2004 investment community meetinglibrary.corporate-ir.net/library/12/127/127149/items/214881... ·...

2004Investment Community MeetingFebruary 4, 2004Millennium Broadway Hotel, New York

2004 Investment Community Meeting

Cautionary Statement regarding forward-looking information

This news release includes “forward-looking statements” within the meaning of securities laws. The statements in this news release regarding the business outlook and expected performance as well as other statements that are not historical facts are forward-looking statements. The words “estimate,” “project,” “intend,” “expect,” “believe,” “target” and similar expressions identify forward-looking statements. Forward-looking statements are estimates and projections reflecting management’s judgment and involve a number of risks and uncertainties that could cause actual results to differ materially from those suggestedby the forward-looking statements. With respect to these forward-looking statements, Sprint has made assumptions regarding, among other things, customerand network usage, customer growth, pricing, costs to acquire customers and to provide services, the timing of various events and the economic environment. Important factors that could cause actual results to differ materially from estimates or projections contained in the forward-looking statements include:

- extent and duration of any economic downturn; - the effects of vigorous competition and potential consolidation in the markets in which Sprint operates; - the costs and business risks associated with providing new services and entering new markets necessary to provide nationwide or global services; - adverse change in the ratings afforded our debt securities by ratings agencies; - the ability of the PCS Group and the Global Markets Division to continue to grow a significant market presence; - the ability of the PCS Group and the Global Markets Division to improve profitability and reduce cash requirements; - the effects of mergers and consolidations within the telecommunications industry and unexpected announcements or developments from others in the

telecommunications industry; - the uncertainties related to bankruptcies affecting the telecommunications industry; - the impact to the PCS Group’s network coverage due to financial difficulties of third-party affiliates; - the uncertainties related to Sprint’s investments in networks, systems and other businesses; - the impact of any unusual items resulting from ongoing evaluations of Sprint’s business strategies; - the impact of new, emerging and competing technologies on Sprint’s business; - unexpected results of litigation filed against Sprint; - the possibility of one or more of the markets in which Sprint competes being impacted by changes in political or other factors such as monetary policy,

legal and regulatory changes including the impact of the Telecommunications Act of 1996 (Telecom Act), or other external factors over which Sprint hasno control; and

- other risks referenced from time to time in Sprint’s filings with the Securities and Exchange Commission (SEC).

Sprint believes these forward-looking statements are reasonable; however, you should not place undue reliance on forward-looking statements, whichare based on current expectations and speak only as of the date of this release. Sprint is not obligated to publicly release any revisions to forward-lookingstatements to reflect events after the date of this release. Sprint provides a detailed discussion of risk factors in periodic SEC filings, including its 2002Form 10-K, and you are encouraged to review these filings.


Non-GAAP Definitions

*Financial MeasuresSprint provides readers financial measures generated using generally accepted accounting principles (GAAP) and using adjustments to GAAP (non-GAAP). The non-GAAP financial measures reflect industry conventions, or standard measures of liquidity, profitability or performance commonly used by the investment community for comparability purposes. The financial measures used in this release include the following:

Adjusted Operating Income (Loss) is defined as operating income plus special items. This non-GAAP measure should be used in addition to, but not as a substitute for, the analysis provided in the statement of operations.

Adjusted EBITDA is defined as operating income plus depreciation, amortization and special items. This non-GAAP measure should be used in addition to, but not as a substitute for, the analysis provided in the statement of cash flows.

Free Cash Flow is defined as the change in cash and equivalents less the change in discontinued operations, debt, investment in debt securities and other financing activities, net. This non-GAAP measure should be used in addition to, but not as a substitute for, the analysis provided in the statement cash flows.

Net Debt is consolidated debt, including current maturities, and equity unit notes, less cash and cash equivalents. This non-GAAP measure should be used in addition to, but not as a substitute for, the analysis provided in the statement of cash flows.

ARPU (Average monthly service revenue per user) is calculated by dividing wireless service revenues by weighted average monthly wireless subscribers. ARPU is used to measure revenue on a per user basis. This is a measure which uses GAAP as the basis for calculation.


Reconciliation of Non-GAAP Liquidity Measures


P

Reconciliation of Non-GAAP Liquidity Measures


Earnings (Loss) Per Share

TransformationLen LauerPresident and Chief Operating Officer


Customer centric structure

Wholesale

Network IT

Wholesale Wholesale

Consumer Consumer Consumer

Business Business Business

PCS LD Local

Sprint Business Solutions

Network and IT

Corporate Staff

Sprint Consumer Solutions

Local Consumer Solutions

Business Consumer

Product CentricProduct Centric Customer CentricCustomer Centric

Network IT

Network IT

Corporate Staff


Customer centric organization overviewSBS SCS LCS

► Approx 80% / 20% wireline / wireless

► Approx 60% / 40% voice / data & internet

► Profitable growth

► Be the easiest to do business with

► Leader in integrated solutions

► Approx 90% /10% wireless / wireline

► Profitable growth

► Customer first culture

► Reduce operating costs

► Approx 80% / 20% local / long distance

► Grow share of wallet

► Cost management► Prudent capital

deployment

$12B revenues $12B revenues

Strategic Focus

$3B revenues


Expected Transformation benefits

► Faster decision making► Innovation► Lower cost► Increased employee

productivity► Competitive differentiation

Customers FON & PCS Shareholders

► Improved revenue performance► Reduced costs► Profitable growth► Greater share of customer wallet► Increased customer loyalty► Strong and energized brand

Accomplished with continued tracking stock transparency and integrity


Positioned for growth► Revenue growth faster than market in 2004

► Growth achieved through:• Leveraging our “Anchor” products: Mobile, Data, Internet & Any

Distance Voice

• Expanded distribution

• Customer focus and making it easier to do business with Sprint

• Innovation that is useful and differentiated

• Execution


Cost improvement is underway► At least $1 billion in annual savings by 2006:

• Extensive benchmarking of internal processes • Realistic target savings• Fast start

► Specific initiatives identified and are being tracked:• Sales / Marketing / Service• Billing / Credit & Collection• SCS Customer Care• Network• IT• Enterprise Wide


Cautionary StatementThe information highlighted in this presentation includes selected financial information and should be read in conjunction with our consolidated financial statements and notes and the Cautionary Statements Regarding Forward-Looking Information included in our press release dated February 3, 2004, which is posted on Sprint’s website at http://www.sprint.com/sprint/ir/fn/, as well as our consolidated financial statements and notes, the trends and risk factors affecting us and other information provided in our annual, quarterly and current reports, proxy statement, and other filings made with the Securities and Exchange Commission under Sections 13(a), 13(c), 14 or 15(d) of the Securities Exchange Act of 1934.This presentation includes "forward-looking statements" within the meaning of securities laws. The statements in this presentation regarding the business outlook and expected performance as well as other statements that are not historical facts are forward-looking statements. The words "estimate," "project," "intend," "expect," "believe," "target" and similar expressions identify forward-looking statements, which are estimates and projections reflecting management's judgments based on currently available information and involve a number of risks and uncertainties that could cause actual results to differ materially from those suggested by the forward-looking statements. Forward-looking statements speak only as of the date indicated. Sprint is not obligated to publicly release any revisions to forward-looking statements to reflect events after the date of any news release or unforeseen events. With respect to these forward-looking statements, Sprint has made assumptions regarding, among other things, customer and network usage, customer growth and retention, pricing, costs to acquire customers and to provide services, the timing of various events and the economic environment. Cautionary Statements Regarding Forward-Looking Information have been provided on page 3.This presentation contains certain non-GAAP financial measures for which reconciliations to the most directly comparable GAAP financial measures have been provided on pages 4 – 9.

FinancialsBob DellingerChief Financial Officer


Entering 2004 with a stronger foundation

► Introduced new products► Improved productivity and

integration across Sprint► Designed and launched

Transformation► Exceeded profitability and

cash flow goals in both stocks► Strong progress on financial

priorities► Strengthened relationship with

affiliates

Successes► Wireline Data and IP

revenue growth► Yield pressure► Wireless market-share► Significant write-offs

Challenges


Stocks outperforming telecom index

114%

-13%

16%

-16%

34%

-1%

-25%

0%

25%

50%

75%

100%

125%

1 Yr 5 Yr (Annualized)

PCS Dow Jones Total US Market Telecom S&P 500

1/31/03 –1/31/04 1/31/99 –1/31/04

PCS Group(Total Return)

48%

-14%

16%

-16%

34%

-1%

-25%

0%

25%

50%

75%

100%

125%

1 Yr 5 Yr (Annualized)

FON Dow Jones Total US Market Telecom S&P 500

FON Group(Total Return)

1/31/03 –1/31/04 1/31/99 –1/31/04


Financial priorities for 2004

EXECUTION is the Key!EXECUTION is the Key!

► Continue to de-leverage the balance sheet

► Maintain appropriate level of liquidity

► Meet Net Debt reduction goal

Increase Financial Strength and

Flexibility

► Key partnerships

► Strategic products and investments

Profitable Growth

► Operation expense reduction

► Employee productivity

Drive Productivity and Maintain or

Improve Margins


Adding financial strength and flexibility► Significant reduction in

Net Debt during 2003► Net Debt/Adjusted

EBITDA ratio of 1.9x -Target 1.6x

► 2004 debt maturities $600 million

► Equity units remarketing yields $1.7 billion Net Debt reduction

Net Debt Target - $13 billion

(Bill

ions

)

> 4.2

1.7

21.0 2.0

2.0

13.0

$8

$10

$12

$14

$16

$18

$20

$22

12/31/2002Net Debt

2003Reduction

EquityConversion

2004 FCF Target12/31/2004Net Debt

>4.2

1.7


Adding new sources of profitable growth

► Wireless Data► DSL► Complete Sense / Edge Out► Virgin Mobile and Qwest► IBM and other system integrators► Cable


Realistic and achievable cost target

► Plans in place to realize $1B reduction in annual costs by YE 2006• Project accountability and

tracking by senior leadership • Savings built into budget

► Significant actions and savings already announced

► Savings split roughly 60% PCS / 40% FON

(Mill

ions

)

Estimated Annual Savings

$0

$200

$400

$600

$800

$1,000

$1,200

2004E 2005E 2006E

Sales/Marketing/ServiceSCS Customer CareBilling/Credits & CollectionsNetworkITS


Detailed plan in place5 major areas + enterprise wide initiatives

41 major initiatives with over 100 specific projects

Enterprise Wide Initiatives► Business Process Redesign► Target State Architecture► Sourcing Consolidation► Span of Control► Modify Benefit Plans to Achieve

Parity

Sales, Marketing, Service► Service Efficiency► Handset Logistics & Inventory

Network Opportunities► Access Management Initiatives► Facilities Cost Management► Service Assurance► Network Inventory

Billing/Credit & Collection► eBPP► Remittance Channel Optimization► Reduce Number of Billing Applications► Leveraging Receivables Management

IT Opportunities► Application Development

Outsourcing► Maintenance Costs► Infrastructure Rationalization

SCS Customer Care► IBM Co-sourcing


Continuing efficiency gains► Improved revenue per employee by 10 percent► Continued focus and gains in productivity► Expense to Revenue ratio improved► Transformation focused on revenue growth and

cost improvement

2001 2002 2003 2004E

CSP + SGA / Revenue 78% 72% 70% 68-70%

Rev / Employee (000's) $299 $346 $380 $410-430


Guidance - Revenue

Mid-single digit decline$8.0BGMG

Low-single digit decline$6.1BLocal

Low to Mid single digit

decline$14.2BFON

2004E2003High-

single digit growth

$11.5BPCSServiceRevenue

2004E2003

► GMG consumer revenues continue to be pressured

► Stability in ARPU with continued subscriber growth and gains in wholesale


Guidance – Adjusted Operating Income

Flat$0.1BGMGMid-single digit decline$1.8BLocal

$1.2B – $1.3B$0.9BPCS$1.75B - $1.85B$1.9BFON

2004E2003

► Local impacted by increased pension and retiree health care benefit costs, termination of LNP recovery

► PCS operating income improvement as business scales


Pension / OPEB updatePlan Assumptions Pension / OPEB Expense

► Incremental 2004 Impact of $80M

• Affects primarily Local

• Minimally impacts PCS

► Lowering discount rate and plan return assumptions

► Increase in pension asset value► Pension plan funding:

• $400M in 2003 - Funded 7/03• $300M in 2004 - Funded 1/04• $300M in 2005• $300M in 2006

► Associated cash tax benefit• $370M in 2005• $110M in 2006

► Net cash requirement of $820M over four-year period


Guidance – Adjusted EBITDA

$1.4B - $1.5B$1.56BGMG$2.8B - $2.9B$2.93BLTD

$3.8 - $3.9B$3.43BPCS$4.3B$4.45BFON

2004E2003


Guidance – Capex

$1.0B$1.2BLTD$0.5B$0.3BGMG

$0.1B$0.2BCorp

$2.4B$2.2BPCS$1.6B$1.7BFON

2004E2003

► Depreciation exceeds capital expenditures


Guidance – Adjusted Earnings Per Share

($0.18) - ($0.13)($0.42)PCS

$1.37 - $1.42$1.46FON2004E2003

► FON Group – ($0.02)► PCS Group – ($0.01)

► FON Group – ($0.05)► PCS Group less than ($0.01)

Stock Compensation Pension / OPEB

Incremental 2004 Impact


Guidance – Free Cash Flow

Sprint Corporation Free Cash Flow

Cash from operationsCapital expenditures/InvestmentsFree Cash Flow

Cash from operationsCapital expendituresDividendsOther

Free Cash Flow

$2.0B$2.3BSprint

$2.9B(2.4)

$0.5B

$2.5B(2.2)

$0.3BPCS

$3.6B(1.6)(0.5)

-$1.5B

$4.0B(1.7)(0.5) 0.1

$2.0B

FON

2004E2003

► FON Free Cash Flow impacted by higher taxes & lower Adjusted EBITDA► PCS Free Cash Flow grows from higher Adjusted EBITDA offset by higher

capital expenditures


Long-term Guidance

► Strong Free Cash Flow production at FON and PCS► PCS earnings positive for full year 2005

FON 2005 PCS 2005

Adjusted EBITDA Low single digit growth Adjusted EBITDA Low double digit

growth

Free Cash Flow $1.5B Free Cash Flow $1.7B

Capex Around 2004 Levels Capex Around 2004 Levels

Adjusted EPS High single/Low double digit growth Adjusted EPS $0.20 - $0.30


Q&APanel Q&A

• Gary Forsee – Chairman and CEO• Len Lauer – President and COO• Bob Dellinger – CFO

Sprint Consumer Solutions / PCS GroupLen LauerPresident and Chief Operating Officer


Consumer needs are changing

Video

Data

LD

Local

LongDistance

Wireless

Local

Wireless

Bundles

TimeTime

Pers

onal

Inte

grat

ed

Com

mun

icat

ions


Positioned for sustainable value creation

► Direct share of decisions► Customer satisfaction► Consumer LD revenue

► Wireless data leadership► Customer retention► Strategic partners► ARPU► Free Cash Flow► Handset innovation► Complete Sense► WLNP

ChallengesSuccesses


Strategic focus elevates competitiveness

EXECUTION is the Key!EXECUTION is the Key!

► Improve customer experience at all touch points

► Network► Customer

Care► Sales

Customer FirstCulture

Customer First Culture

► Improve margins

► Increase operational efficiency

► Strategic co-sourcing

Reduce Operating

Costs


Profitable Growth

► Market-ready innovation

► Wireless data

► Strategic relationships

► Distribution channels


Reinforcing the top line► Transition ARPU to MRC

► Market ready innovation

► Grow share of wallet

► Multiple products mean lower churn

► Increase cross selling productivity

$0

$10

$20

$30

$40

$50

$60

$70

2001 2002 2003

1Q 2Q 3Q 4Q


Differentiation through market-ready innovation

► Right choice in CDMA technology► Ubiquitous, high quality, 100%

digital network► Robust service delivery► Culture built around innovation

ReadyLinkReadyLink

2003 Success!2003 Success!

MobiTVMobiTVVideoMailVideoMail

PictureMailPictureMail

2004 2004 -- You haven’t seen anything yet!You haven’t seen anything yet!Streaming Video Integrated ServicesStreaming Video Integrated Services


Extending our wireless data leadership

► 5.5 million data subscribers► Exited 2003 with data ARPU

over $3► $500 million in annualized data

revenue ► Year of Vision!

2003► Continue to deliver industry

leading products and services► Data ARPU approaching $5

by year end► Upgrade to next generation

HSD when customer needs support it

2004

Wireless Data Impacting Results

$0

$2

$4

$6

$8

$10

$12

1Q03 2Q03 3Q03 4Q03Vision ARPU from Vision subscribersData Contribution to PCS ARPU


Strategic relationships add growth and scale► PCS is becoming the best

partner for MVNO’s► Nearly 4.5 million total

subscribers• Added nearly 1.5 million

subscribers in 2003

► Qwest Wireless joins network in 1Q04

► Significant contributor to overall growth in 2004

Total Strategic Relationship Subscribers(millions)

2

3

4

5

4Q02 1Q03 2Q03 3Q03 4Q03

Net Additions


Expanding reach through VirginVirgin Mobile

► Differentiated and complementary• Youth target market• Pay-as-you-Go product

► Continued strength in 2004• Minimal capex requirement• Leverage strong distribution

► Earnings dilution expected to end in 2004

Virgin Mobile(million)

0.0

0.5

1.0

1.5

2.0

4Q02

1Q03

2Q03

3Q03

4Q03

Total Subscribers Net Additions


Customer focus improves share of decisions► 2004 share of decisions

targeted in mid-teens• Industry gross adds of

45 – 50 million

► Customer acquisitions driven by:• Growth in distribution channels• Customer base management• Differentiated products• Sharpened marketing position• Improved customer touch

points

Increase Direct Distribution Channel

0

200

400

600

800

1,000

4Q02

1Q03

2Q03

3Q03

4Q03

2004

E

Sprint PCS Stores & Kiosks


Improving customer touch points

► Customer focused network build philosophy

► 30%+ improvement in drops and blocks in 4Q03 verses 4Q02

► Nearly 35% increase in total MOUs in 2003

► Accelerating cell site additions in 2004

Network Customer Service► Launched rep level CSAT scoring► Implemented segmentation-based

support► Reduced executive complaints► Extended approximately

1M contracts in Nov and Dec► Executed in WLNP environment► Launched and supported new products► Increased up-sell rate to nearly 10%► Co-sourcing arrangement


Growing the business profitably

$1.0

$1.5

$2.0

$2.5

$3.0

$3.5

$4.0

$4.5

2001 2002 2003 2004E

(Bill

ions

$)

0%

5%

10%

15%

20%

25%

30%

35%

Adjusted EBITDAAdjusted EBITDA Percent of Service Revenues

► Adjusted EBITDA percent of service revenue over 30% in 2004

► Acquisition expenses reflect additional direct locations and subscriber growth

► Other operating expenses benefit from scale and Transformation initiatives

PCS Adjusted EBITDA


Q&APanel Q&A

• Len Lauer – President and COO

• John Garcia – Senior Vice President – Sales / Distribution

• Tim Kelly – Senior Vice President - Marketing

• Steve Nielsen – Senior Vice President - Finance

Sprint Business Solutions / GMGHoward JanzenPresident


Significant achievement in a difficult business environment

► Cash generation: Adjusted EBITDA exceeded capital by $1.2B – highest level since the 1990s

► Revenue and margins trending favorably compared to competitors

► Transformation ► Cable and systems integrator

agreements► Strong capital and expense controls

Successes

► Increased competition► Aggressive pricing environment► Slow ramp in enterprise demand

Challenges


Outperforming our peers and gaining momentumYoY Revenue Growth

-16%

-12%

-8%

-4%

1Q03 2Q03 3Q03 4Q03 2004E

GMG AT&T MCI

2004

Gui

danc

e

Voice► Improving retail mix► RBOC competition forcing volume

discounts down market► Aggressive pricing in high-end market

Data► Strength in traditional services► Continued pricing pressure► Transition costs stabilize growth► Web hosting exit challenges year-over-

year comparisons

2004 Outlook(E)


Opportunity for a better approach to the market

Complex, disaggregated components Poor support from carriers

Satisfaction scores(top domestic carriers)

Wireless Wireline

Local Long Distance

ApplicationsVoice Data

Mean: 44Range: 34 - 51


Strategy will drive capability-based advantages

Deepen Relationships with Customers to Grow

Revenue and Profits

►Grow share of wallet within the base

►Grow the base►Focus on system

integrator, cable, new local, and wholesale opportunities

►International expansion

Be the Leader in Wireless, Wireline

Integrated Solutions

► Introduce innovative wireless, wireline, and integrated solutions

► Develop vertical market solutions

► Leverage alliance expertise and solution components

Be the Easiestto do Business With

► Make loyalty easy for customers

► Shift culture to a customer focus

► Link processes and systems to customer impact

Strategic Priorities


Organization is built around customer needs

Targeted, named accounts►Federal government►State governments

Specific account assignment to direct sales force

~ 25% of SBS revenue

“Mid”, “Small”, SOHO►Local Government

Geo assignment of direct sales force


Marquee accounts; complex needs►International►System Integrators►Wholesale►Cable ventures

Served with dedicated account teams with “special attention”


Strategic Enterprise Emerging & Mid

Product, Operations, and Support Functions

Sales & Marketing Sales & Marketing Sales & Marketing


Simplifying customer touch points and processes

Long Distance

SalesLocal Sales

WirelessSales

DataSales

SALESLong Distance, Local,

Wireless, Data

Sprint’s ability to create solutions across product boundaries is unmatched in the industry

►Our customers have a single point of contact for sales and service

►Our service and support processes are specifically engineered for each business segment to maximize customer loyalty


Building unique, integrated solutions

►Only Sprint will offer access to corporate information over dial, PCS, and WiFi

►Single Connection Manager

► Wireless-to-wireless calls currently pass through expensive RBOC tandem facilities

► Sprint spear-heading creation of wireless peering coalition

► Sprint uniquely positioned to provide peering network

• Anchor tenant traffic• Dense nationwide network• Local + long distance + wireless

Remote Access Solutions Wireless Peering Network


Leveraging alliances will expand our market presence

System Integrators Cable Providers► Avenue to develop new

customer relationships► Roughly two-thirds of all

outsourcing deals include some network elements

► About 15% of all IT outsourcing deals include total network outsourcing

► Opportunity for rapid growth in wholesale long-distance revenue

► Sprint partnership uniquely fills out cable bundle to fully match RBOC consumer offers

• Local/LD voice• Global IP backbone• Wireless

► Bundled offers improve customer retention


Our global reach is growing even more robust

► Expansive global data backbone touches 5 continents► First to provide OC-192 transatlantic capabilities ► Over 75,000 route miles of fiber

ProductsVoice Termination

International Private LineIP

Frame RelayGlobal ATM

Presence250+ Countries 120+ Countries

100 Countries; 1,100 POPs70 Countries

50+ Countries


Targeting investments to enable capabilities

2004 Global Markets Capital

Strategic Investment Core Network

Build Next Generation Voice Network

Expand local offerings via UNE-P, L

Support strategic alliances


Continuing to aggressively manage costs

CSP & SGA

$0

$2,000

$4,000

$6,000

$8,000

$10,000

2001 2002 2003

(millio

ns)

►Access cost reductions►Efficiency gains►Tightened spending

controls►Product rationalization

Adjusted EBITDA Margin

12%

20%

26%

0%5%

10%15%20%25%30%35%

2001 2002 2003GMG AT&T MCI(E)


We’ve set focused execution targets►Continue enterprise wins – grow market share

►Generate incremental business through systems integrator and cable alliances

►Improve customer satisfaction metrics

►Leverage wireless integration to drive solutions evolution

►Expand ability to offer national local service


Sprint is uniquely positioned to destroy legacy industry barriers that hinder the success of our business customers.


Q&APanel Q&A

• Howard Janzen – President, Sprint Business Solutions• Paget Alves – President, Strategic Markets• Mark Bowser – President, Enterprise Markets• Harry Campbell – President, Emerging & Mid Markets• Mike Upchurch – Senior Vice President, Finance

Local ConsumerSolutions / LTDMike FullerPresident


Snapshot of the Local Division► Nation’s largest non-RBOC

operating company, serving 5%of U.S. households

► Operates in 18 states► 2003 revenue of over $6.1B► 2003 Adjusted EBITDA exceeded

capital outlays by $1.7B

Competitive Strengths Strong margins

Broad product portfolio

Diverse footprint

Operational excellence

Areas of Momentum Bundles

DSL

Edge out

Circuit to packet conversion


Access line erosion has stabilizedAccess Line Y-O-Y Change by Line Type

(250)

(200)

(150)

(100)

(50)

-

50

100

150

200

1Q01

2Q01

3Q01

4Q01

1Q02

2Q02

3Q02

4Q02

1Q03

2Q03

3Q03

4Q03

(thou

sand

s)

-3%

-2%

-1%

0%

1%

2%

3%

Residential Primary Business Residential Secondary Wholesale Grow th (right scale)


Network traffic declining on wireless substitutionAccess Minutes of Use

7.2

7.6

8.0

8.4

8.8

9.2

9.6

1Q01 2Q01 3Q01 4Q01 1Q02 2Q02 3Q02 4Q02 1Q03 2Q03 3Q03 4Q03

(billio

ns)

Consumer Long Distance Minutes of Use

0.0

0.4

0.8

1.2

1.6

1Q01 2Q01 3Q01 4Q01 1Q02 2Q02 3Q02 4Q02 1Q03 2Q03 3Q03 4Q03

(billio

ns)


Five years of success in long distance and feature sales

Vertical Feature Revenue

$200

$400

$600

$800

$1,000

1999 2000 2001 2002 2003

(millio

ns)

Long Distance PIC Share in Local Territory

20%

30%

40%

50%

1999 2000 2001 2002 2003


DSL growth is accelerating

DSL Revenue

$0

$10

$20

$30

$40

$50

1Q01 2Q01 3Q01 4Q01 1Q02 2Q02 3Q02 4Q02 1Q03 2Q03 3Q03 4Q03

(millio

ns)

DSL Lines in Service

-50

100150200250300350

1Q01 2Q01 3Q01 4Q01 1Q02 2Q02 3Q02 4Q02 1Q03 2Q03 3Q03 4Q03

(thou

sand

s)


Sales success and cost management supporting margins

► Service efficiency through automated channels

► Load reduction through ticket screening processes

► Productivity improvement through technology deployment

Adjusted Operating Margin

0%5%

10%15%20%25%30%35%

2001 2002 2003


A traditional approach will not support long-term growthUS Consumer Communications

(by provider)

$0

$50

$100

$150

$200

2003 2006E

(millio

ns)

CLEC, ISP

Wireless Prov iders

Cable, DBS

Long Distance Prov iders

Local Telcos

► Consumer communications spending is expected to grow by 2% per year, but cable will capture most of that growth

Integrated Local Telcos(by product)

$0

$20

$40

$60

$80

2003 2006E

(millio

ns) Internet

Wireless

Long Distance

Local

► Local telephone company revenue will decline


We must expand our view of the addressable marketLocal Division Consumer Revenue

$0

$2

$4

$6

$8

$10

$12

2003 Revenue 2003 Market

(billio

ns)

VideoInternetWirelessLDLocal

► Today, the local division captures one-third of a $10B market► Our opportunity is share-of-wallet growth in DSL, wireless and video

Share of wallet potential


Simple, more integrated bundles will drive future success

DSL Wireless Video► Market-based

pricing

► Expanded coverage

► Targeted promotions

► Satellite video bundles

► VOD trials over ADSL

► Broadcast video trials over FTTP

► Integrated wireless/ wireline service

► One voice mailbox

► Free family calling

► Shared wireless/ wireline long distance

One BillOne Point of Contact for Service


Managing capital to market conditions

Local Division Capital S pending

$0

$500

$1,000

$1,500

1999 2000 2001 2002 2003 2004E

(milli

ons)

Co re S trate g ic P ro je c ts

Capital Management Initiatives:► Tighter capacity margins► Shorter planning horizons► Equipment redeployment► Circuit-to-packet conversion► Fully funding strategic projects


Our long-term expectations are aggressive and achievable

► Growth trajectory• Increased share of wallet• Higher penetration in wireless• Greater than 50% share of net adds in broadband• Meaningful video share

► Provider of choice• Full breadth of product capabilities• Highest quality customer service and product reliability

► Superior financial returns• Growth in revenue and earnings• Continued industry leadership in margins and returns


Q&APanel Q&A

• Mike Fuller – President, Local Consumer Solutions• Jim Hansen – Senior Vice President, Network• Tom McEvoy – President, Consumer Markets• Rick McRae – Senior Vice President, Finance

Information Technology ServicesMike StoutExecutive Vice President, CIO


Drivers for IT transformation

PCS

4 Disparate IT Organizations

LocalLongDistance

IT Operations

Each with their own:► Legacy environments► Work force► Customer base► Strategies► Budgets► Processes► Technologies


Continuing the progress from 2003

► Further reduce cost of IT► Drive revenue generating

innovation► Reduce multiplicity of systems► Increase speed to market

ChallengesSuccesses► We are One IT► Created business driven

strategy► Defined target state

architecture► Reduced IT expenses by

nearly $200M► Signed outsourcing contracts► Aligned billing systems► Developed strategic alliances ► Increased stability


Strategies to create value

► Target state architecture

► Simplify platforms► Technology

partners► Stability


Streamline IT Efficiency

► Reduce IT spend > $200M by 2006

► Complete outsource commitments

► > 25% reduction in development cost

► Software & hardware rationalization

► Reduce maintenance cost


Remove Cost from the Business

► Sales enabler• Engaged in sales

process• Showcase Sprint

products• Alliances

► Facilitate BPR► Product innovation► Web enablement► System flexibility


Improve the Customer

Experience


Transformation is about the customerCustomer Value

Taking cost out of IT allows for investment in innovation and creation of revenue generating products and services

► Ease of use► Improved customer

service► New products /

services► Flexible rate plans &

billing

IT Productivity

Best InClass IT

• Target state architecture

• Partnerships and alliances

• Simple, flexible platforms

• Innovation

Success through Execution

Network ServicesKathy A. WalkerExecutive Vice President


Unmatched in the industry► The only company with all the assets

• Wireless• Wireline• Local• Long Distance• Voice• Data• Domestic • International

WirelessAccess

Local Exchange and Inter Exchange

Global Network

Infrastructure

Wireless Access

Wireline Access

Voice And Data


Transformation - One Network in 2003ChallengesSuccesses

► Service unit cost► Agility► Customer-perceived quality► Network security

► Organization redesign► Expense savings► Capital management► Quality improvements► New product launches► Product trials


Multiple opportunities for expense savings► Access management► Service delivery process

improvement► Service assurance quality► Operations workforce

management► Facilities cost management► Network spares management

$0

$100

$200

$300

2004 2005 2006

Transformation Savings

$ M

illio

ns


Winning technology strategiesOp

erat

iona

l Sup

port

Syst

em In

tegr

atio

n Voice over Packet

Next Generation Voice Network

Metropolitan Expansion

Next Generation Wireless Network

Enhanced Mobile Devices

Core and Edge Convergence

Services and applications

Signaling and control

Switching and routing

Transport

Access

Devices and customerpremise equipment


50%

30%

20%

Capacity Growth Innovation

Investing in the future - PCS capital plan

► 2004 Capital requirement of $2.4 Billion• Investing in capacity and performance• Investing in growth • Investing in innovation

2004 Capital


Differentiation through useful innovation

► Committed to continue leadership in wireless data ► Focusing on customer demand► Meeting today’s needs► Looking to tomorrow

Wireless Broadband


Investing in the future - GMG capital plan

► 2004 capital requirement of approximately $500 million• Maintaining our network• Investing in new growth• Investing in innovation

$-

$300

$600

$900

2002 2003 2004$

mill

ions

Data InternetVoice CommonStrategic

Capital Trend



A strategic investment

VoIP

► Today’s technology► Emerging roadmap► Taking it to the future

LocalLD Wireless


Executing with all the right piecesOne Network

Network Capabilities

Technology Innovation

Operational Excellence

Process Transformation

Customer Focus and Shareholder

Value


Q&APanel Q&A

• Mike Stout – Executive Vice President, CIO

• Kathy Walker - Executive Vice President, Network Services

• Oliver Valente – Vice President, Technology Development

2004 investment community meetinglibrary.corporate-ir.net/library/12/127/127149/items/214881... ·...

Documents