Telefonica Brasil SA (VIV) 2002 Q3 法說會逐字稿

Good morning, ladies and gentlemen. At this time we would like to welcome everyone to Telesp Celular Participacoes, TCP Third Quarter 2002 Conference Call. Today we have a simultaneous webcast, a slide presentation on the Internet that could be accessed at the site www.telespcelular.com.BR. That was "B" as in boy, "R" as in Robert. There will be a replay facility for this call in Telesp Celular web site. We inform that all participants will be able to listen to the conference during the company's presentation. After the company's remarks are over, there will be a question and session. At that time further instructions will be given. Should any participant need assistance during this conference, please press star then zero for an Operator.

Before proceeding, let me mention that forward-looking statements are being made under the safe harbor Securities Litigation Reform Act of 1996. Forward-looking statements are based on the beliefs and assumptions of TCP's management and on information currently available to the company. Forward-looking statements are not guarantees of performance. They involve risks, uncertainties and assumptions because they relate to future events and therefore depend on circumstances that may or may not occur in the future. Investors should understand that general economic conditions, industry conditions, and other operating factors could also affect the future results of TCP and could also cause results to differ materially from those experienced in such forward-looking statements.

Now I'll turn the conference over to Ms. Maria Paula Canais, Executive Vice President and Investor Relations Officer.

Ms. Canais, you may begin your conference.

Good morning or good afternoon, ladies and gentlemen. Thank you for joining us for [inaudible] third quarter earnings release conference call which from now on you have [inaudible] available on our web site [inaudible]. [inaudible] president, director and other officers of the company. I will begin by [inaudible] [Poor audio and heavy accent]

I would like to start with a brief overview of our company. TCP provides mobile telecommunication services [inaudible]. And Global Telecom which operates [inaudible]. Together both companies have 6.8 million clients [inaudible] more than 21 percent of Brazilian mobile. [inaudible] penetration level of 26 percent. [inaudible] penetration level of 17.4 percent. [inaudible] say owe pal owe currently operating a [inaudible] market competing against [inaudible], [inaudible] in metropolitan areas [inaudible]. [inaudible] increase our market share about 3.8 percentage points the 7th year, 67 percent on average. We expect competition to [inaudible]. [inaudible] 1,027,000 clients. [inaudible] increasing quality of [inaudible] as a result of our progress in corporate and IM customers. [inaudible]. For Global Telecom [inaudible] shown some improvement of 14 percent reaching 145 following [inaudible] marketing initiative [inaudible]. Compared to the third quarter of 2001 [inaudible] slight increase in comparison in the second quarter of 2002 which was [inaudible]. Global Telecom [inaudible]. [inaudible] 1.8 percent of gross revenue for [inaudible] and 1.9 percent for Global Telecom. [inaudible] in the third quarter of 2002, a decrease compared to 46 [inaudible] in the second quarter 2002 when we have several thousand [inaudible]. Which amounted to 347 million [inaudible] increased 3 percent compared to the third quarter of 2001 and 4 percent compared to the second quarter of 2002 [inaudible]. [inaudible] for the third quarter of 2002 which amounted to the [inaudible] decreased more than [inaudible] compared to the third quarter of 2001 [inaudible] second quarter of 2002 [inaudible] improvements. [inaudible] in the second quarter of 2001. [inaudible] in the first quarter of this year increase EBITDA break even.

Moving to capex [inaudible] in 2002, capex [inaudible] at levels and 10 percent of [inaudible]. For next year at Telesp Celular [inaudible] we have to service our debt and the balance will be used on capex. At Global Telecom capex [inaudible] under control and we expect [inaudible]. [inaudible] operating cash flow, I mean EBITDA capex account for 832 million [inaudible] in [inaudible] year. At Global Telecom [inaudible] operating cash flow [inaudible] negative of the 46 million [inaudible]. Next year we expect Global Telecom [inaudible]. Consolidated net income in the quarter amounted 92 million [inaudible], some improvement compared to negative standard and 94 million in the second quarter improvement on the telecom net income from negative 495 million TI in the second quarter to negative [inaudible]. At the end of the quarter following the capital increase [inaudible] in December, pro forma EBITDA gross [inaudible].

[inaudible] will give you a few words on joint venture.

Thank you, Paula. Good morning, audience. [inaudible] I would like to say [inaudible]. 100 million accounting for 66 percent of the population [inaudible] national market share roughly [inaudible]. Presence in say owe pal owe [inaudible]. However, all our [inaudible] except [inaudible] share [inaudible] in technology. We are leaders in every market we have presence except [inaudible] where we have been the second [inaudible]. All our offices have [inaudible] and are also cash flow positive. EBITDA [inaudible] and is expected to be cash flow positive next year. Finally, as you can see in the slide presentation, [inaudible].

I am now happy to take your questions [inaudible]. Thank you very much.

[Pause.]

At this time I would like to inform everyone that in order to ask a question, please press star then the number 1 on your telephone keypad at this time. If you would like to withdraw your question, please press star then the number 2. And we'll pause for just a moment to queue the roster.

[Pause.]

Your first question comes from Daniel Henriques of Goldman Sachs.

Hi, good morning. I have a couple questions. The first one is on capex. I think maybe you already talked about it, but I couldn't understand because the line was breaking. If you could give us a guidance for capex for 2002 and for 2003 for the entire company, including Global Telecom that would be helpful. And the second part of the question is about your SMP migration. Do you already have a decision on whether or not you're going to buy additional spectrum on your own concession area? And if if you do buy it, do you have any timing for the use of it and your what's your strategy for that piece of the spectrum? And the third question, do you have some estimates about how much it will cost you next year to build a new brand together within the [inaudible] and how much more cost should we expect from that next year? Thank you.

Thank you, Daniel. I repeat by answering the question on capex and the [inaudible] capex and the following question. About capex, we have invest about 8 percent [inaudible] revenue and we believe that - together [inaudible] and Global Telecom this year will be about 10, 11 percent of net revenues in capex for the year, together. For next year in Global Telecom, we expect EBITDA [inaudible] capex to be neutral, so capex will be limited by the debt equity, cash, to generate cash flow. In telex [inaudible] we also [inaudible] the level we have now in capex and what I said [inaudible]. We want to be self funding [inaudible]. So after servicing [inaudible], with you use the [inaudible] to fund our capex. So [inaudible].

Thank you, Daniel. [inaudible].

I'm sorry, did you say - hello? I'm sorry. I didn't understand. The line was breaking. Did you say you do not have a decision yet?

No, no. We don't have any indication of our shareholders that have any interest in additional [inaudible]. So we have not [inaudible] for the SMP [inaudible], okay.

Oh, okay. Thank you.

[inaudible]. We are still studying the issue with our shareholders, okay.

Okay. Thank you.

Your next question comes from Vera Rossi of Morgan Stanley.

Hi. I have a question about the SMP transition. And after a follow-up on the capex. the first question on the SMP is the following. You mentioned in your speech that you are going to have some gains when you move to SMP. Can you be more specific on that? And can you tell us what you are going to be able to do on SMP that you cannot do today? This is the first question. And the second question is regarding digital roaming nationwide. How do you expect to offer digital roaming nationwide given that your competitors are able to offer digital roaming nationwide? And if this is an issue in Brazil as well? Thank you.

Thank you for the question. As you know, the main objective, our migration to SMP [inaudible] legal entity [inaudible]. So, as you know, the SMP has in negative impact on size of revenue, it has also [inaudible]. Okay. So what you can see about the impact from the SMP is that in fact we expect the strategy that can capture the legal entity or the legal framework that - that allows us to [inaudible] the operations [inaudible].

Okay. I have a follow-up question on my first question. Can you give examples? Because I'm still not understanding what you are going to gain, what are the benefits when you move to SMP. Can you give us examples, like what you are going to gain like, for example, merging billing systems, offering other pricing plans. What can you do that you are not doing today? If you give examples, I think it will be better for us to understand. On the first question about the SMP.

[inaudible] we are not allowed to [inaudible] so we will continue [inaudible], but we are not able to [inaudible]. And we are also [inaudible]. We are not allowed to coordinate [inaudible]. Nothing will be possible without SMP. We need to wait for 2003 [inaudible].

Okay. Thank you.

Thank you.

Your next question comes from Rene Pimentel of Deutsche Bank.

Good morning. A couple of other questions regarding the SMP. When do we or when could we see Global Telecom actually consolidated, then, in the fourth quarter of this year or until the first quarter of next year?

We expect - can you hear me?

Yes.

Thank you for your question. We expect [inaudible] to SMP [inaudible]. And so we expect that our results [inaudible] the last quarter of the year [inaudible].

Okay. My second question would be in terms of fixed mobile interconnection in the SMP. Are you going to maintain the current structure of interconnection rate and negotiate closer to the July 2004 deadline, or have you already approached the fixed line incumbents to negotiate enter connection rates up front?

[inaudible] July 2004 [inaudible].

So this means you haven't approached them at all and you will start negotiating when that deadline approaches?

At that time we will see. We will see at that time because [inaudible] the strategy that we'll follow [inaudible]. For the time being we are confident and we are quite stable with [inaudible] after the migration. [inaudible].

Okay. One last question on the telecom [inaudible] going to be more aggressive in the fourth quarter and going forward into 2003, where do you expect to see your margins going? I believe that it's close to 45 percent EBITDA margin that you reported is not going to be sustainable. What level of margin would you feel comfortable for 2003?

Well, of course the [inaudible] we don't expect much impact. And so we believe we will be able to maintain our [inaudible]. To next year. Plus, we are expecting additional [inaudible]. So competition, so we expect some pressure on our margins, but we also expect that the [inaudible] is not going to have. We expect them to have professional behavior. And so we are not expecting much - also much impact on our margins. But any^way, we believe they are going to decrease. We cannot disclose by now any number on that.

Okay. And one last question just to confirm something that you mentioned before. So we can assume that there won't be any significant technology upgrades or changes changes because you're going into the joint venture; is this correct?

[inaudible].

Okay. That would not affect you; this is not part of your capex?

No, no, [inaudible].

Okay. Thank you very much.

At this time I would like to remind everyone that in order to ask a question, please press star then the number 1 on your telephone keypad.

Your next question comes from Daniel Henriques of Goldman Sachs.

Hi. Another question about the implications of JV. The JV will have a long distance license, Telefonica also has in the wire line side interest in the long distance business. Did you figure out the potential conflict you have between the wireless joint venture in Telefonica's wire line assets and do you already have like a formula [inaudible] how to address the long distance market now that you have this joint venture? Thank you.

As you know, it would not be profitable to manage a long distance [Profitable] [inaudible] Telefonica [inaudible]. [inaudible] to reach an agreement and to look out to [inaudible]. [inaudible] some impact because we have also the opportunity to view the long distance services of telecom which is [inaudible] the condition [inaudible].

Okay. Thank you.

Your next question comes from Daman Verdam [phonetic] of Morgan Stanley.

Thank you. A couple of questions from a European perspective. And I apologize if any of these have been addressed already. I joined a little bit late. The first question is on PDMA handset, do you know roughly what the gap in wholesale price is relative to GSM handsets? I understand CDMA handsets are a little more expensive from the manufacturers normally probably due to the intellectual property payment.

Secondly, in terms of [inaudible] is there nay [inaudible] from a regulatory perspective of you increasing your prices, your permanent prices in ray ice [phonetic] to reflect the currency move?

And third question, I understand you charge about 82 [inaudible] cents for roaming outside your region. Could you just sort of confirm that number and say whether you'd expect that number to come down very significantly as a result of national based competition and your new JV?

Okay. Could you repete the last question, please? Repeat]

I understood that you charge about 80 cents when a customer takes their phone outside your region and uses it. I don't know that that's correct, but if it is correct or if you could give me the correct figure, do you expect that price to come down both substantially in your business plan, are you assuming that that roaming price to the consumer will be coming down very significantly in future?

Okay. [inaudible]. Our gap is roughly 10 to 11 [inaudible]. The SMP, we have the freedom to supply terminals [inaudible] which is also [inaudible], okay. So the SMP [inaudible] you have the opportunity to sell low end terminals. Low end terminals - terminals we have for the roaming, the short term [inaudible]. [inaudible].

Thank you.

[inaudible].

Can you hear me? Can you hear me?

Yes.

[inaudible] prices, we have no limitation coming from [inaudible]. We have prices over our segmented price and segmented markets. In technical terms we are free to shoot the price. In terms of some plans we have some [inaudible] but feel now we have been able to apply our prices and in some cases a premium compared to our competitors let's say as we are the leader and we have the better services, but we have some flexibility here to apply some prices plans. In terms of roaming, roaming is just about 3 percent, 3 to 4 percent of our revenue by now, and we have national [inaudible] in analog network. So by now with our competitors who have also national coverage in the same terms of or PDMA, we have not been attacked by [inaudible]. We will have in the future a competitor [inaudible] over Brazil, but it takes time, as you know, because these need significant amount of capital expenditures. [inaudible]. In the future we buy [inaudible] we will be able to provide feasible service in terms of [inaudible]. In Brazil also -

My question - sorry. My question was very specifically about the price of roaming.

[inaudible].

In your business plans, do you assume that that price will come down significantly in future?

Yes, yes, we believe that there will be a decrease. [inaudible] this price is the same with our competitors, the current price.

Thank you very much.

Thank you.

At this time I would again like to remind everyone in order to can a question, please press star, then the number 1 on your telephone keypad. And again we'll pause for just a moment to continue to queue the roster.

[Pause.]

There are no further questions at this time. Ms. Canais, please proceed with your final remarks.

Well, there is no one else in the queue?

Correct, we have no further questions at this time.

Well, thank you all for joining us till next quarter ends. Bye-bye. Good afternoon.

Ladies and gentlemen, the Telesp Celular Third Quarter Conference is now over. Thank you and have a nice day.