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Richard McCormick
Roadshow Opener
October 12, 1995
Good morning!
I'm Dick McCormick...
...and we appreciate your joining us, today...
...for some presentations that I promise will be "right on TARGET."
* * *
I'm going to start with a little about where we see this industry
going...
...and why this environment called for a new equity structure for
U S WEST.
Plus a little about that structure.
* * *
Then you'll hear from Chuck Lillis...
...the CEO of our Media Group...
...about their operations and strategies.
And then Chuck's team will join him, to answer your questions.
* * *
Next, Sol Trujillo...
...the CEO of our Communications Group...
...will bring you up to date on the regional telecommunications
business.
And then Sol and his team will field your questions.
Then we'll have some lunch...
...and let you out of here before the markets close.
* * *
(PAUSE)
* * *
Two forces...
...are driving the transformation we've been seeing in the
telecommunications and media businesses, these past few years.
One: "universal carriage."
That is, our ability to convert to digits everything that used to
require sound waves, visual images, and a host of different
technologies.
Two: the "time crunch."
And you know what I mean by that.
* * *
(PAUSE)
It is inevitable...
...that the first of those forces will lead to a convergence of
networks and media.
If high-capacity digital networks can carry all kinds of:
- -- communications;
- -- entertainment;
- -- information;
- -- and transactions...
...someone will build and profit from those networks.
* * *
It is inevitable...
...that the second force will stimulate an explosion of time-saving
applications...
...beginning with on-line services and movies on demand...
...but expanding into a multitude of other hassle-free services...
...growing rapidly as high-capacity, two-way, digital networks are
completed.
* * *
It is also inevitable that those forces will create increased
competition.
Decreased regulation.
And a host of other effects.
* * *
U S WEST foresees tremendous opportunities in these converging
industries.
And we are embracing those opportunities.
We began as a regional network business, with a strong franchise in
a vibrant part of the country.
But we've also become a pioneer in developing state-of-the-art
networks elsewhere...
...and of other new technologies and services, like wireless and
"content."
* * *
In doing so, we've built our "local network" expertise into two
great businesses -- with a common base, but different financial
characteristics.
* * *
Because of those differing characteristics, many investors see
these opportunities as an "either/or" proposition:
- - either an income-producing, regional telecommunications
company;
- -- or a longer-term investment in new markets, worldwide, as
well as new technologies and services.
* * *
Obviously...we are both.
* * *
Obviously..."compartmentalized" thinking depressed our price.
* * *
Obviously...we needed to unlock the value that our shares
represent.
* * *
And we're doing so...
...by issuing TARGETED STOCK.
* * *
Through targeted stock, we're clarifying, for equity buyers...
...that we're not just one good investment, but TWO.
* * *
Targeted stock will deliver to shareowners the full value of the
businesses we've built.
At the same time, it will increase our flexibility to grow...
...both in terms of financing that growth...
...and in keeping all our expertise within one company.
* * *
Think about the advantages:
Targeted stock makes each business unit directly accountable to the
equity market.
It clarifies, for the managers in those units, what their
"financial report card" is.
And where their bonuses will come from.
* * *
At the same time...
...by remaining under one corporate umbrella...
...they get to keep their "pipeline" to the knowledge in the other
side of the company.
And I can tell you, from my view, a lot of value flows through that
pipeline.
It flows from London to Denver...
...as we learn about combined cable/telephone networks and local-
exchange competition.
* * *
It flows from Denver to Atlanta, and Rochester, and elsewhere...
...as our people who grew up with telephone switches, guide our new
providers.
* * *
The value flows both ways...
...as we transfer people whose experience in one business can be
both utilized and enhanced in the other business.
* * *
In addition, there's the tax advantage: material savings by
continuing to file a consolidated return.
* * *
There's the financial advantage of a consolidated balance sheet,
especially to our "start-up" businesses.
* * *
(PAUSE)
* * *
And what an industry to be in!
Look at the growth in access lines and minutes of use.
Fax machines.
On-line computing.
Wireless communications.
Enhanced phone services.
Cable TV.
* * *
Business people want their calls to follow them.
Parents want to be in touch at all times.
People want their computers to be connected to others, around the
office and around the world.
People want movies on demand...
...on-line computer games...
...and easier ways to get information and do business.
People need better connections to their world.
* * *
As you know, there are a lot of companies looking for ways to meet
those needs.
The questions are:
Who has the resources and experience to build the networks that can
do all those things?
Who's going to bring all those technologies together?
Who's going to make them easy to use?
Who's going to set the standard...and build brand names?
* * *
Two of those "who's"...
...will be U S WEST Communications Group...and U S WEST Media
Group...
...both of them experts at what this company has been focusing on
for three years:
- -- delivering and packaging the communications, entertainment,
information and transactions that people need.
* * *
Now, I know a lot of you have debated who'll win the so-called
"cable-telco wars."
Let me give you my view.
This is not a zero-sum game.
There is tremendous growth ahead in the market for network services.
Rapidly-advancing technologies.
More, and more customer-friendly, applications.
Falling costs.
Great growth potential.
* * *
(EMPHASIZE:)
And U S WEST has a unique position, both among the RBOCs AND among
the major cable companies:
Within our region, we have all the ingredients for the
Communications Group to grow:
- -- 10 of the nation's 15 fastest-growing states;
- -- access-line growth of 2,000 lines a day;
- -- a broadly diversified economy;
...yet very few characteristics that appeal to would-be competitors:
- -- we serve only 7 of the top 50 MSAs;
- -- and our cable competitors have only six clusters of 100,000
households.
* * *
Outside our region, we enjoy the opposite situation:
- -- Our cable investments include 34 clusters of 100,000;
- -- and we serve 33 of the top 50 MSAs.
* * *
So we have "the best of both worlds."
* * *
(PAUSE)
* * *
I'm excited about what Chuck is going to tell you:
- -- about the Media Group's strong position in combined cable
tv and telephone networks...
...in London, Atlanta, Time Warner, and elsewhere.
* * *
I'm excited about what he's going to tell you:
- -- about our wireless businesses, including ownership in the
largest cellular footprint, nationally, and fast-growing markets
internationally.
* * *
I'm excited about what he's going to tell you:
- -- about our directory and "content" businesses, which include
the national leader in directory growth, and businesses in new media
and new markets.
* * *
I'm excited about what Sol is going to tell you:
- -- about the Communications Group's strong core business and
its fast-growing, yet competition-resistant region...
...its new leadership in data communications and local video
networks...
...its potential opportunities in long distance and PCS.
This is a strong company with solid financials and a bright future
- -- a whole lot more than a "telephone company."
* * *
So let's get on to their presentations.
* * *
Chuck Lillis, who's going to tell you about the Media Group, came
to us 10 years ago by way of GE and the University of Colorado
business school, where he was dean.
As our chief planning officer, he's been a key architect of our
"ground floor" positions in the wireless, video and international
markets.
He's also had operating responsibility for most of those businesses.
And made them so exciting we decided they deserved their own stock:
The U S WEST Media Group...
...which will trade as "UMG."
Chuck Lillis.
* * *
(CML)
* * *
(Q&A)
* * *
Our next presenter, Sol Trujillo, joined Mountain Bell in the 1970s
as an economic forecaster...
...but we soon learned he could also make forecasts come true.
He led two of our largest and fastest-growing statewide
organizations...
...in New Mexico and Colorado.
Then, he created our Small Business marketing organization, turning
a slow-growth market into a high-growth market, which today is a
1.9 billion-dollar revenue stream.
Then we asked him to help focus and revitalize the Marketing
Resources Group, where he increased its revenue-growth rate to more
than double the industry average...
...proving that what appears to be a moderate-growth business can be
much more than that.
Sol has had 11 years' experience as an officer...
...and a national reputation as "a guy who gets things done."
Three months ago, we asked Sol to bring those skills back to
U S WEST Communications...
...and he's here to tell you how he's doing.
Sol Trujillo.
* * *
(SDT)
(Q&A)
(WRAP-UP)
###
CHUCK LILLIS PRESENTATION
SLIDE
U S WEST MEDIA GROUP:
Chuck Lillis, CEO
ASSOCIATED THOUGHTS
Thank you, Dick.
It's nice to have the opportunity to tell you about U S WEST Media Group.
* We have an exciting story. It's a story about enormous growth opportunity
on a global basis.
* I'll be telling you about our strategy, our businesses, and our shareholder
value focus over the next 30-40 minutes.
* But first, I'd like to introduce the key Media Group executives who'll join
me in telling you about our group.
- - Tom Pardun
- - Jan Peters
- - Steve Boyd
- - Gary Ames
- - Doug Holmes
We've been implementing our strategy now for more than three years and have:
- - Established a record of value creation,
- - Operating integrity, and
- - A clear focus on being highly competitive in three lines of business
I want to focus my comments on why you should be excited about the Media
Group.
SLIDE
* SOUND STRATEGY
* EXCEPTIONAL BUSINESSES
* VALUE FOCUSED
ASSOCIATED THOUGHTS
* We have a clear and proven strategy
* A tremendous set of businesses
A management team and operating philosophy focused exclusively on
shareholder wealth creation.
SLIDE
Emerging networked world
ASSOCIATED THOUGHTS
First, I'd like to talk about our strategy.
The foundation of our strategy is a belief that communication and commerce
will continue migrating from other mediums to electronic networks.
This is a global phenomenon.
* In emerging markets, we see a growing demand for basic telephone service
(wired and wireless) to allow people to communicate more easily and
frequently. I'm really excited about some of our ventures in some of these
countries, especially Malaysia and Indonesia.
* In more developed markets such as the US and UK, we're seeing strong growth
in usage of communications and data networks as people use them for
communication, commerce, education and entertainment.
SLIDE
MIGRATION TO ELECTRONIC MARKETS:
* GLOBAL PHENOMENON
* SUPPORTED BY MARKET TRENDS
ASSOCIATED THOUGHTS
Over time, we will begin to see networks displace other distribution channels,
such as video stores, postal service and traditional retailing.
All around us, we see evidence this shift already is occurring:
* The home shopping market is a $63 billion industry, having experienced
annual growth exceeding 15% a year since 1987.
* The percentage of entertainment dollars spent at home has grown from 40% in
1981 to nearly 70% today.
* Subscription to on-line services increased 37% during the first six months
of this year alone.
* Even the most customer-unfriendly bundle - the Internet - continues to
attract new users in record numbers. The number of people using the Internet
is now growing at 10% a month.
* And we believe that growth in usage of networks will accelerate as network
functionality improves.
We could talk more about the technology and consumer trends supporting this,
but I think this is well understood and accepted by knowledgeable observers.
Those are the beliefs forming the foundation of our strategy. Simply put,
electronic networks increasingly will be the preferred conduit of commerce and
communication while local packaging of services is desired by the market.
SLIDE
SOUND STRATEGY...
SUPPLYING A VITAL LINK
* LOCAL MARKETS
* GLOBAL
* PACKAGES
* THREE LINES OF BUSINESS
-- CABLE/TELEPHONY
-- WIRELESS
-- DIRECTORY/ INFORMATION SERVICES
ASSOCIATED THOUGHTS
So how are we going to exploit these broad trends?
Already, large and small players are staking out different positions.
[* Content (Disney)
* Global communications transporters (AT&T)
* Enabling hardware (Hewlett-Packard)
* Enabling software (Microsoft) ]
All these players provide critical pieces.
While we may selectively participate in other portions of the value chain,
Media Group is focused on providing the appropriate local connections and then
integrating market-based service offerings for end users.
We do this in local markets around the world.
* Our interest is providing the local connections by which customers access
their world and by which the world access these customers.
* This means there are business activities we won't engage in. For example,
we won't focus on developing global transport markets.
* As markets develop, we believe packages of services will be an important
competitive advantage.
* We have developed this packaging notion the furthest in the UK where we
package telephony and video today and are exploring ways of integrating our
wireless and directory into other markets where appropriate.
We execute this local connections and packaging strategy through three lines
of business:
* Cable/telephony
* Wireless
* Directory and information services
These businesses build off our core competencies.
We operate these same lines of businesses in markets worldwide.
SLIDE
EXCEPTIONAL BUSINESSES
ASSOCIATED THOUGHTS
Since we began executing this strategy more than three years ago, we have
developed a group of truly exceptional businesses.
Let me just quickly highlight those businesses and then take you through each
of them in detail.
Cable/Telephony:
* As you look at that list of cable/telephony properties, we believe these are
the best positioned cable properties in the world and have and will continue
to create tremendous value for our shareholders.
* In addition, we have exceptional links to content through TWE.
Wireless:
* Each of our wireless businesses is positioned to ensure our competitiveness
in this high growth market.
* We believe these businesses will create tremendous value for our
shareholders. In particular, we're just about to the point in development of
One-2-One that more and more people will recognize the value of this business.
Directory:
* Extremely attractive business with phenomenal financial characteristics.
* Least understood part of our business.
* After I give you some details about it, I think you will agree with me that
there is a lot of hidden value in this business today
SLIDE
FINANCIALS SLIDE
ASSOCIATED THOUGHTS
For those of you who haven't studied the proxy in detail, let me just give you
a quick overview of what these businesses look like financially today.
These, by the way, are proportionate numbers for the last 12 months.
* You can see the relative size of these lines of business and the split
between domestic and international.
Let me talk more about each of the three lines of business, beginning with our
cable/telephony business.
SLIDE
EXCEPTIONAL BUSINESS:
(WITH CABLE HIGHLIGHTED)
ASSOCIATED THOUGHTS
In a detailed assessment 3 or 4 years ago, we concluded that cable networks
provide a unique platform to meet the needs of the emerging network-intensive
market.
First, they provide the right infrastructure upon which to compete:
* Capabilities
- - Provides the capacity necessary for an expansive service offering delivered
at high speed on a fully interactive basis.
- - It is the only platform today that allows for true integration of
voice/video and data services
* Speed to market
- - The network can be upgraded to offer full interactive capabilities faster
than any competitive offering.
- -- We have been pointing to this speed to market advantage for some time, and
now you see telephone operators developing wireless solutions to try and
address this disadvantage.
- - This first to market advantage provides a distribution position, brand
awareness and customer relationships.
* Competitively cost advantaged
- - No other existing or new network can be implemented to deliver an
equivalent level of functionality at a lower cost.
In addition to this strong infrastructure position, the economic
characteristics of the cable network also are very attractive.
This attraction is based on the fact that that for a relatively small fixed
investment - $150 per home passed - the cable network can be upgraded to
provide 750 MHz of capacity. Further enhancement of the cable network to
provide additional services such as telephony, high speed data transmission
and interactive multimedia services can be done on a variable cost basis.
Economically, this creates tremendous leverage on the fixed network
investment.
SLIDE
MULTIMEDIA CHART TARGET MARKET AND TELCO CHART
ASSOCIATED THOUGHTS
Let me show you specifically what this can mean for our cable businesses.
* The increased capacity allows for new video services like enhanced pay per
view, new product tiers and advertising revenue.
* We believe these services can generate an additional $7 per customer each
month with very high incremental margins. [EPPV - impulse ordering doubles
buy rates, 15-minute start times increase buy rates by 130%]
* These enhanced services also stimulate cable penetration by making the
product more attractive to consumers.
* Upgrading the network also significantly increases the quality and
reliability of the network while reducing maintenance costs.
* So investing $150 in the network for increasing capacity is very attractive
investment in its own right. It also provides the basis to offer new service
categories. For example:
- - You can now add high speed data services for a cost of $500 per subscriber,
of which 90% is variable - a cost which is falling rapidly. These new
services can boost total revenue by 10% or more at very attractive incremental
margins.
- - Furthermore, you can add residential telephony customers for $700 per
telephony subscriber, a cost which is dropping rapidly and which is 80%
variable. Each telephony subscriber produces approximately $45 per month in
revenue with 45-50% operating cash flow margins. Given these numbers, you
need to capture less than 5% of the telephony market to break even. With a
market share of 15-20% you earn returns in the neighborhood of 25%.
- - The combination of these services can increase average revenue per customer
by more than 50% without counting a single dollar of interactive multimedia
services like those being tested in Orlando.
Adding these enhanced services and product tiers increases the cash generation
of the fixed investment while lowering the inherent risk in the business.
This materially increases the risk-adjusted returns on cable properties.
So now you should understand why we are so bullish on cable networks.
SLIDE
CABLE IMPERATIVES
ASSOCIATED THOUGHTS
These characteristics drive our operating and strategic imperatives in this
business.
* Exploit infrastructure advantages of bandwidth, interactivity, time to
market and cost
* Maximize new services such as EPPV, product tiers, and advertising
* Introduce high quality telco and data services
* Target customers carefully.
SLIDE
CABLE BUSINESS STATISTICS
ASSOCIATED THOUGHTS
We've already captured, arguably, the best cable positions in the world.
These businesses are performing very well and are optimally positioned to
exploit these opportunities.
As you can see from the chart:
* In Atlanta, we are growing at twice the industry average.
* Our Atlanta properties also are only 58% penetrated, providing ample
opportunity to continue this growth trend.
* In Atlanta, we also are producing some of the highest revenue and operating
cash flow per subscriber results in the business.
* Meanwhile, our Time Warner markets also continue outpacing the industry
average.
SLIDE
INDUSTRY LEADER: IDEAL MARKET POSITIONS
ASSOCIATED THOUGHTS
In addition to this strong current performance these businesses are optimally
positioned to capitalize on the emerging market.
* TeleWest
- - The largest independent provider of cable/telephony service in the world.
- - Since our merger with SBC/Cox, we have more customers than the next three
providers combined.
- - Nearly 1 out of every 3 homes passed in the UK is a TeleWest home.
- - Built out the network to cover 46% of our franchised area
- - Grown the number of subscribers to 374,000 cable customers and
approximately 398,000 telephone lines.
* TWE
- - 70% of Time Warner subscribers are in clusters of more than 100,000
- This clustering is critical to maximizing the value of these new
services and was a fundamental driver of our original investment in TWE.
- - Serves 32 of the top 50 MSAs
- - Second largest MSO
- - Warner Bros. Studio has the largest library of copyright material and is
largest producer of theatrical films, TV programs and home_video programming
in the world.
- - HBO and Cinemax, combined, reach 27 million homes.
- - Strong operating and management controls which allow us to add value the
business and should allow our shareholders to receive maximum value from our
position.
* MediaOne
- - New brand name for our Atlanta cable properties
- - Serves one of the fast growing cable markets in the country
- - Is 5th largest cable cluster in the country
- - 3rd fastest growing metropolitan area
SLIDE
EXPLOITING OPPORTUNITIES NOW
ASSOCIATED THOUGHTS
So we have great cable businesses to exploit these opportunities, and that is
exactly what we're doing.
* TeleWest:
* We plan to pass 80% of homes in our franchised area by 1997 and will
continue to push telco and cable penetration rates.
* Adding enhanced services as technologies evolves and the market demands
- - TeleWest is developing high-speed data connections for Internet and on_line
access.
- - Also testing selective interactive applications.
* MediaOne:
Within 12 months of assuming control of the Atlanta properties, we will have:
* Consolidated 12 headends to two;
* Consolidated seven customer service centers into one;
* Implemented a new billing system; and just last week
* Launched our new brand name - MediaOne.
We received regulatory relief to begin providing telephone service ahead of
what we had projected in our business plan.
* Begin offering telephony by end of 1996.
* Plan to upgrade the network to provide telephony service to all customers by
end of 1998.
* Time Warner:
* As a result of our involvement with Time Warner Cable, we have launched
competitive access services in 12 markets and are in the initial stages of
offering switched telephony services in Rochester, New York.
* Already has upgraded more than 30% of its cable network to 750 MHz and will
upgrade 85% of the network by 1998.
* More than 65% of TWE subscribers are located in jurisdictions which either
have, or are developing, regulatory environments which permit local telephone
competition.
* Testing high speed cable modem applications in Elmyra, New York
* As you know, in Orlando TWE leads the industry by 2-3 years in the testing
of a switched digital broadband network - the most advanced digital network
in the world. While this is still clearly a future thought, it gives us
critical information about customer needs and technical integration of
highly-advanced services.
SLIDE
U S WEST INTERNATIONAL WILL TAKE THIS CONCEPT TO LOCAL MARKETS WORLDWIDE
(LIST OF LOCATIONS)
ASSOCIATED THOUGHTS
We are exploiting these cable-based network opportunities in other
international markets where we can capture the benefits of multiple revenue
streams.
* Netherlands
- - 50% partnership with Phillips
- - Fully-built system, with a 97% penetration rate, currently offers 26 basic
channels
- - Premium channels only have a 4-5% penetration rate
* Malaysia
- - Wireline, GSM, and satellite
- - Country has 8.7% GDP growth
- - 16 lines per 100 people;
* Indonesia
- - GDP growth rate of 7.4%
- - Telephony penetration is among the lowest in Asia with 1.8 phones per 100
customers.
* The Czech Republic
- - Significant telco demand as penetration is only 19 lines per 100 people.
* Japan
- - Potential to get 1.9 million homes in densely populated areas
- - Can be served inexpensively through aerial cable
- - We're getting into the market at a point where we can capture value
multiples several times in excess of our cost.
SLIDE
WIRELESS
ASSOCIATED THOUGHTS
Now I would like to discuss our second line of business - wireless.
(Thoughts about how you view wireless broadly, e.g.:)
* As you know, wireless communication has tremendous growth potential in many
areas of the world.
* However, the ability to earn attractive returns is very dependent on the
market and industry structure. Consequently, we are very selective where we
invest.
When I took responsibility for our domestic cellular business a little over
three years ago, we did a comprehensive assessment of the business and
concluded:
* Our current performance was subpar
* Long-term value would be threatened by larger competitors that would have
both scale and scope advantages.
SLIDE
CELLULAR - KEY IMPERATIVES
ASSOCIATED THOUGHTS
Based on that analysis we set key objectives for the business.
* Don't yield share (Not one point)
* Capture and retain powerful distribution positions
* Establish low cost positions
* Differentiate on dimensions other than price
SLIDE
NEWVECTOR GROUP IS OUT PERFORMING ITS PEER GROUP IN MANY DIMENSIONS
ASSOCIATED THOUGHTS
This has proven to be a winning strategy. Today, NewVector is out performing
its peer group on key dimensions.
For the first six months of 1995:
* Subscriber growth
- - NVG - 58%
- - Peer group - 45%
* Revenue growth
- - NVG - 39%
- - Peer group - 29%
* Operating cash flow growth
- - NVG - 65%
- - Peer group - 27%
* OCF margin
- - NVG - 34%
- - Peer group - 33%
(Peer group includes AirTouch, BellSouth, Vanguard, Sprint, GTE, LinB)
By all of today's standards, NewVector is on sound operating ground.
SLIDE
TOMCOM STATISTICS AND BENEFIT OF SCALE/SCOPE
ASSOCIATED THOUGHTS
In addition to this significant operational improvement, we have successfully
positioned the business to compete on a national basis.
This week we finalized our merger with AirTouch to create the nation's third
largest cellular company.
We then joined with Bell Atlantic and NYNEX to create a powerful wireless
position.
* Largest incumbent cellular provider in the country.
To further fill in our national wireless footprint, we pursued PCS licenses
through a consortium of the same companies.
As a result of successful bidding for these PCS licenses:
* The four_company wireless consortium serves 19 of 20 top wireless markets in
the US
* 165 million POPs
This national scale and scope position achieves:
* Scale advantages in purchasing and other scale sensitive operations like
billing
It also allows us to differentiate and capture a greater market share through:
* National branding
* National distribution partners
* National roaming
* National accounts
The end result is that we've taken a very attractive asset and ensured its
success.
SLIDE
ONE-2-ONE CHART
ASSOCIATED THOUGHTS
It's a little different in the UK, but we have used a similar formula to build
a great business - One-2-One.
* A 50-50 joint venture with Cable and Wireless.
* The world's first commercial PCS operation.
Market characteristics:
* 58 million POPs in a country the size of Idaho
* 9.2 million POPs concentrated in London area
When we launched two years ago:
* The cellular market had less than 3% penetration
* Cellular was not being marketed through mass retail distribution channels
We seized the opportunity to become a strong third wireless provider:
* We developed a dominant retail distribution position
* We introduced innovative marketing
- - Smart Card
- - Bundled voice mail
- - Focused on a new segment of the market
- - An innovative pricing strategy.
* We built the network and business opportunities to support our marketing
strategy.
* After only 22 months we have more than 340,000 subscribers
* Capturing nearly 30% of all new mobile sales in our served area
* Having a 19% market share in served markets and almost 7% in the entire UK
market.
We're building on these achievements:
* In May, we successfully implemented a 1.50 English Pounds increase per month
with little effect on churn and no effect on subscriber growth.
* Last month, announced new pricing plans to reduce the free calling period
and free calling exposure.
* Overall revenue per customer is up 3 English Pounds per month on a year over
year basis.
* Recently announced a 235 million English Pounds ($365 million US) expansion
of its network to provide national coverage by late 1997.
* In addition, we recently announced a 600 million English Pound bank facility
to fund the national network buildout. This is the first non-recourse debt
financing by a wireless company in the UK. We believe this indicates the debt
market's confidence in where this business is going and leverages our equity
position while maintaining U S WEST controls.
In addition to One-2-One, we have other great international wireless
operations:
* Hungary has 157,000 customers and an annual customer growth rate of more
than 100%. Revenues for the operation reached $111 million as of June 30, an
annual growth rate of 48%.
* Eurotel has 44,000 customers and an annual customer growth rate of 88%.
Revenues were $72 million as of June 30, an annual growth rate of 88%.
SLIDE
CONTENT
ASSOCIATED THOUGHTS
Finally, I'd like to move to our directory and information services business.
SLIDE
U S WEST DIRECT HAS LED THE INDUSTRY IN SEVERAL KEY BUSINESS MEASURES...AND
CONTINUES TO PRODUCE EXTRAORDINARY FINANCIAL RESULTS
ASSOCIATED THOUGHTS
I don't know if all of you have ever seen this kind of data before, but it is
very compelling.
I also want you to keep in mind that as I show you U S WEST's Direct's
numbers, that it operates in a very strong industry. The fact that it
places at or near the top of many of these categories indicates what an
extraordinary producer we have here in Media Group.
* Strong top-line growth (nearly twice the industry);
* High margins (about 50%)
* Low customer turnover (approximately a 90% retention rate)
* It requires very little capital investment (on the order of $20-30 million
annually - $6 million YTD and $13 million over the last 12 months).
* Over the past several years the business has proven its resilience to
competitive threats and economic cycles. In fact, over the last four years
we've been able to constantly grow revenues at a compounded annual growth rate
of 6.4% and EBITDA at 7.6% through these competitive attacks and economic
cycles.
We believe we can sustain and improve this kind of performance.
SLIDE
VALUE DRIVER CHART
ASSOCIATED THOUGHTS
We understand how value is created in this business and we believe by managing
it effectively we can create even more value in the future.
Let me give you some examples of the levers available to do this:
Penetration
Penetration is a measure of the percentage of all potential businesses that
purchase advertising in our directory.
* Penetration rate currently is 48%. That means one-half of potential
advertisers represent an untapped market.
* We are working on several concepts to increase this penetration. For
example, scaling directories into smaller neighborhoods formats. 40% of
advertisers in these neighborhood books are new.
* Every 1% increase in penetration generates 10,000 new advertisers, producing
over $10 million in incremental revenue.
Revenue per Customer
* Current annual revenue per customer is $1,973. [Note: This is published
revenue per local advertiser.]
* An increase of $25 is worth $10 million in EBITDA.
* We are currently working on several product enhancements to increase revenue
per customer - knock outs, color, etc.
Price
* Our current prices are more than 35% below the national average.
* We have been able to consistently increase prices.
- - Over the last six months, we have increased prices by 4.5%.
- - As recently as 1991 we were able to implement a 7.0% price increase and
still grow the base of advertisers.
* Therefore, there is a price opportunity in this business.
Productivity
* There are numerous productivity improvement opportunities.
- - Many of the production processes are manual
- - Quantum will automate many of these
- - Sales force productivity tool: Wild Thing
We don't view alternative media as a threat. We see it as an opportunity -
as long as we keep pace with delivery mediums we can continue capturing the
value of our market position. For example, we can deliver the directory on a
compact disk for approximately 1/2 the cost of printed version.
I should point out, that the value of this business lies not in the medium,
but rather in our customer knowledge, and the content and real use of our
product.
SLIDE
ENHANCING THE FRANCHISE
ASSOCIATED THOUGHTS
In addition to these moves to strengthen and grow existing businesses, we also
are enhancing the franchise by developing new services using new mediums.
Your Value Card
* Database marketing program.
* Market trials in Denver, Omaha, Phoenix.
* Customers receive savings through electronic "coupon."
* Sellers gain valuable insights into their customers' buying habits through
demographics collected from electronic "coupon."
* This product is a product that gets used:
- - In Denver, for example, 40% of 500,000 households receiving the card use
it. This use has generated 1.5 million transactions worth nearly $30 million.
- - Even new markets quickly embrace the Value Card. In Phoenix, where we
delivered early this month, 12,000 households used the card during the first
nine days, generating nearly $500,000 in transactions.
On-line Yellow Pages
* Developing an on-line Yellow Pages that features World Wide Web sites on the
Internet for small businesses allowing consumers to dig deeper for information
and allowing businesses to keep information on products and promotions up to
date.
Q & A
* Advertiser-sponsored audio information service.
* Information on news, sports, weather, guides on health and legal topics,
consumer tips.
* Offered in 13 US markets.
* Generating approximately 80,000 calls per month in each major market.
GOtv
* Interactive entertainment services giving customers information on movies,
dining and events.
* Announced to offer in Omaha, Orlando
In addition, we're exploring other related electronic services where we can
leverage our core strengths.
SLIDE
EXPLOITING WORLDWIDE OPPORTUNITIES
ASSOCIATED THOUGHTS
We are replicating this success in international markets.
Already operating internationally:
* Thompson (UK)
* Polska (Poland)
* Listel (Brazil)
SLIDE
SINGLE OBJECTIVE: SHAREOWNER WEALTH CREATION
ASSOCIATED THOUGHTS
We believe our strategy and current platform of businesses will create
significant shareowner value - as demonstrated by previous success. For
example:
* TWE
- - $2.5 billion original investment two years ago
- - $3.6 billion at Japanese values
- - Cable or stock appreciation right (CAR or SAR) or, $130 in management fees,
control-position
- - Conservatively worth $4 billion today
* TeleWest investment
- - $420 million investment
- - Current public value of our share is $1.1 billion plus the value of the size
of our block and the controls we have.
To ensure we continue creating this level of shareowner wealth we're adopting
the principles you see on the chart.
* We're investing only where we have good operating controls and good value
leverage.
* We're not in the business to be the biggest in terms of size
- - We'll focus on creating the scale and scope necessary to be successful,
but...
- - ...we're also willing to sell businesses that are underperforming or have
reached their full potential
* We're going to be stingy with equity
- - Unless we're extremely comfortable with the relative value proposition, we
won't issue equity.
* Use appropriate leverage to maximize equity returns
- - As we continue to find good investment opportunities we'll use the strength
of our balance sheet to prudently seize those opportunities.
- - During last eight months, we've captured some very attractive market
positions.
* KTA
* Malaysia
* Japan
* Indonesia
SLIDE
FINANCIAL AND OPERATING OBJECTIVES
ASSOCIATED THOUGHTS
We've also set for ourselves some very strict financial goals.
* Grow EBITDA.
* Drive cash-based equity returns well in excess of our cost of equity.
Our operating philosophy is focused on helping ensure we reach these
objectives.
* Stretch targets
* Strict accountability
* Compensation anchored in equity performance via options
I want to emphasize that last point. We want our management team's incentives
to be perfectly aligned with those of our shareowners.
I believe one of the greatest benefits of targeted stock will be the scrutiny
put on management by the shareholders and the ability to directly align
management compensation with shareowners.
We will utilize a broad-based stock option program for all management
employees.
SLIDE
GREAT BUSINESS, GREAT VALUE
ASSOCIATED THOUGHTS
So, in summary, a strong management team, a strategy designed to create value,
great growth businesses, and global growth.
SLIDE WITH MANAGEMENT TEAM LISTED
[Slide No. 1]
U S WEST [Registered Trademark symbol]
Media Group
Chuck Lillis
President & CEO
October 12, 1995
[Slide No. 2]
Sound Strategy
Exceptional Businesses
Value Focuses
U S WEST
Media Group
[Slide No. 3]
Sound Strategy
Exceptional Businesses
Value Focuses
U S WEST
Media Group
[Slide No. 4]
Migration to Electronic Markets
- - Networks displacing traditional mediums
- - Global phenomenon
- - Supported by market trends
[Graphic of buildings.]
U S WEST
Media Group
[Slide No. 5]
Supplying the Vital Link
Content Origination [arrow] Service Creation & Supply [arrow]
Packaging & Provisioning [arrow] Switching & Transport [arrow]
Customer
- - Local markets worldwide
- - Integrated service offerings
- - Three lines of business:
-- Cable/telephony
-- Wireless
-- Directory/content
U S WEST
Media Group
[Graphics of compact disks, HBO [Registered Trademark], a pawn on a chess
board, and a person making an oral presentation to a group of people. Graphic
of a woman holding a brief case.]
U S WEST
Media Group
[Slide No. 6]
Sound Strategy
Exceptional Businesses
Value Focused
U S WEST
Media Group
[Slide No. 7]
Exceptional Businesses
<TABLE>
<CAPTION>
<S> <C> <C>
Cable/Telephony Wireless Directory
TeleWest NewVector/AirTouch U S WEST Direct
TWE PrimeCo Thomson
MediaOne One-2-One Polska
Other International Other International Other International
</TABLE>
U S WEST
Media Group
[Slide No. 8]
Media Group Proportionate Financials
<TABLE>
<CAPTION>
<S> <C> <C>
LTM (millions) LTM (millions)
Revenue EBITDA
Cable/Telecommunications $ 2,608 $ 494
Wireless Communications 961 125
Directory 1,151 414
TOTAL $ 4,720 $ 1,033
<CAPTION>
<S> <C> <C>
LTM (millions) LTM (millions)
Domestic International
Cable/Telecommunications 539 (45)
Wireless Communications 195 (70)
Directory 414 0
TOTAL 1,148 (115)
</TABLE>
U S WEST
Media Group
[Slide No. 9]
Exceptional Businesses
<TABLE>
<CAPTION>
<S> <C> <C>
Cable/Telephony Wireless Directory
TeleWest NewVector/AirTouch U S WEST Direct
TWE PrimeCo Thomson
MediaOne One-2-One Polska
Other International Other International Other International
</TABLE>
U S WEST
Media Group
[Slide No. 10]
Cable -- A Unique Platform
<TABLE>
<CAPTION>
<S> <C> <C>
RIGHT PLATFORM [Dollar symbol] RIGHT ECONOMICS
Capabilities [Dollar symbol] Strong Current cash flow
Speed to Market [Dollar symbol] Minimal fixed upgrade costs
Cost Advantage [Dollar symbol] Revenue-led variable cost components
</TABLE>
U S WEST
Media Group
[Slide No. 11]
Upgraded Network Opportunities
Enhanced Cable
[A bar graph illustrating targeted increases in buy rates, start times and
advertising opportunities during 1994 through 1999.]
Telephony
[A line graph illustrating an increase in returns on telephony opportunities.]
U S WEST
Media Group
[Slide No. 12]
Cable -- Key Imperatives
- - Exploit infrastructure advantages
- - Maximize new services
- - Introduce high quality telephony and data services
- - Target customers carefully
U S WEST
Media Group
[Slide No. 13]
Solid Operating Performance
[A bar graph comparing the homes passed growth for Atlanta, TWE and the
industrial average.]
[A bar graph comparing basic subscriber growth for Atlanta, TWE and the
industrial average.]
[A bar graph comparing EBITDA margins for Atlanta, TWE and the industrial
average.]
U S WEST
Media Group
[Slide No. 14]
Ideal Market Position
[A graphic illustrating the logos of MediaOne, TeleWest and TWE.]
U S WEST
Media Group
[Slide No. 15]
Exploiting Opportunities Now
Telephony Services:
- - TeleWest -- Already serving 398,000 customers
- - TWE -- CAP services in 12 markets; launching switched service in Rochester
- - Atlanta -- CAP and data services today; will begin offering switched
services in late 1996
Network Upgrade Schedule [followed by a bar graph illustrating the TeleWest,
TWE and Atlanta upgrade schedules for 1995 and 1998]
U S WEST
Media Group
[Slide No. 16]
Worldwide Cablel/Telephony Opportunities
Netherlands
Malaysia
Indonesia
Czech Republic
Japan
U S WEST
Media Group
[Slide No. 17]
Exceptional Businesses
<TABLE>
<CAPTION>
<S> <C> <C>
Cable/Telephony Wireless Directory
TeleWest NewVector/AirTouch U S WEST Direct
TWE PrimeCo Thomson
MediaOne One-2-One Polska
Other International Other International Other International
</TABLE>
U S WEST
Media Group
[Slide No. 18]
Cellular -- Key Imperatives
- - Don't yield market share
- - Capture and retain strong distribution
- - Establish low cost position
- - Differentiate on dimensions other than price
U S WEST
Media Group
[Slide No. 19]
Outperforming Peer Group
Subscriber Growth
Service Revenue Growth
OCF Growth
OCF Margin
[Four Bar graphs comparing U S WEST and its peer group in the above areas
during 1993 through 1995]
U S WEST
Media Group
[Slide No. 20]
Positioned to Thrive in the Emerging Market
<TABLE>
<CAPTION>
<S> <C> <C> <C>
POPs (m) Cellular PCS
Total
U S WEST/AirTouch
Bell Atlantic/NYNEX 108 57 165
AT&T 78 111 189
Wireless Co. 8 174 182
GTE 52 21 73
Bell South 40 12 52
SBC Communications 38 7 45
<CAPTION>
<S> <C>
Advantages of scale Advantages of scope
Infrastructure costs Branding
Handset costs Distribution channels
Billing efficiencies National accounts
</TABLE>
U S WEST
Media Group
[Slide No. 21]
One-2-One
<TABLE>
<CAPTION>
<S> <C> <C>
Imperatives Results
Speed to market 22 months 3 year market CAGR = 45.3%
Stimulate and capture demand 22 months Capture disproportionate share of
subscriber growth
Develop retail distribution channels 22 months Secured dominant retain distribution
position
Bundle service offerings 22 months Created highest brand awareness
Focus on emerging market segment 22 months Effectively evolving price strategy
</TABLE>
U S WEST
Media Group
[Slide No. 22]
Exceptional Businesses
<TABLE>
<CAPTION>
<S> <C> <C>
Cable/Telephony Wireless Directory
TeleWest NewVector/AirTouch U S WEST Direct
TWE PrimeCo Thomson
MediaOne One-2-One Polska
Other International Other International Other International
</TABLE>
U S WEST
Media Group
[Slide No. 23]
U S WEST Direct -- A Phenomenal Business
Financial
<TABLE>
<CAPTION>
<S> <C> <C>
1H95 Change
Revenue $504m 7%
EBITDA $256m 9%
Margin 51% -
CapEx $ 6m -
</TABLE>
Business
80% market share
90% retention rate
Revenue
4 Yr. CAGR = 6.4%
[A bar graph illustrating revenue growth during 1991 through 1995]
EBITDA
4 Yr. CAGR = 7.6%
[A bar graph illustrating EBITDA growth during 1991 through 1995]
*1H95 Annualized
U S WEST
Media Group
[Slide No. 24]
Value Drivers
The following within a graphic of an arrow pointing to the words "VALUE
GROWTH":
Penetration
Revenue per customer
Price
Productivity improvements
U S WEST
Media Group
[Slide No. 25]
Enhancing the Franchise
[Graphics of Online Yellow Pages, Your Value Card, The Yellow Pages, and GoTV
(Trademark)]
U S WEST
Media Group
[Slide No. 26]
Exploiting Worldwide Opportunities
<TABLE>
<CAPTION>
<S> <C> <C> <C>
[No title] Thomson Listel Polska
Country U.K. Brazil Poland
Investment to date (millions) $ 88 $ 35 $ 14
Published Books 155 9 17
Circulation 19m 8m 1m
Paying Advertisers 105k 180k 30k
1994 Billed Revenue (millions) $ 77 $ 61 $ 14
Ownership 100% 50% 100%
</TABLE>
U S WEST
Media Group
[Slide No. 27]
Sound Strategy
Exceptional Businesses
Value Focused
U S WEST
Media Group
[Slide No. 28
Single Objective: Shareowner Wealth Creation
- - Invest only where we have clear operating controls and value protection
- - Sell or spin-off assets when appropriate
- - Be stingy with equity
- - Use appropriate, but prudent, leverage to maximize equity returns
U S WEST
Media Group
[Slide No. 29]
Financial and Operating Discipline
- - Aggressive financial objectives
-- EBITDA growth
-- Equity returns
- - Operating discipline
-- Stretch objectives
-- Strict accountability
-- Option-based compensation
U S WEST
Media Group
[Slide No. 30]
Media Group Executives
Gary Ames, President and CEO, U S WEST International Business Development
Steve Boyd, President and CEO, U S WEST Marketing Resources
Tom Pardun, President and CEO, U S WEST Multimedia
Jan Peters, President, Wireless Operations and Investments, U S WEST Media
Group
Doug Holmes, Vice President and CFO, U S WEST Media Group
U S WEST
Media Group
[Slide No. 31]
Mechanics and Timing
- - Pro-rata distribution
1 share Media Group = 1 share Communications Group for each existing U S
WEST share
- Tickers
Communications Group, USW (same as current)
Media Group, UMG
- Roadshow Timing
through October 25, 1995
- Vote and Distribution
Shareowner vote on October 31
Distribution on November 1, 1995
U S WEST
Media Group
19
SOL TRUJILLO, CEO AND PRESIDENT
U S WEST COMMUNICATIONS
ROAD SHOW PRESENTATION
OCTOBER 12, 1995
WELCOME
1) Title slide
Thanks Dick, and good morning everyone. It's great to be with you... and to be
with U S WEST Communications once again.
I've prepared some remarks about our business strategies -- but before I get
into that, I want to share my observations about U S West Communications.
Since July, when I was named president and CEO, I've been reviewing every
aspect of our operations. I've met with pole climbers and data processors,
union leaders and legislators, customers and regulators....
(EXTEMPORIZE FOR 2-3 MINUTES ON THE FOLLOWING:
* Great company/great industry (1 min.)
* Service (due to growth) (1 min.)
* Dividend
AGENDA
2) Agenda slide
I'm going to cover three major topics today:
1) BUSINESS STRATEGY;
2) VALUE DRIVERS; AND
3) FINANCIAL OBJECTIVES.
BROAD BUSINESS STRATEGIES
& OPERATING PHILOSOPHIES
3) Strategy
Let me share our broad business strategy;
and expand on my operating philosophy.
We're going to:
* BUILD A DISTRIBUTION POWERHOUSE;
** leverage our existing network
** leverage our connection with
customers
* OFFER "TOTAL SOLUTIONS"
** develop differentiated bundles of products;
** use our own and others'; and
** offer one-stop shopping PACKAGE
** target specific segments and affinities
AND DELIVER SERVICES
** by wire -- and wireless
* THROUGH CHANNELS OF CHOICE:
** to phones, TVs, PCs or any other channel.
4) Metrics to manage
WHAT'S CRITICAL TO MANAGING THIS DISTRIBUTION POWERHOUSE ARE METRICS-- or,
the way we measure performance ... every step of the way.
My team and I have established the metrics we'll use to measure performance.
Some are traditional; many are new. They include things like:
* repair calls per technician;
* cash outlay per customer; and
* revenue per sales rep.
These drive the metrics you use to evaluate us:
* operating costs per unit;
* cash flow growth;
* earnings per share.
These metrics take the mystery out of the business - - clarifying our
expectations of ourselves, and of those who work for us - - right down to the
front-line technician or sales rep.
We're using those metrics to establish clear accountability and
performance-based rewards.
* In August, we negotiated the nation's only "pay- for-performance"
plan with the Communications Workers of America -- in which a portion of our
service reps' compensation is directly linked to how well they "deliver the
goods" to our customers.
* My team and I will have the same kind of incentive arrangements to
ensure that we're delivering the goods to you -- the shareowner.
NOW, LET'S CUT TO THE CHASE:
HOW ARE WE'RE GOING TO BEAT THE COMPETITION?
5) Agenda: Value
DRIVING VALUE
THERE ARE SIX VALUE DRIVERS that differentiate U S WEST Communications from
competitors. We'll leverage these to drive exceptional performance and
increase revenues, margins, cash flow and profits.
I'm going to cover them one at a time...
6) Value Drivers
1) FIRST, WE'RE IN A GREAT REGION. STRONG DEMOGRAPHICS AND ECONOMICS GIVE US A
SIGNIFICANT ADVANTAGE VS. COMPETITORS...
STRONG ECONOMY AND POPULATION GROWTH ARE DRIVING OUR GROWTH TO
UNPRECEDENTED LEVELS.
7) Continue to...
* We now rank #2 in the nation in access line growth -- compared with
other RBOCs.
* We're installing nearly 2,000 new access lines every business day.
That's adding a state the size of Oregon every two years!
* We're also outpacing our peer average in growth of minutes-of-use.
OUR REGION IS ONE OF THE FASTEST-GROWING IN THE NATION.
8) 10 of 14 states...
* Ten of our states rank in the top 15 of the country's economic
growth areas.
* This is a double-edged sword:
** Short-term -- service issues;
** Long-term -- not a bad challenge to have.
* Breadth of territory cushions us from:
** cyclical regional economies; and
** regulatory rulings of any one commission.
AT THE SAME TIME, GEOGRAPHY CREATES NATURAL DETERRENTS TO COMPETITION.
9) Natural deterrents
* We operate in the least densely populated part of the country, and
we have fewer of the top MSAs than most other RBOCs.
* We have the lowest ratio of business lines to total lines -- (at
29%) -- so we're less attractive to competitive access providers.
** In fact, out of all the CAPs, there are only 3 that have
had an impact on U S WEST. And they've taken less than 1% of our
business.
10) Map
* Take a look at this. This map demonstrates that we're virtually excluded
from the targeted builds for MCI Metro.
11) Cluster chart
We're also protected from early entry from cable competitors by virtue of
geography.
** There are only six cable clusters of 100K subscribers in our
region.
** Ameritech and Bell South each have 18
** PacTel -- essentially a single state RBOC -- has nearly twice as
many as we do.
Because cable companies in our region lack economies of scale, they'll have a
harder time providing competitive services. WE TAKE NOTHING FOR GRANTED. AND
WE'RE READY FOR COMPETITORS WHEN THEY DO COME. But -- we think competitors
will go after other markets long before they try to enter ours.
12) Value drivers..
OUR SECOND VALUE DRIVER IS OUR CONNECTION WITH CUSTOMERS.
OUR NETWORK CONNECTION DIFFERENTIATES US FROM MANY OF OUR COMPETITORS AND
GIVES US A POWERFUL DISTRIBUTION CAPABILITY...and a significant and
sustainable competitive advantage.
13) Our connection..
* We have wires going into nearly 10 million homes.
* We have 4 million business connections; and
* we're physically linked to more than 25 million customers.
No one else has the same direct, two-way access to customers. We touch every
customer -- every day with our products. That builds strong brand awareness
and creates a powerful customer franchise.
WE ARE EXPERTS AT MANAGING COMPLEX NETWORKS AND DELIVERING BILLIONS OF BITS OF
INFORMATION TO MILLIONS OF CUSTOMERS. That expertise gives us a tremendous
edge in connecting customers to the much bigger world of information, data,
entertainment and electronic commerce.
OUR CONNECTIONS ALSO PROVIDE US WITH CRITICAL INFORMATION ABOUT CUSTOMERS. We
get demographics, psycho graphics, firmographics... And we can monitor and
track actual purchase behavior.
Building on that customer connection, we:
* focus on individual customer needs;
* understand their habits and affinities;
* develop segment-specific product packages; and
* deliver products that are differentiated, and profitable.
14) Collateral
Here are some examples:
1) Parent/Teacher Exchange: provides service and voice mailboxes to
schools.
**This has driven parents' penetration of Voice Messaging Service up to
40%;
2) On Campus Products: a new concept targeting the special needs of the
college market; and
3) Home Office: bundles of products for the growing number of
customers who work at home.
** We get 2,000 inquiries per day from potential home office customers.
With these and other products, we build on a core competency -- our strong
connection with customers -- to provide a differentiated service. More
important, we give customers exactly what they want.
It may seem odd to talk about building customer loyalty and giving
customers what they want -- especially in light of our service issues. So, let
me address that issue head on:
I'm convinced that our competitive advantage depends on service, customer
retention, and a strong customer franchise.
15) Service Quality
...SO MY FIRST PRIORITY IS TO IMPROVE CUSTOMER SERVICE AND MEET (AND EXCEED)
OUR SERVICE COMMITMENTS.
I am adamant about this!
This is a serious issue -- and I don't want to minimize it. But I do want to
put it in perspective. We're showing significant improvement in:
16) Improve svc...
* access to our business and repair offices; and
* our number of held orders.
As you can see, our residential customers had problems with access to our
business offices in the summer of '94 -- that's shown by the red trend line.
The bars show that in '95 we've improved significantly and we're operating at
or near our target range.
Although the seasonal trend in held orders continues -- especially during peak
summer months -- we've made improvements in 1995. It's important to note that
total held orders are less than one-tenth of one percent of total access
lines in service.
We're working hard to meet service quality objectives; in fact, service
improvement is at the core of all the work we're doing today -- from the
business office to the boardroom.
We're going to have the delays fixed -- and our re-engineering fully
implemented -- by the end of 1997. -- That's my commitment.
17) Soft dial tone
In addition, we're installing systems and technology that will improve
service; in fact, we're a national leader in deploying soft dial tone. Today,
about 60% of our customers can activate phone service by simply plugging in a
phone and calling their service center.
This is another example of how our connection to customers gives us a
competitive advantage. By the time we see significant cable entry into our
region, the vast majority of our customers will be connected to soft dial tone
.
We think the choice will be easy:
* Connect with U S WEST for immediate access;
* Or, wait two or three days for a cable installer truck to roll
That leads me to my third point:
18) Value driver:
WE'LL DRIVE VALUE WITH AGGRESSIVE STRATEGIES FOR GROWTH.
We're aggressive players in the marketplace. There's that old saying -- if
you're not the lead dog, the scenery never changes. Well -- we're going to be
a lead dog.
We're:
* defending against competitive entry;
* building revenues with new, value-added products; and,
* expanding into new, high-growth markets.
19) Defend and Build..
WE'RE PREPARED FOR COMPETITIVE ENTRY.
We're installing sophisticated marketing accounting systems to track share,
monitor competitors --and develop predictive models of various competitive and
regulatory scenarios.
We're allocating resources to build brand equity, and to strengthen our
customer connection.
We all know it costs more to recruit a new customer than to keep one. So we're
paying a lot of attention to the 25 million people we serve now.
We're going to develop and deliver unique customer-retention packages, and
defend our territory -- market by market -- segment by segment -- customer by
customer.
20) New products...
WE'RE DRIVING REVENUE GROWTH BY SELLING NEW PRODUCTS TO EXISTING CUSTOMERS
We've already demonstrated our ability to develop and deliver new products.
* With Caller ID, we achieved an average penetration rate of 12% -- in
excess of 15% in some markets -- compared with an RBOC average of 11%;
* With Voice Messaging, our penetration rate is 13% vs. a 10% peer
average; and
* We have a penetration rate of nearly 40% for Call Waiting.
* We're also the #1 RBOC in marketing high-speed data services to
businesses. Through our !NTERPRISE Networking Services, we have more than 50%
of the local exchange carrier frame relay market -- not just in our region --
but nationally!
WE ALSO HAVE OTHER NEW PRODUCTS IN THE PIPELINE:
* Long Distance Caller ID, -- which we'll roll out later this year,
enables you to see who's calling long distance.
** When this product was introduced in Canada, Caller ID penetration more
than doubled -- to 25%.
* U S WEST Communications is about to roll out Call Waiting ID. This lets
you identify who's calling you long-distance when you're already on the phone
with someone else. We're the first RBOC to package these products -- and the
first- to-market with this new customer solution.
21) New product Our new-product revenue grew at a 70% rate last year-- and
that's driving our total revenue growth above our peers'. Based on sales of
these and other products, we expect even further improvement in revenue trends
when we're allowed to enter new markets.
22) Market icons
WE'RE READY TO MOVE INTO THESE NEW, MORE PROFITABLE MARKETS. These products
are important for two reasons:
* We can package them together for customers -- who want convenient
access to products and services; and.
* They provide incremental revenue and EBITDA growth.
23) New market opps
Let's take a look at the size of these new opportunities.
While local exchange business is the logical point of entry against us --
these new markets are growing much faster than traditional local exchange
business...
* Long distance -- approximately 2x local growth;
* Cable -- nearly 3x local growth;
* And even bigger opportunities in wireless and data.
24) Regional opp. In our 14-state region, people spend more than $10
billion annually... most of which is incremental opportunity.
LET ME UPDATE YOU ON SOME OF OUR INITIATIVES:
25) Data... FIRST, DATA:
The data market is an incredible opportunity for us, -- and we project average
annual growth in data services of 50%.
Our !NTERPRISE Networking Services group has built annual revenues to nearly
$100 million in just three years. !NTERPRISE provides high-speed data
communications and network services, like Frame Relay, where ports in service
have more than doubled in the last 12 months.
Just yesterday, we announced the roll-out of !NTERACT -- the first
barrier-free computer networking service. We're offering this service in
partnership with a team of cyberspace all-stars -- including Microsoft,
Netscape, Lotus and Cisco. !INTERACT will make the whole world a Local Area
Network -- making it easier to telecommute, access the Internet and conduct
secure electronic transactions over our network.
We see strong growth opportunities for this business as more and more
consumers gain access to networks and servers.
26) Long distance LONG DISTANCE
Long distance creates another opportunity for incremental revenue.
* In our region today, customers pay interexchange carriers about $6
billion annually for long- distance services. That's about 50% more than
they currently spend with us for local service.
* Because 40% of toll calls originate and terminate within our 14-state
territory -- and because we have a network already in place -- we think we'll
get a healthy share of that market.
We plan to enter the interLATA long-distance market as soon as we can under
terms of the pending legislation -- because customers will demand packaged
services from a single provider. We're considering a variety of entry
strategies, including partnership, resale or other options.
27) Toll
INTRALATA TOLL PRESENTS A DIFFERENT CHALLENGE.
Like all RBOCs, we've suffered initial share losses from increased
Dial-Around.
But we've fought back with aggressive customer-retention and marketing
strategies --
28) Toll trends
As a result, our intraLATA toll losses have stabilized over the past six
months, and -- as you can see -- our intraLATA revenue and minutes-of-use are
growing.
29) Wireless WIRELESS
Another promising market, wireless communications, is projected to achieve 40%
penetration nationally by 2004. We plan to participate in this market and
expect to bid on the 10MHZ licenses early next year.
Our strategy is simple. We'll offer:
* Integration with wireline service;
* One provider, one service, one bill, one telephone number;
* An inexpensive product that's easy to use; and
* Metro-wide coverage with the option to roam outside the metro area.
Once again: We leverage the customer connection. We respond to customer needs
and deliver enhanced packages of services. Economies of scale from integrating
with our wireline facilities -- and operating and billing systems -- promise
value and margins.
In addition, we'll serve as a wholesaler of wireless services, which will
provide sufficient volumes for competitive pricing.
..And we'll drive incremental revenues from another new market.
CABLE TV
Cable TV offers yet another exciting growth opportunity for U S WEST
Communications. We're testing new cable services in Omaha with TeleChoice.
This trial is progressing well and has provided convincing evidence that video
is an attractive market for us.
30) TeleChoice
* Early users have told us:
** the picture's better;
** the choice is greater;
** the pay-per-view movies are great; and
** the installation went smoothly.
After a single open house and product demonstration -- 25% of residents in a
large apartment building signed up with TeleChoice. That's with no special
deals; no introductory pricing; no formal advertising. Those customers "got
the picture" -- and frankly, ours was better.
Despite two major in-market competitors, we captured a 5% penetration rate of
cable homes in only four weeks -- and that was before our marketing efforts
really kicked in.
That tells us:
* the U S WEST brand supports credible video entry.
We've also learned that the technology is still evolving. So, for the time
being, while we assess what we're learning in Omaha -- and from the Media
Group's experience with Time Warner and the Atlanta cable properties -- we've
delayed our video dialtone applications for other cities.
In the meantime, we'll continue to explore alternative technologies, --such as
MMDS, DBS and ADSL -- to support cost-effective delivery of multimedia
packages to our customers.
31) Value drivers
THE FOURTH VALUE DRIVER -- AND ANOTHER IMPORTANT DIFFERENTIATING FACTOR --
SYNERGIES WITH THE MEDIA GROUP.
32) Media Group
Our relationship with the Media Group has also strengthened our strategies for
defending against competitors. We've seen how they view their markets and how
they plan to attack them.
We'll benefit from their experiences in:
* Video cable/telephony in the UK;
* Wireless (PCS in U.K.); and from their
* Insights into competitors ..
We'll both benefit from knowledge and skill transfer.
33) Value drivers
OUR FIFTH VALUE DRIVER IS IMPROVED PRODUCTIVITY. We're driving to become the
low-cost provider, and have competitors benchmarking against us.
In the near term, we're going to upgrade the network while we continue our
commitment to reduce costs through improved efficiencies.
We've already achieved higher productivity levels than our peers.
34) Productivity
* Our costs per unit have been declining, despite an inflation rate of
2-3% and a growth rate of 4-5%. This equates to ongoing, annual productivity
improvements of about 7% - 8%
* At the end of last year, we moved from the fourth-ranked position to #2
among the RBOCs.
* The number of employees per access line is also declining -- and will
continue to drop with the full implementation of re-engineering.
35) Re-engineering
We're making good progress to that end:
* By early August, we had successfully consolidated 560 centers into just
26 "super centers."
* Nearly 60% of our customers are served by soft dial tone, which saves us
the cost of an installer visit every time we activate phone service for
those customers.
* By the time our re-engineering is fully implemented at the end of 1997,
we expect to reduce annual employee-related expenses by $400 million. This
reduction will help offset the impact of inflation.
* Re-engineering will also improve our capital efficiencies. By 1997, we
expect to achieve a 10% improvement -- with a long-term goal of 20%.
So, our re-engineering efforts will pay off on three fronts:
* improved service;
* reduced costs; and
* lower capital.
36) Value Driver
OUR SIXTH AND FINAL VALUE DRIVER IS TO ENSURE FAIR REGULATORY AND LEGAL
TREATMENT.
Public policy is a critical driver -- and a critical component of cash
generation.
37) Public Policy
Our public policy efforts focus on a few key areas:
* Capital recovery;
* Pricing flexibility; and
* Regulatory reform.
We are an industry leader in addressing the importance of capital recovery
and its impact on cash flow. U S WEST Communications was the first RBOC to
discontinue FAS 71 two years ago. We continue to make progress with regulators
to resolve capital recovery issues before moving to price regulation.
Since the beginning of 1994, we have successfully negotiated for $200 million
in incremental recovery. Our challenge is to maximize cash recovery -- with an
additional potential of about $600 million.
38) Pricing flexibility
Strategic pricing, including increasing the monthly residential local service
rate, is also key to our public policy strategy. Our goals in this area are
to:
* increase average residential monthly rates by about 18% to better
reflect their costs; and --
* phase down subsidies existing between:
** urban and rural customers; and
** business and residence customers.
We'll drive this on a variety of fronts, including:
* price increases through rate cases;
* targeted toll discounts; and,
* deaveraging.
39) Promote reform...
We're also working hard to ensure passage of the Federal legislation, which
will help us compete on an equal footing with likely competitors. Some of the
key initiatives enabling our business strategies include:
* interLATA relief;
* flexibility in entering cable/entertainment markets within our 14-state
region; and
* movement from rate-of-return to price regulation.
We'll also continue to enter and exit markets based on our ability to provide
the services customers want at an attractive return. For example, since 1993,
we've sold more than 170 exchanges representing 140,000 access lines -- and
generated more than half a billion dollars in cash. Additional sales planned
for the last quarter of this year should generate another $220 million in
cash.
These and other initiatives have driven solid financial performance for U S
WEST Communications. Now, let me cover our financial trends and objectives.
40) Agenda
FINANCIAL PERFORMANCE & OBJECTIVES
41) Historical perf. Over the last two years, our top-line growth and
EBITDA growth exceeded the average of other local exchange carriers. Net
income growth was a full 500 basis points better than their average. In fact,
we've ranked #1 or #2 in each of these categories for the last two years.
Let's take a look at our trends:
42) Trend data:
REVENUE:
From 1992 through 1994, our compound annual growth rate for revenue was 4% vs.
an RBOC average of 2.7%. Through the first six months of 1995, we were
increasing revenue at a running rate of about 3% -- vs. an RBOC average of 2%.
With our aggressive strategies to:
* defend against competitors;
* develop and market new products -- and;
* enter more profitable markets --
...we believe we can continue to drive solid revenue growth....
43) Expense EXPENSE:
Over the past two years, expenses have increased 2.6%. As a percentage of
revenue, however, they've dropped 200 basis points
In the first half of this year, our expenses increased 2.6% -- higher than the
average RBOC.
* We deliberately increased expenditures for contract labor and overtime
to meet customer demand and improve service.
* It's important to note that these costs don't reflect any fundamental
weakness in our earnings capacity. They're short-term in nature -- and they'll
be reduced when we complete our re-engineering.
We're working to drive ongoing reductions in expense as a percentage of
revenue through 1997, when re-engineering is fully implemented.
* Beyond that, our goal is to hold expenses flat, absorbing inflation
and core business growth.
44) EBITDA Growth EBITDA GROWTH:
From 1992 through 1994, we achieved a compound annual growth rate of 6.5% --
compared with an RBOC average of 4%. Even with increased expenses for contract
labor and overtime this year, we're keeping pace with our peer average.
Looking ahead, we believe increases in revenue and reductions in expense will
drive continued strong EBITDA growth....
45) Net Income
NET INCOME
For the past two years, we've achieved a compound annual growth rate of 8.6%
in net income -- compared with an RBOC average of 3.6% Year-to-date, that
growth rate has moderated -- as a result of our G&A investment in service
quality. However, if you normalize results for these incremental expenses,
earnings would have grown in excess of 10% for the first half of this year.
Once we fix our service issues and complete re-engineering, we expect to drive
significant improvements in net income....
46) Capital
CAPITAL:
In the past two years, annual capital expenditures have been in the $2.2 to
$2.5 billion range. Near term targets will remain in that range.
Within a few years, our goal is to have capital levels stabilize around $2
billion.
47) Financial flex... Our financial performance has resulted in solid AA-
credit ratings and a strong balance sheet. Recent positive performance
continues to drive improvement of balance sheet metrics, such as pre-tax
interest coverage and the debt ratio. This affords us the financial capacity
and flexibility to consider strategic investments that many competitors would
have to forego.
SUMMARY
48) Summary/value
In short, we've delivered solid financial results to our shareholders. We'll
continue to drive improved revenue, margins, cash flow and earnings with the
value drivers I discussed earlier:
* attractive territory;
* connections with customers;
* aggressive marketing strategies;
* synergies with U S WEST Media Group
* operations efficiencies; and
* a fair regulatory and legal environment.
This commitment to driving value, coupled with our strong financial picture
means two things for our shareowners:
* First, an improved net cash flow position that enhances shareowner
value through
* a solid dividend; and
* sustained earnings growth.
And second, a stock performance that provides an attractive return and a
competitive yield.
49) logo
Any way you look at it, U S WEST Communications is delivering the goods:
- -- exceptional products and services to customers;
- -- and exceptional value to shareowners.
Thank you.
50) USWC mgt.
In the time remaining, I'd like to introduce my team -- and we'll answer any
questions you might have:
* Tom Bystrzycki, our Executive Vice President of Operations and
Technologies. He's accountable for network service quality and repair, our
re-engineering effort, operations productivity and capital projects.
* Catherine Hapka, our Executive Vice President of Markets. She's
accountable for marketing, sales, customer service and new business ventures.
She's also charged with strategic planning and resource allocation.
* Bob Hawk, President of the Carrier Division. Bob provides leadership in
managing relationships with our largest customers -- interexchange carriers,
wireless companies and telephone companies..
* Jim Helwig, our Chief Financial Officer, is charged with driving
financial strategy, including planning and analysis, cost reduction, capital
recovery, and investor relations.
* Jim Stever, Executive Vice President for public policy. He's working to
ensure competitive parity on regulatory and legislative fronts.
I hope you get the chance to talk with them. They're key value drivers for the
Communications Group -- and they'll be available during lunch to share their
perspectives on U S WEST Communications.
Q&A
Thank you for your time and continued interest in U S WEST Communications.
48) logo
[Slide No. 1]
Targeted Stock Road Show
U S WEST [Registered Trademark symbol]
Communications Group
Sol Trujillo
President & CEO
October 12, 1995
[Slide No. 2]
U S WEST Communications
Agenda
Business Strategy
Value Drivers
Financial Objectives
[Slide No. 3]
U S WEST Communications
Strategy Statement
Our business strategy is to create a distribution powerhouse that provides
customers a total solution. These solutions will be packaged and delivered
through the customers' channels of choice.
Business Strategy
[Slide No. 4]
U S WEST Communications
Metrics to Manage Performance
[A list of the performance metrics used to measure performance and establish
clear accountability and performance-based rewards, i.e., repair calls per
technician, cash outlay per customer, revenue per sales rep, operating costs
per unit, cash flow growth and earnings per share.]
[Slide No. 5]
U S WEST Communications
Agenda
Business Strategy [Gray]
Value Drivers [Bold]
Financial Objectives [Gray]
[Slide No. 6]
U S WEST Communications
Value Drivers
- - Attractive Territory
USWC will leverage these to drive exceptional performance
[Slide No. 7]
U S WEST Communications
We continue to outpace our peer group in volume growth
[A line graph illustrating U S WEST Communications' percentage of access line
growth from 1991 through 1995 compared with the other RBOCs.]
[A line graph illustrating U S WEST Communications' percentage of
minutes-of-use ("MOU") growth from 1991 through 1995 compared with the other
RBOCs.]
Attractive Territory
[Slide No. 8]
U S WEST Communications
Ten of U S WEST's 14 states rank in the top 15 of
the country's economic growth areas
[A map of the United States (including Alaska and Hawaii) highlighting U S
WEST Communications' 14-state region (Arizona, Colorado, Idaho, Iowa,
Minnesota, Montana, Nebraska, New Mexico, North Dakota, Oregon, South Dakota,
Utah, Washington and Wyoming).]
Source: U.S. News & World Report
Breadth of territory gives us economic and regulatory diversity
Attractive Territory
[Slide No. 9]
U S WEST Communications
We enjoy natural deterrents to competition
Less Densely Populated
[A graph illustrating the number of top 50 MSAs in each RBOC region based on
the population per square mile for the top 5 MSAs in each region.]
SOURCE: Statistical Abstract
Less Attractive to CAPS
[A bar graph illustrating U S WEST's percentage of business lines compared to
the RBOC average.]
SOURCE: Company reports
Attractive Territory
[Slide No. 10]
U S WEST Communications
Our territory is virtually excluded from MCI Metro target area
[A map of the United States illustrating the MCI target areas.
[A legend for "Fiber Ring Construction Complete" and
"Expansion Targeted"]
Attractive Territory
[Slide No. 11]
U S WEST Communications
Cable competitors are less likely to target our territory
USWC has fewest cable clusters > 100k Subs
[A bar graph comparing the cable clusters for the seven RBOCs.]
Source: Paul Kagan & Associates
Attractive Territory
[Slide No. 12]
U S WEST Communications
Value Drivers
- - Attractive Territory
- - Connections with Customers
USWC will leverage these to drive exceptional performance
[Slide No. 13]
U S WEST Communications
Our connection with more than 25 million customers is our most value asset
- - No one else in our region has direct, physical, two-way access to as many
customers
- - We are experts in managing complex networks
- - Our network connections give us important customer information
Connections with Customers
[Slide No. 14]
U S WEST Communications
We deliver products that are differentiated and profitable
[Illustration of examples of connections with customers, i.e., parent/teacher
exchange and on-campus products.]
Connections with Customers
[Slide No. 15]
U S WEST Communications
Service Quality Commitment
Our first priority is to improve customer service
Connections with Customers
[Slide No. 16]
U S WEST Communications
We are making significant progress in improving our service
Residence Access
[A line graph illustrating problems in residence access during January
through August 1995, overlapping a bar graph illustrating improvement during
the same period.]
Held Orders as a % of Access Lines
[A line graph illustrating problems in held orders during January through
August 1995, overlapping a bar graph illustrating improvement during the same
period.]
Connections with Customers
[Slide No. 17]
U S WEST Communications
We are a national leader in deploying soft dial tone
- - Customer activates service with a phone call
- - Competitors have to "roll a truck"
Connections with Customers
[Slide No. 18]
U S WEST Communications
Value Drivers
- - Attractive Territory
- - Connections with Customers
- - Strategies for Growth
USWC will leverage these to drive exceptional performance
[Slide No. 19]
U S WEST Communications
We're prepared for competition
Marketing Accounting Systems
Resources to Build Brand Equity
Customer Retention Packages
Market-by-Market Strategies
Strategies for Growth
[Slide No. 20]
U S WEST Communications
We have proven our ability to develop and market new products
New Product Penetration
[A bar graph comparing U S WEST Communications' and the other RBOCs' average
percentage of growth in the Caller ID, Voice Mail and Call Waiting markets.]
!NTERPRISE
[A bar graph illustrating 50% market share growth for !nterprise Networking
Services during 1993, 1994 and 1995*.]
*6 months annualized
We're continuing to roll out new products that leverage our network
connections and marketing skills
Strategies for Growth
[Slide No. 21]
U S WEST Communications
New product revenue is helping propel our total revenue growth above our peers
New Product Revenue
[A line graph illustrating growth in new product revenue during 1990 through
1995*.]
*6 months annualized
Total Revenue Growth
[A line graph comparing U S WEST Communications' and the RBOCs average total
revenue growth during 1991 through 1995**.]
**6 months annualized
Strategies for Growth
[Slide No. 22]
U S WEST Communications
Long Distance [graphic of a telephone]
Data [graphic of a personal computer]
Video [graphic of a television monitor]
Wireless [ graphic of a wireless telephone]
Strategies for Growth
[Slide No. 23]
U S WEST Communications
We are ready to enter new high growth markets
1993 - 2004
Revenue
CAGR
[A bar graph illustrating the growth of industry-wide market potential in
local, long distance, cable, wireless and data.]
Source: Merrill Lynch, Market Research
Strategies for Growth
[Slide No. 24]
U S WEST Communications
Customers in our territory spend more than $10 billion on these new markets
[A pie chart illustrating the market potential in the areas of long distance
($6.0), cable ($1.7), wireless ($1.5) and data ($1.0).]
Billions of Dollars
Strategies for Growth
[Slide No. 25]
U S WEST Communications
The data market is a source of significant growth
!NTERPRISE Frame Relay Ports in Service
[A bar graph illustrating the increase in !nterprise Networking Services'
frame relay ports in service during 1992-1995.]
[A diagram illustrating the components of the !NTERACT partnership, including
USWC, Microsoft, Netscape, Lotus and Cisco.]
Strategies for Growth
[Slide No. 26]
U S WEST Communications
Long Distance is a $6 billion market in-region
- - 40% toll calls originate and terminate in-region
- - Essential part of the bundled package of services
Will provide new revenue and enhance customer retention
Strategies for Growth
[Slide No. 27]
U S WEST Communications
IntraLATA toll presents a different challenge
We've suffered initial share loss,
but we're fighting back . . .
Strategies for Growth
[Slide No. 28]
U S WEST Communications
IntraLATA toll trends are improving
IntraLATA MOU & Revenue
[A line graph comparing toll intraLATA minutes of use and revenue during
January through August 1995.]
Strategies for Growth
[Slide No. 29]
U S WEST Communications
Wireless Opportunity
- - Simple strategy:
-- Integration with wireline
-- One-stop shopping
-- Inexpensive
-- Easy to use
-- Metro wide coverage
Strategies for Growth
[Slide No. 30]
U S WEST Communications
Our cable trial in Omaha achieved 5% penetration in four weeks
U S WEST [Registered trademark symbol]
TeleChoice [Service mark symbol]
Entertainment. Your Way. [Trade mark symbol]
Strategies for Growth
[Slide No. 31]
U S WEST Communications
Value Drivers
- - Attractive Territory
- - Connections with Customers
- - Strategies for Growth
- - Synergies with Media Group
USWC will leverage these to drive exceptional performance
[Slide No. 32]
U S WEST Communications
Synergies with Media Group will drive value
- - Cable/telephony integration
- - Wireless
- - "Know the competition"
Synergies with Media Group
[Slide No. 33]
U S WEST Communications
Value Drivers
- - Attractive Territory
- - Connections with Customers
- - Strategies for Growth
- - Synergies with Media Group
- - Commitment to be Low Cost Provider
USWC will leverage these to drive exceptional performance
[Slide No. 34]
U S WEST Communications
Productivity improvement drives value
Cost Per Unit
[A bar graph comparing U S WEST and RBOCs average (without U S WEST) cost per
unit for the years 1992, 1993 and 1994.]
Employees/10,000 Access Lines
[A bar graph illustrating the decline in employees per access line for the
years 1993 through 1999 as a result of re-engineering.]
Productivity will continue to improve with reengineering
Become Low Cost Provider
[Slide No. 35]
U S WEST Communications
Progress in Reengineering
- - 560 centers consolidated into 26 "super centers"
- - 60% of customers with soft dial tone
- - $400M in savings in employee related costs
- - 10% improvement in capital efficiency
Become Low Cost Provider
[Slide No. 36]
U S WEST Communications
Value Drivers
- - Attractive Territory
- - Connections with Customers
- - Strategies for Growth
- - Synergies with Media Group
- - Commitment to be Cost Provider
- - Fair Regulatory and Legal Framework
USWC will leverage these to drive exceptional performance
[Slide No. 37]
U S WEST Communications
Public Policy initiatives drive value
- - Capital recovery
- - Pricing flexibility
- - Regulatory reform
Public Policy
[Slide No. 38]
U S WEST Communications
Pricing Flexibility
Average Monthly Rate
[A bar graph showing an 18% target increase in average monthly rate]
- - Phase down subsidies
- - Execute plan through:
-- price increases
-- targeted toll discounts
-- deaveraging
Public Policy
[Slide No. 39]
U S WEST Communications
Promote Regulatory Reform
- - InterLATA relief
- - Flexibility to enter cable markets
- - Move toward price regulation
Public Policy
[Slide No. 40]
U S WEST Communications
Agenda
Business Strategy [Gray]
Value Drivers [Gray]
Financial Objectives [Bold]
[Slide No. 41]
U S WEST Communications
Historical performance has been superior to peer group
Percent Growth
1992-1994
Revenue Growth
1992-1994
[A bar graph illustrating U S WEST Communications' revenue growth, EBITDA and
net income exceeded the average of the other RBOCs during 1992-94.]
Financial Performance
[Slide No. 42]
U S WEST Communications
Financial Summary
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
Percent Change Percent Change Percent Change Percent Change
12/94 vs. 12/92 12/94 vs. 12/92 6/95 vs. 6/94 6/95 vs. 6/94
(In billions) 12/31/94 USW RBOC Avg. USW RBOC Avg.
--------- --------------- --------------- --------------- --------------
Revenues $ 9.2 4.0 2.7 2.7 2.0
Expenses* 7.1 2.6 2.3 2.6 0.7
EBITDA* 4.0 6.5 4.0 4.4 4.5
Net Income* 1.1 8.6 3.6 1.3 5.5
Capital Expenditures $ 2.3 -- -- $ 1.1 --
<FN>
<F1>
*Normalized for one-time items
</FN>
</TABLE>
Financial Performance
[Slide No. 43]
U S WEST Communications
Financial Flexibility
Key Credit Quality Measurements
Pretax Interest Coverage
[A bar graph illustrating the increases in U S WEST's pretax interest
coverage for the years 1992 (4.4), 1993 (5.2) and 1994 (6.4)
Debt Ratio
[A bar graph illustrating U S WEST's debt ratio (OPEB/FAS71 impact) for 1993
(63/40%), 1994 (61/40%) and 1995 (59/39%).]
We are in a strong position to compete in the capital markets.
Financial Performance
[Slide No. 44]
U S WEST Communications
Value Drivers
- - Attractive Territory
- - Connections with Customers
- - Strategies for Growth
- - Synergies with Media Group
- - Commitment to Be Low Cost Provider
- - Fair Regulatory and Legal Framework
USWC will leverage these to drive exceptional performance
[Slide No. 45]
U S WEST [Registered trade mark]
Communications Group
[Slide No. 46]
U S WEST Communications
U S WEST Communications Management Team
- - Tom Bystrzycki - Executive VP Operations & Technology
- - Catherine Hapka - Executive VP of Markets
- - Bob Hawk - President, Carrier Division
- - Jim Helwig - VP, Chief Financial Officer
- - Jim Stever - Executive VP, Public Policy
[Slide No. 47]
U S WEST Communications
Distribution Powerhouse
[Graphics illustrating a factory and a U S WEST Communications "store."]
[A flow chart illustrating the communication path from U S WEST
Communications to its customers.]
Business Strategy
[Slide No. 48]
U S WEST Communications
We are ready to enter new high growth markets
1993-2004
Revenue CAGR
[A bar graph illustrating industry growth in local, long distance, cable and
wireless markets during 1993-2004.]
Source: Merrill Lynch, Market Research
[Slide No. 49]
U S WEST Communications
Financial Flexibility
Key Credit Quality Measurements
Pretax Interest Coverage
[A bar graph illustrating the increases in U S WEST's pretax interest
coverage for the years 1993 (5.1), 1994 (6.0) and 1995 (6.2)
Debt Ratio
[A bar graph illustrating U S WEST's debt ratio (OPEB/FAS71 impact) for 1993
(63/40%), 1994 (61/40%) and 1995 (59/39%).]
We are in a strong position to compete in the capital markets.
