2. MARIO CESAR ARAUJO
TIM BRASIL
Agenda
2006 results highlights
The Brazilian market context
2007-09 Plan overview
Summary
1
3. MARIO CESAR ARAUJO
TIM BRASIL
Since we met one year ago…
Net service revenues (4Q06)
… we achieved EBITDA margin
leadership in VAS revenues (4Q06)
Business segment customer base
Customer satisfaction/preference
Awareness (TIM Brasil regained 2006 Top of Mind among mobile
… and maintained operators)
our position of Coverage (TIM Brasil remains the only operator with national coverage)
best-performer on ARPU
Market share of net and gross additions
Market share of GSM lines
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4. MARIO CESAR ARAUJO
TIM BRASIL
Leadership with profitability
BR GAAP
Net share (%, 2006 eop) Service revenues (R$bi, 4Q06) EBITDA margin (%, FY06)
Market share Revenue share* ∆% 06-05
24,1% in IAS
TIM
38.2% 25.4% 2.7 31.7% 24.5% 68%
Brasil
Vivo -5.2% 29.1% 2.6 30.7% 23.7% -14%
Claro 38.1% 23.9% 1.9 22.5% 13.3% N/A
* Oi and Telemig/Amazonia Celular revenues are estimated
3
5. MARIO CESAR ARAUJO
TIM BRASIL
Commitments fulfilled
2006 target*
IAS
2006 performance
Subscribers (Mln, eop) Net revenues growth (%, eop) EBITDA margin** (%)
10,836
26.0% 25.4 23.4% +7.8pp 24.1%
8,784 >20% >20%
~24
20.2 16.3%
2005 2006 2005 2006 2005 2006
* Telecom Group Meeting with the Financial Community 2006
** Organic Local currency excluding exceptional items
4
6. MARIO CESAR ARAUJO
TIM BRASIL
Agenda
2006 results highlights
The Brazilian market context
2007-09 Plan overview
Summary
5
7. MARIO CESAR ARAUJO
TIM BRASIL
Growing economy and widening consumer market
Gross domestic product growth Minimum-salary increase vs. inflation
4.9%
16.7%
4.0% 15.4%
3.7%
3.4% Increasing purchasing power
2.9% Minimum- of lower income classes
salary 8.3%
increase
2.3% 5.7%
Inflation 7.6%
3.9% 4.1% 4.2%
3.1%
2004 2005 2006 2007E 2008E 2009E 2004 2005 2006 2007E 2008E 2009E
PAC* estimate 4.5% 5.0% 5.0% PAC* inflation estimate 4.1% 4.5% 4.5%
Stability and increase of purchasing power
* Government infrastructure investment program to accelerate economy
Source: EIU, Brazilian Central Bank
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8. MARIO CESAR ARAUJO
TIM BRASIL
Regulatory framework
2006 2007 2008-09
F-M Fully Stability of
termination Arbitration Arbitration Allocated interconnection tariff in
rate Cost model the medium term
M-M
B&K(45/55) < Jun Positive for a fair
termination Pay per use > Jul
Pay per use Pay per use
regulatory environment
rate
Number Additional opportunity to
consolidate leadership in
Portability - Definition Implementation
high-value customer
(F+M) segments
3G/Wi-Max Public Commercial Availability of wireless
- consultation
deployment broadband
licensing +licensing
Partially regulated
Expected upgrade Commercially Increase of competition
Unbundling Commercially not
of regulation viable in the fixed-line market
viable
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9. MARIO CESAR ARAUJO
TIM BRASIL
Telecom growth driven by mobile and BB
CAGR 06-09
Lines (millions) Revenues (R$ bn) 6.5% at
comparable
regulatory
120 126 86
112 82 85 framework
7.9% 77
100 71
86 40.5 10.1%
Mobile 35.8 38.5
Mobile 25.1 30.3
Fixed 39 37 36 36 36 Fixed
-1.0% 40.6 39.6 38.4 37.3 35.6 -3.4%
(voice) (voice)
6 8 9 10
4 20.5% Fixed
Fixed (BB) 5.7 6.8 7.9 8.8 9.5 11.9%
(BB)
2005 2006 2007E 2008E 2009E 2005 2006E 2007E 2008E 2009E
Fixed-line losing ground, but still a significant market (~R$46 bn, ~60% of total)
Limited competition in fixed-line vs. mobile
Opportunity for challengers of fixed-line operators
Source: Internal estimate
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10. MARIO CESAR ARAUJO
TIM BRASIL
Mobile residual market in lower classes and increase of
churn
Mobile penetration* by social class Gross Million lines, gross adds
additions mix evolution
Million, %
93%
59% 43 40 39 38
Fresh 14
market 11 8 5
28%
Churn 29 29 31 33
market (68%) (72%) (81%) (85%)
High income Medium income Low income
(> 3 MS**) (1-3 MS) (<1 MS)
% of population 11% 31% 58% 2006 2007E 2008E 2009E
Residual market in lower income social classes Increase of churn market
* People more than 10 years old
** Minimum salary = R$350,00
Source: IBGE (PNAD, 2005)
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11. MARIO CESAR ARAUJO
TIM BRASIL
Agenda
2006 results highlights
The Brazilian market context
2007-09 Plan overview
Summary
10
12. MARIO CESAR ARAUJO
TIM BRASIL
TIM Brasil strategic objectives, guidelines...
Market evidence Strategic goals Guidelines
Consolidate our positioning 1 End-to-end segmentation to attract and
leadership
Mobile
TIM #1 in service (revenue growth consistently maintain high value customers
revenues above market average), 2 Operational efficiency to support
increasing profitability customer base expansion
Low-ARPU
approach
Residual market
clients
Ensure profitability of low 3 Develop new business model oriented to
in lower income
ARPU clients low-ARPU customers
classes
Capture fixed-line revenues 4 New convergent products
Convergence
Fixed-line = (increase share of spending HZ with fixed numbering
R$ 46 billion on TIM Brasil customer base) Virtual PABX
market Internet broadband access
Defend TIM mobile leadership ...
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13. MARIO CESAR ARAUJO
TIM BRASIL
CAGR TIM (06-09)
... and main targets
BrGaap CAGR competitors (06-09)
~1p.p. from
Subscribers (mln, eop) Net revenues (R$ bln) EBITDA margin (%) Low-ARPU
clients
approach
~10% >33 ~4% from
+>6pp >28%
>10% convergence
25.4
~7% 10.8 21.5%
2006 2009 2006 2009 2006** 2009
Market
share 25.4% ~27% 29.4%* ~33%*
Focus on high value customers
Improving customer base mix
(% post-paid)
Holding voice ARPU Stimulating VAS take-up
Improve efficiency
* Estimated service revenue share
**Net Revenues and Ebitda margin adjusted considering Bill & Keep elimination starting from 01/01/06; Ebitda Margin adjusted also for subsidy deferral impact
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14. MARIO CESAR ARAUJO
TIM BRASIL
Mobile leadership: key initiatives of the end-to-end
approach focus on 2007
Offer Sales Caring
Improvement of data Dedicated BU for LA/Top Dedicated people/
solutions SME skills
Business Multi-regional/
customized bundling
New sales
Offer/promotion Value/revenue driven
Post-paid opportunities (e.g.
customization commissioning
inbound VAS up-sell)
Improve Subsidies in accordance Premium caring (one-
Consumer segmentation: from to offer/customer value to-one) for VIP clients
terminals to tariff Channel mix optimization
plans (e.g. increase of
VAS innovation telesales)
On-net community plans Zero subsidy Alternative channel
Pre-paid Chip only Channel mix optimization approach (e.g. web,
(e.g. newsstands) IVR, SMS)
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15. MARIO CESAR ARAUJO
TIM BRASIL
Mobile leadership: operational efficiency (fixed costs)
% of Fixed Costs (FY06)
Key initiatives Opportunity (07-09)
Improve effectiveness of call centre traffic management (Pre-
Commercial fixed routing) ~3% reduction of cost
costs New contract models with 3rd parties call centres per client per year
32% Continuing optimization of advertising expenditure
Leverage TIM Brasil existing IP network
Industrial Use of alternative technology for BTS connection ~20% reduction of cost
OPEX Selective IT outsourcing (e.g. data centre, application per minute in the period
33% management)
Rigorous control of non-productive activities ~1p.p. reduction of
G&A G&A/ net revenues
Positive impact of group restructuring percentage
11%
Limited headcount growth, focused on commercial activities ~18% increase in net
HR revenues/employee
Progressive optimization of regional operations
19%
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16. MARIO CESAR ARAUJO
TIM BRASIL
Low-ARPU clients: increasing need for a new business
model % of net additions (06E-10E)
Mobile market worldwide evolution ARPU vs. EBITDA for selected operators
Subscribers, bln
70% SMART - Philippines
4,0
MTS Sonatel
60% China Mobile
Russia
Emerging
EBITDA Margin (%)
50%
2,6 markets MTS Turkcell
Ukraine
1,1 40% Mobilink Pakistan
86%
30%
0,9 Developed
1,2 20%
0,3 0,6 countries
0,2 1,7 2,9 14% 10%
0,1 0,6
0%
1998 2002 2006E 2010E 0 10 20 30 40 50
Monthly ARPU (US$)
New business models characterized by:
Lower air-time prices (leveraging on price/volume elasticity)
Lower denomination vouchers
Use of extensive, indirect distribution channels
Increase of electronic caring
…
Source: Merril Lynch Wireless Matrix (2007), Pyramid
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17. MARIO CESAR ARAUJO
TIM BRASIL
Our convergence approach: matching different demands
with a portfolio of technologies
Brazilian demand characteristics TIM technologies/offer
Data Voice
High speed dedicated data connection (>10Mbps)
Dedicated PABX
100% guaranteed bandwidth
links Hosting/
LA Large number of simultaneous users
WiMax Management
High customization
HSPA (in IP Solutions
mobility)
Internet connection between 512Kbps and 8Mbps*
Cost optimized QoS WiMax IP Solutions
SME Medium-low interest of intra-group communication
HSPA Office
Limited/affordable customization
Zone/ GSM
Internet connection between 64Kbps and 2Mbps* WiMax Home
Residential Low QoS
HSPA Zone/ GSM
Standard voice telephony (fixed and mobile) with no
customization EDGE
* Nominal speed connection
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18. MARIO CESAR ARAUJO
TIM BRASIL
CAPEX evolution breakdown
BrGaap, R$ Bln
100%= 2.6 1.6 ~ 5.7
Administrative 5% 2% 2%
Commercial 12% 20% 15%
Leveling-off network CAPEX
IT 21% 23%
26% (excluding licenses and
convergence plan)
22%
Shift of investments:
60% From roll out to quality
Network 62% 52%
From 2G to 3G
2005 2006 2007-2009
CAPEX/Net Revenues 30% 16% 14%
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19. MARIO CESAR ARAUJO
TIM BRASIL
TIM Participações Targets (BrGaap)
2006 2007 2009
Actual Targets Targets
Customer Portfolio 25.4 ~ 29 > 33
(Mln SIM)
Mkt Share TIM on SIM 25.4% ~ 26% ~ 27%
20.9 % ~ 10%
Total Net Revenues Growth > 10%
14.2% (CAGR ’06-’09)
24.6 %
EBITDA margin > 23% > 28%
21.5%*
~ 5.7**
CAPEX (Bln Reais) 1.6 > 2**
(Cum. ’07-09)
Op. Free Cash Flow Positive from Break even > 17% on Rev.
(mln €) IIIQ ‘06 (yearly base) (Year 2009)
Adjusted considering Bill&Keep elimination starting from January 1st 2005
* Adjusted eliminating subsidy deferral impact ** Includes licences acquisition (3G, Wi-Max)
18
20. MARIO CESAR ARAUJO
TIM BRASIL
Agenda
2006 results highlights
The Brazilian market context
2007-09 Plan overview
Summary
19
21. MARIO CESAR ARAUJO
TIM BRASIL
Summary
Achieved leadership in service revenues and profitability in 2006
Profitable growth over the next three years to be accomplished by:
Consolidating our mobile leadership (focus an high-end customers) and
pursuing operational efficiency
Developing a new approach to guarantee profitability of low-ARPU
clients
Developing convergent solutions to defend our mobile leadership and
capture new revenue streams
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