MTS Allstream 1x1 book. Sept 13 2011.Final Allstream … · $1.665 B to $1.765 B $550 M to $590 M $110 M to $150 M 16% to 18% of revenues MTS Allstream: Strong foundation, strong

11

September 2011

www.mtsallstream.com

22

Safe harbour notice

This presentation contains certain forward-looking information. Material factors

or assumptions were applied in drawing conclusions or making a forecast or

projection reflected in such forward information. Actual results may differ

materially from a conclusion, forecast or projection in such forward-looking

information. Additional information about such material factors and assumptions

can be found in MTS’ filings with the Canadian securities regulatory authorities.

Except as required by law, MTS disclaims any intention or obligation to update

or revise any forward-looking statements, whether as a result of new

information, future events or otherwise.

33

MTS Allstream is a leading telecommunications providerin Canada.

MTS

Wireless

High-speed Internet

IPTV

Converged IP

Unified communications,

security and monitoring

Local access

Long distance and legacy data

Allstream

Converged IP

Unified communicationsand security

Local access

Long distance and legacy data

44

2011 strategic priorities

Be the Manitoba leader in home servicethrough unique bundle offerings

Drive growth in high-margin, on-net IP-based servicesto improve profitability

Deliver superior customer service,while aggressively improving our cost structure

…to produce strong cash flowsin support of our dividend policy.

5

6

Local access

29%

All other revenues

14%

Broadband and

converged IP

21%

MTS is positioned for market leadership for years to come.

6

MTS revenue grew 3% in H1 2011 over H1 2010

Wireless up 9.3%, driven by 45.5% data revenue growth

High-speed Internet up 5.5%

IPTV up 17.5%

MTS: The market leader in Manitoba

Wireless revenues represent 36%of MTS revenues in H1 2011.

MTS revenue mix - H1 2011

7

INNOVATIVE SERVICE BUNDLES

Customers on a bundle generate higher average revenue per user (“ARPU”)and are less likely to switch to a competitors’ services.


MTS is the only provider in Manitoba able to offer a wirelessbundle or a four-service bundle.

MTS is investing in fibre to the home; 25 new communities will have FTTH by 2013.Deep fibre penetration allows us to provide innovative services and enhancesour bundle offering.

+ + + +

8

• 4G network• Wireless high-speed data coverage is now

available to 97% of Manitobans,up from 72% with EVDO

• Capable of cost-effective upgrade to LTE

• Over 185 MTS Wi-Fi hotpots across Manitoba• Available to wireless and Internet subscribers• Improved customer experience with increased

upload/download speeds


MTS has the best wireless coverage in Manitoba throughWi-Fi, 4G and CDMA-EVDO networks.

Network CoverageNetwork Coverage

Delivers wireless high-speed datato 97% of Manitoba’s population

Wireless data revenues grew 46.2% in 2010.1

Strong demand for high-speed wireless datacontinued in H1 2011, up 45.5% over H1 2010.

1 Full-year 2010 vs. full-year 2009

9

Strong market share in Manitoba

Internet

WirelessWireline

1 Greater Winnipeg market

33%

57%

55%78%

IPTV1


MTS is leveraging its competitive advantages to maintain strongmarket share across all segments and grow wireless, high-speedInternet and IPTV revenues.

MTS’s competitive advantages

Top brand recognition

Strong, exclusive distributers

Product leadership

Unmatched bundles

These competitive advantages createcustomer value and loyalty whichcontribute to strong results.

Internet

10

11

0

200

400

600

800

2010 2011E 2012E 2013E 2014E 2015E

Local Access Converged IP Legacy & Other

We are managing Allstream’srevenue mix to shift our focus tohigh-margin IP revenues and exitlow-margin lines of business.

In H1 2011, IP revenue grew 9.2%and IP-based services generated28% of Allstream revenues.

11

Allstream is focused on high-margin IP revenues to increaseprofitability and seize the opportunity in this growing market.

Allstream: Driving growth in IP

Allstream revenue trends

1 H1 2011 vs. H1 2010; normalized for restructuring costs.

12

GrossMargin

COGS

56.6%H1 2011

At Allstream, we have made decisions to improverevenue mix and grow EBITDA.

12


GrossMargin

COGS

Allstream gross margin increased 2.1ptsfrom H1 2010 to H1 2011

54.5%

*Consult our Q2 2011 Supplementary Information Package for more information.

H1 2010

IP is Allstream’s highest-marginproduct with average gross marginof over 72%.

Allstream’s overall gross marginincreased from 54.5% at H1 2010to 56.6% at H1 2011, due topositive changes in revenue mix.

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61%

39%

0%

20%

40%

60%

80%

100%

Off-Net

On-Net


Allstream is focused on driving IP revenue growth, deliveringstronger margins by expanding the on-net footprint, and managinglegacy services for profitability.

IP gross margins are higherwhen traffic is on our network

In 2010, 61% of new IP circuits were on-net,a significant increase over historical trends

Circuits added in 2010

IP gross margins are expected to gradually increase over timeas the proportion of on-net circuits to off-net circuits grows.

14

Allstream’s fibre network spans30,000 km across Canada

Allstream has fibre penetrationin the four major urbanbusiness centres in Canada

Since Q2 2010, Allstream has connected 239 buildings to itsnetwork as part of targeted, success-based investment programs.


Connected fibre-fed buildings

Q2-10 Q3-10 Q4-10 Q1- 11 Q2-11

2,164

2,211

2,089

2,022

1,972

IP margins are higherwhen traffic is on our network

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Allstream is managing legacy services for profitability andreinvesting these cash flows in IP services.

IP revenues are expected to represent nearly 40%of Allstream’s revenue mix by 2013.

2010 2013

26%

24%10% 23%

11%

26%

Converged IP Local Access UC & Security LD & Legacy Data & Other

36% 28%

11% 25%

H1 2011

40%


40%

16

Consolidated financial results

17

MTS Allstream increased 2011 financial guidancefor revenue, EBITDA and EPS.

Consolidated, in accordance with IFRS

17

Revenues

EBITDA

Free cash flow

Capital expenditures

$1.665 B to $1.765 B

$550 M to $590 M

$110 M to $150 M

16% to 18% of revenues

MTS Allstream: Strong foundation, strong future

$1.700 B to $1.780 B

$580 M to $610 M

Earnings per share $2.00 to $2.45$2.40 to $2.80

No change

No change

OriginalUpdated2011 financial outlook

18

17.4%Capital intensity*

53.9Free cash flow*

0.97EPS ($)*

269.4EBITDA

884.9Revenue

H1 2010(in millions $, except EPS)

Consolidated, in accordance with IFRS

H1 2011

883.0

300.6

1.43

82.2

13.9% 3.5 pts

52.5

47.4

11.6

Positive trends in all key financial metrics showthat our strategy is working.

(0.2)

%


*EPS, free cash flow and capital intensity were positively impacted by a one-time $20 million SR&ED investment tax creditin Q2 2011. Excluding the impact of the SR&ED ITC adjustment, free cash flow was up $3.8 million in Q2 and $7.6 millionin H1, while EPS was up $0.10 in Q2 and $0.34 in H1, over the same periods of 2010.

17.6%

33.3

0.54

138.8

442.9

Q2 2010Q2 2011

443.7

150.8

0.76

57.8

12.3% 5.3 pts

73.6

47.4

8.6

0.2

%

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ReducedCapital

Spending

IncreasedEBITDA

ReducedPensionSolvencyPayments

ReducedRestructuring

Costs

2010Free Cash Flow

2011Free Cash Flow

$34.1 M

$110-$150M

Q1 pension solvency funding of $24.4M, no further cash funding requirements in 2011

SR&ED investment tax credit will be utilized when MTS Allstream becomes taxable

H1 results on target to support our dividend and achieve2011 free cash flow guidance. Consolidated free cash flowis expected to improve significantly in 2011.


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Investment-grade debt ratings

“BBB/Stable” for both DBRS and S&P

Stable consolidated EBITDA margins reflect prudent cost management and areexpected to continue in 2011

$315 million tax asset means no cash tax payments until 2019

20

MTS Allstream delivers solid financial performance.


*Estimated, in accordance with IFRS

33%29%

2008* 2009*

32%

2010

34%

H1 2011

Stable EBITDA margins

2121

Strong H1 performance

MTS delivers 3% year-over-year revenue growth

Allstream delivers 9.2% year-over-year converged IP revenue growthMTS Allstream EBITDA increases $31.2 million, or 11.6%,with free cash flow up by $28.3 million, over prior year

Making investments in support of a long-term strategy4G wireless network launchedFibre to the home deployment in ManitobaExpanding our national fibre network with more on-net buildings

Due to strong performance in H1, MTS Allstream raised 2011 guidance forrevenue, EBITDA and EPS.

The Company has demonstrated stability over time based onstrong fundamentals, regional market strengths and strongfinancial metrics in support of the dividend.


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Appendix – Definitions

• EBITDA – We define EBITDA as earnings before interest, taxes, depreciationand amortization, and other income. EBITDA should not be construed as analternative to operating income or to cash flows from operating activities(as determined in accordance with International Financial Reporting Standards)as a measure of liquidity.

• Free cash flow – We define free cash flow as cash flow from operatingactivities, less capital expenditures, and excluding changes in working capital.Free cash flow is the amount of discretionary cash flow that we have forpurchasing additional assets beyond our annual capital expenditure program,paying dividends, buying back shares, and/or retiring debt.

Documents

MTS Allstream 1x1 book. Sept 13 2011.Final Allstream … · $1.665 B to $1.765 B $550 M to $590 M $110 M to $150 M 16% to 18% of revenues MTS Allstream: Strong foundation, strong