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FORM 20-FTELEFONICA BRASIL S.A. - VIVFiled: April 20, 2012 (period: December 31, 2011)

Annual and transition report of foreign private issuers under sections 13 or 15(d)

As filed with the Securities and Exchange Commission on April 20, 2012

UNITED STATESSECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 20-F(Mark One) � REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE

ACT OF 1934

OR ⌧ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2011

OR� TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF

1934

OR � SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT

OF 1934Date of event requiring this shell company report________________For the transition period from ________________ to ________________

Commission file number: 001-14475

TELEFÔNICA BRASIL S.A.(Exact name of Registrant as specified in its charter)

TELEFÔNICA BRAZIL S.A.

(Translation of Registrant’s name into English)

Federative Republic of Brazil(Jurisdiction of incorporation or organization)

Rua Martiniano de Carvalho, 851 – 21st floor

01321-001 Săo Paulo, SP, Brazil(Address of principal executive offices)

Gilmar Roberto Pereira Camurra

Telephone +55 11 7420 1172, Fax. +55 11 7420 2240Avenida Chucri Zaidan, 860, 04583-110, Săo Paulo, SP, Brazil

Email: [email protected](Name, Telephone, Email and/or Facsimile and Address of Company Contact Person)

Securities registered or to be registered pursuant to Section 12(b) of the Act:

Title of each class Name of each exchange on which registered

Preferred Shares, without par value New York Stock Exchange*

American Depositary Shares (as evidenced by American Depositary Receipts), eachrepresenting one share of Preferred Stock

New York Stock Exchange

* Not for trading purposes, but only in connection with the registration on the New York Stock Exchange of American Depositary Shares representing

those Preferred Shares.

Securities registered or to be registered pursuant to Section 12(g) of the Act: None

Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act: None Indicate the number of outstanding shares of each of the issuer’s classes of capital or common stock as of the close of the periodcovered by the annual report.Source: TELEFONICA BRASIL S.A., 20-F, April 20, 2012 Powered by Morningstar® Document Research℠

The number of outstanding shares of each class as of December 31, 2011 was:

Title of Class Number of Shares Outstanding

Shares of Common Stock 381,347,371Shares of Preferred Stock 742,537,273

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. ⌧ Yes � No If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section13 or 15(d) of the Securities Exchange Act of 1934. � Yes ⌧ No Note – Checking the box above will not relieve any registrant required to file reports pursuant to Section 13 or 15(d) of the SecuritiesExchange Act of 1934 from their obligations under those sections. Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the SecuritiesExchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports),and (2) has been subject to such filing requirements for the past 90 days. ⌧ Yes � No Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definitionof “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):

Large Accelerated Filer ⌧ Accelerated Filer � Non-accelerated Filer � Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing:

U.S. GAAP �International Financial Reporting Standards as issued by the

International Accounting Standards Board ⌧ Other � If “Other” has been checked in response to the previous question, indicate by check mark which financial statement item the registranthas elected to follow.� Item 17 � Item 18 If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the ExchangeAct).� Yes ⌧ No

Source: TELEFONICA BRASIL S.A., 20-F, April 20, 2012 Powered by Morningstar® Document Research℠

TABLE OF CONTENTS

Page PART I 7 ITEM 1. IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS 7 ITEM 2. OFFER STATISTICS AND EXPECTED TIMETABLE 7 ITEM 3. KEY INFORMATION 7 ITEM 4. INFORMATION ON THE COMPANY 23 ITEM 4A. UNRESOLVED STAFF COMMENTS 77 ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS 77 ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES 96 ITEM 7. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS 109 ITEM 8. FINANCIAL INFORMATION 110 ITEM 9. THE OFFER AND LISTING 121 ITEM 10. ADDITIONAL INFORMATION 124 ITEM 11. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK 136 ITEM 12. DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES 136PART II 138 ITEM 13. DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES 138 ITEM 14. MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF

PROCEEDS138

ITEM 15. CONTROLS AND PROCEDURES 138 ITEM 16. [RESERVED] 139 ITEM 16A. AUDIT COMMITTEE FINANCIAL EXPERT 139 ITEM 16B. CODE OF ETHICS 139 ITEM 16C. PRINCIPAL ACCOUNTANT FEES AND SERVICES 139 ITEM 16D. EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES PROCEDURES 140 ITEM 16E. PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS 141 ITEM 16F. CHANGE IN REGISTRANT'S CERTIFYING ACCOUNTANT 141 ITEM 16G. CORPORATE GOVERNANCE 141 ITEM 16H. MINE SAFETY DISCLOSURE 142PART III 142 ITEM 17. FINANCIAL STATEMENTS 142 ITEM 18. FINANCIAL STATEMENTS 142 ITEM 19. EXHIBITS 142GLOSSARY OF TELECOMMUNICATIONS TERMS 144SIGNATURES 147

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INTRODUCTION

References in this annual report to “Telefônica Brasil,” “we,” “our,” “us,” “our company” and “the company” are to TelefônicaBrasil S.A. and its consolidated subsidiaries (unless the context otherwise requires). All references in this annual report to: • “ADRs” are to the American Depositary Receipts evidencing our ADSs; • “ADSs” are to our American Depositary Shares, each representing one share of our nonvoting preferred stock; • “ANATEL” are to Agência Nacional de Telecomunicaçơes – ANATEL, the Brazilian telecommunication regulatory

agency; • “BM&FBOVESPA” are to the BM&FBOVESPA S.A. – Bolsa de Valores, Mercadorias e Futuros, the Săo Paulo stock

exchange; • “BNDES” are to Banco Nacional de Desenvolvimento Econômico e Social, the Brazilian Development Bank; • “Brazil” are to the Federative Republic of Brazil; • “Brazilian Central Bank,” “BACEN,” “Central Bank of Brazil” or “Central Bank” are to the Banco Central do Brasil, the

Brazilian Central Bank; • “Brazilian Corporate Law” are to Law No. 6,404 of December 15, 1976, as amended; • “CADE” are to Conselho Administrativo de Defesa Econômica, the Brazilian competition authority; • “CDI” are to Certificado de Depósito Interbancário, the Certificate for Interbank Deposits; • “Ceterp” are to Centrais Telefônicas de Ribeirăo Preto; • “Celular CRT” are to Celular CRT Participaçơes S.A. and its consolidated subsidiary, formerly Vivo subsidiaries before

Vivo’s corporate restructuring; • “CMN” are to the Conselho Monetário Nacional, the Brazilian Monetary Council;

• “Commission” or “SEC” are to the U.S. Securities and Exchange Commission; • “Corporate Law Method” is the accounting practice to be followed in the preparation of our financial statements for

regulatory and statutory purposes under Brazilian Corporate Law and accounting standards issued by the CVM; • “CTBC Telecom” are to Companhia de Telecomunicaçơes do Brasil Central; • “CTBC Borda” are to Companhia Brasileira Borda do Campo – CTBC; • “CVM” are to the Comissăo de Valores Mobiliários, the Brazilian Securities Commission; • “D.O.U.” are to the Diário Oficial da Uniăo, the Official Newspaper of the Brazilian Government; • “Federal District” are to Distrito Federal, the federal district where Brasilia, the capital of Brazil, is located; • “General Telecommunications Law” are to Lei Geral de Telecomunicaçơes, as amended, the law which regulates the

telecommunications industry in Brazil;

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Table of Contents • “Global Telecom” or “GT” are to Global Telecom S.A., formerly a Vivo subsidiary before Vivo’s corporate restructuring; • “IASB” are to International Accounting Standards Board; • “IBGE” are to Instituto Brasileiro de Geografia e Estatística, the Brazilian Institute of Geography and Statistics; • “IFRS” are to International Financial Reporting Standards, as issued by the IASB; • “IOF” are to Imposto sobre Operaçơes de Crédito, Câmbio e Seguros, or tax on credit, exchange and insurance; • “IPCA” are to Índice Nacional de Preços ao Consumidor Amplo, the consumer price index, published by the Instituto

Brasileiro de Geografia e Estatística; • “IST” are to Índice Setorial de Telecomunicaçơes, the inflation index of the telecommunications sector; • “Number Portability” are to Portabilidade Numérica, the service mandated by ANATEL that provides customers with the

option of keeping the same telephone number when switching telephone service providers; • “NYSE” are to the New York Stock Exchange; • “Oi” are to Oi S.A., the mobile operator branch of Telemar; • “PTAX” or “PTAX rate” are to the weighted average daily buy and sell exchange rates between the real and U.S. dollar

that is calculated by the Central Bank; • “Real,” “reais” or R$ are to the Brazilian real, the official currency of Brazil; • “Speedy” are to broadband services provided by us through asymmetric digital subscriber lines, or ADSL; • “TCO” are to Tele Centro Oeste Celular Participaçơes, which includes TCO’s “B” band subsidiary and NBT, formerly

Vivo subsidiaries before Vivo’s corporate restructuring; • “TCP” are to TELESP Celular Participaçơes S.A., Vivo’s predecessor company; • “TLE” are to Tele Leste Celular Participaçơes S.A. and its consolidated subsidiaries, formerly Vivo subsidiaries before

Vivo’s corporate restructuring; • “TSD” are to Tele Sudeste Celular Participaçơes S.A. and its consolidated subsidiaries, formerly Vivo subsidiaries before

Vivo’s corporate restructuring; • “Telebrás” are to Telecomunicaçơes Brasileiras S.A.–Telebrás; • “Telemar” are to Telemar Norte Leste S.A. (controlled by Tele Norte Leste Participaçơes S.A.); • “Telemig” or “Telemig Participaçơes” are to Telemig Celular Participaçơes S.A.; • “Telemig Celular” are to Telemig Celular S.A.; • “Telenorte” or “Tele Norte” are to Tele Norte Celular Participaçơes S.A.; • “TELESP Celular” and “TC” are to TELESP Celular S.A., formerly a Vivo subsidiary before Vivo’s corporate

restructuring; • “Telpart” are to Telpart Participaçơes S.A.;

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Table of Contents • “TJLP” are to Taxa de Juros de Longo Prazo, or long-term interest rate; • “UMBNDES” are to a monetary unit of the BNDES, consisting of a currency basket of BNDES debt obligations in foreign

currencies, which are mostly denominated in U.S. dollars; • “U.S. dollar,” “U.S. dollars” or “US$” are to U.S. dollars, the official currency of the United States; • “Vivo” are to Vivo S.A., a wholly owned subsidiary of Telefônica Brasil, that conducts cellular operations including SMP

(as defined in the “Glossary of Telecommunication Terms”), in the following areas: • “Areas 1 and 2,” the state of Săo Paulo (operations previously provided by TELESP Celular S.A.); • “Area 3,” the states of Rio de Janeiro and Espírito Santo (operations previously provided by Telerj Celular S.A., or

Telerj, and Telest Celular S.A., or Telest); • “Area 4,” the state of Minas Gerais; • “Area 5,” the states of Paraná and Santa Catarina (operations previously provided by Global Telecom); • “Area 6,” the state of Rio Grande do Sul (operations previously provided by Celular CRT); • “Areas 7 and 8,” the central western and northern regions, including the states of Goiás, Tocantins, Mato Grosso,

Mato Grosso do Sul, Rondônia, Acre, Amapá, Amazonas, Maranhăo, Para and Roraima and in the Federal District(operations previously provided by Telegoias Celular S.A., or Telegoias, Telemat Celular S.A., or Telemat, TelemsCelular S.A., or Telems, Teleron Celular S.A., or Teleron, Teleacre Celular S.A., or Teleacre, Norte Brasil TelecomS.A., or NBT and TCO);

• “Area 9,” the states of Bahia and Sergipe (operations previously provided by Telebahia Celular S.A., or Telebahia,

and Telergipe Celular S.A., or Telergipe); and • “Area 10,” the states of Pernambuco, Alagoas, Paraíba, Rio Grande do Norte, Ceará and Piauí. • “Vivo Participaçơes” are to Vivo Participaçơes S.A. (formerly TELESP Celular Participaçơes S.A.) and its consolidated

subsidiaries (unless the context otherwise requires); and • “Vivo brand” are to the brand used in Brazil in the operations of Vivo;

Unless otherwise specified, data relating to the Brazilian telecommunications industry included in this annual report wereobtained from ANATEL.

The “Glossary of Telecommunications Terms” that begins on page 144 provides the definition of certain technical terms used inthis annual report.

On October 3, 2011, our Extraordinary General Shareholders’ Meeting approved the merger, into the Company, of VivoParticipaçơes S.A., with its subsequent extinguishment, as well as the modification of our corporate name from Telecomunicaçơes deSăo Paulo S.A. – TELESP to Telefônica Brasil S.A.

As a result of such modification, the trade codes for our shares were also modified as of October 6, 2011 (inclusive), from TLPP3(for the common shares) and TLPP4 (for the preferred shares) to VIVT3 and VIVT4, respectively, with the subsequent change oftrading name to TELEF BRAZIL. The trade code for the ADRs, VIV, on New York Stock Exchange was not changed.

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CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENT

This Annual Report contains statements that constitute forward-looking statements within the meaning of Section 27A of theSecurities Act of 1933, as amended, Section 21E of the Securities Exchange Act of 1934, as amended, and the safe harbor provisionsof the Private Securities Litigation Reform Act of 1995. The forward-looking statements in this Annual Report can be identified, insome instances, by the use of words such as “will,” “expect,” “aim,” “hope,” “anticipate,” “intend,” “believe” and similar language orthe negative thereof or by the forward-looking nature of discussions of strategy, plans or intentions. These statements appear in anumber of places in this Annual Report including, without limitation, certain statements made in “Item 3. Key Information—D. RiskFactors,” “Item 4. Information on the Company,” “Item 5. Operating and Financial Review and Prospects” and “Item 11. Quantitativeand Qualitative Disclosures about Market Risk” and include statements regarding our intent, belief or current expectations withrespect to, among other things: • statements concerning our operations and prospects; • the size of the Brazilian telecommunications market; • estimated demand forecasts; • our capital expenditure plan; • our ability to secure and maintain telecommunications infrastructure licenses, rights-of-way and other regulatory approvals; • our strategic initiatives and plans for business growth; • industry conditions; • our funding needs and financing sources; • network completion and product development schedules; • expected characteristics of competing networks, products and services; • the outcome of certain legal proceedings; • regulatory and legal developments; • quantitative and qualitative disclosures about market risk; • other statements of management’s expectations, beliefs, future plans and strategies, anticipated developments and other

matters that are not historical facts; and • other factors identified or discussed under “Item 3. Key Information—D. Risk Factors.”

Forward-looking information involves risks and uncertainties that could significantly affect expected results. The risks anduncertainties include, but are not limited to: • the short history of our operations as an independent, private-sector entity and the ongoing introduction of greater

competition to the Brazilian telecommunications sector; • the cost and availability of financing; • uncertainties relating to political and economic conditions in Brazil as well as those of other emerging markets; • inflation, interest rate and exchange rate risks; • the Brazilian government’s telecommunications policy;

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Table of Contents • the Brazilian government’s tax policy; • the Brazilian government’s political instability; and • the adverse determination of disputes under litigation.

We undertake no obligation to publicly update or revise any forward-looking statements as a result of new information, futureevents or otherwise. Because of these risks and uncertainties, the forward-looking information, events and circumstances discussed inthis annual report might not occur. Our actual results and performance could differ substantially from those anticipated in ourforward-looking statements.

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PRESENTATION OF FINANCIAL INFORMATION

We maintain our books and records in reais. We prepared our consolidated financial statements included in this annual report inaccordance with IFRS.

The preparation of financial statements in conformity with IFRS requires the use of certain critical accounting estimates. It alsorequires management to exercise its judgment in the process of applying our accounting policies. Those areas involving a higherdegree of judgment or complexity, or areas where assumptions and estimates are significant to the consolidated financial statements,are disclosed in Note 3 to our consolidated financial statements.

Our financial statements prepared in accordance with IFRS were those as of and for the years ended December 31, 2011 andDecember 31, 2010 which were filed with the CVM, the local securities regulator in Brazil and made publicly available. The selectedfinancial information for the Company included in “Item 3. Key Information—A. Selected Financial Data” should be read inconjunction with, and is qualified in its entirety by, the IFRS financial statements of the Company and “Item 5. Operating andFinancial Review and Prospects” appearing elsewhere in this annual report.

The consolidated financial statements as of December 31, 2011 and 2010 are in compliance with the IFRS, as issued by theInternational Accounting Standards Board (IASB) and also with the pronouncements, interpretations and guidance issued byAccounting Standards Committee (Comitê de Pronunciamentos Contábeis – “CPC”) in place on December 31, 2011, which includethe new pronouncements, interpretations and amendments issued by the IASB and IFRIC (IFRS Interpretations Committee) whichentered into force as of January 1, 2011.

Our first adoption of IFRS to consolidated financial statements was for the year ended on December 31, 2010. Our financialstatements as of the transition date for applying IFRS as of January 1, 2009 and the comparative period as of and for the year endedDecember 31, 2009 have been restated to reflect adjustments made as a result of the adoption of IFRS. These consolidated financialstatements have been audited by Ernst & Young Terco Auditores Independentes S.S. (“E&Y” or “Ernst & Young”).

We have made rounding adjustments to reach some of the figures included in this annual report. Accordingly, numerical figuresshown as totals in some tables may not be an arithmetic aggregation of the figures that preceded them.

Vivo Participaçơes S.A. and Vivo S.A. are included in our financial statements for only nine months in 2011, therefore our resultsof operations in 2010 and 2009 are not fully comparable with our results of operations in 2011.

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PART I ITEM 1. IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS

Not applicable. ITEM 2. OFFER STATISTICS AND EXPECTED TIMETABLE

Not applicable. ITEM 3. KEY INFORMATION A. Selected Financial Data

Our consolidated financial statements are prepared in accordance with IFRS.

We maintain our books and records in reais.

Our consolidated financial statements for the years ended December 31, 2011 and 2010 are prepared in accordance with IFRS.The date for our first adoption of IFRS to our consolidated financial statements was December 31, 2010. As a result the financialinformation for the year ended December 31, 2009 have been restated from Brazilian GAAP to reflect the first adoption of IFRS.

The selected financial data presented below should be read in conjunction with our consolidated financial statements, includingthe notes thereto. Our consolidated financial statements included herein as of and for the years ended December 31, 2011, 2010 and2009 have been audited by Ernst Young Terco Auditores Independentes S.S. The report of Ernst Young Terco AuditoresIndependentes S.S. on the consolidated financial statements appears elsewhere in this annual report.

On March 25, 2011, the Boards of Directors of Vivo Participaçơes, our former subsidiary, and Telefônica Brasil approved theterms and conditions of the corporate restructuring of both companies, which was approved unanimously by the general meetings ofshareholders of the two companies held on April 27, 2011.

The transaction consisted of the unification of the share base of fixed and mobile operators of the Telefônica group in Brazilthrough the merger of all shares of Vivo Participaçơes into Telefônica Brasil, with Telefônica Brasil as the surviving entity. TelefônicaBrasil exchanged each share of Vivo Participaçơes held by shareholders of Vivo Participaçơes for shares of Telefônica Brasil. Theexchange of shares of Vivo Participaçơes for shares of Telefônica Brasil was based on the exchange ratio of 1.55 shares of TelefônicaBrasil for each share of Vivo Participaçơes. Upon closing of the merger and the share exchange, Vivo S.A. remained our whollyowned direct subsidiary. The Company assessed the fair value of the assets acquired and the liabilities assumed from VivoParticipaçơes S.A. as of March 31, 2011 for purposes of applying the acquisition method to the transaction as a business combination,and we consolidated and included Vivo Participaçơes S.A. in our results of operations as of April 1, 2011.

The Company acquired 100% of shares of Vivo Participaçơes S.A., amounting to R$31,222,630. See Note 1 and Note 4 to ourconsolidated financial statements. The Company’s consolidated financial statements include Vivo Participaçơes S.A. and Vivo S.A. asof April 1, 2011. Vivo Participaçơes S.A. and Vivo S.A. were included in the Company’s consolidated financial statements throughthe full consolidation method. Because Vivo Participaçơes S.A. and Vivo S.A. are included in our financial statements for only ninemonths in 2011, our results of operations in 2010 and 2009 are not fully comparable with our results of operations in 2011.

In addition, Vivo Participaçơes’ Board of Directors meeting held on June 14, 2011 approved a proposal to group theauthorizations for the provision of SMP services (at the time held by Vivo Participaçơes in the state of Minas Gerais and by Vivo S.A.in the other states of Brazil), bringing together the operations and the Authorization Terms for SMP services at Vivo S.A.

This corporate restructuring took place on October 1, 2011 by the transfer of assets, rights and liabilities related to the operationof SMP services in Minas Gerais from Vivo Participaçơes to Vivo S.A. Upon completion of this transfer, Vivo Participaçơes became aholding company.

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In accordance with the provisions of Law No. 6,404/76, a specialized company was engaged to prepare a valuation study for thepart of Vivo Participaçơes’ net assets corresponding to SMP operations in the state of Minas Gerais that were transferred to Vivo S.A.,as well as for the net equity of Vivo Participaçơes that was absorbed into the Company.

Accordingly, under the terms of article 226, paragraphs I and II of Law No. 6,404/76, shares held by the Company in VivoParticipaçơes were cancelled. Upon conclusion of the corporate restructuring on October 3, 2011, Vivo Participaçơes was merged intothe Company and Vivo S.A. became the Company’s full subsidiary, thus simplifying and rationalizing our corporate structure.

The following tables present a summary of our selected financial data at the dates and for each of the periods indicated. Youshould read the following information together with our audited consolidated financial statements and the notes thereto includedelsewhere in this annual report and with “Item 5. Operating and Financial Review and Prospects.” Year ended December 31, Income Statement Data: 2011 2010 2009

IFRS (in millions of reais, except for share

and per share data) Net operating revenue 29,129 15,798 15,852 Cost of goods and services (14,728) (8,845) (9,236)Gross profit 14,401 6,953 6,616 Operating expenses, net (8,603) (3,391) (3,221)Equity in earnings (losses) of associates – 2.9 19.0 Operating income before financial expense, net 5,797 3,566 3,414

Financial expense, net (140) (121) (189)Income before tax and social contribution 5,658 3,445 3,225 Income tax and social contribution (1,296) (1,046) (1,021)Net Income 4,362 2,399 2,204 Attributable to: Controlling shareholders 4,355 2,398– 2,204 Non-controlling shareholders 7 – – Basic and diluted earnings per share:

Common Shares 4.40 4.45 4.08 Preferred Shares 4.84 4.89 4.49

Cash Dividends per share in reais, net of withholding tax: Common Shares 4.78 3.62 2.56 Preferred Shares 5.26 3.98 2.81

As of December 31, Balance Sheet Data: 2011 2010 2009 IFRS (in millions of reais, except where indicated) Property, plant and equipment, net 17,154 10,201 9,672 Total assets 65,490 19,966 20,643 Loans and financing—current portion 988 420 1,768 Loans and financing—noncurrent portion 3,959 1,405 1,752 Shareholders’ equity 43,331 11,667 11,300 Attributable to: Controlling shareholders 43,326 – – Noncontrolling shareholders 5 – – Capital stock 37,798 6,575 6,575 Number of shares outstanding (in thousands) 1,123,884 505,841 505,841

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Table of Contents Year ended December 31, Cash Flow Data: 2011 2010 2009 IFRS (in millions of reais, except where indicated) Operating activities: Net cash provided by operations 8,141 4,532 4,449 Investing activities: Net cash used in investing activities (2,029) (1,659) (2,296)Financing activities: Net cash used in financing activities (4,729) (3,594) (1,618)Increase (decrease) in cash and cash equivalents 1,383 (720) 536 Cash and cash equivalents at beginning of year 1,557 2,277 1,741 Cash and cash equivalents at end of year 2,940 1,557 2,277

Exchange Rates

The Brazilian Central Bank allows the real/U.S. dollar exchange rate to float freely and has intervened occasionally to control theexchange rate volatility. However, the exchange market may continue to be volatile, and the real may depreciate or appreciatesubstantially in relation to the U.S. dollar. The Brazilian Central Bank or the Brazilian government may intervene in the exchange ratemarket.

Since March 17, 2008, Brazilian exporters have been allowed to keep 100% of income from exports outside of Brazil. In addition,the foreign exchange mechanism was simplified to provide for the simultaneous purchase and sale of foreign currency through thesame financial institution and using the same exchange rate.

In October 2009, the Brazilian government increased the tax rate related to foreign investments in the Brazilian financial andcapital markets from 0% to 2%, including investments made pursuant the Brazilian Monetary Council (Conselho MonetárioNacional), or CMN, Resolution No. 2,689, dated January 26, 2000, as amended. The Tax on Financial Transactions (Imposto sobreOperaçơes Financeiras), or IOF tax, applies upon conversion of foreign currency into Brazilian reais related to equity or debtinvestments by foreign investors in the Brazilian stock exchanges or the over-the-counter, or OTC, market, as well as privateinvestment funds, Brazilian treasury notes and other fixed income securities.

On October 5, 2010, the Brazilian government announced measures to respond to the real appreciation by increasing the IOF taxrate to 4% on foreign exchange transactions related to foreign investments in the financial and capital markets, except for variableincome investments traded on the stock exchange, which remained at 2%. However, the increase failed to achieve its intended goal ofcurbing the appreciation of the Brazilian currency in comparison to the U.S. dollar.

On October 18, 2010, new increases in the IOF tax rate were announced by the Brazilian government, which adopted a 6% taxrate for foreign exchange transactions and for the investments of foreign investors in accordance with the margin requirements fortransactions with future instruments on the BM&FBOVESPA. The IOF tax rate remains at zero on exchange transactions for outflowof these funds as well as for proceeds received as a result of initial public offerings. The conversion of Brazilian currency into foreigncurrency for purposes of paying dividends for ADS programs is not subject to taxation.

On January 6, 2011, the Central Bank of Brazil published Circular 3,520, which imposes a 60% minimum reserve deposit for anyfinancial operations exceeding US$3 billion.

On July 26, 2011, the Brazilian government issued Decree 7,536, increasing the IOF tax rate to 1% on the acquisition, sale andmaturity of derivative contracts that result in short positions in relation to the previous day, as a way to reduce short positions inforeign exchange rate.

The following tables set forth the exchange rate (rounded to the nearest tenth of a cent), expressed in reais per U.S. dollar(R$/US$) for the periods indicated, as reported by the Central Bank.

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Table of Contents Exchange Rate of R$ per US$ Year ended December 31, Low High Average(1) Period-End 2007 1.732 2.156 1.929 1.771 2008 1.559 2.500 1.833 2.337 2009 1.741 2.378 1.990 1.741 2010 1.655 1.880 1.759 1.665 2011 1.535 1.902 1.671 1.876

Source: Central Bank of Brazil, PTAX. (1) Represents the average of the exchange rates (PTAX) on the last day of each month during the relevant period.

Exchange Rate of R$ per US$ Month Low High Average(2) Period-End September 2011 1.604 1.902 1.729 1.854 October 2011 1.689 1.886 1.785 1.689 November 2011 1.727 1.894 1.781 1.811 December 2011 1.783 1.876 1.834 1.876 January 2012 1.739 1.868 1.804 1.739 February 2012 1.702 1.738 1.720 1.709 March 2012 1.715 1.833 1.774 1.822 April 2012 (through April 19) 1.826 1.887 1.856 1.887

Source: Central Bank of Brazil, PTAX. (2) Represents the average of the exchange rates (PTAX) of the lowest and highest rates in the month.

On April 19, 2012, the exchange rate was R$1.887 to US$1.00. The real/dollar exchange rate fluctuates and, therefore, theexchange rate at April 19, 2012 may not be indicative of future exchange rates. B. Capitalization and Indebtedness

Not applicable. C. Reasons for the Offer and Use of Proceeds

Not applicable. D. Risk Factors

This section is intended to be a summary of more detailed discussions contained elsewhere in this annual report. The risksdescribed below are not the only ones we face. Additional risks that we do not presently consider material, or of which we are notcurrently aware, may also affect us. Our business, results of operations or financial condition could be impacted if any of these risksmaterializes and, as a result, the market price of our preferred shares and our ADSs could be affected. Risks Relating to Brazil

The Brazilian government has exercised, and continues to exercise, significant influence over the Brazilian economy. Thisinfluence, as well as Brazilian political and economic conditions, could adversely affect us and the trading price of our preferredshares and ADSs.

In the past, the Brazilian government has intervened in the Brazilian economy and made changes in policy and regulations. The

Brazilian government’s actions to control inflation and affect other policies have often involved wage and price controls, currencydevaluations, capital controls, and limits on imports, among other things. Our business, financial condition, results of operations andthe market price of our preferred shares and ADSs may be

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Table of Contents adversely affected by changes in government policies, especially those related to our sector, such as changes in telephone fees andcompetitive conditions, as well as general economic factors, including: • currency fluctuations; • exchange control policies; • internal economic growth; • inflation; • energy policy; • interest rates; • liquidity of domestic capital and lending markets; • tax policies; and • other political, diplomatic, social and economic developments in or affecting Brazil.

Uncertainty over the possibility of the Brazilian government implementing changes in policy or regulation affecting these or otherfactors in the future may contribute to economic uncertainty in Brazil and heightened volatility in the Brazilian securities markets andsecurities issued abroad by Brazilian companies. In addition, possible political crises may affect the confidence of investors and thepublic in general, which may result in economic deceleration and affect the trading prices of shares issued by companies listed on thestock exchange, such as us.

Our business may be vulnerable to the current disruptions and volatility in the global financial markets.

The international economy remains subject to risks and adjustments arising from the international financial crisis. Theinternational financial system remains susceptible to unfavorable credit and liquidity conditions. Foreign and national financialinstitutions, including some of the largest commercial banks, investment banks, mortgage lenders, guarantors and mortgage insurancecompanies, could continue to experience significant difficulties, including runs on their deposits and inadequate liquidity. Therefore,the prices of financial assets are likely to continue to reflect risk aversion, with increased volatility.

In an attempt to increase liquidity in the financial markets and prevent the failure of the financial system, various governmentsmay continue to intervene in their financial systems, and perform tax adjustments. There is no assurance, however, that these measureswill be successful in stabilizing conditions in international financial markets.

Despite the extent of the above-mentioned interventions, global investor confidence could remain low, the global financialmarkets could remain volatile and access to credit could still be lacking. The continuation or worsening of disruption and volatility inthe global financial markets may have a material adverse effect on our ability to access the capital markets under appropriate financialconditions, which may adversely affect our operations. Furthermore, an environment of economic downturn may negatively affect thefinancial stability of our customers, which could result in a general reduction in Brazil’s economic activity and the consequent loss ofincome for us.

Political instability may have an adverse impact on the Brazilian economy and on our business.

Political crisis in Brazil can affect the trust of investors and the public in general, as well as the development of the economy.Political crises may have an adverse impact on the Brazilian economy, our business, financial condition, results of operations and themarket price of our preferred shares and ADSs.

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Inflation and government efforts to curb inflation may contribute to economic uncertainty in Brazil, adversely affecting ourbusiness and results of operations.

Brazil has historically experienced high rates of inflation. Inflation and certain of the government’s measures taken in the attempt

to curb inflation have had significant negative effects on the Brazilian economy. In 2011, inflation measured by the Consumer Index(Índice de Preços ao Consumidor), or IPCA, reached 6.50%, in line with the upper limit established by the National MonetaryCouncil, but above the central inflation target of 4.50%. In 2012, the Brazilian monetary policy will continue to use the IPCA forestablishing the inflation target. The inflation target for 2012 is set at 4.50%, similar to 2011. If inflation rises beyond this target, thebasic interest rates may rise, directly affecting the cost of our debt and indirectly reducing the demand for products and servicesrelated to telecommunications. In 2012, factors that may adversely affect consumer inflation are, among others, the internationalcommodities prices, the impact of buoyant domestic economic activity on domestic prices and the indexation of prices and tariffs.

Since 2006, telephone fees for fixed line services have been indexed to the Index of Telecommunication Service, or IST, reducedby a productivity factor. The IST is a basket of national indexes that reflects the industry’s operating costs. As a result, this indexserves to reduce potential discrepancies between our industry’s revenue and costs, and thus reduce the apparent adverse effects ofinflation upon our operations.

The fee rate increase authorized by ANATEL, which references the IST, is reduced by a factor of productivity and appliedcumulatively after a period of 12 months. This can cause increases in costs and salaries above and below that of our revenue, withadverse impacts on our profitability. Increases in interest rates may have a material adverse effect on our business.

The Monetary Policy Committee of the Brazilian Central Bank (Comitê de Política Monetária do Banco Central do Brasil), orCOPOM, sets the target of the basic interest rate for the Brazilian financial system based on an expectation of convergence betweenthe future inflation rate and the central inflation target. On December 31, 2011, the basic interest rate was 11.0% per year, compared to10.75% per year on December 31, 2010. Further increases in the basic interest rate may occur throughout 2012 with adverse effects onour business. According to current market consensus, inflation measured by the IPCA will be higher than the established inflationtarget of 4.50% for 2012. As a result, the Central Bank may increase the SELIC rate (the Central Bank’s overnight rate) in 2012 toalign inflation with the inflation target, which may adversely effect our business.

Fluctuations in exchange rates may adversely affect our ability to meet liabilities denominated or linked to foreign currencies orreduce our income in foreign currency, and may have a material adverse effect on the market value of our preferred shares andADSs.

The exchange rate between the U.S. dollar and the Brazilian real has experienced significant fluctuations in recent years. Between

2000 and 2003, the real was devalued 67% against the U.S. dollar and gained 40% between 2004 and 2010, considering the annualaverage exchange rates. Between 2001 and 2011, the real appreciated by 29% against the U.S. dollar.

As of December 31, 2011, 19.32% of our R$6.20 billion total financial debt was denominated in U.S. dollars and UMBNDES. Asof December 31, 2011, we had currency hedges in place to cover all of our financial foreign currency-denominated bank debt.

Part of the costs relating to our network infrastructure and services provided by outside vendors is payable or linked to paymentby us in U.S. dollars. By contrast, our revenue is generated in reais, except income derived from hedging transactions, internationallong-distance interconnection and services to customers outside of Brazil.

To the extent that the value of the real decreases relative to the U.S. dollar or euro, our commitments linked to fluctuations inexchange rates or payable in foreign currencies becomes more expensive and in return our accounts receivable denominated in foreigncurrencies appreciate, which could adversely affect our revenue and expenses. However, 99.9% of the net balance of the transactionsdenominated in foreign currencies is covered by hedge transactions. Since May 2010, the Company began using net balance coverage,which is the coverage for net positions in foreign exchange exposures generated by invoices issued or received in foreign currencies,substantially reducing the Company’s risk to fluctuations in exchange rates. By periodically receiving invoices for the net balance

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Table of Contents coverage and determining the coverage of exposures, the Company’s corporate market risk department monitors its foreign exchangeexposure and commitments linked to foreign currencies so as not to achieve a significant amount of exposure.

It should be noted that the IST, the current index applicable to telecommunication fees for fixed-line services, does not adequatelyreflect the true effect of exchange rate fluctuations. Thus, since 2006, telecommunication revenue, when converted to U.S. dollars,does not adequately reflect the true effect of exchange rate fluctuations, so that our results of operations could be adversely affected.See “––A. Selected Financial Data––Exchange Rates” for more information on exchange rates.

Political, economic and social developments and the perception of risk in other developed and emerging countries may adverselyaffect the Brazilian economy, our business, and the market price of Brazilian securities, including our preferred shares andADSs.

The market for securities issued by Brazilian companies may be influenced, to varying degrees, by economic conditions in both

emerging and developed market countries. The reaction of investors to developments in other countries may have an adverse impacton the market value of securities of Brazilian companies. Crises in other emerging countries or the economic policies of othercountries may reduce investor demand for securities of Brazilian companies, including our preferred shares. Any of the foregoingdevelopments may adversely affect the market value of our preferred shares and hinder our ability to access the capital markets andfinance our operations in the future on acceptable terms and costs, or at all.

Exchange controls and restrictions on remittances abroad may adversely affect holders of our preferred shares and ADSs.

Brazilian law allows that, whenever there is a significant imbalance in Brazil’s balance of payments or a significant possibilitythat such imbalance will exist, the Brazilian government may impose temporary restrictions on capital outflows. Such restrictionscould hinder or prevent the holders of our preferred shares or the custodian of our shares in Brazil, Banco Itaú Unibanco S.A. (actingas the agent for the depositary), from remitting dividends abroad. The Brazilian government imposed restrictions on capital outflowsfor a six-month period at the end of 1989. If similar restrictions are introduced in the future, they would likely have an adverse effecton the market price of our preferred shares and ADSs. Risks Relating to the Brazilian Telecommunications Industry and Us

Extensive government regulation of the telecommunications industry and our concession may limit, in some cases, our flexibilityin responding to market conditions, competition and changes in our cost structure or impact our fees.

Our business is subject to extensive government regulation, including any changes that may occur during the period of our

authorization to provide telecommunication services. ANATEL, which is the main telecommunications industry regulator in Brazil,regulates, among other things: • industry policies and regulations; • licensing; • fees and tariffs; • competition, including, therefore, our ability to grow by acquiring other telecommunications businesses; • telecommunications resource allocation; • service standards; • technical standards; • quality standards;

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Table of Contents • interconnection and settlement arrangements; and • universal service obligations.

Brazil’s telecommunications regulatory framework is continuously evolving. The interpretation and enforcement of regulations,the assessment of compliance with regulations and the flexibility of regulatory authorities are all marked by uncertainty. We operateunder authorization from the Brazilian government, and our ability to retain this authorization is a precondition to our success.However, because of the regulatory framework, we cannot provide assurances that ANATEL will not adversely modify the terms ofour authorization. Furthermore, according to the terms of our operating authorizations, we are obligated to meet certain requirementsand to maintain minimum quality, coverage and service standards. Failure by us to comply with these requirements may result in theimposition of fines or other government actions, including the termination of our operating authorizations. Any partial or totalrevocation of any of our operating authorizations would have a material adverse effect on our business, financial condition, revenues,results of operations and prospects. In recent years, ANATEL has also been reviewing and introducing changes in the applicableregulation, especially regarding the interconnection fees among telecommunications service providers in Brazil. Interconnection fees,which are fees charged by telecommunications service providers to each other to interconnect to each others’ networks, are animportant part of our revenue base. To the extent that changes to the rules governing interconnection fees reduce the amount ofinterconnection fees we are able to collect, our businesses, financial conditions, revenues, results of operations and prospects could bematerially adversely affected.

Therefore, our businesses, results of operations, revenues and financial conditions could be negatively affected by the actions ofthe Brazilian authorities, including, in particular, the following: • the introduction of new or stricter operational and/or service requirements; • the granting of operating licenses in our areas; • delays in the granting of, or the failure to grant, approvals for rate increases; and • antitrust limitations imposed by ANATEL and the CADE.

Brazilian antitrust regulation is based on Law No. 8,884 of June 11, 1994, which prohibits any practice or transactions aimed atrestricting free competition, dominating the relevant market of goods or services, arbitrarily increasing profits, or abusively exercisinga dominant market position. The Economic Law Office (Secretaria de Direito Econômico), or SDE, and the Secretariat for EconomicMonitoring (Secretaria de Acompanhamento Econômico), or SEAE, also act towards promoting the principle of free, ample and faircompetition among all providers, as well as toward correcting the effects of imperfect competition and repressing violations againsteconomic order. We cannot continue to expand our growth through acquisition of other service providers given the antitrust objectionsof ANATEL along with the fact that we currently already render SMP service all over the country. Consolidation of other competitorsin the telecommunications market will increase the competitive pressure on us due to the increase in their economies of scale andreduction of operational costs, and we may be unable to respond adequately to pricing pressures resulting from consolidation, whichwould adversely affect our business, financial condition and results of operations.

Our concession may be terminated by the Brazilian government under certain circumstances.

We operate our business under a concession granted by the Brazilian government. According to the terms of the concession, weare obligated to meet certain universal service requirements and to maintain minimum quality and service standards. For example,ANATEL requires that we satisfy certain conditions with respect to, among other things, expansion of our network to provide publicpay-phone service for all locations with populations in excess of 100, expansion of our network to provide private individualtelephone service for all locations with populations in excess of 300, and, with respect to quality of service, targets for the number ofcall completions. Our ability to satisfy these terms and conditions, as well as others, may be affected by factors beyond our control.Our failure to comply with the requirements of our concession may result in the imposition of fines up to R$50.0 million or othergovernment actions, including the termination of our concession. Any partial or total revocation of our concession would have amaterial adverse effect on our financial condition and results of operations. Moreover, the concession

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Table of Contents agreements establish that all assets owned by the Company and which are indispensable to the provision of the services described insuch agreements are considered reversible assets and are deemed to be part of the concession assets. The assets will be automaticallyreturned to ANATEL upon expiration of the concession agreements, according to the regulation in force at that time. On December31, 2011, the net book value of reversible assets is estimated at R$6.7 billion, which is comprised of switching and transmissionequipment and public use terminals, external network equipment, energy equipment and system and operation support equipment.

The expiration date of the original concession agreements was December 31, 2005, but it has since been renewed as of December22, 2005 for an additional 20-year term. The current concession agreements contain a provision allowing ANATEL to review theconcession terms in 2015 and 2020. This provision permits ANATEL to update the renewed concession agreements with respect tonetwork expansion, modernization and quality of service targets in response to changes in technology, competition in the marketplaceand domestic and international economic conditions. On December 30, 2010, ANATEL amended the Company’s concessionagreements to allow further amendments on May 2, 2011, December 31, 2015 and December 31, 2020. These further amendmentsmay establish new conditions and targets for universal access and quality, taking into consideration the conditions prevailing at thetime, including complementary resources.

Important mergers and acquisitions in the market should increase competition in the upcoming years.

In 2011, we faced a strong growth in the Brazilian mobile telecommunication market, considering the number of costumers andrevenue, due to new marketing strategies targeted at stimulating clients to use more voice (local and long-distance calls) and dataservices. In the fixed market, however, we experienced weak growth. Our competitors have also started to bundle services andintegrate their fixed and mobile operations to sell complete service pack to their clients and improve operational efficiency.

Some of the most important telecommunication groups in Brazil experienced a degree of merger and acquisition (M&A) activityin 2011. These have included TIM, a subsidiary of Telecom Italia, and Oi, which acquired a medium-size company that providesWi-Fi services in public indoor areas, and the largest shareholder of which is Portugal Telecom.

Mergers and acquisitions may change the market dynamic, cause competitive pressure and force small competitors to findpartners and may impact our business, in terms of operations, financial condition, marketing strategies and offering of products andpromotions.

We face increasing competition from telecom service providers.

The cellular industry is growing fast, mainly because of increased competition. Our competitors have been using aggressivepromotions to increase their client base and, as a result, market share (in particular TIM, which reassumed the second position in themobile market and is challenging our leadership in the prepaid market). New marketing strategies stimulate clients to use more voice(unlimited minutes within the provider’s network, including long-distance calls) and mobile Internet (with the launch of prepaid anddaily offers).

The increase in competition and the related potential loss in market share could have an adverse effect on our business, financialcondition and results of operations.

Our results of operations may be negatively affected by the application of the SMP rules.

Under the SMP regime, our cellular subsidiaries receive payments for the use of their networks in accordance with a networkusage payment plan, which includes outbound long-distance calls. Until June 30, 2004, SMP service providers were able to opt toestablish a price cap or freely negotiate our interconnection charges. In early 2005, ANATEL began permitting free negotiations formobile interconnection, or VU-M, fees and by July 2005, local-fixed concessionaires and mobile operators had reached a provisionalagreement with respect to VU-M fees for local calls, or VC1 (the agreement guaranteed a 4.5% increase in mobile operators’ fees).ANATEL approved that provisional agreement and, in March 2006, approved another provisional agreement of a 4.5% increase forVU-M fees for long-distance calls, or VC2, VC3, and international calls, among the same operators that had made the VC1 agreementin July 2005. The current rule is the free negotiation of fees, subject to ANATEL regulations. In July 2007, ANATEL approved aprovisional agreement among us and the fixed-line operators Telemar, Brasil Telecom,

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Table of Contents CTBC Telecom and Sercomtel and the mobile operators for interconnection fees for VC1, VC2 and VC3 calls that provides for anannual adjustment of approximately 1.97% to interconnection fees in Region I (Telemar’s Region) and an annual adjustment ofapproximately 2.25% in Region II (Brasil Telecom’s Region) and Region III (Telefônica’s Region).

ANATEL also issued Regulation No. 460/2007 regarding Number Portability, implementing and developing fixed and wirelessNumber Portability in Brazil effective as of March 2009, with most costs being borne by the operators. For SMP, Number Portabilityis applied for wireless codes of access of the same registration area. As of December 2011, there were 242.2 million cell phones inBrazil. From the period beginning in September 2008, when Number Portability became effective, until December 31, 2011,2,240,949 people changed out and 2,248,418 people changed into our subsidiaries as their mobile operator. For fixed operators,Number Portability is applied for fixed codes of access of the same local area. There can be no assurance that this new regulation willnot have material adverse effects on the results of our operations.

We cannot predict whether the current regulatory regime will remain in place or whether any future regulatory change will havean adverse effect on our results of operations. We cannot assure you that the interconnection rates we negotiated will be upheld or thatfuture negotiations will be as favorable as those that were previously set by ANATEL. If the readjustments that we negotiated arecancelled or if freely negotiated interconnection fees in the future are less favorable to us, our business, financial condition, revenues,results of operations and prospects will be adversely affected.

If the inflation adjustment index now applied to our prices is changed, the new index may not adequately reflect the true effect ofinflation on our prices, which could adversely affect our results of operations.

The Brazilian government currently uses the General Price Index, or the IGP-DI (the Índice Geral de Preços Disponibilidade

Interna), an inflation index developed by the Fundaçăo Getúlio Vargas, a private Brazilian economic organization, in connection withthe prices charged in the wireless telecommunications industry. Starting in 2010, the Brazilian government began regulating thetelecommunications industry based on an economic model (FAC, or “Fully Allocated Costs”) that analyzes companies’ total costsbased on a theoretical company’s costs and other factors. In connection with this model, the Brazilian government used a differentinflation adjustment mechanism, the IST index. Under Resolution No. 438/2006, ANATEL will determine the reference cost of usingmobile networks (RVU-M) for SMP providers who have significant market power, which will be used in the arbitration case byANATEL to determine the VU-M fee. The inflation adjustment of the RVU-M value uses the IST index. In the auctions by SMP ofnew radio frequency bands, ANATEL has been using the IST index for determining the value of the installments to be paid for thelicenses. If this new inflation adjustment mechanism, or any other mechanism chosen by the Brazilian government in the future, doesnot adequately reflect the true effect of inflation on our prices, our results of operations could be adversely affected.

ANATEL’s new regulation regarding interconnection and network usage fees could have an adverse effect on our results.

Since the beginning of 2005, ANATEL published the following new regulations on interconnection and network usage fees ofSMP providers, some of which could have an adverse effect on our results: (1) new General Regulation of Interconnection(Regulamento Geral de Interconexăo–Resolution No. 410/2005, or RGI); (2) the Regulation of Separation and Allocation of Costs(Resolution No. 396/2005); (3) the Regulation for Network Usage Fees of SMP providers (Regulamento de Remuneraçăo pelo Uso deRedes de Prestadoras do SMP–Resolution No. 438/2006 and Resolutions No. 480/2007, 483/2007, 503/2008 and 549/2010) and theRegulation on the Criteria for Adjustment of Tariffs for Calls from STFC involving SMP or SME No. 576/2011 (Resolution No.576/2011); (4) the Regulation for Usage of Spectrum in the 800, 900, 1800, 1900 and 2100 MHz bands (Resolution No. 454/2006);(5) the Regulation for Methodology of the Calculation of the WACC (Resolution No. 535/2009); (6) the Invitation Document No.002/2007/SPV-ANATEL, relating to the auction organized by ANATEL of new 3G licenses, and stating that, in the maximumallowed period of eighteen months from April 30, 2008, the authorizations resulting from this auction must be combined with theexisting SMP authorizations given to the bid winners when pertaining to the same region of the general authorization plan of SMP;and (7) the general plan for updating the Brazilian telecommunications regulation (Resolution No. 516/2008, or PGR). The followingare some of the changes in the regulation that may adversely affect our results:

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Table of Contents • In the case of long-distance calls, two SMP providers controlled by the same economic group can receive only one instead

of two interconnection charges (VU-M) for calls originated and terminated in their networks ((3) and (6) above). • New negotiation rules for VU-M fees by which ANATEL will have a role in determining reference prices rather than the

current free-market negotiation of prices. The reference prices will apply to SMP providers that have significant marketpower, which may be the case of Vivo (according to Resolution No. 549/2010, only the groups that include SMP operatorswith market share in mobile telephony lower than 20% combined in each one of the regions of the General Plan ofAuthorizations of SMP are considered groups without significant market power in the offer of mobile interconnection, intheir respective areas of authorization) ((3) and (7) above (Resolution No. 549/2010 results of Public Consultation No.5/2010).

• The free negotiation of the VU-M fee is the current rule. The reference price will only be used as a base in case of a

conflict resolution related to the VU-M fee agreement. In the near future, ANATEL may issue a new regulation that willconsider groups with significant market power those who have, among others: economies of scale and scope, market sharewithin certain parameters and possibly for the providers that have integrated operation on the SMP and STFC.

• Reference prices were cost based commencing in 2008 in compliance with Resolution No. 483/2007. The prices are

calculated according to the regulation on Costs Separation and Allocation (Resolution No. 396/2005) ((2) and (3) above). • VU-M fees must follow the discounts granted to fixed telephony customers for out-of-business hours calls ((3) above). • When receiving calls from public telephones, VU-M fees will adopt the same fee rules that apply to public telephones ((3)

above). • Creation of VU-M fee unification among SMP providers of the same economic group with significant market power ((3),

(6) and (7) above). • The interconnection payments between SMP operators for traffic in the same registration area may occur independently of

the traffic balance between the operators (this regime is referred to as “full billing”) ((1) and (3) above). Before theadoption of the above-mentioned regulation, payments between SMP operators for traffic in the same area only occurredwhen the traffic balance between any two companies was either less than 45% or in excess of 55% (this regime is referredto as “partial bill and keep”).

• The Invitation Document 002/2007/SPV-ANATEL relates to the auction organized by ANATEL in December 2007 of new

licenses (3G licenses) for the 1900-2100 MHz radio frequency bands denominated the “F,” “G,” “I” and “J” bands, andstates that, in the maximum allowed period of eighteen months from the publication of the Terms of Authorization on April30, 2008, the authorizations resulting from this auction will be combined with the existing SMP authorizations given to thebid winners when pertaining to the same region of the general authorization plan of SMP. Vivo and Vivo Participaçơesacquired spectrum licenses for the “J” band in regions where we hold SMP licenses. In addition, the Invitation Documentmodifies the rule for the renewal of radio frequency licenses and includes in the calculation of operating profits thecompensation received for the use of the SMP network together with the profits earned from the service plans. Inaccordance with this Invitation Document, in January 2010, ANATEL published an act determining the unification of ourSMP authorizations in Regions II (states of Paraná, Santa Catarina, Rio Grande do Sul, Goiás, Tocantins Mato Grosso doSul, Mato Grosso, Rondônia, Acre and the Federal District) and III (state of Săo Paulo) of the PGA-SMP, with only oneSMP authorization for each one of these Regions (Terms of Authorization Nos. 005/2010 and 006/2010, signed in January2010, for Region II and III, respectively). Moreover, ANATEL also determined that, from November 1, 2009 (eighteenmonths from April 30, 2008), in each Region of the PGA-SMP, the VU-M fee must be unified for that Region (two SMPproviders controlled by the same economic group can receive only one instead of two interconnection charges (VU-M) forcalls originated and terminated in their networks), and freely negotiated. Until such date, the mobile operators charged aVU-M fee for authorization of the SMP. In February 2010, ANATEL

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defined the VU-M fee to be paid for Oi (fixed and mobile operators) and for Brasil Telecom (fixed and mobile operators)to Claro, TIM, Vivo and Vivo Participaçơes, for the region of the PGA-SMP, as a result of the unification of the SMPauthorizations ((1), (3) and (6) above). In October 2010, the Oi signed an agreement with Vivo recognizingthese VU-M fees as a unified region. Even though it paid the amounts defined by ANATEL, Oi had filed forarbitration against Vivo, which became moot after this agreement.

• In 2008, ANATEL published the general plan for updating the Brazilian telecommunications regulation (“Plano Geral de

Atualizaçăo da Regulamentaçăo das Telecomunicaçơes no Brasil”–Resolution No. 516/2008, or “PGR”) ((7) above). • In November 2010, ANATEL published Resolution No. 550/2010 for the Regulation on Exploration of Personal Mobile

Services by means of a Virtual Network, making possible the creation of the “agent” and the Authorization of MobileVirtual Network ((7) above). Resolution No. 550/2010 resulted from Public Consultation No. 50/2009. In accordance withthis regulation approved by ANATEL, Mobile Virtual Network Operators may operate either as agents or as virtualnetwork licensees. An agent represents the personal mobile service provider through the establishment of a representationagreement, which must be ratified by ANATEL. The agent’s activity is not defined as a “telecommunications service,” sothis is of significant interest to companies that operate in other sectors such as large retailers, banks and football teams.

However, the activity of the virtual network licensee does fall within the definition of “telecommunications service” and is thus

subject to all applicable rules: • In October 2009, ANATEL published Resolution No. 535/2009 relating to the Methodology of the Calculation of the

WACC ((5) above). • In December 2008, Decree 6523/2008 became effective, relating to the general norms of customer interaction service by

telephone, with the objective of improving the quality of services ((7) above). • In December 2010, ANATEL organized auctions for the 1900-2100 MHz radio frequency band denominated the “H” band,

for extension bands and for available frequencies at “A,” “D,” “E,” “M” and TDD bands, according the InvitationDocument No. 002/2010/ANATEL. Vivo was awarded 23 licenses (14 spectrum licenses in 1800 MHz bands (“D,” “E,”“M” and extension bands) and nine spectrum licenses in 900 MHz extension bands). In addition, the Invitation Documentmodifies the rule for the renewal of radio frequency licenses and includes in the calculation of operating profits theremuneration received for the use of the SMP network together with the profits earned from the service plans ((1) (3) (4)and (7) above); Invitation Document No. 002/2010/ANATEL results of Public Consultation No. 51/2009.

• In December 2010, ANATEL published Resolution No. 558/2010 transferring the bands of 451 MHz to 458 MHz and 461

MHz to 468 MHz to the SMP, STFC and SCM. These bands are currently assigned for access to the services of telephonyand data in broad band, particularly in rural areas ((7) above); Resolution No. 558/2010 results of Public Consultation No.24/2009.

• In August 2010, ANATEL published Resolution No. 544/2010 for the Regulation on Conditions of Use of Radio

Frequencies in the Band of 2500 MHz to 2690 MHz. This band was assigned to the SMP Services and STFC in addition toSCM services and Pay Television by means of Multichannel Multipoint Distribution Service (MMDS) for which it wasassigned previously ((7) above); Resolution No. 544/2010 results of Public Consultation No. 31/2009.

• In February 2010, ANATEL published Resolution No. 537/2010 relating to amending in the regulation of the 3400 MHz to

3600 MHz band, allowing it to apply additionally to mobile services ((7) above). • In April 2009, ANATEL published Resolution No. 527/2009 relating to the regulation of the Broadband Power Line

(BPL), allowing this service to apply to multimedia communication (SCM) ((7) above). • In June 2010, ANATEL published Public Consultation No. 21/2010 with a proposal of altering the Regulation for

Inspection (Resolution No. 441/2006) ((7) above).

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Table of Contents • In June 2010, ANATEL published Public Consultation No. 22/2010 with a proposal of altering the Regulation for

Sanctions (Resolution No. 344/2003) ((7) above). • In July of 2010, ANATEL published Public Consultation No. 27/2010 with the revision of the General Plan of Standards of

Quality of the SMP (Resolutions 317/2002 and 335/2003) ((7) above). • In November 2010, ANATEL published Resolution No. 548/2010 for the Regulation for Evaluation of the Efficiency of

Use of the Radio Frequency Spectrum ((4) and (7) above). • In December 2010, ANATEL published Resolution No. 553/2010 to allow the addition of the ninth digit in the

numbers of the mobile telephones of area 11, raising the capacity of numeration in the metropolitan region of SăoPaulo and eliminating the problem of scarcity of numeration in this area ((7) above).

• In December 2010, ANATEL published Public Consultation No. 50/2010 with the Proposal for Revision of the Regulation

of Industrial Exploration of Dedicated Lines (Resolution No. 402/2005) ((7) above). • In August 2011, ANATEL published Public Consultation No. 46/2011, regarding compensation for the STFC, changes in

the collection rate in the Local Network Usage (TU-RL) as regards reduced hours, changes in the interconnectionregime and alterations in the compensation structure for the Interurban Network Use (TU-RIU).

Such new regulations could have an adverse effect on our results of operations because: (1) our interconnection charges could

drop significantly, thereby reducing our revenues; (2) ANATEL may allow more favorable prices for economic groups withoutsignificant market power; (3) the prices we charge in some regions in which we operate are higher than those in certain other regions,and consolidation of those prices, competitive pressures and other factors would reduce our average prices and thereby reduce ourrevenues; (4) the granting of new licenses may increase competition in our area from other operators, which could adversely affect ourmarket share, thereby reducing our revenues; (5) the inclusion in the calculation of operating profits the remuneration received for theuse of the SMP network will increase the cost of renewing licenses; and (6) in ANATEL’s general plan of updating thetelecommunications regulation, ANATEL targets several areas of vital importance for the mobile telecommunications business, suchas regulation to improve the quality of services that can cause the rise of operational costs, regulation of the virtual mobile operation(MVNO) that can cause an increase in competitive pressure, regulation against significant market power (“Poder de MercadoSignificativo–PMS”) arising from VU-M fee unification among SMP providers of the same economic group having significant marketpower, that can reduce our revenues, and regulation of multimedia communication (SCM), that can cause an increase in competitivepressure.

The industry in which we conduct our business is continually changing and evolving technologically.

The telecommunications industry is subject to rapid and significant technological changes. Our future success depends on ourability to anticipate and adapt in a timely manner to technological changes. We expect that new products and technologies will emergeand that existing products and technologies will be further developed.

The advent of new products and technologies could have a variety of consequences. These new products and technologies mayreduce the price of our services by providing lower-cost alternatives, or they may also be superior to, and render obsolete, the productsand services we offer and the technologies we use, thus requiring investment in new technology.

We are subject to certain risks related to conditions and obligations that could be imposed by ANATEL for the participation inthe spectrum auction for LTE services.

In August 2010, ANATEL established a new policy regulating the 2.5 GHz spectrum which requires MMDS (Multichannel

Multipoint Distribution Service) companies, including us, to return, until 2013, a significant portion of the spectrum they currentlyown and to offer cable TV on a primary basis. Through this initiative, ANATEL objects to providing more spectrum availability tomobile operators in Brazil, thus restricting them from increasing service penetration and superior data communication.

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On January 25, 2012, ANATEL issued Public Consultation No. 4/2012 for the call to bid for the 2.5 Ghz and 450 Mhz spectrum,for which the deadline to present proposals was March 5, 2012. According to ANATEL, the call to bid for those ranges should bepublished in April 2012 after the approval of ANATEL’s directive council and the auction should be carried out in June 2012. On thedraft call to bid proposed by ANATEL, several conditions and obligations were imposed for the acquisition of the 2.5 Ghz spectrum,such as the definition of a “spectrum cap” of 40Mhz for the first lots, which would also apply to the current holders of that spectrumthat confirmed intentions to maintain portions of it. In this scenario, companies that already hold 10+10Mhz bands in 2.5 Ghz couldonly acquire the FDD (frequency division duplex) spectrum up to 40Mhz, which creates different bidding scenarios for current holdersof portions of this spectrum and prospective new holders participating in this bid. However, ANATEL also imposed a spectrum cap of80Mhz for the subsequent bidding rounds in case bidders show no interest in the first lots.

Additionally, the draft call to bid includes other specific conditions, such as the association of the 450Mhz ranges (destined forrural telephony) with the 2.5Ghz range, coverage targets for certain cities and for the 2014 FIFA World Cup, obligations to acquirenational infrastructure and technology and, most importantly, rules regarding indemnification of the current MMDS providers,including us, to vacate the 2.5Ghz range to be auctioned by ANATEL, which should be based on criteria such as costs related tocustomer and equipment migration or investments made. Because such conditions were not entirely defined by ANATEL in the draftcall to bid, the indemnification will be negotiated between the current holders of the range and the winning bidder and arbitrated byANATEL in case of disputes, which could impact the indemnification amounts expected by MMDS providers.

Also, targets established by ANATEL associated with a fast paced implementation of networks could impact (i) the ability toobtain municipal licenses for the construction of new sites at the speed necessary to achieve the coverage targets, (ii) the capacity ofsuppliers to deliver the equipment necessary for this expansion, with possible impact on their prices, subject to targets to acquirenational technology, and (iii) lack of workers to meet the expected implementation pace.

The creation of certain regulatory asymmetries arising from the General Plan of Competition (PGMC) could increasecompetition.

ANATEL is expected to issue in 2012 new rules relating to the General Plan of Competition (Plano Geral de Metas de

Competicao), which is being created to organize a system for controlling the actions of economic agents in the telecommunicationssector, imposing, removing or altering obligations of the service providers according to their market share, with a view to increasingcompetition. ANATEL is expected to issue rules relating, in particular, to the reservation of network capacity for sharing, and to thedefinition of “significant market power” in the offering of, interconnection services in mobile networks considering the integrationbetween fixed and mobile services as one economic group. ANATEL is expected to also create a new supervising entity to resolveconflicts between companies with and without significant market power and to evaluate and certify the offering of wholesale services.

These new rules under the General Plan of Competition could increase competition in the markets where we operate.

Certain of our debt agreements contain financial covenants, and any default under such debt agreements may have a materialadverse effect on our financial condition and cash flows.

Certain of our existing debt agreements contain restrictions and covenants and require the maintenance or satisfaction of specified

financial ratios and tests. Failure to meet or satisfy any of these covenants, financial ratios or financial tests could result in an event ofdefault under these agreements.

The telecom industry, including us, may be harmed by reports suggesting that radio frequency emissions cause health problemsand interfere with medical devices.

Media and other reports have suggested that radio frequency emissions from base stations may cause health problems. These

concerns could have an adverse effect on the wireless communications industry and, possibly, expose wireless providers, including us,to litigation. According to the World Health Organization (WHO), there is no evidence in the latest medical research that shows anyrelationship between radio frequency emissions of base stations and health concerns. However, expansion of our network may beaffected by perceived risks if we

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Table of Contents experience problems in finding new sites, which in turn may delay expansion and may affect the quality of our services. On July 2,2002, ANATEL published Resolution No. 303 that limits emission and exposure for fields with frequencies between 9 kHz and 300GHz. In addition, the Brazilian government developed specific legislation for the deployment of radio frequency transmission stationsthat supersedes the existing state and municipal laws. In May 2009, the Brazilian government published Law No. 11934/2009 thatlimits the exposure for fields with frequencies up to 300 GHz. The new law uses the exposition limits determined by the InternationalCommission on Non-Ionizing Radiation Protection (ICNIRP) and recommended by the World Health Organization (WHO).

In May 2011, the specialized body of the World Health Organization for research on cancer (IARC) classified electromagneticfields of mobile telephony as “possibly carcinogenic,” a classification which also includes products such as coffee and pickled foods.The World Health Organization subsequently indicated, in fact sheet no. 193, published in June 2011, that to date it cannot beconfirmed that the use of a mobile telephone has adverse effects on health, although it also announced that in 2012 an officialassessment of this risk will be conducted, taking into account all scientific evidence available.

New laws may create additional transmission regulations which, in turn, could have an adverse effect on our business. Also,health concerns may affect our ability to capture or retain customers, may discourage the use of the mobile telephone and may resultin the adoption of new measures by governments or any other regulatory interventions, any of which could materially and adverselyaffect our business, results of operations and financial condition.

We face risks associated with litigation.

We are party to a number of lawsuits and other proceedings. An adverse outcome in, or any settlement of, these or other lawsuitscould result in significant costs to us. In addition, our senior management may be required to devote substantial time to these lawsuits,which they could otherwise devote to our business. See “Item 8. Financial Information—A. Consolidated Statements and OtherFinancial Information—Legal Matters.”

We may be required to record impairment charges relating to goodwill and long-lived assets in the future.

For IFRS purposes, we are required to test our goodwill for impairment at least annually. The excess of the book value of acompany over its market value may indicate that impairment exists. This impairment test is described in Note 3 to our auditedconsolidated financial statements. The Company has substantial goodwill with a carrying value of R$10.2 billion as of December 31,2011. It is possible that we may be required to record impairment charges relating to our goodwill in future periods, and this wouldhave an adverse effect on our results of operations. When we performed our last impairment test, our evaluation of our ability torecover the carrying value of our long-lived assets was based on projections of future operations that assumed a higher level ofrevenues and gross margin percentages than we have historically achieved as well as on assumptions that marketplace participants willmake in valuing similar assets. We may not be successful in achieving these improvements in our revenues and gross marginpercentages due to the competitive environment, changes in technology or other factors. If we are unable to achieve theseimprovements, we may be required to record impairment charges related to our long-lived assets, including goodwill, in futureperiods, and this could have an adverse effect on our operations.

In addition, we are required to record impairment charges on long-lived assets, including property, plant and equipment andfinite-lived intangible assets (including licenses) if the carrying value of these assets exceeds the recoverable amount expected fromtheir use. This impairment test is also described in Note 3 to our audited consolidated financial statements included in this annualreport. Risks Relating to the Preferred Shares and the ADSs

Holders of our ADSs may face difficulties in serving process on or enforcing judgments against us and other persons.

We are organized under the laws of Brazil, and all of our executive officers and our independent public accountants reside or arebased in Brazil. Also, seven of our sixteen directors reside or are based in Brazil. Substantially all of our assets and those of theseother persons are located in Brazil. As a result, it may not be possible for holders of the ADSs to effect service of process upon us orthese other persons within the United States

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Table of Contents or other jurisdictions outside Brazil or to enforce against us or these other persons judgments obtained in the United States or otherjurisdictions outside Brazil. Because judgments of U.S. courts for civil liabilities based upon the U.S. federal securities laws may onlybe enforced in Brazil if certain conditions are met, holders may face greater difficulties in protecting their interests due to actions byus, our directors or executive officers than would shareholders of a U.S. corporation.

Holders of our Preferred Shares and ADSs generally do not have voting rights.

In accordance with Brazilian Corporate Law and our bylaws, holders of our preferred shares, and therefore of our ADSs, are notentitled to vote at meetings of our shareholders, except in limited circumstances set forth in “Item 10. Additional Information—B.Memorandum and Articles of Association.”

Holders of our Preferred Shares might be unable to exercise preemptive rights with respect to the preferred shares unless thereis a current registration statement in effect which covers those rights or unless an exemption from registration applies.

Holders of our preferred shares will not be able to exercise the preemptive rights relating to the preferred shares underlying your

ADSs unless a registration statement under the U.S. Securities Act of 1933, as amended, or the Securities Act, is effective with respectto the shares underlying those rights, or an exemption from the registration requirements of the Securities Act is available. We are notobligated to file a registration statement. Unless we file a registration statement or an exemption from registration applies, holders ofour preferred shares may receive only the net proceeds from the sale of their preemptive rights by the depositary, or if the preemptiverights cannot be sold, they will lapse and you will not receive any value for them. For more information on the exercise of these rights,see “Item 10. Additional Information—B. Memorandum and Articles of Association—Preemptive Rights.”

An exchange of ADSs for preferred shares risks the loss of certain foreign currency remittance and Brazilian tax advantages.

The ADSs benefit from the certificate of foreign capital registration, which permits The Bank of New York, as depositary, toconvert dividends and other distributions with respect to preferred shares into foreign currency, and to remit the proceeds abroad.Holders of ADSs who exchange their ADSs for preferred shares will then be entitled to rely on the depositary’s certificate of foreigncapital registration for five business days from the date of exchange. Thereafter, they will not be able to remit non-Brazilian currencyabroad unless they obtain their own certificate of foreign capital registration, or unless they qualify under Resolution No. 2,689 of theCentral Bank of Brazil, dated January 26, 2000 and issued by BACEN, which entitles certain investors to buy and sell shares onBrazilian stock exchanges without obtaining separate certificates of registration.

If holders of ADSs do not qualify under Resolution No. 2,689, they will generally be subject to less favorable tax treatment withrespect to our preferred shares. There can be no assurance that the depositary’s certificate of registration or any certificate of foreigncapital registration obtained by holders of ADSs will not be affected by future legislative or regulatory changes, or that additionalBrazilian law restrictions applicable to their investment in the ADSs may not be imposed in the future.

Holders of our preferred shares will be subject to, and holders of our ADSs could be subject to, Brazilian income tax on capitalgains from sales of preferred shares or ADSs.

Brazilian Law No. 10,833 provides that gains on the disposition of assets located in Brazil by nonresidents of Brazil, whether to

other nonresidents or to Brazilian residents, will be subject to Brazilian taxation. The preferred shares are expected to be treated asassets located in Brazil for purposes of the law, and gains on the disposition of preferred shares, even by nonresidents of Brazil, areexpected to be subject to Brazilian taxation.

Based on the fact that the ADSs are issued and registered abroad, we believe that gains on the disposition of ADSs made outsideof Brazil by nonresidents of Brazil to another non-Brazilian resident would not be subject to Brazilian taxation, since they would notfall within the definition of assets located in Brazil for purposes of Law 10,833. However, considering the general and unclear scopeof Law No. 10,833 and the absence of judicial court rulings in respect thereto, we cannot be assured that such an interpretation of thislaw will prevail in the courts of Brazil. If the income tax is deemed to be due, the gains may be subject to income tax in Brazil at a rateof 15.0%

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Table of Contents (general taxation) or 25.0% (if the nonresident seller is located in a tax haven, a country which does not impose any income tax, whichimposes it at a maximum rate lower than 20.0%, or in which the laws impose restrictions on the disclosure of ownership compositionor securities ownership or the identification of the effective beneficiary of income attributed to nonresident holders). See “Item 10.Additional Information—E. Taxation—Brazilian Tax Considerations.” Certain Factors Relating to Our Controlling Shareholder

Our controlling shareholder has strong influence over our business.

Telefónica Internacional S.A., or Telefónica Internacional, our principal shareholder, currently owns directly and indirectlyapproximately 91.76% of our voting shares and 73.81% of our total capital. See “Item 7. Major Shareholders and Related PartyTransactions—A. Major Shareholders” and “Item 7. Major Shareholders and Related Party Transactions—B. Related PartyTransactions.” As a result of its share ownership, Telefónica Internacional has the power to control us and our subsidiaries, includingthe power to elect our directors and officers and to determine the outcome of any action requiring shareholder approval, includingcorporate reorganizations and the timing and payment of our dividends. Given this degree of control over our company, circumstancescould arise under which the interests of Telefónica Internacional could be deemed to be in conflict with the interests of our othershareholders. ITEM 4. INFORMATION ON THE COMPANY A. History and Development of the Company General

Following the restructuring and privatization of Telebrás, discussed below, we were incorporated on May 22, 1998, as acorporation (sociedade anônima) organized under the laws of the Federative Republic of Brazil. We are incorporated under the nameTelefônica Brasil S.A. (and, before our merger with Vivo Participaçơes S.A. on October 3, 2011, under the name Telecomunicaçơesde Săo Paulo S.A. – TELESP)

We are registered with the CVM as a publicly held company and our stock is traded on BM&FBOVESPA. We are also registeredwith the SEC in the United States and our ADSs are traded on the New York Stock Exchange, or the NYSE. Our headquarters arelocated at Rua Martiniano de Carvalho, 851, 21st floor, 01321-001, Săo Paulo, SP, Brasil. Our telephone number is 55-11-7420-1172,our facsimile number is 55-11-7420-2247 and our website is www.telefonica.com.br/investidores. The information on our website isnot part of this Form 20-F.

As of December 31, 2011, we had 381,347,371 outstanding common shares, with no par value per share, and 742,537,273preferred shares, with no par value per share. Our shareholders’ equity was in the amount of R$43.3 billion as presented under IFRS.

We provide fixed-line telecommunications services in the State of Săo Paulo under concession agreements granted in 1998 by theBrazilian government in connection with the restructuring and privatization of the Telebrás System, as described below. Theconcession, which was renewed in December 2005, authorizes us to provide fixed-line telecommunications services in a specificregion, which includes all of the State of Săo Paulo except for a small area (Sector 33), where a previously existing fixed-line serviceprovider, CTBC Telecom, which was not part of the Telebrás System, continues to operate independently.

In addition to the services that we provide under the concession agreements of 1998, we also provide international andinterregional long-distance services, as permitted under Act No. 23,395 of March 1, 2002, under which ANATEL also acknowledgedthe completion of our network expansion and achievement of universal service targets as of September 30, 2001.

We also provide multimedia communication services (“serviços de comunicaçăo multimídia” or “SCM”) such as audio, data,voice and other sounds, images, texts and other information. ANATEL granted the SCM license with Act No. 33,791 of February 14,2003, which authorized the rendering of the service in all of the State of Săo Paulo, except for a small area (Sector 33).

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On March 14, 2007, ANATEL conceded to A. TELECOM S.A., one of our wholly owned subsidiaries, the license to offer PayTV services through DTH (“Direct to the Home,” a special type of service that uses satellites for the direct distribution of televisionand audio signals for subscribers). We began offering Pay TV services on August 12, 2007.

On October 31, 2007, the board of ANATEL approved, from a regulatory perspective, the association between Grupo Abril andthe Company, which involved, among other transactions, the acquisition of all of the operations of Multichannel MultipointDistribution Service (MMDS), a special license that allows us to offer Pay TV and broadband services through our subsidiaryTelefonica Sistemas de Televisăo S.A. The transaction continues to be analyzed by ANATEL, solely with respect to antitrust matters,and will be finally reviewed by CADE.

In 2008, the Company pioneered the launch of Internet access through fiber optic cables (“Fiber to the Home,” FTTH) fornoncommercial customers. Aside from the offer of an Internet connection with high-speed capacities of 30 Mbps and 100 Mbps,various bundles have also been offered, including Wi-Fi, Digital TV, 2,000 minutes of local and intra-state calls, anti-virus protection,call identification, technical assistance and specific call center assistance.

On February 16, 2009, ANATEL extended the authorization until 2024 for the use of the spectrum frequencies associated with theMMDS in the cities of Săo Paulo, Curitiba, Rio de Janeiro and Porto Alegre.

According to data regarding market share published by ANATEL, we are among the leading providers of cellulartelecommunications services in Brazil, with the help of our wholly owned direct subsidiary Vivo, the leading cellular operator inBrazil. Vivo is a cellular operator in the states of Acre, Alagoas, Amapá, Amazonas, Bahia, Ceará, Espírito Santo, Goiás (alsoencompassing the area of Federal District), Maranhăo, Mato Grosso, Mato Grosso do Sul, Pará, Paraíba, Paraná, Pernambuco, Piauí,Rio de Janeiro, Rio Grande do Norte, Rio Grande do Sul, Rondônia, Roraima, Santa Catarina, Săo Paulo, Sergipe, Tocantins andMinas Gerais.

As of December 31, 2011, our telephone network included 10,981 thousand fixed-lines in service, 71,554 thousand mobileaccesses, 3,631 thousand broadband clients and 699 thousand Pay TV clients. Historical Background

The Restructuring and Privatization

After the incorporation of Telecomunicaçơes Brasileiras S.A.–Telebrás in 1972, Telebrás and its operating subsidiaries(collectively, the “Telebrás System”) acquired almost all of the telephone companies in Brazil and monopolized the provision ofpublic telecommunications services in virtually all areas of the country.

In May 1998, just before its privatization under the General Telecommunications Law, the Telebrás System was restructured toform, in addition to Telebrás, 12 new holding companies. Virtually all assets and liabilities of Telebrás were transferred to the newholding companies, or the “new holding companies.”

In July 1998, the federal government privatized the Telebrás System, selling substantially all its shares in the new holdingcompanies, including TelespPar and its shares in TSP and CTBC Borda, to private sector buyers. As a result of a subsequentreorganization of SP Telecomunicaçơes on January 10, 1999, one of its subsidiaries, SPT Participaçơes S.A., or SPT, became thecontrolling shareholder of TelespPar.

The Reorganization of TelespPar

On November 30, 1999, the shareholders of TelespPar approved a reorganization involving a series of mergers, whereby Telesparbecame the telecommunications services company operating under our current name, Telefônica Brasil S.A. (formerlyTelecomunicaçơes de Săo Paulo S.A. – TELESP prior to our merger with our direct subsidiary, Vivo Participaçơes).

Ceterp’s Acquisition

On December 20, 1999, we began the acquisition, through a public auction from the municipal government of the City ofRibeirăo Preto, in the State of Săo Paulo, of 51.0% of the voting shares and 36.0% of the total share

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Table of Contents capital of Centrais Telefônicas de Ribeirăo Preto S.A., or Ceterp. Ceterp provided fixed-line and cellular services in the State of SăoPaulo, outside the Telebrás System, and had been one of our minor competitors.

On December 27, 2000, Ceterp was merged with and into us.

The Spin-off of Certain Data Transmission Operations

On August 3, 2000, the wholly owned subsidiary, Telefônica Empresas S.A., was created with the corporate goal of providingSwitched Package Network services, and, on January 30, 2001, the independent Brazilian corporation, Telefônica Data Brasil HoldingS.A. (TDBH), was created through a shareholder-approved spin-off of the data transmission operations performed by TelefónicaEmpresas S.A. A merger of the company and TDBH was effective in July 2006. See “—The SCM Restructuring.”

Attainment of ANATEL Targets

Our business, services and tariffs have been regulated by ANATEL since June 16, 1997, in accordance with various decrees,decisions, plans and regulatory measures. We became the first operator to achieve ANATEL’s service targets. As a result, ANATELgranted us a license to offer domestic and international long-distance services to our customers. Accordingly, on May 7, 2002, webegan providing international long-distance services and, on July 29, 2002, we began providing interregional long-distance service.See “—B. Business Overview—Regulation of the Brazilian Telecommunications Industry—Obligations of TelecommunicationsCompanies—Network Expansion and Quality of Service” for information relating to ANATEL’s network expansion and universalservice targets.

The Board of Directors of ANATEL, at ANATEL’s meeting held on January 29, 2003, granted us the authorization to use theSCM nationwide. The Company may now offer voice and data services through various points of presence composed of networks andtelecommunication circuits.

On July 6, 2003, mobile telephony operators started to implement a long-distance carrier selection (CSP) that enables the client todetermine the long-distance carrier for each domestic long-distance call (VP2 and VP3) or international call, in accordance with theSMP rules. As a result, the Company, having acknowledgment of the revenue from these long-distance services, started to pay themobile telephony operators for the use of their networks.

On September 4, 2004, the rules dictated by Resolution No. 373, dated as of June 3, 2004, were implemented to carry out thereconfiguration of the local areas for the STFC. As a consequence, all calls previously billed at domestic long-distance rates (DC level– Áreas Conurbadas) are now billed at lower rates as local calls. In Săo Paulo, this modification involved 53 municipalities, of which39 are in Greater Săo Paulo (Grande Săo Paulo).

IP Network Asset Acquisition

On December 10, 2002, after receiving approval from ANATEL, our Board of Directors approved a proposal to acquire certainassets from Telefónica Data S.A. (formerly T-Empresas), one of the companies of the Telefónica group, including the followingservices: (i) an Internet service that allows our customers to access our network through remote dial-up connection and (ii) servicesthat allow customers of Internet Service Providers, or ISPs, to have access to broadband Internet. The purpose of this asset acquisitionwas to capitalize on synergies that would assist in developing our network and provide a quick response to market competitors.

Acquisition and Reorganization of Atrium

On December 30, 2004, we acquired indirect control of Atrium Telecomunicaçơes Ltda. from Launceston Partners CV. Atriumprovided various types of telecommunications services in Brazil, including Internet and intranet services, telecommunicationsmanagement services and the sale and rental of telecommunications systems and related equipment. The acquisition was carried outthrough the purchase of the total share capital of Santo Genovese Participaçơes Ltda., which held 99.99% of the representative sharecapital of Atrium.

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On November 21, 2005, we approved the corporate reorganization of our wholly owned companies, A. TELECOM S.A.(formerly Assist Telefónica S.A.), Santo Genovese Participaçơes Ltda., or Santo Genovese and Atrium Telecomunicaçơes Ltda., orAtrium, which was implemented and became effective on March 1, 2006.

The SCM Restructuring

On March 9, 2006, our Board of Directors and the Boards of Directors of TDBH and Telefónica Empresas S.A., a wholly ownedsubsidiary of TDBH (“T-Empresas” and together with us and TDBH, the “Companies”), approved the restructuring of the Companies’serviços de comunicaçăo multimidia (“SCM”), or multimedia communications services, and data transmission activities (the “SCMRestructuring”).

The terms and conditions of the SCM Restructuring are set forth in an agreement executed by the Companies on March 9, 2006.The SCM Restructuring consisted of (i) the merger of TDBH into our company (the “Merger”); and (ii) the spin-off of allT-Empresas’ assets and activities except its SCM assets and activities outside Sectors 31, 32 and 34 of Region III of Annex II of theGeneral Concession Plan (the “Spin-off”) and assets and activities related to the data center.

Following the approval of this restructuring: (i) TDBH was dissolved; (ii) its shareholders received shares of our common orpreferred stock, or ADSs, as appropriate; (iii) we succeeded TDBH in all of its rights and obligations; and (iv) T-Empresas becameour wholly owned subsidiary. The transfer to TELESP of the spun-off components of T-Empresas did not result in any increase ordecrease in the net equity of TELESP, nor in the number of shares that comprise its capital stock.

With respect to TDBH’s Merger into us, certain minority shareholders tried to suspend our General Shareholders Meeting bycontesting the appraisal of the share exchange ratio provided by NM Rothschild & Sons (Brasil) Ltda. by obtaining an injunction fromthe 14th civil chamber of the central forum of the district court of Săo Paulo. The injunction was lifted on July 28, 2006, and themerger became legally effective. The main action (Açăo Ordinária No. 583.00.2006.156920-5) has not yet been resolved in the lowercourt.

On January 31, 2008, at the 22nd General Shareholders Meeting of Telefónica Empresas S.A., the only shareholder of which isthe Company, it was resolved to change the corporate name of Telefónica Empresas S.A. to Telefónica Data S.A.

Agreement of Convergence, Purchase and Sale of Operations, Assets, Stock and Other Obligations with the Abril Group

On October 29, 2006, the Company entered into an agreement with Abril Comunicaçơes S.A., TVA Sistema de Televisăo S.A.,Comercial Cabo TV Săo Paulo Ltda., TVA Sul Paraná Ltda., and TVA Radioenlaces Ltda. (the “Abril Group”), whereby wecombined our telecommunications and broadband services with the broadband and cable services of Tevecap S.A., or TVA, thesecond largest Brazilian pay TV provider with operations in the states of Paraná, Rio Grande do Sul, Săo Paulo and Rio de Janeiro.Through this transaction, we broadened our services to meet our users’ increasing demand, combining the Abril Group’s expertise incontent and media production and placement with the expertise of the Telefónica Group in the telecommunications segment.

On October 31, 2007, the board of ANATEL concluded the regulatory review of the association between Grupo Abril and theCompany, approving the transaction, which involves (i) the acquisition of all of the operations of MMDS (Multichannel MultipointDistribution Service) and broadband, and (ii) the acquisition of a significant stake, within the limit of the foreseen effective laws andregulations, in the cable television dealers controlled by Grupo Abril within and outside of the State of Săo Paulo. This decision waspublished in the D.O.U. of the Federal Executive on November 19, 2007. Antitrust clearance is still pending from ANATEL andCADE competition authorities.

Our stockholders, in the extraordinary general meeting held on November 23, 2007, ratified the entering into of the Agreement,its amendments and annexes, and approved the implementation of the deal and the signature of all documents necessary for itscomplete formalization.

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As a result of this transaction, Navytree Participaçơes S.A. (“Navytree”) became a wholly owned subsidiary of TELESP, and ourprovision of broadband services became centralized.

On June 10, 2008, at the General Shareholders Meeting of Navytree, the corporate name of Navytree was changed to TelefônicaTelevisăo Participaçơes S.A. (“TTP”).

Corporate Reorganization involving Ajato

On October 14, 2008, Telefonica Sistema de Televisăo S.A. (“TST”) and TTP purchased from Abril Comunicaçơes S.A. allshares of Mundial Voip Telecomunicaçơes Ltda., EPP, which had its corporate name changed to Ajato Telecomunicaçăo Ltda.(“Ajato”). Following the merger of TTP into the Company on November 11, 2008, Ajato’s shares are held by TST and us.

Corporate Reorganization involving DABR and TTP

On October 21, 2008, our Board of Directors and the shareholders of TTP and Telefônica Data Brasil Participaçơes Ltda.(“DABR”) approved a corporate reorganization that consisted of the merger of TTP and DABR into us.

On November 11, 2008, the merger of TTP and DABR was approved by our Extraordinary Shareholders Meeting. As a result ofthis restructuring, TTP and DABR were dissolved and we assumed all the rights and obligations of TTP and DABR.

The reorganization allowed us to increase synergies, reduce managerial risk, simplify the corporate administrative structure andreduce costs, while also providing tax benefits expected to reduce TELESP’s income tax and other taxes assessed on revenue andincome, thereby improving our cash flows. The reorganization and the goodwill amortization were structured so as to avoid anyassumption of indebtedness by us and to minimize any negative impact on the future results of the Company.

Corporate Restructuring involving TS Tecnologia

On May 22, 2009, Telefônica Data S.A., our subsidiary, merged with its controlled subsidiary, TS Tecnologia da Informaçăo

Ltda., or TS Tecnologia, in accordance with the values recorded on the books and an appraisal report. This merger caused TSTecnologia to be extinguished, and Telefônica Data S.A. became the successor to all of the assets and liabilities of TS Tecnologia.

Corporate Restructuring involving A.TELECOM S.A.

On December 9, 2009, our Board of Directors approved the submission to a shareholder vote of the corporate reorganizationproposal consisting of the partial spin-off of A.TELECOM S.A. (“A.TELECOM”), and the subsequent merger into the Company ofthe spun-off part of A.TELECOM.

On December 30, 2009, A.TELECOM’s shareholders approved the spin-off of part of A.TELECOM and the subsequent mergerof the spun-off part into the Company. On the same date, our shareholders approved the merger of the spun-off part into us.

This corporate restructuring created synergies for us and A.TELECOM providing both of us with better administrative, operatingand regulatory efficiencies regarding telecommunication integrated services, thus benefiting both of us and our respectiveshareholders.

Corporate Restructuring involving Brasilcel

Acquisition of Brasilcel N.V. stocks by Telefónica S.A.

On July 28, 2010 Telefónica S.A. and Portugal Telecom SG SGPS, S.A. entered into an agreement for the acquisition byTelefónica of 50% of Brasilcel N.V’s (Brasilcel) shares owned by Portugal Telecom. As a result, Telefónica indirectly acquired theshares of Vivo Participaçơes held by Portugal Telecom. Prior to this agreement, Brasilcel’s shares were held by Telefónica (50%) andby Portugal Telecom (50%) and, in 2002, it was used for the

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Table of Contents joint venture between both shareholders to jointly hold shares and control of Vivo Participaçơes and other mobile phone companieswhich were later added under Vivo Participaçơes and in Vivo S.A.

On December 21, 2010, Brasilcel was merged into Telefónica, which held direct and indirect stakes in Vivo Participaçơes’scapital stock representing approximately 60%.

Due to the acquisition of control of Vivo Participaçơes and pursuant to the terms provided for in Article 254-A of Law 6,404/76and the procedures established in article 29 of CVM Instruction 361 applicable to tender offers (OPA) by sale of control, as defined byitem III of article 2 of CVM Instruction 361, on February 17, 2011 Telefónica through its subsidiary SP Telecomunicaçơes Ltda(“SPTelecom”) launched a Public Tender Offer for the shares with voting rights of Vivo Participaçơes (ON shares) held bynoncontrolling interests. Those shares were acquired at 80% of the value paid by Telefónica to Portugal Telecom SG SGPS S.A., foreach common share with voting rights of Vivo Participaçơes S.A. (ON) owned by Brasilcel.

On March 18, 2011, when the OPAs were made, SP Telecom acquired 10,634,722 common shares of Vivo Participaçơes,representing 2.65% of its shares, resulting in the Telefonica group ownership of 62.1% of Vivo Participaçơes.

Introduction of the Vivo Brand

In April 2003, Brasilcel launched in Brazil the brand name “Vivo,” under which TCP, TCO, TLE, TSD and Celular CRT operate.The creation of the Vivo brand constituted a consolidation of the commercial models throughout the entire country into a commoncommercial strategy and replaced the different brands under which the different companies offered their services in their respectivestates. The commercial strategy of Vivo is to increase its customer base as well as revenues by retaining customers and maintainingtheir distribution channels. The launching of the Vivo brand was accompanied by customer loyalty programs and other measuresdesigned to contribute to the success of the commercial strategy. Guided by a common management team, Vivo designs marketing,promotional and other initiatives common to all companies in the Vivo group and then tailors those activities to the particular marketsof those companies.

Agreement with Telefónica and Telecom Itália

In October 2007, TELCO S.p.A. (a company in which Telefónica holds a corporate interest of 42.3%) acquired 23.6% of thecapital stock of Telecom Itália. Telecom Itália also holds an interest in the capital stock of TIM. However, Telefónica did not acquireany right to directly participate in the operations of TIM as a result of the acquisition of the corporate interest in Telecom Itália byTELCO S.p.A.

As a result, any transaction involving us and TIM is considered an ordinary mobile network business transaction, which isregulated by ANATEL, as provided in the Act 68.276, dated October 31, 2007 and in the Act 3.804, dated July 7, 2009, both issuedand published by ANATEL.

Corporate Restructuring involving Vivo Participaçơes S.A.

In July 28, 2010, in accordance with the material fact disclosed to the public by Telefónica S.A., our controlling shareholder,Telefónica S.A. and Portugal Telecom SG SGPS, S.A. (“Portugal Telecom”) executed a purchase agreement for the acquisition byTelefónica S.A. (directly or through any of the companies within its group) of 50% of the capital stock of Brasilcel, N.V. (a companyjointly owned by Telefónica and Portugal Telecom, which owns shares representing approximately 60% of the capital stock of theBrazilian company Vivo Participaçơes S.A.).

On December 27, 2010, the Company and Vivo Participaçơes, jointly announced the approval by their respective Boards ofDirectors of a proposal for corporate restructuring involving the merger of shares of Vivo Participaçơes into the Company, aiming forthe consolidation of the shareholding positions of both companies.

Other than the concentration of the shareholding position herein mentioned, the corporate restructuring aimed to simplify theorganizational structure of the companies, both of which were publicly held companies and listed on BM&FBOVESPA and withAmerican Depositary Receipts traded in the United States of America. The restructuring allowed their respective shareholders toparticipate in one unified company with greater liquidity and with shares

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Table of Contents traded on Brazilian and foreign stock exchanges. Moreover, the corporate restructuring provided for the rationalization of the coststructure of the two companies and facilitated the integration of businesses and the generation of synergies, thus positively impactingboth companies.

The simplified organization chart below demonstrates the corporate structure of the companies before and after theimplementation of this reorganization.

The corporate structure before the merger of shares is as follows:

Upon completion of this corporate restructuring, Telefónica, S.A. holds the shares of the Brazilian holding companies that

currently are held indirectly by Telefónica, S.A., through the holding of Brasilcel, N.V., as a result of a transaction implementedabroad. The merger of shares did not change the composition of the ultimate control of the companies involved.

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The corporate structure after the merger is as follows:

The totality of shares of Vivo Participaçơes was merged into the Company, and the holders of the merged shares of Vivo

Participaçơes received new shares to which they were entitled in the Company. In accordance with Brazilian Corporate Law, as wellas the bylaws of the two companies, financial advisors and specialized companies were retained for the preparation of studiesregarding the transaction and the subsequent preparation of valuation reports of the companies that were used as reference for thedetermination of the exchange ratio of shares and the increase in capital stock resulting from the merger of shares, as well as for thepurposes of article 264 of Law No. 6,404/76 regarding the exchange ratio between the shares.

In addition to the notice of material fact to be published reflecting more details on the terms and conditions of the corporaterestructuring that were agreed upon as mentioned above, the meeting notice of the respective extraordinary shareholders’ meetings ofthe companies for voting on the restructuring were timely published.

The corporate restructuring was approved by ANATEL on March 24, 2011. Before the corporate restructuring, the Brazilianentities, TBS Celular Participaçơes Ltda., Portelcom Participaçơes S.A. and PTelecom Brasil S.A. (jointly, the “Holdings BR”), weremerged into Vivo Participaçơes. The Holdings BR had as its main asset the shares of Vivo Participaçơes and were controlled byBrasilcel, N.V. The merger of Holdings BR did not result in any change in the number and the composition of classes of shares ofVivo Part, and did not affect the participation of the shareholders of Vivo Participaçơes.

Acquisition of Vivo Participaçơes by Telefônica Brasil and corporate restructuring

In order to unify the shareholder’s base of the companies in our group, simplify the organizational structure, rationalize costs,integrate businesses and, consequently, generate synergies provided for in the strategy of Telefónica, on December 27, 2010, theBoards of Directors of Vivo Participaçơes and Telefônica Brasil approved the terms and conditions for restructuring, which providedfor the merger of 100% of the shares of Vivo Participaçơes into Telefônica Brasil. Following recommendations of the GuidingOpinion No. 35 of CVM, independent special committees were created to negotiate the exchange ratio of shares and determine theother conditions of the Corporate Restructuring proposal in order to submit later its recommendations to the Board of Directors of bothcompanies.

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The proposal was submitted to ANATEL’s authorization and approved at a meeting of the Board of this agency held on March24, 2011.

On March 25, 2011, the Boards of Directors of Vivo Participaçơes and Telefônica Brasil approved the terms and conditions of thecorporate restructuring, which were approved unanimously by the general meetings of shareholders of the Companies held on April27, 2011.

Before the corporate restructuring commenced, the Holdings (composed of TBS Celular Participaçơes Ltda., PortelcomParticipaçơes S.A. and Brazil PTelecom S.A.), controlled by Telefónica S.A. and whose main purpose was to hold shares of VivoParticipaçơes, were merged into Vivo Participaçơes as a preliminary phase for the first stage of restructuring.

The first stage of the transaction consisted of the unification of the share base of fixed and mobile operators of the Telefonicagroup in Brazil, through the merger of shares of Vivo Participaçơes into Telefônica Brasil. Telefônica Brasil merged VivoParticipaçơes in its entirety, attributing directly to the holders of shares of Vivo Participaçơes the new shares of Telefônica Brasil. Theexchange of shares of Vivo Participaçơes for shares of Telefônica Brasil was based on the exchange share ratio of 1.55 shares ofTelefônica Brasil for each share of Vivo Participaçơes. This followed the recommendations of the independent special committees.

Due to this merger of shares of Vivo Participaçơes, Telefônica Brasil’s capital was increased by R$31,222,630, reflecting theeconomic value of the incorporated shares, based on an economic value appraisal of Vivo Participaçơes prepared by PlanconsultConsultoria Ltda. (“Planconsult”).

Telefónica’s strategy in the first stage of the corporate restructuring was to maximize the potential of its operations in Brazil.Therefore, Telefônica Brasil became the direct shareholder of Vivo Participaçơes, and indirectly of Vivo S.A. Through the creation ofthis “umbrella investment structure”, the noncontrolling shareholders of both companies were equally benefited by the added valuesgenerated by the combination of the telecommunications business. This is a basic movement in business so as to improve itsconverging market strategy, including combined mobile and fixed-line offers. This reorganization created the conditions for thebeginning of the process to obtain operational and financial synergies.

Additionally, as a consequence of this merger, on July 6, 2011, Vivo Participaçơes filed a statement with the SEC in order tocancel its registration for the program of American Depositary Shares (ADSs), since all its ADSs were converted into ADSs ofTelefônica Brasil, plus payment currency in lieu of fractional Telefônica Brasil ADSs, which was approved on July 7, 2011.

The second and third stages of the corporate restructuring, disclosed to the market on June 15, 2011, sought to continue thesimplification process of the organizational structure of the Companies, so as: (i) to focus all authorizations for the rendering of SMP(personal mobile service) services (originally held by Vivo Participaçơes and Vivo S.A.), and (ii) simplify the current corporatestructure, eliminating the structure of Vivo Participaçơes, which due to the concentration of commitments became a holding company.

In the second stage, held on October 1, 2011, assets, rights and obligations of Vivo Participaçơes related to mobile operations inMinas Gerais were awarded to Vivo S.A., a subsidiary of Vivo Participaçơes. As a result, Vivo S.A. became the only mobile operatorin the group.

After ANATEL’s approval of the third stage of corporate restructuring, on August 16, 2011, Telefônica Brasil absorbed VivoParticipaçơes’s equity, extinguishing Vivo Participaçơes on October 3, 2011, which simplified and rationalized the Company’s coststructures.

SMP Authorizations and Corporate Restructuring

On June 14, 2011, the Board of Directors of Vivo Participaçơes S.A. approved a proposal for the merger of licenses to provideSMP services (then owned by Vivo Participaçơes S.A. in the State of Minas Gerais and Vivo in other Brazilian States). As a result, theoperations and authorizations for the provision of SMP services were unified under Vivo On the same date, the proposal for merger ofSMP authorizations as well as for simplifying the corporate structure was filed with ANATEL. The form proposed for this simplifiedcorporate structure was the transfer of

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Table of Contents businesses, including property, rights and obligations related to provision of SMP services, as well as the authorizations for theprovision of SMP in the State of Minas Gerais held by Vivo Participaçơes, to Vivo, which would result in Vivo S.A. being a whollyowned direct subsidiary of the Company and the mobile operator group that owns the SMP authorizations in other Brazilian states.After the transfer, Vivo Participaçơes was to become a holding company and immediately merge with the Company, thus simplifyingand rationalizing the cost structure of the companies involve and subsequently extinguish its corporate existence. On August 16, 2011,ANATEL approved the corporate restructuring pursuant to Act. No. 5,703, published in the D.O.U. on August 18, 2011.

On September 12, 2011, in compliance with Brazilian Corporate Law, an independent firm prepared a valuation report of VivoParticipaçơes S.A.’s net assets based on its book value as of August 31, 2011 containing part of Vivo Participaçơes S.A.’s assetsrelating to the operations of SMP in the State of Minas Gerais that were transferred to Vivo and the assets of Vivo Participaçơesmerged into the Company. Vivo Participaçơes’ valuation as of August 31, 2011 was R$10.3 billion.

On September 13, 2011, the Board of Directors of Vivo Participaçơes S.A. approved, ad referendum of the shareholders: (i) thevaluation report of Vivo Participaçơes S.A., containing part of the assets corresponding to the SMP operations in the State of MinasGerais, which led to a capital increase in Vivo in the amount of R$833.0 million, through the subscription of shares of VivoParticipaçơes S.A.; and (ii) the Protocol of Merger and Instrument of Justification of Vivo Participaçơes S.A. into Telecomunicaçơesde Săo Paulo S.A. – TELESP (“Protocol”) for the merger of Vivo Participaçơes S.A. into the Company, preceded by the transfer ofcommercial establishments, including the assets, rights and obligations related to provision of SMP, as well as authorizations for theprovision of SMP in the State of Minas Gerais held by Vivo Participaçơes S.A.

On October 1, 2011, the Extraordinary General Shareholders Meeting approved the valuation report of Vivo Participaçơes S.A..The net assets of Vivo Participaçơes in Minas Gerais transferred to Vivo S.A. amounted to R$833.0 million, which were used for thecapital increase in Vivo through the subscription of shares by Vivo Participaçơes S.A., paid via the transfer of assets.

On October 3, 2011, the Extraordinary General Meeting of the Company approved the merger of Vivo Participaçơes S.A. into theCompany. On the same date, the Company changed its name from Telecomunicaçơes de Săo Paulo S.A. – TELESP to TelefônicaBrasil S.A., to reflect its nationwide operations.

On October 18, 2011, the Extract of the Authorization Term No. 46/2011/PVCP/SPV-ANATEL was published in the D.O.U. as aresult of Act No. 5703 of October, 16 2011, which authorizes the transfer to Vivo of the authorization to render SMP services in theState of Minas Gerais.

Provision of STFC outside the State of Săo Paulo by Vivo

On August 18, 2011, ANATEL’s Act No. 7012 was published in the D.O.U. authorizing Vivo to provide STFC services for thegeneral public. On October 7, 2011, Vivo began providing fixed services through mobile technology (FWT) outside of the State ofSăo Paulo.

ANATEL granted on August 18, 2011 consent to the Company to transfer to Vivo its authorizations for STFC service in localmode, domestic long-distance and international long-distance in Regions I and II of the General Plan of Grants (outside of Săo Paulo).On September 8, 2011, the Extract of the Authorization Term was published in the D.O.U. with the transfer of the STFC licenses inRegions I and II to Vivo. As a result, Vivo began to offer STFC across its area, except for the State of Săo Paulo, using basically thenetwork elements and some radio frequencies that support the provision of SMP.

Plan for the purchase of shares issued by the Company.

On August 11 and 15, 2011, the Company informed its shareholders and the market in general, respectively, of approval by theBoard of Directors, of the acquisition of preferred and common shares issued by the Company for subsequent cancellation, disposal ormaintenance in treasury, without capital reduction, in order to add value for shareholders. For this repurchase, there was use of part ofthe capital reserve existing as of June 30, 2011, excepting the reserves mentioned in article 7, letter (a) to (d) of CVM Rule No. 10/80.

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The repurchase started on the date of the resolution, and remained effective until October 20, 2011, and acquisitions were onBM&FBOVESPA, at market prices. The Executive Board was responsible for establishing the maximum quantity of shares to beacquired, whether in a sole or a series of transactions, as well as the definition of the parameters to carry out the acquisitions,observing applicable legal limits and the established maximum number of up to 2,700,000 preferred shares and 2,900,000 commonshares.

On November 7, 2011, the Company announced approval by the Board of Directors of a new plan for the purchase of commonand preferred shares issued by the Company for the same purpose and using the aforementioned reserve.

This new repurchase started on the date of the resolution, remaining effective until November 6, 2012, and acquisitions weremade on BM&FBOVESPA, at market prices, observing legal limits and the established maximum number of 2,912,734 commonshares and 25,207,477 preferred shares.

By December 31, 2011, the Company acquired 29,000 common shares and 1,292,300 preferred shares (inclusive of the sharespurchased on August 11, August 15 and November 7, 2011). Corporate Structure and Ownership

Our current general corporate and shareholder structure is as follows:

ON: common shares.PN: preferred shares.

Restructuring Telefônica Brasil’s subsidiaries

On March 15, 2012, our Board of Directors approved, based on Law No. 12.485/11, a corporate restructuring involving the

Company’s wholly owned subsidiaries to rationalize the provision of services rendered by these subsidiaries and the concentration ofthe provision of telecommunication services into a single company.

The restructuring will be implemented by a process of partial division and merger, first involving only the Company’s whollyowned subsidiaries—A. TELECOM, TData, TST, Ajato and Vivo. As a result of the restructuring, Value Added Services (“VAS”)provided by several wholly owned subsidiaries of the Company will be unified under Telefonica Data S.A. and othertelecommunications services will be unified under the Company, which, as a final step to the corporate restructuring, will merge thesesubsidiaries. Following the merger, VAS will be provided by Telefonica Data S.A. and the Company will provide other telecomservicers.

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In addition to streamlining the rendering of services, the corporate restructuring (now possible because of legislative changesapplicable to STFC providers) aims to simplify the current organizational structure of the Company, as well as assist the integration ofbusiness and the generation of synergies arising therefrom.

This corporate restructuring can only be implemented after the consent of ANATEL. As of the date of this annual report, there isno expected date for ANATEL’s consent. Capital Expenditures

Year ended December 31, 2011

In 2011, we invested in projects that support our current results and prepare the Company for the competitive landscape in themedium-term. A significant proportion of resources was allocated to enable growth associated with the services we provide.

To meet the needs of an increasingly connected society, significant investments were made to support the strong growth of datacustomers, whether fixed and mobile data services or dedicated high-speed services to the corporate market, as well as the increase incapillarity of our fiber optics network in Săo Paulo. We also invested in the expansion of the national data transmission backbone tomeet increasing demand for mobile data traffic nationwide. In 2011, we invested an amount exceeding R$1 billion to support the fullrange of data services we offer to our customers.

The following table sets forth our capital expenditures for each year in the three-year period ended December 31, 2011. Year ended December 31, Telefônica Brasil 2011(1) 2010 2009 (in millions of reais) Network 3,381.0 2,039.7 1,779.8 Technology / Information Systems 612.5 266.1 262.0 Others(2) 1,408.0 135.6 179.3 Total capital expenditures 5,401.5 2,441.4 2,221.1

(1) The financial information presented for 2011 represents information from Telefônica Brasil’s consolidated financial statements. (2) Consists primarily of free handset rentals, network construction, furniture and fixtures, office equipment and store layouts and a

value of R$811.8 million related to the acquisition of licenses.

We anticipate that our capital expenditures for 2012 will be similar to 2011. We expect to fund these expenditures with fundsinternally generated from our operations and through debt.


In 2010, we were focused in voice services in order to comply with ANATEL’s targets and to provide quality service for clients.Also, in order to achieve a consolidated position in the broadband market, during 2010 the focus of our capital expenditure wereexpanding, modernizing and upgrading our ADSL network and improving our systems and processes of customers relations,marketing and sales.


In 2009, we were focused in voice services in order to comply with ANATEL’s targets and to provide quality service for clients.Also, in order to achieve a consolidated position in the broadband and Pay TV market, during 2009 the focus of our capitalexpenditure were expanding, modernizing and upgrading our ADSL network, increasing the base of Pay TV and improving oursystems and processes of customers relations, marketing and sales.

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Table of Contents B. Business Overview

The concessions granted by the Brazilian government in 1998 and renewed in 2005, with the effective date starting in January2006, allow us to provide fixed-line telecommunications services to a region that includes most—approximately 95%—of the State ofSăo Paulo. The portion of the State of Săo Paulo that is excluded from our concession region represents approximately 1.5% of totallines in service and 2.2% of the population in the State. This concession is operated by CTBC Telecom.

Our concession region is Region III, which comprises 622 municipalities, including the City of Săo Paulo, with an aggregatepopulation of approximately 41.3 million. Of the municipalities in Region III, 72 have a population in excess of 100,000. The City ofSăo Paulo has a population of approximately 11 million. According to the plan established by the federal government, whereby thegovernment granted licenses to four providers of fixed-line telecommunications services, the State of Săo Paulo was divided into foursectors, including Sectors 31 (our predecessor company’s area before the reorganization), 32 (the area corresponding to Ceterp beforeour acquisition), 33 (corresponding to the portion of the State of Săo Paulo that we do not service) and 34 (CTBC Borda do Campoarea before the reorganization). Through transactions that took place in November 1999 and December 2000, CTBC Borda do Campoand Ceterp merged into our company, which now holds Sectors 31, 32 and 34. Sector 33 is held by CTBC Telecom. According to thePresidential Decree regarding the new General Plan of Grants, published in the D.O.U. on November 21, 2008, the three sectors forwhich we act as a concessionaire (sectors 31, 32 and 34) were unified into a single sector (sector 31).

On May 7, 2002, we began offering international long-distance services and on July 29, 2002, we started offering interregionalservice. The conditions for the provision of interregional and international long-distance services outside the concession areacontemplate that providers already operating services under a selection code (a two-digit code to be input by the caller as a prefix tothe number dialed) shall keep such code under the new licenses authorizing operation outside the applicable concession area.Accordingly, we continue using the provider selection code “15” that permits our callers to originate calls using our services eventhough they are outside our concession area. All interregional and international cellular calls, whether in our concession area or that ofanother provider, need to dial a carrier selection code using Personal Mobile Service—SMP, through which mobile services userschoose the provider for interregional and international long-distance calls, and which requires dialing our code “15” to use ourservices. See “—Network Services.”

Since our merger with Vivo Participaçơes, we provide mobile telecommunications services in all of the Brazilian states inaddition to the Distrito Federal, the Federal district, representing a total of approximately 8.5 million square kilometers and apopulation of approximately 190.7 million people. Our wholly owned subsidiary Vivo became a national operator when, onSeptember, 2007, it acquired a license of 1.9 GHz (“L” band) to operate within 6 states located in the Northeast region (Alagoas,Ceará, Pernambuco, Piauí, Paraíba and Rio Grande do Norte), combined with the acquisition of Telemig.

According to data regarding market share published by ANATEL, we are among the leading providers of cellulartelecommunications services in Brazil, with the help of our subsidiary Vivo, the leading cellular operator in Brazil. Vivo is a cellularoperator in the states of Acre, Alagoas, Amapá, Amazonas, Bahia, Ceará, Espírito Santo, Goiás (also encompassing the area of FederalDistrict), Maranhăo, Mato Grosso, Mato Grosso do Sul, Pará, Paraíba, Paraná, Pernambuco, Piauí, Rio de Janeiro, Rio Grande doNorte, Rio Grande do Sul, Rondônia, Roraima, Santa Catarina, Săo Paulo, Sergipe, Tocantins and Minas Gerais.

In Areas 1 and 2, Vivo uses a frequency range known as “A,” “L” and “J” band that covers 100% of the municipalities in itsauthorized areas in the state of Săo Paulo. On December 31, 2011, Vivo had 19.6 million cellular lines in service in these areas, whichrepresented a 14.0% net increase from December 31, 2010, and a market share of approximately 33.0% in Săo Paulo.

In Area 3, Vivo uses the band “A,” “L” and “J” frequency range that covers 100% of the municipalities and 100% of thepopulation in the states of Rio de Janeiro and Espírito Santo. On December 31, 2011, Vivo had 10.1 million cellular lines in service inthis area, which represented a 17.1% net increase from December 31, 2010, and a market share of approximately 38.8% in thosestates.

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In Area 4, Vivo uses a frequency range known as “A,” “E” and “J” band that covers 71.6% of the municipalities and 92.4% of thepopulation in the state of Minas Gerais. On December 31, 2011, Vivo had 7.9 million cellular lines in service in this area, whichrepresented a 16.0% net increase from December 31, 2010, and a market share of approximately 33.3% in Minas Gerais.

In Area 5, Vivo uses a frequency range known as “B” band that covers 67.2% of the municipalities in the states of Paraná andSanta Catarina and 93.9% of the population of Paraná and Santa Catarina. On December 31, 2011, Vivo had 4.5 million cellular linesin service in this area, which represented a 14.1% net increase from December 31, 2010, and a market share of approximately 21.7%in those states.

In Area 6, Vivo uses the band “A,” “L” and “J” frequency range that covers 82.1% of the municipalities and 97.7% of thepopulation in the state of Rio Grande do Sul. On December 31, 2011, Vivo had 6.0 million cellular lines in service in this area, whichrepresented a 14.0% net increase from December 31, 2010, and a market share of approximately 42.6% in that state.

In Areas 7 and 8, Vivo is the leading cellular operator, by number of customers, in its authorization area and uses a frequencyrange known as “A,” “B,” “L” and “J” band that covers 60.2% of the municipalities in the states of Acre, Federal District, Goiás, MatoGrosso, Mato Grosso do Sul, Rondônia, Tocantins, Amazonas, Amapá, Maranhăo, Pará and Roraima which covers 83.0% of thepopulation in these states. On December 31, 2011, Vivo had 15.4 million cellular lines in service in these areas, which represented a26.2% net increase from December 31, 2010, and a market share of approximately 34.8% in those states.

In Area 9, Vivo uses the band “A,” “L” and “J” frequency range that covers 63.8% of the municipalities and 87.2% of thepopulation in the States of Bahia and Sergipe. On December 31, 2011, Vivo had 5.5 million cellular lines in service in this area, whichrepresented a 23.3% net increase from December 31, 2010, and a market share of approximately 29.8% in those states.

In Area 10, Vivo uses the band “L” and “J” frequency range that covers 37.6% of the municipalities and 73.2% of the populationin the States of Alagoas, Ceará, Pernambuco, Piauí, Paraíba and Rio Grande do Norte. On December 31, 2011, Vivo had 2.5 millioncellular lines in service in this area, which represented a 43.0% net increase from December 31, 2010 and a market share ofapproximately 7.1% in those states.

On September 18, 2007, with ANATEL’s approval, Vivo acquired the band “L” lots, except for lot 16 (area of Londrina, Paraná,in region 5) and lot 20 (area of Northern Brazil in region 8). Band “L” comprises lots in frequency ranges 1895 to 1900 MHz and 1975to 1980 MHz, with 5 + 5 MHz band width. As a result, Vivo managed to complete its last coverage gap and will soon be operating inthe entire Brazilian territory. On December 20, 2007, with ANATEL’s approval, Vivo acquired the band “J” lots with 10 + 10 MHzband width, with the exception of the lots in the state of Minas Gerais then acquired by Telemig Celular and now by Vivo.

On December 14 and 15, 2010, Vivo acquired 23 lots in the SMP remaining band auction. Vivo acquired lots in almost all regionsof the country, which allowed it to reach spectrum capacity of 70 Mhz or higher in all regions where it operates (excluding 23municipalities in the region of Franca, State of Săo Paulo, where the spectrum is 50 Mhz).

In the auction of frequencies of H Band and other remaining bands by ANATEL in December 14 and 15, 2010, in compliancewith the call notice No 002/2010/PVCP/SPV, Vivo was the winner in 23 of the blocks auctioned.

As a result, Vivo improved its capacity of rendering of services throughout the national territory and now operates in the 900MHz and 1,800 MHz frequencies in a broad way.

The table below lists the 23 blocks in which Vivo had the winning offer:

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Blocks

FrequencyRange(MHz)

Width

Service Areas

41 1800 10 + 10 States of Paraná, Santa Catarina, Rio Grande do Sul, Goiás, Tocantins, Mato Grosso, MatoGrosso do Sul, Rondonia, Acre and the Federal District

42 1800 10 + 10 State of Săo Paulo44 1800 15 + 15 Pelotas, Morro Redondo, Capăo do Leăo and Turuçu municipalities in State of Rio Grande do

Sul45 1800 15 + 15 States of Alagoas, Ceará, Paraiba, Piauí and Rio Grande do Norte76 900 2.5 + 2.5 State of Rio de Janeiro77 900 2.5 + 2.5 State of Espírito Santo78 900 2.5 + 2.5 States of Goiás, Tocantins, Mato Grosso do Sul, Mato Grosso, Rondonia, Acre and the

Federal District (3)79 900 2.5 + 2.5 State of Rio Grande do Sul except Pelotas, Morro Redondo, Capăo do Leăo and Turuçu

municipalities80 900 2.5 + 2.5 Municipalities of CN 43(2), in the State of Paraná, except Londrina and Tamarana

municipalities81 900 2.5 + 2.5 States of Paraná and Santa Catarina, except CN 43(2) and Londrina and Tamarana

municipalities, in the State of Paraná82 900 2.5 + 2.5 State of Bahia83 900 2.5 + 2.5 State of Sergipe84 900 2.5 + 2.5 State of Amazonas, Amapá, Maranhăo, Pará and Roraima92 1800 2.5 + 2.5 State of Săo Paulo except the Săo Paulo Metropolitan Area (Grande Săo Paulo) and nearby

area and Sector 33(1) General Plan of Grants in the State of Săo Paulo101 1800 2.5 + 2.5 State of Amazonas, Amapá, Maranhăo, Pará and Roraima105 1800 2.5 + 2.5 Paranaíba municipality, in the State of Mato Grosso do Sul107 1800 2.5 + 2.5 Buriti Alegre, Cachoeira Dourada, Inaciolândia, Itumbiara, Paranaiguara and Săo Simăo

municipalities, in the State of Goiás115 1800 2.5 + 2.5 Buriti Alegre, Cachoeira Dourada, Inaciolândia, Itumbiara, Paranaiguara and Săo Simăo

municipalities, in the State of Goiás119 1800 10 + 10 States of Rio de Janeiro, Espírito Santo, Bahia and Sergipe122 1800 10 + 10 State of Amazonas, Amapá, Maranhăo, Pará and Roraima124 1800 10 + 10 States of Alagoas, Ceará, Paraíba, Piauí, Pernambuco and Rio Grande do Norte128 1800 10 + 10 Paranaíba municipality, in the State of Mato Grosso do Sul and Buriti Alegre, Cachoeira

Dourada, Inaciolândia, Itumbiara, Paranaiguara and Săo Simăo municipalities, in the State ofGoiás

163 1800 5 + 5 Londrina and Tamarana municipalities in the State of Paraná

(1) Municipalities: Altinópolis, Aramina, Batatais, Brodowsqui, Buritizal, Cajuru, Cássia dos Coqueiros, Colômbia, Franca, Guaíra,Guará, Ipuă, Ituverava, Jardinópolis, Miguelópolis, Morro Agudo, Nuporanga, Orlândia, Ribeirăo Corrente, Sales de Oliveira,Santa Cruz da Esperança, Santo Antônio da Alegria and Săo Joaquim da Barra, in the State of Săo Paulo.

(2) CN = Municipalities with the National Select Code. (3) Except Paranaíba municipality, in the State of Mato Grosso do Sul, and Buriti Alegre, Cachoeira Dourada, Inaciolândia,

Itumbiara, Paranaiguara and Săo Simăo municipalities, in the State of Goiás.

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Table of ContentsOn April 28, 2011, ANATEL decided, with regard to the auction of the “H” band and remaining bands (Notice of No Bid.

002/2010/PVCP/SPV-ANATEL), to grant lots 41, 42, 44, 45, 76–84, 92, 101, 105, 107, 115, 119, 122, 124, 128 and 163 to Vivo andother operators of the winning lots in that auction. The lots assigned solely to Vivo are specified on the table above.

On May 30, 2011, ANATEL’s decision was published in the D.O.U. and the Authorization Terms were signed by ANATEL. OnJune 1, 2011, the Extracts of the Authorization Terms were published on the D.O.U. As a result, Vivo increased its spectrum,beginning to operate at frequencies of 900 MHz and 1800 MHz in a comprehensive manner.

The following table sets forth population, gross domestic product (GDP), and per capita income statistics for each state in Vivo’sservice regions at the dates and for the years indicated: On December 31, 2011 Last available IBGE data from 2009

Area

Frequency Range

(MHz) Population (inthousands)(1)

Percent ofBrazil’s

population(1)

GDP (inmillions ofreais)(2)

Percent ofBrazil’sGDP(2)

Per capitaincome (inreais)(2)

Săo Paulo State850, 900, 1800,1900 and 2100 41,252 21.63% 1,084,353 33.47% 26,202

Paraná State850, 900, 1800,1900 and 2100 10,440 5.47% 189,992 5.87% 17,780

Santa Catarina State850, 900, 1800,1900 and 2100 6,250 3.28% 129,806 4.01% 21,214

Goiás State850, 900, 1800,1900 and 2100 6,004 3.15% 85,615 2.64% 14.447

Tocantins State850, 900, 1800,1900 and 2100 1,383 0.73% 14,571 0.45% 11,278

Mato Grosso State850, 900, 1800,1900 and 2100 3,034 1.59% 57,294 1.77% 19,085

Mato Grosso do Sul State850, 900, 1800,1900 and 2100 2,449 1.28% 36,368 1.12% 15,410

Rondônia State850, 900, 1800,1900 and 2100 1,561 0.82% 20,236 0.62% 13,455

Acre State850, 900, 1800,1900 and 2100 733 0.38% 7,386 0.23% 10,689

Amapá State850, 900, 1800 and2100 669 0.35% 7,404 0.23% 11,809

Amazonas State850, 900, 1800 and2100 3,481 1.83% 49,614 1.53% 14,622

Maranhăo State850, 900, 1800 and2100 6,570 3.44% 39,855 1.23% 6,260

Pará State850, 900, 1800 and2100 7,588 3.98% 58,402 1.80% 7,859

Roraima State850, 900, 1800 and2100 451 0.24% 5,593 0.17% 13,285

Federal District850, 900, 1800,1900 and 2100 2,563 1.34% 131,487 4.06% 50,436

Bahia State850, 900, 1800,1900 and 2100 14,021 7.35% 137,075 4.23% 9,365

Sergipe State850, 900, 1800,1900 and 2100 2,068 1.08% 19,767 0.61% 9,786

Rio de Janeiro State850, 900, 1800,1900 and 2100 15,994 8.39% 353,878 10.92% 22,104

Espírito Santo State850, 900, 1800,1900 and 2100 3,513 1.84% 66,763 2.06% 19,146

Rio Grande do Sul State850, 900, 1800,1900 and 2100 10,696 5.61% 215,864 6.66% 19,779

Alagoas State900, 1800, 1900 and2100 3,121 1.64% 21,235 0.66% 6,728

Ceará State900, 1800, 1900 and2100 8,448 4.43% 65,704 2.03% 7,686

Pernambuco State900, 1800, 1900 and2100 8,796 4.61% 78,428 2.42% 8,902

Piauí State900, 1800, 1900 and2100 3,119 1.64% 19,033 0.59% 6,052

Paraíba State900, 1800, 1900 and2100 3,767 1.97% 28,719 0.89% 7,618

Rio Grande do Norte State 3,168 1.66% 27,905 0.86% 8,893


900, 1800, 1900 and2100

Minas Gerais State850, 900, 1800 and2100 19,595 10.27% 287,055 8.86% 14,328

Vivo 190,733 100.00% 3,239,402 100.00% 16,984

(1) According to the last revision published by IBGE in 2009 (latest data available). (2) According to the most recent IBGE data (2009). Nominal Brazilian GDP was R$3,239,402 million as of December 2009

calculated by IBGE, subject to revision.

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On December 31, 2011, Vivo had 324 sales outlets (85 in the state of Săo Paulo, 43 in the states of Rio de Janeiro and EspíritoSanto, 35 in the state of Rio Grande do Sul, 37 in the states of Paraná and Santa Catarina, 21 in the states of Bahia and Sergipe, 29 inthe states of Minas Gerais, seven in the states that make up the northwest regions of Brasil and 44 in the states that make up theMidwestern and 21 northern regions of Brazil). It also has an efficient network of 11,337 authorized retail and resales dealerships.Consequently, Vivo has maintained its market leadership position, with a total of 11,661 points of sale.

Prepaid telephone card recharging was available at more than 600,000 locations, including our own stores, dealers, lottery shops,physical and online card distributors, and at smaller shops, drugstores, newspaper stands, bookstores, bakeries, gas stations, bars andrestaurants. Recharging is also provided online by several banks’ websites, by credit card’s machines, by telephone and accreditedwebsites.

Overview

Our services consist of: • voice services, including activation, monthly subscription, measured service and public telephones; • interconnection charges (or network usage charges), which are amounts we charge other cellular and fixed-line service

providers for the use of our network; • intraregional, interregional and international long-distance voice services; • data services, (including broadband services) and mobile value added services; • Pay TV services through DTH (direct to home), satellite technology and land based wireless technology MMDS

(multichannel multipoint distribution service); • the sale of wireless devices and accessories; • network services, including rental of facilities, as well as other services.

In March 2002, ANATEL certified our compliance with the 2003 universal service targets and authorized us in April 2002 to startproviding local and intraregional services in certain regions in which we were not operational and interregional and internationallong-distance services throughout Brazil. See “—Competition” and “—Regulation of the Brazilian TelecommunicationsIndustry—Obligations of Telecommunications Companies.”

We provide interconnection services to cellular service providers and other fixed telecommunications companies through the useof our network. In April 1999, we also began to sell handsets and other telephone equipment through A. TELECOM S.A. (formerlyAssist Telefónica S.A.), our wholly owned subsidiary. Until January 2001, we provided data transmission services, but spun-off ourdata transmission operations into TDBH. In March 2006, we began the restructuring of our multimedia communications services(serviços de comunicaçăo multimidia) and data transmission activities. See “—A. History and Development of theCompany—Historical Background—The SCM Restructuring.”

The monthly and usage fees for our fixed services (local and long-distance) were initially determined in our concessionagreements. From March 2007 until July 31, 2007, the billing system was converted to a minute basis and the former measurementbased on pulses was discontinued for all customers. Our concession agreements also

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Table of Contents set forth criteria for annual fee adjustments. We derive a substantial portion of our revenue from services subject to this priceadjustment. The method of price adjustment is essentially a price cap. ANATEL annually applies a price index correction that reflectsthe inflation index of the period and a productivity factor to our local and long-distance fees. Since 2006, the inflation index has beenreplaced by the IST, which reflects variations in telecommunications companies’ costs and expenses. ANATEL has complied with thefee range set by the concession agreements.

We also provide mobile services for voice, internet and value-added services, including voicemail, voice mail translation in aspeech-to-text service (“Vivo Torpedo Recado”), caller identification, voice minutes in unlimited bundles to other mobile phones topost-paid customer, ring back tones (“Vivo Som de Chamada”), data services through WAP protocol and 3G (with a pre-paid data planspecial to smartphones), and innovative services such as multi-media backup and cloud based services to save the short messages(“Vivo Torpedo Center”). We also offer direct Internet through data plans for Smartphones, Tablets and other data enabled devices.We developed a new interface—Vivo Services Store (“Loja de Serviços Vivo”) to sell all the services provided by Vivo, from bundlesof SMS to content download such as music, video and games.

We offer wireless roaming services through agreements with local mobile service providers throughout Brazil and other countries,allowing our subscribers to make and receive calls while outside of our concession areas. We provide reciprocal roaming rights to thecustomers of the mobile service providers with which we have such agreements.

Local Service

Fixed local service includes activation, monthly subscription, measured service and public telephones. Measured service includesall calls that originate and terminate within the same local area or municipality of our concession region, which we refer to as “localcalls.” Excluding the portion of our region that was serviced by Ceterp before its acquisition in December 1999, we were the onlysupplier of local fixed-line and intraregional long-distance telecommunications services in our region until July 1999. At that time,licenses were auctioned to permit a competitor to provide local fixed-line and intraregional long-distance telecommunications servicesin our region, including the area formerly served by Ceterp. Vésper Săo Paulo S.A. received authorization and began operations inDecember 1999. Embratel, GVT, Oi and Tim also provide local services in our concession region. See “—Competition.”

We became the first telephone service concessionaire in Brazil to offer fixed local services outside its concession region (the Stateof Săo Paulo). In May 2003, we achieved the network expansion and universal service targets established by ANATEL, and beganproviding fixed local services to six other states in Brazil, including Sergipe, Espírito Santo, Rio Grande do Sul, Paraná, SantaCatarina and certain areas in Rio de Janeiro. In May 2004, we began providing local fixed telephone services in seven other states inBrazil, including those in the capitals of Pará, Roraima, Amapá, Rondônia, Maranhăo, Tocantins and Acre. In May 2005, we alsobegan to provide fixed local telephone services in the capitals of the following states: Ceará, Amazonas, Pernambuco, Rio de Janeiro,Bahia, Mato Grosso do Sul and Mato Grosso. Since May 2006, we have also been providing fixed local telephone services in Brasília(Federal District) and Goiânia, the capital of the State of Goiás. Currently, our main markets outside our concession region are Rio deJaneiro, Espírito Santo, Minas Gerais, Bahia, Pernambuco, Ceará, Federal District, Goiás, Rio Grande do Sul, Paraná and SantaCatarina.

Intraregional Long-Distance Service

Intraregional long-distance services consists of all calls that originate in one local area or municipality and terminate in anotherlocal area or municipality of our concession region. We were the sole provider of intraregional long-distance services in our regionuntil July 3, 1999, when the federal government also authorized Embratel and Intelig to provide intraregional long-distance services.Currently, our main competitors in this service are Embratel, Tim, Oi and GVT.

Interregional and International Long-Distance Fixed Service

On March 1, 2002, ANATEL acknowledged that we had satisfied its network expansion and universal service targets two yearsbefore the scheduled date. As a result, on April 25, 2002, ANATEL published an order that allowed us to be the first fixed-linetelephone company to provide the full range of STFC and granted us a

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Table of Contents concession to develop interregional long-distance services in Region III and an authorization to develop services in the local,intraregional, interregional and international markets throughout Brazil.

We began operating international long-distance services in May 2002 and interregional long-distance services in July 2002.Interregional long-distance services consists of state-to-state calls within Brazil. International long-distance services consists of callsbetween a point in Brazil and a point outside Brazil.

Data Services—Fixed Broadband

The fixed broadband service was launched in 1999 with the Speedy brand, initially with ADSL technology, which uses the samecopper pair that is used in the provision of voice services, to provide fast Internet service. Currently, the product portfolio ofbroadband speeds on ADSL range from 256 Kbps (kilobytes per second) up to 8 Mbps (mega bits per second). In 2011, Telefonica has100% coverage of the municipalities in its concession area and is the first operator in Brazil to reach this mark. In addition, throughout2011, Speedy reached the milestone of 3.6 million subscribers.

In 2010, Telefonica began selling the product Popular Broadband (Banda Larga Popular), which is an initiative in the State ofSăo Paulo to deliver affordable broadband for low-income populations. This product has a speed of 1 Mbps.

In 2011, the Company and the Ministry of Communications signed the National Broadband Plan (Plano Nacional de BandaLarga) commitment which defines conditions for the provision of broadband retail and wholesale, as well as the conditions ofcommunication, quality and supervision.

Broadband services provided under the National Broadband Plan can be provided starting with 90 days after it becomeseffective. However, the Company voluntarily launched its services under the National Broadband Plan in July 2011 in municipalitieswhere Vivo’s 3G network was already available. On September 28, 2011, the Company began providing fixed broadband services forretail and wholesale customers. The Company also agreed to offer retail broadband for a price of up to R$35.00 to the consumer or abroadband and fixed telephony package for a price of up to R$65.00 to the consumer. Broadband services offered under the NationalBroadband Plan for retail customers have a minimum speed of 1 Mbps and may have limits on the amount of downloads available.Wholesale services were available in 350 municipalities and can be used by local governments and companies registered under the taxsystem called “SIMPLES.” Broadband services offered under the National Broadband Plan for wholesale customers are available inmultiples of 2 Mbps, limited to 8 Mbps for local governments and 20 Mbps for corporate users.

We also provide fixed broadband services using coaxial cable at speeds ranging from 8 Mbps to 30 Mbps through Ajato (allowingfor speeds from 2 Mbps to 16 Mbps) and optical fiber (FTTx). Optical fiber is the most advanced technology currently available and itallows for speeds of up to 100 Mbps.

Pay TV Services

On March 14, 2007, ANATEL has granted A. TELECOM S.A., one of our wholly owned subsidiaries, the license to offer pay TVservices via DTH. We began offering pay TV services on August 12, 2007.

On October 31, 2007, ANATEL’s council approved, from a regulatory perspective, the agreement between Grupo Abril and theCompany, which involved, among other transactions, the acquisition by the Company of all of Grupo Abril’s Multichannel MultipointDistribution Service (MMDS) operations (a special license that allows us to offer pay TV through our subsidiary, Telefonica Sistemasde Televisăo S.A). The transaction remains under consideration by ANATEL only with respect to antitrust factors, and will ultimatelybe reviewed by CADE. On December 31, 2011, we reached 699 thousand pay TV users, including both DTH and MMDStechnologies. We currently offer DTH to the whole State of Săo Paulo, and MMDS in the cities of Săo Paulo, Rio de Janeiro, Curitibaand Porto Alegre.

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Network Services

Brazil is divided into four regions in relation to fixed telecommunication services with the following incumbent service providers(which initially received concessions from ANATEL): (i) Region I, that encompasses the North, Northeast and Southeast regions ofBrazil, except the State of Săo Paulo, where concessions are granted to Oi (Telemar) and CTBC Telecom; (ii) Region II, thatencompasses the South and Center-West regions of Brazil, where concessions are granted to Oi (Brasil Telecom), CTBC Telecom andSercomtel; (iii) Region III, that encompasses the State of Săo Paulo, where concessions are granted to us and CTBC Telecom; and (iv)Region IV, that encompasses the whole country and in which the concession for long-distance calls is granted to Embratel.

In 2005, after meeting the targets imposed in the concession agreement two years before the expected date, Telefonica started tooperate long-distance services in every municipality in Brazil. For the operation of local services in Regions I and II, the Companyexpanded its network to the main Brazilian cities, providing services in these markets with infrastructure based on new-generationplatforms.

In 2007, the Company developed solutions and invested significant resources to adapt its network to the requirements of NumberPortability determined by ANATEL. Number Portability is a service mandated by ANATEL that provides customers with the optionof keeping the same telephone number when switching telephone service providers. The implementation of Number Portability in theState of Săo Paulo was effectively initiated in September 2008 and fully implemented in March 2009.

By the end of 2011, for local services, we were present in the main cities of Regions I and II, namely: Porto Alegre, Curitiba,Brasília, Rio de Janeiro, Vitória, Belo Horizonte, Salvador, Florianópolis, Fortaleza, Recife, Goiânia and Uberlândia. For theprovision of data services, we had networks in fourteen cities in these regions.

We have continuously adapted and expanded our network topology aiming to develop new business opportunities in the State ofSăo Paulo through offering services to other telecommunications companies. The result was a significant increase in the number ofproviders that use our wholesale services.

Other important adaptations have been implemented in the network topology to meet the regulatory requirements and to integrateseveral calling areas in the State of Săo Paulo, thus allowing customers to make local calls that had previously been categorized aslong-distance calls. The integration of new cities into local areas is annually determined by ANATEL and we are fully complying withANATEL’s determinations.

Competition for long-distance services has continuously increased and by the end of 2011 there were a total of 38 differentoperators available through the Service Provider Selection Code (Código de Seleçăo de Prestadora—CSP). Satellite services forproviding circuits in remote areas for wholesale and large customers have been also implemented.

Other Services

Currently, we provide a variety of other telecommunications services that extend beyond basic telephone service, includingextended maintenance, caller identification, voicemail, cell phone blockers, computer support, antivirus software for our Internetservice subscribers, and posto informático (a solution with a fixed monthly fee consisting of a computer, broadband access andtechnical support twenty-four hours, seven days a week), among others.

Interconnection

In July 2005, ANATEL published new rules regarding interconnection systems that substantially changed the interconnectionmodel. These changes include: (i) an obligation to publish on the Internet an interconnection public offer for all types ofinterconnection services, in addition to the interconnection between fixed-line service providers and mobile service providers; (ii)offers of interconnection for Backbone Internet Providers; (iii) the establishment of criteria for the treatment of fraudulent calls; and(iv) the reduction of time in which new interconnection solicitations are answered. These reforms have facilitated market entry fornew operators.

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The interconnection public offer (OPI) had been amended following negotiations with providers and changes in the servicesrendered and regulatory requirements. We have adopted procedures to reduce the time necessary to answer customers’ interconnectionrequests, as well as to monitor and comply with quality levels set by ANATEL for interconnection services with a current availabilitylevel of 99.8%.

In 2006, the Company completed the implementation of the interconnection with mobile service providers in the most intensivetraffic areas, assuring the proper billing for such calls and reducing interconnection costs.

In 2007, ANATEL published the new version of the Regulation of Fixed Network Compensation Rates, which primarily modifiedthe rules for interconnection rates and calculation methods. Local and long-distance tariffs that were flat at all times became variableaccording to the rules for public service tariffs. A 20% increase was applied to tariffs of nonincumbents.

In addition to the necessary adaptations in its network concerning the Number Portability, the Company, in conjunction with otheroperators, implemented a systematic solution including several interoperable processes which enables the correct forwarding of calls.

According to SMP regulations, the VU-M price is subject to free negotiation between parties and once an agreement is reached itmust be homologated by ANATEL to take effect. The agreement currently in effect was executed in 2009.

Starting in November 2009, the licenses of each mobile operator were consolidated by region, resulting in the consolidation oftariffs and in the reduction of interconnection fees for long-distance traffic within its network.

At the end of 2011, Telefonica had 106 local and long-distance interconnection agreements and 87 agreements for provision oflocal traffic and long-distance.

I-Telefónica

I-Telefónica is a free Internet access service provider launched in September 2002 by our subsidiary A. TELECOM S.A.(formerly Assist Telefónica). The product is available in 622 cities in the State of Săo Paulo and over 1,500 cities in all of Brazil. Theservice delivers high-quality, stable Internet access that is structured to ensure that our clients do not encounter a busy signal whenconnecting to the Internet. I-Telefónica permits us to increase the range of our services and better supply our customers by offering anentry-level option to the Internet market.

I-Telefónica also represents a strategic tool to protect us against the possible traffic imbalance that may be generated by Internetaccess service providers that do not use our network. Traffic imbalance (sumidouro) occurs when a certain telecommunicationsoperator has a higher volume of incoming than outgoing traffic (with another operator). When the incoming/outgoing trafficrelationship falls outside the 45% to 55% range, the operator with higher outgoing traffic must pay to the other the interconnectionfees corresponding to the traffic that exceeds the range. Telecommunications operators that house Internet service providers tend tohave more incoming than outgoing traffic, and thus receive interconnection revenue from other operators. I-Telefónica helps us keepour dial-up traffic on our own network, and thus reduce unfavorable traffic imbalance, thereby lowering our interconnection expenses.

Authorization to Provide Multimedia Services

On January 29, 2003, ANATEL granted our SCM license nationwide, allowing A. TELECOM S.A. (formerly Assist Telefónica),our wholly owned subsidiary, to provide voice and data services through points-of-presence (POPs), which are comprised of privatetelecommunications networks and circuits. In addition to A. TELECOM S.A., ANATEL granted SCM licenses to T-Data (formerlyT-Empresas) and Emergia.

Authorizations for pay TV via satellite

On March 14, 2007, ANATEL granted A. TELECOM S.A. authorization to provide services of pay TV via satellite (Direct toHome – DTH). DTH is one of the special types of subscription TV services that utilize satellites

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Table of Contents for the direct distribution of television and audio signals for subscribers. The launching of the commercial transaction occurred onAugust 12, 2007.

Authorization for Multichannel Multipoint Distribution Service (MMDS)

On October 31, 2007, the board of ANATEL concluded its regulatory review of the agreement between Grupo Abril and theCompany, approving the transaction from a regulatory perspective, which involved, among other transactions, the acquisition of all ofthe operations of MMDS.

This decision was published in the D.O.U. on November 19, 2007. The transaction continues to be analyzed by ANATEL, solelywith respect to antitrust matters, and will ultimately also be reviewed by CADE.

On February 16, 2009, ANATEL extended the authorization until 2024 for the use of the spectrum frequencies associated with theMMDS in Săo Paulo, Curitiba, Rio de Janeiro and Porto Alegre. ANATEL is currently analyzing the price to be paid for the spectrumusage.

The STFC Concession Agreement

The Company is authorized to provide STFC to render local and domestic long-distance call services originated in Region III,which comprises the State of Săo Paulo, except for Sector 31, established in the General Plan of Grants.

The current concession agreement, dated December 22, 2005, was renewed on January 1, 2006, and will be valid until December31, 2025. On December 15, 2010, ANATEL released a public consultation proposing the amendment of clause 3.2 of the concessionagreement which resulted in the approval of Resolution No. 559 published on December 27, 2010. Resolution No. 559 establishes thatthe current concession agreement can be reviewed by ANATEL on May 2, 2011, December 31, 2015, and December 31, 2020. Basedon the amended clause 3.2, ANATEL may establish new requirements and targets for universal and high-quality telecommunicationservices, according to the conditions present at the time of review.

On June 30, 2011, the Company renewed its concession agreement and entered into new contracts for local and long-distanceservices with ANATEL pursuant to the concession agreement, with new conditions imposed on the Company to change the basis ofcalculation of the biannual concession costs. The most relevant modifications discussed by ANATEL’s board include: (i) suppressionof clause 14.1 which prohibits service providers from controlling cable TV operators within their concession area; (ii) amendment ofclause 3.2, which provides for a biennial concession fee, to include interconnection revenue in its calculation basis; (iii) broadening ofANATEL’s supervisory powers; (iv) the possibility of off-setting cost of universalization in the calculation of the concession burden;(v) the inclusion of the AICE tariff adjustment formulas; (v) the possibility of remote monitoring of services; (vi) limiting the price ofAICE subscription to 60% of the basic subscription; and (vii) free price determination.

The concession agreement establishes that all assets owned by the Company and which are indispensable to the provision of theservices described in such agreement are considered reversible assets and are deemed to be part of the concession assets. These assetswill be automatically returned to ANATEL upon expiration of the concession agreement.

Every two years, during the agreement’s new 20-year period, publicly held companies will have to pay a renewal fee which willcorrespond to 2% of the revenue resulting from the application of basic service plans and alternative STFC, net of taxes and socialcontributions. The first payment of this biennial fee occurred on April 30, 2007, based on 2006 revenue, and the second paymentoccurred on April 30, 2009, based on 2008 revenue. The next payment is scheduled for 2012 based on 2011 revenue. See Note 1 toour Consolidated Financial Statements.

On April 8, 2008, we signed an amendment to the concession contracts to substitute the obligation to install telecommunicationsservice posts with an obligation to roll out broadband network infrastructure throughout the municipalities serviced by suchconcessionaires.

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ANATEL granted on August 18, 2011 consent to the transfer from the Company to Vivo of the concessions for the provision oflocal STFC services, domestic long-distance and international long-distance services in Regions I and II of the General Plan of Grants(outside Săo Paulo). On September 8, 2011, the extract of the authorization term was published on the D.O.U. for the transfer of STFClicenses in Regions I and II to Vivo. As a result, Vivo began to offer the STFC through the GSM technology across its area, except forthe State of Săo Paulo.

In November 2000, ANATEL adopted certain regulations for the issuance of new licenses, which are authorizations to providewireless communication services through SMP, personal mobile service, to compete with the then existing cellular operators in thevarious regions of Brazil. These regulations divided Brazil into three main regions covering the same geographic area as theconcessions for the fixed-line telecommunication services. ANATEL organized auctions for three new licenses for each of thoseregions. The new licenses provided that the new services would be operated in the 1800 MHz radio frequency bands which weredenominated as the “C” band (which was later transformed into extension bands), the “D” band, “E” band and “M” band. These newlicenses were auctioned by ANATEL and awarded during the first quarter of 2001, at the end of 2002, in September 2004, in March2006, in September 2007, in December 2007 and in December 2010. Services for Corporate Customers

We offer our corporate clients comprehensive telecommunications solutions and IT support designed to address specific needsand requirements of companies operating in all types of industry (retail, manufacturing, services, financial institutions, government,etc.).

Our clients are assisted by our highly qualified professionals who are capable of meeting the specific needs of each company withvoice, data, broadband and computer services solutions. We work to consistently achieve greater quality and efficiency in our servicesand increase our level of competitiveness in the market. Rates and Taxes

Rates

Overview

We generate revenue from (i) activation and monthly subscription charges, (ii) usage charges, which include measured servicecharges, and (iii) network usage charges and other additional services.

Rates for telecommunications services are subject to comprehensive regulation by ANATEL. See “—Regulation of the BrazilianTelecommunications Industry.” Since the relative stabilization of the Brazilian economy in mid-1994, two major changes in rates forlocal and long-distance services have occurred: in 1996 to compensate for accumulated effects of inflation and in 1997 to eliminate thecross-subsidy between local and long-distance services.

Concession agreements, which were valid from 1998 until December 31, 2005, and subsequently renewed under a new contractfor an additional 20 years until 2025 (all of our relevant concession agreements were renewed), establish a price cap for annual rateadjustments.

According to the new contract, we readjust charges based on a service basket of fees, as follows: • Local services, where rates are established pursuant to a service basket of fees that includes rates for the measured traffic

and subscription fees. In the case of a price adjustment, each one of the items within the local fee basket has a differentweight and, as long as the total local fee price adjustment does not exceed the rate of increase in the TelecommunicationGeneral Price Index, or IST, minus a productivity factor as established in the concession agreements, each individual feewithin the basket can exceed the IST variation by up to 5%.

• Installation of residential and commercial lines and public telephone services, with adjustments limited to the rate of

increase in the IST minus a productivity factor as established in the concession agreements.

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Table of Contents • Domestic long-distance services, with rate adjustments divided into intraregional and interregional long-distance services,

which are calculated based on the weighted average of the traffic, and taking into account time and distance. For thesecategories, each fee may individually exceed the rate of increase in the IST by up to 5%; however, the total adjustments inthe basket of fees cannot exceed the rate of increase in the IST minus a productivity factor as established in the concessionagreements. See “—Regulation of the Brazilian Telecommunications Industry.”

Our rates for international services are not subject to regulation and are not required to follow the price cap for annual rate

adjustment described above for other services. Therefore, we are free to negotiate our fees for international calls based on theinternational telecommunications market, where our main competitor is Embratel.

Local Rates

As of March 2007, the billing system for local calls was converted to a per-minute system and the previous pulse system wasdiscontinued. The conversion of pulses to minutes occurred gradually, between the months of March and July of 2007. As of August1, 2007, all of the customers of the Company had their local calls billed in minutes.

Our revenue from local service consists principally of activation charges, monthly subscription charges, measured traffic chargesand public telephone charges. Users of measured traffic, both residential and non-residential, paid for local calls depending on usage,which until July 2007 was measured in pulses and from then on has been measured in minutes. The first minute is accounted for at themoment a call is connected to its destination.

Under current ANATEL regulations, residential customers who sign up for the basic plan monthly fee receive an allowance of200 minutes per month.

Our local concession contracts set forth two mandatory plans for local fixed service, and allow for the concession company todesign other alternative pricing plans of its own. Customers will have a choice between the two mandatory plans, any other alternativeplan or a combination of basic and alternative plans. The main differences between the two main mandatory plans are as follows: • Local Basic Plan: for clients that make mostly short-duration calls (up to three minutes), during regular hours; and • Mandatory Alternative Plan (PASOO): for clients that make mostly longer-duration calls (above three minutes), during

regular hours and/or that use the line for dial-up service to the Internet.

The following table outlines the basic billing requirements and rates for the local Basic Plan and the Mandatory Alternative Plan: Characteristics of Plan

Basic Plan

MandatoryAlternative Plan

Monthly Basic Assignment Allowance (minutes included in the Residential Assignment) 200 minutes 400 minutesCommercial Assignment Allowance (minutes included in the Commercial Assignment) 150 minutes 360 minutes

Local Call Charges Regular Hours Completing the call (minutes deducted from the allotment) – 4 minutesCompleting the call after the terms of the allotment Sector 31 – R$0.15980Local Minutes–charges in excess use of the allotment Sector 31 R$0.10224 R$0.03994Minimum time billing 30 seconds –Reduced Hours Charge per answered call (minutes deducted from allotment) 2 minutes 4 minutesCharge per answered call after the allotted duration Sector 31 R$0.20448 R$0.15980

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The fees for Local Basic Plan Service were approved by ANATEL’s Act No. 5,834 of August 24, 2011. The Alternative Planunder Mandatory Service Provisions (Oferta Obrigatória) (PASOO) was approved by Resolution No. 450, on December 7, 2006,being that the readjustment of the tariffs follows the same rule established for the local basic plan.

In addition, Resolution No. 547, published on November 29, 2010, established that the Company’s fees for both the Local BasicPlan and Mandatory Alternative Plan (PASOO) will be unified following the unification of sectors 31, 32 and 34 into one single sector(sector 31), as defined by the Presidential Decree regarding the new General Plan of Grants published in the D.O.U. on November 21,2008. Before this unification, ANATEL must publish an Act with the calculated fees taking into consideration the methodology inResolution No. 547. This unification also applies to Basic Plan tariffs of fixed-to-mobile calls and long-distance calls and presumesthe preservation of revenue earned on each item of the Basic Plan.

Besides the Basic Service Plans, the Company may offer alternative plans with any pricing design it chooses. However, ANATELmust be notified of these alternative plans before the publication and implementation of any such plan.

Clause 12.1 of the STFC concession agreement provides that the Local Basic Plan can be readjusted for periods of not less than12 months taking into consideration the inflation index “IST” reduced by a fraction of the Company’s productivity (named “Fator X,”which is calculated by ANATEL based on Resolution No. 507/08). The Mandatory Alternative Plan (PASOO) follows the samereadjustment formula as the Local Basic Plan. Other alternative service plans are readjusted based on the IST.

On August 24, 2011, ANATEL’s Act No. 5,834 approved new local tariffs for our areas of concession, effective as of December24, 2011. The average readjustment in the local service basket was 0.66%. The tariffs were applied to customers as demonstratedbelow: • Residential customers were charged a monthly subscription fee for the provision of service of R$41.38; • Commercial clients and nonresidential customers (PBX) were charged a monthly subscription fee for the provision of

service of R$69.67 in Sector 31, R$67.82 in Sector 34 and R$64.72 in Sector 32; • Local minute tariffs were charged at R$0.10423 per minute in Sector 31; and • Activation fees of R$113.81 were charged in Sector 31.

Intraregional and Interregional Long-Distance Rates

Intraregional long-distance services consists of all calls that originate in one local area or municipality of our concession regionand terminate in another local area or municipality of our concession region. All other calls are denominated interregionallong-distance calls. Rates for intraregional and interregional long-distance calls are computed on the basis of the time of day, day ofthe week, duration and distance of the call, and also may vary depending on whether special services, including operator assistance,are used.

On July 29, 2002, after we received the concession from ANATEL to provide interregional long-distance services in Region IIIand authorization to provide interregional long-distance services throughout Brazil, we launched several new options of interregionalcalling plans relating to consumer “Code 15,” which is the selection code dialed by customers who may choose a long-distanceprovider with each call and may result in different prices based upon frequency of use and customer calling patterns.

International Long-Distance Rates

On May 7, 2002, we began operating international long-distance services. International long-distance call charges are computedon the basis of the time of day, day of the week, duration and destination of the call, and also may vary depending on whether specialservices are used or not, including operator assistance.

We have developed alternative rate plans for our residential and corporate customers.

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Network Usage Charges

We earn revenue from any fixed-line or mobile service provider that either originates or terminates a call within our network. Wealso pay interconnection fees to other service providers when we use their network to place or receive a call. Under the GeneralTelecommunications Law, all fixed-line telecommunications service providers must provide interconnection upon the request of anyother fixed-line or mobile telecommunications service provider. The interconnection agreements are freely negotiated among theservice providers, subject to a price cap and in compliance with the regulations established by ANATEL, which includes not only theinterconnection basic principles covering commercial, technical and legal aspects, but also the traffic capacity and interconnectioninfrastructure that must be made available to requesting parties. If a service provider offers to any party an interconnection fee belowthe price cap, it must offer the same fee to any other requesting party on a non-discriminatory basis. If the parties cannot reach anagreement on the terms of interconnection, including the interconnection fee, ANATEL can establish the terms of the interconnection.See “—Regulation of the Brazilian Telecommunications Industry—Obligations of Telecommunications Companies.”

In accordance with ANATEL regulations, we must charge interconnection fees to the other telephone service providers based onthe following: • Fee for the use of our local network—we charge long-distance services providers a network usage charge for every minute

used in connection with a call that either originates or terminates within our local network. We charge local serviceproviders a fee for traffic that exceeds 55% of the total local traffic between the two service providers.

• Fee for the use of our long-distance network—we charge the service providers a network usage charge on a

per-minute basis only when the interconnection access to our long-distance network is in use. • Fee for the rental of certain transmission facilities used by another service provider to place a call.

Beginning in 2006, with the 20-year renewal of the concession contracts, the rules in respect of local network fees, or TU-RL,were changed. Beginning on January 1, 2008, local network fees were supposed to be calculated based on a long-term cost model(LRIC—Long Run Incremental Costs).

Through Resolution No. 464, published on April 27, 2007, ANATEL postponed the adoption of the LRIC model to April 30,2009. Nevertheless, ANATEL is still working on the necessary studies to implement this cost model, as this model is part of itsGeneral Plan for Updating the Telecommunications Regulations in Brazil, published on November 12, 2008.

On February 8, 2007, ANATEL published Resolution No. 458, which approved the regulation of payment for interconnection forSTFC. Through this regulation, ANATEL established, as the transition rule until the LRIC model becomes effective, that the valueTU-RL stays limited to 40% of the local minute value.

In the same way, Resolution No. 458 established that the transition rule for the inter-city network tariff TU-RIU will remain ineffect until the LRIC model becomes effective, and further determined that the value of TU-RIU is limited to 30% of the long-distanceminute value of Class 4, which is the class of calls of the longest distance established by ANATEL.

Cellular telecommunications services in Brazil, unlike those in the United States, are offered on a “calling party pays” basis,under which the subscriber pays only for calls that he or she originates. Additionally, a subscriber pays roaming charges on callsoriginated and terminated outside his or her home registration area. Calls received by a subscriber are paid for by the party that placesthe call in accordance with a rate based on per-minute charges. For example, a fixed-line service customer pays a rate based onper-minute charges for calls made to a cellular service subscriber. The lowest base rate per minute, or “VC1,” applies to calls made bya subscriber in a registration area to persons in the same registration area. Calls to mobiles outside the registration area, but within themobile authorization area, are charged at a higher rate, “VC2.” Calls to mobiles outside the mobile authorization area are billed at thehighest rate, “VC3.” When a fixed-line service customer calls a mobile subscriber, we charge the fixed-line service customerper-minute charges based on VC1, VC2 or VC3 rates. In turn, we pay the cellular service provider the cellular network usage charge.

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Our revenue from network services also includes payments by other telecommunications service providers for the use of part ofour network arranged on a contractual basis. Other telecommunications service providers, including providers of trucking and pagingservices, may use our network to connect a central switching office to our network. Some cellular service providers use our network toconnect cellular central switching offices to the cellular radio-based stations. We also lease transmission lines, certain infrastructureand other equipment to other providers of telecommunications services.

Data Transmission Rates

We receive revenue from charges for data transmission, which includes our broadband service “Speedy,” the rental of dedicatedanalog and digital lines for privately leased circuits to corporations and others that were provided by us and Telefonica Data. See“—A. History and Development of the Company—Historical Background—The Spin-off of Certain Data Transmission Operations”and “—A. History and Development of the Company—Historical Background—The SCM Restructuring.”

Taxes

The cost of telecommunications services to each customer includes a variety of taxes. The principal tax is a state value-added tax,the Imposto sobre Circulaçăo de Mercadorias e Serviços, or “ICMS,” which the Brazilian states impose at varying rates from 7% to35% on certain revenues from the sale of goods and services, including telecommunication services. • Federal Social Contributions: Contribuiçăo para o Programa de Integraçăo Social or “PIS,” and Contribuiçăo para o

Financiamento da Seguridade Social or “COFINS,” are imposed on gross operating revenue at a combined rate of 3.65%for telecommunications services (consisting of the COFINS amounts of 3.0% and PIS amount of 0.65%) and 9.25% forother services (consisting of the COFINS amounts of 7.6% and PIS amount of 1.65%). PIS is a tax designed to sharebusiness profits with employees through a mandatory national savings program, and is financed by monthly depositscollected as a percentage of gross operating revenue. COFINS is a tax designed to finance special social programs createdand administered by the Brazilian government. Revenue related, among other things, to investments, dividends and sales offixed assets are not subject to PIS and COFINS.

• Contribution for the Fund for Universal Access to Telecommunications Services—”FUST.” FUST was established in 2000

to cover the cost exclusively attributed to fulfilling obligations (including free access to telecommunications services bygovernmental institutions) of universal access to telecommunications services that cannot be recovered with efficientservice exploration or that are not the responsibility of the concessionaire. Contribution to FUST are due at the tax rate of1% of gross operating telecommunications services revenue (except for interconnection revenue), and it may not be passedon to customers.

• Contribution to the Fund of Telecommunications Technological Development—”FUNTTEL.” FUNTTEL is a federal

social contribution and was established in 2000, to stimulate, among others, technological innovation and to enhancehuman resources development so as to increase the competitiveness of the Brazilian telecommunications industry.Contribution to FUNTTEL is due at the tax rate of 0.5% of gross operating telecommunications services revenue (exceptinterconnection revenue), and it may not be passed on to customers.

• Contribution to the Fund for Telecommunications Regulation—”FISTEL.” FISTEL is a federal tax applicable to

telecommunications transmission equipment which serves to provide funds to cover the expenses incurred by the FederalGovernment in performing inspections of telecommunication services and in developing the means and improving thetechniques necessary for carrying out these inspections. The fees owed to FISTEL, known as the FISTEL Taxes, are: (i) aninstallation inspection fee assessed on telecommunications central offices upon the issuance of their authorizationcertificates and (ii) an annual operations inspection fee that is based on the number of authorized central offices inoperation at the end of the previous calendar year.

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Table of Contents Billing

We send each customer a monthly bill covering all of the services provided during the prior period. Telephone service providersare required under Brazilian law to offer their customers the choice of at least six different payment dates for each month. In our case,customers are divided into 47 different groups, and each group receives a bill according to a specific billing date within the monthlybilling cycle.

We have a billing and collection system with respect to local, national and international long-distance voice, subscriptions,broadband, data, IT services, outsourcing, television and third-party services. Payments of bills are effected under agreements withvarious banks and other collection agencies (including lottery-playing facilities, drugstores and supermarkets) either by debiting thecustomer’s checking account, direct payment to a bank or through the Internet. We aim to avoid losses in the implementation of newprocesses and the roll-out of new products through the monitoring of billing, collection and recovery controls. The billing process isaudited by the Associaçăo Brasileira de Normas Técnicas (Brazilian Association of Technical Standards), or ABNT, under theapplicable rules of the Sarbanes Oxley Act. The actions are followed closely by our Revenue Assurance Team, which measures everyrisk of loss of revenue detected along the billing and collection chain. These risks are managed to minimize revenue losses.

Our subsidiary Vivo uses Atlys, a billing solution that combines software and hardware resources, from the supplier companyConvergys as the billing system for centralized billed invoicing in the city of Săo Paulo. The billing system operates via a batchprocessing concept using Vivo customers’ voice and data traffic. This system functions by segregating voice and data traffic on a dailybasis, according to which of seven total billing preferences a customer elects. Each cycle has a specific due date for each of theconsumer and corporate segments.

For prepaid services, Vivo uses the Next Generation Intelligence Network (NGIN) platform, a prepaid platform, from the suppliercompany PTI, which also works in a centralized way in the city of Săo Paulo. In order for the NGIN platform to process correctly, thesame system for billed invoicing is used. This system separates the module for customer information, called Care, which is a servicesplatform, from the Voice and Data traffic processing module used, called Core, which is a tariff platform.

During 2006, the RJ/ES and CO/N centralization billing (billed and prepaid) were completed. The BA/SE centralization processwas completed in April 1, 2007.

In July 2009, Telemig Celular concluded its centralization process to conform its billing practices to Vivo’s prepaid platform(NGIN). The billing system for postpaid customers was centralized in August 2010 when Telemig Celular completed its process toconform all the billing practices.

In November 2011, Vivo began developing a project to optimize its operational processes and reduce the period between the cutand due date of bills. At the end of this project, expected for April 2012, Vivo will reduce its billing cycles to six month cycles. Co-billing

In accordance with the Brazilian telecommunications regulations, we use a billing method called “co-billing” to both segments,fixed and mobile. This method allows billing from other phone service providers to be included within our own invoice. Ourcustomers can receive and subsequently pay all of their bills (including the fees for the use of services of another telephone serviceprovider) by using one invoice. To allow for this method of billing, we provide billing and collection services to other phone servicecompanies. We have co-billing agreements (“co-billing in”) with national and international long-distance phone service providers.Similarly, we use the same method of co-billing to bill our services on the invoices of other fixed and mobile providers. We use directbilling through the national registry of clients for customers who use our long-distance services through operators that have no jointbilling agreement with us. Value Added Services (VAS) Entertainment, information and online interactivity services are available to all Vivo customers through agreements with contentsuppliers. These agreements are based on a revenue-sharing model through the processes of

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Table of Contentsbilled and prepaid categories, with all divergences between these categories being demonstrated to the content suppliers. Third-party Services

In fixed as well as mobile billing process is made inclusion third-party services into the bill, collection and transfer. This serviceis charged to the contractor. Collection

We have policies dealing with accounts of defaulting customers according to each ANATEL regulation. For mobile service, weapply the SMP regulation and for fixed service we apply the STFC.

For mobile customers, as a general rule, if the payment is late for more than 15, service can be partially suspended. If payment islate for more than 45 days after the partial suspension, the service can be fully suspended until payment is made. We offer aninstallment payment plan for those clients with past due balances. However, if accounts are not paid after 90 days, the contract can becancelled and reported to credit protection agencies.

For fixed customer, as a general rule, if the payment is late for more than 30 days, service can be partially suspended. If paymentis late for more than 60 days after the partial suspension, service can be fully suspended until payment is made. We offer aninstallment payment plan for those clients with past due balances. However, if accounts are not paid after 90 days, the contract can becancelled and reported to credit protection agencies.

After the cancellation of the contract, for mobile and fixed services, the accounts are directed to independent collection agencies.

The amounts receivable overdue by 105 days, except for accounts receivables from interconnection fees and government andcorporate customers, are considered provisions for doubtful accounts. The write-offs are made in accordance with Brazilianregulations, which permits a bad debt write-off for late payments of R$0 to R$5,000 if they are over 180 days late or R$5,001 toR$30,000 if they are over 365 days late. Write-offs of late payments of over R$30,001 that are open for more than 365 days requirethe commencement of a lawsuit.

During 2011, the monthly average of partial suspensions, for both mobile and fixed services, was 2,050,000 lines and the monthlyaverage of total suspensions was 379,000 lines. The provision for doubtful accounts in 2011 was 1.18% of the total gross revenue. Network and Facilities

Our network consists of an access layer that connects our clients through our metal or optical networks, which are connected tovoice and data centers. These centers are interconnected locally or remotely through transmission equipment connected predominantlywith fiber optics and occasionally through a microwave network, which together form a network layer that enables connectivitybetween the various central aggregate services platforms as well as interconnection with other carriers. Our network strategy is basedon the expansion of the Access Network (fiber optics) to allow greater coverage and broadband (high-speed) services for ourcustomers, as well as to develop an integrated multiservice network and multimedia applications. As a telecommunication serviceprovider, we do not manufacture equipment for the construction of our networks and facilities. We buy the equipment from qualifiedsuppliers and through this equipment we implement our networks and facilities through which we supply our services. The followingtable sets forth selected information about our network in aggregate: At and for the year ended December 31, Wireline access lines 2011 2010 2009 2008 2007 Installed access lines (millions) 14.7 14.6 14.5 14.7 14.6 Access lines in service (millions) (1) 11.0 11.3 11.3 11.7 12.0 Average access lines in service (millions) 11.1 11.3 11.5 11.8 12.0 Access lines in service per 100 inhabitants 26.5 27.5 27.1 28.7 29.1 Percentage of installed access lines connected to digital

switches 100.0 100.0 100.0 100.0 100.0

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Table of Contents At and for the year ended December 31, Wireline access lines 2011 2010 2009 2008 2007 Number of public telephones (thousands) 215.8 250.7 250.5 250.3 250.3 Broadband access lines (millions) 3.6 3.3 2.6 2.5 2.0

Year ended December 31, Mobile access lines 2011 2010 2009 2008 2007 Cellular lines in service at year-end (in millions) 71.5 60.3 51.7 44.9 37.4 Contract customers (in millions) 16.1 12.6 9.8 8.6 7.1 Prepaid customers (in millions) 55.4 47.7 42.0 36.4 30.3 Growth in cellular lines in service during year 18.7% 16.5% 15.1% 20.2% 11.6%Churn(2) 34.2% 32.0% 30.5% 31.3% 28.8%Estimated covered population (in millions)(3) 190.7 191.5 191.5 190.4 135.3 Penetration at year-end(4) 123.9% 104.6% 90.5% 79.1% 63.5%Market share(5) 29.5% 29.7% 29.78% 29.8% 30.9%

(1) Data includes public telephone lines. (2) Churn is the number of customers that leave us during the year, calculated as a percentage of the simple average (3) Number of people within our region that can access our cellular telecommunications signal. (4) Number of cellular lines in service in our region, including those of our competitors, divided by the population of our Region. (5) Percentage based on all lines in service in our region at year-end. Technology

In order to offer a greater quantity of integrated services, we have incorporated a series of new technologies in our voice and datanetworks, the most prominent being IP/MPLS Multiservices networks supported by the IP/MPLS platform. Following the evolution ofthe Internet, we are also adding the IP/MPLS to the IPv6 technology, and installing a platform for traffic analysis (DPI – Deep PacketInspection) to optimize the network evolution and delivery of products and services.

The IP/MPLS platform allows us to offer Internet connection solutions to residential clients (Speedy) and business clients, and forthe later, at speeds that vary from 64 Kbps to 10 Gbps.

This platform is connected to the main Brazilian Internet providers and telecommunication companies through the network ofTelefonica International Wholesale Services, or TIWS, which has redundancy connections. In addition to this connectivity, weinstalled distributed “mirrors” of the main content providers, using innovative resources from the CDN solution (Content DeliveryNetwork). These characteristics provide our clients with high-quality services and short delays in their Internet connections.

Additionally, we have solution centers named DNS (Domain Name System) strategically positioned in the network which wereextended by 25% in 2010 and which guarantee a quick name resolution to our Internet services clients. These centers transform theInternet addresses typed by residential and business clients into IP addresses guaranteeing the correct transmission of data. There wereno extensions in 2011, but we plan a 15% increase in 2012 and another 15% in 2013.

We provide the IP/MPLS network to our business clients offering advanced connection solutions to small, medium and largecompanies (Virtual Private Networks – VPN). This network has mechanisms of quality assurance for all applications (QoS – Qualityof Service) as well as applications for voice, video and data convergence. We also offer connectivity solutions to business clientsthrough a network based on Frame-Relay, X25, ATM and Metro Ethernet technologies.

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In the residential segment, since 1999, we have been heavily investing in offering broadband access through an asymmetricdigital subscriber line, or ADSL, technology under the brand “Speedy.” This technology provides high-speed Internet access throughregular telephone lines. In 2007, we initiated the implementation of the FTTx network (available through fiber optic cables running tothe subscriber’s home – GPON technology) with a coverage of 1,042K Home Passed, offering in 2011 a range of different speeds upto 10 Mbps, and IPTV high definition service (HDTV). In December 2011, we surpassed the mark of 3.6 million broadband clientsconnected in service, 45% of which had speeds equal to or greater than 2Mbps. To reach this number of clients, we constantly searchfor market differentials such as new integrated services, speed upgrades and servicing of new localities, among others.

We offer the IPTV service through a partnership with TVA through the FTTx network and the Telefônica Brasil Platform. Wemade several improvements in the platform, such as the inclusion of Fast Channel Change (FCC) and installing a new version of thesoftware with more interactive navigation, with the aim of providing a better user experience. In 2012, we will continue theimprovements started in Telefônica Brasil’s Platform aiming to increase competitiveness in the ITS market. This platform consists ofpay TV with video broadcast offered through the use of the IP protocol. The offering of such technologically advanced services is onlymade possible due to our partnership with TVA, a recognized provider of pay TV services. Additional services, such as pay-per-viewand video on demand (VOD), are also available. New high definition channels (HD) will be included to increase the quality andoption for our customers. Furthermore, Telefônica Brasil’s network contains space for the recording of programs or local recordings inthe Set Top Box (STB), and in the future, third-party content providers will be able to offer games, interactive and connectivityservices.

We also offer digital television service via satellite (DTH) to the subscribers in the State of Săo Paulo (and in the future, all ofBrazil) that receive broadcast/PPV content through a Ku band antenna and standard Set Top Box (with Smart Card), also availablewith a Personal Video Record (PVR) service. As of December 31, 2011, we surpassed the mark of 428 thousand subscribers inservice. We finished the implementation of the Content Protection system in 2010, aiming to reduce the possibility of undesired accessto the distributed content. In 2011, we began offering plans with new channels in high definition (HD)—up to 11 paid channels in HD,offering premium content to our customers and new local channels to increase service penetration in some areas of coverage.

Our development plan contemplates the use of the most advanced technology available, focusing on integration with the Internetand an increase in the number of multimedia transmission services, with an emphasis on ADSL, FTTx (GPON), NGN, DWDM,ROADM and retransmittal technologies of TV over IP protocol (IPTV), satellite (DTH), and the continuous evolution of TV services.

Before November 1998, our subsidiary Vivo network used only AMPS analog technology. After privatization, we began to useCDMA digital and TDMA digital technologies. In 2006, we began to implement a GSM Network. In 2007, we began to implement aWCDMA Network. In 2011, we launched the HSPA+ technology, commercially known as 3GPlus, working across our 3G network.This technology was commercially launched in November, 2011 in Săo Paulo (and its extended metropolitan area with area code 11),allowing customers who have compatible terminals to achieve even higher transmission rates, reaching up to three times the value oftraditional 3G’s rate. Digitalization offers certain advantages, such as greater network capacity and additional revenue through the saleof value-added services. We continue to increase network capacity and coverage to improve our quality of service and to meetcustomer demand.

Our advanced network management technology ensures global management and supervision of all our network processes andnetwork performance. The network management centers are located in Săo Paulo, Brasilia and Minas Gerais. The networkmanagement center of Săo Paulo monitors the critical network operational parameters of the countrywide transmission backbone, thirdparties’ networks, IP networks and service platforms. The network management center in Brasília monitors the critical networkoperational parameters in the Midwestern Region (CO), Rio de Janeiro, Espírito Santo, Rio Grande do Sul and Paraná/Santa Catarina.The network management center in Minas Gerais monitors the critical network operational parameters in the Northeastern region(NE), the Northern region (NO), Bahia, Sergipe, Săo Paulo and Minas Gerais. These centers are able to identify abnormalities in bothour network and in third parties’ networks, using failure and signaling monitoring systems. In addition, quality and service standardsare constantly monitored. The network management centers are integrated with maintenance and operations teams that maintain andoperate cellular network elements, as well as cellular infrastructure and

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transmission, in addition to the radio network elements and computing bases, service platforms and communications backbones.

Currently, 100% of our network is digital. Competition

In 2011, the competition continued to increase in the market for small/medium enterprises and in the residential market due to anexpansion of the coverage area of the main competitors, improvements on their portfolios, and also due to an increase in theircommercial activity and offers for both fixed and mobile services, adding downward pressure to prices and pushing for higherdiscounts.

We face intense competition in all the areas in which we operate, principally from other cellular service providers and also fromfixed-line operators. Many of these competitors are part of a large, national or multinational group and therefore have access tofinancing, new technologies and other benefits that are derived from being a part of such a group.

The principal cellular competitor in the state of Săo Paulo is Claro and in the states of Paraná and Santa Catarina is TIM Celularor TIM. The main fixed-line operator in this area is Brasil Telecom S.A. (in 2008, the Brazilian Government published Decree No.6654/2008 of revision of the fixed-line general concession plan (Plano Geral de Outorgas, or PGO), allowing fixed-lineconcessionaires to operate in more than one region of the country. This change allowed Telemar Norte Leste S.A. to buy BrasilTelecom.

In the Central, Western and Northern region the principal competitors are: Claro, in the region encompassing the states of MatoGrosso do Sul, Mato Grosso, Goiás, Tocantins, Rondônia and Acre and the Federal District, and TIM, in the region encompassing thestates of Amazonas, Roraima, Pará, Amapá and Maranhăo. The main fixed-line operators in this area are: Brasil Telecom S.A., in theregion encompassing the states of Mato Grosso do Sul, Mato Grosso, Goiás, Tocantins, Rondônia and Acre and the Federal District,and Telemar Norte Leste S.A.—Telemar, in the region encompassing the states of Amazonas, Roraima, Pará, Amapá and Maranhăo.Other competitors are Oi (Telemar mobile operator) and TIM.

In the Bahia and Sergipe service areas, the principal cellular competitor is Claro. Other cellular competitors are Oi and TIMCelular or TIM, which also operate in the state of Minas Gerais. The principal fixed-line competitor in this area is Telemar NorteLeste S.A.

In the Ceará, Pernambuco, Paraíba, Alagoas, Rio Grande do Norte and Piauí service areas, the principal cellular competitor isTIM. Other cellular competitors are Oi and Claro. The principal fixed-line competitor in this area is Telemar Norte Leste S.A.

In the Rio de Janeiro and Espírito Santo service areas, the principal cellular competitor is Claro, which operates in the states ofRio de Janeiro and Espírito Santo. Claro is controlled by a consortium led by the Telecom Américas Ltd. (controlled by AméricaMóvil S.A. de C.V.). Claro began providing cellular telecommunications services in this Region at the end of 1998. The principalfixed-line operator in this area is Telemar Norte Leste S.A. Oi is the third competitor and is integrated with Telemar (a fixed-lineoperator) and TIM is the fourth competitor.

In Rio Grande do Sul, the principal cellular competitor is Claro, which operates in several regions in Brazil, including Vivo-RioGrande do Sul’s region. Other cellular competitors are Brasil Telecom S.A. and TIM. The main fixed-line competitor in this area isBrasil Telecom.

In Minas Gerais, currently, there are four other wireless service providers operating within the authorization area of Vivo S.A.Our subsidiary Vivo faces competition from the following operators: (a) TIM, the “B” band frequency range operator that launched itsservices in December, 1998 (TIM is primarily owned by Telecom Italia and operates in the entire State of Minas Gerais using GSMand WCDMA technologies); (b) Oi, the “D” band operator that launched its services in June 2002 (Oi is a subsidiary of Tele NorteLeste Participaçơes S.A. (Telemar) and operates in the entire State of Minas Gerais using GSM and WCDMA technology); (c) Claro,the “E” band operator that launched its services in the fourth quarter of 2005 (Claro is controlled by América Móvil and operates

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a GSM and WCDMA technology network); and, (d) CTBC Celular, an “A” band and 3G band operator (CTBC Celular is controlledby CTBC, a fixed-line operator and uses GSM and WCDMA technologies).

Our subsidiary Vivo S.A. also compete with certain other wireless telecommunications services in specific segments, such asmobile radio (including digital trunking technology, offered by Nextel), paging and beeper services, which are used by some operatorsin the areas of Vivo S.A. as a substitute for cellular telecommunications services. These competing wireless telecommunicationsservices are generally less expensive than mobile telecommunications services. In December 2010, through the auction002/2010/ANATEL, NEXTEL was awarded 12 SMP licenses (11 spectrum licenses in “H” band (3G band) and 1 spectrum license in“M” band (1800 MHz band)).

Satellite-operated services which provide nationwide coverage, are also available in Brazil. Although these services have theadvantage of covering much larger areas than those covered by the cellular telecommunications services, they are considerably moreexpensive than the cellular telecommunications services we offer and do not provide competitive coverage inside buildings.

Our main competitors for the provision of fixed services are: America Móvil / Telmex group (which includes NET, Claro andEmbratel), TIM (which includes Intelig and Tim Fiber) and GVT. Our competitors employ varied strategies to gain market share. Forinstance, GVT expanded its operations to other major cities in the State of Săo Paulo, with a strategy based on ultra-broadbandservices, low price, high-quality customer service, and a new TV product, targeting high-income residential clients and small andmedium businesses. NET improved its TV portfolio with a new on-demand video product (NOW) and continued its strategy ofaggressive broadband prices, offering promotionally 10 Mb for the price of 1 Mb, which increased our churn up to 7% in someregions, against an average of 2.3%. TIM acquired a large optical-fiber network from AES (Atimus), and constituted a new companycalled TIM Fiber, which is expected to begin to offer high-speed fixed broadband in the city of Săo Paulo and other 11 cities nearby,making this market even more competitive. In the segment of low-income customers, we face competition from Embratel in TVservices and NET in both TV and broadband services.

At Telefonica, we continue to develop and expand our product offerings, particularly those with great potential for future growth,such as broadband Internet services, pay-TV, and information technology services. Speedy maintained its position as market leader inthe State of Săo Paulo with more than 3.5 million customers as of December 31, 2011 and over 9% growth compared with the samedate in 2010. Additionally, our broadband service over high-speed optical fiber reached over 50 thousands households, a growth over300%, contributing to lower churn with a high trend of bundling.

The strategy of low cost long-distance calls initiated by TIM for on-net calls on a “billing per call” basis continued the successalready observed in 2010, and led Claro and our subsidiary Vivo to start making similar offers. These low-cost mobile long-distancerates contribute to the losses of fixed-lines of the incumbents. Nevertheless, the total market of fixed-lines grew 2% compared to theprevious year, supported by FWT offers in locations not covered by copper networks and by the growth of fixed-lines provided bynon-incumbent companies sometimes bundled for free.

Our subsidiary Vivo has also launched a FWT service which offers fixed-phones using the wireless network. With Vivo’s FWTservice, we aim to leverage the fixed-phones sales, mainly outside the state of Săo Paulo, where we have reduced fixed networkcapacity. This solution can also reduce the cost of providing this service to enterprises located nationwide, such as banks, which wealready have in our portfolio of clients.

We continue with our strategy in the corporate market as a provider of complete infrastructure solutions for informationtechnology customers, integrating hardware packages, voice, data, Internet and network services. Additionally, we launched theservice “OnVideo,” a product that allows the client to watch movies directly from a TV with digital video technology on demand. Theservice “At Home,” which provides home automation (a solution that integrates home electrical devices, thus offering improvedconvenience, comfort, energy efficiency and security), completed its second year in 2011.

We continue to develop and expand our product offerings, particularly those with great potential for future growth, such asbroadband Internet services, pay-TV, and information technology services. Speedy maintained its

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position as market leader in the State of Săo Paulo with more than 3.5 million customers as of December 31, 2011 and over 9%growth compared with the same date in 2010. Additionally, our broadband service over high-speed optical fiber reached over 50thousands households, a growth over 300%, contributing to lower our churn with a high trend of bundling. Seasonality

Our business and results of operations are not materially affected by seasonal fluctuations in the consumption of our services. Regulation of the Brazilian Telecommunications Industry

General

Our business, including the services we provide and the rates we charge, is materially affected by comprehensive regulation underthe General Telecommunications Law and various administrative rules thereunder. Our companies that operate under a concession areauthorized to provide specified services and have certain obligations, according to the Plano Geral de Metas de Universalizaçăo, orGeneral Plan on Universal Service Targets and the Plano Geral de Metas de Qualidade, or General Plan on Quality Targets.

ANATEL is the regulatory agency established by the General Telecommunications Law. ANATEL is administratively andfinancially independent from the Brazilian government. Any proposed regulation by ANATEL is subject to a period of publiccomment and, occasionally, public hearings, and its decisions may be challenged in the Brazilian courts.

Concessions and Authorizations

Concessions are licenses to provide telecommunications services that are granted under the public regime, while authorizationsare licenses to provide telecommunications services granted under the private regime.

Companies that provide services under the public regime, known as the concessionary companies, are subject to certainobligations as to quality of service, continuity of service, universality of service, network expansion and modernization.

Companies that provide services under the private regime, known as the authorized companies, are generally not subject to thesame requirements regarding continuity or universality of service; however, they may be subject to certain network expansion andquality of service obligations set forth in their authorizations.

Companies that operate under the public regime include us, Embratel, Oi, CTBC Telecom and Sercomtel. The primary publicregime companies provide fixed-line telecommunications services in Brazil that include local, intraregional, interregional andinternational long-distance services. All other telecommunications service providers, including the other companies authorized toprovide fixed-line services in our concession region, operate under the private regime.

Public regime companies, including us, can also offer certain telecommunications services in the private regime, of which themost significant are data transmission services.

Fixed-line Services—Public Regime. Our current concession agreements for the local, intraregional and interregionallong-distance services were extended on December 22, 2005, for an additional period of 20 years.

Our current concession agreements contain a provision, amended by ANATEL on June 30, 2011, providing that they may beamended on December 31, 2015, and December 31, 2020 to establish new conditions and new targets for universal access and quality,taking into consideration the conditions prevailing at the time, and defining, in the case of universal access targets, complementaryresources, as provided by article 81 of Law No. 9,472 of 1997.

Under the renewed concession agreements and during the 20-year renewal period, we are required to pay a biennial fee equal to2% of the gross revenue of the previous year, net of taxes and social contributions, arising from the rendering of basic service plansand alternative STFC in our concession area . See “—Obligations of

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Telecommunications Companies.” Each of the foregoing regulatory terms and conditions affecting (or potentially affecting) thecurrent concession agreements, as well as current obligations under the existing concession agreements, may impact our business planand results of operations.

Fixed-line Services—Private Regime. The Brazilian telecommunications regulation delegates to ANATEL the power to authorizeprivate regime companies to provide local and intraregional long-distance services in each of the three fixed-line regions and toprovide intraregional, interregional and international long-distance services throughout Brazil. ANATEL has already grantedauthorizations to private regime operators to operate in Region III, our concession region. ANATEL also granted other private regimecompanies authorizations to operate in other fixed-line regions and authorizations to provide intraregional, interregional andinternational long-distance services throughout Brazil in competition with Embratel. Several companies have already applied forauthorization, and ANATEL may authorize additional private regime companies to provide intraregional, interregional andinternational long-distance services. See “—Competition.”

Since 2002 we provide local and interregional services in Regions I and II and Sector 33 of Region III, and internationallong-distance services in Regions I, II and III.

Before January 2000, ANATEL had only authorized two mobile service providers in each of the ten franchise areas under “A”band and “B” band. “A” band and “B” band mobile service providers were granted concessions pursuant to the Lei Mínima, or theMinimum Law. Each concession was a specific grant of authority to supply cellular telecommunications services, subject to certainrequirements contained in the applicable list of obligations appended to each concession. If a mobile service provider wishes to offerany telecommunications services other than those authorized by its authorized concession, it may apply to ANATEL for anauthorization to offer such other services.

In accordance with the General Telecommunications Law, a concession relates to the provision of telecommunication servicesunder the public regime, as determined by the public administration. A concession may only be granted upon a prior auction biddingprocess. As a result, regulatory provisions are included in the relevant concession agreements and the concessionaire is subject topublic service principles of continuity, changeability and equal treatment of customers. In addition, ANATEL is empowered to directand control the performance of the services, to apply penalties and to declare the expiration of the concession and the return of assetsof the concessionaire to the government authority upon termination of the concession. Another distinctive feature is the right of theconcessionaire to maintain certain economic and financial standards. The concession is granted for a fixed period of time and isgenerally renewable only once.

An authorization is a permission granted by the public administration under the private regime, which may or may not be grantedupon a prior auction bidding process, to the extent that the authorized party complies with the objective and subjective conditionsdeemed necessary for the rendering of the relevant type of telecommunication service in the private regime. The authorization isgranted for an indeterminate period of time. Under an authorization, the government does not guarantee to the authorized company theeconomic-financial equilibrium, as is the case under concessions.

SMP Licenses

In November 2000, ANATEL adopted certain regulations for the issuance of new licenses, which are authorizations to providewireless communication services through SMP, personal mobile service, to compete with the then existing cellular operators in thevarious regions of Brazil. These regulations divided Brazil into three main regions covering the same geographic area as theconcessions for the fixed-line telecommunication services. ANATEL organized auctions for three new licenses for each of thoseregions. The new licenses provided that the new services would be operated in the 1800 MHz radio frequency bands which weredenominated as the “C” band (which was later transformed into extension bands), the “D” band, “E” band and “M” band. These newlicenses were auctioned by ANATEL and awarded during the first quarter of 2001, at the end of 2002, in September 2004, in March2006, in September 2007, in December 2007 and in December 2010. In September 2007, ANATEL organized auctions for 15 newlicenses in the 1900 MHz radio frequency bands which were denominated Band “L.” Vivo acquired 13 spectrum licenses in band “L.”In December 2007, ANATEL organized auctions for 36 new licenses in the 1900-2100 MHz radio frequency bands (3G licenses)which were denominated bands “F,” “G,” “I”

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and “J.” Vivo acquired seven spectrum licenses in Band “J” and Vivo Participaçơes acquired two spectrum licenses in Band “J.” InDecember 2010, ANATEL organized auctions for 165 new licenses in the “H” band, extension bands, and available frequencies at“A,” “D,” “E,” “M” and TDD bands. Vivo was awarded 23 licenses (14 spectrum licenses in 1800 MHz bands (“D,” “E,” “M” andextension bands) and 9 spectrum licenses in 900 MHz extension bands).

On December 1, 2011 ANATEL carried out the bidding of frequency blocks (Notice No. 001/2011/PVCP/SPV-ANATEL),divided into 54 lots, in the bands: 800 MHz (Band A in the North), 1800 MHz (subbands extension in Region II, within the states ofSăo Paulo and Espírito Santo, Ceará and Pernambuco) and TDD (national coverage), totaling approximately R$592 million,considered the minimum biding price. This auction offered remaining lots from Notice No. 002/2010/SPV-ANATEL, held inDecember 2010, in which Vivo was one of the largest winners in the auction by acquiring radio frequency bands 900 MHz and 1,800MHz.

Of the 54 lots under auction, 15 were sold, totaling revenue of R$237 million to the government, representing a premium of0.69%.

Our subsidiary Vivo was unable to participate in this auction because it has already reached maximum spectral capacity in mostconcession areas. As a result, if Vivo had purchased any lot in these areas, it would have exceeded its spectrum cap as established byapplicable regulations. Under these new licenses: • services are to be provided using the 1800 MHz frequency bands (“D” band, “E” band and “M” band), 1900 MHz frequency

bands (“L” band), 1900–2100 MHz frequency bands (“F” band, “G” band, “H” band, “I” band and “J” band) and extensionbands;

• each operator may optionally provide domestic and international long-distance services in its licensed area; • existing cellular service providers as well as new entrants into the Brazilian telecommunications market can bid for “D”

band, “E” band, “M” band, “L” band, “F” band, “G” band, “I” band and “J” band licenses; • according to the Invitation Document 002/2010/ANATEL, a single SMP operator in one geographic area will only be

authorized to have radio frequency bands up to the total maximum limit of 80 MHz or 85 MHz, depending on thecircumstances, while observing the following limits for each band:

I – (12.5 + 12.5) MHz, for the 800 MHz bands;

II – (2.5 + 2.5) MHz, for the 900 MHz bands;

III – (25 + 25) MHz, for the 1800 MHz bands;

IV – (15 + 15) MHz, for the 1900 MHz and 2100 MHz bands;

V – 5 MHz, for the TDD extensions of 1900 MHz band;

• as a result, Nextel and other new 3G operators were given preferential status in the “H” band ((10 + 10) MHz) segment of the

auction. Vivo, TIM and Claro were eligible to enter bids for the remaining SMP frequencies. Oi acquired the band “H” lot 8(for the cities in the states of Mato Grosso do Sul and Goiás). CTBC acquired the band “H” lot 5 (for the cities in the state ofMinas Gerais) and Nextel acquired the other band “H” lots; and

• a cellular operator, or its respective controlling shareholders, may not have geographical overlap between licenses.

According to the Invitation Document 002/2010/ANATEL, a single SMP operator in one geographic area will only be authorizedto have radio frequency bands until the total maximum limit of 80 MHz or 85 MHz, regardless of the type of frequency band. Pursuantto the SMP services regulation each of the three main regions is divided into registration areas, or tariff areas.

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On February 3, 2003, TCO replaced its SMC Concession Contracts for Personal Mobile Service Agreements (Termos deAutorizaçăo do Serviço Móvel Pessoal) in Regions I (subrange of “B” frequencies) and II (subrange of “A” frequencies) of theGeneral Plan of Grants. On December 10, 2002, Telerj Celular, Telest Celular, Telebahia Celular, Telergipe Celular, Celular CRT,Global Telecom and TELESP Celular replaced its SMC Concession Contracts for Personal Mobile Service Agreements, or SMP, inRegions I (subrange of “A” frequencies), II (subrange of “A” and “B” frequencies) and III (subrange of “A” frequencies) of theGeneral Granting Plan. On July 27, 2006, ANATEL published Act 59867 authorizing the incorporation of TCO, Teleacre, Telegoiás,Teleron, Telems, Telemat, NBT, Telerj, Telest, Telebahia, Telergipe, Celular CRT and TC by GT, as well as the transfer of therespective SMP service authorization titles and of the SMP radio-frequency rights-of-use titles. Act 59867 also provides for theautomatic termination of the authorizations for Multimedia Communication Services (Serviços de Comunicaçăo Multimídia, or SCM)of TCO, Teleacre, Telegoiás, Teleron, Telems, Telemat, NBT, Telerj, Telest, Telebahia, Telergipe, Celular CRT and TC, upon each oftheir respective incorporations.

In order to transfer our services to SMP, we were required to comply with several technical and operational conditions, including,among other things, the adoption of a carrier selection code for long-distance calls originating from our network.

Our authorizations consist of two licenses—one to provide mobile telecommunications services, and another to use the frequencyspectrum for a period of 15 years. The frequency license is renewable for another 15-year period upon the payment of an additionallicense fee.

Our new SMP licenses include the right to provide cellular services for an unlimited period of time but restrict the right to use thespectrum according to the schedules listed in the old licenses (Vivo-Rio Grande do Sul (“A” band) until 2022 (renewed in 2006);Vivo-Rio de Janeiro (“A” band) until 2020 (renewed in 2005); Vivo-Espírito Santo (“A” band) until 2023 (renewed in 2008);Vivo-Bahia (“A” band) and Vivo-Sergipe (“A” band) until 2023 (renewed in 2008); Vivo-Săo Paulo (“A” band) until 2023 or 2024,for the cities of Ribeirăo Preto and Guatapará (renewed in 2008); Vivo-Paraná/Santa Catarina (“B” band) until 2013; Vivo-FederalDistrict (“A” band) until 2021, (renewed in 2006); Vivo-Acre (“A” band), Vivo-Rondônia (“A” band), Vivo-Mato Grosso (“A” band)and Vivo-Mato Grosso do Sul (“A” band) until 2024 (renewed in 2008); Vivo-Goiás/Tocantins (“A” band) until 2023 (renewed in2008); Vivo-Amazonas/Roraima/Amapá/Pará/Maranhăo (“B” band) until 2013; Vivo (Minas Gerais) (“A” band) until 2023 (renewedin 2007) and Vivo (for the cities where CTBC Telecom operates in the state of Minas Gerais) (“E” band) until 2020). Spectrum rightsmay be renewed only once over a 15-year period.

In September 2007, ANATEL organized auctions of new SMP licenses in the remaining radio frequency bands “D” and “E,” inthe 1.8 GHz frequency band “M,” and fifteen licenses in the 1.9 GHz frequency band “L,” previously allocated to fixed operators.Vivo acquired 13 spectrum licenses in band “L.” The following Terms of Authorization for band “L” have been signed: Vivo-RioGrande do Sul (“L” band) until 2022 (renewed in 2006) or 2022 for the cities of the metropolitan area of Pelotas; Vivo-Rio de Janeiro(“L” band) until 2020 (renewed in 2005); Vivo-Espírito Santo (“L” band) until 2023 (renewed in 2008); Vivo-Bahia (“L” band) andVivo-Sergipe (“L” band) until 2023 (renewed in 2008); Vivo-Săo Paulo (“L” band) until 2023 or 2024, for the cities of Ribeirăo Pretoand Guatapará (renewed in 2008) or 2022 for the cities where CTBC Telecom operates in the state of Săo Paulo; Vivo-Paraná(excluding the cities of Londrina and Tamarana)/Santa Catarina (“L” band) until 2013; Vivo-Federal District (“L” band) until 2021,(renewed in 2006); Vivo-Acre (“L” band), Vivo-Rondônia (“L” band), Vivo-Mato Grosso (“L” band) and Vivo-Mato Grosso do Sul(“L” band) until 2024 (renewed in 2008) or 2022 for the city of Paranaíba of Mato Grosso do Sul; Vivo-Goiás/Tocantins (“L” band)until 2023 (renewed in 2008) or 2022 for the cities where CTBC Telecom operates in the state of Goiás andVivo-Alagoas/Ceará/Paraíba/Piauí/Pernambuco/Rio Grande do Norte (“L” band), until 2022. Spectrum rights may be renewed onlyonce over a 15-year period.

In December 2007, ANATEL organized auctions for 36 new licenses in the 1900-2100 MHz radio frequency bands (3G licenses),denominated as bands F, G, I and J. Vivo was awarded seven spectrum licenses in band “J” and Vivo Participaçơes was awarded twolicenses. The following Terms of Authorization for “J” band have been signed: Vivo-Rio Grande do Sul (including the cities of themetropolitan area of Pelotas) (“J” band) until 2023; Vivo-Rio de Janeiro (“J” band) until 2023; Vivo-Espírito Santo (“J” band) until2023; Vivo-Bahia (“J” band) and Vivo-Sergipe (“J” band) until 2023; Vivo-Săo Paulo (including the cities of Ribeirăo Preto andGuatapará and the cities where CTBC Telecom operates in the state of Săo Paulo) (“J” band) until 2023; Vivo-Paraná (including thecities of Londrina and Tamarana)/Santa Catarina (“J” band) until 2023; Vivo-Federal District (“J” band) until 2023; Vivo-

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Acre (“J” band), Vivo-Rondônia (“J” band), Vivo-Mato Grosso (“J” band) and Vivo-Mato Grosso do Sul (including the city ofParanaíba) (“J” band) until 2023; Vivo-Goiás (including the cities where CTBC Telecom operates in the state of Goiás)/Tocantins (“J”band) until 2023; Vivo-Alagoas/Ceará/Paraíba/Piauí/Pernambuco/Rio Grande do Norte (“J” band), until 2023;Vivo-Amazonas/Roraima/Amapá/Pará/Maranhăo (“J” band) until 2023; Vivo (including the cities where CTBC Telecom operates inthe state of Minas Gerais) (“J” band) until 2023. Spectrum rights may be renewed only once over a 15-year period.

In December 2010, ANATEL organized auctions for 165 new licenses in the “H” band, extension bands, and availablefrequencies at “A,” “D,” “E,” “M” and TDD bands. Vivo was awarded 23 licenses (14 spectrum licenses in 1800 MHz bands (“D,”“E,” “M” and extension bands) and 9 spectrum licenses in 900 MHz extension bands): • “M” band (1800 MHz) of the Federal District and the states of Paraná, Santa Catarina, Rio Grande do Sul, Goiás, Tocantins,

Mato Grosso do Sul, Mato Grosso, Rondônia and Acre; • 1800 MHz extension band of the state of Săo Paulo; • “D” band (1800 MHz) of the cities of Pelotas, Morro Redondo, Capăo do Leăo and Turuçu in the state of Rio Grande do Sul; • “E” band (1800 MHz) of the states of Alagoas, Ceará, Paraíba, Piauí, Pernambuco and Rio Grande do Norte; • 900 MHz extension band of the state of Rio de Janeiro; • 900 MHz extension band of the state of Espírito Santo; • 900 MHz extension band of the states of Goiás, Tocantins, Mato Grosso do Sul, Mato Grosso, Rondônia, Acre and the

Federal District, with the exception of the cities of Paranaíba, in the state of Mato Grosso do Sul, and the cities of BuritiAlegre, Cachoeira Dourada, Inaciolândia, Itumbiara, Paranaiguara and Săo Simăo, in the state of Goiás;

• 900 MHz extension band of the state of Rio Grande do Sul, with the exception of the cities of Pelotas, Morro Redondo,

Capăo do Leăo and Turuçu; • 900 MHz extension band of the cities of the registration area number 43 of the state of Paraná, with exception of the cities of

Londrina and Tamarana; • 900 MHz extension band of the states of Paraná and Santa Catarina, with exception of the cities of the registration area

number 43 of the state of Paraná and the cities of Londrina and Tamarana; • 900 MHz extension band of the state of Bahia; • 900 MHz extension band of the state of Sergipe; • 900 MHz extension band of the states of Amazonas, Amapá, Maranhăo, Pará and Roraima; • 1800 MHz extension band of the state of Săo Paulo, with exception of the cities of the metropolitan region of Săo Paulo and

the cities where CTBC Telecom operates in the state of Săo Paulo; • 1800 MHz extension band of the states of Amazonas, Amapá, Maranhăo, Pará and Roraima; • 1800 MHz extension band of the city of Paranaíba, in the state of Mato Grosso do Sul; • 1800 MHz extension band of the cities of Buriti Alegre, Cachoeira Dourada, Inaciolândia, Itumbiara, Paranaiguara and Săo

Simăo, in the state of Goiás; • other 1800 MHz extension band of the cities of Buriti Alegre, Cachoeira Dourada, Inaciolândia, Itumbiara, Paranaiguara and

Săo Simăo, in the state of Goiás;

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Cachoeira Dourada, Inaciolândia, Itumbiara, Paranaiguara and Săo Simăo, in the state of Goiás; • 1800 MHz extension band of the cities of Londrina and Tamarana, in the state of Paraná; and • 800 MHz (Band A in the North), 1800 MHz (extension subbands in Region II, within the states of Săo Paulo and Espírito

Santo, Ceará and Pernambuco) and TDD (National coverage).

Obligations of Telecommunications Companies

We and other telecommunications service providers are subject to obligations concerning quality of service, network expansionand modernization. The concession telecommunication companies are also subject to a set of special restrictions regarding the servicesthey may offer, which are listed in the Plano Geral de Outorgas (PGO), or General Plan of Grants, and special obligations regardingnetwork expansion and modernization contained in the General Plan on Universal Service Targets.

In 2008, the presidential decree published with the General Plan of Grants increased the flexibility of telecommunicationsprovider groups as STFC concessionaires by allowing such providers to provide services in up to two General Plan of Grants regions.Before this decree, telecommunications provider groups holding STFC concessions could offer STFC services in only one regionunder the public regime.

Any breach by the companies of telecommunications legislation or of any obligation set forth in their authorizations may result ina fine of up to R$50 million.

The mobile service authorizations of our subsidiary Vivo involve obligations to meet quality of service standards the system’sability to make and receive calls, call failure rates, the network’s capacity to handle peak periods, failed interconnection of calls andcustomer complaints. ANATEL published the method for collecting these quality service standards data on April 23, 2003 (ANATELResolution No. 335/03 and 317/02). In July 2010, ANATEL published Public Consultation No. 27/2010, revising the General Plan ofStandards of Quality of the SMP.

To restructure the process of assessing the quality of mobile service, with the inclusion of new processes and measurement of newindicators to check the quality of mobile broadband and the quality perceived by the user, and the modernization of existing indicators,ANATEL issued on October 28, 2011 (published in the D.O.U. on October 31, 2011), Resolution No. 575/2011, which approved theRegulation for the Management of Quality of Provision of Personal Mobile Service (SMP-RGQ).

The new Regulation provides for the assessment of the network connection and their respective data transmission rate, assessingaspects of availability, stability and connection speed for the data network. In addition, the rule established the formation of GIPAQ(Group Deployment Process Quality Measurement), which will be responsible for implementing the processes on the qualityindicators for the “Instant Transmission Rate Guarantee “and “Average Transmission Rate Guarantee.”

The methodology and procedures regarding the collection of data connection indicators will be defined by a group composed ofproviders, ANATEL Aferidora and Quality Authority (EAq), which shall be responsible for implementing these processes and whichwill be hired by the mobile operators, as a group, starting with February 29, 2012. All costs associated with implementing the newprocedures for measuring quality will be borne by the providers of SMP services. The impacts of the regulations are still beingevaluated, particularly its financial aspects.

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Restrictions on Companies to Provide STFC in the Public Regime

Public regime companies are also subject to certain restrictions on alliances, joint ventures, mergers and acquisitions, including: • a prohibition on holding more than 20% of the voting shares in any other public regime company, unless previously approved

by ANATEL, according to ANATEL’s Resolution No. 101/99; and • a prohibition on public regime companies to provide similar services through related companies.

Network Expansion and Quality of Service

We are subject to the General Plan for Universal Service Targets (Plano Geral de Metas para a Universalizaçăo) and the GeneralPlan of Quality Targets (Plano Geral de Metas de Qualidade), each of which respectively requires that we undertake certain networkexpansion activities with respect to our fixed-line services and meet specified quality of service targets. The timing for networkexpansion and benchmarks for quality of service are revised by ANATEL from time to time. After two public consultations, ANATELand the Federal Government are still discussing the new General Plan for Universal Service Targets to be in effect for the period from2011 to 2015, which became part of the amended concession agreement on June 30, 2011.

The decree altering the General Plan for Universal Service Targets rescinded in 2008 the obligation of telecommunicationsconcessionaires to install telecommunications service centers (providing calling and data access to walk-in customers) and substitutedsuch obligation with an obligation to roll out broadband network infrastructure throughout the municipalities serviced by suchconcessionaires. In compliance with the decree, in 2011, all municipalities in Brazil had infrastructure for broadband networking. Thisobligation made us implement an additional network infrastructure in 257 of the 622 municipalities in our concession region.

Moreover, we have, as have other telecommunications concessionaires, committed to provide free Internet access to publicschools during the term of our concession grant (until 2025). In 2011, we started offering plans with new channels in high definition(HD)—up to 11 paid channels in HD, offering premium content to our customers and new local channels to increase penetration ofservice in some areas of coverage.

If a public regime company does not fulfill its obligations under the General Plan for Universal Services and the General Plan forQuality Targets, there are various monetary penalties that may be imposed by ANATEL. A company may lose its license if ANATELconsiders it incapable of providing basic services under the two General Plans.

General Plan for the Universalization of the Fixed Switched Service (PGMU III)

On June 30, 2011 the Brazilian government published Decree No. 7,512 related to the General Plan for the PGMU III. ThePGMU III sets new targets for Telefone de Uso Público (public phones) density in rural and poor areas and goals related to AICE andbidding for the 450 MHz and 2500 MHz spectrum ranges (to, respectively, meet the needs of rural regions and develop fourthgeneration mobile telephony). Also according to the new PGMU, the backhaul used to meet the commitments of universalization wascharacterized as a reversible asset.

ANATEL approved other resolutions and consents in 2011: • STFC Local Areas Rules: On February 9, Resolution No. 560/2011 was published approving the STFC Local Area Rules.

This regulation establishes guidelines and criteria for setting Local Areas for Fixed STFC for the use of the general public. • Resolution No. 573/2011: On October 10, ANATEL authorized the free establishment of prices for Long-distance

International calls (LDI). The resolution sets out the implementation of the new regime from January 1, 2016 and before that,providers must demonstrate compliance with standards set forth in the resolution.

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consent to the transfer from the Company to Vivo of the concessions for the provision of local STFC services, domesticlong-distance and international long-distance services in Regions I and II of the General Plan of Grants (outside Săo Paulo).On September 8, 2011, the extract of the authorization term was published on the D.O.U. for the transfer of STFC licenses inRegions I and II to Vivo. As a result, Vivo began to offer the STFC through the GSM technology across its area, except forthe State of Săo Paulo.

The following Public Consultations held by ANATEL in 2011 were not adopted as resolutions:

• Regulation of the Special Class Individual Access (AICE): Public Consultation No. 11/2011 is related to the proposal for

AICE, which regulates the provision of compulsory service plans for low-income families. The consultation seeks to amendResolution No. 427/2005 by modifying the offer of phones with a monthly fee for about R$9.50 (without tax) for low-incomeclients registered in the social program “Bolsa Família.” The main purpose of the consultation is the progressiveuniversalization of access to the STFC through individualized specific conditions for use, special rates and methods ofpayment.

• Standard Calculation for the Transfer Factor X: ANATEL, as provided in the General Telecommunications Law and in

specific legislation, proposed through Public Consultation No. 39 the review of the STFC productivity factor, known asFactor X, which acts as a mechanism to encourage greater production efficiency by transferring to the client part of theeconomic gains resulting from the modernization, expansion or rationalization of services, as well as new alternativerevenues to STFC providers. The main proposed changes are: (i) the Factor X calculation method by type of service andcompany; (ii) the Recomposition Factor (Fator de Recomposiçăo) of the margin applied to local mode considers the netadditions of AICE and other plans related to regulatory requirements, and the concept of Economic Value Added (EVA) thatconsiders the cost of capital of the company in calculating the Factor X, and a model based on future projections (forwardlooking).

• General Plan of Competition (PGMC): another important action of ANATEL to maintain competition in the

telecommunications industry, and in line with the framework of the “General Plan for the Update of TelecommunicationsRegulation in Brazil” (PGR), consisted of publication of a public consultation with the aim of establishing a General Plan ofCompetition (PGMC). Responses to this consultation were originally accepted until October 8, 2011 and extended untilOctober 23, 2011. The PGMC was proposed by ANATEL to organize a control scheme for the actions of economic agents inthe telecommunications industry, imposing, removing or altering obligations on providers, according to their market power,with a view to increasing competition. The consultation highlighted the reservation of network capacity for sharing andprovided criteria for determination of significant market power in the provision of interconnection services on mobilenetworks.

The consultation also provides sets of regulatory measures applicable to groups with significant market power: structuralmeasures (applicable to all markets) and specific measures (applicable only to specific markets). The consultation alsocontained provisions for the creation of three entities: the “Representative” (responsible for gathering the groups withoutSMP and represent them in case of conflict), the “Supervisor” (responsible for resolving conflicts between groups with andwithout SMP and assess or certify wholesale offers) and the “Comparer” (responsible for receiving and comparing offersretail).

• Review of Regulation of Multimedia Communication Service (SCM): A revision of the SCM was discussed by Public

Consultation No. 45/2011. The proposal deals with the supply of the SCM and issues related to network neutrality, storage ofsubscriber data and other obligations for the provision of service.

Below is a summary of Public Consultations issued by ANATEL in 2011 which have not yet become regulation, but may be later

issued by ANATEL: • Public Consultation No. 11: Regulation of the Special Class of Individual Access (AICE), which regulates the provision of

compulsory service plan for low-income families. The deadline for submissions was April 30, 2011.

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deadline for submissions was May 6, 2011. • Public Consultation No. 23: Proposal for Public Bidding for the Issuance of Authorizations for the Use of Radio in Sub-band

segments of 3,400 MHz to 3,600 MHz for the SCM, the STFC for the General Public and SMP. The deadline for submissionswas July 27, 2011.

• Public Consultation No. 26: Proposal for the new General Plan of Quality for Subscription Television Services, to be called

the Quality Management Regulation for Providers of Subscription Television Services. The deadline for submissions wasJuly 7, 2011.

• Public Consultation No. 31: Regulation of Cable TV Service. The deadline for submissions was July 26, 2011. • Public Consultation No. 32: Proposal for a term of authorization to operate the cable TV service (current concessions). The

deadline for submissions was July 26, 2011. • Public Consultation No. 33: Proposal for a term of authorization to operate the service Cable TV (new grants). The deadline

for submissions was July 26, 2011. • Public Consultation No. 39: Standard methodology for the calculation of transfer factor “X,” applied tariff adjustments in the

STFC. The deadline for submissions was September 2, 2011. • Public Consultation No. 41: Proposed General Plan of Competition (PGMC). The deadline for submissions was October 23,

2011. • Public Consultation No. 45: Proposed Amendment to Regulation of the Communication Services and Annexes I and III of

the Rules of Price Collection for the Right of Public Telecommunications Services Exploration and Exploitation of theSatellite Rights. The deadline for submissions was September 16, 2011.

Summary of Public Consultations in 2011

During 2011, ANATEL issued two public consultations directly and indirectly affecting the SMP:

• Public Consultation No. 23: Proposal for Bidding for Shipment Authorization for Use of Radio in Sub-band segments of

3,400 MHz to 3,600 MHz for the SCM, the STFC and SMP. This Public Consultation’s period was extended until July 25,2011. The corresponding rule was not yet published by ANATEL.

• Public Consultation No. 39: Standard methodology for the calculation of transfer factor “X,” applied tariff adjustments in the

STFC. This Public Consultation’s period ended February 9, 2011. The corresponding rule was not yet published byANATEL.

• Public Consultation No. 45: Proposal to Amend the Regulation of Communication Services and Annexes I and III of the

Rules of Price Collection of the Right to Public Telecommunications Services Exploration and Exploitation of the Right toSatellite. This Public Consultation’s period ended September 16, 2011. The corresponding rule was not yet published byANATEL.

Other Regulatory Issues

On November 21, 2008, the Brazil Government published the 6,654/2008 Decree, dated November 20, 2008, for the revision of

the fixed-line General Plan of Grants, allowing fixed-line concessionaires to operate in more than one region of the country. Thischange allowed Telemar Norte Leste S.A.—Telemar or Oi— to acquire Brasil Telecom.

In 2007, ANATEL published Resolution No. 477/2007, effective on February 13, 2008, relating to alterations in the regulation ofSMP, which has contributed to an increase in our operating costs. In the new regulation, ANATEL notes areas of vital importance formobile business, such as the necessity for retail stores in the cities within an operator’s coverage areas, increases in the validityperiods of prepaid cards and places limits on the period of time

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during which customers may not leave service plans. These new regulations may have an adverse effect on our revenues and results ofoperations. To minimize the impacts resulting from these regulatory changes, we had already prepared ourselves during the lastquarter of 2007, to meet and comply with the terms set forth by the new regulation, mainly those related to the customer service whichaffect procedures and required significant changes to our systems. In 2009, we continued establishing retail stores in the cities withinour coverage areas, pursuant to the provisions of Resolution No. 477/2007. In 2009, we also established mediation centers to attend tousers with hearing and speech impediments, pursuant to the provisions of Resolution No. 477/2007. Our plans for achieving the goalsset by this new regulation was extend to August 13, 2011 and all goals relating to Resolution No. 477/2007 were achieved by theCompany and certified by ANATEL. Because ANATEL considers Vivo to be affiliated with Telefônica Brasil, which alreadyprovides wire line long-distance services in the state of Săo Paulo and was awarded a license to provide these services nationwide,ANATEL will not award a wire line long-distance license to Vivo. Though we and other mobile operators have requested thatANATEL revise the current SMP regime, there can be no assurance it will do so.

ANATEL granted on August 18, 2011 prior consent to the Company to transfer to Vivo its authorizations for STFC service inlocal mode, domestic long-distance and international long-distance in Regions I and II of the General Plan of Grants (outside of SăoPaulo). On September 8, 2011 the Extract of the Authorization Term was published in the D.O.U. with the transfer of the STFClicenses in Regions I and II to Vivo. As a result, Vivo began to offer the STFC across its area, except for the State of Săo Paulo, usingbasically the network elements and some radio frequencies that support the provision of the SMP.

Under the SMP regime, we receive revenues from interconnection fees paid to us by wire line long-distance operators due tolong-distance traffic originating and terminating on our network. While Vivo is not obligated to use Telefônica Brasil’s fixed-linenetwork due to the affiliation relationship, it also cannot receive its own fixed-line license in the event of disagreements withTelefônica Brasil since Telefônica Brasil has the fixed nationwide license and an affiliate cannot have the same type of license in thesame area. Since Vivo is not permitted to have a fixed license, Vivo is only able to receive interconnection fees from wire line carriersthat have traffic originating or terminating on their network but not from wireless carriers using their fixed-line network. Some of ourwireless competitors are also unable to earn such a fixed license due to their affiliations. For example, Oi cannot have a fixed licensebecause it is affiliated with Telemar and Claro cannot have a fixed license because it is affiliated with Embratel. Tim has a fixedlicense because is not affiliated with any fixed operator, but in July 2009, ANATEL published Act No. 3804/2009 determining theconditions to be followed to guarantee total separation between Tim (Telecom Italia) and our subsidiaries.

On March 24, 2011, ANATEL approved the corporate restructuring of Vivo Participaçơes S.A. and Vivo, which are nowcontrolled by the Company and not by Brasilcel. The operation resulted in the final merger of shares of Vivo Participaçơes into theCompany. See “Item 4. History and Development of the Company–A. Historical Background–Corporate Restructuring InvolvingVivo Participaçơes S.A.”

On August 18, 2011, through Act 5,703/2011, dated August 16, 2011, ANATEL approved the merger of Vivo Participaçơes S.A.into the Company, with the transfer of the SMP authorizations and respective authorizations terms held by Vivo Participaçơes to Vivo,as well as the resignation by Vivo of its SCM authorization.

New Regulations for Restricted Access Services– SeAC

On September 12, 2011, the Brazilian Congress adopted Law 12,485/2011 as a result of Bill 116, which establishes a new legalframework for audiovisual communication with restricted access. This law opens the Pay TV market by enabling telecom operators tooffer audiovisual content to subscribers through their networks, creating a new service called Restricted Access Services (Serviço deAcesso Condicionado, or SeAC). The absence of restrictions on foreign capital to be invested in SeAC providers, as well as theelimination of restrictions for the provision of other telecommunications services through STFC, allow us to provide Pay TV services,as well as other telecommunication services previously limited under the General Telecommunications Law.

According to Law 12,485/2011, the SeAC service will replace current cable subscription TV services, subscription TV, MMDSand DTH and will be regulated by ANATEL. As a result of this law, ANATEL introduced

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in December 2011 the proposed regulations for Pay TV services through Public Consultation No. 65/2011, including license grants,installation and licensing of stations and mandatory distribution programming channels. The Public Consultation was finalized onFebruary 2, 2012 and resulted in Resolution No. 581, issued by ANATEL on March 28, 2012, as well as the new Authorization Termsof the SeAC (which were subject to Public Consultation No. 5/12 and were available for comments until the first week of February).

Law No. 12,485/2011 also established an annual payment to Condecine (Contribuiçăo para o Desenvolvimento da IndústriaCinematográfica) to be made by providers of telecommunication services and amended Law No. 5,070/1966 by revising the amountdue as Inspection Fee (Taxa de Fiscalizaçăo de Funcionamento) for telecommunication stations from 45% to 33% of the InstalationFee (Taxa de Fiscalizaçăo de Instalaçăo). The amount due to Condecine is approximately 12% of the Installation Fee fortelecommunication services and must be paid yearly by March 31 of each year.

As a result of Law No. 12,485/2011, the National Cinema Agency (Agência Nacional do Cinema, or Ancine) issued one publicconsultation by the end of 2011 and one public consultation in 2012 to regulate the registration of economic agents before Ancine.Both public consultations remain under Ancine’s review and are expected to be issued in 2012, as they will become the regulatoryframework for the SeAC.

Interconnection Regulation

Under the General Telecommunications Law, all mobile telecommunications service providers must provide interconnectionupon the request of any other mobile or fixed-line telecommunications service provider. More specifically, telecommunicationsservice providers are classified as providers of either collective or restricted services. All cellular operators, including SMP serviceproviders, are classified by ANATEL as collective service providers. All providers of collective services are required to provideinterconnection upon request to any other collective service provider. Since 2005, telecommunications service providers have beenpermitted to freely negotiate the terms and conditions upon which interconnection will be provided, subject to price caps and otherrules established by ANATEL. For example, providers must enter into agreements regarding, among other things, tariffs, commercialconditions and technical issues with all parties on a nondiscriminatory basis and starting in 2005, to have a more homogeneous systemand to accelerate the negotiation of interconnection contracts, ANATEL has required a standard interconnection network from STFCand SMP Operators through an offer made publicly and equitably.

If parties to an interconnection agreement cannot agree upon the terms and conditions of interconnection, ANATEL maydetermine those terms and conditions by arbitration. Interconnection agreements must be approved by ANATEL and may be rejectedif they are contrary to the principles of free competition and the applicable regulations. ANATEL has adopted, from time to time,various regulations governing interconnection rules. The following are the material regulations currently applicable to our business: • the new General Regulation of Interconnection (“Regulamento Geral de Interconexăo”–Resolution No. 410/2005, or “RGI”); • the Regulation of Separation and Allocation of Costs (Resolution No. 396/2005); • the Regulation of Industrial Exploration of Dedicated Lines (“Exploraçăo Industrial de Linha Dedicada”–Resolution No.

402/2005, or “EILD”). In December 2010, ANATEL published Public Consultation No. 50/2010, with the Proposal forRevision of the Resolution No. 402/2005;

• the Regulation of Remuneration of Use of SMP Providers Networks (Resolution No. 438/2006). In November 2010,

ANATEL published Resolution No. 549/2010 modifying Resolution No. 438/2006 and providing that the groups that includeSMP operators with participation rates lower than 20% in the market of mobile telephony combined in each one of theregions of the General Plan of Authorizations of SMP (PGA-SMP), are considered groups who lack significant market powerin the offer of mobile interconnection, in their respective areas of authorization;

• the Regulation of Fixed and Wireless Number Portability (Resolution No. 460/2007, effective March 2009);

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Table of Contents • the new Regulation of SMP (Resolution No. 477/2007, effective February 13, 2008); • the Regulation of Terms of Separation and Allocation of Costs (Resolutions No. 480/2007, 483/2007 and 503/2008); • the general plan of update of the regulation of the telecommunications in Brazil (“Plano Geral de Atualizaçăo da

Regulamentaçăo das Telecomunicaçơes do Brasil” – Resolution No. 516/2008, or “PGR”); • the general norms of customer interaction service by telephone, with the objective of improving the quality of services

(Decree No. 6523/2008); • the Methodology of the Calculation of the WACC (Resolution No. 535/2009); • amendment of the regulation of the 3400 MHz to 3600 MHz band, allowing it to apply additionally to mobile services

(Resolution No. 537/2010); • the regulation of the Broadband Power Line (BPL), allowing this service to apply to multimedia communication (SCM)

(Resolution No. 527/2009); • related Invitation Document No. 002/2007/SPV-ANATEL regarding the auction organized in December 2007 of new

licenses for the 1900-2100 MHz radio frequency bands (3G licenses), denominated bands “F,” “G,” “I” and “J,” which statedthat, within a maximum allowed period of eighteen months from the publication of the Terms of Authorization (it occurredon April 30, 2008), the authorizations resulting from this auction would be combined with the existing SMP authorizations ofthe bid winners when pertaining to the same region of the general authorization plan of SMP. In accordance with thisInvitation Document, in January 2010, ANATEL published an act determining the unification of our SMP authorizations inRegions II (states of Paraná, Santa Catarina, Rio Grande do Sul, Goiás, Tocantins, Mato Grosso do Sul, Mato Grosso,Rondônia, Acre and the Federal District) and III (state of Săo Paulo) of the PGA-SMP, with only one SMP authorization foreach of these Regions (Terms of Authorization No. 005/2010 and 006/2010, signed in January 2010, for Region II and III,respectively). Vivo acquired spectrum licenses in band “J” in regions where it possesses SMP licenses. Moreover, theInvitation Document modified the rule for the renewal of radio frequency licenses and requires the inclusion in thecalculation of the operating profits both the profits arising from remuneration for the use of the SMP network and the profitsof the service plans;

• related Invitation Document No. 002/2010/ANATEL, regarding the auction organized in December 2010 of new licenses for

the 1900-2100 MHz radio frequency band denominated the “H” band, for extension bands and for available frequencies at“A,” “D,” “E,” “M” and TDD bands, which modified the rule for the renewal of radio frequency licenses and requires theinclusion in the calculation of the operating profits both the profits arising from remuneration for the use of the SMP networkand the profits of the service plans;

• the regulation for the exploration of SMP by means of Virtual Network, which makes possible the creation of the “agent” and

the Authorized of Mobile Virtual Network (Resolution No. 550/2010). In accordance with this regulation approved byANATEL, Mobile Virtual Network Operators may operate either as agents or as virtual network licensees. An agentrepresents the personal mobile service provider through the establishment of a representation agreement, which must beratified by ANATEL. The agent’s activity is not defined as a “telecommunications service” so this is of significant interest tocompanies that operate in other sectors such as large retailers, banks and football teams. However, the activity of the virtualnetwork licensee does fall within the definition of “telecommunications service” and is thus subject to all applicable rules;

• the assignment of the bands of 451 MHz to 458 MHz and 461 MHz to 468 MHz to the Personal Mobile Service, Fixed

Switched Telephone Service and to the Multimedia Communication Service, for access to the services of telephony and datain broadband, particularly in rural areas (Resolution No. 558/2010);

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beyond Multimedia Communication Service and Pay Television by means of Multichannel Multipoint Distribution Service(MMDS) for which it was previously assigned (Resolution No. 544/2010);

• the regulation for evaluation of the efficiency of use of the radio frequency spectrum (Resolution No. 548/2010); and • the addition of a ninth digit in the numbers of the mobile telephones of area 11, raising the capacity of numeration in the

metropolitan region of Săo Paulo and eliminating definitively the problem of scarcity of numeration in this area (ResolutionNo. 553/2010).

• with an aim to restructure the process of assessing the quality of mobile service, with the inclusion of new processes and

measurement of new indicators to verify the quality of mobile broadband and the quality perceived by the user, and themodernization of existing indicators, ANATEL issued on October 28, 2011 (published in the D.O.U. on October 31, 2011),Resolution No. 575/2011, which approved the Regulation for the Management of Quality of Provision of Personal Mobile Service(SMP-RGQ). The new Regulation innovates by providing assessments of the network connection and their respective datatransmission rate, especially aspects of availability, stability and connection speed data network. In addition, the resolutionestablished the formation of “GIPAQ” (Group Deployment Process Quality Measurement), which will be responsible forimplementing the processes on the quality indicators for the “Guaranteed Instant Transmission Rate” and “Guaranteed AverageTransmission Rate.” The methodology and procedures regarding the collection of indicator data for data connections will bedefined by this group, composed of providers, ANATEL and a “Quality Measurement Authority” (EAq), which shall beresponsible for implementing these processes and will be hired by the service providers until February 29, 2012. All costsassociated with implementing the new procedures for measuring quality will be paid by providers of the SMP and the impacts ofthe Regulations are still being evaluated, mainly its financial aspect. Also, through the issuance of Resolution No. 574/2011,which approved the Rules of Quality Management (SCM-SCM RGQ) on October 28, 2011 (published in the D.O.U. on October31, 2011), ANATEL set targets for service quality, as well as updated definitions for indicators and their calculation methods.

• the Regulation on criteria for adjustment of tariffs for calls from the STFC involving access the SMP or SME, approved by

Resolution No. 576/2011, dated October 28, 2011, establishes criteria for the gradual readjustment of VCs until 2014. Withrespect to VU-M fees, for the period before the effectiveness of the cost model established by this Resolution, ANATEL definedtransition rules if no pact is reached regarding the VU-M fees. A reduction factor (R) to be applied in the formula for readjustmentof the calls involving the PSTN access the Personal Mobile Service.

• VCt ≤VCt0 x (1-R-FA) x (ISTt / ISTt0), where R corresponds to the “Reduction Factor” (Fator de Reduçăo) and FA to the

“Damping Factor” (Fator de Amortecimento), the percentage of which depends on inflation in the corresponding period.

The Reduction Factor to be applied in the next readjustment of the VC rate for fixed-mobile calls will follow the schedule below: • for the first readjustment, ANATEL will apply a Reduction Factor of 18%; • for readjustments to follow, ANATEL will apply a Reduction Factor of 12%; and • if the cost model has not yet produced results, the third readjustment will be subject to a Reduction Factor of 10%.

The “Damping Factor” has the following scale: 0 if inflation is less than 10%; 0.01 if inflation is between 10% and 20% and 0.02if inflation is above 20%.

For the VU-M fees, they remain freely negotiated and in case there is no agreement as a result of the new VC determinedaccording the formula above, any reduction of these fees will be applied to the VU-M fee up to the VU-

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M / VC1 ratio to achieve 70%. From this level, the reduction will also be assessed in other components of the VCs, maintaining thisratio.

Also in 2011, ANATEL issued a Public Consultation on the Plano Geral de Metas de Competiçăo (General Plan of Competition),or PGMC, which has not yet been converted into an ANATEL resolution. The purpose of this consultation is to maintain competitionin the telecommunications sector, in line with the framework established by the “General Plan for Update of TelecommunicationsRegulation in Brazil” (PGR). The PGMC was created by ANATEL was proposed by ANATEL to organize a control scheme for theactions of economic agents in the telecommunications industry, imposing, removing or altering obligations on providers, according totheir market power, with a view to increasing competition. The consultation highlighted the reservation of network capacity forsharing and provided criteria for determination of significant market power in the provision of interconnection services on mobilenetworks.

The consultation also provides sets of regulatory measures applicable to groups with significant market power: structuralmeasures (applicable to all markets) and specific measures (applicable only to specific markets). The consultation also containedprovisions for the creation of three entities: the “Representative” (responsible for gathering the groups without SMP and representthem in case of conflict), the “Supervisor” (responsible for resolving conflicts between groups with and without SMP and assess orcertify wholesale offers) and the “Comparer” (responsible for receiving and comparing offers retail).

Rate Regulation

With respect to our Basic Plan and certain roaming charges incurred in connection with alternative service plans, ourauthorizations continue to provide for a price cap mechanism to set and adjust rates on an annual basis. The cap is the value with therate of inflation deducted from the productivity estimated by ANATEL. The price cap is revised annually to reflect the rate of inflationas measured by the IGP DI. However, mobile operators are able to freely set the rates for alternative service plans.

The initial price cap agreed to by ANATEL and us in our authorizations had been based on the previously existing or biddingprices, and was adjusted annually on the basis of a formula contained in our authorizations. The price cap has been revised to reflectthe rate of inflation as measured by the IGP DI.

Other telecommunications companies that interconnect with and use our network must pay certain fees, primarily aninterconnection fee. The interconnection fee is a flat fee charged per minute of use. Since 2005, ANATEL has permitted freenegotiations for mobile interconnection, or VU-M, fees and by July 2005, local-fixed concessionaires and mobile operators hadreached a provisional agreement with respect to VU-M fees for local calls, or VC1 (the agreement guaranteed a 4.5% increase in fees).ANATEL approved that provisional agreement, and in March 2006, approved another provisional agreement for VU-M fees forlong-distance calls, VC2, VC3 and international, among the same operators that made the VC1 agreement.

In July 2007, ANATEL approved a provisional agreement among the fixed-line operators Telefônica, Telemar, Brasil Telecom,CTBC Telecom and Sercomtel and the mobile operators for interconnection fees for VC1, VC2 and VC3 calls that provides for anannual adjustment of 1.97143% to interconnection fees in Region I (Telemar’s Region) and an annual adjustment of 2.25356% inRegion II (Brasil Telecom’s Region) and Region III (Telefônica’s Region).

In January 2008, ANATEL approved a provisional agreement among the fixed-line long-distance operator Embratel and themobile operators for interconnection fees for VC2 and VC3 calls, taking into consideration the period since January 2004, thatprovides for an annual adjustment of 4.5% as of March 2006 and an annual adjustment of 1.97143% or 2.25356% as of July 2007.

In July 2008, ANATEL approved a provisional agreement among the fixed-line operators Telefônica, Telemar, Brasil Telecom,CTBC Telecom and Sercomtel and the mobile operators for interconnection fees for VC1, VC2 and VC3 calls that provides for anannual adjustment of 1.89409% to interconnection fees in Region I (Telemar’s Region) and an annual adjustment of 2.06308% inRegion II (Brasil Telecom’s Region) and Region III (Telefônica’s Region).

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In March 2009, ANATEL approved a provisional agreement among the fixed-line long-distance operator Embratel and the mobileoperators for interconnection fees for VC2 and VC3 calls, for the period from 2007 to 2008, that provides for an annual adjustment of1.89409% in Region I (Telemar’s Region) or 2.06308% in Region II (Brasil Telecom’s Region) and Region III (Telefônica’s Region)as of July 2008.

In September 2009, even though it had a provisional agreement between the fixed-line operators Telefônica, Telemar, BrasilTelecom and Sercomtel and the mobile operators, without CTBC Celular, ANATEL decided not to approve the readjustment of thelocal (VC1) and long-distance (VC2 and VC3) fixed-to-mobile calls. In February 2010, this readjustment of the VC1, VC2 and VC3,relative to the period from 2008 to 2009, was approved by ANATEL and the provisional agreement of VU-M fee readjustment (68.5%of the approved readjustment of approximately 0.97% for the VC1) could be applied.

In June 2010, ANATEL approved a provisional agreement among the fixed-line long-distance operator Embratel and the mobileoperators for interconnection fees for VC2 and VC3 calls, for the period from 2008 to 2009, for the application of the VU-M feereadjustment (68.5% of the approved readjustment of approximately 0.97% for the VC2 and VC3).

By the end of 2011, our subsidiary Vivo entered into an agreement with Oi (Regions I and II) and us (Region III) for therecognition of the VU-M fee paid at the time and agreed to maintain this amount for an additional 24 months, based on the VC1readjustment pleaded by both these companies to ANATEL. However, these fees were not approved by ANATEL due to thepublication of ANATEL’s Resolution No. 576/2011, which addresses the criteria for adjustment of fees for calls from fixed-linesinvolving access to the SMP or SME. On January 25, 2012, ANATEL published Act No. 486, with the new fees for VC1, VC2 andVC3 (with an average reduction of 10.78%) and, on February 22, 2012, ANATEL published Act No. 1,055 with new VU-M fees(with an average reduction of 14%). However, Oi obtained an injunction in Federal Court to have its readjustment request analyzed byANATEL. This decision is subject to appeal. See “—Interconnection Regulation.”

Also, ANATEL published the Invitation Document No. 002/2007/SPV-ANATEL, which relates to the December 2007 auction ofnew licenses for the 1900-2100 MHz radio frequency bands (3G licenses). Under this Invitation Document, the authorizationsresulting from the auction of will be combined with the existing authorizations belonging to the bid winners when pertaining to thesame region of the general authorization plan of SMP (PGA-SMP) in the period of eighteen months from the publication of the Termsof Authorization (which occurred on April 30, 2008).

As a result, ANATEL published in January 2010 an act determining the merger of our SMP authorizations in Regions II (State ofParaná, Santa Catarina, Rio Grande do Sul, Goiás, Tocantins, Mato Grosso do Sul, Mato Grosso, Rondônia, Acre and the FederalDistrict) and III (state of Săo Paulo) of the PGA-SMP, with an SMP authorization for each one of these Regions (Terms ofAuthorization No. 005/2010 and 006/2010, signed in January 2010 for Regions II and III, respectively).

Moreover, ANATEL determined that the value of the VU-M fee should be unified for each Region of the PGA-SMP and freelynegotiated beginning on November 1, 2009 (eighteen months from April 30, 2008). Until this date, mobile operators charged a VU-Mfee for authorization of the SMP. In February 2010, ANATEL defined the VU-M fee to be paid for Oi (fixed and mobile operators)and Brasil Telecom (fixed and mobile operators) to Claro, TIM, Vivo and Vivo Participaçơes (the latter being the result of theANATEL-authorized merger of Telemig Celular S.A. into Vivo Participaçơes S.A. in March 2010), for the region of the PGA-SMP,as a result of the unification of the SMP authorizations.

In 2007, ANATEL developed a new model which will be in use starting with a date yet to be determined by ANATEL todetermine values of reference in connection with remuneration for use of mobile networks—RVU-M—of SMP providers havingsignificant market power, which will be used in the case of arbitration by ANATEL of the value of VU-M. ANATEL did notimplement this new model in 2010, as provided by Resolution No. 480/2007, and has not yet defined the new date expected for suchimplementation. See “—SMP Licenses” for more information on the status of this agreement.

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ANATEL launched on August 25, 2011 the “Project Cost Model” (Projeto Modelo de Custos). The project is associated, amongother things, with determining fees for the use of the fixed telephony network and the calculation of reference values of the VU-M feeand EILD (Industrial Use of Dedicated Lines) for telecommunications service providers.

At launch, ANATEL signed a US$8.22 million agreement with the consortium of Advisia, Analysis Mason and Grant Thornton,which has two years to perform work in support of ANATEL. This consortium won the international bidding process conducted by theInternational Telecommunication Union (ITU).

The cost model is of great relevance to ANATEL in carrying out public sector policies, as its development will allow access tocost management information of the different business areas and product lines of telecommunications services providers, contributingto the improvement of regulation of the sector as a whole.

Internet and Related Services in Brazil

In Brazil, Internet service providers, or ISPs, are deemed to be suppliers of value-added services and not telecommunicationsservice providers. ANATEL’s Resolution No. 190 requires cable operators to act as carriers of third-party Internet service providers.The Brazilian House of Representatives is considering a law that would penalize Internet service providers for knowingly providingservices that allow illegal goods or services to be sold on the Internet, and would impose confidentiality requirements on Internetservice providers regarding nonpublic information transmitted or stored on their networks. Customer Service

In 2011, our subsidiary Vivo managed to consolidate and expand the personalized sales project to all remote consumer relationchannels, such as text message, chat, email and web. This practice had been put in place at inbound customer service since 2009, andconsists on exclusive offers that are tailored towards each client’s consuming habits and needs. This successful strategy ofcross-selling changed Vivo inbound customer service into a powerful sales tool, that generated new business opportunities whilecapturing opportunities in which the customer initiated contact and respecting their willingness to communicate with Vivo.

Improved services and functionalities made www.meuvivo.com.br website register 6.1 million unique users and 253 milliononline transactions. Through the “Fale Conosco” service, 1.1 million email-generated solicitations were solved. Driven by the goals ofinnovation and customer satisfaction, Vivo expanded its text-message-based customer service channel to all customers, achievingmore than 4.2 million contacts served all year.

We managed to continue as the top telecommunications company in ANATEL’s ranking of mobile operators in Brazil. By theend of 2011, ANATEL’s ranking demonstrated that Vivo had the best performance among the largest companies operating in Brazil asmeasured by the IDA (Attendance Performance Index). Vivo also placed as the best among the key competitors in the telecomindustry by having the smallest complaint ratio. Those numbers were supported by Vivo’s actions towards quality and expansion ofthe customer service channels.

Our challenge in 2012 is to capture more synergies with all contact channels (Internet, SMS, Call Center – inbound and outbound,Chat, Email, etc.) through the Genesys platform as well as integrating Telefônica Brasil’s in-land operations, planned to be rebrandedto Vivo in 2012. Also, we aim to improve customer experience in every channel to get closer to the customers and their needs,considering all aspects of Brazil’s demography and regional distribution.

Higher quality, with efficiency

We implemented a strategy to increase the quality of our services while lowering costs. While achieving the best signal quality,surpassing all of our competitors (according to ANATEL’s scoring system in 2011), we also took steps designed to improve the levelof service of our customer care, generate greater customer satisfaction with our call centers and stores and reduce billing errors,leading to fewer claims against us. This strategy has been successful in increasing our customer satisfaction rating in 2011 and inlowering costs.

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Following our merger with Vivo, we are integrating processes and portfolios of fixed and mobile services, in order to offercustomers complete solutions in telecommunications. During 2012, we will integrate channels to offer standardized solutions andcustomer service along with innovation and best practices for the sale of fixed and mobile services.

We bring our solutions to our clients through the following sales channels: • Vivo Own Stores: focused on individual clients and located on strategic points, our own stores provide a highly trained team

built up to guarantee the best sales experience for the customer. The main drive of this channel is innovation. As a result,most stores have available self assistance services for value added services and recharges. We also offer special treatment forPremium clients with scheduled appointments via the Internet to assure “no waiting in line.”

• Indirect channels: are divided in two types: resale and retail. The resale channel is composed by certified companies in the

telecommunications segments providing our full portfolio and an adequately sized network for our services to attend thegeographic dimensions of the market. Our presence is also established in the retail channel especially for prepaid, rechargesand data services.

• Recharge channels: are represented by small companies in various market sectors throughout the country. They became the

largest channel for prepaid users and provide new means of virtual recharge for customers. • Telesales: sales through active and passive telemarketing call centers, employing highly trained sales associates, focused on

fixed and data services. • Internet: “Portal Telefônica,” with online information on our products and services specifically targeted toward our corporate

clients; we also offer the option of selling services via online chat through highly trained partners and appropriate tools. • Online Store: currently offers mobile services to clients with home delivery, payment in installments and different prices of

handsets. In 2012, we will launch a new online store covering all the services portfolio of fixed and mobile, and offeringimprovements in navigation, quality purchase, reduction in SLA, etc. supported by a communications marketing strategy.

• Door-to-door sales: aiming to approach corporate and individual clients, we dispose physical channels of assistance, such as

door-to-door sales of services by outsourced small companies and own team consultants. Main focus in fixed and dataservices.

• Person-to-person sales: our business management team offers customized sales services, ensuring high customer loyalty and

a strong customer relationship resulting from customized consulting telecommunication and IT services and technical andcommercial support.

Besides the growth of sales volume, the main challenges for the Company in 2012 are the synergy of fixed and mobile services,

the increased use of services in the virtual channels and the strengthening of Brazil’s largest accredited network. Our Network

In 2011, we consolidated even more our network as a robust network, capable of delivering to the customer its expectation. Wemoved forward with the migration of TDM to NGM core, reaching 26% of fixed traffic, continued the modernization of cores as wellas the adaptation of the data centers’ infrastructure.

We launched the FWT, allowing the operation of fixed telephony outside Săo Paulo, result of the integration between mobile andfixed worlds.

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We also expanded our fixed network’s broadband access. Our broadband ADSL’s product portfolio has speeds that vary from 250kbps to 8 Mbps. The product “Banda Larga Popular,” which is an initiative of the state of Săo Paulo, provides broadband ataffordable prices to low-income population. This product is already used by 600,000 customers and can deliver speeds between 250kbps and 1 Mbps. Broadband connections through coaxial cables are offered as well as a product called “Ajato” and its speeds mayvary from 8 Mbps to 30 Mbps.

We implemented a platform, known as MLD ASSIA, to improve the diagnosis and stability of our customers and, furthermore,increase the index of assertiveness in recommendation to upgrade the speed.

We use the most advanced technology available in broadband optical fiber: the FTTx, allowing our customers to reach speeds upto 100 Mbps. We closed out 2011 with fifty thousand fiber’s customers. However, five thousands of these customers use IPTV—asystem through which television services are delivered using the Internet Protocol suite.

In 2011, Speedy peaked at 3.5 million customers and we started marketing new products (16 Mbps and 25 Mbps) with VDSL2technology.

Before November 1998, our subsidiary Vivo network used only AMPS analog technology. After privatization, we began to useCDMA digital and TDMA digital technologies. In 2006, we began to implement a GSM Network. In 2007, we began to implement aWCDMA Network. In 2011, launched the HSPA+ technology, commercially known as 3GPlus, working across our 3G network. Thistechnology was commercially launched in November, 2011 in Săo Paulo (and its extended metropolitan area with area code 11),allowing customers who have compatible terminals achieve even higher transmission rates, reaching up to three times the value oftraditional 3G’s rate. Digitalization offers certain advantages, such as greater network capacity and additional revenue through the saleof value-added services. We continue to increase network capacity and coverage to improve our quality of service and to meetcustomer demand.

Our advanced network management technology ensures global management and supervision of all our network processes andnetwork performance. The network management centers are located in Săo Paulo, Brasilia and Minas Gerais. The networkmanagement center of Săo Paulo monitors the critical network operational parameters of the countrywide transmission backbone, thirdparties’ networks, IP networks and service platforms. The network management center in Brasília monitors the critical networkoperational parameters in the Midwestern Region (CO), Rio de Janeiro, Espírito Santo, Rio Grande do Sul and Paraná/Santa Catarina.The network management center in Minas Gerais monitors the critical network operational parameters in the Northeastern region(NE), the Northern region (NO), Bahia, Sergipe, Săo Paulo and Minas Gerais. These centers are able to identify abnormalities in bothour network and in third parties’ networks, using failure and signaling monitoring systems. In addition, quality and service standardsare constantly monitored. The network management centers are integrated with maintenance and operations teams that maintain andoperate cellular network elements, as well as cellular infrastructure and transmission, in addition to the radio network elements andcomputing bases, service platforms and communications backbones.

Our network is prepared to provide continuity of service for our customers in the event of network interruptions. We havedeveloped contingency plans for potential catastrophes in our switching centers, power supply interruptions and security breaches.

Pursuant to the terms of our authorization to perform our services, we are obligated to meet certain requirements for servicequality. See “—Regulation of the Brazilian Telecommunications Industry—Obligations of Telecommunications Companies.” Contract Customers for Mobile Services

Since October 1994, cellular telecommunications service in Brazil has been offered on a “calling party pays” basis, under whichcustomers pay only for calls that they originate. In addition, customers pay roaming charges on calls made or received outside theirhome registration area.

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Customer charges are calculated based on the customer’s calling plan, the location of the party called, the place from which thecall originates and certain other factors, as described below. Our Region is divided into areas designated for payment purposes, calledregistration areas, as follows: • Areas 1 & 2: 9 areas in the state of Săo Paulo; • Area 3: 5 areas, comprising 1 area in the metropolitan area of Rio de Janeiro, two areas in upstate Rio de Janeiro and

two areas in the state of Espírito Santo; • Area 4: 7 areas in the state of Minas Gerais; • Area 5: 9 areas, comprising 6 areas in the state of Paraná and 3 areas in the state of Santa Catarina; • Area 6: 4 areas in the state of Rio Grande do Sul; • Areas 7 & 8: 18 areas, comprising 9 areas in Brasilia and the states of Goiás, Mato Grosso do Sul, Mato Grosso, Rondônia,

Acre and Tocantins and 9 areas in the states of Amapá, Amazonas, Maranhăo, Pará and Roraima; • Area 9: 6 areas, comprised of 5 areas in the state of Bahia and 1 area in the state of Sergipe; and • Area 10: 9 areas in the states of Pernambuco, Alagoas, Paraíba, Rio Grande do Norte, Ceará and Piauí. Interconnection Charges

We earn revenue from any call that originates from another cellular or fixed-line service provider network connecting to one ofour customers. We charge the service provider from whose network the call originates a network usage charge for every minute thatour network is used in connection with the call. See “—Operating Agreements—Interconnection Agreements.” Tariff adjustments aresubject to agreement between the operators and then subject to approval by ANATEL. Bill and Keep

ANATEL adopted partial “Bill & Keep” rules for interconnection charges in July 2003. The rules provided that an SMP operatorpaid for the use of another SMP operator’s network in the same registration area only if the traffic carried from the first operator to thesecond exceeded 55% of the total traffic exchanged between them. In that case, only those calls that surpassed the 55% level weresubject to payment for network usage. Under Resolution No. 438 published in 2006, ANATEL eliminated the rule of the partial “Billand Keep.” The current rule is “full billing,” in which the SMP operator pays the entire call termination fee of the other mobilenetwork. The rule of the partial “Bill & Keep” was maintained between SMP and SME (trunking) networks. Roaming Fees

We receive revenue pursuant to roaming agreements with other cellular service providers. When a customer of another cellularservice provider makes a call within our area, that service provider pays us for the call at the applicable rate. Conversely, when one ofour customers makes a cellular call outside of our Region, we must pay the charges associated with that call to the cellular serviceprovider in whose Region the call originates. See “—Roaming Agreements.” Wireless Device Sales

Through our stores and authorized dealers we sell only GSM and WCDMA devices such as handsets, smartphones, broadbandUSB modems and netbooks that are certified to be compatible with the Vivo network and service. We have special offers onsmartphones, USB modems and other data devices for customers of bundled packages. Our current handset suppliers are Motorola,LG, Samsung, Nokia, Sony, Alcatel, ZTE, HTC, Apple, RIM (BlackBerry) and Huawei.

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We have agreements with major fixed-line and mobile operators in Brazil to lease physical space, real estate, air conditioning,energy, security and cleaning services. We also lease transmission capacity necessary to complete the construction of our networkinfrastructure. Interconnection Agreements

The terms of our interconnection agreements include provisions with respect to the number of connection points and trafficsignals. See “—Regulation of the Brazilian Telecommunications Industry—Obligations of Telecommunications Companies” and“—Regulation of the Brazilian Telecommunications Industry—Interconnection Regulation.”

We believe that our subsidiaries have adequate interconnection agreements with necessary fixed-line operators to provideservices. We also believe that our subsidiaries have all the necessary interconnection agreements with long-distance carriers. Roaming Agreements

We provide international GSM roaming in over 200 destinations worldwide by means of over 500 roaming agreements. Fraud Detection and Prevention

In 2011, we consolidated efforts to reach our targets for reduction of amounts and financial loss expenses for our operationsrelated with fraud and fraud costs for the fixed operation, which are considered a reduction of revenue.

Compared with the year 2010, we had a 16.1% reduction in the volumes of financial loss for our mobile operation and a 51.5%increase in the cost of fraud for our fixed operation, resulting in an increase of 22.1% in financial revenues, considering ourconsolidated operations (fixed and mobile).

The main impact of this increase is related to the implementation of various actions to protect the Company from possiblelitigation. Thus, we focused our analysis in cases classified in our accounts receivable as having evidence of fraud.

During 2011, we continued our work in combating the two main types of fraud, as follows: • Subscription fraud: type of fraud that occurs when the emission of one or more qualifications without the consent of the real

“owner” of documents with the main objective of not paying the phone bill. Fraud can occur through subscription data andinformation from individuals or companies obtained illegally. In our mobile operation, subscription fraud showed areduction in expenses of 14.9% as compared to the end of 2010. As for cases in our fixed operations, several actions wereimplemented to protect us from possible increases in litigation, by working on the analysis of cases classified in our accountsreceivable with evidence of fraud. With this new guideline, we had a 51.5% increase in fraud costs compared to what wasachieved in 2010.

• Identity Fraud: also known as “social engineering,” the term identity fraud characterizes in the mobile operation the use the

service provider phone channels (Call Center) with the use of real data from clients for false identification, allowing unduechanges to be made in the customer’s line. We had a 78.2% reduction in financial expenses with this type of fraud comparedto that achieved in the previous year.

C. Organizational Structure

On December 31, 2011, our voting shares were controlled by three major shareholders: SP Telecomunicaçơes Participaçơes Ltda.with 50.47%, Telefonica S.A. with 25.68% and Telefônica Internacional S.A. with 15.43%. Telefónica Internacional is the controllingshareholder of SP Telecomunicaçơes and, consequently, holds directly

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and indirectly 43.33% of our common shares and 38.68% of our preferred shares. Telefónica Internacional is a wholly ownedsubsidiary of Telefônica, S.A. of Spain. Subsidiaries

A. TELECOM S.A. (formerly Assist Telefônica) is our wholly owned subsidiary. A. TELECOM was formed in Brazil onOctober 29, 1999, and it is engaged primarily in providing telecommunications and data services and internal telephone networkmaintenance for customers. The principal services are as follows: (i) digital condominium which is a value-added service forcommercial buildings, integrated solution for equipments and services for voice transmission, data and images on commercialbuildings under a Building Local Exchange Carrier (“BLEC”) model; (ii) installation, maintenance, exchange and extension of newpoints of internal telephony wire in companies and dwellings under a basic plan of maintenance (BPM); and (iii) provision of free ISPservice under the brand name “I-Telefônica.” In addition, on December 30, 2004, we entered into a transaction to acquire indirectcontrol of Atrium Telecomunicaçơes Ltda. The transaction was approved by our shareholders on January 19, 2005. The acquisitionwas carried out through the purchase of the total share capital of Santo Genovese Participaçơes Ltda., which held 99.99% of therepresentative share capital of Atrium. On March 1, 2006 then-subsidiary Santo Genovese Participaçơes Ltda., having merged into itssubsidiary Atrium Telecomunicaçơes Ltda., was acquired by A. TELECOM S.A. and both Santo Genovese Participaçơes Ltda. andAtrium Telecomunicaçơes Ltda. ceased to exist. A. TELECOM remained a wholly owned subsidiary of TELESP, and began carryingout the activities formerly performed by Atrium. See “—B. Business Overview—Overview.”

From the second half of 2006, A. TELECOM began providing pay TV services, fully focusing on the development of this newproduct line. In February 2008, A. TELECOM became an owned subsidiary of Telefônica Televisăo Participaçơes S.A. (TTP). InNovember 2008, TTP was merged into TELESP and A. TELECOM became a wholly owned subsidiary of TELESP. See “—A.History and Development of the Company—Historical Background—Corporate Reorganization involving DABR and TTP.”

Telefônica Data S.A.’s business purpose is to render telecommunications services such as the development, implementation andinstallation of projects related to integrated business solutions and telecommunications consulting, as well as activities related to therendering of technical assistance and equipment and telecommunications network maintenance services.

Telefônica Empresas, currently (“Telefônica Data”), became a wholly owned subsidiary of the Company after the corporatereorganization that was carried out in July 2006. See “—A. History and Development of the Company—Historical Background—TheSCM Restructuring.” In July 2008, Telefônica Data became a wholly owned subsidiary of TTP. In November 2008, TTP was mergedinto TELESP and Telefônica Data became a wholly owned subsidiary of TELESP. See “—A. History and Development of theCompany—Historical Background—Corporate Reorganization involving DABR and TTP.”

Telefônica Sistema de Televisăo S.A. (“TST”) is a company that provides pay television services through the MultipointMultichannel Distribution Services (“MMDS”) modality.

Vivo S.A. is a company that provides mobile services in the states of Acre, Alagoas, Amapá, Amazonas, Bahia, Ceará, EspíritoSanto, Goiás (also encompassing the area of Distrito Federal, or the Federal district), Maranhăo, Mato Grosso, Mato Grosso do Sul,Pará, Paraíba, Paraná, Pernambuco, Piauí, Rio de Janeiro, Rio Grande do Norte, Rio Grande do Sul, Rondônia, Roraima, SantaCatarina, Săo Paulo, Sergipe, Tocantins and Minas Gerais. See “—A. History and Development of the Company.”

Ajato Telecomunicaçơes Ltda.The corporate purpose of Ajato Telecommunications Ltd is to provide telecommunications and ITservices, access to telecommunications network, internet and radio, including telemarketing, image and data services, trade lease,import, export, maintenance and repair for those equipments.

Aliança Atlântica Holding B.V. based in Netherlands, Amsterdam, with a 50% interest owned by Telefonica Brasil, holds cashfrom the sale of Portugal Telecom’s shares in June 2010 and a small interest in Zon Multimedia, a company of Portugal TelecomGroup which provides pay-TV services, internet, distribution of audiovisual content, cinema and telecommunications services.

Companhia AIX de Participaçơes. This company is engaged in the Refibra consortium, as a leader, as well as in both direct andindirect development of activities related to the construction, conclusion and operation of underground fiber optic networks. Currently,Telefônica Brasil holds a 50% interest in this company.

Companhia ACT de Participaçơes is engaged in the Refibra consortium, as a leader, as well as in activities related to providingtechnical assistance for the preparation of the network conclusion project by providing studies to make it more profitable, as well as toinspect the activities in progress related to the project. Currently, Telefônica Brasil holds a 50% interest in this company.

GTR Participaçơes e Empreendimentos S.A.’S business purpose is to hold equity interest in other companies, which are engagedin providing cable and pay-TV services, telecommunications services in general, the production, purchase, licensing, import anddistribution of television programs, either its own or third parties’, spare parts and equipment, management and rendering oftelecommunications and pay-TV service platforms.

TVA Sul Paraná S.A.’s business purpose is to provide cable and pay-tv services, telecommunications services in general, produce,purchase, license, import and distribute television programs, either its own or third parties’, spare parts and equipment, manage,Source: TELEFONICA BRASIL S.A., 20-F, April 20, 2012 Powered by Morningstar® Document Research℠

update and exploit telecommunications and pay-TV service platforms and publish journals.

Lemontree Participaçơes S.A.’s business purpose is to hold equity interest in other companies, which are engaged in providingcable and pay-TV services, telecommunications services in general, the production, purchase, licensing, import and distribution oftelevision programs, either its own or third parties’, spare parts and equipments, management, updating and exploitation oftelecommunications and pay-TV services platforms, and data management and trading.

Comercial Cabo TV Săo Paulo S.A.’s business purpose is to provide cable and pay-TV services, advisory and consultancyservices in telecommunications in general, to produce, purchase, license, import and distribute television programs, either its own orthird parties’, spare parts and equipment, manage, update and exploit telecommunications and pay-TV service platforms, and toengage in all types of marketing and advertisement. Associated Companies

Since June 30, 2000, we have consolidated under the Brazilian Corporate Law Method, and since January 1, 2009, under IFRS,the operations of Aliança Atlântica Holding B.V., an investment company incorporated under the laws of the Netherlands, that had asits main asset a 0.61% interest in the equity capital of Portugal Telecom, which was disposed of in June 2010. As of December 31,2011, we held a 50% share ownership in Aliança Atlântica Holding B.V. and Telefónica S.A. held the remaining 50%. AliançaAtlântica Holding B.V. is currently in the process of liquidation and, as a result, its remaining assets are being appraised.

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Furthermore, since December 31, 2003, we have also consolidated under the Brazilian Corporate Law Method, and since January1, 2009, under IFRS, our investment under proportional consolidation in Companhia AIX de Participaçơes, or AIX. At December 31,2011, we held a 50% share ownership in AIX and Telemar Participaçơes S.A. held the remaining 50%. AIX was formed in 2001 toexplore, directly and indirectly, activities related to the execution, conclusion and commercial exploitation of underground cables tofiber optic. See Note 1 to the consolidated financial statements included in this annual report starting at page F-13. We alsoconsolidate on a pro rata basis, as required under the Brazilian Corporate Law Method and under IFRS, Companhia ACT deParticipaçơes, in which we hold a 50% interest. D. Property, Plants and Equipment

Our main physical properties for providing fixed services involve the segments of switching (public switching telephonenetwork-PSTN), transmission (optic and wireless systems), data communication (multiplex devices, IP network), infrastructure(Energy systems and air conditioned) and external Network (fiber optic and metallic cables), which are distributed in many buildingsin the State of Săo Paulo and in the main cities out of the State of Săo Paulo. Some of these buildings are also used in administrativeand commercial areas.

Our properties are located throughout the State of Săo Paulo. At December 31, 2011, we used 2,178 properties in our operations,1,419 of which we own, and we have entered into standard leasing agreements to rent the remaining properties. We own a building inthe City of Săo Paulo where the majority of our management activities are conducted.

Pursuant to Brazilian legal procedures, liens have been attached to several properties pending the outcome of various legalproceedings to which we are a party. See “Item 8. Financial Information—A. Consolidated Statements and Other FinancialInformation—Legal Proceedings.”

Our principal physical property for mobile services consists of transmission equipment, switching equipment, base stations, andother communication devices, such as voicemail, prepaid service, Short Message Service, Home Location Registers, SignalingTransfer Point, Packet Data Switching Network and gateways. All switches, cell sites, administrative buildings, administrativefacilities, warehouses and stores are insured against damages for operation risks.

As of December 31, 2011, our subsidiary Vivo had 202 cellular switches and other equipment installed in 59 owned spaces, nineleased spaces and 24 shared spaces. We lease most of the sites in which our cellular telecommunications network equipment isinstalled. The average term of these leases is five years (subject to renewal for additional five-year terms) and ten years in theNortheast. Our 28,293 base stations and other network equipment are installed in cell sites, administrative buildings and administrativefacilities. In addition, our subsidiary own 14 administrative building and we lease 33 administrative areas, 11 kiosks and 302 retailstores.

On December 31, 2011 the net book value of our property, plant and equipment amounted R$17.2 billion (R$10.2 billion inDecember 31, 2010). ITEM 4A. UNRESOLVED STAFF COMMENTS

None. ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS A. Operating Results

The following discussion should be read in conjunction with our consolidated financial statements and accompanying notes andother information appearing elsewhere in this annual report and in conjunction with the financial information included under “Item 3.Key Information—A. Selected Financial Data.” We prepared our consolidated financial statements included in this annual report inaccordance with the IFRS.

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Our results of operations are principally affected by the following key factors.

Brazilian Political and Economic Environment

The Brazilian economy has experienced different rates of growth this decade. According to IBGE, the Brazilian GDP for 2011expanded 2.7% in 2011, compared to 7.5% in 2010.

Consumer prices, as measured by the IPCA, registered a variation of 6.5% in 2011. Accordingly, growth in consumer prices washigher than the inflation target established by the Central Bank, of 4.5%. In 2009 and 2010, the variations of IPCA were 4.3% and5.9%, respectively. Inflation, as measured by the General Price Index, or the IGP-DI, calculated by Fundaçăo Getúlio Vargas, whichincludes wholesale, retail and home-building prices, decreased 1.4% and increased 11.3% in 2009 and 2010, respectively. In 2011, theIGP-DI increased 5.0%.

As a result of the acceleration of inflation and of the economic activity, the Central Bank increased the basic interest rate during2011, but began a series of decreases of the rate during the second semester. As a result, the SELIC rate increased to 11.0% by the endof 2011, from 10.75% in 2010.

Brazil finished 2011 with a trade balance surplus of US$29.8 billion, compared to US$20.3 billion in 2010. Exports increased by26.8% to US$256.0 billion, and imports increased 24.5% to US$226.2 billion. Financial inflows into the country increased, withforeign direct investments of US$66.7 billion, compared to US$48.5 billion in 2010. Portfolio investments increased by US$25.1billion in 2011, in comparison to the increase of US$63.0 billion in 2010. The positive performance of external accounts allowedinternational reserves to increase by US$63.4 billion to the record level of US$352.0 billion.

Despite the improvement in domestic economic data, such as inflation, external accounts, and interest rates, increased riskaversion in the international capital markets led to a higher country risk in 2011. The J.P. Morgan Emerging Markets Bond Index Plus(EMBI + Brazil), which tracks total returns for traded external debt instruments in the emerging markets, increased to 233 basis pointsby the end of 2011 from 180 basis points at the end of 2010.

As a result, the real depreciated against the U.S. dollar in 2011 by 12.6%. The exchange rate on December 31, 2011 wasR$1.88/US$1.00, from R$1.67/US$1.00 on December 31, 2010.

Our business is directly affected by trends in the international economy and the Brazilian economy. If the Brazilian economyenters a period of continued recession, then demand for telecommunications services is likely to decline. Similarly, depreciation of theBrazilian real against the U.S. dollar may reduce the purchasing power of Brazilian consumers and, as a consequence, negativelyaffect the ability of our customers to pay for our telecommunications services.

Impact of Inflation on Our Results of Operations

Before 2006, the fees we charged our customers were periodically adjusted by ANATEL based on the inflation rates measured bythe General Price Index (IGP-DI).

Starting in 2006, telephone fees were indexed to the IST, which is a basket of national indexes that reflect the telecommunicationssector’s operating costs. Such indexing will thus reduce inconsistencies between revenue and costs in our industry and thereforereduce the adverse effects of inflation on our business. The IST for the last 12 months is 4.92% according to the last data published byANATEL with reference to December 2011.

The table below shows the Brazilian general price inflation (according to the IGP-DI, IPCA and the IST) for the years endedDecember 31, 2007 through 2011:

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Inflation Rate(%) as

Measured byIGP-DI(1)


Measured byIPCA(2)


Measured byIST(3)

December 31, 2011 5.0 6.5 4.9 December 31, 2010 11.3 5.9 5.6 December 31, 2009 (1.4) 4.3 2.1 December 31, 2008 9.1 5.9 6.6 December 31, 2007 7.9 4.5 3.2

(1) Source: IGP-DI, as published by the Fundaçăo Getúlio Vargas. (2) Source: IPCA, as published by the Instituto Brasileiro de Geografia e Estatística. (3) Source: IST, as published by the Agência Nacional de Telecomunicaçơes.

Regulatory and Competitive Factors

Our business, including the services we provide and the rates we charge, is subject to comprehensive regulation under the GeneralTelecommunications Law. As a result, our business, results of operations and financial conditions could be impacted by the actions ofthe Brazilian authorities, including: • delays in the granting, or the failure to grant, approvals for rate adjustment; • the granting of licenses to new competitors in our region; and • the introduction of new or stricter requirements for our operating concession.

A series of new regulations became effective in 2011. See “Item 4. Information on the Company—B. Business Overview.” Themost important among these regulations were: • regulation of quality management of SMP and SCM; • regulation of the criteria for readjustment of fees involving STFC calls involving access from the SMP or SME; • local area regulation of the STFC; and • free determination of rates for international long distance (LDI).

We expect the following issues to become effective as new regulations or to be subject of one or more Public Notices in 2012,with an exact timeline yet to be determined by ANATEL. • development of a General Competition Plan that would regulate standards for service providers with significant market

power; • change in the STFC regulation; • draft regulation on the provision of STFC out of the Basic Fee Area (Área de Tarifaçăo Básica), or ATB; • proposed revision of the rules of usage remuneration of providers of STFC networks; • invitation for bids for 3.5 GHz frequencies; • proposed amendment of the Regulation of Multimedia Communication Services (SCM); • proposed rules for industrial exploration of dedicated lines – EILD; • proposed regulations for the Certification of External Telecommunications Networks in regard to power protection;

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Number Portability came into effect in Brazil in September 2008. Number Portability allows clients within a limited geographiclocale to relocate or change their telephone operator without the need to change their telephone number (for either a fixed or mobileline). Number Portability rights for all of our clients became effective in March 2009.

In addition to regulatory considerations, our business is affected by competition from other telecommunications providers. Webegan to face competition in our region in July 1999, and we anticipate that competition will contribute to declining prices forfixed-line telecommunications services and increasing pressure on operating margins. Our future growth and results of operations willdepend significantly on a variety of factors, including: • Brazil’s economic growth and its impact on the greater demand for services; • the costs and availability of financing; and • the exchange rate between the real and other currencies.

Foreign Exchange and Interest Rate Exposure

We face foreign exchange risk due to our foreign currency-denominated indebtedness, accounts payable (including our capitalexpenditures, particularly equipment) and receivables in foreign currency. A real devaluation may increase our cost of debt andcertain commitments in a foreign currency. Our revenue is earned in reais, and we have no material foreign currency-denominatedassets, except income from hedging transactions, interconnection of international long-distance services and services rendered tocustomers outside Brazil. Equity investments in foreign companies also suffer effects with variations in the exchange rate.

On December 31, 2011, 19.32% of our R$6.20 billion of financial indebtedness was denominated in U.S. dollars and UMBNDES.See Note 18 to the Consolidated Financial Statements. Devaluation of the real causes exchange losses on foreigncurrency-denominated indebtedness and commitments and exchange gain on foreign currency-denominated assets and corporatestakes in foreign companies.

We use derivative instruments to limit our exposure to exchange rate risk. Since September 1999, we have hedged all of ourforeign currency-denominated bank debt using swaps. Since May 2010, the Company began using net balance coverage, which is thecoverage for net positions in foreign exchange exposures, or assets (issued invoices) minus liabilities (received invoices) for foreignexchange exposures, substantially reducing the Company’s risk to fluctuations in exchange rates. However, we remain exposed tomarket risk resulting from changes in local interest rates, principally the CDI – Certificate of Interbank Deposits (Certificado deDepósito Interbancário), which is an index based upon the average rate of operations transacted among the banks within Brazil). Thisexposure to the CDI is present in long derivatives positions and financial investments, which are indexed to percentages of the CDI.Substantially, most of our debt is exposed to long term interest rates. On December 31, 2011, R$3.06 billion of our indebtedness wassubject to the variations of the TJLP, which remained stable since July 2009, and R$1.20 billion was subject to the variation of theU.S. dollar and UMBNDES. However, the portion in U.S. dollars of our foreign currency debt is swapped under hedgingarrangements for variable-rate real-denominated obligations based on the CDI. We invest our excess cash mainly in short-terminstruments that earn interest based on the CDI. See

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Note 36 to the Consolidated Financial Statements and “Item 11. Quantitative and Qualitative Disclosures about Market Risk.”

Since we have foreign currency derivatives with notional amounts substantially equivalent to our borrowings and invoices issuedand received denominated in foreign currency, we do not have material exchange rate exposure with respect to these contracts.However, we could still continue to have exchange rate exposure with respect to our planned capital expenditures, approximately16.7% of which are indexed in foreign currencies (mostly U.S. dollars). We systematically monitor the amounts and time of exposureto exchange rate fluctuations and may contract for hedging positions, when appropriate, at our discretion. Discussion of Critical Accounting Estimates and Policies

The preparation of financial statements included in this annual report in accordance with IFRS involves certain assumptions andestimates that affect the amounts presented for revenue, expenses, assets and liabilities and disclosures of contingent liabilities in thenotes to the financial statements. Therefore, the uncertainty relating to these assumptions and estimates could lead to results thatrequire a significant adjustment to the accounting value of assets or liabilities affected in future periods. Although we review theseestimates and assumptions in the ordinary course of business, the presentation of our financial condition and results of operation oftenrequires our management to make judgments regarding the effects on our financial condition and results of operations of matters thatare inherently uncertain. Actual results may differ from those estimated under different variables, assumptions or conditions. Note 3 ofour Consolidated Financial Statements includes methods used in the preparation of those financial statements and includes a summaryof the significant accounting policies. To provide an understanding of how we form the foregoing judgments and estimates, we havesummarized certain critical accounting policies below.

Accounting for long-lived assets, including goodwill

Property, plant and equipment and intangible assets, other than goodwill, are recorded at acquisition cost. Property, plant andequipment and intangible assets with definite useful lives are depreciated or amortized on a straight-line basis over their estimateduseful lives. Intangible assets with indefinite useful lives are not amortized, but are, instead, subject to an impairment test on a yearlybasis and whenever there is an indication that such assets may be impaired.

Accounting for long-lived assets and intangible assets involves the use of estimates for determining the fair value at theiracquisition dates, particularly for assets acquired in business combinations and for determining the useful lives of the assets overwhich they are to be depreciated or amortized as well as their residual value. We believe that the estimates we make to determine anasset’s useful life and residual value are “critical accounting estimates” because they require our management to make estimates aboutfuture technological developments and alternative uses for assets.

An impairment loss exists when the accounting value of an asset or cash-generating unit exceeds its recoverable amount, which isthe higher between the fair value less selling costs and the value in use. The estimated fair value less selling costs is based on theinformation available from transactions involving the sale of similar assets or the market price less additional costs regarding thedisposition of such asset. The value in use is based on the model of discounted cash flow. Cash flows are derived from the budget anddo not include activities of reorganization for which the Company has not yet been committed or significant future investments thatwill improve the group of assets of the cash-generating unit subject to the test. The recoverable amount is sensitive to the discount rateused in the method of discounted cash flow as well as to the projected future cash flow and the expected future growth rate used forthe purposes of overestimation. Furthermore, additional factors, such as technological obsolescence, the suspension of certain servicesand other circumstantial changes are taken into account.

Taxes

There are uncertainties regarding the interpretation of complex tax regulations and the amount and timing of future taxableincome. We record provisions based on reasonable estimates for possible auditing by tax authorities from the jurisdictions in which weoperate. The value of these provisions is based on several factors such as experience from previous tax audits and differentinterpretations of tax regulations by the taxable entity and the

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competent tax authority in charge. Such differences of interpretation may arise in a wide variety of subjects, depending on theprevailing conditions in the domicile of the Company. As a result, we may be required to pay more than our provisions or to recoverless than the assets recognized.

Pension plan benefits

The cost of pension plans with determined benefits and other post-employment medical care benefits and the present value ofpension obligations are determined using actuarial valuation methods. The actuarial valuation involves the use of assumptions aboutdiscount rates, expected return rates of assets, expected future salary increases, mortality rates, health care costs trend rates and futureincreases in retirement benefits and pensions. The obligation of a defined benefit is highly sensitive to changes in these assumptions.All assumptions are reviewed at each year-end. The mortality rate is based on mortality tables available in the country. Futureincreases in wages and retirement benefits and pensions are based on expected future inflation rates for the country and couldsignificantly impact the value of the obligations to provide these benefits.

Fair value of financial instruments

When the fair value of financial assets and liabilities presented on the balance sheet cannot be obtained in active markets, it isdetermined using valuation techniques, including the method of discounted cash flow. The data obtained for the use of these methodsare based as much on the information prevailing in the market as possible. However, when it is not feasible to obtain such informationin the market, a certain assumption level is required to establish the fair value. The assumption includes consideration of the data thatwas used, such as the liquidity risk, credit risk and volatility. Changes in the assumptions regarding these factors could affect thepresented fair value of financial instruments.

Provisions for civil and labor contingencies

We record provisions for civil, labor and tax claims. The assessment of the likelihood of loss includes assessing the availableevidence, the hierarchy of laws, the available jurisprudence, the most recent court decisions and its materiality in the legal system aswell as the evaluation of the case by external counsels. Provisions are reviewed and adjusted to take into account changes incircumstances such as the applicable prescriptive period, results from tax inspections or additional exposure identified based on newlyissued court decisions. A significant change in these circumstances or assumptions could result in a corresponding increase ordecrease into the amount of our provisions.

Revenue recognition

Customer Loyalty Program

We have a customer loyalty program that allows customers to accumulate points when generating traffic for the use of our mobileservices. The accrued points may be exchanged for handsets or services, provided the customer has a minimum stipulated balance ofpoints. The consideration received is allocated to the cost of the handsets or services redeemed at their fair value. The fair value of thepoints is calculated by dividing the discount value granted as a result of the customer loyalty program by the amount of points neededto carry out the redemption. The fair value accrued on the balances of generated points is deferred and recognized as income uponredemption of points.

For determining the quantity of points to be recognized, we apply statistical techniques, which take into considerationassumptions such as estimated redemption rates, expiration rates, cancellation of points and other factors. These estimates are subjectto variations and uncertainties due to changes in the redemption behavior of the customers.

A change in the assumptions regarding these factors could affect the estimated fair value of the points under the customer loyaltyprogram and it could affect the apportionment of revenue among the elements and, as a result, revenues in future years.

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Multiple-element arrangements

Bundled offers that combine different elements are assessed to determine whether it is necessary to separate the differentidentifiable components and apply the corresponding revenue recognition policy to each element. Total package revenue is allocatedamong the identified elements based on their respective fair values.

Determining fair values for each identified element requires estimates that are complex due to the nature of the business.

A change in estimates of fair values could affect the apportionment of revenue among the elements and, as a result, revenues infuture years. Sources of Revenue

The breakdown of our gross operating revenue is presented net of discounts granted. In addition, we categorized our revenueaccording to the following groups: • Telephony services

Includes revenues from fixed and mobile telephony highlighting: • Local: includes the sum of revenues from monthly subscription fees, installation fees, local services, public

telephony and fixed-to-mobile revenues (VC1); • Domestic long-distance: includes the sum of fixed-to-mobile revenues (VC2 and VC3), public long-distance telephony

and domestic long-distance; • International long-distance: includes the sum of revenues from international public telephony and international

long-distance; and • Usage charges: which include measured service charges for calls, monthly fee and other similar charges; • Data Transmission and value added services • Data Transmission: includes the sum of infrastructure rental revenues and data transmission; and • Charges for call forwarding, call waiting, text messaging (SMS), call blocking and Data Services, such as WAP and

ZAP, downloads and MMS services, which are charged only when the customer’s plan excludes these services. • Interconnection charges • Interconnection charges (or network usage charges) are amounts we charge other cellular and fixed-line service

providers for the use of our network; • Pay TV • Includes cable TV services, through satellite, cable or MMDS technology (multichannel multipoint distribution service); • Sale of goods and equipment • The sale of wireless devices and accessories; • Other Services • Other services include integrated solution services offered to residential and corporate clients, such as Internet access,

private network connectivity and leasing of computer equipment, and

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The following table sets forth certain components of our net income for each period ended December 31, 2011 and December 31,2010, as well as the percentage change of each component. The Company acquired 100% of shares of Vivo Participaçơes S.A.amounting to R$31,222,630. See Note 1 and Note 4 to our consolidated financial statements. The Company’s consolidated financialstatements include Vivo Participaçơes S.A. and Vivo S.A. as of April 1, 2011. Vivo Participaçơes S.A. and Vivo S.A. were includedin the Company’s consolidated financial statements through the full consolidation method.

Because Vivo Participaçơes S.A. and Vivo S.A. are included in our financial statements for only nine months in 2011, our resultsof operations in 2010 and 2009 are not fully comparable with our results of operations in 2011. We have also made certain changes toour accounting criteria and elected to apply these changes retroactively to part of our financial statements for the year 2010 to makethem comparable to our 2011 financial statements. Implementation of these accounting changes did not create any difference for ourresults of operations or shareholders’ equity. Year ended December 31, Percent change 2011 2010 2011-2010 (in millions of reais) Net operating revenue 29,128.7 15,798.2 84.4%Cost of services and goods (14,728.2) (8,844.8) 66.5%Gross profit 14,400.5 6,953.4 107.1%Operating expenses: Selling (7,259.7) (2,964.6) 144.9%General and administrative (1,785.7) (738.8) 141.7%Other operating revenues, net 442.2 312.4 41.5%Total operating expenses, net (8,603.2) (3,391.0) 153.7%Equity in earnings (losses) of associates – 2.9 (100.0)%Operating income before financial expense, net 5,797.4 3,565.3 62.6%Net financial expenses (139.7) (120.7) 15.7%Net income before income and social contribution taxes 5,657.7 3,444.6 64.2%Income and social contribution taxes (1,295.5) (1,045.8) 23.9%Net income 4,362.2 2,398.8 81.8%Net income attributable to: Shareholders of company 4,355.3 2,398.8 81.6%Noncontrolling interests 6.9 – 100.0%Net income for year 4,362.2 2,398.8 81.8%

Net Operating Revenue

Net operating revenues increased by 84.4% to R$29,128.7 in 2011 from R$15,798.2 million in 2010. The increase in 2011 reflectsthe consolidation of R$13,728.1 million of net operating revenues attributable to Vivo and Vivo Participaçơes for the months of Aprilthrough December 2011. Our net operating revenues excluding Vivo and Vivo Participaçơes decreased by 2.5% to R$15,400.6 millionin 2011, from R$15,798.2 million in 2010, primarily due to the reduction in the traffic originated by fixed-line and to the lowerfixed-voice customer base, partially offset by the increased international long-distance revenue in comparison to 2010.

Capital Expenditures (Capex)

In 2011, the Company invested R$5,401.5 million, including the consolidation of Vivo and Vivo Participaçơes for the months ofApril through December 2011, in projects that sustain its current annual results and position the Company for competitiveenvironment in the medium term representing an increase of 121.2% compared to 2010. As a percentage over net operating revenuesthe ratio was from 15.5% in 2010 to 18.5% in 2011. A significant portion of resources was

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allocated to allow growth quality in our services. The investments in quality maintenance and expansion of our client base represented67% of the total amount invested by us in 2011.

To meet the needs of an increasingly connected society, significant investments were made to support the strong growth of ourdata users, both fixed and mobile, or dedicated high speed services for our corporate clients. We are building the future of broadbandby increasing the expansion of the optical fiber network in Săo Paulo. We are also investing in the expansion of the backbone fornational data transmission to meet the increase in mobile data traffic throughout the country. Results of Operations for the Year Ended December 31, 2011 Compared to the Year Ended December 31, 2010

Operating Revenue

Our gross operating revenue is presented net of discounts granted.

Our gross operating revenue increased 90.5% to R$43,073.1 million in 2011 from R$22,609.0 million in 2010, impacted by theincorporation of Vivo Participaçơes and Vivo S.A. which we consolidated as of April 1, 2011. Excluding the effect of suchacquisition, which totaled R$20,349.8 million, gross operating revenue would be R$22,723.3 million, an increase of 0.5%, or R$114.3 million, compared to 2010. The variations are explained as follows: Year ended December 31, Percent change 2011 2010 2011-2010 (in millions of reais) Telephony services 24,331.3 15,366.0 58.3 Data transmission and value added services 10,929.3 5,028.4 117.4 Interconnection charges 3,785.0 523.8 622.6 Pay TV 865.4 587.4 47.3 Sale of goods and equipment 2,135.2 166.5 1,182.4 Other services 1,026.9 936.9 9.6 Gross operating revenue 43,073.1 22,609.0 90.5 Value-added and other indirect taxes (13,944.4) (6,810.8) 104.7 Net operating revenues 29,128.7 15,798.2 84.4

Telephony service: Excluding the consolidation effect of Vivo Participaçơes and Vivo in the amount of R$9,237.8 million, there was adecrease of R$272.5 million in the revenue, or 1.8%, explained by the reduction in the traffic originated by fixed-line services and tothe lower fixed-voice customer base, that was partially offset by the increased international long-distance revenue in comparison to2010. Fixed-line accesses in service reduced 2.7% in 2011 to 11.0 million from 11.3 million in 2010, due mainly to fixed to mobilesubstitution.

Data transmition and value added services: Excluding the consolidation effect of Vivo Participaçơes and Vivo in the amount ofR$5,421.0 million, the variation in 2011 totaled R$479.9 million, an increase of 9.5% compared to 2010. This growth is explained bya significant increase in the customer base for the data access services, mainly due to strong performance in the corporate segment.

Interconnection charges: Excluding the consolidation effect of Vivo Participaçơes and Vivo in the amount of R$3,375.9 million,the variation in 2011 totaled R$409.1 million, which was a decrease of 21.9% in relation to 2010 This variation is mainly related toreduction in incoming traffic, given the concentration in selling efforts by the operators for stimulating the on-net mobile traffic.

Pay TV: Revenue from Pay TV in 2011 totaled R$865.4 million, an increase of 47.3% in the Pay TV’s gross revenue in relationto 2010. This variation is related to consolidation of TVA’s pay TV business results from the second quarter of 2011.

Sale of goods and equipment: Excluding the consolidation effect of Vivo Participaçơes and Vivo in the amount of R$1,953.6million, the variation in 2011 totaled R$181.6 million, an increase of 9.1% compared to 2010. Revenues from sales of wireless devicesand accessories are reported before commissions and promotional discounts, and include value-added taxes. In general, the purpose ofwireless device sales is to encourage growth in

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customers and traffic (and not necessarily to generate profits). Accordingly, we subsidize part of the costs of wireless devices forpost-paid customers.

Others services: Excluding the consolidation effect of Vivo Participaçơes and Vivo in the amount of R$31.4 million, the variationin 2011 was R$58.6 million, an increase of 6.3% compared to 2010. This growth is mainly explained by the increased revenues fromthe supply of integrated solutions to the corporate segment.

Cost of Services and Goods

The following table sets forth the components of our costs of services and goods sold for 2011 and 2010, as well as the percentagechange from the previous year. Year ended December 31, Percent change 2011 2010 2011-2010 (in millions of reais) Cost of goods sold (1,343.1) (155.7) 762.6%Depreciation and amortization (3,582.6) (1,687.4) 112.3%Outside services, concession renewal fee and other (2,616.0) (1,963.0) 33.3%Interconnection charges (4,537.1) (4,176.7) 8.6%Rent, insurance, condominium fees, and leased lines (910.5) (364.3) 149.9%Personnel (380.1) (257.4) 47.7%Taxes (1,358.8) (240.3) 465.5%Cost of services and goods (14,728.2) (8,844.8) 66.5%

Cost of services and goods increased by 66.5% to R$14,728.2 million in 2011 from R$8,844.8 million in 2010. The increase in2011 reflects the consolidation of R$6,678.6 million of cost of services and goods attributable to Vivo and Vivo Participaçơes for themonths of April through December 2011. Our cost of services and goods excluding Vivo and Vivo Participaçơes decreased 9.0% toR$8,049.6 million in 2011 from R$8,844.8 million in 2010. The variations are explained as follows:

Cost of goods sold: Cost of wireless devices and accessories increased by 762.6% to R$1,343.1 million in 2011, from R$155.7million in 2010. The increase in 2011 reflects the consolidation of R$1,178.7 million of cost of goods sold attributable to Vivo andVivo Participaçơes for the months of April through December 2011. Our cost of goods sold excluding Vivo and Vivo Participaçơesincreased 5.6% to R$164.4 million in 2011 from R$155.7 million in 2010 and was mainly due to an increase in expenses related tomaintenance of terminals to access the network and acquisition of other related goods, among others.

Depreciation and amortization: Depreciation and amortization expenses increased by 91.7% to R$3,234.6 million in 2011, fromR$1,687.4 million in 2010. The increase in 2011 reflects the consolidation of R$1,290.0 million of depreciation and amortizationattributable to Vivo and Vivo Participaçơes for the months of April through December 2011. Our depreciation and amortizationexcluding Vivo and Vivo Participaçơes increased 15.2% to R$1,944.6 million in 2011 from R$1,687.4 million in 2010 mainly due toexpenses for higher investments in our network and amortization of licences on acquisition of Vivo.

Outside services, concession renewal fee and other: Cost of third-party services increased by 33.3% to R$2,616.0 million in 2011,from R$1,963.0 million in 2010. The increase in 2011 reflects the consolidation of R$527.5 million of outside services and otherattributable to Vivo and Vivo Participaçơes for the months of April through December 2011. Our outside services and other excludingVivo and Vivo Participaçơes increased 6.4% to R$2,088.5 million in 2011 from R$1,963.0 million in 2010 mainly due to networkmaintenance and purchase of TV content.

Interconnection charges: Interconnection charges increased by 8.6% to R$4,537.1 million in 2011, from R$4,176.7 million in2010. The increase in 2011 reflects the consolidation of R$240.3 million of interconnection charges attributable to Vivo and VivoParticipaçơes for the months of April through December 2011. Our interconnection charges excluding Vivo and Vivo Participaçơesincreased 2.9% to R$4,296.8 million in 2011 from R$4,176.7 million in 2010 mainly due to an increase in the use of the network forfixed-mobile traffic, among others.

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Rent, insurance, condominium fees, and leased lines: Rent, insurance, condominium fees, and leased lines increased by 149.9% toR$910.5 million in 2011, from R$364.3 million in 2010. The increase in 2011 reflects the consolidation of R$488.7 million of rent,insurance, condominium fees, and leased lines attributable to Vivo and Vivo Participaçơes for the months of April through December2011. Our rent, insurance, condominium fees, and leased lines excluding Vivo and Vivo Participaçơes increased 15.8% to R$421.8million in 2011 from R$364.3 million in 2010 mainly due to greater expenses with service fees for use of towers and poles andinsurance.

Personnel: Personnel expenses increased by 47.7% to R$380.1 million in 2011, from R$257.4 million in 2010. The increase in2011 reflects the consolidation of R$109.0 million of personnel expenses attributable to Vivo and Vivo Participaçơes for the monthsof April through December 2011. Our personnel expenses excluding Vivo and Vivo Participaçơes increased 5.3% to R$271.1 millionin 2011 from R$257.4 million in 2010 mainly due to the collective agreement in this period under which we provided a salaryreadjustment in September 2011 of approximately 5%.

Taxes: Taxes increased by 465.5% to R$1,358.8 million in 2011, from R$240.3 million in 2010. The increase in 2011 reflects theconsolidation of R$1,070.1 million of taxes attributable to Vivo and Vivo Participaçơes for the months of April through December2011. Our taxes excluding Vivo and Vivo Participaçơes increased 20.1% to R$288.7 million in 2011 from R$240,3 million in 2010mainly due to expenses with the FUST and FUNTEL taxes, due to the growth in the number of new subscribers. Operating Expenses

The following table sets forth the components of our operating expenses for each of the years ended December 31, 2011 and2010, as well as the percentage change from the prior year. Year ended December 31, Percent change 2011 2010 2011-2010 (in millions of reais) Selling expenses (7,259.7) (2,964.6) 144.9 General and administrative expenses (1,785.7) (738.8) 141.7 Other net operating income 442.2 312.4 41.5 Total (8,603.2) (3,391.0) 153.7

Operating expenses increased by 153.7% to R$8,603.2 million in 2011, from R$3,391.0 million in 2010. The increase in 2011reflects the consolidation of R$4,492.6 million of operating expenses attributable to Vivo and Vivo Participaçơes for the months ofApril through December 2011. Our operating expenses excluding Vivo and Vivo Participaçơes increased 21.2% to R$4,110.6 millionin 2011 from R$3,391.0 million in 2010 mainly due to an increase in general and administrative expenses.

Selling expenses: Selling expenses increased by 144.9% to R$7,259.7 million in 2011, from R$2,964.6 million in 2010. Theincrease in 2011 reflects the consolidation of R$3,869.5 million of selling expenses attributable to Vivo and Vivo Participaçơes for themonths of April through December 2011. Our selling expenses excluding Vivo and Vivo Participaçơes increased 14.4% to R$3,390.2million in 2011 from R$2,964.6 million in 2010 mainly due to amortization of trademarks and client portfolio on acquisition of Vivoand an increase in personnel expenses resulting from the consolidation of TVA’s Pay TV business and expenses with third-partyservices, mainly with use of the brand and publicity and advertising.

General and administrative expenses: General and administrative expenses increased by 141.7% to R$1,785.7 million in 2011,from R$738.8 million in 2010. The increase in 2011 reflects the consolidation of R$1,051.5 million of general and administrativeexpenses attributable to Vivo and Vivo Participaçơes for the months of April through December 2011. Our general and administrativeexpenses excluding Vivo and Vivo Participaçơes generally remained stable, decreasing 0.6% to R$734.2 million in 2011 fromR$738.8 million in 2010.

Other net operating income: The net amount of other operating income increased by 41.5% to R$442.2 million of other revenuesin 2011, from R$312.4 million of other revenues in 2010. The increase in 2011 reflects the consolidation of R$428.4 million of othernet operating income attributable to Vivo and Vivo Participaçơes for the months of April through

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December 2011. Our other net operating income excluding Vivo and Vivo Participaçơes decreased 95.6% to R$13.8 million in 2011from R$312.4 million in 2010 mainly due to an increase in amortization and other expenses.

Financial Result

For the year-end period ended on December 31, 2011, net financial expenses reached R$139.7 million, increasing by R$19.0million or 15.7% when compared to the period ended December 31, 2010, mainly due to higher net debt.

Income and Social Contribution Taxes

We recorded expenses from income and social contribution taxes in the amount of R$1,295.5 million in 2011, an increase of23.9% from an expense of R$1,045.8 million in 2010. The increase in 2011 was due to higher income before income and socialcontribution taxes. The effective rate of income tax and social contribution decreased to 22.9% in 2011 compared with 30.4% in 2010,mainly due to higher interest on shareholders’ equity payments made in 2011, which is deductible for income tax purposes. Results of Operations for the Year Ended December 31, 2010 Compared to the Year Ended December 31, 2009

Operating Revenue

Our gross operating revenue is presented net of discounts granted.

Our gross operating revenue in 2010 totaled R$22,609.0 million, registering a decrease of 2.6% in relation to 2009. Thecomponents of our gross operating revenue are presented in the following table: Year ended December 31, Percent Change 2010 2009 2010-2009 (in millions of reais, except percentages) Gross Operating Revenue 22,609.0 23,212.5 (2.6)

Fixed Telephony 15,366.0 16,234.0 (5.3)Local 10,356.8 11,129.0 (6.9)Domestic long-distance 4,912.7 4,990.9 (1.6)International Long-distance 96.5 114.1 (15.4)

Data Transmission 5,028.4 4,685.4 7.3 Interconnection 523.8 487.8 7.4 Pay TV 587.4 600.3 (2.2)Others 1,103.4 1,205.0 (8.4)

(1) Gross operating revenue, but net of discounts granted.

Fixed Telephony

Local: Revenue from local services reached R$10,356.8 million in 2010, a decrease of 6.9% in relation to R$11,129.0 millionregistered in 2009. The decrease is due to lower local fixed telephony revenue in 2010, explained by a decrease in VC1 fees andfixed-to-fixed traffic offset by the increase in the monthly fee revenue due to the positive net additions of 39,000 lines in serviceregistered in the year, in addition to the tariff readjustment of most alternative plans as of August 2010. Also, the reduction inrevenues from local services, despite the increase in fixed lines, is due to fixed to mobile substitution. In addition, the Companyincreased the offering of alternative service plans with lower costs, which are more suited to the profile of each client and reducedefault rates.

Domestic long-distance: Revenue from domestic long-distance services in 2010 totaled R$4,912.7 million, an decrease of 1.6% inrelation to R$4,990.9 million in 2009. The decrease is due to a reduction of fixed incoming traffic, partially offset by higher mobileincoming traffic with the “15” use (indicating our selection code of operator) and by the tariff readjustment of 0.66%, effective fromOctober 8, 2010.

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International long-distance: Revenue from international long-distance services reached R$96.5 million in 2010, a decrease of15.4% in comparison with R$114.1 million in 2009. This change is due to a decrease of traffic in the period.

Data Transmission

Data transmission revenue reached R$5,028.4 million in 2010, an increase of 7.3% when compared to R$4,685.4 million in 2009.This growth is justified by increased hiring and the actions of sales personnel and the Company’s commitment to quality, reflected inan increase in the customer satisfaction index and larger customer base. There were 680,401 net additions of broadband, the largestgain in our history. Additionally, data revenue in the corporate segment increased in 2010.

Interconnection Revenue

Interconnection revenue totaled R$523.8 million in 2010, an increase of 7.4% when compared to R$487.8 million in 2009. Thischange is due to higher mobile incoming traffic. Additionally, we recorded a tariff readjustment for local, domestic long-distance andinterconnection services of 0.66%, effective as of October 8, 2010.

Pay TV

Pay TV revenue totaled R$587.4 million in 2010, representing a decrease of 2.2% in relation to R$600.3 million in 2009. Thisdecrease is mainly related to the lower average customer base in 2010. However, the trend changed in the last quarter of 2010, with21,000 net additions of new customers, due to the Company’s repositioning in relation to this product and the significant churnreduction in the period.

Others

Other revenue registered R$1,103.4 million in 2010, a decrease of 8.4% when compared to R$1,205.0 million 2009. This decreaseoccurred because of lower revenue from resale of goods and value added services, but was partially offset by a revenue increase due tous providing integrated solutions in the corporate segment.

Operating Expenses

Operating expenses totaled R$12,235.9 million in 2010, a decrease of 1.8% when compared to R$12,457.4 million in 2009. Thefollowing table sets forth the components of operating expenses: Year ended December 31, Pecent change 2010 2009 2010 - 2009 (in millions of reais, except percentages) Operating Expenses (12,235.9) (12,457.4) (1.8)

Interconnection expenses (4,519.0) (4,236.0) 6.7 Personnel expenses (988.6) (793.9) 24.5 Outsourcing expenses (4,096.9) (3,657.9) 12.0 Bad debt provision (386.3) (564.6) (31.6)Taxes (342.9) (343.2) (0.1)Other operating revenue (expenses) 11.3 (356.3) (103.2)Depreciation and amortization (1,913.5) (2,505.5) (23.6)

Interconnection Expenses

Interconnection expenses totaled R$4,519.0 million in 2010, an increase of 6.7% when compared to R$4,236.0 million in 2009.Such effect is mainly explained by higher expenses with total unbundled loops, an increase in mobile incoming traffic with the “15”use (indicating our selection code of operator) and Mobile Network Interconnection Fee (VUM) readjustment of 0.67% in February,2010.

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Personnel Expenses

Personnel expenses reached R$988.6 million in 2010, a growth of 24.5% in relation to R$793.9 million in 2009. This increase ismainly due to a reversal of labor contingencies in the second quarter of 2009 in the amount of R$159 million and to the non-recurringexpenses related to personnel reorganization in the amount of R$74.8 million, accounted for in the fourth quarter of 2010.

Outsourcing Expenses

Outsourcing expenses reached R$4,096.9 million in 2010, an increase of 12.0% when compared to R$3,657.9 million in 2009.This increase is related to an increase of commercial expenses, mainly in customer service, as a result of our commitment to qualityand customers satisfaction, a higher concentration of advertising campaigns in 2010, and higher expenses with regard to networkmaintenance.

Bad Debt Provisions

Bad debt provisions registered R$386.3 million in 2010 from R$564.6 million in 2009, representing a decrease of 31.6%. As apercentage of the net operating revenue, the ratio decreased from 3.6% in 2009 to 2.5% in 2010. This effect is explained by animprovement in the customer base profile through our strong performance in our commercial debt collection. Our 1.8% bad debtprovision percentage on net operating revenue registered in the fourth quarter of 2010 is one of the lowest levels we have everreached.

Taxes

Taxes reached R$342.9 million in 2010, a decrease of 0.1% when compared to R$343.2 million in 2009. This variation is justifiedby the decrease in taxes due to services provided between us and our subsidiaries. This effect was partially offset by an increase inFUST and FUNTEL in the period.

Other Operating Revenue (Expenses)

Other operating revenues (expenses) reached R$11.3 million in 2010, mainly justified by the sale and assignment of the right ofuse of non strategic assets during 2010 in the total amount of R$320.6 million, partially offset by the cost of goods sold to thecorporate segment.

Depreciation and Amortization

Depreciation and amortization reached R$1,913.5 million in 2010 compared to R$2,505.5 million in 2009, a decrease of 23.6%explained by the adoption of new terms for certain categories of assets, which resulted in changes in those assets’ useful life timewhen compared to those in 2009. Because this was a change in accounting estimates, the effects of this change were recordedprospectively from the year of 2010. This movement generated a decrease of R$399.6 million in the depreciation expense in the year.

Equity in Earnings of Associates

Equity in earnings of associates in 2010 reached R$2.9 million, compared to R$18.8 million in 2009, representing a decrease of84.6%. This decrease is explained by the effect of applying equity accounting of the shareholding of Cable TV operators.

Financial Result

For the year-end period ended on December 31, 2010, net financial expenses reached R$120.7 million, increasing by R$68.1million or 36.0% when compared to the period ended December 31, 2009, mainly due to lower net debt. In relation to the last quarterof the previous year, the result was increased by R$19.2 or 37.1% due to the same effect.

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Income and Social Contribution Taxes

We recorded expenses from income and social contribution taxes in the amount of R$1,045.8 million in 2010, an increase of 2.4%from an expense of R$1,021.0 million in 2009. The increase in 2010 was due to higher income before income and social contributiontaxes. B. Liquidity and Capital Resources

General

We have funded our operations and capital expenditures mainly from operating cash flows and loans obtained from financialinstitutions. As of December 31, 2011, we had R$2.9 billion in cash and cash equivalents. Our principal cash requirements include: • the servicing of our indebtedness; • capital expenditures; and • the payment of dividends.

Sources of Funds

Our cash flow from operations was R$8.1 billion in 2011 compared to R$4.5 billion in 2010. The increase in cash flow fromoperating activities of 79.6% in 2011 compared to 2010 was due primarily to the consolidation of Vivo and Vivo Participaçơes as ofApril 2011. When analyzing Telefônica Brasil excluding Vivo and Vivo Participaçơes (the “Company”), a decrease of cash flow fromoperating activities of 23.5% to R$3.4 billion in 2011 from R$4.4 billion in 2010 is due to lower margins partly offset by a slightincrease in revenues.

Uses of Funds

Our cash flow used in investing activities was R$2.0 billion in 2011 compared to R$1.7 billion in 2010. The increase in cash flowused in investing activities of 22.3% in 2011 compared to 2010 was primarily due to the consolidation of Vivo and VivoParticipaçơes as of April 2011. When analyzing Telefônica Brasil excluding Vivo and Vivo Participaçơes, the investing activitiesdecreased to R$478.8 million in 2011 from R$1.7 billion in 2010 due mainly to dividends of R$1.0 billion received from VivoParticipaçơes, before its merger with us.

Our cash flow used in financing activities was R$4.7 billion in 2011 compared to R$3.6 billion in 2010. The increase in cash flowused in financing activities of 31.6% in 2011 compared to 2010 was due primarily to a higher payment of dividends by TelefônicaBrasil and Vivo Participaçơes, partly offset by the loan obtained from BNDES.

Indebtedness

As of December 31, 2011, our total debt was as follows:

Debt

Currency

Annual interest rate payable

Maturity Principal amount outstanding (in

thousands of reais)

Loan and Financing BNDES

R$ TJLP + 1.48% to TJLP +

9.0%

2019

3,063.2Loan and Financing BNDES R$ 4.5% to 5.5% 2020 155.0Loan and Financing BNDES UMBNDES 5.97% 2019 194.3Loan and Financing BNB R$ 10.0% 2016 438.3Working Capital Loan R$ 108.90% of the CDI 2012 91.6Mediocredito US$ 1.75% 2014 14.0EIB US$ 4.18% to 4.47% 2015 708.0Resoluçăo 4131 US$ 4.10% 2013 282.2Debentures R$ 106% to 112% of the CDI 2013 1,101.1Debentures R$ IPCA+ 0.5% to IPCA+7.0% 2021 155.3Others R$ 2014 0.9

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Debt

Currency

Annual interest rate payable

Maturity

Principal amountoutstanding (in

thousands of reais) Total debt 6,204.0Current 1,457.0Long term 4,746.9

Interest and principal payments on our indebtedness as of December 31, 2011 due in 2012 and 2013 total R$1,457.0 million and

R$1,798.1 million, respectively.

The agreements that govern the majority of our outstanding loans and financings contain certain standard restrictive covenants,which may provide for the acceleration of the full balance of our obligations in the event of any default. As of December 31, 2011, wewere not in default of any of our obligations and therefore none of our liabilities were subject to acceleration. Capital Expenditures and Payment of Dividends

Our principal capital requirements are for capital expenditures and payments of dividends to shareholders. Additions to property,plant and equipment totaled R$5.4 billion and R$2.4 billion for the years ended December 31, 2011 and 2010, respectively. Ourcapital expenditures for the year 2012 are expected to be similar to 2011. These expenditures relate primarily to the expansion of ournetwork. We may seek financing for part of our capital expenditures and cash management assistance from the Brazilian government,in particular from BNDES, which is the main government financing agent in Brazil, as well as from the local or foreign capitalmarkets or from local and foreign financial institutions. See “Item 4. Information on the Company—A. History and Development ofthe Company—Capital Expenditures.”

Pursuant to our bylaws and Brazilian Corporate Law, we are required to distribute a mandatory minimum dividend of 25% of“adjusted net income” (as defined below) in respect of each fiscal year, to the extent earnings are available for distribution. Holders ofpreferred shares are assured priority in the reimbursement of capital, without a premium, and are entitled to receive cash dividends thatare 10% higher than those attributable to common shares.

Adjusted net income, as determined by Brazilian Corporate Law, is an amount equal to our net income adjusted to reflectallocations to or from (i) legal reserve, (ii) statutory reserve and (iii) a contingency reserve for anticipated losses, if any.

We may also make additional distributions to the extent that we have available profits and reserves to distribute. All of the abovedistributions may be made as dividends or as tax-deductible interest on shareholders’ equity. We paid dividends of R$5.4 billion,R$1.9 billion and R$1.5 billion in 2011, 2010 and 2009, respectively.

Our management expects to meet 2012 capital requirements primarily from cash provided from our operations. Net cash providedby operations was R$8.1 billion, and R$4.5 billion in 2011 and 2010, respectively.

Adjustments to net income for purposes of calculating the basis for dividends include allocations to various reserves thateffectively reduce the amount available for the payment of dividends. For the fiscal year ended December 31, 2011, the Board ofDirectors Meeting held on February, 15 decided to submit to the shareholders meeting a proposal to pay dividends in the amount ofR$1.9 billion, which, together with the interim dividend and interest on own capital payments made in 2011, would be more thansufficient to meet the minimum dividend required by Brazilian law. The proposal to pay dividends was approved by a GeneralShareholders Meeting held on April 11, 2012. See “Item 3. Key Information—D. Risk Factors—Risks Relating to the PreferredShares and the ADSs—Holders of our preferred shares and our ADSs generally do not have voting rights” and “Item 10. AdditionalInformation—B. Memorandum and Articles of Association—Voting Rights.”

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Recently Adopted Standards

The consolidated financial statements were prepared and are being presented in accordance with the IFRS.

We adopted all the standards, revisions of standards and interpretations issued by IASB, which entered into force as of January 1,2011 including:

IAS 24 (Revised) Related Party Disclosures

This revised standard introduces the following changes: (i) provides a partial exemption for government related entities, requiringdisclosure of balances and transactions between them only if they are individually or collectively significant; and (ii) provides a newrevised definition of a “related party.” The adoption of this standard did not impact the Company’s financial situation or results.

Changes to IAS 32 Financial Instruments Presentation

This change is intended to clarify that subscription right issues that allow the acquisition of a fixed number of own equityinstruments at a fixed price will be classified as equity, irrespective of currency it is denominated and its exercise price, assuming thatthe issuance is made to all shareholders of a given class of shares or equity proportionate to the number of securities that they hold.The adoption of these changes did not impact the Company’s financial situation or results.

Improvements to International Financial Reporting Standards (IFRS) (May 2010)

This text introduces a series of improvements to IFRS in force mainly to eliminate inconsistencies and clarify the wording ofsome of these standards. These improvements did not impact the Company’s financial situation or results.

IFRS 3 Business Combinations

The measurement options available for noncontrolling interest (NCI) were amended. Only components of NCI that constitute apresent ownership interest that entitles their holder to a proportionate share of the entity’s net assets in the event of liquidation shouldbe measured at either fair value or at the present ownership instruments’ proportionate share of the acquiree’s identifiable net assets.All other components are to be measured at their acquisition date fair value.

The amendments to IFRS 3 are effective for annual periods beginning on or after July 1, 2011.

IFRIC 19 Extinguishing financial liabilities with equity instruments

This interpretation establishes that: (i) when the conditions of a financial obligation are renegotiated with a lender and such lenderagrees to accept equity instruments from that company to settle that financial liability in full or in part the instruments issued will beconsidered as part of an installment paid to settle the financial liability; (ii) these instruments will be measured at their fair value,except when these cannot be reliably measured, in which case measurement of new instruments should reflect the fair value of thesettled financial liability; and (iii) the difference between the book value of the cancelled financial liability and the initial amount ofequity instruments issued is recorded in the income for the period. The adoption of criteria introduced by this new interpretation didnot have any impact on the Company’s financial situation or results.

Changes to IFRIC 14 The Limit on a Defined Benefit Asset, Minimum Funding Requirements and their Interaction

This change is applied in specific situations when an entity has an obligation to make minimum annual contributions in relation toits post-employment defined benefits plans and makes prepayments to cover these requirements. The change allows an entity to treatthe economic benefits of such prepayment as an asset. The adoption of these criteria did not have an impact on the Company’sfinancial situation or results.

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Recently Issued Standards

New IFRS standards and interpretations of the IFRIC (IFRS Interpretations Committee of the IASB) have been issued but theirapplication was not mandatory.

Management of the Company and its subsidiaries has analyzed the impacts of these new pronouncements and interpretations anddo not expect their adoption to cause a material impact on the yearly information of the Company and its subsidiaries.

Standards and Amendments to Standards Application required: fiscal

years beginning fromAmendments to IAS 1 Presentation of items of other comprehensive income July 1, 2012Amendments to IAS 12 Deferred tax: Recovery of underlying assets January 1, 2012IFRS 9 Financial instruments January 1, 2015IFRS 10 Consolidated Financial Statements January 1, 2013IFRS 11 Joint Arrangements January 1, 2013IFRS 12 Disclosure of Interests in Other Entities January 1, 2013IFRS 13 Fair Value Measurement January 1, 2013IAS 19 revised Employee Benefits January 1, 2013IAS 27 revised Consolidated and Separate Financial Statements January 1, 2013IAS 28 revised Investments in Associates and jointly controlled companies January 1, 2013Amendments to IFRS 7 Disclosure–transfers of financial assets July 1, 2011Amendments to IFRS 7 Disclosure–offsetting of financial assets and financial

liabilities January 1, 2013

Amendments to IAS 32 Offsetting Financial Assets and Financial Liabilities January 1, 2014

The Company is currently analyzing the impact of the application of these standards, amendments and interpretations. Based on

preliminary analysis to date the Company estimates that their application will not have a significant impact on the consolidatedfinancial statements of the Company. Notwithstanding this, changes introduced by IFRS 9 will affect the presentation of financialassets and transactions with those occurring as of January 1, 2015. C. Research and Development, Patents and Licenses

Research and Development

Telefônica Brasil operates in a fast-paced, dynamic and convergent industry, which demands that its products and services becontinuously revamped to keep up with growth expectations. Accordingly, since 2005, the Company created a new StrategicInnovation Unit that aims to develop new products and services to be tested or launched by the Company in the near future.

Also, to keep pace with constant innovation, Telefônica Brasil created a business incubator that helps the organization to easilyhandle emerging business opportunities of large sizes or risks that otherwise would be difficult to manage in the context of currentbusiness units. In 2011, R$1.3 million were invested in innovation.

The table below presents the Telefônica Brasil investments in development, update and modernization of systems to support thelaunch of new products, improve the external plant inventory quality and take advantage of the new rules for technology businesses.Seeking to continually improve and modernize its services, the Company partnered with partners specialized in R&D such as theCPqD and Telefônica Pesquisa e Desenvolvimento (TPD). In 2011, R$44.6 million was invested in development.

R&D investments 2011 2010 2009 (in millions of reais) Development 44.6 12.5 11.0 Innovation (business incubator and tests) 1.3 6.8 4.1 Total 45.9 19.3 15.1

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The partnership between Telefônica Brasil and CPqD allows Telefônica Brasil to keep informed of technical research services,development of new features in current systems, and services in the areas of consulting and training. Telefônica Brasil can benefitfrom the use of a specific tool that monitors and manages data of cables, optical fiber and the level of use of its external network.

The partnership between Telefônica Brasil and TPD allows the organization to transfer to an automatic model of management ofthe planning and operation network focused on performance.

Vivo maintains partnerships with the Universidade Federal do Rio Grande do Sul (UFRGS). Such partnerships permit Vivo tohave laboratories at the universities, which conduct research and development of new technologies, and which support and pushinnovative processes. Vivo also solidified a partnership at the end of 2004 with the Centro de Pesquisas e Desenvolvimento emCampinas—Săo Paulo (CPqD), to assess and study new technologies. Vivo also relies on the research and development of ourthird-party suppliers.

Patents and Licenses

Our principal intellectual property assets include: • permission to use the trademark name “Telefônica” and all names derived from “Telefônica”; • our name “Telefônica Brasil S.A.”; • our commercial brands, “Super 15” for long-distance services and “Speedy” for broadband products, “Telefónica TV Digital”

for pay television service, “DUO” for telephone and broadband service and “TRIO” for telephone, broadband and Digital TVservice, and

• our commercial brands for mobile services rendered by Vivo, such as, “Vivo,” “ Meu Vivo,” “Vivo Empresas,” “Vivo

Celular,” among others. D. Trend Information

In 2012, we are expecting a favorable scenario from the Brazilian economy with an expansion concentrated in the middle class.The raise in consumption is going to increase the demand for telecom services, including Voice, Data and Pay TV, making thecompetition more aggressive. Companies are integrating mobile and fixed operations to offer complete and integrated services to meetthe consumer needs. Data services (mobile and fixed) will still be relevant in the next years, mainly because of the growth insmartphone penetration and the increasing demand for data traffic, driven by OTT services, already present in the Brazilian market(Sky Online, Netflix, Net Now). We expect that we will maintain our leadership in the mobile segment, even with a player challengingour leadership in the pre paid market. For the fixed operation, we expect to grow in the ultra-broadband and in the Pay TV market. Wewill strive to maintain quality, always providing excellent services to our clients. E. Off-balance-Sheet Arrangements

None. F. Tabular Disclosure of Contractual Obligations

Our contractual obligations and commercial commitments as of December 31, 2011 are as follows:

Total Less than 1

year 1-3 years 4-5 years After 5 years (In thousands of reais, as of December 31, 2011) Contractual obligations Long-term debt (1) 6,203,959 1,457,037 2,894,298 1,189,987 662,637 Pension and other post retirement benefits 308,893 5,406 48,743 48,743 206,001 Other long-term obligations including leases 8,749,794 1,227,224 2,495,447 2,959,148 2,067,975

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Total Less than 1

year 1-3 years 4-5 years After 5 years (In thousands of reais, as of December 31, 2011) Total contractual cash obligations 15,262,646 2,689,667 5,438,488 4,197,878 2,936,613 Commercial commitments Suppliers 6,081,611 6,081,611 – – – Other commercial commitments – – – – – Total commercial commitments 6,081,611 6,081,611 – – – (1) Includes interest payments.

Long-Term Debt - Principal Amount

Year ending December 31,

(in thousands ofreais, as of

December 31,2011)

2013 1,798,058 2014 1,096,240 2015 916,949 2016 273,038 2017 220,109 2018 and forward 442,528 Total 4,746,922

ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES A. Directors and Senior Management

We are managed by a Board of Directors (Conselho de Administraçăo) and an Executive Committee (Diretoria). Board of Directors

Our Board of Directors comprises a minimum of five and a maximum of 17 members, all shareholders, serving for a term of threeyears. The following is a list of the current members of the Board of Directors, their respective positions and dates of their election.

Name

Position

Date of AppointmentAntonio Carlos Valente da Silva Chairman April 07, 2010Santiago Fernández Valbuena Vice-Chairman November 7, 2011(**)Antonio Gonçalves Oliveira Director November 7, 2011(**)Eduardo Navarro de Carvalho Director November 7, 2011 (**)Fernando Abril-Martorell Hernández Director April 7, 2010Fernando Xavier Ferreira Director April 7, 2010Francisco Javier de Paz Mancho Director April 7, 2010Iñaki Urdangarin Director April 7, 2010José Fernando de Almansa Moreno-Barreda Director April 7, 2010José Manuel Fernandez Norniella Director May 19, 2010 (*)Luciano Carvalho Ventura Director April 7, 2010Luis Bastida Ibarguen Director April 7, 2010Luis Fernando Furlan Director April 7, 2010Narcís Serra Serra Director April 7, 2010Paulo César Pereira Teixeira Director November 7, 2011 (**)Roberto Oliveira de Lima Director November 7, 2011 (**)

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(*) The members of the Board of Directors have the mandate until the ordinary general meeting of 2013. (*) The Board member José Manuel Fernandez Norniella was appointed by the Board of Directors in May 19, 2010, as provided by

Article 150 of Law 6,404/76, replacing Mr. Juan Carlos Ros Brugueras. His election was ratified at the General Shareholders’Meeting of August 12, 2010.

(**) The Board members Santiago Fernández Valbuena, Antonio Gonçalves Oliveira, Eduardo Navarro de Carvalho, Paulo César

Pereira Teixeira and Roberto Oliveira de Lima were appointed by the Board of Directors at a meeting dated November 07,2011, as provided by Article 150 of Law 6,404/76.

Set forth below are brief biographies of our directors:

Antonio Carlos Valente da Silva is 59 years old and acts as President of the Board of Directors and serves as Chief Executive

Officer. He is the Chief Executive Officer of Vivo, A. TELECOM S.A., Telefônica Data S.A., Telefônica Sistema de Televisăo S.A.and AJato Telecomunicaçăo Ltda. He is also President of the Board of Trustees of Fundaçăo Telefônica, Chief Executive Officer ofInstituto Vivo, SP Telecomunicaçơes Participaçơes Ltda., Chairman of the Board of Directors of Telefônica Factoring do Brasil Ltda.,member of the Control Committee of Media Networks Brasil Soluçơes Digitais Ltda., Telefônica Serviços Audiovisuais do BrasilLtda. and Telefônica Serviços Empresariais do Brasil Ltda. He was the Chief Executive Officer of Vivo Participaçơes S.A. from May10, 2011 to October 3, 2011 (when it was merged into the Company). Since April 2011, Mr. Valente is the President of the CámaraOficial Española de Comercio in Brazil. In addition, Mr. Valente was the First Vice President of the Association of Private Enterprisesof Public Services (ADEPSEP) and is a Director of the Official Chamber of Commerce of Spain in Perú (COCEP). He was Presidentof “AHCIET – Asociación Iberoamericana de Centros de Investigación y Empresas de Telecomunicaciones from 2007 to 2011. SinceJuly 2008, he has been President of “Telebrasil” (Associaçăo Brasileira de Telecomunicaçơes). He is also a Board Member of CPQD(Centro de Pesquisas e Desenvolvimento), a member of the Strategic Comitee of “FIESP” (Federaçăo das Indústrias do Estado deSăo Paulo), the Vice President of “ABDIB” (Associaçăo Brasileira da Industria de Base), a member of the “CDES” (Conselho deDesenvolvimento Econômico e Social da Presidência da República) and President of “FEBRATEL”(Federaçăo Brasileira deTelecomunicaçơes). Mr. Valente served as Chief Executive Officer of Telefónica del Perú S.A.A, Telefónica Móviles S.A., TelefónicaMóviles Perú Holding S.A.C., Telefónica Perú Holding S.A.C and of Telefónica Multimedia S.A.C and was president of the Board ofDirectors. Before his appointment as Chief Executive Officer of Telefónica del Perú, Mr. Valente was responsible for the regulation ofthe Telefónica Group for Latin America. From 2002 to 2003, Mr. Valente acted as Vice President of the National Agency ofTelecommunications (ANATEL) of Brazil and presided over the Latin American Telecommunications Regulators Forum (Regulatel)institute, which unites nineteen Latin American countries and the Caribbean. Mr. Valente is an Electrical Engineer, with vastexperience in business development and telecommunications regulation and obtained a postgraduate degree in Business andAdministration, with a specialization in Systems and Business Management including Entrepreneurial Strategy, from MIT/SloanSchool of Management. Mr. Valente has taught and published numerous articles regarding regulation and telecommunications inBrazilian and international magazines.

Santiago Fernández Valbuena is 53 years old and acts as Vice-Chairman of the Board of Directors. President of TelefónicaInternacional, S.A. In 2010, he acted as Finance, Strategy and Development Officer of the Company. From 2005 to 2010, he wasFinance and Corporate Development Officer. He was a Board Member of Portugal Telecom and Endemol Holding (Netherlands).Since 2008, he is President of the Control and Audit Committee and Board Member of Ferrovial. From 2006 to 2008, he was a BoardMember of Gecina. From 1999 to 2007, he was Vice President of Metrovacesa, S.A.

Antonio Gonçalves Oliveira is 67 years old and is a member of our Board of Directors and Control and Audit Committee. Mr.Oliveira was a member of the Board of Directors of Vivo Participaçơes S.A. since March 2001 and Control and Audit Committeesince July 2005. Mr. Oliveira was also a member of the Board of Directors of TELESP Celular S.A. and Board of Directors andControl and Audit Committee of Tele Sudeste Celular Participaçơes S.A., Telemig Celular Participaçơes S.A, Telemig Celular S.A.,Tele Leste Celular Participaçơes S.A., Tele Centro Oeste Celular Participaçơes S.A. and Celular CRT Participaçơes S.A., until thesecompanies ceased to exist. Mr. Oliveira was the chairman of the Fiscal Council of Bahia’s Electricity Company (Companhia deEletricidade da Bahia), or COELBA, from April 2006 to April 2008, chairman of the Association of Friends of the

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Museum of Contemporary Art of USP (Associaçăo de Amigos do Museu de Arte Contemporânea da USP), or AAMAC, from 2006 to2010 and a member of the Council of Representatives of the Federation of Industries of Săo Paulo (Federaçăo das Indústrias doEstado de Săo Paulo), or FIESP. Mr. Goncalves de Oliveira is a member of the Advisory Board of The Welfare Fund for Employeesof Banco do Brasil (Caixa de Previdência dos Funcionários do Banco do Brasil), or PREVI, since 2008 and was a member of theCouncil of Social and Economic Development of the Brazilian government and the Working Group for Small and Medium Enterprisesalso sponsored by the Brazilian government. He was leader of ADEBIM (Associaçăo de Empresas Brasileiras para a Integraçăo deMercados), member of the Steering Committee and Management of the Banco do Povo de Estado de Săo Paulo and Chairman of theDeliberative Board of the Association of Brazilian Companies for Market Integration (Associaçăo Nacional dos Funcionários doBanco do Brasil), or ANABB, for six years. From 1991 to 1995, Mr. Oliveira served as director of the Latin American Association ofSociology and also in the 1990s, was the executive coordinator of the National Movement of Micro and Small Enterprise (MovimentoNacional da Micro e Pequena Empresa), or MONAMPE. He was a member of the Fiscal Council of Iguatemi Shopping Center S.A.from 2007 to 2008 and Melpaper S.A. from 2009 to 2010. Mr. Gonçalves is currently a member of the Fiscal Council of Klabin S.A.Mr. Gonçalves holds a degree in Social Sciences, a masters degree in Communication Sciences and a post-graduate degree inSociology of Organizations from the University of Săo Paulo (Universidade de Săo Paulo) in Brazil. He also holds a specialist title inHuman Resources from Fundaçăo Getulio Vargas in Săo Paulo. Mr. Oliveira is certified by the Brazilian Institute of CorporateGovernance (Instituto Brasileiro de Governança Corporativa), or IBGC, as a fiscal board and board of directors member.

Eduardo Navarro de Carvalho is 49 years old and is a member of our Board of Directors. Is Director of Strategy and Alliances inTelefónica, S.A. He joined Telefónica in 1999, and since then has been responsible for Strategy and Regulatory Affairs for TelefónicaLatino America from 2005 to 2009, and for Telefónica Brazil from 1999 to 2004. Previously, he worked for five years as a Consultantin Mckinsey & Company, focused on Infrastructure and Telecommunications Projects in several countries and also worked as SteelWorks Manager in the Group ARBED in Brazil. He is a graduate in Metallurgical Engineering from the Federal University of MinasGerais, Brazil.

Fernando Abril-Martorell Hernández is 49 years old and serves on our Board of Directors. He is Deputy CEO and CFO” at Prisa,is a member of the Board of Directors of ENCE (the Spanish pulp producer). From 1987 to 1997, Mr. Abril-Martorell Hernándezperformed several functions at JP Morgan, in New York, London and Madrid, including treasury department manager and member ofthe managing committee. Mr. Abril-Martorell Hernández joined the Telefónica group in January of 1997, as corporate finance generalmanager, having represented the group’s interests in the Brazilian telecommunications industry privatization process. From December1998 to June 2000, he served as chief executive officer and chief financial officer of Telefónica Publicidade e Información (TPI). Hewas COO and a member of the Board of Directors of the Telefónica Group from August 2000 to September 2003. In 2005, he joinedCredit Suisse Group in Spain as Managing Director and Chief Executive Officer. Mr. Abril-Martorell Hernández holds a degree in lawand business sciences from ICAI-ICADE (Instituto de Postgrado y Formación Continua), Spain.

Fernando Xavier Ferreira is 63 years old and acts as a member of our Board of Directors. Mr. Ferreira served as our chiefexecutive officer and of SP Telecomunicaçơes Holding Ltda. He was president of the Supervisory Board of Brasilcel N.V., presidentof the Boards of Directors of Vivo Participaçơes S.A., and Fundaçăo Telefónica. He was a member of the Board of Directors ofTelefónica Internacional S.A. Mr. Ferreira has served as president of Telecomunicaçơes Brasileiras S.A.–Telebrás, executive secretaryin the Brazilian Ministry of Communications, chairman of the Board of Directors of Embratel S.A., president of Nortel do Brasil S.A.,Brazilian General Director of Itaipu Binacional, president of Telecomunicaçơes do Paraná S.A.–Telepar and as member ofANATEL’s consulting committee and member of the Board of Directors of Empresa Brasileira de Correios e Telégrafos–ECT andPortugal Telecom. He holds a degree in electrical engineering from Faculdade de Engenharia Elétrica da Universidade Católica doRio de Janeiro, the Electric Engineering Faculty of the Catholic University of Rio de Janeiro, Brazil, which he received in 1971. Heattended a business administration course at Western Ontario University, Canada, in 1982.

Francisco Javier de Paz Mancho is 53 years old and serves as a member of our Board of Directors. Currently Mr. Mancho is theChief Executive Officer of Atento Inversiones y Teleservicios, S.A.U., and a member of the Board of Directors of Telefónica deArgentina, S.A. Since July 2006 he has been a member of the Executive

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Committee of the Superior Board of Councils. From June 2004 until December 2007, he was the President of Mercasa. He wasCounselor deputy to the President and Director of the Strategic Corporate area of Panrico Donuts Group (1996–2004), GeneralDirector of the Ministry of Commerce and Tourism (1993–1996), General Secretary of Unión de Consumidores de España (UCE).Delegate Counselor of Ciudadano magazine (1990–1993), General Secretary of Juventudes Socialistas and executive member ofPSOE (1984–1993). Also, he has acted in the following capacities: counsel of Túnel del Cadí (2004–2006), President of Patronal Panand Bollería Marca (COE) (2003–2004), counsel of Mutua de Accidents of Zaragoza (MAZ) (1998–2004), counsel of Panrico Group(1998–2004), President of Observatorio de la Distribuicion Comercial del Ministerio de Comercio y Turismo (1994–1996), Memberof the Social and Economic Council and Permanent Commission (1991–1993 and 1996–2000) and counsel of Tabacalera, S.A.(1993–1996). Mr. Mancho holds degrees in Information and Publicity and a degree in law studies from the Executive ManagementProgram of IESE (Universidad de Navarra).

Iñaki Urdangarín is 44 years old and serves as a member of our Board of Directors. He has been assigned to Washington, D.C. asTelefónica Internacional USA Chairman, to reinforce the institutional presence of Telefónica in North, Central and South America andto facilitate dialogue between Telefónica and interest groups such as regulators, industry and society, within the United States, Europeand Latin America. He has previously been President of the Commission for Public Affairs for the Board of Telefónica Latin Americaand he has managed numerous projects connected to corporate social responsibility both in Europe and Latin America. Sustainabledevelopment and social integration have been areas of priority in which Mr. Urdangarín has focused his professional activity forTelefónica. In the sector of telecommunications operating in Europe, Latin America and Asia. Mr. Urdangarín is a graduate inBusiness Administration from ESADE, where he also gave classes in Business Policy, and has a Master’s degree and diploma inBusiness Science from Barcelona University. He has done investigation into and published on, sponsorship, corporate socialresponsibility and regional economic development. He was an elite sportsman, winning two Olympic medals in handball in 1996 and2000 and amassing numerous sporting distinctions, as well as earning the affection of the sporting public from all over Europe.

José Fernando de Almansa Moreno-Barreda is 63 years old and is a member of our Board of Directors. He is a member of theBoard of Directors of Telefónica and President of the Board’s International Affairs Committee. He is also a member of the Board ofDirectors of Telefónica de Peru S.A., Telefónica de Argentina S.A., Telefónica Latinoamérica S.A., Telefónica Moviles México S.A.de CV, and BBVA Bancomer Mexico. Mr. Almansa joined the Spanish Diplomatic Corps in 1974 and served from 1976 to 1992 asEmbassy Secretary of the Spanish Embassy in Brussels, Cultural Counselor of the Spanish Representation to Mexico; Chief Directorfor Eastern European Affairs and Atlantic Affairs Director in the Spanish Foreign Affairs Ministry; Press and Political Counselor tothe Spanish Permanent Representation to the North Atlantic Council in Brussels; Minister-Counsellor of the Spanish Embassy in theSoviet Union; General Director of the National Commission for the 5th Centennial of the Discovery of the Americas and DeputyGeneral Director for Eastern Europe Affairs in the Spanish Foreign Affairs Ministry. In January 1993, Mr. Almansa was appointedChief of the Royal Household by His Majesty King Juan Carlos I. He held this post until December 2002 and is currently PersonalAdviser to His Majesty King Juan Carlos I. Mr. Almansa holds a law degree from the Universidad de Deusto, Bilbao, Spain. He is asponsor, among other affiliations, of the Foundations Reina Sofia, Conde de Barcelona, Diputación de San Andrés de los Flamencos -Carlos de Amberes Foundation, Padre Arrupe–Activa, Principe de Asturias and Euroamérica.

José Manuel Fernandez Norniella is 66 years old and he is a member of our Board of Directors. Mr. Norniella held executivepositions from 1972 to 1981 at Electromecanique, Alfa Laval and Blackstone SW.G. From 1981 to 1985 he was Risk and ProvisionsOfficer and Asea Brown Boveri S.A., from 1985 to 1993 he was Media and Provisions Officer, Real Estate Officer, TurbochargersOfficer and Chief Administrative Officer of Asea Brown Boveri S.A. Mr. Noriella was a Board member at RTVE, Argentaria, Enagas,Endesa, Telvent, Campos Chilenos, Iansa, Vice President of Chilectra (Chile) and member of the Advisory Committee of Abengoaand Accenture. He was elected a Congressman for Madrid in 1993, and was also State Secretary of Commence, Tourism and Smalland Medium Enterprises, and represented Spain as an Adjunct Officer before the World Bank, International Development Bank andEuropean Development Bank. Between 1998 and 2005, he was President of the superior Council of Commerce Chambers of Spainand member of the International Commerce Chamber. From 1998 to 2000, Mr. Norniella was Executive Vice President of Aldeasaand Executive President of Ebro Puleva from 2000 to 2005. He is currently Honorary President of Ebro Puleva, board member ofMapfre America and Telefônica Brasil S.A. He was External Counsel to Iberia since 2003 until its merger with BA, being currently anExternal Counsel to

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IAG. Mr. Noriella is also Vice President of the Board of Caja Madrid, of BFA and Executive Board Member of Bankia S.A. Mr.Noriella holds a degree in electrical engineering from Universidad Politecnica de Madrid and has a diploma in Logistics and Risks. Healso received the distinction of La Gran Cruz de Isabel la Catolica (Spain), Knight of the Bernardo O’Giggins Order (Chile), theVerdienstkreus mit stern (Germany) and the Order to Civil Merit (Poland).

Luciano Carvalho Ventura is 64 years old. He is a member of our Board of Directors and is the officer responsible for LCVGovernança Corporativa. He serves as amember of the Board of Directors of the Jose Alves Group, of the Grupo Itapemirim and ofthe Lojas Salfer. Since 1980, he has been dedicated to corporate governance consulting and serving as an indepedent member ofcorporate boards. He is a founding member of the Instituto Brasileiro de Governança Corporativa–IBGC–Brasil (Brazilian CorporateGovernance Institute) and he was a member of its Board of Directors . He was a member of the International Corporate GovernanceNetwork – England. He is professor of the course for formation of directors of the Brazilian Corporate Governance Institute and aspeaker at various masters courses and seminars. He holds an MBA from Escola de Administraçăo de Empresas de SăoPaulo–Fundaçăo Getúlio Vargas, a post-graduate degree in finance from Escola de Administraçăo de Empresas de Săo Paulo daFundaçăo Getúlio Vargas, a degree in business management from Escola de Administraçăo de Empresas da Universidade Federal dePernambuco, and a degree in economics from Faculdade de Ciências Econômicas da Universidade Federal de Pernambuco.

Luis Bastida Ibarguen is 66 years old and is a member of our Board of Directors. Since 2002, he has acted as an independentconsultant, author and lecturer on business economics and serves as director for different companies and foundations. During 2000and 2001, he was Managing-Director of Banco Bilbao Viscaya Argentaria, where he was a member of the Steering Committee andhead of the Global Asset Management Division. Mr. Ibarguen began working at Banco Bilbao Viscaya Argentaria in 1998. In theperiod from 1994 to 2000, he was Chief Financial Officer (CFO), reporting directly to the Chairman. From 1976 to 1987, he worked atBanco Bilbao, where he had different responsibilities, mainly in areas related to finance. From 1970 to 1976, he worked for GeneralElectric in New York and Spain. At General Electric, he was a member of the Finance Management Program and the InternationalManagement Program and worked in various capacities in the Finance and Strategic Planning Functions. He holds degrees in Businessat the E.S.T.E. University in San Sebastián–Spain and holds an MBA from Columbia University in New York.

Luiz Fernando Furlan is 65 years old and is a member of the Boards of Directors of Telefônica Brasil S.A. (Brasil), TelefónicaS.A (Spain), Telefónica Digital (UK), AMIL Participaçơes S.A. (Brasil), BRF–Brasil Foods S.A. (Brasil), AGCO Corporation (USA),as well as a member of the advisory board of Panasonic (Japan), Wal-Mart (USA) and Telefónica Internacional (Spain). Previously, hewas Co-Chairman of the board of BRF Brasil Foods S.A. from 2009 to 2010, as well as a member of the board of Redecard S.A. from2007 to 2010. He has held numerous executive positions from 1976 to 2002 at Sadia S.A., a leading producer of frozen foods inBrazil, including Chairman of its Board of Directors in 2009. He served two terms as Minister of Development, Industry and ForeignTrade of Brazil from 2003 to 2007. He holds a degree in Chemical Engineering from FEI (Industrial Engineering Faculty) and inBusiness Administration from University of Santana – Săo Paulo, with extension and specialization courses in Brazil and abroad.

Narcís Serra Serra is 68 years old and serves as a member of our Board of Directors. From 1991 to 1995, he was Vice President ofthe Government of Spain, and from 1982 to 1991, served as Minister of Defense. From 1979 to 1982, he was the Mayor of Barcelona.Mr. Serra holds a doctorate in economics from the Universidad Autónoma de Barcelona and is President of CIDOB Foundation andBarcelona Institute for International Studies (IBEI).

Paulo César Pereira Teixeira is 54 years old and is a member of our Board of Directors and General and Executive Officer ofTelefônica Brasil S.A., Vivo S.A., A. TELECOM S.A., Telefônica Data S.A., Telefônica Sistema de Televisăo S.A. and AJatoTelecomunicaçăo Ltda. He is also a member of the Board of Trustees of Fundaçăo Telefônica. He was Chief Executive Officer ofVivo Participaçơes S.A. from September 13, 2011 to October 3, 2011 (when it was merged into the Company). He began his career inthe telecommunications industry in 1985, as a member of CRT’s Directive Council. At Vivo, he was responsible for the Individualand Residential Market business unit, involved in customer relations, mobile marketing, fixed marketing, planning and commercialand regional management. From 2003 to 2011, he was the Executive Vice President of Operations at Vivo. From 1997 to 2003, heacted as Vice President of Operations for Telefônica Celular, Vice President and Enterprise Officer

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Table of Contents of the Telebrás System, board member of Tele Sudente, Tele Leste and CRT, president of the Brazilian Roaming Association (ABR)and National Association of Cellular Providers (ACEL). Mr. Teixeira holds an electrical engineering degree from UniversidadeCatólica de Pelotas, Brazil. He attended a New Telecommunications Techniques course at Ecole Nationale Superieure DesTelecommunications, France, in 1992.

Roberto Oliveira de Lima is 60 years old and serves as a member of our Board Of Directors. Mr. Lima is also a member of theBoard of Directors of Edenred SARL, based in Paris, France. He was the Chief Executive Officer of Vivo Participaçơes S.A. and VivoS.A. and Officer of TBS Celular Participaçơes Ltda., Ptelecom Brasil S.A. and Portelcom Participaçơes S.A. until May, 2011, allsubsidiaries of Brasilcel N.V.; he was also Chief Executive Officer of Instituto Vivo. Mr. Lima was Executive Vice President ofMarketing and Innovation and Vice President of IT and Products and Services Engineering of the following companies: VivoParticipaçơes S.A. and Vivo S.A., Tele Centro Oeste Celular Participaçơes S.A., Telerj, Telest, Telebahia, Telergipe, Celular CRTS.A., TELESP Celular, Global Telecom, Telegoiás, Telemat, Telems, Teleacre, Teleron, NBT and TCO IP S.A. He was also ChiefExecutive Officer of Tele Sudeste Celular Participaçơes S.A., Tele Leste Celular Participaçơes S.A. and Celular CRT ParticipaçơesS.A. until 2006 and Telemig Celular Participaçơes S.A. until November, 2009. He was an Officer of Telemig Celular ParticipaçơesS.A., Avista Participaçơes Ltda., Tagilo Participaçơes Ltda., Sudestecel Participaçơes Ltda. and Vivo Brasil Comunicaçơes Ltda. untilNovember, 2009. He was Chairman of the Board of Directors of Grupo Credicard from 1999 to 2005 and Chief Executive Officer ofBanco Credicard S.A. from 2002 to 2005. Mr. Lima also held executive positions at Accor Brasil S.A., Rhodia Rhone Poulec S.A. andSaint Gobain S.A. He holds a degree in business administration and an MBA from Fundaçăo Getúlio Vargas, Brazil. He holds amasters degree in Finance and Strategic Planning from the Institute Superieur des Affaires, Jouy en Josas, France. Executive Committee

The executive committee consists of at least five and no more than fifteen members, who may or may not be our shareholders, allof them appointed by our Board of Directors for a period of three years and who may remain in office until reappointed or replaced.Any of our executive officers may be removed at any time by a decision of the Board of Directors.

The following are the current members of the executive committee, their respective positions and the date of their appointment.

Name Position Date of AppointmentAntonio Carlos Valente da Silva Chief Executive Officer May 19, 2010Gilmar Roberto Pereira Camurra Chief Financial Officer and Investor Relations Officer May 19, 2010Paulo César Pereira Teixeira General and Executive Officer September 13, 2011Breno Rodrigo Pacheco de Oliveira General Secretary and Legal Officer June 14, 2011Cristiane Barretto Sales Comptroller June 14,2011

Set forth below are brief biographies of our executive officers:

Gilmar Roberto Pereira Camurra is 56 years old and serves as Chief Financial Officer and Investor Relations Officer (CFO). Hehas 29 years of working experience in the financial system. He served for a year as member of the executive board of GrupoParanapanema (tin exporter). Among his experiences in the banking system, he was Vice President of Citibank N.A., performingvarious activities for 18 years with a focus on the international and treasury areas; founding partner of Banco ABC Roma, performingactivities relating to treasury, international and controlling areas; and executive officer of BCN-Barclays, performing activities relatingto treasury, asset management and corporate finance in the last three years before the transfer to the Telefónica Group and served asforeign exchange director and deputy treasurer for HSBC Bank. He has been Chief Financial Officer of Telefónica Group in Brazilsince November 1999 and from Vivo since May 2011. He also serves as member of the decision-making body of Fundaçăo Sistel,President of the decision-making body of Visăo Prev Sociedade de Previdência Complementar, and Vice President of the Board ofDirectors of Telefónica Factoring do Brasil Ltda. He is the Financial Officer of Vivo, A. TELECOM S.A., Telefônica Data S.A.,Telefônica Sistema de Televisăo S.A. and AJato Telecomunicaçăo Ltda. He is also Vice President of SP TelecomunicaçơesParticipaçơes Ltda., member of the Board of Directors Telefônica Corretora de Seguros Ltda., member of the Control Committee ofMedia Networks Brasil Soluçơes Digitais Ltda., Telefônica Serviços Audiovisuais do Brasil Ltda. and Telefônica Serviços

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Empresariais do Brasil Ltda. He was Finance and Investor Relations Officer from May 10, 2011 to October 3, 2011 of VivoParticipaçơes S.A. (until it was merged into the Company). He holds a business administration and accounting science degree with aspecialization course in finance from the University of California, Berkeley.

Breno Rodrigo Pereira Teixeira is 36 years old. Mr. Teixeira is Corporate Secretary and Legal Officer of Telefônica Brasil S.A.,Vivo, A. TELECOM S.A., Telefônica Data S.A., Telefônica Sistema de Televisăo S.A. and AJato Telecomunicaçăo Ltda. He is also amember of the Deliberative Council of Visăo Prev Sociedade de Previdência Complementar and Officer of SP TelecomunicaçơesParticipaçơes Ltda. and Instituto Vivo. Mr. Teixeira is also Corporate Secretary of the Board of Directors of Telefônica Factoring doBrasil Ltda., member of the Board of Directors of Telefônica Corretora de Seguros Ltda., member of the Control Committee of MediaNetworks Brasil Soluçơes Digitais Ltda., Telefônica Serviços Audiovisuais do Brasil Ltda., Telefônica Serviços Empresariais doBrasil Ltda. and Telefônica Engenharia de Segurança do Brasil Ltda. He was Corporate Secretary and Legal Officer from February 3,2011 to October 3, 2011 of Vivo Participaçơes S.A.(when it was merged into the Company) and of Vivo from April, 2005 toFebruary, 2011. He holds a law degree from Universidade do Vale do Rio dos Sinos – UNISINOS, Brazil.

Cristiane Barretto Sales is 43 years old and is the Comptroller of Telefônica Brasil S.A., Vivo, A. TELECOM S.A., TelefônicaData S.A., Telefônica Sistema de Televisăo S.A. and AJato Telecomunicaçăo Ltda. She is also Vice President of Instituto Vivo,member of the Board of Directors of Telefônica Factoring do Brasil Ltda. and member of the Control Committee of TelefônicaServiços Empresariais do Brasil Ltda. She was Comptroller from May 10, 2011 to October 3, 2011 of Vivo Participaçơes S.A. (whenit was merged into the Company). Ms. Sales was also Executive Vice President of Finance, Planning and Control and InvestorRelations Officer of Vivo Participaçơes S.A. from August 2009 to May 2011). She was also an Officer of Portelcom ParticipaçơesS.A. and Ptelecom Participaçơes S.A. She was Chief Financial Officer and Investor Relations Officer of Investidores da TelemigCelular Participaçơes S.A. and Chief Financial Officer of Telemig Celular S.A. Ms. Sales was Chief Financial and AdministrativeOfficer of Tele Leste Celular Participaçơes S.A., Telebahia S.A. and Telergipe S.A. from 2000 to 2003, and, since the creation of theVivo joint venture in 2003, held simultaneously the positions of officer of Budgeting, Management Control, Accounting and IncomeGuarantee. Previously she was Audit and Consulting Manager at Arthur Andersen S/C, having worked at this company for ten yearsuntil July 2000. She holds a degree in business administration and executive training from the University of Navarra, Barcelona.

For the biographies of Antonio Carlos Valente da Silva and Paulo César Pereira Teixeira, see “—Board of Directors.” B. Compensation

For the year ended December 31, 2011, the aggregate amount of compensation paid to all our Directors and Executive Officerswas approximately R$27.476 million, of which R$14.411 million corresponded to salaries and R$6.251 million corresponded tobonuses. We also paid R$1.220 million in connection with the Performance Share Plan – PSP, a long-term incentive plan. See “Item6.—Directors, Senior Management and Employees—E. Share Ownership” for a discussion of the PSP plan.

For the year ended December 31, 2011, our Directors and Officers did not receive any pension, retirement or similar benefits. C. Board Practices Board of Directors

Our Board of Directors typically meets once every three months and the Chairman may call special meetings. Our Board takesaction by majority vote, provided the majority of its members in office are present, with the Chairman having, in addition to his or herregular vote, the deciding vote in the event of a tie. The specific responsibilities of the Chairman include representing the Board in theGeneral Shareholders Meetings, chairing the General Shareholders Meetings, selecting the Secretary from among those present, andcalling and chairing meetings of the Board.

Our Board of Directors is responsible, among other things, for:

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legal and statutory provisions; • supervising our management and examining our corporate records; • calling General Shareholders Meetings; • approving the financial statements, management reports, proposals for allocation of the company’s results and the submission

of such documents to the General Shareholders Meeting; • appointing and deposing external auditors; • determining the distribution of interim dividends; • determining the payment of interest on equity “ad referendum” of the General Shareholders Meeting; • authorizing the purchase of our shares to be cancelled or kept in treasury; • appointing and removing the person responsible for internal auditing; • approving the budget and annual business plan; • deliberating on the issuance of new shares by increasing the corporate capital within the limits authorized by the bylaws; • approving the issuance of commercial paper and depositary receipts; • authorizing the sale of fixed and concession-related assets; • approving agreements, investments and obligations in an amount greater than R$250 million that have not been approved in

the budget; • approving employment and compensation plans, incentive policies and professional development, regulation and staffing of

the Company, and the terms and conditions of collective bargaining agreements to be executed with unions representingvarious categories of the Company’s employees and adhesion or disassociation from pension plans, all with respect toemployees of the Company; the Board of Directors can, at its own discretion, assign to the Company’s officers limits todeliberate on these matters;

• authorizing the acquisition of interest in other companies on a definitive basis and the encumbrance and creation of lien on or

sale of an equity interest; • authorizing the offering of ordinary nonconvertible unsecured debentures; • approving the organizational structure of the Company; the Board of Directors can assign to the officers limits to the exercise

of such powers, subject to legal and bylaws provisions; • approving and modifying the internal regulations of the Board of Directors; • deliberating as to the issuance of warrants; • deliberating, by delegation of the General Shareholders Meeting, about the following aspects related to company debentures:

(i) opportunity to issue, (ii) time and conditions of expiration, amortization or redemption, (iii) time and conditions of thepayment of interest, of the participation in the profits and of the premium of repayment, if any, (iv) method of subscription orplacement, and (v) the type of debentures;

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of such committees and approve the committees, internal regulations, which shall contain specific rules concerning theirorganization, functions, powers, and compensation of members;

• authorizing the sale of property, the creation of in rem guarantees and the provision of guarantees on behalf of third parties,

and setting limits on the practice of such acts by the officers; • establishing, as an internal regulation, the limits for the officers to authorize the disposition or encumbrance of permanent

assets, including those related to public telecommunications services which are disabled or inoperable; • approving the Company’s participation in consortia in general, and the terms of such participation; the Board of Directors

may delegate such powers to the officers and establish limits, as it seeks to develop activities in line with the Company’spurpose;

• setting the limits for the officers to authorize the practice of reasonable gratuitous acts for the benefit of employees or the

community of which the Company is a part of, including the donation of unserviceable assets to the Company; and • approving the creation and closure of subsidiaries of the Company, in Brazil or abroad.

The members of our Board of Directors are all shareholders, one of them being elected by the preferred shareholders in a separatevoting process and the others being elected by the holders of common shares. The members of the Board of Directors are elected for aperiod of three years and may be reelected. Executive Committee

Our Executive Committee is responsible for our day-to-day management and for representing us in our business with third parties.Each of our current Executive Officers has been appointed by our Board of Directors for a three-year term and may remain in officeuntil reappointed or replaced. Fiscal Board

Brazilian Corporate Law and our bylaws each require that we maintain a statutory Fiscal Board (Conselho Fiscal). Our statutoryFiscal Board, which is a separate and distinct entity from our outside auditors, is primarily charged with certain advisory, reporting,oversight and review functions with respect to the company’s financial statements. Our statutory Fiscal Board is also responsible forrendering opinions on management’s annual report and management proposals, including financial statements, to be submitted atshareholders meetings relating to a change in the company’s capital composition, investment plans, budget, debenture issuances orsubscription bonuses, payment of dividends and consolidations, mergers and spin-offs. However, the statutory Fiscal Board, asrequired by Brazilian Corporate Law and our bylaws, has only an advisory role and does not participate in the management of thecompany. Indeed, decisions of the statutory Fiscal Board are not binding on the company under Brazilian Corporate Law.

In accordance with Brazilian Corporate Law and our bylaws, the Fiscal Board consists of a minimum of three and a maximum offive active members and an equal number of alternates.

One member of the Fiscal Board and his or her alternate must be elected by holders of preferred shares in a separate votingprocess. The following are the current members of the Fiscal Board:

Members Alternates Date AppointedFlavio Stamm Gilberto Lerio April 11, 2012Cremênio Medola Neto Oswaldo Vieira da Luz April 11, 2012Stael Prata Silva Filho Charles Edwards Allen April 11, 2012

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Table of ContentsCommittees

Brazilian Corporate Law does not require a corporation to maintain committees responsible for ethics, corporate governance orcompensation. Nevertheless, our Board of Directors has created the following committees: • Control and Audit Committee; • Nominations, Compensation and Corporate Governance Committee; and • Service Quality and Marketing Committee.

Control and Audit Committee

Our Control and Audit Committee was created by our Board of Directors in December 2002 and comprises a minimum of threeand a maximum of five directors, who are not members of our executive committee, and who are appointed by the Board of Directorsto serve as members of the Control and Audit Committee for the duration of their respective terms as members of the Board ofDirectors. The Committee has its own charter, which was approved by the Board of Directors. The Committee provides support to theBoard of Directors.

According to its charter, the Control and Audit Committee shall meet four times per year and report its conclusions to the Boardof Directors. We anticipate that there will be some similar functions between the Control and Audit Committee and our statutoryFiscal Board.

The Control and Audit Committee, among other responsibilities that may be required by the Board of Directors, is charged withinforming and providing recommendations to the Board of Directors regarding the following: • the appointment, termination and renewal of the independent auditors, as well as the terms and conditions of the contract with

the independent auditors; • the analysis of the company’s accounts, compliance with certain legal requirements and the adoption of generally accepted

accounting principles; • the results of each internal and independent audit and management’s response to the auditor’s recommendations; • the quality and integrity of the company’s internal control systems; • the performance of the independent auditors, requesting opinions on the annual reports and that the main audit reports be

clear and precise; and • any communications with the internal auditors about any significant deficiencies in our control systems and identified

financial conditions.

The following are the current members of the Control and Audit Committee:

Members

Date AppointedLuis Bastida Ibarguen May 19, 2010Antonio Gonçalves de Oliveira November 07, 2011Fernando Xavier Ferreira February 15, 2012

Nominations, Compensation and Corporate Governance Committee

Our Nominations, Compensation and Corporate Governance Committee was established in November 1998, and was restructuredin October 2004, and consists of three to five directors appointed by the Board of Directors to serve for the duration of their respectiveterms as members of the Board of Directors. The Nominations, Compensation and Corporate Governance Committee, among otherresponsibilities that may be required by the Board of Directors, is charged with informing and providing recommendations to theBoard of Directors regarding the following:

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Table of Contents • the appointment of executive officers for our company and our subsidiaries; • the parameters on compensation for our executive officers and administrators; • the terms and conditions of executive officers, employment agreements; • the review of the Board’s compensation plan and any amendments; • the incentive plans related to compensation; • the compensation policy for directors and executive officers of the company; and • the annual corporate governance report.

The following individuals are the current members of the Nominations, Compensation and Corporate Governance Committee:

Members Date AppointedJosé Fernando de Almansa Moreno-Barreda May 19, 2010Antonio Carlos Valente da Silva May 19, 2010Iñaki Urdangarín May 19, 2010José Manuel Fernandez Norniella May 19, 2010

Service Quality and Marketing Committee

The Service Quality and Marketing Committee was created on December 16, 2004 and provides assistance to our Board ofDirectors. The Committee consists of at least three, and at most five, members of our Board selected periodically. The Committeemeets from time to time, depending on the availability of its members and when called by its chair. The Committee is responsible forreview and analysis of quality indices measuring our principal services and to ensure that the requisite degree of commercialassistance is furnished to our clients.

Members Date AppointedLuciano Carvalho Ventura May 19, 2010Roberto Oliveira de Lima November 07, 2011Eduardo Navarro de Carvalho February 15, 2012 D. Employees

As of December 31, 2011, we had 21,542 employees. All of our employees are full-time, and are divided into the followingcategories: 25% in our network plant operation, maintenance, expansion and modernization; 63% in sales and marketing; and 12% inadministration, finance and investor relations, human resources, inventory, technology, legal and strategic planning and managementcontrol.

Before December 1999, the SISTEL (Fundaçăo Sistel de Seguridade Social) plan, a multi-employer defined benefit plan thatsupplements government-provided retirement benefits, covered the employees of the former Telebrás System and we werecontingently liable for all of the unfunded obligations of the plan. In January 2000, we and the other companies that formerly belongedto the Telebrás system agreed to divide the existing SISTEL plan into 15 separate plans, resulting in the creation of private planscovering those employees already enrolled in the SISTEL plan. In that moment, these new private pension plans were stilladministered by SISTEL and have retained the same terms and conditions of the SISTEL plan. The division was carried out so as toallocate liability among the companies that formerly belonged to the Telebrás system according to each company’s contributions withrespect to its own employees. Joint liability among the SISTEL plan sponsors will continue with respect to retired employees, whowill necessarily remain members of the SISTEL plans, called PBS plan.

At the time of the privatization, employees had the right to maintain their rights and benefits in SISTEL. Under the SISTEL plan,we made monthly contributions to SISTEL equal to a percentage of the salary of each employee who was a SISTEL member. Eachemployee member also made a monthly contribution to SISTEL on the basis of

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age and salary. Pension benefits of members of SISTEL vested by the same time their retirement benefits vested under thegovernment-provided retirement plan. SISTEL operates independently from us, and its assets and liabilities are fully segregated fromus.

From 2000, we decided to establish defined contributions plans, and offered this to participants in our PBS defined benefit plan,as well as to employees who did not qualify for participation in the PBS plan. Unlike the PBS plan, which is a defined benefits plan,defined contributions plans are financed for contributions by participating employees, as well as by us as sponsor, which are creditedto the participants’ individual accounts. We are responsible for all management and maintenance expenses of these plans, includingthe risks of death and permanent injury of the participants.

We maintained the following plans: PBS TELESP, Visăo TELESP, Visăo Telefônica Empresas, Visăo Assist, Visăo ATelecom,PBS TELESP Celular, PBS Tele Centro Oeste, PBS Teleleste and PBS Telesudeste, PBS Telemig Celular, TCPPREV, TCOPREV,Visăo Celular, CelPrev Telemig Celular and VivoPrev.

Unlike PBS plans, defined benefits (Visăo, TCPPREV, Visăo Celular and CelPrev Telemig Celular) call for defined contributionsby us and our operating subsidiaries, as sponsors, and by our employees, as participants. TCOPREV is a variable contribution plan.

The plans PBS TELESP, Visăo TELESP, Visăo Telefônica Empresas, Visăo Assist and Visăo ATelecom, previously managed byFundaçăo Sistel de Seguridade Social, or SISTEL, were transferred to another closed social security entity called Visăo PrevSociedade de Previdência Complementar on February 18, 2005.

On February 2, 2007, after approval of the board of directors of Vivo, the SPC (Secretariat for Pension Funds), an agency of theMinistry of Social Welfare, approved the transfer of the following plans from Fundaçăo SISTEL de Seguridade Social to theinstitution Visăo Prev Sociedade de Previdência Complementar: PBS TELESP Celular, TCPPREV, PBS Tele Centro Oeste Celular,TCOPREV, PBS Telesudeste Celular, Visăo Celular and PBS Teleleste Celular. These eleven plans were transferred gradually toVisăo Prev from July 31, 2007 and December 31, 2007.

On December 15, 2010, we filed with PREVIC (National Superintendence of Pension Funds), an agency of the Ministry of SocialWelfare that replaced the old SPC, the request to transfer the management plans PBS Telemig and CelPrev Telemig Celular fromFundaçăo SISTEL de Seguridade Social to the institution Visăo Prev Sociedade de Previdência Complementar.

We also sponsor the plans Planos de Assistência Médica aos Aposentados–PAMA, or the PAMA, and PBS-A–Plano deBenefícios Sistel Assistidos, or the PBS-A, that are still managed by Fundaçăo Sistel de Seguridade Social. Retired employees(PBS-A) and post-retirement health care benefits, or PAMA, remained as multi-employer benefit plans. The restructuring of thebenefit plans took place in January 2000.

On August 21, 2007, after approval of the board of directors of Vivo, the SPC (Secretariat for Pension Funds), approved the newprivate pension plan VivoPrev, a defined contribution plan already managed by Visăo Prev. From March 1, 2008 to May 31,2008,from July 1, 2009 to September 30, 2009, and from October 1 to December 31, 2011, the participants of the plans PBS TELESPCelular, TCPPREV, PBS Tele Centro Oeste Celular, TCOPREV, PBS Telesudeste Celular, Visăo Celular, PBS Teleleste Celular,CelPrev Telemig Celular and PBS Telemig Celular had the possibility to migrate to the new VivoPrev plan.

In October 2011, the plans Visăo TELESP, Visăo Telefônica Empresas, Visăo Assist, Visăo ATelecom were merged and resultedin the plan VisăoTelefônica.

The Company currently offers the following plans for employees who do not have any pension plan: Visăo Telefônica plan andVivoPrev plan. Our contributions to the Visăo plan are equal to those of the individual participants, ranging from 2% to 9% of theparticipant’s salary and to the VivoPrev plan, ranging from 0% to 8% of the participant’s salary, depending on the percentage chosenby the participant. The average contribution of the sponsor under the Visăo plan equal approximately 7.28% and Vivo plan 6.1% ofthe total amount of salaries paid to participating employees. Currently 48% of our employees are covered under these plans.

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Approximately 12% of our employees are union members representative in the telecommunication industry. These unions havestate representation, so we have employees represented by 27 state unions. In turn, 19 of these unions are associated with the NationalFederation of Telecommunications Workers (Fenattel).

Our Collective Bargaining Agreement for these employees was renewed on September 1, 2011 and will expire on August 31,2012.

Our management considers relations with our work force to be satisfactory. We have never experienced a work stoppage that hada material effect on our operations. E. Share Ownership

None of our directors or executive officers beneficially owns, on an individual basis, more than 1% of our common or preferredshares (including ADSs representing preferred shares) or of our total equity share capital.

At the General Shareholders Meeting of Telefónica S.A. (our indirect controlling shareholder), held on June 21, 2006, theapplication of a long-term incentive plan—“Performance Share Plan” (PSP)—for executives of Telefónica S.A. and of other entitieswithin the Telefónica Group, which includes Telefônica Brasil S.A. was approved. The plan grants a determined number of shares ofTelefónica S.A. to selected participants who fulfill the necessary requirements.

The PSP is divided into five cycles, each of three-year duration. The eligible executives, who must remain with the TelefónicaGroup for a minimum period of three years commencing on the date of their eligibility, will have the right to receive stipulated sharesbased upon their performance in achieving targeted pre-defined results. Shares will be received at the end of each cycle. Each cycle isindependent of the others, with the first cycle starting on July 1, 2006 (with distribution of shares of Telefónica S.A. starting on July 1,2009) and each subsequent cycle commencing on July 1 of each subsequent year, up to and including, the fifth cycle, whichcommences on July 1, 2010 (with delivery of shares of Telefónica S.A. starting on July 1, 2013).

The first distribution under the PSP took place in July 2009, with 56 executives (including 4 executives appointed pursuant to thebylaws) from Telefônica Brasil given the right to 239,867 shares of Telefónica S.A.

The second distribution under the PSP took place in July 2010, with 57 executives (including 4 executives appointed pursuant tothe bylaws) from Telefônica Brasil potentially having the right to 175,534 shares of Telefónica S.A.

The third distribution under the PSP took take place in July 2011, with 51 executives (including two executives appointedpursuant to the bylaws) from Telefônica Brasil potentially having the right to receive 189,763 shares of Telefónica S.A.

The fourth distribution under the PSP will take place in July 2012, with 44 executives (including 2 executives appointed pursuantto the bylaws) from Telefônica Brasil potentially having the right to receive 183.753 shares of Telefónica S.A., for which, onDecember 31, 2011, we have made a provision of R$8.3 million.

The fifth provision related to PSP will take place in July 2013, with 54 executives (including 2 executives appointed pursuant tothe bylaws) from Telefônica Brasil potentially having the right to receive 182.062 shares of Telefónica S.A., for which, on December31, 2011, we have made a provision of R$6.0 million.

At the General Shareholders Meeting of Telefónica S.A. (our indirect controlling shareholder), held on May 18, 2011, a newlong-term incentive plan—“Performance and Investment Plan” (PIP)—for executives of Telefónica S.A. and of other entities withinthe Telefónica Group, which includes Telefônica Brasil S.A. was approved. The plan grants a determined number of shares ofTelefónica S.A. to selected participants who fulfill the necessary requirements.

The PIP is divided into three cycles, each of three-year duration. The eligible executives, who must remain with the TelefónicaGroup for a minimum period of three years commencing on the date of their eligibility, will have the right to receive stipulated sharesbased upon their performance in achieving targeted pre-defined results. Shares will

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be received at the end of each cycle. Each cycle is independent of the others, with the first cycle starting on July 1, 2011 (withdistribution of shares of Telefónica S.A. starting on July 1, 2014) and each subsequent cycle commencing on July 1 of eachsubsequent year, up to and including, the third cycle, which commences on July 1, 2013 (with delivery of shares of Telefónica S.A.starting on July 1, 2016).

The first provision related to PIP will take place in July 2014, with 145 executives (including 5 executives appointed pursuant tothe bylaws) from Telefônica Brasil potentially having the right to receive 555,594 shares of Telefónica S.A., for which, on December31, 2011, we have made a provision of R$4.5 million. ITEM 7. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS A. Major Shareholders

In accordance with our bylaws, we have two classes of capital stock authorized and outstanding: common shares (açơesordinárias) and preferred shares (açơes preferenciais). Our common shares have full voting rights. Our preferred shares have votingrights only under limited circumstances. At December 31, 2011, Telefónica Internacional owned 15.43% of our common shares andSP Telecomunicaçơes, owned 50.47% of our common shares. Since Telefónica Internacional owns 55.28% of the equity share capitalof SP Telecomunicaçơes, it has effective control over 43.33% of our outstanding common shares. Accordingly, TelefónicaInternacional has the ability to control the election of our Board of Directors and to determine the direction of our strategic andcorporate policies. Neither Telefónica Internacional, nor SP Telecomunicaçơes, has any special voting rights beyond those ordinarilyaccompanying the ownership of our common or preferred shares.

The following tables set forth information relating to the ownership of common and preferred shares by SP Telecomunicaçơes,Telefónica Internacional and our officers and directors. We are not aware of any other shareholder that beneficially owns more than5% of our common shares.

Shareholder’s Name

Number ofcommon shares

owned

Percentage ofoutstanding

common shares SP Telecomunicaçơes 192,595,149 50.47%Telefónica S.A. 97,976,194 25.68%Telefónica Internacional 58,859,918 15.43%All directors and executive officers as a group 1,548 –

Shareholder’s Name

Number ofpreferred shares

owned

Percentage ofoutstanding

preferred shares SP Telecomunicaçơes 29,042,853 3.90%Telefónica S.A. 179,862,845 24.17%Telefónica Internacional 271,707,098 36.52%All directors and executive officers as a group 1 –

Telefónica Internacional is a wholly owned subsidiary of Telefónica S.A., or Telefónica. Telefónica’s shares are traded on variousstock exchanges, including exchanges in Madrid, Barcelona, Bilbao, Valencia, London, New York, Lima and Buenos Aires.Telefónica’s business operations are concentrated in a number of sectors, including fixed and mobile telecommunications services,data communications, pay TV, integrated business solutions, e-commerce, market information and services, media content creation,production, distribution and marketing and call center services. B. Related Party Transactions

Note 32 to our consolidated financial statements presents, in tabular format, more detailed financial information with respect totransactions and balances with related parties. We provide below a summary description of transactions with related parties.

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We entered into a consulting service agreement, known as the Consulting Agreement, with Telefónica Internacional, on May 17,1999, pursuant to which Telefónica Internacional provides advice regarding our management, operations and business. The expirationof this contract was originally August 3, 2003, but it was automatically extended for a five-year term and renewed for an additionalfive years in December 2008. Since January 2006, the percentage of net revenue applicable to this contract was 0.1%, pursuant to ourconcession contracts with ANATEL entered into in December 2005. In December 2010, this agreement was terminated and theoutstanding amount of R$23.9 million was paid to Telefónica Internacional.

In addition, in July 2010, we registered with the Brazilian Intellectual Property Agency (INPI), and entered into an agreementwith Telefónica S.A. for the exploitation of the trademark “Telefónica” by us upon the payment of the equivalent of 1.0% of our netoperating revenue, excluding intercompany transactions. The aggregate amount disbursed in 2011 under this agreement was R$145.0million.

In 1999, we entered into a service agreement with Atento Brasil S.A. (an indirect majority-owned subsidiary of Telefónica S.A.),or Atento, that is automatically extended every three years, for the provision of certain customer services, principally services relatedto our call center. Transactions under this service agreement with Atento Brasil involved approximately R$1,041.8 million in 2011(compared to R$750 million in 2010).

In April 2001, we entered into a service agreement for the provision of logistics, administrative, accounting and other serviceswith Telefônica Serviços Empresariais do Brasil Ltda., or TGestiona, an indirect wholly owned subsidiary of Telefónica. Transactionswith TGestiona under this service agreement involved approximately R$94.6 million in 2011 (compared to R$89 million in 2010).

Some international roaming services are provided by companies in the Telefonica Group.

We also entered into certain agreements for the provision of telecommunications services to several of our affiliates, each underthe indirect or joint control of Telefónica, including Telefónica Internacional, SP, Telecomunicaçơes Participaçơes Ltda. and otherslisted in Note 32 to our consolidated financial statements. Transactions pursuant to these various service agreements, in the aggregate,involved approximately R$1.6 billion in 2011 (compared to R$2.0 billion in 2010). C. Interests of Experts and Counsel

Not applicable. ITEM 8. FINANCIAL INFORMATION A. Consolidated Statements and Other Financial Information

See Note 20 of our Consolidated Financial Statements. Legal Proceedings

We are party to legal proceedings incidental to the normal course of our business. The main categories of such proceedingsinclude: • administrative and judicial litigation with Instituto Nacional da Seguridade Social, the National Institute of Social Security,

or INSS; • administrative and judicial proceedings relating to tax payments; • lawsuits brought by employees, former employees and trade unions relating to alleged infringements of labor rights; and • other civil suits.

Our policy with respect to provisioning for contingencies classifies the various legal proceedings to which we are party as“probable,” “possible” and “remote.” In general, 100% of the total claim value for legal proceedings

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classified as “probable” is provisioned. Our senior management classifies each legal proceeding into one of these three categories(probable, possible and remote) based upon the advice of internal and external counsel and specialized technical advisors in charge ofeach matter. Due to the level of provisioning and based on its analysis of the individual cases, our management believes that noadditional liabilities related to any legal proceedings will have a material effect on our financial condition or results of operations.

We have not described below any proceedings where the chance of loss is characterized by our management and legal advisors as“remote” since management does not believe that such proceedings have or will have a material effect on our financial condition orresults of operations. Provision for Tax Matters

Federal Taxes

On December 31, 2011, the Company had judicial and administrative disputes relating to: (a) FGTS (Additional contributions tothe Unemployment Guarantee Fund for Length of Service required by Social Security on the deposits made by employers) (the lawsuitdid not result in reduction of the FGTS deposits made by the Company on behalf of employees), (b) nonconformity due tononapproval of applications for compensation and claims for refunds made by the Company, (c) social security contributions on thealleged lack of retention of 11% over the value of invoices and receipts received from service providers contracted by the transfer ofskilled labor, (d) CIDE taxes (Contribution of Intervention in the Economic Domain) levied on the remittance abroad relating totechnical and administrative assistance, as well as royalties, (e) Fixed: does not include the costs of interconnection (ITX) and EILDon the basis of calculation of Fust and Mobile: no inclusion of interconnection revenues (ITX) and EILD on the basis of calculation ofFust, (f) contribution to EBC (Enterprise Brazil Communications), created by Law No. 11.652/08, (g) TFI (Taxa de Fiscalizaçăo deInstalaçăo) / TFF (Taxa de Fiscalizaçăo de Funcionamento) on mobile stations, (h) Withholding income tax on interest on capital, (i)PPNUM - Price Relative to the Public Administration of Numbering Resources established by ANATEL by Resolution No. 451/06, (j)Income / PIS / COFINS of non-approval of applications for compensation / refund made by companies, (k) compensation ofFINSOCIAL, (l) lack of retention of social contribution on services, remuneration, salaries and wages of contribution, (m) COFINS -Requirement resulting from the adoption of revenue as the basis of calculation without the financial statement of revenue, (n) increasein the base calculation of PIS (Social Integration Program) and COFINS (Contribution for Financing Social Security), as well as anincrease in the COFINS rate, required by Law No. 9.718/98, which were accrued in the amount of R$1,529.1 million.

In the opinion of our management and our legal advisors, the chance of loss in these cases is “probable.”

State Taxes

On December 31, 2011, the Company and its subsidiaries had various tax matters at the state level, both in the administrative andjudicial spheres, totaling R$39.0 million based on the opinion of its legal advisors and classified as probable, with full provision of theamounts involved.

Such matters involve: (a) tax credits relating to electric power as well as tax credit with no documentary evidence; (b) non-taxabletelecommunication services; (c) disallowance of fiscal incentives for cultural projects and (d) environmental administrative fines.


Municipal Taxes

On December 31, 2011, the Company and its subsidiaries had various tax matters at the municipal level in the judicial sphere,totaling R$4.5 million. Based on the opinion of its legal advisors and classified as probable, with full provision of the amountsinvolved.

Such matters involve: (a) property tax (IPTU); (b) tax on services (ISS) charged over rental of chattels and certain other accessoryactivities, as well as over other leases, subleases, rights of passage, shared or nonshared, over railways, roads, gates, cables, ducts andothers of the same nature; (c) use of soil; and (d) control and fiscalization tax (TVCF).


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Other Provisions

At December 31, 2011, the Company and its subsidiaries recorded other provisions, relating to legal claims, both in theadministrative and in the judicial sphere, amounting to R$7.8 million, related to incorrect payment of ISS referring to the effectiverendering of services such as lease, sublease, right of way or use right, shared or not, of railway, highway, poles, cables, ducts andconducting wires of any kind.


Tax Proceedings

The following tax proceedings were pending as of December 31, 2011, and, in the opinion of our management and our legaladvisors, the chance of loss in these cases is “possible.”

Federal Taxes

On December 31, 2011, the Company and its subsidiaries had various administrative and judicial proceedings at the federal level,which are awaiting trials in various court levels, totaling R$3,185.7 million.

Among the lawsuits, are: (a) expressions of dissatisfaction due to nonapproval of applications for compensation made by thecompany, (b) fines for distribution of dividends with an alleged existence of federal debt outstanding, (c) social security contributionsbased on lost wages as a result of the “Summer Plan” and “Bresser Plan,” Workers Accident Insurance (SAT), amounts owed to thirdparties (INCRA and SEBRAE), meals to employees and retention of 11% (transfer of labor), (d) withholding tax on remittance abroadrelating to technical and administrative assistance and the like, as well as “royalties”, (e) PIS taxes levied on roaming, (f) CPMF onoperations due to technical cooperation agreement with the Secretary of National Treasury – STN (via SIAFI compensation) and oncontracts for symbolic exchange required by the Central Bank, (g) income tax and social deductions from revenue reversals ofprovisions, (h) disallowance of costs and miscellaneous expenses, (i) COFINS deductions for losses on swap transactions, (j) PIS /COFINS accrual versus cash basis, (k) income tax due because of the excess in the allocation made to FINOR, or FUNRES FINAN,(l) income on operations with derivatives, and (m) compensation tax on net income, and (n) goodwill paid in the acquisition of CelularCRT S/A and the merger of telecommunications operators.

In the opinion of management and its legal advisors, the chances of loss in these processes are “possible”.

State Taxes

On December 31, 2011, the Company and its subsidiaries had various administrative and judicial proceedings at the state level,related to VAT, totaling R$4,172.5 million, which are awaiting trial in various court levels.

The proceedings are related to: (a) equipment and Speedy modem rentals, (b) international calls, (c) tax credit unduly taken oncertain fixed assets, (d) reversal of credit for acquisition of fixed assets, (e) ICMS credits, (f) provision of service outside of Săo Paulowith payment of ICMS to the state of Săo Paulo, (g) co-billing, (h) tax substitution with “fictitious” tax base (i) use of tax credits fromthe purchase of electricity, (j) tax credit on certain accessory and supplementary activities and value-added services (Grant 69/98), (k)tax credits relating to appeals and disputes on telecom services not rendered or mistakenly charged (Grant 39/01), (l) sale of goods atprices lower than the acquisition price, (m) deferred recovery of ICMS for interconnection services arising out of tax credits grantedby other federal entities, (n) disallowance of tax incentives for cultural projects, (o) transfer of property from and to anotherestablishment; (p) tax credits on communication services used in providing services of the same nature, (q) gift cards to activateprepaid services, and (r) tax resulting from the reversal of credit and lending operation reversal.

In the opinion of management and its legal advisors, the chance of loss is “possible” in these procedures.

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Municipal Taxes

On December 31, 2011, the Company and its subsidiaries held various administrative and judicial proceedings at the municipallevel, totaling R$471.9 million, which are awaiting trials in various instances.

Among the actions, there is: (a) ISS – through activities, service and additional value added, (b) retention, (c) property tax, (d)Rate of Land Use, (e) various municipal fees, (f) rate of use of the Mobile Network (A-T), leasing of infrastructure, (g) advertisingservices, (h) services provided by third parties, (i) consulting services in areas of business management provided by TelefónicaInternacional (TISA) and (j) ISS levied on the provision of caller ID service and cellular activation.

In the opinion of management and its legal advisors, loss is “possible” in these proceedings.

ANATEL

FUST – Universalization of Telecommunications Service

Writs of Mandamus were filed separately by fixed and mobile operators to recognize the right to, (a) for fixed operators, notinclude the costs of interconnection (ITX) and EILD on the basis of calculation of FUST and (b) for mobile operators, not to includeinterconnection revenues (ITX) and EILD in the basis for calculating the FUST as a result of Precedent No. 7, dated December 15,2005, being in violation of the provisions of paragraph of article 6 of Law No. 9,998/00. These writs of mandamus are awaitingdecision on appeal.

On December 31, 2011, the total amount involved was R$1.7 billion.

The Company is also involved in administrative procedures relating to notifications from ANATEL for charging FUST on ITXand EILD and other revenues from providing services that are not telecommunications in the amount of R$1.6 billion.

In the opinion of management and its legal advisors, there are “possible” chances of loss in these procedures.

FUNTTEL – Fund for the Technological Development of Telecommunications

On December 31, 2011, the Company and its subsidiaries were involved in administrative and judicial proceedings related toFUNTELL amounting to R$622.6 million, which are awaiting trial on first and second court levels (administrative and judicial). Theselawsuits discuss the collection of contributions to FUNTTEL on other revenues (which are not telecommunications) as well as revenueand expenditure transferred to other operators (interconnection and EILD).

In the opinion of management and its legal advisors, the chance of success in these procedures is “possible”.

FISTEL – Telecommunications Supervision Fund

ANATEL collects an Inspection Fee (TFI) at the time of grant of extensions for the licenses for use of telephone exchangesassociated with operation of the switched fixed telephone service (fixed carriers) and extensions of the term of the right to use radiofrequency associated with the exploration of personal mobile service (Mobile operators).

The Company believes this charge is improper and is questioning it administratively and judicially. The total amount involvedwas R$1,504.4 million (full amount deposited in escrow).


PPNUM – Price Relative to the Public Administration of Numbering Resources

Our subsidiary Vivo, in conjunction with other mobile operators in Brazil, filed a lawsuit challenging the collection of PPNUMlevied by the ANATEL for the use of numbering resources managed by ANATEL. At the time of collection, Vivo made the deposit incourt on the amounts owed. On April 23, 2009, judgment was rendered

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in favor of the mobile operators and the lawsuit is currently awaiting a decision on appeal. The total amount involved on December31, 2011 is R$2.0 million.


EBC (Contribution to Development of the Public Broadcasting)

On May 26, 2009, the Sinditelebrasil–Union of Telephone Companies and Personal Mobile Service and filed a writ of mandamuschallenging the new fee to EBC (Brazil Communications Company), created by Law No. 11.652/08. There was no order of injunction,and the operators affiliated with that union obtained judicial authorization for the deposit of the amount in dispute. The case is pendingin a first degree court.

On December 31, 2011, the total amount involved was R$577 thousands (fully deposited in escrow).

Labor Litigation

We are also a defendant in several legal proceedings filed by former employees and outsourced employees (alleging joint orseveral liability), who claim, among other things, deficient overtime payment, unequal compensation, retirement wage supplements,health and security hazard compensation, free extension of health plan benefits to retirees of Company; and proceedings regarding ouroutsourcing practices.

In addition, we are also a defendant in a public civil action filed by the Federal Ministry of Labor which concerns our retaining ofthird-party companies to perform our core business. Although the likelihood of loss in this action is “possible,” no value amount hasbeen attributed to this action because currently we are unable to calculate the total amount we will owe in the event we lose and, as aresult, we have not recorded any amounts.

Civil Claims

There are several civil claims against us. We have recorded R$664.7 million in provisions for these proceedings where the risksare deemed probable, including the civil proceedings described below and the regulatory and antitrust proceedings that follow: • Expansion Plan–PEX. We are defendants in proceedings related to the possible right of individuals who purchased our shares

in connection with our network expansion plan after 1996, to receive additional shares from us. These claims are in variouslevels of the court system. The chance of loss in such proceedings is classified on a case-by-case basis according to the factspresented in each proceeding. For the proceedings in which the chance of loss was classified as “probable,” we recorded aprovision of R$26.2 million.

• Service Complaints. We and our subsidiaries are defendants in certain civil actions, in various court levels, regarding claims

related to our services and our ordinary course of business initiated by individual customers, civil associations on behalf ofcustomers or by the PROCON foundation, as well as by the Federal and State Public Prosecutor’s Offices. We recorded aprovision of R$315.1 million for these claims. We are also defendants to civil actions in which the risk of loss is classified as“possible” in the amount of R$920.5 million.

• Consumer Relations Claims. We are defendants in several civil actions initiated by individual customers in which the claims

are the same or very similar from to other and, when considered individually, are not material, to which we recorded aprovision of R$81.5 million, calculated on the basis of on the statiscal analysis of our historical losses in such proceedings.

There are several civil claims against us, for which we have not recorded provisions, though which we deem to be notable,

including:

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Table of Contents • Pension Benefit Plan Spin-Off. Sistel Participants Association in Săo Paulo (ASTEL) filed a public civil action against the

Company, Sistel Foundation and others, claiming the annulment of the spin-off of the PBS pension benefit plan that occurredin 2000 which caused the creation of the specific TELESP–PBS pension benefit plan, and corresponding allocation ofresources resulted from the technical superavit and fiscal contingencies existing at that time. The chance of loss is possiblebased on the opinion of our legal advisors. The amount involved in this public civil action cannot yet be determined until anexpert appraisal report is conducted since it includes the spun-off portion of Sistel related to the telecommunication operatorsfrom the former “Telebrás System.”

• Community Telephone Plan–PCT. We are subject to civil public action proposals claiming the possible right for indemnity of

associates and entities hired for the construction of community networks connected to the network of fixed telephonyoperators and have not received shares for their financial investment in the municipality of Mogi das Cruzes, involving a totalamount of approximately R$197.8 million. Based on the opinion of our legal advisors, the chance of loss is possible. Theappellate court has ruled in our favor and changed the lower court decision. The plaintiff filed an appeal to the SupremeCourt which is awaiting resolution.

• Services Quality Class Action. The Public Prosecutor Office of the State of Săo Paulo commenced a class action suit claiming

moral and property damages suffered by all consumers of telecommunication services from 2004 to 2009 due to the badquality of service and failures of the communications system. The Public Prosecutors Office suggested a total award againstthe Company of R$1 billion. A judgment was rendered on April 20, 2010 imposing the payment of damages to all consumerswho proved to be eligible for the award. Alternatively, if clients do not prove themselves eligible in a number compatiblewith the severity of the damage after a period of one year, the judgment establishes that R$60 million should be deposited ina special fund for protection of diffuse customer interests (Fundo Especial de Defesa de Reparaçăo de Interesses DifusosLesados). It is not possible to estimate how many consumers may present themselves in this procedure nor the values to beclaimed by them. The parties filled an appeal and the effects of the sentence were suspended. Despite the possible degree ofrisk, no value amount was attributed to this action because currently we are unable to calculate the total amount to be paid byus in the event we lose and, as a result, we have not recorded any provisions.

• Ownership of Caller ID. Lune Projetos Especiais Telecomunicaçăo Comércio e Ind. Ltda., a Brazilian company, filed on

November 20, 2001 lawsuits against 23 wireless telecommunications operators, including TELESP Celular Participaçơes andits subsidiaries. The lawsuits allege that those operators violated patent No. 9202624-9, related to Equipamento Controladorde Chamadas Entrantes e do Terminal do Usuário, or Caller ID, granted to Lune by the Brazilian Intellectual PropertyAgency–INPI, on September 30, 1997. Lune called on the operators to cease to provide Caller ID services and soughtpayment from them for the unauthorized use of the Caller ID system in an amount equivalent to the payment of fees receivedby such operators for use of the Caller ID system. On October 5, 2011, the law suit was judged groundless against the PhoneCompanies. Vivo will file an appeal due to this decision. This decision is not final, and will be tried

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before the Court and Superior Court of Justice. However, Lune’s right to use patent No. 9202624-9 was suspended by afederal judge in response to a lawsuit filed against Lune and INPI by Ericsson Telecomunicaçơes S.A., TC and Telerj Celular(formerly Vivo subsidiaries before our corporate restructuring) filed identical lawsuits against Lune and INPI and thoselawsuits are still pending before the courts. In connection with this proceeding, a third company, Sonintel, and its twopartners also brought an Açăo de Oposiçăo, whereby they reinvoked their rights to a previous patent related to Caller ID, andto which the above mentioned patent (No. 9202624-9) was linked. We believe, based on the opinion of outside counsel thatthe likelihood of an unfavorable outcome with respect to Lune’s claim against us is possible. We are unable to determine atthis time the extent of any potential liabilities with respect to this claim.

• Validity of Prepaid Plan Minutes. We and our subsidiaries, together with other Brazilian wireless telecommunications

operators, are defendants in various lawsuits brought by the public prosecutor’s office and consumer protection associationschallenging the imposition of a deadline for the use of purchased prepaid minutes. The plaintiffs allege that purchasedprepaid minutes should not expire after any specified deadline. Conflicting decisions have been issued by the courtsreviewing this matter. Although we believe that our criteria for imposing the deadline is in compliance with ANATEL’srules, we believe, based on the opinion of outside counsel, that the likelihood of an unfavorable outcome with respect to thisclaim is possible.

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Table of Contents • VU-M. Global Village Telecom (GVT), a Brazilian telecommunications operator, filed a lawsuit against ANATEL and

wireless telecommunications operators, including Vivo and Telemig Celular, claiming that the VU-Ms are fixed at an abusiverate and that these operators employ anticompetitive practices which are causing financial damages to the plaintiff. GVTrequested a preliminary injunction to reduce the VU-Ms and a determination by a judicially appointed expert of the propervalue of the VU-Ms on a “cost-based model.” GVT also seeks compensation from the wireless operators in the amount of thedifference between the value currently charged by the wireless operators and the value to be declared at the final judgment.The preliminary order was initially denied, but after a renewal requested by the plaintiff, a preliminary order was granted toGVT to allow judicial deposits of the difference between R$0.2899, which must be paid to wireless operators, and the valuescurrently charged. ANATEL and some wireless operators, including Vivo, appealed from the preliminary order to the FederalCourt and the preliminary order was sustained by the Federal Court. After this last decision, ANATEL and certain wirelessoperators, including us, appealed to the supreme court and a final decision is still pending. Based on the opinion of ourcounsel, we believe that the likelihood of an unfavorable outcome with respect to this claim is possible.

Regulatory and Antitrust Litigation

ANATEL

Administrative Proceedings for Noncompliance with Regulatory Obligations Brought by ANATEL – PADOs. As of December 31,20110, the Company was involved in several administrative proceedings brought on grounds of alleged breach of obligationestablished by federal regulation, involving risk of loss that is classified as probable. The amount involved and the provision recordedfor the proceedings involving a risk of loss classified as probable was, in December 31, 2011, R$217.8 million. We are alsodefendants to such administrative proceedings in which the risk of loss classified as possible is in the amount of R$860.6 million.

Our subsidiary Vivo is also part of several administrative and legal actions brought by ANATEL that allege non compliance withregulatory requirements related to SMP service, in the total amount of approximately R$24 million. Based on the opinion of ourcounsel, we believe that the likelihood of unfavorable outcomes with respect to these claims is probable. We are also defendants tosuch administrative proceedings in which the risk of loss classified as possible in the amount of R$1 million. Dividends and Dividend Distribution Policy

Priority and Amount of Preferred Dividends

The Brazilian Corporate Law generally requires that the bylaws of each Brazilian corporation specify a minimum percentage ofthe distributable profits comprising dividends and/or interest on shareholders’ equity, or distributable amount, of the corporation foreach fiscal year that must be distributed to shareholders as dividends. See “Item 10. Additional Information—B. Memorandum andArticles of Association.” Moreover, each Brazilian company may issue new preferred shares for public distribution only if one of thefollowing terms applies to the preferred shares: (i) the right to receive dividends equivalent to at least 25% of the net profit for thefiscal year, to be calculated in accordance with Article 202 of the Brazilian Corporate Law as follows: (a) priority in the receipt ofdividends corresponding to at least 3% of the book value per share and (b) the right to an equal share of the profits attributable to theholders of common shares, after the holders of common shares have received a dividend equal to a minimum of 3% of the book valueper share; or (ii) the right to receive dividends, at least 10% higher than those paid for each common shares; or (iii) tag-along rights ofat least 80% of the price paid in the sale of control to be paid by the controlling shareholder and also including the right to receivedividends at least equal to the dividend paid to common shares.

According to our bylaws, we are required to distribute as dividends of each fiscal year ending on December 31, to the extentamounts are available, an aggregate amount equal to at least 25% of adjusted net income as a

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mandatory dividend. The annual dividend distributed to holders of our preferred shares is 10% higher than the dividend distributed toour common shareholders.

Under the Brazilian Corporate Law, a company is allowed to withhold payment of the mandatory dividend in respect of commonshares and preferred shares if: • management and the fiscal board report to the shareholders meeting that the distribution would be incompatible with the

financial circumstances of the company; and • the shareholders ratify this decision at the shareholder’s meeting. In this case: • management must forward to the CVM within five days of the shareholders meeting an explanation justifying the decision at

the shareholders meeting; and • the profits that were not distributed are to be recorded as a special reserve and, if not absorbed by losses in subsequent fiscal

years, are to be paid as dividends as soon as the company’s financial situation permits.

For the purposes of the Brazilian Corporate Law, net profits are defined as net income after income tax and social contribution forthe fiscal year, net of any accumulated losses from prior fiscal years and any amounts allocated to beneficiary parties’, employees’ andmanagement’s participation in a company’s profits and founders’ shares.

Under Brazilian Corporate Law, and in accordance with our bylaws, adjusted net income is an amount equal to our net incomeadjusted to reflect allocations to or from (i) legal reserves, (ii) statutory reserves, and (iii) contingency reserves for anticipated losses,if any.

At each annual shareholders meeting, the Board of Directors is required to suggest the allocation of net profits obtained during thepreceding fiscal year. Under Brazilian Corporate Law, we are required to maintain a legal reserve, to which 5% of our net profits mustbe allocated for each fiscal year, until the reserve amounts to 20% of our paid-in capital. Net losses, if any, shall be charged against theaccumulated profits, profit reserves and legal reserve, following this order.

Brazilian Corporate Law also provides for an additional allocation of net profits to special accounts, which is also recommendedby management and subject to approval by shareholders at the annual shareholders meeting, including the amount of net profits thatmay be allocated to the contingency reserve for anticipated losses that are deemed probable in future years. Any amount so allocatedin a previous year must be either: • reversed in the fiscal year in which the loss was anticipated, if the loss does not in fact occur; or • written-off if the anticipated loss occurs.

Net profits may also be allocated to the unrealized income reserve in case the total amount of mandatory dividends exceeds theamount of realized income. Such allocation should also be suggested by management and subject to approval by shareholders at theshareholders meeting. For such purpose, realized income is the balance of net profits exceeding the sum of: • the positive net result of equity adjustment; and • earnings net from transactions or the accounting of assets and liabilities at market value which must be realized after the end

of the subsequent fiscal year.

The amounts available for distribution are determined on the basis of financial statements prepared in accordance with theaccounting practices adopted in Brazil.

If the minimum dividend to be paid to the holders of preferred shares is not paid for the period set forth in our bylaws, which inno event shall be longer than three years, the holders of preferred shares will be entitled to full voting rights until such dividend is paidin full.

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Payment of Dividends

We are required by law and our bylaws to hold an annual shareholders meeting until April 30 of each year at which, among otherissues, the allocation of net profits obtained during the preceding fiscal year and the declaration of dividends by decision of commonshareholders are decided, acting on the recommendation of the executive officers, as approved by the Board of Directors. The paymentof annual dividends is based on the financial statements prepared for each fiscal year ending December 31. Under the BrazilianCorporate Law, dividends are required to be paid within 60 days following the date the dividend is declared to shareholders of recordon the declaration date, unless a resolution by the shareholders sets forth another date of payment, which must occur before the end ofthe fiscal year.

A shareholder has a three-year period from the dividend payment date to claim dividends in respect of its shares, after which wehave no liability for the payment. Because our shares are issued in book-entry form, dividends with respect to any share areautomatically credited to the account holding the share and no action is required on part of the shareholder. We are not required toadjust the amount of paid-in capital for inflation.

If a shareholder is not a resident of Brazil, he or she must register with the Central Bank of Brazil to be eligible to receivedividends, sales proceeds or other amounts with respect to his or her shares outside of Brazil. Our preferred shares underlying ADSsare held in Brazil by a Brazilian custodian, Banco Itaú S.A., as the agent for the depositary, which is the registered owner of ourshares.

Payments of cash dividends and distributions, if any, will be made in Brazilian currency to the custodian on behalf of thedepositary, which will then convert those proceeds into U.S. dollars and will provide for U.S. dollars to be delivered to the depositaryfor distribution to holders of ADSs. If the custodian is unable to immediately convert the Brazilian currency received as dividends intoU.S. dollars, the amount of U.S. dollars payable to holders of ADSs may be adversely affected by devaluations of the Braziliancurrency that occur before dividends are converted and remitted. Dividends in respect of the preferred shares paid to resident and nonresident shareholders, including holders of ADSs, are not currently subject to Brazilian withholding tax.

Additional Payments on Shareholders’ Equity

Law No. 9,249, dated December 26, 1995, as amended, provides for distribution to shareholders of interest on shareholders’equity, which may be computed against the amount of dividends to be distributed to the shareholders. A company may treat thesepayments as financial expenses for income tax and social contribution purposes. This interest is limited to the daily pro rata variationof the TJLP, a nominal long-term interest rate determined by the federal government that includes an inflation factor and cannotexceed the greater of:

• 50% of net income (before deducting income taxes and the interest on shareholders’ equity) for the period in respect of whichthe payment is made, or

• 50% of the sum of retained earnings and profit reserves.

Any payment of interest in respect to preferred shares to shareholders (including the holders of ADSs) is subject to Brazilian

withholding tax at a rate of 15%, or 25% in the case of a shareholder domiciled in a tax haven, and these payments may be included, attheir net value, as part of any mandatory dividend. If payment of interest on shareholders equity is made for a beneficiary locatedoutside of Brazil, the Tax on Exchange Transactions (“IOF”) triggers at a rate of zero. See “Item 10. Additional Information—E.Taxation—Brazilian Tax Considerations—Distributions of Interest on Capital.”

We declare and pay dividends and/or interest on shareholders’ equity as required by Brazilian Corporate Law and our bylaws.The declaration of annual dividends, including dividends in excess of the mandatory distribution, requires approval by the vote of amajority of the holders of common shares, and depends on many factors. These factors include our results of operations, financialcondition, cash requirements, future prospects and other factors deemed relevant by shareholders. Our shareholders have historicallyacted on these matters based on recommendations by the Board of Directors. Within the context of tax planning, we may determine inthe future that it is to our benefit to distribute interest on shareholders’ equity.

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The following table sets forth the dividends or interest on shareholders’ equity paid to holders of our common and preferredshares since 2007 in reais.

Year

Description (Dividendsor Interest onShareholders’

Equity)(1) Common Shares Preferred Shares (per share/in R$) 2011 Div/Int 4.783035 5.261339 2010 Div/Int 3.616248 3.977873 2009 Div/Int 2.556431 2.812074 2008 Div/Int 4.539838 4.993823 2007 Div/Int 5.247437 5.772180

(1) Interest on shareholders’ equity is net of withholding taxes.

Dividends and Interest on Shareholders’ Equity

On December 9, 2009, the Board of Directors approved, subject to the shareholders approval, a payment of interest onshareholders’ equity for our common and preferred shares in the amount of R$174.3 million. The actual payment occurred on April26, 2010.

On April 7, 2010, at the General Shareholders Meeting, the shareholders approved the distribution of dividends to the commonand preferred shares in the total amount of R$1,252 million declared on the basis of the closing balance sheet on December 31, 2009.The Company’s management proposed the payment of the approved dividends would be made in two installments as follows: • an initial installment of R$800 million, with payment due June 30, 2010. The actual payment occurred on April 26, 2010; and • the remaining portion of R$451.6 million, with payment due December 21, 2010. The actual payment occurred on December

13, 2010.

On September 29, 2010, the Board of Directors approved the distribution of interim dividends of R$196.4 million based onearnings accumulated in our existing balance sheet as of June 30, 2010. The actual payment occurred on December 13, 2010.

On September 29, 2010, the Board of Directors approved, subject to shareholder approval, a payment of interest on shareholdersequity for the common and preferred shares totaling R$331.5 million. The actual payment occurred on December 13, 2010.

On December 14, 2010, the Board of Directors approved, subject to shareholder approval, a payment of interest on shareholdersequity for the common and preferred shares totaling R$171.7 million. The Board of Directors has proposed at the annual shareholdersmeeting that the payment of such interest on shareholders equity should be initiated before December 21, 2011 on a date still to bedetermined by the management of the Company and properly announced to the market and shareholders.

On March 18, 2011, at the General Shareholders Meeting, the shareholders approved the distribution of dividends to the commonand preferred shares in the total amount of R$1,694 million declared on the basis of the closing balance sheet on December 31, 2010.The Company’s management proposed the payment of the approved dividends would be made in two installments as follows: • an initial installment of R$1,429 million, which payment occurred on May 20, 2011; and • the remaining portion of R$264.7 million, which payment occurred on November 3, 2011.

On September 13, 2011, the Board of Directors approved the distribution of interim dividends of R$382.4 million based onearnings accumulated in our existing balance sheet as of June 30, 2011. The actual payment occurred on November 3, 2011.

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On September 13, 2011, the Board of Directors approved, subject to shareholder approval, a payment of interest on shareholdersequity for the common and preferred shares totaling R$1,250 million. The actual payment occurred on November 3, 2011.

On December 12, 2011, the Board of Directors approved, subject to shareholder approval, a payment of interest on shareholdersequity for the common and preferred shares totaling R$617.0 million. The Board of Directors has proposed at the annual shareholdersmeeting that the payment of such interest on shareholders equity should be initiated before the end of 2012 on a date still to bedetermined by the management of the Company and properly announced to the market and shareholders.

Reverse Stock Split

In a special General Shareholders Meeting held on May 11, 2005, our shareholders approved the reverse stock split of all of ourshares, under the terms of Article 12 of the Brazilian Corporate Law, at the ratio of 1,000 existing shares per one share of the sametype and class. When the shares began trading on BM&FBOVESPA in unitary form on June 27, 2005, each of our ADRs, whichpreviously represented 1,000 preferred shares, became one preferred share.

Cancellation of Treasury Stock

On March 9, 2006, a special meeting of the shareholders approved the cancellation of 1,562,387 shares of treasury stock,

consisting of 1,258,508 common shares and 303,879 preferred shares. These treasury shares had been acquired as a result of a reversestock split. B. Significant Changes

None. ITEM 9. THE OFFER AND LISTING A. Offer and Listing Details

The trading market for our common and preferred shares is BM&FBOVESPA.

Our preferred shares began trading on BM&FBOVESPA, on September 21, 1998 and are traded on BM&FBOVESPA under thesymbol “VIVT4” (formerly TLPP4).” Our common shares trade under the symbol “VIVT3” (formerly TLPP3). At December 31,2011, we had approximately 1,125.6 million common and preferred shares held by approximately 2.3 million common and preferredshareholders.

In the United States, the preferred shares trade in the form of ADRs, each representing one preferred share, issued by The Bank ofNew York, as depositary, pursuant to a Deposit Agreement, among us, the depositary and the registered holders and beneficial ownersfrom time to time of ADRs. The ADRs commenced trading on the NYSE on November 16, 1998 and are traded on NYSE under thesymbol “VIV” (formerly TSP). The following table sets forth the reported high and low closing sales prices for ADRs on the NYSEfor the periods indicated. NYSE BM&FBOVESPA BM&FBOVESPA HIGH LOW HIGH LOW HIGH LOW (in US$ per ADS) (in reais per preferred share) (in reais per common share) Year ended December 31, 2007 28.85 25.45 50.98 45.20 47.40 44.00 December 31, 2008 21.72 18.62 52.12 44.94 39.95 33.84 December 31, 2009 25.53 23.74 43.54 42.12 39.29 36.00 December 31, 2010 24.53 22.70 42.03 38.60 39.30 36.22 December 31, 2011 28.33 25.74 52.97 47.47 48.00 43.50 Year ended December 31, 2010 First quarter 25.42 21.02 43.29 37.84 37.78 32.57 Second quarter 22.18 18.01 39.37 33.08 33.59 29.00

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Table of Contents NYSE BM&FBOVESPA BM&FBOVESPA HIGH LOW HIGH LOW HIGH LOW (in US$ per ADS) (in reais per preferred share) (in reais per common share) Third quarter 24.58 20.84 41.80 36.12 39.00 33.20 Fourth quarter 25.35 22.70 41.98 38.60 39.50 36.22 Year ended December 31, 2011 First quarter 25.34 23.07 42.60 37.80 42.30 36.24 Second quarter 30.40 25.00 46.99 39.48 43.90 37.02 Third quarter 31.77 25.84 52.50 43.06 46.88 37.30 Fourth quarter 29.34 25.39 52.97 46.55 48.00 40.50 Month ended September 30, 2011 30.50 25.84 52.50 48.00 46.88 42.00 October 31, 2011 29.34 25.39 50.80 46.55 46.49 40.50 November 30, 2011 28.25 25.66 49.70 47.35 45.99 44.10 December 31, 2011 28.33 25.74 52.97 47.47 48.00 43.50 January 31, 2012 29.65 27.02 52.30 48.35 47.46 43.35 February 29, 2012 30.27 27.42 51.77 47.50 47.45 42.77 March 31, 2012 31.02 29.22 56.59 50.81 50.98 46.36 April 2012 (through April 17) 31.22 28.84 56.92 53.25 51.69 48.89 B. Plan of Distribution

Not applicable. C. Markets Trading on the BM&FBOVESPA

The Brazilian Securities, Commodities and Futures Exchange (BM&FBOVESPA S.A. – Bolsa de Valores, Mercadorias eFuturos), or BM&FBOVESPA, is a Brazilian publicly traded company formed in 2008 through the integration between the Săo PauloStock Exchange (Bolsa de Valores de Săo Paulo) and the Brazilian Mercantile and Futures Exchange (Bolsa de Mercadorias &Futuros). BM&FBOVESPA is one of the largest exchanges in the world in market capitalization, the second in the Americas and theleader in Latin America.

Trading on the exchange is conducted by authorized members. Trading sessions take place every business day, from 10:00 a.m. to5:00 p.m. or from 11:00 a.m. to 6:00 p.m. during daylight savings time in the U.S., on an electronic trading system called Megabolsa.Trading is also conducted between 5:45 p.m. and 7:00 p.m., or between 6:45 p.m. and 8:00 p.m. during daylight savings time inBrazil, in an after-market system connected to both traditional brokerage firms and brokerage firms operating on the Internet. Thisafter-market trading is subject to regulatory limits on price volatility of securities traded by investors operating on the Internet.

To better control the excess of volatility in market conditions, BM&FBOVESPA has adopted a “circuit breaker” system pursuantto which trading sessions may be suspended for a period of 30 minutes or one hour whenever the indices of these stock exchanges fallbelow the limits of 10% and 15%, respectively, relative to the index of the previous trading day. In the event the stock exchange indexfalls by 20% in comparison to the previous trading day, BM&FBOVESPA may determine the suspension of trading sessions for acertain period which will be at its sole discretion.

At December 31, 2011, the aggregate market capitalization of the 373 companies listed on BM&FBOVESPA was approximatelyUS$1,223 billion. Although all the outstanding shares of an exchange-listed company may trade on a Brazilian stock exchange, inmost cases, less than half of the listed shares are actually available for trading by the public, the remainder being held by small groupsof controlling entities or persons that rarely trade their shares. For this reason, data showing the total market capitalization of Brazilianstock exchanges tends to overstate the liquidity of the Brazilian equity securities market.

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The Brazilian securities market is regulated by the CVM, as provided for by the Brazilian Securities Exchange Act and CorporateLaw. The National Monetary Council is responsible for supervising the CVM’s activities, granting licenses to brokerage firms togovern their incorporation and operation, and regulating foreign investment and exchange transactions, as provided for by theBrazilian Securities Exchange Act and Law No. 4595 of December 31, 1964. These laws and regulations provide for, among otherthings, disclosure requirements, criminal sanctions for insider trading and price manipulation, protection of minority shareholders, theprocedures for licensing and supervising brokerage firms and the governance of Brazilian stock exchanges.

Under Brazilian Corporate Law, a company is either publicly held and listed, a companhia aberta, or privately held and unlisted,a companhia fechada. All listed companies are registered with the CVM and are subject to reporting requirements to periodicallydisclose information and material facts. A company registered with the CVM may trade its securities either on the Brazilian exchangemarkets, including the BM&FBOVESPA, or in the Brazilian over-the-counter market. Shares of companies listed onBM&FBOVESPA may not simultaneously trade on the Brazilian over-the-counter market. The over-the-counter market consists ofdirect trades between persons in which a financial institution registered with the CVM serves as an intermediary. No specialapplication, other than registration with the CVM (and, in case of organized over-the-counter markets, in the applicable one), isnecessary for securities of a public company to be traded in this market. To be listed on the BM&FBOVESPA, a company must applyfor registration with the BM&FBOVESPA and the CVM.

Trading in securities on the BM&FBOVESPA may be suspended under a request from a company in anticipation of a materialannouncement. Trading in the securities of a particular company may also be suspended under the initiative of BM&FBOVESPA orthe CVM, among other reasons, due to the belief that the company has provided inadequate information regarding a material event orhas provided inadequate responses to inquiries by the CVM or the BM&FBOVESPA.

Brazilian securities law, the Brazilian Corporate Law and the regulations issued by CVM, CMN and the Central Bank provide,among other things, disclosure requirements and restrictions on insider trading, price manipulation and protection of minorityshareholders. Corporate Governance Practices

We are a sociedade anônima, a corporation incorporated under the laws of Brazil, and are subject to the corporate governanceprovisions of the Brazilian Corporate Law. We comply with the regulatory requirements of the Brazilian Corporate Law regarding theindependence of our Board of Directors, the establishment and composition of certain board committees and the adoption anddisclosure of corporate governance guidelines.

We comply with several requirements of Brazilian and international laws to promote strong corporate governance, reduce investoruncertainties and enhance disclosure of material and other information.

With the approval of our Board of Directors and/or Officers, we implemented several measures over the last few years designedto improve our transparency and disclosure practices. We believe these measures will benefit our shareholders, and current and futureinvestors as well as the marketplace in general. Among the measures we have implemented, we have: • created a disclosure policy for material facts and corporate actions; • created a policy for internal controls related to financial information; • created a Service Quality and Marketing committee; • created a Control and Audit committee; • created a Nominations, Compensation and Corporate Governance committee;

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regarding the corporate governance principles we follow, our shareholder structure and characteristics, the composition andcompetence of administrative entities, the obligations and responsibilities of administrators and equity interests held bycorporate officers and administrators;

• created a policy to denounce fraud within the Company (Canal de Denúncias); • created a policy for prior approval of contracting audit services; • created an internal rule of conduct relating to the securities market; • created an Ethics Code in respect of handling financial information; and • created a policy regarding communication of information to the securities market.

As determined by the Brazilian Corporate Law, the compensation of senior management is approved by our shareholders at anannual shareholders meeting. The Nominations, Compensation and Corporate Governance Committee provides information andrecommendations to the Board of Directors regarding the criterion for compensation.

Our rules relating to insider trading are determined in our internal rules and the corporate laws. Senior management and membersof our Board of Directors and any other employee exposed to sensitive information are subject to the restrictions imposed by suchcharter. In addition to the prohibition on trading of our shares by such individuals when in possession of insider information, thecharter establishes blackout trading periods for those periods when insider information is available. As an example, the month beforethe formulation and approval of our annual financial statements by our Board of Directors is considered a blackout period under thecharter. In addition, the charter sets forth instructions for dealing with conflicts of interest and mandates disclosure of any suchsituation. Code of Business Conduct and Ethics

Although adoption of a code of ethics is not required by Brazilian Corporate Law, we implemented a code of ethics regulating theconduct of our managers in connection with the registration and control of financial and accounting information and their access toprivileged and nonpublic information and data to comply with the requirements of the Sarbanes-Oxley Act and NYSE rules. See “Item16B. Code of Ethics.”

In addition to complying with the rules of corporate governance applicable to us under Brazilian law, we intend to graduallycomply with substantially all of the new rules established by the NYSE and the SEC applicable to domestic U.S. companies. D. Selling Shareholders

Not applicable. E. Dilution

Not applicable. F. Expenses of the Issue

Not applicable. ITEM 10. ADDITIONAL INFORMATION A. Share Capital

Not applicable.

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Table of Contents B. Memorandum and Articles of Association

Set forth below is certain information relating to our capital stock and a summary of certain significant provisions of our bylawsand the Brazilian Corporate Law. General

We are registered with the Junta Comercial de Săo Paulo, the Board of Trade of Săo Paulo, or JUCESP, under No.35.3.001588-14. According to Section 2 of our bylaws, our main corporate purpose is to provide telecommunications services and todevelop those activities necessary or useful for the performance of these services, in accordance with the concessions, authorizationsand permits granted to us.

There are no provisions in our bylaws with respect to: • an officer’s power to vote on proposals in which the officer has a personal interest; • an officer’s power to vote on his own compensation, even in the absence of an independent quorum; • age limits for retirement of officers; • required shareholding to qualify as a manager (officer); or • anti-takeover mechanisms or other procedures designed to delay, defer or prevent changes in our control.

Brazilian Corporate Law forbids a director to interfere in any business of the company when there is any conflicting interestbetween him and the Company.

Brazilian Corporate Law no longer requires ownership of shares in order for a person to qualify as a member of the Board ofDirectors (conselho de administraçăo) of a corporation (sociedade por açơes), however our bylaws require that our directors ownshares of the Company.

Issuance of commercial paper and incurrence of certain debt shall be preceded by approval from our Board of Directors,according to the provisions set forth in section 17 of our bylaws.

Our capital stock comprises preferred shares and common shares, all without par value. At December 31, 2011, there were261,924,477 outstanding preferred shares and 31,916,110 outstanding common shares. Our share capital may be increased byresolution of the Board of Directors, up to the limit authorized by our bylaws. Any increase above the authorized capital must beapproved by a general shareholders meeting.

The preferred shares are nonvoting, except under limited circumstances. They are given priority in the reimbursement of capital,without premium, and are entitled to receive a dividend 10% higher than that attributable to common shares.

Pursuant to Law No. 10,303/01, the following changes were introduced to the Brazilian Corporate Law: • preferred shares representing 10% of our total number of outstanding shares would be entitled to appoint a representative to

our Board of Directors; • disputes among our shareholders would be subject to arbitration, if provided for in our bylaws; • a tender offer at a purchase price equal to fair value for all outstanding shares would be required upon a delisting or a

substantial reduction in liquidity of our shares as a result of purchases by the controlling shareholders; • any sale of control would require the shareholders to tender for the minority shareholders’ common shares and, if provided

for in our charter, for the minority shareholders’ preferred shares, at a purchase price at least equal to 80% of the price pershare with voting rights paid to the controlling shareholder;

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reduction in mandatory dividends or the participation in a centralized group of companies; • the controlling shareholders, the shareholders that elect members to our Board of Directors and Fiscal Board, the members of

our Board of Directors and Fiscal Board and our Executive Officers would be required to disclose any purchase or sale of ourshares to the CVM and BM&FBOVESPA; and

• we would be permitted to satisfy our information disclosure requirements through the Internet. Voting Rights

Each common share entitles the holder to one vote at general shareholders meetings. Preferred shares do not entitle the holder tovote at shareholders meetings, except under specific circumstances and with respect to certain matters, as specified below. Holders ofpreferred shares are only entitled to attend and to discuss, but not to vote on, the issues discussed at our general shareholders meetings.

The appointment of one member of our statutory Fiscal Board, including the alternate member, takes place at the annual ordinarygeneral shareholders meeting, upon separate vote of the holders of preferred shares, for the position available at the Fiscal Board. Theelection of a member of the Board of Directors by preferred shareholders also occurs on a separate vote, with no participation of thecontrolling shareholder.

Brazilian Corporate Law provides that certain nonvoting shares, such as our preferred shares, shall be entitled to voting rights inthe event a corporation fails for three consecutive fiscal years to pay any fixed or minimum dividends to which nonvoting shares areentitled. In this case, the voting rights of these shares shall extend until the date on which the payment of the accrued and unpaiddividend is made.

Preferred shares are entitled to full voting rights with respect to: • the election of one member to the Board of Directors and Fiscal Board in a straight vote; • bylaw modifications that seek to limit preferred shareholders’ voting rights in respect of selecting new Board members in a

straight vote; • any agreements for the rendering of management services (including technical assistance services) between us and any

foreign affiliate of our controlling shareholder; • resolutions amending certain provisions of our bylaws; and • any resolution submitted to the general shareholders meeting during our liquidation process.

Any change in the preference, benefits, conditions of redemption and amortization of preferred shares or the creation of a morefavored class would require approval or ratification by holders of a majority of the preferred shares at a special meeting of thepreferred shareholders. This meeting would be called by publication of a notice in two Brazilian newspapers during three days, at least30 days before the meeting; however, it would not generally require any other form of notice.

In any circumstances in which holders of preferred shares are entitled to vote, each preferred share will entitle the holder to onevote. Preemptive Rights

Each shareholder has a general preemptive right to subscribe for shares of the same class in any capital increase, in an amountsufficient to keep the same proportional participation of each shareholder in the total capital of the corporation. A minimum period of30 days following the publication of the capital increase notice shall be observed by the corporation for the exercise of the preemptiveright by the shareholder. The right of participation in capital increases is assignable under Brazilian Corporate Law. However, thebylaws of a publicly held company that allows

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capital increases may provide for the issuance, without granting any preemptive rights to prior shareholders, of stocks, debenturesconvertible into stocks, or subscription bonuses, the placement of which shall be made: • upon sale on a stock exchange or public subscription; • through an exchange of shares in a public offering, with the purpose of acquiring control of another company; or • for the use of certain tax incentives.

In the event of a capital increase, which would maintain or increase the proportion of capital represented by preferred shares,holders of ADSs, or of preferred shares, would have preemptive rights to subscribe only to our newly issued preferred shares. In theevent of a capital increase, which would reduce the proportion of capital represented by preferred shares, holders of ADSs, or ofpreferred shares, would have preemptive rights to subscribe to our new preferred shares, in proportion to their shareholdings and toour new common shares only to the extent necessary to prevent dilution of their interest. Redemption and Right of Withdrawal

According to the Brazilian Corporate Law, dissenting shareholders in a shareholders meeting shall have a right of redemption,with reimbursement of the value of their shares, in case the following matters are approved:

(i) creation of a new class of preferred shares or an increase in preferred shares of an existing class, without maintaining theproportion with the remaining classes;

(ii) change in the preferences, advantages and conditions of redemption or amortization of one or more classes of preferredshares, or the creation of a class with more favorable rights or preferences;

(iii) reduction of the mandatory dividend;

(iv) merger into another company or consolidation with another company;

(v) participation in a group of companies;

(vi) change in the purpose of the corporation; and

(vii) split-up of the corporation.

It is important to point out that (a) in items (i) and (ii), only the holders of shares of the affected type or class will be entitled toredemption; (b) in items (iv) and (v), the holders of shares of a type or class with liquidity and dispersion in the market will not havethe right; and (c) in item (vii), the dissenting shareholders shall only have a right of redemption if the split-up implies a change in thecorporate purpose, a reduction of the compulsory dividend or participation in a group of companies.

Reimbursement must be required by the dissenting shareholders within 30 days after the publication of the minutes of the generalshareholders meeting or special meeting, as the case may be. Within 10 days after the expiration of the period, management isauthorized to call a general shareholders meeting to ratify or reconsider the decision, if management understands that the payment ofreimbursement to the dissenting shareholders who have exercised their redemption right may jeopardize the financial stability of thecompany. A shareholder who fails to exercise the right within the assigned term shall no longer be entitled to redemption.

According to the Brazilian Corporate Law, the amount to be reimbursed may only be lower than the share net value ascertained inthe last balance sheet approved by the general shareholders meeting if this amount is based on the economic value of the corporation,to be duly appraised. If the decision of the general shareholders meeting takes place more than 60 days after the issuance of the lastapproved balance sheet, the shareholder shall be entitled to demand, together with the reimbursement, the preparation of a specialbalance sheet that complies with the time frame previously described.

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On December 10, 2002, Telesp Celular S.A. entered into an authorization agreement with ANATEL, acting as a representative ofthe Brazilian government, which enables it to provide personal cellular services (SMP) in the municipalities of Ribeirăo Preto andGuatarapá and the district of Bonfim Paulista. The authorization replaces the concession agreement entered into with ANATEL onNovember 4, 1997, and authorizes Telesp Celular S.A. to provide SMP services until January 20, 2009. It was renewed in 2008 for anadditional term of fifteen years upon payment of 2% of Telesp Celular S.A.’s net revenues from usage charges in the municipalitiesmentioned above in the year prior to the year when payment is due, and every two years during the extension period. In considerationfor the authorization, Telesp Celular S.A. was required to pay R$9.0 thousand. The authorization is a legal requirement for providingtelecommunication services in the region covered thereby. After Vivo’s corporate restructuring, this contract was assumed by Vivo.

On December 10, 2002, GT entered into an authorization agreement with ANATEL, acting as a representative of the Braziliangovernment, which enables it to provide personal cellular services (SMP) in the area corresponding to the states of Paraná and SantaCatarina. The authorization replaces the concession agreement entered into with ANATEL on April 8, 1998, and authorizes GT toprovide SMP services until April 8, 2013. It may be renewed for an additional term of fifteen years upon payment of 2% of GT’s netrevenues from usage charges in its region in the year prior to the year when payment is due, and every two years during the extensionperiod. In consideration for the authorization, GT was required to pay R$9.0 thousand. The authorization is a legal requirement forproviding telecommunication services in the region covered thereby. After Vivo’s corporate restructuring, this contract was assumedby Vivo.

On December 10, 2002, Telebahia Celular entered into an authorization agreement with ANATEL, acting as a representative ofthe Brazilian government, which enables it to provide personal cellular services (SMP) in the state of Bahia. The authorizationreplaces the concession agreement entered into with ANATEL on November 4, 1997, and authorizes Telebahia Celular to provideSMP services until June 29, 2008. It was renewed in 2008 for an additional term of fifteen years upon payment of 2% of TelebahiaCelular s net revenues from usage charges in its Region in the year prior to the year when payment is due, and every two years duringthe extension period. In consideration for the authorization, Telebahia Celular was required to pay R$9.0 thousand. The authorizationis a legal requirement for providing telecommunication services in the region covered thereby. After Vivo’s corporate restructuring,this contract was assumed by Vivo.

On December 10, 2002, Telergipe Celular entered into an authorization agreement with ANATEL, acting as a representative ofthe Brazilian government, which enables it to provide personal cellular services (SMP) in the state of Sergipe. The authorizationreplaces the concession agreement entered into with ANATEL on November 4, 1997, and authorizes Telebahia Celular to provideSMP services until December 15, 2008. It was renewed in 2008 for an additional term of fifteen years upon payment of 2% ofTelergipe Celular’s net revenues from usage charges in its region in the year prior to the year when payment is due, and every twoyears during the extension period. In consideration for the authorization, Telergipe Celular was required to pay R$9.0 thousand. Theauthorization is a legal requirement for providing telecommunication services in the region covered thereby. After Vivo’s corporaterestructuring, this contract was assumed by Vivo.

On December 10, 2002, Telerj Celular entered into an authorization agreement with ANATEL, acting as a representative of theBrazilian government, which enables it to provide personal cellular services (SMP) in the state of Rio de Janeiro. The authorizationreplaces the concession agreement entered into with ANATEL on November 4, 1997, and authorizes Telerj Celular to provide SMPservices until November 30, 2005. It was renewed in 2008 for an additional term of fifteen years upon payment of 2% of TelerjCelular’s net revenues from usage charges in its region in the year prior to the year when payment is due, and every two years duringthe extension period. In consideration for the authorization, Telerj Celular was required to pay R$9.0 thousand. The authorization is alegal requirement for providing telecommunications services in the region covered thereby. After Vivo’s corporate restructuring, thiscontract was assumed by Vivo.

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On December 10, 2002, Telest Celular entered into an authorization agreement with ANATEL, acting as a representative of theBrazilian government, which enables it to provide personal cellular services (SMP) in the state of Espíritio Santo. The authorizationreplaces the concession agreement entered into with ANATEL on November 4, 1997, and authorizes Telest Celular to provide SMPservices until November 30, 2008. It was renewed in 2008 for an additional term of fifteen years upon payment of 2% of TelestCelular’s net revenues from usage charges in its region in the year prior to the year when payment is due, and every two years duringthe extension period. In consideration for the authorization, Telest Celular was required to pay R$9.0 thousand. The authorization is alegal requirement for providing telecommunications services in the region covered thereby. After Vivo’s corporate restructuring, thiscontract was assumed by Vivo.

On February 3, 2003, TCO entered into an authorization agreement with ANATEL, acting as a representative of the Braziliangovernment, which enables it to provide personal cellular services (SMP) in the area corresponding to the Brazil’s Federal District.The authorization replaces the concession agreement entered into with ANATEL on November 4, 1997, and authorizes TCO toprovide SMP services until July 24, 2006. It was renewed in 2006 for an additional term of fifteen years upon payment of 2% ofTCO’s net revenues from usage charges in the region described above in the year prior to the year when payment is due, and everytwo years during the extension period. In consideration for the authorization, TCO was required to pay R$9.0 thousand. Theauthorization is a legal requirement for providing telecommunication services in the region covered thereby. TCO’s subsidiaries alsoentered into authorization agreements with ANATEL under similar terms. After Vivo’s corporate restructuring, this contract wasassumed by Vivo.

Since June 30, 2011, we have renewed our concession agreement with ANATEL and consolidated our six existing materialcontacts related to the concession of public telecommunications service granted by ANATEL into two new contracts (each filed as anExhibit to this Annual Report). One of these contracts authorizes the Company to provide local telephone services (Sectors 31) and theother contract authorizes the Company to provide long-distance telephone services (Sector 31). These contracts will expire onDecember 31, 2025.

Our Multimedia Communication Service Authorization Term is also a material contract. Based on this Authorization Term, theCompany is allowed to provide broadband services in the State of Săo Paulo. The Term was signed on April 17, 2003 for anundetermined period of time and is still currently in effect.

On October 14, 2011 a credit facility totaling R$3.0 billion was obtained from BNDES. These funds will be invested in theexpansion and improvement of the current network, implementation of infrastructure necessary for new technology, in the period from2011 to 2013, as well as in the construction of a data center in Tamboré (State of Săo Paulo) and in social projects. The agreement hasa term of eight years and has a grace period which expires on July 15, 2014, until when only interest will be paid, on a three-monthbasis. After this period, interest and amortization of the principal will be paid in 60 consecutive monthly installments. D. Exchange Controls

There are no restrictions on ownership of preferred shares or common shares by individuals or legal entities domiciled outside ofBrazil.

The right to convert dividend or interest payments and proceeds from the sale of shares into foreign currency and to remit suchamounts outside Brazil is subject to restrictions under foreign investment legislation which generally requires, among other things,that the relevant investments have been registered with the Central Bank and the CVM. The restrictions on the remittance of foreigncapital abroad may hinder or prevent the custodian for the preferred shares represented by ADSs or holders of preferred shares fromconverting dividends, distributions or the proceeds from any sale of these preferred shares into U.S. dollars and remitting the U.S.dollars abroad. Holders of ADSs could be adversely affected by delays in, or refusal to grant any, required government approval toconvert Brazilian currency payments on the preferred shares underlying the ADSs and to remit the proceeds abroad.

Resolution No. 1,927 of the CMN provides for the issuance of depositary receipts in foreign markets in respect of shares ofBrazilian issuers. It restates and amends Annex V to Resolution No. 1,289 of the National Monetary Council, known as the Annex VRegulations. The ADS program was approved under the Annex V Regulations by the Central Bank and the CVM before the issuanceof the ADSs. Accordingly, the proceeds from the sale of ADSs by holders outside Brazil are free of Brazilian foreign investmentcontrols, and holders of the ADSs may be entitled to favorable tax treatment. See “—E. Taxation—Brazilian Tax Considerations.”

Under Resolution No. 2,689 of the CMN, foreign investors registered with the CVM may buy and sell Brazilian securities,including the preferred shares, on Brazilian stock exchanges without obtaining separate certificates of registration for each transaction.Registration is available to qualified foreign investors, which principally include foreign financial institutions, insurance companies,pension and investment funds, charitable foreign institutions and other institutions that meet certain minimum capital and otherrequirements. Resolution No. 2,689 also extends favorable tax treatment to registered investors. See “—E. Taxation—Brazilian TaxConsiderations.”

Pursuant to Resolution No. 2,689 foreign investors must (i) appoint at least one representative in Brazil with the ability to performactions regarding the foreign investment; (ii) complete the appropriate foreign investor registration form; (iii) obtain registration as aforeign investor with the CVM; and (iv) register the foreign investment with the Central Bank. Source: TELEFONICA BRASIL S.A., 20-F, April 20, 2012 Powered by Morningstar® Document Research℠

The securities and other financial assets held by a foreign investor pursuant to Resolution No. 2,689 must be registered ormaintained in deposit accounts or under the custody of an entity duly licensed by the Central Bank or by the CVM or be registered inregister, clearing and custody systems authorized by the Central Bank or by the CVM. In addition, the trading of securities is restrictedto transactions carried out on the stock exchanges or over-the-counter markets licensed by the CVM.

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Table of Contents Registered Capital

Amounts invested in preferred shares by a non-Brazilian holder who qualifies under Resolution No. 2,689 and obtains registrationwith the CVM, or by the depositary representing an ADS holder, are eligible for registration with the Central Bank. Such registration(the amount so registered is referred to as registered capital) allows the remittance outside Brazil of foreign currency, converted at thecommercial market rate, acquired with the proceeds of distributions on, and amounts realized through, dispositions of such preferredshares. The registered capital per preferred share purchased in the form of an ADS, or purchased in Brazil and deposited with thedepositary in exchange for an ADS, will be equal to its purchase price (stated in U.S. dollars). The registered capital per preferredshare withdrawn upon cancellation of an ADS will be the U.S. dollar equivalent of (i) the average price of a preferred share on theBrazilian stock exchange on which the most preferred shares were traded on the day of withdrawal or (ii) if no preferred shares weretraded on that day, the average price on the Brazilian stock exchange on which the most preferred shares were traded in the 15 tradingsessions immediately preceding such withdrawal. The U.S. dollar equivalent will be determined on the basis of the averagecommercial market rates quoted by the Central Bank on such date or dates.

An electronic registration has been issued in the name of the depositary with respect to the ADSs and is maintained by thecustodian on behalf of the depositary. Pursuant to the registration, the custodian and the depositary are able to convert dividends andother distributions with respect to the preferred shares represented by ADSs into foreign currency and remit the proceeds outsideBrazil. If a holder of ADSs exchanges such ADSs for preferred shares, such holder will be entitled to continue to rely on thedepositary’s registration for five business days after such exchange, following which such holder must seek to obtain its ownelectronic registration with the Central Bank. Thereafter, any holder of preferred shares may not be able to convert into foreigncurrency and remit outside Brazil the proceeds from the disposition of, or distributions with respect to, such preferred shares, unlesssuch holder is a duly qualified investor under Resolution No. 2,689 and obtains its own electronic registration.

If the holder does not qualify under Resolution No. 2,689 by registering with the CVM and the Central Bank and appoints arepresentative in Brazil to act directly in the Brazilian market to acquire preferred shares, the holder will be subject to a less favorableBrazilian tax treatment than a holder of ADSs. Regardless of registration under Resolution No. 2,689, residents of tax havens aresubject to less favorable tax treatment than other foreign investors. See “—E. Taxation—Brazilian Tax Considerations.”

Under current Brazilian legislation, the federal government may impose temporary restrictions on remittances of foreign capitalabroad in the event of a serious imbalance or an anticipated serious imbalance of Brazil’s balance of payments. For approximately sixmonths in 1989 and early 1990, the federal government froze all dividend and capital repatriations held by the Central Bank that wereowed to foreign equity investors, to conserve Brazil’s foreign currency reserves. These amounts were subsequently released inaccordance with federal government directives. There can be no assurance that the federal government will not impose similarrestrictions on foreign repatriations in the future. E. Taxation

The following discussion contains a description of the material Brazilian and U.S. federal income tax consequences of theacquisition, ownership and disposition of preferred shares or ADSs by certain holders. This summary is based upon the tax laws ofBrazil and the United States as of the date of this annual report, which are subject to change, possibly with retroactive effect, and todiffering interpretations. You should consult your own tax advisors as to the Brazilian, U.S. federal or other tax consequences of theacquisition, ownership and disposition of preferred shares or ADSs, including, in particular, the effect of any state, local or non-U.S.,non-Brazilian tax laws.

Although there is presently no income tax treaty between Brazil and the United States, the tax authorities of the two countrieshave had discussions that may culminate in such a treaty. No assurance can be given, however, as to whether or when a treaty willenter into force or how it will affect the U.S. holders of preferred shares or ADSs. Brazilian Tax Considerations

The following discussion summarizes the material Brazilian tax consequences of the acquisition, ownership and disposition ofpreferred shares or ADSs by a U.S. holder not deemed to be domiciled in Brazil for Brazilian tax

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purposes (a “U.S. holder”). This discussion does not address all the Brazilian tax considerations that may be applicable to anyparticular non-Brazilian holder, and each non-Brazilian holder should consult its own tax advisor about the Brazilian tax consequencesof investing in preferred shares or ADSs.

Taxation of Dividends

Dividends paid by us in cash or in kind from profits generated on or after January 1, 1996 (i) to the depositary in respect ofpreferred shares underlying ADSs or (ii) to a U.S. holder or other non-Brazilian holder in respect of preferred shares will generally notbe subject to Brazilian withholding tax. We do not have any undistributed profits generated before January 1, 1996. If payment ofdividends is made to a beneficiary located outside of Brazil, the Tax on Exchange Transactions applies at a rate of zero.

Distributions of Interest on Capital

Brazilian corporations may make payments to shareholders characterized as interest on capital as an alternative form of makingdividend distributions. Amounts paid as interest on capital (net of applicable withholding tax, as described below) may be treated aspayments with respect to the dividends we are obligated to distribute to our shareholders in accordance with our bylaws (estatutosocial) and Brazilian Corporate Law. The rate of interest may not be higher than the federal government’s TJLP, as determined by theCentral Bank from time to time (6% per annum for 2010/2011). The total amount distributed as interest on capital may not exceed thegreater of (i) 50% of net income (before taking the distribution and any deductions for income taxes into account) for the year withrespect to which the payment is made and (ii) 50% of retained earnings for the year before the year with respect to which the paymentis made. Payments of interest on capital are decided by the shareholders on the basis of recommendations of the company’s Board ofDirectors. See “Item 8. Financial Information—A. Consolidated Statements and Other Financial Information—Dividends andDividend Distribution Policy—Additional Payments on Shareholders’ Equity.”

Distributions of interest on capital paid to Brazilian and non-Brazilian holders of preferred shares, including payments to thedepositary in respect of preferred shares underlying ADSs, are deductible by us for Brazilian corporate income tax purposes. Thesepayments to U.S. holders or other non-Brazilian holders are subject to Brazilian withholding tax at the rate of 15%. If the recipient ofthe payment is domiciled in a tax haven jurisdiction, the rate will be 25%.

If payment of interest on capital is made for a beneficiary located outside of Brazil, the IOF applies at a rate of zero.

Distributions of interest on capital with respect to the preferred shares, including distributions to the depositary with respect to thepreferred shares underlying the ADSs, may be converted into U.S. dollars and remitted outside of Brazil, subject to applicableexchange controls.

No assurance can be given that our Board of Directors will not recommend that future distributions of profits will be made bymeans of interest on capital instead of by means of dividends.

Taxation of Gains

Gains realized outside Brazil by a U.S. holder or other non-Brazilian holder on the disposition of property located in Brazil,including preferred shares, to another non-Brazilian holder are subject to Brazilian tax. In this case, gains would be subject to a 15%withholding tax rate, except if the beneficiary is located in a low-tax jurisdiction, as defined by Brazilian law, in which case theapplicable rate would be 25%.

Our understanding is that ADSs do not qualify as property located in Brazil and, therefore, are not subject to Brazilian taxes upondisposition to other non-Brazilian holders. Insofar as this understanding has not been tested through the administrative or judicialcourts, however, we are unable to evaluate what the final ruling on the matter will be. If Brazilian tax authorities consider that theADSs are assets located in Brazil, gains may be subject to income tax in Brazil.

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Gains realized by U.S. holders or other non-Brazilian holders on dispositions of preferred shares in Brazil or in transactions withBrazilian residents may be free from Brazilian tax, taxed at a rate of 25% or taxed at a rate of 15%, depending on the circumstances: • Gains on the disposition of preferred shares obtained upon cancellation of ADSs are not taxed in Brazil if the proceeds are

remitted abroad within five business days of cancellation, unless the investor is a resident of a jurisdiction that, underBrazilian law, is deemed to be a tax haven.

• Gains realized on the disposition of preferred shares through transactions with Brazilian residents or through transactions in

Brazil off the Brazilian stock exchanges are generally subject to tax at a rate of 15%, or 25% in the case of a non-Brazilianholder residing in a tax haven jurisdiction.

• Gains realized on preferred shares through transactions on Brazilian stock exchanges (including the organized

over-the-counter market) are generally subject to tax at a rate of 15%, as of January 2005, unless the investor is entitled totax-free treatment for the transaction under Resolution No. 2,689 of the National Monetary Council Regulations, as describedimmediately below. Non-Brazilian holders residing in a tax haven jurisdiction may be subject to tax at a rate of up to 25%.

Resolution No. 2,689 extends favorable tax treatment to a U.S. holder or other non-Brazilian holder of preferred shares who has

(i) appointed a representative in Brazil with power to take action relating to the investment in preferred shares, (ii) registered as aforeign investor with the CVM and (iii) registered its investment in preferred shares with the Central Bank. Under Resolution No.2,689, securities held by foreign investors must be maintained under the custody of, or in deposit accounts with, financial institutionsduly authorized by the Central Bank and the CVM. In addition, the trading of securities is restricted under Resolution No. 2,689 totransactions on Brazilian stock exchanges or qualified over-the-counter markets. The preferential treatment generally afforded underResolution No. 2,689 to investors in ADSs is not available to residents of tax havens. All preferred shares underlying ADSs qualifyunder Resolution No. 2,689.

There can be no assurance that the current preferential treatment for U.S. holders and other non-Brazilian holders underResolution No. 2,689 will be maintained.

Gain on the disposition of preferred shares is measured by the difference between the amount realized on the sale or exchange andthe acquisition cost of the shares sold, measured in Brazilian currency, without any correction for inflation. Although the matter is notfree from doubt, there are arguments to sustain the position that the acquisition cost of shares registered as an investment with theCentral Bank is calculated on the basis of the foreign currency amount registered with the Central Bank. See “—D. ExchangeControls—Registered Capital.”

Gains realized by a U.S. holder or other non-Brazilian holder upon the redemption of preferred shares will be treated as gainsfrom the disposition of such preferred shares to a Brazilian resident occurring off a stock exchange and will accordingly be subject totax at a rate of 15%, unless the non-Brazilian holder is domiciled in a tax haven jurisdiction, in which case the applicable rate wouldbe 25%.

As of January 1, 2005, the purchase price of preferred shares sold on the Brazilian stock exchange and on the Braziliannon-organized over-the-counter market is subject to withholding tax at a rate of 0.005%, except in the case of non-Brazilian holdersentitled to tax-free treatment for the transaction under Resolution No. 2,689. This tax may be offset against the 15% income tax due onthe gains realized upon the sale of the shares.

Any exercise of preemptive rights relating to the preferred shares or ADSs will not be subject to Brazilian taxation. Gains on thesale or assignment of preemptive rights relating to the preferred shares will be treated differently for Brazilian tax purposes dependingon (i) whether the sale or assignment is made by the depositary or the investor and (ii) whether the transaction takes place on aBrazilian stock exchange. Gains on sales or assignments made by the depositary on a Brazilian stock exchange are not taxed in Brazil,but gains on other sales or assignments may be subject to tax at rates up to 15%, or 25% in the case of residents of tax havenjurisdictions.

The deposit of preferred shares in exchange for the ADSs is not subject to Brazilian income tax if the preferred shares areregistered under Resolution No. 2,689 and the respective holder is not in a tax haven jurisdiction. If the

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preferred shares are not so registered or the holder is in a tax haven jurisdiction, the deposit of preferred shares in exchange for ADSsmay be subject to Brazilian capital gains tax at a rate of 15%.

The withdrawal of preferred shares in exchange for ADSs is not subject to Brazilian tax. On receipt of the underlying preferredshares, a U.S. holder or non-Brazilian holder entitled to benefits under Resolution No. 2,689 will be entitled to register the U.S. dollarvalue of such shares with the Central Bank as described above, under “—D. Exchange Controls—Registered Capital.” If a U.S. holderor other non-Brazilian holder does not qualify under Resolution No. 2,689, such person will be subject to the less favorable taxtreatment described above in respect of exchanges of preferred shares. Brazil’s tax treaties do not grant relief from taxes on gainsrealized on sales or exchanges of preferred shares.

Beneficiaries Residing or Domiciled in Tax Havens or Low-Tax Jurisdictions

With limited exceptions, any income derived from operations by a beneficiary that resides or is domiciled in a country consideredto be a tax haven is subject to income tax to be withheld by the source at a rate of 25% instead of 15%. The increased rate also appliesfor capital gains paid to residents of low-tax jurisdictions.

In accordance with Law No. 9,959, non-Brazilian holders of ADSs or preferred shares who are residents of tax havens have beenexcluded from the tax incentives granted to holders of ADSs and investors under Resolution No. 2,689 since January 1, 2000 and aresubject to the same tax treatment applicable to holders that are residents of or domiciled in Brazil.

Tax on Financial Transactions (IOF Tax)

IOF, or “IOF/Exchange Tax,” is a tax on the conversion of reais into foreign currency and on the conversion of foreign currencyinto reais. As a general rule, the inflow of funds related to investments carried out on the Brazilian financial and capital markets by anon-Brazilian holder that has registered its investment in Brazil with the Central Bank is subject to the IOF/Exchange Tax at a rate of6.0%. However, if the inflow is related to an investment in the stock exchange or in over-the-counter markets, IOF/Exchange willtrigger at the rate of 0%. Foreign exchange transactions related to outflows of funds in connection with investments carried out on theBrazilian financial and capital markets are subject to the IOF/Exchange Tax at a rate of zero, which also applies to payments ofdividends and interest on shareholders’ equity. With the exception of these transactions, the rate applicable to most foreign exchangetransactions is 0.38%. Other rates may apply to particular transactions and the Brazilian government may increase the rate at any timeby up to 25.0% on the future foreign exchange transaction amount.

An “IOF/Bonds Tax” is due on transactions involving bonds and securities, including those carried out on a Brazilian stockexchange. The rate of the IOF/Bonds Tax applicable to the transfer of shares with the sole purpose of enabling the issuance of ADSs iscurrently 1.5%. The Brazilian government may increase the rate of the IOF/Bonds Tax at any time by up to 1.5% per day of thetransaction amount, but only in respect of future transactions.

Other Brazilian Taxes

There are no Brazilian inheritance, gift or succession taxes applicable to the ownership, transfer or disposition of preferred sharesor ADSs by a non-Brazilian holder except for gift and inheritance taxes levied by some states in Brazil on gifts made or inheritancesbestowed by individuals or entities not resident or domiciled in Brazil or in the relevant state to individuals or entities that are residentor domiciled within this state in Brazil. There are no Brazilian stamp, issue, registration, or similar taxes or duties payable by holdersof preferred shares or ADSs. U.S. Federal Income Tax Considerations

The following are the material U.S. federal income tax consequences to U.S. Holders described herein of owning and disposing ofpreferred shares or ADSs, but this is not a comprehensive description of all of the tax considerations that may be relevant to aparticular person’s decision to hold such securities. The discussion applies only to U.S. Holders that hold preferred shares or ADSs ascapital assets for U.S. federal income tax purposes and it does not describe all of the tax consequences that may be relevant to holderssubject to special rules, such as: • certain financial institutions;

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Table of Contents • dealers or traders in securities who use a mark-to-market method of tax accounting; • persons holding preferred shares or ADSs as part of a hedge, “straddle,” integrated transaction or similar transaction; • persons whose functional currency for U.S. federal income tax purposes is not the U.S. dollar; • entities classified as partnerships for U.S. federal income tax purposes; • persons liable for the alternative minimum tax; • tax-exempt organizations; • persons that own or are deemed to own 10% or more of our voting stock; • persons who acquired our ADSs or preferred shares pursuant to the exercise of any employee stock option or otherwise as

compensation; or • persons holding preferred shares or ADSs in connection with a trade or business conducted outside of the United States.

If an entity that is classified as a partnership for U.S. federal income tax purposes holds preferred shares or ADSs, the U.S. federalincome tax treatment of a partner will generally depend on the status of the partner and upon the activities of the partnership.Partnerships holding preferred shares or ADSs and partners in such partnerships should consult their tax advisers as to the particularU.S. federal income tax consequences of holding and disposing of the preferred shares or ADSs.

This discussion is based on the Internal Revenue Code of 1986, as amended (the “Code”), administrative pronouncements,judicial decisions and final, temporary and proposed Treasury regulations, all as of the date hereof. These laws are subject to change,possibly on a retroactive basis. It is also based in part on representations by the depositary and assumes that each obligation under theDeposit Agreement and any related agreement will be performed in accordance with its terms.

You are a “U.S. Holder” if, for U.S. federal income tax purposes, you are a beneficial owner of preferred shares or ADSs and ifyou are: • a citizen or resident of the United States; • a corporation, or other entity taxable as a corporation, created or organized in or under the laws of the United States, any state

therein or the District of Columbia; or • an estate or trust the income of which is subject to U.S. federal income taxation regardless of its source.

THE SUMMARY OF U.S. FEDERAL INCOME TAX CONSEQUENCES SET OUT BELOW IS INTENDED FOR GENERALINFORMATION PURPOSES ONLY. U.S. HOLDERS OF PREFERRED SHARES OR ADSs ARE URGED TO CONSULT WITHTHEIR OWN TAX ADVISERS WITH RESPECT TO THE PARTICULAR TAX CONSEQUENCES TO THEM OF OWNING ORDISPOSING OF PREFERRED SHARES OR ADSs, INCLUDING THE APPLICABILITY AND EFFECT OF STATE, LOCAL,NON-U.S. AND OTHER TAX LAWS AND POSSIBLE CHANGES IN TAX LAWS.

In general, if you own ADSs, you will be treated as the owner of the underlying shares represented by those ADSs for U.S.federal income tax purposes. Accordingly, no gain or loss will be recognized if you exchange ADSs for the underlying sharesrepresented by those ADSs.

The U.S. Treasury has expressed concerns that parties to whom American depository shares are released before shares aredelivered to the depositary (“pre-release”) or intermediaries in the chain of ownership between holders and the issuer of the securityunderlying the American depository shares may be taking actions that are inconsistent with the claiming of foreign tax credits byholders of American depository shares. Such actions would also be

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inconsistent with the claiming of the reduced rate of tax, described below, applicable to dividends received by certain noncorporateholders. Accordingly, the creditability of Brazilian taxes, and the availability of the reduced tax rate for dividends received by certainnoncorporate holders, each described below, could be affected by actions taken by such parties or intermediaries.

This discussion assumes that we are not, and will not become, a passive foreign investment company, as described below.

Taxation of Distributions

Distributions paid on ADSs or preferred shares will generally be treated as dividends to the extent paid out of current oraccumulated earnings and profits (as determined under U.S. federal income tax principles). Because we do not maintain calculationsof our earnings and profits under U.S. federal income tax principles, it is expected that distributions generally will be reported to U.S.Holders as dividends. Subject to applicable limitations and the discussion above regarding concerns expressed by the U.S. Treasury,dividends paid by qualified foreign corporations to certain noncorporate U.S. Holders in taxable years beginning before January 1,2013 are taxable at a maximum rate of 15%. A foreign corporation is treated as a qualified foreign corporation with respect todividends paid on stock that is readily tradable on a securities market in the United States, such as the New York Stock Exchangewhere our ADSs are traded. You should consult your tax advisers regarding the availability of the reduced tax rate on dividends inyour particular circumstances.

The amount of a dividend will include any amounts withheld by us in respect of Brazilian taxes. The amount of the dividend willbe treated as foreign-source dividend income to you and will not be eligible for the dividends-received deduction generally allowed toU.S. corporations under the Code. Dividends will be included in your income on the date of your, or in the case of ADSs, thedepositary’s, receipt of the dividend. The amount of any dividend income paid in reais will be a U.S. dollar amount calculated byreference to the exchange rate in effect on the date of such receipt regardless of whether the payment is in fact converted into U.S.dollars. If the dividend is converted into U.S. dollars on the date of receipt, you should not be required to recognize foreign currencygain or loss in respect of the dividend income. You may have foreign currency gain or loss if the dividend is converted into U.S.dollars after the date of receipt.

Subject to applicable limitations that may vary depending upon your circumstances and subject to the discussion above regardingconcerns expressed by the U.S. Treasury, Brazilian income taxes withheld from dividends on preferred shares or ADSs will becreditable against your U.S. federal income tax liability. The rules governing foreign tax credits are complex and, therefore, youshould consult your tax adviser regarding the availability of foreign tax credits in your particular circumstances. Instead of claiming acredit, you may, at your election, deduct such Brazilian taxes in computing your taxable income, subject to generally applicablelimitations under U.S. law. An election to deduct foreign taxes instead of claiming foreign tax credits must apply to all taxes paid oraccrued in the taxable year to foreign countries and possessions of the United States.

Sale, Redemption or Other Disposition of Preferred Shares or ADSs

For U.S. federal income tax purposes, gain or loss you realize on the sale, redemption or other disposition of preferred shares orADSs will generally be capital gain or loss, and will generally be long-term capital gain or loss if you held the preferred shares orADSs for more than one year. The amount of your gain or loss will equal the difference between your tax basis in the preferred sharesor ADSs disposed of and the amount realized on the disposition, in each case as determined in U.S. dollars. If a Brazilian tax on gainsis withheld on the sale or disposition of preferred shares or ADSs, a U.S. Holder’s amount realized will include the gross amount ofthe proceeds of such sale or disposition before deduction of the Brazilian tax. See “—Brazilian Tax Considerations—Taxation ofGains” for a description of when a disposition may be subject to taxation by Brazil. Such gain or loss will generally be U.S.-sourcegain or loss for foreign tax credit purposes. U.S. Holders should consult their tax advisors as to whether the Brazilian tax on gains maybe creditable against the holder’s U.S. federal income tax on foreign-source income from other sources. In lieu of claiming a foreigntax credit, U.S. Holders may make an election to deduct foreign taxes, including the Brazilian tax, in computing their taxable income,subject to generally applicable limitations under U.S. law. An election to deduct foreign taxes instead of claiming foreign tax creditsapplies to all taxes paid or accrued in the taxable year to foreign countries and possessions of the United States.

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Other Brazilian Taxes

You should note that any Brazilian IOF Tax (as discussed above under “—Brazilian Tax Considerations”) will not be a creditableforeign tax for U.S. federal income tax purposes, although you may be entitled to deduct such tax, subject to applicable limitationsunder U.S. law. You should consult your tax advisers regarding the U.S. federal income tax consequences of the payment of BrazilianIOF Tax, including whether you may claim a deduction for such tax or should instead include the amount of tax paid in your initialbasis in the preferred shares or ADSs.

Passive Foreign Investment Company Rules

We believe that we were not a “passive foreign investment company” (“PFIC”) for U.S. federal income tax purposes for our 2011taxable year. However, because PFIC status depends on the composition of a company’s income and assets and the market value of itsassets from time to time, there can be no assurance that we will not be a PFIC for any taxable year. If we were a PFIC for any taxableyear during which a U.S. Holder held preferred shares or ADSs, gain recognized by such U.S. Holder on a sale or other disposition(including certain pledges) of the preferred shares or ADSs would be allocated ratably over the U.S. Holder’s holding period for thepreferred shares or ADSs. The amounts allocated to the taxable year of the sale or other disposition and to any year before we becamea PFIC would be taxed as ordinary income. The amount allocated to each other taxable year would be subject to tax at the highest ratein effect for individuals or corporations, as appropriate, for such taxable year, and an interest charge would be imposed on the amountallocated to such taxable year. Further, to the extent that any distribution received by a U.S. Holder on its preferred shares or ADSsexceeds 125% of the average of the annual distributions on preferred shares or ADSs received by a U.S. Holder during the precedingthree years or such holder’s holding period, whichever is shorter, that distribution would be subject to taxation in the same manner asgain, described immediately above. Certain elections may be available that would result in alternative treatments (such asmark-to-market treatment) of the preferred shares or ADSs. U.S. Holders should consult their tax advisers to determine whether any ofthese elections would be available and, if so, what the consequences of the alternative treatments would be in those holders’ particularcircumstances.

Information Reporting and Backup Withholding

Payments of dividends and sales proceeds that are made within the United States or through certain U.S.-related financialintermediaries generally are subject to information reporting and may be subject to backup withholding unless (i) you are an exemptrecipient or (ii) in the case of backup withholding, you provide a correct taxpayer identification number and certify that you are notsubject to backup withholding.

The amount of any backup withholding from a payment to you will be allowed as a credit against your U.S. federal income taxliability and may entitle you to a refund, provided that the required information is timely furnished to the Internal Revenue Service.

Certain U.S. Holders who are individuals may be required to report information relating to their ownership of securities of anon-U.S. person, subject to certain exceptions (including an exception for securities held in certain accounts maintained by U.S.financial institutions). U.S. Holders are urged to consult their tax advisers regarding the effect, if any, of these rules on their ownershipand disposition of preferred shares or ADSs.

U.S. HOLDERS OF OUR PREFERRED SHARES OR ADSs SHOULD CONSULT THEIR OWN TAX ADVISERS AS TOTHE BRAZILIAN, U.S. FEDERAL, STATE, LOCAL AND OTHER TAX CONSEQUENCES OF THE OWNERSHIP ANDDISPOSITION OF OUR PREFERRED SHARES OR ADSs BASED UPON THEIR PARTICULAR CIRCUMSTANCES. F. Dividends and Paying Agents

Not applicable. G. Statement of Experts

Not applicable.

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We are subject to the information requirements of the Exchange Act, except that as a foreign issuer, we are not subject to theproxy rules or the short-swing profit disclosure rules of the Exchange Act. In accordance with these statutory requirements, we file orfurnish reports and other information with the SEC. Reports and other information filed or furnished by us with the Commission maybe inspected and copied at the public reference facilities maintained by the Commission at 100 F Street NE, Washington, D.C. 20549.Copies of such material may be obtained by mail from the Public Reference Section of the Commission, 100 F Street NE,Washington, D.C. 20549, at prescribed rates. You may also inspect these reports and other information at the offices of the New YorkStock Exchange, 11 Wall Street, New York, New York 10005, on which our ADSs are listed.

In addition, the Commission maintains a website that contains information filed electronically, which can be accessed over theInternet at http://www.sec.gov.

We also file financial statements and other periodic reports with the CVM. Copies of our annual report on Form 20-F anddocuments referred to in this annual report and our bylaws will be available for inspection upon request at our offices at RuaMartiniano de Carvalho, 851 - 21° Andar, 01321-001, Săo Paulo, SP, Brasil. I. Subsidiary Information

Not applicable. ITEM 11. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

We are exposed to several market risks as a result of our commercial operations, debts obtained to finance our activities andfinancial derivative instruments, including exchange rate risk, interest rate risk, debt acceleration risk and credit risk. To help usmanage our risks, we conduct a valuation of our financial assets and liabilities in relation to market values based on availableinformation and appropriate valuation methodologies. However, the interpretation of market information, as well as the selection ofmethodologies, requires considerable judgment and reasonable estimates to produce adequate realization values. As a result, ourvaluation estimates do not necessarily indicate the amounts which will be realized in the current market. The use of different marketapproaches and/or methodologies for the estimates may have a significant effect on the estimated realization values.

We also enter into derivative instruments to manage the risks to which we are exposed in accordance with our risk managementpolicy. All of our derivative instruments are intended to provide coverage against the risk of variation in foreign exchange, therefore,any changes in risk factors generate an opposite effect on the hedged item. We do not hold derivative instruments for speculativepurposes.

To further assist our risk management, we conduct fair value analyses of our derivative financials instruments, as well assensitivity analyses of our risk variables and our net exposure risk. For more details of the results of our valuation analysis, riskmanagement strategies, and sensitivity analysis of our derivative financial instruments, please see Note 36 to our 2011 consolidatedfinancial statements. ITEM 12. DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES

The depositary, The Bank of New York Mellon, collects its fees for delivery and surrender of ADSs directly from investorsdepositing shares or surrendering ADSs or from intermediaries acting for them. The depositary also collects fees for makingdistributions to investors by deducting those fees from the amounts distributed or by selling a portion of distributable property to paythe fees. The depositary may collect its annual fee for depositary services by deductions from cash distributions or by directly billinginvestors or by charging the book-entry system accounts of participants acting for them. The depositary may generally refuse toprovide fee-attracting services until its fees for those services are paid.

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Persons depositing or withdrawing shares must pay: For:$5.00 (or less) per 100 ADSs (or portion of 100 ADSs) • Issuance of ADSs, including issuances resulting from a

distribution of shares or rights or other property • Cancellation of ADSs for the purpose of withdrawal,

including if the deposit agreement terminatesA fee equivalent to the fee that would be payable ifsecurities distributed to you had been shares and the shareshad been deposited for issuance of ADSs

• Distribution of securities distributed to holders of depositedsecurities which are distributed by the depositary to ADSregistered holders

Registration or transfer fees • Transfer and registration of shares on our share register toor from the name of the depositary or its agent when youdeposit or withdraw shares

Expenses of the depositary • Cable, telex and facsimile transmissions (when expresslyprovided in the deposit agreement)

• Converting foreign currency to U.S. dollars

Taxes and other governmental charges the depositary or thecustodian have to pay on any ADS or share underlying anADS, for example, stock transfer taxes, stamp duty orwithholding taxes

• As necessaryAny charges incurred by the depositary or its agents forservicing the deposited securities

• As necessary

During 2011, we received from the depositary US$5,385,073.38 for continuing annual stock exchange listing fees, standard

out-of-pocket maintenance costs for the ADRs (consisting of the expenses of postage and envelopes for mailing annual and interimfinancial reports, printing and distributing dividend checks, electronic filing of U.S. Federal tax information, mailing required taxforms, stationery, postage, facsimile, and telephone calls), any applicable performance indicators relating to the ADR facility,underwriting fees and legal fees.

The Bank of New York Mellon has agreed to reimburse us for expenses it incurs that are related to establishment andmaintenance expenses of the ADS program. The depositary has agreed to reimburse us for its continuing annual stock exchange listingfees. The depositary has also agreed to pay the standard out-of-pocket maintenance costs for the ADRs, which consist of the expensesof postage and envelopes for mailing annual and interim financial reports, printing and distributing dividend checks, electronic filingof U.S. Federal tax information, mailing required tax forms, stationery, postage, facsimile, and telephone calls. It has also agreed toreimburse us annually for certain investor relationship programs or special investor relations promotional activities. In certaininstances, the depositary has agreed to provide additional payments to us based on any applicable performance indicators relating tothe ADR facility. There are limits on the amount of expenses for which the depositary will reimburse us, but the amount ofreimbursement available to us is not necessarily tied to the amount of fees the depositary collects from investors.

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PART II ITEM 13. DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES

As of December 31, 2011, we were not in default under any of our obligations and there were no dividend arrearages ordelinquencies. ITEM 14. MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS

Law 10,303 of October 31, 2001 amended the provisions of the Brazilian Corporate Law relating to the rights of preferredshareholders. To comply with such modifications, at the extraordinary shareholders meeting held on 12/30/2002, an amendment to ourbylaws was approved granting the preferred shareholders the right to receive dividends 10% higher than the dividends paid tocommon shareholders. ITEM 15. CONTROLS AND PROCEDURES Disclosure Controls and Procedures

Our Chief Executive Officer, or CEO, and Chief Financial Officer, or CFO, are responsible for establishing and maintaining ourdisclosure controls and procedures. These controls and procedures were designed to ensure that information relating to us required tobe disclosed in the reports that we file under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarizedand reported within the time periods specified in the rules and forms of the SEC. We evaluated these disclosure controls andprocedures under the supervision of our CEO and CFO as of December 31, 2011. Based on this evaluation, our CEO and CFOconcluded that our disclosure controls and procedures were adequate and effective and were designed to ensure that materialinformation relating to us and our consolidated subsidiaries are made known to them by others within those entities to allow timelydecisions relating to the required disclosure. Management’s Annual Report on Internal Control over Financial Reporting

Management is responsible for establishing and maintaining adequate internal control over financial reporting (as defined inRules 13a-15(f) and 15d-15(f) of the Exchange Act). Telefônica Brasil’s internal control system was designed to provide reasonableassurance as to the integrity and reliability of the published financial statements. All internal control systems, no matter how welldesigned, may have inherent limitations and can provide reasonable assurance that the objectives of the control system are met.

Management evaluated the effectiveness of internal control over financial reporting under the supervision of our Chief ExecutiveOfficer, or CEO and Chief Financial Officer or CFO as of December 31, 2011 based on the criteria set out in the Committee ofSponsoring Organizations of the Treadway Commission (“COSO”) framework and concluded that, as of December 31, 2011, ourinternal control over financial reporting was adequate and effective.

Our independent registered public accounting firm, Ernst & Young Terco, has issued an attestation report on the effectiveness ofour internal control over financial reporting as of December 31, 2011. The report on the audit of our internal control over financialreporting is included herewith. Attestation Report of the Registered Public Accounting Firm

Ernst & Young Terco, the independent registered public accounting firm that has audited our consolidated financial statements,has issued an attestation report on the effectiveness of our internal control over financial reporting as of December 31, 2011. Thisattestation report appears on page F-3. Changes in Internal Control over Financial Reporting

Our internal audit department periodically evaluates our internal controls for the main cycles, documenting by flow charts theprocesses used in each cycle, identifying opportunities and suggesting improvements for the existing control mechanisms. There wasno change in our internal control over financial reporting that occurred during the

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period covered by this annual report that has materially affected, or is reasonably likely to materially affect, our internal control overfinancial reporting. ITEM 16. [RESERVED] ITEM 16A. AUDIT COMMITTEE FINANCIAL EXPERT

Our Control and Audit Committee is comprised of a minimum of three and a maximum of five nonexecutive directors. See “Item6. Directors, Senior Management and Employees—C. Board Practices—Committees—Control and Audit Committee.” Our Board ofDirectors has designated Luis Bastida Ibarguen, an independent member of our Board of Directors under Brazilian rules and a memberof our Control and Audit Committee, as the company’s “audit committee financial expert,” as such term is defined by the SEC. Weanticipate that there will be some similar functions between the Control and Audit Committee and our statutory Fiscal Board(Conselho Fiscal), the latter of which meets the requirements of the general exemption from the listing standards for audit committeesset forth in Exchange Act Rule 10A-3(c)(3). See “Item 16D. Exemptions from the Listing Standards for Audit CommitteesProcedures.” ITEM 16B. CODE OF ETHICS

Our Control and Audit Committee and our Board of Directors had approved a code of ethics (Normativa de Conduta paraFinanceiros da Telefônica Brasil S.A.). The code of ethics regulates the conduct of our managers in connection with the registrationand control of financial and accounting information and their access to privileged and nonpublic information and data, to comply withthe requirements of the Sarbanes-Oxley Act and NYSE rules. Our code of ethics follows the code of our parent company, TelefónicaS.A. The code of ethics applies to our CEO, CFO and Investor Relations Officer, General and Executive Officer, General Secretaryand Legal Officer and Comptroller, our Officers and corresponding foregoing positions at our subsidiaries, as well as to our executivesin the areas for financial, management and internal controls. The code applies generally to all those with responsibilities similar tothose listed above.

Following our ongoing commitment to transparency to markets and to supervisory authorities, as well as the adoption of highethical standards in business, and based on the guidelines set forth by Telefónica S.A.’s code of ethics, our code of ethics provides forvalues, such as: • transparency; • honesty and integrity; • compliance with laws and regulations, including, but not limited to, the securities markets rules and regulations and the rules

and regulations related to insider trading and market manipulation; • protection of confidential information and property, except when disclosure thereof is authorized or legally required; and • reporting of suspected illegal or unethical behavior.

Our code of ethics is included in this Annual Report as an exhibit. ITEM 16C. PRINCIPAL ACCOUNTANT FEES AND SERVICES

Ernst & Young Terco acted as our independent auditor for the fiscal years ended December 31, 2011, December 31, 2010 andDecember 31, 2009. The chart below sets forth the total amount billed to us by Ernst & Young Terco for services performed in theyears 2011, 2010 and 2009, and breaks down these amounts by category of service:

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2011 2010 2009 (in thousands of reais) Audit Fees 7,002 4,474 4,591 Audit-Related Fees 1,305 755 – Tax Fees 58 17 17 All Other Services – – – Total 8,365 5,246 4,608

For the years ended December 31, 2011, December 31, 2010 and December 31, 2009, we paid our auditors, Ernst & Young

Terco for auditing services rendered in the total amount of R$8,365 thousand, R$5,246 thousand and R$4,608 thousand, respectively. Audit Fees

Audit fees are fees billed for the audit of our annual consolidated financial statements prepared for purposes of filings with theCVM and the SEC and for the reviews of our quarterly financial statements submitted on Form 6-K and to the audit with respect toprocesses required by Sarbanes-Oxley, with the purpose of certifying the effectiveness over our internal controls. Audit-Related Fees

Refers to the auditing services and review with respect to our compliance with the targets established by ANATEL. Tax Fees

Refers to accounting services with respect to services related to tax compliance procedures. All Other Fees

Not applicable. Pre-Approval Policies and Procedures

Our Control and Audit committee evaluates the results of all audit and audit-related services provided by our auditors. OurControl and Audit committee has the authority to approve services to be provided by our auditors that are not specifically includedwithin the scope of the audit. Our Board of Directors, with advice from the Control and Audit Committee, is responsible forauthorizing the audit services provided by Ernst & Young Terco, the present auditor of the Company. Nonaudit services are requiredto be pre-approved by the Control and Audit Committee pursuant to the policy for pre-approval of nonaudit services. ITEM 16D. EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES PROCEDURES

Brazilian Corporate Law requires that we have a statutory Fiscal Board (Conselho Fiscal). Our statutory Fiscal Board meets therequirements of the general exemption set forth in Exchange Act Rule 10A-3(c)(3). See “Item 6. Directors, Senior Management andEmployees—C. Board Practices—Fiscal Board.” Our statutory Fiscal Board is primarily charged with certain advisory, oversight andreview functions with respect to the company’s financial statements; however, the statutory Fiscal Board, as required by BrazilianCorporate Law, has only an advisory role and does not participate in the management of the company. Indeed, decisions of thestatutory Fiscal Board are not binding on the company under Brazilian Corporate Law. Our Board of Directors, under BrazilianCorporate Law, is the only entity with the legal capacity to appoint and retain any independent registered public accounting firm, anddecide the budget appropriation with respect to such auditors.

Since Brazilian Corporate Law does not specifically grant our statutory Fiscal Board the power to establish receipt, retention andcomplaint procedures regarding accounting, internal control and audit matters, or create policies for the confidential, anonymoustreatment of employee concerns regarding accounting or auditing matters, we have established a Control and Audit Committee as abest corporate governance practice to address these various

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issues. See “Item 6. Directors, Senior Management and Employees—C. Board Practices—Committees—Control and AuditCommittee.”

We do not believe that our use of a fiscal board in accordance with Brazilian Corporate Law in combination with our Control andAudit Committee, as opposed to the provisions set forth in Exchange Act Rule 10A-3(b), materially adversely affects the ability of theConselho Fiscal to act independently, satisfy the other applicable requirements of Exchange Act Rule 10A-3 or to fulfill its fiduciaryand other obligations under Brazilian law. ITEM 16E. PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS

None. ITEM 16F. CHANGE IN REGISTRANT’S CERTIFYING ACCOUNTANT

Not applicable. ITEM 16G. CORPORATE GOVERNANCE Principal Differences Between U.S. and Brazilian Corporate Governance Practices

On November 4, 2003, the SEC approved new corporate governance rules established by the NYSE. Pursuant to these rules,foreign private issuers that are listed on the NYSE, such as our company, must disclose any significant ways in which its corporategovernance practices differ from those followed by U.S. companies under the listing rules of the NYSE.

The significant differences between our corporate governance practices and the NYSE corporate governance standards are asfollows:

Independence of Directors and Independence Tests

The Brazilian Corporate Law and our bylaws require that our directors be elected by our shareholders at a general shareholdersmeeting. Fifteen of our directors were appointed by our common shareholders, and one director was appointed by representatives ofour minority preferred shareholders. Eleven of our directors are independent in accordance with rules generally accepted in Brazil.

Both the Brazilian Corporate Law and CVM establish rules in relation to certain qualification requirements and restrictions,investiture, compensation, duties and responsibilities of companies’ executives and directors. We believe these rules provide adequateassurances that our directors are independent and such rules would permit us to have directors that would not otherwise pass theindependence tests established by the NYSE.

Executive Sessions

According to the Brazilian Corporate Law, up to one-third of the members of the Board of Directors can be elected to executivepositions. The remaining nonmanagement directors are not expressly empowered to serve as a check on management, and there is norequirement that those directors meet regularly without management. Notwithstanding, our Board of Directors consists of fourteennonmanagement directors, eleven of whom are independent directors in accordance with rules generally accepted in Brazil, and assuch, we believe we are in compliance with this standard.

Control and Audit Committee/Additional Requirements

Brazilian Corporate Law and our bylaws each require that we have a statutory Fiscal Board (Conselho Fiscal). See “Item 6.Directors, Senior Management and Employees—C. Board Practices—Fiscal Board.” Our statutory Fiscal Board meets therequirements of the general exemption from the listing standards for audit committees set forth in Exchange Act Rule 10A-3(c)(3).See “Item 16D. Exemptions from the Listing Standards for Audit Committees Procedures.” Our statutory Fiscal Board is primarilycharged with certain advisory, oversight and review functions with respect to the company’s financial statements. However, thestatutory Fiscal Board, as

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required by Brazilian Corporate Law, has only an advisory role and does not participate in the management of the company. Indeed,decisions of the statutory Fiscal Board are not binding on the company under Brazilian Corporate Law. See “Item 6. Directors, SeniorManagement and Employees—C. Board Practices—Fiscal Board.”

In addition to our statutory Fiscal Board, we have established a Control and Audit committee as a best corporate governancepractice to comply with the requirements of the Sarbanes-Oxley Act as described in Item 6C of this annual report. We anticipate thatthere will be some similar functions between the Control and Audit Committee and our statutor Fiscal Board. ITEM 16H. MINE SAFETY DISCLOSURE

Not applicable.

PART III ITEM 17. FINANCIAL STATEMENTS

We have responded to Item 18 in lieu of responding to this Item. ITEM 18. FINANCIAL STATEMENTS

Reference is made to pages F-1 through F-117. ITEM 19. EXHIBITS

Exhibit Number Description

1.1 Bylaws of Telefônica Brasil S.A., as amended (unofficial English translation).

2(a) Deposit Agreement dated as of October 12, 2011, among Telefônica Brasil S.A., The Bank of NewYork, as Depositary, and Owners and Beneficial Owners of American Depositary Receipts issuedthereunder.(1)

4(a).1 Contract and Justification of the Merger of Telefónica Data Brasil Holding S.A. intoTelecomunicaçơes De Săo Paulo S.A. – TELESP and Partial Spin-Off of Telefónica Empresas S.A.dated March 9, 2006.(2)

4(a).2 Credit facility with BNDES dated October 14, 2011 (unofficial English translation).

4(b).1 Grant Contract for Fixed Commuted Telephone Service in Local Modality (Sector 31) betweenAgência Nacional De Telecomunicaçơes and Telecomunicaçơes De Săo Paulo S.A. – TELESP datedJune 30, 2011 (unofficial English translation).

4(b).2 Grant Contract for Fixed Commuted Telephone Service in Long-Distance Modality (Sector 31)between Agência Nacional De Telecomunicaçơes and Telecomunicaçơes De Săo Paulo S.A. –TELESP dated June 30, 2011 (unofficial English translation).

4(b).3 Certificate of Authorization to Provide Multimedia Communication Service, for the CollectiveInterest, by and between “Agência Nacional de Telecomunicaçơes - ANATEL” and“Telecomunicaçơes de Săo Paulo S.A. – TELESP” (unofficial English translation).(3)

4(b).4 Authorization Term of the Personal Mobile Service entered by ANATEL and Telesp CelularParticipaçơes S.A. (unofficial English translation).

4(b).5 Authorization Term of the Personal Mobile Service entered by ANATEL and Global Telecom S.A.(unofficial English translation).

4(b).6 Authorization Term of the Personal Mobile Service entered by ANATEL and Tele Centro OesteCelular Participaçơes S.A. (unofficial English translation).

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Exhibit Number Description

4(b).7 Authorization Term of the Personal Mobile Service entered by ANATEL and Telebahia CelularS.A.(unofficial English translation).

4(b).8 Authorization Term of the Personal Mobile Service entered by ANATEL and Telergipe Celular S.A.(unofficial English translation).

4(b).9 Authorization Term of the Personal Mobile Service entered by ANATEL and Telerj Celular S.A.(unofficial English translation).

4(b).10 Authorization Term of the Personal Mobile Service entered by ANATEL and Telest Celular S.A.(unofficial English translation).

8.1 List of Subsidiaries.

11.1 Code of Ethics of Telefônica Brasil S.A. (3)

12.1 Section 302 Certification of the Chief Executive Officer.

12.2 Section 302 Certification of the Chief Financial Officer.

13.1 Section 906 Certification of the Chief Executive Officer.

13.2 Section 906 Certification of the Chief Financial Officer.

(1) Incorporated by reference to our Registration Statement of American Depositary Receipt shares on Form F-6POS (No.333-146901) filed with the Commission on July 30, 2010.

(2) Incorporated by reference to our form CB filed with the Commission on March 14, 2006. (3) Incorporated by reference to our annual report on Form 20-F (No. 001-14475) filed with the Commission on April 16, 2007.

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GLOSSARY OF TELECOMMUNICATIONS TERMS

The following explanations are not intended as technical definitions, but to assist the reader in understanding certain terms as usedin this Annual Report.

1xRTT: 1x Radio Transmission Technology, the CDMA 2000 1x technology, which, pursuant to the ITU (InternationalTelecommunication Union) and in accordance with the IMT-2000 rules, is the 3G (third generation) technology.

AICE: Acesso Individual Classe Especial is a mandatory plan offered by the telecommunication providers to low-incomecustomers. Includes different pricing schemes for the Basic Plan (Plano Básico) and the Mandatory Offer Alterative Plan (PlanoAlternativo de Oferta Obrigatória).

AMPS: Advanced Mobile Phone System, a radio interface technology for cellular networks based on spectral spreading of theradio signal and channel division in the frequency domain.

ADSL: Asymmetric digital subscriber line. ADSL technology allows more data to be sent over existing copper telephone lines.

Analog: A mode of transmission or switching that is not digital, e.g., the representation of voice, video or other modulatedelectrical audio signals which are not in digital form.

BLEC: Building local exchange carrier. A BLEC is a service provider that delivers telecommunication services within a specificbuilding. BLECs aggregate traffic at the particular site and employ a single broadband connection for local access.

CDMA: Code Division Multiple Access, an aerial interface technology for cellular networks based on spectral spreading of theradio signal and channel division in the code domain.

CDMA 2000 1xEV-DO: 3G (third generation) access technology with data transmission speed of up to 2.4 megabytes per second.

Cellular service: A cellular telecommunications service provided by means of a network of interconnected low-powered basestations, each of which covers one small geographic cell within the total cellular telecommunications system service area.

CSP: long-distance carrier selection.

Digital: A mode of representing a physical variable such as speech using digits 0 and 1 only. The digits are transmitted in binaryform as a series of pulses. Digital networks allow for higher capacity and higher flexibility through the use of computer-relatedtechnology for the transmission and manipulation of telephone calls. Digital systems offer lower noise interference and canincorporate encryption as a protection from external interference.

DTH: A special type of service that uses satellites for the direct distribution of television and audio signs for subscribers.

FATOR X: A measurement of the company’s productivity, calculated by ANATEL, which is discounted by the inflation rate andis used for the calculation of the annual rate adjustment applicable to telecommunications companies.

FTTH: Internet access through Fiber Optic (“Fiber to the Home”).

FWT: Fixed-phones using the wireless network (“Fixed Wireless Telephone”).

GSM: Global System for Mobile Communications, a service rendered by concession from ANATEL for a specific frequencyrange.

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Internet: A collection of interconnected networks spanning the entire world, including university, corporate, government andresearch networks from around the globe. These networks all use the IP (Internet Protocol) communications protocol.

IP (Internet protocol): An interconnection protocol for sub-networks, in particular for those with different physical characteristicsused by the Internet.

IPTV: Pay TV with video broadcast offered through the use of the IP protocol.

MMDS: (Multichannel Multipoint Distribution Service): It’s a wireless telecommunications technology, used for general-purposebroadband networking or, more commonly, as an alternative method of cable television programming reception.

Net additions: total number of new customers acquired in any period minus the reduction in the number of customers.

Network: An interconnected collection of elements. In a telephone network, these consist of switches connected to each other andto customer equipment. The transmission equipment may be based on fiber optic or metallic cable or point-to-point radio connections.

Network usage charge: Amount paid per minute charged by network operators for the use of their network by other networkoperators.

PBX (Private Branch Exchange): Telephone switchboard for private use, but linked to a telephone network.

PGA-SMP: Plano Geral de Autorizaçơes do Serviço Móvel Pessoal, or General Plan of Authorizations for the Personal MobileServices.

PGO: Plano Geral de Outorgas, or General Plan of Grants.

PUC: Prestaçăo Utilidade Comodidade, which are convenience services offered to fixed-line customers, such as caller ID,voicemail, call forwarding, etc.

SCM: Serviço de Comunicaçăo Multimídia or multimedia communication services.

SMP: Serviço Móvel Pessoal or Personal Mobile Service, a service rendered pursuant to an authorization granted by ANATEL toprovide mobile service in a specific frequency range.

SMS: text messaging services for wireless devices, which allow customers to send and receive alphanumerical messages.

STFC: Serviço Telefônico Fixo Comutado, or the transmission of voice and other signals between determined fixed points.

Switch: Devices used to set up and route telephone calls either to the number called or to the next switch along the path. Theymay also record information for billing and control purposes.

TDMA: Time Division Multiple Access, a radio interface technology for cellular networks based on spectral spreading of theradio signal and channel division in the time domain.

Universal service: The obligation to supply basic service to all users throughout a national territory at reasonable prices.

VOIP: Voice over Internet Protocol, is a technology for transmitting voice using the Internet.

VOD: Video on demand systems allow users to select and watch/listen to video or audio content on demand.

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VU-M: Valor de Remuneraçăo de Uso de Rede do Serviço Móvel Pessoal, or Compensation Value for Network Use of PersonalMobile Service.

WAP: Wireless Application Protocol, an open and standardized protocol started in 1997, which allows access to Internet serversthrough specific equipment, a WAP Gateway at the carrier, and WAP browsers in customers’ wireless devices.

WCDMA: Wide-Band Code-Division Multiple Access, a technology for wideband digital radio communications of Internet,multimedia, video and other bandwidth-demanding applications.

Wireless devices: wireless appliances that we sell, including cellular handsets, wireless handheld devices and wireless broadbandcards.

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SIGNATURES

The registrant hereby certifies that it meets all of the requirements for filing on Form 20-F and that it has duly caused andauthorized the undersigned to sign this annual report on its behalf.

TELEFÔNICA BRASIL S.A. By: /s/ Antonio Carlos

Valente da Silva Name: Antonio

CarlosValente daSilva

Title: ChiefExecutiveOfficer

By:/s/ Gilmar Roberto Pereira

Camurra Name:Gilmar Roberto

Pereira Camurra Title: Chief Financial

Officer and InvestorRelations Officer

Date: April 20, 2012

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Table of Contents Telefônica Brasil S.A.(formerly Telecomunicaçơes de Săo Paulo S.A. – Telesp)

Consolidated Financial statements

As of and for the years ended December 31, 2011, 2010 and 2009

Contents

Reports of Independent Registered Public Accounting Firm F-2 Consolidated Balance sheets F-4 Consolidated Income Statement F-6 Consolidated Statements of comprehensive income F-7 Consolidated Statements of changes in shareholders´ equity F-8 Consolidated Statements of cash flows F-10 Notes to consolidated financial statements F-12

F-1


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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

The Board of Directors and Shareholders of Telefônica Brasil S.A.

We have audited the accompanying consolidated balance sheets of Telefônica Brasil S.A. (formerly Telecomunicaçơes de Săo PauloS.A.- Telesp) and subsidiaries as of December 31, 2011 and 2010, and the related consolidated statements of income, comprehensiveincome, changes in shareholders' equity, and cash flows for each of the three years in the period ended December 31, 2011. Thesefinancial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financialstatements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Thosestandards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free ofmaterial misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financialstatements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well asevaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position ofTelefônica Brasil S.A. and subsidiaries at December 31, 2011 and 2010, and the consolidated results of their operations and their cashflows for each of the three years in the period ended December 31, 2011, in conformity with International Financial ReportingStandards as issued by the International Accounting Standards Board.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States),Telefônica Brasil S.A.'s internal control over financial reporting as of December 31, 2011, based on criteria established in InternalControl-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission and our reportdated February 14, 2012 expressed an unqualified opinion thereon.

Săo Paulo, February 14, 2012

ERNST & YOUNG TERCOAuditores Independentes S.S. /s/ Alexandre Hoeppers Alexandre HoeppersPartner

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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

The Board of Directors and Shareholders of Telefônica Brasil S.A.

We have audited Telefônica Brasil S.A.’s (formerly Telecomunicaçơes de Săo Paulo S.A.- Telesp) internal control over financialreporting as of December 31, 2011, based on criteria established in Internal Control—Integrated Framework issued by the Committeeof Sponsoring Organizations of the Treadway Commission (the COSO criteria). Telefônica Brasil S.A.’s management is responsiblefor maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control overfinancial reporting included in the accompanying Management’s annual report on internal control over financial reporting. Ourresponsibility is to express an opinion on the company’s internal control over financial reporting based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Thosestandards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control overfinancial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control overfinancial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness ofinternal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances.We believe that our audit provides a reasonable basis for our opinion.

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability offinancial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accountingprinciples. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to themaintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of thecompany; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements inaccordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only inaccordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regardingprevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effecton the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projectionsof any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes inconditions, or that the degree of compliance with the policies or procedures may deteriorate.

In our opinion, Telefônica Brasil S.A. maintained, in all material respects, effective internal control over financial reporting as ofDecember 31, 2011, based on the COSO criteria.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), theconsolidated balance sheets of Telefônica Brasil S.A. and subsidiaries as of December 31, 2011 and 2010, and the related consolidatedstatements of income, comprehensive income, changes in shareholders’ equity, and cash flows for each of the three years in the periodended December 31, 2011 and our report dated February 14, 2012 expressed an unqualified opinion thereon.

Săo Paulo, February 14, 2012

ERNST & YOUNG TERCOAuditores Independentes S.S. /s/ Alexandre Hoeppers Alexandre HoeppersPartner

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Telefônica Brasil S.A.(formerly Telecomunicaçơes de Săo Paulo S.A. – Telesp)

Consolidated Balance sheetsDecember 31, 2011 and 2010(In thousands of reais)

As of December 31, Assets 2011 2010 Current assets Note 11,810,118 5,147,449

Cash and cash equivalents 5 and 36 2,940,342 1,556,715 Trade accounts receivable, net 6 5,105,860 2,546,225 Inventories 7 471,721 77,499 Recoverable taxes 8.1 2,495,066 659,357 Escrow deposits 9 116,421 - Derivatives 36 1,840 166 Prepaid expenses 10 255,056 41,372 Other 11 423,812 266,115

Noncurrent assets 53,679,855 14,818,845 Long-term portion of investments pledged as collateral 99,114 -

Trade accounts receivable, net 6 84,855 67,343 Recoverable taxes 8.1 1,014,959 326,677 Deferred taxes 8.2 1,428,878 503,679 Escrow deposits 9 3,400,244 1,710,683 Derivatives 36 225,935 - Prepaid expenses 10 32,138 24,647 Other 11 148,293 153,808 Investments 12 37,835 100,837 Property, plant and equipment, net 13 17,153,920 10,200,697 Intangible assets, net 14 30,053,684 1,730,474

Total Assets 65,489,973 19,966,294

The accompanying notes are an integral part of these Consolidated Financial Statements.

F-4


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As of December 31, Liabilities and Shareholders’ Equity 2011 2010 Current Liabilities 12,740,263 5,615,310 Note

Payroll and related accruals 15 495,624 307,245 Trade accounts payable 16 6,081,611 2,832,157 Taxes payable 17 1,691,991 754,993 Loans and financing 18.1 988,413 420,412 Debentures 18.2 468,624 - Dividends and interest on shareholders’ equity payable 19 972,986 450,897 Provisions 20 416,313 240,213 Derivatives 36 51,162 9,502 Deferred revenue 21 761,268 103,339 Share fractions 389,953 112,594 Other 22 422,318 383,958

Noncurrent Liabilities 9,418,925 2,683,870 Taxes payable 17 459,358 38,707 Deferred taxes 8.2 788,954 - Loans and financing 18.1 3,959,115 1,405,314 Debentures 18.2 787,807 - Provisions 20 3,120,798 1,118,698 Derivatives 36 78,369 18,542 Deferred revenue 21 156,266 38,400 Other 22 68,258 64,209

Shareholders’ equity 23 43,330,785 11,667,114 Capital 37,798,110 6,575,480 Capital reserves 2,719,665 2,733,562 Legal reserve 877,322 659,556 Non-controlling interest acquisition premium (29,929) - Other comprehensive Income 7,520 4,417 Additional proposed dividends 1,953,029 1,694,099 Non-controlling shareholders 5,068 -

Total Liabilities 65,489,973 19,966,294


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Consolidated Income StatementFor the years ended December 31, 2011, 2010 and 2009(In thousands of reais, except earnings per share data)

Note 2011 2010 2009 Net operating revenue 24 29,128,740 15,798,251 15,852,533

Cost of goods and services 25 (14,728,171) (8,844,805) (9,236,386)Gross profit 14,400,569 6,953,446 6,616,147 Operating (expenses) income (8,603,203) (3,388,110) (3,202,254)

Selling 26 (7,259,703) (2,964,632) (2,528,485)General and administrative 27 (1,785,658) (738,846) (805,353)Equity in earnings (losses) of associates 12 - 2,889 18,787 Other operating income, net 28 442,158 312,479 112,797

Operating income before financial expenses, net 5,797,366 3,565,336 3,413,893

Financial expense, net 29 (139,692) (120,738) (188,792) Income before income tax and social contribution 5,657,674 3,444,598 (3,225,101)

Income tax and social contribution 30 (1,295,475) (1,045,762) (1,021,012)Net income for the year 4,362,199 2,398,836 2,204,089 Attributed to:

Interest of non-controlling shareholders 6,881 - - Equity holders of the parent company 4,355,318 2,398,836 2,204,089

Basic and diluted earnings per share – common 4.40 4.45 4.08 Basic and diluted earnings per share – preferred 4.84 4.89 4.49


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Consolidated Statement of comprehensive incomeFor the years ended December 31, 2011, 2010 and 2009 (In thousands of reais)

2011 2010 2009 Net income for the year 4,362,199 2,398,836 2,204,089 Gains (Losses) on available for sale securities (5,170) (117,609) 22,251 Taxes on earnings (losses) on available for sale securities 1,758 39,987 (7,565)Unrealized actuarial gains (losses) and effect of the limitation of surplus plan assets (62,581) (60,585) 25,526 Taxes on unrealized actuarial gains (losses) and effect of the limitation of surplus plan

assets 19,584 18,522 (6,830)Gains (losses) on cash flow hedge 3,022 - - Taxes on gains (losses) on cash flow hedge (1,027) - - Cumulative translation adjustments of foreign currency transactions 4,520 (6,778) (2,963) Net gains (losses) recognized in equity (39,894) (126,463) 30,419 Comprehensive income for the year 4,322,305 2,272,373 2,234,508 Attributable to: Interest of non-controlling shareholders 6,881 - - Equity holders of the parent company 4,315,424 2,272,373 2,234,508


F-7



Consolidated Statements of changes in shareholders’ equityFor the years ended December 31, 2011, 2010 and 2009(In thousands of reais)

Capital

Premium paidon acquisition ofnon-controlling

interest

SpecialGoodwillreserve Capital reserves

Treasuryshares

LegalReserve

RetainedEarnings

Additionalproposeddividend

Unrealizedgains on

available forsale securities,

net of tax

Cashflow

hedge

Cumulativetranslation

adjustments Shareholders’

equity of company

Participation ofnon-controlling

shareholders Total shareholders'

equity Balances onDecember 31,2008 6,575,480 - 63,074 2,688,207 (17,719) 659,556 (58,571) 395,109 76,232 - 862 11,300,302 - 10,382,230 Unclaimeddividends andinterest onshareholders’equity, net oftaxes 153,673 153,673 Net income forthe year 2,204,089 2,204,089 Othercomprehensiveincome 18,696 14,686 (2,963) 30,419 Appropriations: Dividends (470,000) (395,109) (865,109)Interest onshareholders’equity (514,250) (514,250)Withholding taxoninterest onshareholders’equity (90,750) (90,750)Additionalproposeddividend (1,251,646) 1,251,646 - Balances as ofDecember 31,2009 6,575,480 - 63,074 2,688,207 (17,719) 659,556 (8,759) 1,251,646 90,918 - (2,101) 11,300,302 - 11,300,302

Unclaimeddividends andinterest onshareholders’equity, net oftaxes - - - - - 134,440 - - - - 134,440 - 134,440 Net income forthe year - - - - - - 2,398,836 - - - - 2,398,836 - 2,398,836 Othercomprehensiveincome - - - - - - (42,063) - (77,622) - (6,778) (126,463) - (126,463)Appropriations: - Dividends - - - - - (196,355) (1,251,646) - - - (1,448,001) - (1,448,001)

Interest onshareholders’equity - - - - - - (503,200) - - - - (503,200) - (503,200)Withholdingtax on interestonshareholders’equity - - - - - - (88,800) - - - - (88,800) - (88,800)Additionalproposeddividend - (1,694,099) 1,694,099 - - - -

Balances as ofDecember 31,2010 6,575,480 63,074 2,688,207 (17,719) 659,556 - 1,694,099 13,296 - (8,879) 11,667,114 - 11,667,114

Unclaimeddividends andinterest onshareholders’equity, net oftaxes - - - - - 107,874 - - - - 107,874 - 107,874 Capital increasedue to theacquisition ofVivo Part. on04/27/2011 31,222,630 - - 47,723 - - - - - - - 31,270,353 - 31,270,353 Withdrawal rightspaid toshareholders dueto the acquisitionof Vivo Part. - - - - (3) - - - - - - (3) - (3)Repurchase ofshares - - - - (61,617) - - - - - - (61,617) - (61,617)Acquisition ofnon-controllingshareholders - (29,929) - - - - - - - - (29,929) (1,813) (31,742)Net income forthe year - - - - - - 4,355,318 - - - - 4,355,318 6,881 4,362,199 Othercomprehensiveincome - - - - - - (42,997) (3,412) 1,995 4,520 (39,894) - (39,894)

F-8


Table of Contents Appropriations - - - - - - - -

Dividends - - - - - (382,400) (1,694,099) - - - (2,076,499) - (2,076,499)Interest onshareholders’equity - - - - - - (1,586,950) - - - - (1,586,950) - (1,586,950)Withholding tax oninterest onshareholders’equity - - - - - - (280,050) - - - - (280,050) - (280,050)Legal Reserve - - - - - 217,766 (217,766) - - - - - - - Additional proposeddividend - - - - - - (1,953,029) 1,953,029 - - - - - -

- Balances as ofDecember 31, 2011 37,798,110 (29,929) 63,074 2,735,930 (79,339) 877,322 - 1,953,029 9,884 1,995 (4,359) 43,325,717 5,068 43,330,785 Outstanding shares(thousand) 1,123,885 Book value per share 38.55


F-9



Consolidated Statements of cash flowsFor the years ended December 31, 2011, 2010 and 2009(In thousands of reais)

2011 2010 2009 Cash flows from operations Income before income tax and social contribution 5,657,674 3,444,598 3,225,101 Items that do not affect cash Expenses (revenues) not affecting cash 5,326,120 2,270,478 3,215,771 Depreciation and amortization 4,585,994 1,913,494 2,505,475 Exchange variations from loans 89,549 (638) (49,847)Monetary variations (30,323) 34,580 33,245 (Gain)/ Loss from equity in earnings of associates - (2,889) (18,788)Gain on permanent asset disposals (482,115) (317,486) 14,374 Allowance for doubtful accounts 506,581 386,340 564,580 Pension and other post-retirement benefits plans (1,163) 4,504 6,433 Tax, civil and labor provisions 255,420 25,578 (146,052)Interest expense 416,426 240,367 317,008 Provision for dismantling costs (33,138) 4,332 714 Provision for loyalty program 9,861 - - Others 9,028 (17,704) (11,371)

(Increase) decrease in operating assets (488,210) (208,514) (771,024)Trade accounts receivable, net (933,558) 87,501 (395,235)Inventories (55,669) 70,937 (2,939)Other current assets 601,573 (61,161) (185,918)Other noncurrent assets (100,556) (305,791) (186,932)

Increase (decrease) in operating liabilities (2,354,209) (974,304) (1,220,375) Payroll and related accruals (56,908) 166,994 (9,584)

Accounts payable and accrued expenses 85,694 (26,355) 177,103 Taxes other than income taxes 130,058 (8,043) (110,144)Other current liabilities (521,056) 43,621 (272,808)Other noncurrent liabilities (97,655) (3,031) 88,003 Interest paid (496,103) (265,792) (328,370)Income and social contribution taxes paid (1,398,239) (881,698) (764,575)

Cash provided by operations 8,141,375 4,532,258 4,449,473

F-10



Consolidated Statements of cash flows (Continued)For the years ended December 31, 2011, 2010 and 2009(In thousands of reais)

2011 2010 2009 Cash flows generated from (used in) investing activities Capital increase in subsidiaries and associates - (3,557) - Acquisition of fixed and intangible assets, net of grants (4,653,708) (2,126,465) (2,324,141)Cash from sales of fixed assets 610,880 292,858 28,240 Cash from sales of investment - 178,453 - Cash and cash equivalents from consolidation of companies 31,095 - - Cash and cash equivalents from business combination 1,982,898 - - Cash used in investing activities (2,028,835) (1,658,711) (2,295,901)

Cash flows generated from (used in) financing activities Loans paid (1,426,334) (1,742,818) (432,924)New loans obtained 2,123,727 74,275 272,600 Net payment on derivatives contracts 56,765 (5,399) 31,467 Dividends and interest on shareholders’ equity paid (5,387,601) (1,919,906) (1,488,705)Acquisition of non-controlling interest (33,850) - - Repurchase of shares (61,620) - - Cash used in financing activities (4,728,913) (3,593,848) (1,617,562)

Increase (decrease) in cash and cash equivalents 1,383,627 (720,301) 536,010 Cash and cash equivalents at beginning of year 1,556,715 2,277,016 1,741,006 Cash and cash equivalents at end of year 2,940,342 1,556,715 2,277,016

Changes in cash during the year 1,383,627 (720,301) 536,010


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Table of Contents

Notes to the Consolidated Financial StatementsDecember 31, 2011, 2010 and 2009(In thousands of reais)

1. Operations and background

a) Controlling shareholders

Telefônica Brasil S.A. (formerly Telecomunicaçơes de Săo Paulo S.A. – Telesp), hereinafter “Telefônica Brasil” or“Company”, is headquartered at Rua Martiniano de Carvalho, 851, in the capital of the state of Săo Paulo, Brazil.Telefônica Brasil belongs to the Telefonica Group, the telecommunications industry leader in Spain which is also presentin several European and Latin American countries. The Company is controlled by Telefónica S.A., which as of December31, 2011, held total direct and indirect interest of 73.81% of which 91.76% are common shares and 64.60% are preferredshares (87.95% in December 31, 2010, of which 85.57% were common shares and 89.13% were preferred shares).

b) Operations

The Company and its subsidiaries’ basic business purpose is the rendering of fixed wire telephone services in the state ofSăo Paulo and mobile telephone services nationwide under Fixed Switch Telephone Service Concession Agreement -STFC and authorizations, respectively granted by the National Communications Agency (ANATEL), which is in charge ofregulating the telecommunications sector in Brazil under the Law n°9,472 of July 16, 1997 – General Law ofTelecommunications modified by Law n° 9,986 of July 18, 2000 (Note 1.b.1 and 1.b.2.). The Company and its subsidiarieshave also authorizations from ANATEL to provide other telecommunications services, such as data communication to thebusiness market, broadband internet services (under the Speedy and Ajato brands), mobile telephone services (SMP,through Vivo) and pay TV services (i) by satellite all over the country (Telefonica TV Digital) and (ii) using (MMDS)Multichannel Multipoint Distribution Service technology in the cities of Săo Paulo, Rio de Janeiro, Curitiba and PortoAlegre. The authorizations for use of 2.5GHz frequency associated with pay TV service by MMDS technology wereextended in February 16, 2009 and await a decision from ANATEL regarding the payment conditions for renewal.

The Company is registered with the Brazilian Securities and Exchange Commission (CVM) as a publicly-held Company -category A (issuers authorized to negotiate any securities) and its shares are traded on the Săo Paulo Stock Exchange(BM&FBovespa). The Company is also registered with the U.S. Securities and Exchange Commission (SEC) and itsAmerican Depositary Shares (ADSs) – level II, listed only as preferred shares, are traded on the New York Stock Exchange(NYSE).

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Table of Contents b.1. Fixed Switch Telephone Service Concession Agreement (STFC)

The Company is the concessionaire of the Fixed Switched Telephone Service (STFC) to render fixed telephony services inthe local network and national long distance calls originated in sector 31 of region 3, which comprises the State of SăoPaulo (except the municipalities that form the sector 33), established in the General Concession Plan (PGO/2008).

The current Concession Agreement dated June 30, 2011, in place since July 1, 2011 awarded as an onerous title, will bevalid until December 31, 2025. However, the agreement can be reviewed on December 31, 2015 and December 31, 2020.Such condition allows ANATEL to set up new requirements and goals for universalization and quality oftelecommunication services, according to the conditions in place at that moment.

The Concession Agreement establishes that all assets owned by the Company which are indispensable to the provision ofthe services described on such agreement are considered reversible assets and are deemed to be part of the concessionassets. These assets will be automatically returned to ANATEL upon expiration of the concession agreement, according tothe regulation in force at that moment. On December 31, 2011, the carrying amount of reversible assets is estimated atR$6,698,899 (R$6,818,075 as of December 31, 2010), comprised of switching and transmission equipment and public useterminals, external network equipment, energy equipment and system and operation support equipment.

In accordance with the Concession Agreement, every two years, during the agreement’s new 20-year period, public regimecompanies will have to pay a fee which will correspond to 2% of its prior-year SFTC revenue, net of taxes and socialcontributions. In April of 2011, the Company made a payment for this concept of R$186,852, based on the 2010 STFC netrevenues.

b.2. Commitments and relatives frequencies for mobile services

The authorizations granted by ANATEL may be renewed just once, for a 15-year period. Biannually, after the firstrenewal, a payment of rates equivalent to 2% (two percent) of the company’s revenue for the preceding year, net of taxesand mandatory social contributions related to the application of the Basic and Alternative Plans of Service.

The subsidiary Vivo S.A. is engaged in cellular mobile telephone services (Personal Mobile Service – SMP), including theactivities necessary or useful for the performance of said services, in conformity with the authorities granted to it.

In the auctions held by ANATEL on December 14 and 15, 2010, Vivo S.A. was the winner in 23 lots offered for sale theremaining sub-ranges of 900 MHz and 1800 MHz frequencies, in accordance with the Invitation to Bidn°002/2010/PVCP/SPV-ANATEL.

On April 28, 2011, in its 604th meeting held, ANATEL’s Board of Directors, decided in relation to the bidding instructionsfor H Band surplus (Bidding Instruction No. 002/2010/PVCP/SPV-Anatel) approved Lots 41, 42, 44, 45, 76 to 84, 92, 101,105, 107, 115, 119, 122, 124, 128 and 163 for Vivo S.A. and other bid-winning operators for lots of that auction.

On May 30, 2011, the decision was published in the Official Gazette (DOU) and the authorization terms were signed withANATEL. Accordingly, with the ratification of the aforementioned lots, Vivo S.A. increased its overall spectrum andbegan to operate in the 900 Mhz and 1.800 Mhz frequencies.

On the date of the signature of the Authorization Terms, R$81,175 was paid relating to 10% of the total value and theremaining 90% was paid on December 2011.

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The amount of R$811,754, relating to a total of 23 lots, was adjusted in accordance with the remaining license period andrecorded as an intangible asset.

On August 18, 2011, Act No. 7012 was published in the Official Gazette (DOU), which authorized Vivo S.A. to provideSwitched Fixed Telephone Services (STFC) to the general public. Vivo S.A. is operating under this authorizationnationwide, except in the State of Săo Paulo, where the company operates.

Vivo S.A. is engaged in providing the Personal Mobile Service (SMP), including activities necessary or useful for theexecution of these services, in accordance with the authorizations granted, as follows:


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Table of Contents c) Subsidiaries

Vivo S. A.:

Wholly-owned subsidiary of the Company, Vivo S.A. is engaged in providing SMP services, including activities necessaryor useful for the execution of these services, in accordance with the authorizations granted.

Telecom S.A.

Telecom S.A. is a wholly-owned subsidiary of the Company, engaged in the following services:

(i) Maintenance of customer internal telephony network, i.e. installation, maintenance, exchange and extension of newpoints of internal telephony wire in companies and houses;

(ii) iTelefônica, provider of free internet access;

(iii) Speedy Wi-Fi, broadband service for wireless internet access;

(iv) Speedy Corp, broadband provider developed especially for the corporate market;

(v) Integrated IT solution named “Posto Informático” allowing access to Internet, connection of private networks andrental of IT equipment. Since August 2010 the service of internet access has been provided by Telefônica Brasil;

(vi) Product At-home solutions, home automation that is among the consulting services and development of automationdesign and installation and configuration of the solution;

(vii) Satellite TV services (Direct to Home – DTH) throughout the country and by optical fiber – IPTV (Internal ProtocolTelevision). The DTH is a special type of subscription TV service, which uses satellites for direct distribution of TVand audio signals to subscribers.

Telefônica Sistema de Televisăo S.A.

The corporate purpose of Telefônica Sistema de Televisăo S.A. (“TST”) is to provide pay-TV services in the form ofMultichannel Multipoint Distribution Service (MMDS), as well as telecommunication and internet-based services.

Ajato Telecomunicaçơes Ltda.

The corporate purpose of Ajato Telecommunications Ltd is to provide telecommunications and IT services, access totelecommunications network, internet and radio, including telemarketing, image and data services, trade lease, import,export, maintenance and repair for those equipments.

Telefônica Data S.A.

The corporate purpose of Telefônica Data S.A. is to provide and operate telecommunications services, as well as toprepare, implement and deploy projects involving integrated corporate solutions,telecommunication advisory services, technical assistance services, sale, lease and maintenance of telecommunicationequipment and networks.

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Aliança Atlântica Holding B.V.

Company based in Netherlands, Amsterdam, with a 50% interest owned by Telefonica Brasil, holds cash from the sale ofPortugal Telecom’s shares in June 2010 and a small interest in Zon Multimedia, a company of Portugal Telecom Groupwhich provides pay-TV services, internet, distribution of audiovisual content, cinema and telecommunications services.

Companhia AIX de Participaçơes

This company is engaged in the Refibra consortium, as a leader, as well as in both direct and indirect development ofactivities related to the construction, conclusion and operation of underground fiber optic networks. Currently, TelefônicaBrasil holds a 50% interest in this company.

Companhia ACT de Participaçơes

Companhia ACT is engaged in the Refibra consortium, as a leader, as well as in activities related to providing technicalassistance for the preparation of the network conclusion project by providing studies to make it more profitable, as well asto inspect the activities in progress related to the project. Currently, Telefônica Brasil holds a 50% interest in this company.

GTR Participaçơes e Empreendimentos S.A.:

The business purpose of GTR Participaçơes e Empreendimentos S.A. is to hold equity interest in other companies, whichare engaged in providing cable and pay-TV services, telecommunications services in general, the production, purchase,licensing, import and distribution of television programs, either its own or third parties’, spare parts and equipment,management and rendering of telecommunications and pay-TV service platforms.

TVA Sul Paraná S.A.:

The business purpose of TVA Sul Paraná S.A. is to provide cable and pay-tv services, telecommunications services ingeneral, produce, purchase, license, import and distribute television programs, either its own or third parties’, spare partsand equipment, manage, update and exploit telecommunications and pay-TV service platforms and publish journals.

Lemontree Participaçơes S.A.:

The business purpose of Lemontree S.A. is to hold equity interest in other companies, which are engaged in providingcable and pay-TV services, telecommunications services in general, the production, purchase, licensing, import anddistribution of television programs, either its own or third parties’, spare parts and equipments, management, updating andexploitation of telecommunications and pay-TV services platforms, and data management and trading.

Comercial Cabo TV Săo Paulo S.A.:

The business purpose of Comercial Cabo TV Săo Paulo S.A. is to provide cable and pay-TV services, advisory andconsultancy services in telecommunications in general, to produce, purchase, license, import and distribute televisionprograms, either its own or third parties’, spare parts and equipment, manage, update and exploit telecommunications andpay-TV service platforms, and to engage in all types of marketing and advertisement.

The table below shows the list of direct and indirect wholly-owned subsidiaries of the Company as well as the percentageownership shareholdings:

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Subsidiaries Dec/2011 Dec/2010

Vivo S.A. (1) 100% -Telefônica Data S.A. 100% 100%A.Telecom S.A. 100% 100%Telefônica Sistema deTelevisăo S.A. 100% 100%Ajato Telecomunicaçơes Ltda. 100% 100%GTR Participaçơes eEmpreend. S.A. (2) 66.67% 66.67%TVA Sul Paraná S.A. (2) 91.50% 91.50%Lemontree Participaçơes S.A.(2) 83.00% 66.67%Comercial Cabo TV Săo PauloS.A. (2) 93.19% 86.65%Aliança Atlântica HoldingB.V.(3) 50% 50%Companhia AIX deParticipaçơes (3) 50% 50%Companhia ACT deParticipaçơes (3) 50% 50%

(1) fully consolidated as from April 2011 (Notes 1.e and 4).(2) fully consolidated as from January 2011.(3) jointly controlled.

d) Share Trading in Stock Exchanges

d.1. Shares traded in the Săo Paulo Stock Exchange (BM&FBovespa)

On September 21, 1998, the Company started trading its shares in the Săo Paulo Stock Exchange (BM&FBovespa), undertickers TLPP3 and TLPP4, for common and preferred shares.

The Extraordinary Shareholders’ Meetings of Vivo Participaçơes S.A. (Vivo Part.) and Telesp held on October 3, 2011,approved the merger of Vivo Part. into Telesp, which, on the same date, changed its corporate name to Telefônica BrasilS.A. On October 6, 2011, the Company changed its ticker codes to VIVT3 and VIVT4 for common and preferred shares,respectively, and the stock exchange code for Telefônica Brasil (see note 4).

d.2. Shares traded in the New York Stock Exchange (NYSE)

On November 16, 1998, the Company started the ADR trading process in the New York Stock Exchange (NYSE), whichcurrently have the following characteristics:

• Type of share: preferred. • Each ADR represents 1 (one) preferred share. • The shares are traded in the form of ADRs through code “VIV” on the New York Stock Exchange. • Foreign depositary bank: The Bank of New York. • Custodian bank in Brazil: Banco Itaú S.A. e) Corporate events in 2011

Merger of shares of Vivo Participaçơes S.A. into Telefônica Brasil

In a meeting held on March 24, 2011, ANATEL gave prior consent to the Corporate restructuring operation involving theCompany and Vivo Participaçơes S.A., with Act No. 1,970, dated April 1, 2011, published in the Official Gazette on April11, 2011.

The Company’s Extraordinary Shareholders’ Meeting held on April 27, 2011, unanimously approved the


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Protocol of Merger and Instrument of Justification agreed between the Company and Vivo Part., with each share of VivoPart. exchanged for 1.55 shares of the Company. The Company’s common and preferred shareholders and Vivo Part.’scommon shareholders had until May 30, 2011 to exercise their right to withdrawal. Shareholders that could evidenceshareholding on December 27, 2010, the date of publication of the Notices of Material Fact relating to the transaction, andopted for the right to withdraw were refunded for the shares they had of the respective companies. Amounts refunded to theCompany’s common and preferred shareholders and to Vivo Part.’s common shareholders were R$23.06 and R$25.30 pershare, respectively, calculated based on the net worth value of the shares, as stated in the balance sheet of each of thecompanies, dated as of December 31, 2010.

Corporate restructuring – Grouping of SMP Authorizations and Simplification of Corporate Structure

Vivo Part. Board of Director’s Meeting held on June 14, 2011 approved a proposal to group the authorizations for theprovision of SMP services (by the time held by Vivo Part. in the state of Minas Gerais and by Vivo S.A. in the other statesof Brazil), bringing together the operations and the Authorization Terms for SMP services at Vivo S.A.

The means proposed in making this corporate restructuring viable were the transfer, on October 1, 2011, of assets, rightsand liabilities related to the operation of SMP services in Minas Gerais from Vivo Part. to Vivo S.A. (mobile operator ofthe group that had SMP authorizations for the other states in Brazil). When this grouping was completed, Vivo Part becamea holding company.

In accordance with the provisions of Law No. 6,404/76, a specialized company was engaged to prepare a valuation studyfor the part of Vivo Part.’s net assets corresponding to SMP operations in the state of Minas Gerais that was transferred toVivo S.A.’s equity, as well as for the net equity of Vivo Part. that was incorporated into the Company.

Due to the fact that Vivo Part. was a whole owned subsidiary of the Company, since April 27, 2011, whose net equityalready included the investment of the shares in Vivo S.A., the merger: i) did not result in a capital increase for theCompany; ii) there was no exchange of shares held by Vivo Part.’s non-controlling shareholders for Company’s shares;and iii) there was no need to prepare a net equity valuation report to market price for the calculation of the exchange shareratio, as there were not any exist non-controlling shareholders to be protected.

Accordingly, under the terms of article 226, paragraphs I and II of Law No. 6,404/76, shares held by the Company in thenet equity value of Vivo Part. were cancelled. On conclusion of the corporate restructuring, Vivo Part. was incorporated bythe Company on October 3, 2011 and Vivo S.A. became its full subsidiary, simplifying and rationalizing the cost structureof the companies involved.

f) Agreement between Telefónica S.A. and Telecom Italia (Act No. 3,804 as of July 07, 2009 and Act No. 68,276 as of

October 31, 2007, both from ANATEL’s Board

In October 2007, TELCO S.p.A. (in which Telefónica S.A holds an interest of 42.3%), completed the acquisition of 23.6%of Telecom Itália. Telefónica S.A. has the control of the Company, which also has the control of Vivo S.A. Telecom Italiaholds an interest in TIM Participaçơes S.A (“TIM”), which is a mobile telephone operator in Brazil. However, theCompany does not have any direct involvement in the operations of TIM. Additionally, any transactions between theCompany, its subsidiaries and TIM are transactions made in the regular course of business, which are regulated byANATEL.

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2. Basis of presentation of the consolidated financial statements

The consolidated financial statements as of December 31, 2011 and 2010 are presented by the Company in accordance with theInternational Financial Reporting Standards (IFRS) issued by IASB and in accordance with the accounting practices adopted inBrazil, which comprise the provisions of corporate legislation set forth in Law No. 6,404/76, as amended by Law no. 11,638/07and by Law no. 11,941/09, and the accounting pronouncements issued by the Brazilian Accounting Pronouncements Board(CPC) and approved by the CVM.

Approval of the issuance of these financial statements occurred in the Board of Directors meeting held on February 15, 2012.

For comparative purposes, the accompanying financial statements for 2011 include the consolidated balance sheets at ofDecember 31, 2010 and the consolidated income statement, the consolidated statement of comprehensive income, theconsolidated statement of changes in shareholder’s equity and the consolidated statement of cash flows, and the notes theretofor the years ended December 31, 2010 and 2009.

The Company states that the consolidated financial statements are in compliance with International Financial ReportingStandards (IFRS) issued by the IASB and also with the pronouncements, interpretations and guidance issued by CPC in placeon December 31, 2011, which include the new pronouncements, interpretations and amendments for the following standards,amendments and interpretations issued by the IASB (International Accounting Standards Board) and IFRIC (InternationalFinancial Reporting Interpretations Committee) which entered into force as of January 1, 2011:

IAS 24 (Revised) Related Party Disclosures

This revised standard introduces the following changes: (i) provides a partial exemption for government related entities,requiring disclosure of balances and transactions between them only if they are individually or collectively significant; and (ii)provides a new revised definition of a “related party”. The adoption of this standard did not impact the Company’s financialsituation or results.

Changes to IAS 32 Financial Instruments Presentation

This change is intended to clarify that subscription right issues that allow the acquisition of a fixed number of own equityinstruments at a fixed price will be classified as equity, irrespective of currency it is denominated and its exercise price,assuming that the issuance is made to all shareholders of a given class of shares or equity proportionate to the number ofsecurities that they hold. The adoption of these changes did not impact the Company’s financial situation or results.

Improvements to International Financial Reporting Standards (IFRS) (May 2010)

This text introduces a series of improvements to IFRS in force mainly to eliminate inconsistencies and clarify the wording ofsome of these standards. These improvements did not impact the Company’s financial situation or results.

IFRS 3 Business Combinations

The measurement options available for non-controlling interest (NCI) were amended. Only components of NCI that constitute apresent ownership interest that entitles their holder to a proportionate share of the entity’s net assets in the event of liquidationshould be measured at either fair value or at the present ownership instruments’ proportionate share of the acquiree’sidentifiable net assets. All other components are to be measured at their acquisition date fair value.

The amendments to IFRS 3 are effective for annual periods beginning on or after 1 July 1, 2011.

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IFRIC 19 Extinguishing financial liabilities with equity instruments

This interpretation establishes that: (i) when the conditions of a financial obligation are renegotiated with a lender and suchlender agrees to accept equity instruments from that company in order to settle that financial liability in full or in part theinstruments issued will be considered as part of an installment paid to settle the financial liability; (ii) these instruments will bemeasured at their fair value, except when these cannot be reliably measured, in which case measurement of new instrumentsshould reflect the fair value of the settled financial liability; and (iii) the difference between the book value of the cancelledfinancial liability and the initial amount of equity instruments issued is recorded in the income for the period. The adoption ofcriteria introduced by this new interpretation did not have any impact on the Company’s financial situation or results.

Changes to IFRIC 14 Prepayments of a Minimum Funding Requirement

This change is applied in specific situations when an entity has an obligation to make minimum annual contributions in relationto its post-employment defined benefits plans and makes prepayments to cover these requirements. The change allows an entityto treat the economic benefits of such prepayment as an asset. The adoption of these criteria did not have an impact on theCompany’s financial situation or results.

New IFRS and Interpretations of the IFRS Interpretations Committee (IFRIC) not yet effective at December 31, 2011.

At the date of these financial statements the following IFRS, amendments and interpretations of the IFRIC have been issued buttheir application was not mandatory:

Standards and Amendments to Standards

Applicationrequired: fiscal years

beginning:Amendments to IAS 1 Presentation of items of other comprehensive income July 1, 2012Amendments to IAS 12 Deferred tax: Recovery of underlying assets January 1, 2012IFRS 9 Financial instruments January 1, 2015IFRS 10 Consolidated Financial Statements January 1, 2013IFRS 11 Joint Arrangements January 1, 2013IFRS 12 Disclosure of Interests in Other Entities January 1, 2013IFRS 13 Fair Value Measurement January 1, 2013IAS 19 revised Employee Benefits January 1, 2013IAS 27 revised Consolidated and Separate Financial Statements January 1, 2013IAS 28 revised Investments in Associates and jointly controlled companies January 1, 2013Amendments to IFRS 7 Disclosure – transfers of financial assets July 1 , 2011

Amendments to IFRS 7Disclosure – offsetting of financial assets and financialliabilities January 1, 2013

Amendments to IAS 32 Offsetting Financial Assets and Financial Liabilities January 1, 2014

The Company is currently analyzing the impact of the application of these standards, amendments and interpretations. Based onpreliminary analysis made up to the present date the Company estimates that their application will not have a significant impacton the consolidated financial statements on first time adoption. Notwithstanding, changes introduced by IFRS 9 will affect thepresentation of financial assets and transactions with those occurring as of January 1, 2015.

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2.1 Basis of consolidation and main changes in the consolidation environment

In consolidation, all assets, liabilities, revenue and expenses resulting from intercompany transactions and equity holdingbetween the Company and its subsidiaries were eliminated.

The main events and changes in the consolidation environment that, due to their significance, should be considered foranalysis of the consolidated financial statements for the fiscal year ended December 31, 2011, are presented as follows:

a) Acquisition of Vivo Participaçơes S.A. by the Company

As mentioned in Note 4, the Company incorporated 100% of shares of Vivo Participaçơes S.A. amounting toR$31,222,630 (Note 1.”e” and 4). The Company’s consolidated financial statements include Vivo Part. (incorporatedby the Company on October 3, 2011) and Vivo S.A. results from April 1, 2011. Vivo Participaçơes S.A. and Vivo S.A.were included in the Company’s consolidated financial statements through the full consolidation method.

b) Consolidation of TVA companies

As from January 1, 2011, the Company started to include the companies GTR Participaçơes e Empreendimentos S.A.,TVA Sul Paraná S.A., Lemontree Participaçơes S.A. and Comercial Cabo TV Săo Paulo S.A. in its consolidatedfinancial statements by applying the full consolidation method. Up to the prior year these companies were included inthe Company’s consolidated financial statements through the equity method. The effect of the consolidation of thesecompanies is immaterial in relation to the Company’s consolidated financial statements.

c) Acquisition of Lemontree Participaçơes S.A. shares

On September 29, 2011, the Company purchased 68,533,233 common shares representing 49% of the referred class ofshares in Lemontree Participaçơes S.A., which is the holder of 80.1% of the common shares of Comercial Cabo TVSăo Paulo S.A., a company engaged in cable TV services in the State of Săo Paulo. As a consequence, the Companycurrently has an interest of 83% in Lemontree Partipaçơes S.A. and 93.19% in Comercial Cabo TV Săo Paulo S.A.This transaction was considered as a non-controlling shareholders’ acquisition for the purpose of disclosure andmeasurement in these financial statements.

3. Summary of principal accounting practices

a) Trade accounts receivable, net: are stated at the rendered service value according to the contracted conditions adjusted bythe estimated amount of eventual losses. This caption also includes accounts receivable from services rendered but not yetbilled at the balance sheet date, as well as the accounts receivable related to the sales of handsets, simcards and accessories.Allowance for doubtful account is recorded in order to cover eventual losses and mainly considers expected losses.

b) Inventories: are stated at average acquisition cost, net of allowance for reduction to net realizable value. This correspondsto items for use, maintenance or resale.

c) Prepaid expenses: are measured at the amounts effectively disbursed related to services paid for but not yet incurred. Theprepaid expenses are recognized in the income statement when the related services and the economic benefits are obtained.

d) Investments: Equity interests in subsidiaries and jointly controlled companies are stated by the equity method in theindividual financial statements. In the consolidated financial statements, investments in

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subsidiaries are fully consolidated and investments in jointly controlled subsidiaries are consolidated proportionally. In consolidation, all assets, liabilities, revenues and expenses resulting from intercompany transactions and equity holdingsbetween the Company and its subsidiaries were eliminated.

The exchange rate variation on the shareholders’ equity of the jointly controlled Aliança Atlântica is recognized in theshareholders’ equity as cumulative translation adjustments.

e) Property, plant and equipment: This item is measured at acquisition and/or construction cost, less accumulated depreciationand any impairment losses, if applicable. Such cost includes the borrowing costs for long-term construction projects if therecognition criteria are met. Asset costs are capitalized until the asset becomes operational.

Costs incurred after the asset becomes operational are immediately expensed, under the accrual method of accounting.Expenses that represent asset improvement (expanded installed capacity or useful life) are capitalized.

The estimated costs to be incurred in the dismantling of towers and equipment in rented real property are capitalized with acorresponding provision for dismantling of fixed assets and are depreciated over the useful life of the equipment, whichdoes not exceed the lease term.

An item of property, plant and equipment is derecognized upon disposal or when no future economic benefit is expectedfrom its use or disposal. Any gain or loss arising on derecognition of the asset (calculated as the difference between the netdisposal proceeds and the carrying amount of the asset) is included in the income statement when the asset is derecognized.

Depreciation is calculated under the straight-line method based on the estimated useful lives of the assets, which is basedon technical studies that are regularly reviewed (see Note 13 – Property, plant and equipment, net).

f) Intangible assets (including goodwill): These are stated at acquisition and/or construction cost, less accumulatedamortization and any impairment losses, if applicable.

Intangible assets also includes software rights of use acquired from third parties, authorization licenses obtained fromANATEL, customer lists, brands, premium amounts referring to own stores (which are being amortized over the term ofthe agreements) and other intangible assets.

The useful life of intangible assets is assessed as either finite or indefinite.

Intangible assets with finite lives are amortized under the straight-line method over the useful economic life and assessedfor impairment whenever there is an indication that the intangible asset may be impaired. The amortization period and theamortization method for intangible assets with a finite useful life are reviewed at least at the end of each reporting period.Changes in the expected useful life or in the expected pattern of consumption of future economic benefits embodied inthese assets are accounted for by changing the amortization period or method, as appropriate, and treated as changes inaccounting estimates. Intangible assets with indefinite useful lives are not amortized, but are tested for impairment annuallyor when there is an indication that the carrying amount of the assets may not be recoverable. The assessment of indefiniteuseful life is reviewed annually to determine whether indefinite life continues to be supportable. Otherwise, the change inthe useful life from indefinite to finite is made on a prospective basis.

Gains or losses arising from derecognition of an intangible asset are measured as the difference between the net disposalproceeds and the carrying amount of the asset. Gains and losses are recognized in the income statement when the asset isderecognized.

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Goodwill arising from the acquisition of investments are based on future profits and are treated as intangible assets withindefinite useful lives.

g) Leases: Agreements providing for use of specific assets and the right to use an asset are subject to analysis so as to identifythe accounting treatment applicable to lease arrangements. Agreements in which the lessor substantially transfers theunderlying risks and benefits to the lessee are classified as finance leases.

The Company has agreements classified as finance leases from both the lessor’s and lessee’s standpoint. As a lessor,subsidiary A.Telecom has equipment lease agreements (Posto Informático), for which it recognizes revenue on theinstallation date at the present value of the agreement installments, matched against Accounts Receivable. As a lessee inagreements classified as finance lease, the Company records a fixed asset item, classified according to its nature, at thebeginning of the lease term, at the present value of the agreement minimum mandatory installments matched against OtherLiabilities. The difference between the nominal value of the installments and the accounts receivable/payable recorded isrecognized as financial income/expense under the effective interest rate method based on the contract term.

Agreements in which the lessor retains a substantial part of risks and benefits are deemed as operating lease, and theireffects are recognized in the income statement for the year throughout the contractual term.

h) Asset recoverability analysis: In compliance with IAS 36, the Company and its subsidiaries review the net book value ofassets, when circumstances indicate it is necessary, in order to assess if there are events or changes in the economic,operating or technological circumstances which may indicate asset impairment or loss in its carrying amount.

If such evidence is identified and the net book value exceeds the recoverable amount, an impairment provision is recorded,adjusting the net book value to the recoverable amount.

The recoverable amount is defined as the higher of the value in use and the fair value less cost to sell.

In estimating the value in use of an asset, the estimated future cash flows are discounted to their present value using apre-tax cost of capital - "CAPM - Capital Asset Pricing Model" discount rate, which reflects the weighted average cost ofcapital and the specific risks of the asset.

The fair value less cost to sell is determined, whenever possible, on firm sale agreement in a transaction on an arm’s lengthbasis, between knowledgeable and willing parties, adjusted by expenses attributable to the sale of the asset, or, when nofirm sale agreement exists, based on the market price of an active market, or on the price of the most recent transactionwith similar assets.

Losses from continuous operations, including inventory write-off, are recognized in the income statement in expenseaccounts compatible with asset purpose.

For assets, excluding goodwill, an analysis is performed on the closing date of each fiscal year, to identify if there is anindication that the impairment previously recognized may no longer exist or may have decreased.

An impairment loss previously recorded is reversed only if there is a change in the assumptions used to determine the assetrecoverable value as from the time of recognition of the last impairment.

The reversal is limited so that the asset book value does not exceed its recoverable value, nor exceeds the book value thatwould have been determined, net of depreciation, if no impairment had been recognized for the asset in prior years. Thisreversal is recognized in the income statement.

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The following criteria are applied to assess the impairment of specific assets:

h.1) Goodwill

Goodwill is tested for impairment annually and when circumstances indicate that the carrying amount may beimpaired.

When the recoverable amount is lower than its book value, impairment is recognized. Goodwill impairment cannotbe reversed in future fiscal years.

h.2) Intangible assets

Intangible assets with indefinite useful lives are tested for impairment annually either individually or at thecash-generating unit level, as appropriate, and when circumstances indicate that the carrying amount may beimpaired.

h.3) Value in use

The main assumptions used to estimate the value in use are:

• Revenue: The revenues are estimated considering the growth of the customer base, the evolution of the marketincome vis-à-vis the GDP – Gross Domestic Product and the Company and its subsidiary’s share in thismarket;

• Operating costs and expenses: The variable costs and expenses were estimated according to the dynamic of thecustomer base, and the fixed costs and expenses were projected in line with the historical performance of theCompany and its subsidiaries, as well as with the historical growth of the revenue; and

• Capex: Capital expenditures are estimated based on the technological infrastructure required to make feasiblethe offering of services.

The key assumptions are based on the historical performance of the Company and its subsidiaries and on reasonablemacroeconomic assumptions based on market financial projections, documented and approved by Company’sManagement.

The impairment tests of the Company and its subsidiaries fixed and intangible assets did not result in the recognitionof losses for the years ended December 31, 2011 and 2010, since their estimated market value exceeded their netbook value on the assessment date.

i) Business combinations and goodwill

Business combinations are accounted for using the acquisition method. The acquisition cost is measured at the fair value ofassets, equity instruments and liabilities incurred or assumed at the acquisition date. Identifiable assets acquired andliabilities and contingencies assumed in a business combination are initially measured at fair value on the acquisition date,regardless of the non-controlling shareholders’ interest (See Note 4).

Initially, goodwill represents the excess of the cost of acquisition over the net fair value of the acquired assets, assumedliabilities and identifiable contingent liabilities from an acquired company, on the respective acquisition date. If theacquisition cost is lower than the fair value of the acquired company's net assets, the difference is recognized directly in theincome statement.

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After initial recognition, goodwill is measured at cost less any accumulated impairment losses. For the purpose ofimpairment testing, goodwill acquired in a business combination is, from the acquisition date, allocated to thecash-generating unit that is expected to benefit from the synergies of the combination, irrespective of whether other assetsor liabilities of the acquiree are assigned to each unit.

When goodwill forms part of a cash-generating unit and part of the operation within that unit is disposed of, the goodwillassociated with the operation disposed of is included in the carrying amount of the operation when determining the gain orloss on disposal. Goodwill disposed of in this circumstance is measured based on the relative values of the operationdisposed of and the portion of the cash-generating unit retained.

j) Financial instruments, cash and cash equivalents

Initial recognition and subsequent measurement

(i) Cash and cash equivalent

Includes cash, credit balances in bank accounts and investments redeemable within 90 days of the date of acquisitionwith immediate liquidity and with insignificant change in market value.

(ii) Financial Assets

Initial recognition and measurement

Financial assets are classified as financial assets at fair value through profit or loss, loans and receivables,investments held to maturity, available for sale financial assets or as derivatives, designated as hedging instrumentsin an effective hedge as appropriate. The Company determines the classification of its financial assets upon theirinitial recognition, when they become part of the contractual provisions of the instrument.

Financial assets are initially recognized at fair value plus, in the case of investments not classified as at fair valuethrough profit or loss, transaction costs that are directly attributable to the acquisition of the financial asset.

Sales and purchases of financial assets that require delivery of goods within a time frame established by regulationor market convention (regular way trades) are recognized on the transaction date, i.e. the date that the Companycommits to buy or sell the asset.

The Company's financial assets include cash and cash equivalents, trade accounts receivable and other receivablesquoted and unquoted financial instruments and derivative financial instruments.

Subsequent measurement

Subsequent measurement of financial assets depends on their classification as follows:

Financial assets at fair value through profit or loss

This category includes derivative financial instruments entered into by the Company that do not meet the hedgeaccounting criteria as defined by the corresponding standard. Financial assets at fair value through profit or loss arepresented in the balance sheet at fair value, with corresponding gains or losses recognized in the income statement.

Receivables

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Receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an activemarket. After initial measurement, such assets are carried at amortized cost using the effective interest rate method,less impairment, if and when applicable. Amortized cost is calculated by taking into account any discount orpremium in the acquisition and fees or other costs incurred. Amortization under the effective interest method isincluded in financial income in the income statement. The losses arising from impairment are recognized asfinancial expense in the income statement, if and when applicable.

Held-to-maturity investments

Non-derivative financial assets with fixed or determinable payments and fixed maturity are classified asheld-to-maturity when the Company has the positive intention and financial capacity to hold them to maturity. Afterinitial measurement, held-to-maturity investments are measured at amortized cost using the effective interest ratemethod, less impairment. Amortized cost is calculated taking into consideration any discount or premium onacquisition and fees or costs incurred. Amortization of effective interest rate is included in financial income in theincome statement. Impairment losses are recognized as financial costs in the income statement. The Company didnot have any held-to-maturity investments during the years ended December 31, 2011 and 2010.

Available for sale financial assets

Available for sale financial assets are those non-derivative financial assets that are not classified as (a) loans andreceivables, (b) held to maturity investments or (c) financial assets at fair value through profit or loss. Thesefinancial assets include equity instruments.

After initial measurement, available for sale financial assets are measured at fair value with unrealized gains orlosses recognized directly in the available for sale reserve within the group of other comprehensive income until theinvestment is derecognized, excepted situation of impairment losses.

When the investment is derecognized or when impairment is detected, the cumulative gains or losses previouslyrecognized in other comprehensive income should be recognized in the income statement.

The fair value of available for sale financial assets in foreign currency is measured and translated into foreigncurrency using the spot exchange rate prevailing at the date of the financial statements. The changes in fair valueattributable to translation differences are recognized directly in equity.

Derecognition

A financial asset (or, where appropriate, a part of a financial asset or part of a group of similar financial assets) isderecognized when:

• The rights to receive cash flows from the asset have expired;

• The Company transferred its rights to receive cash flows from the asset or has assumed an obligation to pay thecash flows received in full, without significant delay to a third party under a pass-through agreement, and (a) theCompany has transferred substantially all risks and rewards of the asset, or (b) the Company has neithertransferred nor retained substantially all risks and rewards related to the asset, but has transferred control of theasset.

When the Company has transferred its rights to receive cash flows from an asset or has entered into a pass-throughagreement and has neither transferred nor retained substantially all risks and rewards related to the asset, the asset isrecognized to the extent of the Company's continuing involvement in the asset.

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In this case, the Company also recognizes an associated liability. The transferred asset and associated liability aremeasured on a basis that reflects the rights and obligations that the Company has retained.

Continuing involvement that takes the form of a guarantee over the transferred asset is measured at original bookvalue of the asset or the maximum amount of consideration that may be required of the Company, whichever islower.

(iii) Impairment of financial assets

The Company assesses at each reporting date whether there is any evidence that a financial asset or group offinancial assets is impaired. A financial asset or group of financial assets is considered to be impaired if and only if,there is evidence of impairment as a result of one or more events that have happened after the initial recognition ofthe asset (an incurred “loss event”) and a loss event has an impact on the estimated future cash flows of the financialasset or group of financial assets that can be reasonably estimated.

Financial assets carried at amortized cost

In relation to the financial assets carried at amortized cost, the Company first assesses individually if there isevidence for impairment for each financial asset that is individually significant, or collectively for financial assetsthat are not individually significant. If the Company concludes that there is no evidence of impairment for anindividually assessed financial asset, whether significant or not, the asset is included in a group of financial assetswith similar credit risk characteristics and collectively assesses them for impairment. Assets that are individuallyassessed for impairment and for which an impairment loss is or continues to be recognized are not included in a jointassessment for impairment.

When there is evidence of the occurrence of impairment, the amount of the loss is measured as the differencebetween the asset's carrying amount and the present value of estimated future cash flows (excluding future expectedcredit losses not yet incurred).

The carrying amount of the asset is reduced through the use of an allowance account, and the impairment amount isrecognized in the income statement. Interest revenue continues to be accrued on the reduced carrying amount basedon the original effective interest rate for the asset. The loans, together with the associated allowance are written offwhen there is no realistic prospect of their future recovery and all guarantees have been realized or transferred to theCompany. If in a subsequent year the estimated impairment amount increases or decreases due to an event occurringafter the recognition of impairment, previously recognized impairment is increased or reduced by adjusting theallowance account. In the event of any future recovery of a written off amount, the recovery is recognized in theincome statement.

Available for sale financial investments

For financial instruments classified as available for sale, the Company analyzes whether there is any evidence thatthe investment is recoverable at each balance sheet date.

For investments in equity instruments classified as available for sale, evidence includes a significant and prolongeddecline in the fair value of investments below their cost.

When there is evidence of impairment, the cumulative loss, measured as the difference between the acquisition costand current fair value, less any impairment loss that has been previously recognized in income, is reclassified fromshareholders’ equity to the income statement.

Increases in fair value after the recognition of impairment are recognized directly in comprehensive income.

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(iv) Financial liabilities

Initial recognition and measurement

Financial liabilities are classified as financial liabilities at fair value through profit or loss, loans and financing or asderivatives classified as hedge instruments, as appropriate. The Company determines the classification of itsfinancial liabilities upon their initial recognition.

Financial liabilities are initially recognized at fair value and, in the case of loans and financing, are increased by thecost directly related to the transaction.

The Company's financial liabilities include accounts payable to suppliers, loans and financing and derivativefinancial instruments.

Subsequent measurement

Measurement of financial liabilities depends on their classification, which may be as follows:

Financial liabilities at fair value through profit or loss

Financial liabilities at fair value through profit or loss include financial liabilities designated at initial recognition atfair value through profit or loss. This category also includes derivative financial instruments entered into by theCompany that do not meet the criteria for hedge accounting as defined by the corresponding standard.

The Company has not designated any financial liability upon initial recognition at fair value through profit or loss.

Loans and financing

After initial recognition, loans and financing subject to interest are subsequently measured at amortized cost, usingthe effective interest rate method. Gains and losses are recognized in the income statement when the liabilities arederecognized as well as during the amortization process using the effective interest rate method.

Derecognition

A financial liability is derecognized when the obligation is discharged, cancelled or expires.

When an existing financial liability is replaced by another from the same lender with substantially different terms, orthe terms of an existing liability are substantially modified, such an exchange or modification is treated as aderecognition of the original liability and the recognition of a new liability, and the difference in correspondingcarrying amounts is recognized in the income statement.

(v) Offsetting of Financial instruments

Financial assets and liabilities are presented net in the balance sheet if, and only if, there is a currently enforceablelegal right to offset the recognized amounts and if there is an intention of offsetting or realizing the asset and settlingthe liability simultaneously.

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(vi) Fair value of financial instruments

The fair value of financial instruments actively traded in organized financial markets is determined based onquoted-market prices at the close of business on the balance sheet date, without deduction of transaction costs.

The fair value of financial instruments for which there is no active market is determined using valuation techniques.Techniques may include using recent market transactions (on an arm’s length basis); reference to the current fairvalue of a similar instrument, such as discounted cash flow analysis or other valuation models.

k) Derivative financial instruments and hedge accounting:

Initial recognition and subsequent measurement

The Company and its subsidiaries use derivative financial instruments such as currency swaps to provide protection againstthe risk of changes in exchange rates.

Derivative financial instruments designated as hedge transactions are initially recognized at fair value on the date on whichthe derivative contract is signed and subsequently are remeasured at fair value.

Derivatives are carried as financial assets when the instrument's fair value is positive and as financial liabilities when thefair value is negative.

Any gains or losses arising from changes in the fair value of derivatives during the year are recorded directly in income,except for the effective portion of cash flow hedges, which is recognized in other comprehensive income.

For the purposes of hedge accounting, the Company's contracts were classified as fair value hedges to provide protectionagainst exposure to changes in the fair value of an identified part of certain liabilities that are attributable to a particularrisk (exchange variation) and can affect net income.

At the inception of a hedge relationship, the Company formally designates and documents the hedge relationship to whichthe Company wishes to apply hedge accounting, as well as the objective and risk management strategy for undertaking thehedge. The documentation includes identification of the hedge instrument, the item or transaction being hedged, the natureof the risk being hedged, the nature of the risks excluded from the hedge, the prospective statement of the effectiveness ofthe hedge relationship and the way in which the Company will assess the effectiveness of the hedge instrument for thepurpose of offsetting the exposure to changes in fair value of the hedged item.

Such hedges are expected to be effective in offsetting changes in fair value and are being continually assessed to determinewhether they were actually highly effective over all the financial reporting periods for which they were designated.

Cash flow hedges which meet the criteria for their accounting are recorded as follows: the effective portion of the gain orloss on the hedging instrument is recognized directly in other comprehensive income. The gain or loss relating to theineffective portion is recognized immediately in the income statement.

Fair value hedges which meet the criteria for their accounting are recorded as follows: the gain or loss resulting fromchanges in fair value of a hedge instrument shall be recognized in income. The gain or loss resulting from the hedged itemattributable to the hedged risk should adjust the recorded amount of the hedged item to be recognized in income. Thechanges in fair value of the hedge instrument and changes in fair value of the hedged item attributable to the hedged riskare recognized in the line of the income statement related to the hedged item.

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Current versus non-current classification

Derivative instruments that are not designated and effective hedging instruments are classified as current or non-current orsegregated into current or non-current portions based on an evaluation of the contracted cash flows.

• When the Company maintains a derivative as an economic hedge (and does not apply hedge accounting) for

a period exceeding 12 months after the balance sheet date, the derivative is classified as non-current (orsegregated into current or non-current portions), consistently with the classification of the correspondingitem.

• Derivative instruments that are designated as, and are effective hedging instruments are classified consistently with theclassification of the corresponding hedged item.

The derivative instrument is segregated into current or non-current portions only when a reliable allocation can be made.

l) Borrowing costs

Borrowing costs directly attributable to the acquisition, construction or production of an asset that necessarily needs morethan 18 months to get ready for its intended use or sale are capitalized as part of the cost of the respective assets.

All other borrowing costs are expensed when occurred. Borrowing costs consist of interest and other costs that an entityincurs in connection with the borrowing of funds.

m) Interest on shareholders’ equity

According to the Brazilian legislation, companies are allowed to pay interests on shareholders’ equity, which are similar tothe payment of dividends, but are deductible for purposes of ascertainment of income tax. In compliance with the Braziliantax laws, the Company booked in its accounting records a reserve for the amount owed in consideration of the financialexpenses caption for the year’s results and, for disclosures purposes, reversed such expenses, recording a debit direct toshareholders’ equity, resulting in the same accounting treatment of dividends. The distribution of interest on shareholders’equity to the shareholders is subject to withholding income tax at 15%.

n) Provisions

n.1) General

Provisions are recognized when the Company or its subsidiaries have a present obligation as a result of a past event,where it is probable that an outflow of resources embodying economic benefits will be required to settle theobligation and a reliable estimate can be made of the amount of the obligation. The provisions are restated up to thebalance sheet date at the probable loss amount.

Provisions for claims are presented by the gross amount, without considering the respective escrow deposits and areclassified as civil, labor, tax and regulatory. Escrow deposits are classified as assets, since the presentation ofprovisions net of escrow deposits are not met.

n.2) Provision for judicial, civil, labor, tax and regulatory claims

The Company and its subsidiaries are parties to lawsuits that generate administrative and judicial contingenciesrelated to labor, tax, civil and regulatory claims, and accounting provisions have been

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booked with respect to such lawsuits whose likelihood of loss was deemed as probable. The provisions for judicialand administrative claims are determined based on the opinion of the Company's and its subsidiaries’ Managementand legal counsel.

n.3) Provision for dismantling of assets

This refers to the costs to be incurred in connection with the possible need for giving back to their owners the “sites”(locations for installation of radio bases of the Company or its subsidiaries) in the same conditions as they werefound at the time of the execution of the initial lease agreement.

n.4) Contingent liabilities recognized in a business combination

A contingent liability recognized in a business combination is initially measured at its fair value.

Subsequently, it is measured at the higher of:

- the amount that would be recognized in accordance with the general requirements for provisions above; or - the amount initially recognized less, when appropriate, cumulative amortization recognized in accordance with

the requirements for revenue recognition.

o) Post-retirement benefit plans

The Company and its subsidiaries sponsor pension plans for individual employees and retirees as well as multi-sponsoredhealth care plans for former employees. Actuarial liabilities relating to defined-benefit plans were calculated using theprojected unit credit method. Actuarial gains and losses are immediately recognized in other comprehensive income.

For plans with defined contribution features, the obligation is limited to the payment of contributions, which are recognizedin income on the accrual basis.

The defined benefit asset or liability to be recognized in the financial statements comprises the present value of the definedbenefit obligation, less cost of past services not yet recognized and less the fair value of plan assets that will be used tosettle the obligations. Plan assets are assets held by a closed pension fund. Plan assets are not available to creditors of theCompany nor can they be paid directly to the Company. The fair value is based on market price information and in the caseof quoted securities, it is the published purchase price. The value of any defined benefit asset recognized is limited to thesum of any past service cost not yet recognized and the present value of any economic benefit available in the formof reductions in future contributions to the plan.

p) Profit sharing

The Company and its subsidiaries have liabilities stemming from employment contracts with its employees, and recognizethese provisions during the year. Provisions are recorded to recognize the expense relating to profit sharing. Theseprovisions are calculated based on qualitative and quantitative goals defined by management and recorded in specificaccounts in accordance with Cost of services, Sales expenses and General and administrative expenses groups of accounts.

q) Share-based payment transactions

The Company measures the cost of transactions settled with shares issued by the parent Company, Telefónica S.A., andgranted to officers and employees based on the fair value of equity instruments at the grant date, using the binomial optionpricing model. This fair value is expensed over the period until the vesting date

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with recognition of a corresponding liability.

r) Other assets and liabilities

An asset is recognized in the balance sheet when it is more likely than not that its future economic benefits will begenerated on behalf of the Company and its subsidiaries and its cost or value can be reliably measured.

A liability is recognized in the balance sheet when the Company and its subsidiaries have a legal or constructive obligationarising from past events, being probable that an outflow of resources will be required to settle the obligation.

Assets and liabilities are classified as current when their realization or settlement is likely to occur within the next twelvemonths. Otherwise, they are considered to be noncurrent.

s) Governmental grant and assistance

Governmental grants are recognized where there is reasonable assurance that the grant will be received and all attachedconditions will be complied with. When the grant relates to an expense item, it is recognized as income over the periodnecessary to match the grant on a systematic basis in connection with the costs that it is intended to compensate. When thegrant relates to an asset, it is recognized as deferred income and released to income in equal amounts over the expecteduseful life of the related asset. When loans or similar assistance are provided by governments or related institutions with aninterest rate below the current applicable market rate, the effect of this favorable interest rate is considered as additionalgovernment grant.

Under the Brazilian tax rules (Provisionary Measure No. 2199-14, of August 24, 2001, subsequently amended by Law No.11,196, of November 21, 2005), legal entities with title of projects located in areas under the jurisdictions of the AmazonDevelopment Authority (“SUDAM”) and of the Northeast Development Authority (“SUDENE”), whose businesses fallinto an economic sector that is considered a priority under an act issued by the Executive Branch, may request an incometax abatement as provided for in these regulations.

By incorporating Vivo Part., the Company acquired a tax benefit consisting of a 75% corporate tax reduction, based on netincome earned from exploiting areas in northern Minas Gerais and the Jequitinhonha valley. This benefit has been grantedup to and including 2013.

Vivo S.A. also has been granted a tax benefit consisting of a 75% corporate tax reduction, based on income earned fromexploiting areas in the states of Acre, Amapá, Amazonas, Maranhăo, Mato Grosso, Pará, Rondônia and Roraima. Thisbenefit has been granted up to and including 2013.

A portion of net income for which a tax benefit has been granted was excluded from the calculation of dividends and maybe used only for capital increase and compensation of losses.

In January 2010, a financing line with the Brazilian Development Bank (BNDES) was approved through the InvestmentMaintenance Program (BNDES-PSI). The funds, which are being used to acquire Brazilian equipment for improvement ofnetwork capacity, have been previously recorded under BNDES Finame (Government Agency for Machinery andEquipment Financing) and released as investments were made.

As this financing has an interest rate lower than market interest rates, this transaction falls within the scope of IAS 20. Theloans have been recognized at inception at their fair values assuming market rates with a corresponding adjustment todeferred revenue.

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Table of Contents t) Adjustment to present value of assets and liabilities

The long-term and short-term financial assets and liabilities are adjusted to their present value. The adjustment to presentvalue is calculated taking into account the contractual cash flows and the explicit interest rate, and in certain cases, implicitinterest rate, of the respective assets and liabilities.Therefore, interests embedded in the revenues, expenses and costsassociated with such assets and liabilities are deducted with the purpose of recognizing them in accordance with the accrualmethod. Subsequently, such interests are reallocated to the lines of financial expenses and financial income for the year byusing the actual interest rate method in relation to the contractual cash flows. The implicit interest rates applied weredetermined based on facts and circumstances, and are deemed to be accounting estimates. Based on the analysis performedand on its best estimate, the Company concluded that the adjustment to present value of the current assets and liabilities isirrelevant to the financial statements taken as a whole and, therefore, did not record any adjustment.

The Company used WACC (Weighted Average Cost of Capital) and CDI rates (Interbank deposit certificate) to calculatepresent value adjustments, depending on the type of asset and liability to be adjusted.

u) Treasury shares

Own equity instruments that are acquired (treasury shares) are recognized at cost and deducted from equity. No gain or lossis recognized in the income statement on the purchase, sale, issue or cancellation of Company’s own equity instruments.

v) Revenue recognition

Revenues substantially correspond to consideration amounts received or receivable for the sale of goods or services in theCompany’s and its subsidiaries normal course of business.

Revenues are recognized when they can be reliably measured and future economic benefits are likely to flow to theCompany, the costs incurred in the transaction can be measured, the significant risks and rewards of ownership weresubstantially transferred to the buyer and specific criteria were met for each of the Company’s activities.

The Company’s revenues consist primarily of voice and data telecommunication services, additional services that areoffered to customers through traffic packages with fixed price (monthly) or according to customer’s traffic utilization andsale of goods.

Revenues related to telecommunications services rendered are recorded on the accrual basis based on the contractual terms.Tariff rates for local and long-distance calls are determined by the measurement process pursuant to legislation currently ineffect. Services charged at monthly fixed rates are calculated and recorded on linear bases. Unbilled revenue from the dateof the last billing until the date of the balance sheet is recognized in the month the service is rendered.

Revenue from the sales of cards for public telephones is deferred and recognized in income as the cards are utilized basedon consumption estimates.

Prepaid cell phone recharge credit revenues, as well as respective taxes due thereon, are deferred and recognized in theincome statement when services are actually rendered.

Income from equipment under lease agreements classified as finance leases is recognized upon equipment installation,when the risk is actually transferred. Income is recognized for the present value of future minimum lease payments.

Revenues from sales and services are subject to the following taxes and contribution taxes: State VAT -

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ICMS, Social Contribution Taxes on Gross Revenue for Social Integration Program - PIS, Social Security Financing -COFINS and Service Tax– ISS.

Recognition of Revenues and Costs of Goods Sold

Revenues and costs of goods sold (handsets, simcards and accessories) are recorded when risks and benefits of goods aretransferred to the buyers. Sales in own stores are recognized when goods are sold to consumers. Revenues and costs ofgoods sold via dealers are recorded upon activation of the handset, but, in any case, no later than 90 days after the sale date.

Customer Loyalty Program

The subsidiary Vivo S.A. has a customer loyalty program that allows customers to accumulate points when generatingtraffic for the use of services provided by its subsidiaries. The accrued points may be exchanged for handsets or services,provided the customer has a minimum stipulated balance of points. The consideration received is allocated to the cost ofthe handsets or services redeemed at their fair value. The fair value of the points is calculated by dividing the discountvalue granted as a result of the customer loyalty program by the amount of points needed to carry out the redemption. Thefair value accrued balance of generated points is deferred and recognized as income upon redemption of points.

Promotional campaign and enrolment fee

Enrolment fees paid by customers to allow them to participate in the promotional campaigns of the Company are deferredand recorded in profit or loss for the period during which the referred campaign lasts.

Multiple-element arrangements

Bundled offers that combine different elements are assessed to determine whether it is necessary to separate the differentidentifiable components and apply the corresponding revenue recognition policy to each element. Total package revenue isallocated among the identified elements based on their respective fair values.

Determining fair values for each identified element requires estimates that are complex due to the nature of the business.

A change in estimates of fair values could affect the apportionment of revenue among the elements and, as a result,revenues in future years.

w) Foreign-currency-denominated balances and transactions

The Company’s functional currency is the Brazilian real (R$). Foreign currency transactions are recorded at the prevailingexchange rate at date of the transaction. Foreign currency denominated assets and liabilities are measured using theexchange rate at the balance sheet date. Exchange differences resulting from foreign currency transactions were recognizedin financial income and financial expenses.

On December 31, 2011 the exchange rates were: US$1.00 = R$1.8758, JPY1.00 = R$0.02431, €1.00 = R$2.4270.

x) Taxes and contributions

We list below the acronyms of the taxes and contributions described in these financial statements:

• CIDE – Contribution for Intervention in the Economic Domain – federal tax;

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Table of Contents • COFINS – Contribution for Social Security Financing - federal tax; • CSLL – Social Contribution on Net Income – federal tax; • FISTEL –Telecommunications Inspection Fund; • FUNTTEL – Fund for Telecommunications Technological Development; • FUST – Telecommunications Universal Service Fund; • ICMS – Tax on the Circulation of Goods and on Services – state tax; • IOF – Tax on Financial Transactions – federal tax; • IRPJ – Corporate Income Tax – federal tax; • IRRF – Withholding Income Tax – federal tax; • ISS – Tax on Services – municipal tax; • PIS – Social Integration Program – federal tax; • TFF – Operation Inspection Fee; and • TFI – Installation and Inspection Fee.

Income tax and social contribution expenses include the effects of current and deferred taxes.

Current income tax and social contribution

The carrying amount of current income tax assets and liabilities for the last fiscal year and two prior years represent theamount expected to be recovered from or paid to tax authorities. The tax rates and tax legislation used to calculate theamounts are those enacted or substantially enacted at the balance sheet date. In the balance sheet the current income taxesare stated net of the amounts paid during the year.

Deferred taxes

Deferred tax assets and liabilities are obtained using the liability method on temporary differences between the tax bases ofassets and liabilities and their carrying values for financial reporting purposes.

At the balance sheet date, deferred tax assets are recognized to the extent that their future realization is assessed as morelikely than not based on the future taxable income.

The deferred tax assets and liabilities are not discounted to present value and are classified in the balance sheet asnoncurrent, regardless of the expected realization. The tax effects of items recorded directly in shareholders’ equity arerecognized in equity.

Deferred tax assets and liabilities are offset if there is a legal or contractual right to set off tax asset against income taxliability and the deferred taxes relate to the same taxable entity and the same taxation authority.

Sales taxes

Revenues from the rendering of services are subject to ICMS or ISS at the rates in effect at each state and to cumulativeregime of PIS and COFINS, for revenues earned from telecommunication services, at 0.65% and 3.00%, respectively.Other revenues earned by the Company, including revenues relating to sale of goods, under the non-cumulative regime, aretaxed at 1.65% and 7.60% for PIS and COFINS, respectively, and for ICMS at the rates in effect at each state.

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Prepaid amounts or amounts to be offset are recorded as current or non-current assets, according to the expected realizationthereof.

y) Concession agreement’s renewal fees

It is a fee which will be paid each odd years during the term the concession agreement is in force, equivalent to 2% of itsprior-year SFTC net revenue, according to the contract. The corresponding expense is recognized proportionally over eachbiennium concerned (Note 22).

z) Accounting estimates

The preparation of the financial statements requires management to make judgments and estimates and adopt assumptionsthat affect the reported amounts of revenue, expenses, assets and liabilities and the disclosure of contingent liabilities atbalance sheet date.

However, uncertainty relating to these assumptions and estimates could result in outcomes that would require significantadjustment to the carrying value of the asset or liability affected in future periods.

The main assumptions concerning the future and other important sources of estimation uncertainty at the balance sheetdate, which have a significant risk of causing a significant adjustment in the carrying value of assets and liabilities, arediscussed below:

Impairment of non-financial assets

An impairment exists when the carrying value of an asset or cash-generating unit exceeds its recoverable value, which isthe higher of its fair value less selling costs and its value in use. The calculation of fair value less selling costs is based oninformation available from binding sales transactions of similar assets or observable market prices less additional costs fordisposing of the asset. The calculation of value in use is based on the discounted cash flow method. The recoverable valueis sensitive to the discount rate used in the discounted cash flow method, as well as the expected future cash inflows andthe growth rate used for extrapolation purposes.

Taxes

There are uncertainties regarding the interpretation of complex tax regulations and the amount and timing of future taxableincome. The Company records provisions, based on reasonable estimates, for possible consequences of audits by taxauthorities of the jurisdictions in which it operates. The amount of these provisions is based on several factors, such asexperience of previous tax audits and differing interpretations of tax regulations by the taxable entity and the tax authorityin charge. Such differences of interpretation may arise in a wide variety of subjects, depending on the conditions prevailingin the jurisdiction in which the Company operates.

Post-employment benefits

The cost of defined benefits pension plans and other post-employment health care benefits and the present value of pensionobligations are determined using actuarial valuation methods. An actuarial valuation involves the use of assumptions aboutdiscount rates, expected rates of return on assets, future salary increases, mortality rates and future increases in pensionbenefits. The defined benefit obligation is highly sensitive to changes in these assumptions. All assumptions are reviewedperiodically.

The mortality rate is based on mortality tables available in Brazil. Future increases in wages and pension benefits are basedon expected future inflation rates for Brazil.

For further details of the assumptions used, see note 35.

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Fair value of financial instruments

When the fair value of financial assets and liabilities presented in the balance sheet cannot be obtained in active markets, itis determined using valuation techniques including the discounted cash flow method. The input for these methods is takenfrom observable markets when possible. However, when this is not possible, a certain level of judgment is required inestablishing fair values. This judgment includes consideration of data used, liquidity risk, credit risk and volatility. Changesin assumptions about these factors could affect the fair value of financial instruments.

Provisions for judicial, tax, civil and labor claims

The Company recognizes a provision for civil, labor and tax claims. The assessment of probability of loss includesevaluation of available evidence, the hierarchy of laws, available case law, most recent court decisions and their relevancein the legal system, as well as the evaluation of outside counsel. Provisions are reviewed and adjusted to take into accountchanges in circumstances, such as applicable statutes of limitation, conclusions of tax audits or additional exposuresidentified based on new issues or judicial rulings.

Fixed and intangible assets, including goodwill

The accounting treatment of investments in property, plant and equipment and intangible assets entails the use of estimatesto determine the useful life for depreciation and amortization purposes and to assess fair value at their acquisition dates,particularly for assets acquired in business combinations.

Determining useful life requires making estimates in connection with future technological developments and alternativeuses for assets. There is a significant element of judgment involved in making technological development assumptions,since the timing and scope of future technological changes are difficult to predict.

When an item of property, plant and equipment or an intangible asset is considered to be impaired, the impairment loss isrecognized in the income statement for the period. The decision to recognize an impairment loss involves estimates of thetiming and amount of the impairment, as well as an analysis of the reasons for the potential loss. Furthermore, additionalfactors, such as technological obsolescence, the suspension of certain services and other circumstantial changes are takeninto account.

The Company evaluates periodically its cash-generating unit’s performance to identify potential goodwill impairments.Determining the recoverable amount of the cash-generating unit to which goodwill is allocated also entails the use ofassumptions and estimates and requires a significant element of judgment.

aa) Non-controlling shareholders interests

Non-controlling shareholders interests representing the portion of income or loss and of net equity of subsidiariesthat are not held by the Company, which are stated in the consolidated balance sheet under the net equity caption.

bb) Financial income and expenses

Financial income and expenses represent interest, monetary and exchange variations from financial investments,derivatives, loans, financings and debenture transactions; net present value adjustments of transactions that generatemonetary assets and liabilities; and other financial transactions. They are recognized on accrual basis when earned orincurred by the Company and its subsidiaries.

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cc) Statements of cash flows

The statements of cash flows were prepared using the indirect method and reflect changes in cash over the statedyears. The terms used in the statements of cash flows are as follows:

• Operating activities: refer to the main transactions performed by the Company activities other than investmentand financing;

• Investing activities: refer to additions and dispositions of noncurrent assets and other investments not included

in cash and cash equivalents; • Financing activities: refer to activities resulting in changes in equity and loans. dd) Segment reporting

An operating segment is defined as a component of an entity for which discrete financial information is available,and which is reviewed regularly by the entity's chief operating decision maker to make decisions about resources tobe allocated to an individual segment and to assess its performance. Since all decisions by management are madebased on consolidated reports, the Company’s operation is to provide its customers with quality telecommunicationservices, and that all decisions on strategic, financial, procuring, investment and resource application planning aremade on a consolidated basis, the management concluded that the Company and its subsidiaries operate in a singleoperating segment, which is the rendering of telecommunications services.

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4. Acquisition of Vivo Participaçơes S.A. (Vivo Part.)

Fiscal year 2011

Background: Acquisition of Brasilcel N.V. stocks by Telefónica S.A.

As disclosed through material fact notices dated July 28, 2010 and September 27, 2010, on July 28, 2010 Telefónica S.A., acorporation with head office in Madrid, Spain (Telefónica) and Portugal Telecom SG SGPS, S.A., a corporation with headoffice in Lisbon, Portugal (Portugal Telecom) signed an agreement for the acquisition by Telefonica of 50% of Brasilcel N.V’s(Brasilcel) shares, owned by Portugal Telecom. Therefore, the transaction resulted in the indirect acquisition of shares of VivoParticipaçơes. Brasilcel, a company headquartered in the Netherlands, was held prior to the acquisition by Telefónica (50%)and by Portugal Telecom (50%) and, in 2002, it was used as a means to form a joint venture between both shareholders so as tohold the shares and control of the holdings jointly, as well as the mobile phone companies which were later added, respectively,in Vivo Part. (former Telesp Celular Participaçơes S.A.) and in Vivo S.A, as a full subsidiary of the Company.

On December 21, 2010, Brasilcel was merged into Telefónica, which held direct and indirect stakes in Vivo Part.’s capitalstock, with a share of approximately 60%.

Due to the acquisition of control of Vivo Part. and pursuant to the terms provided for in Article 254-A of Law 6,404/76 and theprocedures established in article 29 of CVM Instruction 361, applicable to Tender Offers (OPA) by sale of control, as definedby item III of article 2 of CVM Instruction 361, on February 17, 2011 Telefónica through its subsidiary SP TelecomunicaçơesLtda (“SPTelecom”) launched a Public Tender Offer for the shares with voting rights of Vivo Part. (ON shares) held bynon-controlling interests. Those shares were priced at 80% of the value paid by Telefónica to Portugal Telecom SG SGPS S.A.,for each common share with voting rights of Vivo Part. S.A. (ON shares) owned by Brasilcel.

On March 18, 2011, the date of Tender Offers (OPA), SP Telecom acquired 10,634,722 common shares of Vivo Part.,representing 2.65% of that company’s capital, resulting the Telefonica Group owning 62.1% of Vivo Part.

Acquisition of Vivo Part. by Telefônica Brasil and corporate restructuring

In order to unify the shareholder’s base of the companies, simplify the organizational structure, rationalize costs, integratebusinesses and, consequently, generate synergies provided for in the strategy of Telefónica, on December 27, 2010, the Boardsof Directors of Vivo Part. and Telefônica Brasil approved the terms and conditions for restructuring, which provided for themerger of 100% of the shares of Vivo Part. into Telefônica Brasil. Following recommendations of the Guiding Opinion No. 35of CVM, independent special committees were created to negotiate the exchange ratio of shares and conclude about the otherconditions of the Corporate Restructuring proposal in order to submit later its recommendations to the Board of Directors ofboth companies.

The proposal was submitted for ANATEL’s authorization and approved at a meeting of the Board of this agency held on March24, 2011.

On March 25, 2011, the Boards of Directors of Vivo Part. and Telefônica Brasil approved the terms and conditions of theCorporate Restructuring, which were approved unanimously by the general meetings of shareholders of the Companies held onApril 27, 2011.

The Holdings (TBS Celular Participaçơes Ltda. Portelcom Participaçơes S.A., Brazil PTelecom S.A.), controlled by TelefónicaS.A. and whose main purpose was to hold shares of Vivo Part. were merged into Vivo Part as a preliminary phase for the firststage of restructuring.

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The first stage of the transaction consisted of the unification of the share base of fixed and mobile operators of the TelefonicaGroup in Brazil, through the merger of shares of Vivo Part. into Telefônica Brasil. Telefônica Brasil merged all shares of VivoPart., attributing it directly to the holders of shares of Vivo Part. incorporated, the new shares of Telefônica Brasil. Theexchange of shares of Vivo Part. for shares of Telefônica Brasil was based on the exchange share ratio of 1.55 shares ofTelefônica Brasil for each share of Vivo Part. This followed the recommendations of the independent special committees.

Due to the merger of shares of Vivo Part., Telefônica Brasil’s capital was increased by R$31,222,630, considering theeconomic value of the incorporated shares, based on an Economic Value Appraisal of Vivo Part. prepared by PlanconsultConsultoria Ltda. ("Planconsult") in accordance with the provisions of article 252, paragraph 1 and article 8.

Telefónica’s strategy in the first stage of the corporate restructuring was to maximize the potential of its operations in Brazil.Therefore, Telefônica Brasil became the direct shareholder of Vivo Part, and indirectly of Vivo S.A. Through the creation ofthis 'umbrella investment structure', the non-controlling shareholders of both companies will be equally benefited by the addedvalues generated by the combination of the telecommunications business. This is a basic movement in business so as toimprove its converging market strategy, including combined mobile and fixed line offers, etc. This reorganization created theconditions for the beginning of the process to obtain operational and financial synergies.

Additionally, as a consequence of this merger, on July 6, 2011, Vivo Part. filed a statement with the Securities and ExchangeCommission ("SEC") in order to cancel its registration for the program of American Depositary Shares ("ADSs"), since all itsADSs were converted into ADSs of Telefônica Brasil, plus payment currency in lieu of fractional Telefônica Brasil ADSs,which was approved on July 7, 2011.

The second and third stages of the corporate restructuring, disclosed to the market on June 15, 2011, seek to continue thesimplification process of the organizational structure of the Companies, so as: (i) to focus all authorizations for the rendering ofSMP (personal mobile service) services (originally held by Vivo Part and Vivo S.A.), and (ii) simplify the current corporatestructure, eliminating the structure of Vivo Part., which due to the referred concentration of commitments became a holdingcompany.

In the second stage, held on October 1, 2011 assets, rights and obligations of Vivo Part. related to mobile operations in MinasGerais were awarded to Vivo S.A., a subsidiary of Vivo Part. As a result, Vivo S.A. became the only mobile operator in thegroup.

As there was no reason to maintain Vivo Part. as the holding of Vivo S.A. and after ANATEL’s approval of the third stage ofcorporate restructuring, on August 16, 2011, Telefonica Brasil merged Vivo Part.’s equity, extinguishing Vivo Part. on October3, 2011, which simplified and rationalized the companies’ cost structures.

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Accounting for Acquisition of Vivo Part. by Telefônica Brasil

Considering that accounting for business combinations between entities under common control has still not been specificallyspecified IFRS, a company must apply the hierarchy provided for in paragraphs 10-12 of IAS 8 – "Accounting Policies,Changes in Accounting Estimates and Errors" to choose the accounting practice to be adopted.

Therefore, in the absence of an IFRS regulation which treats similar or related matters, and in the lack of guidance in theConceptual Structure for the Elaboration and Presentation of Financial Statements, management can also consider the mostrecent technical positions taken on by other accounting regulatory bodies which use a similar conceptual structure to that ofIFRS to develop accounting pronouncements, or even, other generally accepted accounting literature and practices, so long asthey do not conflict with the sources listed in item 11 of IAS 8.

Therefore, an entity can choose to account for a business combination between entities under common control using either theacquisition method in accordance with IFRS 3(R) or by the pooling of interest method, with guidance provided by otheraccounting regulatory bodies with a similar structure to IFRSs.

Since the acquisition method results in the revaluation of net assets of one or more entities involved and / or the generation ofgoodwill, it is necessary that economic substance exists from the perspective of the acquiring entity for this method to beapplied, as is the case of this business combination.

Therefore, it is necessary that all the facts and circumstances from the perspective of the acquiring entity should be carefullyanalyzed, before it is concluded that a transaction has economic substance. If there was no economic substance, the pooling ofinterests method would be the only method that may be applied to that transaction.

Management understands that this transaction has economic substance having considered the following factors in its evaluationand documentation:

a) Objectives of the transaction: The acquisition of control of Vivo Part. by Telefónica had as its main objective the

integration of fixed and mobile telecommunications services in Brazil as the telecommunication segment is already movingin this direction. Therefore, Telefónica must necessarily integrate its fixed and mobile operations in Brazil, so as to operatemore efficiently and with the possibility of competing with the other companies in the telecom segment.

The merger of Vivo Part.’s shares into Telefônica Brasil represents the first step towards the integration of the businessesand immediately generates gains due to the rationalization of structures and synergies, as well as avoids risks of claims bythe shareholders of both companies, especially at this moment, in which some activities could be focused in one or in theother company. In addition, the shareholders of both companies will benefit from the higher liquidity of the shares in thestock exchange.

b) Involvement of third parties in the transaction, such as non-controlling shareholders: Vivo Part. had a significant number ofnon-controlling shareholders, representing 40.4% of its capital stock, which voted and approved the merger of shares inTelefônica Brasil, with abstention of only one shareholder who held 103 shares, which is not significant considering theCompany’s capital. Telefônica Brasil, which had around 12% of non-controlling shareholders, had its operation approvedby unanimous votes of the present shareholders.

c) If the transaction was conducted or not at fair value: The exchange ratio of shares was determined based on therecommendations of independent special committees and in their economic values, based on the discounted cash flowmethod, calculated by the financial advisors of Vivo Part.’s committee, Signatura Lazard Financial Advisory ServicesLtda. ("Signatura Lazard"), and Telefônica Brasil’s committee, Banco Santander S.A. ("Santander").

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According to item 4.2 of the Merger Protocol the shareholders of Vivo Part. received in exchange for the shares theyowned, new shares issued by the Telefônica Brasil, by the same type as those held by Vivo Part’s shareholders. Theexchange of shares was approved as follows: For each common and preferred share of Vivo Part., 1.55 new shares of thesame type were issued by Telefônica Brasil. Therefore, Telefônica Brasil issued 619,364,658 shares (212,767,241common shares and 406,597,417 preferred shares) as payment for the 100% of the shareholdings of Vivo Participaçăo S.A.The value of the issued shares in the total amount of R$31,222,630 was calculated based on the economic value of VivoPart.

The Company adopted fair value based on economical value report due to the fact that it is a transaction between twocompanies under common control, which value per share approximated the value paid by SP Telecom in March 2011pursuant to the OPA (Public Tender Offer) that resulted in the acquisition of 2.65% of Vivo Part.’s capital held bynon-controlling shareholders. As previously mentioned, this value substantially reflects the price paid by Telefónica in theacquisition of control of Vivo Part. from Portugal Telecom, with the differences pointed out mainly due to the premiumpaid by Telefonica in the acquisition of control and also due to the natural evolution of business between the considerationdate by the parent company (September 2010) and the consideration date used by Telefônica Brasil (March 2011).

d) Existing activities in the companies involved in the transaction: The exchange of shares between Vivo Part. (mobile

operator) and Telefônica Brasil (fixed line operator) is part of the strategy of integrating both activities, considering that theacquirer (Telefônica Brasil) did not have mobile operations. Telecom companies in Brazil are working towards obtainingintegrated business so as to maintain competitiveness. Therefore, the activities of Vivo Part. and Telefônica Brasil arecomplementary in the current telecom business scenario and must be managed jointly for their development.

e) If the transaction conducts entities jointly to a ‘reporting entity’ which did not exist previously: The group’s strategy is tointegrate its fixed line and mobile services in one 'reporting entity' which did not previously exist, aiming at sharing thesynergy gains in the telecom segment in Brazil between shareholders.

f) The transaction altered the control of Vivo Part.: As a consequence of the exchange of shares process and in order to haveonly one reporting entity, Vivo Part. became a full subsidiary of Telefônica Brasil and was merged in the final stage of thecorporate restructuring.

Therefore, we concluded that the merger of Vivo's shares into Telefônica Brasil has economic substance, and therefore, theacquisition method of accounting should be used, as provided for in IFRS 3 (R).

As provided below, the Company has also evaluated the transaction in order to properly determine the acquirer. Inaddition, if in a business combination IAS 27 is applied and it is not possible to indicate clearly which of thecombined entities is the acquirer, additional guidance in IFRS 3 (R) includes various other factors which must beconsidered in the determination of which entity is the acquirer.

In a business combination which takes place mainly through an exchange of shares, usually the acquirer is the entity thatissues its shares to exchange with the acquired interest. However, in some business combinations, known as reverseacquisitions, the entity which issues the shares can not be considered the acquired entity.

In the identification of the acquirer in a business combination which takes place upon the exchange of shares, IFRS 3 (R),paragraphs B13 to B18, require that other relevant factors be considered, including the following:

a) In a business combination based on exchange of shares, the acquirer is normally the entity which issues the equityinstruments: Telefônica Brasil issued the shares in exchange of shares owned by Vivo Part.’s shareholders, turningVivo Part. a fully-owned subsidiary of Telefônica Brasil. Additionally, the final stage of such corporate restructuringwas to merge Vivo Part. into Telefônica Brasil, and therefore Vivo Part. will no longer exist. Telefônica Brasil issuedshares held by it in exchange for interest in Vivo Part., increasing its capital stock by R$31,222,630.

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Table of Contents b) The composition of the Senior Management of the combined entity. The acquirer is normally the company whose

former Senior Management is prevailing in the combined entity: The CEO and CFO of Telefônica Brasil, among otherkey–functions, remained in these positions until the merger of shares. The equivalent positions in Vivo Part. wereextinguished.

c) The composition of Board of Directors (or equivalent body) of the combined entity. Usually the acquirer is the entitywhose shareholders have the ability to elect, appoint or remove most members of the board of directors of thecombined entity: The Board of Directors of Telefônica Brasil remains and the Board of Vivo Part. no longer existsafter the merger by Telefônica Brasil.

d) Additionally, the guidance to identify the acquirer also considers that it is normally the entity whose relative size(measured, for instance, in assets, revenues and profit) is significantly larger than the acquired entity: Both companieshave similar sizes, which, however must not be a determining fact to be considered in the identification of the acquirer.The most important fact to be considered is actually the essence of this acquisition, which is the acquisition of VivoPart. from Portugal Telecom by Telefónica in Spain. As a result, shares were exchanged upon this restructuringprocess so Telefônica Brasil and Vivo Part. could have their businesses integrated, generating the synergies expectedby the management and by the market. Therefore, independent of the size of the companies, it is important to considerthe essence of the transaction which is the acquisition of Vivo Part by Telefônica Brasil to make the previouslymentioned synergies possible.

Based on the afore mentioned factors, Management concluded that Telefonica Brasil is the acquirer on this transaction.

The fair value of the identifiable assets acquired and liabilities assumed of Vivo Part. were measured and recognized atacquisition date.

These values were determined upon various measurement methods of evaluation for each type of asset and/or liabilitybased on the best available information. The advice of experts has also been considered in addition to the various otherconsiderations made in determining these fair values.

The methods and assumptions used to measure these fair values were as follows:

Licenses

The fair value of the licenses has been determined through the use of Multi-period Excess Earnings Method (MEEM),which is based on a calculation of discounted cash flows of the estimated future economic benefits attributable to thelicenses, net of the elimination of charges related to contributing assets involved in the generation of such cash flowsand excluding the cash flows attributable to the customer base.

This method assumes that intangible assets rarely generate income on their own. Thus, cash flows attributable to thelicenses are those remaining after the return on investment of all of the contributing assets required to generate theprojected cash flows. The allocated fair value of the licenses on the acquisition date was R$12,876,000, which is beingamortized over a 27.75 year period for accounting purposes.

Customer base

The customer base has been measured using the MEEM, which is based on a discounted cash flow analysis of theestimated future economic benefits attributable to the customer base, net of the elimination of charges involved in itsgeneration. An analysis of the average length of customer relationships, using the retirement rate method, wasperformed in order to estimate the remaining useful life of the customer base.

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The objective of the analysis of useful lives is to estimate a survival curve that predicts future customer churn of ourcurrent client base. The so-called "Iowa Curves" were considered to approximate the survival curve of customers. Theallocated fair value of the licenses on the date of the acquisition was R$2,042,000, which is being amortized over a 8.5year period for accounting purposes.

Trademark

The fair value of the trademark was calculated using the "relief-from-royalty" method. This method establishes that anasset’s value is calculated by capitalizing the royalties saved by holding the intellectual property. In other words thetrademark owner generates a gain in holding the intangible asset rather than paying royalties for its use. The royaltiessaving was calculated by applying a market royalty rate (expressed as a percentage of revenues) to future revenuesexpected to be generated from the sale of products and services associated with the intangible asset. A market royaltyrate is the rate, normally expressed as a percentage of net revenues, that a knowledgeable, interested owner wouldcharge a knowledgeable, interested user for the use of an asset in an arm’s length transaction. The allocated fair valueof the licenses on the date of the acquisition was R$1,642,000, which is being amortized over a 19.5 year period foraccounting purposes.

The provisional fair values, goodwill and cost of the identifiable assets acquired and liabilities assumed in thistransaction at acquisition dates were the following:

In R$ thousandsVivo Participaçơes S.A.(provisional data)

Fair value Current assets 7,244,124 Non-current assets 28,134,683 Deferred tax asset, net(2) 417,883

Other non-current assets 2,385,177Property, plant and equipment 6,198,358Intangible assets (1) 19,133,265

Current liabilities (7,964,209) Non-current liabilities (5,352,456)

Other non-current liabilities (3) (5,352,456) Net asset amount 22,062,142 Cost of shareholdings 31,222,630 Goodwill of the transaction 9,160,488

(1) Includes the allocation of fair value attributed to licenses (R$12,876,000), trademark (R$1,642,000) and customerbase (R$2,042,000). The Company does not consider trademark and customer base as deductible items for taxpurposes.

(2) Includes the recognition of deferred income tax over (1) and (3). (3) Includes allocation of fair value attributed to contingent liabilities of R$283,000.

At the date of issuance of these consolidated financial statements, the Company was concluding the process ofdetermining the fair value of the identifiable assets acquired and liabilities assumed from Vivo Part. and, accordingly,new information obtained about facts and circumstances existing at the acquisition date, may result in someadjustments to the provisional allocation of intangibles and goodwill. The conclusion of this process is expected to becarried out within a maximum of twelve months from the date of acquisition. The fair value of accounts receivables for products sold and services rendered totals R$2,809,561. The gross amount isR$3,027,732. Over the gross amount of accounts receivables for products sold and services rendered, an allowance fordoubtful accounts of R$218,171 was recorded, for which settlement is expected in the net value of this provision.

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According to IFRS 3 (R) - Business Combination, the acquirer must recognize, on the date of acquisition, contingentliabilities assumed on a business combination even if it is not likely that the outflow of resources to settle the liabilityare necessary, as long as a present obligation arising from past events exists and its fair value can be reliablymeasured. In compliance with the criteria above, in this acquisition, a contingent liability at fair value of R$283,000was recognized, based on the possible cash outflow estimated for its settlement on the acquisition date (see note 20). Analysis of cash flow on acquisition R$ thousandTransaction costs (included in cash flows fromoperating activities)

(9,066)

Cash and cash equivalents of the companyacquired (included in cash flows from investingactivities)

1,982,898

Net of cash outflow and cash equivalents fromthe acquisition

1,973,832

The transaction costs incurred to date in the amount of R$9,066 were recorded in the income statement as otheroperating expenses.

From the acquisition date and up to the date of issuance of these financial statements (December 31, 2011), Vivo Part.(until September 2011) and Vivo S.A. have contributed R$16,125,386 of the net operating revenue and R$2,615,068of the net income of the consolidated company.

For information purposes only, we presented below an unaudited pro forma combined income statement between theCompany and the acquired company, Vivo Part., should the acquisition have taken place on January 1, 2011, withoutconsidering retroactively as of this date the accounting effects of the purchase price allocations (PPA). This statementdoes not intend to represent the real results of the operations of the Company should the restructuring have taken placeon the specified date, nor should it be used to project results of the Company’s operations on any date or future period.

For the fiscal year ended December 31, 2011 (unaudited)

Telefônica BrasilConsolidated for

the fiscal yearended

December 31,2011

VivoConsolidatedfor the three

months periodended

March 31, 2011 Elimination

(b) Telefônica

Brasil Net operating revenue 29,128,740 4,812,330 (802,456) 33,138,614 Costs of goods and services (a) (14,728,171) (2,217,733) 773,395 (16,172,509)Gross profit 14,400,569 2,594,597 (29,061) 16,966,105 Operating (expenses) income (8,603,203) (1,489,121) 29,061 (10,063,263)Selling (a) (7,259,703) (1,180,178) 36,545 (8,403,336)General and administrative (a) (1,785,658) (310,416) - (2,096,074)Other operating income (expenses), net 442,158 1,473 (7,484) 436,147 Operating income before financial expense, net 5,797,366 1,105,476 - 6,902,842 Financial expense, net (139,692) (39,794) - (179,486)Income before income tax and social contribution 5,657,674 1,065,682 - 6,723,356 Income tax and social contribution (1,295,475) (355,476) - (1,650,951)Net income for the period (c) 4,362,199 710,206 - 5,072,405 Attributed to equity holders of the parentcompany 4,355,318 - - 5,065,524 Attributed to participation of non-controllingshareholders 6,881 - - 6,881

(a) Includes depreciation and amortization expenses amounting to R$5,131,853.

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Table of Contents (b) Includes mainly revenues and interconnection costs.(c) Net income would be R$4,940,938 in 2011, should the effects of the amortization of intangible assets of the first 3 months of

2011 (R$199,193), net of deferred income taxes amounting to R$67,726, have been included. 5. Cash and cash equivalents

2011 2010 Bank accounts 77,404 8,930 Short-term investments 2,862,938 1,547,785 Total 2,940,342 1,556,715

Short-term investments are basically CDB (Bank Deposits Certificate), indexed under CDI (Inter-bank Deposits Certificate)rate variation, which are readily liquid and maintained with reputable financial institutions.

6. Trade accounts receivable, net

2011 2010 Billed amounts 3,461,465 1,854,151 Interconnection receivable 1,855,801 188,609 Accrued unbilled amounts 930,178 1,336,441 Gross accounts receivable 6,247,444 3,379,201 Allowance for doubtfulaccounts (1,056,729) (765,633)Total 5,190,715 2,613,568 Current 4,103,377 2,008,325 Past-due – 1 to 30 days 631,923 394,371 Past-due – 31 to 60 days 204,775 95,206 Past-due – 61 to 90 days 115,125 41,096 Past-due – 91 to 120 days 49,815 19,088 Past-due – more than 120 days 85,700 55,482 Total 5,190,715 2,613,568 Current 5,105,860 2,546,225 Non-current 84,855 67,343

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Changes in Allowance for doubtful accounts

2011 2010 Opening balance (765,633) (833,639)Provision charged to sellingexpenses (Note 26) (506,581) (386,340)Business combination (218,171) - Consolidation of TVA (3,659) - Write-offs 437,315 454,346 Ending balance (1,056,729) (765,633)

Subsidiary A.Telecom offers “Posto Informático”, a product that consists of the lease of IT equipment to small andmedium-sized companies for fixed installments received over the agreed term. Considering the related contractual conditions,the Company classified this product as a “Finance Lease” in the financial statements as of December 31, 2011 and 2010 (note3.g).

The consolidated accounts receivable as of December 31, 2011 and 2010 reflect the following effects:

2011 2010 Present value of minimumpayments receivable 261,933 112,352 Unrealized financial income 8,941 23,213 Gross investment in financelease receivables 270,874 135,565 Allowance for doubtfulaccounts (69,375) (18,102)Financial Leases receivable,net 201,499 117,463 Current 177,078 45,009 Non-current 84,855 67,343

Aging list of financial leases receivable:

Year Gross

Investment PresentValue

Falling due within one year 177,078 177,078 Falling due within five years 93,796 84,855 Total 270,874 261,933

There are neither unsecured residual values that produce benefits to the lessor nor contingent payments recognized as revenuesduring the year.

7. Inventories

2011 2010 Consumption materials 94,547 100,579 Resale items (*) 435,032 66,564 Other inventories 6,468 10,052 Allowance for reduction to net recoverable value and

obsolescence (64,326) (99,696)Total current 471,721 77,499 (*) Includes, among others, cell phones and IT equipments.

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Below, we present the changes in the allowance for reduction to net recoverable value and obsolescence:

2011 2010 Opening balance (99,696) (75,928)Additions (37,462) (31,568)Write-offs 95,149 7,800 Businesscombination (18,852) - Consolidation ofTVA (3,465) - Ending balance (64,326) (99,696)

The reduction in the balance of resale items is explained due to the disposal process made through auctions and reuse in theCompany’s plant.

8. Deferred and recoverable taxes

8.1 Recoverable taxes

2011 2010 Withholding taxes 152,919 91,185 Recoverable income tax and socialcontribution 1,143,988 27,088 ICMS (state VAT) (*) 1,665,896 534,323 ICMS (state VAT)-Convênio 39/PortariaCAT 06 307,832 313,177 PIS and COFINS 210,950 17,726 Other 28,440 2,535 Total 3,510,025 986,034 Current 2,495,066 659,357 Non-current 1,014,959 326,677

(*) The amount recorded as of December 31, 2011 refers mainly to credits on the acquisition of property, plant andequipment items, available for offset against VAT obligations in 48 months.

8.2 Deferred taxes

The Company and its subsidiaries recognized deferred income and social contribution tax assets considering the existenceof taxable income in the last five fiscal years and the expected generation of future taxable based on a technical feasibilitystudy, approved by the Board of Directors on December 12, 2011.

2011 2010 Deferred Assets Tax loss carry-forwards – Income tax and social contribution (a) 348,576 2,325 Provisions for tax, labor and civil claims 736,312 302,607 Post-retirement benefit plans 98,833 74,460 Allowance for doubtful accounts 178,433 100,194 Fust Provision 151,985 73,251 Allowance for obsolescence of modems and others 8,745 18,713 Employee Profit sharing 82,564 38,730

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Accelerated depreciation 433,512 46,318 Allowance for reduction of inventory to recoverable value 17,542 31,593 Provision for loyalty program 23,399 - Derivatives 69,387 33,188 Merged tax credits – DABR (b) 46,962 34,691 Provisions 354,916 129,798 Income tax and social contribution on other temporary differences 308,462 128,144 2,859,628 1,014,012 Deferred liabilities Technological innovation Law (333,156) (238,957)Exchange rate variation (14,742) (25,811)Merged tax credits (b) (207,668) (136,015) Client portfolio (630,896) - Trademarks and patents (536,808) - License (79,976) - Effect of goodwill generated by the merger of Telemig and TelemigParticipaçơes into TCO IP S.A. (258,695) Effect of goodwill generated on the acquisition of Vivo Part. (53,374) - Income tax and Social contribution on other temporary differences (104,389) (109,550) (2,219,704) (510,333)Total non-current asset (liability), net 639,924 503,679

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Table of Contents a) Tax loss carryforward and negative tax base: These represent the amount recorded by the Company’s subsidiaries

which, pursuant to the Brazilian legislation, may be offset up to the limit of 30% of the taxable income computed inthe coming fiscal years and subject to no statute of limitations. The subsidiaries Telefônica Data S.A. and TelefônicaSistema de Televisăo S.A. did not record the potential deferred income and social contribution taxes credit that wouldarise from the use of the tax loss carryforwards and negative tax bases in the amount of R$54,139 at December 31,2011, given the uncertainty, at this time, as to these subsidiaries ability to generate sufficient future taxable results toensure the realization of these deferred taxes.

Below we present tax credit amounts from tax loss carryforwards recognized and not recorded by the Company’ssubsidiaries. As of December 31, 2011, there was no significant change in the Company’s business or those of itssubsidiaries that would indicate the need for a provision for the aforementioned tax credits.

Income

Tax Social

Contribution Total Tax-loss carry-forward and negative base at 12/31/2011 1,195,277 1,154,399 2,349,677 Tax credit (25% + 9%) 298,819 103,896 402,715 Tax credit recognized 259,011 89,565 348,576 Tax credit not recognized 39,808 14,331 54,139

Income

Tax Social

Contribution Total Tax-loss carry-forward and negative base at 12/31/2010 130,435 130,435 260,870 Tax credit (25% + 9%) 32,609 11,739 44,348 Tax credit recognized 1,710 615 2,325 Tax credit not recognized 30,899 11,124 42,023

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b) Merged tax credit: Relates to tax benefits arising from corporate reorganizations represented by goodwill amounts

based on future expected profitability to be used in compliance with the limits established by tax legislation.

Changes in deferred income and social contribution tax assets and liabilities:

Deferred TaxAssets

December 31,2010 Additions Write-offs/realization

BusinessCombination

December 31,2011

Tax losses 2,325 - (393,067) 739,318 348,576 Other deferredassets 1,011,687 252,826 (108,222) 1,354,761 2,511,052 Total 1,014,012 252,826 (501,289) 2,094,079 2,859,628

Deferred TaxAssets

December31, 2009 Additions Write-offs

December 31,2010

Tax losses 1,716 609 - 2,325 Other deferredassets 926,990 111,175 (26,478) 1,011,687 Total 928,706 111,784 (26,478) 1,014,012

DeferredTax

Liabilities December31, 2010 Additions Write-offs

BusinessCombination

Othercomprehensive

income December 31,

2011 Deferredliabilities 510,333 274,332 (155,452) 1,611,833 (21,342) 2,219,704 Total 510,333 274,332 (155,452) 1,611,833 (21,342) 2,219,704

Deferred TaxLiabilities

December31, 2009 Additions Write-offs/realization

Othercomprehensive

income December31, 2010

Deferredliabilities 364,642 207,869 (3,669) (58,509) 510,333 Total 364,642 207,869 (3,669) (58,509) 510,333

At December 31, 2011, the Company projects deferred tax (liabilities) assets to be realized as follows:

Year 2012 1,337,875 2013 93,927 2014 1,758 2015 (31,700)2016 (35,603)From 2017 (726,333)Total 639,924

These recoverable amounts are based on projections that may change in the future.

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9. Escrow deposits

The Company and its subsidiaries have escrow deposits and assets frozen by court order in connection with civil, labor and taxlawsuits, as follows:

Nature

Laborclaims Tax litigation

Civillitigation

Freeze ofassets

by courtorder Total

Non-current as of 12/31/2010 555,322 546,387 528,887 80,087 1,710,683 Business combination 54,939 1,146,771 77,336 58,113 1,337,159 Consolidation of TVA 2,488 24,128 6,542 1,743 34,901 Additions 139,123 72,745 141,146 314,373 667,387 Write-offs / reversal (42,796) (5,605) (76,361) (340,605) (465,367)Monetary restatement 39,847 133,211 39,177 - 212,235 Transfers 40,782 1,166 (1,442) (40,506) - Merger of Ptelecom - 19,667 - - 19,667 Non-current as of 12/31/2011 789,705 1,938,470 715,285 73,205 3,516,665 Current 18,501 15,207 61,687 21,026 116,421 Non-current 771,204 1,923,263 653,598 52,179 3,400,244

Nature

Laborclaims Tax litigation

Civillitigation

Freeze ofassets

by courtorder Total

Non-current as of 12/31/2009 436,153 481,664 377,301 40,222 1,335,340 Additions 104,480 33,840 117,414 75,441 331,175 Write-offs / reversal (11,980) - (17,839) - (29,819)Monetary restatement 14,355 30,920 28,712 - 73,987 Transfers 12,314 (37) 23,299 (35,576) - Non-current as of 12/31/2010 555,322 546,387 528,887 80,087 1,710,683

See note 20, Provisions for further details of the matters that gave rise to these deposits.

On December 31, 2011, the Company and its subsidiaries had several judicial tax deposits totaling R$1,938,470.

A brief description of the main consolidated judicial tax deposits is as follows:

PIS and COFINS

The subsidiary Vivo is party to judicial claims involving the following matters: i)a claim arising from tax debits offsetting with credits derived from overpayments not recognized by the tax authorities; ii) taxdebt derived from underpayment due to divergence in the ancillary statements (DCTFs); and iii) disputes referring to changes inrates and an increase in the taxable bases introduced by Law No. 9718/98.

As of December 31, 2011, the balance of escrow deposits amounted to R$68,532. The amounts provisioned

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CIDE

The Company and subsidiaries are involved in administrative and judicial disputes for the exemption of the CIDE levied onoffshore remittances of resources derived from agreements for the transfer of technology, brand and software licensing, etc.

As of December 31, 2011, the balance of escrow deposits amounted to R$123,228. The amounts provisioned related to suchescrow deposits are in note 20.

FISTEL

Due to extensions of licenses terms for utilization of telephony switches associated with the performance of commuted fixedtelephony services (fixed operators) and extensions for the use of radio frequencies associated with the performance of personalmobile services (mobile operators), ANATEL collected TFI on the extension of the licenses granted and on the radio basestations, mobile stations and radio links.

Such tax collection was due to ANATEL´s belief that the extension was a TFI taxable event. The Company and its subsidiarieshave separately contest this tax at the administrative and judicial level in the belief that this collection is improper.

As of December 31, 2011, the amount deposited totaled R$767,530. There are amounts provisioned of R$733,038 related tosuch escrows deposits which are disclosed in note 20.

IRRF

The Company and its subsidiaries filed writs of mandamus claiming its right not to have IRRF (Withholding Income Tax)incidence over: (a) remittances to other countries for outcoming traffic (fixed operators); (b) interest on shareholder’s equitypaid (mobile operators).

As of December 31, 2011, the balance of court deposits amounted to R$53,760. There are amounts provisioned of R$24,753related to such escrow deposits which are disclosed in note 20.

In addition to those discussions, the Company and its subsidiaries are parties to other judicial claims involving the followingmatters: (a) IRRF levied on rent and royalties income, salary, and fixed-rate financial investments; (b) debts referring to theoffsetting of IRPJ and CSLL overpayments not recognized by the Federal tax authorities, and debt referring to fines derivedfrom the untimely payment of IRRF.

As of December 31, 2011, the balance of escrow deposits amounted to R$7,709. The amounts provisioned related to suchescrow deposits are disclosed in note 20.

IRPJ

The Company and its subsidiaries were party to judicial claims involving the following matters: (a) claims arising from taxdebits offsetting with credits derived from overpayments not recognized by the Federal tax authorities; and (b) requirement ofIRPJ estimates and lack of payment – debts in the integrated system of economic-fiscal information (SIEF).

As of December 31, 2011, the balance of escrow deposits amounted to R$23,866. There are amounts provisioned of R$1,249related to such escrow deposits which are disclosed in note 20.

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EBC (Empresa Brasil de Comunicaçăo) Contribution

Sinditelebrasil (Union of Telephony and Cellular and Personal Mobile Service Companies) filed a writ of mandamuschallenging the Contribution for Development of the Public Radio Broadcasting payable to EBC (Empresa Brasil deComunicaçăo), created by Law No. 11,652/2008. The Company and its subsidiaries, as members of the union, made escrowdeposits referring to that contribution.

As of December 31, 2011 the amounts deposited totaled R$254,328. The amounts provisioned related to such escrow depositsare disclosed in note 20.

Social Security, Work Accident Insurance (SAT) and Funds to Third Parties (INSS)

The Company filed a writ of mandamus in order to nullify the entry stemming from collection of Social Security, WorkAccident Insurance (SAT) and third party funds on payment of "Indenizaçăo Compensatória por Supressăo de Benefícios" dueto the suspension of collective bargaining agreements of 1996/1997 and 1998/1999.

On December 31, 2011, the balance of escrow deposits totaled R$75,278.

Guarantee fund for years of service (FGTS)

The Company filed a writ of mandamus in order to declare its right not to pay surtax of 0.5% and 10% for FGTS – (Fundo deGarantia por Tempo de Serviço) established by Supplementary Law No. 110/2001 levied on deposits made by employers (theproceedings did not result in any reduction of part of the deposits for FGTS made by the Company on behalf of its employees).

As of December 31, 2011, the value deposited totaled R$62,154. The amounts provisioned related to these escrow deposits aredisclosed in note 20.

Tax on Net Income (ILL)

The Company filed a writ of mandamus in order to declare its right to offset overpayments of Tax on Net Income with overdueinstallments of IRPJ.

As of December 31, 2011, the total value deposited amounted to R$46,770.

Universalization of telecommunications services fund (FUST)

The Company and its subsidiaries filed a writ of mandamus in order to declare its right to: (a) Fixed operations: non-inclusionof interconnection expenses (ITX) and EILD in the FUST tax base and (b) Mobile operations: non-inclusion of interconnectionrevenue (ITX) and EILD in the FUST tax base, in accordance with the provision Súmula nº 7, dated December 15, 2005, as itdoes not comply with the provisions contained in sole paragraph of article 6 of Law No. 9,998, dated August 17, 2000.

As of December 31, 2011, the amount deposited totaled R$299,545. The amounts provisioned related to these escrow depositsare disclosed in note 20.

Provisional Contribution Tax on Financial Transactions (CPMF)

Due to merger of PTelecom Brasil S.A into the subsidiary Vivo Part., which was later merged into the Company, the escrowdeposit balance, related to the writ of mandamus filed by PTelecom Brasil S.A, aiming to reject the requirement for CPMF onsymbolic and simultaneous foreign-exchange contracts, required by the Brazilian Central Bank for the conversion of externalloan into investment, was incorporated by the Company.

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As of December 31, 2011, the amount deposited totaled R$20,220. The amounts provisioned related to these escrow depositsare disclosed in note 20.

State VAT (ICMS)

The Company and its subsidiaries are involved in judicial discussions comprising the following issues: (a) ICMS declared andnot paid; (b) ICMS not levied on communication in default; (c) subject to the payment of fine for late tax payment, paidspontaneously; (d) ICMS supposedly levied on access, activation, habilitation, availability and use of services, as well as thoserelated to supplementary services and additional facilities; (e) right to credit from the acquisition of goods designated to fixedassets and electricity; and (f) activation of cards for pre-paid services.

As of December 31, 2011, the amount deposited totaled R$29,974. There are amounts provisioned of R$29,941 related to thesejudicial deposits which are disclosed in note 20.

Other taxes and contributions

The Company and its subsidiaries had judicial discussions that comprise the following issues: (a) service tax (ISS) overnon-core services; (b) municipal real estate tax (IPTU) not subject to exemption ; (c) municipal inspection, operation andpublicity taxes; (d) differential rate SAT (1% to 3% - Work Accident Insurance); (e) use of soil rate; (f) pension contributionsregarding the supposed lack of retention of 11% of the value of various bills, invoices and receipts for supplier contracted; (g)public price for Numbering Resources Management (PPNUM) by ANATEL.

As of December 31, 2011, the amount deposited totaled R$105,576. 10. Prepaid expenses

2011 2010 Advertising and publicity 171,566 817 Rents 20,992 4,901 Insurance 10,289 8,714 Software maintenance 14,503 14,889 Financial charges 3,426 - Other assets 34,280 12,051 Total current 255,056 41,372 Advertising and publicity 835 - Rents 11,912 9,226 Insurance 1,695 4,511 Financial charges 5,317 - Other assets 12,379 10,910 Total non-current 32,138 24,647

11. Other assets

2011 2010 Advances 62,123 53,704 Related parties receivables(Note 32) 40,285 95,452 Subsidy on the sale ofhandsets 53,408 - Suppliers receivables 184,748 59,769

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Other assets 83,248 57,190 Total current 423,812 266,115 Receivables from Barramar S.A.(a) 52,248 56,700 Amounts linked to National

Treasury securities 13,819 12,884 Pension assets surplus (note 35) 31,210 27,171 Related parties receivables (Note32) 20,214 16,943 Other assets 30,802 40,110 Total non-current 148,293 153,808

(a) Refers to receivables from Barramar S.A., registered in Companhia AIX de Participaçơes, net of allowance for losses. 12. Investments

2010 Additions

Result ofEquityMethod

Dividendsreceived

OtherComprehensive

Income Consolidation

of TVA 2011 Investments in subsidiaries 57,990 - - - - (57,990) -

GTR Participaçơes eEmpreendimentosS.A (b) 2,055 - - - - (2,055) -

Lemontree ParticipaçơesS.A. (b) 17,047 - - - - (17,047) -

Comercial Cabo TV SăoPaulo S.A. (b) 32,392 - - - - (32,392) -

TVA Sul Paraná S.A. (b) 6,496 - - - - (6,496) - Other investments (*) (a) 42,847 - - - (5,012) - 37,835

Zon Multimédia – directinterest 9,036 - - - (2,299) - 6,737

Zon Multimédia – indirectinterest 3,189 - - - (810) - 2,379

Other investiments 30,622 - - - (1,903) - 28,719 Total consolidated investments 100,837 - - - (5,012) (57,990) 37,835

(a) Other investments are measured at fair value. (b) Consolidated from January 1, 2011 as mentioned in Note 3.d.

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2009

Result ofequity

method

Futurecapital

contribution Dividendsreceived

Othercomprehensive

income

Write-off(residual

value) 2010 Associates (I) (II) 55,101 2,889 3,557 (3,557) - - 57,990

GTR Participaçơes eEmpreendimentos S.A 2,121 (66) 60 (60) - - 2,055

Lemontree ParticipaçơesS.A. 14,292 2,755 1,029 (1,029) - - 17,047

Comercial Cabo TV SăoPaulo S.A. 31,844 548 2,336 (2,336) - - 32,392

TVA Sul Paraná S.A. 6,844 (348) 132 (132) - - 6,496 Other investments (*) (I) (II) 285,198 - - - (124,353) (117,998) 42,847

Portugal Telecom – directinterest 170,777 - - - (95,415) (75,362) - Zon Multimédia – directinterest 13,049 - - - (4,013) - 9,036 Portugal Telecom –indirect interest 56,925 - - - (14,289) (42,636) - Zon Multimédia – indirectinterest 4,605 - - - (1,416) - 3,189 Other investments 39,842 - - - (9,220) - 30,622

Total consolidatedinvestments (II) 340,299 2,889 3,557 (3,557) (124,353) (117,998) 100,837

(*) Other investments are measured at fair value.

The Company sold the consolidated interest held in Portugal Telecom on June 21, 2010, which generated the following effects:

Consolidated Sale amount 205,149 Acquisition cost (117,998)Net gain from thesale 87,151

Jointly-owned companies consolidated on a proportional basis The Group has ownership interest of 50% in Aliança Atlântica Holding B.V., Companhia AIX de Participaçơes and CompanhiaACT de Participaçơes, which are consolidated on a proportional basis. The business purpose of

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Table of Contents each company is detailed in Note 1.c).

The amounts of assets, liabilities, revenues and expenses related to Telefônica Brasil’s interest in entities consolidatedproportionally at December 31, 2011, 2010 and 2009 included in the consolidated financial statements are set out below:

2011 2010

Cia ACT Cia AIX Aliança

Atlântica Cia ACT Cia AIX Aliança

Atlântica Current assets 4 3,501 49,655 7 4,820 57,456 Noncurrent assets - 65,461 2,378 - 72,146 3,189 Current liabilities 1 2,338 9 1 5,727 397 Noncurrent liabilities - 1,849 - - 2,339 - Shareholders’ Equity 3 64,775 52,024 6 68,900 60,248

2011 2010 2009

Cia

ACT Cia AIX Aliança

Atlântica Cia


Atlântica Cia


Atlântica Revenues 25 27,491 1,139 27 31,254 13,200 30 30,144 3,994 Expenses (28) (24,240) (82) (24) (21,985) (99) (27) (12,207) (185)Net income forthe year (3) 3,251 1,057 3 9,269 13,101 3 17,937 3,809

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Annualdepreciation

rate % Net book valueas of 12/31/2010 Additions

Disposals,net

Transfers,net (b) Depreciation

Businesscombination

Consolidationof TVA

Net book valueas of 12/31/2011

Switchingequipment 10.00 1,234,081 60,166 (5,087) 390,972 (346,804) 617,757 - 1,951,085 Transmissionequipment 5.00 to 10.00 3,709,166 377,411 (49,123) 1,106,119 (847,229) 2,441,209 25,282 6,762,835 Terminalequipmentand modems 10.00 to 66.67 1,274,037 991,417 (4,819) 1,081 (1,002,764) 258,714 29,387 1,547,053 Infrastructure 4.00 to 12.50 2,811,505 228,124 (61,059) 492,876 (703,375) 1,851,056 845 4,619,972 TVequipmentand materials 8.00 to 20.00 187,343 125,865 - (53,488) (109,607) - 29,056 179,169 Other 10.00 to 20.00 218,469 160,948 (4,879) 48,747 (193,108) 556,973 1,232 788,382 Provision forlosses (a) (41,373) - 8,985 8,953 - - - (23,435)Property,plant andequipment inprogress 807,469 2,068,327 (12,609) (2,009,147) - 472,649 2,170 1,328,859 Total 10,200,697 4,012,258 (128,591) (13,887) (3,202,887) 6,198,358 87,972 17,153,920

13. Property, plant and equipment, net

Annualdepreciation

rate %

Net book valueas of

12/31/2009 Additions Disposals,

net Transfers,

net (b) Depreciation Net book valueas of 12/31/2010

Switchingequipment 10.00 1,038,595 115,444 91 295,996 (216,045) 1,234,081 Transmissionequipment 5.00 to 10.00 3,354,458 339,740 (4,188) 391,947 (372,791) 3,709,166 Terminalequipmentand modems

10.00 to66.67 1,183,554 575,672 (4,121) 79,378 (560,446) 1,274,037

Infrastructure 4.00 to 12.50 2,990,801 71,235 (40,405) 96,139 (306,265) 2,811,505 TVequipmentand materials 8.00 to 20.00 327,898 17,066 (261) (82,586) (74,774) 187,343

Other 10.00 to

20.00 225,996 64,325 (1,299) 5,729 (76,282) 218,469 Provision forlosses (a) (15,985) 7 - (25,395) - (41,373)Property,plant andequipment inprogress 566,820 1,013,334 (12,170) (760,515) - 807,469 Total 9,672,137 2,196,823 (62,353) 693 (1,606,603) 10,200,697

(a) The Company and its subsidiaries recognized a provision for possible obsolescence of materials used for assets maintenancebased on historical and expected future use.

(b) See transfers made on Intangible assets.

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Below is the breakdown of cost and accumulated depreciation as of December 31, 2011 and 2010:

2011 Cost Accumulateddepreciation

Net bookvalue

Switching equipment 15,084,380 (13,133,295) 1,951,085 Transmission equipment 30,051,932 (23,289,097) 6,762,835 Terminal equipment and modems 8,830,900 (7,283,847) 1,547,053 Infrastructure 13,124,946 (8,504,974) 4,619,972 TV materials and equipment 907,865 (728,696) 179,169 Other 3,546,825 (2,758,443) 788,382 Provision for losses (23,435) - (23,435) Property, plant and equipment in progress 1,328,859 - 1,328,859 Total 72,852,272 (55,698,352) 17,153,920


Net bookvalue

Switching equipment 11,795,681 (10,561,600) 1,234,081 Transmission equipment 19,122,768 (15,413,602) 3,709,166 Terminal equipment and modems 4,777,349 (3,503,312) 1,274,037 Infrastructure 8,477,774 (5,666,269) 2,811,505 TV materials and equipment 614,921 (427,578) 187,343 Other 1,429,962 (1,211,493) 218,469 Provision for losses (41,373) - (41,373) Property, plant and equipment in progress 807,469 - 807,469 Total 46,984,551 (36,783,854) 10,200,697

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14. Intangible assets, net

2011 2010 Goodwill 10,225,280 1,064,792 Other intangiblesassets 19,828,404 665,682 Total 30,053,684 1,730,474

Following is the opening of goodwill on these dates:

Goodwill 2010 Business

Combination 2011 Ajato Telecomunicaçơes Ltda. 149 - 149 Goodwill Spanish and Figueira (merged in TDBH) (a) 212,058 - 212,058 Santo Genovese Participaçơes Ltda. (b) 71,892 - 71,892 Telefônica Televisăo Participaçơes S.A. (c) 780,693 - 780,693 Vivo Participaçơes S.A. (d) - 7,169,577 7,169,577 Telemig Celular S.A. - 133,896 133,896 Telemig Celular Participaçơes S.A. - 1,485,172 1,485,172 Global Telecom S.A. - 204,762 204,762 Tele Centro Oeste Celular Participaçơes S. A. - 150,930 150,930 Ceterp Celular S. A. - 16,151 16,151 Total 1,064,792 9,160,488 10,225,280

(a) Goodwill arising from the spin-off of Figueira, which was merged into the Company as a result of the merger ofTelefônica Data Brasil Holding S.A. (TDBH) in 2006.

(b) Goodwill arising from the acquisition of control over Santo Genovese Participaçơes Ltda. (controlling shareholder of

Atrium Telecomunicaçơes Ltda.) in 2004. (c) Goodwill arising from the acquisition of TTP (formerly Navytree), incorporated in 2008 which is based on a future

profitability analysis. (d) Goodwill arising from the acquisition of Vivo Part. in April 2011.

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Annualdepreciation

rate %

Net bookvalue as of12/31/2010 Additions

Disposals,net Transfers, net Depreciation

Businesscombination

Consolidationof TVA

Net book valueas of 12/31/2011

Software 20.00 to 33.33 638,975 380,942 (64) 161,984 (632,725) 1,312,044 - 1,861,156 CustomerPortfolio(NetworkIP) 9.00 to 15.00 14,512 - - - (193,681) 2,042,000 - 1,862,831 Trademarksand patents 5.00 - - - - (63,154) 1,642,000 - 1,578,846 License 3.60 to 20.00 - 811,754 - - (483,743) 14,031,970 - 14,359,981 Goodwill

According tocontractual

terms - 2,976 - - (1,962) 6,670 - 7,684 Other 10.00 to 20.00 12,195 10,436 (314) (1,263) (7,842) 1,487 9,768 24,467 Software inprogress - 183,179 - (146,834) - 97,094 - 133,439 Total 665,682 1,389,287 (378) 13,887 (1,383,107) 19,133,265 9,768 19,828,404

Annualdepreciation

rate %

Net bookvalue as of12/31/2009 Additions

Disposals,net

Transfers,net Depreciation

Net bookvalue as of12/31/2010

Software 20.00 682,776 239,986 - (159) (283,628) 638,975 CustomerPortfolio(Network IP) 10.00 21,768 - - - (7,256) 14,512 Other 10.00 to 20.00 24,132 4,604 - (534) (16,007) 12,195 Total 728,676 244,590 - (693) (306,891) 665,682

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Net bookvalue

Software 8,744,914 (6,883,758) 1,861,156 Customer Portfolio (Network IP) 2,114,561 (251,730) 1,862,831 Trademarks and patents 1,643,511 (64,665) 1,578,846 License 15,937,373 (1,577,392) 14,359,981 Goodwill 38,800 (31,116) 7,684 Other 683,021 (658,554) 24,467 Software in progress 133,439 - 133,439 Total 29,295,619 (9,467,215) 19,828,404


Net bookvalue

Software 2,953,275 (2,314,300) 638,975 Customer Portfolio (Network IP) 72,561 (58,049) 14,512 Other 201,621 (189,426) 12,195 Total 3,227,457 (2,561,775) 665,682

15. Payroll and related accruals

2011 2010 Salaries and fees 40,651 25,583 Payroll charges 223,359 101,021 Employee profit sharing 214,983 105,841 Other indemnities 16,631 74,800 Total 495,624 307,245

16. Trade accounts payable

2011 2010 Various suppliers 5,384,243 2,270,444 Values to pass 146,437 51,485 Interconnection 521,901 510,228 Technical assistance 29,030 - Total 6,081,611 2,832,157

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17. Taxes payable

2011 2010 Direct taxes Income tax and socialcontribution (a) 129,610 1,329 Indirect taxes 2,021,739 792,371

ICMS (state VAT) (b) 1,610,598 635,358 PIS and COFINS (taxes on

revenue) (c) 319,981 120,430 Fust and Funtel (d) 39,879 20,661 CIDE 3,359 7,301 Others 47,922 8,621

Total 2,151,349 793,700 Current 1,691,991 754,993 Non-current 459,358 38,707

(a) Income and social contribution taxes payable are presented net of payments on an estimated basis. (b) The non-current portion includes an amount of R$380,271 at December 31, 2011, which refers to ICMS – Programa

Paraná Mais Emprego, resulting from an agreement with the Paraná State Government involving the deferral of ICMStax payment. This agreement indicates that the ICMS becomes due in the 49th month following the month in whichICMS tax is calculated. This amount is adjusted to the variation of the Annual Indexation Factor (FCA).

(c) Includes the amounts for which the Company received a tax infraction notice for having carried out the

COFINS compensation, in January and February 2000, with credits arising from the overpayment of 1/3 ofthe COFINS paid in 1999, after compensation with CSLL. The litigation awaits special administrativejudgment. The Management had recorded the amount of R$47,541 at December 31, 2011, and had an escrowdeposit for the same amount. Due to the Tax Recovery Program - REFIS (Law no. 11,941/09), the companyrequested the waiver of suits and the conversion in income of amounts payable with the resulting raising ofthe surplus amount.

(d) The amounts related to Fust and Funtel in connection with proceedings held with ANATEL were reclassified to

Provisions (see note 20.2).

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Table of Contents 18. Loans, Financing and Debentures

18.1 Loans and Financing

Currency Annual interest rate Maturity 2011 (*) 2010 (*) Loans and financing - BNDES (a) URTJLP TJLP+3.73% Until 2015 1,327,147 1,715,580Loans and financing - BNDES (a) URTJLP TJLP+1.73% Until 2015 71,821 92,842Loans and financing - BNDES BRL 5.50% Until 2021 1,912 -Loans and financing – Mediocrédito US$ 1.75% Until 2014 14,027 17,304Loan – working capital BRL 108.90% of CDI Until 2012 91,570 -Loan – Resolution 4131 US$ 4.10% Until 2013 282,205 -Loans and financing - BNDES (b) URTJLP TJLP+1.48% to 4.30% Until 2019 1,659,858 -Loans and financing - BNDES UMBND 5.97% Until 2019 194,276 -Loans and financing - BNDES (c) R$ 4.50% to 5.50% Until 2020 135,471 - Loans - European Bank of Investments – BEI US$ 4.18% to 4.47% Until 2015 707,975 -Loans and financing - Banco do Nordeste doBrasil – BNB R$

10.00%

Until 2016

438,279

-

BBVA Comission - 0.43% Until 2015 221 -Loans and financing – BNDES (d) URTJLP TJLP+5.70% Until 2016 2,071 -Loans and financing – BNDES (d) URTJLP TJLP+9.00% Until 2016 2,341 -Loans and financing - BNDES PSI (c) R$ 5.50% Until 2016 17,628 -Loans and financing - Leasing R$ 14.70% 2013 726 -Total consolidated 4,947,528 1,825,726Current 988,413 420,412Non-Current 3,959,115 1,405,314

(*) Amounts presented at fair value, when applicable.

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National Development Bank – BNDES a) In October 2007, a credit facility for the Company was approved to finance investments in services and products

produced domestically. All of these resources have been drawn and their investments are proven and accepted byBNDES.

b) In August 2007 Vivo S.A. entered into a credit facility with BNDES in the amount of R$1,530,459. The funds

borrowed were used to finance investment projects in order to expand coverage and increase network capacitythroughout the country. Vivo S.A. received the funding gradually and there was no remaining amount availableunder this credit facility on December 31, 2011. This agreement has a term of seven years, with repayment ofprincipal in 60 consecutive monthly installments commencing September 15, 2009, after a grace period of twoyears.

On October 14, 2011 a credit facility totaling R$3,031,110 was obtained from BNDES. These funds will be investedin the expansion and improvement of the current network, implementation of infrastructure necessary for newtechnology, in the period from 2011 to 2013, as well as in the construction of a data center in Tamboré (State of SăoPaulo) and in social projects.

The agreement has a term of eight years and has grace period which expires on July 15, 2014, until when onlyinterest will be paid, on a three-month basis. After this period, interest and amortization of the principal will be paidin 60 consecutive monthly installments.

Since the interest rates applied to two of the five sub-credit lines which constitute this financing agreement are lowerthan those prevailing in the market (TJLP and TJLP + 1,48%), this transaction falls under the scope of IAS 20. Assuch, using the effective interest rate method set forth in IAS 39/CPC 38, considerations made are as follows:comparison between i) the total amount of debt calculated based on contractual rates; and ii) the total amount of debtcalculated based on market rates (fair value). The government grant from BNDES, adjusted to present value anddeferred according to the useful life of the financial asset, was R$21,418 at December 31, 2011.

At December 31, 2011 R$1,004,177 had been released.

c) On January 2010, a financing line with the BNDES in the amount up to R$319.927 was approved through theInvestment Maintenance Program (BNDES-PSI). The funds borrowed are being used to improve the networkcapacity through the acquisition of domestic equipment under previously signed equipment financing with BNDES(Finame), and released as investments are made. Until December 31, 2011 R$184,489 were granted (R$171,673until December 31, 2010).

Since the interest rate on this credit line is lower than the rates prevailing in the market (4.5% to 5.5% pre-fixed),this transaction falls into IAS 20. Accordingly, using the effective interest method set forth in IAS 39,considerations made are as follows: comparison between i) the total amount of debt calculated based on contractualrates; and ii) the total amount of debt calculated based on market rates (fair value). The government grant fromBNDES, adjusted to present value and deferred according to the useful life of the financed equipment, resulted inthe amount of R$29,007 until December 31, 2011.

With the merger process mentioned in note 1.e, Vivo S.A. answers for the loan agreements which belonged to theformer Vivo Part. (R$24,848 at December 31, 2011 and R$12,917 at December 31, 2010).

d) In November 2010 and March 2011 BNDES approved credit facilities for Comercial Cabo TV Săo Paulo S.A. in theamount of R$40,163. Until December 31, 2011 R$24,237 were released. This operation also falls under the scope ofIAS 20, due to the fact that interest rates are lower than market rates (5.5% pa pre-fixed), and the subsidy granted byBNDES, adjusted to present value, resulted in the amount of R$2,401 as of December 31, 2011.

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Médiocrédito

Loan agreed in 1993 between Telecomunicaçơes Brasileiras SA – Telebrás and Instituto Centrale per il Credito a MédioTermine – Mediocredito Centrale in the amount of US$45,546, in order to build a rural telephony via satellite network inthe State of Mato Grosso. This loan is paid semiannually and matures in 2014. There is a derivative contracted to hedgethe exchange rate currency risks related to such debt and, given it is assessed as an effective hedge, the hedge accountingmethodology has been adopted. Therefore, at December 31, 2011, the derivative associated to this instrument wasrecognized at its fair value as of such date.

European Investment Bank – EIB

Vivo S.A. signed an agreement with EIB for a credit facility in the amount of €250 million (equivalent to US$365million). The funding was received in two portions: the first on December 19, 2007 and the second on February 28,2008. The agreement has a term of seven years, with repayment of principal in two installments falling on December 19,2014 and March 2, 2015. Interest on this financing is paid semiannually according to the date of credit release. Thisfinancing is secured with a swap agreement that converts the foreign exchange risk into a percentage of CDI (interbankdeposit rate) variation.

Banco do Nordeste – BNB

On January 29, 2007, Vivo S.A. entered into a credit facility with BNB in the amount of R$247,240. The fundsborrowed were used to expand coverage and increase mobile network capacity in the Northeastern region of Brazil. Theagreement has a term of ten years, with repayment of principal in 96 installments after a grace period of 2 years.

On January 30, 2008, Vivo S.A. entered into a credit facility with BNB in the amount of R$389,000. The fundsborrowed were used to expand coverage and increase mobile network capacity in the Northeastern region of Brazil. Theagreement has a term of ten years, with repayment of principal in 96 installments after a grace period of 2 years.

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18.2 Debentures

Currency Annual interest rate Maturity 2011Debentures (2nd issuance) – Series 2 R$ 106.00% of CDI Until 2012 346,470Debentures (4th issuance) – Series 1 and 2 R$ 108.00% to 112.00% of CDI Until 2013 756,617Debentures (4th issuance) – Series 3 R$ IPCA+7.00% Until 2014 87,390Debentures (1st issuance) – Telemig R$ IPCA+0.50% Until 2021 67,935Issuance costs R$ (1,981)Total 1,256,431 Current 468,624Non-current 787,807

Capital raised by Vivo Participaçơes S.A.

2nd Issuance

In connection with the First Securities Distribution Program in the amount of R$2 billion announced on August 20,2004, the subsidiary Vivo Part. issued debentures related to the 2nd issuance of the Company, in the amount of R$1billion, on May 01, 2005, with a term of ten years, starting from the issuance date on May 01, 2005.

Debentures were issued in two series: R$200 million in the first series and R$800 million in the second series with afinal maturity on May 4, 2015. The first series was early redeemed on January 31, 2011, and the second series payinterest semiannually, after rescheduling, at a rate of 106.0% (second series) of accumulated daily averages rates ofinterbank deposits (DI) calculated and published by CETIP S.A. (Clearing House for the Custody and FinancialSettlement of Securities).

On July 29, 2011, the General Debenture - holder Meeting resolved on the approval of transfer of debentures of the 2nd

Public Distribution issued by Vivo Participaçơes S.A. for Telefônica Brasil without changing the top terms andconditions, and the correspondent amendment of the deed in order to reflect the change in the issuer’s ownership.

1st Series

On January 31, 2011 there was an advanced and full redemption of the 1st series of the second issuance of VivoParticipaçơes, totaling 20,000 book-entry, non-convertible, unsecured debentures, with par value of R$10 (ten thousandreais), totaling R$200 million, which characteristics were approved at the Company’s Board of Directors held on April25, 2005 and May 13, 2005 and the first rescheduling on March 30, 2009.

The redemption was made at unit nominal value of debentures, on the issue date, plus: (i) the due remuneration up to thepayment date of redeemed debentures and the (ii) percentage award calculated over the unit nominal value of debentures(“award”), equivalent to R$4.41 (four reais and forty-one cents), by debenture, in accordance with clause 4.13 of theprivate instrument of deed of the 2nd issue of non-convertible shares.

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2nd Series

At the meetings held on April 25, 2005 and May 13, 2005, the Board of Directors of Vivo Part. approved thecharacteristics of the 2nd series of the 2nd issuance of debentures of the Company.

The 2nd series debentures of the 2nd issuance of the company were rescheduled on May 3, 2010, according to theconditions approved at the Board of Directors’ meeting held on May 29, 2010. The total rescheduled amount wasR$340,230 and the company redeemed and cancelled debentures of dissenting debenture holders in the amount ofR$459,770. The new interest accrual period is 24 months from May 1, 2010, during which time the interest accrualconditions established herein shall remain unchanged. During this second interest accrual period (until May 1, 2012), theCompany’s debentures shall carry an interest rate of 106.0% of the average rate of one-day interbank deposit (DI),calculated according to the formula stated in clause 4.9 of the "2nd Issuance Indenture". The interest payments of thedebentures are made in two installments, the first one on November 1, 2011 and the second one on May 2, 2012.

4th Issuance

On September 04, 2009, the Board of Directors of Vivo Part. approved the 4th public issuance, by the company, ofsimple, unsecured debentures not convertible into stock, all of them registered and of book-entry type, issued in up tothree series, with term of 10 years.

The total amount of the issuance was R$810 million, of which the basic offering corresponds to R$600 million, added byR$210 million due to the full exercise of the additional debentures option.

A total of eight hundred and ten thousand (810,000) debentures were issued in three (3) series, there being 98,000debentures in the 1st series, 640,000 in the 2nd series and 72,000 in the 3rd series. The amount of debentures allocated toeach of the series was decided in mutual agreement between the company and the Leader Arranger of the Offering, afterthe conclusion of the Bookbuilding procedure.

The remuneration for the 1st series is 108.00% of CDI, for the 2nd series is 112.00% of CDI and to the 3rd series,coupon of 7.00% per year (on face value updated by the Extended Consumer Price Index - IPCA variation). Thesedebentures accrue interest payable on a semiannual basis in the 1st and 2nd series and annual basis in the 3rd series.

Rescheduling of each series is provided for as follows: 1st series, on October 15, 2012, 2nd series, on October 15, 2013,and 3rd series, on October 15, 2014.

The proceeds raised as from the issue of the offering were used for full payment of the debt relating to the 6th issue ofcommercial promissory notes of the company and to supplement of the working capital of the company.

The transaction costs in connection with this issuance in the amount of R$1,981 at December 31, 2011 were appropriatedto a liabilities reduction account as deferred cost and are recorded as financial expenses (note 29), pursuant to thecontractual terms of this issue. The actual rate of this issue, considering the transaction costs, is 112.13% of the CDI.

The General Debenture-holder Meeting held on July 29, 2011 resolved on the transfer approval of the 4th PublicDistribution of debentures issued by Vivo Participaçơes S.A. to Telefônica Brasil without changes of terms andconditions, and of the correspondent amendment of the Deed in order to reflect the change in the issuer’s ownership.

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Funding by Telemig (company incorporated by Vivo Part. at June 1, 2010).

1st Issuance

In compliance with the Contract for Provision of SMP Services, in conformity with the Public Selection No 001/07, theState of Minas Gerais, acting through the State Department for Economic Development, has undertaken to subscribedebentures issued by Telemig (company merged at June 1, 2010), within the scope of the “Minas Comunica” Program,using proceeds from the Fund for Universalization of Access to Telecommunications Services (Fundo deUniversalizaçăo do Acesso a Serviços de Telecomunicaçơes) – FUNDOMIC. Under the terms of this Program, TelemigCelular would make the SMP service available to 134 locations in the areas recorded as 34, 35 and 38.

Also according to the program, 5,550 simple, unsecured, nonconvertible, registered, book-entry type debentures wouldbe issued, without stock certificates being issued, in up to five series.

In consideration for the certification by the State Department of Economic Development of the service to be provided to15 locations, 621 debentures were issued in the 1st series of the 1st issuance, amounting to R$6,210 in December 2007. InMarch 2008, for the service at 42 locations, 1,739 debentures were issued in the 2nd series of the 1st issuance, valued atR$17,390. At December 31, 2008, for the service at 77 locations, 3,190 debentures were issued in the 3rd series of the 1st

issuance, valued at R$31,900 thus completing the program for providing service to 134 locations inside the state ofMinas Gerais.

18.3 Payment Schedule

The maturities of the long-term portion of loans, financing and debentures as of December 31, 2011, are as follows:

Year 2013 1,798,058 2014 1,096,240 2015 916,949 2016 273,038 2017 220,109 From 2018 442,528 Total 4,746,922

18.4 Restrictive Clauses

Vivo S.A. and Telefônica Brasil have loan and financing agreements obtained from BNDES whose balance at December31, 2011 was R$3,253,102 (R$1,143,541 (Vivo) and R$1,808,422 (Telefônica Brasil) at December 31, 2010). Asprovided in these agreements, there are economic and financial covenants which should be calculated annually andsemi-annually. At referred to date, all economic and financial covenants included in the two agreements currently inforce were achieved.

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18.5 Guarantees

At December 31, 2011, guarantees were granted for part of loans and financing of the Company and its subsidiary VivoS.A., according to the table below:

Banks Amount of

loan/financing Guarantees

BNDES

R$1,659,858(URTJLP) R$194,276(UMBND) R$135,471 (PSIContract)

• Contract (2007) R$823,562: Guarantee in receivablesreferring to 15% of the higher between the debt balanceor 4 (four) times the highest installment.

• Contract (PSI) R$135,471: Sale of financed assets.• Contract (2011) R$1,030,572: Guarantee in receivables

referring to 15% of the higher between the debt balanceor 4 (four) times the highest installment.

• Telefônica Brasil is the intervening guarantorEuropean Bank ofInvestment – BEI R$707,975 • Commercial risk guaranteed by Banco BBVA Espanha.

BNB R$438,279

• Bank guarantee granted by Banco Bradesco S.A. in anamount equivalent to 100% of the debit balance of thefinancing obtained.

• Establishing a liquidity fund comprised of short-terminvestments at an amount equivalent to 3 (three)amortization installments by reference to the averagepost-grace period installment. Investments amount:R$55,679.

• Telefônica Brasil is the intervening guarantor.

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Below, we present balances of the dividends and interest on shareholders’ equity payable:

2011 2010 Telefónica International S.A. 156,589 113,839 SP Telecomunicaçơes Participaçơes Ltda. 126,283 37,407 Telefónica S.A. 129,489 - Compañia de Telecomunicaciones de ChileS.A. 310 - Minority shareholders 560,315 299,651 Total 972,986 450,897

Interest on shareholders’ equity and dividends payable to minority shareholders refer to unpaid declared amounts and toamounts not claimed yet.

20. Provisions

The composition of provision balances at December 31, 2011 and 2010 are as follows:

2011 2010 Provisions for claims and litigations Labor 526,210 366,391 Tax 1,580,448 310,649 Civil and regulatory 664,703 446,159 Subtotal 2,771,361 1,123,199 Provision for post-employed benefits (note35) 308,893 219,000 Contingent liabilities (a) 256,044 - Provision for dismantling 200,813 16,712 Total 3,537,111 1,358,911 Current 416,313 240,213 Non-current 3,120,798 1,118,698

(a) Related to the goodwill allocation made in connection with the acquisition of Vivo Participaçơes S.A. (see note 4).

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The Company, as an entity and also as the successor to the merged companies, and its subsidiaries are involved in labor, tax andcivil lawsuits filed with different courts. The management of the Company and its subsidiaries, based on the opinion of its legalcounsel, recognized provisions for those cases in which an unfavorable outcome is considered probable. The table below showsthe breakdown of provisions by nature and activities during the fiscal year ended on December 31, 2011:

Nature Labor Tax Civil Total Balance as of 12/31/2009 404,106 262,527 443,810 1,110,443 Additions 15,772 26,929 60,799 103,500 Payments - reversal (69,684) (276) (129,351) (199,311)Monetary restatement 16,197 21,469 70,901 108,567 Balances as of 12/31/2010 366,391 310,649 446,159 1,123,199 Business combination 93,739 1,110,515 162,266 1,366,520 Consolidation of TVA 646 - 10,291 10,937 Additions 112,300 66,569 172,518 351,387 Payments (26,696) (11,143) (117,734) (155,573)Reversal (32,088) (6,760) (57,144) (95,992)Monetary restatement 11,918 110,618 48,347 170,883 Balance as of 12/31/2011 526,210 1,580,448 664,703 2,771,361 Current 74,430 23,302 318,581 416,313 Non-current 451,780 1,557,146 346,122 2,355,048

20.1 Labor contingencies and provisions

Amount involved Risk 2011 2010

Probable 526,210 366,391 Possible 404,262 155,107

Provisions and labor contingencies refer to labor claims filed by former’s employees and employees at outsourcedcompanies (the later alleging joint or subsidiary liability) claiming for, among others, overtime, wage equivalence,post-retirement salary supplements, job hazard premium, additional for unhealthy work conditions and claims related tooutsourcing services.

The Company is also a defendant in labor claims filed by retired former employees regarding the Medical Care Plan forRetired Employees (PAMA), which require, among other issues, the annulment of the change occurred in such plan. Theclaims await the decision by the Regional Labor Court of Săo Paulo. Based on the opinion of its legal advisors and thecurrent jurisdictional benefits, Company management considers this claim as a possible risk. No amount has beenassigned for these claims, since in the case of loss, estimating the corresponding amount payable by the Company is notpracticable at this time.

Additionally, the Company is part to public civil actions filed by the Department of Labor, in respect of the decision torestrain the Company to continue hiring outsourced companies to carry out the Company’s main activities. No amountswere assigned to the possible likelihood of an unfavorable outcome related to these public civil actions in the tableabove, since in these phases, in the event of loss, it is not possible to estimate the monetary loss for the Company.

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Probable 1,580,448 310,649 Possible 11,679,158 4,102,806

Tax provisions

Federal Taxes

On December 31, 2011, the Company held tax matters in the administrative and judicial spheres, in connection with (a)Unemployment Compensation Fund (FGTS) required by INSS on deposits made by employers (the discussion does notresult in the reduction of part of FGTS deposits made by the Company on behalf of employees); (b) claims resultingfrom the non-ratification of compensation and refund requests, formulated by the Company; (c) social contributionsregarding alleged lack of payment of 11% over the value of several contractor’s invoices and receipts for transfer oflabor; (d) CIDE levied on the remittance of funds abroad relating to technical services, administrative assistance and toservices of similar nature, as well as royalties; (e) Fixed operations: non-inclusion of Interconnection Expenses (ITX)and EILD in the FUST tax base and Mobile operations: non-inclusion of revenues from ITX and EILD in the FUST taxbase; (f) contribution to EBC (Empresa Brasil de Comunicaçăo), created by Law No. 11652/08; (g) TFI/TFF on mobilestations; (e) IRRF on Interest on Shareholders Equity; (h) IRRF on Interest on Shareholders Equity; (i) Public Price forNumbering Resources Management (PPNUM) by ANATEL instituted by Resolution No. 451/06; (j) IRPJ/PIS/COFINSresulting from the non-ratification of the Companies’ offset and refund requests; (k) Social Investment Fund (Finsocial)offset amounts; (l) lack of withholding social contribution levied on services rendered, remuneration, salaries and othersalary bases; (m) COFINS – Requirement resulting from non-inclusion of financial income into the tax base; (n)additional charges to the PIS and COFINS tax base, as well as additional charges to COFINS required by Law No.9718/98, which were provisioned in the amount of R$1,529,104.

State taxes

On December 31, 2011, the Company and its subsidiaries had administrative and judicial proceedings in progress, in theamount of R$39,023, that according to the opinion of legal advisors, are classified as a probable loss, with full provisionrecorded.

The aforesaid proceedings comprise: (a) credits with electric power and credits without documentation; (b) non-taxedtelecommunication services; (c) disallowance of tax incentives for cultural projects; and (d) administrative fineenvironment related.

Municipal taxes

On December 31, 2011, the Company and its subsidiaries kept several tax claims within the municipal scope, both in theadministrative and in the judicial sphere amounting to R$4,531 which, based on the opinion of its legal advisors, areclassified as a probable loss, with full provision of the amounts thereof. The aforesaid claims comprise: (a) IPTU, (b) ISSlevied on chattel lease services and secondary and complementary activities, (c) Soil use and (d) TVCF and (e) Incorrectpayment of ISS referring to the effective rendering of services such as lease, sublease, right of way or use right, shared ornot, of railway, highway, poles, cables, ducts and conducting wires of any kind.

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Other provisions

At December 31, 2011, the Company and its subsidiaries recorded other provisions, relating to legal claims, both in theadministrative and in the judicial sphere, amounting to R$7,790, related to incorrect payment of ISS referring to theeffective rendering of services such as lease, sublease, right of way or use right, shared or not, of railway, highway,poles, cables, ducts and conducting wires of any kind.

Possible contingencies

Federal Taxes

On December 31, 2011, the Company and its subsidiaries held various administrative and judicial proceedings within thefederal scope, which are awaiting trials in various instances, totaling R$3,185,747.

Among these proceedings, stand out:

(a) Non-compliance manifestations due to the ratification of compensation requests made by the Company ; (b) fine forthe distribution of dividends with the allegedly existence of unpaid debts with the federal government; (c) social securitycontribution (INSS) on compensation payment for salary devaluation arising from inflationary losses derived from“Plano Verăo” (Summer Plan) and “Plano Bresser” (Bresser Plan), SAT (Work Accident Insurance), Social Securityand payables to third parties (INCRA and SEBRAE), supply of meals to employees, 11% retention (laborassignment); (d) IRRF on the funds remittance abroad related to technical services and to administrative support andother, as well as royalties; (e) PIS levied on roaming; (f) CPMF levied on operations resulting from the technicaloperation agreement with the National Treasury Department – STN - (offsetting through Integrated System of FederalGovernment Financial Administration - SIAFI) and on symbolic foreign-exchange contracts required by the BrazilianCentral Bank; (g) IRPJ and CSLL related to deductions on revenues generated due to the reversal of provisions; (h)disallowance of costs and sundry expenses; (i) COFINS loss deductions with swap operations; (j) PIS / COFINS accrualbasis versus cash basis; (k) IRPJ due as a result of exceeding allocation to Northeast Investment Fund (FINOR), AmazonRegion Investment Fund (FINAM) or Economic Recovery Fund of the State of Espírito Santo (FUNRES); (l) IRPJ onderivative operations; (m) offsetting of tax over net income-ILL; (n) IRPJ and CSLL related to fiscal years 2006 and2007, questioning the disallowance of expenses related to the goodwill paid in the acquisition of Celular CRT S/A andthe merger of telecommunications operators into Vivo S.A., which occurred in October 2006.

According to the Management and its legal advisors’ opinion, the chances of losses in these processes are possible.

State Taxes

As of December 31, 2011, the Company and its subsidiaries held several administrative and judicial proceedings at thestate level, related to ICMS (VAT), in the amount of R$4,172,479, which are still awaiting for judgment at several courtlevels.


(a) provision of facility services and rental of Speedy modem; (b) international long-distance calls (DDI); (c) undulycredit related the acquisition of items designated to fixed assets; (d) lack of proportionate credit reversal related to theacquisition of fixed assets; (e) previously unused ICMS tax credits; (f) service provision outside Săo Paulo state andICMS paid to Săo Paulo State and; (g) Co-billing, (h) tax substitution with a fictitious tax base (tax guideline); (i) use ofcredits related to the acquisition of energy; (j) secondary activities, value added and supplementary services (Agreement

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69/98); (k) tax credits related to challenges over telecommunications services not rendered or mistakenly charged(Agreement 39/01); (l) shipments of products with prices lower than acquisition prices (unconditional discounts); (m)deferred charge of ICMS-interconnection (DETRAF – Traffic and Service Provision Document); (n) credits derivedfrom tax benefits granted by other state agencies; (o) disallowance of tax incentives related to cultural projects; (p)transfers of assets among owned establishments; (q) communication service tax credits used in provision of services ofthe same nature; (r) card donation for prepaid service activation; and (s) reversal of credit derived from return and loanfor use operation.


Municipal taxes

As of December 31, 2011, the Company and its subsidiaries had several administrative and judicial proceedings withinthe municipal scope, comprising the total amount of R$471,876, which are awaiting trials in the several court instances.


(a) ISS – secondary activities, value added and supplementary services; (b) retention; (c) IPTU; (d) Charge for Soil Use;(e) several municipal charges; (f) rate for Use of the Mobile Network (T-UM), infrastructure lease; (g) advertisingservices; (h) services rendered by third parties; (i) business management consulting services provided by TelefônicaInternacional (TISA); (j) ISS tax levied on caller ID services and on cell phone activation.


ANATEL

Universalization Fund of Telecommunication Services (FUST)

Writs of Mandamus filed separately by the fixed and mobile operators to recognize the right to: Fixed: non-inclusion ofinterconnection (ITX) and Industrial Exploration of Dedicated Line (EILD) expenses in the FUST tax basis and mobile:non-inclusion of interconnection (ITX) and Industrial Exploration of Dedicated Line (EILD) expenses in the FUST taxbase, pursuant to Precedent No. 7, of December 15, 2005, for being in disagreement with provisions set forth in the soleparagraph of art. 6 of Law No. 9,998/00, which are awaiting trials in the second lower court.

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On December 31, 2011, the amount involved totaled R$1,719,531. There are also, on the administrative level, variousRelease Notifications drawn up by ANATEL for the FUST collection on ITX and EILD and other amounts resultingfrom the provision of services not included in the telecommunication services at the amount of R$1,608,915.

According to the Management and its legal advisors’ opinion, the chances of success in these processes are possible.

FUNTTEL – Telecommunications Technological Development

On December 31, 2011, the Company and its subsidiaries held administrative and judicial proceedings, totalingR$622,606, which are awaiting trial for 1st administrative level and 2nd judicial level.

Such proceedings concern the collection of contributions to FUNTTEL on other revenues (not related to telecomservices), as well as on income and expenses transferred to other operators (interconnection and EILD).

According to the Management and its legal advisors’ opinion, the chances of success in these processes are possible.

Telecommunication Inspection Fund (FISTEL)

Due to the extension of the effective term of licenses for using telephony switches related to the exploitation of STFC(fixed line operators) and the extension of the effectiveness of right to use radiofrequency associated with the operationof personal mobile service (Mobile Operators), ANATEL performs the collection of the Installation Inspection Charge(TFI).

This collection derives from the understanding of ANATEL that the extension would represent a taxable event of TFI.Based on the understanding it corresponds to an unduly collection, the Company and its subsidiaries separatelychallenged the aforesaid tax in the administrative and judicial levels. The total amount involved R$1,504,365.


PPNUM – Public Price of Numbering Resources Management

Vivo, along with other Brazilian mobile operators, are challenging in court the rate charged by ANATEL for the use bythe operators of the Numbering Resources managed by the agency. At the time of collections by ANATEL, Vivo madean escrow deposit of the amounts owed. On April 23, 2009, the operators received a favorable judgment and the lawsuitis presently in progress at the Federal Regional Court. The amount involved as of December 31, 2011 was R$1,977.


EBC (Contribution to Public Broadcasting Investment)

On May 26, 2009, Sinditelebrasil - Trade Union for Telephony and Mobile and Personal Service Companies, filed a Writof Mandamus challenging the new contribution to the EBC (Empresa Brasil de Comunicaçăo), created by Law No.11,652/08. No preliminary Order was issued, and the companies affiliated to said trade union, obtained legalauthorization to make an escrow deposit of the amount under discussion.

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At December 31, 2011, the amount of the claim totaled R$577, with a full deposit.

20.3 Civil contingencies and provisions


Probable 664,703 446,159 Possible 1,978,973 808,006

Civil provisions

Main claims

a) Suits for additional shares. These refer to suits involving the Company and addressing the right to receive additionalshares calculated with regard to network expansion plans after 1996. These suits are at various stages: first stage,Supreme Court and Federal Superior Court of Appeals, Considering the risk of a probable loss, provision wasrecorded in the amount of R$26,182.

b) The Company and its subsidiaries are defendants in several civil claims, at several levels, related to servicerendering. Such claims have been filed by individual consumers, civil associations representing consumer rights orby the Bureau of Consumer Protection (PROCON), as well as by the Federal and State Public Ministry. They arealso defendants in other claims of several types, related to the normal course of business. Total provision recordedfor such issues amounts to R$315,169 (consolidated).

Massive Claims

Consumption relationship

c) The Company is also involved in several lawsuits filed by individual consumers, with similar characteristics, whichindividually are not considered to be material. A provision in the amount of R$81,539 was recorded, based onstatistical analysis of the average historical losses for such claims.

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ANATEL

d) At December 31, 2011, the Company and its subsidiaries were involved in several administrative proceedings againstANATEL, which were filed based on alleged non-compliance with the obligations established in industry regulations,as well as in legal claims discussing sanctions by ANATEL at administrative level, whose likelihood of anunfavorable outcome was assessed as probable, and a provision was recorded in the amount of R$241,813.

Possible contingencies

Main contingencies

a) Community Telephone Plan – PCT. Refers to a Public Civil Action to which the Company is party related to thePCT, a plan that claims the possible indemnity rights to purchasers of telephone line expansion plans who did notreceive shares for their financial investment in the municipality of Mogi das Cruzes. The total amount involved isapproximately R$197,863. Legal counsel assessed chances of loss as possible; Săo Paulo Court of Justice (TJSP) hasamended the decision, judging the action as inadmissible. The telephony association of Mogi das Cruzes (plaintiff)filed a special appeal to alter this judgment, which is currently awaiting a decision.

b) Class actions filed by SISTEL Participants Association in the State of Săo Paulo, in which participants question the

changes made to the health care plan for retired employees (PAMA), claiming the re-establishment of previous´status quo’. The claim is still in process as there is no judicial decision in any instance. The risk of loss attributed tothis lawsuit by the Company’s legal counsels is possible. The amount is inestimable and the requests illiquid due toits unenforceability, since they involve the return of the conditions regarding the former plan.

c) Public civil actions filed by the i) ASTEL-SISTEL Members Association in the State of Sao Paulo and by ii)

FENAPAS - National Federation of Associations of Pensioners, Pensioners and Pension Funds Participants in theTelecommunication Sector, both against SISTEL, the Company and other operators, aiming the annulment of PBSpension plan split, claiming “the dismantling of SISTEL Foundation pension system, which originated severalspecific plans PBS-mirrors, and corresponding allocation of resources deriving from technical surplus and taxcontingencies existing at the time of the split. The risk attributed to this lawsuit by the Company’s legal counsels ispossible. The amount is inestimable and the requests illiquid due to its unenforceability, since it involves the assetsspun-off from SISTEL referring to the telecommunication operators of the former Telebrás System.

d) The Public Prosecutor Office of the State of Săo Paulo commenced a class action claiming moral and property

damages suffered by all consumers of telecommunications services from 2004 to 2009 due to the bad quality ofservices and failures of the communications system. The public Prosecutor Office suggested that the indemnificationto be paid should be R$1 billion. The decision handed down on April 20, 2010 imposes the payment ofindemnification for damages caused to all consumers who have filed a suit for such damages. Conversely, in theevent that the number of consumers claiming should the award is not in line with the gravity of their damages, afterthe lapsing of one year, the judge determined that the amount of R$60 million should be deposited in the SpecialExpenses Fund to Recover Natural Rights Damages (Fundo Especial de Despesa de Reparaçăo de Interesses DifusosLesados). It is not possible to estimate the number of consumers who will individually file suits nor the amountsclaimed thereby. The Company filed an appeal on the merits of the case. The judgment effects are in abeyance. Noamount has been assigned to the possible likelihood of an unfavorable outcome in connection with this action, sincein the case of loss, estimating the corresponding amount payable by the Company is not practicable at this time.Likewise, establishing a provision for contingency equivalent to the amount sought is not possible.

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e) The Company and its subsidiaries are involved in other civil claims, at several levels, related to service rendering.Such claims have been filed by individual consumers, civil associations representing consumer rights or by theBureau of Consumer Protection (PROCON), as well as by the Federal and State Public Ministry. They are alsoinvolved in other claims of several types, related to the normal course of business. Total contingency amounts toR$920,509, whose likelihood of an unfavorable outcome has been assessed by their legal advisors as possible.

f) Ownership of Caller ID. Lune Projetos Especiais Telecomunicaçăo Comércio e Ind. Ltda., a Brazilian company, filedon November 20, 2001 lawsuits against 23 wireless telecommunications operators, including TELESP CelularParticipaçơes and its subsidiaries. The lawsuits allege that those operators violated patent No. 9202624-9, related toEquipamento Controlador de Chamadas Entrantes e do Terminal do Usuário, or Caller ID, granted to Lune by theBrazilian Intellectual Property Agency–INPI, on September 30, 1997. Lune called on the operators to cease toprovide Caller ID services and sought payment from them for the unauthorized use of the Caller ID system in anamount equivalent to the payment of fees received by such operators for use of the Caller ID system. On October 5,2011, the law suit was judged groundless against the Phone Companies. Vivo will file an appeal due to this decision.This decision is not final, and will be tried before the Court and Superior Court of Justice. However, Lune’s right touse patent No. 9202624-9 was suspended by a federal judge in response to a lawsuit filed against Lune and INPI byEricsson Telecomunicaçơes S.A., TC and Telerj Celular (formerly Vivo subsidiaries before our corporaterestructuring) filed identical lawsuits against Lune and INPI and those lawsuits are still pending before the courts. Inconnection with this proceeding, a third company, Sonintel, and its two partners also brought an Açăo de Oposiçăo,whereby they reinvoked their rights to a previous patent related to Caller ID, and to which the above mentionedpatent (No. 9202624-9) was linked. The Company believes that based on the opinion of outside counsel that thelikelihood of an unfavorable outcome with respect to Lune’s claim against it is possible and is unable to determine atthis time the extent of any potential liabilities with respect to this claim.

ANATEL

g) At December 31, 2011, the Company and its subsidiaries are involved in administrative proceedings filed based onalleged non-compliance with the obligations established in industry regulations, as well as legal claims which discussthe sanctions by ANATEL at administrative level, rating the risk of loss as possible for R$860,601. We point out an increase in the amount assessed as possible risk of the company due to the revaluation of proceedingscompleted in March, in light of the significant change in methodologies for application of sanctions by ANATEL tosanction the utility companies.

Regulatory proceedings:

a) Administrative proceedings discussing payment of 2% charge on revenue from interconnection services due to theextension of right of use of SMP related radio frequencies: Under clause 1.7 of the Authorization Terms that grant right of use of SMP related radio frequencies, the extension ofright of use of such frequencies entails payment every two years, during the extension period (15 years), of a 2%charge calculated on net revenue from the basic and alternative service plans of the service company, determined inthe year before that of payment. However, ANATEL determined that the 2% charge should be calculated on revenue from service plans as well asrevenue from interconnection services, which is not provided for by clause 1.7 of the referred to Authorization Terms.

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For considering, based on the provisions of the Authorization Terms, that revenue from interconnection servicesshould not be included in the calculation of the 2% charge for radiofrequency use right extension, Vivo filedadministrative proceedings contesting these charges, based on ANATEL’s position.

According to its legal advisors’ opinion, chances of success in these processes are possible. b) Administrative Proceeding No. 08012.008501/2007-91

It is a proceeding filed in the Brazilian System Defending Competition (“SBDC”) by Global Village Telecom Ltda(“GVT”), Intelig Telecomunicaçơes Ltda, (“Intelig”), Transit do Brasil Ltda, and Easytone Telecomunicaçơes Ltda,on August 6, 2007 against Claro S.A. (“Claro”), Tim Brasil Serviços e Telecomunicaçơes S.A. (“TIM”), TNL SCSS.A. (“Oi”) and Vivo, for supposed trust and price squeeze practices, with the objective of increasing VU-M tariff,thus increasing the costs of competitors. Due to the proceeding filed on August 21, 2008, the Economic RightDepartment (“SDE”) started an administrative proceeding against the defendants in order to evaluate whether thepractices adopted would fit into (i) items I, III and IV, article 20 and items V, article 21 and (ii) items I, III and IV,article 20 and items I and V, all of Law No. 8,884/94, to wit trust and price squeeze.

On March 25, 2010, SDE issued a Technical Note which: (i) dismissed the accusation of trust against all thedefendants, recommending filing of such accusation, (ii) suggested excluding Oi from the group of defendants in theinvestigation of price squeeze for considering that its economic group would be responsible for paying VU-M andfor not existing evidence of recurrent practices of prices below VU-M; (iii) recommended condemning Vivo, TIMand Claro, based on article 20, items I, III and IV, and article 21, item V, all of Law No. 8,884/94, for the increase incosts of competitors (price squeeze).

The proceeding is pending judgment by the Administrative Council for Economic Defense “CADE” and awaits forthe issuance of an opinion by its prosecution unit.

The Company’s legal advisors consider that Administrative Proceeding No. 08012.008501/2007-91 involvespossible unfavorable outcome, therefore no related provision has been set up. If CADE hands down a proceedingagainst defendants only for price squeeze, fines imposed for similar cases have ranged from 1% to 2% of annualgross billing. However, in the remote case that CADE accepts the hypothesis of trust, initially dismissed by SDE,fines have ranged from 20% to 30% of the defendant’s gross billing for the year before that in which the proceedingwas filed (in the case of Vivo: 2007), excluding taxes.

20.4 Guarantees

At December 31, 2011, the Company and its subsidiaries granted guarantees for tax, civil and labor proceedings, asunder:

Propertyand

equipment Escrowdeposits Letter bond

Civil, labor and tax 70,317 3,443,460 1,494,011 Total 70,317 3,443,460 1,494,011

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21. Deferred revenues

2011 2010 Activationrevenue 67,672 72,671 Payphone cards 15,783 20,847 Services andgoods (a) 583,751 -

Governmentgrants (c) 8,322 - Loyalty program(d) 68,821 - Other 16,919 9,821 Total current 761,268 103,339 Activationrevenue 30,792 28,383 Services andgoods (a) 48,095 - Equipmentdonations (b) 22,638 - Governmentgrants (c) 44,880 - Other 9,861 10,017 Total non-current 156,266 38,400

a) Refers to the balances of agreements of prepaid services revenue and multi-element operations, which are recognizedincome to the extent that services are provided to clients.

b) Refers to the balances of network equipment donations from suppliers, which are amortized by the useful life of thisequipment.

c) Refers to government grant obtained by subsidiary Vivo S.A. deriving from funds raised with BNDES in a specific creditline (PSI Program), used in the acquisition of domestic equipment and registered at BNDES (Finame) and applied inprojects to expand the network capacity, which have been amortized by the useful life of equipment.

d) Refers to the fidelity points program that the wholly-owned subsidiary Vivo S.A. maintains, which allows customers toaccumulate points when paying their bills referring to use of services offered by such subsidiaries. The accumulated pointsmay be exchange for telephone sets or services, conditional upon obtaining a minimum balance of points by customer. Theconsideration received is allocated to the cost of sets or services at fair value. The fair value of points is determineddividing the amount of discount granted by the number of points necessary for the redemption based on the points program.The fair value of the accumulated balance of points generated is deferred and recognized as revenue upon redemption ofpoints.

22. Other Liabilities

2011 2010 Consignments onbehalf of thirdparties 252,807 88,238 Amounts to berefunded tosubscribers 59,265 54,666 Concession renewalfee (note 1.b.1) - 102,568 Finance Lease (a) 11,669 11,507 Liabilities to relatedparties (note 32) 66,490 120,981 Other 32,087 5,998 Current 422,318 383,958


Finance Lease (a) 9,398 23,346 Liabilities to relatedparties (note 32) 4,976 10,738 Other 53,884 30,125 Non current 68,258 64,209

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2011 2010 Future payments of the grossfinance lease 23,920 42,194 Unrealized financial expense (2,853) (7,341)Present value of minimumpayments due 21,067 34,853 Current 11,669 11,507 Noncurrent 9,398 23,346

Maturity schedule:

Year Gross

investment Present value Maturing within one year 11,669 11,669 Maturing more than one yearbut within five years 12,251 9,398 Total 23,920 21,067

There are neither unsecured residual values that produce benefits to the lessor nor contingent payments recognized as revenuesduring the year.

Commitments and guarantees

Rentals

The Company rents equipment and facilities and along with the subsidiary Vivo have undertaken commitments with lessors ofseveral stores and sites where the radio-base stations (ERB’s) are located through several operating agreements maturing ondifferent dates.

Rental commitments mainly refer to facilities where future minimum payments under leases with remaining non-cancellableterms in excess of one year and are as follows:

Year Value Up to one year 1,227,224 One to five years 5,454,595 More than fiveyears 2,067,975 Total 8,749,794

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23. Shareholders’ equity

a) Capital

Paid-in capital as of December 31, 2011 amounts to R$37,798,110 (R$6,575,480 in December 31, 2010). Subscribed andpaid-in capital is represented by shares without par value, as follows:

2011 2010 Total Capital inshares Common shares 381,587,111 168,819,870 Preferred shares 744,014,819 337,417,402 Total 1,125,601,930 506,237,272 Treasury shares Common shares (239,740) (210,579)Preferred shares (1,477,546) (185,213)Total (1,717,286) (395,792) Outstandingshares Common shares 381,347,371 168,609,291 Preferred shares 742,537,273 337,232,189 Total 1,123,884,644 505,841,480 Book value peroutstanding sharein R$ 38.55 23.06

According to its by-laws, the Company is authorized to increase its capital up to the limit of 1,350,000,000 (one billionthree hundred and fifty million) shares, common or preferred. The capital increase and consequent issue of new shares areto be approved by the Board of Directors, with observance of the authorized capital limit.

However, Brazilian Corporation Law – Law No. 6,404/76; article 166; IV establishes that capital may be increased througha general shareholders’ meeting resolution held to decide about charter amendment, if statutory share capital limit has beenreached.

Capital increases do not necessarily have to observe the proportion between the numbers of shares of each type. However,the number of preferred shares, nonvoting or with restricted voting, must not exceed 2/3 of the total shares issued.

Preferred shares are nonvoting, but have priority in the reimbursement of capital, without premium, and are entitled todividends 10% higher than those paid on common shares, as per article 7 of the Company’s bylaws and clause II,paragraph 1, article 17, of Law No. 6,404/76.

In April 2011, there was a capital increase of R$31,222,630 resulting from merger of 100% of shares of Vivo Part. into theCompany, approved by the general shareholders’ meeting of April 27, 2011 (see Note 4) corresponding to 619,364,658 (sixhundred and nineteen million, three hundred and sixty-four thousand and six hundred and fifty-eight) shares of which212,767,241 (two hundred and twelve million, seven hundred an sixty-seven thousand, two hundred and forty-one) arecommon shares and 406,597,417 (four hundred and six million, five hundred and ninety-seven thousand, four hundred andseventeen) are preferred shares.

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b) Capital reserves

Share Premium

This reserve represents the amount exceeding book value of the shares arising from the issuance or capitalization on thedate of issue.

Other Capital Reserves

Due to the merger of the holdings TBS Celular Participaçơes Ltda, Portelcom Participaçơes S.A. and PTelecom Brasil S.A.into Vivo Part. (note 1.e) the Company registered the amount of R$47,723 on this caption, which can be used as futurecapital increase.

c) Treasury shares

These correspond to the Company’s treasury shares which resulted from the merger with TDBH that occurred in 2006, andwith Vivo Part. ended on May 2011, besides the buyback program of common and extraordinary shares, which took placefrom August 11, 2011, in the amount of R$61,617, which had an average cost of R$43.50 for common shares and R$46.70for preferred shares, corresponding to 29,000 common shares and 1,292,300 preferred shares. At December 31, 2011, themarket value of treasury shares was R$88,142.

Buyback Common and Extraordinary Share Program Telefônica Brasil S.A.

On November 7, 2011, the Company informed its shareholders and the market that the members of the Company’s Boardof Directors approved the acquisition of common and extraordinary shares issued by the company, without capitalreduction, for subsequent cancellation, disposal or maintenance in treasury for the purpose of increasing shareholder value.The repurchase will be made through the use of part of the existing capital reserve as of June 30, 2011, except for thereserves referred in Article 7 subsection (a) to (d) of CVM Instruction Nr. 10/80.

This repurchase will begin from the deliberation date of the Board of Directors, remaining in force until November 6, 2012,being the acquisitions carried out in BM&FBOVESPA at market prices and is responsibility of Management to decide themoment and quantity of shares to be acquired, whether in a single operation, whether in a series of operations, as well as todefine the parameters for carrying out the repurchase, within legal limits, until a maximum of 2,912,734 common sharesand 25,207,477 preferred shares.

d) Revenue reserves

Legal reserve

The legal reserve is set up by allocation of 5% of the net profit for the year, up to the limit of 20% of the paid-up capitalstock. Legal reserve may only be used to increase capital or to offset accumulated losses.

e) Goodwill reserve

This represents the tax benefit generated by the merger of DABR which will be capitalized on an annual basis on behalf ofthe controlling shareholder as the tax credit becomes realized, according to CVM Instruction No. 319/99.

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f) Dividends – Remaining balance – retained earnings as of December 31, 2010

On March 18, 2011, the Ordinary General Shareholders’ Meeting approved the allocation of additional proposed dividendsreferring to the remaining profit balance of 2010 and expired dividends and interest on shareholders’ equity of 2010, in theamount of R$1,694,099, provided for in the profit allocation proposal to common and preferred shareholders included inthe Company’s records by the end of March 18, 2011.

As of May 20, 2011, a payment of the first installment was made in the amount of R$1,429,300. The payment of theremaining installment in the amount of R$264,799 began on November 3, 2011.

g) Interim dividends – fiscal year 2011

On September 13, 2011, the Board of Directors approved the payment of interim dividends in the amount of R$382,400,based on profit recorded in the balance sheet as of June 30, 2011, to holders of common and preferred shares included inthe Company’s records by the end of September 30, 2011. Payment of such interim dividends began on November 3, 2011.

h) Interest on shareholders’ equity – fiscal year 2011

In September 13, 2011, the Board of Directors approved the credit of interest on shareholders’ equity for the fiscal year2011, in the amount of R$1,250,000, subject to 15% withholding income tax, resulting in the net amount of R$1,062,500 toholders of common and preferred shares included in the Company’s records by the end of September 30, 2011. Payment ofinterest on shareholders’ equity began on November 3, 2011.

On December 12, 2011, the Board of Directors approved the credit of interest on shareholders’ equity for the fiscal year2011, in the amount of R$617,000, subject to 15% withholding income tax, resulting in the net amount of R$524,450 to theholders of common and preferred shares included in the Company’s records by the end of December 29, 2011. Payment ofsuch interest will start until the end of 2012, and the date will be established and communicated by the Company’sExecutive Board.

Dividends are calculated in accordance with Company’s by-laws and with the Brazilian Corporation Law. The Companypresents the calculation of dividends and interest on shareholder’s equity for 2011 and 2010 as follows:

Minimum mandatory dividends calculated based on adjusted net income 2011 2010 Net Income for the year 4,355,318 2,398,836 Appropriation to legal reserve (217,766) - Adjusted net income for the year 4,137,552 2,398,836 Minimum mandatory dividends - 25% of adjusted net income 1,034,388 599,709 Dividends and interest on shareholders’ equity distributed: Interest on Shareholders’ Equity (Gross) 1,867,000 592,000 Interim Dividends 382,400 196,355 Profit available for distribution 1,888,152 1,610,481 (+) Interest on Shareholders’ Equity / Prescribed Dividends 107,874 134,440 (-) Actuarial (Gains) / losses recognized and effect of the limitation of the

surplus plan assets, net of tax (42,997) (42,063) (-) Total effects of IFRS on 2009 equity - (8,759) Additional proposed dividend 1,953,029 1,694,099

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2011 2010

Amounts in R$ per share (a) Gross Net Gross Net Interest on shareholders’ equity - common 1.557913 1.324226 1.097180 0.932603 Interest on shareholders’ equity - preferred 1.713705 1.456649 1.206898 1.025863

2011 Amounts in R$ per share (a) Common Preferred

Interim dividends declared in March 2011 3.139752 3.453727 Interim dividends declared in September 2011 0.319058 0.350964 Interest on shareholders’ equity - net of withholding tax 0.886505 0.975156 Interest on shareholders’ equity - net of withholding tax 0.437720 0.481492 4.783035 5.261339

2010 Amounts in R$ per share (a) Common Preferred

Interim dividends declared in April 2010 2.319731 2.551704 Interim dividends declared in September 2010 0.363913 0.400305 Interest on equity - net income tax 0.614384 0.675822 Interest on equity - net income tax 0.318219 0.350041 3.616247 3.977872

(a) Do not include the amount of proposed dividends.

The balance of unallocated net income for the year at December 31, 2011, in the amount of R$1,888,152, plus dividendsand interest on shareholder’s equity prescribed in 2011 in the amount of R$107,874 and minus other comprehensiveincome in the amount of R$(42,997), totaling R$1,953,029, were classified as additional proposed dividends inshareholders’ equity, according to Management’s proposal distribution of net income for the year, to be submitted forapproval of the General Ordinary General Shareholders’ Meeting.

Management’s proposed dividend payment to be approved:

Total proposed for approval 1,953,029

Value per share Common Preferred 1 Total proposed for approval – amount per share 1.630092 1.793102

1 10% higher than the amount attributed to each common share, according to article 7 of Company’s Bylaws.

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i) Interest on shareholders’ equity

As proposed by Management, in 2011 and 2010 interest on shareholders’ equity were credited to shareholders inaccordance with Article 9 of Law No. 9,249/95, net of withholding income tax, as follows:

2011 2010 Gross interest on shareholders’ equity 1,867,000 592,000

Common shares 594,113 184,995 Preferred shares 1,272,887 407,005

Withholding income tax (280,050) (88,800) Interest on shareholders’ equity, net ofwithholding tax 1,586,950 503,200

Tax-exempt shareholders receive interest on shareholders’ equity in full, not subject to withholding tax.

j) Prescribed dividends

Dividends and interest on shareholders’ equity are barred by statute of limitation after three years, as from the date ofbeginning of payment thereof, if not claimed by shareholders, according to Article 287, clause II, item a. of Law No. 6,404dated December 15, 1976.

24. Net operating revenue

2011 2010 2009 Telephony services 24,331,263 15,366,014 16,234,008 Network usage 3,785,017 523,787 487,803 Data Transmission and valueadded services 10,929,344 5,028,441 4,685,432 Pay TV 865,376 587,374 600,270 Sale of goods and equipment 2,135,165 166,464 207,860 Other services 1,026,986 936,970 997,147 Gross operating revenue 43,073,151 22,609,050 23,212,520 ICMS (8,800,749) (4,702,669) 4,808,841 PIS and COFINS (1,780,503) (864,994) 927,637 ISS (45,576) (39,441) 41,930 Deductions (3,317,583) (1,203,695) 1,581,579 Net operating revenue 29,128,740 15,798,251 15,852,533

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25. Costs of goods and services

2011 2010 2009 Depreciation and amortization (3,582,633) (1,687,449) (2,255,338) Personnel (380,067) (257,385) (210,473) Means of connections (536,495) (342,257) (302,970) Interconnection (4,537,124) (4,176,714) (3,933,125) Outside services (2,463,516) (1,841,072) (1,853,136) Rental / insurance /condominium (374,008) (22,046) (40,996) Taxes (1,358,835) (240,346) (343,191) Concession fee (note 1.b.1) (84,284) (102,568) - Other (68,098) (19,318) (13,649) Total of service costs (13,385,060) (8,689,155) (8,952,878) Costs of goods (1,343,111) (155,650) (283,508) Total (14,728,171) (8,844,805) (9,236,386)

26. Selling expenses

2011 2010 2009 Depreciation and amortization (684,891) (123,043) (143,091)Personnel (1,049,978) (443,386) (395,606)Outside services (3,853,450) (1,730,908) (1,204,566)Allowance for doubtful accounts (506,581) (386,340) (564,580)Rental / insurance / condominium (79,239) (9,434) (13,451)Publicity (735,622) (224,796) (183,377)Others (251,597) - - Donation and sponsorships (98,345) (46,725) (23,814)Total (7,259,703) (2,964,632) (2,528,485)

27. General and administrative expenses

2011 2010 2009 Depreciation and amortization (318,470) (103,002) (107,046)Personnel (557,355) (287,866) (187,797)Outside services (693,260) (300,101) (416,802)Rental / insurance / condominium (105,985) (32,922) (34,506)Others (110,588) (14,955) (59,202)Total (1,785,658) (738,846) (805,353)

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28. Other operating income (expenses), net

2011 2010 2009 Fines and expenses recovered 366,124 195,066 274,277 Donation and sponsorships (8,612) (19,117) (14,684)Provision for civil, labor and taxcontingencies, net (367,554) (116,996) (42,487)Profit on disposal of assets (a) 482,115 230,335 (14,374)Profit on sales of investments - 87,151 - Administrative technical services 32,652 36,537 36,417 Other expenses (62,567) (100,497) (126,352)Total 442,158 312,479 112,797 Other operating income 1,229,862 796,285 573,792 Other operating expenses (787,704) (483,806) (460,995)Total 442,158 312,479 112,797

(a) In 2011, subsidiary Vivo S.A. carried out the disposal of 1,358 of non-strategic towers, transferring their management and

maintenance to a third-party company specialized in providing these services for the amount of R$476,038 (R$419,527 netof book value). In the fourth quarter of 2010, Telefônica Brasil assigned the right to commercially explore spaces existing in approximately1,085 transmission towers it owns, and transferred the activity of managing and maintaining the telecommunication towerto a third-party company that specializes in providing such services for the amount of R$233,421 (net amount of themonthly rent of land deferred). Considering that significant risks and benefits were transferred, for purposes of theconditions of the concession, such operation was assessed under IAS 17 – Leases perspective, and classified as a financiallease. Net effect on 2010 income statement is recorded as “Other Operating Income (Expenses)”.

29. Financial expenses, net

2011 2010 2009 Financial income 1,103,359 344,354 455,888 Income from short-terminvestments 337,179 181,717 172,164 Gains on derivative transactions 251,758 18,567 65,877 Interest receivable 131,521 33,834 45,545 Monetary/exchange variationsreceivable 267,665 86,950 147,471 Other financial income 115,236 23,286 24,831 Financial expenses (1,243,051) (465,092) (644,680)Interest payable (484,663) (355,971) (421,599)Losses on derivative transactions (140,725) (20,746) (123,912)Monetary/exchangevariations payable (308,966) (14,499) (35,640)Others financial expenses (308,697) (73,876) (63,529)Net (139,692) (120,738) (188,792)

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Table of Contents 30. Income and social contribution taxes

The Company and its subsidiaries recognize income tax and social contribution monthly on the accrual basis and pay the taxeson an estimated basis, in accordance with the trial balance for suspension or reduction. The taxes calculated on income until themonth of the financial statements are recorded in liabilities or assets, as applicable.

Reconciliation of reported income tax expense and combined statutory tax rates

Reconciliation of the reported tax charges and the amounts calculated by applying 34% (income tax of 25% and socialcontribution tax of 9%) in December of 2011, 2010 and 2009 is shown in the table below:

2011 2010 2009 Income before taxes 5,650,794 3,444,598 3,225,101 Income and social contribution taxes Income and social contribution taxes expenses – at 34%rate (1,921,270) (1,171,163) (1,096,534)Permanent differences Equity pickup - 982 6,387 Interest expense on shareholder’s equity 634,780 201,280 205,700 Prescribed dividends (5,613) (7,483) (14,407) Unrecognized deferred tax assets of subsidiaries (55,671) (60,726) (109,670) Non-deductible expenses, gifts, incentives and dividends

received (47,576) (24,532) (23,237)Other additions (exclusions) 96,405 - - Other items Incentives (cultural, food and transportation) (3,470) 15,880 10,749 Total general (IRPJ + CSLL) (1,295,475) (1,045,762) (1,021,012) Effective rate 22.9% 30.4% 31.7%Current income and social contribution taxes 928,132 926,868 745,257 Deferred income and social contribution taxes 367,343 118,894 275,755

The components of deferred income and social contribution tax assets and liabilities on temporary differences are shown in note8.2.

31. Earnings per share

Basic and diluted earnings per share were calculated by dividing income attributed to the Company’s shareholders by theweighted average of the number of outstanding common and preferred shares for the year. No transactions were carried out thatcould have potential shares issued through the date of issuance of the consolidated financial statements; therefore, there are noadjustments of diluting effects inherent to the potential issue of shares.

The table below shows, the calculation of earnings per share as of December 31, 2011, 2010 and 2009:

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2011 2010 2009 Net income attributable to the shareholders: 4,355,318 2,398,836 2,204,089 Common shares 1,381,068 749,615 688,759 Preferred shares 2,974,250 1,649,221 1,515,330 Numbers of shares: 928,005 505,841 505,841 Weighted average common shares outstanding during the year 313,748 168,609 168,609 Weighted average preferred shares outstanding during the year 614,257 337,232 337,232 Basic and diluted earnings per share: Common shares 4.40 4.45 4.08 Preferred shares 4.84 4.89 4.49

32. Transactions with related parties

The main balances with related parties are as follows bellow:

12/31/2011

Company

Nature ofthetransaction

Currentassets

Non-currentassets

Currentliabilities

Non-currentliabilities Revenues

Costs andexpenses

Atento Brasil S.A. a) / c) / e) / f) 14,720 - 186,692 338 51,148 1,041,829 SPTelecomunicaçơes ParticipaçơesLtda. d) / f) 4 - 126,283 - 4 357,805 Telefonica de Espana S.A. a) / e) 5,320 - 3,997 - 6,266 5,643 Telefónica del Peru b) 10,663 - 61 700 3,788 - Telefónica Internacional S.A. b) / d) / f) 221 17,022 201,856 - 1 603,066 Telefónica International WholesaleServices Brasil Ltda. a) / c) / f) 2,131 22 29,080 505 5,741 88,642 Telefónica International WholesaleServices Espanha a) / e) / f) 6,057 - 3,402 - 11,918 14,625 Telefónica Móviles Espanha S.A. a) / c) / e) / f) 5,424 - 5,984 - 9,190 7,985 Telefónica S.A. d) / f) 482 1,591 172,229 - - 578,363 Telefônica Serviços Empresariaisdo Brasil Ltda. b) / c) / e) / f) 16,690 932 10,715 2,976 6,553 94,644 Telefónica Transportes e LogisticaLtda. c) / f) 163 - 36,610 144 67 80,887 Terra Networks S.A. a) / b) / e) 9,505 16 1,100 - 8,461 5,604 Others a) / c) / e) / f) 26,805 631 32,206 313 15,263 38,377 Total 98,185 20,214 810,215 4,976 118,400 2,917,470

12/31/2010

Company

Nature ofthe

transaction Current

assets Non-current

assets Currentliabilities

Non-currentliabilities Revenues

Costs andexpenses

Atento BrasilS.A. a) / c)/ e) / f) 8,250 - 104,330 338 30,356 704,683

TelefónicaInternationalWholesaleServicesBrasil Ltda. a) / c) / f) 1,752 134 24,072 259 3,837 80,560

Grupo Vivo 312,910 427 343,365 - 419,445 1,816,903 Telefônica

ServiçosEmpresariaisdo BrasilLtda.

b) / c) / e) /f) 13,167 1,943 20,200 2,324 2,261 89,118

Telefónica S.A. d) / f) 51 92 35,543 - 1,553 89,365

Others a) / c) / e) /

f) 103,537 14,347 182,020 7,817 49,332 51,922 Total 439,667 16,943 709,530 10,738 506,784 2,832,551


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a) Trade accounts receivable include receivables for telecommunication services including Terra Networks Brasil S.A.,Telefonica de Espanha S.A., Telefonica International Wholesale Services Espanha, Atento Brasil S.A. and Telefónica MovilesEspana S.A particularly for fixed and mobile long-distance calls, communication through local mobile, interconnection andTelefonica Internacional Wholesale Services Brasil Ltda., due to the contract of rendering services of rights of use of underseafiber optic, and other group companies.

b) Other intercompany receivables in Current Assets and Non-current Assets include mainly credits with TelefónicaInternacional S.A., Telefonica del Peru, Terra Networks Brasil S.A., Telefônica Serviços Empresariais do Brasil Ltda.corresponding to services rendered, advisory fees, expenses with salaries and other expenses paid by the Company to berefunded by the corresponding companies.

c) Trade accounts payable include services rendered, particularly by Atento Brasil S.A. for call center management services,tele-services centers and sales promoters; Telefônica Internacional Wholesale Services Brasil Ltda, for provision oftransmission infrastructure to various international data circuits and international roaming by Telefonica Moviles Espana S.A.We also highlight the rendering of administrative management services in the accounting, finance, human resources, equity,and IT functions payable to Telefônica Serviços Empresariais do Brasil Ltda., Telefônica Transportes e Logística Ltda. andother group companies.

d) Other intercompany payables in Current and Non-current Liabilities mainly include payables for technical support andmanagement services and dividends and interest on shareholder’s equity to Telefónica Internacional S.A., SPTelecomunicaçơes Participaçơes Ltda and Telefónica S.A.

e) Revenues are mainly related to billing speedy services and interregional long-distance services with Terra Networks BrasilS.A., Atento Brasil S.A. and Telefônica Serviços Empresariais do Brasil Ltda. and to network infrastructure leased to AtentoBrasil S.A. and services from calls mainly for long distance calls with Telefonica de Espanha S.A. Telefónica InternacionalWholesale Services Espanha, Telefónica Moviles Espana S.A. and other group companies.

f) The balance of costs and expenses mainly refers to international roaming call service provided by Telefónica Moviles EspanaS.A., center management services rendered by Atento Brasil S.A., international transmission infrastructure for various datacircuits provided by Telefonica Internacional Wholesale Services Brasil Ltda. and Telefónica Internacional Wholesale ServicesEspanha, management expenses, technical assistance and interest on shareholders’ equity to Telefónica Internacional S.A., SPTelecomunicaçơes Participaçơes Ltda. and Telefónica S.A. and administrative management services regarding the accounting,financial, human resources and IT areas payable to Telefônica Serviços Empresariais do Brasil Ltda.,Telefônica Transportes eLogística Ltda. and other group companies.

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Members of the Board of Directors and Executive Committee

Antonio Carlos Valente da Silva President of Board of Directors and Chief Executive OfficerSantiago Fernández Valbuena Vice-President of Board of DirectorsPaulo César Pereira Teixeira General and Executive DirectorGilmar Roberto Pereira Camurra Chief Financial Officer and Investor Relations OfficerBreno Rodrigo Pacheco de Oliveira General Secretary and Executive Legal OfficerCristiane Barretto Sales ControllerAntonio Gonçalves Oliveira Member of the Board of DirectorsFernando Abril-Martorell Hernandez Member of the Board of DirectorsFernando Xavier Ferreira Member of the Board of DirectorsFrancisco Javier de Paz Mancho Member of the Board of DirectorsEduardo Navarro de Carvalho Member of the Board of DirectorsIñaki Urdangarin Member of the Board of DirectorsJosé Fernando de Almansa Moreno-Barreda Member of the Board of DirectorsLuciano Carvalho Ventura Member of the Board of DirectorsJosé Manuel Fernandez Norniella Member of the Board of DirectorsLuis Javier Bastida Ibarguen Member of the Board of DirectorsLuiz Fernando Furlan Member of the Board of DirectorsPaulo César Pereira Teixeira Member of the Board of DirectorsRoberto de Oliveira Lima Member of the Board of DirectorsNarcís Serra Serra Member of the Board of Directors

Board of Director’s Compensation

The amount paid by the Company to the Board of Directors in 2011 was approximately R$27,476 (R$12,904 in 2010). Of theseamounts, R$14,411 (R$9,380 in 2010) corresponds to salaries and R$6,251 (R$3,524 in 2010) to bonuses. Telefônica Brasilalso paid nearly R$1,220 (R$2,533 in 2010) in connection with Performance Share Plan – PSP, a long-term incentive plan.

For the fiscal years ended December 31, 2011 and 2010, our Directors and Officers did not receive any retirement pension orother similar plans.

33. Insurance

The Company and its subsidiaries’ polices as well as those of the Telefónica Group include the maintenance of insurancecoverage for all assets and liabilities involving significant amounts and high risks based on management’s judgment andfollowing Telefónica S.A.’s corporate program guidelines. The assumptions adopted, given their nature, are not in the scope ofan audit of financial statements, and therefore, were not audited by our independent auditors.

The main assets, liabilities or interests covered by insurance and their respective amounts are as follows:

Type Insurance coverage Operational risks (with loss of profits) R$1,659,430Optional civil responsibility - general R$31,740ANATEL guarantee insurance R$24,655

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34. Stock options

In 2011 and 2010, the Company’s parent, Telefónica S.A., had in force various share-based remuneration plans based on itsshare price quote, which were also offered to managing officers and employees of subsidiaries, including Telefônica Brasil andits subsidiaries.

The fair value of shares is measured at grant date, using the binomial option pricing model, which takes into consideration theterms and conditions upon which these instruments were granted.

The Company reimburses to Telefónica S.A. the fair value of the benefits delivered to directors and employees at the grant date.

Detailed information on the major plans in effect as of December 31, 2011 and 2010 is as follows:

a) “Performance Share Plan” or “PSP”:

The General Shareholders’ Meeting of Telefónica S.A. held on June 21, 2006 approved a long-term incentive plan to begranted to executives of Telefónica S.A. and subsidiaries, which consists of granting selected participants, uponcompliance with the necessary requirements, a certain number of Telefónica S.A. shares, as variable remuneration.

The term of effectiveness initially established for the Plan is seven years, divided into five three-year-long cycles, each ofthem beginning on July 1 (“Beginning Date”) and ending on June 30 of the third year following the Beginning Date (“EndDate”). At the beginning of each cycle, the number of shares to be granted to the Plan beneficiaries will be determined,based on their performance in achieving targeted pre-defined results. This grant will occur, as applicable, after the EndDate of each cycle. Each cycle is independent of the others, with the first cycle starting on July 1, 2006 (shares weregranted on July 1, 2009), and the fifth cycle on July 1, 2010 (shares to be granted, if applicable, as from July 1, 2013).

Conditions for the granting of shares are:

- The beneficiary must continue to work for the Company throughout the three years of each cycle, subject to certainspecial conditions relating to departures from the Company.

- The actual number of shares to be granted at the end of each cycle will depend on the level of success achieved andthe maximum number of shares granted to each executive. Success levels are based on the comparison between theevolution of the shareholder’s remuneration taking into consideration share price quote and dividends (“TotalShareholder Return” - TSR) of Telefónica shares, and the evolution of TSRs corresponding to a group of companiesquoted in the telecommunications segment, which constitutes the Comparison Group. At the beginning of each cycle,each employee participating in the plan is granted a maximum number of shares, and the actual number of shares to begranted at the end of the cycle is calculated by multiplying this maximum number for the success level achieved at thatdate. This will be 100%, should the evolution of Telefónica TSR be equal to or above the third quartile of theComparison Group, and 30% should this evolution be equal to average. In case the evolution is between theseamounts, a linear interpolation will be calculated and, in case it is below average, no shares will be granted.

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At June 30, 2010 and 2011 the second and third cycles of this incentive plan ended and the maximum number of sharesgranted to the executives of Telefônica Brasil and its subsidiaries was as follows:

Cycle Nº of shares Unit value in euros Date of completion2nd cycle July 1, 2007 175,534 7.70 June 30, 20103rd cycle July 1, 2008 186,186 8.39 June 30, 2011

After the second and third cycles of the Plan, ended in July 2010 and 2011, 175,534 and 189,763 shares were granted to theeligible executives of Telefônica Brasil and subsidiaries, respectively, participating in these cycles.

The maximum number of shares to be granted in each of the 2 outstanding cycles at December 31, 2011 is as follows:

Cycle Nº of shares Unit value in euros Date of completion4th cycle July 1, 2009 245,240 8.41 June 30, 20125th cycle July, 1, 2010 260,611 9.08 June 30, 2013

b) “Performance & Investment Plan” or “PIP”

The General Shareholders’ Meeting of Telefónica, S.A. held on May 18, 2011 approved a long-term plan, whose objectiveis to praise commitment, outstanding performance and the high potential of its Global Officers by granting them TelefónicaS.A. shares.

Participants do not need to pay for the shares initially granted, and will be able to increase the number of shares they aregranted at the end of the Plan, should they elect to make a joint investment in their PIP. This joint–investment requires theparticipant to purchase and hold until the end of the cycle a number equivalent to 25% of the shares initially granted byTelefónica S.A. Over this participant investment the Telefónica S.A. will increase the initial shares by 25%.

The term of effectiveness initially established for the Plan is three years. The cycle began on July 1, 2011 and will end onJune 30, 2014. The number of shares was informed at the beginning of the cycle and after a period of 3 years from thegrant date the shares will be transferred to the participant if the objective is achieved.

Conditions for the granting of shares are:

- having an active work relation in the Telefónica Group at cycle consolidation date; - that Telefónica achieves results that represent compliance with the objectives established for the plan: success level is

based on comparison of the evolution of the shareholder’s remuneration, obtained through the (“Total ShareholderReturn” - TSR), in relation to the evolution of the TSRs of the companies belonging to the pre-defined ComparisonGroup.

- 100% shares will be granted if the TSR of Telefónica S.A is above the TSR of the Companies that represent 75% of

the stock exchange capitalization of the Comparison Group. - 30% shares will be granted if the TSR of Telefónica S.A. is on the same level or above the TSR of the Companies that

represent 50% of the stock exchange capitalization of the Comparison Group. - determined by linear interpolation if the TSR of Telefónica S.A is between 50% and 75% of the stock exchange

capitalization of the Comparison Group.

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- will not be granted if the TSR of Telefónica S.A is below the TSR of the Companies that represent 50% of the stock

exchange capitalization of the Comparison Group.

The maximum number of shares granted in this first outstanding cycle at December 31, 2011 is as follows:

Cycle Nº of shares Unit value in euros Date of completion1st cycle July 1 2011 570,493 8.28 June 30, 2014

c) Global Employee Share Plan” or “GESP”.

The General Shareholders’ Meeting of Telefónica, S.A. held on June 23, 2009, approved a share incentive purchase planfor all the employees of the Telefónica Group around the whole world, including employees of Telefônica Brasil and itssubsidiaries. Under this plan, participants are offered the possibility of acquiring Telefónica, S.A. shares, with thiscompany assuming the obligation of giving commits to participants a certain number of its shares, whenever certainrequisites are met, free of charge.

The term of effectiveness initially established for the Plan is two years. Employees subscribed to the Plan were able topurchase Telefónica S.A. shares through monthly payments of up to 100 euros (or equivalent amount in local currency), upto a maximum of 1,200 euros over a period of twelve months (acquisition period). The delivery of shares will occur, asapplicable, after the vesting period, as from September 1, 2012, and the conditions to be met are as follows:

- The beneficiary must continue to work for the Company throughout the two years of effectiveness of the plan (vestingperiod), subject to certain special conditions relating to departures from the Company.

- The actual number of shares to be granted at the end of the vesting period will depend on the number of sharespurchased and maintained by the employees. As such, the employees participating in the Plan who remain in theGroup and, who maintained the purchased shares for an additional period of other twelve months after the purchaseperiod, will be entitled to receive one share free-of-charge for each share which they acquired and maintained at theend of the vesting period.

The purchase period began in August 2010 and at December 31, 2011, the number of employees of Telefônica Brasil andits subsidiaries participating in the Plan totals 1,137.

Telefônica Brasil and its subsidiaries registered the following expenses with personnel referring to the afore-mentionedshare-based compensation plans in the fiscal years ended December 31, 2011, 2010 and 2009:

Plans 2011 2010 2009 PSP R$ 10,101 R$ 9,516 R$ 6,422 PIP R$ 4,509 - - GESP R$ 2,298 R$ 840 - Total R$ 16,908 R$ 10,356 R$ 6,422

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35. Post-retirement benefit plans

The plans sponsored by the Company and the related benefits types are as follows:

Plan Type (1) Entity Sponsor

PBS-A BD Sistel Telefônica Brasil S.A. and Vivo S.A. in conjunction with the othercompanies resulting from the breakup of Telebras.

PAMA/PCE Healthcare plan Sistel

Telefônica Brasil S.A. and Vivo S.A. in conjunction with the othercompanies resulting from the breakup of Telebras.

CTB BD TelefónicaBrasil S.A. Telefônica Brasil S.A.

PBS BD/Hybrid VisăoPrev Telefônica Brasil S.A. and Vivo S.A.VISÃO CD/Hybrid VisăoPrev A. Telecom S.A., Telefônica Data S.A., Telefônica Brasil S.A., Vivo

S.A. and VisăoPrev Companhia de Previdência ComplementarPREV Hybrid VisăoPrev (2) Vivo S.A.(1) BD = Defined Benefit Plan;

CD = Defined Contribution Plan;Hybrid = Plan that offers both DB and DC-type benefits.

(2) Except CELPREV plan, managed by Sistel. The Company and its subsidiaries, along with other companies from Telebrás System, sponsor pension plans and postemployment medical benefits, as follows: i) PBS-A; ii) PAMA; iii) CTB ; iv) PBS-Telefônica, PBS-Telesp Celular,PBS-TCO, PBS Tele Sudeste Celular and PBS Tele Leste Celular; v) Plano TCP Prev, TCO Prev e CelPrev; and vi)Plano de Benefícios Visăo Telefônica e Visăo Celular – Celular CRT, Telerj Celular, Telest Celular, Telebahia Celularand Telergipe Celular.

The Company and its subsidiaries sponsor, individually, a defined benefit retirement plan (PBS Plan), administered by VisăoPrev, which covers approximately 0.46% of the Company’s employees. In addition, a multiemployer plan (PBS-A) and healthcare plan (PAMA) are provided by the Company and its subsidiaries to retired employees and their dependents (administeredby Fundaçăo Sistel, with constituted fund and participants contributions), at shared costs. Contributions to the PBS Plans aredetermined based on actuarial valuations prepared by independent actuaries, in accordance with the rules in force in Brazil. Thefunding procedure is the capitalization method and the sponsor’s contribution is a fixed percentage of payroll of employeescovered by the plan, as described below:

Plan %PBS Telesp 13.96PBS Telesp Celular 10.78PBS Tele SudesteCelular

16.67

PBS TelemigCelular

10.36

PAMA 1.50

For other employees of the Company and its subsidiaries, there are two defined contribution plans - Visăo Telesp Benefit Planand Vivo Prev Plan, both of them being administrated by Visăo Prev complementary providence company. The others plans arefunded by contributions made by the participants (employees) and

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Table of Contents by the sponsors which are credited to participants’ individual accounts. Telefônica Brasil and its subsidiaries are responsible forbearing all administrative plans and maintenance expenses, including participant’s death and disability risks. The contributionsto those plans are equal to those of the employees, varying from 2% to 9% of the contribution salary for those participants fromTelefônica Brasil and from 0% to 8% of the contribution salary for those participants from Vivo S.A. based on the percentagechosen by the participant.

Additionally, the Company supplements the retirement benefits of certain employees of the former CTB - CompanhiaTelefônica Brasileira.

In 2011, the Company and its subsidiaries made contributions to the PBS Plans in the amount of R$18 (R$17 in 2010), toPlanos Visăo in the amount of R$28,743 (R$25,574 in 2010) and to the Planos Prev in the amount of R$23,073.

Subsidiary Vivo S.A. also sponsors CelPrev. Participants may make three types of contributions to the plan, being: (a) basiccontribution: percentage varies from 0% to 2% of participation wage; (b) additional contribution: percentage varies from 0% to6% of the portion of the participation wage that is higher than 10 Units of Standard Reference of the Plan; and (c) voluntarycontribution: percentage chosen freely by the participant and applied on participation wage. The sponsor may make four typesof contribution, being: (a) basic contribution: contribution equal to the participant’s basic contribution, less contribution forfinancing the sickness allowance benefit and contribution for financing administrative expenses; (b) additional contribution:equal to the participant’s additional contribution, less the administrative expense; (c) occasional contribution: made voluntarilyand whose frequency is determined by the sponsor; and (d) special contribution: contribution exclusively destined to thesponsor’s employees who do not belong to the PBS and who joined within 90 days of CelPrev’s beginning date.

The actuarial valuation of the plans was made in December 2011 and 2010, based on the records of plan members at August 31and September 30, 2011 for the plans administered by VisăoPrev and Sistel, respectively, both projected to December 31, 2011,and based on the records of plan members at July 31 and August 31, 2010 for the plans administered by VisăoPrev and Sistel,respectively, both projected for December 31, 2010, adopting the projected unit credit method. Actuarial gains and losses foreach year were immediately recognized in other comprehensive income. The plans’ assets related to December 31, 2011 and2010, respectively, and for other multi-employer plans (PAMA and PBS-A), the plans’ assets were allocated on the Company’sactuarial liability to the plans’ total actuarial liability.

Actuarial liabilities referring to the plans mentioned above are recorded in “Provisions” caption (note 20).

Actuarial liabilities recorded by the Company as of December 31, 2011 and 2010 are as follows:

Plan 2011 2010 CTB 34,615 20,818 PAMA 273,373 198,182 PBS 905 - Total - consolidated 308,893 219,000

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a) Reconciliation of assets and liabilities

2011 PBS-A (i) CTB PAMA (i) PBS Visăo PREV Total Total actuarialliabilities 1,214,453 34,615 366,660 242,227 33,986 46,251 1,938,192 Fair value ofassets 1,882,195 - 93,287 294,602 108,793 73,689 2,452,566 Liabilities(assets), net (667,742) 34,615 273,373 (52,375) (74,807) (27,438) (514,374)Assets limitation 667,742 - - 53,195 44,375 26,745 792,057 Net liabilityrecognized in thebalance sheet - 34,615 273,373 905 - - 308,893 Net assetrecognized in thebalance sheet - - - (85) (30,432) (693) (31,210)

2010 PBS-A (i) CTB PAMA (i) PBS Visăo Total Total actuarial liabilities 1,138,330 20,818 272,141 94,177 31,914 1,557,380 Fair value of assets 1,717,746 - 73,959 111,613 121,377 2,024,695 Liabilities (assets), net (579,416) 20,818 198,182 (17,436) (89,463) (467,315)Assets limitation 579,416 - - 17,436 62,292 659,144 Net liability recognized inthe balance - 20,818 198,182 - - 219,000 Net asset recognized in thebalance - - - - (27,171) (27,171)

i) Refers to the proportional share of the Company and its subsidiaries in the assets and liabilities of the PAMA andPBS-A multiemployer plans.

b) Total expenses recognized in the income statement

2011 CTB PAMA PBS Visăo PREV Total Current service cost - 252 821 3,971 2,482 7,526 Interest cost 1,978 29,173 17,838 3,062 3,487 55,538 Expected return on planassets - (8,163) (25,654) (6,940) (5,795) (46,552) 1,978 21,262 (6,995) 93 174 16,512

2010 CTB PAMA PBS Visăo Total Current service cost - 159 78 3,663 3,900 Interest cost 2,148 23,038 8,803 2,865 36,854 Expected return on plan assets - (6,489) (11,334) (11,970) (29,793) 2,148 16,708 (2,453) (5,442) 10,961

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2009 CTB PAMA PBS Visăo Total Current service cost - 157 135 3,368 3,660 Interest cost 2,503 18,973 8,935 2,736 33,147 Expected return on plan assets - (7,064) (9,976) (10,381) (27,421) 2,503 12,066 (906) (4,277) 9,386

c) Amounts recognized in other comprehensive income

2011 CTB PAMA PBS Visăo PREV Total Actuarial (gains) lossesrecognized immediately 15,398 36,581 22,643 30,628 (6,552) 98,698 Limitation effect - - 35,760 (17,918) 26,746 44,588 Total cost recognized inother comprehensive income 15,398 36,581 58,403 12,710 20,194 143,286

2010 CTB PAMA PBS Visăo Total Actuarial (gains) losses recognizedimmediately (1,809) 13,069 (7) (1,138) 10,115 Limitation effect - - 2,472 47,998 50,470 Total cost recognized in othercomprehensive income (1,809) 13,069 2,465 46,860 60,585

2009 CTB PAMA PBS Visăo Total Actuarial (gains) losses recognizedimmediately (2,344) 34,080 (13,453) (8,066) 10,217 Limitation effect - - 14,379 (47,168) (32,789)Total cost recognized in othercomprehensive income (2,344) 34,080 926 (55,234) (22,572)

d) Changes in net actuarial (assets) liabilities

PBS-A CTB PAMA PBS Visăo PREV Total Plan liabilities

(assets) as of01/01/2010 - 23,508 168,419 - (65,185) - 126,742

Expenses in 2010 - 2,148 16,708 (2,453) (5,442) - 10,961 Contributions of the

companies toplans in 2010 - (3,029) (14) (12) (3,404) - (6,459)

Amounts recognizedin othercomprehensiveincome - (1,809) 13,069 2,465 46,860 - 60,585 Liabilities (assets) as

of 12/31/2010 - 20,818 198,182 - (27,171) - 191,829 Business combination (17,809) - 17,431 (50,294) (11,048) (19,961) (81,681)Expenses in 2011 (92,030) 1,978 21,262 (6,995) 93 174 (75,518)Contributions of the

companies toplans in 2011 - (3,579) (83) (294) (5,016) (1,100) (10,072)

Amounts recognizedin other

109,839 15,398 36,581 58,403 12,710 20,194 253,125


comprehensiveincome Liabilities (assets) as

of 12/31/2011 - 34,615 273,373 820 (30,432) (693) 277,683 Actuarial asset

recognized in thebalance sheet - - - (85) (30,432) (693) (31,210)

Actuarial liabilityrecognized in thebalance sheet - 34,615 273,373 905 - - 308,893

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Table of Contents e) Changes in actuarial liabilities

PBS-A CTB PAMA PBS Visăo PREV Total Actuarial liabilities as ofJanuary 1, 2010 1,082,459 23,508 238,767 93,098 31,348 - 1,469,180 Cost of current service - - 159 78 3,663 - 3,900 Interest on actuarialliabilities 102,289 2,148 23,038 8,803 2,865 - 139,143 Benefits paid in the year - (3,029) (9,916) (6,665) (585) - (20,195)Contributions ofparticipants in the year (93,289) - - 1 302 - (92,986)Actuarial (gains) losses inthe year 46,871 (1,809) 20,092 (1,138) (5,678) - 58,338 Actuarial liabilities as ofDecember 31, 2010 1,138,330 20,818 272,140 94,177 31,915 - 1,557,380 Business combination 35,091 - 23,936 117,481 161 49,656 226,325 Cost of current service - - 251 821 3,970 2,482 7,524 Interest on actuarialliabilities 114,725 1,978 29,173 17,838 3,062 3,487 170,263 Benefits paid in the year (97,917) (3,579) (13,390) (13,385) (5,900) (1,113) (135,284)Contributions ofparticipants in the year - - 345 - - 345 Actuarial (gains) losses inthe year 24,224 15,398 54,550 24,950 778 (8,261) 111,639 Actuarial liabilities as ofDecember 31, 2011 1,214,453 34,615 366,660 242,227 33,986 46,251 1,938,192

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Table of Contents f) Changes in plan assets

PBS-A CTB PAMA PBS Visăo PREV Total Fair value of planassets as ofJanuary 1, 2010 1,479,620 - 70,348 108,062 110,828 - 1,768,858 Benefits paid inthe year (93,290) (3,029) (9,916) (6,665) (585) - (113,485)Totalcontributions inthe year - 3,029 14 12 3,704 - 6,759 Expected returnon plan assets inthe year 141,762 - 6,490 11,334 11,970 - 171,556 Gains / (losses) onassets 189,654 7,023 (1,131) (4,539) - 191,007 Fair value of planassets as ofDecember 31,2010 1,717,746 - 73,959 111,612 121,378 - 2,024,695 Businesscombination 52,900 - 6,505 167,775 11,209 69,617 308,006 Benefits paid inthe year (97,917) (3,579) (13,390) (13,385) (5,900) (1,113) (135,284)Totalcontributions inthe year - 3,579 81 640 5,017 1,099 10,416 Expected returnon plan assets inthe year 206,757 - 8,163 25,654 6,940 5,795 253,309 Gains / (losses) onassets 2,709 - 17,969 2,306 (29,851) (1,709) (8,576)Fair value of planassets as ofDecember 31,2011 1,882,195 - 93,287 294,602 108,793 73,689 2,452,566

g) Expenses estimated for 2012

CTB PAMA PBS Visăo PREV Total Cost of current service - 165 853 4,596 3,872 9,486 Interest cost 3,164 35,026 22,780 3,083 4,260 68,313 Expected return on plan assets - (10,847) (35,943) (13,392) (9,001) (69,183)Total expenses (reversions) for2012 3,164 24,344 (12,310) (5,713) (869) 8,616

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Table of Contents h) Actuarial assumptions

2011

Expectedreturn rate

on planassets

Futuresalary

growth rate

Medicalcare cost

growth rate

Annualnominalindex ofprivatepensionbenefit

restatement

Increase inmedical

services useaccording to

age

Expected age toqualify for theuse of medical

services Expected

retirement age

PBS/Visăo 11.60%

PBS: 6.54%Visăo:7.20% N/A 4.5% N/A N/A

Eligibility forregular retirement

PBSTelemig 12.08% N/A N/A 4.5% N/A N/A

Eligibility forregular retirement

Celprev/PREV

Celprev:11.10%

PREV:11.60%

Celprev:7.19%

PREV:7.20%

N/A 4.5% N/A N/A

Eligibility forregular retirement Eligibility forregular retirement

CTB N/A N/A N/A 4.5% N/A N/A N/A

PAMA 11.07% N/A 7.64% N/A 4.00%

5% upon reaching52 years old and10 yearsparticipating; 3%for eachsubsequent year;100% in eligibilityfor regularretirement

N/A

PBS-A 12.08% N/A N/A 4.5% N/A N/A N/A

Note: These are all nominal rates, except for medical services claim frequencies.

In addition to the above-mentioned assumptions, other assumptions common to all plans were adopted, as follows:

• Actuarial liability discount-to-present-value rate: 9.73%; • Inflation rate: 4.5%; • Capacity factor for salaries and benefits: 98%; • Turnover: 0.15 (years of service +1), zero from age 50; • Disability entry table: Mercer Disability; • Actuarial Table: AT2000 segregated by sex; and • Disability mortality table: IAPB-57.

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2010

Expectedreturn rate

on planassets

Futuresalary

growth rate

Medicalcare cost

growth rate

Annualnominalindex ofprivatepensionbenefit

restatement

Increase inmedical

services useaccording to

age

Expected age toqualify for theuse of medical

services Expected

retirement age

PBS/Visăo 11.60%

PBS: 6.54%Visăo:7.20%

N/A 5.00% N/A N/A First age entitled toone of the benefits

CTB N/A N/A N/A 5.00% N/A N/A

First date on which itbecomes eligible forSocial Securitybenefit

PAMA 11.07% N/A 8.15% N/A 4.00%

5% upon reaching52 years old and10 yearsparticipating; 3%for eachsubsequent year;100% in eligibilityfor regularretirement N/A

PBS-A 12.08% N/A N/A 5.00% N/A N/A N/A

Note: These are all nominal rates, except for medical services claim frequencies.

In addition to the above-mentioned assumptions, other assumptions common to all plans were adopted, as follows:

• Actuarial liability discount-to-present-value rate: 10.25%; • Inflation rate: 5.0%; • Capacity factor for salaries and benefits: 98%; • Turnover: 0.15 (years of service +1), zero from age 50; • Disability entry table: Mercer Disability; • Actuarial Table: AT2000 segregated by sex; and • Disability mortality table: IAPB-57.

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Table of Contents i) Expected long-term investment return

2011 2010 Percentage of allocation ofplan assets Capital instruments 5.87% 14.28%Debt instruments 92.87% 85.09%Other 1.26% 0.63% 100.00% 100.00% Expected return from planassets Capital instruments 16.36% 15.61%Debt instruments 12.46% 10.82%Other 11.67% 10.25%Total 13.06% 11.50%

Expected long-term investment return rates related to the plans assessed were selected by the Company, being determinedbased on expected long-term profitability, considering long-term projections provided by Tendências Consultoria andANBIMA data, among others, as follows:

• Variable income assets: historic risk premium estimated by the actuarial advisor; • Fixed income securities: weighted average rate based on National Treasury Bills (LTN) available and National

Treasury Notes – F Series (NTN-F) market portfolio; • Assets linked to inflation: weighted average rate based on NTN-B and NTN-C portfolio available in the market; • Foreign exchange securities: average SELIC rate weighted by the foreign exchange variation rate projected for the

following ten years; • Fixed income assets: average internal nominal interest rate variation, projected for the following 10 years; • Loans to participants: the higher rate between CDI and the plan actuarial goal is considered; • Properties: the plan actuarial goal used was that of its administrator.

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j) History of assets and obligations observed

2011 2010 2009 2008 2007 Liabilities present value 723,739 419,050 386,722 337,480 257,787 Fair value of assets 570,371 306,949 289,239 253,695 232,378 Deficit 153,368 112,101 97,483 83,785 25,409 Adjustment for liabilitiesexperience (%) 12.08% 1.29% 7.77% 11.83% 6.87%Adjustment for liabilitiesexperience (amounts) 87,413 5,397 30,043 39,929 17,709 Adjustment for assets experience(%) (1.98%) (0.44%) (6.85%) (3.39%) (9.65%)Adjustment for assets experience(amounts) (11,284) (1,352) (19,826) (8,598) (22,428)

k) Estimates of benefits payable within the following years

2012 2013 2014 2015 2016 2017 thereof Defined pension plan 142,033 148,084 154,407 160,707 167,679 8,041,003

l) Significant considerations on PAMA Plan

The effect of a one percent increase and the effect of one percent decrease in medical cost trend rates are as follows: a) +1% in nominal growth rate of medical costs

Effect on current service cost and on interest onactuarial liabilities 5,639Effect on liabilities present value 57,677

b) -1% in nominal growth rate of medical costs

Effect on current service cost and on interest onactuarial liabilities (4,653)Effect on liabilities present value (47,581)

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Table of Contents 36. Financial instruments

The Company and its subsidiaries made a valuation of their financial assets and liabilities in relation to market values based onavailable information and appropriate valuation methodologies. However, the interpretation of market information, as well asthe selection of methodologies, requires considerable judgment and reasonable estimates in order to produce adequaterealizable values. As a result, the estimates presented do not necessarily indicate the amounts which may be realized in thecurrent market. The use of different market approaches and/or methodologies may have a significant effect on the estimatedrealizable values.

The table below shows a breakdown of financial assets and liabilities as of December 31, 2011. Fair value Amortized cost

Measuredat fairvalue

throughprofit or

loss Hedge Availablefor sale

Loans andreceivables

Investmentsheld to

maturity

Level 1.Market

price

Level 2.Estimatedbased on

other marketdata

Total bookvalue

Totalfair value

Financialassets Currentassets Cash andcashequivalents(note 5) - - 2,940,342 - - - 2,940,342 2,940,342 Derivatives 730 1,110 - - - - 1,840 1,840 1,840 Noncurrentassets Interests inothercompanies - - 37,696 - - 37,696 - 37,696 37,696 Derivatives - 225,935 - - - - 225,935 225,935 225,935 Amountslinked to theNationalTreasurySecurities(note 11) - - - - 13,819 - - 13,819 13,819 Totalfinancialassets 730 227,045 37,696 2,940,342 13,819 37,696 227,775 3,219,632 3,219,632

Measured atfair value

through profitor loss

Amortizedcost Hedge

Level 1.Market

price

Level 2.Estimated

based on othermarket data

Total bookvalue

Totalfair value

Financial liabilities Current liabilities Loans and financing(note 18) 34,802 953,611 - - 34,802 988,413 988,413 Debentures 5,537 463,087 - - 5,537 468,624 468,624 Derivatives 1,327 - 49,835 51,162 51,162 51,162 Noncurrentliabilities Loans and financing(note 18) 969,977 2,989,138 - - 969,977 3,959,115 3,959,115 Debentures 81,853 705,954 - - 81,853 787,807 787,807 Derivatives - - 78,369 - 78,369 78,369 78,369 Total financialliabilities 1,093,496 5,111,790 128,204 - 1,221,700 6,333,490 6,333,490


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Interests in other companies

The Company has direct and indirect interests in other companies resulting from the privatization process. These investments,measured at market value, consider the latest quotation available at December 31, 2011 and 2010.

The table below shows the composition of investments in other companies at market value as of December 31, 2011 and 2010:

% of

Interest 2011 2010 Zon Multimédia 0.52 9,116 12,226 Other investments 28,580 30,483 Total 37,696 42,709

Fair value hierarchy

The Company and its subsidiaries use the following hierarchy in order to calculate and disclosure the fair value of financialinstruments through the valuation technique:

Level 1: Quoted prices (without adjustments) on the active markets for identical assets and liabilities;Level 2: Other techniques to which all data with material effect on the fair value recorded are directly or indirectly observable;Level 3: Techniques using data with relevant effect on the fair value recorded which are not based on data that can be observedon the market.

In 2011, no transfers of assessments of fair value between level 1 and level 2 nor level 3 and level 2 were made. The Companyand its subsidiaries do not have financial instruments with fair value level 3 assessments.

As authorized by IFRS 1, the Company and its subsidiaries did not disclose comparative information on hierarchy of fair valueand liquidity disclosures.

Capital management The purpose of the Company and its subsidiaries’ capital management is to ensure that a solid credit rating is sustained beforethe institutions, as well as an optimum capital relationship, in order to support the Company’s businesses and maximize thevalue to its shareholders.

The Company and its subsidiaries manage their capital structure by making adjustments and fitting into current economyconditions. For this purpose, the Company and its subsidiaries may pay dividends, raise new loans, issue promissory notes andcontract derivative operations. For the year ended December 31, 2011, there were no changes in the Company’s objectives,policies or capital structure processes.

The Company and its subsidiaries include in its net debt structure: loans, financing, derivative operations, less cash and cashequivalents.

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Risk management policy

The Company is exposed to several market risks as a result of its commercial operations, debts obtained to finance its activitiesand debt-related financial instruments.

The principal market risk factors that affect the business of the Company and its subsidiaries are detailed below:

a) Exchange rate risk

This risk arises from the possibility that the Company may incur losses due to exchange rate fluctuations, which wouldincrease the financial expenses of loans denominated in foreign currency.

At December 31, 2011, 19.32% (0.95% at December 31, 2010) of the financial debt was denominated in foreign currency(US dollar and UMBNDES).

The Company has entered into derivative transactions (exchange rate hedge) with financial institutions to protect itselfagainst exchange rate variation on its gross debt in foreign currency (R$1,004,207 at December 31, 2011 and R$17,304 atDecember 31, 2010).

In view of this, at December 31, 2011 and 2010 the entirely of the debt was covered by asset positions on currency hedgetransactions (swap for CDI).

There is also the exchange rate risk related to non-financial assets and liabilities in foreign currency, which can lead to alower amount receivable or higher amount payable, depending on exchange rate variation in the period.

As from May 2010, hedge operations were contracted to minimize the exchange rate risk related to these non-financialassets and liabilities in foreign currency. This balance is subject to daily changes due to business dynamics, however, theCompany aims to cover the net balance of these rights and obligations (US$13,917 and €17,818 payable at December 31,2011) to minimize the related foreign exchange risk.

b) Interest rate and inflation risk

This risk arises from the possibility of the Company and its subsidiaries incurring losses to of an unfavorable change ininternal interest rates, which may negatively affect financial expenses connected with part of debentures link with CDI andliability positions (exchange rate hedge and IPCA) contracted at floating interest rates (CDI).

The debt taken out from BNDES bank is indexed by the TJLP (Long Term Interest Rate quarterly set by the NationalMonetary Council), which was kept at 6.0% per annum since July 2009.

The risk of inflation arises from the debentures of Telemig (merged into Vivo Part. on June 1, 2010), indexed by the IPCA,which may adversely affect our financial expenses in the event of an unfavorable change in this index.

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To reduce its exposition to CDI, the Company and its subsidiaries invest cash surplus of R$2,862,938 (R$1,547,785 atDecember 31, 2010), mainly in short-term financial investments (Bank Deposit Certificates) based on CDI variation. Thebook value of these instruments approximates market, since they are redeemable within a short term.

As of December 31, 2011, the Company and its subsidiary Vivo had financing agreements in force, containing restrictiveclauses (covenants), typically applicable to such agreements, relating to cash generation, debt ratios and other restrictions.These covenants – which should be calculated semi-annually and annually could otherwise demand payment of liabilitiesat an earlier time – have been fully performed by the Company and its subsidiary Vivo, and all economic and financialindexes contractually provided have been achieved.

The 1st and 4th issuance of debentures of Vivo Part., taken by the Company on August 19 and September 28, 2011,respectively, have economic and financial indexes that must be determined quarterly, as well as covenants in connectionwith judicial and out-of-court applications for company economic recovery, liquidation, dissolution, insolvency, voluntarybankruptcy application or adjudication of bankruptcy, payment failure and failure to comply with non-fiduciaryobligations. At said date, all financial and economic indices were attained and all these covenants were met including theapproval of the transfer by the majority of the debentures holders.

c) Liquidity risk

Liquidity risk derives from the possibility that the Company and its subsidiary do not have sufficient resources to meettheir commitments according to the different currencies and terms of execution/settlement of their rights and obligations.

The Company and its subsidiary structure the maturity dates of the non-derivative financial agreements, as shown in note18, and their respective derivatives as shown in the payments schedule disclosed in the referred note, in such manner as notto affect its liquidity.

The control of the Company’s and its subsidiary’s liquidity and cash flow is monitored daily by Management, in such wayas to ensure that the operating cash generation and the available lines of credit, as necessary, are sufficient to meet itsschedule of commitments, not generating liquidity risks.

d) Credit risk

This risk arises from the possibility that the Company and its subsidiaries may incur losses due to the difficulty in receivingamounts billed to its customers and sales of handsets and pre-activated pre-paid cards to the distributor’s network.

The credit risk on accounts receivable is dispersed and minimized by a strict control of the customer base. The Companyand its subsidiaries constantly monitor the level of accounts receivable of post-paid plans and limit the risk of past-dueaccounts, interrupting access to telephone lines for past due bills. In the mobile services the customer base ispredominantly, a prepaid system, which requires the prior charging and consequently entails no credit risk. Exceptions aremade for telecommunication services that must be maintained for security or national defense reasons.

The credit risk in the sale of handsets and “pre-activated” prepaid cards is managed under a conservative credit policy, bymeans of modern management methods, including the application of “credit scoring” techniques, analysis of financialstatements and information, and consultation to commercial data bases, in addition to request of guarantees.

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As of December 31, 2011, the Company’s customer portfolio had no subscribers whose receivables were individuallyhigher than 1% of the total accounts receivable from services.

The Company and its subsidiaries are also subject to credit risk arising from short-term investments, letters of guaranteereceived as collateral in connection with certain operations and receivables from swap transactions. The Company controlsthe credit limit granted to all counterparties and diversifies such exposure among top-rated financial institutions, accordingto credit policy of financial counter-parties in force.

Derivatives and Risk Management Policy

All of the Company’s and its subsidiaries’ derivative instruments have the objective of providing a hedge against the riskof variation in exchange rates arising from assets and liabilities in foreign currency and against inflation risk from itsdebenture indexed to IPCA (inflation rate) with shorter term. As such, any changes in risk factors generate an oppositeeffect on the hedged end. There are no derivative instruments for speculative purposes and liabilities in foreign exchangeare hedged.

The Company and its subsidiaries have internal controls over its derivative instruments, which, according to management,are adequate to control the risks associated with each market strategy. The Company’s results derived from its derivativefinancial instruments indicate that the risks have been adequately managed.

The Company and its subsidiaries determine the effectiveness of the derivative instruments entered into to hedge itsfinancial liabilities upon origination and on an ongoing basis (quarterly). As of December 31, 2011, the derivativeinstruments taken were effective for the debts for which they are intended to provide coverage. Provided these derivativescontracts qualify as hedge accounting, the debt hedge may also be adjusted at fair value as per the rules applicable to fairvalue hedge. According to cash flow hedge accounting, the effective portion of fair value variations of derivativesdesignated for these hedges is recognized directly in equity. At December 31, 2011, subsidiary Vivo S.A. had an foreignexchange swap of US$102,573 designated as cash flow hedge, whose fair value accumulated variation, recognized inequity, was R$3,022.

The Company and its subsidiaries entered into swap contracts in foreign currency at different exchange rates hedging theirassets and liabilities in foreign currency.

At October 15, 2009, a swap was contracted by Vivo Part., which was indexed to the IPCA (as for assets), and to the CDI(as for liabilities), in order to cover the exposure of the cash flows of the 3rd series of 4th issuance of debentures to thevariation of the IPCA rate. Upon being contracted, this swap was recognized as a fair value hedge.

At December 31, 2011, the Company and its subsidiaries had not had any embedded derivatives agreements.

Fair value of derivative financial instruments

The discounted cash flow method was used to determine the fair value of finance liabilities (when applicable) andderivative instruments considering expected settlement of liabilities or realization of assets and liabilities at the marketrates prevailing at balance sheet date.

Fair values are calculated by projecting future operating flows, using BM&FBovespa curves, and discounting to presentvalue through market DI rates for swaps, as informed by BM&FBovespa.

The market values of exchange rate derivatives were obtained through market currency rates in force at the balance sheetdate and projected market rates were obtained from currency coupon curves. The coupon for positions indexed to foreigncurrencies was determined using the 360-calendar-day straight-line convention; the coupon for positions indexed to CDIwas determined using the 252-workday exponential convention.

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The consolidated derivative financial instruments shown below are registered with CETIP. All of them are classified asswaps and do not require margin deposits.

Notional value Fair value Accumulated effect in

2011

Description Index 2011 2010 2011 2010 Amount

receivable Amountpayable

Swap Contracts Assets Foreign currency (a) 1,106,438 19,608 1,248,514 17,306 212,262 - BES USD - 3,155 - 2,654 - - Citibank USD 187,845 - 199,872 - 32,219 - Votorantim USD 13,434 16,453 14,028 14,652 - Banco do Brasil USD 258,900 - 282,205 - 19,629 - Bradesco USD 196,728 - 231,391 - 43,137 - Itaú USD 6,324 - 6,371 - 57 - JP Morgan USD 443,207 - 514,647 - 117,220 - Foreign currency (b) 44,098 - 43,059 - - - Bradesco EUR 13,828 - 13,773 - - - Itaú EUR 30,270 - 29,286 - - - Inflation rates 72,000 - 87,390 - 15,513 - Bradesco IPCA 72,000 - 87,390 - 15,513 - Variable rate (a) 4,644 86,954 4,638 86,537 - - Bradesco CDI 896 - 899 - - - Banco do Brasil CDI - 51,025 - 50,647 - - Citibank CDI - 22,047 - 22,048 - - Citibank CDI - 10,012 - 9,980 - - HSBC CDI 3,870 - 3,862 - - Itaú CDI 3,748 - 3,739 - - -

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Notional value Fair value Accumulated effect in

2010

Description Index 2011 2010 2011 2010 Amount

receivable Amountpayable

Liabilities Variable rate (a) (1,150,536) (19,608) (1,204,745) (44,654) - (125,435)BES CDI - (3,155) - (7,185) - - Citibank CDI (187,845) - (186,324) - - (18,672)Votorantim CDI (13,434) (16,453) (34,139) (37,469) - (20,111)Banco do Brasil CDI (258,900) - (262,576) - - - Bradesco CDI (210,556) - (230,901) - - (28,874)Itaú CDI (36,594) - (36,753) - - (1,153)JP Morgan CDI (443,207) - (454,052) - - (56,625)Variable rate (b) (72,000) - (75,926) - - (4,049)Bradesco IPCA (72,000) - (75,926) - - (4,049)Foreign currency (c) (4,644) (3,870) (4,685) (3,876) - (47)HSBC USD - (3,870) - (3,876) - - Bradesco USD (896) - (937) - - (38)Itau USD (3,748) - (3,748) - - (9)Foreign currency (d) - (83,084) - (83,192) - - Bradesco EUR - (51,025) - (51,125) - - Citibank EUR - (22,047) - (22,253) - - Citibank EUR - (10,012) - (9,814) - - Total recognized 227,775 (129,531)Amounts receivable 98,244

a) Swaps of foreign currency (USD) x CDI (R$1,217,652) – swap operations in American dollars and basket of currencies usedby BNDES (with several maturities until 2019, with the objective of hedging foreign exchange variation for loans andUMBNDES (debt fair value of R$1,198,483).

b) Swap of foreign currency (Euro and Dollar) and (CDI x EUR) (R$69,237 - swap contracts entered into with maturities untilFebruary 28, 2012 with the objective of hedging foreign exchange variation for amounts payable in Euro and Dollar (bookvalue of R$26,106 in dollars and R$43,246 in Euro).

c) Swap IPCA x CDI percentage (R$87,390) – swap transactions contracted with maturities dates until 2014 with the purposeof protecting the cash flow identical to the debentures (4th issuance – 3rd series) indexed to the IPCA (market valueR$87,390).

The expected maturities of swap contracts as December 31, 2011 are as follows:

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Swap contracts

Maturity Amountpayable/

receivable at12/31/2011

2012 2013 2014 2015

thereafter

Foreign Currency x CDI (47,139) (22,330) 2,259 154,037 86,827 VOTORANTIM (8,642) (7,876) (3,593) - (20,111)BRADESCO (8,101) (8,663) (5,790) 36,817 14,263 JP MORGAN (21,499) (17,849) (17,277) 117,220 60,595 BANCO DO BRASIL - 19,629 - - 19,629 CITIBANK (7,801) (7,571) 28,919 - 13,547 ITAÚ (1,096) - - - (1,096)CDI X Foreign Currency (47) - - - (47)BRADESCO (38) - - - (38)ITAÚ (9) - - - (9)IPCA x CDI (2,136) (1,913) 15,513 - 11,464 ITAÚ (2,136) (1,913) 15,513 - 11,464

For the purpose of preparing the financial statements, the Company and its subsidiaries adopted hedge accounting for itsforeign currency X CDI, CDI x foreign currency, and IPCA x CDI swap operations providing financial debt hedge. Underthis methodology, both the derivative and the risk covered are stated at fair value.

For the fiscal year ended December 31, 2011, derivative operations generated a net consolidated loss of R$111,033 (loss ofR$2,179 as of December 31, 2010 and loss of R$58,035 as of December 31, 2009), according to note 29.

At December 31, 2011, the Company and its subsidiaries registered R$227,775 as assets and R$129,531 as liabilities inorder to recognize the derivatives position in that date.

Sensitivity analysis of the Company’s risk variables

CVM Deliberation 604/09 requires listed companies to disclose, in addition to the provisions of IFRS 7 - FinancialInstruments: Disclosure, a table showing the sensitivity analysis of each type of market risk inherent in financialinstruments considered relevant by management and to which the Company is exposed at the closing date of each reportingperiod, including all operations involving derivative financial instruments.

In compliance with the foregoing, all the operations involving derivative financial instruments were evaluated consideringa probable scenario and two scenarios that may adversely impact the Company.

The assumption taken into consideration under the probable scenario was to keep, the maturity date of each transaction,what has been signaled by the market through BM&FBovespa market curves (currencies and interest rates). Accordingly,the probable scenario does not provide for any impact on the fair value of the derivative financial instruments mentionedabove. For scenarios II and III, risk variables contemplated 25% and 50% deterioration, respectively, pursuant to theapplicable CVM instruction.

Considering that the Company has derivative instruments only to cover its assets and liabilities in foreign currency, thechanges in scenarios are offset by changes in the related hedged items, thus indicating that the effects are practically null.For these operations, the Company reported the value of the hedged item and of the derivative financial instrument onseparate rows in the sensitivity analysis table in order to provide information on the Company’s net exposure for each ofthe three mentioned scenarios, as shown below:

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Sensitivity analysis – Net exposure

Operation Risk Probable 25% decrease 50% decrease

Hedge (Assets) Derivatives (Risk of USDdecrease) 1,004,209 1,280,687 1,568,402

USD-denominated debt Debts (Risk of USDincrease) (1,004,428) (1,280,962) (1,568,732)

Net exposure (219) (275) (330)

Hedge (Liabilities) Derivatives (Risk of EURdecrease) 43,059 53,870 64,676

Accounts payable in EUR Asset (Risk of EURincrease) (42,841) (53,551) (64,261)

Net exposure 218 319 415

Hedge (Assets) Derivatives (Risk of USDdecrease) 30,863 32,745 39,326

Accounts payable in USD Asset (Risk of USDincrease) (30,790) (32,631) (39,157)

Net exposure 73 114 169

Hedge (Assets) Derivatives (Risk of USDdecrease) 213,443 278,135 348,222

UMBNDES-denominated debt Debts (Risk ofUMBNDES increase) (213,769) (278,066) (348,194)

Net exposure (326) 69 28

Hedge (Assets) Derivatives (Risk ofIPCA decrease) 87,390 90,181 94,951

IPCA-denominated debt Debts (Risk of IPCAincrease) (87,390) (90,181) (94,951)

Net exposure - - - Net exposure (1,289,269) (1,388,752) (1,467,465) Total net exposure in each scenario (1,289,523) (1,388,525) (1,467,183) Effect on changes in fair value, net - (99,002) (177,660)

Assumptions for analysis of sensitivity

Risk variable Probable 25%

decrease 50%

decrease USD 1.8758 2.3180 2.7816 EUR 2.4271 3.1300 3.7560 UMBNDES 0.0369 0.0462 0.0554 CDI 10.87% 13.59% 16.31%

To determine the net exposure of the sensibility analysis, all derivatives were considered at market value and only (hedgedelements) classified under the accounting method were also considered at fair value.

The fair values shown in the table above are based on the status of the portfolio as of December 31, 2011, not reflecting anestimated realization in view of the market dynamics, always monitored by the Company. The use of different assumptionsmay significantly impact estimates.

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Table of Contents 37. Subsequent events

Ratification of new rates – fixed-mobile calls (VC1)

ANATEL, pursuant to Resolution nº 576/2011, approved the Act published in the Official Gazette on January 25, 2012,resulting in a net decrease of 10.78%, as of February 24, 2012, in fixed-mobile call rates (VC) applied to SMP (personal mobileservice) and SME (specialized mobile service).

SMP exploitation authorization

On January 16, 2012, through Act No. 284, ANATEL approved the unification of the authorizations granted to Vivo S.A. forthe operation of the SMP in the areas of provision corresponding to Region I of the General Plan Authorization of PersonalMobile Service (PGA/SMP).

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Exhibit 1.1

BYLAWS

CHAPTER – COMPANY CHARACTERISTICS

LEGAL SYSTEM Article 1 – Telefônica Brasil S.A. is a corporation ruled by these present Bylaws and other legal applicable provisions, withindeterminate duration. CORPORATE PURPOSE Article 2 – The purpose of the Company is: a) the exploration of telecommunication services; and b) the development of activities necessary or useful to execute these services, in compliance with concessions, authorizations andpermits granted thereto. Sole Paragraph – In the execution of its purpose, the Company may incorporate third party assets and rights into its capital, as well as: I – hold equity interest in other companies, aiming at complying with Brazil’s national telecommunications policy; II – incorporate wholly-owned subsidiaries to perform the activities covered by its purpose and which are advised to be decentralized; III – promote goods and services imports necessary to perform the activities covered by its purpose; IV – provide technical support services to the telecommunication companies, by performing common interest activities; V – conduct studies and researches, aiming the development of the telecommunications industry; VI – execute agreements and covenants with other telecommunication companies or any individuals or entities, with a view toensuring the operation of services, without prejudice to the duties and responsibilities; VII – perform other related or similar activities assigned thereto by the Brazilian Telecommunications Regulatory Agency -ANATEL; and VIII – trade equipment and supplies necessary or useful to explore telecommunications services. HEAD OFFICES Article 3 – The Company’s head offices are located in the City and State of Săo Paulo, and may establish and extinguish branches,agencies, local offices,


departments and delegations, by decision of the Board of Executive Officers, as provided for in Article 22, (vii) of these Bylaws.

CHAPTER II -CAPITAL AUTHORIZED CAPITAL Article 4 – The Company is authorized to increase its capital stock until the limit of 1,350,000,000 (one billion, three hundred and fiftymillion) common or preferred shares, and the Board of Directors is the body authorized to resolve on the capital increase andaccordingly, the issue of new shares, within the limit of authorized capital. Paragraph 1 – The capital increases do not require to maintaining symmetry between the number of shares of each type, however,observing that the number of non-voting or restricted vote preferred shares cannot exceed 2/3. Paragraph 2 – Shareholders will be entitled to preemptive right for capital increase subscription, proportionally to the number ofshares they hold. By decision of the Board of Directors, the preemptive right may be removed in the issue of shares, debenturesconvertible into shares and warrants, whose placement is held on the stock exchanges or via public subscription, share swap in atakeover bid, pursuant to Articles 257 and 263 of the Brazilian Corporation Law, as well as the utilization of tax benefits, pursuant tospecial laws, as authorized by Article 172 of Law 6,404/76. SUBSCRIBED CAPITAL Article 5 – The subscribed capital stock, fully paid-up is thirty-seven billion, seven hundred, ninety-eight million, one hundred, ninethousand, seven hundred, forty-five reais and three centavos (R$37,798,109,745.03), divided into one billion, one hundred,twenty-five million, six hundred, one thousand, nine hundred and thirty (1,125,601,930) shares, of which three hundred, eighty-onemillion, five hundred, eighty-seven thousand, one hundred and eleven (381,587,111) are common shares and seven hundred,forty-four million, fourteen thousand, eight hundred and nineteen (744,014,819) are preferred shares, all of them are non-par,book-entry shares. Sole Paragraph – Shares will be held in a deposit account at a financial institution on behalf of its holders, without issuing certificates.

2


CHAPTHER III – SHARES COMMON SHARES Article 6 – Each common share corresponds to one vote at the General Shareholders’ Meetings resolutions. PREFERRED SHARES Article 7 – Preferred shares are not entitled to vote, except for the assumptions provided for in Articles 9 and 10 below, ensuring thempriority in capital reimbursement, without premium, and to receive dividend ten per cent (10%) higher than that one assigned to eachcommon share. Sole Paragraph – Full voting right will be granted to preferred shares, should the Company fail to pay the minimum dividends towhich these shares are entitled during three (3) consecutive fiscal years, right that will prevail until payment of dividends.

CHAPTER IV – GENERAL SHAREHOLDERS’ MEETING

Article 8 – General Shareholders’ Meetings shall be held: (i) ordinarily, once a year, within the first four (4) months following the endof each fiscal year, pursuant to Article 132 of Law 6,404/76 and, (ii) extraordinarily, whenever necessary, whether due to company’sinterests or provisions hereof, or when the applicable laws so require. Sole Paragraph – General Shareholders’ Meeting shall be called by the Board of Directors, and its Chairman shall reiterate this act. Article 9 – The following shall be submitted to the previous approval of the General Shareholders’ Meeting (i) the execution ofagreements with related parties, whose terms and conditions are more burdensome for the Company than those usually adopted bymarket in agreements of same nature, observing in any case, the provisions of Article 117 of Law 6,404/76; and (ii) the execution ofmanagerial service agreements, including technical support services with foreign entities linked to the Company’s controllingshareholder, in this case, preferred shareholders will be entitled to vote. Sole Paragraph: In addition to the matters referred to in the “caput” of this Article, preferred shares will have voting right to (i) electone (1) member of the Board of Directors in a separate vote and (ii) in resolutions referring to Bylaws amendments aiming atannulling preferred shareholders’ right to elect in a separate vote a member of the Board of Directors. Article 10 – Without prejudice to Paragraph 1, Article 115 of Law 6,404/76, preferred shareholders will be entitled to vote at theShareholders’ Meetings resolutions referred to in Article 9, as well as those referring to the amendment or revocation of the followingBylaws provisions: (i) - Article 9;

3


(ii) - Sole Paragraph of Article11; and (iii) - Article 30. Article 11 – The General Shareholders’ Meetings shall be presided over by the Chairman of the Board of Directors, who shall appointthe Secretary among the attendees. In the event the Chairman of the Board of Directors is absent, shareholders will nominate theChairman and the secretary of the presiding board. Sole Paragraph – in the assumptions of Article 136 of Law 6,404/76, the first call of the General Shareholders’ Meeting shall occur atleast, thirty (30) days in advance, and at least, ten (10) days in advance upon second call. Article 12 – Only shareholders whose shares are registered with their names in the Company’s records may participate and vote at theGeneral Shareholders’ Meeting, within seventy-two (72) hours before the date scheduled for said meeting. Paragraph 1 – The call notice may determine that the shareholder to attend the meeting shall file at the Company’s head offices aproof of its shareholder capacity issued by the Company or by the Company shares depositary institution, at least, seventy-two (72)hours before the date scheduled for the General Shareholders’ Meeting. Paragraph 2 – The call notice may also determine that the shareholder’s representation by proxy at the meeting shall file the respectivepower of attorney at the Company’s head offices, at least, seventy-two (72) hours before the date scheduled for the GeneralShareholders’ Meeting.

CHAPTER V – MANAGEMENT OF THE COMPANY Article 13 – The management of the Company is incumbent upon the Board of Directors and Board of Executive Officers, withpowers granted by laws and by these present Bylaws. Its members shall be elected for a three-(3) year term of office, and reelection isauthorized. They are exempted from offering management pledge. Paragraph 1 – All members of the Board of Directors and Board of Executive Officers shall take office by signing the correspondinginstruments and remaining in respective office until the effective investiture of their successors. Paragraph 2 – The General Shareholders’ Meeting shall define the Company’s Management global compensation, including benefitsof any nature and procuration fees, and the Board of Directors is liable for distributing this compensation among its members andexecutive officers.

4


Paragraph 3 – The General Shareholders’ Meeting may attribute Company’s profit sharing to the Management, as long as theprovision of Article 152, Paragraphs 1 and 2 of Law 6,404/76 are observed, as per Management’s proposal. Paragraph 4 – The Company and its controlling shareholder shall maintain during concession term and its renewal, the effectiveexistence in national territory of centers of deliberation and implementation of strategic, managerial and technical decisions involvedin the compliance with the concession agreements to which the Company is party.

BOARD OF DIRECTORS STRUCTURE Article 14 - The Board of Directors shall be composed of, at least, five (5) and at most (17) members, all Company’s shareholders,elected and removed from office by general shareholders’ meeting, observing the applicable laws provisions, including in this figure,the member elected by preferred shareholders pursuant to sole paragraph of Article 9 hereof and the member elected by minorityshareholders, where applicable. Sole Paragraph – The Board of Directors shall appoint among its members, the Chairman of the Board, or his deputy, in the event ofvacancy. The Vice Chairman of the Board of Directors may be appointed and/or removed from office at the discretion of the Board ofDirectors. REPLACEMENT Article 15 – In the event of impediment or absence of Chairman of the Board of Directors, he shall be replaced by Vice Chairman, ifany. During the absence of Vice Chairman, the Chairman shall be replaced by another board member appointed by him. Paragraph 1 – In the event of impediment or absence of any other member of the Board of Directors, the impeded or absent boardmember shall appoint in writing his deputy among other members of the Board of Directors to represent him and approve resolutionsat the meeting to which he will not be able to attend, pursuant to Paragraph 3 of Article 19 hereof. Paragraph 2 – The members of the Board of Directors appointing representatives, as provided for in the previous paragraph, shall bedeemed, for all legal purposes, as attendees of respective meeting. Article 16 – In the event of vacant position of members of the Board of Directors, remaining a number lower than the minimumnumber of members provided for in Article 14 above, a General Shareholders’ Meeting shall be called to elect the deputies.

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POWERS OF THE BOARD OF DIRECTORS Article 17 – The Board of Directors shall be liable for: (i) – establishing the Company’s general business guidance; (ii) – approving the Company’s budget and annual business plan; (iii) – calling for the General Shareholders’ Meetings; (iv)– approving the Company’s financial statements and the Management report and submit them to the General Shareholders’Meeting; (v) – electing or removing from office, at any time, the members of the Board of Executive Officers, defining their duties, incompliance with legal and bylaws provisions; (vi) – approving the creation of technical and advisory Committees that will advise in issues of the Company’s interest, electingmembers of these Committees and approving their charters, which shall contain specific rules related to the structure, duties, powers,compensation and operation; (vii) – overseeing the Company’s Management, examining, at any time, the Company’s records, requesting information aboutagreements executed or to be executed, or any other acts; (viii) – approving the Company’s organizational structure, and may establish limits to the Board of Executive Officers in performanceof their duties, observing legal and Bylaws provisions; (ix) – approving and amending the charter of the Board of Directors; (x) – resolving on the Company’s issue of shares, including capital increase, within the limit of authorized capital, defining the termsand conditions of this issue; (xi) – resolving on the issue of warrants; (xii) – resolving, by delegation of the General Shareholders’ Meeting on the following aspects referring to the issue of debentures bythe Company: (i) issue opportunity, (ii) period and maturity, amortization or redemption conditions, (iii) period and paymentconditions for interest rates, profit sharing and reimbursement premium, if any, (iv) mode of subscription or placement and, (v) type ofdebentures; (xiii) – resolving on the issue of unsecured non-convertible debentures; (xiv) – resolving on the issue of promissory notes for public offering ("Commercial Papers") and on the submission of the Companyshares to the deposit system to trade respective certificates ("Depositary Receipts");

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(xv) – authorizing the acquisition of the Company shares to be cancelled or to be held in treasury and subsequent disposal; (xvi) – authorizing the disposal of assets directed connected to telecommunications public utilities; (xvii) – authorizing the disposal of real properties, creation of security interest and tendering of guarantees for third partiesobligations, and may establish limits to the Board of Executive Officers practice these acts; (xviii) – establish in the Company’s rules the limits to the Board of Executive Officers authorize the disposal or encumbrance ofpermanent assets, including those related to telecommunications public utilities which are out of service or unworthy; (xix) – approving the Company’s participation in consortia in general, as well as the terms of this participation, and may delegate thisduty to the Board of Executive Officers, within the limits to be established, always aiming the development of the Company’sactivities; (xx) – setting the limits so that the Board of Executive Officers authorizes the practice of reasonable gratuitous acts to the benefit ofemployees or the community where the Company operates, including the donation of unworthy goods to the Company; (xxi) – approving the creation and the shutting down of the Company's subsidiaries, in the country or abroad; (xxii) – approving the assumption of any liability not foreseen in the Company’s budget in amount exceeding two hundred and fiftymillion reais (R$250,000,000.00); (xxiii) – authorizing the execution of agreements, not foreseen in the Company’s budget, in amount exceeding two hundred and fiftymillion reais (R$250,000,000.00); (xxiv) – approving investments and asset acquisition, not foreseen in the budget, in amount exceeding two hundred and fifty millionreais (R$250,000,000.00); (xxv) – authorizing the acquisition of equity interest on a permanent basis in other companies and the encumbrance or the disposal ofequity interest; (xxvi) – approving the distribution of interim dividends; (xxvii) – appointing or removing from office the independent auditors; (xxviii) – appointing or removing from office the head of internal audit; and (xxix) – approving the job position and salary plan, incentive and professional development policies, regulation and the Company’sstaff, as well as the terms

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and conditions of collective bargaining agreements to be settled with unions that represent the professional categories of theCompany’s employees, the adhesion or termination of supplementary pension plans, all the aforementioned related to the Company’semployees, and the Board of Directors, when necessary, may establish limits to the Board of Executive Officers resolve on thesematters. Article 18 – Specific duties of the Chairman of the Board of Directors include: (a) to represent the Board when the GeneralShareholders’ Meeting is called; (b) preside over the General Shareholders’ Meeting and appoint his secretary among attendees; and(c) call and preside over the Board of Directors meetings. MEETINGS Article 19 – The Board of Directors shall meet (i) ordinarily, once every three months and (ii) extraordinarily, through call of itsChairman, drawing up the minutes of these meetings. Paragraph 1 – The Board meetings shall be called in writing, at least, forty-eight (48) hours in advance, and call shall contain theagenda and the matters to be discussed in said meeting. Paragraph 2 – The Board of Directors shall approve resolutions by majority vote with the attendance of the majority of its actingmembers, and Chairman shall be liable for the casting vote, in addition to his common vote, in the events of tie vote. Paragraph 3 – Any member of the Board may be represented by another board member in the meetings to which he will not be able toattend, provided that proxy powers are granted through written instrument. Paragraph 4 –Without prejudice to the subsequent signature of respective minutes, the Board of Directors meetings may also be heldvia conference call, video conference or any other means of communication that allows to identifying the attendees, as well as theirsimultaneous communication. The board members may also vote in writing, even if they do not physically attend the meeting.

BOARD OF EXECUTIVE OFFICERS STRUCTURE Article 20- The Board of Executive Officers shall be composed of, at least, five (5) and, at most, fifteen (15) members, shareholdersor not, resident in the country, who shall be elected by the Board of Directors, as follows: (a) Chief Executive Officer; (b) General andExecutive Officer ; (c) Chief Financial and Investor Relations Officer; (d) Controller; (e) General Secretary and Legal Officer; (f)other officers without specific designation.

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Paragraph 1 – The individual duties of Officers without specific designation shall be defined by the Board of Directors, which alsomay establish specific designation for said offices. Paragraph 2 – same Officer may be elected to accumulate the duties of another executive officer. Article 21 – In the event of temporary absences and impediments, the Chief Executive Officer shall designate among the members ofthe Board of Executive Officers, his deputy as well as the Officers. In the event of vacant position in the Board of Executive Officers,the respective replacement shall be resolved by the Board of Directors. POWERS OF THE BOARD OF EXECUTIVE OFFICERS AND COMPANY’S REPRESENTATION Article 22 – The Board of Executive Officers is the body that actively and inactively represents the Company and its members shall beindividually liable for, where applicable, to comply with and cause the compliance with these Bylaws, the resolutions of the Board ofDirectors and General Shareholders’ Meeting, as well as practice all the acts necessary or convenient to manage the Company’sbusinesses. Jointly, the Board of Executive Officers shall be liable for the following: (i) – proposing the Company’s general plans and programs to the Board of Directors, specifying the investment plans concerned withthe plant expansion and remodeling; (ii) – authorizing, within the limits established by Board of Directors in its appropriate charter, the disposal or encumbrance ofpermanent assets, including those related to telecommunications public utilities which are out of service or unworthy, as well assubmitting to said body the disposal or encumbrance of assets exceeding these limits; (iii) – submitting to the Board of Directors and Fiscal Council, the Annual Management Report and the Financial Statementsaccompanied by independent auditors’ report, as well as a proposal for the allocation of year’s profits; (iv) – approving, according to the limits established by the Board of Directors: a) purchase of supplies, equipment, goods, works andservices; b) assets disposal; (v) – approving the execution of other agreements, not mentioned above, according to the limits imposed by Board of Directors; (vi)– annually approving the financial operations planning and on a quarterly basis, a summary of compliance with said planning; (vii) – approving the creation and shutting down of the Company’s branches, offices, agencies and delegations in the country;

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(viii) – approving, when assigned by the Board of Directors, the Company’s organizational structure, keeping the Board of Directorsinformed about it; (ix) – ensuring the compliance with the Company’s ethics standards established by the Board of Directors; (x) – preparing and proposing the Company’s institutional responsibility policies to the Board of Directors, such as environment,health, safety and social responsibility and implement the policies approved; (xi) – authorizing, according to the limits established by the Board of Directors, the practice of reasonable gratuitous acts to the benefitof employees or the community where the Company operates, including the donation of unworthy goods to the Company; and (xii) – approving the creation of technical and advisory Committees that will advise in issues of the Company’s interest, electingmembers of these Committees and approving their charters, which shall contain specific rules related to the structure, duties, powers,compensation and operation. Paragraph 1 – The Board of Executive Officers’ resolutions shall be taken by majority vote of its members and the Chief ExecutiveOfficer, besides his common vote, shall be liable for the casting vote, in the events of tie vote. Paragraph 2 – Except for the cases provided for in Paragraph 4 and observing the provisions contained herein, the Company may belegally bound as follows: i) by the joint signature of two (2) officers appointed pursuant to Bylaws, except for urgent cases, whichshall authorize the individual signature of the Chief Executive Officer or General and Executive Officer and subject to the approval ofthe Board of Executive Officers, pursuant to Article 23, A-5 and B-4 hereof; ii) by the signature of one (1) Officer appointed pursuantto Bylaws jointly with one (1) attorney-in-fact; and iii) by the joint signature of two (2) attorneys-in-fact, as long as they are vested ofspecific powers. Paragraph 3 – Except for the cases provided for in Paragraph 4, the powers of attorney shall always be granted by two (2) Officers andshall specify the powers granted, and except for those powers of attorney for legal purposes, they shall be valid for at most one (1)year. Paragraph 4 –The Company may be represented by only one Officer or one Attorney-in-Fact, vested of specific powers to practice thefollowing acts: (i) receipt and payment; (ii) signature of instrument not creating liabilities for the Company; (iii) Company’s representation at meetings and partners meetings of companies in which it holds interest;

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(iv) granting of proxy to attorney for legal representation or in administrative proceedings; (v) representation in court or in administrative proceedings, except for the practice of acts that imply waiver of rights; (vi) representation in public bids and private contest biddings in which the Company participates, aiming the rendering of servicescovered by its purpose; and (vii) practice of administrative routines, including before public agencies, mixed public-private corporation, boards of trade, laborcourt, INSS (Brazilian Social Security Institute), FGTS (Government Severance Indemnity Fund for Employees) and related. DUTIES OF THE BOARD OF EXECUTIVE OFFICERS Article 23– These are the following specific duties of the Board of Executive Officers: A – CHIEF EXECUTIVE OFFICER: 1. To represent the Company in or out of court, before shareholders and general public, and may appoint attorneys-in-fact jointly withanother Officer and designate agents, delegate duties to other Officers to practice specific acts; 2. To follow up and oversee the implementation of Board of Directors’ decisions in relation to their activities and duties; 3. To set out guidelines and oversee activities of institutional relations, including the regulation and external communication, audit andFundaçăo Telefônica, as well as oversee the activities performed by Chief Financial and Investor Relations Officer, by GeneralSecretary and Legal Officer and by General and Executive Officer; 4. Call for the Board of Executive Officers meetings; 5. To practice urgent acts subject to the approval of the Board of Executive Officers; and 6. To perform other duties assigned by the Board of Directors.

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B – GENERAL AND EXECUTIVE OFFICER 1. To establish guidelines, coordinate and oversee the Company’s activities related to: (a) strategies and new businesses; (b)resources; (c) coordination and compliance; (d) Companies Executive Board of Officers; (e) Individual Market Executive Board ofOfficers; (f) Network; (g) Systems and (h) Customer Service; 2. To follow up and oversee the implementation of the Board of Directors’ decisions in relation to their activities and duties; and 3. To practice urgent acts subject to the approval of the Board of Executive Officers. C – CHIEF FINANCIAL AND INVESTOR RELATIONS OFFICER: 1. To set out guidelines and oversee Company’s activities in the economic-financial area and management of securities issued byCompany, as well as oversee the supplementary private pension fund management; 2. To represent the Company before the Brazilian Securities and Exchange Commission – CVM, stock exchanges and other stockmarket watchdogs; 3. To delegate, where applicable, the powers to other Officers in order to practice specific acts; 4. To represent the Company as provided for herein; 5. Oversee the activities performed by Controller; and 6. Execute other activities assigned to him by the Board of Directors and/or at the General Shareholders’ Meeting. D – CONTROLLER: 1. To establish the guidelines and oversee the Company’s activities in the accounting area and management control; 2. To delegate powers, where applicable, to other Officers in order to practice specific acts; 3. To represent the Company as provided for herein; and 4. To perform other activities assigned to him by the Board of Directors and/or at the General Shareholders’ Meeting.

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E – GENERAL SECRETARY AND LEGAL OFFICER: 1. To establish the guidelines and oversee the Company’s activities in the legal area in general; 2. To delegate powers, where applicable, to other Officers in order to practice specific acts; 3. To represent the Company as provided for herein; and 4. To perform other activities assigned to him by the Board of Directors and/or at the General Shareholders’ Meeting. F- OFFICERS WITHOUT SPECIFIC DESIGNATION: 1. To perform the individual duties and responsibilities assigned by the Board of Directors; 2. To jointly sign with another Officer appointed pursuant to Bylaws the documents and acts requiring the signature of two Officers;and 3. To represent the Company as provided for herein.

CHAPTER VI – FISCAL COUNCIL Article 24 – The Fiscal Council, on a permanent basis, shall be composed of at least, three (3) and at most five (5) sitting members andequal number of deputies. Paragraph 1 – The compensation of Fiscal Council members, besides the reimbursement for commuting and accommodation expensesnecessary to perform their duties, shall be defined at the General Shareholders’ Meeting to elect them and cannot be lower than 10%for each acting member, which on average is attributed to each Officer, not including benefits of any nature, procuration fees andprofit sharing. Paragraph 2 – In the event of vacant position of Fiscal Council member, he/she shall be replaced by his/her respective deputy. In theevent of vacant position of most of positions, the General Shareholders' Meeting shall be called to elect the deputies. Paragraph 3 – The Fiscal Council shall meet, (i) ordinarily, once every quarter and, (ii) extraordinarily, through call of the Chairmanof the Board of Directors, or two (2) members of the Fiscal Council, drawing up the minutes of the meetings. Paragraph 4 – The Fiscal Council meetings shall be called in writing, at least, forty-eight (48) hours in advance, and call shall includethe agenda, a list of the matters to be discussed at the respective meeting.

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CHAPTER VII – FISCAL YEAR AND FINANCIAL STATEMENTS FISCAL YEAR Article 25 – The fiscal year shall coincide with calendar year and half-yearly or quarterly balance sheets may be drawn up, besides theannual balance sheet. PROFIT ALLOCATION Article 26 – Together with the financial statements, the Board of Directors shall submit to the Annual Shareholders' Meeting aproposal for (i) Management and employees profit sharing and (ii) the full allocation of net income. Paragraph 1 – Out of net income for the year: (i) five percent (5%) shall be set aside to legal reserve, aiming at ensuring the physicalintegrity of the capital stock, restricted to twenty percent (20%) of paid-up capital stock; (ii) twenty-five percent (25%) of the adjustednet income as provided for in sections II and III, Article 202 of Law 6,404/76 shall be mandatorily distributed as mandatory minimumdividend to all shareholders; and (iii) the remaining balance, after complying with the provisions contained in previous items of thisarticle, shall have the allocation resolved at the General Shareholders’ Meeting, based on the Board of Directors’ proposal containedin the financial statements. If balance of profit reserves exceeds capital stock, the General Shareholders’ Meeting shall resolve onusing the surplus to pay or increase capital stock or on distributing additional dividends to shareholders. Paragraph 2 Dividends not claimed within three (3) years, as of resolution on its distribution shall revert to the Company. Article 27 – By decision of the Board of Directors, the Company may declare dividends: (i) to the profit account verified inhalf-yearly balance sheets; (ii) to the account of profits verified in quarterly balance sheets, as long as total dividends paid each halfyear do not exceed the amount of capital reserves referred to in Paragraph 1, Article 182 of Law 6,404/76, or (iii) to the retainedearnings account or profit reserve account verified in the last annual or half-yearly balance sheet. Sole Paragraph – Interim dividends distributed pursuant to this Article shall be attributed to the mandatory minimum dividend. Article 28 – By resolution of the Board of Directors and observing legal provisions, the Company may pay interest on equity to itsshareholders, which may be attributed to the mandatory minimum dividend, subject to the approval of the general shareholders’meeting.

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CHAPTER VIII – FINAL PROVISIONS Article 29 – The Company shall enter into liquidation in cases provided for by laws, and the General Shareholders’ Meeting shalldetermine the mode of liquidation and appoint the liquidator. Article 30- The Company's approval through its agents of merger, spin-off, amalgamation or dissolution operations of its subsidiariesshall be preceded by an economic and financial analysis prepared by internationally renowned independent company, reiterating thatequal treatment has been given to all related companies, whose shareholders shall have broad access to the referred analysis report. Article 31 – Referring to the issues not covered by these present Bylaws, the Company shall be ruled by legal and applicableprovisions.

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Exhibit 4(a).2

English Language Summary

Financing Agreement (the “Agreement”) through the opening of a credit line – Contrato de Financiamento Mediante Abertura deCrédito N.11.2.0814.1 Parties: Vivo S.A., as borrower, and Banco Nacional de Desenvolvimento Econômico e Social – BNDES

(“BNDES”), as financing party.

Intervening Party Telefônica Brasil S.A.

Date: October 14, 2011

Purpose: Opening of a credit line, through the lending of funds from the Workers Assistance Fund (Fundode Amparo ao Trabalho – FAT), Special Deposits Fund (FAT – Depósitos Especiais) and theSocial Participation Fund (Fundo de Participaçăo – PIS/PASEP), in addition to other sources, for(i) investments in research and development, expansion and improvement of telecommunicationsinfrastructure, (ii) acquisition of equipment and machinery required for the purposes listed in (i)above, and (iii) social projects to be carried out by Fundaçăo Telefônica (collectively,the “Project”).

Amount: The credit line is for a total aggregate amount of R$3,031,110,000, divided in five tranches: (i)sub-tranche “A”: R$1,360,455,000, (ii) sub-tranche “B” R$544,182,000, (iii) sub-tranche “C”R$858,770,000, (iv) sub-tranche “D” R$245,363,000 and (v) sub-tranche “E” R$22,340,000.

Payment: Principal. For sub-tranches “A,” “C,” “D” and “E” the amount of the credit line shall be paid in60 monthly installments, with the first payment due on August 15, 2014 and thereafter on the 15thday of each month until July 15, 2019. For sub-tranche “B,” the amount of the credit line shall bepaid in 60 monthly installments, with the first payment due on August 15, 2014 and thereafter onthe 15th day of each month until July 15, 2019.

Interest. For sub-tranche “A,” the interest on the principal will be of 2.38% per year and forsub-tranche “D” the interest on the principal will be of 3.08% per year, in each case above theLong-Term Interest Rate (Taxa de Juros de Longo Prazo – TJLP) released by the Central Bank ofBrazil (Banco Central do Brasil), plus one percent (1%) per year. The interest rates mentionedabove vary based on the TJLP. For sub-tranche “B,” the interest on the principal will be of 2.38% per year above the variableinterest rate readjusted quarterly on the 16th day of January, April, July and October, which willbe based on the average weighted cost of all the fees and expenses incurred by BNDES in raisingfunds in foreign currency, in the calendar quarter immediately prior to the adjustment of suchinterest rate, calculated over the outstanding balance with monetary correction to account forforeign exchange rates. For sub-tranche “C,” the interest on the principal will be of 1.48% per year above the Long-TermInterest Rate (Taxa de Juros de Longo Prazo – TJLP) released by the Central Bank of Brazil(Banco Central do Brasil). The interest rate varies based on the TJLP.


For sub-tranche “E,” the interest on the principal varies based on to the Long-Term Interest Rate

(Taxa de Juros de Longo Prazo – TJLP) released by the Central Bank of Brazil (Banco Central doBrasil).

Monetary Correction The portion of sub-tranche “B” not drawn by the borrower will be corrected, from August 15,2011, up to the date on which it will be drawn by the weighted average of the exchangecorrections over the amounts borrowed by BNDES in foreign currency, subject to certainconditions.

Guarantees: Surety. Telefônica Brasil S.A. has executed the agreement as Vivo S.A.’s guarantor and principalpayer of the amounts due under the Agreement, assuming joint and several liability for allobligations assumed by Vivo S.A.

Telefonica Brasil’sObligations:

Telefônica Brasil S.A. agrees to: (i) follow the standard covenants applicable to BNDESagreements (Disposiçơes Aplicáveis aos Contratos do BNDES); (ii) submit to BNDES’ priorconsent any matters or proposals concerning the encumbrance of any title or shares of Vivo, or thesale, acquisition, merger, consolidation, division of assets or any other act that could materiallychange Vivo’s current structure, or change the status of Telefonica Brazil S.A. as Vivo’scontrolling shareholder, except in cases where Telefonica S.A. remains as direct or indirectmajority shareholder of Vivo; (iii) not promote Vivo’s inclusion in corporate agreements, articlesof incorporation or organization, of instruments which result in: (a) restrictions on the growthcapacity of Vivo or its technological development, (b) restrict Vivo’s access to new markets, or(c) restrictions on the ability to pay the financial obligations related to BNDES transactions; (iv)not promote actions or measures which may cause losses or change the economic-financialbalance of Vivo; (v) adopt all measures necessary to ensure that the credit will be allocated asproposed in this agreement; (vi) contribute all resources necessary to the implementation ofVivo’s investment plan as presented to BNDES, (vii) immediately report to BNDES any act orfact that could adversely affect the accomplishment of the objectives set forth under theAgreement; (viii) exercise its controlling power on Vivo, directly or indirectly, to maintain theauthorization term signed with ANATEL, (ix) ensure, as controlling shareholder, compliance withall obligations set forth under the Agreement, (x) keep during the term of the Agreement, until itsfinal maturity date, the following financial ratios at the values below, to be verified each calendarsemester, in June and December, based on its consolidated financial statements as calculated byexternal auditors registered with the Securities and Exchange Commission of Brazil (Comissăo deValores Mobiliários – CVM): a. Capitalization Index (PL/AT): equal or higher than 0.35,b. Net Financial Debt / EBITDA: equal or lower than 2.50,d. Short-term Net Financial Debt /EBITDA: equal or lower than 0.20,c. EBITDA / Net Financial Charges: equal or higher than 3.00. In the event of noncompliance with any of the indices provided in (x) above, BNDES will beauthorized, in each assessment period, in its sole discretion, within 30 days after the presentationto BNDES of the report of verification of the financial ratios referred above, to cause either

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the acceleration payment of all amounts due under the Agreement or the blocking of funds to the

borrower amounting to 3 (three) times the value of the next installment of interest and principaldue under the Agreement for Assignment and Income Pledge entered into on August 9, 2007, asamended.

Material covenants: The borrower (i) commits to use all the credit lines in 33 months from the execution of theAgreement; (ii) has a duty to obtain environmental licenses for the project and adopt measures toavoid and correct damage to the environment, (iii) in case of reduce staffing due to the project hasa duty to offer training and/or assist with recruiting of workers , (iv) agrees to not create any newliens or obligations without BNDES’ authorization (except for judicial deposits and financingsless than 18 months);

Acceleration: Any breach of the Agreement by the borrower can result in all amounts due under the Agreementbecoming immediately due. Other material acceleration events are listed and include: (i) theborrower terminating workers without complying with the obligations to offer training andassistance in recruiting under the Agreement; (ii) the borrower including in any corporateagreement, bylaws or charter of Vivo or its controlling companies any provision restricting thepayment of financial obligations arising under the Agreement; (iii) noncompliance with certainprovisions of the Agreement by Telefônica Brasil S.A.

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Exhibit 4(b).1

Federative Republic of Brazil

National Telecommunications Agency

GRANT CONTRACT

Local Commuted Fixed Telephone Service

Telecomunicaçơes de Săo Paulo S.A.

CONTRACT PBOA/SPB No. 121/2011-ANATEL

GRANT CONTRACT OF FIXEDCOMMUTED TELEPHONE

SERVICE IN LOCAL MODALITY,THAT IS EXECUTED BETWEEN THE AGÊNCIA NACIONAL DE

TELECOMUNICAÇƠES (NATIONALTELECOMMUNICATIONS AGENCY)AND TELECOMUNICAÇƠES DE SÃO

PAULO S.A. (SÃO PAULO TELECOMMUNICATIONS) By the present deed, on one hand the Agência Nacional de Telecomunicaçơes, hereinafter called Anatel, entity belonging to theUNION and as per terms of Federal Law No. 9,472 of July 16, 1997, General Telecommunications Law – LGT, responsible forexercising Granting Powers, herein represented by its President RONALDO MOTA SARDENBERG, Brazilian, married, diplomat,CI No. 5601 MRE and CPF/MF (Registry of Private Individual at the Ministry of Finance) under No. 075.074.884-20, together withCounselor JOÃO BATISTA DE REZENDE, Brazilian, divorced, economist, CI No. 3.412.238-5 SSP-PR and CPF/MFNo. 472.648.709-44 and on the other hand, TELECOMUNICAÇƠES DE SÃO PAULO S. A. – TELESP, CNPJ/MF (NationalRegistry of Legal Entities at the Ministry of Finance) under No. 02.558.157/0001-62, by its President ANTONIO CARLOSVALENTE DA SILVA, Brazilian, married, engineer, CI No. 31.547-D CREA-RJ, CPF/MF No. 371.560.557-04, and by itsExecutive Officer of Institutional Relations and Regulation LEILA ABRAHAM LORIA, Brazilian, married, business administrator,CI No. 3.164.539-3, CPF/MF No. 375.862.707-91, hereinafter called Concessionaire, as per terms of art. 207, paragraph 1, of thereferred to General Law of Telecommunications, by this deed and in the best form of the law, celebrate the present GRANTCONTRACT, which will be ruled by the norms referred to below and by the following clauses: Chapter I – Object

Clause 1.1. The object of the present Contract is the concession of the Commuted Fixed Telephone Service – STFC, destinedfor the use of the public in general, provided in public regimen, in the Modality of Local Service, in the geographical area defined inclause 2.1, as per terms of the General Plan of Grants.

Sole Paragraph. It is included in the object of the present grant the Service of Commuted Fixed Telephone, provided in publicregimen, in bordering and limiting areas, in compliance with the regulation issued by Anatel, as per disposition contained in theGeneral Plan of Grants.

Clause 1.2. The Commuted Fixed Telephone Service is the telecommunications service that, by means of voice transmissionand other signals, destines for the communication between established fixed points, using telephone processes, according to applicableregulation.

Clause 1.3. After previous approval on the part of Anatel, the Concessionaire may implement and explore new services,utilities or commodities related with the provision of the service object of the present grant.

Sole Paragraph. Related with the object of the present grant should be considered those services, utilities or commodities that,upon the judgment of Anatel, are considered as inherent and complementary to the platform of the service now being granted, withoutthe characterization of


another service or modality of service or, further, added value service, complying with the dispositions of the regulation, particularlyterms of article 222 of the Federal Constitution of 1988.

Clause 1.4. The Concessionaire is entitled to the implementation, expansion and operation of telecommunication networksrequired for the execution of the service, as well as its industrial exploration, as per the regulation.

Clause 1.5. It cannot be separated from the services being granted the need to reach the goals of universalization and qualityforeseen in this Contract.

Clause 1.6. The Concessionaire undertakes to provide to its subscribers, directly or through third parties, free of charge,telephone books relative to all subscribers of all providers of Commuted Fixed Telephone Service, in its area of grant, as per theregulation.

Paragraph 1st. It will be considered as being executed the obligation foreseen in the caput by means of the free of chargerendering of the service of information of access code of the subscriber, as per the terms of the regulation.

Paragraph 2nd. At no loss to terms of the previous paragraph, it is mandatory to supply the Mandatory Telephone Book as wellas Free of Charge – LTOG duly printed, when requested by the subscriber.

Clause 1.7. The Concessionaire must make sure to all those who request and to the users of the service granted the performanceof the required installations to the provision of the service, as per regulation.

Clause 1.8. The Concessionaire must keep free of charge access to emergency public services established in the regulationirrespective of the origin of the call of the Commuted Fixed Telephone Service. Chapter II – Area of Service Provision

Clause 2.1. The geographic area of the provision of the service object of the present grant is that covered by the territory(ies)included in the Sector of number 31, included in Attachment 2 of the General Plan of Grants, referring to Concession AgreementsPBOA/SPB No. 121/2006; 122/2006 and 124/2006. Chapter III – Time Period and Conditions for Contract Alteration

Clause 3.1. The time period of the present grant, duly remunerated, will end on December 31, 2025.

Clause 3.2. The present Contract may be changed on June 30, 2011, December 31, 2015 and December 31, 2020 in order toestablish new conditions, new targets for universalization and quality, considering the conditions effective at the time, also defining, inthe case of the universalization targets, the complementary resources, as per terms of art. 81 of Law No. 9,472 of 1997.

I – The Public Consultation with the modification proposals expected for December 31, 2015 will be published until March 31,2014.

Paragraph 1st. Anatel, 24 (twenty four) months before the changes foreseen in this clause, will have a public consultationpublished with its proposal for new conditions and new targets towards universalization and quality of the service, the latter submittedto the approval, by means of a Decree, of the President of the Republic, as per terms of art. 18, paragraph III, of Law No. 9,472 of1997.

Paragraph 2nd. The changes mentioned in the present clause do not exclude the possibility of revision, at any time, of thepresent Contract as a result of the supervenience of relevant fact, at Anatel’s criterion.

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Paragraph 3rd. It is up to Anatel to assure the protection of the economic situation of the Concessionaire, as per terms ofChapter XIII of this Contract.

Clause 3.3. The Concessionaire must pay, every biennium, during the period of the grant, a burden corresponding to 2% (twoper cent) of its revenue, during the year before that of the payment, of the Commuted Fixed Telephone Service, net of incident taxesand social contributions.

Paragraph 1st. Costs arising from the creation of new universalization obligations under the General Plan of UniversalizationGoals approved by Presidential Decree may be considered when verifying if the obligations forseen in the caput were executed.

Paragraph 2nd. The calculation of the percentage referred to in the caput of this clause will take into consideration the netincome from service plans, basic and alternative, object of this concession, being also included revenues from interconnection, PUCand other additional services and operating revenues, as defined by ANATEL.

Paragraph 3rd. The calculation of the percentage referred to in the caput of this clause will always be corresponding to the netincome of the deductions of incident taxes and contributions, verified between January and December of the previous year andobtained from the financial statements prepared as per company’s legislation and basic accounting principles, approved by theadministration of the Concessionaire and audited by independent auditors, and the payment will be due on April 30 of the subsequentyear to that of the verification of the burden.

Paragraph 4rd. The first installment of the burden will be due on April 30, 2007, calculated after considering the net incomeverified from January 1st to December 31st, 2006 and the subsequent installments will be due at each 24 (twenty four) months, havingas a calculation basis the income of the previous year.

Paragraph 5th. The delay in payment the burden foreseen in the clause will imply in the charge of an interest on arrears fine inthe amount of 0.33% per day, up to the limit of 10% (ten per cent), added by the referential tax SELIC for Federal titles, to be appliedon the value of the debt considering every day the payment is delayed. Chapter IV – Manner, Form and Conditions of Service Provision

Clause 4.1. The use of radiofrequencies in the provision of the service object of this grant will be authorized by Anatel, dulyremunerated and with no exclusivity, except if there is a disposition to the contrary in the legislation in agreement with terms ofarticles 83 and 163 of Law No. 9,472 of 1997.

Paragraph 1st. The Concessionaire will be entitled to prorogation, duly remunerated and with no exclusivity, of theauthorization of use of radiofrequency used on the date of signature of this Contract and that may be necessary to the continuity of theprovision of the service.

Paragraph 2nd. The amount to be paid by the prorogation mentioned in the previous paragraph will not imply in a change inthe value of the burden referred to in clause 3.3 of the present Contract.

Paragraph 3rd. The right of utilization of radiofrequencies referred to in this clause does not exclude the prerogative granted toAnatel by art. 161 of Law No. 9,472 of 1997.

Paragraph 4th. The new radiofrequencies that come to be required by the Concessionaire will have their use authorized, dulyremunerated, with the compliance with the procedures defined by Anatel for similar authorities.

Paragraph 5th. The time period of the authorizations for the use of the radiofrequencies object of the present clause will endwith the present grant.

Paragraph 6th. The return to Anatel of radiofrequencies that are not required to the continuity of the provision of services willnot imply in the modification of the value of the burden fixed in clause 3.3.

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Clause 4.2. The Concessionaire undertakes to render the service object of the grant so as to fully comply with theburdens of universalization and continuity inherent with the public regimen, which is fully applicable to it, in compliance with thecriteria, formulas and parameters defined in the present Contract.

Sole Paragraph. The non fulfillment with the obligations related to the universalization and continuity will imply in theapplication of the sanctions foreseen in the present Contract, will permit the establishment of interference by Anatel and, depending onthe case and severity or when the establishment of interference is not convenient, just, unfairly beneficial to the Concessionaire oruncalled for, it will imply in the extinction of the grant, as per terms of Clause 27.4.

Clause 4.3. The Concessionaire will explore the service object of the grant at its own account and risk, within theregimen of full and fair competition as established by Law No. 9,472 of 1997 and in the General Plan of Grants, being remunerated forthe tariffs charged and for eventual complementary or accessory income that it makes as per terms of the present Contract.

Sole Paragraph. The Concessionaire will not be entitled to any kind of exclusivity; neither will it be able to claim anyrights as to the admission of new providers of the same service, in the public or private regimen.

Clause 4.4. In the course of all the term of effectiveness of the grant, the Concessionaire undertakes to keep thecommitments of quality, coverage and offer of the service included in the present Contract, irrespective of the competitiveenvironment existing in the geographic area of exploration of the service.

Clause 4.5. The Concessionaire commits itself to keeping and preserving all the assets, equipment and installationsemployed in the service in perfect operating conditions, maintaining and repairing its units and promoting, in a timely fashion, thereplacements required as a result of wear or technological updating, or further, promoting the repairs or modernization necessary tothe good execution of the service and to the preservation of the adequate service, as determined in the present Contract. Chapter V – Rules for Implementation, Expansion, Alteration and Modernization of the Service

Clause 5.1. Basic assumptions of the present grant are the expansion and the modernization of the service granted,complying with the goals and the criteria of the present Contract.

Sole Paragraph. Anatel may determine the alteration of implementation, expansion and modernization goals of theservice, abiding by the right of the Concessionaire not to be compelled to bear non recoverable additional costs with the incomeresulting from the compliance with these goals by means of the efficient exploration of the service.

Clause 5.2. The alteration in the conditions of the provision of the service can only take place after determination ofAnatel or as per its previous and express approval.

Clause 5.3. The modernization of the service will be sought by means of the constant introduction of able equipment,processes and means to render to the user a service compatible with the occasion, in face of the technologies available in the market. Chapter VI – Criteria and Indicators of Service Quality

Clause 6.1. The adequate quality of the service rendered by the Concessionaire is an assumption of the present grant,considering as such the service that meets the conditions of regularity, efficiency, safety, modernity, generality, courtesy and low priceof the fares.

Paragraph 1st. The regularity will be characterized by the continued rendering of the service with strict compliance withthe terms of the norms established by Anatel.

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Paragraph 2nd. The efficiency will be characterized by the attainment and preservation of the parameters included in thepresent Contract and by the meeting to the user of the service within the time limits in this Contract.

Paragraph 3rd. The safety in the rendering of the service will be characterized by the confidentiality of the data relativeto the use of the service by the users, as well as by the full preservation of the confidentiality of the information transmitted in thescope of their rendering, complying with the terms of Chapter XV.

Paragraph 4th. The update will be characterized by the modernity of the equipment, the installations and the techniquesin the rendering of the service, with the absorption of the technological advances derived in the course of the grant time period that,conclusively, bring benefits to the users, complying with the dispositions of the present Contract.

Paragraph 5th. The generality will be characterized with the non discriminatory rendering of all the users of the servicegranted, as well as the compliance with the duties to inform and meet promptly and politely to all that, users or not, request from theConcessionaire, information, measures or any type of postulation, as per terms of dispositions in the present Contract.

Paragraph 6th. The courtesy will be characterized by the respectful and immediate servicing to all users of the servicegranted as well as for the compliance with the obligation to inform and service promptly and politely all that, users or not, requestfrom the Concessionaire, information, measures or any type of arrangement, as per terms of the present Contract.

Paragraph 7th. The principle of low cost in the fares will be characterized by the effort on the part of the Concessionairein practicing tariffs below those established by Anatel.

Clause 6.2. The Concessionaire must comply with the parameters and indicators of the General Plan of Quality Goals.

Sole Paragraph. The Concessionaire must disclose, up to April 30 of each, a statement reporting the fulfillment of theGeneral Plan of Quality Goals and the General Plan of Universalization Goals as per the terms of the regulation.

Clause 6.3. In addition to the follow-up and control of the quality indicators, Anatel will periodically evaluate the levelof satisfaction of the users with the service granted herein, being able to disclose the results of the Concessionaire, covering, at least,the following aspects:

I – meeting the user, especially as it regards easiness of access, quickness, cordiality, speed and effectiveness inresponding to requests and complaints;

II – tariffs and prices charged, as well as discounts offered;

III – quality of the service rendered, and

IV – adequacy of the quality of the services offered to the needs of the users. Chapter VII – Continuity

Clause 7.1. The continuity of the service granted herein, essential element to the regimen of its provision, will becharacterized by the non-interruption of the service, abiding by the suspension out of default of the user as per terms of disposition ofclause 9.3 and article 3rd, item VI, of Law No. 9,472 of 1997.

Sole Paragraph. It will not be considered a violation of the continuity the circumstantial interruption of the service as aresult of an emergency situation, motivated by reasons of technical order or in cases of safety in the installations, by means ofcommunication to the users affected and, in relevant cases, by means of circumstantiated notice to Anatel, being assured, in the formestablished by the regulation and the Consumer Protection Code, the right of the user to obtain a proportional credit relating to theperiod when the service was unavailable and any refund for amounts unduly paid.

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Clause 7.2. The Concessionaire may not, under any hypothesis, interrupt the rendering of the service, pledging the nonperformance of any obligation on the part of Anatel or the Union, not being called upon by the Concessionaire except for contractualnon performance. Chapter VIII – Universalization Goals

Clause 8.1. Universalization is an essential feature of the service rendering regimen being granted herein and will becharacterized by uniform and non discriminatory meeting to all the users and by compliance with the goals included in the GeneralPlan of Universalization Goals, attached to this Contract, approved by the Executive Power, as per article 18, paragraph III and article80 of Law No. 9,472 of 1997.

Clause 8.2. The implementation costs of the universalization goals included in the General Plan of UniversalizationGoals, attached to this Contract, will be supported with resources of the Concessionaire.

Clause 8.3. The Concessionaire, in addition to provisos of clause 8.2, assumes the obligation of implementinguniversalization goals which were not foreseen in the present Contract but which may come to be required by Anatel, complying withthe following:

I – Anatel will consult with the Concessionary on the total costs for the implementation of the intended additional goals,and on the parcel of these that may not be amortized by the exploration income, being covered by specific payment, specificallyindicating the objectives to be reached, the technologies selected, as well as the location and time period of implementation;

II – if, after the time period established in the consultation, there is no manifestation on the part of the Concessionaire,Anatel will take the necessary steps in order to establish the burden and costs of implementation of these goals as well as to estimatethe corresponding generation of income;

III – if the consultation is responded by the Concessionaire, Anatel will evaluate if the costs and the estimates of incomepresented are adequate and compatible, taking into account the technologies available, the price of the raw-materials and labor, thegeographical and social economic characteristics of the demand to be met, the prices practiced in the market place, in addition to othervariable that it considers as relevant;

IV – if it does not consider the costs and/or the estimate of income proposed relevant, Anatel may, reasonably, charge theimplementation of the goals to the Concessionaire, establishing the value of the indemnity, as per terms of Chapter XXXIII, and

V – Being the values of indemnity adequate and compatible in Anatel’s opinion, the latter will confirm to theConcessionaire the inclusion of the implementation of these specific goals, as per terms of the indemnity proposal forwarded by theConcessionaire.

Paragraph 1st. If, after the procedure foreseen in this clause, Anatel considers inconvenient or unfeasible theimplementation of the specific universalization goal by means of the Concessionaire, it will hire the responsibility from another, doingit by means of specific grants and delimiting the service, complying with the economic parameters obtained in the procedure foreseenin this clause.

Paragraph 2nd. At Anatel’s criterion, the procedure foreseen in this clause can also be used for the purposes ofestablishment of values to be returned, at the time of anticipation of the goals foreseen in the present Contract.

Clause 8.4. The adoption of the procedures foreseen in the previous clause is Anatel’s option, which may adopt it at itscriterion and within the best public interest, being the Concessionaire unable to having the right of preference in the implementation ofthese goals. Chapter IX – Rules on the Suspension of the Service out of Non Performance and At the Request of the Subscriber

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Clause 9.1. The subscriber of the service object of the present grant may request at any time the suspension of service, asper terms of the regulation.

Clause 9.2. The subscriber, who is late with the Concessionaire and requests the suspension of the service, will haveassured to him the reestablishment of service and the maintenance of the code of access, as per regulation.

Clause 9.3. The Concessionaire may only proceed to the suspension of service for subscriber does not honor thepayment of debt directly as a result of the use of the service granted, complying with the regulation and following the followingcriteria that aim at preserving the rights of the subscribers:

I – a period of time must be assured for the subscriber to question the debts entered against him;

II – the default subscriber will be entitled to preserving his access code, as per terms of the regulation, and

III – the default subscriber must not be encumbered with the payment of the monthly subscription tariff, relative to theperiod of suspension of the provision of the STFC.

Paragraph 1st. The Concessionaire must inform the suspension to the subscriber with the advance foreseen in theregulation.

Paragraph 2nd. The non payment of debts which are not related directly with the service object of this grant as perparagraphs 1st, 2nd and 3rd of clause 11.6 will not cause the suspension of services dealt with in the present clause.

Clause 9.4. The Concessionaire will further assure to the subscriber the right to have temporarily or permanentlyblocked the access to services, commodities or utilities offered, as well as added value services, whenever requested by him, as per theterms of the regulation.

Clause 9.5. In case of default on the part of the subscriber in referring exclusively to the payment of the servicesrendered by the provider of Commuted Fixed Telephone Service other than that being granted herein that is the object of joint billingby the Concessionaire, the suspension should abide by the specific procedure object of regulation by Anatel. Chapter X – Numbering Plan

Clause 10.1. The Concessionaire commits itself to abide by the Numbering Regulation of the Commuted FixedTelephone Service, assuring to the subscriber of the service the portability of access codes as per the terms of the regulation.

Paragraph 1st. The Concessionaire will shoulder the costs resulting from the regulation referred to in the caput of thisclause.

Paragraph 2nd. The costs referring to the resources necessary to allow the implementation and the operation of theportability of access codes should be fully assumed by the Concessionaire when this has to do with its own network.

Paragraph 3rd. The costs relative to the common resources required to the implementation and operation of theportability of access codes will be assumed by the service providers, as per the terms of the regulation.

Paragraph 4th. The costs relative to the administration of the process of consignation and occupation of NumberingResources of the Concessionaire described in the Regulation of Numbering of Commuted Fixed Telephone Service will be under itsresponsibility as per the terms of the rules of the administration of the Numbering Resources defined by Anatel. Chapter XI – Tariff Regimen and Billing from the Users

Clause 11.1. The Concessionaire must offer to all users, mandatorily, the Basic Plan of Local Service, AttachmentNo. 03, full part of this Contract.

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Sole Paragraph. The Basic Plan of Local Service will be unique for the entire area of the PGO sector referred to inclause 2.1 and must contain, as per terms of what has been established by Anatel, maximum values for each item of the tariff structuredefined for the rendering of the Commuted Fixed Telephone Service, values which will be reviewed and readjusted, complying withapplicable norms.

Clause 11.2. The Concessionaire may offer to its users Alternative Plans of Local Services with characteristics differentfrom those included in the Basic Plan of Local Service.

Paragraph 1st. The transfer between the different Plans of Local Service offered by the Concessionaire will be assuredto the user, as per terms of the regulation.

Paragraph 2nd. The structure of tariffs, values and other characteristics associated with the Alternative Plans of LocalService are of free proposition on the part of the Concessionaire, complying with terms of clause 11.1.

Paragraph 3rd. The Concessionaire is obliged to offering to the user its Alternative Plans of Local Service, in a way thatis non discriminatory and if complied with the terms defined by it.

Paragraph 4th. The Alternative Plans of Local Service must be submitted to Anatel’s homologation.

Paragraph 5th. After a period of 15 (fifteen) days, counting from the receipt of the proposal, with no manifestation onthe part of Anatel on the request, the Alternative Plans of Local Service may be commercialized, remaining the same subject toAnatel’s homologation.

Paragraph 6th. Anatel, in face of the needs of services for the society, may establish specific alternative plans to beimplemented by the Concessionaires, as per the terms of the regulation.

Clause 11.3. The Concessionaire may practice discounts at the tariffs of the Plans of Local Service as long as this isdone equally and without discrimination, being the subjective reduction of values prohibited and abiding by the principle of faircompetition.

Sole Paragraph. The Concessionaire, abiding by the terms of the regulation, undertakes to disclose, in advance, to itsusers the discounts in tariffs, providing them with wide and previous disclosure, communicating its decision to Anatel up to 7 (seven)days after the beginning of the effectiveness of tariff reduction.

Clause 11.4. The Concessionaire undertakes to provide wide publicity to the tariffs practiced by the service object of thepresent grant, as per regulated by Anatel.

Clause 11.5. At the time of the implementation of new services, utilities or commodities related to the service, object ofthe grant, the Concessionaire will submit previously to the service the bill for the approval of Anatel, without which no tariff or pricemay be charged.

Clause 11.6. The documents relative to charges issued by the Concessionaire must be presented in detail, clearly,explained, transparent and must list the type and the amount of each service rendered to the subscriber as per the regulation.

Paragraph 1st. The Concessionaire, as per the terms of this Contract, must enter in the billing document, clearly andexplicitly, the values due by the subscriber to other telecommunication service providers of collective interest, assured fair and nondiscriminatory conditions.

Paragraph 2nd . The Concessionaire may enter in the billing document, as long as it is clear and explicit, the values dueby the subscriber as a result of other services, commodities or utilities related with the service granted.

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Paragraph 3rd. The inclusion in the billing document of values relative to the rendering of services of added value orany other amounts due not arising exclusively from the rendering of STFC is not allowed without the express approval of thesubscriber.

Paragraph 4th. The Concessionaire undertakes to providing, through the request of the subscriber, on its electronicwebsite on the internet, and by request, in print, periodically and with frequency equal or above one month, in all service plans,without charge, a billing document with a minimum level of detail which allows identifying for each call the number of the telephonecalled, the date and the time of its performance, the duration and its respective value, as per terms of the regulation.

Paragraph 5th. The Concessionaire is not allowed to charge for the supply to which the previous paragraph refers,except in the cases expressly foreseen in the regulation.

Clause 11.7. The Concessionaire will charge from the other telecommunication service providers tariffs for the use ofnetworks, as per the regulation.

Clause 11.8. The Concessionaire will offer a discount to the subscriber who is affected by eventual discontinuities in theprovision of the service granted, as long as they are not motivated by him, which will be proportional to the period in which theinterruption is verified, as per the regulation. Chapter XII – Tariff Readjustment

Clause 12.1. At each interval not below 12 (twelve) months, out of Anatel’s or the Concessionaire’s initiative, as long asthe rules of the effective economic legislation are complied with, the tariffs included in the Basic Plan of Local Service – AttachmentNo. 03, may be readjusted through the application of the following formulas: (Asst + nto x MINt) < (1 – k ) x Ft x (Assto + nto x MINto) Being:

Ass Rest ≤ Ass Resto x 1.05 x Ft

AssN Rest ≤ AssN Resto x 1.05 x Ft

AssTronco t ≤ AssTronco to x 1.05 x Ft

AssAicet ≤ AssAiceto x 1.05 x FAss Re st ≤ AssN Rest< AssTronco t

AssAicet ≤ 0.60 x AssN Rest

MINt ≤ MINto x 1.05 x Ft And also,

HAB Re st ≤ HAB Re s10 x Ft x (1 – k )HABN Re st ≤ HABN Re s10 x Ft x (1 – k )HABTronco t ≤ HABTronco10 x Ft x (1 – k )

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HABAicet ≤ HABRest

VTPt ≤ VTPto x Ft x (1 – k ) Where: t = date proposed for the readjustment. to = date of the last readjustment. MIN = Value of the minute of utilization of the local service, net of incident duties. PResto = percentage of residential subscribers of the Basic Plan of Local Service verified in the total number of subscribers of theConcessionaire, since the last readjustment. PNResto = percentage of non residential subscribers of the Basic Plan of the Local Service verified in the total number of subscribersof the Concessionaire, since the last readjustment. PTronco10 = percentage of tronco subscribers of the Basic Plan of the Local Service verified in the total number of subscribers of theConcessionaire, since the last readjustment. PAice10 = percentage of special subscribers of the Basic Plan of the Local Service verified in the total number of subscribers of theConcessionaire, since the last readjustment. PCnto – percentage of subscribers of Class n of the Basic Plan of the Local Service verified in the total number of subscribers of theConcessionaire, since the last readjustment. Ass – value of average subscription.

AssRes = value of Residential Subscription, net of incident duties.

AssNRes = value of Non Residential Subscription, net of incident duties.

AssTronco = value of Tronco Subscription, net of incident duties.

AssAice = value of the Special Subscription, net of incident duties.

AssCn = value of Class n Subscription, net of incident duties.

HABRes = value of the enabling fee of residential terminal, net of incident duties.

HABNRes = value of the enabling fee of non residential terminal, net of incident duties.

HABTronco = value of the enabling fee of tronco terminal, net of incident duties.

HABAice = value of the enabling fee of special terminal, net of incident duties.

VTP = value of the tariff unit for the calls originated in collective accesses.

nto – average number of minutes billed by subscription of the Basic Plan of Local Service, including the total minutesequivalent to the calls performed in reduced period of time, considered as the interval of time between the last readjustment and theproposed one.

Ft = ISTt

ISTto

Where:

IST – Index of updating of tariffs calculated as of indices of existing prices, as per terms of the regulation.

k = X + FA = transfer factor.

FA = damping factor.

10Source: TELEFONICA BRASIL S.A., 20-F, April 20, 2012 Powered by Morningstar® Document Research℠

Paragraph 1st. For the period of January 1st, 2006 to December 31st, 2007, the factor of transference X will beestablished by Anatel based on a simplified methodology that includes, among others, the physical and economical data relative to theproducts monthly subscription and minute of utilization, as well as the factors materials, personnel, services and depreciation.

Paragraph 2nd. As of January 1st, 2008, the factor of transference X will be established by Anatel based on methodologyconsidering the optimization of the costs of service rendering, as per terms of the regulation.

Paragraph 3rd. In case the value resulting from the calculation of the factor of transference X is negative, it will beadopted for the same, the value 0 (zero).

Paragraph 4th. The value of the factor of the amortization is:

I – 0 (zero) for variations of the IST, in the period under consideration, up to 10% (ten per cent);

II – 0.01 (zero dot zero one), for variations of the IST, in the period under consideration, above 10% (ten per cent) andup to 20% (twenty per cent) and

III – 0.02 (zero dot zero two), for variations of the IST, in the period under consideration, above 20% (twenty per cent).

Paragraph 5th. If the readjustment period involves values that are different from the factor of transference, thetransference factor will be applied according to the following formula:

Where:

X1 = transfer factor for year 1


N1 = number of months for year 1


Paragraph 6th. If the date of the last readjustment is previous to the date of effectiveness of this Contract, the

readjustment will be applied progressively abiding by the periods involved and the respective formulas and effective criteria.

Paragraph 7th. New criteria of tariff follow-up including values of the factors of transference, may be established byAnatel at the time of the amendment of this Contract, as per terms of clause 3.2., considering the conditions effective at the time.

Paragraph 8th. The freedom to establish tariffs, when applicable, will be subject to a Normative Act by Anatel.

Clause 12.2. The follow-up of the Tariffs of Use of the Local Network will abide by the terms of clause 25.2 and theregulation.

Sole Paragraph. New criteria of follow-up of the Tariffs of Use of the Local Network may be established by Anatel, atthe time of amendment of this Contract, as per terms foreseen in clause 3.2 and considering the conditions effective at the time.

Clause 12.3. The follow-up of the tariffs of the STFC in the local modality, in the calls involving othertelecommunication services, one must abide by the specific regulation. Chapter XIII – Protection of the Economic Situation of the Concessionaire and Revision of Tariffs

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Clause 13.1. It is a basic assumption of the present Contract the preservation, in regimen of wide competition, of the fairequivalence between the rendering of the service and its remuneration, being the parties forbidden to unmotivated enrichment at theexpenses of the other party or the users of the service, as per terms of the dispositions in this Chapter.

Paragraph 1st. The Concessionaire will not be obligated to shoulder losses as a result of the present Contract, except ifthese result from some of the following factors:

I – its negligence, ineptitude or omission in the exploration of the service;

II – normal risks to the business activity;

III – inefficient management of its business, including the one characterized by the payment of operational andadministrative costs incompatible with the parameters verified in the market place, or

IV – its inability to take advantage of the existing opportunities in the market place, including regarding the expansion,enlargement and development of the provision of the service object of the grant.

Paragraph 2nd. It is forbidden the unmotivated enrichment of the Concessionaire as a result of:

I – appropriation of economic gains that do not come directly from its business efficiency, especially when they resultfrom the issuance of new rules on the service, and

II – the transfer of income to third parties, in detriment of the application of the principle of the tariff low-cost, as perestablished in paragraph 7th of clause 6.1.

Paragraph 3rd. The Concessionaire will be entitled to the recomposition of its initial situation of encumbrances andretributions when circumstances of force majeure or calamities affect significantly the exploration of the service, always abiding, as aparameter, by the reflection of these situations on the service providers in the private regimen.

Paragraph 4th. In the evaluation of the appropriateness of the recomposition dealt with in the previous paragraph will beconsidered, among other factors, the existence of coverage of the motivating event of the change in the initial economic situation bythe Insurance Plan foreseen in clause 24.1.

Clause 13.2. The re-establishment of the economic situation of the Contract will be proper when it is proven the nonoccurrence of the factors indicated in paragraph 1st of the previous clause, which will take place preferentially through the revision oftariffs or by any other mechanism that, at Anatel’s criterion, is considered able to neutralize the situation verified.

Paragraph 1st. The revision of the tariffs will keep away any other neutralization mechanism of the unmotivatedenrichment of the parties, making the event to which it referred overcome.

Paragraph 2nd. The measure adopted to neutralize a distortion will be unique, complete and final with reference to theevent that originated it.

Clause 13.3. Irrespectively of terms of clause 13.1, there must be a revision of the tariffs included in the Basic Plan ofthe Local Service in favor of the Concessionaire or the users, as per terms of article 108 of Law No. 9,472 of 1997, when one of thefollowing specific situations is verified:

I – unilateral modification of this Contract imposed by Anatel, which implies in an expressive variation of costs or ofincomes, for more or for less, so that the increase or the reduction of tariffs is imposed by the need to avoid the unmotivatedenrichment of any one of the parties;

II – change in the tax order subsequent to the signature of this Contract, which implies in increase or reduction ofpotential profitability of the Concessionaire;

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III – supervening occurrences, resulting from the fact of the principle or fact of the Administration that result, as a proof,in change in the costs of the Concessionaire:

IV – legislative change of specific character that has a direct impact on the incomes of the Concessionaire so as to affectthe continuity or the quality of the service rendered, or

V – legislative alteration that results in benefit to the Concessionaire, including the one that grants or suppressesexemption, reduction, discount or any other tax or tariff privilege, as per foreseen in paragraph 3rd of article 108 of Law No. 9,472 of1997.

Paragraph 1st. The loss or the reduction of gains of the Concessionaire resulting from the free exploration of the servicein competitive conditions or the inefficient management of its business will not imply in the revision of the tariffs.

Paragraph 2nd. The hypothesis of revision foreseen in paragraph II of the caput of this clause will not be applicablewhen the alteration in the tributary order implies in the creation, suppression, increase or reduction of incident taxes on the income orthe profit of the Concessionaire, such as the Income Tax, that do not imply in administrative or operational encumbrances.

Paragraph 3rd. There will be no revision of tariffs in the hypotheses foreseen in this clause when the events thatmotivated the revision are already covered by the Insurance Plan foreseen in clause 24.1.

Paragraph 4th. The contributions of the Concessionaire to the Fund of Universalization of the TelecommunicationsServices and to the Fund for the Technological Development of Telecommunications will not motivate a revision of the tariffs.

Clause 13.4. The revision of the tariffs will not be applicable when it is characterized that the impacts that motivate therequest on the part of the Concessionaire can be neutralized with the efficient exploration of the service, by the expansion of themarket or by the generation of alternative or complementary incomes associated to the object of the present Contract, abiding by thecompetitive conditions verified at the moment.

Sole Paragraph. The decrease of the income resulting from the discounts or reduction of tariffs will not motivate therevision of same.

Clause 13.5. The procedure of tariff revision may be started upon the request of the Concessionaire or by determinationof Anatel.

Paragraph 1st. When the procedure of tariff revision is started by the Concessionaire, the following requirements mustbe complied with:

I – be followed by a technical report of expert report that shows in detail the impact of the occurrence on the formationof the tariffs or the estimate of incomes of the Concessionaire:

II – be accompanied by all the documents necessary to the statement of the appropriateness of the request;

III – the Concessionaire must indicate its intention to revise the tariffs, informing the impacts and the eventualalternatives of tariff balancing, and

IV – all the costs with diligences and studies necessary to the full instruction of the request will be at the expense of theConcessionaire.

Paragraph 2nd. The procedure of revision of the tariffs started by Anatel must be the object of communication to theConcessionaire consignating a time period for its manifestation, accompanied by the copy of the reports and studies performed tocharacterize the situation that motivated the revision.

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Paragraph 3rd. The procedure of tariff revision will be concluded in a time period not above 120 (one hundred andtwenty) days, except in the hypothesis when it is necessary the prorogation of the same for complementation of the instruction.

Paragraph 4th. The request must be approved by Anatel, and the Concessionaire must arrange for the wide disclosure ofthe new maximum values of the reviewed tariffs, as per the terms of the present Contract. Chapter XIV – Alternative, Complementary and Accessory Revenues

Clause 14.1. The Concessionaire may obtain other alternative sources of income as long as this does not imply in notcomplying with the dispositions included in the Regulation of Telecommunications Services and the other norms issued by Anatel.

Paragraph 1st. Abiding by the terms of the regulation and the Consumer Protection Code, the Concessionaire, its allied,controlled or controlling companies cannot subject the offer of the service herein granted to the combined service to any other service.

Paragraph 2nd. The offer of the service granted hereby in conjunction with other services must comply with applicableregulation and the Consumer Protection Code.

Clause 14.2. Anatel may determine that the Concessionaire offer to the users, services, commodities or utilitiescorrelated to the object of the grant, and in this case the parties must adjust the unit prices of these services, abiding by the parametersof the market and the right to fair remuneration. Chapter XV – Rights and Guarantees of the Users and Other Providers

Clause 15.1. When the rules and parameters included in this Contract are respected, the users of the service object of thepresent grant have the right to the following:

I – the access to the service and its fruition within the standards of quality, regularity and efficiency foreseen in thepresent Contract, its attachments and effective norms;

II – the possibility of requesting the suspension or the interruption of the service rendered by the Concessionaire;

III – the non discriminatory treatment as to the conditions of access and fruition of the service;

IV – the achievement of adequate information as to the conditions of service rendering, tariffs and prices practices;

V – the unbreakability and the secret of its communication, abiding by the hypotheses and constitutional and legalconditions of breach of telecommunications confidentiality;

VI – obtain, free of charge, through a request forwarded to the service of care to users kept by the Concessionaire, thenon disclosure of its access code;

VII – the non suspension of the service without its request, except for the hypothesis of debt directly resulting from itsuse or as a result of non compliance with the duties included in art. 4th of Law No. 9,472 of 1997;

VIII – the previous knowledge of all and any alteration in the conditions of service rendering that influence it directly orindirectly;

IX – the privacy in the billing documents and in the use of its personal data by the Concessionaire;

X – the efficient and ready response to its complaints by the Concessionaire;

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XI – the forwarding of complaints or representations against the Concessionaire at Anatel and the organisms of defenseof the consumer;

XII – the reparation for the damages caused by the violation of its rights;

XIII – see that the terms of the service agreement by which the service has been contracted are followed;

XIV – choose freely the provider of telephone services of national and international long distance;

XV – have its right of portability of access codes respected, abiding by the dispositions of the regulation;

XVI – not to be obliged to consume services or acquire goods or equipment that are not in his interest, and not to becompelled to subject himself to the condition for the receipt of the service object of the present grant, as per terms of the regulationand the Consumer Protection Code;

XVII – the substitution of his access code as per terms of the regulation;

XVIII – obtain, previously to billing, information on the re-inclusion of debts argued at the time of complaint consideredgroundless, and

XIX – the billing of services outside regulamentary periods must occur in a separate invoice and through previousnegotiation with the user.

Paragraph 1st. The Concessionaire will respect the duty to zeal strictly for the confidentiality inherent to the telephoneservice and for the confidentiality as to the data and information, employing means and technology that assure this right of the users.

Paragraph 2nd. The Concessionaire will make available the technological resources necessary to the suspension oftelecommunications confidentiality determined by judicial authority, as per regulation.

Paragraph 3rd. The Concessionaire must, with regard to its subscribers, fulfill, in addition to the legal, contractual andregulatory dispositions, the other norms of consumers’ protection, especially Law No. 8,078 of September 11, 1990 and the DecreeNo. 6,523 of July 31, 2008.

Clause 15.2. To the other telecommunication service providers will be assured, in addition to the rights referred to in theprevious clause, the following rights:

I – the interconnection to the network of the Concessionaire in non discriminatory economic and operational conditionsunder technically adequate conditions and at isonomic and fair prices that meet strictly the basic needs of the service rendered, abidingby the regulation issued by Anatel;

II – to receive the service requested from the Concessionaire without any type of discrimination, for the prices of themarket or for negotiated prices by the parties and with the reductions that were applicable as a result of the costs avoided including asa result of the large scale consumption, abiding by the regulation,

III – obtain all the information that is necessary to the rendering of the service operated by them, including those relativeto billing, except for the right of the Concessionaire to the preservation of its data recovered by corporate confidentiality, as well as therights of third parties, and

IV – the access to telecommunication networks of the Concessionaire in nondiscriminatory and equal conditions andcoherent with its commercial practices, as set forth under the General Plan of Competition to be issued by Anatel.

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Paragraph 1st. The conflicts between the Concessionaire and other providers will be settled administratively by Anatel,as per the terms of the regulation.

Paragraph 2nd. Anatel may, cautiously, establish the conditions necessary to the surpassing of the conflict, including thedefinition of values, time limits of fulfillment and any other elements essential to the effectives of the cautionary decision.

Paragraph 3rd. Anatel will follow permanently the relationship between the providers that make use of the service nowbeing granted and the Concessionaire, so as to restrain conducts that may imply in unfair loss to any one of the parties or that imply inviolation to the economic order and to the free competition, communicating, in these hypotheses, such conducts to the AdministrativeCouncil of Economic Defense – CADE, after the exercise of its competence, as per disposition of art. 19, item XIX, of Law No. 9,472of 1997.

Clause 15.3. By fulfilling the regulation, it will be assured the right of any user to render and have fruition of theservices of added value, which must take place in technically adequate conditions and at isonomic and fair prices, being guarded to theConcessionaire the establishment of any hindrance or restriction to the fruition of the service herein granted.

Sole Paragraph. It is understood as added value service any activity that adds to the service object of this grant, withoutgetting mixed up with it, new utilities related to the access, storage, presentation, movement or recovery of information. Chapter XVI – Rights, Guarantees and Obligations of the Concessionaire

Clause 16.1. In addition to the other obligations resulting from this Contract and inherent to the provision of the service,the Concessionaire will be responsible for:

I – rendering the service with full compliance with dispositions of the present Contract, fully subjecting itself to theregulation issued by Anatel;

II – implementing all the equipment and installations necessary to the rendering, continuity, modernization, enlargementand universalization of the service object of the grant, within the specifications included in the present Contract;

III – keeping in perfect operating and working conditions the network of telecommunications in amount, extension andlocations pertinent and sufficient to the adequate rendering of the service;

IV – providing financial resources necessary to the meeting of the parameters of universalization and continuity includedin the present Contract and to the adequate rendering of the service;

V – rendering to Anatel, in the way and periodicity foreseen in the regulation, accounts and information of technical,operational, economic, financial and accounting nature, as well as providing all the data and elements relative to the service that arerequested;

VI – keeping the public use terminals, permanent or temporary, as foreseen in this Contract;

VII – submitting to Anatel’s surveillance, monitoring and control, allowing the access of its agents to the installationsthat integrate the system as well as its technical, accounting, commercial, economical-financial, operational and other records;

VIII – keeping separate accounting records for the modality of the STFC object of this Contract, in accordance with theaccount plan established, as well as keeping the inventory of the goods and the components of the company’s asset updated, as per theregulation;

IX – keeping an information system and user’s care as per terms of clause 16.7;

X – caring for the integrity of the assets connected with the rendering of the service;

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XI – submitting to the approval of Anatel, previously to its use, the draft of the Standard-Contract to be signed with thesubscribers, as well as all the amendments, addenda or variations applicable to it;

XII – submitting to the previous approval of Anatel, the operational agreements or contracts of service rendering, ofassociation or partnership that intend to sign with foreign entities;

XIII – forwarding for publication at Anatel’s Library a copy of agreements and contracts relative to the rendering of theservice herein granted with national and foreign renderers of telecommunication services;

XIV – forwarding for publication at Anatel’s Library a copy of agreements and contracts relative to the rendering of theservice herein granted, which involve renouncement or transfer of income, in amounts above R$ 3.000.000,00 (three million reais) peryear;

XV – disclose, directly or by means of third parties, the access code of its subscribers and the other subscribers ofCommuted Fixed Telephone Service renderers, in public and private regimen, in the grant area, with exclusion of those who expresslyrequire the omission of their personal data;

XVI – providing, in time periods and at reasonable prices and in a non discriminatory way, the relation of its subscribersfor the purposes of disclosure of telephone books;

XVII – follow strictly the duty of confidentiality and secrecy of telecommunications, abiding by the legal and contractualprescriptions;

XVIII – respect the privacy of the subscribers with relation to the documents of billing and all the personnel informationrelative to them;

XIX – fulfill, at its own expenses, and abiding by disposition of clause 8.2 of this Contract, all the goals ofuniversalization expressly included in this Contract;

XX – implementing expansion and universalization projects of the service that come to be determined by Anatel,according to levels of reimbursement, time limits and conditions of implementation established, abiding by disposition of clause 8.3;

XXI – submitting previously to Anatel all and any alteration that intends to make in its statutes as to a merger, split,transformation, incorporation, as well as the transfer of control or alteration in the capital stock;

XXII – observe all the rights of the other telecommunication service renderers, keeping from practicing anydiscriminatory conduct or oriented towards preventing their activity;

XXIII – using, whenever required by the regulation, equipment with certification issued or homologated by Anatel;

XXIV – observe the norms and the technical standards effective in Brazil, omitting any discriminatory practice inrelation to goods and equipment produced in the country;

XXV – placing at the disposal of the authorities and the civil defense agents, as well as the institutions that renderEmergency Public Services, in the cases of public calamity, all the means, systems and availabilities that were requested from it with aview at providing support or helping the population affected;

XXVI – meet with priority the President of the Republic, his protocol representatives, his entourage and supportpersonnel, as well as foreign State Heads, when visiting or official dislocations in Brazilian territory, making available the necessarymeans for the adequate communication of these authorities, observing the regulation issued by Anatel;

XXVII – paying all taxes of surveillance and operation of its installations, as per the regulation;

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XXVIII – paying all the values relative to public prices, in special for the right of use of scarce resources;

XXIX – publishing annually, irrespectively of the company legal regimen to which it is subject, balance sheet andfinancial statements verified at the end of each social exercise, observing the dispositions of the effective legislation and of theregulation issued by Anatel;

XXX – observing the effective norms in the country as to the use of foreign labor, including in the highest qualificationpositions;

XXXI – indemnify, respecting the regulation, the users for damages effectively resulting from the non rendering of theservice that would be required in face of the continuity parameters and the universalization goals foreseen in the present Contract;

XXXII – repair the damages caused by the violation of the rights of the users;

XXXIII – do not spend with management service rendering contracts, including technical assistance, with foreignentities, in relation to the annual income of the Commuted Fixed Telephone Service, net of taxes, values above 0.1 % (zero dot oneper cent) per year until the end of the grant;

XXXIV – fulfilling agreements signed between Brazil and other countries and international organisms, as regulated byAnatel;

XXXV – making available, at least, 6 (six) dates for expiration of the billing document relative to the service to the user;

XXXVI – meeting promptly all the requests of the users registered at Anatel’s Call Center, replying to them in writing;

XXXVII – providing data, information, reports and accounting records when these are requested by inspecting agents,within fixed time period, under the penalty of incurring in sanctions foreseen in this Contract, and

XXXVIII – submitting to Anatel all the contracts, agreements or adjustments celebrated between the Concessionaire andits controlling shareholders, direct or indirect, or allied companies, especially those that have to do with direction, management,engineering, accounting, consulting, purchasing, supplies, constructions, loans, sales of stocks, merchandises, as well as contractssigned with:

a) individuals or legal entities that, along with the Concessionaire, are part, directly or indirectly, of the same controlledcompany, and

b) individuals or legal entities that have directors or common administrators of the Concessionaire.

Paragraph 1st. The decisions relative to item XXXIII of this clause in contracts of service rendering and technicalassistance, between the Concessionaire and third parties connected with the controlling shareholders, must be made in special meeting,and the Concessionaire should record on its by-laws that the preferred shares will have right to vote in these decisions, at no loss ofdispositions of paragraph 1st of art. 115 of Law No. 6,404 of December 15, 1976, altered by Law No. 10,303 of October 31, 2001.

Paragraph 2nd. In the cases of conflict between the Concessionaire and other telecommunication service renderers in theestablishment of fair and reasonable values, Anatel, may, cautiously, determine such values, time periods for the fulfilling and anyother elements essential to the effectiveness of the cautionary decision.

Clause 16.2. At no loss to the other dispositions included in this Contract and the guarantees assured in Law, the rightsof the Concessionaire are to:

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I – explore the service granted within its corporate strategy, freely defining its investments, respecting the regulationissued by Anatel and the dispositions of this Contract;

II – appoint a representative to accompany the inspection activity on the part of Anatel; except in the cases where priornotice or physical presence are not compatible with the nature of the inspection or when confidentiality is a requisite to ensureefficacy, giving the Concessionaire the right to review the corresponding report after the end of the inspection;

III – suspend or not meet the request for the rendering of services to the default subscriber toward his contractualobligations with the Concessionaire, as set forth in the regulation;

IV – request the institution of the arbitrage procedure in the hypotheses and as per the way prescribed in Chapter XXXIIIof this Contract;

V – have the economic conditions for the exploration of the service preserved against alterations that imply inunmotivated enrichment of the Union or the users as per terms of Chapter XIII;

VI – request the revision of the tariffs applied to the service granted, as per terms of this Contract;

VII – request from Anatel the confidentiality of information collected in the exercise of the inspection activity, as perterms of this Contract;

VIII – employ in the execution of the services equipment and infrastructure that do not belong to them, abiding by theterms of clause 22.1 of this Contract, and

IX – hire with third parties the development of inherent activities, or those activities that are accessory or complementaryto the service, as well as the implementation of associated projects.

Clause 16.3. During the effectiveness of the Contract, the Concessionaire will be the only one responsible, before thirdparties, for the acts practiced by its personnel, representatives and hired personnel, in the rendering of the Commuted Fixed TelephoneService, as well as the use of the equipment, installations or networks, excluding the Union and Anatel from any complaints and/orindemnities.

Clause 16.4. The Concessionaire may not hinder the works in public interest, whatever their nature, whenever it isnecessary to remove installations or telephone networks for the feasibility of interventions promoted, directly or indirectly by anyagency or entity of Public Administration.

Clause 16.5. The Concessionaire must agree directly with each City Hall as to the areas of exploration of the service aswell as with the other Concessionaires of public services as to the conditions for the installation of poles double tee junctions for thesuspension of lines and aerial cables, as well as underground ducts and channels destined for the passage of cables under the streetsand public avenues.

Paragraph 1st. The Concessionaire will work with the holders of public or private assets on or under which it has toinstall ducts or channels or even install supports for the installation of the same, obtaining the respective consent or bondage for such apurpose.

Paragraph 2nd. The Concessionaire must promote at the respective municipal authorities the agreements necessary tothe establishment of the conditions for the surpassing of the interferences in the network required to the rendering of the service,including that which relates to the cutting and clipping of trees.

Paragraph 3rd. The Concessionaire is entirely responsible, at its own risk, for all the constructions, installations and useof equipment for the rendering of the service, being expressly understood that it is up to the Concessionaire the relationship withmunicipal, state or federal control agencies the use of the soil, buildings and environmental control.

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Clause 16.6. The Concessionaire may use poles, ducts, conduits and bondages belonging or controlled by otherrenderers of services or telecommunications or of other services in the public interest, abiding by the regulation.

Sole Paragraph. The Concessionaire must make available to the other service renderers of telecommunicationsclassified by Anatel as being of collective interest, the means of its property or controlled by it, referred to in the caput of this clause.

Clause 16.7. The Concessionaire must provide a customer service, during the whole validity of the present grant,through the following channels, as set forth under applicable regulation:

I – a free central of information and a central of users’ help, operating 24 (twenty four) hours per day and 7 (seven) daysa week, qualified to receive and process requests, complaints and protests forwarded by the users;

II – personal service allowing the user to have interactions relating to the provision of the STFC; and

III – any means of distant communication.

Paragraph 1st. The Concessionaire must make available, in a clear and objective manner, to all the users:

I – the access codes of its central of information and central of users care, as well as any other means of distantcommunication, which should necessarily be a part of the service agreement, the billing documents, the Mandatory and Free of ChargeTelephone Book – LTOG, in the Internet and all other printed materials delivered to the user when contracting for the service andduring its use; and

II – the addresses of the locations for personal service on its internet website and through the user call center.

Paragraph 2nd. All the requests, complaints or protests forwarded by the users, by any means, must receive a sequentialorder number, which will be informed to the interested party in order to enable his follow-up, as per terms of the regulation.

Paragraph 3rd. The user will be informed by the Concessionaire within the legal and regulatory deadlines as to themeasures adopted as a result of its request, protest of complaint.

Paragraph 4th. If Anatel confirms there is difficulty of access by the users to the central of information and central ofservices, it may determine that the Concessionaire expand the means of access available, under the penalty of considering unattendedthe obligation foreseen in this clause.

Clause 16.8. Upon hiring of services and in the acquisition of equipment and materials connected to the service object ofthis Contract, the Concessionaire commits itself to considering offers from independent suppliers, including national ones, and base itsdecision, with respect to the several offers presented, on the fulfilling of objective criteria of price, delivery conditions and technicalspecifications established in the pertinent regulation.

Paragraph 1st. In the cases where there is equivalency among offers, the Concessionary company commits itself tousing as untying criterion, the preference to services offered by companies located in the country, equipment, computer programs(software) and materials produced in the country and, among them, those with national technology.

Paragraph 2nd. The equivalency referred to in t his clause will be verified when, cumulatively:

I – the national price is lower or equal to the price of the imported one, once in national territory, including incidentduties;

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II – the delivery time period is compatible with the needs of the service, and

III – the technical specifications are established in the pertinent regulation that has certification issued or accepted byAnatel, when applicable.

Paragraph 3rd. It is understood as services those related with research and development, planning, project,implementation and physical installation, operation, maintenance, as well as acquisition of computer programs (software), supervisionand tests for the evaluation of telecommunication systems.

Paragraph 4th. The Concessionaire must make available every quarter, through electronic systems of use reserved toAnatel, the list of goods and services acquired that are directly related with the offering of telecommunication services by theConcessionaire with, at least, the following information:

I – Manufacturer of the good or service provider;

II – General description of the good or service;

III – Value of the good or service;

IV – If imported or manufactured in the country;

V – If it holds local technology certification, under the rules set forth by the Ministry of Science and Technology or otherentity designated for such; and

VI – Aggregated consumption in the period, separating the value of goods and services according to the criteria definedunder items IV and V.

Clause 16.9. The payment or transfer of values due to other telecommunication service providers is an obligation of theConcessionaire, as per terms of the regulation, being the non payment or unjustifiable withholding characterized as obstacles tocompetition, which subjects the Concessionaire to sanctions foreseen in clause 26.1.

Clause 16.10. The Concessionaire commits itself, after request, to providing and assuring the updating of theinformation in its registration bases of its subscribers, necessary to the rendering of the telecommunication service on the part of theproviders of collective interest with which it has interconnection of networks, and such a provision must take place through isonomic,fair and reasonable conditions, as per terms of the regulation.

Paragraph 1st. The performance of the referred subject in this clause must take place up to 30 (thirty) days after therequest, irrespective of the conclusion of negotiations among the parties.

Paragraph 2nd. The supply will be remunerated based on fair and reasonable values, as per dispositions of paragraph 2nd

of clause 16.1.

Paragraph 3rd. It will be admitted the performance of the obligation by means of the implementation, jointly with theother providers, of a centralized registration base.

Clause 16.11. The Concessionaire, by means of requests, will make available to the telecommunication service providersof collective interest, with which it has network interconnection, the services relative to billing, invoicing, service and collection, inisonomic, fair and reasonable conditions, as per terms of the applicable regulation and fiscal legislation.

Sole Paragraph. The services referred in this clause will be implemented in up to 30 (thirty) days after the request,irrespective of the conclusion of the negotiation between the parties, or the eventual requests of settlement of conflicts submitted toAnatel, abiding by dispositions of Paragraph 2nd of clause 16.1.

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Clause 16.12. The Concessionaire will assure to any other collective interest telecommunication service provider theinterconnection with its network, abiding by the specific regulation and the norms of the present Contract.

Sole Paragraph. If the Concessionaire does not conclude, within regular time periods, the interconnection contract andcannot objectively confirm the existence of a technical hindrance, Anatel will establish, as a safeguarding measure, a time limit for theimplementation of the interconnection independently of the conclusion of the commercial negotiations or eventual requests ofarbitrage submitted to Anatel.

Clause 16.13. The Concessionaire is obligated to provide the resources necessary to the interconnection of providers ofservice of telecommunications of collective interest as per industrial exploration, in the terms of the regulation.

Sole Paragraph. If the Concessionnaire does not provide the resources within the regular time periods and does notconfirm objectively the absence of capability for servicing, Anatel will establish, as a safeguarding measure, the conditions to meet therequest, including, if necessary be, the values to be effected.

Clause 16.14. The Concessionaire undertakes to providing the resources necessary to the implementation oftelecommunication networks, including the access network, the access of collective interest service providers, as per industrialexploration, in the terms of the regulation.

Paragraph 1st. If the Concessionaire does not provide the resources in up to 60 (sixty) days, counting from the request,and does not confirm objectively the absence of capability for servicing, Anatel will establish, as a safeguard, the conditions to meetthe request, including, if necessary, the values to be practiced.

Paragraph 2nd. The date of the establishment of the service rendering contract between user and provider defines thechronological order of servicing to the request of the resources by the Concessionaire.

Paragraph 3rd. If there are multiple requests for the same user, the Concessionaire undertakes to providing the resourcesrequested, following the chronological order of requests of the providers.

Clause 16.15. The Concessionaire undertakes to comply with the General Plan of Competition Goals and to implementthe resale of the service object of the grant as per the terms of the regulation.

Clause 16.16. The Concessionaire undertakes to allow the access, in a non discriminatory way and in the terms of theregulation, to the information of its list of subscribers necessary for the purpose of disclosure of telephone books.

Paragraph 1st. The access referred to in this clause must be implemented in up to 30 (thirty) days after request, as longas the existence of hindrance is not objectively confirmed.

Paragraph 2nd. The access will be remunerated, based on fair and reasonable values.

Paragraph 3rd. In the cases of conflicts between the Concessionaire and interested parties in disclosing its list ofsubscribers, in the establishment of fair and reasonable values, Anatel may, as a safeguard measure, establish such values. Chapter XVII – Obligations and Prerogatives of Anatel

Clause 17.1. In addition to the other prerogatives inherent to its role of regulating agency and the other obligations resultingfrom the present Contract, Anatel will have to:

I – accompany and inspect the provision of the service and the preservation of the reversible assets, aiming at meeting norms,specifications and instructions established in this Contract and its attachments;

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II – proceed to inspections for the verification of the adequacy of the installations and equipment, determining the necessarycorrections, repairs, removals, reconstructions or substitutions at the expense of the Concessionaire;

III – regulate permanently the provision of the service granted;

IV – interfere in the execution of the service whenever required, so as to assure its regularity and the faithful compliance of theContract and the pertinent legal norms;

V – apply the penalties foreseen in the regulation of the service, in the Consumer Protection Code and specifically in thisContract;

VI – decide on Alternative Plans of Local Service presented by the Concessionaire;

VII – establish, authorize the readjustment and proceed to the revision of the tariffs, as per terms and as per dispositions of thisContract;

VIII – act within the limits foreseen in this Contract aiming at preventing the unmotivated enrichment of the parties, as perterms of this Contract;

IX – watch over the good quality of the service and handle complaints and claims from the users, making them aware of themeasures taken;

X – declare the concession finished in the cases foreseen in this Contract;

XI – watch over the guarantee of interconnection, settling eventual pending issues emerged between the Concessionaire andother providers;

XII – watch over the meeting the goals of universalization foreseen in this Contract and the goals that come to be established inthe subsequent Goal Plans;

XIII – accompany permanently the relationship between the Concessionaire and other service providers of telecommunications,settling conflicts and establishing Cautiously, values, time limits for the fulfillment and any other conditions essential to the effectivesof the cautionary decision.

XIV – prohibit conducts on the part of the Concessionaire contrary to the regimen of competition, complying with the legalcompetences of the CADE;

XV – propose, by request of the Concessionaire, to the President of the Republic, by means of the Ministry of Communications,the declaration of public utility for the purposes of dispossession or institution of administrative bondage, of the assets necessary to theimplementation or maintenance of the service object of this Contract;

XVI – exercise the activity of inspector of the service as per terms of this Contract;

XVII – collect the taxes relative to FISTEL, FUST and others that come to be created, whose collection responsibility might beof Anatel, adopting the measures foreseen in the effective legislation;

XVIII – determine to the Concessionaire the adoption of measures that aim at the protection of the public interest or to assurethe fruition of the service, complying with what is established in the regulation and in this Contract;

XIX – determine to the Concessionaire the amends to the users for the non compliance with obligations of the present Contractand the regulation;

XX – decree the intervention in the Concessionaire in cases foreseen in article 110 of Law No. 9,472 of 1997 and in thisContract;

XXI – collect the amounts relative to public prices, especially for the right of use of scarce resources;

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XXII – determine modifications or the rescission of the contracts, agreements or adjustments celebrated between theConcessionaire and its controlling shareholders, whether direct or indirect, or united companies, particularly those that deal withdirection, management, engineering, accounting, consulting, purchasing, supplies, construction, loans, sales of stock, goods, whenthese oppose the legislation, the rules, the economic order or the public interest; and

XXIII – determine the cancellation of the transfer operation or replacement by an equivalent the of transferred goods by theConcessionaire, as well as modifications or the rescission of contracts, agreements or adjustments entered into between theConcessionaire and a third party, when these are against the law, rules, regulations, economic order or public interest. Chapter XVIII – Concessionaire

Clause 18.1. The Concessionaire is a company made up as per the Brazilian laws, under the way of a stock company, having asexclusive purpose the exploration of the service object of the present grant, except for the services as per terms of disposition inparagraph 3rd of article 207 of Law 9,472 of 1997.

Sole Paragraph. If the statutory alteration of the Concessionary is approved, the documents that make it formal will beforwarded to Anatel for filing, and will be a full part of the present Contract, as per terms of the regulation.

Clause 18.3. The Concessionaire and its controllers undertake to assure, during the entire time period of the concession, theeffective existence and performance in national territory, of the centers of deliberation and implementation of strategic, management,logistics, commercial, operational and technical decisions involved in t he fulfillment of the present Contract, making such anobligation reflect also on the composition and in the decision-making procedures of its administrative agencies.

Sole Paragraph. The Concessionaire must keep, in its statute, during the term of effectiveness of the present Contract,dispositions that warrant the fulfillment of terms in the caput of this clause. Chapter XIX – Transfer of the Concession and of the Control of the Concessionaire

Clause 19.1. The transfer of concession or the control, direct or indirect, of the Concessionaire, may be authorized by Anatel,complying with the General Plan of Grants and Law No. 9,472 of 1997, when:

I – the assignee meets all the requirements established in the terms of articles 97 and 98 of Law No. 9,472 of 1997, and

II – the measure does not harm the competition and does not endanger the execution of the Contract and the general norms ofprotection to the economic order.

Sole Paragraph. The non compliance with any disposition included in this clause will imply in the caducity of the presentconcession.

Clause 19.2. The stocks of the Concessionaire whose transfer does not alter its control may be freely given as guarantee.

Sole Paragraph. In the case of a guarantee by means of stocks that imply in burdening of the asset of the Concessionaire, thefinancing contracts must be provided with devices which submit the creditors, in case of execution, to the rules included in thisChapter. Chapter XX – Inspection Regimen

Clause 20.1. Anatel will exercise inspection of the service being granted herein so as to assure the fulfillment of theassumptions of universalization and continuity inherent to the public regimen of its provision, as well as to watch over the fulfillmentof the goals and the commitments included in the present Contract.

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Paragraph 1st. The inspection to be exercised by Anatel will include the inspection and follow-up of the activities, theequipment, the facilities, the contracts and the economical-financial situation of the Concessionaire, whether by means of directperformance of its inspection agents, whether by means of a formal request, implying in broad access to all the data and information ofthe Concessionaire or third parties, which must be provided timely, in the way required, in accordance with the contents of thisContract.

Paragraph 2nd. The information collection in the course of the inspection activity will be published in the Library, except forthose that, upon request of the Concessionaire, are considered by Anatel as of confidential nature.

Paragraph 3rd. The information that come to be considered of confidential nature, as per terms of the previous paragraph, willonly be used in the procedures correlated to the present Contract, being Anatel and those appointed by it responsible for anydisclosure, wide or narrow, of such information outside the scope of utilization.

Paragraph 4th. Anatel’s inspection will also cover the follow-up and control of the stocks of the Concessionaire in thetechnical, accounting, commercial and economical-financial areas, and may establish guidelines and procedures necessary to theeffectiveness of the inspection, as well as suspend all and any activity that is incompatible with the requirements of universalization,quality, efficiency, safety and continuity of the service.

Paragraph 5th. The Concessionaire’s Accounting will be presented separately for the modality of the STFC object of thisContract and will abide by the established account plan, in the terms of the regulation, registering and verifying, separately, theinvestments and the costs of the several components of its network.

Paragraph 6th. The Concessionaire undertakes to render to Anatel, as per terms of the regulation, relevant information, amongothers:

I – those of economical-financial and accounting nature, including information on asset balance sheet, statement of results,indebtedness, origins and applications of resources and value added results, among others;

II – those of a commercial nature, including the installed base of users, by type and by sector of concession, net and grossincomes, total number of minutes and calls charged and number of default subscriptions by service plan;

III – the ones of technical-operational nature, including the installed capacity by sector of the external plant, commuting andtransmission ports, introduction plans of new technology per service and per sector, and

IV – the others, such as number of own employees and employees hired per activity.

Paragraph 7th. Anatel’s inspection does not decrease not does it exempt the responsibility of the Concessionaire as to theadequacy of its works and facilities, as to the correction and legality of its accounting records and its financial and commercialoperations.

Paragraph 8th. It is the duty of the Concessionaire to render the relevant information within the time period set up by Anatel’sinspection.

Clause 20.2. The Concessionaire, through appointed representative, may accompany all and any Anatel’s inspectionactivity, except in the cases where prior notice or physical presence are not compatible with the nature of the inspection or whenconfidentiality is a requisite to ensure efficacy, under the penalty of incurring in the penalties foreseen in this Contract. Chapter XXI – Settlement of Accounts by the Concessionaire

Clause 21.1. As per terms of the regulation and as per form defined by Anatel, the Concessionaire must periodically send toAnatel information and statistical and corroborated reports in the modality of the STFC object of this Contract, containing, amongother elements:

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I – the indicators of expansion, coverage and occupation of the telephone network;

II – the technical data relative to the hiring and use of the service object of this grant, segmented by class of subscriber, bynature of the contracted service plan, by item of tariff structure, by the nature of the communication and by the time of its utilization;

III – the data relative to the use of the networks and the resources of the Concessionaire, segmented by the nature of theproviders involved, by the type of the communication, by the type and coverage of the resource used, by the time of utilization and byother applicable criteria;

IV – the technical data relative to the items of additional, complementary and accessory revenues, as per established in thisContract;

V – the statement of results discriminating incomes and respective expenses relative to the items mentioned in items I, II, II andIV of this clause;

VI – the standardized monthly balance sheet, the quarterly information – ITR, the financial statements of each social exerciseand the other information and documents relative to each fiscal exercise, duly audited;

VII – the data relative to the financial operations performed by the Concessionaire, including those relative to the issuance ofdebt titles;

VIII— the data that allow the characterization of the technological stage of the equipment used, as well as the level of operationof the plant, and

IX – the data relative to the amount and level of qualification of the human resources, used, whether own or from third parties.

Paragraph 1st. The supply of the data mentioned in this clause does not exempt nor does it diminish the Concessionaire’sresponsibility as to the adequacy, correction and legality of its accounting records and its financial and commercial operations.

Paragraph 2nd. The non fulfillment to the requests, recommendations and determinations contained in this clause subjects theConcessionaire to the application of the sanctions established in this Contract.

Clause 21.2. The supply of the requested information must, whenever possible, be changed into continuous and automatedprocess of information supply, by suggestion of the Concessionaire, being adopted or not at Anatel’s convenience. Chapter XXII – Assets Linked to the Concession

Clause 22.1. The collection of the present concession, which is linked to it, consists of all the assets belonging to theConcessionaire’s patrimony, as well as its controlling company controller company or third party companies, and those that areindispensable for the rendering of the service herein granted, especially those qualified as such in Attachment 01 – Qualification of theReversible Assets of Local Commuted Fixed Telephone Service Provision.

Paragraph 1st. Also integrating the collection of assets linked to the concession are the authorizations of use of the spectrum ofradiofrequencies that are being granted to it and, when pertinent, the right of use of orbital positions, complying with terms of article48 and 161 of Law No. 9,472 of 1997 and also the contents of clause 4.1 of the present Contract.

Paragraph 2nd. Also integrating the collection of the concession the activities and processes required for the provision ofSTFC in public regime, with the aim of preserving service continuity and taking into consideration the essential character of theseitems and the ongoing technological changes inherent to its provision.

Paragraph 3rd. With regard to the assets linked to the concession, the Concessionaire may only employ directly in therendering of the service now granted equipment, infrastructure,

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logistics or any other good that is not its own property through a previous and express agreement by Anatel, which may waive such arequirement in the cases and hypotheses cited in the regulation.

Paragraph 4 th. If there is risk to the continuity of the services or impediment in the reversal of the assets linked to theconcession, Anatel may deny authorization to use the assets of third parties or require that the respective contract contains a clausethrough which the owner is obliged to, in case of the termination of the concession, keep the contracts and in subrogating to Anatel inthe rights resulting from it.

Paragraph 5th. The Concessionaire obliges itself, as per terms of the regulation, to present annually, a list contained the assetslinked to the concession, as per definition of clause 22.1.

Paragraph 6th. The regulation will decide on the identification and control of the reversible assets, especially, as to the cases ofalienation, burdening or substitution, which will depend on the previous approval of Anatel, whereas these assets must be clearlyidentified in the list presented annually by the Concessionaire.

Paragraph 7th. The assets indispensable to the rendering of the service and that are meant for the shared use by theConcessionaire are part of the list presented annually by the Concessionaire.

Clause 22.2. The Concessionaire undertakes to present every three months to Anatel, as of the 18 th (eighteenth) year ofeffectiveness of the present Contract:

I – a list containing all the assets belonging to its patrimony and that are indispensable to the rendering of the service beingprovided herein, especially those qualified as reversible assets of the Rendering of the Commuted Fixed Telephone Service in theLocal modality;

II – a report on the stock of parts and pieces of substitution and expansion;

III – an economical-financial report, including the level of indebtedness and the fulfilling of the obligations with third parties,and

IV – a report containing information on human resources and personnel capability. Chapter XXIII – Reversion Regimen

Clause 23.1. At the time of termination of the concession, all the assets linked to the concession defined in Chapter XXII willbe reverted automatically to Anatel, safeguarding to the Concessionaire the right to the indemnities foreseen in the legislation and inthis Contract.

Sole Paragraph. Up to 180 (one hundred and eighty) days after the advent of the termination of the concession, an inspectionwill be performed in the assets that make it up and a Term of Return and Reversion of Assets will be prepared, with a detailedindication of the state of conservation of same, being an option the follow-up by a representative (or more) from the Concessionaire.

Clause 23.2. The Concessionaire undertakes to deliver the reversible assets in perfect operating, usage and maintenanceconditions, at no loss to the normal wear resulting from its use.

Sole Paragraph. The reversible assets will be transferred to Anatel free of any encumbrances or duties, abiding by hypothesisin paragraph 2nd of the following clause.

Clause 23.3. The reversion of the assets dealt with in this Chapter, at the end of the contractual period, will be performedwithout any indemnities, except for what is stated in this clause.

Paragraph 1st. There will only be an indemnity in favor of the Concessionaire in case at the end of the concession there arestill assets that have not fully paid in, whose acquisition has been previously authorized by Anatel with the objective of warranting thecontinuity and the updating of the service granted.

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Paragraph 2nd. Alternatively or complementarily to the indemnity referred to in the previous paragraph, Anatel may accept thetransfer of assets that have been given in guarantee of its own financing, subrogating them in the installment that has not yet beenpaid.

Clause 23.4. At the end of the concession, Anatel will proceed to the evaluation of the assets referred to in clause 22.1 and mayrefuse to reverse the assets that it deems dispensable or unusable for application in the exploration of the service, guaranteeing theright of the Concessionaire to the contradiction, including by means of the preparation and presentation, at its own expenses, of reportsor studies that show the need for the reversion.

Sole Paragraph. If the Concessionaire does not agree with Anatel’s decision as to terms of this clause, an appeal will beadmitted to the process of conflict settlement prescribed in this Contract. Chapter XXIV – Insurance Plan

Clause 24.1. During the entire term of effectiveness of the concession, the Concessionaire must keep with an InsuranceCompany of compatible size with the capital to be secured, registered at the regulating agencies of the sector, the following insurancepolicies required to warrant the effective and encompassing coverage of risks inherent to the development of all the activities foreseenin the present Contract:

I – insurance of the type “all risks” for material damages covering the loss, the destruction or the damage in all or in any assetwhich is part of the concession, being that such insurance must foresee all the coverages included as per international standards;

II – insurance of preservation of economic conditions for the continuity of the exploration of the service, covering, at least, theoperational costs against variations in the revenues of the Concessionaire, resulting from casualties or modifications in the conditionsof exploration of the Contract that are not covered by the insurances of material damages, as long as the agreement of this modality ofinsurance is accepted by Brazilian norms and expressly authorized by the Instituto de Resseguros do Brasil – IRB, or equivalent entity,and

III – guarantee insurance on the compliance with the obligations relative to the quality and universalization foreseen in thisContract (Performance Bond, letter of credit and value maintained as a guarantee) in the corresponding amount of 10% (ten per cent)of the value of investments estimated each year for the fulfillment of the goals foreseen in the present Contract.

Paragraph 1st. The Concessionaire must have it stated on the insurance policies the obligation of the Insurance Companyinform, in writing, with a minimum advance of 30 (thirty) days, to the Concessionaire and Anatel, any facts that may imply in the totalor partial cancellation of the contracted policies, reduction of coverages, increase in grace periods or reduction of insured values.

Paragraph 2nd. The Concessionaire must present, when renovating the policies, an express declaration of the InsuranceCompany with full recognition of the Concession Agreement and Anatel’s regulations.

Paragraph 3rd. In case of non fulfillment, by the Concessionaire, of the obligation to keep in full effectiveness the insurancepolicies foreseen, Anatel, irrespectively of its option to decree the intervention or the caducity of the present concession, may proceedto the hiring and the direct payment of the respective premiums, the expenses being shouldered by the Concessionaire.

Paragraph 4th. The Concessionarie must present a certificate issued by the insurance company confirming the payment of thepolicy’s premium in up to 60 (sixty) days after its payment.

Paragraph 5th. The insurance policies that are required to warrant the effective and encompassing coverage of risks inherent tothe development of all the activities foreseen in the present Contract must be presented to Anatel in up to 30 (thirty) days following itsissuance.

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Paragraph 6th. The Concessionaire must present until the last day of effectiveness of each policy a declaration from theinsurance company certifying that the policy is being renewed.

Paragraph 7th. Anatel may change the coverages and the time periods of presentation of the policies referred to in this clause,aiming at adjusting such requirements to the regulation edited by the Superintendence of Private Insurance – SUSEP – or to theconditions established by the Instituto de Resseguros do Brasil – IRB, as well as when norms are issued that obstruct the contractingof the insurance herein referred or when there are no conditions of wide and competitive market that allow their contracting atreasonable costs.

Paragraph 8th. Annually, until the end of the month of November, the Concessionaire must present an estimate for thefollowing year of the investments required for compliance with the obligations of this Contract, which will provide basis for theprovision of the guarantee set forth under item III of this Clause. Chapter XXV – Interconnection

Clause 25.1. The Concessionaire is obliged to permit, facilitate, make available and effect the interconnection to the network itoperates, from networks of other telecommunication service providers of collective interest, in public or private regimen, abiding andmaking abide the norms and regulations issued by Anatel to this regard.

Clause 25.2. At a date to be determined by Anatel, values for the Tariff for the Use of the Local Network (TU-RL) will beadopted that consider model of cost of long term, established as per terms of the regulation and as per clause 13.1.

Paragraph 1st. The maximum values of the Tariffs for the Use of the Local Network (TU-RL) will be limited to the product ofthe multiplier M by the tariffs of utilization of the local service, abiding by the hourly modulation and the other conditions establishedin Attachment No. 03 of this Contract and in the regulation, being that:

I – from January 1st, 2006 to December 31st, 2006, M will be equal to 0.5 (zero comma five), and

II – from January 1st, 2007 to the date of implementation of the cost model, to be determined by ANATEL, M will be equal to0.4 (zero comma four).

Paragraph 2nd. When the application of the terms in the previous paragraph results in an increase in the value of the TU-RL,such a value may only be practiced as of the next readjustment in tariffs for the use of the local service.

Paragraph 3rd. In the case of the adoption of tariffs relative to the maintenance of the right of use that include the total of theminutes of utilization, the values of the TU-RL will be established as a result of an amount of minutes of utilization of reference.

Clause 25.3. The Concessionaire will have the same rights and will abide by the same interconnection conditions to which theother telecommunication service provides of collective interest are subjected.

Sole Paragraph. The Concessionaire must make available for the interconnection the elements of the network with the largestlevel of disaggregation that is technically possible, as per Anatel’s regulation.

Clause 25.4. Anatel, in case of unjustifiable refusal of interconnection, may, at no loss of other measures, decree theintervention in the Concessionaire.

Sole Paragraph. The unjustifiable refusal of interconnection is characterized by:

I – the non presentation of the interconnection contract within the time periods determined by regulation;

II – non provision of interconnection within the time periods determined by regulation, and

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III – non fulfillment of measures of cautionary character, involving the provision of the interconnection, determined by Anatel.

Clause 25.5. The unjustifiable refusal of interconnection constitute an infraction of severe nature, subjecting the Concessionaireto the sanctions foreseen in Chapter XXVI of this Contract, at no loss of the other measures that come to be adopted by Anatel.

Sole Paragraph. In case the unjustifiable refusal of interconnection involves bad-faith, in addition it is applied disposition ofarticle 177 of Law No. 9,472 of 1997.

Clause 26.1. In the performance of the present Contract, the Concessionaire subjects itself to the following sanctions, whichwill be applied against decision made by Anatel, assuring its right of defense, as per terms of dispositions of its Internal By-Laws andat no loss of the other penalties foreseen in the regulation:

I – violating the dispositions of the present Contract which implies in non compliance with universalization goals: a fine of upto R$ 50,000,000.00 (fifty million reais);

II – act or omission contrary to the dispositions included in this Contract which results in loss to the competition in thetelecommunications sector: a fine of up to R$ 50,000,000.00 (fifty million reais);

III – violating the contractual dispositions implying in the non fulfillment of goals and parameters of quality in the rendering ofthe service: a fine of up to R$ 40,000,000.00 (forty million reais);

IV – for another act or omission that is not included in the previous items, implying in violation of the rights of the users asdefined in this Contract or brings them loss: a fine of up to R$ 30,000,000.00 (thirty million reais);

V – act or omission that violates terms of clause 16.8 of this Contract, relative to the hiring of services and acquisition ofequipment and materials produced in the country: a fine of up to R$ 30,000,000.00 (thirty million reais);

VI – any other act or omission that brings obstacles or difficulties to the exercise of the fiscal activity on the part of Anatel asforeseen in this Contract: a fine of up to R$ 20,000,000.00 (twenty million reais);

VII – action or omission that implies in non compliance with Anatel’s determination: a fine of up to R$ 20,000,000.00 (twentymillion reais);

VIII – act, omission or negligence that may endanger the safety of the facilities: a fine of up to R$ 15,000,000.00 (fifteenmillion reais);

IX – act of omission that results in damage or endangers assets or equipment linked to the concession: a fine of up to R$10,000,000.00 (ten million reais), and

X – non compliance with any obligation expressly foreseen in this Contract, except for those indicated in the previous items,whose sanctions are already established in them: a fine of up to R$ 10,000,000.00 (ten million reais).

Paragraph 1st. The infraction prescribed in item I of this clause will be characterized when the Concessionaire does notcomply, within the time periods foreseen in this Contract, with its obligations as to the expansion of the ser vice, expansion of therendering of the service, by means of telephones for public use and servicing to locations, as per dispositions in the General Plan ofGoals for Universalization and in Attachment 02 – Universalization Goals, part of the present Contract, and the sanction will beapplied taking into consideration, in addition to the general principals included in this Chapter, the following factors:

a) the difference between the stage of implementation verified and the goal defined in theContract;

b) the possibility of recovery of the implementation schedule at the expenses of the

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Concessionaire; c) the loss to the policy reflected in the General Plan of Goals for Universalization; d) the damages brought to the direct beneficiaries of the goals that have not been serviced, and e) eventual circumstances of technical or economic order that may mitigate the responsibility

of the Concessionary, without suppressing it.

Paragraph 2nd. The infraction prescribed in item II above will have its severity defined exclusively as a result of the generalcriteria prescribed in clause 26.2 and will be characterized by the conduct of the Concessionaire that, directly or indirectly, may bringloss to the competition in the sector, especially:

a) offer of obstacle or difficulty to the option by another provider of the service granted or of thenational and international long distance service;

b) refusal in providing interconnection to telecommunication service provider; c) offer of obstacles or difficulties to the activity of added value service providers;

d) refusal or procrastination in extending, in isonomic conditions, the co-billing to other providers

of collective interest service, thus characterized by its non implementation in up to 30 (thirty)days, counted from the request;

e) the refusal or procrastination in providing and updating, in real time or not, the information of itsregistry bases on its subscribers, required to the activities of the other providers of collectiveinterest service, thus characterized by its non implementation in up to 30 (thirty) days, countedas of the request;

f) refusal or procrastination in providing, in isonomic conditions, resources necessary to theimplementation of telecommunication networks, including the network of access, of collectiveinterest service providers in the form of industrial exploration, thus characterized by its nonimplementation in up to 60 (sixty) days, counted as of the request;

g) conditioning of the provision of the service granted or offered by advantages as a result ofacquisition, by the user, of service alien to the present Contract;

h) execution of any telecommunication service that is not the object of a grant approved by Anatelon its behalf;

i) the non preservation of the levels of quality practiced in the own network, as to theinterconnection;

j) procrastination in the delivery or inadequate supply of information essential to the activity of theother providers, especially as it regards the registry bases, and

k) unjustified non payment of values due to another telecommunication service provider.

Paragraph 3rd. The infraction prescribed in item III of this clause will be characterized by the rendering reiterated of theservice granted beneath the parameters of quality defined in the General Plan of Quality Goals or by the confirmed violation of theindicators referred to in Chapter VI, being the first hypothesis considered a severe infraction, especially:

a) the non allocation in the operation and maintenance of the service of the human resources andmaterials necessary to the preservation of the minimum quality standards;

b) the negligence in the modernization of the network that affects the quality of the service; c) the collection and remittance of indicators to Anatel out of compliance with the regulation, d) the refusal, omission or procrastination in the rendering of information on quality; and e) non compliance with the continuity or regularity obligations, except under the circumstances set

forth under the sole paragraph of Clause 7.1. Paragraph 4th. Infringement provided for in item IV above shall have its severity contingent on the number of users affected and onthe damages caused, and it consists of the violation by act or default, directly or indirectly of an obligation set forth herein that resultsin violation of users’ rights rather than in violation to universal or quality duties, particularly: a) denial to provide service granted to any interested party; b) failure to comply obligation to provide information to user;

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c) violation of telecommunications confidentiality, unless provided by law, even if such confidentiality is breached by third parties inthose facilities under Carrier’s responsibility; d) failure to comply the obligation of providing telephone directories free of charge to those subscribers who request it; e) failure to provide a user service and call center as set forth herein; f) rates or prices charged different from those set forth herein and in regulations; g) restriction to free choice of service plans and providers; h) failure to indemnify users as provided for by Anatel’s orders or regulations; i) failure to assure the right to access code portability under terms of regulations; and j) failure to comply agency orders as provided for and on time; Paragraph 5th. Sanction provided for in item V above shall be imposed upon verification of non-compliance of an obligationcontained in Article 16.8 and its severity shall be that set forth in regulations; Paragraph 6th. Infringement provided for in item IV above shall have its severity contingent on the importance of tax activity harmedand consists of the violation by act or default, directly or indirectly, by the Carrier or its assigns, that prevents or impairs thesupervision activity by Anatel, its assigns, agents or even its users, particularly: a) denial by Carrier to provide information on services granted or related property as requested by Anatel; b) obstruction to the activities of Anatel supervision agents; c) failure to comply any publicity obligation set forth herein or in regulations; and d) failure to send or untimely provision of any information, data, report or document that, as set forth herein or by regulation, shouldbe sent to Anatel. Paragraph 7th. Infringement provided for in item VIII of this Article shall have its severity contingent on risk taken and it consists ofany action by Carrier that violates rules set forth herein or by regulation, that violates safety technical standards or rules or that mayrisk facilities intended to services granted, particularly: a) use of equipment non-certified or non-homologated by Anatel under terms of regulations in services granted; b) during operation and service maintenance, failure to allocate manpower and materials required to maintain safety minimalstandards; and c) failure to take precautions recommended to provide services hereby granted; Paragraph 8th. Infringement provided for in item IX of this Article shall have its severity contingent on the importance, economicamount and relevance of property involved and it consists of Carrier’s conduct opposite to what it is set forth herein or by regulationsand that may risk properties or equipment related hereto or that makes difficult their return, particularly: a) failure to keep an inventory or record of property mentioned in Article 22.1; b) use of third party property without Anatel’s previous consent or waiver directly in services that are the subject matter hereof; c) negligence in conservation of returnable property, subject to regulations; and d) failure to provide information provided in Article 22.1.

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Paragraph 9th. Sanction provided for in item X above shall be imposed upon verification of non-compliance of an obligation hereofnot included in previous items, particularly: a) non compliance of provision of item XXX of Article 16.1; and b) denial or postponing of access, under terms of regulation, to information on its list of subscribers required to disclose telephonedirectories. Paragraph 10th. Sanction provided for in item VII above shall be imposed upon non-compliance of Anatel’s orders, particularly thoserelated to respecting users’ rights; Paragraph 11th. Sanction provided for in item II above has contractual nature and shall be imposed by Anatel regardless of measuresto be taken by CADE [Administrative Council for Economic Protection]. Clause 26.2 For purposes of imposing contract penalties set forth in this Chapter, rules of Title IV, Book III, Law no. 9.472 dated1997 and regulations shall be observed. Sole paragraph.. For the purpose of imposing sanctions set forth in this chapter, Anatel’s Internal Regulations shall be complied with. Clause 26.3 Penalties provided for in this Chapter shall be imposed without prejudice to intervention or declaration of forfeiture setforth herein. Sole paragraph. In case of total or partial non-performance of adjustment or non-excused delays over one hundred and twenty(120) days in meeting goals set forth herein, the Carrier shall be subject to forfeiture of assignment under terms of Article 27.4. Clause 26.4 The maximum amounts of penalties provided for in this Chapter are baselines for June 1998 and they shall be adjustedupon application of IGP-DI [General Price Index – Internal Availability]. Chapter XXVII – Extinction of the Concession

Clause 27.1. The Concession Contract will be considered extinct in the following hypotheses:

I – end of the time period for the concession of the service;

II – takeover, as per article 113 of Law No. 9,472 of 1997;

III – caducity, as per terms of article 114 of Law No. 9,472 of 1997, and in the present Contract;

IV – friendly or judicial rescission, as per terms of article 115 of Law No. 9,472 of 1997, and

V – annulment.

Paragraph 1st. Once the concession is extinct, the rights and duties relative to the rendering of the service granted will bereturned to Anatel, with reversal of goods referred to in clause 22.1, safeguarding the Concessionaire the right to the indemnitiesforeseen in the legislation as well as in this Contract.

Paragraph 2nd. After the extinction of the concession, Anatel will proceed to the surveys, evaluations and liquidations thatmay be required, within 180 (one hundred and eighty) days counting from the assumption of the service, except in the hypothesis ofend of the contractual time period, when these measures must be adopted by Anatel in advance.

Paragraph 3rd. If the concession is extinct before the contractual term, Anatel, at no loss of the other pertinent measures, may:

I – occupy, temporarily, the assets and liabilities and make use of the personnel employed in the rendering of the service,required for its continuity, and

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II – keep the contracts signed by the Concessionaire with third parties for the period and in the conditions initially adjusted.

Clause 27.2. The reversal at the end of the contractual term will be performed without any indemnities, except when thereoccurs the hypothesis foreseen in clause 23.3.

Clause 27.3. As per terms of article 113 of Law No. 9,472 of 1997, takeover is considered to be the retaking of the service byAnatel during the concession period, in face of an extraordinary reason in the public interest, against specific authorizing law andpreceded by the payment of indemnity.

Clause 27.4. The present Contract may have its caducity declared by act of the Director Council of Anatel, preceded of anadministrative law suit that assures full right of defense to the Concessionaire, in the hypotheses of:

I – transfer of partnership control, merger, separation, transformation of the Concessionaire or even incorporation or reductionin its capital stock without the previous approval of Anatel;

II – irregular transfer of the Contract;

III – non fulfillment of the transfer commitment referred to in clause 19.1 and in article 87 of Law No. 9,472 of 1997;

IV – bankruptcy or dissolution of the Concessionaire;

V – non fulfillment of the requirements of the coverages by insurance plans as an affront to the obligations foreseen in clause24.1 and such omission cannot, at Anatel’s criterion, be supplied with the intervention;

VI – when, in the terms of article 114, item IV, of Law No. 9,472 of 1997, there occurs any of the hypotheses foreseen in clause28.1 and, at Anatel’s criterion, the intervention is considered to be inconvenient, hindering or even unfairly beneficial to theConcessionaire, and

VII – non fulfillment of the universalization goals contained in the PGMU approved by Decree No. 2592 of May 15, 1998.

Paragraph 1st. The intervention will be considered uncalled for when the demand for the service object of the concession canbe met, against permission, by other providers in a regular and immediate way.

Paragraph 2nd. The declaration of caducity will not suppress the application of the pertinent penalties as per the terms of theContract by infractions practiced by the Concessionaire, nor will it harm the right to indemnity defined in the terms of the subsequentChapter.

Clause 27.5. The Concessionaire will have the right to contractual rescission, judicially or friendly, when, out of action oromission of the Public Power, the execution of the Contract becomes excessively expensive, as per terms of article 115 of LawNo. 9,472 of 1997.

Sole Paragraph. The introduction or the expansion of the competition among the several providers of the service object of theconcession does not represent a reason for contractual rescission, being certain that the Concessionaire assumes the present concessionaware that it will exercise its activities without any market reserve or exclusivity.

Clause 27.6. The annulment will be decreed by Anatel in case of irregularity that cannot be mended and is considered to besevere as verified in the present Contract. Chapter XXVIII – Indemnity

Clause 28.1. For the purposes of indemnity calculation, due by Anatel to the Concessionaire in the cases expressly foreseen inthe present Contract, the following will be complied with:

I – end of the contractual time period – there will be right to indemnity, except if it is proven that the non payment meansunmotivated enrichment on the part of the Union as a result of reserve

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of assets not fully paid in, abiding by the terms of clause 23.3, deducting the amount of the damages caused and the fines incurred, aswell as, whenever the case, the financial obligations that have not been met;

II – takeover – abiding by terms of Article 113 of Law No. 9,472 of 1997, the indemnity that will be paid previously to the act,must correspond to the value of the assets that reverted to the granting power, deducting the depreciation, the value of the damagescaused and the fines incurred, as well as, when the case might be, the financial obligations that have not been met;

III – caducity – irrespectively of the application of penalties and reparation of damages resulting from lack of compliance, asper terms of the Contract, the Concessionaire may only claim indemnity if it confirms that unmotivated enrichment is taking place onthe part of the Union as a result of reversal of assets not fully paid in or depreciated, deducting the amount of the damages caused andthe fines incurred, as well as, whenever the case, the financial obligations that have not been met;

IV – friendly or judicial rescission – there will be no indemnity, except if – in opposition – this is established by judicialsentence, and

V – annulment – only when proven that the Concessionaire did not contribute to the illegality, corresponding indemnity will bedue only relative to the effective value of the assets that revert to the Union, calculated on the date the annulment is decreed, as long asthese assets have not been yet fully paid by from the exploration of the services, deducting, in addition, the value of the damagescaused and of the fines incurred, as well as, whenever the case, of the financial obligations that have not been met.

Paragraph 1st. The temporary value to be anticipated by Anatel for the takeover cases will be calculated in the form prescribedin the specific authorizing law.

Paragraph 2nd. When caducity takes place out of confirmed guilt of the Concessionaire, this will also result in:

a) retention of the credits resulting from the Contract, even with the appropriation of revenueresulting from payments made by the users of the service;

b) responsibility for damages caused to the Union and to the users;

c) application of fines as per terms of the present Contract and effective legislation, and

d) loss of guarantee-insurance foreseen in clause 24.1.

Paragraph 3rd. The hypothesis of takeover being executed, the indemnity that is pertinent to the other cases of extinction in theContract will be calculated as per the terms of this Chapter and divided by the number of months to which it would still be effective asper the concession, and the first installment should be due after 1 (one) year of the extinction of the Contract.

Paragraph 4th. Anatel may transfer to the renderer that follows the Concessionaire in the exploration of the service, theencumbrance of the payment of the respective indemnities, once again assuming the obligation to pay, in case the new renderer is latemore than 90 (ninety) days in his payments. Chapter XXIX – Users Council

Clause 29.1. The Concessionaire will organize and maintain a Council of Users, of consulting nature, under the terms set forthin the regulations. Chapter XXX – Environment and Environmental Control

Clause 30.1. The Concessionaire will adopt, at its own account and risk, all the measures included in the Brazilian legislationand regulation or, in their absence, adopt the best practices on environment, notably in relation to:

I – the use of the surface and underground;

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II – the construction of towers, poles and other devices for the support of electromagnetic radiation equipment;

III – human exposure to electrical, magnetic and electromagnetic fields, abiding by the limits established in Anatel’s regulation;

IV – minimization in the use of natural resources and power, and

V – respect toward the historical-cultural patrimony and the indigenous communities.

Sole Paragraph. The Concessionaire will present to the competent agencies, whenever required, the reports of environmentalimpact, as well as will arrange for the achievement of the respective license, as per applicable legislation. Chapter XXXI – Intervention

Clause 31.1. The intervention in the Concessionaire may be decreed by Anatel, at its discretion and according to thepublic interest, through specific act and motivated by its Managing Board, under the terms of Section V, Chapter II, Title II, of Lawno. 9.472, dated 1997, and in special in the following situations:

I – unjustified interruption of the service, which shall mean the interruption of the provision outside the hypotheses setforth herein and without the presentation of the reasons to be considered by Anatel as able to justify it;

II – inadequacy or insufficiency reiterated in the service rendered, characterized by the inobservance of the parameters ofquality set forth in this Contract and in the general rules, even after communication of term, by Anatel, for regulating thesituation;

III – inappropriate administration that may put into risk the continuity of the service, especially that may causeeconomic-financial unbalance;

IV – repetition of breaches deemed serious;

V – non-compliance of the goals of universalization, which shall mean the unjustified inobservance of the schedule ofimplementation of the obligations of universalization set forth herein;

VI – unjustified refusal or procrastination of interconnection, which shall mean the negative, delay or any procrastinationattitude in the negotiation or performance of the call to its requested network by another provider, observing the generalrules:

VII – practices of breach to the economic order, as to impede conducts deemed harmful to the free, broad and faircompetition among the service providers; and

VIII – omission in rendering the account to Anatel or offering hindrance to the inspective activity that presuppose thepractice of any of the occurrences set forth in the items above.

Clause 31.2. The act of intervention must necessarily indicate the term, reasons, objectives and limits, as well as the

intervening party.

Sole Paragraph. The term and the limits of the intervention shall be compatible with and proportional to the reasons thatraised it.

Clause 31.3. The intervention shall be preceded by an administrative procedure to be presented by Anatel, which shallensure the full right to defense of the Concessionaire.

Sole Paragraph. In the case the immediate intervention is mandatory, it may be decreed on a provisional basis byAnatel, without prior manifestation from the Concessionaire, case in which the procedure shall be immediately presented on the dateof the decree and concluded within one hundred and eighty (180) days, term in which the Concessionaire may exercise its full right todefense.

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Clause 31.4. The decree of the intervention shall not affect the regular course of the business of the Concessionaire, norits normal operation, but it shall produce the immediate withdrawal of its administrators.

Clause 31.5. The position of intervening party may fall upon an agent of the Anatel staff, and it may be a personspecifically appointed, a collegiate, or legal entity, and the Concessionaire shall incur eventual remuneration costs.

Paragraph 1 – Anatel is entitle to appeal to the acts of the intervening party.

Paragraph 2 – The intervening party shall render accounts and respond for the acts carried out thereby.

Paragraph 3 – For acts of disposal and lien of the assets of the Concessionaire, the intervening party shall obtain priorconsent from Anatel.

Clause 31.6. The intervention shall not be decreed when, at the discretion of Anatel, it is considered as unnecessary.

Sole Paragraph. The intervention will be considered unnecessary in the events set forth by Paragraph 1 of clause 27.4,as well as in the cases set forth in Article 114, item IV of Law no. 9.472, dated 1997. Chapter XXXII – Expropriations and Administrative Impositions

Clause 32.1. If the execution of any dispossession or administrative easement becomes necessary for the purposes ofimplementation, provision, or modernization of the services, the respective charges shall be fully incurred by the Concessionaire, andAnatel shall request the President of the Republic, through the Ministry of Communications, to issue the act of decree of public utility. Chapter XXXIII – Arbitration

Clause 33.1. Eventual conflicts that may arise resulting from the application and interpretation of the norms of theconcession shall be resolved by Anatel, in its exercise of governing agency, as prescribed in Articles 8 and 19 of Law no. 9.472, dated1997, as well as in its Internal Rules, and the Concessionaire may refer to the arbitration procedure set forth in this Chapter,exclusively when not conformed with the decision of Anatel regarding the following issues:

I – breach of the right of the Concessionaire to the protection of its economic status, as set forth in Chapter XIII;

II – revision of the fares, as set forth in Chapter XIII; and

III – indemnities due upon the extinction of this Contract, including with regards to any assets reversed.

Sole Paragraph. The submission of any issue to arbitration does not exempt Anatel, nor the Concessionaire, from theobligation of fully complying with this Contract, nor allows the interruption of the activities linked to the concession.

Clause 33.2. The arbitration process shall begin with the communication sent from one party to the other with therequest of the installation of the Arbitration Court, as set forth in this Chapter, further indicating in detail the subject matter related tothe controversy.

Sole Paragraph. Anatel may refuse the installation of the Arbitration Court if, duly grounded and justified, itdemonstrates that the controversy is not included in the list of issues set forth in clause 33.1.

Clause 33.3. The Arbitration Court shall be composed of five (5) members, appointed as follows:

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I – two (2) effective members and their respective substitutes, appointed by the Anatel’s Managing Board, who shall beexperts in the affected areas related to the controversial issue, not pertaining to the Anatel’s staff, and at least one ofthem to be the chairman of the board, with specific expertise in legal regulation of telecommunication issues;

II – two (2) effective members and their respective substitutes, appointed by the Concessionaire, who shall be experts inthe affected areas related to the controversial issue, not pertaining to the Concessionaire’s staff, and at least one of themwith specific expertise in legal regulation of telecommunication issues; and

III – one (1) effective member and his/her respective substitute, appointed by the members indicated in the items above.

Paragraph 1 – The Arbitration Court may be assisted by the technical experts whose appointment is considered

convenient.

Paragraph 2 – The Court shall be considered as instituted on the date in which all the arbitrators accept their respectiveappointments and communicate both parties of their acceptance.

Paragraph 3 – The Court shall judge according to the right constituted and its decisions shall have cogent power,regardless of judicial homologation.

Clause 33.4. Not refused by Anatel or if such questioning is resolved, the arbitration Process set forth in this Chaptershall commence, obeying the following procedure:

I – the parties shall have ten (10) days from the receipt of the communication mentioned in the caput of the clause aboveto appoint the members of the Arbitration Court, which shall be installed immediately after the acceptance of allmembers;

II – if one of the parties fails to manifest an opinion or in case of resistance to the installation of the Arbitration Court,the other party may make use of the right set forth in article 7 of Law no. 9.307, dated September 23, 1996;

III – once the Arbitration Court is installed, a successive term of twenty-five (25) days will be opened for the parties topresent their considerations regarding the controversial issue, occasion in which they may submit opinions, expert works,reports, attach documents or information deemed relevant to sustain their position;

IV – after the presentation of the memos, the Court shall analyze the reasons exposed and may, through request of one ofits members, determine the elaboration of opinions, expert works or reports, request information or documents from theparties, as well as make diligences and take the steps deemed necessary for the perfect instruction of the controversialissue;

V – during the collection of the elements mentioned in the item above, the parties will be always entitled tomanifestation and contradiction, under the principles of informality, consent, and celerity that will ground the procedure;

VI – after the closing of the instruction, a common term of fifteen (15) days will be given for the parties to present theirfinal allegations;

VII – after the period set forth in the item above, regardless of the presentation of the final allegations, the Court maypronounce its decision within no late than thirty (30) days;

VIII – the decision of the Court shall not be subject to appeal, except in case of request of reconsideration, which ispermitted only in case of decision adopted by majority of a single vote; and

IX – the arbitration procedure can only be subject to invalidation in the cases set forth in Article 32 of Law no. 9.307,dated 1996.

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Sole Paragraph. Expenses with the arbitration process, including costs with opinions, expert works and reports, as wellas the fees to the members of the Court shall be incurred by the Concessionaire or Anatel, as decided by the Arbitration Court. Chapter XXXIV – Resolution of Conflicts

Clause 34.1. Eventual conflicts that may arise between the Concessionaire and other providers of telecommunicationsservices, of collective interest, regarding the interpretation and application of the rules, may be submitted to Anatel in the exercise ofits position of governing agency, as set forth by Articles 8 and 19 of Law no. 9.472, dated 1997, by means of:

I – meeting of composition of conflicts;

II – mediation process; and

III – arbitration procedure.

Sole Paragraph. The adoption of the instrument set forth in this clause does not harm the use of any other forms ofadministrative resolution of conflicts between the providers, under the terms of Anatel’s Internal Rules. Chapter XXXV – Applicable Legal Regimen and Applicable Documentation

Clause 35.1. Law no. 9.472, dated July 16, 1997 and the rules resulting thereof shall govern this concession, especiallythe rule of competence of the Executive Power, notwithstanding the other norms of the Brazilian legal system, as set forth in Article18 of such Law, which shall always prevail in case of conflict with the other.

Clause 35.2. In the provision of the service granted herein, the national policies of telecommunications and the Anatel’srules shall be observed, being part of this Contract, especially the documents listed below:

I – General Plan of Grants;

II – General Plan of Universalization Goals;

III – General Plan of Quality Goals;

IV – General Plan of Competition Goals;

V – Rules of Telecommunication Services;

VI – Rules of the Commuted Fixed Telephone Service;

VII – General Rules of Interconnection;

VIII – Rules of Numbering for the Commuted Fixed Telephone Service;

IX – Rules of Administration of Numbering Resources;

X – Rules on the Remuneration for the Use of the Networks Providers of the Commuted Fixed Telephone Service;

XI – Rules of the Local Areas;

XII – Rules for the Use of Services and Networks of Telecommunications in the Access to Internet Services;

XIII – Rules of Portability of Access Codes;

XIV – Rules of Sanctions;

XV – Rules of Separation and Allocation of Accounts;

XVI – Rules of Industrial Exploration of Dedicated Line;

XVII – Billing Rules;

XVIII – Rules of Systemic Interruptions of the Commuted Fixed Telephone Service;

XIX – Rules of Control of Reversible Assets;


XX – Rules on Offer, Trading, and Resale of the Commuted Fixed Telephone Service;

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XXI – Rules for the Provision of the Commuted Fixed Telephone Service with Use of Non-Geographical Access Codes,

XXII – Rules on the disclosure of lists of subscribers and publication and distribution of the obligatory and freetelephone list; and

XXIII – Rules of supply of information for the purposes of disclosure of subscribers’ list.

Clause 35.3. The interpretation of the norms and provisions contained in this Contract shall take into account, in addition

to the documents mentioned in the item above, the general rules of hermeneutics and the norms and principles contained in Law no.9.472, dated 1997. Chapter XXXVI – Court

Clause 36.1. The Court of the Judicial Section of the Federal Justice of Brasília, Federal District, shall be the onecompetent to resolve any issues resulting from this Contract and that cannot be resolved by the procedure of solution of divergencesset forth in Chapter XXXIII – Arbitration. Chapter XXXVII – Final and General Provisions

Clause 37.1. This Contract shall become effective on the date of its publication in the Official Federal Gazette.

Clause 37.2. This Contract may be altered unilaterally upon supervening legal provision, by virtue of law, or through actof the Granting Power. In witness whereof, the parties sign this Contract in three (3) counterparts of equal tenor and form, before the witnesses, who also signit, as to produce its legal and judicial effects.

Brasília, June 30, 2011. By Anatel: By the Concessionaire: [illegible signature]

[illegible signature]

RONALDO MOTA SARDENBERG ANTONIO CARLOS VALENTE DA SILVAPresident President [illegible signature]


JOÃO BATISTA DE REZENDE LEILA ABRAHAM LORIADirector Executive Officer of Institutional Relations and Regulation Witnesses: [illegible signature]


CRISTIAN CHARLES MARLOW JOSÉ ROBERTO PEREIRA NEDER CI: 7054254128 SSP-RS CI: 75124245 SSP-SPCPF: 724.270.860-53 CPF: 148.812.506-63

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ATTACHMENT No. 01

QUALIFICATION OF THE REVERSIBLE ASSETS OF THE PROVISION OFTHE LOCAL COMMUTED FIXED TELEPHONE SERVICE

a. Infra-structure and equipment of commutation and transmission, including public use platforms; b. Infra-structure and equipment of external network; c. Infra-structure of equipment of energy and air conditioning; d. Infra-structure and equipment of Centers of Support and Service Provision; e. Infra-structure and equipment of systems of support to the operation; f. Infra-structure and equipment installed due to universalization obligations set forth under the General Plan of UniversalizationGoals, approved under the provisions of art. 18, item III, of Law No. 9,472, of July 16, 1997; and f. Other items indispensable to the provision of the service.

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ATTACHMENT No. 02

GENERAL PLAN OF UNIVERSALIZATION GOALS 1. The universalization goals are those established in the General Plan of Universalization Goals.

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ATTACHMENT No. 03

BASIC PLAN OF THE LOCAL SERVICE

Telesp S.A.

Sector 31 1. General Provisions 1.1. The Basic Plan of the Commuted Fixed Telephone Service in the local modality – Local STFC is governed by the rules in force,by the Acts mentioned in this attachment, and by others that may succeed it. 1.1.1. Other conditions for the provision of the STFC in the local modality, as set forth in the rules, including those related to otherclasses of subscribers, are part of this attachment as if included herein. 1.2. Local collect calls shall be subject to the application of the same criterion of billing applied to calls with collection at the source,excluding the times characteristic of warning and acceptance of collect call. 1.3. The fares presented are maximum and net of taxes, with restriction to the provisions of item 3.1.8. 2. Individual Access to the Commuted Fixed Telephone Service – STFC 2.1. To access to the Commuted Fixed Telephone Service, the Concessionaire may charge the Habilitation Fare to each one of thesubscriber class, observing the maximum limit of R$ 81.54 (eighty one reais and fifty four cents) for subscribers of former Sector 31,and R$43.54 (forty three reais and fifty four cents) for subscribers of former Sector 31 and of R$67.10 (sixty seven reais and ten cents)for subscribers of former Sector 34, as defined in Act no. 6,419, dated 10/05/2010. 2.2. For the maintenance of right of use, when applicable, the Concessionaires are authorized to charge the monthly subscription fare,according to the table below, according to Act no. 6,419 of 10/05/2010.

Former Sector 31 Class of Subscribers R$Residential 28.97 (twenty eight Reais and ninety seven cents)

Non-Residential 49.71 (forty nine Reais and seventy one cents)Trunk 49.71 (forty nine Reais and seventy one cents)Special 17.38 (seventeen Reais and thirty eight cents)

Former Sector 32Class of Subscribers R$

Residential 28.97 (twenty eight reais and ninety seven cents)Non-Residential 46.18 (forty six Reais, eighteen cents)

Trunk 46.18 (forty six Reais, eighteen cents)Special 17.38 (seventeen Reais, thirty-eight cents)

Former Sector 34Class of Subscribers R$

Residential 28.97 (twenty-eight Reais, ninety cents)Non-Residential 48.39 (forty eight Reais, thirty nine cents)

Trunk 48.39 (forty eight Reais, thirty nine cents)Special 17.38 (seventeen Reais, thirty-eight cents)

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2.2.1. The subscription of the Local Commuted Fixed Telephone Service includes a franchise of two hundred (200) minutes for theresidential class, according to the STFC Billing Rules provided in the public regimen. 2.2.2. The subscription of the Local Commuted Fixed Telephone Service includes a franchise of one hundred and fifty (150) minutesfor the non-residential and trunk classes, according to the STFC Billing Rules provided in the public regimen. 2.3. The change of address of authorized subscriber can be charged, and its value (TME) shall be limited to the amount of theHabilitation of the respective classes, as defined in the STFC Billing Rules provided in the public regimen. 3. The use of the Commuted Fixed Telephone Service in the local modality 3.1. To calls subject to invoicing, under the terms of the rules, comprised by the Local Commuted Fixed Telephone Service: 3.1.1. The use of the Local Commuted Fixed Telephone Service, by the subscribers of the Residential, Non-Residential, and Trunkclasses, shall be charged: a) per Time of Use, where the billing unit will be one-tenth of minute (six seconds), and the minimum billing time will be thirty(30) seconds; or b) per call answered, where the billing is made based on the application of a value per call answered (VCA), regardless of its duration. Days Period Measurement SystemMonday to Friday, from 6:00 AM to 12:00 AM Normal Per time of useMonday to Friday, from 12:00 AM to 6:00 AM Reduced Per CallSaturdays, from 6:00 AM to 2:00 PM Normal Per time of useSaturdays, from 12:00 AM to 6:00 AM and from 2:00 PM to 12:00AM Reduced Per CallSundays and national holidays, 24 hours Reduced Per Call 3.1.2. The use of the Local Commuted Fixed Telephone Service, by the subscribers of the Special Class (AICE), shall be billed: a) per Time of Use, where the billing unit will be one-tenth of minute (six seconds) and the minimum billing time will be thirty(30) seconds, without modulation of time; and b) per Completion Fare of call, regardless of the time and duration of the call. 3.1.3. In case of billing as per time of use, the maximum amount for the billing minute (MIN) is R$ 0.07295, under the terms of Actno. 6,419, dated 10/05/10. 3.1.4. In the case of billing per call, the maximum value for the call answered (VCA) shall be calculated based on the maximumamount of minute of use (MIN), under the terms of the STFC Billing Rules provided in the public regimen. 3.1.5. The maximum amount for the VCA, on the date of effectiveness of this Contract, is R$ 0.14590, under the terms of Act no.6,419, dated 10/05/10. 3.1.6. The maximum amount for the Completion Fare, on the date of effectiveness of this Contract, is R$ 0.14590, under the terms ofAct no. 6,419, dated 10/05/10.

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3.1.7. To local calls originated in accesses of collective use and destined to fixed terminals, the method of measurement per time ofuse will be adopted, based on the billing unit (UTP), as set forth in the STFC Billing Rules provided in the public regimen, the firstunit levied upon the answering of the call and the following at every one hundred and twenty (120) seconds. 3.1.8. The Value of one UTP (VTP) is R$ 0.1230, plus taxes, as set forth by Act no. 6,419 dated 10/05/2010. 3.2. Calls involving other telecommunication services. 3.2.1. The credits and billing procedures of calls to Personal Mobile Service (SMP) are those defined in the rules. 3.2.1.1. The billing unit will be one-tenth of minute (six seconds). 3.2.1.2. The minimum billing time will be thirty (30) seconds. 3.2.1.3. The communication values involving the SMP (VC-1), per minute, for the timetable of normal fare and for the timetable ofreduced fare, are those included in the table below, as set forth by Acts no. 4,290 of 07/27/2008, 1,430 of 03/20/2009 and 971 of02/09/2010. Former Sector 31 SMP Provider – destination Normal fare Reduced fareClaro S.A. – Capital 0.56331 0.39431Claro S.A. – Countryside 0.50374 0.35261CTBC Celular S.A. 0.55787 0.39050Tim Celular S.A. 0.53848 0.37693TNL PCS S.A. 0.52873 0.37011Vivo S.A. – Sectors 31 and 34 0.51715 0.36200Vivo S.A. – Sector 32 0.51353 0.35947Unicel do Brasil Tel. Ltda. 0.54434 0.38103

Former Sector 32 SMP Provider – destination Normal fare Reduced fareClaro S.A. – Countryside 0.51342 0.35939CTBC Celular S.A. 0.55787 0.39050Tim Celular S.A. 0.54818 0.38372TNL PCS S.A. 0.52873 0.37011Vivo S.A. – Sectors 31 and 34 0.52669 0.36868Vivo S.A. – Sector 32 0.52309 0.36616

Former Sector 34 SMP Provider – destination Normal fare Reduced fareClaro S.A. – Capital 0.56331 0.39431Tim Celular S.A. 0.54818 0.38372TNL PCS S.A. 0.52873 0.37011Vivo S.A. – Sectors 31 and 34 0.52669 0.36868

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3.2.4. The timetable of reduced fare for SMP calls shall be from Monday to Saturday, from 12:00 AM to 7:00 AM, and from 9:00 PMto 12:00 PM, and on Sundays and national holidays, 24 hours, as set forth in the applicable rules. 3.2.2. The billing criteria and procedures to Specialized Mobile Service (SME) are those defined in the rules. 3.2.2.1. The billing unit will be one-tenth of minute (six seconds). 3.2.2.2. The minimum billing time will be thirty (30) seconds. 3.2.2.3. The maximum communication value involving the SME (VC-1), per minute, is R$ 0.47303 (zero point four seven three zerothree of Real) for the timetable of normal fare, and R$ 0.33112 (zero point three three one one two of Real) for the timetable ofreduced fare, as set forth in Act no. 54.687, dated 12/12/05. 3.2.2.4. The timetable of reduced fare to calls destined to Specialized Mobile Service shall be from Monday to Saturday, from 12:00AM to 7:00 AM, and from 9:00 PM to 12:00 PM, and on Sundays and national holidays, 24 hours, as set forth in the applicable rules. 3.2.3. To calls originated in TUP and destined to other services of collective interest, the respective values of communication shall beobserved for counting the UTPs.

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Exhibit 4(b).2

Federative Republic of BrazilNational Telecommunications Agency

GRANT CONTRACT

National Long Distance Commuted Fixed Telephone Service

Sector 31

Telecomunicaçơes de Săo Paulo S.A.

CONTRACT PBOA/SPB No. 155/2011-ANATEL

GRANT CONTRACT OF FIXEDCOMMUTED TELEPHONE

SERVICE IN NATIONAL LONG DISTANCE MODALITY,THAT IS EXECUTED BETWEEN THE AGÊNCIA NACIONAL DE

TELECOMUNICAÇƠES (NATIONALTELECOMMUNICATIONS AGENCY)AND TELECOMUNICAÇƠES DE SÃO

PAULO S.A. – TELESP (SÃO PAULO TELECOMMUNICATIONS) By the present deed, on one hand the Agência Nacional de Telecomunicaçơes, hereinafter called Anatel, entity belonging to theUNION and as per terms of Federal Law No. 9,472 of July 16, 1997, General Telecommunications Law – LGT, responsible forexercising Granting Powers, herein represented by its President RONALDO MOTA SARDENBERG, Brazilian, married, diplomat,CI No. 5601 MRE and CPF/MF (Registry of Private Individual at the Ministry of Finance) under No. 075.074.884-20, together withCounselor JOÃO BATISTA DE REZENDE, Brazilian, divorced, economist, CI No. 3.412.238-5 SSP-PR and CPF/MFNo. 472.648.709-44 and on the other hand, TELECOMUNICAÇƠES DE SÃO PAULO S. A. – TELESP, CNPJ/MF (NationalRegistry of Legal Entities at the Ministry of Finance) under No. 02.558.157/0001-62, by its President ANTONIO CARLOSVALENTE DA SILVA, Brazilian, married, engineer, CI No. 31.547-D CREA-RJ, CPF/MF No. 371.560.557-04, and by itsExecutive Officer of Institutional Relations and Regulation LEILA ABRAHAM LORIA, Brazilian, married, business administrator,CI No. 3.164.539-3, CPF/MF No. 375.862.707-91, hereinafter called Concessionaire, as per terms of art. 207, paragraph 1, of thereferred to General Law of Telecommunications, by this deed and in the best form of the law, celebrate the present GRANTCONTRACT, which will be ruled by the norms referred to below and by the following clauses: Chapter I – Object

Clause 1.1. The object of the present Contract is the concession of the Commuted Fixed Telephone Service – STFC, destinedfor the use of the public in general, provided in public regimen, in the Modality of National Long Distance originated from thegeographical area defined in clause 2.1, as per terms of the General Plan of Grants.

Sole Paragraph. It is included in the object of the present grant the Service of Commuted Fixed Telephone, provided in publicregimen, in bordering and limiting areas, in compliance with the regulation issued by Anatel, as per disposition contained in theGeneral Plan of Grants.

Clause 1.2. The Commuted Fixed Telephone Service is the telecommunications service that, by means of voice transmissionand other signals, destines for the communication between established fixed points, using telephone processes, according to applicableregulation.

Clause 1.3. After previous approval on the part of Anatel, the Concessionaire may implement and explore new services,utilities or commodities related with the provision of the service object of the present grant.

Sole Paragraph. Related with the object of the present grant should be considered those services, utilities or commodities that,upon the judgment of Anatel, are considered as inherent and


complementary to the platform of the service now being granted, without the characterization of another service or modality of serviceor, further, added value service, complying with the dispositions of the regulation, particularly terms of article 222 of the FederalConstitution of 1988.

Clause 1.4. The Concessionaire is entitled to the implementation, expansion and operation of telecommunication networksrequired for the execution of the service, as well as its industrial exploration, as per the regulation.

Clause 1.5. It cannot be separated from the services being granted the need to reach the goals of universalization and qualityforeseen in this Contract.

Clause 1.6. The Concessionaire undertakes to provide to its subscribers, directly or through third parties, free of charge,telephone books relative to all subscribers of all providers of Commuted Fixed Telephone Service, in its area of grant, as per theregulation.

Paragraph 1st. It will be considered as being executed the obligation foreseen in the caput by means of the free of chargerendering of the service of information of access code of the subscriber, as per the terms of the regulation.

Paragraph 2nd. At no loss to terms of the previous paragraph, it is mandatory to supply the Mandatory Telephone Book as wellas Free of Charge – LTOG duly printed, when requested by the subscriber.

Clause 1.7. The Concessionaire must make sure to all those who request and to the users of the service granted the performanceof the required installations to the provision of the service, as per regulation.

Clause 1.8. The Concessionaire must keep free of charge access to emergency public services established in the regulationirrespective of the origin of the call of the Commuted Fixed Telephone Service. Chapter II – Area of Service Provision

Clause 2.1. The geographic area of the provision of the service object of the present grant is that covered by the territory(ies)included in the Sector of number 31, included in Attachment 2 of the General Plan of Grants, referring to Concession AgreementsPBOA/SPB No. 155/2006; 156/2006 and 158/2006. Chapter III – Time Period and Conditions for Contract Alteration

Clause 3.1. The time period of the present grant, duly remunerated, will end on December 31, 2025.

Clause 3.2. The present Contract may be changed on June 30, 2011, December 31, 2015 and December 31, 2020 in order toestablish new conditions, new targets for universalization and quality, considering the conditions effective at the time, also defining, inthe case of the universalization targets, the complementary resources, as per terms of art. 81 of Law No. 9,472 of 1997.

I – The Public Consultation with the modification proposals expected for December 31, 2015 will be published until March 31,2014.

Paragraph 1st. Anatel, 24 (twenty four) months before the changes foreseen in this clause, will have a public consultationpublished with its proposal for new conditions and new targets towards universalization and quality of the service, the latter submittedto the approval, by means of a Decree, of the President of the Republic, as per terms of art. 18, paragraph III, of Law No. 9,472 of1997.

Paragraph 2nd. The changes mentioned in the present clause do not exclude the possibility of revision, at any time, of thepresent Contract as a result of the supervenience of relevant fact, at Anatel’s criterion.

2


Paragraph 3rd. It is up to Anatel to assure the protection of the economic situation of the Concessionaire, as per terms ofChapter XIII of this Contract.

Clause 3.3. The Concessionaire must pay, every biennium, during the period of the grant, a burden corresponding to 2% (twoper cent) of its revenue, during the year before that of the payment, of the Commuted Fixed Telephone Service, net of incident taxesand social contributions.

Paragraph 1st. Costs arising from the creation of new universalization obligations under the General Plan of UniversalizationGoals approved by Presidential Decree may be considered when verifying if the obligations foreseen in the caput were executed.

Paragraph 2nd. The calculation of the percentage referred to in the caput of this clause will take into consideration the netincome from service plans, basic and alternative, object of this concession, being also included revenues from interconnection, PUCand other additional services and operating revenues, as defined by the Anatel.

Paragraph 3rd. The calculation of the percentage referred to in the caput of this clause will always be corresponding to the netincome of the deductions of incident taxes and contributions, verified between January and December of the previous year andobtained from the financial statements prepared as per company’s legislation and basic accounting principles, approved by theadministration of the Concessionaire and audited by independent auditors, and the payment will be due on April 30 of the subsequentyear to that of the verification of the burden.

Paragraph 4rd. The first installment of the burden will be due on April 30, 2007, calculated after considering the net incomeverified from January 1st to December 31st, 2006 and the subsequent installments will be due at each 24 (twenty four) months, havingas a calculation basis the income of the previous year.

Paragraph 5th. The delay in payment the burden foreseen in the clause will imply in the charge of an interest on arrears fine inthe amount of 0.33% per day, up to the limit of 10% (ten per cent), added by the referential tax SELIC for Federal titles, to be appliedon the value of the debt considering every day the payment is delayed. Chapter IV – Manner, Form and Conditions of Service Provision

Clause 4.1. The use of radiofrequencies in the provision of the service object of this grant will be authorized by Anatel, dulyremunerated and with no exclusivity, except if there is a disposition to the contrary in the legislation in agreement with terms ofarticles 83 and 163 of Law No. 9,472 of 1997.

Paragraph 1st. The Concessionaire will be entitled to prorogation, duly remunerated and with no exclusivity, of theauthorization of use of radiofrequency used on the date of signature of this Contract and that may be necessary to the continuity of theprovision of the service.

Paragraph 2nd. The amount to be paid by the prorogation mentioned in the previous paragraph will not imply in a change inthe value of the burden referred to in clause 3.3 of the present Contract.

Paragraph 3rd. The right of utilization of radiofrequencies referred to in this clause does not exclude the prerogative granted toAnatel by art. 161 of Law No. 9,472 of 1997.

Paragraph 4th. The new radiofrequencies that come to be required by the Concessionaire will have their use authorized, dulyremunerated, with the compliance with the procedures defined by Anatel for similar authorities.

Paragraph 5th. The time period of the authorizations for the use of the radiofrequencies object of the present clause will endwith the present grant.

Paragraph 6th. The return to Anatel of radiofrequencies that are not required to the continuity of the provision of services willnot imply in the modification of the value of the burden fixed in clause 3.3.

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Clause 4.2. The Concessionaire undertakes to render the service object of the grant so as to fully comply with theburdens of universalization and continuity inherent with the public regimen, which is fully applicable to it, in compliance with thecriteria, formulas and parameters defined in the present Contract.

Sole Paragraph. The non fulfillment with the obligations related to the universalization and continuity will imply in theapplication of the sanctions foreseen in the present Contract, will permit the establishment of interference by Anatel and, depending onthe case and severity or when the establishment of interference is not convenient, just, unfairly beneficial to the Concessionaire oruncalled for, it will imply in the extinction of the grant, as per terms of Clause 27.4.

Clause 4.3. The Concessionaire will explore the service object of the grant at its own account and risk, within theregimen of full and fair competition as established by Law No. 9,472 of 1997 and in the General Plan of Grants, being remunerated forthe tariffs charged and for eventual complementary or accessory income that it makes as per terms of the present Contract.

Sole Paragraph. The Concessionaire will not be entitled to any kind of exclusivity; neither will it be able to claim anyrights as to the admission of new providers of the same service, in the public or private regimen.

Clause 4.4. In the course of all the term of effectiveness of the grant, the Concessionaire undertakes to keep thecommitments of quality, coverage and offer of the service included in the present Contract, irrespective of the competitiveenvironment existing in the geographic area of exploration of the service.

Clause 4.5. The Concessionaire commits itself to keeping and preserving all the assets, equipment and installationsemployed in the service in perfect operating conditions, maintaining and repairing its units and promoting, in a timely fashion, thereplacements required as a result of wear or technological updating, or further, promoting the repairs or modernization necessary tothe good execution of the service and to the preservation of the adequate service, as determined in the present Contract. Chapter V – Rules for Implementation, Expansion, Alteration and Modernization of the Service

Clause 5.1. Basic assumptions of the present grant are the expansion and the modernization of the service granted,complying with the goals and the criteria of the present Contract.

Sole Paragraph. Anatel may determine the alteration of implementation, expansion and modernization goals of theservice, abiding by the right of the Concessionaire not to be compelled to bear non recoverable additional costs with the incomeresulting from the compliance with these goals by means of the efficient exploration of the service.

Clause 5.2. The alteration in the conditions of the provision of the service can only take place after determination ofAnatel or as per its previous and express approval.

Clause 5.3. The modernization of the service will be sought by means of the constant introduction of able equipment,processes and means to render to the user a service compatible with the occasion, in face of the technologies available in the market. Chapter VI – Criteria and Indicators of Service Quality

Clause 6.1. The adequate quality of the service rendered by the Concessionaire is an assumption of the present grant,considering as such the service that meets the conditions of regularity, efficiency, safety, modernity, generality, courtesy and low priceof the fares.

Paragraph 1st. The regularity will be characterized by the continued rendering of the service with strict compliance withthe terms of the norms established by Anatel.

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Paragraph 2nd. The efficiency will be characterized by the attainment and preservation of the parameters included in thepresent Contract and by the meeting to the user of the service within the time limits in this Contract.

Paragraph 3rd. The safety in the rendering of the service will be characterized by the confidentiality of the data relativeto the use of the service by the users, as well as by the full preservation of the confidentiality of the information transmitted in thescope of their rendering, complying with the terms of Chapter XV.

Paragraph 4th. The update will be characterized by the modernity of the equipment, the installations and the techniquesin the rendering of the service, with the absorption of the technological advances derived in the course of the grant time period that,conclusively, bring benefits to the users, complying with the dispositions of the present Contract.

Paragraph 5th. The generality will be characterized with the non discriminatory rendering of all the users of the servicegranted, as well as the compliance with the duties to inform and meet promptly and politely to all that, users or not, request from theConcessionaire, information, measures or any type of postulation, as per terms of dispositions in the present Contract.

Paragraph 6th. The courtesy will be characterized by the respectful and immediate servicing to all users of the servicegranted as well as for the compliance with the obligation to inform and service promptly and politely all that, users or not, requestfrom the Concessionaire, information, measures or any type of arrangement, as per terms of the present Contract.

Paragraph 7th. The principle of low cost in the fares will be characterized by the effort on the part of the Concessionairein practicing tariffs below those established by Anatel.

Clause 6.2. The Concessionaire must comply with the parameters and indicators of the General Plan of Quality Goals.

Sole Paragraph. The Concessionaire must disclose, up to April 30 of each, a statement reporting the fulfillment of theGeneral Plan of Quality Goals and the General Plan of Universalization Goals as per the terms of the regulation.

Clause 6.3. In addition to the follow-up and control of the quality indicators, Anatel will periodically evaluate the levelof satisfaction of the users with the service granted herein, being able to disclose the results of the Concessionaire, covering, at least,the following aspects:

I – meeting the user, especially as it regards easiness of access, quickness, cordiality, speed and effectiveness inresponding to requests and complaints;

II – tariffs and prices charged, as well as discounts offered;

III – quality of the service rendered, and

IV – adequacy of the quality of the services offered to the needs of the users. Chapter VII – Continuity

Clause 7.1. The continuity of the service granted herein, essential element to the regimen of its provision, will becharacterized by the non-interruption of the service, abiding by the suspension out of default of the user as per terms of disposition ofclause 9.2 and article 3rd, item VI, of Law No. 9,472 of 1997.

Sole Paragraph. It will not be considered a violation of the continuity the circumstantial interruption of the service as aresult of an emergency situation, motivated by reasons of technical order or in cases of safety in the installations, by means ofcommunication to the users affected and, in relevant cases, by means of circumstantiated notice to Anatel, being assured, in the formestablished by the regulation and the Consumer Protection Code, the right of the user to obtain a proportional credit relating to theperiod when the service was unavailable and any refund for amounts unduly paid.

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Clause 7.2. The Concessionaire may not, under any hypothesis, interrupt the rendering of the service, pledging the nonperformance of any obligation on the part of Anatel or the Union, not being called upon by the Concessionaire except for contractualnon performance. Chapter VIII – Universalization Goals

Clause 8.1. Universalization is an essential feature of the service rendering regimen being granted herein and will becharacterized by uniform and non discriminatory meeting to all the users and by compliance with the goals included in the GeneralPlan of Universalization Goals, attached to this Contract, approved by the Executive Power, as per article 18, paragraph III and article80 of Law No. 9,472 of 1997.

Clause 8.2. The implementation costs of the universalization goals included in the General Plan of UniversalizationGoals, attached to this Contract, will be supported with resources of the Concessionaire.

Clause 8.3. The Concessionaire, in addition to provisos of clause 8.2, assumes the obligation of implementinguniversalization goals which were not foreseen in the present Contract but which may come to be required by Anatel, complying withthe following:

I – Anatel will consult with the Concessionary on the total costs for the implementation of the intended additional goals,and on the parcel of these that may not be amortized by the exploration income, being covered by specific payment, specificallyindicating the objectives to be reached, the technologies selected, as well as the location and time period of implementation;

II – if, after the time period established in the consultation, there is no manifestation on the part of the Concessionaire,Anatel will take the necessary steps in order to establish the burden and costs of implementation of these goals as well as to estimatethe corresponding generation of income;

III – if the consultation is responded by the Concessionaire, Anatel will evaluate if the costs and the estimates of incomepresented are adequate and compatible, taking into account the technologies available, the price of the raw-materials and labor, thegeographical and social economic characteristics of the demand to be met, the prices practiced in the market place, in addition to othervariable that it considers as relevant;

IV – if it does not consider the costs and/or the estimate of income proposed relevant, Anatel may, reasonably, charge theimplementation of the goals to the Concessionaire, establishing the value of the indemnity, as per terms of Chapter XXXIII, and

V – Being the values of indemnity adequate and compatible in Anatel’s opinion, the latter will confirm to theConcessionaire the inclusion of the implementation of these specific goals, as per terms of the indemnity proposal forwarded by theConcessionaire.

Paragraph 1st. If, after the procedure foreseen in this clause, Anatel considers inconvenient or unfeasible theimplementation of the specific universalization goal by means of the Concessionaire, it will hire the responsibility from another, doingit by means of specific grants and delimiting the service, complying with the economic parameters obtained in the procedure foreseenin this clause.

Paragraph 2nd. At Anatel’s criterion, the procedure foreseen in this clause can also be used for the purposes ofestablishment of values to be returned, at the time of anticipation of the goals foreseen in the present Contract.

Clause 8.4. The adoption of the procedures foreseen in the previous clause is Anatel’s option, which may adopt it at itscriterion and within the best public interest, being the Concessionaire unable to having the right of preference in the implementation ofthese goals. Chapter IX – Rules on the Suspension of the Service out of Non Performance and At the Request of the Subscriber

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Clause 9.1. The subscriber of the service object of the present grant may request at any time the suspension of service, asper terms of the regulation.

Clause 9.2. The Concessionaire may only proceed to the suspension of service for subscriber does not honor thepayment of debt directly as a result of the use of the service granted, complying with the regulation and following the followingcriteria that aim at preserving the rights of the subscribers:

I – a period of time must be assured for the subscriber to question the debts entered against him;

II – the default subscriber will be entitled to preserving his access code, as per terms of the regulation, and

III – the default subscriber must not be encumbered with the payment of the monthly subscription tariff, relative to theperiod of suspension of the provision of the STFC.

Paragraph 1st. The Concessionaire must inform the suspension to the subscriber with the advance foreseen in theregulation.

Paragraph 2nd. The non payment of debts which are not related directly with the service object of this grant as perparagraphs 1st, 2nd and 3rd of clause 11.6 will not cause the suspension of services dealt with in the present clause.

Clause 9.3. The Concessionaire will further assure to the subscriber the right to have temporarily or permanentlyblocked the access to services, commodities or utilities offered, as well as added value services, whenever requested by him, as per theterms of the regulation.

Clause 9.4. In case of default on the part of the subscriber in referring exclusively to the payment of the servicesrendered by the provider of Commuted Fixed Telephone Service other than that being granted herein that is the object of joint billingby the Concessionaire, the suspension should abide by the specific procedure object of regulation by Anatel. Chapter X – Numbering Plan

Clause 10.1. The Concessionaire commits itself to abide by the Numbering Regulation of the Commuted FixedTelephone Service, assuring to the subscriber of the service the portability of access codes as per the terms of the regulation.

Paragraph 1st. The Concessionaire will shoulder the costs resulting from the regulation referred to in the caput of thisclause.

Paragraph 2nd. The costs referring to the resources necessary to allow the implementation and the operation of theportability of access codes should be fully assumed by the Concessionaire when this has to do with its own network.

Paragraph 3rd. The costs relative to the common resources required to the implementation and operation of theportability of access codes will be assumed by the service providers, as per the terms of the regulation.

Paragraph 4th. The costs relative to the administration of the process of consignation and occupation of NumberingResources of the Concessionaire described in the Regulation of Numbering of Commuted Fixed Telephone Service will be under itsresponsibility as per the terms of the rules of the administration of the Numbering Resources defined by Anatel. Chapter XI – Tariff Regimen and Billing from the Users

Clause 11.1. The Concessionaire must offer to all users, mandatorily, the Basic Plan of Long Distance SwitchedLandline Service, Attachment No. 02, full part of this Contract.

Sole Paragraph. The Basic Plan of National Long Distance Service will be unique for the entire area of the PGO sectorreferred to in clause 2.1 and must contain, as per terms of what has been established by Anatel, maximum values for each item of thetariff structure defined

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for the rendering of the Commuted Fixed Telephone Service, values which will be reviewed and readjusted, complying withapplicable norms.

Clause 11.2. The Concessionaire may offer to its users Alternative Plans of National Long Distance Services withcharacteristics different from those included in the Basic Plan of National Local and Long Distance Service.

Paragraph 1st. The transfer between the different Plans of National Long Distance Service offered by theConcessionaire will be assured to the user, as per terms of the regulation.

Paragraph 2nd. The structure of tariffs, values and other characteristics associated with the Alternative Plans of NationalLong Distance Service are of free proposition on the part of the Concessionaire, complying with terms of clause 11.1.

Paragraph 3rd. The Concessionaire is obliged to offering to the user its Alternative Plans of National Long DistanceService, in a way that is non discriminatory and if complied with the terms defined by it.

Paragraph 4th. The Alternative Plans of National Long Distance Service must be submitted to Anatel’s homologation.

Paragraph 5th. After a period of 15 (fifteen) days, counting from the receipt of the proposal, with no manifestation onthe part of Anatel on the request, the Alternative Plans of National Long Distance Service may be commercialized, remaining thesame subject to Anatel’s homologation.

Paragraph 6th. Anatel, in face of the needs of services for the society, may establish specific alternative plans to beimplemented by the Concessionaires, as per the terms of the regulation.

Clause 11.3. The Concessionaire may practice discounts at the tariffs of the Plans of National Long Distance Service aslong as this is done equally and without discrimination, being the subjective reduction of values prohibited and abiding by theprinciple of fair competition.

Sole Paragraph. The Concessionaire, abiding by the terms of the regulation, undertakes to disclose, in advance, to itsusers the discounts in tariffs, providing them with wide and previous disclosure, communicating its decision to Anatel up to 7 (seven)days after the beginning of the effectiveness of tariff reduction.

Clause 11.4. The Concessionaire undertakes to provide wide publicity to the tariffs practiced by the service object of thepresent grant, as per regulated by Anatel.

Clause 11.5. At the time of the implementation of new services, utilities or commodities related to the service, object ofthe grant, the Concessionaire will submit previously to the service the bill for the approval of Anatel, without which no tariff or pricemay be charged.

Clause 11.6. The documents relative to charges issued by the Concessionaire must be presented in detail, clearly,explained, transparent and must list the type and the amount of each service rendered to the subscriber as per the regulation.

Paragraph 1st. The Concessionaire, as per the terms of this Contract, must enter in the billing document, clearly andexplicitly, the values due by the subscriber to other telecommunication service providers of collective interest, assured fair and nondiscriminatory conditions.

Paragraph 2nd . The Concessionaire may enter in the billing document, as long as it is clear and explicit, the values dueby the subscriber as a result of other services, commodities or utilities related with the service granted.

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Paragraph 3rd. The inclusion in the billing document of values relative to the rendering of services of added value orany other amounts due not arising exclusively from the rendering of STFC is not allowed without the express approval of thesubscriber.

Clause 11.7. The Concessionaire will charge from the other telecommunication service providers tariffs for the use ofnetworks, as per the regulation.

Clause 11.8. The Concessionaire will offer a discount to the subscriber who is affected by eventual discontinuities in theprovision of the service granted, as long as they are not motivated by him, which will be proportional to the period in which theinterruption is verified, as per the regulation. Chapter XII – Tariff Readjustment

Clause 12.1. At each interval not below 12 (twelve) months, out of Anatel’s or the Concessionaire’s initiative, as long asthe rules of the effective economic legislation are complied with, the tariffs included in the Basic Plan of National Long DistanceService – Attachment No. 03, may be readjusted through the application of the following formulas:

Being:

Where: Tij1 = fees proposed for the Basic Plan for National Long Distance for j time, on the distance fee degree i, net of taxes. Tij10 = current fee for the Basic Plan for National Long Distance for j time, on the distance fee degree i, net of taxes. Mijto = minutes on the Basic National Long Distance, subject to the Basic Plan of National Long Distance on j time, and on distance

degree i, since last fee readjustment. MT = total minutes of the National Long Distance Service, subject to the Basic Plan for National Long Distance, since the last fee

readjustment. I = distance fee degree for the National Long Distance Service according to the Service Fee Structure j = fee time of the National Long Distance Service according to the Service Fee Structure t = proposed date for the readjustment to = date of last readjustment; and

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Where: IST = index for fee readjustment composed of existing price indexes, as per regulation. k = X + FA X = transference factor FA = damping factor

Paragraph 1st. For the period of January 1st, 2006 to December 31st, 2007, the factor of transference X will beestablished by Anatel based on a simplified methodology that includes, among others, the physical and economical data relative to theproducts monthly subscription and minute of utilization, as well as the factors materials, personnel, services and depreciation.

Paragraph 2nd. As of January 1st, 2008, the factor of transference X will be established by Anatel based on methodologyconsidering the optimization of the costs of service rendering, as per terms of the regulation.

Paragraph 3rd. In case the value resulting from the calculation of the factor of transference X is negative, it will beadopted for the same, the value 0 (zero).

Paragraph 4th. The value of the factor of the amortization is:

I – 0 (zero) for variations of the IST, in the period under consideration, up to 10% (ten per cent);

II – 0.01 (zero dot zero one), for variations of the IST, in the period under consideration, above 10% (ten per cent) andup to 20% (twenty per cent) and

III – 0.02 (zero dot zero two), for variations of the IST, in the period under consideration, above 20% (twenty per cent).

Paragraph 5th. If the readjustment period involves values that are different from the factor of transference, thetransference factor will be applied according to the following formula:

Where:





Paragraph 6th. If the date of the last readjustment is previous to the date of effectiveness of this Contract, the

readjustment will be applied progressively abiding by the periods involved and the respective formulas and effective criteria.

Paragraph 7th. New criteria of tariff follow-up including values of the factors of transference, may be established byAnatel at the time of the amendment of this Contract, as per terms of clause 3.2., considering the conditions effective at the time.

Paragraph 8th. The freedom to establish tariffs, when applicable, will be subject to a Normative Act by Anatel.

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Clause 12.2. The follow-up of the Tariffs of Use of the Local Network will abide by the terms of clause 25.2 and theregulation.

Sole Paragraph. New criteria of follow-up of the Tariffs of Use of the Local Network may be established by Anatel, atthe time of amendment of this Contract, as per terms foreseen in clause 3.2 and considering the conditions effective at the time.

Clause 12.3. The follow-up of the tariffs of the STFC in the local modality, in the calls involving othertelecommunication services, one must abide by the specific regulation. Chapter XIII – Protection of the Economic Situation of the Concessionaire and Revision of Tariffs

Clause 13.1. It is a basic assumption of the present Contract the preservation, in regimen of wide competition, of the fairequivalence between the rendering of the service and its remuneration, being the parties forbidden to unmotivated enrichment at theexpenses of the other party or the users of the service, as per terms of the dispositions in this Chapter.

Paragraph 1st. The Concessionaire will not be obligated to shoulder losses as a result of the present Contract, except ifthese result from some of the following factors:

I – its negligence, ineptitude or omission in the exploration of the service;

II – normal risks to the business activity;

III – inefficient management of its business, including the one characterized by the payment of operational andadministrative costs incompatible with the parameters verified in the market place, or

IV – its inability to take advantage of the existing opportunities in the market place, including regarding the expansion,enlargement and development of the provision of the service object of the grant.

Paragraph 2nd. It is forbidden the unmotivated enrichment of the Concessionaire as a result of:

I – appropriation of economic gains that do not come directly from its business efficiency, especially when they resultfrom the issuance of new rules on the service, and

II – the transfer of income to third parties, in detriment of the application of the principle of the tariff low-cost, as perestablished in paragraph 7th of clause 6.1.

Paragraph 3rd. The Concessionaire will be entitled to the recomposition of its initial situation of encumbrances andretributions when circumstances of force majeure or calamities affect significantly the exploration of the service, always abiding, as aparameter, by the reflection of these situations on the service providers in the private regimen.

Paragraph 4th. In the evaluation of the appropriateness of the recomposition dealt with in the previous paragraph will beconsidered, among other factors, the existence of coverage of the motivating event of the change in the initial economic situation bythe Insurance Plan foreseen in clause 24.1.

Clause 13.2. The re-establishment of the economic situation of the Contract will be proper when it is proven the nonoccurrence of the factors indicated in paragraph 1st of the previous clause, which will take place preferentially through the revision oftariffs or by any other mechanism that, at Anatel’s criterion, is considered able to neutralize the situation verified.

Paragraph 1st. The revision of the tariffs will keep away any other neutralization mechanism of the unmotivatedenrichment of the parties, making the event to which it referred overcome.

Paragraph 2nd. The measure adopted to neutralize a distortion will be unique, complete and final with reference to theevent that originated it.

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Clause 13.3. Irrespectively of terms of clause 13.1, there must be a revision of the tariffs included in the Basic Plan ofthe Local Service in favor of the Concessionaire or the users, as per terms of article 108 of Law No. 9,472 of 1997, when one of thefollowing specific situations is verified:

I – unilateral modification of this Contract imposed by Anatel, which implies in an expressive variation of costs or ofincomes, for more or for less, so that the increase or the reduction of tariffs is imposed by the need to avoid the unmotivatedenrichment of any one of the parties;

II – change in the tax order subsequent to the signature of this Contract, which implies in increase or reduction ofpotential profitability of the Concessionaire;

III – supervening occurrences, resulting from the fact of the principle or fact of the Administration that result, as a proof,in change in the costs of the Concessionaire:

IV – legislative change of specific character that has a direct impact on the incomes of the Concessionaire so as to affectthe continuity or the quality of the service rendered, or

V – legislative alteration that results in benefit to the Concessionaire, including the one that grants or suppressesexemption, reduction, discount or any other tax or tariff privilege, as per foreseen in paragraph 3rd of article 108 of Law No. 9,472 of1997.

Paragraph 1st. The loss or the reduction of gains of the Concessionaire resulting from the free exploration of the servicein competitive conditions or the inefficient management of its business will not imply in the revision of the tariffs.

Paragraph 2nd. The hypothesis of revision foreseen in paragraph II of the caput of this clause will not be applicablewhen the alteration in the tributary order implies in the creation, suppression, increase or reduction of incident taxes on the income orthe profit of the Concessionaire, such as the Income Tax, that do not imply in administrative or operational encumbrances.

Paragraph 3rd. There will be no revision of tariffs in the hypotheses foreseen in this clause when the events thatmotivated the revision are already covered by the Insurance Plan foreseen in clause 24.1.

Paragraph 4th. The contributions of the Concessionaire to the Fund of Universalization of the TelecommunicationsServices and to the Fund for the Technological Development of Telecommunications will not motivate a revision of the tariffs.

Clause 13.4. The revision of the tariffs will not be applicable when it is characterized that the impacts that motivate therequest on the part of the Concessionaire can be neutralized with the efficient exploration of the service, by the expansion of themarket or by the generation of alternative or complementary incomes associated to the object of the present Contract, abiding by thecompetitive conditions verified at the moment.

Sole Paragraph. The decrease of the income resulting from the discounts or reduction of tariffs will not motivate therevision of same.

Clause 13.5. The procedure of tariff revision may be started upon the request of the Concessionaire or by determinationof Anatel.

Paragraph 1st. When the procedure of tariff revision is started by the Concessionaire, the following requirements mustbe complied with:

I – be followed by a technical report of expert report that shows in detail the impact of the occurrence on the formationof the tariffs or the estimate of incomes of the Concessionaire:

II – be accompanied by all the documents necessary to the statement of the appropriateness of the request;

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III – the Concessionaire must indicate its intention to revise the tariffs, informing the impacts and the eventualalternatives of tariff balancing, and

IV – all the costs with diligences and studies necessary to the full instruction of the request will be at the expense of theConcessionaire.

Paragraph 2nd. The procedure of revision of the tariffs started by Anatel must be the object of communication to theConcessionaire consignating a time period for its manifestation, accompanied by the copy of the reports and studies performed tocharacterize the situation that motivated the revision.

Paragraph 3rd. The procedure of tariff revision will be concluded in a time period not above 120 (one hundred andtwenty) days, except in the hypothesis when it is necessary the prorogation of the same for complementation of the instruction.

Paragraph 4th. The request must be approved by Anatel, and the Concessionaire must arrange for the wide disclosure ofthe new maximum values of the reviewed tariffs, as per the terms of the present Contract. Chapter XIV – Alternative, Complementary and Accessory Revenues

Clause 14.1. The Concessionaire may obtain other alternative sources of income as long as this does not imply in notcomplying with the dispositions included in the Regulation of Telecommunications Services and the other norms issued by Anatel.

Paragraph 1st. Abiding by the terms of the regulation and the Consumer Protection Code, the Concessionaire, its allied,controlled or controlling companies cannot subject the offer of the service herein granted to the combined service to any other service.

Paragraph 2nd. The offer of the service granted hereby in conjunction with other services must comply with applicableregulation and the Consumer Protection Code.

Clause 14.2. Anatel may determine that the Concessionaire offer to the users, services, commodities or utilitiescorrelated to the object of the grant, and in this case the parties must adjust the unit prices of these services, abiding by the parametersof the market and the right to fair remuneration. Chapter XV – Rights and Guarantees of the Users and Other Providers

Clause 15.1. When the rules and parameters included in this Contract are respected, the users of the service object of thepresent grant have the right to the following:

I – the access to the service and its fruition within the standards of quality, regularity and efficiency foreseen in thepresent Contract, its attachments and effective norms;

II – the possibility of requesting the suspension or the interruption of the service rendered by the Concessionaire;

III – the non discriminatory treatment as to the conditions of access and fruition of the service;

IV – the achievement of adequate information as to the conditions of service rendering, tariffs and prices practices;

V – the unbreakability and the secret of its communication, abiding by the hypotheses and constitutional and legalconditions of breach of telecommunications confidentiality;

VI – obtain, free of charge, through a request forwarded to the service of care to users kept by the Concessionaire, thenon disclosure of its access code;

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VII – the non suspension of the service without its request, except for the hypothesis of debt directly resulting from itsuse or as a result of non compliance with the duties included in art. 4th of Law No. 9,472 of 1997;

VIII – the previous knowledge of all and any alteration in the conditions of service rendering that influence it directly orindirectly;

IX – the privacy in the billing documents and in the use of its personal data by the Concessionaire;

X – the efficient and ready response to its complaints by the Concessionaire;

XI – the forwarding of complaints or representations against the Concessionaire at Anatel and the organisms of defenseof the consumer;

XII – the reparation for the damages caused by the violation of its rights;

XIII – see that the terms of the service agreement by which the service has been contracted are followed;

XIV – choose freely the provider of telephone services of national and international long distance;

XV – have its right of portability of access codes respected, abiding by the dispositions of the regulation;

XVI – not to be obliged to consume services or acquire goods or equipment that are not in his interest, and not to becompelled to subject himself to the condition for the receipt of the service object of the present grant, as per terms of the regulationand the Consumer Protection Code;

XVII – the substitution of his access code as per terms of the regulation;

XVIII – obtain, previously to billing, information on the re-inclusion of debts argued at the time of complaint consideredgroundless, and

XIX – the billing of services outside regulamentary periods must occur in a separate invoice and through previousnegotiation with the user.

Paragraph 1st. The Concessionaire will respect the duty to zeal strictly for the confidentiality inherent to the telephoneservice and for the confidentiality as to the data and information, employing means and technology that assure this right of the users.

Paragraph 2nd. The Concessionaire will make available the technological resources necessary to the suspension oftelecommunications confidentiality determined by judicial authority, as per regulation.

Paragraph 3rd. The Concessionaire must, with regard to its subscribers, fulfill, in addition to the legal, contractual andregulatory dispositions, the other norms of consumers’ protection, especially Law No. 8,078 of September 11, 1990 and the DecreeNo. 6,523 of July 31, 2008.

Clause 15.2. To the other telecommunication service providers will be assured, in addition to the rights referred to in theprevious clause, the following rights:

I – the interconnection to the network of the Concessionaire in non discriminatory economic and operational conditionsunder technically adequate conditions and at isonomic and fair prices that meet strictly the basic needs of the service rendered, abidingby the regulation issued by Anatel;

II – to receive the service requested from the Concessionaire without any type of discrimination, for the prices of themarket or for negotiated prices by the parties and with the

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reductions that were applicable as a result of the costs avoided including as a result of the large scale consumption, abiding by theregulation,

III – obtain all the information that is necessary to the rendering of the service operated by them, including those relativeto billing, except for the right of the Concessionaire to the preservation of its data recovered by corporate confidentiality, as well as therights of third parties, and

IV – the access to telecommunication networks of the Concessionaire in nondiscriminatory and equal conditions andcoherent with its commercial practices, as set forth under the General Plan of Competition to be issued by Anatel.

Paragraph 1st. The conflicts between the Concessionaire and other providers will be settled administratively by Anatel,as per the terms of the regulation.

Paragraph 2nd. Anatel may, cautiously, establish the conditions necessary to the surpassing of the conflict, including thedefinition of values, time limits of fulfillment and any other elements essential to the effectives of the cautionary decision.

Paragraph 3rd. Anatel will follow permanently the relationship between the providers that make use of the service nowbeing granted and the Concessionaire, so as to restrain conducts that may imply in unfair loss to any one of the parties or that imply inviolation to the economic order and to the free competition, communicating, in these hypotheses, such conducts to the AdministrativeCouncil of Economic Defense – CADE, after the exercise of its competence, as per disposition of art. 19, item XIX, of Law No. 9,472of 1997.

Clause 15.3. By fulfilling the regulation, it will be assured the right of any user to render and have fruition of theservices of added value, which must take place in technically adequate conditions and at isonomic and fair prices, being guarded to theConcessionaire the establishment of any hindrance or restriction to the fruition of the service herein granted.

Sole Paragraph. It is understood as added value service any activity that adds to the service object of this grant, withoutgetting mixed up with it, new utilities related to the access, storage, presentation, movement or recovery of information. Chapter XVI – Rights, Guarantees and Obligations of the Concessionaire

Clause 16.1. In addition to the other obligations resulting from this Contract and inherent to the provision of the service,the Concessionaire will be responsible for:

I – rendering the service with full compliance with dispositions of the present Contract, fully subjecting itself to theregulation issued by Anatel;

II – implementing all the equipment and installations necessary to the rendering, continuity, modernization, enlargementand universalization of the service object of the grant, within the specifications included in the present Contract;

III – keeping in perfect operating and working conditions the network of telecommunications in amount, extension andlocations pertinent and sufficient to the adequate rendering of the service;

IV – providing financial resources necessary to the meeting of the parameters of universalization and continuity includedin the present Contract and to the adequate rendering of the service;

V – rendering to Anatel, in the way and periodicity foreseen in the regulation, accounts and information of technical,operational, economic, financial and accounting nature, as well as providing all the data and elements relative to the service that arerequested;

VI – keeping the public use terminals, permanent or temporary, as foreseen in this Contract;

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VII – submitting to Anatel’s surveillance, monitoring and control, allowing the access of its agents to the installationsthat integrate the system as well as its technical, accounting, commercial, economical-financial, operational and other records;

VIII – keeping separate accounting records for the modality of the STFC object of this Contract, in accordance with theaccount plan established, as well as keeping the inventory of the goods and the components of the company’s asset updated, as per theregulation;

IX – keeping an information system and user’s care as per terms of clause 16.7;

X – caring for the integrity of the assets connected with the rendering of the service;

XI – submitting to the approval of Anatel, previously to its use, the draft of the Standard-Contract to be signed with thesubscribers, as well as all the amendments, addenda or variations applicable to it;

XII – submitting to the previous approval of Anatel, the operational agreements or contracts of service rendering, ofassociation or partnership that intend to sign with foreign entities;

XIII – forwarding for publication at Anatel’s Library a copy of agreements and contracts relative to the rendering of theservice herein granted with national and foreign renderers of telecommunication services;

XIV – forwarding for publication at Anatel’s Library a copy of agreements and contracts relative to the rendering of theservice herein granted, which involve renouncement or transfer of income, in amounts above R$ 3.000.000,00 (three million reais) peryear;

XV – disclose, directly or by means of third parties, the access code of its subscribers and the other subscribers ofCommuted Fixed Telephone Service renderers, in public and private regimen, in the grant area, with exclusion of those who expresslyrequire the omission of their personal data;

XVI – providing, in time periods and at reasonable prices and in a non discriminatory way, the relation of its subscribersfor the purposes of disclosure of telephone books;

XVII – follow strictly the duty of confidentiality and secrecy of telecommunications, abiding by the legal and contractualprescriptions;

XVIII – respect the privacy of the subscribers with relation to the documents of billing and all the personnel informationrelative to them;

XIX – fulfill, at its own expenses, and abiding by disposition of clause 8.2 of this Contract, all the goals ofuniversalization expressly included in this Contract;

XX – implementing expansion and universalization projects of the service that come to be determined by Anatel,according to levels of reimbursement, time limits and conditions of implementation established, abiding by disposition of clause 8.3;

XXI – submitting previously to Anatel all and any alteration that intends to make in its statutes as to a merger, split,transformation, incorporation, as well as the transfer of control or alteration in the capital stock;

XXII – observe all the rights of the other telecommunication service renderers, keeping from practicing anydiscriminatory conduct or oriented towards preventing their activity;

XXIII – using, whenever required by the regulation, equipment with certification issued or homologated by Anatel;

XXIV – observe the norms and the technical standards effective in Brazil, omitting any discriminatory practice inrelation to goods and equipment produced in the country;

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XXV – placing at the disposal of the authorities and the civil defense agents, as well as the institutions that renderEmergency Public Services, in the cases of public calamity, all the means, systems and availabilities that were requested from it with aview at providing support or helping the population affected;

XXVI – meet with priority the President of the Republic, his protocol representatives, his entourage and supportpersonnel, as well as foreign State Heads, when visiting or official dislocations in Brazilian territory, making available the necessarymeans for the adequate communication of these authorities, observing the regulation issued by Anatel;

XXVII – paying all taxes of surveillance and operation of its installations, as per the regulation;

XXVIII – paying all the values relative to public prices, in special for the right of use of scarce resources;

XXIX – publishing annually, irrespectively of the company legal regimen to which it is subject, balance sheet andfinancial statements verified at the end of each social exercise, observing the dispositions of the effective legislation and of theregulation issued by Anatel;

XXX – observing the effective norms in the country as to the use of foreign labor, including in the highest qualificationpositions;

XXXI – indemnify, respecting the regulation, the users for damages effectively resulting from the non rendering of theservice that would be required in face of the continuity parameters and the universalization goals foreseen in the present Contract;

XXXII – repair the damages caused by the violation of the rights of the users;

XXXIII – do not spend with management service rendering contracts, including technical assistance, with foreignentities, in relation to the annual income of the Commuted Fixed Telephone Service, net of taxes, values above 0.1 % (zero dot oneper cent) per year until the end of the grant;

XXXIV – fulfilling agreements signed between Brazil and other countries and international organisms, as regulated byAnatel;

XXXV – making available, at least, 6 (six) dates for expiration of the billing document relative to the service to the user;

XXXVI – meeting promptly all the requests of the users registered at Anatel’s Call Center, replying to them in writing;

XXXVII – providing data, information, reports and accounting records when these are requested by inspecting agents,within fixed time period, under the penalty of incurring in sanctions foreseen in this Contract, and

XXXVIII – submitting to Anatel all the contracts, agreements or adjustments celebrated between the Concessionaire andits controlling shareholders, direct or indirect, or allied companies, especially those that have to do with direction, management,engineering, accounting, consulting, purchasing, supplies, constructions, loans, sales of stocks, merchandises, as well as contractssigned with:

a) individuals or legal entities that, along with the Concessionaire, are part, directly or indirectly, of the same controlledcompany, and

b) individuals or legal entities that have directors or common administrators of the Concessionaire.

Paragraph 1st. The decisions relative to item XXXIII of this clause in contracts of service rendering and technicalassistance, between the Concessionaire and third parties connected with the controlling shareholders, must be made in special meeting,and the Concessionaire should

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record on its by-laws that the preferred shares will have right to vote in these decisions, at no loss of dispositions of paragraph 1st ofart. 115 of Law No. 6,404 of December 15, 1976, altered by Law No. 10,303 of October 31, 2001.

Paragraph 2nd. In the cases of conflict between the Concessionaire and other telecommunication service renderers in theestablishment of fair and reasonable values, Anatel, may, cautiously, determine such values, time periods for the fulfilling and anyother elements essential to the effectiveness of the cautionary decision.

Clause 16.2. At no loss to the other dispositions included in this Contract and the guarantees assured in Law, the rightsof the Concessionaire are to:

I – explore the service granted within its corporate strategy, freely defining its investments, respecting the regulationissued by Anatel and the dispositions of this Contract;

II – appoint a representative to accompany the inspection activity on the part of Anatel; except in the cases where priornotice or physical presence are not compatible with the nature of the inspection or when confidentiality is a requisite to ensureefficacy, giving the Concessionaire the right to review the corresponding report after the end of the inspection;

III – suspend or not meet the request for the rendering of services to the default subscriber toward his contractualobligations with the Concessionaire, as set forth in the regulation;

IV – request the institution of the arbitrage procedure in the hypotheses and as per the way prescribed in Chapter XXXIIIof this Contract;

V – have the economic conditions for the exploration of the service preserved against alterations that imply inunmotivated enrichment of the Union or the users as per terms of Chapter XIII;

VI – request the revision of the tariffs applied to the service granted, as per terms of this Contract;

VII – request from Anatel the confidentiality of information collected in the exercise of the inspection activity, as perterms of this Contract;

VIII – employ in the execution of the services equipment and infrastructure that do not belong to them, abiding by theterms of clause 22.1 of this Contract, and

IX – hire with third parties the development of inherent activities, or those activities that are accessory or complementaryto the service, as well as the implementation of associated projects.

Clause 16.3. During the effectiveness of the Contract, the Concessionaire will be the only one responsible, before thirdparties, for the acts practiced by its personnel, representatives and hired personnel, in the rendering of the Commuted Fixed TelephoneService, as well as the use of the equipment, installations or networks, excluding the Union and Anatel from any complaints and/orindemnities.

Clause 16.4. The Concessionaire may not hinder the works in public interest, whatever their nature, whenever it isnecessary to remove installations or telephone networks for the feasibility of interventions promoted, directly or indirectly by anyagency or entity of Public Administration.

Clause 16.5. The Concessionaire must agree directly with each City Hall as to the areas of exploration of the service aswell as with the other Concessionaires of public services as to the conditions for the installation of poles double tee junctions for thesuspension of lines and aerial cables, as well as underground ducts and channels destined for the passage of cables under the streetsand public avenues.

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Paragraph 1st. The Concessionaire will work with the holders of public or private assets on or under which it has toinstall ducts or channels or even install supports for the installation of the same, obtaining the respective consent or bondage for such apurpose.

Paragraph 2nd. The Concessionaire must promote at the respective municipal authorities the agreements necessary tothe establishment of the conditions for the surpassing of the interferences in the network required to the rendering of the service,including that which relates to the cutting and clipping of trees.

Paragraph 3rd. The Concessionaire is entirely responsible, at its own risk, for all the constructions, installations and useof equipment for the rendering of the service, being expressly understood that it is up to the Concessionaire the relationship withmunicipal, state or federal control agencies the use of the soil, buildings and environmental control.

Clause 16.6. The Concessionaire may use poles, ducts, conduits and bondages belonging or controlled by otherrenderers of services or telecommunications or of other services in the public interest, abiding by the regulation.

Sole Paragraph. The Concessionaire must make available to the other service renderers of telecommunicationsclassified by Anatel as being of collective interest, the means of its property or controlled by it, referred to in the caput of this clause.

Clause 16.7. The Concessionaire must provide a customer service, during the whole validity of the present grant,through the following channels, as set forth under applicable regulation:

I – a free central of information and a central of users’ help, operating 24 (twenty four) hours per day and 7 (seven) daysa week, qualified to receive and process requests, complaints and protests forwarded by the users;

II – personal service allowing the user to have interactions relating to the provision of the STFC; and

III – any means of distant communication.

Paragraph 1st. The Concessionaire must make available, in a clear and objective manner, to all the users:

I – the access codes of its central of information and central of users care, as well as any other means of distantcommunication, which should necessarily be a part of the service agreement, the billing documents, the Mandatory and Free of ChargeTelephone Book – LTOG, in the Internet and all other printed materials delivered to the user when contracting for the service andduring its use; and

II – the addresses of the locations for personal service on its internet website and through the user call center.

Paragraph 2nd. All the requests, complaints or protests forwarded by the users, by any means, must receive a sequentialorder number, which will be informed to the interested party in order to enable his follow-up, as per terms of the regulation.

Paragraph 3rd. The user will be informed by the Concessionaire within the legal and regulatory deadlines as to themeasures adopted as a result of its request, protest of complaint.

Paragraph 4th. If Anatel confirms there is difficulty of access by the users to the central of information and central ofservices, it may determine that the Concessionaire expand the means of access available, under the penalty of considering unattendedthe obligation foreseen in this clause.

Clause 16.8. Upon hiring of services and in the acquisition of equipment and materials connected to the service object ofthis Contract, the Concessionaire commits itself to

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considering offers from independent suppliers, including national ones, and base its decision, with respect to the several offerspresented, on the fulfilling of objective criteria of price, delivery conditions and technical specifications established in the pertinentregulation.

Paragraph 1st. In the cases where there is equivalency among offers, the Concessionary company commits itself tousing as untying criterion, the preference to services offered by companies located in the country, equipment, computer programs(software) and materials produced in the country and, among them, those with national technology.

Paragraph 2nd. The equivalency referred to in t his clause will be verified when, cumulatively:

I – the national price is lower or equal to the price of the imported one, once in national territory, including incidentduties;

II – the delivery time period is compatible with the needs of the service, and

III – the technical specifications are established in the pertinent regulation that has certification issued or accepted byAnatel, when applicable.

Paragraph 3rd. It is understood as services those related with research and development, planning, project,implementation and physical installation, operation, maintenance, as well as acquisition of computer programs (software), supervisionand tests for the evaluation of telecommunication systems.

Paragraph 4th. The Concessionaire must make available every quarter, through electronic systems of use reserved toAnatel, the list of goods and services acquired that are directly related with the offering of telecommunication services by theConcessionaire with, at least, the following information:

I – Manufacturer of the good or service provider;

II – General description of the good or service;

III – Value of the good or service;

IV – If imported or manufactured in the country;

V – If it holds local technology certification, under the rules set forth by the Ministry of Science and Technology or otherentity designated for such; and

VI – Aggregated consumption in the period, separating the value of goods and services according to the criteria definedunder items IV and V.

Clause 16.9. The payment or transfer of values due to other telecommunication service providers is an obligation of theConcessionaire, as per terms of the regulation, being the non payment or unjustifiable withholding characterized as obstacles tocompetition, which subjects the Concessionaire to sanctions foreseen in clause 26.1.

Clause 16.10. The Concessionaire commits itself, after request, to providing and assuring the updating of theinformation in its registration bases of its subscribers, necessary to the rendering of the telecommunication service on the part of theproviders of collective interest with which it has interconnection of networks, and such a provision must take place through isonomic,fair and reasonable conditions, as per terms of the regulation.

Paragraph 1st. The performance of the referred subject in this clause must take place up to 30 (thirty) days after therequest, irrespective of the conclusion of negotiations among the parties.

Paragraph 2nd. The supply will be remunerated based on fair and reasonable values, as per dispositions of paragraph 2nd

of clause 16.1.

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Paragraph 3rd. It will be admitted the performance of the obligation by means of the implementation, jointly with theother providers, of a centralized registration base.

Clause 16.11. The Concessionaire, by means of requests, will make available to the telecommunication service providersof collective interest, with which it has network interconnection, the services relative to billing, invoicing, service and collection, inisonomic, fair and reasonable conditions, as per terms of the applicable regulation and fiscal legislation.

Sole Paragraph. The services referred in this clause will be implemented in up to 30 (thirty) days after the request,irrespective of the conclusion of the negotiation between the parties, or the eventual requests of settlement of conflicts submitted toAnatel, abiding by dispositions of Paragraph 2nd of clause 16.1.

Clause 16.12. The Concessionaire will assure to any other collective interest telecommunication service provider theinterconnection with its network, abiding by the specific regulation and the norms of the present Contract.

Sole Paragraph. If the Concessionaire does not conclude, within regular time periods, the interconnection contract andcannot objectively confirm the existence of a technical hindrance, Anatel will establish, as a safeguarding measure, a time limit for theimplementation of the interconnection independently of the conclusion of the commercial negotiations or eventual requests ofarbitrage submitted to Anatel.

Clause 16.13. The Concessionaire is obligated to provide the resources necessary to the interconnection of providers ofservice of telecommunications of collective interest as per industrial exploration, in the terms of the regulation.

Sole Paragraph. If the Concessionnaire does not provide the resources within the regular time periods and does notconfirm objectively the absence of capability for servicing, Anatel will establish, as a safeguarding measure, the conditions to meet therequest, including, if necessary be, the values to be effected.

Clause 16.14. The Concessionaire undertakes to providing the resources necessary to the implementation oftelecommunication networks, including the access network, the access of collective interest service providers, as per industrialexploration, in the terms of the regulation.

Paragraph 1st. If the Concessionaire does not provide the resources in up to 60 (sixty) days, counting from the request,and does not confirm objectively the absence of capability for servicing, Anatel will establish, as a safeguard, the conditions to meetthe request, including, if necessary, the values to be practiced.

Paragraph 2nd. The date of the establishment of the service rendering contract between user and provider defines thechronological order of servicing to the request of the resources by the Concessionaire.

Paragraph 3rd. If there are multiple requests for the same user, the Concessionaire undertakes to providing the resourcesrequested, following the chronological order of requests of the providers.

Clause 16.15. The Concessionaire undertakes to comply with the General Plan of Competition Goals and to implementthe resale of the service object of the grant as per the terms of the regulation.

Clause 16.16. The Concessionaire undertakes to allow the access, in a non discriminatory way and in the terms of theregulation, to the information of its list of subscribers necessary for the purpose of disclosure of telephone books.

Paragraph 1st. The access referred to in this clause must be implemented in up to 30 (thirty) days after request, as longas the existence of hindrance is not objectively confirmed.

Paragraph 2nd. The access will be remunerated, based on fair and reasonable values.

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Paragraph 3rd. In the cases of conflicts between the Concessionaire and interested parties in disclosing its list ofsubscribers, in the establishment of fair and reasonable values, Anatel may, as a safeguard measure, establish such values. Chapter XVII – Obligations and Prerogatives of Anatel

Clause 17.1. In addition to the other prerogatives inherent to its role of regulating agency and the other obligations resultingfrom the present Contract, Anatel will have to:

I – accompany and inspect the provision of the service and the preservation of the reversible assets, aiming at meeting norms,specifications and instructions established in this Contract and its attachments;

II – proceed to inspections for the verification of the adequacy of the installations and equipment, determining the necessarycorrections, repairs, removals, reconstructions or substitutions at the expense of the Concessionaire;

III – regulate permanently the provision of the service granted;

IV – interfere in the execution of the service whenever required, so as to assure its regularity and the faithful compliance of theContract and the pertinent legal norms;

V – apply the penalties foreseen in the regulation of the service, in the Consumer Protection Code and specifically in thisContract;

VI – decide on Alternative Plans of Local Service presented by the Concessionaire;

VII – establish, authorize the readjustment and proceed to the revision of the tariffs, as per terms and as per dispositions of thisContract;

VIII – act within the limits foreseen in this Contract aiming at preventing the unmotivated enrichment of the parties, as perterms of this Contract;

IX – watch over the good quality of the service and handle complaints and claims from the users, making them aware of themeasures taken;

X – declare the concession finished in the cases foreseen in this Contract;

XI – watch over the guarantee of interconnection, settling eventual pending issues emerged between the Concessionaire andother providers;

XII – watch over the meeting the goals of universalization foreseen in this Contract and the goals that come to be established inthe subsequent Goal Plans;

XIII – accompany permanently the relationship between the Concessionaire and other service providers of telecommunications,settling conflicts and establishing Cautiously, values, time limits for the fulfillment and any other conditions essential to the effectivesof the cautionary decision.

XIV – prohibit conducts on the part of the Concessionaire contrary to the regimen of competition, complying with the legalcompetences of the CADE;

XV – propose, by request of the Concessionaire, to the President of the Republic, by means of the Ministry of Communications,the declaration of public utility for the purposes of dispossession or institution of administrative bondage, of the assets necessary to theimplementation or maintenance of the service object of this Contract;

XVI – exercise the activity of inspector of the service as per terms of this Contract;

XVII – collect the taxes relative to FISTEL, FUST and others that come to be created, whose collection responsibility might beof Anatel, adopting the measures foreseen in the effective legislation;

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XVIII – determine to the Concessionaire the adoption of measures that aim at the protection of the public interest or to assurethe fruition of the service, complying with what is established in the regulation and in this Contract;

XIX – determine to the Concessionaire the amends to the users for the non compliance with obligations of the present Contractand the regulation;

XX – decree the intervention in the Concessionaire in cases foreseen in article 110 of Law No. 9,472 of 1997 and in thisContract;

XXI – collect the amounts relative to public prices, especially for the right of use of scarce resources;

XXII – determine modifications or the rescission of the contracts, agreements or adjustments celebrated between theConcessionaire and its controlling shareholders, whether direct or indirect, or united companies, particularly those that deal withdirection, management, engineering, accounting, consulting, purchasing, supplies, construction, loans, sales of stock, goods, whenthese oppose the legislation, the rules, the economic order or the public interest; and

XXIII – determine the cancellation of the transfer operation or replacement by an equivalent the of transferred goods by theConcessionaire, as well as modifications or the rescission of contracts, agreements or adjustments entered into between theConcessionaire and a third party, when these are against the law, rules, regulations, economic order or public interest. Chapter XVIII – Concessionaire

Clause 18.1. The Concessionaire is a company made up as per the Brazilian laws, under the way of a stock company, having asexclusive purpose the exploration of the service object of the present grant, except for the services as per terms of disposition inparagraph 3rd of article 207 of Law 9,472 of 1997.

Sole Paragraph. If the statutory alteration of the Concessionary is approved, the documents that make it formal will beforwarded to Anatel for filing, and will be a full part of the present Contract, as per terms of the regulation.

Clause 18.3. The Concessionaire and its controllers undertake to assure, during the entire time period of the concession, theeffective existence and performance in national territory, of the centers of deliberation and implementation of strategic, management,logistics, commercial, operational and technical decisions involved in t he fulfillment of the present Contract, making such anobligation reflect also on the composition and in the decision-making procedures of its administrative agencies.

Sole Paragraph. The Concessionaire must keep, in its statute, during the term of effectiveness of the present Contract,dispositions that warrant the fulfillment of terms in the caput of this clause. Chapter XIX – Transfer of the Concession and of the Control of the Concessionaire

Clause 19.1. The transfer of concession or the control, direct or indirect, of the Concessionaire, may be authorized by Anatel,complying with the General Plan of Grants and Law No. 9,472 of 1997, when:

I – the assignee meets all the requirements established in the terms of articles 97 and 98 of Law No. 9,472 of 1997, and

II – the measure does not harm the competition and does not endanger the execution of the Contract and the general norms ofprotection to the economic order.

Sole Paragraph. The non compliance with any disposition included in this clause will imply in the caducity of the presentconcession.

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Clause 19.2. The stocks of the Concessionaire whose transfer does not alter its control may be freely given as guarantee.

Sole Paragraph. In the case of a guarantee by means of stocks that imply in burdening of the asset of the Concessionaire, thefinancing contracts must be provided with devices which submit the creditors, in case of execution, to the rules included in thisChapter. Chapter XX – Inspection Regimen

Clause 20.1. Anatel will exercise inspection of the service being granted herein so as to assure the fulfillment of theassumptions of universalization and continuity inherent to the public regimen of its provision, as well as to watch over the fulfillmentof the goals and the commitments included in the present Contract.

Paragraph 1st. The inspection to be exercised by Anatel will include the inspection and follow-up of the activities, theequipment, the facilities, the contracts and the economical-financial situation of the Concessionaire, whether by means of directperformance of its inspection agents, whether by means of a formal request, implying in broad access to all the data and information ofthe Concessionaire or third parties, which must be provided timely, in the way required, in accordance with the contents of thisContract.

Paragraph 2nd. The information collection in the course of the inspection activity will be published in the Library, except forthose that, upon request of the Concessionaire, are considered by Anatel as of confidential nature.

Paragraph 3rd. The information that come to be considered of confidential nature, as per terms of the previous paragraph, willonly be used in the procedures correlated to the present Contract, being Anatel and those appointed by it responsible for anydisclosure, wide or narrow, of such information outside the scope of utilization.

Paragraph 4th. Anatel’s inspection will also cover the follow-up and control of the stocks of the Concessionaire in thetechnical, accounting, commercial and economical-financial areas, and may establish guidelines and procedures necessary to theeffectiveness of the inspection, as well as suspend all and any activity that is incompatible with the requirements of universalization,quality, efficiency, safety and continuity of the service.

Paragraph 5th. The Concessionaire’s Accounting will be presented separately for the modality of the STFC object of thisContract and will abide by the established account plan, in the terms of the regulation, registering and verifying, separately, theinvestments and the costs of the several components of its network.

Paragraph 6th. The Concessionaire undertakes to render to Anatel, as per terms of the regulation, relevant information, amongothers:

I – those of economical-financial and accounting nature, including information on asset balance sheet, statement of results,indebtedness, origins and applications of resources and value added results, among others;

II – those of a commercial nature, including the installed base of users, by type and by sector of concession, net and grossincomes, total number of minutes and calls charged and number of default subscriptions by service plan;

III – the ones of technical-operational nature, including the installed capacity by sector of the external plant, commuting andtransmission ports, introduction plans of new technology per service and per sector, and

IV – the others, such as number of own employees and employees hired per activity.

Paragraph 7th. Anatel’s inspection does not decrease not does it exempt the responsibility of the Concessionaire as to theadequacy of its works and facilities, as to the correction and legality of its accounting records and its financial and commercialoperations.

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Paragraph 8th. It is the duty of the Concessionaire to render the relevant information within the time period set up by Anatel’sinspection.

Clause 20.2. The Concessionaire, through appointed representative, may accompany all and any Anatel’s inspectionactivity, except in the cases where prior notice or physical presence are not compatible with the nature of the inspection or whenconfidentiality is a requisite to ensure efficacy, under the penalty of incurring in the penalties foreseen in this Contract. Chapter XXI – Settlement of Accounts by the Concessionaire

Clause 21.1. As per terms of the regulation and as per form defined by Anatel, the Concessionaire must periodically send toAnatel information and statistical and corroborated reports in the modality of the STFC object of this Contract, containing, amongother elements:

I – the indicators of expansion, coverage and occupation of the telephone network;

II – the technical data relative to the hiring and use of the service object of this grant, segmented by class of subscriber, bynature of the contracted service plan, by item of tariff structure, by the nature of the communication and by the time of its utilization;

III – the data relative to the use of the networks and the resources of the Concessionaire, segmented by the nature of theproviders involved, by the type of the communication, by the type and coverage of the resource used, by the time of utilization and byother applicable criteria;

IV – the technical data relative to the items of additional, complementary and accessory revenues, as per established in thisContract;

V – the statement of results discriminating incomes and respective expenses relative to the items mentioned in items I, II, II andIV of this clause;

VI – the standardized monthly balance sheet, the quarterly information – ITR, the financial statements of each social exerciseand the other information and documents relative to each fiscal exercise, duly audited;

VII – the data relative to the financial operations performed by the Concessionaire, including those relative to the issuance ofdebt titles;

VIII— the data that allow the characterization of the technological stage of the equipment used, as well as the level of operationof the plant, and

IX – the data relative to the amount and level of qualification of the human resources, used, whether own or from third parties.

Paragraph 1st. The supply of the data mentioned in this clause does not exempt nor does it diminish the Concessionaire’sresponsibility as to the adequacy, correction and legality of its accounting records and its financial and commercial operations.

Paragraph 2nd. The non fulfillment to the requests, recommendations and determinations contained in this clause subjects theConcessionaire to the application of the sanctions established in this Contract.

Clause 21.2. The supply of the requested information must, whenever possible, be changed into continuous and automatedprocess of information supply, by suggestion of the Concessionaire, being adopted or not at Anatel’s convenience. Chapter XXII – Assets Linked to the Concession

Clause 22.1. The collection of the present concession, which is linked to it, consists of all the assets belonging to theConcessionaire’s patrimony, as well as its controlling company controller company or third party companies, and those that areindispensable for the rendering of the service herein granted, especially those qualified as such in Attachment 01 – Qualification of theReversible Assets of Local Commuted Fixed Telephone Service Provision.

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Paragraph 1st. Also integrating the collection of assets linked to the concession are the authorizations of use of the spectrum ofradiofrequencies that are being granted to it and, when pertinent, the right of use of orbital positions, complying with terms of article48 and 161 of Law No. 9,472 of 1997 and also the contents of clause 4.1 of the present Contract.

Paragraph 2nd. Also integrating the collection of the concession the activities and processes required for the provision ofSTFC in public regime, with the aim of preserving service continuity and taking into consideration the essential character of theseitems and the ongoing technological changes inherent to its provision.

Paragraph 3rd. With regard to the assets linked to the concession, the Concessionaire may only employ directly in therendering of the service now granted equipment, infrastructure, logistics or any other good that is not its own property through aprevious and express agreement by Anatel, which may waive such a requirement in the cases and hypotheses cited in the regulation.

Paragraph 4 th. If there is risk to the continuity of the services or impediment in the reversal of the assets linked to theconcession, Anatel may deny authorization to use the assets of third parties or require that the respective contract contains a clausethrough which the owner is obliged to, in case of the termination of the concession, keep the contracts and in subrogating to Anatel inthe rights resulting from it.

Paragraph 5th. The Concessionaire obliges itself, as per terms of the regulation, to present annually, a list contained the assetslinked to the concession, as per definition of clause 22.1.

Paragraph 6th. The regulation will decide on the identification and control of the reversible assets, especially, as to the cases ofalienation, burdening or substitution, which will depend on the previous approval of Anatel, whereas these assets must be clearlyidentified in the list presented annually by the Concessionaire.

Paragraph 7th. The assets indispensable to the rendering of the service and that are meant for the shared use by theConcessionaire are part of the list presented annually by the Concessionaire.

Clause 22.2. The Concessionaire undertakes to present every three months to Anatel, as of the 18 th (eighteenth) year ofeffectiveness of the present Contract:

I – a list containing all the assets belonging to its patrimony and that are indispensable to the rendering of the service beingprovided herein, especially those qualified as reversible assets of the Rendering of the Commuted Fixed Telephone Service in theLocal modality;

II – a report on the stock of parts and pieces of substitution and expansion;

III – an economical-financial report, including the level of indebtedness and the fulfilling of the obligations with third parties,and

IV – a report containing information on human resources and personnel capability. Chapter XXIII – Reversion Regimen

Clause 23.1. At the time of termination of the concession, all the assets linked to the concession defined in Chapter XXII willbe reverted automatically to Anatel, safeguarding to the Concessionaire the right to the indemnities foreseen in the legislation and inthis Contract.

Sole Paragraph. Up to 180 (one hundred and eighty) days after the advent of the termination of the concession, an inspectionwill be performed in the assets that make it up and a Term of Return and Reversion of Assets will be prepared, with a detailedindication of the state of conservation of same, being an option the follow-up by a representative (or more) from the Concessionaire.

Clause 23.2. The Concessionaire undertakes to deliver the reversible assets in perfect operating, usage and maintenanceconditions, at no loss to the normal wear resulting from its use.

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Sole Paragraph. The reversible assets will be transferred to Anatel free of any encumbrances or duties, abiding by hypothesisin paragraph 2nd of the following clause.

Clause 23.3. The reversion of the assets dealt with in this Chapter, at the end of the contractual period, will be performedwithout any indemnities, except for what is stated in this clause.

Paragraph 1st. There will only be an indemnity in favor of the Concessionaire in case at the end of the concession there arestill assets that have not fully paid in, whose acquisition has been previously authorized by Anatel with the objective of warranting thecontinuity and the updating of the service granted.

Paragraph 2nd. Alternatively or complementarily to the indemnity referred to in the previous paragraph, Anatel may accept thetransfer of assets that have been given in guarantee of its own financing, subrogating them in the installment that has not yet beenpaid.

Clause 23.4. At the end of the concession, Anatel will proceed to the evaluation of the assets referred to in clause 22.1 and mayrefuse to reverse the assets that it deems dispensable or unusable for application in the exploration of the service, guaranteeing theright of the Concessionaire to the contradiction, including by means of the preparation and presentation, at its own expenses, of reportsor studies that show the need for the reversion.

Sole Paragraph. If the Concessionaire does not agree with Anatel’s decision as to terms of this clause, an appeal will beadmitted to the process of conflict settlement prescribed in this Contract. Chapter XXIV – Insurance Plan

Clause 24.1. During the entire term of effectiveness of the concession, the Concessionaire must keep with an InsuranceCompany of compatible size with the capital to be secured, registered at the regulating agencies of the sector, the following insurancepolicies required to warrant the effective and encompassing coverage of risks inherent to the development of all the activities foreseenin the present Contract:

I – insurance of the type “all risks” for material damages covering the loss, the destruction or the damage in all or in any assetwhich is part of the concession, being that such insurance must foresee all the coverages included as per international standards;

II – insurance of preservation of economic conditions for the continuity of the exploration of the service, covering, at least, theoperational costs against variations in the revenues of the Concessionaire, resulting from casualties or modifications in the conditionsof exploration of the Contract that are not covered by the insurances of material damages, as long as the agreement of this modality ofinsurance is accepted by Brazilian norms and expressly authorized by the Instituto de Resseguros do Brasil – IRB, or equivalent entity,and

III – guarantee insurance on the compliance with the obligations relative to the quality and universalization foreseen in thisContract (Performance Bond, letter of credit and value maintained as a guarantee) in the corresponding amount of 10% (ten per cent)of the value of investments estimated each year for the fulfillment of the goals foreseen in the present Contract.

Paragraph 1st. The Concessionaire must have it stated on the insurance policies the obligation of the Insurance Companyinform, in writing, with a minimum advance of 30 (thirty) days, to the Concessionaire and Anatel, any facts that may imply in the totalor partial cancellation of the contracted policies, reduction of coverages, increase in grace periods or reduction of insured values.

Paragraph 2nd. The Concessionaire must present, when renovating the policies, an express declaration of the InsuranceCompany with full recognition of the Concession Agreement and Anatel’s regulations.

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Paragraph 3rd. In case of non fulfillment, by the Concessionaire, of the obligation to keep in full effectiveness the insurancepolicies foreseen, Anatel, irrespectively of its option to decree the intervention or the caducity of the present concession, may proceedto the hiring and the direct payment of the respective premiums, the expenses being shouldered by the Concessionaire.

Paragraph 4th. The Concessionarie must present a certificate issued by the insurance company confirming the payment of thepolicy’s premium in up to 60 (sixty) days after its payment.

Paragraph 5th. The insurance policies that are required to warrant the effective and encompassing coverage of risks inherent tothe development of all the activities foreseen in the present Contract must be presented to Anatel in up to 30 (thirty) days following itsissuance.

Paragraph 6th. The Concessionaire must present until the last day of effectiveness of each policy a declaration from theinsurance company certifying that the policy is being renewed.

Paragraph 7th. Anatel may change the coverages and the time periods of presentation of the policies referred to in this clause,aiming at adjusting such requirements to the regulation edited by the Superintendence of Private Insurance – SUSEP – or to theconditions established by the Instituto de Resseguros do Brasil – IRB, as well as when norms are issued that obstruct the contractingof the insurance herein referred or when there are no conditions of wide and competitive market that allow their contracting atreasonable costs.

Paragraph 8th. Annually, until the end of the month of November, the Concessionaire must present an estimate for thefollowing year of the investments required for compliance with the obligations of this Contract, which will provide basis for theprovision of the guarantee set forth under item III of this Clause. Chapter XXV – Interconnection

Clause 25.1. The Concessionaire is obliged to permit, facilitate, make available and effect the interconnection to the network itoperates, from networks of other telecommunication service providers of collective interest, in public or private regimen, abiding andmaking abide the norms and regulations issued by Anatel to this regard.

Clause 25.2. At a date to be determined by Anatel, values for the Tariff for the Use of the Local Network (TU-RL) will beadopted that consider model of cost of long term, established as per terms of the regulation and as per clause 13.1.

Paragraph 1st. The maximum values of the Tariffs for the Use of the Local Network (TU-RL) will be limited to the product ofthe multiplier M by the tariffs of utilization of the local service, abiding by the hourly modulation and the other conditions establishedin Attachment No. 03 of this Contract and in the regulation, being that:

I – from January 1st, 2006 to December 31st, 2006, M will be equal to 0.5 (zero comma five), and

II – from January 1st, 2007 to the date of implementation of the cost model, to be determined by ANATEL, M will be equal to0.4 (zero comma four).

Paragraph 2nd. When the application of the terms in the previous paragraph results in an increase in the value of the TU-RL,such a value may only be practiced as of the next readjustment in tariffs for the use of the local service.

Paragraph 3rd. In the case of the adoption of tariffs relative to the maintenance of the right of use that include the total of theminutes of utilization, the values of the TU-RL will be established as a result of an amount of minutes of utilization of reference.

Clause 25.3. The Concessionaire will have the same rights and will abide by the same interconnection conditions to which theother telecommunication service provides of collective interest are subjected.

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Sole Paragraph. The Concessionaire must make available for the interconnection the elements of the network with the largestlevel of disaggregation that is technically possible, as per Anatel’s regulation.

Clause 25.4. Anatel, in case of unjustifiable refusal of interconnection, may, at no loss of other measures, decree theintervention in the Concessionaire.

Sole Paragraph. The unjustifiable refusal of interconnection is characterized by:

I – the non presentation of the interconnection contract within the time periods determined by regulation;

II – non provision of interconnection within the time periods determined by regulation, and

III – non fulfillment of measures of cautionary character, involving the provision of the interconnection, determined by Anatel.

Clause 25.5. The unjustifiable refusal of interconnection constitute an infraction of severe nature, subjecting the Concessionaireto the sanctions foreseen in Chapter XXVI of this Contract, at no loss of the other measures that come to be adopted by Anatel.

Sole Paragraph. In case the unjustifiable refusal of interconnection involves bad-faith, in addition it is applied disposition ofarticle 177 of Law No. 9,472 of 1997.

Clause 26.1. In the performance of the present Contract, the Concessionaire subjects itself to the following sanctions, whichwill be applied against decision made by Anatel, assuring its right of defense, as per terms of dispositions of its Internal By-Laws andat no loss of the other penalties foreseen in the regulation:

I – violating the dispositions of the present Contract which implies in non compliance with universalization goals: a fine of upto R$ 50,000,000.00 (fifty million reais);

II – act or omission contrary to the dispositions included in this Contract which results in loss to the competition in thetelecommunications sector: a fine of up to R$ 50,000,000.00 (fifty million reais);

III – violating the contractual dispositions implying in the non fulfillment of goals and parameters of quality in the rendering ofthe service: a fine of up to R$ 40,000,000.00 (forty million reais);

IV – for another act or omission that is not included in the previous items, implying in violation of the rights of the users asdefined in this Contract or brings them loss: a fine of up to R$ 30,000,000.00 (thirty million reais);

V – act or omission that violates terms of clause 16.8 of this Contract, relative to the hiring of services and acquisition ofequipment and materials produced in the country: a fine of up to R$ 30,000,000.00 (thirty million reais);

VI – any other act or omission that brings obstacles or difficulties to the exercise of the fiscal activity on the part of Anatel asforeseen in this Contract: a fine of up to R$ 20,000,000.00 (twenty million reais);

VII – action or omission that implies in non compliance with Anatel’s determination: a fine of up to R$ 20,000,000.00 (twentymillion reais);

VIII – act, omission or negligence that may endanger the safety of the facilities: a fine of up to R$ 15,000,000.00 (fifteenmillion reais);

IX – act of omission that results in damage or endangers assets or equipment linked to the concession: a fine of up to R$10,000,000.00 (ten million reais), and

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X – non compliance with any obligation expressly foreseen in this Contract, except for those indicated in the previous items,whose sanctions are already established in them: a fine of up to R$ 10,000,000.00 (ten million reais).

Paragraph 1st. The infraction prescribed in item I of this clause will be characterized when the Concessionaire does notcomply, within the time periods foreseen in this Contract, with its obligations as to the expansion of the ser vice, expansion of therendering of the service, by means of telephones for public use and servicing to locations, as per dispositions in the General Plan ofGoals for Universalization and in Attachment 02 – Universalization Goals, part of the present Contract, and the sanction will beapplied taking into consideration, in addition to the general principals included in this Chapter, the following factors:

a) the difference between the stage of implementation verified and the goal defined in theContract;

b) the possibility of recovery of the implementation schedule at the expenses of theConcessionaire;

c) the loss to the policy reflected in the General Plan of Goals for Universalization; d) the damages brought to the direct beneficiaries of the goals that have not been serviced, and

e) eventual circumstances of technical or economic order that may mitigate the responsibilityof the Concessionary, without suppressing it.

Paragraph 2nd. The infraction prescribed in item II above will have its severity defined exclusively as a result of the general

criteria prescribed in clause 26.2 and will be characterized by the conduct of the Concessionaire that, directly or indirectly, may bringloss to the competition in the sector, especially:

a) offer of obstacle or difficulty to the option by another provider of the service granted or of thenational and international long distance service;

b) refusal in providing interconnection to telecommunication service provider; c) offer of obstacles or difficulties to the activity of added value service providers;

d) refusal or procrastination in extending, in isonomic conditions, the co-billing to other providers

of collective interest service, thus characterized by its non implementation in up to 30 (thirty)days, counted from the request;

e) the refusal or procrastination in providing and updating, in real time or not, the information of itsregistry bases on its subscribers, required to the activities of the other providers of collectiveinterest service, thus characterized by its non implementation in up to 30 (thirty) days, countedas of the request;

f) refusal or procrastination in providing, in isonomic conditions, resources necessary to theimplementation of telecommunication networks, including the network of access, of collectiveinterest service providers in the form of industrial exploration, thus characterized by its nonimplementation in up to 60 (sixty) days, counted as of the request;

g) conditioning of the provision of the service granted or offered by advantages as a result ofacquisition, by the user, of service alien to the present Contract;

h) execution of any telecommunication service that is not the object of a grant approved by Anatelon its behalf;

i) the non preservation of the levels of quality practiced in the own network, as to theinterconnection;

j) procrastination in the delivery or inadequate supply of information essential to the activity of theother providers, especially as it regards the registry bases, and

k) unjustified non payment of values due to another telecommunication service provider.

Paragraph 3rd. The infraction prescribed in item III of this clause will be characterized by the rendering reiterated of theservice granted beneath the parameters of quality defined in the General Plan of Quality Goals or by the confirmed violation of theindicators referred to in Chapter VI, being the first hypothesis considered a severe infraction, especially: a) the non allocation in the operation and maintenance of the service of the human resources and

materials necessary to the preservation of the minimum quality standards;

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b) the negligence in the modernization of the network that affects the quality of the service; c) the collection and remittance of indicators to Anatel out of compliance with the regulation, d) the refusal, omission or procrastination in the rendering of information on quality; and

e) non compliance with the continuity or regularity obligations, except under the circumstances setforth under the sole paragraph of Clause 7.1.

Paragraph 4th. Infringement provided for in item IV above shall have its severity contingent on the number of users affected and onthe damages caused, and it consists of the violation by act or default, directly or indirectly of an obligation set forth herein that resultsin violation of users’ rights rather than in violation to universal or quality duties, particularly: a) denial to provide service granted to any interested party; b) failure to comply obligation to provide information to user; c) violation of telecommunications confidentiality, unless provided by law, even if such confidentiality is breached by third parties inthose facilities under Carrier’s responsibility; d) failure to comply the obligation of providing telephone directories free of charge to those subscribers who request it; e) failure to provide a user service and call center as set forth herein; f) rates or prices charged different from those set forth herein and in regulations; g) restriction to free choice of service plans and providers; h) failure to indemnify users as provided for by Anatel’s orders or regulations; i) failure to assure the right to access code portability under terms of regulations; and j) failure to comply agency orders as provided for and on time; Paragraph 5th. Sanction provided for in item V above shall be imposed upon verification of non-compliance of an obligationcontained in Article 16.8 and its severity shall be that set forth in regulations; Paragraph 6th. Infringement provided for in item IV above shall have its severity contingent on the importance of tax activity harmedand consists of the violation by act or default, directly or indirectly, by the Carrier or its assigns, that prevents or impairs thesupervision activity by Anatel, its assigns, agents or even its users, particularly: a) denial by Carrier to provide information on services granted or related property as requested by Anatel; b) obstruction to the activities of Anatel supervision agents; c) failure to comply any publicity obligation set forth herein or in regulations; and d) failure to send or untimely provision of any information, data, report or document that, as set forth herein or by regulation, shouldbe sent to Anatel. Paragraph 7th. Infringement provided for in item VIII of this Article shall have its severity contingent on risk taken and it consists ofany action by Carrier that violates rules set forth herein or by regulation, that violates safety technical standards or rules or that mayrisk facilities intended to services granted, particularly: a) use of equipment non-certified or non-homologated by Anatel under terms of regulations in services granted; b) during operation and service maintenance, failure to allocate manpower and materials required to maintain safety minimalstandards; and c) failure to take precautions recommended to provide services hereby granted;

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Paragraph 8th. Infringement provided for in item IX of this Article shall have its severity contingent on the importance, economicamount and relevance of property involved and it consists of Carrier’s conduct opposite to what it is set forth herein or by regulationsand that may risk properties or equipment related hereto or that makes difficult their return, particularly: a) failure to keep an inventory or record of property mentioned in Article 22.1; b) use of third party property without Anatel’s previous consent or waiver directly in services that are the subject matter hereof; c) negligence in conservation of returnable property, subject to regulations; and d) failure to provide information provided in Article 22.1. Paragraph 9th. Sanction provided for in item X above shall be imposed upon verification of non-compliance of an obligation hereofnot included in previous items, particularly: a) non compliance of provision of item XXX of Article 16.1; and b) denial or postponing of access, under terms of regulation, to information on its list of subscribers required to disclose telephonedirectories. Paragraph 10th. Sanction provided for in item VII above shall be imposed upon non-compliance of Anatel’s orders, particularly thoserelated to respecting users’ rights; Paragraph 11th. Sanction provided for in item II above has contractual nature and shall be imposed by Anatel regardless of measuresto be taken by CADE [Administrative Council for Economic Protection]. Clause 26.2 For purposes of imposing contract penalties set forth in this Chapter, rules of Title IV, Book III, Law no. 9.472 dated1997 and regulations shall be observed. Sole paragraph.. For the purpose of imposing sanctions set forth in this chapter, Anatel’s Internal Regulations shall be complied with. Clause 26.3 Penalties provided for in this Chapter shall be imposed without prejudice to intervention or declaration of forfeiture setforth herein. Sole paragraph. In case of total or partial non-performance of adjustment or non-excused delays over one hundred and twenty(120) days in meeting goals set forth herein, the Carrier shall be subject to forfeiture of assignment under terms of Article 27.4. Clause 26.4 The maximum amounts of penalties provided for in this Chapter are baselines for June 1998 and they shall be adjustedupon application of IGP-DI [General Price Index – Internal Availability]. Chapter XXVII – Extinction of the Concession

Clause 27.1. The Concession Contract will be considered extinct in the following hypotheses:

I – end of the time period for the concession of the service;

II – takeover, as per article 113 of Law No. 9,472 of 1997;

III – caducity, as per terms of article 114 of Law No. 9,472 of 1997, and in the present Contract;

IV – friendly or judicial rescission, as per terms of article 115 of Law No. 9,472 of 1997, and

V – annulment.

Paragraph 1st. Once the concession is extinct, the rights and duties relative to the rendering of the service granted will bereturned to Anatel, with reversal of goods referred to in clause 22.1,

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safeguarding the Concessionaire the right to the indemnities foreseen in the legislation as well as in this Contract.

Paragraph 2nd. After the extinction of the concession, Anatel will proceed to the surveys, evaluations and liquidations thatmay be required, within 180 (one hundred and eighty) days counting from the assumption of the service, except in the hypothesis ofend of the contractual time period, when these measures must be adopted by Anatel in advance.

Paragraph 3rd. If the concession is extinct before the contractual term, Anatel, at no loss of the other pertinent measures, may:

I – occupy, temporarily, the assets and liabilities and make use of the personnel employed in the rendering of the service,required for its continuity, and

II – keep the contracts signed by the Concessionaire with third parties for the period and in the conditions initially adjusted.

Clause 27.2. The reversal at the end of the contractual term will be performed without any indemnities, except when thereoccurs the hypothesis foreseen in clause 23.3.

Clause 27.3. As per terms of article 113 of Law No. 9,472 of 1997, takeover is considered to be the retaking of the service byAnatel during the concession period, in face of an extraordinary reason in the public interest, against specific authorizing law andpreceded by the payment of indemnity.

Clause 27.4. The present Contract may have its caducity declared by act of the Director Council of Anatel, preceded of anadministrative law suit that assures full right of defense to the Concessionaire, in the hypotheses of:

I – transfer of partnership control, merger, separation, transformation of the Concessionaire or even incorporation or reductionin its capital stock without the previous approval of Anatel;

II – irregular transfer of the Contract;

III – non fulfillment of the transfer commitment referred to in clause 19.1 and in article 87 of Law No. 9,472 of 1997;

IV – bankruptcy or dissolution of the Concessionaire;

V – non fulfillment of the requirements of the coverages by insurance plans as an affront to the obligations foreseen in clause24.1 and such omission cannot, at Anatel’s criterion, be supplied with the intervention;

VI – when, in the terms of article 114, item IV, of Law No. 9,472 of 1997, there occurs any of the hypotheses foreseen in clause28.1 and, at Anatel’s criterion, the intervention is considered to be inconvenient, hindering or even unfairly beneficial to theConcessionaire, and

VII – non fulfillment of the universalization goals contained in the PGMU approved by Decree No. 2592 of May 15, 1998.

Paragraph 1st. The intervention will be considered uncalled for when the demand for the service object of the concession canbe met, against permission, by other providers in a regular and immediate way.

Paragraph 2nd. The declaration of caducity will not suppress the application of the pertinent penalties as per the terms of theContract by infractions practiced by the Concessionaire, nor will it harm the right to indemnity defined in the terms of the subsequentChapter.

Clause 27.5. The Concessionaire will have the right to contractual rescission, judicially or friendly, when, out of action oromission of the Public Power, the execution of the Contract becomes excessively expensive, as per terms of article 115 of LawNo. 9,472 of 1997.

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Sole Paragraph. The introduction or the expansion of the competition among the several providers of the service object of theconcession does not represent a reason for contractual rescission, being certain that the Concessionaire assumes the present concessionaware that it will exercise its activities without any market reserve or exclusivity.

Clause 27.6. The annulment will be decreed by Anatel in case of irregularity that cannot be mended and is considered to besevere as verified in the present Contract. Chapter XXVIII – Indemnity

Clause 28.1. For the purposes of indemnity calculation, due by Anatel to the Concessionaire in the cases expressly foreseen inthe present Contract, the following will be complied with:

I – end of the contractual time period – there will be right to indemnity, except if it is proven that the non payment meansunmotivated enrichment on the part of the Union as a result of reserve of assets not fully paid in, abiding by the terms of clause 23.3,deducting the amount of the damages caused and the fines incurred, as well as, whenever the case, the financial obligations that havenot been met;

II – takeover – abiding by terms of Article 113 of Law No. 9,472 of 1997, the indemnity that will be paid previously to the act,must correspond to the value of the assets that reverted to the granting power, deducting the depreciation, the value of the damagescaused and the fines incurred, as well as, when the case might be, the financial obligations that have not been met;

III – caducity – irrespectively of the application of penalties and reparation of damages resulting from lack of compliance, asper terms of the Contract, the Concessionaire may only claim indemnity if it confirms that unmotivated enrichment is taking place onthe part of the Union as a result of reversal of assets not fully paid in or depreciated, deducting the amount of the damages caused andthe fines incurred, as well as, whenever the case, the financial obligations that have not been met;

IV – friendly or judicial rescission – there will be no indemnity, except if – in opposition – this is established by judicialsentence, and

V – annulment – only when proven that the Concessionaire did not contribute to the illegality, corresponding indemnity will bedue only relative to the effective value of the assets that revert to the Union, calculated on the date the annulment is decreed, as long asthese assets have not been yet fully paid by from the exploration of the services, deducting, in addition, the value of the damagescaused and of the fines incurred, as well as, whenever the case, of the financial obligations that have not been met.

Paragraph 1st. The temporary value to be anticipated by Anatel for the takeover cases will be calculated in the form prescribedin the specific authorizing law.

Paragraph 2nd. When caducity takes place out of confirmed guilt of the Concessionaire, this will also result in:

a) retention of the credits resulting from the Contract, even with the appropriation of revenueresulting from payments made by the users of the service;

b) responsibility for damages caused to the Union and to the users;

c) application of fines as per terms of the present Contract and effective legislation, and

d) loss of guarantee-insurance foreseen in clause 24.1.

Paragraph 3rd. The hypothesis of takeover being executed, the indemnity that is pertinent to the other cases of extinction in theContract will be calculated as per the terms of this Chapter and divided by the number of months to which it would still be effective asper the concession, and the first installment should be due after 1 (one) year of the extinction of the Contract.

Paragraph 4th. Anatel may transfer to the renderer that follows the Concessionaire in the exploration of the service, theencumbrance of the payment of the respective indemnities, once

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again assuming the obligation to pay, in case the new renderer is late more than 90 (ninety) days in his payments. Chapter XXIX – Users Council

Clause 29.1. The Concessionaire will organize and maintain a Council of Users, of consulting nature, under the terms set forthin the regulations. Chapter XXX – Environment and Environmental Control

Clause 30.1. The Concessionaire will adopt, at its own account and risk, all the measures included in the Brazilian legislationand regulation or, in their absence, adopt the best practices on environment, notably in relation to:

I – the use of the surface and underground;

II – the construction of towers, poles and other devices for the support of electromagnetic radiation equipment;

III – human exposure to electrical, magnetic and electromagnetic fields, abiding by the limits established in Anatel’s regulation;

IV – minimization in the use of natural resources and power, and

V – respect toward the historical-cultural patrimony and the indigenous communities.

Sole Paragraph. The Concessionaire will present to the competent agencies, whenever required, the reports of environmentalimpact, as well as will arrange for the achievement of the respective license, as per applicable legislation. Chapter XXXI – Intervention

Clause 31.1. The intervention in the Concessionaire may be decreed by Anatel, at its discretion and according to thepublic interest, through specific act and motivated by its Managing Board, under the terms of Section V, Chapter II, Title II, of Lawno. 9.472, dated 1997, and in special in the following situations:

I – unjustified interruption of the service, which shall mean the interruption of the provision outside the hypotheses setforth herein and without the presentation of the reasons to be considered by Anatel as able to justify it;

II – inadequacy or insufficiency reiterated in the service rendered, characterized by the inobservance of the parameters ofquality set forth in this Contract and in the general rules, even after communication of term, by Anatel, for regulating thesituation;

III – inappropriate administration that may put into risk the continuity of the service, especially that may causeeconomic-financial unbalance;

IV – repetition of breaches deemed serious;

V – non-compliance of the goals of universalization, which shall mean the unjustified inobservance of the schedule ofimplementation of the obligations of universalization set forth herein;

VI – unjustified refusal or procrastination of interconnection, which shall mean the negative, delay or any procrastinationattitude in the negotiation or performance of the call to its requested network by another provider, observing the generalrules:

VII – practices of breach to the economic order, as to impede conducts deemed harmful to the free, broad and faircompetition among the service providers; and

VIII – omission in rendering the account to Anatel or offering hindrance to the inspective activity that presuppose thepractice of any of the occurrences set forth in the items above.

Clause 31.2. The act of intervention must necessarily indicate the term, reasons, objectives and limits, as well as the

intervening party.

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Sole Paragraph. The term and the limits of the intervention shall be compatible with and proportional to the reasons thatraised it.

Clause 31.3. The intervention shall be preceded by an administrative procedure to be presented by Anatel, which shallensure the full right to defense of the Concessionaire.

Sole Paragraph. In the case the immediate intervention is mandatory, it may be decreed on a provisional basis byAnatel, without prior manifestation from the Concessionaire, case in which the procedure shall be immediately presented on the dateof the decree and concluded within one hundred and eighty (180) days, term in which the Concessionaire may exercise its full right todefense.

Clause 31.4. The decree of the intervention shall not affect the regular course of the business of the Concessionaire, norits normal operation, but it shall produce the immediate withdrawal of its administrators.

Clause 31.5. The position of intervening party may fall upon an agent of the Anatel staff, and it may be a personspecifically appointed, a collegiate, or legal entity, and the Concessionaire shall incur eventual remuneration costs.

Paragraph 1 – Anatel is entitle to appeal to the acts of the intervening party.

Paragraph 2 – The intervening party shall render accounts and respond for the acts carried out thereby.

Paragraph 3 – For acts of disposal and lien of the assets of the Concessionaire, the intervening party shall obtain priorconsent from Anatel.

Clause 31.6. The intervention shall not be decreed when, at the discretion of Anatel, it is considered as unnecessary.

Sole Paragraph. The intervention will be considered unnecessary in the events set forth by Paragraph 1 of clause 27.4,as well as in the cases set forth in Article 114, item IV of Law no. 9.472, dated 1997. Chapter XXXII – Expropriations and Administrative Impositions

Clause 32.1. If the execution of any dispossession or administrative easement becomes necessary for the purposes ofimplementation, provision, or modernization of the services, the respective charges shall be fully incurred by the Concessionaire, andAnatel shall request the President of the Republic, through the Ministry of Communications, to issue the act of decree of public utility. Chapter XXXIII – Arbitration

Clause 33.1. Eventual conflicts that may arise resulting from the application and interpretation of the norms of theconcession shall be resolved by Anatel, in its exercise of governing agency, as prescribed in Articles 8 and 19 of Law no. 9.472, dated1997, as well as in its Internal Rules, and the Concessionaire may refer to the arbitration procedure set forth in this Chapter,exclusively when not conformed with the decision of Anatel regarding the following issues:

I – breach of the right of the Concessionaire to the protection of its economic status, as set forth in Chapter XIII;

II – revision of the fares, as set forth in Chapter XIII; and

III – indemnities due upon the extinction of this Contract, including with regards to any assets reversed.

Sole Paragraph. The submission of any issue to arbitration does not exempt Anatel, nor the Concessionaire, from theobligation of fully complying with this Contract, nor allows the interruption of the activities linked to the concession.

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Clause 33.2. The arbitration process shall begin with the communication sent from one party to the other with therequest of the installation of the Arbitration Court, as set forth in this Chapter, further indicating in detail the subject matter related tothe controversy.

Sole Paragraph. Anatel may refuse the installation of the Arbitration Court if, duly grounded and justified, itdemonstrates that the controversy is not included in the list of issues set forth in clause 33.1.

Clause 33.3. The Arbitration Court shall be composed of five (5) members, appointed as follows:

I – two (2) effective members and their respective substitutes, appointed by the Anatel’s Managing Board, who shall beexperts in the affected areas related to the controversial issue, not pertaining to the Anatel’s staff, and at least one ofthem to be the chairman of the board, with specific expertise in legal regulation of telecommunication issues;

II – two (2) effective members and their respective substitutes, appointed by the Concessionaire, who shall be experts inthe affected areas related to the controversial issue, not pertaining to the Concessionaire’s staff, and at least one of themwith specific expertise in legal regulation of telecommunication issues; and

III – one (1) effective member and his/her respective substitute, appointed by the members indicated in the items above.

Paragraph 1 – The Arbitration Court may be assisted by the technical experts whose appointment is considered

convenient.

Paragraph 2 – The Court shall be considered as instituted on the date in which all the arbitrators accept their respectiveappointments and communicate both parties of their acceptance.

Paragraph 3 – The Court shall judge according to the right constituted and its decisions shall have cogent power,regardless of judicial homologation.

Clause 33.4. Not refused by Anatel or if such questioning is resolved, the arbitration Process set forth in this Chaptershall commence, obeying the following procedure:

I – the parties shall have ten (10) days from the receipt of the communication mentioned in the caput of the clause aboveto appoint the members of the Arbitration Court, which shall be installed immediately after the acceptance of allmembers;

II – if one of the parties fails to manifest an opinion or in case of resistance to the installation of the Arbitration Court,the other party may make use of the right set forth in article 7 of Law no. 9.307, dated September 23, 1996;

III – once the Arbitration Court is installed, a successive term of twenty-five (25) days will be opened for the parties topresent their considerations regarding the controversial issue, occasion in which they may submit opinions, expert works,reports, attach documents or information deemed relevant to sustain their position;

IV – after the presentation of the memos, the Court shall analyze the reasons exposed and may, through request of one ofits members, determine the elaboration of opinions, expert works or reports, request information or documents from theparties, as well as make diligences and take the steps deemed necessary for the perfect instruction of the controversialissue;

V – during the collection of the elements mentioned in the item above, the parties will be always entitled tomanifestation and contradiction, under the principles of informality, consent, and celerity that will ground the procedure;

VI – after the closing of the instruction, a common term of fifteen (15) days will be given for the parties to present theirfinal allegations;

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VII – after the period set forth in the item above, regardless of the presentation of the final allegations, the Court maypronounce its decision within no late than thirty (30) days;

VIII – the decision of the Court shall not be subject to appeal, except in case of request of reconsideration, which ispermitted only in case of decision adopted by majority of a single vote; and

IX – the arbitration procedure can only be subject to invalidation in the cases set forth in Article 32 of Law no. 9.307,dated 1996.

Sole Paragraph. Expenses with the arbitration process, including costs with opinions, expert works and reports, as well

as the fees to the members of the Court shall be incurred by the Concessionaire or Anatel, as decided by the Arbitration Court. Chapter XXXIV – Resolution of Conflicts

Clause 34.1. Eventual conflicts that may arise between the Concessionaire and other providers of telecommunicationsservices, of collective interest, regarding the interpretation and application of the rules, may be submitted to Anatel in the exercise ofits position of governing agency, as set forth by Articles 8 and 19 of Law no. 9.472, dated 1997, by means of:

I – meeting of composition of conflicts;

II – mediation process; and

III – arbitration procedure.

Sole Paragraph. The adoption of the instrument set forth in this clause does not harm the use of any other forms ofadministrative resolution of conflicts between the providers, under the terms of Anatel’s Internal Rules. Chapter XXXV – Applicable Legal Regimen and Applicable Documentation

Clause 35.1. Law no. 9.472, dated July 16, 1997 and the rules resulting thereof shall govern this concession, especiallythe rule of competence of the Executive Power, notwithstanding the other norms of the Brazilian legal system, as set forth in Article18 of such Law, which shall always prevail in case of conflict with the other.

Clause 35.2. In the provision of the service granted herein, the national policies of telecommunications and the Anatel’srules shall be observed, being part of this Contract, especially the documents listed below:

I – General Plan of Grants; II – General Plan of Universalization Goals; III – General Plan of Quality Goals; IV – General Plan of Competition Goals;

V – Rules of Telecommunication Services;

VI – Rules of the Commuted Fixed Telephone Service;

VII – General Rules of Interconnection;

VIII – Rules of Numbering for the Commuted Fixed Telephone Service;

IX – Rules of Administration of Numbering Resources;

X – Rules on the Remuneration for the Use of the Networks Providers of the Commuted Fixed Telephone Service;

XI – Rules of the Local Areas;

XII – Rules for the Use of Services and Networks of Telecommunications in the Access to Internet Services;

XIII – Rules of Portability of Access Codes;

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XIV – Rules of Sanctions;

XV – Rules of Separation and Allocation of Accounts;

XVI – Rules of Industrial Exploration of Dedicated Line;

XVII – Billing Rules;

XVIII – Rules of Systemic Interruptions of the Commuted Fixed Telephone Service;

XIX – Rules of Control of Reversible Assets;

XX – Rules on Offer, Trading, and Resale of the Commuted Fixed Telephone Service;

XXI – Rules for the Provision of the Commuted Fixed Telephone Service with Use of Non-Geographical Access Codes,

XXII – Rules on the disclosure of lists of subscribers and publication and distribution of the obligatory and freetelephone list; and

XXIII – Rules of supply of information for the purposes of disclosure of subscribers’ list.

Clause 35.3. The interpretation of the norms and provisions contained in this Contract shall take into account, in addition

to the documents mentioned in the item above, the general rules of hermeneutics and the norms and principles contained in Law no.9.472, dated 1997. Chapter XXXVI – Court

Clause 36.1. The Court of the Judicial Section of the Federal Justice of Brasília, Federal District, shall be the onecompetent to resolve any issues resulting from this Contract and that cannot be resolved by the procedure of solution of divergencesset forth in Chapter XXXIII – Arbitration. Chapter XXXVII – Final and General Provisions

Clause 37.1. This Contract shall become effective on the date of its publication in the Official Federal Gazette.

Clause 37.2. This Contract may be altered unilaterally upon supervening legal provision, by virtue of law, or through actof the Granting Power. In witness whereof, the parties sign this Contract in three (3) counterparts of equal tenor and form, before the witnesses, who also signit, as to produce its legal and judicial effects.

Brasília, June 30, 2011. By Anatel: By the Concessionaire: [illegible signature]


RONALDO MOTA SARDENBERG ANTONIO CARLOS VALENTE DA SILVAPresident President [illegible signature]


JOÃO BATISTA DE REZENDE LEILA ABRAHAM LORIADirector Executive Officer of Institutional Relations and Regulation Witnesses: [illegible signature]


CRISTIAN CHARLES MARLOW JOSÉ ROBERTO PEREIRA NEDERSource: TELEFONICA BRASIL S.A., 20-F, April 20, 2012 Powered by Morningstar® Document Research℠

CI: 7054254128 SSP-RS CI: 75124245 SSP-SPCPF: 724.270.860-53 CPF: 148.812.506-63

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ATTACHMENT No. 01

QUALIFICATION OF THE REVERSIBLE ASSETS OF THE PROVISION OFTHE LOCAL COMMUTED FIXED TELEPHONE SERVICE

a. Infra-structure and equipment of commutation and transmission, including public use platforms; b. Infra-structure and equipment of external network; c. Infra-structure of equipment of energy and air conditioning; d. Infra-structure and equipment of Centers of Support and Service Provision; e. Infra-structure and equipment of systems of support to the operation; f. Infra-structure and equipment installed due to universalization obligations set forth under the General Plan of UniversalizationGoals, approved under the provisions of art. 18, item III, of Law No. 9,472, of July 16, 1997; and f. Other items indispensable to the provision of the service.

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ATTACHMENT No. 02

BASIC PLAN OF NATIONAL LONG DISTANCE SERVICE

Sector 31 1. General Provisions 1.1. The Basic Plan of the Commuted Fixed Telephone Service in the national long distance modality – National Long Distance STFCis governed by the rules in force, by the Acts mentioned in this attachment, and by others that may succeed it. 1.1.1. Other conditions for the provision of the STFC in the national long distance modality, as set forth in the rules, including thoserelated to the modifications in the tariff structure, are part of this attachment as if included herein. 1.2. The fares presented are maximum and net of taxes and supervening social contributions. 2. The use of the Commuted Fixed Telephone Service in the national long distance modality 2.1. Fixed-Fixed call. 2.1.1. The system of billing for the National Long Distance Commuted Fixed Telephone Service (STFC LDN) considers the distancebetween its billing area centers of origin and destine of calling and its time duration, the kind of calling and its time of use. 2.1.2. The centers places of billing area are approved in the terms of the STFC Billing Rules provided in the public regimen. 2.1.3. The use of STFC LDN will be billed by Time of Use, being the billing unit the tenth part of a minute (six seconds) and theminimum time of billing of 30 (thirty) minutes, in the terms of the STFC Billing Rules provided in the public regimen. 2.1.4. In the terms of Act n. 6,418 of 10/05/2010, the maximum value for the billing minute of STFC LDN, in consequence of thedistance between the centers of billing area and the time of calling, are: Sector 31

Degree

GeodeticDistance

Value in R$, free of taxes

Differentiated Normal Reduced Super

ReducedD1 until 50 km 0.22656 0.10459 0.04313 0.01255D2 >50 to 100 km 0.38621 0.16341 0.08889 0.02515D3 > 100 to 300 km 0.45240 0.24394 0.12733 0.05468D4 > 300 km 0.52925 0.31401 0.19024 0.09598 Sector 32

Degree

GeodeticDistance



ReducedD1 until 50 km 0.22244 0.10170 0.4300 0.01250D2 >50 to 100 km 0.38377 0.16111 0.08608 0.2608D3 > 100 to 300 km 0.46994 0.24873 0.12463 0.05441D4 > 300 km 0.56695 0.33009 0.19301 0.093.70

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Sector 34

Degree

GeodeticDistance



ReducedD1 until 50 km 0.22003 0.09892 0.04067 0.01065D2 >50 to 100 km 0.33520 0.13515 0.07294 0.02254D3 > 100 to 300 km 0.50035 0.20835 0.10846 0.04834D4 > 300 km 0.63036 0.34513 0.17696 0.08589

2.1.5. The time variation is set forth by the STFC Billing Rules provided in the public regimen, as those included in the table below:

Timetable Monday to

Friday Saturdays Sundays and

National HolidaysFrom 12 am to 6 am Super reduced Super reduced Super reducedFrom 6 am to 7 am Reduced Reduced ReducedFrom 7 am to 9 am Normal Normal ReducedFrom 9 am to 12 pm Differentiated Normal ReducedFrom 12 pm to 2 pm Normal Normal ReducedFrom 2 pm to 6 pm Differentiated Reduced ReducedFrom 6 pm to 9 pm Normal Reduced ReducedFrom 9 pm to 12 am Reduced Reduced Reduced 2.1.6. It will not be permitted the charge of any increase over the values above defined, independently of the calling duration. 2.1.7. To national long distance calls originated in TUP and destined to STFC access the method of measurement per time of use willbe adopted, based on the value of UTP (VTP), as set forth in the STFC Billing Rules provided in the public regimen, being the firstunit levied upon the answering of the call and the following at every period of time, in seconds correspondent to (VTP/Dn) x 60,where Dn is the value of billing degree. 2.2. Calls involving other telecommunication services. 2.2.1. The criteria and billing procedures of calls to Personal Mobile Service (SMP) are those defined in the rules. 2.2.1.1. The billing unit is one-tenth of minute (six seconds) and the minimum billing time is 30 (thirty) seconds. 2.2.1.2. The maximum communication values involving the SMP (VC-2 and VC-3), per minute, considering the nature of calling andpursuant to Act n. 971 dated of 02/09/2010 are included in the table below:

Normal Tariff Reduced Tariff

VC-2 VC-3 VC-2 VC-31.12059 1.27502 0.78441 0.89251

2.2.1.3. The timetable of reduced fare for SMP calls shall be from Monday to Saturday, from 12:00 AM to 7:00 AM, and from 9:00PM to 12:00 PM, and on Sundays and national holidays, 24 hours, as set forth in the applicable rules. 2.2.2. The billing criteria and procedures to Specialized Mobile Service (SME) are those defined in the rules. 2.2.2.2. The maximum communication values involving the SME (VC-2 and VC-3), per minute, considering the nature of calling andpursuant to Act n. 54.687 dated of 12/12/2005 are included in the table below:

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Normal Tariff Reduced Tariff

VC-2 VC-3 VC-2 VC-30.90465 1.02931 0.63325 0.72051

The billing unit will be one-tenth of minute (six seconds). 2.2.3. To national long distance calls originated in TUP and destined to other services of collective interest, which register areas bedifferent and do not contain the billing area from originator TUP, it will be adopted the method of measuring by time of use, withbasis in the value of UTP (VTP) and the communication value. 2.2.4. The billing criteria and procedures to calls destined to other services of collective interest are those defined by ANATEL in therules.

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ATTACHMENT No. 03OPTICAL TELECOMMUNICATION ROUTE

ADAMANTINA- ARACATUBAADAMANTINA- BAURUADAMANTINA- DRACENAADAMANTINA- FLORA RICAADAMANTINA- FLORIDA PAULISTA ADAMANTINA- !NUBIA PAULISTAADAMANTINA- IRAPURUADAMANTINA- JUNQUEIROPOLIS ADAMANTINA- LUCELIAADAMANTINA- MARIAPOLISADAMANTINA- MONTE CASTELOADAMANTINA- NOVA GUATAPORANGAADAMANTINA- OSVALDO CRUZADAMANTINA- OURO VERDEADAMANTINA- PACAEMBUADAMANTINA- PANORAMAADAMANTINA- PAULICEIAADAMANTINA- RINOPOLISADAMANTINA- SAGRESADAMANTINA- SALMOURAOADAMANTINA- SANTA MERCEDESADAMANTINA- SAO JOAO DO PAU D'ALHOADAMANTINA- TUPI PAULISTAAGUAI- SAO JOAO DA BOA VISTAAGUAS DA PRATA- SAO JOAO DA BOA VISTAAGUAS DE LINDOIA- AMPAROAGUAS DE SANTA BARBARA-AVARE AGUAS DE SAO PEDRO - PIRACICABA AGUDOS-BAURUALAMBARI- ITAPETININGAALFREDO MARCONDES- PRESIDENTE PRUDENTEALTO ALEGRE -ARACATUBAALVARES MACHADO- PRESIDENTE PRUDENTEALVARO DE CARVALHO- MARILlAAMERICANA- LIMEIRAAMERICANA- MOMBUCAAMERICANA- PIRACICABAAMERICANA- RIO CLAROAMPARO – CAMPINASAMPARO- LINDOIAAMPARO- MOGI MIRIMAMPARO-MONTEALEGREDOSULAMPARO- PAULINlAAMPARO- PEDREIRAAMPARO- SERRA NEGRAAMPARO-SOCORROANDRADINA- ARACATUBAANGATUBA -ITAPETININGAANHUMAS - PRESIDENTE PRUDENTEAPARECIDA D'OESTE- VOTUPORANGAAPIAI-ITAPEVAARACATUBA-AVANHANDAVA ARACATUBA-BAURU ARACATUBA- BENTO DE ABREU ARACATUBA- BILACARACATUBA- BIRIGUIARACATUBA-BRAUNAARACATUBA- BURITAMAARACATUBA- CASTILHOARACATUBA- CLEMENTINAARACATUBA-COROADOSARACATUBA- GABRIEL MONTEIRO ARACATUBA- GLICERIOARACATUBA- GUARACAIARACATUBA-GUARARAPESARACATUBA -ILHA SOLTEIRAARACATUBA- ITAPURAARACATUBA- LAVINIAARACATUBA-LOURDESSource: TELEFONICA BRASIL S.A., 20-F, April 20, 2012 Powered by Morningstar® Document Research℠

ARACATUBA- LUIZIANIAARACATUBA- MIRANDOPOLISARACATUBA- MURUTINGA DO SUL ARACATUBA- PENAPOLISARACATUBA- PEREIRA BARRETO ARACATUBA- PIACATUARACATUBA- PRESIDENTE PRUDENTE ARACATUBA- RUBIACEAARACATUBA- SANTOPOLIS DO AGUAPEI ARACATUBA- VALPARAISOARACATUBA- ZACARIAS ARANDU-AVARE ARARAQUARA-BARRETOS ARARAQUARA- BARUERIARARAQUARA-BAURUARARAQUARA- BOA ESPERANCA DO SUL ARARAQUARA-BORBOREMAARARAQUARA- CANDIDO RODRIGUESARARAQUARA-CATANDUVA ARARAQUARA-DOBRADA ARARAQUARA-DOURADO ARARAQUARA- FERNANDOPRESTES ARARAQUARA- GAVIAO PEIXOTOARARAQUARA- GUARIBA

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ARARAQUARA- GUARIBA ARARAQUARA -IBATEARARAQUARA- IBITINGAARARAQUARA- ITAPOLISARARAQUARA- JABOTICABALARARAQUARA- JUNDIAI ARARAQUARA- MATAOARARAQUARA- MOGI DAS CRUZES ARARAQUARA- MONTE ALTOARARAQUARA-MOTUCAARARAQUARA-NOVAEUROPAARARAQUARA- PRAIA GRANDEARARAQUARA- RIBEIRAO BONITO ARARAQUARA- RIBEIRAO PRETOARARAQUARA- RINCAOARARAQUARA- SANTA ERNESTINA ARARAQUARA- SANTA LUCIAARARAQUARA- SANTO ANDREARARAQUARA-SANTOSARARAQUARA- SAO CARLOSARARAQUARA- SAO JOSE DO RIO PRETOARARAQUARA- SAO JOSE DOS CAMPOS ARARAQUARA- SAO PAULOARARAQUARA- SERTAOZINHOARARAQUARA- TABATINGAARARAQUARA- TAQUARITINGAARARAQUARA-TAUBATEARARAQUARA- TRABIJUARARAQUARA-VOTUPORANGAARARAS- CAMPINASARARAS - CORDEIROPOLISARARAS-DESCALVADO ARARAS - LIMEIRAARARAS - RIO CLAROARARAS- SANTA GERTRUDESAREALVA- BAURUAREIOPOLIS- BOTUCATUARIRANHA- CATANDUVAARTUR NOGUEIRA-PAULIN1AASPASIA- VOTUPORANGAASSIS – BAURUARARAQUARA- CAMPINASASSIS- BORAASSIS- CANDIDO MOTA ASSIS- PALMITALASSIS- PARAGUACU PAULISTA ASSIS- PEDRINHAS PAULISTA ASSIS - PRESIDENTE PRUDENTE ASSIS- QUATA

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ASSIS- TARUMA ATIBAIA- BARUERIATIBAIA- BOM JESUS DOS PERDOES ATIBAIA- GUARULHOSATIBAIA- JUNDIAIATIBAIA< NAZARE PAULISTA ATIBAIA- SANTO ANDREATIBAIA- SAO BERNARDO DO CAMPO ATIBAIA- SAO PAULOAURIFLAMA- SAO JOSE DO RIO PRETO AURIFLAMA- VOTUPORANGAAVAI-BAURU AVARE-BAURUAVARE- CERQUEIRA CESAR AVARE-CORONELMACEDO AVARE -ITAIAVARE-PARANAPANEMA AVARE- TAQUARITUBABADY BASSIT- SAO JOSE DO RIO PRETO BALBINOS - BAURUBALSAMO -SAO JOSE DO RIO PRETOBARI.RI - JAUBARRA BONITA- JAU BARRETOS-BEBEDOURO BARRETOS - COLINA BARRETOS -JABORANDIBARRETOS- MONTE AZUL PAULISTA BARRETOS - PIRANGIBARRETOS- RIBEIRAO PRETOBARRETOS- SAO JOSE DO RIO PRETO BARRETOS - TERRA ROXABARRETOS- VIRADOURO BARRINHA- RIBEIRAO PRETO BARUERI - BAURUBARUERI- BRAGAtiQ_A PAULISTA BARUERI - CAMPINASBARUERI- ITATIBABARUERI - ITU BARUERI- JUNDIAI BARUERI - PRAIA GRANDE BARUERI- SALTOBARUERI - SANTOSBARUERI - SAO JOSE DOS CAMPOS BARUERI- TAUBATEBARUERI- VARZEA PAULISTA BASTOS.- MARILlABAURU - BOREBI BAURU-BOTUCATU BAURU- BROTAS BAURU- CAMPINAS BAURU-GALIA BAURU - GETULINABAURU - GUAI<;:ARA BAURU ;" GUAIMBE BAURU :: IACANGA BAURU-JAU

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BAURU- JUNDIAIBAURU- LENCOIS PAULISTA BAURU- LINSBAURU- MACATUBABAURU- MARILlABAURU- MOGI DAS CRUZES BAURU - OURINHOSBAURU- PEDERNEIRAS BAURU- PIRAJUI BAURU- PIRATININGA BAURU- PONGAIBAURU- PRAIA GRANDEBAURU- PRESIDENTE ALVES BAURU - PRESIDENTE PRUDENTE BAURU - PROMISSAOBAURU - REGINOPOLIS BAURU- RIBEIRAO PRETO BAURU- SANTO ANDRE BAURU-SANTOSBAURU -SAO JOSE DOS CAMPOSBAURU - SAO PAULO BAURU- TAUBATEBERNARDINO DE CAMPOS- OURJNHOS BERTIOGA- CUBATAOBOCAINA- JAUBOITUVA- SOROCABABOM SUCESSO DE ITARARE-ITAPEVA BOTUCATU-CONCHASBOTUCATU- ITATINGABOTUCATU- PEREIRAS BOTUCATU -PRATANJA BOTUCATU-.SAO MANUELBRAGANCA PAULISTA- GUARULHOSBRAGAN_Q_A PAULISTA- JOANOPOLISBRAGANC,A PAULISTA- JUNDIAI BRAGAN<;A PAULISTA- PEDRA BELA BRAGAN<;A PAULISTA- SANTO ANDREBRAGANt;A PAULISTA- SAO BERNARDO DO CAMPO BRAGAN<;A PAULISTA- SAO PAULOBRAGANt;A PAULISTA- TUIUTI BRAGANt;_A PAULISTA- VARGEM BROTAS- JAUBURI-ITAPEVA CABREUVA- JUNDIAI CACAPAVA-TAUBATECACHOEIRA PAULISTA- GUARATINGUETACAIUA J'PRESIDENTE PRUDENTE CAJAMAR- JUNDIAICAJATI- REGISTROCAJOBI-CATANDUVA CAMPINAS- INDAIATUBA CAMPINAS- ITAPETININGA CAMPINAS- ITAPEVA CAMPINAS -JUNDIAI CAMPINAS- LEME CAMPINAS- LIMEIRA

8


CAMPINAS - MOGI DAS CRUZES CAMPINAS- MOGI GUAt;U CAMPINAS - MOGI MIRIM CAMPINAS - PIRACICABACAMPINAS - PRAIA GRANDE CAMPINAS - RIO CLARO CAMPINAS - SANTO ANDRE CAMPINAS- SANTOSCAMPINAS- SAO JOAO DA BOA VISTA CAMPINAS - SAO JOSE DOS CAMPOS CAMPINAS- SAO PAULOCAMPINAS - SOROCABA CAMPINAS- TAUBATE CAMPINAS - TIETE CAMPINAS - VOTORANTIMCAMPOS DO JORDAO- TAUBATE CANAS- GUARATINGUETA CANITAR- OURINHOSCAPELA DO ALTO - SOROCABA CAPIVARI- PIRACICABACARAGUATATUBA- SAO JOSE DOS CAMPOS CARAGUATATUBA- SAO SEBASTIAO CARAGUATATUBA-TAUBATECARAGUATATUBA-UBATUBACARAPICUIBA- JUNDIACASA BRANCA- SAO JOAO DA BOA VISTACATANDUVA- CATIGUA CATANDUVA- ELISIARIO CATANDUVA-EMBAUBA CATANDUVA -IBIRA CATANDUVA-IRAPUA CATANDUVA-ITAJOBI CATANDUVA-MARAPOAMACATANDUVA- NOVO HORIZONTECATANDUVA- PALMARES PAULISTA CATANDUVA- PARAISO CATANDUVA- PINDORAMA CATANDUVA- SANTAADELIACATANDUVA- SAO JOSE DO RIO PRETO CATANDUVA-URUPESCEDRAL- SAO JOSE DO RIO PRETOCERQUILHO- TIETE CHARQUEADA- PIRACICABA CHAVANTES- OURINHOS CONCHAL- MOGI MIRIM CONCHAS-JAU CORUMBATAI - RIO CLAROCOSMORAMA-VOTUPORANGA COTIA- JUNDIAICOTIA- SAO JOSE DOS CAMPOS CRAVINHOS- RIBEIRAO PRETO CRUZEIRO- GUARATINGUETADIRGE REIS- SAO JOSE DO RIO PRETODIRGE REIS- VOTUPORANGA DOIS CORREGOS- JAU DOLCINOPOLIS- VOTUPORANGA DUMONT- SERTAOZINHOELDORADO- REGISTROELIAS FAUSTO- INDAIATUBA EMBU - JUNDIAI

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EMILIANOPOLIS- PRESIDENTE PRUDENTE ENGENHEIRO COELHO - PAULINIAESTIVA GERBI- MOGI GUACUESTRELA D'OESTE - SAO JOSE DO RIO PRETO ESTRELA D'OESTE - VOTUPORANGAEUCLIDES DACUNHA PAULISTA- PRESIDENTE PRUDENTE FARTURA- OURINHOSFERNANDOPOLIS -SAO JOSE DO RIO PRETOFERNANDOPOLIS-VOTUPORANGA FLOREAL-VOTUPORANGAFRANCISCO MORATO- VARZEA PAULISTA FRANCO DA ROCHA- JUNDIAIFRANCO DAROCHA- VARZEA PAULISTAGARCA – MARILIAGASTAO VIDIGAL – VOTUPORANGAGENERAL SALGADO – SAO JOSE DO RIO PRETOGENERAL SALGADO – VOTUPORANGAGUAPIACU – SAO JOSE DO RIO PRETOGUAPIARA – ITAPEVAGUARACI – SAO JOSE DO RIO PRETOGUARATINGUETA – LAVRINHASGUARATINGUETA –LORENAGUARATINGUETA – PINDAMONHANGABAGUARATINGUETA –PIQUETEGUARATINGUETA – QUELUZGUARATINGUETA – SAO JOSE DOS CAMPOSGUARATINGUETA – TAUBATEGUAREI – ITAPETININGAGUARULHOS – ITATIBAGUARULHOS – ITUGUARULHOS – JUNDIAIGUARULHOS – SALTOGUARULHOS – VARZEA PAULISTAGUZOLANDIA – VOTUPORANGAHERCULANDIA – MARILIAHOLAMBRA – PAULINIAIACRI – MARILIAIBIRAREMA – OURINHOSIBIUNA – VOTORANTIMIGARACU DO TIETE – JAUIGARAPAVA – SERTAOZINHOIGARATA – POAINDAIATUBA – LEMEINDIANA – PRESIDENTE PRUDENTEIPAUSSU – OURINHOSIPERO – SOROCABAIPEUNA – RIO CLAROIPIGUA – SAO JOSE DO RIO PRETOIRACEMAPOLIS – LIMEIRAITAJOBI – SAO JOSE DO RIO PRETOITAJU – JAUITANHAEM – PEDRO DE TOLEDO

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ITAPECERICA DA SERRA – JUNDIAIITAPETININGA – SOROCABAITAPEVI – JUNDIAIITAPIRA – MOGI MIRIMITAPUI – JAUITATIBA – JARINUITATIBA – JUNDIAIITATIBA- SANTO ANDREITATIBA- SAO BERNARDO DO CAMPO ITATIBA- SAO PAULOITIRAPINA- RIO CLAROITOBI- SAO JOAO DA BOA VISTA ITU- JUNDIAIITU - SANTO ANDREITU -SAO BERNARDO DO CAMPO ITU -SAO PAULOITUPEVA- JUNDIAIJACAREI- TAUBATEJACI - SAO JOSE DO RIO PRETO JAGUARIUNA- PAULINlAJALES -SAO JOSE DO 'RIO PRETO JALES - VOTUPORANGAJAU - MINEIROS DO TIETEJAU- TORRINHAJOAO RAMALHO- PRESIDENTE PRUDENTE JOSE BONIFACIO- SAO JOSE DO RIO PRETO JULIO MESQUITA- MARILlAJUMIRIM - SOROCABA JUNDIAI - MOGI DAS CRUZES JUNDIAI - OSASCOJUNDIAI - PRAIA GRANDE JUNDIAI -SALTOJUNDIAI -SANTO ANDRE JUNDIAI -SANTOSJUNDIAI -SAO BERNARDO DO CAMPO JUNDIAI -SAO JOSE DOS CAMPOS JUNDIAI -SAO PAULOJUNDIAI -SAO ROQUE JUNDIAI- TABOAO DA SERRA JUNDIAI- TAUBATELARANJAL PAULISTA- SOROCABA LEME- PIRASSUNUNGALEME- PORTO FERREIRA LEME - RIO CLAROLEME- SANTA CRUZ DA CONCEIGAO LIMEIRA- PAULINIALIMEIRA- PIRACICABA LIMEIRA- RIO CLARO LOUVEIRA- VALINHOS

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LUIS ANTONIO- RIBEIRAO PRETO MACAUBAL- SAO JOSE DO RIO PRETO MACAUBAL-VOTUPORANGAMACEDONIA- VOTUPORANGAMAGDA-VOTUPORANGA MANDURI - OURINHOSARILlA- OCAUCUARILlA- ORIENTEMMARILlA - POMPEIA MARILlA- QUEIROS MARILlA- QUINTANA MARILlA- TUPA MARILlA- VERA CRUZMARINOPOLIS - SAO JOSE DO RIO PRETOMARINOPOLIS - VOTUPORANGA MARTINOPOLIS- PRESIDENTE PRUDENTE MERIDIANO - VOTUPORANGAMIRACATU -REGISTROMIRANTE DO PARANAPANEMA- PRESIDENTE PRUDENT MIRASSOL- SAO JOSE:"DO RIO PRETOMIRASSOLANDIA- SAO JOSE DO RIO PRETOMOCOCA- SAO JOAO DA BOA VISTA MOGI DAS CRUZES- PRAIA GRANDE MOGI DAS CRUZES- SANTOSMOGl DAS CRUZES -SAO JOSE DOS CAMPOS MOGI DAS CRUZES- TAUBATEMOGI MIRIM- PAULINIAMONTE APRAZIVEL - SAO JOSE DO RIO PRETO MONTE AZUL PAULISTA- SAO JOSE DO RIO PRETO NEVESPAUUSTA- SAO JOSE DO RIO PRETO NHANDEARA- SAO JOSE DO RIO PRETO NHANDEARA-VOTUPORANGANIPOA- SAO JOSE DO RIO PRETONOVA ALIANC:A- SAO JOSE DO RIO PRETO NOVA CANAA PAULISTA- VOTUPORANGA · NOVA LUZITANIA-VOTUPORANGANOVO HORIZONTE- SAO JOSE DO RIO PRETO OLEO - OURINHOSOLIMPIA- SAO JOSE DO RIO PRETOONDA VERDE - SAO JOSE DO RIO PRETO OURINHOS - PIRAJUOURINHOS -SALTO GRANDEOURINHOS- SANTA CRUZ DO RIO PARDO OURINHOS- SARUTAIAPALESTINA- SAO JOSE DO RIO PRETO PALMEIRA D'OESTE- SAO.JOSE DORIOPRETO

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PALMEIRA D'OESTE- VOTUPORANGA PARISI - VOTUPORANGAPEDRANOPOLIS - VOTUPDRANGA PEDREGULHO- SERTAOZINHO PIEDADE- TIETEPINDAMONHANGABA-ROSElRA PINDAMONHANGABA- SAO.JOSEDOS CAMPOSINDAMONHANGABA- TAUBATEPINDAMONHANGABA- TREMEMBEPIQUEROBI- PRESIDENTE PRUDENTE ·PIRACICABA- RIO CLAROPIRACICABA- RIO DAS PEDRASPIRACICABA- SAL TINHOPIRACICABA- SANTA BARBARA D'OESTEPIRACICABA- SANTA MARIA DA SERRAPIRACICABA- SAO PEDROPIRAPOZINHO- PRESIDENTE PRUDENTEPITANGUEIRAS- SERTAOZINHOPOLONI -SAO JOSE DO RIO PRETOPONTAL- RIBEIRAO PRETOPONTES GESTAL- VOTl;IPORANGAPORTO FELIZ- SOROCABAPOTIRENDABA- SAO JOSE DO RIO PRETOPRADOPOLIS - RIBEIRAO PRETOPRAIA GRANDE- REGISTROPRAIA GRANDE- SANTO ANDREPRAIA GRANDE- SAO JOSE DOS CAMPOSPRAIA GRANDE- SAO PAULOPRAIA GRANDE- TAUBATEPRESIDENTE BERNARDES- PRESIDENTE PRUDENTEPRESIDENTE EPITACIO- PRESIDENTE PRUDENTEPRES I DENTE PRUDENTE- PRESIDENTE VENCESLAUPRESIDENTE PRUDENTE- RANCHARIAPRESIDENTE PRUDENTE- REGENTE FEIJOPRESIDENTE PRUDENTE- ROSANAPRESIDENTE PRUDENTE- SANTO ANASTACIOPRESIDENTE PRUDENTE- SANTO EXPEDITOPRESIDENTE PRUDENTE- TACIBAPRESIDENTE PRUDENTE- TEODORO SAMPAIORAFARD- SANTA BARBARA D'OESTEREGISTRO- SANTOSRIBEIRAO PRETO- SANTA ROSA DE VITERBORIBEIRAO PRETO- SAO SIMAORIBEIRAO PRETO- SERTAOZINHORIFAINA- SERTAOZINHORUBINEIA- VOTUPORANGASAL TO- SANTO ANDRESAL TO- SAO BERNARDO DO CAMPOSAL TO- SAO PAULOSAL TO DE PIRAPORA- TIETESANTA ADELIA - SAO JOSE DO RIO PRETOSANTA BRANCA- SAO JOSE DOS CAMPOSSANTA CLARA D'OESTE- SAO JOSE DO RIO PRETOSANTA CLARA D'OESTE- VOTUPORANGASANTA CRUZ DAS PALMEIRAS- SAO JOAO DA BOA VISTASANTA FE DO SUL- VOTUPORANGA PINDAMONHANGABA- TREMEMBEPIQUEROBI- PRESIDENTE PRUDENTE ·PIRACICABA- RIO CLAROPIRACICABA- RIO DAS PEDRASPIRACICABA- SAL TINHOPIRACICABA- SANTA BARBARA D'OESTEPIRACICABA- SANTA MARIA DA SERRAPIRACICABA- SAO PEDROPIRAPOZINHO- PRESIDENTE PRUDENTEPITANGUEIRAS- SERTAOZINHOPOLONI -SAO JOSE DO RIO PRETOPONTAL- RIBEIRAO PRETOPONTES GESTAL- VOTl;IPORANGAPORTO FELIZ- SOROCABASource: TELEFONICA BRASIL S.A., 20-F, April 20, 2012 Powered by Morningstar® Document Research℠

POTIRENDABA- SAO JOSE DO RIO PRETOPRADOPOLIS - RIBEIRAO PRETOPRAIA GRANDE- REGISTROPRAIA GRANDE- SANTO ANDREPRAIA GRANDE- SAO JOSE DOS CAMPOSPRAIA GRANDE- SAO PAULOPRAIA GRANDE- TAUBATEPRESIDENTE BERNARDES- PRESIDENTE PRUDENTEPRESIDENTE EPITACIO- PRESIDENTE PRUDENTEPRES I DENTE PRUDENTE- PRESIDENTE VENCESLAUPRESIDENTE PRUDENTE- RANCHARIAPRESIDENTE PRUDENTE- REGENTE FEIJOPRESIDENTE PRUDENTE- ROSANAPRESIDENTE PRUDENTE- SANTO ANASTACIOPRESIDENTE PRUDENTE- SANTO EXPEDITOPRESIDENTE PRUDENTE- TACIBAPRESIDENTE PRUDENTE- TEODORO SAMPAIORAFARD- SANTA BARBARA D'OESTEREGISTRO- SANTOSRIBEIRAO PRETO- SANTA ROSA DE VITERBORIBEIRAO PRETO- SAO SIMAORIBEIRAO PRETO- SERTAOZINHORIFAINA- SERTAOZINHORUBINEIA- VOTUPORANGASAL TO- SANTO ANDRESAL TO- SAO BERNARDO DO CAMPOSAL TO- SAO PAULOSAL TO DE PIRAPORA- TIETESANTA ADELIA - SAO JOSE DO RIO PRETOSANTA BRANCA- SAO JOSE DOS CAMPOS

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SANTA CLARA D'OESTE- SAO JOSE DO RIO PRETOSANTA CLARA D'OESTE- VOTUPORANGASANTA CRUZ DAS PALMEIRAS- SAO JOAO DA BOA VISTASANTA FE DO SUL- VOTUPORANGASANTA RITA D'OESTE- VOTUPORANGASANTA SALETE- SAO JOSE DO RIO PRETOSANTA SALETE- VOTUPORANGASANTANA DAPONTE PENSA- VOTUPORANGA$ANTO ANDRE - SANTOSSANTO ANDRE - SAO JOSE DOS CAMPOSSANTO ANDRE- TAUBATESANTO ANDRE- VARZEA PAULISTASANTOS - SAO JOSE DOS CAMPOSSANTOS -SAO PAULOSANTOS- TAUBATESAO BERNARDO DO CAMPO- VARZEA PAULISTASAO FRANCISCO - VO;rUPORANGASAO JOAO DA BOA VISTA- SAO JOSE DO RIO PARDOSAO JOAO DA BOA VISTA- TAMBAUSAO JOAO DA BOA VISTA- VARGEM GRANDE DO SULSAO JOAO DASDUAS PONTES- VOTUPORANGASAO JOSE DO RIO PRETO- SEVERIN lASAO JOSE DO RIO PRETO- TANABISAO JOSE DO RIO PRETO- UBARANASAO JOSE DO RIO PRETO- UCHOASAO JOSE DO RIO PRETO- UNIAO PAULISTASAO JOSE DO RIO PRETO-VOTUPORANGASAO JOSE DOS CAMPOS- SAO PAULOSAO JOSE DOS CAMPOS - TAUBATESAO PAULO- TAUBATESAO PAULO- VARZEA PAULISTASEBASTIANOPOLIS DO SUL-VEH:UPBRANGASOROCABA- TIETETRES FRONTEIRAS - VOTUPORANGAURANIA- VOTUPORANGAVALENTIM GENTIL- VOTUPORANGAVITO RIA BRASIL- VOTUPORANGA

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Exhibit 4(b).4

AUTHORIZATION TERM PVCP/SPV N.º 018/2002-ANATELAUTHORIZATION TERM OF THE PERSONAL MOBILE SERVICE

ENTERED BY AGÊNCIA NACIONAL DE TELECOMUNICAÇÃO(NATIONAL TELECOMMUNICATION AGENCY)-ANATEL AND

TELESP Celular S.A. Hereby, on the one part, the AGÊNCIA NACIONAL DE TELECOMUNICAÇƠES (NATIONAL TELECOMMUNICATIONAGENCY)– ANATEL, hereinafter referred to as ANATEL, an entity that is a part of the UNION, as per Federal Act n.º 9.472, of the16th of July of 1997, Lei Geral de Telecomunicaçơes – LGT( General Telecommunications Act – LGT) , registered at the GeneralRegistry of Income Tax Payers of the Ministry of Finance — CGC/MF under n.º 02.030.715/0001-12, here represented by thePresident of the Council of ANATEL LUIZ GUILHERME SCHYMURA DE OLIVEIRA together with the Counselor ANTÔNIOCARLOS VALENTE DA SILVA, and on the other part, TELESP Celular S.A., CNPJ under nº 02.319.126/0001-59, hereinrepresented by its President, GILSON RONDINELLI FILHO, Brazilian, married, engineer, ID card – RG nº 4.347.710 —SSP/SP and by the Executive Vice-President, MARIA PAULA DE ALMEIDA MARTINS CANAIS, Portuguese, married,Mathematician, National Registration of Foreigners — RNE nº V329152-L, hereinafter referred to as AUTHORIZED, enter intothe present AUTHORIZATION TERM, Anatel Case n.º 53500.001479/2001, that shall be governed by the following sections: Chapter I Subject Matter, Area and term of the Authorization Section 1.1 – The subject-matter of this Term is the issuance of Authorization for the exploitation of the Personal Mobile Service-SMP, rendered under private regime, in the geographic area formed by the territories of the State of Săo Paulo, except for thecities of Altinópolis, Aramina, Batatais, Brodowski (Brodósqui), Buritizal, Cajurú, Cássia dos Coqueiros, Colômbia, Franca,Guaíra, Guará, Ipoă, Ituverava, Jardinópolis, Miguelópolis, Morro Agudo,Nuporanga, Orlândia, Ribeirăo Corrente, Sales deOliveira, Santa Cruz da Esperança,Santo Antonio da Alegria and Săo Joaquim da Barra, in the Region III of the PGA-SMP. §1o – The subject-matter hereof include the Personal Mobile Service, rendered under private regime, according to the AnatelRegulation, and in special, as per the provisions in Regulation of the SMP and in the General Plan of Authorizations of the SMP. §2o – The current Authorization is issued based on section 214, paragraph V, of the LGT General Telecommunications Act ) and inthe “Rule for the Adjustment of Grant Instruments and Authorization of the Mobile Personal Service- SMC for the Personal MobileService – SMP, approved by the Resolution ANATEL n.º 318, of the 27 th of September of 2002, and amended by the ResolutionANATEL n.º 326, of the 28 th of November of 2002, hereinafter referred to as ADJUSTMENT RULE in substitution of the GRANTAGREEMENT Nº 016/97-DOTC/SFO/MC, of the 4th of November of 1997, D.O.U of the 5th of November of 1997, hereinafterreferred to as SUBSTITUTED INSTRUMENT. SECTION 1.2 — Personal Mobile Service is the land mobile telecommunication service of collective interest that enables thecommunication between the mobile stations and from a mobile station to other stations, once acknowledged the provisions of theregulation.

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SECTION 1.3 – The AUTHORIZED is entitled to the industrial exploitation of the means related to services rendering, onceobserved the provisions in the regulations as well as those in sections 154 and 155 of the LGT. SECTION 1.4 – The term of this Authorization for the exploitation of the SMP is not determined. SECTION 1.5 – The service shall be exploited with the use, by the AUTHORIZED , of the sub-band of radio frequencies foreseen inthe SUBSTITUTED INSTRUMENT, indicated below : Transmission from the Mobile Station : 824,0 to 835,0 MHz / 845,0 to 846,5 MHz Transmission from the Radio base Station : 869,0 to 880,0 MHz / 890,0 to 891,5 MHz SECTION 1.6 – The right to use the radio frequencies mentioned in the previous SECTION shall remain in force until the 5th ofAugust of 2008 that corresponds to the remaining term extended a single time for 15 years, being such extension against payment. §1o – The use of the radio frequency shall occur in primarily and restricted to the Services Rendering Area. §2o –The right to use the radio frequency depends on its efficient and proper use. §3o – Radio frequency sharing, when it does not imply harmful interference or impose limits to the rendering of the SMP, may beauthorized by Anatel. SECTION 1.7 – The AUTHORIZED , in order to extend the right to use the radio-frequencies related hereto, shall pay, every twoyears, during the extension term, encumbrance corresponding to 2% (two per cent ) of the annual income of the year prior to thepayment, of the SMP, free from taxes and social security taxes. §1º In the calculation of the amount referred to in the caput of this SECTION, shall be considered the net income derived from theAlternative and Basic Service Plan, subject matter hereof. §2º The calculation of the percentage referred to in the caput of this SECTION shall always be based on the net income of deductionof taxes and social taxes, determined between January and December of the previous year and obtained in the financial statementselaborated according to the fundamental accounting principles approved by the Management of the AUTHORIZED and audited byindependent auditors, and maturity date shall be the 30 (thirty) of April of the subsequent year after the encumbrance is ascertained. §3º The first installment of the encumbrance shall be due on the 30th (thirtieth ) of April of 2010, calculated based on the net incomeascertained from the 1st of January to the 31st of December of 2009, and the subsequent installments shall be due at each twenty fourmonths, having as the base date the calculation of the income of the previous year. §4º The delay in payment of the encumbrance foreseen in this SECTION will imply charge of arrears fee of 0,33% (zero point thirtythree per cent ) a day, up to the limit of 10% (ten per cent), added of the referential SELIC tax for federal bonds, to be applied over thevalue of the debt, considering all days of delay in payment. SECTION 1.8 – The petition for the extension of the right to use radio frequencies shall be forwarded to Anatel in up to thirtymonths, prior to the due date of the original term. Single Paragraph . Dismissal will only occur if the involved party is not making proper and rational use of the radio frequencies, if ithas repeatedly incurred in violations in the performance of its activities, or if it is necessary to change the destination of the use of theradio frequency .

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SECTION 1.9 — Anatel is AUTHORIZED to bring a new action of Authorization Grant for the exploitation of the SMP, in case anextension petition of up to 24 (twenty four) months prior to the original maturity date is not suddenly formulated. Chapter II Replacement Value SECTION 2.1 – The value of replacement of the SUBSTITUTED INSTRUMENT hereby, is R$ 9.000,00 (nine thousand reais). Single Paragraph . Non payment of the outstanding installments, derived from past commitments, related to the values owed by theGrant or Authorization of the Cellular Mobile Service — SMC, shall imply forfeiture hereof, regardless the application of otherforeseen penalties. Chapter III Form and Conditions for the Rendering of Service SECTION 3.1 – The AUTHORIZED promises to render the service, subject-matter hereof, in a way as to fully fulfill the obligationsinherent to the service rendered under private regime, once observed the criteria , formulae and parameters herein defined. Single Paragraph. The non-fulfillment of the obligations related to the subject-matter hereof, shall afford the application of thesanctions foreseen herein, shall allow for the temporary suspension, on the part of Anatel and, according to the case, forfeiture hereofshall be adjudicated, as per section 37 of the LGT. SECTION 3.2 — THE AUTHORIZED shall exploit the service, subject-matter hereof at its own risks, within the regime of broadand fair competition set forth in LGT, being compensated by the prices charged, as per provisions herein. §1º THE AUTHORIZED shall not be entitled to any type of exclusivity, any possibility of financial economical balance guarantee,and may not claim rights as to the admission of new providers of the same service. §2º THE AUTHORIZED will not have acquired rights to the permanence of the conditions in force with the issuance hereof, or of thestar of the activities, and shall observe the new conditions imposed by the law and by regulation. §3o The norms shall grant enough time for the adjustment to the new conditions. SECTION 3.3 – THE AUTHORIZED shall keep free access to emergency public services according to what was set forth in theregulation. SECTION 3.4 – THE AUTHORIZED shall ensure to its user the free exercise of choice of STFC provider for long distance calls, asper the regulation of SMP, especially in the ADJUSTMENT RULE. SECTION 3.5 – Changes in the shareholder control of the Authorized are subject to control on the part of Anatel for purposes ofverification of the conditions that are essential for the forwarding and maintenance of the Authorization, as per the regulation. Single Paragraph. These are essential for the forwarding and maintenance of the Authorization, among others, those foreseen in theSMP General Authorization Plan, section 10, § 2º of the PGO and in article 133 of the LGT.

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SECTION 3.6 – The conveyance of the Authorization Plan is subject to the approval on the part of Anatel, once observed therequirements of the §2o of section 136 of the LGT. Single Paragraph For the purposes of the paragraph I of section 98 of LGT, shall be considered the operation time of the CellularMobile Service during the enforcement of the SUBSTITUTED INSTRUMENT. SECTION 3.7 — The AUTHORIZED shall freely determine the prices to be charged for the rendering of the SMP, defining theServices Plan with structures, forms, criteria and values that shall be reasonable and non discriminatory, and that may vary due totechnical characteristics, of specific costs and use offered to the users, as per definition of the SMP regulation, specially in theADJUSTMENT RULE. Chapter IV Coverage Commitments SECTION 4.1 – Coverage commitments foreseen in the SUBSTITUTED INSTRUMENT shall be maintained, including the coverageand service obligations. SECTION 4.2 – The non-compliance of the commitments causes the Authorized to be subject to sanctions foreseen herein, and in theregulation, and as a result, the termination of the Authorization may occur. Chapter V Quality of Service SECTION 5.1 – It is an assumption hereof the adequate quality of the services rendered by the AUTHORIZED , being as suchconsidered, the service that satisfies the conditions of regularity, efficiency, safety, updating, generality and courtesy. §1º — Regularity will be characterized by the continuous exploitation of the service with strict compliance with what is set forth in theAnatel rules. §2º — Efficiency will be characterized by the attainment and maintenance of the parameters contained herein and by the service to theuser , rendered within the term foreseen herein. §3º — Safety in the e4xploitationof the service shall be characterized by the confidentiality pf the data related to the use of the serviceby the users, as well as by the full maintenance of the confidentiality regarding the conveyed information in the scope of itsexploitation. §4º — Update will be characterized by the modernity of the equipment, of the premises and techniques of exploitation of the service,with the use of technological advances that definitely will benefit the users, once respected the provisions hereof. §5º — Generality will be characterized by the non discriminatory rendering of services to any and all users, with the commitment onthe part of the Authorized to render the service to whoever requests it as per the regulation. §6º — Courtesy will be characterized by the respectful and immediate service rendered to all users of the authorized service, as wellas by the compliance with the obligations to inform and provide immediate and polite services to all, users or non users that mayrequest from the AUTHORIZED, information, provisions or any kind of request as per the determinations hereof. SECTION 5.2 — THE AUTHORIZED shall meet the quality targets determined in the Plano Geral de Metas de Qualidade — PGNQ( General Target Plan of Quality- PGMQ) for the SMP.

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Single Paragraph. For the purposes of the provisions in the §5º of section 1st of the PGMQ – SMP, it shall be considered as thestarting point of the commercial operation of the SMP in a place where there already exists SMC services rendering, the publishingdate of the extract hereof. SECTION 5.3 – The exploitation of the authorized service may only be interrupted according to the Regulation of the SMP,published by Anatel. Chapter VI Numbering Plan SECTION 6.1 — THE AUTHORIZED compromises to obey the Numbering Regulations published by Anatel, and shall ensure to theuser of the service, the portability of the access codes as per regulation. Chapter VII Users Charges SECTION 7.1 – The amount, measuring form and the criteria for charging for the services rendered, shall be set forth by theAuthorized, based on the determinations of the SMP Regulation, once observed the content of section 3.7 hereof. Chapter VIII Users Rights and Duties SECTION 8.1 – Users Rights and Duties are those set forth in the LGT and in the regulation, at no loss of the rights foreseen in Lawno 8.078, of the 11th of November of 1990 in the cases regulated by it, nor of those included in the SMP rendering agreement. Chapter IX Authorized Rights and Duties SECTION 9.1 – The rights and duties of the Authorized are those set forth in the LGT and in the regulation. SECTION 9.2 – In services hiring and equipment and material acquisition in relation herewith, the Authorized obliges to consideroffers from independent suppliers, including the national ones, and to base its decisions, in respect to the several offers presented, inthe compliance of the objective price criteria, delivery conditions and technical specifications in the appropriate regulation. Single Paragraph. Regarding the mentioned hiring process, the procedures of the Regulation on the Services Hiring Procedures andMaterial and Equipment Acquisition by the Telecommunication Services Providers, approved by the Resolution n.º 155 of Anatel, ofthe 5th of August of 1999. Chapter X Anatel Obligations and Prerogatives SECTION 10.1 – Aside from other prerogatives inherent to its regulatory organ function and from the other obligations derivedhereof, Anatel will :

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I – follow up and inspect the exploitation of the service, in order to comply with the regulation; II – regulate the exploitation of the authorized service; III – apply the punishment foreseen in the service regulation, specially herein; IV – to watch over the good quality of the service, to receive, select and solve complaints and claims of the users, making them aware,within a 90 days period of time, of the actions taken to avoid them to be deprived of their rights; V – to declare terminated the Authorization in the events foreseen in the LGT; VI – to watch over the guarantee of interconnection, annulling eventual issues arisen between the AUTHORIZED and the otherproviders; VII – to constantly follow up the relationship between the Authorized and the other providers, solving conflicts that may arise; VIII – to restrain behaviors of the Authorized that are against the free competition regime, observed in the competences of the CADE,the regulation and specially the content of sections 10.2. and 10.3. hereof; IX – to perform the activity of inspecting the service, as per provisions herein; and X – collect taxes related to FISTEL, adopting the provisions foreseen in law. SECTION 10.2 — Anatel might file a Proceeding to Ascertain the Non Compliance of the Obligations (PADO), veered towardsascertaining untruthfulness or non-substance of the conditions stated by the AUTHORIZED , related to the non-participation in thecontrol of the other companies or to other economical concentration preventive bars, whenever there are signs of relevant influence ofsuch , of its associated companies, controlled or controllers over the legal entity of the SMP provider, in the terms of the Regulationfor the Control and Transfer Verification in Companies Providers of Telecommunication Services, approved by the Resolution n.º 101of Anatel, of the 04th of February of 1999. Single Paragraph. The evidence, after the procedure foreseen in this section of the existence of any situation that characterizesuntruthfulness or lack of substance of the conditions stated by the Authorized shall configure the disfranchisement hereof, accordingto section 139 of the LGT. SECTION 10.3 — Anatel may still file an administrative procedure veered towards ascertaining any misdemeanor against theeconomical order foreseen in Law n.º 8.884/94. Chapter XI Inspection regime SECTION 11.1 — Anatel shall perform the inspection of the services so as to ensure the compliance with the commitments herein. §1º — Inspection to be performed by Anatel will cover the inspection and the follow up of the activities, equipment and premises ofthe AUTHORIZED , implying broad access to all data and information of the Authorized or of third parties. §2º — Information gathered during inspection activities will be published in the Library, except for those, that by request of theAUTHORIZED , are considered as confidential by Anatel. §3º — Information that are considered as confidential , as per the previous paragraph, shall only be used in the procedures relatedhereto, responding to Anatel and to those indicated by Anatel, for any disclosure, broad or restricted, of such information outside theusage scope. SECTION 11.2 – The AUTHORIZED , by means of an appointed representative, may follow all and every activity of Anatelinspection, not being entitled to oppose or prevent the inspection, under risk of incurring in the punishment foreseen in the regulation.

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Chapter XII Telecommunication Nets and Access to Visiting Users SECTION 12.1 – THE AUTHORIZED regarding the implementation and operation of the Telecommunication Nets veered towardsproviding support to SMP, shall observe the provisions in the regulation, specially in the Telecommunication Services Regulation n.º73, of the 25th of November of 1998; in the General Regulation of Interconnection, approved by the Resolution no 40, of the 23rd ofJuly of 1998; and in the regulation of the SMP. Single Paragraph. The change in technology standards, promoted by the AUTHORIZED , may not burden unilateral and arbitrarilythe user, including with respect to the existing conditions of services to the visiting users. SECTION 12.2 – Compensation by the use of nets between the Authorized and the other providers of telecommunication services,shall comply with the provision in section 152 of the LGT and in the SMP regulation, especially in the ADJUSTMENT RULE. Single Paragraph. The document foreseen in item 7 of the ADJUSTMENT RULE becomes hereinafter Attachment I hereto. Chapter XIII Sanctions SECTION 13.1 — THE AUTHORIZED is subject to Anatel inspection, once respected the legal provisions and related regulations,and shall, whenever required to do so, be accountable for as per regulations of the SMP, allowing free access to its technical resourcesand accounting records. SECTION 13.2 – non-compliance with conditions or commitments associated to the Authorization, shall subject the Authorized tocaveat sanctions, fines, temporary probation or forfeiture, as per provision of the SMP. Chapter XIV Termination of the Authorization SECTION 14.1 – Authorization shall be deemed to be terminated due to disfranchisement, forfeiture, decay, waive or annulment, asper sections 138 to 144 of the LGT and according to the proceedings in the regulation. Single Paragraph. The termination statement shall not elide the application of the adequate punishments, as per provisions hereof, bythe wrongdoings performed by the AUTHORIZED. Chapter XV Legal Regime and Applicable documents SECTION 15.1 – This Authorization is governed, without detracting the other integrant rules of the Brazilian Legal Order, by theLGT, and the regulations derived thereof. SECTION 15.2 – In the exploitation of the services authorized hereby, the regulations of Anatel shall be complied, as part hereof,specially the documents related with the SMP Regulation. SECTION 15.4 – In the interpretation of the norms and provisions hereof, shall be taken into consideration, aside from the documentsreferred to in this Chapter, the general hermeneutic rules and the norms and principles contained in the LGT.

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Chapter XVI Transitory Provisions SECTION 16.1 – Until the Approval or the covenant of the VU-M, as per the option of the SMP provider, shall be maintained boththe value of the Net Compensation , and the criteria for the processing and values conveyance between the providers of CellularMobile Services and the Fixed Commuted Telephone Service. Chapter XVII Venue SECTION 17.1 — The Court of the Judiciary Section of the Federal Justice of Brasilia, Federal District , is hereby elected to settleany conflicts arising herefrom or relating hereto, to the exclusion of any other, however privileged. Chapter XVIII Final Provisions SECTION 18.1 – This Authorization Term shall become in force after the disclosure of its extract in the Federal Official Gazette. SECTION 18.2 –Except for the provisions herein entrusted, any other provisions of the Substituted Instrument become null, as per§2º of section 1.1. IN WITNESS WHEREOF, the parties sign this document in 03 ( three) counterparts of equal tenor and form, in the presence ofwitnesses who also sign below, so that it will produce the due legal effects. Brasília, the 10 th of December of 2002. On behalf of ANATEL: LUIZ GUILHERME SCHYMURA DE OLIVEIRA President of the Board ANTÔNIO CARLOS VALENTE DA SILVA Counselor On behalf of the AUTHORIZED : GILSON RONDINELLI FILHO President

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MARIA PAULA DE ALMEIDA MARTINS CANAIS Executive Vice-President Witnesses:

JARBAS JOSÉ VALENTE 4.346/D CREA-DF BRUNO DE CARVALHO RAMOS 5.060.107.391/D CREA-SP

ATTACHMENT ISTATEMENT OF OPTION

According to what is provided in item 7 of the ADJUSTMENT RULE, TELESP Celular S.A., General Taxpayer’s register — CNPJN.º 02.319.126/0001-59, herein represented by its President, GILSON RONDINELLI FILHO, Brazilian, married, engineer, IDCard – RG nº 4.347.710 — SSP/SP, opts for the submission to item 5 and its sub-items of the Norms of Compensation Criteria bythe Use of the Nets of the Providers of Personal Mobile Service – SMP, approved by the Resolution nº 319, of the 27 th of Septemberof 2002, requesting the approval of the TU-M whose maximum value shall be the maximum value of the initial VU-M of its ServiceArea. Brasília, the 1oth of December of 2002. GILSON RONDINELLI FILHO President

AUTHORIZATION TERM PVCP/SPV N° 018/2002-ANATELAUTHORIZATION TERM OF THE PERSONAL MOBILE SERVICE ENTERED

BY AGÊNCIA NACIONAL DE TELECOMUNICAÇÃO (NATIONALTELECOMMUNICATION AGENCY)- ANATEL AND

TELESP Celular S.A. Hereby, on the one part, the AGÊNCIA NACIONAL DE TELECOMUNICAÇƠES (NATIONAL TELECOMMUNICATIONAGENCY)–ANATEL, hereinafter referred to as ANATEL, an entity that is a part of the UNION, as per Federal Act n.°9.472, of the16th of July of 1997, Lei Geral de Telecomunicaçơes – LGT( General Telecommunications Act –LGT) , registered at the GeneralRegistry of Income Tax Payers of the Ministry of Finance - CGC/MF under n.°02.030.715/0001-12, here represented by the Presidentof the Council of ANATEL LUIZ GUILHERME SCHYMURA DE OLIVEIRA together with the Counselor LUIZ TITOCERASOLI, and on the other part, TELESP Celular S.A., registered at the General Registry of Income Tax Payers of the Ministryof Finance -CNPJ under n° 02.319.126/0001-59, herein represented by its President, GILSON RONDINELLI FILHO, Brazilian,married, engineer, ID card – RG n° 4.347.710 SSP/SP and by the Executive Vice-President, MARIA PAULA DE ALMEIDAMARTINS CANAIS, Portuguese, married, Mathematician, National Registration of Foreigners - RNE n° V329152-L,hereinafter referred to as AUTHORIZED, enter into the present

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AUTHORIZATION TERM, Anatel Case n.° 53500.001479/2001, that shall be governed by the following sections: Chapter I Subject Matter, Area and term of the Authorization Section 1.1 – The subject-matter of this Term is the issuance of Authorization for the exploitation of the Personal Mobile Service-SMP, rendered under private regime, in the geographic area formed by the territories of the Cities of Ribeirăo Preto eGuatapará and the District of Bonfim Paulista, in the Region III of the PGA-SMP. §1o – The subject-matter hereof include the Personal Mobile Service, rendered under private regime, according to the AnatelRegulation, and in special, as per the provisions in Regulation of the SMP and in the General Plan of Authorizations of the SMP. §2o – The current Authorization is issued based on section 214, paragraph V, of the LGT General Telecommunications Act ) and inthe “Rule for the Adjustment of Grant Instruments and Authorization of the Mobile Personal Service- SMC for the Personal MobileService – SMP, approved by the Resolution ANATEL n.° 318, of the 27 th of September of 2002, and amended by the ResolutionANATEL n.° 326, of the 28 th of November of 2002, hereinafter referred to as ADJUSTMENT RULE in substitution of the GRANTAGREEMENT N° 012/97-DOTC/SFO/MC, of the 4th of November of 1997, D.O.U of the 5th of November of 1997, hereinafterreferred to as SUBSTITUTED INSTRUMENT. SECTION 1.2 - Personal Mobile Service is the land mobile telecommunication service of collective interest that enables thecommunication between the mobile stations and from a mobile station to other stations, once acknowledged the provisions of theregulation. SECTION 1.3 – The AUTHORIZED is entitled to the industrial exploitation of the means related to services rendering,once observed the provisions in the regulations as well as those in sections 154 and 155 of the LGT. SECTION 1.4 – The term of this Authorization for the exploitation of the SMP is not determined. SECTION 1.5 – The service shall be exploited with the use, by the AUTHORIZED , of the sub-band of radio frequencies foreseen inthe SUBSTITUTED INSTRUMENT, indicated below : Transmission from the Mobile Station : 824,0 to 835,0 MHz / 845,0 to 846,5 MHz Transmission from the Radio base Station : 869,0 to 880,0 MHz / 890,0 to 891,5 MHz SECTION 1.6 – The right to use the radio frequencies mentioned in the previous SECTION shall remain in force until the 20th ofJanuary of 2009, that corresponds to the remaining term extended a single time for 15 years, being such extension against payment. §1o – The use of the radio frequency shall occur in primarily and restricted to the Services Rendering Area. §2o – The right to use the radio frequency depends on its efficient and proper use. §3o – Radio frequency sharing, when it does not imply harmful interference or impose limits to the rendering of the SMP, may beauthorized by Anatel. SECTION 1.7 – The AUTHORIZED , in order to extend the right to use the radio-frequencies related hereto, shall pay, every twoyears, during the extension term, encumbrance corresponding to 2% (two per cent ) of the annual income of the year prior to thepayment, of the SMP, free from taxes and social security taxes. §1o In the calculation of the amount referred to in the caput of this SECTION, shall be considered the net income derived from theAlternative and Basic Service Plan, subject matter hereof.

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§2o The calculation of the percentage referred to in the caput of this SECTION shall always be based on the net income of deductionof taxes and social taxes, determined between January and December of the previous year and obtained in the financial statementselaborated according to the fundamental accounting principles approved by the Management of the AUTHORIZED and audited byindependent auditors, and maturity date shall be the 30 (thirty) of April of the subsequent year after the encumbrance is ascertained. §3o The first installment of the encumbrance shall be due on the 30th (thirtieth ) of April of 2011, calculated based on the net incomeascertained from the 1st of January to the 31st of December of 2010, and the subsequent installments shall be due at each twenty fourmonths, having as the base date the calculation of the income of the previous year. §4o The delay in payment of the encumbrance foreseen in this SECTION will imply charge of arrears fee of 0,33% (zero point thirtythree per cent ) a day, up to the limit of 10% (ten per cent), added of the referential SELIC tax for federal bonds, to be applied over thevalue of the debt, considering all days of delay in payment. SECTION 1.8 – The petition for the extension of the right to use radio frequencies shall be forwarded to Anatel in up to thirtymonths, prior to the due date of the original term. Single Paragraph. Dismissal will only occur if the involved party is not making proper and rational use of the radio frequencies, if ithas repeatedly incurred in violations in the performance of its activities, or if it is necessary to change the destination of the use of theradio frequency . SECTION 1.9 - Anatel is AUTHORIZED to bring a new action of Authorization Grant for the exploitation of the SMP, in case anextension petition of up to 24 (twenty four) months prior to the original maturity date is not suddenly formulated. Chapter II Replacement Value SECTION 2.1 – The value of replacement of the SUBSTITUTED INSTRUMENT hereby, is R$ 9.000,00 (nine thousand reais). Single Paragraph. Non payment of the outstanding installments, derived from past commitments, related to the values owed by theGrant or Authorization of the Cellular Mobile Service - SMC, shall imply forfeiture hereof, regardless the application of otherforeseen penalties. Chapter III Form and Conditions for the Rendering of Service SECTION 3.1 – The AUTHORIZED promises to render the service, subject-matter hereof, in a way as to fully fulfill the obligationsinherent to the service rendered under private regime, once observed the criteria , formulae and parameters herein defined. Single Paragraph. The non-fulfillment of the obligations related to the subject-matter hereof, shall afford the application of thesanctions foreseen herein, shall allow for the temporary suspension, on the part of Anatel and, according to the case, forfeiture hereofshall be adjudicated, as per section 37 of the LGT. SECTION 3.2 - THE AUTHORIZED shall exploit the service, subject-matter hereof at its own risks, within the regime of broad andfair competition set forth in LGT, being compensated by the prices charged, as per provisions herein.

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§1o THE AUTHORIZED shall not be entitled to any type of exclusivity, any possibility of financial economical balance guarantee,and may not claim rights as to the admission of new providers of the same service. §2o THE AUTHORIZED will not have acquired rights to the permanence of the conditions in force with the issuance hereof, or of thestar of the activities, and shall observe the new conditions imposed by the law and by regulation. §3o The norms shall grant enough time for the adjustment to the new conditions. SECTION 3.3 – THE AUTHORIZED shall keep free access to emergency public services according to what was set forth in theregulation. SECTION 3.4 – THE AUTHORIZED shall ensure to its user the free exercise of choice of STFC provider for long distance calls, asper the regulation of SMP, especially in the ADJUSTMENT RULE. SECTION 3.5 – Changes in the shareholder control of the Authorized are subject to control on the part of Anatel for purposes ofverification of the conditions that are essential for the forwarding and maintenance of the Authorization, as per the regulation. Single Paragraph. These are essential for the forwarding and maintenance of the Authorization, among others, those foreseen in theSMP General Authorization Plan, section 10, § 2° of the PGO and in article 133 of the LGT. SECTION 3.6 – The conveyance of the Authorization Plan is subject to the approval on the part of Anatel, once observed therequirements of the §2o of section 136 of the LGT. Single Paragraph. For the purposes of the paragraph I of section 98 of LGT, shall be considered the operation time of the CellularMobile Service during the enforcement of the SUBSTITUTED INSTRUMENT. SECTION 3.7 - The AUTHORIZED shall freely determine the prices to be charged for the rendering of the SMP, defining theServices Plan with structures, forms, criteria and values that shall be reasonable and non discriminatory, and that may vary due totechnical characteristics, of specific costs and use offered to the users, as per definition of the SMP regulation, specially in theADJUSTMENT RULE. Chapter IV Coverage Commitments SECTION 4.1 – Coverage commitments foreseen in the SUBSTITUTED INSTRUMENT shall be maintained, including the coverageand service obligations. SECTION 4.2 – The non-compliance of the commitments causes the Authorized to be subject to sanctions foreseen herein, and in theregulation, and as a result, the termination of the Authorization may occur. Chapter V Quality of Service SECTION 5.1 – It is an assumption hereof the adequate quality of the services rendered by the AUTHORIZED , being as suchconsidered, the service that satisfies the conditions of regularity, efficiency, safety, updating, generality and courtesy.

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§1o - Regularity will be characterized by the continuous exploitation of the service with strict compliance with what is set forth in theAnatel rules. §2o - Efficiency will be characterized by the attainment and maintenance of the parameters contained herein and by the service to theuser , rendered within the term foreseen herein. §3o - Safety in the e4xploitationof the service shall be characterized by the confidentiality pf the data related to the use of the serviceby the users, as well as by the full maintenance of the confidentiality regarding the conveyed information in the scope of itsexploitation. §4o - Update will be characterized by the modernity of the equipment, of the premises and techniques of exploitation of the service,with the use of technological advances that definitely will benefit the users, once respected the provisions hereof. §5o - Generality will be characterized by the non discriminatory rendering of services to any and all users, with the commitment onthe part of the Authorized to render the service to whoever requests it as per the regulation. §6o - Courtesy will be characterized by the respectful and immediate service rendered to all users of the authorized service, as well asby the compliance with the obligations to inform and provide immediate and polite services to all, users or non users that may requestfrom the AUTHORIZED, information, provisions or any kind of request as per the determinations hereof. SECTION 5.2 - THE AUTHORIZED shall meet the quality targets determined in the Plano Geral de Metas de Qualidade - PGNQ (General Target Plan of Quality- PGMQ) for the SMP. Single Paragraph. For the purposes of the provisions in the §5° of section 1st of the PGMQ – SMP, it shall be considered as thestarting point of the commercial operation of the SMP in a place where there already exists SMC services rendering, the publishingdate of the extract hereof. SECTION 5.3 – The exploitation of the authorized service may only be interrupted according to the Regulation of the SMP,published by Anatel. Chapter VI Numbering Plan SECTION 6.1 - THE AUTHORIZED compromises to obey the Numbering Regulations published by Anatel, and shall ensure to theuser of the service, the portability of the access codes as per regulation. Chapter VII Users Charges SECTION 7.1 – The amount, measuring form and the criteria for charging for the services rendered, shall be set forth by theAuthorized, based on the determinations of the SMP Regulation, once observed the content of section 3.7 hereof. Chapter VIII Users Rights and Duties SECTION 8.1 – Users Rights and Duties are those set forth in the LGT and in the regulation, at no loss of the rights foreseen in Lawno 8.078, of the 11th of November of 1990 in the cases regulated by it, nor of those included in the SMP rendering agreement.

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Chapter IX Authorized Rights and Duties SECTION 9.1 – The rights and duties of the Authorized are those set forth in the LGT and in the regulation. SECTION 9.2 – In services hiring and equipment and material acquisition in relation herewith, the Authorized obliges to consideroffers from independent suppliers, including the national ones, and to base its decisions, in respect to the several offers presented, inthe compliance of the objective price criteria, delivery conditions and technical specifications in the appropriate regulation. Single Paragraph. Regarding the mentioned hiring process, the procedures of the Regulation on the Services Hiring Procedures andMaterial and Equipment Acquisition by the Telecommunication Services Providers, approved by the Resolution n.° 155 of Anatel, ofthe 5th of August of 1999. Chapter X Anatel Obligations and Prerogatives SECTION 10.1 – Aside from other prerogatives inherent to its regulatory organ function and from the other obligations derivedhereof, Anatel will : I – follow up and inspect the exploitation of the service, in order to comply with the regulation;II – regulate the exploitation of the authorized service;III – apply the punishment foreseen in the service regulation, specially herein;IV – to watch over the good quality of the service, to receive, select and solve complaints and claims of the users, making them aware,within a 90 days period of time, of the actions taken to avoid them to be deprived of their rights;V – to declare terminated the Authorization in the events foreseen in the LGT;VI – to watch over the guarantee of interconnection, annulling eventual issues arisen between the AUTHORIZED and the otherproviders;VII – to constantly follow up the relationship between the Authorized and the other providers, solving conflicts that may arise;VIII – to restrain behaviors of the Authorized that are against the free competition regime, observed in the competences of the CADE,the regulation and specially the content of sections 10.2. and 10.3. hereof;IX – to perform the activity of inspecting the service, as per provisions herein; andX – collect taxes related to FISTEL, adopting the provisions foreseen in law. SECTION 10.2 - Anatel might file a Proceeding to Ascertain the Non Compliance of the Obligations (PADO), veered towardsascertaining untruthfulness or non-substance of the conditions stated by the AUTHORIZED , related to the non-participation in thecontrol of the other companies or to other economical concentration preventive bars, whenever there are signs of relevant influence ofsuch , of its associated companies, controlled or controllers over the legal entity of the SMP provider, in the terms of the Regulationfor the Control and Transfer Verification in Companies Providers of Telecommunication Services, approved by the Resolution n.° 101of Anatel, of the 04th of February of 1999. Single Paragraph. The evidence, after the procedure foreseen in this section of the existence of any situation that characterizesuntruthfulness or lack of substance of the conditions stated by the Authorized shall configure the disfranchisement hereof, accordingto section 139 of the LGT. SECTION 10.3 - Anatel may still file an administrative procedure veered towards ascertaining any misdemeanor against theeconomical order foreseen in Law n.° 8.884/94.

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Chapter XI Inspection regime SECTION 11.1 - Anatel shall perform the inspection of the services so as to ensure the compliance with the commitments herein. §1o - Inspection to be performed by Anatel will cover the inspection and the follow up of the activities, equipment and premises of theAUTHORIZED , implying broad access to all data and information of the Authorized or of third parties. §2o - Information gathered during inspection activities will be published in the Library, except for those, that by request of theAUTHORIZED , are considered as confidential by Anatel. §3o - Information that are considered as confidential , as per the previous paragraph, shall only be used in the procedures relatedhereto, responding to Anatel and to those indicated by Anatel, for any disclosure, broad or restricted, of such information outside theusage scope. SECTION 11.2 – The AUTHORIZED , by means of an appointed representative, may follow all and every activity of Anatelinspection, not being entitled to oppose or prevent the inspection, under risk of incurring in the punishment foreseen in the regulation. Chapter XII Telecommunication Nets and Access to Visiting Users SECTION 12.1 – THE AUTHORIZED regarding the implementation and operation of the Telecommunication Nets veered towardsproviding support to SMP, shall observe the provisions in the regulation, specially in the Telecommunication Services Regulation n.°73, of the 25th of November of 1998; in the General Regulation of Interconnection, approved by the Resolution no 40, of the 23rd ofJuly of 1998; and in the regulation of the SMP. Single Paragraph. The change in technology standards, promoted by the AUTHORIZED , may not burden unilateral and arbitrarilythe user, including with respect to the existing conditions of services to the visiting users. SECTION 12.2 – Compensation by the use of nets between the Authorized and the other providers of telecommunication services,shall comply with the provision in section 152 of the LGT and in the SMP regulation, especially in the ADJUSTMENT RULE. Single Paragraph. The document foreseen in item 7 of the ADJUSTMENT RULE becomes hereinafter Attachment I hereto. Chapter XIII Sanctions SECTION 13.1 - THE AUTHORIZED is subject to Anatel inspection, once respected the legal provisions and related regulations,and shall, whenever required to do so, be accountable for as per regulations of the SMP, allowing free access to its technical resourcesand accounting records. SECTION 13.2 – non-compliance with conditions or commitments associated to the Authorization, shallsubject the Authorized to caveat sanctions, fines, temporary probation or forfeiture, as per provision of the SMP. Chapter XIV Termination of the Authorization

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SECTION 14.1 – Authorization shall be deemed to be terminated due to disfranchisement, forfeiture, decay, waive or annulment, asper sections 138 to 144 of the LGT and according to the proceedings in the regulation. Single Paragraph. The termination statement shall not elide the application of the adequate punishments, as per provisions hereof, bythe wrongdoings performed by the AUTHORIZED . Chapter XV Legal Regime and Applicable documents SECTION 15.1 – This Authorization is governed, without detracting the other integrant rules of the Brazilian Legal Order, by theLGT, and the regulations derived thereof. SECTION 15.2 – In the exploitation of the services authorized hereby, the regulations of Anatel shall be complied, as part hereof,specially the documents related with the SMP Regulation. SECTION 15.4 – In the interpretation of the norms and provisions hereof, shall be taken into consideration, aside from the documentsreferred to in this Chapter, the general hermeneutic rules and the norms and principles contained in the LGT. Chapter XVI Transitory Provisions SECTION 16.1 – Until the Approval or the covenant of the VU-M, as per the option of the SMP provider, shall be maintained boththe value of the Net Compensation , and the criteria for the processing and values conveyance between the providers of CellularMobile Services and the Fixed Commuted Telephone Service. Chapter XVII Venue SECTION 17.1 - The Court of the Judiciary Section of the Federal Justice of Brasilia, Federal District , is hereby elected to settle anyconflicts arising herefrom or relating hereto, to the exclusion of any other, however privileged. Chapter XVIII Final Provisions SECTION 18.1 – This Authorization Term shall become in force after the disclosure of its extract in the Federal Official Gazette. SECTION 18.2 – Except for the provisions herein entrusted, any other provisions of the Substituted Instrument become null, as per§2° of section 1.1. IN WITNESS WHEREOF, the parties sign this document in 03 ( three) counterparts of equal tenor and form, in the presence ofwitnesses who also sign below, so that it will produce the due legal effects. Brasília, the 10th of December of 2002. On behalf of ANATEL:

LUIZ GUILHERME SCHYMURA DE OLIVEIRAPresident of the Board

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LUIZ TITO CERASOLICounselor On behalf of the AUTHORIZED :

GILSON RONDINELLI FILHOPresident

MARIA PAULA DE ALMEIDA MARTINS CANAISExecutive Vice-President Witnesses:

JARBAS JOSÉ VALENTE4.346/D CREA-DF

BRUNO DE CARVALHO RAMOS5.060.107.391/D CREA-SP


According to what is provided in item 7 of the ADJUSTMENT RULE, TELESP Celular S.A., General Taxpayer’s register - CNPJN.° 02.319.126/0001-59, herein represented by its President, GILSON RONDINELLI FILHO, Brazilian, married, engineer, IDCard – RG n° 4.347.710 - SSP/SP, opts for the submission to item 5 and its sub-items of the Norms of Compensation Criteria by theUse of the Nets of the Providers of Personal Mobile Service – SMP, approved by the Resolution n° 319, of the 27th of September of2002, requesting the approval of the TU-M whose maximum value shall be the maximum value of the initial VU-M of its ServiceArea. Brasília, the 10th of December of 2002.


17


Exhibit 4(b).5

AUTHORIZATION TERM PVCP/SPV N.º 017/2002-ANATELAUTHORIZATION TERM OF THE PERSONAL MOBILE SERVICE ENTERED BY

AGÊNCIA NACIONAL DE TELECOMUNICAÇÃO (NATIONALTELECOMMUNICATION AGENCY)- ANATEL AND

GLOBAL TELECOM S.A. Hereby, on the one part, the AGÊNCIA NACIONAL DE TELECOMUNICAÇƠES (NATIONAL TELECOMMUNICATIONAGENCY)– ANATEL, hereinafter referred to as ANATEL, an entity that is a part of the UNION, as per Federal Act n.º 9.472, of the16th of July of 1997, Lei Geral de Telecomunicaçơes – LGT( General Telecommunications Act – LGT) , registered at the GeneralRegistry of Income Tax Payers of the Ministry of Finance - CGC/MF under n.º 02.030.715/0001-12, here represented by the Presidentof the Council of ANATEL LUIZ GUILHERME SCHYMURA DE OLIVEIRA together with the Counselor LUIZ TITOCERASOLI, and on the other part, GLOBAL TELECOM S.A., registered at the General Registry of Income Tax Payers of theMinistry of Finance -CNPJ under nº 02.449.992/0001-64, herein represented by its President, GILSON RONDINELLI FILHO,Brazilian, married, engineer, ID card –RG nº 4.347.710 - SSP/SP and by the Executive Vice-President, MARIA PAULA DEALMEIDA MARTINS CANAIS, Portuguese, married, Mathematician, National Registration of Foreigners - RNE nºV329152-L, hereinafter referred to as AUTHORIZED, enter into the present AUTHORIZATION TERM, Anatel Case n.º53500.001479/2001, that shall be governed by the following sections: Chapter I Subject Matter, Area and term of the Authorization Section 1.1 – The subject-matter of this Term is the issuance of Authorization for the exploitation of the Personal Mobile Service-SMP, rendered under private regime, in the geographic area formed by the territories of the State of Paraná e Santa Catarina, inthe Region III of the PGA-SMP. §1º – The subject-matter hereof include the Personal Mobile Service, rendered under private regime, according to the AnatelRegulation, and in special, as per the provisions in Regulation of the SMP and in the General Plan of Authorizations of the SMP. §2º – The current Authorization is issued based on section 214, paragraph V, of the LGT General Telecommunications Act ) and inthe “Rule for the Adjustment of Grant Instruments and Authorization of the Mobile Personal Service- SMC for the Personal MobileService – SMP, approved by the Resolution ANATEL n.º 318, of the 27th of September of 2002, and amended by the ResolutionANATEL n.º 326, of the 28th of November of 2002, hereinafter referred to as ADJUSTMENT RULE in substitution of the GRANTAGREEMENT Nº 10/98-ANATEL, of the 8th of April of 1998, D.O.U of the 9th of April of 1998, hereinafter referred to asSUBSTITUTED INSTRUMENT. SECTION 1.2 - Personal Mobile Service is the land mobile telecommunication service of collective interest that enables thecommunication between the mobile stations and from a mobile station to other stations, once acknowledged the provisions of theregulation. SECTION 1.3 – The AUTHORIZED is entitled to the industrial exploitation of the means related to services rendering, onceobserved the provisions in the regulations as well as those in sections 154 and 155 of the LGT. SECTION 1.4 – The term of this Authorization for the exploitation of the SMP is not determined.


SECTION 1.5 – The service shall be exploited with the use, by the AUTHORIZED , of the sub-band of radio frequencies foreseen inthe SUBSTITUTED INSTRUMENT, indicated below : Transmission from the Mobile Station : 824,0 to 835,0 MHz / 845,0 to 846,5 MHz Transmission from the Radio base Station : 869,0 to 880,0 MHz / 890,0 to 891,5 MHz SECTION 1.6 – The right to use the radio frequencies mentioned in the previous SECTION shall remain in force until the 8th ofApril of 2013 that corresponds to the remaining term extended a single time for 15 years, being such extension against payment. §1º – The use of the radio frequency shall occur in primarily and restricted to the Services Rendering Area. §2º – The right to use the radio frequency depends on its efficient and proper use. §3º – Radio frequency sharing, when it does not imply harmful interference or impose limits to the rendering of the SMP, may beauthorized by Anatel. SECTION 1.7 – The AUTHORIZED , in order to extend the right to use the radio-frequencies related hereto, shall pay, every twoyears, during the extension term, encumbrance corresponding to 2% (two per cent ) of the annual income of the year prior to thepayment, of the SMP, free from taxes and social security taxes. §1º In the calculation of the amount referred to in the caput of this SECTION, shall be considered the net income derived from theAlternative and Basic Service Plan, subject matter hereof. §2º The calculation of the percentage referred to in the caput of this SECTION shall always be based on the net income of deductionof taxes and social taxes, determined between January and December of the previous year and obtained in the financial statementselaborated according to the fundamental accounting principles approved by the Management of the AUTHORIZED and audited byindependent auditors, and maturity date shall be the 30 (thirty) of April of the subsequent year after the encumbrance is ascertained. §3º The first installment of the encumbrance shall be due on the 30th (thirtieth ) of April of 2015, calculated based on the net incomeascertained from the 1st of January to the 31st of December of 2014, and the subsequent installments shall be due at each twenty fourmonths, having as the base date the calculation of the income of the previous year. §4º The delay in payment of the encumbrance foreseen in this SECTION will imply charge of arrears fee of 0,33% (zero point thirtythree per cent ) a day, up to the limit of 10% (ten per cent), added of the referential SELIC tax for federal bonds, to be applied over thevalue of the debt, considering all days of delay in payment. SECTION 1.8 – The petition for the extension of the right to use radio frequencies shall be forwarded to Anatel in up to thirtymonths, prior to the due date of the original term. Single Paragraph. Dismissal will only occur if the involved party is not making proper and rational use of the radio frequencies, if ithas repeatedly incurred in violations in the performance of its activities, or if it is necessary to change the destination of the use of theradio frequency . SECTION 1.9 - Anatel is AUTHORIZED to bring a new action of Authorization Grant for the exploitation of the SMP, in case anextension petition of up to 24 (twenty four) months prior to the original maturity date is not suddenly formulated. Chapter II Replacement Value

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SECTION 2.1 – The value of replacement of the SUBSTITUTED INSTRUMENT hereby, is R$ 9.000,00 (nine thousand reais). Single Paragraph. Non payment of the outstanding installments, derived from past commitments, related to the values owed by theGrant or Authorization of the Cellular Mobile Service - SMC, shall imply forfeiture hereof, regardless the application of otherforeseen penalties. Chapter III Form and Conditions for the Rendering of Service SECTION 3.1 – The AUTHORIZED promises to render the service, subject-matter hereof, in a way as to fully fulfill the obligationsinherent to the service rendered under private regime, once observed the criteria , formulae and parameters herein defined. Single Paragraph. The non-fulfillment of the obligations related to the subject-matter hereof, shall afford the application of thesanctions foreseen herein, shall allow for the temporary suspension, on the part of Anatel and, according to the case, forfeiture hereofshall be adjudicated, as per section 37 of the LGT. SECTION 3.2 - THE AUTHORIZED shall exploit the service, subject-matterhereof at its own risks, within the regime of broad and fair competition set forth in LGT, being compensated by the prices charged, asper provisions herein. §1º THE AUTHORIZED shall not be entitled to any type of exclusivity, any possibility of financial economical balance guarantee,and may not claim rights as to the admission of new providers of the same service. §2º THE AUTHORIZED will not have acquired rights to the permanence of the conditions in force with the issuance hereof, or of thestar of the activities, and shall observe the new conditions imposed by the law and by regulation. §3º The norms shall grant enough time for the adjustment to the new conditions. SECTION 3.3 – THE AUTHORIZED shall keep free access to emergency public services according to what was set forth in theregulation. SECTION 3.4 – THE AUTHORIZED shall ensure to its user the free exercise of choice of STFC provider for long distance calls, asper the regulation of SMP, especially in the ADJUSTMENT RULE. SECTION 3.5 – Changes in the shareholder control of the Authorized are subject to control on the part of Anatel for purposes ofverification of the conditions that are essential for the forwarding and maintenance of the Authorization, as per the regulation. Single Paragraph. These are essential for the forwarding and maintenance of the Authorization, among others, those foreseen in theSMP General Authorization Plan, section 10, § 2º of the PGO and in article 133 of the LGT. SECTION 3.6 – The conveyance of the Authorization Plan is subject to the approval on the part of Anatel, once observed therequirements of the §2o of section 136 of the LGT. Single Paragraph. For the purposes of the paragraph I of section 98 of LGT, shall be considered the operation time of the CellularMobile Service during the enforcement of the SUBSTITUTED INSTRUMENT. SECTION 3.7 - The AUTHORIZED shall freely determine the prices to be charged for the rendering of the SMP, defining theServices Plan with structures, forms, criteria and values that shall be reasonable and non discriminatory, and that may vary due totechnical characteristics, of

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specific costs and use offered to the users, as per definition of the SMP regulation, specially in the ADJUSTMENT RULE. Chapter IV Coverage Commitments SECTION 4.1 – Coverage commitments foreseen in the SUBSTITUTED INSTRUMENT shall be maintained, including the coverageand service obligations. SECTION 4.2 – The non-compliance of the commitments causes the Authorized to be subject to sanctions foreseen herein, and in theregulation, and as a result, the termination of the Authorization may occur. Chapter V Quality of Service SECTION 5.1 – It is an assumption hereof the adequate quality of the services rendered by the AUTHORIZED , being as suchconsidered, the service that satisfies the conditions of regularity, efficiency, safety, updating, generality and courtesy. §1º - Regularity will be characterized by the continuous exploitation of the service with strict compliance with what is set forth in theAnatel rules. §2º - Efficiency will be characterized by the attainment and maintenance of the parameters contained herein and by the service to theuser , rendered within the term foreseen herein. §3º - Safety in the e4xploitationof the service shall be characterized by the confidentiality pf the data related to the use of the serviceby the users, as well as by the full maintenance of the confidentiality regarding the conveyed information in the scope of itsexploitation. §4º - Update will be characterized by the modernity of the equipment, of the premises and techniques of exploitation of the service,with the use of technological advances that definitely will benefit the users, once respected the provisions hereof. §5º - Generality will be characterized by the non discriminatory rendering of services to any and all users, with the commitment on thepart of the Authorized to render the service to whoever requests it as per the regulation. §6º - Courtesy will be characterized by the respectful and immediate service rendered to all users of the authorized service, as well asby the compliance with the obligations to inform and provide immediate and polite services to all, users or non users that may requestfrom the AUTHORIZED, information, provisions or any kind of request as per the determinations hereof. SECTION 5.2 - THE AUTHORIZED shall meet the quality targets determined in the Plano Geral de Metas de Qualidade - PGNQ (General Target Plan of Quality- PGMQ) for the SMP. Single Paragraph. For the purposes of the provisions in the §5º of section 1st of the PGMQ – SMP, it shall be considered as thestarting point of the commercial operation of the SMP in a place where there already exists SMC services rendering, the publishingdate of the extract hereof. SECTION 5.3 – The exploitation of the authorized service may only be interrupted according to the Regulation of the SMP,published by Anatel. Chapter VI Numbering Plan

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SECTION 6.1 - THE AUTHORIZED compromises to obey the Numbering Regulations published by Anatel, and shall ensure to theuser of the service, the portability of the access codes as per regulation. Chapter VII Users Charges SECTION 7.1 – The amount, measuring form and the criteria for charging for the services rendered, shall be set forth by theAuthorized, based on the determinations of the SMP Regulation, once observed the content of section 3.7 hereof. Chapter VIII Users Rights and Duties SECTION 8.1 – Users Rights and Duties are those set forth in the LGT and in the regulation, at no loss of the rights foreseen in Lawno 8.078, of the 11th of November of 1990 in the cases regulated by it, nor of those included in the SMP rendering agreement. Chapter IX Authorized Rights and Duties SECTION 9.1 – The rights and duties of the Authorized are those set forth in the LGT and in the regulation. SECTION 9.2 – In services hiring and equipment and material acquisition in relation herewith, the Authorized obliges to consideroffers from independent suppliers, including the national ones, and to base its decisions, in respect to the several offers presented, inthe compliance of the objective price criteria, delivery conditions and technical specifications in the appropriate regulation. Single Paragraph. Regarding the mentioned hiring process, the procedures of the Regulation on the Services Hiring Procedures andMaterial and Equipment Acquisition by the Telecommunication Services Providers, approved by the Resolution n.º 155 of Anatel, ofthe 5th of August of 1999. Chapter X Anatel Obligations and Prerogatives SECTION 10.1 – Aside from other prerogatives inherent to its regulatory organ function and from the other obligations derivedhereof, Anatel will : I – follow up and inspect the exploitation of the service, in order to comply with the regulation;II – regulate the exploitation of the authorized service;III – apply the punishment foreseen in the service regulation, specially herein;IV – to watch over the good quality of the service, to receive, select and solve complaints and claims of the users, making them aware,within a 90 days period of time, of the actions taken to avoid them to be deprived of their rights;V – to declare terminated the Authorization in the events foreseen in the LGT;VI – to watch over the guarantee of interconnection, annulling eventual issues arisen between the AUTHORIZED and the otherproviders;VII – to constantly follow up the relationship between the Authorized and the other providers, solving conflicts that may arise;VIII – to restrain behaviors of the Authorized that are against the free competition regime, observed in the competences of the CADE,the regulation and specially the content of sections

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10.2. and 10.3. hereof;IX – to perform the activity of inspecting the service, as per provisions herein; andX – collect taxes related to FISTEL, adopting the provisions foreseen in law. SECTION 10.2 - Anatel might file a Proceeding to Ascertain the Non Compliance of the Obligations (PADO), veered towardsascertaining untruthfulness or non-substance of the conditions stated by the AUTHORIZED , related to the non-participation in thecontrol of the other companies or to other economical concentration preventive bars, whenever there are signs of relevant influence ofsuch , of its associated companies, controlled or controllers over the legal entity of the SMP provider, in the terms of the Regulationfor the Control and Transfer Verification in Companies Providers of Telecommunication Services, approved by the Resolution n.º 101of Anatel, of the 04th of February of 1999. Single Paragraph. The evidence, after the procedure foreseen in this section of the existence of any situation that characterizesuntruthfulness or lack of substance of the conditions stated by the Authorized shall configure the disfranchisement hereof, accordingto section 139 of the LGT. SECTION 10.3 - Anatel may still file an administrative procedure veered towards ascertaining any misdemeanor against theeconomical order foreseen in Law n.º 8.884/94. Chapter XI Inspection regime SECTION 11.1 - Anatel shall perform the inspection of the services so as to ensure the compliance with the commitments herein. §1º - Inspection to be performed by Anatel will cover the inspection and the follow up of the activities, equipment and premises of theAUTHORIZED , implying broad access to all data and information of the Authorized or of third parties. §2º - Information gathered during inspection activities will be published in the Library, except for those, that by request of theAUTHORIZED , are considered as confidential by Anatel. §3º - Information that are considered as confidential , as per the previous paragraph, shall only be used in the procedures relatedhereto, responding to Anatel and to those indicated by Anatel, for any disclosure, broad or restricted, of such information outside theusage scope. SECTION 11.2 – The AUTHORIZED , by means of an appointed representative, may follow all and every activity of Anatelinspection, not being entitled to oppose or prevent the inspection, under risk of incurring in the punishment foreseen in the regulation. Chapter XII Telecommunication Nets and Access to Visiting Users SECTION 12.1 – THE AUTHORIZED regarding the implementation and operation of the Telecommunication Nets veered towardsproviding support to SMP, shall observe the provisions in the regulation, specially in the Telecommunication Services Regulation n.º73, of the 25th of November of 1998; in the General Regulation of Interconnection, approved by the Resolution no 40, of the 23rd ofJuly of 1998; and in the regulation of the SMP. Single Paragraph. The change in technology standards, promoted by the AUTHORIZED , may not burden unilateral and arbitrarilythe user, including with respect to the existing conditions of services to the visiting users.

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SECTION 12.2 – Compensation by the use of nets between the Authorized and the other providers of telecommunication services,shall comply with the provision in section 152 of the LGT and in the SMP regulation, especially in the ADJUSTMENT RULE. Single Paragraph. The document foreseen in item 7 of the ADJUSTMENT RULE becomes hereinafter Attachment I hereto. Chapter XIII Sanctions SECTION 13.1 - THE AUTHORIZED is subject to Anatel inspection, once respected the legal provisions and related regulations,and shall, whenever required to do so, be accountable for as per regulations of the SMP, allowing free access to its technical resourcesand accounting records. SECTION 13.2 – non-compliance with conditions or commitments associated to the Authorization, shall subject the Authorized tocaveat sanctions, fines, temporary probation or forfeiture, as per provision of the SMP. Chapter XIV Termination of the Authorization SECTION 14.1 – Authorization shall be deemed to be terminated due to disfranchisement, forfeiture, decay, waive or annulment, asper sections 138 to 144 of the LGT and according to the proceedings in the regulation. Single Paragraph. The termination statement shall not elide the application of the adequate punishments, as per provisions hereof, bythe wrongdoings performed by the AUTHORIZED . Chapter XV Legal Regime and Applicable documents SECTION 15.1 – This Authorization is governed, without detracting the other integrant rules of the Brazilian Legal Order, by theLGT, and the regulations derived thereof. SECTION 15.2 – In the exploitation of the services authorized hereby, the regulations of Anatel shall be complied, as part hereof,specially the documents related with the SMP Regulation. SECTION 15.4 – In the interpretation of the norms and provisions hereof, shall be taken into consideration, aside from the documentsreferred to in this Chapter, the general hermeneutic rules and the norms and principles contained in the LGT. Chapter XVI Transitory Provisions SECTION 16.1 – Until the Approval or the covenant of the VU-M, as per the option of the SMP provider, shall be maintained boththe value of the Net Compensation , and the criteria for the processing and values conveyance between the providers of CellularMobile Services and the Fixed Commuted Telephone Service. Chapter XVII Venue

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SECTION 17.1 - The Court of the Judiciary Section of the Federal Justice of Brasilia, Federal District , is hereby elected to settle anyconflicts arising herefrom or relating hereto, to the exclusion of any other, however privileged. Chapter XVIII Final Provisions SECTION 18.1 – This Authorization Term shall become in force after the disclosure of its extract in the Federal Official Gazette. SECTION 18.2 – Except for the provisions herein entrusted, any other provisions of the Substituted Instrument become null, as per§2º of section 1.1. IN WITNESS WHEREOF, the parties sign this document in 03 ( three) counterparts of equal tenor and form, in the presence ofwitnesses who also sign below, so that it will produce the due legal effects. Brasília, the 10th of December of 2002. On behalf of ANATEL:

LUIZ GUILHERME SCHYMURA DE OLIVEIRAPresident of the Board

LUIZ TITO CERASOLICounselor On behalf of the AUTHORIZED :


MARIA PAULA DE ALMEIDA MARTINS CANAISExecutive Vice-President Witnesses:

JARBAS JOSÉ VALENTE4.346/D CREA-DF

BRUNO DE CARVALHO RAMOS5.060.107.391/D CREA-SP

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According to what is provided in item 7 of the ADJUSTMENT RULE, Global Telecom S.A., General Taxpayer’s register - CNPJ N.º02.449.992/0001-64, herein represented by its President, GILSON RONDINELLI FILHO, Brazilian, married, engineer, ID Card– RG nº 4.347.710 - SSP/SP, opts for the submission to item 5 and its sub-items of the Norms of Compensation Criteria by the Use ofthe Nets of the Providers of Personal Mobile Service – SMP, approved by the Resolution nº 319, of the 27th of September of 2002,requesting the approval of the TU-M whose maximum value shall be the maximum value of the initial VU-M of its Service Area. Brasília, the 10th of December of 2002.


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Exhibit 4(b).6

AUTHORIZATION AGREEMENT PVCP/SPV NUMBER 011/2003 - ANATEAUTHORIZATION TERM FOR PERSONAL MOBILE SERVICE CELEBRATED BETWEEN THE BRAZILIAN

TELECOMMUNICATIONS AGENCY - ANATEL - AND TELE CENTRO OESTE CELULAR PARTICIPACOES S.A.

By means of the present Authorization Term, on the one side THE BRAZILIAN NATIONAL TELECOMMUNICATIONSAGENCY - ANATEL - henceforward referred to as ANATEL, which is an entity of the federal government according to Federal Law9472 of July 16, 1997, the General Telecommunications Law (Lei Geral das Telecomunicacoes - LGT), registered with the BrazilianTax Roll under number (CGC/MF) 02.030.715/0001-12 and herein represented by the President of the Board of Directors ofANATEL Mr. LUIZ GUILHERME SCHYMURA DE OLIVEIRA, in conjunction with member of the Board of Directors, LUIZTITO CERASOLI, and on the other side Tele Centro Oeste Celular Participacoes S.A., registered with the Brazilian Tax Roll undernumber (CGC/MF) 02.558.132/0001-69, herein represented by its acting Chief Executive Officer MR. SERGIO ASSENCOTAVARES DOS SANTOS, a Brazilian engineer, widowed, General Registry number 131.306 SSP/DF, and by its Director ofAdministration and Human Resources Mr. GETULIO NERY CARDOSO, a Brazilian engineer, married, General Registry number290.486 SSP/DF, henceforward referred to as AUTHORIZEE, celebrate the present Authorization Term registered with ANATELunder number 53500.000263/2003 and agree to abide by the following provisions:

CHAPTER I

OBJECT, AREA, AND PERIOD OF THE AUTHORIZATION

CLAUSE 1.1 – The present Agreement is the issuance of the Authorization to exploit the Personal Mobile Service - PMS - providedunder a private business system in the geographical area constituted by the Federal District of Brazil, Region II of the PGA-SMP.


PARAGRAPH ONE. The Object of this Authorization comprises the Personal Mobile Services provided under a private businessregime, in conformity with Anatel regulatory requirements and particularly compliant with the provisions of the PMS Regulation andof the General Authorization Plan for the PMS.

PARAGRAPH TWO. The authorization herein is issued based on article 214, subsection V of the General Telecommunications Lawand on the Rule for the Adaptation of the Authorization and Concession Instruments from Cellular Mobile Service - CMS to PersonalMobile Service - PMS (Norma de Adaptacao dosInstrumentos de Concessao e de Autorizacao do Servico Movel Celular - SMC paraoServico Movel Pessoal - SMP), approved by Anatel Resolution number 318, of September 27, 2002 and amended by AnatelResolution number 326, of November 28, 2002, henceforward referred to as ADAPTATION RULE, replacing CONCESSIONCONTRACT No. 031/97-DOTC-SFO-MC, of November 4, 1997, published in Diario Oficial da Uniao (Brazilian Federal OfficialGazette) on November 5 1997, henceforward referred to as REPLACED INSTRUMENT.

CLAUSE 1.2 - Personal Mobile Service is the terrestrial mobile telecommunications service of collective interest which allowscommunication among mobile stations and from mobile stations to other stations, observing the terms of the regulations.

CLAUSE 1.3 - The AUTHORIZEE has the right to exploit the means related to the rendering of the services, observing the terms ofthe regulations as well as of articles 154 and 155 of the General Telecommunications Law.

CLAUSE 1.4 - This authorization is in effect for an indeterminate period of time.

CLAUSE 1.5 - The service shall be exploited with the use, by the AUTHORIZEE, of the subrange of radiofrequencies set forth in theREPLACED INSTRUMENT, designated below:

Mobile Station Transmission: 824.0 to 835.0 MHz / 845.0 to 846.5 MHz

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Radiobase Station Transmission: 869.0 to 880.0 MHz / 890.0 to 891.5 MHz

CLAUSE 1.6 - The right to use the radiofrequencies mentioned in the previous clause will be in effect until July 24, 2006, whichcorresponds to the remaining period. This period can be extended only one single time for 15 (fifteen) years, and such extensionimplies payment by the AUTHORIZEE.

PARAGRAPH ONE. The radiofrequency will be used on a primary basis and such use will be restricted to the respective ServiceArea.

PARAGRAPH TWO. The right to use the radiofrequency is conditional upon it's efficient and appropriate use.

PARAGRAPH THREE. The sharing of the radiofrequency may be authorized by Anatel, provided that such sharing does not implyharmful interference or impose limitations to the rendering of PMS.

CLAUSE 1.7 - The AUTHORIZEE shall, for the extension of the right to use radiofrequencies associated to this Authorization, pay abiennial fee during the extension period, corresponding to 2% (two percent) of its PMS revenues in the year previous to the payment,net of applicable taxes and social contributions.

PARAGRAPH ONE. When calculating the amount referred to in the head of this Clause, the net revenue considered will be thatresulting from the application of the Service, the Basic, and the Alternative plans, object of the authorization herein.

PARAGRAPH TWO. The percentage referred to in the head of this clause will be calculated relative to the revenues, net of taxdeductions and applicable contributions, attained between January and December of the previous year and obtained from the financialstatements prepared according to basic accounting principles approved by the AUTHORIZEE's Administration and audited byindependent auditors, and the payment will be due on April 30 of the year following the calculation of the fee.

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PARAGRAPH THREE. The first installment of the fee will be due on April 30, 2008 and will be computed considering the netincome calculated from January 1 to December 31, 2007. The subsequent installments will be due every 24 (twenty four) months, andwill be calculated based on the previous year's revenues.

PARAGRAPH FOUR. Any delay in paying this fee will imply in payment of a fine of 0.33% (point thirty-three percent) per day ofdelay, until a maximum limit of 10% (ten percent), added to the SELIC reference fee for federal bonds, which shall be applied to theamount of the debt considering the total number of days in which the payment was overdue.

CLAUSE 1.8 - Requirement to extend the right to use radiofrequencies should be forwarded to Anatel within thirty months prior to theoriginal maturity date.

SOLE PARAGRAPH. The requirement will be refused only if the interested party is not making rational and appropriate use of theradiofrequencies, if the interested party has committed repeated infractions in its activities, or if it is necessary to alter the destinationof the use of the radiofrequency.

CHAPTER II

VALUE OF THE REPLACEMENT

CLAUSE 2.1 - The value of the replacement of the REPLACED INSTRUMENT by the AUTHORIZATION TERM herein is R$9,000.00 (nine thousand Brazilian reais).

SOLE PARAGRAPH. Failure to pay any pending installments resulting from commitments assumed regarding the amounts owedfor the Concession or Authorization of Cellular Mobile Service - CMS, will imply in the forfeiture of the Authorization herein,regardless of the application of other penalties established.

CHAPTER III

MODE, FORM, AND CONDITIONS OF THE SERVICE

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CLAUSE 3.1 - The AUTHORIZEE is obliged to render the services which are object of the Authorization in such a way as to fullymeet the obligations inherent to the service rendered under a private regime, observing the criteria, formulas, and parameters definedin this Authorization Term.

PARAGRAPH ONE. Default in meeting the obligations related to the object of this Authorization Term will ensue the application ofthe sanctions set forth herein and allow temporary suspension by Anatel. Additionally, according to the case, the forfeiture of thisAuthorization will be declared, as provided by article number 137 of the General Telecommunications Law.

CLAUSE 3.2 - The AUTHORIZEE will exploit the service object of this Authorization at its own account and risk, under theregime of broad and fair competition established in the General Telecommunications Law, and will be paid by means of priceschanged, as determined by this Authorization Term.

PARAGRAPH ONE. The AUTHORIZEE will not be entitled to any type of exclusivity, or to any assumption of guarantee offinancial or economic balance, neither will it be entitled to claim any right as to the admission of new providers of the same service.

PARAGRAPH TWO. The AUTHORIZEE will not have any vested right to the maintenance of the conditions in force after theissuance of the present Authorization or the start of activities, and shall abide by the new conditions provided by law and by theapplicable regulations.

PARAGRAPH THREE. The rules shall grant a sufficient amount of time forcompliance with the new conditions.

CLAUSE 3.3 - The AUTHORIZEE shall grant free access to public emergency services, as defined in the regulations.

CLAUSE 3.4 - The Authorizee shall guarantee to its users the free exercise of their choice of Switched Fixed Telephone Servicesprovider for forwarding

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the long-distance messages, in compliance with the provisions under the PMS regulation, particularly under the Adaptation Rule.

CLAUSE 3.5 - Any alteration in the control of the AUTHORIZEE will be subject to control by Anatel for purposes of verification ofthe obligatory conditions for the issuance and maintenance of the Authorization, in compliance with the regulations.

SOLE PARAGRAPH. The conditions provided under Paragraph Two of Article 10 of the General Concession Plan (Plano Geral deOutorgas - PGO), as well as those established by the General Authorization Plan (Plano Geral de Autorizacoes) of the PMS, and underArticle 133 in the General Telecommunications Law are obligatory conditions for issuance and maintenance of the Authorization.

CLAUSE 3.6 - The transfer of the Authorization Term will be subject to approval by Anatel, as provided by Paragraph Two underArticle 136 of the General Telecommunications Law.

SOLE PARAGRAPH. For purposes of subsection I under Article 98 of the General Telecommunications Law, the operating time ofthe Cellular Mobile Services during the term of the REPLACED INSTRUMENT will be considered.

CLAUSE 3.7 - The AUTHORIZEE shall freely establish the rates to be practiced for the rendering of PMS and define the ServicePlans with structures, forms, criteria, and values that should be reasonable and non-discriminatory, but may vary as to their technicalcharacteristics, their specific costs, and other facilities offered to users, as defined in PMS regulations, particularly in theADAPTATION RULE.

CHAPTER IV

THE SCOPE COMMITMENTS

CLAUSE 4.1 - The scope commitments established in the REPLACED INSTRUMENT shall be maintained, including obligationsregarding service and coverage.

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CLAUSE 4.2 - Default in meeting the commitments will subject the AUTHORIZEE to the sanctions set forth in this Term and in theregulations, and may result in the extinction of the authorization.

CHAPTER V

QUALITY OF THE SERVICE

CLAUSE 5.1 - The present Authorization is subject to the assumption that the service provided by the AUTHORIZEE is of adequatequality, considering as such the service which fully meets the reliability, efficiency, security, currency, generality, and courtesyconditions.

PARAGRAPH ONE. Reliability is characterized by the continual exploitation of the service with strict adherence to the regulatoryrequirements provided by Anatel.

PARAGRAPH TWO. Efficiency is characterized by the fulfillment and preservation of the parameters provided in this AuthorizationTerm and by the rendering of assistance and service to users within the time periods set herein.

PARAGRAPH THREE. Security in the exploitation of the service is characterized by rigorous confidentiality of the data relative tothe use of the service by users, as well as by the strict preservation of secrecy as to the information transmitted in the scope of itsexploitation.

PARAGRAPH FOUR. Currency is characterized by the use of up-to-date equipment, installations, and techniques used in the exploitof the service, including the incorporation of technological advances which will definitely bring benefits to users, in accordance withthe provisions set forth herein.

PARAGRAPH FIVE. Generality is characterized by the non-discriminatory provision of the service to each and every user, and theAUTHORIZEE is obliged to render the service to whomever requests it, in compliance with the regulations.

PARAGRAPH SIX. Courtesy is characterized by the respectful and immediate service

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provided to all users of the authorized service, as well as by the strict observance of the obligations to promptly inform and meet theneeds of all those, users and non-users, who ask for information from the Authorizee, as well as any action or any type of request asprovided herein.

CLAUSE 5.2 - The AUTHORIZEE shall meet the quality targets established in the General Plan for Quality Goals (Plano Geral deMetas de Qualidade - PGMQ) forthe PMS.

SOLE PARAGRAPH. For purposes of the provisions under Paragraph Five of Article 1of the PGMQ-PMS, commercial activities ofthe PMS in locations where Cellular Mobile Services already exists are considered to have started at the date of publication of thesummary of this Term.

CLAUSE 5.3 - The exploitation of the authorized service can only be suspended inconformity of the PMS regulations, issued byAnatel.

CHAPTER VI

NUMBERING PLAN

CLAUSE 6.1 - The AUTHORIZEE agrees to abide by the Numbering Regulations issued by Anatel and shall guarantee to the user theportability of access codes, inconformity with the regulations.

CHAPTER VII

BILLING THE USERS

CLAUSE 7.1 - The rates, as well as the form of measurement and the criteria for billing the services rendered shall be established bythe AUTHORIZEE based on the PMS regulations, in conformity with the provisions under Clause 3.7 of the present AuthorizationTerm.

CHAPTER VIII

RIGHTS AND OBLIGATIONS OF THE USERS

CLAUSE 8.1 - The rights and obligations if the users are those established in the General Telecommunications Law and in theregulations, with no harm to the

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rights provided for in Law 8078 of September 11, 1990 in the cases ruled by it, nor to the rights provided for in the PMS contracts.

CHAPTER IX

RIGHTS AND OBLIGATIONS OF THE AUTHORIZEE

CLAUSE 9.1 - The rights and obligations of the AUTHORIZEE are those provided for in the General Telecommunications Law andin the regulations.

CLAUSE 9.2 - When obtaining services and when acquiring equipment or supplies associated to the object of the presentAuthorization Term, the Authorizee agrees to consider offers placed by independent suppliers, including the Brazilian ones, and tobase their decisions as to the different offers presented on the observance of objective criteria regarding cost, delivery conditions, andtechnical specifications provided for in the applicable regulations.

SOLE PARAGRAPH. When obtaining the above-mentioned services or supplies, the procedures set forth in the Standard Proceduresfor Acquisition of Services, Equipment and Supplies by Providers of Telecommunications Services (Regulamento sobreProcedimentos de Contratacao de Servicos e Aquisicao de Equipamentos ou Materiais pelas Prestadoras de Servicos deTelecomunicacoes), approved by Anatel Resolution 155, of August 5, 1999.

CHAPTER X

OBLIGATIONS AND PREROGATIVES OF ANATEL

CLAUSE 10.1 - In addition to the other prerogatives intrinsic to its role of regulatory body, and to the other obligations resulting fromthis Authorization Term, the following shall constitute responsibilities of Anatel:

I. to follow and to inspect the exploitation of the service with the purpose of meeting the regulations;

II. to regulate the exploitation of the authorized service;

III. to apply the penalties established in the regulations of the service, particularly in this Authorization Term;

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IV. to provide for the good quality of the service, as well as to receive, to address, and to find solutions for complaints placed by theusers, giving them notice, in no longer than 90 (ninety) consecutive days, of the actions taken in order to prevent any violation of itsrights;

V. to pronounce the Authorization terminated in the cases set forth in the General Telecommunications Law;

VI. to provide for guaranteed interconnection, settling any claims arising between the Authorizee and the remaining carriers;

VII. to continuously monitor the relationship between the Authorizee and the remaining carriers in order to settle any occasionalconflict;

VIII. to repress any conduct by the Authorizee which is contrary to the competition regime, in accordance with the provisions of theBrazilian Administrative Council on Economic Defense (Conselho Administrativo de Defesa Economica - CADE), the regulations,and particularly the provisions under Clause 10.2 and Clause 10.3 of this Chapter;

IX. to perform the inspection of the service in the form established in this Authorization Term; and

X. to collect the fees relative to FISTEL, adopting the procedures provided for in the applicable legislation.

CLAUSE 10.2 - Anatel may install a Procedure to Investigate Breaches of Obligations (Procedimento para Apuracao deDescumprimento de Obrigacoes - PADO),so as to look into any falsehood or inconsistency of conditions declared by theAUTHORIZEE relative to its non-participation in the control of other companies or to any other regulatory impediment regardingeconomic concentration whenever there should be any indication of relevant influence on its part or on the part of any affiliatedcompany, controlled company, or controlling company on the legal entity providing PMS, as provided for in the Regulation forInvestigation

10


of Control and of Transference of Control in Providers of Telecommunications Services (Regulamento para Apuracao de Controle ede Transferencia de Controleem Empresas Prestadoras de Servicos de Telecomunicacao), approved by Anatel Resolution 101, issuedFebruary 04, 1999.

SOLE PARAGRAPH. The presentation of proof, following procedures established under this Clause, of the existence of any situationwhich characterizes the untruthfulness or the inconsistency of the conditions declared by the Authorizee shall imply the annulment ofthe present Authorization, as set forth in Article139 of the General Telecommunications Law.

CLAUSE 10.3 - Anatel may additionally set up administrative proceedings aimed to investigate any violation of the economic order,in accordance with the provisions under Law 8884/94.

CHAPTER XI

THE INSPECTION REGIME

CLAUSE 11.1 - Anatel shall perform the inspection of the services in order to assure full observance of the responsibilities agreed toin this Authorization Term.

PARAGRAPH ONE. The inspection to be performed by Anatel shall include the inspection and monitoring of the activities, theequipment, and the installations of the Authorizee, which implies in free access to all data and information concerning the Authorizeeand third parties.

PARAGRAPH TWO. The information collected during the activities related to the inspection shall be made public in the Library,with the exception of the information which, as a result of express request by the Authorizee, is regarded as confidential by Anatel.

PARAGRAPH THREE. All information considered confidential in the form described by in Paragraph Two above shall be usedexclusively in the procedures correlated with the present Authorization Term, and it will be the responsibility of Anatel

11


and of those appointed by Anatel, to account for any form of full or limited disclosure of the referred to information outside the scopeof use specified above.

CLAUSE 11.2 - The AUTHORIZEE is granted the right to follow each and every inspection activity performed by Anatel, through itsappointed representative; it cannot however hinder or impede inspection actions, in which case it will be subject to the penaltiesprovided for in the regulations.

CHAPTER XII

TELECOMMUNICATIONS NETWORKS AND ACCESS TO VISITING USERS

CLAUSE 12.1 - The Authorizee shall observe the regulatory provisions as to the implementation and operations of thetelecommunications networks supporting the rendering of PMS, particularly the provisions in the Telecommunications ServicesRegulation issued by Resolution 73 of November 25, 1998, in the General Interconnection Regulations (Regulamento Geral deInterconexao), approved by Resolution 40 of July 23, 1998 and in the PMS regulations.

SOLE PARAGRAPH. Changes in technology standards promoted by the AUTHORIZEE shall not represent any burden placedunilaterally and arbitrarily on the user. This is also valid regarding the existing conditions of the service provided to users and visitors.

CLAUSE 12.2 - The remuneration for the use of the network between the Authorizee and the remaining carriers oftelecommunications services shall abide by the provisions under Article 152 of the General Telecommunications Law and by theprovisions under the PMS regulations, particularly in the ADAPTATION RULE.

SOLE PARAGRAPH. The document provided for under Item 7 of the Adaptation Rule shall henceforward constitute Annex I of thepresent AUTHORIZATION TERM.

CHAPTER XIII

SANCTIONS

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CLAUSE 13.1 - The AUTHORIZEE is subject to inspection by Anatel, in conformity with the applicable legal and regulatoryprovisions, and shall, whenever requested, provide statements in the form established in the PMS regulations, granting free access toits technical resources and accounting records.

CLAUSE 13.2 - Default in fulfilling conditions or meeting the responsibilities agreed to in respect to the Authorization will subjectthe Authorizee to notification, fines, temporary suspension, or forfeiture, as set forth in the PMS regulation.

CHAPTER XIV

TERMINATION OF THE AUTHORIZATION

CLAUSE 14.1 - The Authorization shall be considered terminated as a result of discharge, forfeiture, lapse, resignation, or annulment,as established in Articles 138 to Article 144 of the General Telecommunications Law and according to the procedures described in theregulation.

SOLE PARAGRAPH. The declaration of termination shall not preclude the application of the corresponding penalties, as providedfor herein, for violations performed by the AUTHORIZEE.

CHAPTER XV

LEGAL REGIME AND APPLICABLE DOCUMENTS

CLAUSE 15.1 - The present Authorization is ruled by the General Telecommunications Law and the resulting regulations,without prejudice to the Brazilian legal order, the General Telecommunications Law, or the regulations resulting from it.

CLAUSE 15.2 - The exploitation of the service herein authorized shall observe, as part of this Authorization Term, the regulationsestablished by Anatel particularly the documents specified in the PMS regulations.

CLAUSE 15.4 - The interpretation of rules and provisions in this Authorization

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Term shall take into consideration, in addition to the documents specified in this Chapter, the general rules of hermeneutics and therules and principles contained in the General Telecommunications Law.

CHAPTER XVI

TRANSITORY PROVISIONS

CLAUSE 16.1 - Until the ratification or the agreement on the VU-M rate, according to the option made by the PMS carrier, both thevalue for network compensation and the criteria for processing and transferring values among entities rendering Cellular Mobileservices and Switched Fixed Telephone Services shall be maintained.

CHAPTER XVII

COURT

CLAUSE 17.1 - Any disputes arising from this Authorization Term shall be settled by the Forum of the District Court of the FederalJustice of Brasilia, Federal District of Brazil.

CHAPTER XVIII

FINAL PROVISIONS

CLAUSE 18.1 - This Authorization Term shall be effective upon the publication of its summary in the Diario Oficial da Uniao(Brazilian Federal Official Gazette).

CLAUSE 18.2 - Barring the provisions expressly set forth in this AuthorizationTerm, all other provisions in the REPLACEDINSTRUMENT, referred to in Paragraph2 of Clause 1.1, are no longer in effect. The parties are aware of the provisions andconditions in this Authorization Term, and sign it in 3 copies, of equal meaning and form, in the presence of the witnesses, who alsosign the 3copies, thus rendering it legally and officially effective.

Brasilia, February 03, 2003

PP. ANATEL

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Luiz Guilherme Schymura de OliveiraPresident of the Board of Directors

LUIZ TITO CERASOLIMember of the Board of Directors

PP. AUTHORIZEE

SERGIO ASSENCO TAVARES DOS SANTOSActing Chairman and President

GETULIO NERY CARDOSODirector of Administration and Human Resources

WITNESSES

JARBAS JOSE VALENTECREA-DF 4346

Nelson Mitsuo TakayanagiSSP-DF 435023

ATTACHMENT I

DECLARATION OF OPTION

In conformity with the provisions under Item 7 of the Adaptation Rule, TELECENTRO OESTE CELULAR PARTICIPACOES S.A.,registered with the Brazilian Tax Roll under number (CNPJ/MF) 02.558.132/0001-69, herein represented by its acting ChiefExecutive Officer MR. SERGIO ASSENCO TAVARES DOS SANTOS, a Brazilian engineer, widowed, General Registry number131.306 SSP/DF, opts for submission to Item 5 and its subitems in the Remuneration Criteria Rule for Use of personal Mobile ServiceProvider Networks, approved by Resolution 319 of September 27,2002, requesting the ratification of the TU-M rate, whose maximumvalue should

15


be the maximum value if the initial VU-M rate in its Area of Coverage.

Brasilia, February 03, 2003

Sergio Assenco Tavares dos SantosActing Chief Executive Officer

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Exhibit 4(b).7

AUTHORIZATION TERM PVCP/SPV N.° 018/2002-ANATELAUTHORIZATION TERM OF THE PERSONAL MOBILE SERVICE ENTERED


TELEBAHIA Celular S.A. Hereby, on the one part, the AGÊNCIA NACIONAL DE TELECOMUNICAÇƠES (NATIONAL TELECOMMUNICATIONAGENCY)– ANATEL, hereinafter referred to as ANATEL, an entity that is a part of the UNION, as per Federal Act n.° 9.472, of the16th of July of 1997, Lei Geral de Telecomunicaçơes – LGT( General Telecommunications Act – LGT) , registered at the GeneralRegistry of Income Tax Payers of the Ministry of Finance — CGC/MF under n.° 02.030.715/0001-12, here represented by thePresident of the Council of ANATEL LUIZ GUILHERME SCHYMURA DE OLIVEIRA together with the Counselor LUIZTITO CERASOLI, and on the other part, TELEBAHIA Celular S.A., registered at the General Registry of Income Tax Payers ofthe Ministry of Finance -CNPJ under n° 02.331.879/0001-80, herein represented by its Executive Vice-President, PAULO CESARPEREIRA TEIXEIRA, Brazilian, married, engineer, ID card – RG n° 301.540.175-9 SSP/RS and by the Vice-President forPlanning and Cordination, JOSÉ CARLOS DE LA ROSA GUARDIOLA, Spanish, divorced, engineer, National Registrationof Foreigners — RNE n° V271593-8, hereinafter referred to as AUTHORIZED, enter into the present AUTHORIZATIONTERM, Anatel Case n.° 53500.001479/2001, that shall be governed by the following sections: Chapter I Subject Matter, Area and term of the Authorization Section 1.1 – The subject-matter of this Term is the issuance of Authorization for the exploitation of the Personal Mobile Service-SMP, rendered under private regime, in the geographic area formed by the territories of the State of Bahia, in the Region III ofthe PGA-SMP. §1o – The subject-matter hereof include the Personal Mobile Service, rendered under private regime, according to the AnatelRegulation, and in special, as per the provisions in Regulation of the SMP and in the General Plan of Authorizations of the SMP. §2o – The current Authorization is issued based on section 214, paragraph V, of the LGT General Telecommunications Act ) and inthe “Rule for the Adjustment of Grant Instruments and Authorization of the Mobile Personal Service- SMC for the Personal MobileService – SMP, approved by the Resolution ANATEL n.° 318, of the 27 th of September of 2002, and amended by the ResolutionANATEL n.° 326, of the 28 th of November of 2002, hereinafter referred to as ADJUSTMENT RULE in substitution of the GRANTAGREEMENT N° 027/97-DOTC/SFO/MC, of the 4th of November of 1997, D.O.U of the 5th of November of 1997, hereinafterreferred to as SUBSTITUTED INSTRUMENT. SECTION 1.2 — Personal Mobile Service is the land mobile telecommunication service of collective interest that enables thecommunication between the mobile stations and from a mobile station to other stations, once acknowledged the provisions of theregulation. SECTION 1.3 – The AUTHORIZED is entitled to the industrial exploitation of the means related to services rendering, onceobserved the provisions in the regulations as well as those in sections 154 and 155 of the LGT. SECTION 1.4 – The term of this Authorization for the exploitation of the SMP is not determined. SECTION 1.5 – The service shall be exploited with the use, by the AUTHORIZED , of the sub-band of radio frequencies foreseen inthe SUBSTITUTED INSTRUMENT, indicated below :


Transmission from the Mobile Station : 824,0 to 835,0 MHz / 845,0 to 846,5 MHzTransmission from the Radio base Station : 869,0 to 880,0 MHz / 890,0 to 891,5 MHz SECTION 1.6 – The right to use the radio frequencies mentioned in the previous SECTION shall remain in force until the 29th of Julyof 2008 that corresponds to the remaining term extended a single time for 15 years, being such extension against payment. §1o – The use of the radio frequency shall occur in primarily and restricted to the Services Rendering Area. §2o –The right to use the radio frequency depends on its efficient and proper use. §3o – Radio frequency sharing, when it does not imply harmful interference or impose limits to the rendering of the SMP, may beauthorized by Anatel. SECTION 1.7 – The AUTHORIZED , in order to extend the right to use the radio-frequencies related hereto, shall pay, every twoyears, during the extension term, encumbrance corresponding to 2% (two per cent ) of the annual income of the year prior to thepayment, of the SMP, free from taxes and social security taxes. §1° In the calculation of the amount referred to in the caput of this SECTION, shall be considered the net income derived from theAlternative and Basic Service Plan, subject matter hereof. §2° The calculation of the percentage referred to in the caput of this SECTION shall always be based on the net income of deductionof taxes and social taxes, determined between January and December of the previous year and obtained in the financial statementselaborated according to the fundamental accounting principles approved by the Management of the AUTHORIZED and audited byindependent auditors, and maturity date shall be the 30 (thirty) of April of the subsequent year after the encumbrance is ascertained. §3° The first installment of the encumbrance shall be due on the 30th (thirtieth ) of April of 2010, calculated based on the net incomeascertained from the 1st of January to the 31st of December of 2009, and the subsequent installments shall be due at each twenty fourmonths, having as the base date the calculation of the income of the previous year. §4° The delay in payment of the encumbrance foreseen in this SECTION will imply charge of arrears fee of 0,33% (zero point thirtythree per cent ) a day, up to the limit of 10% (ten per cent), added of the referential SELIC tax for federal bonds, to be applied over thevalue of the debt, considering all days of delay in payment. SECTION 1.8 – The petition for the extension of the right to use radio frequencies shall be forwarded to Anatel in up to thirtymonths, prior to the due date of the original term. Single Paragraph . Dismissal will only occur if the involved party is not making proper and rational use of the radio frequencies, if ithas repeatedly incurred in violations in the performance of its activities, or if it is necessary to change the destination of the use of theradio frequency . SECTION 1.9 — Anatel is AUTHORIZED to bring a new action of Authorization Grant for the exploitation of the SMP, in case anextension petition of up to 24 (twenty four) months prior to the original maturity date is not suddenly formulated. Chapter II Replacement Value SECTION 2.1 – The value of replacement of the SUBSTITUTED INSTRUMENT hereby, is R$ 9.000,00 (nine thousand reais).

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Single Paragraph . Non payment of the outstanding installments, derived from past commitments, related to the values owed by theGrant or Authorization of the Cellular Mobile Service — SMC, shall imply forfeiture hereof, regardless the application of otherforeseen penalties. Chapter III Form and Conditions for the Rendering of Service SECTION 3.1 – The AUTHORIZED promises to render the service, subject-matter hereof, in a way as to fully fulfill the obligationsinherent to the service rendered under private regime, once observed the criteria , formulae and parameters herein defined. Single Paragraph. The non-fulfillment of the obligations related to the subject-matter hereof, shall afford the application of thesanctions foreseen herein, shall allow for the temporary suspension, on the part of Anatel and, according to the case, forfeiture hereofshall be adjudicated, as per section 37 of the LGT. SECTION 3.2 — THE AUTHORIZED shall exploit the service, subject-matter hereof at its own risks, within the regime of broadand fair competition set forth in LGT, being compensated by the prices charged, as per provisions herein. §1° THE AUTHORIZED shall not be entitled to any type of exclusivity, any possibility of financial economical balance guarantee,and may not claim rights as to the admission of new providers of the same service. §2° THE AUTHORIZED will not have acquired rights to the permanence of the conditions in force with the issuance hereof, or of thestar of the activities, and shall observe the new conditions imposed by the law and by regulation. §3o The norms shall grant enough time for the adjustment to the new conditions. SECTION 3.3 – THE AUTHORIZED shall keep free access to emergency public services according to what was set forth in theregulation. SECTION 3.4 – THE AUTHORIZED shall ensure to its user the free exercise of choice of STFC provider for long distance calls, asper the regulation of SMP, especially in the ADJUSTMENT RULE. SECTION 3.5 – Changes in the shareholder control of the Authorized are subject to control on the part of Anatel for purposes ofverification of the conditions that are essential for the forwarding and maintenance of the Authorization, as per the regulation. Single Paragraph. These are essential for the forwarding and maintenance of the Authorization, among others, those foreseen in theSMP General Authorization Plan, section 10, § 2° of the PGO and in article 133 of the LGT. SECTION 3.6 – The conveyance of the Authorization Plan is subject to the approval on the part of Anatel, once observed therequirements of the §2o of section 136 of the LGT. Single Paragraph For the purposes of the paragraph I of section 98 of LGT, shall be considered the operation time of the CellularMobile Service during the enforcement of the SUBSTITUTED INSTRUMENT. SECTION 3.7 — The AUTHORIZED shall freely determine the prices to be charged for the rendering of the SMP, defining theServices Plan with structures, forms, criteria and values that shall be reasonable and non discriminatory, and that may vary due totechnical characteristics, of specific costs and use offered to the users, as per definition of the SMP regulation, specially in theADJUSTMENT RULE.

3


Chapter IV Coverage Commitments SECTION 4.1 – Coverage commitments foreseen in the SUBSTITUTED INSTRUMENT shall be maintained, including the coverageand service obligations. SECTION 4.2 – The non-compliance of the commitments causes the Authorized to be subject to sanctions foreseen herein, and in theregulation, and as a result, the termination of the Authorization may occur. Chapter V Quality of Service SECTION 5.1 – It is an assumption hereof the adequate quality of the services rendered by the AUTHORIZED , being as suchconsidered, the service that satisfies the conditions of regularity, efficiency, safety, updating, generality and courtesy. §1° — Regularity will be characterized by the continuous exploitation of the service with strict compliance with what is set forth inthe Anatel rules. §2° — Efficiency will be characterized by the attainment and maintenance of the parameters contained herein and by the service to theuser , rendered within the term foreseen herein. §3° — Safety in the e4xploitationof the service shall be characterized by the confidentiality pf the data related to the use of the serviceby the users, as well as by the full maintenance of the confidentiality regarding the conveyed information in the scope of itsexploitation. §4° — Update will be characterized by the modernity of the equipment, of the premises and techniques of exploitation of the service,with the use of technological advances that definitely will benefit the users, once respected the provisions hereof. §5° — Generality will be characterized by the non discriminatory rendering of services to any and all users, with the commitment onthe part of the Authorized to render the service to whoever requests it as per the regulation. §6° — Courtesy will be characterized by the respectful and immediate service rendered to all users of the authorized service, as wellas by the compliance with the obligations to inform and provide immediate and polite services to all, users or non users that mayrequest from the AUTHORIZED, information, provisions or any kind of request as per the determinations hereof. SECTION 5.2 — THE AUTHORIZED shall meet the quality targets determined in the Plano Geral de Metas de Qualidade — PGNQ( General Target Plan of Quality- PGMQ) for the SMP. Single Paragraph. For the purposes of the provisions in the §5° of section 1st of the PGMQ – SMP, it shall be considered as thestarting point of the commercial operation of the SMP in a place where there already exists SMC services rendering, the publishingdate of the extract hereof. SECTION 5.3 – The exploitation of the authorized service may only be interrupted according to the Regulation of the SMP,published by Anatel. Chapter VI Numbering Plan

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SECTION 6.1 — THE AUTHORIZED compromises to obey the Numbering Regulations published by Anatel, and shall ensure to theuser of the service, the portability of the access codes as per regulation. Chapter VII Users Charges SECTION 7.1 – The amount, measuring form and the criteria for charging for the services rendered, shall be set forth by theAuthorized, based on the determinations of the SMP Regulation, once observed the content of section 3.7 hereof. Chapter VIII Users Rights and Duties SECTION 8.1 – Users Rights and Duties are those set forth in the LGT and in the regulation, at no loss of the rights foreseen in Lawno 8.078, of the 11th of November of 1990 in the cases regulated by it, nor of those included in the SMP rendering agreement. Chapter IX Authorized Rights and Duties SECTION 9.1 – The rights and duties of the Authorized are those set forth in the LGT and in the regulation. SECTION 9.2 – In services hiring and equipment and material acquisition in relation herewith, the Authorized obliges to consideroffers from independent suppliers, including the national ones, and to base its decisions, in respect to the several offers presented, inthe compliance of the objective price criteria, delivery conditions and technical specifications in the appropriate regulation. Single Paragraph. Regarding the mentioned hiring process, the procedures of the Regulation on the Services Hiring Procedures andMaterial and Equipment Acquisition by the Telecommunication Services Providers, approved by the Resolution n.° 155 of Anatel, ofthe 5th of August of 1999. Chapter X Anatel Obligations and Prerogatives SECTION 10.1 – Aside from other prerogatives inherent to its regulatory organ function and from the other obligations derivedhereof, Anatel will : I – follow up and inspect the exploitation of the service, in order to comply with the regulation;II – regulate the exploitation of the authorized service;III – apply the punishment foreseen in the service regulation, specially herein;IV – to watch over the good quality of the service, to receive, select and solve complaints and claims of the users, making them aware,within a 90 days period of time, of the actions taken to avoid them to be deprived of their rights;V – to declare terminated the Authorization in the events foreseen in the LGT;VI – to watch over the guarantee of interconnection, annulling eventual issues arisen between the AUTHORIZED and the otherproviders;VII – to constantly follow up the relationship between the Authorized and the other providers, solving conflicts that may arise;VIII – to restrain behaviors of the Authorized that are against the free competition regime, observed in the competences of the CADE,the regulation and specially the content of sections

5


10.2. and 10.3. hereof;IX – to perform the activity of inspecting the service, as per provisions herein; andX – collect taxes related to FISTEL, adopting the provisions foreseen in law. SECTION 10.2 — Anatel might file a Proceeding to Ascertain the Non Compliance of the Obligations (PADO), veered towardsascertaining untruthfulness or non-substance of the conditions stated by the AUTHORIZED , related to the non-participation in thecontrol of the other companies or to other economical concentration preventive bars, whenever there are signs of relevant influence ofsuch , of its associated companies, controlled or controllers over the legal entity of the SMP provider, in the terms of the Regulationfor the Control and Transfer Verification in Companies Providers of Telecommunication Services, approved by the Resolution n.° 101of Anatel, of the 04th of February of 1999. Single Paragraph. The evidence, after the procedure foreseen in this section of the existence of any situation that characterizesuntruthfulness or lack of substance of the conditions stated by the Authorized shall configure the disfranchisement hereof, accordingto section 139 of the LGT. SECTION 10.3 — Anatel may still file an administrative procedure veered towards ascertaining any misdemeanor against theeconomical order foreseen in Law n.° 8.884/94. Chapter XI Inspection regime SECTION 11.1 — Anatel shall perform the inspection of the services so as to ensure the compliance with the commitments herein. §1° — Inspection to be performed by Anatel will cover the inspection and the follow up of the activities, equipment and premises ofthe AUTHORIZED , implying broad access to all data and information of the Authorized or of third parties. §2° — Information gathered during inspection activities will be published in the Library, except for those, that by request of theAUTHORIZED , are considered as confidential by Anatel. §3° — Information that are considered as confidential , as per the previous paragraph, shall only be used in the procedures relatedhereto, responding to Anatel and to those indicated by Anatel, for any disclosure, broad or restricted, of such information outside theusage scope. SECTION 11.2 – The AUTHORIZED , by means of an appointed representative, may follow all and every activity of Anatelinspection, not being entitled to oppose or prevent the inspection, under risk of incurring in the punishment foreseen in the regulation. Chapter XII Telecommunication Nets and Access to Visiting Users SECTION 12.1 – THE AUTHORIZED regarding the implementation and operation of the Telecommunication Nets veered towardsproviding support to SMP, shall observe the provisions in the regulation, specially in the Telecommunication Services Regulation n.°73, of the 25th of November of 1998; in the General Regulation of Interconnection, approved by the Resolution no 40, of the 23rd ofJuly of 1998; and in the regulation of the SMP. Single Paragraph. The change in technology standards, promoted by the AUTHORIZED , may not burden unilateral and arbitrarilythe user, including with respect to the existing conditions of services to the visiting users.

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SECTION 12.2 – Compensation by the use of nets between the Authorized and the other providers of telecommunication services,shall comply with the provision in section 152 of the LGT and in the SMP regulation, especially in the ADJUSTMENT RULE. Single Paragraph. The document foreseen in item 7 of the ADJUSTMENT RULE becomes hereinafter Attachment I hereto. Chapter XIII Sanctions SECTION 13.1 — THE AUTHORIZED is subject to Anatel inspection, once respected the legal provisions and related regulations,and shall, whenever required to do so, be accountable for as per regulations of the SMP, allowing free access to its technical resourcesand accounting records. SECTION 13.2 – non-compliance with conditions or commitments associated to the Authorization, shall subject the Authorized tocaveat sanctions, fines, temporary probation or forfeiture, as per provision of the SMP. Chapter XIV Termination of the Authorization SECTION 14.1 – Authorization shall be deemed to be terminated due to disfranchisement, forfeiture, decay, waive or annulment, asper sections 138 to 144 of the LGT and according to the proceedings in the regulation. Single Paragraph. The termination statement shall not elide the application of the adequate punishments, as per provisions hereof, bythe wrongdoings performed by the AUTHORIZED . Chapter XV Legal Regime and Applicable documents SECTION 15.1 – This Authorization is governed, without detracting the other integrant rules of the Brazilian Legal Order, by theLGT, and the regulations derived thereof. SECTION 15.2 – In the exploitation of the services authorized hereby, the regulations of Anatel shall be complied, as part hereof,specially the documents related with the SMP Regulation. SECTION 15.4 – In the interpretation of the norms and provisions hereof, shall be taken into consideration, aside from the documentsreferred to in this Chapter, the general hermeneutic rules and the norms and principles contained in the LGT. Chapter XVI Transitory Provisions SECTION 16.1 – Until the Approval or the covenant of the VU-M, as per the option of the SMP provider, shall be maintained boththe value of the Net Compensation , and the criteria for the processing and values conveyance between the providers of CellularMobile Services and the Fixed Commuted Telephone Service.

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Chapter XVII Venue SECTION 17.1 — The Court of the Judiciary Section of the Federal Justice of Brasilia, Federal District , is hereby elected to settleany conflicts arising herefrom or relating hereto, to the exclusion of any other, however privileged. Chapter XVIII Final Provisions SECTION 18.1 – This Authorization Term shall become in force after the disclosure of its extract in the Federal Official Gazette. SECTION 18.2 –Except for the provisions herein entrusted, any other provisions of the Substituted Instrument become null, as per§2° of section 1.1. IN WITNESS WHEREOF, the parties sign this document in 03 ( three) counterparts of equal tenor and form, in the presence ofwitnesses who also sign below, so that it will produce the due legal effects. Brasília, the 10th of December of 2002. On behalf of ANATEL: LUIZ GUILHERME SCHYMURA DEOLIVEIRAPresident of the Board LUIZ TITO CERASOLICounselor On behalf of the AUTHORIZED : PAULO CESAR PEREIRA TEIXEIRAExecutive Vice-President JOSE CARLOS DE LA ROSAGUARDIOLAVice-President for Planning andCordination Witnesses: JARBAS JOSE VALENTE4.346/D CREA-DF BRUNO DE CARVALHO RAMOS5.060.107.391/D CREA-SP


According to what is provided in item 7 of the ADJUSTMENT RULE, TELEBAHIA Celular S.A., General Taxpayer’s register —CNPJ N.° 02.331.879/0001-80, herein represented by its Executive Vice-President, PAULO CESAR PEREIRA TEIXEIRA,Brazilian, married, engineer, ID Card – RG n° 301.540.175-9 SSP/RS, opts for the submission to item 5 and its sub-items of theNorms of Compensation Criteria by the Use of the Nets of the Providers of Personal

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Mobile Service – SMP, approved by the Resolution n° 319, of the 27 th of September of 2002, requesting the approval of the TU-Mwhose maximum value shall be the maximum value of the initial VU-M of its Service Area. Brasília, the 10th of December of 2002. PAULO CESAR PEREIRA TEIXEIRAExecutive Vice-President

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Exhibit 4(b).8

AUTHORIZATION TERM PVCP/SPV N.º 018/2002-ANATELAUTHORIZATION TERM OF THE PERSONAL MOBILE SERVICE ENTERED


TELERGIPE Celular S.A. Hereby, on the one part, the AGÊNCIA NACIONAL DE TELECOMUNICAÇƠES (NATIONAL TELECOMMUNICATIONAGENCY)– ANATEL, hereinafter referred to as ANATEL, an entity that is a part of the UNION, as per Federal Act n.º 9.472, of the16th of July of 1997, Lei Geral de Telecomunicaç&otidle;es – LGT( General Telecommunications Act – LGT) , registered at theGeneral Registry of Income Tax Payers of the Ministry of Finance — CGC/MF under n.º 02.030.715/0001-12, here represented by thePresident of the Council of ANATEL LUIZ GUILHERME SCHYMURA DE OLIVEIRA together with the Counselor LUIZTITO CERASOLI, and on the other part, TELERGIPE Celular S.A., registered at the General Registry of Income Tax Payers ofthe Ministry of Finance -CNPJ under nº 02.349.167/0001-98, herein represented by its Executive Vice-President, PAULO CESARPEREIRA TEIXEIRA, Brazilian, married, engineer, ID card – RG nº 301.540.175-9 SSP/RS and by the Vice-President forPlanning and Cordination, JOSÉ CARLOS DE LA ROSA GUARDIOLA, Spanish, divorced, engineer, National Registrationof Foreigners — RNE nº V271593-8, hereinafter referred to as AUTHORIZED, enter into the present AUTHORIZATIONTERM, Anatel Case n.º 53500.001479/2001, that shall be governed by the following sections: Chapter I Subject Matter, Area and term of the Authorization Section 1.1 – The subject-matter of this Term is the issuance of Authorization for the exploitation of the Personal MobileService-SMP, SMP, rendered under private regime, in the geographic area formed by the territories of the State of Sergipe, in theRegion III of the PGA-SMP. §1o – The subject-matter hereof include the Personal Mobile Service, rendered under private regime, according to the AnatelRegulation, and in special, as per the provisions in Regulation of the SMP and in the General Plan of Authorizations of the SMP. §2o – The current Authorization is issued based on section 214, paragraph V, of the LGT General Telecommunications Act ) and inthe “Rule for the Adjustment of Grant Instruments and Authorization of the Mobile Personal Service- SMC for the Personal MobileService – SMP, approved by the Resolution ANATEL n.º 318, of the 27 th of September of 2002, and amended by the ResolutionANATEL n.º 326, of the 28 th of November of 2002, hereinafter referred to as ADJUSTMENT RULE in substitution of the GRANTAGREEMENT Nº 034/97-DOTC/SFO/MC, of the 4th of November of 1997, D.O.U of the 5th of November of 1997, hereinafterreferred to as SUBSTITUTED INSTRUMENT. SECTION 1.2 — Personal Mobile Service is the land mobile telecommunication service of collective interest that enables thecommunication between the mobile stations and from a mobile station to other stations, once acknowledged the provisions of theregulation. SECTION 1.3 – The AUTHORIZED is entitled to the industrial exploitation of the means related to services rendering, onceobserved the provisions in the regulations as well as those in sections 154 and 155 of the LGT. SECTION 1.4 – The term of this Authorization for the exploitation of the SMP is not determined. SECTION 1.5 – The service shall be exploited with the use, by the AUTHORIZED , of the sub-band of radio frequencies foreseen inthe SUBSTITUTED INSTRUMENT, indicated below :


Transmission from the Mobile Station : 824,0 to 835,0 MHz / 845,0 to 846,5 MHzTransmission from the Radio base Station : 869,0 to 880,0 MHz / 890,0 to 891,5 MHz SECTION 1.6 – The right to use the radio frequencies mentioned in the previous SECTION shall remain in force until the 15th ofDicember of 2008, that corresponds to the remaining term extended a single time for 15 years, being such extension against payment. §1o – The use of the radio frequency shall occur in primarily and restricted to the Services Rendering Area. §2o –The right to use the radio frequency depends on its efficient and proper use. §3o – Radio frequency sharing, when it does not imply harmful interference or impose limits to the rendering of the SMP, may beauthorized by Anatel. SECTION 1.7 – The AUTHORIZED , in order to extend the right to use the radio-frequencies related hereto, shall pay, every twoyears, during the extension term, encumbrance corresponding to 2% (two per cent ) of the annual income of the year prior to thepayment, of the SMP, free from taxes and social security taxes. §1º In the calculation of the amount referred to in the caput of this SECTION, shall be considered the net income derived from theAlternative and Basic Service Plan, subject matter hereof. §2º The calculation of the percentage referred to in the caput of this SECTION shall always be based on the net income of deductionof taxes and social taxes, determined between January and December of the previous year and obtained in the financial statementselaborated according to the fundamental accounting principles approved by the Management of the AUTHORIZED and audited byindependent auditors, and maturity date shall be the 30 (thirty) of April of the subsequent year after the encumbrance is ascertained. §3º The first installment of the encumbrance shall be due on the 30th (thirtieth ) of April of 2010, calculated based on the net incomeascertained from the 1st of January to the 31st of December of 2009, and the subsequent installments shall be due at each twenty fourmonths, having as the base date the calculation of the income of the previous year. §4º The delay in payment of the encumbrance foreseen in this SECTION will imply charge of arrears fee of 0,33% (zero point thirtythree per cent ) a day, up to the limit of 10% (ten per cent), added of the referential SELIC tax for federal bonds, to be applied over thevalue of the debt, considering all days of delay in payment. SECTION 1.8 – The petition for the extension of the right to use radio frequencies shall be forwarded to Anatel in up to thirtymonths, prior to the due date of the original term. Single Paragraph . Dismissal will only occur if the involved party is not making proper and rational use of the radio frequencies, if ithas repeatedly incurred in violations in the performance of its activities, or if it is necessary to change the destination of the use of theradio frequency . SECTION 1.9 — Anatel is AUTHORIZED to bring a new action of Authorization Grant for the exploitation of the SMP, in case anextension petition of up to 24 (twenty four) months prior to the original maturity date is not suddenly formulated. Chapter II Replacement Value SECTION 2.1 – The value of replacement of the SUBSTITUTED INSTRUMENT hereby, is R$ 9.000,00 (nine thousand reais).

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Single Paragraph . Non payment of the outstanding installments, derived from past commitments, related to the values owed by theGrant or Authorization of the Cellular Mobile Service — SMC, shall imply forfeiture hereof, regardless the application of otherforeseen penalties. Chapter III Form and Conditions for the Rendering of Service SECTION 3.1 – The AUTHORIZED promises to render the service, subject-matter hereof, in a way as to fully fulfill the obligationsinherent to the service rendered under private regime, once observed the criteria , formulae and parameters herein defined. Single Paragraph. The non-fulfillment of the obligations related to the subject-matter hereof, shall afford the application of thesanctions foreseen herein, shall allow for the temporary suspension, on the part of Anatel and, according to the case, forfeiture hereofshall be adjudicated, as per section 37 of the LGT. SECTION 3.2 — THE AUTHORIZED shall exploit the service, subject-matter hereof at its own risks, within the regime of broadand fair competition set forth in LGT, being compensated by the prices charged, as per provisions herein. §1º THE AUTHORIZED shall not be entitled to any type of exclusivity, any possibility of financial economical balance guarantee,and may not claim rights as to the admission of new providers of the same service. §2º THE AUTHORIZED will not have acquired rights to the permanence of the conditions in force with the issuance hereof, or of thestar of the activities, and shall observe the new conditions imposed by the law and by regulation. §3o The norms shall grant enough time for the adjustment to the new conditions. SECTION 3.3 – THE AUTHORIZED shall keep free access to emergency public services according to what was set forth in theregulation. SECTION 3.4 – THE AUTHORIZED shall ensure to its user the free exercise of choice of STFC provider for long distance calls, asper the regulation of SMP, especially in the ADJUSTMENT RULE. SECTION 3.5 – Changes in the shareholder control of the Authorized are subject to control on the part of Anatel for purposes ofverification of the conditions that are essential for the forwarding and maintenance of the Authorization, as per the regulation. Single Paragraph. These are essential for the forwarding and maintenance of the Authorization, among others, those foreseen in theSMP General Authorization Plan, section 10, § 2º of the PGO and in article 133 of the LGT. SECTION 3.6 – The conveyance of the Authorization Plan is subject to the approval on the part of Anatel, once observed therequirements of the §2o of section 136 of the LGT. Single Paragraph For the purposes of the paragraph I of section 98 of LGT, shall be considered the operation time of the CellularMobile Service during the enforcement of the SUBSTITUTED INSTRUMENT. SECTION 3.7 — The AUTHORIZED shall freely determine the prices to be charged for the rendering of the SMP, defining theServices Plan with structures, forms, criteria and values that shall be reasonable and non discriminatory, and that may vary due totechnical characteristics, of specific costs and use offered to the users, as per definition of the SMP regulation, specially in theADJUSTMENT RULE.

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Chapter IV Coverage Commitments SECTION 4.1 – Coverage commitments foreseen in the SUBSTITUTED INSTRUMENT shall be maintained, including the coverageand service obligations. SECTION 4.2 – The non-compliance of the commitments causes the Authorized to be subject to sanctions foreseen herein, and in theregulation, and as a result, the termination of the Authorization may occur. Chapter V Quality of Service SECTION 5.1 – It is an assumption hereof the adequate quality of the services rendered by the AUTHORIZED , being as suchconsidered, the service that satisfies the conditions of regularity, efficiency, safety, updating, generality and courtesy. §1º — Regularity will be characterized by the continuous exploitation of the service with strict compliance with what is set forth in theAnatel rules. §2º — Efficiency will be characterized by the attainment and maintenance of the parameters contained herein and by the service to theuser , rendered within the term foreseen herein. §3º — Safety in the e4xploitationof the service shall be characterized by the confidentiality pf the data related to the use of the serviceby the users, as well as by the full maintenance of the confidentiality regarding the conveyed information in the scope of itsexploitation. §4º — Update will be characterized by the modernity of the equipment, of the premises and techniques of exploitation of the service,with the use of technological advances that definitely will benefit the users, once respected the provisions hereof. §5º — Generality will be characterized by the non discriminatory rendering of services to any and all users, with the commitment onthe part of the Authorized to render the service to whoever requests it as per the regulation. §6º — Courtesy will be characterized by the respectful and immediate service rendered to all users of the authorized service, as wellas by the compliance with the obligations to inform and provide immediate and polite services to all, users or non users that mayrequest from the AUTHORIZED, information, provisions or any kind of request as per the determinations hereof. SECTION 5.2 — THE AUTHORIZED shall meet the quality targets determined in the Plano Geral de Metas de Qualidade — PGNQ( General Target Plan of Quality- PGMQ) for the SMP. Single Paragraph. For the purposes of the provisions in the §5º of section 1st of the PGMQ – SMP, it shall be considered as thestarting point of the commercial operation of the SMP in a place where there already exists SMC services rendering, the publishingdate of the extract hereof. SECTION 5.3 – The exploitation of the authorized service may only be interrupted according to the Regulation of the SMP,published by Anatel. Chapter VI Numbering Plan

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SECTION 6.1 — THE AUTHORIZED compromises to obey the Numbering Regulations published by Anatel, and shall ensure to theuser of the service, the portability of the access codes as per regulation. Chapter VII Users Charges SECTION 7.1 – The amount, measuring form and the criteria for charging for the services rendered, shall be set forth by theAuthorized, based on the determinations of the SMP Regulation, once observed the content of section 3.7 hereof. Chapter VIII Users Rights and Duties SECTION 8.1 – Users Rights and Duties are those set forth in the LGT and in the regulation, at no loss of the rights foreseen in Lawno 8.078, of the 11th of November of 1990 in the cases regulated by it, nor of those included in the SMP rendering agreement. Chapter IX Authorized Rights and Duties SECTION 9.1 – The rights and duties of the Authorized are those set forth in the LGT and in the regulation. SECTION 9.2 – In services hiring and equipment and material acquisition in relation herewith, the Authorized obliges to consideroffers from independent suppliers, including the national ones, and to base its decisions, in respect to the several offers presented, inthe compliance of the objective price criteria, delivery conditions and technical specifications in the appropriate regulation. Single Paragraph. Regarding the mentioned hiring process, the procedures of the Regulation on the Services Hiring Procedures andMaterial and Equipment Acquisition by the Telecommunication Services Providers, approved by the Resolution n.º 155 of Anatel, ofthe 5th of August of 1999. Chapter X Anatel Obligations and Prerogatives SECTION 10.1 – Aside from other prerogatives inherent to its regulatory organ function and from the other obligations derivedhereof, Anatel will : I – follow up and inspect the exploitation of the service, in order to comply with the regulation;II – regulate the exploitation of the authorized service;III – apply the punishment foreseen in the service regulation, specially herein;IV – to watch over the good quality of the service, to receive, select and solve complaints and claims of the users, making them aware,within a 90 days period of time, of the actions taken to avoid them to be deprived of their rights;V – to declare terminated the Authorization in the events foreseen in the LGT;VI – to watch over the guarantee of interconnection, annulling eventual issues arisen between the AUTHORIZED and the otherproviders;VII – to constantly follow up the relationship between the Authorized and the other providers, solving conflicts that may arise;VIII – to restrain behaviors of the Authorized that are against the free competition regime, observed in the competences of the CADE,the regulation and specially the content of sections

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10.2. and 10.3. hereof;IX – to perform the activity of inspecting the service, as per provisions herein; andX – collect taxes related to FISTEL, adopting the provisions foreseen in law. SECTION 10.2 — Anatel might file a Proceeding to Ascertain the Non Compliance of the Obligations (PADO), veered towardsascertaining untruthfulness or non-substance of the conditions stated by the AUTHORIZED , related to the non-participation in thecontrol of the other companies or to other economical concentration preventive bars, whenever there are signs of relevant influence ofsuch , of its associated companies, controlled or controllers over the legal entity of the SMP provider, in the terms of the Regulationfor the Control and Transfer Verification in Companies Providers of Telecommunication Services, approved by the Resolution n.º 101of Anatel, of the 04th of February of 1999. Single Paragraph. The evidence, after the procedure foreseen in this section of the existence of any situation that characterizesuntruthfulness or lack of substance of the conditions stated by the Authorized shall configure the disfranchisement hereof, accordingto section 139 of the LGT. SECTION 10.3 — Anatel may still file an administrative procedure veered towards ascertaining any misdemeanor against theeconomical order foreseen in Law n.º 8.884/94. Chapter XI Inspection regime SECTION 11.1 — Anatel shall perform the inspection of the services so as to ensure the compliance with the commitments herein. §1º — Inspection to be performed by Anatel will cover the inspection and the follow up of the activities, equipment and premises ofthe AUTHORIZED , implying broad access to all data and information of the Authorized or of third parties. §2º — Information gathered during inspection activities will be published in the Library, except for those, that by request of theAUTHORIZED , are considered as confidential by Anatel. §3º — Information that are considered as confidential , as per the previous paragraph, shall only be used in the procedures relatedhereto, responding to Anatel and to those indicated by Anatel, for any disclosure, broad or restricted, of such information outside theusage scope. SECTION 11.2 – The AUTHORIZED , by means of an appointed representative, may follow all and every activity of Anatelinspection, not being entitled to oppose or prevent the inspection, under risk of incurring in the punishment foreseen in the regulation. Chapter XII Telecommunication Nets and Access to Visiting Users SECTION 12.1 – THE AUTHORIZED regarding the implementation and operation of the Telecommunication Nets veered towardsproviding support to SMP, shall observe the provisions in the regulation, specially in the Telecommunication Services Regulation n.º73, of the 25th of November of 1998; in the General Regulation of Interconnection, approved by the Resolution no 40, of the 23rd ofJuly of 1998; and in the regulation of the SMP. Single Paragraph. The change in technology standards, promoted by the AUTHORIZED , may not burden unilateral and arbitrarilythe user, including with respect to the existing conditions of services to the visiting users.

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SECTION 12.2 – Compensation by the use of nets between the Authorized and the other providers of telecommunication services,shall comply with the provision in section 152 of the LGT and in the SMP regulation, especially in the ADJUSTMENT RULE. Single Paragraph. The document foreseen in item 7 of the ADJUSTMENT RULE becomes hereinafter Attachment I hereto. Chapter XIII Sanctions SECTION 13.1 — THE AUTHORIZED is subject to Anatel inspection, once respected the legal provisions and related regulations,and shall, whenever required to do so, be accountable for as per regulations of the SMP, allowing free access to its technical resourcesand accounting records. SECTION 13.2 – non-compliance with conditions or commitments associated to the Authorization, shall subject the Authorized tocaveat sanctions, fines, temporary probation or forfeiture, as per provision of the SMP. Chapter XIV Termination of the Authorization SECTION 14.1 – Authorization shall be deemed to be terminated due to disfranchisement, forfeiture, decay, waive or annulment, asper sections 138 to 144 of the LGT and according to the proceedings in the regulation. Single Paragraph. The termination statement shall not elide the application of the adequate punishments, as per provisions hereof, bythe wrongdoings performed by the AUTHORIZED . Chapter XV Legal Regime and Applicable documents SECTION 15.1 – This Authorization is governed, without detracting the other integrant rules of the Brazilian Legal Order, by theLGT, and the regulations derived thereof. SECTION 15.2 – In the exploitation of the services authorized hereby, the regulations of Anatel shall be complied, as part hereof,specially the documents related with the SMP Regulation. SECTION 15.4 – In the interpretation of the norms and provisions hereof, shall be taken into consideration, aside from the documentsreferred to in this Chapter, the general hermeneutic rules and the norms and principles contained in the LGT. Chapter XVI Transitory Provisions SECTION 16.1 – Until the Approval or the covenant of the VU-M, as per the option of the SMP provider, shall be maintained boththe value of the Net Compensation , and the criteria for the processing and values conveyance between the providers of CellularMobile Services and the Fixed Commuted Telephone Service. Chapter XVII Venue

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SECTION 17.1 — The Court of the Judiciary Section of the Federal Justice of Brasilia, Federal District , is hereby elected to settleany conflicts arising herefrom or relating hereto, to the exclusion of any other, however privileged. Chapter XVIII Final Provisions SECTION 18.1 – This Authorization Term shall become in force after the disclosure of its extract in the Federal Official Gazette. SECTION 18.2 –Except for the provisions herein entrusted, any other provisions of the Substituted Instrument become null, as per§2º of section 1.1. IN WITNESS WHEREOF, the parties sign this document in 03 ( three) counterparts of equal tenor and form, in the presence ofwitnesses who also sign below, so that it will produce the due legal effects. Brasília, the 10th of December of 2002. On behalf of ANATEL: _________________LUIZ GUILHERME SCHYMURA DEOLIVEIRAPresident of the board LUIZ TITO CERASOLICounselor On behalf of the AUTHORIZED : PAULO CESAR PEREIRA TEIXEIRAExecutive Vice-President JOSÉ CARLOS DE LA ROSAGUARDIOLAVice-President for Planning andCordination Witnesses: JARBAS JOSÉ VALENTE4.346/D CREA-DF BRUNO DE CARVALHO RAMOS5.060107.391/D CREA-SP

ATTACHMENT I

STATEMENT OF OPTION According to what is provided in item 7 of the ADJUSTMENT RULE, TELEST Celular S.A., General Taxpayer’s register — CNPJN.º 02.325.945/0001-09, herein represented by its Executive Vice-President, PAULO CESAR PEREIRA TEIXEIRA, Brazilian,married, engineer, ID Card – RG nº 301.540.175-9 SSP/RS, opts for the submission to item 5 and its sub-

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items of the Norms of Compensation Criteria by the Use of the Nets of the Providers of Personal Mobile Service – SMP, approved bythe Resolution nº 319, of the 27th of September of 2002, requesting the approval of the TU-M whose maximum value shall be themaximum value of the initial VU-M of its Service Area. Brasília, the 10th of December of 2002. PAULO CESAR PEREIRA TEIXEIRAExecutive Vice-President

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Exhibit 4(b).9

AUTHORIZATION TERM PVCP/SPV N.° 018/2002-ANATEL

AUTHORIZATION TERM OF THE PERSONAL MOBILE SERVICE ENTEREDBY AGÊNCIA NACIONAL DE TELECOMUNICAÇÃO (NATIONAL TELECOMMUNICATION AGENCY)- ANATEL

AND TELERJ Celular S.A. Hereby, on the one part, the AGÊNCIA NACIONAL DE TELECOMUNICAÇơES (NATIONAL TELECOMMUNICATIONAGENCY)– ANATEL, hereinafter referred to as ANATEL, an entity that is a part of the UNION, as per Federal Act n.° 9.472, of the16th of July of 1997, Lei Geral de Telecomunicaçơes – LGT( General Telecommunications Act – LGT) , registered at the GeneralRegistry of Income Tax Payers of the Ministry of Finance — CGC/MF under n.° 02.030.715/0001-12, here represented by thePresident of the Council of ANATEL LUIZ GUILHERME SCHYMURA DE OLIVEIRA together with the Counselor ANTONIOCARLOS VALENTE, and on the other part, TELERJ Celular S.A., registered at the General Registry of Income Tax Payers of theMinistry of Finance -CNPJ under n° 02.330.506/0001-94, herein represented by its Executive Vice-President, PAULO CESARPEREIRA TEIXEIRA, Brazilian, married, engineer, ID card – RG n° 301.540.175-9 SSP/RS and by the Vice-President forPlanning and Cordination, JOSÉ CARLOS DE LA ROSA GUARDIOLA, Spanish, divorced, engineer, National Registrationof Foreigners — RNE n° V271593-8, hereinafter referred to as AUTHORIZED, enter into the present AUTHORIZATIONTERM, Anatel Case n.° 53500.001479/2001, that shall be governed by the following sections: Chapter I Subject Matter, Area and term of the Authorization Section 1.1 – The subject-matter of this Term is the issuance of Authorization for the exploitation of the Personal Mobile Service-SMP, rendered under private regime, in the geographic area formed by the territories of the State of Rio de Janeiro, in theRegion III of the PGA-SMP. §1o – The subject-matter hereof include the Personal Mobile Service, rendered under private regime, according to the AnatelRegulation, and in special, as per the provisions in Regulation of the SMP and in the General Plan of Authorizations of the SMP. §2o – The current Authorization is issued based on section 214, paragraph V, of the LGT General Telecommunications Act ) and inthe “Rule for the Adjustment of Grant Instruments and Authorization of the Mobile Personal Service- SMC for the Personal MobileService – SMP, approved by the Resolution ANATEL n.° 318, of the 27 th of September of 2002, and amended by the ResolutionANATEL n.° 326, of the 28 th of November of 2002, hereinafter referred to as ADJUSTMENT RULE in substitution of the GRANTAGREEMENT N° 007/97-DOTC/SFO/MC, of the 4th of November of 1997, D.O.U of the 5th of November of 1997, hereinafterreferred to as SUBSTITUTED INSTRUMENT. SECTION 1.2 — Personal Mobile Service is the land mobile telecommunication service of collective interest that enables thecommunication between the mobile stations and from a mobile station to other stations, once acknowledged the provisions of theregulation. SECTION 1.3 – The AUTHORIZED is entitled to the industrial exploitation of the means related to services rendering, onceobserved the provisions in the regulations as well as those in sections 154 and 155 of the LGT. SECTION 1.4 – The term of this Authorization for the exploitation of the SMP is not determined. SECTION 1.5 – The service shall be exploited with the use, by the AUTHORIZED , of the sub-band of radio frequencies foreseen inthe SUBSTITUTED INSTRUMENT, indicated below :


Transmission from the Mobile Station : 824,0 to 835,0 MHz / 845,0 to 846,5 MHzTransmission from the Radio base Station: 869,0 to 880,0 MHz / 890,0 to 891,5 MHz SECTION 1.6 – The right to use the radio frequencies mentioned in the previous SECTION shall remain in force until the 30th ofNovember of 2005, that corresponds to the remaining term extended a single time for 15 years, being such extension against payment. §1o – The use of the radio frequency shall occur in primarily and restricted to the Services Rendering Area. §2o –The right to use the radio frequency depends on its efficient and proper use. §3o – Radio frequency sharing, when it does not imply harmful interference or impose limits to the rendering of the SMP, may beauthorized by Anatel. SECTION 1.7 – The AUTHORIZED , in order to extend the right to use the radio-frequencies related hereto, shall pay, every twoyears, during the extension term, encumbrance corresponding to 2% (two per cent ) of the annual income of the year prior to thepayment, of the SMP, free from taxes and social security taxes. §1° In the calculation of the amount referred to in the caput of this SECTION, shall be considered the net income derived from theAlternative and Basic Service Plan, subject matter hereof. §2° The calculation of the percentage referred to in the caput of this SECTION shall always be based on the net income of deductionof taxes and social taxes, determined between January and December of the previous year and obtained in the financial statementselaborated according to the fundamental accounting principles approved by the Management of the AUTHORIZED and audited byindependent auditors, and maturity date shall be the 30 (thirty) of April of the subsequent year after the encumbrance is ascertained. §3° The first installment of the encumbrance shall be due on the 30th (thirtieth ) of April of 2007 calculated based on the net incomeascertained from the 1st of January to the 31st of December of 2006, and the subsequent installments shall be due at each twenty fourmonths, having as the base date the calculation of the income of the previous year. §4° The delay in payment of the encumbrance foreseen in this SECTION will imply charge of arrears fee of 0,33% (zero point thirtythree per cent ) a day, up to the limit of 10% (ten per cent), added of the referential SELIC tax for federal bonds, to be applied over thevalue of the debt, considering all days of delay in payment. SECTION 1.8 – The petition for the extension of the right to use radio frequencies shall be forwarded to Anatel in up to thirtymonths, prior to the due date of the original term. Single Paragraph . Dismissal will only occur if the involved party is not making proper and rational use of the radio frequencies, if ithas repeatedly incurred in violations in the performance of its activities, or if it is necessary to change the destination of the use of theradio frequency . SECTION 1.9 — Anatel is AUTHORIZED to bring a new action of Authorization Grant for the exploitation of the SMP, in case anextension petition of up to 24 (twenty four) months prior to the original maturity date is not suddenly formulated. Chapter II Replacement Value SECTION 2.1 – The value of replacement of the SUBSTITUTED INSTRUMENT hereby, is R$ 9.000,00 (nine thousand reais).

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Single Paragraph . Non payment of the outstanding installments, derived from past commitments, related to the values owed by theGrant or Authorization of the Cellular Mobile Service — SMC, shall imply forfeiture hereof, regardless the application of otherforeseen penalties. Chapter III Form and Conditions for the Rendering of Service SECTION 3.1 – The AUTHORIZED promises to render the service, subject-matter hereof, in a way as to fully fulfill the obligationsinherent to the service rendered under private regime, once observed the criteria , formulae and parameters herein defined. Single Paragraph. The non-fulfillment of the obligations related to the subject-matter hereof, shall afford the application of thesanctions foreseen herein, shall allow for the temporary suspension, on the part of Anatel and, according to the case, forfeiture hereofshall be adjudicated, as per section 37 of the LGT. SECTION 3.2 — THE AUTHORIZED shall exploit the service, subject-matter hereof at its own risks, within the regime of broadand fair competition set forth in LGT, being compensated by the prices charged, as per provisions herein. §1° THE AUTHORIZED shall not be entitled to any type of exclusivity, any possibility of financial economical balance guarantee,and may not claim rights as to the admission of new providers of the same service. §2° THE AUTHORIZED will not have acquired rights to the permanence of the conditions in force with the issuance hereof, or of thestar of the activities, and shall observe the new conditions imposed by the law and by regulation. §3o The norms shall grant enough time for the adjustment to the new conditions. SECTION 3.3 – THE AUTHORIZED shall keep free access to emergency public services according to what was set forth in theregulation. SECTION 3.4 – THE AUTHORIZED shall ensure to its user the free exercise of choice of STFC provider for long distance calls, asper the regulation of SMP, especially in the ADJUSTMENT RULE. SECTION 3.5 – Changes in the shareholder control of the Authorized are subject to control on the part of Anatel for purposes ofverification of the conditions that are essential for the forwarding and maintenance of the Authorization, as per the regulation. Single Paragraph. These are essential for the forwarding and maintenance of the Authorization, among others, those foreseen in theSMP General Authorization Plan, section 10, § 2° of the PGO and in article 133 of the LGT. SECTION 3.6 – The conveyance of the Authorization Plan is subject to the approval on the part of Anatel, once observed therequirements of the §2o of section 136 of the LGT. Single Paragraph For the purposes of the paragraph I of section 98 of LGT, shall be considered the operation time of the CellularMobile Service during the enforcement of the SUBSTITUTED INSTRUMENT. SECTION 3.7 — The AUTHORIZED shall freely determine the prices to be charged for the rendering of the SMP, defining theServices Plan with structures, forms, criteria and values that shall be reasonable and non discriminatory, and that may vary due totechnical characteristics, of specific costs and use offered to the users, as per definition of the SMP regulation, specially in theADJUSTMENT RULE.

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Chapter IV Coverage Commitments SECTION 4.1 – Coverage commitments foreseen in the SUBSTITUTED INSTRUMENT shall be maintained, including the coverageand service obligations. SECTION 4.2 – The non-compliance of the commitments causes the Authorized to be subject to sanctions foreseen herein, and in theregulation, and as a result, the termination of the Authorization may occur. Chapter V Quality of Service SECTION 5.1 – It is an assumption hereof the adequate quality of the services rendered by the AUTHORIZED , being as suchconsidered, the service that satisfies the conditions of regularity, efficiency, safety, updating, generality and courtesy. §1° — Regularity will be characterized by the continuous exploitation of the service with strict compliance with what is set forth inthe Anatel rules. §2° — Efficiency will be characterized by the attainment and maintenance of the parameters contained herein and by the service to theuser , rendered within the term foreseen herein. §3° — Safety in the e4xploitationof the service shall be characterized by the confidentiality pf the data related to the use of the serviceby the users, as well as by the full maintenance of the confidentiality regarding the conveyed information in the scope of itsexploitation. §4° — Update will be characterized by the modernity of the equipment, of the premises and techniques of exploitation of the service,with the use of technological advances that definitely will benefit the users, once respected the provisions hereof. §5° — Generality will be characterized by the non discriminatory rendering of services to any and all users, with the commitment onthe part of the Authorized to render the service to whoever requests it as per the regulation. §6° — Courtesy will be characterized by the respectful and immediate service rendered to all users of the authorized service, as wellas by the compliance with the obligations to inform and provide immediate and polite services to all, users or non users that mayrequest from the AUTHORIZED, information, provisions or any kind of request as per the determinations hereof. SECTION 5.2 — THE AUTHORIZED shall meet the quality targets determined in the Plano Geral de Metas de Qualidade — PGNQ( General Target Plan of Quality- PGMQ) for the SMP. Single Paragraph. For the purposes of the provisions in the §5° of section 1st of the PGMQ – SMP, it shall be considered as thestarting point of the commercial operation of the SMP in a place where there already exists SMC services rendering, the publishingdate of the extract hereof. SECTION 5.3 – The exploitation of the authorized service may only be interrupted according to the Regulation of the SMP,published by Anatel. Chapter VI Numbering Plan

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SECTION 6.1 — THE AUTHORIZED compromises to obey the Numbering Regulations published by Anatel, and shall ensure to theuser of the service, the portability of the access codes as per regulation. Chapter VII Users Charges SECTION 7.1 – The amount, measuring form and the criteria for charging for the services rendered, shall be set forth by theAuthorized, based on the determinations of the SMP Regulation, once observed the content of section 3.7 hereof. Chapter VIII Users Rights and Duties SECTION 8.1 – Users Rights and Duties are those set forth in the LGT and in the regulation, at no loss of the rights foreseen in Lawno 8.078, of the 11th of November of 1990 in the cases regulated by it, nor of those included in the SMP rendering agreement. Chapter IX Authorized Rights and Duties SECTION 9.1 – The rights and duties of the Authorized are those set forth in the LGT and in the regulation. SECTION 9.2 – In services hiring and equipment and material acquisition in relation herewith, the Authorized obliges to consideroffers from independent suppliers, including the national ones, and to base its decisions, in respect to the several offers presented, inthe compliance of the objective price criteria, delivery conditions and technical specifications in the appropriate regulation. Single Paragraph. Regarding the mentioned hiring process, the procedures of the Regulation on the Services Hiring Procedures andMaterial and Equipment Acquisition by the Telecommunication Services Providers, approved by the Resolution n.° 155 of Anatel, ofthe 5th of August of 1999. Chapter X Anatel Obligations and Prerogatives SECTION 10.1 – Aside from other prerogatives inherent to its regulatory organ function and from the other obligations derivedhereof, Anatel will : I – follow up and inspect the exploitation of the service, in order to comply with the regulation;II – regulate the exploitation of the authorized service;III – apply the punishment foreseen in the service regulation, specially herein;IV – to watch over the good quality of the service, to receive, select and solve complaints and claims of the users, making them aware,within a 90 days period of time, of the actions taken to avoid them to be deprived of their rights;V – to declare terminated the Authorization in the events foreseen in the LGT;VI – to watch over the guarantee of interconnection, annulling eventual issues arisen between the AUTHORIZED and the otherproviders;VII – to constantly follow up the relationship between the Authorized and the other providers, solving conflicts that may arise;VIII – to restrain behaviors of the Authorized that are against the free competition regime, observed in the competences of the CADE,the regulation and specially the content of sections

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10.2. and 10.3. hereof; IX – to perform the activity of inspecting the service, as per provisions herein; andX – collect taxes related to FISTEL, adopting the provisions foreseen in law. SECTION 10.2 — Anatel might file a Proceeding to Ascertain the Non Compliance of the Obligations (PADO), veered towardsascertaining untruthfulness or non-substance of the conditions stated by the AUTHORIZED , related to the non-participation in thecontrol of the other companies or to other economical concentration preventive bars, whenever there are signs of relevant influence ofsuch , of its associated companies, controlled or controllers over the legal entity of the SMP provider, in the terms of the Regulationfor the Control and Transfer Verification in Companies Providers of Telecommunication Services, approved by the Resolution n.° 101of Anatel, of the 04th of February of 1999. Single Paragraph. The evidence, after the procedure foreseen in this section of the existence of any situation that characterizesuntruthfulness or lack of substance of the conditions stated by the Authorized shall configure the disfranchisement hereof, accordingto section 139 of the LGT. SECTION 10.3 — Anatel may still file an administrative procedure veered towards ascertaining any misdemeanor against theeconomical order foreseen in Law n.° 8.884/94. Chapter XI Inspection regime SECTION 11.1 — Anatel shall perform the inspection of the services so as to ensure the compliance with the commitments herein. §1° — Inspection to be performed by Anatel will cover the inspection and the follow up of the activities, equipment and premises ofthe AUTHORIZED , implying broad access to all data and information of the Authorized or of third parties. §2° — Information gathered during inspection activities will be published in the Library, except for those, that by request of theAUTHORIZED , are considered as confidential by Anatel. §3° — Information that are considered as confidential , as per the previous paragraph, shall only be used in the procedures relatedhereto, responding to Anatel and to those indicated by Anatel, for any disclosure, broad or restricted, of such information outside theusage scope. SECTION 11.2 – The AUTHORIZED , by means of an appointed representative, may follow all and every activity of Anatelinspection, not being entitled to oppose or prevent the inspection, under risk of incurring in the punishment foreseen in the regulation. Chapter XII Telecommunication Nets and Access to Visiting Users SECTION 12.1 – THE AUTHORIZED regarding the implementation and operation of the Telecommunication Nets veered towardsproviding support to SMP, shall observe the provisions in the regulation, specially in the Telecommunication Services Regulation n.°73, of the 25th of November of 1998; in the General Regulation of Interconnection, approved by the Resolution no 40, of the 23rd ofJuly of 1998; and in the regulation of the SMP. Single Paragraph. The change in technology standards, promoted by the AUTHORIZED , may not burden unilateral and arbitrarilythe user, including with respect to the existing conditions of services to the visiting users.

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SECTION 12.2 – Compensation by the use of nets between the Authorized and the other providers of telecommunication services,shall comply with the provision in section 152 of the LGT and in the SMP regulation, especially in the ADJUSTMENT RULE. Single Paragraph. The document foreseen in item 7 of the ADJUSTMENT RULE becomes hereinafter Attachment I hereto. Chapter XIII Sanctions SECTION 13.1 — THE AUTHORIZED is subject to Anatel inspection, once respected the legal provisions and related regulations,and shall, whenever required to do so, be accountable for as per regulations of the SMP, allowing free access to its technical resourcesand accounting records. SECTION 13.2 – non-compliance with conditions or commitments associated to the Authorization, shall subject the Authorized tocaveat sanctions, fines, temporary probation or forfeiture, as per provision of the SMP. Chapter XIV Termination of the Authorization SECTION 14.1 – Authorization shall be deemed to be terminated due to disfranchisement, forfeiture, decay, waive or annulment, asper sections 138 to 144 of the LGT and according to the proceedings in the regulation. Single Paragraph. The termination statement shall not elide the application of the adequate punishments, as per provisions hereof, bythe wrongdoings performed by the AUTHORIZED . Chapter XV Legal Regime and Applicable documents SECTION 15.1 – This Authorization is governed, without detracting the other integrant rules of the Brazilian Legal Order, by theLGT, and the regulations derived thereof. SECTION 15.2 – In the exploitation of the services authorized hereby, the regulations of Anatel shall be complied, as part hereof,specially the documents related with the SMP Regulation. SECTION 15.4 – In the interpretation of the norms and provisions hereof, shall be taken into consideration, aside from the documentsreferred to in this Chapter, the general hermeneutic rules and the norms and principles contained in the LGT. Chapter XVI Transitory Provisions SECTION 16.1 – Until the Approval or the covenant of the VU-M, as per the option of the SMP provider, shall be maintained boththe value of the Net Compensation , and the criteria for the processing and values conveyance between the providers of CellularMobile Services and the Fixed Commuted Telephone Service. Chapter XVII Venue

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SECTION 17.1 — The Court of the Judiciary Section of the Federal Justice of Brasilia, Federal District , is hereby elected to settleany conflicts arising herefrom or relating hereto, to the exclusion of any other, however privileged. Chapter XVIII Final Provisions SECTION 18.1 – This Authorization Term shall become in force after the disclosure of its extract in the Federal Official Gazette. SECTION 18.2 –Except for the provisions herein entrusted, any other provisions of the Substituted Instrument become null, as per§2° of section 1.1. IN WITNESS WHEREOF, the parties sign this document in 03 ( three) counterparts of equal tenor and form, in the presence ofwitnesses who also sign below, so that it will produce the due legal effects. Brasília, the 10th of December of 2002. On behalf of ANATEL: LUIZ GUILHERME SCHYMURA DEOLIVEIRAPresident of the Board ANTÔNIO CARLOS VALENTE DASILVACounselor On behalf of the AUTHORIZED : PAULO CESAR PEREIRA TEIXEIRAExecutive Vice-President JOSÉ CARLOS DE LA ROSAGUARDIOLAVice-President for Planning andCordination Witnesses: JARBAS JOSÉ VALENTE4.346/D CREA-DF BRUNO DE CARVALHO RAMOS5.060.107.391/D CREA-SP

ATTACHMENT I

STATEMENT OF OPTION According to what is provided in item 7 of the ADJUSTMENT RULE, TELERJ Celular S.A., General Taxpayer’s register — CNPJN.° 02.330.506/0001-94, herein represented by its Executive Vice-President, PAULO CESAR PEREIRA TEIXEIRA, Brazilian,married, engineer, ID Card – RG n° 301.540.175-9 SSP/RS, opts for the submission to item 5 and its sub-items of the Norms ofCompensation Criteria by the Use of the Nets of the Providers of Personal

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Mobile Service – SMP, approved by the Resolution n° 319, of the 27 th of September of 2002, requesting the approval of the TU-Mwhose maximum value shall be the maximum value of the initial VU-M of its Service Area. Brasília, the 10th of December of 2002. PAULO CESAR PEREIRA TEIXEIRAExecutive Vice-President

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Exhibit 4(b).10

AUTHORIZATION TERM PVCP/SPV N.º 018/2002-ANATELAUTHORIZATION TERM OF THE PERSONAL MOBILE SERVICE ENTERED


TELEST Celular S.A. Hereby, on the one part, the AGÊNCIA NACIONAL DE TELECOMUNICAÇƠES (NATIONAL TELECOMMUNICATIONAGENCY)–ANATEL, hereinafter referred to as ANATEL, an entity that is a part of the UNION, as per Federal Act n.º 9.472, of the16th of July of 1997, Lei Geral de Telecomunicaçơes – LGT( General Telecommunications Act – LGT) , registered at the GeneralRegistry of Income Tax Payers of the Ministry of Finance - CGC/MF under n.º 02.030.715/0001-12, here represented by the Presidentof the Council of ANATEL LUIZ GUILHERME SCHYMURA DE OLIVEIRA together with the Counselor ANTÔNIOCARLOS VALENTE DA SILVA, and on the other part, TELEST Celular S.A., registered at the General Registry of Income TaxPayers of the Ministry of Finance -CNPJ under nº 02.325.945/0001-09, herein represented by its Executive Vice-President, PAULOCESAR PEREIRA TEIXEIRA, Brazilian, married, engineer, ID card – RG nº301.540.175-9 SSP/RS and by the Vice-Presidentfor Planning and Cordination, JOSÉ CARLOS DE LA ROSA GUARDIOLA, Spanish, divorced, engineer, NationalRegistration of Foreigners - RNE nº V271593-8, hereinafter referred to as AUTHORIZED, enter into the presentAUTHORIZATION TERM, Anatel Case n.º 53500.001479/2001, that shall be governed by the following sections: Chapter I Subject Matter, Area and term of the Authorization Section 1.1 – The subject-matter of this Term is the issuance of Authorization for the exploitation of the Personal Mobile Service-SMP, rendered under private regime, in the geographic area formed by the territories of the State of Espírito Santo, in theRegion III of the PGA-SMP. §1º – The subject-matter hereof include the Personal Mobile Service, rendered under private regime, according to the AnatelRegulation, and in special, as per the provisions in Regulation of the SMP and in the General Plan of Authorizations of the SMP. §2º – The current Authorization is issued based on section 214, paragraph V, of the LGT General Telecommunications Act ) and inthe “Rule for the Adjustment of Grant Instruments and Authorization of the Mobile Personal Service- SMC for the Personal MobileService – SMP, approved by the Resolution ANATEL n.º 318, of the 27th of September of 2002, and amended by the ResolutionANATEL n.º 326, of the 28th of November of 2002, hereinafter referred to as ADJUSTMENT RULE in substitution of the GRANTAGREEMENT Nº 017/97-DOTC/SFO/MC, of the 4th of November of 1997, D.O.U of the 5th of November of 1997, hereinafterreferred to as SUBSTITUTED INSTRUMENT. SECTION 1.2 - Personal Mobile Service is the land mobile telecommunication service of collective interest that enables thecommunication between the mobile stations and from a mobile station to other stations, once acknowledged the provisions of theregulation. SECTION 1.3 – The AUTHORIZED is entitled to the industrial exploitation of the means related to services rendering, onceobserved the provisions in the regulations as well as those in sections 154 and 155 of the LGT. SECTION 1.4 – The term of this Authorization for the exploitation of the SMP is not determined. SECTION 1.5 – The service shall be exploited with the use, by the AUTHORIZED , of the sub-band of radio frequencies foreseen inthe SUBSTITUTED INSTRUMENT, indicated below :


Transmission from the Mobile Station : 824,0 to 835,0 MHz / 845,0 to 846,5 MHzTransmission from the Radio base Station : 869,0 to 880,0 MHz / 890,0 to 891,5 MHz SECTION 1.6 – The right to use the radio frequencies mentioned in the previous SECTION shall remain in force until the 30th ofNovember of 2008, that corresponds to the remaining term extended a single time for 15 years, being such extension against payment. §1º – The use of the radio frequency shall occur in primarily and restricted to the Services Rendering Area. §2º – The right to use the radio frequency depends on its efficient and proper use. §3º – Radio frequency sharing, when it does not imply harmful interference or impose limits to the rendering of the SMP, may beauthorized by Anatel. SECTION 1.7 – The AUTHORIZED , in order to extend the right to use the radio-frequencies related hereto, shall pay, every twoyears, during the extension term, encumbrance corresponding to 2% (two per cent ) of the annual income of the year prior to thepayment, of the SMP, free from taxes and social security taxes. §1º In the calculation of the amount referred to in the caput of this SECTION, shall be considered the net income derived from theAlternative and Basic Service Plan, subject matter hereof. §2º The calculation of the percentage referred to in the caput of this SECTION shall always be based on the net income of deductionof taxes and social taxes, determined between January and December of the previous year and obtained in the financial statementselaborated according to the fundamental accounting principles approved by the Management of the AUTHORIZED and audited byindependent auditors, and maturity date shall be the 30 (thirty) of April of the subsequent year after the encumbrance is ascertained. §3º The first installment of the encumbrance shall be due on the 30th (thirtieth ) of April of 2010, calculated based on the net incomeascertained from the 1st of January to the 31st of December of 2009, and the subsequent installments shall be due at each twenty fourmonths, having as the base date the calculation of the income of the previous year. §4º The delay in payment of the encumbrance foreseen in this SECTION will imply charge of arrears fee of 0,33% (zero point thirtythree per cent ) a day, up to the limit of 10% (ten per cent), added of the referential SELIC tax for federal bonds, to be applied over thevalue of the debt, considering all days of delay in payment. SECTION 1.8 – The petition for the extension of the right to use radio frequencies shall be forwarded to Anatel in up to thirtymonths, prior to the due date of the original term. Single Paragraph. Dismissal will only occur if the involved party is not making proper and rational use of the radio frequencies, if ithas repeatedly incurred in violations in the performance of its activities, or if it is necessary to change the destination of the use of theradio frequency. SECTION 1.9 - Anatel is AUTHORIZED to bring a new action of Authorization Grant for the exploitation of the SMP, in case anextension petition of up to 24 (twenty four) months prior to the original maturity date is not suddenly formulated. Chapter II Replacement Value SECTION 2.1 – The value of replacement of the SUBSTITUTED INSTRUMENT hereby, is R$ 9.000,00 (nine thousand reais).

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Single Paragraph. Non payment of the outstanding installments, derived from past commitments, related to the values owed by theGrant or Authorization of the Cellular Mobile Service - SMC, shall imply forfeiture hereof, regardless the application of otherforeseen penalties. Chapter III Form and Conditions for the Rendering of Service SECTION 3.1 – The AUTHORIZED promises to render the service, subject-matter hereof, in a way as to fully fulfill the obligationsinherent to the service rendered under private regime, once observed the criteria , formulae and parameters herein defined. Single Paragraph. The non-fulfillment of the obligations related to the subject-matter hereof, shall afford the application of thesanctions foreseen herein, shall allow for the temporary suspension, on the part of Anatel and, according to the case, forfeiture hereofshall be adjudicated, as per section 37 of the LGT. SECTION 3.2 - THE AUTHORIZED shall exploit the service, subject-matter hereof at its own risks, within the regime of broad andfair competition set forth in LGT, being compensated by the prices charged, as per provisions herein. §1º THE AUTHORIZED shall not be entitled to any type of exclusivity, any possibility of financial economical balance guarantee,and may not claim rights as to the admission of new providers of the same service. §2º THE AUTHORIZED will not have acquired rights to the permanence of the conditions in force with the issuance hereof, or of thestar of the activities, and shall observe the new conditions imposed by the law and by regulation. §3º The norms shall grant enough time for the adjustment to the new conditions. SECTION 3.3 – THE AUTHORIZED shall keep free access to emergency public services according to what was set forth in theregulation. SECTION 3.4 – THE AUTHORIZED shall ensure to its user the free exercise of choice of STFC provider for long distance calls, asper the regulation of SMP, especially in the ADJUSTMENT RULE. SECTION 3.5 – Changes in the shareholder control of the Authorized are subject to control on the part of Anatel for purposes ofverification of the conditions that are essential for the forwarding and maintenance of the Authorization, as per the regulation. Single Paragraph. These are essential for the forwarding and maintenance of the Authorization, among others, those foreseen in theSMP General Authorization Plan, section 10, §2º of the PGO and in article 133 of the LGT. SECTION 3.6 – The conveyance of the Authorization Plan is subject to the approval on the part of Anatel, once observed therequirements of the §2#186; of section 136 of the LGT. Single Paragraph. For the purposes of the paragraph I of section 98 of LGT, shall be considered the operation time of the CellularMobile Service during the enforcement of the SUBSTITUTED INSTRUMENT. SECTION 3.7 - The AUTHORIZED shall freely determine the prices to be charged for the rendering of the SMP, defining theServices Plan with structures, forms, criteria and values that shall be reasonable and non discriminatory, and that may vary due totechnical characteristics, of specific costs and use offered to the users, as per definition of the SMP regulation, specially in theADJUSTMENT RULE.

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Chapter IV Coverage Commitments SECTION 4.1 – Coverage commitments foreseen in the SUBSTITUTED INSTRUMENT shall be maintained, including the coverageand service obligations. SECTION 4.2 – The non-compliance of the commitments causes the Authorized to be subject to sanctions foreseen herein, and in theregulation, and as a result, the termination of the Authorization may occur. Chapter V Quality of Service SECTION 5.1 – It is an assumption hereof the adequate quality of the services rendered by the AUTHORIZED , being as suchconsidered, the service that satisfies the conditions of regularity, efficiency, safety, updating, generality and courtesy. §1º - Regularity will be characterized by the continuous exploitation of the service with strict compliance with what is set forth in theAnatel rules. §2º - Efficiency will be characterized by the attainment and maintenance of the parameters contained herein and by the service to theuser , rendered within the term foreseen herein. §3º - Safety in the e4xploitationof the service shall be characterized by the confidentiality pf the data related to the use of the serviceby the users, as well as by the full maintenance of the confidentiality regarding the conveyed information in the scope of itsexploitation. §4º - Update will be characterized by the modernity of the equipment, of the premises and techniques of exploitation of the service,with the use of technological advances that definitely will benefit the users, once respected the provisions hereof. §5º - Generality will be characterized by the non discriminatory rendering of services to any and all users, with the commitment on thepart of the Authorized to render the service to whoever requests it as per the regulation. §6º - Courtesy will be characterized by the respectful and immediate service rendered to all users of the authorized service, as well asby the compliance with the obligations to inform and provide immediate and polite services to all, users or non users that may requestfrom the AUTHORIZED, information, provisions or any kind of request as per the determinations hereof. SECTION 5.2 - THE AUTHORIZED shall meet the quality targets determined in the Plano Geral de Metas de Qualidade - PGNQ (General Target Plan of Quality- PGMQ) for the SMP. Single Paragraph. For the purposes of the provisions in the §5º of section 1st of the PGMQ – SMP, it shall be considered as thestarting point of the commercial operation of the SMP in a place where there already exists SMC services rendering, the publishingdate of the extract hereof. SECTION 5.3 – The exploitation of the authorized service may only be interrupted according to the Regulation of the SMP,published by Anatel. Chapter VI Numbering Plan

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SECTION 6.1 - THE AUTHORIZED compromises to obey the Numbering Regulations published by Anatel, and shall ensure to theuser of the service, the portability of the access codes as per regulation. Chapter VII Users Charges SECTION 7.1 – The amount, measuring form and the criteria for charging for the services rendered, shall be set forth by theAuthorized, based on the determinations of the SMP Regulation, once observed the content of section 3.7 hereof. Chapter VIII Users Rights and Duties SECTION 8.1 – Users Rights and Duties are those set forth in the LGT and in the regulation, at no loss of the rights foreseen in Lawno 8.078, of the 11th of November of 1990 in the cases regulated by it, nor of those included in the SMP rendering agreement. Chapter IX Authorized Rights and Duties SECTION 9.1 – The rights and duties of the Authorized are those set forth in the LGT and in the regulation. SECTION 9.2 – In services hiring and equipment and material acquisition in relation herewith, the Authorized obliges to consideroffers from independent suppliers, including the national ones, and to base its decisions, in respect to the several offers presented, inthe compliance of the objective price criteria, delivery conditions and technical specifications in the appropriate regulation. Single Paragraph. Regarding the mentioned hiring process, the procedures of the Regulation on the Services Hiring Procedures andMaterial and Equipment Acquisition by the Telecommunication Services Providers, approved by the Resolution n.º 155 of Anatel, ofthe 5th of August of 1999. Chapter X Anatel Obligations and Prerogatives SECTION 10.1 – Aside from other prerogatives inherent to its regulatory organ function and from the other obligations derivedhereof, Anatel will : I –follow up and inspect the exploitation of the service, in order to comply with the regulation;II –regulate the exploitation of the authorized service;III – apply the punishment foreseen in the service regulation, specially herein;IV –to watch over the good quality of the service, to receive, select and solve complaints and claims of the users, making them aware,within a 90 days period of time, of the actions taken to avoid them to be deprived of their rights;V – to declare terminated the Authorization in the events foreseen in the LGT;VI – to watch over the guarantee of interconnection, annulling eventual issues arisen between the AUTHORIZED and the otherproviders;VII – to constantly follow up the relationship between the Authorized and the other providers, solving conflicts that may arise;VIII – to restrain behaviors of the Authorized that are against the free competition regime, observed in the competences of the CADE,the regulation and specially the content of sections

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10.2. and 10.3. hereof;IX – to perform the activity of inspecting the service, as per provisions herein; andX – collect taxes related to FISTEL, adopting the provisions foreseen in law. SECTION 10.2 - Anatel might file a Proceeding to Ascertain the Non Compliance of the Obligations (PADO), veered towardsascertaining untruthfulness or non-substance of the conditions stated by the AUTHORIZED , related to the non-participation in thecontrol of the other companies or to other economical concentration preventive bars, whenever there are signs of relevant influence ofsuch , of its associated companies, controlled or controllers over the legal entity of the SMP provider, in the terms of the Regulationfor the Control and Transfer Verification in Companies Providers of Telecommunication Services, approved by the Resolution n.º 101of Anatel, of the 04th of February of 1999. Single Paragraph. The evidence, after the procedure foreseen in this section of the existence of any situation that characterizesuntruthfulness or lack of substance of the conditions stated by the Authorized shall configure the disfranchisement hereof, accordingto section 139 of the LGT. SECTION 10.3 - Anatel may still file an administrative procedure veered towards ascertaining any misdemeanor against theeconomical order foreseen in Law n.º 8.884/94. Chapter XI Inspection regime SECTION 11.1 - Anatel shall perform the inspection of the services so as to ensure the compliance with the commitments herein. §1º - Inspection to be performed by Anatel will cover the inspection and the follow up of the activities, equipment and premises of theAUTHORIZED , implying broad access to all data and information of the Authorized or of third parties. §2º - Information gathered during inspection activities will be published in the Library, except for those, that by request of theAUTHORIZED , are considered as confidential by Anatel. §3º - Information that are considered as confidential , as per the previous paragraph, shall only be used in the procedures relatedhereto, responding to Anatel and to those indicated by Anatel, for any disclosure, broad or restricted, of such information outside theusage scope. SECTION 11.2 – The AUTHORIZED , by means of an appointed representative, may follow all and every activity of Anatelinspection, not being entitled to oppose or prevent the inspection, under risk of incurring in the punishment foreseen in the regulation. Chapter XII Telecommunication Nets and Access to Visiting Users SECTION 12.1 – THE AUTHORIZED regarding the implementation and operation of the Telecommunication Nets veered towardsproviding support to SMP, shall observe the provisions in the regulation, specially in the Telecommunication Services Regulation n.º73, of the 25th of November of 1998; in the General Regulation of Interconnection, approved by the Resolution no 40, of the 23rd ofJuly of 1998; and in the regulation of the SMP. Single Paragraph. The change in technology standards, promoted by the AUTHORIZED , may not burden unilateral and arbitrarilythe user, including with respect to the existing conditions of services to the visiting users.

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SECTION 12.2 – Compensation by the use of nets between the Authorized and the other providers of telecommunication services,shall comply with the provision in section 152 of the LGT and in the SMP regulation, especially in the ADJUSTMENT RULE. Single Paragraph. The document foreseen in item 7 of the ADJUSTMENT RULE becomes hereinafter Attachment I hereto. Chapter XIII Sanctions SECTION 13.1 - THE AUTHORIZED is subject to Anatel inspection, once respected the legal provisions and related regulations,and shall, whenever required to do so, be accountable for as per regulations of the SMP, allowing free access to its technical resourcesand accounting records. SECTION 13.2 – non-compliance with conditions or commitments associated to the Authorization, shall subject the Authorized tocaveat sanctions, fines, temporary probation or forfeiture, as per provision of the SMP. Chapter XIV Termination of the Authorization SECTION 14.1 – Authorization shall be deemed to be terminated due to disfranchisement, forfeiture, decay, waive or annulment, asper sections 138 to 144 of the LGT and according to the proceedings in the regulation. Single Paragraph. The termination statement shall not elide the application of the adequate punishments, as per provisions hereof, bythe wrongdoings performed by the AUTHORIZED . Chapter XV Legal Regime and Applicable documents SECTION 15.1 – This Authorization is governed, without detracting the other integrant rules of the Brazilian Legal Order, by theLGT, and the regulations derived thereof. SECTION 15.2 – In the exploitation of the services authorized hereby, the regulations of Anatel shall be complied, as part hereof,specially the documents related with the SMP Regulation. SECTION 15.4 – In the interpretation of the norms and provisions hereof, shall be taken into consideration, aside from the documentsreferred to in this Chapter, the general hermeneutic rules and the norms and principles contained in the LGT. Chapter XVI Transitory Provisions SECTION 16.1 – Until the Approval or the covenant of the VU-M, as per the option of the SMP provider, shall be maintained boththe value of the Net Compensation , and the criteria for the processing and values conveyance between the providers of CellularMobile Services and the Fixed Commuted Telephone Service. Chapter XVII Venue

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SECTION 17.1 - The Court of the Judiciary Section of the Federal Justice of Brasilia, Federal District , is hereby elected to settle anyconflicts arising herefrom or relating hereto, to the exclusion of any other, however privileged. Chapter XVIII Final Provisions SECTION 18.1 – This Authorization Term shall become in force after the disclosure of its extract in the Federal Official Gazette. SECTION 18.2 – Except for the provisions herein entrusted, any other provisions of the Substituted Instrument become null, as per§2º of section 1.1. IN WITNESS WHEREOF, the parties sign this document in 03 ( three) counterparts of equal tenor and form, in the presence ofwitnesses who also sign below, so that it will produce the due legal effects. Brasília, the 10th of December of 2002. On behalf of ANATEL: LUIZ GUILHERME SCHYMURA DEOLIVEIRAPresident of the Board ANTÔNIO CARLOS VALENTE DASILVACounselor On behalf of the AUTHORIZED : PAULO CESAR PEREIRA TEIXEIRAExecutive Vice-President JOSÉ CARLOS DE LA ROSAGUARDIOLAVice-President for Planning andCordination Witnesses: JARBAS JOSÉ VALENTE4.346/D CREA-DF BRUNO DE CARVALHO RAMOS5.060.107.391/D CREA-SP

ATTACHMENT I

STATEMENT OF OPTION

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According to what is provided in item 7 of the ADJUSTMENT RULE, TELEST Celular S.A., General Taxpayer’s register - CNPJN.º 02.325.945/0001-09, herein represented by its Executive Vice-President, PAULO CESAR PEREIRA TEIXEIRA, Brazilian,married, engineer, ID Card – RG nº 301.540.175-9 SSP/RS, opts for the submission to item 5 and its sub-items of the Norms ofCompensation Criteria by the Use of the Nets of the Providers of Personal Mobile Service – SMP, approved by the Resolution nº 319,of the 27th of September of 2002, requesting the approval of the TU-M whose maximum value shall be the maximum value of theinitial VU-M of its Service Area. Brasília, the 10th of December of 2002. PAULO CESAR PEREIRA TEIXEIRAExecutive Vice-President

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Exhibit 8.1List of Subsidiaries of Telefonica Brasil S.A.

Subsidiaries 2011

Vivo S.A (1) 100% Telefônica Data S.A. 100% A.Telecom S.A. 100% Telefônica Sistema de Televisăo S.A. 100% Ajato Telecomunicaçơes Ltda. 100% GTR Participaçơes e Empreend. S.A. (2) 66.67% TVA Sul Paraná S.A. (2) 91.50% Lemontree Participaçơes S.A. (2) 83.00% Comercial Cabo TV Săo Paulo S.A. (2) 93.19% Aliança Atlântica Holding B.V.(3) 50% Companhia AIX de Participaçơes (3) 50% Companhia ACT de Participaçơes (3) 50%

(1) fully consolidated as of April 2011.(2) fully consolidated as of January 2011.(3) jointly controlled


EXHIBIT 12.1

CERTIFICATION

I, Antonio Carlos Valente da Silva, certify that:

1. I have reviewed this annual report on Form 20-F of Telefônica Brasil S.A.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material factnecessary to make the statements made, in light of the circumstances under which such statements were made, not misleading withrespect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in allmaterial respects the financial condition, results of operations and cash flows of the Company as of, and for, the periods presented inthis report;

4. The Company’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls andprocedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined inExchange Act Rules 13a-15(f) and 15d-15(f)) for the Company and have:

a. designed such disclosure controls and procedures or caused such disclosure controls and procedures to be designedunder our supervision, to ensure that material information relating to the Company, including its consolidated subsidiaries, ismade known to us by others within those entities, particularly during the period in which this report is being prepared;

b. designed such internal control over financial reporting, or caused such internal control over financial reporting to be

designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparationof financial statements for external purposes in accordance with generally accepted accounting principles;

c. evaluated the effectiveness of the Company’s disclosure controls and procedures and presented in this report our

conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this reportbased on such evaluation; and

d. disclosed in this report any change in the Company’s internal control over financial reporting that occurred during the

period covered by the annual report that has materially affected, or is reasonably likely to materially affect, the Company’sinternal control over financial reporting; and

5. The Company’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over

financial reporting, to the Company’s auditors and the audit committee of the Company’s board of directors (or persons performingthe equivalent functions):

a. all significant deficiencies and material weaknesses in the design or operation of internal control over financial reportingwhich are reasonably likely to adversely affect the Company’s ability to record, process, summarize and report financialinformation; and

b. any fraud, whether or not material, that involves management or other employees who have a significant role in the

Company’s internal control over financial reporting.


By/s/ Antonio CarlosValente da Silva

Name: AntonioCarlosValente daSilva



EXHIBIT 12.2

CERTIFICATION

I, Gilmar Roberto Pereira Camurra, certify that:

1. I have reviewed this annual report on Form 20-F of Telefônica Brasil S.A.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material factnecessary to make the statements made, in light of the circumstances under which such statements were made, not misleading withrespect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in allmaterial respects the financial condition, results of operations and cash flows of the Company as of, and for, the periods presented inthis report;

4. The Company’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls andprocedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined inExchange Act Rules 13a-15(f) and 15d-15(f)) for the Company and have:

a. designed such disclosure controls and procedures or caused such disclosure controls and procedures to be designedunder our supervision, to ensure that material information relating to the Company, including its consolidated subsidiaries, ismade known to us by others within those entities, particularly during the period in which this report is being prepared;

b. designed such internal control over financial reporting, or caused such internal control over financial reporting to be

designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparationof financial statements for external purposes in accordance with generally accepted accounting principles;

c. evaluated the effectiveness of the Company’s disclosure controls and procedures and presented in this report our

conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this reportbased on such evaluation; and

d. disclosed in this report any change in the Company’s internal control over financial reporting that occurred during the

period covered by the annual report that has materially affected, or is reasonably likely to materially affect, the Company’sinternal control over financial reporting; and

5. The Company’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over

financial reporting, to the Company’s auditors and the audit committee of the Company’s board of directors (or persons performingthe equivalent functions):

a. all significant deficiencies and material weaknesses in the design or operation of internal control over financial reportingwhich are reasonably likely to adversely affect the Company’s ability to record, process, summarize and report financialinformation; and

b. any fraud, whether or not material, that involves management or other employees who have a significant role in the

Company’s internal control over financial reporting.


By:/s/ Gilmar RobertoPereira Camurra

Name: GilmarRobertoPereiraCamurra

Title: ChiefFinancialOfficer andInvestorRelationsOfficer


EXHIBIT 13.1

CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,AS ADOPTED PURSUANT TO

SECTION 906 OF THE U.S. SARBANES-OXLEY ACT OF 2002

In connection with the Annual Report of Telefônica Brasil S.A. (the “Company”) on Form 20-F for the fiscal year endedDecember 31, 2011, as filed with the U.S. Securities and Exchange Commission on the date hereof (the “Report”), I, Antonio CarlosValente da Silva, Chief Executive Officer, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to section 906 of the U.S.Sarbanes-Oxley Act of 2002, that to the best of my knowledge: (i) the Report fully complies with the requirements of Section 13(a) or 15(d) of the U.S. Securities Exchange Act of 1934;

and (ii) the information contained in the Report fairly presents, in all material respects, the financial condition and results of

operations of the Company.

Date: April 20, 2012 By:/s/ Antonio Carlos

Valente da Silva Name:Antonio Carlos

Valente daSilva



EXHIBIT 13.2

CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,AS ADOPTED PURSUANT TO

SECTION 906 OF THE U.S. SARBANES-OXLEY ACT OF 2002

In connection with the Annual Report of Telefônica Brasil S.A. (the “Company”) on Form 20-F for the fiscal year endedDecember 31, 2011, as filed with the U.S. Securities and Exchange Commission on the date hereof (the “Report”), I, GilmarRoberto Pereira Camurra, Chief Financial Officer and Investor Relations Officer, certify, pursuant to 18 U.S.C. Section 1350,as adopted pursuant to section 906 of the U.S. Sarbanes-Oxley Act of 2002, that to the best of my knowledge:

(i) the Report fully complies with the requirements of Section 13(a) or 15(d) of the U.S. SecuritiesExchange Act of1934; and

(ii) the information contained in the Report fairly presents, in all material respects, the financial conditionandresults of operations of the Company.

Date: April 20, 2012 By: /s/ Gilmar Roberto

Pereira Camurra Name: Gilmar Roberto

Pereira Camurra Title: Chief Financial

Officer andInvestorRelationsOfficer

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