presentation at the 9 th annual asia pacific / gem conference presentation at the 9 th annual asia...

Presentation at the

9th Annual Asia Pacific / GEM Conference

Presentation at the

9th Annual Asia Pacific / GEM Conference

October 04, 2004New York

2JP Morgan GEM Conference – NY, October/04www.telemar.com.br/ir

Contents

2. Company Overview 7

1. Brazilian Telecom Market 1


Brazilian Telecom Market – Customer Base (in millions)

1 Privatization.

Fixed LineFixed Line

After doubling in size after privatization in 1998, further growth of fixed-line platform more closely linked to the performance of Brazilian economy.

Penetration

Rate (%) Brazil

MobileMobile

Brazilian subscriber base still growing at over 30% p.a., with further room to increase penetration levels.

BrazilPenetration

Rate (%)

981 99 00 01 02 03 Jun/04981 99 00 01 02 03 Aug/04


Fixed Line Sector in Brazil – June/2004

Brasil Telecom

9.6 M 25%

Telemar

39%

Telefonica

12.2 M 31%

Embratel (LD Carrier)

15.2 M Fixed Lines in Service (Brazil: 39 m*)

Market Share

Region I

Region III

Region II

Region IV

* Includes smaller incumbents and mirror companies.


Mobile Subscribers in Brazil - June/2004

Subscriber Base - Brazil: 54 m**

Market Share

* Other groups with 0.3 m subscribers (~0.5% market share) ** Oi announced 5.5 million subs in Aug/04 - Brazil: 57 m subs

Vivo – TEL/PT (CDMA)

23.5 m 44%

Opportunity & BRT (TDMA/GSM)*

TIM (TDMA/GSM)

10.4 m 19%

Claro - AMX (TDMA/GSM)

11.1 m 21%

Oi - Telemar (100% GSM)

5.1 m** 9%

Mai

n Gro

ups

3.6 m 7%


Brazilian Telecom Market - Penetration Figures

Mobile penetration still has a lot of room to grow, helped by economic recovery;

Anatel estimates between 62.8 / 69.8 m subs by 2004YE;

Estimated mobile penetration for 2008YE ranges from 42% to 58%;

Fixed line penetration should be more or less stable, following GDP growth.

58%

42%

Fixed Line** 23%

* Estimates from: Citigroup, Goldman Sachs, JP Morgan, Merryll Lynch, Pyramid Research.** Estimates from Yankee Group

Mobile*

Max.

Min.

23%

32%

Fixed: 39 m (Jun/04)

Mobile: 57 m (Aug/04)


Brazilian Telecom Market - Broadband

Source: Anatel / Teleco / Pyramid Research estimates*

Broadband Access – ( thousands)Broadband Access – ( thousands)

1,199

130 326694

ADSL has become the dominant technology in Brazil (over 80% market share);

Broadband subscriber base expected to increase by 2.5x through 2008;

Telemar has a target to increase broadband penetration from 2% of fixed lines to 5% by 2006.

1,490

3,1483,547

3,831

1,874

2,591

ADSL

PC Penetration (% of households)PC Penetration (% of households)

2003


Contents

2. Company Overview 7

1. Brazilian Telecom Market 1


TELEMAR is an Integrated Telecom Player

- Leadership in local and long distance services (15.2 million fixed lines)

- Over 5 million mobile subscribers (GSM)

- Data, Corporate & Value Added services

Most Liquid stock in Brazil – BOVESPA TNLP4: US$ 47 m / day ; TNLP3: US$ 3 m / day

Free Float: 82% of total shares (27% traded at NYSE: US$ 22 m / day)

Market value: US$ 5.0 billion (Sep/04)

Region I

Region III

Region I I

Telemar Overview – June/2004


Operating

Stable fixed-line platform;

Strong growth in mobile and ADSL subscribers;

Consistent market share gains in long distance services;

Strong segmented offer and a large distribution network;

A state-of-art fiber & satellite backbone reaching main cities of Brazil, supporting voice, data and internet services.

Operating and Financial Highlights

Financial

Consistent top line growth;

Mid 40’s EBITDA margins;

Low CAPEX required;

Strong cash generation;

Execution of deleverage policy;

High dividend yield.


Telemar Customer Base

1.72.2

2.8

~6.5

3.94.4

5.5

Fixed Line (million lines)Fixed Line (million lines) Mobile (million subs)Mobile (million subs)

ADSL (thousand subs)ADSL (thousand subs)


Revenue Growth & Key Drivers

Telemar has been delivering strong revenue growth in spite of a modest performance of Brazilian economy.

Net Revenue Growth – R$ millionNet Revenue Growth – R$ million

Key Revenue DriversKey Revenue Drivers

Revenues from traditional services broadly in line with inflation (no real growth).

10,103

11,874

14,003

Traditional Services2

New Services1

1 Domestic and International Long Distance, Mobile, Data and Value Added Services.2 Local voice (fixed), network usage and public phones.

Real growth driven by new segments of mobile, data, broadband and long distance.


R$ million

EBITDA

Recurring EBITDA margins stable over time1;

Given strong revenue growth in more competitive segments, we expect a slight reduction in consolidated EBITDA margin to ~43% in 2004.

35%

45% 44%

1EBITDA 2001 impacted by non recurring items.

3,2252,974

1H041H03

EBITDA Margin


Free Cash Flow after Capex

R$ million

Having met universal service goals and successfully rolled out mobile business, our Free Cash Flow is expected to remain strong in the coming years.

1999 2000

2001

2002 2003 1H041H03

2,2471,064

- Turning point (fixed line targets/mobile startup)


Debt Position

Net Debt EvolutionNet Debt Evolution Debt Repayment Schedule(Total Debt: R$ 12.2 bn - Jun/04)

Debt Repayment Schedule(Total Debt: R$ 12.2 bn - Jun/04)

Based on a strong cash generation, we expect to reduce our net debt level to below 1x EBITDA by 2004YE.

Net Debt/ EBITDA (x)

~

R$ million


CAPEX

CAPEX / 2003: 12% of sales (17% in 2002);

Main investments in fixed line platform already made;

Total CAPEX since 1998: ~R$ 22 bn (nearly

US$ 11 bn);

Target: Stabilize CAPEX at up to 15% of

sales to support growth in new segments

(mobile, data, broadband and LD).

R$ billion

2.01.7

Fixed Line

Mobile

2.02.8

2.22.5

60%

40%

0.5

10.1


R$ million

Dividend Payments - 1999/2003

Dividend yield

Our goal is to continue to provide high cash returns to our shareholders.

* Based on stock prices on 08/31/04.

*

Dividend Policy

All shares have the right to receive a minimum annual payment of 25% of adjusted net income;

Preferred Shares and ADR entitled to a minimum dividend (higher of):

6% Capital; or

3% of Shareholder’s Equity

Dividend Policy

All shares have the right to receive a minimum annual payment of 25% of adjusted net income;

Preferred Shares and ADR entitled to a minimum dividend (higher of):

6% Capital; or

3% of Shareholder’s Equity


Growth Opportunities

Increase of PC penetration, broadband access and internet traffic;

Sustained growth rates in the mobile market should leverage our total customer base to exceed 25 million clients;

Our fixed and mobile integrated strategy helping to increase our sales and retain our clients.

Increase of PC penetration, broadband access and internet traffic;

Sustained growth rates in the mobile market should leverage our total customer base to exceed 25 million clients;

Our fixed and mobile integrated strategy helping to increase our sales and retain our clients.


Our view on what the market considers as most relevant threats

Traffic migration;

New technologies / Alternative products;

Competition;

Regulatory Environment.

Traffic migration;

New technologies / Alternative products;

Competition;

Regulatory Environment.


“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

Investor Relations - TelemarRua 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

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