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CS Global Media & Communications Convergence Conference
Pedro Ripper Strategic Planning &New Business Director
June 10, 2009
Investor Relations Tele Norte Leste Participações S.A.
Agenda
2
Brazilian Telecommunications Market 2
Oi: Profile and Results 8
Expectations for the Future and Strategy 13
Investor Relations | 3
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% of
Brazilian 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*
• Inflation under 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 developed
countries in terms of economy growth
Brazil assumes increasing importance in the international economic environment
Investor Relations | 4
Brazilian Telecom Sector
98
State-owned monopoly
Lack of investments
Low quality of services
Huge pent-up demand in fixed and mobile
Incipient Internet
Pre-Privatization
Post-Privatization
Current Scenario
Multiple players
Focus on universal and quality of services
Expansion of fixed and mobile
GSM launch
Broadband start-up
Focus on competition
Consolidation
Mature fixed; mobile and broadband as growth drivers
Convergence in early stages
Launch of 3G
03
09
Sector’s Evolution
Investor Relations | 5
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 significant lower 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%
Investor Relations | 6
Performance of the Brazilian Market – Broadband and Pay-TV
Brazilian Telecom Sector
Broadband Market*
Million, Users
Dec07 Dec08
7.7
10.6
ADSL Cable & Others
• Continuous expansion in 2008 (38%)
• 3G changes the industry’s 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 by the 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%
Investor Relations | 7
Competition: Main Telecom Groups in Brazil
Market Share of Wireline and Wireless Subscribers and Revenues – March 2009
National Market Share - Fixed Lines in Service National Market Share - Mobile Users
* Also operates Long Distance and Data Transmission Nationally
Full Integrated
52%52% 21%21%
New Oi*
National
Embratel (Telmex) Claro (Am. Moviles)
Region IV
26%26%
Mexican Group
14%14%
National
• New Oi (Oi + BrT)
− 33%
• Telefónica + Vivo
− 29%
• Claro + Net + Embratel
− 24%
• TIM: 12%
• Others: 2%
Revenues market-share
March/09
TIM
23%23%
(Mobile only)
National
Telefonica
28%28%30%30%
Region III
Spanish Group*
Vivo (JV TEF+PT)
National
Investor Relations | 8
Agenda
8
Brazilian Telecommunications Market 2
Oi: Profile and Results 6
Expectations for the Future and Strategy 13
Investor Relations | 9
Source: Anatel and Companies; * December/2008
• Pioneer in m-payment
Globenet• 22,000 km of
submarine cable linking Brazil, Venezuela, Bermuda and USA
ISP/Portal• Largest Brazilian
ISP
• 4 cities (cable)• Future national
DTH operations
Belo Horizonte
Uberlândia
Poços 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
4º
• 52%
• 4.8 th.
• 21%
• 2.3 th.
• 38%*
• 1.9 th.
1º
1º 1º
1º
1º
21.8
Cities*
share Brazil
31.8Total
Domestic Coverage
3.9
Investor Relations |
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)
10
Oi - Operating Highlights
Revenue Generating Units
Revenue Generating Units (Million)
1Q09
Broadband FixedMobile
0.06*
57.7
* Oi TV clients (Video)
0.06*
200820072006
Total RGUs
Million, Users
55.9
45.6
41.7
2006 2007 2008
16.520.3
30.031.8
1Q09
Mobile Mix
Million, Users
Pre-paid
Post-paid
Broadband
Investor Relations |
Oi - Financial Highlights:
Consolidated Gross Revenue and EBITDA (R$ billion)
11
Consolidated Gross Revenues
R$ million
1Q08 1Q09
10,43111,242
3.6%
1Q08
7.8%
28.4%
Consolidated EBITDA – Oi (TNE)
R$ Million; Margin %
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 São Paulo and acquisition of Amazônia Celular
• Standardization of Oi’s and BrT’s accounting practices
Fixed Mobile
Investor Relations | 12
Oi – Financial Highlights
Consolidated CAPEX and Debt
Revenue Generating Units (Million)
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
• 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)
Investor Relations | 13
Agenda
13
Brazilian Telecommunications Market 2
Oi: Profile and Results 6
Expectations for the Future and Strategy 13
Investor Relations |
• Launch of new services– Mobile– Long distance– Broadband– ISP
• Counter attack against new 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 regional operations
• Fixed network expansion to fulfill regulatory obligations
Integration and obligations
New businesses and competition
Competition increasing and consolidation
99
02
04
Key points
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
14
Investor Relations |
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 IPTV broadcasting and/or to buy cable companies through approval of:- PL #29 and/or- New auction for cable licenses
• Auction for WiMax frequency bands
• Increase of Internet penetration• Mobile reaching maturity with increased
VAS relevance • Increase of Pay TV penetration
Competition• Strong competition in mobility (traffic) with
portability and 3G• 3G becomes an alternative access for
broadband retail
• More competition in broadband with 3G/4G and 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
15
Investor Relations |
Growth levers
New clients
New markets
Share
ARPU
New services
• Increase market share
• Increase ARPU
•Geographical expansion
• New services and business
• Include new clients
GEOGRAPH
Y
SERVICES
CLIE
NTS
Lower income
Telecom Other business
Higher income
Region I
Brazil
International
Related to telecom
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
Investor Relations |
Include new services in a convergent portfolio
• Differentiation as the only player with integrated and convergent services
• Launch of new services to strengthen Oi’s convergent position (e.g. Pay TV)
Include new clients with focus on low income segment
• Differentiation with innovative strategy for the low income segment
• Creation of new business models (e.g. no handset subsidies with sale of standalone chips)
17/23
Strategy
Oi decided to focus on strengthening its convergent offer and on its strong presence at the low income segment
1
2
Investor Relations |
Pre-paid
•No handset subsidies: SIM card-only with free on net and fixed to mobile calls
•Broaden pre-paid recharge base through allowing recharges of R$1
•Bundles for premium customers
•Discount in services or credit instead of handset subsidies
•Fixed-Mobile convergent offering for the corporate
Post-paid
Strategy
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
Jan/07 Set/08
Oi
Others
Pre-paid customer base
Index, 100 = Jan/07, Brazil
Current strategy
Growth opportunities
•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
18
2 3
Investor Relations |
2007 2008 2009 2010/2011
Covered cities
Population (% Regions I and II)
GDP (% Regions I and II)
Oi’s fixed broadband coverage
% RI+RII
# (thou) = 87% of Brazil
= 77% of Brazil
Strategy
In three years, Oi will consolidate its national leadership in the coverage of broadband services
19
1
Investor Relations |
Strategy
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
A
1,3
With pay TV
Households per social economic segmentMillion 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
Without pay TV
Market profileOi´s movements in the Pay TV market
Acquisition of Way TV in 2006 allowed Oi to become the first quadruple-play company in Brasil (four cities)
– Oi has developed expertise in the cable TV business (marketing, sales, operations, economics)
The launch of Oi’s satellite pay TV services focusing B/C segments in 2009 it is an opportunity to
– Exploit a large customer base that is not covered by the current players with a suitable offer
– Fulfill Oi’s convergence portfolio gaps
– Get scale to support the satrtegy of cost leadership
– Develop operational expertise
20
1
Investor Relations |
Strategy
Internet and mobile payment are others key elements in this expansion to new business
Leader in broadband and dial up ISP Services (market share of 35% and 68%)
Vice-leader in the national portal business (audience only 8% lower than the national portal leader
Become the national leader monetizing its audience and leveraging sinergies with other businesses
Leverage new services such as online music and multiplatform advertising
Fulfill current gaps through partnerships and M&A opportunities
Exploit synergies with telco and other businesses
Exploit new payment opportunities
Operational focus on selected markets
Focus on partnerships to increase the acceptance and customer base
First and innovative mobile payment plataform in Brazil
– Strong synergies with Oi mobile business (data services platform, credit information, relationship)
– High upside potential related to credit card/electronic payment market dynamics
Internet business Mobile payment
Business profile
Challenges and strategy
21
1
Investor Relations | 22
2009EExpectations
39 millionOi MobileGrowth, especially in
Regions II and III
~R$600 mnSynergies 3.0% of consolidated operating costs/expenses
Synergies
• Establishment of a national company from
two regional companies, which rapidly
captures potential synergies
– Integration of the two companies started
since day zero
– Management structure has already been
defined
• Prioritize the identification of quick-
wins based on the best practices of each
company
Market
• Reinforce the strategy of differentiation
through convergence in a segmented
manner
• Portfolio integration and single brand2.0x
Net Debt/ EBITDA
Reduction
R$ 5 to 6 billion
CAPEX Reduction
~ 21.0 mnOi Fixed Slight reduction
4.5 millionOi Velox (Broadband)
Growth, especially in Region I
Strategy
Integration of BrT is a key point in the company strategy of expanding to new regions besides increasing operational and financial efficiency
3
Investor Relations | 2323
Thank You !
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