Brazil 3G strategy update

São Paulo, July 2012

Agenda

 Coverage plan
Brazil 3G
go-to-market  3G offering strategy
summary
 Devices & subsidies

LRSP 2013  Market perspective & LRSP discussion

3G next steps  Key issues

2
Agenda

 Coverage plan
Brazil 3G
go-to-market  3G offering strategy
summary
 Devices & subsidies

LRSP 2013  Market perspective & LRSP discussion

3G next steps  Key issues

3
 The 3G coverage plan has changed over time.

2012 2013
Jul Ago Set Out Nov Dez Jan Fev Mar Abr Maio Jun Jul Dez
Launch Timeline

“Oliver Plan”
(April/11)
R1.0 = 159 cities (SP R2.0 = 120 cities (RJ metro R4.0 = 699 cities (Full SP and RJ)
State) DF and GO State) Full South region and MG)

Extended coverage
RJ, DF and GO
“60% Plan” 47 cities
(September/11) 17 21 36 48 11 cities
R1.0 = 26 cities (SP R2.0 = 24 cities (RJ R4.0 = 659 cities (Full SP and RJ)
metro) metro) Full South region and MG)

“Dec/12 Plan” “60% Plan” delayed RJ, DF and

(February/12) to Dec/12 GO

Coverage plan under review

Note: Not showing regulatory marks due on every June from 2012 till 2017. Eg.: R3.0 Regulatory mark. 4
 The current plan foresees over 690 cities with 3G coverage by the end
of 2013.
Coverage plan under review
Dec-12 Jan-13 Feb-13 Mar-13 Apr-13 May-13 Jun-13 Jul-13 Aug-13 Sep-13 Oct-13 Nov-13 Dec-13

# of cities with
commercial coverage
(>80% of Area Code 14 35 47 98 146 157 180 181 185 189 189 190 694
covered)

% GDP covered (Brazil) 18% 21% 22% 26% 27% 27% 35% 39% 39% 39% 39% 40% 61%

5
Agenda

 Coverage plan
Brazil 3G
go-to-market  3G offering strategy
summary
 Devices & subsidies

LRSP 2013  Market perspective & LRSP discussion

3G next steps  Key issues

6
3G Competitive scenario & Nextel strategy

Scenario Strategy

 3G Market with increasing customers

complaints about service quality and
post-sales  Expand to 3G the current attributes
of Nextel (status, pre sales and post
 Nextel is still leader in customer sale support)
satisfaction, mainly because of
direct/specialized sales force

 Customers do not understand what their  Simple communication and offers -

buying (3G, HSPA, MB/GB, Mbps, etc) avoiding communicate technology

 Quality, support and radio as a key

 Competition is forcing price cut in voice selling point – allow set premium
and data services price

7
7
Nextel’s differentiated positioning on mobile internet.

Market current practices

vs. +
Focus on sales as a substitute of fixed Mobile internet
broadband, where there no other access as a complementary of fixed broadband

Focus on Premium Price and Premium

Price reduction and focus on volume Clients – “few and good”

Focus on more speed Service consistency (no focus on speed)

8
Guidelines for smartphone and data card offerings.

SMARTPHONES DATA CARDS

• Due to Bill&Keep, voice only customers • Initial target: current customers who
Strategy will not be incentivated to migrate from own a fixed broadband and will use
iDEN to 3G (no subsidy for 3G Nextel Internet as complementary
smartphones with voice only plan) usage for mobility.

• Subsidy for 3G Smartphones with voice

and data
Subsidy  The higher the plan the higher the • Free modem in higher data plans
subsidy

• Apply 12-month contracts

• Data centric plans: bundled with Link • Data priced in flat tiers (e.g. Small,
Data & Voice allowances Medium, Large)

Rate Plans • Premium price over competitors but • Plans with throttling - no bill shock
with higher allowances of voice and • Bundle of handsets and data cards to
data sell it to our current customers

9
To simplify customer’s choice, data card rate plans will be
communicated in flat tiers with benefits of “use at will” and “no bill
shock”

Maximum speed
Usage during bucket Mechanic
consumption

S Occasional
Throttling to
128Kbps after
bucket allowance
M Medium 1,5Mbps (customer is
advised by SMS
and interception
screen)
L High

All customers will have the same

experience and quality

10
Nextel will also innovate with a multi-device data rate plan – Data
Pooling.

Pooling Customer can share data bucket with up to 3 different devices

3GB
shared
*

OR OR
Main Device
Smartphone with
pooling plan Device 3

OR OR

Device 2
*Data bucket not defined
11
Pooling expected to launch in April/13
Agenda

 Coverage plan
Brazil 3G
go-to-market  3G offering strategy
summary
 Devices & subsidies

LRSP 2013  Market perspective & LRSP discussion

3G next steps  Key issues

12
 Nextel 3G devices

Motorola Huawei RIM

Iron Rock
Ultra • Android 2.3
High tier • 4.3” full touch
• Dual camp iDEN+3G
• Cost USD 415

Jorian Apollo Patagonia

High tier • Android 2.3 • Android 2.3 • BlackBerry 7 OS
• Keyboard • Slider keyboard • Keyboard
• 3.1” touch screen • 4.0” touch screen • Similar to BB Curve
• Cost USD 293 • Cost USD 358 • Cost USD 349

Mid Tier ARES

• Android 2.3
• 3.5” full touch
• Cost USD 238

Low Tier ULT Qwerty

• VGA camera
• Keyboard
• Cost USD 138

Datacard E303
Datacard • Low tier datacard
• HSPA
• Cost USD 42
(cheapest model)

Note: all costs net of taxes 13

Competitors are already offering the latest ultra-high-tier devices.

Carrier flagship phones (ultra-high-tier)

iPhone 4S Galaxy S2 Sony Xperia S Motorola Iron Rock

• iPhone OS • Android 2.3 • Android 4.0 • Android 2.3
• 8MP Camera • 8MP Camera • 12.1 MP camera • 8MP camera
• 3.5” display touch • 4.27” display touch • 4.3” HD display • 4.3” display
• 1.2 Ghz • 1.5 GHz • 1.2GHz
• HDMI Output

Price Price Price Sugggested Price in

200 min Plan: R$869 200 min Plan: R$869 200 min Plan: R$869 200 min Plan: R$799

Subsidy: ~R$300

14
3G premium positioning and competitive scenario result in higher
unit subsidy than in iDEN.
Average unit handset subsidy for Gross Adds, R$ with taxes

61

Avg subsidy
50 183 for 3G:
36% of cost

Avg subsidy 40
for iDEN:
19% of cost 32
iDEN 2012 SIM cards Avg Subsidy Smartphone mix 3G 2013 subsidy
subsidy

• Lower participation of SIM cards • Competitors agressive on subsidies • % of smartphone in gross adds
in total sales mix : for high-value postpaid / corporate of devices:
 iDEN 52% customers  iDEN: 25%
 3G 10% • HPPTT device costs are 16% higher  3G:75%
than iDEN, on average
• Lack of existent HPPTT device
base • Final selling prices 5% higher for 3G

• Additionally, 3G plan considers 90% subsidy on datacards (net cost: USD42 ), to align with market practice

Source: LRSP v7.1 15

Ultra High Tier Devices

• We have no information on competitor device cost

• Why Nextel devices are more expensives?

• Small scale

• Unique Technology

• On demand products

• Qchat embeded cost

16
Lower SIM card only

• Unexistent grey market

• Nextel value proposition with HPPTT differentiator

• Offer focused on bundles with PTT, voice and data

• Smaller network coverage

• More competitive portfolio compared with iden

• Voice only customers will be directed to iden network (bill and keep)

• Risk of losing the value proposition by incentivizing non PTT devices

• Voice rate plans more expensive than competition

17
Iden x 3G device cost

• Import x Local production balance

• Huawei products imported on the first 3 month

• 3G Sim card 100% imported x Iden Sim card 100% local

• Low Iden x Low 3G x Low competitors (Retali price)

• Mid Iden x Mid 3G x Mid competitors (Retali price)

• High Iden x High 3G x High competitors (Retali price)

• Ultra High Iden x Ultra High 3G x Ultra High competitors (Retali price)

• Validar valores

Low Tier 248,9 320,1

Mid Tier 395,5 512,2
High Tier 688,5 737,7
Ultra High Tier 1.048,6 1.092,6

18
Agenda

 Coverage plan
Brazil 3G
go-to-market  3G offering strategy
summary
 Devices & subsidies

LRSP 2013  Market perspective & LRSP discussion

3G next steps  Key issues

19
 Cases of 4th and 5th mobile entrants in highly penetrated countries
suggest an adjusted market share(1) of 4.5 to 6.0% in the first year.

Market share in the first 12 months

International cases – 4th and 5th mobile entrants
Current mobile density
SP/RJ ~140%

8.0%

7.0%

6.0%
Market share of mobile lines

Oi SP (BRA)

5.0%

4.0%

3.0% 3 (ITA) Play (POL)

3 (UK)
Average Adjusting for
2.0% 3 (DEN) share in total start-up
APBW (CHI) market 1.8% coverage
3 (AUS) 3 (SWE) 4.5% - 6.0%
1.0% Yoigo (ESP) Typical start-up
coverage in year 1:
30-40% of
0.0%
0% 20% 40% 60% 80% 100% 120% 140% population

Mobile density at launch

(1) Market share of lines, calculated over an adjusted addressable market considering typical start-up coverage limitations in year 1
Source: Company reports, news clippings, Merrill Lynch, Accenture analysis 20
 Further analysis reveal a mix of strategies and business models
adopted by the selected entrants.

Less succesful challengers More succesful challengers

Operator SP
(Hutchison) (TeliaSonera)
Country UK (& other European) Brazil, SP state Spain Russia Poland
Date of launch Mar.03 Oct.08 Dec.06 2001 (acquisition) Mar.07

Mobile density
91% 84% 108% 12% 109%
as of launch
Share(1) in 12 <1% (brownfield
2.4% 5% postpaid 0.9% 2.6%
months operation)
Share(1) after _
7%, 7 years 8% postpaid, 3 years 4%, 5 years 7%, 7 years 14%, 5 years
years
Strategy & • Initially pursued a • Low ARPU (R$20), • Low price strategy, • Low ARPU (22% • Low ARPU (20%
development premium strategy focus on prepaid tariff simplification below market) below market)
based on the 3G first- • Aggressive launch • Not very big in scale, • “No-frills”, voice- • Initial focus on youth
mover advantage promotion but business model centric operator to be market
• Offer services such as • Initially succesful, then designed to be low- attractive as a 2nd or • Innovative
video calling, mobile could not keep growth cost (relies heavily on 3rd SIM card provider promotions (e.g. rent-
video and mobile pace online channels and • Benefited from strong a-smartphone)
content • Financial pressures full operations overall market growth • Business model
• As competitors following major outsourcing) • Growth through sustainable because
launched 3G, Three’s acquisition and • Achieved positive geographic regulator allowed for
ARPU fell to market unsuccesful go-to- EBITDA 4 years after expansion (organic & an ITX cost
average market strategy launch inorganic) advantage until 2013
• Three started to chase caused loss of • Mature regions help
profitability to achieve momentum fund growth in new
break-even, thus regions
reducing growth rates

Source: Company reports, Anatel, Teleco, Pyramid Research, Frost&Sullivan, OECD, Merrill Lynch, Accenture analysis. Note: (1) market share over total mobile base 21
Key conclusions – mobile entrant strategies.

• The more succesful new entrants / challengers which pursued a low-price positioning achieved
fundamental business model cost advantages to achieve profitability over the long term (e.g.
interconnect cost, online channels, leverage partners/outsourcing)

• These low-price entrants have sustained their pace of growth over the years by sticking to their core
positioning/strategy and investing in coverage and geographic market expansion (through spectrum
and/or small acquisitions)

• The two less succesful entrants (Hutchison 3 and Oi SP) have some aspects in common:

• Encouraging success in the first year, achieving higher than average market shares

• But go-to-market strategy failed at some point

• in the case of Three, lower than expected success of “killer” content/video applications
and competition catch-up on 3G offerings

• in the case of Oi, the “no handsets” strategy and the “franchise only” channel model
were not succesful particularly in the postpaid market

• Financial pressures prompted a shift to a profitability strategy, thus hurting growth rates

22
The LRSP estimates 1.7MM gross adds and 650k net adds for 2013.

LRSP Gross adds – 2013 1.735

(000 Subs)

758
Handsets 3G ~647K
977
330
100

547

3G Handset 3G Handset Datacard Total 3G iDEN Total Nextel

(Premium) (NewSeg)

LRSP Net adds – 2013

(000 Subs)
836
Handsets 3G ~553K
184
283 652

90

463

3G Handset 3G Handset Datacard Total 3G iDEN Total Nextel

(Premium) (NewSeg)

Source: LRSP v7.1 23

The addressable market for Nextel in 3G considers the 2013
coverage(1) as well as the focus on premium customers.

Rationale for estimated Nextel 3G addressable premium market – LRP Coverage Plan
(Millions of lines, average numbers for 2013)

56,2
4,0

27,8

24,3
1,1

15,9 Potential market in # of lines

7,3 (2013 averages)

• Datacards = 4 MM
• Handsets >R$70 = 3.3 MM
Brazil Avg iDEN Outside Within Nextel Handset Handset Addressable
postpaid customers Nextel 3G 3G 2013 Postpaid Postpaid Premium
market (w/ potential 2013 coverage (1) below R$30 R$30-70 Market
(with migration) coverage(1)
Nextel)

(1) Applying the 2013 coverage assumption adopted in the LRSP v7.1 24
Considering this addressable market, Nextel’s adjusted market share(1)
would be 5% in datacards and 11% in premium handsets.
Datacards 2013 Handsets Premium 2013 Handsets Low Seg 2013
000 lines 000 lines, without migrations 000 lines, without migrations

463

298
LRSP lines, 257
without 166
migrations 90
33 32 48
6
Jan/13 Jul/13 Dec/13 Jan/13 Jul/13 Dec/13 Jan/13 Jul/13 Dec/13

Addressable
market 2.5 5.2 5.5 2.5 4.0 4.2 10.4 20.9 21.7
(MM lines)

2013 Average ~4MM Datacards ~3.3 MM Premium Handsets ~16MM LowSeg Handsets

Nextel market
1% 3% 5% 1% 6% 11% 0.1% 0.2% 0.4%
share (without
migrations) Opportunistic segment for Nextel

ARPU R$ 57 R$136 R$ 76

(1) Market share of lines, calculated over adjusted addressable market calculated with 2013 coverage assumption from LRSP v7.1 25
The expected ARPU in premium handsets would also require
significant differences over competitor prices.

Cheapest postpaid Most expensive postpaid Premium over Hypothetical consumer

rate plans rate plans market average prices for Nextel

50 Min 60 Min ~70 Min

R$ 641 R$ 99 +58% R$ 129
300 MB 500 MB ~300 MB

110 Min 100 Min ~120 Min

R$ 85 R$ 1472 +46% R$ 169
200 MB 300 MB ~500 MB

200 Min. 200 Min. ~220 Min.

R$ 1441 R$ 2152 +22% R$ 219
500 MB 500 MB ~750 MB

400 Min. 400 Min. ~420 Min.

R$ 1901 R$ 2692 +30% R$ 299
500 MB 500 MB 1GB

ARPU premium family = R$ 136

Simplified simulation considering:
• 100% mix in consumer segment
• typical loading mix
• market competitive overbucket tariffs
• typical outgoing/incoming minutes
• does not consider LD and SMS revenue
• ARPU net of taxes
(1) Tim: Ofertas Voz 3G + Pacote de dados (300 MB por R$15; 500MB por R$35)
(2) Incluso On-net Ilimitado Longa Distância; SMS Ilimitado (exceto bucket 60 min) 26
In order to address growth, Nextel is analyzing some strategic
options.

Expand /
accelerate • Coverage plan already under review
coverage plan
How to increase
addressable 3G
market?
Explore low • Potentially larger market
segments (R$ 30- • Different business model to generate
70 monthly profitability with lower ARPU
expenditure) • Evaluate migration risk
How to increase
volumes in
2013?

Lower barriers of • Invest in subsidies / promotions / campaigns /

entry / switching media to stimulate gross adds
costs (3G)

How to increase
market share?

• Improve churn root causes

Protect iDEN • Invest in subsidies / promotions / campaigns /
media to stimulate gross adds

27
Agenda

 Coverage plan
Brazil 3G
go-to-market  3G offering strategy
summary
 Devices & subsidies

LRSP 2013  Market perspective & LRSP discussion

3G next steps  Key issues

28
Nextel is currently discussing key 3G go-to-market themes.

NON-EXHAUSTIVE

Main items for discussion and decision:

• Alignment on coverage plan

• Migration from 2G/3G

• Iron Rock

• Roaming contracts and subsidies

• CSP (long distance carrier selection)

• New segment / low segment

29
Brazil 3G strategy update
Backup slides

São Paulo, July 2012

Agenda

Backups: 3G go-to-market summary

Backups: LRSP 2013

Backups: 2G/3G migration

31
A garantia de Qualidade virá, entre outros, da garantia de ações
durante ciclo de vida do cliente.

Qualidade na Venda Garantia de Conexão Prevenção ao Churn Retenção

• Venda Consultiva: • Welcome Call(1) ligação • Consulta de tráfego • Ilha de retenção

força de vendas de boas vindas para de dados online para exclusiva(1) para
preparada para venda checar instalação, permitir consulta de atender clientes de
adequada do serviço dúvidas e uso do plano mais modem e
serviço adequado(1) smartphone
• Consulta de Cobertura
3G por endereço, o • Call Center • Serviços de valor • Win back(1): ação
cliente compra o Dedicado(1): com perfil agregado: SMS para reativar
serviço se sua área de de informática para ilimitado, GPS e PTX. clientes que
uso for coberta problemas de uso cancelaram o
• Visita presencial(1) serviço
• Simulador de Planos: • Help Call(1): para correção de
cliente escolhe plano a telemarketing ativo problema (premium)
ser contratado de para, pró ativamente,
• Técnico residente(1)
acordo com perfil de resolver problemas
para grandes contas
uso (e-mail, web,
vídeos etc) • Cartilha de Internet
com explicação sobre
conceito, instalação do
modem e uso do
serviço.
(1) Ações em confirmação 32
Nextel pillars will be based on Simplicity and Quality

SIMPLICITY QUALITY

• Network for “few and good”

• Few plans – to simplify
customer’s choice
• Avoid technical language
• Venda consultiva
• Service consistency and
stability (no focus on
speed)
• End to end quality (from
sale to customer service)
• No Bill Shock

33
Benchmark - Vodafone

34
Brazil offers proposal - Differences between Peru and Brazil

Peru Brazil

Focus on price (same price as competitors) Premium Target – “few and good”

High speed even after in throttling (448

kbps) Low speed when in throttling (128 kbps)

Smart growth: Through the service pricing we'll be able to control the raise of subscribers,
also, we'll not encourage the usage as a replacement of Fixed Broadband

35
iDEN x 3G subsidy
-42% subsidy with 52.4%
87.4 % of the adds iDEN Sim Card
gross adds.
60.0% 18% subsidy with 35%
52.4% Low Tier
gross adds
50.0%
15% subsidy with 2.4%
40.0% 35.0% Mid Tier
gross adds
30.0% 31% subsidy with 10%
High Tier
20.0% gross adds
10.0% Ultra 22% subsidy with 0.2%
10.0%
2.4%
0.2%
High Tier gross adds
0.0%
~R$100 ~R$200 R$300 a ~R$500 ~R$700 ~R$1.100 Weighted Average subsidy iDEN
R$400 Average 19%

-29% subsidy with 10%

Sim Card
gross adds.
3G
Ultra 51% subsidy with 15%
60.0% 75% of the adds High Tier gross adds
50.0%
31% subsidy with 8.6%
Low Tier
40.0% gross adds
35.0%

30.0% 27.4% 34% subsidy with 27.4%

Mid Tier
gross adds
20.0% 15.0% 35% subsidy with 35%
10.0% 8.6% High Tier
10.0% gross adds
4.0%
0.0% Ultra 43% subsidy with 4%
~R$100 ~R$200 R$300 a ~R$500 ~R$700 ~R$1.100 High Tier gross adds
R$400
Weighted Average subsidy 3G
Average 36%
Single channel structure for 3G and iDEN with implementation of 35
new PoS until launch.

# of PoS (Point of Sales) - Jul-Dec/2012 (Only SP)

Projected
Current
Channel Dec/2012 
Jun/2012 (1)

Consultin
g Direct Sales Force 598 629 0

Indirect Sales Force 1.358 1.358 0

(dealer FTEs)

CAP 44 49 5

Nextel Store 2 9 7
Retail

Kiosk 60 67 7

Dealer Store 41 56 15

POC* 0 1 1

Telesales 117 117 0

Remote

Online n/a n/a n/a

(1) preliminary estimative based on Iden and 3G projections – pending budget approval
(*) 3G regulatory structure 37
Sources: Store, Dealer and Kiosk nov2011 / Assessors oct/2011
The main sales channel is expected to be the consulting sales force.

2013 LRP

Consultin Channel Channel Mix (%)

Direct Sales Force 39.7%

66%
g

Indirect Sales Force (dealer

FTEs)
26.5%

CAP 10.5%

Nextel Store 4.5%

Retail

Kiosk 7.0% 27%

Dealer Store 4.6%

POC* 0.4%

Telesales 6.3%
Remote

7%
Online 0.5%

38
Agenda

Backups: 3G go-to-market summary

Backups: LRSP 2013

Backups: 2G/3G migration

39
Brazilian mobile growth has been fueled by aggressive on-net
promotions and rate plans, which increase usage at expense of ARPU.

Brazil mobile users (MM) ARPU (R$)

90,0 30
80,0
70,0
25
60,0
50,0
40,0 20
30,0
0,0 0
2008 2009 2010 2011 2012E 2008 2009 2010 2011 2012E

Voice avg price per minute (R$/minute) MoU

140
0,30 130
120
0,25
110
0,20 100
90
0,15
80
0,10 0
2008 2009 2010 2011 2012E 2008 2009 2010 2011 2012E

Vivo Claro TIM Oi

40
Source: OANDA; Pyramid
 Mobile entrant case detail: 3 (UK)
Key facts
Country: UK Mobile penetration as of launch: 91% Est. coverage Year 1: ~50% pop.
4th/5th entrant: 5th Main shareholder: Hutchison Whampoa Subscribers Year 1: ~850.000
Launch date: Mar.03 Technology: UMTS/3G Market share(1) Year 1: 2.4%

Launch strategy Performance

History: Positioning:
• First mover in 3G technology. • Had initial problems with limited 3G
T-mobile launched 3G 11 handset availability and handset Market share of lines, UK
months later and other technical issues
45%
competitors, more than 1 year • Initially launch one prepaid plan and JV T-Mobile+Orange
later two postpaid plans in the range of 40%
• Required coverage by GBP60 35%
regulation: 80% of population • Subscriber growth was slow so during 30%
covered by the end of 2007 the first year 3 introduced four new
25%
postpaid plans ranging from GBP15 to
GBP100 20%

• Focused on 3G-enabled applications, 15%

such as video calling, content (e.g. 10% 6.8% 7.4% 6.9% 7.1%
football) and email, with several 4.3% 5.1%
5.5% 5.8%
5%
promotions and additional content 0.4%
packages for GBP 5-10 0% Vodafone O2 (BT Cellnet)
2002 Orange
2003 2004 2005 2006 2007 2008(One-2-One)
T-Mobile 2009 2010 2011
• In the first years 3’s ARPU had a Hutchison 3
premium over the market average
(EUR 28 vs. EUR 22) • After reaching a peak of GBP35 in 2006, 3’s
• Had an initial goal to achieve 1 million ARPU declined rapidly to GBP23 by 2009, in line
customers by the end of 2003 with market, as a result of intense competition
• Three has been focusing on prepaid with low-cost
mobile broadband and cheap handsets
(competitors are focusing on high-value postpaid)
Source: Company reports, OECD, Pyramid Research, Merrill Lynch, Accenture analysis Note: (1) market share over total mobile base 41
 Mobile entrant case detail: Oi SP (Brazil)
Key facts
Country: Brazil / SP state Mobile penetration as of launch: 84% Est. coverage Year 1: 48 cities, ~27% pop.
4th/5th entrant: 4th Main shareholder: AG, Jereissati, PT Subscribers Year 1: 5.3 MM (8% postpaid)
Launch date: Oct.08 Technology: UMTS/3G Market share(1) Year 1: 12% (5% in postpaid)

Launch strategy Performance

History: Positioning: Market share of postpaid lines,
• Oi/Telemar is the fixed • Strategy was to capture SP market São Paulo state
incumbent in Brazil Region 1 growth SMP, without Nextel

• Oi launched its mobile • Launch with aggressive prepaid 45%

operation in 2003, in Region 1 promotion (R$ 600 monthly bonus for
local and LD calls, during 12 months): 40%
• Acquired license to enter the
São Paulo market (Brazil sold 1 MM lines in 1st month 35%
Region 3); launched in 2008 • Focus on chip-only strategy (no 30%
• Also in 2008, announced devices)
25%
acquisition of Brasil Telecom • In postpaid, offered invoice credits of
20%
(fixed incumbent in Brazil R$300-R$650, in 10 installments
Region 2) (“subsidy”). Postpaid ARPU of R$36 15%
during the first year 10% 7.9%
7.0%
• Low ARPU strategy: around R$ 20 5.1%
5%
(similar to Oi average at the time): R$ 0.2%
1 outgoing, R$ 9 incoming from other 0%
2007 2008 2009 2010 2011
operators and R$ 10 incoming from Vivo TIM Claro Oi
Telemar (fixed)
• 3G modems launched 6 months after
“Only Oi gives you 3 • Oi SP 2011: 8.6 MM lines (1.0 MM postpaid)
initial launch, with 2-month trial period
months to try for free” • Mass media campaign (R$50 MM) • After difficult years after BrT’s acquisition and with
the arrival of Portugal Telecom, Oi is now trying to
regain its position and market momentum with
aggressive plans, promotions and subsidies

Source: Oi company reports, Anatel, Teleco, Accenture analysis Note: (1) market share over total mobile base 42
 Mobile entrant case detail: Xfera / Yoigo (Spain)
Key facts
Country: Spain Mobile penetration as of launch: 108% Est. coverage Year 1: ~30% pop.
4th/5th entrant: 4th Main shareholder: TeliaSonera (Sweden) Subscribers Year 1: 427.000
Launch date: Dec.06 Technology: UMTS/3G Market share(1) Year 1: 0.9%

Launch strategy Performance

History: Positioning:
Market share of lines, Spain
• Troubled launch • “No frills” operator with own
• Founded as Xfera in 2000, network focusing on tariff 50%
acquired 3G license simplification, efficiency and low 45%
cost 40%
• Shareholder and government
conflicts delayed launch for • Focus on mass markets 35%
several years (consumer and SOHO)
30%
• TeliaSonera acquired majority • Basic postpaid and prepaid
25%
shareholding in June 2006 and services
20%
launched operations in 150 • 3G handsets in mid-low tiers
15%
days • National 2G roaming with
10%
Vodafone 4.9%
2.8% 4.0%
5% 1.8%
0.1% 0.9%
0%
2005 2006 Móviles
Telefónica 2007 2008 Vodafone
2009 2010 (Airtel)2011
Amena / Orange Xfera / Yoigo (telia)
“Yoigo goes to
market with the
cheapest tariff”
• 2010 revenues: EUR 640 MM
• 2010 customers: 2.3 MM
• Projected ARPU 14% below market average
• Won spectrum auction in Jun/11, in order
• Year 1 goal: <1% market share
to expand coverage and capacity
• Long term goal: 10% share in 9 years

Source: Yoigo, Merrill Lynch, Accenture analysis Note: (1) market share over total mobile base 43
 Mobile challenger case detail: Tele2 (RUS)
Key facts
Country: Russia Mobile penetration as of launch: 12% Est. coverage Year 1: n/a
4th/5th entrant: n/a Main shareholder: Tele2 Group (Sweden) Subscribers Year 1: n/a
Launch date: 2001 Technology: GSM/2G and EDGE Market share(1) Year 1: <1% (acquisition)

Launch strategy Performance

History: Positioning:
• 2001: Tele2 enters Russia by • 2011 customer base: 20.6 Million
acquiring 12 regional mobile • Russia mobile penetration: 167% Market share of lines, Russia
operators (highest in Europe). Mobile broadband 40%
• 2003-2006: further penetration only 6%
acquisitions and network 35%
• Main differentiator: clear price
builds. In 2006 reaches 6 leadership position. Tele2’s ARPU is 30%
Million customers 22% lower than market average
25%
• 2007: Acquires GSM licenses • Perceived as a “no-frills”, voice-centric
for 17 other regions operator to be attractive as a 2nd or 20%
• 2008-2009: further 3rd SIM card provider 15%
acquisitions and network • Segmented strategy in its 43 regions:
builds. In 2009 reaches 12 10% 8.2% 8.7%
• In 16 regions, acts as a Newcomer: 7.0%
5.6%
Million customers 4.2% 5.0%
focus on acquisition, price 5% 2.6%
leadership and distribution 0%
• In 27 regions, acts as a 2004MTS
2005 2006 Vimpelcom
2007 2008 2009 Megafon
2010 2011
Challenger/Defender: focus on Tele 2 Others
retain customer base and increase
ARPU
• Currently testing LTE technology and
plans to enter the spectrum auction

Source: Company reports, Pyramid Research, Merrill Lynch, Accenture analysis Note: (1) market share over total mobile base 44
 Mobile entrant case detail: Play (Poland)
Key facts
Country: Poland Mobile penetration as of launch: 109% Est. coverage Year 1: ~20-30%
4th/5th entrant: 4th Main shareholder: Novator, Tollerton Subscribers Year 1: ~1.2 Million
Launch date: Mar.07 Technology: UMTS/3G Market share(1) Year 1: 2.6%

Launch strategy Performance

History: Positioning:
Market share of lines, Poland
• Granted 3G license in 2005 • Entered targeting 3G users, especially the
youth market. Partnered with leading 35%
• Initial network build focused
online portal to combine mobile with
on four major metropolitan internet and social networking. 30%
areas (Gdansk, Warsaw,
• Play benefited from regulatory
Wodz, Krakow) 25%
advantages (more competitive termination
• Originally planned to launch rates) 20%
in Q42006, but delayed due • In postpaid, offered 1.5x – 2.0x more off-
to infrastructure roll-out 15% 14.0%
net minutes than competitors, for similar
problems monthly price 11.0%
10% 7.7%
• Faced difficulties to obtain • ~25-30% cheaper tariffs than competitors,
building permits, but for voice and SMS 5%
4.5%
decided to launch with • Did not offer prepaid services at launch 1.9%
lower number of base (available in 2008) 0%
stations 2006 2007
PTC T-Mobile 2008 2009
Polkomtel 2010 2011
Orange PT SA
• Average ARPU of PLN 40 (market avg:
PLN 48) Play Novator
• Agressive marketing and pricing
strategies aimed at consumers e.g.: • 2010 revenue USD 663 MM, 21% EBITDA
• Subscribe to a postpaid line and get a • 2012 Play customers: 7.8 Million
PlayStation videogame • MVNO: Red Bull Mobile (prepaid)
• 3G handset for only PLN 1 • “Rent-a-smartphone” initiative: users allowed to
• National roaming agreement with test a Huawei Smartphone for 14 days attracted
Polkomtel more than 150,000 customers
• Aimed at 500,000 users in first year (~1%
• Mobile termination rate advantage will end in 2013
market share)
Source: Company reports, Pyramid Research, Frost&Sullivan, Merrill Lynch, Accenture analysis Note: (1) market share over total mobile base 45
This will result in a total EOP of ~5MM Subs

LRP Subs EOP – 2013

(000 Subs)

Migration from iDEN

4.977
298

350

553
3.776

iDEN Handsets 3G Datacards Total

46
Summary of ARPU from the 2013 LRP

Handset 3G Premium (R$) Handset 3G Low Seg (R$)

136,4
2,0 0,0
12,0 75,5
2,0 0,0
26,0 11,0
96,4
43,4 19,1

Access Calling Interconnect SMS Usage Toll Total ARPU Access Calling Interconnect SMS Usage Toll Total ARPU
Revenue Party Pays Usage Revenue Party Pays Usage

Handset IDEN (R$) Datacards (R$)

95,1
3,5
1,9
9,6

69,5 10,6 57,0 57,0

0,0 0,0 0,0 0,0

Access Calling Interconnect SMS Usage Toll Total ARPU Access Calling Interconnect SMS Usage Toll Total ARPU
Revenue Party Pays Usage Revenue Party Pays Usage

47
Total addressable market evolution (LRP coverage)

Addressable Market – Post-paid SMP

(Millions of Lines, without Nextel)

Launch 1.0 Launch 1.3 Launch 2.0

53,3 53,6 54,0

52,3 52,6 52,9
51,0 51,3 51,6 51,9
50,4 50,7 21,0 21,1 21,3
20,6 20,7 20,8

5,5
Out of Coverage
5,2 5,2 5,3 5,4 5,4
34,9 35,1 35,3 Datacard
34,3 34,5 34,7
Handset

2,5 2,6 2,6 2,6 2,7 2,7

26,5 26,7 26,8 26,9 27,1 27,2

13,6 13,7 13,7 13,8 13,9 13,9

Jan/ Feb/ Mar/ Apr/ May/ Jun/ Jul/ Aug/ Sep/ Oct/ Nov/ Dec/
13 13 13 13 13 13 13 13 13 13 13 13

48
Handset addressable market evolution by monthly expenditure range
(LRP coverage)

Addressable Market by Expenditure Range More than R$70: Premium clients

(Millions of Lines, SMP, without Nextel) Less Than R$70: Low Segment clients

Launch 1.0 Launch 1.3 Launch 2.0

26,5 26,7 26,8 26,9 27,1 27,2

2,6 2,6 2,5 2,5 2,5 2,5 Expenditure Range:
1,7 1,7 1,6 1,6 1,6 1,6 (R$ Monthly)

More than R$100

R$70 to R$100
13,6 13,7 13,7 13,8 13,9 13,9 R$30 to R$70
1,5 1,4 1,4 1,4 1,4 1,4
1,0 1,0 1,0 1,0 1,0 1,0 20,9 21,0 21,2 21,3 21,5 21,7 Less than R$30

10,4 10,5 10,6 10,7 10,7 10,8

0,7 0,7 0,7 0,7 0,7 0,7 1,4 1,4 1,4 1,4 1,4 1,4

Jan/ Feb/ Mar/ Apr/ May/ Jun/ Jul/ Aug/ Sep/ Oct/ Nov/ Dec/
13 13 13 13 13 13 13 13 13 13 13 13

49
 The LRP coverage plan foresaw a stronger coverage in july

Until June/13 July-Dec/13

• Focus on core São Paulo and Rio de • Coverage expansion to São Paulo
Janeiro markets (larger metropolitan interior and Southwest
areas)

Dec-12 Jan-13 Feb-13 Mar-13 Apr-13 May-13 Jun-13 Jul-13 Aug-13 Sep-13 Oct-13 Nov-13 Dec-13

# Cities w/ commercial
coverage
(>80% of Area Code
157 180 180 180 180 180 180 796 796 796 796 796 796
covered)

% GDP covered (Brazil) 27% 35% 35% 35% 35% 35% 35% 64% 64% 64% 64% 64% 64%

50
Agenda

Backups: 3G go-to-market summary

Backups: LRSP 2013

Backups: 2G/3G migration

51
 2G/3G migration is under definition whether to be a manual or
automatic process
Impacts on Nextel finances and operations as well as customer experience are being considered

1 2
3G Full Launch (voice + datacard) with manual
3G Soft Launch (datacard only) and 3G Full
migration process and automatic IT solution for
Launch in R1.3 with automatic migration process
R1.3

Higher fraud risk Higher financial impact

LRSP OCF base 2012: 1.19BN – 2013: 1.27BN

• Lower revenue (no 3G voice gross + 80k Iden
• Higher operational costs (HC increase, device subsidy,
Financial

compensation)
ITX)
• Lower 2G ARPU
Nextel Impacts

• Churn increase: 3,5% over 20k migrations

• Lower costs (operational, mkt, sales and device
• Higher 3G ARPU
subsidy)
• ∆ OCF 2013: (20MM)
• ∆ OCF 2013: 60MM
• ∆ OCF 2014: (6MM)
• ∆ OCF 2014: (114MM)
Operational

• Time availability to understand and improve network

• Higher fraud risk
before voice launch
• Higher PDD risk
• Ironrock offer as contingency solution
• Fragile manual control
• Manage market speculations about 3G voice launch and
• Increase of HC
network issues
Customer
Impacts

• Poor client experience during migration process: • Unable to attend customer expectations
available only at stores (~2h process) • No voice solution when Sprint Iden network in USA is
• No HPPT experience in off-net roaming disconnected

all scenarios currently under internal analysis

Business Case analysis - details

53
Assumptions for Business Case analysis

Considered 6 months period until final IT solution is implemented

54
Migration 2G – 3G Status
• Technology Migration from 2G to 3G will require a manual process performed by Nextel Brazil
Customer Care team in stores only due to system limitation. The process requires:
• 3G contract activation through the sales process (using SFO)
• 2G contract deactivation through the post-sales process (using CRM)
• Two system limitations are impacting the overall process, and a contingency solution is being
discussed:
• Credit check: no migration process for credit analysis (impeditive for migration)
• UFMI portability: manual solution on BSCS (not impeditive for migration but harms
customer experience)
• Final automatic IT solution (for post R1 release) that supports business areas needs is also
currently being discussed.
Macro Process for 3G Commercial Launch
TMA ~ 30 min TMA ~ 30 min

Customer Create Credit Analysis Activate 3G Deactivate UFMI Portability UFMI Portability
Requests 2G-3G 3G Sales Order (SFO-Crivo) Subscription 2G Contract Release Original Replace
Migration (SFO) (Maestro/BSCS) (Single) UFMI Temporary by
(BSCS/RA) Original UFMI
(BSCS/CX)

 Crivo is currently  Process not supported by CRM and

configured to reject new must be manually executed on
sales orders from customer BSCS (module RA and CX)
at their credit limit  Local network restriction does not
allow UFMI migration
3G launch without migration process has also been analyzed and is
not considered a feasible scenario regarding customer satisfaction

3G Full Launch (voice + datacard) without migration

process and with automatic IT solution for R1.3

Higher brand image impact

Financial

• Higher Churn: 8% over 20k migrations

• ∆ OCF 2013: 7MM

Nextel Impacts

• ∆ OCF 2014: 8MM

Operational

• Ironrock offer as contingency solution

• Possible conflit with sales force due to annulment of sales
comission if client activates new 3G and deactivates 2G (false
churn)
Customer
Impacts

• Customer frustation experience resulting in bad brand perception

(need to activate and deact, 35% will have credit rejected.)
• Does not attend customer expectations

all scenarios currently under internal analysis

Scenario 1 - Full Launch with manual migration process
Operational impacts

Fraud Risks

• Allow access of ~120 HC to credit and billing system enabling them to perform any changes on customer
contract such as:
• Apply any changes to the customer contract (apply discounts, change plan, add/remove services, etc)
• Apply change fee for unlimited time
• Offer plans not compliant with customer score (higher than credit limit allows)
• Changing customer credit limit
• Crivo and Billing system do not maintain alteration log history increasing Sox risk
• No comprobatory documents associated to the migration request (~ to current fraud that occurs in master
password authorization for add-on request)

Manual Controls needed

• Ability to audit all migration requests

• Reports containing activations x deactivations with migration reason
• Registration of credit system (crivo) alterations

57
Each market defined a different migration solution due to local
system and process differences
• Requests enters through Call-center
• Manual process performed by fullfillment
• Process takes ~2-4hours / per device – time does not include delivery of the device

~ 45 min ~15-45 min ~120 min

Call Center Mantenimiento Fulfillment

Enter request Enter order and Process order – Deliver Reactivate 3G, Assign UFMI
(CCI) create 3G account activate 3G and device process 2G takeover number
(CCI, NOE, Siebel) suspend contract and deact 2G (NPG, Siebel,
(CCI/NOE) (CCI/NOE/BSCS) ICC, BSCS ix CX)

• Whole process takes ~2 days to complete

• Requests entered via CAP and/or call-center
~ 21 min ~60 min ~24hours
Store / C-center Credit Fulfillment

Enter request Analyze customer Process order – Execute account

(Portal) risk activate 3G and takeover to assign
(CCI, NOE, Siebel) deact 2G contract UFMI number
(BSCS Six) (BSCS)

• Requests enters
• Total process time takes ~2 days
• Portability window is only available between Monday to Saturday except on holidays.
~30 min ~10 min
Store Portability dpt.

Create new sale Check client data Scan customer View document Check portability
request with (NPG) documents and and create request after
temp. number send request for portability request window
(Siebel) portability (Siebel/NPG) (Siebel/NPG)

Presentation Title 58
 4 possible scenarios to approve client credit during migration
process have been mapped
Scenario valid for both consumer and corporate customers in store.
Premisses Corporate client (>20 devices) will be supported by ECC/EPV through manual process.
All scenarios are subject to operational erros in all steps.

Increase credit Online credit approval - Online credit approval -

1 limit 2 Form Request 3 manual 4 automatic

• Increase credit limit for • Credit approval through Crivo

Solution

• Migration request thru’ form

clients: • Build a credit control BO to be parametrization not to run credit
• Credit control BO needed to
• High/critical risk contacted by stores to approve check when asked by migration
approve credit limit customer care rep (system
• In its credit limit (1 or + credit online
• Delivery via logisticts
devices) development for R1.0)

• Provides immediate activation • Provides immediate activation

• Does not impact store KPIs
• Provides immediate complying with regulation complying with regulation
Pros

• More control over credit

activation complying with • Performs all processi n stores • Performs all processi n stores
approval
regulation • More control over credit • Does not need credit control BO
• Channel supports all clients
approval structure

• Higher fraud risk

• Not compliant with regulation • ~R$50k for system development
• Higher fraud risk •
• ~ 17 additional HC for credit Cost of Crivo consult: 6k/month
• Nextel’s Exposure with • ~ 17 additional HC for credit •
control BO Higher fraud risk
impact on KPIs (client control BO • Manual controls
• Cost of Crivo consult:
Cons

profile, inadimplency, • Cost of Crivo consult: 6k/month •

6k/month
PDD, etc)
• Manual controls
• Higher fraud risk
• Need of reverse logistic for
• Increase of store HCs
STN
• Increase HC for BO + higher
cost for fullfillment delivery
• Manual controls
• Need to increase store’s add on
limit for corporate consumer
• Increase of store HCs
Absence of credit analysis for
pre-paid to post-paid migration
• Need to increase store’s add on
limit for corporate consumer
• Increase of store HCs
 2 possible scenarios for performing UFMI portability during migration
process have been discussed
Manual process of UFMI portability in BSCS (module CX) will be used for both 3G > 2G
migration and 2G > 3G.
Premisses • For 2G > 3G migration there will be number reservation on base
• For 3G > 2G migration the number will be put in quarentine without reservation
Pending IT The CX profile needed to perform such activation is superior to that currently allowed in
definition of stores
local network • Store currently uses “Plus” profile
restrictions • “Advanced” profile, currently used by BO and Fullfillment only, will be needed

1 Manual process in Stores 2 Manual process in Back-office

• Activates temporary UFMI

Solution

• Customer care rep accesses RA and CX to perform manual • Activates temporary UFMI
UFMI number change • Open a request in Single for BO to perform the UFMI
• CX access should be restricted to only a few migration reps in portability in RA and CX
stores
Pros

• Customer maintains own UFMI after leaving store (in up to 2h)

• Lower fraud risk for not allowing stores to access CX
• Individual control in store

• Allowing CX access for store reps

• Higher fraud risk • Increase of BO HCs
Cons

• Increase of store HCs • Higher time (minimum of 48h) for customer UFMI activation
• Need to wait for line activation to perform manual portability • Manual activation and portability controls
process
 Migration Status Update
Current Status
Accomplishments Issues and Risks

• Discussed scenarios to workaround Credit and UFMI with IT,

COPS, FIN, MKT Leaders. Issues:
Current activities

• Based on recommendation MKT is working on three • Local restriction in BSCS to

Define
Business Case Scenarios: perform UFMI portability (solution
Contingency
1) Launch without migration not confirmed for R1.0)
Process
2) Launch with Manual Migration
3) Soft Launch Data, Voice Launch in a next release. Risk:
• BC Results will be discussed in the Directors LT on 7/13. • Fraud risks in Credit Analysis
between Stores and Back-office
and releasing access to BSCS
Define Final IT CX/RA for users at stores.
Solution
• BN Created, in final validation with teams (7/12).

High Level Workplan

Week 1 Week 2 Week 3 Week 4 Week 5

06/29 07/06 07/13 07/20 07/27
Contingency Define Solution and Validate with
Process Validate with LT Draw process and training material
impacts areas

Final Submit for IT Release Plan for Final

Define Solution (BN) Validate with areas
IT Solution detailed analysis Migration Solution

We are
here

Presentation Title 61
Iron Rock – Overview
The Product

3G iDEN
•Dual sim: Broadband + Voice

• Design and performance are superior to all Voice

devices within the Nextel portfolio
Data
•Solution for 3G reduced coverage
• Solution for data customer churn (currently PTT
at 6.5% of base)

Data Priorization Strategy

• Focus on data retention by providing an iDEN

device with high speed internet

• Keep the customer perception of iDEN coverage

quality

• Cost Savings: Nat. Roaming & Interconnection

62
Iron Rock – Needs and Benefits
Needs
The customer will have two plans and two contracts: one for 3G data and one for iDEN Voice and data.
For control and fraud reasons, these contracts and plans should be automaticly linked by systems for activation and
deactivation

Solution

Iron Rock Voice Plan

iDEN iDEN
Premium Sales AUTOMATI Premium
Specific
C linked Treatment
Clients or Requests fast data Channels Clients or
Cell
New Adds with quality voice New Adds
coverage Iron Rock Data Plan +
Post Sale
Device

IT Challenges Link contracts and Create specific

plans through Iron Rock plans
systems for iDEN and
3G

Benefits
• The cost savings provided by nat. Roaming and ITX can help subsidize the cost of the handset for the customer
• Iron Rock is a temporary solution to migration issue
• Retention of premium clients (if done with 3G launch)

Design contingency solution(with minimum IT support) for R1.0 and work on full solution for a future
release
63
Iron Rock – Business Case
Cost Saving per sub per month
4,7

Dual Band Client 3,4

1,3
0,0 Av. Cost Saving
(Iron Rock)
ITX net cost Toll Rev. Roaming Total ~R$ 30 per client

31,1
22,8
13,4
Single Band Client 5,1

(Ex. Saintsbury)
Assumptions
Dual Band - Voice/Dispatch via iDEN, Data via 3G
ITX net cost Toll Rev. Roaming Total (no roaming cost for voice)
Single Band - Voice/ Dispatch/ Data via 3G

Gross Adds And Migration Assumptions

Av. MOU of iDEN subs with bucket >100 min1
To Dual-Band 2013 2013~2015 Dual vs Single-band clients: same MOU and ARPU
profile
(000) 102k Subs (dec/13) 137k Subs (dec/15) Scenario without Iron Rock: Increased churn and
less sales due to lack of roaming
R$ 17 MM Saving R$ 75 MM Saving (No dispatch and data roaming in 2013)

Gross Adds 12
12 11
12
11 11 11
Migration 10 10 10

6 6 6 6
6 5 6 6
5 5 5 5

3 3 3 4 3
3
2 2 2 2 2 2 2 2

Jan/ Jan/ Jan/ Dec/

13 14 15 15

(*) Roaming values for High-bucket clients in 2013 64

Iron Rock – Area Impacts
Change Request Status
• A Change Request was opened by products but as it impacted too many systems it was put on hold by
the ePMO as it would put on risk a December launch

Impacts
Non-Exhaustive
All impacted areas must be aligned to prevent gaps.

IT Sales Regulatory
Create specific voice and data New Customers: No impact.
plans/bundles. Two orders and two contracts:
Motorola will be responsable to
Device + Sim 3G and Iden Sim
Create a reminder pop-up for back register the device on Anatel as
Only.
office to avoid fraud. iDEN.
Existing Customer:
Create fines based on 3G Data
Change existing plan, add one
Plan. Legal
order and one contract:
Device + Chip 3G No impact.

Customer Care Marketing Finance

Create a specific treatment cell Improve the communication plan Only positive impact: saving costs
and hire new employees for the of Roaming and Interconnection
service of Iron Rock customers

65