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November 17, 2004 PowerPoint Presentation
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November 17, 2004

November 17, 2004

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November 17, 2004

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  1. UBS Global Conference Presentation November 17, 2004

  2. AGENDA • Brazilian Telecom Market • Telemar Overview • Financial Results 1

  3. LD • Mobile • Data • Local •  •  •  •  • Telemar •  •  •  • Telefonica •  •  •  • Brasil Telecom •  •  •  • Telmex/AMX •  • TIM •  • Vivo • Local Fixed line • Long Distance • Broadband • Mobile • Data (Corporate) • : Low • : Medium-High • : Low-Medium • : High • : High From State Monopoly to Privatization and Competition • Up to 1998 • (State Monopoly) • 1998 • (Duopoly) • 2004 • (Competition) • Major Players • Fixed line • Telemar • RI • RII • Brasil • Telecom • RIV • Embratel • (Long Distance) • RIII • Telefonica • 4 incumbents • 4 Mirror Co’s. • Mobile • Degree of Competition (per service) • VIII • X • One Holding Company • 26 state companies (fixed/mobile) • IX • VII • IV • III • V • I & II • VI • 10 incumbents • 10 Mirror Co’s

  4. TIM • Vivo • Telefonica • Telemar • Oi Major Telecom Players in Brazil – September/2004 • Brasil Telecom • Opportunity & BRT • (GSM) (TDMA/GSM) (TDMA/GSM) • Region I • Region II • 10% • 5.7 M • 4.0 M • 11.7 M • 20% • 7% • 15.2 M • 39% • 9.6 M • 25% • Embratel (LD Carrier) • Claro • Fixed line • (CDMA) (TDMA/GSM) • Lines in Service • (Brazil: 39 million*) National Market Share • Region IV • Mobile • Region III • Subscriber Base (Brazil: 58 million**) • 12.0 M • 21% • 24.6 M • 12.2 M • 42% • National Market Share • 31% * Includes smaller incumbents and mirror companies. ** Includes other groups

  5. 03 • 94 • 95 • 96 • 97 • 01 • 98 • 00 • 02 • 99 • 04* • Privatization Growth of Customer Base Fixed Line & Mobile Customer Base – Brazil (millions) • Mobile subscribers • Mobile • Penetration (%) • Fixed Lines in Service • Fixed Line • Penetration (%) • Growth depends on Brazilian economic uptake going forward • Mobile users already surpassed fixed lines in service, posting an annual growth rate in excess of 30% (1999 – 2003) • PCS Entrants • * September 04

  6. Penetration Figures and Forecasts Fixed: 39 M (Sep/04) Mobile: 58 M (Sep/04) 23% 33% • Mobile penetration still has a lot of room to grow; • Market estimates between 62.8 / 69.8 m subs by 2004YE; • Estimated mobile penetration for 2008YE ranges from 42% to 58% (80 to 100 m subs); • Fixed line penetration should be more or less stable, relying on GDP growth. 58% Max. 42% Min. Mobile* Fixed Line** 23% * Estimates from: Citigroup, Goldman Sachs, JP Morgan, Merryll Lynch, Pyramid Research. ** Estimates from Yankee Group

  7. PC Penetration (% of households) * 2003 Broadband Market Broadband Market Brazil • Broadband penetration still low in Brazil (1.9 m accesses by Sep/04) • ADSL is the dominant technology (~85% market share); • Cable has ~10% market share • Broadband penetration is expected to grow to 30% of total internet accesses by 2008*; • Telemar has a target to increase broadband penetration from 2% of fixed lines to 5% by 2006. Source: Estimates Teleco e Telemar Broadband Access – ( thousands) 3,831 3,547 CAGR 46% 3,148 2,591 1,874 1,490 1,199 694 326 130 Source: *Pyramid Research Estimates

  8. AGENDA • Brazilian Telecom Market • Telemar Overview • Financial Results

  9. Shareholder Structure Telemar Participações S.A. • 18.9% • TNLP Tele Norte Leste Participações S.A. (TNL) • Free Float: 81.1% • (TNL) • 100% Contact Center • TMAR • 80.9% Fixed line • Free Float: 19.1% • 100% • 100% Data Transmission Mobile

  10. Telemar – Overview • Region I= • Concession for fixed line services • License for Wireless services (GSM) • Integrated Telecom Service Provider (Sep/04) • 15.2 million fixed lines in service • 5.7 million mobile subscribers • 429 thousand ADSL subscribers • Concession Area (Region I) - Local Service and PCS • 65% of Brazilian territory/94 million inhabitants • 40% of country’s GDP • Over 20 million households • Leadership in local and long distance services • After only 2 years of launching, already #2 position in mobile subs (Region 1) • Nationwide • Authorization for fixed line services, DLD, ILD and Data • Data, Corporate & Call Center Services (nationwide) • Most heavily traded shares at Bovespa (TNLP4): US$ 48 million/day (Sept/04); • Strong liquidity at the NYSE (TNE): US$ 18 million/day (Sep/04) • High Free Float: 81.1% of total shares • Market value of US$ 5.1 billion (Sep/04)

  11. Restructuring 16  1 - Optimization of Resources; - Process Standardization; - Management Centralization; - Merger of wireline companies; Main Achievements 1998 2004 International • RI • RII • RIII Management/Processes/IT Processes All Unified 16 Companies / Brandies 16 IT Systems 60 Network Platforms 50 Network Management Centers 116 Call Centers Services Local & Advanced Voice Domestic & International LD Nationwide Data Transmission Wireless Call Center Network Management / Internet Services Local Voice data and regional LD; Market Vision Market Approach Market Approach Customer Segmentation Geographic Product and Service

  12. Largest Telco Player with Integrated Operations Fixed line Data, Internet & Corporate Wireless • Customer loyalty • Cross-selling • Convergent services • Operating / Financial synergies • Scale National Coverage DLD / ILD Broadband Contact Center • The Company’s six main business lines provide a healthy balance between stable cash flow and growth opportunities. • Telemar is the leader or second major player in five out of its six main businesses

  13. New Customers • ExistingCustomers • & Services • New Services Sources of Growth: New Customers and New Services • Growth Strategy • Penetration Growth • Convergence • Bundles • One Stop Shop • Cross Selling • Full • TelecomServiceProvider • Synergy • Innovation • CLM (Customer Lifetime Value Management) • Up Selling • Wallet • Share • Growth • Video & VOD • Fixed-mobile phone

  14. Integrated and Convergent Services • Velox Wi-Fi • Velox + Oi • Hotspots • Wireless banking transactions • Wireless payment authorizations • Oi World (Video) + • Wireline SMS • Voice Net + • (virtual PBX integrated with Mobile trunks) • Prepaid Mobile recharge on Fixed Line Bill • Oi + Public Phone (single card) • “Oi Family” • (reduced tariff from mobile to family’s fixed line)

  15. Buy a Velox (DSL) and get an Oi (Mobile) • 100 minutes free from Oi (Mobile) to fixed • Single Card for Mobile and Public Phone Some Integrated and Convergent Services • Recharge Prepaid Mobile • on Fixed line Bill

  16. Innovation: House of the future • Telemar is piloting new revenue generating services in its “House of the Future” • Client Expenditure Breakdown • Existing • New • Content&Services • + • Up Selling • + • Cross Selling Home Office Kid’s Room SecuritySystem Video Telephony Gaming IP Telephony USB Kitchen Kitchen Living Room • Broadband • + • Fixed line • + • Mobile IntegratedEntertainment WirelessAccess Fixed Mobile Handset VOD

  17. ADSL • Mobile • Fixed Line Growth of Customer Base In millions CAGR (98-03) 19.7% ~22.4 Main drivers: • Ability to anticipate the growth potential of mobile technology and keep on expanding customer base; • Capacity to maintain and increase market share in a changing technological and market environment. 21.3 19.2 16.5

  18. AGENDA • Brazilian Telecom Market • Telemar Overview • Financial Results

  19. + 12% yoy CONSOLIDATED NET REVENUE (R$ million)

  20. + 6% yoy EBITDA – ANNUAL EVOLUTION (R$ million) • EBITDA Margin

  21. 10.1 • Wireless • 2.2 • 2.8 • 2.5 • 7.9 • 2.2 • 2.0 • 2.0 • Wireline • 1.7 • 40% • 0.9 • 0.6 • 1.1 • 60% • 0.4 • 1.1 • 1.1 • 0.7 Anatel Targets and Mobile License (R$1.1 bn) Consolidated CAPEX R$ billion • CAPEX / NET REV. • CAPEX 2003: ~12% of net revenues, compared to 17% in 2002; • CAPEX 9M04: R$ 1,134 million (9.8% of sales); • CAPEX since 1998: R$ 22 billion; • CAPEX should stay below 15% of net revenues in the medium term. • 98 • 99 • 03 • 00 • 9M04 • 01 • 02

  22. +25% yoy Consolidated Operating Cash Flow after CAPEX R$ million CAGR (99-03)69.1% • 9M04 • 9M03 • 2003 • 2002 • 2000 • 2001 • 1999 Having met our main fixed line universalization targets and mobile rollout,our cash generation is expected to remain strong

  23. Debt Position Net Debt Evolution (R$ million) Net Debt/ EBITDA x • Based on a strong cash generation, we expect to reduce our net debt level to below 1x EBITDA by 2004YE. * To this figure should be added the amount disbursed by the Company on its stock buyback program

  24. TNE: Dividend Payments - 1999/2003 US$ million • Dividend yield* • Dividend / Interest on Capital • 2003 • 1999 • 2000 • 2001 • 2002 * Based on stock prices at 10/29/04 . Our goal is to continue to provide high cash returns to investors

  25. Closing remarks • Ability to timely adjust to market changes, searching for new opportunities • Re-shaping competition in the mobile market • Continued increase in market share and revenues • Sound financial position & increasing returns to shareholders

  26. This Presentation is also available in our website at: www.telemar.com.br/ir • 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 • Investor Relations • Rua Humberto de Campos, 425 / 8º andar • Leblon • Rio de Janeiro -RJ • Phone: ( 55 21) 3131-1314/1313/1315/1316/1317 • Fax: (55 21) 3131-1155 • E-mail: invest@telemar.com.br • Visit our website: • http://www.telemar.com.br/ir