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The GVT Story
Dec 2008
Background
Established in 1998, the GVT Group began operations in Latin America – Chile,
Columbia, Peru and others.
In 1999, GVT won a bid to provide wireline services initially in an area representing 1/3
of Brazil population. GVT paid for the license $60k.
The bid was part of the privatization of the local incumbent that began in 1996.
Following the bid, and given Brazil’s huge potential, GVT sold all its other assets and
focused on Brazil only.
During 2000 the network was designed and deployment was initiated, and in January
2001, 15 months after the license was granted, GVT began to provide services.
The Israeli angle –



GVT Brazil had 5 Israelis out of 7 employees in 1999, today there are 3 Israelis and 3,300
Brazilian employees.
GVT initial shareholders were the magnum Group (67%) and the IDB Group (33%).
The original shareholders, together with the Swarth Group are still the controlling shareholders
with more than 30% of GVT’s shares.
1
What’s Attractive in Brazil
1. A huge country:
1.
2.
3.
4.
9 million km2 – 400 times the size of Israel
200m inhabitants
Labor force of 102 million workers
Average age of 28
2. The largest economy in Latin America, among the 10 largest worldwide
1.
2.
3.
4.
5.
$1.3 trillion GDP (mostly services and industry, only 5% in agriculture)
2009 growth forecast of 4%
$220 bln export
$210 bln reserves held by the Central Bank
Investment Grade (-BBB) rating
3. Huge telecom industry:
1.
2.
$20 bln market for fix-line and LD
More than 100m mobile users
…and GVT is still the only viable competitor to the Fixed Line Incumbents…
2
The Incumbents
Following the privatization, the ‘old’ incumbent was divided into 3 regional
companies (each 5x the size of Bezeq) with a fourth player for the long
distance and international segment.
Competing with the giants was expected to be tough:
 Huge initial territory – 5 hours flight from one side to another
 No ULL – GVT had to deploy all network from scratch
 No number portability – subs had to lose their 20-30 year old number
 Market with small growth of wireline
 Competitors with experience, deep pockets and a monopoly environment (100%
market share…).
 Local players with experience and relationship with regulators and local banks.
…so other than just ‘hutzpa’, a different approach was required to in order to
succeed…
3
The GVT’s Approach - Strategy
Business strategy
1. Focus:
1.
2.
3.
Unlike the USO of the Incumbents, GVT has the right to “select” cities (and neighborhoods
within the cities) and select customers.
GVT focuses on SOHOs, small business and high class residential.
100% of GVT’s customers credit is checked pre-installation.
2. The most modern network in Brazil, one of most modern worldwide –
1.
2.
3.
Best service to customers – bundles, bandwidth, SLA
operational efficiency
The IP leader in Brazil
3. Gradual but constant expansion to new cities
4. Strong IT systems – constant monitoring of CF and performance indicators
5. Be creative, be a leader. GVT has introduced a higher number, by far, of new
products and bundled services.
4
The GVT’s Approach - People
…building a focused, efficient and flexible organization:
1. Less hierarchy, local senior management influence decisions
2. Change culture from 9-5 telecom to an “Israeli’ start up (casual wear, longer
hours and a substantial allocation of stock options)
3. Push employees for openness, innovation and leadership.
4. One of the results – all VPs are long term with GVT:
Alcides Troller
Retail Vice-President
GVT employee since 2000
Carlos Alberto Nunes
Institutional Affairs VP
GVT employee since 2000
Cícero Olivieri
Engineering and Operations VP
GVT employee since 2000
Eduardo Dall´Agno
Region Operation VP
GVT employee since 2000
Gustavo Gachineiro
Legal and HR VP
GVT employee since 2003
Leonardo Queiroz
Corporate VP
GVT employee since 2000
Sharly Swissa
CIO
GVT employee since 2002
Rodrigo Ciparrone
CFO
GVT employee since 2008
5
The 2003 Crisis
In late 2002, the local currency devaluated from 1.75 to almost 4 to the US$.
That effect on a newly established company, together with the global telecom
crisis at that time, created a very tight cash flow situation.
GVT decided nonetheless to continue growing at the original pace while
managing the cash flow on a daily basis.
In parallel GVT was able to negotiate a debt exchange that allowed to support the
continuous growth and mitigate volatility risks.
The shareholders of GVT, as well as the lenders to GVT at that time, made
substantial returns from the debt exchange and the GVT IPO.
6
The International Experience
In parallel to GVT, many international operators began operations in Brazil
including Sprint, AT&T, France Telecom, Bell Canada, Bell South, Worldcom,
Qualcom and others.
Other than GVT, all these companies abandoned Brazil during the telecom
meltdown of 2001 and lost a few billions of US$.
Some are still very successful and support Part of Parent companies including
TEF, TI and PT.
The experience of these operators in Brazil is key to understand the “do” and
“don’t” while entering emerging countries. Some of these points include –
•Is the ‘cook book’ of your operation adequate to the environment of that country
•Are your expats the best managers to run a local operation
•Understand that EMs are likely to have a crisis once in a while – have your
operations flexible and quick to adopt, mitigate exposures through hedges and
make sure your business plan can absorb volatility.
7
GVT today…
8
Company Overview
A leading provider of telecommunications, high-speed broadband, Internet and multimedia
services in Brazil
RR
PA
CE
MA

Markets solutions directly to end-customers under its own brands
including GVT, POP and VONO

Focus on high-margin, high-usage customers addressing all
market segments including residential, SOHO, SMEs and large
corporate
TO
RO
1
MT
1
BA
DF
2
1
GO
4

Operates one of Brazil’s most modern networks using state-ofthe-art technology, enabling the Company to offer superior quality
2
SP
28
SC
ES
and higher bandwidth
RJ
1
PR
AL
SE
MG
MS
1
RN
PR
PE
PI
AC
1
Offers a diversified portfolio of innovative products and
advanced solutions for conventional and VoIP telephony, corporate
data, broadband, video and Internet services
AP
AM
1

1

Most viable alternative to the incumbents in Brazil with
approximately 13% market share in Region II cities

Current presence in 74 cities in Region II (13% of Brazil GDP)
and growing presence in the three most important cities outside
Region II (totaling GVT’s coverage to ~40% of Brazil's GDP)
12
RS
23
Number of cities in operation per state
Telemar Region (incumbents MG, ES, RJ)
Telefonica Region (incumbents SP)
Region II (incumbent – Brasil Telecom)
9
Most Advanced Network with Extensive Last Mile
Access
Flexibility to introduce innovative product bundles at low cost with next generation features and
highest level of services offers a clear competitive advantage
Next Generation IP Network

IP Next Generation core platform for introduction of competitive, innovative and high quality products with low operation cost

Fiber-to-the-Node Last Mile architecture with highest broadband speeds and unmatched quality for voice, data and video (triple
play ready)

Owned backbone enhancing the positioning in the NGS market, territorial expansion and low operational cost

GVT’s last mile architecture allows for higher broadband speed up to 20Mbps (IPTV ready) and could easily be upgraded to reach
50Mbps with small incremental cost (changing VDSL card that cost less than US$ 100 per subscriber)

Total Last Mile deployed invest as of September 2008: 23,206 route km of fiber and short copper
Growing Number of Buildings Connected
with GVT´s Own Network
Growth of Last Mile Deployment
(Route km)
2 3 .2 0 7
59.398
54.046
45.961
49.000
16 .4 3 9
37.274
10 .2 18
9 .0 6 5
25.066
19.873
6 .3 4 6
14.812
2003
2004
2005
2006
2007
1Q08
2Q08
3Q08
9 .6 6 7
7 .10 3
8 .15 4
4 .8 3 3
5 .14 1
1.13 4
1.5 13
1.6 10
1.9 6 2
2 .0 6 4
2 .4 8 2
2 .8 7 7
2001
2002
2003
2004
2005
2006
2007
3 .6 2 1
2002
13 .5 6 2
6 .7 5 1
4 .7 5 5
11.098
2001
18 .5 6 9
12 .14 9
30.711
F ibe r N e t wo rk ( in k m )
C o o pe r N e t wo rk ( in k m )
4 .6 3 8
3Q08
10
Improved Long Distance and IP Backbones
Successful acquisition of Geodex
investment in international IP backbone:

and
Fortaleza
Geodex
Network
Geodex, which was purchased for R$109 million in
December 2007
Recife

Geodex’s primary asset is a network with over 11,000
kilometers of fiber optics covering cities from South to
Northeast Brazil (invested ~R$ 200 million in its
network)

Cut operating costs by R$ 27 million in 2008 alone(1)

Expected savings might increase from potential
increase of Geodex footprint via swap deals

Faster and lower cost of deployment in new cities
Salvador
Brasília
Goiânia
Belo
Horizonte
Campinas
Londrina
para São
Paulo
São Paulo
Maringá
Rio de
Janeiro
Curitiba
IP (6,5 Gbps)
Right of way
Fiber
Dark fiber
IRU Capacity
IP (2,5
Gbps)
Uruguaiana
IRU IP International
Santa
Maria
Porto
Alegre
(1) Represents combined cost savings from Geodex (R$12mm) and IP IRU (R$15mm).
11
GVT’s Broadband vs. Competition
Unbridgeable Gap
Video Will be the New Revenue Driver
1995:
2000:
2013:
2025:
GVT Miles Away from its Competitors
Web Overtakes Gopher, FTP
Peer-to-peer Overtakes Web
Video Content Overtakes Peer-to-Peer
Video Communication Overtakes Video Content
Moving forward
High-Definition TV
DVD-Quality TV
Video
Communication
Digital TV
Electronic Banking
Shopping
Online Games
Video
Content
Audio-on-Demand
Movies-on-Demand
P2P
Near Video-on-Demand
Potential Residential Demand
(1) Phone with call waiting
(1) Std. Definition digital video
(1) Internet connection
(1) Interactive gaming
(1) High definition TV
Total
Video Telephony
WWW
Telemedicine
e-Learnirng
Gopher, FTP
Streaming Music
Streaming Video
1993–1995
1995–2000
2000–2013
2013–2025
2025+
Video Conferencing
Minimum
MB/s
0.1
3.0
1.5
1.0
14.0
19.6
Optimal
Telecommuting
56Kbps
256Kbps 0,5 - 3Mbps
Over 10Mbps
0
20
40
Mbps
GVT’s base is IPTV ready – for standard or high definition quality
Source: Cisco Global IP traffic forecast 2007
12
Lines In Service (LIS)
LIS (thousands)
’03-’08 CAGR
1.875
NA
10 2
50.0%
303
1.244
(1)
Excluding (2) Breakdown not
(2)
available
491
40
952
593
52
63
729
112
66
25
14 7
13 7
53.6%
433
48
17 4
246
20.9%
1.0 3 7
51
401
478
552
644
2003
2004
2005
2006
Voice Line
Corporate Date and ISP
775
2007
2008E
Broadband
VoIP
13
The Growth Potential
GVT is marketing in its targeted areas only.
GVT receives more than 2 million inbound calls a year asking for lines.
Out of these calls, 85% are from areas that are not yet covered by GVT.
Received calls (actual numbers Oct ’08)
In 000’
85%
241.3
53.8
187.5
158.7
6.8
Calls from GVT
cities
Information about
products and
Up/Cross Sell
Request of lines
Without coverage
or capacity
Without credit
21.9
Calls eligible for
sale
21.7
Actual customer
sold
36.2
Actual lines sold
14
Outperforming The Market
Well established market position with
substantial growth potential
Conventional Services:
Market size
Proven record of above market growth
2005-07 Revenue CAGR
14.5%
Local and Long Distance
Fixed Telephony
R$42.2bn in
revenue in 2007
4.7%
Next Generation Services:
32.3%
Corporate Data
and Managed Services
R$3.6bn in
revenue in 2007
1.9%
99.5%
Broadband Services
R$5.8bn in
revenue in 2007
33.1%
245.3%
VoIP
Source: Pyramid Research; Frost & Sullivan; Company Data.
R$339.2 mm in
revenue in 2007
125.5%
Brazil
15
A Stable and Predictable Business Model
2008 Net Revenue by Service
VoIP
2%
Other
9%
Broadband
17%
5-Year Net Revenue Trends
(R$ in millions)
1292
981
769
Local Services
49%
380
Corporate Data
9%
Long Distance
Services
14%
2003
2008 Net Revenue by Product
Next
Generation
Services (NGS)
28%
Voice
72%
654
542
2004
2005
2006
2007
2008E
5-Year EBITDA Trends
(R$ in millions)
510
460
410
360
310
260
210
160
110
51
6013,6%
10
2003
491
358
256
190
129
23,8%
2004
29,0%
2005
EBITDA
33,3%
2006
36,5%
38,0%
2007
2008E
70,0%
65,0%
60,0%
55,0%
50,0%
45,0%
40,0%
35,0%
30,0%
25,0%
20,0%
15,0%
10,0%
EBITDA Margin (%)
Strong performance driven by diversified and superior products and services, attractive
customers, modern network and financial discipline
16
Corporate Structure
Traded on the Bovespa since February 2007, under the ticker GVTT3
Current market cap R$3.5 billion
GVT is part of the Bovespa 100 index (IBrX)
Ownership (FD):



GVT Holland (Magnum & IDB) – 17%
Swarth Group – 17%
Free Float– 64%
The Free Float includes:


99.6% held by financial institutions
80% of these holders are European and US investors
17
Obrigado and Toda!
18