Corporate Presentation. Investor Relations Telefônica Brasil S.A. March, 2017

Transcription

1 Corporate Presentation Investor Relations Telefônica Brasil S.A. March, 2017

2 DISCLAIMER This presentation may contain forward-looking statements concerning future prospects and objectives regarding growth of the subscriber base, a breakdown of the various services to be offered and their respective results. The exclusive purpose of such statements is to indicate how we intend to expand our business and they should therefore not be regarded as guarantees of future performance. Our actual results may differ materially from those contained in such forward-looking statements, due to a variety of factors, including Brazilian political and economic factors, the development of competitive technologies, access to the capital required to achieve those results, and the emergence of strong competition in the markets in which we operate. For a better understanding, we are presenting pro forma numbers combining Telefônica Brasil and GVT results for all financial and operational indicators for every period as of January,

3 HIGHLIGHTS RESULTS SYNERGIES STRATEGY MARKET OVERVIEW BACK-UP

4 2016 HIGHLIGHTS Another quarter of solid performance driving strong results across the board in 2016 Total Service Revenue ex-reg. Eff. 4.2% 4.0% 1.8% 1.7% 4Q Superior revenue growth in 4Q16 leveraged by mobile resulting in consistent evolution in 2016 Mobile Service Revenue ex-reg. Eff. 6.2% 3.9% 5.2% 3.0% 4Q % market share in postpaid of MSR¹ in 62% Data Data centric strategy focused on consolidating leadership in key markets IPTV and FTTH Accesses 47.9% 25.3% FTTH IPTV #1 FTTH operator in LatAm² Recurring EBITDA Margin Rec. EBITDA 7.1% 7.3% 33.8% 32.1% 4Q EBITDA 3 growth and margin improvement through synergies and efficiency Recurring Operating Costs 4Q % -1.9% OpCF R$ Billion +28.2% Outstanding OpCF increase resulting from higher EBITDA and Capex optimization through synergies Synergies continue to evolve solidly resulting in R$15.7Bn of NPV already secured (71% of Best Case scenario) 1- Mobile Service Revenues. 2- According to FTTH Council based on number of customers reported on September, Adjusted for the sale of towers in 1Q16, in the total amount of R$513.5 million, for the provision for organizational restructuring in the total amount of R$101.2 million in 2Q16 and R$19.2 million in 3Q15, and for the provision for organizational changes and real estate reorganizations in 4Q16, in the total amount of R$52.5 million. 3

5 HIGHLIGHTS RESULTS SYNERGIES STRATEGY MARKET OVERVIEW BACK-UP

6 In 2016, strict cost control, margin expansion and efficient capex execution drove strong cash flow generation KEY FINANCIAL HIGHLIGHTS % R$ million 4Q16 %¹ exc. Reg. impact %¹ % exc. Reg. impact 2 Net Service Revenue 10, , Net Mobile Service Revenue 6, , Net Fixed Revenue 4,281 (1.2) ,970 (0.2) 2.4 Recurrent OpEx ³ 7,198 (1.8) 28,846 (1.9) Recurrent EBITDA³ 3, , Recurrent EBITDA Margin³ (%) 33.8% 1.9 p.p. 32.1% 1.9 p.p. Capex Exc. Licenses 2, ,004 (3.8) Capex/Sales (%) 25.8% 3.7 p.p. 18.8% (0.9) p.p. EBITDA³ CAPEX Exc. Licenses 876 (17.4) 5, Free Cash Flow 1,493 (32.0) 5, Net Income 1, , Considers TEF Brasil + GVT figures as of January, Regulatory impact of tariff cuts (MTR/VC/TU-RL/TU-RIU). 3- Adjusted for the sale of towers in 1Q16, in the total amount of R$513.5 million, for the provision for organizational restructuring in the total amount of R$101.2 million in 2Q16 and R$19.2 million in 3Q15, and for the provision for organizational changes and real estate reorganizations in 4Q16, in the total amount of R$52.5 million. 4

7 TOTAL SERVICE REVENUES Double-digit growth in non-voice products brings total service revenues to a positive trend Non-voice businesses soared 15.2% yoy in 4Q16 supported by resilient evolution in mobile and fixed data Non-Voice Services Revenue % over Service Revenue 23.7% Non-voice Services annual growth 17.5% 4.6% 55.7% 57.3% 59.1% Mobile Data & Digital Services UBB 4Q15 4Q16 TV 52.1% Voice Services annual growth Growth Total Serv. Revenues Growth 1Q16 2Q16 3Q16 4Q % 16.6% 15.7% 15.2% 1.0% 1.6% 2.2% 1.8% -6.7% Fixed Voice 4Q15 Mobile Voice 4Q % Voice revenues affected by regulation, service maturity and macroeconomic environment 7

8 MOBILE REVENUES Continuous expansion of mobile revenues fueled by postpaid growth, prepaid recovery and higher data contribution Mobile revenue increase driven by data Continue to sustain high postpaid growth while prepaid gradually recovers Net Mobile Service Revenue¹ R$ Million Mobile Breakdown Service Revenue 3.9%² 3.0% Postpaid Revenue³ % 6,078 6,132 6, ,180 3,613 3, % 23.7% Internet growing 40.7% 70% 72% +2.2 p.p. 1Q16 2Q16 3Q16 4Q16 6% 10% 9% 8% Prepaid Revenue % 1Q16 2Q16 3Q16 4Q16 2,414 2,246 2, % 30% 28% 4Q15 4Q p.p. -12% -12% -8% -4% 4Q15 3Q16 4Q16 Outgoing voice Data and Digital Services Incoming voice Prepaid Postpaid 1- Simplified view, does not disclose other services revenues. 2- When excluding effect of MTR cuts growth would be 6.2% in 4Q Does not include wholesale, M2M and other services revenues. 8

9 With a data centric strategy, Vivo continues to evolve solidly in postpaid accesses while protecting value in prepaid, increasing market share lead MOBILE ACCESSES BASE MOBILE OPERATING Mobile Accesses Thousand 73,268 73,778 42% 45% Total Postpaid 1% 7% Postpaid net adds Thousand % POSTPAID Reducing churn levels (postpaid exc. M2M) 1.8% -0.2 p.p. 1.6% Positive net portability every month against all major players in Q15 3Q16 4Q16 4Q15 4Q16 PREPAID 58% 55% 4Q15 4Q16 Prepaid -4% Total 28.4% 30.2% Market Share +1.8 p.p. Increasing penetration of bundles Bundled prepaid customer base % Bundled Offers 9 4Q15 +44% 4Q16 Selective approach leading to positive ARPU Evolution % 15.3% -18.2% 5.1% 4Q15 Accesses -4.3% 4Q16 Outgoing ARPU

10 MOBILE OPERATING Execution of commercial strategy focused on value and data driving superior ARPU Innovative and value driven portfolio of offers builds loyal customer base focused on data and drives solid ARPU growth POSTPAID 5 options with larger data bundles Family decision driving higher loyalty Higher data usage through shared data plans that can be used by 1 to 6 accesses PREPAID Weekly and monthly offers driving recurrence in top-ups No free add-ons driving additional package acquisitions Focused on data with packages from 200Mb to 1Gb per week 100% of customers bundled >70% of customers with data packages Total ARPU R$ per month Data % 62% Voice 48% 38% -12.4% 4Q15 4Q % 31.8% Total ARPU 74% higher than competitors average¹ 1- Based on numbers published for the 4Q16 by the main competitors and company s estimations for one of them. 8

11 Resilient growth in high value fixed markets FIXED REVENUES Robust evolution in Ultra Broadband and TV partly compensating voice decline Net Fixed Revenue R$ Million Net Fixed Revenue ex-reg. Impact In 2016, fixed revenue would have grown every quarter ex-regulatory impact 4.2% 2.8% 1.2% 1.4% -1.2% 0.6% 4,334 4,254 4,281 1Q16 2Q16 3Q16 4Q16 Sustained growth in B2C business, especially in key fixed services % -0.5% 17.5% B2C Fixed Service Revenue 4Q % 18.4% 1.5% B2C UBB IPTV 2,327 2,097 2, % -7.9% Improving mid-term prospects on B2B 4Q15 3Q16 4Q16 Voice and Others 1 Pay TV UBB xdsl Data and IT 2 Leveraging fiber expansion Improving product portfolio and channels Simplifying processes and systems Capturing benefits from economic recovery 1- Includes voice, interconnection and other services. 2- Corporate Data and IT. 11

12 FIXED OPERATING Customer and ARPU trends continue to be solid in higher end fixed services FIXED ACCESSES BASE Fixed Accesses Thousand 23,935 7% 30% 23,352 7% 31% Total Pay TV Broadband -2% -4% +3% BB Accesses 1 Thousand Total FTTH FTTC xdsl 7,117 7,296 8% 10% 45% 47% 47% 43% 4Q15 4Q16 BROADBAND 3% 25% 6% -5% Broadband ARPU 2 R$ per month Q15 xdsl UBB 4Q16 7% 9% 4% PAY TV 63% 61% Voice -5% Pay TV Accesses Thousand Pay TV ARPU R$ per month 4Q15 4Q16 Total IPTV DTH 1,788 1, , ,460-4% 48% -10% % 2% 9% 4Q15 1- FTTx includes FTTH (Fiber to the Home) and FTTC (Fiber to the Cabinet) accesses. 2- Considering ADSL accesses for xdsl and Fiber for UBB. 12 4Q16 4Q15 DTH 4Q16 IPTV

13 CAPEX In 2016 the Company invested in key technologies to sustain superior network quality while reducing Capex level Reducing the level of Capex/Sales while focusing on growth Optimized Capex allocation improving returns Capex¹ R$ Billion and % over Net Revenues 20.9% 19.7% 18.8% Capex/Sales¹ 14.3% 16.8% 18.2% 25.8% Use of big data to drive investment to the cities/sites with strong concentration of high-value customers Focus on 4G expansion (coverage and capacity) prioritizing customer experience Reduction of unitary costs on FTTH Q16 2Q16 3Q16 4Q16 Solid execution accelerating expansion in the 4Q16 Improvement on CPE logistics provided significant Capex avoidance Refurbished CPEs (units) Number of new 4G cities x % More than 30% of Capex planned for CPEs in 2016 saved through refurbishment of used equipment 1Q16 2Q16 3Q16 4Q16 1- Exclude amounts related to the spectrum payment in the amount of R$185.5 million in 3Q16. 11

14 Synergies and efficiencies continue to reduce costs and increase EBITDA margin in 4Q16 4Q16 Cost Evolution % over Net Revenues COSTS AND MARGINS Recurrent Operating Costs¹ R$ Million 4Q15 7,329 4Q16 7,198 IPCA 12M 4Q16-1.8% 6.3% Cost of Goods Sold 6.4% 5.1% -20.1% Services Rendered, G&A and Others¹ 32.2% 31.4% -1.4% 3.2% 3.2% Bad debt Commercial Expenses 2 2.5% 3.2% 18.5% 17.9% 26.5% -2.3% Q16 4Q16 Bad Debt % NOR Personnel¹ 8.5% 8.2% 3.2% Recurrent EBITDA 3,432 3,676 Recurrent EBITDA Margin 31.9% 33.8% +7.1% +1.9 p.p. 1- Adjusted for the provision for organizational changes and real estate reorganizations in 4Q16, in the total amount of R$52.5 million. 2- Excluding bad debt. 14

15 COSTS AND MARGINS Solid and consistent cost contention across the board during the quarter 4Q16 Cost Evolution Breakdown R$(131) Million Δ Δ R$ (45) Commercial Expenses R$ (47) Services Rendered, G&A and Others Interconnection tariff reductions Synergies in TV content Lower energy costs Sales force optimization Synergies with unified brand and channels Reduced call center costs due to virtualization and improved quality R$ 29 Personnel Savings due to rightsizings in 2015 and 2016 despite higher costs with Insourcing of field services and call center R$ (139) Cost of Goods Sold R$ 72 Bad Debt Selective commercial approach focused on higher value customers in B2C and B2B Credit and collection actions continue to sustain bad debt at stable levels -19.4% % 3.2% 1,295 1,348 4Q15 Subsidy 4Q Bad Debt % NOR 15

16 Net income expansion in 2016 driven mainly by EBITDA growth and towers' sale 2016 Net Income R$ Million and % yoy NET INCOME REPORTED R$ Million 7.3%¹ 4.6% 11.3% 9.7% 11.3% n.a. 22.6% % 1,058 (335) (126) (94) 250 3,331 3,835 4, EBITDA exc. Non-Recurring Items D&A Financial Result Taxes 2016 Non-Recurring Items 2016 after Non- Recurring Items Main variation drivers D&A increase Explained by the higher volume of fixed assets in the period due to higher investments in recent years Financial Result Higher costs due to the non cash effect from monetary indexation of contingencies Non-Recurring Items Positively impacted by the sale of towers in 1Q16, in the net amount of R$338.9 million and negatively impacted by the provision for organizational restructuring in the net amount of R$66.8 million in 2Q16, R$34.6 million in 4Q16 and R$12.7 million in 3Q15 1- Refers to Recurrent EBITDA evolution reported. For purposes of this build-up, variation excludes net effects of non-recurrent items. 16

17 FREE CASH FLOW Strong cash flow generation in all lines supported robust financial profile and strong shareholder remuneration Sustained Free Cash Flow¹ generation with improvements across the board Net debt reduction related to repayment of debt and cash generated in the period R$ Million (8,319) (8,004) EBITDA (CAPEX) ,733 13,663 R$ Million Gross Debt R$ Billion 10.2 Dec/ Dec/16 YTD -9.8% (1,434) (1,094) (Interest and Income Taxes) 906 (Working Capital) Net Debt R$ Billion YTD -10.9% (206) Free Cash Flow Non-Recurring Items² 227 3,680 5,005 R$3.3Bn shareholder remuneration paid during 2016³ , Dec/15 Net debt Dec/16 Net debt / EBITDA Issuance of debentures in the amount of R$2Billion on February 8 th to improve debt profile 1- FCF does not include income tax on IOC. 2- Proceeds from the sale of towers, in the net amount of R$562.1 million, expenses from the provision for organizational changes, in the amount of R$150.2 million and spectrum payment in the amount of R$185.5 million. 3. The income tax payment related to the IOC paid in August 2016 and to the IOC paid in December 2016 took place in the subsequent month as of the deliberation of each amount. 17

18 HIGHLIGHTS RESULTS SYNERGIES STRATEGY MARKET OVERVIEW BACK-UP

19 Already executed synergy actions to secure 71% of the NPV of Best Case Scenario Strong execution led Vivo to fully secure base case NPV and guarantee 71% of best case scenario SYNERGIES NPV R$ Billion % of captured value over: Base Case Best Case % 71% 55% 64% 71% Revenues % 20% 2Q16 3Q16 4Q16 Main drivers for evolution in 4Q16 Opex Capex Financial and Tax Base Case Due Diligence Best Case Integration Plan Trending NPV Already Captured 167% 107% 114% 97% 78% 85% Savings generated by additional restructuring during 2016 Early migration of leased circuits through negotiation of fines with operators Gains with renegotiation of large TV content contracts already being captured in the 4Q16 19

20 Impact from Operational Synergies in free cash flow amounts to R$1.4Bn in 2016 Direct Cash Flow Synergies 1 SYNERGIES Indirect Cash Flow Synergies Impact of Synergies on Revenues Impact of Synergies on Opex 28 FY FY Revenues - Opex Capex and Opex Avoidance Synergies Economic gains related to companies leveraging on each other assets, thus avoiding investments and expenses Backbone (Capex) R$129 Million FY15 FY16 Impact of Synergies on EBITDA EBITDA Backhaul (Capex) R$75 Million Impact of Synergies on Capex (net of enabling investments) FY15-99 FY15 FY16 12 FY16 - Capex Fiber HP's (Capex) R$122 Million Opex R$139 Avoidance 3 Million Impact on Direct OpCF OpCF Impact on Indirect OpCF R$465 Million FY15 FY16 1- Net of impact from upfront integration costs. 2- Normalized for the impact of the provision for organizational restructuring in 2Q16, in the total amount of R$101.2 million. 3- Opex avoidance is not considered for Fiber HP s. 20

21 HIGHLIGHTS RESULTS SYNERGIES STRATEGY MARKET OVERVIEW BACK-UP

22 We are executing a strategy that addresses customers needs leveraging our strongest capabilities Demand opportunities in Brazil Change in consumer behavior Low penetration of mobile data Incipient 4G Coverage Pent-up demand of UBB Low Pay TV penetration IoT¹ growth Voice Data Challenging macroeconomic scenario Global industry trends GDP Currency Inflation Unemployment Big Data Cloud IoT¹ 1. Internet of Things 22 22

23 STRATEGY Vivo aims to accelerate value creation and sustain absolute leadership in the Brazilian telecom space Vision Be the best alternative for connectivity in Brazil Strategy Totalize customers with a complete, profitable and quality offer Best internet in and out of home Digitalization Efficiency Best customer experience across channels Expansion of FTTH network Best mobile data coverage (3G,4G 5G) Hub for most relevant digital services Digital processes end to end Leveraging on Big Data Lean company model Synergies Best-in-class stores Highly trained field and customer service teams Complete self-care Foundation Continue being the most valuable and aspirational brand 23

24 Main Financial Perspectives 2017 Data Centric strategy driving double-digit growth in Mobile Data & Digital and Fixed UBB revenues¹ Continuous EBITDA margin improvement through efficiency and synergies Optimized Capex of R$24 Billion from 2017 to 2019 R$4.1 Billion in shareholders remuneration² (+ 24% y-o-y) to be paid in August and December 2017 (based on 2016 results) 1- Double digit growth refers to the combined revenue growth of mobile data and digital services and ultra broadband. 2- Shareholders remunerations of R$4.1 Billion, being R$1.9 Billion in dividends and R$2.2 Billion in interest on capital (Gross amount). To be ratified in the Telefonica Brasil s General Shareholders Meeting of 2017, to be held on April 26,

25 HIGHLIGHTS RESULTS SYNERGIES STRATEGY MARKET OVERVIEW BACK-UP

26 Financials As the largest integrated national telco, Vivo outperforms peers in revenue growth, EBITDA and cash flow Player 2 Player 3 Player 4 Net Service Revenue (R$ mm) Mobile Service Revenue (R$ mm) Fixed Service Revenue (R$ mm) Recurring EBITDA 2 (R$ mm) Recurring EBITDA Margin (%) Capex (ex-licenses) LTM , % 34, % 25, % 14, % 24, % 10, % 7, % 13, % 16, % 24, % 9, % % 13, % +7.3% +1.9p.p. 9, % 6, % 5, % 26.6% -0.3p.p. 25.1% -1.5p.p. 33.5% +2.0p.p. 8, % n.a. 3 n.a. 4, % 4, % Operating Cash Flow 3 (R$ mm) 5,659 (13.3% of NOR) +28.2% n.a. 3 n.a. 1,936 (7.6% of NOR) -38.4% 728 (4.7% of NOR) +14.0% 1-4Q16 Results are not public yet. 2- Adjusted by the towers sale in the 1Q16 in the amount of R$513,5 million, provision for corporate restructure in 2Q16 in the amount of R$ million, R$ 19.2 million in the 3Q15 and R$ 52.5 million in the 4Q CapEx not disclosed for the Brazilian subsidiary. 4- Calculated as Recurring EBITDA Capex (ex-licenses). 26

27 With a rational and data centric strategy Vivo continues to lead in postpaid and ultra broadband Leadership in mobile, with undisputed position in post-paid Mobile Accesses 2016 (million) Postpaid Prepaid % Postpaid Postpaid Market Share 2016 (%) 42% Growth -0.3pp % 19% +0.3pp +0.2pp Vivo Player 4 Player 2 Player % 23.5% 30.4% 21.9% 12% Vivo Player 2 Player 4 Player 3-0.2pp Solid position in Broadband and High Speed BB Fixed BB Accesses 2016 (million) Player 2 Vivo Player 3 Player 4 % Speed > 34Mbps 16.0% 14.7% 0.8% 94.7% #1 FTTH operator in LatAm X Best positioned in revenues and EBITDA generation Net Revenue Share 2016 (%) 21% 18% 13% 30% VIVO Player 2 Player 3 Player 4 EBITDA Share 2016 (%) 15% 27% VIVO Player 2 Player 3 Player 4 36% 39% 1- According to FTTH Council based on number of customers reported on September,

28 BACK-UP 4Q16 RESULTS FIGURES

29 4Q16 Results - Pro forma Financial Statements INCOME STATEMENT Consolidated in R$ million 4Q16 4Q15 % 3Q16 % % Gross operating revenues 16, , , , , Net Operating Revenues 10, , , , , Mobile 6, , , , , Fixed 4, ,333.9 (1.2) 4, , ,997.5 (0.2) Operating costs (7,250.3) (7,328.6) (1.1) (7,283.1) (0.5) (28,486.0) (29,419.5) (3.2) Personnel (988.2) (910.3) 8.6 (939.0) 5.2 (3,859.8) (3,541.9) 9.0 Costs of services rendered (2,782.1) (2,986.2) (6.8) (3,050.6) (8.8) (11,906.2) (12,203.2) (2.4) Interconnection (462.8) (615.0) (24.7) (453.7) 2.0 (1,924.1) (2,647.0) (27.3) Taxes and contributions (430.8) (327.3) 31.6 (496.3) (13.2) (1,861.2) (1,650.0) 12.8 Third-party services (1,320.5) (1,477.8) (10.6) (1,463.9) (9.8) (5,705.1) (5,632.7) 1.3 Others (568.0) (566.1) 0.3 (636.7) (10.8) (2,415.8) (2,273.5) 6.3 Cost of goods sold (553.8) (692.8) (20.1) (513.5) 7.8 (2,118.9) (2,597.1) (18.4) Selling expenses (2,290.3) (2,263.5) 1.2 (2,257.8) 1.4 (8,910.1) (9,143.4) (2.6) Provision for bad debt (344.2) (272.1) 26.5 (342.6) 0.5 (1,348.2) (1,294.8) 4.1 Third-party services (1,845.6) (1,874.9) (1.6) (1,840.9) 0.3 (7,216.9) (7,460.8) (3.3) Others (100.5) (116.5) (13.7) (74.3) 35.3 (345.0) (387.8) (11.0) General and administrative expenses (473.7) (383.2) 23.6 (372.9) 27.0 (1,622.3) (1,371.3) 18.3 Third-party services (345.4) (298.1) 15.9 (292.3) 18.2 (1,254.1) (1,100.1) 14.0 Others (128.3) (85.1) 50.8 (80.6) 59.2 (368.2) (271.2) 35.8 Other net operating revenue (expenses) (162.2) (92.6) 75.2 (149.3) 8.6 (68.7) (562.6) (87.8) EBITDA 3, , , , , EBITDA Margin % 33.3% 31.9% 1.4 p.p. 31.9% 1.4 p.p. 33.0% 30.2% 2.8 p.p. Depreciation and Amortization (1,815.2) (1,914.9) (5.2) (1,972.6) (8.0) (7,654.4) (7,319.6) 4.6 EBIT 1, , , , , Net Financial Income (315.3) (200.3) 57.4 (296.3) 6.4 (1,234.5) (1,108.7) 11.3 Gain (loss) on investments (60.0) 0.3 (33.3) (36.8) Taxes (278.2) (203.0) 37.0 (189.0) 47.2 (1,049.5) (956.6) 9.7 Net income 1, , , ,

30 4Q16 Results - Pro forma Financial Figures NET OPERATING MOBILE REVENUES Consolidated in R$ million 4Q16 4Q15 % 3Q16 % % Net operating mobile revenues 6, , , , , Net service mobile revenues 6, , , , , Outgoing voice 2, ,413.7 (15.7) 2,245.9 (9.4) 8, ,439.8 (14.4) Interconnection (17.0) , ,664.3 (21.9) Data plus Digital Services 3, , , , , Messaging P2P (17.8) (7.3) 1, ,671.3 (9.9) Internet 3, , , , , Digital Services (6.5) , ,259.0 (0.3) Other services (96.2) (64.2) Net handset revenues (20.7) (9.9) 1, ,493.7 (20.0) NET OPERATING FIXED REVENUES Consolidated in R$ million 4Q16 4Q15 % 3Q16 % % Net operating fixed revenue 4, ,333.9 (1.2) 4, , ,997.5 (0.2) Voice 1, ,025.3 (6.7) 1, , ,994.1 (4.6) Interconnection (48.5) (43.6) Broadband 1, , , Corporate Data and IT (8.8) 2, , Pay TV (0.7) 1, , Other services (7.8) % Data / Net Operating Revenue 38.6% 35.6% 3.0 p.p. 39.2% (0.7) p.p. 37.8% 35.3% 2.5 p.p. 30

31 4Q16 Results - Pro forma Mobile Operational Figures OPERATING MOBILE PERFORMANCE Thousand 4Q16 4Q15 % 3Q16 % % Mobile total accesses 73,778 73, , ,778 73, Postpaid 33,391 31, , ,391 31, Postpaid ex. M2M/Dongles 26,123 23, , ,123 23, M2M 5,013 4, , ,013 4, Prepaid 40,387 42,194 (4.3) 40,996 (1.5) 40,387 42,194 (4.3) Market Share 30.2% 28.4% 1.8 p.p. 29.3% 1.0 p.p. 30.2% 28.4% 1.8 p.p. Postpaid 42.1% 42.4% (0.3) p.p. 42.4% (0.4) p.p. 42.1% 42.4% (0.3) p.p. Mobile broadband (modem only) 39.4% 50.3% (11.0) p.p. 39.5% (0.1) p.p. 39.4% 50.3% (11.0) p.p. Net additions 283 (6,145) n.a ,669 n.a. Postpaid ,317 2,719 (14.8) Market Share of postpaid net additions 33.1% 69.0% (35.9) p.p. 45.2% (12.1) p.p. 38.0% 49.7% (11.6) p.p. Market penetration 118.0% 125.6% (7.6) p.p % (3.6) p.p % 125.6% (7.6) p.p. Monthly churn 3.5% 6.2% (2.6) p.p. 3.4% 0.1 p.p. 3.4% 4.2% (0.8) p.p. Postpaid ex. M2M 1.6% 1.8% (0.1) p.p. 1.7% (0.1) p.p. 1.8% 1.8% (0.1) p.p. Prepaid 5.0% 9.0% (4.0) p.p. 4.7% 0.3 p.p. 4.6% 5.7% (1.1) p.p. ARPU (R$/month) Voice (12.4) 11.4 (5.7) (7.7) Data Postpaid ex. M2M ARPU Prepaid ARPU M2M ARPU (21.9) (11.1) MOU

32 4Q16 Results - Pro forma Fixed Operational Figures OPERATING FIXED PERFORMANCE Thousand 4Q16 4Q15 % 3Q16 % % Total fixed accesses 23,352 23,935 (2.4) 23,707 (1.5) 23,352 23,935 (2.4) Fixed voice accesses 14,343 15,030 (4.6) 14,634 (2.0) 14,343 15,030 (4.6) Residential 9,318 9,795 (4.9) 9,581 (2.7) 9,318 9,795 (4.9) Corporate* 4,580 4,672 (2.0) 4,609 (0.6) 4,580 4,672 (2.0) Others (20.9) (20.9) Fixed broadband 7,296 7, ,311 (0.2) 7,296 7, FTTx* 4,133 3, , ,133 3, Others 3,163 3,334 (5.1) 3,235 (2.2) 3,163 3,334 (5.1) Pay TV 1,713 1,788 (4.2) 1,762 (2.8) 1,713 1,788 (4.2) Voice ARPU (R$/month) (2.7) (1.7) Broadband ARPU (R$/month) Pay TV ARPU (R$/month) (*) Includes GVT SOHO accesses not previously accounted. 32

33 4Q16 Results - Pro forma Financial Data LOANS AND FINANCING (R$ million) Local currency Consolidated Currency Annual Interest Rate Due Date Short-term Long-term Total BNDES UR LTIR LTIR + 0.0% to 4.08% Until , ,130.4 BNDES R$ 2.5% to 6.0% Until BNDES R$ IPCA % + TR Until BNDES R$ SELIC D % Until BNB R$ 7.0% to 10.0% Until Confirming R$ 108% of CDI Until Debentures 4 th issue - Series 3 R$ IPCA + 4% Until Debentures 1 st issue - Minas Comunica R$ IPCA + 0.5% Until Debentures 3 rd issue - Single Series R$ 100% of CDI spread Until , ,086.8 Debentures 4 th issue - Single Series R$ 100% of CDI spread Until , ,332.9 Financial Leases R$ - Until Contingent Consideration R$ - Until Foreign currency December 2016 Resolution 4131 US$ 2.05% and Libor % Until BNDES UMBND ECM % Until Total 4, , ,224.1 L.T. OBLIGATIONS (R$ million) December 2016 Year Amount , After Total 4,560.6 NET FINANCIAL DEBT Consolidated in R$ million 30/12/ /09/ /12/2015 Short-term Debt 4, , ,343.0 Long-term Debt 4, , ,878.3 Total Debt 9, , ,221.3 Cash and cash equivalents (5,115.9) (5,837.4) (5,375.6) Net derivatives position (28.4) (10.6) (264.8) Net debt 4, , ,580.9 Net debt/ebitda

34 BACK-UP MACRO

35 Macroeconomic scenario improves in 2017 IPCA % Inflation Inflation on downward trend as a result of the recession, FX appreciation and positive food supply shock Interest Rate 1 Average Selic % Inflation expectations back at the target open room for a sustainable reduction of interest rates Exchange Rate 1 Average R$/US$ Advance of structural reforms allows a decline of risk premium and FX appreciation GDP 1 % GDP growth to recover in 2017 on the back of higher confidence, lower inflation and interest rates cuts Unemployment 2 Average % E 2018E Unemployment rate will start to decline by mid-2017, responding to the resumption of the GDP growth 1- Source: Focus bulletin, February 17, Source: Latin Focus, January

36 For further information: Investor Relations