in Brazil

How to set up or make your business profitable using mobile technologies through cell phones in Brazil
1

Companies partiCipating in the projeCt

Purebros, which has been elected the best Brazilian integrator company in the VAS segment, is authorized with all mobile telephony operators in Brazil, which optimizes project implementation. It deals with content providers integration, either through subscription or downloads, interactivity, mobile marketing and WAP billing. It has offices in So Paulo, Rio de Janeiro, Porto Alegre (Brazil), Rome (Italy) and Mexico City (Mexico), and has 5 years of experience, relying on a highly qualified team. www.purebros.com +55 (11) 5102.4692 - 5102.2612

Comunika has been active in the mobile business market since 2001, offering complete services that enable you to send and receive text messages from all over the country. It is a real time monitoring tool, which controls the database and contacts in their entirety, as it can be integrated to the companys system. www.comunika.com.br | +55 (11) 5103.1609 - 5505.0501 F.Biz, a reference company in mobile advertising in Brazil, is constantly looking for new inventories and market opportunities in the mobile market. Along that line, they are concerned about making those channels a high-quality initiative, by means of analytical intelligence and focus on results. www.fbiz.com.br | +55 (11) 3525.5300 CFLA Advogados is the attorney office resulting from the fusion of two renowned offices in So Paulo, specialized in Entertainment Law, Media, Technology and internet. Operations in several associations, such as MEF Mobile Entertainment Forum, MMA Mobile Marketing Association and AMPRO Associao de Marketing Promocional (Association of Promotional Marketing) ensure its prominence in legal issues related to those markets. www.cfla.com.br | +55 (11) 3512.8200

in Brazil

For any of the 190 million brazilians this is an unique moment in the history of Brazil.

We witness, specially the elder ones, a secret and old Brazil fade away. A country of inequalities, differences and imaginary boundaries that are now being broken. This unequal and devalued Brazil closes its cycle and enters the pages of history. As the government of President Fernando Henrique Cardoso regulated the economy, the government of President Lula inserted the gross population into the active society. With this combination we see and live the great social-economic evolution of this country. The poor ones are now clients, the less favored ones are now consumers. The growing economic results of Brazil speaks for itself. In all areas we see a positive wave: sales, jobs, opportunities, business, travels, tourism, telecom, digital access, exportations, etc. This success of the last years allows the country to aspire something that would have sounded void: to end poverty today is an objective that we can (and will) achieve. Brazil can be the first country to develop itself in a sustainable way, without destroying its nature and well exploring its rich biodiversity. This country is a sum of dreams, loves and creations that makes this nation the result of incalculable wealth. Brazil can and will be much more. The mobile telecom is today, with its 217 million habilitated lines the best way to access this Brazil. With its average growth of 16,6% per year it is consolidating itself as the best form of rapid access to the new group of consumers with prompt purchase desires. Purebros, a brazilian company connected with all the mobile operators, integrates your business to 97% of the existing devices in Brazil via SMS making communications, sales and businesses viable. Brazil passes through here. Brazil also grows here. We are not ephemeral to think that the future has arrived or it is guaranteed. There are a lot to do to sustain this growth and have a better future in the mid-long term. Education, infrastructure, security, bureaucracy, distribution, among other things are points that need work. And we are working. Today we dont have all the answers of how Brazil will be. What we do have is a nation with the right questions and de firm desire to do more. We, brazilians from Purebros are a part of this growth. By believing in Brazil we will work to integrate your businesses through telecommunications. We do that because this is our business: believe in Brazil and make dreams viable.

Fernando Dias
CEO Pure Bros

This document is intended to present a general overview of the Brazilian cell phone market for foreign investors who are interested in getting to know the market in Brazil. In that respect, the study was divided into four analysis groups: historical context of the Brazilian economy and telephony, analysis of the Brazilian mobile telephony market, analysis of the Brazilian Value Added Service sector (VAS) and, ultimately, Brazilian regulations in the sector of VAS and general guidelines on how to set up a business in Brazil.

Introduction to Doing Mobile Bussiness Brasil

In the historical context, an analysis of the Brazilian macroenvironment through a brief overview of the current economic conjuncture of the country has been proposed, as well as an analysis of the Brazilian telecommunications market, with a brief historical contextualization since the 1970s up until the present. When it comes to the analysis of the Brazilian telephony market, an overview of the infrastructure of the Brazilian telecommunications, mobile telephony statistics, history of the number of market share users of telephone companies, gross revenue and ARPU, a ratio of the number of pre-paid and contract cell phone lines have been presented. On the other hand, when analyzing the VAS Brazilian sector, the market has been put into context when looking at the most popular entertainment and interactive activities among Brazilians, the negotiation modes practiced in Brazil, the average prices Brazilians are willing to pay for the services and market innovations and evolutions. And lastly, when we looked at the legal regulations of the telecommunications market in Brazil, we presented some regulatory initiatives of the VAS market and a step-by-step guideline to help foreign investors set up a business in Brazil, from company registration to the necessary fees and documentation.

Brazilian maCroenvironment
The Brazilian economy grew 7.5% in 2010. In numbers, the Brazilian GDP has reached BRL3.765 tri. The GDP (Gross Domestic Product) per capita was BRL19,016 last year, presenting an increase of 6.5% when compared with the 2009 figures (BRL16,634).

Macroenvironment, infrastructure and statistics

Brazil was confirmed investment grade on April 30, 2008 by the credit rating agency Standard & Poors. The country was among the countries that presented speculative grade and its grade was BB+. Brazil moved from BB+ to BBB-, that is, it managed to reach the highest grade for speculative grade to the lowest grade in investment grade. Early in the 1990s, the government changed its strategy towards the Brazilian economic plan, when launching the Plano Real, which has brought stability and growth to the country in the long term. Brazil is currently enjoying the best economic moment of the previous decades, experiencing an unprecedented combination of internal investments (increase in the share of Gross Fixed Capital Formation) and external ones (foreign investment) in the productive chain of consumption goods coupled with the increase in consumption levels and in the populations per capita income. Brazilian investments grew at a proportion of 21.6% in 2010, when compared with the previous year. That was also the best performance of the historical series initiated with the Plano Real. Those investments are the results of the evolution of the consumption market into a global scale, which eventually drew more foreign capital that relied on an emerging stock market. In addition to increasing the production capacity of goods and services, the evolution of the investments will guarantee the expansion of the industrial sector and a sustainable economic development. In 2009, by virtue of the global economic crisis, the measures taken by the government, such as the reduction of IPI (Industrial Products Tax), reduction of bank compulsory fees and the drop in the interest rates enabled the Brazilian economic performance to exceed the average of that of emerging markets in the period. In the year that followed the crisis, an increase of 7.5% of GDP was reported, the highest growth in 25 years. Out of that total, the biggest share is attributed to household consumption, as families were accountable for 60.6% of the sum of all goods and final services produced in Brazil. Thus, we can reckon that most Brazilians remained largely unaffected by the crisis and, better, the lower classes keep rising. Social mobility has been exerting significant changes in the Brazil-

ian internal market, due to the change in the consumers profile, who now want to enjoy their lives as middle class individuals. In terms of Brazilian per capita economic growth, we can state that approximately 25 million Brazilians have moved from the bottom to the middle of the social pyramid commonly known as C Class since 2002. From 2003 to 2009, the C Class reported an increase from 42% to 53%, encompassing 103 million inhabitants. Still, we can notice that the unemployment rates have fallen over the last decade. Between 2000 and 2009, the number of public and formal* jobs grew 57%, which represents an average rate of annual growth of 5.1%, from 26.2 million to 41.2 million citizens. Due to those factors, we can notice a significant increase in the income of Brazilians, which in its turn, expands the potential for consumption by C and D classes. This niche represents a market that is worth BRL834 bi, as per a survey conducted by Data Popular Institute. In 2010 alone, the C class consumed 41.35% of the overall total of goods and services in urban areas; whereas in 2002 it was accountable for 25.8% of those figures. Emerging consumers hold 69% of credit cards issued besides counting on a broader access to bank loans. The extension of payment terms and the drop in interest rates of operations, along with the strengthening of the Brazilian economy, have propelled credit demand, both by individuals and companies. Credit granting for final consumers had an increase of 19.1% alone, in particular in operations that give larger tangible guarantees for creditors: acquisition of property, leasing and personal credit. In addition to that, the economic stability attained by the fulfillment of inflation goals, has enabled price predictability and solidity in the financial system, since 1994. With these figures, the publics confidence has increased as well as the attention that Brazil has gained in the international scenario. Future prospects are favorable and foresee an increase in investment and technological improvements, potential output growth, job generation and productivity.

moBile teleCom: maCroenvironment

History of Telecom
Unlike other countries, such as the United States, Brazil started developing the telephony market in the 1970s, when the government created Telebrs (Telecomunicaes Brasileiras S.A.), with the purpose of triggering the infrastructure of Brazilian telephony. It was a joint enterprise, which allowed for private companies to explore the market and, also, help implement a general policy of telecommunications established by the Ministry of Communications. In the mid-1980s, Brazil launched its first communication satellites, BrasilSat I and BrasilSat II, enabling a complete integration of the Brazilian territory, taking telephone, telegraph and television signals to all parts of the country. In that decade, the process of incorporation of telephone companies took shape, and Telebras became responsible for the operation of more than 95% of all telephone numbers in service and only 5 companies that did not belong to the Telebras System would be in charge of the remainder. In the 1990s the Brazilian government decided for the implementation of the National Telecommunications Agency (ANATEL Agncia Nacional de Telecomunicaes) so that Brazilian telecommunications policies could be regulated, such as: mobile and fixed telephony, TV channels, radio broadcasting and other telecommunications services. This neutral channel is intended to discuss the best policies and laws that have taken effect on the citizens behalf and improvements in the telecommunications market. Again in that decade, the government privatized Telebrs, opening the Brazilian telephony market to foreign investors. Consequently, Brazil saw the arrival of cell phones. They would soon become popular, generating a consumption wave for mobiles. At that time, the growth was only stopped by the cost of the cell phone devices and the rates since they were both overly expensive for the Brazilian standards. In the first decade of the 2000s, cell phone companies engaged in seeking alternatives for keep their ARPU (Average Revenue Per User) in a process of constant evolution. In that favorable scenario, telephone companies opted for the differentiation through the Value Added Service (VAS), paving the way for integrator companies and content providers. The VAS initiated a new market niche, making one more media channel available to take entertainment and interactivity to Brazil.

Formal jobs: the hiring company registers the employee in a governmental agency and, in addition to the salary, it should pay security charges of around 68% of the employees base salary every month. Thus the employee is granted the benefits provided in the Brazilian Labor Law.

From 2010 on, ANATEL has allowed the introduction of MVNO (Mobile Virtual Network Operators), thus, new ways to explore the
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mobile telephony market have emerged. We intend to expand PMS (Personal Mobile Service) provision, boost competition and the range of services says the president of ANATEL, Ronaldo Sardenberg.

Future Prospects
The telephony market is currently heated, divided into seven operating companies, which boosts a fierce competition and bring benefits to the mobile telephony users. Such benefits as the cost of calls and the offer of new services tend to improve, with the purpose of increasing the Average Revenue Per User (ARPU). According to Mundo Mvel Portal, major fusions between mobile and fixed telephony companies will be carried out throughout 2011. One of them concerns the fusion between Vivo and Telefnica, and the other, is the consolidation of the Amrica Mbil companies in the country (Claro, Embratel, Net), concentrating the offer of services in one company only. Nextel is getting ready to enter the cell phone market (the company now only works with paging), after it acquired 11 out of 13 franchise allotments of 3G frequency spectrum in the ANATEL bidding, offering USD707 million. Teletime portal has announced that Tim will invest BRL8.5 billion within the three-year period from 2011 to 2013, in that 85% will be spend on infrastructure. Out of that total, about BRL2.4 billion will have been spent in 2011. According to the portal, Tim intends to expand the TRX set up base, an instrument that is accountable for the expansion in capacity of the traffic of antennas, in about 130%, and set up BTS (radio stations), network elements that are accountable for the expansion and the improvements in the signals coverage, besides the replacement of 8,300 BTS with more advanced technology.

sion. The aerial system is comprised of all tools necessary for the appropriate installation of radio stations (ERB): tower, antenna, waveguides, connectors, pressure system and energy system and grounding, as well as the aid of satellites. According to the ANATEL 2010 report, there are currently 50,300 antennas (ERBs). This number has been continuously growing due to large investments, especially on the expansion of 3G signal services by telephone companies until the FIFA 2014 World Cup, which will be held in Brazil.

Number of Radio Stations in Brazil*

Region* I II III Total Banda A B D E Outras Total 2008 19.807 12.809 10.232 42.848 2007 11.078 9.339 9.756 6.009 36.182 2009 21.261 13.485 11.190 45.936 2010 23.101 14.355 12.144 49.600
1st Quarter/11

May/11 23.545 14.677 12.448 50.670

23.291 14.533 12.231 50.055 May/08 11.270 9.625 10.036 6.154 89 37.085

Apr/08 11.272 9.587 10.039 6.098 36.996

2nd Quarter/08

11.343 9.646 10.051 6.190 262 37.230

Source: ANATEL

Brazilian teleCommuniCations teChnology and infrastruCture

The Brazilian telecommunications infrastructure is divided into terrestrial and aerial, thereby covering the entire national territory. Throughout the years, investments in infrastructrure have been monitored by ANATEL, which stipulates goals for the companies that are interested in telecommunications services in Brazil, thereby contributing for proportionate numbers between demand and supply in the sector.

Technology
The adoption of new Technologies in the mobile telephony sector and the extinction of others demonstrate that the Brazilian market is evolving in order to provide high quality communication services. GSM is the most widely used technology used in Brazil, with 87.76% of all accesses. However, from 2009 to 2010, there was a significant growth in the use of WCDMA technology, an increase of almost 5% from 2009 to 2010. This evolution mostly reflects the expansion in the
*

Aerial infrastructure
Aerial infrastructure includes mobile telephony, radio and televi12

Region I: Rio de Janeiro, Esprito Santo, Minas Gerais, Amazonas, Roraima, Par, Amap, Maranho, Bahia, Sergipe, Piau, Cear, Rio Grande do Norte, Paraba, Pernambuco, Alagoas. Region II: Paran, Santa Catarina, Rio Grande do Sul, Mato Grosso do Sul, Mato Grosso, Gois, Distrito Federal, Tocantins, Rondnia e Acre. Region III: So Paulo.

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use of mobile telephony in Brazil. Check out the breakdown of accesses by type of technology in the graph below.

3G (WCDMA) technology coverage (by population) in Brazil

Company 2008 48,0% 50,3% 19,3% 27,3% 1,1% 0% 58,8% 2009 60,7% 54,5% 27,3% 41,7% 1,2% 0,3% 64,6% 2010 71,5% 55,6% 45,2% 43,9% 1,2% 0,3% 72,6%
1st Quarter 2nd Quarter 2011 2011

Breakdown of Accesses by Type of Technology

2009 2010

Vivo Claro Tim Oi (along with BrT) CTBC Sercomtel Total

73,4% 55,9% 46,5% 44,3% 1,3% 0,3% 74,1%

74,6% 56,1% 46,8% 44,3% 1,2% 0,3% 75,4%

Note: the numbers for December/2010 takes in consideration the numbers of the 2010 IBGE Census

GSM 90,01% CDMA 4,83% Data only terminals 2,63% WCDMA 2,35% TDMA 0,18%

GSM 87,76% CDMA 2,06% Data only terminals 2,97% WCDMA 7,20% TDMA 0,01%

3G technology has outnumbered fixed internet in terms of numbers of users and as the prices go down, more Brazilians will adopt 3G. The number of smartphone users keeps growing, showing that Brazilians are open to new technologies, especially those related to mobility.

In 2007, ANATEL and cell phone companies reached an agreement that establishes that the entirety of all cities whose population ranges from 100,000 and 200,000 inhabitants will have to be covered by 2013. This agreement has boosted the arrival of broadband to the mobile telephony users, thus contributing for the acceptance of mobile internet by most users, especially because traffic can be controlled by applications. Besides that, there are prepaid plans for mobile internet.

3G Access through phones

When we look at 3G access, we can notice that this segment is closely associated to each companys market strategy. Telephone company Claro had a strong impact concerning the availability of 3G through phones in Brazil, since by means of partnerships with manufacturers, it offered 3G phones with a competitive price and, consequently, users who chose phones with a lower price would end up signing a loyalty contract with the company.

Mobile Internet access in Brazil

The sum of the number of mobile Internet accesses of smartphones and 3G modems has exceeded 8.7 million (2009) to 20.6 million at the end of 2010, figures that are approximately 50% higher than the number of fixed broadband connections. As to the market, the share of 3G phones reached 7.2% in December 2010. Modems, however, accounted for 2.96% of market share.* An important factor for the adoption of 3G by Brazilians is the availability of technology for the users. Today, 3G (WDCMA) technology covers 75.4% of the population.

Market Share of 3G Phone Accesses

42,5% 29%

46,7% 30,28% 18,49%

42,23% 29,25% 24,83%

40,13% 31,06% 24,41%

42,96% 31,84% 20,66%

44,78%

31,51%

14,2% 13,93% 0,57% 0,004%

4,32% 0,20% 0,004%

3,51% 0,18% 0,004%

4,25% 0,16% 0,005%

4,39% 0,14% 0,008%

3,96% 0,13% 0,009%

* Survey published by the Brazilian Telecommunications Association (Telebrasil), a company that represents private telephony companies.

2009

2010

1st Quarter/11

2nd Quarter/11

3rd Quarter/11

Oct/11

14

Source: Teleco

19,62%

Vivo Claro TIM Oi CTBC Sercomtel

15

In the graph above, we can notice that Claro was the leader in the 3G market share accesses through phones in 2010, securing the top spot in this segment in that year. However, in 2011, it had to slow down its 3G expansion strategy due to the low investments in infrastructure, which compromised the signals quality. On the other hand, Tim made an impact into this market by offering 3G plans through prepaid cell phones and making old versions of smartphones available. In addition to that, Tim has invested in infrastructure improvements so that the quality of 3G signal is in line with the increasing adoption of this technology.

Furthermore, Tablets started to pop up in the Brazilian market in 2010. According to IDC, 100,000 tablets were sold that year, including the percentage that has been imported illegally or brought from abroad. The low number of tablets in Brazil is a reflection of their high prices, which ends up turning most Brazilians away from it. The performance of the Brazilian mobile telephony market seems to have been largely unaffected by the low rate of acquisition of smartphones and tablets; as per the data published by ANATEL, the density of SMP accesses has doubled in 5 years.

moBile telephony statistiCs

Mobile devices (smartphones, cell phones and tablets)
The search for mobile devices has been growing all over the world, and this is largely due to the popularization of 3G internet and the easy access to electronics. In Brazil, according to Nielsen, in April 2010, the percentage of regular cell phones sold was 87% and the smartphones was 12.9%. When analyzing the growth graph below, we can notice that in the first semester of 2010, the potential growth of smartphones in Brazil was high.
0,2 0,2 0,2 0,3 0,4 0,5 0,6 0,7 0,8 1,1 1,5 1,5 1,8 1,6 1,8 2,4 3,6 5 5,2 6,2 8,2 7,4 7,9 9,4 9,8

Mobile Accesses in Operation and Density in Brazil

Month/Year Jan/2007 Jan/2008 Jan/2009 Jan/2010 Jan/2011 Oct/2011 Number of Accesses in Operation 100.717.141 151.949.077 175.599.260 205.150.977 231.633.520
(accesses by 100 inhabitants)(*)Brasil

Density 54,41 79,79 91,33 105,74 118,62

data not published by ANATEL

1,5 1,5 1,3 1,4 1,4 1,7 2,5 2,4 2,7 2,5 2,6 2,8 2,2 1,7 2,1 2,1 1,7 1,9 2,1 2,4 2,9 2,9 3,2 3,1 3,1

Evolution of Personal Mobile Service Access (in millions)

202,9 173,9 150,6 120,9

98,4

98,4

98,5

98,3

98,2

97,6

96,8

96,9

96,3

95,9

95,6

96,7

96,2

95,5

94,7

93,1

92,7

91,5

88,9

89,7

88,9

96,5

87,5

96

87

65,6 23,2 28,7 34,9 46,4

86,2

99,9

Abr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Abr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Abr 08 08 08 08 08 08 08 08 08 09 09 09 09 09 09 09 09 09 09 09 09 10 10 10 10
Regular cell phone Smartphone T2

7,4

15,0

1998

1999

2000

20091

2002

2003

2004

2005

2006

2007

2008

2009

2010

On the other hand, Gartner has published that smartphone sales in 2010 grew at 279% in Brazil, making it the largest-growing category among mobile devices. These data raise interest in smartphone manufacturers, since such devices are at an average price which is 271% higher than other cell phones. Though the number of smartphones has grown drastically in Brazil, those devices are available to only 10% of mobile telephony users in Brazil. Therefore, the actions involving smartphone technologies reach the minority of the population. Contrary to that, SMS actions comprehend the total number of users of mobile telephony.
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Today, the Brazilian mobile telephony market is split among 7 companies: Vivo, Claro, Tim, Oi, CTB, Sercomtel and Aeiou. In October 2010, Brazil reported one cell phone line per inhabitant. In January 2011, according to data from ANATEL, mobile lines reached a number of 210.5 million people. According to Mundo Mvel Portal, Brazil is the sixth biggest telephony market in the world, as China tops up the ranking with 900.39 million users. With the growing number of users, the competition among the companies gets fierce. When analyzing their market share, we can also notice the reflection of that competition in the Brazilian market.
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Market Share of VAS companies

The companies market share is a reflection of the benefits the competition brings to the market, such as improvements in the quality of the services provided, customer service and quest for innovations. When looking at the Brazilian market, we can notice how balanced the companies market share is, which has required new market strategies. This scenario contributes to the reduction of costs in the voice market and the intensification of VAS market as a competitive increment. The portability law has paid a huge contribution to that competition. From 1997 on, ANATEL sanctioned the access code portability, where the user would become the owner of the line number, thus being able to choose which company to contract.

Statistics, Gross Revenue and ARPU

The Brazilian telecommunications market has shown good numbers over the last three years, keeping the companies revenue growing at a constant pace, even with strong competition. This leads to a moment of market evolution, thus providing a great moment for new businesses options. In the graphs below we can notice that despite the fall in the ARPU of the most important companies throughout the period of 4 years, the gross revenues of those companies have increased. To keep the revenue growing at a constant pace and try to stabilize or increase ARPU, the companies are investing in complementary services to voice, aiming at the growth in the VAS market.

Market Share of the Companies (Percentage) (preliminary data)

Company 2008 29,84% 24,17% 25,71% 19,91% 0,30% 0,06% 0,01% 2009 29,75% 23,63% 25,52% 20,73% 0,31% 0,05% 0,01% 2010 29,71% 25,14% 25,44% 19,35% 0,30% 0,04% 0,01%
1Q11

2Q11 29,47% 25,55% 25,55% 19,10% 0,30% 0,04%

*

3Q11 29,49% 26,04% 25,30% 18,84% 0,30% 0,03%

*

Oct/11 29,61% 26,00% 25,20% 18,86% 0,29% 0,03%

Gross Revenue
Banda Vivo Tim Claro Oi 2008 22,212 18,321 16,363 10,037
Source: Teleco

0,00% 0,00%* 0,00% Cell phones 150.641 173.959 202.944 210.510 217.346 227.352 231.634
*Aeiou has not disclosed part of its data to ANATEL

Vivo Claro TIM Oi CTBC Sercomtel Aeiou

29,48% 25,11% 25,39% 19,69% 0,30% 0,04% 0,01%

2009 23,068 19,013 15,789 12,666

2010 25,717 20,319 not available 14,666

ARPU (BRL)
BRL Vivo Claro TIM Oi
1st Quarter 2nd Quarter 3rd Quarter 4th Quarter 1st Quarter 2nd Quarter 3rd Quarter 2010 2010 2010 2010 2011 2011 2011

Market Share of the Companies (Percentage) (preliminary data)

42,5% 29,6% Source: Teleco, Dec/2010 25,9% 25% 25,5% 25,2%

24,8 20,0 24,0 21,8

25,0 20,0 24,2 22,4

25,3 19,0 23,5 22,9

25,9 18,0 23,3 23,5

24,6 18,0 20,8 20,7

25,1 17,0 21,6 21,6

26,2 17,0 21,2 22,2

19,5% 17,9%

Vivo Claro TIM Oi

Note: The average Revenue per user is calculated by a division of the net revenue of services by the average number of cell phones in the period and by the number of months of the period.

2007

2008

2009

2010

Feb/11

ARPU growth numbers and revenue:

Portability has brought freedom of choice to users, so if the user deems it necessary to switch to another company due to the cost-benefit ratio, he will not hesitate to do so. Fees tend to go down and so, in order to draw new clients and retain
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With a balanced market share, regarded as something positive for the market, it is necessary to check the impact of the competition in the gross revenue and ARPU of cell phone companies to confirm whether the market is growing or stalled.
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the current ones, a reduction of fees will be essential. The increase in the number of mobile telephony users has helped keep the gross revenue of the companies growing. A common trend that can be observed in the Brazilian market is that one person can own more than one line, each line being of a different company, due to promotions between services from the same company, thereby reducing the telephony spending. Customer loyalty programs are rising in Brazil; companies are establishing partnerships with other sectors, especially entertainment, such as movies, restaurants, trips, etc., in order to offer benefits to their clients. An impacting factor to the companies revenues is the number of mobile lines and the ratio between contract and prepaid plans, which should be considered so that one can have a broader view of the market.

Company

2008 15,88% 32,01% 21,54% 18,53%

2009 14,50% 35,41% 23,89% 17,45%

2010 13,38% 35,28% 25,64% 17,66%

1Q11 12,82% 35,21% 25,11% 17,82%

2Q11 12,97% 34,96% 24,38% 18,15%

3Q11 12,60% 35,47% 25,05% 18,36%

Oct/11 12,56% 36,05% 25,04% 18,38%

Oi CTBC Sercomtel
Cell phones

In order to increase their ARPU, companies create opportunities for prepaid customers to switch to contract plans, stipulating the regulations that limit the use of prepaid plans and, consequently, forcing them into contract plans. Some of the limitations are: Reduction of the time spam between two refills to an average of 60 days; the service may be suspended after that; Fees are higher for prepaid plans if compared with those of contract plans; Prepaid users do not enjoy the same benefits contract plan users do, such as benefits club, free-of-charge phone to users, etc. However, most mobile telephony users in Brazil prefer prepaid plans, since the per capita income of most Brazilians is around BRL16,414.00 a year. So, they prefer not to take on a fixed expense and choose prepaid plans though the fees are higher than contract plans. Nonetheless, there are promotion policies that govern the use of prepaid cell phones in relation to free text messages and free calls between numbers from the same company, within a pre-established period, with the purpose of encouraging the use of mobile telephony services. This will consequently make users switch from prepaid to contract plans.

Ratio of contract and prepaid lines

Most Brazilians prefer prepaid cell phones, especially those users who purchase their first cell phone line and cannot afford to pay a contract line, mostly because they want to have control over their spending.

Prepaid numbers in the overall number of cell phones by company

Company 2008 80,95% 81,93% 79,76% 84,12% 67,99% 78,46% 100% 81,47% 2009 81,09% 84,28% 80,47% 85,50% 64,59% 76,11% 100% 82,55% 2010 79,05% 85,34% 80,16% 86,62% 64,72% 74,36% 100% 82,34% 1Q11 78,54% 85,43% 79,55% 87,18% 64,79% 74,89% 100% 82,18% 2Q11 77,77% 85,56% 79,19% 87,03% 65,04% 75,62% 100% 81,85% 3Q11 77,09% 85,39% 79,01% 87,40% 64,53% 74,95% 81,64% Oct/11 77,18% 85,26% 78,95% 87,44% 63,95% 74,96% 81,62%

Vivo Claro TIM Oi CTBC Sercomtel Aeiou

Cell phones

Contract numbers in the overall number of cell phones by company

Company 2008 19,05% 20,24% 18,07% 18,53% 2009 18,91% 19,53% 15,72% 17,45% 2010 20,95% 19,84% 14,66% 17,66% 1Q11 21,46% 20,45% 14,57% 17,82% 2Q11 22,23% 20,81% 14,44% 18,15% 3Q11 22,91% 20,99% 14,61% 18,36% Oct/11 22,82% 14,74% 21,05% 18,38%

Vivo Claro TIM

Cell phones

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Brazilian vas: maCroenvironment

As companies have sought to increase their ARPU by offering unique services to their users, opportunities for the Value Added Service (VAS) have come up, with the intent of making entertainment and interactivity available through cell phones. The socialization behavior of Brazilian users who look for entertainment also encourages investments in this sector. Content providers are constantly raising awareness to the profitability of VAS and, at the same time, companies are paying special attention to projects in that area. The VAS market counts on three parties: the content provider, the integrator and the operator company. The three companies must work together through service exchange, as one provides services to another. Media convergence has brought to the market several platforms as forms of communication between the diverse segments. Soon, mobile telephony was realized as one of those platforms, but the operator company would not afford to provide support to this kind of service, due to the initial modest demand. Thus, the Brazilian market was introduced to the integrator company, which started to provide support and technology for the use of the operating platform, including telephony as a media channel. In Brazil, the most important integrator is Pure Bros, which is authorized to work with all Brazilian operator companies and assists project approval, observing ANATEL regulations and providing several reports for the monitoring of the project. The integrators main role is to provide technology services to content providers so that they can spread and monetize their contents. Content providers are, in their turn, responsible for providing content to integrators so that they can make it available to operators that provide it to mobile telephony users. Content channels, ringtones, wallpapers, social games, among others are among the contents that are offered. The most important content providers in Brazil are Playphone, Hanzo, Gameloft and Leomobile. There are major communication vehicles that become providers, offering their content in different formats (print, television, digital and through cell phone). It is important to highlight that the operators should be authorized by ANATEL to explore content through cell phones so that they can be made available to users. So, the companies managed to create a profitable business model for both parties, making their platform available as a convergence means without worrying about the provision of technology and content.
Teletext QUIZ News Channel PIN Code Menu Downloads

Final User

Voting

Offer Campaign

X-Filling

MO MT

Pure content

Purebros

National Operating Companies

An overview of the VAS market

The cell phone companies data revenue and VAS can be divided in three main components: SMS/MMS Internet access (data package) Other Value Added Services When it comes to internet access, the data packages for Smartphones, modems and other types of data terminals are included. They are analyzed in full detail in Infrastructure and technology. Among other Value Added Services that will be analyzed below, we could not obtain precise data for the companies, so, in order for us to have a broader view on the topic, we will look at the companies SMS traffic through Pure Bros data.

SMS has been growing in Brazil

SMS is the most widely used service and the one that presents higher growth prospects among the several services available in the VAS market in Brazil.
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In a study conducted by Acision in March 2011, it was observed that the average SMS texting numbers centered around 41 messages a month among surveyed Brazilians. It is well below the numbers of other Latin American countries, such as Venezuela, whose monthly SMS average is 200; in Mexico, 130 and in Argentina, 100. Looking at graph below, we could notice that the number of users who do not use SMS is low, only 12% of surveyed people. When they were asked why they do not use the service, lack of interest appeared as the most common excuse, followed by the high cost.

SMS Future use Momentum

60
52,5%

50 40 30 20 10 0
12,1% 5,6% 3,6% 3,9% 3,6% 18,9%

Momentum

SMS use over the last 3 months

Impediments 13% 9% Frequency of use of SMS

Much more than today

More than today

A little more than today

Similar to today

A little less than today

Less than today

A lot less than today

78%
I am not interested in it The price is high Others
Source: Those who hardly ever use it and who do not use it at all

No 12%

Yes 88%

35,63% 35,91%

A practical example of that occurred in Northern Brazil, in a city in the state of Amazonas. SMS has replaced web messengers, due to the promotion of one operating company that offered 10,000 SMS free texts a month. As internet is unstable and 3G signals for mobile connection only arrived in the city in late 2010, SMS was the best way for the citys youth to chat with their friends*. Therefore, SMS use in the Brazilian market will present a strong growing tendency, as long as policies to encourage its use are created. In the first quarter of 2010, Pure Bros, the largest SMS integrator in the market, transported 495 million text messages.

28,46%
More than one SMS a day One SMS a day Hardly ever used SMS

SMS traffic by operators

Pure Bros data have been analyzed from January 2010 to March 2011 in order for us to have a broader general view on the SMS traffic in Brazil. This survey will not look at 3G percentages but SMS traffic only.
70% 60% 50% 40% 30% 20% 10%
mar/10 apr/10 sep/10 jan/11 jan/10 feb/10 may/10 jun/10 aug/10 nov/10 dec/10 feb/11 jul/10 oct/10 mar/11

Acisions survey shows that SMS use tends to grow strongly, since users intend to use the service more often. In the event that fees go down, it may even replace internet chat programs. The change of behavior concerning the use of SMS can be attributed to the reduction of texting costs. Growth prospects are huge in this sector, as per next graph, which shows that users are interested in keep using SMS as a means of communication.

TIM

Oi

Claro

Vivo

Outras

* Source: http://g1.globo.com/tecnologia/noticia/2011/05/no-viradao-torpedo-substitui-chat-internet-emcidade-no-amazonas.html

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In the above graph, we can see that the traffic between companies is more heterogeneous. Half of the traffic numbers from January to November 2010, when Oi aggressively got into this market, was transported by Tim. Claro has remained stable as its traffic numbers ranged from 15% to 20%, whereas Vivo went down about 10% in traffic numbers from September 2010 to March 2011, when it got back to the race for the third position against Claro.

2007

2009

2009 and1st semester 2010

Brasil Telecom

. Bank Services . Chatting application

Oi + Brasil Telecom
. Chat . Notcias SMS (SMS News) . Oi Agenda . Messenger no chip

Oi

SMS traffic overview

Claro and Vivo are giving special focus to 3G, making data available. Tim and Oi are increasing their ARPU through VAS initiatives, by means of SMS. While Vivo and Claro focused on 3G expansion, Tim was smart enough to explore the entertainment and interactivity market, which has contributed for the growth in its traffic numbers over the last year, while the other companies decreased.

. News Channels . Pegao . Quiz Prizes . Bate-papo (Chatting) . Oi Agenda

. Oi FM Interactivity

(Messenger through chip)

TIM

SMS Contents
From 2006 on, the VAS market accounted for 7% of the billing of Brazilian operating companies, including initiatives to increment this market, such as: ringtones, videos of the goals of the Brazilian Championship, Orkut via SMS, payment tool through the cell phone, information on Carnival and Soccer State Championships and some positioning services. From 2007 on, companies started to pull efforts to quantify the VAS market services through the VAS Guide, which was a Teletime initiative. The graph below shows the most profitable paid traffic services for the companies.

. Signature channel . Chat Blah . Bank Services . Games . Quiz

TIM

. SMS Channels . Chat Blah . Interactivity . Tim Agenda . Quiz

Tim SMS channels

. Interactivity . Tim Agenda . Tim Esportes (Sports) . Tim Caf

Vivo

. Interactivity . Auctions . Chat . Notcias (News)

Vivo

. Alerta SMS (SMS Alert) . Content download subscription . Match Maker . Promotions Quiz . Chat

Vivo
*

has not disclosed the data

2007

2009

2009 and1st semester 2010

By looking at the most sought after paid services, we can see a strong tendency to dating chats, news channels, promotional quizzes and services for contact list synchronization.

Claro

. Notcias Agora (Breaking News) . Quiz . Ego . Cupido . Messenger

Claro

. Quiz . Ego . Cupido . Notcias (News) . Messenger

Claro

a Brief desCription of the most sought after paid serviCes

Claro
Quiz: Quiz Prmios is a fun text message trivia game in which the participants run for prizes. There are several categories for you to choose from and play, and they are easily accessible through Menu Claro, by text messages or by the WAP Portal. The ranking with the best positions can be checked on the Claro website.

. Quiz . Notcias Agora (Breaking News) . Ego . Cupido . Senhor da Guerra (Lord of War)

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through SMS in which you can choose from which type of news you would like to receive: soccer, soap operas, erotic content, religion, latest news from the main newspapers, horoscope, variety, dollar and stock markets, airports, weather and sports.

Notcias Agora (Breaking News): subscription news channels sent

website, restores all numbers easily whenever they need and manages the contact list through an exclusive area, without the need for cables or downloaded software. Live Messenger available to any cell phones through its SIM chip. This application does not need to be installed in order for it to be used, since connection is established through the Mundo Oi menu, as the cell phone owner enters their email address and password.

Oi Agenda: users store the OI Chip contact list directly onto the Oi

Ego: Ego Premiado is a chat channel for flirting, dating, sports, study and work all available from your cell phone, through text messages or the GSM SIM Card menu. Ego helps you send messages saying what you want to do: Eat? Work? Study? Go on a date? Go out? You just have to type the Word Eat, for instance, and send it to number 346 or choose from the menu and hit sequence, doing what you want to do.
tomers, as users can chat with any friends, wherever they are, either through cell phone or the internet. If one of your contacts appears offline or has not subscribed the service, users can send a Claro Messenger SMS and Exchange messages regularly, through the service.

Messenger no chip (Messenger through chip): Oi has made Windows

Messenger: is a service for instant messaging between Claro cus-

Oi FM Interactivity: several channels to Interact with Oi Radio: Que msica essa (What song is this): users send an SMS
message asking what song is playing and the artists name appears immediately on his cell phone. Adoro e Odeio (Love and Hate): users help set up the radios playlist, by sending a SMS message with the Word ADORO whenever their favorite song is playing, or send ODEIO whenever they no longer want to listen to the song. Alerta de banda (Band Alert Messages): users send SMS messages to be informed of when their favorite band will play on the radio. Users will receive an alert message every time it will play. Alerta de programa (Program Alert Messages): users send SMS messages to be informed of when their favorite program is airing. Users will receive an alert message when the program is about to start. Jogos Oi FM (Oi FM Games): users send a SMS message to take part, choose their favorite game and answers questions. Users are entitled to an Oi FM prize for every fifty points scored. Alerta de msica (Song Alert Messages): users send SMS messages to be informed of when their favorite song will play on the radio. Users will receive an alert message whenever it plays. Dedique (Dedicate): users can dedicate a song to somebody. While the song is on, they just need to send a message stating the username and the cell phone number of the person being dedicated the song. Every time this song plays, Oi will send this person a message so that they can tune in to OiFM and listen to it. unique way for people to get joined together (privately, that is, their numbers will not be disclosed), as they are willing to set their profile as well as that of the person they would like to meet. Once users sign up, they can look for a person who meets their requirements. Information
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Cupido: is a dating service available to all Claro phones. It is a unique system to bring people closer together (privately, that is, the numbers will not be disclosed) in which people can define their profiles and that of the people they would like to meet. Once users have signed up, they can look for a person who meets their profile requirements. Information concerning sex (sexual orientation), age, zodiacal sign (based on the users birthday) and the region the user resides are taken in consideration. Senhor dos Jogos (Lord of the games): the strategy game that is played through text messages. In this game, the user is an army commander and will have to design audacious strategies to conquer territories. Users play against their enemies in the battles and are entitled to prizes.

Brasil Telecom / Oi
statements.

Bank Services: through SMS messages, users can check their bank

Chat application: users send a SMS message in which they state which room they would like to chat and exchanges messages with other users.
to the users cell phones daily. Users chose which channels to sign up from: jokes, music, sex hints, fashion and beauty, bizarre news, gospel, goals alerts, gossiping, news headlines and/or horoscope.

Notcias SMS (SMS News): this is an information-based channel sent

Oi Pegao (Fooling Around): this is a dating service which is a

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concerning sex (sexual orientation), age, zodiacal sign (based on the users birthday) and the region the user resides are taken in consideration

at their disposal which can be customized in its entirety with photos, videos, texts and blogs.

Quiz: Quiz Prmios (Quiz Prizes) is a fun text message-operated Q&A game in which participants can run for prizes. Several categories can be chosen, as they are easily accessible through Menu Claro, text messages or WAP Portal.

Vivo
those who send the lowest unique bids are entitled to buy the item being auctioned. This service has been cancelled due to a prohibitive law issued by the Federal Public Ministry.

Leilo (Auction): users enter their bids through SMS messages and

TIM
ers receive daily on their cell phones. Users can choose which channels to subscribe from: Mensagem do Papa (Popes Message), Bblia (the Bible), Futebol time (Soccer team), Futebol planto (Soccer Alert News), Classificaes dos times (Soccer Teams Ranking), Frmula 1 (Formula 1), Tnis (Tennis), Basquete (Basketball), Vlei (Volleyball), Esportes Outros (Other Sports), Cotao (Quotation), Bolsa (Stock Market), Ativos (Assets), Evanglico (Evangelical), Babados (Gossiping), Piadas Leves e Piadas Picantes (Lightweight and Hot Jokes), Horscopo (Horoscope), Dicas Profissionais (Professional Hints), Pensamentos (Thoughts), Teen, Chic, Mundo Virtual (Virtual World), Novelas (Soap Operas), Cultura (Culture), Cinema, Msica (Music) and Trnsito SP (Traffic in So Paulo). people closer together (privately, that is, the numbers will not be disclosed), as they are willing to set their profiles and that of the people they would like to meet. Once users have signed up, they can look for a person who meets their profile requirements. Information concerning sex (sexual orientation), age, zodiacal sign (based on the users birthday) and the region the user resides are taken in consideration. Tim website, restores all numbers easily whenever they need and manages the contact list through an exclusive area. run for prizes.

Signature channels: these are information-based channels that us-

together (privately, that is, the numbers will not be disclosed), as they are willing to set their profiles and that of the people they would like to meet. Once users have signed up, they can look for a person who meets their profile requirements. Information concerning sex (sexual orientation), age, zodiacal sign (based on the users birthday) and the region the user resides are taken in consideration.

Chat: it is a dating service, a unique system to bring people closer

Notcias (News): these are information-based channels that users receive on their phones daily. Users can choose which channels to subscribe from: Esportes (Sports), Notcias (News), Horscopo (Horoscope), Economia (Economy), Sade (Health), Futebol (Soccer), Religio (Religion), etc.
sages every time they receive an email.

Chat Blah: it is a dating service, which is a unique system to bring

Alerta SMS (SMS Alert): users hire a service to receive alert mes-

MatchMaker: is a game that can be downloaded onto the cell phone as users request it through SMS messages and receive a message back containing a link to download the game. This game is intended to compare users profiles and establish relationships with others Quiz Promoes (Promotional Quiz): is a fun text message Q&A game in which the participants run for prizes.

Tim Agenda: users store the Tim Chip contact list directly onto the

Average prices for content channels subscription

The Brazilian VAS market counts on subscription packages of diverse prices and contents, as well as the single item sales. There are new companies in the market that are offering freemium services, comprised of free basic versions and complete ones, under payment. As a matter of analysis of the average prices Brazilians are willing to pay, Pure Bros* data subscription and renewals have been extracted. These data refer to the overall numbers from 2010 up until April 2011.

Quiz: a fun text message Q&A game in which the participants can

Tim Esportes (Tim Sports): users subscribe to the channel and receives daily news from their favorite soccer teams, and still receive videos of the goals and monitors their favorite team. Tim Caf: this is a social network, users have the chance to meet people and stay connected all the time from their cell phone, through the Web, TIM Wap, SMS messages or TIMCaf Messenger. By accessing TIMCaf, users can chat through messages or through the chatting service on several interactive channels. Users have a personal webpage
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Pure Bros is the leading integration company, as it transports most SMS/MMS information

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% Subscriptions x Single Value

O BRL 1,99 90,47% 0,17% 8,18% BRL 2,99 BRL 3,40 BRL 3,99 BRL 4,00 BRL 4,99 BRL 14,99

interaCtivity
Mobile Marketing
Mobile Marketing is regarded as being a more interactive type of media that is temporal and easily accessible. Research shows that the mobile marketing is largely accepted by consumers. This media presents high reading indexes, as it is a non-invasive type of communication that is affordable and applicable to all activity sectors, especially for companies that need to forward information to groups of people who are not using a computer. As per a survey by Acision, this media is accepted by 79% of Brazilians, which shows the impacting potential of the dissemination of products and services. In Brazil, mobile marketing is used in the following services: Relationship programs Promotions Interactivity (raffles and contests)

1,05% 0,04% 0,09%

When looking at the percentage number of subscriptions, we can notice a strong preference for weekly contents, which usually consist of content channels sold at the price of BRL 4.99.

% Renewals x Single Units

48,77% 9,58% 0,27% 4,81% O BRL 1,99 BRL 2,99 BRL 3,40 BRL 3,99 BRL 4,00 BRL 4,99 BRL 14,99

How this business model operates in Brazil

Companies that are interested in mobile marketing will have to sign up for an integrator and a specialized agency that is aware of ANATEL regulations. The company that is interested in mobile marketing should have a base of users equipped with opt-in authorizing text messaging and having the choice to cancel the service at anytime.

Some successful campaigns in Brazil

Sundown interacts with the public in an event at the beach
In an event in Recife, Sundown created an artificial sun and an interactive screen that was on from midnight to 6 am. Participants could send messages to the screen which was set up in a clearly visible area. In order to participate, they had to send free messages through Twitter using the hashtag #maisveraosundown or by SMS (SOL + sentence) to 30120. After interacting through SMS, users would receive the following answer back: Mais Vero SUNDOWN: Ol! Recebemos sua mensagem. Fique de olho no
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36,58%

On the other hand, when we look at the contract renewals graph, we can notice a large inversion of prices when it comes to users preferences. Content channels at the price of BRL2.99 are those that present a higher renewal rate, followed by those that go at the price of BRL4.99. So, we may conclude that the content channels that go at the price of BRL4.99 are more attractive to Brazilians, but due to their low income, the service is not renewed.

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telo, a qualquer momento ela pode aparecer por l. Aproveite! (SUNDOWN More Summer: Hi! Weve received your message. Keep an eye on the screen, it may pop up anytime. Have fun!)

8 - Samba do Celular - Ring Ring (Pagode) 9 - O Que Combina Comigo Voc - Z Henrique & Gabriel (Sertanejo) 10 - Selinho na Boca - Latino e Perlla (Funk)

Voting for reality show A Fazenda Record

Users would send SMS messages to vote off contenders and would run for prizes. In the programs second season, in 2010, more than 2 million SMS messages were sent within the programs 88 days.

Social Networks
According to the survey Mobilize Consumidor Mvel 2011 (Mobilize Mobile Consumer 2011), the percentage number of social networks used through cell phones is: 48.7% Orkut through cell phones; 35.4% Facebook; 27.1% Twitter and 0.3% Linkedin. The access to social networks through regular cell phones is done through SMS messaging.

Tweets

Games
Soccer Manager SMS
In order to share entertainment with telephone users, a joke channel has been created, in which users can hire the service and receive SMS with jokes and run for promotions by sending jokes through the channel. Image text: Tweets: Send as SMS message with the word PIADAS (JOKES) to 49576 and start to receive them. The best twitter jokes on your cell phone. Soccer Manager is an RPG game that simulates the career of a soccer coach, in which the commands are given through SMS messages. Users choose a team they would like to coach, select players, set up the tactics and moves forward until they become the coach of the Brazilian National Team. The game has been offered to members of loyalty program of Esporte Interativo (Interactive Sport) channel. 42,000 people have signed up, with an average of 5 messages sent by user.

Mobile Advertising
Nokia AD
Nokia AD is a mobile advertising alternative that is embedded in Nokia cell phones that have not been customized by the operating companies. On the cell phones internet browser, users can find eight bookmarkers: Menu Principal (the operating company name), Destaques (Highlights), Diverso (Fun), Jogos (Games), Msica (Music), Portais (Portals), Promoes (Promotions) and Vdeos (Videos). This advertising format reaches out for millions of users that are looking for some type of marker-related content. In October 2011, the Games link alone was clicked more than 1 million a month. And in October, the total number of clicks neared 5 million.
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Entertainment
Within entertainment, topics such as music, ringtones, games, videos and social networks, etc. are included. RINGTONES According to the companys portal, the most downloaded ringtones in 2010 were: 1 - Halo - Beyonc (Pop music) 2 - Estrela Cadente - Victor & Leo (Sertanejo) 3 - Na Base Do Beijo - Ivete Sangalo (Ax) 4 - Bad Romance - Lady Gaga (Pop music) 5 - Rebolation - Parangol (Ax) 6 - Fui - Exaltasamba (Pagode) 7 - Crazy In Love - Beyonc (Pop music)
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Over the last months, Nokia AD has been showing a high efficiency rate for advertisers who chose this type of media. The number of clicks has been growing and their relatively low cost has been drawing more and more companies that are interested in using this type of advertising. The channel is sold through CPC. Negotiation is done every month through an auction, as interested users can bid on a value higher than the CPC, in that the current buyer has the advantage of matching the best offers and keep their position.

Oi WAP
Full banner 1 The Oi WAP provides spaces for banners and Highlight 1 Highlight 4 highlights to be announced on the deck and internal pages Full banner 2 of the Oi WAP. The channel is sold through Half banner 1 Half banner 2 CPC, that varies according to the position. Prices can be reduced as per the aggregators commitment towards the channel. On the left is the Oi WAP and its respective positions. We sell the Home Page as well as the internal ones: Adult, Images, Games, Videos and Music.

Canal Idias
Claro customers who opt for receiving the Canal Idias content through their cell phones receive several pop-up messages throughout the day (Broadcast), as per the image below. There is an estimated number of 25 million active users. Pop-ups can only be visualized by users when the cell phone is set to an idle mode, that is, is not being used and the screen is off. In case users do not interact with their cell phone within a specific time frame, messages disappear automatically. In addition to the several contents sent directly to Canal Idias, customers also receive some advertising teasers and have the opportunity to receive more information, which is just one click away, and consequently may opt for signing up or buying the advertised product. The channel is sold through CPA and CPC, which can vary according to the size of investment/announcers commitment. This advertisement format is extremely useful for companies, since they reach out for a larger number of cell phones at every broadcasting session and fees only incur over each conversion (CPA model). Therefore, companies will only pay for those users who effectively become their clients.

Claro WAP
Claro WAP have some available links on the decks internal pages: Adult, Images, Games, Videos and Music as per the next image

By clicking on one of those categories on the Home Page, users are directed to a page where they will find the links below, containing each aggregators offer. The area is sold at a fixed monthly fee, with reduction of fees for long-time customers.

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Claro Service Channels

This is a Claro service where users type *555 to listen to their voicemail, refill their phones and other services. By calling, customers listen to a 10-second teaser showing the aggregators promotion. If they are interested, Claro customers can type zero to know more about the product being offered and then listen to a 30-second message. By listening to details, they can choose to either sign up for the service or not. The number of daily calls is one of the greatest differential points due to the 3,200,000 accesses reported a day. Besides that, the service enables segmentation according to the users balance, enabling billing for almost the entirety of interested customers. The service is sold through CPA, which varies according to investments.

Oi Sim Card
Sim Card is the agencys most recent channel, launched through a partnership with operator Oi. As the name can tell, links of advertisers and their promotions are stored in the Sim Card. By clicking, users may start the process of signing up a package and receive a SMS message with the confirmation, since the process has the double opt-in inside the media. The business model is CPA and the value depends on the investment.

Santander Bank Workshop with interactive screen

During a MMC2 workshop, Santander Bank offered the event audience an SMS interactive screen as a means of communication between the audience and lecturers. People would send their questions, at no charge, to 30120 containing the word MMC2. Messages selected by a moderator would appear on the screen so they could be answered and discussed. This is a tool that is becoming wildly popular in events, since it is possible to receive a large number of messages and select the most appropriate ones, besides giving the shy an opportunity to explore their questions and opinions anonymously.

Corporate sms
How this business model operates in Brazil
It is intended for service provision, strengthening relationships and providing cost reduction to companies. Corporate SMS serves various purposes, such as: in automobile companies it can be used to announce a recall, in medical offices, it can be used to confirm an appointment, in e-commerce by sending a requests track number through SMS, among others. Investors should hire a company that offers an SMS sending platform that is authorized by Brazilian telephone operator companies, in order to use Corporate SMS. ComuniKa lies among the companies that are authorized by the Brazilian telephone operator companies. Most uses of Corporate SMS: Relationship programs Information or service provision
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Tigre uses SMS as an internal communication channel

Tigre uses SMS to send messages related to internal marketing campaigns to the sales team all over the country. Through Comunikas Web2SMS, Tigre sends chunks of messages to the contacts registered on their interface. The content is personalized and scheduled according to the actions goals.

Ipiranga: emergency preparedness are sent through SMS

Ipiranga uses SMS to send preparedness messages in risky situations. The service has been customized by virtue of the customers needs and the different groups that needed to be texted.

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innovations and evolutions

The Brazilian VAS market has a very large potential for growth for the coming years. The lack for potential investors to explore and disseminate this market contributes to the scarce dissemination of VAS in Brazil. When we look at some indicators, we notice what the main innovations and evolutions in this sector are.

In Brazil, the most popular games are FarmVille, Colheita Feliz (Happy Harvest) and Rede do Crime (Crime Network), which can be played through Orkut and Facebook. The country currently has 34 million Facebook, Orkut and Twitter users, which represents 85% of the total number of local internet users. The good performance of internet social games consequently enables cell phone games to gain momentum. The social games area is booming and users and companies specialized in this niche have shown tremendous interest in them.

MNVOs Regulations
In November 2010, ANATEL regulated the admission of MVNO (Mobile Virtual Network Operator) into the Brazilian market. ANATEL has allowed two operation models: authorized and registered. The authorized model will have to fulfill the same obligations the original operator did. On the other hand, the registered model is seen as a resale company or a representative of an operating company, as its contract needs to be approved by ANATEL. This initiative makes competition among companies fiercer but some of them have not yet defined their position in the light of MVNO, whereas others are already establishing partnerships. Research conducted by E. Consultoria shows that Brazil is expected to have 3.5 million MVNOs users in 2012, with profits of BRL67 mi; in 2015 the number would grow to about 15 million users with profits of about BRL320 mi.

Interactivity with the television

The use of interactivity with the television through SMS is still poorly explored in Brazil, but there are TV channels that are enjoying success with this practice. A sports program in the Brazilian television aims to reach 3 million subscribers of their channels, including live interaction with the program, channel contents and links to videos of goals. Another interesting case is that of a popular daily news program that receives an average of 6,000 to 7,000 SMS a day, as messages are displayed in a bar underneath the screen. When the host read the messages of a wildly popular issue in Brazil live, the number of messages rose to 82,000. Through the abovementioned data, we can notice a great potential to be explored, especially because TV plays an important role in the Brazilian culture in a survey conducted by IBGE, at the end of 2009, 42.9% of Brazilians stated they spend more than three hours in front of the television and 29.6%, three more hours connected to other equipment, a day. The research calls for the fact that 58.2% of children up to 9 years old and 58.8% of teenagers from 10 to 17 years old spend more than three hours watching television, as these are the age groups with the higher percentage of participation in this activity.

M-Payment
The M-payment sector is starting to gain momentum in Brazil; at the end of 2010, operating company Oi and Cielo (one of the largest providers of electronic payment solutions in the country) announced a joint venture to explore this market. According to data published by Revista Exame (Exame Magazine) (one of the biggest business magazines of the country), the joint venture will start with 75,000 registered storekeepers and 250,000 users coming from one of Ois payment systems. Both Ois and Cielos M-payment will operate both on smartphones and on regular phones. Acculturation work needs to be done concerning the use of this payment mode, which is a challenge for the new companies in this market.

Social Games
Data from Folha de So Paulo, one of Brazils biggest newspapers, show that the country has about 25 million social games players, which made profits of BRL200 mi in 2010.

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value added serviCes environment and its legal Boundaries

In the regulatory mainframe established by LGT in 1997, one of the ground rules is the definition, in very express terms, of its own area of competence and what kinds of services are under ANATELs power to regulate and oversee. And this is the key-point for understanding where exactly stands the status of the mobile services in Brazil. According to articles 60 and 61 of LGT, a telecommunication service is the sum of activities that enable the telecommunication offer to users. For that, telecommunication is defined as being the transmission, emission or reception, through wire, radio electricity, optical or any other electromagnetic procedure, of symbols, characters, signs, writings, images, sounds or any other kind of information. On the other hand and according to the law, a value added service (VAS) is an activity that adds to a pre-existing telecommunication service new utilities regarding access, storage, presentation, movement or recuperation of information. And, most important of all, according to article 61, first paragraph of LGT, VAS are not considered as telecommunication services, being legally compared its providers to users of the telecommunication service, with the rights and duties inherent to such condition. From this definition derives two important legal consequences: (i) First, as users, VAS providers have the right to access the mobile network, what guarantees that no Mobile Operator will disconnect a VAS provider without a justifiable cause and

Legal boundaries and regulations

(ii) Second, ANATEL has no power to regulate VAS environment. As said above, telecommunications services in Brazil are highly regulated by the government through ANATEL. And in such regulation there are various obligations regarding the universalization of the services, i.e. predefined goals of network coverage of the services, even in locations where it wouldnt be commercially rentable to install such services. By the time of privatization procedures, it was said that in exchange of the right to explore the air, i.e., telecommunication frequencies, companies must contribute and guarantee that all Brazilians have access to the network with minimum standards of quality. These goals are constantly reviewed by ANATEL and, if an Operator does not comply, it could be liable to an administrative procedure, with penalties that vary from fines to even the revocation of the exploration rights (what, we must point out, has never occurred).
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Nevertheless, it is very important to notice a recent change in VAS scenario over the late months. Until now it was perfect clear that ANATEL has no competence to regulate or oversee VAS providers in Brazil. But in July 2010, ANATEL sent to all Mobile Operators an Official Letter which stated that these companies have a subsidiary liability over the VAS provided to its users and although ANATEL expressively recognized that has no legal power to regulate VAS environment, it could oversee and persecute Mobile Operators. In that manner, ANATEL imposed rules over VAS. From September 1st 2010 on, before any charge for VAS is provided, its mandatory to send a SMS to final users, describing: (i) The URL or any other kind of link to Terms & Conditions of the VAS, for consultancy by the user;

must be complied. Herein are some of the dispositions that we recommend for all VAS providers: All offers must be clear and ostensible i.e., the price of the VAS, its nature, period, etc., must be visible in all ads; The burden of proof when a complaint is made by a user is of the provider so its important to keep all registers and communication with an user for a period of, at least, six (06) months; and When giving prizes to users it is important to verify if such marketing tool is complied with Brazilian legislation over sweepstakes and contests, since its a regulated market as well. Also, nowadays Brazil has a judiciary system designed for smallclaims (Juizado Especial Cvel JEC) that has no legal fees in the lower courts which increased the litigation procedures filed by consumers. In these days it is not extraordinary to have complaints for services that costs R$ 50.00 (fifty Reais) or even less. This, along with the protective laws for consumers, must be considered when providing any kind of service in Brazil.

(ii) A number of protocol request for the VAS; (iii) The values to be charged for the VAS requested; and (iv) How to cancel such VAS. In the same manner, such SMS must be answered free of charges by the user to confirm the request (double opt-in). Most of these disposals were already being complied by the majority of VAS providers, through the dispositions in the Integration Agreements of Mobile Operators (except for the protocol request number). After the receipt of this Official Letter, members of Mobile Entertainment Forum here in Brazil (MEF LATAM) reunited with ANATEL officials to clarify some of the questions and introduce them to MEF LATAM initiative to consolidate a Code of Practice. And in this meeting ANATEL informed that had sent another Official Letter, yet to be received by Mobile Operators, which had more disposals over VAS. Although the exact content of the second Official Letter is still to be known, this movement shows that ANATEL clearly intends to extent its powers over VAS even if through Mobile Operators. This is an important issue because legally ANATEL has no power over any VAS provider, but it can put huge political pressure over Operators. And Operators in the Brazilian market have the higher hand and will transfer such pressure to integrators and providers. Some of the reactions to such governmental interference are the initiatives for self regulation, which will be analyzed into the next item. In conclusion, it should be highlighted also that although there is no specific law over VAS providers, all of the services are under the Brazilian Consumers Protection Code, with general legal principles that

initiatives for self regulation of moBile marKets

Another important notice to be made regarding the mobile business environment in Brazil is the initiatives of mobile associations to set standards and codes for self regulation. The declared goal for these associations (MEF LATAM and MMA LATAM) can be resumed to the development of a Code of Practice to establish industry-recognized procedures for mobile content services and advertising in Brazil.* Notwithstanding this declared intention, the consequences expected by both associations are not only to establish a healthy business environment but also to avoid the governmental interference. By self regulating mobile business practices, these associations seek to cooperate and make any kind of imposed regulation (top-down) useless. Here in Brazil we have a very successful case of self regulation practices, in the advertisement area. There is a private body, called Conselho Nacional da Autorregulao Publicitria CONAR (National Council for Publicity Self Regulation) in charge of overseeing and persecuting any advertise that does not comply with the Self Regulation Code for Publicity. CONAR was created by a group of advertisers, marketing agencies and the media in 1980 as a response to the federal government that threatened to establish a kind of previous censorship
* See MEF LATAM Policy & Initiatives Committee, at http://migre.me/1pSYU.

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over advertisement.* And after all these time, CONAR still holds an important role as the self-proclaimed guardian of advertisement freedom and ethics. This role is only hold because CONAR has powers to even in extreme cases, suspend an specific ad and its decisions are fully effective because all the media companies complies with them (no matter how economical powerful is the advertiser). This is the model that mobile associations are seeking to implement: self regulate and self comply in order to push back any governmental influence. MMA LATAM has its Code of Conduct, translated to Portuguese since July 2008, and intends to amend such document to align with Brazilian market. And, more important, recently MMF LATAM started to discuss its own Brazilian Code of Conduct for VAS, including all major Mobile Operators in the process. MEF LATAMs Code of Conduct, as pointed above, intends to establish in a single document the best practices already determined in each Integration Agreement for VAS. After this Code is approved and implemented by the Operators, Brazilian mobile players will have a single standard to comply, avoiding the confusion now in effect regarding accepted phraseology for SMS, billing cycle, standards for landing pages, etc. Here are some of the key definitions brought by MEF LATAMs Code of Conduct: Mandatory double opt-in for VAS; When the request is made through a webpage, provider must send a pincode via SMS to confirm the request for the VAS; Terms & Conditions for any kind of VAS must be public, through a webpage; Use of the word FREE (Grtis, in Portuguese) can only happen when the content offered for free does not depend of requesting any kind of paid content; The billing cycle for weekly subscriptions is one billing attempt each two days, during the maximum time of sixty days (thirty attempts). After this period, the user must be removed from subscription data base; The billing cycle for daily subscriptions is one daily billing attempt for sixty days. After this period, the user must be removed from subscription data base; The billing cycle is flexible, meaning that the date considered for future renovations is the date of success billing (not the original subscription date);
* Since Brazil was under military government, there were measures to previously censor newspapers, television and all kinds of media.

To cancel a subscription the user only has to send the word Sair *Exit+ or Cancelar *Cancel+ to the same large account number of the VAS or the large account that sends contents to users. Its forbidden to accept cancelations only in the format Cancelar + content name, even if there is more than one VAS under the same large account number; All VAS providers must make available a way for users to cancel the services without the need of having the mobile phone in their possession; VAS providers must have a support channel for users, preferably through e-mail, online chat or other instant communicator. Telephonic support is made preferably by Mobile Operators; and VAS advertisement must comply with CONARs Self Regulation Code, especially when targeting children, involves adult content or any kind of controlled product or service (and in Brazil there are at least 20 types of controlled products or services). At last, we must inform that such Code is still under discussion between MEF LATAM and Mobile Operators. This picture will probably change within days because of the still unknown Official Letter sent by ANATEL. The above items are the present dispositions well keep consultant informed of any change, but for future references please check the updated version of MEF LATAMs Brazilian Code of Conduct.

estaBlishment of moBile Content Companies in Brazil guidelines

There is no special regulation for mobile content companies in Brazil it goes as any other kind of service provider. Considering that, the following rules and guidelines are made in a general matter, aimed to a foreigner company that intends to establish itself in Brazil. ready stated that VAS companies are not subjected to payment of IVA taxes, defined as ICMS in Brazil. A ruling of Superior Court of Justice (Superior Tribunal de Justia) from 2006, in the form of a precedent that defines that internet providers are not liable to the ICMS*. Since internet providers are legally considered as VAS providers, this precedent is also applicable to mobile content providers. Also, since the law that defines municipal taxes (ISSQN) does not previews the taxation of VAS providers, either VAS providers pay municipal taxes as software houses, or dont pay municipal taxes at all,
* SMULA N. 334-STJ.: Internet service providers are not liable to ICMS.

Taxation. It should be considered that Brazilian Judiciary has al-

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avoiding the payment of any taxes of consumption of its services. Nonetheless, the avoidance of taxes nowadays is almost impossible, since Mobile Operators already collect taxes when final users pay for VAS. Mostly because of that, both MEF and MMA already have initiatives to fight for the correct approach for VAS providers, in order to avoid illegal taxation over them. For further information over this topic, please refer to our presentation regarding the taxation environment of VAS in Brazil, which is attached to this Memorandum. In conclusion to this topic, if a VAS provider does not perform any other activity then VAS, it can ask for the avoidance of taxation over its services. Until now, only the Judiciary has granted some companies the right to avoid taxation, through litigation procedures. that are legal persons (SociedadesPersonificadas) and such companies that are not legal persons (SociedadesNo-Personificadas) similar to the concept of corporations in Common Law. Regarding companies that are legal persons (SociedadesPersonificadas), Brazilian law distinguishes between companies which are commercially active (Atividades Empresariais) and those which do not carry out a commercial activity (Simples/AtividadesNoEmpresariais). Please notice that under Brazilian Law there is no possibility to have a corporation with a single shareholder sole corporation. Being so, to establish a company, it must have at least two shareholders, even if one of them has only one share in one thousand, for instance. The shareholders can be legal entities or natural persons, without any mandatory composition. And, as a general rule, the individuals are not required to be born or resident in Brazil; and the legal entities which will be shareholders are not required to be headquartered in Brazil (there are just a few specific exceptions to this rule). The most common legal forms of commercial active legal entities are: 1. Limited-liability Company (Sociedade Limitada/Ltda.) similar to limited liability companies and limited partnerships in the U.S and in the UK; and
2. Joint-stock corporation (Sociedade Annima/S.A. or Companhia/Cia.).

difference of this model from the Joint-stock companies is that in the Limited-liability Company the shares cannot be issued as an evidence of ownership, not being deemed as a security.

Formation. A Limited-liability Company is governed by its articles of incorporation which are set up by the companys shareholders when incorporating the company. Under Brazilian Law a Limited-liability Company is considered to be incorporated after its Articles of Incorporation have been duly filed with the competent commercial board of registration (Junta Comercial).
The companys Articles of Incorporation must foresee: Corporate name, which must briefly describe its corporate purpose; Companys duration; Corporate purpose; Managements guidelines; Address of its headquarters and of the relevant branches, as the case may be; Detailed background of each partner and; The amount of the corporate capital and its distribution among the partners. And, under Brazilian Law, an amendment of the Articles of Incorporation requires a shareholders resolution with a 75%-majority of the companys capital.

Corporate Law. Brazilian law distinguishes between companies

Corporate capital. The corporate capital of Limited-liability Companies is divided into quotas, which can be paid-in in cash or assets liable for appraisal, with no minimum value requirement.
Please notice that, after the capital is fully paid-in, the responsibility of each partner is limited to their corresponding equity participation. However, until the corporate capital is fully paid-in, all partners will be jointly responsible for the total amount of the subscribed capital. The shares must be registered and are not physically represented by securities. Being so, the number of existing shares and its owner(s) are set out in the companys Articles of Incorporation. Every change in the shareholders structure, like transferring of share, must be done through a change in the companys Articles of Incorporation. Also, Brazilian Law does not have a minimum value of the corporate capital. A Limitedliability Company can be established with a corporate capital of only R$ 1 000.00 (one thousand Reais), for instance.

1. Limited-liability Company (Sociedade Limitada/Ltda.)

A Brazilian Ltda. is a business corporation having as corporate purpose to earn profits to be distributed to its shareholders. The main
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bility Companies can be managed by one or more individuals, which shall be partners of the company or not. The manager of the company must be appointed by the partners in the Articles of Incorporation or by means of a separated document.

Companys management and corporate bodies. Private Limited-lia-

manage it and, therefore, the foreigner to be resident in Brazil, the foreign managing director/administrator needs a permanent employment visa allowing him/her to work for the company. The options to fulfill the requirements for such a visa are set out below: (i) The Brazilian Limited-liability Company invests minimum at least US$ 50 000.00 (fifty thousand dollars) in Brazil. In this case, the company commits itself to hire, within the two following years, at least ten new Brazilian employees; Please note: We do not recommend this option for the following reasons: Granting the visa under these circumstance is subject to a wide discretion of the authorities and there is no kind of certainty if the visa will be granted. In particular, granting the visa is subject to national interest, which is a very vague requirement. According to past experiences, the granting of such a visa on the grounds of national interest is rather unlikely. Also, even if the visa should be eventually granted, there is no time frame predictable when this could happen. (ii) Foreign shareholders (considered from the same economic group) of a Brazilian Limited-liability Company invest a minimum of US$ 200 000.00 (two hundred thousand dollars) in Brazil. In this case, the investment must be registered with the Central Bank of Brazil by means of an Electronic Statement of Registration Foreign Direct Investment Module (RDE-IED) and must be paid as a as share capital of the company. Please notice that for each foreign managing director/administrator to be appointed the foreign shareholder of the Brazilian company must have invested at US$ 200 000.00 (two hundred thousand dollars) in Brazil. After the Limited-liability Company was founded and is fully operative (including having obtained the necessary registrations with the relevant authorities, including the Central Bank of Brazil) and after the foreign investment of US$ 200 000.00 has been registered, the visa application can be filed. Then the visa will be issued within approximately 30 business days. Therefore, if the foreign shareholders of the Brazilian Company wish to appoint a non-Brazilian citizen as managing director/administrator of the company., we recommend complying with the minimum capital requirements explained above (at least, US$ 200 000.00 invested in Brazil and registered within the Central Bank of Brazil). In case of non-Brazilian who already has been granted a permanent visa and work permit for Brazil, for example because of being married to a Brazilian citizen or being father/mother to a Brazilian child), the requirements set out in above would not apply
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The shareholders meeting is the main decision-making body of a Limited-liability Company. It is held whenever the law or the articles require. If so established in the companys Articles of Association, there may have an audit committee. The following decisions must be taken by the partners by means of meeting of the shareholders: Approval or disapproval of the managements accounts; Appointment of members of the management board and determination of their respective remuneration; Amendments to the Articles of Incorporation; Approval of companys mergers, acquisitions and spin-offs; Appointment of the companys liquidator and approval or not of his accounts; Decide about the end of the companys liquidation and require its bankruptcy.

Profit sharing and losses. Profits and dividends of the private limited company shall be distributed and paid according to the equity participation of each partner of the company. The profits and dividends shall also be distributed and paid to the partners out of proportion of their equity participation. In this case, however, the articles of incorporation must expressly foresee this possibility and none of the partners shall be prohibited to receive dividends.
Likewise, the losses incurred by the company shall be borne by all partners in accordance with their respective equity participation or out of proportion, as the case may be. no special requirement to be a shareholder it has the same capacity requirements as for the other legal acts. Only in special cases Brazilian Law prohibits foreigners to own shares in certain activities. On the other hand, to be a managing director (Administrador) of the company, one has to be a Brazilian citizen and resident in Brazil or, being a foreigner, must have a permanent employment visa. If the foreign shareholder of a Brazilian Limited-liability Company wishes to appoint a foreigner as managing director/administrator to
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Shareholder and manager requirements. As a general rule there is

2. S.A. (Sociedade Annima)

Formation. A Joint-stock corporation is ruled by its By-laws, which are established by the shareholders at the moment of the companys constitution. Please notice that, according to Brazilian law the Jointstock corporations can be public (Open Joint-stock corporation) or private (Closed Joint-stock corporation) i.e., if their securities can be exchange in the stock market freely or can be sold only among the shareholders. This characteristic must be determined in the companys By-laws. And also, the By-laws must foresee:
Corporate name, which must briefly describe its corporate purpose; Companys duration; Corporate purpose; Address of its headquarters and of the relevant branches, as the case may be; The amount of the corporate capital and its distribution among the partners, including the number of shares and their characteristics; Officers (at least two), the formalities for their appointment, substitution, tenure term and duties; Audit committee, which may be permanent or temporary; End of the corporate year, establishing the date; And, for the Open Joint-stock corporations, it is mandatory to foresee: the Administrative council, the formalities for their appointment, substitution, tenure term and duties. There are two possibilities to establish a Joint-stock Company: Private subscription of shares at the General Meeting or through Public Instrument in those cases, all the shareholders are deemed as founders. The company is a Closed Joint-stock corporation; and Public subscription of shares at the General Meeting in these case, it is necessary the registration at the Securities Exchange Commission (Comisso de Valores Mobilirios CVM), which will supervise and authorize all the procedure for the companys constitution and subscription of shares. This case is applicable for the Open Jointstock corporations. And, for the Joint-stock corporation establishment, it is necessary that the founding shareholders deposit, at least, 10% (ten percent) of the shares issue price in money at the Brazilian Bank (Banco do Brasil). is divided in shares, which can be of different classes and entitle to their owners different rights which must be established in the By-laws.
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And, as in the Limited-liability company, the shares can be paid-in in cash or assets liable for appraisal, with no minimum value requirement.

Companys management and corporate bodies. At a Joint-stock corporation, the Meeting of Shareholders is the higher body, which shall take the decisions regarding the companys best interests and development of its business.
For the daily management the competent body is the Officers, which shall be at least two (02) and must have their duties and limitations expressed in the By-laws, as explained above. According to Brazilian Law, the Officers must live in Brazil as a general rule there is no forbiddance to a foreigner act as an Officer, just like in Limited-liability companies. Also there is a possibility to have an Administrative Council, which shall take the business resolutions, always according to the companys best interest and respecting the will of the shareholders. And, to be a Councilmember it is necessary to be a shareholder (at least one share of the corporate capital), but it is not mandatory to live in Brazil.

Decisions of shareholders exclusive competence to deliberate. And similarly to Limited-liability companies, there are some matters that only the Meeting of Shareholders can resolve (article 122 of the Joint-stock Corporations Act):
Amend the By-laws; Elect or dismiss the Directors; Approve the financial statements; Authorize the issue of debentures, participation certificate; Evaluate real state assets to be incorporated to the corporate capital; Suspend shareholders rights; Decide about the merger, split-off, transformation and dissolution of the Company, and the Companys dissolution or liquidation process; Authorize the managers to pledge for bankruptcy or ask for reorganization proceedings.

Profit sharing and losses. About the profit sharing, the companys By-laws can establish different kinds of shares, which kind with more or less participation in the profit sharing. This matter can be freely determined by the shareholders, provided that, although different, all of the shareholders must have a participation in the profits. Registration of the Open Join-stock corporations. In cases of public traded shares, the CVM must, as a general rule, authorize the registration of a company as open and also all of their securities issuance.
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Corporate capital. The corporate capital of a Joint-stock corporation

In case a company public trades their shares without CVMs authorization, this public body may charge the company and their managers, which will be civil and criminal liable.

DBE (Basic filing entry document) executed by individual appointed by the company to act as its legal representative at Brazilian IRS Federal Revenue, with notarization of the signatures; and In case the DBE is not executed by a partner of the company, it must also be presented a certified copy of the relevant powerof-attorney. The registration with CNPJ is obtained with no cost whatsoever except for the mail stamps. Once the registration with CNPJ is issued, the company will be entitled to all legal rights of a corporation, i.e., will be able to open and maintain a bank account, to enter into contractual agreements and to start its business transactions. Nevertheless, the company will not be entitled to issue commercial invoices as for the rendering of services before it obtains all the required municipal licenses, which usually takes 30 days to be issued.

3. Registration
For a company become full operative in Brazil, it is necessary some registrations in various public bodies. Here below there are the most important ones:

3.1 Commercial Board (Junta Comercial)

Vis-a-vis third parties a company is considered to be incorporated after the documents of constitution have been duly filed with the competent commercial board (Junta Comercial). The competent commercial board is that with jurisdiction over the federal state where the company is incorporated/has its corporate seat. The registration requires the following documents (there is a table detailing those documents in Items 4 and 5, below): Articles of incorporation (duly executed by the shareholders, two witnesses and by the companys lawyer); Certified copies of certain personal documents of the shareholders and the companys managing director(s) (Identity Card, Social Security number, individual taxpayers registry (CPF-MF) and a document that shows home addresses); Powers of Attorneys (if applicable, i.e. if the articles of incorporation were established by representatives of the shareholders); In case of a non-Brazilian legal person as shareholders of the company: documents proofing its incorporation in the home country (notarized, legalized and translated into Portuguese in Brazil by a sworn translator).

3.3 City Hall of So Paulo (ISSQN)

The enrollment of a service company in the city hall of So Paulo requires the presentation of the following documents, in addition to all other documents that already have been presented to the commercial board (JUCESP), as listed above: Proof of registration of the company in the CNPJ/MF; and Certified copies of the partners and the companys manager personal documents, such as Identity Card, Social Security number, individual taxpayers registry (CPF-MF) and a document that corroborates their home addresses. Please refer to the general guidelines of this chapter IV, regarding liability of VAS providers in relation to ISSQN.

3.4 National Social Security Institute (INSS)

In order to obtain the registration of the company in the INSS is necessary the following documents: Articles of incorporation of the company duly filed with the commercial board; and Proof of the company enrollment with the CNPJ/MF.

3.2 Brazilian National Tax Registry of Legal Entities (Cadastro Nacional de Pessoas Jurdicas do Ministrio da Fazenda / CNPJ)
The then granted a CNPJ-tax number is necessary for a company to function in practice, i.e. for example to open and maintain a bank account and to identify itself by stating its CNPJ-tax number when entering into contracts. All Brazilian companies must be registered at the National Registry of Legal Entities Cadastro Nacional de Pessoas Jurdicas do Ministrio da Fazenda - CNPJ/MF (Brazilian Taxpayers Registry). In order to obtain such registration it is necessary: Certified copy of the companys articles of incorporation duly filed with the commercial board;
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3.5 Caixa Econmica Federal Federal Bank (CEF)

To obtain the registration in the CEF is necessary the following documents: Articles of incorporation of the company duly filed with the commercial board; Proof of the company enrollment with the CNPJ/MF;

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 Certified copies of the partners and the companys manager personaldocuments, such as Identity Card, Social Security number, individual taxpayers registry (CPF-MF) and a document that corroborates their home addresses; and Documents issued by CEF, duly filled-in.

3.6 Individual Taxpayers Registry (Cadastro de Pessoas Fsicas do Ministrio da Fazenda/ CPF)
For the cases when a natural person is a shareholder of a company, it is necessary to enroll at the Individual Taxpayers Registry. There are two possibilities of asking this enrollment: if you are not resident in Brazil or if you are a foreigner resident in Brazil. The steps and necessary documents for each case are shown below.

Acts practiced at CPF by non-residents in the country who are intransit in Brazil can also be done by legal gent (attorney-in-fact), properly admitted, brazilian or not, constituted at origin country or Brazil, being this cases attended by the affiliated entities (Bank of Brazil/BB, Federal Economic LoanOffice/CEF, Mail and Telegraph Company/ECT), observed the cases that the attendance will be concluded at Federal Income Office. Documents exhibited by foreigners and its legal agents, when not in the national language (Portuguese), must be translated by a sworn translator. It is dismissed the confirmation of the filiations for the foreigners. Foreigner employees of diplomatic mission, consular offices or representative of international organization that have immunities or privileges must request the practice of acts at CPF at Foreign Relations Ministry.

Non-Residents
Interested: Brazilian/foreigner resident abroad Who can request registry: own foreigner or its legal agent Necessary documents: Form (FCPF) filled with the requested data, along with the following documents (original and copy)(Form filled at the Federal Income Offices website); Identity papers accepted in the resident country. In the case of being Brazilian non-resident must be proved natural persons filiations; When the request is made for a person under sixteen yearsold or incapable, identity papers of one of the parents, tutor, curator or legal guardian; When the request is made by an attorney, identity papers of the attorney and of the under the seal. Important observations: The request made for a person under sixteen yearsold or incapable must beexecuted by one of the parents, tutor, curator or legal guardian. The non-resident in Brazil who are in-transit can practice acts related to theCPF at any unity of the Federal Income Office and must exhibit, along with the necessary documents above listed (except the Form-FCPF), passport or Ministry of Justice/Federal Polices Certificate , where must be reported entrance and exit information, for confirmation of the non-resident status.

Foreigners in Brazil
Interested: foreigner in Brazil Who can request registry: own foreigner or its legal agent Necessary documents: Original or copy of the identity papers of the interested (it may be the identity papers issued at origin country or paper issued by origin countrys embassy) or National Registration of Foreigner-RNE or Passport or RNE Protocol along with the printed screen of the National Foreigners System-SINCRE, in which must be informed the registry data. If the documents are not expressed in national language (Portuguese), it must be translated by a sworn translator. Attention: CPF request for foreigners in Brazil must be after concluded in a Federal Revenue Office. Interested must wait for telegram with the convocation for attendance at a Federal Revenue Office, carrying the above documents and the Protocol number of attendance in the affiliated entities. Attorney-in-fact: If the request is made by an attorney, must be exhibited a copy along with the original power of attorney under the seal or have its signature certified or a certified copy of the power of attorney.

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4. Table with the necessary documents for registering a Limited-liability company

Documents Request farm (procedure cover) signed by the officer/administrator, partner; attorney-at-fact with specific powers or interested third party. Private instrument of Articles of Incorporation, signed by partners or its attorneys-at-fact; or when made in public instrument, its respective certicate. Clearence certificate for the oficer/administrator of the Company, of this declaration is not determined in the Articles of Incorporation. The original or certified copy of the proxy, when the request form, the Articles of Incorporation or the clearence certificate are signed by an attorney-at-fact. Certified copy of the Identity Cards of officers/administrators and the signatory of the form. Prior approval of the govemment, if applicable National Company Registration Form - available at httg://fcg.desenvolvimento.gov.br Payment forms of the applicable costs of registration Copies 1 3 1

5. Table with the necessary documents for registering a Joint-stock corporation

5.1. Through private subscription in the General Meeting
Documents Request form (procedure cover) signed by the ofoer/administrator, partner, attorney-at-fact with specific powers or interested third party. Minutes of the General Meeting of Foundation Bylaws if not transcript in the Minutes Entire list of all the people who subscripted the capital Receipt of the mandatory deposit Pages of the Official Gazette of the State and the newspaper which contains the call of notice to the General Meeting of Foundation if applicable The original or certified copy of the proxy, when the request form is signed by an attorney-at-fact Certified copy of the Identity Cards of officers/administrators and the signatory of the form. Prior approval of the government, if applicable National Company Registration Form available at http://fcn.desenvolvimento.gov.br Payment forms of the applicable costs of registration Copies 1 3 3 3 1 1 1 1 1 1 1

1 1 1 1 1

When one of the quotaholders is a foreigner company, it is also necessary: Proof of the legal existence of the company and the powers of the one who grants the proxy The full content of foreigner quotaholders Bylaws or Articles of Incorporation Proxy to an attorney in Brazil with special powers to receive judicial summons When one of the quotaholders is a foreigner natural person, it is also necessary: Proxy to an attorney in Brazil with special powers to receive judicial summons 1 1 1 1

5.2. Through private subscription in public instrument

Documents Request form (procedure cover) signed by the ofoer/administrator, partner, attorney-at-fact with specific powers or interested third party.
Certificate of the public instrument, with all necessary information The original or certified copy of the proxy, when the request form is signed by an attorney-at-fact. Certified copy of the Identity Cards of officers/administrators and the signatory of the form. Prior approval of the govemment, if applicable

Copies 1 3 1 1 1 1 1
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Attention: all the foreigner documents above must be notarized, legalized and translated by a sworn

National Company Registration Form available at http://fcn.desenvolvimento.gov.br

Payment forms of the applicable costs of registration 58

5.3. Through public subscription in General Meeting

Documents Request form (procedure cover) signed by the officer/administrator, partner, attorney-at-fact with specific powers or interested third party.
Minutes of the General Meeting of Foundation

Investment Companies
Copies 1 3 3 3 1 1 1 1 1 Are deemed as lnvestment Companies those which have as a corporate purpose the investment in various securities or that manage third party investment funds (article 49 of the Securities Market Act).
Necessary documents Public body which approves Legal Reference

Bylaws and prospectus and its respective publications in newspapers Entire list of all the people who subscripted the capital Receipt of the mandatory deposit - see item above Pages of the Official Gazette of the State and the Newspaper which contains the call of notice to the General Meeting of Foundation - if applicable The original or certified copy of the proxy, when the request form 1 is signed by an attorney-at-fact National Company Registration Form available at http://fcn.desenvolvimento.gov.br
Payment forms of the applicable costs of registration

Constitutive acts and all the Minutes of Meetings concerning the establishment, alteration of the Bylaws, change in the corporate capital, election of Officers

Securities Exchange Commission (CVM)

Article 49, 4th paragraph of Securites Market Act and Resolution n 1289/1987 of the National Monetary Commission.

Mining companies
Observation: until the filing in the National Department of Mineral Production [DNPM) the company is not deemed as a mining company. For that matter, first the company must be registered at the Commercial Registry, and then filled in the DNPM for the operation license. After that, all the alterations in the Articles of incorporation or Bylaws must be previously approved by the public body.
Necessary documents Public body which approves Legal Reference

6. List of companies with special treatment governmental authorizations required

Financial Institutions (being either public or private)
Are deemed as Financial lnstitutions: Saving Banks, Commercial Banks, Multiservice Banks, Development Banks, Investment Banks, Credit, Financing and Investing Partnerships, Brokerage, Exchange, Securities, Housing Credit and Leasing Companies, Credit Unions.
Necessary documents Public body which approves Legal Reference

Change in Bylaws, after granted the operation license

National Department of Mineral Production (DNPM)

Mining Code (Decree N. 62.934/1968)

Foreigner companies
In this case, the authorization is given prior to the file at Commercial Registry. Attention: this is the case that the legal entity acts directly in Brazil - not as a shareholder of a Brazilian company. According to Brazilian law, the company is deemed as national when is established and registered in the country and doesnt matter about the origin of its partners.
Necessary documents Public body which approves Legal Reference

Constitutive acts and all Brazilian the Minutes of Meetings Central Bank concerning the establishment, alteration of the Bylaws, change in the corporate capital, election of Officers

Article 192 of Brazilian Constitution; Laws N. 4595/1946, 4728/1965 (Securities Market Act) and S764/1971

Request of authorization; proof of Federal Government Articles 59 to 73 the legal existence of the company; of Decree law minutes of the meeting which the N. 2627/1940 resolution to act in Brazil were taken; the last balance sheet
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Public air services

Are deemed as public air services those of air public transportation of cargo, people, mail, either domestic or international. The Officers must be all Brazilian, as well as the foreigner partners might have, at most, 20% (twenty percent) of the corporate capital with voting rights.
Necessary documents Public body which approves Legal Reference

Constitutive acts and all the Minutes of Meetings concerning the establishment, alteration of the Bylaws, change in the corporate capital, election of Officers

Aeronautics Ministry Civil Aviation Department (DAC)

Brazilian Aeronautics Code (Law N. 7565/1988)

Telecommunications and radio broadcasting

According to Brazilian Law, the Officers in these companies must be born in Brazil or be naturalized at least 10 (ten) years before. Also it is necessary to have a special operation license from the government to function.
Necessary documents Public body which approves Legal Reference

Changes in the Bylaws or Articles of Incorporation after the establishment; election of Officers

National Secretary of Brazilian TelecomCommunications munication Code (Law N. 4117/1962)

Companies in the frontier area.

AAre deemed as frontier area the internal area of 150 Km (one hundred and fifty kilometers) from the national boundaries. This area is considered of national security matter, so in case a company with foreigner partners has real state properties in frontier area, it is necessary an authorization of the National Security Council now called National Defense Council.
Necessary documents Public body which approves Legal Reference

sponsor

Constitutive acts and all the Minutes Meetings concerning the establishment, alteration of the Bylaws, change in the corporate capital, election of Officers

National Defense Council

Decree N. 85064/1980

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