o    Total accesses reached 91.1 million in the quarter (+0.3% y-o-y), 76.2 million of which was in the mobile business and 14.9 million in the fixed-line business;

o    Fixed voice accesses recorded growth (+13 thousand accesses in 2Q13 over 1Q13), for the first time since 3Q10;

o    Growth in fixed broadband services net adds, recording 84 thousand in 2Q13, which represents 4 times the amount recorded in 1Q13. Growth in additions at higher speeds, with the FTTH customer base having reached 145 thousand in the quarter, 16% higher in relation to 1Q13;

o    Positive quarterly growth in TV accesses (+4.1% q-o-q), excluding, in both periods, mandatory disconnections in MMDS technology, reversing the quarterly drop since 4Q11;

o    Consistent leadership in the mobile higher revenue segments, recording growth in postpaid accesses, (+20.4% y-o-y in 2Q13 over +17.4% y-o-y in 1Q13). Strong improvement in the customer mix, being 27.1% of the accesses base in the postpaid segment, +1.5 p.p. above 1Q13;

o     Mobile ARPU registered growth of 4.1% y-o-y, stimulated by the 23.4% growth in Data ARPU in the period;

o     Total Net Revenue recorded growth of 3.0% y-o-y in the quarter. It must be pointed out that, in April/13, a reduction of the MTR by -11.8% and of the VC by -8.8% became effective. Excluding the regulatory effect the annual growth would be 4.6% in the quarter;

o     Fixed Service Revenue recorded substantial improvement in the annual variation recording -5.2% y-o-y in 2Q13 (-4.1% excluding the effect of the reduction in the VC) over -8.9% in 1Q13;

o     Net Income in 2Q13 recorded growth of 13% when compared to 1Q13;

o     Investments of R$ 1.3 billion in the quarter, equivalent to 15% of the Net Revenue, focusing on quality, 3G Plus and 4G coverage and fiber expansion;

o    Corporate reorganization process concluded after ANATEL’s consent and approval by the Special Shareholders' Meeting, simplifying the corporate structure and accelerating the operating integration process.

o   Total accesses increased by 0.6% over 2Q12, closing the quarter with 76,200 thousand accesses. Worthy of mention the postpaid segment, which grew by 20.4% with 20,685 thousand accesses, increasing the postpaid customer mix which reaches 27.1%, an increase of 4.5 p.p. in the annual comparison.

o   Total market share recorded a slight annual reduction by reaching 28.7% (-0.9 p.p. y-o-y) due to our selective commercial policy in prepaid. In the postpaid market Telefônica Brasil achieved 73.5% of the net additions in June, recording a market share of 37.8% (+1.2 p.p. y-o-y), reflecting the quality differential presented by the Company. In 4G technology Vivo holds 46.8% of the market share.

o  Vivo led the market of Data cards with 48.1% market share, due to its differentiated 3G and HSPA+ coverage nationwide.

o    In the machine-to-machine (M2M) market the customer base came to 1.8 million customers in 2Q13, a growth of 27.4% q-o-q.

o    In 2Q13, the mobile net additions recorded 212 thousand accesses, having the postpaid net additions recorded 1,167 thousand accesses, double the number registered in 2Q12. During the quarter, the Company turned its commercial policy for disconnection of prepaid customers more restrict, constantly focused on profitability, reducing to 30 days without traffic and complying with the rule of 60 days after expiration of the recharge.

o   The R$ 22.8 ARPU  represents a growth of 4.1% over 2Q12, mainly due to the increase in the data revenues. Excluding the regulatory impact, the ARPU would have recorded an annual growth of 6.0% in the period.

Access and usage revenues increased by 2.8% y-o-y, driven by the continued growth in prepaid recharges and by the increase in the postpaid customer base with the“Vivo Ilimitado” plans.

Network usage revenues decreased by 17.2% compared to 2Q12 mainly due to the reduction of MTR. By normalizing this effect, such reduction would be 7.4%. In the q-o-q comparison, a drop of 13.8% was recorded also due to the drop in the MTR.

Data and VAS (Value Added Services) revenues continued to record a good performance, with growth of 24.7% y-o-y. This is mainly due to the growth in sales of 3G and 3G Plus data packages tied to smartphones, and the increased sales of data packages to prepaid customers. In the quarter, Data and VAS revenues accounted for 32% of the net mobile services revenue, an annual growth of 5 p.p.. Considering outgoing revenue only, data and VAS would represent 38.0% in 2Q13.

Mobile internet revenues continued to accelerate, recording an increase of 35.7% in the y-o-y comparison and 12.6% in q-o-q comparison, accounting for 54% of data revenue in 2Q13. This performance is directly driven by the strong growth in the postpaid and data segments and by the increased sales of modems and smartphones data plans, especially the 3G Plus plans. In the postpaid individual customers segment, 70% of the customers own smartphones.

SMS revenues increased by 4.8% y-o-y, due to sales of unlimited packages in the postpaid plans (R$ 10/month), higher SMS penetration in the Vivo Sempre campaign (R$ 0.05/sms), as well as inclusion of off-net SMS in postpaid plans.

Data and VAS Other Revenues increased by 33.4% y-o-y, driven by Vivo som de chamada services, Vivo Segurança Online and by the education platform which recorded significative growth in the quarter.

The strong annual increase of 90.6% in the mobile handset revenues is mainly explained by the growth in smartphone sales, increased net addition of postpaid clients, and by the change in the sales model for SME segment.

OPERATING PERFORMANCE

Thousand

2Q13

1Q13

∆%

2Q12

∆%

6M13

6M12

∆%

Fixed voice accesses

10,566

10,553

0.1

10,771

(1.9)

10,566

10,771

(1.9)

Residential

6,999

7,009

(0.1)

7,339

(4.6)

6,999

7,339

(4.6)

Corporate

2,975

2,945

1.0

2,832

5.0

2,975

2,832

5.0

Others

593

599

(0.9)

599

(1.1)

593

599

(1.1)

Fixed broadband

3,837

3,753

2.2

3,717

3.2

3,837

3,717

3.2

Pay TV

537

566

(5.0)

650

(17.4)

537

650

(17.4)

Total fixed accesses

14,941

14,871

0.5

15,138

(1.3)

14,941

15,138

(1.3)

% Broadband accesses over fixed voice accesses

36.3%

35.6%

0.8 p.p.

34.5%

1.8 p.p.

36.3%

34.5%

1.8 p.p.

NET OPERATING REVENUES

Consolidated in R$ million

2Q13

1Q13

∆%

2Q12

∆%

6M13

6M12

∆%

Net operating fixed revenues

2,951.1

2,919.2

1.1

3,112.1

(5.2)

5,870.4

6,317.7

(7.1)

Voice and accesses

1,561.9

1,562.4

(0.0)

1,725.2

(9.5)

3,124.4

3,528.7

(11.5)

Interconnection

112.9

107.8

4.7

110.7

2.0

220.7

229.4

(3.8)

Data transmission

910.7

893.6

1.9

888.5

2.5

1,804.3

1,780.7

1.3

Pay TV

114.1

121.2

(5.9)

150.7

(24.3)

235.3

308.4

(23.7)

Other services

251.5

234.2

7.4

237.0

6.1

485.7

470.5

3.2

% Data / Net Operational Revenue

30.9%

30.6%

0.2 p.p.

28.5%

2.3 p.p.

30.7%

28.2%

2.5 p.p.

Consolidated in R$ million

2Q13

1Q13

∆%

2Q12

∆%

6M13

6M12

∆%

Operating costs

(5,916.0)

(5,807.9)

1.9

(5,149.0)

14.9

(11,723.9)

(10,614.4)

10.5

Personnel

(563.0)

(690.4)

(18.5)

(543.1)

3.7

(1,253.4)

(1,256.9)

(0.3)

Costs of services rendered

(2,662.1)

(2,653.3)

0.3

(2,355.4)

13.0

(5,315.4)

(5,055.7)

5.1

Interconnection

(937.4)

(951.4)

(1.5)

(991.5)

(5.5)

(1,888.8)

(2,060.3)

(8.3)

Taxes and contributions

(449.9)

(439.2)

2.4

(446.5)

0.8

(889.1)

(953.4)

(6.7)

Third-party services

(894.5)

(889.3)

0.6

(815.7)

9.7

(1,783.8)

(1,604.8)

11.2

Others

(380.3)

(373.4)

1.8

(101.7)

273.9

(753.7)

(437.2)

72.4

Cost of goods sold

(522.9)

(559.7)

(6.6)

(390.9)

33.8

(1,082.6)

(801.2)

35.1

Selling expenses

(1,833.3)

(1,603.3)

14.3

(1,609.9)

13.9

(3,436.6)

(3,168.8)

8.5

Provision for bad debt

(199.0)

(203.1)

(2.0)

(158.6)

25.5

(402.1)

(340.5)

18.1

Third-party services

(1,516.3)

(1,300.7)

16.6

(1,324.9)

14.4

(2,817.0)

(2,574.2)

9.4

Others

(118.0)

(99.5)

18.6

(126.4)

(6.6)

(217.5)

(254.1)

(14.4)

General and administrative expenses

(273.5)

(287.2)

(4.8)

(307.1)

(10.9)

(560.7)

(572.2)

(2.0)

Third-party services

(235.5)

(217.2)

8.4

(224.2)

5.0

(452.7)

(428.2)

5.7

Others

(38.0)

(70.0)

(45.7)

(82.9)

(54.2)

(108.0)

(144.0)

(25.0)

Other net operating revenue (expenses)

(61.2) 

(14.0)

337.1

57.4

n.a.

(75.2)

240.4

n.a.

The cost of goods sold in 2Q13 grew by 33.8% in relation to 2Q12. This variation is due to the growing sales of smartphones, which is a result of higher sales of postpaid and data plans, and because of the change in our sales model for SME segment, in addition to the increase in hardware sales for corporate segments.

Selling expenses recorded an increase of 13.9% y-o-y, affected by the launching of Vivo brand in 2Q12. If we exclude such effect, the annual variation would be 18.6%, mainly due to the selling efforts towards the fixed business, focusing on growth, in addition to the increase in the postpaid mobile customer base, supported by a commercial policy focused on value generation. The annual increase in third party services is due to greater expenses with call center and advertising related to the relaunching of   DTH and efforts towards attracting and retaining fixed customers, as well as higher commissioning, resulting from increased gross adds in mobile data and postpaid plans.

The Provision for Doubtful Accounts (PDA) totaled R$ 199.0 million in 2Q13, maintaining the rate of 1.6% of the total gross revenues recorded in the previous quarter and increasing 0.3 p.p. when compared to the percentage of such account in 2Q12. The Company keeps a strict control over the collecting actions and continuous refinement in the credit concession to maintain the default levels under control.

General and administrative expenses decreased by 10.9% in 2Q13 when compared to 2Q12, mainly due to reductions in rents and maintenance expenses.

Other net operating revenues (expenses) recorded expenses of R$ 61.2 million in 2Q13, mainly due to the increase in provisions for contingencies inherent to the business, partially offset by the sales of towers in the amount of R$ 79.6 million.

EBITDA (earnings before interest, taxes, depreciation and amortization) totaled R$ 2,575.5 million in 2Q13, with EBITDA Margin of 30.3%. This result was affected by the sale of towers in the quarter, generating revenues of     R$ 79.6 million. Excluding this effect, the EBITDA margin would have been 29.4% in the quarter, an annual variation of -3.7 p.p., compared to the 2Q12 adjusted margin of 33.1%, which was positively impacted by R$ 361.6 million (revenue from sale of towers in the amount of R$ 181.6 million, expense with brand unification of R$ 64.0 million, and reversal of contingencies of R$ 244.0 million).

Total Capex in the quarter came to R$ 1,252.4 million, 9.5% higher than in the same period of 2012, mainly focused on fiber expansion, 3G and 4G coverage, in addition to service quality assurance.

Besides the mentioned projects, the Company continues to focus its investments in the increase of capacity to support the growth in data services.

The operating cash generation in 2Q13 was R$ 1,968.6 million, an increase of R$ 115.9 million over 2Q12. Cash in investment activities recorded an increase of R$ 1,293.3 million in the period mainly due to the payment of the second installment of the 4G license acquisition. As a consequence, the cash flow after investmentactivities recorded a negative R$ 63.8 million in 2Q13, an annual reduction of R$ 1,177.4 million. The cash used in financing activities recorded a decrease of R$ 3,281.7 million due to the issue of debentures in April/13, as long as the lower volume of dividends and interest on shareholders equity payment in 2Q13.

In comparison with 2012, the operating cash generation year to date increased by R$ 294.5 million. The cash used in investment activities increased by R$ 611.1 million mainly due to the payment of the second installment of the 4G license acquisition, having this effect been partially compensated by the greater generation of funds from the sale of assets. Thus, the cash flow after investment activities year to date recorded R$ 1,356.7 million. The cash used in financing activities presented a reduction of R$ 1,802.3 million mainly due to the issue of debentures.

Telefônica Brasil’s common shares (ON) and preferred shares (PN) are traded at the BM&FBOVESPA under ticker symbols VIVT3 and VIVT4, respectively. The Company’s ADRs are traded at the NYSE, under ticker symbol VIV.

VIVT3 and VIVT4 shares closed the quarter at R$ 45.00 and R$ 50.40, respectively, recording q-o-q devaluation of 5.3% and 6.6%, versus a strong drop of 15.8% in the Bovespa Index (Ibovespa). The Company’s ADRs devaluated by 14.5% in the period, closing the quarter at US$ 22.82, in face of the increase in the Dow Jones’s index of 2.3%.

The daily traded volume of VIVT3 and VIVT4 in the year averaged R$ 1,274.4 thousand and R$ 71,250.3 thousand, respectively. The daily traded volume of ADR averaged US$ 29,208.7 thousand in the same period.

The table below shows share performance in the last quarter:

The General Shareholders’ Meeting held on April 16, 2013 approved the payment of dividends in the amount of R$ 1.251620  per common share (ON) and R$ 1.376782 per preferred share (PN), totaling R$ 1,498.8 million.

These dividend payments will start until December 21, 2013, and shall be made to holders of common and preferred shares that were registered with the Company by the end of April 16, 2013. 

Dividends declared by Telefônica Brasil based on the corporate net income of 2012 totaled R$ 4.3 billion, a total of R$ 3.566951 per ON share and R$ 3,923645 per PN share, as stated in the table below. The Company shows that the dividends declared represent 100% of the adjusted net income for 2012.

The General Shareholders’ Meeting of the Company, held on July 01, 2013, approved the corporate reorganization, with merger into the Company (i) of the spun-off net assets of TData; (ii) of portion of the spun-off  shareholders’ equity of Vivo; (iii) of portion of the spun-off shareholders’ equity of ATelecom, and (iv) of TST, with only two operating companies surviving, namely, the Company and its wholly-owned subsidiary, TData.

This corporate reorganization has not resulted in increase of the Company’s capital, issuance of new shares by the Company or any change to the equity interest of the current shareholders of the Company or any right to withdrawal, there being also no interruption in the telecommunication services provided by the merged/spun-off companies to their customers, which services are fully provided by the Company in succession thereof.