Filed Pursuant to Rule 424(b)(2)
Registration Statement No. 333-203016

CALCULATION OF REGISTRATION FEE

               
 
Title of Each Class of Securities
to be Registered

  Amount to be
Registered(1)

  Proposed Maximum
Offering Price
per Share

  Proposed Maximum
Aggregate Offering
Price

  Amount of
Registration Fee(2)

 

Preferred shares, without par value(3)

  85,962,234   U.S.$16.08   U.S.$1,382,272,722.72   U.S.$160,621(3)

 


(1)
Includes preferred shares, including in the form of American Depositary Shares, or ADSs, each of which represents one preferred share, evidenced by American Depositary Receipts, or ADRs, to be offered and sold in the United States (including preferred shares that may be sold pursuant to the international underwriters' option to purchase additional preferred shares in the form of ADSs) and preferred shares that are being offered in Brazil and elsewhere other than the United States but which may be resold in the United States in transactions requiring registration under the Securities Act of 1933, as amended, or the Securities Act. Additionally, certain other offers and sales of preferred shares outside the United States are being made pursuant to Regulation S under the Securities Act and are not covered by this registration statement.

(2)
The registration fee of U.S.$160,621 is calculated in accordance with Rule 457(r) of the Securities Act.

(3)
The preferred shares may be represented by ADSs, each of which represents one preferred share, evidenced by ADRs, issuable on deposit of preferred shares, which have been registered pursuant to the effective Registration Statement on Form F-6 (File Nos. 333-201244), which was filed on December 23, 2014.

   


1
To include all shares being sold in the global offering (including the option shares) except the shares subscribed by Telefonica Spain or its affiliates in the priority subscription or otherwise in the global offering.

Table of Contents

Prospectus Supplement
(To Prospectus dated March 26, 2015)

LOGO

79,679,574 Preferred Shares

Including Preferred Shares in the Form of American Depositary Shares



         We are offering 236,803,588 preferred shares in a global offering, which consists of an international offering in the United States and other countries outside Brazil and a concurrent offering of common shares and preferred shares in Brazil. Preferred shares offered in the global offering may be offered directly or in the form of American Depositary Shares, or ADSs, each of which represents one preferred share. The offering of the ADSs is being underwritten by the international underwriters named in this prospectus supplement. The preferred shares purchased by investors outside Brazil will be settled in Brazil and paid for in reais, and underwritten by the Brazilian underwriters named elsewhere is this prospectus supplement. The closings of the international and Brazilian offerings are conditioned upon each other.

         Holders of our preferred shares as of April 1, 2015 were given the opportunity to subscribe for preferred shares in the Brazilian offering on a priority basis at the public offering price. The priority subscription procedure was not made available to holders of our ADSs. An ADS holder that wished to be eligible for priority subscription was required to make the necessary arrangements to cancel such holder's ADSs and take delivery of the underlying preferred shares in a Brazilian account. See "The Offering—Priority subscription." Telefónica, S.A., our controlling shareholder, fully exercised their priority rights in the Brazilian offering.

         Our ADSs are listed on the New York Stock Exchange, or NYSE, under the symbol "VIV." The closing price of the ADSs on the NYSE on April 27, 2015 was US$16.52 per ADS. Our preferred shares are listed on the São Paulo Stock Exchange (BM&FBOVESPA—Bolsa de Valores Mercadorias e Futuros), or the BM&FBOVESPA, under the symbol "VIVT4." The closing price of the preferred shares on the BM&FBOVESPA on April 27, 2015 was R$48.15 per share.



           
 
 
  Per ADS
  Per
preferred share

  Total(1)(2)(3)
 

Public offering price

  US$16.0800   R$47.0000   US$1,281,050,735.00
 

Underwriting discounts and commissions

  US$0.2813   R$0.8238   US$22,437,701.00
 

Proceeds to us before expenses

  US$15.7987   R$46.1762   US$1,258,613,034.00

 

(1)
Amounts in reais have been translated into U.S. dollars at the selling exchange rate reported by the Central Bank of Brazil (Banco Central do Brasil) as of April 27, 2015, or R$2.9236 to US$1.00.

(2)
Total amounts reflect the preferred shares (including in the form of ADSs) offered pursuant to this prospectus supplement, and do not reflect other subscriptions occurring concurrently in the global offering.

(3)
Total amounts reflect the sum of (i) the per ADS price multiplied by the number of preferred shares being sold in the form of ADSs plus (ii) the per preferred share price multiplied by the number of preferred shares being sold directly converted to U.S. dollars based on the R$2.9236 per US$1.00 exchange rate.

         We are granting Merrill Lynch, Pierce, Fenner & Smith Incorporated an option on behalf of the international underwriters, exercisable at any time for 10 days following the date of this final prospectus supplement, for the international underwriters to purchase up to 6,282,660 preferred shares in the form of ADSs, minus the number of preferred shares sold by us pursuant to the Brazilian underwriters' option to purchase additional shares, at the initial public offering price less the underwriting discounts and commissions. If any additional ADSs are purchased with this option to purchase additional shares, the international underwriters will offer the additional ADSs on the same terms as those ADSs that are being offered pursuant to the international offering.

         Investing in our preferred shares and ADSs involves risks. See "Risk Factors" beginning on page S-23 of this prospectus supplement.

         Delivery of the ADSs will be made through the book-entry facilities of The Depository Trust Company, or DTC, on or about May 4, 2015. Delivery of our preferred shares will be made in Brazil through the book-entry facilities of the BM&FBOVESPA on or about May 4, 2015.



         Neither the U.S. Securities and Exchange Commission nor any other regulatory body has approved or disapproved of these securities or determined if this prospectus supplement is truthful or complete. Any representation to the contrary is a criminal offense.

Global Coordinators

Itaú BBA

 

Morgan Stanley

 

BofA Merrill Lynch

 

Santander

Joint Bookrunners

Bradesco BBI

 

BTG Pactual

 

Credit Suisse

 

Goldman,
Sachs & Co.

 

HSBC

 

J.P. Morgan

Co-Managers

Barclays

 

BBVA

 

Scotiabank

 

UBS Investment Bank

   

The date of this prospectus supplement is April 27, 2015


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        We have not authorized anyone to provide any information other than that contained or incorporated by reference in this prospectus supplement and in the accompanying prospectus. We take no responsibility for, and can provide no assurance as to the reliability of, any other information that others may give you. This prospectus supplement is an offer to sell or to buy only the securities referred to herein, but only under circumstances and in jurisdictions where it is lawful to do so. You should not assume that the information in this prospectus supplement or in the accompanying prospectus is accurate as of any date other than the date on the front of those documents.

TABLE OF CONTENTS



Prospectus Supplement

 
  Page  

About This Prospectus Supplement

    S-ii  

Incorporation of Certain Documents by Reference

    S-iii  

Presentation of Financial and Other Information

    S-v  

Cautionary Statement Regarding Forward-Looking Statements

    S-viii  

Summary

    S-1  

The Offering

    S-13  

Summary Financial and Operating Data

    S-18  

Risk Factors

    S-23  

The GVT Acquisition

    S-27  

Use of Proceeds

    S-31  

Capitalization

    S-32  

Dilution

    S-33  

Pro Forma Financial Information

    S-35  

Industry Overview

    S-45  

Principal Shareholders

    S-54  

Underwriting

    S-55  

Expenses of the Global Offering

    S-71  

Legal Matters

    S-72  

Experts

    S-72  

Prospectus

   
 
 

About This Prospectus

   
ii
 

Where You Can Find More Information

    ii  

Incorporation of Certain Documents by Reference

    iv  

Cautionary Statement Regarding Forward-Looking Statements

    v  

Telefônica Brasil S.A. 

    1  

Risk Factors

    2  

Use of Proceeds

    3  

Capitalization

    4  

Exchange Rates

    5  

Price History

    6  

Description of Capital Stock

    7  

Description of American Depositary Shares

    20  

Taxation

    32  

Plan of Distribution

    40  

Legal Matters

    40  

Experts

    40  

Service of Process and Enforcement of Judgments

    41  



S-i


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ABOUT THIS PROSPECTUS SUPPLEMENT

        In this prospectus supplement, unless the context otherwise requires, references to "Telefônica Brasil," "we," "us," "our," "our company," and "the company" refer to Telefônica Brasil S.A. and its consolidated subsidiaries. References to "Operating GVT" are to Global Village Telecom S.A. References to "GVTPar" are to GVT Participações S.A., the controlling shareholder of Operating GVT. References to "GVT" are to Operating GVT and GVTPar, collectively.

        Neither the international underwriters, Brazilian underwriters nor we have authorized anyone to provide you with any information other than that contained or incorporated by reference in this prospectus supplement and in the accompanying prospectus. We, the international underwriters and the Brazilian underwriters take no responsibility for, and can provide no assurance as to the reliability of, any other information that others may give you. This prospectus supplement and the accompanying prospectus may only be used where it is legal to sell our preferred shares or the ADSs. The information in this prospectus supplement may only be accurate on the date of this prospectus supplement.

        This prospectus supplement and the accompanying prospectus are being used in connection with the offering of preferred shares, including preferred shares in the form of ADSs, in the United States and other countries outside Brazil. We are also offering preferred shares in Brazil by means of a prospectus in the Portuguese language. The Brazilian prospectus, which has been filed with the Brazilian Securities Commission (Comissão de Valores Mobiliários), or the CVM, is in a format different from that of this prospectus supplement and the accompanying prospectus, and contains information not generally included in documents such as this prospectus supplement and the accompanying prospectus. This offering of preferred shares, including preferred shares in the form of ADSs, is made in the United States and elsewhere outside Brazil solely on the basis of the information contained in this prospectus supplement and the accompanying prospectus.

        Any investors outside Brazil purchasing preferred shares directly (not in the form of ADSs) must be authorized to invest in Brazilian securities under the requirements established by Brazilian law, especially by the Brazilian National Monetary Council (Conselho Monetário Nacional), or the CMN, the CVM and the Central Bank of Brazil, or the Central Bank, complying with the requirements set forth in Instruction No. 325, dated January 27, 2000, of the CVM, as amended, and Resolution No. 2,689, dated January 22, 2000, as amended, of the CMN (which will be replaced by Resolution No. 4,373, dated September 29, 2014, as of March 30, 2015) and Law No. 4,131 of September 3, 1962, as amended. No offer or sale of ADSs may be made to the public in Brazil except in circumstances that do not constitute a public offer or distribution under Brazilian laws and regulations. Any offer or sale of ADSs in Brazil to non-Brazilian residents may be made only under circumstances that do not constitute a public offer or distribution under Brazilian laws and regulations.

        The representations, warranties and covenants made by us in any agreement that is filed as an exhibit to any document that is incorporated by reference in this prospectus supplement were made solely for the benefit of the parties to such agreement, including, in some cases, for the purpose of allocating risk among the parties to such agreements, and should not be deemed to be a representation, warranty or covenant to you. Moreover, such representations, warranties or covenants were accurate only as of the date when made.

        To the extent there is a conflict between the information contained in this prospectus supplement and the prospectus, you should rely on the information in this prospectus supplement, provided that if any statement in one of these documents is inconsistent with a statement in another document having a later date—for example, a document incorporated by reference in this prospectus supplement—the statement in the document having the later date modifies or supersedes the earlier statement.

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        All references herein to the "real," "reais" or "R$" are to the Brazilian real, the official currency of Brazil, and all references to "U.S. dollar," "U.S. dollars" or "US$" are to U.S. dollars, the official currency of the United States. References to "IFRS" are to the International Financial Reporting Standards—IFRS, as issued by the International Accounting Standards Board—IASB. All references to "American Depositary Shares" or "ADSs" are to Telefônica Brasil's American Depositary Shares, each representing one preferred share. In addition, the term "Brazil" refers to the Federative Republic of Brazil, and the phrase "Brazilian government" refers to the federal government of Brazil.

        References to the following regions of Brazil are defined as follows: (1) "South" includes the states of Paraná, Santa Catarina and Rio Grande do Sul, (2) "Southeast" includes the states of Minas Gerais, Espirito Santo, Rio de Janeiro and São Paulo, (3) "Center West" includes the states of Mato Grosso, Goias, the Federal District of Brasilia, and Mato Grosso do Sul, (4) "North" includes the states of Rondônia, Acre, Amazonas, Roraima, Pará, Amapá, and Tocantins, and (5) "Northeast" includes the states of Maranhão, Piauí, Ceará, Rio Grande do Norte, Paraíba, Pernambuco, Alagoas, Sergipe and Bahia.

        The information in this prospectus supplement is accurate as of the date on the front cover. You should not assume that the information contained in this prospectus supplement is accurate as of any other date.

INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE

        The SEC allows us to "incorporate by reference" information into this prospectus supplement. This means that we can disclose important information to you by referring you to another document filed separately with the SEC. The information incorporated by reference is considered to be a part of this prospectus supplement, except for any information superseded by information that is included directly in this document or incorporated by reference subsequent to the date of this document.

        We incorporate by reference into this prospectus supplement the following documents listed below, which we have already filed with or furnished to the SEC:

        All subsequent reports that we file on Form 20-F under the Exchange Act after the date of this prospectus supplement and prior to the termination of the offering shall also be deemed to be incorporated by reference into this prospectus supplement and to be a part hereof from the date of filing such documents. We may also incorporate by reference any other Form 6-K that we submit to the SEC after the date of this prospectus supplement and prior to the termination of this offering by identifying in such Form 6-K that it is being incorporated by reference into this prospectus supplement.

        We will provide without charge to each person to whom this prospectus supplement has been delivered, upon the written or oral request of any such person to us, a copy of any or all of the

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documents referred to above that have been or may be incorporated into this prospectus supplement by reference, including exhibits to such documents. Requests for such copies should be directed to:

Telefônica Brasil S.A.
Avenida Engenheiro Luis Carlos Berrini, 1376, 28th floor
04571-936 São Paulo, SP, Brazil
phone: + 55 (11) 3430-3687
email: ir.br@telefonica.com

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PRESENTATION OF FINANCIAL AND OTHER INFORMATION

Financial Information

        We maintain our books and records in reais. The exchange rate for reais into U.S. dollars based on the selling rate as reported by the Central Bank was R$2.6562 to U.S.$1.00 at December 31, 2014, R$2.3426 to U.S.$1.00 at December 31, 2013 and R$2.0435 to U.S.$1.00 at December 31, 2012. On April 27, 2015, the selling rate was R$2.9236 to U.S.$1.00. The real/dollar exchange rate fluctuates widely, and the selling rate at any given date may not be indicative of future exchange rates. See "Exchange Rates" in the accompanying prospectus for information regarding exchange rates for the Brazilian currency since the year ended December 31, 2010.

        Solely for the convenience of the reader, we have translated some amounts included in "Capitalization" and elsewhere in this prospectus supplement from reais into U.S. dollars using the selling rate as reported by the Central Bank at December 31, 2014 of R$2.6562 to U.S.$1.00. These translations should not be considered representations that any such amounts have been, could have been or could be translated into U.S. dollars at that or at any other exchange rate. In addition, translations should not be construed as representations that the real amounts represent or have been or could be translated into U.S. dollars as of that or any other date.

        We prepared our consolidated financial statements included in this prospectus supplement in accordance with IFRS as issued by the IASB. The preparation of financial statements in conformity with IFRS requires the use of certain critical accounting estimates. It also requires management to exercise its judgment in the process of applying our accounting policies. Those areas involving a higher degree of judgment or complexity, or areas where assumptions and estimates are significant to the consolidated financial statements are disclosed in Note 3(x) to our consolidated financial statements.

        The financial information included in this prospectus supplement should be read in conjunction with, and is qualified in its entirety by, our consolidated financial statements and related notes and "Item 5. Operating and Financial Review and Prospects" in our annual report on Form 20-F for the fiscal year ended December 31, 2014 incorporated by reference herein.

Pro Forma Financial Information and GVT Financial Information

        On September 18, 2014, we entered into a stock purchase agreement with Vivendi S.A., or Vivendi, and its subsidiaries, pursuant to which we agreed to purchase all of the shares of GVT Participações, or GVTPar, the controlling shareholder of Global Village Telecom S.A., or Operating GVT. We refer to GVTPar and Operating GVT collectively as GVT. Consideration will be provided to the sellers partly in cash and partly in our common and preferred shares. The GVT acquisition is subject to customary closing conditions, and applicable corporate authorizations and is expected to close by mid-2015. For additional information, see "The GVT Acquisition."

        This prospectus supplement includes certain unaudited pro forma financial information of the company as of and for the year ended December 31, 2014. See "Pro Forma Financial Information."

        This prospectus supplement also incorporates by reference historical financial information of GVTPar as of and for the year ended December 31, 2014.

Non-GAAP Financial Information

        We calculate Adjusted EBITDA as net income for the year plus net financial expense, equity pickup (meaning our interest in the result of our joint ventures and other associated companies), income and social contribution taxes and depreciation and amortization. Adjusted EBITDA is not a measure of financial performance in accordance with IFRS, and should not be considered in isolation or as an alternative to net income, an alternative to operating cash flows, a measure of liquidity, or the

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basis for dividend distribution. Other companies may calculate Adjusted EBITDA differently than us. Adjusted EBITDA serves as an indicator of overall financial performance which is not affected by changes in rates of income and social contribution taxes or levels of depreciation and amortization. Consequently, we believe that Adjusted EBITDA serves as an important tool to periodically compare our operating performance, as well as to support certain administrative decisions. Because Adjusted EBITDA does not include certain costs related to our business, such as interest expense, income taxes, depreciation, capital expenditures and other corresponding charges, which might significantly affect our net income, Adjusted EBITDA has limitations which affect its use as an indicator of our profitability. For a reconciliation of net income to Adjusted EBITDA, see "Summary Financial and Operating Data" elsewhere in this prospectus supplement.

        We define operating free cash flow as net cash generated by operating activities less net cash used in investing activities. Operating free cash flow is not a measure of financial performance in accordance with IFRS, and should not be considered in isolation or as an alternative to net income, an alternative to operating cash flows, a measure of liquidity, or the basis for dividend distribution. Other companies may calculate operating free cash flow differently than us. We consider operating free cash flow a useful measure of the cash flow available to pay interest on our financing and dividends to our shareholders. For a reconciliation of operating free cash flow, see "Summary Financial and Operating Data" elsewhere in this prospectus supplement.

        We define net debt as total debt (which consists of current and noncurrent loans, financing, leases and debentures) minus cash and cash equivalents, minus short term investments held as collateral, and minus the net derivatives position. Net debt is not a measure of indebtedness in accordance with IFRS. We believe that net debt is meaningful for investors because it provides an analysis of our solvency using the same measures used by our management. We use net debt to calculate internally certain solvency and leverage ratios used by management. Net debt as calculated by us should not be considered an alternative to gross financial debt (the sum of current and non-current interest-bearing debt) as a measure of our liquidity. Other companies may calculate net debt differently than us. For a reconciliation of net debt, see "Summary Financial and Operating Data" elsewhere in this prospectus supplement.

        We define adjusted net income as an amount equal to our net income for the year adjusted to reflect allocations to or from (1) legal reserves, (2) statutory reserves and (3) a contingency reserve for anticipated losses, if any, according to Brazilian corporate law. Adjusted net income is not a measure of financial performance in accordance with IFRS and should not be considered in isolation or as an alternative to net income for the year as a measure of the earnings of the Company. Other companies may calculate Adjusted net income differently than us. We believe Adjusted net income is a useful measure of earnings as it represents the earnings from which dividends may be declared and distributed to shareholders. For a reconciliation of adjusted net income, see "Summary Financial and Operating Data" elsewhere in this prospectus supplement.

Market Information

        Certain industry, demographic, market and competitive data, including market forecasts, used in this prospectus supplement were obtained from internal surveys, market research, publicly available information and industry publications. We have made these statements on the basis of information from third-party sources that we believe are reliable, such as ANATEL, the Brazilian Institute of Geography and Statistics (Instituto Brasileiro de Geografia e Estatística), or the IBGE, the Getúlio Vargas Foundation (Fundação Getúlio Vargas), or FGV, and the Central Bank, among others. Industry and government publications, including those referenced here, generally state that the information presented therein has been obtained from sources believed to be reliable, but that the accuracy and completeness of such information is not guaranteed. Although we have no reason to believe that any of this information or these reports are inaccurate in any material respect, such information has not been

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independently verified by us. Accordingly, we do not make any representation as to the accuracy of such information.

Rounding and Other Information

        Some percentages and certain figures included in this prospectus supplement have been subject to rounding adjustments. Accordingly, figures shown as totals in certain tables in this prospectus supplement may not be an arithmetic aggregation of the figures that precede them.

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CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

        The statements contained in this prospectus supplement in relation to our plans, forecasts, expectations regarding future events, strategies, and projections, are forward-looking statements which involve risks and uncertainties and which are therefore not guarantees of future results. Our estimates and forward-looking statements are mainly based on our current expectations and estimates on projections of future events and trends, which affect or may affect our businesses and results of operations. Although we believe that these estimates and forward-looking statements are based upon reasonable assumptions, they are subject to several uncertainties and are made in light of information currently available to us. Our estimates and forward-looking statements may be influenced by the following factors, among others:

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        The words "believe," "may," "will," "estimate," "continue," "anticipate," "intend," "expect" and similar words are intended to identify estimates and forward-looking statements. Estimates and forward-looking statements speak only as of the date they were made, and we undertake no obligation to update or to review any estimate and/or forward-looking statement because of new information, future events or other factors. Estimates and forward-looking statements involve risks and uncertainties and are not guarantees of future performance. Our future results may differ materially from those expressed in these estimates and forward-looking statements. In light of the risks and uncertainties described above, the estimates and forward-looking statements discussed in this prospectus supplement might not occur and our future results and our performance may differ materially from those expressed in these forward-looking statements due to, inclusive of, but not limited to, the factors mentioned above. As a result of these risks and uncertainties, investors should not base their decisions to invest in this offering on these estimates or forward-looking statements.

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SUMMARY

        This summary highlights selected information about us and the preferred shares and ADSs that we are offering. It may not contain all of the information that may be important to you. Before investing in the preferred shares or ADSs, you should read this entire prospectus supplement, the accompanying prospectus and the documents incorporated by reference carefully for a more complete understanding of our business and this offering, including our consolidated financial statements and the related notes incorporated by reference into this prospectus supplement, the consolidated financial statements of GVTPar and the related notes incorporated by reference into this prospectus supplement, and the sections entitled "Risk Factors" and "Summary Financial and Operating Data" included elsewhere in, or incorporated by reference into, this prospectus supplement.

Overview

        We are the leading mobile telecommunications company in Brazil (28.5% market share as of December 31, 2014, based on accesses), with a particularly strong position in postpaid mobile services (41.8% market share as of December 31, 2014, based on accesses). We are also the leading fixed telecommunications company (in terms of market share) in the state of São Paulo, where we began our business as a fixed telephone service provider pursuant to our concession agreement. During the year ended December 31, 2014, we reached almost 60% market share in ultra-fast broadband accesses with speeds higher than 34 Mbps in the state of São Paulo.

        According to ANATEL's customer service performance index, we are the highest-quality mobile operator in Brazil, among the largest mobile operators. Our Vivo brand, under which we market our mobile services, is among the most recognized brands in Brazil. The quality of our services and strength of our brand recognition enable us to, on average, achieve higher prices relative to our competition and, as a result, generally earn higher margins. As of December 31, 2014, our average revenue per mobile user, or ARPU, of R$23.7 represented a significant premium relative to the average of our main competitors, which is R$16.8. In 2014, we captured 56.3% of the net additions of 8.3 million in the postpaid mobile segment. We offer our clients a complete portfolio of products, including mobile and fixed voice, mobile data, fixed broadband, ultra-fast broadband, or UBB (based on our Fiber to the Home infrastructure, or FTTH), Pay TV, information technology and digital services (such as e-health, cloud and financial services). We also have the most extensive distribution network among our competitors, with more than 300 of our own stores and additional physical distribution points of sale where our clients can obtain certain services, such as purchasing credit for prepaid phones.

        We seek to continue to increase our operating margins by focusing on developing and growing our portfolio of products so that they comprise an integrated portfolio of services. As part of this strategy, we are in the process of acquiring GVT, a high-growth telecommunications company in Brazil that offers high-speed broadband, fixed telephone and Pay TV services primarily to high income customers across its target market, primarily located outside the state of São Paulo. GVT is a fast growing telecommunications provider in Brazil in terms of revenue. From 2012 to 2014, GVT's revenue grew at a compound annual growth rate of 12.9%. In this short period, GVT has become a leader in high-speed broadband in Brazil, considering broadband speed from 12 Mbps to 34 Mbps, with a 63% market share in the Brazilian market. GVT has a dense and high-quality transmission backhaul in key regions of Brazil such as the South, Southeast, Center West and a large part of the Northeast with over 33,000 kilometers of fiber deployed as of December 31, 2014. We believe GVT boasts an advanced broadband network in Brazil with an average speed of 13 Mpbs, which is more than twice as fast as the average speeds of its peers throughout Brazil. GVT also provides Pay TV services in these markets, using its broadband network and DTH system. Given that GVT is a relatively new entrant to the market and operates under an authorization granted by ANATEL, it has been able to selectively enter niche markets that GVT believes offer higher profit margins and return potential rather than restrict its

 

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operations to specific markets bound by concession agreements. GVT's flexibility to selectively invest in targeted markets allows it to operate in higher GDP markets.

        We believe the GVT acquisition will reinforce our platform as a national provider and further enhance our position as the leading telecommunications company in Brazil. On a pro forma basis, after giving effect to the GVT acquisition, in 2014 we would have been the largest integrated telecommunications company in Brazil in terms of accesses and revenues, with 103.6 million combined total accesses and pro forma revenues of R$40,300.2 million. We believe that GVT's recognition as a high quality provider and its market leadership will create significant additional brand equity and improve our ability to engage in profitable cross-selling across our large mobile client base with a similar income and demographic profile. We expect our combined infrastructure, product portfolio and commercial capabilities to increase our average revenue per account, or ARPA, and reduce churn by maximizing penetration of fixed and mobile products in our combined customer base. Furthermore, we believe the combined portfolio of products and expanded geographic presence will increase our relevance to our corporate and small and medium enterprise, or SME, clients, potentially allowing us to increase our market share in these profitable segments.

        As is typically the case with large strategic combinations in the telecommunications sector, we believe the GVT acquisition will allow us to realize meaningful synergies by reducing operating costs and streamlining our combined investment plans, particularly as a result of the potential decrease in backbone and backhaul investments. In addition, we expect that the combination of the two platforms may result in improved performance across each of our key product lines, including mobile, Pay TV, and UBB. For Pay TV, given the structure of the content contracts at both companies, we believe that a larger combined customer base may result in lower average costs to us. These savings are in addition to the potential to realize further economies of scale related to installation costs and duplicative satellite infrastructure.

        For our broadband operations, we expect to leverage GVT's brand and extensive fiber network nationally to increase sales of UBB services. In mobile, we will also be able to leverage GVT's existing fiber network to support the deployment of LTE technology and sustain our network quality differential while maintaining low capital expenditures. At the same time, the use of the brand GVT and cross-selling to customers having similar profiles will allow us to increase market share and ARPU and reduce churn, which we believe will result in additional upside across each of our products, including broadband and Pay TV. The use of GVT's infrastructure will also reduce our backbone lease expenses and reduce capital expenditure requirements to serve our corporate and SME clients throughout Brazil.

        We intend to use the net proceeds from the global offering to (1) fund the cash portion of the GVT acquisition, which is expected to close by mid-2015, (2) repay GVT's loans with a related party, and (3) adjust our capital structure in order to maintain liquidity. See "Use of Proceeds." For additional information about the planned acquisition, GVT's business and the expected synergies from the transaction see "The GVT Acquisition."

        Our net operating revenue for 2014 was R$35,000 million (US$13,177 million), representing an increase of 0.8% compared to 2013. Our mobile service revenue was R$22,524.6 million (US$8,480.0 million), representing an increase of 3.8% compared to 2013, and our fixed telephone revenue was R$11,260.1 million (US$4,239.2 million), representing a decrease of 3.9% compared to 2013. Our mobile handset sales revenue was R$1,215.3 million (US$457.5 million), representing a decrease of 7.3% compared to 2013.

        Telefónica, S.A., or Telefónica, our controlling shareholder, is one of the largest telecommunications companies in the world in terms of market capitalization and number of customers. With its strong mobile, fixed and broadband networks, and its innovative portfolio of digital solutions, Telefónica is transforming itself into a "Digital Telco," a company that will be even better placed to meet the needs of its customers and capture new revenue growth. The Telefónica group has a

 

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significant presence in 21 countries, with approximately 120,000 employees as of December 31, 2014, 341 million accesses and revenue of €50,377 million (US$61,163 million) for 2014. In recognition of the importance of our company to our controlling shareholder's global platform, Telefónica subscribed in this offering proportionally to its current level of equity participation in our company, which it expects to fund using cash on hand or drawdowns under its undrawn credit lines and syndicated revolving credit facilities.

Operating and Financial Data

        The following tables present our key operational and financial indicators for the periods indicated:

 
  Year ended December 31,  
 
  2014   2014   2013   2012  
 
  (combined)(1)
   
   
   
 

Mobile Access Lines

                         

Mobile accesses (thousands):

                         

Postpaid (thousands)

    28,355     28,355     23,693     18,802  

Prepaid (thousands)

    51,582     51,582     53,552     57,335  

Total (thousands)

    79,938     79,938     77,245     76,137  

Market share(2) (%):

                         

Postpaid (%)

    41.8     41.8     39.8     36.9  

Mobile broadband (%)

    50.8     50.8     50.8     47.3  

Total (%)

    28.5     28.5     28.5     29.1  

Net additions (thousands):

                         

Postpaid (thousands)

    4,662     4,662     4,891     2,687  

Total (thousands)

    2,693     2,693     1,108     4,584  

Market share of net additions (%):

                         

Postpaid (%)

    56.3     56.3     57.0     39.1  

Total (%)

    28.0     28.0     11.9     23.4  

Monthly churn(3) (%):

                         

Postpaid (%)

    1.6     1.6     1.5     1.8  

Total (%)

    3.7     3.7     3.8     3.5  

ARPU(4) (R$/month):

                         

Voice ARPU (R$/month)

    15.0     15.0     16.1     16.4  

Data ARPU (R$/month)

    8.8     8.8     7.5     6.3  

Total (R$/month)

    23.7     23.7     23.6     22.6  

MOU(5) (minutes/month)

    134.5     134.5     124.0     114.5  

Fixed Access Lines

   
 
   
 
   
 
   
 
 

Fixed voice accesses (thousands):

                         

Residential (thousands)

    10,724     7,084     7,128     7,009  

Corporate (thousands)

    3,799     3,071     3,029     2,921  

Others(6) (thousands)

    587     587     593     716  

Total (thousands)

    15,110     10,742     10,750     10,646  

Broadband access (thousands)

    6,930     3,925     3,922     3,733  

Pay TV access (thousands)

    1,630     771     641     600  

Total fixed accesses (thousands)

    23,669     15,437     15,312     14,978  

        Our consolidated financial statements are prepared in accordance with IFRS. The following tables present a summary of our selected financial data at the dates and for each of the periods indicated. The summary historical financial data as of December 31, 2014 and 2013 and for the three years ended December 31, 2014 has been derived from our audited consolidated financial statements and notes

 

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thereto included in our annual report on Form 20-F for the year ended December 31, 2014, which is incorporated by reference to this prospectus supplement.

        The data presented below is only a summary and should be read in conjunction with our audited consolidated financial statements and related notes thereto included in our annual report on Form 20-F as well as "Item 5. Operating and Financial Review and Prospects" included in our annual report on Form 20-F.

 
  Year ended December 31,  
Income Statement and Other Financial Data
  2014   2014   2013   2012  
 
  (pro forma)(7)
   
   
   
 
 
  (in millions of reais,
except where indicated otherwise)

 

Net operating revenue

    40,300.2     35,000.0     34,721.9     33,919.7  

Adjusted EBITDA(8)

    12,544.6     10,404.7     10,575.6     12,702.8  

Adjusted EBITDA margin(9) (%)

    31.1     29.7     30.5     37.4  

Net income for the year

    5,345.9     4,936.7     3,715.9     4,452.2  

Net income margin(10) (%)

    13.3     14.1     10.7     13.1  

Adjusted net income(11)

    5,078.6     4,689.7     3,528.4     4,230.9  

Adjusted net income margin(12) (%)

    12.6     13.4     10.2     12.5  

Dividend payout ratio(13) (%)

        98.1     98.5     95.9  

Capital expenditures (excluding licenses)/net operating revenue (%)

    20.9     18.2     16.1     14.9  

Operating free cash flow(14)/net operating revenue (%)

    4.1     5.1     11.6     18.7  

 

 
  As of and for the year ended December 31,  
Balance Sheet Data
  2014   2014   2013   2012  
 
  (pro forma)(7)
   
   
   
 
 
  (in millions of reais,
except where indicated otherwise)

 

Total assets

    102,277.0     73,065.3     69,503.8     70,251.1  

Total debt:

                         

Current loans, financing, lease and debentures

    2,988.8     2,264.5     1,523.7     1,972.3  

Noncurrent loans, financing, lease and debentures

    6,295.8     5,534.7     7,229.8     6,028.2  

Total debt

    9,284.6     7,799.3     8,753.6     8,000.5  

Cash and cash equivalents

    6,382.1     4,692.7     6,543.9     7,133.5  

Short-term investments held as collateral

    60.4     60.5     60.0     59.9  

Net derivative position

    383.5     719.6     349.9     271.3  

Net debt(15)

    2,458.6     2,326.5     1,799.8     535.8  

Shareholders' equity

    69,887.9     44,950.1     42,894.4     44,681.1  

Net debt/Adjusted EBITDA

    0.20     0.22     0.17     0.04  

(1)
Combined operating information adds the total operating data of GVT and of the company, in each case, for 2014, without giving effect to any adjustments.

(2)
Based on ANATEL data, market share represents our mobile accesses over the total mobile accesses for the industry during the same period.

(3)
Churn is the number of customers that leave us during the month, calculated as a percentage of the simple average of accesses in the period. On an annual basis, churn is calculated by considering the average monthly churn for the year.

(4)
ARPU is the average revenue per user.

 

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(5)
MOU is defined as minutes of use of a mobile user per month. On an annual basis, MOU is calculated by considering the average monthly MOU for the year.

(6)
"Others" includes public lines, internal lines and test lines.

(7)
Pro forma income statement and other data considers the impact of the GVT acquisition as if it had occurred on January 1, 2014, in the case of income statement data, and December 31, 2014, in the case of balance sheet data.

(8)
We calculate Adjusted EBITDA as net income for the year plus net financial expense, equity pickup (meaning our interest in the result of our joint ventures and other associated companies), income and social contribution taxes and depreciation and amortization. Adjusted EBITDA is not a measure of financial performance in accordance with IFRS, and should not be considered in isolation or as an alternative to net income, an alternative to operating cash flows, a measure of liquidity, or the basis for dividend distribution. Other companies may calculate Adjusted EBITDA differently than us. Adjusted EBITDA serves as an indicator of overall financial performance which is not affected by changes in rates of income and social contribution taxes or levels of depreciation and amortization. Consequently, we believe that Adjusted EBITDA serves as an important tool to periodically compare our operating performance, as well as to support certain administrative decisions. Because Adjusted EBITDA does not include certain costs related to our business, such as interest expense, income taxes, depreciation, capital expenditures and other corresponding charges, which might significantly affect our net income, Adjusted EBITDA has limitations which affect its use as an indicator of our profitability. For a reconciliation of net income to Adjusted EBITDA, see "Summary Financial and Operating Data" elsewhere in this prospectus supplement.

(9)
Adjusted EBITDA margin is defined as Adjusted EBITDA divided by total net operating revenue.

(10)
Net income margin is defined as net income for the year divided by total net operating revenue.

(11)
Adjusted net income is defined as an amount equal to our net income for the year adjusted to reflect allocations to or from (1) legal reserves, (2) statutory reserves and (3) a contingency reserve for anticipated losses, if any, according to Brazilian corporate law.

(12)
Adjusted net income margin is defined as adjusted net income divided by total net operating revenue.

(13)
Dividend payout ratio is defined as dividend declared during the year divided by net income for the year.

(14)
See "Summary Financial and Operating Data" elsewhere in this prospectus supplement for a reconciliation of operating free cash flow.

(15)
Net debt is defined as total debt (which consists of current and noncurrent loans, financing, leases and debentures) minus cash and cash equivalents, minus short term investments held as collateral, and minus the net derivatives position. See "Summary Financial and Operating Data" elsewhere in this prospectus supplement for a reconciliation of net debt.

 

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Market Overview

        Brazil is the largest Latin American nation and one of the largest countries in the world in terms of area, population and GDP. Brazilian GDP was approximately US$2.249 trillion and US$2.246 trillion in 2013 and 2014, respectively, and some sources expect negative GDP growth in 2015. According to the World Bank, Brazilian GDP per capita increased from US$4,451 to US$5,823 from 2004 to 2014 and is projected to reach approximately US$6,130 by 2020 according to Trading Economics, suggesting upside potential from continued income per capita growth and associated improvements in disposable income and purchasing power.

        We believe that there is significant room for expansion of the Brazilian telecommunication industry, given that the market remains in a relatively early stage compared to developed markets. For instance, Brazil was only the 13th country in terms of penetration of subscribers in 2013, according to "Global Wireless Matrix." Smartphone penetration highlights additional larger potential for future expansion, with Brazil ranking 30th globally with only 27% penetration compared to the United States, for instance, which has approximately 55% penetration. We believe these factors create a large market opportunity with great growth potential. We believe that, with our current offerings and those acquired through the GVT acquisition, we will be able to effectively increase our share of this market.

        See "Industry Overview" elsewhere in this prospectus supplement for a more detailed description of the markets in which we operate.

Competitive Strengths

        We believe our main strengths include:

        Our integrated platform benefits from the highest quality coverage and infrastructure in Brazil. As of December 31, 2014, our customers had access to 3G in 3,225 cities in Brazil, compared to 1,710 cities for our closest competitor. For 4G, we are currently present in 140 cities throughout Brazil, compared to 93 cities for our closest competitor. We believe that our comprehensive portfolio and coverage allowed us to acquire and up-sell more than 0.9 million customers within 12 months of the launch of our 4G offering, giving us a market share of 38.9% as of December 2014, according to ANATEL, compared to 30.3% for our closest competitor.

        We believe that we possess a complete portfolio of spectrum that allows us to provide differentiated 3G and 4G services. We have one of the largest lower-frequency slots (850 MHz) in Brazil, in addition to spectrum in 1.8 MHz, 1.9 MHz and 2.1MHz frequencies. In addition, we have the largest slot of 2.5Ghz frequency (20+20Mhz), further supported by our recent acquisition of (10+10Mhz) in 700Mhz frequency, both for the provision of 4G services. We are deploying our 4G network over the 2.5Ghz frequency to offer a premium outdoor experience. The 700Mhz spectrum acquired last September is also expected to make an important quality difference because it provides a competitive advantage by providing indoor coverage and extended reach, allowing for the coverage of more isolated areas with a reduced number of service locations. With this enhanced portfolio of spectrum, we believe that we will be able to offer our clients unparalleled high quality mobile broadband services, allowing us to increase market share and the sale of value added services.

        In addition to our spectrum portfolio, we have an extensive national network, or backbone, of cables, measuring 40,000 km and reaching all major regions in Brazil. We also have the largest FTTH footprint in the state of São Paulo, allowing us to provide high quality and fast fixed internet

 

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throughout the state of São Paulo, where as of December 31, 2014, we reached 4.1 million homes. We believe that the following illustration highlights the strength of our standalone national network.

GRAPHIC


Source: company.

        We believe that the GVT acquisition will further enhance our market position in coverage and infrastructure as we capitalize on GVT's high quality fiber infrastructure. GVT's fiber infrastructure is expected to improve the quality of our services and support the expansion of our 4G network because we can leverage its existing backbone to substantially increase the reach of our mobile towers. GVT has a leading infrastructure presence in 152 cities throughout Brazil but has operations in only 20 cities in the state of São Paulo. Following the GVT acquisition, we expect to be the leading integrated telecommunications operator in Brazil, providing a combination of Pay TV, broadband, UBB, 3G and 4G coverage as well as mobile and fixed line voice services throughout Brazil. We believe that the following illustration highlights the strength of GVT's national network.

GRAPHIC


Source: company.

 

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        We believe that our combined nationwide network and extensive range of services, coupled with our strong branding, create sustainable competitive advantages, improve customer loyalty, drive higher ARPU and improve our profitability and ability to distribute dividends to our shareholders.

        According to the Brand Finance study, a British consulting company, our Vivo brand was the most valuable brand in the Brazilian telecommunications sector in 2014 for the ninth consecutive year. In addition to brand value, we benefit from the highest brand recall in the sector for the seventh consecutive year, according to Folha's Top of Mind survey. In 2014 we were also elected the "most reliable brand" for the sixth consecutive year by the "Marca de Confiança." We believe that our investments in customer service have been critical in developing and strengthening our brand. Moreover, we expect the integration of GVT to further improve our brand perception given that GVT has received various brand awards, including "Info 2013," "Info 2014," "Consumidor Moderno 2014" and "Brand Finance." We believe our significant brand recognition helps us attract new customers and maintain the loyalty of existing customers.

        We believe that we provide the highest quality customer service in Brazil. We had the lowest number of complaints recorded by ANATEL relative to our three primary competitors between January and October 2014, which is the latest available information. Additionally, ANATEL's customer service performance and mobile customer satisfaction indexes ranked us as the best player among the main telecom providers during 2013 and 2014. We expect that the GVT acquisition will improve our customer satisfaction as it will allow us to offer ultra-fast fixed broadband to more consumers via GVT's fiber platform.

        By having one of the largest chains of company stores throughout Brazil, with more than 300 of our own stores located throughout the country, we believe we are able to provide more convenient and superior quality services to our customers than our competitors. Our prepaid customers can also acquire our services at additional third party channels, including supermarkets, newsstands and other retailers nationwide. Our extensive bricks and mortar presence is further supported by our comprehensive website that offers customers an ample range of services online.

        Through our customer relationship management, or CRM, system, we have developed a customer segmentation approach to allow us to cater to the specific needs of our various customer segments, which we believe has enabled us to achieve excellence in customer service. Additionally, we have consolidated our information technology, or IT, infrastructure in fewer data centers, simplified our billing structure and established a national presence for our IT infrastructure, so that we are able to provide services to customers throughout the country. We believe we will be able to integrate GVT's operations into our customer service infrastructure, thus increasing our knowledge of our customers, expanding our customer base and improving customer loyalty.

        Our management team is comprised of highly qualified professionals, each with an average of over 30 years of experience in the telecommunications industry. With the GVT acquisition, we will further enhance our management team via coordinated knowledge transfer and sharing of best practices. In addition, support from Telefónica, our controlling shareholder, has contributed to the highly efficient management of our company and to the streamlining and optimization of our operations and management practices. Our controlling shareholder is one of the largest telecommunication groups in the world, considers Brazil to be one of the top markets for its operations, and invests considerable

 

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time and expertise to improve the operational performance and results of our company. In recognition of the importance of our company to our controlling shareholder's global platform, Telefónica subscribed in this offering proportionally to its current level of equity participation in our company, which it expects to fund using cash on hand or drawdowns under its undrawn credit lines and syndicated revolving credit facilities.

Our Strategies

        We believe that, as a result of our GVT acquisition, we will be able to consolidate our activities to achieve operational synergies. We describe below our plans to achieve this consolidation within each of our current strategies.

        We intend to continue leading the mobile internet sector in Brazil as a result of our market-leading network quality and customer service. We expect our growth in mobile offerings to be driven by increased data adoption across all segments, mainly through our continuously expanding 4G network. Growing smartphone penetration, as a result of lower handset prices and Brazil's continued convergence to more developed markets penetration levels, will continue to stimulate growth of 4G, allowing us to increase our revenue through higher sales of value added services. Since 2013, smartphone penetration within our customer base has increased from 47% to 66%. As of December 31, 2014, 69.9% of our total smartphone customers were prepaid and 7.6% were individual postpaid. Given that postpaid customers have higher average incomes and greater loyalty (as a result of their long-term postpaid contracts), this segment is characterized by higher ARPU, higher margins and lower churn.

        To capture and retain the most valuable customers, we will continue to provide differentiated network quality and offer our clients flexible and attractive data plans with optimized pricing and perceived value. As part of our continued focus on improving efficiency and increasing returns and operational leverage, we will continue to expand our online sales platform and customer service channels and promote backbone and network partnerships with other companies.

        We are taking steps to continue transforming ourselves into the leading fiber company in Brazil, capable of delivering fixed services efficiently and profitably. We intend to continue to accelerate our expansion to attractive regions and micro-regions within the state of São Paulo in the coming years. Our goal is to offer the highest UBB speeds in the market, allowing for differentiated services, such as over-the-top, or OTT content. We will also expand our internet protocol television, or IPTV, offering, to enhance our competitive positioning and increase ARPUs, with convergent bundles. As part of this transformation process, we will improve our overall efficiency by selectively offering IP solutions to targeted customers and markets. In addition, we are maximizing the return on our investments by overlaying cable infrastructure with fiber and discontinuing obsolete technologies. We are also leveraging our mobile infrastructure to provide fixed services nationwide, for example by fixed wireless terminal solutions. We believe that the GVT acquisition will further improve our fiber infrastructure, in particular throughout the state of São Paulo, given that GVT already provides high-quality fiber broadband to its customer base.

        Given developments in terms of coverage, portfolio of services and knowledge of our customers, we believe the GVT acquisition will provide significant opportunity to cross-sell to our existing and expanded customer base. We intend to improve the acquisition and retention of high-value customers by providing additional exclusive products and services such as FTTH and IPTV to areas where we do

 

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not currently offer a complete range of telecommunications services. We believe that by providing a combined package of telecommunication services aligned with customers' needs, with differentiated quality, and by charging premium prices for our portfolio of services, we can improve revenues and profitability.

        We believe we can further expand our mobile customer base as a result of the GVT acquisition given our ability to expand our services and reach more customers while maintaining our differentiated customer service and best practices. We see specific cross-selling opportunities because both companies focus on high-end customers and because we expect to be able to better address opportunities within SME and corporate customer segments as an integrated national player.

        We will continue to build upon our position as the leader in integrated, innovative and customized solutions for small and medium enterprise, or SME, customers. Our growth strategy includes capitalizing on our integrated capabilities to deliver bundles, with data being the core service, and consolidating our position as a strong player in the information and communications technology market, by covering solutions ranging from simple web hosting to complex outsourcing services.

        We also expect to continue selective expansion of fixed services outside of São Paulo. To provide our services more efficiently, we will consolidate our data center infrastructure and increase virtualization, including leveraging cloud-based services. We are taking steps to create full integration of our commercial and operational capabilities, including channels, sales force and post sales services.

        We expect that the benefits from the GVT acquisition will accrue to both our residential and corporate clients, with significant gains expected for SME customers, as we consolidate both companies' services and improve our national fiber coverage. In addition, current and future GVT customers will benefit from the ability to bundle GVT's high-speed broadband with our mobile services. The GVT acquisition is expected to allow us to better meet the demands of our existing clients for more data intensive products and services.

        We will continue to enhance our position as a digital telecommunications company with targeted, relevant and innovative high growth services. By leveraging partnerships with other operators in selected areas, we plan to develop new digital solutions that will increase our relevance to customers and further differentiate us from the competition.

        We expect to continue building innovative platforms, including financial payments, e-health and education services, among others, for all customer segments in which we plan to grow direct-to-home, or DTH services. We plan to focus on our existing customer base and to develop new IPTV features and applications. We expect to provide solutions to our corporate clients (including SME clients) by capturing opportunities in machine-to-machine technology, or M2M, telemetry, such as smart cities where multiple technologies work in a centralized environment to better service citizens, and by growing business-to-business services, or B2B, in e-health, security and financial services.

        We believe that an increased dependence on these digital services will increase the demand for high quality broadband and 4G data services. We plan to improve our strong infrastructure network by remaining on the cutting edge of new trends and technologies, both through organic growth and strategic targeted acquisitions. We expect that the GVT acquisition will expand our ability to develop and deploy digital services , improve our infrastructure throughout many regions of Brazil and will enhance the level and quality of the services we provide.

 

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Risk Factors

        Investing in our preferred shares, including in the form of ADSs, involves significant risk, including risks associated with the GVT acquisition. You should carefully consider the risk factors set forth in the sections entitled "Risk Factors" in this prospectus supplement and the documents incorporated by reference herein.

Company Structure

        The following chart presents our corporate structure as of the date of this prospectus supplement, which takes into consideration both our common and preferred shares:

GRAPHIC

        Our principal executive offices are located at Avenida Engenheiro Luis Carlos Berrini, 1376, 28th floor, 04571-936 São Paulo, SP, Brazil, and the telephone number for our Investor Relations department is +55 (11) 3430-3687. Our website is www.telefonica.com.br/ir. Information contained on, or accessible through, our website is not incorporated by reference in, and shall not be considered part of, this prospectus supplement.

Recent Developments

        On January 30, 2015, our board of directors approved the distribution of dividends in the amount of R$2,750.0 million with respect to the fourth quarter of 2014 to holders of shares as of February 10, 2015. In addition, on April 9, 2015 our board of directors approved a dividend distribution in the amount of R$18.6 million. Preferred shares being offered in this offering will not be eligible to receive either of these dividends. Both distributions of dividends will be paid on or before December 31, 2015.

        In connection with an internal reorganization that took place in February 2015, SP Telecomunicações Participações Ltda. increased its holding of our common shares by 7.87%, resulting in its ownership of 22.40% of our total share capital, and Telefônica Internacional S.A. decreased its holding of our common shares by 7.87%, resulting in its ownership of 26.76%, of our total share capital. This reorganization did not alter the equity ownership in our company that is directly and indirectly held by our controlling shareholder, Telefónica, which remained constant at 91.82%.

        On February 24, 2015, our board of directors approved the cancellation of all treasury shares held by us, and all treasury shares were subsequently cancelled. Prior to cancellation, we had held 251,440

 

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common shares in treasury at a book value per share of R$40.02 and 2,081,246 preferred shares in treasury at a book value per share of R$40.02.

        On March 25, 2015, our board of directors elected Mr. Alberto Manuel Horcajo Aguirre as our Chief Executive Officer. Mr. Aguirre will replace Mr. Antonio Carlos Valente da Silva, our former Chief Executive Officer, and Mr. Paulo Cesar Pereira Teixeira, our former General and Executive Officer. Mr. Aguirre will hold the position of Chief Executive Officer while maintaining his current roles as Chief Financial Officer, Corporate Resources Officer and Investor Relations Officer for the remainder of their current terms. Mr. da Silva will remain chairman of our board of directors while Mr. Teixeira will no longer be a member of our board of directors. We also announced on March 25, 2015 that Telefónica intends to propose the appointment of Mr. Amos Genish, current Chief Executive Officer of GVT, to become our Chief Executive Officer upon conclusion of the GVT acquisition.

        On March 25, 2015, CADE's administrative tribunal approved the GVT acquisition, subject to certain terms and conditions. See "The GVT Acquisition."

 

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THE OFFERING

Issuer

  Telefônica Brasil S.A.

Brazilian underwriters

 

Banco Itaú BBA S.A.

  Banco Morgan Stanley S.A.

  Bank of America Merrill Lynch Banco Múltiplo S.A.

  Banco Santander (Brasil) S.A.

  Banco Bradesco BBI S.A.

  Banco BTG Pactual S.A.

  Banco de Investimentos Credit Suisse (Brasil) S.A.

  Goldman Sachs do Brasil Banco Múltiplo S.A.

  Banco J.P. Morgan S.A.

 

UBS Brasil Corretora de Câmbio, Títulos e Valores Mobiliários S.A.

  Banco Barclays S.A.

  HSBC Bank Brasil S.A.—Banco Múltiplo

International underwriters

 

Itau BBA USA Securities Inc.

  Morgan Stanley & Co. LLC

  Merrill Lynch, Pierce, Fenner & Smith
                      Incorporated

  Santander Investment Securities Inc.

  Banco Bradesco BBI S.A.

  Banco BTG Pactual S.A.—Cayman Branch

  Credit Suisse Securities (USA) LLC

  Goldman, Sachs & Co.

  HSBC Securities (USA) Inc.

  J.P. Morgan Securities LLC

  Barclays Capital Inc.

  BBVA Securities Inc.

  Scotia Capital (USA) Inc.

  UBS Securities LLC

Global offering

 

The global offering consists of an offering of an aggregate of 236,803,588 preferred shares in the international offering and the concurrent Brazilian offering as well as an offering of an aggregate of 121,711,240 common shares in the concurrent Brazilian offering. This prospectus supplement is not an offer to sell or a solicitation of an offer to buy any of our common shares.

International offering

 

79,679,574 preferred shares, including preferred shares in the form of ADSs, are being offered through the international underwriters (which are acting as placement agents on behalf of the Brazilian underwriters with respect to preferred shares) in the United States and other countries outside Brazil.

 

Preferred shares sold in the form of ADSs will be paid for in U.S. dollars at the U.S. dollar public offering price per ADS set forth on the cover page of this prospectus supplement.

 

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Preferred shares purchased by any investor outside Brazil will be settled in Brazil and paid for in reais. Any investor outside Brazil purchasing preferred shares must be authorized to invest in Brazilian securities under the requirements established by Brazilian law, especially by the CMN, the CVM and the Central Bank, complying with the requirements set forth in Instruction No. 325, dated January 27, 2000, of the CVM, as amended, and Resolution No. 2,689, dated January 22, 2000, as amended, of the CMN (which will be replaced by Resolution No. 4,373, dated September 29, 2014, as of March 30, 2015) and Law No. 4,131 of September 3, 1962, as amended.

 

The international offering in the United States and other countries outside Brazil does not include an offering of common shares.

Brazilian offering

 

Concurrently with the international offering, 121,711,240 common shares and 207,211,830 preferred shares are being offered by the Brazilian underwriters in a public offering in Brazil to Brazilian investors, including on a priority subscription basis. The common shares have not been and will not be registered under the U.S. Securities Act of 1933, as amended, and may not be offered or sold in the United States absent registration or an applicable exemption from the registration requirements of the U.S. Securities Act of 1933, as amended. This prospectus supplement is not an offer to sell or a solicitation of an offer to buy any of our common shares.

American Depositary Shares

 

Each ADS represents one preferred share. ADSs may be evidenced by American Depositary Receipts, or ADRs. The ADSs will be issued under a deposit agreement among us, Citibank N.A., as depositary, and the holders and beneficial owners from time to time of ADSs issued thereunder.

Priority subscription

 

Holders of our preferred shares as of April 1, 2015 were given the opportunity to subscribe for preferred shares in the Brazilian offering on a priority basis at the public offering price.

 

Priority subscription was not available to holders of ADSs. An ADS holder that wished to be eligible for priority subscription was required to make the necessary arrangements to cancel such holder's ADSs and take delivery of the underlying preferred shares in a Brazilian account. See "Underwriting—Priority Subscription Rights of Existing Shareholders."

 

Priority subscription was not available to a shareholder if the subscription would violate local laws of the shareholder's jurisdiction.

 

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Offering price

 

The public offering price for the international offering for the ADSs is set forth on the cover page of this prospectus supplement. The offering price for the ADSs is the approximate U.S. dollar equivalent of the real offering price per preferred share in the Brazilian offering, based upon the selling rate reported by the Central Bank of R$2.9236 to US$1.00 on April 27, 2015.

Option to purchase additional shares

 

We are granting Merrill Lynch, Pierce, Fenner & Smith Incorporated an option on behalf of the international underwriters, exercisable at any time for 10 days following the date of this final prospectus supplement, for the international underwriters to purchase up to 6,282,660 preferred shares in the form of ADSs, minus the number of preferred shares sold by us pursuant to the Brazilian underwriters' option to purchase additional shares, at the initial public offering price, less the underwriting discounts and commissions. If any additional ADSs are purchased with this option to purchase additional shares, the international underwriters will offer the additional ADSs on the same terms as those ADSs that are being offered pursuant to the international offering.

Use of proceeds

 

We intend to use the net proceeds from the global offering to (1) fund the cash portion of the GVT acquisition, which is expected to close by mid-2015, (2) repay GVT's loans with a related party, and (3) adjust our capital structure in order to maintain liquidity. Allocation of the net proceeds will be made as described under "Use of Proceeds."

Dividends

 

According to our bylaws, we are required to distribute as dividends of each fiscal year ending on December 31, to the extent amounts are available, an aggregate amount equal to at least 25% of adjusted net income as a mandatory dividend. Adjusted net income, as determined by Brazilian corporate law, is an amount equal to our net income adjusted to reflect allocations to or from (i) legal reserve, (ii) statutory reserve and (iii) a contingency reserve for anticipated losses, if any.

 

The annual dividend distributed to holders of our preferred shares is 10% higher than the dividend distributed to our common shareholders. Holders of the ADSs will be entitled to receive dividends and any interest on shareholders' equity to the same extent as the owners of our preferred shares, as applicable, subject to the deduction of the fees of the ADR Depositary and any applicable withholding taxes and the costs of foreign exchange conversion. See "Description of American Depositary Shares" in the accompanying prospectus.

 

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On January 30, 2015, our board of directors approved the distribution of dividends in the amount of R$2,750.0 million with respect to the fourth quarter of 2014 to holders of shares as of February 10, 2015. In addition, on April 9, 2015 our board of directors approved a dividend distribution in the amount of R$18.6 million. Preferred shares being offered in this offering will not be eligible to receive either of these dividends. Both distributions of dividends will be paid by December 31, 2015.

Bookbuilding process

 

In order to participate in the bookbuilding process, investors will be required to specify a maximum investment amount that they are willing to offer as consideration for preferred shares (including in the form of ADSs).

Capital stock

 

As of the date hereof, we have 741,933,573 preferred shares outstanding, 102,624,131 of which are in the form of ADSs.

 

After the global offering, we will have 978,737,161 preferred shares outstanding, assuming no exercise of the option to purchase additional shares.

 

After the closing of the GVT acquisition, and assuming no exercise of the option to purchase additional shares, and considering the price of our preferred shares of R$47.00, we will have 1,112,201,319 preferred shares outstanding.

Listings

 

Our preferred shares are listed on the BM&FBOVESPA under the symbol "VIVT4." The ADSs are listed on the NYSE under the symbol "VIV."

Lock-up agreements

 

In connection with the global offering, we, Vivendi S.A. and our principal shareholders have agreed to enter into lock-up agreements with the international underwriters under which neither we nor they may, subject to certain exceptions, for a period from the date of each lock-up agreement through 90 days from the date of the execution of the international underwriting agreement, directly or indirectly sell, dispose of or hedge any common shares, preferred shares or ADSs or any securities convertible into or exchangeable for common shares, preferred shares or ADSs without the prior written consent of the international underwriters. See "Underwriting—No Sales of Similar Securities."

ADS depositary

 

Citibank, N.A.

Risk factors

 

See "Risk Factors" and the other information in this prospectus supplement and the accompanying prospectus before investing in our preferred shares or the ADSs.

 

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Timetable for the global offering:

Commencement of marketing of the global offering

  March 26, 2015

Pricing

  April 27, 2015

Allocation of preferred shares and ADSs

  April 27, 2015

Settlement and delivery of preferred shares and ADSs

  May 4, 2015

        Unless otherwise indicated, all information contained in this prospectus supplement assumes no exercise of the option to purchase additional shares of Merrill Lynch, Pierce, Fenner & Smith Incorporated.

 

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SUMMARY FINANCIAL AND OPERATING DATA

        Our consolidated financial statements are prepared in accordance with IFRS. The following tables present a summary of our selected financial data at the dates and for each of the periods indicated. The summary historical financial data as of December 31, 2014 and 2013 and for the three years ended December 31, 2014 has been derived from our audited consolidated financial statements and notes thereto included in our annual report on Form 20-F for the year ended December 31, 2014. The data presented below is only a summary and should be read in conjunction with our audited consolidated financial statements and related notes thereto included in our annual report on Form 20-F as well as "Item 5. Operating and Financial Review and Prospects" included in our annual report on Form 20-F.

        This prospectus supplement also incorporates by reference historical financial information of GVTPar as of and for the year ended December 31, 2014.

 
  Year ended December 31,  
 
  2014(1)   2014   2013   2012  
 
  (in millions
of US$)

  (in millions of reais)
 
 
  (except for share and per share data)
 

Income Statement Data

                         

Net operating revenue

    13,177     35,000     34,722     33,919  

Cost of goods and services

    (6,484 )   (17,223 )   (17,542 )   (16,557 )

Gross profit

    6,693     17,777     17,180     17,362  

Operating expenses, net

    (4,769 )   (12,668 )   (12,248 )   (10,151 )

Equity in earnings (losses) of associates

    3     7     (55 )   1  

Operating income before financial expense, net

    1,927     5,116     4,877     7,211  

Financial expense, net

    (136 )   (362 )   (215 )   (291 )

Income before tax and social contribution

    1,791     4,754     4,662     6,920  

Income tax and social contribution

    69     183     (946 )   (2,468 )

Net Income for the year

    1,860     4,937     3,716     4,452  

Attributable to:

                         

Controlling shareholders

    1,860     4,937     3,716     4,453  

Non-controlling shareholders

                (1 )

Basic and diluted earnings per share:

                         

Common Shares

    1.55     4.12     3.10     3.72  

Preferred Shares

    1.71     4.53     3.41     4.09  

Cash Dividends per share in reais, net of withholding tax:

                         

Common Shares

    0.77     2.04     1.86     2.57  

Preferred Shares

    0.85     2.25     2.04     2.82  

(1)
Translated for convenience only using the commercial offer rate as reported by the Central Bank as of December 31, 2014 for reais into U.S. dollars of R$2.6562 to US$1.00. These translations should not be considered representations that any such amounts have been, could have been or could be translated into U.S. dollars at that or at any other exchange rate as of that or any other

 

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    date. In addition, translations should not be construed as representations that the real amounts represent or have been or could be translated into U.S. dollars as of that or any other date.

 
  As of December 31,  
 
  2014(1)   2014   2013  
 
  (in millions
of US$)

  (in millions of reais)
 
 
  (except for share and per share data)
 

Balance Sheet Data

                   

Property, plant and equipment, net

    7,700     20,454     18,442  

Total assets

    27,507     73,065     69,504  

Loans, financing and leases—current portion

    568     1,509     1,237  

Loans, financing and leases—noncurrent portion

    799     2,123     3,215  

Debentures—current portion

    284     755     287  

Debentures—noncurrent portion

    1,285     3,412     4,015  

Shareholders' equity

    16,923     44,950     42,894  

Attributable to:

                   

Controlling shareholders

    16,923     44,950     42,894  

Noncontrolling shareholders

             

Capital stock

    14,230     37,798     37,798  

Number of shares outstanding (in thousands)

    1,123,269     1,123,269     1,123,269  

(1)
Translated for convenience only using the commercial offer rate as reported by the Central Bank as of December 31, 2014 for reais into U.S. dollars of R$2.6562 to US$1.00. These translations should not be considered representations that any such amounts have been, could have been or could be translated into U.S. dollars at that or at any other exchange rate as of that or any other date. In addition, translations should not be construed as representations that the real amounts represent or have been or could be translated into U.S. dollars as of that or any other date.

 
  Year ended December 31,  
 
  2014(1)   2014   2013   2012  
 
  (in millions
of US$)

  (in millions of reais)
 

Cash Flow Data

                         

Operating activities:

                         

Net cash provided by operating activities

    3,533     9,384     9,576     10,054  

Investing activities:

                         

Net cash used in investing activities

    (2,864 )   (7,608 )   (5,544 )   (3,721 )

Financing activities:

                         

Net cash used in financing activities

    (1,365 )   (3,628 )   (4,622 )   (2,089 )

Increase (decrease) in cash and cash equivalents

    (697 )   (1,851 )   (590 )   4,244  

Cash and cash equivalents at beginning of year

    2,464     6,544     7,133     2,890  

Cash and cash equivalents at end of year

    1,767     4,693     6,544     7,133  

(1)
Translated for convenience only using the commercial offer rate as reported by the Central Bank as of December 31, 2014 for reais into U.S. dollars of R$2.6562 to US$1.00. These translations should not be considered representations that any such amounts have been, could have been or could be translated into U.S. dollars at that or at any other exchange rate as of that or any other

 

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    date. In addition, translations should not be construed as representations that the real amounts represent or have been or could be translated into U.S. dollars as of that or any other date.

 
  Year ended December 31,  
 
  2014(1)   2014   2013   2012  
 
  (in millions
of US$)

  (in millions of reais)
 
 
  (except for Adjusted EBITDA margin)
 

Other Data

                         

Adjusted EBITDA(2)

    3,917.1     10,404.7     10,575.6     12,702.8  

Adjusted EBITDA margin(2) (%)

    29.7     29.7     30.5     37.4  

Operating free cash flow(3)

    668.9     1,776.6     4,032.5     6,333.2  

Net debt(4)

    875.8     2,326.5     1,799.8     535.8  

Adjusted net income(5)

    1,765.6     4,689.7     3,528.4     4,230.9  

(1)
Translated for convenience only using the commercial offer rate as reported by the Central Bank as of December 31, 2014 for reais into U.S. dollars of R$2.6562 to US$1.00. These translations should not be considered representations that any such amounts have been, could have been or could be translated into U.S. dollars at that or at any other exchange rate as of that or any other date. In addition, translations should not be construed as representations that the real amounts represent or have been or could be translated into U.S. dollars as of that or any other date.

(2)
We calculate Adjusted EBITDA as net income for the year plus net financial expense, equity pickup (meaning our interest in the result of our joint ventures and other associated companies), income and social contribution taxes and depreciation and amortization. Adjusted EBITDA is not a measure of financial performance in accordance with IFRS, and should not be considered in isolation or as an alternative to net income, an alternative to operating cash flows, a measure of liquidity, or the basis for dividend distribution. Other companies may calculate Adjusted EBITDA differently than us. Adjusted EBITDA serves as an indicator of overall financial performance which is not affected by changes in rates of income and social contribution taxes or levels of depreciation and amortization. Consequently, we believe that Adjusted EBITDA serves as an important tool to periodically compare our operating performance, as well as to support certain administrative decisions. Because Adjusted EBITDA does not include certain costs related to our business, such as interest expense, income taxes, depreciation, capital expenditures and other corresponding charges, which might significantly affect our net income, Adjusted EBITDA has limitations which affect its use as an indicator of our profitability. Adjusted EBITDA margin is

 

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    defined as an Adjusted EBITDA divided by total net operating revenue. The table below sets forth a reconciliation of our Adjusted EBITDA and Adjusted EBITDA margin:

 
  Year ended December 31,  
 
  2014(a)   2014   2013   2012  
 
  (in millions
of US$)

  (in millions of reais)
 
 
  (except for Adjusted EBITDA margin)
 

Adjusted EBITDA and Adjusted EBITDA margin reconciliation

                         

Net income for the year

    1,858.6     4,936.7     3,715.9     4,452.2  

(+) Net financial expense

    136.3     362.0     214.8     291.3  

(+) Income and social contribution taxes

    (68.8 )   (182.7 )   946.4     2,468.1  

(+) Depreciation and amortization

    1,993.7     5,295.6     5,643.3     5,491.8  

(+) Equity pickup

    (2.6 )   (6.9 )   55.2     (0.6 )

Adjusted EBITDA(2)

    3,917.1     10,404.7     10,575.6     12,702.8  

Adjusted EBITDA margin (%)(3)

    29.7     29.7     30,5     37.4  

Net operating revenue

    13,176.7     35,000.0     34,721.9     33,919.7  

(a)
Translated for convenience only using the commercial offer rate as reported by the Central Bank as of December 31, 2014 for reais into U.S. dollars of R$2.6562 to US$1.00. These translations should not be considered representations that any such amounts have been, could have been or could be translated into U.S. dollars at that or at any other exchange rate as of that or any other date. In addition, translations should not be construed as representations that the real amounts represent or have been or could be translated into U.S. dollars as of that or any other date.
(3)
We define Operating free cash flow as net cash generated by operating activities less net cash used in investing activities. Operating free cash flow is not a measure of financial performance in accordance with IFRS, and should not be considered in isolation or as an alternative to net income, an alternative to operating cash flows, a measure of liquidity, or the basis for dividend distribution. Other companies may calculate operating free cash flow differently than us. We consider operating free cash flow a useful measure of the cash flow available to pay interest on our financing and dividends to our shareholders. The table below sets forth a reconciliation of our operating free cash flow.

 
  Year ended December 31,  
 
  2014(a)   2014   2013   2012  
 
  (in millions
of US$)

  (in millions of reais)
 

Operating free cash flow reconciliation

                         

Net cash generated by operating activities

    3,532.9     9,384.2     9,576.3     10,054.0  

Net cash used in investing activities

    (2,864.1 )   (7,607.6 )   (5,543.8 )   (3,720.8 )

Operating free cash flow

    668.9     1,776.6     4,032.5     6,333.2  

(a)
Translated for convenience only using the commercial offer rate as reported by the Central Bank as of December 31, 2014 for reais into U.S. dollars of R$2.6562 to US$1.00. These translations should not be considered representations that any such amounts have been, could have been or could be translated into U.S. dollars at that or at any other exchange rate as of that or any other date. In addition, translations should not be construed as representations that the real amounts represent or have been or could be translated into U.S. dollars as of that or any other date.
(4)
Net debt is defined as total debt (which consists of current and noncurrent loans, financing, leases and debentures) minus cash and cash equivalents, minus short term investments held as collateral,

 

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  Year ended December 31,  
 
  2014(a)   2014   2013   2012  
 
  (in millions
of US$)

  (in millions of reais)
 

Net debt reconciliation

                         

Current debt

    852.5     2,264.5     1,523.7     1,972.3  

Non-current debt

    2,083.7     5,534.7     7,229.8     6,028.2  

Total debt

    2,936.3     7,799.3     8,753.6     8,000.5  

(–) Cash and cash equivalents

    1,766.7     4,692.7     6,543.9     7,133.5  

(–) Short term investments held as collateral

    22.7     60.5     60.0     59.9  

(–) Net derivatives position

    270.9     719.6     349.9     271.3  

Net debt

    875.9     2,326.5     1,799.8     535.8  

(a)
Translated for convenience only using the commercial offer rate as reported by the Central Bank as of December 31, 2014 for reais into U.S. dollars of R$2.6562 to US$1.00. These translations should not be considered representations that any such amounts have been, could have been or could be translated into U.S. dollars at that or at any other exchange rate as of that or any other date. In addition, translations should not be construed as representations that the real amounts represent or have been or could be translated into U.S. dollars as of that or any other date.
(5)
Adjusted net income is not a measure of financial performance in accordance with IFRS and should not be considered in isolation or as an alternative to net income for the year as a measure of the earnings of the Company. Other companies may calculate Adjusted net income differently than us. We believe Adjusted net income is a useful measure of earnings as it represents the earnings from which dividends may be declared and distributed to shareholders. The following table sets forth a reconciliation of Adjusted net income:

 
  Year ended December 31,  
 
  2014(a)   2014   2013   2012  
 
  (in millions
of US$)

  (in millions of reais)
 

Adjusted net income reconciliation

                         

Net income for the year

    1,858.6     4,936.7     3,715.9     4,452.2  

(–) allocation to legal reserve

    (92.9 )   (246.8 )   (185.8 )   (222.7 )

(–) allocation to tax incentive reserve

    (0.1 )   (0.2 )   (1.7 )    

(–) income attributable to non-controlling interest

                (1.4 )

Adjusted net income

    1,765.6     4,689.7     3,528.4     4,230.9  

(a)
Translated for convenience only using the commercial offer rate as reported by the Central Bank as of December 31, 2014 for reais into U.S. dollars of R$2.6562 to US$1.00. These translations should not be considered representations that any such amounts have been, could have been or could be translated into U.S. dollars at that or at any other exchange rate as of that or any other date. In addition, translations should not be construed as representations that the real amounts represent or have been or could be translated into U.S. dollars as of that or any other date.

 

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RISK FACTORS

        This offering involves risks. You should carefully consider the risks described below and the other information contained in or incorporated by reference into this prospectus supplement and the accompanying prospectus before deciding to invest in our preferred shares or ADSs representing our preferred shares including the risks described in our 2014 Annual Report on Form 20-F under "Part I, Item 3D: Key Information—Risk Factors." Our business, operating results and financial condition could be adversely affected by any of the following risks. The risks and uncertainties described below are not the only ones facing our company. There may be additional risks that we presently do not know of or that we currently believe are immaterial which could also impair our business, financial condition, operating results or prospects. Any of the following risks, either alone or taken together, could materially and adversely, affect our business, financial condition, operating results or prospects. As a result, the market price of our securities could decline, and you could lose part or all of your investment.

Risks Relating to the GVT Acquisition

The conditions imposed by regulators and the closing conditions of the GVT acquisition may affect our ability to consummate the acquisition in a timely manner or at all and may have an adverse effect on the expected benefits of the acquisition.

        Our ability to consummate the GVT acquisition is subject to various closing conditions. These include customary closing conditions in addition to others that are beyond our control, such as the requirement to obtain approvals from certain regulatory authorities. Although we have obtained approvals from the Brazilian competition authority (CADE) and the Brazilian telecommunications regulator (ANATEL), such approvals are subject to the satisfaction of certain conditions imposed by the regulators.

        On December 22, 2014, ANATEL approved the GVT acquisition and imposed certain obligations, which include (1) the maintenance of current services and plans offered by both GVT and Telefônica Brasil for a certain period of time, (2) the maintenance of contracts currently held by GVT clients for a certain period of time, (3) the maintenance of the current geographic scope of the services being provided by both GVT and Telefônica Brasil, requiring, in addition, that the successor company expand its operations to at least ten new municipalities within three years beginning on January 26, 2015; and (4) the waiver of the fixed telephone service (Serviço de Telefonia Fixa Comutável), or STFC license held by GVT within 18 months of ANATEL's decisions, because regulations establish that the same economic group cannot hold more than one STFC license in the same geographic area. In addition, on March 12, 2015, ANATEL granted approval for the subsequent swap transaction pursuant to which Vivendi will exchange all of its voting stake and part of its non-voting stake in Telefônica Brasil for part of Telefónica's indirect stake in Telecom Italia, subject to certain conditions such as the prohibition of Vivendi to increase its stake in Telefônica Brasil. The closing of the GVT acquisition and the swap transaction must occur within 180 days, subject to a one-time renewal for the same period of time.

        Moreover, on December 22, 2014, and March 12, 2015, ANATEL also authorized the demerger of Telco S.p.A., an operation that will have result in a swap transaction with Vivendi, by allowing Telefónica to hold, thorough a wholly-owned subsidiary, an indirect ownership in Telecom Italia. Such decision was conditioned on the suspension and waiver by Telefónica of all Telefónica's voting rights in Telecom Italia, and, ultimately, on the divestment of the direct ownership to be held by Telefónica in Telecom Italia.

        On March 25, 2015, CADE's administrative tribunal also approved the GVT acquisition and the demerger of Telco S.p.A., subject to the execution of three merger control agreements: the first between CADE, Telefônica Brasil and GVT, the second between CADE and Telefónica, and the third between CADE and Vivendi. Under such agreements, Telefónica and Telefônica Brasil undertook, among others, the following commitments: (1) to maintain the current services and plans offered by

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both GVT and Telefônica Brasil for a certain period of time, (2) to maintain the contracts currently held by GVT clients for a certain period of time, (3) to maintain the current geographic scope of the services being provided by both GVT and Telefônica Brasil, and to further extend such operations according to the expansion plan to be presented to ANATEL, (4) to maintain for a certain period of time some specific quality indicators relating to the services of GVT to its clients, (5) to commit with some obligations undertaken by Vivendi under its own agreement with CADE, (6) to waive and suspend all Telefónica's voting rights in Telecom Italia, and, ultimately, (7) to divest the direct ownership to be held by Telefónica in Telecom Italia.

        If we are not able to fully comply with such obligations, we will face fines and other penalties and may be prevented from consummating the GVT acquisition according to the expected timetable or at all, or, if the GVT acquisition has already been concluded at time of a breach of any of such obligations, we may be ordered by ANATEL or CADE to revert the GVT acquisition, or to submit to additional and unforeseeable conditions. In addition, the conditions imposed could have an unanticipated or adverse effect on the expected benefits of the acquisition, which could have an adverse effect on our business, results of operations and financial condition.

If the acquisition of GVT is consummated, we may be unable to successfully integrate GVT's operations or to fully realize targeted synergies, revenues and other expected benefits of the acquisition of GVT.

        Achieving the targeted synergies, such as operating and long-term strategic cost-savings, of the GVT acquisition will depend in part upon whether we can integrate GVT's businesses in an efficient and effective manner. We may not be able to accomplish this integration process smoothly or successfully. We and GVT operate numerous systems, including those involving management information, accounting and finance, sales, billing, employee benefits, payroll and regulatory compliance. Moreover, the integration of our respective operations will require the dedication of significant management resources, which may distract management's attention from day-to-day operations. Employee uncertainty and lack of focus during the integration process may also disrupt our business and result in undesired employee attrition. An inability of management to successfully integrate the operations of GVT into our business could have a material adverse effect on our business, results of operations and financial condition.

        An inability to realize the full extent of, or any of, the anticipated benefits and synergies of the acquisition of GVT, as well as any delays encountered in the integration process, could have an adverse effect on our business, results of operations and financial condition.

The acquisition of GVT may expose us to liabilities and contingencies.

        GVT is party to a number of lawsuits and other proceedings involving a significant amount. As of December 31, 2014, the total estimated amount of the proceedings, which GVT's legal advisers deemed to have probable or possible losses, totaled approximately R$1,789.7 million, for which GVT had made provisions in the amount of R$92.5 million, which is in line with what legal advisers considered to be probable losses. The indemnities that we may receive from the seller may be insufficient to protect or indemnify us for any liabilities and contingencies that we did not identify during the due diligence process or that were identified but were estimated to be lower than the actual amounts. If we incur significant costs as a result of such liabilities or contingencies, our business and results may be adversely affected.

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 are based in Brazil. Also, eight of our twelve directors reside or are based

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in Brazil. Substantially all of our assets and those of these other 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 or these other persons within the United States or other jurisdictions outside Brazil or to enforce against us or these other persons judgments obtained in the United States or other jurisdictions outside Brazil. Because judgments of U.S. courts for civil liabilities based upon the U.S. federal securities laws may only be enforced in Brazil if certain conditions are met, holders may face greater difficulties in protecting their interests due to actions by us, 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 not entitled to vote at meetings of our shareholders, except in limited circumstances set forth in "Description of Capital Stock—Memorandum and Articles of Association" in the accompanying prospectus.

Holders of our preferred shares might be unable to exercise preemptive rights with respect to the preferred shares unless there is 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 their ADSs unless a registration statement under the U.S. Securities Act of 1933, as amended, or the Securities Act, is effective with respect to the shares underlying those rights, or an exemption from the registration requirements of the Securities Act is available. We are not obligated to file a registration statement. Unless we file a registration statement or an exemption from registration applies, holders of our preferred shares may receive only the net proceeds from the sale of their preemptive rights by the depositary, or if the preemptive rights cannot be sold, they will lapse and they will not receive any value for them. For more information on the exercise of these rights, see "Description of Capital Stock—Description of Our Bylaws—Preemptive Rights" in the accompanying prospectus.

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

        CMN Resolution No. 1,927 currently regulates foreign investments in depositary receipts based on shares issued by Brazilian companies. Pursuant to this regulation, the ADSs benefit from the certificate of foreign capital registration, which permits Citibank N.A., as depositary, to convert 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 foreign capital registration for five business days from the date of exchange. Thereafter, they will not be able to remit non-Brazilian currency abroad unless they obtain their own certificate of foreign capital registration, or unless they qualify under CMN Resolution No. 2,689, dated January 26, 2000, which entitles certain investors to buy and sell shares on Brazilian stock exchanges without obtaining separate certificates of registration. CMN Resolution No. 4,373, of September 29, 2014, will replace both CMN Resolution No. 1,927 and CMN Resolution No. 2,689 as of March 30, 2015. Further rules will be issued by CVM and the Central Bank regulating foreign investments in ADSs, including with regard to the exchange of ADSs for preferred shares and the remittance of funds arising from the sale of these preferred shares.

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

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Holders of our preferred shares will be subject to, and holders of our ADSs could be subject to, Brazilian income tax on capital gains 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 as assets located in Brazil for purposes of the law, and gains on the disposition of preferred shares, even by nonresidents of Brazil, are expected 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 outside of Brazil by nonresidents of Brazil to another non-Brazilian resident would not be subject to Brazilian taxation, since they would not fall within the definition of assets located in Brazil for purposes of Law 10,833. However, considering the general and unclear scope of Law No. 10,833 and the absence of judicial/administrative court rulings in respect thereto, we cannot be assured that such an interpretation of this law will prevail in the courts of Brazil. Brazilian tax authorities also do not provide clear guidance in this respect, and may treat such transaction as subject to this capital gain tax in Brazil at the rate of 15% (or 25% if the non-Brazilian holder is located in a tax haven jurisdiction), plus potential fines and interest. Therefore, if the income tax is deemed to be due, the gains may be subject to income tax in Brazil at a rate of 15.0% (general taxation) or 25.0% (if the nonresident seller is located in a tax haven, a country which does not impose any income tax, which imposes it at a maximum rate lower than 20.0%, or in which the laws impose restrictions on the disclosure of ownership composition or securities ownership or the identification of the effective beneficiary of income attributed to nonresident holders). See "Taxation—Brazilian Tax Considerations" in the accompanying prospectus.

Shares eligible for future sale may adversely affect the market value of our shares and ADSs.

        All of our shareholders have the ability, subject to applicable Brazilian laws and regulations and applicable securities laws in the relevant jurisdictions, to sell our shares and ADSs. In connection with the global offering, we, Vivendi and our principal shareholders entered into lock-up agreements with the international underwriters of this offering under which neither we nor they may, subject to certain exceptions described in "Underwriting," for a period from the date of each lock-up agreement through 90 days from the date of the execution of the International Underwriting Agreement, directly or indirectly (1) offer, pledge, sell, contract to sell, sell any option or contract to purchase, purchase any option or contract to sell, grant any option, right or warrant to purchase, lend, or otherwise transfer or dispose of, directly or indirectly, any common or preferred shares (including, without limitation, in the form of ADSs) beneficially owned (as such term is used in Rule 13d-3 of the Securities Exchange Act of 1934, as amended (the "Exchange Act")), by such person or any other securities so owned convertible into or exercisable or exchangeable for common or preferred shares (including, without limitation, in the form of ADSs) or (2) enter into any swap or other arrangement that transfers to another, in whole or in part, any of the economic consequences of ownership of common or preferred shares (including, without limitation, in the form of ADSs).

        After these lock-up agreements expire or if they are waived, our ADSs, common or preferred shares will be eligible for sale in the public market. We cannot predict what effect, if any, future sales of our shares or ADSs may have on the market price of our shares or ADSs. Future sales of substantial amounts of such shares or ADSs, or the perception that such sales could occur, could adversely affect the market prices of our shares or ADSs.

If we raise additional capital through an offering of shares, investors' holdings may be diluted.

        We may need to raise additional funds through a capital increase, public or private debt financings, or a new share issuance in connection with our business. Any additional capital raised through the issuance of shares or securities convertible into shares conducted on stock exchanges or through public offerings may be made, according to Brazilian law, without preemptive rights for the holders of our shares, which may result in the dilution of your holdings in our share capital.

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THE GVT ACQUISITION

        On September 18, 2014, we entered into a stock purchase agreement with Vivendi and certain of its controlled companies, or collectively, Vivendi, and with GVTPar, Telefónica and Operating GVT, pursuant to which we agreed to purchase all of the shares of GVTPar, the controlling shareholder of Operating GVT. We refer to this acquisition as the "GVT acquisition." The GVT acquisition was approved by our board of directors on September 18, 2014.

        As consideration for the acquisition, we agreed to pay a portion of the price in cash and a portion in kind, in the form of our common and preferred shares, as follows: (1) €4,663,000,000 to be paid in cash on the closing date, as adjusted pursuant to the stock purchase agreement, and (2) our common and preferred shares amounting to 12% of our total share capital following the capital increase contemplated in the stock purchase agreement (being carried out by means of the global offering) and the merger of shares of GVTPar, which must be in the same proportion as our existing common shares and preferred shares. The total consideration will be paid after the conclusion of (A) this offering, the proceeds of which are expected to be used to pay the cash consideration described in (1) above, and (B) the merger of shares of GVTPar into us. Immediately following Vivendi S.A.'s receipt of the stock consideration, Vivendi S.A. will swap 12% of our outstanding common shares and 0.72% of our outstanding preferred shares for shares of Telecom Italia S.p.A. that are indirectly held by Telefónica and represent approximately 8.3% of the voting capital stock of Telecom Italia S.p.A., consisting of 1.1 million common shares.

        We can provide no assurances that the stock purchase agreement will not be amended or that the terms of the GVT acquisition will not otherwise be changed prior to the consummation of the GVT acquisition.

        In connection with the GVT acquisition, the holders of our common shares and preferred shares (but not our ADSs) as of September 19, 2014 will be granted withdrawal rights. The amount per share to be paid as a result of the withdrawal rights will be determined at the shareholders' meeting that approves the GVT acquisition, which is expected to occur by mid-2015.

        According to Brazilian Law, the GVT acquisition must be approved by both ANATEL and CADE. On December 22, 2014, ANATEL approved the GVT acquisition and imposed certain obligations, which include (1) the maintenance of current services and plans offered by both GVT and Telefônica Brasil for a certain period of time, (2) the maintenance of contracts currently held by GVT clients for a certain period of time, (3) the maintenance of the current geographic scope of the services being provided by both GVT and Telefônica Brasil, requiring, in addition, that the successor company expand its operations to at least ten new municipalities within three years beginning on January 26, 2015; and (4) the waiver of the fixed telephone service (Serviço de Telefonia Fixa Comutável), or STFC license held by GVT within 18 months of ANATEL's decisions, because regulations establish that the same economic group cannot hold more than one STFC license in the same geographic area. In addition, on March 12, 2015, ANATEL granted approval for the subsequent swap transaction pursuant to which Vivendi will exchange all of its voting stake and part of its non-voting stake in Telefônica Brasil for part of Telefónica's indirect stake in Telecom Italia, subject to certain conditions such as the prohibition of Vivendi to increase its stake in Telefônica Brasil. The closing of the GVT acquisition and the swap transaction must occur within 180 days, subject to one renewal for the same period of time.

        Moreover, on December 22, 2014, and March 12, 2015, ANATEL has also authorized the demerger of Telco S.p.A., an operation that will have effects on the swap transaction with Vivendi, by allowing Telefónica to hold, thorough a wholly-owned subsidiary, an indirect ownership in Telecom Italia. Such decision was conditional on the suspension and waiver by Telefónica of all Telefónica's voting rights in Telecom Italia, and, ultimately, on the divestment of the direct ownership to be held by Telefónica in Telecom Italia.

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        On March 25, 2015, CADE's administrative tribunal also approved the GVT acquisition and the demerger of Telco S.p.A., subject to the execution of three merger control agreements: the first between CADE, Telefônica Brasil and GVT, the second between CADE and Telefónica, and the third between CADE and Vivendi. Under such agreements, Telefónica and Telefônica Brasil undertook, among others, the following commitments: (1) to maintain the current services and plans offered by both GVT and Telefônica Brasil for a certain period of time, (2) to maintain the contracts currently held by GVT clients for a certain period of time, (3) to maintain the current geographic scope of the services being provided by both GVT and Telefônica Brasil, and to further extend such operations according to the expansion plan to be presented to ANATEL, (4) to maintain for a certain period of time some specific quality indicators relating to the services of GVT to its clients, (5) to commit with some obligations undertaken by Vivendi under its own agreement with CADE, (6) to waive and suspend all Telefónica's voting rights in Telecom Italia, and, ultimately, (7) to divest all of the direct ownership to be held by Telefónica in Telecom Italia.

        We expect that GVT will pay dividends before the closing of the GVT acquisition, as per the terms of the stock purchase agreement. Such dividends are expected to be funded using part of the proceeds of a new loan that GVT is allowed to enter into prior to its merger with us. Such dividends and the related loan, are reflected in the pro forma financial information included elsewhere in this prospectus supplement.

About GVT

        GVT is a high-growth Brazilian telecommunications company that offers high-speed broadband, fixed telephone and Pay-TV services primarily to high income customers across its target market. GVT began operating as an alternative operator, which functions similarly to a competitive local exchange carrier in the United States, to the local incumbent in Region II (Center and Southeast Brazil) in late 2000, initially servicing 24 cities. Since 2006, GVT has held licenses to operate all types of fixed-line telecommunications services throughout Brazil. As of December 31, 2014, GVT operated in 156 Brazilian cities and in 20 Brazilian states as well as in the Federal District. GVT has historically pursued its growth strategy by expanding its network coverage in cities in which it is already present and expanding its territorial reach to additional key markets located outside Region II, aiming to build a national presence across targeted markets throughout Brazil. In 2013, GVT launched operations in 14 cities in five states with over 16 million inhabitants. GVT also began serving the São Paulo retail market, which is the largest such market in Brazil. In 2014, GVT launched operations in six additional cities across three states, including Araraquara in São Paulo, the first GVT city with 100% of its network based on Gigabit Passive Optical Network, or GPON.

        GVT is one of the leading players in high-speed broadband in Brazil and is the leading high-speed broadband provider in 91.7% of the cities in which it is present, reaching 10.7 million homes in 156 cities. It has a dense and high quality transmission backhaul in key regions of Brazil such as the South, Southeast, Center West and a large part of the Northeast with over 33,000 kilometers of fiber deployed as of December 31, 2014. GVT's last mile architecture is based on FTTC (Fiber to the Cabinet) technology, with broadband commercial speeds of up to 150 Mbps. Leveraging its high quality offerings and competitive pricing, GVT successfully captured nearly 63% of broadband net additions of high-speed broadband in the segment between 12 Mbps and 34 Mbps in 2014. GVT provides services that are complementary to our own, with limited overlap with the services we provide. Such complementary services include fiber broadband to locations in the state of São Paulo (outside of the city of São Paulo, where we already have a large presence) and nationwide. GVT has more than 2.9 million broadband clients, of which almost 91% are located outside the state of São Paulo.

        GVT offers innovative bundles combining high quality and performance at competitive prices for all market sectors (retail, small to medium enterprises and corporate). GVT has delivered broadband speeds to the retail market with differentiated value-added services such as Freedom (an application

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that simulates a fixed telephone call on a smartphone) and GVT Music. In the first quarter of 2013, GVT improved its broadband portfolio by offering a service speed of 25 Mbps and by increasing the highest available speed to up to 150 Mbps. These new speeds are available with "Power Combo GVT," a "triple-play offer" of products combining broadband internet, Pay TV and fixed-line telephone. In 2014, GVT increased the penetration of GPON technology in its network architecture, preparing the infrastructure for the next generation of broadband that will allow speeds of over 500 Mbps. This triple-play offer addresses customers' desire for constant connectivity with quick access to internet content across devices (such as personal computers, tablet computers, smartphones and TVs). In 2013, triple-play bundles accounted for approximately 37% of GVT's sales. By year-end 2014, Pay TV achieved a 29% penetration rate across GVT's broadband customer base. We believe GVT offers a differentiated value proposition for its Pay TV customers given the leading combination of standard channel line-ups with interactive services like Video on Demand, or VoD. GVT's platform also combines pure direct to the home, or DTH products, and hybrid ones that combine DTH and internet protocol, or IP, creating superior overall quality and perceived value.

        The quality of GVT's services is superior to that of its main competitors in terms of upload and download speeds. GVT boasts the latest technology broadband networks with an average speed of 13 Mbps, which is more than twice as fast as the average speeds of its competitors. As a result of its quality and performance leadership, GVT has a 63% market share of all lines with speeds between 12 Mbps and 34 Mbps with 67% of new additions in 2014, boasting a 77% share in the main cities where it operates.

        As part of its strategy to achieve market-leading ARPU, GVT has historically focused its operations and growth in cities that have relatively high average GDP per capita. Given that GVT is a relatively new entrant to the market and operates under an authorization agreement, and is not subject to the requirements of concession contracts, it has been able to selectively enter markets that offer higher profit and return potential rather than restrict its operations to specific markets bound by concession agreements. As a result of this flexibility and GVT's ability to selectively invest in targeted markets, 56% of the cities in which GVT operates are cities that have a higher average GDP per capita than the average of cities where its competitors operate.

        GVT generated revenues of R$5,485 million (US$2,065 million) in 2014 and is the fastest growing telecommunications provider in Brazil in terms of revenue. During 2012 to 2014, its revenue grew at a compound annual growth rate of 12.9%. In 2014, GVT held a 12.3% share of the broadband market, a 54% share of the high speed market (above 12 Mbps), a 10.1% share of the fixed-line market and a 4.5% share of the Pay TV market, according to ANATEL data. GVT has received various brand awards, including the best broadband services by "Info 2014" for the 6th consecutive year, "Consumidor Moderno 2014" as the company that most respects the consumer, "Great Places to Work 2014" and "Brand Finance" awards, among other recognitions for quality and performance from other entities.

        The following table presents GVT's key operational indicators for the periods indicated:

 
  Year Ended December 31,  
 
  2014   2013   2012  
 
  (in thousands)
 

Fixed Access Lines

                   

Fixed voice accesses

    4,368     3,934     3,488  

Residential

    3,640     3,251     2,892  

Corporate

    728     683     596  

Broadband access

    3,005     2,621     2,239  

Pay TV access

    859     643     406  

Total fixed accesses

    8,232     7,198     6,133  

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The Combined Company

        We believe the acquisition of GVT will reinforce our platform as a national provider and further enhance our position as the leading telecommunications company in Brazil, while maintaining the possibility to participate in further consolidation of the telecommunications sector in Brazil. On a pro forma basis, after giving effect to the GVT acquisition, in 2014 we would have been the largest integrated telecommunications company in Brazil in terms of accesses and revenues, with 103.6 million combined total accesses and revenues of R$40,300.2 million. We believe that GVT's recognition as a high quality provider and its market leadership will create significant additional brand equity for our core brands and improve our ability to engage in highly profitable cross-selling across our large mobile client base with a similar income and demographic profile. We also intend to leverage GVT's expertise and operating capabilities to improve the quality of our existing service offerings as well as our customer service and marketing capabilities.

        As a result of the GVT acquisition, we will be the second largest player in terms of broadband accesses, having a market share of 29.4% compared to a market share of 31% for the leading player as of December 31, 2014. When considering speeds higher than 12 Mbps, our market share in ultra-fast broadband would consist of 66% on a national scale, considering both GVT and our current market share. In addition to our strong market share, we expect to leverage GVT's high quality network technology to accelerate our existing growth plans. Our combined infrastructure, product portfolio and commercial capabilities are expected to increase ARPU and reduce churn by maximizing penetration of fixed and mobile products on our combined customer base. In addition, we believe the acquisition of GVT will allow us to realize meaningful synergies by reducing operating costs and streamlining our combined investment plans.

        In particular, we expect to leverage GVT's extensive fiber network located throughout the state of São Paulo to significantly improve our mobile backhaul outside of the city of São Paulo, where we expect to experience a material increase in the number of service locations where we are currently connected via fiber. We will also be able to leverage GVT's existing fiber network to provide mobile services to more remote regions of São Paulo. As a result, we expect that the GVT acquisition will lead to higher revenues (by reaching more customers) and significant economies of scale (by combining our infrastructure and other resources). With respect to fixed telephone services in São Paulo, we expect to optimize our fiber deployment by adopting operational best practices, based on GVT's experience in other areas of Brazil. We also expect to consolidate our backbone and jointly plan its future development with GVT to reduce present and future overlap and costs associated with third party leases.

        In addition, the combination and joint development of our Pay TV businesses is expected to allow us to eliminate duplicate investments and significantly shorten the period within which Pay TV achieves sustainable scale when adopted in new regions. Through GVT, we expect to begin expanding our Pay TV presence in the South and Northeast regions by capitalizing on GVT's solid presence in those regions, as the fourth and third largest player in these regions, with 9% and 8% market share, respectively, as of December 31, 2014.

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USE OF PROCEEDS

        Based on the offering price of R$47.00 per preferred share and the offering price of R$38.47 per common share in the global offering, and after deducting underwriting discounts and commissions and estimated expenses of the offerings that are payable by us, we estimate that the net proceeds from the global offering will be R$15,717 million, or US$5,376 million, translated at an exchange rate of R$2.9236 to US$1.00 reported by the Central Bank on April 27, 2015. Each ADS represents one preferred share. Such amounts differ to those presented in the unaudited pro forma financial information due to changes in exchange rates and other indices that have occurred since the preliminary prospectus supplement dated March 26, 2015.

        We intend to use the net proceeds from the global offering to:

        For a description of the GVT's business and the GVT acquisition, see "The GVT Acquisition."

        Our expected use of the net proceeds from the global offering is based on our current analyses, estimates and expectations relating to future events and trends. Changes in these or other factors may require our actual use of the net proceeds to differ from our current expectations. We may invest any excess net proceeds from the global offering in cash, cash equivalents or marketable securities.

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CAPITALIZATION

        The following table sets forth our consolidated capitalization at December 31, 2014 based on our consolidated financial statements prepared in accordance with IFRS:

        This table should be read in conjunction with, and is qualified in its entirety by reference to, our consolidated financial statements and the related notes thereto incorporated by reference in this prospectus supplement.

 
  At December 31, 2014  
 
  Actual   Actual   As Adjusted   As Adjusted   As Further
Adjusted
  As Further
Adjusted
 
 
  (in millions
of R$)

  (in millions
of US$)(1)

  (in millions
of R$)

  (in millions
of US$)(1)

  (in millions
of R$)

  (in millions
of US$)(1)

 

Indebtedness:

                                     

Current loans, financing, leases and debentures

    2,264.5     852.5     2,264.5     852.5     3,102.9     1,168.2  

Noncurrent loans, financing, leases and debentures

    5,534.7     2,083.7     5,534.7     2,083.7     6,570.8     2,473.7  

Total indebtedness

    7,799.3     2,936.3     7,799.3     2,936.3     9,673.6     3,641.9  

Shareholders' equity:

                                     

Capital(2)

    37,798.1     14,230.1     53,610.1     20,183.0     62,831.7     23,654.8  

Capital reserves

    2,686.9     1,011.6     2,624.1     987.9     2,624.1     987.9  

Income reserves

    1,534.5     577.7     1,534.5     577.7     1,521.0     572.6  

Premium on acquisition of non-controlling interest

    (70.4 )   (26.5 )   70.4     26.5     70.4     26.5  

Other comprehensive income

    232.5     87.5     232.5     87.5     10.6     4.0  

Additional proposed dividends(3)

    2,768.6     1,042.3     2,768.6     1,042.3     2,768.6     1,042.3  

Total shareholders' equity

    44,950.1     16,922.7     60,699.3     22,851.9     69,685.6     26,235.1  

Total capitalization(4)

    52,749.4     19,859.0     68,498.5     25,788.2     79,359.2     29,877.0  

(1)
Translated for convenience only using the commercial offer rate as reported by the Central Bank on December 31, 2014 for reais into U.S. dollars of R$2.6562 per U.S.$1.00.

(2)
Under Brazilian corporate law, the total stock consideration amount exceeding the statutory capital contribution amount recorded in the capital account (when the shares have no nominal value) shall be allocated to the capital reserves account. As of the date of this prospectus supplement, we do not have sufficient information to estimate this allocation; therefore, the total stock consideration amount has been allocated to the capital account.

(3)
On January 30, 2015, our board of directors approved the distribution of dividends in the amount of R$2,750.0 million with respect to the fourth quarter of 2014 to holders of shares as of February 10, 2015. In addition, on April 9, 2015, our board of directors approved a dividend distribution in the amount of R$18.6 million. Preferred shares being offered in this offering will not be eligible to receive either of these dividends. Both distributions of dividends will be paid by December 31, 2015.

(4)
Corresponds to total indebtedness plus total shareholders' equity.

        There have been no material changes to our total capitalization, loans and financings and total shareholders' equity since December 31, 2014 other than as described above.

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DILUTION

        Purchasers of our preferred shares or our ADSs will suffer a dilution in consolidated net book value per share. Dilution is the amount by which the offering price paid by the purchasers of our preferred shares or ADSs will exceed the consolidated net book value per preferred share or ADS after this offering.

        Our historical net book value at December 31, 2014 was approximately R$40.02 per preferred share.

        At December 31, 2014, we had a total net book value of US$15,374.9 million and a net book value per ADS of US$13.69. Net book value per ADS represents the amount of our total consolidated assets less total consolidated liabilities, divided by the total number of shares outstanding at December 31, 2014 (excluding shares held in treasury), translated from reais into U.S. dollars using the selling rate as reported by the Central Bank at April 27, 2015 of R$2.9236 to U.S.$1.00.

        After giving effect to the sale of 237 million preferred shares offered by us in the global offering and the sale of 122 million common shares in a simultaneous offering exempt from registration under the Securities Act, assuming no exercise of the option to purchase additional shares, at the offering prices of US$16.08 per ADS, R$47.00 per preferred share and R$38.47 per common share, and after deducting the underwriting discounts and commissions and transaction expenses payable by us, and after giving effect to the GVT acquisition, our net book value at December 31, 2014 would have been US$23,835.5 million, representing US$14.01 per ADS. At the offering prices mentioned above, this represents an immediate increase in net book value of US$0.32 per ADS to existing shareholders and an immediate dilution in net book value of US$2.06 per ADS and per preferred share to new investors purchasing preferred shares or ADSs in this offering. Dilution for this purpose represents the difference between the price per ADS paid by these purchasers and the pro forma net book value per ADS immediately after the completion of the offering.

        The following table illustrates this dilution for new investors purchasing ADSs in this global offering and after giving effect to the GVT acquisition:

 
  After the global offering   After the global offering and
the GVT acquisition(4)
 
 
  Per preferred
share(1)
  Per ADS(1)   Per preferred
share(1)
  Per ADS(1)  

Offering price per share or ADS

  US$16.08   R$47.00   US$16.08   US$16.08   R$47.00   US$16.08  

Historical net book value per share or ADS at December 31, 2014

  US$13.69   R$40.02   US$13.69   US$13.69   R$40.02   US$13.69  

Increase in net book value to existing shareholders attributable to this offering

  US$0.32   R$0.95   US$0.32   US$0.47   R$1.37   US$0.47  

Pro forma net book value per share or ADS after offering

  US$14.01   R$40.96   US$14.01   US$14.16   R$41.38   US$14.16  

Dilution per share or ADS to new investors in this offering(2)

  US$2.06   R$6.04   US$2.06   US$1.92   R$5.62   US$1.92  

Percentage dilution to new investors(3)

  13 % 13 % 13 % 12 % 12 % 12 %

(1)
Real amounts have been translated solely for your convenience into U.S. dollars at an exchange rate of R$2.9236 per US$1.00, the exchange rate in effect on April 27, 2015. These translations should not be considered representations that any such amounts have been, could have been or

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(2)
Dilution per share or ADS to new investors in this offering is determined by subtracting pro forma net book value per share or ADS after the offering from the offering price per share or ADS.

(3)
Percentage dilution to new investors is calculated by dividing the dilution per share or ADS to new investors in this offering by the offering price per share or ADS.

(4)
Considers the effect of the global offering and the GVT acquisition, from the issuance of 68,597,306 common shares and 133,464,158 preferred shares. Vivendi S.A. will receive 12% of our share capital after the offering and conclusion of the GVT acquisition.

        The price per share in this offering is not related to our shareholders' equity per preferred share. It was based on the market value of the shares as determined by the bookbuilding process.

        For changes to our share capital subsequent to December 31, 2014, see "Description of Capital Stock—Description of Our Bylaws—General" in the accompanying prospectus.

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PRO FORMA FINANCIAL INFORMATION

Introduction to the Unaudited Pro Forma Combined Financial Information

        The following unaudited pro forma combined financial information gives effect to the acquisition of GVT's shares by us.

        The unaudited pro forma combined balance sheet information as of December 31, 2014 combines our historical consolidated balance sheet and that of GVT, giving effect on a pro forma basis to the GVT acquisition as if it had been consummated on December 31, 2014. The unaudited pro forma combined income statement for the year ended December 31, 2014 combines our historical consolidated income statement and that of GVT, giving effect to the acquisition as if it had occurred on January 1, 2014.

        Our historical consolidated financial statements and those of GVT have been prepared in accordance with IFRS, as issued by the International Accounting Standards Board (IASB). The historical consolidated financial information has been adjusted to give effect to pro forma events that are (i) directly attributable to the acquisition, (ii) factually supportable, and (iii) with respect to the income statement, expected to have a continuing impact on the combined results of operations.

        The unaudited pro forma combined financial information has been presented for informational purposes only. The unaudited pro forma combined financial information is not necessarily indicative of the operating results or financial position that would have occurred if the acquisition had been completed at the dates indicated. In addition, the unaudited pro forma combined financial information does not purport to project the future financial position or operating results of the combined company.

        The unaudited pro forma combined financial information should be read in conjunction with the following:

        The unaudited pro forma combined financial information was prepared using the acquisition method of accounting with us being treated as the acquiring entity. Accordingly, consideration paid by us to complete the acquisition of GVT has been allocated to GVT's assets and liabilities based upon the most recently available estimates of fair values.

        The pro forma purchase price allocation is preliminary, subject to further adjustments as additional information becomes available and as additional analyses are performed upon the date of the completion of the acquisition, and has been made solely for the purpose of preparing the unaudited pro forma combined financial information presented below. We estimated the fair value of GVT's assets and liabilities based on our due diligence and information presented in GVT's consolidated financial statements. The determination of the final purchase price allocation can be highly subjective and it is possible that other professionals applying reasonable judgment to the same facts and circumstances could develop and support a range of alternative estimated amounts. Differences between these preliminary estimates and the final acquisition accounting may occur and these differences may have a material impact on the accompanying unaudited pro forma combined financial information and the combined company's future income statement and financial position.

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Unaudited Pro Forma Combined Balance Sheet

(In thousands of reais)

As of December 31, 2014

 
  Telefônica
Brasil
  GVT   Pro forma
Adjustments
   
  Eliminations    
  Pro Forma
Combined
 

Current assets:

    15,517,368     2,135,511     774,828         (22,606 )       18,405,101  

Cash and cash equivalents

    4,692,689     578,485     1,110,953                 6,382,127  

                15,812,000   (a)                  

                (1,552,031 ) (b)                  

                (3,914,052 ) (c)                  

                (123,886 ) (d)                  

                (9,822,613 ) (e)                  

                711,535   (f)                  

Trade accounts receivable, net

    6,724,061     1,342,687             (22,606 ) (p)     8,044,142  

Inventories

    479,801                         479,801  

Taxes recoverable

    2,202,662     164,238                     2,366,900  

Judicial deposits and garnishments

    202,169                         202,169  

Derivative transactions

    613,939         (336,125 ) (f)               277,814  

Prepaid expenses

    303,551     26,824                     330,375  

Other current assets

    298,496     23,277                     321,773  

Noncurrent assets:

   
57,547,920
   
14,232,826
   
12,091,145
       
       
83,871,891
 

Short-term investments pledged as collateral

    125,353                         125,353  

Trade accounts receivable, net

    299,405                           299,405  

Taxes recoverable

    340,205     85,377                     425,582  

Deferred taxes

    144,817         303,170                   447,987  

                42,121   (d)                  

                114,283   (f)                  

                146,766   (g)                  

Judicial deposits and garnishments

    4,543,056     514,147                     5,057,203  

Derivative transactions

    152,843                         152,843  

Prepaid expenses

    26,223                         26,223  

Other noncurrent assets

    94,925     15,823                     110,748  

Investments

    79,805                         79,805  

Property, plant and equipment, net

    20,453,864     8,366,075                     28,819,939  

Intangible assets, net

    21,062,144     206,542     2,631,000   (g)             23,899,686  

Goodwill

    10,225,280     5,044,862     9,156,975                   24,427,117  

                (5,044,862 ) (h)                  

                14,201,837   (i)                  

Total assets:

    73,065,288     16,368,336     12,865,973         (22,606 )       102,276,992  

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Unaudited Pro Forma Combined Balance Sheet (Continued)

(In thousands of reais)

As of December 31, 2014

 
  Telefônica
Brasil
  GVT   Pro forma
Adjustments
   
  Eliminations    
  Pro Forma
Combined
 

Current liabilities:

    16,011,006     3,209,550     (1,293,284 )       (22,606 )       17,904,666  

Personnel, social charges and benefits

    591,381                         591,381  

Trade accounts payable

    7,641,191     1,179,266     (538,700 ) (j)     (22,606 ) (p)     8,259,151  

Taxes, charges and contributions

    1,281,673     516,113                     1,797,786  

Loans, financing and lease

    1,509,471     1,333,295     (608,999 )               2,233,767  

                (1,147,699 ) (c)                  

                538,700   (j)                  

Debentures

    755,047                         755,047  

Dividend and interest on equity

    1,495,321     145,585     (145,585 ) (b)             1,495,321  

Provisions

    674,276     15,761                     690,037  

Derivative transactions

    23,011                         23,011  

Deferred revenue

    717,019                         717,019  

Payable from reverse split of fractional shares

    388,975                         388,975  

Authorization license

    415,308                         415,308  

Other current liabilities

    518,333     19,530                     537,863  

Noncurrent liabilities:

   
12,104,187
   
3,966,000
   
(1,585,727

)
     
       
14,484,461
 

Personnel, social charges and benefits liability                 

    118,829                         118,829  

Taxes, charges and contributions

    67,126     697                     67,823  

Deferred taxes

        214,968     418,491                 633,459  

                (476,049 ) (k)                  

                894,540   (l)                  

Loans, financing and lease

    2,123,126     3,527,412     (2,766,353 ) (c)             2,884,185  

Debentures

    3,411,616                         3,411,616  

Provisions

    4,461,654     130,860     431,664   (l)             5,024,178  

Derivative transactions

    24,133                         24,133  

Deferred income

    482,782                         482,782  

Liabilities for post-retirement benefit plans

    456,129                         456,129  

Authorization license

    763,670                         763,670  

Other noncurrent liabilities

    195,122     92,065     330,471   (m)             617,657  

Shareholders' equity

   
44,950,095
   
9,192,786
   
15,744,984
       
       
69,887,865
 

Capital

    37,798,110     7,671,726     17,501,388                 62,971,224  

                15,812,000   (a)                  

                (7,671,726 ) (n)                  

                9,429,377   (o)                  

                (68,263 ) (d)                  

Capital reserves

    2,686,897     65,717     (65,717 ) (n)             2,686,897  

Income reserves

    1,534,479     1,454,825     (1,468,327 )               1,520,977  

                (1,406,446 ) (b)                  

                (48,379 ) (n)                  

                (13,502 ) (d)                  

Premium on acquisition of noncontrolling interests

    (70,448 )                       (70,448 )

Other comprehensive income

    232,465     518     (222,361 )                 10,623  

                (518 ) (n)                  

                (221,843 ) (f)                  

Additional dividend proposed

    2,768,592                         2,768,592  

Total liabilities and shareholders' equity:

    73,065,288     16,368,336     12,865,973         (22,606 )       102,276,992  

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Unaudited Pro Forma Combined Income Statement

(In thousands of reais, except per share amounts)

Year ended December 31, 2014

 
  Telefônica
Brasil
  GVT   Pro Forma
Adjustments
   
  Eliminations    
  Pro Forma
Combined
 

Net operating revenue

    34,999,969     5,484,743             (184,463 ) (p)     40,300,249  

Cost of sales

    (17,222,675 )   (2,542,399 )           184,221   (p)     (19,580,853 )

Gross profit

    17,777,294     2,942,344             (242 )       20,719,396  

Operating expenses

    (12,661,325 )   (1,817,990 )   (382,663 )       242   (p)     (14,861,736 )

Selling expenses

    (10,466,725 )   (1,108,367 )   (382,663 ) (q)     242   (p)     (11,957,513 )

General and administrative expenses

    (1,803,803 )   (687,022 )                   (2,490,825 )

Equity pickup

    6,940                         6,940  

Other operating expenses, net

    (397,737 )   (22,601 )                   (420,338 )

Operating income before financial income (expenses)

    5,115,969     1,124,354     (382,663 )               5,857,660  

Financial income

    1,983,386     83,643                     2,067,029  

Financial expense

    (2,345,381 )   (274,026 )   46,029   (r)             (2,573,378 )

Income before taxes

    4,753,974     933,971     (336,634 )               5,351,311  

Income and social contribution taxes

    182,685     (302,594 )   114,456   (s)             (5,453 )

Net income for the year

    4,936,659     631,377     (222,179 )               5,345,857  

Basic and diluted earnings per common share

    4.12                               3.03  

Basic and diluted earnings per preferred share

    4.53                               3.33  

Weighted average Shares (Basic and Diluted):

   
1,123,269,244
         
531,581,988
 

(t)

             
1,654,851,232
 

Common shares

    381,335,671           180,465,347                   561,801,018  

Preferred shares

    741,933,573           351,116,641                   1,093,050,214  

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Notes to Unaudited Pro Forma Combined Financial Information

(In thousands of reais, except per share amounts)

Note 1. Description of the Transaction and Basis of Presentation

        On September 18, 2014, we entered into a stock purchase agreement with Vivendi pursuant to which we agreed to purchase all of the issued and outstanding shares of GVTPar, the controlling shareholder of Operating GVT. See "The GVT Acquisition."

        The accompanying unaudited pro forma combined financial information present the pro forma combined financial position and results of operations of the combined company based upon our historical financial statements and those of GVT, after giving effect to the acquisition and adjustments described in these footnotes, and are intended to reflect the impact of the acquisition on us.

        The unaudited pro forma combined balance sheet reflects the acquisition as if it had been consummated on December 31, 2014 and includes pro forma adjustments for our preliminary valuations of certain intangible assets, as well as the issuance of debt and equity. The unaudited pro forma combined income statement for the year ended December 31, 2014 reflects the acquisition as if it had occurred on January 1, 2014.

        We expect to incur significant costs associated with integrating our and GVT's businesses. The unaudited pro forma combined financial information does not reflect the cost of any integration activities or benefits that may result from synergies that may be derived from any integration activities. In addition, the unaudited pro forma combined income statement does not reflect one-time fees and expense of approximately R$20.5 million payable by us as a result of the acquisition of GVT. Transaction costs of approximately R$103.4 million associated with the offering of shares are reflected in the unaudited pro forma combined balance sheet.

        We have not yet finalized formal plans for combining the two companies' operations. Accordingly, additional liabilities may be incurred in connection with the business combination and any ultimate restructuring. These additional liabilities and costs have not been contemplated herein because information necessary to reasonably estimate such costs and to formulate detailed restructuring plans is not available. These costs will be expensed as incurred in future periods.

Note 2. Accounting Policies

        Upon completion of the acquisition, we will review GVT's accounting policies. As a result of such review, we may identify differences between the accounting policies of GVT, that when conformed to ours, could have a material impact on the unaudited pro forma combined financial information. At this time, we are not aware of any difference that would have a material impact on the unaudited pro forma combined financial information, other than those reflected above.

        The unaudited pro forma combined balance sheet has been adjusted to reflect the allocation of the purchase price to identifiable net assets acquired and the excess purchase price to goodwill. The preliminary estimates of (i) the consideration expected to be transferred; and (ii) the purchase price allocation, are as presented below.

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Notes to Unaudited Pro Forma Combined Financial Information (Continued)

(In thousands of reais, except per share amounts)

Note 3. Estimate of Consideration Expected to be Transferred and Purchase Price Allocation

        The following is a preliminary estimate of the consideration expected to be transferred and purchase price allocation:

Estimated cash consideration
   
   
 

Estimated cash consideration as per the stock purchase agreement (4,663 million Euros translated into reais using an exchange rate of R$3.513 per Euro at March 25, 2015)

        R$ 16,381,585  

(–) Net Debt Adjustments (i)

          (6,558,972 )

Total estimated cash consideration

        R$ 9,822,613  

Estimated contingent consideration as per the stock purchase agreement

         
330,471
 

Estimated stock consideration

   
 
   
 
 

Number of Telefônica Brasil S.A.'s common shares expected to be issued

   
67,416,122
       

Multiplied by the market price per share of Telefônica Brasil S.A.'s common shares

  R$ 41.42        

  R$ 2,792,376        

Number of Telefônica Brasil S.A.'s preferred shares expected to be issued

    131,166,026        

Multiplied by the market price per share of Telefônica Brasil S.A.'s preferred shares

  R$ 50.60        

  R$ 6,637,002        

Total estimated stock consideration (ii)

          9,429,377  

Total estimated consideration to be transferred to Vivendi

        R$ 19,582,461  

(–) Estimated gain on cash flow hedge (iii)

          (711,535 )

Total estimated consideration to be transferred adjusted for gain on cash flow hedge

        R$ 18,870,926  

(i)
As per the stock purchase agreement, the cash consideration will be adjusted for GVT's debt balance (the "Net Debt Adjustment") as of the closing date of the transaction.. For purposes of the pro forma financial information the Net Debt Adjustment as per the stock purchase agreement has been calculated based on December 31, 2014 balances, except for Intragroup Debt, amounting to approximately 1,110 million euros which has been translated into reais at the exchange rate of R$3.5131/EUR1.00 at March 25, 2015.

(ii)
Represents the market price of Telefônica Brasil S.A.'s common shares and preferred shares as of March 25, 2015. Using the stock price of Telefônica Brasil S.A. for the past year, a range of possible outcomes was determined that appeared reasonable in light of the market volatility, based on daily change in stock price and its associated standard deviation. Based on such volatility, a 1% change to 15% change in the market price would change the estimated consideration transferred by R$94 million to R$1,414 million, respectively.

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Notes to Unaudited Pro Forma Combined Financial Information (Continued)

(In thousands of reais, except per share amounts)

Note 3. Estimate of Consideration Expected to be Transferred and Purchase Price Allocation (Continued)

(iii)
Estimated cash to be received upon settlement of cash flow hedge of a highly probable forecast transaction. See Note 33 to our 2014 audited financial statements.

Estimate of assets to be acquired and liabilities to be assumed:

 
  Estimated
Fair Value
 

Assets

       

Cash and cash equivalents

    578,485  

Trade accounts receivable, net

    1,342,687  

Property, plant and equipment

    8,366,075  

Intangible assets

    2,837,542  

Other assets

    976,542  

Total estimated fair value of assets to be acquired

  R$ 14,101,241  

Liabilities

       

Trade accounts payable

    1,179,266  

Taxes, charges and contributions

    516,810  

Loans, financing and lease

    6,412,738  

Deferred taxes

    633,459  

Provisions

    562,524  

Other liabilities

    127,355  

Total estimated fair value of liabilities to be assumed

  R$ 9,432,152  

Net identified assets to be acquired

  R$ 4,669,089  

Goodwill

    14,201,837  

Total estimated consideration to be transferred adjusted for gain on cash flow hedge

  R$ 18,870,926  

        Upon completion of the fair value assessment, we anticipate that the estimated consideration to be transferred and its allocation may differ from that outlined above primarily due to changes in the fair value of the consideration to be transferred, as well as the fair value of assets acquired and liabilities assumed between the date of the preliminary assessment and that of our final assessment.

        The estimate of the consideration to be transferred does not reflect any adjustment related to the fluctuation of the working capital balance, as per the stock purchase agreement, as the information required to estimate such adjustment will only be available upon the consummation of the transaction.

Note 4. Pro Forma Adjustments

Pro Forma Adjustments on Balance Sheet

(a)
Shares issued by Telefônica Brasil S.A., to be subscribed in cash, the proceeds of which are to be used in the acquisition of GVT.

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Notes to Unaudited Pro Forma Combined Financial Information (Continued)

(In thousands of reais, except per share amounts)

Note 4. Pro Forma Adjustments (Continued)

(b)
Settlement of estimated dividends payable to Vivendi upon closing of the acquisition transaction, as per the terms of the stock purchase agreement.

(c)
Settlement of GVT's current and non-current intragroup debt with Vivendi, expected upon completion of the acquisition, as per the terms of the stock purchase agreement.

(d)
Estimated direct transaction costs of approximately R$123,886 to be paid in cash as follows:

i.
Direct costs for issuance of shares described in (a) above for approximately R$68,263, net of tax

ii.
Non-recurring direct acquisition costs to be recognized in income for approximately R$13,502, net of tax

iii.
Recognition of a deferred tax asset on items "i" and "ii" above for approximately R$42,121.

(e)
Estimated cash consideration to be transferred to Vivendi.

(f)
Estimated cash received upon settlement of cash flow hedge on a highly probable forecast transaction as follows (See Note 33 to our 2014 audited financial statements):

i.
Estimated cash to be received from financial institution upon settlement of cash flow hedge of approximately R$711,535, net of related deferred tax

ii.
De-recognition of derivative cash flow hedge of R$336,125

iii.
Recycling of gain upon settlement of the cash flow hedge recorded in comprehensive income to cost of acquisition of approximately R$221,843, net of taxes

iv.
Recycling deferred tax liabilities recognized on "ii" above of approximately R$114,283

(g)
Estimated fair value adjustment on intangible assets acquired as follows:

 
  Estimated fair
value of Intangible
assets acquired
(in thousands of reais)
  Estimated
average useful
lives (years)
  Estimated twelve
months amortization
expense using the
straight line method
(in thousands of reais)
 

Customer relationships

    2,435,000     7.39     343,463  

Broadband—consumer and business

    898,000     9     99,778  

Pay TV—consumer

    284,000     5     56,800  

Voice

    1,115,000     7     159,286  

Other (large)

    138,000     5     27,600  

Trademark

    196,000     5     39,200  

    2,631,000           382,663  
(h)
Elimination of goodwill recorded by GVT.

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Notes to Unaudited Pro Forma Combined Financial Information (Continued)

(In thousands of reais, except per share amounts)

Note 4. Pro Forma Adjustments (Continued)

(i)
Recognition of goodwill as a result of the acquisition of GVT.

(j)
Reclassification of a portion of trade accounts payable to loans and financing due to accounting policy alignment.

(k)
Elimination of deferred tax liability recognized by GVT in relation to tax benefit arising from deductible goodwill upon the prior acquisition of GVT by Vivendi.

(l)
Recognition of contingent liabilities at fair value and related deferred tax asset of R$146,766.

(m)
Estimated fair value of contingent consideration to be paid for the acquisition of GVT. See Note 3 above.

(n)
Elimination of historical equity accounts of GVT, including non-distributable legal reserves of R$ 48,379.

(o)
Fair value of shares to be issued by Telefônica Brasil S.A. as stock consideration to Vivendi. See Note 3 above. Under Brazilian corporate law the total stock consideration amount exceeding the statutory capital contribution amount recorded in the Capital account (when the shares have no nominal value) shall be allocated to the Capital Reserves account. At this moment we do not have sufficient information to estimate this allocation; therefore, the total stock consideration amount has been allocated to the Capital account.

(p)
Elimination of balances and transactions between GVT and Telefônica Brasil S.A., mainly related to interconnection fees for the placement and termination of calls.

Pro Forma Adjustments on Income Statement

(q)
Additional amortization expense related to acquired intangible assets recognized at estimated fair values. See note (g), above.

(r)
Elimination of interest expense related intragroup debt with Vivendi, which will be settled upon completion of the acquisition. See note (c) above.

(s)
Estimated income and social contribution tax impact on pro forma adjustments to the income statement using a statutory rate of 34%.

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Notes to Unaudited Pro Forma Combined Financial Information (Continued)

(In thousands of reais, except per share amounts)

Note 4. Pro Forma Adjustments (Continued)

Pro Forma Earnings per Share

(t)
Pro forma adjustment to reflect the issuance of shares in connection with the acquisition of GVT as if such shares were outstanding as of January 1,2014:

 
  Common shares   Preferred shares   Total  

Weighted average number of shares outstanding prior to the acquisition of GVT

    381,335,671     741,933,573     1,123,269,244  

Estimated shares to be issued for the acquisition of GVT

                   

Effect of estimated shares to be issued to Telefónica and to the public to finance the acquisition of GVT

    113,049,225     219,950,615     332,999,840  

Effect of estimated shares to be issued as stock consideration to Vivendi in connection with the acquisition of GVT

    67,416,122     131,166,026     198,582,148  

Total estimated shares to be issued for the acquisition of GVT

    180,465,347     351,116,641     531,581,988  

Total weighted average shares outstanding after giving effect to the above

    561,801,018     1,093,050,214     1,654,851,232  

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INDUSTRY OVERVIEW

Macroeconomic Backdrop

        Brazil is the largest Latin American nation and one of the largest countries in the world in terms of area, population and GDP. Brazilian GDP was approximately $2.249 trillion and US$2.246 trillion in 2013 and 2014, respectively, and some sources expect negative GDP growth in 2015. According to the World Bank, Brazilian GDP per capita increased from US$4,451 to US$5,823 from 2004 to 2014 and is projected to reach approximately US$6,130 by 2020 according to Trading Economics, suggesting upside potential from continued income per capita growth and associated improvements in disposable income and purchasing power.

        In 1994 Brazil created the Plano Real, or the "Real Plan", when sweeping measures were implemented to stabilize the economy, control inflation and promote growth. This plan centered around three critical policy pillars: explicit inflation targets, floating exchange rate regime and primary budget surplus targets. Against this macroeconomic policy backdrop, the Brazilian economy performed well over the last decade: from 2004 to 2014, Brazil's GDP grew at an average annual rate of approximately 15.1%, although the country is currently in an economic recession and has been since 2014. These policies, coupled with favorable global trends, led to the substantial growth of Brazil's middle class, with a large population migrating from lower income classes to "Class C" (a social group that includes families with monthly incomes between R$2,004 and R$8,640), which represented 118 million people in 2013.

        This growth trend in the middle class favors the expansion of the subscriber base, growth in the use of services and an increase in the sales volume of services, which we believe represent opportunities for the telecommunications sector.

The Brazilian Telecom Industry

        The Brazilian telecom industry is the largest among Latin American countries in revenues and number of subscribers and one of the largest telecom markets in the world. According to data from the OVUM Telecommunications Forecasts and Kagan Global Multichannel Forecasts, the combined revenue from Mobile Data and Voice, Fixed Line Voice, Fixed Broadband and Pay-TV in Brazil is expected to grow 4% annually from 2014 to 2017. Market growth will be mainly supported by the Mobile Data and Broadband markets. The following data illustrate the historical and forecasted Brazilian telecommunications market revenue evolution by segment.


Brazilian Telecom Market Revenue
(US$ Bn)

GRAPHIC


Source: OVUM and SNL Kagan

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Competitive Overview

        We believe that our strong competitive position in the Brazilian market is appropriately reflected in the data below, which is published by Teleco, a Brazilian consultancy that produces consolidated market data for many of the industry's leading carriers, which is widely used for the purpose of benchmarking comparative performance across carriers and across products. The following data also highlights GVT's strong positioning in its core product offering.

        The following charts illustrate our competitive positioning with respect to financial performance in 2014:


Net Revenue
(R$ Billion)

GRAPHIC


Source: Teleco


EBITDA
(R$ Billion)

GRAPHIC


Source: Teleco

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Mobile

        According to the IHS World Industry Service data base, Brazil was the third largest telecommunications market worldwide in terms of total sales in 2014, as illustrated by the following chart:


World's Largest Telecom Services Markets
(Total Sales—US$Bn)

GRAPHIC

        In December 2014, based on ANATEL data, Brazil had approximately 281 million mobile users (the number of which users is greater than the population of Brazil because many individuals maintain service plans with multiple carriers), of which 24% were users of postpaid services and 76% were users of prepaid services. Since 2011, the total number of mobile subscribers grew by 16%, representing a compound average growth rate of 5.0%.


Brazil Total Mobile Subscribers

GRAPHIC


Note:

(1)
Subscribers per Habitants

Source: ANATEL

        We are the market leader in terms of total mobile subscribers. Our base of 80 million subscribers represents a 28% market share. In the postpaid segment, we have an even stronger competitive position, leading the market with 42% of total subscribers. As this market is more profitable and expected to grow faster than the prepaid market, we intend to continue consolidating the market and gaining share, particularly in light of our strong product offering and coverage quality. We highlight that our ARPU for this segment is four times higher than prepaid and consists of one-third of the prepaid churn. From 2010 to 2014, the postpaid market grew by 89%, increasing from 36 million to 68 million users. Of this total increase, we captured the highest share of net additions, adding

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15 million postpaid subscribers, the highest share of any player in the industry. Over the same period, the prepaid market grew 27%.

            Mobile Market Share
               
(Subscribers Base)
  Mobile Post-Paid Market Share
(Net Additions)



GRAPHIC






Source: ANATEL, from January 2010 to December 2014

 



GRAPHIC






Source: ANATEL, as of December 2014

        We believe that there is significant room for expansion of the Brazilian telecommunication industry, given that the market remains in a relatively early stage compared to developed markets. For instance, Brazil was only the 13th country in terms of penetration of subscribers in 2013, according to "Global Wireless Matrix."

        The stronger potential growth in postpaid subscribers in Brazil also contributes to a relevant increase in mobile data adoption. In the last two years, postpaid mobile subscribers in Brazil grew on average 15% against an average growth of 4% of total mobile subscribers. We expect this level of performance to be sustained in the coming years driven by larger coverage, new services in 4G technology and increasing migration of customers from the prepaid segment.


Smartphone Penetration Ranking

GRAPHIC

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        Smartphone penetration highlights additional potential for future expansion, with Brazil ranking 30th globally with only 27% penetration compared to the United States, for instance, which has approximately 55% penetration. This low penetration, particularly of smartphones, underscores the untapped potential in the Brazilian market, both in terms of number of subscribers and the number of services utilized by each subscriber.

        We are making targeted investments to maintain our leading quality positioning and actively monitor global telecommunications trends to ensure that we are always ahead of the technology curve.

Brazil Wireless Data Traffic
(PB per Month)
  Brazil 3G & 4G Subscribers
(Million)


GRAPHIC

 


GRAPHIC

Source: CISCO VNI

        In addition to the favorable demographic and penetration trends, the Brazilian government has created favorable tax incentives that are positively impacting growth of smartphone penetration, mobile broadband networks development and investments in the deployment of new technologies.

        We possess a complete portfolio of spectrum to provide high-quality 3G and 4G services, including the largest available slots of spectrum in the 2.5 GHz and 700 MHz spectrum frequencies. With this enhanced portfolio of spectrum, we believe that we will be able to offer our clients high quality mobile broadband services, allowing us to increase market share and the sale of data value-added services.

        Furthermore, in 2014 we were the market leader of the postpaid segment, with more than 40% of the market in Brazil, almost twice as much as the second player.


Mobile Accesses
(# Million)

GRAPHIC


Source: Teleco

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Broadband

        Brazil is the 8th largest market for fixed Broadband, according to Teleco. As of December, 2014, the Brazilian fixed broadband segment had 24 million subscribers, which represents a total penetration of 11% and a CAGR of 12.1% since 2011, according to ANATEL.

        We offer this service through ADSL, cable and FTTH technologies in the state of São Paulo. We differentiate our services with this technology by currently providing bundles with broadband of up to 200 Mpbs combined with the Pay TV service, which uses IPTV solutions, and fixed voice services. We believe that the GVT acquisition will reinforce our positioning in the segment as we will be able to combine our subscriber base and take advantage of complementary services.


Brazil Total Broadband Users

GRAPHIC


Note:

(1)
Subscribers per Habitants

Source: ANATEL

        As a result of the GVT acquisition, we will be the second largest player in terms of broadband accesses with 29% of market share, compared to 31% for the first player. In addition to our strong share, we expect to be able to leverage GVT's superior network technology and unmatched quality to speed our growth and drive share gains.


Broadband Market Share
(Number of Acces)

GRAPHIC


Note:

(1)
Considers numbers pro-forma for the acquisition of GVT

Source: ANATEL as of December 2014

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        GVT's last mile network architecture is based on FTTC (Fiber to the Cabinet) technology, with broadband commercial offers of up to 100 Mbps. Leveraging its high quality offering and competitive pricing, GVT successfully captured nearly 48% of last twelve months net additions in the 12 Mbps+ segment. In addition, approximately 70% of GVT broadband base has download speeds of 12 Mbps+, compared to only 11% and 3% for our closest competitors in terms of high speed (12 Mbps+) subscribers.

        In terms of broadband penetration, in 2013 Brazil had 10 subscribers per 100 inhabitants according to ITU, significantly below levels in the United States, China and the United Kingdom with 29, 14 and 36 subscribers per 100 inhabitants, respectively. We believe that strong demand drivers coupled with low relative penetration will create significant growth in the coming years.

        In addition to broad demand drivers, geographical concentration of existing broadband infrastructure provides significant untapped opportunities in currently unserved and underserved areas. According to ANATEL, the Southeast, South and Northeast regions have the highest number of accesses, with 60%, 17% and 12%, respectively, of the Brazilian market. Given our strong positioning in the Southeast region, with 29% market share, the GVT acquisition will position us to take advantage of targeted growth opportunities in the South and Northeast regions, where GVT has approximately 25% and 24% of market share, respectively, according to ANATEL.

        The following data illustrate our competitive positioning with respect to broadband accesses in 2014:


Broadband Accesses
(# Million)

GRAPHIC


Source: Teleco

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Pay TV

        Brazil is the 13th largest market for Pay TV subscribers. As of December 2014, the Brazilian Pay TV segment had 20 million subscribers, which represents a total penetration of 9% and a 15.4% CAGR since 2011, according to ANATEL.


Brazil Total Pay-TV Subscribers

GRAPHIC


Note:

(1)
Subscribers per Habitants

Source: ANATEL

        As a result of the GVT acquisition, we will be the third largest player in the Pay TV segment, with approximately 8% market share. We believe that this acquisition will accelerate our consolidation of the segment as we will be able to combine our subscriber bases and take advantage of complementary positioning. Through GVT, we will begin expanding our Pay TV presence in the South and Northeast regions by capitalizing on GVT's solid presence, as the fourth and third largest player in these regions, with 9% and 8% market share, respectively, as of September 2014.


Pay-TV Market Share
(Subscriber Base)

GRAPHIC


Note:

(1)
Considers numbers pro-forma for the acquisition of GVT

Source: ANATEL

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        Pay TV market share and conversion is highly correlated to quality, technology, and breadth of offering. We believe that GVT has a differentiated value proposition from its 100% HD Pay TV penetration since it combines standard channel line ups, as well as interactive services like VoD. GVT's platform also combines pure DTH products and hybrid ones, including IP-based interactive content, creating superior overall quality and perceived value. We believe that combining GVT's high quality Pay TV product with our existing platform will allow us to create customized and differentiated product offerings that will improve our profitability and minimize churn.

        The following data illustrate our competitive positioning with respect to Pay-TV accesses in 2014:


PayTV Accesses
(# Million)

GRAPHIC


Source: Teleco

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PRINCIPAL SHAREHOLDERS

        In accordance with our bylaws, we have two classes of capital stock authorized and outstanding: common shares (ações ordinárias) and preferred shares (ações preferenciais). Our common shares have full voting rights. Our preferred shares have voting rights only under limited circumstances. As of the date of this prospectus supplement, Telefónica owned 25.69% of our common shares, Telefónica Internacional owned 7.57% of our common shares, SP Telecomunicações owned 58.37% of our common shares and Telefónica Chile owned 0.18% of our common shares. Since Telefónica Internacional is a wholly owned subsidiary of Telefónica, the share capital of SP Telecomunicações is divided between Telefónica (39.40%) and Telefónica Internacional (60.60%) and Telefónica owns 97.89% of the share capital of Telefónica Chile S.A., Telefónica has effective control over 91.81% of our outstanding common shares. Accordingly, Telefónica has the ability to control the election of our Board of Directors and to determine the direction of our strategic and corporate policies. None of Telefónica, Telefónica Internacional, SP Telecomunicações or Telefónica Chile S.A. has any special voting rights beyond those ordinarily accompanying the ownership of our common and preferred shares.

        The following tables set forth information relating to the ownership of common and preferred shares by Telefónica, SP Telecomunicações, Telefónica Internacional and our officers and directors as of the date of this prospectus supplement. We are not aware of any other shareholder that beneficially owns more than 5% of our common shares.

Shareholder's Name
  Number of
common shares
owned
  %
Outstanding
  Number of
common shares
owned(1)
  %
Outstanding
  Number of
common shares
owned(2)
  %
Outstanding
 

SP Telecomunicações

    222,595,149     58.37 %   294,465,661     58.54 %   294,465,661     51.51 %

Telefónica

    97,976,194     25.69 %   129,610,302     25.77 %   129,610,302     22.67 %

Telefónica Internacional

    28,859,918     7.57 %   46,746,635     9.29 %   46,746,635     8.18 %

Telefónica Chile S.A. 

    696,110     0.18 %   920,866     0.18 %   920,866     0.16 %

Vivendi

                    68,597,306     12.00 %

All directors and executive officers as a group

    1,511         1,511         1,511      

Subtotal

    350,128,883     91.82 %   471,744,975     93.78 %   540,342,281     94.52 %

Total (all shareholders)

    381,335,671     100.00 %   503,046,911     100.00 %   571,644,217     100.00 %

 

Shareholder's Name
  Number of
preferred shares
owned
  %
Outstanding
  Number of
preferred
shares
owned(3)
  %
Outstanding
  Number of
preferred
shares
owned(4)
  %
Outstanding
 

SP Telecomunicações

    29,042,853     3.91 %   38,537,435     3.94 %   38,537,435     3.46 %

Telefónica

    179,862,845     24.24 %   238,662,942     24.38 %   238,662,942     21.46 %

Telefónica Internacional

    271,707,098     36.62 %   360,532,578     36.84 %   360,532,578     32.42 %

Telefónica Chile S.A. 

    11,792         15,647         15,647      

Vivendi

                    133,464,158     12.00 %

All directors and executive officers as a group

    1,305         1,305         1,305      

Subtotal

    480,625,893     64.78 %   637,749,907     65.16 %   771,214,065     69.34 %

Total (all shareholders)

    741,933,573     100.00 %   978,737,161     100.00 %   1,112,201,319     100.00 %

(1)
Amounts adjusted to reflect the shares issued in the Brazilian offering.

(2)
Amounts adjusted to reflect the Brazilian offering and the GVT acquisition.

(3)
Amounts adjusted to reflect the shares issued in the global offering.

(4)
Amounts adjusted to reflect the global offering and the GVT acquisition.

        Telefónica's shares are traded on various stock 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 such as media content creation, production, distribution, marketing and call centers.

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UNDERWRITING

        We are offering the preferred shares and the ADSs described in this prospectus supplement and the accompanying prospectus through the international underwriters named below. Itau BBA USA Securities Inc., Morgan Stanley & Co. LLC, Merrill Lynch, Pierce, Fenner & Smith Incorporated, and Santander Investment Securities Inc. are the representatives of the international underwriters in the United States and other countries outside Brazil. The preferred shares are being offered directly or in the form of ADSs. The preferred shares purchased by investors outside Brazil will be settled in Brazil and paid for in reais, and the offering of these preferred shares is being underwritten by the Brazilian underwriters named below. Preferred shares sold in the form of ADSs will be paid for in U.S. dollars at the U.S. dollar public offering price per ADS set forth on the cover page of this prospectus supplement.

        The offering of the preferred shares by the international underwriters is subject to receipt and acceptance and subject to the international underwriters' right to reject any order in whole or in part.

International Offering

        We have entered into an international underwriting agreement with the international underwriters. Subject to the terms and conditions of the international underwriting agreement, each of the international underwriters will severally agree to purchase the number of ADSs listed next to its name in the following table:

International Underwriters
  Number of ADSs  

Itau BBA USA Securities, Inc. 

    5,137,693  

Morgan Stanley & Co. LLC

    4,891,095  

Merrill Lynch, Pierce, Fenner & Smith
                      Incorporated

    4,292,214  

Santander Investment Securities Inc. 

    4,045,616  

Banco Bradesco BBI S.A.(1)

    1,627,547  

Banco BTG Pactual S.A.—Cayman Branch(2)

    1,627,547  

Credit Suisse Securities (USA) LLC

    1,627,547  

Goldman, Sachs & Co. 

    1,627,547  

HSBC Securities (USA) Inc. 

    1,134,351  

J.P. Morgan Securities LLC

    1,627,547  

Barclays Capital Inc. 

    1  

BBVA Securities Inc. 

    976,526  

Scotia Capital (USA) Inc. 

    976,526  

UBS Securities LLC

    1  

Total

    29,591,758  

(1)
Banco Bradesco BBI S.A. is not a broker-dealer registered with the SEC and therefore may not make sales of any preferred shares (including in the form of ADSs), in the United States or to U.S. persons except in compliance with applicable U.S. laws and regulations. Bradesco Securities, Inc., a U.S. registered broker-dealer, will act as agent on behalf of Banco Bradesco BBI S.A. in connection with the sale of any ADSs in the United States.

(2)
Banco BTG Pactual S.A.—Cayman Branch is not a broker-dealer registered with the SEC and therefore may not make sales of any preferred shares (including in the form of ADSs) in the United States or to U.S. persons except in compliance with applicable U.S. laws and regulations. To the extent that Banco BTG Pactual S.A.—Cayman Branch

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Brazilian underwriters
  Number of
Preferred Shares
  Number of
Common Shares
 

Banco Itaú BBA S.A. 

    39,177,478     20,136,263  

Banco Morgan Stanley S.A. 

    39,177,478     20,136,263  

Bank of America Merrill Lynch Banco Múltiplo S.A. 

    30,139,998     15,491,220  

Banco Santander (Brasil) S.A. 

    30,139,998     15,491,220  

Banco Bradesco BBI S.A. 

    12,125,286     6,232,100  

Banco BTG Pactual S.A. 

    12,125,286     6,232,100  

Banco de Investimentos Credit Suisse (Brasil) S.A. 

    12,125,286     6,232,100  

Goldman Sachs do Brasil Banco Multiplo S.A. 

    12,125,286     6,232,100  

HSBC Bank Brasil S.A.—Banco Múltiplo

    12,125,286     6,232,100  

Banco J.P. Morgan S.A. 

    12,125,286     6,232,100  

Banco Barclays S.A.(1)

    12,708,460     6,531,837  

UBS Brasil Corretora de Câmbio, Títulos e Valores Mobiliários S.A.(1)

    12,708,460     6,531,837  

Total

    236,803,588     121,711,240  

(1)
Does not reflect a firm underwriting commitment.

        The international underwriters and the Brazilian underwriters may transfer preferred shares between the two syndicates after the date of the prospectus, and the final allocation between preferred shares and ADSs may change accordingly.

        The international and Brazilian underwriters have entered into an intersyndicate agreement which governs specified matters relating to the global offering. Under this agreement, each international underwriter has agreed that, as part of its distribution of ADSs and subject to permitted exceptions, it has not offered or sold, and will not offer or sell, directly or indirectly, any ADSs or distribute any prospectus relating to the ADSs to any person in Brazil or to any other dealer who does not so agree. Each Brazilian underwriter similarly has agreed that, as part of its distribution of common shares and preferred shares, it has not offered or sold, and will not offer to sell, directly or indirectly, any common shares or preferred shares or distribute any prospectus relating to the common shares or preferred shares to any person outside Brazil or to any other dealer who does not so agree, except for investors located in the United States and other countries that are authorized to invest in Brazilian securities under the requirements established by the CMN, the Central Bank and the CVM and for other permitted exceptions. These limitations do not apply to stabilization transactions or transactions among the underwriting syndicates in accordance with the provisions of the intersyndicate agreement.

Priority Subscription Rights of Existing Shareholders

        Each of our existing preferred shareholders as of April 1, 2015, the first record date, was given the opportunity to subscribe for preferred shares in the Brazilian offering on a priority basis. The priority subscription period for all shareholders, began on April 2, 2015 and ended on April 17, 2015. Priority subscriptions were allocated based on the number of preferred shares each shareholder owned as of April 16, 2015, the second record date, and each of our existing shareholders was eligible to subscribe for up to the number of preferred shares necessary to avoid dilution of such shareholder's pro rata stake in the preferred shares of our company held by such shareholder. A holder of preferred shares could only subscribe for preferred shares in the priority subscription.

        Priority subscription was not available to holders of ADSs. An ADS holder that wished to be eligible for priority subscription was required to make the necessary arrangements to cancel such

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holder's ADSs and take delivery of the underlying preferred shares in a Brazilian account. An ADS holder was required to comply with applicable Brazilian regulations to hold the preferred shares in a Brazilian account, which such ADS holder was required to review with appropriate legal or other advisors. In order to become eligible to participate in the priority subscription in Brazil, an ADS holder was required to surrender their ADSs to Citibank, as Depositary, pay the Depositary's cancellation fee of US$0.05 per ADS surrendered, and take delivery of the underlying preferred shares, as described above, by March 31, 2015 in order to become a record holder by April 1, 2015. An ADS holder wishing to participate in the priority subscription was required to verify the applicable procedures for surrender of ADSs with its broker. A holder of our preferred shares located outside Brazil was required to make certain representations set forth in the applicable reservation request concerning compliance with local law in the holder's jurisdiction in order to participate in the priority subscription. The priority subscription was not available to a shareholder if the subscription would violate local laws of the shareholder's jurisdiction. It was each shareholder's responsibility to determine its eligibility under local laws of its jurisdiction.

        The price of the preferred shares subscribed pursuant to the priority subscription is the same as the price of such shares to the public in the global offering, which was determined upon completion of the marketing of the offering. The price determination for our preferred shares was made by agreement between us and the underwriters based on the process for evaluating investor demand known as bookbuilding as well as the price of our preferred shares on the BM&FBOVESPA.

        In order to participate in the priority subscription, a shareholder eligible to participate was required to submit the applicable reservation request to a participating institution in the Brazilian offering between April 2, 2015 and April 17, 2015, indicating a desired maximum investment amount in number of shares. The eligible shareholder could also limit the subscription to a maximum price per preferred share. By submitting the applicable reservation request to a participating institution in the Brazilian offering, the shareholder was contractually obligated to purchase shares at a price to be determined on the pricing date based on the bookbuilding process as described above. Any shareholder wishing to participate in the priority subscription was required to also consult its broker in order to verify its broker's applicable internal procedures relating to eligibility.

        A shareholder that participated in the priority subscription agreed to pay for the preferred shares at the price determined on the pricing date in cash in reais.

Option to Purchase Additional Shares

        We are granting Merrill Lynch, Pierce, Fenner & Smith Incorporated an option on behalf of the international underwriters, exercisable at any time for 10 days following the date of this final prospectus supplement, for the international underwriters to purchase up to 6,282,660 preferred shares in the form of ADSs, minus the number of preferred shares sold by us pursuant to the Brazilian underwriters' option to purchase additional shares, at the initial public offering price, less the underwriting discounts and commissions. If any additional ADSs are purchased with this option to purchase additional shares, the international underwriters will offer the additional ADSs on the same terms as those ADSs that are being offered pursuant to the international offering.

Commissions and Discounts

        Shares and ADSs sold by the international underwriters to the public will initially be offered at the offering price set forth on the cover of this prospectus supplement. If all the shares are not sold at the public offering price, the representatives may change the offering price and the other selling terms. Sales of shares made outside of the United States may be made by affiliates of the international underwriters.

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        The following table shows the per share and total underwriting discounts and commissions we have agreed to pay to the international underwriters and the Brazilian underwriters and estimated expenses we will pay in connection with the global offering, assuming both no exercise and full exercise of the option to purchase additional shares.

 
  Per common share   Per preferred share   Per ADS   Total  
 
  Without
additional
shares
  With
additional
shares
  Without
additional
shares
  With
additional
shares
  Without
additional
shares
  With
additional
shares
  Without
additional
shares
  With
additional
shares
 

Underwriting discounts and commissions

  R$ 0.6732   R$ 0.6732   R$ 0.8238   R$ 0.8238   U.S.$ 0.2813   U.S.$ 0.2813   U.S.$ 22,437,701   U.S.$ 24,208,003  

Expenses payable by us

  R$ 0.3035   R$ 0.2866   R$ 0.3708   R$ 0.3501   U.S.$ 0.1268   U.S.$ 0.1197   U.S.$ 10,114,380   U.S.$ 10,303,162  

        The underwriting discounts and commissions we will pay to the Brazilian underwriters per preferred share are 1.75% of the public offering price per preferred share on the cover page of this prospectus supplement, assuming no exercise of the option to purchase additional shares, and 1.75% of the public offering price per preferred share if the option to purchase additional shares is exercised in full. The underwriting discounts and commissions we will pay to the international underwriters per ADS are 1.75% of the public offering price per ADS on the cover page of this prospectus supplement, assuming no exercise of the option to purchase additional shares, and 1.75% of the public offering price per ADS on the cover page of this prospectus supplement if the option to purchase additional shares is exercised in full.

        We will pay for expenses and fees incurred for our auditors and legal counsel, among others, in connection with the global offering. Expenses and fees incurred for the registration of the global offering with the CVM, SEC or with respect to other authorities (other than FINRA related expenses) will be paid by us. We estimate that the total expenses of this global offering, including taxes, registration, filing and listing fees, printing fees and legal and accounting expenses, but excluding the underwriting discounts and commissions, will be approximately US$10.1 million, which includes approximately US$1.0 million that we have agreed to reimburse the underwriters for certain expenses incurred by them in connection with this offering.

No Sales of Similar Securities

        We have agreed that we will not (1) offer, pledge, sell, contract to sell, sell any option or contract to purchase, purchase any option or contract to sell, grant any option, right or warrant to purchase, lend, or otherwise transfer or dispose of, directly or indirectly, any common or preferred shares (including, without limitation, in the form of ADSs) issued by us or any other securities convertible into or exercisable or exchangeable for any common or preferred shares (including, without limitation, in the form of ADSs) issued by us or (2) enter into any swap or other arrangement that transfers to another, in whole or in part, any of the economic consequences of ownership of common or preferred shares (including, without limitation, in the form of ADSs) issued by us, whether any such transaction described in clause (1) or (2) above is to be settled by delivery of any such common or preferred shares (including, without limitation, in the form of ADSs) or such other securities, in cash or otherwise or (3) file any registration statement with the Commission relating to the offering of any common or preferred shares (including, without limitation, in the form of ADSs) issued by it or any securities convertible into or exercisable or exchangeable for such any common or preferred shares (including, without limitation, in the form of ADSs), in each of the foregoing cases, without the prior written consent of representatives of the international underwriters, for a period of 90 days after the date of this prospectus supplement. The foregoing restrictions do not apply to (a) the common or preferred shares and ADSs to be sold in connection with the global offering, (b) the issuance by us of any common or preferred shares (including, without limitation, in the form of ADSs) upon the exercise of an option or warrant or the conversion of a security outstanding on the date hereof, of which the

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underwriters have been advised by us, or (c) any transfer or issuance of common or preferred shares pursuant to the stock purchase agreement as described in "The GVT Acquisition."

        Our principal shareholders have agreed that, without the prior written consent of the representatives of the international underwriters, for a period of 90 days after the date of this prospectus supplement, it will not (1) offer, pledge, sell, contract to sell, sell any option or contract to purchase, purchase any option or contract to sell, grant any option, right or warrant to purchase, lend, or otherwise transfer or dispose of, directly or indirectly, any common or preferred shares (including, without limitation, in the form of ADSs) beneficially owned (as such term is used in Rule 13d-3 of the Securities Exchange Act of 1934, as amended), by it or any other securities so owned convertible into or exercisable or exchangeable for common or preferred shares (including, without limitation, in the form of ADSs), or (2) enter into any swap or other arrangement that transfers to another, in whole or in part, any of the economic consequences of ownership of common or preferred shares (including, without limitation, in the form of ADSs), whether any such transaction described in clause (1) or (2) above is to be settled by delivery of common or preferred shares (including, without limitation, in the form of ADSs) or such other securities, in cash or otherwise. The foregoing restrictions do not apply to (a) transactions relating to common or preferred shares (including, without limitation, in the form of ADSs) or other securities acquired in open market transactions after the completion of this offering, provided that no filing in Brazil or any other applicable jurisdiction is required or voluntarily made in connection with subsequent sales of common or preferred shares (including, without limitation, in the form of ADSs) or other securities acquired in such open market transactions; (b) transfers of common or preferred shares (including, without limitation, in the form of ADSs) or any security convertible into common or preferred shares (including, without limitation, in the form of ADSs) as a bona fide gift; (c) distributions of common or preferred shares (including, without limitation, in the form of ADSs) or any security convertible into common or preferred shares (including, without limitation, in the form of ADSs) to limited partners or stockholders of such shareholder; (d) transfers of common or preferred shares (including, without limitation, in the form of ADSs) by Telefónica to any of its subsidiaries, in each case in connection with the acquisition of all of the shares of GVTPar and the merger of all of the shares of GVTPar into our company pursuant to a Stock Purchase Agreement and Other Covenants, dated as of September 18, 2014, by and among Vivendi S.A., Société d'Investissements et de Gestion 72 S.A. and Société d'Investissements et de Gestion 108 SAS, as sellers, our company, as purchaser, and GVTPar, Operating GVT and Telefónica as described in herein, and as may be amended by the parties thereto after the closing date of this offering; (e) transfers or contribution in kind of common or preferred shares (including, without limitation, in the form of ADSs) in connection with any acquisition, equity investment or joint venture directly to the partner in such acquisition, equity investment or joint venture; (f) transfers to companies controlled directly or indirectly by Telefónica; or (g) any sales of common or preferred shares (including, without limitation, in the form of ADSs) by such shareholder, provided that the aggregate number of such shares sold during the applicable 90-day period does not exceed 0.1% of the number of common or preferred shares issued and outstanding on the date of the lock-up letter; provided further that (i) in the case of any transfer or distribution pursuant to clause (b), (c), (e) or (f), each donee, distributee, purchaser or affiliate signs and delivers a lock-up letter substantially in the form of the letter signed by such shareholders and (ii) in the case of any transfer or distribution pursuant to clause (b) or (c), no filing in Brazil or any other applicable jurisdiction, reporting a reduction in beneficial ownership of common or preferred shares (including, without limitation, in the form of ADSs), is required or voluntarily made during the applicable 90-day period.

        Vivendi S.A. has agreed that, without the prior written consent of the representatives of the international underwriters, for a period of 90 days after the date of this prospectus supplement, it will not (1) offer, pledge, sell, contract to sell, sell any option or contract to purchase, purchase any option or contract to sell, grant any option, right or warrant to purchase, lend, or otherwise transfer or dispose of, directly or indirectly, any common or preferred shares (including, without limitation, in the form of

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ADSs) beneficially owned (as such term is used in Rule 13d-3 of the Securities Exchange Act of 1934, as amended), by it or any other securities so owned convertible into or exercisable or exchangeable for common or preferred shares (including, without limitation, in the form of ADSs), or (2) enter into any swap or other arrangement that transfers to another, in whole or in part, any of the economic consequences of ownership of common or preferred shares (including, without limitation, in the form of ADSs), whether any such transaction described in clause (1) or (2) above is to be settled by delivery of common or preferred shares (including, without limitation, in the form of ADSs) or such other securities, in cash or otherwise. The foregoing restrictions do not apply to (a) transactions relating to common or preferred shares (including, without limitation, in the form of ADSs) or other securities acquired in open market transactions after the completion of this offering, provided that no filing under Section 16(a) of the Exchange Act (to the extent applicable) or other filing in Brazil is required or is voluntarily made in connection with subsequent sales of common or preferred shares (including, without limitation, in the form of ADSs) or other securities acquired in such open market transactions, (b) transfers of common or preferred shares (including, without limitation, in the form of ADSs) or any security convertible into common or preferred shares (including, without limitation, in the form of ADSs) as a bona fide gift, (c) distributions or transfers of common or preferred shares (including, without limitation, in the form of A