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Ri Cs Global Media Comunications Cof Jun09 Ripper


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Ri Cs Global Media Comunications Cof Jun09 Ripper

  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 Brazilian Telecommunications Market 2 Oi: Profile and Results 8 Expectations for the Future and Strategy 13 2
  3. 3. Brazil Snapshot Brazil assumes increasing importance in the international economic environment Brazil in Numbers 2009 • 10th economy in the world • Declining interest rates, although still one the highest worldwide − Selic: 13.75% in December 2008; 10.25% current; 9.0% 2009E* • Land Area – 8.5 million Km2 (e.g: England=3% of • Inflation under control for more than a Brazilian area) decade • Population – 190 million inhabitants − CPI: 5.9% in 2008; 4.33% 2009E* – 56 million households (85% urban) • During the recent crisis, Brazil has been • Economy more resilient than main developed – GDP: US$ 1.5 Trillion (2008) – GDP per capita PPP: US$ 7.7 thousand countries in terms of economy growth – Currency: US$ 1,00 = R$ 1.95 (May/09) Source: ANATEL, IBGE, Teleco, ML Wireless, UNCTAD and Internet World Stats; *FOCUS Report – Brazilian Central Bank Investor Relations | 3
  4. 4. Brazilian Telecom Sector Sector’s Evolution 09 03 Current Scenario 98  Focus on competition Post-Privatization  Consolidation  Mature fixed; mobile  Multiple players and broadband as Pre-Privatization  Focus on universal and growth drivers quality of services  Convergence in early  State-owned monopoly  Expansion of fixed and stages  Lack of investments mobile  Launch of 3G  Low quality of services  GSM launch  Huge pent-up demand in  Broadband start-up fixed and mobile  Incipient Internet Investor Relations | 4
  5. 5. Brazilian Telecom Sector Performance of the Brazilian Market – Fixed and Mobile Fixed Market Mobile Market Million, Lines in Service Million, Mobile Users CAGR06-08: 22.8% 153.7 150.6 121.0 CAGR06-08: 3.1% 99.9 38.8 38.8 39.4 41.3 41.9 34.9 Dec02 Dec06 Dec07 Dec08 Mar09 Dec02 Dec06 Dec07 Dec08 Mar09 • After being stable from 2002-06, the fixed market had a • Market has accelerated growth in 2008, but started 2009 slight growth in the past 2 years due to new entrants at a lower rhythm (22% in 1Q09 vs 23% in 1Q08). (specially high-end and SMEs) • Net additions of 3.0 mn in 1Q09 are 37% below 1Q08 • Incumbents’ share losses to new entrants at significant due to the clean-up of subscribers base lower pace as compared to developed markets • Naked sim card continues as national trend • Penetration 51% of households • Penetration 81% of inhabitants Investor Relations | 5
  6. 6. Brazilian Telecom Sector Performance of the Brazilian Market – Broadband and Pay-TV Broadband Market* Pay-TV Market Million, Users ADSL Cable & Others Million, Users 3G Data Cards CAGR06-08: 37.6% CAGR06-08: 17.0% 13.6 10.6 6.3 6.6 5.3 5.6 7.7 4.6 3.6 0.6 Dec02 Dec06 Dec07 Dec08 Mar09 Dec02 Dec06 Dec07 Dec08 Mar09 • Continuous expansion in 2008 (38%) • Strong pent-up demand (still of high cost service) • 3G changes the industry’s dynamic: 3G data cards • Cable-TV accounts for 63% and DTH for 33% of as major trigger for a new wave of growth in 1Q09 the acesses • Fierce competition in areas that concentrate high- end clients and falling ARPU • Penetration of 18% of households (fixed broadband) * Fixed broadband 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. 6 Investor Relations |
  7. 7. Competition: Main Telecom Groups in Brazil Market Share of Wireline and Wireless Subscribers and Revenues – March 2009 New Oi* Spanish Group* Full Integrated Telefonica Vivo (JV TEF+PT) National National Revenues market-share March/09 • New Oi (Oi + BrT) 52% 21% 28% Region III − 33% 30% • Telefónica + Vivo − 29% Mexican Group TIM • Claro + Net + Embratel Embratel (Telmex) Claro (Am. Moviles) (Mobile only) − 24% • TIM: 12% • Others: 2% National Region IV National 14% 26% 23% National Market Share - Fixed Lines in Service National Market Share - Mobile Users * Also operates Long Distance and Data Transmission Nationally Investor Relations | 7
  8. 8. Agenda Brazilian Telecommunications Market 2 Oi: Profile and Results 6 Expectations for the Future and Strategy 13 Investor Relations | 8
  9. 9. Businesses and Domestic Footprint The New Company: Businesses and Subscribers Millions; March/09 Domestic Coverage Fixed Mobile Broadband Pay-TV Other businesses 1º 1º 1º • Pioneer in m- payment Belo Globenet Horizonte 4º • 22,000 km of 1º 1º Uberlândia submarine cable linking Brazil, Poços de Venezuela, Caldas Barbacena Bermuda and USA Total 21.8 31.8 3.9 ISP/Portal share Brazil • 52% • 21% • 38%* • 4 cities (cable) • Largest Brazilian • Future national ISP • 4.8 th. • 2.3 th. • 1.9 th. DTH operations Cities* • 58 million clients (RGUs) • 28% of total clients in Brazil • Higher group in revenues, with 33% of all revenues in the sector Source: Anatel and Companies; * December/2008 Investor Relations | 9
  10. 10. Oi - Operating Highlights Revenue Generating Units Revenue Generating Units (Million) Total RGUs Broadband Million, Users Mobile Broadband Fixed  14.7% of Fixed Lines in Service in Region I and 23.1% in Region II  Focus of investments, mainly in Region I, where the 57.7 numbers of cities covered accounts for just 14% of 55.9 total (versus 80% in Region II) 0.06* 0.06* 45.6 41.7 Mobile Mix Million, Users 31.8 30.0 20.3 16.5 Pre-paid Post-paid 2006 2007 2008 1Q09 2006 2007 2008 1Q09 * Oi TV clients (Video) Investor Relations | 10
  11. 11. Oi - Financial Highlights: Consolidated Gross Revenue and EBITDA (R$ billion) Consolidated Gross Revenues Consolidated EBITDA – Oi (TNE) R$ million R$ Million; Margin % Fixed Mobile Non-recurring items ∆1Q0 Non Recurring items in 1Q09: Recurring EBITDA Margin 8 • Consultancy firms expenses related to BrT operation 11,242 7.8% 10,431 2,377 • End of subsidies deferral to 28.4% retail post-paid handsets (related to end of the fine**) • Integration with BrT Non Comparable items in 1Q09 vs 1Q08: 3.6% • Start-up in São Paulo and acquisition of Amazônia Celular • Standardization of Oi’s and BrT’s 1Q08 1Q09 Rec. accounting practices 35.7% 31.7% 1Q08 1Q09 Investor Relations | 11
  12. 12. Oi – Financial Highlights Consolidated CAPEX and Debt Revenue Generating Units (Million) Consolidated Gross Debt Consolidated CAPEX R$ Billion Local Currency Foreign Currency Million, Users Mobile Fixed Hedge 25.9 • Foreign exchange 20.5 exposure: 2.2% 7.3 • Effective cost of 9.0 debt: 11.65% (97% of CDI) • 12.1% of 1Q09 Mar/08 Dec/08 Mar/09 3.8 3.7 net revenue (vs 11.2% in 1Q08) Consolidated Net Debt R$ Billion 0.8 0.9 • Net Debt/adjusted EBITDA: 1.9x 2006 2007 2008 1Q08 1Q09 Mar/08 Dec/08 Mar/09 Investor Relations | 12
  13. 13. Agenda Brazilian Telecommunications Market 2 Oi: Profile and Results 6 Expectations for the Future and Strategy 13 Investor Relations | 13
  14. 14. 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 Key points Competition increasing and consolidation 04 • Customer segmentation New businesses and competition • Fast growth and network expansion of – Mobile 02 – Broadband Integration and • Launch of new services • Service convergence obligations – Mobile • New services – Long distance – Pay TV – Broadband – Mobile payment 99 – ISP • Integration of regional • M&As and consolidation • Counter attack against operations new entrants • Fixed network expansion to fulfill regulatory obligations Investor Relations | 14
  15. 15. Future scenario The short and long term market evolution bring some challenges Short term Long term • Continuation of main trends • Increase of Internet penetration Market - Consolidation • Mobile reaching maturity with increased - Slight reduction in fixed lines VAS relevance - Mobile and broadband as growth drivers • Increase of Pay TV penetration • Fixed companies launching DTH services • Triple Play ›› Quadruple Play • Strong competition in mobility (traffic) with • More competition in broadband with 3G/4G Competition portability and 3G and WiMax • 3G becomes an alternative access for • New competition with alternatives ways of broadband retail access • Incumbents permitted to provide IPTV • Auction for 4G frequency bands Regulation broadcasting and/or to buy cable companies • Regulation of new pro competitive actions through approval of: (PGR) - PL #29 and/or • Mobile Interconnection Rates based on cost - New auction for cable licenses models (VU-M) • Auction for WiMax frequency bands • Next Generation Networks (NGN) Technology • WiMax as possible access solution • FTTX access becomes significant Investor Relations | 15
  16. 16. Strategy To face the future scenario and the limited outlook for long-term expansion, Oi decided to analyze the adoption of new growth levers Y International H P A New Growth levers R Brazil G 3 EO markets G Region I • Increase market share Share • Increase ARPU New Higher 1 • New services and services income ARPU business CLIENTS • Include new clients 2 • Geographical expansion New clients Lower Growth strategies income • Organic growth Telecom Related to Other telecom business • Mergers and acquisitions SERVICES Investor Relations |
  17. 17. Strategy Oi decided to focus on strengthening its convergent offer and on its strong presence at the low income segment Include new • Differentiation as the only player with integrated and services in a convergent services 1 convergent • Launch of new services to strengthen Oi’s convergent portfolio position (e.g. Pay TV) Include new • Differentiation with innovative strategy for the low clients with focus income segment 2 on low income • Creation of new business models (e.g. no handset segment subsidies with sale of standalone chips) Investor Relations 17/23 |
  18. 18. Strategy 2 3 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 Pre-paid Pre-paid customer base Post-paid Index, 100 = Jan/07, Brazil Oi Current •Bundles for premium strategy Others •No handset subsidies: SIM customers card-only with free on net •Discount in services or and fixed to mobile calls credit instead of handset subsidies •Broaden pre-paid •Fixed-Mobile convergent recharge base through offering for the corporate allowing recharges of R$1 Jan/07 Set/08 •Region II •Region III •Corporate Growth – Pre-paid: leverage base through – Focus on pre-paid though – Leverage presence opportunitie the successful model of Region I aggressive offerings with the national s – Post-paid: broaden convergent – Bundles with national long coverage and offerings distance convergence Investor Relations | 18
  19. 19. Strategy 1 In three years, Oi will consolidate its national leadership in the coverage of broadband services Oi’s fixed broadband coverage 2007 2008 2009 2010/2011 Covered cities % RI+RII # (thou) = 87% of Brazil Population (% Regions = 77% I and II) of Brazil GDP (% Regions I and II) Investor Relations | 19
  20. 20. Strategy 1 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 Oi´s movements in the Pay TV market Market profile Households per social With Without  Acquisition of Way TV in 2006 pay TV pay TV economic segment allowed Oi to become the first quadruple-play company in Brasil Million households (four cities) – Oi has developed expertise in the cable TV business (marketing, sales, A operations, economics) 63% 0,5 MM 1,3  The launch of Oi’s satellite pay TV services B 24% 6,8 MM focusing B/C segments in 2009 it is an 8,9 opportunity to – Exploit a large customer base that is not C covered by the current players with a 6% 15,2 MM 16,2 suitable offer – Fulfill Oi’s convergence portfolio gaps D 1% 7,7 MM – Get scale to support the satrtegy of cost 7,8 leadership – Develop operational expertise Investor Relations | 20
  21. 21. Strategy 1 Internet and mobile payment are others key elements in this expansion to new business Internet business Mobile payment  First and innovative mobile payment  Leader in broadband and dial up ISP plataform in Brazil Services (market share of 35% and 68%) – Strong synergies with Oi mobile  Vice-leader in the national portal Business business (data services platform, business (audience only 8% lower than profile credit information, relationship) the national portal leader – High upside potential related to credit card/electronic payment market dynamics  Become the national leader monetizing  Exploit synergies with telco and other its audience and leveraging sinergies with businesses Challenges other businesses  Exploit new payment opportunities and  Leverage new services such as online  Operational focus on selected markets strategy music and multiplatform advertising  Focus on partnerships to increase the  Fulfill current gaps through partnerships acceptance and customer base and M&A opportunities Investor Relations | 21
  22. 22. Strategy 3 Integration of BrT is a key point in the company strategy of expanding to new regions besides increasing operational and financial efficiency Synergies Expectations 2009E • Establishment of a national company from two regional companies, which rapidly 3.0% of consolidated Synergies captures potential synergies ~R$600 mn operating costs/expenses – Integration of the two companies R$ 5 to 6 started since day zero CAPEX Reduction billion – Management structure has already been defined Oi Fixed Slight reduction ~ 21.0 mn • Prioritize the identification of quick- wins based on the best practices of each Oi Velox Growth, especially in 4.5 million company (Broadband) Region I Market Growth, especially in • Reinforce the strategy of differentiation Oi Mobile 39 million Regions II and III through convergence in a segmented manner Net Debt/ Reduction 2.0x • Portfolio integration and single brand EBITDA Investor Relations | 22
  23. 23. Thank You ! Investor Relations | 23