Tele Norte Leste Participações S.A. (



Q3 2011 Earnings Conference Call

October 28, 2011 9:30 AM ET


Alex Zornig – CFO and IR Officer

Tarso Rebello – Controller

Paulo Mattos - Regulatory Affairs Director


Andrew Campbell - Credit Suisse

Sean Glickenhaus – HSBC

Michelle Morin – Morgan Stanley

Diego Aargau - Silverbridge

Andrew Basu – JPMorgan



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Good morning ladies and gentlemen. Thank you for standing by and welcome to OI’s conference call to discuss the third quarter of 2011 results of OI and its direct and indirect subsidiaries. This event is also being broadcast simultaneously on the Internet via webcast, which can be accessed on the Company’s IR website, together with the respective presentation and the earnings release.

We would like to inform that during the Company’s presentation, all participants will only be able to listen to the call. We will then begin the question-and-answer session when further instructions will be given. (Operator Instructions)

This conference call contains forward-looking statements that are subject to known and unknown risks and uncertainties that could cause the company’s actual results to differ materially from those in the forward-looking statements. Such statements speak only as of the date they are made, and the company is under no obligation to update them in light of the new information or future developments.

I will now turn the conference over to Mr. Alex Zornig, CFO and IRO. Please Mr. Alex you may proceed.

Alex Zornig

Thank you. Good morning everyone. Welcome to the conference call of OI’s consolidated third quarter 2011 results. The presentation is already available on our website. Today with me are Tarso Rebello the Controller, Paulo Mattos, Regulatory Affairs Director, Robert Guedes Bulger, Marketing Director and – Treasurer and IR Director and he is IR team.

Moving to slide number four. I’d like to emphasize wireline OI fixed issues aiming to increase the value-add for our fixed line users. OI announced last month, OI Fale Ilimitado Digital and OI Fale Ilimitado Digital with DDD plans that was important in order to reverse the decrease in some of our revenue lines in our fixed lines.

Next page, broadband, the highlights of broadband is OI Velox. We launched offers linked to the National Broadband Plan PNBL. The goal is to increase broadband penetration in Brazil. The plan offers one Mega for R$35 or R$29.90 in states with VAT exemption.

This plan is already offered in 100 cities. The plan is to achieve 500 cities by the end of the first quarter 2012. On operating performance, slide number seven, the mobile subscriber grew 3.2% quarter-to-quarter and almost 15% one year. We finalized the cleaning of our base that generate a decrease in our share and an increase in our net debts.

On page eight, adjustments of the offers as well as better customer base calls result in an increase in ARPU. Our ARPU increased 3% quarter-by-quarter, our market share remains stable. I would like to highlight that in the City of Sao Paulo, we reached 21% market share already.

On page nine, broadband subscriber once again the company post user based on average speed growth. Almost 20% of our base has already access to more than five megabytes of speed. By the end of the year, we estimate to reach 25% of the base.

On wireline and Pay TV, wireline decreased 2% comparing to quarter-to-quarter, I would say speed low a little bit quarter-to-quarter, but we still continue with the goal to reverse this decrease in order for us to maintain the growth of our revenues.

On Pay TV subscribers, we had redefined our offers after sign with Globosat Channels and the offers of Globosat Channels will start next month. Financial performance, consolidated revenue, our consolidated revenue decreased 2% comparing quarter-to-quarter, basically was the wireline, as you can see in the right hand side, the wireline revenue was the biggest reason for the decrease, R$800 million and compensate a little bit by the increase in our mobile and broadband revenues.

The consolidated net revenue of this quarter was almost R$7 billion, little bit below the second quarter of 2011.

On the next page, page 13, our costs and expenses continues to be under control. If you decline mainly in the connection and provision for bad debts is squeezed LTM costs and expenses by 2%, despite the inflation, the accumulated inflation, in the period that was more than 7%.

In the next page we show some, the major company’s costs and expenses, the third-party services had a slight increase of less than 1%, taken into consideration that we had a salary increase in the period of 6%. So it means that we have cost efficiency in this line of expense.

Interconnection however slightly increased in the quarter and personnel there is 14% increase comparing to last year is compound of two major issues. One is the compulsory salary increase in the period and there were hiring of 2000 people in our Brazil Telecom call center.

On page 15, EBITDA and financial income. EBITDA and EBITDA margin was almost flat, 35.6%. EBITDA was R$2.4 billion. The net financial expenses we have two major components that affects the comparison between the second quarters 2011 to third quarter of 2011.

In the second quarter 2011, we received of dividends from Portugal Telecom which had been booked against the net financial expense. That’s why the second quarter 2011 net financial expense is lower than the third quarter 2011. Another reason is that, the devaluation of the local currency which occurred during the month of September generates additional net expense of R$60 million. The net R$60 million which is a good result taken into consideration that we have almost $5 billion of US dollar debt.

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