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2004 Brazilian Telecommunications Conference
www.telemar.com.br/ir
September 23-24
Rio de Janeiro, Brazil
Agenda
1. Highlights 2Q04
2. Market Trends
3. Regulatory Agenda
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2004 Brazilian Telecommunications Conference
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Highlights 2Q04
 Fixed Line Stable (0.5%)
 Strong growth in mobile subs (15.5% QoQ) as well as ADSL (21.5% QoQ)
 Revenue increased by 3.3% QoQ, mainly due to mobile services and
handset sales, what put pressure on
 EBITDA margin (40.7%) also impacted by provision for contingencies (bad
debt reduction being the good news)
 FCF after CAPEX of R$ 1.5 billion, helped by low CAPEX level and WC
needs
 Net Debt down by R$ 1 billion at R$ 7.3 billion (1.1x EBITDA)
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2004 Brazilian Telecommunications Conference
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Market Trends - Penetration Figures / Brazil
Fixed: 38 m (Jul/04)
22%
Mobile: 57 m (Aug/04)
32%
 Mobile penetration still has a lot of
room to grow, helped also by
expected economy recovery;
70
 Anatel estimates between 62.8 m
58%
60
50
69.8 m subs by 2004YE;
 Estimated penetration for 2008YE
Max.
42%
ranges from 42% to 58%;
Min.
40
 Regarding fixed line market,
30
Mobile*
Fixed Line** 23%
20
02
03
04E
05E
06E
07E
penetration should be more or less
stable, following closely GDP growth.
08E
* Estimates from: Citigroup, Goldman, JP Morgan, Merryl Lynch, Pyramid Research.
** Estimates from Yankee Group
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2004 Brazilian Telecommunications Conference
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Market Trends – Broadband Growth / Brazil
Broadband Access – ( thousands)
 ADSL has become the
dominant broadband
technology in Brazil (over 80%
market share);
3,831
3,547
3,148
2,591
1,874
ADSL
1,490
1,199
694
326
130
00
01
02
03
Jun_04 04E
05E
06E
07E
08E
 Broadband subscriber base
expected to increase by over
2.5x from 2003 through 2006
(Pyramid Research);
 Telemar has a target to
increase broadband penetration
from 2% to 5% of fixed lines in
service in 2-3 years.
Source: Anatel / Teleco / Pyramid Research estimates.
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2004 Brazilian Telecommunications Conference
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Market Trends - Traffic Migration / Telemar
Local Voice Traffic (F2F)
 Local traffic mostly impacted by:
114
112
106
106
- ADSL growth
(local
traffic
flat monthly rate)
- Performance of the economy, also
resulting on
- Stability of fixed lines in service;
100
 Decrease in F2M traffic is mainly due to:
1999
2000
2001
2002
2003
Local Fixed to Mobile (F2M)
- Line blockage for F2M calls;
- Migration to mobile calls (mobile postpaid rates currently lower than F2M rates
in many plans).
119
110
106
100
92
1999
2000
2001
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2002
2003
2004 Brazilian Telecommunications Conference
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Regulatory Agenda
1- Mobile Termination Rate
• “Free negotiation” (scheduled to start since July, 2004);
• Target:Recover margins in F-M calls / share uncollectibles
2- Local Traffic in Minutes
Conversion of local traffic billing: from Pulses to Minutes (2006)
3- Unbundling
• Line Sharing: in May 2004, Anatel established the overall
conditions for line sharing, setting maximum reference values,
such as monthly rental prices, at R$ 15.42 / pair and
• Full unbundling: Anatel yet to determine prices.
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2004 Brazilian Telecommunications Conference
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Regulatory Agenda
4- Tariff Index
• Tariff increases based on:
IST – A Telecom Sector price index (TBD)
“K” – New Productivity factor (TBD)
• Interconnection rates:
a) Defined as a % of local tariff (60% -2006; 50%-2007)
b) “Long Range Incremental Costs” (2008 on)
5- New Universal Service Targets (2006 on)
• Line Installation:
Maximum Period: 1 week (=2004);
Coverage: All Localities >300 people (=2005) - Currently >600
• Collective Access: Public Telephone / Internet Access (new service) 2006
• Special Class of Individual Access (AICE) (TBD)
Higher period for line installation
Lower monthly fee (taxes?)
Pre Paid fixed line
Virtual Telephone (use of voice and electronic mail in collective access)
6- Fixed Line Number Portability
• To be implemented as of 2006 (TBD)
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“Safe Harbor” Statement
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
www.telemar.com.br/ir
Investor Relations - Telemar
Rua Humberto de Campos, 425 / 8º andar
Leblon
Rio de Janeiro -RJ
Phone: ( 55 21) 3131-1314/1313/1315/1316
Fax: (55 21) 3131-1155
E-mail: [email protected]
Visit our website:
http://www.telemar.com.br/ir
2004 Brazilian Telecommunications Conference
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