07 August 2013 Americas/Canada Equity Research Wireless Telecommunication Services

Canadian Telecom
Research Analysts Colin Moore, CFA 416 352 4589 colin.moore@credit-suisse.com Robert Peters 416 352 4550 robert.peters@credit-suisse.com

SECTOR FORECAST

Three's a Crowd; Four's a Feud; Global Lessons from Four Carrier Wireless Markets
As Verizon considers whether to invest in Canada, we have analyzed global wireless markets to gain a broader perspective on the impact a stronger 4th carrier could have on the market. Our research indicates that a committed challenger could cause significant financial disruption to incumbents. A healthy wireless sector requires scale: If VZ decides to enter the market, Canada would become one of the few countries with four National competitors. Of the 34 OECD countries only ~30% have four or more carriers and those markets tend to have higher population densities. Owing to the high fixed costs of wireless networks, far more developed markets are consolidating rather than expanding. Do not underestimate how wireless markets can be disrupted: Wireless financials can be significantly compromised by regulatory shifts and successful new entrants. For example, in 2012 Iliad launched a fourth network in France and has gained ~10% share of subscribers through disruptive pricing. While Canadian carriers have lost $5 billion in market cap since the VZ threat emerged in June, the combined French telecom market cap has dropped by almost 35 billion since Iliad gained spectrum in 2009. Sustainability of fourth carrier: We note very few fourth carriers that have launched over the past decade have more than a 10-15% share of subscribers, nor are they yet significantly profitable, owing in part to network and scale disadvantages. Ironically, the market disruption caused by new entrants often leads to consolidation, although that may not be a regulatory option in Canada. The message is that a new entrant, particularly a committed one, can become a destabilizing agent for a long time. Not all new entrants are successful, but VZ would have the tools: New competitors have high hurdles and are not always successful, even with existing infrastructure and low-cost operations. The risk with VZ committing to Canada is that it would have the financial power and patience to invest in a stronger network, but even leveraging its U.S. asset, would likely still need reasonable subscriber share to gain scale. View: There are no changes to our wireless estimates at this time pending VZ's ultimate decision. We currently believe the market is pricing in a moderate VZ entry scenario, but an actual commitment by VZ would likely lead to further pressure and cause a long-term over-hang on the sector.

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07 August 2013

Lessons from Four Carrier Markets

Ahead of a potential Verizon wireless investment in Canada, we have reviewed global wireless markets to gain a broader perspective on the potential impact of a strong fourth carrier. The broad conclusion is to not underestimate how impactful disruptions, either regulatory or new entrants, can be to a wireless market, and how long the overhang can persist. Scale is important in wireless: First, network scale is very important to wireless margins and profitability and there is a strong correlation between service revenue share and EBITDA margins. By our estimate there are only about a third of OECD markets that have four carriers and directionally these are higher density countries. Ironically, many four carrier markets are reverting back to three: Our review highlights how many of the markets that have experienced new entrants over the past decade are merging back to three, under strategic review or trying to consolidate. Globally, most recent new wireless entrant, even those with some success, still have less than 15% subscriber share, EBITDA margins that are typically in the low teens, and limited profitability as they gain scale. While the Canadian Government may allow a fourth to enter, it is uncertain whether they would ever allow a fourth to exit, at least unless financials became sufficiently weak. This presents a long-term structural risk. Building Networks are for the Brave and Financially Patient: Gaining scale has typically been a challenge, even for carriers that launched 3G services over a decade ago. As such, despite the potential head-start provided by acquiring a company such as Wind, Verizon would likely need a longer-term investment horizon. The bad news for Canadian investors is that Verizon has the financial capacity to take a longer-term approach, which could cause long-term overhang on the sector if the carrier remained committed. Wireless Markets Can Also Experience More Abrupt Disruptions: Owing to the high-fixed cost nature of the business, new entrants or regulatory shifts can also have more immediate impacts on sector financials, as demonstrated by the recent launch of Iliad in France, and regulatory changes in Belgium. Both markets have experienced accelerating revenue declines, and stock pressure. Should Verizon launch in Canada, it has the tools and financial power to potentially be more disruptive, relative quickly. A premium offering by VZ will require investment and in turn market share: Canada could be relatively unique in that Verizon may look to offer a premium wireless service, consistent with its U.S. model, rather than a low-cost offering other recent global challengers have tended to launch. In order to pursue a premium high-data business model, we believe Verizon would need to invest beyond just purchasing new entrants and spectrum to ramp-up its LTE capabilities. As reference, such a network investment has not been an easy one for other smaller carriers to make, and is one of the reasons, for example, why the #3 Australian carrier Vodafone and #4 Hutchison merged in 2009. In short, if Verizon undertakes a premium strategy, we believe the investment would ultimately require meaningful market share to make sufficient returns. Without Fixed line services, the break-even market share for VZ may be higher; We expect VZ to leverage U.S. infrastructure to offset: Similarly, most recent new wireless entrants in developed markets (i.e. France, Netherlands, Chile) have been existing telecom providers that have expanded into mobile. For providers with existing networks, the break-even analysis of a wireless venture could be viewed from a slightly broader economic perspective. In Canada, Verizon could leverage its U.S. network, similar to how Hutchison effectively operates one network for Sweden/Denmark, but its entire investment return would have to come from wireless.

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Again, this implies that Verizon would need a relatively higher wireless share to make it work. Verizon may also need to push a low cost back-office model: Another theme with recent global wireless challengers is that they have typically taken a very low cost approach. For example Yoigo, which launched in Spain in late 2006, outsources almost its entire business, while Iliad mostly sells through the internet. Although Verizon may push a premium model in Canada, it may also need to be somewhat creative with costs and 'in-source' as much as possible to its U.S. operations. Owing to its already strong brand, it may try to increasingly leverage the web for distribution. Overall a fourth carrier is not always successful but if VZ commits we believe they would have the tools and financial capacity to make an impact: A fourth carrier does not necessarily mean that incumbent wireless financials will be materially compromised, it just sets the preconditions. Indeed, new entrants in Canada, and smaller carriers in similar markets such as Australia and U.S., have had challenges competing successfully in a wireless environment where network scale is becoming increasingly important. That said, we believe that if VZ commits to Canada, through its neighboring network infrastructure, financial capacity, and North American scale advantages it would have a higher chance of being a real competitive 'Maverick'. Global Responses: In our research, we have found that there are a number of common themes on how incumbents have responded to competition. The first is pricing. Even if Verizon does not decide to enter the market with highly discounted prices, we still expect it to be creative with its pricing options (i.e. North American roaming). In other markets where challengers have gained subscriber momentum, it has inevitably led to pricing responses, which could put Canadian ARPU at risk if Verizon were to gain traction. Other response strategies have included cost cutting, focus on four-play bundles, incumbent partnerships and greater emphasis on global operations. The lack of global diversity is perhaps where Canadian telco's are most vulnerable given they do not have international operations. Investment view: If Verizon ultimately does commit to Canada, we would be very cautious on the sector as we believe Verizon would have the capacity to meaningfully disrupt the market. By our analysis we believe the market is already pricing in a moderate competitive scenario for incumbents, consisting of limited subscriber growth through 2020 and mid-single digit ARPU declines. There is likely further downside risk to stock prices if Verizon ultimately decides to enter Canada as sentiment weakens and as the market builds in some probability of more accelerated financial declines. Unfortunately, the over-hang could persist for some-time, both leading up to a renewed launch and as the incumbents become financially impacted. Conversely, we believe cable providers would benefit as both a defensive and potential take-out play.

Canadian Telecom

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A Global Perspective - Healthy Wireless Markets Require Scale

Wireless is a high fixed cost business and scale is important. The relationship is evident in Exhibit 1 that compares the service revenue share for North American, European and Australian carriers vs. their respective EBITDA margins. A strong fourth carrier in Canada would obviously risk market shares and margins.
Exhibit 1: Service Revenue Share vs. EBITDA Margins
60% 50% 40% 30%

Telus

Rogers

Bell

EBITDA Margin

20%
10%

0%
0% -10% 10% 20% 30% 40% 50% 60% 70%

-20%
-30%

Service Revenues Market Share

Source: Company data, Credit Suisse estimates

Given the importance of scale, it is not surprising to see that many global wireless markets are converging globally to three facility based carriers. By our estimates, of the 34 broader OECD markets, only about a third have four or more major facility based carriers and those markets are often skewed to higher density markets.
Exhibit 2: OECD Wireless Markets: Number of Carriers by Population per Km Sq.
20 18
16 14 12 10 8 6 4 2 0 0 to 100 3 Carriers 100 to 200 4 or More Above 200 Penetration of 4 or More carriers 11 27% 4 4 30% 20% 10% 4 50% 50%

60%

36%

40%

7 4

0%

Source: Company data, Credit Suisse estimates

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Consolidation is often the end-game for four carrier markets If a strong new competitor emerges in Canada, the country would be moving against the direction of most OECD markets, which have increasingly had consolidation activity as opposed to expansion. For example, within the sub-segment of 4 carrier markets, there are only four OECD markets that are adding facility based carriers but up to nine that have carriers consolidated or contemplating a sale.
Exhibit 3: Market Direction of Major Carriers in Four Carrier Countries
7 6

5
4

2 1 1 2 1 1 1 1 1 1 1 4 3 3 3 3 3 3 3 4 4 3 3 3 1 1

3 2 1 0 4 4

Existing Carriers

New Carriers

Existing Carriers Exiting

Potential Exiting Carriers

Source: Company data, Credit Suisse estimates

Hutchison Telecom, one of the leading developers of new wireless networks globally over the past decade, has alone merged its Australian asset with Vodafone in 2009, agreed to acquire competitors in Ireland (pending) and Austria (approved), and has recently been vocal about its interest to consolidate in Italy and other European markets. The issue for Canada is that consolidation may not be a playbook option for industry players old or new down the road, if the stated goal of four carriers is not loosened. As a result, the entry of Verizon, or another strong competitor, could cause permanent market dislocation. In fact, that very risk may weigh on any new entrants decision to enter the Canadian market. Business case of a fourth entrant for existing players or the patient brave Interestingly, within the four OECD markets that are currently dealing with new entrants, such as Netherlands, Chile, Israel and France, almost all of the challengers are existing cable carriers or wireline ISP's. In our view, this highlights how challenging it is to start a network in a mature industry from the ground-up. Even with infrastructure and subscriber advantages it is not easy. For example, cable provider Tele2 in Netherlands has had launch delays of its 4G network, currently planned for 2014, while cable provider VTR in Chile has recently indicated after only a year of network investments, that it will likely switch back to an MVNO arrangement. In Canada, Shaw communications also struggled with the wireless business model. When reviewing new entrants over the past decade that have been committed and gained some traction, we note most of them are still well below 15% revenue and subscriber market share, which speaks to how long it can take to gain scale and profitability. We note that Iliad in France, which has been successful with particularly disruptive pricing, is an exception having only operating for over a year and gained almost 10% subscriber share.

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Exhibit 4: New Entrants Current Market Shares

20% 18% 16% 14% 12% 10% 8% 6%

Most New carriers do not appear to significantly exceed 15% market share even 10 years after launch

4%
2% 0% Hutchison Italy Launched 2003 Hutchison Hutchison Hutchison Hutchison UK - Hutchison Hutchison Yoigo Spain - Iliad France Austria Denmark Sweden - Launched 2003 Australia Ireland Launched 2006 Launched 2012 Launched 2003 Launched 2003 Launched 2003 Launched 2003* Launched 2005 Subscriber Share Revenue Share Average Chile New Tele2 Entrants (3 Netherlands Carriers) - Launching 2014 Launched 2012

Source: Company data, Credit Suisse estimates * Pre 2009 merger with Vodafone

Four is not the New Three Whether the Canadian Government should be going out of its way to bring a strong fourth player into Canada is debatable, but that level of competition does not appear to be a natural state for most wireless markets, where scale is becoming increasingly important. In our view, the entry of a strong carrier such as Verizon into Canada, would contribute to Canada shifting from one of the more investable wireless markets globally, to one with some of the higher downside risks.

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Wireless Disruption Precedents

In this section we take a closer look at wireless markets that have had disruptions, ranging from regulatory or new entrant catalysts. The examples, among other insights, highlight how sensitive markets can be towards negative events. While not all new entrants are successful at challenging incumbents, those that are committed for the long-term can create a long-term overhang on the sector, or worse, immediate and meaningful competitive pressure.

France Entry of Iliad in 2012

France is among one of the most recent OECD markets to experience a new facility based operator, and the impact on the wireless market has been significant, contributing to double digit revenue and EBITDA declines and meaningful equity erosion. Iliad adds wireless to existing wireline 3-play Iliad, a successful wireline provider in France, launched a facility-based wireless service in early 2012 after gaining spectrum in 2009. The carrier offered wireless plans that undercut incumbents with plans that included data and unlimited voice & long distance, in bundles as low as 19.99. The prices were well below the existing market rates of 30-40, which had already been lowered in advance of the competition. Despite having a SIM-only offering and with distribution almost exclusively online, Iliad has gained about 6 million subscribers (10% of French subscribers) in just over a year. Market Cap Meltdown As highlighted by our European Analysts, in their June 14 2013 note French telecoms Are we there yet? the market disruption of Iliad has contributed to significant equity declines. "Since Iliad won its mobile license in December 2009 there has been a significant shift in the equity value of the stocks, with Iliads market cap doubling to 9bn, while the market cap of the incumbents has almost halved from 85bn to 46bn. Overall, the equity value of the French telcos has fallen from 89bn to 55bn since Iliad won its license, a nearly 35bn fall."
Exhibit 5: French Telecom Market Capitalization 2009 to 2013
$100,000 m $90,000 m $80,000 m $70,000 m $60,000 m $50,000 m $40,000 m

$30,000 m $20,000 m
$10,000 m $12/18/2009 6/18/2010 12/18/2010 ORANGE 6/18/2011 Bouygues S.A. 12/18/2011 Vivendi 6/18/2012 Iliad S.A. 12/18/2012 6/18/2013

Source: Bloomberg, Company data, Credit Suisse estimates

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Financial Challenges Financially, in order to protect subscriber share incumbents gradually responded by lowering prices, as highlighted in the exhibits below. (We note the absolute ARPU declines were also impacted by economic challenges, MTR declines and roaming regulations).
Exhibit 6: French Telecom ARPU
$45 $40 $35 $30

Exhibit 7: French Telecom ARPU Growth (Y/Y)

0% Q1.11 Q2.11 Q3.11 Q4.11 Q1.12 Q2.12 Q3.12 Q4.12 Q1.13 -5% -10%

-15%
-20% -25%
Q1.11 Q2.11 Q3.11 Q4.11 Q1.12 Q2.12 Q3.12 Q4.12 Q1.13 Orange France SFR Bouygues Telecom Iliad

$25
$20 $15

-30%

Orange France

SFR

Bouygues Telecom

Source: Company data, Credit Suisse estimates

Source: Company data, Credit Suisse estimates

Despite the competitive responses and stimulation of the market, Iliad has essentially picked up all of the industry subscriber growth since its launch in early 2012, as highlighted in the exhibit below. For incumbent France Telecom, annual churn rose from 25% in 2010 to 28% in 2013, only partly offset by higher (and more costly) gross additions.
Exhibit 8: Net addition chart below/plus subscriber market share chart
3.00 m 2.50 m 2.00 m

Iliad has claimed majority of subscriber growth since launch

1.50 m
1.00 m 0.50 m -

(0.50) m
(1.00) m Q3.11 Q4.11 Orange France Q1.12 SFR Q2.12 Bouygues Telecom Q3.12 Iliad Q4.12 French MVNOs Q1.13

Source: Company data, Credit Suisse estimates

Not surprisingly, due to the revenue and costs pressure, EBITDA margins have declined by an average of 300 bps for the French incumbents and EBITDA by an average of 17% y/y in 2012. Lessons from France Each global market is unique, and there are several regulatory, competitive and economic factors that are contributing to the financial declines in France. The scenario however, is

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illustrative of how wireless markets can be meaningfully impacted by strong new entrants (even if Verizon ultimately chooses a different strategy than Iliad). Given the impact to-date of low cost operator Iliad in France, the natural question is why Wind and Mobilicity have not had better success to-date in Canada. In our view, Iliad had three advantages: It had existing customers and infrastructure from its existing wireline service; Iliad signed a 3G roaming agreement with France Telecom that allowed to offer its competitive price offerings on a national basis (not just within urban zone); iPhones were compatible on its network.

As we discuss later, should Verizon decide to commit to the Canadian market, we believe Verizon would have its own competitive advantages to be successful.

Belgium Contracts eliminated in 2012

Belgium has not had a new facility based carrier, but it has had a mix of regulatory and competitive changes that also illustrates how quickly wireless markets can come under pressure. Belgium has been impacted by a couple of recent events including: New regulatory rules introduced in mid-2012 that effectively forbid contracts beyond 6 months, and; The launch of simplified and competitive wireless plans by Telenet, a cable provider operating under an MVNO agreement, which included additional discounts to existing cable providers.

The two developments have increased market churn and market prices for the incumbents, contributing to an acceleration of mobile revenue declines in 2013, as highlighted in the exhibit below.
Exhibit 9: Belgium Wireless Service Revenue Growth Y/Y
10%

5%

0%

-5%

-10%

-15%
Q1.12 Q2.12 Q3.12 Proximus Mobistar Q4.12 KPN Base Q1.13 Q2.13

Source: Company data, Credit Suisse estimates

Mobistar, the only pure play wireless operator in Belgium without fixed operations, has indicated that it sees itself at a disadvantage in the new regulatory environment as it does not have fixed-line services to offset wireless pressure or to help subsidize mobile.

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Lesson from Belgium The first is again to reiterate how relatively stable markets can quickly turn weaker from higher churn and ARPU pressure. The second is to highlight how the strategic value of four-play bundles may become increasingly important in Canada should Verizon enter.

Spain Yoigo entry in 2006

Yoigo is a low cost Spanish wireless operator majority owned by Swedish based TeliaSonera, It launched as the fourth facility based network in Spain in late 2006 after several initial delays. The network offered simple low cost wireless plans, leveraging the web for distribution and relying heavily on outsourcing in fact the company typically operated with less than 100 employees. Spain was viewed as an attractive opportunity owing to its relatively high ARPU at the time (vs. other European countries). The initial losses of Yoigo were higher than anticipated, in part due to higher churn as the network ramped up. Over-time Yoigo began to gain subscriber traction, helped in part by a very challenging economy that motivated consumers to switch to Yoigo's low cost offering and other MVNO offerings. Gradually, as highlighted in Exhibit 10, the incumbents have reacted with their own pricing declines and lower cost offerings.
Exhibit 10: Spain ARPU Trends
40 35 30 25 20

15
10 5 0 Q2.07 Q4.07 Q2.08 Q4.08 Q2.09 Q4.09 Vodafone Q2.10 Q4.10 Orange Spain Q2.11 Q4.11 Q2.12 Q4.12 Telefonica Yoigo (est)

Source: Company data, Credit Suisse estimates

After six years of operation, Yoigo has now reached 7% of subscribers, and by our estimates has captured approximately 60% of industry net additions over that time. Said another way, since Yoigo's launch the incumbents have only grown at 40% of the country's subscriber CAGR of 2.1% y/y and has actually trended worse in recent years, with subscriber losses in 2012.

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Exhibit 11: Share of Spain's Net Additions Since Q4.06

Telefonica, 1,101
Vodafone, 376

Yoigo, 3,730 Orange Spain, 1,343

Source: Company data, Credit Suisse estimates; Adjusted for accounting deactivaitons

Yoigo reportedly reached break-even after ~5 years, although margins are still tight, with EBITDA margins of 8% in 2012. Despite the relative success, TeliaSonera, the majority owner has for some time considered a strategic sale of the asset, previously indicating that while it was pleased with the execution it believed it could make higher returns in emerging markets with lower investments, although a sale has been pulled off the market for now. Lessons from Spain Again, the Spanish market is very different than Canada and the country is dealing with unemployment levels that would make any business venture challenging. Nonetheless, the scenario highlights: How long it can take for a new entrant to reach profitable scale even with a very low cost base. Even with some relative success and scale, the returns from launching a network are not necessarily that strong, as evident by the low EBITDA margins and TeliaSonera's strategic reviews on the asset. Finally, it highlights that for Verizon to make an entry into Canada work, it may need to lean on it U.S. infrastructure, such as call-center and operations more than expected, similar to how Yoigo outsourced a large component of its business. Verizon may also decide to leverage the website distribution channel as much as possible.

Hutchinson 3
Hutchinson has been a significant investor in wireless networks across developed markets over the past decade Outside of Iliad and Yoigo the main new wireless challengers in OECD countries have been led by conglomerate Hutchinson Whampoa's global telecom operations, which have launched (with partner investors in some cases) a fifth carrier in the UK and a fourth carrier in Austria, Sweden/Denmark, and Italy in 2003. The company's subsidiaries also launched a fourth network in Australia in 2003 and in Ireland in 2005. Europe Long-term commitment and still seeking scale In Europe, Hutchinson tended to a take a long-term, network based strategy with a focus on launching 3G networks that were slightly ahead of the industry curve in some markets. Consistent with the more premium network and challenger position, the company typically targeted heavier users with attractive voice bundles (that according to the company in the

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UK reduced prices by up to 30% for mid-to high users), while also offering creative new data plans. Reflecting the high cost of investments, it took Hutchison roughly seven years (until 2010) for the European group to be profitable. More specifically, even with a relatively strong network in the UK (a joint venture was established with T-Mobile in 2007) its subscriber share in 2012 was still at 12%, and owing to its smaller scale, EBITDA margins were 11%. Not surprisingly, in Europe Hutchinson has been pushing to gain greater scale through M&A, recently acquiring networks in Austria, Ireland (approval pending) and has been in talks in Italy. Australia Incumbent Network Scale Hard to Overcome In 2009, Hutchinson also decided to merge its Australia wireless network with Vodafone, combining the #4 and #3 carriers, respectively, into a 50/50 joint venture. Separately the carriers struggled to compete against the stronger networks established by Telstra and Optus, which had 41% and 35% market shares, respectively. Despite having revenue and subscriber momentum at the time of the merger, Hutchinson still had only 9% subscriber share with 2008 EBITDA margins of 12%, and a reported net loss of over $160 million. As such, network scale was an important driver of the consolidation. In 2008, Hutchinson's network only covered 57% of the population with its 3G network, and relied on a roaming agreement (initially only in 2G) for the remainder of the country. It was reported during the regulatory review of the merger that Hutchison would still require substantial investments in its network capacity in order to continue to compete aggressively against its larger peers, which it would be unlikely to do alone. In short, the increasing demands of data and network strength of the leaders was too difficult to overcome as a fourth challenger. Lessons for Canada As Hutchinson has demonstrated in Europe, the investment horizon is long and often ultimately requires consolidation to require the necessary scale to fully compete. In Australia, it appears Telstra and Optus were able to manage the challengers by leveraging its stronger network, as incumbents have done to-date in Canada. The risk in Canada is if Verizon is patient enough and/or is willing to sufficiently invest to build out a stronger network required to support rising data demands. If Verizon does invest in a premium network, we do not expect it to be an easy financial decision (as illustrated in Australia) and it would likely need market share to offset that investment.

Summary Verizon Strategy

While each wireless market has different industry dynamics, the global examples highlight: Wireless networks require significant financial investments and take time to reach scale if Verizon does see an opportunity in Canada, we believe the required investments will require a reasonable market share. A committed player can create an overhang a market for some time. Successful competition can also create the tail-risk for acute financial pressure. We'd expect VZ to try and keep costs as much as possible to a minimum, by focusing more heavily in urban markets, leveraging its neighboring infrastructure (similar to Hutchinson' common network in Sweden & Denmark) and to in-source a lot of costs to its U.S. base.

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Canada Conundrum
In this section we look at the structural challenges of Verizon entering Canada, the likely responses from incumbents and valuation sensitivities.

Verizon would be Maverick to Balanced Market

Canada is somewhat unique in that all three national carriers have relatively high market revenue shares, with Rogers the highest at ~39% and Bell the lowest at 30% as of Q1.13. While those shares have been shifting, highlighting the competitive dynamics in market, it does structurally support rational competition. A fourth carrier, does not guarantee strong competition if the new entrant cannot gain sufficient spectrum or build a strong enough network, among other requirements. Indeed, the challenges of the smaller new entrants in Canada are well documented, as are the increasing network scale advantages of VZ/AT&T in the U.S. and Telstar/Optus in Australia, which have similar geographical markets to Canada.
Exhibit 12: U.S. Revenue Market Share
40% 35%

Exhibit 13: Australia Revenue Market Share

50% 45% 40% 35% 30% 25% 20% 15%

30%
25% 20% 15% 10%

Scale has been an advantage for Verizon and AT&T, causing consolidation and investments in smaller carriers

Vodafone/ Hutchison still struggle post merger to over come brand perceptions/small er network

5%
0% Verizon AT&T Sprint Nextel T-Mobile MetroPCS Leap (Softbank (AT&T (Acquired by Wireless Investment) acquisition T-Mobile) (Agreeement denied) to be Acquired by AT&T)

10% 5% 0% Telstra Optus Vodafone/Hutchison

Source: Company data, Credit Suisse estimates

Source: Company data, Credit Suisse estimates

Our concern if Verizon commits to Canada is that we expect them to be both a fourth carrier and to have the financial capacity to be a successful 'maverick' in the market.

Potential Response to Challengers

In response to a strong competitor such as Verizon, we expect Canadian carriers to compete aggressively. Based on our analysis of other global markets, incumbents have taken a variety approaches in dealing with challengers: Pricing lever often used: In most markets, if the new entrant was successful at gaining subscriber share, incumbents eventually use pricing levers to defend. Even if Verizon does not come to the market with aggressive price discounts, any subscriber momentum it gained would likely eventually lead incumbents to defend with price declines. Additionally, with a more unbalanced market, long-term discipline becomes harder to achieve. Restructuring: Not surprisingly with increased margin pressure, cost efficiencies increasingly became an important tool to manage new entrant pressure, and we'd expect cost initiatives in Canada to accelerate under such a scenario.

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Partnerships: Domestic joint ventures also become increasingly important, as other markets have reverted to joint procurement arrangements and increased network sharing. Canada already seems advanced in this regards with the Bell/Telus network sharing and Rogers partnership with Videotron and Manitoba Telecom. In theory, Rogers could look to network share with the new entrant, but we believe the risk from the network facilitation would far outweigh the revenue upside. Roaming becomes a Prisoner's Dilemma: France Telecom signed a 3G roaming agreement with Iliad that provided it with an estimated 1 billion euros in revenues over six years, although that has helped Iliad gain share quickly. Similarly, Telenet has signed an MVNO agreement in Belgium with Mobistar that has allowed it to gain strong share. While roaming is mandatory in Canada, the extent to which Rogers or another carrier works with Verizon on a broader roaming agreement will be important. Bundles are Increasingly Leveraged: Globally the ability to offer subscriber bundles across fixed services was important for both defensive and offensive reasons. Defensively, carriers offered more attractive bundle packages to protect subscribers and offensively to target the new entrant's fixed services if they were already in the market. Canadian incumbents won't have similar a pressure point on Verizon, but we expect them to push hard on bundles, which could give them a competitive advantage, but also hurt its overall profitability. Ultimately, we believe the ability to offer quad play becomes increasingly important, which could be a catalyst for further wireless/cable consolidation. Leveraging Global Assets: Finally, many global carriers when faced with domestic pressures, leaned on other international markets for growth. Unfortunately, Canadian incumbents do not have any other market exposure.

Sensitivities
Risk of Limited Subscriber Growth Today the incumbents have roughly 21 million postpaid subscribers, which represent roughly 80% of all Canadian wireless subscribers and the bulk of the incumbent wireless revenues. The growth rate of this segment has been gradually decelerating, but it has still been increasing at a pace of 5-6% y/y. By comparison, we estimate Wind/Mobilicity has roughly 3% of overall Canadian wireless subscribers and that these are mostly prepaid or lower value postpaid. Based on its U.S. business model, we expect Verizon to be more interested in Canada's postpaid segment. By using some basic assumptions on market growth and penetration gains, it suggests that incumbent subscriber growth over the mid-term would be limited. For example, as highlighted in Exhibit 14, assuming a gradual decline in market growth as the industry matures and VZ reaching 15% share by 2020, the incumbents would collectively gain as many subscribers between 2015-2020 (1 million) that they currently do annually.
Exhibit 14: Postpaid market Growth 2011 2012 Available Postpaid Subs 19,679 20,814 Y/Y Growth 6% 6%
VZ Postpaid Subscribers VZ Postpaid Penetration Incumbent Net Subscribers 1,108 1,135 2013E 21,855 5% 1,041 2014E 22,729 4% 874 2015E 23,638 4% 591 2.5% 318 2016E 24,584 4% 1,229 5% 307 2017E 25,567 4% 1,918 8% 295 2018E 26,334 3% 2,633 10% 51 2019E 27,124 3% 3,390 13% 33 2020E 2015-2020 27,938 5,209 3% 4,191 15% 14 4,191 1,018

Source: Company data, Credit Suisse estimates

Assuming the bulk of the losses were from higher churn losses and not lower gross additions, it would imply a roughly 20bps increase in monthly churn, not inconsistent with

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what we have seen in France. For perspective, all else the same, we estimate such a scenario for a carrier such as Rogers (receiving a third of incumbent net additions), would imply 7% decline in wireless valuations and 5% overall. ARPU risk more concerning We don't expect Verizon to be as disruptive with pricing as Iliad has been to the French market, but we do expect it to be creative with its pricing to gain share, likely leveraging its North American roaming advantage and/or equipment subsidies. However, as we have previously commented, if competition is gaining subscriber traction, it eventually leads to industry price cuts. The re-pricing of the base is harmful to financials. For a carrier such as Rogers, we estimate every 1% y/y step-down in ARPU can lead to a 2% y/y change in EBITDA and 3% impact to valuation. As one reference, given Verizon may push a North American roaming plan, we estimate postpaid ARPU's in Canada are in the mid-$60's range and that roaming represents 5-7% of service revenues. Therefore, a 50% cut in roaming revenues, would alone result in a 3% decline in ARPU all else the same. Market Appears to be Pricing in a Moderate Competitive Scenario from VZ Overall, a simple scenario that assumes limited subscriber growth through 2020 and a one-time ARPU decline of 5% y/y, would impact our valuations for Rogers and Telus by roughly 20% and 10% for BCE. It would bring our valuations to stock prices at or slightly below current market prices, suggesting the market is already pricing in such a moderate competitive scenario. The implied scenarios would effectively take our Rogers wireless EV/EBITDA multiples to 6.0x from 7.0x currently, and for Telus and Bell to 7.0x from 8.0x. As we have demonstrated, however, new entrants can have a more meaningful impact on financials. As a result, multiples could be further compressed to reflect the generally weaker sentiment on the sector and risk that financials declines do accelerate. As we highlight below, telecom carriers Telus and Bell have previously traded as low as 5.0x, while some European telecom providers, in more challenging competitive, economic and regulatory environments, have traded as low as 4.0x.
Exhibit 15: Historical Canadian Telecom valuation
11.0x
10.0x 9.0x 8.0x 7.0x 6.0x 5.0x

4.0x 1/11/2008

1/11/2009 BCE-CA

1/11/2010 T-CA

1/11/2011 SJR.b-CA

1/11/2012 RCI.b-CA

1/11/2013

Source: Company data, Credit Suisse estimates

Long-term Overhang Finally, if Verizon decides to enter Canada, it could create a long-term over-hang by impacting stocks both before it launches a renewed service and should it eventually gain

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traction in the market. As highlighted in Exhibit 16, stocks such as Rogers and Telus underperformed from the time the existing new entrants announced their intentions in late 2007 until they ultimately acquired spectrum in 2009.
Exhibit 16: Relative Performance of Canadian Wireless Carriers after New Entrants Announcement

30% 20% 10% Initial relative downside at time of new wireless auction annoucement was -5% to -9% for Telus and Rogers respectively. Troughed at 20% before auction closed

Wireless auction close saw stocks improve before market crash helped drive relative gains higher

0%
-10% -20% -30% -40%

-50% 11/14/2007

1/14/2008

3/14/2008

5/14/2008 Telus Corp.

7/14/2008

9/14/2008

Rogers Communications Inc. Cl B

Source: Company data, Credit Suisse estimates

S&P/TSX Composite

Subsequently, Rogers stock also became more volatile around increased ARPU pressure, driven by both the Bell/Telus HSPA expansion and the impact of new entrants. As such, while the Canadian stocks have already reacted by up to 10% on the threat of Verizon, the sector could still underperform for over the mid-term if the carrier ultimately commits.

Investment View
Fundamentally, we have been constructive on Canadian wireless, owing to a rational competitive market, structural growth in data usage, and pricing plans that leverage that increasing data usage. A new major competitor to Canada such as Verizon would obviously be a major risk and would cause us to be more cautious on the sector. More specifically by stock: Rogers has the highest risk owing to its wireless market share, particularly with highend smartphones and business accounts, and with wireless representing approximately two-thirds of its valuation. Telus has similar wireless exposure in its valuation. As a result, expectations may have to be reset further with a Verizon entry, but we like the fact it is the only incumbent in Western Canada with the ability to offer four-play bundles. Telus also has a strong balance sheet at under 2.0x net debt/EBITDA, providing it capital return flexibility (including buying back shares at lower stock prices) and recent growth in its wireline business. BCE has less wireless exposure at roughly 38% of its NAV, which would shelter the stock to some degree. On the other hand, BCE has been relying on wireless growth to drive its overall growth as it continues to have high exposure to legacy wireline. Cable stocks (Shaw Neutral, Quebecor O/P, Cogeco Not Rated) could outperform, as they become a more defensive sector and potentially have more take-out speculation, as four-play bundles become more important.

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Companies Mentioned (Price as of 06-Aug-2013)

AT&T (T.N, $35.48) BCE Inc. (BCE.TO, C$42.55, NEUTRAL, TP C$45.0) Belgacom (BCOM.BR, 18.175) Bouygues (BOUY.PA, 22.43) Cogeco Cable (CCA.TO, C$49.36) Hutchison Whampoa (0013.HK, HK$91.65) Iliad (ILD.PA, 181.5) KPN (KPN.AS, 1.981) Leap Wireless (LEAP.OQ, $16.5) Mobistar (MSTAR.BR, 10.52) Orange (ORAN.PA, 7.279) Quebecor, Inc. (QBRb.TO, C$47.0, OUTPERFORM, TP C$52.0) Rogers Communications (NVS) (RCIb.TO, C$41.44, NEUTRAL, TP C$50.0) Shaw Communications (NVS) (SJRb.TO, C$25.47, NEUTRAL, TP C$24.0) Singapore Telecom (SGT.AX, A$3.37) Sprint Nextel Corp (S.N^G13, $7.18) T-Mobile US Inc (TMUS.N, $24.06) TELUS Corporation (T.TO, C$31.32, OUTPERFORM, TP C$40.0) Tele2 AB (TEL2b.ST, Skr83.9) Telefonica (TEF.MC, 10.78) Telenet (TNET.BR, 37.285) TeliaSonera (TLSN.ST, Skr47.01) Telstra Corporation (TLS.AX, A$5.07) Verizon Comm (VZ.N, $50.09) Vivendi (VIV.PA, 15.96) Vodafone Group (VOD.L, 198.15p)

Disclosure Appendix
Important Global Disclosures
I, Colin Moore, CFA, certify that (1) the views expressed in this report accurately reflect my personal views about all of the subject companies and securities and (2) no part of my compensation was, is or will be directly or indirectly related to the specific recommendations or views expressed in this report.
3-Year Price and Rating History for BCE Inc. (BCE.TO)
BCE.TO Date 04-Nov-10 10-Dec-10 11-Feb-11 10-May-11 13-May-11 03-Nov-11 03-May-12 08-Aug-12 04-Feb-13 08-Feb-13 10-May-13 Closing Price (C$) 33.80 36.09 35.90 36.97 37.87 39.49 40.31 44.30 44.34 44.29 47.83 Target Price (C$) 32.00 34.00 35.00 36.00 37.00 38.00 39.00 42.00 43.00 44.00 45.00

Rating N

N EU T RA L

* Asterisk signifies initiation or assumption of coverage.

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3-Year Price and Rating History for Quebecor, Inc. (QBRb.TO)

QBRb.TO Date 09-Nov-10 10-Mar-11 11-Aug-11 15-Mar-12 09-Apr-12 14-Mar-13 Closing Price (C$) 37.29 35.39 31.47 35.93 38.66 43.66 Target Price (C$) 39.00 40.00 38.00 40.00 48.00 52.00

Rating N

* Asterisk signifies initiation or assumption of coverage.

N EU T RA L O U T PERFO RM

3-Year Price and Rating History for Rogers Communications (NVS) (RCIb.TO)
RCIb.TO Date 27-Oct-10 09-Jan-12 25-Apr-12 02-Oct-12 24-Oct-12 04-Feb-13 19-Feb-13 23-Apr-13 16-Jul-13 Closing Price (C$) 37.05 38.86 36.81 39.86 42.43 46.55 48.49 50.28 42.06 Target Price (C$) 42.00 42.00 40.00 44.00 46.00 50.00 52.00 52.00 50.00

Rating O N O

N
O U T PERFO RM N EU T RA L

* Asterisk signifies initiation or assumption of coverage.

3-Year Price and Rating History for Shaw Communications (NVS) (SJRb.TO)
SJRb.TO Date 21-Oct-10 29-Nov-10 30-Jun-11 12-Jan-12 16-Apr-12 02-Oct-12 10-Jan-13 08-Apr-13 01-Jul-13 Closing Price (C$) 23.45 20.78 21.99 20.20 19.67 20.31 23.07 24.41 25.24 Target Price (C$) 24.00 25.00 26.00 25.00 23.00 21.00 22.00 23.00 24.00

Rating N O

* Asterisk signifies initiation or assumption of coverage.

N EU T RA L O U T PERFO RM

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3-Year Price and Rating History for TELUS Corporation (T.TO)

T.TO Date 06-Aug-10 08-Nov-10 15-Dec-10 14-Feb-11 06-May-11 07-Aug-11 10-Feb-12 03-Aug-12 02-Oct-12 04-Feb-13 19-Feb-13 10-May-13 Closing Price (C$) 20.60 22.85 23.60 23.75 25.96 25.82 28.15 31.58 31.34 33.44 34.66 37.51 Target Price (C$) 19.75 22.00 23.00 23.50 25.00 27.00 28.00 30.00 34.00 35.00 37.00 40.00

Rating N

O
N EU T RA L O U T PERFO RM

* Asterisk signifies initiation or assumption of coverage.

The analyst(s) responsible for preparing this research report received Compensation that is based upon various factors including Credit Suisse's total revenues, a portion of which are generated by Credit Suisse's investment banking activities

As of December 10, 2012 Analysts stock rating are defined as follows:

Outperform (O) : The stocks total return is expected to outperform the relevant benchmark*over the next 12 months. Neutral (N) : The stocks total return is expected to be in line with the relevant benchmark* over the next 12 months. Underperform (U) : The stocks total return is expected to underperform the relevant benchmark* over the next 12 months.
*Relevant benchmark by region: As of 10th December 2012, Japanese ratings are based on a stocks total return relative to the analyst's coverage universe which consists of all companies covered by the analyst within the relevant sector, with Outperforms representing the most attractiv e, Neutrals the less attractive, and Underperforms the least attractive investment opportunities. As of 2nd October 2012, U. S. and Canadian as well as European ratings are based on a stocks total return relative to the analyst's coverage universe which consists of all companies covered by the analyst within the relevant sector, with Outperforms representing the most attractive, Neutrals the less attractive, and Underperforms the least attractive investment opportunities. For Latin American and non -Japan Asia stocks, ratings are based on a stocks total return relative to the average total return of the relevant country or regio nal benchmark; Australia, New Zealand are, and prior to 2nd October 2012 U.S. and Canadian ratings were based on (1) a stocks absolute total return potential to its current share price and (2) the relative attractiveness of a stocks total return potential within an analysts coverage universe. For Australian and New Zealand stocks, 12 -month rolling yield is incorporated in the absolute total return calculation and a 15% and a 7.5% threshold replace the 10-15% level in the Outperform and Underperform stock rating definitions, respectively. The 15% and 7.5% thresholds replace the +10-15% and -10-15% levels in the Neutral stock rating definition, respectively. Prior to 10th December 2012, Japanese ratings were based on a stocks total return relative to the a verage total return of the relevant country or regional benchmark.

Restricted (R) : In certain circumstances, Credit Suisse policy and/or applicable law and regulations preclude certain types of communications, including an investment recommendation, during the course of Credit Suisse's engagement in an investment banking transaction and in certain other circumstances. Volatility Indicator [V] : A stock is defined as volatile if the stock price has moved up or down by 20% or more in a month in at least 8 of the past 24 months or the analyst expects significant volatility going forward. Analysts sector weightings are distinct from analysts stock ratings and are based on the analysts expectations for the fundamentals and/or valuation of the sector* relative to the groups historic fundamentals and/or valuation: Overweight : The analysts expectation for the sectors fundamentals and/or valuation is favorable over the next 12 months. Market Weight : The analysts expectation for the sectors fundamentals and/or valuation is neutral over the next 12 months. Underweight : The analysts expectation for the sectors fundamentals and/or valuation is cautious over the next 12 months.
*An analysts coverage sector consists of all companies covered by the analyst wit hin the relevant sector. An analyst may cover multiple sectors.

Credit Suisse's distribution of stock ratings (and banking clients) is:

Global Ratings Distribution

Rating

Versus universe (%)

Of which banking clients (%)

Outperform/Buy* 42% (53% banking clients) Neutral/Hold* 40% (49% banking clients) Underperform/Sell* 15% (38% banking clients) Restricted 3% *For purposes of the NYSE and NASD ratings distribution disclosure requirements, our stock ratings of Outperform, Neutral, an d Underperform most closely correspond to Buy, Hold, and Sell, respectively; however, the meanings are not the same, as our stock ratings are determined on a relative basis. (Please refer to definitions above.) An investor's decision to buy or sell a security should be based on investment objectives, current holdings, and other individual factors.

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Credit Suisses policy is to update research reports as it deems appropriate, based on developments with the subject company, the sector or the market that may have a material impact on the research views or opinions stated herein. Credit Suisse's policy is only to publish investment research that is impartial, independent, clear, fair and not misleading. For more detail please refer to Credit Suisse's Policies for Managing Conflicts of Interest in connection with Investment Research: http://www.csfb.com/research and analytics/disclaimer/managing_conflicts_disclaimer.html Credit Suisse does not provide any tax advice. Any statement herein regarding any US federal tax is not intended or written to be used, and cannot be used, by any taxpayer for the purposes of avoiding any penalties. Price Target: (12 months) for BCE Inc. (BCE.TO) Method: Our Neutral rating and Target Price of $45.00 for BCE is obtained primarily by using a discounted cash flow (DCF) analysis with a weighted average cost of capital (WACC) of 8.8% and a terminal growth rate of 0.0%. Our DCF is supported by peer multiple and NAV comparisons. Risk: The risk to our $45.00 price target for BCE is as follows; i) Cable telephony competition increases in its markets; ii) New Wireless competition is more aggressive than expected; iii) Bell's technology and quality of service deteriorates relative to its peers; iv) Technologies and products mature quicker than anticipated; iv) The economy weakens more than expected.

Price Target: (12 months) for Rogers Communications (NVS) (RCIb.TO) Method: Our $50 target price for Rogers Communications Inc. is based on sum-of-the-parts valuation for the business's operating divisions. Over 90% of our target enterprise value is accounted for by the wireless (65%) and cable (25%) divisions of the company. We use a discounted cash flow model (DCF) to establish EV/EBITDA (enterprize value/earnings before interest, taxes, depreciation and amortization) multiples (enterprise value divided by earnings before interest, taxes, depreciation and amortization)for valuation. In our DCF we use a 9% WACC (weighted average cost of capital) for both wireless and Cable and a 2% terminal year growth rate for wireless, given its strong growth profile and 1% terminal growth rate for cable given its relatively more mature profile. Risk: The risks that could lead to a shortfall in attaining our $50 target price for Rogers Communications Inc. can be categorized by the major operating divisions. Risks to the wireless segment include 1) a deterioration in the existing industry pricing structure, 2) the inability to maintain a competitive product offering (including advanced data services), 3) the emergence of effective substitutes for cellular based wireless technology, and 4) changes in government attitudes toward regulation of the industry. Risks to the cable segment include 1) the success of newly launched VoIP telephony, 2) migration of customers to an all-digital format, 3) changes in government attitudes toward regulation of the industry, and 4) the ability to maintain an effective product offering as compared to competing providers for television, telephony, and internet service.

Price Target: (12 months) for TELUS Corporation (T.TO) Method: Our target price of C$40.00 is based on discounted cash flow (DCF) analysis of TELUS' segments (Telus Mobility and Telus Communications). Our DCF assumptions are a weighted average cost of capital (WACC) of 9.0% and a terminal growth rate of 1.0%. Risk: We see several risks to TELUS attaining our C$40.00 target price: (1) Competition a higher than expected churn rate from loss of wireless subscribers (current and potential) to other wireless competitors, thereby impeding T.TOs ability to realize a growing trend in average revenue per user (ARPU); (2) Economic risk - a high exposure to wireless demand can leave the company vulnerable to unfavourable effects on wireless demand during weaker than expected economic times; (3) Potential regulatory risk in the telecommunications sector; (4) Potential for future labour disputes leading to increased capital expenditure; (5) Higher than expected cost cutting in the wireless division.

Price Target: (12 months) for Quebecor, Inc. (QBRb.TO) Method: Our target price of C$52.00 is based on a mix of a NAV and DCF. Our NAV is derived by applying a holding company discount to the sum of the valuations derived for the major segments of QBRb.TO. We use a 7.0x EV/EBITDA multiple for cable, a 4.0 EV/EBITDA (enterprise value/earnings before interest, taxes, depreciation and amortization) multiple for newspapers. QMI also owns TVA Group (36%), which is valued at market. Finally, a holding company discount of 10% is applied. Our Discounted Free Cash Flow (DCF) analysis is derived using an 8% weighted average cost of capital and a 1% terminal growth rate. Risk: The following are risks to our QBRb.TO target price of C$52.00: a) Subscriber trends a declining subscriber trend or an increasing trend in churn rate would put downward pressure on QMIs cable, internet and, telecommunications margin growth; b) Economy weak economic trends would adversely affect demand for entertainment related consumption of books, magazines and music, thereby weaken sales potential for QMI operations in this area; c) Greater online secular shift in online video; d) Greater than expected wireline voice secular decline; e) Significant additional investments in media or wireless infrastructure; f) Secular risk from print to digital migration.

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Price Target: (12 months) for Shaw Communications (NVS) (SJRb.TO) Method: Our target price of $24.00 is based on discounted cash flow (DCF) analysis of SJRbv.TOs segments (Satellite and, Cable). Our DCF assumptions over an 11 year period for Satellite are: a) StarChoice - a weighted average cost of capital (WACC) of 10.0% and a terminal growth rate of 0.0%; b) Cancom a WACC of 9.0% and a terminal growth rate of 1.0%. The DCF assumptions for Cable are WACC of 9.0% and a terminal growth rate of 1.0% over an 11-year period. Risk: Risks to SJRb.TO's achievement of our $24.00 target price are 1) Competition loss of subscribers (current and potential) resulting in a downward trend can lead to an increase in churn rates, thereby reducing SJRb.TOs ability to realize a steady stream of average revenue per user (ARPU) growth; 2) Higher than expected demand for cable telephony service has the potential to increase capital expenditures at a rate faster than the rate of profit margin growth; 3) Potential regulatory risk in the cable sector 4) Increased competition from IPTV

Please refer to the firm's disclosure website at www.credit-suisse.com/researchdisclosures for the definitions of abbreviations typically used in the target price method and risk sections.
See the Companies Mentioned section for full company names

The subject company (T.TO) currently is, or was during the 12-month period preceding the date of distribution of this report, a client of Credit Suisse. Credit Suisse provided non-investment banking services to the subject company (T.TO) within the past 12 months Credit Suisse expects to receive or intends to seek investment banking related compensation from the subject company (RCIb.TO, T.TO, QBRb.TO) within the next 3 months. Credit Suisse has received compensation for products and services other than investment banking services from the subject company (T.TO) within the past 12 months

Important Regional Disclosures

Singapore recipients should contact Credit Suisse AG, Singapore Branch for any matters arising from this research report. The analyst(s) involved in the preparation of this report have not visited the material operations of the subject company (BCE.TO, RCIb.TO, T.TO, QBRb.TO, SJRb.TO) within the past 12 months Restrictions on certain Canadian securities are indicated by the following abbreviations: NVS--Non-Voting shares; RVS--Restricted Voting Shares; SVS--Subordinate Voting Shares. Individuals receiving this report from a Canadian investment dealer that is not affiliated with Credit Suisse should be advised that this report may not contain regulatory disclosures the non-affiliated Canadian investment dealer would be required to make if this were its own report. For Credit Suisse Securities (Canada), Inc.'s policies and procedures regarding the dissemination of equity research, please visit http://www.csfb.com/legal_terms/canada_research_policy.shtml. As of the date of this report, Credit Suisse acts as a market maker or liquidity provider in the equities securities that are the subject of this report. Principal is not guaranteed in the case of equities because equity prices are variable. Commission is the commission rate or the amount agreed with a customer when setting up an account or at any time after that. To the extent this is a report authored in whole or in part by a non-U.S. analyst and is made available in the U.S., the following are important disclosures regarding any non-U.S. analyst contributors: The non-U.S. research analysts listed below (if any) are not registered/qualified as research analysts with FINRA. The non-U.S. research analysts listed below may not be associated persons of CSSU and therefore may not be subject to the NASD Rule 2711 and NYSE Rule 472 restrictions on communications with a subject company, public appearances and trading securities held by a research analyst account. Credit Suisse Securities (Canada), Inc. ............................................................................................................... Colin Moore, CFA ; Robert Peters For Credit Suisse disclosure information on other companies mentioned in this report, please visit the website at www.creditsuisse.com/researchdisclosures or call +1 (877) 291-2683.

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Investment principal on bonds can be eroded depending on sale price or market price. In addition, there are bonds on which investment principal can be eroded due to changes in redemption amounts. Care is required when investing in such instruments.
When you purchase non-listed Japanese fixed income securities (Japanese government bonds, Japanese municipal bonds, Japanese government guaranteed bonds, Japanese corporate bonds) from CS as a seller, you will be requested to pay the purchase price only.

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