Edgar Filing: TELEFONICA BRASIL S.A.

vivitr1q13_6k.htm - Generated by SEC Publisher for SEC Filing

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 6-K

REPORT OF FOREIGN PRIVATE ISSUER PURSUANT TO RULE 13a-16 OR 15d-16 UNDER THE SECURITIES EXCHANGE ACT OF 1934

For the month of May, 2013

Commission File Number: 001-14475

TELEFÔNICA BRASIL S.A.

(Exact name of registrant as specified in its charter)

TELEFONICA BRAZIL S.A.

(Translation of registrant’s name into English)

Av. Eng° Luís Carlos Berrini, 1376 - 28º andar

São Paulo, S.P.

Federative Republic of Brazil

(Address of principal executive office)

Indicate by check mark whether the registrant files or will file annual reports under cover of Form 20-F or Form 40-F:

Form 20-F

Form 40-F

Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(1):

Yes

Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(7):

Yes

TELEFÔNICA BRASIL S.A.

QUARTERLY INFORMATION

MARCH 31, 2013

REPORT OF QUARTERLY INFORMATION REVIEW

To the Shareholders, Board Members and Directors of

TELEFÔNICA BRASIL S.A.

São Paulo - SP

Introduction

We have reviewed the individual and consolidated interim accounting information of TELEFÔNICA BRASIL S.A. and subsidiaries, contained in the ITR (Quarterly Information Form), referring to the quarter ended on March 31, 2013, which comprises the balance sheet and related statements of income, of comprehensive income, of changes in shareholders’ equity and of cash flows for the three-month period then ended, including the notes thereto.

The management is responsible for the preparation of the individual interim accounting information according to CPC Technical Pronouncement CPC 21 (R1) – Interim Statement and interim consolidated accounting information according to CPC 21 (R1) and international standard IAS 34 – Interim Financial Reporting, issued by International Accounting Standards Board – IASB, as well as for the presentation of such information according to standards issued by CVM (Brazilian SEC), applicable to the preparation of Quarterly Information - ITR. Our responsibility is to express a conclusion on this interim financial information based on our review.

Scope of review

We conducted our review in accordance with the Brazilian and international standards of review of interim information (NBC TR 2410 - Revisão de Informações Intermediárias Executada pelo Auditor da Entidade e ISRE 2410 - Review of Interim Financial Information Performed by the Independent Auditor of the Entity, respectively). A review of interim information consists of inquiries, mainly to those responsible for financial and accounting matters, and the application of analytical procedures and other review procedures.

The scope of a review is significantly less in scope than an audit and, consequently, it did not allow us to obtain assurance that we became aware of all significant matters which could be identified in an audit. Accordingly, we did not express an audit opinion.

Conclusion on individual interim information

Based on our review, we are not aware of any fact which makes us believe that the individual interim accounting information included in the aforesaid quarterly information was not prepared, in all material respects, in accordance with CPC 21 (R1) applicable to the preparation of Quarterly Information (ITR) and presented in accordance with the Brazilian SEC (CVM) regulations.

Conclusion on consolidated interim information

Based on our review, we are not aware of any fact which makes us believe that the consolidated interim accounting information included in the aforesaid quarterly information was not prepared, in all material respects, in accordance with CPC 21 (R1) and IAS 34 applicable to the preparation of Quarterly Information (ITR) and presented in accordance with Brazilian SEC (CVM) regulations.

Emphasis

Restatement of correspondent amounts

As mentioned in Note 2, as a consequence of the change in accounting policies introduced by the adoption of IFRS 11, the correspondent amounts, individual and consolidated, related to the balance sheet of the period ended December 31, 2012 and the correspondent interim accounting information related to the statement of income, of comprehensive income, of changes in shareholders’ equity, of cash flows and added value (supplementary information), related to the three-month period ended March 31, 2012, presented for comparison purposes, were adjusted and are being restatement in accordance with CPC 23 – Accounting Policies, Change in Estimate and Ratification of Error and CPC 26 (R1) – Presentation of the Financial Statements. Our conclusion is not changed regarding this matter.

Other matters

Interim statement of value added

We have also reviewed the individual and consolidated statement of value added (SVA), referring to the three-month period ended March 31, 2013, the presentation of which in the interim information is required according to standards issued by CVM (Brazilian SEC), regulations applicable to the preparation of the Quarterly Information – ITR and considered as supplementary information by IFRS’s standards, which do not require the presentation of the SVA. These statements were submitted to the same review procedures previously described and, based on our review, we are not aware of any fact which could make us believe that they were not prepared, in all material aspects, in accordance with individual and consolidated interim accounting information taken as a whole.

São Paulo, May 06, 2013.

CRC Nº 2SP013002/O-3

Clóvis Ailton Madeira

CTCRC Nº 1SP106895/O-1 "S"

TELEFÔNICA BRASIL S. A.
Balance sheets
At March 31, 2013 and December 31, 2012
(In thousands of reais)

		Company		Consolidated				Company		Consolidated
ASSETS	Note	3.31.13	12.31.12	3.31.13	12.31.12	LIABILITIES AND EQUITY	Note	3.31.13	12.31.12	3.31.13	12.31.12

CURRENT ASSETS		5,904,545	6,515,094	15,441,513	16,209,181	CURRENT LIABILITIES		5,827,871	5,910,070	12,843,966	13,536,792
Cash and cash equivalents	3	3,021,450	3,079,282	6,750,950	7,133,485	Personnel, social charges and benefits	13	155,152	205,780	352,432	416,252
Trade accounts receivable, net	4	2,119,489	2,150,724	5,514,537	5,512,272	Trade accounts payable	14	2,128,565	2,191,047	5,091,992	5,889,068
Inventories	5	31,412	24,403	404,044	387,809	Taxes, charges and contributions	15	484,754	529,055	1,857,644	1,781,250
Taxes recoverable	6.1	448,825	602,328	1,900,911	2,052,421	Loans and financing	16.1	739,630	743,941	1,247,327	1,255,323
Judicial deposits and garnishments	7	-	-	131,518	126,625	Debentures	16.2	678,768	702,215	678,768	702,215
Derivative transactions	34	30,504	39,197	32,452	41,109	Dividends and interest on equity	17	534,730	467,831	534,730	467,831
Prepaid expenses	8	44,390	26,610	426,564	248,337	Provisions	18	347,808	334,852	521,111	496,790
Dividends and interest on equity	17	5,656	394,105	1,140	1,140	Derivative transactions	34	8,172	8,747	36,452	29,586
Other assets	9	202,819	198,445	279,397	705,983	Deferred income	19	63,600	69,743	714,675	734,573
						Reverse split of fractional shares		345,884	345,953	389,441	389,510
NONCURRENT ASSETS		50,767,359	51,067,347	53,193,109	54,041,911	Authorization license		-	-	1,006,689	994,977
Short-term investments pledged as collateral		29,048	23,920	115,191	109,708	Other liabilities	20	340,808	310,906	412,705	379,417
Trade accounts receivable, net	4	-	-	95,858	93,378
Taxes recoverable	6.1	501,070	549,225	703,381	738,965	Noncurrent liabilities		7,015,865	6,991,251	11,962,488	12,033,180
Deferred taxes	6.2	-	-	840,950	1,027,888	Taxes, charges and contributions	15	29,474	30,057	501,159	488,749
Judicial deposits and garnishments	7	3,124,781	3,068,256	3,983,123	3,909,268	Deferred taxes	6.2	1,268,337	1,216,651	1,268,337	1,216,651
Derivative transactions	34	20,901	21,465	259,917	286,278	Loans and financing	16.1	477,361	582,422	3,514,250	3,756,001
Prepaid expenses	8	15,389	16,720	29,394	31,396	Debentures	16.2	2,256,100	2,253,690	2,256,100	2,253,690
Other assets	9	176,023	75,587	126,664	92,308	Provisions	18	2,529,661	2,457,632	3,558,778	3,453,637
Investments	10	21,407,304	21,561,061	128,687	142,881	Derivative transactions	34	-	3,733	25,890	26,545
Property, plant and equipment, net	11	9,970,171	10,020,263	17,056,283	17,604,144	Deferred income	19	37,226	39,022	294,472	303,362
Intangible assets, net	12	15,522,672	15,730,850	29,853,661	30,005,697	Post-retirement benefit plans	33	379,420	372,368	399,779	392,269
						Other liabilities	20	38,286	35,676	143,723	142,276

						TOTAL EQUITY		43,828,168	44,681,120	43,828,168	44,681,120

						EQUITY		43,828,168	44,681,120	43,828,168	44,681,120
						Capital	21	37,798,110	37,798,110	37,798,110	37,798,110
						Capital reserves	21	2,686,897	2,686,897	2,686,897	2,686,897
						Income reserves	21	1,100,000	1,100,000	1,100,000	1,100,000
						Premium on acquisition of non-controlling interest	21	(70,448)	(70,448)	(70,448)	(70,448)
						Other comprehensive income	21	5,095	17,792	5,095	17,792
						Proposed additional dividend	21	1,498,769	3,148,769	1,498,769	3,148,769
						Retained earnings	21	809,745	-	809,745	-

TOTAL ASSETS		56,671,904	57,582,441	68,634,622	70,251,092	TOTAL LIABILITIES AND EQUITY		56,671,904	57,582,441	68,634,622	70,251,092

TELEFÔNICA BRASIL S. A.
Income Statements
Three-month periods ended March 31, 2013 and 2012
(In thousands of reais)

		Company		Consolidated
	Note	2013	2012	2013	2012

OPERATING REVENUE, NET	22	3,149,971	3,263,797	8,555,484	8,311,285

Cost of services rendered and products sold	23	(2,063,281)	(2,023,786)	(4,409,574)	(4,249,817)

GROSS PROFIT		1,086,690	1,240,011	4,145,910	4,061,468

OPERATING INCOME (EXPENSES)		(165,527)	(213,608)	(2,796,029)	(2,533,021)
Selling expenses	24	(761,195)	(829,794)	(2,163,553)	(2,160,309)
General and administrative expenses	25	(192,581)	(199,576)	(618,024)	(556,140)
Equity pickup	10	795,367	828,464	(446)	507
Other operating income (expenses), net	26	(7,118)	(12,702)	(14,006)	182,921

OPERATING INCOME BEFORE FINANCIAL INCOME (EXPENSES)		921,163	1,026,403	1,349,881	1,528,447

Financial income	27	111,436	155,561	365,120	336,208
Financial expenses	27	(166,742)	(190,809)	(381,851)	(399,419)

INCOME BEFORE TAXES		865,857	991,155	1,333,150	1,465,236

Income and social contribution taxes	28	(55,682)	(33,705)	(522,975)	(508,658)

NET INCOME FOR THE PERIOD		810,175	957,450	810,175	956,578


Attributable to:
Non-controlling interest		-	-	-	(872)
Controlling interest		810,175	957,450	810,175	957,450

Base and diluted earnings per common share		0.68	0.80
Basic and diluted earnings per preferred share		0.74	0.88

TELEFÔNICA BRASIL S. A.
Statements of changes in equity
Period ended March 31, 2013
(In thousands of reais)
			Capital reserve			Income reserve			Other comprehensive income
	Capital	Premium on acquisition of non-controlling interest	Special goodwill reserve	Capital reserve	Treasury stock	Legal reserve	Retained earnings	Proposed additional dividend	Financial instruments available for sale	Derivative transactions	Translation difference of investments abroad	Company equity	Non-controlling interest	Total equity

Balances at December 31, 2011	37,798,110	(29,929)	63,074	2,735,930	(79,339)	877,322	-	1,953,029	9,884	1,995	(4,359)	43,325,717	5,068	43,330,785

Expired dividends and interest on equity	-	-	-	-	-	-	4,856	-	-	-	-	4,856	-	4,856
Repurchase of shares	-	-	-	-	(1,365)	-	-	-	-	-	-	(1,365)	-	(1,365)
Other comprehensive income	-	-	-	-	-	-	-	-	(2,169)	1,769	142	(258)	-	(258)
Net income for the period	-	-	-	-	-	-	957,450	-	-	-	-	957,450	(872)	956,578

Balances at March 31, 2012	37,798,110	(29,929)	63,074	2,735,930	(80,704)	877,322	962,306	1,953,029	7,715	3,764	(4,217)	44,286,400	4,196	44,290,596

Additional dividend proposed for 2011	-	-	-	-	-	-	-	(1,953,029)	-	-	-	(1,953,029)	-	(1,953,029)
Expired dividends and interest on equity	-	-	-	-	-	-	84,836	-	-	-	-	84,836	-	84,836
Other changes in equity	-	-	-	-	-	-	(3,240)	-	-	-	-	(3,240)	(23)	(3,263)
Repurchase of shares	-	-	-	-	(31,403)	-	-	-	-	-	-	(31,403)	-	(31,403)
Non-controlling interest	-	(40,519)	-	-	-	-	-	-	-	-	-	(40,519)	(3,653)	(44,172)
Other comprehensive income	-	-	-	-	-	-	(46,056)	-	(1,485)	6,426	5,589	(35,526)	-	(35,526)
Net income for the year	-	-	-	-	-	-	3,496,123	-	-	-	-	3,496,123	(520)	3,495,603
Allocation of income:
Legal reserve	-	-	-	-	-	222,678	(222,678)	-	-	-	-	-	-	-
Interim dividends	-	-	-	-	-	-	(1,122,522)	-	-	-	-	(1,122,522)	-	(1,122,522)
Proposed additional dividend	-	-	-	-	-	-	(3,148,769)	3,148,769	-	-	-	-	-	-

Balances at December 31, 2012	37,798,110	(70,448)	63,074	2,735,930	(112,107)	1,100,000	-	3,148,769	6,230	10,190	1,372	44,681,120	-	44,681,120

Additional dividend proposed for 2012	-	-	-	-	-	-	-	(1,650,000)	-	-	-	(1,650,000)	-	(1,650,000)
Other comprehensive income	-	-	-	-	-	-	(430)	-	(7,261)	(2,946)	(2,490)	(13,127)	-	(13,127)
Net income for the period	-	-	-	-	-	-	810,175	-	-	-	-	810,175	-	810,175

Balances at March 31, 2013	37,798,110	(70,448)	63,074	2,735,930	(112,107)	1,100,000	809,745	1,498,769	(1,031)	7,244	(1,118)	43,828,168	-	43,828,168

Outstanding shares (in thousands)														1,123,269
VPA – equity value of Company's shares														39.02

TELEFÔNICA BRASIL S. A.
Cash flow statements
Three-month periods ended March 31, 2013 and 2012
(In thousands of reais)

	Company		Consolidated
	2013	2012	2013	2012
Cash flow from operating activities

Income before taxes	865,857	991,155	1,333,150	1,465,236

Items not affecting cash

Expenses (revenue) not representing changes in cash	77,508	75,763	1,869,431	1,405,529
Depreciation and amortization	668,409	652,628	1,397,276	1,317,945
Foreign exchange variation on loans	9,924	7,876	31,141	9,413
Monetary variation	35,895	(5,363)	45,244	(3,694)
Equity pickup	(795,367)	(828,464)	446	(507)
Gain (loss) on assets write-off/disposal	(53,996)	5,117	(53,633)	(208,107)
Provision for impairment of accounts receivable	80,152	77,944	203,086	181,860
Provision (reversal) of trade accounts payable	(7,969)	73,443	16,798	(117,199)
Provision (write-offs and reversals) for impairment of inventory	3,294	(4,776)	6,668	5,316
Pension plan and other post-retirement benefits	6,648	(1,345)	6,579	(3,603)
Provisions for tax, labor, civil and regulatory contingencies	63,881	31,122	100,166	78,334
Interest expenses	68,704	67,769	114,580	139,101
Reversal of provision for demobilization	(2,067)	(188)	(2,516)	(508)
Provision for customer loyalty programs	-	-	3,596	7,300
Other	-	-	-	(122)

(Increase) decrease in operating assets:	(136,646)	202,217	(489,808)	214,478
Trade accounts receivable, net	(48,917)	(58,321)	(207,831)	28,226
Inventories	(10,303)	(382)	(22,904)	31,683
Taxes recoverable	(1,239)	314,546	(174,449)	302,091
Other current assets	(8,425)	(3,474)	(35,970)	7,560
Other noncurrent assets	(67,762)	(50,152)	(48,654)	(155,082)

Increase (decrease) in operating liabilities:	16,013	(384,238)	(481,176)	(1,032,259)
Personnel, social charges and benefits	(50,628)	(34,274)	(63,820)	(92,754)
Trade accounts payable	6,967	(90,528)	(393,922)	(193,103)
Taxes, charges and contributions	158,013	(108,548)	522,680	(172,693)
Interest paid	(92,972)	(34,386)	(159,925)	(94,256)
Income and social contribution taxes paid	-	(9,483)	(351,863)	(274,845)
Other current liabilities	16,480	(107,531)	(10,267)	(167,372)
Other noncurrent liabilities	(21,847)	512	(24,059)	(37,236)
Total cash from operating activities	822,732	884,897	2,231,597	2,052,984


Net cash provided by (used in) investing activities

Advance for future capital contribution in subsidiaries	(46,050)	-	-	-
Additions of PP&E and intangible assets (net of donations)	(480,723)	(632,808)	(1,127,556)	(1,494,657)
Cash received from sale of PP&E items	20,045	653	316,407	1,361
Dividends and interest on equity received	1,320,449	-	-	-
Total cash from (used in) investing activities	813,721	(632,155)	(811,149)	(1,493,296)

Net cash from (used in) financing activities

Payment of loans, financing and debentures	(104,986)	(195,561)	(216,558)	(305,608)
Loans and debentures raised	-	-	9,493	6,966
Derivative agreements payment, net	(6,130)	(5,416)	(12,749)	(23,574)
Payments referring to grouping of shares	(68)	-	(68)
Dividends and interest on equity paid	(1,583,101)	-	(1,583,101)	-
Repurchase of treasury stock	-	(1,365)	-	(1,365)
Total cash used in financing activities	(1,694,285)	(202,342)	(1,802,983)	(323,581)

Increase (decrease) in cash and cash equivalents	(57,832)	50,400	(382,535)	236,107

Cash and cash equivalents at beginning of period	3,079,282	826,902	7,133,485	2,889,543
Cash and cash equivalents at end of period	3,021,450	877,302	6,750,950	3,125,650

Changes in cash and cash equivalents for the period	(57,832)	50,400	(382,535)	236,107

TELEFÔNICA BRASIL S. A.
Statements of comprehensive income
Three-month periods ended March 31, 2013 and 2012
(In thousands of reais)


	Company		Consolidated
	2013	2012	2013	2012
Net income for the period	810,175	957,450	810,175	956,578

Unrealized losses with investments available for sale	(11,258)	2,550	(11,258)	2,929
Taxes on unrealized losses with investments available for sale	3,997	(5,098)	3,997	(5,098)

Unrealized actuarial losses and effect of asset limitation of surplus plans	-	-	(651)	-
Taxes on unrealized actuarial losses and effect of asset limitation of surplus plans	-	-	221	-

Gains from derivative transactions	-	-	(4,464)	2,680
Taxes on gains from derivative transactions	-	-	1,518	(911)

Cumulative transaction adjustments – operations in foreign currency	(2,490)	142	(2,490)	142

Interest in comprehensive income of subsidiaries	(3,376)	2,148	-	-
Net losses recognized in equity	(13,127)	(258)	(13,127)	(258)


Comprehensive income for the year	797,048	957,192	797,048	956,320


Attributable to:
Non-controlling interest	-	-
Controlling interest	797,048	957,192

Basic and diluted earnings per common share	0.67	0.80
Basic and diluted earnings per preferred share	0.73	0.88

TELEFÔNICA BRASIL S. A.
Statement of value added
Three-month periods ended March 31, 2013 and 2012
(In thousands of reais)

	Company		Consolidated
	2013	2012	2013	2012

Revenues	4,138,408	4,361,417	11,617,590	11,474,033
Sale of products and services	4,156,028	4,374,387	11,674,436	11,275,098
Other revenues	62,532	64,974	146,240	380,795
Provision for impairment	(80,152)	(77,944)	(203,086)	(181,860)

Inputs acquired from third parties	(2,125,784)	(1,967,407)	(5,038,646)	(4,183,609)
Cost of products, goods and services sold	(1,623,983)	(1,327,792)	(3,414,178)	(2,256,786)
Materials, electric power, outsourced services and other	(558,997)	(633,767)	(1,678,979)	(1,884,313)
Loss/recovery of assets	57,196	(5,848)	54,511	(42,510)

Gross value added	2,012,624	2,394,010	6,578,944	7,290,424

Retentions	(668,409)	(652,628)	(1,397,276)	(1,317,945)
Depreciation and amortization	(668,409)	(652,628)	(1,397,276)	(1,317,945)

Net value added produced	1,344,215	1,741,382	5,181,668	5,972,479

Value added received in transfer	906,803	984,025	364,674	336,715
Equity pickup	795,367	828,464	(446)	507
Financial income	111,436	155,561	365,120	336,208

Total value added to be distributed	2,251,018	2,725,407	5,546,342	6,309,194

Distribution of value added	(2,251,018)	(2,725,407)	(5,546,342)	(6,309,194)

Personnel, social charges and benefits	(245,390)	(234,194)	(629,400)	(537,530)
Direct compensation	(142,479)	(197,080)	(376,112)	(431,349)
Benefits	(80,130)	(24,524)	(213,672)	(79,733)
Unemployment compensation fund contribution tax (FGTS)	(22,781)	(12,590)	(39,616)	(26,448)
Taxes, charges and contributions	(814,290)	(1,195,603)	(3,110,601)	(3,904,316)
Federal	(311,589)	(300,828)	(1,515,338)	(1,533,448)
State	(490,318)	(872,609)	(1,574,382)	(2,340,181)
Local	(12,383)	(22,166)	(20,881)	(30,687)
Debt remuneration	(283,243)	(293,612)	(855,316)	(823,684)
Interest	(165,300)	(196,782)	(379,856)	(398,408)
Rent	(117,943)	(96,830)	(475,460)	(425,276)
Equity remuneration	(810,175)	(957,450)	(810,175)	(957,450)
Retained profit	(810,175)	(957,450)	(810,175)	(956,578)
Other	(97,920)	(44,548)	(140,850)	(86,214)
Provisions for labor and civil contingencies, net	(97,920)	(44,548)	(140,850)	(86,214)

Telefônica Brasil S. A.

NOTES TO QUARTERLY INFORMATION

Quarter ended March 31, 2013

(In thousands of reais, unless otherwise indicated)

1. OPERATIONS

a. Shareholding controlling interest

Telefônica Brasil S.A. (“Company” or Telefônica Brasil) is headquartered at Avenida Engenheiro Luiz Carlos Berrini, nº 1376, in the capital city of the state of São Paulo, Brazil. The Company is a member of Telefonica Group (Group), the telecommunications industry leader in Spain and which is also present in several European and Latin American countries. At March 31, 2013 and December 31, 2012, Telefónica S.A., holding company of the Group, held total direct and indirect interest in the Company of 73.81%, excluding treasury shares, 91.76% of which are common shares and 64.60% are preferred shares.

b. Operations

The Company’s main business purposes is the rendering of fixed-line telephone and data services in the state of São Paulo, under Fixed Switched Telephone Service Concession Arrangement (STFC) and authorizations, respectively. Its subsidiaries are also authorized to render STFC services in Regions I and II of the General Service Concession Plan (PGO/2008) and other telecommunications services, such as: data communication, including broadband internet (Multimedia Communication Service - SCM), mobile telephone services (Personal Mobile Services – SMP), all over the country, and pay TV services, to wit (i) by satellite all over the country; (ii) MMDS technology in the cities of São Paulo, Rio de Janeiro, Curitiba and Porto Alegre, until December 2013, as a result of the waiver signed by the Company, effects of which will become effective 18 months after June 5, 2012, as a condition for the Company to participate in the 4G auction, held on June 12 and 13, 2012; and (iii) cable in the cities of São Paulo, Curitiba, Foz do Iguaçu and Florianópolis.

Service concessions and authorizations are granted by Brazil's Telecommunications Regulatory Agency (ANATEL), under the terms of Law No. 9472, of July 16, 1997 – General Law of Telecommunications (“Lei Geral das Telecomunicações” - LGT), amended by Laws No. 9986, of July 18, 2000 and No. 12485, of September 12, 2011 (Notes 1.b.1 and 1.b.2). It operates under regulations and supplementary plans issued.

b.1) STFC service concession arrangement

The Company is a concessionaire of the STFC to render fixed line services in the local network and national long distance calls originated in sector 31 of region 3, which comprises the state of São Paulo (except for cities comprising sector 33), established in the General Service Concession Plan (PGO/2008).

The Company’s current STFC service concession arrangement was executed on June 30, 2011, is effective from July 1, 2011 to December 31, 2025, and was granted for valuable consideration. This arrangement provides for the possibility of amendments on December 31, 2015 and December 31, 2020. This condition allows ANATEL to set up new requirements and goals for universal and quality of telecommunication services, considering the conditions in place at the time.

The service concession arrangement establishes that all assets owned by the Company and that are indispensable to the provision of the services described in the referred to arrangement are considered reversible assets and are deemed to be part of the service concession assets. These assets will be automatically returned to ANATEL upon termination of the service concession arrangement, according to the regulation in force. At March 31, 2013, estimated residual value of reversible assets was R$6,973,461 (R$6,911,508 at December 31, 2012), which comprised switching and transmission equipment and public use terminals, external network equipment, energy equipment and system and operation support equipment.

Telefônica Brasil S. A.

NOTES TO QUARTERLY INFORMATION

Quarter ended March 31, 2013

(In thousands of reais, unless otherwise indicated)

In accordance with the service concession arrangement, every two years, during the arrangement’s 20-year effective term, the Company shall pay a fee which will correspond to 2% (two percent) of its prior-year STFC revenue, net of taxes and social contributions.

b.2) Authorizations and frequencies related to mobile telephone services

Vivo S.A., wholly-owned subsidiary of the Company, is authorized to render SMP services, which are also regulated by ANATEL.

Frequency authorizations granted by ANATEL for mobile telephone services may be renewed only once, for a 15-year period, through a biannually payment of fees equivalent to 2% (two percent), of the Company’s prior-year revenue, net of taxes and social contributions, related to the application of the Basic and Alternative Plans of Service after the first renewal.

Information on the areas of operation (regions) and termination of radiofrequency authorizations is the same as in Note 1.b2 – “Authorizations and frequencies related to mobile telephone services”, disclosed in the financial statements as of December 31, 2012.

b.3) Corporate restructuring

In order to simplify the Company’s current organizational structure, and to help the Company integrate business and generate synergies from the rationalization of services provided, on March 15, 2012, the Company filed with ANATEL a request for previous approval of corporate restructuring, which became legally feasible due to legislation changes applicable to STFC operators through Law No. 12485.

The corporate restructuring proposed can only be implemented after previous approval by ANATEL, which is still analyzing the request.

c. Subsidiaries

The Company holds equity interest in direct and indirect subsidiaries (wholly-owned subsidiaries) and jointly controlled entities. Some information on investees is as follows.

c.1) Direct and indirect subsidiaries (wholly-owned subsidiaries)

Vivo S.A. (Vivo): Vivo is engaged in SMP services, including activities necessary or useful to the completion of such services, in accordance with authorizations granted.

A. Telecom S.A. (ATelecom): It is engaged in management of telecommunication service rendering and installation, operation and maintenance of Internet, Intranet and Extranet solutions, commercial representation, mediation, intermediation and distribution of assets, sale, representation, rental and maintenance of telecommunication and general IT systems, equipment and devices, advisory services and technical support on specification, implementation and maintenance of new voice, data and image systems, import and export of assets and services useful to the performance of the main activity and to holding interest in capital of other entities, Brazilian or foreign, as a partner, shareholder or member.

Telefônica Brasil S. A.

NOTES TO QUARTERLY INFORMATION

Quarter ended March 31, 2013

(In thousands of reais, unless otherwise indicated)

Telefônica Data S.A. (TData): It is engaged in rendering and operating telecommunication services, as well as preparing, implementing and installing projects related to the operation of integrated corporate solutions, advisory services on telecommunications, activities related to the rendering of technical support services, sale, rental and maintenance of telecommunication equipment and networks.

Telefônica Sistema de Televisão S.A. (TSTV):

Engages in the provision of pay TV services under the Multichannel Multipoint Distribution of Signals (MMDS), besides the provision of telecommunication services in general and Internet.

Ajato Telecomunicações Ltda. (Ajato): It is engaged in the rendering of telecommunication and IT services, access to telecommunication and Internet network, through radio, including telemarketing data and image services, rental business, import, export, maintenance and repair of this equipment.

GTR-T Participações e Empreendimentos S.A. (GTR-T):

Engages in holding equity interest in other companies whose purpose is to provide cable and pay TV services, telecommunications in general, production, acquisition, licensing, import and distribution of own or third party TV programs, spare parts and equipment, management and exploration of platforms of pay TV and telecommunication services..

TVA Sul Paraná S.A. (TVA Sul): It is engaged rendering pay and cable television services, telecommunications in general, production, acquisition, licensing, import and distribution of own or third-party television programs, replacement parts and equipment, management, updating and operation of telecommunication and pay television service platforms, and editing publications.

Lemontree Participações S.A. (Lemontree):,

Comercial Cabo TV São Paulo S.A. (Comercial Cabo): It is engaged rendering pay and cable television services, advisory and consultancy services on telecommunications in general, production, acquisition, licensing, import and distribution of own or third-party television programs, replacement parts and equipment, management, updating and operation of telecommunication and pay television service platforms, and operation of publicity and advertising of all types.

c.2) Jointly controlled entities

Aliança Atlântica Holding B.V. (Aliança): Company headquartered in Amsterdam, Holland, with 50% interest held by Telefônica Brasil and cash generated from sale of Portugal Telecom shares in June 2010. Through May 8, 2012, the Company held equity interest in Zon Multimédia, Company of the Portugal Telecom group which renders pay television services, Internet, distribution of audiovisual contents, cinema and telecommunication services. This equity interest was disposed of on May 8, 2012.

Telefônica Brasil S. A.

NOTES TO QUARTERLY INFORMATION

Quarter ended March 31, 2013

(In thousands of reais, unless otherwise indicated)

Companhia AIX de Participações (AIX): It is engaged in holding interest in Refibra consortium, and activities related to the direct and indirect operation of activities related to the construction, completion and operation of underground networks or optical fiber ducts.

Companhia ACT de Participações (ACT): It is engaged in holding interest in Refibra consortium, and activities related to the rendering of technical support services for the preparation of projects and completion of networks, by means of studies required to make them economically feasible, and monitor the progress of Consortium-related activities.

c.3) Interest in other companies

Direct and indirect subsidiaries and jointly controlled entities, as well as the percentage of interest held by the Company as of March 31, 2013 and December 31, 2012:

	Direct interest		Indirect interest
Subsidiary	Company	Ownership interest	Company	Ownership interest	Total ownership interest

Full subsidiaries
Vivo	Telefônica Brasil	100.00%	-	-	100.00%
TData	Telefônica Brasil	100.00%