Title: T
1Brazil 2009 - UBS Pactual Tenth Annual CEO
Conference March 18, 2009
15 Slides 30 Minutes
Investor Relations
2Agenda
Brazilian Telecommunications Market 2 Oi
Profile, Footprint and Strategy
5 Operational and Financial Results
11 Expectations for
the Future 18
1
3Brazilian Telecom Sector
Performance of the Brazilian Market
Fixed Market Million, Lines in Service
Mobile Market Million, Users
Broadband Market Million, Users
D
D
24.5
150.6
39.4
41.3
121.0
10.0
29.9
7.7
Dez07
Dez08
Dez07
Dez08
Dez07
Dez08
- Fierce competition in areas that concentrate
high-end clients - ADSL 70 of accesses
- Continuous expansion in 2008 (30), though below
3-year CAGR (33) and falling ARPU - 3G changes the industrys dynamic
- Penetration of 18 of households
- After being stable from 2002-06, the fixed market
has a slight growth in the past 2 years due to
new entrants (specially high-end and SME) - Incumbents continue to loose market-share
- Penetration 51 of households
- Market has accelerated growth in 2008 (24.5 vs
21.1 in 2007) - Net additions of 29.6 mn is 41 above 2007.
Pre-paid was the major growth driver due to naked
sim-card - Region I accounts for 49 of the Brazilian net
adds - Penetration 78 of inhabitants
2
4Competition Main Telecom Groups in Brazil
Market Share of Subscribers and Revenues -
December 2008
Telefonica
Telefonica
Vivo
Revenues market-share December/08
National
- New Oi (Oi BrT)
- 30
- Telefónica Vivo
- 29
- Claro Net Embratel
- 22
- TIM 12
- GVT 1
Region III
28
30
National Market Share of Fixed Lines in Service
National Market Share of Mobile Phone Users
Also operates Long Distance and Data
Transmission Nationally
3
5Agenda
Brazilian Telecommunications Market 2 Oi
Profile, Footprint and Strategy
5 Operational and Financial Results
11 Expectations for
the Future 18
4
6Ois Snapshot
Leader in telecom integrated solutions in RI, Oi
is ready to widen this leadership to the whole
country, with the acquisition of BrT
R billion
- Leader in integrated telecom solutions in the
country - Revenues Generating Units total almost 56 million
(fixed, mobile, ADSL/cable broadband accesses and
pay-TV - Strong execution culture in Region I, overcoming
targets - After the launch of new services in Region I,
leadership was always obtained in a very short
period of time - Highly qualified management team, focused on the
execution of the strategy established - Acquisition of Brasil Telecom meets the gap for
national coverage, and the need of scale in a
capital-intensive type of business - Oi now has a size which is comparable to its main
competitors - Sustained and long term shareholders value
proposition - Solid financial position
- Balance sheet balanced between growth businesses
(mobile/broadband) with cash cow services (fixed
line) - Debt amortization schedule compatible with cash
flow generation
CAGR 13.9p.a.
30.0
2.8x
R billion
CAGR 11.6p.a.
10.2
2.4x
Combined revenues. After eliminations (R242
mn), consolidated net revenue is R29.8bn
Recurring EBITDA Mobile leadership after
less than 3 years in the ISP, after 7 months
(broadband) and after 10 months (free dial-up)
7Businesses and Domestic Footprint
The New Company Businesses and
Subscribers Millions December/08
Pay-TV
Other businesses
Domestic Coverage
Fixed
Mobile
Broadband
- Pioneer in m-payment
- Globenet
- 22,000 km of submarine cable linking Brazil,
Venezuela, Bermuda and USA - ISP/Portal
- Largest Brazilian ISP
- Leading ISP in regions I and II
1º
1º
1º
Belo Horizonte
4º
1º
1º
Uberlândia
Poços de Caldas
Barbacena
22.0
30.0
Total
3.8
- 4 cities
- Future national DTH operations
share Brazil
Cities
- 56 million clients (RGUs)
- 28 of total clients in Brazil
- Higher group in revenues, with 30 of all
revenues in the sector
Source Anatel and Companies
6
8Data Backbone Footprint
Globenet and Metrored was brought by BrT to add
Oi footprint with Pegasus, transforming the
company in the biggest and most widespread
backbone nationwide
National and International Backbone
- The new company now has a total of
- 138th. Km of fiber optical cable
- 73 thousand km from BrT BrT/Metrored (51 th. Km)
and GlobeNet¹ (22 th. Km) - 65 thousand km from Oi
- 30.4 th. Km of metropolitan rings
- 8.4 thousand km from BrT and Metrored
- 22 thousand km from Oi
- Through the national and international backbone,
the new company can fight for the leadership of
corporate data segment
1. Globenet connects Brazil, USA, Bermuda and
Venezuela
7
9Strategic Guidelines
Fast integration of Oi and BrT
- Formation of a company with national footprint
from the integration of two regional companies to
capture synergies as quick as possible - Identification of quick wins aiming efficiency
improvements - Continuation of growth
- Opportunities in mobile markets in Regions II and
III, corporate data segment (nationwide) as well
as new businesses (e.g., video and internet) - Consolidate the leading position in the Brazilian
Telecommunication sector - Reinforce the strategy of differentiation through
convergence, with a segmented approach - Have a single and complete portfolio and a single
corporate approach to the market - Focus on cash generation aiming to reduce the
level of debt to 1.5 x EBITDA in 2011
8
10Operational Guidelines
To face the current market scenario, Oi aims to
utilize integration towards achieving the goal of
differentiation
- Quadruple play Expand Pay TV offering
- Cross sell and up sell
- Reduce churn
- Key element in the offering of integrated
services - Expansion of coverage, availability and speed
- 3G expansion nationwide
- Differentiated offers
- Sim-card only model very low acquisition cost
- Focus on bundled services for post-paid
- Use the biggest (and more widespread) national
data backbone to leverage corporate businesses - Leverage international data businesses through
Globenet
- Internal processes improvements
- Implementation of best practices
- Capture all synergies with BrT ASAP
11Agenda
Brazilian Telecommunications Market 2 Oi
Profile, Footprint and Strategy
5 Operational and Financial Results
11 Expectations for
the Future 18
10
12Revenue Generating Units
Strong RGU growth at Oi during 2008 the new
company is born with almost 56 mn clients
Revenue Generating Units (Million)
OI
RGUs Oi BrT Million
Oi
CAGR 18.9
40.4
31.7
0.06
- Acceleration of growth in the last 12 months to
27.4 - In the wireless segment, net additions reached
8.4 mn, being 1.0mn from TNCP and 2.0 mn through
the mobile start-up in São Paulo
28.6
55.9
0,06
2006
2007
2008
BrT
BrT
CAGR 8.8
15.5
- RGUs growth of 1.7 MM users in 2008, mainly
influenced by - 1.3 million mobile clients
- 238 th. broadband net additions users
13.9
13.1
2006
2007
2008
2008
Oi TV clients (Video)
11
13Oi - Financial Highlights
Consolidated Gross Revenue (R billion)
Brasil Telecom
Oi
CAGR 06-08
CAGR 06-08
24.3
25.1
27.2
Total
15.1
16.0
17.0
Total
Fixed
Fixed
Mobile
Mobile
2006
2007
2008
2006
2007
2008
- Data service as the main growth driver, boosted
by the higher ADSL customer base and migration
towards faster plans. It already accounts for
22.0 of total revenues (15 in 2006) - Traditional fixed revenues also stable (CAGR of
-1.2 from 2006 to 2007)
- Mobile segment as the main growth driver,
accounting for 23.5 of revenue (14.3 in 2006) - Stable revenues in the fixed. Broadband / Data
continue to offset lower revenues from local
traffic and public phones. It already represents
12.5 of revenues (10.4 in 2006).
12
14Oi - Financial Highlights
Consolidated EBITDA (R million)
Brasil Telecom
Oi
Recurring EBITDA in Bold
Recurring EBITDA in Bold
6,517
6,451
6,501
3,786
3,937
3,494
6,348
3,761
6,068
2006
2007
2008
2006
2007
2008
EBITDA Margin ()
36.2
37.1
32.4
EBITDA Margin ()
33.9
34.2
34.8
Recurring Margin ()
36.1
34.8
- Long Term EBITDA margin reduction due to higher
shares of mobile and broadband services - Accounting EBITDA was lower in 2008 mainly
influenced by non-recurring items (positive in
2007 R169 mn and negative in 2008 R383 mn),
the latter related to the purchased of BrT
- Consolidated EBITDA in 2008 includes a non
recurring positive effect of R 176 million, also
related to the acquisition of the company by Oi
13
15Oi - Financial Highlights
Net Income (R million)
Brasil Telecom
Oi
2006
2007
2008
2006
2007
2008
- 2007 results boosted positive non-recurring
results, better net financial results (R866mn
below 2006) and lower depreciation (R542 mn) - In 2008, the decline was caused by lower EBITDA
(non-recurring items and SP launch) and higher
net financial expenses over the unhedged portion
of debt
- 2007 results were benefitted by internal
initiatives to reduce costs, focus on
profitability in the mobile and lower
depreciation - 2008 results benefitted by higher EBITDA and
lower depreciation (-R369mn), which more than
compensated higher net financial expenses
(R104mn)
Reversal of labor contingencies (R265mn)
reversal of personnel provisions (R60mn)
regulatory provisions (-R95mn) BrT Deal
litigation fee to extinguish lawsuits related to
BrT deal (R 315 million) and consultancies and
legal counsel expenses related to this deal (R
41 million).
14
16Oi - Financial Highlights
Consolidated Capex (R billion)
CAPEX Billion
CAPEX in 2008
- Oi
- 84 in growth businesses 57 Mobile and e 27
Data/Broadband - BrT
- 53 in growth businesses 43 Mobile and 10
Data/Broadband - Extraordinary impacts in 2008
- Fixed infra-structure to enable portability
- Mobile 3G investments (Oi and BrT) and start-up
in São Paulo (Oi)
Oi
BrT
BrT Oi
7.3
CAGR 26.3
4.6
CAGR 5.7
2.7
2.3
2.3
1.4
1.5
2007
2008
2008
2006
2007
2008
2006
24.8
13.2
13.7
23.7
12.7
14.1
24.6
17Oi - Financial Highlights
Debt
Gross and Net Debt - Oi Billion
- 6.6 of total debt is exposed to FX fluctuations
- Foreign currency debt due up to 2010 is hedged
- Cost of debt
- Domestic 101 of CDI
- Foreign Libor 2
- Net Debt/Rec. EBITDA 1.5x
20.5
Cash
Gross Debt Amortization - Oi Billion
9.4
6.9
Dez07
Dez08
Dez08
4.7
4.3
4.0
Gross and Net Debt - BrT Billion
3.1
2.4
- 8.2 of total debt is exposed to FX fluctuations
- Cost of debt
- Domestic 92 of CDI
- Foreign FX 6.9
- Net Debt/EBITDA 0.3x
4.9
4.4
Cash
From 2014 on
09
10
11
12
13
Dez07
Dez08
Dez08
18Agenda
Brazilian Telecommunications Market 2 Oi
Profile, Footprint and Strategy
5 Operational and Financial Results
11 Expectations for
the Future 18
17
19Future scenario brings challenges and
opportunities
- Increase of Internet penetration
- Mobile reaching maturity with increased VAS
relevance - Increase of Pay TV penetration
- Continuation of main trends
- Slight reduction in fixed lines and focus on
alternative plans - Mobile and broadband as growth drivers
- Fixed companies launching DTH products
- Triple Play Quadruple Play
- 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
(Skype, for example)
- Auction for 4G frequency bands
- Regulation of new pro competitive actions (PGR)
- Mobile Interconnection Rates based on cost models
(VU-M)
- 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
- Next Generation Networks (NGN)
- FTTX access becomes significant
- WiMax as possible access solution
20New Oi Guidelines and Synergies
- 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 brand
Synergies
R600 mn
R 5 to 6 billion
CAPEX
Oi Fixed
Oi Velox
Oi Mobile
Net Debt/ EBITDA
19
21BACK UP
22Current Ownership Structure
- BNDESPar 31.383
- Fiago 24.952
- AG Telecom 19.325
- L. F. Tel 19.325
- Fund. Atlântico 5.015
5.5
17.9
81.9
Integrated
100
100
100
43
Mobile
Internet Services (ISP)
Cable TV and Broadband
Integrated
Total Capital Currently controlled by TNE,
Way-TV is likely be transferred to TMAR
Tickers at Bovespa and NYSE TNE (TNLP4 and TNE)
BRTP (BRTP4 and BTP), BRTO (BRTO4 and BTM), TMAR
(TMAR5)
21