Ruralfone

Summary of Proposed Investment

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. Its purpose is to enhance the transparency of IFC’s activities, and this document should not be construed as presuming the outcome of the Board decision. Board dates are estimates only.

Project number	26278
Company name	LOCAL SERVIÇOS DE TELECOMUNICAÇÕES LTDA
Country	Brazil
Sector	Information
Environmental category	C
Department	Global Inform. & Comm. Tech.
Status	Active

Date SPI disclosed	September 18, 2007
Projected board date	October 30, 2007
Previous Events	Invested: April 30, 2008 Signed: March 31, 2008 Approved: February 27, 2008

Overview

Sponsor/Cost/Location

Development Impact

Contacts

Attachments

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.

Anticipated development impact of the project

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.

IFC's expected development contribution

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.

Environmental and social issues - Category C

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

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