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  1. 1. CS Global Media & Communications Convergence Conference Pedro Ripper Strategic Planning &New Business Director June 10, 2009 Investor Relations Tele Norte Leste Participações S.A.
  2. 2. Agenda <ul><ul><li>Brazilian Telecommunications Market 2 </li></ul></ul><ul><ul><li>Oi: Profile and Results 8 </li></ul></ul><ul><ul><li>Expectations for the Future and Strategy 13 </li></ul></ul>
  3. 3. Brazil Snapshot Source: ANATEL, IBGE, Teleco, ML Wireless, UNCTAD and Internet World Stats; *FOCUS Report – Brazilian Central Bank <ul><ul><li>Land Area </li></ul></ul><ul><ul><ul><li>8.5 million Km 2 (e.g: England=3% of Brazilian area) </li></ul></ul></ul><ul><ul><li>Population </li></ul></ul><ul><ul><ul><li>190 million inhabitants </li></ul></ul></ul><ul><ul><ul><li>56 million households (85% urban) </li></ul></ul></ul><ul><ul><li>Economy </li></ul></ul><ul><ul><ul><li>GDP: US$ 1.5 Trillion (2008) </li></ul></ul></ul><ul><ul><ul><li>GDP per capita PPP: US$ 7.7 thousand </li></ul></ul></ul><ul><ul><ul><li>Currency: US$ 1,00 = R$ 1.95 (May/09) </li></ul></ul></ul><ul><li>10 th economy in the world </li></ul><ul><li>Declining interest rates , although still one the highest worldwide </li></ul><ul><ul><li>Selic : 13.75% in December 2008; 10.25% current; 9.0% 2009E* </li></ul></ul><ul><li>Inflation under control for more than a decade </li></ul><ul><ul><li>CPI : 5.9% in 2008; 4.33% 2009E* </li></ul></ul><ul><li>During the recent crisis, Brazil has been more resilient than main developed countries in terms of economy growth </li></ul>Brazil assumes increasing importance in the international economic environment Brazil in Numbers 2009
  4. 4. Brazilian Telecom Sector 98 <ul><li>State-owned monopoly </li></ul><ul><li>Lack of investments </li></ul><ul><li>Low quality of services </li></ul><ul><li>Huge pent-up demand in fixed and mobile </li></ul><ul><li>Incipient Internet </li></ul><ul><ul><li>Pre-Privatization </li></ul></ul><ul><ul><li>Post-Privatization </li></ul></ul><ul><ul><li>Current Scenario </li></ul></ul><ul><li>Multiple players </li></ul><ul><li>Focus on universal and quality of services </li></ul><ul><li>Expansion of fixed and mobile </li></ul><ul><li>GSM launch </li></ul><ul><li>Broadband start-up </li></ul><ul><li>Focus on competition </li></ul><ul><li>Consolidation </li></ul><ul><li>Mature fixed; mobile and broadband as growth drivers </li></ul><ul><li>Convergence in early stages </li></ul><ul><li>Launch of 3G </li></ul>03 09 Sector’s Evolution
  5. 5. Brazilian Telecom Sector Performance of the Brazilian Market – Fixed and Mobile Fixed Market Million, Lines in Service Dec07 Dec08 39.4 41.3 <ul><ul><li>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) </li></ul></ul><ul><ul><li>Incumbents’ share losses to new entrants at significant lower pace as compared to developed markets </li></ul></ul><ul><ul><li>Penetration 51% of households </li></ul></ul>Mobile Market Million, Mobile Users <ul><ul><li>Market has accelerated growth in 2008, but started 2009 at a lower rhythm (22% in 1Q09 vs 23% in 1Q08). </li></ul></ul><ul><ul><li>Net additions of 3.0 mn in 1Q09 are 37% below 1Q08 due to the clean-up of subscribers base </li></ul></ul><ul><ul><li>Naked sim card continues as national trend </li></ul></ul><ul><ul><li>Penetration 81% of inhabitants </li></ul></ul>38.8 Dec06 38.8 Dec02 Dec07 Dec08 Dec06 Dec02 Mar09 121.0 150.6 99.9 34.9 153.7 Mar09 41.9 CAGR06-08: 3.1% CAGR06-08: 22.8%
  6. 6. Brazilian Telecom Sector Performance of the Brazilian Market – Broadband and Pay-TV Broadband Market* Million, Users Dec07 Dec08 7.7 10.6 <ul><ul><li>Continuous expansion in 2008 (38%) </li></ul></ul><ul><ul><li>3G changes the industry’s dynamic: 3G data cards as major trigger for a new wave of growth in 1Q09 </li></ul></ul><ul><ul><li>Fierce competition in areas that concentrate high-end clients and falling ARPU </li></ul></ul><ul><ul><li>Penetration of 18% of households (fixed broadband) </li></ul></ul>5.6 13.6 Dec02 Mar09 Pay-TV Market Million, Users Dec07 Dec08 5.3 6.3 <ul><ul><li>Strong pent-up demand (still of high cost service) </li></ul></ul><ul><ul><li>Cable-TV accounts for 63% and DTH for 33% of the acesses </li></ul></ul>3.6 6.6 Dec06 Mar09 * Fixed b roadband 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 4.6 Dec02 CAGR06-08: 37.6% CAGR06-08: 17.0% ADSL Cable & Others 3G Data Cards
  7. 7. 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 Embratel (Telmex) Claro (Am. Moviles) Region IV 26% Mexican Group 14% <ul><li>New Oi (Oi + BrT) </li></ul><ul><ul><li>33% </li></ul></ul><ul><li>Telefónica + Vivo </li></ul><ul><ul><li>29% </li></ul></ul><ul><li>Claro + Net + Embratel </li></ul><ul><ul><li>24% </li></ul></ul><ul><li>TIM: 12% </li></ul><ul><li>Others: 2% </li></ul>Revenues market-share March/09 Telefonica 28% 30% Region III Spanish Group* Vivo (JV TEF+PT) National Full Integrated 52% 21% New Oi* National National TIM 23% (Mobile only) National
  8. 8. Agenda <ul><ul><li>Brazilian Telecommunications Market 2 </li></ul></ul><ul><ul><li>Oi: Profile and Results 6 </li></ul></ul><ul><ul><li>Expectations for the Future and Strategy 13 </li></ul></ul>
  9. 9. Businesses and Domestic Footprint Source: Anatel and Companies; * December/2008 <ul><ul><li>Pioneer in m-payment </li></ul></ul><ul><li>Globenet </li></ul><ul><ul><li>22,000 km of submarine cable linking Brazil, Venezuela, Bermuda and USA </li></ul></ul><ul><li>ISP/Portal </li></ul><ul><ul><li>Largest Brazilian ISP </li></ul></ul><ul><ul><li>4 cities (cable) </li></ul></ul><ul><ul><li>Future national DTH operations </li></ul></ul>Belo Horizonte Uberlândia Poços de Caldas Barbacena <ul><ul><li>58 million clients (RGUs) </li></ul></ul><ul><ul><li>28% of total clients in Brazil </li></ul></ul><ul><ul><li>Higher group in revenues , with 33% of all revenues in the sector </li></ul></ul>The New Company: Businesses and Subscribers Millions; March/09 Pay-TV Other businesses Fixed Mobile Broadband 4º <ul><ul><li>52% </li></ul></ul><ul><ul><li>4.8 th. </li></ul></ul><ul><ul><li>21% </li></ul></ul><ul><ul><li>2.3 th. </li></ul></ul><ul><ul><li>38%* </li></ul></ul><ul><ul><li>1.9 th. </li></ul></ul>1º 1º 1º 1º 1º 21.8 Cities* share Brazil 31.8 Total Domestic Coverage 3.9
  10. 10. Oi - Operating Highlights <ul><li>14.7% of Fixed Lines in Service in Region I and 23.1% in Region II </li></ul><ul><li>Focus of investments, mainly in Region I, where the numbers of cities covered accounts for just 14% of total (versus 80% in Region II) </li></ul>Revenue Generating Units Revenue Generating Units ( Million) 1Q09 <ul><ul><li>0.06* </li></ul></ul>57.7 * Oi TV clients (Video) <ul><ul><li>0.06* </li></ul></ul>2008 2007 2006 Total RGUs Million, Users 55.9 45.6 41.7 2006 2007 2008 16.5 20.3 30.0 31.8 1Q09 Mobile Mix Million, Users Pre-paid Post-paid Broadband Broadband Fixed Mobile
  11. 11. Oi - Financial Highlights: Consolidated Gross Revenue and EBITDA (R$ billion) Consolidated Gross Revenues R$ million 1Q08 1Q09 10,431 11,242 3.6%  1Q08 7.8% 28.4% Consolidated EBITDA – Oi (TNE) R$ Million; Margin % 1Q08 1Q09 Rec. 2,377 <ul><li>Non Recurring items in 1Q09: </li></ul><ul><li>Consultancy firms expenses related to BrT operation </li></ul><ul><li>End of subsidies deferral to retail post-paid handsets (related to end of the fine**) </li></ul><ul><li>Integration with BrT </li></ul><ul><li>Non Comparable items in 1Q09 vs 1Q08: </li></ul><ul><li>Start-up in São Paulo and acquisition of Amazônia Celular </li></ul><ul><li>Standardization of Oi’s and BrT’s accounting practices </li></ul>35.7% 31.7% Non-recurring items Recurring EBITDA Margin Fixed Mobile
  12. 12. Oi – Financial Highlights Consolidated CAPEX and Debt Revenue Generating Units ( Million) 1Q09 0.8 2008 2007 2006 Consolidated CAPEX Million, Users 7.3 3.7 3.8 1Q08 0.9 Consolidated Gross Debt R$ Billion Mar/08 Dec/08 9.0 20.5 Local Currency Foreign Currency Mar/09 25.9 Mar/08 Dec/08 Mar/09 Consolidated Net Debt R$ Billion <ul><ul><li>Foreign exchange exposure: 2.2% </li></ul></ul><ul><ul><li>Effective cost of debt: 11.65% (97% of CDI) </li></ul></ul><ul><ul><li>Net Debt/adjusted EBITDA: 1.9x </li></ul></ul><ul><ul><li>12.1% of 1Q09 net revenue (vs 11.2% in 1Q08) </li></ul></ul>Fixed Mobile Hedge
  13. 13. Agenda <ul><ul><li>Brazilian Telecommunications Market 2 </li></ul></ul><ul><ul><li>Oi: Profile and Results 6 </li></ul></ul><ul><ul><li>Expectations for the Future and Strategy 13 </li></ul></ul>
  14. 14. <ul><ul><li>Launch of new services </li></ul></ul><ul><ul><ul><li>Mobile </li></ul></ul></ul><ul><ul><ul><li>Long distance </li></ul></ul></ul><ul><ul><ul><li>Broadband </li></ul></ul></ul><ul><ul><ul><li>ISP </li></ul></ul></ul><ul><ul><li>Counter attack against new entrants </li></ul></ul><ul><ul><li>Customer segmentation </li></ul></ul><ul><ul><li>Fast growth and network expansion of </li></ul></ul><ul><ul><ul><li>Mobile </li></ul></ul></ul><ul><ul><ul><li>Broadband </li></ul></ul></ul><ul><ul><li>Service convergence </li></ul></ul><ul><ul><li>New services </li></ul></ul><ul><ul><ul><li>Pay TV </li></ul></ul></ul><ul><ul><ul><li>Mobile payment </li></ul></ul></ul><ul><ul><li>M&As and consolidation </li></ul></ul><ul><ul><li>Integration of regional operations </li></ul></ul><ul><ul><li>Fixed network expansion to fulfill regulatory obligations </li></ul></ul>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
  15. 15. Future scenario <ul><ul><li>Auction for 4G frequency bands </li></ul></ul><ul><ul><li>Regulation of new pro competitive actions (PGR) </li></ul></ul><ul><ul><li>Mobile Interconnection Rates based on cost models (VU-M) </li></ul></ul><ul><ul><li>WiMax as possible access solution </li></ul></ul><ul><ul><li>Next Generation Networks (NGN) </li></ul></ul><ul><ul><li>FTTX access becomes significant </li></ul></ul><ul><ul><li>Incumbents permitted to provide IPTV broadcasting and/or to buy cable companies through approval of: </li></ul></ul><ul><ul><ul><li>PL #29 and/or </li></ul></ul></ul><ul><ul><ul><li>New auction for cable licenses </li></ul></ul></ul><ul><ul><li>Auction for WiMax frequency bands </li></ul></ul><ul><ul><li>Increase of Internet penetration </li></ul></ul><ul><ul><li>Mobile reaching maturity with increased VAS relevance </li></ul></ul><ul><ul><li>Increase of Pay TV penetration </li></ul></ul><ul><ul><li>Strong competition in mobility (traffic) with portability and 3G </li></ul></ul><ul><ul><li>3G becomes an alternative access for broadband retail </li></ul></ul><ul><ul><li>More competition in broadband with 3G/4G and WiMax </li></ul></ul><ul><ul><li>New competition with alternatives ways of access </li></ul></ul><ul><ul><li>Continuation of main trends </li></ul></ul><ul><ul><ul><li>Consolidation </li></ul></ul></ul><ul><ul><ul><li>Slight reduction in fixed lines </li></ul></ul></ul><ul><ul><ul><li>Mobile and broadband as growth drivers </li></ul></ul></ul><ul><ul><li>Fixed companies launching DTH services </li></ul></ul><ul><ul><li>Triple Play ›› Quadruple Play </li></ul></ul>The short and long term market evolution bring some challenges Long term Regulation Technology Short term Market Competition
  16. 16. <ul><ul><li>Increase market share </li></ul></ul><ul><ul><li>Increase ARPU </li></ul></ul><ul><ul><li>Geographical expansion </li></ul></ul><ul><ul><li>New services and business </li></ul></ul><ul><ul><li>Include new clients </li></ul></ul>Strategy To face the future scenario and the limited outlook for long-term expansion, Oi decided to analyze the adoption of new growth levers Growth levers New clients New markets Share ARPU New services GEOGRAPHY SERVICES CLIENTS Lower income Telecom Other business Higher income Region I Brazil International Related to telecom Growth strategies <ul><ul><li>Organic growth </li></ul></ul><ul><ul><li>Mergers and acquisitions </li></ul></ul>2 1 3
  17. 17. Include new services in a convergent portfolio <ul><li>Differentiation as the only player with integrated and convergent services </li></ul><ul><li>Launch of new services to strengthen Oi’s convergent position (e.g. Pay TV) </li></ul>Include new clients with focus on low income segment <ul><li>Differentiation with innovative strategy for the low income segment </li></ul><ul><li>Creation of new business models (e.g. no handset subsidies with sale of standalone chips) </li></ul>/23 Strategy Oi decided to focus on strengthening its convergent offer and on its strong presence at the low income segment 1 2
  18. 18. <ul><li>No handset subsidies: SIM card-only with free on net and fixed to mobile calls </li></ul><ul><li>Broaden pre-paid recharge base through allowing recharges of R$1 </li></ul><ul><li>Bundles for premium customers </li></ul><ul><li>Discount in services or credit instead of handset subsidies </li></ul><ul><li>Fixed-Mobile convergent offering for the corporate </li></ul>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 <ul><li>Region II </li></ul><ul><ul><li>Pre-paid: leverage base through the successful model of Region I </li></ul></ul><ul><ul><li>Post-paid: broaden convergent offerings </li></ul></ul><ul><li>Region III </li></ul><ul><ul><li>Focus on pre-paid though aggressive offerings </li></ul></ul><ul><ul><li>Bundles with national long distance </li></ul></ul><ul><li>Corporate </li></ul><ul><ul><li>Leverage presence with the national coverage and convergence </li></ul></ul>Pre-paid Post-paid Pre-paid customer base Index, 100 = Jan/07, Brazil Current strategy Growth opportunities 2 3
  19. 19. 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 2007 2008 2009 2010/2011 Covered cities Population (% Regions I and II) GDP (% Regions I and II) 1
  20. 20. 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 <ul><li>Acquisition of Way TV in 2006 allowed Oi to become the first quadruple-play company in Brasil (four cities) </li></ul><ul><ul><li>Oi has developed expertise in the cable TV business (marketing, sales, operations, economics) </li></ul></ul><ul><li>The launch of Oi’s satellite pay TV services focusing B/C segments in 2009 it is an opportunity to </li></ul><ul><ul><li>Exploit a large customer base that is not covered by the current players with a suitable offer </li></ul></ul><ul><ul><li>Fulfill Oi’s convergence portfolio gaps </li></ul></ul><ul><ul><li>Get scale to support the satrtegy of cost leadership </li></ul></ul><ul><ul><li>Develop operational expertise </li></ul></ul><ul><ul><li>A </li></ul></ul>1,3 With pay TV Households per social economic segment Million households 8,9 <ul><ul><li>B </li></ul></ul><ul><ul><li>C </li></ul></ul>16,2 7,8 <ul><ul><li>D </li></ul></ul>63% 24% 6% 1% 0,5 MM 6,8 MM 15,2 MM 7,7 MM Without pay TV Market profile Oi´s movements in the Pay TV market 1
  21. 21. Strategy Internet and mobile payment are others key elements in this expansion to new business <ul><li>Leader in broadband and dial up ISP Services (market share of 35% and 68%) </li></ul><ul><li>Vice-leader in the national portal business (audience only 8% lower than the national portal leader </li></ul><ul><li>Become the national leader monetizing its audience and leveraging sinergies with other businesses </li></ul><ul><li>Leverage new services such as online music and multiplatform advertising </li></ul><ul><li>Fulfill current gaps through partnerships and M&A opportunities </li></ul><ul><li>Exploit synergies with telco and other businesses </li></ul><ul><li>Exploit new payment opportunities </li></ul><ul><li>Operational focus on selected markets </li></ul><ul><li>Focus on partnerships to increase the acceptance and customer base </li></ul><ul><li>First and innovative mobile payment plataform in Brazil </li></ul><ul><ul><li>Strong synergies with Oi mobile business (data services platform, credit information, relationship) </li></ul></ul><ul><ul><li>High upside potential related to credit card/electronic payment market dynamics </li></ul></ul>Internet business Mobile payment Business profile Challenges and strategy 1
  22. 22. Oi Mobile ~R$600 mn Synergies <ul><ul><li>Synergies </li></ul></ul><ul><ul><li>Establishment of a national company from two regional companies, which rapidly captures potential synergies </li></ul></ul><ul><ul><ul><li>Integration of the two companies started since day zero </li></ul></ul></ul><ul><ul><ul><li>Management structure has already been defined </li></ul></ul></ul><ul><ul><li>Prioritize the identification of quick-wins based on the best practices of each company </li></ul></ul><ul><ul><li>Market </li></ul></ul><ul><ul><li>Reinforce the strategy of differentiation through convergence in a segmented manner </li></ul></ul><ul><ul><li>Portfolio integration and single brand </li></ul></ul>Net Debt/ EBITDA R$ 5 to 6 billion CAPEX Oi Fixed Oi Velox (Broadband) Strategy Integration of BrT is a key point in the company strategy of expanding to new regions besides increasing operational and financial efficiency 2009E Expectations 39 million Growth, especially in Regions II and III 3.0% of consolidated operating costs/expenses 2.0x Reduction Reduction ~ 21.0 mn Slight reduction 4.5 million Growth, especially in Region I 3
  23. 23. <ul><ul><li>Thank You ! </li></ul></ul>