18.8
19.9
2012 2013
4.1% 1.8%
4.2% 5.2%
1Q 2Q 3Q 4Q
1.4
1.5
2012 2013
2 HIGHLIGHTS
RESULTS: MAIN HIGHLIGHTS • Data Revenues +21.5% in FY13 • EBITDA Margin at 28.9% in 4Q13 • Services EBITDA Margin at 32% in FY13
Financial Performance
Efficiency
Network Improvement
Offer Evolution
Net Revenues (R$ bln)
SAC/ARPU (in months)
EBITDA (Δ% YoY)
• Subs. acquisition costs: R$28 in FY13 -6% YoY • Leased line cost reduction: -6.0% YoY in FY13 • Bad debt at lowest level: -4.4% YoY in FY13
• 39 cities fully covered with MBB project • 3G & 4G expansion (4G RAN sharing) • Network quality plan • Deployment of LT Amazonas Backbone
• Plans ‘Controle’ and Express • Promotional top up • Infinity Web + SMS • Base mix (Prepaid 83% / Postpaid 17%)
dec/12 dec/13
Total Base 73.4 mln users
1.6x 1.5x 1.6x
1.3x
1Q13 2Q13 3Q13 4Q13
Postpaid Customer Base
+6%
Net Income (R$ bln)
12.3
+15%
MBB Small Cells & Wi-fi
Active Fiber
39
2Q13 3Q13 4Q13
786
1Q13 2Q13 3Q13 4Q13
47
1Q13 2Q13 3Q13 4Q13
‘000 Km
10.7
(# of cities)
+4%
+4% in 2013
3 PRIORITIES
REVISITING PRIORITIES • Stabilized and improved network performance • Prepared network for data evolution • Optimized Capex and Opex allocation
• Improved customer base mix • Managed customer base with segmented offers • Evolved offers toward data and internet services • TIMmusic: >250k users in 4Q and 32 mln songs downloaded
• Participating actively in industry discussions • Recovered institutional image and dialogue • “Open Doors” transparency initiative generated excellent
results on customer interactions (>400k collaborations/month) • Took corporate governance to the next level (CAE)
• Seeking “Best Company to Work For” status • Reinforcing compliance culture • Driving sense of belonging and employee pride
3Q13 4Q13
% of sites with active fiber (FTTS phase 2) on the targeted 35 cities
TIMmusic and Infinity WEB + SMS
WEBSITE + APP “Portas Abertas”
1
Network Quality & Infrastructure
2
Strategy & Offer Evolution
3
4
Institutional Relationships
People & Organization
TV Campaign featuring employees
63% 95%
4 NETWORK
A YEAR OF NETWORK/QUALITY EVOLUTION: PRIORITY #1 Projects that are transforming TIM’s infrastructure
NOC Insourcing Project
Launching project of insourced network operating center
New Extension of LT Amazonas Backbone
Smallcell Pilot Project / Wi-fi rollout
1,800 km of fiber 27 cities
>150 cells implemented >600 hotspots with seamless authentication
Jurupari
Boa Vista
Belém Manaus
Macapá
‘Quality Plan’ Implemented (war room)
Completion of FTTS 1st Phase “MBB”
TIM Fiber Metropolitan Rings
100
2Q13 3Q13 4Q13
Quality improvement in critical cities
39 cities Improving customer experience Improve throughput 4G ready
>570 MSAN Fiber network stabilization Support backhauling for mobile infrastructure
Copper (2-8Mbps)
Before FTTS After FTTS
Metro Ring
Own Fiber (300 Mbps)
Flawless Deployment of 4G Strategy
RAN sharing successfully implemented >30% of 4G market share 1st Quarter
2nd Quarter
4th Quarter
3rd Quarter
# Cities completed
5 QUALITY
QUALITY IMPROVEMENT EVIDENCES
Improvement in all key Anatel
indicators compared to 2012
Narrowing gap between IDA’s 1st place
and TIM (2nd)
Stable Anatel’s complaints metric
Least claimed company at Procon
War Room helping to improve network
KPIs
Network KPI’s on target (%) (For the main 195 cities)
Claims at Consumer’s Protection Agency (Procon) (in thds)
Anatel Complaints over 1,000 lines
Source: ANATEL Source: SINDEC-Procon
7.6 10.3
6.2 9.2
16.0
11.6 9.3
11.8
4Q11 2Q12 4Q12 2Q13 4Q13
65%
70%
75%
80%
85%
90%
mar/13 dec/13
0.24
0.35 0.34 0.36 0.38
0.34
0.51 0.55
dec/12 mar/13 jun/13 sep/13 nov/13
TIM other
TIM other
Anatel’s Index of Caring Performance (in points)
Source: ANATEL
98.2 92.4
93.3 91.9
91.1 87.2
84.4 76.2
dec/12 mar/13 jun/13 sep/13 nov/13
TIM other
67.0 71.6
76.1 77.2
59.2
64.1
70.4 73.4
57.5 60.4
65.2
68.7
42.8 45.5
49.2 50.2
6 OPERATIONAL
CUSTOMER BASE EVOLUTION Customer Base & Net Additions (mln)
Growing above market
#1 player in prepaid
#2 player in voice postpaid
>3 mln net adds in 2013
Accelerating postpaid
performance
Austere disconnection policy
Base per Segment (% YoY)
3G Market Share (%; mln users)
4G Market Share (%; thd users)
4Q12 3Q12 2Q12 1Q13 3Q11 4Q11 1Q12 2Q13 3Q13 4Q13
TIM
Total Net Adds:
11.3
13.1
8.7
6.2
4.6
6.3
4.9
3.8
1.1
3.1
3.5
1.0
47%
41%
20%
31%
21%
17%
12% 11%
2Q13 3Q13 4Q13
TIM
538
405
222
145
60.3 60.8 61.0 61.1
10.9 11.4 11.9 12.3
Pre Paid
Post Paid
1Q13 2Q13 3Q13 4Q13
%YoY
+15%
+2%
Source: ANATEL
Source: ANATEL Source: ANATEL
26%
23% 23%
25%
41%
39%
9% 12%
4Q12 1Q13 2Q13 3Q13 4Q13
TIM
22.3
23.6
36.6
11.5
Source: ANATEL
39.3 mln Total Net Adds: 19.6 mln Total Net Adds: 9.3 mln
2012 2013
2012 2013
-6.0%
7 OPERATIONAL
MAINTAINING EFFICIENCY SAC - Subscriber Acquisition Cost (R$)
Bad Debt (R$ mln)
-11% +7% -9% -10% YoY
73 68
56
44
1Q13 2Q13 3Q13 4Q13
29 27
31
24
1Q13 2Q13 3Q13 4Q13
SAC/ Gross Adds
SAC/ARPU 1.6x 1.5x 1.6x 1.3x
% over gross revenues
Product Margin (Revenue – Cost)
+22% 10.2
12.5
Handset Sold (mln units)
Handset Business (% YoY)
+50%
Network Cost (% YoY)
2012 2013
Leased Lines (R$ mln)
2012 2013
+15%
Total Voice Traffic (bln minutes)
1.0% 0.9% 0.7% 0.6% 2013 Gross adds:
40 millions
Postpaid Base:
12.3 mln +15% YoY
Total Base:
73.4 mln +4.3% YoY
0
Total Data Traffic (megabytes)
YTD Nov/12
+78%
YTD Nov/13
129 136
148
2011 2012 2013
11% 21%
49% 47%
1Q 2Q 3Q 4Q
24% 48%
78% 64%
38%
26%
29%
8%
TIM Operator 1Operator 2 Operator 3
8 MARKETING
EVOLVING MARKETING PATH IN 2013: TRANSPARENCY, SIMPLICITY, QUALITY & INNOVATION
2013 April July August October
Net Adds Postpaid Mix (% Net Adds Postpaid/ Total)
4.4 5.4
18% 21%
2012 2013
VAS Revenue Growth (% of VAS Revenues over Gross Revenues; R$ million)
Smart/webphone over new sales (%)
Share of handset sales (FY13) (%)
+22%
Handset & Revenues Highlights
Customer Base Highlights
48%
52% Open Market
Operators
~39 mln smartphone/webphones users
2013
2012
VAS Prepaid VAS LDI Quality
March
MOU (Minutes of Use) (minutes)
Outgoing ARPU (R$)
1Q13 2Q13 3Q13 4Q13
70% 65% 83%
4Q11 4Q12 4Q13
+15%
9 MARKETING
STRATEGY TOWARDS DATA & INTERNET Re-visiting Market Structure
TIM’s Position
3%
37%
51%
91% With Telephone
Only mobile phone
Mobile and fixed phone
Households profile
Fixed phone only
Purchase power
Salaries up to R$1.2k
Salaries up to R$3.1k
Consumption
People that access Internet (10 years or +)
57 mln
32 mln
2 mln
81 mln
106 mln
23 mln
Households with internet connection (%; CETIC jun’13)
53% of pop.
70% of pop.
27%
43% 55%
4Q11 4Q12 4Q13
BOU (Bytes of Use) (average megabytes per user)
Source: Anatel; Company
Source: PNAD 2012, CETIC.br TIC Domicílios 2012
18 21
27
4Q11 4Q12 4Q13
Data Users (Monthly unique users; CAGR 11-13
3G Subscribers (mln users; CAGR 11-13)
Smart/webphone penetration (% over total base)
7 12 24
4Q11 4Q12 4Q13
Nov/12 Nov/13
Big opportunity for FMS on Data
+82%
+25% +75%
Yes
No
24.3 mln of households
83 mln 49% of pop.
Fixed
Mobile 21%
74%
40%
60%
TIM FIBER 10
TIM FIBER: RESHAPING THE FIXED BROADBAND MARKET Building Up Size
2.9%
9.1%
2Q12 4Q13
Penetration of new neighborhoods (sales/addressable HH)
7
10
16 18
1Q13 2Q13 3Q13 4Q13
Net Adds in 2013 (000 users)
Accelerating Growth
Addressable HH (000 HH)
522
1,069
4Q12 1Q13 2Q13 3Q13 4Q13
Customer Base (000 users)
Sep/12 Dec/13
60
Changing market dynamics Evolving overall market performance
TIM Fiber 44% Other
56%
UBB Market Share (SP + RJ) (connections >34Mbps)
Average Speed (Mbps)
Source: Anatel; Akamai 3Q13
84th position
43rd position
* 12 months average of price / Mbps Source: Anatel; Akamai 3Q13
Net Adds speed mix (SP + RJ) (Mbps)
Price per Mbps* (R$/Mbps)
4.0 2.8
2012 2013
5.0 1.0
2012 2013
29.8
0.7
2012 2013
GVT NET
Vivo
38.9
22.1 13.3
9.8 5.7 5.5 4.9
2.7
Live TIM
South KoreaJapan
USSP + RJ
AustraliaItaly
Brazil
1st position
57% 34%
26%
15%
17%
50%
4Q12 4Q13
> 34 Mbps
12 - 34 Mbps
< 12 Mbps
11 FINANCIALS
FINANCIAL RESULTS Net Revenues (R$ mln; % YoY)
EBITDA (R$ mln)
Fixing EBITDA Drags
Intelig: EBITDA-CAPEX (R$ mln) FISTEL Payments
(R$ bln)
MTR Exposure (%)
2,344 3,220
16,420 16,701
Revenue 2012
Δ Handset Δ Fixed Services
Revenue 2013
Δ Mobile Services
+876 -255 +537
Service
Handset
18,764
ΔYoY
19,921
+3.5% -28.0% +37.4%
+1.7%
+6.2%
+37.4%
5,012
EBITDA 2012
EBITDA 2013
ΔMkt and Sales
ΔPers./G&A and others
-95 -31
ΔNetwork and ITX
+40
ΔServ. Revs
26.7%
32.1%
+281 5,207
26.1%
32.0%
EBITDA Margin
Service EBITDA Margin
+3.9%
ΔYoY +1.7% +2.5% -0.7% +1.4%
Leased Lines Cost (% YoY)
1.04 1.04
2012 2013EBITDA
Revenues
+28%
+11%
+8%
-5% -12%
-10%
0% -1%
1Q 2Q 3Q 4Q
2013 2012
1Q 2Q 3Q 4Q
-6% YoY 2013 +9.7% YoY 2012 24%
4Q10 4Q11 4Q12 4Q13
30%
4Q10 4Q11 4Q12 4Q131Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q
-
+
533
743
843
CAPEX Mix (%)
Dividends (R$ mln, payout)
12 FINANCIALS
FINANCIAL EVOLUTION Profit & Yield
1,278
1,449
1,506
2011 2012 2013
+13%
+4%
2011
2012
2013
CAPEX (R$ bln)
3.0
3.8 3.9
2011 2012 2013
+90% in infrastructure
Focus in transport infrastructure
Zero subsidy policy on
handsets
Total: R$ 3.9 bln
5,207 -3,561*
571 2,216
EBITDA CAPEX Δ WC OFCF
*OFCF does not consider R$310 mln of LT Amazonas leasing as CAPEX
Net Income (R$ mln)
56%
51%
42%
Capex/Sales 18.0% 20.6% 19.4%
Investments
Operating Free Cash Flow (R$ mln)
OFCF/Net Revenues: 11%
Expansion of +21.4% YoY
Payout
+39.3%
+13.5%
13 CONCLUSION
PERSPECTIVES FOR 2014 Network Evolution Offer & Commercial
Strategy
Network coverage expansion with increased rollout of Macro, Small Cells and Wi-Fi HotSpots
Acceleration of Mobile Broadband project from current 40 cities to over 100 cities
Focus on operational excellence and network availability by investing on people, systems and processes
Voice growth with migration to postpaid and bundling for Voice FMS
Speed up data growth with smartphones and tablets, innovative VAS, 4G offers and Data FMS
Fixed business growth coming back with positive contribution to results
Restructuring commercial channels Rational approach to pricing
Continuation of Quality Plan monitoring and execution
Expectation of 4G Auction for 700MHz Spectrum
Discussions on Sector Cost Modeling and MTR evolution
Keen attention to competitive environment trends
Recap of 2014-16 Business Plan
Smartphone penetration (Over total base of lines)
VAS Revenue Growth (% of Mobile Gross Rev.)
Data Users (% Customer Base)
Capex Evolution (% of Capex for Access Network)
43% 55%
>75%
2012 2013 2016e
30% 37%
>50%
2012 2013 2016e
18% 21%
>40%
2012 2013 2016e
3yrs - Plan Guidance:
Revenues: MID single digit
EBITDA: MID single digit
Capex: >R$11 bln
2013 2014e
2G
3G
LTE
Macro Environment