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CS Global Media & Communications
Convergence ConferencePedro RipperStrategic Planning &New Business Director
June 10, 2009
Investor Relations Tele Norte Leste Participaes S.A.
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Agenda
Brazilian Telecommunications Market 2
Oi: Profile and Results 8
Expectations for the Future and Strategy 13
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Brazil Snapshot
Source: ANATEL, IBGE, Teleco, ML Wireless, UNCTAD and Internet World Stats; *FOCUS Report Brazilian Central Bank
Land Area
8.5 million Km2 (e.g: England=3% ofBrazilian area)
Population
190 million inhabitants
56 million households (85% urban)
Economy
GDP: US$ 1.5 Trillion (2008)
GDP per capita PPP: US$ 7.7 thousand
Currency: US$ 1,00 = R$ 1.95 (May/09)
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*
Inflationunder control for more than a
decade
CPI: 5.9% in 2008; 4.33% 2009E*
During the recent crisis, Brazil has been
more resilient than main developedcountries in terms of economy growth
Brazil assumes increasing importance in the international economic environment
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Brazilian Telecom Sector
98
State-owned monopoly
Lack of investments
Low quality of services
Huge pent-up demand infixed and mobile
Incipient Internet
Pre-Privatization
Post-Privatization
Current Scenario
Multiple players
Focus on universal andquality of services
Expansion of fixed andmobile
GSM launch
Broadband start-up
Focus on competition
Consolidation
Mature fixed; mobileand broadband asgrowth drivers
Convergence in earlystages
Launch of 3G
03
09
Sectors Evolution
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Performance of the Brazilian Market Fixed and Mobile
Brazilian Telecom Sector
Fixed Market
Million, Lines in Service
Dec07 Dec08
39.4 41.3
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)
Incumbents share losses to new entrants at significantlower pace as compared to developed markets
Penetration 51% of households
Mobile Market
Million, Mobile Users
Market has accelerated growth in 2008, but started 2009
at a lower rhythm (22% in 1Q09 vs 23% in 1Q08).
Net additions of 3.0 mn in 1Q09 are 37% below 1Q08
due to the clean-up of subscribers base
Naked sim card continues as national trend
Penetration 81% of inhabitants
38.8
Dec06
38.8
Dec02 Dec07 Dec08Dec06Dec02 Mar09
121.0
150.6
99.9
34.9
153.7
Mar09
41.9
CAGR06-08: 3.1%
CAGR06-08: 22.8%
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Performance of the Brazilian Market Broadband and Pay-TV
Brazilian Telecom Sector
Broadband Market*
Million, Users
4,3 5,67,0 7,3
1,32,1
3,0 3,20,6
3,1
Dec07 Dec08
7.7
10.6
ADSL Cable & Others
Continuous expansion in 2008 (38%)
3G changes the industrys dynamic: 3G data cards
as major trigger for a new wave of growth in 1Q09
Fierce competition in areas that concentrate high-
end clients and falling ARPU
Penetration of 18% of households (fixed broadband)
5.6
13.6
Dec02 Mar09
Pay-TV Market
Million, Users
Dec07 Dec08
5.36.3
Strong pent-up demand (still of high cost service)
Cable-TV accounts for 63% and DTH for 33% of
the acesses
3.6
6.6
Dec06 Mar09
* Fixed broadband offered by 6 ADSL, 2 main cable, 1 main DTH, 11 major radio and other smaller providers. Mobile broadband offered bythe 4 major mobile players ; ** Pay-TV is offered by 7 major providers in Brazil and other smaller companies.
Dec06
0.6
3G Data Cards
4.6
Dec02
CAGR06-08: 37.6% CAGR06-08: 17.0%
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Competition: Main Telecom Groups in Brazil
Market Share of Wireline and Wireless Subscribers and Revenues March 2009
National Market Share - Fixed Lines in Service NationalMarket Share - Mobile Users
* Also operates Long Distance and Data Transmission Nationally
Full Integrated
52% 21%
New Oi*
National
Embratel (Telmex) Claro (Am. Moviles)
Region IV
26%
Mexican Group
14%
National
New Oi (Oi + BrT)
33%
Telefnica + Vivo
29%
Claro + Net + Embratel
24%
TIM: 12%
Others: 2%
Revenues market-share
March/09
TIM
23%
(Mobile only)
National
Telefonica
28%30%
Region III
Spanish Group*
Vivo (JV TEF+PT)
National
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Agenda
Brazilian Telecommunications Market 2
Oi: Profile and Results 6
Expectations for the Future and Strategy 13
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Source: Anatel and Companies;* December/2008
Pioneer in m-payment
Globenet
22,000 km ofsubmarine cablelinking Brazil,Venezuela,
Bermuda and USA
ISP/Portal
Largest BrazilianISP
4 cities (cable)
Future nationalDTH operations
BeloHorizonte
Uberlndia
Poos de
Caldas Barbacena
58 million clients (RGUs)
28% of total clients in Brazil
Higher group in revenues, with 33% of all revenues in the sector
Businesses and Domestic Footprint
The New Company: Businesses and SubscribersMillions; March/09
Pay-TV Other businessesFixed Mobile Broadband
13.8
8.0
25.9
6.0
2.1
1.94
52%
4.8 th.
21%
2.3 th.
38%*
1.9 th.
1
1 1
1
1
21.8
Cities*
share Brazil
31.8Total
Domestic Coverage
3.9
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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
numbers of cities covered accounts for just 14% of
total (versus 80% in Region II)
Oi - Operating Highlights
Revenue Generating Units
Revenue Generating Units (Million)
16.5 20.3
30.0 31.82.4
3.1
3.922.8
22.2
22.0
3.8
22.0
1Q09
Broadband FixedMobile
0.06*57.7
* Oi TV clients (Video)
0.06*
200820072006
Total RGUs
Million, Users
55.9
45.6
41.7
3.4 3.5 4.8 5.0
13.1 16.8
25.2 26.9
2006 2007 2008
16.520.3
30.031.8
1Q09
Mobile Mix
Million, Users
Pre-paid
Post-paid
Broadband
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Oi - Financial Highlights:
Consolidated Gross Revenue and EBITDA (R$ billion)
1
Consolidated Gross Revenues
R$ million
8,663 8,972
1,768
2,270
1Q08 1Q09
10,431
11,242
3.6%
D1Q08
7.8%
28.4%
Consolidated EBITDA Oi (TNE)
R$ Million; Margin %
2,585
185
1Q08 1Q09 Rec.
35.7% 31.7%
Non-recurring items
2,377
Recurring EBITDA MarginNon Recurring items in 1Q09:
Consultancy firms expenses
related to BrT operation
End of subsidies deferral to
retail post-paid handsets
(related to end of the fine**)
Integration with BrT
Non Comparable items in 1Q09
vs 1Q08:
Start-up in So Paulo and
acquisition of Amaznia Celular
Standardization of Ois andBrTs accounting practices
Fixed Mobile
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Oi Financial Highlights
Consolidated CAPEX and Debt
Revenue Generating Units (Million)
1.0 0.8
3.8
0.1 0.4
2.8 2.9
0.70.5
3.5
1Q09
FixedMobile
0.8
200820072006
Consolidated CAPEX
Million, Users
7.3
3.73.8
1Q08
0.9
Consolidated Gross Debt
R$ Billion
Mar/08 Dec/08
9.0
20.5
Local Currency Foreign Currency
Hedge
Mar/09
25.9
Mar/08 Dec/08 Mar/09
Consolidated Net Debt
R$ Billion
5.216.0
21.1
2.8
4.0
4.1
0.7
1.1
0.5
19.2
9.8
2.5
Foreign exchange
exposure: 2.2%
Effective cost of
debt: 11.65%
(97% of CDI)
Net Debt/adjusted
EBITDA: 1.9x
12.1% of 1Q09
net revenue (vs
11.2% in 1Q08)
d
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Agenda
1
Brazilian Telecommunications Market 2
Oi: Profile and Results 6
Expectations for the Future and Strategy 13
Oi R t E l ti d St t
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Launch of new services
Mobile
Long distance
Broadband
ISP Counter attack againstnew entrants
Customer segmentation
Fast growth and network
expansion of Mobile
Broadband
Service convergence
New services
Pay TV
Mobile payment
M&As and consolidation Integration of regionaloperations
Fixed networkexpansion to fulfillregulatory obligations
Integration andobligations
New businesses andcompetition
Competition increasing andconsolidation
99
02
04
Key points
Ois Recent Evolution and Strategy
In the last 10 years Oi has faced important challenges and focused on its incumbentRegion to sustain its growth
1
F t e e io
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Future scenario
Long term
Regulation Auction for 4G frequency bands
Regulation of new pro competitive actions
(PGR)
Mobile Interconnection Rates based on cost
models (VU-M)
Technology WiMax as possible access solution Next Generation Networks (NGN)
FTTX access becomes significant
Short term
Market
Incumbents permitted to provide IPTVbroadcasting and/or to buy cable companiesthrough approval of:
- PL #29 and/or- New auction for cable licenses
Auction for WiMax frequency bands
Increase of Internet penetration
Mobile reaching maturity with increasedVAS relevance
Increase ofPay TV penetration
Competition Strong competition in mobility (traffic)with portability and 3G
3G becomes an alternative access forbroadband retail
More competition in broadband with 3G/4Gand WiMax
New competition with alternatives ways of
access
Continuation of main trends
- Consolidation
- Slight reduction in fixed lines
- Mobile and broadband as growth drivers
Fixed companies launching DTH services
Triple Play Quadruple Play
The short and long term market evolution bring some challenges
1
Strategy
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Growth levers
Newclients
Newmarkets
Share
ARPU
Newservices
Increase market share
Increase ARPU
Geographical expansion
New services andbusiness
Include new clients
Lowerincome
Telecom Otherbusiness
Higherincome
Region I
Brazil
International
Related totelecom
Growth strategies
Organic growth
Mergers and acquisitions
2
1
3
Strategy
To face the future scenario and the limited outlook for long-term expansion,Oi decided to analyze the adoption of new growth levers
Strategy
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Include newservices in aconvergentportfolio
Differentiation as the only player with integrated and
convergent services
Launch ofnew services to strengthen Ois convergent
position (e.g. Pay TV)
Include newclients with focuson low income
segment
Differentiation with innovative strategy for the low
income segment
Creation ofnew business models (e.g. no handset
subsidies with sale of standalone chips)
16/2
Strategy
Oi decided to focus on strengthening its convergent offer and on its strongpresence at the low income segment
1
2
Strategy 2 3
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Pre-paid
No handset subsidies: SIM
card-only with free on net
and fixed to mobile callsBroaden pre-paid
recharge base through
allowing recharges of R$1
Bundles for premium
customers
Discount in services or
credit instead of handsetsubsidies
Fixed-Mobile convergent
offering for the corporate
Post-paid
Strategy
The company adopted an aggressive strategy at the low income segment that nowrepresents a growth opportunity in the expansion to the other two Brazilian regions
80
90
100
110
120
130
140
150
160
Jan/07 Set/08
Oi
Others
Pre-paid customer base
Index, 100 = Jan/07, Brazil
Currentstrategy
Growthopportunities
Region II Pre-paid: leverage base through
the successful model of Region I
Post-paid: broaden convergent
offerings
Region III Focus on pre-paid though
aggressive offerings
Bundles with national long
distance
Corporate Leverage presence
with the national
coverage and
convergence
1
2 3
Strategy 1
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2007 2008 2009 2010/2011
Coveredcities
Population(% RegionsI and II)
GDP
(% RegionsI and II)
Ois fixed broadband
coverage
33%
66%
84%
42%
72%
88%
61%
86%
95%
100%
100%
100%
% RI+RII
# (thou) 1,61 2,01 2,95 4,85 = 87%of Brazil
= 77%of Brazil
Strategy
In three years, Oi will consolidate its national leadership in the coverage ofbroadband services
1
1
Strategy 1
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Strategy
Oi continued its expansion to new businesses with the acquisition of Way TV and thefuture launch of Satellite Pay TV services is an important market opportunity
A
1,3
Withpay TV
Households per socialeconomic segment
Million households
8,9
B
C
16,2
7,8
D
63%
24%
6%
1%
0,5 MM
6,8 MM
15,2 MM
7,7 MM
Withoutpay TV
Market profileOis movements in the Pay TV market
Acquisition of Way TV in 2006allowed Oi to become the firstquadruple-play company in Brasil(four cities)
Oi has developed expertise in thecable TV business (marketing, sales,
operations, economics)
The launch ofOis satellite pay TV servicesfocusing B/C segments in 2009 it is anopportunity to
Exploit a large customer base that is notcovered by the current players with asuitable offer
Fulfill Ois convergence portfolio gaps
Get scale to support the satrtegy of costleadership
Develop operational expertise
1
1
Strategy 1
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Strategy
Internet and mobile payment are others key elements in this expansion to newbusiness
Leader in broadband and dial up ISPServices (market share of 35% and68%)
Vice-leader in the national portalbusiness (audience only 8% lower thanthe national portal leader
Become the national leader monetizingits audience and leveraging sinergies
with other businesses Leverage new services such as online
music and multiplatform advertising
Fulfill current gaps through partnershipsand M&A opportunities
Exploit synergies with telco and otherbusinesses
Exploit new payment opportunities
Operational focus on selected markets
Focus on partnerships to increase theacceptance and customer base
First and innovative mobile paymentplataform in Brazil
Strong synergies with Oi mobilebusiness (data services platform,credit information, relationship)
High upside potential related tocredit card/electronic payment marketdynamics
Internet business Mobile payment
Businessprofile
Challengesandstrategy
2
1
Strategy 3
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2009EExpectations
39 millionOi Mobile
Growth, especially in
Regions II and III
~R$600 mnSynergies3.0% of consolidated
operating costs/expenses
Synergies
Establishment of a national company from
two regional companies, which rapidly
captures potential synergies
Integration of the two companies
started since day zero
Management structure has already been
defined
Prioritize the identification of quick-
wins based on the best practices of each
company
Market
Reinforce the strategy of differentiationthrough convergence in a segmented
manner
Portfolio integration and single brand 2.0xNet Debt/EBITDA
Reduction
R$ 5 to 6billion
CAPEX Reduction
~ 21.0 mnOi Fixed Slight reduction
4.5 millionOi Velox(Broadband)
Growth, especially inRegion I
gy
Integration of BrT is a key point in the company strategy of expanding to newregions besides increasing operational and financial efficiency
3
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Thank You !