Amos Genish - CEO Christian Gebara - Chief Revenue Officer David Melcon - CFO Rodrigo Dienstmann - Chief Resources Officer Luis Plaster - IR Director.

Maria Tereza Azevedo - UBS Susana Salaru - Itaú. Daniel Federle - Credit Suisse Richard Dineen - UBS Maurício Fernandes - Merrill Lynch Brazil. André Baggio - J.P. Morgan Valder Nogueira - Santander Carlos Akira - BTG Pactual.

Diego Aragao - Morgan Stanley Mathieu Robilliard - Barclays Jonathan Dann - Royal Bank of Canada Allan Nichols - Morningstar Walter Piecyk - BTIG.

Good morning, ladies and gentlemen. At this time, I would like to welcome everyone to the Telefônica Brasil’s First Quarter 2016 Earnings Conference Call. Today with us, representing the management of Telefônica Brasil, we have Mr. Amos Genish, CEO; Mr. David Melcon, CFO and Investor Relations Officer; Mr. Christian Gebara, Chief Revenue Officer; Mr.

Rodrigo Dienstmann, Chief Resources Officer; and Mr. Luis Plaster, IR Director. We also have a simultaneous webcast with slide presentation on the internet that can be accessed at the site www.telefonica.com.br/ir. There will be a replay facility for this call on the website.

After the Company's remarks are over, there will be a question-and-answer section. At that time, further instructions will be given. [Operator Instructions]. Before proceeding, let me mention that forward-looking statements are being made under the Safe Harbor of the Securities Litigation Reform Act of 1996.

Forward-looking statements are based on the Company's management beliefs and assumptions and on information currently available. Forward-looking statements are not guarantees of performance.

They involve risks, uncertainties and assumptions because they relate to future events, and therefore, depend on circumstances that may or may not occur in the future.

Investors should understand that general economic conditions, industry conditions and other operating factors could also affect the Company's future results and could cause results to differ materially from those expressed in such forward-looking statements. Now, I will turn the conference over to Mr.

Luis Plaster, Investor Relations Director of Telefônica Brasil. Mr. Plaster, you may begin your conference..

Thank you. Hello everybody. Thank you for joining us in this conference call for the first quarter of 2016 results release of Telefônica Brasil. Our call will be divided in three parts. In the first part, our CEO, Amos Genish, will give you an overall view of our operating and financial results for the quarter.

In the second part, Amos will pass it on to Christian Gebara, our Chief Revenue Officer to go over commercial strategy to our CFO, David Melcon, who will discuss in detail our financial results and to Rodrigo Dienstmann, our Chief Resources Officer who will explain our CapEx evolution. And finally, we will move to Q&A. Now I pass the word to Amos..

one, continue delivering on our value-driven strategy; two, continues to define the integration initiative and starting value from them and reaching additional milestones; three, continue increasing the efficiency of our operation and optimizing our CapEx allocation. With this, I will pass to Christian Gebara..

Thanks Amos. Good morning everyone. I would like to move to Slide 4 of the presentation. As presented in our Investor Day last month, our commercial strategy today is on six fundamental pillars.

First, mobile data-centric approach based on best network experience in coverage and capacity; second, most competitive 3P bundle, anticipating the market in 4P and 5P; third, unique all-in-one B2B Solution provider; fourth, superior experience through the enhancement of our traditional and digital channels; fifth, broad and deep usage of Big Data to enhance customer experience and optimize business results; and sixth, one of the most valued and inspirational brands in the market.

This last pillar was reinforced earlier this month when we launched our new positioning campaign Vivo Tudor adopting Vivo as our single commercial brand in Brazil represent our strong position on 5P, 4G, ultra broadband, voice, HDTV and digital services.

On Slide 5, you can get a perspective about how we were able to grow our top line in spite of the reduction in termination rates. Our non-voice service had a significant increase in revenues of 15.5% year-over-year especially in key products like mobile data with 22.8%, Pay TV with 21.1% and FTTx with 22.3%.

Non-voice services already represented in the first quarter of 2016 52% of our total revenues. The robust growth in non-voice service allows us to compensate for decrease of 11.2% in mobile fixed voice revenues. Getting now into details of our main business.

On Slide 6, we present evolution of our mobile business revenues, which grew 0.5% year-over-year or 2.9% excluding the reduction of the mobile termination rates. Data and value-added service revenues continued to be our growth engine with a strong 32.8% growth year-over-year, now representing 51.5% of our services revenues.

The left side of the Slide 7, shows that in postpaid we maintained our leadership, our solid leadership capturing 41% of all net adds in the first two months of 2016. In the last 12 months, we captured 56% of all postpaid net adds, reaching 42.4% national market share according to latest ANATEL’s figure.

This represents an increase of 0.8 percentage points over our position one year ago. You can also see that in spite of the challenge economic scenario and the higher competitive pressure in the mobile segment, we were able to maintain a healthy and stable 0.8% long-term churn rate in postpaid.

We have been able to capture variable commercial synergy from GVT, and now more than 10% of our new state sales are coming from fixed broadband customers. On the prepaid segment, Vivo Turbo continues to prove to be a very successful offer. Our active customer base that benefits from this weekly offer grew by 45% year-over-year.

Higher penetration of weekly plans, more sales of additional data package, higher penetration of value-added services associated with the base cleanup of non-productive customers implemented last quarter drove our prepaid outgoing ARPU up by 12.3% in the last 12 months.

On the right lower part of the chart, you can see that our superior customer experience continues to be recognized.

According to ANATEL’s 2015 Satisfaction and Perceived Quality Survey released last month, Vivo is the leader among all major players with 7.02 points in postpaid satisfaction, first place in 23 of all 27 Brazilian states, and 6.8 points in prepaid, 0.23 points ahead of the closest competitor.

On the Slide 8, we can see how our 4G offer continues to get relevance. 4G traffic has grown 88% year-over-year while our customer base grew 57%. Today 26% of our smartphone customer base in all segments is already 4G and we lead the segment in the solid 36.3% market share, more than 8 percentage points ahead of the second player.

Last February, the OpenSignal report elected Vivo as the fastest 4G network in Brazil. In addition, we have continued to drive up our ARPU, which reached R$26.9 in the quarter, 10.9% more than one year ago.

In the B2C segment, ARPU solidly grew 13.8%, of which data grew by an impressive 42.5%, representing already 54% of the total ARPU compared to 43% in first quarter of 2015. In the machine-to-machine business, we reached last February a solid leadership position with 37.8% of market share according to ANATEL figures.

In all, our solid data-driven mobile strategy has allowed us to maintain a lead in customer preference, especially on postpaid segment where we had a positive net portability ratio in every single month of the quarter as it was in 2015. Moving now to see our performance on the fixed business.

On Slide 9, we can see that this business had a solid 2% year-over-year revenue growth or 5.1% if excluded the reduction in termination rates. In B2C segment, growth was even more impressive with revenues 7.4% higher than the first quarter of 2015.

As Amos mentioned, it’s important to highlight that in the fixed B2C, we report positive revenue growth figures in both the former Vivo footprint with 4% and in the former GVT footprint with 12% year-over-year. Our focus in key high-end products continues to drive revenue growth.

In ultra broadband FTTx, we reported 22.3% revenue growth year-over-year and in the Premium Pay TV, our IPTV and interactive DTH offers growth reached 33.6%.

We have also made an important effort to retain revenues from traditional business such as outgoing voice with 0.1% increase year-over-year in revenues and xDSL with a sight 0.6% revenue reduction. On Slide 10, you can see how our fixed business results continued to be driven by solid volume growth in key services and by continued ARPU growth.

Our FTTx customer base has grown 13% in the last 12 months. In the first two months of 2016, we were able to capture 52% of all net adds in very high speeds, equal or above 34 megabits per seconds, maintaining our leadership position with 55% of market share.

Growth was even more impressive in FTTH where our customer base grew 49% year-over-year and we’re also able to increase FTTx ARPU by 9% year-over-year mainly through better pricing for new customers, 35% higher ARPU on new sales and to improved sales mix.

On Premium Pay TV, we’ve followed the similar approach, a relevant 18% growth on the customer base associated with a 26% higher ARPU on sales.

I would like to add that regarding synergies, by the time we launched our new positional campaign Vivo Tudor, all our 716 Vivo stores in the GVT footprint already had our complete mobile and fixed product portfolio. I’ll now pass over to CFO, David Melcon, who will give you more details of financial perspective on our first question results..

Thank you, Christian, and good morning, everyone. Moving onto Slide 11, we are glad to present a continuous improvement in our cost evolution quarter-by-quarter. This positive trend is driven by all the efficiency initiatives we have executed in all fronts.

The simplification of our offers, to enhance use of digital channels, and most importantly, the synergies captured with integration of GVT allowed us to reduce our operating costs by 2% in the quarter when compared to the previous year. Even when we excluding the connection cost, the expenses were almost flat with 0.5% variation year-over-year.

This is an even more impressive evolution when considering an inflation above 9% in the same period. As a result, our EBITDA margin increased 1.9 percentage points annually reaching 31.4% in Q1 ‘16. That along with a positive evolution of service revenue in the quarter allowed the achievement of a 7% increase of EBITDA excluding tower sales.

This is a strong acceleration compared to recent quarters as stated by Amos. On Slide 12, let me elaborate more on our cost evolution by content. Services rendered and G&A costs partly grew due to lower interconnection cost and regulatory taxes.

This reduction partially compensates higher costs resulted from growth in premium accesses, mainly mobile and TV content cost, as well as our effort in network expansion with a large number of lead size and energy price hikes. Selling expenses decreased more than R$100 million due to a rational commercial strategy.

We have been optimizing our sales channels with a more selective approach and reducing customer care cost through a combination of enhanced use of quicker office simplification and improved quality. Saving in cost of goods sold is a consequence of the more selective commercial approach in handsets focusing effectively on higher value customers.

Bad debt remained during the first quarter of 2016 in a lower level than Q1 ‘15 at 3.3% of net operating revenues, due to the structured actions in credit collections started last year. We have implemented a stronger control by protecting our top line growth. Personnel costs grew less than the collective agreement of 7% for the period.

With the effects of our restructuring programs compensating the internationalizing of third-party employees in selected areas of field operations, that in addition end up generating savings in non-quality cost in our commercial expenses. Now moving to Slide 13.

Net income in this quarter rose R$1.2 billion, almost 3x the amount of the same period in 2015 and double when excluding the net impact of the tower sale, with positive variation in all lines expect depreciation and amortization due to the higher level of investments in recent years.

On financial expenses, the year-over-year comparison show the exchange rate valuation associated with GVT non-hedged debt during Q1 ‘15. Now I will pass to Rodrigo to explain the execution of our CapEx strategy..

Thank you, David, and good morning, everyone. So moving onto the Slide #14. In the first quarter of 2016, our level of CapEx for net revenues reached 14.3%. Our investments of R$1.5 billion were mainly focused on quality and capacity with the objective of sustaining our depreciation and also enabling growth.

In this sense 75% of our CapEx for this quarter was allocated to commercial projects in the different business units to drive revenue growth, mainly focus on 4G coverage and 3G capacity.

For the rest of 2016, we will continue to increase our CapEx effectiveness by using big data and analytics tools markedly allocate investments to the technologies, geographies and customer segments that add the most value to our business.

This year, over 70% of investments will be allocated to the different business units to enable better customer experience and growth. These are mainly focused on 4G coverage, 3G capacity, backbone and backhaul expansion, new FTTx footprint and cities for new homes connected. With that, I give the word back to David..

Thank you, Rodrigo. Slide 15 shows our free cash flow evolution. A stronger EBITDA improvement as well as contain evolution in CapEx payments allowed us to generate almost R$150 million in free cash flow during the quarter.

The cash generated in the quarter has to sustain our solid capital structure with a net debt representing 0.35x EBITDA giving the company flexibility and ability to navigate different economic scenarios. Turning to Slide 17. Now I would like to share with you our evolution on the synergy front and some perspectives for the rest of the year.

In the past few weeks in April, we reached key milestones in our integration process, which enabled us to continue to deliver on our synergies for the year. On April 14, we successfully unified our brand nationwide with the newest and position our company.

Unification was very comprehensive including the standardization of the customer look-and-feel points of contact. We also became one single legal entity unifying ERP systems and unlocking synergies.

We started transformation of the fixed business using GVT’s IT and operational assistance for fixed customers in São Paulo and launching an integrated national triple-play portfolio. We also move along in our planned toward convergence with our 4P pilot that was turned into commercial quad-play offer during the year.

These milestones will bring additional value and convergence to our customers simplify and improve customer service and strengthen our position as key player in high value segments, improved profitability of the fixed business, and allow for further capture of synergies. Moving on to Slide 19.

Our solid execution of the synergies makes us allowed us to generate a stronger start in the quarter in line with our expectations.

Incremental revenues and saving from synergy initiatives mainly cross-selling to fixed B2C customers and rationalization of commercial expenses from channel integration contributed in R$208 million for the EBITDA of the quarter.

Including CapEx need for the synergies especially IT integration, our direct cash flow generation reached R$179 million in the quarter. Indirect cash flow generating from CapEx and OpEx avoidance reached R$142 million, driven mainly by avoided investments in backbone groups using GVT’s infrastructure. Now we can move to the Q&A..

Thank you. The floor is now open for questions. [Operator Instructions] The first question is from Maria Tereza Azevedo at UBS..

Hi. Thanks for taking the question. My question is on mobile data growth.

Should we expect the similar mobile data growth deceleration for the next quarters, and was that slightly slower growth than previous quarter mostly due to the macro headwinds or pricing in lower price per meg? And if you can also talk a little bit mobile traffic growth and what trends should we expect there? Thank you very much..

Thank you, Maria Tereza. This is Amos. I will start and then give the floor to Christian. I think we will have continued strong momentum in data mobile traffic and revenues. Clearly as we saw in Q1, the revenues from data is decelerating and I think it’s something we could draw a conclusion from that for the rest of the year.

We’ll have to continue to see the performance within time, however we continue to see a strong demand for data mobile and I believe that the next quarters will continue with similar trends, but it’s too early to have an exact estimation of what does it mean for the next quarter. But still the major will be going forward in the mobile business.

With this, I will let to Christian to add more information on different 3G, 4G strategies and how we see data growth discussion..

So yes, complementing we see the growth, as Amos said, up to-date consider you see 54% of our ARPU is already on data. So we see the robust growth. The first quarter of 2015 when we started the blockage in the prepaid, so maybe had a positive - have impacts in the growth of this quarter, so but we still continue to growth in the next quarters.

In the traffic, as you asked, the 4G as we showed in the slide has a very, very strong growth, more than 80%, so the penetration of the smartphones and data plans in our customer base is increasing considerably so we see all the trends positive in the data and representing even more in our revenues for the future..

Perfect. Thank you very much. And if I may, just make a follow-up question on the Pay TV content synergies. Do you have any advance on the negotiation just the content providers and specifically Global and does the Sky Brasil still look as an attractive target for you? Thank you..

Yes, we are negotiating like with all the content providers and we are closing with all of them and they are in line with the synergy plan that we have..

Just to reiterate, we strongly believe that we’ll be able in the next few months to finalize all negotiation to be in line - at least in line with the initial projections we have when we integrate the two companies..

Perfect. Thank you very much..

The next question is from Susana Salaru at Itaú..

Thank you for taking our question. Good morning guys. We have two questions here. The first is related to CapEx. The CapEx this quarter came below the guidance for the year and the reasons are the seasonality but also some smart allocation because of the usage of big data.

So our question here is, is there a room for a downward revision for the CapEx for the year based on the fact that more efficient allocation for CapEx within the data available. That would be our first question. The second question is related to commercial expenses. A very good cost control on that line.

And it was mentioned that was because of a rational commercial approach, so if you just could elaborate a little bit more on that because it’s a frequent question that we get, how Telefônica keeps growing in the high-end part of the segment and still maintain commercial expenses under the control? Thank you..

Okay, Ana, this is Rodrigo. So regarding your question about CapEx. Yes, the results of the first quarter that were 14.3% is just - it’s mainly the seasonality. And we are keeping our guidance for the year at 8.7%, if you remember this, 8.7% without the licenses as our ceiling for the CapEx, if you will. Yes, there is room for improvement.

We are constantly looking for improving all those lines and this is our maybe job here of using the two that you mentioned, big data and value capture. We’re going after value customers and quality maintenance. So I would say that, yes, we expect to be able to reduce, come down with the CapEx this year compared to the ceiling that we have 8.7%..

It’s Christian. Regarding your question, Susana, about commercial expenses. First, there are some synergies we capture working together the other companies.

Second as I said before, no, we have a very strong commercial strategy that’s value-driven, so we’ll be like directing the right selling approach to our customers both in mobile, fixed, B2C and B2B, so focused in the 4G, focusing high value in 3P.

Focus on TV of high quality IPTV interactive, so that’s giving us much more precise approach to customers and a better approach also, no commercial expenses..

Perfect. Guys, thank you for the answers..

Thank you, Susana..

Next question is from Daniel Federle at Credit Suisse..

Okay. Good morning. Thank you very much for taking my question. Well, my first question related to the discussions about the broadband data cap, the fixed line of broadband data cap. How this is important for Vivo this strategy going forward if this is something that is included in the synergy numbers? That is the first question.

And the second question is related to the handset subsidies. We see that the margin, the handset operations came much better than in the fourth quarter. I’d like to see if there is a room for lower services for better margins in this operation going forward. Thank you very much..

Thank you, Daniel. This is Amos. I will take the first question about the broadband caps. Clearly there is nothing in our business model that has any effect of the broadband cap, and as we have presented and discussed now any coalition to the customer [ph].

I think Vivo presenting potential, I would call it, packaging of - data packaging for broadband fixed for 2017 on is not the first move in the market. We are the third operator in the market that joining to the trends. Clearly it’s a worldwide thing.

We see everywhere in the world, in the U.S., AT&A, Verizon, Comcast, all that in Canada, British Telecom and others are already having some caps on broadband fixed which seems logical vis-à-vis the substantial increase in data traffic and broadband mainly video streaming.

There is now a public debate about this in Brazil as you’re aware and we are really seeing it as a positive discussions between all stakeholders with respect to that what is the right model with respect to the closed traffic and now you enable different users to benefit from different pricing and different packaging and not just have high average price to everyone.

At the same time, clearly we want to maintain the quality of the network than other users. It’s more sensitivity to usage of data traffic also in fixed not just in mobile. I think as ANATEL, the regulator taking the lead on that process and supposed to regulate that in the next few months. We’ll have to wait patiently to ANATEL view.

I think it will be probably a very balanced view with respect to making sure that the users will have the information tools to measure their data usage and that all packages will be available from unlimited to specific packaging, and I’m really optimistic that the discussion will lead to positive effect in the future to everyone else in the game from operators to users.

At the same time, I think that this debate goes through since it’s finally [indiscernible] services and it also lead the society to discuss the areas of broadband discussion in Brazil.

It is the taxes, the high taxes on broadband which is 43% and other barriers, the government may be can take a lead and enable better expansion of broadband in areas where ultra broadband does not exist.

So I think overall I see the initial discussion is very positive and I think the outcome will be also positive, but it clearly depends on the overall results of the discussion going on today with the regulator. Thank you, Daniel. With respect to subsidies, Christian, will take that question..

Okay. Thank you, Daniel. So our subsidies policies, like follow the same approach as before, it’s value-driven. So we are focusing only on pure postpaid customers and of course it gets better as much as the plan is more expensive and provides more benefits to the customer.

So we keep the same policy, very precise in the type of customers that we want to reach with the subsidies. And I think recently as I said in previous calls, we are adding other features to help customers to their smartphone acquisition.

I will highlight our buyback service, Vivo Renova, that’s helping us in bringing more customers like changing the used smartphone to a new one, helping also in the financing of the price because it helps with paying something back to the customer of the used smartphone..

Thank you very much..

The next question is from Richard Dineen at UBS. .

Thanks for taking the question. Good morning everyone. Maybe just a quick follow-up to the question on broadband caps, and specifically with regard to the fact that ANATEL is now reviewing, I guess, what could become intervention on what is a non-concession asset.

Just wondering if that were to happen, and there were to be more kind of control over how you price, especially things like fiber-based broadband, would that at all affect your appetite for further investment in fiber? So that’s just the first question. Secondly, may be for David. Just on the fixed interconnection rate cuts.

These were some pretty big cuts this year causing quite a headwind in fixed line. Just wondering if you can give us your take on the intention of the regulator here.

Is ANATEL’s idea to completely eliminate fixed termination and maybe move to bill and keep? Should we expect this to be an annual revenue headwind in fixed, or do you see it as more of a one-off adjustment? Any thoughts on those two questions would be fantastic. Thank you, guys..

Thank you, Richard. This is Amos. Going back to broadband caps, I would say that clearly the regulation out there today allowing companies to have caps on broadband. And fixed broadband, as I mentioned, this part is already exit by other operators today.

I think the public debate is clearly strong and ANATEL decided to take the lead on that and make sure that customer rights are not been violating when companies are presenting the broadband caps.

And I think it was a right decision because the regulation on this is not fully clear and I think ANATEL doing the right thing by making sure that - for example a clear information about usage is available to user which we don’t have today as operator on the fixed business. So clearly that’s something basic.

Second, to make sure the packages will continue regarding the price, but they should continue and I think this also was not clear. And other things, low-end users especially in the low bit-megs [ph] in some areas clearly we don’t have FTTx, those customer which want one, two, three four megs, should they have limit on their consumption.

So the second question needs to be answered and I think it’s fair that ANATEL has taken the lead on that and they are making sure that all this would be answered and customers will have the full transparency on that. I think we should fully cooperate on that as any other operator and I think the ANATEL [ph] will make that sensible.

Clearly as much that the operators that need to lead with that - in our case, in 2015, traffic on broadband fixed were 80%. If you continue with that trend, you will imagine that profitability can be damaged or the other compensation will be to increase the average users to compensate and make the possibility still attractive.

So instead of just trading medium price to everyone, I think everyone is realizing it’s better to have a different pricing range an option to customers. I think government is fully committed to continue to expand broadband in Brazil. They understand the lack of infrastructure.

I don’t believe they will put a barrier for profitability in account to operators because that will be exactly on the other directions of their intention. With respect to fixed line interconnection rates - I will jump into this quickly and then David will continue.

As you know, ANATEL already defined many years ago the reductions in mobile termination rates which is going on and there is a scheduled again in 2018.

And the same for fixed business, PRL [ph] or the interconnection rates locally and long distance is also been regulated and there is a schedule of the decline been published by ANATEL and it’s part of our business model as it’s a clear reduction and going through much lower rate. David can give you more information on the number itself.

Please David?.

Good morning, Richard. Thank you for the question. So, as Amos already mentioned, the termination rate have already been published by ANATEL, so we are expecting a reduction until 2019 with another rate cut per year of 40%.

But you need to consider that the impact that we will have in the first year would be higher than the following year because the base would be the same, so it will be cut by 40% every year. So this will be decreasing year-on-year..

Right. Okay, thank you very much, Amos and David for those comments. Very helpful indeed. Thank you..

Thank you, Richard..

The next question is from Maurício Fernandes at Merrill Lynch Brazil..

Thank you. Good morning. Amos, there was a slight reduction in the rate of growth in the fixed line business. It’s been obviously very consistent growth to decline of few quarters ago, but it was growing around 3% to 4% and now its 2%.

Is this economic related? You’ve seen any change in the competitive landscape or dynamics to see that eventually in the second quarter, you could look on further to maybe close to zero? Just wanted to get your sense about what could drive this going forward? Thank you..

Thank you, Maurício. I think [indiscernible] discussed and comparing that as well, we had - the best performance in revenues are in the B2C business. To mention 12% growth in the former GVT is one of the highest we have since 2014, and 4% in the former - or the Vivo the São Paulo area of Vivo, again the highest we had for long time.

So clearly the B2C fixed business is growing very solid way led by substantial demand and pent demand of broadband and to some degree Pay TV. So clearly again we are selective on Pay TV, but clearly those two segments are continued to grow very robustly. What affected the overall fixed business was the B2B performance.

Fixed B2B performance was the one that’s weighted on the - although it was of the fixed, as I mentioned B2C had very strong performance. And B2B is a segment that affected substantially by the economy. We all know that the first thing that’s affected by bad economy is B2B.

We have many companies that are using a number of phone lines and a number of employees and so on and number of stores, all of that are very clearly - we see that the way it’s mostly on the B2B and that was the main reason of the decrease in growth in B2B fixed the revenues year-over-year excluding the MTR cut.

I hope this answered the question, Maurício..

It does. Just one follow-up, Amos. Given the sector is probably not growing and if anything, falling, the B2C wins must be coming from someone else, that way maybe Pay TV, Sky.

Is there any way of knowing exactly where this is coming from, high-end, mid-end, low-end customers?.

It’s mostly high-end customers. We’re totally focused on high-end customers. You can see our ARPU continued to grow despite competitive pressure and economic pressure, and that’s our focus. But I cannot tell you exactly at this point where it’s coming from. Clearly not on the call, so - but it’s high value users..

Okay. Thank you, Amos..

Thank you..

The next question is from André Baggio at J.P. Morgan..

Hi, good morning. Well, I wanted to have two questions specifically on the data demand. So first one on the fixed line. We have seen that one of your large competitors was very - had financial difficulties.

So do you think that could create opportunities for you to enhance that growth of specifically at the former GVT products in its regions?.

André, I think in general, I will say that we are benefiting from good product portfolio and very positioning of our FTTx networks and very strong Pay TV also we have. So we are in a very competitive position everywhere in the country. Clearly the market is not competitive at the mobile and mobile we have five operators and four large in scale.

And the fixed business has different characteristics where generally you have mostly two major competitors solid with right networks and the right offers [ph] to compete.

It’s still very competitive market but I think the fact that we can say that the markets became more of the two players market than three players market helping I believe to gain market share.

But again it’s hard to tell you where the growth is coming from clearly good positioning portfolio and networks we have or the fact that the market is moving to more of a two player market that it used to be. But that’s we could give you at this stage on that one.

Do you have another one, André?.

Yes. The second one is on mobile. We have seen - yes, I heard the question on mobile, but I wouldn’t know where do you think is going to come the additional demand for mobile because I know that the demand for data of course is good, but we have seen pricing going down - price per gigabyte going down a lot in the rest of few years.

Do you think that there is a chance for this price start to stabilize? Do you see that as one of possible driver of revenue or what could be other revenue drivers in the future for mobile?.

André, this is Christian. Okay. In terms of answer your question, we still see potential to 4G deployment, so we still have like room to convert more customers to 4G and converting to 4G, it also means like consumption of more data. And also data plans, no, we still have room to improve.

No data plan penetration in our customer base, not mainly in the hybrid and in the prepaid. So it’s two elements we see potential to grow in 4G and in data penetration and data usage..

I will answer this, André, that if you look forward to what people call the IOT, internet of things, that what used to be called M2M, machine-to-machine, it still represents a great potential going forward for mobile business.

I think Vivo is under one leader in the M2M market in Brazil a few years ago within the fourth one, so we are really gaining substantial track on the M2M, IOT. There is many things coming on.

I can tell you that Telefônica is really doing substantial investment in the platforms relating to IOT, to sign with Nestle agreements for half a million machines been connected to sensors, or Tesla in the U.S. and many others coming, even in Brazil we are negotiating with big companies it is not connected, unconnected and so on.

So clearly I think maybe you don’t see this year but I think from next year on you will see an interesting evolution of the IOT business that will have some may be new goals for the mobile business. That’s my personal thinking about the IOT..

Okay. Thanks a lot, Amos..

The next question is from Valder Nogueira at Santander..

Good morning all. Going in the regulatory discussion, the broadband universalization process continues to be a recurring topic when we hear the discussions regarding the future regulation of the sector. In there, we have incentives to take broadband to more remote regions or to regions where we have an easy, let's say calculation.

With this angle, do you see room for this reaching to this more remote areas to come with mobile rather than fixed, and do you believe that the goal [ph] and whatever it may be could be winning to have this flexibility going forward rather than just doing it fixed?.

Valder, hi. I would say that clearly every government so far that it’s really going on for many years’ time to launch a broadband plan with different plans and so far none of them took off. That’s the way I look at it. A lot of good intention now took off and the memories for them is so far they have not been able to convince the operators.

The incentives in place are good enough to - for us to participate in the program. So we are not been obliged, we can only be voluntary participate in such programs.

And I think in the last few months, there is more and more I would say the realization that the government is out there and the new plans we are seeing that’s just going out in the direction of plan that will generate a positive NPV to operators. That’s becoming a basic now understanding everywhere.

Clearly we’ll have to see what the final thing is coming and if you have to go forward, I believe every - as time is passing, it’s clear that the incentive in place should be strong enough to go to those places to where maybe demand is not that strong or the ARPU we may generate will not be as strong in where we are present today.

Clearly also we have substantial pent up demand in areas that we are focusing our investments.

We still have huge pent up demand in the state of São Paulo where we have still [indiscernible] so that’s real priority for Vivo and even outside of São Paulo many new cities we would like to launch because there are real interest there and we know that a good business can be done and not relating to any government campaign.

With respect to mobile, especially to fixed, I don’t believe that any direction the government will take. I think there are mobile obligations that’s part of our 3G/4G licenses that have been applying.

I think the key initiatives are and they are actually is to make sure that in addition to mobile services, they have a fixed network, and if you look on traffic plans, you cannot have a real growth in data without having outflows in fixed, and I think there is no any indications so far government is planning to have a mobile infrastructure in the rural areas as the only infrastructure for the future..

But don’t you think that a more agnostic approach to the technology that you serve would make these goals of making these broadband more universalized more viable for you, the players and for the population?.

Could be. I think 4G obligation would bring 4G to many places in the next few years and that might be good enough. The government is continuously seeing fixed, at least in key areas there and we are not talking about rural areas only. Remember that FTTx today is very limited to major mobile areas.

There is many, many small and new cities that could be even attractive, but the lack of transmission and backbone is less attractive. So really the key issue is more than anything else, are you bring transmission to all those small and mixed activities in a country so like Brazil.

So it might be that user themselves are could afford and pay the regular price that any customer paying in urban area, the question I would get there with the transmission because that’s the real cost. So again lot of discussion might be taken on that one and I think nothing will be finalized, so we will have to continue follow the discussion.

Thank you, Valder..

Okay. My second question, we have seen even players that were not that active in this connecting mobile subs now more active in doing this. There is of course the side of the financial and operation discipline by being more active in that fashion. But when do you believe we will reach a point that these disconnections are become overdue.

Are we there yet or is there just few room for more - for this discipline to be even tougher?.

I think in our case, Vivo, I can tell you we have been did that in December last year and we did it greatly and make sure that the non-performance customers are out of our base as quickly as possible.

You might see some other operators continue getting their - still in 2016 but I believe the market was inflated with non-performing customers for many years. Some companies took decision to adjustments more quickly than others, but I believe that at least on Vivo level, that course was completed in December 2015.

We don’t have anything going on for ‘16 and I believe again other operators might have more stuff to do in their base, but I don’t have visibility to their business..

Thanks Amos..

Thanks Valder..

The next question is from Bernardo Teixeira of BTG Pactual..

Hi, good morning. It’s Carlos Akira in fact. So I had one question, Amos, and it’s on the fiber. You mentioned it briefly when asked about broadband and regulation few questions past.

But the question is how - if you could give us an update on how the fiber-to-the-home project is evolving in São Paulo, what that market you were expecting to reach in the next quarter, when we could start to see it working? So just brief update on the fiber-to-the-home project there. Thank you..

Hi, Carlos. Again I think, we clearly have a goal internally to expand our FTTH coverage to some two million households in next say 2018. We are in line with that plan. I mean, some of the strong goals we saw in Q1 are relating to continued expansion of the gig, but also substantial improvement in penetration on where we already have a network.

I think we’ll have acceleration of that deployment mostly in 2017 and ‘18 as we have again - we’re focusing on the synergies operationally I mean in the first few quarters of 2016 to some degree in reduction of backbones and integration of other networks business.

I think the launch of the revised portfolio, the national unified portfolio we just launched in April 1, finally we have a triple-play also everywhere in Brazil as Vivo including São Paulo, will have its own port and continue expanding the fiber. So the IT system is replaced. The product offering is in place.

And now we probably will continue to accelerate the fiber expansion itself, but we don’t have immediate numbers to share with you for each quarter going on. But again I will tell you that there will be acceleration next year especially in ‘17 and ‘18..

Okay. Perfect. Thank you..

Thank you..

Our next question is from Diego Aragao at Morgan Stanley..

Hi. Good morning everyone. Thanks for taking my question. I want to ask you about the ICMS tax increase. If I’m not wrong, in the first month of the year most of this space increased, the specs for the telcos.

So I was wondering if you - if this impacted your top line somewhat, and if so, how much was the impact from the tax increase? And in addition, do you know about any other state evaluating the possibility to raise the ICMS? Thank you..

Hi Diego, as you know, about 12 states increased their ICMS beginning of January 1. As we mentioned in the last call we had, we planned like other operators to pass it to consumer, which we did. And again our ARPU without active was not been affected.

You might say that might be demand been affected to some degree if people really would pay more than they we used to pay because those have a higher tax from the bill. However consistent with our B2C performance in Q1, it was very solid, 12% in the former GVT, 4% in the former Vivo.

So I think at both is essential services today, I think it is different and helping in that case. With respect to most states, we don’t have any adaptation in the plan that mentioned, planning raising the ICMS beyond those 12 that’s been already raised or announced to raise in 2015..

Okay. Very clear, Amos. Thank you very much..

Thank you, Diego..

The next question is from Mathieu Robilliard at Barclays..

Yes, good morning. Thank you for taking the questions. First, moving on to the concession change discussion which obviously was postpone.

Is it a fair assumption to say that since it is a bit postponed, the reversibility of the assets could be part of the discussion and concession whether it takes place this year or next year? And then with regards to the sale of the towers, could you tell us what the impact on the BTVA [ph] is going to be? And finally also on interconnections.

So interconnection cuts and feasible impact on revenues. Can you tell us what is the net impact on the BTVA [ph], is that a negative impact or neutral impact? Thank you..

Yes. With respect to concession, the other two question I would let David, the CFO, respond. But the renewal of the concession is a very complicated subject of taking the time and again being delayed again for the several this year. I think main issue on stake that’s creating the delays is exactly the possibility of the concession asset.

As you know the concession renewal has two parts, one is operational I think changes, obligations from pay funds to one obligation installation and in certain area.

The two that have positive impacts on our P&L and I think again significant or game changer but - and I still have - it’s not in our plan of our business plan at this stage, but again once we see what’s coming we’ll be able to incorporate it, but again it seems that moving target for the end of the year.

The reason for that delay I believe is discussion of liquidity of the assets. The key is - when you’re talking about another almost nine years, 2025, as the government want to anticipate the decision on those assets in exchange for again both investments. So that’s clearly on stake today.

If they will result or give us back those assets today, what value should be discussed between what is the book value and economical value, but there is some value to those assets, it should be backed to the government in 2015.

And what it asset exactly in that basket, all of this is a really complex subject and then if we are getting those back today what you give back to the governments and then discussion is more and more of using that resources as the investment in both exactly in the areas where we are not maybe planning to go at this stage.

So this is clearly a complex subject, and I don’t think it would be time been request by ANATEL for that makes sense. It’s a very complex subject. But again I think whatever model will come out, that’s better than what we have today. I really believe in that.

Dave?.

Hi Mathieu. Thanks for the question. So I would take the next two questions that you had. The first one about the towers. And the decision of selling towers for us is not new. So Vivo has sold 7,000 towers in the last five years now.

We believe this was a great opportunity for the company as the condition were favorable to us and better than the average similar to in the past. And this year we’ll improve our profitability and also the cash flow generated in the year.

Regarding the cost, the cost will be standard cost that we are paying to the rest of the tower that we have currently rented.

And the third question regarding interconnection rates, in the last three of our presentation we are showing the impact of - the regulatory impact that is mainly in the termination rates in both in mobile and in fixed, and we’re also showing the impact in EBITDA which in Q1 2016 amounts to R$115 million..

Thank you very much..

Thank you..

The next question is from Jonathan Dann at Royal Bank of Canada..

Hi there. It’s simple question or just - could you just provide a bit of clarity on the contract and prepaid net adds in the quarter and I think specifically this time around you’re the first of the Brazilian companies to report. So I imagine that the others are going to talk about the porting ratios.

Could you just comment on how whether or not your porting - your net porting et cetera from the other different operators? My question was how do you actually know you added 40% of the contract market versus high 60s in 4Q?.

Hi Jonathan, this is Christian. These are like to show data from ANATEL, January and February. So we have the official data of postpaid customers and prepaid customers every single month. So we don’t have for the full quarter yet because we don’t have March, but we have January and February.

So they have all the net adds of the market for each operator and we make the calculation to get to our percentage. And the portability, the port-in and port-out as we also said is official data. So from the last month of the 12 months and even the quarter we have positive quarter portability ratio..

Thank you very much..

Yes, thank you..

The next question is from Allan Nichols at Morningstar..

Hi. Thanks for taking my questions. First on the fixed line side. Can you break - sorry, the wireless side.

Can you break out minutes of use between contract and prepaid customers? And secondly on the fixed side, in the GVT footprint, how much of your revenue growth is coming from areas that GVT has been in for a long time and how much is from newer areas? And how many new cities do you plan to expand into this year and long-term? Thank you..

Allan, we have not got information on minutes of use unfortunately. So I cannot help you with it. With respect to the question about GVT growth, I would say clearly we had very little new cities being launched this year, so it’s all relating to the previous territories. So it’s our old coverage and not new coverage.

This year will be very timid launch of cities while next year we are planning about 10 cities to be launched. But this year will be a very small number, two or three, maybe four maximum, but we are mostly gearing for a launch of next year additional 10 cities..

Can you say on the MOU whether fixed or whether contract was greater than prepaid?.

No open [ph]..

Okay. All right, thank you..

No, we don’t do that..

Thank you..

The next question is from Walter Piecyk at BTIG..

Thanks. On Slide 8, you guys talk about 4G. I just want to - as far as the phone mix, when you talk about 4G, that’s LTE.

Correct?.

Yes, correct..

Okay. Yes, because some operators around the world call it different things, 4G. So it doubled over the past six months of that mix. I think that was like 13% in a couple of quarters ago, now it’s 26%..

Yes..

So it looks like you’ve got some good evidence now of those types of customers.

Can you give us a sense of either usage differences of even ARPU differences from a 4G smartphone customer versus where they were coming from either from a featured phone or maybe a 2G or 3G smartphone?.

You were like as to the penetration doubled, we are selling mostly 4G not only in our store but also the market is selling most of 4G, so increasing and they are connecting people as they are preference but we have the highest market share and on the ARPU the usage I think we presented the ARPU 50% higher when regarding 4G smartphone [indiscernible]..

And I’m sure we can try and work out the math on this, but maybe you can provide some help. If I look at the ARPU growth in the first quarter 10% or 11% very strong, you have these prepaid customers that were disconnecting, so that obviously helps. I guess there might be some price increased based on inflation, I don’t know.

Can you just give us a sense of that 10% or 11% growth? How that breaks down between this mix shift to the 4G customers to the prepaid disconnects and then try and give us some sense on how that’s going to trend over the course of 2016?.

Yes, in the prepaid apart from the disconnection, we also increased price and we increased price in all our prepaid and hybrid increased price and in the postpaid we increased price.

And hopefully the combination all the other factors go through together and also we are - customers are consuming more data, so also in the additional package of data plans for prepaid we are selling more. And also as I said at the beginning, we have our weekly offer, the Vivo Tudor, that we increased price.

Now we are giving more data when we increased the price to almost R$10 per week. We are increasing also in penetration. So it’s a combination of all the factors that are increasing our ARPU and then finally the digital service that regulator service we are spending also more, so a combination of all this sectors are helping us increasing the ARPU..

So if we think them that 4G will increase and usage will increase but may be price increases are less of a factor going forward, then you should, at a minimum, see high single-digit growth in ARPU from those factors.

Is that sound accurate?.

Yes, I don’t have the answer for this question because as we said before we are like increased price, the increasing adoption. There is still room for opportunity, 26% of our base is more [indiscernible] and it was 13% some quarters ago, so room to improve a much more of the penetration of 4G and penetration of data plan.

So I think the combination of two things will benefit our ARPU..

Okay. Thank you..

Thank you..

This concludes the question-and-answer section. At this time, I would like to turn the floor back to Mr. Genish for any closing remarks..

Yes. Thank you all for your participation in our conference call. The IR team will be available to address any additional questions you may have regarding our results and hope to see you next time in the release of our second quarter ‘16 results in July. Thank you..

Thank you all. Good bye..

Thank you..

Conference is now concluded..