM NM – NM NM – NM NA – NA NA – NA 0 0 0 0 0 0 0.0 – 0.0 0.0 – 0.0 0.0 – 0.0 0.0 – 0.0 0.0 – 0.0 0.0 – 0.0 SBAC [] SBA COMMUNICATIONS CORPORATION DEC 199 – 119 193 – 139 NM – NM NM – NM NM – NM NM – NM 0 0 0 0 0 0 0.0 – 0.0 0.0 – 0.0 0.0 – 0.0 0.0 – 0.0 0.0 – 0.0 0.0 – 0.0 TMUS T-MOBILE US, INC. DEC 13 – 10 34 – 20 52 – 32 114 – 80 640 – 318 NA – NA 1 4 8 0 0 NM 0.0 – 0.0 0.0 – 0.0 0.0 – 0.0 0.0 – 0.0 0.0 – 0.0 0.0 – 0.0

USM UNITED STATES CELLULAR CORPORATION DEC 323 – 233 81 – 60 15 – 12 NM – NM 29 – 20 37 – 26 0 0 0 0 0 0 0.0 – 0.0 0.0 – 0.0 0.0 – 0.0 0.0 – 0.0 0.0 – 0.0 0.0 – 0.0

Note: Data as originally reported. CAGR-Compound annual grow th rate. []Company included in the S&P 500. †Company included in the S&P MidCap 400. §Company included in the S&P SmallCap 600. #Of the follow ing calendar year. Souce: S&P Capital IQ.

2017 Price/Earnings Ratio (High-Low) Dividend Payout Ratio (%)

2017 Dividend Yield (High-Low, %)

2016 2015 2014 2013 20122016 2015 2014 2013 2012

47 TELECOMMUNICATIONS / JANUARY 2019 INDUSTRY SURVEYS

Ticker Company Yr. End 2017 2016 2015 2014 2013 2012 2017 2016 2015 2014 2013 2012 INTEGRATED TELECOMMUNICATION SERVICES T [] AT&T INC. DEC 4.77 2.10 2.37 1.24 3.42 1.25 (12.85) (16.12) (16.70) (9.05) (7.75) (6.48) 43.03 – 32.55 43.89 – 33.41 36.45 – 30.97 37.48 – 31.74 39.00 – 32.76 38.58 – 29.02 ATNI § ATN INTERNATIONAL, INC. DEC 1.94 0.75 1.05 3.01 19.71 3.13 32.41 34.62 37.27 37.26 35.52 15.93 87.82 – 49.50 84.29 – 62.70 83.80 – 60.64 73.55 – 53.25 58.10 – 35.63 45.62 – 30.63 CBB § CINCINNATI BELL INC. DEC 0.58 2.18 8.18 1.56 (1.60) 0.02 (13.17) (6.31) (10.53) (18.94) (21.91) (32.47) 24.45 – 16.05 25.65 – 14.00 20.80 – 14.25 20.65 – 14.70 28.20 – 13.10 29.45 – 15.50 CNSL § CONSOLIDATED COMMUNICATIONS HOLDINGS, INC. DEC 1.07 0.29 (0.02) 0.35 0.76 0.15 (10.97) (12.20) (11.14) (9.83) (12.37) (13.07) 27.88 – 12.07 30.23 – 17.76 28.37 – 18.27 28.81 – 18.31 19.89 – 15.83 19.92 – 12.97 FTR § FRONTIER COMMUNICATIONS CORPORATION DEC (25.99) (7.61) (4.41) 1.95 1.65 1.95 (86.86) (100.00) (34.60) (75.52) (52.49) (56.68) 57.30 – 6.08 87.75 – 46.50 126.90 – 62.85 108.60 – 66.00 75.30 – 55.65 80.55 – 45.90

VZ [] VERIZON COMMUNICATIONS INC. DEC 7.36 3.21 4.37 2.42 4.00 0.31 (20.77) (24.59) (25.30) (22.48) (23.53) (26.12) 54.83 – 42.80 56.95 – 43.79 50.86 – 38.06 53.66 – 45.09 54.31 – 41.50 48.77 – 36.80

ALTERNATIVE CARRIERS CTL [] CENTURYLINK, INC. DEC 2.21 1.16 1.58 1.36 (0.40) 1.25 (18.48) (19.36) (22.37) (21.59) (19.22) (18.07) 27.61 – 13.16 33.45 – 21.94 40.59 – 24.11 45.67 – 27.93 42.01 – 29.93 43.43 – 36.25 CCOI § COGENT COMMUNICATIONS HOLDINGS, INC. DEC 0.13 0.33 0.11 0.02 1.21 (0.09) (2.29) (1.19) (0.28) 1.86 4.18 3.52 54.85 – 37.85 43.61 – 29.65 40.48 – 25.84 43.50 – 29.70 41.25 – 22.79 23.77 – 14.50 IRDM § IRIDIUM COMMUNICATIONS INC. DEC 1.82 0.89 (0.09) 0.69 0.71 0.83 15.75 13.54 12.43 11.69 10.37 9.40 12.90 – 7.80 11.15 – 6.14 11.36 – 5.85 10.50 – 5.95 9.22 – 5.37 9.73 – 5.25 VG § VONAGE HOLDINGS CORP. DEC (0.15) 0.06 0.10 0.10 0.12 0.16 (0.42) (0.66) 0.04 0.34 0.74 1.37 10.57 – 5.74 7.57 – 3.82 7.42 – 3.74 4.96 – 3.10 3.93 – 2.30 3.16 – 1.63

WIRELESS TELECOMMUNICATION SERVICES TDS † TELEPHONE AND DATA SYSTEMS, INC. DEC 1.37 0.39 1.98 (1.26) 1.29 0.75 11.25 10.96 11.24 12.91 15.28 15.51 32.98 – 24.57 32.00 – 20.83 30.76 – 23.00 28.41 – 21.30 31.52 – 20.57 29.14 – 19.20 SPOK § SPOK HOLDINGS, INC. DEC (0.76) 0.68 3.74 0.96 1.25 1.20 7.43 8.68 8.69 5.75 5.15 4.06 22.60 – 14.45 21.85 – 15.49 21.73 – 15.26 19.50 – 12.93 15.79 – 11.10 15.20 – 10.34

OTHER TELECOMMUNICATIONS CARRIERS ALSK ALASKA COMMUNICATIONS SYSTEMS GROUP, INC. DEC (0.12) 0.05 0.25 (0.06) 2.78 0.38 2.92 3.07 3.02 2.72 2.68 (1.48) 2.91 – 1.60 1.97 – 1.30 2.58 – 1.50 2.70 – 1.18 3.90 – 1.55 3.73 – 1.73 CCI [] CROWN CASTLE INTERNATIONAL CORP. (REIT) DEC 1.01 0.95 4.42 1.04 0.26 0.64 (8.97) (5.13) (6.62) (6.50) (6.17) (10.74) 114.97 – 83.96 102.82 – 75.71 89.44 – 75.78 84.97 – 68.44 81.16 – 66.13 72.30 – 44.62 S SPRINT CORPORATION # MAR 1.81 (0.30) (0.50) (0.85) (0.15) (0.93) (5.99) (7.94) (7.89) (7.75) (7.77) (7.80) 9.65 – 5.42 8.98 – 2.18 5.45 – 3.10 10.69 – 3.79 11.47 – 5.61 0.00 – 0.00 SBAC [] SBA COMMUNICATIONS CORPORATION DEC 0.86 0.61 (1.37) (0.19) (0.44) (1.51) (53.22) (46.72) (43.28) (37.56) (23.59) (19.55) 173.97 – 102.06 118.57 – 82.80 128.47 – 100.12 122.79 – 87.03 92.21 – 66.68 71.17 – 42.53 TMUS T-MOBILE US, INC. DEC 5.20 1.69 0.82 0.30 0.05 (13.70) (17.11) (13.11) (11.82) (10.95) (8.44) (15.91) 68.88 – 54.60 59.19 – 33.23 43.43 – 26.46 35.50 – 24.26 34.10 – 16.01 0.00 – 0.00

USM UNITED STATES CELLULAR CORPORATION DEC 0.14 0.56 2.84 (0.51) 1.65 1.30 17.11 16.21 16.15 17.70 19.03 22.04 46.01 – 32.29 45.87 – 32.72 43.49 – 34.10 44.86 – 31.79 48.98 – 32.25 48.30 – 33.16

Note: Data as originally reported. CAGR-Compound annual grow th rate. []Company included in the S&P 500. †Company included in the S&P MidCap 400. §Company included in the S&P SmallCap 600. #Of the follow ing calendar year. Souce: S&P Capital IQ.

Earnings per Share ($) Share Price (High-Low, $) 2017 2016 2015 2014 2013 2012

Tangible Book Value per Share ($)

48 TELECOMMUNICATIONS / JANUARY 2019 INDUSTRY SURVEYS

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EXECUTIVE SUMMARY
INDUSTRY SNAPSHOT
INDUSTRY financial metrics
KEY INDUSTRY DRIVERS
industry trends
HOW THE INDUSTRY OPERATES
HOW TO VALUE A COMPANY IN THIS INDUSTRY
Glossary
Industry References
Comparative Company Analysis
Disclosures

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