1 state of industry blair levin managing director stifel nicolaus (202) 778 1595 [email protected]...

1

State of Industry

Blair LevinManaging DirectorStifel Nicolaus(202) 778 [email protected] Rural Cellular Association

September 22, 2006St. Louis, Missouri

All relevant disclosures and certifications appear on page 28 of this report.

2

Overview

Big Picture Trends Political/Regulatory Trends Specific Policy Issues Affecting Rural

Wireless Carriers

Blair Levin September 22, 2006

3

Big Pictures Trends

Wireless Migration Three Trends and Train Wreck

– Restructuring through mergers and sales– Redefinition of Production through Bundles– Broadband Based Unbundling and Innovation– Rewriting Regulation


4

Wireless Migration

Key investment decision of 1990’s What’s going up/What’s going down Demographics makes it more so

Big Picture Trends


5

The Happy Story of Wireless

Source: Stifel Nicolaus Regulatory Research and Federal Communications Commission

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6

Restructuring Through Mergers and Sales

Restructuring of big companies to take advantage of economics of scale and scope in high-density, high-spend areas in an effort to be growth vehicles

Sale of profitable assets that do not fit into growth opportunities in an effort to be cash-generating (dividend) vehicles

Consolidation of adjacent market segments

Big Picture Trends


7

Implications

All small players have to figure out where they want to end up in the game of musical chairs

In game of musical chairs, it is possible to lose

Technology could make today’s good decisions problematic in the future

Big Picture Trends


8

Redefinition of Product Through Bundles

Bundling as a way to achieve economies of scope

Bundling as a way to achieve sustainable competitive advantage

Bundling as a way to hold back new competition from edge-based providers

Big Picture Trends


9

Implications

Bundling favors multi-product incumbent networks

Bundling hurts CLECs, independent wireless, ISPs, edge-based competitors

Bundling increases value of certain strategic, unique assets

Big Picture Trends


10

Broadband Based Unbundling and Innovation

Broadband restructuring networks as we knew them

Broadband as the new Sections 251/252 Broadband as the driver of innovation cycles

Big Picture Trends


11

Cable

Multichannel Video

IXC NetworkVoice Service

Local Access ILEC Network

ISP

Modem Bank

Narrowband Internet

Internet Cloud Internet Cloud

Central Office

Cable Headend

The Market in 1994: One Network, One Offering One Service, Terminating in One Device

Source: Stifel Nicolaus Regulatory Research

12

Cable

Local ILEC

Wireless

Voice Video Data

Voice Video Data

Voice Video Data

Satellite

Voice Video Data

The Emerging BroadbandMarket Multiple Networks Delivering Multiple Services to Multiple Devices

Source: Stifel Nicolaus Regulatory Research

13

Implications

Shifts value to equipment and software over network services

Threatens existing pricing power for all incumbent networks– All time and distance charges at risk– All high margin charges at risk– Core access revenues not so much at risk until

new, ubiquitous networks arrive

Big Picture Trends


14

Rewriting Regulation

Rethinking classification Rethinking universal service Rethinking inter-carrier classification Rethinking government fees Rethinking the level playing field Rethinking the thing no one wants to think

about

Big Picture Trends


15

What Are Competitors Up To?

Big Wireless Cable Satellite Municipal broadband Wireless broadband technologies Edge applications

Big Picture Trends


16

Political/Regulatory Trends

Election prognostication General approach to telecom/tech issues Impact of industry restructuring on telecom

politics



17

Specific Issues Affecting Rural Cellular Carriers

Mergers and Bell line sales Intercarrier compensation Universal service Spectrum Unfunded mandates Numbering Local calling areas Interconnection Special access Poll attachments

Specific Policy Issues


18

Mergers and Bell Line Sales

AT&T/BLS Bell line spin offs



19

Intercarrier Compensation

Missoula Plan Continuing payment dispute Phantom traffic



20

Universal Service

Contribution– Safe harbor– Numbers-based systems

Distribution– ETC status– Payment basis– Reverse auctions



21

Spectrum

700 MHz auction Cyren call Verzion M2Z



22

Unfunded Mandates

Emergency Alert System (EAS) E911 Hearing Aid Compatible Devices



23

Numbering

Access to local numbers T-Mobile petition



24

Local Calling Areas

Size of local calling areas State issue



25

Interconnection

Neutral tandem petition Cable industry effort Qwest Challenge



26

Special Access

Issue will grow, particularly as consolidation solidifies and prices rise

Not likely to be subject to greater legislation Key business question: when will wireless

offer alternative?



27

Poll Attachment

Key asset still No government action likely



28

Important Disclosures and Certifications

I, Blair Levin, certify that the views expressed in this research report accurately reflect my personal views about the subject securities or issuers; and I, Blair Levin, certify that no part of my compensation was, is, or will be directly or indirectly related to the specific recommendation or views contained in this research report.

The information contained herein has been prepared from sources believed to be reliable but is not guaranteed by us and is not a complete summary or statement of all available data, nor is it considered an offer to buy or sell any securities referred to herein. Opinions expressed are subject to change without notice and do not take into account the particular investment objectives, financial situation or needs of individual investors. Employees of Stifel, Nicolaus & Company, Inc. or its affiliates may, at times, release written or oral commentary, technical analysis or trading strategies that differ from the opinions expressed within. Stifel, Nicolaus & Company, Inc. is a multi-disciplined financial services firm that regularly seeks investment banking assignments and compensation from issuers for services including, but not limited to, acting as an underwriter in an offering or financial advisor in a merger or acquisition, or serving as a placement agent in private transactions. Moreover, Stifel Nicolaus, its shareholders, directors, officers and/or employees, may from time to time have long or short positions in such securities or in options or other derivative instruments based thereon. These materials have been approved by Stifel Nicolaus Limited, authorized and regulated by the Financial Services Authority (UK), in connection with its distribution to intermediate customers and market counterparties in the European Economic Area. (Stifel Nicolaus Limited home office: London +44 20 7557 6030.) No investments or services mentioned are available in the European Economic Area to private customers or to anyone in Canada other than a Designated Institution. This investment research report is classified as objective for the purposes of the FSA requirements relating to Conflicts of Interest management. Additional information is available upon request. Please contact a Stifel Nicolaus entity in your jurisdiction.

Additional information is available upon request

© 2006 Stifel, Nicolaus & Company, Incorporated 100 Light Street Baltimore, Maryland 21202

1 state of industry blair levin managing director stifel nicolaus (202) 778 1595 [email protected]...

Documents

growth opportunities

train wreckrestructuring

happy story of wirelesssource

advantage of economics

comrural cellular association

implicationsall small