Has Tim changed its strategy in 2008?
Tim and Oi lead cellular growth in the first 4 months of the year with net adds of 1.8 million cellulars, against 1.4 million of Claro and Vivo (more details).
The net adds of Tim in the 1st quarter of 2008 (1Q08) was 42.7% more than 1Q07.
| Tim | 1Q07 |
1Q08 |
∆ 12 months |
Market Share |
25.80% |
25.90% |
0.1 p.p. |
Cellular (thousands) |
26,307 |
32,533 |
23.7% |
Net Adds (thousands) |
896 |
1,279 |
42.7% |
Share of net adds |
40.2% |
26.5% |
-13.8 p.p. |
Note: p.p.= percentage points
Tim's cellulars base grew 23.7% (1Q08/1Q07), but its net revenue only grew 5.3% in the same period of time. It's income indicators (EBITDA, EBIT and Profit) also decreased.
What happened with Tim's ARPU in the 1Q08?
Tim had in the 1Q08 improved its operational indicators as MOU, Churn, SAC, but its ARPU decreased 14.2% compared to 1Q07.
| Tim | 1Q07 |
1Q08 |
∆ 12 months |
ARPU (R$) |
34.4 |
29.5 |
-14.2% |
MOU (minutes) |
89 |
94 |
5.6 % |
Churn |
2.90% |
2.60% |
-0.8 p.p. |
% Pre-Paid |
78.4% |
79.2% |
0.8 p.p. |
| SAC* (R$) | 124 |
117 |
-5.6% |
| SAC/ARPU (months) | 3.6 |
4.0 |
- |
* Acquisition cost of clients (SAC)
Despite the acquisition cost of customers (SAC) has fallen from R$ 124 in 1Q07 to R$ 117 in 1Q08, due to economies with costs of advertising and commissions, the SAC/ARPU increased. The average time to recover the investment in the purchase of 1 customer increased from 3.6 to 4 months.
Tim's ARPU, which remained stable in 2007 and closed the year at R$ 34.5 (4Q07), fell to R$ 29.5 in 1Q08.
Tim, in its disclosure of results, presented the following causes for the drop in ARPU in 1Q08:
Increased penetration in the low-income population.
The fall of ARPU appears to have been influenced more by the first two items that the increasing penetration in the low-income population. Increased participation of pre-paid cell phones based on Tim is also related to the fact of having submitted post-paid net additions in 1Q08 negative (-12.5 one thousand cell). The percentage of pre-paid cell phones (79.2%) by Tim remains, however, lower than the average Brazil (80.9%).
The following table shows that the low growth in revenue of Tim is related, mainly, to a fall in the revenue of network use (interconnection) and in the revenue with appliances sales. Tim increased the allowance for appliances in the segment of post-paid "premium".
| R$ millions | 1Q07 |
1Q08 |
∆ 12 months |
Subscriber/usage |
1,696 |
1,952 |
15.2% |
Network use |
1,112 |
1,101 |
-1.0% |
Data/Vas |
253 |
327 |
29 % |
Long distance |
463 |
489 |
5.7% |
| Others | 21 |
27 |
28.5% |
| Revenue of service | 3,546 |
3,897 |
9.9% |
| Revenue of devices sale | 349 |
322 |
-7.9% |
Despite the aggressive promotion of traffic, the revenue of usage grew 15.2% in the last 12 months. The revenue of interconnection (using the network) had dropped by 1.0%. This is an indicator that there was a reduction in traffic (calls from other operators).
The promotions of cheaper minute for calls between customers of a same operator are affecting the profile of traffic and causing reduction in revenue for the interconnection of operators.
Vivo was the only operator not to submit drop in revenue of usage of the network in 1Q08 comparing to 4Q07. However, its in ARPU fell from R$ 13.7 in 4Q07 to R$ 13.3 in 1Q08.
How to explain the decrease in the profit?
The unpayments was given by Tim as the main cause for the worsening of their indicators of profitability.
Tim's EBITDA margin presented at that time two heavy falls (3Q07 and 1Q08) associated with increases in bad debts, unpayments, (6.2%% and 6.4% respectively).
In the 3Q07 Tim discovered a flaw in the system for collecting sales of appliances, which resulted in a reduction of R$ 275 million in "accounts receivable".
In 1Q08, the provision for bad debts (PDD) was impacted by the failure of teleshopping channel. Without this effect the EBITDA margin would be 21.1%, and not 17.9% as reported, but still below the average of Brazil which was 27.9% in 1Q08.
What will be Tim's performance in the 2Q08?
Tim in 2Q08 is maintaining the same pace of growth shown in 1Q08. In Mar/08 it has launched new offers for pre-paid segment as the "Tim is 10" and "express credit". The end of the period for promotional packages of minutes can help, however, to improve the operator's ARPU this quarter.
Tim may also present an improvement of their indicators of profitability, with the necessary improvement of credit and collection processes.
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