2. TIM PARTICIPAÇÕES S.A. Investor Relations
Opening remarks
Innovative and Reliable brand: “Living beyond Technology”
First position in Top of mind¹
First position in brand Awareness¹
Choose as the best website in sustainability among the Brazilian telcos²
Best service provider IP NGN Infrastructure of the year – Cisco (2008)
Most innovative application of customer care
– 2008 excellence award (TM forum)
Note: 1 - Synovate Institute (Jun/08); 2- Management e Excellence; Revista Razão Contábil and IBRI
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4. TIM PARTICIPAÇÕES S.A. Investor Relations
2Q08 Highlights – An improving quarter
Actions Quarterly performance
1% growth QoQ to R$29.8 despite market
New pre-paid promotion (TIM 10x, focus on
overall drop
on-net bonus and ARPM)
ARPU The highest ARPU growth among peers
Focus on post-paid quality (high-end
customer and better mix) Supported by MOU performance (+7%YoY and
QoQ).
3G launch (May 1st);
TIM web sale grew by 2x QoQ Up 21% QoQ and 49% YoY; leveraged by 3G
VAS
Increase content partnership (revenue share 10% of net service revenue (vs 7% 2Q07)
agreement)
Telesales channel total remodeled; Sharp improvement QoQ: -25%;
Stricter credit policy; 6.8% of net service revenue (down from 9.6%
BAD DEBT
Commission based on quality of in 1Q08).
acquisitions.
Pre-paid offer focus on profitability 19% higher than 1Q08 to R$637 Mn;
(on-net driven);
EBITDA 2pp recovering in EBITDA margin QoQ, despite
Reducing leased lines cost through partial spill-over of 1Q08 trend.
in-source plan
Strict control over discretionary costs
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6. TIM PARTICIPAÇÕES S.A. Investor Relations
Telecom Industry Overview
Mobile Fixed Broadband
Mn lines Mn lines 16%
69% 14%
64% 66% 74%
59% 70% 71% 71% 10%
56%
7%
% Penetration per % Penetration per
total population total households
Market growth remains strong TIM geared to capture opportunities:
(purchase power improvement from low classes)
Alternative player to fixed line monopoly, after the number
Market net additions fueled by:
portability takes place;
Handset subsidies;
Benefit from strong growth in broadband and PC sales;
Aggressive on-net promotions;
Strengthening convergent strategy.
Naked SIM-Card sales.
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Source: Anatel and internal estimates*
7. TIM PARTICIPAÇÕES S.A. Investor Relations
TIM Performance
Subscriber Base (Mn) Market Share Performance
23.1%
32.5 33.8 First
29.2 31.3
27.5 Player*
Third
player
2Q07 3Q07 4Q07 1Q08 2Q08
Pre-paid segment grew by 26% YoY helped by “TIM Market share fairly stable in the coming quarters;
10x” promotion;
Focus on customer's share of wallet.
Subscriber mix remained above national peers
(post-paid stood at 20.2% vs. peers 18.6%);
Churn drop from 9.7% in 2Q07 to 8.4% in 2Q08 •Includes Vivo and Telemig Celular 7
•Source: ANATEL and company´s data.
9. TIM PARTICIPAÇÕES S.A. Investor Relations
Roadmap to a Convergent Company
...2006 2007 2008 2008...
MOBILE Strengthening our mobile
business
+
Capturing opportunities on
TIM fixed Number fixed voice services through
FIXED license portability number portability
TIM Casa TIM Casa Flex
+
TIM 3G Competing on broadband
INTERNET license market with mobility concept
TIM Web
TIM Web Broadband
+
Empowered partnership in
Partnership in Pay TV offers
Pay TV
=
Convergent Company
Increase customer's share of
wallet through bundle offers
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10. TIM PARTICIPAÇÕES S.A. Investor Relations
Third generation launch
Positioning &
Roll-out / Launching Advantages
partnerships
Push on cross selling offers;
Already in main metropolitan SPEED: Upgrade to 1Mbps
and 7Mbps; Convergent offers through
areas; wireless network;
SIMPLICITY: All „TIM Chip‟ are
Eased by our national coverage; TIM + : First notebook
3G ready; Buy & Play concept; with TIM Chip on-board;
Launch of unlimited TIM Web MOBILITY: Wireless internet TIM + : TIM mobile
data plans (1Mbps or 7.2Mbps); anywhere; broadband to UOL customer's
base;
ACCESSIBILITY: Any 3G
TIM Web limited data plans: TIM + : Pay-TV +
device and computers.
Broadband + Mobile.
Automatic upgrade to (1Mbps);
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11. TIM PARTICIPAÇÕES S.A. Investor Relations
VAS Strategy: Aiming Innovation and Profitability
VAS revenue: R$397 million (21% QoQ and 49% YoY);
10% of total gross service revenue (7% - 2Q07; 8% - 1Q08)
TIM web broadband sales increased by 2x QoQ (w/ incremental ARPU).
VAS 3G+ New facilities Content Offer Innovative Services
Mobile internet browsing Google tools TV channels TIM auction: a white
label reversal auction
TIM TV UOL Mobile
Orkut WAP (1st in Brazil) RingBack tones
TIM Music Store Sony-BMG content
GPS navigation service
YouTube Mobile in exclusivity at TIM
TIM Video Call Music Store Yellow pages service
Windows mobile for TIM
smart-phone portfolio
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13. TIM PARTICIPAÇÕES S.A. Investor Relations
Net Revenue performance
Total Net Revenues Outgoing voice revenues: Growth in outgoing due to new
R$ Mn promotions dynamic - with MOU and ARPU rebound QoQ;
3,060 2,993 3,186 Value-added services: Strong growth of 21% QoQ and
49% YoY, as a result of our focus on data package offers
and partnerships with strong content providers:
Incoming revenues: Flat incoming revenues due to
aggressive approach to on-net call‟s promotions for the
market as a whole and also F-M pattern change. TIM
maintains the focus on convergence in order to reduce the
dependence on incoming traffic and to capture new sources
Net Service Revenue Net Handsets Revenue of revenues;
Leader
In QoQ
YoY QoQ Growth Handset revenues: 22% YoY drop explained by lower
Total revenue +4.1% +6.5% handset price and naked SIM cards sales.
Service revenue +6.8% +4.7%
Handset revenue -22.4% +38.7%
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14. TIM PARTICIPAÇÕES S.A. Investor Relations
KPI’s performance (1/2)
ARPU MOU
R$ Minutes
-14% 7%
+1%
ARPU performance: MOU performance:
1% growth QoQ despite market overall drop and One of the highest MOU in the market;
post-paid mix decline;
Subscriber mix higher quality;
Best ARPU among cellcos in 2Q08;
YoY drop due to increase of pre-paid segment and Elasticity effect driven by promotions.
tariff promotions;
Without incoming effect, ARPU would have
increased by 4.1% QoQ 14
15. TIM PARTICIPAÇÕES S.A. Investor Relations
KPI’s performance (2/2)
SAC BAD DEBT
R$ -25%
R$ Mn
+5%
9.6%¹
+2%
6.8%¹
6.1%¹
¹ Bad debt / net service revenue
SAC performance: Bad debt performance:
Selling expenses increase amid 3G launch; Improving from 1Q results thanks to recovery
actions (e.g.: channel completely remodeled):
SAC/ARPU ratio stood at 4.0x (stable QoQ);
2Q still affected by telesales distribution channel;
Subsidies broadly stable, w/ focus on SIM card
Expected to reach ~6% of net service revenue for
sales.
the FY2008 (given credit policy process revision).
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16. TIM PARTICIPAÇÕES S.A. Investor Relations
EBITDA
EBITDA and EBITDA margin
R$ Mn
24.3% Year-over-year drop is still reflecting higher bad debt
20.0%
provision (amid telesales), and selling and network
17.9%
17.9
expenses (amid 3G launch), slightly offset by VAS
744 revenues increase (+49%);
637
535
Quarterly gain is largely attributed to a better top line
2Q07 1Q08 2Q08 (fueled by VAS and usage performance) and also from
the bad debt recovery and cost control.
YoY QoQ
EBITDA -14% +19%
EBITDA margin -4pp +2pp
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17. TIM PARTICIPAÇÕES S.A. Investor Relations
R$ Mln
EBITDA and EBITDA margin YoY performance
Selling expenses were up 7.6%
while gross adds grew by 8.7%
188.8 (62.3)
(46.9) 51.6
(172.8) (34.9)
(30.5)
Subs base +23%
Total traffic volume +33%
743.7
636.7
EBITDA Service Handsets Selling Network COGS Bad Debt Other EBITDA
2Q07 Revenue Revenue Expenses Expenses Expenses 2Q08
Change % YoY +6.8% -22.4% +7.6% +19.2% -13.7% +20.7% +12.1%
EBITDA Margin 24.3% 20.0%
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18. TIM PARTICIPAÇÕES S.A. Investor Relations
From EBITDA to bottom line – 2Q08
EBITDA Depreciation Net Financial Taxes and
EBIT Net Loss
R$ Mn 2Q08 Amortization Expenses Others*
636.7
636.7 596.3
596.3
40.3
40.3 (59.2)
(59.2)
(34.1)
(15.2) (34.1)
Change YoY -14.4% 4.6% -76.8% -27.4% -73.9% -
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* Other non-operating expenses/revenues
19. TIM PARTICIPAÇÕES S.A. Investor Relations
Net financial position and FCF – 2Q08
Net Debt Operating Free Cash Flow
R$ Mn R$ Mn
Non
3G
1Q08 OpFCF OpFCF 2Q08
EBITDA WkC Capex* OpFCF* Licence OpFCF
201
3G
license: (467)
$1.2 Bi
(2,096) Of which 637 371
$207 in
dividend
(868)
(247) (3,210)
(1,239) (868)
Net cash flow totaled -R$1.115 billion in 2Q Positive OpFCF in 2Q excluding 3G license
* Excluding 3G
Gross Debt R$ 4.1 billion (of which 42% long term)
Average annual cost 11.64% in 2Q08 versus 11.66% in 2Q07 19
21. TIM PARTICIPAÇÕES S.A. Investor Relations
2H08 perspectives
Key recovery actions
Voice: Refocus on postpaid high value segments, remodeling of prepaid (started
in 2Q08) and innovation of promotional dynamics to enhance ARPM;
VAS: Further push on innovative services leveraging on 3G mobile broadband
OFFER and enriching media content;
Convergence: Capture opportunities from mobile BB and NP (as of Sept‟08), by
offering services as alternative player to fixed.
Focus on high margin customers: Deeper segmentation of acquisition,
retention and loyalty strategy;
Commissioning: Increase customer value linked to compensation and develop
Profitability & profitability targets per channel;
Operational
excellence
Bad debt: Reorganization of monitoring process with stricter rules for credit
analysis (implemented in 2Q08);
Efficiency: Invest in transmission capacity for cost-effective management and
selective reduction/revision of outsourcing model.
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22. TIM PARTICIPAÇÕES S.A. Investor Relations
2008 guidance revision
Original Update
1st Review
target Review
Clients Base ~ 37 Mi unchanged unchanged
Market Share ~ 26% unchanged unchanged
Total Revenue > 12% ~ 9% > 7%
EBITDA Margin > 23% unchanged 22.0% ~ 22.5%
CAPEX ~ 3.6 R$ Bi unchanged unchanged
2008 guidance revision taking into account:
Revenues – On-net calls pattern increase for the market as a whole and higher handset sale through direct channels - both events
ended up pressuring incoming and handset revenues
Expenses – Anticipating the investments to capture mobile broadband outstanding growth and number portability opportunity;
Reinforcing the call-center services, strengthening loyalty program to high-end clients and enhancing 3G network capacity.
Based on the aforementioned scenario, we are taking a more conservative position on top line and EBITDA margin
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23. TIM PARTICIPAÇÕES S.A. Investor Relations
“Safe Harbor” Statements
Statements in this presentation, as well as oral statements made by the management of
TIM Participações S.A. (the “Company”, or “TIM”), that are not historical fact constitute
“forward looking statements” that involve factors that could cause the actual results of
the Company to differ materially from historical results or from any results expressed or
implied by such forward looking statements. The Company cautions users of this
presentation not to place undue reliance on forward looking statements, which may be
based on assumptions and anticipated events that do not materialize.
Investor Relations Visit our Website
Avenida das Américas, 3434 - Bloco 01 http://www.timpartri.com.br
6° andar – Barra da Tijuca
22640-102 Rio de Janeiro, RJ
Phone: +55 21 4009-3742 / 4009-3751 / 4009-3446
Fax: +55 21 4009-3990
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