The%20GVT%20Story

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The GVT Story

• Dec 2008

2
Background

• Established in 1998, the GVT Group began
  operations in Latin America Chile, Columbia,
  Peru and others.
• In 1999, GVT won a bid to provide wireline
  services initially in an area representing 1/3 of
  Brazil population. GVT paid for the license 60k.
• The bid was part of the privatization of the
  local incumbent that began in 1996. Following the
  bid, and given Brazils huge potential, GVT sold
  all its other assets and focused on Brazil only.
• During 2000 the network was designed and
  deployment was initiated, and in January 2001, 15
  months after the license was granted, GVT began
  to provide services.
• The Israeli angle
• GVT Brazil had 5 Israelis out of 7 employees in
  1999, today there are 3 Israelis and 3,300
  Brazilian employees.
• GVT initial shareholders were the magnum Group
  (67) and the IDB Group (33).
• The original shareholders, together with the
  Swarth Group are still the controlling
  shareholders with more than 30 of GVTs shares.

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Whats Attractive in Brazil

• A huge country
• 9 million km2 400 times the size of Israel
• 200m inhabitants
• Labor force of 102 million workers
• Average age of 28
• The largest economy in Latin America, among the
  10 largest worldwide
• 1.3 trillion GDP (mostly services and industry,
  only 5 in agriculture)
• 2009 growth forecast of 4
• 220 bln export
• 210 bln reserves held by the Central Bank
• Investment Grade (-BBB) rating
• Huge telecom industry
• 20 bln market for fix-line and LD
• More than 100m mobile users
• and GVT is still the only viable competitor to
  the Fixed Line Incumbents

4
The Incumbents

• Following the privatization, the old incumbent
  was divided into 3 regional companies (each 5x
  the size of Bezeq) with a fourth player for the
  long distance and international segment.
• Competing with the giants was expected to be
  tough
• Huge initial territory 5 hours flight from one
  side to another
• No ULL GVT had to deploy all network from
  scratch
• No number portability subs had to lose their
  20-30 year old number
• Market with small growth of wireline
• Competitors with experience, deep pockets and a
  monopoly environment (100 market share).
• Local players with experience and relationship
  with regulators and local banks.
• so other than just hutzpa, a different
  approach was required to in order to succeed

5
The GVTs Approach - Strategy

• Business strategy
• Focus
• Unlike the USO of the Incumbents, GVT has the
  right to select cities (and neighborhoods
  within the cities) and select customers.
• GVT focuses on SOHOs, small business and high
  class residential.
• 100 of GVTs customers credit is checked
  pre-installation.
• The most modern network in Brazil, one of most
  modern worldwide
• Best service to customers bundles, bandwidth,
  SLA
• operational efficiency
• The IP leader in Brazil
• Gradual but constant expansion to new cities
• Strong IT systems constant monitoring of CF and
  performance indicators
• Be creative, be a leader. GVT has introduced a
  higher number, by far, of new products and
  bundled services.

6
The GVTs Approach - People

• building a focused, efficient and flexible
  organization
• Less hierarchy, local senior management influence
  decisions
• Change culture from 9-5 telecom to an Israeli
  start up (casual wear, longer hours and a
  substantial allocation of stock options)
• Push employees for openness, innovation and
  leadership.
• One of the results all VPs are long term with
  GVT

Alcides Troller Retail Vice-President
GVT employee since 2000
Carlos Alberto Nunes Institutional Affairs VP
GVT employee since 2000
Cícero Olivieri Engineering and Operations VP
GVT employee since 2000
Eduardo DallAgno Region Operation VP
GVT employee since 2000
Gustavo Gachineiro Legal and HR VP
GVT employee since 2003
Leonardo Queiroz Corporate VP
GVT employee since 2000
Sharly Swissa CIO
GVT employee since 2002
Rodrigo Ciparrone CFO
GVT employee since 2008
7
The 2003 Crisis

• In late 2002, the local currency devaluated from
  1.75 to almost 4 to the US.
• That effect on a newly established company,
  together with the global telecom crisis at that
  time, created a very tight cash flow situation.
• GVT decided nonetheless to continue growing at
  the original pace while managing the cash flow on
  a daily basis.
• In parallel GVT was able to negotiate a debt
  exchange that allowed to support the continuous
  growth and mitigate volatility risks.
• The shareholders of GVT, as well as the lenders
  to GVT at that time, made substantial returns
  from the debt exchange and the GVT IPO.

8
The International Experience

• In parallel to GVT, many international operators
  began operations in Brazil including Sprint,
  ATT, France Telecom, Bell Canada, Bell South,
  Worldcom, Qualcom and others.
• Other than GVT, all these companies abandoned
  Brazil during the telecom meltdown of 2001 and
  lost a few billions of US.
• Some are still very successful and support Part
  of Parent companies including TEF, TI and PT.
• The experience of these operators in Brazil is
  key to understand the do and dont while
  entering emerging countries. Some of these points
  include
• Is the cook book of your operation adequate to
  the environment of that country
• Are your expats the best managers to run a local
  operation
• Understand that EMs are likely to have a crisis
  once in a while have your operations flexible
  and quick to adopt, mitigate exposures through
  hedges and make sure your business plan can
  absorb volatility.

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GVT today
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Company Overview

• A leading provider of telecommunications,
  high-speed broadband, Internet and multimedia
  services in Brazil

• Offers a diversified portfolio of innovative
  products and advanced solutions for conventional
  and VoIP telephony, corporate data, broadband,
  video and Internet services
• Markets solutions directly to end-customers under
  its own brands including GVT, POP and VONO
• Focus on high-margin, high-usage customers
  addressing all market segments including
  residential, SOHO, SMEs and large corporate
• Operates one of Brazils most modern networks
  using state-of-the-art technology, enabling the
  Company to offer superior quality and higher
  bandwidth
• Most viable alternative to the incumbents in
  Brazil with approximately 13 market share in
  Region II cities
• Current presence in 74 cities in Region II (13
  of Brazil GDP) and growing presence in the three
  most important cities outside Region II (totaling
  GVTs coverage to 40 of Brazil's GDP)

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Most Advanced Network with Extensive Last Mile
Access

• Flexibility to introduce innovative product
  bundles at low cost with next generation features
  and highest level of services offers a clear
  competitive advantage

Next Generation IP Network

• IP Next Generation core platform for introduction
  of competitive, innovative and high quality
  products with low operation cost
• Fiber-to-the-Node Last Mile architecture with
  highest broadband speeds and unmatched quality
  for voice, data and video (triple play ready)
• Owned backbone enhancing the positioning in the
  NGS market, territorial expansion and low
  operational cost
• GVTs last mile architecture allows for higher
  broadband speed up to 20Mbps (IPTV ready) and
  could easily be upgraded to reach 50Mbps with
  small incremental cost (changing VDSL card that
  cost less than US 100 per subscriber)
• Total Last Mile deployed invest as of September
  2008 23,206 route km of fiber and short copper

Growing Number of Buildings Connected with GVTs
Own Network
Growth of Last Mile Deployment (Route km)
CAGR 23.0
CAGR 26.7
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Improved Long Distance and IP Backbones

• Successful acquisition of Geodex and investment
  in international IP backbone

• Geodex, which was purchased for R109 million in
  December 2007
• Geodexs primary asset is a network with over
  11,000 kilometers of fiber optics covering cities
  from South to Northeast Brazil (invested R 200
  million in its network)
• Cut operating costs by R 27 million in 2008
  alone(1)
• Expected savings might increase from potential
  increase of Geodex footprint via swap deals
• Faster and lower cost of deployment in new cities

Right of way
Fiber
Dark fiber
IRU Capacity
IRU IP International
(1) Represents combined cost savings from Geodex
(R12mm) and IP IRU (R15mm).
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GVTs Broadband vs. CompetitionUnbridgeable Gap
Video Will be the New Revenue Driver
GVT Miles Away from its Competitors
1995 Web Overtakes Gopher, FTP 2000
Peer-to-peer Overtakes Web 2013 Video Content
Overtakes Peer-to-Peer 2025 Video Communication
Overtakes Video Content
Moving forward
Video Communication
Dominant Traffic Type
VideoContent
P2P
WWW
Gopher, FTP
19952000
20002013
20132025
19931995
2025
Minimum
Optimal
56Kbps
256Kbps
0,5 - 3Mbps
Over 10Mbps
GVTs base is IPTV ready for standard or high
definition quality
Source Cisco Global IP traffic forecast 2007
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Lines In Service (LIS)
LIS (thousands)
03-08 CAGR
NA
CAGR 30.7
50.0
53.6

1. Excluding (2) Breakdown not
2. available

20.9
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The Growth Potential

• GVT is marketing in its targeted areas only.
• GVT receives more than 2 million inbound calls a
  year asking for lines.
• Out of these calls, 85 are from areas that are
  not yet covered by GVT.

Received calls (actual numbers Oct 08)
In 000
85
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Outperforming The Market
Proven record of above market growth
Well established market position with substantial
growth potential
Conventional Services
2005-07 Revenue CAGR
Market size
14.5
Local and Long Distance Fixed Telephony
R42.2bn inrevenue in 2007
4.7
Next Generation Services
Corporate Dataand Managed Services
R3.6bn inrevenue in 2007
Broadband Services
R5.8bn inrevenue in 2007
245.3
VoIP
125.5
R339.2 mm inrevenue in 2007
Brazil
Source Pyramid Research Frost Sullivan
Company Data.
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A Stable and Predictable Business Model
2008 Net Revenue by Service
5-Year Net Revenue Trends
(R in millions)
CAGR 18.8
2008 Net Revenue by Product
5-Year EBITDA Trends
(R in millions)
CAGR 57.0
Strong performance driven by diversified and
superior products and services, attractive
customers, modern network and financial discipline
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Corporate Structure

• Traded on the Bovespa since February 2007, under
  the ticker GVTT3
• Current market cap R3.5 billion
• GVT is part of the Bovespa 100 index (IBrX)
• Ownership (FD)
• GVT Holland (Magnum IDB) 17
• Swarth Group 17
• Free Float 64
• The Free Float includes
• 99.6 held by financial institutions
• 80 of these holders are European and US
  investors

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Obrigado and Toda!