3 rd annual global emerging markets conference

3rd Annual Global Emerging Markets Conference3rd Annual Global Emerging Markets Conference

www.telemar.com.br/ir September 8-10, 2004

2GEM Conference - September/2004GEM Conference - September/2004 www.telemar.com.br/ir

Part II - Recent Developments and Growth Prospects

2.1 Highlights 2003/2004

2.2 Growth of the Business

2.3 Review of Operating Results

2.4 Financial Position

Part I - Overview

1.1 Brazilian Telecom Market

1.2 Telemar


Part I - Overview

1.1 Brazilian Telecom Market

1.2 Telemar


1.1 Wireline Sector

* Source:Company´s Information

2001

37.4

1998

20.0

2003

39.2LIS (Million)*

2002

38.8

Jun/04

39.3

Brasil Telecom

9.6 M 20%

Telemar

32%

Telefonica

12.2 M 31%

Embratel (DLD & ILD)

Lines in Service

17%

15.2 M Revenue Share (Brazil: R$ 29.1 bn - 1H04)

* Includes smaller incumbents and mirror companies (CTBC, Sercomtel, Vesper and GVT).

21 11 23Penetration (%) 23 23Fixed Lines in Service have doubled since privatization

Largest Incumbents


1.1 Wireless Market

* Source:Company´s Information

Total Subscribers

National Market Share

* Other groups such as Nextel, CTBC and Sercomtel had 0.3 m subscribers (0.5% market share).

Vivo – TEL/PT (CDMA)

23.5 m 44%

Opportunity (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% 3.6 m 7%

2001

28.7

1998

7.4

2003

46.4LIS (Million)*

2002

34.9

Jun/04

54.0

17 5 26Penetration (%) 20 30

Largest Groups


* Source:Company Information

Fixed-line platform – LIS (million)Fixed-line platform – LIS (million)

Penetration

Rate Brazil

(%)

Region I

Brazil

Mobile platform – Subscribers (million)Mobile platform – Subscribers (million)

Brazil

Penetration

Rate Brazil

(%)

Region I

1 Privatization (Jul/98)

981 99 00 01 02 03 Jul/04 981 99 00 01 02 03 Jul/04

1.1 Growth in Customer Base

After doubling in size after privatization in 1998, further expansion of fixed-line platform more closely linked performance of Brazilian economy (current household penetration ~55%).

Brazilian subscriber base still growing at a rapid pace (over 30% p.a.).


In jul/02, the penetration rate in Region I was 15% and in Brazil 18%; Wireless penetration in Region I (25%) still offers room for growth; According to Pyramid´s forecast, penetration will reach 40% by 2006.

Region II – 37.3%Region I – 25.0%Region III – 36.5%

Brazil – 30.4%

1.1 Mobile Penetration Rate – Jul/04

Penetration per RegionJun-03 Sep-03 Dec-03 Mar-04 Jun-04

Region I 18.1% 19.5% 21.9% 22.8% 24.8%Region II 25.4% 27.3% 31.2% 33.2% 36.9%Region III 25.8% 27.6% 31.5% 33.0% 36.4%Brazil 21.5% 23.1% 26.2% 27.5% 30.2%

Source: Anatel

* In July/04, population was estimated by IBGE.


1.1 Mobile Penetration - Projections

OvumPyramid

Brazil (%)

2002 2003 2004 2005 2006

39%

40%

20%

July/2004: 30.4%


1.1 ADSL Market in Brazil

Market Share – Brazil*Market Share – Brazil*

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

*

*Source: Pyramid Research ** Brazil has approximately 42 million households

2003

Brazil has 1.4 million broadband accesses (Jun/04);

ADSL has 84% market share of the Brazilian broadband subscriber base;

Broadband penetration is expected to represent 30% of total internet access in Brazil in the next five years.

Brazil has 1.4 million broadband accesses (Jun/04);

ADSL has 84% market share of the Brazilian broadband subscriber base;

Broadband penetration is expected to represent 30% of total internet access in Brazil in the next five years.

Dec/03 Jun/04

*Source: Teleco & Telemar estimates.

(ADSL)

(ADSL)

(Cable)(ADSL)


1.2 Telemar – Overview (June/2004)

• Integrated Telecom Service Provider– 15.2 million wirelines in service – 5.3 million wireless subscribers (Jul/04)– 345,000 ADSL subscribers

• Concession Area (Region I) - Local Service and PCS– 65% of Brazilian territory/94 million people– 40% of country’s GDP– Over 20 million households

• Leadership in local and long distance services (Region I)

• PCS Mobile services (GSM) in Region I

• Data, Corporate & Call Center Services (nationwide)

• High Free Float: 82% of total shares

• Market value: US$ 5.1 billion (Jul/04)

Region I =

• Concession for fixed line services

• License for Wireless services (GSM)

Nationwide

• Authorization for fixed line services

• Telemar shares heavily traded at Bovespa (TNLP4): ~ US$ 47 m / day and at the NYSE (TNE): ~ US$ 22 m / day (Jul/04)


1.2 Telemar - Shareholder Structure

81.0%

(TMAR)

Tele Norte Leste Participações (TNE)

Tele Norte Leste Participações (TNE)

ADR

TNLP

Wireline

WirelessData

Contact Center

Holding Co.


Part II - Recent Developments and Growth Prospects

2.1 Highlights 2003/2004

2.2 Growth of the Business

2.3 Review of Operating Results

2.4 Financial Position


Building a fully integrated telecom service provider

Change, adaptation and consolidation Market share gains in relevant

segments Selective growth (new markets) Consolidation of investments made in

the networkGrowth in highly competitive markets:

Long Distance (domestic and international)

Data & Corporate (nationwide) GSM Mobile Services (Region I)

Exploring new opportunities: Broadband Bundled services Satellite services Agreements and Partnerships

Target: Ensure a sound financial position, with increasing returns to our shareholders.

Building a fully integrated telecom service provider

Change, adaptation and consolidation Market share gains in relevant

segments Selective growth (new markets) Consolidation of investments made in

the networkGrowth in highly competitive markets:

Long Distance (domestic and international)

Data & Corporate (nationwide) GSM Mobile Services (Region I)

Exploring new opportunities: Broadband Bundled services Satellite services Agreements and Partnerships

Target: Ensure a sound financial position, with increasing returns to our shareholders.

2.1 Highlights –2003/2004


Ability to anticipate mobile traffic migration presenting an outstanding performance in customer base;

Capacity to maintain stable fixed line platform while increasing market share in new businesses (LD,Data, ADSL and Mobile).

Ability to anticipate mobile traffic migration presenting an outstanding performance in customer base;

Capacity to maintain stable fixed line platform while increasing market share in new businesses (LD,Data, ADSL and Mobile).

million

*Company’s acquisition

2.2 Expansion of Customer Base

CAGR (98-03) 19.5%

Wireline Wireless

19.2

16.4

20.622.2

0.5 10.3

1Target: 450,000 ADSL subscribers by YE 2004.

0.2

ADSL


Investments for expansion of fixed line network essentially completed;

Fully digital platform:

78% household lines

18% business lines

4% public phones

Wireline penetration: ~55% of households (Region I);

Obstacles: Further increases in wireline penetration subject to GDP growth and regulatory changes.

Investments for expansion of fixed line network essentially completed;

Fully digital platform:

78% household lines

18% business lines

4% public phones

Wireline penetration: ~55% of households (Region I);

Obstacles: Further increases in wireline penetration subject to GDP growth and regulatory changes.

million lines

2.2 TMAR Fixed Lines in Service

growth maintenance


Most successful GSM launch globally

5.3 million subs in 25 months;

21% market share (Region I);

Share of mobile revenue in total consolidated business grew from 3% in 2002 to 8% in 1H04.

Most successful GSM launch globally

5.3 million subs in 25 months;

21% market share (Region I);

Share of mobile revenue in total consolidated business grew from 3% in 2002 to 8% in 1H04.

2.2 Oi´s Subscriber Base

million subscribers

Gross Revenue

(R$ million)

Pre paid Post paid

1.72.2

2.8

80%80%

83%

78%

~6.5

3.9 85%

4.4

5.3

85%


2.2 Oi´s Market Position

^Includes other operators:Telemig Celular, Tele Norte Celular, Nextel, CTBC, and SERCOMTEL.

Source: Teleco /Morgan Stanley.

Market Share (Brazil v. Region I) – Jun/04

Market Share (Brazil v. Region I) – Jun/04

Wireless Penetration (%) – Jul/04Wireless Penetration (%) – Jul/04

*

*Source: Pyramid Research

TIM

22%

Claro

16%Other^

16%

Oi

21%

Vivo 25%

Brazil Region I

TIM

19%

Other^

8%Claro

21%

Oi

9%

Vivo 43%

Even with increased competition, Oi remains a high growth player in its operating market (35% of all net adds in 2Q04);

Wireless penetration in Region I (25%) still offers significant growth potential;

Challenge: Grow subscriber base by 65% in 2004, with positive EBITDA margins.

Even with increased competition, Oi remains a high growth player in its operating market (35% of all net adds in 2Q04);

Wireless penetration in Region I (25%) still offers significant growth potential;

Challenge: Grow subscriber base by 65% in 2004, with positive EBITDA margins.


Highest ADSL growth in Brazil (~37% of net adds/2003);

Annual revenue growth of 288% in 1H04, but still a low portion of fixed line revenues (1.6%);

Target: Increase ADSL penetration from 1.9% of fixed lines to 5% in 2-3 years.

Highest ADSL growth in Brazil (~37% of net adds/2003);

Annual revenue growth of 288% in 1H04, but still a low portion of fixed line revenues (1.6%);

Target: Increase ADSL penetration from 1.9% of fixed lines to 5% in 2-3 years.

2.2 ADSL

Thousand lines

Gross revenue

(R$ million)

450


Focus on profitability: EBITDA positive since inception;

Growth in attendant positions, in line with increase in customer base and net revenues - Contax currently has 29 customers, including major banks, utilities, insurance, media, telecom, retail, excluding Telemar.

Focus on profitability: EBITDA positive since inception;

Growth in attendant positions, in line with increase in customer base and net revenues - Contax currently has 29 customers, including major banks, utilities, insurance, media, telecom, retail, excluding Telemar.

2.2 Call Center Services

Attendant Positions

7,3374,947

12,907

Net Revenues

(R$ million)

223

421

146

>15,00014,887

286


2.3 Revenue Drivers

The Company’s five main lines of businesses provide a healthy balance between stable cash flow and growth opportunities.

The Company’s five main lines of businesses provide a healthy balance between stable cash flow and growth opportunities.

WirelineConcession Area

Moderate Growth

Data, Internet &

Corporate

High Growth

Wireless

High Growth

DLD / ILD

High Growth

Contact Center

High Growth

Integrated

Strategy


Other 9%

Wireless 8%

Network 6%

Data 7%

LD 17%

Local 53%

Other 9%Wireless 7%

Network 6%

Data 6%

LD 15%

Local 57%Local 61%

LD 13%

Data 6%

Network 9%

Wireless 3%

Other 8%

2.3 Consolidated Gross Revenue Breakdown

1H04

R$ 10,460 million

2003

R$ 19,427 million

2002

R$ 16,091 million

F- M

17%

Local

44%

F- M

13%

Local

40%

F- M

13%

Local

40%

F- M

15%

Local

42%

Local Service decreased its share from 61% in 2002 to 53% in 1H04;

Real growth has been driven by competitive and less regulated segments of mobile, long distance and data:

LD services increased its share from 13% in 2002 to 17% in 1H04;

Mobile service rose from 3% in 2002 to 8% in 1H04 and

Data increased its share from 6% in 2002 to 7% in 1H04.

Local Service decreased its share from 61% in 2002 to 53% in 1H04;

Real growth has been driven by competitive and less regulated segments of mobile, long distance and data:

LD services increased its share from 13% in 2002 to 17% in 1H04;

Mobile service rose from 3% in 2002 to 8% in 1H04 and

Data increased its share from 6% in 2002 to 7% in 1H04.


2.3 Consolidated Gross Revenue

Revenue growth driven by less regulated/ highly competitive business (Mobile, LD & Data);

Revenue growth in regulated services basically driven by tariff increases;

Share of less regulated/competitive services increased from 27% to 32% of total revenues (1H03/1H04);

Expected growth in wireless, data and LD in 2004 should further increase that share.

9,02310,460

1H03 1H04

+7%

+40%

Regulated

Less regulated*

R$ million

* Services offered in highly competitive markets, less affected by regulation.

+16%


Telemar continues gaining market share and holding its market leadership in Region I.

Telemar continues gaining market share and holding its market leadership in Region I.

2.3 Long Distance Services

1,568

2,066

2,963

13%15%

LD Gross Revenue - R$ millionLD Gross Revenue - R$ million LD Traffic (billion minutes)LD Traffic (billion minutes)

Contribution to Total Revenues (includes F2M)

Contribution to Total Revenues (includes F2M)

7.1

8.2

9.5

CAGR

17.9%

+31.7%

11%

1,3471,774

15%17%

CAGR

37.5%


Key corporate and government contracts won in 2003;

Data revenue growth driven by ADSL and IP services;

Target: Increase market share in data services for Region I and extend comprehensive offer on nationwide basis.

Key corporate and government contracts won in 2003;

Data revenue growth driven by ADSL and IP services;

Target: Increase market share in data services for Region I and extend comprehensive offer on nationwide basis.

2.3 Data Services

Major Clients won in 2003Major Clients won in 2003

Data Revenues (gross) - R$ millionData Revenues (gross) - R$ million

+31.6%

CAGR

22.7%


Outstanding revenue increase (69% yoy);

Services growth driven by subscriptions, outgoing calls & data services (mainly SMS);

EBITDA breakeven reached in Dec/03, after 18 months of operations;

Target: Maintain a high revenue growth rate with increasingly positive EBITDA margins.

Outstanding revenue increase (69% yoy);

Services growth driven by subscriptions, outgoing calls & data services (mainly SMS);

EBITDA breakeven reached in Dec/03, after 18 months of operations;

Target: Maintain a high revenue growth rate with increasingly positive EBITDA margins.

2.3 Mobile Services Revenue*

R$ million

Handsets

511 866

1H03 1H04

Services

* Refer to gross consolidated revenues (excluding Intercompany transactions).


R$ million

2.3 Consolidated Net Revenues and EBITDA

Delivering consistent revenue and EBITDA growth in spite of huge expansion of fixed line platform and startup of mobile business;

Recurring margins stable over time, in the mid-40’s EBITDA 2001 impacted by extraordinary provisions;

Target 2004: Keep consolidated EBITDA margin at ~43% in spite of a higher growth in mobile revenues.

Delivering consistent revenue and EBITDA growth in spite of huge expansion of fixed line platform and startup of mobile business;

Recurring margins stable over time, in the mid-40’s EBITDA 2001 impacted by extraordinary provisions;

Target 2004: Keep consolidated EBITDA margin at ~43% in spite of a higher growth in mobile revenues.

Net Revenues EBITDA EBITDA Margin


2.4 Consolidated CAPEX

R$ billion

CAPEX 2003: ~12% of net revenues (v. 17% in 2002);

CAPEX 1H04: R$ 534 million (7.1% of net revenues);

Consolidated CAPEX since 1998: US$10.4 billion;

Target: Stabilize CAPEX at ~15% of net revenues to support growth in mobile and other services (broadband, long distance).

CAPEX 2003: ~12% of net revenues (v. 17% in 2002);

CAPEX 1H04: R$ 534 million (7.1% of net revenues);

Consolidated CAPEX since 1998: US$10.4 billion;

Target: Stabilize CAPEX at ~15% of net revenues to support growth in mobile and other services (broadband, long distance).

10.1

2.01.7

Wireline

Wireless

Anatel Targets/Mobile License

(R$1.1 bn)

2.0

1.1

0.9

1.1

2.82.22.5

0.6

60%

40%

2.2

7.9

0.5


2.4 Free Cash Flow after CAPEX

R$ million

1999 2000 2001 2002 2003

Having met fixed line universal service goals and successfully rolled out GSM services, our FCF is expected to remain strong in the coming years.

Having met fixed line universal service goals and successfully rolled out GSM services, our FCF is expected to remain strong in the coming years.

CAGR (99-03)69.1%

1H041H03


2.4 Dividend Payments - 1999/2003

Dividend yield

Dividend/ Interest on Capital

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

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

R$ million

*

Dividend Policy

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

• Preferred Shares and ADR are entitled to a minimum dividend of:

6% of the Company´s Capital;

3% of the Company´s Shareholders´ Equity

Whichever is higher.

Dividend Policy

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

• Preferred Shares and ADR are entitled to a minimum dividend of:

6% of the Company´s Capital;

3% of the Company´s Shareholders´ Equity

Whichever is higher.


2.4 Debt Position

R$ billion

% of total

12.1 22.6 28.0 11.4 6.4

Net Debt – Jun/04 Net Debt – Jun/04 Repayment Schedule – Jun/04 Repayment Schedule – Jun/04

Given our strong cash generation, we estimate net debt to be less than 1x EBITDA by year end 2004.

Given our strong cash generation, we estimate net debt to be less than 1x EBITDA by year end 2004.

19.5

R$ 7.4 billion Total Debt: R$ 12.2 billionNet Debt/ EBITDA (x)

~


2.4 Key Financial Ratios

Net Debt / EBITDANet Debt / EBITDA Amortization*/ EBITDA (%)Amortization*/ EBITDA (%)

Dividends* / EBITDA (%)Dividends* / EBITDA (%)CAPEX / EBITDA (%)CAPEX / EBITDA (%)

* includes JCP (interest on capital)

(*) 12 - Month EBITDA* Principal and interest

* Early attainment of universal service targets.

*


Enterprise Value / EBITDAEnterprise Value / EBITDA Market Cap / EBITDAMarket Cap / EBITDA

EBITDA / Net Interest ExpenseEBITDA / Net Interest ExpenseEBITDA / Total Debt ServiceEBITDA / Total Debt Service

2.4 Key Financial and Valuation Ratios


Investor Relations

Rua 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

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

“Safe Harbor” Statement

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