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19-Sep-06
1
BUSINESS OVERVIEWBUSINESS OVERVIEWBUSINESS OVERVIEW
September 19, 2006September 19, 2006
MTS ALLSTREAMMTS ALLSTREAMMTS ALLSTREAM
2005 revenues = $2 billion
3rd largest national provider in Canada
#2 in most Canadian business markets
>>>> MTS Allstream OverviewMTS Allstream Overview
Clear leader in Manitoba
Market-leading business and residential products
Quality asset base
High levels of customer satisfaction
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$262.5 $265.1
2004 2005 2006 Projected
Strong Free Cash Flow*Strong Free Cash Flow*>>>>
* From continuing operations.** Pro forma.
$285 - $310
**
mill
ions
Market OverviewMarket Overview
IP changing the landscapenew products/servicesnew demands
Highly competitive marketplace
MTS Allstream well positioned to succeed
market innovator
focused approach
highly competitive cost structure
leading-edge IP-based network
Enterprise and Consumer MarketsEnterprise and Consumer Markets
>>>>
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InnovationInnovation
Recent innovations at MTS Allstream:IP trunkingAllstream Collaboration Suitenetwork resident IP Telephony1x-EVDOwireline telco HDTVe-mail on TV/TV Call Display
Driving innovative solutions to customers while controlling costs is key to successDriving innovative solutions to customers while controlling costs is key to success
>>>>
Strong customer base and relationshipsStrong customer base and relationships
More than 6,000 enterprise customers
Excellent relationships with business and residential customers
>>>>
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MTS Allstream is a strong proponent of pro-competitive regulation and policy
We are the leading national competitive provider
Competition drives the pace and extent of innovation in telecom market
Rapid development and deployment of creative telecommunications services and solutions for the business sector key driver of investment, ICT adoption and productivity growth
>>>> Regulatory PerspectiveRegulatory Perspective
Bell Canada
Telus
61%
23%
National Business Market NAS Share*
Other Providers16%
* Data based on Q4 2005 public disclosure.
The incumbents’share of the business market was 86% at the end of 2005 unchanged from 2004
Bell’s share of the business market had not dropped below 78% in any major urban centre
>>>> The Canadian Telecom LandscapeThe Canadian Telecom Landscape
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Key to recognize two market realities:Residential: Cablecos and telcos compete on separate incumbent networksBusiness: Competitors compete with telcos on one telco-controlled network
Fair wholesale access for competitors to telco-controlled network fundamental to ensuring sustainable competition, investment and innovation
>>>> Regulatory PerspectiveRegulatory Perspective
We have commented on government’s proposed Policy Direction:
support drive to rely on competitive market forceswholesale competitor access key to competitionduplication of existing network not feasible or useful
We have submitted expert analysis of UK/US approaches:
demonstrate need for retail-de-regulation to parallel wholesale access
Government and regulator have been receptive to comment
MTS Allstream position similar to other competitive providers
>>>> Telecom Policy ReviewTelecom Policy Review
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Complete business review to create long-term shareholder value
Strategic PrioritiesStrategic Priorities
Continue leading in Manitoba
Expand the national business
Achieve $100 million in cost reductions and productivity
>>>>
Lowering costs to reflect:competitive landscapetechnology evolution
2005 program reduced annualized costs by $48 million
Current cost reduction program$75 million to $100 million new realized savings in 2006
>>>> Aligning the Cost StructureAligning the Cost Structure
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Focusing the BusinessFocusing the Business>>>>
Strengthening fundamental businessaligning product and market focusaligning cost structure
Assessing core/non-core assetscommercial real estatesale of Directories business
$281 million (12x EBITDA*)
* Earnings before interest, taxes, amortization and other income (expense).
Looking AheadLooking Ahead>>>>
Increase focus in business markets served with on-net facilities
Leverage Consumer Markets division small business strengths nationally
Continue to expand network capabilities in Manitoba where opportunities exist
Increase focus on converging applications in consumer markets
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SummarySummary
Innovative CompetitorInnovative Competitor
Leading Edge Asset BaseLeading Edge Asset Base
Succeeding in a Challenging MarketSucceeding in a Challenging Market
>>>>
Reducing Cost StructureReducing Cost Structure
Financially StrongFinancially Strong
Enterprise Solutions divisionEnterprise Solutions division
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AgendaAgenda
Enterprise Solutions roadmapEnterprise Solutions roadmap
Strategic focus areasConverged IPUnified CommunicationsProfessional Services
Strategic focus areasConverged IPUnified CommunicationsProfessional Services
Growth and profitabilityGrowth and profitability
>>>>
Overview of Enterprise Solutions divisionOverview of Enterprise Solutions division
Extensive National NetworkExtensive National Network
FIBRE ROUTE & MANITOBA NETWORKFIBRE ROUTE & MANITOBA NETWORK
DIGITAL RADIODIGITAL RADIO
NETWORK ACCESS POINTNETWORK ACCESS POINT
U.S. NETWORK ACCESS POINTU.S. NETWORK ACCESS POINT
SeattleSeattle
SpokaneSpokane WinnipegWinnipeg
ChicagoChicagoDetroitDetroit
BuffaloBuffalo
New YorkNew York
ChamplainChamplain
VancouverVancouver
VictoriaVictoriaRichmondRichmond
EdmontonEdmonton
CalgaryCalgary
KamloopsKamloops
BurnabyBurnaby
Thunder BayThunder Bay
SaskatoonSaskatoon
ReginaRegina
LondonLondon
SudburySudbury
HamiltonHamilton TorontoToronto
QuebecQuebec
HullHullOttawaOttawa
HalifaxHalifax
St. John’sSt. John’s
MontrealMontreal
Fort McMurrayFort McMurray
>>>>
14,000+ route km inter-city fibre8 toll switches50 offices across Canadanational sales force
7 cross border connections800+ data switches 23,000+ high-speed data ports7.5 Bn+ minutes carried annually
NATIONAL COVERAGENATIONAL COVERAGE GLOBAL REACHGLOBAL REACH
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More than 6,000 Enterprise CustomersMore than 6,000 Enterprise Customers>>>>
GovernmentFinancial Services Manufacturing Retail
Service Strategy RoadmapService Strategy Roadmap
Network – IPCEthernet, Internet, IP-VPN, DWDM
Network Services and Securitymulticasting, high availability networks,
customized reporting, network resident security
Voice ApplicationsIP trunking, NRIPT (cable companies), enhanced call
manager application COS, managed services, enhanced messaging
CollaborationSecurity, Microsoft Exchange (e-mail, etc.), video conferencing,
document collaboration, instant messaging
IP Content Applicationsmany-to-many content distribution,
streaming media
Service Managem
entend-to-end service
Port
al a
nd S
elf-
Serv
ice
trou
ble
tick
etin
g bi
lling
and
bill
rev
iew
orde
r pl
acem
ent
band
wid
th m
anag
emen
t
>>>>
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Focus connectivity product development on DSL/Ethernet and IP services
ConvergedIP
OPTIMIZE LEGACY CORE
UnifiedCommunications
Build a complete suite of VoIP, IP communication and Collaboration services
Professional Services
and Security
Focusing on security consultation and managed security services
Strategic Focus AreasStrategic Focus Areas>>>>
Collaboration ManagementSecurityEnterprise Applications
Converged IP Networks
Professional Services
Optimize the Core
UnifiedCommunications
Strategic Focus AreasStrategic Focus Areas>>>>
Ethernet (TLS)MPLSInternetEthernet and Storage Private LineMNS – Network ManagementMNS Professional Services
Enterprise IP TelephonyVoIP – WholesaleVoIP – Retail & IP TrunkingAllstream Collaboration Suite
Business LinesToll-FreeOutbound LDPrivate LineTransit LDATMDial-up InternetHosting
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Converged IP ProgramConverged IP Program
All traffic moving to IP
Leader in IP marketfirst national MPLS network in 2000significant deployments (Scotiabank, Great-West Life, WestJet, Hydro One)
Evolutionary path for customers
>>>>
135144
126
Q4/05 Q1/06 Q2/06
Customer BaseCustomer Base
IP-VPNIP-VPN>>>>
Next-Gen Data Connectivity Revenues 57%*Next-Gen Data Connectivity Revenues 57%** Revenue growth of first six months of 2006 compared to first six months of 2005.
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Business IP (MPLS) Network at WestJetBusiness IP (MPLS) Network at WestJet
Canada’s second largest airline
Extension of preferred supplier agreement
North American MPLS network solution
Value-added servicesconverged IP network
bundled security and professional solutions
>>>>
Business IP (MPLS) Network at Scotia BankBusiness IP (MPLS) Network at Scotia Bank
One of Canada’s largest financial institutions
1,001 branch locations across Canada
Stringent, high availability service level agreement
>>>>
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Unified Communications ProgramUnified Communications Program>>>>
Unique set of retail and wholesale offers
National service delivery and maintenance
11 delivery centres across Canada
Leading equipment partnersCisco, Nortel and Mitel
Mitel IP Telephony in the Education VerticalMitel IP Telephony in the Education Vertical
Rocky View School Division40 elementary and secondary schools in greater CalgaryTeleworker Extension for remote employeesMobile Extension for IT Department
London District Catholic School Board50 elementary and 8 secondary schools serving 23,000 studentsintegrates VoIP and Unified Messaging enabled network consolidation, reduced local lines and lowered MAC fees
BC Teachers FederationIP PBX supporting 230 IP and analogue phonesAllstream-supplied connectivity converges voice, video-conferencing and data trafficcuts local service costs while increasing productivity and security
>>>>
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Calgary-based sour gas processing subsidiary of SemGroup
capacity of 1.5 billion cubic feet of gas per day
Cisco IP Telephony solutionCallManager and 160 handsetsexisting MTS Allstream LD customer
Company wanted a PBX-based environment
reduced local access requirements
Cisco IP Telephony at SemCamsCisco IP Telephony at SemCams>>>>
Before IP Trunking SolutionBefore IP Trunking Solution After IP Trunking SolutionAfter IP Trunking Solution
IP Trunking ServiceIP Trunking Service
Reduces costsAccelerates return on investmentImproves productivityEnhances business flexibility
>>>>
First Canadian service providerFirst Canadian service provider
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Wholesale TelephonyWholesale Telephony>>>>
Stay tuned!
Professional Services ProgramProfessional Services Program
Collaboration Management
Security and Identity Management
Enterprise Applications
>>>>
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Microsoft PartnershipMicrosoft Partnership
Connected Services Framework Partner
Gold-Certified Advanced Infrastructure Solutions CompetencyBusiness Process and Integration Solutions CompetencyInformation Worker Solutions Competency
1.8%4.3% 3.2%
16.7%14.9%
18.5%
4.0%
20.0%
Q3/05 Q4/05 Q1/06 Q2/06
TELUS MTS Allstream
Focus on ProfitabilityFocus on Profitability>>>>
CLEC Division EBITDA* Margin ComparisonCLEC Division EBITDA* Margin Comparison
* As reported by MTS Allstream and TELUS.
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SummarySummary
Advanced National IP NetworkAdvanced National IP Network
Innovative Products and ServicesInnovative Products and Services
#2 in Every Major Market#2 in Every Major Market
>>>>
Significant Market OpportunitySignificant Market Opportunity
Talented PeopleTalented People
StrengthsStrengths
Consumer Markets divisionConsumer Markets division
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AgendaAgenda
Overview of Consumer Markets divisionOverview of Consumer Markets division
Driving growth and innovationDriving growth and innovation
Winning the broadband homeWinning the broadband home
>>>>
SummarySummary
>>>> Full-Service ProviderFull-Service Provider
Residential and business wirelineLocalLong distanceData
All-digital cellular1xEV-DO
High-speed Internet
Digital television
Commercial and residential security services
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$826.8 $836.8 $858.1 $902.1$808.9
2001 2002 2003 2004 2005
RevenuesRevenues
Overview of Consumer Markets divisionOverview of Consumer Markets division>>>>m
illio
ns
Managing transition from legacy to growth services
Overview of Consumer Markets divisionOverview of Consumer Markets division>>>>
One of the most profitable ILECs in North AmericaEBITDA* margin +50%
Long-term focus on cost disciplineone of lowest opex costs per line
Continued focus on cost reduction and efficiency going forward to address market realities
Driving growth in wireless, high-speed Internet and digital television in Manitoba market
Developing new initiatives to grow small business market nationally
* Earnings before interest, taxes, amortization and other income (expense).
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WIRELINEWIRELINE
WIRELESSWIRELESS
HIGH-SPEED INTERNETHIGH-SPEED INTERNET
DIGITAL TELEVISIONDIGITAL TELEVISION
Pervasive Network InfrastructurePervasive Network Infrastructure>>>>
673,500 access lines in service*
Digital 1X CDMA network provides coverage to 97% of Manitoba’s populationNew EV-DO network available in Winnipeg and Brandon332,400 customers in service*
ADSL/VDSL network provides coverage to 85% of Manitoba’s population, in over 150 communities including remote sites such as Churchill135,000 customers in service*
VDSL network provides coverage to 93% of Winnipeg households56,500 customers in service*
NUNAVUTNUNAVUT
ONTA
RIO
ONTA
RIO
SASK
ATC
HEW
AN
SASK
ATC
HEW
AN
Hudson Bay
Hudson Bay
M A N I T O BAM A N I T O BA
* As at June 30, 2006.
Market leader
Strong ARPU $55*
Industry low churn 0.9%**
Digital CDMA 1X network covers 97% of Manitoba’s population – broadest available
First to launch 1xEV-DO in Manitoba
Driving Growth and InnovationDriving Growth and Innovation>>>>
Wireless businessWireless business
* Average monthly revenue per customer for the six months ended June 30, 2006.** Postpaid churn rate for the six months ended June 30, 2006.
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High-speed Internet available to over 85% of the province’s population
Innovating with market leading applications and offers
basic service 5.0 Mbpswireless home networkingZoneAlarm Security Suite
Access to more than 300 Wi-Fi hotspots across Canada including 45 sites in Manitoba
Driving Growth and InnovationDriving Growth and Innovation>>>>
Internet businessInternet business
Driving Growth and InnovationDriving Growth and Innovation>>>>
MTS TV - industry leading digital televisionMTS TV - industry leading digital television3 simultaneous digital streams
Superior choice in channel package selectionover 200 channels with over 25 theme groups
individual channel selections
Wide selection of Video on Demand movies
Exclusive MTS TV featuresTV E-mailTV Call DisplayAuto-tuneInteractive TV Portal
Coming soonDigital photo-sharePay per View Live EventsTV Channel Package changes over Web
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Introduced in Q3 2006One of the first in Canadian wireline telecommunications with HDTVTechnology
VDSLHD set-top box
Offer:initial launch 7 channels (expanding in 2007)$349 for set-top box plus installation fee$4.99 per month charge (waived on 2-year agreement)disciplined competitive approach vs. deep discounting
Driving Growth and InnovationDriving Growth and Innovation>>>>
High Definition televisionHigh Definition television
SOHO and small business with less than 100 employeesCanadian telecom spend of $9 billion
Existing MTS Allstream national base of approximately 80,000 small business customers
planning targeted price increasesimprove overall margins by grooming current customer base
Grow ARPU for existing customers and acquire new customers through packaged, integrated offers
targeted to specific local markets where existing network footprint enables profitable growth
Developing IP-based products optimized for small business
Small Business marketSmall Business market
Driving Growth and InnovationDriving Growth and Innovation>>>>
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Capitalizing on Newest Product AreasCapitalizing on Newest Product Areas
20052005
112.0%
14.2%
Digital Television Revenues
Wireless Revenues
Growth
11.1%Wireless Customers
58.3%Digital Television Customers
23.0%High-speed Internet Revenues
>>>>
YTD*YTD*
47.5%
36.8%
13.1%
11.6%
17.9%
* June 30, 2006.
21.5%High-speed Internet Customers 18.2%
$209.2 $203.9 $200.7 $202.7$170
$257.2
2001 2002 2003 2004 2005 2006 (F)
Competitive EnvironmentCompetitive Environment>>>>
mill
ions
Anticipated changing technology and competitive environmentMajor $300 million broadband investment beginning in 2000Well positioned to compete with cable companyContinuing to invest to strengthen our business
footprint upgrades for wireless, high-speed Internet, digital televisionnew service development (eg. Press2Talk, e-mail on television)Valley Cable Vision: 3,700 cable customers
Capital ExpendituresCapital Expenditures
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Winning the Broadband HomeWinning the Broadband Home>>>>
Full-Service Provider - Quintuple playWireline voiceWirelessHigh-speed InternetDigital televisionCommercial and residential security services
Converged serviceswireless and wireline
Simultaneous ringShared mailbox
high-speed Internet and digital televisionread e-mail on televisiondigital photo-share
Local provider strongly focused on serving Manitobastrong brand and customer relationshipbroadest network coverage and capabilitystrong sales and service capabilities
MTS competitive differentiatorsMTS competitive differentiators
Bundling StrategyBundling Strategy>>>>Grow our base of multiple-service customers by upselling existing customers
Leverage our position as the only full-service telecom provider and differentiate through unique value propositions
Entangle customers with bundles and long-term promotional offers
Winback customers with full-service offers
Maintain our premium price position in the Manitoba market
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Bundling ResultsBundling Results>>>>
Bundled customers doubled in last 12 months
Bundling benefitsUpselling wireless, high-speed Internet, digital television, and home security
70% of digital television customers take high-speed InternetCustomer loyalty
lower churn, greater share of wallet
Cost efficienciessingle bill/electronic billsingle truck rollintegrating all services provide efficiencies: marketing, sales and service
SummarySummary
Communications InnovatorCommunications Innovator
Strong Brand RecognitionStrong Brand Recognition
Receptive Customer BaseReceptive Customer Base
>>>>
Leading Market PositionLeading Market Position
Excellent Operating EfficiencyExcellent Operating Efficiency
StrengthsStrengths
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