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Investor Relations Telefônica Brasil S.A. May, 2015.

Results 1Q15_

Investor Relations Telefônica Brasil S.A.

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.


Highlights: sustaining positive evolution of main operational drivers leading to strong revenue growth

3

1- Average data traffic of our customers as a percentage of the total data traffic in São Paulo, Rio de Janeiro, Brasília, Porto Alegre and Belo Horizonte. 2- Excludes organizational restructuring expenses in the 4Q14.

Contract Accesses and 4G adoption1

FTTH BB and Pay TV Net Adds Thousand and yoy

Consumer Fixed Broadband Revenues

Million

Recurrent EBITDA2

Billion and yoy

Outgoing Mobile Service Revenue yoy

9%

28%

26% 32%

35%

1Q13 1Q14 1Q15

% 4G data trafficMix of contract accesses

111

193

83

146

1Q14 1Q15

FTTH BB PayTV

77%

74%

360

373

385

1Q13 1Q14 1Q15

11% 9%

14%

1Q13 1Q14 1Q15

Fixed

Mobile

Net Revenues

yoy

1.5% 1.2% 1.8%

4.3%

2Q14 3Q14 4Q14 1Q15

Highest growth recorded in

about 3 years

Highest growth recorded in

about 3 years

2.5 2.5 3.0 2.6

2Q14 3Q14 4Q14 1Q15

4th consecutive quarter of

EBITDA growth

2.0% 0.2% 7.0% 6.6% 3.7% 3.4%

DISCOVER, DISRUPT, DELIVER

Operating Performance_


Integrated Performance: strong growth in Mobile Contract and resilient fixed accesses evolution in the 1Q15

Total Accesses

1- Includes prepaid and contract customers. 2- Includes fixed voice, fixed broadband and Pay TV. 3- Excludes Vivo Play accesses, our OTT solution.

4.3%

-0.5%

YoY

78.5 79.9 81.9

15.4 15.4 15.3

93.9 95.4 97.2

1Q14 4Q14 1Q15

Mobile Fixed 2 1

53.6 51.6 53.0

24.9 28.4 28.9 78.5 79.9 81.9

1Q14 4Q14 1Q15

Prepaid Contract

-1.1%

16.0%

YoY

Mobile Accesses

Million Million

1.9%

4.3%

Fixed Accesses

10.8 10.7 10.6

3.9 3.9 3.9 0.6 0.8 0.8

15.4 15.4 15.3

1Q14 4Q14 1Q15

Voice Broadband PayTV

-2.0%

-0.2%

22.7%

YoY Million

3

5

3.5% 2.4%

-0.5% -0.8%


Mobile: ARPU growth acceleration driven by consistent evolution in Contract accesses and improved trends in 4G Data adoption

Contract – MKT Share and Mix

4G Coverage

37% 41% 42%

26% 32%

35%

1Q13 1Q14 1Q15Contract market share Mix of contract

Million

Smartphone Penetration and Data users

4G Data Adoption

39% 47% 69%

17

30

41

1Q13 1Q14 1Q15

Smartphone Penetration Data Access

+22pp

+35%

YoY

1- Data cards, data packages and M2M, excluding eventual data user with no data package or plan. . 2- Teleco. 3- Average data traffic of our customers as a percentage of the total data traffic in São Paulo, Rio de Janeiro, Brasília, Porto Alegre and Belo Horizonte. 4- Average of competitors’ ARPU in the 1Q15.

Million

ARPU Reais and % YoY

Total ARPU and Mix

Benchmark 53% higher than market average in the 1Q

15.9 24.3

Average ofcompetitors

Vivo

+53%

1

4

6

9% 14%

17% 22%

28%

mar/14 jun sep dec mar/15

4G Data traffic % 4G data traffic

70% 65% 58%

30% 35% 42%

1Q13 1Q14 1Q15

Voice Data

23.1 23.3 24.3

Total ARPU R$/month

+3.4% +0.7% +4.3% yoy

Total ARPU

5x 141 95 63 45

41% 37% 33% 31%

Vivo Player 2 Player 3 Player 4

# cities covered % of population

2 3


Mobile Strategy: improved portfolio and value proposition driving a better customer monetization and experience

7

Commercial approach and value proposition Monetization and Customer experience

Prepaid: large portfolio of data packages for eventual use

1Q13 1Q14 1Q15

Prepaid Recharges per Client Average R$ per month

+3% +10%

19 34 45

1Q13 1Q14 1Q15

Penetration of Data Packages %

+15pp +11pp

Limiting usage after end of the bundle is improving network quality and customer experience

Contract: successful upselling of data bundles 1

5% 15%

20% 21% 22%

34% 34% 44% 44%

51%

29%

PR/SC NE RS RJ ES CO MG BA/SE SP N Average

Mar/14 Mar/14 Mar/14 CURRENT CURRENT CURRENT

n.a. 200 MB n.a.

R$ 29.90 R$ 34.99

Unlimited Mobile on-net

R$ 39.90

500 MB

R$ 49.99

250 MB

R$ 49.90

800 MB

R$ 64.99

Unlimited Mobile/Fixed

on-net




on-net


on-net

R$0.5 per SMS (on and

off net)

Unlimited (on and off- net)

Unlimited on-net

Unlimited on-net



1- Evolution in % of customers per data bundle (1Q15 vs 1Q14). 2- PMQ4 was created by Anatel in the Quality Improvement Plan (PMQ) in Aug/12 to analyze if telco's’ investments are being allocated to improve the quality of services provided. 3- Data connections discontinued / total data connections. 4- Month when data limit was implemented in each region.

-3.8

5.2 5.5

<2GB 2GB >3GB

New Control Plans: stimulating higher usage

R$ 11.90 R$ 19.90 R$ 14.90 R$ 24.90

Daily Monthly

15MB 200MB 250MB 400MB 600MB

R$ 0.99

Weekly

40MB

R$ 2.90 NEW NEW

pp pp

pp

Feb/15 Feb/15 No/14 Feb/15 Mar/15 Feb/15 Nov/14 Feb/15 Feb/15 Feb/15 Limiting

data usage4

Improvement in PMQ42 before and after limited connectivity PMQ4 = Data disconnection rate3


UBB and Video Company: leadership position in UBB with approx. 60% share of net adds above 34Mbps and steady growth in Pay TV

1- Market share of accesses with speeds higher than 34Mbps in the State of SP, according to ANATEL from Mar/14 to Mar/15.

8

Broadband ARPU R$ per month

32 54

1Q14 1Q15

57%

22% 11% 8%


FTTH HPs Million

31.7 32.8

1Q14 1Q15

4%

1.5 2.7

2.3

4.2

1Q14 1Q15

Addressable homes HPs

Video

480 605

1Q14 1Q15

26%

48 111

1Q14 1Q15

Pay TV Accesses Thousand

Trio Thousand

2.3x DTH IPTV

Customer base

1Q14 1Q15

24%

UBB

Vivo Fiber Net Adds Thousand

Share of UBB adds above 34Mbps1

1.7 x


Convergent Corporate Services Provider: strong annual growth in revenues and accesses in the most relevant services

4G

Revenues

Data packages

1Q14 1Q15

33%

777 thousand customers in

the 1Q15

1Q14 1Q15

2.6 x

Customer base

IT

1Q14 1Q15

44%

M2M

1Q14 1Q15

1.4 x Leader in market share of net adds

with 1.1 million new accesses in

the year

Customer base

Fiber

1Q14 1Q15

1.4 x Growth sustained by

HPs expansion

and customer migration

(XDSL)

New customers

9


Financial Performance_


1Q14 %YoY

Key Financial Figures: record Net Revenue growth in the quarter mainly driven by Mobile Data Revenues evolution in the period

1- Includes Net Handset Revenues.

Net Operating Revenue1

Net Fixed Service Revenue

Operating Costs

EBITDA

EBITDA Margin

Net income

Net Operating Service Revenue

Net Mobile Service Revenue

Capex ex-licenses

8,983.1

2,740.2

(6,414.3)

2,568.8

28.6%

579.7

8,644.5

5,904.3

1,269.7

8,611.9

2,853.2

(6,049.1)

2,562.8

29.8%

660.8

8,299.2

5,446.1

1,001.0

4.3

(4.0)

6.0

0.2

(1.2) p.p.

(12.3)

4.2

8.4

26.8

R$ million

11

1Q15


Mobile Service Revenue: the highest level of growth in around 3 years capturing 93% of incremental revenues generated by the market

Net Mobile Service Revenue

Evolution without the 2015 MTR reduction

8.4%

-0.2%

11.6%

2,834 2,949 2,871

672 569 485

1,888 2,282 2,479 52

118 69 5,446

5,919 5,904

1Q14 4Q14 1Q15

Access and usage Network usageData and VAS Others

1.3%

YoY

-27.9%

31.3%

R$ Million

32.2%

12

Share of Incremental Mobile Service Revenue1

Accumulated in the last 12 months

59% 66% 68% 78%

93%

1Q14 2Q14 3Q14 4Q14 1Q15

YoY

3.3% 7.0% 1Q14 1Q13 yoy

1- Based on net mobile service revenues accumulated in the last 12 months. For comparative purposes, we calculate the Mobile Service Revenue based on ARPU released by each operator and according to the criteria adopted by the Global Wireless Matrix from Merrill Lynch.


Data and VAS: strong acceleration of Internet adoption driving superior growth in data revenue which represented 42% of MSR in 1Q15

1,096 1,398 1,598

364 466

468 428

418 414 1,888

2,282 2,479

1Q14 4Q14 1Q15

Internet VAS Messaging P2P

28.3%

-3.3% 22% 35% 46%

1Q13 1Q14 1Q15

Internet Revenues yoy

% of Data and VAS Revenue over Mobile Service Revenue

42% 39% 35%

1Q14 4Q14 1Q15

YoY

R$ Million

45.8%

13

Data and VAS Revenue Internet and VAS Revenues

31.3%

8.6%

242 364

468

1Q13 1Q14 1Q15

VAS Revenues R$ million

2x

E-health

Media

Financial

IT

Education

Cloud

2x


Fixed Revenue: resilient evolution sustained by solid presence in Pay TV and Broadband Revenues

Net Fixed Revenue Pay TV and Broadband Revenues

Evolution without regulatory effect3

1,562 1,499 1,410

138 162 169

373 381 385

589 604 600

191 183 176

2,853 2,829 2,740

1Q14 4Q14 1Q15

Voice PayTV BB Corporate Data and IT Others

-9.8%

22.0%

3.4%

R$ Million

1.9%

1- Includes voice, accesses and network usage. 2- B2C segment. 3- Regulatory effect include VC and basic tariff reductions. 4- Negative evolution because of MMDS clean-up.

121 138 169

-23% 14% 22%

1Q13 1Q14 1Q15

Pay TV Revenues R$ Million

PayTV Revenues yoy evolution

1

14

-4.0%

-3.1%

-0.4%

YoY

2

Steady growth both in

revenues and accesses (the latter 23% yoy in the 1Q15

and 15% in the 4Q14)

Consistent ARPU growth in the B2C segment

mainly driven by the

broadband through FTTH

4% % over Fixed

Revenues 5% 6%

360 373 385

32 32 33

1Q13 1Q14 1Q15

Broadband Revenues2

R$ Million

Data Revenues ARPU

12% % over Fixed

Revenues 13% 14%

4

-7.8%


EBITDA and EBITDA Margin R$ Million and % yoy

EBITDA: sustaining slight growth in the 1Q15 even in face of a higher level of provision for uncollectibles in a more challenging environment

4.2% 1.8% 9.5% 2.9% 46.6%

REPORTED

28.6% 29.8%

15

2,563

2,692 2,615 2,569

2,569

345 16 201

77 46

Recurrent EBITDA1Q14

Net ServiceRevenues

Personnel + G&A Subsidies + SellingExpenses

Services Rendered Others Recurrent EBITDA1Q15

Personnel + G&A • Collective bargaining agreement held

in January, 2015 • Lower G&A expenses in 1Q15 in

different fronts

Subsidies + Selling Expenses • Increased volume of higher-value

handsets with 4G technology • Higher commissions, subsidies and

mainly provision for uncollectibles in a more challenging environment

Services Rendered • MTR reduction driving reduced

interconnection costs • Ex-MTR, higher costs associated with

maintenance, TV content and leasing of sites to ensure our quality coverage

1171

1- Evolution of provision for uncollectibles in the period.

YoY EBITDA Margin


OCF

Net Margin1

Capex

Gross and Net Debt

8.6 7.0

1Q14 1Q15

1,001 1,270

1Q14 1Q15

1.3 1.0

0.8 0.8

1Q14 1Q15

OCF OCF/(EBITDA-Capex)

R$ Million

R$ Billion

3.7 2.6

0.35 0.25

1Q14 1Q15Net debtNet debt / EBITDA

-29% -18%

Gross debt

R$ Billion

16 Financial Figures: higher investments in the 1Q15 to sustain our quality differential while sustaining solid capital structure

R$2.8 bn paid as IOC

and dividends

during 2014.

%

13.7%

-24.8%

7.7%

-2.5%


1- Based on net revenue and net result accumulated in the last 12 months.

27%


17 Conclusion: resilient growth in different fronts even in face of worse macro conditions

1. Sustaining leading position in premium segments

3. Achieving record revenue growth driven by mobile data, VAS and pay TV

2. Commercial rationality improving network quality and customer experience

4. Recurrent EBITDA annual growth for the fourth consecutive quarter

5. Sustaining differentiated net profitability and solid capital structure


GVT acquisition_


1Q14 %YoY

Vivo + GVT Combined and non audited Key Figures: improved growth in main operational and financial numbers during 1Q15

1- Excludes intercompany eliminations and includes Net Handset Revenues.

EBITDA (R$ MM)

EBITDA Margin

Total accesses (thousand)

Mobile (thousand)

Fixed Voice (thousand)

10,049.6

3,137.2

30.2%

105,383

81,869

5,891.4

4,158.2

14,856

9,564.3

3,073.6

31.1%

101,041

78,465

5,427.3

4,137.0

14,655

5.1

2.1

(0.9) p.p.

4.3

4.3

8.6

0.5

1.4

Combined, non audited numbers

19

1Q15

Fixed Broadband (thousand) 6,955 6,561 6.0

Pay TV (thousand) 1,703 1,360 25.3

Net Operating Revenue1 (R$ MM)

Net Fixed Revenue (R$ MM)

Net Service Revenue (R$ MM)

Net Mobile Serv. Revenue (R$ MM)

10,388.2 9,877.0 5.2

Telefônica Brasil S.A. – Investor Relations

Av. Eng. Luis Carlos Berrini, 1376 – 28th floor – Cidade Monções – Sao Paulo/SP – 04571-000 Phone: +55 11 3430-3687

E-mail: [email protected] Information available from the website: http://www.telefonica.com.br/ir

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