I nvestor Conference 2 0 0 3 Brazil Day W elcom e and Em bratel Structure of the Day Daniel Craw ford Jorge Rodriguez Chairm an of the Board President - 1 -
Forward Looking Statement The information contained in this presentation may be deemed to include forward- looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, that involve risk and uncertainty, including business, financial, regulatory environment, strategy, trends and other projections. Although the Company believes that its expectations are based on reasonable assumptions, it can give no assurance that its expectations will be achieved. The important factors that could cause actual results to differ materially from those in the forward-looking statements herein include, without limitation, the Company's degree of financial leverage, risks associated with debt service requirements and interest rate fluctuations, risks associated with the announced potential disposition of MCI ownership interest in the Company, and with any acquisitions and the integration thereof, risks of international business, including currency risk, dependence on availability of interconnection facilities, regulation risks, contingent liabilities, collection risks, and the impact of competitive services and pricing, as well as other risks referred in the Company's filings with the CVM and SEC. The Company does not undertake any obligation to release publicly any revisions to its forward-looking statements to reflect events or circumstances after the date hereof or to reflect the occurrence of unanticipated events. - 2 -
Investment Highlights ! Brazil’s premium telecommunications service provider ! Strong established brand name - “21” PIC code ! Nationwide service coverage ! Strong corporate client franchise ! Unique service offerings and solutions ! State-of-the-art seamless network ! Key improvements in regulation ! Poised to capitalize on growth opportunities - 3 -
Business Overview Leading provider of domestic and ! YTD Sep. 2 0 0 3 Revenue international long distance voice ( R$ 5 ,1 6 9 MM / US$ 1 ,7 6 8 MM) services Best provider of ! Other Services telecommunications solutions for companies Data 5 % Communication Preferred carrier for small ! business and residential customers 2 6% Unparalleled breadth of data ! 5 7% services and largest Internet backbone 1 2% Strong entrant in local services Domestic Long ! International Distance for corporate customers Long Distance Leading provider of satellite ! services, using capacity provided by subsidiary, Star One S.A. - 4 -
Strategic Initiatives Business Segm ents Operations " " Defending high-value segments Reducing bad debt " " Offering integrated solutions Improving efficiency " Developing growth opportunities Optim izing Cash Generation Com pany-w ide Regulatory " Optimizing asset productivity " Breaking paradigms " Investing in platforms for growth " Shaping regulation " Executing financing strategy " Influencing most critical topics - 5 -
Segmented Market Approach Em bratel Estim ated Penetration Very Large Providers More than 9 0 % Corporate Market Approxim ately Large Government 8 0 % Medium Small Approxim ately Very small/ SOHO 6 0 % or m ore Residential high-end Consum er and middle Market Approxim ately Residential low end 2 0 % - 6 -
Leading Provider to Large Corporate Customers 2 0 0 3 Overall evaluation % good or excellent in 2 0 0 2 Em bratel 4 16 80 7 3 % MetroRED 8 31 61 7 8 % AT&T LA 11 29 61 8 1 % Brasil Telecom 11 34 55 6 6 % Telefónica 15 31 54 5 1 % I ntelig 9 39 52 4 5 % Equant 30 19 51 6 2 % Com sat 15 35 50 6 3 % I m psat 9 43 49 4 8 % Telem ar 34 17 49 3 7 % GVT 12 43 45 7 3 % 0 1 0 2 0 3 0 4 0 5 0 6 0 7 0 8 0 9 0 1 0 0 Source Yankee Group – August 2003 Very bad or bad I ndifferent Good or Excellent - 7 -
Intelligent Access Build-Up Portfolio of Rational Criteria… Technologies… Targeting high Copper potential ( ADE, internal) custom ers Radio Reducing ( Point-point, operational costs Point-Multipoint) ( EI LDs) Access Build-up Optim izing Satellite resources ( radios) Optim izing Optical Fiber CAPEX - 8 -
Improving Regulatory Environment Outcom e ! Cost-based (peak vs. off-peak) interconnections–alignment I nterconnection with international references (1) ! Cost-based unbundling (1) Unbundling ! Start of arbitration process ! Anatel arbitration on prices (> 50% reduction) Co-billing ! Isonomic terms obligation (1) ! Imm ediate application of isonomic prices and conditions–legal Data access orders against I LECs m andated ! Gradual reduction in the number of the local areas Local areas Initially to 5,400 in Public Consultation (equal to municipalities) • Num ber ! Mandatory requirem ent (1) portability Note: (1) At contract renewal - 9 -
Expected Decrease in Interconnection Costs TU-RL, a major cost for Embratel, will be significantly reduced with the final version of the local contract TU-RL TU-RL as % of ( R¢ / m in 2 0 0 3 ) the local public tariff ( 1 ) 140 1 2 8 % 1 1 8 % 120 9 9 % 100 8 1 % 80 60 5 0 % 4 0 % 40 Cost 20 Based 0 2 0 0 2 2 0 0 3 2 0 0 4 2 0 0 5 2 0 0 6 2 0 0 7 Note: (1) Assumes 3.5 minutes calls; 2003 real values without tax; inflation IGP-DI. Initial Anatel proposal defined TU-RL as 60% of local public tariff; Embratel promoting LRIC methodology - 10 -
Enhanced Operating Performance Reduction in Telco Costs Decreasing SG&A ( R$ MM) ( R$ MM) -1 2 % 3,000 2.000 -1 2 % 1 .7 7 9 2 ,6 9 9 2,800 1.800 1 .5 6 4 2,600 1.600 2 ,3 6 5 2,400 1.400 2,200 1.200 2,000 1.000 9 M20 0 2 9 M20 0 3 9 M20 0 2 9 M20 0 3 Reduction in Bad Debt I m proving A/ R ( R$ MM) ( R$ MM) 600 950 9 1 9 -4 5 % -1 0 % 4 9 0 500 900 400 850 2 7 1 8 2 5 300 200 800 9 M20 0 2 9 M20 0 3 9 M20 0 2 9 M20 0 3 - 11 -
Continuous Decline in Telco Ratios Telco Costs Evolution Key Factors ( R$ MM) ( % Net Revenues) 49,1% 48,5% Last mile network expansion ! 47,3%47,0% 46,0% 46,2% 950 45,0% 915 910 Local services offer ! 874 900 840 826 850 789 Mandated interconnection tariff ! 749 800 reductions 750 700 Other regulatory developments ! 650 600 2 2 2 2 3 3 3 0 0 0 0 0 0 0 Q Q Q Q Q Q Q 1 2 3 4 1 2 3 - 12 -
Decreasing SG&A Expenses SG&A Evolution Key Factors ( R$ MM) ( % Net Personnel expenses under Revenues) ! 36,2% 32,5% 33,4% strict control 32,4% 32,6% 29,6% 700 6 4 6 6 1 9 26,0% 6 1 2 Third party services impacted ! 8 .4 % 600 5 4 8 5 5 5 1 0 .4 % 1 2 .0 % 5 4 4 by reduction in co-billing costs 1 1 .9 % 2 1 .3 % 1 1 .1 % 500 4 6 6 2 7 .9 % 2 8 .1 % (beginning of 2003) 2 6 .6 % 4 .5 % 1 9 .1 % 1 5 .5 % 400 1 7 .3 % Continuous improvement is ! 300 3 6 .2 % 3 6 .4 % 4 5 .3 % 4 2 .9 % 4 2 .0 % 4 6 .4 % 4 2 .3 % allowance for doubtful 200 accounts 100 2 5 .3 % 2 4 .9 % 2 8 .1 % 2 7 .4 % 2 7 .1 % 3 1 .7 % 3 1 .1 % 0 ( 1 .3 ) % Personnel Third Party Services (100) Bad Debt Taxes & Other 1 Q0 2 2 Q0 2 3 Q0 2 4 Q0 2 1 Q0 3 2 Q0 3 3 Q0 3 - 13 -
Substantial Reduction in Bad Debt Expenses Bad Debt Evolution Key Factors ( R$ MM) ( % Gross ! Largest billing implementation in Revenues) Latin America 7,3% 6,6% 6,4% 200 6,1% ! Largest database in Brazil 174 4,9% 180 163 3,9% 3,4% 160 153 ! Call by call selection 137 140 ! Difficult co-billing negotiation 120 106 Cost and availability # 100 84 81 80 ! Information asymmetry 60 40 ! Establish new customer relationship infrastructure 20 Billing # 0 Collections # 2 2 2 2 3 3 3 0 0 0 0 0 0 0 Call center Q Q Q Q Q # Q Q 1 2 3 4 1 2 3 Call management # - 14 -
Significant Improvement in Accounts Receivable Net A/ R Evolution (Voice) Key Factors ( R$ MM) 1.200 # Extensive collections network 1 ,0 4 3 1 ,0 2 8 — Banks and lottery booths 1.000 9 .8 % 8 .9 % 9 1 9 — Internet bill payment 8 2 5 9 .3 % 7 8 9 7 4 4 2 5 .0 % 5 .3 % 7 2 8 2 6 .9 % 800 — Autom atic debit 9 .0 % 1 3 .8 % 2 9 .3 % 7 .3 % 6 .3 % campaigns 2 3 .1 % 2 0 .3 % 1 8 .0 % 600 # Active call management 8 0 .9 % 400 6 5 .2 % 6 4 .2 % 6 1 .4 % # Co-billing 7 5 .7 % 7 2 .4 % 6 7 .9 % # Improved customer file 200 information 0 1 Q0 2 2 Q0 2 3 Q0 2 4 Q0 2 1 Q0 3 2 Q0 3 3 Q0 3 Current 1 -6 0 days 6 1 -1 2 0 days - 15 -
Consistently Improving Operating Income Before Depreciation Operating Income Before Depreciation* Opportunities ( R$ MM) ( % Net Revenues) 7 0 0 30,8% # Grow by exploring new 24,0% 21,6%22,7% 6 0 0 18,8% markets and segments 5 5 3 17,7% 17,5% 5 0 0 4 4 2 # Further reduce costs 3 7 9 4 0 0 3 6 9 Telco costs 3 5 5 — 3 2 5 3 1 6 SG&A expenses — 3 0 0 2 0 0 1 0 0 0 * Reconciliation on the next page 1 Q0 2 3 Q0 2 1 Q0 3 3 Q0 3 - 16 -
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