Value Creation

Growth Strategy

Growing our telecom services (B2B and B2C) nationwide while providing the best experience to our customers

Our story began in 1954, in a small area in Central Brazil, and now we are present in the country from the South to the Northeast, in 372 cities spread over 16 states and the Federal District.

Our geographic expansion process started in the Southeast region, in cities around our backbone network and near our original service area. We have chosen B2B customers to be the focus of our services in new operation areas. Medium-sized enterprises have proved especially underserved by specialized telecom services, combined with a closer, more individualized service, which features coincide exactly with Algar Telecom’s way of doing business and serving our customers.

It was with that customer profile in mind that we rolled out the first waves of our geographic growth, expanding our networks through modular investments concentrated in specific areas within the cities we serve, which are selected by georeferencing concentrations of potential customers. Once we had achieved good coverage among our potential markets, the next step was to invest into densifying those networks, and we managed, by making incremental investments, to include micro and small enterprises in our universe of target customers. This strategy has ensured our ability to grow continuously, with scale gains and a higher return on invested capital.

In addition to growing organically, we are always looking for potential opportunities consistent with our strategy, having done 5 acquisitions from 2015 to 2021. In 2021, we acquired Vogel Telecom, adding 27,000 kilometers to our network in locations that are hard for new construction projects to access and show high potential as telecom consumers.

As a result of all these efforts, at the end of 2021 we had more than 115,000 kilometers of optical fiber cables spanning Brazil from the South to the Northeast and serving customers in 16 states plus the Federal District. In addition, in 2021 our B2B segment, consisting of corporate customers (medium-sized enterprises) and MSEs (micro and small enterprises), yielded net revenues of R$1,660.4 million, representing 64% of all revenues at Algar Telecom. With this accomplishment, the Company’s current size and profile, coupled with the opportunities presenting themselves in the telecom industry in Brazil, enable us to start a new stage in our growth strategy on the following key pillars:

We are going to intensify the expansion of our B2B services by connecting new customers in the locations and networks built by the Company over the past few years, where installed capacity is already there to support our increased penetration in target markets.

Our optical fiber network was specifically built to serve B2B customers, for which they feature topology with physical and geographic redundancy to ensure a high level of availability of services that are currently so necessary in day-to-day business. Our Network Operations Center, for its part, works 24x7 constantly monitoring the traffic over networks with a view to anticipating any potential incidents and shortening response times.

We prioritize local sales teams, as they know the habits and demands of each region, and we have skilled technical teams to do maintenance as effectively as possible. We believe that our position of combining a full range of quality services with a close and effective customer service sets us apart in the market, and this is how we are going to continue to connect new customers to our networks.

We will continue expanding the Information and Communication Technology (ICT) business as we provide these services together with connectivity and telephone. These solutions enable us to be closer to our customers and meet their needs more broadly, with a positive impact on customer retention times and average tickets.

Towards that end, we will keep investing in innovation and using agile methods for scaling new products, with a broad, modern and up-to-date solutions portfolio. ICT service accounted for 13% of our total revenues in the B2B segment.

The Internet of Things (IoT) should also grow significantly over the next several years and will impact increasing numbers of services and sectors. At Algar Telecom, the number of M2M chips grew 69% in 2021, hitting 2.3 million chips sold, especially to the credit and debit card merchant acquisition and fleet tracking service sectors. Our goal is to develop applications that allow this product to be used by a growing variety of consumers and services. Our history is marked by innovation and by our pioneering spirit, and it is through those, too, that we intend to build our future.

We currently provide services to residential customers (B2C) in our original service area (Central Brazil municipalities in the states of Minas Gerais, São Paulo, Goiás and Mato Grosso do Sul) and certain bordering cities. In that area, our optical fiber network reaches 94.7% of the over 1 million households there, 473,000 of which are Algar Telecom customers in the retail segment. In addition to high-speed broadband Internet over optical fiber infrastructure, we provide those customers with mobile phone and landline services and we are the market leader in all those services in that region.

5G

In November 2021, we purchased seven lots at the 5G auction for that region where we operate mobile phone services, and, in just a few days, we were the 1st carrier in Brazil to launch 5G services, at the 2.3 GHz frequency, which we did in 3 of the key cities for B2C. The 5G technology will enable us to continue pioneering the development of innovative, cutting-edge products for our mobile phone customers.

New regions

In 2021 we started to provide services to residential customers in new cities through our franchise model, which has enabled us to experience the telecom B2C market in other regions. Algar Telecom’s franchise have been around since 2018, having reached dozens of cities in our original service area.

The next step will be to expand our residential services into a larger number of regions. The size and structure Algar Telecom has built up in its B2B segment will be a platform from which boost the Company’s B2C services from here on out. The choice of locations will prioritize cities where we have networks installed and B2B customers served and smaller towns where there is less competition and lower optical fiber penetration. The flagship of our offerings will be high-speed broadband connection over optical fiber networks, a technology that delivers a better connection experience than the others and has been establishing itself as predominant in the Brazilian telecom market. In addition to the Internet service, we are engaged in providing solutions, in retail, in landline services and in various other value-added segments.

To successfully expand into new regions, we are going to combine organic growth with our franchise business model and potential acquisitions. Since our focus is on connection via optical fiber network and more than 60% of all access to this service are currently in the hands of small providers, we will be watching the developments in this market.

In addition, the low Internet penetration in Brazil, compared to other countries, suggests that this market will grow in the coming years, which it will predominantly through optical fiber connections. Our 68 years’ experience providing telecom services to B2C customers and the opportunities arising in the marketplace put us in a position to consider this segment as a new expansion avenue.

To support all of these growth avenues, we are carrying on with our digitization process to increasingly simplify not only the customer’s journey with the Company, but also our internal processes. That will allow us to achieve the growth aimed at, skill keeping up our distinguishing service quality and proximity in our customer service.

5G

We secured the largest spectrum for the 5G technology in our mobile operation area

3.5GHz

80MHz

2.3GHz

40MHz

26GHz

1GHz

Investments in cutting-edge technology

A diversified range of innovative services provided to all customers, wherever they are

Seven lots purchased at action for R$64.7 million, R$ 57 million of which for the 2.3 GHz lot.

We obtained licenses to operate in bands within our original service area, which comprises 87 municipalities in the states of Minas Gerais, São Paulo, Mato Grosso do Sul and Goiás.

The minimum prices specified in the call for bidders can be paid in up to 20 years, which coincides with the authorization period.

The premium amounts will be used for investment in capabilities to provide 5G services in municipalities with populations of fewer than 30,000.

In December 2021, just over a month after the auction, we were the first carrier in Brazil to launch services with 5G technology in Uberlândia and Uberaba, state of Minas Gerais, and in Franca, state of São Paulo.

Our ongoing technological evolution, the quality of our network, which was already prepared, the Company’s planning, the ability to execute and the fast rate of speed at which we broke into the market demonstrated that our strategy is spot-on for us to continue to be pioneers.

Vogel acquisition

An important 2021 achievement was the Vogel Telecom acquisition. Through it, we expanded our optical fiber network by 27,000 kilometer in areas that are complementary to those we serve in the states of São Paulo, Rio de Janeiro, Minas Gerais, Paraná, Santa Catarina, and Rio Grande do Sul, in places that are hard to access for the building of new network and show high potential for telecom service consumers.

While adding new markets for us to tap, this transaction enables us to provide a broader portfolio of products and services to the customers acquired, including micro and small enterprises in those previously unserved locations in or target market.

This strategic move represented yet another important step in our geographic expansion process.