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					MORGAN NORTH

STANLEY

RESEARCH

AMERICA

Morgan Stanley & Co. Incorporated

Simon Flannery
Simon.Flannery@morganstanley.com +1 (1)212 761 6432

Daniel Gaviria
+1 (1)212 761 3312

Sean Ittel
+1 (1)212 761 7220

April 20, 2009

Bradley Edwards
+1 (1)212 761 3809

Industry View Attractive

Telecom Services
1Q09 Preview: Solid Quarter in Prospect Despite the Environment
Investment conclusion: First quarter earnings season should support our view that the Telecom sector is well positioned to withstand the impact of a weak economy. We will likely see pressure in a number of areas such as enterprise and wireless ARPU, but overall results are expected to come in at or above expectations. Aggressive cost cutting and lower capex should support free cash flow in a soft top line environment. What's new: We have already seen impressive headline wireless results from MetroPCS, while TELUS guided to weaker trends. Qwest indicated that EBITDA was strong despite some revenue pressure in the quarter. We expect Bell access line loss to increase from -9.6% to -9.9% Y/Y this quarter. Broadband adds are expected to drop 47% Y/Y but only 5% sequentially. Telco TV adds should be close to record levels at 549k. Big 4 wireless retail adds are expected to be 2,028k, down 13% Y/Y. The recent CTIA wireless show suggested that wireless data is sustaining solid industry growth at the high end, with unlimited prepaid plans enjoying share gain at the low end. Credit markets continue to improve, with Qwest, Crown Castle, Frontier and Level 3 among the companies tapping the markets recently. We recently published our quarterly wireless survey which suggests better sequential trends in the first quarter. Where we differ: Our macro forecasts call for a deep recession followed by a gradual recovery. Our strategy team remains concerned that the recent market rally could reverse. In this environment, we believe the Telecom sector can outperform the broader market. We believe Telecom is attractive for three key reasons: 1) Attractive valuations in absolute and relative terms, 2) Strong Balance sheets supported by good free cash flow generation and 3) Defensive, subscription based business models. Key stock recommendations include AT&T, Windstream, BCE, Rogers, Leap and MetroPCS. What’s next: AT&T kicks off earnings season on April 22, they are also in negotiations with labor unions in several regions. We will be hosting a Telecom Services Corporate Access Day in New York on May 14th.
Recent Reports
Title

Edward Katz
+1 (1)212 761 3244

Date

Telecom Services: 1Q Wireless Survey: Verizon, AT&T & Unlimited Prepaid Carriers Show Strength
Simon Flannery / Daniel Gaviria / Avi Silver / Edward Katz

Apr 12, 2009

Telecom Services: Lower Bond Yields Support Equity Valuations
Simon Flannery / Daniel Gaviria / Edward Katz

Mar 22, 2009

Telecom Services: 4Q Trend Tracker: Stable FCF Supports Sector
Simon Flannery / Daniel Gaviria / Sean Ittel / Bradley Edwards / Edward Katz

Mar 16, 2009

Telecom Services: Downgrading Tower Names on Relative Outperformance
Simon Flannery / Sean Ittel

Mar 12, 2009

GICS Sector: Telecom Services
Strategist's Recommended Weight S&P 500 Weight 7.1% 3.8%

Morgan Stanley does and seeks to do business with companies covered in Morgan Stanley Research. As a result, investors should be aware that the firm may have a conflict of interest that could affect the objectivity of Morgan Stanley Research. Investors should consider Morgan Stanley Research as only a single factor in making their investment decision. Customers of Morgan Stanley in the US can receive independent, third-party research on companies covered in Morgan Stanley Research, at no cost to them, where such research is available. Customers can access this independent research at www.morganstanley.com/equityresearch or can call 1-800-624-2063 to request a copy of this research.

For analyst certification and other important disclosures, refer to the Disclosure Section, located at the end of this report.

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Table of Contents
1Q09 Earnings Calendar................................................................................................................................................. 3 1Q09 Preview: Solid Quarter In Prospect Despite the Environment ......................................................................... 5 Valuation: Telecom Sector Down 5% YTD After 34% in 2008................................................................................... 11 Wireline Outlook: Weak Metrics Met With Compelling Valuations .......................................................................... 13 Wireless Preview: Shift to Unlimited Prepaid Emerging........................................................................................... 18 Towers: Access to Capital Markets Easing for Towers ............................................................................................ 22 Canada: Is the Weakening Economy Impacting Wireless Growth? ........................................................................ 25 Alternative Carrier Preview: Enterprise Remains in Focus ...................................................................................... 30 Wireless Survey: VZ, T, & Unlimited Prepaid Carriers Show Strength.................................................................... 32

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1Q09 Earnings Calendar
Exhibit 1

Telecom Services 1Q09 Earnings Calendar
MONDAY 4/20/2009 TUESDAY 4/21/2009 WEDNESDAY 4/22/2009
T 1Q09 Conf. Call, 10 am ET Dial in: 877-749-4271 Passcode: NA AAPL 1Q09 Conf. Call, 5 pm ET Dial in: 877-340-7913 Passcode: NA

THURSDAY 4/23/2009

FRIDAY 4/24/2009

4/27/2009
VZ 1Q09 Conf. Call, 8:30 am ET Dial in: 888.790.6031 Passcode: Verizon

4/28/2009
LVLT 1Q09 Conf. Call, 10 am ET Dial in: 1-800-289-0528 Passcode: 1866464

4/29/2009
RCI 1Q09 Conf. Call, 8 am ET Dial in: 416-644-3414 Passcode: Rogers 1Q09 Conf Call AMT 1Q09 Conf. Call, 8:30 am ET Dial in: 877-235-9047 Conf ID: 94670401 TWC 1Q09 Conf. Call, 8:30 am ET Dial in: 888-677-9025 Conf ID: TWC1Q09 Q 1Q09 Conf. Call, 9 am ET Dial in: 888-747-3510 Conf ID: 1344663 SVVS 1Q09 Conf. Call, 10 am ET Dial in: 866-836-4700 Conf ID: NA

4/30/2009
CMCSA 1Q09 Conf. Call, 8:30 am ET Dial in: 1-800-263-8495 Conf ID: 91519607 TNDM 1Q09 Conf. Call, 9 am ET Dial in: 1-800-366-7449 Conf ID: 11130536# IWA 1Q09 Conf. Call, 9 am ET Dial in: 719-325-4916 Conf ID: 3349130 CCI 1Q09 Conf. Call, 10:30 am ET Dial in: 303-262-2013 Conf ID: NA CTL 1Q09 Conf. Call, 11:30 am ET Dial in: 1-866-206-6509 Conf ID: NA

5/1/2009

5/4/2009
S 1Q09 Conf. Call, 8 am ET Dial in: 866-763-0020 Conf ID: 89264535

5/5/2009
SBAC 1Q09 Conf. Call, 10 am ET Dial in: 866-254-5940 Conf ID: N/A CBB 1Q09 Conf. Call, 10 am ET Dial in: 888-464-7607 Passcode: 90960298

5/6/2009
CSCO 1Q09 Conf. Call, 4:30 pm ET Live WebCast URL: http://investor.cisco.com/eventdetail. cfm?eventid=67707 EQ 1Q09 Conf. Call, 4:30 pm ET Dial in: 1-866-245-2310 Passcode: 92372147 PAET 1Q09 Conf. Call, 5 pm ET Dial in: 866-804-6920 Passcode: 40541684

5/7/2009
FTR 1Q09 Conf. Call, 9 am ET Dial in: 1-888-203-1112 Passcode: 1833334 PCS 1Q09 Conf. Call, 9 am ET Dial in: 888-464-7607 Passcode: 90960298 T-TSE Ann. Gen. Meeting; 1Q09 Earnings 11 am, webcast: www.telus.com/agm

5/8/2009
WIN 1Q09 Conf. Call, 8:30 am ET Dial in: 1-877-356-2910 Passcode: 94485395

5/11/2009

5/12/2009

5/13/2009

5/14/2009
Morgan Stanley Corporate Access Day 7:30 am; New York City

5/15/2009

Source: Company data, Morgan Stanley Research. Other projected earnings without full dial-in info: CHTRQ – 04/28; VM – 05/04; TDS/USM – 05/06; CVC – 05/07; BCE-TSE – 05/07; CLWR – 05/11; TWTC – 05/12; FRP – 05/15

Morgan Stanley is currently acting as financial advisor to CenturyTel Inc ("CTL") with respect to its agreement to acquire EMBARQ Corporation ("EQ") announced on Oct 27, 2008. Morgan Stanley is also providing financing services to CTL in connection with the acquisition. The proposed transaction is subject to regulatory approvals, the approval of CTL and EQ shareholders and other customary closing conditions. This report and the information provided herein is not intended to (i) provide voting advice, (ii) serve as an endorsement of the proposed transactions, or (iii) result in the procurement, withholding or revocation of a proxy or any other action by a security holder. CTL has agreed to pay fees to Morgan Stanley for its financial advice and financing services, including transaction and financing fees that are contingent upon the consummation of the proposed transaction. Please refer to the notes at the end of the report.

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Exhibit 2

Morgan Stanley Telecom Services 1Q09 Preview Snapshot
1Q09E AT&T y/y % growth AT&T Mobility y/y % growth BCE (CAD$) y/y % growth Cincinnati Bell y/y % growth Frontier y/y % growth Iowa Telecom y/y % growth Leap Wireless y/y % growth Level 3 y/y % growth MetroPCS y/y % growth Neutral Tandem y/y % growth PAETEC y/y % growth Qwest y/y % growth Rogers (CAD$) y/y % growth SAVVIS y/y % growth Sprint Nextel y/y % growth Sprint Wireless y/y % growth Telus (CAD$) y/y % growth TDS y/y % growth US Cellular y/y % growth tw telecom y/y % growth Windstream y/y % growth Verizon y/y % growth Verizon Wireless y/y % growth Revenues 30,870 0.4% 11,753 10.4% 4,354 -0.4% 352 1.0% 542 -4.7% 58 -4.3% 516 29.2% 1,027 -6.0% 732 30.2% 37 39.9% 396 10.2% 3,238 -4.7% 2,809 7.7% 222 9.2% 8,238 -11.7% 6,293 -12.0% 2,379 1.2% 1,300 1.0% 974 1.2% 296 4.9% 780 -2.5% 26,613 12.9% 13,303 31.1% EBITDA 9,866 -12.4% 4,357 -1.8% 1,717 -1.9% 118 -1.6% 287 -7.0% 29 -10.4% 112 -5.8% 249 17.9% 187 5.0% 16 66.7% 55 -8.4% 1,041 -8.8% 1,009 2.5% 47 17.4% 1,611 -19.8% 1,350 -25.1% 910 -4.2% 339 11.8% 225 -15.1% 99 5.3% 378 -9.9% 8,773 10.4% 5,902 29.6% 44.4% 33.0% 48.5% 33.3% 23.1% 26.0% 38.3% $0.76 -9.6% $0.77 95.2% $0.57 -29.3% ($0.04) NM $0.22 -19.5% $0.59 -3.3% NA $0.59 e $0.23 e ($0.01) e $0.52 e $0.48 e $0.80 e 21.4% 19.6% 21.3% 35.9% 32.1% 13.8% 44.2% 25.5% 24.2% 21.7% 49.4% 52.9% 33.4% 39.4% $0.57 1.3% $0.10 3.6% $0.14 -12.8% $0.14 -36.6% ($0.64) NM ($0.09) NM $0.08 -40.6% $0.27 109.8% ($0.05) NM $0.08 -26.2% $0.43 2.1% ($0.19) NM ($0.20) NM NA ($0.06) e ($0.03) e $0.44 e $0.08 e ($0.05) e NA $0.09 e ($0.08) e ($0.68) e $0.15 e $0.13 e $0.11 e $0.56 e 37.1% Margin 32.0% EPS $0.47 -17.9% NA Consensus EPS $0.50 e Capex 4,075 -4.1% 1,375 61.8% 746 35.4% 61 0.9% 67 40.1% 6 9.4% 219 39.1% 86 -23.9% 255 38.9% 4 -97.0% 31 44.4% 444 6.6% 384 19.8% 36 -18.0% 565 -58.5% 415 -52.6% 494 54.4% 166 28.2% 134 19.9% 59 -1.1% 76 37.0% 3,779 -10.4% 1,680 -2.4% 12.6% 14.2% 9.8% 19.9% 13.8% 12.8% 20.8% 6.6% 6.9% 16.0% 13.7% 13.7% 7.8% 11.3% 34.9% 8.4% 42.4% 11.0% 12.4% 17.4% 17.1% 11.7% Capex/Sales 13.2%

Source: Company data, Morgan Stanley Research; E = Morgan Stanley Estimates (1) CTL pro forma for Madison River acquisition (2) FTR is pro forma for CTCO acquisition

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1Q09 Preview: Solid Quarter In Prospect Despite the Environment
Still A Challenging Macroeconomic Outlook Morgan Stanley's macro team is forecasting a 3.3% drop in GDP this year, with unemployment hitting 10% by year end, business fixed investment dropping 18.8%, and housing starts off 39.1%. We expect the economy to trough in 3Q09 (with our macro team forecasting a Y/Y GDP decline of -1.0%). 2010 is set to show a sluggish recovery with GDP growth of just 1.8% and unemployment averaging 9.8%. There is still downside risk to forecasts and weak markets can translate to further pension and OPEB impacts. On the other hand, we would expect other industries to be hit harder than telecom, leading to ongoing outperformance. A number of carriers including Verizon, AT&T, American Tower, Level 3, Crown Castle, and SAVVIS are also exposed to FX fluctuations given non-dollar revenue streams or investments. We expect the Fed to maintain current policy, with the Fed funds rate to remain at the current target of 0% – 0.25% through 1H10. The 10-year Treasury, which currently stands at 2.77%, is expected to rise back up to 3.50% by the end of 2009 and 5.50% by the end of 2010 as the yield curve steepens. Credit Conditions – Improvement In High Yield A Plus We believe that (1) the credit markets can be a leading indicator for the equity markets and individual stocks and (2) bonds are still attractive as an alternative to stocks in the current environment, as many offer historically high yields and downside protection. We note that Qwest, Frontier, Crown Castle, and Level 3 all successfully tapped the credit markets in recent days, easing investor concerns on liquidity. Both Frontier and Qwest launched $300m bond deals which were significantly upsized to $600m and $810.5m respectively (with net proceeds of $538m and $750m). Level 3 expanded its senior secured credit facility (rated B+) by $220m. Crown Castle upsized its private note offering from $1.1bn to $1.2bn. Labor/Healthcare Costs – AT&T’s Negotiations Key AT&T faced a $27bn OPEB deficit at the end of 2008. The company expects OPEB benefit payments of some $14bn over the next five years but assets are only $10bn (and probably less now). Healthcare costs appear to be the most contentious in the current standoff with the CWA that has gone for two weeks past contract expiration on April 4. We note that on April 3, the CWA ratified the new AT&T Mobility contract which included 8.8% compensation increases over a four year period plus higher commissions on sales targets. The wireless employees who already pay 11% of their healthcare costs, will begin paying 20% in 2012. Portfolio For Credit Healing • SBA Communications • Crown Castle • Qwest
Exhibit 3

Telecom Debt Trading Narrower Than Other Sectors
US Telecommunications Debt Index v. US Corporate Debt Index
10% 9% 8% 7% 6% 5% 4% 3% 2% 1% Jun-08 Jan-09 Aug-08 May-08 Nov-08 Dec-08 Feb-09 Jul-08 Mar-09 Oct-08 Apr-09

7.7% US Corporate Index US Telecom Index 10 Yr Treasury Yield 6.3%

2.8%

Source: FactSet, Morgan Stanley Research. US Corporate Debt Index is the Avg YTW of the Merrill Lynch US Corporates 1-10Y & the US Corporates 10Y+

Unlimited Wireless Plans Changing the Landscape – There has been significant movement in the prepaid wireless space this quarter. On April 9, Virgin Mobile announced that it will be unveiling a new unlimited prepaid plan for $49.99 on April 15 and for an additional $10 unlimited texting can be added. Also the company will be introducing text only plans starting at $15 for 1,000 messages or $20 for unlimited. The unlimited prepaid market appears to be expanding and with more players entering execution will be key, especially in a model where as quickly as the subscribers can sign up they can leave. T-Mobile has a $50 unlimited voice offer for its long tenured customers as a retention offer, while Verizon launched a new friends and family promotion and revamped its prepaid pricing. On the Boost plan we will be particularly interested to see to how much cannibalization of existing customers there is, what the churn rate is, and how the network performs with the extra traffic.

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Reflections from CTIA
• From March 31 – April 2, we attended the annual CTIA conference in Las Vegas. Overall, we came away believing that although the wireless industry is slowing, and on a relative basis wireless operators are not exposed to the same areas of cyclical pressure as other industries. • Growth areas remain prepaid unlimited plans and smartphones and their associated app stores. • With 3G networks increasingly under strain with high data volumes, we note that 4G seems closer than ever with Clearwire rolling out WiMAX across several key markets in coming months, and Verizon, MetroPCS, and others looking to rapid LTE deployments. • Carriers are seeing some pressure from increasing unemployment impacting overages and roaming minutes of use.

not see policies under a Genachowski FCC that will disproportionately impact the RLECs, and regulatory scrutiny may intensify for the Bells. This could impact the industry in light of Verizon’s required divestitures and any potential transactions involving Qwest’s long-haul business. On the legislative front, if passed, the Employee Free Choice act could spark unionization in parts of the industry such as wireless, and in particularly for Verizon Wireless. Morgan Stanley’s retail team estimates that retail labor costs could rise 10-20% at some companies, in such a scenario, squeezing margins. Portfolio for Prolonged Recession, Weak Recovery • AT&T • Verizon • BCE • Metro PCS • Leap • Windstream • American Tower Pressure on Bell Lines Should Continue; We Estimate Bell Lines Will Decline 10.4% in 2009 RBOC line loss rates should increase to 9.9%, up from 9.6% in 4Q08 with full year 2009E line loss increasing to 10.4% from 9.6% in 2008 and 7.6% in 2007. The struggling housing markets are gross adds, and it seems that wireless substitution is accelerating in a tough economy. Our cable analyst Ben Swinburne expects VoIP adds to have peaked in 2007 (4.3M), with 2008 (3.6M) likely representing a deceleration. This could mark the inflection point for one of the major causes of Bell line loss in recent years.
Exhibit 4

Telecom Performance in 2009 Arguments for Outperformance – Defensive sector in an economic recession – Healthy industry structure promotes solid profitability – Wireless data still in secular growth phase – Bell dividend yields over treasuries at record levels – Deleveraging in an improved credit market could support the stocks – Visibility and lower dilution on Telco TV deployments Arguments for Underperformance – Economic weakness in consumer and enterprise spending could negatively impact earnings – Consolidation appears to be coming to an end – Europe is safer/cheaper – Any economic recovery will favor more cyclical sectors – The new administration could raise dividend taxation

Pressure On Bell Lines To Continue Through 2009, But Bottom Not So Distant
INCREMENTAL SWITCHED ACCESS LINES LOST FOR THE BELLS Cable Telephony net adds
2009E 2010E 2006 2007 2008

Others
2011E

Y/Y growth
2012E

– Price wars could occur in broadband, wireless, enterprise – Operators could make dilutive acquisitions – High leverage RLECs could cut dividend payouts New Regulatory Priorities? – The Obama telecom policy is still in its early stages (as we await confirmation of Julius Genachowski); however, we expect to see the provisioning for the national broadband initiative for rural America in the coming months. As part of the $825B stimulus bill recently drafted in Congress, $7B was allocated to broadband expansion. We do

1,000 (1,000) (3,000) (5,000) (7,000) (9,000) (8.0%) (11,000) (13,000) (15,000) (9.6%) (10.4%) (7.6%) (8.3%)

-3%

(3,562) (4,453) (4,998)

(2,380)

-4% -5% -6% (6.3%)

(7,355)

-7% -8% -9% -10% -11%

(8,334)

(6.9%)

Source: Company data, Morgan Stanley Research

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Broadband Net Adds Set To Decrease 49% for Bells Broadband adds should decline in1Q09; we anticipate a 47% decline for the industry (38% in 4Q08) and 49% for the RBOCs (34% in 4Q08). Overall, we expect broadband net adds growth to tick down due to a combination of cyclical pressures and a seasonally weaker 1Q; however FiOS and U-verse adds should be a bright spot. We note that AT&T has said that within the first 18 months of availability, about 15% of eligible customers sign on for the U-verse service.
Exhibit 5

based volumes. Although there will be some offset by firm pricing from a constructive industry dynamic and the mission critical nature of some enterprise telecom spending, we note that our Tech Hardware/Software team’s 1Q CIO survey showed declines for spending on enterprise voice (PBX), video conferencing, and bandwidth.
Exhibit 6

Up-Down Ratio on CIO Spending Priorities
9

Sep-08
8 7 6 5 4 3

Broadband Adds Set to Decline Further In 2009
Telco BB net adds 7,100 6,100 5,100 4,100 3,100 2,100 1,100 100 2006 2007 2008 2009E 2010E 2011E 2012E Cable Modem net adds
Up-to-down Ratio

Dec-08 Apr-09

5,759

6,244

4,481 3,742 2,756 2,255

1,699 1,542

1,382 1,393

1,142 1,187 752

1,032

2 1 0 Network Security Wan Optimization Bandwidth Video conferencing Enterprise Voice

Source: Company data, Morgan Stanley Research

Source: Company data, Morgan Stanley Research

Big 4 Wireless Postpaid Subscriber Adds Set To Drop 43% in 2009; Unlimited Prepaid Should Perform Well As wireless penetration approaches 90%, we are starting to see a steady slowdown in growth exacerbated by the weak economy. Nevertheless, our recent wireless survey suggested that 1Q09 growth returned to the run-rate seen over the past few quarters (up 3.5%). For 1Q09 we expect Big 4 retail net adds to drop 13% Y/Y and Big 4 postpaid adds to drop 42% Y/Y (both pro-forma for Alltel). However, we anticipate prepaid, especially unlimited voice and texting versions, to be an important source of growth this quarter for the wireless space. Furthermore, the first quarter is typically the best of the year for the unlimited segment and the weak macro economic environment should increase its demand. The major wireless bright spot continues to be wireless data, which is around 25% of service revenues and growing at close to a 40% pace. We expect to continue to see smartphones taking a greater share of the wireless base boosting ARPUs, although there are significant pressures on voice ARPUs. Our 1Q09 wireless survey revealed a 25% smartphone penetration among the Big 4 postpaid subscriber base and a 46% of upgrades. Enterprise Likely To See Declining Revenue In 2009 We expect the enterprise sector will see significant pressure on revenues in 2009. The weak macro environment will hurt new business, and may lead to higher bad debts and lower usage

On April 1, Gartner also lowered its IT spending forecast for 2009 to the lowest levels since the dot.com bubble (down 3.8% globally). We are watching business IT spending trends closely and so far they appear to be less resilient than recently anticipated. Productivity Gains Will Be Key, Capex Set To Fall 11% in 2009 at Bells + Sprint Given the top line pressures we are seeing, a focus on operating costs will be critical to sustaining earnings and free cash flow generation in 2009. A significant number of companies have announced layoffs in late 2008 and early 2009 averaging 4% of the workforce. We will be watching the upcoming AT&T labor negotiations closely as well. Healthcare reform is a key priority of the Obama administration, and could help the Bells address some of their legacy cost issues. We expect deals such as Verizon/Alltel to generate material synergies helping to sustain profitability in a challenging environment. Competition and Price Wars One of the big variables for 2009 will be the competitive environment. We will be watching the wireless industry, the cable competitors, and pricing within the business space very carefully. Pricing on unlimited plans has just recently become increasing competitive with Boost’s announcement of a $50 price point for unlimited voice and data, T-Mobile’s announcement of a $50 plan for legacy subscribers, and Virgin Mobile’s $50 unlimited voice plan. We also note that handset subsidy

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competition continues for the Big 4, with Verizon’s two for one BlackBerry offer. Cable companies have generally been disciplined on pricing. In 2009, Comcast and others will continue their roll out of higher-speed DOCSIS 3.0 cable modems and will compete more aggressively in the business markets. Verizon recently announced it would roll out its FiOS service in some select Texas markets to compete directly with U-verse for the first time. Telco TV Subscribers Should Grow 71% in 2009 We expect AT&T and Verizon to add 549k FiOS and U-verse TV customers in 1Q09, a 34% increase Y/Y. For 2009 we expect adds of 2.12M a Y/Y increase of 18.3%. A growing footprint will be the major driver of the subscriber growth as we note that U-verse saw key rollouts in Athens, GA, Midland, TX, and Gainesville, FL, while FiOS started its Philadelphia build out this month, expected to be completed in 2016. Both FiOS and U-verse have improved product functionality with whole house DVR and other offerings (On March 23rd, AT&T said that all U-verse areas now have access to over 100 channels); we are also seeing strong customer acceptance reflected in recent surveys. We will be watching the evolution of the TV/video over the web very carefully in 2009 as it poses a growing threat to the traditional cable TV business model. Consumers, and particularly the youth demographic, are doing an increasing proportion of their video viewing online. Relative Growth Prospects in Canada Attractive The Morgan Stanley Global Economics team expects the Canadian economy to slow in 2009 much like what they expect for the US. The team forecasts GDP growth to slow from 0.8%

in 2008 to negative 1.8% in 2009 which is still above our US forecast of negative 3.3%. The competitive environment in Canada is much more benign than that of the US, with only three major wireless carriers and only a few major cable competitors. Economic weakness emerging in Canada, particularly Western Canada now, appears to be impacting wireless subscriber growth. Already a seasonally weak quarter, we estimate 1Q postpaid wireless net additions to be 156 thousand, down 21% Y/Y. We also expect rising handset subsidies to pressure margins, expecting the industry to be at 45.6%, down 279 bps Y/Y. Valuation for the Canadians also appears attractive closely resembling their US peers. TELUS and BCE are yielding 6.1% and 5.9%, respectively, versus AT&T and Verizon, which are yielding 6.3% and 5.8%, respectively. From a PE perspective, TELUS and BCE are trading at 9.7x and 11.1x times our 2009 estimates, respectively, versus AT&T and Verizon which are trading at 13.0x and 12.8x, respectively. Additionally both TELUS and BCE will receive support from buyback programs. Other Issues to Watch • • • • • International Expansion – Strong Dollar and Low Valuations Abroad Industry Consolidation/Divestitures – Wireless, Towers, RLECs, CLECs Wireless Technology Wars Debt Refinancing At Potentially Higher Interest Rates Clearwire Market Launches and Rollout Schedule

Potential Catalysts
1Q Earnings Investors are seeing historic levels of volatility and dislocation. Deleveraging of portfolios and selling to meet redemptions is putting immense pressure on the market. Because it is hard to catch a falling knife; investor confidence is badly bruised and needs some reassurance. Easing the credit crunch The technical factors driving the market such as deleveraging will likely continue to ease into 2Q09, which could spark a rally. Cost cutting announcements We expect carriers to announce layoffs and capex cuts to address the challenging macro conditions. We believe there is significant opportunity for carriers to trim opex and capex in the current environment. Consolidation As we have seen in the financial sector, tough times can trigger consolidation activity. With debt yields coming down, we could see some deals in the coming months. New Wireless Plans at Lower Price Points Some of the strongest rallies have been driven from new unlimited plans from the prepaid providers. We believe further price cuts, or the inclusion of more data features in some plans, could drive performance once more.

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Investment Debates Summary: Telecom-Past, Present, Future
DEBATE Telecom in a Downcycle Is Telecom Still Defensive? Not that much. Secular and macro pressures continue to weigh on voice and access revenues for the Bells and RLECs, while the enterprise segment has recently seen pressure this past quarter. Defensive for now. We believe that strong wireless data revenue growth (51% and 41% in 4Q08 for AT&T and Verizon respectively) and increasing smartphone penetration will continue for some time, offsetting much of the recession-driven slowdown affecting the wireline businesses. Where we could be wrong: Depression-like economic conditions, loss of smartphone exclusivities, significant pension contributions required in 2010 MARKET’S VIEW OUR VIEW

Secular Issues in Telecom Can RGU Erosion Be Stemmed? Probably not. Y/Y line loss continues to increase toward the double digit range with no end in sight; although rural America remains somewhat insulated, it is not immune. Possible. We believe that 2007 was the peak year for cable VoIP net adds due to significant market rollouts reaching their peak. Where we could be wrong: Wireless substitution accelerates substantially due to the weak economy, capex needs for U-verse and FiOS are higher than anticipated, portending a slower than expected build out

Future of Wireless Industry How Will the Wireless Industry Develop through 2009? Subscriber growth and revenues will slow. The weak economy, maturing industry, and increased competition from unlimited offerings will create headwinds on growth. Agree. The wireless industry slowed dramatically in 2008 with Big 4 retail subscriber adds down 39% and in 4Q represented a staggering 55% decline. Where we could be wrong: Subscriber growth accelerates as aggressive pricing fuels demand, data growth dramatically slows and is unable to offset voice declines

Dividends Are the Dividends Sustainable? Probably not. Secular pressures will continue to take a toll on FCF generation across the dividend payers. Required pension cash contributions also pose a significant risk. Yes, for most carriers. We believe that most of the carriers have significant room for savings given operating and capital productivity statistics relative to the group and the European telcos. Leverage also remains reasonable across the space, while the recent opening of the high yield market should assist carriers in refinancing near term maturities. Where we could be wrong: Higher than expected capex needs, significant impacts to the top line due to depression-era macro pressures and worse than expected secular trends

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Exhibit 7

Maturities, Leverage and Ratings – Telecom Services’ Balance Sheets Are in Good Shape Overall
Tel. and Data Syst. (TDS) US Cellular Corps (USM) Verizon (VZ) Rogers (RCI.b-TSE), in CAD$ AT&T (T) BCE (BCE-TSE), in CAD$ Telus (T-TSE), in CAD$ tw telecom (TWTC) CenturyTel (CTL) Embarq (EQ) SAVVIS (SVVS) Paetec (PAET) MetroPCS (PCS) Sprint (S) Qwest (Q ) Windstream (WIN) Frontier Communications (FTR) Iowa Telecom (IWA) Leap Wireless (LEAP) American Tower (AMT) Cincinnati Bell (CBB) Level 3 (LVLT) Crown Castle Int. (CCI) SBA Comm. (SBAC) Fairpoint (FRP) Clearwire (CLWR) Maturities Leverage 2009E 600 0.8x 700 0.7x 22,100 1.4x 0 1.9x 6,575 1.7x 2,343 1.8x 0 2.0x 0 2.2x 0 2.3x 0 2.1x 0 1.5x 0 3.3x 0 2.8x 600 2.7x 561 3.0x 0 3.3x 0 3.9x 0 4.3x 0 3.9x 0 3.1x 0 3.8x 181 5.6x 0 6.3x 0 6.6x 0 na 0 na 2010E 0 0.7x 0 0.4x 2,822 1.1x 39 1.7x 5,629 1.5x 2,668 1.7x 609 1.9x 0 2.0x 1,300 2.3x 3 2.1x 0 1.1x 0 3.0x 0 1.8x 5,857 3.0x 1,812 2.9x 0 3.1x 0 4.0x 0 4.5x 0 2.7x 59 2.5x 250 3.5x 527 5.6x 175 5.8x 104 5.3x 0 na 0 na 2011E 0 0.5x 0 0.0x 7,761 0.8x 1,291 1.4x 17,499 1.3x 3,202 1.5x 1,925 1.8x 80 1.8x 708 2.3x 800 2.0x 83 0.7x 0 2.5x 100 1.1x 1,650 3.2x 2,150 2.8x 1,000 3.1x 1,121 4.1x 652 4.7x 200 1.8x 0 1.8x 0 3.2x 566 5.3x 0 5.3x 285 4.1x 0 na 0 na 2012E 0 0.4x 0 -0.3x 5,750 0.5x 1,220 1.2x 4,980 1.1x 390 1.3x 1,797 1.6x 0 1.5x 500 2.2x 0 1.9x 345 0.3x 50 2.1x 0 0.6x 2,750 3.3x 1,500 2.7x 0 3.0x 400 4.2x 0 4.9x 0 1.2x 2,462 1.3x 480 3.0x 325 5.2x 0 4.6x 0 3.1x 0 na 1,429 na S&P Moody's Fitch BBBBBBA BBBA BBB+ BBB+ B BBBBBBN/A B B BB BB BB+ BB B+ BBB+ B+ BB+ NR BB BBaa2 Baa2 A3 Baa3 A2 Baa2 Baa1 B2 Baa2 Baa3 N/A B2 N/A Ba1 Ba2 Ba2 Ba2 Ba3 B2 Ba1 B+ Caa1 Ba3 NR B1 Caa1 BBB+ BBB+ A BBB A NR BBB+ N/A BBBBBBN/A N/A N/A BB BB BB+ BB N/A N/A BB+ B+ BNR NR
SBAC 6.6x

Investment Grade Y Y

USM TDS VZ

0.7x 0.8x 1.4x 1.5x

2009E Leverage

Y
SVVS

Y
T 1.7x 1.8x 1.9x 2.0x 2.1x 2.2x 2.3x 2.7x 2.8x 3.0x 3.1x 3.3x 3.3x 3.8x 3.9x 3.9x 4.3x 5.6x 6.3x

Y
BCE-TSE

Y Y N Y Y
RCI.b-TSE T-TSE EQ TWTC CTL

N N Y(Moody's) N(S&P/Fitch) N N N N N N N N N

S PCS Q AMT WIN PAET CBB LEAP FTR IWA LVLT CCI

B+ N/A

N N

Source: Bloomberg (04/17/2009, 010:30am) (1) TDS $600M and US Cellular $700M unsecured tranche loans for working capital. (2) Includes Verizon $6B tranche loan for general corporate and a Cellco Partnership $14.5B bridge term tranche loan for general corporate. (3) Windstream Term Loan A and outstanding revolver totaled $433.3 at 12/31/2008
Moody's Investment grade: Aaa Aa1, Aa2, Aa3 A1, A2, A3 Baa1, Baa2, Baa3 Speculative / Non-Investment Grade: Ba1, Ba2, Ba3 B1, B2, B3 Caa1, Caa2, Caa3 Ca C BB B CCC CC C AAA AA A BBB S&P / Fitch

10

MORGAN

STANLEY

RESEARCH

April 20, 2009 Telecom Services

Valuation: Telecom Sector Down 5% YTD After 34% in 2008
Exhibit 8

YTD North American Telecom Services Stock Performance – A Mixed Start for the Sector
150%
125% S&P Telco (1) = Total Return of S&P 500 Telecom Index S&P Telco (2) = Stock performance of S&P 500 Telecom Index S&P 500 (1) = Total Return S&P 500 (2) = Stock performance 65% 62% 47% 35% 24% 22% 13% 12% 12% 7% 5% 0% -2% -2% -3% -3% -4% -5% -6% -8% -9%

100%
77%74%

50%

0%

-13%-14%-15% -18%

-21% -24%

Thus far in 2009, we have seen a beta rally with investors buying last year’s stocks that declined the most (Sprint, Paetec, and Level 3). In the current market rally (starting in the beginning of March), the Bells have appreciated 20%, although underperforming the broader S&P 500 by 9% after a 20% outperformance in 4Q08.
-62%

-50%

-100% AMT TNDM LVLT PAET USM CCI EQ CTL VZ Q T S&P Telco (1) S&P Telco (2) S&P 500 (1) S&P 500 (2) SBAC SVVS CBB LEAP PCS BCE CZN TDS RCI TU S CLWR TWTC FRP WIN IWA

Source: Company data, Morgan Stanley Research

Exhibit 9

1Q09 North American Telecom Services Stock Performance
120% 100% 80% 60% 40% 20% 0% -20% -40% -60% -80%
-76% 52% 43% 31% 30% 19% 16% 15% 5% 4% 4% 3% 3% 0% -2% -6% -7% -8% -8% -10% -11% -11% -12% -12% -12% -17% -18% -20% 95%

S&P Telco (1) = Total Return of S&P 500 Telecom Index S&P Telco (2) = Stock performance of S&P 500 Telecom Index S&P 500 (1) = Total Return S&P 500 (2) = Stock performance

-22% -23%

Wireless was the strongest subsector in 1Q09, outperforming on an absolute (24%) and relative (33%) basis. The Towers (21%) and Alternatives (18%) also outperformed the sector average (up 29.4% and 26.5% respectively) while the RLECs and Canadians were the two weakest (down 13% and 11% respectively) and underperforming the sector average by 1% and 4% respectively. The Bells, down 10%, underperformed by just 1%.
FRP

-100% EQ CTL Q SBAC T-TSE FTR S&P 500 (1) S&P Telco (1) S&P Telco (2) S&P 500 (2) RCI.b-TSE BCE-TSE SVVS S CBB LEAP PCS TDS CCI TNDM PAET LVLT CLWR TWTC USM AMT VZ T WIN IWA

Source: Company data, Morgan Stanley Research

Exhibit 10

RBOC Price-to-Earnings Ratio Below Historical Average
RBOC Average Discount to S&P500 P/E (85-Present Ex BLS)
10% 0% -10% -20% -30% -40% -50%
01/85 01/86 01/87 01/88 01/89

The current average P/E on 2009E consensus earnings for the Bells (AT&T and Verizon) is 11.5 times, below the 20-year average P/E of 13.4 times. The Bells are at a discount relative to the market: the S&P 500 trades on about 22 times MS 2009E earnings. Therefore, the group is at a 47.2% discount to the market P/E, compared to the average discount since 1985 of 16.4%.

-16.4%

Discount 01/85 - 04/17/09 Average
1/95 1/96 1/97 1/98 1/99 01/90 01/91 01/92 01/93 01/94 1/00 01/01 01/02 01/03 01/04

-47.2%
01/05 01/06 01/07 01/08 01/09

Source: Company data, Morgan Stanley Research. Note: Graph = discount P/E derived from Morgan Stanley’s Equity Strategy Team’s 2009 S&P earnings estimate as of December 8th.

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April 20, 2009 Telecom Services

Exhibit 11

RBOC Dividend Yields Spreads over 10-Yr Bonds At Record Levels
6.0 RBOC Dividend Yield minus 10 year Treasury Yield +20 year Average Spread 5 year Average Spread 4.0 Max Spread: 440 bps
Today's Spread: 322 bps Assume 10 yr yields 4% Assume 10 yr yields 4.5% Assume 10 yr yields 5%

The Bell’s average dividend yield of 6.06% for AT&T and Verizon has risen sharply given the fall off in the stocks recently. Given the recent market rally, the 322 bps spread is slightly down from the record high of 440 bps on March 9. Morgan Stanley sees the 10-year treasury returning to above 3.50% by the end of 2009 and reaching 5.50% by 4Q10.

2.0

0.0

20 Yr Avg Spread: (181 bps) 5 Yr Avg Spread: 48

(2.0)

(4.0)

(6.0) Feb-86 Feb-87 Feb-88 Feb-89 Feb-90 Feb-91 Feb-92 Feb-93 Feb-94 Feb-95 Feb-96 Feb-97 Feb-98 Feb-99 Feb-00 Feb-01 Feb-02 Feb-03 Feb-04 Feb-05 Feb-06 Feb-07 Feb-08 Feb-09

Source: Company data, Morgan Stanley Research

Exhibit 12

RBOC Relative Price – Verizon to AT&T Ratio Coming Down from Peak Levels, But Remains Above Mean
1.30

VZ / T Ratio - Last Twelve Months
1.25 1.20 1.15 1.10 1.05 1.00 0.95 0.90 Jan-08
Average: 1.09

Max: 1.25 Min: 0.94

Today: 1.22

Since the relative price ratio between Verizon and AT&T reached its LTM low of 0.94 in late April of last year, the ratio has sprung up and remained above the mean of 1.09. After reaching the peak of 1.23 on January 12, the ratio has nearly returned to its previous high. Verizon has outperformed AT&T by 3% YTD and 1% in 1Q09.

Mar-08

May-08

Jul-08

Sep-08

Nov-08

Jan-09

Mar-09

Source: Company data, Morgan Stanley Research

Exhibit 13

S&P 500 and Telecom Services Earnings Revisions
60% 40% 20% 0% -20% -40% -60% -80% Jul-06 Jul-07 Apr-06 Apr-07 Apr-08 Jul-08 Apr-09 Oct-06 Oct-07 Oct-08 Jan-06 Jan-07 Jan-08 Jan-09 Telecommunication Services Revisions S&P 500 Revisions

S&P revisions have risen recently given expectations of an economic recovery in the latter half of 2009. Telecom numbers were not immune to the fallout of the market environment, but have bounced back much more strongly than those of the overall S&P 500. Estimates dropped precipitously in late November. Since the end of 2008, however, the earnings revision factor has increased from -55 to -14 on April 15.

Source: Company data, Morgan Stanley Research

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RESEARCH

April 20, 2009 Telecom Services

Wireline Outlook: Weak Metrics Met With Compelling Valuations
Outlook Summary
Our View on the Quarter
- RBOC line loss rates should increase to 9.9%, up from 9.6% in 4Q08 with full year ‘09E line loss increasing to 10.4% from 9.6% in ‘08 and 7.6% in ‘07. The struggling housing markets are reducing gross adds, and it seems that wireless substitution is accelerating in a tough economy. Our cable analyst Ben Swinburne expects VoIP adds to have peaked in 2007 (4.3M), with 2008 (3.6M) likely representing a deceleration. This could mark the inflection point for one of the major causes of Bell line loss in recent years. - Broadband net adds should continue to decline in 1Q09; we anticipate a 47% decline for the industry (38% in 4Q08) and 49% for the RBOCs (34% in 4Q08). Overall, we expect broadband net adds growth to tick down due to a combination of cyclical pressures and a seasonally weaker 1Q. We expect U-verse to come the closest to FiOS net adds since the 1,000 add difference in 3Q08 (we estimate a gap of only 7,500 in 1Q09) as AT&T reported that U-verse surpassed year-end guidance of 1M subscribers in mid-December. We note that AT&T has said that within the first 18 months of availability, 15% of eligible customers sign on for the service. - We see enterprise revenue streams continuing to face pressure in 1Q, as IT spending continues to trend downwards, while dollar appreciation indicates potential FX impact. Enterprise revenues declined as voice volumes slowed with the weak economy, and customers sought pricing concessions on contract renewals. For 2009, rising unemployment suggests that enterprise will again face headwinds, although demand for IP remains solid, and the industry structure is much improved from a few years ago.
Exhibit 14

Wireless Makes the Difference; All Wireline-Only Carriers (except CBB) With Declining RGUs
RBOC Y/Y RGU GROWTH 9% 7% 5% 3.0% 3% 1% -1% -3% -5% -7% 3Q06A 4Q06A 1Q07A 2Q07A 3Q07A 4Q07A 1Q08A 2Q08A 3Q08A 4Q08A 1Q09E
EQ, -7.0%

AT&T

Verizon (1)

Qwest

3.1% 0.8%

3.0%

2.7%

2.6% 0.9%

1.6%

2.2% 0.6%

1.3%

2.3% 0.4%

1.0%

1.0% 1.0%

1.9% 0.4%

1.6% 0.3%

-1.6%

-1.8%

-2.3%

-2.5%

-2.9%

-3.3% -4.2% -4.8% -5.7% -6.4% -6.9%

RLEC Y/Y RGU GROWTH
0% -1% -2% -3% -4% -5% -6% -7%

6% 4% 2%

TDS (5)

WIN (6), -1.9% CTL (1), -2.5% CBB, IWA (4), -3.6% -3.6% FTR (3), -3.9% 1Q09E

TDS (5), 1.2%
0% -2% -4% -6%

WIN (6), -1.9% FRP (2) CTL (1), -2.5% IWA (4), -3.6% CBB, -3.6% FTR (3), -3.9%

EQ, -7.0%
-8% -10% 2Q07A 3Q07A 4Q07A 1Q08A 2Q08A 3Q08A

FRP (2), -9.7%
4Q08A 1Q09E

Recent Events for Context
- On April 2, the Wall Street Journal reported that Qwest was considering a sale of its long haul business for anywhere between $2 and $3B dollars. On April 7, however, the company completed $810.5M bond which should ease investor concerns regarding the 2010 convertible put and reduce any immediate need to dispose of the long haul business. - On March 19, we held a conference call with AT&T CFO Richard Lindner, on which he indicated the mild impact Telecom has felt in the recession thus far relative to other industries. Of note: management believes the “bargained [healthcare] plan has become outdated relative to what’s in the market today.” The company also has trained staff prepared to step in, should there be a strike. So far, the union has continued to work without a contract since April 5. - On March 5, Windstream announced it had reached the 1 million broadband subscriber mark, 30% higher Q/Q adds up until that day. The run rate suggested Windstream could be on track to adding 29,000 subscribers in 1Q09. Importantly, Windstream’s announcement confirms the improvement seen in recent broadband trends, especially at the Bells.

Source: Company data, Morgan Stanley Research. (1) CTL pro-forma for Madison River; (2) FRP pro-forma for Verizon New England; (3) FTR pro-forma for CTCO and Global Valley; (4) IWA standalone (ex-Bishop); (5) TDS includes ILEC and CLEC, pro-forma for acquisitions; (6) WIN pro-forma for CTC

Exhibit 15

FTTx – U-verse Adds To Come Closer to FiOS
FiOS Video net adds (000) U-verse Video net adds (000) FiOS Video Subs/ Homes open for sale U-verse Video Subs/ Homes open for sale 350 300 250 200 150 100 50 0 1Q07A 2Q07A 3Q07A 4Q07A 1Q08A 2Q08A 3Q08A 4Q08A 1Q09E
Source: Company data, Morgan Stanley Research
2% 10 141 11% 13% 167 148 6%105 75 7% 8% 9% 202 16% 15% 226 176 170 9% 11% 263 19% 20% 20% 233 232 303 21% 264 23% 278 271

25% 20% 15% 10% 5% 0%

6% 4% 38

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April 20, 2009 Telecom Services

Exhibit 16

RBOC Access Lines – RBOC Line Loss at Nearing Double Digits for 1Q09
RBOC & EMBARQ LINE LOSS Y/Y
Verizon AT&T Qwest Embarq

1.0% (200) (292) (304) (310) (700) (879) (911) (909) (1,200) (1,167) -7.7% (1,581) -9.3% -9.6% (2,200) -9.7% -10.0% (1,247) -7.3% -7.8% -9.6% -9.9% -9.8% (120) (157) (142) -1.0% -3.0% -5.0% -7.0% -9.0% -10.3% -11.0%

We expect economic weakness and the poor housing market to continue to impact line loss, in consumer and business segments. Overall, for the RBOCs, we see line loss increasing 31 bps on a sequential basis to 9.9% in 1Q09. Wireless substitution and cable telephony (VoIP) also continue to fuel line loss across the industry. According to our cable team’s estimates, cable telephony will add approximately 742k subscribers in 1Q09 – up from 631k in 4Q08, although down from 1.11M in 1Q08. We believe that 2007 was the peak year of cable VoIP adds. Our cable team expects cable VoIP adds of just over 2.35M in 2009, a 34% Y/Y drop. Of interest in 1Q will be the degree of line loss resulting from non-pay disconnects and business inactivity. Until now, secular trends have had a much more harmful effect for most of the carriers, as we expect similar trends from 2008 to continue.

1Q08A

4Q08A

1Q08A

4Q08A

1Q08A

4Q08A

1Q08A

4Q08A

1Q09E

1Q09E

1Q09E

(1,700)

-8.2%

Source: Company data, Morgan Stanley Research

Exhibit 17

RBOC Broadband – Economic, Secular Pressures Continue to Mount
(000)
1,000 902
1Q08A 4Q08A 1Q09E

1Q09E

(49%) Y/Y (59%) Y/Y 26.7% LIS (penetration) Y/Y + 391 bps
520
(44%) Y/Y 25.7% LIS (penetration) Y/Y + 413 bps

For the four largest carriers (see chart), we expect a 49% annual decline in broadband adds (36% in 4Q08). We expect Verizon’s and AT&T’s DSL base to continue to decline for the fourth straight quarter, with an estimated 174k negative adds in 1Q in total for both carriers. FiOS data adds should come in at around 279k, down 1% sequentially, for a total of 176k broadband adds (down 33% Y/Y). For AT&T, we expect 271k U-verse data net adds, accounting for 136% of total broadband net adds (up slightly from 116% in 4Q, but still exceeding the 96% average since 1Q07). For Qwest, we expect a 44% Y/Y decline in net adds; note that the company recently said that since promotions began in July, there have been good results and that it would attempt to emulate cable’s regionally focused marketing. We believe Embarq will continue to see pressures in 1Q as it did last quarter with some increased business disconnects related to the macro slowdown.

800

(33%) Y/Y
600

28.0% LIS (penetration) Y/Y + 383 bps
486

400

25.1% LIS (penetration) Y/Y + 388 bps
263 214

463
(40%) Y/Y 26.1% LIS (penetration) Y/Y + 447 bps

200

176

228 200

90 0 Verizon (1) AT&T (2)

54 50

63

24 38 Total

Qwest

Embarq

Source: Company data, Morgan Stanley Research, (1) Includes both Verizon DSL and FiOS data subscribers. (2) Includes both AT&T DSL and U-Verse data subscribers

Exhibit 18

RBOC Wireline Margin – Margins to be Down Sequentially for the Bells Due to Macro Pressures & Pensions
Wireline EBITDA Margins 40% 36% 32% 28% 27%
25% 24.3% -1% -3% -3% -2% -3% 35% 34% 29% 35% 33% -5%

Wireline Revenue growth
-1% -2% 37% -3%

0%

We see AT&T’s wholesale and enterprise revenue trends declining further Y/Y while benefitting somewhat from long-term contracts. Margins should be down 429 bps Q/Q; however, as the effects of the weak macro environment will impact the top line. We expect Verizon’s margins to decrease Y/Y by 103 bps to 24.3%, nearly 400 bps off the company’s 2008 year end run rate target of 28%. Loss of high value contracts continue to pressure margins down. For Qwest, we expect margins to be down 399 bps to 33.0% as cost cutting measures will likely not alleviate top line pressures to the same degree as in the past; in late October, the company cut 3% of its workforce.

-10%

-20%

24% 20% 1Q08A 4Q08A 1Q08A 4Q08A 1Q08A 4Q08A 1Q09E 1Q09E 1Q09E -30%

Source: Company data, Morgan Stanley Research. (1) Qwest is total company EBITDA margin.

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April 20, 2009 Telecom Services

Exhibit 19

Rural Carrier Line Loss – Expecting Another Increase in Sequential Line Loss
RLEC Y/Y LINE LOSS 0.0% -2.5% -5.0% -7.5% -10.0% -12.5%
-11.7% -5.7% -6.0% -5.8% -7.3% -6.4% -6.4% -6.6% -6.5% -7.2% -7.2% -7.6% -7.9% -9.1% -4.9% -5.2% -5.4% -7.3% -6.4% -6.3% -6.5% -6.4% -7.9% -9.6% -9.9% 0.0%

1Q08A

4Q08A

1Q09E

-8.0% -7.6%

We expect absolute sequential line losses to deteriorate for all the rural carriers (for CBB, we expect a 16 bps improvement). We see RLEC Y/Y line loss increasing 33 bps in 1Q to 8.0% up from 7.6% in 4Q08. The Y/Y line loss spread between RLECs and the RBOCs is expected to increase to 190 bps from 150 bps a year ago, as both cable and wireless substitution intensifies for the Bells in a weaker macro environment. CenturyTel and Windstream have been more resilient to competitive pressure than most of the other rural players, primarily because their more defensive footprints (especially in the case of CTL with the lowest number of access lines per square mile (12) of the midsize RLECs). IWA has continued to see the lowest level of cable competition in the group. Frontier’s footprint, for the most part, also enjoys a low access line/square mile ratio. We are interested to see further results of WIN’s Greenstreak initiative to market a low-cost emergency landline to wireless-only households as well as other promotions at the other carriers. On its 4Q earnings call, Embarq recently cited that trends of business disconnections have not abated.

-9.8% -10.3%

IWA (4)

FRP (2)

RLECs

CBB

EQ

Source: Company data, Morgan Stanley Research Notes: (1) CTL pro-forma for Madison River; (2) FRP pro-forma for Verizon New England; (3) FTR pro-forma for CTCO and Global Valley; (4) IWA standalone (ex-Bishop); (5) TDS includes ILEC and CLEC, pro-forma for acquisitions; (6) WIN pro-forma for CTC; (7) RBOCs include T, VZ, & Q

Exhibit 20

Rural Carrier Broadband – Adds Could Be Down 36% Y/Y
RURAL CARRIERS DSL CONNECTIONS NET ADDS 1Q08A 75 65 55 45 35 25 15 5 (5) (15)
% LIS Y/Y 63
(32%) Y/Y (50%) Y/Y 4% Y/Y

RBOCs (7)

FTR (3)

TDS (5)

CTL (1)

WIN (6)

4Q08A

1Q09E

(40%) Y/Y

As line loss climbs and voice revenue declines at the rural carriers, the importance of broadband adds increases. However, broadband adds have been showing a steady slowdown since the peak in late 2006 to early 2007. We expect LTM adds (including CBB) of 373k, down 14.5% sequentially from 436k in 4Q08 and down 43.8% from LTM adds in 1Q08. We note that Windstream passed the 1 million DSL subscriber mark on March 5, At this run rate, Windstream could be on track to adding 29,000 subscribers in 1Q09, roughly 7.4% above our estimate and the best result in a year. We estimate average RLEC DSL penetration of access lines in 1Q09 (including CBB) is 30.3%, approximately 354 bps above that of the RBOCs and up 461 bps Y/Y.

40 27 31 16

38 20 13 16 9 21 24
(45%) Y/Y NA (43%) Y/Y (72%) Y/Y

11 5 1 na 3 1 2

6

6

6

2

2

WIN (6)
33.3% 444 bps

CTL (1)
33.3% 555 bps

FTR (3)
27.1% 438 bps

EQ
26.1% 447 bps

FRP (2)
NA% NA bps

IWA (4)
37.4% 616 bps

TDS (5)
23.8% 413 bps

CBB
30.6% 279 bps

Source: Company data, Morgan Stanley Research. Notes: (1) CTL pro-forma for Madison River; (2) FRP pro-forma for Verizon New England; (3) FTR pro-forma for CTCO and Global Valley; (4) IWA standalone (ex-Bishop); (5) TDS includes ILEC and CLEC, pro-forma for acquisitions; (6) WIN pro-forma for CTC

Exhibit 21

Rural Carrier Wireline EBITDA Margin – Macro Weakness Beings to Pressure Margins
WIRELINE EBITDA MARGINS 1Q08A 60%
54% 54% 53% 49% 47% 48% 53% 50%49% 52% 52% 48% 44% 44% 42% 47% 45%44%

4Q08A

1Q09E

50%

We expect the average RLEC group EBITDA margin average to decrease sequentially by 7 bps in 1Q09 to 44%, and down 210 bps Y/Y. Aggressive cost cutting measures has played a primary role in supporting margins; however, we note that high margin usage based revenues continue to see pressure. The RBOCs have more competition, bundled offerings with discounts, and different regulation (and receive limited support revenue such as USF). In addition, AT&T and Verizon margins included in the RBOC average include IXC results.

40%
34% 34% 33% 35% 34% 32%

30%

27%

24% 22%

20% FTR (2) CTL (1) TDS (4) IWA (3) WIN (5) EQ RLEC avg. CBB RBOC avg.

Source: Company data, Morgan Stanley Research; Notes: Refer to footnotes in Exhibit 29.

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April 20, 2009 Telecom Services

Exhibit 22

Broadband Summary
Total subs (000s) AT&T % y/y growth Verizon % y/y growth Qwest % y/y growth Total RBOCs % y/y growth penetration of total access lines Net adds (000s) AT&T % y/y growth Verizon % y/y growth Qwest % y/y growth Total RBOCs % y/y growth Total subs (000s) CenturyTel (1) % y/y growth Embarq % y/y growth FairPoint (2) % y/y growth Frontier (3) % y/y growth Iowa Telecom (4) % y/y growth TDS (5) % y/y growth Windstream (6) % y/y growth Total RLECs % y/y growth Cincinnati Bell % y/y growth Total % y/y growth Net adds (000s) CenturyTel (1) % y/y growth Embarq % y/y growth FairPoint (2) % y/y growth Frontier (3) % y/y growth Iowa Telecom (4) % y/y growth TDS (5) % y/y growth Windstream (6) % y/y growth Total RLECs % y/y growth Cincinnati Bell % y/y growth 1Q07 12,855 22% 7,190 30% 2,305 37% 22,350 25.65% 18.4% 1Q07 690 -11% 404 4% 167 -16% 1,261 -7.28% 1Q07 468 40% 1,104 42% 270 34% 468 24% 55 54% 161 41% 744 42% 3,270 39% 208 22% 3,477 37.10% 1Q07 45 12% 87 4% 14 -91% 26 -9% 5 11% 13 13% 62 13% 252 6% 9 12% 2Q07 13,253 20% 7,471 25% 2,405 34% 23,129 23.01% 19.4% 2Q07 398 -16% 281 -34% 100 -17% 779 -23.33% 2Q07 500 37% 1,156 36% 281 28% 483 21% 58 50% 171 38% 782 37% 3,431 34% 212 20% 3,643 32.91% 2Q07 32 8% 52 -28% 11 -42% 15 -26% 3 0% 11 5% 38 -19% 161 -17% 4 -26% 165 -20% 3Q07 13,747 19% 7,751 21% 2,516 28% 24,014 20.29% 20.6% 3Q07 494 -11% 280 -35% 111 -37% 885 -23.71% 3Q07 530 35% 1,216 30% 287 20% 501 20% 61 35% 179 33% 830 32% 3,604 30% 218 16% 3,822 28.40% 3Q07 30 5% 60 -29% 6 -69% 18 -4% 3 -58% 8 -29% 48 -16% 173 -19% 6 -48% 179 -24% 4Q07 14,138 16% 8,013 18% 2,611 22% 24,762 17.42% 21.7% 4Q07 391 -31% 262 -34% 95 -42% 748 -33.57% 4Q07 555 31% 1,277 26% 291 13% 523 18% 63 26% 187 27% 871 28% 3,766 26% 222 12% 3,988 24.22% 4Q07 25 -16% 61 -27% 4 -78% 22 -11% 2 -56% 8 -36% 41 -24% 162 -24% 4 -63% 166 -29% 1Q08 14,624 14% 8,276 15% 2,701 17% 25,601 14.55% 22.9% 1Q08 486 -30% 263 -35% 90 -46% 839 -33.47% 1Q08 586 25% 1,340 21% 296 9% 543 16% 66 19% 198 23% 911 22% 3,939 21% 228 10% 4,167 19.67% 1Q08 31 -32% 63 -28% 5 -64% 20 -21% 3 -42% 11 -17% 40 -36% 173 -29% 6 -31% 179 -34% 2Q08 14,665 11% 8,330 11% 2,732 14% 25,727 11.23% 23.6% 2Q08 41 -90% 54 -81% 31 -69% 126 -83.83% 2Q08 607 21% 1,364 18% 294 5% 559 16% 68 17% 207 21% 934 19% 4,033 19% 229 8% 4,262 16.91% 2Q08 21 -34% 24 -54% (1) -111% 16 6% 2 -33% 9 -18% 23 -39% 94 -37% 1 -69% 95 -42% 3Q08 14,813 8% 8,459 9% 2,793 11% 26,065 8.54% 24.6% 3Q08 148 -70% 129 -54% 61 -45% 338 -61.81% 3Q08 628 18% 1,388 14% 294 2% 571 14% 70 15% 212 18% 963 16% 4,126 16% 231 6% 4,357 13.93% 3Q08 21 -30% 24 -60% (0) -104% 12 -33% 2 -26% 6 -29% 28 -41% 93 -44% 2 -67% 4Q08 15,041 6% 8,673 8% 2,847 9% 26,561 7.27% 25.7% 4Q08 228 -42% 214 -18% 54 -43% 496 -33.69% 4Q08 641 15% 1,412 11% 295 2% 580 11% 71 13% 218 17% 979 12% 4,196 12% 233 5% 4,429 11.00% 4Q08 13 -48% 24 -61% 1 -66% 9 -60% 1 -45% 6 -23% 16 -61% 70 -57% 2 -51% 1Q09E 15,241 4% 8,849 7% 2,897 7% 26,986 5.41% 26.8% 1Q09E 200 -59% 176 -33% 50 -44% 425 -49.29% 1Q09E 657 12% 1,450 8% 601 11% 73 10% 224 13% 1,006 10% 4,010 10% 235 3% 4,245 -1.94% 1Q09E 16 -50% 38 -40%

21 4% 2 -43% 6 -45% 27 -32% 109 -35% 2 -72%

Total 261 % y/y growth -30% (1) CTL is proforma for Madison River acquisition (2) FRP is proforma for the New England properties (3) FTR is proforma for CTCO and Global Valley acquisitions

95 72 111 -47% -56% -40% (4) IWA does not include Bishop (5) TDS includes ILEC and CLEC (6) WIN is proforma for CTC acquisition

Source: Company data, Morgan Stanley Research

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April 20, 2009 Telecom Services

Exhibit 23

Switched Access Line Summary
Total Access lines AT&T % y/y growth Verizon % y/y growth Qwest % y/y growth Total RBOCs % y/y growth Net adds AT&T % y/y loss growth Verizon % y/y loss growth Qwest % y/y loss growth Total RBOCs % y/y loss growth Total Access lines CenturyTel (1) % y/y growth Embarq % y/y growth FairPoint (2) % y/y growth Frontier (3) % y/y growth Iowa Telecom (4) % y/y growth TDS (5) % y/y growth Windstream (6) % y/y growth Total RLECs % y/y growth Cincinnati Bell % y/y growth Total % y/y growth Net adds CenturyTel (1) % y/y loss growth Embarq % y/y loss growth FairPoint (2) % y/y loss growth Frontier (3) % y/y loss growth Iowa Telecom (4) % y/y loss growth TDS (5) % y/y loss growth Windstream (6) % y/y loss growth Total RLECs % y/y loss growth Cincinnati Bell % y/y loss growth 1Q07 65,429 -7% 42,494 -8% 13,551 -7% 121,474 -7.09% 1Q07 -1,087 22% -899 -65% -244 26% -2,230 -40% 1Q07 2,237 -5% 6,681 -6% 1,728 -6% 2,553 -4% 227 -4% 1,067 -1% 3,325 -4% 17,817 -5% 876 -5% 18,693 -5% 1Q07 -26 8% -73 -70% -30 -102% -20 -24% -1 -7% -6 121% -32 13% -190 -115% -11 14% 2Q07 64,078 -7% 41,652 -8% 13,272 -7% 119,002 -7.17% 2Q07 -1,351 5% -842 -16% -279 6% -2,472 -3% 2Q07 2,205 -5% 6,533 -6% 1,703 -6% 2,518 -4% 223 -4% 1,050 -3% 3,288 -4% 17,520 -5% 864 -5% 18,383 -5% 2Q07 -32 15% -148 -3% -25 37% -35 21% -4 11% -17 817% -38 4% -298 11% -12 46% -310 12% 3Q07 62,871 -7% 40,719 -8% 13,032 -7% 116,622 -7.35% 3Q07 -1,207 7% -933 -1% -240 -3% -2,380 3% 3Q07 2,171 -5% 6,403 -6% 1,661 -7% 2,476 -5% 218 -5% 1,039 -3% 3,241 -5% 17,209 -6% 849 -6% 18,058 -6% 3Q07 -34 -1% -130 7% -43 79% -42 22% -5 114% -11 187% -46 21% -310 20% -15 24% -325 20% 4Q07 61,582 -7% 39,883 -8% 12,789 -7% 114,254 -7.64% 4Q07 -1,289 21% -836 -3% -244 1% -2,369 9% 4Q07 2,135 -6% 6,312 -7% 1,616 -8% 2,429 -6% 214 -6% 1,021 -5% 3,203 -5% 16,930 -6% 834 -6% 17,765 -6% 4Q07 -36 13% -91 0% -45 52% -47 138% -4 58% -18 528% -38 -16% -279 25% -14 7% -293 24% 1Q08 60,415 -8% 39,004 -8% 12,497 -8% 111,916 -7.87% 1Q08 -1,167 7% -879 -2% -292 20% -2,338 5% 1Q08 2,108 -6% 6,192 -7% 1,570 -9% 2,387 -6% 210 -7% 1,006 -6% 3,161 -5% 16,635 -7% 821 -6% 17,455 -7% 1Q08 -27 3% -120 64% -46 51% -42 108% -4 186% -15 137% -42 30% -296 56% -14 23% -309 54% 2Q08 58,860 -8% 38,084 -9% 12,189 -8% 109,133 -8.29% 2Q08 -1,555 15% -920 9% -308 10% -2,783 13% 2Q08 2,077 -6% 6,022 -8% 1,526 -10% 2,342 -7% 206 -8% 994 -5% 3,124 -5% 16,291 -7% 806 -7% 17,097 -7% 2Q08 -31 -2% -170 15% -44 81% -45 28% -4 8% -12 -29% -37 -2% -344 15% -15 21% 3Q08 57,191 -9% 37,072 -9% 11,869 -9% 106,132 -9.00% 3Q08 -1,669 38% -1,012 8% -320 34% -3,001 26% 3Q08 2,041 -6% 5,853 -9% 1,474 -11% 2,296 -7% 202 -7% 972 -6% 3,086 -5% 15,925 -7% 791 -7% 16,716 -7% 3Q08 -36 6% -169 30% -52 21% -45 9% -4 -17% -23 103% -38 -18% -366 18% -14 -4% 4Q08 55,610 -10% 36,161 -9% 11,565 -10% 103,336 -9.56% 4Q08 -1,581 23% -911 9% -304 25% -2,796 18% 4Q08 1,998 -6% 5,696 -10% 1,426 -12% 2,254 -7% 198 -8% 959 -6% 3,038 -5% 15,570 -8% 780 -7% 16,349 -8% 4Q08 -43 19% -157 73% 0 -100% -42 -10% -4 5% -12 -32% -48 27% -307 10% -12 -19% 1Q09E 54,363 -10% 35,252 -10% 11,255 -10% 100,871 -9.87% 1Q09E -1,247 7% -909 3% -310 6% -2,465 5% 1Q09E 1,969 -7% 5,554 -10%

2,215 -7% 194 -8% 942 -6% 2,990 -5% 13,864 -17% 768 -6% 14,632 -16% 1Q09E -29 8% -142 19%

-39 -7% -5 13% -17 17% -47 13% -280 -5% -12 -16% -291 -6%

Total -201 % y/y loss growth -116% (1) CTL is proforma for Madison River acquisition (2) FRP is proforma for the New England properties (3) FTR is proforma for CTCO and Global Valley acquisitions

-359 -381 -319 16% 17% 9% (4) IWA does not include Bishop (5) TDS includes ILEC and CLEC (6) WIN is proforma for CTC acquisition

Source: Company data, Morgan Stanley Research. Note: Commonwealth lines included with FTR 2007 onwards.

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MORGAN

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April 20, 2009 Telecom Services

Wireless Preview: Shift to Unlimited Prepaid Emerging
Outlook Summary
Our View on the Quarter
– We expect prepaid, especially unlimited voice and texting versions, to be an important source of growth this quarter for the wireless space. Furthermore, the first quarter is typically seasonally strong for prepaid and the weak macro economic environment should increase its demand. – We expect wireless retail postpaid net adds for the Big 4 to be 1.01 million, down 42% Y/Y mainly due to weakness at Sprint who we estimate will lose 1.14 million postpaid subscribers this quarter. With penetration around 88% and a weak economic environment, consumers are trying to limit their spending. Therefore, we believe value oriented and no contract products should contribute to wireless growth. This was evidenced by MetroPCS who pre-released strong 1Q subscriber additions of 684 thousand versus 452 thousand a year ago. We expect Leap and Sprint’s Boost service to have similar strength in the quarter. – Margins will likely face pressure again this quarter due to strong smartphone uptake. Smartphone pricing has been highly competitive with the carriers using large subsidies to drive sales. We forecast Big 4 EBITDA margin to drop 132 bps to 36.3% from 37.7% last year. – ARPU continues to be supported by strong secular wireless data growth trends. The increasing popularity of smartphones with the average sub generating a significantly higher ARPU has helped fuel this trend. Overall, we expect data to offset voice declines for most. However if the economy continues to weaken and subscribers look to cut more costs, data growth may experience a slowdown.

Rolling twelve month additions for the Big Four has continued to trail downwards with penetration at 88% making additional waves of subscriber growth appear unlikely, in our view. We believe a shift to value oriented brands given the economic environment may become more prevalent.
Exhibit 24

LTM Net Adds to Flatten – Expect Sprint’s Boost to Have Strong Quarter After Plan Restructure
Big 4 LTM Retail Net Adds (000s)
22,500

20,000

17,500

15,000

12,500

10,000

7,500 1Q00A 2Q00A 3Q00A 4Q00A 1Q01A 2Q01A 3Q01A 4Q01A 1Q02A 2Q02A 3Q02A 4Q02A 1Q03A 2Q03A 3Q03A 4Q03A 1Q04A 2Q04A 3Q04A 4Q04A 1Q05A 2Q05A 3Q05A 4Q05A 1Q06A 2Q06A 3Q06A 4Q06A 1Q07A 2Q07A 3Q07A 4Q07A 1Q08A 2Q08A 3Q08A 4Q08A 1Q09E

Source: Company data, Morgan Stanley Research. Note Verizon does not include Alltel prior to 1Q09.

Potential Bullish/Bearish Events
– Bullish – ARPU expansion and continued data strength / strong smartphone sales / churn reduction – Bearish – Weak consumer spending / increased proportion of low quality subs / churn increasing

Recent Events for Context
– Our 1Q quarterly wireless survey showed sequential subscriber growth increased to 3.5% from 3.0% in 4Q08. The Big 4’s contract offerings had a 78% share of total net adds, which is the highest since our 3Q05 survey. – MetroPCS pre-released strong subscriber additions for 1Q on April 7. The 684 thousand quarterly net additions are the highest in the company’s history. Churn at 5.1% was higher than anticipated. – Virgin Mobile announced on April 9 that it would be unveiling a new unlimited prepaid plan for $49.99 starting April 15 and for an additional $10 unlimited texting can be adding. Also, the company will be introducing text only plans starting at $14.99 for 1,000 messages or $19.99 for unlimited. This appears to be a move by the company to more effectively compete in the unlimited prepaid arena. – The wireless industry CTIA convention was held April 1 to April 3. Key themes included: 1) The rise of the unlimited prepaid offers as Leap, MetroPCS and Boost Unlimited enjoy strong growth 2) The growth in wireless data, smartphones and app stores 3) Increasing focus on deploying 4G networks to handle the demand for mobile data.

A key trend that is emerging is a shift towards the prepaid unlimited model. More carriers are adopting this model and this quarter we expect strong results from these offerings. Thus far they have proved resilient in the face of the tough macro environment with MetroPCS posting record adds in 4Q08 and then again in 1Q09. After mixed results on the CDMA network, Sprint has restructured its unlimited offering on its iDEN network under the Boost brand again. We expect Boost to have a strong 1Q and estimate 648k net adds.
Exhibit 25

Unlimited Prepaid Operators, Leap and MetroPCS, Comprising Larger Portion of LTM Net Adds
Leap and MetroPCS LTM Net Adds (000s) % Leap and MetroPCS LTM of Big 4, Leap, and MetroPCS LTM

3,000 2,500 22% 2,000 1,500 1,000 500 4% 0 1Q06A 2Q06A 3Q06A 4Q06A 1Q07A 2Q07A 3Q07A 4Q07A 1Q08A 2Q08A 3Q08A 4Q08A 1Q09E 5% 8% 6% 11% 11% 10% 10% 10% 12% 15% 25%

Source: Company data, Morgan Stanley Research

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April 20, 2009 Telecom Services

Exhibit 26

EBITDA Margins Face Pressure from Smartphone Subsidies
Verizon AT&T Leap Sprint Metro

EBITDA Margins 50% 45%
Sprint

T-Mobile

VZW

40% 35% 30% 25% 20% 15% 1Q06A 2Q06A 3Q06A 4Q06A 1Q07A 2Q07A 3Q07A 4Q07A 1Q08A 2Q08A 3Q08A 4Q08A

AT&T T-Mob. PCS Sprint Leap

The wireless industry remains intensely competitive, with heavy advertising, substantial handset subsidies and declining yields. This quarter we expect EBITDA margins to face ongoing pressure from higher handset subsidies. We forecast industry EBITDA to be up 1% Y/Y to $13.7 billion with margins down 171 bps to 35.6%. AT&T has taken large margin hit mainly due to the success it has been having with the iPhone. The company is targeting mid 40% range margins. Sprint’s decline highlights the large fixed cost structure of operating a wireless network. Sprint continues to lose subscribers and experience declining ARPU, which are pressuring margins. Leap and MetroPCS are both expected to face some margin headwinds as each launched major new markets.

Source: Company data, Morgan Stanley Research. Note Verizon pro forma for Alltel.

Exhibit 27

Big Four Retail Net Adds Continue to Decline
Big 4 Net Additions (000s)
3,000 2,700 2,400 2,100 1,800 1,500 1,200 900 600 300 (300) (600) (900) (1,200) (1,500)

1Q09E

Verizon Sprint

AT&T T-Mobile

This quarter we expect retail adds to decline Y/Y for each carrier except for Sprint who we expect to see an improvement due to strong uptake of its prepaid Boost Unlimited offering. We expect AT&T adds to continue to decline Y/Y and sequentially as the initial anticipation and hype around the launch of the 3G iPhone wanes. We expect Verizon adds to also be down Y/Y and sequentially, but expect the promotional two-for-one Storm offering to benefit growth. Even though Sprint’s 2009 guidance calls for postpaid subscriber losses to improve, we expect losses to worsen sequentially and anticipate the company to lose 1,141 thousand postpaid subs in 1Q09. We believe T-Mobile, who appears to be getting squeezed in the middle, will have another weak quarter.

1Q06A

2Q06A

3Q06A

4Q06A

1Q07A

2Q07A

3Q07A

4Q07A

1Q08A

2Q08A

3Q08A

4Q08A

Source: Company data, Morgan Stanley Research. Note Verizon pro forma for Alltel.

Exhibit 28

Unlimited Discount Plans Gaining Traction in Weak Economy
Net Adds (000s)
Leap *MetroPCS

1Q09E

800 700 600 500 400 300 200
110 246 248 197 162 58 454 325 318 262 155 127 452 385 299 227 114 36 152 171 184 249 155 520 684

497

Due to the weakening economic environment, we believe offering no contract service plans at a significant discount to the nationals should help protect the unlimited carriers. This was evidenced when MetroPCS pre-released strong 1Q subscriber metrics, presenting the highest net adds in the company’s history. The unlimited business model has proven resilient and the weaker economy may be having a positive impact on supplementing growth as consumers look for more cost effective alternatives such as cutting the cord or rolling off higher priced plans. We anticipate Sprint’s Boost Unlimited product to generate strong growth this quarter as well and expect the company to have 648 thousand net prepaid adds.

100 0
1Q06A

2Q06A

3Q06A

4Q06A

1Q07A

2Q07A

3Q07A

4Q07A

1Q08A

2Q08A

3Q08A

4Q08A

Source: Company data, Morgan Stanley Research. * 1Q09 represents actual for MetroPCS.

1Q09E

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April 20, 2009 Telecom Services

Exhibit 29

Verizon’s Churn Dominance Weakening
Big 4 Blended Churn
3.5%

Verizon Sprint

AT&T T-Mobile

T-Mob.
3.0%

2.5%

Sprint

2.0%

1.5%

AT&T VZW

1.0% 1Q06A 2Q06A 3Q06A 4Q06A 1Q07A 2Q07A 3Q07A 4Q07A 1Q08A 2Q08A 3Q08A 4Q08A 1Q09E

Even if Verizon and AT&T are doing a better job holding onto customers, Verizon’s once dominant churn position seems to be weakening. Last quarter we saw Verizon’s churn (ex Alltel) climb to 1.35%, the highest level in four years. The weakness can most likely be attributed to AT&T’s strong handset lineup with the 3G iPhone and Blackberry Bold. We expect churn to climb Y/Y in 1Q09 for Verizon due to the higher churn associated with Alltel. Sprint and T-Mobile churn remains high as a result of their sub bases, which tend to be lower income and youth. Sprint’s churn continues to be negatively impacted by the secular decline in iDEN, while T-Mobile’s large prepaid base of 18% creates a churn headwind.

Source: Company data, Morgan Stanley Research. Note Verizon pro forma for Alltel.

Exhibit 30

Increased Data Adoption Expected to Offset Voice Declines
Big 4 Y/Y ARPU Growth
1Q08 4Q08 1Q09E

4% 2% 0%
-0.5% 2.0% 1.1% 0.5% 0.7% 0.0%

0.9%

-2% -4% -6%
-6.5% -3.3%

-1.4% -1.9% -3.8%

Voice declines continue to pressure ARPU with the incremental minute becoming increasingly free. The surge in data services has helped offset some of these declines and we expect AT&T to have slight ARPU growth for 1Q due to data strength. Data is benefitting from a strong smartphone penetration and with handset prices dropping, demand remains strong. The carriers have chosen to subsidize these handsets in return for the higher ARPU that a typical smartphone sub offers. An iPhone user for instance has an ARPU that is approximately 1.6x the typical postpaid sub for AT&T. Carriers that skew more towards the youth and low income demographic, like T-Mobile, may have subscribers deciding not to uptake additional services given the weakening economic environment. However, its 3G launch may help boost revenues.

-8%
*Verizon AT&T Sprint T-Mobile

Source: Company data, Morgan Stanley Research. *Note Verizon pro forma for Alltel.

Exhibit 31

Y/Y Service Revenue Growth Expect to Slow to 5% for the Big 4
Y/Y Service Revenue Growth
1Q08 4Q08 1Q09E

20%
17%

15% 10% 5% 0% -5% -10% -15%

13% 12% 9%

13% 10%

14% 12% 11% 9% 7% 5%

We expect Big 4 service revenue growth to slow to 5% Y/Y. Slowing subscriber growth and declining voice revenue continue to pressure service revenues. Additionally the weaker macro environment is not helping either as consumers look to limit and cut back on their monthly spending habits. Annual growth rates for AT&T, T-Mobile and Verizon are expected to approach the low double or high single digit range. Each carrier has benefitted from recent small acquisition activity and Sprint’s sub losses, yet growth continues to trend down. One bright spot has been data revenue, which has acted resilient in the weaker economy. Total Big 4 data revenues grew 38.9% in 4Q08 and represented 25% of service revenues.

-9% -12% -13%

*Verizon

AT&T

Sprint

T-Mobile

Big 4

Source: Company data, Morgan Stanley Research. Mid 1Q08 to 1Q09E includes SunCom for T-Mobile. *Note Verizon pro forma for Alltel.

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April 20, 2009 Telecom Services

Exhibit 32

Summary of Key Wireless Statistics
Prior Yr. 1Q08A Retail Net Adds (000s) AT&T Wireless Verizon Wireless Sprint T-Mobile US Cellular MetroPCS Leap Wireless Total Gross Adds (000s) AT&T Wireless Verizon Wireless Sprint T-Mobile US Cellular MetroPCS Leap Wireless Total 823 1,797 (1,270) 981 73 452 227 3,083 5,000 4,936 3,016 3,257 358 954 549 18,070 Prior Yr. 1Q08A Svc. Revenue (mil.) AT&T Wireless Verizon Wireless Sprint T-Mobile US Cellular MetroPCS Leap Wireless Total Revenue Growth YoY AT&T Wireless Verizon Wireless Sprint T-Mobile US Cellular MetroPCS Leap Wireless Total $10,645 12,235 7,123 4,573 962 562 399 $36,499 17% 1% (9%) 14% 12% 28% 24% 12% Prior Yr. 1Q08A MOU AT&T Wireless *Verizon Wireless Sprint T-Mobile MetroPCS US Cellular Leap Wireless Average 728 813 900 1,150 2,000 701 1,450 1,106 Prior Qtr. 4Q08A 1,319 1,661 (1,419) 621 20 520 385 3,106 5,800 5,389 1,917 3,833 352 1,301 791 19,384 Prior Qtr. 4Q08A $11,541 13,316 6,561 4,904 977 666 459 $38,423 13% 1% (13%) 12% 2% 30% 23% 10% Prior Qtr. 4Q08A 711 826 900 1,130 2,000 678 1,450 1,099 1Q09E 784 1,191 (494) 547 23 684 497 3,232 4,860 4,877 2,686 3,718 344 1,540 951 18,976 1Q09E $11,753 13,303 6,293 5,054 974 732 516 $38,625 10% (1%) (12%) 11% 1% 30% 29% 10% 1Q09E 706 830 873 1,130 2,040 708 1,465 1,107 Y/Y Change (5%) (34%) NM (44%) (68%) 51% 119% 5% (3%) (1%) (11%) 14% (4%) 61% 73% 5% Y/Y Change 10.4% 8.7% (11.7%) 10.5% 1.2% 30.2% 29.2% 6% (7%) (1%) (3%) (4%) (11%) 2% 5% (3%) Y/Y Change (3%) 2% (3%) (2%) 2% 1% 1% 0% Capex AT&T Wireless Verizon Wireless Sprint T-Mobile MetroPCS US Cellular Leap Wireless Total EBITDA (mil.) AT&T Wireless Verizon Wireless Sprint T-Mobile US Cellular MetroPCS Leap Wireless Total EBITDA Margin AT&T Wireless Verizon Wireless Sprint T-Mobile US Cellular MetroPCS Leap Wireless Average Churn AT&T Wireless Verizon Wireless Sprint T-Mobile US Cellular MetroPCS Leap Wireless Average ARPU AT&T Wireless Verizon Wireless Sprint T-Mobile US Cellular MetroPCS Leap Wireless Average Prior Yr. 1Q08A 1.3% 1.2% 3.2% 2.6% 1.7% 4.0% 3.6% 2.5% $50.18 51.35 53.12 51.00 52.24 44.72 44.67 $49.61 Prior Yr. 1Q08A $4,436 5,378 1,801 1,441 265 178 119 $13,617 41.7% 44.0% 25.3% 31.5% 27.6% 31.6% 29.8% 37.3% Prior Yr. 1Q08A $850 1,868 875 690 184 112 157 $4,736 Prior Qtr. 4Q08A 1.4% 1.4% 2.7% 3.3% 1.9% 5.1% 3.8% 2.8% $50.82 51.97 53.36 50.00 52.64 43.47 41.85 $49.16 Prior Qtr. 4Q08A $4,141 6,056 1,461 1,568 208 194 91 $13,719 35.9% 45.5% 22.3% 32.0% 21.3% 29.2% 19.8% 35.7% Prior Qtr. 4Q08A $1,879 2,059 304 895 294 190 267 $5,888 1Q09E 1.6% 1.4% 2.6% 3.2% 1.8% 5.0% 3.7% 2.8% $50.53 51.09 52.40 51.00 52.30 42.72 41.99 $48.86 1Q09E $4,357 5,902 1,350 1,617 225 187 112 $13,750 37.1% 44.4% 21.4% 32.0% 23.1% 25.5% 21.7% 35.6% 1Q09E $1,375 1,680 415 940 255 134 219 $5,017 Y/Y Change 0.3% 0.2% (0.5%) 0.6% 0.1% 1.0% 0.1% 0.3% 0.7% (0.5%) (1.4%) 0.0% 0.1% (4.5%) (6.0%) (2%) Y/Y Change (2%) 10% (25%) 12% (15%) 5% (6%) 1% (4.6%) 0.4% (3.8%) 0.5% (4.4%) (6.1%) (8.1%) (1.7%) Y/Y Change 62% (10%) (53%) 36% 39% 20% 39% 6%

Source: Company data, Morgan Stanley Research. Verizon pro forma for Atlltel * Verizon MOU values represent Morgan Stanley estimates * MetroPCS retail net adds ,gross adds and churn are actual for 1Q09.

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April 20, 2009 Telecom Services

Towers: Access to Capital Markets Easing for Towers
Outlook Summary
Our View on the Quarter – We expect robust leasing demand to continue as the carriers focus on improving network quality and expanding 3G. 2009 guidance issued by the tower operators suggest strong leasing demand for 2009 and management commentary highlighted that 2009 leasing activity should be at least as strong as 2008 levels. This year we expect T-Mobile to remain aggressive on its 3G expansion and for Leap and MetroPCS to continue their ongoing geographic expansion plans. Additionally we anticipate AT&T and Verizon continuing to spend on enhancing their 3G networks for improved coverage and capacity. – This quarter American Tower and Crown Castle should face some revenue pressure due to the strengthening US$. American Tower derives 15% of its leasing revenues from international operations in Brazil and Mexico and Crown Castle derives 6% from Australia. – As the credit markets show signs of easing, there appears to be considerable demand in the debt market for tower paper as witnessed by Crown’s two successful placements this year. SBA has commented that it intends to go to market for $400-600 million. However with large maturities still remaining, we expect the tower companies to be a little more cautious in their acquisition and buyback activities as they work on deleveraging in 2009. Potential Bullish/Bearish Events – Bullish – New carrier build announcements / WiMAX build acceleration / Proliferation of 3G smart phones / Tower prices falling leading to attractive M&A opportunities – Bearish – Carrier consolidation and announcements of cellsite decommissioning / Carrier spending slowing due to weaker economic environment / Expensive international undertakings / Financing issues / FX weakness in Australia and Latin America Recent Events for Context – Crown Castle has been active in the high yield market placing $900 million in senior secured notes with an 11.25% YTM in January and then another $1.2 billion with an 8.25% YTM in mid April. The tower operators have been benefiting from the explosion of wireless usage with increased MOUs and data traffic. This has translated into increased tower demand from the wireless carriers who are constantly striving to maintain a suitable level of network quality and reliability. One rule of thumb is that five minutes of voice equates to roughly one megabit of data.
Exhibit 33

Minutes of Use Up 20-Fold Since 1999
Total Minutes of Use (in bn) 3,000
2,532 2,583

T-Mobile AT&T

Sprint Nextel VZW

2,500
2,202 1,944
632

2,334
938

2,000
1,599

892 709

544

1,500
446

1,190
538

626

674

693

701

1,000
602 420 103 171
62 85 24 92 148 141 39

849
205 266

318 441 338 553 461 352 389 452 485 509 555 500 462 434

500
43 49 12

136 201

259 192 73 118 182 251 310

0

2009E

Source: Company data, Morgan Stanley Research. Note Verizon represents Morgan Stanley Estimate.

SBA and Crown have approximately two times the leverage as American Tower and both have high refinancing risk with significant near-term maturities. The weak financial markets have made access to capital more difficult and costly but signs of easing have emerged in 2009. As a result the tower operators have decided to take a more cautious approach to their discretionary spend in 2009, where deleveraging will be the main focus.
Exhibit 34

High Net Leverage Ratios an Area of Concern
10x 8x
6.2x 7.9x 6.9x

6x 4x 2x 0x AMT Group Avg. CCI SBAC
3.7x

– American Tower intends to expand its presence in India with
plans to purchase XCEL Telecom which owns approximately 1,700 towers. This transaction could be a signal that the company’s ambitions in India are more than just a gradual tower build.

– Clearwire announced that it is targeting 75 million POPs to
cover with mobile WiMAX and has commented about the potential to cover 120 million POPs by YE2010.

Source: Company data, Morgan Stanley Research as of 4Q08.

2010E

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

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Exhibit 35

American Tower and Crown Castle Leasing Revenue Growth Facing FX Headwind
Y/Y Leasing Revenue Growth
35% 30% 25% 20% 15% 15% 10% 5% 0% American Tower Crown Castle SBA 8% 6% 1Q08 4Q08 32% 29% 1Q09E

FX exposure will create a headwind for Crown and American Tower this quarter, which each have sizable operations in foreign markets. Traditionally new tower builds, augmentations and acquisitions have helped add to the growth. This year we expect limited activity on this front to support growth Supporting revenue growth has been ongoing carrier spend to increase network capacity and coverage, 3G overlays and new market build by Leap and Metro. This year T-Mobile will continue to aggressively deploy 3G and plans to cover 200 million POPs by YE from roughly 100 million at the end of 2008. Also Clearwire announced that it is targeting 75 million POPs to cover with mobile WiMAX.

17%

7% 5% 6%

Source: Company data, Morgan Stanley Research. *Growth is not pro forma for acquisition activity.

Exhibit 36

EBITDA Margins: SBA Margins Quickly Climbing
EBITDA Margins
AMT CCI SBAC

70% 65% 60%
Spectrasite Global Signal

55% 50% 45% 40% 35% 1Q09E 1Q05 2Q05 3Q05 4Q05 1Q06 2Q06 3Q06 4Q06 1Q07 2Q07 3Q07 4Q07 1Q08 2Q08 3Q08 4Q08
AAT

The tower model is a scale business where acquisition activity has helped the tower companies build scale and expand margins. American Tower has had difficulty breaking through 69% and has teetered in the 68-69% range for almost two years. We expect margins to be up sequentially for SBA and Crown. Recent M&A activity for SBA should help drive increased scale advantages. This quarter we expect SBA margins to pull ahead of Crown’s proving that having the largest portfolio is not the only component of expanding margins, but by also having a lean cost structure and high lease up on your towers helps too.

Source: Company data, Morgan Stanley Research.

Exhibit 37

Recurring Free Cash Flow Generally on the Rise
Recurring FCF ($ in mil.)

AMT

CCI

SBAC

$250 $225 $200 $175 $150 $125 $100 $75 $50 $25 $0 1Q06 2Q06 3Q06 4Q06 1Q07 2Q07 3Q07 4Q07 1Q08 2Q08 3Q08 4Q08 1Q09E

Recurring free cash flow (excluding acquisitions, builds and land purchases) has been climbing for the tower operators. The tower operators pay low cash taxes, have low cash interest expense and require limited discretionary capital. The majority of discretionary capital spend is directed towards success based investments, such as tower augmentations. All the tower operators have significant NOL balances which should allow them to avoid large cash taxes for several years. The tower companies have been reliant on cheap access to capital to help fuel recurring free cash flow growth. The weak credit markets however may constrain growth going forward as cheap funding has currently dried up. Also the recent strength of the dollar will put pressure on revenue growth for American Tower and Crown Castle which have some FX exposure. We expect Crown to face RFCF growth pressure this quarter due to increased financing costs and FX headwinds

Source: Company data, Morgan Stanley Research.

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Exhibit 38

Tower Valuation Comparables
EBITDA American Tower Crown Castle SBA Commun. Average Recurring FCF American Tower Crown Castle SBA Commun. Average Free Cash Flow American Tower Crown Castle SBA Commun. Average Net Leverage American Tower Crown Castle SBA Commun. 2009E 3.1x 6.3x 6.6x 5.4x 2010E 2.5x 5.8x 5.3x 4.5x 2011E 1.8x 5.3x 4.1x 3.8x 2009E $658.3 342.1 162.0 FCF 2010E $786.7 400.3 196.8 2009E $852.6 469.3 208.5 RFCF (1) 2010E $937.9 543.1 243.9 2009E $1,166.4 941.5 331.0 EBITDA 2010E $1,247.0 1,002.8 361.0 2011E $1,324.0 1,065.2 391.6 2009E 14.7x 13.5x 15.9x 14.7x EV / EBITDA 2010E 13.7x 12.7x 14.6x 13.7x 2011E 12.9x 12.0x 13.5x 12.8x 2009E 2.3x 2.2x 1.9x 2.1x EV / EBITDA to Growth 2010E 2011E 2.4x 2.4x 2.1x 2.1x 1.7x 1.7x 2.1x 2.1x

2011E $1,029.4 554.5 267.3

2009E 15.8x 14.5x 14.8x 15.0x

Market Cap / RFCF 2010E 2011E 14.3x 13.1x 12.5x 12.2x 12.6x 11.5x 13.2x 12.3x

Market Cap / RFCF to Growth 2009E 2010E 2011E 3.4x 5.9x 6.2x 1.7x 1.4x 0.9x 1.1x 0.9x 0.8x 2.1x 2.7x FCF yield 2010E 5.8% 5.9% 6.4% 6.0% 2.6x

2011E $874.4 423.7 213.3

2009E 6.3% 6.9% 6.8% 6.7%

RFCF (1) yield 2010E 2011E 7.0% 7.7% 8.0% 8.2% 7.9% 8.7% 7.6% 8.2%

2009E 4.9% 5.0% 5.3% 5.1%

2011E 6.5% 6.2% 6.9% 6.6%

EV / Tower Towers EV / Tower 23,740 $720,871 24,079 529,644 7,854 671,479 640,665

Source: Company data, Morgan Stanley Research (1) RFCF is organic FCF to shareholders – excludes outlays for acquisitions, builds and dividends.

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April 20, 2009 Telecom Services

Canada: Is the Weakening Economy Impacting Wireless Growth?
Outlook Summary
Our View on the Quarter
– Economic weakness emerging in Canada, particularly Western Canada now, appears to be impacting wireless subscriber growth. Already a seasonally weak quarter, we estimate 1Q postpaid wireless net additions to be 156 thousand, down 21% Y/Y. We also expect rising handset subsidies to pressure margins, expecting the industry to be at 45.6%, down 279 bps Y/Y. – Discount wireless brands like Koodo from TELUS, Fido from Rogers, and Solo Mobile from BCE should produce strong results as the macro environment weakens. – Industry ARPU has made steady gains on strong data growth. Data revenue averaged about 17.8% of service revenues in 4Q08. Telus pre-released a sharp 5.6% Y/Y in ARPU, however we expect Rogers and BCE to experience growth. We note that roaming revenues could face pressure as a result of the weak economic environment and from a potential mix shift to discount brands. – We expect line loss to modestly accelerate for TELUS, which has benefitted from less competition and the relatively stronger, commodities driven western economy. Due to successful marketing and win-back activity, BCE has been able to improve line loss and this quarter we anticipate it to stabilize at 5.4%. The Canadian competitive environment has many favorable dynamics with far fewer competitors than its US peers. In our view, there remains substantial room for wireless subscriber growth, considering Canadian penetration is only around 65% versus 88% in the US. Rarely does Canada experience surges of growth as we have seen in the US, but instead has had steady penetration gains of 3-4% per year. This year the weak economy looks to be negatively impacting growth.
Exhibit 39

Wireless LTM Net Additions Slowing
2,000,000

1,800,000

1,600,000

1,400,000

1,200,000

1,000,000

800,000 1Q02 2Q02 3Q02 4Q02 1Q03 2Q03 3Q03 4Q03 1Q04 2Q04 3Q04 4Q04 1Q05 2Q05 3Q05 4Q05 1Q06 2Q06 3Q06 4Q06 1Q07 2Q07 3Q07 4Q07 1Q08 2Q08 3Q08 4Q08 1Q09E

Source: Company data, Morgan Stanley Research.

Potential Bullish/Bearish Events
– Bullish – Strong smartphone sales driving higher ARPU / economic bounce back / churn reduction / improved line loss. – Bearish – A weaker Canadian economy / Weak subscriber metrics / New entrants begin to network and utilize partnerships / maturing broadband / weaker line loss.

Relative to the US Bells, the Canadians offer similar yield support. BCE and Telus, who have similar growth prospects to the Bells, are yielding 6%. Rogers who has a more attractive business mix and higher growth prospects than that of its peers, offers a 4% yield.
Exhibit 40

Strong Yield Support from Canadians
10% 9% 8% 7% 6% 5% 4% 3% 2% 1% 0% Qwest AT&T Telus BCE Verizon Rogers 6.3% 6.1% 5.9% 5.8% 4.2% 9.0%

Recent Events for Context
– Telus pre-released subscriber metrics on April 09, which were below our expectations. Net adds totaled 48 thousand, a decrease of 46% Y/Y. Additionally the company announced a 5.6% Y/Y decrease in its ARPU and cited lower revenue from MIKE (iDEN) whose customer base is skewed towards economically sensitive sectors, increased proportion of low minute bucket rate plans, and decreased roaming revenues – BCE announced on March 2 that it intends to acquire The Source, a national consumer electronics retailer. The Source will increase BCE’s distribution by 750 stores, making the company the leader in points of distribution, an area it has lagged its competitors.

Source: Company data, Morgan Stanley Research.

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Exhibit 41

Wireless Net Additions (000s) Expected to be Down 10% Y/Y
Net Additions (000s)
300

Telus

Rogers

BCE

250

This quarter we expect total net adds to be down 10% Y/Y and postpaid net adds to be down 21% Y/Y. We expect Rogers and BCE to increase its total net adds by 14% and 34% Y/Y, respectively. Telus pre-released 1Q adds of 48 thousand vs. our expected 76 thousand. The company cited a weak macro environment with lower consumer confidence resulting in a decrease or deferral of customer buying decisions.

200

150

100

RCI *TU

50

BCE
0 1Q06 2Q06 3Q06 4Q06 1Q07 2Q07 3Q07 4Q07 1Q08 2Q08 3Q08 4Q08 1Q09E

Source: Company data, Morgan Stanley Research. *TELUSrepresents actual for 1Q09.

Exhibit 42

Weaker Economy and Increase in Popularity of Discount Brands Could Pressure ARPU
ARPU (US$)
$60 Telus BCE Rogers US Big 4

$55

$50

The weak macro environment may pressure industry wide ARPU as discount brands gain popularity and roaming revenues weaken, which was witnessed by TELUS’s weak 1Q09 ARPU growth of negative 5.6%. Discount wireless brands like Koodo from TELUS, Fido from Rogers, and Solo Mobile from BCE should produce strong results if the macro environment weakens. Rogers’ ARPU has quickly climbed due to strong data uptake and we expect it to increase by 2% Y/Y. Data revenues as of 4Q accounted for approximately 17.8% of total service revenues for Rogers and TELUS.

$45

$40

$35 1Q09E 1Q06 2Q06 3Q06 4Q06 1Q07 2Q07 3Q07 4Q07 1Q08 2Q08 3Q08 4Q08

Source: Company data, Morgan Stanley Research. Note TELUS represents actual for 1Q09. Assumes FX rate is 1.21CAD/1USD.

Exhibit 43

Y/Y Wireless Service Revenue Growth Decelerating for BCE and TELUS
Y/Y Wireless Service Revenue Growth 18% 16.6% 16%

1Q08

4Q08

1Q09E

14% 12% 10% 8% 6% 4% 2% 0% Rogers BCE Telus US Big 4
Source: Company data, Morgan Stanley Research.

10.5% 10.5% 7.4% 5.4% 5%

9.8% 7.9% 8.7% 6.5% 5.3% 3.5%

We expect Rogers’ wireless top-line growth to exceed its Canadian peers. The company is taking the largest share of postpaid net adds while also expanding its ARPU Y/Y due to strong data contribution from handset exclusives like the Blackberry Bold and Apple iPhone. TELUS’ negative ARPU growth has been pressuring top line growth. We expect TELUS’ growth in service revenue to slow down to 3.5%Y/Y.

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Exhibit 44

Wireless Margins Expected to Take Hit on Higher Handset Subsidies
Wireless EBITDA Margins
55%
51.7% 1Q08 4Q08 1Q09E

50%
47.4%

48.4% 45.6% 43.9%

45% 40% 35% 30%

This quarter we anticipate wireless margins to face some pressure from higher handset subsidies along with costs associated with increasing discount brands awareness. However, relative to the US, Canadian wireless margins are still strong and highlight the much more benign competitive environment. We expect Rogers’ margin to drop 437 bps points Y/Y to 47.4% due mainly to increased handset subsidies, and we expect BCE to improve margins Y/Y due to effective cost cutting measures.

42.7%

42.9% 43.0% 43.1%

Rogers

Telus

BCE

Source: Company data, Morgan Stanley Research.

Exhibit 45

BCE Line Loss Stable; Overall Canadian Line Loss Remains Below US Peers
Y/Y Line Loss
1%

1Q08

4Q08

1Q09E

-1%

-3% -3.6% -3.6% -3.7% -5% -5.4% -5.4% -7% -6.3% -7.7% -9% -9.3% -11% BCE TU T -10.0% -8.2% -9.3% -9.5% VZ

We expect line loss to modestly accelerate for TELUS, which has benefitted from less competition and the relatively stronger, commodities driven western economy. Due to successful marketing and win-back activity, BCE has been able to improve line loss and this quarter we anticipate it to stabilize at 5.4%. The US bells continue to experience higher line loss due to heavier competition and wireless substitution.

Source: Company data, Morgan Stanley Research.

Exhibit 46

Wireline EBITDA Margins
Wireline EBITDA Margins
45% 40% 35% 30% 25% 20% 15% 10% 5% 0% BCE TU VZ T 39% 36% 39% 36% 35% 34% 27% 35% 34% 29% 25% 24%

1Q08

4Q08

1Q09E

The Canadian operators exhibit higher wireline margins relative to their US counterparts. AT&T and Verizon have faced some margin dilution from their current fiber expansions. We have seen a limited push by the Canadians on their fiber plans. We expect TELUS’ margins to face some pressure due to increased expenses related to new initiatives to bolster the network to offer new advanced services such as TelusTV and increased restructuring expenses. Canada, like most other developed markets, has nationalized healthcare. Therefore, Canadian carrier margins are not as vulnerable to OPEB costs.

Source: Company data, Morgan Stanley Research.

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Exhibit 47

Summary of Key Canadian Wireless Statistics
1Q08 Subscribers Rogers BCE *TELUS Total Y/Y Growth Net Adds Rogers BCE *TELUS Total Y/Y Growth Churn Rogers BCE *TELUS Average ARPU Rogers BCE *TELUS Average Y/Y Growth Service Revenues Rogers BCE TELUS Total Y/Y Growth EBITDA Rogers Margin BCE Margin TELUS Margin Total Margin Y/Y Growth Capex Rogers % Svc. Rev. BCE % Svc. Rev. TELUS % Svc. Rev. Total % Svc. Rev. Y/Y Growth 7,406 6,250 5,656 ______ 19,312 8.3% 68 34 88 ______ 190 0.3% 1.6% 1.6% 1.5% ______ 1.6% $61.49 51.13 61.60 ______ $58.17 3.5% $1,363 956 1,037 ______ $3,356 11.7% $705 51.7% 410 42.9% 502 48.4% ______ $1,617 48.2% 11.9% $163 12.0% 67 7.0% 65 6.2% ______ $295 8.8% -38.9% 2Q08 7,505 6,332 5,832 ______ 19,669 8.9% 99 83 176 ______ 358 8.5% 1.5% 1.6% 1.4% ______ 1.5% $64.47 53.41 62.48 ______ $60.32 1.8% $1,445 1,008 1,077 ______ $3,530 10.6% $769 53.2% 442 43.8% 486 45.1% ______ $1,697 48.1% 12.4% $251 17.4% 104 10.3% 115 10.7% ______ $470 13.3% 10.5% 3Q08 7,744 6,449 5,981 ______ 20,174 8.6% 239 117 177 ______ 533 3.6% 1.5% 1.6% 1.5% ______ 1.5% $67.11 55.34 63.98 ______ $62.42 2.1% $1,537 1,061 1,134 ______ $3,732 10.9% $693 45.1% 474 44.7% 525 46.3% ______ $1,692 45.3% 2.2% $205 13.3% 93 8.8% 132 11.7% ______ $430 11.5% 11.6% 4Q08 7,942 6,497 6,129 ______ 20,568 7.6% 198 117 148 ______ 463 -14.2% 1.5% 1.7% 1.6% ______ 1.6% $63.58 53.48 61.77 ______ $59.85 0.4% $1,498 1,033 1,122 ______ $3,653 8.2% $639 42.7% 444 43.0% 492 43.9% ______ $1,575 43.1% 2.3% $310 20.7% 229 22.2% 236 21.0% ______ $775 21.2% 46.1% 2008 7,942 6,497 6,129 ______ 20,568 7.6% 604 351 589 ______ 1,543 -1.9% 1.5% 1.7% 1.5% ______ 1.6% $64.07 53.26 62.42 ______ $60.17 2.1% $5,843 4,058 4,370 ______ $14,271 10.3% $2,806 48.0% 1,770 43.6% 2,005 45.9% ______ $6,581 46.1% 7.0% $929 15.9% 493 12.1% 548 12.5% ______ $1,970 13.8% 8.0% 1Q09E 8,019 6,542 6,177 ______ 20,738 7.4% 77 45 48 ______ 170 -10.3% 1.6% 1.7% 1.6% ______ 1.6% $62.84 51.23 58.16 ______ $57.78 -0.7% $1,506 1,002 1,073 ______ $3,582 6.7% $713 47.4% 431 43.1% 490 45.6% ______ $1,635 45.6% 1.1% $203 13.5% 170 17.0% 193 18.0% ______ $567 15.8% 92.5% 2Q09E 8,147 6,652 6,312 ______ 21,112 7.3% 128 110 135 ______ 373 4.4% 1.5% 1.7% 1.6% ______ 1.6% $65.12 53.46 59.98 ______ $59.91 -0.7% $1,581 1,058 1,124 ______ $3,763 6.6% $759 48.0% 458 43.3% 501 44.6% ______ $1,719 45.7% 1.3% $213 13.5% 153 14.5% 191 17.0% ______ $558 14.8% 18.8% 3Q09E 8,315 6,765 6,464 ______ 21,544 6.8% 168 113 151 ______ 433 -18.8% 1.5% 1.7% 1.6% ______ 1.6% $65.92 55.34 61.42 ______ $61.25 -1.9% $1,630 1,114 1,177 ______ $3,920 5.1% $765 46.9% 479 43.0% 534 45.4% ______ $1,778 45.4% 5.1% $228 14.0% 156 14.0% 188 16.0% ______ $572 14.6% 33.0% 4Q09E 8,466 6,873 6,595 ______ 21,934 6.6% 151 108 131 ______ 390 -15.8% 1.5% 1.8% 1.6% ______ 1.6% $64.09 53.48 59.30 ______ $59.32 -0.9% $1,615 1,094 1,161 ______ $3,870 6.0% $749 46.4% 467 42.7% 513 44.2% ______ $1,730 44.7% 9.9% $234 14.5% 153 14.0% 174 15.0% ______ $562 14.5% -27.5% 2009E 8,466 6,873 6,595 ______ 21,934 6.6% 524 376 466 ______ 1,366 -11.5% 1.5% 1.7% 1.6% ______ 1.6% $64.45 53.36 59.66 ______ $59.53 -1.0% $6,332 4,268 4,536 ______ $15,136 6.1% $2,987 47.2% 1,836 43.0% 2,039 45.0% ______ $6,861 45.3% 4.3% $879 13.9% 633 14.8% 747 16.5% ______ $2,259 14.9% 14.7%

Source: Company data, Morgan Stanley Research * TELUS’s net adds, ARPU and churn represent actual for 1Q09. ARPU figure for 1Q09 based on reported 5.6% Y/Y decline.

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Exhibit 48

Summary of Key Canadian Wireline Statistics
1Q08 Access Lines BCE Incremental % growth Telus Incremental % growth Total Incremental % growth Broadband BCE Net Adds % growth Telus Net Adds % growth Total Net Adds % growth Revenue BCE % growth Telus % growth Total % growth EBITDA BCE Margin Telus Margin Total Margin Capex BCE % of Rev. Telus % of Rev. Total % of Rev. 7,740 (119) -6.3% 4,365 (39) -3.6% ______ 12,105 (475) -5.7% 2,930 10 -9.6% 1,041 20 9.7% ______ 3,971 30 -5.2% $2,579 0.0% 1,251 3.7% ______ $3,830 1.2% $1,012 39.2% 448 35.8% ______ $1,460 38.1% $389 15.1% $255 20.4% ______ $644 16.8% 2Q08 7,608 (132) -6.6% 4,325 (40) -3.4% ______ 11,933 (172) -5.8% 2,985 (1) -8.1% 1,064 24 10.5% ______ 4,049 23 -3.9% $2,549 -1.7% 1,256 6.5% ______ $3,805 0.8% $963 37.8% 431 34.3% ______ $1,394 36.6% $479 18.8% $321 25.5% ______ $800 21.0% 3Q08 7,536 (72) -5.8% 4,282 (43) -3.6% ______ 11,818 (115) -5.3% 2,853 33 -3.7% 1,077 13 8.4% ______ 3,930 46 -0.6% $2,545 -1.2% 1,248 3.6% ______ $3,793 0.3% $951 37.4% 449 36.0% ______ $1,400 36.9% $473 18.6% $340 27.3% ______ $813 21.4% 4Q08 7,436 (100) -5.4% 4,246 (36) -3.6% ______ 11,682 (136) -5.1% 3,003 8 -1.5% 1,096 19 7.4% ______ 4,099 27 0.7% $2,633 -1.1% 1,266 3.7% ______ $3,899 0.4% $937 35.6% 445 35.2% ______ $1,382 35.4% $625 23.7% $395 31.2% ______ $1,020 26.2% 2008 7,436 (423) -5.4% 4,246 (158) -3.6% ______ 11,682 (898) -5.1% 11,771 50 -5.8% 1,096 76 7.4% ______ 12,867 126 -4.8% $10,306 -1.0% 5,020 4.4% ______ $15,326 0.7% $3,863 37.5% 1,773 35.3% ______ $5,636 36.8% $1,966 19.1% $1,311 26.1% ______ $3,277 21.4% 1Q09E 7,321 (115) -5.4% 4,204 (42) -3.7% ______ 11,524 (581) -2.6% 2,870 4 -2.0% 1,110 14 6.7% ______ 3,980 18 0.2% $2,531 -1.9% 1,252 0.1% ______ $3,783 -1.2% $976 38.6% 420 33.6% ______ $1,396 36.9% $456 18.0% $300 24.0% ______ $756 20.0% 2Q09E 7,208 (113) -5.3% 4,162 (42) -3.8% ______ 11,369 (564) -2.5% 2,860 4 -4.2% 1,125 14 5.7% ______ 3,985 19 -1.6% $2,508 -1.6% 1,260 0.3% ______ $3,767 -1.0% $955 38.1% 421 33.4% ______ $1,376 36.5% $451 18.0% $315 25.0% ______ $766 20.3% 3Q09E 7,118 (90) -5.5% 4,120 (42) -3.8% ______ 11,238 (580) -2.7% 2,850 16 -0.1% 1,139 15 5.7% ______ 3,989 31 1.5% $2,508 -1.5% 1,262 1.1% ______ $3,770 -0.6% $943 37.6% 422 33.4% ______ $1,364 36.2% $451 18.0% $334 26.5% ______ $786 20.8% 4Q09E 7,037 (80) -5.4% 4,079 (41) -3.9% ______ 11,116 (566) -2.6% 2,840 4 -5.4% 1,153 14 5.2% ______ 3,993 18 -2.6% $2,596 -1.4% 1,266 0.0% ______ $3,862 -0.9% $947 36.5% 419 33.1% ______ $1,366 35.4% $467 18.0% $342 27.0% ______ $809 21.0% 2009E 7,037 (399) -5.4% 4,079 (167) -3.9% ______ 11,116 (566) -2.6% 11,420 29 -3.0% 1,153 57 5.2% ______ 12,573 86 -2.3% $10,142 -1.6% 5,040 0.4% ______ $15,182 -0.9% $3,820 37.7% 1,682 33.4% ______ $5,502 36.2% $1,826 18.0% $1,292 25.6% ______ $3,117 20.5%

Source: Company data, Morgan Stanley Research

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April 20, 2009 Telecom Services

Alternative Carrier Preview: Enterprise Remains in Focus
Exhibit 49

Outlook Summary
Our View on the Quarter – Despite a mild subsiding of fears around enterprise, we still expect to hear cautious commentary this quarter about the operating environment. Specifically, we expect revenues and capex to be lighter than consensus forecasts; however, EBITDA may meet expectations as a result of aggressive cost cutting. Potential Bullish/Bearish Events – Bullish – Positive commentary on wireless or cable MOU growth; Updates on new markets and products ; (TNDM) / Status updates on credit markets (LVLT) – Bearish – Cautious commentary on enterprise / Concerns on leverage given economic environment (LVLT) / Elongating sales cycles / Pricing pressures Recent Events for Context – On April 6, Level 3 increased its existing credit facility by $220 mn at a rate of LIBOR plus 850 bps. – On April 2, SAVVIS hired Greg Freiberg as the new CFO of SAVVIS. Former CFO Jeff Von Deylen will remain SVP of Global Operations and Client Services. – Our chief economist Dick Berner, forecasts that business (fixed investment) spending will decline 18.8% Y/Y, the worst Y/Y decline in 40 years. – Quarterly business bankruptcy filings reached the highest level in 10 years according to the American Bankruptcy Institute.

Alternative Carrier Comps
EBITDA Company Level 3 Neutral Tandem PAETEC SAVVIS tw telecom RBOC Average RLEC Average Tower Average Wireless Average 2009E 7.6x 10.9x 5.4x 4.0x 5.6x 5.9x 5.6x 14.7x 6.2x EV / EBITDA 2010E 2011E 7.3x 7.0x 8.9x 7.7x 5.2x 4.9x 3.7x 3.5x 5.4x 5.2x 5.7x 5.6x 13.7x 5.7x 5.3x 5.6x 12.8x 5.5x Three-Year 2009E Estimated EV/EBITDA to Growth Growth 4% 1.8x 16% 0.7x 5% 1.1x 6% 0.7x 4% 1.4x 2% -3% 9% 4% 3.6x NM 1.6x 1.7x

Source: Company data, Morgan Stanley Research

Exhibit 50

FCF Expectations
FCF Level 3 Neutral Tandem PAETEC SAVVIS tw telecom RBOC Average RLEC Average Tower Average Wireless Average 2009E $89 57 27 17 71 FCF 2010E $177 76 21 45 75 2011E $178 91 37 62 90 2009E 4.6% 6.4% 6.1% 3.9% 5.3% 13.5% 21.0% 7.6% 38.3% FCF Yield 2010E 9.1% 8.5% 4.8% 10.0% 5.6% 7.3% 37.4% 8.2% 9.6% 2011E 9.1% 10.1% 8.6% 13.7% 6.7% 7.6% 37.0% 5.1% 9.1%

Source: Company data, Morgan Stanley Research

Exhibit 51

1Q09 Revenue Growth Expected to Decline
60%
49%
1Q08 4Q08 1Q09E

50%

41% 40%

40% Revenue Growth

30%

20%
12% 9% 5% 5% 1%

10%
3%

8% 5%

0%
-5% -6% -3% -4%

-10%

LVLT

TWTC

PAET

SVVS

TNDM

Source: Company data, Morgan Stanley Research Note 1Q09E - PAET pro forma growth for McLeod, 4Q08 growth at SAVVIS increased by new data center openings

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Exhibit 52

Large Portion of Revenues Comprised of Enterprise
Enterprise 100% Wholesale and Other

18% 26%
80%

Many of the alternative carriers in our space are levered to business/enterprise spend with a considerable amount of revenue coming from this vertical. The size of the businesses varies from PAETEC’s focus on small business, to SAVVIS’s Fortune 1000 customers. The percentage of PAETEC’s revenue which comes from enterprise has been fairly steady at mid 80%. On the other hand, tw telecom has marketed itself as an enterprise growth story. As of 3Q08 74% of its revenue comes from medium and large businesses. Generally, we view high exposure to enterprise as a positive for the competitive carriers, as opposed to lower margin wholesale revenue exposure as in Level 3’s case, but in light of forecasted trends in enterprise spending, we have become more cautious.

60%

77% 100%

40%

82% 74%

20%

23%
0% LVLT TWTC PAET SVVS

Source: Company data, Morgan Stanley Research. As of 4Q08

Exhibit 53

EBITDA Margins Expected to Decline in 1Q09
60%

After ticking upwards last quarter, EBITDA margins may come under pressure in 1Q.
TNDM

50%

EBITDA Margin

40%

TWTC LVLT SVVS PAET

30%

We expect a continued slowdown in the small and medium enterprise space. Both tw telecom and PAETEC have noted softness in some of their markets which will affect growth in the top line. Given the high operating leverage, we should see if the MOU slowdown at the CLECs translates to lower revenue for Neutral Tandem (~20% of traffic) and consequently lower EBITDA.

20%

10%

0% 1Q07 2Q07 3Q07 4Q07 1Q08 2Q08 3Q08 4Q08 1Q09E

Source: Company data, Morgan Stanley Research.

Exhibit 54

Level 3 Remains Highest Levered Company in our Alternative Carrier Space
10.0x

LVLT
8.0x 6.0x Net Debt/EBITDA 4.0x 2.0x 0.0x -2.0x -4.0x 1Q07 2Q07 3Q07

TWTC

PAET

SVVS

TNDM

Level 3 has completed many transactions to attempt to address its near term maturities, including debt-for-equity swaps, tendering for 2009 and 2010 notes, and issuing convertible notes that mature in 2013. The company recently increased its term loan by $220 mn. tw telecom has steadily reduced its debt and does not have any maturities due until 2013. SAVVIS levered up to build its data center footprint which is now complete. Neutral Tandem’s negative net debt position is extremely prudent given the credit conditions that have hit the market recently.

4Q07

1Q08

2Q08

3Q08

4Q08

1Q09E

Source: Company data, Morgan Stanley Research.

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Wireless Survey: VZ, T, & Unlimited Prepaid Carriers Show Strength
Key Takeaways
Conclusions
- Our survey suggests sequential wireless subscriber growth increased to 3.5%, from 3.0% in our 4Q08 survey. Our official MS estimate is 0.6% Q/Q growth. The Big 4’s contract offerings had a 78% share of total net adds, the highest since our 3Q05 survey. Prepaid offerings posted the highest sequential growth rates since 4Q07 and as a group gained share of gross and net adds; T-Mobile To Go was again the highlight in the category. - Wireless penetration of those surveyed stands at 91.8%, with penetration in the 18-24 year old categories at 95.6%. - Industry churn ticked up 39 bps to 1.6%. - Upgrade activity decelerated down to 9.1% (9.5% in 4Q and 10.0% in 3Q).
Exhibit 55

The Big 4: Summary Results Out of 15k Surveyed
400

350

GROSS ADDS
300

DISCONNECTS

NET ADDS

288 263 207

277 206 155 144 98 60 54 76 52 23 28
1Q 4Q 1Q '08 '08 '09

200

184

SUBS

101 107 79 81

100

92

0

1Q 4Q 1Q '08 '08 '09
(100)

1Q 4Q 1Q '08 '08 '09

1Q 4Q 1Q '08 '08 '09

(4) (29) (85) (108) (116) (24)

(53) (49) (79) (81) (73) (95) (90) (79) (108)

(200)

Verizon / Alltel (contract)

AT&T (contract)

T-Mobile (contract)

Sprint Nextel

Source: Company data, Morgan Stanley Research

Exhibit 56

Winners
- Verizon/Alltel (contract) - Verizon’s 6.5% Q/Q growth rate (4.7% in 4Q pro-forma for Alltel) was the highest sequential growth rate among the Big 4 contract offers and the highest for Verizon/Alltel (contract) since our 3Q05 survey. We believe the strong RIM preannounced results are indicative of Verizon’s performance. The offering had the largest increase of gross and net adds share. - AT&T (contract) - AT&T (contact) saw its share of gross and net adds increase in our 1Q survey, likely on weaker competition with no premium handsets rolled out in the quarter (unlike the Blackberry Storm and Google G1 in 4Q). Our survey implies that approximately 2.38 million iPhone 3G were sold in 1Q09. Although in the last two quarters the survey has been relatively accurate in predicting actual iPhone activations (off by 7% in 4Q08 and 5% in 3Q08), we are aware that a sequential increase from 4Q to 1Q, as indicated in our 1Q09 survey, would be highly atypical. - Cricket (Leap)/MetroPCS – According to our survey, MetroPCS maintained its share of gross adds and, although the net adds share was narrowly down in the quarter, churn was also lower by 9 bps (at 5.4%) and subscriber growth in-creased to 7.1% from 6.5% in 4Q. Cricket (Leap) posted even more impressive results with subscriber growth increasing to 7% from -2% in 4Q and a 152 bps increase in share of net adds.

Survey Big 4 contract subscriber growth accelerates as Verizon and AT&T’s growth ticks
Verizon / Alltel (contract) Sprint Nextel Big 4 contract T-Mobile (contract) AT&T Wireless (contract) T-Mobile (contract) Verizon / Alltel (contract)

Sequential Subscriber Growth (%)

8.0% 7.0% 6.0% 5.0% 4.0% 3.0% 2.0% 1.0% 0.0% -1.0% -2.0% 3Q05

AT&T (contract) Sprint Nextel 4Q05 1Q06 2Q06 3Q06 4Q06 1Q07 2Q07 3Q07 4Q07 1Q08 2Q08 3Q08 4Q08 1Q09

Source: Morgan Stanley Research, Morgan Stanley AlphaWiseSM

Exhibit 57

Wireless Penetration Highest for 18-39 Year Olds
Wireless Penetration 100% 90% 96% 95% 94% 95% 93% 92% 93% 90%
Average Penetration 92%

91% 89%

Other Results/Concerns
- Sprint, The -4.9% sequential subscriber growth among survey participants for Sprint (contract) and negative net adds for both Sprint (contract) and Boost (the only two negative net add plans) reflect a sharp decline from the 4Q survey. Among the Big 4, Sprint had the largest negative contract flow share. - T-Mobile (contract), T-Mobile’s contract offer grew 2.5% Q/Q, the second worst among the Big 4 and down 205 bps sequentially. The survey showed that churn grew to 2.3%, just 10 bps lower than Sprint, and 68 bps higher than the industry average.
80% 70% 60% 50% 18 to 25 to 30 to 35 to 40 to 45 to 50 to 55 to 60 to 65 24 29 34 39 44 49 54 59 64 and over Age
Source: Company data, Morgan Stanley Research

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Exhibit 58

Summary of key metrics by carrier
Lower priced offerings continue to show the highest sequential growth rates in our survey, and despite the weaker economic environment, their growth accelerated in 1Q. Cricket, MetroPCS, and TracFone were the only offerings to break the 7% Q/Q growth hurdle. Verizon/Alltel (contract) led the Big 4 on sub growth on the back of strong results from RIM, preleased on April 2. Sprint was the only Big 4 carrier to show erosion of its subscriber base, although T-Mobile (contract) subscriber growth slowed from 4.5% in 4Q08 to 2.5% in 1Q09. Subscriber market share increased to 78% for the national carriers, yet the survey shows some big swings in net add shares among the Big 4. Verizon/Alltel (contract) stands out as the group leader with a 57%% share of net adds, a Q/Q increase of 621 bps. AT&T (contract) strengthened its hold on second place, with its share of net adds increasing to 20% (13% in our 4Q survey). T-Mobile’s (contract) share was sharply lower from the double-digit levels seen in 4Q08. Sprint showed negative net adds in our survey; the survey has now shown the carrier with more disconnects than gross adds in eight out of the last ten quarters. Verizon/Alltel (contract) continues to lead in churn and is the only Big 4 offering with churn under 1%. Boost, MetroPCS, and Leap posted the highest churn in our survey with all three carriers above 5%.
Sub Growth 8.2% 7.1% 7.0% 6.5% 6.3% 4.4% 4.3% 3.7% 2.8% 2.5% 2.4% 2.2% 0.7% 0.6% (1.5%) (17.0%) Churn 0.9% 5.4% 5.5% 0.5% 2.5% 2.1% 12.8% 4.8% 1.0% 2.3% 3.1% 1.6% 5.1% 4.8% 2.4% 8.5% Subs 752 90 76 4,566 218 238 24 84 3,549 1,150 295 321 306 470 1,587 39 13,765 5.5% 0.7% 0.6% 33.2% 1.6% 1.7% 0.2% 0.6% 25.8% 8.4% 2.1% 2.3% 2.2% 3.4% 11.5% 0.3% 100.0% Summary Gross Adds 77 6.8% 20 1.8% 18 1.6% 350 31.1% 29 2.6% 25 2.2% 10 0.9% 15 1.3% 206 18.3% 107 9.5% 34 3.0% 22 2.0% 49 4.3% 70 6.2% 92 8.2% 3 0.3% 1,127 100.0% Disconnects 20 3.1% 14 2.2% 13 2.0% 73 11.4% 16 2.5% 15 2.3% 9 1.4% 12 1.9% 108 16.8% 79 12.3% 27 4.2% 15 2.3% 47 7.3% 67 10.4% 116 18.1% 11 1.7% 642 100.0% Net Adds 57 11.8% 6 1.2% 5 1.0% 277 57.1% 13 2.7% 10 2.1% 1 0.2% 3 0.6% 98 20.2% 28 5.8% 7 1.4% 7 1.4% 2 0.4% 3 0.6% (24) (4.9%) (8) (1.6%) 485 100.0%

TracFone MetroPCS Cricket Verizon Wireless (contract) Verizon Wireless INpulse (Prepaid) T-Mobile To Go (Prepaid) Boost Unlimited T-Mobile FlexPay AT&T (contract) T-Mobile (contract) Virgin Mobile US Cellular AT&T GoPhone (Prepaid) Other carrier Sprint Nextel Boost Total

Exhibit 59

Gross Adds – AT&T (contract) sees improvement, Verizon/Alltel (contract) continues to hold the highest share, while Sprint and T-Mobile (contract) lose ground
Share of Gross Adds Indicated by Survey 4Q08
US Cellular 1.9% Cricket 1.4% Other carrier 6.5% Sprint Nextel 8.9% T-Mobile (contract) 10.0% AT&T (contract) 15.9% Verizon / Alltel (contract) 31.7%

AT&T, up 241 bps Q/Q, had the largest 1Q09 increase followed by Cricket, up 16 bps. Verizon/Alltel (contract) gross add share, down 69 bps, had the largest sequential
Cricket 1.6%

MetroPCS 2.0%

US Cellular 2.0% Other carrier 6.2% Sprint Nextel 8.2% T-Mobile (contract) 9.5%

MetroPCS 1.8%

increase in our survey. Sprint (contract) saw the sharpest decline; it was down 76 bps. Both T-Mobile (contract) and

Verizon / Alltel (contract) 31.1%

MetroPCS also lost share and were down 46 bps and 21 bps respectively. Overall, the national carriers maintained their share, up 50 bps. Prepaid offerings as a category lost 24 bps in share of gross adds (see table below).

Prepaid (1) 21.7%

AT&T (contract) 18.3%

Prepaid (1) 21.5%

(1) Prepaid includes AT&T GoPhone, T-Mobile To Go, TracFone, Virgin Mobile, Verizon Wireless INpulse, Boost, Boost Unlimited and T-Mobile FlexPay. Source: Morgan Stanley Research, Morgan Stanley AlphaWiseSM

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Exhibit 60

BIG 4 Contract Smartphone – Uptake Continues, Although Momentum Slows
Smartphone sales made up 46% (39% in 4Q) of total industry upgrades and 27% (31% in 4Q) of total industry gross handset sales. Approximately 25% (24% in 4Q) of the Big 4 contract subscriber bases have a smartphone. For AT&T, the iPhone remains the preferred smartphone, ahead of the Blackberry by approximately 11%. Within AT&T (contract) smartphones achieved a 27% penetration, up from 24% in our 4Q survey and 21% in our 3Q survey. At Verizon/Alltel, LG continues to be the most popular brand both overall and within the smartphone sub-segment. According to our survey, LG accounts for 45% (48% in 4Q) of the total smartphone base. Smartphones make up 21% of Verizon’s contract base, down from 23% in 4Q. For T-Mobile, Blackberry remains ahead in share of smartphones with 42% (slightly above 41% in 4Q). Smartphone uptake within T-Mobile’s base increased to 25%, up from 21% in 4Q. The Google G1 phone accounted for 12% of smartphones, up from 7% in 4Q. At Sprint, 30% of subscribers have a smartphone, up from 27% in 4Q; still the largest share increase among the Big 4. Samsung (29% penetration, 21% in 4Q) surpassed LG (17%, 25% in 4Q) as the most popular smartphone brand. Palm remains important for Sprint (22% penetration in 1Q), hence the Pre exclusive. Blackberry’s share within the smartphone category increased to 18%, up from 12% in 4Q. Although many users nowadays own more than one device (one for personal and one for corporate use) our survey is focused on the user’s primary cell phone. As a result, our results pertain only to primary cell phone preference and may underestimate the number of smartphones.
AT&T (% of total contract subs)
Other, 3%

OF BIG 4 SUBSCRIBER BASE

% of SMARTPHONES

OF TOTAL HANDSET SALES OF TOTAL HANDSET UPGRADES OF TOTAL HANDSET GROSS ADDS

50% 45% 40% 35% 30% 25% 20% 15% 10% 2Q08 3Q08 17% 29% 27% 24% 30% 29% 19%

46% 39% 35% 31% 24% 27% 25% 37%

4Q08

1Q09

Sony Ericsson, LG, 12% 8%

Carrierbranded, 4% S M A R T P H O N E S

HTC, 4%

Verizon / Alltel (% of total contract subs)
Nokia, 4%

Nokia, 3% Other, 3% Samsung, 16%
S M A R T P H O N E S Carrierbranded, 5%

Nokia 1% Moto, 6%

Palm, 5%

Moto, 4%

Palm, 6% (7% in 4Q)

LG, 8%
Samsung (14% in 4Q) 12%

Samsung, 8%

Samsung, 14%

27%

Moto, 24%
B-berry, (23% in 4Q) 24%

21%

B-berry, 25%
(18% in 4Q)

Nokia, 16% Moto, 19%

LG, 32%
iPhone, 35%
(30% in 4Q)

LG, 45%
(48% in 4Q)

SPRINT (% of total contract subs)
Other, 17%
Primarily Kyocera/Sanyo S M A R T P H O N E S

Carrierbranded, 2%

T-Mobile (% of total contract subs)
HTC, 6% Moto, 6% B-berry, 18% (12% in 4Q) LG, 17% (25% in 4Q)

Others 4% iPhone, 4% Moto, 5% HTC, 7%
Samsung, 11%

Other, 3%

Sony Ericsson 2%

Nokia, 3%

LG 1%
S M A R T P H O N E S

Nokia, 3% 30% LG, 7%

Nokia, 16%

25% Moto, 25%

Moto, 17% Samsung, 27%

Palm, 22% (24% in 4Q)

Carrierbranded, 12% G1 / Google, (7% in 4Q) 12%

Samsung , 29%

Samsung, 28%

B-berry, 42% (41% in 4Q)

(21% in 4Q)

Source: Morgan Stanley Research, Morgan Stanley AlphaWiseSM

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Disclosure Section
The information and opinions in Morgan Stanley Research were prepared by Morgan Stanley & Co. Incorporated, and/or Morgan Stanley C.T.V.M. S.A. and their affiliates (collectively, "Morgan Stanley"). For important disclosures, stock price charts and rating histories regarding companies that are the subject of this report, please see the Morgan Stanley Research Disclosure Website at www.morganstanley.com/researchdisclosures, or contact your investment representative or Morgan Stanley Research at 1585 Broadway, (Attention: Equity Research Management), New York, NY, 10036 USA. The following analysts hereby certify that their views about the companies and their securities discussed in this report are accurately expressed and that they have not received and will not receive direct or indirect compensation in exchange for expressing specific recommendations or views in this report: Simon Flannery. Unless otherwise stated, the individuals listed on the cover page of this report are research analysts. Morgan Stanley Research has been published in accordance with our conflict management policy, which is available at www.morganstanley.com/institutional/research/conflictpolicies.

Analyst Certification

Global Research Conflict Management Policy

Important US Regulatory Disclosures on Subject Companies

As of March 31, 2009, Morgan Stanley beneficially owned 1% or more of a class of common equity securities of the following companies covered in Morgan Stanley Research: American Tower Corp., Level 3 Communications, Inc., Telephone & Data Systems, Verizon Communications, Windstream Corp.. As of March 31, 2009, Morgan Stanley held a net long or short position of US$1 million or more of the debt securities of the following issuers covered in Morgan Stanley Research (including where guarantor of the securities): American Tower Corp., AT&T, Inc., BCE Inc., CenturyTel, Cincinnati Bell Inc., Crown Castle Corp., Embarq Corporation, FairPoint Communications, Frontier Communications Corp, Leap Wireless, Level 3 Communications, Inc., MetroPCS Communications, Qwest Communications Int'l, Rogers Communications, Inc., Sprint Nextel Corporation, Telephone & Data Systems, TELUS Corp., tw telecom inc, US Cellular Corporation, Verizon Communications, Windstream Corp.. Within the last 12 months, Morgan Stanley managed or co-managed a public offering of securities of AT&T, Inc., Crown Castle Corp., Leap Wireless, Verizon Communications. Within the last 12 months, Morgan Stanley has received compensation for investment banking services from American Tower Corp., AT&T, Inc., CenturyTel, Clearwire Corporation, Crown Castle Corp., FairPoint Communications, Frontier Communications Corp, Leap Wireless, Level 3 Communications, Inc., Neutral Tandem, Inc., Qwest Communications Int'l, Sprint Nextel Corporation, TELUS Corp., Verizon Communications, Windstream Corp.. In the next 3 months, Morgan Stanley expects to receive or intends to seek compensation for investment banking services from American Tower Corp., AT&T, Inc., BCE Inc., CenturyTel, Cincinnati Bell Inc., Clearwire Corporation, Crown Castle Corp., FairPoint Communications, Frontier Communications Corp, Iowa Telecom, Leap Wireless, Level 3 Communications, Inc., MetroPCS Communications, Neutral Tandem, Inc., Qwest Communications Int'l, Rogers Communications, Inc., SAVVIS Inc., SBA Communications, Sprint Nextel Corporation, Telephone & Data Systems, TELUS Corp., tw telecom inc, Verizon Communications, Windstream Corp.. Within the last 12 months, Morgan Stanley & Co. Incorporated has received compensation for products and services other than investment banking services from AT&T, Inc., BCE Inc., Clearwire Corporation, Level 3 Communications, Inc., Qwest Communications Int'l, Verizon Communications. Within the last 12 months, Morgan Stanley has provided or is providing investment banking services to, or has an investment banking client relationship with, the following company: American Tower Corp., AT&T, Inc., BCE Inc., CenturyTel, Cincinnati Bell Inc., Clearwire Corporation, Crown Castle Corp., FairPoint Communications, Frontier Communications Corp, Iowa Telecom, Leap Wireless, Level 3 Communications, Inc., MetroPCS Communications, Neutral Tandem, Inc., Qwest Communications Int'l, Rogers Communications, Inc., SAVVIS Inc., SBA Communications, Sprint Nextel Corporation, Telephone & Data Systems, TELUS Corp., tw telecom inc, Verizon Communications, Windstream Corp.. Within the last 12 months, Morgan Stanley has either provided or is providing non-investment banking, securities-related services to and/or in the past has entered into an agreement to provide services or has a client relationship with the following company: American Tower Corp., AT&T, Inc., BCE Inc., Cincinnati Bell Inc., Clearwire Corporation, Crown Castle Corp., FairPoint Communications, Frontier Communications Corp, Level 3 Communications, Inc., Qwest Communications Int'l, Rogers Communications, Inc., Sprint Nextel Corporation, Verizon Communications. The research analysts, strategists, or research associates principally responsible for the preparation of Morgan Stanley Research have received compensation based upon various factors, including quality of research, investor client feedback, stock picking, competitive factors, firm revenues and overall investment banking revenues. An employee or director of Morgan Stanley is a director of AT&T, Inc., Verizon Communications. Morgan Stanley & Co. Incorporated makes a market in the securities of American Tower Corp., AT&T, Inc., CenturyTel, Clearwire Corporation, Embarq Corporation, Frontier Communications Corp, Leap Wireless, Level 3 Communications, Inc., MetroPCS Communications, Neutral Tandem, Inc., PAETEC Holding Corp., Qwest Communications Int'l, SAVVIS Inc., SBA Communications, Sprint Nextel Corporation, tw telecom inc, Verizon Communications, Windstream Corp.. Certain disclosures listed above are also for compliance with applicable regulations in non-US jurisdictions.

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Morgan Stanley uses a relative rating system using terms such as Overweight, Equal-weight, Not-Rated or Underweight (see definitions below). Morgan Stanley does not assign ratings of Buy, Hold or Sell to the stocks we cover. Overweight, Equal-weight, Not-Rated and Underweight are not the equivalent of buy, hold and sell. Investors should carefully read the definitions of all ratings used in Morgan Stanley Research. In addition, since Morgan Stanley Research contains more complete information concerning the analyst's views, investors should carefully read Morgan Stanley Research, in its entirety, and not infer the contents from the rating alone. In any case, ratings (or research) should not be used or relied upon as investment advice. An investor's decision to buy or sell a stock should depend on individual circumstances (such as the investor's existing holdings) and other considerations.

Global Stock Ratings Distribution
(as of March 31, 2009)

For disclosure purposes only (in accordance with NASD and NYSE requirements), we include the category headings of Buy, Hold, and Sell alongside our ratings of Overweight, Equal-weight, Not-Rated and Underweight. Morgan Stanley does not assign ratings of Buy, Hold or Sell to the stocks we cover. Overweight, Equal-weight, Not-Rated and Underweight are not the equivalent of buy, hold, and sell but represent recommended relative weightings (see definitions below). To satisfy regulatory requirements, we correspond Overweight, our most positive stock rating, with a buy recommendation; we correspond Equal-weight and Not-Rated to hold and Underweight to sell recommendations, respectively.

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Stock Rating Category

Coverage Universe Investment Banking Clients (IBC) % of % of % of Rating Total Count Count Total IBC Category

Overweight/Buy Equal-weight/Hold Not-Rated/Hold Underweight/Sell Total

686 993 33 521 2,233

31% 44% 1% 23%

211 249 8 107 575

37% 43% 1% 19%

31% 25% 24% 21%

Data include common stock and ADRs currently assigned ratings. An investor's decision to buy or sell a stock should depend on individual circumstances (such as the investor's existing holdings) and other considerations. Investment Banking Clients are companies from whom Morgan Stanley or an affiliate received investment banking compensation in the last 12 months.

Analyst Stock Ratings
Overweight (O). The stock's total return is expected to exceed the average total return of the analyst's industry (or industry team's) coverage universe, on a risk-adjusted basis, over the next 12-18 months. Equal-weight (E). The stock's total return is expected to be in line with the average total return of the analyst's industry (or industry team's) coverage universe, on a risk-adjusted basis, over the next 12-18 months. Not-Rated (NR). Currently the analyst does not have adequate conviction about the stock's total return relative to the average total return of the analyst's industry (or industry team's) coverage universe, on a risk-adjusted basis, over the next 12-18 months. Underweight (U). The stock's total return is expected to be below the average total return of the analyst's industry (or industry team's) coverage universe, on a risk-adjusted basis, over the next 12-18 months. Unless otherwise specified, the time frame for price targets included in Morgan Stanley Research is 12 to 18 months.

Analyst Industry Views
Attractive (A): The analyst expects the performance of his or her industry coverage universe over the next 12-18 months to be attractive vs. the relevant broad market benchmark, as indicated below. In-Line (I): The analyst expects the performance of his or her industry coverage universe over the next 12-18 months to be in line with the relevant broad market benchmark, as indicated below. Cautious (C): The analyst views the performance of his or her industry coverage universe over the next 12-18 months with caution vs. the relevant broad market benchmark, as indicated below. Benchmarks for each region are as follows: North America - S&P 500; Latin America - relevant MSCI country index or MSCI Latin America Index; Europe - MSCI Europe; Japan - TOPIX; Asia - relevant MSCI country index.
.

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April 20, 2009 Telecom Services

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Industry Coverage:Telecom Services
Company (Ticker) Simon Flannery AT&T, Inc. (T.N) American Tower Corp. (AMT.N) BCE Inc. (BCE.TO) CenturyTel (CTL.N) Cincinnati Bell Inc. (CBB.N) Clearwire Corporation (CLWR.O) Crown Castle Corp. (CCI.N) Embarq Corporation (EQ.N) FairPoint Communications (FRP.N) Frontier Communications Corp (FTR.N) Iowa Telecom (IWA.N) Leap Wireless (LEAP.O) Level 3 Communications, Inc. (LVLT.O) MetroPCS Communications (PCS.N) Neutral Tandem, Inc. (TNDM.O) PAETEC Holding Corp. (PAET.O) Qwest Communications Int'l (Q.N) Rogers Communications, Inc. (RCIb.TO) SAVVIS Inc. (SVVS.O) SBA Communications (SBAC.O) Sprint Nextel Corporation (S.N) TELUS Corp. (T.TO) Telephone & Data Systems (TDS.N) US Cellular Corporation (USM.N) Verizon Communications (VZ.N) Windstream Corp. (WIN.N) tw telecom inc (TWTC.O) Rating (as of) Price (04/17/2009)

O (03/08/2006) E (03/12/2009) O (11/21/2008) ++ E (11/03/2006) U (12/08/2008) E (03/12/2009) ++ NA (10/29/2007) E (05/07/2007) U (12/17/2008) O (04/28/2006) U (02/14/2008) O (10/31/2007) E (12/12/2007) E (06/26/2008) E (01/09/2009) O (04/27/2005) E (12/07/2007) E (03/12/2009) U (12/08/2008) E (12/19/2008) U (02/19/2009) E (03/10/2009) E (01/22/2009) O (04/17/2006) E (06/26/2008)

$25.95 $32.9 C$26.07 $26.67 $2.83 $5.58 $23.77 $35.96 $1.24 $7.18 $12.21 $33.31 $1.24 $16.58 $26.81 $2.51 $3.54 C$27.7 $8.42 $26.41 $4.11 C$31.01 $27.64 $34.03 $31.78 $8.44 $9.03

Stock Ratings are subject to change. Please see latest research for each company.

© 2009 Morgan Stanley


				
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