20030418Staff 2nd Resp - attach M -1 ATT Wireless - Lehman .pdf

PLEASE SEE IMPORTANT DISCLOSURES BEGINNING ON PAGE 3 1
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EPS (FY Dec)
2001 2002 2003 % Change
Actual Old New St. Est Old New St. Est 2002 2003
1Q (0.02) (0.07)A (0.07)A (0.01)A NA NA 0.01E (250) NA
2Q 0.10 0.01A 0.01A 0.00A NA NA 0.02E (90) NA
3Q 0.03 (0.76)A (0.76)A 0.04A NA NA 0.03E (2,633) NA
4Q (0.48) (0.02)E (0.05)E (0.02)E NA NA 0.00E 90 NA
Year (0.37) (0.84)E (0.86)E 0.01E (0.17)E (0.17)E 0.07E (132) 80
P/E NA NA
Market Data Financial Summary
Market Cap 18563.2M Revenue FY02 14.49
Shares Outstanding (Mil) 2706.0 Five-Year EPS CAGR NA
Float 2301 Return on Equity (0.1)
Dividend Yield NA Current BVPS NA
Convertible No Debt To Capital 29%
52 wk Range 12.38 - 3.15
Investment conclusion

We are changing our AWE estimates due to the
impact on our model from changes to our industry
forecasts. Our price target falls to $10 from $11.
We maintain our 1-Overweight rating.

Summary

Please see our industry note from today, entitled
4Q02/2003 Outlook - Still Gloomy On Growth, for
further detail regarding changes to our industry
estimates.

United States
Telecommunications
Wireless Services
Stock Overview
AT&T WIRELESS SVS.16/1/03
2
4
6
8
10
12
14
000'S
0
50
100 VOLUME
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan
Stock Rating: Target:
New: 1-Overweight New: 10.00
Old: 1-Overweight Old: 11.00
Sector View: 2-Neutral

January 24, 2003
AT&T Wireless Services (AWE - $6.86) 1-Overweight
Change of Earnings Forecast
4Q02/2003 Outlook-Still Gloomy On Growth

-- PLEASE SEE END OF DOCUMENT FOR IMPORTANT DISCLOSURES -
VALUATION METHODOLOGY OF AT&T WIRELESS
We have used a sum-of-the-parts approach in valuing AT&T Wireless. Our “parts” consist of mobility, investments and other assets. We
perform a DCF analysis for the mobility business, and estimate a value for each of the investments and other assets.

To arrive at our mobility business value, we have discounted our cash flows back at a rate of 11.0% and built a terminal value using a
5.0% perpetual growth rate of free cash flow. This implies a terminal EBITDA multiple of 6.5 times. Our calculated mobility enterprise
value is $37.8 billion. To this, we add $2.3 billion to account for investments and other assets. Thus, our total enterprise value is $40.0
billion.

We then subtract estimated net debt at 12/31/03 of $9.2 billion. Thus, our private market equity value totals $30.9 billion. To this, we
apply a 10% private to public market discount to arrive at a public market equity value of $27.8 billion. With 2.7 billion fully diluted shares,
we arrive at a year-end 2003 price target of $10.

AWE looks attractive relative to the comps. It is trading at 5.8x 2003 enterprise value to 2003 EBITDA, versus Sprint PCS at 7.2x, and
Nextel Communications at 6.6x.

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Company Description:
AT&T Wireless is the largest independently traded wireless carrier in the U.S., operating one of the largest digital wireless networks in
North America.

Company Name: Disclosures Ticker Price (1/24) Rating
AT&T Wireless Services A,D AWE 6.86 1-Overweight

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Important Disclosures

Rating and Price Target Chart: AWE

Date Closing Price Rating Price Target
06-Aug-02 $4.30 $11.00
05-Aug-02 $3.97 1-Overweight
25-Jul-02 $5.00 $13.00
10-May-02 $7.47 $15.00
24-Apr-02 $8.96 $15.00
06-Mar-02 $9.27 $20.00
29-Jan-02 $11.65 $21.00
14-Jan-02 $11.46 2-Buy

Date Closing Price Rating Price Target
26-Oct-01 $14.72 $34.00
18-Jul-01 $16.55 $33.00
01-Dec-00 $17.25 $44.00
28-Jul-00 $27.88 $47.00
12-Jun-00 $28.81 $46.00
02-May-00 $32.06 1-Buy
02-May-00 $32.06 $45.00

FOR EXPLANATION OF RATINGS PLEASE REFER TO THE STOCK RATING KEYS LOCATED AT THE END OF THIS DOCUMENT

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EQUITY RESEARCH

Important Disclosures:
The analysts responsible for preparing this report have received compensation based upon various factors including the Firm’s total revenues,
a portion of which is generated by investment banking activities.

A - Lehman Brothers Inc. and/or an affiliate managed or co-managed within the past 12 months a public offering of securities for this
company.
D - Lehman Brothers Inc. and/or an affiliate has received compensation for investment banking services from the subject company within the
past 12 months.

Risk Disclosure:
AWE: *A sustained weak economy could cause near term subscriber growth to be less than anticipated. *Capex, which is expected to fall
next year, might not decline. Such a scenario would be a negative for the stock. *Given the many competitors in this space, a price war could
develop, and would hurt AWE's results. *AWE's network overlay and migration might not be seamless, causing churn to rise. *There is a 164
million share overhang from the merger with TeleCorp. *AWE may be required to repurchase NTT DoCoMo's investment if the company fails
to meet specified conditions. *Our long-term assumptions regarding subscribers, ARPU, margins, and capex, might be too optimistic.

Key to Investment Opinions:

Stock Rating
1-Overweight - The stock is expected to outperform the unweighted expected total return of the industry sector over a 12-month investment
horizon.
2-Equal weight - The stock is expected to perform in line with the unweighted expected total return of the industry sector over a 12-month
investment horizon.
3-Underweight - The stock is expected to underperform the unweighted expected total return of the industry sector over a 12-month
investment horizon.
RS-Rating Suspended - The rating and target price have been suspended temporarily to comply with applicable regulations and/or firm
policies in certain circumstances including when Lehman Brothers is acting in an advisory capacity on a merger or strategic transaction
involving the company.

Sector View
1-Positive - sector fundamentals/valuations are improving.
2-Neutral - sector fundamentals/valuations are steady, neither improving nor deteriorating.
3-Negative - sector fundamentals/valuations are deteriorating.

Stock Ratings From February 2001 to August 5, 2002 (sector view did not exist):
This is a guide to expected total return (price performance plus dividend) relative to the total return of the stock’s local market over the next 12
months.
1-Strong Buy - expected to outperform the market by 15 or more percentage points.
2-Buy - expected to outperform the market by 5-15 percentage points.
3-Market Perform - expected to perform in line with the market, plus or minus 5 percentage points.
4-Market Underperform - expected to underperform the market by 5-15 percentage points.
5-Sell - expected to underperform the market by 15 or more percentage points.

Stock Ratings Prior to February 2001 (sector view did not exist):
1-Buy - expected to outperform the market by 15 or more percentage points.
2-Outperform - expected to outperform the market by 5-15 percentage points.
3-Neutral - expected to perform in line with the market, plus or minus 5 percentage points.
4-Underperform - expected to underperform the market by 5-15 percentage points.
5-Sell - expected to underperform the market by 15 or more percentage points.
V-Venture – return over multiyear timeframe consistent with venture capital; should only be held in a well diversified portfolio.

Distribution of Ratings:
Lehman Brothers Equity Research has 1530 companies under coverage.
32% have been assigned a 1-Overweight rating which, for purposes of mandatory regulatory disclosures, is classified as a Buy rating, 30% of
companies with this rating are investment banking clients of the Firm.
43% have been assigned a 2-Equal weight rating which, for purposes of mandatory regulatory disclosures, is classified as a Hold rating, 12%
of companies with this rating are investment banking clients of the Firm.
25% have been assigned a 3-Underweight rating which, for purposes of mandatory regulatory disclosures, is classified as a Sell rating, 46% of
companies with this rating are investment banking clients of the Firm.

This material has been prepared and/or issued by Lehman Brothers Inc., member SIPC, and/or one of its affiliates (“Lehman Brothers”) and has been approved
by Lehman Brothers International (Europe), regulated by the Financial Services Authority, in connection with its distribution in the European Economic Area.
This material is distributed in Japan by Lehman Brothers Japan Inc., and in Hong Kong by Lehman Brothers Asia Limited. This material is distributed in Australia
by Lehman Brothers Australia Pty Limited, and in Singapore by Lehman Brothers Inc., Singapore Branch. This material is distributed in Korea by Lehman

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EQUITY RESEARCH
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