BRASIL TELECOM S.A. First Field Trip Strategic positioning in a deregulated market April 2002 1
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. 2
Regulatory Issues Luiz Otávio Calvo Marcondes Regulatory Affairs Director 3
Historical Background Privatization Limited Competition 1998-2001 State Monopoly (1962-1997) Free Competition - 2002 1962 CBT 1965 Creation of Embratel 1972 Creation of Context Telebrás 1995 Constitutional amendment 1996 Minimum Law 1997 Preliminary phase of LGT Role of State Entrepreneur 1998: Privatization of Telebrás 1999: Mirror licenses of Telesp, Telemar, Brasil Telecom and Embratel Regulator Fiercer competition through new local and long distance licenses 4
The Brazilian Model ORIGINAL OBJECTIVES OF THE REFORM A. Strength the regulatory role of the Gov t and and forego its role as entrepreneur. B. Broad and improve the range of telecommunications services. C. In a competitive environment, create attractive investment opportunities as well as encourage technological and industrial development. D. Create conditions for an harmonic growth of the sector in line with the social role of the Gov t. E. Maximize the sale value of telecommunications assets without jeopardizing the other objectives. BASIC GUIDELINES Planning and implementation of the PRIVATIZATION process. Privatization + Creation of ANATEL Competition + Universalization 5
Fixed Telephony Region I: North-East Concession: Tele Norte Leste Mirror: Vésper S.A. Region II: Mid-South Concession: Brasil Telecom Mirror: Global Village Telecom Region III: São Paulo Concession: Telefônica Mirror: VésperSP Nationwide (Long Distance) Concession: Embratel Mirror: Intelig 6
Mobile Telephony Area 8: North Band A: Amazônia Celular Band B: Norte Brasil Telecom Band D: TNL - PCS Band E: TIM Area 10: Northeast Band A: TIM Nordeste Band B: BCP Band D: TNL-PCS Area 9: East Band A: Telefônica Celular Band B: Maxitel (TIM) Band D: TNL-PCS Area 7: Mid-West Band A: Tele Centro Oeste Celular Band B: Americel Band D: TIM Area 4: Minas Gerais Band A: Telemig Celular Band B: Maxitel (TIM) Band D: TNL-PCS Areas 1/2: São Paulo Band A: Telesp Celular Band B: BCP and TESS Band D: TIM Area 3: Southeast Band A: Telefônica Celular Band B: ATL Band D: TNL-PCS Band E: TIM Area 5: South Band A: TIM Sul, Sercomtel Celular Band B: Global Telecom Area 6: Rio Grande do Sul Band A: Celular CRT Band B: Telet Band D: TIM 7
The Brazilian Telecom Market 58.0 58.0 Paging Pay TV Mobile Fixed 48.0 28.7 13.3 16.5 0.2 0.4 0.8 0.8 1.2 1994 2001 2005 In million Source: Up to 2001: Actual numbers 2005: PASTE 2000 5.6 8
Fixed Plant Fixed telephony subscribers in Brazil (in million) 50.0 45.0 48.0 40.0 35.0 38.3 30.0 25.0 20.0 15.0 10.0 5.0 14.8 18.3-1998 1999 2000 2001 9
Mobile Plant Mobile subscribers in Brazil (in million) 30.0 28.7 25.0 20.0 23.2 15.0 10.0 5.0-2.7 7.2 1998 1999 2000 2001 10
Public Telephony Public telephones in service (in thousand) 1,400 1,200 1,271 1,259 1,000 800 803 600 400 548 597 200-1998 1999 2000 2001 2002 Paste 11
Investments Investments in the privatization auction and mobile bands* Operational investments in the sector* * R$ billion 26,5 24.7 15.8 17.6 12.1 3,8 0,2 0 2,9 4.3 7.4 7.6 1997 1998 1999 2000 2001 1995 1996 1997 1998 1999 2000 2001 Share in GDP % 0.4 0.7 0.7 1.2 1.5 1.6 Privatization: Jul/1998 2.2 12
Current Scenario New authorizations Companies that have anticipated Anatel targets PCS Relevant issues Bad debt Cross subsidies Interconnection tariffs Tariffs Tax burden 13
Outlook Revision of Concession Contracts Public Hearing until Dec. 31, 2002 Express interest in postponement to Anatel until Jun. 30, 2003. Rules for mergers and acquisitions Anatel and the market 14
Brasil Telecom s Network Current Scenario and Outlook Francisco Aurélio Santiago Goal Compliance Director 15
Scenario Greater speed and information volume demand (broadband). Quality/cost/term as key factors in choosing service provider. Increasing competition. Acquisition/mergers. 16
Guidelines Focus on meeting the needs of corporate and business clients. Define a strategy in terms of technological evolution, with the objective of optimizing investment and anticipating the offering of new services. Gear investments towards data communication and intelligent network, always focusing on client loyalty and increase service quality. 17
Current Scenario Circuit switching networks focused on supplying voice and some low-speed data transmission. Accesses mostly of metal cables, which support voice and medium-speed (xdsl) data services; radio access (2%); fiber access (5%). Data communication networks to support dedicated accesses and IP services. 18
Telecom Data 2001 2002 Var. 2002/2001 Population (Million) 40.2 41.1 2.0% Lines Installed (Thosuand) 10,015 10,340 3.2% Teledesidade (Term/100 Habts.) 21.5 25.2 3.7 p.p. Lines in Service (Thosuand) 8,638 9,198 6.5% Utilization Rate (%) 86% 89% 2.7 p.p. Digitization Rate (%) 97% 98% 1.2% Public Telephones (Thousand) 285.7 312.2 9.3% 19
Teledensity vs GDP (2001) 100 TELEDENSIDADExPIB 2001 OPERADORAS BRASIL TELECOM SWE DF DEU FRA DNK NOR USA LUX MS PR SC RS PRT URY ITA CAN AUT JPN T E L E D E N S I D A D E 10 IND PAK BRASIL RO AC MT TO TUN EGY PHL IDN GO MAR PER VEN MEX SYR ARG CHL SAU ESP 1 PIB PERCAPITA US$ 100 1000 10000 100000 Source: IBGE and Brasil Telecom 20
Access 2001 2002 Var. Thous. Thous. 2002/2001 Lines Installed 10,015 10,340 3.2% Data Communication 1 176.4 270.5 53.4% Value-Added Network 2 1,402.4 1,986.6 41.7% 1 ADSL, Dialnet, DT Network, Frame Relay, ATM and IP 2 SPM, UMS, CNG, ICW, CPP, TFPP, Personal number 21
Outlook Priority: expand data communication. NGN: voice convergence, data and image into a single network. Expand network for value-added services, such as intelligent network and messaging services. Increase opticalization of network access, targeting broadband services. 22
Brasil Telecom s Backbone Palmas TO Rio Branco AC MT Cuiabá ANEL 101 Goiás ANEL 102 Goiânia RO Porto Velho MT Rondonópolis Goiânia Morrinhos BRASÍLIA GO GO DF ANEL 103 Mato Grosso do Sul MS Campo Grande ANEL 104 Noroeste do Paraná ANEL 105 Paraná ANEL 109 Interconexão do RS com SC PR Londrina Curitiba PR Tubarão Criciúma Porto Alegre RS SC Florianópolis ANEL 400 Curitiba e interior do Paraná Lages SC SC Cross Connects ADM-4 ADM-16 Cabo de Fibra Óptica 23
jan/01 feb/01 mar/01 apr/01 may/01 jun/01 jul/01 aug/01 sep/01 oct/01 nov/01 dec/01-5 10 15 20 25 35 30 35 35 35 34 34 34 34 34 34 33 32 32 Quality Indicators (Out of 35) jan/02 feb/02 33 33 24
Universalization Targets - 2001 UNIVERSALIZATION INDICATORS MONITORED BY ANATEL GOAL/ YEAR Localities that have less than 50% of public 0 begin. phones able to make and receive local and Dec/31/9 LD calls, installed in locals with 24-hour 9 access Localities that have less than 25% of public 0 begin. phones able to make and receive local and Dec/31/9 LD and ILD calls, installed in locals with 24-9 hour access Municipality served by STFC, with 0 begin. individual access, with public telephones at Dec/31/9 no further than 800 meters 9 CRT CTMR TELESC TELEPAR TELEMS TELEMAT TELERON TELEACRE TELEGOIAS TELEBRASILIA BRT 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 Localities with less than 3 public telephones per 1,000 inhabitants distributed evenly 0 begin. Dec/31/9 9 Localities with over 1,000 inhabitants, 0 begin. without STFC, with at least um public Dec/31/9 telephone accessible 24-hours capable of 9 making and receiving local, LD ILD calls Requests for a public telephone in schools and hospitals met in more than 4 weeks 0 begin. Dec/31/0 0 Requests for a public telephone made by 0 begin. the hearing impaired and in wheelchair met Dec/31/0 in more than 4 weeks 0 Requests for a line met in more than week in schools and hospitals 0 begin. Dec/31/9 9 Requests for a line made by the hearing 0 begin. and speaking impairred met in more tha 6 Dec/31/0 weeks 0 Localities served only with public access, 0 begin. without at least 1 public telephone Dec/31/9 accessible 24 hours capable of making and 9 receiving DLD and ILD calls Localities that have no 2% of all public 0 begin. telephones adapted to the hearing and Dec/31/9 speaking impaired as well as in wheelchair 9 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 25
Corporate Market and Data Products Yon Moreira da Silva Corporate Business Director Manuel Ribeiro Filho Superintendent Director 26
Vant Acquisition - I 19.9% of Vant Telecomunicações S.A. s total capital Company Characteristics: * Authorization to offer Corporate Network Service (CNS) throughout the country * Specialized in data transmission and corporate, retail and Internet solutions * IP backbone and over 2,100 ports in service in Region II * 17 points of presence in São Paulo, Rio de Janeiro, Belo Horizonte, Vitória, Salvador, Recife and Fortaleza * http://www.vant.com.br 27
Vant Acquisition - II Benefits for Brasil Telecom: * To consolidate participation in data communication market * To strengthen and to increase position in Region II * Presence in Regions I and III through operating agreements * Expertise in IP highly qualified team * Operational learning as CLEC (Competitive Local Exchange Carrier) 28
BrT Serviços de Internet S.A. Fully-owned subsidiary Launch of BrTurbo.com portal Partnership with Ibest, with call option BrTurbo.com gained, in 3 months, 35% of market share in Brasil Telecom s concession area Partnership with Microsoft that targets the corporate market by offering Office XP software on-line 29
Product Launches - I BrTurbo.com portal launched October 2001 Targets Internet broadband users Multiplayer on-line games,videos, sports and social events, live and recorded Offers personal backup of 1 Gigabyte per user and 3D chat 24/7 exclusive live transmission of reality show Big Brother Brasil Approximately 25,000 subscribers Second largest provider of Internet turbo adsl 30
Product Launches - II Free Mail Boxes * As of January 2002, Brasil Telecom s clients have access to 32 million free mail boxes on the Internet * Allows to send and to receive messages from Internet-accessed computers * Offers 10Mb of free space to allow the exchange of large files 31
Product Launches - III Launched in March 2001 Available in 18 cities 24-hour broadband access, 30x faster than regular modem connection Promotional installation fee of R$ 60 Promotional leasing modem fee of R$ 14.90/month Package Downstream Upstream Monthly fee Fast Up to 256 Kbps Up to 128 Kbps R$ 59.00 Super-Fast Up to 512 Kbps Up to 128 Kbps R$ 175.00 32
Product Launches - IV By 1Q02, over 54 thousand adsl connections had been installed 70,000 65,067 60,000 54,812 50,000 40,000 34,378 40,640 30,000 20,000 14,846 17,207 21,735 25,756 10,000 6,799 8,326-1Q01 2Q01 3Q01 4Q01 1Q02 Installed Sold 33
Product Launches - V * Launched November 2001 * Promotional installation fee of R$250 * Promotional leasing modem fee of R$30/month Package Downstream Upstream Monthly fee Rápido Up to 256 Kbps Up to 128 Kbps R$ 199.00 Super Rápido Up to 768 Kbps Up to 128 Kbps R$ 409.00 Profissional Up to 1.5 Mbps Up to 256 Kbps R$ 890.00 34
Product Launches - VI Launched in December 2001 Curitiba, Porto Alegre and Brasília Operates uninterruptedly 365 days per year Hosting services, collocation, data storage and connectivity Infrastructure with physical and logical security, no-break, generator groups, acclimatization, access control and backup Redundant systems integrated with Brasil Telecom s backbone 35
Product Launches - VII Based on ADSL technology. VPN Simples was launched nationwide. Outside Region II, clients should contract a connection through their local operator (this connection should have at least 1 valid IP). Major characteristics of this architecture: Connection speed and safety in exchanging files One terminal per point (internal network required) Use of a regular modem bridge Presence of a shared VPN server Include integrated redundant systems to Brasil Telecom s backbone http://www.vpnsimples.com.br 36
BRASIL TELECOM S.A. First Field Trip Strategic positioning in a deregulated market April 2002 37