BRASIL TELECOM 1st Investor’s Day · • BrT GSM • Fixed Mobile Convergence (FMC) Maximize the use of resources now available in the fixed network, that could otherwise become

BRASIL TELECOM1st Investor’s Day

NY

Competitive Environmentand

Growth Opportunities

Ulisses KameyamaDirector of Investment Analysis

and Operational Costs

Agenda

Competitive Environment1

2 Growth Opportunities

Competitive Environment

LAUNCH OFLAUNCH OF BrT’SBrT’S MOBILE OPERATIONMOBILE OPERATION

• Market is responding very well to Brasil Telecom’s convergence approach

• 622 thousand subscribers by 2004 year-end, 24% higher than estimated

• We have performed better in all indicators that we estimated in October

• Other mobile companies reacting with plain vanilla discounts – product-wise BrT GSM has unique offerings

• More than 20% of the clients have already subscribed to at least one of the convergence offerings – powerful retention tools

CONVERGENCE

• FMCA has grown from the 6 original founding members (includingBrT) to 16 leading carriers as of today:

• Other companies worldwide have officially adopted convergence asthe fundamental corporate strategy

• Handset integration under intensive development by vendors in both Bluetooth and Wi-Fi fronts

• BrT• NTT• Rogers• BT• KT• Swisscom

• Cegetel• France Telecom• Deutsche Telecom• KPN• China Com

• Optus• AT&T• Czech Telecom• PCCW• Bezeq



VOICE

• Local voice traffic recovered throughout 2004

• Fixed – mobile migration effect will continue in the short term, but should stabilize as mobile market becomes more mature

• Strategy being implemented to keep traffic within the group –convergence concept

2.7302.715

2.586

1Q 04 2Q 04 3Q 04

Exceeding Local Pulses (million)


LONG DISTANCE

• DLD traffic over BrT’s network increased % in 2004

• BrT’s CSP reached impressive market shares in Inter-Regional and International LD calls in less than 12 months

• BrT consolidated in 2004 its position as leading long distance carrier with the complete range of services

43,3

34,0

16,1 24,020,3

15,0

1Q 04 2Q 04 3Q 04

Inter Region International


BROADBAND

• BrT reached 536 thousand broadband subscribers by year-end (89,9% growth YoY)

• ARPU is still the highest in the Brazilian market (approx. R$80)

• Cable broadband competition limited to 4 cities in BrT region

• Regulation still pending for unbundling

165195

239281

324383

536

456

1Q03 2Q03 3Q03 4Q03 1Q04 2Q04 3Q04 4Q04

+ 221.2%+88.6%


IP TRAFFIC

• BrT has a leading position in IPservices, as a result of the infrastructure and services (ADSL, internet) investments made over the last 3 years

• BrT has more IP content in its network than each of the other threeBrazilian incumbents

Monthly volume of IP traffic Exchange with other Brazilian incumbents (Gbytes)

324

458

771

173193

384

Company 1 Company 2 Company 3

Out In

Out = Traffic generated by other companies obtaining content in BrT’s networkIn = Traffic generated by BrT when obtaining content in other companies’ networkSource: e-Health tool, 1-Dec-04 through 31-Dec-04


INTERNET• BrT is the leading internet company in Latin America and one of the 15 largest

ISPs worldwide

Terra-Lycos

Subs

crib

ers

(milli

on)

25.0

20.0

15.0

10.0

5.0

0AOL US T-Online Wanadoo Net Zero MSN Tiscali Spinway AOL Eu BrT EarthLink Comcast

Source: company info and Brasil Telecom estimates


INTEGRATED PORTFOLIO

Local DLD / ILD Data CyberData

Center

Broadband InternetBroadband

Access

InternetDial-upAccess

MobileService

Portal

Agenda

Competitive Environment1

2 Growth Opportunities


• Mobile, internet and data will be key growth drivers in 2005

• The Brazilian mobile subscriber base is expected to grow 20% in 2005

• We estimate that BrT GSM will add 1.2m new clients to its subscriber base in 2005

• ADSL broadband penetration is expected to penetrate 10% of the fixed-line base. For BrT it represents doubling the existing client base

• BrT is supporting the Brazilian Government’s ‘digital inclusion’ efforts – very relevant growth driver for dial-up traffic in 2005

• Increasing opportunities for paid services (including access) in the dial-up internet market

• Value-added services (VOD, entertainment)


REGIONS I AND III, INTERNATIONAL

• MetroRED

• Competitive solution in data transmission + data center

• Successful implementation of a change of focus from carrier to corporate market

• GlobeNet

• Performance in line with acquisition business plan

• Relevant international growth opportunities in the Caribbean with marginalcapex

• Internet

• More than 80% of iG e iBest clients are in Regions I and III – relationship channel to sell new products and services

Broadband and Internet

• In the next 4 years, the number of internet access is expected to increase byan annual compounded average rate of 9% and the Brazilian internet market is expected to increase by an annual compounded average rate of 16%, reaching US$2.2 billion in 2008

• The global market of broadband Internet access should triple up to 2009• In Brazil, a great part of the population still don’t have Internet access• Dial-up access is the gateway for the target population of the digital inclusion

projects in development89%

46%

30%21%

16%11% 8% 6% 4% 3%

1999A 2000A 2001A 2002A 2003A 2004E 2005E 2006E 2007E 2008E 2009E

Broadband Dial-up Growth

1.804

3.4114.989

6.4757.863

9.08210.124

10.88811.494 11.984 12.352

Broadband and Internet

INTERNET

• Development of synergies of the Internet businesses: iG, iBest andBrTurbo

• Focus on development of paid access and paid services

• Turbo Video and other entertainment services

ACCESS

• Aggressive growth target for ADSL: 500.000 new clients in 2005

• “Connected PC” Government Program: key growth driver for dial-up traffic

Brasil Telecom’s Network Evolution

Marcelo FrassonDirector of Network Planning

Agenda

Strategic Drivers1

Target Network2

Positioning Outside Region II3

Strategic Drivers

Increase the installed base of Broadband access and provide new services with higher added value;

Compensate for the migration of traffic from the fixed network to wireless networks;

• BrT GSM

• Fixed Mobile Convergence (FMC)

Maximize the use of resources now available in the fixed network, that could otherwise become under-utilized as a consequence of the migration of voice traffic to wireless networks.

Ability to rapidly provide fully integrated Points Of Presence (POPs) outside Region II.

What is expected from Broadband…

• Videotelephony

• MMS, SMS

• Video on demand

• VoIP

• Internet over TV

• Personalized Services

• Interactive TV

• Gaming on demand

• Music and video Broadcast

Strategic Drivers

Increase the installed base of Broadband access and provide new services with higher added value;

Compensate for the migration of traffic from the fixed network to wireless networks;

• BrT GSM

• Fixed Mobile Convergence (FMC)

Maximize the use of resources now available in the fixed network, that could otherwise become under-utilized as a consequence of the migration of voice traffic to wireless networks.

Ability to rapidly provide fully integrated Points Of Presence (POPs) outside Region II.

Legacy Network

Mobile Network

xDSL

Frame Relay

IP Network

PSTN

Metro EthernetATM Network

SDHTransportNetwork

• A network for each service or group of services (variousdistinct networks);

• Implementation of new services is slow and expensive, as a consequence of the need to perform modifications in the different networks;

• Difficulties providing homogenized services across networks.

Agenda

Strategic Drivers1

Target Network2


Target Network

Services

IP Network

Control

Fixed-line telephony

xDSLaccess Mobile

telephony

Data Center

OSS/BSS Framework

Fulfillment Assurance Billing

Wireless MANCorporate customer

Metro Ethernet network

SB

• One single network, capable of providing access to any communication service, to any customer, in any location

• Architecture comprised of independent layers and based on open-standards

• Service convergence (voice, video and data)

• Fixed-mobile convergence

• Centralized service creation and control environment

Network Interconnection

* Initial WiMax deployment planned for 2005.

Rede IP

Rede ATM

xDSL Rede Determinística

Redes

Metropolitanas

Internet

RTPC

Corporate

IP Network

ATM Network

xDSLFrame Relay

MetroEthernet

Dialup network

Internet

PSTN Trunk Gateways

ResidentialLarge

EnterpriseSOHO

WiMax (*)

MediumEnterprise

WiFiWiFi

Wi-Fi EnviromentsResidential Residential

New Business Opportunities with the NGN

Value Customized Services

Deg

ree

of S

ervi

ce In

nova

tion

Degree of user retention

Transport

Commodity

Added value

Access

HostingHosting

Content Content DistributionDistribution

Content and Content and ApplicationsApplications

Evolution up the value chain

Agenda

Strategic Drivers1

Target Network2


Transport Network

Belo Horizonte - MG

Rio de Janeiro -RJ

São Paulo - SP

Maiquetia - VENEZUELA

Boca Raton - USA

S. David - Bermudas

Porto Alegre - RS

Florianópolis - SCCuritiba - PR

Campo Grande - MS

Cuiabá - MT

Porto Velho - RORio Branco - AC

Goiânia - GOBrasília - DF

Rondonópolis - MT

Brasil TelecomSubmarine Cable

Fortaleza - CE

DWDW

SDH

Backbone Nacional DWDM

MetroRED Network

• Long Distance Optical Network: 1,453 Km

• Urban Optical Network: 299 Km (São Paulo, Rio de Janeiro, Belo Horizonte and São José dos Campos)

• Installed FTTP (commercial buildings): 695

• Long Distance Transmission Capacity: 15.5 Gbps

Changes and Impacts of the New Rules in the

Telecommunications Sector

Adriano Gonçalves de PinhoDirector of Governmental Affairs

Agenda

1 Extension of the Concession Contracts

Regulatory Aspects for the Convergent Business Model2

Extension of the Concession Contracts

• ANATEL has a work schedule that aims to adequate the existing rules to those foreseen in the Concession Contracts to be extended (2006-2025) and according to the General Telecommunications Law, Decree 4,733 of June 10, 2003 (directive) and the Decree 4,769 of June 28, 2003 (Universalization Plan);

• Brasil Telecom is actively participating of the discussion regarding the new rules, with proposals based in internal and external studies, beyond intense simulations and analysis;

Objective:Objective:

• Encourage incumbents to be the developing and modernizing instrument of the Brazilian telecommunications sector;

• Ensure that the transition to new conditions preserves the economic-financial equilibrium of the contract.


Main conditions to the extension of the Concession Contracts:

1. PUBLIC TARIFFS2. INTERCONNECTION3. LEASE OF MEANS4. UNIVERSALIZATION


1. PUBLIC TARIFFS

a) Tariff Readjustment

Public Consultation 544 – Separation and Accounting Allocation

IST (“Índice do Setor de Telecomunicações”) –Telecommunications Sector Index

Productivity Index

WACC Determination

b) Changes in Tariff Rules


2. INTERCONNECTION

Network usage tariffs (fixed and mobile) definition based on cost methodology.

a) Public Consultation 544 – Separation and Accounting Allocation

b) Public Consultation 549

Interconnection General Regulation

Rules to remunerate operators of fixed telecommunications services for the usage of their network;

Rules to remunerate operators of mobile telecommunications services (PCS) for the usage of their network.


3. LEASE OF MEANS

Public Consultation 548 – IEDL Offering – Industrial Exploration Dedicated Line.

a) Prices (rates) based in cost

b) SMP Definition - Significant Market Power

c) Prohibition to discounts (volume, period, value)


4. UNIVERSALIZATIONUniversalization Goals for 2005 (current contract)a) Individual attendance in localities with population above 300 inhabitants

b) Collective attendance (TUP – Public phones) in localities with population above 100 inhabitants

Universalization Goals as of 2006 (PGMU 2006)a) AICE (“Acesso Individual Classe Especial”) – Special Class Individual

Access

b) PST (“Posto de Serviço de Telecomunicações”) urban and rural –Station of Telecommunications Sercices

The Universalization obligations will be accomplished offering flexible products and adequate to the payment capacity of the population still not served.


Services that are still not foreseen in the new regulations:

• VOIP

• TRIPLE PLAY

Regulatory Aspects for the Convergent Business Model

What is Convergence and the BrT’s Model

SERVICE SHOULD ALWAYS BE USER-FRIENDLY AND SIMPLE TO THE CLIENT UTILIZATION.

1. Current existing limits and restrictions for the services offering:

• Necessity to constitute subsidiary companies, attainment of distinct licenses and obligations by services.

2. Possibility to offer services and products, independent of the infrastructure that supports them.

Regulatory Aspects for the Convergent Business Model

1. Convergent Business Models and the Competition Rulesa) Obligatoriness of public offerb) Isonomic offers among Companies in the marketc) Non-discriminatory offersd) Prohibition of subsidies among productse) Prohibition of bundlef) Losses in the Economic Orderg) Dumping

The BrT and BrT GSM Case

2. Perspectives of Evolution

Disclaimer

This presentation contains forward-looking statements. Such statements are not statements of historical fact, and reflect the beliefs and expectations of the Company's management. The words "anticipates," "believes," "estimates," "expects," "forecasts," "intends," "plans," "predicts," "projects" and "targets" and similar words are intended to identify these statements, which necessarily involve known and unknown risks and uncertainties. Accordingly, the actual results of operations of the Company may be different from the Company's current expectations, and the reader should not place undue reliance on these forward-looking statements. Forward-looking statements speak only as of the date they are made, and the Company does not undertake any obligation to update them in light of new information or future developments.

BRASIL TELECOM1st Investor’s Day

NY

Documents

BRASIL TELECOM 1st Investor’s Day · • BrT GSM • Fixed Mobile Convergence (FMC) Maximize the use of resources now available in the fixed network, that could otherwise become