ri cs global media comunications cof jun09 ripper

7/29/2019 RI CS Global Media Comunications Cof Jun09 Ripper

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CS Global Media & Communications

Convergence ConferencePedro RipperStrategic Planning &New Business Director

June 10, 2009

Investor Relations Tele Norte Leste Participaes S.A.


2/23

Agenda

Brazilian Telecommunications Market 2

Oi: Profile and Results 8

Expectations for the Future and Strategy 13


3/23

Investor Relations |

Brazil Snapshot

Source: ANATEL, IBGE, Teleco, ML Wireless, UNCTAD and Internet World Stats; *FOCUS Report Brazilian Central Bank

Land Area

8.5 million Km2 (e.g: England=3% ofBrazilian area)

Population

190 million inhabitants

56 million households (85% urban)

Economy

GDP: US$ 1.5 Trillion (2008)

GDP per capita PPP: US$ 7.7 thousand

Currency: US$ 1,00 = R$ 1.95 (May/09)

Brazil in Numbers

2009 10th economy in the world

Declining interest rates, although still

one the highest worldwide

Selic: 13.75% in December 2008;

10.25% current; 9.0% 2009E*

Inflationunder control for more than a

decade

CPI: 5.9% in 2008; 4.33% 2009E*

During the recent crisis, Brazil has been

more resilient than main developedcountries in terms of economy growth

Brazil assumes increasing importance in the international economic environment


4/23


Brazilian Telecom Sector

98

State-owned monopoly

Lack of investments

Low quality of services

Huge pent-up demand infixed and mobile

Incipient Internet

Pre-Privatization

Post-Privatization

Current Scenario

Multiple players

Focus on universal andquality of services

Expansion of fixed andmobile

GSM launch

Broadband start-up

Focus on competition

Consolidation

Mature fixed; mobileand broadband asgrowth drivers

Convergence in earlystages

Launch of 3G

03

09

Sectors Evolution


5/23Investor Relations |

Performance of the Brazilian Market Fixed and Mobile


Fixed Market

Million, Lines in Service

Dec07 Dec08

39.4 41.3

After being stable from 2002-06, the fixed market had a

slight growth in the past 2 years due to new entrants

(specially high-end and SMEs)

Incumbents share losses to new entrants at significantlower pace as compared to developed markets

Penetration 51% of households

Mobile Market

Million, Mobile Users

Market has accelerated growth in 2008, but started 2009

at a lower rhythm (22% in 1Q09 vs 23% in 1Q08).

Net additions of 3.0 mn in 1Q09 are 37% below 1Q08

due to the clean-up of subscribers base

Naked sim card continues as national trend

Penetration 81% of inhabitants

38.8

Dec06

38.8

Dec02 Dec07 Dec08Dec06Dec02 Mar09

121.0

150.6

99.9

34.9

153.7

Mar09

41.9

CAGR06-08: 3.1%

CAGR06-08: 22.8%



Performance of the Brazilian Market Broadband and Pay-TV


Broadband Market*

Million, Users

4,3 5,67,0 7,3

1,32,1

3,0 3,20,6

3,1

Dec07 Dec08

7.7

10.6

ADSL Cable & Others

Continuous expansion in 2008 (38%)

3G changes the industrys dynamic: 3G data cards

as major trigger for a new wave of growth in 1Q09

Fierce competition in areas that concentrate high-

end clients and falling ARPU

Penetration of 18% of households (fixed broadband)

5.6

13.6

Dec02 Mar09

Pay-TV Market

Million, Users

Dec07 Dec08

5.36.3

Strong pent-up demand (still of high cost service)

Cable-TV accounts for 63% and DTH for 33% of

the acesses

3.6

6.6

Dec06 Mar09

* Fixed broadband offered by 6 ADSL, 2 main cable, 1 main DTH, 11 major radio and other smaller providers. Mobile broadband offered bythe 4 major mobile players ; ** Pay-TV is offered by 7 major providers in Brazil and other smaller companies.

Dec06

0.6

3G Data Cards

4.6

Dec02

CAGR06-08: 37.6% CAGR06-08: 17.0%



Competition: Main Telecom Groups in Brazil

Market Share of Wireline and Wireless Subscribers and Revenues March 2009

National Market Share - Fixed Lines in Service NationalMarket Share - Mobile Users

* Also operates Long Distance and Data Transmission Nationally

Full Integrated

52% 21%

New Oi*

National

Embratel (Telmex) Claro (Am. Moviles)

Region IV

26%

Mexican Group

14%

National

New Oi (Oi + BrT)

33%

Telefnica + Vivo

29%

Claro + Net + Embratel

24%

TIM: 12%

Others: 2%

Revenues market-share

March/09

TIM

23%

(Mobile only)

National

Telefonica

28%30%

Region III

Spanish Group*

Vivo (JV TEF+PT)

National



Agenda






Source: Anatel and Companies;* December/2008

Pioneer in m-payment

Globenet

22,000 km ofsubmarine cablelinking Brazil,Venezuela,

Bermuda and USA

ISP/Portal

Largest BrazilianISP

4 cities (cable)

Future nationalDTH operations

BeloHorizonte

Uberlndia

Poos de

Caldas Barbacena

58 million clients (RGUs)

28% of total clients in Brazil

Higher group in revenues, with 33% of all revenues in the sector

Businesses and Domestic Footprint

The New Company: Businesses and SubscribersMillions; March/09

Pay-TV Other businessesFixed Mobile Broadband

13.8

8.0

25.9

6.0

2.1

1.94

52%

4.8 th.

21%

2.3 th.

38%*

1.9 th.

1

1 1

1

1

21.8

Cities*

share Brazil

31.8Total

Domestic Coverage

3.9



14.7% of Fixed Lines in Service in Region I and

23.1% in Region II

Focus of investments, mainly in Region I, where the

numbers of cities covered accounts for just 14% of

total (versus 80% in Region II)

Oi - Operating Highlights

Revenue Generating Units

Revenue Generating Units (Million)

16.5 20.3

30.0 31.82.4

3.1

3.922.8

22.2

22.0

3.8

22.0

1Q09

Broadband FixedMobile

0.06*57.7

* Oi TV clients (Video)

0.06*

200820072006

Total RGUs

Million, Users

55.9

45.6

41.7

3.4 3.5 4.8 5.0

13.1 16.8

25.2 26.9

2006 2007 2008

16.520.3

30.031.8

1Q09

Mobile Mix

Million, Users

Pre-paid

Post-paid

Broadband



Oi - Financial Highlights:

Consolidated Gross Revenue and EBITDA (R$ billion)

1

Consolidated Gross Revenues

R$ million

8,663 8,972

1,768

2,270

1Q08 1Q09

10,431

11,242

3.6%

D1Q08

7.8%

28.4%

Consolidated EBITDA Oi (TNE)

R$ Million; Margin %

2,585

185

1Q08 1Q09 Rec.

35.7% 31.7%

Non-recurring items

2,377

Recurring EBITDA MarginNon Recurring items in 1Q09:

Consultancy firms expenses

related to BrT operation

End of subsidies deferral to

retail post-paid handsets

(related to end of the fine**)

Integration with BrT

Non Comparable items in 1Q09

vs 1Q08:

Start-up in So Paulo and

acquisition of Amaznia Celular

Standardization of Ois andBrTs accounting practices

Fixed Mobile


12/23Investor Relations | 1

Oi Financial Highlights

Consolidated CAPEX and Debt

Revenue Generating Units (Million)

1.0 0.8

3.8

0.1 0.4

2.8 2.9

0.70.5

3.5

1Q09

FixedMobile

0.8

200820072006

Consolidated CAPEX

Million, Users

7.3

3.73.8

1Q08

0.9

Consolidated Gross Debt

R$ Billion

Mar/08 Dec/08

9.0

20.5

Local Currency Foreign Currency

Hedge

Mar/09

25.9

Mar/08 Dec/08 Mar/09

Consolidated Net Debt

R$ Billion

5.216.0

21.1

2.8

4.0

4.1

0.7

1.1

0.5

19.2

9.8

2.5

Foreign exchange

exposure: 2.2%

Effective cost of

debt: 11.65%

(97% of CDI)

Net Debt/adjusted

EBITDA: 1.9x

12.1% of 1Q09

net revenue (vs

11.2% in 1Q08)

d


13/23Investor Relations | 1

Agenda

1




Oi R t E l ti d St t


14/23


Launch of new services

Mobile

Long distance

Broadband

ISP Counter attack againstnew entrants

Customer segmentation

Fast growth and network

expansion of Mobile

Broadband

Service convergence

New services

Pay TV

Mobile payment

M&As and consolidation Integration of regionaloperations

Fixed networkexpansion to fulfillregulatory obligations

Integration andobligations

New businesses andcompetition

Competition increasing andconsolidation

99

02

04

Key points

Ois Recent Evolution and Strategy

In the last 10 years Oi has faced important challenges and focused on its incumbentRegion to sustain its growth

1

F t e e io


15/23


Future scenario

Long term

Regulation Auction for 4G frequency bands

Regulation of new pro competitive actions

(PGR)

Mobile Interconnection Rates based on cost

models (VU-M)

Technology WiMax as possible access solution Next Generation Networks (NGN)

FTTX access becomes significant

Short term

Market

Incumbents permitted to provide IPTVbroadcasting and/or to buy cable companiesthrough approval of:

- PL #29 and/or- New auction for cable licenses

Auction for WiMax frequency bands

Increase of Internet penetration

Mobile reaching maturity with increasedVAS relevance

Increase ofPay TV penetration

Competition Strong competition in mobility (traffic)with portability and 3G

3G becomes an alternative access forbroadband retail

More competition in broadband with 3G/4Gand WiMax

New competition with alternatives ways of

access

Continuation of main trends

- Consolidation

- Slight reduction in fixed lines

- Mobile and broadband as growth drivers

Fixed companies launching DTH services

Triple Play Quadruple Play

The short and long term market evolution bring some challenges

1

Strategy


16/23


Growth levers

Newclients

Newmarkets

Share

ARPU

Newservices

Increase market share

Increase ARPU

Geographical expansion

New services andbusiness

Include new clients

Lowerincome

Telecom Otherbusiness

Higherincome

Region I

Brazil

International

Related totelecom

Growth strategies

Organic growth

Mergers and acquisitions

2

1

3

Strategy

To face the future scenario and the limited outlook for long-term expansion,Oi decided to analyze the adoption of new growth levers

Strategy


17/23


Include newservices in aconvergentportfolio

Differentiation as the only player with integrated and

convergent services

Launch ofnew services to strengthen Ois convergent

position (e.g. Pay TV)

Include newclients with focuson low income

segment

Differentiation with innovative strategy for the low

income segment

Creation ofnew business models (e.g. no handset

subsidies with sale of standalone chips)

16/2

Strategy

Oi decided to focus on strengthening its convergent offer and on its strongpresence at the low income segment

1

2

Strategy 2 3


18/23


Pre-paid

No handset subsidies: SIM

card-only with free on net

and fixed to mobile callsBroaden pre-paid

recharge base through

allowing recharges of R$1

Bundles for premium

customers

Discount in services or

credit instead of handsetsubsidies

Fixed-Mobile convergent

offering for the corporate

Post-paid

Strategy

The company adopted an aggressive strategy at the low income segment that nowrepresents a growth opportunity in the expansion to the other two Brazilian regions

80

90

100

110

120

130

140

150

160

Jan/07 Set/08

Oi

Others

Pre-paid customer base

Index, 100 = Jan/07, Brazil

Currentstrategy

Growthopportunities

Region II Pre-paid: leverage base through

the successful model of Region I

Post-paid: broaden convergent

offerings

Region III Focus on pre-paid though

aggressive offerings

Bundles with national long

distance

Corporate Leverage presence

with the national

coverage and

convergence

1

2 3

Strategy 1


19/23


2007 2008 2009 2010/2011

Coveredcities

Population(% RegionsI and II)

GDP

(% RegionsI and II)

Ois fixed broadband

coverage

33%

66%

84%

42%

72%

88%

61%

86%

95%

100%

100%

100%

% RI+RII

# (thou) 1,61 2,01 2,95 4,85 = 87%of Brazil

= 77%of Brazil

Strategy

In three years, Oi will consolidate its national leadership in the coverage ofbroadband services

1

1

Strategy 1


20/23


Strategy

Oi continued its expansion to new businesses with the acquisition of Way TV and thefuture launch of Satellite Pay TV services is an important market opportunity

A

1,3

Withpay TV

Households per socialeconomic segment

Million households

8,9

B

C

16,2

7,8

D

63%

24%

6%

1%

0,5 MM

6,8 MM

15,2 MM

7,7 MM

Withoutpay TV

Market profileOis movements in the Pay TV market

Acquisition of Way TV in 2006allowed Oi to become the firstquadruple-play company in Brasil(four cities)

Oi has developed expertise in thecable TV business (marketing, sales,

operations, economics)

The launch ofOis satellite pay TV servicesfocusing B/C segments in 2009 it is anopportunity to

Exploit a large customer base that is notcovered by the current players with asuitable offer

Fulfill Ois convergence portfolio gaps

Get scale to support the satrtegy of costleadership

Develop operational expertise

1

1

Strategy 1


21/23


Strategy

Internet and mobile payment are others key elements in this expansion to newbusiness

Leader in broadband and dial up ISPServices (market share of 35% and68%)

Vice-leader in the national portalbusiness (audience only 8% lower thanthe national portal leader

Become the national leader monetizingits audience and leveraging sinergies

with other businesses Leverage new services such as online

music and multiplatform advertising

Fulfill current gaps through partnershipsand M&A opportunities

Exploit synergies with telco and otherbusinesses

Exploit new payment opportunities

Operational focus on selected markets

Focus on partnerships to increase theacceptance and customer base

First and innovative mobile paymentplataform in Brazil

Strong synergies with Oi mobilebusiness (data services platform,credit information, relationship)

High upside potential related tocredit card/electronic payment marketdynamics

Internet business Mobile payment

Businessprofile

Challengesandstrategy

2

1

Strategy 3


22/23

Investor Relations | 2

2009EExpectations

39 millionOi Mobile

Growth, especially in

Regions II and III

~R$600 mnSynergies3.0% of consolidated

operating costs/expenses

Synergies

Establishment of a national company from

two regional companies, which rapidly

captures potential synergies

Integration of the two companies

started since day zero

Management structure has already been

defined

Prioritize the identification of quick-

wins based on the best practices of each

company

Market

Reinforce the strategy of differentiationthrough convergence in a segmented

manner

Portfolio integration and single brand 2.0xNet Debt/EBITDA

Reduction

R$ 5 to 6billion

CAPEX Reduction

~ 21.0 mnOi Fixed Slight reduction

4.5 millionOi Velox(Broadband)

Growth, especially inRegion I

gy

Integration of BrT is a key point in the company strategy of expanding to newregions besides increasing operational and financial efficiency

3


23/23

Investor Relations | 22

Thank You !

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