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Tim meeting with investors - sep 2012

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  • 1. TIM Brasil - Meeting with Investors TIM BrasilSeptember, 2012 - Meeting with Investors September, 2012
  • 2. Strategy 3+
  • 3. Mobile Business is GDP-plus phenomenon Brazilian real GDP growth Mobile Serv. Revenue growth R$ Billion +1.9% +11.0% +2.7% +12.7% +7.5% +9.6% 68,8 +9.1% 62,0 -0.3% 50,2 55,0 Mobile will 46,0 continue to take great part of growth 2008 2009 2010 2011 2012* 2008 2009 2010 2011 2012* *Market Expectations as of August, 03rd(Focus BC) *Expected (ML Matrix) Demographic Global Mobile Markets Global Mobile Markets improvements Annual Service Revenues 2011 Subscribers 2011 2003 2008 2014 173 986 Mln of people 108 894 C lass 82 332 A/B 13 20 31 4o 246* 37 4o C 66 93 113 126 31 D 47 46 40 114 28 E 49 30 16 92 27 77 Above From R$1,115 From R$768 From zero R$4,808 to R$4,808 to R$1,115 to R$768 23 US$ Bln 64 Mln SubsSource: BofA ML Global Wireless Matrix 2Q12; Teleco; IBGE * Including Nextel 4
  • 4. Continuous Reshaping of the Brazilian TLC Market Market Transformation R$ Billion 106 117 126 134 Mobile over Fixed (44%) (40%) Fixed”: (56%) (48%) towards 60/40 split (52%) (56%) (60%) Mobile (44%) 2009 2011 2014 2016 Force Fixed- Mobile Internet Mobile competitive vs substitution <2 Mbps wireline (voice) BB accesses Voice is Good (Push the FMS) Internet for All R$ Billion R$ Billion 96 52 82 Fixed 51 24 29 Fixed 28 53 10 Mobile 45 Mobile 8 2 2009 2016 2009 2016 5
  • 5. FMS Secular Trend Remains on PlayFixed to Mobile Substitution… …impacting Fixed Incumbents … benefiting Mobile Segment Fixed Tariff Premium over Mobile Lines in Service Lines ARPM (R$/min) (D% yoy) (D% yoy)Mobile 3Q11 +18.0% -4.9% 3Q11 40% mobile discount -4.5% 4Q11 4Q11 +18.6% -4.0% 1Q12 1Q12 +18.6%Fixed -3.4% 2Q12 2Q12 +17.6% 2006 2007 2008 2009 2010 2011 2012 Fixed Revenue Mobile RevenueMobile Outgoing price (% YoY) -23% -14% (D% yoy) (D% yoy) -7.0% 3Q11 3Q11 +11.5% Leading Traffic to a Sharp Increase -8.0% 4Q11 4Q11 +12.4% (Bln Minutes) 22.6 23.8 -7.6% 1Q12 1Q12 +14.5% 20.1 21.8 17.5 18.4 -8.5% 2Q12 2Q12 +7.9% 1Q11 2Q11 3Q11 4Q11 1Q12 2Q12 Integrated EBITDA Mobile EBITDA** (D% yoy) (D% yoy) Leadership in LD Market Share (% Minutes) -6.2% 3Q11 3Q11 Category 4 +11.7%88.2% 66.5% -5.9% +9.6% 53.3% 49.8% 48.5% 48.3% 49.7% 4Q11 Category 3 4Q11 6.7% 45.8% -0.6% 1Q12 1Q12 Category 2 +12.7% 28.3% 42.0% 47.8% 47.7% 48.1%jun/09 jun/10 jun/10 dec/10 jun/11 dec/11 mar/12 -10.0% 2Q12 Category 1 2Q12 +6.0% TIM Incumbents* -7,0% * Telemar, Brasil Telecom, Telesp e Embratel. Source: Companies results and Teleco. **Represented by TIM 6
  • 6. Integrated Players Loosing Revenues for FMS... TIM Vivo (R$ Billion) (R$ Billion) YoY YoY5,0 4.7 4.5 10,0 4.3 4.4 4.5 8.3 8.64,5 3.9 +7% 9,0 7.9 8.2 8.0 8.3 8.3 8.2 -0.2% 3.7 3.8 7.84,0 3.6 8,03,5 7,03,0 6,0 4,3 4,5 4,8 4,7 4,7 4,9 5,3 5,1 5,12,5 +7% 5,0 56% 57% 58% 58% 57% 59% 61% 61% 62% +8%2,0 94% 94% 94% 94% 94% 95% 95% 94% 94% 4,01,5 3,01,0 2,0 -12%0,5 1,0 44% 43% 42% 42% 43% 41% 39% 39% 38% - 6% 6% 6% 6% 6% 5% 5% 6% 6% +1% - 2Q10 3Q10 4Q10 1Q11 2Q11 3Q11 4Q11 1Q12 2Q12 2Q10 3Q10 4Q10 1Q11 2Q11 3Q11 4Q11 1Q12 2Q12 América Móvil – Brazil* Oi** (R$ Billion) (R$ Billion) YoY YoY*** 9,0 7.7 8,0 7.4 7.3 7.3 7.1 6.9 7.0 6.8 6.9 7.4 7.7 7.5 6.9 8,0 7.0 7.2 +4% 7,0 -2% 7.0 24% 25% 26% 6.4 6.7 25% 28% 28% 31% 31% 32% 23% 23% 24% 7,0 20% 22% 22% 23% 6,0 +17% 19% 20% +7% 6,0 5,0 5,0 39% 40% 41% 40% 4,0 56% 57% 58% 58% 57% 59% 61% 61% 62% 42% 41% 41% 40% 40% +5% 4,0 3,0 3,0 2,0 76% 75% 74% 75% 72% 72% 69% 69% 68% -6% 2,0 1,0 2,5 2,6 2,7 2,7 2,8 2,8 2,9 2,8 2,7 39% 39% 38% 39% 39% 38% 38% 36% 36% -4% 1,0 - - 2Q10 3Q10 4Q10 1Q11 2Q11 3Q11 4Q11 1Q12 2Q12 2Q10 3Q10 4Q10 1Q11 2Q11 3Q11 4Q11 1Q12 2Q12 Fixed Mobile NET*Intercompany eliminations were estimated **From 4Q11 to 2Q12, Mobile Revenues are represented by Personal Mobility. 7 ***YoY for Mobile Rev. represented by Pers. Mob. and Fixed Rev. by others ex. Pers. Mob.
  • 7. Limited BB capabilities from incumbents create 3opportunities for TIM % of fixed accesses 1. FMS Voice 1 100% 0,9 Price per minute Fixed 0,8 0,7 ~70% 0,6 Mobile 0,5 0,4 30% 0,3 0,2 75% 22.5% 7.5% 0,1 0 25% Total wireline Voice only BB <2 Mpbs > 2 Mbps market accesses nominal speed nominal speed 2. FMS Data (Prepaid Internet monthly unique users; „000 clients) 13,844 3. TIM Fiber +51% 9,141 Selective attack of the Adsl incumbents via Naked VDSL ultra BB powered by the 5,300km Optical Fiber in RJ/SP. Download: 35 Mbps 2Q11 2Q12 Upload: 20 Mbps Smartphone penetration 15% +1,980Bps 35% 8
  • 8. 2Q12 Results 9+
  • 9. Q2 Financials HighlightR$ mln Guidance 2Q12 2Q11 Var. % YoY 1H12 Var. % YoY >10% Total Revenue (reported) 4,547 4,252 +7.0% 9,016 +12.6% P Confirmed Total Revenue (MTR adjusted) 4,668 +9.8% 9,180 +14.7% >10% EBITDA (reported) 1,214 1,145 +6.0% 2,383 +9.2% P Confirmed EBITDA (MTR adjusted) 1,262 +10.2% 2,453 +12.4% ~R$3 bln CAPEX 1,057 724 +45.9% 1,600 +56.4% P Confirmed (+R$0.5 Mln licenses) Anticipation focused on Network  Leadership in Prepaid segment  MTR cut (-R$121mln rev; -R$48 mln Main  Fastest data growth (+40%YoY) and Quarter EBITDA) smartphone at 35.2% of total base  Macro-economic and competitive Achievements Impact environment  TIM Fiber started-up (Live TIM brand)  TIM Fiber start-up costs (~R$11 mln) 10
  • 10. Effects on Q2: MTR and Macro EnvironmentMTR Macro Environment Total Net Revenues P Macro economic scenario slowdown in 1H12 vs. 1H11 (i.e.: P -R$121 mln impact on net level of indebtedness; high commitment of income to debt (R$ billion) service revenues and - payment; GDP lower growth) R$48 mln on EBITDA 4.7 +10% 0.1 GDP Quarterly Growth (YoY) 4,5% 4,2% 3,9% 3,3% 3,1% P Still no elasticity coming on 4,0% 4.5 3,5% 4.3 +7% and traffic reshape to offset 3,0% 2,5% 2,1% 2,2% MTR impact 2,0% 1,4% 1,5% 1,0% 0,8% 0,7% 2Q11 2Q12 0,5% 0,0% 1Q11 2Q11 3Q11 4Q11 1Q12 2Q12e 3Q12e 4Q12e 1Q13e EBITDA P FMS will lead to lower (R$ billion) Handset Sale dependency on MTR Net Revenues Volume 1.3 +10% 83% 0.1 D YoY 143% 1.2 11% 1.1 +6% -28% 2Q11 2Q12 2Q11 2Q12 2Q11 2Q12 P Short term competition aggressiveness Revenues Costs Drivers to softening these Keeping the Innovative Macro scenario Intelig/ TIM Fiber EILD regulatory impacts approach improvement (leased lines swap) framework 2Q12 4Q12 11Source: BCB, Bradesco Corretora and Company’s estimates
  • 11. Operational Growth Remains Strong Customer Base Total Market Share Growth (million lines) (% of total lines) +1.7 D YoY 30.1%30.2% 30.1% 29.7% +3.1 D% 29.5% 29.5% 29.5% 29.5% 29.8%29.6% Vivo +4.9 2Q +3.7 67.2 68.9 +2.7 64.1 270 59.2 9.7 10.0 +2.0 +25% 640 26.9% bps 55.5 9.3 52.8 8.7 bps 26.5% 26.8% 8.0 26.0% Post 7.7 25.4%25.3% 25.5% 25.4% 25.4% 25.5% 54.8 57.6 58.9 +11.3 +24% Claro Paid 45.1 47.5 50.6 25.1% 25.5% 25.3% 24.9% 25.1% 24.5% 24.6%24.6% 23.7%24.0% Pre 20.4% 20.1% Oi Paid 19.5% 19.4% 19.7% 19.1% 18.8% 18.8% 18.5%18.7% 1Q11 2Q11 3Q11 4Q11 1Q12 2Q12Net Adds (000)Post Paid 223 317 632 655 348 348 1Q10 2Q10 3Q10 4Q10 1Q11 2Q11 3Q11 4Q11 1Q12 2Q12 Pre Paid 1,598 2,359 3,053 4,219 2,786 1,308 SP City Market Share Growth Customer Base Growth (% of total lines) (%YoY) 1st in yearly growth for 8 34,6% 34,2% 33,9% consecutive quarters 32,9% 32,2% 31,7% 31,8% 31,7% 31,4% 31,1% Vivo 18% 20% 18% 17% 15% 14% 16% 19% 20% 18% 26,4% 27,6% 29,1% 30,9% 30,8% 25,4% 25,2% 25,3% 24,6% 24,8% Vivo TIM 17% 17% 19% 24% 25% 25% 26% 26% 27% 24% 23,5% 23,5% 24,0% 21,6% 20,6% 19,7% 19,7% Claro 15% 16% 15% 16% 17% 18% 18% 17% 15% 13% 23,0% 22,5% 22,2% Claro Oi 15% 10% 7% 9% 13% 12% 15% 16% 12% 15% 19,9% 19,6% 19,1% 18,8% 19,0% 18,3% Oi 17,7% 17,3% 17,8% 16,4% 1Q10 2Q10 3Q10 4Q10 1Q11 2Q11 3Q11 4Q11 1Q12 2Q12 1Q10 2Q10 3Q10 4Q10 1Q11 2Q11 3Q11 4Q11 1Q12 2Q12 12Source: Anatel Source: Anatel
  • 12. Growth Backed by Efficiency Approach Customer Base Growth SAC and SAC/ARPU (% YoY) (R$) P Continuous growth on pre-paid 26,8% -210Bps 24,7% +830Bps SAC/ 2.6 and acceleration on postpaid 18,5% ARPU 23,9% Prepaid +860Bps 63 1.6 1.4 15,3% +360Bps 35 P But with a rational approach: Postpaid 11,7% SAC (R$) 26 -44% -26% o significant subscriber 2Q10 2Q11 2Q12 2Q10 2Q11 2Q12 acquisition cost drop o continuous bad debt downward trend Handset Subsidy Bad Debt Trend (R$ million) (as % of Gross Revenues) 1.83%  Sustainable business model 85 1.08%Capitalized o Low bad debt Subsidy 0.92% o No subsidies 0 0 o Freedom to customers 2Q10 2Q11 2Q12 2Q10 2Q11 2Q12 13
  • 13. Innovation Platform Generating Value Pre Paid – Customer Base Post Paid – Customer Base (000 lines) (000 lines)  Combining volume and +25% 10,001 value throughout a complete +24% 58,873 +15% 8,019 47,506 6,956 and unlimited platform of +27% 37,469 services (local and LD calls, SMS and data) 2Q10 2Q11 2Q12 2Q10 2Q11 2Q12 Volume of Top Up growth MOU and Post paid Churn  Pre-paid consistent growth (Mln recharges) (Minutes, % of lines)  Post-paid taking-up with +3% +24% increasing traffic and lower MOU +18% disconnections… +42% Churn ..even with no handset -80Bps -50Bps subsidy policy and no loyalty 2Q10 2Q11 2Q12 2Q10 2Q11 2Q12 14
  • 14. Internet Take-Up Supported by Best Handset and Offering Data Revenues Smart/Web phone Penetration (% of Gross Mobile Service Revenues) (% smartphones/total CB (lines) +490Bps 35.2% 18.7% 31.1% 18.1% 26.6% 16.7% 19.5% 15.7% 15.4% 12.6% 14.6% 13.8% Value Added Services Revenues (R$ billion) 1Q11 2Q11 3Q11 4Q11 1Q12 2Q12 % sold 1Q11 2Q11 3Q11 4Q11 1Q12 2Q12 1.03 48% 54% 71% 70% 77% 79% +40% 0.73 SMS unique users growth Data users (daily unique users) (monthly unique users) 18,907 2Q11 2Q12 +53% ~3X 12,391 2Q11 May 121Q11 2Q11 3Q11 4Q11 1Q12 2Q12 3G coverage (% of urban 57% +1,100Bps 68% pop.) 15
  • 15. Consistent EBITDA and Net Income Growth EBITDA Evolution From EBITDA to Net Income (R$ Mln) (R$ Mln) 1,214 Handsets Rev.: +55 COGS: -43 R$54 mln one off event due to mark to market +240 +12 +27 -172 -664 hedge position -38 1,2141,145 550 -6426.9% EBITDA Margin 26.7% -140 34732.7% Service EBITDA Margin 32.2% EBITDA Depreciation/ EBIT Net Taxes NetEBITDA Services Handset Marketing Network Personnel EBITDA 2Q12 Amortization Financial and Income 2Q11 Revenues Margin and Sales and ITX G&A and 2Q12 Result Others 2Q12 others expenses ΔYoY +6.4% -14.4% -2.8% +15.1% +8.7% ΔYoY +6.0% +7.8% +3.9% +44.6% +3.2% -0.9% 16
  • 16. Cash Position AnalysisCapex D Working Capital(R$ Mln) (R$ Mln) 2Q11 2Q12 Var D WC: R$230 mln YoY Network 61% 67% 600 Bps IT 22% 28% 600 Bps 147 Others 17% 5% -1,200 Bps 1.057 -82 724 +46% 436 -260 2Q10 2Q11 2Q12 2Q10 2Q11 2Q12OFCF Net Debt Including TIM Fiber(R$ Mln) (R$ Mln) net debt = R$87 mln DOFCF R$-34mln YoY DEBITDA-CAPEX = -R$261mln 2,520 D WC R$230mln 2,278 D Other –R$3mln 1,998 339 305 230 2Q10 2Q11 2Q12 Net DEBT/ 2Q10 2Q11 2Q12 EBITDA 0.68x 0.45x 0.47x (trailing 12m) 17
  • 17. Conclusions and 2H12 Outlook • TIM managed to maintain its solid operational improvements amid tough 1H12 (macro-economic and competitive scenario) Conclusions • Data services continued at a solid pace • Leadership in market share of net addition for 8th consecutive quarter is a clear signal how TIM’s offer is indeed the best value option • Operational efficiency set the tone, with significant subscriber acquisition cost (SAC) and bad debt reduction • Focus on network development, quality improvement and communication to defend post-paid segment and reverse the bad perception from Anatel ban Outlook • Insist on FMS trend with an innovative approach • Support data revenues growth through smartphone penetration and network strengthening • Launching TIM Fiber (Live TIM) 18
  • 18. Network & Quality 19+
  • 19. TIM is Not the Worst in Quality! => Network KPIs SMP 5 – Originated Calls Completion SMP 7 – Drop Calls (% of completed calls) (% of drop calls) Player A TIM Player B Player C Player A TIM Player B Player C Apr-11 Apr-12 Apr - 11 Apr - 12 => Commitment on Quality Improvement Anatel Ranking of Complains Procon Ranking of Complaints TIM Call Center Index of Complaints (SMP Compl./ Lines in Service * 1000) (Compl. of Integrated System of Procon) (Points) -30% Player A TIM Player B Player C Player A TIM Player B Player C Mar-11 Mar-12 Jun-11 Jun-12 2Q11 2Q12Source: Anatel, Procon and Company 20
  • 20. Capex Allocation 2012-2014R$ Million 2012 2013 2014 2012-2014Total Infrastructure - Capex 2,764 2,733 2,776 8,184Licenses 473 473Others - Capex 351 248 266 865TOTAL Capex 3,498 2,981 3,042 9,521 In 2012, due to the injunction, TIM redistributed its Capex, allocating R$451 Mln for projects related to Quality Improvements. 21
  • 21. National Plan: Fiber Network National and Metropolitan Fiber Network OTN: Expansion Plan (w/Swap, w/ AES) LONG DISTANCE METRO TOTAL 2011 KM 21,364 KM 7,532 KM 28,896 2012 KM 27,973 KM 9,705 KM 37,678 Macapá 2013 KM 36,540 KM 10,666 KM 47,206 Boa Vista Belém M São Luis M 2014 KM 41,308 KM 11,656 KM 52,964 Fortaleza M 2012-’14 M Tucuruí Natal M Building + Swap + AES Manaus M Teresina M João Pessoa KM 24,068 M Recife Petrolina M Maceió P. Velho Palmas M M Aracaju Rio Branco M Cuiabá M Salvador Brasília M Goiânia M M BHE MFTTS: Construction of 14 MAN (Metropolitan Rings) by YE2012 M M M M M Vitoria M Campo Grande M Campos Maringa M M M M M M M Rio de Janeiro M São Paulo M M M Curitiba M M Florianópolis M M Porto Alegre 22
  • 22. Improvement Plan Outlook=> Commitment on Network Development# TRX # Data Channel Elements Km of Fiber(„000) („000) („000 km) 741 271 53 241 47 205 517 38 181 33 157 29 328 250 +75% 139 4.3x +84% 2011 1H12 2H12 2013 2014 2011 1H12 2H12 2013 2014 2011 1H12 2H12 2013 2014=> Commitment on Quality ImprovementSMP 5 – Call Completion SMP 7 – Drop Call SMP 9 – Drop of Data Connections(% of cluster above target) (% of cluster above target) (% of cluster above target) 92% 96% 97% 100% 100% 87% 93% 98% 100% 100% 76% 82% +400Bps +1,600Bps +700Bps 1H12 2H12 2013 2014 1H12 2H12 2013 2014 1H12 2H12 2013 2014 23
  • 23. TIM Fiber Update 24+
  • 24. What is TIM Fiber AES: widespread network in SP and RJ (urban area) Network Scale-up (Km) 5,316 A unique RJ 50% Network 1,650 P Mission: 1,500 SP 50% Build the strongest network in Brazil 100% 91% 9% P Rational: AES Telefonica Oi-TelemarInfrastructure 1) Increase of capacity andin SP capillarity: a. Backhauling: additional 5,300 km in top 2 cities b. Most valuable asset to swap with other operators 2) Network cost structure transformation a. Opex (leased lines)Complementary Backbone Backhauling Access b. Capex avoidance (eg. FTTS) Capillarities E 3) Prevent OPEX increase from D A A leased lines in the case other C operator buys the company B (AES prices are ~50% lower than Telefonica) TIM/Intelig Mobile Fixed AES (last mile) 25
  • 25. Brazilian Broadband Market: Low Performance Incumbents Internet speed Distance: Performance vs average distance from the central Share by speed Central distance Market Share Speed Share 10% 14% <2MB 21% 20% > 2km Altern. >12M 2-12M 65% 36% 80% 61% 2-5MB 3% 73% 45% 22% 80% 55% 75% 43% 31% < 2km 29% 20% Incumbent 13% >5MB <2M 4% BR UK US Italy Brazil Developed Countries • Current incumbents’ base has low performance… • ...situation should not change in the near term due to the high distance between clients and the central through the existing cooper networkFonte: BofA Merrill Lynch 2011 Global Wireline Matrix, Teleco, Nielsen and State of the Internet Q1 2012 (Akamai) 26
  • 26. Marginal CAPEX required to connect customersInvestment per active household (R$)Metropolitan Street Internal Installation ModemNetwork Equipment NetworkAerial ~500network + ~250 + ~125 + ~200 + ~125 ~2400Underground ~1,700nertwork ~500 • AES Acquisition: • Power Node • Installation. using • Not Necessary: • VDSL Modem: fully exploiting (MSAN) + premises existing building already existing cost efficient existing fiber access: high infrastructure connection solutions with network with high flexibility. time to (jumper. DDF) belonging to high standardized capillarity (5,500 market and costs the building products Km in SP/RJ). “i.e. efficiency drop instead of (standardized last mile” solution) 27
  • 27. TIM Fiber: Accessing value creation perspectiveR$1.1 Bln R$0.4 Bln Savings in Transport CAPEX and OPEX Corporate Segment Acceleration • Sites directly connected with fiber: • SP and RJ metropolitan areas represent 35% of the - Reducing leased lines OPEX national corporate market - Avoiding future CAPEX and OPEX • Intelig with ~4% of SME market share • Increasing sites capacity for speeds 4G like • Capillary access network allows quick installation and fast growth + TIM Fiber + TIM Fiber Total R$4.8 BlnR$0.8 Bln R$2.5 Bln Mobile Data Acceleration Launch of the Residential Broadband • Higher speeds in mobile access • Market in strong growth. with potential to grow ~R$ • High transport capacity. eliminating bottlenecks 2 Bln over the next 4-5 years • Possibility to accelerate FMS also through modems • Residential market underserved by incumbents. which present low performance due to old copper networks + TIM Fiber TIM Fiber 28
  • 28. Network and Marketing Highlights MSANs Homes Optical Passed Ready network Backbone to SellNetwork 2Construction 1 220k 3 Buildings authorized Building’s accessed MSANs installed 5,700 2,100 214 Market Demand Quality of Service (Units) (Mbps) 35 Download 1,8 Website 63k Speed RegistrationMarket Market Average Live TIMDemand andQuality of 20Service 0,4 Upload Activation 1k Speed Market Average Live TIM 29
  • 29. Offering: Live TIM TIM Fiber vs. Peers Speed 35 Mbps 50 Mbps 1 Mbps 30 Mbps 15 Mbps 35 Mbps 50 Mbps 10 Mbps 20 Mbps R$ 84.70 Don’t Offer R$162.80 R$362.80 R$129.90 R$179.90 Naked R$89.90 R$119.90 (R$ 29.80 w/ R$119.11 (R$ 79.90 w/ (R$ 99.90 w/ (R$299.90 w/ (R$59.90 w/ (R$99.90 w/ Price fixed) fixed) fixed) fixed) TV) TV) -25% Unlimited Fixed 10k min local + 25 Unlimited Unlimited Fixed on-net local + LD min mobile + 25 LD Unlimited local + LD Fixed (+ R$39.90) (+ R$54.90) (+ 69.90) (+ R$68.90) (+49.90) R$129.80 R$159.80 R$84.70 R$174.01 R$149.80 R$168.80 R$368.80 R$179.80 R$229.80 Bundle(BB + Fixed) -25% -13% -23% -56% Suspended Bundle R$179.70 R$209.70 R$144.60 R$199.70 R$218.70 R$428.70 R$184.70 R$224.70 Sales(+ Basic TV) -7% Discount: TIM Fiber 35Mbps vs others Discount: TIM Fiber 50Mbps vs. others 30
  • 30. Appendix 31+
  • 31. 2012-14 Drivers of Growth CAGR 11-14 3 Ways of Growth Revenue Growth R$ billion 17.1 Total 13.8 14.5 Double digit Revenue growth 15.3 Fixed 12.8 13.6 0.8 0.6 0.7 Services Revenues 12.2 12.9 14.5 Mobile 90 25% VAS 200 mou mln lines Incidence 2009 2010 2011 2012 2013 2014 Community Expansion FMS (Voice) Internet for All Mobile Customer Base FMS – Voice (MOU) Internet for All (Mobile Data) Million of lines Minutes of usage per line Data as % of Service Revenue 250 ~200 ~25% 200 90 129 116 150 14% 64 11% 12% 83 Double digit Double digit 51 100 41 Double digit growth growth growth 50 Outgoing Voice Revenues Data Revenues 0 2009 2010 2011 2012 2013 2014 2009 2010 2011 2012 2013 2014 2009 2010 2011 2012 2013 2014 32
  • 32. Network Continuous Evolution Network roadmap 2G (TRX Installed) 3G roll out 000 TRX Pop % 2G Managing the growth 271 >80% Speed up the toll out in 3G 157 HSPA mode 64% >10,000 hot spots by WiFi YE2012 2011 2014 2011 2014 FTTS Deployment in Top 42 cities FTTS Fiber Network FTTH ~1 Mln households by 2015 % of total traffic 000 km Efficiency >50,000 km in fiber optic 50% 53.0 42 Cities 24.1 TIM Fiber TIM Fiber: a “no Capex intensive” 14 Cities 28.9 approach to offer Residential Ultra BB in 2012 2014 2011 Swap + 2014 SP/RJ built out 33
  • 33. Take-aways on main TIM Brasil trends Revenues (New vs Old Plan) R$ Billion MTR glide path (-20% real term) as of feb‟12 New impacts approx. 250 bp in Revenues and EBITDA Old Revenues Growth resulting from further CB, voice MOU 17.1 and internet browsing 14.5 For 2012, revenues growth at >10% YoY (vs. 15.5 R$17.1Bln in 2011) 14.5 1yr in advance Network synergies from AES Integration 2010 2011 2012 2013 2014 Continuous efficiency in Go2Market (no subsidy, SAC/bad debt) Ebitda Absorbing MTR cut and TIM Fiber start-up Organic Capex For 2012, Ebitda growth at >10% YoY (vs. R$4.6Bln in 2011) % of Revenues; R$ billion 19,6 20 17,5  Expanding 2G capacity and 3G coverage 15  Accelerate FTTS in Top 42 Cities and Wi-fi 10 offloading 3.0 3.0 3.0 3.0 Capex  Tim Fiber start-up nds 2.8 CAPEX  CAPEX flat at 3 bln/year; R$9bn in 3 Years excluding 4G spectrum license (R$ 382.2 mln) 2010 2011 2012 2013 2014 34
  • 34. Offering (1/2): Prepaid & “Controle” INFINITY Pré: prepaid plan Base tariff: R$ 0.25/call (TIM to TIM local and LD) INFINITY Mais: R$ 0.50/call (TIM to fixed) INFINITY Web (data): R$ 0.50/day (unlimited usage) INFINITY Torpedo (sms): R$ 0.50/day (unlimited texting) Liberty Controle: monthly fee R$ 27 (R$10 to No membership fee use as wanted) No minimum recharge required Base tariff: unlimited local and LD calls TIM to TIM INFINITY Mais: R$ 0.50/call (TIM to fixed) INFINITY WEB MODEM: Daily internet for smartphones‟ heavy users INFINITY Web (data): R$ 0.50/day (unlimited (>10MB/day), tablets and dongles in a usage) prepaid concept. INFINITY Torpedo (sms): R$ 0.50/day Base tariff: R$ 1.99 per day (unlimited texting) Speed Cap: 80MB per day, after cap speed is limited to 50 Kbps. No membership fee 35
  • 35. Offering (2/2): Postpaid LIBERTY WEB: postpaid unlimited data plans for Smartphones, Tablets and Dongles LIBERTY WEB Smart: R$ 29.9/month (speed cap 300 MB)TIM LIBERTY: postpaid plan with monthly fees from R$39 to R$269depending on the package of minutes for other operators (50 to 800 LIBERTY WEB Light:min) R$ 35.0/month (speed cap 500 MB)Base tariff: unlimited local and LD calls TIM to TIM LIBERTY WEB Tablet: R$ 49.9/month (speed cap 800 MB)LIBERTY Torpedo (sms): R$ 9.90/month (unlimited texting) LIBERTY WEB Modem: R$ 69.9/month (speed cap 3GB + Dongle*)LIBERTY Viagem (national roaming): R$ 9.90/month (unlimited usagefor incoming calls when roaming) LIBERTY WEB Modem Plus: R$ 109.9/month (speed cap 5GB + Dongle*)LIBERTY Rádios (TIM-radio): R$ 9.90/month (unlimited local and LDcalls to radios) *12 x R$8.90 – no fine appliance nor contract LIBERTY PASSPORT VOZ (AmericasBEFORE: LIBERTY PASSPORT: Voice and data and Europe) - R$29.9/day: unlimitedRoaming Offer: (US$/min) postpaid offers for international incoming calls and 50 minutes of outgoingAmericas : roaming in a daily charge concept calls (local roaming calls and calls to TIMOutgoing: Local – 1.99 / Home – 3.99 fixed and mobile numbers in Brazil)Incoming: 2.69Data – R$ 33.0/MB LIBERTY PASSPORT WEB (Americas) -Rest of World: R$29.9/day: unlimited data / Europe -Outgoing: Local - 2.39 / Home – 4.99 R$39.9/dayIncoming: 2.39 More than 50 countries among 5Data – R$ 33.0/MB continents are eligible to the offers 36
  • 36. Historical Data: Financials (R$ Thousand) Description 2Q10 2Q11 3Q11 4Q11 1Q12 2Q12 2Q12 %YoYNet Revenues 3,558,982 4,251,758 4,371,388 4,710,566 4,468,319 4,547,332 7.0% Net Revenues on Services 3,349,985 3,743,998 3,886,617 4,259,425 4,015,418 3,984,174 6.4% Net Revenues on Products 208,997 507,760 484,771 451,141 452,900 563,158 10.9%Operating Expenses (2,548,906) (3,106,497) (3,214,681) (3,393,790) (3,299,666) (3,332,928) 7.3% Personnel expenses (147,520) (156,381) (158,351) (164,652) (175,997) (186,441) 19.2% Selling & marketing expenses (854,498) (946,894) (1,010,953) (1,079,699) (1,015,274) (920,101) -2.8% Network & interconnection (1,044,935) (1,140,126) (1,198,558) (1,281,199) (1,301,199) (1,311,753) 15.1% General & administrative (125,981) (134,326) (110,262) (133,745) (132,180) (126,452) -5.9% Cost Of Goods Sold (231,867) (587,588) (597,708) (544,674) (533,460) (631,464) 7.5% Bad Debt (90,458) (66,274) (60,825) (62,451) (56,640) (62,050) -6.4% Other operational revenues (expenses) (53,647) (74,909) (78,024) (127,370) (84,917) (94,667) 26.4%EBITDA 1,010,076 1,145,262 1,156,707 1,316,776 1,168,652 1,214,403 6.0% EBITDA Margin 28.4% 26.9% 26.5% 28.0% 26.2% 26.7% -23 BpsDepreciation & amortization (771,445) (615,889) (643,829) (641,338) (656,629) (664,233) 7.8%EBIT 238,631 529,373 512,878 675,438 512,024 550,171 3.9%Net Financial Results (58,911) (43,974) (61,450) (100,817) (42,178) (63,588) 44.6%Income before taxes 179,720 485,398 451,429 574,621 469,845 486,583 0.2% Income tax and social contribution (53,757) (135,417) (134,796) (173,463) (193,407) (139,796) 3.2%Net Income 125,964 349,981 316,632 401,158 276,439 346,787 -0.9% Description 2010 2011 YTD 2012Net Revenues 14,457,450 17,085,976 9,015,650 Net Revenues on Services 13,571,626 15,353,228 7,999,593 Net Revenues on Products 885,824 1,732,748 1,016,058Operating Expenses (10,263,854) (12,429,883) (6,632,595) Personnel expenses (586,722) (632,828) (362,438) Selling & marketing expenses (3,483,164) (3,933,753) (1,935,375) Network & interconnection (4,227,042) (4,724,475) (2,612,952) General & administrative (484,609) (502,640) (258,632) Cost Of Goods Sold (1,026,091) (2,062,552) (1,164,924) Bad Debt (310,498) (231,529) (118,690) Other operational revenues (expenses) (145,728) (342,105) (179,584)EBITDA 4,193,596 4,656,093 2,383,056 EBITDA Margin 29.0% 27.3% 26.4%Depreciation & amortization (2,993,461) (2,588,651) (1,320,861)EBIT 1,200,135 2,067,442 1,062,194Net Financial Results (245,457) (238,857) (105,766)Income before taxes 954,678 1,828,584 956,429 Income tax and social contribution 1,257,038 (547,357) (333,202)Net Income 2,211,716 1,281,228 623,226 37
  • 37. Historical Data: Financials (US$ Thousand) Description 2Q10 2Q11 3Q11 4Q11 1Q12 2Q12 2Q12 %YoYNet Revenues 1,985,297 2,663,600 2,672,520 2,615,277 2,524,263 2,315,258 -13.1% Net Revenues on Services 1,868,713 2,345,503 2,376,148 2,364,807 2,268,409 2,028,529 -13.5% Net Revenues on Products 116,584 318,097 296,373 250,470 255,855 286,730 -9.9%Operating Expenses (1,421,849) (1,946,128) (1,965,349) (1,884,211) (1,864,063) (1,696,949) -12.8% Personnel expenses (82,291) (97,968) (96,811) (91,414) (99,425) (94,926) -3.1% Selling & marketing expenses (476,662) (593,201) (618,063) (599,442) (573,553) (468,466) -21.0% Network & interconnection (582,893) (714,255) (732,758) (711,314) (735,079) (667,874) -6.5% General & administrative (70,275) (84,151) (67,411) (74,255) (74,672) (64,383) -23.5% Cost Of Goods Sold (129,342) (368,106) (365,419) (302,399) (301,365) (321,508) -12.7% Bad Debt (50,460) (41,519) (37,186) (34,672) (31,997) (31,593) -23.9% Other operational revenues (expenses) (29,926) (46,928) (47,701) (70,715) (47,972) (48,199) 2.7%EBITDA 563,448 717,472 707,172 731,066 660,201 618,309 -13.8% EBITDA Margin 28.4% 26.9% 26.5% 28.0% 26.2% 26.7% -23 BpsDepreciation & amortization (430,333) (385,836) (393,615) (356,067) (370,946) (338,192) -12.3%EBIT 133,115 331,636 313,557 374,999 289,255 280,118 -15.5%Net Financial Results (32,862) (27,549) (37,568) (55,973) (23,828) (32,375) 17.5%Income before taxes 100,253 304,087 275,988 319,026 265,427 247,742 -18.5% Income tax and social contribution (29,987) (84,835) (82,410) (96,305) (109,260) (71,177) -16.1%Net Income 70,266 219,253 193,579 222,721 156,167 176,566 -19.5% Description 2010 2011 YTD 2012Net Revenues 8,231,230 10,201,868 4,839,522 Net Revenues on Services 7,724,407 9,163,550 4,296,937 Net Revenues on Products 506,823 1,038,317 542,584Operating Expenses (5,842,070) (7,423,994) (3,561,012) Personnel expenses (333,456) (378,222) (194,351) Selling & marketing expenses (1,982,451) (2,348,218) (1,042,020) Network & interconnection (2,404,499) (2,820,821) (1,402,954) General & administrative (275,650) (300,371) (139,054) Cost Of Goods Sold (587,945) (1,235,395) (622,872) Bad Debt (175,766) (138,555) (63,590) Other operational revenues (expenses) (82,302) (202,411) (96,171)EBITDA 2,389,160 2,777,874 1,278,510 EBITDA Margin 29.0% 27.2% 26.4%Depreciation & amortization (1,700,012) (1,547,913) (709,137)EBIT 689,148 1,229,961 569,372Net Financial Results (139,353) (140,652) (56,203)Income before taxes 549,795 1,089,309 513,169 Income tax and social contribution 745,372 (325,734) (180,437)Net Income 1,295,167 763,575 332,733 38
  • 38. Historical Data: Operational Description 2Q10 2Q11 3Q11 4Q11 1Q12 2Q12 2Q12 %YoY Brazilian Wireless Subscriber Base (000`s) 185,135 217,346 227,352 242,232 250,826 256,131 17.8% Estimated Total Penetration 95.9% 111.6% 116.5% 123.87% 128.00% 130.44% 1,882 Bps Municipalities Served (GSM) 3,198 3,233 3,259 3,294 3,305 3,312 2.4% Market Share 24.00% 25.55% 26.04% 26.46% 26.80% 26.89% 26.89% Total Lines (000s) 44,425 55,525 59,210 64,083 67,217 68,874 24.0% Pre-paid Lines (000s) 37,469 47,506 50,559 54,778 57,564 58,873 23.9% Post-paid Lines (000s) 6,956 8,019 8,651 9,305 9,653 10,001 24.7% Gross Additions (000s) 6,366 9,257 10,186 11,836 9,880 9,814 6.0% Net Additions (000s) 2,057 2,676 3,685 4,873 3,134 1,656 -38.1% Churn 10.1% 12.3% 11.6% 11.7% 10.5% 12.1% -22 Bps Total ARPU 24.2 21.6 21.2 21.9 19.1 18.3 -15.4% Total MOU 110 127 130 131 126 127 0.2% SAC 63 35 36 28 32 26 -25.7% Handsets Sold (000s) 1,915 3,507 3,164 2,847 2,284 2,511 -28.4% CAPEX (R$ Mln) 520 724 852 1,150 543 1,057 45.9% CAPEX (US$ Mln) 290 454 521 639 307 538 18.6% Employees 9,007 10,034 10,248 10,562 10,761 10,948 9.1% 39
  • 39. Taxation Over Telecom in Brazil Telecom Tax Aliquots in Brazil Telecom Tax Aliquots in Brazil % of Gross Revenues % of Net Revenues LatAm Average 25,00% 20% Mexico 15% Nicaragua 15% Venezuela 14% Colombia 3,65% 20% 3,80% Ecuador 1,35% 27% Peru Brazil ICMS* FISTEL PIS/COFINS FUST / 19% 40% FUNTTEL BoliviaAmount paid 13% 4,451 1,051 940 224only by TIM(R$ Mln) Chile 19% In 2011, considering the abovementioned taxes in addition to Argentina others local taxes such as the income tax, TIM paid a total 25% amount of R$7.3 billion or 42.5% of total net revenues. Paraguay 10% * From 25% to 35% Source: Teleco website, Telebrasil; Company Source: UIT, Deloitte and Acel 40
  • 40. Brazil: Becoming a more solid Economy Country Risk (EMBI+ Brazil) FX Rate (EoP) Public Debt as % of GDP International Reserves (Bps) (R$/US$) (Avg%) (Avg Billion US$) 1.569 3,52 51,4% 335 45,1% 2,12 36,5% 1,88 2,00 193 218 37 67 2002 2006 2011 2002 2006 2011 2012* 2002 2006 2011 2002 2006 2011 Inflation Rate (IPCA) Interest rates (SELIC – EoP) Bank Credit as % of GDP Bovespa’s Trading Volume (%) (%) (%) (Avg R$ Billion) 23,3% 12,5% 47,2% 4,7 30,8% 6,5% 13,3% 24,0% 2,4 5,0% 11,0% 3,1% 7,3% 0,6 2002 2006 2011 2012* 2002 2006 2011 2012* 2002 2006 2011 2002 2006 2011* Source: Median of Market Expectations (BaCen) – 08/08/2012 41
  • 41. Shareholders Structure and Stock performance Telecom Italia 100% Stock Performance (base 100) Telecom Italia International N.V. 140 100% 120 TIM Brasil Serv. e Part. S.A. Minorities 100(1,611,969,946) Total: 67% Total: 33% (805,662,701) 80 60 40 TIM Participações S.A. 20 100% 100% 0 TIM Celular S.A. Intelig TIMP3 Ibovespa TSU 99% 100% TIM Fiber RJ TIM Fiber SP 42
  • 42. Safe Harbor and IR Contacts Safe Harbor Statements Investor Relations Team Avenida das Américas, 3434 - Bloco 01 Statements in this presentation, as well as oral 6 andar – Barra da Tijuca 22640-102 Rio de Janeiro, RJ statements made by the management of TIM E-mail: ri@timbrasil.com.br Participações S.A. (the “Company”, or “TIM”), that Rogério Tostes are not historical fact constitute “forward looking E-mail: rtostes@timbrasil.com.br statements” that involve factors that could cause Phone: +55 21 4109-3742 the actual results of the Company to differ Vicente Ferreira E-mail: vdferreira@timbrasil.com.br materially from historical results or from any Phone: +55 21 4109-3360 results expressed or implied by such forward Leonardo Wanderley looking statements. The Company cautions users E-mail: lwanderley@timbrasil.com.br of this presentation not to place undue reliance on Phone: +55 21 4109-4017 forward looking statements, which may be based Gustavo Valente E-mail: gvalente@timbrasil.com.br on assumptions and anticipated events that do Phone: +55 21 4109-3446 not materialize. Luiza Chaves E-mail: luchaves@timbrasil.com.br Phone: +55 21 4109-3751 Visit our Website www.tim.com.br/ir 43