nibc 2016 _ undergraduate _ ubcpmg _ pdf

Business Summary

• Market leader with a well established brand & presence.

• DirecTV’s acquisition to allow for offering of high quality

products , service and cost/selling synergies.

Business Segment’s as of 2015 :

• Business Solutions: Wireless and wired.

• Entertainment & Internet Services: High-speed internet,

video and voice services.

• Consumer Mobility: Voice & Data services for consumers

and wholesalers.

• International : Latin America & Mexico expansion.

Present Situation �� Currently faced with Increasing

competition from all fronts, from cost cutting, spectrum wars to

continual innovation by competitors.

Journey to 2020 �� Establish a Market leadership position by

increasing connectivity through M&A, cost synergies via

amalgamation of cross-business expertise and scale economies.

Business Segments by Revenue – 2015 Onwards

Financial Summary (Q3 2015)

Key Statistics (as of 1st Nov 2015)

P/E Ratio 13.27

Share Price ($) 33.21

Recent Dividend ($/share) 0.47

Dividend Yield 1.41%

Total Revenue LTM (in millions) $139,121

Market Capitalization (in millions) $204,275

Nine Months Ended Sep. 30 2014 2015

Net Income: $10,654 $9,601

Cash from Operating Activities: $25,594 $26,695

Time Interest Earned: 29.14 29.37

Debt-to-Equity 0.84 0.97

2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

Revenue $ 124,280 $ 126,723 $ 127,434 $ 128,752 $ 132,447 $ 165,405 $ 170,069 $ 174,388 $ 179,142 $ 184,716 $ 191,809

EBITDA $ 42,327 $ 40,966 $ 41,134 $ 41,061 $ 40,795 $ 49,542 $ 51,394 $ 53,168 $ 55,580 $ 57,296 $ 59,885

Gross Margin 34% 32% 32% 32% 31% 30% 30% 30% 31% 31% 31%

• Focusing on minimizing churn – many customers are switching to T-Mobile

• AT&T committed to a firm pricing strategy and will not be “chasing customers”

• Equipment revenues are increasing at a strong pace

Value Proposition: Provide integrated, high qualitytelecommunication solutions with high speeds andstrong customer service

Value Proposition: Provide integrated, high qualitytelecommunication solutions with high speeds andstrong customer service

Profit Formula : Charging a price premium foraccess to high quality, high speed networks with afocus on differentiation

Profit Formula : Charging a price premium foraccess to high quality, high speed networks with afocus on differentiation

Key Resources: Strong telecommunicationinfrastructure, well established brand with over adecade of history & cross-segment employee skillbase

Key Resources: Strong telecommunicationinfrastructure, well established brand with over adecade of history & cross-segment employee skillbase

Key Capabilities : Ability to synergize operationsbetween its wireless, wire-line and satellitenetworks, with access to capital at competitivelylow industry rates

Key Capabilities : Ability to synergize operationsbetween its wireless, wire-line and satellitenetworks, with access to capital at competitivelylow industry rates

Core Competence : Leveraging its economies ofscale to provide high quality connectivity solutionsto its massive customer base

Core Competence : Leveraging its economies ofscale to provide high quality connectivity solutionsto its massive customer base

DirecTV gives AT&T a buffer from declining market share in its Wireless and Wire-line segments.

-6 -4 -2 0 2 4 6 8

Wireless

Wireline

Broadband Connections

Video Connections

U-Verse Internet

Net Subscriber Additions (In Millions)

33.673

16.028

0.483

5.943

Other Wireless Customers

Broadband Connections

Video Connections

U-verse Video

Number of Subscribers (In Millions)

• AT&T has the opportunity to cut costs through synergies between

recently acquired business segments (DirecTV, Leap Wireless)

• Our reasoning for our direct play on international markets is that

smaller acquisitions will enable us to cut costs through synergies

with AT&T’s currently owned assets and infrastructure in place

• Upcoming cost synergies are arising from the DirecTV sales

through auxiliary departments like installations, payroll and

customer service

• Cross-selling synergies through product offering overlap creating

greater value for customer and more ARPU for AT&T.

• Synergies with employees and management will also provide the

opportunity for lowering bottom line costs, therefore increasing

operating margins in the long run

Ratio Value

Current 0.86

Quick 0.62

Cash 0.23

• $49 billion dollar acquisition

• Assumed $19B in long term debt.DirecTV

• Rising in the short term

• Still below 100 at 87.6% but industry is trending higher.

Debt-to-Equity

• Interest Expense of $3.6B

• Able to pay off interest 11.29x’s with EBITIDA (2014)

• 6.2x interest coverage (EBIT)

Interest Coverage

• 5%

• $10B total available line of credit

• Currently not being used

Revolving Debt Facility

Agency Rating

Moody Baa1

S&P BBB+

Fitch A-

Current Debt Type Profile

The company has debt capacity moving

forward in the medium and long term

• C suite management has accumulated $40m in stock � continuing to buy shares

• Total insider shares held: 2.95 million (0.04797%)

• Number of transactions for share purchases heavily outweigh the number of transactions for shares sold by

insiders in the LTM

Institutional Summary

Shares Outstanding 50.84

% of Float Held 50.89

Short Interest (in millions) 113.8

Short Interest as a % of Float 1.85

Days to Cover Shorts 89.9

Ownership (Institutional) 54.87%

Ownership (Non-Institutional) 45.13%

55%45%Ownership (Institutional)

Ownership (Non-Institutional)

Verizon T-Mobile Dish

- Similar scale and operational structure

to AT&T

- High reliability and best coverage of US

in the entire industry

- Media and Broadband Segments are in

direct competition with AT&T having

more HD channels and fastest internet

speeds

- Take on a great amount of debt as

there are network capacity constraints

P/E Ratio 12.10


Recent Dividend ($/share) 2.26


Total Revenue LTM (millions) $130,558

Market Capitalization

(millions) 187,860

P/E Ratio 44.20


Recent Dividend ($/share) 0


Total Revenue LTM (millions) $ 31,960

Market Capitalization (millions) $ 33,768

P/E Ratio 24.90


Recent Dividend ($/share) 0


Total Revenue LTM (millions) $ 6,525

Market Capitalization (millions) $ 28,653

- 3rd largest wireless retailer

- Has aggressively been capturing

customers from Verizon and AT&T by

pursuing price cutting strategies

- Provide unlimited data plans but are

hindered by limited coverage and

poorer quality network

- Focus shifts to maintaining customer

loyalty after they have made the

switch from competitors

- Dish is DirecTV’s primary satellite TV

competitor

- Offer competitive pricing in order to

capture market share and increase

subscriber base

- Have a strong Latin America presence

and have a very similar business

structure compared to DirecTV

- Target rural residents in the US to

consumers who aren’t served by

wireline broadband

33.51

39.00

27.33

T Price/Earnings Ratio

Key Points:

• AT&T share price has

been lagging the market

significantly.

• Wireless industry growth

has become overly

saturated causing

stagnation in price and

valuation.

T Earnings Per Share

S&P 500

T Actual Return VS SP&500

The DCF upside case of $54.74 and basis in line with comparable and transactional

data. case of $42.55

The valuation method is trending towards an undervaluation conclusion.

**Values in millions except

per shareDCF Precedents Segmented Comps Combined Comps

Perpetuity Multiple EV/Rev EV/EBITDA EV/Rev EV/EBITDA EV/Rev EV/EBITDA

Enterprise Value 384,356 391,531 420,892 405,350 313,217 372,653 373,851 395,620

Equity Value 265,112 272,287 299,199 283,657 191,524 252,960 252,158 273,927

Fair Value Share Price $44.61 $45.82 $32.23 $42.56 $32.23 $42.56 $42.43 $46.09

• Using a segmented comparable model we get a lower valuation then the combined entity,

indicating that integrated players command a stronger valuation

• Both DCF valuation methods point to a fair value share price higher than the current share

price of $33.51 per share

• We can see through the precedent model that the current M&A environment is indicating a

price premium that is moderate

FVSP= $32.23

(EV/Rev)

FVSP= $42.56

(EV/EBITDA)

EV/Rev EV/EBITDA Company

1.5x 5.9x T-Mobile

1.5x 6.4x Sprint

1.0x 6.2x US Cellular

2.0x 5.2x CenturyLink Inc.

3.1x 7.7x Consolidation

Comm.

0.9x 5.3x Telephone and Data

Systems

2.6x 7.6x Comcast

4.1x 11.5x Charter Comm.

3.1x 8.9x Time Warner

2.6x 9.5x Cablevision

2.2x 11.5x Dish

(EV/Rev) (EV/EBITDA)

EV/Rev EV/EBITDA Company

2.3x 6.4x Verizon

2.8x 7.8x Telus

3.9x 9.8x BCE Inc.

1.5x 5.9x T-Mobile

1.5x 6.4x Sprint

1.0x 6.2x US Cellular

2.0x 5.2x CenturyLink Inc.

2.6x 7.6x Comcast

3.1x 8.9x Time Warner

2.2x 11.5x Dish

FVSP= $42.40 (Perpetuity)

FVSP= $44.69 (Multiple

Method)

Year

2016

2017

2018

2019

2020

Interest Rate

2.2%

2.5%

3.0%

3.1%

3.6%

Principal Payment

($b)

2800

2800

2800

1500

1500

• Funded with 67% debt and 33% equity

$20 Billion dollar acquisition

Goal: Align with their target gearing

ratio when looking ahead at future

financial capacity

Federal Reserve

expected to be very

gradual with interest

rate increases

Constraints when investing over $10B

- Restrained ability to meet management’s

target of a 70% dividend payout ratio

-T’s credit rating would be downgraded,

affecting future borrowing ability

- Decreased marketability of a seasoned

offering.Initially higher

principal payments to

keep Net Debt/Equity

levels within target

rangeRates rise + lose more subscribers than

anticipated = debt problem

1-Year Default Probability

From 0.042% to 0.048%

• $20B financing available but we advise

management to be cautious and not to

inflate already growing debt levels

• Acquisition in $2-7B range is

reasonable to avoid running into high

level of debt constrains

• Making a purchase at current interest

rates, borrowing and paying back

healthy principal payments in the first

2/3 years, before expected interest

rates begin to rise is optimal

Company Requirements

Company Goals

Design and create a global

network service platform to reallocate

human capital

Successfully integrate

DirecTV into the AT&T business

model

Continue to perform as a

market leader

Financial Operational Strategic

Lower Debt-to-Equity (long term

target of 80-85%)

Effective Cost Control Systems Focus on customer profitability

(ARPU)

Find revenue growth amongst

saturated markets

Merge company cultures

appropriately

Cross-Selling Capabilities

Disengagement from aggressive

promotional strategies

Goal to reach Dividend Payout Ratio

of 70%

Exposure to new consumer habits

such as streaming services

International market penetration,

soften ties and multi-tier expansion

International Expansion Telecom Consolidation Hardware and Value Chain Inputs

Company - Strong ARPU

- Low P/E

- Growing subscriber base

- Alignment with AT&T's core business

model

- High quality capacity

- Competitive history with AT&T

- Ability to costs

- Ability to use targets technology and IT

infrastructure

Industry - National telecom program

deregulation worldwide &

globalization

- High spectrum supply, leading to low

prices

- Softening government regulations.

- Future expected improvements in

technology which would improve

margins

International Expansion Telecom ConsolidationHardware and Value Chain

Inputs

• Expansion in developing markets

expected to increase mobile data

usage

• High Demand, Low Demand.

• Relaxation in foreign telecom policy

restraints on American competitors

by Latin American governments.

• Leverage existing capabilities and core

competencies to further increase cost

synergies with new users.

• Use increased buying power to

negotiate transactions that favorably

expand AT&T’s user base.

• Focus on acquisitions that will be able to

provide bulk wireless subscribers and

other users quickly.

• To obtain a competitive

advantage over cost structure.

• Ensure continuous availability

and successive innovations of

product offerings.

• Service quality and network

coverage would see positive

benefits.

• Liberalization of trade policy with Cuba with Verizon & Sprint already making inroads.

• High profit margins yielding a strong base for AT&T to work with

• Expanding and enhancing the recently acquired Mexican lusacell networks

and subscriber base would be a top priority for the newly created AT&T Mexican

operationsData

CoverageData

CoverageUnderserved

MarketUnderserved

Market

Build on StrategyBuild on Strategy

Expand Customer

Base

Expand Customer

Base

+’s+’s

• Liberalization of trade policy with Cuba is starting to spur foreign investments in Cuba’s

economy with Verizon & Sprint already making inroads

• Cuba’s telecom infrastructure is outdated and limited in scope, creating an opportunity for

investment, especially through the use of satellites which bypass the need for large

infrastructure

T’s ability to enter foreign markets through acquisitions allows them to bring best practices and world class quality to help operations and margins improve

in countries where telecommunications operations are underdeveloped and underutilized.

Internet and telecommunication service in the global market is expected to increase worldwide as world population increases and society becomes more

and more connected.

Countries adjacent to the US will provide ample opportunity for further expansion especially with foreign governments becoming more accepting of

foreign investment through less stringent regulations. With AT&T’s recent acquisitions, it makes sense to continue on the same path for long-term success

in international markets.

LowCompetition (Monopoly)

LowCompetition (Monopoly)

Underutilized Market

Underutilized Market

Opportunity for Infrastructure Development

Opportunity for Infrastructure Development

Expand Customer

Base

Expand Customer

Base

+’s+’s

Gradually acquire Mexican Telecom Axtel

Enter Cuba through stake in ETECSA

Rank

#1

Rank

#1

Established name

Established name

Growth potentialGrowth

potential

Opportunity for cost cutting

Opportunity for cost cutting

Similar capital

structure

Similar capital

structure

+’s+’s

T’s market leader position in telecom has been sustained through acquisitions and this strategy should continue in the future.

A large portion of the company’s competitive advantage comes from the high quality service and network coverage. Further market

consolidation in users will prevent AT&T from becoming stagnant and vulnerable to losing its market leader position.

Churn, especially the customer’s lost to T-Mobile's aggressive price cutting strategy, should be offset by new users gained in acquisitions.

The rigid pricing and persistence for high margins ensures that the company can continue to excel with high ARPU.

• AT&T will be able to bring US Cellular wireless customers over to other AT&T product

and service offerings through bundling and promotion (notably DirecTV)

• US Cellular is a 100% pure play on US domestic wireless service and currently declining

wireless revenue can be offset by quick addition to the user base

• A US Cellular takeover would bring over 4,760,000 active wireless subscribers to AT&T’s

wireless subscriber base (120m). This multiplied by AT&T’s monthly ARPU 51.15 gives a

new revenue stream of $243.47m per month

• This transaction would be smaller then the failed attempt by Verizon to acquire T-Mobile

and because of the small market position of US Cellular we expect a better reception

from regulatory authorities

US Cellular Corp (USM)

Rank

#2

Rank

#2

• Building AT&T’s communication product infrastructure in Satellite TV segment achieves greater

vertical integration and cost synergies through communication equipment

• Fixed and mobile broadband business services expect to see strong growth in

consumer demand regionally and worldwide

• Acquiring a cost-efficient business model while maintaining balanced

expenditure on product and service development with efficient management

of capital is ideal

Aligned StrategyAligned Strategy

Optimal Growth

Prospects

Optimal Growth

Prospects

Efficient R&D

Efficient R&D

Minimal Debt Impact

Minimal Debt Impact

+’s+’s

This transaction would work in tandem with the Cuban expansion to help AT&T provide Cubans with connectivity solutionsThey could look to vertically integrate their business model, especially in their new satellite TV service area where the new larger, conglomerated AT&T company can pursue acquisition projects that weren’t feasible under the stand alone DirecTVAT&T can only achieve better satellite hardware infrastructure and service quality by negotiating with suppliers. Acquiring a satellite company will allow AT&T to gain control in the space of technological innovation they can purse their own research and development

• Improves the satellite TV product offering up to the highest quality standard to promote integration

of strong quality standards

• Dish’s supply chain management system will be temporarily disrupted as

EchoStar is a very large supplier to Dish in addition to expanding market share

• Obtain the latest technological advancements

• Integrate their core business segment of distributing of satellite receivers and

set-top boxes into our Cuba strategy due to lack of suitable infrastructure

Rank

#3

Rank

#3

Supplier to CompetitorSupplier to Competitor

R&D AssetsR&D Assets

Decreasing D/E

Decreasing D/E

Increasing EBITDAMargin

Increasing EBITDAMargin

+’s+’s

Via Sat Inc.

EchoStar Satellite Services

• AT&T could look to enter the content creation side of the media business and begin to acquire television studios and film business in order to improve their components of the value chain.

• Feasible to purchase a 8-10% in Viacom in order to get a seat at the table in the content generation business and start to meld AT&T’s business process with the content generating arm of the business.

• AT&T’s core competency revolves around their telecommunication assets, especially when it comes to broad high quality networks and they would be venturing into a very competitive space with many large players including Disney and Netflix.

• AT&T could investigate entering into the Canadian wireless market as regulations are evaluated by the new Liberal government.

• Acquiring a smaller cable or satellite company, such as Shaw Communications, would boost AT&T’s subscriber base and open up cross selling synergies with DirecTV

• Tapping into the Canadian wireless market will provide a short term opportunity for consolidation of wireless revenue streams yielding an increased opportunity to expand brand awareness and its North American presence and coverage.

Content Producer Canadian Expansion

Michael Liu is a 4th year

finance student at UBC,

holding a position as the

President of the Portfolio

Management Group.

Michael has explored

many fields within the

realm of Finance. Having

worked as a Private Equity

Summer Analyst at CITIC

Capital, and Equity

Research Intern at CITIC

Brokerage, Michael plans

to further his career in

investment banking.

Michael Liu is a 4th year

finance student at UBC,

holding a position as the

President of the Portfolio

Management Group.

Michael has explored

many fields within the

realm of Finance. Having

worked as a Private Equity

Summer Analyst at CITIC

Capital, and Equity

Research Intern at CITIC

Brokerage, Michael plans

to further his career in

investment banking.

Aneeq Siddiqui is a 4th

year student at UBC

Faculty of Management.

During the course of his

degree, he has interned at

Citibank, N.A and Kingsway

Real Estate Brokerage. He

aspires to join the

investment banking

industry post graduation.

He is currently pursuing

the CFA designation and

appearing for the Level 1

exam in June 2016.

Aneeq Siddiqui is a 4th

year student at UBC

Faculty of Management.

During the course of his

degree, he has interned at

Citibank, N.A and Kingsway

Real Estate Brokerage. He

aspires to join the

investment banking

industry post graduation.

He is currently pursuing

the CFA designation and

appearing for the Level 1

exam in June 2016.

John Martin has a

background in project

planning/scheduling and

project controls working

on multibillion dollar

projects. He has created

schedules for business

development corporate

finance teams and is

looking to transition into

the corporate finance and

investment banking side of

project work. He is a CFA

level 1 candidate and has

completed the CSC.

John Martin has a

background in project

planning/scheduling and

project controls working

on multibillion dollar

projects. He has created

schedules for business

development corporate

finance teams and is

looking to transition into

the corporate finance and

investment banking side of

project work. He is a CFA

level 1 candidate and has

completed the CSC.

Trevor Frison is an eager

management finance

student at UBC, holding a

position as the fund

manager of the UBC

Portfolio Management

Group. He aspires to

pursue his CFA designation

after completing the CFA

research challenge in

addition to seeking an

entry level position in the

investment banking

industry.

Trevor Frison is an eager

management finance

student at UBC, holding a

position as the fund

manager of the UBC

Portfolio Management

Group. He aspires to

pursue his CFA designation

after completing the CFA

research challenge in

addition to seeking an

entry level position in the

investment banking

industry.

Appendix II : Model Output

Discounted Cashflow Model

DCF Summary - Operating Model

Cashflow Forecast

*All dollar amounts in millions 2010 2011 2012 2013 2014 2015E 2016E 2017E 2018E 2019E 2020E

Wireless Revenues 58,500 63,215 66,763 69,899 73,992 75,363 79,808 83,384 87,155 91,265 95,945

Wireline Revenues 61,300 60,140 59,567 58,814 58,425 57,081 56,054 55,157 54,385 53,950 53,788

DirecTV Revenues - - - - - 31,438 32,601 34,101 35,670 37,310 39,549

International Revenues - - - - - 1,500 1,590 1,733 1,924 2,183 2,522

Advertising (discontinued) / Other Revenues 4,480 3,368 1,104 39 30 23 17 13 9 7 5

Total Revenues 124,280 126,723 127,434 128,752 132,447 165,405 170,069 174,388 179,142 184,716 191,809

Revenue Growth - 2.0% 0.6% 1.0% 2.9% 24.9% 2.8% 2.5% 2.7% 3.1% 3.8%

Wireless Expenses (36,185) (41,282) (43,296) (44,508) (48,924) (48,986) (51,556) (53,533) (55,605) (58,227) (60,925)

Wireline Expenses (41,879) (41,360) (41,207) (41,638) (42,471) (41,726) (41,143) (40,761) (39,701) (39,383) (39,265)

DirecTV Expenses - - - - - (23,767) (24,516) (25,439) (26,609) (27,983) (29,662)

International Expenses - - - - - (1,365) (1,447) (1,477) (1,639) (1,821) (2,068)

Advertising (discontinued) / Other Expenses (3,889) (3,115) (1,797) (1,545) (257) (18) (14) (10) (8) (6) (4)

Total Operating Costs (81,953) (85,757) (86,300) (87,691) (91,652) (115,863) (118,676) (121,220) (123,562) (127,420) (131,924)

Wireless EBITDA 22,315 21,933 23,467 25,391 25,068 26,377 28,252 29,852 31,550 33,038 35,020

Wireline EBITDA 19,421 18,780 18,360 17,176 15,954 15,355 14,910 14,396 14,684 14,566 14,523

DirecTV EBITDA - - - - - 7,671 8,085 8,662 9,060 9,328 9,887

International EBITDA - - - - - 135 143 256 285 362 454

Advertising (discontinued) / Other EBITDA 591 253 (693) (1,506) (227) 5 3 3 2 1 1

Total EBITDA 42,327 40,966 41,134 41,061 40,795 49,542 51,394 53,168 55,580 57,296 59,885

EBITDA Growth - (3.2%) 0.4% (0.2%) (0.6%) 21.4% 3.7% 3.5% 4.5% 3.1% 4.5%

EBITDA Margin 34.1% 32.3% 32.3% 31.9% 30.8% 30.0% 30.2% 30.5% 31.0% 31.0% 31.2%

Wireless EBITDA Growth (1.7%) 7.0% 8.2% (1.3%) 5.2% 7.1% 5.7% 5.7% 4.7% 6.0%

Wireline EBITDA Growth (3.3%) (2.2%) (6.4%) (7.1%) (3.8%) (2.9%) (3.4%) 2.0% (0.8%) (0.3%)

DirecTV EBITDA Growth 7.1% 4.6% 3.0% 6.0%

International EBITDA Growth 27.3% 25.2%

Advertising / Other EBITDA Growth (25.0%) (25.0%) (25.0%) (25.0%) (25.0%)

Wireless EBITDA Margin 38.1% 34.7% 35.1% 36.3% 33.9% 35.0% 35.4% 35.8% 36.2% 36.2% 36.5%

Wireline EBITDA Margin 31.7% 31.2% 30.8% 29.2% 27.3% 26.9% 26.6% 26.1% 27.0% 27.0% 27.0%

DirecTV EBITDA Margin 24.4% 24.8% 25.4% 25.4% 25.0% 25.0%

International EBITDA Margin 9.0% 9.0% 14.8% 14.8% 16.6% 18.0%

Advertising / Other EBITDA Margin 13.2% 7.5% (62.8%) (3861.5%) (756.7%) 20.0% 20.0% 20.0% 20.0% 20.0% 20.0%

DCF Summary - Capital Structure

Cashflow Forecast

*All dollar amounts in millions 2010 2011 2012 2013 2014 2015E 2016E 2017E 2018E 2019E 2020E

Total EBITDA 42,327 40,966 41,134 41,061 40,795 49,542 51,394 53,168 55,580 57,296 59,885

Capex (19,530) (20,110) (19,465) (20,944) (21,199) (21,044) (21,703) (21,849) (21,903) (22,134) (24,371)

Tax 1,162 (2,532) (2,900) (9,224) (3,442) (9,384) (8,559) (9,016) (9,651) (10,116) (10,773)

Working Capital and Other Adjustments (8,267) (3,954) 3,286 3,501 (1,383) (30,510) (1,643) (4) (113) 130 70

Free Cashflows 15,692 14,370 22,055 14,394 14,771 (11,396) 19,488 22,299 23,914 25,176 24,810

Cashflow for Debt Service 15,692 14,370 22,055 14,394 14,771 (11,396) 19,488 22,299 23,914 25,176 24,810

Interest Expense (2,994) (3,535) (3,444) (3,940) (3,613) (4,103) (6,272) (6,570) (7,003) (7,239) (7,789)

Isssurance / Repayment of Long-term Debt (7,059) 362 4,753 9,138 5,633 24,005 5,958 8,650 4,727 11,002 9,701

Interest Income and Other Items 2,438 1,033 886 1,238 1,827 - - - - - -

Cashflow Available for Equity Distributions 8,077 12,230 24,250 20,830 18,618 8,506 19,174 24,378 21,638 28,939 26,722

Equity Issuance / Repurchase and Equity Items (465) (214) (12,186) (12,663) (3,802) (2,803) (3,348) (2,210) (2,089) (3,205) (3,468)

Dividends (incl. distributions of cash balance) (9,916) (10,172) (10,241) (9,696) (9,552) (5,489) (10,611) (16,346) (19,690) (25,039) (25,873)

Net Cashflows (2,304) 1,844 1,823 (1,529) 5,264 214 5,215 5,822 (141) 695 (2,618)

Ending Cash Balance 1,437 3,045 4,868 3,339 8,603 8,817 14,032 19,854 19,713 20,408 17,790

Ending Debt Balance 64,515 64,753 69,843 74,767 82,062 125,446 131,404 140,053 144,780 155,782 165,483

Ending Net Debt Balance 63,078 61,708 64,975 71,428 73,459 116,629 117,372 120,199 125,067 135,374 147,693

Net Debt to EBITDA - 1.5 x 1.6 x 1.7 x 1.8 x 2.4 x 2.5 x 2.5 x 2.6 x 2.6 x 2.7 x

Basic shares outstanding (millions) 5,913 5,928 5,801 5,368 5,205 5,924 5,924 5,924 5,924 5,924 5,924

Diluted shares outstanding (millions) 5,938 5,950 5,821 5,385 5,221 5,943 5,943 5,943 5,943 5,943 5,943

Diluted adjusted earnings (loss) per share 3.91$ 2.91$ 2.96$ 1.94$ 3.26$ 2.88$ 2.63$ 2.77$ 2.97$ 3.11$ 3.32$

Dividend per share(diluted) 1.68$ 1.72$ 1.75$ 1.78$ 1.84$ 0.92$ 1.79$ 2.75$ 3.31$ 4.21$ 4.35$

Free cashflow per share (diluted) 2.28$ 2.27$ 3.35$ 2.17$ 2.49$ (2.61)$ 2.22$ 2.65$ 2.85$ 3.02$ 2.86$

Equity cashflow per share (diluted) 2.55$ 2.03$ 4.22$ 3.09$ 3.88$ 1.43$ 3.23$ 4.10$ 3.64$ 4.87$ 4.50$

DCF Summary - Valuation Results

Cashflow Forecast

*All dollar amounts in millions 2015E 2016E 2017E 2018E 2019E 2020E

Free cash flows to the firm (FCFF) 15,899 17,180 16,887 16,645 15,938 14,188

Enterprise Value EBITDA Multiple Method Enterprise Value Perpetual Growth Method WACC Assumptions

EBITDA Multiple 6.7x Perpetual growth of firm cash flows 1.80% Valuation date 1-Nov-15

Terminal Year EBITDA 59,885

10-yr US government bond rate 2.3%

Present Value of Terminal Value 293,218 Present Value of Terminal Value 284,064 Expected market return 9.4%

Present Value of Forecast FCF 96,736 Present Value of Forecast FCF 96,736 Market risk premium 7.1%

Enterprise Value 389,954 Enterprise Value 380,800 Beta 0.73

- Debt (125,446) - Debt (125,446) CAPM cost of equity 7.5%

+ Cash 6,202 + Cash 6,202 Cost of debt 3.4%

Equity Value (Market Cap) 270,710 Equity Value (Market Cap) 261,556 Tax rate 35.0%

Shares outstanding 5,943 Shares outstanding 5,943 After tax cost of debt 2.2%

Fair value share price $45.55 Fair value share price $44.01 Target gearing 67.0%

WACC 5.4%

Operating Assumptions

Assumption Key Metric Justification

Total Revenue(CAGR '15-'20)

3.1%Strengthening US economy will provide support for growth and and recent acquisitions add to growth premium.

Demographic changes in the US will lead to greater demand for AT&T's products and services.

Wireless Revenue(CAGR '15-'20)

4.7%Data demand and wireless usage expected to increase. Retention of existing customers and acquisition of new

customers through differentiation and value proposition will pay off as the company focuses on profitability.

Wireline Revenue(CAGR '15-'20)

(1.0)%Shift in wireline cable consumer habits are shifting towards streaming on demand services offered by

competitors such as Netflix and Amazon. The increase capacity of fiber should offset large declines.

International Revenue(CAGR '15-'20)

12.2%Significant growth to pick up as international markets become exposed to the AT&T brand. AT&T will be able to

utilize their strong industry best practices, experience and operational strategies in new markets to excel.

DIRECTV Revenue(CAGR '15-'20) 4.9%

Cross-selling synergies, such as promotional selling, installation and retail, are seen as growth catalysts. Cable

customers are switching over from cable to DirecTV for high quality satellite alternatives.

Total EBITDA(CAGR '15-'20)

3.8%Leaner operations, scale economies and cost cutting synergies to ensure higher quality EBITDA. Acquisition will

allow business teams to work together and resources like customer service and installation can be shared.

Wireless EBITDA(CAGR '15-'20) 5.8%

Improving technologies and better scaled operations. Increasing gross margins due to higher ARPU which

comes from sticking to a consistent and resilient pricing strategy.

Wireline EBITDA(CAGR '15-'20)

(0.7)%Declining customer base and higher costs associated with offering higher speeds. High barriers to exit and

strong competion result in downward pressre on price premims.

International EBITDA(CAGR '15-'20) 33.5%

Number is exagerated due to initially starting off with very low EBIDA margin. Cost controls are expected to be

implemented slowly over time but international margins are not expected to reach North American levels.

DIRECTV EBITDA(CAGR '15-'20)

5.2%Increased ability for the conglomerated company to puruse marketing strategies and cross-selling within AT&T

retail stores and other established channels.

Capex (% of revenue)

(Average '15-'20)12.4%

Appropriate considering management's guidance

Valuation Assumptions

Assumption Key Metric Justification

Beta 0.73 Historical based on scatterplot line of best fit

Risk-free Rate 2.3% Current 10 year USA Bond. (Nov18)

Cost of Debt (pre-tax) 3.4% Debt was recently issued by the company at 3.4%

Perpetual Growth Rate 1.8% Expected to grow moderately as a mature player

Exit Multiple 6.7x Higher than Verizon because of DirecTV addition

Leveraged Finance

Standalone Cashflow ProjectionForecast

2015 2016 2017 2018 2019 2020

A. Standalone Cashflows

Revenues 7,246 7,391 7,539 7,690 7,844

Operating Costs (5,072) (5,026) (5,051) (5,075) (5,098)

EBITDA 2,174 2,365 2,488 2,615 2,745

Revenue Growth 2.0% 2.0% 2.0% 2.0%

EBITDA Growth (initial synergies ramp) 8.8% 5.2% 5.1% 5.0%

EBITDA Margin 32.0% 33.0% 34.0% 35.0%

Taxes (274) (352) (396) (457) (518)

Capex (725) (739) (754) (769) (784)

Change in Working Capital (1) (9) (9) (9) (9)

Operating Cashflows 1,174 1,266 1,329 1,380 1,435

Interest Expense (304) (250) (225) (155) (90)

Principal Repayment (3,800) (2,500) (2,500) (2,500) (2,500)

Debt Issuance Debt 69% 13,800 - - - -

Equity Issuance Equity 31% 6,200 - - - -

Purchase Price Multiple 9.2x (20,000) - - - -

Equity Cashflows (2,930) (1,484) (1,396) (1,275) (1,155)

Dividends Paid - - - - -

Residual Cashflows (2,930) (1,484) (1,396) (1,275) (1,155)

B. Key Metrics

Incremental Debt Opening Balance 13,800 10,000 7,500 5,000 2,500

Incremental Debt Issued - - - - -

Incremental Principal Paid (3,800) (2,500) (2,500) (2,500) (2,500)

Incremental Debt Closing Balance 10,000 7,500 5,000 2,500 -

Incremental Interest Expense 304 250 225 155 90

Net Debt / EBITDA 4.60x 3.17x 2.01x 0.96x -

Incremental Diluted Shares Issued (millions) 187 187 187 187 187

Free Cashflow per Share 6.29$ 6.78$ 7.12$ 7.39$ 7.68$

Equity Cashflow per Share (15.69)$ (7.95)$ (7.48)$ (6.83)$ (6.19)$

Corporate Cashflow ProjectionsForecast

2015 2016 2017 2018 2019 2020

A. Corporate Cashflows (Pre-Transaction)

Corporate Revenues 170,069 174,388 179,142 184,716 191,809

Corporate Opex (118,436) (121,220) (123,562) (127,420) (131,924)

Corporate EBITDA 51,633 53,168 55,580 57,296 59,885

Corporate Capital Expenditures, Working Capital and Taxes (12,923) (12,537) (12,216) (12,017) (13,494)

Corporate Operating Cashflows 38,710 40,631 43,364 45,278 46,391

Corporate Net Debt Flows (5,140) (3,257) (8,615) (3,240) (6,311)

Corporate Equity Cashflows 33,570 37,374 34,749 42,039 40,080

B. Corporate Cashflows (Pro-Forma)

Corporate Revenues 170,069 174,388 179,142 184,716 191,809

Incremental Revenues 7,246 7,391 7,539 7,690 7,844

Proforma Revenues 177,316 181,779 186,681 192,406 199,653

Corporate EBITDA 51,633 53,168 55,580 57,296 59,885

Incremental EBITDA 2,174 2,365 2,488 2,615 2,745

Proforma EBITDA 53,807 55,533 58,068 59,910 62,630

Corporate Capital Expenditures, Working Capital and Taxes (12,923) (12,537) (12,216) (12,017) (13,494)

Incremental Capital Expenditures, Working Capital and Taxes (1,000) (1,100) (1,159) (1,235) (1,311)

Proforma Operating Cashflows 39,883 41,896 44,693 46,658 47,825

Corporate Net Debt Flows (5,140) (3,257) (8,615) (3,240) (6,311)

Incremental Debt Service (4,104) (2,750) (2,725) (2,655) (2,590)

Combined Debt Flows (9,244) (6,007) (11,340) (5,895) (8,901)

Proforma Equity Cashflows 30,640 35,889 33,353 40,763 38,924

C. Key Metrics

Existing Diluted Shares Outstanding (millions) 5,943 5,943 5,943 5,943 5,943

Free Cashflows per Share (Pre-Transaction) 6.51$ 6.84$ 7.30$ 7.62$ 7.81$

Equity Cashflows per Share (Pre-Transaction) 5.65$ 6.29$ 5.85$ 7.07$ 6.74$

Incremental Diluted Shares Issued (millions) 187 187 187 187 187

Combined Total Cumulative Diluted Shares Outstanding (millions) 6,130 6,130 6,130 6,130 6,130

Free Cashflows per Share (Pro-Forma) 6.51$ 6.83$ 7.29$ 7.61$ 7.80$

Equity Cashflows per Share (Pro-Forma) 5.00$ 5.86$ 5.44$ 6.65$ 6.35$

Corporate Net Debt (Closing Balance) 119,586 128,038 138,607 143,262 155,277

Corporate Net Debt / EBITDA Ratio (Pre-Transaction) 2.32x 2.41x 2.49x 2.50x 2.59x

Incremental Debt (Closing Balance) 10,000 7,500 5,000 2,500 -

Combined Total Corporate Net Debt (Closing Balance) 129,586 135,538 143,607 145,762 155,277

Corporate Net Debt / EBITDA Ratio (Pro-Forma) 2.41x 2.44x 2.47x 2.43x 2.48x

Trading Comparables

Company Name Market EV (1)

Net Debt EV/Revenue (3)

EV/EBITDA (3)

P/E (3)

EBITDA CAGR (3)

Revenue CAGR (3)

EBITDA WACC

Cap. (1)

/ EV 2014A LTM NTM 2016E 2014A LTM NTM 2016E 2014A LTM NTM 2016E 3-Yr Hist 2-Yr Fcst 3-Yr Hist 2-Yr Fcst %

(all figures presented in USD millions, except per share figures or where noted)

Integrated Telecom

Verizon USD 187,860 297,407 36.4% 2.3x 2.3x 2.3x 2.3x 6.9x 6.6x 6.4x 6.4x 19.1x 12.1x 11.7x 11.6x 7.4% 0.9% 4.3% 0.3% 34.5% 5.7%

Shaw Communuications CAD 9,217 14,725 39.3% 2.8x 2.9x 3.2x 3.2x 6.5x 6.8x 7.3x 7.3x 13.2x 14.9x 14.5x 14.2x (4.7%) 1.0% (5.2%) 0.3% 43.2% 5.4%

Rogers Communications CAD 20,672 37,971 51.2% 2.9x 3.1x 3.3x 3.2x 7.7x 8.2x 8.6x 8.5x 17.9x 18.2x 17.7x 17.5x (7.2%) 2.8% (6.5%) 1.8% 38.1% 4.5%

Telus Corporation CAD 19,967 29,317 34.5% 2.5x 2.6x 2.8x 2.7x 7.1x 7.3x 7.8x 7.5x 18.2x 17.3x 16.9x 15.6x (4.5%) 4.9% (4.0%) 3.0% 35.1% 5.2%

BCE INC. CAD 49,020 68,845 30.5% 3.4x 3.5x 3.9x 3.9x 8.7x 8.9x 9.8x 9.6x 21.4x 19.8x 22.4x 21.5x (6.3%) 2.7% (6.5%) 1.4% 39.5% 4.9%

Integrated Telecom Average 57,347 89,653 38.4% 2.8x 2.9x 3.1x 3.0x 7.4x 7.6x 8.0x 7.9x 17.9x 16.5x 16.6x 16.1x -3.1%* 2.4% (3.6%) 1.4% 38.1% 5.1%

Wireless

T-Mobile USD 33,768 52,934 36.2% 1.8x 1.7x 1.5x 1.5x 9.1x 8.1x 5.9x 5.8x 133.5x 44.2x 27.2x 19.9x 14.3% 20.7% 86.4% 7.4% 20.3% 5.8%

Sprint USD 19,365 49,020 60.5% 1.4x 1.5x 1.5x 1.5x 7.2x 13.1x 6.4x 6.4x - neg neg neg 9.6% 18.8% (0.7%) (1.0%) 11.1% 5.4%

US Cellular Corp USD 3,151 4,103 22.9% 1.1x 1.0x 1.0x 1.0x 8.9x 5.5x 6.2x 6.0x neg neg neg neg (3.7%) 5.3% (3.5%) 0.9% 18.9% 7.4%

Wireless Average 18,761 35,352 39.9% 1.4x 1.4x 1.3x 1.3x 8.4x 8.9x 6.1x 6.1x 133.5x 44.2x 27.2x 19.9x 6.7%* 15.0% 27.4% 2.4% 16.8% 6.2%

Wireline

CenturyLink Inc. USD 15,561 36,104 56.9% 2.0x 2.0x 2.0x 2.0x 5.3x 5.5x 5.2x 5.4x 20.3x 21.2x 10.8x 11.5x (2.9%) (1.2%) (0.9%) 0.0% 37.1% 5.6%

Frontier Communications USD 6,121 15,223 59.8% 3.2x 2.9x 2.7x 2.8x 7.8x 7.7x 5.2x 5.4x 40.3x 32.2x neg neg 1.2% 15.6% 3.6% 14.7% 38.1% 6.1%

Consolidated Communications USD 1,085 2,450 55.5% 3.9x 3.4x 3.1x 3.1x 10.2x 9.4x 7.7x 7.8x 61.4x 31.8x 27.2x 26.4x 21.5% 0.5% 18.1% (1.4%) 35.6% 5.6%

Telephone and Data Systems USD 2,857 4,909 31.0% 1.0x 1.0x 0.9x 0.9x 7.6x 5.0x 5.3x 5.1x neg neg neg 59.4x (2.2%) 3.9% (1.0%) 1.4% 19.2% 6.4%

Comcast USD 151,218 196,363 22.3% 2.9x 2.7x 2.6x 2.5x 8.6x 8.1x 7.6x 7.5x 19.0x 19.2x 17.3x 16.6x 7.2% 5.4% 5.5% 4.5% 33.3% 7.0%

Charter Communications USD 20,287 41,307 50.9% 4.5x 4.4x 4.1x 3.9x 13.4x 13.2x 11.5x 11.0x neg neg 182.9x 104.7x 9.0% 9.9% 9.2% 7.8% 33.1% 6.2%

Time Warner Cable USD 51,883 74,898 30.7% 3.3x 3.2x 3.1x 3.0x 9.4x 9.3x 8.9x 8.5x 25.4x 25.8x 25.8x 23.5x 2.0% 6.2% 3.5% 5.9% 34.6% 6.2%

Cablevision Systems Corp USD 9,071 17,300 47.5% 2.7x 2.7x 2.6x 2.6x 9.6x 9.5x 9.5x 9.2x 27.8x 52.2x 38.2x 35.3x 2.6% 1.6% 2.3% 1.1% 27.8% 4.9%

Wireline Average 32,261 48,569 44.3% 2.9x 2.8x 2.6x 2.6x 9.0x 8.5x 7.6x 7.5x 32.4x* 30.4x* 50.4x* 39.6x* 4.8% 5.2% 5.0% 4.2% 32.3% 6.0%

Satellite

Dish USD 28,653 33,921 15.4% 2.3x 2.3x 2.2x 2.2x 11.7x 11.3x 11.5x 11.6x 30.2x 24.9x 36.7x 35.3x 10.6% (1.6%) 4.6% 1.7% 20.2% 7.4%

Satellite Average 28,653 33,921 15.4% 2.3x 2.3x 2.2x 2.2x 11.7x 11.3x 11.5x 11.6x 30.2x 24.9x 36.7x 35.3x 10.6% (1.6%) 4.6% 1.7% 20.2% 7.4%

Cumulative Average 98,500 117,973 37.5% 4.0x 3.9x 3.8x 3.7x 11.9x 11.8x 10.2x 10.0x 45.2x 29.6x 35.9x 35.6x 7.7% 6.1% 8.9% 3.8% 31.1% 6.7%

AT&T USD 204,275 331,615 36.5% 2.5x 2.4x 2.0x 1.9x 8.1x 7.8x 6.4x 6.3x 27.9x 13.3x 11.9x 11.9x 4.5% 7.2% 5.0% 8.1% 30.4% 5.2%

Segmented Combined Entity

Company Name EV/Rev Yes EV/EBITDA Yes EV/Rev Yes EV/EBITDA Relevance to Target Valuation

Incl.? NTM Incl.? NTM Incl.? NTM Incl.? NTM

Integrated Telecom

Verizon Yes 2.3x Yes 6.4x Similar integrated industry player with same size and market share. Competing in the same business segments.

Shaw Communuications No 0.0x No 0.0x Protected from the dynamics of the US Market. Regional Canadian small player.

Rogers Communications No 0.0x No 0.0x Involved in business segments that are unrelated to AT'Ts, such as owning sports teams.

Telus Corporation Yes 2.8x Yes 7.8x Focused on the Canadian market and similar to AT&T's core business.

BCE INC. Yes 3.9x Yes 9.8x Similar busines segments in North America, including wireless service combined with satelitte TV.

Wireless

T-Mobile Yes 1.5x Yes 5.9x Yes 1.5x Yes 5.9x Fourth largest wireless carrier in the USA that has been capturing market share from AT&T.

Sprint Yes 1.5x Yes 6.4x Yes 1.5x Yes 6.4x Similar core business segments of AT&T's foundation business, wireless and wireline.

US Cellular Corp Yes 1.0x Yes 6.2x Yes 1.0x Yes 6.2x Applicable business model to AT&T's wireless segment and fifth large wireless carrier.

Wireless Average 1.3x 6.1x

AT&T Metric (4) $84,692 $30,405

Implied Enterprise Value 113,779 186,867

Wireline

CenturyLink Inc. Yes 2.0x Yes 5.2x Yes 2.0x Yes 5.2x Strong competitor to AT&T's wireline business . 3rd largest telecommunications player in terms of lines servbed.

Frontier Communications No 0.0x No 0.0x No 0.0x No 0.0x Provides services to rural areas and small/medium sized towns which is not applicable to AT&T's urban focus.

Consolidated Communications Yes 3.1x Yes 7.7x No 0.0x No 0.0x A small player with only a $1B

Telephone and Data Systems Yes 0.9x Yes 5.3x No 0.0x No 0.0x Smaller in scale but similar in AT&T's core business segments

Comcast Yes 2.6x Yes 7.6x Yes 2.6x Yes 7.6x Comcast provides services in Cable TV, Phones, and Internet, which makes it a potential comparable to AT&T.

Charter Communications Yes 4.1x Yes 11.5x No 0.0x No 0.0x Applicable operations that mirror AT&T's wireline business.

Time Warner Cable Yes 3.1x Yes 8.9x Yes 3.1x Yes 8.9x Very similar to AT&T's business model, second-largest cable company in US.

Cablevision Systems Corp Yes 2.6x Yes 9.5x No 0.0x No 0.0x Operates in Wireline business, however, size is too small compared to AT&T.

Wireline Average 2.6x 8.0x

AT&T Metric (4) $62,173 $17,732


Satellite

Dish Yes 2.2x Yes 11.5x Yes 2.2x Yes 11.5x Direct competitor of DirectTV, AT&T's recent acquisition.

Satellite Average 2.2x 11.5x

AT&T Metric (4) $16,318 $4,016


Combined Average 2.3x 7.6x

AT&T Metric $163,183 $52,152

Total Enterprise Value 313,217 374,653 373,851 395,620

- Debt (126,930) (126,930) (126,930) (126,930)

- Preferred & Other (965) (965) (965) (965)

+ Cash 6,202 6,202 6,202 6,202

Equity Value 191,524 252,960 252,158 273,927

Shares Outstanding (millions) 5,943 5,943 5,943 5,943

Fair Value Share Price $32.23 $42.56 $42.43 $46.09

Note: Use "Incl.?" column to indicate whether a company should be included in the valuation [0 - No; 1 - Yes]

Precedents

Segmented Combined Entity

EV/Revenue EV/EBITDA EV/Revenue EV/EBITDA

Target Incl.? LTM Incl.? LTM Incl.? LTM Incl.? LTM Relevance to Target Valuation

(all figures presented in USD millions, except per share figures or where otherwise noted)

US Wireless

Cellco Partnership Yes 3.9x Yes 10.0x No 0.00 No 0.00 Very similar wireless EBITDA to AT&T, revenue mostly comes from wireless, with some wireline internet services.

Leap Wireless Yes 1.3x Yes 8.4x No 0.00 No 0.00 Long-term debt is more than 80% of implied EV, small firm with most revenue from cellphones.

Clearwire No 0.00 No neg No 0.00 No neg Small firm, valuation is too high as a result of bidding war, does not serve as comparable.

Sprint Yes 1.1x Yes 8.9x Yes 1.1x Yes 8.9x Significant size operating in both wireless and wired segment, and has opeartions in Puerto Rico.

Alltel Yes 3.2x Yes 8.9x Yes 3.2x Yes 8.9x Significant size operating in mainly wireless mobility, can serve as segmented comparable.

SunCom Wireless Yes 2.6x Yes 15.8x No 0.00 No 0.00 Small firm providing mostly wireless telecommunication, can only serve as segment comparable.

US Wireless Average 2.4x 10.4x

AT&T Metric 72,204 24,643


US Wireline

TW Telecom Yes 4.6x Yes 14.2x No 0.0x No 0.0x TW Telecom only competes in the internet landscape, can be used for segment comparable.

Charter Communications No 0.0x No 0.0x Yes 3.0x Yes 8.6x Significant part of AT&T's revenue is from Internet and TV, also Charter's two biggest segment.

Bresnan Broadband Yes 5.0x Yes 15.7x Yes 5.0x Yes 15.7x Bresnan provides services in mobility, internet and TV, and has international presense.

Virgin Media Yes 3.6x Yes 9.0x Yes 3.6x Yes 9.0x Virgin media provides services in mobility, internet and TV in UK, quite similar to AT&T's model.

Atlantic Broadband Finance No 0.0x No 0.0x No 0.0x No 0.0x Small cable tv firm doesn't serve as a comp as AT&T's cable tv is small part of wireline revenue.

Insight Communications Yes 4.4x Yes 12.8x No 0.0x No 0.0x Providing video, voice, data to both retail and enterprise, serve as comparable to AT&T's wireline .

Qwest Communications Yes 1.8x Yes 5.5x No 0.0x No 0.0x Heavily involved in Wireline business, can serve as a segment comparable.

BellSouth Corporation Yes 5.3x Yes 12.4x Yes 5.3x Yes 12.4x Doing business as AT&T south, has similar business model as at&t.

Verizon Business Global Yes 0.4x No 0.0x No 0.0x No 0.0x Business and government focused, which shouldn't be used as comparable.

AT&T Corp. Yes 0.8x Yes 3.5x No 0.0x No 0.0x This is AT&T's wireline segment today, as it was purchased by SBC Communications

US Wireline Average 3.2x 10.5x

AT&T Metric 53,005 14,371


Satellite

DirecTV Yes 1.9x Yes 7.6x Yes 1.9x Yes 7.6x This is AT&T's satellite TV business segment.

Hughes Communications Yes 1.8x Yes 9.0x Yes 1.8x Yes 9.0x Operates as both satellite tv and internet provider, provides service to Business and consumer.


AT&T Metric 13,912 3,255


Latin America Telecom

Columbus Communications Yes 5.3x Yes 12.6x Provides video, voice, data which serves as a highly comparable to AT&T.

Telefonos de Mexico No 0.00 No 0.00 Not very comparable as a result of the high valuation and monopolistic position in Mexico.

Tele Norte Leste Participacoes S.A. Yes 1.3x Yes 3.5x Offers integrated telecommunication services in Brizil. Very Similar to AT&T's business model.

America Telecom No 0.00 No 0.00 The transaction is relatively outdated, and therefore should not be considered a comparable.

TV & Media

AOL No 0.00 No 0.00 Can not serve as a comparable as it produces content for the web, services to advertiser.

LIN Media No 0.00 No 0.00 Can not serve as a comparable as it is a local multi-media company(content producer).

Astral Media Inc. No 0.00 No 0.00 Can not serve as a comparable due to it's relatively smaller size and different services.

Belo Corp. No 0.00 No 0.00 Can not serve as a comparable due to its relatively small size and content producer nature.

NBCUniversal Media Yes 1.7x Yes 9.3x Can serve as a comparable as it's a giant company with integrated video services.

Combined Average 3.0x 9.6x

AT&T Metric 139,121 42,269

Total Enterprise Value $372,767 $433,912 $420,892 $405,350

- Debt (126,930) (126,930) (126,930) (126,930)

- Preferred & Other (965) (965) (965) (965)

+ Cash 6,202 6,202 6,202 6,202

Equity Value $251,074 $312,219 $299,199 $283,657

Shares Outstanding (millions) 5,943 5,943 5,943 5,943

Fair Value Share Price $42.25 $52.54 $50.34 $47.73

Target Buyer Transaction

Company Type Company Type EV (1)

Date Year Rationale Impl. EV Revenue EBITDA Revenue EBITDA

(all figures presented in USD millions, except per share figures or where otherwise noted)

US Wireless

Cellco Partnership (Verizon Wireless)Integrated Verizon Integrated 297,407 September 2, 2013 2013 Expand broadband / cellular 297,648 75,868 29,682 3.9x 10.0x

Leap Wireless End-Product-User Service AT&T Integrated 278,293 July 12, 2013 2013 Expand wireless services 3,925 3,051 467 1.3x 8.4x

Clearwire End-Product-User Service Sprint End-User Product Services 49,020 December 13, 2012 2012 Expand broadband services 11,631 1,260 (405) 9.2x Neg

Sprint End-Product-User Service SoftBank Integrated 149,070 October 15, 2012 2012 Expand broadband services 39,819 35,404 4,479 1.1x 8.9x

Alltel End-Product-User Service Cellco Partnership Integrated N/A June 6, 2008 2008 Expand customer reach 28,505 9,040 3,201 3.2x 8.9x

SunCom Wireless End-Product-User Service T-Mobile End-User Product Services 52,934 September 12, 2007 2007 Retail Exposure/Direct sales 2,394 920 151 2.6x 15.8x

US Wireless Average 3.6x 10.4x

US Wireline

TW Telecom Integrated Telecom Level 3 Communications Communications Provider 28,786 June 16, 2014 2014 Expand network & fiber 7,369 1,591 518 4.6x 14.2x

Charter Communications Content Distributor Liberty Media Content Creator 27,009 March 19, 2013 2013 Obtain stake in distribution 22,642 7,504 2,644 3.0x 8.6x

Bresnan Broadband Long-Range Infrastructure Charter Communications OperatingIntegrated N/A February 7, 2013 2013 Expand customer base 2,562 509 163 5.0x 15.7x

Virgin Media Connectivity Product/Service Liberty Global Infrastructure/Connectivity 84,033 February 5, 2013 2013 Expand customer base 22,671 6,279 2,532 3.6x 9.0x

Atlantic Broadband Finance Content Aggregator Cogeco Cable Content Aggregator 4,888 July 18, 2012 2012 International expansion 2,028 329 145 6.2x 14.0x

Insight Communications Distributor/Aggregator Time Warner Cable Integrated 74,635 August 15, 2011 2011 Expand services offered 4,720 1,064 369 4.4x 12.8x

Qwest Communications End-User Product/Service ConnectivityCenturyLink End-User Product/Service 36,104 April 22, 2010 2010 Consolidation 22,194 12,104 4,027 1.8x 5.5x

BellSouth Corporation Integrated AT&T Integrated 278,293 March 6, 2006 2006 Consolidation 109,126 20,547 8,772 5.3x 12.4x

MCI (Verizon Business Global) Integrated Verizon Integrated 297,407 February 14, 2005 2005 Internet Protocol/Corp User 7,136 18,914 2,075 0.4x 3.4x

AT&T Corp. Integrated SBC Communications Integrated N/A January 30, 2005 2005 Long-Distance 22,967 30,537 6,507 0.8x 3.5x


Satellite

DirecTV Content Distributor AT&T Content Aggregator 278,293 May 18, 2014 2014 Expand product breadth 61,852 32,029 8,156 1.9x 7.6x

Hughes Communications End-User EchoStar Long-Range Infrastructure 5,045 February 14, 2011 2011 Increase Majority Interest 1,880 1,043 209 1.8x 9.0x

Satellite Average 1.9x 8.3x

Latin America Telecom

Columbus Communications Integrated Cable & Wireless CommunicationsInfrastructure and Connectivity 7,732 November 6, 2014 2014 Consolidate interest 2,689.0 505 213 5.3x 12.6x

Telefonos de Mexico End-User Product/Service America Movil Integrated 95,227 August 1, 2011 2011 Increase majority Interest 16,633 8,040 3,193 2.1x 5.2x

Tele Norte Leste Participacoes Integrated Oi Integrated 10,592 May 24, 2011 2011 Consolidation of industry 22,909 17,810 6,614 1.3x 3.5x

America Telecom End-User Product/Service America Movil Integrated 95,227 November 9, 2006 2006 Expand customer base 36,305 12,490 4,036 2.9x 9.0x

Latin America Telecom Average 2.9x 7.6x

1.292775665 2,166

TV & Media

AOL Content Creator Verizon Content Aggregator 297,407 May 12, 2015 2015 Expand in content creation 4,182 2,569 433 1.6x 9.7x

LIN Media Content Producer Media General Content Producer 4,141 March 31, 2014 2014 Expand network / marketing 2,311 702 175 3.3x 13.2x

Astral Media Content Aggregator Bell Media Integrated N/A March 16, 2012 2012 Expand TV services 3,334 1,033 334 3.2x 10.0x

Belo Corp. Content Aggregator TEGNA Content Producer 10,594 June 13, 2013 2013 Expand Cable news ops. 2,215 719 262 3.1x 8.5x

NBCUniversal Media Integrated Comcast Integrated 196,363 February 12, 2013 2013 Complete acquisition 40,048 23,812 4,290 1.7x 9.3x

TV & Media Average 2.6x 10.1x

AT&T 2.0x 8.8x

LTM EV/LTM (2)

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