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Overview – December/2002
• Largest integrated telecom company in Brazil– 15.1 million fixed lines in service (Dec/02)– 1.4 million mobile subscribers (Dec/02)
• Concession Area– 65% of Brazilian territory/93 million people– 40% of country’s GDP– Over 21 million households
• Leadership in local services (98% market share)
• National and International long distance services
• Regional Mobile services (GSM)
• National Data, Corporate & Value Added Services
• TNLP4: most liquid stock on Brazilian market• TNE: most liquid Brazilian ADR on NYSE
• Free Float: 82% of total shares
• Level 2 ADR (NYSE: TNE): 29% of total shares
• Market value: US$ 3.0 billion (Jan/03)
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*Controlling Shareholder (53% of voting shares)
TNE – SHAREHOLDERS’ STRUCTURE
TelemarParticipações S.A.*
Free float
Tele Norte Leste Participações S.A.(TNE)
Free float = 19.2%
Treasury stock = 1.6%
100.0%
81.0%
100.0%
Norte Leste (TMAR)
Treasury
100.0%
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TNE – CAPITAL STRUCTURE
*53% of TNE common shares ** Including Treasury Stock
Capital
R$ 4,477 million
Tele Norte Leste Participações S.A.
(TNE)
Telemar Participações S.A.
Free float
18.3% 81.7%
BNDESPar
Fiago
AG Telecom
ASSECA Participações
L.F. Tel
BrasilCap
Brasil Veículos
Lexpart Part.
Brasil
52.7%
NYSE
29.0%
127,949
383,846
255,897
Common
Preferred
Total
Shares
1/3
2/3
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CORPORATE STRUCTURE
General Shareholders’ Meeting
• 11 Board members (3 licensed)• Board Committees [Finance; Procurement & CAPEX; Compensation / Stock Option Plan]
Board of Directors
• 5 members, appointed by:– Controlling Shareholder (Telemar Participações) - 3– Minority Shareholders (voting shares) -1– Minority Shareholders (preferred shares) -1
• Objectives: review and approve the Company’s accounting issues and procedures
Fiscal Committee
• 2 members: TMAR´s and Oi’s CEOExecutive Committee
• PricewaterhouseCoopersIndependent Accountants
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• All shares have the right to receive a minimum annual payment of 25% of adjusted net income, but
• Preferred Shares (and ADR) are entitled to a minimum of
6% of the Company´s Capital, or Whichever is higher
3% of the Company´s Shareholders´ Equity
DIVIDEND POLICY
TNE
TMAR
• All shares have the right to receive a minimum annual payment of 25% of adjusted net income, but
Preferred shares are entitled to:
Class A Shares (TMAR 5): 10% higher dividend than the one paid to the Common Shares
Class B Shares (TMAR 6): 10% of the Company´s Capital (allocated to this class)
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MANAGING STRUCTURE
Audit
Committee
Fiscal Committee
Board of
Directors
TNE
Executive Committee
Controlling
Procurement
Treasury/ Investor Relations
CFOStrategy and
Regulation
Legal Counsel Financial PlanningAsset Management
Public Relations
Internal Audit
Oi CEOTMARCEO
TMAR
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MAIN ACHIEVEMENTS
- Optimization of Resources;- Process Standardization;- Management Centralization;- Merger of wireline companies;- Better utilization of tax loss
carry-forwards
Restructuring 16 1
Processes
Services
Market Approach
16 Companies 16 IT Systems 15 Network Platforms23 Network Management Centers116 Call Centers
Local Voice and regional LD;Regional Data Communic.
Geographic
1998
Local & Advanced VoiceDomestic & International LD
Nationwide Data Transmission Contact Center
Network Management / Internet
Management/Processes/IT
Services
Market VisionCustomer Segmentation
All Unified
International
2002
Platform Expansion
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ANATEL TARGETS: REAPING THE BENEFITS
• Oi’s operational launching
• National long distance service
• International long distance service
• Nationwide data service
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WIRELINE PLATFORM AND UTILIZATION RATE
Million Lines in service (LIS)
Million Lines installed (LI)
*Acquisition of the Company
Utilization rate (wireline)
July 1998* 1998 1999 2000 2001
89% 89%
93%92%
82%
CAGRLIS = 20.4%
+ 110%
2002
86%
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REVENUE GROWTH
Gross revenue
Net revenue
1998 1999 2000 2001 2002
CAGR = 23.4%
+ 132%
+18% YoY
R$ Mn
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*Ex depreciation and amortization
OPERATING EXPENSES*R$ Mn
*Ex depreciation and amortization
1998
Cost of services
Interconnection
Selling expenses
G&A and other expenses
1999 2000 2001 2002
3,470 3,4884,095
6,545 6,584
2002
6,584
2001
6,5452001
2002
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EMPLOYEES EVOLUTION
24,206 24,511
21,090
27,471 28,736
1998 1999 2000 2001 2002
15,056
9,441
Total wireline
Consolidated (including Contax and Oi)
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BAD DEBT PROVISIONS% of gross revenue
One time adjustments
1.6%
2.5%2.0%
5.7%
3.8%
1998 1999 2000 2001 2002
5.6%
4.2%
3.0% 2.8%
1Q02 2Q02 3Q02 4Q02
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EBITDA margin (%)
EBITDA EVOLUTION – TNE
1998 1999 2000 2001 2002
R$ Mn
Net revenue
EBITDA
98 02010099
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EMPLOYEE PRODUCTIVITY – TMAR
*1998, 1999 and 2000 pro-form
Lines in service/employee
1998* 1999* 2000* 2001 2002
+375%
1998* 1999* 2000* 2001 2002
Net revenue/employee
R$ thousand
+490%
1998* 1999* 2000* 2001 2002
EBITDA/employee
R$ thousand
+700%
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PRODUCTIVITY RATIOS – TMARR$ per average line in service (ALIS)
Cash Costs/ALIS EBITDA/ALISNet revenue/ ALIS
1998* 1999* 2000* 2001 2002
+7%
-19%
+60%
1998* 1999* 2000* 2001 20021998* 1999* 2000* 2001 2002
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FINANCIAL RESULTSR$ Mn
12M01 12M02
Financial Revenue 821 502
Financial Expenses (1,265) (2,463)
Interest on Loans/ Debentures (376) (824)
Monetary & Exchange Variations (426) (953)
Premium Amortizations, PIS, Confins (Taxes) (156) (312) Others (88) (35)
Net Financial Result (444) (1,961)
(219) (339) Banking Fees & Monetary Adjustment ofProvision for Contingencies
Brazilian Currency
devaluation
* Gross of R$ 715 million of interest expenses on swap operations.
*
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CONSOLIDATED CAPEX - TNER$ Mn
Wireline
Wireless
17.1%
99.6%
34.5%
36.1%
48.5%
1998 1999 2000 2001 2002
CAPEX / Net Revenue
2,500 2,244 2,804
7,888
2,172
1,086
945
1,300
700
1998 1999 2000 2001 2002 2003E
10,060
2,031 2,000
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CONSOLIDATED NET DEBTR$ Mn
Total debt
• Short term
• Long term
(-) Cash
(-) Long term financ. invest.
(=) Net debt
R$ Mn Dec/01
8,937
1,388
7,549
(1,235)
-
7,702
Dec/02
10,774
1,769
9,006
(1,513)
(141)
9,121
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CONSOLIDATED DEBT PROFILE – CURRENCY & COST (DEC/02)%
Currency Interest Index
Currency Cost (% p.a.)
US$ Libor + 5
Basket 12.3
Real 23.2
Cost of Debt
4%5%
91%
Local
US$
Currency Basket
5%
73%
18%
4%
CDI
TJLP
Fixed Rate (ForeignCurrency)
Floating Rate(Foreign Currency)
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CONSOLIDATED DEBT PROFILE – REPAYMENT SCHEDULE (DEC/02)
2003 2004 2005 2006 2009 onwards
Total debt: R$ 10,774 Mn
2007 2008
1st half
2nd half
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WIRELESS PROJECT ROLLOUT Oi
• ~ 400 cities covered; 48 million people• GPRS coverage in 6 main capitals• 2,467 sites (BTS)• CAPEX optimization (co-siting: 971 in / 531 out)• International roaming• Main suppliers: Nokia, Siemens, Alcatel, Ericsson
• 1,824 points of sales (breaking exclusivity of A & B band agreements)
• Diversified channels with high capillarity– Retail, specialized agents/dealers, stores, telesales
• Corporate sales effort combined with Telemar
• Tight headcount structure: 846 employees• Infrastructure sharing• Outsourcing (including call centers)• Synergies with Telemar• Strong brand name
Coverage
Distribution
Resource optimization
Coverage focused on profitable areas
Consumer and corporate focus through high capillarity and diversity of channels
Focus on profitable growth, minimizing OPEX and CAPEX
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Oi POST-LAUNCHING RESULTS
Initial targets (July/2002) First achievements (December/2002)
• Innovative campaign: 31 years
• Differentiated service plans
• Diversified handsets offer
• 500,000 clients in 12 months
• ARPU of R$ 26
• MIX Pre/Post:90%/10%
• Market share and gross additions in line with fair market share
• 1,400,000 clients in just 6 months
• ARPU R$ 33 (first 6 months)
• MIX Pre/Post:80%/20% (6 months)
• Market share and gross additions well above fair market share
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Jul/02 Aug/02 Sep/02 Oct/02 Dec/02Nov/02
79%
21% 81%
19%
80%
20%
78%
22%
78%
22%
80%
20%
179
386502
677
978
1,401
Prepaid
Post-paid
Oi’s SUBSCRIBER BASE – MONTHLY EVOLUTIONThousands of subscribers
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REVENUE GROWTH STRATEGY
Local Service
Mobility
Data & Corporate
Long Distance
Integrated Strategy
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REVENUE GROWTH STRATEGYLocal Service
Local Service
Mobility
Data & Corporate
Long Distance
• Maintain leadership in home market
• Advanced voice services
(corporate/middle market/SOHO)
• Best carrier’s carrier – network
leverage (home market)
• Increase ARPU
• Value added services
• Reduce interconnection costs
(Fixed to Mobile)
•Platform Growth in line with GDP
•Increase Value Added Services
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REVENUE GROWTH STRATEGYData & Corporate
Local Service
Mobility
Data & Corporate
Long Distance
• Increase offer to SME (home market)
• ADSL (high end/SOHO/small
businesses)
• Nationwide services (corporate level)
• Leverage on national backbone
(Telemar + Pegasus)
• Competitive Service Level Agreements
•Opportunity to Increase Market Share
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REVENUE GROWTH STRATEGYLong Distance
Local Service
Mobility
Data & Corporate
Long Distance
• Leadership in home market
• Conquer new markets (inter-
regional/international/SPM – dial
code)
• Protect existing market
– Retail: loyalty/retention programs
+ promotions
– Corporate: best quality (call
completion/billing) + competitive
service plans (discounts/volume)
•Offer of New Services (Increase Market Share)
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REVENUE GROWTH STRATEGYMobile services
Local Service
Mobility
Data & Corporate
Long Distance
• Deepen market segmentation (MTV & Celebrities)
• Stimulate “DATA” + SMS Growth• Focus on Corporate Businesses• Leverage on competitive advantages
– Synergies with wireline company (TMAR)
– Regional coverage– GSM technology (speed & features)
• Low handset subsidies/aggressive service plans
• Increase national & international roaming
•New Technology + Migration Fixed to Mobile
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OUTLOOK 2003
• Platform: Wireline: in line with GDP
Wireless: +/- 1 million adds
• Revenue: (1) NLD, data and mobile growth
(2) Local and LD tariff increase (June)
• Cost : strict control
• Net Debt: flat to small reduction
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“SAFE HARBOR” STATEMENT
Investor Relations
Rua Humberto de Campos, 425 / 8º andar
Leblon
Rio de Janeiro -RJ
Phone: ( 55 21) 3131-1314/1313/1315/1316/1317
Fax: (55 21) 3131-1155
E-mail: [email protected]
Visit our website: http://www.telemar.com.br/ri
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