ABAMEC* Presentation

Rio de Janeiro and São Paulo November 2002

* Brazilian Analysts Association

Part I

Corporate Structure

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CORPORATE STRUCTURE TELEMAR PARTICIPAÇÕES S.A.* 18.7% ** TELE NORTE LESTE PARTICIPAÇÕES S.A

79.5% TELEMAR Norte Leste Treasury 1.6% *53% of TNE Voting Shares FREE FLOAT 79.0% Treasury 2.3% ** CONTAX FREE FLOAT 19.0% ** Wholly owned subsidiary

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Part II

TELEMAR NORTE LESTE

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Main Achievements 1998 2002

International

R II R III R I Processes

16 Companies 16 IT Systems 15 Network Platforms 23 Network Management Centers 116 Call Centers

Services

Local Voice and regional LD; Regional Data Communic.

Market Approach

Geographic

Restructuring 16



1

• Optimization of Resources; • Process Standardization; • Management Centralization; • Merge of wireline companies;

Management/Processes

All Unified

Services

Local & Advanced Voice Domestic & International LD Nationwide Data Transmission Wireless Call Center Network Management / Internet

Market Vision

PLATFORM GROWTH – TMAR Million Lines in Service 7.2

7.8

9.7

11.8

14.8

14.6

15.1

Jul/98 1998 1999 2000 2001 Sep_01 Sep_02

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REVENUE GROWTH - TMAR R$ Millions 6,946 5,158 8,433 6,222 10,851 8,127 13,687 11,465 10,133 8,480 9,997 7,391 11,573 8,516 1998* 1999* 2000* Gross Revenue

* 1998, 1999 and 2000 refer to the Consolidated statement

2001 Net Revenue 9M01 9M02

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PRODUCTIVITY RATIOS - TMAR Net Revenue per Average Line in Service - R$ 717 722 764 744 622 761 Cash Costs per Average Line in Service - R$ 483 405 385 478 419 384 1998* 1999* 2000* 2001 EBITDA per Average Line in Service - R$ 9M02** 235 317 379 1998* 1999* 376 2000* 2001 266 204 9M02**

* 1998, 1999 and 2000 refer to the Consolidated statement ** 9 months Annualized

1998* 1999* 2000* 2001 9M02**

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EMPLOYEE PRODUCTIVITY - TMAR Lines in Service / Employee (R$ Thousands) 1,423 322 397 560 984 614 Net Revenue / Employee (R$ Thousands) 1,069 213 255 385 673 563 1998* 1999* 2000* 2001 9M01 9M02 1998* 1999* 529 2000* 2001 EBITDA / Employee (R$ Thousands) 112 191 241 184 70 1998*

* 1998, 1999 and 2000 refer to the Consolidated statement

1999*

** 9 months Annualized

2000* 2001 9M02 ** 9M02**

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CONSOLIDATED CAPEX - TNL R$ Millions 10,060 2,172 7,888 2,500 2,244 2,804 1998 1999 Wireline 2000 2001 Wireless 1,334 702 632 9M02 5 years R$ 19.0 bn or US$ 9.6 bn

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MANAGEMENT MODEL – MAIN PILLARS Financial Management

•

Detailed Capex planning, cost and revenue matrix plan.

•

Strong cost control.

•

Strong budget control, focusing on return on investment/EVA.

Personnel Management Suppliers Management Corporate Management

• • • • • •

Meritocracy is key.

Talent management and retention of key personnel.

Culture based on corporate values and results oriented.

Formation of leaders and winning teams.

Quality management.

Strategic use of internal communication.

• • • • • • • • • • •

Redesign of supply contracts, including quality and performance targets.

Reduction of the supplier base and centralized management.

Development of strategic suppliers.

Outsoursing of non-core activities (call center, etc).

Consolidation of network technologies.

Specific targets broken-down to all management levels.

Monthly evaluation.

Simple structure with few hierarchic levels.

Redesign and standardization of key processes.

Variable remuneration based on achievement of targets.

Thematic decision making Committees.

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MANAGEMENT MODEL – PLANNING PROCESS STRATEGIC PLANNING BUSINESS PLAN FOLLOW UP BALANCE OF RESULTS

•

Negotiated / Discussed / Validated;

•

Board + Top Management;

•

Annually.

•

Negotiated / Discussed / Validated;

•

Board / Management

•

Annually.

•

Matrix follow up per Business Unit / Region;

•

Thematic Committees;

•

Monthly.

•

Incentives / Remuneration based on results achieved;

•

Annually.

Guidelines of the Annual Plan Contract of Company’s targets Evaluation and adjustments to Annual Plan Meritocracy

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Part III

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Achievements and Challenges

Achievements Better than expected launching of a huge GSM startup; Launching of a new brand, with a strong appeal to life style, with a different proposition to the market; cellular treated as a personal consumer product, instead of a telecommunication product; 500,000 clients in three months attracted by innovative marketing campaigns; First GSM company in Brazil, with advantages in relation to incumbents such as worldwide handset scale, higher flexibility and security to customer, more sophisticated products and services; Focus on innovative products and services (voice and data).

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PRE-LAUNCHING ROLLOUT Coverage Distribution Channels Launching at the end of June, 2002

• 200 cities covered; 30 million people • GPRS coverage in six main capitals • Record of site installation per month • CAPEX optimization • International Roaming (more than 50 countries) • 1,600 points of sales in Region I (breaking exclusivity of A & B Bands distribution channel) • Diversified channel with high presence: - Retail, specialized agents, stores, telesales • Corporate sales effort combined with Telemar.

Optimization of Resources

• Tight headcount structure: ~660 employees • Infrastructure Sharing • Outsourcing (including “call centers”) • Synergies with Telemar.

• Coverage focused on profitable areas • Consumer and corporate focus through high points of sales presence and diversity of channels • Focus on profitable growth, minimizing OPEX and optimizing CAPEX 16

BRANDING EVOLUTION: New Entrants with a new Focus + A and B Band Operators

•

Strong connection with technology (“cell”, “tel”)

•

Based on life style New entrants Emotion / Life Style +

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Oi BRANDING Instead of emphasizing Tel and Cell...

... focused on goods and emotions

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POST LAUNCHING RESULTS Initial Targets

• 500,000 clients in 12 months

First Achievements

• 500,000 clients in three months •

Innovative Campaign: 31 Years

•

Diferentiated Service Plans

•

Diversified Handset Offer

• ARPU of R$ 26 • MIX Pre / Post: 90% / 10% • Market share and gross adds below market fair share • ARPU of R$ 36 • MIX Pre / Post: 80% / 20% • Market share and gross adds above market fair share 19

GSM TECHNOLOGY ADVANTAGES

• GSM technology is the most used in the world. European operators all use GSM 1800 • Handset diversity • Competitive Prices – up to 20% lower than TDMA / CDMA (low end) • Large handset variety • State of the art handsets with camera devices, GPRS, etc.

• The SIM card contains customer’s basic data • More flexibility and security to customers • Advanced Data Applications • Security - Clone Proof - Payments On-Line (Banking Certified) • Higher flexibility - Easier handset substitution - Download and storage of small data aplications - Higher storage capacity • Higher speed • “Always on” • Better Graphic resources • Higher variety of applications 20

Oi MTV Product

•

Increased customer base

•

Stimulated Voice Usage

•

Stronger SMS usage

•

Brand Name Consolidation

•

Very positive initial results Handsets Devices Services Plans Packs / Bundles

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VOICE: Oi XUXA Product Concept

•

Target:

children and family •

Strategy:

offer an exclusive product, that only Oi can develop •

Features

: Educational Products & Games •

Focus:

Continued Service

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DATA GPRS: COVERAGE AND SPEED GPRS coverage in six capitals

Rio de Janeiro, Vitória, Belo Horizonte, Salvador, Recife and Fortaleza

GPRS Coverage - Rio de Janeiro Launch Fixed Line 56Kbps Modem = Real Speed 14.5 Kbps 24.2 Kbps S45 – IrDA GPRS = 30.4 Kbps T68 – IrDA GPRS = 41.6 Kbps PCMCIA Card GPRS – Globe Trotter = LAN Oi = 110.9 Kbps Download time for 1 Mb 9.5 min 5.8 min 4.6 min 3.3 min 1.3 min

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WIRELESS DATA APPLICATIONS

“Oi is cellular and credit card clone proof” “Credit Card at the beach, street markets, in the cab ...”

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TELEMETRIC & INDUSTRIAL APPLICATIONS

GSM/GPRS Wireless internet Solutions

WAP “Wide Area Protocol” applications

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PARTNERSHIPS OPERATORS Network Access Providers TARGET:

• Increase market share and ARPUs

CONTENT PROVIDERS Non Tech companies and Internet Big Players.

Ex: Banks, Portals TARGET:

• New channels with their clients • Increase content offer

EQUIPMENT SUPPLIERS PDA and handsets suppliers. Ex: Siemens, Nokia, Ericsson..

TARGET:

• Create own interface with the client.

• Create new demand for technology and handset replacement

SOLUTION PROVIDERS ASPs, System Integrators, System Developers Ex: Promon IP, Oracle, Microsoft TARGET:

• Potential revenues from new services and products • Establish technological standards and increase application sales.

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Oi’s 2003 PERSPECTIVES Strategic Guidance

• Profitable Growth Focus • Continuous Cost Control • Capturing synergies with TMAR • Capex control • Data Focus

Actions

• Capture additional clients and market share • Focus on profitable clients • Growth of corporate segments and SMS revenue • Optimized structure, outsourcing non-core services • Reduction of SAC • Offer integrated corporate solutions • Shared services (under analysis) • Focused expansion based on value addition • Reinforce ongoing infrastructure sharing initiatives (sharing, instead of building, whenever possible) • New projects based on solid business plans • Stimulate the use of SMS - interoperability • Portfolio of corporate applications 27

EASY AS IT IS!

Part IV

FINANCIAL RESULTS

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CONSOLIDATED INCOME STATEMENT – TNE R$ Millions Gross Revenue

Net Revenue Operating Costs and Expenses

EBITDA

Depreciation Financial Results

Net Result EBITDA Margin 3Q01 3,570 3Q02 4,206 Va. % 18%

2,626 3,083 17% (2,188) (1,798) -18%

437 1,285 194%

(787) (354)

(429) 17%

(975)

(382) 42%

24% (859) 143%

-11% 9M01 9,976 9M02 11,739

7,370 8,648 (4,811) (4,618)

2,559 4,030 Va. % 18%

17% -4%

57%

(2,221) (572)

(137) 35%

(2,882) (1,552)

(315) 47%

30% 171%

130%

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INCOME STATEMENT – TMAR R$ Millions Gross Revenue

Net Revenue Operating Costs and Expenses

EBITDA

Depreciation Financial Results

Net Result EBITDA Margin 3Q01 3,577 3Q02 Va. % 4,042 13%

2,633 2,951 12% (2,134) (1,515) -29%

499 1,436 188%

(750) (193)

(342) 19%

(872) 16% (571) 196%

(21) -94% 49% 9M01 9,997 9M02 11,574

7,392 8,516 (4,744) (4,304)

2,648 4,213 Va. % 16%

15% -9%

59%

(2,118) (278)

191 36%

(2,673) (1,218)

185 49%

26% 338%

-3%

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CONSOLIDATED REVENUE & EBITDA - TNE R$ Millions 7,370 35% 8,648 47% 4,030 2,559 9M01

Net Revenue EBITDA

9M02

EBITDA Margin 32

CONSOLIDATED CAPEX - TNE R$ Millions CAPEX / Net Revenue (%) 100% 96% 48% 1998 36% 1999 35% 2000 2001 9M01 15% 9M02 17% 2002E 10,060 10,103 8,122 6,222 5,158 2,500 2,244 2,804 1998 1999 2000 Capex 2001 7,058 7,370 8,648 1.334

9M01 9M02 Net Revenue 2,000 2002E

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CONSOLIDATED NET DEBT - TNE R$ Millions 7,036 7,702 8,317 9,128 9,006 2,091 3,997 Mar_01 Jun_01 Sep_01 Dec_01 Mar_02 Jun_02 Sep_02

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CONSOLIDATED DEBT – CURRENCY AND COST (SEP/02) Currency Interest 11% 10% 33% 46% Domestic US$ Yen (Swap to US$) Currency Basket 52% 13% 20% 15% CDI TJLP Fixed Rate (US$) Floating Rate (US$)

Currency

US$ Yen Basket Real

Cost of Debt

Cost (% p.a.)

Libor + 5 1.7

12.3

16.0

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CONSOLIDATED DEBT - AMORTIZATION SCHEDULE (SEP/02) 29% 21% 18% 18% 11% 4% 2002 2003 2004 2005 2006 2007 onwards

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“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) 3131-1314/1313/1315/1316/1317 Fax: (55 21) 3131-1155 E-mail: [email protected]

Visit our website: http://www.telemar.com.br/ri

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