Results 3Q15 -...

Investor Relations

Telefônica Brasil S.A.

Investor Relations


November, 2015.

Results 3Q15_

Investor Relations


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, 2014.

Disclaimer

2

Investor Relations


3Q15 Highlights

3

Improved monetization of customer base3

• Rising 4G and data adoption supporting Mobile ARPU increase (+3.3% y-o-y in Q3)

• Price optimization in 3P and higher share of UBB and premium TV customers driving ARPU evolution (Pay TV ARPU +5%

y-o-y and BB ARPU +3% y-o-y in Q3)

Maintaining high margin in challenging macro scenario4

• Recurrent costs grew 5.6% y-o-y in 3Q well below inflation in the period (+9.5% in the last 12 months)

• EBITDA growth acceleration (+4.3% y-o-y in Q3 vs +2.8% in Q2 and +1.9% in Q1 15)

Integration of GVT into Vivo in line with the Best Case scenario 5

• Synergy initiatives being executed according to plan and meeting financial expectations

• Organization fully integrated and operating as a single company

• Increasing leadership in postpaid (41.8% mkt share in Q3) with solid additions and churn reduction

• Fixed UBB and Pay TV rising ~20% y-o-y (Vivo is leading in Pay TV market’s net adds growth from Jan to Aug 2015)

Expanding position in key segments2

• Mobile revenue growth of 6.2% y-o-y, driven by a 35% data revenue increase (Data represents ~50% of MSR)

• Accelerating fixed revenue annual growth to 3.9% due to resumed growth in SP and steady BB and Pay TV evolution

Sustaining solid revenue growth1

Investor Relations


1- Considers TEF Brasil + GVT figures as of January, 2014. 2- Includes Net Handset Revenues. 3- Excludes non-recurrent expenses relatedto organizational restructuring (R$19.2 million). 4- The tax basis revision of certain intangibles due to the businesses combination (Law12,973), whose net positive effect on the net income was R$1,196.0 million in the 2Q14.

Net Operating Revenue2 (R$ million)

Net Fixed Revenue (R$ million)

Recurrent EBITDA3(R$ million)

Recurrent EBITDA Margin3(%)

Net Mobile Revenue2(R$ million)

R$ million 3Q151 %YoY 9M151 %YoY

10,580.8

4,295.0

3,198.6

30.2%

6,285.8

5.2

3.9

4.3

(0.3) p.p.

6.2

31,372.9

12,645.6

9,444.6

30.1%

18,727.3

5.2

2.5

3.0

(0.7) p.p.

7.2

Recurrent Net Income4(R$ million) 886.2 (16.1) 2,289.7 (19.1)

Vivo achieves ongoing revenue growth, acceleration on EBITDA expansion

and strong cash flow generation in the 3Q15

KEY FINANCIAL HIGHLIGHTS

Capex (R$ million) 2,122.5 1.8 5,946.5 5.4

Recurrent EBITDA – CAPEX (R$ million) 1,076.1 9.6 3,498.1 (0.8)

4

Investor Relations


XXXData Revenues are growing faster and already

represent almost half of MSR

424 455430 453

1,2711,958

2,125

2,866

3Q14 3Q15

Mobile revenue growth driven by data usage increase

7%

5%

54%

3Q15 YoY

Internet

VAS

SMS

35%

20.6% 33.5% 34.9%

38%

46%49%

3Q14 2Q15 3Q15

% Data and VAS yoy % Data and VAS over MSR

2,850 2,490

552394

2,125 2,866

308422

86113

5,9216,286

3Q14 3Q15

-12.6%

-28.7%

34.9%

36.9%

Others

Data and VAS

Incoming voice

Outgoing voice

Handsets

31.7%

5

3Q15 YoY

+11pp

YoY

Net Mobile RevenueR$ Million

Data and VAS Revenues% yoy and mix

Steady increase in revenues driven by data

Data and VAS Revenues R$ Million

9.0%

Evolution without regulatory effect1

1- Regulatory effect include MTR reduction.

6.2%

Investor Relations


Improving level of postpaid gross additions and

voluntary churn Expanding leadership in market share

28.7% 29.1%41.5% 41.8%

34%38%

3Q14 3Q15

Total Market Share Postpaid Market Share Mix of Postpaid

Market strategy focused on better customer experience and premium data

offering, leading to greater share of postpaid accesses and lower churn

1- Monthly churn by customer request. 2- Market Share according to ANATEL data of August, 2015. 3- Annual evolution of the financialvolume of recharges. 6

980 1,048 1,137

0.42% 0.39% 0.39%

1Q15 2Q15 3Q15

Gross Additions Voluntary Churn

Postpaid Market Share and Mix2Gross Additions and Voluntary Churn1

Pure Postpaid + Control Plans

Sustained annual growth in postpaid

52.6 53.1 49.0

27.2 29.6 30.4

79.8 82.7 79.4

3Q14 2Q15 3Q15

-7.0%

12.0%

YoY

-7.7%

2.9%

QoQ

Postpaid

Prepaid

Total Mobile AccessesMillion

-0.5% -3.9%

Value focus generating positive prepaid revenue

performance

Prepaid Accesses and Revenues Evolution3

% YoY

-3.4%

-7.0%

3.3%5.4%

3Q14 3Q15

Prepaid accesses YoY Outgoing ARPU YoY

-1.1%

2.7%

3Q14 3Q15

Outgoing Revenues

Investor Relations


ARPU growth enhanced once again by data adoption, …

1- According to the last numbers released by ANATEL, August, 2015. 2- Teleco, October, 2015. 3- Average data traffic of our customers asa percentage of the total data traffic in São Paulo, Rio de Janeiro, Brasília, Porto Alegre and Belo Horizonte. 4- Data cards, data packagesand M2M, excluding eventual data user with no data package or plan. 5- Includes smartphones and web phones.

ARPU Mix R$/month

Well positioned in the 4G space Accelerated data adoption

16%

30% 34%

3944

49

3Q14 2Q15 3Q15

4G Data traffic Data Accesses

Increased high-end smartphone

sales in Vivo

38%28%

18% 12%

44% 42% 45%

31%

Vivo Player 2 Player 3 Player 4

4G mkt share % Population Covered

18pp

+26%

YoY

Best network and customer experience led to robust data adoption and

record data ARPU growth once again

7

4G Mkt Share and Population Covered

1 2 3 4

62% 51%

38% 49%

23.5 24.3

3Q14 3Q15

Data

Voice

3.3%

YoY

33.5%

-15.0%

Million

66% of smartphone sales in 4G

(Sep/15)

13% of smartphone devices in

the base in 4G

73% of total smartphone

penetration5 and 89% in

pure postpaid

16.2% 18.3%26.3% 27.3%

33.5%

3Q14 4Q14 1Q15 2Q15 3Q15

Highest %

growth in the

last 4 years

… specially in the B2C segment.

Total ARPUR$ per month

Total Data ARPUYoY

62% 48%

38% 52%

21.9 22.6

3Q14 3Q15

Data

Voice

3.0%

YoY

38.6%

-19.2%

B2C ARPUR$ per month

Investor Relations


Resumed growth in Vivo stand alone and sustained

increase in GVT3

Evolution without regulatory effect2

2,159 2,138

352 448

407 481326

318

693707

198204

4,1354,295

3Q14 3Q15

-1.0%

27.0%

18.3%

-2.4%

1- Includes voice, accesses and network usage. 2- Regulatory effect include VC reductions. 3- Without eliminating intercompany effects.

3Q15 YoY

2.8%

714 726

362 401

101 107200

2661,377

1,500

3Q14 3Q15

3.9%6.0%

Fixed revenue acceleration through continued growth in Pay TV and BB

Others

Corporate Data

and IT

BB (xDSL)

Pay TV

Voice1

R$ Million

R$ Million

Pay TV

BB

Voice and Others

8

3Q15 YoY

9%

Net Fixed RevenueR$ Million

Robust evolution in Pay TV and Broadband and

improved voice revenue trends

2Q15 YoY

3.9%3.1%

UBB (FFTx)

1.9%

Corporate Data and IT

33%

2Q15 YoY

10%

40%

11%10%

1,659 1,631

370 398

604 611

152 181

2,786 2,821

3Q14 3Q15

Pay TV

BB

Voice and Others

Corporate Data and IT

3Q15 YoY

19%

2Q15 YoY

19%

7%6%

1.3%-0.3%

Investor Relations


1- FTTX includes FTTH (Fiber to the Home) and FTTC (Fiber to the Curb) accesses. 2- Consider speeds of 12Mbps and higher. Based onAugust,15 for competitors, the last public information released by ANATEL, and internal data for Telefônica Brasil. 3- B2C segmentconsidering ADSL accesses for BB and Fiber/Cable for UBB. 4- Includes IPTV and Connected DTH.

Resilient sales strengthened our position in promising 3P services and fueled

UBB and Pay TV ARPU growth

9

ULT

RA B

RO

AD

BA

ND

PAY T

V

3,177 3,789

3Q14 3Q15

GVT Vivo Fiber

19%

14%

67%

YoY

FTTX Accesses1

Thousand

Pay TV AccessesThousand

52%37%

5% 3%

Vivo Player 2 Player 3 Player 4

UBB Market Share2

Jan-Aug/15

Pay TV net addsThousand - Jan-Aug/15

-36 -12-122

Vivo Player 2 Player 3 Player 4Premium Pay TV

DTH

35.9 37.842.2 42.4

36.2 37.4

3Q14 3Q15

BB UBB

Broadband ARPU3

R$ per month

Pay TV ARPUR$ per month

Solid accesses

growth of ~20%

yoy …

… is leading to

improved

market share …

… while driving

ARPU growth in

the period.

3%

5%

1%

YoY

67.9 69.184.9 89.4

78.5 82.4

3Q14 3Q15

DTH Premium Pay TV

5%

2%

5%

YoY

893 1,180

649649

1,5421,829

3Q14 3Q15

Premium Pay TV4

DTH

Total19%

0%

32%

YoY

Record

FTTH sales

in Sep,15

4

184

Investor Relations


Controlled cost evolution across the board partly compensating for macro

headwinds

1.3% 1.6%

28.2% 26.7%

5.1% 6.5%Cost of Goods Sold

Services Rendered

1- Excludes bad debt. 2- Excludes non-recurrent expenses related to organizational restructuring (R$19.2 million).

Cost Evolution% over Net Revenues

Gross Margin

8.5% 8.3%

19.2% 18.6%

4.6% 4.9%2.7% 3.3%

Personnel

G&A and Others

Bad debt

Selling Expenses1

EBITDA Margin

Recurrent EBITDA Margin

65.2%65.4%

30.0%30.5%

30.2%30.5%

3Q153Q14

1.9%

13.3%

27.5%

3Q15YoY

33.4%

-0.2pp

-0.5pp

-0.3pp

Cost of handset growth due to increased volume of higher-

value handsets and FX variation

7,3826,989 5.6%Recurrent Operating Costs

Million

2Q15YoY

6.5%

1Q15YoY

6.6%

Actions already implemented

driving a declining trend in

the quarter that should

continue to be seen in 4Q15

3.9%

Containing costs below inflation

10

9.5% 8.9% IPCA 12M8.1%

Energy Costs 33.2% Higher energy costs mainly associated with tariff hikes as

of March, 2015

-0.3%

Containing expenses in SG&A:

• G&A and Others: renegotiation of contracts and cost cutting

partially compensating for higher contingencies

• Selling expenses: rational commercial strategy and portfolio

simplification

• Personnel: restructuring programs compensating the 7%

increase of collective agreement (Jan 2015)

3.4% 3.3%3.2%

jul/15 aug/15 sep/15

Annual evolution benefited by MTR reduction and lower

FISTEL provisions

Net Debt / Net Revenues

Investor Relations


∆ YoY

3.6% 11.1% 25.7% 26.8% -16.1%

D&A increase

• Explained by the acquisition of 700MHz

license (Dec,14) and higher volume of

fixed assets in the period

Taxes

• Higher taxes in 3Q15 due to larger IOC

declaration generating lower tax rate

in the 3Q14

Financial Result

• Higher costs associated with derivatives

due to exchange rate gains of non-

hedged loans in 2014 partially

compensated by a lower net debt in the

period

Net Income reduction related to license amortization and higher financial

costs in the period

Main variation drivers:

R$ million

%

11

1,056886

112 184

57 40

3Q14 EBITDA D&A Financial Result Taxes 3Q15

Net IncomeR$ Million and % yoy

REPORTED

Investor Relations


Steady level of cash flow generation with EBITDA

growth supporting higher investments

Sustained capex execution despite exchange rate

variation

5.6 5.9

18.9% 19.0%

9M14 9M15

Capex % Capex / Net Revenues

3.5 3.5

9M14 9M15

Strong cash flow generation sustained capex effort, steady income

distribution and robust financial profile

13.610.7

3Q14 3Q15

6.23.7

0.490.29

3Q14 3Q15

Net debt Net debt / EBITDA

12

Lower net debt due to the recent capital increase being partially compensated by the 700MHz payment

CapexR$ Billion

5.4%

YoY

Gross DebtR$ Billion

Net DebtR$ Billion

-21%

YoY

-41%

YoY

OCF: EBITDA (-) Capex1

1- Excludes licenses.

-0.8%

YoY

R$2.1 bn paid as

IOC and dividends

during 2015

+At least R$1.9 bn to

be paid until the end

of this year

DISCOVER, DISRUPT, DELIVER

Synergies_

Investor Relations


Synergies Program advancing according to plan, with positive early results

14

Opex

Capex

Major Highlights

Activities executed

as planned

Operation as one

company

Early results in line

with Best Case

Revenues

• Cross-selling activities in all segments have been started

• All key IT projects to enable revenue synergies continue

to advance according to plan

• Unified 3P sales management

• Initiated roll out of new field operations model in SP

• Redesigned organization (before planned date)

• Solid advances on integration of telecom networks (fiber

backhaul, sharing of backbones, etc)

• Leveraging scale in all procurement negotiations

Investor Relations


We are executing all tactical and structural actions for revenue synergies

15

Mobile

Consumer

and 4P

Fixed

Consumer

(3P)

B2B

Completion of

activities according

to plan

Status of

financial

results¹

Highlights

In Line

In Line

In Line

• Mobile cross-selling to Fixed Customers on many channels with sales

in line with expectations:

• Inbound telemarketing (mailings to +1M customers)

• Online

• IVR (full roll-out in October)

• Started IT project to enable integrated offers (delivery Q2 2016)

• Brand unification project evolving according to plan (Q2 2016)

• Fixed cross-selling to Mobile Customers with adoption as expected:

• 45 Vivo stores and dealers and gradually expanding

• Inbound and Outbound Telemarketing

• Expand cross sell program to authorized dealers

• Started IT projects to integrate 3P portfolio and to use GVT’s

systems for concession customers in SP (first delivery Q2 2016)

• Ongoing tests of GVT’s FTTC model in SP state. Positive results

• Fully leveraging combined Vivo & GVT network to compete in the

Large Corporations segment

• Mobile and IT services cross-selling to GVT’s Business customers

through dealers and telemarketing. Anticipated cross-selling to

GVT’s Soho customers

• Fixed cross-selling to mobile SMBs through dealers, telemarketing

and direct sales force

1. According to Best Case.

In Line

In Line

In Line

Investor Relations


Opex and Capex Synergies evolving robustly in all fronts, specially in HR,

where key milestones have been achieved

16

Operations2

Finance,

Admin. &

Purchasing

In Line

In Line

• Migration of almost ~2k last mile circuits (26% of total plan)

• Started implementation of new field operations model in São Paulo

(partial insourcing)

• Started project to implement a segmented customer care model in 2Q16

• Full roll-out of company-wide Quality Plan

• All complex IT projects to enable integration have been started

• Fiber Backhaul of +2.5k sites (12% of total plan)

• Sharing of 18 backbone routes (30% of total plan)

• Started Real Estate and Logistics optimization

• Continue to advance on procurement negotiations, leveraging scale

with suppliers (Opex and Capex gains)

• Improved credit analysis and collection actions using best practices

HR Above

• Anticipated organizational redesign from Jan 2016 to Sep 2015

• Health plan cost reduction in a different model

• Completed internal integration (e-mails, badges, intranet, etc.)

OPEX

CAPEX

Commercial In Line

• Unified 3P sales management, reducing 3P acquisition cost by 20% in SP

• Started Pay TV content negotiations

• Launched RFP to unify advertising agencies

1- According to Best Case. 2- Network, IT and Customer Care.

In Line

In Line

Anticipated

In Line

Completion of

activities according

to plan

Status of

financial

results¹

Highlights

Investor Relations


3Q15 Highlights

17

Continued leadership in mobile and accelerating fixed revenue growth1

Sustained value-driven strategy with robust access and market share growth in key segments2

Increasing mobile and fixed ARPUs through continued monetization3

Contained cost evolution and improving EBITDA growth despite higher inflation in the period4

Capturing early synergies in line with targets included on the best case scenario5

Building the foundation to solidify our position as the market leader leveraging the

opportunities of the digital economy6

Q3 Results confirm positive revenue growth trends and leadership position key segments

For further information:

Investor Relations

+55 11 3430.3687

[email protected]

www.telefonica.com.br/ir

mailto:[email protected]

http://www.telefonica.com.br/ir

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