título do documento

CS Global Media & Communications Convergence Conference

Pedro Ripper Strategic Planning &New Business Director

June 10, 2009

Investor Relations Tele Norte Leste Participações S.A.

Agenda

2

Brazilian Telecommunications Market 2

Oi: Profile and Results 8

Expectations for the Future and Strategy 13

Investor Relations | 3

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% of

Brazilian 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*

• Inflation under 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 developed

countries in terms of economy growth

Brazil assumes increasing importance in the international economic environment


Brazilian Telecom Sector

98

State-owned monopoly

Lack of investments

Low quality of services

Huge pent-up demand in fixed and mobile

Incipient Internet

Pre-Privatization

Post-Privatization

Current Scenario

Multiple players

Focus on universal and quality of services

Expansion of fixed and mobile

GSM launch

Broadband start-up

Focus on competition

Consolidation

Mature fixed; mobile and broadband as growth drivers

Convergence in early stages

Launch of 3G

03

09

Sector’s Evolution


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 significant lower 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

Dec07 Dec08

7.7

10.6

ADSL Cable & Others

• Continuous expansion in 2008 (38%)

• 3G changes the industry’s 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 by the 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 National Market Share - Mobile Users

* Also operates Long Distance and Data Transmission Nationally

Full Integrated

52%52% 21%21%

New Oi*

National

Embratel (Telmex) Claro (Am. Moviles)

Region IV

26%26%

Mexican Group

14%14%

National

• New Oi (Oi + BrT)

− 33%

• Telefónica + Vivo

− 29%

• Claro + Net + Embratel

− 24%

• TIM: 12%

• Others: 2%

Revenues market-share

March/09

TIM

23%23%

(Mobile only)

National

Telefonica

28%28%30%30%

Region III

Spanish Group*

Vivo (JV TEF+PT)

National


Agenda

8





Source: Anatel and Companies; * December/2008

• Pioneer in m-payment

Globenet• 22,000 km of

submarine cable linking Brazil, Venezuela, Bermuda and USA

ISP/Portal• Largest Brazilian

ISP

• 4 cities (cable)• Future national

DTH operations

Belo Horizonte

Uberlândia

Poços 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

4º

• 52%

• 4.8 th.

• 21%

• 2.3 th.

• 38%*

• 1.9 th.

1º

1º 1º

1º

1º

21.8

Cities*

share Brazil

31.8Total

Domestic Coverage

3.9

Investor Relations |

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)

10

Oi - Operating Highlights

Revenue Generating Units

Revenue Generating Units (Million)

1Q09

Broadband FixedMobile

0.06*

57.7

* Oi TV clients (Video)

0.06*

200820072006

Total RGUs

Million, Users

55.9

45.6

41.7

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)

11

Consolidated Gross Revenues

R$ million

1Q08 1Q09

10,43111,242

3.6%

1Q08

7.8%

28.4%

Consolidated EBITDA – Oi (TNE)

R$ Million; Margin %

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 São Paulo and acquisition of Amazônia Celular

• Standardization of Oi’s and BrT’s accounting practices

Fixed Mobile


Oi – Financial Highlights

Consolidated CAPEX and Debt

Revenue Generating Units (Million)

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

• 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)


Agenda

13





• Launch of new services– Mobile– Long distance– Broadband– ISP

• Counter attack against new 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 regional operations

• Fixed network expansion to fulfill regulatory obligations

Integration and obligations

New businesses and competition

Competition increasing and consolidation

99

02

04

Key points

Oi’s Recent Evolution and Strategy

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

14


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 IPTV broadcasting and/or to buy cable companies through approval of:- PL #29 and/or- New auction for cable licenses

• Auction for WiMax frequency bands

• Increase of Internet penetration• Mobile reaching maturity with increased

VAS relevance • Increase of Pay TV penetration

Competition• Strong competition in mobility (traffic) with

portability and 3G• 3G becomes an alternative access for

broadband retail

• More competition in broadband with 3G/4G and 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

15


Growth levers

New clients

New markets

Share

ARPU

New services

• Increase market share

• Increase ARPU

•Geographical expansion

• New services and business

• Include new clients

GEOGRAPH

Y

SERVICES

CLIE

NTS

Lower income

Telecom Other business

Higher income

Region I

Brazil

International

Related to telecom

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


Include new services in a convergent portfolio

• Differentiation as the only player with integrated and convergent services

• Launch of new services to strengthen Oi’s convergent position (e.g. Pay TV)

Include new clients with focus on low income segment

• Differentiation with innovative strategy for the low income segment

• Creation of new business models (e.g. no handset subsidies with sale of standalone chips)

17/23

Strategy

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

1

2


Pre-paid

•No handset subsidies: SIM card-only with free on net and fixed to mobile calls

•Broaden pre-paid recharge base through allowing recharges of R$1

•Bundles for premium customers

•Discount in services or credit instead of handset subsidies

•Fixed-Mobile convergent offering for the corporate

Post-paid

Strategy

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

Jan/07 Set/08

Oi

Others

Pre-paid customer base

Index, 100 = Jan/07, Brazil

Current strategy

Growth opportunities

•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

18

2 3


2007 2008 2009 2010/2011

Covered cities

Population (% Regions I and II)

GDP (% Regions I and II)

Oi’s fixed broadband coverage

% RI+RII

# (thou) = 87% of Brazil

= 77% of Brazil

Strategy

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

19

1


Strategy

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

A

1,3

With pay TV

Households per social economic segmentMillion 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

Without pay TV

Market profileOi´s movements in the Pay TV market

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

– Oi has developed expertise in the cable TV business (marketing, sales, operations, economics)

The launch of Oi’s satellite pay TV services focusing B/C segments in 2009 it is an opportunity to

– Exploit a large customer base that is not covered by the current players with a suitable offer

– Fulfill Oi’s convergence portfolio gaps

– Get scale to support the satrtegy of cost leadership

– Develop operational expertise

20

1


Strategy

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

Leader in broadband and dial up ISP Services (market share of 35% and 68%)

Vice-leader in the national portal business (audience only 8% lower than the national portal leader

Become the national leader monetizing its audience and leveraging sinergies with other businesses

Leverage new services such as online music and multiplatform advertising

Fulfill current gaps through partnerships and M&A opportunities

Exploit synergies with telco and other businesses

Exploit new payment opportunities

Operational focus on selected markets

Focus on partnerships to increase the acceptance and customer base

First and innovative mobile payment plataform in Brazil

– Strong synergies with Oi mobile business (data services platform, credit information, relationship)

– High upside potential related to credit card/electronic payment market dynamics

Internet business Mobile payment

Business profile

Challenges and strategy

21

1


2009EExpectations

39 millionOi MobileGrowth, especially in

Regions II and III

~R$600 mnSynergies 3.0% 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 differentiation

through convergence in a segmented

manner

• Portfolio integration and single brand2.0x

Net Debt/ EBITDA

Reduction

R$ 5 to 6 billion

CAPEX Reduction

~ 21.0 mnOi Fixed Slight reduction

4.5 millionOi Velox (Broadband)

Growth, especially in Region I

Strategy

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

3


Thank You !