Buried deep within TIM S.A.'s Q1 2024 earnings call lies a revelation, a subtle shift in strategy that could have profound implications for the company's future. While analysts focused on the usual suspects – ARPU growth, customer acquisition, and broadband expansion – a quiet revolution in international roaming is quietly driving TIM's success.

TIM's CEO, Alberto Griselli, casually revealed this game-changer while addressing a question about the surprisingly strong growth in mobile service revenue. Despite flat prepaid revenue, total mobile service revenue soared, defying the expectations of a simple average between prepaid and postpaid performance. The culprit? International roaming.

Griselli explained that TIM had significantly upgraded its roaming services, particularly for postpaid customers, starting in Q3 2023. This, he noted, led to a surge in both outgoing roaming revenue (from TIM customers traveling abroad) and incoming roaming revenue (from foreign visitors using TIM's network in Brazil). The effect was twofold: higher revenue and a strategic appeal to a specific segment – travelers.

This subtle shift reveals TIM's strategic brilliance. Instead of simply focusing on blanket ARPU growth or customer acquisition across all segments, they've identified a niche with high growth potential – international travelers. By crafting a compelling roaming offer, TIM is not only tapping into immediate revenue growth but also positioning themselves as the preferred operator for this valuable segment.

"So when you look at the portfolio going forward, so you got basically two dimensions, the existing portfolio that is subject to what. This is subject to inflation adjustment that basically happens in the first quarter, so last quarter and this quarter. And then you have the network expansion on debt portfolios. And when we put 5G, we occupy more space and therefore, we need to pay a bit more for the rental of the tower. And then there are the initiatives that we are doing in order to optimize, which is basically negotiations with the tower company. - Alberto Griselli, CEO of TIM Brazil"

But the real magic lies in the ripple effect of this strategy. As Griselli pointed out, international roaming tends to be reciprocal. Attracting foreign visitors to TIM's network in Brazil incentivizes Brazilian travelers to stick with TIM when venturing abroad. This creates a virtuous cycle, enhancing customer loyalty and generating a steady stream of high-margin roaming revenue.

This approach is particularly astute given the current Brazilian economic landscape. While prepaid and even control segments remain sensitive to price changes and macroeconomic fluctuations, international travelers tend to be less price-sensitive. They prioritize convenience, reliable network coverage, and high-quality service. This aligns perfectly with TIM's 3B strategy of Best Service, Best Network, and Best Offer, making them an ideal target for this specific approach.

Hypothetical Growth in Roaming Revenue

The following chart is a hypothetical representation of TIM's mobile service revenue growth, demonstrating the potential contribution of international roaming.

The numbers tell the story. While TIM didn't disclose the precise contribution of international roaming, Griselli emphasized its structural significance, implying that the positive trend will continue in the coming quarters. This suggests that roaming could be contributing a significant portion of the 7.4% growth in mobile service revenue recorded in Q1 2024.

Moreover, this strategy has the potential to amplify the effectiveness of TIM's other growth levers. Increased customer loyalty, driven by the attractive roaming offer, can bolster retention rates across all segments, reducing churn and enhancing the value of existing customers. This, in turn, can support TIM's more-for-more strategy, allowing them to confidently offer higher data allowances and premium services without triggering churn spikes.

The international roaming strategy also plays into TIM's broader ambition of becoming the most preferred telco in Brazil. By demonstrating responsiveness to the needs of a high-value segment, TIM reinforces their commitment to customer satisfaction and service quality. This resonates with all customers, bolstering their brand image and positioning them as a premium operator.

TIM's subtle shift towards international roaming is a brilliant tactical maneuver that leverages market dynamics and consumer behavior to quietly fuel growth. While other analysts may be preoccupied with the traditional indicators, this hidden weapon could be the key to unlocking TIM's full potential and solidifying their position as Brazil's preferred telco.

"Fun Fact: Brazil is the largest country in South America, and with its diverse culture and natural beauty, attracts millions of international tourists each year. This provides a vast and potentially lucrative market for TIM's international roaming services."