Deutsche Bank - Equity Research

(Dick's note: in my opinion, the analysis provided by Paul at Deutsche
Bank is usually very well informed and factual. Verizon has been
suffering in the competitive markets it entered over the last few
years. Hey, competitive directory marketing is tough. The VZ brass
knows that they own perhaps the strongest directory publishing company
in the US. If they want the cash for growth markets, I could see them
selling off big chunks of this egg-laying goose.)


IF VERIZON PURCHASES SPRINT, VZ COULD RAISE CASH BY SELLING
SUPERPAGES

VZ's SuperPages has been aggressively launching new books into DEX's
and RHD's markets over the last three years. VZ's potential bid for
Sprint may create the need to raise cash, which then could lead to
the sale or partial sale of SuperPages. We think any new owner of
SuperPages would likely scale back the launch of new competitive
books and pull-back further than the already announced markets.

SINCE 2002, VERIZON HAS LAUNCHED 44 INDEPENDENT DIRECTORIES

Of the 44 competitive books launched since 2002, around 14 books
were introduced into DEX markets, representing (we est..) 41% of
DEX's revs and 8 of its top 10 markets. VZ launched books into 8 of
RHD's top 30 markets, representing approx. 19% of RHD revs. VZ has
already announced the retreat from 10 markets, including Atlanta,
Cleveland, Cincinnati and other markets in Ohio, Alabama, Kentucky
and Georgia.

STILL A LONG WAY TO GO BEFORE IT'S BENEFICIAL FOR THE YELLOW PAGES
INDUSTRY

Two major obstacles exist before this potential deal becomes a
positive for the YP industry, in our view. First, our telecom
analyst, Viktor Shvets, believes there are high regulatory hurdles
to a Verizon-Sprint combination. Second, cash could be raised from
selling local access lines (which has been discussed) instead of
SuperPages.

CONTINUE TO PREFER DIRECTORIES TO NEWSPAPERS

We think the newsflow will be incrementally positive for the YP
companies, as they continue to build out their online presence,
while the incremental news for the newspapers is likely negative. We
now slightly prefer RHD to DEX due to its cheaper valuation, 7.7x
2005E EV/EBITDA (less NPV of tax shield) versus 8.0x. Also, the
expiration of DEX's lockup agreement is a month away on January 17th.

For more information, please click on the attached document.

Regards,
Paul Ginocchio, CFA
Deutsche Bank Equity Research
(212) 250-8463 - paul.ginocchio@db.com

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