Chief Executive Officer Of Sprint Nextel Finance Essay

Bonus

$829,322

Salary

$1,200,000

Restricted stock awards

$3,222,768

All other compensation

$94,289

Non-equity incentive plan compensation

$4,844,272

Option awards

$1,692,000

Total Compensation

$11,882,651

The numbers of shares owned are 5,070,825 and the numbers of options owned are 900,000.

The Board of Directors

There are currently ten members of the board of directors namely: Robert R. Bennett, Gordon M. Bethune, Larry C. Glasscockames, James H. Hance Jr., Daniel R. Hesse, V. Janet Hill, Frank Ianna, Sven-Christer Nilsson, William R. Nuti and Rodney O'Neal. All the members of the board have served the company for different time periods: Robert R. Bennett has served since October 2006, Gordon M. Bethune since March 2004, Larry C. Glasscock since August 2007, James H. Hance,Jr since February 2005,Daniel R Hesse since December 2007,V.Janet Hill since 2005,Frank Ianna since March 2009, Sven-Christer Nilsson since November 2008, William R. Nuti since June 2008 and Rodney O'Neal August 2007.There is only one inside director, who is the CEO of the company, in the board of directors. There are no directors who have other connections to the firm .The board of directors boast five CEOs of different companies in the board. Many directors of the board have stockholdings in the company but Dan Hesse is the one who owns a large part (5,070,825 shares) of the stockholdings. The other directors own shares which are far much less than those owned by the company’s CEO, Dan Hesse.

Share Voting Structure

In Sprint Nextel there exists voting and non-voting stock. In voting stock there exists two form of stock the series 1 and the series 2 common stock. Each exceptional share of the Series 1 Common Stock is allowed to one vote and each outstanding share of the Series 2 Common Stock is entitled to ten percent of 1 vote. The Board of Directors has the authority to implement any resolutions that need the consent of any series of capital shares. Hence there is difference in the voting rights. The board of directors has more rights in voting shares. The managers currently holding office have a large share of the stock for example Dan Hesse, the CEO of the company owns 5,070,825 shares.

Financial Market Concerns

Many analysts follow the firm in terms of their profits and their expected future outcome. The trading average volume of available stock at the moment is 38,047,700.

Societal Constraints

Sprint Nextel has had both good and bad reputation over the years. It got its bad reputation on 2007 when the company ended the service of their already disappointed and unhappy customers because they were calling the customer care service very frequently .Also the company continued to tarnish its image further by sacking the current CEO Gary Forsee . To start gaining good reputation the CEO who replaced the former made a lot of changes. First Sprint had to focus on tackling customer complaints on the first call to a customer care agent.

Stockholder analysis

The stock in sprint Nextel is held by institutions, multi-fund owners and insiders and outside direct holders. Institutional investors hold 79.24% of the total stock available in the company

Insider Holdings

There are many insiders in the company namely Alves Paget Leonard,Robert R Bennett, Bethune Gordon,Bowman Danny, Carter Maatthew, Cowan Keith,Elfman Steven Lawrence, Euteneur Joseph J,Glaasscock Larry, Hance James,Hesse Daniel,Hill Janet,Ianna Frank, Johnson Robert L,Malloy William M, Nilson William M,Nilsson Sven Christer,Nuti William, Onel Rodney,Siurek Ryan and Wunsh Charles R.The insiders comprise of the company’s directors and officers. They play different and important roles in the company.The insiders hold 0.14 percent of the total companies stock. Many insiders bought stock a long time ago but recently many insiders have been doing stock transactions. For example Alves Paget an officer in the company did a disposition transaction on fifth, February 2013.

Risk and Return

Regression beta measures a fund's sensitivity to market changes. The top down betas of the company in a five year period is 84% as shown by Yahoo Finance.

Estimating Default Risk and Cost of Debt

The most recent rating according to the Standard & Poor's Ratings Services

is B+ .This means the company has a grade which is the uppermost speculative grade by the participants of the market. The default rating as shown for Sprint Nextel corporation by the same company is a B+

IV. Measuring Investment Returns

As of December twelfth Sprint Nextel return on equity was an average of -74.8 percent for the past ten years. Return on equity measures a company’s effectiveness at profit generation from every unit of stockholder’s equity .ROE shows how well a company uses investment funds to generate earnings growth. ROEs between 20 percent and 15 percent are considered attractive. The firm is not picking good projects because of the negative ROE. The Return of capital of the company as of Dec twelfth for the past ten years is _18.8 percent. The Return on Capital determines how well a firm generates cash flow relative to the capital the company has invested in its dealings. Because it money is used to raise capital, a company that gets superior returns on its investment than the costs the firm used to raise the capital required for that investment is getting excess profits. A company that anticipates getting positive surplus profits on new investments in the future will see its net worth rise as growth rises. From the data sprint Nextel gets negative return on capital meaning the firm is not picking the best projects for positive returns. Book of equity is the common equity divided by the current outstanding shares. The computed current book value of equity as shown by Forbes for the company is $2.35 per share. The company book value is below the recently traded stock price hence the company is undervalued. Computing economic value added:

Market Value=book value of equity + present Economic value added stock

EVA=17.52(billion)-2.35*3010(million) =10.45 Billion dollars

The economic added value is the value added to the shareholders value.The value is less than the current trade stock value hence the company does not pay much attention to its shareholders

The capital invested in the company is 10.31 per share. Computing the economic added value:

EVA=capital invested (return on capital invested-cost of capital) = (13.9%-8.1%) (10.5*3010.8)(Million)

=1.8 billion dollars

This is the value added to the capital invested

The Economic added value for the equity is far much bigger than that of the capital invested hence the company values shareholders more than the capital invested

V. Capital Structure Choices

Benefits of Debt

The marginal tax rate faced by the company is 35 percent as at February 2013.Other tax deductions of the firm are depreciation, amortization and depletion which add up to 6.54 billion as at the year 2012

The cash flows in the company amounted to 1.26 billion$ as at 2012.The company had bad investment projects in the past and that is explained by the debts in the company. Recently, the company has starting doing good projects and it is explained by the reduction in debt. The managers act as good examples to the stake holders by acquisition of some stock in the company.

Cost of Debt

As at 2012 the free cash flows at the company added up to $1.26 billion. The cash flows are not stable because of the fluctuations in the past years. The assets for the company are both intangible and tangible, expressed as stock and company acquisitions. The future investments of sprint Nextel are quite promising and it gives shareholders hope.

VI. Optimal Capital Structure

Cost of Capital Approach

The current cost of capital in the industry is a weighted average of 8.1 percent

Building Constraints into the Process

Analyzing whether the firm has too much or too little debt relative to the sector and the market, the following factors are considered in detail :

Relative Analysis

Sprint Nextel has a due debt of 300 million dollars after paying majority of its debts in the previous year

VII. Mechanics of Moving Capital

The Immediacy Question

The company is under-levered because it has a low level of debt. There has been a talk about a takeover where Softbank wants to acquire 70 percent of the stock ownership in the company.

Take Projects

The company is working on the direct connection system to be used in Push-to-Talk (PTT) service instead of the current used iden system. The project will raise the coverage of PTT to nearly 310 million people and increase the in-building coverage.With broad coverage in the country the future plan will reap a lot of profits because of the market share.

The stockholders would prefer buybacks because the company paid no dividends on the past because of the losses (fewer profits) it made.

VIII. Dividend Policy

Historical dividend policy

The last time the company paid dividend to the shareholders was at 28th December 2007 and it was 0.10 dollars per share. The company has not bought back any stock in the recent years.The average stockholder in the company is Alves Paget and prefers buyback.The company pay no dividends recently

IX. A Framework for Analyzing Dividends

Affordable Dividends

Free cash flows to equity at Sprint Nextel for the years 2010, 2011 and 2012 as at March 31st is 705 million dollars, 262 million dollars and 198 million dollars. As it is shown, the value of free cash flows to equity keeps decreasing. Sprint Nextel has not paid dividends to its shareholders since 2007 when it paid 0.10 dollar dividend per share.

Management Trust

The management of the firm has made poor investments in the past and that is explained by the poor dividend pay and the losses incurred which almost led to its bankruptcy. The future investments of the company look promising after the appointment of the new CEO, Dan Hesse who has brought changes and positive feedback already like reduction of the company’s debt.

Changing Dividend Policy

I would consider changing the dividend policy and the management because the company has no profits and pay no dividends for their shareholders. The company pays no dividend to its shareholders in the recent years.

Verizon Communications Inc.

Corporate Governance

The Chief Executive Officer

Mr. Lowell C. McAdam is the Chief Executive Officer and Chairman of Verizon communications Inc. He became Chief Executive Officer on August 1, 2011. Mr. Adam has risen through the ranks at Verizon to become the Chief Executive Officer and Chairman.

Since October 2010 up until he became Chief Executive Officer, Mr. McAdam was Chief Operating Officer and President of Verizon Wireless from 2007. Before this, he held crucial executive positions at Verizon Wireless in 2000 and was influential in turning Verizon Wireless leader in wireless provision. Before Verizon Wireless was formed, he held managerial posts with PrimeCo Personal Communications, a mutual scheme owned by Pacific Bell and AirTouch Communications, Vodafone AirTouch and Bell Atlantic. He has also served as a Director of Verizon as from March 2011.

The total amount of compensation that Mr. Lowell C. McAdam took in 2011 was $23,120,499. This compensation included the salary, restricted stock awards, non-equity incentive plan compensation and change in nonqualified deferred compensation earnings and pension value as shown in the table below

Table 1.0 Compensation for Lowell C. McAdam

Compensation for 2011

Salary

$1,400,000

Restricted stock awards

$18,750,099

All other compensation

$480,719

Non-equity incentive plan compensation

$2,362,500

Change in nonqualified deferred compensation earnings and pension value

$127,181

Total Compensation

$23,120,499

 

Mr. Lowell C. McAdam stock ownership as at 2013 is 210,714 shares.

The Board of Directors

There are 12 directors at Verizon. They include:-

Lowell C. McAdam. He became Chairman of the Board on January 1, 2012; Robert W. Lane who has served as a director since 2004; Donald T. Nicolaisen who has served as a director since 2005; Hugh B. Price who has been a Director since 1997; Richard L Carrion, a director since 1995; Rodney E. Slater, since March 2010; John W. Snow since 2009; Sandra O. Moose who has served as a director since 2000. Other directors include Joseph Neubauer, Melanie Healey, Clarence Otis Jr and Martha Frances Keeth whose tenures are not clear.

Mr. Lowell C. McAdam is the only inside employee since he is the chief executive officer.

Some of the directors of Verizon Communications Inc. hold other positions of CEOs in other companies. They include Robert W. Lane, Joseph Neubauer, Hugh B. Price, Richard L Carrion, Clarence Otis Jr and John W. Snow.

Mr. Lowell McAdam C. holds the most shares of all the members of the board with 210,714 shares. The other directors own very few shares as compared to the company’s CEO.

Share Voting Structure

There are differences in voting rights across shares in the company. For example, shares outstanding have voting rights and signify ownership in the firm by the individual that owns the shares whereas treasury shares are shares held by the corporation itself, having no exercisable rights.

The incumbent managers own only a small share of the total equity (0.01 %) as compared to institutions that own 56% and the mutual funds schemes that have a share percentage of 28%. The managers currently holding office have a large share of the stock for example Mr. Lowell McAdam C., the CEO of the company owns 210,714 shares.

Financial Market Concerns

Many analysts follow the firm since it is one of the biggest telecommunication corporations in the world. The analysts come from top financial organizations that deal with analysis of day to day dealings of various companies in the world for Example Forbes and Nasdaq.

The stocks of Verizon Communications Inc., which is in the diversified communications services industry, trade at the New York Stock Exchange. The average stock trading volume is 12,596,916. The stocks trade at an average of 45 dollars and the market capitalization is approximately 130.48 billion dollars.

Societal Constraints

Verizon shows an emerging strength in environmental management, corporate governance, workplace diversity, and community relations. The company has established a Corporate Responsibility Executive Council composed of senior executives, which identifies issues, establishes priorities, tracks results, integrates corporate responsibility into the company’s business operations and reports to the board of directors. Verizon is working to reduce its greenhouse gas (GHG) emissions through its aggressive energy conservation program and is introducing new energy-saving technology and alternative fuel sources. The company recently released a human rights policy, which references the Universal Declaration of Human Rights. However, given the company’s history of labor relations problems, including allegations of anti-union tactics and reductions in wages and benefits, it is important that it expand its policy framework to strengthen protections for its employees consistent with the International Labor Organization (ILO) core labor standards. Verizon also has a history of workplace safety accidents, though the company has improved its performance in recent years, reducing injuries and compliance violations.

II. Stockholder Analysis

Major Direct Holders (Forms 3 & 4) include:

McAdam Lowell C at 210,714 shares, Mudge W Robert at 18,698 Shammo Francis 2at 4,219 Milch Randal S 2 at 20,218 and Reed Marc C at 20,112 shares as at Feb 14, 2013.

The insider holders of stock include:

Carrion Richard L. (director) with 1245 shares, Chestnut Roy H. (Officer) with 238 shares, Gurnani Roger (Officer) with 10,804 shares, McAdam Lowell C. (officer) with 210,714 shares, Mead Daniels (officer) with 12,003 shares, Melonie Antony J. (officer) with 7,515 shares, Milch Randal S 2 with 20,218 shares, Mudge W Robert with 38,698 shares, Neubauer Joseph (director) with 17,022 shares, Price Hugh B. (director) with 58 shares, Reed Marc C. (officer) with 20,112 shares, Ruesterholz Virginia P. (officer) with 4,087 shares, Shammo Francis(officer) with 24,219 shares, Stratton John G (officer) with 19,005 shares and Tauke Thomas J. (officer) with 6,957 shares.

The insiders hold various positions in the company. Some hold managerial positions while some hold supervisory position but all work together to achieve the company’s goals

The institutions hold the greatest number of stock at 56% of the total stock issued by the company. They are then followed by mutual fund holders who own a slightly lower percentage of shares. The numbers of institutions, who hold the 56% of stock at Verizon, are 1493 in number The Company is also listed overseas in the Buenos floor, Argentina.

Insider Holdings

The insiders in this company include:

Ivan G Seidenberg who is the former Chief Executive Officer and Chairman of the Board of directors

Lowell C. Mcadam, the current Chief Executive Officer and member of the Board of directors

Daniel S. Mead, Executive Vice President, Chief Executive Officer and President of Verizon Wireless Joint Venture.

Francis J. Shammo, Chief Financial Officer and Executive Vice President.

Virginia P. Ruesterholz, Executive Vice President of Verizon Services Operations

Randal S. Milch, Executive Vice President and General Counsel

The Insiders hold 0.01% of stock issued by the company. Most of the insiders have been selling and buying stock in the last year. There are 705,202 shareowners in total in the company.

Risk and Return

The top down beta for Verizon Communications Inc. is 0.35. The telecommunications services industry beta is 1.16. The rating of Verizon Communications Inc. is A-. The default spread is 1.30% and the interest rate associated with this rating is between 1.20% and 1.4999%.

The yield to maturity for a long term bond that matures in 2023 is 2.93%

The market value of equity is 134.65 Billion dollars. The estimated market value for debt is 61.85 billion dollars. The weight of equity is 0.68 while the weight of debt is 0.32.

IV. Measuring Investment Returns

Accounting Returns on Projects

The return on equity earned by Verizon is 12.32 %. This is ranked 4th in the telecommunications industry. Five year average is 20.1 %.

The return on invested capital for Verizon Communications Inc. is 13.1 %. The five year average for the firm is 8.8 %. This shows that the firm is picking good projects.

The trends show that the projects taken by Verizon Communications Inc. have high returns. This therefore, can be taken to indicate that the future projects that the firm takes will also have good returns. Accounting returns is a fair measure of the returns that the company is making.

V. Capital Structure Choices

Benefits of Debt

The marginal tax rate for Verizon Communications Inc. is 2.9%. There are no tax deductions to reduce the tax bite.

The amount of free cash flows for 2012, 2011 and 2010 are 1.971 billion dollars, 2.629 billion dollars, and 2.433 billion dollars respectively. This indicates that the company has been taking good projects due to the large value of their cash flows. There will be advantage in using debt to keep managers in line because the managers will feel tied to the company

Costs of Debt

The annual operating incomes for 2012, 2011 and 2010 are 13.16 billion dollars, 12.88 billion dollars and 14.645 billion dollars. This shows that the cash flows for the firm have been approximately the same. Therefore, from the figures above the cash flows are stable

VI. Optimal Capital Structure

Cost of Capital Approach

The weighted average cost of capital for Verizon Communications Inc. is 7.65 percent.

Relative Analysis

Relative to the telecommunications services sector, the company does not have too much debt as compared to other companies. Compared to other companies in the market, the debt that the company has is not too much.

VII. Mechanics of Moving to the Optimal

The Immediacy Question

The firm is neither under levered nor over levered. This means that the firm has a less likelihood of being a takeover candidate and is also not in danger of bankruptcy.

VIII. Dividend Policy

Historical Dividend Policy

The dividends paid in 2012, 2011, and 2010 respectively 5.230B, 5.555B and 5.412B dollars. The Board authorized the repurchase of up to 100 million shares of Verizon common stock terminating no later than the close of business on February 28, 2014.

Firm Characteristics

It is of high importance that the firm uses its dividend policy as a signal to convey information to financial markets.

The average stockholder in the firm would prefer dividends instead of buybacks since the value of dividends is high compared to the other companies in the same sector.

This firm is highly capable of forecasting future financial needs since its board is made of highly competent and experienced members.

The dividend policy of this firm is better than that of other firms in the telecommunications sector.

IX. A Framework for Analyzing Dividends

Affordable Dividends

Free cash flow to equity is the cash flow available to Verizon Communications Inc.'s equity holder’s after all operating expenses, interest have been paid and necessary investments in working and fixed capital have been made. The free cash flow to equity for 2012, 2011 and 2010 is 11.96 billion dollars, 14.719 billion dollars and 7.672 billion dollars respectively.

This shows that the firm’s free cash flow to equity increased from 2010 to 2011 but then slightly declined from 2011 to 2012.

Management Trust

The managers have picked the investments well since the returns have been good and consistent over the last three years. This shows that future investments of this firm may not be different from those of the past. This indicates why the company is rising to its prominence in the telecommunication sector in United States and even the whole world

Changing Dividend Policy

The firm’s dividend policy should not be changed since all the values have been positive and consistent over the past years.

Comparing to the sector and market, the firm neither pays too much nor too little in dividends.

I. Corporate Governance Analysis

The Chief Executive Officer

Mr. Randall L. Stephenson is the Chief Executive Officer and Chairman of AT&T. Before he became Chief Executive and Officer Chairman of AT&T in June, 2007, he worked as Chief Operating Officer of AT&T from 2005 to 2007, as Chief Operating Officer of SBC Communications Inc. from April, 2004 to November, 2005 and as Senior Executive Vice President and Chief Financial Officer of SBC from August, 2001 to April, 2004. SBC Communications Inc. acquired AT&T Corp. in November, 2005. Mr. Stephenson got from Central State University in Edmond, a Bachelor of Science degree in accounting, and from the University of Oklahoma at Norman, a Master of Accountancy degree.

Below are details of the compensation that Mr. Stephenson took in 2011

Compensation

Salary

$1,550,000

Restricted stock awards

$12,749,979

All other compensation

$555,353

Option awards

$45,543

Non-equity incentive plan compensation

$3,787,500

Change in pension value and nonqualified deferred compensation earnings

$3,329,959

Total Compensation

$22,018,334

Options for 2011

Number of options that Mr. Randall has is 160,000

Stock Ownership for 2013

The number of shares that the CEO and Chairman, Mr. Stephenson owns is 76,652.

The Board of Directors

AT&T current board of directors consists of Randall L. Stephenson, Chairman and Chief Executive Officer, James A. Henderson, who has been a Director since October 1999, Gilbert F. Amelio, who has been a Director since 2001, Reuben V. Anderson, and James H. Blanchard, Jaime Chico Pardo who has been a Director since 2008, James P. Kelly, who has been a Director since 2006, Jon C. Madonna, Lynn M. Martin, who has been a Director since 1999, John B. McCoy who has been a Director since October 1999, Joyce M. Roché who has been director since February 2011, Matthew K. Rose and Laura D'Andrea Tyson, who has been a Director of since 1999.

AT&T has one inside director, who is the CEO and Chairman, Mr. Randall L. Stephenson. Matthew Rose, a director at AT&T is the CEO of Burlington Northern Santa Fe Corporation. None of the directors have large stockholdings or represents those that own large stockholdings.

Share Voting Structure

All the insiders and managers own only 0.02% of the shares.

Financial Market Concerns

Many analysts follow the firm. This is because this is a large corporation that is listed both in the United States and also in Argentina. The trading volume of AT&T stock is 198.96 billion dollars.

Societal Constraints

AT&T has a good reputation as a corporate citizen because it has been involved in several community social responsibility programs. Some have led to the firm being given some accolades.

The firm has brought down the amount of plastic that is used in packing its accessories. It has also resorted to sustainable business practices by using alternative –fuel vehicles by investing approximately $565 million. This will cut petroleum use therefore reducing pollution.

The company is also installing servers that produce a lot of carbon dioxide, therefore reducing the emissions by approximately 50%. This will eliminate harmful smog forming particulate emissions.

The firm is also investing about $148 million in humanitarian efforts through foundation programs.

The firm has been engaging its employees and retirees in community volunteerism

II. Stockholder Analysis

The total number of stockholders at AT&T is 1,649,713. Of this, institutional investors own 53.33%, that owned by funds is 25.16% and that owned by insiders is 0.02%. The company is also listed at the Buenos floor.

Insider Holdings

The insiders of the company include Blasé William A Jr, Coughlin Catherine M, De La Vega Rafael, Donovan John, Geisse Andrew M, Lee Lori M, Stankey John T, Stephens John Joseph, Stephenson Randall L, Watts Donald W, Anderson Reuben V, Stankey John T.

The above insiders are members of the Board of Directors and others are officers in the firm.

They hold approximately 0.02% of the total stocks at AT&T. The insiders have been buying stock in the recent year.

III. Risk and Return

Estimating Historical Risk Parameters (Top down Betas)

The top down beta value for AT&T is 0.39

Estimating Default Risk and Cost of Debt

The most recent rating for AT&T is A-. The default spread is 1.30% and the interest rate associated with this rating is between 1.20% and 1.4999%.

The approximate yield to maturity on a long term bond is 2.09%.

What is the company's marginal tax rate?

Estimating Cost of Capital

Weights for Debt and Equity

The market value of equity for AT&T is 198.961 billion dollars.

Market value for debt is 81.576 billion dollars.

Weight of equity is 0.71 and the weight of debt is 0.29.

Cost of Capital

The weighted average cost of capital for the firm is 6.48%.

IV. Measuring Investment Returns

Accounting Returns on Projects

The return on equity is 7.14%. This shows that the firm is picking good projects. The return on invested capital is 4.7%. This shows that the firm is not picking good projects as compared to return on equity.

The return on equity is approximately twice the return on invested capital. This show that the company is paying more that the projects are returning. This may indicate that the future projects may not be so good.

Accounting return is a fair measure of the returns that this firm is making on the existing projects.

Economic Value Added

The book value of equity for AT&T is 92.07B dollars. The return on capital invested is 4.7%. This shows that the firm is performing well as compared to the sector.

V. Capital Structure Choices

Benefits of Debt

What marginal tax rate does this firm face and how does this measure up to the marginal tax rates of other firms? Are there other tax deductions that this company has (like depreciation) to reduce the tax bite?

Does this company have high free cash flows (for eg. EBITDA/Firm Value)? Has it taken and does it continue to have good investment projects? How responsive are managers to stockholders? (Will there be an advantage to using debt in this firm as a way of keeping managers in line or do other (cheaper) mechanisms exist?)

Costs of Debt

The annual operating income for 2012, 2011 and 2010 are $12.99B, $9.218B and $19.573B. This shows that the operating income has been declining over the past years but increased for 2012. Therefore, the ability of the firm to service its debt has been decline but has shown signs of improving in 2012.

AT&T has the capability if forecasting future investment opportunities and needs since the management of the firm consists of highly qualified personnel.

VI. Optimal Capital Structure

Cost of Capital Approach

The current weighted average cost of capital for AT&T is 6.48%.

Relative Analysis

Relative to the telecommunications sector, the firm does not have a big debt. This can be evidenced by the fact that the debt to common equity ratio is 0.72.

VII. Mechanics of Moving to the Optimal

The Immediacy Question

The firm is not under levered since in comparison to other companies in the sector, it is a big company whose projects and stock price performance has been good. Also, insiders have been buying shares over the last year which is a positive indication.

Alter Financing Mix or Take Projects

AT&T Inc.'s Return on Equity deteriorated from 2010 to 2011 but then slightly improved from 2011 to 2012. Also, Return on Assets declined from 2010 to 2011 but then marginally increased from 2011 to 2012. This indicates that the projects that the company is undertaking should not be expected to make excess returns.

The stockholders of this firm have a preference for stock buybacks since the firm has authorized 300 million stock buybacks.

VIII. Dividend Policy

Historical Dividend Policy

AT&T expects to complete in 2012 its December 2010 share repurchase authorization of 300 million shares and to continue to buy back shares as market conditions allow under its July 2012 300 million share repurchase authorization. Through October 19, 2012, AT&T had repurchased 271 million shares.

Firm Characteristics

The main shareholders are institutional investors, who according to recent announcements, prefer stock buybacks as compared to dividends. The firm have a high capability of forecasting future financing needs since it has a highly talented Board of Directors and also executives.

The dividend policy that is applied to this firm is averagely the same as that for other firms in the telecommunications sector.

IX. A Framework for Analyzing Dividends

Affordable Dividends

The free cash flow to equity is 1.72 dollars.

Management Trust

AT&T Inc.'s Return on Equity deteriorated from 2010 to 2011 but then slightly improved from 2011 to 2012. Also, Return on Assets declined from 2010 to 2011 but then marginally increased from 2011 to 2012. This indicates that the projects that the company is undertaking should not be expected to make excess returns.

Changing Dividend Policy

Given the relationship between dividends and free cash flows to equity, I would not change the firm’s dividend policy.

Comparing to Sector and Market

In the telecommunications services sector, AT&T paid a high amount of dividends to the shareholders. This was average as compared to other firms in the sector.

T-Mobile

Corporate governance

The Chief Executive Officer and president of T-mobile USA is called Mr. John J. Legere. He has been the CEO since September 22, 2012. The reason that led to his appointment is that he has had two decades of experience in the telecommunication industry. Mr. Lengere served Asia global as the Chief Executive Officer from February 2000 to January 2002 and led it through a series of success. He also served as a senior Vice President of Dell Corporation and president and Chief Operatins Officer for Dell’s Operations in Europe, the Middle East and Africa and president, Asia-Pacific for Dell from 1998 to February 2000. He served also as the Chief Executive Officer and president of AT&T Asia and Pacific in April 1994 to November 1997. This pedigree is what led to his selection as the Chief Executive Officer of T-Mobile. He does not own any shares in the company.

The following is the list of members of the Board of Management of the mother company of T-Mobile Deutsche Telekom

Rene Oberman, Chairman

Reinhard Clemens

Niek Jan van Damme

Timotheus Hottges

Thomas Kremer

Claudia Nemat

Marion Schick

The main role of the board is to make key decision concerning the company and its affiliate companies such as T-Mobile. Every member has an equal say when it comes to decision making

Stockholder analysis

T-Mobile USA is owned by Deutsche Telekom which is a Germany based company. Recently, there has been a proposal for the company to merge with MetroPCS. MetroPCS under the proposed arrangement will obtain 24% of shares along with $1.5 billion in cash while Deutsche Telekom would own the remaining 76%. The merger is to be decided by votes that would be cast by the shareholders of MetroPCS.

Market analysis

T-Mobile USA reported a net subscriber gain of 0.6% for the fourth quarter compared with a year ago. But revenues have fallen by 5.2% because of losses among contract customers. Its prepaid business Gain enabled T-Mobile to add 61,000 subscribers, and the carrier said that it was looking forward to the closing in the next several months of its merger with MetroPCS as well as the ability to sell Apple products this year. T-Mobile's contract base fell slightly to 20.3 million in 2012 while its prepaid total grew to 5.8 million subscribers.

Capital structure sources

This is done to assess the benefits and costs of debt

In its current configuration, T-Mobile has $23.3 billion in total debt and leases, comprised of the following:

Proposed Capital Structure

DT Intercompany Debt

$15,000

Total Debt + Leases

$23,300

DT Revolver (undrawn)

$0

Net Debt + Leases

$21,500

Existing Metro Bank Loan

$2,500

Existing Metro Bonds

$2,000

Total Debt + Lease / 2013E EBITDA

3.9x

New Bonds

$1,000

Net Debt + Lease / 2013E EBITDA

3.6x

Total NewCo Debt

$20,500

Lease Obligations:

T-Mobile

$2,400

Metro

$400

Total

$2,800

Expected Cash

$1,800

T-Mobile's proposed capital structure entails a net debt (including leases)/2013E EBITDA ratio of 3.6x (adjusting for the special dividend) – which compares to 2.7x for PCS stand-alone. This also compares unfavorably to the other following comps:

Bond

Yield

Total Debt /

2013E

EBITDA1

Net Debt /

2013E

EBITDA1 2

SPRINT NEXTEL 7.000% Notes due 2020

5.3%

4.8x

2.2x

METROPCS WIRELES 6.625% Notes due 2020

5.5%

3.5x

2.7x

CRICKET COMMUNIC 7.750% Notes due 2020

7.0%

5.6x

4.5x

T-MOBILE USA3 (Current)

4.1%

3.3x

3.2x

1) EBITDA based on analyst's consensus estimates

2) Sprint adjusted for Softbank & Clearwire transactions / Metro PCS adjusted for $1.5 billion capital expenditure

3) T-Mobile Yield calculated based on the annualized "interest expense to affiliates" for the 9 months ended 9/30/12 divided by average debt balance

c. We anticipate the credit rating on PCS/T-Mobile will be BB, which is substantially below investment grade. The risk associated with this lower credit rating and high debt levels will depress equity multiples and hence stock values for both DT and the public PCS/T-Mobile holders.

OPTIMAL CAPITAL STRUCTURE

For optimal capital structure, the following has been considered by the company

Delivering expected five-year compounded annual growth rates in the range of 3% to 5% for revenues, 7% to 10% for EBITDA and 15% to 20% for free cash flow;

Targeting an EBITDA margin in the range of 34% to 36% at the end of the five-year period and achievable projected cost synergy realization with an annual run-rate of $1.2-1.5 billion; and 

Having increased financial flexibility with direct access to the debt and equity capital markets.     

DIVDEND POLICY

Deutsche Telekom aims at returning to rising earnings growth and subscriber numbers at its T-Mobile USA unit after a deal to sell it for $39 billion to AT&T did not go through, this is what the Chief Executive Officer said. Mr Rene Obermann said the company expects to invest around $4 billion, or an additional $1.4 billion in its U.S. networks in the coming two years.

He added he expected T-Mobile USA's 2012 earnings before interest, taxes, depreciation and amortization (EBITDA) excluding special items to decline to around $4.8 billion from $5.3 billion last year. Revenue at T-Mobile USA dropped by 3.3% to $20.6 billion in 2011.

Deutsche Telekom (Bonn, Germany) as a whole posted a fourth-quarter net loss of $1.7 billion as accounting charges on its activities in the United States and Greece failed to offset a cash payment for the collapsed T-Mobile USA deal. Analysts were looking for a fourth-quarter net profit of $1.3 billion.

Deutsche Telekom stuck to its dividend policy and proposed a stable dividend of $0.93 per share.

"Goodwill impairment in the United States and impairments on goodwill and property, plant, and equipment in Southeastern Europe, notably Greece, of approximately 3.3 billion euros ... had a negative impact on unadjusted net profit," the company said in a statement. The impairment charges failed to offset a $3 billion cash payment from AT&T (Dallas, Texas, USA) as part of a $6 billion breakup package after the U.S. peer walked away from a $39 billion deal to buy T-Mobile USA.

By proposing an unchanged payout to investors, Deutsche Telekom bucked the trend at other European telecom operators, who have struggled to find growth amid intense regulatory pressure and tough price competition. On Wednesday, France Telecom (Paris) cut its dividends and put off a promised share buyback. Spain's Telefonica (Madrid, Spain) trimmed dividends in December and is focusing on paying down debt, while Dutch operator KPN (The Hague, Netherlands) slashed its returns to shareholders via buybacks.

Deutsche Telekom said it expects 2012 earnings before interest, taxes, depreciation and amortization (EBITDA) excluding special items to reach around $23.9 billion with a free cash flow of about $7.9 billion..

Comparison

Corporate Governance

The CEOs of all the companies are very experienced since all of them have worked has CEOs in other companies prior to their appointments .This is an indication that all the firms work hard in attempt to secure top staff in their top managerial positions for prosperity in the company.

Stockholder analysis

The major stockholders of AT&T, Verizon and Sprint Nextel are all US residents especially the CEOs of the respective companies while T-mobile is a company which is owned by Deutsche Telekom which is a Germany based company. T-mobile USA has no sale of Stock on its own,the stock is sold by the parent company in Germany.Of the four company Sprint Nextel ahs the highest volume of shares issued at approximately 3 billion shares.Of the three companies their respective CEOs own the highest numbers of shares as major insiders.This helps the companies in bringing good reputation by giving a good examples to other potential stockholders.

Risk and Return

The companies have different ratings as indicated by standardpoors rating. Verizon has the highest rating and that’s why it’s the greatest and the strongest force compared to the other companies in Telecommunication industry in USA.