1. General Body Meeting 10/6/10 1

2. Mutual Investment Club of Cornell Agenda  Announcements  Headlines  Tech Sector Conviction List  Telefonica Pitch 2

3. Mutual Investment Club of Cornell Goldman Sachs Junior Board  October 20 th 10:30AM  Location TBD 3

4. Mutual Investment Club of Cornell Buying shares  You are dropped as a junior analyst after today if you still have not invested 4

5. Mutual Investment Club of Cornell iGo Inc. Headline 5

6. Mutual Investment Club of Cornell iGo Update  iGo awarded Cisco Flip Video accesories  Flip Ultra has 13% camcorder market  Awarded new patents in September  Using primary side circuit  Individual outlet shut offs  Dual-USB charger  Earnings out 10/22 6

7. Mutual Investment Club of Cornell Macro Headlines 7

8. Mutual Investment Club of Cornell European Worries  Moody lowered Spain’s credit rating  AAA---Aa1  Growth expected to lag (1% for several years and 20% unemployment)  Gov’t proposed 7.9% budget cuts and increased taxes  Ireland expected be downgraded again in Jan  Credible cuts vs decreased tax revenue  Anglo Irish Bank Bailout-$46B (total $68B)

9. Mutual Investment Club of Cornell Japan  Central bank of Japan push rates to 0%  Bought $60B risky assets (corporate bonds, REITS)  Attempt to battle a strong Yen  Keep at virtually 0% until ends deflationary pressures  Expect Fed to engage in quantitate easing  Estimated in the area of $1 trillion

10. Mutual Investment Club of Cornell Energy Headlines 10

11. Mutual Investment Club of Cornell Hydraulic Fracturing  “Fracking” – the process in which natural gas is extracted by means of pressure-drilling a mix of water, sand, and chemicals more than a mile vertically and horizontally into the earth (99.5% sand and water,.5% chemical)  Currently used in more than 90% of 450,000 natural gas wells without any incident  Fracking is exempt from the Safe Drinking Water Act, which means it is currently not federally regulated  Debate: Does fracking end up polluting water, thereby harming plants, animals, and humans, during the release of chemicals?  EPA (Environmental Protection Agency) is doing a study to be completed in 2012 that will study the health and environmental effects of fracking

12. Mutual Investment Club of Cornell What This Means for Energy  It is estimated that 60-80% of new wells need fracking to remain viable  Ban on fracking will mean less reserves and higher natural gas prices  Possible step forward for other cleaner and greener technology (wind, solar)  However, because the report will come out in 2012, this will most likely not affect the companies that we currently invest in (something for current freshman and sophomores to look into ) 12

13. Mutual Investment Club of Cornell BP New Executive, New Outlook  New CEO Robert Dudley  Reorganization of firm’s exploration and production business into three divisions – exploration, development, and production  Improved Safety Standards – New Safety Division headed by Mark Bly with additional powers to oversee and audit the company’s operations; internal police force  Remains to be seen if the safety procedures will be implemented

14. Mutual Investment Club of Cornell Technology Sector Conviction List 14

15. Mutual Investment Club of Cornell BSQUARE (BSQR) Zach Peskin 15

16. Mutual Investment Club of Cornell BSQUARE - Overview  Expertise in embedded systems  Products:  TestQuest Pro: a test automation tool  SDIO Hx: integration of peripherals with smart devices  Expertise with hardware and software  Major project: Ford’s Synch

17. Mutual Investment Club of Cornell BSQUARE - Financials  Market Cap: $33.5 Million  Revenue: $75.5 Million  Gross Profit: $13.5 Million  Quarterly earnings growth: 1,041.7%  Cash per Share: $1.51  Zero Debt 17

18. Mutual Investment Club of Cornell BSQUARE – Catalyst  Ford (or other automobile maker) could acquire BSQR  BSQR finds another large customer 18

19. Mutual Investment Club of Cornell Verizon (VZ) Josh Lyons 19

20. Mutual Investment Club of Cornell Verizon Communications (VZ)  US-based communications services provider  Broadband, wireless, and wireline services  Over 91.2 million business, government, mass market, and wholesale customers  Wireless voice, data services and other value-added services, voice, internet access, broadband video and data, next generation Internet Protocol (IP) network services, network access, long distance and other services  Price at 10/5/2010, $33.57 (52wk range: 25.99-34.13)

21. Mutual Investment Club of Cornell Verizon Communications (VZ)

22. Mutual Investment Club of Cornell Investment Themes  Net Neutrality: power to the carriers  Joint Google + Verizon proposal  Mobile ISP internet to not be covered by guaranteed neutrality  Carriers able to discriminate on what content goes over their network  Potential to charge premium fees for access to premium online services  Tremendous power for cellular carriers to exploit high value users  Verizon, AT&T, etc, to no longer be a ‘dumb pipe’  Significant new revenue stream, the effect of which will be compounded by the continuing rise of mobile internet 22  Verizon to win the 4G war  First rollout of LTE  SIM-based technology  Largest, most stable network  Highest smartphone data rates  End of unlimited data  Rise of Android, CDMA iPhone  Android growth  Exclusive devices, Droid Series  Verizon iPhone in field test stages  Forecasted: January 2011  Projected 12m annual sales

23. Mutual Investment Club of Cornell Telefonica S.A. (NYSE: TEF) Samantha Dong Alex Friedman Shashank Samala Ali Yazdi John Yoshida 23

24. Mutual Investment Club of Cornell 24 LatAm Telecom Market

25. Mutual Investment Club of Cornell Telecom in Mexico  GDP: $1.09 trilliun; Population: 112 million  Mobile Penetration rate: 43%  Currently monopoly economy  Fixed line: 94% by Telmex (AMX)  Mobile: 80% by Telcel (AMX)  Growing competition from 3G spectrum auctions  Nextel got government wireless license 25

26. Mutual Investment Club of Cornell Telecom in Brazil  GDP: US$ 1.58 Trillion; Population: 192 million  Mobile Penetration rate: 90.55% 26

27. Mutual Investment Club of Cornell More Opp. in Brazil Market 27

28. Mutual Investment Club of Cornell Brazil – Market Trend  Mature local fixed voice  Lower traffic per terminal (FMS in traffic)  Continued expansion in mobile market  Strong competition  Strong market evolution: pre-paid (naked SIM card) market  Broadband growth accelerating  Competition in areas that concentrate high-end clients  3G changing dynamics of industry 28

29. Mutual Investment Club of Cornell Fixed lines Vs. Mobile 29

30. Mutual Investment Club of Cornell Why Not AMX? 30

31. Mutual Investment Club of Cornell AMX Overview  Leading telecom provider  Biggest in Mexico, second in Brazil  Wireless, Fixed line, broadband, etc.  Pitched Sep 2008  Strong presence in Latin America.  Looking for a long term investment: 1-2 years  Price Target at end of 1 year: $60 (22.4% gain) 31

32. Mutual Investment Club of Cornell Performance 32 $ 48.61 $ 54.29  12% return after 2 years

33. Mutual Investment Club of Cornell Breakdown 33 1 As of June 2010

34. Mutual Investment Club of Cornell Recent News – Integrated Service  Fixed line in Mexico: Telmex  Fixed line in Brazil: Telmex Internacional (Embratel), NETC 34

35. Mutual Investment Club of Cornell Brazil  Wireless: Claro  26% market share, 46.9 million wireless subscribers  Embratel (TII) – Claro (AMX) Merger  Represent 85% of total synergies: cost reduction  Synergies are offset by premium paid  Decreased Revenue forecasts by elimination of intercompany transaction 35

36. Mutual Investment Club of Cornell What We Don’t Like  Focus on less attractive markets  Mexican Market Growing competition potential hurts AMX  Fixed Line Market  Weaker presence in Brazil wireless market  Stock Valuation 36

37. Mutual Investment Club of Cornell Why TEF? 37

38. Mutual Investment Club of Cornell Company Overview  One of the world’s largest telecommunications companies by market cap. (115.66B)  Activities include fixed and mobile telephony businesses, while its broadband business is the key growth driver underpinning both.  Growth strategy is focused on the markets in which it has a strong foothold: Spain, Europe and Latin America 38

39. Mutual Investment Club of Cornell Market Size Globally 39

40. Mutual Investment Club of Cornell Latin American Market Telefonica Latin America Fixed telephony accesses = 24,514.90 Internet and data accesses = 7,911.50 Mobile accesses = 141,822.20 Pay TV = 1,735.40  Total accesses = 176,102.80 Top Latin American Countries (% of total accesses)  Brazil – 71,353.90 (40.54%)  Argentina – 22,396.90 (12.72%)  Mexico – 18,687.50 (10.61%) 40

41. Mutual Investment Club of Cornell European Market Telefonica Europe Fixed telephony accesses = 3,563.7 Internet and data accesses = 4,382.4 Mobile accesses = 45,217.00 Pay TV = 194.10  Total accesses = 54,541.60 Top Telefonica Europe Countries (% of total accesses)  UK – 22,255.6 (40.80%)  Germany – 22,006.90 (40.35%)  Czech Republic – 7,672.00 (14.07%) 41

42. Mutual Investment Club of Cornell Spain Market Telefonica Spain Fixed telephony accesses = 13,663.90 Internet and data accesses = 5,823.0 Mobile accesses = 23,879,10 Pay TV = 747.80  Total accesses = 47,117.90 42

43. Mutual Investment Club of Cornell Total Accesses by Market 43 * Total Accesses in Thousands

44. Mutual Investment Club of Cornell Brazil’s Operations in 2009 44

45. Mutual Investment Club of Cornell Telefonica/Vivo Deal  Jul 28 – Bought Portugal Telecom’s 60% stake in Vivo, Brazil’s largest wireless company, for EUR 7.5B, adding to its’ 40% stake before the deal  Strengthened position in the booming Brazilian market EPS and FCF accretive from 2010: +€3.5bn impact in net income in 2010 derived from the business combination achieved in stages in Vivo  €2.3/2.7bn1 from operating synergies and benefits from Telefónica’s management model  Additional €1/1.5bn1 savings from financial and tax synergies (so total of about 4bn saved due to synergies)  Limited Impact on leverage (0.3x) 45

46. Mutual Investment Club of Cornell Telefonica/Vivo Revenues 46  First half of 2010: Brazil TEF Revenues – 4.877B EUR, of which 1.825B EUR from Vivo and the rest from Telesp.  Second half of 2010 est. - From the acquisition and assuming 5% growth, expected second half revenues – 7.67B EUR, of which 4.62 B EUR from Vivo.

47. Mutual Investment Club of Cornell Brazil Market Cont. 47

48. Mutual Investment Club of Cornell Some stats on Vivo  Vivo reported 56.0 million accesses at the end of June 2010, increasing its customer base by 19.6% year-on-year.  First-half wireless data revenue increased 70.2% year-on-year, 81.5% in the second quarter. Data revenues now account for 17.4% of service revenues (+6.3 percentage points year-on-year) 48

49. Mutual Investment Club of Cornell EWZ Vs. TEF 49 Vivo Acquisition

50. Mutual Investment Club of Cornell Financials and Valuation 50

51. Mutual Investment Club of Cornell Ratio Analysis TEFAMXIndustry Market Cap: 115.66B110.04B5.37B Gross Margin (ttm): 59.18%57.06%59.18% P/E (ttm): 10.4115.0813.3 EV/EBITDA 6.028.9n/a P/B 4.195.19n/a Current Ratio 0.631.6n/a Dividend Yield 6.30%0.50%n/a 51  Potentially undervalued  Liquidity Concern: $70 billion net debt  Dividend Yield Source: Yahoo! Finance

52. Mutual Investment Club of Cornell Valuation: December 2010  Comparable 1 52 P/E 2010E Vodafone Group PLC10.9 Telefonica10.2 America Movil13.0 Deutsche Telekom15.2 France Telecom8.9 Average11.64 X EPS 2010E7.38 Price85.90  Comparable 2 P/S 2010E Vodafone Group PLC1.7 Telefonica1.4 America Movil2.8 Deutsche Telekom0.7 France Telecom0.9 Average1.5 X Sales/Share 2010E52.10 Price78.16  Analyst Consensus: 81.60 Source: morningstar, yahoo! finance

53. Mutual Investment Club of Cornell European Exposure 53

54. Mutual Investment Club of Cornell European Presence 54

55. Mutual Investment Club of Cornell Revenue Breakdown by Country 55 Spain: €19.703Bln UK: €6.512Bln Germany: €3.746Bln Czech Republic: €2.260Bln Ireland: €905Mln Source: CapitalIQ

56. Mutual Investment Club of Cornell Visualization 56 Source: CapitalIQ

57. Mutual Investment Club of Cornell Risk Factors  General European Competition  Spain Questions  EUR Exposure 57

58. Mutual Investment Club of Cornell TEF Performance vs. Euro 58

59. Mutual Investment Club of Cornell Euro Correlation 59 Strong Correlation to Euro (EUO is shown-Proshares UltraShort Euro) Remedies: 1) Options 2) Buy EUO

60. Mutual Investment Club of Cornell Technical Analysis 60

61. Mutual Investment Club of Cornell Quan  eam Analytics 61

62. Mutual Investment Club of Cornell Quan  eam Analytics 62

63. Mutual Investment Club of Cornell Quan  eam Analytics Using 300 days of past data the Z-scores follow:  BollingerBands= 0.88  MACD= 2.14  RSI= 1.78  Aggregating these we get an average Z-score of: 1.60 0-----------------Median--------------TEF-1  This means that conditional to the past 300 days of data, TEF is at the upper 6% of its evaluation range. 63

64. Mutual Investment Club of Cornell Quan  eam Analytics 64 Enter trade at $70-71 range to take advantage of suspected correction

65. Mutual Investment Club of Cornell Conclusion 65

66. Mutual Investment Club of Cornell Proposal  Thesis  Best position in growing Brazil mobile market Company focus shift towards Latin America  More attractive valuation than AMX and other competitors  High Dividend Yield SOLD AMX, BUY 29 shares of TEF with limit $71 OPTIONS? 66

67. Mutual Investment Club of Cornell Quan  eam Analytics The Call The Put

68. Mutual Investment Club of Cornell Quan  eam Analytics The Hedge

69. Mutual Investment Club of Cornell Vote 69

70. Mutual Investment Club of Cornell Thanks for coming by 70