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Corporate Presentation

Corporate Presentation. June , 2004. www.telemar.com.br/ir. Telemar Presentation - Contents. 1. Highlights – 2003/200 4 1. 2. Growth Strategy 3. 3. Review of Operating Results 1 2. 4. Financial Overview 2 0.

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Corporate Presentation

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  1. Corporate Presentation June, 2004 www.telemar.com.br/ir

  2. Telemar Presentation - Contents 1. Highlights – 2003/2004 1 2. Growth Strategy 3 3. Review of Operating Results 12 4. Financial Overview 20

  3. Highlights – Telemar 2003/2004 Region I = Concession areafor Wireline services = Mobile license for Wireless services • Goal: Building a fully integrated telecom service provider • Change, adaptation and consolidation • Market share gains in all lines of businesses • Selective growth (New Services) • Consolidation of investments • Growth in highly competitive markets: • Long Distance (Nationwide and International) • Data & Corporate (Nationwide) • PCS Mobile Services (Region I) • Exploring new opportunities: • Broadband • Bundling Services • New Products (residential/SME) • Wi-Fi hotspots • Target: Ensure a sound financial position, with increasing returns to shareholders Nationwide = Authorization areafor Long-Distance and Data services

  4. 1. Highlights – 2003/2004 1 2. Growth Strategy 3 3. Review of Operating Results 12 4. Financial Overview 20

  5. Expansion of Customer Base millions customers • Ability to anticipate wireless migration and continue exceptional growth performance • Capacity to maintain / increase market share in a changing telecom landscape • Target: Continue delivering customer growth ~21.6 19.5 19.0 CAGR (98-03) 19.5% 16.4 Wireless Wireline * Company’s acquisition

  6. Fixed Lines in Service million lines • Investments for expansion of fixed line network essentially completed • Fully operational digital platform  Mix consists of 78% residential, 18% business, and 4% public phones • Wireline penetration is only ~50% of households in Region I • Obstacle: Gain in wireline penetration subject to GDP growth and regulatory changes maintenance growth

  7. Wireline / ADSL Market in Brazil Market Share (Brazil v. Region I) – Dec/03 Region I Brazil • Velox is already present in 110 cities, more than ten times the availability of broadband alternatives • Broadband penetration is expected to grow to 30% of nationwide internet access in the next five years • Effort to build sales channels to penetrate SME clients together with other bundled services (LD, wireless) • Challenge: Capture and retain premium clients increasing overall ARPU PC Penetration (% of households) – Dec/03 Average * 2003 *Source: Pyramid Research

  8. ADSL Growth Thousand lines • Highest ADSL growth in Brazil (+176k lines >37% of 2003 nationwide net adds)  ADSL represents 82% of broadband access in Brazil • Velox revenues increased by 288% in 2003 with significant room to grow in coming periods • Subscribers reached 217K in Dec/03 (18% of total broadband access in Brazil), and 284k in Mar/04 • Target: Increase ADSL penetration in Region I from 1.9% of LIS to 5% in 2-3 years 450 284 217 41 6 Gross Revenue (R$ million) 128 69 33

  9. Wireless Market in Brazil Market Share (Brazil v. Region I) – Mar/04 Region I Brazil • Even with increased competition, Oi is still the highest growth player in its home market (50% net adds) • Oi reached ~20% market share in Mar/04 • Wireless penetration in Region I (23%) still offers significant growth potential • Challenge: Grow subs by 54% in 2004, with positive EBITDA margins, aiming to #2 position in Region I ^Includes other operators: Nextel, CTBC, SERCOMTEL, Telemig and Tele Norte Celular Wireless Penetration (%) – Apr/04 Average * *Source: Pyramid Research

  10. Wireless Platform Thousand subscribers • Most successful GSM launch globally  4 million subs in 18 months • Almost 50% share of all net adds in Region I since launching • Oi´s market share (Mar/04)  Region I: 20%  Brazil: 9% ~6,500 4,408 3,893 15% 17% 85% 2,236 83% 1,401 20% 20% 80% 35 80% Post paid Pre paid Gross Revenue (R$ million)

  11. Short Message Service - SMS Thousand messages • SMS annual revenues achieved a run-rate of R$ 60 million in the last two quarters • Oi has a team focused on data services, particularly for the corporate market • Oi also launched Wi-Fi hotspots in early 2004 • Target: Increase data ARPU and maintain growth of customer base Gross Revenue (R$ million)

  12. Call Center Services Attendant Positions • Focus on profitability: EBITDA positive since inception • 62% CAGR in attendant positions, in line with increase in customer base and net revenues (70% CAGR) - Contax currently has 27 customers, including major banks, utilities, insurance, media, telecom, retail • Target: Consolidate #1 position as call center operator in Brazil >15,000 12,907 12,543 7,337 4,947 Net Revenues (R$ million) 421 223 125 146

  13. 1. Highlights – 2003/2004 1 2. Growth Strategy 3 3. Review of Operating Results 12 4. Financial Overview 20

  14. Wireline Long Distance Data & Corporate 13% 6% Moderate Growth High Growth High Growth 7% 41% 17% 9% 7% Wireless Mobile Others(*) High Growth Consolidated Gross Revenue Breakdown – Mar/2004 Fixed to Mobile (VC1) Inter-Connection Local 60% Data Long Distance (includes VC2/3) (*) – Includes advanced voice, public telephones, additional services and Contact Center. The Company’s four main lines of business provide a healthy balance between stable cash flow and growth opportunities

  15. Growth in Long Distance Services LD Gross Revenue - R$ million LD Traffic (million minutes) 2,963 9,510 8,183 2,066 CAGR (01-03) 17.6% CAGR (01-03) 37.5% 1,568 6,873 885 LD as a % of Total Revenues (includes F2M) Telemar keeps on regional leadership in LD services in spite of inter-regional & international calls began only in July 2002

  16. Focus on Data / Corporate Services Data Revenues (gross) - R$ million • We won key corporate and governmental contracts during 2003 • Our Data revenues increased by 31% in 2003 and 15% in 2002 • Challenge: Obtain at least 50% (43% in 2003*) of all data revenues in Region I and have a nationwide market share of 30% (16% in 2003*) CAGR (01-03) 22.7% Major Clients won in 2003 * Telemar´s estimate

  17. Gross Revenue from Wireless Services R$ million • Revenue from wireless business increased by 180% in 2003 • Key driver was services revenue with 700% growth, resulting mainly from subscriptions, outgoing calls & SMS • EBITDA breakeven reached after 18 months of operations • Target: Continue to deliver significant revenue growth of 50% in 2004 while maintaining positive EBITDA margins 372 479 Handsets Services 1Q04 4Q03

  18. Net Revenues EBITDA EBITDA Margin Consolidated Net Revenues and EBITDA R$ million • Delivering consistent revenue and EBITDA growth in spite of huge wireline expansion & wireless startup • Recurring margins stable over time, in the mid-40’s EBITDA for 2001 impacted by extraordinary provisions • Target: Maintain 2004 consolidated EBITDA margin in mid-40s even with projected growth of wireless revenues

  19. Consolidated Net Income R$ million 1Q04 1Q03 2003 2002 2001 1998 2000 1999

  20. Consolidated CAPEX R$ billion • CAPEX 2003: ~12% of net revenues (v. 17% in 2002) • CAPEX 1Q04: R$ 197 million (5.4% of net revenues) • Consolidated CAPEX since 1998: US$10.4 billion • Target: Stabilize CAPEX at ~15% of net revenues to support growth in wireless and less regulated services 10.1 2.2 Wireless 7.9 2.8 2.5 2.0 2.0/2.3 2.2 1.7 40% 0.9 Wireline 0.6 0.2 60% 1.1 1.1 Anatel Targets Mobile License

  21. 1. Highlights – 2003/2004 1 2. Growth Strategy 3 3. Review of Operating Results 12 4. Financial Overview 20

  22. Operating Cash Flow after CAPEX R$ million CAGR (99-03)69,1% 1Q04 1Q03 2002 2000 2001 2003 1999 Having met wireline universalization targets and rolled-out Oi,our cash generation is expected to remain strong

  23. Dividend Payments - 1999/2003 US$ million Dividend yield Dividend * 2003 1999 2000 2001 2002 * includes JCP (interest on capital) Our goal is to provide high cash returns to shareholders

  24. 4.6 11.3 22.5 27.9 10.5 5.6 17.6 Net Debt Position and Repayment Schedule R$ million Net Debt – Mar/04 Gross Debt Repayment Schedule – Mar/04 R$ 8,388 million R$ 12,005 million % of total Given our strong cash generation, we should reduce net debt to around 1x EBITDA by year end 2004

  25. Key Financial Ratios Net Debt / EBITDA Amortization*/ EBITDA (%) (*) – 12 Months EBITDA * Principal and interest Dividends* / EBITDA (%) CAPEX / EBITDA (%) * includes JCP (interest on capital)

  26. Key Financial Ratios Enterprise Value / EBITDA Market Cap / EBITDA EBITDA / Net Interest Expense EBITDA / Total Debt Service

  27. “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 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: invest@telemar.com.br Visit our website: http://www.telemar.com.br/ir

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