Tele Norte Leste Partricipacoes SA Q2 2010 Earnings Call Transcript

Tele Norte Leste Partricipacoes SA Q2 2010 Earnings Call Transcript
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Tele Norte Leste Partricipacoes SA (TNE)

Q2 2010 Earnings Call

July 30, 2010 10:30 am ET

Executives

Alex Zornig - IRO and CFO

Flávia Bittencourt - Marketing Director

Analysts

Michel Morin - Barclays Capital

Andrew Campbell - Credit Suisse

Dominic St George - Nevsky Capital

Sumit Dhanda - New Street Research

Presentation

Operator

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Good morning ladies and gentlemen and thank you for standing by and welcome to Oi's conference call to discuss the second quarter of 2010 results of Oi and of 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

www.oi.com.br/ir

together with the respective presentation and earnings release. We would like to inform you that during the company’s presentation, all participants will only be able to listen to the call. We will begin the Q&A session after the presentation 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’s could cause the company’s actual results to differ materially from those expressed in such 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 new information or future developments.

I will now turn the conference over to Mr. Alex Zornig, Investor Relations Officer. Please Mr. Alex, you may proceed.

Alex Zornig

Thank you, good morning and welcome to Oi's conference call to discuss its consolidated results for the second quarter of 2010. Those who wish to follow the call may download the presentation on our website

www.oi.com.br/ir

. In today’s conference call I also already have Flávia Bittencourt, Marketing Director; Paulo Mattos, Regulatory Director; Marco Schroeder, Controller; and Tarso Rebello, Treasurer. And Bayard Gontijo, he’s Investor Relations team.

For those who are following the presentation, let’s move to slide 2, which shows the evolution of Oi's revenue generating units, which at the end of the quarter amounted almost R$63 million net price. In one year, we had almost 3 million RGUs, growing almost 10% in the wireless users and 6% in fixed broadband access. It must be highlighted that part of the 12-month reduction fixed line, in service happening in Region II as a result of the base cleaning, down during the third quarter of 2009.

In the third slide, you can see the evolution of Oi wireless and broadband users based in the last sale month. In the wireline segment, Region III and had again an outstanding performance, rising 74% from June 2009 and accounting for 81% of wireless addition at Oi.

Less than two years since it’s launch, we already have more than six million clients that represents 30% of market share in the state in São Paulo and around 18% in the metropolitan region. As a result of the following, the company’s strategy of boosting profitability for its client base, the national market share at the end of the June 2010 remained at around 20%. However, we saw a raise in mobile ARPU of almost 7% which ended the quarter at R$22.4. In addition, and also in line with the company’s current strategy of focusing on the additional post-paid clients, especially high yield ones, the percentage of post-paid and Oi Controle rose from 16% in June 2009 to 17% at the end of the second quarter of 2010. This strategy has been successful also in terms of EBITDA and net income margins, and we will talk about that later on.

The customer base of broadband internet service ended the quarter with almost 5 million users, of which 4.3 million were in fixed and more than 500,000 mobile. As a company understands that the mobile broadband should compliment the fixed service which is focusing even more in the sales of data plans. Therefore, on the 7,000 new 3G clients in the quarter, 82% were from data package.

In terms of fixed broadband, despite this light growth in the total client base in the quarter, there was an increase of high speed uses above 4 megabyte of 7,000 users. This again proves the success of company's current strategy of seeking high yield to customer.

Regarding Oi Conta Total bundle service, as anticipated, it will be launched in Region II during the third quarter of 2010 and we expect to see this further grow consistently again as it happened in Region I.

In slide 4 next, we will start analyzing the financial results. Consolidated gross revenue amounted about R$12 billion rising 3% when compared to the second quarter of 2009. This growth was mainly boosted by the performance of the wireless and data segments, especially Oi Velox. With the exception of handset sales revenues in the mobile segment, average revenue item grew in the quarter.

The expansion of the post-paid mobile clients based together with better ARPUs, positively improving our subscription revenues. The increase in revenue from our outgoing calls was mainly due to the increasing in Oi Bônus Extra, in which the client exchanged part of his recharge credit for a minute’s package to call another Oi mobile or fixed.

Revenues from mobile network usage benefited from higher customer base in Regions II and III as that went from the on-net bonus offered by the other operator, which results in more resource to be used in outgoing calls to other operator. A couple of more points worth noting are the increase in data revenues due to the greater 3G client base and increase in SMS revenues with offers made during the World Cup. In terms of wireline revenue, the highlights were the increase in data revenue, mainly because of Velox and also network usage revenue.

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