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Our net operating revenues consist of gross operating revenues
from the following four services: data communication services,
domestic and international long-distance telecommunications
services and other services, net of sales taxes collected
with respect to such services. We have made a significant
change in how we report net revenues for each of these four
services. Until December 31, 1999, we reported the gross revenues
associated with each of these services and showed the summarized
tax deductions to arrive at a total net operating revenue.
We now report revenues per service net of the related gross
receipts taxes. We believe that this is a significant improvement
as the tax rates change periodically and can distort the true
underlying net revenue growth per service. The prior periods
have been restated to conform to this approach.
Net operating revenues increased 29.5% to R$6,714.5 million
in 2000, from R$5,183.9 million in 1999, which in turn represented
an increase of 29.6% from R$4,000.1 million in 1998. This
growth was achieved in an environment of increased competition
and lower prices. The increase in net operating revenues in
2000 is primarily due to a 54.1% growth in revenues from data
communications services and a 30.2% increase in domestic long-distance
voice revenues as a result of the higher number of fixed phone
lines and cellular devices in service within Brazil. Brazil's
macroeconomic performance also contributed to the growth in
net operating revenues. This was partially offset by a 10.5%
decrease in other telecommunications services, as described
below.
The increase in net operating revenues in 1999 was due to
the growth in data and voice revenues. The change in the way
that domestic and international long distance voice revenues
were shared between us and the local phone companies prior
to April 1998, also contributed to the increase in revenues
from 1998 to 1999. As a result, the domestic and international
long-distance revenues and the related interconnection costs
for 1998 are not readily comparable to the amounts for 1999.
However, excluding the first quarter of 1998, the last three
quarters of 1998 are comparable to the last three quarters
of 1999. Data revenues were not subject to the revenue sharing
plan and therefore may be compared across these periods.
The table below sets forth, for each of the periods indicated,
the principal components of the net revenues, the percentage
of those revenues, and the percentage change of each from
the prior year.
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Year Ended December 31, |
Percentage Change |
| |
1998 |
% |
1999 |
% |
2000 |
% |
1998 vs. 1999 |
1999 vs. 2000 |
| |
(in thousands of reais, except percentages)
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| Gross revenues: |
5,123,234 |
128.1% |
6,680,342 |
128.9% |
8,954,688 |
133.4% |
30.4% |
34.0% |
| Taxes and other deductions |
(1,123,128) |
(28.1)% |
(1,496,415) |
(28.9)% |
(2,240,180) |
(33.4)% |
33.2% |
49.7% |
| Net revenues: |
4,000,106 |
100.0% |
5,183,927 |
100.0% |
6,714,508 |
100.0% |
29.6% |
29.5% |
| Data communications |
719,085 |
18.0% |
1,042,103 |
20.1% |
1,605,563 |
23.9% |
44.9% |
54.1% |
| Domestic long distance |
2,296,848 |
57.4% |
3,012,638 |
58.1% |
3,921,377 |
58.4% |
31.2% |
30.2% |
| International long distance |
778,134 |
19.5% |
888,268 |
17.1% |
971,921 |
14.5% |
14.2% |
9.4% |
| Other services |
206,039 |
5.2% |
240,918 |
4.7% |
215,647 |
3.2% |
16.9% |
(10.5)% |
| Net revenues |
4,000,106 |
100.0% |
5,183,927 |
100.0% |
6,714,508 |
100.0% |
3.5% |
29.5% |
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Data communication services. Net revenues from data
communication services increased 54.1% in 2000 to R$1,605.6
million from R$1,042.1 million in 1999, which in turn represented
an increase of 44.9% from R$719.1 million in 1998. The increase
in 2000 was achieved in an environment of increased competition
and price pressures. Some portion of the data revenues was
due in part to dedicated lines leased to other carriers with
short-term contracts. It is likely that revenues from these
dedicated lines will decrease as carriers construct their
own facilities in 2001. In 2000 both dedicated and switched
data services grew strongly. Internet revenues also increased
substantially. Free Internet services were launched in 2000
by some companies in Brazil, contributing to the growth in
our revenue. As the Internet market matures, it is expected
that the level of growth will moderate.
We are highly focused in adding value to our service offerings
and in enhancing leadership in the data and Internet market.
Many of the initiatives taken in 2000, including new service
launches such as Fastnet Facil, the Business Security, and
the Business Dial and the BcomB families, contributed to the
growth in data and Internet revenues. These new service offerings
further complemented products developed in late 1999. There
was strong demand for increased data services from a variety
of sectors including financial institutions, commercial, industry
and government. State elections throughout Brazil contributed
to the growth in the fourth quarter of 2000 and this revenue
was of a short-term nature. State elections occur every two
years and we have provided data transmission services to certain
responsible government election agencies.
The growth in 1999 from 1998 was also primarily due to growth
across all data products including Internet, dedicated lines
and switched data products. Internet revenues increased 84.3%
in 1999 from 1998, primarily from the growth of the ISP business
and Internet access for business customers. At the end of
the fourth quarter of 1999, we launched a new line of Internet
products for the business sector, which includes "Business
Dial" and security services to support e-commerce. "Business
Dial" provides dial-up Internet access to business customers
and virtual dial service to ISP providers, thereby enabling
ISP's to offer their service throughout Brazil through a direct
connection to our network. To a lesser extent, the increase
in data revenues in 1999 was due in part to dedicated lines
leased to other carriers with short-term contracts.
Domestic long-distance revenues. Net revenues from
domestic long-distance revenues increased 30.2% to R$3,921.4
million in 2000 from R$3,012.6 million in 1999, which in turn
represented a 31.2% increase from R$2,296.8 million in 1998.
The growth in 2000 over 1999 was principally due to a 51%
growth in fixed telephone lines and cellular devices installed
throughout Brazil. As the number of fixed telephone lines
and cellular devices continues to increase, it is expected
that the long distance growth rate will not correlate directly
to the growth in units as the customers to be serviced are
expected to be in a lower socioeconomic segment.
We have also been successful in our entry into the intra-state
market and have benefited from growing revenues from fixed
to cellular calls from which we started receiving revenue
in the second half of 1999 and which continues to grow. We
introduced a variety of alternative calling plans adapted
to specific regional needs in 2000 in order to attract and
retain domestic long-distance customers. Domestic long-distance
minutes grew 21.1% to 19,343 million minutes in 2000 from
15,967 million minutes in 1999.
Comparing the net revenues from the last three quarters of
1999 with the last three quarters of 1998, domestic long-distance
revenues rose 12.6% to R$2,278.7 million from R$2,024.1 million
1998. This increase corresponded to a full-year growth of
9.9% in minutes to 15,967 million minutes in 1999 from 14,526
million minutes in 1998. Domestic long-distance minutes for
the last three quarters of 1999 increased 10.7% to 12,189
million minutes from 11,006 million minutes in the last three
quarters of 1998. This growth was attributable to our entry
into the intrastate long-distance market following the start
of a partially competitive environment on July 3, 1999 (carrier
selection through the PIC code plan). As of that date, we
were also able to recognize the full amount of revenue from
long-distance calls from fixed regional lines to cellular
lines. The combination of these two factors resulted in a
R$130 million increase in revenues in 1999, which was partially
offset by reductions in "900" services revenue of
R$37 million, a service that we no longer offer.
International long-distance telephone service. Net
revenues from international long-distance voice services increased
9.4% to R$971.9 million in 2000 from R$888.3 million in 1999,
which in turn represented a 14.2% increase from R$778.1 million
in 1998. International long-distance revenues are subject
to unusually high taxes in Brazil which tend to motivate customers
to seek illegal means of completing their international voice
calls such as call-back services, which avoid taxation in
Brazil. This resulted in a higher growth of in-bound international
traffic of 35% compared to outbound traffic growth of only
8%.
In general, value-added taxes (ICMS) on international long-distance
services increased from 13% in early 2000 to 25% by June 30,
2000. While these tax rate increases do not affect our net
revenue after taxes, they increase the cost of long-distance
telephone services to our customers, reducing demand for these
services. To compete with the call-back services and other
competitors, we have developed focused marketing programs
for certain regions of the country that have significant amounts
of international traffic along with incentives to certain
countries. However, we expect that this trend will continue
and that it will be difficult to sustain growth in international
long-distance voice revenues. International revenues will
continue to face strong price pressure. The settlement rates
introduced in 1999 offering different rates depending on the
geographic destination of the calls within Brazil continued
to contribute to growth in 2000. The total increase in volume
was offset in part by continued reductions in pricing and
discounting of services in response to competition.
Comparing 1999 to 1998, international long-distance net revenues
for the last three quarters of 1999 increased 1.0% to R$673.9
million, compared to R$667.5 million in the last three quarters
of 1998. This minimal increase in 1999 compared to 1998 was
attributable to declining settlement rates, which resulted
in a reduction of in-bound revenues of R$9 million offset
by a slight increase in out-bound revenues of R$16 million.
The settlement rates introduced in the second quarter of 1999,
that varied depending on the geographic destination of calls
within Brazil, helped mitigate this decline in in-bound revenues.
Other telecommunications services. Net revenues from
other telecommunications services, which includes revenues
from the transmission of television and radio, clearing-house
services, telex and mobile satellite communication services,
decreased 10.5% to R$215.6 million in 2000 from R$240.9 million
in 1999, which in turn represented an increase of 16.9% from
R$ 206.0 million in 1998. The decrease in 2000 was due primarily
to declines in value-added and clearing house services, whereas
the increase in 1999 was due primarily to temporary growth
in the clearing house services.
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