26278 - Ruralfone

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Summary of Proposed Investment

Project Number

26278

Company Name

LOCAL SERVIÇOS DE TELECOMUNICAÇÕES LTDA

Date SPI Disclosed

Sep 18, 2007

Country

Brazil

Industry

Telecommunications and Technology

Projected Board Date

Oct 30, 2007

Status

Completed

Sector

Mobile Telephony

Department

WBG Digital and AI

Environmental Category

C - No Impact

Previous Events

Approved : Feb 27, 2008
Signed : Mar 31, 2008
Invested : Apr 30, 2008

Project Description

Ruralfone is a Brazilian company which provides low cost basic telephone service to customers in small cities under the band name “Local”. The company launched operations in 2005 and has successfully implemented an innovative business model in two small cities in the state of Ceara in the northeast of the country. The company now wishes to expand its operations to cover more cities.

The project will finance the expansion of the “Local” services to an additional 10 cities. IFC has invited to participate in this project with an equity/quasi equity instrument.

Sponsor / Cost / Location

Product Line	IFC Investment (million USD)
Risk Management
Guarantee
Loan	3.0
Equity

Development Impact

This project will have a significant development impact on the target areas:

- Increased connectivity: Ruralfone has already increased teledensity by 65% in the two twons where it is active, reaching 12% penetration. 75% of subscribers did not have a fixed line prior to acquiring service from Ruralfone. Further growth is still expected as national penetration average is over 20%. A repetition of these results in other cities is expected.

- Improvement of local economy and business environment: Small business entrepreneurs and service providers have seen an increase in productivity from better connectivity to the local population as a result of faster business transactions and better information. About one third of Ruralfone lines are taken by local SME’s as their business line.

- Local employment and skills generation: Ruralfone has a decentralized structure. It hires and train management from the local population, building important skills for the local people in the process.

- Improved social and government services: In the towns where the company operates, the local government has been able to increase by more than ten times the number of telephone lines it operates, improving accessibility to the community and response times. Additionally, the cost effective service has allowed local governments to provide additional social benefits such as hot lines for violence against women and children, tourist information lines, etc.

- Increased local tax revenues: Ruralfone has become one of the highest VAT contributors in the cities where it operates.

A repetition of all of these results in other cities is expected.

In the proposed investment, IFC would contribute to the provision of financing in the form of equity and debt capital that would not otherwise be available to a local company of Ruralfone''s size operating in the geographical areas where Ruralfone operates. Moreover, in making this investment, IFC would be supporting an innovative business model that spreads the reach of telecom infrastructure, which has the potential to be replicated in other rural areas throughout Brazil and beyond. Finally, IFC’s involvement in the proposed financing would include assistance on improving the company’s current corporate governance and management capabilites. IFC can play a significant role in advising on an appropriate financing, increasing the credibility of the Project, and helping attract other investors.

The company employs a small staff, whose working conditions comply with IFC and local standards. The company goes beyond compliance in some of its employment practices (e.g., a majority of its sales force are women) and in working with local communities. Infrastructure in this project consists of a small amount of equipment installed and maintained by an industry leading service provider on and at the base of pre-existing towers, in compliance with IFC and local standards. Based on these conditions, this is a Category C project according to IFC’s Environmental and Social Review Procedure

Contacts

For Inquiries About the Project, Contact

Denis Cote
CEO LOCAL Servicos de Telecomunicacoes Ltda.
Av. Dom Luis, 500 - Sala 1526
Aldeota, Fortaleza - CE
CEP 60160-230 - Brasil
Telephone: +55 85 3242 7813

Email: dcote@ruralfone.com
www.localtelecom.com.br

Luis Vieira
Marketing, Sales & Implementation
LOCAL Servicos de Telecomunicacoes Ltda.
Av. Dom Luis, 500 - Sala 1526
Aldeota, Fortaleza - CE
CEP 60160-230 - Brasil
Telephone: +55 85 3242 7813

Email: luis@localtelecom.com.br
www.localtelecom.com.br

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This Summary of Proposed Investment is prepared and distributed to the public in advance of the IFC Board of Directors' consideration of the proposed transaction. It is not an offer of shares to the public and is intended solely to enhance the transparency of IFC’s activities. This document should not be construed as presuming the outcome of the Board decision. Board dates are estimates only. The following SPI is disclosed in accordance with IFC’s Policy on Disclosure of Information that went into effect April 30, 2006.

The map is for illustrative purposes and does not imply the expression of any opinion on the part of the World Bank, concerning the legal status of any country or territory or concerning the delimitation of frontiers or boundaries. Country borders or names do not necessarily reflect the World Bank Group's official position. In some cases, available project location information is limited to the country of the project's activities. Locations are approximate.

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