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Results 4Q14_

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

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.

In addition, due to our process for the acquisition of GVT, we will not be able to discuss any matter related to this transaction nor any perspective of our business development for the enlarged entity.


Highlights of the 4Q14 3

1- In recurrent terms. 2- Net Revenue ex-regulatory effects include MTR, VC and basic tariff reductions.

DURING 2014 WE IMPROVED MAIN OPERATIONAL AND FINANCIAL TRENDS

OPERATING FINANCIAL1

Outstanding performance in high end

mobile reflected in

higher revenue growth

30.7% 35.5%

66% 78%

2013 2014

Mix of contract accesses

Data adoption of individual contract

Contract Accesses

Fixed Accesses Thousand and yoy

204 375

630 771

2013 2014FTTH BB PayTV

22%

84%

-5.3%

-0.8%

2013 2014

Accelerating

FTTH and Pay TV

adoption driving

improved fixed

revenue trend

Fixed Revenue ex-regulatory effects2

yoy

Operating Costs yoy

7.6% 5.8%

1.3%

-1.0% -0.4%

1.3%

2013 1Q14 2Q14 3Q14 4Q14 20142013 2014

Consistent cost control even with

inflationary pressure

-9.2% -9.7%

2.0%

7.0% 6.6%

1.2%

2013 1Q14 2Q14 3Q14 4Q14 2014

EBITDA yoy

2013 2014

Third consecutive quarter of

annual EBITDA growth

resulting in growth for

the FY

7.2% 7.9%

2013 2014

Mobile Service Revenue ex-regulatory effects2

yoy IPCA 6.4%

HIGHLIGHTS

1. Operating Performance


Mobile contract and Pay TV performance were the main drivers of accesses growth during 2014

OPERATING

INTEGRATED PERFORMANCE

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.

3.5%

0.9%

YoY

76.1 77.2 79.9

15.0 15.3 15.4 91.1 92.5 95.4

2012 2013 2014

Mobile Fixed2 1

57.3 53.6 51.6

18.8 23.7 28.4 76.1 77.2 79.9

2012 2013 2014

Prepaid Contract

3.5%

-3.7%

19.7%

YoY

Mobile Accesses

Strict disconnection policy based on

profitability analysis

Million Million

3.1%

1.5%

1.6%

Fixed Accesses

10.6 10.7 10.7 3.7 3.9 3.9 0.6 0.6 0.8

15.0 15.3 15.4

2012 2013 2014

Voice Broadband PayTV

-0.1%

0.1%

22.3%

YoY Million

0.9% 2.2%

3

5


Consistent evolution in data ARPU supported by growth in contract accesses and improved trends in data adoption

OPERATING

SUPER MOBILE

Contract - Accesses and Mix

Penetration

19 24 28

25% 31%

35%

2012 2013 2014Contract accesses Mix of contract

Million

+5 +5

yoy

47 66

Total YoY Individual Contract

% Smart/Web Phones

Contract - Market Share and Net Adds

Data users

28 30 33 39 41

4Q13 1Q14 2Q14 3Q14 4Q14

Data Access* Data Traffic

48%

64%

YoY

1- Data cards, data packages and M2M, excluding eventual data user with no data package or plan. 2- Average of competitors’ ARPU in the 4Q14. Considering that Oi still hasn´t released 4Q14 results, we are using the same ARPU released in the 3Q14.

Million

+19pp

37% 40% 42%

39%

57% 56%

2012 2013 2014Market share Share of net adds

% Data Packages

75 84

2013 2014

+9pp

30 45

+15pp

66 78

2013 2014

+12pp

6.3 7.5

8.8

2012 2013 2014

ARPU Reais and % YoY

Data ARPU +15 mn smartphones yoy in our customer base

CAGR 2012-2014

18.3%

Total ARPU 47% higher than market average in the 4Q

16.8 24.6

Average ofcompetitors**

Vivo

+47%

1 2

6


Leading 4G coverage and improved portfolio driving better customer experience and customer loyalty

OPERATING

SUPER MOBILE STRATEGY

4G

1- Source: Teleco. 2- 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. 3- Excluding control plans and corporate.

140 93 45 45

41% 37% 30% 31%

Vivo Player 2 Player 3 Player 4

# cities covered % of population

Commercial approach and payback

• Portfolio simplification (only 6 offers for contract)

• Extending 4G offers for control and prepaid customers

• Limiting data usage after end of franchise

• Subsidy focused on 4G handsets

• Better customer experience and satisfaction

• Reducing inefficient network usage

2.5 2.3 2.0 2.1

1Q14 2Q14 3Q14 4Q14

Payback (SAC/ARPU)

Contract ARPU3

(3G vs. 4G)

4Q143G 4G

…drives real adoption of mobile UBB…

4% 9%

14% 17%

22% 27%

jan/14 mar jun sep dec jan/15

4G Data traffic2 % 4G data traffic2

11 x

Annual evolution

…leading to improved loyalty and monetization.

Leadership in 4G coverage1… …supported by a rational commercial approach…

+54%

2 2

7


In 2014 we consolidated our position of leadership in UBB with 44% market share and sustained strong growth in TV

OPERATING

FIBER AND VIDEO COMPANY

FIBER

FTTH Homes Passed Vivo Fiber UBB

0.7 1.4 1.5 1.8 2.2 2.6 1.0

1.9 2.3

2.9 3.4

4.1

2012 2013 1Q14 2Q14 3Q14 4Q14Addressable homes HPs

Customer base

471 591

2013 2014

26%

Pay TV

Net adds

Net adds

33 52

4Q13 4Q14

12 17

4Q13 4Q14

38%

Million Thousand

Thousand DTH IPTV

Customer base

2013 2014

22%

TRIO

1.6 x

1- Market share of accesses with speeds higher than 34Mbps in the State of SP, according to the last data released by ANATEL from Dec/13 to Dec/14.

61%

20% 12%

6%

Vivo Player 2 Player 3 Player 4

Targeted strategy focused on improving

monetization and loyalty

Share of UBB additions above 34Mbps1

More than 60% of FTTH gross adds coming from

competition

8


On the Corporate segment, we ended the year with strong growth in accesses and revenues in the most relevant services

OPERATING

CONVERGENT CORPORATE SERVICES PROVIDER

4G

Revenues

Data packages

2013 2014

26%

629 thousand customers by

the end of 2014

2013 2014

4.1 x

Customer base

IT

2013 2014

13%

M2M

2013 2014

1.5 x Leader in market share of net adds

with 309 thousand new M2M accesses

Customer base

Fiber

2013 2014

1.5 x Increase of new fiber additions

sustained by HPs

expansion

New customers

9


OPERATING

4Q14 %YoY 2014 %YoY

Telefônica Brasil achieved solid recurrent EBITDA margin of 32.7% in the quarter driving recurrent EBITDA growth in 2014

1- Excludes non-recurrent items: sale of non strategic towers, organizational restructuring expenses and recovery of taxes. 2- Includes Net Handset Revenues. 3- Do not exclude non-recurrent items.

Net Operating Revenue2

Net Fixed Service Revenue

Operating Costs

EBITDA

EBITDA Margin

Net income3

Net Operating Service Revenue

Net Mobile Service Revenue

Capex ex-licenses

9,047.6

2,828.6

(6,086.8)

2,960.8

32.7%

1,260.9

8,747.4

5,918.8

2,199.3

1.8

(4.8)

(0.4)

6.6

1.5 p.p.

2.4

2.1

5.8

(0.3)

35,000.0

11,260.1

(24,383.4)

10,616.6

30.3%

4,936.6

33,784.7

22,524.6

6,374.3

1.3

(3.9)

1.3

1.2

(0.0) p.p.

32.9

1.6

4.6

14.2

Recurrent terms1 R$ million

10

2. Financial Performance


During 2014 we sustained accelerated mobile revenue increase capturing 78% of incremental revenues generated by the market

Recurrent Net Mobile Service Revenue1

FINANCIAL

Evolution without the 2014 MTR reduction and non-recurrent events1

5.8%

5.1%

8.9%

2,891 2,850 2,949

797 569 569

1,864 2,125 2,282 44 86 118

5,597 5,630 5,919

4Q13 3Q14 4Q14

Access and usage Network usageData and VAS Others

2.0%

YoY

-28.6%

22.4%

R$ Million

1- Excludes recovery of taxes in 4Q13 in the amount of R$165.8 million. 2- Based on net mobile service revenues of 2014. Considering that Oi still hasn´t released 4Q14 results, we are using the same revenue of the 3Q14 in the 4Q14.

4.6% 7.9%

11,266 11,482

3,270 2,366

6,877 8,308 113 368

21,525 22,525

2013 2014

1.9%

YoY

-27.6%

20.8%

Vivo 78%

Player 2 22%

Player 3 0%

Player 4 0%

YoY

Share of Incremental Mobile Service Revenues2

169% 227%

12


Data revenues speeded up growth in the 4Q14 and already represent 39% of mobile service revenues

Data and VAS Revenue Mix of Data and VAS Revenue

22.4%

7.4%

1,056 1,271 1,398

340 430

466 468 424

418 1,864 2,125

2,282

4Q13 3Q14 4Q14

Internet VAS Messaging P2P

37.0%

-10.5%

75% 80% 82%

25% 20% 18%

300 363

418

4Q13 3Q14 4Q14

Messaging P2PVAS + InternetYoY growth in R$ MillionYoY growth in %

% of Data and VAS Revenue over Mobile Service Revenue

39% 38% 32%

4Q13 3Q14 4Q14

YoY

R$ Million

22.4% 20.6% 19.1% 20.8%

3,740 4,943

1,164

1,660 1,973

1,705 6,877 8,308

2013 2014

YoY

42.6%

-13.6%

32%

2013

37%

2014

32.4% 32.2%

13 FINANCIAL


Fixed revenue continue to sustain an improved trend even in face of regulatory effects during the year

Net Fixed Revenue Net Fixed Revenue Evolution without regulatory effects

Evolution without regulatory effects2

1.5%

1,632 1,474 1,499

132 152 162

942 925 911

264 234 256

2,970 2,786 2,829

4Q13 3Q14 4Q14

Voice PayTV Data Others

-8.1%

YoY

22.2%

-3.3%

R$ Million YoY

-2.8%

1- Includes voice, accesses and network usage. 2- Regulatory effects includes VC and basic tariff reductions.

-3.9% -0.8%

6,620 6,034

491 598

3,650 3,656

958 973

11,720 11,260

2013 2014

-8.9%

YoY

21.6%

0.1%

1.6%

-5.3%

-0.1%

-2.4%

0.4%

-1.1% -0.8%

2013 1Q14 2Q14 3Q14 4Q14 20142013 2014

+4.5 p.p.

-4.8% -1.1%

14 FINANCIAL

1


EBITDA and EBITDA Margin R$ Million and %

-9.2% -12.6%

-9.7%

2.0% 7.0% 6.6%

1.2%

2013 4Q13 1Q14 2Q14 3Q14 4Q14 2014

EBITDA YoY

EBITDA Margin

2013 2014

We achieved annual growth in recurrent EBITDA in 2014 with solid discipline on costs while sustaining strong commercial activity

3rd consecutive quarter of EBITDA growth

15 FINANCIAL

1.6 p.p. -0.5 p.p. -2.3 p.p. 0.6 p.p. -0.1 p.p. 29.7% 30.5%

1.6% 2.1% 6.6% -1.3% -14.1% -0.0 p.p. y-o-y RECURRENT1

10,493 10,617

540 73 547 138 65

Recurrent EBITDA2013

Net ServiceRevenues

Personnel + G&A Subsidies + SellingExpenses

Services Rendered Others Recurrent EBITDA2014

1.1% 3.4% 6.6% -1.3% 3.7% REPORTED

0.1 p.p. -0.0 p.p. -0.1 p.p. 0.0 p.p. 0.0 p.p. 30.3% 30.4%

y-o-y -0.7 p.p.

1- Net Service Revenues: recovery of taxes in the amount of R$166 million in 2013; Personnel: organizational restructuring in the amount of R$163 million in 2013 and R$212 million in 2014; and Others: sale of non strategic towers in the amount of R$80 million in 2013.

RECURRENT1


OCF

Net Profit

Capex

Gross and Net Debt

With a solid capital structure, we increased investments in 2014 to sustain our quality differential and maintained consistent shareholder remuneration throughout the year

8.8 7.8

2013 2014

5,582 6,374

6,033 9,140

2013 2014Capex (-) Licenses Licenses

9.6 9.4

1.9 2.3

2013 2014OCFOCF/(EBITDA-Capex ex. licenses)

R$ Million

R$ Billion R$ Million

3,716 4,937

2013 2014

32.9%

1.8 2.3

0.17 0.22

2013 2014Net debtNet debt / EBITDA

+29% Dividends declared

based on 2014 results

amounts R$5 billion, an yield of 9.5% on VIVT41.

-11%

Gross debt

R$2.8 billion paid as IOC and dividends

during 2014.

18.2% 16.1%

Capex (-) Licenses / Net Revenues

Total Capex

1- Considering VIVT4 price on December 31st, 2014.

R$ Billion

16 FINANCIAL

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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