Financial Highlights

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São Paulo – March 2007
“Safe Harbor” Statement
This presentation contains forward-looking statements. Statements that
are not historical facts, including statements about our beliefs and
expectations, are forward-looking statements and involve inherent risks and
uncertainties. These statements are based on current plans, estimates and
projections, and therefore you should not place undue reliance on them.
Forward-looking statements speak only as of the date they are made, and we
undertake no obligation to update publicly any of them in light of new
information or future events
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São Paulo – March 2007
Main Telecom Groups in Brazil – Subscriber Base - Sep/ 06
Oi
TMAR
Brasil Telecom
Oi (GSM)
Region I
Brasil Telecom
TIM (TDMA/GSM)
BRT GSM
(Mobile only)
Region I
Region II
Region II
39%
13%
Telefonica
Vivo (CDMA) – TEF / PT
Telefônica (TSP)
23%
3%
Telmex / AMX
Embratel (LD)
Claro (TDMA/GSM)
25%
CVC / Pension Funds
Telemig / Tele Norte
(Mobile only)
Region IV
32%
Region III
30%
Market Share of Fixed Lines in Service
23%
5%
Market Share of Mobile Clients
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São Paulo – March 2007
Brazil´s Telecom Market
Main Services
Market Share
2
(TNE)
2
Local
29%
Mobile
33%
Telmex /
AMX
20%
Other
2%
(TSP)
BRT
13%
2
(BRT)
2
/Embratel (TMX)
Tim
12%
Handset
Sale
7% Other
6%
Data
9%
LD
16%
Telemar /
Oi
21%
Telefonica
/ Vivo
32%
   
 

   
 
(TF/PT)

(AMX)


(TSU)

Operation
Status
Data/
Broadband
Mobile
LD
Major Players
Local
Telecom Net Revenues (9M06): US$ 27 billion1
integrated
pure fixed
integrated
LD Carrier
pure mobile
pure mobile
pure mobile
Source: Company Reports
Note:
1 Considering Tele Norte Leste, Brasil Telecom, Telesp Fixed, Embratel, Tim Brasil, Vivo, Claro, Telemig and Tele Norte Celular.
2
Fixed-line incumbents
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São Paulo – March 2007
Global industry trends affect local market
Consolidation (M&A)
Convergence of Services
Scale
One-Stop Shop
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São Paulo – March 2007
Consolidation: intense M&A activity in the U.S
1984
1
1997
1998
1999
7
2000
2006
3
M&A
Source: FCC, US Department of Justice, companies, team analyses
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São Paulo – March 2007
M&A activity in Europe and Asia
Date
Wireline
Integration
Expansion
Mobile
Integration
Country
Buyer
Target operator
Type
Operation focus
Dec/04 Italy
BT
Albacom
Fixed – CLEC
Geographic expansion
Jan/05
France
France Telecom
Equant
Fixed – Dados, IT
Vertical integration
Apr/05
Czech Rep
Telefonica
Cesky
Fixed – ILEC
Geographic expansion
May/05 France
Telecom Italia
LibertySurf
Fixed – CLEC
Geographic expansion
May/05 France
Cegetel
Neuf Telecom
Fixed – CLEC
Market share/scale
Nov/05 Denmark
Nordic Telephone
TDC
Fixed/mobile – ILEC Private equity
Jan/06
Japan
KDDI
Powercom
Fixed – CLEC
Vertical integration
Jul/04
Denmark
TeliaSonera
Orange
Mobile
Market share/scale
May/05 Romania
Vodafone
Mobifon
Mobile
Geographic expansion
Jul/05
France Telecom
Amena
Mobile
Geographic expansion
Nov/05 Sweden
Telenor
Vodafone Sweden
Mobile
Market share/scale
Dec/05 Turkey
Vodafone
Telsim Mobil
Mobile
Geographic expansion
Jan/06
UK
Telefonica
O2
Mobile
Geographic expansion
Mar/06
Japan
Softbank
Vodafone Japan
Mobile
Vertical integration
Spain
Source: Ovum, Morgan Stanley, team analyses
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São Paulo – March 2007
Consolidation in Brazil despite regulatory barriers
Players/Groups in 2000
Today
Tomorrow: How Many?
Is Brazilian heading towards a
duopoly arena?
Mexican ?
Safra
BCI
Spanish ?
?
Brazilian ?
Regulation
• Article #14 of General Concession Plan (PGO - April/1998) prohibits wireline incumbents from obtaining
any other concession in another region as well as any shareholder from participating in the controlling group
of more than one incumbent.
- These restrictions can only be removed with a Presidential Decree
• In addition to the change in PGO, any consolidation involving fixed line incumbents would require:
- Anatel’s approval (“Anuência Prévia” or Previous Consent)
- CADE’s approval (Anti-trust Agency Act)
São Paulo – March 2007
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Financial Highlights:
Consolidated Ebitda
R$ million
45%
44%
41%
40%
EBITDA Margin
35%
6,175
6,531
6,765
5,353
4,598
3,558
2001
2002
2003
2004
2005
9M06
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São Paulo – March 2007
Financial Highlights:
Capex
R$ billion
•
10.1
Since
1998:
R$
(~US$ 12 billion):
27
billion
– 80% Fixed line / 20% Mobile
Mobile
2.2 (2)
7.9
(1)
2.4
2.0
CAPEX 9M06
revenues
•
2006/2007 Focus:
0.9
0.8
1.5
0.4
2001
2002
(1) Regulatory Targets
( 2) Mobile license: R$ 1.1 billion
1.3
2004
net
and
Regulatory
Requirements
(Fixed-line network)
1.1
2003
of
– Quality
1.6
1.1
12.4%
and enhance capacity
of data broadband and mobile
platforms
0.7
0.6
1.1
=
– Expand
2.0
1.7
Fixed
•
2005
9M06
•
Capex 2006E: R$ 2.4 billion
-
75%
Fixed
25% Mobile
line
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São Paulo – March 2007
Financial Highlights:
Free Cash Flow*
R$ billion
FCF yield (12 m) = 28%**
4.0
4.0
3.5
2.3
2.5
-5.9
2001
2002
2003
2004
2005
9M06
(*) – After CAPEX
(**) – Based on TNE prices on January 04, 2007 ($14.52)
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São Paulo – March 2007
Financial Highlights:
Debt Position – Sep/06
Amortization Schedule – Sep / 06
Net Debt
9.1
7.8
7.7
• Total Debt = R$ 8.9 billion
0.88 x EBITDA
3.6
3.4
6.5
6.1
5.6
C
A
S
H
2001
2002
2003
2004
2005
Sep-06
Sep-06
2.0
1.9
1.2
0.3
2006
2007
2008
2009
2010+
Main Achievements: - Lower leverage (-39% from 2002)
- Extended maturities (74% of total debt in the long term)
- Lower foreign currency exposure (55% in Sep/06 vs 65% in Dec/05)
- Decreased financial expenses / hedging costs
- Average cost of debt : 98.8% (CDI)
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São Paulo – March 2007
Financial Highlights:
Key Ratios
Net Debt* / EBITDA
CAPEX / EBITDA (%)
(*) – EOP
EBITDA / Net Interest Expense
Dividends / EBITDA
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São Paulo – March 2007
Global industry trends affect local market
Consolidation (M&A)
Convergence of Services
Scale
One-Stop Shop
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São Paulo – March 2007
Convergence: multi-services network redefining the
telecom industry worldwide
Platform
Voice
Data
Video
Voice
Data
Fixed
telephony
Video
IPTV
Wimax
Mobile
telephony
2,5/3G*
Pay TV
VoIP
Wimax
TV
?
Digital TV
Technological
barriers
Services fragmented
Notes: *Video Streaming; Non-exhaustive examples
Complementary services
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São Paulo – March 2007
Examples of Bundled Services
Prepaid Plans
Low End
“Dose Certa” – Pre-Paid Recharge with only R$ 1.00
- Lower Recharge
(R$ 1.00)
- SIM alone
- Bundles with
Fixed Line and
Payphones
Post Paid Plans
“Oi Conta Total” now offering Pay TV (Fixed+Mobile+Broadband+Pay TV)
Middle-High End
- Control
Plans
- Loyalty
Plans
- Coverage
- Relationshi
p
+
Benefits:
•
•
•
•
Discounts in Combo Products
No Adhesion Fee
Free Modem for Velox
Free Sky-Directv instalation Kit
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São Paulo – March 2007
Oi FLEX - an Oi handset that converges fixed and wireless lines, a single
brand offer...
What is it?
Oi in the street and fixed at home
Mobile phone that works like a fixed phone at home
Benefits
Convergence: Make and receive calls through a fixed
network in one handset
Comfort: Enjoy all mobile phone benefits (one contact
agenda, etc)
Mobility: Reach up to 100 m and answer fixed calls with
mobile, as if it was an extension
Economy: Client are guaranteed best tariffs depending
on plan and type of line
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São Paulo – March 2007
Way TV Overview
Region Concession
Way TV acquisition
 Cable TV and Broadband company operating in Minas
Gerais
Concession in 4 cities
No Network owned – Capacity leased from Infovias
Bidirecional Network
400,000 homes passed
90,000 total subscribers
46,000 Cable TV/ 44,000 broadband
 Strong Growth with low acquisition costs
Net Revenue Breakdown
Costs and Expenses Breakdown
Others
12.8%
Infovias
Third Party Services
30.8%
11%
Broadband
52.6%
IP
Cable TV
47.4%%
14.8%
Content
15.4%
Personnel
15.1%
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São Paulo – March 2007
And we distribute content in our multi-platafform…
•
•
•
•
•
•
Ring Tone.
Truetone.
Full track.
Ring Back Tone.
Vídeos.
Interatividade.
•
•
•
•
Streaming do show.
Download do show.
Download das músicas.
Download de conteúdo.
móvel associado.
Oi TV
• Transmissão do Show.
• Interatividade.
• Venda de conteúdo móvel e
de banda larga associado.
Oi Magazine
• Transmissão ao vivo.
• Entrevistas/chat com
os artistas.
• Concursos/Premiação.
Conteúdo:
Show Lulu Santos
• Matérias sobre o show.
• Chamadas incentivando o
uso de interatividade e
serviços no Oi.
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São Paulo – March 2007
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São Paulo – March 2007
Oi, One Step Ahead, converging services
Service Convergence:
One single Brand
Bundled Services
Pure Fixed
or
Mobile companies
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Source: Telemar
São Paulo – March 2007
Consolidate leadership in the Region through clear and focused strategy
From Product to Client Approach…
•
Improve the knowledge from customers,
seeing them in an integrated view
•
… building a company based on 4 pillars
Segmentation aiming to align product portfolio
• Customer Focus: integrated and
convergent offers
with client’s real needs
•
Integrated and innovative offers in the retail
and corporate markets
•
Velox and Oi as major growth drivers
•
Creation of an internet platform
•
Operational excellence, focusing on costs
savings
•
Consolidate client’s perception of quality
•
Avoid irrational competition
•
Partnership for content
•
Focus on ARPU instead of traffic
• Management Processes: aligned
with the strategy and focused on
results
• People: with attitude and
dedicated to serve
• Innovation: new businesses to
regain growth momentum
• Customer loyalty
• Cross selling
• Bundled services
• Scale
• Operating/
financial synergies
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São Paulo – March 2007
Important Notice to Our Shareholders
In compliance with the terms of article 12 of CVM Instruction no 358*, TELEMAR advises its
shareholders that the Company cannot be held responsible for any public disclosure of
information by third parties regarding the acquisition or disposal of equity stakes equivalent
to 5% or more of each class of shares or of the rights pertaining to these shares or other
securities issued by the Company.
Outstanding
shares*
TNE
Common
127.373.900
Preferred
254.747.800
Total
382.121.700
Outstanding
shares*
TMAR
Common
107.063.093
Preferred (A)
130.440.468
Preferred (B)
1.110.794
Total
238.614.355
(*) - Ex-treasury
(*) Shareholders owning a direct or indirect controlling stake in the company, shareholders who elect the members of the Board of
Directors, or any private individual, legal entity or group of same, acting jointly or representing a common interest, that attains a direct or
indirect stake equivalent to 5% (five percent) or more of the company’s capital, must send to the CVM (Brazilian Securities commission)
and, as the case may be, to the stock exchanges and over-the-counter entities where securities issued by the company may be traded, as
well as publicly disclosing, under the terms of article 5…
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São Paulo – March 2007
Company Overview
We are the leading provider of telecommunications services in Region
I of Brazil, which consists of 16 states, including the states of Rio de
Janeiro, Minas Gerais, Bahia, Espirito Santo and Ceará. We are the
largest provider of fixed-line telecommunications services in South
America based on the total number of lines in service, which we are
starting to market under our Oi Fix brand name. As of December 31,
2006, we had 17.1 million fixed-lines installed, of which 100% have
been digitized, and 14.4 million fixed-lines in service.
We provide mobile telecommunications services in Region I on the
GSM technology platform.
As of December 31, 2006, Oi had
approximately 13.1 million subscribers.
We also provide broadband services using ADSL technology.
In
Region I, as of December 31, 2006, we had approximately 1.1 million
broadband subscribers (Oi Velox). We also market voice and data
services to corporate customers throughout Brazil. The Brazilian
states that comprise Region I represent approximately 64% of the
country's territory, with a population of
102 million, producing
approximately 41% of Brazil´s GDP.
IR Contacts:
Rua Humberto de Campos,
425 / 8º andar -Leblon
Rio de Janeiro - RJ
Phone: ( 55 21) 31311314/1315/1316
Fax: (55 21) 3131-1155
E-mail: [email protected]
Visit our website:
www.oi.com.br/ir
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São Paulo – March 2007