20-F

As filed with the Securities and Exchange Commission on February 25, 2021

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION 

Washington, D.C. 20549 

FORM 20-F 

(Mark One)

☐ REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934

OR 

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

For the fiscal year ended December 31, 2020
OR 

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

OR 

☐ SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934

Commission file number: 001-14475 

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

TELEFÔNICA BRAZIL S.A.
(Translation of Registrant’s name into English) 

Federative Republic of Brazil
(Jurisdiction of incorporation or organization) 

Avenida Engenheiro Luis Carlos Berrini, 1376, 32º andar
04571-936 São Paulo, SP, Brazil
(Address of principal executive offices)
(Name, Telephone, E-mail and/or Facsimile number and Address of Company Contact Person)

David Melcon Sanchez-Friera
Telephone +55 11 3430 3687
Avenida Engenheiro Luis Carlos Berrini, 1376, CEP 04571-936, São Paulo, SP, Brazil
Email: ir.br@telefonica.com
(Name, Telephone, E-mail and/or Facsimile number and Address of Company Contact Person) 

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

Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Shares, without par value	VIVT3	New York Stock Exchange*
American Depositary Shares (as evidenced by American Depositary Receipts), each representing one Common Share	VIV	New York Stock Exchange

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

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

None 

Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act:

None 

Indicate the number of outstanding shares of each of the issuer’s classes of capital or common stock as of the close of the period covered by the annual report.

The number of outstanding shares of each class (excluding treasury shares) as of December 31, 2020 was:

Title of Class	Number of Shares Outstanding (excluding treasury shares)
Common Shares	1,688,174,171

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.

Yes ☒     No ☐ 

If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.

Yes ☐     No ☒ 

Note – Checking the box above will not relieve any registrant required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 from their obligations under those Sections.

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes ☒     No ☐ 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files):

Yes ☒     No ☐ 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filers,” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):

Large Accelerated Filer ☒      Accelerated Filer ☐      Non-accelerated Filer ☐      Emerging Growth Company ☐

If an emerging growth company that prepares its financial statements in accordance with U.S. GAAP, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards† provided pursuant to Section 13(a) of the Exchange Act. ☐

† The term “new or revised financial accounting standard” refers to any update issued by the Financial Accounting Standards Board to its Accounting Standards Codification after April 5, 2012.

Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☒

Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing:

☐    U.S. GAAP

☒    International Financial Reporting Standards as issued by the International Accounting Standards Board

☐    Other

If “Other” has been checked in response to the previous question, indicate by check mark which financial statement item the registrant has elected to follow.

☐ Item 17      ☐ Item 18 

If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes ☐     No ☒

 table of contents

Page

Introduction		i
Glossary of Telecommunication Terms		ii
Cautionary Statement Regarding Forward-Looking Statements		iv
Presentation of Financial Information		vi
Part I		1
Item 1.	Identity of Directors, Senior Management and Advisers	1
Item 2.	Offer Statistics and Expected Timetable	1
Item 3.	Key Information	1
Item 4.	Information on the Company	19
Item 4A.	Unresolved Staff Comments	61
Item 5.	Operating and Financial Review and Prospects	61
Item 6.	Directors, Senior Management and Employees	75
Item 7.	Major Shareholders and Related Party Transactions	87
Item 8.	Financial Information	89
Item 9.	The Offer and Listing	100
Item 10.	Additional Information	103
Item 11.	Quantitative and Qualitative Disclosures About Market Risk	128
Item 12.	Description of Securities Other Than Equity Securities	128
Part II		131
Item 13.	Defaults, Dividend Arrearages and Delinquencies	131
Item 14.	Material Modifications to the Rights of Security Holders and Use of Proceeds	131
Item 15.	Controls and Procedures	131
Item 16.	[Reserved]	131
Item 16a.	Audit Committee Financial Expert	131
Item 16b.	Code of Ethics	132
Item 16c.	Principal Accountant Fees and Services	133
Item 16d.	Exemptions From the Listing Standards for Audit Committees Procedures	133
Item 16e.	Purchases of Equity Securities by the Issuer and Affiliated Purchasers	134
Item 16f.	Change in Registrant’s Certifying Accountant	135
Item 16g.	Corporate Governance	135
Item 16h.	Mine Safety Disclosure	140
Part III		141
Item 17.	Financial Statements	141
Item 18.	Financial Statements	141
Item 19.	Exhibits	141
Signatures		144

Introduction

References in this annual report to “Telefônica Brasil,” “we,” “our,” “us,” “our company” and “the company” are to Telefônica Brasil S.A. and its consolidated subsidiaries (unless the context otherwise requires). All references in this annual report to:

· “ADRs” are to the American Depositary Receipts evidencing our ADSs (as defined below);

· “ADSs” are to our American Depositary Shares, each representing one of our common shares;

· “ANATEL” are to Agência Nacional de Telecomunicações – ANATEL, the Brazilian telecommunications regulatory agency;

· “B3” are to B3 S.A. – Brasil, Bolsa, Balcão, the São Paulo stock exchange and a Brazil-based financial market infrastructure provider;

· “BNDES” are to Banco Nacional de Desenvolvimento Econômico e Social, the Brazilian Development Bank;

· “Brazil” are to the Federative Republic of Brazil;

· “Brazilian Corporate Law” are to Law No. 6,404 of December 15, 1976, as amended;

· “CADE” are to Conselho Administrativo de Defesa Econômica, the Brazilian competition authority;

· “CDI” are to Certificado de Depósito Interbancário, the Certificate for Interbank Deposits;

· “Central Bank” are to the Banco Central do Brasil, the Brazilian Central Bank;

· “CMN” are to the Conselho Monetário Nacional, the Brazilian Monetary Council;

· “common shares” are to the common shares of Telefônica Brasil;

· “CTBC Telecom” are to Companhia de Telecomunicações do Brasil Central;

· “CVM” are to the Comissão de Valores Mobiliários, the Brazilian Securities Commission;

· “Federal District” are to Distrito Federal, the federal district where Brasilia, the capital of Brazil, is located;

· “FGV” are to the Fundação Getúlio Vargas, an economic private organization;

· “General Telecommunications Law” are to Lei Geral de Telecomunicações, as amended, the law which regulates the telecommunications industry in Brazil;

· “Global Telecom” are to Global Telecom S.A., formerly a Vivo subsidiary before Vivo’s corporate restructuring;

· “GVT” are to Operating GVT and GVTPar, collectively, formerly wholly-owned subsidiaries of Telefônica Brasil prior to our 2016 corporate restructuring;

· “GVTPar” are to GVT Participações S.A., a formerly wholly-owned subsidiary of Telefônica Brasil prior to our 2016 corporate restructuring;

· “IASB” are to International Accounting Standards Board;

i 

· “IBGE” are to Instituto Brasileiro de Geografia e Estatística, the Brazilian Institute of Geography and Statistics; 

· “IFRS” are to International Financial Reporting Standards, as issued by the IASB;

· “IGP-DI” are to the Índice Geral de Preços - Disponibilidade Interna, an inflation index developed by the FGV used by fixed broadband and mobile service providers to adjust their prices;

· “IGP-M” are to the Índice Geral de Preços ao Mercado, an inflation index developed by the FGV used by TV and cable service providers to adjust their prices;

· “IOF Tax” are to Imposto sobre Operações de Crédito, Câmbio e Seguros, a tax on credit, exchange and insurance transactions;

· “IPCA” are to Índice Nacional de Preços ao Consumidor Amplo, the consumer price index, published by the IBGE;

· “IST” are to Índice de Serviços de Telecomunicações, the inflation index of the telecommunications sector;

· “NYSE” are to the New York Stock Exchange;

· “Operating GVT” are to Global Village Telecom S.A., a formerly wholly-owned subsidiary of Telefônica Brasil prior to our 2016 corporate restructuring;

· “preferred shares” or “preferred stock” are to the shares of non-voting preferred stock of Telefônica Brasil, which were all converted into common shares of Telefônica Brasil effective as of after market close on November 20, 2020. Our preferred shares ceased to trade on November 23, 2020;

· “Real,” “reais” or R$ are to the Brazilian real, the official currency of Brazil;

· “SEC” are to the U.S. Securities and Exchange Commission;

· “TData” are to Telefônica Data S.A., a formerly wholly-owned subsidiary of Telefônica Brasil prior to our 2018 corporate restructuring;

· “Telefonica” are to Telefónica S.A., our parent company;

· “Terra” are to Terra Networks Brasil Ltda. (formerly known as Terra Networks Brasil S.A. prior to the change in its corporate form as of September 30, 2020), a wholly-owned subsidiary of Telefônica Brasil; Terra provides digital and advertising services;

· “TJLP” are to Taxa de Juros de Longo Prazo, or long-term interest rate;

· “UMBNDES” are to a monetary unit of the BNDES, consisting of a currency basket of BNDES debt obligations in foreign currencies, which are mostly denominated in U.S. dollars;

· “U.S. dollar,” “U.S. dollars” or “US$” are to U.S. dollars, the official currency of the United States;

· “Vivo” are to Vivo S.A., a formerly wholly-owned subsidiary of Telefônica Brasil, which conducted cellular operations including SMP (as defined in the Glossary of Telecommunication Terms), nationwide; and

· “Vivo Participações” are to Vivo Participações S.A. (formerly TELESP Celular Participações S.A.) and its consolidated subsidiaries (unless the context otherwise requires).

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

The “Glossary of Telecommunications Terms” that begins on the following page defines certain technical terms used in this annual report.

ii 

Glossary of Telecommunication Terms

The following explanations are not intended as technical definitions, but to assist the reader in understanding certain terms as used in this Annual Report.

AICE: Acesso Individual Classe Especial is a mandatory plan offered by telecommunication providers to low-income customers. Includes different pricing schemes for the Basic Plan (Plano Básico) and the Mandatory Offer Alternative Plan (Plano Alternativo de Oferta Obrigatória).

Analog: A mode of transmission or switching that is not digital, e.g., the representation of voice, video or other modulated electrical audio signals, which are not in digital form.

Cellular service: A cellular telecommunications service provided by means of a network of interconnected low-powered base stations, each of which covers one small geographic cell within the total cellular telecommunications system service area.

Digital: A mode of representing a physical variable such as speech using digits 0 and 1 only. The digits are transmitted in binary form as a series of pulses. Digital networks allow for higher capacity and higher flexibility through the use of computer-related technology for the transmission and manipulation of telephone calls. Digital systems offer lower noise interference and can incorporate encryption as protection from external interference.

DTH: A special type of service that uses satellites for the direct distribution of television and audio signs for subscribers.

EILD: Exploração Industrial de Linha Dedicada, or industrial exploration dedicated lines which are regulated by ANATEL.

FTTC: Internet access through Fiber Optic (“Fiber to the Curb”).

FTTH: Internet access through Fiber Optic (“Fiber to the Home”).

FWT: Fixed-phones using the wireless network (“Fixed Wireless Telephone”).

GSM: Global System for Mobile Communications, a service rendered by concession from ANATEL for a specific frequency range.

Interconnection fee: Amount paid per minute charged by network operators for the use of their network by other network operators.

Internet: A collection of interconnected networks spanning the entire world, including university, corporate, government and research networks from around the globe. These networks all use the IP (Internet Protocol) communications protocol.

IP (Internet protocol): An interconnection protocol for sub-networks, in particular for those with different physical characteristics used by the Internet.

IPTV: Pay TV with video broadcast offered through the use of the IP protocol.

Measured services: all calls that originate and terminate within the same area code within our concession region.

MMDS: (Multichannel Multipoint Distribution Service): Wireless telecommunications technology, used for general-purpose broadband networking or, more commonly, as an alternative method of cable television programming reception.

MTR: Tarifa de Terminação Móvel, or Mobile Termination Rate.

MVNO (Mobile Virtual Network Operator): Wireless communications services provider that does not own the wireless network infrastructure over which the MVNO provides services to its customers.

iii 

Net additions: the total number of new customers acquired in any period minus the reduction in the number of customers.

Network: An interconnected collection of elements. In a telephone network, these consist of switches connected to each other and to customer equipment. The transmission equipment may be based on fiber optic or metallic cable or point-to-point radio connections.

NGN: next-generation network is a body of key architectural changes in telecommunication core and access networks. The general idea behind the NGN is that one network transports all information and services (voice, data, and all sorts of media such as video) by encapsulating these into packets, similar to those used on the Internet.

PGO: Plano Geral de Outorgas, or General Plan of Grants.

PGMU: Plano Geral de Metas de Universalização, or General Universal Service Targets Plan.

PGMQ: Plano Geral de Metas de Qualidade General, or Quality Targets Plan.

SCM: Serviço de Comunicação Multimídia or multimedia communication services.

SeAC: Serviço de Acesso Condicionado or Conditional Access Service, a service rendered pursuant to an authorization granted by ANATEL to provide Pay TV service throughout all regions of Brazil.

SMP: Serviço Móvel Pessoal or Personal Mobile Service, a service rendered pursuant to an authorization granted by ANATEL to provide mobile service in a specific frequency range.

SMS: Text messaging services for wireless devices, which allow customers to send and receive alphanumerical messages.

STFC: Serviço de Telefônia Fixo Comutado, or the transmission of voice and other signals between determined fixed points. In this annual report, we refer to STFC as “fixed telephone services.”

Switch: Devices used to set up and route telephone calls either to the number called or to the next switch along the path. They may also record information for billing and control purposes.

Universal service: The obligation to supply basic service to all users throughout a national territory at reasonable prices.

VOIP: Voice over Internet Protocol, is a technology for transmitting voice using the Internet.

VOD: Video on demand systems allow users to select and watch/listen to video or audio content on demand.

WAP: Wireless Application Protocol, an open and standardized protocol started in 1997, which allows access to Internet servers through specific equipment, a WAP Gateway at the carrier, and WAP browsers in customers’ wireless devices.

WCDMA: Wide-Band Code-Division Multiple Access, a technology for wideband digital radio communications of Internet, multimedia, video and other bandwidth-demanding applications.

Wireless devices: wireless appliances that we sell, including cellular handsets, wireless handheld devices and wireless broadband cards.

xDSL: A technology that allows high-speed transmission of text, audio and video, generally over standard telephone lines (“Digital Subscriber Line”).

iv 

Cautionary Statement Regarding Forward-Looking Statements

This annual report contains statements that constitute forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, Section 21E of the Securities Exchange Act of 1934, as amended, and the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. The forward-looking statements in this Annual Report can be identified, in some instances, by the use of words such as “will,” “expect,” “aim,” “hope,” “anticipate,” “intend,” “believe” and similar language or the negative thereof or by the forward-looking nature of discussions of strategy, plans or intentions. These statements appear in a number of places in this Annual Report including, without limitation, certain statements made in “Item 3. Key Information—D. Risk Factors,” “Item 4. Information on the Company,” “Item 5. Operating and Financial Review and Prospects” and “Item 11. Quantitative and Qualitative Disclosures about Market Risk” and include statements regarding our intent, belief or current expectations with respect to, among other things:

· the duration and severity of the 2019 outbreak of coronavirus, or COVID-19, and its impacts on our business (see “Item 3. Key Information–D. Risk Factors—Risks Relating to the Brazilian Telecommunications Industry and Us— Our business, operations and results have been, and may continue to be, adversely impacted by the effects of the COVID-19 pandemic” and “Item 4. Information on the Company—A. History and Development of the Company—Recent Developments—COVID-19 Pandemic”);

· the size and growth rate of the Brazilian telecommunications market;

· the accuracy of our estimated demand forecasts;

· our ability to successfully execute our strategic initiatives and capital expenditure plans;

· our ability to secure and maintain telecommunications spectrum and infrastructure licenses, rights-of-way and other regulatory approvals;

· our ability to comply with the terms of our concession agreements;

· decisions by applicable regulatory authorities to terminate, modify or renew our concession agreements or the terms thereof;

· new telecommunications regulations or changes to existing regulations;

· technological advancements in our industry and our ability to successfully implement them in a timely manner;

· network completion and product development schedules;

· the level of success of competing networks, products and services;

· the possible requirement to record impairment charges relating to goodwill and long-lived assets;

· our ability to consummate the transactions contemplated by the Oi Agreement (as described herein) or, if consummated, to successfully integrate the assets and operations contemplated thereunder or to realize expected benefits;

· increased competition in the Brazilian telecommunications sector;

· the cost and availability of financing;

· uncertainties relating to political and economic conditions in Brazil as well as those of other emerging markets;

· inflation, interest rate and exchange rate risks;

v 

· the Brazilian government’s policies regarding the telecommunications industry;

· the Brazilian government’s tax policy;

· the Brazilian government’s political instability;

· adverse decisions in ongoing litigation;

· regulatory and legal developments affecting the telecommunications industry in Brazil; and

· other risk factors discussed under “Item 3. Key Information—D. Risk Factors.”

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

vi 

Presentation of Financial Information

We maintain our books and records in reais. We prepared our consolidated financial statements included in this annual report in accordance with IFRS as issued by the IASB (“IFRS”).

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.

The significant and relevant estimates and judgments applied by the Company in the preparation of these financial statements are presented in the following notes: trade accounts receivable (Note 4); income and social contribution taxes (Note 7); property, plant and equipment (Note 12), intangible assets (Note 13), provisions and contingencies (Note 19), net operating revenue (Note 24); pension plans and other post-employment benefits (Note 30) and financial instruments and risk and capital management (Note 31).

Our financial statements prepared in accordance with IFRS as of December 31, 2020 and December 31, 2019 and for the years ended December 31, 2020, December 31, 2019 and December 31, 2018 have also been filed with the CVM, the local securities regulator in Brazil and made publicly available. Our selected financial information included in “Item 3. Key Information—A. Selected Financial Data” should be read in conjunction with, and is qualified in its entirety by, our financial statements and “Item 5. Operating and Financial Review and Prospects” appearing elsewhere in this annual report.

The consolidated financial statements as of December 31, 2020 and 2019 and for each of the three years in the period ended December 31, 2020 are prepared in compliance with IFRS, as issued by the IASB and also with the pronouncements, interpretations and guidance issued by the IASB and the IFRS Interpretations Committee, or the IFRIC, which entered into force as of January 1, 2020.

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

vii 

Part I

Item 1. Identity of Directors, Senior Management and Advisers

Not applicable.

Item 2. Offer Statistics and Expected Timetable 

Not applicable.

Item 3. Key Information

A.       Selected Financial Data 

The selected financial data presented below should be read in conjunction with our consolidated financial statements, including the notes thereto included elsewhere in this annual report. Our consolidated financial statements included herein as of December 31, 2020 and for the years ended December 31, 2020, 2019 and 2018 have been audited by PricewaterhouseCoopers Auditores Independentes. The report of PricewaterhouseCoopers Auditores Independentes on the consolidated financial statements appears elsewhere in this annual report.

Results of Terra are consolidated into our financial statements as from July 3, 2017. 

The following tables present a summary of our selected financial data at the dates and for each of the periods indicated. You should read the following information together with our audited consolidated financial statements and the notes thereto included elsewhere in this annual report and with “Item 5. Operating and Financial Review and Prospects.”

	Year ended December 31,
	2020			2020			2019			2018			2017			2016
	(in millions of U.S. dollars) (1)			(in millions of reais) (except for share and per share data)
Income Statement Data:
Net operating revenue		8,299			43,126			44,268			43,463			43,207			42,508
Cost of sales		(4,367	)		(22,693	)		(22,159	)		(21,026	)		(20,272	)		(20,823	)
Gross profit		3,932			20,433			22,109			22,437			22,935			21,685
Operating income (expenses), net		(2,666	)		(13,853	)		(14,895	)		(12,981	)		(16,302	)		(15,317	)
Operating income		1,266			6,580			7,214			9,456			6,633			6,368
Financial income (expenses), net		(110	)		(573	)		(820	)		1,827			(903	)		(1,234	)
Equity pickup		—			1			1			(6	)		1			1
Income before taxes		1,156			6,008			6,395			11,277			5,731			5,135
Income and social contribution taxes		(238	)		(1,238	)		(1,394	)		(2,349	)		(1,122	)		(1,050	)
Net income for the year		918			4,770			5,001			8,928			4,609			4,085
Attributable to:
Controlling shareholders		918			4,770			5,001			8,928			4,609			4,085
Non-controlling shareholders		—			—			—			—			—			—
Basic and diluted earnings per share:
Common shares		0.56			2.90			2.78			4.96			2.56			2.27
Preferred shares		0.53			2.77			3.06			5.45			2.82			2.50
Cash dividends per share in reais, net of withholding tax:
Common shares		0.56			2.92			3.12			1.95			1.73			1.65
Preferred shares		—			—			3.29			2.15			1.90			1.81

1 

	As of December 31,
	2020		2020		2019		2018		2017		2016
	(in millions of U.S. dollars)(1)		(in millions of reais) (except for share and per share data)
Balance Sheet Data:
Property, plant and equipment, net		8,535		44,353		42,847		34,115		33,222		31,925
Total assets		20,925		108,738		108,290		102,561		101,383		102,066
Loans and financing—current portion		508		2,638		3,049		1,340		1,621		2,543
Loans and financing—noncurrent portion		1,647		8,557		7,671		1,625		2,320		3,127
Debentures—current portion		201		1,045		1,077		124		1,413		2,120
Debentures—noncurrent portion		192		1,000		2,027		3,050		3,108		1,434
Shareholders’ equity		13,385		69,557		70,456		71,607		69,461		69,244
Attributable to:
Controlling shareholders		13,385		69,557		70,456		71,607		69,461		69,244
Non-controlling shareholders		—		—		—		—		—		—
Capital stock		12,233		63,571		63,571		63,571		63,571		63,571
Number of shares outstanding (in thousands)(2)		n/a		1,688,174		1,688,694		1,688,694		1,688,694		1,688,694

	Year ended December 31,
	2020			2020			2019			2018			2017			2016
	(in millions of U.S. dollars)(1)			(in millions of reais)
Cash Flow Data:
Operating activities:
Net cash (used in) generated by operating activities		3,722			19,342			17,721			11,941			12,641			11,440
Investing activities:
Net cash (used in) generated by investing activities		(1,233	)		(6,409	)		(7,927	)		(5,676	)		(8,438	)		(6,895	)
Financing activities:
Net cash (used in) generated by financing activities		(2,033	)		(10,564	)		(9,782	)		(6,934	)		(5,258	)		(4,777	)
Increase (decrease) in cash and cash equivalents		456			2,369			12			(669	)		(1,055	)		(232	)
Cash and cash equivalents at beginning of year		653			3,393			3,381			4,050			5,105			5,337
Cash and cash equivalents at end of year		1,109			5,762			3,393			3,381			4,050			5,105

_______________

(1) Translated for convenience only using the commercial offer rate as reported by the Central Bank as of December 31, 2020 for reais into U.S. dollars of R$5.1967 to US$1.00. These translations should not be considered representations that any such amounts have been, could have been or could be converted 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 converted into U.S. dollars as of that or any other date.

(2) As of the date of this annual report, we held 1,688,174,171 outstanding shares, composed entirely of common shares, net of 2,810,752 treasury shares.

2 

Exchange Rates

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

Since 1999, the Central Bank has allowed the real/U.S. dollar exchange rate to float freely, and, since that time, the real/U.S. dollar exchange rate has fluctuated considerably. The real/U.S. dollar exchange rate reported by the Central Bank was R$3.259 per US$1.00 on December 31, 2016, an appreciation of 20% against the rate of R$3.905 per US$1.00 reported on December 31, 2015. In 2017, the real depreciated by 1%, with the exchange rate reaching R$3.308 per US$1.00 on December 31, 2017. In 2018, the real depreciated an additional 16%, to R$3.875 per US$1.00 on December 31, 2018. In 2019, the real depreciated an additional 4% to R$4.031 per US$1.00 on December 31, 2019. The real/U.S. dollar exchange rate reported by the Central Bank was R$5.197 per US$1.00 on December 31, 2020, which reflected a 29% depreciation of the real against the U.S. dollar during 2020 due primarily to the impact of the COVID-19 pandemic on the Brazilian economy.

The Brazilian government has implemented various economic plans and utilized a number of exchange rate policies, including sudden devaluations, periodic mini-devaluations (during which the frequency of adjustments ranged from a daily to a monthly basis), floating exchange rate systems, exchange controls and dual exchange rate markets. We cannot predict whether the Central Bank or the Brazilian government will continue to let the real float freely or intervene in the exchange rate market by returning to a currency band system or otherwise. The real may depreciate or appreciate substantially against the U.S. dollar.

The following tables set forth the selling exchange rate, expressed in reais per U.S. dollar (R$/US$) for the periods indicated, as reported by the Central Bank.

	Exchange Rates of R$ per US$1.00
	Period-End		Average(1)		High		Low
Year ended December 31,
2016		3.2591		3.4500		4.1558		3.1193
2017		3.3080		3.2031		3.3807		3.0510
2018		3.8748		3.6796		4.1879		3.1450
2019		4.0307		3.9443		4.2602		3.6519
2020		5.1967		5.2426		5.9372		4.0213
Month
August 2020		5.4713		5.4612		5.6510		5.2760
September 2020		5.6407		5.3943		5.6528		5.2532
October 2020		5.7718		5.6219		5.7803		5.5205
November 2020		5.3317		5.4347		5.7718		5.2821
December 2020		5.1967		5.1263		5.2789		5.0578
January 2021		5.4759		5.3562		5.5089		5.1626
February 2021 (through February 24, 2021)		5.4182		5.4067		5.5044		5.3423

_______________

Source: Brazilian Central Bank.

(1) Annually, represents the average of the exchange rates on the last day of each month during the periods presented; monthly, represents the average of the end-of-day exchange rates during the periods presented.

3 

On February 24, 2021, the exchange rate was R$5.4182 to US$1.00. The real/dollar exchange rate fluctuates and, therefore, this exchange rate may not be indicative of future exchange rates.

B. Capitalization and Indebtedness

Not applicable.

C. Reasons for the Offer and Use of Proceeds

Not applicable.

D. Risk Factors

This section is intended to be a summary of more detailed discussions contained elsewhere in this annual report. You should carefully read and consider the following risks, along with the other information included in this Annual Report on Form 20-F. The risks described below are not the only ones we face. Additional risks that we do not presently consider material, or of which we are not currently aware, may also affect us. Our business, results of operations or financial condition could be impacted if any of these risks materialize and, as a result, the market price of our common shares and our ADSs could be affected. The risks described below are organized by risk category and these categories are not presented in order of importance. However, within each category, the risk factors are presented in descending order of importance, as determined by us as of the date of this annual report. We may change our vision about their relative importance at any time, especially if new internal or external events arise.

Summary of Risk Factors

Summary of Risks Relating to Brazil

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

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

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

· Political, economic and social developments and the perception of risk in other developed and emerging countries may adversely affect the Brazilian economy, our business, and the market price of Brazilian securities, including our common shares and ADSs.

· Any further downgrading of Brazil’s credit rating could reduce the trading price of our common shares and ADSs.

Summary of Risks Relating to the Brazilian Telecommunications Industry and Us

· Our business, operations and results have been, and may continue to be, adversely impacted by the effects of the COVID-19 pandemic.

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

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

4 

· A review of our concession agreements and/or the implementation of a new regulatory framework in Brazil could have a materially adverse effect on our operations.

· Our current radiofrequency licenses may not be renewed for additional periods.

· We are exposed to risks in relation to compliance with anti-corruption laws and regulations and economic sanctions programs.

· We are dependent on key personnel and the ability to hire and retain additional personnel.

· We depend on key suppliers to obtain the necessary equipment and services for our business.

· We are subject to liabilities relating to third party contractors, which may have a material adverse effect on our business and results of operations.

· We make investments based on demand forecasts that may become inaccurate due to economic volatility and may result in revenues that are lower than expected.

· Consolidation in the telecommunications market may increase competition in the near future and may change Brazilian market dynamics.

· The transactions contemplated by the Oi Agreement may not be consummated, and if they are consummated, we may be unable to successfully integrate the assets and operations contemplated thereunder or to realize expected benefits.

· We face significant competition in the Brazilian market.

· Other risks such as changes to the fees, rates, rules and requirements established by ANATEL that apply to our mobile and other telecommunications services, the issuance of new regulations by ANATEL affecting many areas of our operations, continual changes and evolution in the telecommunications industry, our ability to comply with ANATEL’s quality of service obligations, the new Brazilian General Data Protection Law and internet regulations in Brazil, our ability to comply with covenants under our debt agreements and environmental regulations, and effects of man-made and natural disasters and cybersecurity risks on our network and service continuity.

Summary of Risks Relating to the Common Shares and the ADSs

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

· Holders of our ADSs are not entitled to attend shareholders’ meetings and may only vote through the depositary.

· Holders of our ADSs or common shares might be unable to exercise preemptive rights with respect to the common shares unless there is a current registration statement in effect which covers those rights or unless an exemption from registration applies. 

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

· Holders of our common shares will be subject to, and holders of our ADSs could be subject to, Brazilian income tax on capital gains from sales of common shares or ADSs.

Certain Factors Relating to our Controlling Shareholder

· Our controlling shareholder has power over the direction of our business. 

5 

Risks Relating to Brazil

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

The Brazilian federal government frequently exercises significant influence over the Brazilian economy and occasionally makes significant changes in policy and regulations. The Brazilian government’s actions to control inflation and other policies and regulations have often involved, among other measures, changes in interest rates, changes in tax policies, wage and price controls, foreign exchange controls, currency devaluations, capital controls and limits on imports. Our financial condition, as well as our business and results of operations and the market price of our common shares and ADSs, may be adversely affected by changes in government policies, especially those related to our sector, such as changes in telephone fees and competitive conditions, as well as general economic factors, including:

· exchange rates and currency fluctuations;

· exchange controls and restrictions on remittances abroad, (including with regards to the payment of dividends) such as those imposed in 1989 and early 1990;

· growth or downturn of the Brazilian economy;

· inflation;

· energy policy;

· interest rates and monetary policies;

· liquidity of domestic capital and lending markets;

· fiscal policies and changes in tax laws;

· economic, political or social instability;

· labor and social security policies, laws and regulations; and

· other political, diplomatic, social and economic developments in or affecting Brazil.

Uncertainty over whether the Brazilian federal government will implement changes to the policies, regulations or standards affecting these or other factors in the future may affect economic performance, which may have an adverse effect on us and the trading price of our common shares and ADSs. Past economic and political instability has led to a negative perception of the Brazilian economy and higher volatility in the Brazilian securities markets, which has adversely affected us and the trading price of our common shares and ADSs.

Political instability may materially adversely affect the Brazilian economy, our business, and the market price of our common shares and ADSs.

Brazil’s political environment has historically influenced and continues to influence the performance of Brazil’s economy, as well as investor and general public confidence, resulting in economic slowdowns and an increase in the volatility of securities issued by Brazilian companies.

The President of Brazil has the power to determine policies and issue government measures relating to the Brazilian economy and, as a result, affect the operations and financial performance of companies, including us. We cannot predict what policies the President of Brazil will establish or whether such policies or changes in existing policies will have an adverse effect on the Brazilian economy or our business, results of operations, financial condition and the market price of our common shares and ADSs.

6 

In addition, any difficulties the Brazilian government may face establishing a majority in Congress could result in a government impasse, political unrest and mass demonstrations and/or strikes that could materially adversely affect our operations. Uncertainties about the implementation of changes in monetary, tax and social security laws and policies, may contribute to economic instability. These uncertainties and any new measures may increase volatility in the Brazilian securities market.

In the past years, the Brazilian markets have experienced increased volatility due to uncertainties arising from investigations conducted by the Brazilian federal police and the Brazilian federal prosecutor’s office, including “Operation Car Wash” (Lava Jato), which have impacted Brazil’s economy and political environment.

Developments in these cases of unethical conduct have materially adversely affected and may continue to materially adversely affect us. There can be no guarantee that any of the investigations will not lead to greater political and economic instability or whether new allegations against government employees and officials and/or private companies will arise in the future. In addition, we cannot predict the result of these investigations or their impact on the Brazilian economy or the Brazilian stock market.

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

In the past, Brazil has recorded high inflation rates, which, combined with other measures taken by the Brazilian government to fight inflation and speculation on what measures would be taken, has materially adversely affected the Brazilian economy. The measures taken by the Brazilian government to control inflation have included maintaining strict monetary policies and high interest rates, which restricted the availability of credit and reduced economic growth. The COPOM often adjusts interest rates in Brazil during periods of economic uncertainty in order to achieve the inflation targets established by the Brazilian government. Inflation, the Brazilian government’s efforts to curb inflation and speculation regarding the future measures, has had material adverse effects on the Brazilian economy and contributed to economic uncertainty in Brazil, which increases volatility in the Brazilian capital markets and may materially adversely affect our business and results of operations.

According to the National Consumer Price Index (Índice Nacional de Preços ao Consumidor Amplo), or IPCA, Brazilian inflation rates were 4.3%, 3.7%, 2.9% and 6.3% in 2019, 2018, 2017 and 2016, respectively. In 2020, inflation, as measured by the IPCA, registered 4.52%. In the past, the Brazilian government’s interventions to curb inflationary pressures included the maintenance of a restrictive monetary policy with high interest rates that restricted credit availability and reduced economic growth, causing volatility in interest rates.

Over the recent years, the inflation scenario has evolved positively. This has allowed a reduction of the Selic rate (Sistema Especial de Liquidação e de Custódia), the Central Bank’s policy rate. As established by the Monetary Policy Committee of the Central Bank (Comitê de Política Monetária do Banco Central do Brasil—COPOM), the SELIC decreased from a high point of 14.25% in mid-2016 to 4.50% at the end of 2019 and to 2.00% at the end of 2020, its historical minimum. Brazil may experience high levels of inflation in the future and inflationary pressures may lead to the Brazilian government’s intervening in the economy and introducing policies that could harm our business and the price of our common shares and ADSs.

Currently, fixed broadband and mobile service providers use the internal general price index (Índice Geral de Preços - Disponibilidade Interna), or IGP-DI, to adjust their prices and television and cable service providers use the market general price index (Índice Geral de Preços ao Mercado), or IGP-M. The IGP-DI and IGP-M are inflation indexes developed by the Fundação Getúlio Vargas, a private organization. Since 2006, telephone fees for fixed-line services have been indexed to the telecommunication services index (Índice de Serviços de Telecomunicações), or IST, adjusted by a productivity factor, or X Factor, which is defined by ANATEL Resolution 507/2008.

The IST is an index composed of other domestic price indexes (including the IPCA, IGP-DI and IGP-M, among others) that is intended to reflect the telecommunications industry’s operating costs. As a result, this index serves to reduce potential discrepancies between our industry’s revenue and costs, and thus reduce the

7 

apparent adverse effects of inflation on our operations. The productivity factor, pursuant to which ANATEL is authorized to adjust fee rates, is calculated based on a compensation index established by ANATEL to incentivize operational efficiency and to share related gains in earnings from fixed-line services with customers through fee rate adjustments. The IST is calculated based on a 12-month period average. This may cause increases in our revenues above or below our costs (including salaries), with potentially adverse impacts on our profitability.

Inflation and government measures to combat inflation, along with speculation about governmental measures, have had significant negative effects on the Brazilian economy in the recent past, including heightened volatility in the Brazilian securities market. These policies may be incapable of preventing increases in the inflation rate. In the event of an increase in inflation, we may not be able to adjust the prices we charge our customers to offset the effects of inflation on our cost structure, which may adversely affect us.

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

The Brazilian currency has been historically volatile and has been devalued frequently over the past three decades. Throughout this period, the Brazilian government has implemented various economic plans and used various exchange rate policies, including sudden devaluations, periodic mini-devaluations (during which the frequency of adjustments has ranged from daily to monthly), exchange controls, dual exchange rate markets and a floating exchange rate system. Although long-term depreciation of the real is generally linked to the rate of inflation in Brazil, depreciation of the real occurring over shorter periods has resulted in significant variations in the exchange rate between the real, the U.S. dollar and other currencies. The exchange rate between the U.S. dollar and the Brazilian real has experienced significant fluctuations in recent years. In 2014 and 2015, the real depreciated 13.4% and 47.0%, respectively, against the U.S. dollar. In 2016, the real appreciated 16.5% against the U.S. dollar. In 2017, the real depreciated 1.5% against the U.S. dollar, followed by another depreciation of 17.1% in 2018, and 4.0% in 2019. The real/U.S. dollar exchange rate reported by the Central Bank was R$5.196 per US$1.00 on December 31, 2020, which reflected a 22.4% depreciation in the real against the U.S. dollar during 2020 due primarily to the impact of the COVID-19 pandemic on the Brazilian economy. On February 24, 2021, the exchange rate was R$5.4182 per U.S.$1.00. There can be no assurance that the real will not again depreciate against the U.S. dollar or other currencies in the future. 

As of December 31, 2020, none of our total indebtedness of R$13.0 billion was denominated in foreign currency. Approximately 10.7% of our operating costs and expenses are payable or linked to payment by us in U.S. dollars or Euros. By contrast, 99.8% of our revenue is generated in reais, except income derived from hedging transactions, international long-distance interconnection fees and services to customers outside of Brazil. 

To the extent that the value of the real decreases relative to the U.S. dollar or the Euro, our commitments payable or linked to payment by us in foreign currencies become more expensive. Although our accounts receivable denominated in foreign currencies would also appreciate, the net effect could adversely affect our revenue and expenses. In addition, the IST inflation index does not adequately reflect the true effect of exchange rate fluctuations. Thus, our revenue, when translated to U.S. dollars, does not adequately reflect the true effect of exchange rate fluctuations, which may affect our results of operations.

We use derivative instruments to limit our exposure to exchange rate risk. Since September 1999, we have hedged all of our foreign currency-denominated bank debt using swaps and other derivative instruments. Since May 2010, the company began using net balance coverage, which is the hedging of net positions in foreign exchange exposures, or assets (issued invoices) minus liabilities (received invoices) for foreign exchange exposures, substantially reducing our risk to fluctuations in exchange rates. We could still continue to face exchange rate exposure with respect to our planned capital expenditures however, as a small part of our planned capital expenditures are denominated or indexed in foreign currencies (mostly U.S. dollars). We systematically monitor the amounts and time of exposure to exchange rate fluctuations and may hedge positions when deemed appropriate.

8 

Political, economic and social developments and the perception of risk in other developed and emerging countries may adversely affect the Brazilian economy, our business, and the market price of Brazilian securities, including our common shares and ADSs.

The market for securities issued by Brazilian companies may be influenced, to varying degrees, by economic conditions in both developing and developed economies. The reaction of investors to developments in other countries may have an adverse impact on the market value of securities of Brazilian companies. The prices of shares traded on the B3, for example, have historically been sensitive to fluctuations in interest rates in the United States, as well as variations of the main U.S. stock exchanges. Additionally, crises in other emerging countries or the economic policies of other countries may reduce investor demand for securities of Brazilian companies, including our common shares and ADSs. Any of the foregoing developments may adversely affect the market value of our common shares and ADSs and hinder our ability to access the capital markets and finance our operations in the future on acceptable terms and costs, or at all.

To the extent that economic problems in emerging market countries or elsewhere adversely affect Brazil, our business and the market value of our common shares and ADSs could be adversely affected. Furthermore, we cannot assure you that, in the event of adverse developments in emerging market economies, the international capital markets will remain open to Brazilian companies or that the resulting interest rates in such markets will be advantageous to us. Decreased foreign investment in Brazil may negatively affect growth and liquidity in the Brazilian economy, which in turn may have a negative impact on our business. Disruption or volatility in the global financial markets could further increase negative effects on the financial and economic environment in Brazil, which could have a material adverse effect on us.

Any further downgrading of Brazil’s credit rating could reduce the trading price of our common shares and ADSs.

We may be harmed by investors’ perceptions of risks related to Brazil’s sovereign debt credit rating. Rating agencies regularly evaluate Brazil and its sovereign ratings, which are based on a number of factors including macroeconomic trends, fiscal and budgetary conditions, indebtedness metrics and the perspective of changes in any of these factors.

Brazil was downgraded to non-investment grade status by S&P in September 2015, by Fitch Ratings in December 2015, by Moody’s in February 2016 and downgraded again by Fitch in May 2016. Brazil’s sovereign rating is currently rated by the three major risk rating agencies as follows: BB- by S&P and Fitch Ratings and Ba2 by Moody’s.

Brazil’s sovereign credit rating is currently rated below investment grade by the three main credit rating agencies. Consequently, the prices of securities issued by Brazilian companies have been negatively affected. A reversal of the current recovery of the Brazilian economic activity, instability in the political environment, change in fiscal austerity guidelines, among other factors, could lead to a revision of the agencies’ outlooks, which could be followed by further ratings downgrades. Any further downgrade of Brazil’s sovereign credit ratings could heighten investors’ perception of risk and, as a result, cause the market price of our common shares and ADSs to decline.

Risks Relating to the Brazilian Telecommunications Industry and Us

Our business, operations and results have been, and may continue to be, adversely impacted by the effects of the COVID-19 pandemic.

Since December 2019, SARS-CoV-2, a novel strain of coronavirus referred to as COVID-19, has spread throughout the world. On January 31, 2020, the World Health Organization announced that COVID-19 was a global health emergency and on March 3, 2020, the World Health Organization categorized COVID-19 as a pandemic. The COVID-19 pandemic has resulted in numerous deaths and the imposition of local, municipal and national governmental “shelter-in-place” and other public health measures, border closures and other travel restrictions, causing unprecedented economic disruption in much of the world, including in Brazil. The local, national and international response to the virus is quickly developing, fluid and uncertain. During March and April of 2020, state, local and municipal authorities within Brazil promoted and enforced public

9 

health measures, including social isolation and quarantine measures, and have enacted regulations limiting the operations of “non-essential” businesses. In mid-March 2020, São Paulo and other Brazilian states declared a state of emergency. Although the Brazilian government has determined that the telecom sector is an essential service, which allows us to continue our field maintenance activities without violating restrictions on movement that have generally been imposed to combat the pandemic, in accordance with the recommendations of the authorities, we transitioned a substantial majority of our employees to work from home.

In Brazil generally and in particular regions where we have a significant employee presence, facilities or critical operations, the outbreak of COVID-19 has impacted our ability to manage day-to-day operations and service our customers and has resulted in, among other things, loss of revenue, although we have also experienced a decrease in our costs of operations due to lower variable costs such as sales commissioning, call centers, billing and advertising. We have implemented corporate and personal travel restrictions for employees and vendors, cancelled events and enabled work-from-home for many employees by equipping them to safely support customers remotely. We have also implemented additional safety measures for our retail stores and field operations teams. Additionally, we have been required to temporarily close or reduce operations at some of our retail locations, facilities and customer call centers. Retail locations were closed temporarily, but started reopening in the second quarter of 2020, with reduced hours of operation and customer capacity limitations, as stay-at-home orders began to ease in São Paulo and other Brazilian cities. As a result of travel and other public health restrictions enacted by local government, our third-party call center was forced to reduce its hours of operation in March 2020 for several weeks, resulting in longer than normal hold times during that period, as well as lower upselling from prepaid to postpaid plans, which are typically made through this channel, resulting in decreased revenues. Due to stay-at-home orders easing in the primary markets in which the Company operates, operations are in the process of normalizing as of the date of this annual report, but we may be required to temporarily close or reduce operations at more of or all of our retail locations, facilities or call centers again if there is a resurgence of COVID-19 in the markets in which we operate. The foregoing effects, and other effects of COVID-19, may continue for an unknown period of time.

Our business has been, and may continue to be, negatively impacted by the effects of, or precautions taken to avoid exposure to, COVID-19, such as reduced travel or recommendations or mandates from governmental authorities to avoid large gatherings or to self-quarantine, and by the resulting disruptions to economic conditions and financial markets. Such impacts include, but are not limited to:

· Reduced sales of certain of our products and services, such as handset sales and upsells made through our retail stores and upsells through our call centers and other channels, as a result of public health measures;

· Disruptions to our third-party providers, including those who provide many of our information technology, call center functions, certain accounting functions and other critical vendor services;

· Reduced workforces caused by, among other things, the temporary inability of the workforce to work due to illness, quarantine, or government mandates, or temporary unwillingness to work due to health concerns;

· Reduced customer demand or customer payment of accounts receivables as a result of adverse economic conditions resulting from the COVID-19 pandemic;

· Reduced availability of certain equipment in the supply chain due to increased demand; and

· Increases in provisions for bad debt as a result of increased unemployment and the inability of certain customers to pay bills and late fees as a result of disruptions caused by the COVID-19 pandemic.

Potential future impacts include, but are not limited to:

· Service disruptions or reduced bandwidth for copper-based broadband customers due to significant short-term increases in bandwidth usage due to individuals working from home and/or significantly higher expenses attributable to infrastructure investments required to meet such higher network utilization trends;

10 

· Imposition of governmental requirements preventing our termination services as a result of non-payment, thus encouraging customer defaults on invoices, resulting in a decline in our cash flows from operations and an increase in our expected losses on trade receivables;

· Increased supply chain risks such as increased scrutiny or embargoing of goods produced in infected areas;

· Increased health insurance and labor-related costs arising from illness, quarantine and the implementation of social distancing and work-from-home measures;

· Reduced employee productivity and a negative impact on the execution of our business plans and operations as employees must balance working remotely from home with personal responsibilities, such as child care and education;

· Increased risk of phishing and other cybersecurity attacks, and increased risk of unauthorized dissemination of sensitive personal information or proprietary or confidential information about us, our customers or other third parties as a result of employees or third-party vendors’ employees working remotely; and

· In the event of continued restrictions on certain activities, or a natural disaster, power outage, connectivity issue or other event that impacts our employees’ ability to work remotely, it may be difficult or, in certain cases, impossible, for us to continue to support our customers’ needs and respond to inquiries through call center operations or to perform necessary or routine repairs, maintenance and installation activities, which could adversely affect our operations and sales.

The foregoing impacts, and other impacts of COVID-19 discussed elsewhere in these risk factors, are broadly consistent with those generally affecting the economic, financial, regulatory and political conditions in Brazil and elsewhere in the world, and are generally applicable to the industries and markets in which the Company and its subsidiaries operate. These impacts could materially increase our costs, negatively impact our consumer and business sales and damage the Company’s financial condition, results of operations, cash flows and liquidity position, possibly to a significant degree.

We cannot predict the full effect of the pandemic on our business or on the Brazilian economy. Federal, state and municipal governments in Brazil may announce further restrictions on the general population and we cannot predict what effect this will have on our operations and sales in the long term. We cannot predict the duration of the pandemic, the effectiveness of governmental or other measures taken to attempt to curb the pandemic, or the duration of any such measures. In addition, following the pandemic and the termination of any such governmental restrictions, the needs and preferences of our customers may have been altered. The impact of the COVID-19 pandemic is rapidly evolving, and the continuation or a future resurgence of the pandemic could precipitate or aggravate the other risk factors that we face, which in turn could further materially and adversely affect our business, financial condition, liquidity, results of operations and profitability, including in ways that are not currently known to us or that we do not currently consider to present significant risks. The extent of the impact of the COVID-19 on our operational and financial performance in the longer term will depend on future developments, including the duration of the outbreak and related travel advisories and restrictions and the impact of the COVID-19 on overall demand for travel, all of which are highly uncertain and beyond our control. We will continue to actively monitor the situation and may take further actions that alter our business operations as may be required by federal, state or local authorities, or that we determine are in the best interests of our employees, clients, suppliers and shareholders.

For more information about specific measures that we have adopted and potential impacts on our business operations, see “Item 4. Information on the Company—A. History and Development of the Company—Recent Developments—COVID-19 Pandemic” and “Item 5. Operating and Financial Review and Prospects— A. Operating Results—Overview—Effects of the COVID-19 Pandemic.”

11 

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

Our business is subject to extensive regulation, including any regulatory changes that may occur during the terms of our concession agreements and our authorizations to provide telecommunication services in Brazil. ANATEL, the main telecommunications industry regulator in the country, regulates, among other things:

· industry policies and regulations;

· licensing (including licensing of spectrum and bidding processes);

· fees and tariffs;

· competition incentives and restrictions (including our ability to grow by acquiring other telecommunications businesses);

· service, technical and quality standards;

· consumer rights;

· penalties and other sanctions;

· interconnection and settlement arrangements; and

· universal service obligations.

The Brazilian telecommunications regulatory framework is continuously evolving. The interpretation and enforcement of regulations, the assessment of compliance with regulations and the flexibility of regulatory authorities are all marked by uncertainty. We operate under authorizations and a concession from the Brazilian government, and our ability to maintain these authorizations and concessions is a precondition to our success. However, because of the changing nature of our regulatory framework, we cannot provide assurances that ANATEL will not adversely modify the terms of our authorizations and/or licenses. According to our operating authorizations and licenses, we must meet specific requirements and maintain minimum quality, coverage and service standards. Our failure to comply with such requirements may result in the imposition of fines, penalties and/or other regulatory responses, including the termination of our operating authorizations and concession. Any partial or total termination of any of our operating authorizations and licenses or our concession would have a material adverse effect on our business, financial condition, revenues, results of operations and prospects.

In recent years, ANATEL has been reviewing and introducing regulatory changes, especially regarding asymmetric competition measures and interconnection fees charged among local providers of telecommunications services. Asymmetric competition measures can include regulations intended to rebalance markets in which a market participant has distinct market power over other competitors. The adoption of disproportionately asymmetric measures could have a material adverse effect on our business, financial condition, revenues, results of operations and prospects.

With respect to interconnection fees, these are an important part of our revenue and cost bases. Such fees are charged by telecommunications service providers to each other in order to allow interconnected use of each other’s networks. To the extent that changes to the rules governing interconnection fees reduce the amount of fees we can receive, or our ability to collect such fees, our businesses, financial conditions, revenues, results of operations and prospects could be materially adversely affected. 

Therefore, our business, results of operations, revenues and financial conditions could be negatively affected by the actions of the Brazilian authorities, including, in particular, the following:

12 

· the introduction of new or stricter operational and/or service requirements;

· the granting of operating licenses in our areas;

· limitations on interconnection fees we may charge to other telecommunications service providers;

· imposition of significant fines or penalties regarding failures to comply with regulatory obligations;

· delays in the granting of, or the failure to grant, approvals for rate increases; and

· antitrust limitations imposed by ANATEL and CADE.

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

We operate our fixed-line business in the state of São Paulo under a concession granted by the Brazilian government. According to the terms of the concession, we are obligated to meet certain universal service requirements and to maintain minimum quality and service standards. For example, ANATEL requires that we satisfy certain conditions with respect to, among other things, the expansion of our network to provide (i) despite significant reductions in public pay-phone services requirements permitted under Decree No. 9,619 of December 2018, expansions may be necessary under specific conditions and (ii) the provision of private individual telephone service for locations reaching a population of more than 300 inhabitants may be required upon request by any consumer, as well as certain quality of service targets (reviewed by Resolution No. 717, issued on December 2019, which remains under implementation). Our ability to satisfy the terms and conditions may be affected by factors beyond our control, and our failure to comply with the requirements of our concession may result in the imposition of fines up to R$50 million per incident and/or other government actions, including the imposition of a precautionary ban on marketing our services, or the termination of our concession. Any partial or total termination of our concession or authorizations would have a material adverse effect on our financial condition and results of operations.

Furthermore, the concession agreements establish that all assets owned by us, and which are indispensable to the provision of the services described in such agreements, are considered “reversible assets” (bens reversíveis) and are deemed to be part of the concession assets. According to ANATEL’s interpretations of current regulations, reversible assets will be automatically returned to ANATEL’s possession upon expiration of the concession agreements in accordance with regulations in force at the time of such expiration, and would not be available to creditors in the event of insolvency, bankruptcy or similar events, although there are differing interpretations, even among government agencies, and ongoing discussions regarding the treatment of reversible assets as a result of the passage of Law No. 13,879/2019, or the New General Telecommunications Law, on October 4, 2019. See “—Review of our concession agreements and/or the implementation of a new regulatory framework in Brazil could have a materially adverse effect on our operations.”

As of December 31, 2020, the net book value of our reversible assets, calculated in accordance with ANATEL’s interpretation of current regulations, is estimated at R$6.7 billion. These assets are comprised of switching and transmission equipment, public use terminals, external network equipment, energy equipment and systems and operations support equipment.

A review of our concession agreements and/or the implementation of a new regulatory framework in Brazil could have a materially adverse effect on our operations.

The expiration date of our fixed line concession agreements in São Paulo is December 31, 2025. These agreements contain a provision allowing ANATEL to review the concession agreements every five years and include revisions to terms and conditions that relate to network expansion, modernization and quality of service targets in response to changes in technology, competition in the marketplace and domestic and international economic conditions.

13 

On June 24, 2014, ANATEL opened a public review and comment period for the revisions of the terms of fixed-line concession agreements with respect to the 2016-2020 period. However, when the agency released the new version of the agreements in June 2017, operators disagreed with the inclusion by ANATEL of certain provisions and decided against executing new agreements with the agency. As a result, the agreements with respect to the 2011-2015 period remain in force. In December 2018, although the new concession contracts had not yet been signed, the Brazilian government published Decree No. 9,619/2018, called PGMU IV, which approves the revision of the PGMU targets. The new plan replaces some obligations, mainly related to public telephony, for obligations related to 4G mobile network. These targets have been criticized by several of the local operators. In November 2020, Anatel issued Resolution nº 737, which amended the Concession Contracts for the provision of Fixed Telephone Services (STFC), in Local, National Long Distance (LDN) and International Long Distance (LDI) modalities.

On October 4, 2019, Law No. 13,879/2019 (resulting from PLC Nº 79/2016), or the New General Telecommunications Law, was published. This law revises the telecommunications regulatory framework and represents a significant impact on this industry. The law allows fixed-line concessions operators to migrate from a concession regime (in which the underlying assets must be reverted to the government at the end of the concession) to an authorization regime, although further rulemaking remains under way to fully implement the law and permit operators to migrate to the new regime. For more information about the New General Telecommunications Law, see “Item 4. Information on the Company—B. Business Overview—Regulation of the Brazilian Telecommunications Industry—Other regulatory matters—Updated Regulatory Framework.”

Any changes on laws, rules or regulations could have a material adverse effect on our operations and financial condition. Changes to our concession agreements or to the current regulatory framework may entail the imposition of new requirements, including obligations to make specific investments and/or capital expenditures. ANATEL may also impose new service targets on us with values that we are not able to predict.

Our current radiofrequency licenses may not be renewed for additional periods.

Generally, current spectrum authorizations are valid for 15 years and can be renewed only once. Although the newly-approved New General Telecommunications Law admits successive spectrum renewals, we cannot guarantee that our existing licenses will be renewed.

According to the New General Telecommunications Law and the Decree nº 10.402 issued in June 2020, ANATEL may determine specific conditions for the renewal of our existing licenses, such as mandatory “refarming” processes in certain spectrum bands or refuse renewal requests altogether. A refarming process can reduce the amount of spectrum available for each operator, depending on the configuration of the new blocks.

Our current 850 MHz authorizations will expire between 2020 and 2028. In September 2020, Anatel’s Board of Directors decided, during an extraordinary meeting, to approve the renewal of our 850 MHz authorizations for primary use until 2028. However, specific conditions for renewal are still under discussion between Anatel and service providers. If a renewal in 2028 is not allowed, it would be necessary to compete for new licenses in a spectrum auction. In addition, the coverage of our mobile services would be significantly affected by a loss of or failure to renew spectrum licenses. Further, in certain regions, our services may be unavailable, particular in the event of a failure to renew or obtain all licenses for such regions. In the event of any of the foregoing circumstances, our business, financial condition, revenues, results of operations and prospects could be materially adversely affected.

We are exposed to risks in relation to compliance with anti-corruption laws and regulations and economic sanctions programs. 

The Company is required to comply with Brazilian anti-corruption laws and regulations on the same subject in jurisdictions where it has its securities traded. In particular, the Company is subject, in Brazil, to Law no. 12,846/2013 and, in the United States, to the U.S. Foreign Corrupt Practices Act of 1977. Additionally, the Company’s operations may be subject to, or otherwise affected by, economic sanctions programs and other forms of trade restrictions (hereinafter, referred to as “sanctions”) including those administered by the United States, including the US Treasury Department’s Office of Foreign Assets Control. 

14 

Although the Company has internal policies and procedures designed to ensure compliance with the abovementioned anti-corruption laws and sanctions regulations (to the extent applicable), there can be no assurance that such policies and procedures will be sufficient or that the Company’s employees, directors, officers, partners, agents and service providers will not take actions in violation of the Company’s policies and procedures (or, otherwise in violation of the relevant anti-corruption and sanctions laws and regulations) for which the Company, its subsidiaries or they may be ultimately held responsible. Violations of such laws and regulations could lead to financial penalties, damage to the Company’s reputation or other legal consequences that could have a material adverse effect on the Company’s business, results of operations and financial condition.

We are dependent on key personnel and the ability to hire and retain additional personnel.

We believe that our success will depend on the continued services of our senior management team and other key personnel. Our management team is comprised of highly qualified professionals, with extensive experience in the telecommunications industry. The loss of the services of any of our senior management team or other key employees could adversely affect our business, financial condition and results of operations. We also depend on the ability of our senior management and key personnel to work effectively as a team.

Our future success also depends on our ability to identify, attract, hire, train, retain and motivate highly skilled technical, managerial, sales and marketing personnel. Competition for such personnel is intense, and we cannot guarantee that we will successfully attract, assimilate or retain a sufficient number of qualified personnel. Failure to retain and attract the necessary technical, managerial, sales and marketing and administrative personnel could adversely affect our business, financial condition and results of operations.

We depend on key suppliers to obtain the necessary equipment and services for our business.

We depend on certain key suppliers of equipment and services, especially telecommunications network equipment and handsets, for the execution and development of our business. These suppliers may delay delivery, alter prices and limit supply as a result of problems related to their own businesses, over which we have no control. If these suppliers are not able to deliver equipment and services regularly, we may face problems with the continuity of our business activities, which may have an adverse effect on our business and results of operations.

We are subject to liabilities relating to third party contractors, which may have a material adverse effect on our business and results of operations.

We are exposed to contingent liabilities resulting from our contracting structure, which includes third-party service providers. Such potential liabilities may involve labor claims by third-party providers that are treated as direct employees as well as joint liability claims relating to wage or overtime pay complaints and workplace injury claims. If a significant portion of these contingent liabilities is decided against us and for which we have not made adequate provisions, our financial condition and results of operation may be adversely affected.

Furthermore, if the contracting of third party service are considered to involve the main activities of the company, it may be characterized as direct employment, which would significantly increase our costs and as a result, we may be subject to administrative proceedings by the relevant labor regulators and may be required to pay fines to the third-party service providers.

Certain key inputs are subject to risks related to importation, and we acquire other key inputs from a limited number of domestic suppliers, which may further limit our ability to acquire such inputs in a timely and cost-effective manner.

The high growth in data markets in general and broadband in particular may result in a limited supply of equipment essential for the provision of such services, such as data transmission equipment and modems. The restrictions on the number of manufacturers imposed by the Brazilian government for certain inputs, mainly data transmission equipment and modems, and the geographical locations of non-Brazilian manufacturers of these inputs, pose certain risks, including:

15 

· vulnerability to currency fluctuations in cases where inputs are imported and paid for with U.S. dollars, Euros or other non-Brazilian currency;

· difficulties in managing inventory due to an inability to accurately forecast the domestic availability of certain inputs; and

· the imposition of customs or other duties on key inputs that are imported.

If any of these risks materialize, they may result in our inability to provide services to our customers in a timely manner or may affect the prices of our services, which may have an adverse effect on our business, financial condition and results of operations.

We make investments based on demand forecasts that may become inaccurate due to economic volatility and may result in revenues that are lower than expected.

We make certain investments, such as the procurement of materials and the development of physical sites, based on our forecasts of the amount of demand that customers will have for our services at a later date (generally several months later). However, any major changes in the Brazilian economic scenario may affect this demand and therefore our forecasts may turn out to be inaccurate. For example, economic crises may restrict credit to the population, and uncertainties relating to employment may result in a delay in the decision to acquire new products or services (such as broadband or Pay TV). As a result, it is possible that we may make larger investments based on demand forecasts that were necessary given actual demand at the relevant time, which may directly affect our cash flow.

Furthermore, improvements in economic conditions may have the opposite effect. For example, an increase in demand not accompanied by our investment in improved infrastructure may result in a possible loss of opportunity to increase our revenue or result in the degradation of the quality of our services.

Consolidation in the telecommunications market may increase competition in the near future and may change Brazilian market dynamics.

Mergers and acquisitions may change market dynamics, create competitive pressures, force small competitors to find partners and impact our financial condition; and may require us to adjust our operations, marketing strategies (including promotions), and product portfolio.

The entry of a new market participant with significant financial resources or potential changes in strategy by existing telecommunications service providers can change the competitive environment in the Brazilian market. We may be unable to keep pace with these changes, which could affect our ability to compete effectively and have a material adverse effect on our business, financial condition and results of operations.

Additional joint ventures, mergers and acquisitions among telecommunications service providers are possible in the future. If such consolidation occurs, it may result in increased competition within our market. We may be unable to adequately respond to pricing pressures resulting from consolidation in our market, adversely affecting our business, financial condition and results of operations. We may also consider engaging in merger or acquisition activity in response to changes in the competitive environment, which could divert resources away from other aspects of our business.

The transactions contemplated by the Oi Agreement may not be consummated, and if they are consummated, we may be unable to successfully integrate the assets and operations contemplated thereunder or to realize expected benefits.

Our ability to consummate the transactions contemplated by the Oi Agreement is subject to various closing conditions. These include customary closing conditions in addition to others that, despite being usually applicable to this type of transaction, are beyond our control, such as the requirement to obtain approvals from certain governmental regulatory authorities. We believe that the most significant risk posed by these closing conditions is related to the governmental regulatory approvals that are required to be granted by the Brazilian competition authority (CADE) and telecommunications regulator (ANATEL), which as of the

16 

date of this annual report, have not yet been granted.  Moreover, as of the date hereof, it is possible that the approvals required for the consummation of the transactions contemplated by the Oi Agreement acquisition may not be obtained or, if they are obtained, could impose unanticipated or adverse conditions or otherwise modify the terms thereof, including the re-allocation of assets among us and the other two operators that were awarded the winning bid together with us, pursuant to our joint bid. Therefore, depending on these conditions, it may not be possible to consummate the Oi Agreement transaction according to the expected timeline or at all. See “Item 4. Information on the Company—A. History and Development of the Company—Recent Developments—Execution of Purchase Agreement for Acquisition of UPI Mobile Assets of the Oi Group.”

In addition, achieving the targeted synergies, such as operating and long-term strategic cost-savings, of the Oi Agreement will depend in part upon whether we can integrate the assets and operations contemplated thereunder in an efficient and effective manner. We may not be able to accomplish this integration process smoothly or successfully. We and Oi operate numerous systems, including those involving clients, spectrum, infrastructure, management information, accounting and finance, sales, billing, and regulatory compliance. Moreover, the integration of the assets and operations acquired will require the dedication of significant management resources, which may distract management’s attention from day-to-day operations. Potential 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 assets and operations contemplated by the Oi Agreement 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 assets and operations under the Oi Agreement, as well as any delays encountered in the integration process, could have an adverse effect on our business, results of operations and financial condition.

We face significant competition in the Brazilian market. 

In 2020, competition in the Brazilian telecommunications sector was quite stable, with a more rational approach due to the COVID-19 pandemic. Telecommunications operators continued to focus on improving their base of accesses by attracting customers to higher-value products. In the mobile side of the business, we believe the main strategy pursued during the year by such market participants, including us, was to upsell prepaid customers to hybrid plans (“planos controle”) and pure postpaid plans, in order to increase overall ARPUs and profitability. In the fixed side of the business, we have seen competition both from large and small players in order to capture customers’ demand for connectivity or upgrades for higher speeds driven by the pandemic effects, especially through the increased rollout of fiber optic networks. In addition, customers are demanding higher quality and more data availability, which require higher investments in development, modernization, expansion and continuous improvement in service quality and customers’ experience.

As a result, we have faced significant competition, mainly driven by the following factors: (1) commercial and pricing pressures from new portfolios launched by competitors; (2) competitors increasing 4G, 4.5G and fiber optic network coverage, improving the quality of service provided by them; and (3) low-cost alternative services, such as voice and text services provided over IP and Video on Demand, may affect our competitive position in the market.

We continuously monitor market progress in order to anticipate future challenges and opportunities and how to address them. Nevertheless, our operational results, market position, competitiveness in the market and margins may be negatively affected if we are unable to keep the same pace as our competitors.

Our results of operations may be negatively affected by the application of the Fixed Commuted Telephone Service (Serviço de Telefonia Fixa Comutada), or STFC, rules relating to fixed telephone service and the Personal Mobile Service (Serviço Móvel Pessoal), or SMP, rules relating to mobile services.

We receive payments for the termination of calls in our fixed network. On Dec 17, 2018, ANATEL established the termination rates for the STFC concessionaries, including TU-RL (Urban Usage Rate), TU-RIU1 (Interurban Usage Rate Level 1) and TU-RU2 (Interurban Usage Rate Level 2) for the years 2020 through 2023. The related rates established by ANATEL are set forth in the following table:

17 

	2020		2021		2022		2023
Sector 31 (fixed)
TU-RL		0.00134		0.00117		0.00104		0.00096
TU-RU1		0.00166		0.00176		0.00183		0.00188
TU-RU2		0.00118		0.00120		0.00122		0.00122

In February 2020, ANATEL established the reference values for MTR for the years from 2020 until 2023. The table below shows the reference values for each region (corresponding to different Brazilian states) in the General Authorization Plan (Plano Geral de Autorizações), or PGA:

Year	PGA Region I		PGA Region II		PGA Region III
2020		0.01338		0.01503		0.02687
2021		0.01380		0.01527		0.02814
2022		0.01422		0.01550		0.02947
2023		0.01468		0.01578		0.03082

We cannot assure you that new mobile service plans will not be suspended by ANATEL, that the mobile interconnection fees we negotiated will not be changed, nor that future negotiations regarding mobile termination rates will result in favorable terms and values. If the readjustments to mobile interconnection fees that we negotiated are canceled or if negotiated mobile interconnection fees in the future are less favorable to us, our business, financial condition, revenues, results of operations and prospects may be adversely affected.

ANATEL has the authority to issue new regulations affecting many of our areas of operations.

ANATEL has the authority to issue new regulations affecting many of our areas of operations. Such new regulations could have an adverse effect on our operating results because: (1) ANATEL could significantly reduce the interconnection fees we are able to charge, thereby reducing our revenues (see “—Our results of operations may be negatively affected by the application of the Fixed Commuted Telephone Service (Serviço de Telefonia Fixa Comutada), or STFC, rules relating to fixed telephone service and the Personal Mobile Service (Serviço Móvel Pessoal), or SMP, rules relating to mobile services”); (2) ANATEL may allow more favorable conditions for economic groups without significant market power; (3) the granting of new licenses may increase competition in our area from other operators, which could adversely affect our prices and/or market share, thereby reducing our revenues; (4) ANATEL may require that revenue received for the usage of the SMP network must be included in the calculation of renewing licenses costs; and (5) ANATEL’s general plan of updating the regulations targets several areas of vital importance for our business (including both our fixed telephony and mobile businesses), which may cause either an increase in operating costs, an increase in competitive pressure, or a decrease in our revenues, among other adverse effects.

For a detailed description of the regulations issued by ANATEL and their impact on our business, see “Item 4. Information on the Company—B. Business Overview—Regulation of the Brazilian Telecommunications Industry.”

The industry in which we conduct our business is continually changing and evolving technologically, which demands adequate changes in the regulatory environment.

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

The advent of new products and technologies could have a variety of consequences. These new products and technologies may reduce the price of our services by providing lower-cost alternatives and the creation of new digital services, such as the example of over-the-top (OTT) players that provide voice and messages over IP. Also, new products and technologies may become superior to, and render obsolete, the products and services we offer and the technologies we use, thus requiring our constant investment in new technology and innovation.

18 

Such new technologies will demand changes in the regulatory environment, challenging both governmental agencies and telecommunication companies. Companies that provide OTT services, which have characteristics similar to telecommunications services, are currently not subject to the same rules as the telecommunications operators. This gap can bring additional challenges to the telecommunications industry, as current developments in the regulatory framework for OTTs are inconsistent and still unclear.

We are subject to certain risks related to conditions and obligations imposed by ANATEL for the use of the spectrum needed for the 4G services we offer.

In 2012, we acquired 40MHz on the 2.5GHz to 2.69GHz frequencies for the amount of R$ 1.05 billion. In order to meet the coverage requirements, we had the obligation of implementing 4G coverage in 1,094 cities by December 31, 2017. The remaining coverage commitments in cities with less than 30,000 inhabitants could be fulfilled with other frequency bands until December 31, 2019. Verification of compliance with these targets is controlled by ANATEL and, regarding the cities with less than 30,000 inhabitants, is in progress.

Regarding the 700MHz spectrum, ANATEL has allocated the band for the provision of fixed, mobile and broadband services. On September 30, 2014, we acquired 20 MHz (10+10 MHz) with nationwide coverage, for R$1.92 billion, at the minimum price, plus R$904 million for the band cleaning (migration of broadcasters that currently occupy the band) and interference management. According to the auction rules, the winning bidders were responsible for financing and managing the band cleaning process (Analog TV switch off) which was implemented through a legal entity specifically incorporated for this purpose, as set forth in the bidding process and applicable regulations (EAD).

Since June 2019, all Brazilian municipalities are ready to activate LTE coverage in the 700 MHz band. Notwithstanding, ANATEL may impose additional coverage requirements with respect to future spectrum auctions relating to the implementation of 5G coverage.

The targets established by ANATEL for the fast-paced implementation of networks could be impacted by (1) our ability to obtain licenses for the construction of new sites at the speed necessary to achieve the coverage targets, (2) the capacity of our suppliers to deliver the equipment necessary for this expansion, which may increase the price of such equipment, and (3) lack of qualified resources to meet the expected implementation pace.

If we are not able to meet targets and obligations set forth in the bid documents, ANATEL may execute our bank guarantees, we may be subject to fines and/or have our licenses to operate these frequencies revoked, negatively affecting our business and results of operations. Additionally, the inefficient use of any frequency may lead to the loss of the usage license. Furthermore, ANATEL may also impose new targets, conditions and/or obligations on us that we are not able to predict (see “—Review of our concession agreements and/or the implementation of a new regulatory framework in Brazil could have a materially adverse effect on our operations.”). Any of the above factors could have a material adverse effect on our operations and financial condition.

Our sales could be suspended as a result of issues with the quality of our services.

ANATEL and other judicial and administrative agencies have the authority to suspend our sales in an attempt to improve the overall quality of telecommunications services. Sales suspensions are generally applied to the services for which there have been complaints by consumers and the consumer protection agencies. When applied, the suspension is temporary and usually lifted once the company presents an action plan for improvement. In July 2012, ANATEL suspended mobile service sales from three of our main competitors, Oi, Claro and Tim, as a result of a considerable increase in consumer complaints. The suspensions lasted about 20 days and ANATEL requested that all telecommunications companies, including us, present an action and investment plan to improve the mobile network. Although our action plan was approved by ANATEL in September 2012, if a similar increase in customer complaints occurs in the future we may face suspension of one or more of our services until a new plan can be presented to and approved by ANATEL, which may materially affect our business and results of operations.

19 

We will be subject to risks related to noncompliance with data protection laws and the new Brazilian General Data Protection Law, which provides for application of sanctions, including financial penalties, in case of noncompliance.

In 2018, the President of Brazil approved Brazilian Law No. 13,709/2018, named the General Personal Data Protection Law (Lei Geral de Proteção de Dados), or the LGPD, which came into force on September 18, 2020, a comprehensive data protection law establishing the general principles and obligations that apply across multiple economic sectors and contractual relationships. Certain aspects of the LGPD will be subject to further regulation to be enacted by the National Data Protection Authority (Autoridade Nacional de Proteção de Dados – “ANPD”), which is not operational yet, and should result in changes to the LGPD’s approach that are not yet defined as of the date of this annual report. However, the administrative sanctions provisions of LGPD will only become enforceable as of August 1, 2021, pursuant to Law No. 14,010/2020. The LGPD establishes detailed rules for the collection, use, processing and storage of personal data in all economic sectors, regardless of whether data is collected in a digital or physical environment. In general, our services and processes depend on personal data. The way in which we collect, store and manage this data must comply with the provisions of the LGPD.

Once the administrative sanctions of the LGPD become enforceable, in the event of a violation of the LGPD, we may be subject to (1) legal notices and the required adoption of corrective measures, (2) fines of up to 2% of the our or our economic group’s revenues up to a limit of R$50.0 million per infraction, (3) publication of the infraction following confirmation of its occurrence, (4) the blocking and erasing of personal data involved in the infraction, (5) partial or complete suspension of the infringing processing activities for up to one year and (6) partial or complete prohibition to engage in processing activities. The effectiveness of such administrative sanctions, however, has been postponed to August 2021. Moreover, we may be liable for property, moral, individual or collective damages caused by us, including by third party providers that process personal data for us, and jointly liable for property, moral, individual or collective damages caused by our subsidiaries, due to non-compliance with the obligations established by the LGPD and certain other sector-specific laws and regulations on data protection still in force. If we are unable to use sufficient measures to protect the personal data we manage and store or to maintain compliance with the LGPD, we may incur material costs which could have an adverse effect in our reputation and results of operations.

We may be held liable for material, punitive, individual or collective damages to the data subjects due to its processing and treatment and could be held individually or severally responsible for material, punitive, individual or collective damages caused by us, our subsidiaries, service providers that process personal data on our behalf or our affiliates due to non-compliance with the obligations set forth by the LGPD, which may adversely affect our reputation and results and, consequently, the value of our ADSs and common shares.

In the event of failure or insufficiency in the adoption of measures to protect the personal data that is processed or to maintain compliance with the Brazilian General Data Protection Law, we may incur relevant costs, such as the payment of fines and indemnities, implementation of adjustment measures, and loss of business, as well as such failure or insufficiency having an adverse effect on our reputation and results of operations. As a result, we may be held liable even before the Brazilian General Data Protection Law sanctions come into force since consumer protection authorities and the Public Prosecutor’s Office have already been active in pursuing data privacy violations even before the LGPD became effective. Accordingly, failures in the protection of the personal data processed by us, or any failure to implement adequate data protection measures in response to applicable legislation, may subject us to high fines, the disclosure of the incident to the market, the payment of indemnities, the elimination of personal data from the database in question and the suspension of access to our databases, prohibition of our activities related to the processing of infringed data in addition to civil sanctions, which may adversely affect our reputation and results.

In addition, despite the fact that the administrative sanctions of the LGPD will not become applicable until August 2021, the application of administrative sanctions under other laws that deal with privacy and data protection issues may still apply, such as the Consumer Protection Code and the Brazilian Civil Rights Framework for the Internet. These administrative sanctions may be imposed by other public authorities, such as the Public Prosecutors’ Offices, the National Consumer Secretariat and consumer protection agencies. We may also be subject to liability in the civil sphere for violation of these laws. Sanctions imposed against us by these authorities may also adversely affect our reputation and results and, consequently, the value of our ADSs and common shares.

20 

Internet regulation in Brazil is still limited and several legal issues related to the Internet are uncertain.

In 2014, Brazil enacted a law, which we refer to as the Brazilian Civil Rights Framework for the Internet (Marco Civil da Internet), setting forth principles, guarantees, rights and duties for the use of the Internet in Brazil, including provisions about internet service provider liability, internet user privacy and internet neutrality. In May 2016, further regulations were passed in connection with the referred law. The administrative penalties imposed by the Brazilian Civil Rights Framework for the Internet include notification, fines (up to 10% of the revenues in Brazil of the relevant entity’s economic group in the preceding fiscal year) and suspension or prohibition from engaging in data processing activities. The Brazilian Civil Rights Framework for the Internet also determines joint and several liability between foreign parent companies and local Brazilian subsidiaries for the payment of fines that may be imposed for breach of its provisions. Administrative penalties may be applied cumulatively. Daily fines may be imposed in judicial proceedings, as a way to compel compliance with a Brazilian court order. If for any reason a company fails to comply with the court order, the fine can reach significant amounts. We may be subject to liability under these laws and regulations should we fail to adequately comply with the Brazilian Civil Rights Framework.

However, unlike in the United States, little case law exists around the Brazilian Civil Rights Framework for the internet and existing jurisprudence has not been consistent. Legal uncertainty arising from the limited guidance provided by current laws in force allows for different judges or courts to decide very similar claims in different ways and establish contradictory jurisprudence. This legal uncertainty allows for rulings against us and could set adverse precedents, which individually or in the aggregate could seriously harm our business, results of operations and financial condition. In addition, legal uncertainty may harm our customers’ perception and use of our service.

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

Certain of our existing debt agreements contain restrictions and covenants and require the maintenance or satisfaction of specified financial ratios and tests. Failure to meet or satisfy any of these covenants, financial ratios or financial tests could result in an event of default under these agreements, which would have a material adverse effect on our financial condition.

We are subject to environmental laws and regulations. Failure to comply with governmental laws and regulations could subject us to penalties that could have an adverse effect on our business and reputation. 

Our operations and properties are subject to a variety of environmental laws and regulations governing, among other things, environmental licensing and registries, protection of flora and fauna, air emissions, waste management and remediation of contaminated areas, among others. Our failure to comply with present and future requirements, or the management of existing and identification of new contamination, could cause us to incur substantial costs, including cleanup costs, indemnification, compensation, remediation, conduct adjustments, fines, suspension of activities and other penalties, investments to upgrade our facilities or change our processes, costs to redress any loss of reputation or the curtailment of our operations. The identification of presently unidentified environmental conditions, more vigorous enforcement by regulatory agencies, enactment of more restrictive laws and regulations or other unanticipated events may arise in the future and give rise to material environmental liabilities and related costs. The occurrence of any of the foregoing could have a material adverse effect on our business, results of operations, assets and financial condition.

Man-made or natural disasters, including extreme weather conditions due to climate change (high temperatures, floods, thunderstorms) or other unexpected events could adversely affect networks, systems, infrastructure and service continuity.

Our operations may be suspended or interrupted for an indeterminate period in case of adverse events, such as a result of damages to our transmission bases, natural disasters, climate change or other environmental events or natural or man-made disasters, including fire, explosion, storms, geopolitical disruptions, civil unrest or health crises (such as the COVID-19 pandemic) or any other unexpected events.

21 

Climate change poses a number of potential risks for telecommunications operators like us, from both a physical and regulatory perspective. Global climate change may exacerbate the severity and frequency of natural disasters. The rising intensity and frequency of occurrence of storms, heatwaves and earthquakes could increase the damage to our infrastructure and failures of our wireline and wireless networks caused by such natural disasters. Should severe natural disasters occur in quick succession, we may not have sufficient resources to repair and restore our infrastructure in a timely and cost-effective manner. The increase in likelihood of our infrastructure being damaged by natural disasters could have a material adverse impact on our operations.

Rising mean temperatures could increase our operating costs due mostly to the increase in refrigeration needs of network equipment. High temperatures also can affect the telecommunication equipment producing failures, write-offs and early retirement and therefore increase the risk of service disruption; therefore, cooling is essential.

An increase in severity and extreme weather events such as floods and landslides can damage our infrastructure, mainly our telecommunication network assets. They can cause physical damage to our infrastructures and therefore could produce service and operations disruptions. An increase in energy costs is one of our main climate-related risks. The Telecom sector is not especially dependent on fossil fuels but is very dependent on electricity consumption for its networks, so an increase in electricity prices due to a shortage of natural resources could have a significant impact on our energy-related operating expenses.

If we are unable to mitigate or prevent any such damage in the event of a natural or man-made disaster and any other unexpected events, the suspension or interruption of our operations could have a material adverse effect on the continuity of our operations, our financial results and compliance with applicable regulations.

Companies operating in the telecommunication industry, including us, may be harmed by restrictions regarding the installation of new antennas for mobile services.

Currently, hundreds of municipal laws in Brazil limit the installation of new antennas for mobile service. This scenario has been a barrier to the expansion of mobile networks. Those laws are meant to regulate issues related to zoning and the alleged effects of the radiation and radio frequencies of the antennas. Despite the existence of a federal law approved in 2015, that addresses this issue by establishing new guidelines to create a consolidated plan for the installation of antennas, as long as the municipal laws remain unchanged, the risk of non-compliance with regulations and of having services of limited quality in certain areas continues to exist.

Additional antenna installation is also limited because of concerns that radio frequency emissions from base stations may cause health problems and other environmental impacts. These concerns could have an adverse effect on the wireless communications industry and, possibly, expose wireless providers, including us, to litigation. Based on information from the World Health Organization (WHO) we are not aware of any evidence in the latest medical research that conclusively establishes any relationship between radio frequency emissions of base stations and health concerns. Perceived risks may, however, delay the expansion of our network if we experience problems in finding new sites, which in turn may delay expansion and affect the quality of our services. 

For instance, in May 2009, the Brazilian government published Law No. 11934/2009 that limits the exposure for fields with frequencies up to 300 GHz. The new law uses the exposure limits determined by the International Commission on Non-Ionizing Radiation Protection and recommended by the WHO and restricts the installation of new antennas. 

New laws may create additional transmission regulations, which in turn, could have an adverse effect on our business. Health concerns regarding the effects of radio frequency emissions may also discourage the use of mobile telephones and may result in the adoption of new measures by governments or any other regulatory interventions, any of which could materially and adversely affect our business, results of operations and financial condition.

22 

We face risks associated with litigation.

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

Information technology is key to our business and we could be subject to cybersecurity risks.

The risks derived from cybersecurity are among our most relevant risks. Despite advances in the modernization of the network and the replacement of legacy systems, we operate in an environment increasingly prone to cyber-threats. Therefore, it is necessary to continue to identify and remedy any technical vulnerabilities and weaknesses in our operating processes, as well as to strengthen our capabilities to detect and react to incidents. This includes the need to strengthen security controls in the supply chain (for example, by focusing on the security measures adopted by our partners and other third parties), as well as to ensure the security of the services in the cloud.

Telecommunications companies worldwide face continuously increasing cybersecurity threats as businesses have become increasingly more digital and dependent on telecommunications and computer networks and cloud computing technologies. Cybersecurity threats may include gaining unauthorized access to our systems or propagating computer viruses or malicious software to misappropriate sensitive information like customer data, corrupt our data or disrupt our operations. Unauthorized access may also be gained through traditional means such as the theft of laptop computers, data devices and mobile phones. Further, our employees or other persons may have unauthorized or authorized access to our systems and leak data and/or take actions that affect our networks or otherwise adversely affect us or our ability to adequately process internal information.

We manage these risks through a number of technical and organizational measures, which are part of our digital security strategy, including, access control measures, backup systems, log review of critical systems, vulnerabilities checks, network segregation measures and protective systems such as firewalls, intrusion prevention systems, virus scanners and other physical and logical security measures. However, the application of these measures cannot guarantee the mitigation of all risks.

Risks Relating to the Common 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, six of our twelve directors reside or are based 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 any judgments obtained in the United States or other jurisdictions outside Brazil against us or such other persons. 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 ADSs are not entitled to attend shareholders’ meetings and may only vote through the depositary.

Under Brazilian law, only shareholders registered as such in our corporate books may attend shareholders’ meetings. All common shares underlying our ADSs are registered in the name of the depositary.

23 

A holder of ADSs, accordingly, is not entitled to attend shareholders’ meetings. Holders of our ADSs may exercise their limited voting rights with respect to our common shares represented by the ADSs only in accordance with the deposit agreement relating to the ADSs. There are practical limitations upon the ability of ADS holders to exercise their voting rights due to the additional steps involved in communicating with ADS holders. For example, we are required to publish a notice of our shareholders’ general meetings in certain newspapers in Brazil. Holders of our shares can exercise their right to vote at a shareholders’ general meeting by attending the meeting in person or voting by proxy. By contrast, holders of our ADSs will receive notice of a shareholders’ general meeting by mail from the ADR depositary following our notice to the ADR depositary requesting the ADR depositary to do so. To exercise their voting rights, ADS holders must instruct the ADR depositary on a timely basis. This voting process will take longer for ADS holders than for direct holders of our shares.

We cannot assure you that holders will receive the voting materials in time to ensure that such holders can instruct the depositary to vote the shares underlying their respective ADSs. In addition, the depositary and its agents are not responsible for failing to carry out holder’s voting instructions or for the manner of carrying out your voting instructions. This means that holders may not be able to exercise their right to vote and may have no recourse if our shares held by such holders are not voted as requested.

Holders of our ADSs or common shares might be unable to exercise preemptive rights with respect to the common shares unless there is a current registration statement in effect which covers those rights or unless an exemption from registration applies. 

Under Brazilian law, if we issue new shares for cash as part of a capital increase, we generally must grant our shareholders the right to purchase a sufficient number of shares to maintain their existing ownership percentage. Rights to purchase shares in these circumstances are known as preemptive rights. Holders of our ADSs or common shares in the United States will not be able to exercise any preemptive rights unless a registration statement under the U.S. Securities Act of 1933, as amended, or the Securities Act, is effective with respect to that future issuance of shares, 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 ADSs 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 “Item 10. Additional Information—B. Memorandum and Articles of Association—Description of our Bylaws—Preemptive Rights.”

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

Beginning on March 30, 2015, the different forms of foreign portfolio investments in Brazil, including investments via Depositary Receipts, have been regulated by CMN Resolution 4,373, of September 29, 2014 (or “Resolution No. 4,373”), which revoked the former rule (CMN Resolution 2,689, of January 26, 2000) that had been in effect for the previous 15 years. Resolution No. 4,373 provides for the issuance of Depositary Receipts in foreign markets in respect of shares of Brazilian issuers, and, 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 common shares into foreign currency, and to remit the proceeds abroad. Holders of ADSs who exchange their ADSs for common 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. 4,373, which entitles certain investors to buy and sell shares on Brazilian stock exchanges without obtaining separate certificates of registration. CMN Resolution No. 4,373 replaced 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 by the Central Bank to regulate foreign investments in ADSs, including with regard to the exchange of ADSs for common shares and the remittance of funds arising from the sale of these common shares.

If holders of ADSs do not qualify under Resolution No. 4,373, they will generally be subject to less favorable tax treatment with respect to our common shares. There can be no assurance that the depositary’s

24 

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.

Holders of our common shares will be subject to, and holders of our ADSs could be subject to, Brazilian income tax on capital gains from sales of common 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 common shares are expected to be treated as assets located in Brazil for purposes of the law, and gains on the disposition of common 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. 

In case of any assessment by the Brazilian tax authorities, the gains arising from the disposal of ADSs made are subject to capital gain tax in Brazil at (i) progressive rates ranging from 15% to 22.5%, or (ii) 25% if the non-Brazilian holder is located in a tax haven jurisdiction. See “Item 10. Additional Information—E. Taxation—Brazilian Tax Considerations.”

Certain Factors Relating to our Controlling Shareholder

Our controlling shareholder has power over the direction of our business. 

Telefónica S.A., or Telefónica, our controlling shareholder, and its affiliates currently own directly and indirectly approximately 73.58% of our total capital stock. See “Item 7. Major Shareholders and Related Party Transactions—A. Major Shareholders” and “Item 7. Major Shareholders and Related Party Transactions—B. Related Party Transactions.” As a result of its share ownership, Telefónica and its affiliates can decide most of the matters that require shareholder approval.

Item 4. Information on the Company

A. History and Development of the Company

General

We were incorporated on May 22, 1998, as a corporation (sociedade anônima) organized under the laws of the Federative Republic of Brazil, as a result of the restructuring and privatization of Telecomunicações Brasileiras S.A. and its operating subsidiaries, or the Telebrás System, which monopolized the provision of public telecommunications services in virtually all areas of Brazil prior to 1998. We were incorporated under the name Telesp Participações S.A. and after subsequent reorganizations, we were named Telecomunicações de São Paulo S.A. – TELESP. After our merger with Vivo Participações in October 2011, we changed our corporate name to Telefônica Brasil S.A.

On September 18, 2014, we entered into a stock purchase agreement with Vivendi S.A. to acquire all of the shares of GVT Participações S.A., or GVT, the controlling shareholder of Global Village Telecom S.A., or Operating GVT, which was approved by our board of directors on the same date.

Pursuant to Brazilian Law, the transaction required approval by both ANATEL and CADE. On December 22, 2014, ANATEL approved the transaction and imposed certain obligations, that included (1) the maintenance of current GVT services and plans within the same geographic scope in which GVT previously operated, 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 (2) the waiver of the STFC license held by GVT within 18 months of ANATEL’s decisions, since the same economic group cannot hold more than one STFC license in the same geographic area. Telefônica has satisfied both obligations.

25 

On March 25, 2015, CADE provisionally approved the GVT acquisition, subject to a series of obligations imposed to prevent any undesired concentration effects of the merger. Such obligations require that we:

· Maintain, for at least three years, the current geographical coverage for STFC, SCM and SeAC services;

· Maintain, for at least three years, the current average broadband speed for GVT’s customers on a nationwide basis. The reference as of December 2014 is 15.1 Mbps;

· Maintain, for at least three years, the current average broadband speed for GVT’s customers in São Paulo. The reference as of December 2014 is 18.25 Mbps; and

· Do not exchange, directly or indirectly, classified information, strategic or competitively sensitive information with any other company or between management and representative responsible for subsidiaries of Vivendi Group, Telefónica Group and Telecom Italia Group related to its operations in the Brazilian market.

In November 2015, ANATEL consented to our corporate reorganization involving Telefônica Brasil S.A., GVT Participações S.A. and its subsidiaries. The approval was subject to certain conditions such as the end of overlap licenses of STFC, SCM and SeAC within 18 months and the obligation to present a list of all assets from the companies incorporated in our STFC (Sector 31, Region III) concession area, confirming the absence of reversible assets burdened judicially (by means of a negative certificate), or in case of attachment, present the appropriate requests for replacement.

On March 14, 2016, the corporate reorganization was approved by our board of directors and was completed on April 1, 2016, after the approval by an extraordinary shareholders meeting of the relevant companies.

On July 3, 2017, Telefônica Data S.A., or TData, a wholly-owned subsidiary of the Company, acquired all the shares of capital stock of Terra Networks Brasil S.A. from SP Telecomunicações Participações S.A., one of the controlling shareholders of the Company. The purpose of the Terra Networks Transaction is to expand and integrate our offering of digital services, in order to provide additional value to our customer base and TData’s. Effective as from December 1, 2018, TData was merged into the Company as part of a corporate restructuring. See “—Historical Background—Restructuring Involving TData” for more information.

We are registered with the CVM as a publicly held company and our stock is traded on the B3 – Brasil, Bolsa, Balcão under the symbol “VIVT3”. We are also registered with the SEC in the United States and our ADSs are traded on the NYSE, under the symbol “VIV” (formerly “TSP”). Our headquarters are located at Avenida Engenheiro Luis Carlos Berrini, 1376, 04571-936, São Paulo, SP, Brazil. Our telephone number is 55-11-3430-3687 and our website is www.telefonica.com.br/ir. The information on our website is not a part of this annual report on Form 20-F.

As of December 31, 2020, we had 1,688,174,171 outstanding common shares (excluding treasury shares), with no par value per share. Our shareholders’ equity amounted to R$69.6 billion as presented in our audited financial statements prepared in accordance with IFRS.

Historical Background

Corporate Restructuring Involving Telefônica Brasil and Vivo Participações

On July 28, 2010, our controlling shareholder, Telefónica, reached an initial agreement with Portugal Telecom for the acquisition of 50% of the capital stock of Brasilcel, N.V., or Brasilcel. As a result of this transaction, Telefónica held 100% of the capital stock of Brasilcel. At that time, Brasilcel held approximately 60% of the capital stock of Vivo Participações. On December 21, 2010, Brasilcel was merged into Telefónica. 

26 

Due to the acquisition of control of Vivo Participações, on February 16, 2011, Telefónica, through its subsidiary SP Telecomunicações Ltda., or SP Telecom, launched a public tender offer for the common shares of Vivo Participações (the only shares with voting rights) held by minority shareholders. As a result of the public tender offer, on March 18, 2011, SPTelecom acquired 10,634,722 common shares of Vivo Participações, representing 2.66% of its shares, resulting in the Telefónica group’s ownership of 62.1% of Vivo Participações. 

On December 27, 2010, the boards of directors of Vivo Participações and Telefônica Brasil approved the terms and conditions of a corporate restructuring, which provided for the merger of shares issued by Vivo Participações into Telefônica Brasil. The corporate restructuring was approved by ANATEL on March 24, 2011, and on April 27, 2011, the shareholders of Vivo Participações and Telefônica Brasil approved the merger of shares issued by Vivo Participações into Telefônica. On June 14, 2011, the board of directors of both companies approved a second corporate restructuring, pursuant to which Vivo Participações became our wholly-owned subsidiary. The terms and conditions of the second corporate restructuring were approved unanimously by the shareholders of both companies on October 3, 2011. Vivo Participações was merged into us, and the holders of the merged shares of Vivo Participações received new shares in the company. 

Due to the merger of Vivo Participações into us, our capital was increased by R$31.2 billion, reflecting the economic value of the shares issued as a result of the merger. The merger did not change the identity of the controlling shareholders of the companies. 

Additionally, as a consequence of this merger, on July 6, 2011, Vivo Participações filed a statement with the SEC in order to cancel the registration of its American Depositary Shares, or ADS, program since all of its ADSs were converted into ADSs of Telefônica Brasil. The SEC approved the deregistration on July 7, 2011. 

A third stage of the corporate restructuring was approved by ANATEL on August 16, 2011. On October 3, 2011, our shareholders approved the merger of Vivo Participações into us and Telefônica Brasil absorbed Vivo Participações’ equity, extinguishing Vivo Participações, which further simplified and rationalized our cost structures. On the same date, we changed our name from Telecomunicações de São Paulo S.A. – TELESP to Telefônica Brasil S.A., to reflect our nationwide operations. On October 18, 2011, ANATEL approved the transfer of the authorization for the provision of SMP services in the state of Minas Gerais from Vivo Participações to Vivo. 

As a result of this name change, the ticker symbols for our shares were also changed as of October 6, 2011 (inclusive), from TLPP3, for the common shares, and TLPP4, for the preferred shares, to VIVT3 and VIVT4, respectively, with the subsequent change of our trading name to TELEF BRAZIL. Our ticker symbol for the ADRs on the NYSE was changed to VIV, from TSP. 

Telefónica and Telecom Italia Agreement 

Through a series of transactions from 2007 to 2009, Telefónica acquired an indirect holding in the voting shares of Telecom Italia through its holdings in the Italian company TELCO S.p.A. Telecom Italia holds an indirect interest in TIM Participações S.A., or TIM, a Brazilian telecommunications company. None of Telefónica, Telefônica Brasil or any other affiliate of Telefónica was involved with or had decision-making powers over TIM’s operations in Brazil, although Telefónica held an indirect interest with respect to TIM’s operations in Brazil. They were also legally and contractually forbidden from exercising any voting rights in TIM’s operations in Brazil. 

On June 16, 2014, TELCO, S.p.A.’s Italian shareholders exercised their right to a spin-off, in accordance with the shareholders’ agreement. As a result of the spin-off, Telefónica S.A. would indirectly hold 14.77% of Telecom Italia S.p.A. of which 8.3% would be exchanged with Vivendi as consideration in the GVT acquisition and 6.47% would be tied to debentures issued by Telefónica S.A. in July 2014 convertible into shares of Telecom Italia upon maturity. On April 7, 2015, ANATEL approved the swap transaction to exchange 12% of our common shares and 0.7% of our preferred shares owned by Vivendi for 8.3% of Telecom Italia’s common shares with voting rights, previously held by Telefónica, S.A. 

27 

As a result, Telefónica no longer held, directly or indirectly, any economic interest in Telecom Italia by the end of 2015. 

Restructuring Involving the Subsidiaries of Telefônica Brasil 

On March 15, 2012, our board of directors approved a corporate restructuring of our wholly-owned subsidiaries to align the services provided by each such subsidiary and to concentrate all telecommunication services in one company. The restructuring was finalized on July 1, 2013.

The restructuring was implemented by means of a spin-off and mergers involving only our wholly-owned subsidiaries, A. TELECOM S.A., or A. TELECOM, TData, Telefônica Sistema de Televisão S.A. and Vivo. The mergers did not result in an increase in our capital stock or in the issuance of new shares by us, and the corporate restructuring did not give rise to a change in the equity interests held by our shareholders. As a result of the restructuring, value-added services and innovative services provided by several wholly owned subsidiaries of the company were consolidated under TData and other telecommunications services were consolidated under Telefônica Brasil, which, as a final step to the corporate restructuring, merged these subsidiaries.

Acquisition of GVT 

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, S.A. and Operating GVT, pursuant to which we agreed to purchase all of the shares of GVTPar, the controlling shareholder of Operating GVT. This 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 and the merger of shares of GVTPar. The total consideration was paid after the conclusion of (A) a capital increase, the proceeds of which were used to pay the cash consideration described in (1) above, and (B) the merger of shares of GVTPar into us. 

On December 22, 2014, ANATEL approved the transaction and imposed certain obligations, which we understood did not compromise the terms of the GVT acquisition or its value. On March 25, 2015, CADE’s administrative tribunal approved the transaction based on certain confidential commitments offered by us and Vivendi S.A. The commitments include the execution of two merger control agreements: the first between CADE and us and the second between CADE and Vivendi S.A. 

On March 25, 2015, our board of directors approved the public offering of shares, including shares in the form of ADSs, pursuant to a capital increase of R$15,812,000,038.03, through the issuance of 121,711,240 common shares, at a price of R$38.47 and 236,803,588 preferred shares, at a price of R$47.00 as well as an additional 6,282,660 preferred shares pursuant to the exercise of the over-allotment option. On May 28, 2015, our shareholders approved the ratification of the Stock Purchase Agreement and Other Covenants, entered into by the Company, as Buyer, and Vivendi S.A. and its subsidiaries, Société d’Investissements et de Gestion 108 SAS and Société d’Investissements et de Gestion 72 S.A., as Sellers, whereby all the shares issued by GVTPar, the controlling shareholder of Global Village Telecom S.A., were acquired by us. 

Therefore, as provided for in the stock purchase agreement, we paid a portion of the GVT acquisition price in cash, receiving shares of GVTPar and GVT Operator, and another portion in shares, to FrHolding108 as a result of the merger of GVTPar’s shares into us, representing 12% of our capital stock after the merger. 

After the merger and as a result of the acquisition, our corporate structure was as follows: 

28 

On June 24, 2015, the transaction for the exchange of shares between Telefónica and Société d’Investissements et de Gestion 108 SAS, a company controlled by Vivendi S.A. was completed, through which FrHolding108 transferred to Telefónica 76,656,559 shares representing 4.5% of our capital stock, including 68,597,306 common shares representing 12% of such class of shares and 8,059,253 preferred shares representing 0.72% such class of shares, in exchange for 1,110,000,000 shares representing 8.2% of the common shares of Telecom Italia, S.p.A., previously held by Telco TE, S.p.A., a subsidiary of Telefónica. 

On July 29, 2015, Vivendi S.A. sold 67.9 million preferred shares, representing 4% of our capital stock. On the same day, Telefónica S.A. announced that it entered into an agreement with Vivendi’s subsidiary Société d’Investissements et de Gestion 108 SAS, through which Telefónica committed to delivering 46.0 million of its treasury shares, representing 0.95% of its share capital, in exchange for 58.4 million preferred shares of Telefônica Brasil, S.A., (received by Société d’Investissements et de Gestion 108 SAS. in the context of the acquisition of GVT Participaçoes, S.A.). On September 16, 2015, the exchange of shares was concluded. Consequently, Telefónica S.A.’s interest in the Company was increased by 5.2% in relation to the total preferred shares of the Company, and by 3.5% in relation to the total capital stock of the Company. Conversely, SIG108 shareholding interest in the Company was reduced by the same proportion. Therefore, from that date on, SIG108 does not hold any interest in the Company. 

On March 14, 2016, our board of directors approved a corporate restructuring in order to simplify our organizational structure. In the previous corporate structure, GVT Participações S.A. (“GVTPart”) was 100% owned by Telefônica Brasil. On the date of the merger, GVT was split and its net assets were transferred in part to GVTPart and in part to POP. The portion of the spun-off net assets of GVT concerning the goods, rights and obligations related to telecommunications activities were transferred to GVTPart and the remaining portion, concerning the assets, rights and obligations related to the other activities of non-telecommunications were transferred to POP. GVTPart was subsequently merged into Telefônica Brasil, resulting in the following corporate structure:

The corporate restructuring did not result in a capital increase or change in ownership of the Company’s shareholders and was ratified by an extraordinary shareholders’ meeting on April 1, 2016. 

29 

Acquisition of Telefônica Transporte e Logística Ltda. by TData 

On October 28, 2015, TData, as buyer, and Telefónica Gestión de Servicios Compartidos España S.A., as seller, entered into a Stock Purchase agreement that resulted in the acquisition of Telefônica Transporte e Logística Ltda., a company headquartered in Brazil that provides logistics services. 

Acquisition of Terra by TData 

On July 3, 2017, we announced that our wholly-owned subsidiary, TData, acquired all the shares of the capital stock of Terra Networks Brasil S.A. (“Terra”) from SP Telecomunicações Participações S.A. (“SPTE”), one of our controlling shareholders (the “Terra Networks Transaction”). Terra is a provider of digital services (own and third-party value-added services (“VAS”) and carrier billing, as well as mobile channels for sales and relationships) and advertising. The purpose of the Terra Networks Transaction was to expand and integrate our offering of digital services, in order to provide additional value to our customer base and TData’s, as well as to provide TData’s offering of services to Terra’s customer base and subscribers. In addition, the Terra Networks Transaction was intended to amplify TData’s advertising business as a result of Terra’s nationwide operations and expertise. The total price paid by TData as consideration for the acquisition of shares issued by Terra was R$250 million, paid in a single installment using TData’s cash on hand, with no need for financing. The Terra Networks Transaction was not subject to any regulatory authorizations or approvals by us and was completed on July 3, 2017. 

Restructuring Involving TData 

On October 30, 2018, our board of directors approved the terms and conditions of the merger into the Company of its wholly-owned subsidiary TData, as well as the proposal for the convening of an Extraordinary General Meeting of the Company for November 30, 2018, to resolve on the merger.

The merger involved the Company and its wholly-owned subsidiary TData, as shown below: 

The merger aimed to standardize the rendering of services, as well as simplify the Company’s organizational and corporate structure. After the implementation of the merger, the corporate structure involving the companies is as follows:  

The merger was approved by an Extraordinary Shareholders Meeting of the Company on November 30, 2018 and it did not result in a capital increase or change in the Company’s shareholders’ equity. The merger was completed with operational effects as from December 1, 2018. 

30 

Restructuring involving the subsidiary Terra Networks Brasil S.A. and Telefônica Infraestrutura e Segurança Ltda. 

On September 26, 2019, we announced that our wholly-owned subsidiary, Terra Networks Brasil S.A., or Terra, acquired all the shares of Telefônica Infraestrutura e Segurança Ltda., or TIS, from Telefónica Ingeniería de Seguridad S.A. and Telefónica Digital España S.L.U. (the “TIS Transaction”). 

TIS is dedicated to the exploration and provision of services and technology of information security systems, technical support and other services related to infrastructure, technology and information. 

The purpose of the TIS Transaction is to allow Terra, which performs, among other activities, the development of computer systems, in order to expand consulting and operational assistance, maximize the commercialization of systems, licenses and applications, enabling the expansion of the portfolio of professional and managed services and the integration of TIS and Terra’s commercial offerings, unlocking the generation of added value for the Company’s client portfolio as the activities of Information Technology, Security, IoT (Internet of Things) and Connectivity, all to be provided under common management. 

The total price paid for the acquisition of the shares issued by TIS was R$70.84 million, in a single installment, without any financing, using only the available cash from Terra. Said amount was calculated based on the economic value of TIS as of June 30, 2019, according to the discounted cash flow criterion, supported by an appraisal report commissioned by us. 

The TIS Transaction’s purchase and sale agreement contains customary terms and provisions for such transactions, including seller’s representations and warranties, indemnities and others. The TIS Transaction was also preceded by an accounting, financial and legal due diligence process regarding TIS. The TIS Transaction is not subject to obtaining any regulatory authorizations or approvals by the Company’s bodies, having been approved by Terra’s Board of Executive Officers according to its bylaws on September 26, 2019. The TIS Transaction did not change Telefônica Brasil’s shareholding structure nor caused any dilution to its shareholders.

Launch of Vivo Money Credit Rights Investment Fund (FIDC)

In August 2020, in connection with the launch of our Vivo Money service, we structured the Vivo Money Credit Rights Investment Fund (a special purpose investment fund known as a Fundo de Investimento em Direitos Creditórios, or FIDC), which was established in the form of a closed company for an indefinite term. The objective of the FIDC is to provide its quota holders an equity return on their shares by investing in the acquisition of (i) eligible credit rights, with supporting documents, which meet the eligibility criteria and the conditions of assignment, and (ii) financial assets, observing all indexes of composition and diversification of the fund’s portfolio. Eligible credit rights to be acquired by the FIDC are originated from credit transactions carried out electronically by our customers exclusively through our Vivo Money electronic platform. The FIDC began its operations on September 14, 2020, issuing 2,000 junior subordinated quotas with an initial unit face value of R$1,000. On December 1, 2020, we made a new contribution to the FIDC in the amount of R$2 million, with the issuance of an additional 2,000 junior subordinated quotas with an initial unit face value of R$1,000. As of December 31, 2020, we held 4,000 junior subordinated quotas with an initial unit face value of R$1,000, which will not have a defined remuneration parameter and are subordinated to senior quotas and subordinated mezzanine shares, in that order of priority, for the purpose of amortization and redemption. Residual returns from this FIDC, if any, are paid to us as holders of subordinated quotas. The FIDC had an immaterial impact on our results of operations, cash flows and liquidity position in 2020.

Corporate Governance Restructuring Involving Conversion of All Outstanding Telefônica Brasil Preferred Shares into Common Shares, and All Outstanding Telefônica Brasil ADRs Backed by Preferred Shares into ADRs Backed by Common Shares

At an extraordinary shareholders’ meeting held on October 1, 2020, our shareholders approved, effective as from such date, among other things: (1) the conversion of all of our preferred shares into common shares, at a ratio of one common share for each preferred share (the “Conversion”); and (2) amendments to our by-laws. At a special meeting of holders of our preferred shares, held on that same date, our preferred

31 

shareholders ratified the conversion of all of our preferred shares into common shares. After the conversion of the preferred shares into common shares, which formally occurred after the market closed on November 20, 2020, our ADRs backed by preferred shares were exchanged for ADRs backed by common shares, and our subscribed and fully-paid share capital was R$63,571,415,865.09 divided into 1,690,984,923 common shares, all with no par value. All our common shares continue to trade under the ticker symbol “VIVT3” on the B3 (and our ticker symbol “VIVT4” under which our preferred shares traded on the B3 was suspended on November 23, 2020), and our ADRs backed by common shares began trading on the NYSE under the ticker symbol “VIV.”

Restructuring involving the sale of shares of Telefônica Cibersegurança e Tecnologia do Brasil Ltda. to Telefónica Cybersecurity Tech, S.L., an indirect subsidiary of Telefónica S.A.

In a meeting held on November 1, 2020, our Board of Directors approved the execution, on the same date, of the Quotas Purchase and Sale Agreement, or the CyberCo Brasil Purchase and Sale Agreement, pursuant to which we sold the totality of the quotas we held, representing the entire capital stock of our subsidiary, Telefônica Cibersegurança e Tecnologia do Brasil Ltda., or CyberCo Brasil, to Telefónica Cybersecurity Tech, S.L., or TTech, an indirect subsidiary of Telefónica S.A., for the total amount of R$116.4 million, supported by an independent external report prepared by a specialized company.

On the same date, and as a preliminary step to the implementation of this transaction, certain of our assets, contracts, and employees were transferred to CyberCo Brasil, all strictly related to cybersecurity activities. The transaction will allow us, as an exclusive distributor of Cyberco Brasil, to strengthen ourselves in the cybersecurity market by expanding its portfolio of products and services. In addition, we will benefit from greater competitiveness due to the global scale of the partner dedicated to cybersecurity activities. The transaction also ensures the continuity of the provision of cybersecurity services by our B2B area to our customers, as it includes the execution of certain contracts that regulate the provision of cybersecurity services between CyberCo Brasil and us. The CyberCo Brasil Purchase and Sale Agreement contains customary terms and provisions for this type of transaction. The transaction does not alter our shareholding structure or cause any dilution to our shareholders, generating value for them by accelerating our growth and increasing our operational efficiency.

The transaction is not subject to any regulatory authorizations or other approvals in addition to those obtained from the Company’s bodies on October 30, 2020 and November 1, 2020. CyberCo Brasil was originally created under the registration name of BLSK Serviços de Telecomunicações Ltda. After changing its name, location and corporate purpose, CyberCo Brasil’s shares were transferred from Terra to Telefônica Brasil on September 9, 2020.

Capital Expenditures

Year Ended December 31, 2020

In 2020, we invested R$7,973.3 million, a 9.85% decrease over the amount we invested in 2019 (R$8,844.3 million), primarily due to the slowdown in 4G investment, reduction in legacy technology (copper network and DTH) investments, optimization of inventory and reduction of investments associated with B2B commercial activity.

Investments in projects were strongly focused on network investments (which accounted for 79% of investments in 2020) and included expenditures on items such as radio access network (eNode-Bs and carriers), transmission backhaul and backbone, FTTH and IPTV. The investments helped sustain our commercial and revenue growth while maintaining the quality of the services provided and are also designed to prepare us for medium-term growth.

To meet the needs of an increasingly data-driven and connected society, significant investments were made to support the strong growth of data usage in our residential fiber network, mobile 4G network and dedicated corporate networks. We continue to invest in expanding our national data transmission backbone to meet the increase in data traffic throughout Brazil.

32 

The following table sets forth our capital expenditures for each year in the three years ended December 31, 2020.

	Year ended December 31,
	2020		2019		2018
	(in millions of reais)
Telefônica Brasil
Network		6,327.9		7,273.6		6,881.2
Technology / Information Systems		1,154.2		1,185.0		999.3
Others(1)		491.2		385.7		319.4
Total capital expenditures		7,973.3		8,844.3		8,199.9

_______________

(1) Consists primarily of handset sales made to corporate customers for the length of their contracts, furniture and fixtures, office equipment and store layouts and spectrum licensing costs. The spectrum licensing costs amounted to R$184.3 million in 2020, relating to the 850Mhz license renewal provision in the state of Rio de Janeiro

Year Ended December 31, 2019

In 2019, we invested R$8,844.3 million, a 7.86% increase over the amount we invested in 2018 (R$8,199.9 million), Investments in projects were strongly focused on network investments (which accounted for 82% of investments in 2019) and included expenditures on items such as radio access network (eNode-Bs and carriers), transmission backhaul and backbone, FTTH and copper network. The investments helped sustain our commercial and revenue growth while maintaining the quality of the services provided and are also designed to prepare us for medium-term growth.

Year Ended December 31, 2018 

In 2018, we invested R$8,199.9 million, a 2.52% increase over the amount we invested in 2017 (R$7,998.3 million), Investments in projects were strongly focused on network investments (which accounted for 84% of investments in 2018) and included expenditures on items such as radio access network (Node-Bs, eNode-Bs and WCDMA carriers), transmission backhaul and backbone, FTTH and copper network. The investments helped sustain our commercial and revenue growth while maintaining the quality of the services provided and are also designed to prepare us for medium-term growth.

Recent Developments

COVID-19

We are closely monitoring the evolution of the COVID-19 pandemic in Brazil and globally, in order to take preventive measures to minimize the spread of the virus, ensure the continuity of operations and safeguard the health and safety of our personnel. Based on the information available as of the date of this annual report, we present below a summary of the main effects of the COVID-19 pandemic on our business and results of operations:

· Our stores were entirely closed in March 2020 and started reopening in April 2020, subject to reduced hours of operation and customer capacity limitations, which remained in effect for the rest of the year. This affected the sale of handset and other accessories, upselling from hybrid to postpaid plans and postpaid additions, which are typically made at our retail locations, resulting in a loss of revenue;

· We experienced a contraction in mobile revenues in the first semester of 2020 of R$364.8 million, or 2.6%, compared to the first semester of 2019, due to net disconnections of approximately 174,000 on prepaid and postpaid plans in the same period, as well as and downgrades of plans by our customers and lower handset sales given the temporary closing of our stores;

33 

· Our third-party call center was forced to reduce its hours of operation in March 2020, due to stay-at-home orders, affecting customer service and upselling from prepaid plans to postpaid plans;

· Costs related to sales, such as sales commissioning and advertising, also contracted due to lower commercial activity and call center working hours reductions. As a result, commercial expenses fell by 9.0% year-over-year in 2020 compared to 2019;

· We experienced an increase in provisions for bad debt of R$58.0 million, or 3.4%, in 2020 compared to 2019, as a result of increased unemployment and the inability of certain customers to pay bills and late fees as a result of disruptions caused by the COVID-19 pandemic, but offset in part by relief measures we implemented such as offering customers the possibility of making payments in up to 10 installments, without fines or interest. As a result, the increase in provisions for bad debt experienced in the first half of 2020 was partially offset by a reduction in such provisions in the second half of 2020 when compared with the second half of 2019; and

· We postponed the payment of TFF taxes (taxa de fiscalização do funcionamento), as permitted by government measures implemented in 2020 in response to the pandemic, in the amount of R$671.1 million, which will be paid in 2021.

See also “Item 3. Key Information—D. Risk Factors— Risks Relating to the Brazilian Telecommunications Industry and Us—Our business, operations and results have been, and may continue to be, adversely impacted by the effects of the COVID-19 pandemic.”

Execution of Purchase Agreement for Acquisition of UPI Mobile Assets of the Oi Group

On January 28, 2021, we executed the Purchase and Sale Agreement of Shares and Other Covenants, or the Oi Agreement, by and among Oi Móvel SA - In Judicial Recovery, as seller, Telefônica Brasil, Tim S.A. and Claro S.A., as Buyers, and Oi S.A. - In Judicial Recovery and Telemar Norte Leste S.A. - In Judicial Recovery, as intervening parties and guarantors of the seller’s obligations. The Oi group is currently undergoing a judicial reorganization process (recuperação judicial) in Brazil and the Oi Agreement was executed in connection with a judicial auction held on December 14, 2020 for the sale of assets of the Oi group’s mobile business operations (Grupo Oi’s Personal Mobile Service), or the UPI Mobile Assets, after the joint offer made by us and the other Buyers was declared the winning bid in the competitive bidding process under the judicial auction, which was approved by the Brazilian Judicial Reorganization Court (Juízo da Recuperação Judicial).

Under the Oi Agreement, Telefônica Brasil is entitled to a selection of assets that will comprise its share of the UPI Mobile Assets, consisting of:

· Clients: approximately 10.5 million (corresponding to approximately 29% of UPI Mobile Assets’ total customer base) – according to ANATEL’s database of April 2020. The allocation of customers among the Buyers considered criteria intended to enhance competition among the Brazilian telecom market operators;

· Spectrum: 43MHz as a national weighted average based on population (approximately 46% of UPI Mobile Assets’ radiofrequencies). The division of frequencies among the Buyers conforms strictly to the spectrum limits established by ANATEL; and

· Infrastructure: including agreements for the use of 2.7 thousand mobile access sites (corresponding to approximately 19% of UPI Mobile Assets’ total sites).

In addition, under the Oi Agreement, the completion of the acquisition of the UPI Mobile Assets by the Buyers will take place according to the segregation plan for such assets, pursuant to which the UPI Mobile Assets will be segregated and contributed by the Oi Group to three different specific purpose entities, or SPEs, such that Telefônica Brasil will acquire the totality of the shares of one SPE that will hold the assets to be attributed to Telefônica Brasil pursuant to the aforementioned segregation plan, which will be separate and independent from the other SPEs. Similarly, the other two Buyers will each acquire the totality of the shares of the respective remaining SPEs, which will each hold the respective assets to be attributed to each of the two other Buyers.

34 

The total consideration agreed to be paid by the Buyers under the Oi Agreement amounts to: (i) R$16,500.0 million, of which R$15,744.0 million comprises the base purchase price and R$756.0 million relates to amounts to be paid as consideration for transitional services to be rendered by the Oi Group to the Buyers for a period of up to twelve months, under a transitional services agreement to be entered into among the parties, or the Transitional Services Agreement; and (ii) R$819.0 million, as consideration for services to be rendered by the Oi Group to the Buyers under a take-or-pay data transmission capacity agreement to be entered into among the parties, or the Capacity Agreement.

Subject to the terms, conditions and payment schedule agreed upon between Oi Group and the Buyers, the consideration owed by the Buyers to Oi will be paid upon effectiveness of the transaction, which will occur on the date of the execution of the Transitional Services Agreement. Under the terms of the Oi Agreement, Telefônica Brasil will disburse an amount corresponding to 1/3^rd of the total consideration, equivalent to approximately R$5.5 billion. Subject to the continuity of the current market conditions and necessary internal approvals, as well as, in light of our robust financial position and strong cash flow generation, we intend to use our own resources to finance the transaction.

The completion of the acquisition is also subject to certain precedent conditions usually applicable to this type of transaction and set forth in the Oi Agreement, such as the prior consent of ANATEL and approval by the Brazilian competition authority (CADE), as well as, if applicable, the submission to the general shareholders’ meeting of the Company, under the terms of article 256 of the Brazilian Corporations Law. As of the date of this annual report, the regulatory approvals that are required to be granted by the CADE and ANATEL have not yet been granted.  Moreover, as of the date hereof, it is possible that such approvals required for the consummation of the transactions contemplated by the Oi Agreement acquisition may not be obtained or, if they are obtained, could impose unanticipated or adverse conditions or otherwise modify the terms thereof, including the re-allocation of assets among us and the other two operators that were awarded the winning bid together with us, pursuant to our joint bid.

We believe that the transactions contemplated by the Oi Agreement, once and if consummated, will generate benefits for our shareholders through the generation of revenues and efficiencies resulting form operational synergies, as well as for our customers, as a result of the assets acquired, which reinforce our commitment to excellence in the quality of the services we provide and finally, for the Brazilian industry as a whole, due to the resulting changes that reinforce the industry’s capacity to make investments and create technological innovations sustainably, further contributing to the ongoing digitalization of the country. We believe our acquisition of a portion of the UPI Mobile Assets marks another important step in achieving our purpose of increasing digitalization to bring people together (Digitalizar para aproximar).

B. Business Overview

We are the leading mobile telecommunications company in Brazil (with a 33.6% market share as of December 31, 2020, based on accesses), with a particularly strong position in postpaid mobile services (37.7% market share as of December 31, 2020, based on accesses). We are also the leading fixed telecommunications company in the state of São Paulo where we began our business as a fixed telephone service provider pursuant to our concession agreement. In December 2020, we reached 20.3% of total market share in FTTH (fiber-to-the-home) accesses in Brazil, or 45.7% considering only the state of São Paulo, consolidating our leadership in key businesses for high-value services.

Our Vivo brand, under which we market our mobile services, is among the most recognized brands in Brazil. The quality of our services and the 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, 2020, our average revenue per mobile user, or ARPU, of R$29.06 represented a significant premium relative to the market average. In 2020, we captured 35.6% of the 9.0 million net additions 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, or FTTH and Fiber to the Curb, or FTTC infrastructure), Pay TV, information technology and digital services (such as entertainment, cloud, security and financial services). We also have one of the most extensive distribution networks of the sector, where our clients can obtain certain services, such as purchasing credit for prepaid phones.

35 

We seek to continue to increase our operating margins by focusing on developing and growing our product offerings so that they comprise an integrated portfolio of higher-margin services. As part of this strategy, we acquired GVT in 2015, a high-growth telecommunications company in Brazil that offered high-speed broadband, fixed telephone and Pay TV services to high-income customers across its target market, primarily located outside the state of São Paulo.

Our Operations and Services

Our operations consist of:

· local and long distance fixed telephone services;

· mobile services, including value-added services;

· data services, including broadband services and mobile data services;

· Pay TV services through IPTV and DTH (a satellite technology);

· network services, including rental of facilities, as well as other services;

· wholesale services, including interconnection;

· digital services;

· services designed specifically for corporate customers;

· the sale of wireless devices and accessories.

Fixed voice services

Our fixed line services portfolio includes local, domestic long-distance and international long-distance calls provided both on the public and private regime.

Local Service

Fixed local services include activation, monthly subscription, public telephones and measured services. Measured services include all calls that originate and terminate within the same area code within our concession region, which we refer to as local calls.

Intraregional, interregional and international long-distance services

Intraregional long-distance services consist of all calls that originate in one local area or municipality and terminate in another local area or municipality within our concession region. Interregional long-distance services consist of state-to-state calls within Brazil and international long-distance services consist of calls between a phone line in Brazil and a phone line outside Brazil. We were the first telecommunications company to be granted the authorization to develop local, intraregional, interregional and international services throughout Brazil, including outside our concession area.

Mobile services

According to data regarding market share published by ANATEL in December 2020, we are the leading provider of mobile telecommunications services in Brazil in terms of accesses.

Our mobile portfolio includes voice and broadband internet access through 3G, 4G and 4.5G as well as value-added services (such as Vivo Meditação, Vivo Bem, Vivo HomeFix, Vivo BTFIT, Go Read, Ubook,

36 

Hube Jornais, Kantoo Inglês, NBA and NFL), prepaid plans with data sharing features, family plans, voice mail and voice mail speech-to-text translation, caller identification, voice minutes in unlimited bundles to mobile and fixed phones, ringtones, and innovative services such as multi-media backup, cloud-based services to save texts, entertainment and music apps, advertising platforms, among others.

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

Data services

We provide fixed broadband through fiber (FTTH – fiber-to-the-home and FTTC – fiber-to-the-curb) and xDSL technologies, with speeds ranging from 1Mbps to 300Mbps.

Through the GVT acquisition in 2015, we were able to further expand our data services by providing high-speed broadband to high-income customers across our target markets. GVT provided services that were complementary to our own, with limited overlap with the services we already provided. Such complementary services included 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.

In 2020, we covered 100% of the municipalities in our concession area in the state of São Paulo and hundreds of others throughout Brazil, reaching more than 6.3 million fixed broadband customers in total, and we expanded our national fiber network to reach approximately 25 million homes, of which almost 16 million alone consisted of FTTH technology.

In mobile broadband, we use a variety of technologies to provide wireless internet services to our customers. Our 3G network is currently available nationwide. In addition, we offer HSPA+ technology, which is commercially known as 3G Plus. This technology allows customers with compatible terminals (including handsets) to reach up to three times the speed of traditional 3G. In December 2020, we covered 4,558 municipalities with our 3G network, reaching 96.0% of Brazil’s population. We also offer 4G LTE technology, which, by the end of 2020, was available in 3,598 municipalities, reaching 90.8% of Brazil’s population, and also 4.5G LTE through carrier aggregation in 1,872 municipalities, reaching 73.1% of the Brazilian population.

Pay TV services

We began offering subscription-based television, or “Pay TV,” services via DTH (“direct to home,” a special type of service that uses satellites for the direct distribution of television and audio signals to subscribers) on August 12, 2007. We currently provide Pay TV services by means of DTH and IPTV (a type of service that offers video broadcast through the use of IP protocol) technologies and as of December 31, 2020, had 1.2 million Pay TV customers, including 891 thousand IPTV customers.

Network Services

Our network management technology ensures comprehensive management and supervision of all our network processes and network performance for our wholesale clients.

The Network Management Center monitors the critical network operational parameters of the countrywide transmission backbone, IP networks, mobile and fixed packet/circuit core networks, VAS/Multimedia platform and global services, radio access network, infrastructure and online services performance, as well fixed access network across the country, broadband networks, network interconnection, portability and IPTV/DTH. The center can identify abnormalities in both our network (fixed and mobile) and third-party networks including networks of other operators and other corporate clients, using failure, signaling, quality and service monitoring systems. The Network Management Center is integrated with maintenance and operations teams that maintain and operate mobile and fixed network elements, as well as infrastructure and transmission, in addition to the radio network elements and computing bases, service platforms and communications backbones.

37 

Our network provides for continuity of service to our customers in the event of network interruptions. We have developed contingency plans for potential catastrophes in our switchboard centers, power supply interruptions and security breaches. 

We continuously aim to consolidate our network and increase its offerings, to deliver the best possible service to our customers and to meet their expectations. Currently, our monitoring process has been supported by automated systems (RPA - Robotic Process Automation) which increases the effectiveness on incident correlation, recovery and management. This advancement gives our team more efficiency and speed in detecting and solving problems in our networks. Some of the improvements we have made in recent years include advancements in the migration of time-division multiplex switches to next-generation network switches, which offer new digital services to our clients and reduce our maintenance costs, including improvements in levels of security, power supply, battery and air conditioning infrastructure. The most significant implementation of fixed network technology has been a project to exchange optical cabinets, used for offering voice and data services for Multi-Service Access Nodes, which allows us to offer broadband service to many clients who did not previously have this service. 

In addition, we are widely applying advanced virtualization solutions (NFV) in order to support the transition to the next generation of mobile networks, known as fifth-generation or 5G, which will meet the future market and customer expectations providing massive devices connection (IoT), extremely low latency and higher data transfer rates.

Network and Facilities

We provide services referred to as industrial exploration of dedicated lines (Exploração Industrial de Linha Dedicada, or EILD) pursuant to our concession agreement and our authorization agreements. The EILD consists of the rental of dedicated circuits and clear channel protocols for the provision of services to third parties. 

In addition, we are able to offer a complete portfolio of wholesale products, including L2L, IP, Ethernet and MPLS. All of these products are used to meet the demands of other network operators and regional internet providers. The circuits are requested with different service level agreements, and we are required to provide the facilities with contingency routes, sites and equipment to improve the service against points of failure.

Our network consists of an access layer that connects our clients through our copper or optical networks, which are connected to voice and data centers. These centers are interconnected locally or remotely through transmission equipment connected predominantly with fiber optics and occasionally through a microwave network, which together forms a network layer that enables connectivity between the various platforms as well as interconnection with other carriers. Our network strategy is based on the expansion of the fiber optic access network to allow greater coverage and broadband services for our customers, as well as to develop an integrated multiservice network and multimedia applications. As a telecommunication service provider, we do not manufacture equipment for the construction of our networks and facilities. We buy the equipment from qualified suppliers in Brazil and abroad and through such equipment, we implement our networks and facilities through which we supply our services.

Wholesale services (including interconnection)

We have continuously adapted and expanded our network topology aiming to develop new business opportunities throughout Brazil by offering services to other telecommunications companies. The result has been a significant increase in the number of providers that use our wholesale services.

As part of our wholesale services, we provide interconnection services to users of other network providers. We earn revenue from any call that originates from another mobile or fixed-line service provider network connecting to one of our customers. We charge the service provider from whose network the call originates an interconnection fee for every minute that our network is used in connection with the call. See “—Operating Agreements—Interconnection Agreements.”

38 

At the end of 2019, we had 561 local and long-distance interconnection agreements and 193 agreements for the provision of local and long-distance traffic.

An interconnection is a link between compatible telecommunications networks that enables a fixed or mobile service user of one network can adequately communicate with the users of a network from another provider.

All providers of telecommunication services (fixed or mobile) are required to provide interconnection upon request to any other telecommunication collective service provider. The conditions for interconnection agreements may be freely negotiated among the parties. The agreements are required to be formalized by contract, whose effectiveness depends on ANATEL’s approval. If any given agreement is contrary to the principles of free competition or conflicts with other regulations, ANATEL may reject it. If the parties cannot reach an agreement on the terms of interconnection, including the interconnection fee, ANATEL may determine those terms and conditions by arbitration.

Digital Services (including Value-Added Services)

Following Vivo’s purpose of “digitalizar para aproximar”, in 2020 we put even more energy into developing partnerships with major players in strategic segments such as education, health, entertainment and financial services. Focusing on delivering the best customer experience, we excluded from our portfolio more than forty services with little relevance, improved the value proposition of our traditional plans by bundling with new digital services, and we provided our best services free of charge at the beginning of the pandemic, when the customers were readapting at home to our new online way of life.

In order to contribute to customers in social isolation through COVID-19, we promoted free and unlimited access to our main services. Customers were able to listen to music on Tidal, read the main news on the Forbes app, entertain children with Playkids and even have access to remote technical support, 24/7 for installation and configuration of electronic equipment at home with Vivo Guru. Vivo offered a total of 11 apps, free for 60 days, which also made it possible for customers to study English, take courses and prepare for entrance exams at home, access over 400 thousand ebooks, audiobooks and podcasts, among other benefits. One of the most accessed services was Vivo Meditação, focused on mental health, which featured a special category with meditations to help clients of all ages to control anxiety, reduce stress, sleep better and have a more balanced life during the critical periods of the pandemic.

In June 2020 we launched a new portfolio of postpaid plans, Vivo Selfie, created for people interested in new ways to connect with what they like. The plan is based on the concept of co-creation with relevant brands in their segments, whose services are important in people’s daily lives. Each plan includes a subscription to one of the services, an additional data package to use the partner’s app and many other benefits of the Postpaid plans. With these plans, we bring more benefits to consumers through innovative partnerships with companies that are a reference in the digital and entertainment world - Spotify Premium, Disney +, Netflix, Rappi, Premiere and Telecine. In November, Vivo launched Disney+ exclusively, being the only carrier to launch the service in 2020, with an exclusive offer that delivered a free 30-day trial to Vivo customers on stand-alone subscriptions and discounts on the Selfie Disney+  plan.

In October 2020, we launched our personal credit service for Vivo’s hybrid and postpaid customers, called Vivo Money. Vivo Money allows customer to obtain credit ranging between R$1,000 to R$30,000, in a fast and practical manner through a 100% digital platform. It also offers competitive interest rates, starting at 1.99% per month, according to the customer’s credit profile analysis, and the payment term varies from six to 24 months. The launch of Vivo Money is highly strategic for us, as it reinforces our position as a hub for digital services, offering our customers far more than telecommunications services. Moreover, expanding our financial services is one of our top priorities for the development of new services that generate value for our customers.

39 

Also in October 2020, we expanded our education services portfolio, which has over 20 course and language applications, and launched the partnership with Babbel. The service enables robust development of writing, speaking and listening skills in 14 languages. Through this partnership, we have also expanded the value proposition of traditional voice plans with the creation of bundles that package Babbel’s app in voice plans and grant access to the service at no additional cost to customers.

In the ehealth segment, we launched an important partnership with Yalo, where the customer has access to Dr. Consulta’s medical services, discounts on medical appointments in person or by teleconsultation, on exams, medications and gym. In October 2020, we offered an exclusive promotional subscription through our loyalty program (Vivo Valoriza) and in December 2020 we expanded the partnership by including carrier billing as a subscription method.

We continue to bring new partnerships in digital services, giving the customer the choice to subscribe to important entertainment, security and assistance services by paying directly with Vivo’s bill and thus breaking the credit card barrier. In March 2020, we launched a partnership with Garena’s Free Fire, one of the most popular mobile games of the moment. In May 2020, we launched Safe Connect in partnership with Mcafee, a service that guarantees customer’s safety when browsing the internet. In September 2020, we launched Vivo Assistência Casa, an exclusive product for the Fixed Voice customer, in which the customer can count on services that facilitate their day-to-day activities and bring greater comfort in unforeseen situations, through a specialized care center. We ended the year with the exclusive launch of Amazon Prime, which offers multiple advantages for subscribers with free shipping on e-commerce and various entertainment benefits through Prime Video, Amazon Music, Prime Gaming and Prime Reading.

In 2019, Vivo launched its corporate open innovation program - Vivo Discover - which is focused on enabling innovation impact through the change of mindset and new business development, allowing executives to create and capture value through the adoption of startups solutions for internal pain points or generation of new business for Vivo´s clients. Currently, the main pillar of this program is “Vivo Shaper”, an initiative whose main goal is to create and develop “innovation ambassadors” throughout the entire organization. Every year, the program selects 25 senior executives that go through a six-month course learning key methodologies and topics such as design thinking, enabling change, managing scouting activities (i.e. searching for startups that are a good fit for a specific need), or how to develop a new business with startups for revenue generation. During the program, each “Shaper” must identify real cases where startups can supply the solution and execute its implementation from start-to-adoption using what they learned through their innovation journey. By transforming knowledge into impact, they drive innovation across the organization, while also stimulating their teams and peers to leverage what they learn and practice during the program.

Regarding the development of open innovation in the Telefónica Group, we highlight the Telefónica “Open Innovation” unit, which is an open, global program designed to connect entrepreneurs, startups, investors, and public and private partners to support local ecosystems by investing in start-ups from the seed phase to scale-up via different initiatives including Wayra. There are approximately 500 active startups in the global portfolio.

We believe the integrative nature of Telefónica Open Innovation enables innovation to be developed in different stages. It is structured around some initiatives as below:

· Open Future: Regional open innovation strategy of Telefónica in partnership with public and private partners;

· Wayra (open innovation hub of the Telefónica Group as a whole, as well as an initiative of Vivo Discover in Brazil), which operates prospecting startups early stage to generate business and potential investments in the form of venture capital supporting companies to scale.

Wayra X – Telefónica’s first open innovation Digital Hub to invest in global and digital scale-ups.

· Telefónica Innovation Ventures (TIVs): Network of funds and our corporate venture capital vehicle for investing in late-stage startups. We finance and fuel technological companies in key markets and create strategic partnerships aligned with Telefónica’s global strategy.

40 

Telefónica Tech Ventures: the Venture Capital global vehicle for cybersecurity, founded by TIVs and Eleven Paths, to invest in the best Cyber Security Startups and develop new business together.

In 2020, Telefónica was recognized among the 25 corporations that most support entrepreneurship (Top 25 Corporate Startups) and has received the “Corporate Startup Accelerator”, a special award, recognizing Wayra, the group’s global open innovation hub.

Wayra Brasil has supported 79 startups and made more than R$19 million in investments since 2012. As of December 31, 2020, Wayra had 32 startups in its portfolio. About 47% of our current startups have done business with Vivo helping in the digital transformation process. Some great examples are: Gupy, a recruitment platform responsible for all hiring process at the Company; VOLL, a startup offering a platform helps aggregate and manage transportation alternatives for employees (i.e. a mobility marketplace), improving efficiency and enabling cost reductions.

In addition to investment, connections, mentoring and consulting with founders, Wayra also develop partnerships in order to maximize opportunities for the group. Agro IoT Lab, an IoT-focused field application development program was a great example that was carried out in 2019 at Pulse with Wayra, Vivo, Ericsson and Raízen. This initiative generated new investments in Startups through Wayra and also new products and services launched in 2020 from the partnership between Vivo and the startups IoTag and Ativa. Those products are Vivo Smart Machinery (Vivo Maquinário Inteligente) that provides telemetry and management of heavy vehicles in the field and Vivo Smart Weather (Vivo Clima Inteligente), a solution that provides the connectivity of weather stations to support the farmer in making better decisions about planting and harvesting on the farm. 

Wayra is continuously scouting startups aligned with its investment thesis that in 2020 had as priority areas technologies solutions focused on artificial intelligence, IoT, cybersecurity, advanced analytics, health, education and financial services.

Corporate

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

Our clients are assisted by our highly qualified professionals who are capable of meeting the specific needs of each company with voice, data, broadband and computer services solutions, including hardware and software (for example, anti-virus software). We work to consistently achieve greater quality and efficiency in our services and increase our level of competitiveness in the market.

Sale of devices and accessories 

We sell LTE and WCDMA devices such as smartphones, broadband USB modems and devices that are certified to be compatible with our network and service. We have special offers on smartphones, USB modems and other data devices for customers of bundled packages. Our current device suppliers are Samsung, Apple, Motorola, LG, TCL, Xiaomi, Positivo, Multilaser, ZTE and Flex (WNC and Blucastle) and our gadgets suppliers are Samsung, Harman (JBL), Apple, Alfacomex (Logitech and Geonav), Razer, Oex, Positivo (Anker and Positivo), Easy Mobile, DPC (Binatone Motorola), Allied (Google), Timbro (Amazon), Customic (Customic and Pop Socket), Multilaser, Comesp (Laut), Flex (Mitrastar), Chansport (Xtrax) and ELG. 

Devices and gadgets sales continued to show strong grow in 2020, in line with our strategy to gain market share in this important market, through strong communication and brand awareness initiatives built on our “You can find everything at Vivo” (in Portuguese, “Tem tudo na Vivo”) campaign, a call to action emphasizing that Vivo can provide everything customers need, and also through our sales channels, which focused on attracting high-value customers to our physical and online stores.

41 

Rates, Taxes and Billing

Rates 

We generate revenue from (i) activation and monthly subscription charges, (ii) usage charges, which include measured service charges, (iii) interconnection fees that we charge to other telecommunications service providers, and (iv) other additional services. Rates for all telecommunications services are subject to extensive regulation by ANATEL. We set forth below the different methods used for calculating our rates.

Local rates

Our concession agreement sets forth three mandatory plans for local fixed service and allows us to design alternative pricing plans. Customers have a choice among three plans that we are required to offer or any other alternative plan that we may choose to offer. ANATEL must be informed of any alternative plan and notified of its implementation. The three main mandatory plans are:

· Local Basic Plan: for clients that make mostly short-duration calls (up to three minutes), during regular hours;

· Mandatory Alternative Service Plan (Plano Alternativo de Serviços de Oferta Obrigatória – PASOO): for clients that make mostly long-duration calls (above three minutes), during regular hours and/or that use the line for dial-up service to the internet; and

· Special Class Individual Access (Acesso Individual Classe Especial – AICE): a plan created specifically for families enrolled in social programs from the Brazilian government.

The following table outlines the basic billing requirements and gross rates for the Local Basic Plan and the Mandatory Alternative Plan as of the date of this annual report:

Characteristics of Plan	Local Basic Plan	Mandatory Alternative Service Plan
Monthly Basic Assignment
Allowance (minutes included in the residential assignment)	200 minutes	400 minutes
Commercial Assignment Allowance (minutes included in the commercial assignment)	150 minutes	360 minutes
Local Call Charges
Regular Hours
Completing the call (minutes deducted from the allotment)	—	4 minutes
Completing the call after the terms of the allotment Sector 31	—	R$0.18539
Local Minutes–charges in excess use of the allotment Sector 31	R$0.11425	R$0.04633
Minimum time billing	3 seconds	3 seconds
Reduced Hours
Charge per answered call (minutes deducted from allotment)	2 minutes	2 minutes
Charge per answered call after the allotted duration Sector 31	R$0.23249	R$0.23249

As of the date of this annual report, the subscription to the AICE plan costs R$ 10.97 and allows for 90 minutes of local fixed-line calls per month. Any additional fixed or mobile calls may be made only if the customer purchases prepaid credits. The prices of mobile and long-distance calls are determined pursuant to a standard plan.

Our concession agreement also sets forth criteria for annual fee adjustments for all of our plans for local fixed service. We derive a substantial portion of our revenue from services subject to this price adjustment. The method of price adjustment is an annual price index correction applied by ANATEL to our local and long-distance fees that reflects the inflation index for the period and a productivity factor, which is calculated based on a compensation index established by ANATEL to share earnings from fixed charge services with their users. Currently, the inflation index used by ANATEL is the IST, which reflects variations in telecommunications companies’ costs and expenses. ANATEL has consistently complied with the fee range set by the concession agreements.

42 

Long-distance rates

Rates for domestic long-distance calls are computed based on the time of day, the day of the week, duration and distance of the call, and also may vary depending on whether special services, including operator assistance, are used. We have several options of domestic long-distance calling plans for consumers using our carrier dial code (15). Customers of any local and long-distance operator may use Code 15 when dialing long-distance to benefit from our rates. In March 2020, ANATEL approved Resolution No. 724, which established the Standard for the implementation and monitoring of tariff freedom in the Fixed Telephone Service (STFC) for use by the general public, in the National Long Distance mode. Since then, the company has been free to determine domestic long-distance fees according to the market.

We also offer international long-distance rates, which are also available to all users using Code 15. International long-distance call charges are computed based on the time of day, the day of the week, duration and destination of the call, and may also vary depending on whether special services are used or not, including operator assistance. Our rates for international services are not subject to regulation and are not required to follow the annual rate adjustment described above for other services. We are free to negotiate our fees for international calls based on the international telecommunications market, to which our main competitor is Embratel.

With respect to long-distance calls, we have developed alternative rate plans for residential and corporate customers.

Mobile services rates

Regarding our Local Basic Plan, as described above, and certain roaming charges incurred in connection with alternative service plans, our authorizations provide for a mechanism to set and adjust rates on an annual basis. The maximum rate is calculated as the current rate plus the rate of inflation. This rate is revised annually and the rate of inflation is measured by the IGP-DI index. The maximum rate applies to all service plans, but mobile operators are allowed to freely set the maximum rates for alternative service plans (other than with respect to certain roaming charges).

The initial price cap agreed by ANATEL and the Company in our authorizations was based on the previously existing or bidding prices, and has been adjusted annually based on a formula contained in our authorizations. As of the date of this annual report, the most recent adjustment was approved in September 2020 and established tariffs of R$0.17608 for regular hours and R$0.12325 for reduced hours.

Other telecommunications companies that interconnect with and use our network must pay certain fees, primarily an interconnection fee. The interconnection fee is a flat fee charged per minute of use that directly affects the mobile services rates. Since 2005, ANATEL has allowed free negotiations for mobile interconnection fees (MTR).

In December 2013, ANATEL established the reference values for MTR for 2014 and 2015, and in July 2014, for the years 2016, 2017, 2018 and 2019. The table below shows the ranges for these reference values:

Year	Reduction	MTR
	in %	in reais
2014	25	0.22164 – 0.25126
2015	33	0.14776 – 0.16751
2016	37	0.09317 – 0.11218
2017	47	0.04928 – 0.06816
2018	47	0.02606 – 0.04141
2019	50	0.01379 – 0.02517

43 

In February 2020, ANATEL established the reference values for MTR for the years ranging from 2020 until 2023. The table below shows the reference values for each region (corresponding to different Brazilian states) in the General Authorization Plan (Plano Geral de Autorizações), or PGA, in reais:

Year	PGA Region I	PGA Region II	PGA Region III
2020	0.01338	0.01503	0.02687
2021	0.01380	0.01527	0.02814
2022	0.01422	0.01550	0.02947
2023	0.01468	0.01578	0.03082

Interconnection fees

We are paid interconnection fees by any fixed-line or mobile service provider that either originates or terminates a call within our network. We also pay interconnection fees to other service providers when we use their network to place or receive a call. The interconnection agreements are freely negotiated among the service providers, subject to a price cap and to compliance with the regulations established by ANATEL, which include not only the interconnection basic costs including commercial, technical and legal aspects, but also the traffic capacity and interconnection infrastructure that must be made available to requesting parties. If a service provider offers to any party an interconnection fee below the price cap, it must offer the same fee to any other requesting party on a non-discriminatory basis. If the parties cannot reach an agreement on the terms of interconnection, including the interconnection fee, ANATEL can establish the terms of the interconnection. For additional information about interconnection fees, see “—Regulation of the Brazilian Telecommunications Industry—Interconnection Fees.”

Data services rates

We receive revenue from charges for data transmission, which includes our fixed broadband, dedicated analog and digital lines for privately leased circuits to corporations and other services. Data transmission rates are not regulated by ANATEL, except for EILD (wholesale links up to 34 Mbps) and High Capacity Data Transport (wholesale links above 34 Mbps). Multimedia services operators can freely set the rates for alternative service plans.

TV rates 

Pay TV rates are not regulated. Service providers are allowed to freely set the rates for alternative service plans.

Taxes 

The cost of telecommunication services to each customer includes a variety of taxes. The main tax is a state value-added tax, the Imposto sobre Circulação de Mercadorias e Serviços, or ICMS, which the Brazilian states impose at rates ranging from 4% to 35% on certain revenues from the sale of goods and services, including telecommunication services.

Other taxes include: (1) Federal Social Contributions (Contribuição para o Programa de Integração Social), or PIS, and Social Security Financing Contributions (Contribuição para o Financiamento da Seguridade Social), or COFINS; (2) Fund for Universal Access to Telecommunication Services (Fundo de Universalização dos Serviços de Telecomunicações), or FUST; (3) Fund for Telecommunication Technological Development (Fundo para o Desenvolvimento Tecnológico das Telecomunicações), or FUNTTEL; and (4) Fund for Telecommunication Regulation (Fundo de Fiscalização das Telecomunicações), or FISTEL.

Billing

For postpaid customers, we send each contract customer a monthly bill covering all of the services provided during the previous monthly period. Pursuant to Brazilian law, telephone service providers are required to offer their customers the choice of at least six different monthly payment dates. For prepaid customers, billing is available online.

44 

We have a billing and collection system with respect to local, national and international long-distance voice, subscriptions, broadband, data, IT services, outsourcing, television and third-party services. For invoice payments, we have agreements with various banks. These agreements include options for customers to select their preferred payment type: direct debit, payment to a bank, Internet and other collection agencies (including lottery-playing facilities, drugstores and supermarkets). We aim to avoid losses in the implementation of new processes and the roll-out of new products through the monitoring of billing, collection and recovery controls. The billing process is audited by the Brazilian Association of Technical Standards (Associação Brasileira de Normas Técnicas), or ABNT.

These practices are closely monitored by our revenue assurance team, which measures every risk of revenue loss detected along the billing and collection chain. These risks are managed to minimize revenue losses.

Co-billing

In accordance with Brazilian telecommunications regulations, we use a billing method called “co-billing” for both fixed and mobile services. This method allows billing from other phone service providers to be included within our own invoice. Our customers can receive and subsequently pay all of their bills (including the fees for the use of services of another telephone service provider) on our invoice. To allow for this method of billing, we provide billing and collection services to other phone service companies. We have co-billing agreements with national and international long-distance phone service providers. Similarly, we use the same method of co-billing to bill our services to customers of other fixed and mobile providers. This service is charged to the long-distance operator, by means of a call record described in the invoice.

For customers who use our long-distance services through operators that have no joint billing agreement with us, we use direct billing through the national registry of clients.

Value-added services

Value-added services such as entertainment, information and online interactivity services are available to mobile prepaid as well as postpaid customers through agreements with content suppliers. These agreements are based on a revenue-sharing model.

Third-party services

We incorporate third-party services in our billing, collection and transfer process. These services are later passed on to the third-party contractor.

Collection 

Our collection policies with respect to customers in default follow ANATEL regulations, as well as those of Serviços de Telecomunicações, or RACO, and the Foundation for Consumer Protection and Defense (Fundação de Proteção e Defesa do Consumidor), or PROCON. For mobile, fixed and Pay TV customers, as a general rule, if payment is more than 15 days overdue, service can be partially suspended by blocking out-going calls that generate costs to the customer. If payment is more than 30 days overdue after this partial suspension, the service can be fully suspended, disabling all services (out-going and incoming calls), until payment is received. We offer an installment payment plan for clients with overdue balances. However, if accounts are not paid after 30 days following the total suspension, the contract can be canceled and reported to credit protection agencies. 

The collection process for customers in default involves several steps, from an internal interactive voice response, SMS contact, email contact, followed by a late payment notice, and finally reporting customer information to an external credit bureau. Concurrently with our internal process, delinquent customers are also contacted by collection agencies. Customer risk profile, overdue debt and other quality issues are used to increase strategy efficiency and maximize debt recovery efforts. As of January 2018, bad debt provisions

45 

were adjusted due to changes brought by IFRS9, including new criteria that follow an expected credit loss model, adopting a percentage of risk for each debt payment profile until the moment of effective loss (100%). The percentages were calculated according to the historical behavior of delinquency for each segment. In accordance with Brazilian regulations, bad debt write-offs are permitted for late payments of zero to R$5,000 if they are over 180 days late or R$5,001 to R$30,000 if they are over 365 days late. Late payments of over R$30,001 that are open for more than 365 days require a lawsuit to be initiated. This rule is applied for outstanding debt through October 8, 2014; after this period, the amount ranges for bad debt write-offs change as follows: zero to R$15,000 if they are over 180 days late or R$15,001 to R$100,000 if they are over 365 days late. Lawsuits are required for debts over R$100,000 open for more than 365 days.

In the year ended December 31, 2020, the monthly average of partial suspensions, for mobile and fixed services (Pay TV included), was 4.5 million lines and the monthly average of total suspensions was 892.357 lines. Provisions for doubtful accounts in the year ended December 31, 2020 were 2.8% of the total gross revenue.

Our Markets of Operation

Our concession agreement allows us to operate in the state of São Paulo, except for a small region that is still subject to an earlier concession. In addition, we offer fixed telephone, data and Pay TV services throughout Brazil pursuant to licenses and authorization. We operate mobile voice and broadband services throughout Brazil, under the mobile service (SMP) authorization. We also offer a variety of value-added services, some of them through commercial partnerships. The following table sets forth population, gross domestic product (GDP), and per capita GDP statistics for each state in our service regions at the dates and for the years indicated:

	Last Available IBGE Data from 2018 (1)
Area	Pop. (million)		Percent of Brazil’s pop.			GDP(R$ million)		Percent of Brazil’s GDP			Per capita GDP (reais)(2)
São Paulo State		45.5		21.8	%		2,210,562		31.6	%		48,542
Rio de Janeiro State		17.2		8.2	%		758,859		10.8	%		44,223
Minas Gerais State		21.0		10.1	%		614,876		8.8	%		29,223
Rio Grande do Sul State		11.3		5.4	%		457,294		6.5	%		40,363
Paraná State		11.3		5.4	%		440,029		6.3	%		38,773
Santa Catarina State		7.1		3.4	%		298,227		4.3	%		42,149
Bahia State		14.8		7.1	%		286,240		4.1	%		19,324
Federal District		3.0		1.4	%		254,817		3.6	%		85,661
Goiás State		6.9		3.3	%		195,682		2.8	%		28,273
Pernambuco State		9.5		4.6	%		186,352		2.7	%		19,624
Pará State		8.5		4.1	%		161,350		2.3	%		18,952
Ceará State		9.1		4.4	%		155,904		2.2	%		17,178
Mato Grosso State		3.4		1.7	%		137,443		2.0	%		39,931
Espírito Santo State		4.0		1.9	%		137,020		2.0	%		34,493
Mato Grosso do Sul State		2.7		1.3	%		106,969		1.5	%		38,926
Amazonas State		4.1		2.0	%		100,109		1.4	%		24,533
Maranhão State		7.0		3.4	%		98,179		1.4	%		13,956
Rio Grande do Norte State		3.5		1.7	%		66,970		1.0	%		19,250
Paraíba State		4.0		1.9	%		64,374		0.9	%		16,108
Alagoas State		3.3		1.6	%		54,413		0.8	%		16,376
Piauí State		3.3		1.6	%		50,378		0.7	%		15,432
Rondônia State		1.8		0.8	%		44,914		0.6	%		25,554
Sergipe State		2.3		1.1	%		42,018		0.6	%		18,443
Tocantins State		1.6		0.7	%		35,666		0.5	%		22,933
Amapá State		0.8		0.4	%		16,795		0.2	%		20,247
Acre State		0.9		0.4	%		15,331		0.2	%		17,637
Roraima State		0.6		0.3	%		13,370		0.2	%		23,189
Total		208.5		100.0			7,004,141		100.0			33,593

_______________

(1) According to IBGE data (2018) collected at https://www.ibge.gov.br/ – subject to revision.

(2) Average per capita GDP for Brazil, weighted by the percentage of the population represented by each state.

46 

Seasonality

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

Marketing and Sales

Our commercial distribution network (marketed under the Vivo brand), as of December 31, 2020, consisted of 243 own sales outlets throughout Brazil. In addition, we also have approximately 13,000 sales outlets run by authorized dealers (including exclusive dealers and retail channels), maintaining a solid capillarity strategy that contributed to our leadership position in the Brazilian telecommunications market.

As of December 31, 2020, we had approximately 360,000 points of sale where prepaid mobile service customers could purchase credits using the Distribution or Online channels. Prepaid phones can be credited remotely or by purchasing cards containing credits. Credits may also be purchased through credit and debit cards, call centers, Vivo PDV (M2M using a cell phone for transferring the credit), personal recharge (using the phone itself to recharge credits), as well as certain certified internet websites.

We bring our solutions to our customers through the following physical sales channels:

· Vivo stores: we continue to focus on the transformation of the traditional PoS (Point of Sale) into the PDX (Point of Experience), reaching eight iconic stores, six Stores-in-Store and 243 Plus Stores (a concept created to serve small and medium cities) as of December 31, 2020. By advancing on infrastructure, systems, customer service, micromanagement and capillarity improvements we believe we continue to provide an efficient, profitable and enchanting service. In 2020, in response to the pandemic restrictions, we accelerated the digitalization of our stores by releasing “Vivo em Casa”, a tool where anyone can contact our store´s sales force.

· Exclusive dealers: this channel is composed of select companies that have been certified to provide our full product portfolio. These dealers comprise a wide distribution network throughout the country. Although the channel offers the entire product portfolio, its focus is on the postpaid product. We are also constantly updating and enhancing these stores to provide a better purchase experience to the customer, to ensure an experience that is consistent with our own stores. In 2020, these dealers were also impacted by the restrictions imposed by the COVID-19 pandemic. In order to minimalize this impact, we made available to them our “Vivo em Casa” solution.

· Retail channel: our retail channel sells postpaid and prepaid products and recharge services that are marketed by our partners’ own sales teams. This channel maintains a strong partnership relation with retailers through our sales incentive program (tying compensation to sale performance). In 2020, we changed and standardized all the contracts with our retail partners, in order to increase the quality and profitability of our sales.

· Distribution channel: the broadest and most complex sales channel across our markets, this channel allows our prepaid customers to purchase data and voice credits. In order to be as close as possible to potential and existing customers, this channel comprises authorized agents, lottery stores, post offices, bank branches and small retailers, such as pharmacies, newspaper stands, bookstores,

47 

stationery shops, bakeries, gas stations, bars and restaurants. The channel is currently responsible for the majority of our prepaid sales (90%) and mobile recharges (75%). In 2020, despite all the restrictions imposed by the pandemic, we regained the leadership of the prepaid market. This is a result of our continuous stimulus to commercial and operational efficiency, by improving our micromanagement tools that enable real-time control of distribution capillarity, sales force and supply of all of 360,000 points of sales.

· Door-to-door sales: this channel has strengthened after the transformation started in 2019, by expanding the sales force, focusing on quality and high-value clients and becoming key in fiber sales in locations where we have deployed new facilities. This channel represents 40% of all fiber sales in the B2C segment. In a year with a lot of restrictions imposed by the COVID-19 pandemic, this channel played the most important role to meet our client, respecting all healthy measures.

· Outbound Telesales: characterized by the lack of geographical limitations, our outbound telesales channel can reach existing and potential customers across the whole country, offering our full product portfolio, from prepaid to postpaid products, as well as fixed voice, broadband and TV bundles. In 2020, facing the challenges imposed by the self-regulation in the telecom sector in Brazil, this channel has focused on increase the client base by identifying new clients and offering suitable plans to our’ existing clients according to their consumption profile. This channel contributed with almost 230 thousand unit sales per month.

Customer service

2020 has brought a significant increase in demand for Telecom Industry, which has become an essential service for the whole society. We were already moving towards the digitization of our channels, offering technology as a means of bringing people together. Then, with the need for physical distance, our purpose of digitizing to get closer has gained even more relevance.

Countless challenges happened simultaneously, and all this care for people started at home: in a record time of just 15 days, in March, we moved several areas of the company so that we could put Self-Service Operations working from home full time, in complete safety.

Our team has shown the importance of synergy for a surprising result, based on the DNA Vivo Program, which permeates the daily life of our entire company, in a reliable, easy, enchanting and efficient relationship. From March to October 2020, around 50% of the calls were answered by people working from their homes.

Our more than 25,000 call center employees have provided an advisory service to customers, when we also worked intensively to encourage the use of digital channels for Self-service, with a leading role in the digital transformation of Brazil. The results of this change have already appeared during 2020: there was a reduction of over 15% in telephone contacts to call centers compared to the same period in 2019 and a significant increase in customers on digital channels. In 2020, there were more than 270 million interactions from Aura, Vivo’s artificial intelligence platform. Meu Vivo App unique users base has grown by 17% in December 2020 compared to December 2019, and from January 2020 to October 2020, Whatsapp service interactions exceeded 130 million.

We have ended 2020 certain that we have the best resources: human and technological to face the barriers of physical distance together. These results have proven our constant efforts to improve the customer experience, whose cycle we follow end to end: sell, serve, charge and retain.

Technology

In order to offer a greater variety of integrated services, we have incorporated a series of new technologies in our voice and data networks.

In 2017, we started the program for network virtualization, UNICA. In 2020, we accelerated the virtualization program in order to reach the necessary requirements for 5G and IoT networks.

48 

For voice services, we remain focused on the evolution and convergence of the mobile and fixed networks based on All-IP IMS technology, encouraging technological advancement and offering new services to our customers, at the same time increasing redundancy, reliability and capacity levels.

As part of convergence and modernization of the voice network, we have been deploying new IMS clusters over UNICA infrastructure as well and new IMS clusters are upcoming soon.

In the case of our mobile voice network, we have started offering VoLTE and VoWiFi services to our customers adding important voice improvements like HD voice (native in VoLTE) and new SRVCC (Single Radio Voice Call Continuity) enhancements that will improve call continuity with new handover scenarios among IMS (LTE) and CS (Circuit Switch). Besides that, we have been working on voice over 5G (VoNR) in order to have this service as soon as this network becomes available.

For our fixed voice network, the offer of VoFTTH, SIP trunking, SIP interconnections, etc. has been increasing in our network as part of new cities launching plan, energy efficiency and site demobilization and voice digitization plans, synergies between fixed and mobile networks and so on. To support significant VoIP growth, the modernization and consolidation of the new IMS Core and SBCs were planned and deployed. As a benefit, we expect to have cost savings for equipment, lines, manpower and maintenance.

In terms of our Telecom database, we have already started our network modernization in order to have new UDC clusters over a virtualized infrastructure. Such movement will allow us to have the new components that are necessary for 5G networks especially for 5GSA (Stand Alone) architecture.

For Data Core we have been offering the LTE-M, Nb-IoT and private LTE networks providing new services for B2B and B2C markets. At the same time, we have already started our planning for Data Core network modernization preparing our network to offer 5G services.

As more services migrate to IP, the IP backbone has become a strategic asset to support customer demands and increase revenues. The migration of sensitive and demanding services such as voice and television to IP has also increased the demand for higher quality broadband networks and is further augmented by growing products like cloud services and video on demand. At the same time, the expansion of fiber to customer homes and the launch of our 4.5G services (Carrier Aggregation) strongly increases bandwidth demands over the networks. As a result, three main drivers have surfaced as critical to business: availability, performance and cost-effectiveness.

To reach these goals it is essential to optimize network resources and find synergy multipliers. This optimization process has started with the integration of Vivo’s and GVT’s IP backbones through our network and avoiding redundant infrastructure. For this purpose, we have designed a robust architecture, using two distinct backbones to provide public and private services using multi-protocol network infrastructures, to guarantee service reliability to our clients.

Nonetheless, as more and more bandwidth is offered to customers, the need to bridge the gap between revenues and investment to cope with greater traffic becomes increasingly clear. The next step of network simplification entails a deeper-level evolution, which was initiated in 2018 through the exchange of existing routers for new ones with a higher capacity to allow for the unification of specialized routers, reducing network layers, bringing services and content nearer to customers and ultimately, transforming the backbone into one multiservice network.

The new design acknowledges service evolution, as voice, messages and circuits become data packets, reducing the need for growing capacity in multiple steps. We believe that in the coming years, layer simplification could allow us to bring content even further to the edge, improving costs and quality at the same time.

 Those actions are expected to optimize investment in an aggressive traffic increase context and lay the grounds to deliver the next step in data services quality. Even though bandwidth has been the main technical advantage for several years, latency will take over as the main broadband selling point. To reduce network latency means delivering more responsive services and obtaining higher customer satisfaction.

49 

To achieve this result, we believe service should be decentralized and nearer the edge of the network, closer to customers, which we have done by expanding the use of caching solutions throughout the network, making content locally available to our customers, reducing traffic costs while strongly improving the user experience without increasing access investments.

We further optimized costs by sharing access networks with other Brazilian operators, in which IP backbones played a key role in connecting and transporting traffic among different operator’s networks, reducing the need for mobile site expansion.

Finally, as the Internet address numbers in Brazil were exhausted in 2014 and our own resources are reaching critical levels, we have seen strong growth in the next version of the IP protocol, the IPv6. Vivo has completed IPv6 project in 2017, which is important to guarantee full connectivity to our clients and support sales to keep expanding our customer base.

Given the growing demand for connectivity and consequently the exponential increase in capacity in the IP transport network, in addition to meeting this delivery on time, it is necessary to direct more automation and autonomy to the IP transport network, to simplify its management. Because of this new need, we have worked to bring an orchestration concept to the IP transport network with the application of the Software Defined Networks (SDN) model. Continuing within an operating model based on Command Interface (CLI) has become impractical. This is especially true when vendors develop artificial intelligence and machine learning capabilities in their software and allow networks to become even more automated with self-healing and self-learning. In addition to the control functions, the SDN is being proposed to provide support for management functions, configuration creation and activation of network elements, triggered by the operational support systems (OSS). Thus, the SDN aims to be a complement to the OSS.

In addition to bringing the concept of SDN, we have been working on developing and promoting a model of Interfaces North (NBI) and Interfaces South (SBI), of SDN controllers, standardized for any supplier, whether OSS or Network elements. This evolution aims at an abstraction of the transport network regardless of the supplier present in it, which translates time and cost reduction with the development of specific systems for management, provisioning of services/infrastructure, network inventory and path control. For our company, SDN is the clear definition of open and standardized interfaces and models that could allow the direct and perfect integration of network nodes and systems. To this end, we have defined a set of categories and use cases within the scope of a project called iFusion that is in progress, from which the Interface requirements are derived. Support for the entire set of use cases is a mandatory requirement for all vendors in the SDN Control layers.

In projects related to Local Area Network (LAN), we provide local connectivity to all platforms and servers that provide telecommunications service, fixed or mobile. The Local Area Network works as access for all services to the data network by connecting them to the IP Backbone.

We are evolving the Standard Ethernet Local Area Network (LAN) structure for the TRILL protocol (RFC 6326). The use of this protocol makes it possible to increase the resilience of the environment, allowing a considerable reduction in the faults that occurred and that could sometimes cause affectation in the service of the final client. We are also implementing the concept of decentralization in Technical Data Centers with Top of Rack (TOR) and End-of-Row (EOR) switches allowing cost savings with structured cabling, energy reduction, space and cooling. To keep up with network growth, in 2020 we increased site capacity by providing increased port capacity on 15 existing sites. Also in 2020, we implemented switches at 30 sites to support the fixed network quality measurement solution.

To improve customer experience with our services, we continue to use the Cache solution to reduce bandwidth consumption on the IP backbone by locally storing content from partners such as Google, Netflix, Akamai and Facebook. This enables us to optimize network resources and improve quality of service. In 2020, we increased capacity on 8 existing sites as network data traffic increases, and we implemented 2 new sites. 

Regarding Network Security projects, in a digital world where telecommunication networks are becoming increasingly complex, the security of networks becomes an indispensable factor for the success of

50 

our customers and for their business. We continued working constantly in 2020 to protect our network from a variety of targets and kinds of attacks, making it as difficult as possible for attackers and ensuring the uninterrupted functioning of our services.

Over the years, attackers have become much more sophisticated, using zero-day vulnerabilities and bypassing all traditional security defenses, therefore, besides tightening our perimeter security, we have kept been focused on automation to allow more visibility and proactivity to minimize risks and keep the confidentiality, integrity and availability. Periodic tasks such as analyzing attacks notifications, auditing firewall rules and evaluating security elements performance have been the main areas subject to automation, allowing security professionals to focus on more complex problems.

Always observing the evolution of the threats and the potential of the attacks, in 2020 we continued to increase the traffic capacity to be detected and mitigated by the protection tools, considering attacks coming from inside and outside our network.

We offer IPTV service through the FTTH network using the Open Platform, created to revolutionize the way that we deliver IPTV services. This platform consists of Pay TV with video broadcasting offered through the IP protocol. It consists of several global partners, developing modules in partnership with us and connecting into our existing Global Video Platform. Our local team customized the middleware for Set-Top-Box, creating one standard version which brings better time-to-market for new developments and product releases, as well as future convergence between IPTV and OTT platforms. Several components were integrated to create a whole new ecosystem for IPTV, such as the inclusion of Instant Channel Change (ICC), Retransmission and Applications providing a better user experience. Additional services, such as pay-per-view and VoD, are also available.

We have made IPTV services available to more than 200 cities throughout Brazil, maintaining along 2020 the growth we achieved in these services in 2019, offering IPTV services to an increasing number of new cities. We also built additional Points of Presence (PoPs), increasing new local channels and made the quality of IPTV services available to remote localities.

Besides the expansion to other cities, the features were incremented on the client for a better experience, such as:

· Time Shift;

· Catch Up;

· new Apps like Netflix, Amazon and YouTube;

· and in the future 4K content;

The interface of IPTV services was changed to improving the customer experience. More channels were deployed offering new entertainment for customers. The CDN platform growth has secured our ability to offer more VoD titles and OTT services.

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

We continued to expand the capacity and coverage of our mobile networks in order to absorb the growth in voice and data traffic, further away from the competition, with significant growth in 4G coverage and 5G DSS “Dynamic Spectrum Sharing”, while remaining as the 3G technology leader.

As of December 31, 2020, our mobile network covered 4,691 cities in Brazil in the LTE Advanced Pro, LTE, WCDMA and GSM / EDGE digital technologies. The number corresponds to 84.3% of the total cities in Brazil or 96.7% of the Brazilian population. As of December 31, 2020, our 2G / GSM-EDGE network extends across 3,757 cities. In the same period, the 3G / WCDMA network was present in 4,558 cities. 

51 

The 4G / LTE technology launched in 2013 was an important advance for our mobile network since it provides higher transmission rates than 3G. In 2020, we continued to expand the coverage of this technology and by the end of November, our 4G network reached 3,530 cities.

The 5G DSS “Dynamic Spectrum Sharing” was launched in 2020 with 4G frequencies sharing, and as of the end of the year, we had a local presence in eight Brazilian cities.

Since 2015, we have started to develop network sharing in 4G with Oi and TIM. At the end of 2020, 128 Brazilian cities had radio base stations shared providing new 4G coverage in 299 cities using TIM or OI’s Network through RAN Sharing. In 2017, we have also started to develop 3G network sharing with Claro and at the end of 2020, 140 Brazilian cities had radio base stations shared providing new 3G coverage in 141 cities using Claro’s Network through RAN Sharing. In 2018, we have also started to develop 3G network sharing with TIM, and at the end of 2020, 47 Brazilian cities had shared radio base stations providing 3G new coverage in 72 cities using TIM’s Network through RAN Sharing. In 2019, we have also started to develop network sharing in 4G 700 MHz with TIM (as a Proof of Concept), and at the end of 2020, 10 Brazilian cities had shared radio base stations providing 4G new coverage in 10 cities using TIM’s infrastructure through RAN Sharing. In 2019 Vivo and TIM signed a network sharing agreement for 2G, 3G and 4G technologies, aiming at network expansions and synergies. At the end of 2020, 118 Brazilian cities had shared 3G/4G radio base stations providing new 3G/4G coverage in 118 cities using TIM’s infrastructure through RAN Sharing. The strategy of Radio Access Network Sharing allows us to fulfill part of the ANATEL’s obligations that were imposed as part of our spectrum acquisitions, additionally, it reduces network deployment costs and to provide new coverages with lower costs.

We have deployed our LTE network with 700 MHz, 1,800 MHz, 2,100MHz and 2,600 MHz frequencies in 2020, activating LTE Advanced Pro technology (commercially known as 4,5G), aiming at coverage, capacity and customer experience improvements. At the end of December 2020, we reached 1,738 cities with this technology.

Fraud detection and prevention

During 2019, we continued our work in combating the two main types of fraud, as follows:

· Subscription fraud: is a type of fraud that occurs when the issuance of one or more accesses are granted without the consent of the real “holder” of identification documents with the main objective of evading payment. We had a reduction of 31% in losses related to subscriptions, from R$65.8 million in 2019 to R$50.4 million in 2020. The primary cause of this reduction was the improvement of certain rules and the revision of certain detection processes, in addition to improvements in the controls used to monitor fraud events that occurred during the year, allowing us to capture more cases of fraud in less time, reducing the average ticket, in addition to the implementation of Facial Biometrics in sales processes in Fixed On-site Channels

· Identity Fraud: also known as “social engineering,” an identity fraud takes place through call centers or resellers, where a caller has access to information belonging to our existing clients contacts our call centers and makes unauthorized changes and activations. We had a 73% increase in cases in 2020, from 626 cases in 2019, to 1,085 cases in 2020. This increase is related to the higher volume of complaint cases, arising from internal fraud, in addition to fraud related to Prepaid Migration, ownership change and chip change. Despite this increase, we managed to implement Biometrics in the face-to-face channels in November 2020 for this scenario, aiming to reduce this kind of fraud.

52 

Operating Agreements

Interconnection agreements

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

We believe that we have adequate interconnection agreements with fixed-line operators necessary to provide our services and that we have all the necessary interconnection agreements with long-distance carriers.

Roaming agreements

We provide international GSM roaming in over 200 destinations worldwide by means of over 500 roaming agreements with local service providers.

We have a roaming agreement with MTN Irancell. During 2020, we recorded US$12.24 in roaming revenues and US$126.55 of expenses payable to MTN Irancell under this agreement. See “—C. Organizational Structure—Disclosure Pursuant to Section 219 of the Iran Threat Reduction and Syria Human Rights Act” for further information.

Network sharing agreement 

In 2014, Telefônica Brasil executed a network sharing agreement with Nextel in order to provide mobile services coverage (voice, data and SMS) through our 2G and 3G network to 67 area codes. ANATEL approved the agreement and the execution of the operation in March 2014. In 2016, the parties decided to review the network sharing agreement and extend it throughout the national territory and decided to enter into a RAN Sharing Agreement in order to provide Nextel the network conditions to fulfill its mobile coverage obligations. RAN Sharing agreement was approved by CADE in July 2016 and by ANATEL in August 2016.

In March 2015, Claro and Telefônica entered into a RAN Sharing agreement in order to provide telecommunication coverage in rural areas in Brazil, which was approved by CADE and ANATEL.

In December 2015, Telefônica, Oi and TIM entered into a RAN Sharing agreement in order to provide mobile services coverage (voice, data and SMS) through the 4G network and comply with coverage commitments assumed by the operators. The agreement was approved by CADE and ANATEL.

In August 2016, ANATEL approved the agreement between Telefônica and TIM to share electronic equipment and mobile sites for the fulfillment of obligations related to providing telecommunication coverage in rural areas.

In December 2019, Telefônica Brasil and TIM had entered into two network sharing agreements regarding electronic equipment and mobile sites on 2G, 3G and 4G networks, in order to (i) decommission outdated technology; (ii) 4G coverage expansion; and (iii) gain spectrum and cost-efficiency. Both agreements are under ANATEL and CADE scrutiny.

The approval of the aforementioned agreements, however, does not exempt the providers from fulfilling their obligations, nor from the coverage of the entire area. In the case such agreements are terminated before the expected deadline, each provider must meet its coverage commitments with its own network, under the penalty of extinction of the use of radio frequencies’ authorizations.

Competition

Competition in the fixed and mobile markets continued to be intense in 2020. Faced with the high demand for connectivity, Brazilian telecoms have focused on modernization and innovation as levers to remain competitive in the market. The leading companies have been directing efforts and investments toward the digital transformation of business operations, aiming to improve the balance between customer growth

53 

and loyalty, revenue growth and margins. For these reasons, the major operators accelerated the 4.5G coverage, rolled out fiber and continued to include value-added services in the offers in order to differentiate their mobile and fixed portfolios.

The Brazilian consumer market is increasingly knowledgeable and demanding, expecting not only the best service delivery, as well as the best cost-benefit. Therefore, operators have prioritized the expansion and digitalization of company-customer interactions.

In the mobile market, we continued to lead in market share, with a 33.6% share according to information from ANATEL as of December 31, 2020. This year, the competition remained intense in 4G and 4.5G network coverage expansion and subscribers’ growth.

We lead the mobile market in 13 states: Acre, Amazonas, Amapá, Bahia, Espírito Santo, Mato Grosso, Mato Grosso do Sul, Minas Gerais, Pará, Rio Grande do Sul, Roraima, São Paulo and Sergipe. TIM, a Brazilian telephone company and subsidiary of Telecom Italia lead the mobile market in four states: Alagoas, Paraná, Rio Grande do Norte and Santa Catarina. Oi leads mobile services in three states: Paraíba, Ceará and Pernambuco. Claro Brasil or Claro is a mobile operator controlled by the Mexican company America Móvil Group, and leads mobile service in seven states: Distrito Federal, Goiás, Maranhão, Piauí, Rio de Janeiro, Rondônia and Tocantins (according to ANATEL, as of December 2020).

On the fixed front, the wireline and pay TV services reported net disconnections, according to ANATEL. In broadband, the market continued to expand mainly in ultra-broadband and fiber accesses. Our main competitors in fixed telecommunications services are Claro Brasil (which includes NET, Claro and Embratel) and Oi, which is stronger in the fixed services outside the State of São Paulo. TIM (a subsidiary of Telecom Italia) has been offering its fixed broadband network ‘TIM Live’ in twenty cities. SKY, currently controlled by AT&T, has pay TV and broadband services (LTE TDD 4G). In addition, we have competition from thousands of regional service providers throughout the country.

Regulation of the Brazilian Telecommunications Industry

Our business, including the services we provide and the rates we charge, is materially affected by comprehensive regulation under the General Telecommunications Law and various administrative rules thereunder. We operate under a concession agreement that authorizes us to provide specified services and subjects us to certain obligations, according to the General Universal Service Targets Plan (Plano Geral de Metas de Universalização – PGMU), and Quality Regulations.

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

Concessions and authorizations 

In accordance with the General Telecommunications Law, concessions are licenses to provide telecommunications services granted under the public regime, while authorizations are licenses to provide telecommunications services granted under the private regime. 

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

A concession may only be granted pursuant to a public bidding process. As a result, regulatory provisions are included in the relevant concession agreements and the concessionaire is subject to public service principles of continuity, changeability and equal treatment of customers. In addition, ANATEL is authorized to direct and control the provision of services, to apply penalties and to declare the expiration of the concession and the return the possession of the reversible assets from the concessionaire to the government authority upon termination of the concession. Another distinctive feature of public concessions is the right of the concessionaire to maintain economic and financial standards, which are calculated based on the rules set forth in our concession agreement and was designed based on a price cap model. 

54 

On October 4, 2019, Law No. 13,879/2019 (resulting from PLC Nº 79/2016), or the New General Telecommunications Law, was published. This law revises the telecommunications regulatory framework and represents a significant impact on this industry. For more information about the New General Telecommunications Law, see “—Other regulatory matters—Updated regulatory Framework”. 

The companies that operate concessions under the public regime are Telefônica Brasil, Oi, Algar, Sercomtel and Claro (Claro for domestic and international long-distance service). These companies provide fixed-line telecommunications services in Brazil that include local and long-distance services (domestic and international). All other telecommunications service providers, including the other companies authorized to provide fixed-line services in our concession region, operate pursuant to authorizations under the private regime. Companies that provide services under the private regime, known as authorized companies, are not subject to the same requirements regarding continuity or universality of service; however, they may be subject to certain network expansion and quality of service requirements that are obligations set forth in their authorizations. Authorizations are granted for an indeterminate period. Under an authorization, the government does not provide a guarantee to the authorized company of a financial-economic equilibrium (equilíbrio econômico-financeiro), as is the case under concessions. Fixed voice authorization license holders are entitled to freely compete with the concessionaires in their respective areas without any limitation. 

An authorization is a license granted by ANATEL under the private regime, which may or may not be granted pursuant to a public bidding process, to the extent that the authorized company complies with the objective and subjective conditions deemed necessary for the rendering of the relevant type of telecommunication service in the private regime. 

The General Telecommunications Law delegates to ANATEL the power to authorize private regime companies to provide local and intraregional long-distance services in each of the three fixed-line regions and to provide intraregional, interregional and international long-distance services throughout Brazil. ANATEL has already granted authorizations for companies to operate in Region III, our concession region. ANATEL has also granted other authorizations for companies to operate in other fixed-line regions and authorizations to provide intraregional, interregional and international long-distance services throughout Brazil competing with Claro, which operates under a long-distance fixed-line concession.

Concessionaires, including us, can also offer other telecommunications services in the private regime, which primarily include data transmission services, mobile services and Pay TV. 

Obligations of telecommunications companies

Pursuant to the concessions and authorizations, we and other telecommunications service providers are subject to obligations concerning quality of service, network expansion and modernization. Telecommunication concessionaires are also subject to a set of special restrictions regarding the services they may offer, which are listed in the General Grants Plan (Plano Geral de Outorgas – PGO), and special obligations regarding network expansion and modernization contained in the PGMU.

In January 2017, ANATEL held a public consultation relating to the new rules of the PGO containing an exclusive chapter aimed at verifying the migration of fixed telephony concessions for authorizations, in accordance with the new legal framework discussed in the Congress at that time. However, the changes in the General Telecommunication Law were approved only in October 2019. Despite ANATEL’s efforts in 2017, a series of regulations to create the conditions proposed under the new Law must be prepared and revised.

Any breach of telecommunications legislation or of any obligation set forth in concessions and authorizations may result in a fine of up to R$50 million per infraction.

Our operations are regulated as follows:

55 

· Fixed line voice services (local and long-distance) under concession agreement in the state of São Paulo and under authorization agreement in the rest of the Brazilian territory. The concession was granted in 1998 by the Brazilian Government and renewed in December 2005 for an additional period of 20 years. It authorizes us to provide fixed-line telecommunications services in the state of São Paulo, except for a small area (Sector 33) and to place and manage public telephones in our concession area. We also provide fixed-wireless services throughout our concession area, for which the authorization was granted in 2001 by the Brazilian Government for the whole Brazilian territory;

· Mobile voice and broadband services, in all 26 states and the Federal District, under the personal mobile service (Serviço Móvel Pessoal - SMP) authorizations.

· Multimedia communication services, such as audio, data, voice and other sounds, images, texts and other information throughout Brazil. We operate under a nationwide SCM authorization, valid for an indefinite term;

· Pay TV services, throughout all regions of Brazil under the conditioned public service (Serviço de Acesso Condicionado), or SeAC authorization. We operate a SeAC authorization, which is valid for an indefinite term;

· Private Limited Services – SLP, which accounts for the provision of telecommunication services in the private regime, intended for specific groups of users defined by the provider and which covers multiple applications, including data, video, audio, voice and text communication; and

· Wholesale services, such as interconnection, governed by the interconnection agreements discussed under “—Operating Agreements—Interconnection Agreements,” industrial dedicated line (Exploração Industrial de Linha Dedicada – EILD), which are regulated by ANATEL Resolution No. 590, dated May 15, 2012 and Mobile Virtual Network Operator, or MVNO agreements described under “—Operating Agreements—MVNO Agreements”. Most wholesales services are also regulated by ANATEL Resolution No. 694, dated July 17, 2018 – General Competition Targets Plan (Plano Geral de Metas de Competição - PGMC).

We set forth below details of the concession, authorizations, licenses and regulations that regulate our operations.

Quality regulations in Brazil

In December 2019, ANATEL approved the new Quality Regulation (“RQUAL”), which changes the way the agency will monitor the performance of telecommunications operators. In addition to promoting quality indicators increasingly associated with consumer experience and widespread dissemination of results, the concept of responsive regulation was introduced, encouraging advanced corrective actions to problems, rather than solely imposing fines when goals are not met.

Providers will be evaluated for certain quality requirements and will receive annual “seals” from “A” to “E” in each Brazilian municipality. If the provider has quality deterioration in a municipality compared to the previous label and is in the last two positions (seals D or E), customers may terminate their contracts without paying penalties (if the service was contracted at the time the provider’s quality seal was superior).

Seals will be awarded annually with quality measurements per municipality and state, as well as Brazil as a whole, based on three indicators: quality of service index, perceived quality index and user complaint index.

An independent entity, funded by the providers, will measure the quality of services, but ANATEL will able to contract complementary measures. In addition to this entity, the regulation amended the consumer rights regulations, creating the obligation to establish an ombudsman, directly linked to the company’s presidency.

56 

The full implementation of this new regulation will not take place until 2022. ANATEL has set a deadline of 18 months for the Implementation Group to develop the Operational Manual, making the first measurements. and publication of the Reference Values Document (“DVR”) to only then apply quality seals.

RQUAL already revoked most of the existing indicators in the old quality regulations (“RGQs”). The reimbursement criteria in the Services Regulations were also revoked, and only the RQUAL provisions are in force.

Fixed services

Our concession agreement 

We are authorized to provide fixed line services to render local and domestic long-distance calls originating in Region III, which comprises the state of São Paulo, except for Sector 33, established in the PGO.

The current concession agreement that is valid until December 31, 2025 was reviewed in 2006 and 2011. According to Resolution Number 678/2017, a new revision must be made on December 31, 2020. Until then, the 2011 contract remains valid.

Other regulations have been adopted to revise certain aspects of our concession. On June 30, 2011, ANATEL determined the new basis of calculation of the biannual concession fees. Every two years, during the new 20-year period of our concession, we are required to pay a renewal fee, which amounts to 2% of the total revenue in the previous year, calculated based on the revenues and social contribution of fixed line basic and alternative plans. The most recent payment of this biennial fee was made in April 2019, based on 2018 revenue. The next payment is therefore scheduled for 2021 based on 2020 revenue. See Note 1 to our Consolidated Financial Statements.

In addition, the Brazilian government published Decree No. 7,512/2011 which proposed the General Plan for the Universalization of Fixed Telephone Services under the Public Regime (Plano Geral de Metas para a Universalização do Serviço Telefônico Fixo Comutado Prestado no Regime Publico – PGMU III). It set forth new targets for public pay phones (Telefone de Uso Público) availability in rural and low-income areas and targets related to low-income fixed line services (Acesso Individual Classe Especial – AICE).

On June 27, 2014, ANATEL held a public consultation for the PGMU. Since there was no mutual agreement between ANATEL and operators for the signature of the 2015 concession agreement contracts, the new version of the PGMU was also delayed. In December 2018, although the new concession contracts have not yet been signed, the Brazilian government published Decree No. 9,619/2018, which approves the revision of the PGMU targets. The new plan replaces some obligations, mainly related to public telephony, for obligations related to the 4G mobile network. These targets have been criticized by most of the local operators. 

Also, in December 2018, ANATEL initiated a public consultation for the last PGMU revision, concerning the period between 2021 and 2025 (PGMU V). The public consultation was concluded and ANATEL’s board of directors approved the new revision on November 26^th, 2020. The main change in comparison to PGMU IV concerns the goals that must be met to replace the reduction in the number of public phones required. ANATEL proposed to replace 4G targets, established in the previous plan, with the construction of a backhaul in municipalities that do not have an optical fiber connection yet. Now, the proposal approved by Anatel must be evaluated by the Ministry of Communications.

According to our concession agreements, all assets owned by us which are indispensable to the provision of the services described in such agreements are considered “reversible assets”. As per ANATEL’s recent interpretation of current regulations, these assets will be automatically returned to ANATEL upon the expiration of the concession agreements, in accordance with the regulation in force at that time, and would not be available to creditors in the event of insolvency, bankruptcy or similar events. With the recent Law No. 13,879 approval (October 2019) and the new regulatory framework, this rule might cease to exist in light of the possibility of transforming concessions into authorizations.

57 

On October 4, 2019, Law No. 13,879/2019 (resulting from PLC No. 79/2016), or the New General Telecommunications Law, was published. This law revises the telecommunications regulatory framework and represents a significant impact on this industry. For more information about the New General Telecommunications Law, see “—Other regulatory matters—Updated Regulatory Framework”.

For information about regulations affecting rates we can charge under our concession agreements, see “—Rates, Taxes and Billing.”

Obligations on concessionaires to provide fixed line service under the public regime 

We and the other concessionaires are subject to the General Universal Service Targets Plan (Plano Geral de Metas de Universalização – PGMU), which requires that concessionaires undertake certain network expansion activities with respect to fixed-line services. The timing for network expansion is revised by ANATEL from time to time. If any given concessionaire does not fulfill its obligations under the PGMU, ANATEL may impose various monetary penalties and such concessionaire may lose its license if ANATEL determines that it will be unable to provide basic services under the Plan. 

Fixed line service under the private regime

In 2002, we began providing local and interregional services in Regions I and II and Sector 33 of Region III, and international long-distance services in Regions I, II and III, which constitute regions in Brazil that are outside of our public regime concession area. 

Public telephone regulation 

In December 2018, Decree nº 9.619/2018 came into force, approving the revision of the PGMU. The new plan, called PGMU IV, replaces some obligations, mainly related to public telephony, for obligations related to the 4G mobile network. These targets have been criticized by several of the local operators. On November 26^th, 2020, ANATEL approved the last PGMU revision, concerning the period between 2021 and 2025 (PGMU V). The only change in comparison to PGMU IV concerns the goals that must be met to replace the reduction in the number of public payphones required. ANATEL proposed to replace 4G targets, established in the previous plan, with the construction of backhaul in municipalities that do not have an optical fiber connection yet. Now, the proposal approved by Anatel must be evaluated by the Ministry of Communications.

Mobile services 

In October 2016, ANATEL approved new spectrum use regulations, which facilitate access to radio frequencies and generates efficiency in its use, due to the simplification of procedures and necessary documentation. The regulation also alters spectrum pricing (for non-bidding grants), rules for extending use authorization and new rules for frequency use on a secondary basis prior to primary use.

In July 2018, ANATEL approved Resolution nº 695, which establishes new spectrum pricing regulations, with calculation methods and conditions for spectrum reserve prices and renewals costs. This new regulation took effect in May 2019.

In November 2018, ANATEL approved Resolution nº 703, which establishes new spectrum cap regulation. There are two groups of bands with specific limits for a given area:

· Frequencies up to 1 GHz: each operator may hold up to 35% of the bands;

· Frequencies between 1 GHz and 3 GHz: each operator may hold up to 30% of the bands.

All these limits can be extended by up to 40%, through competitive constraints that may be imposed by ANATEL. For frequencies above 3GHz, the limits will be determined in the specific auction terms.

58 

Mobile service licenses (SMP)

Previously, spectrum authorizations were valid for 15 years and could be renewed only once. Although the recently approved New General Telecommunications Law allows successive spectrum renewals, we cannot guarantee that our existing licenses will be renewed. 

According to the New General Telecommunications Law and the Decree nº 10.402 issued in June 2020, ANATEL may determine specific conditions for the renewal of our existing licenses, such as a mandatory “refarming” processes in certain spectrum bands or refuse renewal requests altogether. A refarming process can reduce the amount of spectrum available for each operator, depending on the configuration of the new blocks. 

Our current 850 MHz authorizations will expire between 2020 and 2028. In September 2020, Anatel’s Board of Directors decided, during an extraordinary meeting, to approve the renewal of our 850 MHz authorizations for primary use until 2028. However, specific conditions for renewal are still under discussion between Anatel and service providers. If a renewal in 2028 is not allowed, we would be required to compete for new licenses in a spectrum auction. In addition, the coverage of our mobile services would be significantly affected, and our services could become unavailable in certain regions. 

Typically, renewed licenses required payment of 2% of net operating revenues earned in the region included in the authorization, every two years for the duration of the extension period. In the 15th year, we must pay 1% of the aforementioned amount. 

In July 2018, however, ANATEL published Resolution No. 695 with a new Public Spectrum Price Regulation. The Resolution establishes new criteria for license renewal costs. The formula considers factors such as grant time, revenue earned in the region and the amount of spectrum used by the company. Part of the payment can be converted into investment commitments.

Our SMP authorizations include the right to provide mobile services for an unlimited period but restrict the right to use the spectrum according to the schedules listed in the respective radiofrequency authorizations. The table below sets forth our current SMP authorizations, their locations, band and spectrums, date of issuance or renewal and date of expiration:

Region	Frequency	Bandwidth (MHz)	Notes	Year of Exp. Date	Notes
Brazil (9)	450 MHz	14	(1)	2027
Brazil (9)	700 MHz	20		2029
Brazil (9)	850 MHz	25	(2)	2021-2028	(3)
Brazil (9)	900 MHz	5	(4)	2023-2035	(5)
Brazil (9)	1800 MHz	20	(6)	2023-2035	(5)
Brazil (9)	2100 MHz	20-30	(10)	2023
Brazil (9)	2500 MHz	40	(7)	2027-2031	(8)

_______________

(1) State of São Paulo (municipalities with CN 13 to 19), state of Minas Gerais and North East (AL, CE, PB, PE, PI, RN e SE).

(2) Except regions 2’, 4’, 6’, 7’, 7’’ and 10.

(3) Regional licenses: expiration and renewal dates are dependent on the region. The license in Rio de Janeiro is due to expire in 2020.

(4) Only in regions 3, 4, 4’, 5, 6, 7, 8 and 9. Not in regions 1, 2, 2’, 5’, 6’, 7’, 7’’ and 10.

(5) Regional licenses: expiration and renewal dates are dependent on the region. The license in MG Interior is the first to reach its renewal date in 2020.

(6) 20 MHz is the most common bandwidth, but it is higher in some regions (up to 50 MHz).

(7) 40 MHz is the most common bandwidth, but it is 60 MHz in some regions.

(8) Band X will expire in 2027 and Band P will expire in 2031.

59 

(9) Telefónica Brazil uses high and low frequencies spectrum in all regions of Brazil.

(10) 30MHz in regions where the bandwidth from 1900 MHz frequency has been migrated to 2100 MHz frequency.

Regions	States& towns included in the regions
1	SP (City)
2	SP (Interior)
2’	SP - towns of sector 33 of the PGO
3	RJ and ES
4	MG
4’	MG - towns of sector 3 of the PGO
5	PR and SC
5’	PR - towns of sector 20 of the PGO
6	RS
6’	RS - towns of sector 30 of the PGO
7	AC, DF, GO, MS, MT, RO and TO
7’	GO - towns of sector 25 of the PGO
7’’	MS – towns of sector 22 of the PGO
8	AM, AP, MA, PA and RR
9	BA and SE
10	AL, CE, PB, PE, PI and RN

In 2013, we changed the terms of our authorization regarding Band “L” (1.9 GHz) in certain locations, adapting their blocks of frequencies to 2.1 GHz and aligning them with the Band “J” (3G), which enables more efficient use of the spectrum. In 2018, this alignment process was completed at the national level with respect to the following areas: Northeast region, with the exception of Bahia and Sergipe; Pelotas, Morro Redondo, Capão do Leão and Turuçu, in Rio Grande do Sul; Buriti Alegre, Cachoeira Dourada, Inaciolândia, Itumbiara, Paranaiguara and São Simão, in Goiás; Altinópolis, Aramina, Batatais, Brodowski, Buritizal, Cajuru, Cássia dos Coqueiros, Colômbia, Franca, Guaíra, Guará, Ipuã, Ituverava, Jardinópolis, Miguelópolis, Morro Agudo, Nuporanga, Orlândia, Ribeirão Corrente, Sales de Oliveira, Santa Cruz da Esperança, Santo Antônio da Alegria and São Joaquim da Barra in São Paulo; and Paranaíba in Mato Grosso do Sul. This change is foreseen in the bidding document No 001/2007. We do not have Band “L” in the states of Amazonas, Roraima, Amapá, Pará and Maranhão and in the cities of Londrina and Tamarana, Paraná. 

In 2012, Telefônica acquired 40MHz on the 2.5GHz to 2.69GHz frequencies for the amount of R$ 1.05 billion. In order to meet the coverage requirements imposed by ANATEL, we had the obligation of implementing 4G coverage in 1,094 cities by December 31, 2017. The remaining coverage commitments in cities with less than 30,000 inhabitants could be fulfilled with other frequency bands until December 31, 2019. ANATEL is responsible for verifying compliance with such targets and has not yet completed its review of our compliance with our coverage commitments for the year ended December 31, 2019. 

Currently, we have made 4G services available in over 3,100 municipalities. Telefônica has deployed and continues to deploy 4G coverage by serving its customers through the use of its own network or by established agreements of RAN-sharing approved by ANATEL. 

In order to complete the 450 MHz frequency requirements, we had the obligation to meet voice and data demand in remote rural areas. As a commitment, we are required to provide infrastructure and service operating in any frequency band in rural areas in the states of Alagoas, Ceará, Minas Gerais, Paraíba, Pernambuco, Piauí, Rio Grande do Norte, Sergipe, and countryside of São Paulo, for a total of 2,556 municipalities. In these areas, we are also required to provide free broadband to schools located in rural areas. 

Regarding the 700MHz spectrum, ANATEL has allocated the band for the provision of fixed, mobile and broadband services. On September 30, 2014, we acquired 20 MHz (10+10 MHz) with nationwide coverage, for R$1.92 billion, at the minimum price, plus R$904 million for the band cleaning (migration of broadcasters that currently occupy the band and interference management). According to the auction rules, the winning bidders are responsible for financing and managing the band cleaning process (Analog TV switch off) which was implemented through a legal entity specifically incorporated for this purpose, as set forth in the bidding process and applicable regulations (EAD). 

60 

Since June 2019, all Brazilian municipalities are ready to activate LTE coverage in the 700 MHz band. In November 2020, ANATEL attested that 9 out of 17 obligations have been fulfilled by the operators. According to the Agency, the other obligations would either be concluded in 2020 or were linked to activities that still need to be carried out, however this situation does not imply any type of noncompliance on the part of the operators in relation to what should have been done. 

In December 2015, ANATEL auctioned the remaining spectrum lots in the 1800 MHz, 1900 MHz and 2500 MHz bands, from which Telefônica acquired seven lots of 2.5 GHz frequency band offering a total of R$ 185.4 million. These lots are associated with six different States, in the capital cities of the States of São Paulo, Rio de Janeiro, Porto Alegre, Florianópolis, and Palmas, and one countryside city of the State of Mato Grosso do Sul. Such frequencies are already being used for the provision of mobile broadband service on 4G.

Multimedia communication services (SCM) 

Our multimedia services include broadband in several technologies, including fiber UBB services.

Obligation to provide fixed broadband access 

We have assumed in the past the obligation to provide free Internet access to public schools in the area comprising in our concession area during the term of the concession agreement (until 2025). The number of schools for which we should provide broadband is determined by the school census provided by the National Education Ministry, which is published on a yearly basis or sometimes in longer intervals. Our obligation targets are adjusted according to the latest census released.

Pay TV services 

Regulations for pay TV services – SeAC 

We are authorized to provide Pay TV Services (Serviço de Acesso Condicionado - SeAC) throughout Brazil by means of different technologies (Fiber, DTH and coaxial). 

Law No. 12,485/2011 established the most important aspects of this service, including the imposition of minimum national content requirements, carrier obligations and rights and cross-ownership restrictions. 

Since 2019, the Brazilian Congress has been discussing bills amending SeAC law. Among the proposals is the review of limitations to cross-control between telecom providers and content producing and programming companies. Regulatory asymmetries between SeaC and OTT services are also under debate.

Interconnection fees

In accordance with ANATEL regulations, we must charge fees to the other telecommunications service providers based on the following:

· Fee for the use of our local fixed service network (TU-RL) - we charge local service providers an interconnection fee for every minute used in connection with a call that either originates or terminates within our local network, with the exception of calls between other providers of local fixed service, for which a fee is not charged;

· Fee for the use of our fixed service long-distance network (TU-RIU) - we charge long-distance service providers an interconnection fee on a per-minute basis only when the interconnection access to our long-distance network is in use;

· Fee for the use of the mobile network (MTR) - we charge mobile service providers an interconnection fee on a per-minute basis only when the interconnection access to our mobile network is in use; and

61 

· Fee for the use of leased lines by another service provider (EILD). We also lease transmission lines, certain infrastructure and other equipment to other providers of telecommunications services.

Fixed Service 

In July 2005, ANATEL published new rules regarding interconnection. The main changes are: (i) an obligation to have a public offering of interconnection for all services, besides interconnections fees between providers of fixed and mobile telephone services; (ii) an offer of interconnections for Internet backbone providers; (iii) establishment of criteria for the treatment of fraudulent calls; and (iv) reduction of service times for interconnection requests. 

In 2006, we completed the implementation of the interconnection with the mobile service providers in regions with heavier traffic, assuring the proper billing for such calls. This movement reduced interconnection costs.

In 2007, ANATEL published a new version of the Fixed Network Compensation Regulation that changed the rules to determine the interconnection fees. Local and long-distance rates that were set at all times became variable according to the rules of public service tariffs. A 20% increase was applied to tariffs of mobile service operators without significant market power in their regions.

On May 7, 2012, Resolution No. 588/12 was published determining the following:

· A maximum of two minutes of interconnection should be paid for the use of the local network on reduced hours;

· The reduction of interconnection fees from domestic and international long-distance calls by 30% of the value of the local fixed service network interconnection fee (TU-RL) and the reduction of 25% and 20% by December 2012 of the value of the long-distance network interconnection tariffs (TU-RIU);

· The remuneration between networks will not occur until this traffic imbalance is greater than 75% compared to 25%; and

· The partial Bill & Keep by December 31, 2013 and full Bill & Keep by December 31, 2014.

On July 1, 2014, ANATEL established gradual decreases in fixed service network interconnection fees (TU-RL), based on a cost model for the years 2016, 2017, 2018 and 2019, as described under “Item 3. Key Information—D. Risk Factors—Risks Relating to the Brazilian Telecommunications Industry and Us—Our results of operations may be negatively affected by the application of the Fixed Commuted Telephone Service (Serviço de Telefonia Fixa Comutada – STFC) rules relating to fixed telephone service and the Personal Mobile Service (Serviço Móvel Pessoal – SMP), rules relating to mobile services.” 

In December 2016, ANATEL held a public consultation to discuss a new interconnection regulation (RGI). The new document aims to solve the large number of disputes in the agreements for voice and data traffic among companies. ANATEL has proposed that in cases of default the cut in the provision of interconnection could be done without the regulator’s authorization. In addition, the new document aims to establish a list of prohibited practices in interconnection relationships and to make the interconnection technology-neutral. The new rules were published in July 2018 (Resolution No. 693).

Mobile service 

In November 2009, ANATEL unified the licenses of all mobile operators, resulting in the consolidation of interconnection fees, reducing the number of fees for the use of the mobile network from 2 to 1. 

On December 2, 2013, Act No. 7,272 was published, establishing the MTR reference values for providers determined to be a Significant Market Power (PMS), which became effective on February 24, 2014. On August 28, 2014, Act no. 7,310 replaced the reference values previously set out in Act No. 7,272. 

62 

On July 1, 2014, ANATEL established gradual decreases in MTR, based on a cost model for the years 2016, 2017, 2018 and 2019 and, in December 2018, ANATEL established the reference values for MTR for the years ranging from 2020 until 2023 as described in “Item 3. Key Information—D. Risk Factors—Risks Relating to the Brazilian Telecommunications Industry and Us—Our results of operations may be negatively affected by the application of the Fixed Commuted Telephone Service (Serviço de Telefonia Fixa Comutada – STFC) rules relating to fixed telephone service and the Personal Mobile Service (Serviço Móvel Pessoal – SMP) rules relating to mobile services.”

In addition, the General Competition Plan (Plano Geral de Metas de Competição – PGMC) determined that the in the relationship among PMS and non-PMS providers in the mobile network, the interconnection fee should be paid only when the traffic out of a network in a given direction is greater than 80% of the total traffic exchanged until February 23, 2015; and 60% of the total traffic exchanged from February 24, 2015 to February 23, 2016. Since February 24, 2016, the MTR is owed to the mobile service provider when its network is used to originate or terminate calls (full billing). These conditions were further modified by ANATEL in February 2015, after promoting a Public Consultation. 

In July 2018, ANATEL edited the new the General Competition Plan (“Plano Geral de Metas de Competição – PGMC), approved by Resolution No. 694, which modified the preexisting rules regarding the interconnection fee to be paid of the outbound traffic, as follows:

· From January 1, 2013 to February 23, 2015: 80% / 20%;

· From February 24, 2015 to February 23, 2016: 75% / 25%;

· From February 24, 2016 to February 23, 2017: 65% / 35%;

· From February 24, 2017 to February 23, 2018: 55% / 45%; and

· From February 24, 2018 onwards: 50% / 50%.

TU-RL and TU-RIU

On May 18, 2014, the proposed standards were approved for setting maximum values of fixed interconnection fees and for the values of mobile interconnection, based on Cost Models. In addition, values for fixed and mobile interconnection were published through the acts: No. 6210 for TU-RL and TU-RIU and No. 6211 for MTR. 

For fixed and mobile termination fees, ANATEL’s decision established values for 2018 based on a bottom-up cost model. 

In December 2018, ANATEL established values for fixed interconnection fees ranging from 2020 until 2023:

	Interconnection fees for Sector 31
Year	TU-RL		TU-RIU1		TU-RIU2
2020		0.00134		0.00166		0.00118
2021		0.00117		0.00176		0.00120
2022		0.00104		0.00183		0.00122
2023		0.00096		0.00188		0.00122

EILD

On May 18, 2014, ANATEL approved the proposed standard for setting maximum values of Industrial Dedicated Line (EILD), based on Cost Models. Values for EILD were published through Act No. 6212, which contains a single reference table that is valid from 2016 until 2019. In addition, the general competition plan requires companies with significant market power to present a public offer every six months informing standard commercial conditions, which is subject to approval by ANATEL.

63 

On December 17, 2018, ANATEL approved through Act No. 9,920 a revision of the EILD reference table, valid for 2020 onwards.

Mobile Virtual Network Operator (MVNO) 

In 2001, ANATEL approved rules for companies to be licensed as MVNOs. In 2016, ANATEL authorized MVNO companies to be affiliates of other certain network operators, and for that reason, we have signed agreements with companies authorized to operate as an MVNO in Brazil.

Brazilian MVNO regulations allow two operating models: “authorized” (in which MVNO holds its own SMP authorization but operates under an MNO’s network) and “accredited” (in which the company doesn’t hold an SMP authorization and acts as an MNO’s representative and offers services jointly). In August 2019, ANATEL held a public consultation about regulatory barriers to IoT expansion and proposed changes in MVNO regulations. These changes, if adopted, would reduce regulatory restrictions on many aspects of the “accredited” model, such as the representation of multiple MNOs, more autonomy on numbering resources and network agreements.

Internet and related services in Brazil 

In Brazil, Internet service providers, or ISPs, are deemed to be suppliers of value-added services and not telecommunications service providers. ANATEL requires SCM operators to act as carriers of third-party internet service providers. 

Civil rights framework for the Internet 

On April 23, 2014, at the opening of NetMundial, former President Dilma Rousseff approved the Civil Rights Framework for the Internet (“Marco Civil da Internet”), which was enacted as Law 12,965/2014. The act adopts strict Net Neutrality rules that guarantee equality of treatment for data traffic in the network and preserves the business model of Brazilian broadband offered in packages with different speeds. After three public consultations released by CGI.br (the Brazilian Internet Steering Committee), the Ministry of Justice and ANATEL, the Brazilian government published Decree 8,711/2016, which regulates the law. It establishes the regulation for Net Neutrality and mechanisms to protect the data stored by service and application providers, as well as determining the circumstances in which data can be obtained by the public administration.

We believe these measures will offer our clients greater protection with respect to how their personal information is used and shared, and creates opportunities for new services that make use of aggregated information.

In June 2016, the Brazilian House of Representatives put into consultation a draft of law regarding Personal Data Protection. The original text of this law is based on the European Union’s Directives on Data Protection (Directive 95/46/EC), and as such, imposes restrictive rules on the express consent to process personal data, international data transfer, processing of sensitive data, among others.

In August 2018, the Brazilian government passed the Brazilian Data Protection Law (Law 13,709/2018). The law increases citizens’ control over their personal information, requiring explicit consent for the collection and use of data. It also established requirements relating to options for viewing, correcting and deleting such data. The law will take effect in 2020 in order to allow public and private entities to adapt to the new rules. On December 27, 2018, the Brazilian government created the National Data Protection Authority (Autoridade Nacional de Proteção de Dados – “ANPD”) by means of an executive order (Provisional Measure No. 869/2018), which will be responsible for supervising matters of private data usage and imposing eventual penalties foreseen in the Law of Personal Data Protection.

After a two year grace period, in September 2020, the Brazilian President signed the bill in the Brazilian National Congress that brought the Brazilian Data Protection Law into effect. However, sanctions and fines related to LGPD will only take effect from August 2021 onward, as established by Law 14.010/2020.

64 

Furthermore, after the approval of Decree 10,474/2020 that created the regimental structure of the Brazilian Data Protection Authority, all five Directors of the ANPD were appointed and officially approved by the Brazilian Senate in October 2020.

For additional information on our data protection and data privacy policies and procedures, see “Item 16g. Corporate Governance—Corporate Governance Practices—Data Protection and Privacy Initiatives.”

Resolutions published

A series of new regulations, published by ANATEL as well as other regulatory bodies in Brazil, became effective in 2020. The most relevant among these regulations were:

· Resolution No. 718: Amends the Regulation on Restricted Radiation Radiocommunication Equipment and revokes the Regulation for the Use of Femtocells;

· Resolution No. 719: Approves the General Licensing Regulation;

· Resolution No. 720: Approves the General Granting Regulation (RGO);

· Resolution No. 724: Approves the Standard for the implementation and monitoring of tariff freedom in the Fixed Telephone Service (STFC) for use by the general public, in the National Long Distance mode;

· Resolution No. 725: Revision of universalization obligations according to the General Plan of Goals for Universalization of the Fixed Telephone Service (STFC) Provided in the Public Regime, approved by Decree No. 9,619, of December 20, 2018;

· Resolution No. 728: Amends the Regulation on Local Areas for the Fixed Telephone Service (STFC) Intended for Use by the General Public and the STFC Numbering Regulation;

· Resolution No. 729: Approves the Tax Revenue Collection Regulation;

· Resolution No. 734: Approves the User Council Regulation);

· Resolution No. 735: Amends the Regulation on MVNO, the General Portability Regulation and the General Regulation on Consumer Rights of Telecommunications Services;

· Resolution No. 737: Approves the amendment of the Concession Contracts for the provision of Fixed Telephone Services (STFC), in Local, National Long Distance (LDN) and International Long Distance (LDI) modalities; and

· Resolution No. 740: Approves Cybersecurity Recommendation for Telecommunications.

Public consultations published 

In 2020, ANATEL announced a series of public consultations. The most relevant among these public consultations were:

· ANATEL Public Consultation No. 5: Regulation regarding the adaptation of STFC Concessions for Authorizations.;

· ANATEL Public Consultation No. 9: Bidding Notice for radio frequency spectrum for the provision of telecommunications services, including fifth-generation (5G) networks.;

· ANATEL Public Consultation No. 19: Proposed Regulation regarding the continuity of the Provision of the Fixed Telephone Service (STFC) for use by the General Public (RCON);

65 

· ANATEL Public Consultation No. 25: Subsidies for the elaboration of a proposal for the use of reinforcers/ repeaters of signals by mobile service (SMP) providers..;

· ANATEL Public Consultation No. 37: Proposal for Telecommunications Services Numbering Regulation;

· ANATEL Public Consultation No. 48: Proposal for the assignment and allocation of VHF and UHF radiofrequency bands and the Regulation on Use Conditions for “White Spaces”;

· ANATEL Public Consultation No. 50: Technical and operational requirements for the 3,5 GHz radiofrequency bands;

· ANATEL Public Consultation No. 51: Revisions on the Regulation for the Use of Radio Spectrum (RUE);

· ANATEL Public Consultation No. 56: ANATEL’s Regulatory Agenda for the 2021-2022 biennium;

· ANATEL Public Consultation No. 65: Subsidies for the Simplification of Telecommunications Services Regulation Framework;

· ANATEL Public Consultation No. 77: Revision of the General Telecommunications Services Consumer Rights Regulation (RGC);

· ANATEL Public Consultation No. 78: Update of radiocommunication services attributions in Brazil, according to World Conferences;

Other regulatory matters 

Regulation for competition 

ANATEL launched in December 2016 a Public Consultation for the Regulation that set price references for the wholesale products. The proposal aims to determine that ANATEL’s Cost Model should be the only source of information for the validation of these prices. 

In July 2018, ANATEL approved the revision of the General Competition Plan (PGMC – Plano Geral de Metas de Competição) - Resolution No. 694/2018. The regulation establishes a new relevant market (high capacity data transport) and introduces the concept of retail competitiveness levels for each municipality (ranging from category 1 - fully competitive - to category 4 - non-competitive areas where public policies are necessary to enable services). 

For each relevant market, the asymmetric measures may vary according to the competition category assigned to each municipality. 

In addition, the new PGMC introduces the concept of Small-Scale Provider (PPP – Prestadora de Pequeno Porte), which will be considered by the Agency in the creation of asymmetric rules (in the context of PGMC and possibly in other regulations). By the definition brought by Anatel, PPP’s designation applies to any company that does not account for more than 5% of the retail market share in which it operates. 

Productivity factor 

The X Factor is a regulatory instrument used to incentivize operational efficiency gains in the telecommunications sector, so that related gains in earnings are shared with the consumer through annual tariff readjustments. Under the X Factor calculation methodology, the calculation mechanism, including the inputs and products relating to the Company’s applicable operations that are included in the calculation, are established by ANATEL.

In October 2017, ANATEL approved the new methodology for calculating the productivity factor, or X Factor, for fixed telephony services. The new regulation uses a cost-based model to segregate revenues and

66 

costs for services. Under the new formula, although gains for retail broadband services were excluded, the methodology continues to consider the productivity gains of services rendered under the fixed voice authorization. Although this standard represents an evolution in the calculation methodology with the exclusion of gains in retail broadband services, there is still what we regard as an undue inconsistency when factoring in the productivity gains of the fixed voice authorization because the calculation does not distinguish between fixed voice services provided under the public and the private regime.

We have voiced our opposition to the methodology for calculating the X Factor on a number of occasions. Although we have not initiated any formal proceedings with respect to this issue before ANATEL, we have expressed our criticism of this issue during the public consultation phase that preceded formal adoption of the standard, and annually each time we deliver our data to ANATEL for its calculation of our X Factor.

Updated Regulatory Framework 

On October 4, 2019, Law No. 13,879/2019 (resulting from PLC Nº 79/2016), or the New General Telecommunications Law, was published. This law revises the telecommunications regulatory framework and represents a significant impact on this industry. 

The law allows fixed-line concessions operators to migrate from a concession regime (in which the underlying assets must be reverted to the government at the end of the concession) to an authorization regime, although further rulemaking remains underway to fully implement the law and permit operators to migrate to the new regime. According to the Law, ANATEL will be responsible for estimating the gains obtained by operators as a result of migrating from one regime to the other. Operators will be required to invest such gains in broadband-related projects, which will need to be defined by ANATEL. If an operator chooses not to migrate to the authorization regime, existing contracts could be renewed beyond 2025, at ANATEL’s discretion. In December 2019, a public consultation was launched to hire an independent consulting firm to assist ANATEL in formulating the rules to be followed by operators who wish to migrate from the concession regime to the private (authorization) regime, and this process remains ongoing. 

Furthermore, the New General Telecommunications Law also provides for the possibility of renewing a spectrum’s exploration authorization multiple times, so long as ANATEL’s requirements and stipulations are met. Under the previous model, each authorization renewal was limited to a single renewal. In addition, it created the possibility of a secondary spectrum trading market among authorized operators, where trades can be placed directly between them. Similarly, companies holding the rights to explore Brazilian satellite positions can have their permits renewed on an unlimited basis. However, these aspects of the law are still subject to implementation through regulations, which have yet to be passed. 

Finally, under the New General Telecommunications Law, the FUST law was revised to clarify that radio and video broadcasting services are not subject to taxation under the FUST. 

Telecommunications Self-Regulation System (SART)

In March 2020, Telefónica and the main telecommunications service providers in Brazil launched a joint initiative aimed at establishing the sector’s first comprehensive self-regulation program. The Telecommunications Self-Regulation System (SART) proposes to establish common rules and procedures that must be followed by all participating companies, in relation to the most relevant topics regarding the relationship between providers and customers, such as telemarketing, offers, billing and customer care.

Although the initiative is still restricted to large operators, SART will be open to any telecommunications company that wants to participate and commits itself to the principles defined by the program. The main benefit for participating companies is the definition of procedures and rules that should improve the service provision and result in greater consumer satisfaction, promoting an environment that stimulates a more principle-oriented approach to regulatory issues. However, for the implementation of such a program without any conflicts with Anatel’s regulations, it will be necessary to modify the General Regulation on the Rights of Telecommunications Service Consumers (RGC), currently under public consultation, in order to make it more principle oriented and less operational.

67 

C. Organizational Structure

On December 31, 2020, 73.53% of our voting shares were controlled by our three major controlling shareholders: SP Telecomunicações Participações Ltda. with 19.67%, Telefónica S.A. with 29.77% and Telefônica Latinoamérica Holding, S.L. with 24.09%. Telefônica Latinoamérica Holding, S.L., or Telefônica Latinoamérica, is the controlling shareholder of SP Telecomunicações S.A., or SP Telecomunicações. Telefónica Latinoamérica is a wholly-owned subsidiary of Telefónica S.A. Therefore, Telefónica S.A. was the beneficial owner of 73.58% of our voting shares, as Telefónica Chile S.A., holder of 0.06% of our voting shares, is also a wholly-owned subsidiary of Telefónica S.A. See “Item 7. Major Shareholders and Related Party Transactions—A. Major Shareholders.”

Our current general corporate and shareholder structure is as follows:

Significant Subsidiaries

Our significant subsidiaries are Terra Networks Brasil Ltda. (formerly known as Terra Networks Brasil S.A.), or Terra, Telefônica Infraestrutura e Segurança, or TIS, POP Internet Ltda., or POP, and Telefônica Transporte e Logística Ltda., or TGLog, all of which are wholly-owned by us and headquartered in Brazil.

On September 30, 2020, Terra Networks Brasil S.A., a wholly-owned subsidiary of Telefônica Brasil, deliberated in favor of changing its corporate form from a corporation (sociedade anônima) to a limited company (sociedade limitada), in the process changing its legal name to Terra Networks Brasil Ltda. The deliberation occurred through an extraordinary shareholder’s meeting.

Associated Companies 

Aliança Atlântica Holding B.V. (Aliança): Headquartered in Amsterdam, Netherlands, this entity is 50% owned by Telefônica Brasil and holds proceeds generated from the sale of its Portugal Telecom shares in June 2010. For more information, see “Item 4. Information On The Company—A. History and Development of the Company—Historical Background—Corporate Restructuring Involving Telefônica Brasil and Vivo Participações.” 

Companhia AIX de Participações (AIX): Headquartered in Brazil, this entity is 50% owned by Telefônica Brasil and holds a 93% equity interest in the Refibra consortium, which was formed to finalize a network of underground fiber pipelines in Brazil in order to make them commercially viable. 

68 

Companhia ACT de Participações (ACT): Headquartered in Brazil, this entity is 50% owned by Telefônica Brasil and holds a 2% equity interest in the Refibra consortium. 

With the implementation of IFRS 11 Joint Arrangements on January 1, 2013, our investments in these entities were accounted for retroactively using the equity method.

Disclosure Pursuant to Section 219 of the Iran Threat Reduction and Syria Human Rights Act

Section 219 of the Iran Threat Reduction and Syria Human Rights Act of 2012 added Section 13(r) to the Exchange Act. Section 13(r) requires an issuer to disclose in its annual or quarterly reports filed with the SEC whether the issuer or any of its affiliates has knowingly engaged in certain activities, transactions or dealings with the Government of Iran, relating to Iran or with designated natural persons or entities involved in terrorism or the proliferation of weapons of mass destruction during the period covered by the annual or quarterly report. Disclosure is required even when the activities were conducted outside the United States by non-U.S. entities and even when such activities were conducted in compliance with applicable law.

The following information is disclosed pursuant to Section 13(r). None of these activities involved U.S. affiliates of Telefónica or the Company.

Roaming Agreements with Iranian Operators

Some subsidiaries of our controlling shareholder, Telefónica, including us, have entered into roaming agreements with Iranian telecommunication companies. Pursuant to such roaming agreements these subsidiaries’ customers are able to roam in the particular Iranian network (outbound roaming) and customers of such Iranian operators are able to roam in the network of Telefónica’s relevant subsidiary (inbound roaming). For outbound roaming, these subsidiaries pay the relevant Iranian operator roaming fees for use of its network by Telefónica group customers, and for inbound roaming, the Iranian operator pays the relevant subsidiary roaming fees for use of the respective network by its customers.

Regarding Iran, we have a roaming agreement with MTN Irancell (“Irancell”). During 2020, we recorded US$12.24 in roaming revenues and US$126.55 (before taxes and US$163.77 after taxes) of expenses payable to Irancell under this agreement.

In addition, as part of the Telefónica group, we adhere to the roaming agreements with Telefónica’s subsidiaries described below.

Telefónica’s subsidiaries, other than our Company (which arrangements are described above), were party to the following roaming agreements with Iranian telecommunication companies in 2020:

(1) Telefónica Móviles España S.A. (“TME”), Telefónica’s Spanish directly wholly-owned subsidiary, has respective roaming agreements with (i) Mobile Telecommunication Company of Iran (“MTCI”), (ii) Taliya (“Taliya”), and (iii) Telecommunication Kish Co (“TKC”). During 2020 TME recorded the following revenues related to these roaming agreements: (i) 29,483.36 euros from MTCI, (ii) no revenues from Taliya and (iii) no revenues from TKC.

(2) Telefónica Germany GmbH & Co. OHG (“TG”), Telefónica’s German 69.22% indirectly-owned subsidiary, has respective roaming agreements with (i) MTCI and (ii) MTN Irancell (“Irancell”). During 2020 TG recorded the following revenues related to these roaming agreements; (i) 314 euros from MTCI and (ii) 3,052.01 euros from Irancell.

(3) Telefónica UK Ltd (“TUK”), Telefónica’s English directly wholly-owned subsidiary, has a roaming agreement with Taliya. During 2020 TUK recorded no revenues from Taliya.

(4) Pegaso PCS S.A. de C.V. (“PCS”), Telefónica’s Mexican directly wholly-owned subsidiary, has a roaming agreement with Irancell. During 2020 PCS recorded 15.35 euros in roaming revenues under this agreement.

69 

The net profit recorded by Telefónica’s subsidiaries pursuant to these agreements and arrangements did not exceed the related revenues recorded thereunder.

The purpose of all of these agreements is to provide the Telefónica group’s customers with coverage in areas where the group does not own networks. For this purpose, Telefónica’s subsidiaries intend to continue maintaining those agreements, which are still outstanding.

The Telefónica group does not currently have any forthcoming plans to enter into new roaming arrangements with Iranian telecommunication companies. However, the Telefónica group may consider entering into such arrangements in the future.

D.       Property, Plant and Equipment

On December 31, 2020, we had fixed and mobile operations in 2,693 properties, 1,424 of which we own, of which 113 are administrative buildings. Besides that, we have entered into standard leasing agreements to rent the remaining properties, under which 137 administrative areas, 2 kiosks and 245 retail stores are leased.

Our main physical properties for providing fixed line telephone services involve the segments of switching (public switching telephone network, or PSTN), transmission (optic and wireless systems), data communication (multiplex devices, IP network), infrastructure (energy systems and air conditioning) and external network (fiber optic and metallic cables), which are distributed in many buildings throughout the state of São Paulo and in the main cities outside the state of São Paulo. Some of these buildings are also used for administrative and commercial operations.

Our main physical property for mobile services consists of transmission equipment, switching equipment, base stations, and other communication devices, such as voicemail, prepaid service, short message service, home location registers, signaling transfer point, packet data switching network and gateways. All switches, cellular sites, administrative buildings, administrative facilities, warehouses and stores are insured against damages for operational risks.

Pursuant to Brazilian legal proceedings, liens have been attached to several properties pending the outcome of various legal proceedings to which we are a party. See “Item 8. Financial Information—A. Consolidated Statements and Other Financial Information—Legal Proceedings.” In addition, certain of our properties are still pending the applicable licenses and approvals from the local fire departments.

We are constantly making improvements to our facilities and network to meet customer demand and to improve the level of services we offer our clients.

On December 31, 2020, the net book value of our property, plant and equipment amounted R$44.1 billion (R$42.8 billion on December 31, 2019), which included reversible assets in the amount of R$6.7 billion.

Environmental matters 

Brazilian Federal, state and municipal legislation provide for the control and protection of the environment. These laws govern the appropriate use of natural resources, control of atmospheric emissions and noise, treatment of effluents, handling and final disposal of hazardous materials and solid waste, amongst others. 

Under these laws, certain environmental licenses must be secured prior to the construction, installation, expansion and operation of facilities that use natural resources or that may pollute the environment, including those related to the installation and operation of radio/cell base stations and antennas. According to the stage of the project, the environmental licenses may be: (1) a preliminary license, which approves the location and design of the project and must be obtained in the early stages of the project or activity to certify its environmental feasibility; (2) an installation license, which authorizes the installation of the project or activity in accordance with the specifications set forth in approved plans, programs and projects; or (3) an operation license, which authorizes the commencement of operations once the conditions for compliance with the preliminary and installation licenses are met, and may impose additional conditions applicable to the project’s operations. 

70 

Besides environmental licensing, other environmental regulations may affect our operations, such as, among other matters, regulations related to air emissions, soil and water pollutants, take-back systems, recycling and waste management, protection and preservation of fauna, flora and other features of the ecosystem, water use, interference with areas of cultural and historical relevance, environmental protected areas, Conservation Units (UCs) or their surroundings, Permanent Preservation Areas (APPs) and contaminated areas. 

Regarding the last subject matter, in accordance with the Environmental National Policy (Law No. 6,938/1981), the owner of a real estate property located in a contaminated area may be compelled by the relevant environmental agency to clean up the area, regardless of fault and the damage caused. Environmental authorities have been adopting an increasingly stringent position in connection with the handling of contaminated areas, including the creation of environmental standards to preserve the quality of land and underground water. Non-compliance with guidelines set by the relevant environmental and health authorities with respect to surveys and analyses of potentially contaminated areas or the exposure of persons to toxic fumes or residues may result in administrative and legal penalties for the developer and their management, in addition to the damage it can cause to our reputation as a responsible company. Whenever soil contamination is suspected, we conduct periodic environmental investigations to assess any possible liability with respect to this fact. 

We are subject to administrative review of our activities and corporations found to violate these administrative environmental regulations can be fined up to R$50 million, have their operations suspended, be barred from entering into certain types of government contracts, be required to repair or provide indemnification in respect of any environmental damages they cause, be required to suspend tax benefits and incentives, be at a competitive disadvantage to match the requirements of global sustainability index such as Dow Jones Sustainability Index and ISE (Index of corporate sustainability from B3 – the Brazilian stock exchange), among others. 

In Brazil, violating environmental rules or regulations may result in civil, administrative or criminal liability. With respect to civil liability, Brazilian environmental laws adopt a standard of unlimited strict, several and joint liability in determining the obligation to remediate damages caused to the environment. In addition, Brazilian courts may pierce the corporate veil when and if it poses an obstacle to the full recovery of environmental damages. 

We have a series of systems in place to protect our networks, our reputation and operations from environmental damage, including specific insurance coverage relating to civil and environmental matters. 

Additionally, we have systems in place for the proper disposal of batteries and oil, in our construction operations and to address other environmental issues that may arise in the operation and maintenance of our properties. In 51 cities (that cover more than 40% of our clients) we have a certified Environmental Management System that meets ISO 14,001 requirements since 2016. We also maintain the control of radio frequency energy levels transmitted by our antennas, in accordance with current legislation. The energy consumption of our network infrastructure is very high and to address this challenge we established a global target that at least 50% of our energy consumption would come from renewable sources by 2020 and 100% by 2030. However, in 2018 we decided to acquire Renewable Energy Certificates (RECs), which offset our energy consumption from non-renewable sources, ensuring that from 2019 on 100% of our current energy consumption either directly originates from clean and renewable sources, or is offset by RECs that represent energy originated by clean and renewable sources. This has more than halved our greenhouse gas emissions compared to 2015.

In 2020, we became the first telco in Latin America to announce that we achieved carbon neutrality by combining of renewable energy and carbon credits generating positive social and environmental impacts. By promoting Amazon communities' qualification for sustainable agro-extractivism and forest management, REDD+ Jari Valley carbon project, turns them into partners for the maintenance of the forest resources, reducing CO2 emission that could be caused by deforestation. Moreover, the second phase of the distributed generation project has been expanded to many Brazilian regions and should represent the supply of more than 80% of our low voltage energy consumption by 2021.

71 

Therefore, on a net basis, we have reached our goals well before the stipulated deadline. 

Also, to comply with Brazilian Federal regulations, (National Solid Waste Policy - Law 12,305/10) as we were the first telecommunications company in Brazil to offer collection points at all of our stores for old mobile phones, accessories and batteries, where customers and other individuals can dispose of their used equipment ensuring proper disposal of these materials. In the fixed line telecom business, we offer the option of home collection or store return of the equipment in case of disconnection due to default or end of the contract. Through Call Center or via web form, customers can schedule pick-ups or choose the closest store for permanent disposal. These materials undergo triage and can be refurbished to be used again with full technical capacity and layout conditions. These processes ensure that almost all of the collected electronic waste is recycled or reused. 

Moreover, we perform periodic environmental investigations to assess any possible liability with respect to contamination of soil and groundwater, including internal audits of our Environmental Management System (EMS), conducted by our sustainability unit at planned intervals.

Item 4A. Unresolved Staff Comments

None.

Item 5. Operating and Financial Review and Prospects

A. Operating Results

The following discussion should be read in conjunction with our consolidated financial statements and accompanying notes and other information appearing elsewhere in this annual report and in conjunction with the financial information included under “Item 3. Key Information—A. Selected Financial Data.” We prepared our consolidated financial statements included in this annual report in accordance with IFRS.

Overview

Our results of operations are principally affected by the following key factors.

Effects of the COVID-19 Pandemic

The COVID-19 pandemic has created significant volatility, uncertainty, and economic disruption. We are closely monitoring the evolution of the COVID-19 pandemic in Brazil and globally, in order to take preventive measures to minimize the spread of the virus, ensure the continuity of operations and safeguard the health and safety of our personnel. Based on the information available as of the date of this annual report, we present below a summary of the main effects of the COVID-19 pandemic on our business and results of operations:

· Our stores were entirely closed in March 2020 and started reopening in April 2020, subject to reduced hours of operation and customer capacity limitations, which remained in effect for the rest of the year. This affected the sale of handset and other accessories, upselling from hybrid to postpaid plans and postpaid additions, which are typically made at our retail locations, resulting in a loss of revenue;

· We experienced a contraction in mobile service revenues in the first semester of 2020 of R$364.8 million, or 2.6%, compared to the first semester of 2019, due to net disconnections of approximately 174,000 on prepaid and postpaid plans in the same period, as well as and downgrades of plans by our customers and lower handset sales given the temporary closing of our stores;

· Our third-party call center was forced to reduce its hours of operation in March 2020, due to stay-at-home orders, affecting customer service and upselling from prepaid plans to postpaid plans;

72 

· Costs related to sales, such as sales commissioning and advertising, also contracted due to lower commercial activity and call center working hours reductions. As a result, commercial expenses fell by 9.0% year-over-year in 2020 compared to 2019;

· We experienced an increase in provisions for bad debt of R$58.0 million, or 3.4%, in 2020 compared to 2019, as a result of increased unemployment and the inability of certain customers to pay bills and late fees as a result of disruptions caused by the COVID-19 pandemic, but offset in part by relief measures we implemented such as offering customers the possibility of making payments in up to 10 installments, without fines or interest. As a result, the increase in provisions for bad debt experienced in the first half of 2020 was partially offset by a reduction in such provisions in the second half of 2020 when compared with the second half of 2019; and

· We postponed the payment of TFF taxes (taxa de fiscalização do funcionamento), as permitted by government measures implemented in 2020 in response to the pandemic, in the amount of R$671.1 million, which will be paid in 2021.

During the second half of 2020, we started to see a gradual return in our business towards pre-COVID-19 levels. Our Mobile Revenues stabilized in the third quarter of 2020 (a 0.0% change compared to the same period in 2019) and showed growth in the fourth quarter of 2020 (a 1.6% increase compared to the same period in 2019), whereas our net additions both in prepaid and postpaid were very positive (a net increase of 4.0 million compared to the same period in 2019). In our fixed business, legacy and B2B segments still have not recovered while FTTH and IPTV services showed impressive performance due to increased demand for connectivity during the year, which we were able to meet given our services were deemed essential by the government (thus assuring that our technicians could continue to work and installing our products even while stay-at-home orders remained in effect). However, the full impact of the COVID-19 pandemic on our business, financial condition, and results of operations will depend on numerous evolving factors that we may not be able to accurately predict and that will vary by market, including the duration and scope of the pandemic, the impact of the pandemic on economic activity, and actions taken by governments, businesses, and individuals in response. See also “Item 3. Key Information—D. Risk Factors— Risks Relating to the Brazilian Telecommunications Industry and Us—Our business, operations and results have been, and may continue to be, adversely impacted by the effects of the COVID-19 pandemic.”

Brazilian economic environment

The Brazilian economy was severely affected by the COVID-19 crisis in 2020. The social distancing measures adopted during the first months of the COVID-19 outbreak reduced consumption of goods and services and resulted in a sharp drop of the GDP in 2Q20 (-9.6% q/q s.a.). In order to mitigate the effects of the pandemic in the economy, the Brazilian government adopted monetary and fiscal measures. On the monetary front, the central bank reduced the basic interest rates and announced measures to provide liquidity to the system. On the fiscal front, the government provided a fiscal package that included financial aid for households, companies and regional governments, and expenditure on public healthcare. The economic measures along with the reopening of the economy in the third quarter of 2020 allowed a relatively fast recovery of the GDP, which grew 7.7% quarter over quarter in 3Q20, although it remained 4% below the pre-crisis level. A negative consequence of the fiscal package was a sharp increase in the fiscal deficit and public debt. Moreover, the structural reform agenda was delayed, while the government has kept the commitment with the fiscal adjustment once the crisis is over. Finally, financial markets have reacted very negatively to the crisis. The Brazilian currency was negatively affected by a higher global risk aversion, drop in commodity prices and deterioration of the fiscal scenario.

The Brazilian economy has experienced a relatively low rate of growth this decade, amid economic crises. According to market data, in 2020, the Brazilian GDP contracted by approximately 4.4%, affected by the COVID-19 crisis. Previously, according to IBGE (Instituto Brasileiro de Geografia e Estatística), the Brazilian GDP had increased 1.4% in 2019, 1.8% in 2018 and 1.3% in 2017, after a contraction of 3.3% in 2016 and 3.5% in 2015.

Consumer prices, as measured by the IPCA, rose to 4.52% in 2020, in line with the target band established by the Central Bank of 4.00% +/- 1.5%. In 2019 and 2018, inflation measured by IPCA was 4.3% and 3.7%, respectively. Inflation, as measured by the Brazilian general price index (Índice Geral de Preços - Disponibilidade Interna), or IGP-DI, calculated by FGV, which includes wholesale, retail and home-building prices, stood at 23.08%, compared to 7.7% in 2019 and 7.1% in 2018, affected by the exchange rate depreciation.

73 

As the inflation rate measured by IPCA stood in line with the target of 4.0%, under the economic recession environment, the Central Bank decreased the basic interest rate (Sistema Especial de Liquidação e de Custódia), or SELIC rate, to 2.0% by the end of 2020, from 4.5% as of the end of 2019.

Brazil closed 2020 with a trade balance surplus of US$51.0 billion, higher than the surplus of US$48.0 billion in 2019. Exports fell by 6.9%, registering US$ 209.9 billion, while imports decreased by 10.4%, to US$ 158.9 billion. Foreign Direct Investments inflows into the country have decreased to US$ 34.2 billion (accumulated in the year ended December 31, 2020), compared to US$ 69.2 billion in 2019. International reserves in the year ended December 31, 2020 were US$355.6 billion, compared to 356.9 in US$ December 31, 2019.

The public sector fiscal deficit increased significantly in 2020, reflecting both the drop in public revenues due to the economic recession and the increase in fiscal expenditures to mitigate the negative impacts of the COVID-19 crisis. The nominal fiscal deficit reached 13.6% of the GDP in December 2020, compared to 5.8% in December 2019’s result. Gross public debt rose to 89.3% of GDP in December 2020, from 74.3% of GDP in December 2019. As a result, the Brazilian risk premium has increased. J.P. Morgan Emerging Markets Bond Index Plus (EMBI + Brazil), which tracks total returns for traded external debt instruments in emerging markets, increased to 260 basis points by the end of 2020, from 214 basis points at the end of 2019 and 276 basis points at the end of 2018.

The Real depreciated against the U.S. dollar in 2020 by 28.9%. The exchange rate on December 31, 2020 was R$5.1967 per US$1.00, from R$4.0307 per US$1.00 on December 31, 2019.

Our business is directly affected by the external environment and the Brazilian economy. Higher volatility of the Brazilian Real against the U.S. dollar may affect the purchasing power of Brazilian consumers and cause a negative impact on the ability of our customers to pay for our telecommunications services.

Impact of inflation on our results of operations

Before 2006, the fees we charged our customers were periodically adjusted by ANATEL based on the inflation rates measured by the IGP-DI.

Starting in 2006, telephone fees were indexed to the IST, which is a basket of Brazilian indexes that reflect the telecommunications sector’s operating costs. Such indexing reduced inconsistencies between revenue and costs in our industry and therefore reduced the adverse effects of inflation on our business. The IST for the twelve-month period ending December 2019 was 4.6% according to the most recent data published by ANATEL.

The table below shows the Brazilian general price inflation (according to the IGP-DI, IPCA and the IST) for the years ended December 31, 2016 through 2020:

	Inflation Rate (%) as Measured by IGP-DI(1)			Inflation Rate (%) as Measured by IPCA(2)		Inflation Rate (%) as Measured by IST(3)
December 31, 2016		7.2			6.3		6.0
December 31, 2017		(0.4	)		2.9		3.2
December 31, 2018		7.1			3.7		5.5
December 31, 2019		7.7			4.3		4.6
December 31, 2020		23.1			4.5		9.3

_______________

(1) Source: IGP-DI, as published by the FGV.

(2) Source: IPCA, as published by the IBGE.

(3) Source: IST, as published by the Agência Nacional de Telecomunicações.

74 

Discussion of Critical Accounting Estimates and Policies 

The preparation of the financial statements requires the use of certain critical accounting estimates and the exercise of judgment by the Company’s Management in applying the Company’s accounting policies. These estimates are based on experience, better knowledge, information available at the end of the fiscal year, and other factors, including expectations of future events that are believed to be reasonable in the circumstances. Settlement of transactions involving these estimates may result in values that are different from those recorded in the financial statements due to the criteria inherent in the estimation process. The Company reviews its estimates at least annually. 

Accounting for long-lived assets 

Property, plant and equipment and intangible assets, other than goodwill, are recorded at acquisition cost. Property, plant and equipment and intangible assets with definite useful lives are depreciated or amortized on a straight-line basis over their estimated useful lives. Intangible assets with indefinite useful lives, including goodwill, are not amortized, but are instead, subject to an impairment test on a yearly basis and whenever there is an indication that such assets may be impaired. 

Accounting for long-lived assets and intangible assets involves the use of estimates for determining the fair value at their acquisition dates, particularly for assets acquired in business combinations and for determining the useful lives over which they are to be depreciated or amortized as well as their residual value. Useful lives are assessed annually and changed when necessary to reflect current evaluation on the remaining lives in light of technological change, network investment plans, prospective utilization and physical condition of the assets concerned. 

The carrying values and useful lives applied to the principal categories of property, plant and equipment, and intangibles, are disclosed in Notes 12 and 13 to our consolidated financial statements.

Estimated losses for impairment of accounts receivable 

In determining whether the credit risk of a financial asset has increased significantly since the initial recognition and in estimating the expected credit losses, we consider reasonable and bearable information that is relevant and available. This includes quantitative and qualitative information and analysis, based on our historical experience, credit assessment and considering forward-looking information. Although we believe that the assumptions used are reasonable, actual results may be different. 

Additional information on estimated losses for impairment of accounts receivable is disclosed in Note 4 to our consolidated financial statements.

Impairment of nonfinancial assets, including goodwill 

An impairment loss exists when the accounting value of an asset or cash-generating unit exceeds its recoverable amount, which is the higher between the fair value less selling costs and the value in use. The estimated fair value less selling costs is based on the information available from transactions involving the sale of similar assets or the market price less additional costs regarding the disposition of such asset. The value in use is based on the model of discounted cash flow. Cash flows are derived from the budget and do not include activities of reorganization for which the company has not yet been committed or significant future investments that will improve the group of assets of the cash-generating unit subject to the test. The recoverable amount is sensitive to the discount rate used in the method of discounted cash flows as well as to the projected future cash flow and the expected future growth rate used for the purposes of determining terminal value. Furthermore, additional factors, such as technological obsolescence, the suspension of certain services and other circumstantial changes are taken into account. 

75 

The carrying value of goodwill and the key assumptions used in performing the annual impairment assessment are disclosed in Note 14 to our consolidated financial statements. 

Provisions for tax, labor, civil and regulatory proceedings 

We record provisions for tax, labor, civil and regulatory claims where an outflow of resources is considered probable and a reasonable estimate can be made of the likely outcome. The assessment of the likelihood of loss includes assessing the available evidence, the hierarchy of laws, the available jurisprudence, the most recent court decisions and its materiality in the legal system as well as the evaluation of the case by external counsels. Provisions are reviewed and adjusted to take into account changes in circumstances such as the applicable prescriptive period, results from tax inspections or additional exposure identified based on newly issued court decisions. A significant change in these circumstances or assumptions could result in a corresponding increase or decrease the amount of our provisions. 

Additional information on provisions for tax, labor, civil and regulatory proceedings is disclosed in Note 19 to our consolidated financial statements. 

Pension and other post-retirement benefit plans 

The cost of defined benefit retirement plans and other post-employment medical care benefits and the present value of pension and other postretirement obligations are determined using actuarial valuation methods. The actuarial valuation methods involve the use of assumptions about discount rates, expected future salary increases, mortality rates, health care costs trend rates and future increases in retirement benefits and pensions. The obligation of a defined benefit is highly sensitive to changes in these assumptions. All assumptions are reviewed at each year-end. The mortality rate is based on mortality tables available in the country. Future increases in wages and retirement benefits and pensions are based on expected future inflation for Brazil. The assumptions reflect historical experience and our judgment regarding future expectations. 

The value of our net pension obligation on December 31, 2020, the key financial assumption used to measure the obligation as well as the sensitivity of our pension liability on December 31, 2020 and of the income statement charge in 2018, 2019 and 2020 to changes in these assumptions, is disclosed in Note 30 to our consolidated financial statements. 

Fair value of financial instruments 

When the fair value of financial assets and liabilities presented on the balance sheet cannot be obtained in active markets, it is determined using valuation techniques, including the method of discounted cash flow. The data obtained for the use of these methods are based as much on the information prevailing in the market as possible. However, when it is not feasible to obtain such information in the market, a certain assumption level is required to establish the fair value. The assumption includes consideration of the data that was used, such as the liquidity risk, credit risk and volatility. Changes in the assumptions regarding these factors could affect the presented fair value of financial instruments. 

Additional information on fair value of financial instruments is disclosed in Note 31 to our consolidated financial statements.

Taxes 

There may be uncertainties regarding the interpretation of complex tax regulations and the amount and timing of future taxable income. We record provisions based on reasonable estimates for potential disagreement with tax authorities from the jurisdictions in which we operate. The value of these provisions is based on several factors such as experience from previous tax audits and different interpretations of tax regulations by the taxable entity and the competent tax authority in charge. Such differences of interpretation may arise in a wide variety of subjects, depending on the prevailing conditions in the domicile of the company. As a result, we may be required to pay more than our provisions or to recover less than the related judicial assets recognized. 

76 

We evaluate the recoverability of deferred tax assets based on estimates of future results. This recoverability ultimately depends on our ability to generate taxable profits over the period in which the temporary difference is deductible. The analysis considers the reversal period of deferred tax liabilities, as well as estimates of profits from operations, based on updated internal projections reflecting the latest trends. 

Determining the proper valuation of the tax items depends on several factors, including an estimate of the period and the realization of the deferred tax asset and the expected date of payments of these taxes. The actual flow of receipt and payment of income tax could differ from estimates made by us, as a result of changes in tax laws or of unexpected future transactions that may impact tax balances.

Additional information on taxes is disclosed in Notes 7, 8 and 17 to our consolidated financial statements. 

Revenue recognition 

Revenue recognition - revenue from unbilled services 

We have billing systems for services with intermediate cut-off dates. Thus, at the end of each month, there are revenues already received by us, but that are not effectively invoiced to our customers. These unbilled revenues are recorded based on estimates, which take into account historical consumption data, the number of days elapsed since the last billing date, among others. Because historical data are used, these estimates are subject to significant uncertainties.

Additional information on revenue recognition is disclosed in Note 24 to our consolidated financial statements.

Sources of Revenue

The breakdown of our gross operating revenue is presented net of discounts granted. In addition, we categorize our revenue according to the following groups:

· Fixed and mobile telephone services

Includes revenues from fixed and mobile telephone, principally:

· Local: includes the sum of revenues from monthly subscription fees, installation fees, local services, public telephones and fixed-to-mobile revenues;

· Domestic long-distance: includes the sum of fixed-to-mobile revenues and domestic long distance calls and domestic long-distance calls placed on public telephones;

· International long-distance: includes the sum of revenues from international long distance calls and international long-distance placed on public telephones; and

· Usage charges: include measured service charges for calls, monthly fee and other similar charges.

· Data Transmission and value-added services

· Wholesale: includes the sum of infrastructure rental revenues; and

· Value Added Services: Vivo Música, Vivo Educa, Vivo Sync, Vivo Play Kids, Vivo NBA, Vivo Família Online, Vivo Meditação, among others; and

77 

· Data Transmission: Fixed and mobile data including FTTH, xDSL, cable on the fixed side and 3G and 4G on the mobile side.

· Interconnection fees

· Interconnection fees are amounts we charge other cellular and fixed-line service providers for the use of our network.

· Pay TV

· Includes TV services through satellite, cable or IPTV technology.

· Sale of goods and equipment

· The sale of wireless devices and accessories.

· Other Services

· Other services include integrated solution services offered to residential and corporate clients, such as Internet access, private network connectivity and leasing of computer equipment; and

· Other telecommunications services such as extended service, caller identification, voice mail and cellular blocker, among others.

Results of Operations 

In September 2020, we acquired direct control of Telefônica Cibersegurança e Tecnologia do Brasil Ltda., or CyberCo Brasil. CyberCo Brasil was controlled by Terra Networks Brasil Ltda., or Terra. On November 1, 2020, our Board of Directors approved the execution of the Purchase and Sale Agreement, pursuant to which we sold the totality of the quotas we held in CyberCo Brasil, representing all of its capital stock, to Telefónica Cybersecurity Tech, SL, or TTech, an indirect subsidiary of Telefónica S.A., our parent company, for the total amount of R$116.4 million, generating an increase in equity of R$39 million and an immaterial impact on our net income.. Notwithstanding, results from CyberCo Brasil are not material and therefore our results of operations for the years ended December 31, 2020, 2019 and 2018 are comparable with our results of operations for the years ended December 31, 2017 and 2016. For more information, please see Note 1.c to our consolidated financial statements and “Item 4. Information on the Company—A. History and Development of the Company— Restructuring involving the sale of shares of Telefônica Cibersegurança e Tecnologia do Brasil Ltda. to Telefónica Cybersecurity Tech, S.L., an indirect subsidiary of Telefónica S.A.”

The following table sets forth certain components of our net income for each year ended December 31, 2020, 2019 and 2018 as well as the percentage change of each component. 

	Year ended December 31,									Percent change
	2020			2019			2018			2020-2019			2019-2018
	(in millions of reais)
Net operating revenue		43,126.5			44,268.2			43,462.7			(2.6	%)		1.9	%
Cost of sales		(22,693.1	)		(22,159.0	)		(21,025.7	)		2.4	%		5.4	%
Gross profit		20,433.4			22,109.2			22,437.0			(7.6	%)		(1.5	%)
Operating expenses:
Selling expenses		(11,871.5	)		(12,701.3	)		(12,832.7	)		(6.5	%)		(1.0	%)
General and administrative expenses		(2,525.0	)		(2,498.1	)		(2,599.0	)		1.1	%		(3.9	%)
Other net operating income (expenses), net		544.0			304.0			2,450.9			78.9	%		(87.6	%)
Total operating income (expenses), net		(13,852.5	)		(14,895.3	)		(12,980.8	)		(7.0	%)		14.7	%
Operating income		6,580.9			7,213.9			9,456.2			(8.8	%)		(23.7	%)
Financial income (expenses), net		(573.4	)		(820.1	)		1,827.2			(30.1	%)		(144.9	%)
Equity pickup		0.7			0.7			(5.9	)		-			(112.9	%)
Income before taxes		6,008.2			6,394.5			11,277.5			(6.0	%)		(43.3	%)
Income and social contribution taxes		(1,237.7	)		(1,393.5	)		(2,349.2	)		(11.2	%)		(40.7	%)
Net income for the year		4,770.5			5,001.0			8,928.3			(4.6	%)		(44.0	%)
Net income attributable to:
Controlling shareholding		4,770.5			5,001.0			8,928.3			(4.6	%)		(44.0	%)
Net income for the year		4,770.5			5,001.0			8,928.3			(4.6	%)		(44.0	%)

78 

Results of Operations for the Year Ended December 31, 2020, Compared to the Year Ended December 31, 2019

Gross operating revenue 

Our gross operating revenue decreased by 5.1% to R$63,195.4 million in 2020 from R$66,571.9 million in 2019. Service revenue decreased by 4.7% to R$57,293.4 million in 2020 from R$60,129.6 million in 2019, mainly due to effects caused by the COVID-19 pandemic besides the maturity of fixed and mobile voice, prepaid and DTH, partially offset by the positive performance of key businesses, such as postpaid and FTTH. Sale of goods revenue decreased by 8.4% to R$5,902.0 million in 2020 from R$6,442.3 million in 2019, due to the effects caused by the COVID-19 pandemic, such as the temporary closing of our stores during the year, which impacted the sales of mobile handsets and accessories. The table and descriptions below set forth explanations for these variations:

	Year ended December 31,						Percent change
	2020			2019			2020-2019
	(in millions of reais)
Gross operating revenue		63,195.4			66,571.9			(5.1	%)
Services (1)		57,293.4			60,129.6			(4.7	%)
Sale of goods (2)		5,902.0			6,442.3			(8.4	%)
Deductions from gross operating revenue		(20,068.9	)		(22,303.7	)		(10.0	%)
Taxes		(13,022.7	)		(13,894.4	)		(6.3	%)
Services		(11,981.4	)		(12,678.8	)		(5.5	%)
Sale of goods		(1,041.3	)		(1,215.6	)		(14.3	%)
Discounts granted and return of goods		(7,046.2	)		(8,409.3	)		(16.2	%)
Services		(4,968.3	)		(6,319.6	)		(21.4	%)
Sale of goods		(2,077.9	)		(2,089.7	)		(0.6	%)
Net operating revenues		43,126.5			44,268.2			(2.6	%)
Services		40,343.7			41,131.2			(1.9	%)
Sale of goods		2,782.8			3,137.0			(11.3	%)

_______________

(1) These include telephone services, use of interconnection network, data and SVA services, cable TV and other services.

(2) These include sale of goods (handsets, sim cards and accessories) and equipment of the “Soluciona TI.”

Net operating revenue 

Net Operating Revenue decreased by 2.6% to R$43,126.5 million in 2020 from R$44,268.2 million in 2019, due to the decrease in revenues from telecommunication services, as a result of the effects of the lower

79 

commercial activity related to the COVID-19 pandemic and the reduction in outgoing voice and interconnection revenues, resulting from decreases in mobile and fixed termination rates mandated by ANATEL. These factors were partially offset by the robust fixed broadband evolution, mainly due to strong growth in ultra-broadband revenues driven by higher adoption of FTTH and footprint expansion, increase in data transmission and value-added services revenues from the successful upselling of mobile data bundles, strong migration to 4G and 4.5G and higher smartphone penetration within our customer base.

Cost of sales 

Cost of sales increased by R$534.2 million, or 2.4%, to R$22,693.1 million in 2020 from R$22,158.9 million in 2019. The table and descriptions below set forth explanations for these variations:

	Year ended December 31,						Percent change
	2020			2019			2020-2019
	(in millions of reais)
Cost of goods sold		(2,878.5	)		(3,157.0	)		(8.8	%)
Depreciation and amortization		(8,865.9	)		(8,624.2	)		2.8	%
Outside services and other		(5,865.3	)		(5,545.9	)		5.8	%
Interconnection and network use		(1,332.5	)		(1,087.8	)		22.5	%
Rental, insurance, condominium and connection means		(1,284.9	)		(1,388.2	)		(7.4	%)
Personnel		(775.8	)		(758.8	)		2.3	%
Taxes, charges and contributions		(1,690.2	)		(1,597.1	)		5.8	%
Cost of sales		(22,693.1	)		(22,159.0	)		2.4	%

Cost of Goods Sold: Cost of goods sold decreased by R$278.5 million, or 8.8%, to R$2,878.5 million in 2020 from R$3,157.0 million in 2019, mainly due to the lower commercial activity and the temporary closure of our physical stores due to the COVID-19 confinement measures.

Depreciation and Amortization: Costs related to depreciation and amortization increased by R$241.7 million, or 2.8%, to R$8,865.9 million in 2020 from R$8,624.2 million in 2019, because of the higher level of investments made by the Company in the expansion of 4G and 4.5G network and the acceleration of FTTH deployment in 2020 combined to the review of the assets useful life done by the end of 2019. 

Outside Services and Other: Costs related to outside services and other increased by R$319.4 million, or 5.8%, to R$5,865.3 million in 2020 from R$5,545.9 million in 2019, primarily due to higher costs with maintenance activities. 

Interconnection and Network Use: Costs related to interconnection and network use increased by R$244.7 million, or 22.5%, to R$1,332.5 million in 2020, from R$1,087.8 million in 2019, primarily as a result of the higher interconnection costs, due to tariff adjustments in the period. 

Rental, Insurance, Condominium and Connection Means: Costs related to rent, insurance, condominium and connection means decreased by R$103.3 million, or 7.4%, to R$1,284.9 million in 2020, from R$1,388.2 million in 2019 due to lower rental expenses. 

Personnel: Personnel expenses increased by R$17.1 million, or 2.3%, to R$775.8 million in 2020 from R$758.8 million in 2019, driven by the internalization of strategic activities partially compensated by the reduction of back-office functions, as a result of the digitalization of multiple processes within the Company. 

Taxes, Charges and Contributions: Taxes, charges and contributions increased by R$93.1 million, or 5.8%, to R$1,690.2 million in 2020, from R$1,597.1 million in 2019, primarily due to higher regulatory fees arising from the positive evolution of the mobile customer base.

80 

Operating expenses 

Operating Expenses decreased by R$1,042.9 million, or 7.0%, to R$13,852.5 million in 2020, from R$14,895.3 million in 2019. The table and descriptions below set forth explanations for these variations:

	Year ended December 31,						Percent change
	2020			2019			2020-2019
	(in millions of reais)
Selling expenses		(11,871.5	)		(12,701.2	)		(6.5	%)
General and administrative expenses		(2,525.0	)		(2,498.1	)		1.1	%
Other operating income (expenses), net		544.0			304.0			78.9	%
Total		(13,852.5	)		(14,895.3	)		(7.0	%)

Selling Expenses: Our selling expenses decreased by R$829.8 million, or 6.5%, to R$11,871.5 million in 2020 from R$12,701.3 million in 2019, mainly due to the lower commercial activity and the growing digitalization and automation of customer service processes such as back-office, billing and posting, combined to the increasing adoption of our digital self-service app Meu Vivo. 

General and Administrative Expenses: Our general and administrative expenses increased by R$26.9 million, or 1.1%, to R$2,525.0 million in 2020, from R$2,498.1 million in 2019, due to lower expenses with the maintenance of buildings and administrative and judicial consultancy firms. 

Other Operating Income (Expenses), Net: Other operating income, net increased by R$240.0 million, or 78.9%, to an income of R$544.0 million in 2020, from R$304.0 million in 2019. In 2019, other operating income (expenses), net was primarily related to the sale of assets such as data centers, towers and buildings, which were partially offset by expenses with taxes and contingencies. In 2020, the exceptional income registered was related to the sale of towers and rooftops in the first quarter of 2020 in the amount of R$75.7 million and reduced civil and labor contingencies.

Financial income (expenses), net  

For the year ended December 31, 2020, financial expense, net reached R$573.4 million, a decrease of R$246.7 million, from an expense of R$820.1 million for the year ended December 31, 2019, primarily because of the exceptional financial effect registered in 2020, in the amount of R$495.9 million, primarily resulting from exceptional income resulting from the above-mentioned judicial decisions relating to the exclusion of ICMS tax from the PIS/COFINS tax base.

Income and social contribution taxes 

We recorded an expense from income and social contribution taxes in the amount of R$1,237.7 million in 2020, compared to an expense of R$1,393.5 million in 2019, a reduction of R$155.8 million as a result of a decrease of 8.8% in income before income tax and social contribution against the prior year.

The effective rate of income and social contribution taxes increased to 20.6% in 2020 compared with 21.8% in 2019, primarily as a result of lower interest on shareholders’ equity distributed in comparison to the prior year.

Results of Operations for the Year Ended December 31, 2019, Compared to the Year Ended December 31, 2018

For a discussion of our results of operations for the year ended December 31, 2019 compared to the year ended December 31, 2018, please see “Item 5. Operating and Financial Review and Prospects—A. Operating Results—Results of Operations for the Year Ended December 31, 2019 Compared to the Year Ended December 31, 2018” of our annual report on Form 20-F for the year ended December 31, 2019.

81 

B. Liquidity and Capital Resources

General

We fund our operations and capital expenditures primarily from operating cash flows, loans obtained from financial institutions or development banks, and debentures. As of December 31, 2020, we had R$5.8 billion in cash and cash equivalents. We do not have any material unused sources of liquidity.

Our principal cash requirements include:

· the servicing of our indebtedness;

· capital expenditures; and

· the payment of dividends.

In addition, we expect to use cash on hand to pay the consideration due by us under the Oi Agreeement upon the consummation of the transactions contemplated thereby, if the required regulatory approvals and other conditions to closing are obtained.

Our management believes that our sources of liquidity and capital resources, including working capital, are adequate for our present requirements.

While the COVID-19 pandemic has not materially impacted our liquidity and capital resources to date, it has led to increased disruption and volatility in capital markets and credit markets. The pandemic and resulting economic uncertainty could adversely affect our liquidity and capital resources in the future. Based on past performance and current expectations, we believe our strong cash and cash equivalents and short term investments position are critical at this time of uncertainty, and allow us to use our cash resources for working capital needs, capital expenditures, investment requirements, contractual obligations, commitments, and other liquidity requirements associated with our operations. See “Item 3.D. Risk Factors—Risks Relating to the Brazilian Telecommunications Industry and Us—Our business, operations and results have been, and may continue to be, adversely impacted by the effects of the COVID-19 pandemic.”

Sources of Funds

Our cash flow from operations was R$19.3 billion in 2020, an increase of 9.1% over the R$17.7 billion in 2019. The increase in cash flow from operations is due to the better collection/collection performance, inventory turnover and taxes to recover, which are mainly comprised of ICMS taxes. Additionally, there was a reduction in variable expenses with call center and sales commissions due to lower commercial activity and call center working hours reductions as a result of the COVID-19 pandemic.

For a discussion of our sources of funds for the year ended December 31, 2019 compared to the year ended December 31, 2018, please see “Item 5. Operating and Financial Review and Prospects—B. Liquidity and Capital Resources—Sources of Funds” of our annual report on Form 20-F for the year ended December 31, 2019.

Uses of Funds

Our cash flow used in investing activities was R$6.4 billion in 2020, against R$7.9 billion in 2019. The variation in the cash flow used in investment activities is due to the new investment schedule we implemented due to the COVID-19 pandemic.

Our cash flow used in financing activities recorded an outflow of R$10.6 billion in 2020, compared to an outflow of R$9.8 billion in 2019. The increase in cash flow used in financing activities of R$782.6 million in 2020 compared to 2019 was mainly due to higher lease payments (IFRS 16).

For a discussion of our uses of funds for the year ended December 31, 2019 compared to the year ended December 31, 2018, please see “Item 5. Operating and Financial Review and Prospects—B. Liquidity and Capital Resources—Uses of Funds” of our annual report on Form 20-F for the year ended December 31, 2019.

82 

Indebtedness

As of December 31, 2020, our total debt was as follows:

Debt	Currency		Annual interest rate payable		Maturity		Total amount outstanding (in millions of reais)
PSI		R$		2,5% to 5,5%		2023		0.1
Debentures 1st issue - Minas Comunica		R$		IPCA + 0.5%		2021		29.4
Debentures 5th issue - Single Series		R$		108.25% of CDI		2022		2,015.2
Finance Leases (1)		R$		–		2044		10,818.7
Suppliers finance arrangements		R$		114.6 to 149.0% of CDI		2021		375.7
Total debt								13,239.2
Current								3,682.5
Non-current								9,556.7

_______________

(1) Our finance leases are related to towers and rooftops, IT equipment leases, infrastructure rent and other means of transmission.

Interest and principal payments on our indebtedness as of December 31, 2020 due in 2021 and 2022 total R$3,635.8 million and R$3,210.9 million, respectively.

The agreements that govern the majority of our outstanding loans and financings contain certain standard restrictive covenants, including financial covenants. These agreements may provide for the acceleration of the full balance of our obligations in the event of any default. In general, these agreements are subject to acceleration of maturity upon: (i) the inclusion in our shareholders’ agreement, bylaws or articles of incorporation or those of the companies that control us of conditions leading to restrictions or loss of ability to pay financial obligations arising from these agreements; (ii) a conviction or final judgment against us in connection with child labor, slave labor or a crime against the environment; or (iii) liquidation, dissolution, insolvency; voluntary bankruptcy, judicial or extrajudicial recovery to any creditor or class of creditors. 

As of December 31, 2020, we were not in default of any of our obligations and therefore none of our liabilities were subject to acceleration.

Foreign exchange and interest rate exposure 

We face foreign exchange risk due to our foreign currency-denominated accounts payable (including our capital expenditures, particularly equipment) and receivables in foreign currency. A real devaluation may increase our cost of debt and certain commitments in a foreign currency. Our revenue is earned in reais, and we have no material foreign currency-denominated assets, except income from hedging transactions, interconnection of international long-distance services and services rendered to customers outside Brazil. Equity investments in foreign companies also suffer effects with variations in the exchange rate. 

We use derivative instruments to limit our exposure to exchange rate risk. Since September 1999, we have hedged all of our foreign currency-denominated bank debt using swaps and other derivative instruments. Since May 2010, the company began using net balance coverage, which is the hedging of net positions in foreign exchange exposures, or assets (issued invoices) minus liabilities (received invoices) for foreign exchange exposures, substantially reducing our risk to fluctuations in exchange rates. We could continue to face exchange rate exposure with respect to our planned capital expenditures, however, as a small part of our planned capital expenditures are denominated or indexed in foreign currencies (mostly U.S. dollars). We systematically monitor the amounts and time of exposure to exchange rate fluctuations and may hedge positions when deemed appropriate.

83 

The largest part of our reais denominated debt originally pays interest as a percentage of the CDI or has been swapped to do so. The CDI – Certificate of Interbank Deposits (Certificado de Depósito Interbancário) is an index based upon the average rate of operations transacted among the banks within Brazil. With the CDI being a floating rate, we remain exposed to market risk. This exposure to the CDI is also present in long derivatives positions and financial investments, which are indexed to percentages of the CDI.

For more information, see “Item 11. Quantitative and Qualitative Disclosures about Market Risk.”

Capital Expenditures and Payment of Dividends 

Our principal capital requirements are for capital expenditures and payments of dividends to shareholders. Capital expenditures consisted of additions to property, plant and equipment and additions to intangible assets, including licenses which totaled R$7.9 billion, R$8.8 billion and R$8.2 billion for the years ended December 31, 2020, 2019 and 2018, respectively. These expenditures relate primarily to the expansion of our network.

We may seek financing for part of our capital expenditures and cash management assistance from the Brazilian government, in particular from BNDES, which is the main government financing agent in Brazil, as well as from the local or foreign capital markets or from local and foreign financial institutions. See “Item 4. Information on the Company—A. History and Development of the Company—Capital Expenditures.”

Pursuant to our bylaws and Brazilian Corporate Law, we are required to distribute a mandatory minimum dividend of 25% of our “adjusted net income” (as defined below) in respect of each fiscal year to the extent earnings are available for distribution.

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.

We may also make additional distributions to the extent that we have profits and reserves available to distribute. All of the above distributions may be made as dividends or as tax-deductible interest on shareholders’ equity. Interest on shareholders’ equity is tax-deductible payments pursuant to Brazilian Corporate law, that a company may make, in addition to dividends, which the company may treat as financial expenses for tax and social contribution purposes. For more information on the payment of interests on shareholders’ equity, see “Item 8. Financial Information—A. Consolidated Statements and Other Financial Information—Dividends and Dividend Distribution Policy—Dividends and Interest on Shareholders’ Equity.” We deliberated in favor of the distribution of dividends and interest on shareholders’ equity of R$ 5.0 billion, R$5.8 billion and R$7.0 billion in 2020, 2019, and 2018, respectively.

Our management expects to meet 2021 capital requirements primarily from cash provided from our operations. Net cash provided by operations was R$19.3 billion, R$17.7 billion and R$11.9 billion in 2020, 2019 and 2018, respectively.

Adjustments to net income for purposes of calculating the basis for dividends include allocations to various reserves that effectively reduce the amount available for the payment of dividends. For the fiscal year ended December 31, 2020, in addition to the interim dividend and interest on own capital payments made in 2020, management decided to propose an additional proposed dividend to shareholders in the amount of R$1.5 billion. The proposal to pay dividends will be approved at the shareholders’ meeting that will approve the 2020 annual report. See “Item 3. Key Information—D. Risk Factors—Risks Relating to the Common Shares and the ADSs— Holders of our ADSs are not entitled to attend shareholders’ meetings and may only vote through the depositary.” and “Item 10. Additional Information—B. Memorandum and Articles of Association—Description of Our Bylaws—Voting Rights.”

Accounting Pronouncements

The accounting policies adopted in the preparation of the consolidated financial statements for the year ended December 31, 2020 are consistent with those used in the preparation of the consolidated annual

84 

financial statements for the year ended December 31, 2019, except for the changes required by the new pronouncements, interpretations and amendments approved for the IASB, which came into effect as of January 1, 2020, as follows:

Changes to IFRS 3: Definition of business

In October 2018, the IASB issued changes to the definition of business in IFRS 3, to help entities determine whether an acquired set of activities and assets consists of or not in a business. They clarify minimum requirements, eliminate the assessment of whether market participants are able to replace any missing elements, include guidelines to help entities assess whether a purchased process is substantive, better define business and product definitions, and introduce a test of optional fair value concentration.

Amendments to IAS 1 and IAS 8: Definition of material omission

In October 2018, the IASB issued changes to IAS 1 and IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors, to align the definition “material omission” or “materially distorted disclosure” in all standards and to clarify certain aspects of the definition. The new definition states that “the information is material if its omission, distortion or obscuration can reasonably influence decisions that the main users of the general purpose financial statements make based on these financial statements, which provide financial information on the entity’s specific report”.

The adoption of these changes had no impact on the consolidated financial statements in the initial adoption period (beginning as of January 1, 2020).

New IFRS pronouncements, issues, amendments and interpretations of the IASB

In addition to the standards issued and amended mentioned above, on the date of preparation of these financial statements, the IASB had issued IFRS 17 - Insurance Contracts (a standard not yet issued in Brazil), a new comprehensive accounting standard for insurance contracts that includes recognition and measurement, presentation and disclosure.

IFRS 17 will come into force for periods beginning on or after January 1, 2021, requiring the presentation of comparative figures. Early adoption is permitted if the entity also adopts IFRS 9 and IFRS 15 on the same date or before the initial adoption of IFRS 17. This standard does not apply to the Company.

The Company does not anticipate the early adoption for the year ended December 31, 2020 of any pronouncement, interpretation or amendment that has been issued before application is mandatory.

C.       Research and Development, Patents and Licenses

Research and Development

We operate in a fast-paced, dynamic and convergent industry, which demands that our products and services be continuously revamped to keep up with growth expectations. The evolution of products and services now includes features such as machine learning, cognitive computing and artificial intelligence.

The table below presents our investments in the development, update and modernization of systems to support the launch of new products and services. In 2020, we invested R$27.4 million in development and innovation.

R&D investments	2020		2019		2018
	(in millions of reais)
Development and Innovation (business incubator and tests)		27.4		50.3		62.1

Patents and Licenses

Our principal intellectual property assets include:

85 

· permission to use the trademark name “Telefônica” and all names derived from “Telefônica”;

· our commercial brands in Brazil, “Vivo,” and sub-brands such as “Vivo Fixo”, “Vivo TV”, “Vivo Internet”, “Vivo Fibra”, “Vivo Selfie”, “Meu Vivo”, “Vivo Empresas”, “Vivo Play”, “Vivo Easy”, “Vivo Money” and “Vivo Ads” as our advertising service, among others;

· the trademark “Aura” that is Vivo’s Artificial Intelligence;

· permission to use the trademark “Terra” that provides media and digital services.

· permission to use the trademark “ElevenPaths”, Telefônica’s cybersecurity brand.

In September 2016, the Brazilian Trademark Office recognized the “Vivo” trademark as of “high reputation”, thus protected in all branches of activities within Brazilian territory.

D. Trend Information

Consumption patterns in Brazil were strengthened by the COVID-19 pandemic and social isolation: customers are demanding not only reliable and faster connectivity, but also a complete aggregation of meaningful digital services with a personalized customer experience. Furthermore, brand reputation, promotion of ESG initiatives and concerns with security and data privacy supported by the new general data privacy law (LGPD) in effect since 2020 are becoming increasingly important to customers’ choices.

Accordingly, we intend to continue efficiently investing in modern infrastructure for the mobile and fixed segment, supported by partnerships and alternative expansion models, aiming to extend our 4.5G, 5G and FTTH footprints and cement our reputation as the best connectivity platform in Brazil. Moreover, Meu Vivo and Aura will continue to be an important source of differentiation through a simplified and personalized experience. Vivo is also quickly advancing beyond telco services, by becoming a reference to its customers in digital services. These initiatives are the most effective way to address our customers’ needs and, in addition, to empower us to take advantage of both short and long-term opportunities, such as the growing digitalization of Brazilian companies and the innovative wave of 5G.

In the macroeconomic scenario, Brazil has a positive outlook for consumption and is expected to continue its process of recovery in 2021 from COVID-19’s impacts. Government plans to resume significant political and economic reforms in 2021, such as Tax and Administrative reforms. A more pro-market stance also impacts the regulatory environment, for instance with migration from concession to authorization model and the evolution to self-regulation. These trends may contribute to boosting the recovery of the telecommunications sector. On the revenues side, convergence, exponential data consumption and digital services over connectivity will be key to continued growth. In addition, we expect a competitive environment more prone to M&A and more focused on delivering new digital products and services, as well as providing better quality and customer experience, which will increasingly require investments in efficient, best-in-class technologies such as FTTH, 4.5G and 5G.

In this context, Telefônica Brasil is well structured to maintain its leadership in the Brazilian telecommunications market and to continue serving its 95 million access in fixed and mobile business. Moreoever, we believe our strategic pillars, #temvivopratudo (There is a Vivo for everything), #temtudonavivo (Vivo has everything), #DNAvivosomos (Vivo DNA in everything we are), #DNAvivofazemos (Vivo DNA in everything we do) and #vivosustentabilidade (Vivo Sustainability), will allow us to achieve our purpose of increasing digitalization to bring people together (Digitalizar para aproximar).

E. Off-Balance Sheet Arrangements

None.

F.       Tabular Disclosure of Contractual Obligations

Our contractual obligations and commercial commitments as of December 31, 2020 are as follows:

86 

	Total			Less than 1 year			1-3 years		4-5 years		More than 5 years
	(in millions of reais, as of December 31, 2019)
Contractual obligations
Loans, financing and leases (1)		11,194.5			2,637.8			4,387.1		2,477.6		1,692.0
Debentures		2,044.6			1,044.7			999.9		—		—
Derivatives		(5.6	)		(3.0	)		10.2		10.2		(23.0	)
Pension and other post-retirement benefits		954.6			22.2			8.6		9.3		914.5
Total contractual obligations		14,188.1			3,701.7			5,405.8		2,497.1		2,583.6
Commercial commitments
Trade accounts payable		6,613.0			6,613.0			—		—		—
Total commercial commitments		6,613.0			6,613.0			—		—		—

_______________

(1) Includes the present value of minimum lease payments on operating leases of rental of equipment, facilities and stores, administrative buildings, and cell sites and contingent consideration relating to the GVT acquisition. See Note 4 to our consolidated financial statements. 

For additional information, see note 31 g.3 to our consolidated financial statements.

Long-Term Debt – Loans, financing, leases and debentures

	Amount
Year ending December 31	(in millions of reais, as of December 31, 2020)
2022		3,268.9
2023		2,119.2
2024		1,551.7
2025		926.5
2026 and forward		1,690.5
Total		9,556.7

G. Safe Harbor

See “Cautionary Statement Regarding Forward-Looking Statements.”

Item 6. Directors, Senior Management and Employees

A. Directors and Senior Management

We are managed by a board of directors (Conselho de Administração) and a board of executive officers (Diretoria).

Board of Directors 

Our board of directors comprises a minimum of five and a maximum of 17 members elected and dismissed by the shareholders at the shareholders’ meeting, serving for a term of three years with the possibility of re-election.

 The following is a list of the current members of our board of directors, their respective positions and dates of their election. The members of our board of directors are currently mandated until the ordinary general meeting scheduled to take place in April 2022.

 The following are the current members of the board of directors:

87 

Name	Position	Date of Appointment
Eduardo Navarro de Carvalho	Chairman	April 11, 2019
Julio Esteban Linares Lopez	Director	April 11, 2019
Antonio Carlos Valente da Silva	Director	April 11, 2019
Claudia Maria Costin	Director	June 10, 2019
Francisco Javier de Paz Mancho	Director	April 11, 2019
Sonia Julia Sulzbeck Villalobos (1)	Director	April 11, 2019
Luiz Fernando Furlan	Director	April 11, 2019
Narcís Serra	Director	April 11, 2019
José Maria Del Rey Osorio	Director	April 11, 2019
Ana Theresa Masetti Borsari	Director	April 11, 2019
Juan Carlos Ros Brugueras	Director	February 21, 2020
Christian Mauad Gebara	Director	April 11, 2019

_______________

(1) Mrs. Sonia Villalobos was elected by preferred shareholders on a separate vote, with no participation of the controlling shareholder, prior to the Conversion of all our preferred shares into common shares after market close on November 20, 2020 (see “Item 10. Additional Information—B. Memorandum and Articles of Association— Description of Our Bylaws—History of Share Capital—Conversion of Our Preferred Shares into Common Shares”).

Below are brief biographies of our directors:

Christian Mauad Gebara is 48 years old and is our Chief Executive Officer and member of our Board of Directors. He is also President of SP Telecomunicações Participações Ltda, and CEO of Innoweb Ltda., Pop Internet Ltda., Terra Networks Brasil Ltda. and Telefônica Infraestrutura e Segurança Ltda. He is Chairman of the Board of Directors of Telefônica Factoring do Brasil Ltda., Chairman of the Board of Trustees of Fundação Telefônica and 1^st Vice-Presidente of the Board of Executive Officer of SindiTelebrasil (Since July/2019). He was our Chief Operating Officer (March/2017 – December/2018), Executive Vice President - Chief Revenue Officer (September/2015 – February/2017), Vice President of Consumer Mobile (July/2015 – August/2015), Vice President of the B2C division (“Negócios PF” - February/2015 - June/2015) and Vice President of the National Individual Market (July/2013 – January/2015). Previously, he was the Vice President National Individual Market (April/2013 – July/2013), Vice President New Business Strategy (July/2011 – March/2013) and Vice President of Synergy Integration and New Businesses (January/2011 – June/2011) at Vivo S.A., which was extinct due to its incorporation by the Company. Since 2006, Mr. Gebara has held a wide variety of positions within the Telefónica Group – Telefónica Spain and Telefónica América Latina, both in Madrid. Before joining the Telefónica Group, he worked at McKinsey & Company (Spain), JP Morgan Chase (USA), Banco ABC Brasil and Citibank (Brazil). He graduated in management from the Fundação Getúlio Vargas in São Paulo and has an MBA from the Graduate School of Business at Stanford University.

Eduardo Navarro de Carvalho is 58 years old and is Chairman of our Board of Directors, member of our Nominations, Compensation and Corporate Governance Committee and member of our Strategy Committee. He is Chief Strategy and Corporate Affairs Officer of Telefónica S.A. (since February 2020). He is also Patrono Nato of Fundación Telefónica (since September/2012). Mr. Navarro was a member of the board of directors of Telefónica Audiovisual Digital (June/2016 – April/2018); the Communications, Corporate Business, Trademark and Sustainability Officer of the Telefónica Group (January 2019 – February 2020); Chairman of the board of directors of Telefônica Factoring do Brasil Ltda. (December 2016 – February 2019); Chief Executive Officer of the Company (November/2016 – December/2018); Chairman of the Board of Trustees of Fundação Telefônica (until December/2019), Officer of SindiTelebrasil (November/2016 – July/2019) CEO of Telefônica Data S.A. (until November/2018, when the company was extinct due to its incorporation by the Company); President of SP Telecomunicações Participações Ltda, and CEO of Innoweb Ltda., Pop Internet Ltda. and Terra Networks Brasil S.A. He was the Chief Commercial Digital Officer of Telefónica S.A. (February/2014 – January/2017) and Global Director of Strategy and Alliances at Telefónica S.A. (2011 – 2014). He graduated in Metallurgical Engineering from the Federal University of Minas Gerais, Brazil.

88 

Julio Esteban Linares Lopez is 75 years old and is a member of our Board of Directors, Chairman of our Strategy Committee and member of our Control and Audit Committee. He is also a member of the Supervisory Board of Telefónica Deutschland Holding AG; Administrador Solidário of Telefónica de España, S.A.U. and of Telefónica Móviles España, S.A.U.; trustee of Telefónica Foundation (since June/2000). Mr. López was Vice President of the board of directors of Telefónica S.A. (September/2012 – July/2017) and was COO of Telefónica, S.A. (December/2007 – September/2012). He is a member of the GSM Association Board (since October/2012); trustee of Mobile World Capital Barcelona Foundation (since December/2012) and of CEDE Foundation (Confederación Española de Directivos y Ejecutivos) (since June/2014); member of the Executive Commission (since January/2015), member of the Board and Chairman of the Digital Society Committee of CEOE (Confederación Española de Organizaciones Empresariales) (since May/2016); member of COIT (Official College of Telecommunications Engineering) (since December/2014), member of AEIT (Spanish Association of Telecommunications Engineers) (since December/2014), member of the Advisory Board of Higher Technical School of Engineers Telecommunications (since July/2015) and trustee of Cred100do Foundation (since November/2019). Previously he held the offices of Officer of Telecom Italia (November/2007 – December/2013); Executive Officer of Coordination, Development of Businesses and Synergy at Telefónica S.A. and member of its board of directors and Secretary of its Executive Committee (December/2005 – December/2007). Mr. López graduated in Engineering of Telecommunications from Universidad Politécnica of Madrid.

Antonio Carlos Valente da Silva is 68 years old and serves as a Member of our Board of Directors and Chairman of our Quality and Sustainability Committee. He was a member of the Consejo Asessor of Telefónica Internacional S.A.U (2015 – 2016); Chairman of the Board of Trustees of Fundação Telefônica (December 2010 – December 2016); Valente was Chief Executive Officer of Telefônica Brasil S.A. and member of the Appointments, Compensation and Corporate Governance Committee of Telefônica Brasil S.A. (January/2007 — March/2015); Chief Executive Officer of Telefônica Data S.A. (until March/2015), Vice-President Officer of SP Telecomunicações Participações Ltda. (until May/2015), Chairman of the board of directors of Telefônica Factoring do Brasil Ltda. (until May/2015), member of the Control Committees of Media Networks Brasil Soluções Digitais Ltda. (until May/2015), Telefônica Transportes e Logística Ltda. (until May/2015) and Telefônica Serviços Empresariais do Brasil Ltda. (until May/2015). He was the Chief Executive Officer of the merged companies Vivo S.A., A. Telecom S.A., Telefônica Sistemas de Televisão S.A., Ajato Telecomunicação Ltda., Lemontree Participações S.A., GTR-T Participações e Empreendimentos S.A., Comercial Cabo TV São Paulo S.A. and TVA Sul Paraná S.A. Mr. Valente was also Chairman of the Junta Directiva of Telefónica Venezuela (November/2015 – March 2017). He is also Chairman of Everis, a quotaholder of SmartWare Consulting EIRELI and member of the Board of Directors of Dom Rock (since June/2019), member of the Board of Directors of Padtech Holding S.A. (since July 2020), chairman of the Advisory Board of CPqD, (Brazilian Telecommunications Research and Development Center) (since February/2020), member of the board of directors of Cinnecta (since June/2018), member of the board of Directors od AENZA Perú (since December/2020), member of the Advisory Board of Virtueyes (since September/2020) and member of the Board of Directors of Ativa (since January/2021). He was a member of the Advisory Board of CPqD (since July/2008 until February 2020 when he became chairman of the Advisory Board. He used to work as a volunteer at Fundação Lemann (2017 – July/2018). Mr. Valente was Chairman of the Official Spanish Chamber of Commerce in Brazil (2011-2015); Chairman of Telebrasil (Brazilian Association of Telecommunications), Chairman of SindiTelebrasil (National Union of Fixed and Mobile Telephone Service Operators); Chairman of Febratel (Brazilian Federation of Telecommunications) (2010–2013) and Chairman of the Euro-chambers in Brazil (an association that gathers the main Chambers of Commerce from the European Union in Brazil). He was also a member of the CDES - Economic and Social Development Council of the Presidency of the Republic of Brazil (until 2016), and until the end of 2017, Mr. Valente was a member of the Board of Executive Officers of ABDIB - Brazilian Base Industries Association), member of COINFRA (FIESP’s Infrastructure Commission) and member of the Advisory Board of Catenon Brasil. He has a degree in Electrical Engineering from PUC/RJ and has significant experience in the telecommunications market, in which he has been working since 1975. He has a post-graduate degree in business and administration from PUC/RJ and has concluded several specialization courses in telecommunication systems in Brazil and abroad, as well as several specialization courses in business management, including corporate strategy at MIT/Sloan.

89 

Francisco Javier de Paz Mancho is 62 years old and is a member of our Board of Directors and Chairman of our Nominations, Compensation and Corporate Governance Committee. Mr. de Paz is also a member of the board of directors of Telefónica S.A., Telefónica Móviles Argentina S.A. and Pegaso PCS, S.A. of CV. He is also Chairman of the board of directors of Telefónica Ingeniería de Seguridad S.A. He was Chairman of the board of directors of Telefónica Gestión de Serviços Compartidos Espanha S.A. (September/2014 – March/2016), member of the Advisory Board of Telefónica América Latina (2008 – 2016) and Chairman of the board of directors of Atento Inversiones y Teleservicios (December/2008 – December/2012) and Vocal of the Comité Ejecutivo del Consejo Superior de Cámaras (2006 – 2014). Mr. Mancho holds degrees in Information and Publicity and a degree in law from the Executive Management Program of IESE (Universidad de Navarra).

Juan Carlos Ros Brugueras is 59 years old and serves as a member of our Board of Directors and member of our Control and Audit Committee. He is also a partner at the Law Firm Brugueras, Alcantra & García Bragado, located in Madrid, Spain (since 2013). He was an external legal consultant for matters related to Latam Telecom for KPMG Spain (May 2013 - 2016). He holds a degree in Law from the University of Barcelona (1985).

Sonia Julia Sulzbeck Villalobos is 57 years old and a member of our Board of Directors and our Quality and Sustainability Committee. She is a member of the board of directors of LATAM Linhas Aéreas and EcoRodovias. She also participates in the Board of Directors of CFA Society Brasil, a non-profit association that gathers around 1000 professionals that have a CFA certification (Chartered Financial Analyst) in the country. She is a founding partner of Villalobos Consultoria Ltda. (since 2009). She holds a degree in Public Administration from EAESP/FGV, from 1984, and became a master in Finance, from the same institution, in 2004. She was the first to receive the CFA certification in Latin America (1994).

Luiz Fernando Furlan is 74 years old and is a member of our Board of Directors and of our Nominations, Compensation and Corporate Governance Committee. He is also a member of the Quality and Sustainability Committee and the board of directors of BRF S.A. He is Chairman of the Board of LIDE – Grupo de Líderes Empresariais (Brazil). Mr. Furlan was the Chairman of the Deliberative Board of São Paulo Negócios Brazil (June 2017 – February 2020), member of the Comisión Nombramientos Retribuciones y Buen Gobierno and of the board of directors of Telefónica S.A. (until December/2019), acted as a member of the Global Ocean Commission in the USA (2013 – 2015), Chairman of the board of directors of Fundação Amazonas Sustentável “FAS” (Brazil) (2008 – 2015), institution within which he has become an honorary member; also acted as a member of the Advisory Board of AGCO Corporation in the USA (2010 – 2016). Previously he served as Minister of State at the Ministério de Desenvolvimento, Indústria e Comércio Exterior of Brazil (2003 – 2007). He holds a degree in Chemical Engineering from FEI (University of Industrial Engineering) and in Business Administration from the University of Santana – São Paulo, with extension and specialization courses in Brazil and abroad.

Narcís Serra is 77 years old and is a member of our Board of Directors. He is also the Vice President of the board of directors of Telefónica Chile S.A. Mr. Serra holds a doctorate in economics from the Universidad Autónoma de Barcelona and is President of Barcelona Institute for International Studies (IBEI). 

José María Del Rey Osorio is 69 years old and serves as a member of our Board of Directors and Chairman of our Control and Audit Committee. He is also a member of the Comision de Auditoria y Control y del Directorio of Telefónica del Perú. Mr. Del Rey was a member of the Board of Director of Telefônica del Perú (2005 – 2012); worked as an economist at Servicios de Estudios Económicos de EDES e INITEC, in the National Institute of Industry’s (INI) companies and in the management and planning of the INI’s corporation. He holds a degree in Economy and Business Administration from the Universidad Autónoma de Madrid.

Ana Theresa Masetti Borsari is 49 years old and serves as a member of our Board of Directors and a member of our Strategy Committee. She is also General Manager of Peugeot Automóveis do Brasil (Peugeot, Citroën e DS - Groupe PSA) (since October 2015). She was Regional Manager (Southwest of France) of Peugeot França (September 2013 – October 2015). She holds a Law degree and a Masters’ degree from Universidade de São Paulo.

90 

Claudia Maria Costin is 65 years old and serves as a member of our Board of Directors and a member of our Quality and Sustainability Committee. She is also a member of the Board of Trustees of Fundação Telefônica, director of the Center for Excellence and Innovation in Education Policies at Getulio Vargas Foundation, CEIPE FGV (since November 2016); columnist of the newspaper A Folha de São Paulo, writing weekly articles on education (since October 2016); professor of Public Politics at Fundação Getúlio Vargas at Rio de Janeiro (since 2013) and member of the Boards of FTD (since 2019), Escola Mais (since 2018) and Instituto Unibanco (since 2017). She was a member of the Global Commission for The Future of Work at ILO– International Labour Organization, an agency of the United Nations (2017 – 2018); visiting professor at the School of Education at Harvard University (2016 – 2018); Global director for of Education at Banco Mundial (2014 – 2016); Secretary of Education of the city of Rio de Janeiro (2009 - 2014); member of the Board of SEAC-Sustainability External Advisory Board of Dow Chemical (2009 – 2014). She holds a degree in Public Administration, a Masters’ degree in Economy and a Doctorate in Management from Escola de Administração de Empresas de São Paulo Fundação Getúlio Vargas (EAESP/FGV).

There is no family relationship between any of the directors named above. There is no arrangement or understanding with major shareholders, customers, suppliers or others, pursuant to which any director referred to above was selected as such.

Board of Executive Officers 

The Board of Executive Officers consists of at least three (3) and no more than fifteen (15) members, who may or may not be our shareholders, must be resident in the country, are appointed by our board of directors for a period of three (3) years, may be reelected, and who may remain in office until reappointed or replaced. Our Board of Executive Officers is responsible for our day-to-day management and for representing us in our business with third parties. Any of our executive officers may be removed at any time by a decision of the board of directors. 

The following are the current members of the Board of Executive Officers, their respective positions and the date of their appointment.

Name	Position	Date of Appointment
Christian Mauad Gebara	Chief Executive Officer	April 12, 2019
Breno Rodrigo Pacheco de Oliveira	General Secretary and Legal Officer	April 12, 2019
David Melcon Sanchez-Friera	Chief Financial and Investor Relations Officer	April 12, 2019

Below are brief biographies of our executive officers:

Breno Rodrigo Pacheco de Oliveira is 45 years old and serves as our General Secretary and Legal Officer. He is also the General Secretary and Legal Officer of Innoweb Ltda., POP Internet Ltda., Terra Networks Brasil Ltda.. and Telefônica Infraestrutura e Segurança Ltda.; Corporate Secretary of our board of directors, member and Chairman of the Deliberative Council of Visão Prev Sociedade de Previdência Complementar, Officer of SP Telecomunicações Participações Ltda., and Officer of Fibrasil Infraestrutura e Fibra Ótica S.A., TLF 01 Empreendimentos e Participalçoes Ltda., Telefônica Cloud e Tecnologia do Brasil Ltda., TLF 03 Empreendimentos e Participalçoes Ltda. and of TLF 04 Empreendimentos e Participalçoes Ltda. Mr. Oliveira is also Corporate Secretary of the board of directors of Telefônica Factoring do Brasil Ltda., Corporate Secretary and member of the board of directors of Telefônica Corretora de Seguros Ltda.; member of the Deliberative Board of Fundação Sistel; member of the board of directors of Companhia ACT de Participações and Companhia AIX de Participações, and member of the Board of Trustees of Fundação Telefônica. Mr. Oliveira was the General Secretary and Legal Officer of Telefônica Data S.A. (until November/2018, when it was extinct due to its merge into the Company). He was General Secretary and Legal Officer of Global Village Telecom S.A. and GVT Participações S.A. (until April/2016, when these companies were extinct due to their merge into the Company); Officer of the following merged companies: Vivo S.A., A.Telecom S.A., Telefônica Sistema de Televisão S.A., Ajato Telecomunicação Ltda., Lemontree Participações S.A., TVA Sul Paraná S.A., GTR-T Participações e Empreendimentos S.A. and Comercial Cabo TV São Paulo S.A. (until July/2013, when these companies were extinct due to its incorporation by the Company). He was a member of the board of directors of Tectotal Tecnologia sem Complicações S.A. (until June/2016 date in which the company was sold). He holds a law degree from Universidade do Vale do Rio dos Sinos – UNISINOS, Brazil.

91 

David Melcon Sanchez Friera is 50 years old and serves as our Chief Financial and Investor Relations Officer (since April/2016). He is also the Chief Financial Officer of Innoweb Ltda., POP Internet Ltda., Terra Networks Brasil Ltda. and Telefônica Infraestrutura e Segurança Ltda., as well as the Officer of SP Telecomunicações Participações Ltda., Vice Chairman of the Board of Telefonica Corretora de Seguros Ltda., member of the Board of Trustees of Fundação Telefônica and member of the board of directors of Telefônica Factoring do Brasil Ltda. He was also Chief Financial Officer of Telefônica Data S.A. (until November/2018, when the company was extinct due to its incorporation by the Company). Mr. Melcon has more than 20 years of global experience in the Telecommunications industry in Latin America and Europe. He was the Transformation Officer of Telefónica S.A. (October/2014 – January/2016); Chairman of the Supervisory Board of Telefonica Slovakia and, in the same period, he was a member of the board of directors of Tesco Mobile Czech Republic (March/2013 – June/2014); Vice-Chairman of the board of directors and Chief Financial Officer of Telefonica Czech Republic (August/2012 – September/2014); member of the board of directors of Telfin Ireland Ltd. – Ireland (April/2010 – December/2012) and Financial and Control Officer of the Telefonica Group in Europe (June/2007 – July/2012). Prior to this, he started his career at Arthur Andersen. Mr. Melcon holds a degree in Economics and Business Administration from the University of Zaragoza (Spain), and a Master in Audit and Business Analysis from the University Complutense – Madrid (Spain).

For the biography of Mr. Christian Mauad Gebara, see “—Board of Directors” above.

There is no family relationship between any of the executive officers named above. There is no arrangement or understanding with major shareholders, customers, suppliers or others, pursuant to which any executive officer referred to above was selected as such.

B. Compensation

For the year ended December 31, 2020, the aggregate amount of compensation paid to all our directors and executive officers was approximately R$27.8 million, of which R$17.5 million corresponded to salaries and R$10.3 million corresponded to bonuses.

For the year ended December 31, 2020, our directors and officers did not receive any pension, retirement or similar benefits. For a description of our pension plan, see “—D. Employees—Pension Plans.”

C. Board Practices

Board of Directors 

Our board of directors typically meets once every three months and the Chairman may call special meetings. Our Board takes action by majority vote, provided the majority of its members in office are present, with the Chairman having, in addition to his or her regular vote, casting vote in the event of a tie. The specific responsibilities of the Chairman include representing the Board in the General Shareholders Meetings, chairing the General Shareholders Meetings, selecting the Secretary from among those present, and calling and chairing meetings of the Board. 

Our board of directors is responsible, among other things, for:

· establishing our general business policies;

· electing and removing, at any time, the members of our Board of Executive Officers, and establishing their responsibilities with due regard for legal and statutory provisions;

· supervising our management and examining, at any time, our corporate records, and requesting information regarding the execution or the process of execution of any agreements and other acts;

· calling General Shareholders Meetings;

92 

· approving the financial statements, management reports, proposals for allocation of the company’s results and the submission of such documents to the General Shareholders Meeting;

· appointing and deposing external auditors;

· determining the distribution of interim dividends;

· determining the payment of interest on equity “ad referendum” of the General Shareholders Meeting;

· authorizing the purchase of our shares to be canceled or kept in treasury;

· appointing and removing the person responsible for internal auditing;

· approving the budget and annual business plan;

· deliberating on the issuance of new shares by increasing the corporate capital within the limits of the authorized capital determined by the bylaws, therein defining the terms and conditions of such issuance;

· approving the issuance of commercial paper for public distribution and depositary receipts;

· authorizing the disposal of assets directly related to public telecommunications services;

· approving agreements, investments and obligations in an amount greater than R$250 million that have not been contemplated in the budget;

· approving employment and compensation plans, incentive policies and professional development, regulation and staffing of the company, and the terms and conditions of collective bargaining agreements to be executed with unions representing various categories of the company’s employees and adhesion or disassociation from pension plans, all with respect to employees of the company; the board of directors can, at its own discretion, assign to the company’s Board of Executive Officers limits to deliberate on these matters;

· authorizing the acquisition of an interest in other companies on a definitive basis and the encumbrance and creation of a lien on or sale of an equity interest;

· authorizing the offering of ordinary nonconvertible unsecured debentures;

· approving the organizational structure of the company; with the possibility of assigning to the officers of the Board of Executive Officers limits to the exercise of such authority, subject to legal and bylaws provisions;

· approving and modifying the internal regulations of the Board of Directors;

· deliberating as to the issuance of warrants;

· deliberating, by delegation of the General Shareholders Meeting, about the following aspects related to the company’s issuance of debentures: (i) timing of the issuance, (ii) time and conditions of expiration, amortization or redemption, (iii) time and conditions of the payment of interest, of the participation in the profits and of the premium of repayment, if any, (iv) method of subscription or placement, and (v) the type of debentures;

· approving the establishment of technical and advisory committees for advice on matters of interest to the company, to elect members of such committees and approve the committees, internal regulations, which shall contain specific rules concerning their organization, functions, powers, and compensation of members;

93 

· authorizing the sale of property, the creation of in rem guarantees and the provision of guarantees on behalf of third parties, and setting limits on the practice of such acts by the officers;

· establishing, as an internal regulation, the limits for the officers to authorize the disposition or encumbrance of permanent assets, including those related to public telecommunications services which are disabled or inoperable;

· approving the company’s participation in consortia in general, and the terms of such participation; the board of directors may delegate such powers to the officers and establish limits, as it seeks to develop activities in line with the company’s purpose;

· setting the limits for the officers to authorize the practice of reasonable gratuitous acts for the benefit of employees or the community of which the company is a part of, including the donation of unserviceable assets to the company; and

· approving the creation and dissolution of subsidiaries of the company, in Brazil or abroad.

One of the members of our board of directors was elected by preferred shareholders in a separate voting process, prior to the Conversion of all our preferred shares into common shares after market close on November 20, 2020 (see “Item 10. Additional Information—B. Memorandum and Articles of Association— Description of Our Bylaws—History of Share Capital—Conversion of Our Preferred Shares into Common Shares”), and the others were elected by the holders of common shares.

Fiscal Board 

Brazilian Corporate Law and our bylaws each require that we maintain a statutory Fiscal Board (Conselho Fiscal). Our permanent, statutory Fiscal Board, which is a separate and distinct entity from our outside auditors, is primarily charged with certain advisory, reporting, oversight and review functions with respect to the company’s financial statements. Our statutory Fiscal Board is also responsible for rendering opinions on management’s annual report and management proposals, including financial statements, to be submitted at shareholders’ meetings relating to a change in the company’s capital composition, investment plans, budget, debenture issuances or subscription bonuses, payment of dividends and consolidations, mergers and spin-offs. However, the statutory Fiscal Board, as required by Brazilian Corporate Law and our bylaws, has only an advisory role and does not participate in the management of the company. Decisions of the statutory Fiscal Board are not binding on the company under Brazilian Corporate Law. 

In accordance with Brazilian Corporate Law and our bylaws, the Fiscal Board consists of a minimum of three (3) and a maximum of five (5) active members and an equal number of alternates. The members of the Fiscal Board are elected for a period of one (1) year and may be reelected. 

The following are the current members of the Fiscal Board:

Members	Alternates	Date Appointed
Gabriela Soares Pedercini (1)	Alexandre Pedercini Issa(1)	May 28, 2020
Cremênio Medola Netto	Juarez Rosa da Silva	May 28, 2020
Charles Edwards Allen	Stael Prata Silva Filho	May 28, 2020

_______________

(1) Mrs. Gabriela Soares Pedercini and Mr. Alexandre Pedercini Issa were elected by preferred shareholders on a separate vote, with no participation of the controlling shareholder, prior to the Conversion of all our preferred shares into common shares after market close on November 20, 2020 (see “Item 10. Additional Information—B. Memorandum and Articles of Association—Description of Our Bylaws—History of Share Capital—Conversion of Our Preferred Shares into Common Shares”).

Committees 

Brazilian Corporate Law does not require a corporation to maintain committees responsible for ethics, corporate governance or compensation. Nevertheless, our board of directors has created the following committees:

94 

· Control and Audit Committee;

· Nominations, Compensation and Corporate Governance Committee;

· Quality and Sustainability Committee; and

· Strategy Committee.

Control and Audit Committee 

Our Control and Audit Committee was created by our Board of Directors in December 2002 and is comprised of a minimum of three (3) and a maximum of five (5) directors, who are not members of our Board of Executive Officers, and who are appointed by the board of directors to serve as members of the Control and Audit Committee for the duration of their respective terms as members of the board of directors. The Committee has its own charter, which was approved by the board of directors. The Committee provides support to the board of directors. 

According to its charter, the Control and Audit Committee shall meet four (4) times per year and whenever called by its chair, and shall report its conclusions to the board of directors. Our Control and Audit Committee and our statutory Fiscal Board may have some similar attributes. 

The Control and Audit Committee, among other responsibilities that may be required by the board of directors, is responsible for, and charged with, informing and providing recommendations to the board of directors regarding the following:

· Submitting to the board of directors the appointment of the independent auditor as well as the replacement of such independent auditors; the Control and Audit Committee shall also: (a) recommend the compensation to be paid to the Company’s independent auditors; (b) issue opinion on the hiring of the independent auditor to render any other service to the Company; and (c) supervise the independent auditor’s activities in order to assess their independence, the quality and the adequacy of the services considering the Company’s necessities;

· Examining the Company’s management report and financial statements, including capital budgets, making the necessary recommendations to the board of directors;

· Examining the financial information prepared and disclosed regularly by the Company;

· Examining the report of the related parties’ transactions as established by our Related Party Transactions Policy (Política para Transações com Partes Relacionadas);

· Assessing the effectiveness and sufficiency of the Company’s internal controls as well as the internal and independent audit procedures, making recommendations deemed necessary to the improvement of policies, practices and procedures; the Control and Audit Committee shall also: (a) supervise the activities of the Company’s internal control departments; (b) supervise the Company’s activities related to internal audit and compliance, including complaints received by the Company’s Hotline related to the scope of its activities, opining on or due referring the complaints; and (c) assess the effectiveness and sufficiency of the risk and contingency control and management systems;

· Examining the management bodies’ proposals regarding modification of the share capital, issuance of debentures convertible into shares or subscription bonus, the transformation of our corporate form, merger or spin-off, making the recommendations it deems necessary to the Board of Directors;

· Assessing the compliance, by the Company’s Board of Executive Officers, of the recommendations made by the external and internal independent auditors, as well as inform the board of directors regarding possible conflicts between internal audit, external audit and/or the Company’s Board of Executive Officers; and

95 

· Preparing an annual opinion to be disclosed with the Company’s financial statements, in accordance with applicable law.

 The following are the current members of the Control and Audit Committee: 

Members	Date Appointed
José María Del Rey Osorio (Chairman)	April 12, 2019
Julio Esteban Linares Lopes	April 12, 2019
Juan Carlos Ros Brugueras	April 15, 2020

Nominations, Compensation and Corporate Governance Committee 

Our Nominations, Compensation and Corporate Governance Committee was established in November 1998, and was restructured in October 2004, and consists of three (3) to five (5) directors appointed by the board of directors to serve for the duration of their respective terms as members of the board of directors. The Committee shall meet two (2) times per year and whenever called by its chair. The Nominations, Compensation and Corporate Governance Committee, among other responsibilities that may be assigned by the board of directors, is charged with:

· Making recommendations on proposals to amend the Company’s bylaws;

· Examining proposals for the appointment of members of the other Committees, to be further submitted to the Board of Directors;

· Opining on proposals for the appointment and withdrawal of the members of the Board of Executive Officers, to be further submitted to the Board of Directors;

· Deciding on proposals for hiring, establishing compensation and promoting the Company’s vice-presidents and officers of levels A, B and C;

· Annually assessing the management’s overall compensation, including benefits of any kind and representation fees, taking into consideration their responsibilities, time spent on duties, professional capability and reputation, and the value of their services at the market;

· Deciding on the annual adjustment of the employees’ compensation at management level (annual program, premises and budget) and at non-management level (program, premises and budget), including collective bargaining agreement to be entered with the unions representing the employees of the Company in each category, as well as examining and approving the Company’s programs regarding the share of profits whenever any rule is changed therein; and

· Examining corporate governance matters submitted to it by the Board of Executive Officers, making recommendations to the Board of Directors whenever required.

The following individuals are the current members of the Nominations, Compensation and Corporate Governance Committee:

Members	Date Appointed
Francisco Javier de Paz Mancho (Chairman)	April 12, 2019
Luiz Fernando Furlan	April 12, 2019
Eduardo Navarro de Carvalho	April 12, 2019

Quality and Sustainability Committee 

The Quality and Sustainability Committee, formerly know as Service Quality and Marketing Committee, until April 15, 2020, was created on December 16, 2004 and provides assistance to our Board of Directors. The Committee consists of at least three (3), and at most five (5), members of our board of directors selected periodically to serve for the duration of their respective terms as members of the board of directors. The

96 

Committee shall meet two (2) times per year and whenever called by its chair. The Committee is responsible for the review and analysis of quality indices measuring our principal services and to ensure that the requisite degree of commercial assistance is furnished to our clients as well as to monitor the Company’s performance in matters related to the sustainability of our business. The Quality and Sustainability Committee, among other responsibilities that may be assigned by the board of directors, is charged with:

· Assessing and monitoring the adequacy of the Company’s customers service as well as suggesting improvements whenever any opportunity appears;

· Examining, analyzing and following-up periodically the Company’s Responsible Business Plan, as well as its sustainability indexes, recommending possible actions whenever any opportunity appears

· Examining, analyzing and following-up periodically as to the scores for the quality indexes of the main services rendered by the Company and the quality levels of the Company’s customer services, making recommendations on possible actions whenever any opportunity appears; and

· Examining, analyzing and following-up periodically on the Company’s quality plans and actions:

The following individuals are the current members of the Quality and Sustainability Committee:

Members	Date Appointed
Antonio Carlos Valente da Silva (Chairman)	April 12, 2019
Sonia Julia Sulzbeck Villalobos	April 12, 2019
Claudia Maria Constin	April 15, 2020

Strategy Committee 

The Strategy Committee was created on October 7, 2016 and provides assistance to our Board of Directors. The Strategy Committee consists of at least three (3), and at most five (5), members of our board of directors selected periodically to serve for the duration of their respective terms as members of the board of directors. The Committee shall meet two (2) times per year and whenever called by its chair. The Strategy Committee, among other responsibilities that may be required by the board of directors, is charged with informing and making recommendations to the board of directors regarding the following:

· Analyzing and accompanying the Company’s strategic plans; and

· Examining other matters of strategic interest of the Company, as submitted by the Board of Executive Officers.

The following individuals are the current members of the Strategy Committee: 

Members	Date Appointed
Julio Esteban Linares Lopez (Chairman)	April 12, 2019
Eduardo Navarro de Carvalho	April 12, 2019
Ana Theresa Masetti Borsari	April 15, 2020

D. Employees

As of December 31, 2020, we had 32,759 employees, distributed in full-time and part-time employees. Our part-time employees work primarily at our stores and call centers. Our employees are divided into the following categories: 38.5% in production and operations; 35.8% in sales; 18.2% in customer care; and 7.2% in support.

As of December 31, 2019, we had 32,793 employees, distributed in full-time and part-time employees. Our part-time employees work primarily at our stores and call centers. Our employees are divided into the following categories: 38.5% in production and operations; 36.6% in sales; 17.9% in customer care; and 7.0% in support

97 

As of December 31, 2018, we had 32,638 employees, distributed in full-time and part-time employees. Our part-time employees work primarily at our stores and call centers. Our employees are divided into the following categories: 35.9% in production and operations; 38.1% in sales; 19.1% in customer care; and 6.9% in support.

Approximately 13% of our employees are union members, represented by unions that relate to their respective state (or the Federal District). Accordingly, we have employees represented by the unions of all 26 states plus one in the Federal District. In turn, 12 of these unions are associated with the National Federation of Telecommunications Workers (Fenattel) and the other 8 unions are associated with the Interstate Federation of Workers and Researchers in Telecommunications (Fitratelp) and 7 unions were disbanded from the Fenattel and formed a new federation called A Livre. Finally, the union of the Federal District is not affiliated with any Federation.

Our management considers relations with our workforce to be very good. We have never experienced a work stoppage for a significant period or that had a material effect on our operations.

Pension Plans

We have offered defined benefit plans to our employees since before the privatization, which took place in 1998. Beginning in 2000, we decided to establish defined contributions plans. Those plans were administered exclusively by Fundação Sistel de Seguridade Social until 2005.

In 2005, we created a closed social security entity called Visão Prev Sociedade de Previdência Complementar to manage the pension plans of the Telefónica group in Brazil. From 2005 to 2010, management of all plans was transferred from Fundação Sistel to Visão Prev, except for PBS-A Plan, which continues to be managed by Fundação Sistel.

On September 1, 2013, we began offering the Visão Multi Pension Plan to our employees who do not have a pension plan. This plan was launched in order to standardize private pension benefits following the corporate restructuring of our subsidiaries in Brazil. This is the plan for new enrollments. In this plan, participants can make basic contributions of 1-2% and additional contributions of 0-5% of salary and we contribute a percentage between 50% to 125%, depending on the length of service.

Considering the total workforce, 32% of our employees are participants in our private retirement plans.

E. Share Ownership

None of our directors or executive officers beneficially owns, on an individual basis, 1% or more of our common shares (including ADSs representing common shares) or of our total equity share capital. We currently have three share ownership plans in place:

(1) Performance Share Plan (PSP) and Talent for Future Plan (TFSP)

The general shareholders’ meeting of Telefónica S.A. (our indirect controlling shareholder), held on June 8, 2018, approved new long-term incentive plans, Performance Share Plan (“PSP”) and Talent for Future Plan (“TFSP”), for executives of Telefónica S.A. and of other entities within the Telefónica group, including us.

The Plans consist of the possibility, for the executives of the Telefónica Group that are invited to participate in it, to receive a certain number of shares of Telefónica after a period of three years, through the prior assignment of a certain number of theoretical shares or units (the “Units”), which shall serve as a basis for determining the number of ordinary shares in the capital stock of Telefónica (the “Shares”) which may be delivered under the Plan as variable remuneration, depending on the achievement of the objectives established for each of the cycles in which the Plan is divided. The plans shall have a total duration of five (5) years, and it shall be divided into three (3) independent cycles (the “Cycles”), each with a measurement period of three (3) years, according to the following measurement calendar:

· First Cycle: from January 1, 2018 through December 31, 2020.

98 

· Second Cycle: from January 1, 2019 through December 31, 2021.

· Third Cycle: from January 1, 2020 through December 31, 2022.

At the end of each cycle, there is an evaluation to determine if the minimum performance conditions were met: Telefónica’s Total Shareholder Return (“TSR”) against a group of comparison and the Free Cash Flow (“FCF”) Goals.

The TSR is regarded as the metric for determining the generation of value for our shareholders in the medium and long term, for the purposes of the Plan, as the return on investment taking into account the cumulative change in the value of the Telefónica Share and dividends and other similar items received by the shareholder over the Cycle in question. The Weighting corresponding to this Objective shall be 50% percent of the total number of Shares to be delivered to the Participants under the PSP.

The FCF is established as the Plan’s metric to encourage commitment to the sustainable achievement of long-term strategic objectives. This objective shall be established and approved each year by our Board of Directors. Fifty (50) percent of the number of Shares to be delivered under the Plan shall be determined based on the FCF level generated by us in each year, comparing this with the value set in the budgets approved by our Board of Directors for each year. In this regard, the partial achievement of this objective shall be calculated annually, and the final achievement of the FCF shall be an average of the partial achievements calculated each year.

In order to receive Shares under the Plan, participants must maintain, for at least twelve (12) months of the cycle, an active relationship with us or any of our subsidiaries which, on the starting date of each cycle, maintain, on the delivery date, an active relationship with a participating company. In case of termination, only if it takes place once twelve (12) months have elapsed since the starting date and if it is in accordance with other PSP rules.

· PSP - Cycle 2018-2020: with 94 executives (including 2 executives appointed under the Bylaws) of Telefônica Brasil having the potential right to receive 740,345 shares of Telefônica S.A.

· PSP - Cycle 2019-2021: with 94 executives (including 3 executives appointed under the Bylaws) of Telefônica Brasil having the potential right to receive 995,237 shares of Telefônica S.A.

· PSP - Cycle 2020-2022: with 106 executives (including 3 executives appointed under the Bylaws) of Telefônica Brasil having the potential right to receive 601,444 shares of Telefônica S.A.

· TFSP - Cycle 2018-2020: with 122 executives of Telefônica Brasil having the potential right to receive 101,000 shares of Telefônica S.A.

· TFSP - Cycle 2019-2021: with 152 executives of Telefônica Brasil having the potential right to receive 128,000 shares of Telefônica S.A.

· TFSP - Cycle 2019-2021: with 170 executives of Telefônica Brasil having the potential right to receive 136,400 shares of Telefônica S.A.

(2) Global Employee Share Plan (“GESP”)

Telefónica’s Shareholders’ Meeting, held on July 8, 2018, approved an incentive for the acquisition of Telefónica’s shares by the Telefónica Group employees and its subsidiaries called Global Employee Share Plan, GESP. This program is not available to the members of the board of directors or Fiscal Board. GESP aims to instigate the shareholder’s culture and a sense of belonging among all employees.

The plan has a duration of two years. In the first year, the employee can invest R$108.00 to R$648.00 every month, deducted from the payroll, for 12 months. The shares are held until the end of the second year, when compensation stocks are to be delivered, i.e., for every two shares acquired by the employee (up to a limit of €840), he shall receive a free share in August 2021. The delivery relies on the beneficiary remaining in our employment and on the general conditions of the plan.

99 

Item 7. Major Shareholders and Related Party Transactions

A. Major Shareholders

In accordance with our bylaws, we have one class of capital stock authorized and outstanding: common shares (ações ordinárias), which have full voting rights.

On December 31, 2020, Telefónica S.A. owned 29.77% of our common shares, Telefónica Latinoamérica Holding, S.L. owned 24.09% of our common shares and SP Telecomunicações owned 19.67% of our common shares. Since Telefónica Latinoamérica Holding, S.L. is a wholly-owned subsidiary of Telefónica and owns 60.60% of the equity share capital of SP Telecomunicações, Telefónica has effective control over 73.58% of our outstanding common shares. Accordingly, Telefónica can control the election of our board of directors and to determine the direction of our strategic and corporate policies. None of Telefónica, Telefónica Latinoamérica Holding, S.L. or SP Telecomunicações has any special voting rights beyond those ordinarily accompanying the ownership of our common shares.

Telefónica S.A.’s shares are traded on various stock exchanges, including exchanges in Madrid, Barcelona, Bilbao, Valencia, London, New York, Lima and Buenos Aires.

Telefónica 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 following tables set forth information relating to the ownership of common shares by Telefónica, SP Telecomunicações, Telefónica Latinoamérica Holding, S.L., any other shareholders known to us to beneficially own more than 5% of our common shares and our officers and directors, based on 1,688,174,171 common shares outstanding as of December 31, 2020 (excluding treasury shares). 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		Percentage of outstanding common shares
SP Telecomunicações		332,695,590		19.67	%
Telefónica S.A.		503,329,803		29.77	%
Telefónica Latinoamérica Holding, S.L.		407,279,213		24.09	%
All directors and executive officers as a group		35,952		—

As of December 31, 2020, there were a total of 139 ADR holders of record and 148,936,960 ADSs outstanding, representing 148,936,960 common shares or 8.8% of outstanding common shares. Since some of these ADRs are held by nominees, the number of record holders may not be representative of the number of beneficial holders.

B. Related Party Transactions

Transactions with related parties are submitted to review by our related parties committee and, when necessary, approval by our board of directors and shareholders, in compliance with our bylaws. We believe that all related party transactions are carried out according to guidelines, criteria and market rules in order to provide sufficient transparency to contracts between related parties. 

Note 28 to our consolidated financial statements presents, in tabular format, more detailed financial information with respect to transactions and balances with related parties. We provide below a summary description of our material transactions with related parties to which we are a part or have been a party in the last fiscal year. 

100 

Telefónica S.A.

In 2020, there were transactions between companies regarding the Brand Fee contract, for the assignment of use of brand rights. The amounts involved totaled R$ 423 million in expenses. 

Telxius Cable Brasil Ltda (formerly Telefônica Internacional Wholesales Services Brasil Ltda.)

In 2020, there were transactions between companies related to IP transit services and international transmission infrastructure for various data circuits and connection services contracted. The amounts involved totaled R$ 314 million in expenses.

Telefónica International Wholesale Services, S.L.

In 2020, there were transactions between companies regarding Infrastructure services for international transmission for various data circuits and connection services contracted. The amounts involved totaled R$ 88 million in expenses.

Telxius Torres Brasil Ltda.

In 2020, there were transactions between companies related to sale of infrastructure assets owned by the Company, assignment of sharing contracts and subsequent assignment of rights to use infrastructures by the Company. The amounts involved totaled R$ 69 million in expenses.

Telefónica International Wholesale Services, S.L. Brasil

In 2020, there were transactions between companies related to international transmission infrastructure to various data circuits and connection services. The amounts involved totaled R$ 102 million in expenses.

Telefonica Global Technology

In 2020, there were transactions between companies regarding the right to use software licenses, maintenance and support services. The amounts involved totaled R$ 80 million in expenses.

Telefonica Digital

In 2020, there were transactions between companies referred to Cost Sharing Agreement services, expenses refund related to digital business. The amounts involved totaled R$ 142 million in expenses.

Telefônica Cibersegurança e Tecnologia do Brasil Ltda. (“CyberCo Brasil”)

On October 30, 2020, we signed a contract with CyberCo Brasil to govern the distribution model of cybersecurity services for the Company. The amounts payable by us in 2020 under this contract totaled R$15 million in expenses. Additionally, we recorded a gain of R$39 million in other capital reserves related to the acquisition and disposition of CyberCo Brasil to TTech, an indirect subsidiary of Telefónica S.A., which took place in 2020, which amount related to the difference between the consideration received in exchange for the equity interest sold and our cost basis from the acquisition of CyberCo Brasil.

Telefonica Corretora de Seguros

On June 18, 2020, we entered into an agreement with Telefônica Corretora de Seguros (TCS), which acts as an intermediary in transactions between the insurance company and the Company in the acquisition of insurance for cell phones. We do not have balances resulting from insurance intermediation with TCS, which is remunerated directly by the contracted insurance company.

C. Interests of Experts and Counsel

Not applicable.

101 

Item 8. Financial Information

A. Consolidated Statements and Other Financial Information

See Note 19 of our Consolidated Financial Statements.

Legal Proceedings

We are party to legal proceedings incidental to the normal course of our business. The main categories of such proceedings include:

· administrative and judicial litigation with Instituto Nacional da Seguridade Social, the National Institute of Social Security, or INSS;

· administrative and judicial proceedings relating to tax payments;

· lawsuits brought by employees, former employees and trade unions relating to non-compliance with the labor legislation;

· civil judicial proceedings regarding consumer rights; and

· other civil suits, including litigation arising out of the breakup of Telecomunicações Brasileiras S.A. –Telebrás, or Telebrás, and events preceding the breakup.

Our policy with respect to provisioning for contingencies classifies the various legal proceedings to which we are party as “probable,” “possible” and “remote.” We and our subsidiaries are parties to labor, tax, civil and regulatory claims and set up a provision for contingencies for which the likelihood of loss was estimated as probable. Our senior management classifies each legal proceeding into one of these three categories (probable, possible and remote) based upon the advice of internal and external counsel and specialized technical advisors in charge of each matter. Due to the level of provisioning and based on its analysis of the individual cases, our management believes that no additional liabilities related to any legal proceedings will have a material effect on our financial condition or results of operations, other than as described below.

There are no material proceedings in which any of our directors, any members of our senior management, or any of our affiliates is either a party adverse to us or to our subsidiaries or has a material interest adverse to us or to our subsidiaries.

Tax Matters — Probable Loss

Federal Taxes 

On December 31, 2020, the company was party to federal administrative and judicial proceedings relating to (i) claims resulting from the non-ratification of compensation and refund requests, formulated by the company; (ii) IRRF and CIDE (Contribution for Intervention in the Economic Domain) levied on the remittance of funds abroad relating to technical services, administrative assistance and to services of similar nature, as well as royalties (iii) IRRF on interest on shareholder’s equity; (iv) Social Investment Fund (Finsocial) offset amounts; (v) additional charges to the PIS and COFINS tax base, as well as additional charges to COFINS required by Law No. 9718/98 and (vi) ex-tariff, abrogation of the benefit from the CAMEX Resolution No. 6, increasing the import tariff from 4% to 28%;

In the opinion of management, the chances of loss in the foregoing federal administrative and judicial proceedings is probable. On December 31, 2020, total consolidated provisions for these federal administrative and judicial proceedings amounted to R$622.2 million.

102 

State Taxes

In December 2020, the company was party to administrative and judicial proceedings in progress referring to (i) ICMS credit not granted; (ii) ICMS not levied on telecommunication services; (iii) disallowance of ICMS credits referring to Covenant 39; (iv) ICMS tax rates; and (v) ICMS tax on internet (data) infrastructure lease payments (vi) sales of goods at prices below their costs of acquisition; and (vii) non-taxation of amounts granted to clients as discounts. On December 31, 2020, total consolidated provisions for these state-level administrative and judicial proceedings amounted to R$625.0 million.

Municipal Taxes

On December 31, 2020, the company was party to tax claims at a municipal level, both in the administrative and judicial sphere which, based on the opinion of our legal advisors, are classified as a probable loss, related to (i) real estate property tax (Imposto Predial Territorial e Urbano - IPTU); (ii) Service tax on leases of movable assets for supplementary or intermediate activities; and (iii) Service tax retention on fixed duration service contracts. On December 31, 2020, total consolidated provisions for these municipal level proceedings amounted to R$37.5 million.

FUST

On December 31, 2020, the company was party to federal judicial proceedings relating to the non-inclusion of interconnection and EILD expenses in the FUST. On December 31, 2020, total consolidated provisions for these federal administrative and judicial proceedings amounted to R$514.5 million.

Tax Matters — Possible Loss

The following tax proceedings were pending as of December 31, 2020, and, in the opinion of our management and our legal advisors, the chance of loss in these cases is “possible.”

Federal Taxes

On December 31, 2020, the company was party to various federal administrative and judicial proceedings, which are waiting to be tried at various court levels. On December 31, 2020, the total consolidated amount was R$3,258.0 million.

Key proceedings refer to: (i) Non-compliance manifestations due to the ratification of compensation requests made by the company; (ii) social security contribution (INSS) about: (a) on compensation payment for salary devaluation arising from losses caused by “Plano Verão” (Summer Plan) and “Plano Bresser” (Bresser Plan); (b) social security contribution (INSS), SAT (Work Accident Insurance), Social Security and payables to third parties (INCRA and SEBRAE); (c) 11% retention (labor assignment); (d) stock options, payment requirement for social security contributions on amounts paid by group companies to employees on behalf of the share purchasing plan; (e) Profit Share; (iii) deductions of COFINS from loss in swap transactions; (iv) PIS / COFINS on: (a) accrual basis versus cash basis; (b) on value added service ; and (c) monthly flat fee – “serviço de assinatura mensal”; (v) industrialization tax (IPI) on the dispatch from company premises of “Fixed access unit” equipment to clients on a lending agreement; (vi) financial operations tax (Imposto sobre Operações Financeiras - IOF), payment requirements for intercompany and credit operations and (vii) Capital Gain Tax (IRRF) realized from selling GVT Group to the Company.

In the opinion of management, the chance of loss in these proceedings is possible, consequently, we have not made any provisions in connection with these proceedings.

State Taxes

On December 31, 2020, the company was a party to various state administrative and judicial proceedings, which are ongoing at various court levels. On December 31, 2020, the total consolidated amount was R$17,447.0 million.

103 

Key proceedings refer to: (i) equipment rental; (ii) reversal of extemporaneous credits; (iii) service provided outside São Paulo state with ICMS paid to São Paulo State; (iv) co-billing, (v) tax substitution with a fictitious tax base (tax guideline); (vi) use of credits related to acquisition of electric power; (vii) secondary activities, value added and supplementary services; (viii) tax credits related to opposition/challenges referring to telecommunications services not provided or mistakenly charged (ICMS CONFAZ Covenant 39/01); (ix) deferred charge of ICMS - Interconnection (DETRAF – Traffic and Service Provision Document); (x) credits derived from tax benefits granted by other states; (xi) disallowance of tax incentives related to cultural projects; (xii) transfers of assets among business units owned by the company; (xiii) communications service tax credits used in provision of services of the same nature; (xiv) card donation for prepaid service activation; (xv) reversal of credit from return and free lease in connection with assignment of networks (used by the company itself and exemption from public bodies); (xvi) DETRAF (CDR), (xvii) ICMS on own consumption; (viii) ICMS on exemption of public bodies; (vix) unconditional discounts excluded from ICMS tax basis; (xx) fiscal book rewriting without tax authorities’ s prior authorization; (xxi) exclusion of ICMS on advertising services and unmeasured services ICMS; and (xxii) ICMS on monthly subscription, which is currently under review by the Federal Supreme Court (Superior Tribunal Federal or STF) with foreclosure proceedings and the Company awaits judgment.

In the opinion of our management, the chance of loss in the foregoing state administrative and judicial proceedings is possible, and, consequently, we have not made any provisions in connection with these proceedings.

Municipal Taxes

On December 31, 2020, the company was party to various administrative and judicial proceedings at the municipal level, which are ongoing at various court levels. On December 31, 2020, the total consolidated amount was R$754.8 million.

Key proceedings refer to: (i) ISS (Imposto Sobre Serviços) on: (a) secondary activities, value-added and supplementary services; (b) withholding ISS; (c) caller ID services and on cell phone activation; (d) service tax on continuous services contracts, provisions, reversals and canceled invoices; (e) data processing and antivirus programs; (f) tariff for Use of Mobile Network (TUM), infrastructure lease; (g) advertising services; and (h) services provided by third parties; (ii) real estate property tax (Imposto Predial Territorial e Urbano - IPTU); (iii) Land Use Fee; and (v) municipal fees;

In the opinion of our management, the chance of loss in the foregoing state administrative and judicial proceedings is possible and, consequently, we have not made any provisions in connection with these proceedings.

FUST, FUNTTEL and FISTEL

FUST – Universalization of Telecommunications Service

Writs of Mandamus filed separately by the fixed and mobile operators to recognize the right to include interconnection revenue in the FUST base for mobile services. We have questioned such charges and the proceedings are waiting to be tried in the court of appeals.

As a result, ANATEL registered various infractions to constitute tax credits and other revenues that were not obtained from the provision of telecommunication services, on which ANATEL believes FUST is due.

On December 31, 2020, the total aggregate amount under dispute was R$4,399.3 million.

In the opinion of our management and our legal advisors, the chance of loss in the foregoing proceedings is possible, and, consequently, we have not made any provisions in connection with these proceedings.

FUNTTEL – Fund for the Technological Development of Telecommunications

On December 31, 2020, the company was party to administrative and judicial proceedings, which are waiting to be tried at the lower administrative court and the court of appeals.

104 

Such proceedings concern the collection of contributions to FUNTTEL on other revenues (not related to telecom services), as well as on income and expenses transferred to other operators (interconnection).

On December 31, 2020, the total aggregate amount under dispute was R$764.6 million. In the opinion of our management and our legal advisors, the chance of loss in the foregoing proceeding is possible, but not probable and, consequently, we have not made any provisions in connection with this proceeding.

FISTEL – Telecommunications Supervision Fund

Due extension of the effective license period to use telephone switches in connection with the use of landline phone carriers and extension of the right to use radiofrequency in connection with wireless service (wireless carriers), ANATEL charges the Installation Inspection Fee, TFI.

This collection is based on ANATEL’s understanding that such extension would represent a taxable event for TFI. We understand that such collection is inappropriate, and separately challenged the aforesaid fee in court. On December 31, 2020, the total consolidated amount was R$2,744.6 million, without the respective deposit in full.

In the opinion of our management and our legal advisors, the chance of loss in the foregoing proceeding is possible and, consequently, we have not made any provisions in connection with this proceeding.

Resolution No. 4,373 of the CMN provides for the issuance of Depositary Receipts in foreign markets in respect of shares of Brazilian issuers. The Depositary Receipts program shall be approved by Central Bank and CVM before the issuance of the Depositary Receipts. Accordingly, the proceeds from the sale of the Depositary Receipts by holders outside Brazil are free of Brazilian foreign investment controls, and holders of the Depositary Receipts may be entitled to favorable tax treatment. See “—E. Taxation—Brazilian Tax Considerations.”

Under Resolution No. 4,373 of the CMN, foreign investors registered with the CVM may buy and sell Brazilian securities, including the common shares, on Brazilian stock exchanges without obtaining separate certificates of registration for each transaction. The registered foreign investors may also be entitled to favorable tax treatment. See “—E. Taxation—Brazilian Tax Considerations.”

Pursuant to Resolution No. 4,373, an investor residing outside Brazil that is willing to invest pursuant to the mechanism described in the previous paragraph must: (i) appoint at least one financial institution or an institution authorized to operate by the Brazilian Central Bank as representative in Brazil that will be responsible for complying with the registration and reporting requirements and reporting procedures of the Brazilian Central Bank and the CVM; (ii) register as a foreign investor with the CVM; (iii) appoint one or more custodians authorized by CVM; (iv) register the foreign investment with the Brazilian Central Bank; (v) appoint a tax representative in Brazil; and (vi) obtain a taxpayer identification number from the Brazilian federal tax authorities

The securities and other financial assets held by a foreign investor pursuant to Resolution No. 4,373 must be registered or maintained in deposit accounts or under the custody of an entity duly licensed by the Central Bank or by the CVM. In addition, the trading of securities is in general restricted to transactions carried out on the Brazilian stock exchanges or over-the-counter markets licensed by the CVM.

Instruction CVM 560 of March 27, 2015, as amended, introduced in the Brazilian securities regulation the obligation of the representatives of investors residing outside Brazil to inform CVM of the movements and application of funds of the investors participating in collective accounts and holders of own accounts represented by them.

Labor Litigation 

We are also a sued in several lawsuits filed by former employees and outsourced employees (subsidiary or solidary responsibility), who claim, among other things, deficient overtime payment, unequal compensation, retirement wage supplements, health and security hazard compensation, salary complements for retirees and outsourcing. Due to new lawsuits filed in the period as well as risk reassessment resulting from lawsuits progress in the same period, a variation of R$983.1 was identified in contingencies classified with a possible risk of loss.

105 

We are also party to claims filed by former retired employees, related to the Plan for Medical Assistance to Retirees (“PAMA”), which seeks among other things to reverse changes in the medical plans. There are currently four lawsuits underway with this object. All of them are in an advanced stage, pending judgment by the superior courts, two of which remain in the labor court and the other two have been referred to the civil court, those with favorable decisions. . In the opinion of our management and our legal advisors, as well as in the common jurisprudence, the chance of loss in the foregoing proceedings is considered possible. No value has been attributed to these claims due to the object of discussion (changes in the retiree medical plans), which is why we are currently unable to estimate the value of losses in the event of an adverse judgment. As a result, we have not recorded any provisions relating to such claims. 

Additionally, the Company is a party to public civil actions promoted by the Public Prosecutor’s Office. In August 2018, the majority of Ministers of the Federal Supreme Court decided on the legality of unrestricted outsourcing, observing subsidiary responsibility of the hiring company. As a result of this decision, the majority of public civil actions have already been decided and finalized recognizing the legality of outsourcing. However, the Company awaits the publication of said decision and possible appeal named “Embargos de Declaração” to clarify the scope of such decision, including in case of res judicata and any impact on residual lawsuits that discusses the topic. Due to these considerations, it is not possible to estimate losses for the Company.

Civil Claims

There are several civil claims filed against the Company. We have recorded approximately R$870.1 million in provisions for these proceedings where the risk of loss is deemed probable, including the civil proceedings described below:

· Expansion Plan–PEX. We are defendants in proceedings related to the possible right of individuals who purchased our shares in connection with our network expansion plan after 1996, to receive additional shares from us. These claims are in course through the various levels of the court system and the success rate in each proceeding is classified on a case-by-case basis according to the facts presented in each proceeding. For the proceedings in which the success rate of the plaintiffs is classified as “probable,” we’ve recorded a provision of R$291.0 million (R$297.6 million on December 31, 2019).

· The Company and/or its subsidiaries are defendants in various civil proceedings related to consumers' claims both in administrative and judicial courts, especially about poor performance. On December 31, 2020, provisioned amounts totalized R$240.8 million (R$211.9 million on December 31, 2019).

· The Company and/or its subsidiaries are parties to various civil proceedings of non-consumer nature in administrative and judicial courts, all related to the ordinary course of business. On December 31, 2020, provisioned amounts totaled R$338.3 million (R$287.9 million on December 31, 2019).

There are other several civil claims against the Company for which the chance of loss is deemed possible and for which we have not recorded provisions, including:

· Pension Benefit Plan Spin-Off. National Federation of Associations of Retirees and Pensioners and Participants in Pension Funds in Telecom (FENAPAS) filed a class action against the Company, seeking the annulment of the spin-off of the PBS pension benefit plan, that occurred in 2000, and created the specific TELESP–PBS pension benefit plan, and the corresponding allocation of resources resulted from the technical surplus and fiscal contingencies existing at that time. The success rate of the Company is deemed possible based on the opinion of our legal advisors. The amount involved cannot yet be determined until an expert appraisal report is conducted since it includes the spin-off portion of Sistel related to the telecommunication operators from the former “Telebrás System”. The lower court ruled against the Company. Subsequently, the lack of jurisdiction of the State Court was acknowledged and the case was referred to the Federal Courts for re-trial.

106 

· A class action filed by SISTEL Participants’ Association (ASTEL) in the state of São Paulo, in which SISTEL associates question the changes made in the HealthCare Plan for Retired Employees (PAMA) of the Association and seek the re-establishment of the status quo. This proceeding is in the appeal phase under review by the superior court. The amount cannot be estimated in that it entails a return to the prior conditions.

· The Company is a party in other civil claims related to service rendering. Such claims have been filed by individual consumers, civil associations representing consumer rights or Bureau of Consumer Protection (PROCON), as well as Federal and State Public Prosecutor’s Office. The Company is also party to other claims of several types related to the normal course of business.

Ownership of Caller ID 

Lune Projetos Especiais Telecomunicação Comércio e Ind. Ltda., a Brazilian company, filed on November 20, 2001 lawsuits against 23 wireless telecommunications operators, including TELESP Celular Participações and its subsidiaries. The lawsuits allege that those operators violated patent No. 9202624-9, related to Equipamento Controlador de Chamadas Entrantes e do Terminal do Usuário, or Caller ID, granted to Lune by the Brazilian Institute of Intellectual Property, or the INPI, on September 30, 1997. An unfavorable decision was handed down determining that the Company should refrain from selling mobile phones with Caller ID service, subject to a daily fine of R$10,000 in case of noncompliance. Furthermore, according to that decision, the Company must pay indemnification for royalties, to be calculated at settlement. Motions for Clarification were opposed by all parties and Lune’s motions for clarification were accepted since an injunctive relief in this stage of the proceedings was deemed applicable. A bill of review appeal was filed in view of the current decision which granted a stay of execution suspending that unfavorable decision until the final judgment of the appeal. A bill of review was filed in view of the sentence handed down on June 30, 2016, by the 4th Chamber of the Court of Justice of the Federal District, in order to annul the lower court sentence and remit the proceedings back to the lower court for a new examination. The outside counsel’s opinion that the chance of an unfavorable outcome is possible. We are unable to determine at this time the extent of any potential liabilities with respect to this claim.

Expiration of Prepaid Plan Minutes 

We and our subsidiaries, together with other Brazilian wireless telecommunications operators, are defendants in various lawsuits brought by the public prosecutor’s office and consumer protection associations challenging the imposition of a deadline for the use of purchased prepaid minutes. The plaintiffs allege that purchased prepaid minutes should not expire after any specified deadline. Conflicting decisions have been issued by the courts about this matter. Although we believe that our criteria for imposing the deadline are in compliance with ANATEL’s rules, we believe, based on the opinion of outside counsel, that the likelihood of an unfavorable outcome with respect to this claim is possible.

Regulatory and Antitrust Litigation 

We are involved in several administrative and judicial proceedings relating to alleged breaches of obligations by ANATEL, mainly, and CADE. As of December 31, 2020 amounts for those proceedings were R$5.6 billion classified as a possible risk of loss, for which provisions of R$1.2 billion were recorded. 

Our material administrative and judicial proceedings include the following: 

(i) Administrative and legal proceedings discussing how ANATEL should calculate the payment due every two years relating to the extension of the concession agreements of STFC and of the right of use of SMP-related radiofrequencies. In ANATEL’s view, the 2% charge should be calculated on all Telefonica’s STFC/SMP revenue. In our view, however, the revenues that are not part of the STFC/SMP service plans, as defined by regulation at the time of signing the authorization terms/concession agreements, should not be taken into account when calculating the fee. As a result of this disagreement, we filed administrative and legal

107 

proceedings challenging ANATEL’s charges. (ii) A lawsuit filed by Telefónica seeking to invalidate ANATEL’s decision from March 2018 in an administrative proceeding for non-compliance with obligations (“Processo Administrativo para Apuração de Descumprimento de Obrigações” or PADO) in order to verify alleged infractions committed by Telefónica Brasil to the Landline Telephony Regulation, in particular those related to the communication deadlines for suspension of the service to users with breaches of payments, the terms of connection of the service after the communication of the payment and the disagreement with the terms of refund of amounts claimed by the users of the service.

The fine imposed by ANATEL and appealed by us is about 211 million reais which, along with the updates of the value of the currency and the accrued interest, currently amounts (December 2020) to about 516 million reais. Telefônica Brasil considers that the sanction imposed is illegal and undue, under the following defense arguments: (i) the universe of users considered by ANATEL to fix the fine is excessive, given that the number of affected users is materially lower and (ii) the calculation of the fine is disproportionate and without grounds. The fine has not been paid, although it is guaranteed through a guarantee insurance submitted to the court and the Company is currently waiting for the sentence. 

Dividends and Dividend Distribution Policy

Priority and Amount of Dividends 

The Brazilian Corporate Law determines that the shareholders of a company have the right to receive a minimum percentage of the distributable profits (mandatory dividends) comprising dividends and/or interest on shareholders’ equity, or distributable amount, of the corporation for each fiscal year. If such amount is not determined in the bylaws of the company, Brazilian Corporate Law specifies the criteria to determine the minimum amount of the dividend. See “Item 10. Additional Information—B. Memorandum and Articles of Association.”

According to our bylaws, we are required to distribute as mandatory 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 per our bylaws, our Board of Directors may declare interim dividends based on (i) the accrued profits recorded in our semiannual financial statements; (ii) the accrued profits recorded in our quarterly financial statements or in our financial statements of shorter periods, provided that the total amounts of dividends paid up every six months does not exceed the total amount within the capital reserve determined per article 182 of Brazilian Corporate Law; and (iii) the amount recorded on the profit account or profit reserve account on our last annual or semiannual financial statements.

Under the Brazilian Corporate Law, a company is allowed to withhold payment of the mandatory dividend in respect of common shares (and also ADSs) if:

· management and the fiscal board report at the shareholders meeting that the distribution would be incompatible with the financial circumstances of the company; and

· the shareholders ratify this decision at the shareholder’s meeting.

If that is the case:

· management must forward to the CVM, within five days of the shareholders meeting, an explanation justifying the decision at the shareholders meeting; and

· the profits that were not distributed are to be recorded as a special reserve and, if not absorbed by losses in subsequent fiscal years, are to be paid as dividends as soon as the company’s financial situation allows.

For the purposes of the Brazilian Corporate Law, net profits are defined as net income after income tax and social contribution for the fiscal year, net of any accumulated losses from prior fiscal years and any amounts allocated to beneficiary parties’, employees’ and management’s participation in a company’s profits and subscription bonuses.

108 

Under Brazilian Corporate Law, adjusted net income is an amount equal to our net income adjusted to reflect allocations to or from (i) legal reserves, and (ii) contingency reserves for anticipated losses, if any.

At each annual shareholders meeting, the board of directors is required to suggest the allocation of net profits obtained during the preceding fiscal year. Under Brazilian Corporate Law, we are required to maintain a legal reserve, to which 5% of our net profits must be allocated for each fiscal year, until the reserve amounts to 20% of our paid-in capital. Net losses, if any, shall be deducted from accumulated profits, profit reserves and legal reserve, in this order. 

Brazilian Corporate Law also provides for an additional allocation of net profits to special accounts, also to be recommended by management and subject to approval by shareholders at the annual shareholders meeting, including the amount of net profits that may be allocated to the contingency reserve for anticipated losses that are deemed probable in future years. Any amount so allocated in a previous year must be either:

· reversed in the fiscal year in which the loss was anticipated, if the loss does not in fact occur; or

· written-off if the anticipated loss occurs.

Net profits may also be allocated to the unrealized income reserve in case the total amount of mandatory dividends exceeds the amount of realized net income. Such allocation should also be suggested by management and subject to approval by shareholders at the shareholders' meeting. For such purpose, realized income is the balance of net profits exceeding the sum of:

· the positive net result of equity adjustment; and

· earnings, revenues or net profits from transactions or the accounting of assets and liabilities at market value, whose financial realization term occurs after the end of the next fiscal year.

The amounts available for distribution are determined on the basis of financial statements prepared in accordance with the accounting practices adopted in Brazil.

Payment of Dividends 

We are required by law and our bylaws to hold an annual shareholders meeting until April 30 of each year to approve, among other issues, the allocation of net profits earned during the preceding fiscal year and the declaration of dividends by a decision of common shareholders, acting on the recommendation of the executive officers, as approved by the board of directors. The payment of annual dividends is based on the financial statements prepared for each fiscal year ending on December 31. Under the Brazilian Corporate Law, dividends are required to be paid within 60 days following the date the dividend is declared to the shareholders of record on the declaration date, unless a resolution by the shareholders sets forth another date of payment, which must occur before the end of the fiscal year. 

A shareholder has a three-year period from the dividend payment date to claim dividends in respect of its shares, after which any unclaimed dividend distributions legally revert to the Company. Because our shares are issued in book-entry form, dividends with respect to any share are credited to the account holding the share and no action is required on part of the shareholder. We are not required to adjust the amount of paid-in capital for inflation. 

If a shareholder is not a resident of Brazil, he or she must register with the Central Bank to be eligible to receive dividends, sales proceeds or other amounts with respect to his or her shares outside of Brazil. Our common shares underlying ADSs are held in Brazil by a Brazilian custodian, Citibank DTVM S.A., as the agent for the depositary Citibank N.A., which is the registered owner of our shares. 

Payments of cash dividends and distributions, if any, will be made in Brazilian currency to the custodian on behalf of the depositary, which will then convert those proceeds into U.S. dollars and will provide for U.S.

109 

dollars to be delivered to the depositary for distribution to holders of ADSs. If the custodian is unable to immediately convert the Brazilian currency received as dividends into U.S. dollars, the amount of U.S. dollars payable to holders of ADSs may be adversely affected by devaluations of the Brazilian currency that occur before dividends are converted and remitted. Dividends in respect of the common shares paid to resident and nonresident shareholders, including holders of ADSs are not currently subject to Brazilian withholding tax.

Additional Payments on Shareholders’ Equity 

Law No. 9,249, dated December 26, 1995, as amended, provides for distribution to shareholders of interest on shareholders’ equity, which may be computed against the amount of dividends to be distributed to the shareholders. A company may treat these payments as financial expenses for income tax and social contribution purposes. Currently, this interest is limited to the daily pro rata variation of the TJLP, a nominal long-term interest rate determined by the federal government that includes an inflation factor and cannot exceed the greater of:

· 50% of net income (before deducting income taxes and the interest on shareholders’ equity) for the period in respect of which the payment is made, or

· 50% of the sum of retained earnings and profit reserves.

Currently, any payment of interest in respect to common shares to shareholders (including the holders of ADSs) is subject to Brazilian withholding tax at a rate of 15%, or 25% in the case of a shareholder domiciled in a tax haven, and these payments may be included, at their net value, as part of any mandatory dividend. If payment of interest on shareholders’ equity is made for a beneficiary located outside of Brazil, the IOF tax triggers at a rate of zero. See “Item 10. Additional Information—E. Taxation—Brazilian Tax Considerations—Distributions of Interest on Capital.” 

We declare and pay dividends and/or interest on shareholders’ equity as required by Brazilian Corporate Law and our bylaws. The declaration of annual dividends, including dividends in excess of the mandatory distribution, requires approval by the vote of a majority of the holders of common shares, and depends on many factors. These factors include our results of operations, financial condition, cash requirements, future prospects and other factors deemed relevant by shareholders. Our shareholders have historically acted on these matters based on recommendations by the board of directors.

The following table sets forth the dividends or interest on shareholders’ equity paid to holders of our common and preferred shares since 2016 in reais.

Year	Description (Dividends or Interest on Shareholders’ Equity)(1)	Common Shares	Preferred Shares(2)
	(per share/in R$)
2020	Div/Int	2.996385	3.296024
2019	Div/Int	3.518874	3.870762
2018	Div/Int	2.358070	2.593877
2017	Div/Int	2.088332	2.297165
2016	Div/Int	1.742031	1.916234

_______________

(1) Interest on shareholders’ equity is net of withholding taxes.

(2) All our outstanding preferred shares were converted into common shares after the market closed on November 20, 2020. See “Item 10. Additional Information—B. Memorandum and Articles of Association—Description of Our Bylaws—History of Share Capital—Conversion of Our Preferred Shares into Common Shares.”

110 

Dividends and Interest on Shareholders’ Equity

On February 19, 2016, the board of directors approved, subject to shareholder approval, a payment of interest on shareholders’ equity for the common and preferred shares totaling R$200 million, which the Company paid on August 22, 2017.

On March 18, 2016, the board of directors approved, subject to shareholder approval, a payment of interest on shareholders’ equity for the common and preferred shares totaling R$337 million, which the Company paid on August 22, 2017.

On April 18, 2016, the board of directors approved, subject to shareholder approval, a payment of interest on shareholders’ equity for the common and preferred shares totaling R$220 million, which the Company paid on August 22, 2017.

On April 28, 2016, at the General Shareholders Meeting, the shareholders approved the distribution of dividends to the common and preferred shares in the total amount of R$1,287 million based on the closing balance sheet on December 31, 2015, which the Company paid on December 13, 2016.

On June 17, 2016, the board of directors approved, subject to shareholder approval, a payment of interest on shareholders’ equity for the common and preferred shares totaling R$161 million, which the Company paid on August 22, 2017.

On September 19, 2016, the board of directors approved, subject to shareholder approval, a payment of interest on shareholders’ equity for the common and preferred shares totaling R$650 million, which the Company paid on August 22, 2017.

On December 19, 2016, the board of directors approved, subject to shareholder approval, a payment of interest on shareholders’ equity for the common and preferred shares totaling R$604 million, which the Company paid on December 13, 2017.

On February 13, 2017, the board of directors approved, subject to shareholder approval, a payment of interest on shareholders’ equity for the common and preferred shares totaling R$180 million, which the Company paid on August 21, 2018.

On March 20, 2017, the board of directors approved, subject to shareholder approval, a payment of interest on shareholders’ equity for the common and preferred shares totaling R$350 million, which the Company paid on August 21, 2018.

On April 26, 2017, at the General Shareholders Meeting, the shareholders approved the distribution of dividends to the common and preferred shares in the total amount of R$1,914 million based on the closing balance sheet on December 31, 2016, which the Company paid on December 13, 2017.

On June 19, 2017, the board of directors approved, subject to shareholder approval, a payment of interest on shareholders’ equity for the common and preferred shares totaling R$95 million, which the Company paid on August 21, 2018.

On September 18, 2017, the board of directors approved, subject to shareholder approval, a payment of interest on shareholders’ equity for the common and preferred shares totaling R$305 million, which the Company paid on August 21, 2018.

On December 14, 2017, the board of directors approved, subject to shareholder approval, a payment of interest on shareholders’ equity for the common and preferred shares totaling R$1,487 million, which the Company paid on August 21, 2018.

On April 12, 2018, at the General Shareholders Meeting, the shareholders approved the distribution of dividends to the common and preferred shares in the total amount of R$2,192 million based on the closing balance sheet on December 31, 2017, which the Company paid on December 11, 2018.

111 

On June 18, 2018, the board of directors approved, subject to shareholder approval, a payment of interest on shareholders’ equity for the common and preferred shares totaling R$400 million, which the Company paid on August 20, 2019.

On September 05, 2018, the board of directors approved, subject to shareholder approval, a payment of interest on shareholders’ equity for the common and preferred shares totaling R$2,800 million, which the Company paid on August 20, 2019.

On December 4, 2018, the board of directors approved, subject to shareholder approval, a payment of interest on shareholders’ equity for the common and preferred shares totaling R$1,350 million, which the Company paid on December 17, 2019.

On February 15, 2019, the board of directors approved, subject to shareholder approval, a payment of interest on shareholders’ equity for the common and preferred shares totaling R$700 million, which the Company paid on August 18, 2020.

On April 11, 2019, at the General Shareholders Meeting, the shareholders approved the distribution of dividends to the common and preferred shares in the total amount of R$ 2,469 million based on the closing balance sheet on December 31, 2018, which the Company paid on December 17, 2019.

On April 17, 2019, the board of directors approved, subject to shareholder approval, a payment of interest on shareholders’ equity for the common and preferred shares totaling R$570 million, which the Company paid on August 18, 2020.

On June 17, 2019, the board of directors approved, subject to shareholder approval, a payment of interest on shareholders’ equity for the common and preferred shares totaling R$968 million, which the Company paid on August 18, 2020.

On December 19, 2019, the board of directors approved, subject to shareholder approval, a payment of interest on shareholders’ equity for the common and preferred shares totaling R$350 million. Also, the distribution of dividends to the common and preferred shares in the total amount of R$1,000 million was approved, which the Company paid on August 18, 2020.

On February 14, 2020, the board of directors approved, subject to shareholder approval, a payment of interest on shareholders’ equity for the common and preferred shares totaling R$270 million. The payment will be made to common and preferred shareholders who were registered in the Company’s books on February 28, 2020, and will be paid on July 13, 2021.

On March 19, 2020, the board of directors approved, subject to shareholder approval, a payment of interest on shareholders’ equity for the common and preferred shares totaling R$150 million. The payment will be made to common and preferred shareholders who were registered in the Company’s books on March 31, 2020, and will be paid on July 13, 2021.

On May 28, 2020, at the General Shareholders Meeting, the shareholders approved the distribution of dividends to the common and preferred shares in the total amount of R$2,196 million based on the closing balance sheet on December 31, 2019, which the Company paid on December 9, 2020.

On June 17, 2020, the board of directors approved, subject to shareholder approval, a payment of interest on shareholders’ equity for the common and preferred shares totaling R$900 million. The payment will be made to common and preferred shareholders who were registered in the Company’s books on June 30, 2020, and will be paid on July 13, 2021.

On September 17, 2020, the board of directors approved, subject to shareholder approval, a payment of interest on shareholders’ equity for the common and preferred shares totaling R$650 million. The payment will be made to common and preferred shareholders who were registered in the Company’s books on September 28, 2020, and will be paid on July 13, 2021.

112 

On November 16, 2020, the board of directors approved, subject to shareholder approval, a payment of interest on shareholders’ equity for the common shares totaling R$400 million. The payment will be made to shareholders who were registered in the Company’s books on November 27, 2020, and will be paid on July 13, 2021. The conversion of all the preferred shares issued by the Company into shares (“Conversion”), approved at the Extraordinary General Meeting and ratified on Special General Meeting of Holders of Preferred Shares, held on October 1, 2020, had immediate effects. For this reason, all shares issued by the Company as from such date began to be treated equally, regardless of the ticker under which they were traded until the conversion was formalized, which took place on November 23, 2020, as disclosed to the market under the Material Fact and Notice to Shareholders issued on October 1, 2020 and October 11, 2020, respectively.

On December 11, 2020, the board of directors approved, subject to shareholder approval, a payment of interest on shareholders’ equity for the common shares totaling R$260 million. Also, the distribution of dividends to the common and preferred shares in the total amount of R$1,200 million was approved. Both payments will be made to common shareholders who were registered in the Company’s books on December 28, 2020. The payment of interest on shareholder’s equity will be made on July 13, 2021 and dividends on October 5, 2021.

Dividends and interest on shareholders equity declared based on Telefônica Brasil’s 2020 net profit totaled R$3,830 million. The remaining R$1,588 million were classified as proposed additional dividends and will be submitted to the approval of the 2021 General Shareholders Meeting of the Company and, if approved, will be paid on October 5, 2021.

B. Significant Changes

None.

Item 9. The Offer and Listing 

A. Offer and Listing Details

The trading market for our common shares is the B3.

Our ordinary shares began trading on the B3 on September 22, 1998 and are traded on the B3 under the symbol “VIVT3” (formerly TLPP3).” As of December 31, 2020, we had approximately 1,691.0 million common shares held by approximately 2.3 million shareholders.

In the United States, the common shares trade in the form of ADRs, each representing one ordinary share, issued by Citibank N.A., as depositary, pursuant to a Deposit Agreement, among us, the depositary and the registered holders and beneficial owners from time to time of ADRs. The ADRs representing preferred shares commenced trading on the NYSE on November 16, 1998 and upon the Conversion of all our preferred shares into common shares effective as of market close on November 20, 2020, trading in ADRs representing preferred shares was suspended as of November 23, 3030, and trading in ADRs representing common shares recommenced on the same date, and are traded on NYSE under the symbol “VIV” (formerly TSP).

B. Plan of Distribution

Not applicable.

C. Markets

Regulation of Brazilian Securities Markets

The Brazilian securities market is regulated and supervised by the CMN (which has general authority over the stock exchanges and securities markets), as provided for by the Brazilian Securities Exchange Act and Brazilian Corporate Law. The CMN is responsible for supervising the CVM’s activities, granting licenses to brokerage firms to govern their incorporation and operation, and regulating foreign investment and exchange transactions, as provided for by the Brazilian Securities Exchange Act and Law No. 4,595 of

113 

December 31, 1964, as amended. These laws and regulations provide for, among other things, disclosure requirements to issuers of securities listed on stock exchanges, criminal sanctions for insider trading and price manipulation, protection of minority shareholders, the procedures for licensing and supervising brokerage firms and the governance of Brazilian stock exchanges.

Under Brazilian Corporate Law, a company is either publicly held and listed, a companhia aberta, or privately held and unlisted, a companhia fechada. All listed companies are registered with the CVM and are subject to reporting requirements to periodically disclose information and material facts. A company registered with the CVM is authorized to trade its securities either on the Brazilian exchange markets, including the B3, or in the Brazilian over-the-counter market. Shares of companies listed on B3 may not simultaneously trade on the Brazilian over-the-counter markets. The over-the-counter market consists of direct trades between persons in which a financial institution registered with the CVM serves as an intermediary. No special application, other than registration with the CVM (and, in case of organized over-the-counter markets, with the relevant over-the-counter market), is necessary for securities of a publicly held company to be traded in this market. To be listed on the B3, a company must apply for registration with the B3 and the CVM.

Trading in securities on the B3 may be suspended under a request from a company in anticipation of a material announcement. Trading in the securities of a particular company may also be suspended under the initiative of B3 or the CVM, among other reasons, due to the belief that the company has provided inadequate information regarding a material event or has provided inadequate responses to inquiries by the CVM or the B3.

Trading on the B3

B3 is a Brazilian publicly held company established in March 2017 when the securities, commodities and futures exchanges activities of BM&FBOVESPA were combined with the activities of CETIP, a provider of financial services for the organized OTC market. B3 is one of the world’s largest financial market infrastructure providers by market value. The services it offers range from exchange trading, clearing and other post-trade services to registration of over-the-counter (OTC) transactions and of vehicle and real estate loans.

Trading on the exchange is conducted by authorized members. Trading sessions take place every business day, from 10:00 a.m. to 5:00 p.m., during daylight savings time in the United States, or from 10:00 a.m. to 6:00 p.m., on an electronic trading system called PUMA. Trading is also conducted between 5:30 p.m. and 6:00 p.m., in the period when the trading sessions close at 5:00 p.m., in an after-market system connected to both traditional brokerage firms and brokerage firms operating on the Internet. This after-market trading is subject to regulatory limits on price volatility of securities traded by investors operating on the Internet.

To better control the excess of volatility in market conditions, B3 has adopted a “circuit breaker” system pursuant to which trading sessions may be suspended for a period of 30 minutes or one hour whenever the indices of these stock exchanges fall below the limits of 10% and 15%, respectively, compared to the index at the close of trading of the previous trading day. In the event the stock exchange index falls below the limit of 20% in comparison to the previous trading day, B3 may determine the suspension of trading sessions for a certain period to be defined at its sole discretion.

Although all the outstanding shares of an exchange-listed company may trade on a Brazilian stock exchange, in most cases, less than half of the listed shares are actually available for trading by the public, the remainder being held by small groups of controlling entities or persons that rarely trade their shares. For this reason, data showing the total market capitalization of Brazilian stock exchanges tends to overstate the liquidity of the Brazilian equity securities market.

Corporate Governance Practices 

We are a sociedade anônima, a corporation incorporated under the laws of Brazil, and are subject to the corporate governance provisions set forth within Brazilian Corporate Law. We comply with the regulatory requirements of the Brazilian Corporate Law regarding the independence of our board of directors, the establishment and composition of certain board committees and the adoption and disclosure of corporate governance guidelines.

114 

We comply with several requirements of Brazilian and international laws to promote strong corporate governance, reduce investor uncertainties and enhance disclosure of material and other information.

With the approval of our board of directors and/or Officers, we implemented several measures over the last few years designed to improve our transparency and disclosure practices. We believe these measures will benefit our shareholders, and current and future investors as well as the marketplace in general. Among the measures we have implemented, we have:

· created a policy for disclosure of material facts or corporate actions and trading of our securities (Política de Divulgação de Ato ou Fato Relevante e de Negociação de Valores Mobiliários);

· created a policy for internal controls related to the Communication, Recording and Control of Financial and Accounting Information (Normativa sobre Registro, Comunicação e Controle de Informação Financeiro-Contábil);

· established the Quality and Sustainability Committee;

· established the Control and Audit Committee;

· established the Nominations, Compensation and Corporate Governance Committee;

· established the Strategy Committee;

· enacted a procedure to receive and deal with reports of accounting and auditing fraud within the company (Canal de Denúncias);

· enacted a policy for prior approval of contracting audit services (Normativa sobre Aprovação Prévia de Serviços a serem Prestados pelo Auditor Externo);

· enacted a code of business conduct and ethics (Princípios de Negócio Responsável);

· enacted a code of conduct for members of our finance team regulating the conduct of our managers in connection with the registration and control of financial and accounting information and their access to privileged and nonpublic information and data (Normas de Conduta para Financeiros);

· enacted a policy regarding communication of information to the securities market (Normativa sobre Comunicação de Informação aos Mercados);

· enacted a policy regarding the prevention and fight against corruption (Diretrizes de Prevenção e Combate à Corrupção and Política Anticorrupção).

As determined by the Brazilian Corporate Law, the annual cap for the aggregate compensation of the statutory board of directors and Board of Executive Officers is approved by our shareholders at a shareholders meeting. The Nominations, Compensation and Corporate Governance Committee provides information and recommendations to the board of directors regarding the criterion for compensation. 

Our policy relating to insider trading is determined pursuant to our Política de Divulgação de Ato ou Fato Relevante e de Negociação de Valores Mobiliários in accordance with corporate law. This document establishes practices for disclosing, using and preserving the confidentiality of relevant acts and/or facts of the Company, and establishes obligations and mechanisms for the disclosure of said facts to the market. The Company, controlling Shareholders, Senior management, members of our Board of Directors, Fiscal Board and any other employee exposed to sensitive information are subject to the restrictions imposed by such rules. In addition to the prohibition on trading of our shares by such individuals when in possession of insider information, the rules establish blackout trading periods for those periods when insider information is available. In addition, the charter sets forth instructions for dealing with conflicts of interest and mandates disclosure of any such situation.

115 

Code of Business Conduct and Ethics

Although adoption of a code of ethics is not required by Brazilian Corporate Law, we implemented a code of business conduct and ethics called the “Princípios de Negócio Responsável” (“PNR”), or the Telefónica Business Principles, regulating the conduct of our employees in general (including senior financial officers and executive officers) to comply with the requirements of the Sarbanes-Oxley Act and NYSE rules. See “Item 16b. Code of Ethics.”

D. Selling Shareholders

Not applicable.

E. Dilution

Not applicable.

F. Expenses of the Issue

Not applicable.

Item 10. Additional Information 

A. Share Capital

Not applicable.

B. Memorandum and Articles of Association

The following information describes our common shares and provisions set forth by our bylaws and of the Brazilian Corporate Law. This description is only a summary. You should read and refer to our bylaws (estatuto social) incorporated by reference herein as Exhibit 1.1 hereto. 

Description of Our Bylaws

The following is a summary of the material provisions of our bylaws and of the Brazilian Corporate Law. In Brazil, a company’s bylaws (estatuto social) are the principal governing document of a corporation (sociedade por ações).

General

We are registered with the Board of Trade of São Paulo (Junta Comercial de São Paulo), or JUCESP, under No. 35.3.001588-14. We have been duly registered with the CVM under No. 17671 since August 19, 1998. Our headquarters are located in the city of São Paulo, state of São Paulo, Brazil. Our company has an undetermined period of existence.

At an extraordinary shareholders’ meeting held on October 1, 2020, our shareholders approved, effective as from such date, among other things: (1) the conversion of all of our preferred shares into common shares, at a ratio of one common share for each preferred share (the “Conversion”); and (2) amendments to our by-laws. At a special meeting of holders of our preferred shares, held on that same date, our preferred shareholders ratified the conversion of all of our preferred shares into common shares. After the conversion of the preferred shares into common shares, which formally occurred after the market closed on November 20, 2020, as approved by our shareholders on October 1, 2020, our subscribed and fully-paid share capital was R$63,571,415,865.09 divided into 1,690,984,923 common shares, all with no par value (including 2,291,147 treasury shares). As a result of the Conversion, as of December 31, 2020, we had an outstanding share capital of R$63,571,415,865.09, comprised of 1,688,174,171 common shares, net of 2,810,752 treasury shares. All of our outstanding share capital is fully paid.

116 

All of our shares are without par value. In addition, our board of directors may increase our share capital up to 1,850,000,000 common shares without amendment to our bylaws. Any increase of our share capital above that limit must be approved by a general extraordinary shareholders meeting.

As of December 31, 2020, 2,810,752 common shares were held by us (treasury shares) at a book value per share of R$41.20. As of December 31, 2019, 2,290,164 preferred shares and 983 common shares were held by us (treasury shares) at a book value per share of R$41.72. As of the date of this annual report, there are no persons to whom any capital of the Company or any of our subsidiaries is under option or agreed conditionally or unconditionally to be put under option.

History of Share Capital

Public Offering for the Primary Distribution of Common and Preferred Shares

At a meeting held on March 25, 2015, the board of directors approved unanimously the realization of a Public Offering for the Primary Distribution of Common and Preferred Shares issued by the Company, all registered shares, without par value, free and clear of any liens or encumbrances, including in the form of American Depositary Shares (“ADSs”), represented by American Depositary Receipts, held simultaneously in Brazil and abroad, through a capital increase of the Company.

The capital increase was approved by the board of directors’ meeting held on April 27, 2015, amounting to R$15.8 billion, increasing the Company’s share capital from R$37.8 billion to R$53.6 billion through the issuance of 121,711,240 common shares, at an issue price of R$38.47 per unit, and 236,803,588 preferred shares, at an issue price of R$47.00 per unit. Common shares, preferred shares and ADSs issued as a result of this capital increase confer to their holders, as of April 28, 2015, date of disclosure of the Global Offering announcement of commencement, the same rights assigned respectively to the holders of common shares, preferred shares and ADSs, currently outstanding, under the Company’s Bylaws and the Brazilian Law of Corporations, fully participating in dividends and other distributions declared from the date of publication of the Global Offering announcement of commencement.

The issue price of R$47.00 per preferred share was determined after the completion of the bookbuilding process, in accordance with Article 23, paragraph 1, and Article 44 of CVM Instruction 400, and in accordance with the provisions of Article 170, paragraph 1, item III, of Law 6,404 of December 15, 1976, as amended. The issue price of R$38.47 per common share was determined based on the price per preferred share determined after the completion of the bookbuilding process, applying a discount of 18.14%, which represents the average price discount trading of the common shares issued by the Company in relation to the trading price of the preferred shares issued by the Company in the three months prior to March 26, 2015.

Public Offering for the Primary Distribution of Shares

At a meeting held on April 30, 2015, the board of directors approved a second capital increase in connection with the Public Offering for the Primary Distribution of Shares, due to the exercise, by the Bank of America Merrill Lynch Banco Múltiplo S.A., of the option of over-allotment of shares that was granted by the Company through the Coordination, Placement and Firm Guarantee of Settlement of Common and Preferred Shares Issued by Telefônica Brasil S.A., in accordance with Article 24 of CVM Instruction 400, of December 29, 2003, as amended, to meet the excess demand verified during the Offering. The Company’s share capital was increased in the amount of R$295.3 million, through the issuance of 6,282,660 preferred shares at the issue price of R$ 47.00 per unit, increasing the share capital of the Company to R$53.9 billion, represented by 503,046,911 common shares and 985,019,821 preferred shares.

GVTPar Merger and Increase in the Company’s Share Capital

On May 28, 2015, the General Shareholders’ Meeting approved the merger of shares issued by GVT Participações (“GVTPar”) by the Company and its implementation, with the conversion of GVTPar in a

117 

wholly owned subsidiary of the Company and the consequent increase in the Company’s capital in the amount of R$9.7 billion through the issue of 68,597,306 common shares and 134,320,885 preferred shares, all without par value, increasing the share capital of the Company to R$63.6 billion, as it stands at the date of this report.

Conversion of Our Preferred Shares into Common Shares

As mentioned above, on October 1, 2020, the Extraordinary General Meeting of the Company approved and the Special General Meeting of the Company’s Preferred Shareholders ratified the Conversion of all the preferred shares issued by the Company into common shares, in the proportion of one (1) common share for each one (1) preferred share and its implementation by the Company’s officers as well as the relevant changes to the Company’s Bylaws to reflect the Conversion.

After the concession and the expiration of the term for shareholders to exercise withdrawal rights, we proceeded with the Conversion, and the last trading session for our preferred shares on the B3 and for our ADSs backed by preferred shares on the NYSE was on November 20, 2020. Therefore, as of November 23, 2020, “VIVT3” represents the only ticker symbol for trading of the Company’s common shares on the B3, and ADSs backed by our common shares began trading on the NYSE under the ticker symbol “VIV.”

The Conversion was undertaken as part of certain improvements to our Corporate Governance Practices, in order to maximize the generation of value to all our shareholders, conferring to them rights set forth under Brazilian Corporate Law, such as the right to vote and the right to tag along, among others.

Corporate Purposes 

Under Article 2 of our bylaws, our corporate purposes are:

· the operation of telecommunications services;

· the development of activities necessary or useful for the performance of these services, in accordance with the concessions, authorizations, and permissions granted to us;

· the operation of value-added services, including, making available without definitive assignment, audio, video, image, and text content, applications and the like;

· the operation of integrated solutions, management, and provision of services related to: (i) data centers, including hosting and colocation; (ii) storage, processing, and management of data, information, texts, images, videos, applications, and information systems and the like; (iii) information technology; (iv) information and communication security; (v) telecommunications; and (vi) electronic security systems related to theft, intrusion, fire, and others; and

· licensing and sub-licensing of software of any nature.

In the pursuit of its corporate purpose, the Company may incorporate assets and rights of third parties into its assets, as well as:

· participate in the capital of other companies, including in order to comply with the national telecommunications policy;

· create companies and/or subsidiaries for the execution of activities within its purpose and that are preferably decentralized;

· promote the importation of goods and services necessary for the execution of activities within its purpose;

· provide technical assistance services to companies in the telecommunications sector, carrying out activities of common interest;

118 

· manage and provide maintenance, assistance and technical support in information technology and equipment related to the Company’s activities;

· provide consulting services related to the Company’s activities;

· prepare, implement, and install projects related to the Company’s activities;

· manage and render engineering services and carry out civil construction and related works, necessary for the execution of projects related to the Company’s activities;

· provide monitoring services related to the Company’s activities;

· provide business intermediation services in general;

· market, sell and lease equipment and materials necessary or useful for the exploration of its activities, including precision, measurement and electronic sensor equipment;

· carry out studies and research activities, aiming at the development of the telecommunications sector;

· enter into contracts and agreements with other companies that explore telecommunications services or with any persons or entities, with the purpose of ensuring the operation of the services, without prejudice to its duties and powers; and

· carry out other similar or related activities assigned to it by the National Telecommunications Agency - ANATEL.

Board of Directors 

Under our bylaws, any matters subject to the approval of our Board of Directors can be approved only by the majority of votes of the present members of our Board of Directors with a majority of members currently in office. Under our bylaws, our board of directors may only deliberate if a majority of its members are present at a duly convened meeting and in the event of a tie, the Chairman of the board of directors shall be the tiebreaker. 

Election of Directors 

The members of our Board of Directors are elected at general meetings of shareholders for three-year terms. The tenure of the members of the Board of Directors and of the Board of Executive Officers will be conditioned on such members signing the respective instrument of investiture and complying with applicable legal requirements. 

Qualification of Executive Officers and Directors 

The Brazilian Corporate Law requires each of our executive officers to be residents of Brazil. Members of our Board of Directors are not required to be residents of Brazil; however, their tenure is conditioned on the appointment of a representative who resides in Brazil with powers to receive service of process in proceedings initiated against such member based on the corporate legislation, by means of a power-of-attorney valid for at least three years after the termination of the term of such director. 

Fiduciary Duties and Conflicts of Interest 

All members of our board of directors owe fiduciary duties to us and all of our shareholders. 

Under the Brazilian Corporate Law and the board of directors’ internal rules, if one of our directors has a conflict of interest with our company in connection with any proposed transaction, such director may not vote in any decision of our board of directors regarding such transaction and must disclose the nature and extent of his conflicting interest for inclusion in the minutes of the applicable meeting. The same rules on conflict of interest rules are applicable to executive officers. 

119 

Any transaction in which one of our directors or executive officers may have an interest can only be approved on reasonable and fair terms and conditions that are no more favorable than the terms and conditions prevailing in the market or offered by third parties. If any such transaction does not meet this requirement, then the Brazilian Corporate Law provides that the transaction may be held null and void and the interested director or executive officer must return to us any benefits or other advantages that he obtained from, or as result of, such transaction. Under the Brazilian Corporate Law and upon the request of a shareholder who owns at least 1% (as reduced by ICVM 627/2020) of our total share capital, our directors and executive officers must disclose to our shareholders at the Annual Shareholders’ Meeting certain transactions and circumstances that may give rise to a conflict of interest. In addition, our company (through the approval of the majority of our share capital) or shareholders who own 1% (as reduced by ICVM 627/2020) or more of our share capital may bring an action for civil liability against directors and executive officers for any losses caused to us as a result of a conflict of interest. 

Compensation 

Under our bylaws, our common shareholders approve the annual cap for aggregate compensation payable to our directors, executive officers and members of our Fiscal Board. Subject to this approval, our board of directors establishes the distribution of such compensation of its members and of our executive officers. 

As per Brazilian Corporate Law, the compensation payable to the members of the fiscal board shall not be less than 10% of the compensation of the company’s executive officers, not including other benefits listed in paragraph three of article 162 thereof. 

Mandatory Retirement 

Neither the Brazilian Corporate Law nor our bylaws establish a mandatory retirement age for our directors or executive officers.

Share Capital 

Each of our common shares entitles its holder to one vote at our annual and extraordinary shareholders’ meetings. Holders of our common shares are not entitled to any preference in respect of our dividends or other distributions or otherwise in case of our liquidation.

Shareholders’ Meetings 

Under the Brazilian Corporate Law, we must hold an annual shareholders’ meeting until April 30 of each year in order to: 

· approve or reject the financial statements approved by our board of directors, including any recommendation by our Board of Directors for the allocation of net profit and distribution of dividends; and

· elect members of our Board of Directors (upon expiration of their three-year terms) and members of our Fiscal Board, subject to the right of minority common shareholders to elect members of our board of directors and our fiscal board.

In addition to the annual shareholders’ meetings, holders of our common shares have the power to determine any matters related to changes in our corporate purposes and to pass any resolutions they deem necessary to protect and enhance our development whenever our interests so require, by means of extraordinary shareholders’ meetings. 

We convene our shareholders’ meetings, including our annual shareholders’ meeting, by publishing a notice in two Brazilian newspapers (the State official gazette and a major newspaper). On the first call of a shareholders’ meeting, the notice must be published no fewer than three times, beginning at least 15 calendar

120 

days prior to the scheduled meeting date. On the second call of a shareholders’ meeting, the notice must be published no fewer than three times, beginning at least 8 calendar days prior to the scheduled meeting date. In accordance with our bylaws, for meetings involving deliberations described under article 136 of the Brazilian Corporate Law, the notice must be published at least 30 calendar days prior to the scheduled meeting date and on the second call at least 10 calendar days prior to the scheduled meeting date. As recommended by the CVM, for annual shareholders’ meetings, we convene our shareholders’ meeting 30 calendar days prior to the scheduled meeting date. The notice must contain the meeting’s place, date, time, agenda and, in the case of a proposed amendment to our bylaws, a description of the subject matter of the proposed amendment.

Our Board of Directors may convene shareholders’ meetings. Under the Brazilian Corporate Law, shareholders’ meetings also may be convened by our shareholders as follows:

· by any of our shareholders if, under certain circumstances set forth in the Brazilian Corporate Law, our directors do not convene a shareholders’ meeting required by law within 60 days; and

· by shareholders holding at least 1% (as reduced by ICVM 627/2020) of our total share capital if, after a period of 8 days, our directors fail to call a shareholders’ meeting that has been requested by such shareholders by means of a duly reasoned request that indicates the subject matter.

In addition, our Fiscal Board may convene an ordinary shareholders’ meeting if our board of directors does not convene an annual shareholders’ meeting within 30 days or an extraordinary shareholders’ meeting at any other time to consider any urgent and serious matters. 

Each shareholders’ meeting is presided over by the president of the board of directors, who is responsible for choosing a secretary of the meeting among those present at the meeting. In case of absence of the president of the board of directors at the shareholders’ meeting, the shareholders may choose, among those present, the president and the secretary of the meeting. A shareholder may be represented at a shareholders’ meeting by an attorney-in-fact appointed by the shareholder less than one year before the meeting. The attorney-in-fact must be a shareholder, a member of our board of directors, a member of our board of executive officers, a lawyer or a financial institution, and the power of attorney appointing the attorney-in-fact must comply with certain formalities set forth under Brazilian law. To be admitted to a shareholders’ meeting, a person must produce proof of his or her shareholder status and/or a valid power of attorney (if the shareholder is to be represented by an attorney-in-fact), together with any other requirement provided for in the call notice. 

In order to convene a shareholders’ meeting, shareholders representing at least 25% (except when the agenda sets forth a matter that requires a higher quorum) of our issued voting share capital must be present on the first call. However, shareholders representing at least two-thirds of our issued voting share capital must be present at a shareholders’ meeting called to amend our bylaws. If a quorum is not met, our board of directors may issue a second call by publishing a notice as described above at least 8 calendar days prior to the scheduled meeting. Except as otherwise provided by law, the quorum requirements do not apply to a meeting held on the second call, and the shareholders’ meetings may be convened with the presence of shareholders representing any number of shares (subject to the voting requirements for certain matters described below).

Remote Voting 

Pursuant to the CVM Instruction No. 481/09, as amended, the system of Remote Voting is required to be adopted by Brazilian companies for: (i) an Ordinary General Shareholders’ Meeting; (ii) whenever an Extraordinary General Shareholders’ Meeting is called and occurs on the same date as an Ordinary General Shareholders’ Meeting; and (iii) whenever a Shareholders’ Meeting is called to elect the members of the Fiscal Board or of the board of directors, due to the requirements set forth in article 21-A, paragraph 1, item II of CVM Instruction No. 481/09 (Remote Voting can be adopted in other situations, at the Company’s choice). This system aims to facilitate the participation of the Company’s shareholders in its meetings. This instruction provides for the following:

121 

· the creation of a Remote Voting Ballot (“Boletim de Voto a Distância”) through which the shareholders may exercise their right to vote prior to the date in which the shareholders’ meeting is held;

· the possibility to include in the Remote Voting Ballot a list of candidates and submit minority shareholders’ proposals, for deliberation at the shareholders’ meeting, upon satisfaction of certain criteria;

· the deadlines, procedures and means of transmitting the Remote Voting Bulletin; and

· the possibility of holding shareholders’ meeting by fully digital means (in which case shareholders may only participate virtually) or partially digital means (in which case shareholders may either participate virtually or attend the meeting in person at the Company’s headquarters).

In addition, listed companies are required to adopt certain measures regarding the voting process, including:

· informing the market of the adoption of the cumulative voting process in shareholders’ meetings immediately upon receipt of the first valid requirement; and

· disclosing voting maps, as well as any voting statement presented by a shareholder at a meeting;

In accordance with the provisions of applicable laws and regulations, Telefônica Brasil S.A. has adopted the Remote Voting System since its Annual Shareholders’ Meeting held on April 26, 2017.

We do not have an electronic system for receiving remote voting ballots or remote participation ballots. Exceptionally, we may hold meetings partially or exclusively through a digital format, in accordance with CVM Instruction No. 481/09. Specific instructions regarding remote voting in shareholders’ meetings, which we may decide to hold partially or exclusively through a digital format, will be disclosed in the relevant shareholders’ meeting manual, in addition to other channels that we may deem appropriate.

Voting Rights 

Under the Brazilian Corporate Law and our bylaws, each of our common shares entitles its holder to one vote at our shareholders’ meetings. There are no limitations under the Brazilian Corporate Law or our bylaws on the right of non-Brazilian residents or nationals to own shares or vote according to those shares, other than the restrictions applicable to all shareholders. 

Voting Rights of Common Shares 

Except as otherwise provided by law, resolutions of a shareholders’ meeting are passed by a simple majority vote of the holders of our common shares present or represented at the meeting, without taking abstentions into account. Under the Brazilian Corporate Law, the approval of shareholders representing at least half of our voting shares is required for the types of action described below:

· creating preferred shares or disproportionately increasing an existing class of our preferred shares relative to the other classes of our preferred shares, other than to the extent permitted by our bylaws;

· changing a priority, preference, right, privilege or condition of redemption or amortization of any class of our preferred shares or creating a new class of preferred shares that has a priority, preference, right, condition or redemption or amortization superior to an existing class of our preferred shares;

· reducing the mandatory dividend set forth in our bylaws;

· changing our corporate purpose;

122 

· merging our company with another company, or consolidating our company, subject to the conditions set forth in the Brazilian Corporate Law;

· transferring all of our shares to another company, known as an “incorporação de ações” under the Brazilian Corporate Law;

· participating in a centralized group of companies (grupo de sociedades) as defined under the Brazilian Corporate Law and subject to the conditions set forth in the Brazilian Corporate Law;

· dissolving or liquidating our company or canceling any ongoing liquidation of our company; and

· spinning-off of all or any part of our company.

Decisions on the transformation of our company into another form of business entity require the unanimous approval of our shareholders.

Our company is required to give effect to shareholders agreements that contain provisions regarding the purchase or sale of our shares, preemptive rights to acquire our shares, the exercise of the right to vote or the power to control our company, if these agreements are filed with our headquarters. Brazilian Corporate Law requires the president of any Shareholder’s or Board of Directors meeting to disregard any vote taken by any of the parties to any shareholders agreement that has been duly filed with our company that violates the provisions of any such agreement. In the event that a shareholder that is party to a shareholders agreement (or a director appointed by such shareholder) is absent from any shareholders’ or board of directors’ meeting or abstains from voting, the other party or parties to that shareholders agreement have the right to vote the shares of the absent or abstaining shareholder (or on behalf of the absent director) in compliance with that shareholders agreement.

For the effective implementation of the Conversion, a voting agreement was executed by and among the shareholders Telefónica S.A., Telefónica Latinoamérica Holding, S.L., SP Telecomunicações Participações Ltda., and, as intervening and consenting party, the Telefônica Brasil, in order to comply with the provisions of items a.1 and a.2 of ANATEL. This voting agreement is filed and made available at our Company headquarters, as determined under article 118 of Brazilian Corporate Law.  

Under the Brazilian Corporate Law, neither our bylaws nor actions taken at a shareholders’ meeting may deprive any of our shareholders of certain specific rights, including:

· the right to participate in the distribution of our profits;

· the right to participate in any remaining residual assets in the event of our liquidation;

· the right to supervise the management of our corporate business as specified in the Brazilian Corporate Law;

· preemptive rights in the event of an issuance of our shares, debentures convertible into our shares or subscription bonuses, except with respect to a public offering of our securities; and

· the right to withdraw from our company under the circumstances specified in the Brazilian Corporate Law.

Voting Rights of Minority Shareholders 

Shareholders holding shares representing not less than 5% of our voting shares at our shareholders’ meeting have the right to request that we adopt a cumulative voting procedure to elect the members of the Board of Directors. This procedure must be requested by the required number of shareholders at least 48 hours prior to a shareholders’ meeting.

123 

Under the Brazilian Corporate Law, shareholders that are not controlling shareholders, but that together hold common shares representing at least 10% of our voting capital have the right to appoint one member to our Board of Directors at our shareholders’ meeting.

In the event that minority holders of common shares elect a director and the cumulative voting procedures described above is also used, our controlling shareholders always retain the right to elect at least one member more than the number of members elected by the other shareholders, regardless of the total number of members of our board of directors.

The shareholders seeking to exercise these minority rights (except for the cumulative voting procedure) must prove that they have held their shares for no less than three (3) months preceding the shareholders’ meeting at which the director will be appointed. Brazilian Corporate Law provides that any directors appointed by the non-controlling shareholders have the right to veto for cause the selection of our independent registered public accounting firm.

In accordance with the Brazilian Corporate Law, minority shareholders are entitled to elect one member and an alternate to our Fiscal Board in a separate election as long as they jointly represent 10% or more of the voting shares. The other shareholders with the right to vote may elect the remaining members and alternates, who, in any event, must outnumber the directors and alternates elected by any holders of non-voting preferred shares and the minority shareholders.

Under the Brazilian Corporate Law, the following actions require ratification by the majority of issued and outstanding shares of the affected class within one year from the shareholders’ meeting at which the common shareholders approve the action:

· the creation of preferred shares or a disproportionate increase of an existing class of preferred shares relative to the other classes of preferred shares, other than to the extent permitted by our bylaws;

· a change of a priority, preference, right, privilege or condition of redemption or amortization of any class of preferred shares; or

· the creation of a new class of preferred shares that has a priority, preference, right, condition or redemption or amortization superior to an existing class of preferred shares.

This meeting would be called by publication of a notice in two Brazilian newspapers for three days, at least 30 days before the meeting, in accordance with our bylaws.

Liquidation 

We may be liquidated in accordance with the provisions of Brazilian law. In the event of our extrajudicial liquidation, a shareholders’ meeting will determine the manner of our liquidation, appoint our liquidator and our Fiscal Board that will function during the liquidation period.

Preemptive Rights 

Each shareholder has a general preemptive right to subscribe for shares of the same class in any capital increase, in an amount sufficient to keep the same proportional participation of such shareholder in the total capital of the corporation. A minimum period of 30 days following the publication of the capital increase notice shall be observed by the corporation for the exercise of the preemptive right by the shareholder. The right of participation in capital increases is assignable under Brazilian Corporate Law. In the event of a capital increase that would maintain or increase the proportion of capital represented by common shares, holders of ADSs, or of common shares, would have the preemptive right to subscribe only to our newly issued common shares. In the event of a capital increase that would reduce the proportion of capital represented by common shares, holders of ADSs, or of common shares, would have the preemptive right to subscribe to our newly issued common shares in proportion to their shareholdings and to our newly issued common shares only to the extent necessary to prevent dilution of their interest.

124 

However, holders of our ADSs may not be able to exercise the preemptive rights relating to our common shares underlying their ADSs unless a registration statement under the Securities Act is effective with respect to those rights or an exemption from the registration requirements of the Securities Act is available. We are not obligated to file a registration statement with respect to the shares relating to these preemptive rights or to take any other action to make preemptive rights available to holders of our ADSs, and we may not file any such registration statement.

In addition, a publicly held company whose bylaws allow for capital increases may provide for the issuance of stock, debentures convertible into stock or subscription bonuses without granting any preemptive rights to prior shareholders or by decreasing the term for the shareholders to exercise their preemptive rights, as long as the placement of such securities is made:

· upon a sale on a stock exchange or public subscription;

· through an exchange of shares in a public offering, with the purpose of acquiring control of another company; or

· for the use of certain tax incentives but only when such placement is made without granting preemptive rights.

Redemption, Amortization, Tender Offers and Rights of Withdrawal 

Our bylaws or our shareholders at a shareholders’ meeting may authorize us to use our profits or reserves to redeem or amortize our shares in accordance with conditions and procedures established for such redemption or amortization. The Brazilian Corporate Law defines “redemption” (resgate de ações) as the payment of the value of the shares in order to permanently remove such shares from circulation, with or without a corresponding reduction of our share capital. The Brazilian Corporate Law defines “amortization” (amortização) as the distribution to the shareholders, without a corresponding capital reduction, of amounts that they would otherwise receive if we were liquidated. If an amortization distribution has been paid prior to our liquidation, then upon our liquidation, the shareholders who did not receive an amortization distribution will have a preference equal to the amount of the amortization distribution in the distribution of our capital.

The Brazilian Corporate Law authorizes us to redeem shares not held by our controlling shareholders, if, after a tender offer effected as a consequence of a delisting of the Company before the CVM, less than five percent (5%) of our outstanding shares remains publicly-held. The redemption price in such case would be the same price paid for our shares in such tender offer.

The Brazilian Corporate Law and our bylaws also require the acquirer of control (in case of a change of control) or the controller (in case of delisting or a substantial reduction in liquidity of our shares) to make a tender offer for the acquisition of the shares held by minority shareholders under certain circumstances described below under “—Mandatory Tender Offers.” The shareholder can also withdraw its capital from our company under certain circumstances described below under “—Rights of Withdrawal.” 

Mandatory Tender Offers 

The Brazilian Corporate Law requires the launching of a tender offer at a purchase price equal to the fair value for all outstanding shares in order to cancel (or to convert) the registration of our company as a publicly held company or in case of a substantial reduction in the liquidity of our shares as a result of purchases by our controlling shareholders. If our controlling shareholders enter into a transaction which results in a change of control of our company, the controlling shareholders must include in the documentation of the transaction an obligation of the acquirer to launch a tender offer for the purchase of all our common shares for, at least, 80% of the price per share paid to the controlling shareholders. The tender offer must be submitted to the CVM within 30 days from the date of execution of the definitive documents of sale of the shares.

125 

Rights of Withdrawal 

The Brazilian Corporate Law provides that, in certain limited circumstances, a dissenting shareholder may withdraw its equity interest from our company and be reimbursed by us for the value of our common shares that it then holds.

This right of withdrawal may be exercised by dissenting shareholders in the event that the holders of shares with voting rights authorize:

(i) creating preferred shares or disproportionately increasing any existing class of our preferred shares relative to the other classes of our preferred shares, other than to the extent permitted by our bylaws;

(ii) changing a priority, preference, right, privilege or condition of redemption or amortization of any class of our preferred shares or creating a new class of preferred shares that has a priority, preference, right, condition or redemption or amortization superior to any existing class of preferred shares;

(iii) reducing the mandatory dividend set forth in our bylaws;

(iv) a change in our corporate purpose;

(v) merging our company with another company, or consolidating our company, subject to the conditions set forth in the Brazilian Corporate Law;

(vi) the acquisition of all of our shares by another company, known as an “incorporação de ações” under the Brazilian Corporate Law;

(vii) participating in a centralized group of companies (grupo de sociedades) as defined under the Brazilian Corporate Law and subject to the conditions set forth in the Brazilian Corporate Law;

(viii) dissolving or liquidating our company or canceling any ongoing liquidation of our company;

(ix) spinning-off of all or any part of our company; and

(x) the inclusion of an arbitration clause in our bylaws.

In addition, we note that:

· in items (i) and (ii), only the holders of shares of the affected type or class will be entitled to redemption;

· in items (v) and (vii), the holders of shares of a type or class with liquidity and dispersion (as defined in ICVM 565/2015) in the market will not have the right to redemption; and

· in item (ix), the dissenting shareholders shall only have a right of redemption if the spinning off implies in: (1) a change in the corporate purpose (except if the spun-off assets revert to a company whose main purpose is the same as ours), (2) a reduction of the mandatory dividend, or (3) participation in a group of companies.

Dissenting shareholders are also entitled to withdraw in the event that the entity resulting from a merger or spin-off does not have its shares listed in an exchange or traded in the secondary market within 120 days from the shareholders’ meeting that approved the relevant merger or spin-off. 

Notwithstanding the above, in the event that we are consolidated or merged with another company, become part of a centralized group of companies, or acquire the control of another company for a price in excess of certain limits imposed by the Brazilian Corporate Law, holders of any type or class of our shares or the shares of the resulting entity that have minimal market liquidity and are dispersed among a sufficient

126 

number of shareholders will not have the right to withdraw. For this purpose, shares that are part of general indices representative of portfolios of securities traded in Brazil (as defined by ICVM 565/2015) or abroad are considered liquid, and sufficient dispersion will exist if the controlling shareholder, the parent company or other companies under its control hold less than half of the total number of outstanding shares of that type or class.

Only shareholders who own shares on the date of publication of the first notice convening the relevant shareholders’ meeting or the press release concerning the relevant transaction is published, whichever is earlier, will be entitled to withdrawal rights. 

The redemption of shares arising out of the exercise of any withdrawal rights would be made at the book value per share, determined on the basis of our most recent audited balance sheet approved by our shareholders. If the shareholders’ meeting approving the action that gave rise to withdrawal rights occurred more than 60 days after the date of the most recent approved audited balance sheet, a shareholder may demand that its shares be valued on the basis of a balance sheet prepared specifically for this purpose.

The right of withdrawal lapses 30 days after the date of publication of the minutes of the shareholders’ meeting that approved the action that gave rise to withdrawal rights. Within ten days following the expiration of the term to exercise the withdrawal rights mentioned above, the company may call a Shareholders’ Meeting to confirm or reconsider any resolution giving rise to withdrawal if we believe that the withdrawal of shares of dissenting shareholders would jeopardize its financial stability.

Liability of Our Shareholders for Further Capital Calls

Neither Brazilian law nor our bylaws require any capital calls. Our shareholders’ liability for capital calls is limited to the payment of the issue price of any shares subscribed or acquired.

Inspection of Corporate Records

Shareholders that own 1% (as reduced by ICVM 627/2020) or more of our outstanding share capital have the right to inspect our corporate records, including shareholders’ lists, corporate minutes, financial records and other documents of our company, if (1) we or any of our officers or directors have committed any act contrary to Brazilian law or our bylaws, or (2) there are grounds to suspect that there are material irregularities in our company. However, in either case, the shareholder that desires to inspect our corporate records must obtain a court order authorizing the inspection.

Disclosures of Share Ownership

Brazilian regulations require that (1) each of our controlling shareholders, directly or indirectly, (2) shareholders who have elected members of our Board of Directors or Fiscal Board, and (3) any person or group of persons representing a person that has directly or indirectly acquired or sold a material interest in our shares of any type and class disclose its or their share ownership or divestment to us, and we are responsible for transmitting such information to the CVM and the market. In addition, if a share acquisition results in, or is made with the intention of, change of control or company’s management structure, as well as acquisitions that cause the obligation of performing a tender offer, the persons acquiring such number of shares are required to publish a statement containing certain required information about such acquisition.

CVM defines a “material interest” deal as any increase or decrease in share ownership of any class resulting in a change in the ownership levels of our shareholders. The ownership levels are set in 5% increments (for example, an acquisition where the total ownership of a shareholder jumps from 9% to 11% should be reported since it made the ownership surpass the 10% level). Ownership levels are calculated adding direct and indirect ownership and derivatives based upon our shares.

Our controlling shareholders, shareholders that appoint members of our Board of Directors or Fiscal Board and members of our Board of Directors, Board of Executive Officers or Fiscal Board must file a statement reporting any change in their holdings of our shares, or of any family member or person included as dependent in their income tax return, or of our controlling shareholders (only if they are considered public companies), with the CVM and the Brazilian stock exchanges on which our securities are traded.

127 

Form and Transfer 

Our common shares are in book-entry form, registered in the name of each shareholder or its nominee. The transfer of our shares is governed by Article 35 of the Brazilian Corporate Law, which provides that a transfer of shares is effected by our transfer agent by an entry made by the transfer agent in its books, upon presentation of valid written share transfer instructions to us by a transferor or its representative. When common shares are acquired or sold on a Brazilian stock exchange, their transfer is effected on the records of our transfer agent by a representative of a brokerage firm or the stock exchange’s clearing system. The transfer agent also performs all the services of safe-keeping of our shares. Transfers of our shares by a non-Brazilian investor are made in the same manner and are executed on the investor’s behalf by the investor’s local agent. If the original investment was registered with the Central Bank pursuant to foreign investment regulations, the non-Brazilian investor is also required to amend, if necessary, through its local agent, the electronic certificate of registration to reflect the new ownership.

The B3 operates a central clearing system. A holder of our shares may choose, at its discretion, to participate in this system, and all shares that such shareholder elects to be put into the clearing system are deposited in custody with the clearing and settlement chamber of the B3 (through a Brazilian institution that is duly authorized to operate by the Central Bank and maintains a clearing account with the clearing and settlement chamber of the B3). Shares subject to the custody of the clearing and settlement chamber of the B3 are noted as such in our registry of shareholders. Each participating shareholder will, in turn, be registered in the register of the clearing and settlement chamber of the B3 and will be treated in the same manner as shareholders registered in our books.

Dividends 

Our dividend distribution practice has historically included the distribution of periodic dividends, based on quarterly balance sheets or shorter periods approved by our Board of Directors. When we pay dividends on an annual basis, they are declared at our annual shareholders’ meeting, which we are required by the Brazilian Corporate Law and our bylaws to hold up to April 30 of each year. As per Brazilian Corporate Law, declared dividends are generally required to be paid within 60 days of their declaration unless the shareholders’ resolution establishes another payment date. In any event, Brazilian Corporate Law also states that declared dividends must be paid until the end of the fiscal year in which it was declared. Under Article 9 of Law 9,249/95 and our bylaws, we also may pay interest attributable to shareholders’ equity as an alternative form of dividends upon approval of our board of directors

Payment of Dividends and Interest on Shareholders’ Equity (Juros sobre Capital Próprio) 

We may pay the mandatory distributable amount as dividends or as interest attributable to shareholders’ equity, which is similar to a dividend but is deductible in calculating our income tax obligations. 

Because our shares are issued in book-entry form, dividends with respect to any share are automatically credited to the account holding such share. Shareholders who are not residents of Brazil must register with the Central Bank in order to receive dividends, sales proceeds or other amounts with respect to their shares to be eligible to be remitted outside of Brazil.

The common shares underlying our ADSs are held in Brazil by the depositary, which has registered with the Central Bank as the registered owner of our common shares. Payments of cash dividends and distributions, if any, will be made in Brazilian currency to the depositary. The depositary will then convert such proceeds into U.S. dollars and will cause such U.S. dollars to be distributed to holders of our ADSs. As with other types of remittances from Brazil, the Brazilian government may impose temporary restrictions on remittances to foreign investors of the proceeds of their investments in Brazil, as it did for approximately six months in 1989 and early 1999, and on the conversion of Brazilian currency into foreign currencies, which could hinder or prevent the depositary from converting dividends into U.S. dollars and remitting these U.S. dollars abroad.

128 

In addition, remittances are subject to a Brazilian financial transactions tax, which as of the date of this form 20-F is 0%, but may be subject to change.

For information about taxation on profits, dividends and interest on shareholders’ equity, see “—E. Taxation—Brazilian Tax Considerations—Taxation of Dividends.”

Dividends 

We are required by the Brazilian Corporate Law and by our bylaws to hold an annual shareholders’ meeting until April 30 of each year. At our annual shareholders’ meeting, our common shareholders may vote to declare an annual dividend. Our payment of annual dividends is based on our audited financial statements prepared for our preceding fiscal year. 

Any holder of record of shares at the time that a dividend is declared is entitled to receive dividends. Under the Brazilian Corporate Law, we are generally required to pay dividends within 60 days after declaring them, unless the shareholders’ resolution establishes another payment date, which, in any case, must occur prior to the end of the fiscal year in which the dividends were declared. 

Our Board of Directors may declare interim dividends based on (i) the accrued profits recorded in our semiannual financial statements; (ii) the accrued profits recorded in our quarterly financial statements or in our financial statements for shorter periods, provided that the total amount of dividends paid up every six months does not exceed the total amount within the capital reserve determined pursuant to article 182 of the Brazilian Corporate Law; and (iii) the amount recorded in the profit and loss account or profit reserve account in our last annual or semiannual financial statements. 

All the interim dividends that are distributed shall be considered as part of the mandatory dividends that shall be paid by us. 

Interest on Shareholders’ Equity 

Brazilian corporations may make payments to shareholders characterized as interest on shareholders’ equity as an alternative form of making dividend distributions. Amounts paid as interest on shareholders’ equity (net of applicable withholding tax, as described below) may be deducted from the minimum dividends we are obligated to distribute to our shareholders in accordance with our bylaws and Brazilian Corporate Law. The rate of interest may not be higher than the federal government’s TJLP, as determined by the Central Bank from time to time (7.5% per annum for 2016 and for the first quarter of 2017, 7.0% for the remaining quarters of 2017, 6.75%, 6.6%, 6.56% and 6.98% for the four quarters of 2018, and 7.03%, 6.26%, 5.95% and 5.57% for the four quarters of 2019 and 5.09%, 4.94%, 4.91% and 4.55% for the four quarters of 2020), applied over specific net equity accounts. The total amount distributed as interest on shareholders’ equity may not exceed the greater of (i) 50% of net income (before taking the distribution and any deductions for income taxes into account) for the year with respect to which the payment is made and (ii) 50% of retained earnings for the year before the year with respect to which the payment is made. Payments of interest on shareholders’ equity are decided by the shareholders on the basis of recommendations of our Board of Directors. 

Distributions of interest on shareholders’ equity paid to Brazilian and non-Brazilian holders of common shares, including payments to the depositary in respect of common shares underlying ADSs, are deductible by us for Brazilian corporate income tax purposes. These payments to U.S. holders or other non-Brazilian holders are subject to Brazilian withholding tax at the rate of 15%. If the recipient of the payment is domiciled in a Tax Haven Jurisdiction, as defined by Brazilian law, the rate will be 25%.

Time Limits for Claiming Dividends

Our shareholders have three (3) years to claim dividend distributions made with respect to their shares, as from the date that we distribute the dividends to our shareholders, after which any unclaimed dividend distributions legally revert to us. We are not required to adjust the amount of any distributions for inflation that occurs during the period from the date of declaration to the payment date.

129 

C. Material Contracts

On June 30, 2011, ANATEL renewed our Fixed Switched Telephony Service (STFC) concession contract and consolidated them into two new contracts (each filed as an Exhibit to this Annual Report). One of these contracts authorizes the company to provide local telephone service (to the cities in Sector 31) and the other contract authorizes the company to provide long-distance telephone service (to and from Sector 31). These concession contracts will expire on December 31, 2025.

On October 4, 2019, Law 13.879/2019 (resulting from PLC 79/2016) was enacted. This Law introduces changes to the telecommunications regulatory framework and is expected to have a significant impact on this industry, by allowing fixed-line concessions operators to migrate from a grant regime (in which the underlying assets reverts to the government at the end of the concession) to an authorization regime. According to the Law, ANATEL will be responsible for estimating the gains obtained by operators as a result of migrating from one regime to the other. The amount of such gains will translate into broadband related projects, which will need to be defined by ANATEL. Alternatively, if an operator chooses not to migrate to the authorization regime, existing contracts could be renewed beyond 2025. 

We also have an authorization to provide local and long-distance telephone services under the private system (all sectors, except Sector 31, which is the area of concession), granted in 2002, for an unlimited term. Telefônica Brasil also holds a Multimedia Communication Service Authorization Terms, which are also material contracts. Based on these Authorization Terms, the companies may provide broadband services in the state of São Paulo (Telefônica) and all over Brazilian territory. The Terms were signed on April 17, 2003 and March 19, 2004 for an unlimited term and are still in effect. Telefônica has also Conditioned Access Service Authorization Terms for the provision of pay TV services. The Authorization Terms were transferred back to Telefônica Brasil in 2013, as a result of a corporate restructuring.

As regards the mobile services, the General Plan of Authorization divided the country into three regions: Region I: States of Rio de Janeiro, Espírito Santo, Minas Gerais, Amazonas, Roraima, Amapá, Pará, Maranhão, Bahia, Sergipe, Piauí, Ceará, Rio Grande do Norte, Paraíba, Pernambuco and Alagoas, Region II: States of Paraná, Santa Catarina, Rio Grande do Sul, Goiás, Tocantins, Mato Grosso do Sul, Mato Grosso, Rondônia, Acre and Federal District and Region III: only the State of São Paulo.

Telefônica executed Authorization Terms for the provision of Personal Mobile Services, SMP, with national coverage, in all three regions.

For Region I, the Terms of Service Authorization n.º 078/2012 of 07/02/2012; for Region II, the Terms of Service Authorization n.° 005/2010 of 29/01/2010; and for Region III, the Terms of Service Authorization n.° 006/2010 of 29/01/2010.

Licenses for personal mobile services (SMP) grant the right to provide mobile services for an unlimited term. However, the use of radiofrequency spectrum is restricted in accordance with specific license conditions:

· Rio Grande do Sul excluding the cities of Pelotas, Capão do Leão, Morro Redondo and Turuçu (“A” band) until 2022 (renewed in 2007);

· Rio de Janeiro (“A” band) until 2020 (renewed in 2005);

· Espírito Santo (“A” band) until 2023 (renewed in 2008);

· Bahia (“A” band) and Sergipe (“A” band) until 2023 (renewed in 2008);

· São Paulo (“A” band) until 2023 (renewed in 2008); and until 2024, for the cities of Ribeirão Preto and Guatapará (renewed in 2009);

· Paraná/Santa Catarina (“B” band) until 2028 (renewed in 2013);

130 

· Distrito Federal (“A” band) until 2021 (renewed in 2006);

· Acre (“A” band), Vivo-Rondônia (“A” band), Mato Grosso (“A” band) and Mato Grosso do Sul (“A” band) until 2024 (renewed in 2009);

· Goiás/Tocantins (“A” band) until 2023 (renewed in 2008);

· Amazonas/Roraima/Amapá/Pará/Maranhão (“B” band) until 2028 (renewed in 2014);

· Minas Gerais (“A” band) until 2023 (renewed in 2008);

· For the cities in which CTBC Telecom operates in the state of Minas Gerais (“E” band) until 2020 (to be renewed between the period of April 28, 2016 and April 28, 2017);

License renewals for “A” and “B” bands must be requested within 30 months from the expiry date. Currently, according to the Decree 10,402/2020, that regulates Law 13,879/2019, it is possible to renew licenses for successive periods. Nevertheless, some conditions are being discussed with Anatel, such as renewal value and term.

License renewals for the “E” band must be requested between 36 and 48 months in advance of the expiry date.

In December 2007, ANATEL auctioned off nationally 15 blocks in the 1900 MHz band (“L” band). Vivo (merged into Telefônica) won 13 of them throughout Brasil, except in the northern region and the towns of Londrina and Tamarana in the state of Paraná. Nevertheless, the Bidding Terms set forth the possibility of realigning the “L” band with the “J” band, maintaining the same conditions (including costs and expiry date) of the “J” band. In 2012, Telefônica requested and on August 27, 2013 ANATEL granted the “L” band realignment for the States of:

· Rio Grande do Sul, excluding the cities of Pelotas, Morro Redondo, Capão do Leão e Turuçu;

· Rio de Janeiro;

· Espírito Santo;

· Bahia and Vivo-Sergipe;

· Telefônica-São Paulo, excluding the cities of Altinópolis, Aramina, Batatais, Brodosqui, Buritizal, Cajuru, Cássia dos Coqueiros, Colômbia, Franca, Guaíra, Guará, Ipuã, Ituverava, Jardinópolis, Miguelópolis, Morro Agudo, Nuporanga, Orlândia, Ribeirão Corrente, Sales de Oliveira, Santa Cruz da Esperança, Santo Antônio da Alegria e São Joaquim da Barra;

· Paraná (excluding the cities of Londrina and Tamarana)/Santa Catarina;

· Federal District;

· Telefônica-Acre, Vivo-Rondônia, Vivo-Mato Grosso and Vivo-Mato Grosso do Sul excluding the city of Paranaíba; and

· Telefônica-Goiás/Tocantins.

The complete realignment (including the cities excluded above and the States of Alagoas, Ceará, Paraíba, Piauí, Pernambuco and Rio Grande do Norte) was signed on November 30, 2018.

In April 2008, ANATEL auctioned off 36 blocks in the 2100 MHz band (3G licenses). Vivo (merged into Telefônica) obtained nine in the “J” band throughout Brasil, enabling it to provide nationwide coverage in 3G. The spectrum licenses, along with the related renewal dates, are:

131 

· Rio Grande do Sul (including the cities of Pelotas, Morro Redondo, Capão do Leão e Turuçu) (“J” band) until 2023 (to be renewed between the period of April 30, 2019 and April 30, 2020);

· Rio de Janeiro (“J” band) until 2023 (to be renewed between the period of April 30, 2019 and April 30, 2020);

· Espírito Santo (“J” band) until 2023 (to be renewed between the period of April 30, 2019 and April 30, 2020);

· Bahia (“J” band) and Vivo-Sergipe (“J” band) until 2023 (to be renewed between the period of April 30, 2019 and April 30, 2020);

· São Paulo (including the cities of Ribeirão Preto, Guatapará and Bonfim Paulista and the cities where CTBC Telecom operates in the state of São Paulo) (“J” band) until 2023 (to be renewed between the period of April 30, 2019 and April 30, 2020);

· Paraná (including the cities of Londrina and Tamarana)/Santa Catarina (“J” band) until 2023 (to be renewed between the period of April 30, 2019 and April 30, 2020);

· Federal District (“J” band) until 2023 (to be renewed between the period of April 30, 2019 and April 30, 2020);

· Acre (“J” band), Rondônia (“J” band), Mato Grosso (“J” band) and Mato Grosso do Sul (including the city of Paranaíba) (“J” band) until 2023 (to be renewed between the period of April 30, 2019 and April 30, 2020);

· Goiás (including the cities where CTBC Telecom operates in the state of Goiás)/Tocantins (“J” band) until 2023 (to be renewed between the period of April 30, 2019 and April 30, 2020);

· Alagoas/Ceará/Paraíba/Piauí/Pernambuco/Rio Grande do Norte (“J” band) until 2023 (to be renewed between the period of April 30, 2019 and April 30, 2020);

· Amazonas/Roraima/Amapá/Pará/Maranhão (“J” band) until 2023 (to be renewed between the period of April 30, 2019 and April 30, 2020); and

· Minas Gerais (including the cities where CTBC Telecom operates in the state of Minas Gerais) (“J” band) until 2023 (to be renewed between the period of April 2019 and April 2020);

License renewals for the “J” band were requested between 36 and 48 months in advance of the expiry date. Currently, according to Decree 10,402/2020, which regulates Law 13,879/2019, it is possible to renew licenses for successive periods.

In December 2010, ANATEL auctioned off 169 licenses in the 900 MHz, 1800 MHz and 2100 MHz frequencies. Vivo (merged into Telefônica) acquired 23 blocks, 14 in 1800 MHz frequency bands “D,” “E,” “M” and extension bands, and 9 in the 900 MHz extension bands. As a result, Telefônica has nationwide coverage in the 1800 MHz frequency band. The 23 blocks are:

· “M” Band (1800 MHz) in the Federal District and the States of Paraná, Santa Catarina, Rio Grande do Sul, Goiás, Tocantins, Mato Grosso do Sul, Mato Grosso, Rondônia and Acre;

· Extension of the 1800 MHz band throughout the State of São Paulo;

· “D” Band (1800 MHz) in the cities of Pelotas, Morro Redondo, Capão do Leão and Turuçu in the state of Rio Grande do Sul;

· “E” Band (1800 MHz) in the States of Alagoas, Ceará, Paraíba, Piauí, Pernambuco and Rio Grande do Norte;

132 

· Extension of the 900 MHz band in the State of Rio de Janeiro;

· Extension of the 900 MHz band in the State of Espírito Santo;

· Extension of the 900 MHz band in the States of Goiás, Tocantins, Mato Grosso do Sul, Mato Grosso, Rondônia and Acre and the Federal District, with the exception of the city of Paranaíba in the state of Mato Grosso do Sul and the cities of Buriti Alegre, Cachoeira Dourada, Inaciolândia, Itumbiara, Paranaiguara and São Simão, in the State of Goiás;

· Extension of the 900 MHz band in the State of Rio Grande do Sul, with the exception of the cities of Pelotas, Morro Redondo, Capão do Leão and Turuçu;

· Extension of the 900 MHz band for the cities with area code 43 in the state of Paraná with the exception of the cities of Londrina and Tamarana;

· Extension of the 900 MHz band in the States of Paraná and Santa Catarina with the exception of the cities of registry area number 43 in the State of Paraná and the cities of Londrina and Tamarana;

· Extension of the 900 MHz band in the State of Bahía;

· Extension of the 900 MHz band in the State of Sergipe;

· Extension of the 900 MHz band in the States of Amazonas, Amapá, Maranhão Pará and Roraima;

· Extension of the 1800 MHz band in the State of São Paulo, with the exception of the cities in the metropolitan area of São Paulo and the cities where CTBC Telecom operates in the state of São Paulo;

· Extension of the 1800 MHz band in the States of Amazonas, Amapá, Maranhão Pará and Roraima;

· Extension of the 1800 MHz band in the city of Paranaíba in the State of Mato Grosso do Sul;

· Extension of the 1800 MHz band in the cities of Buriti Alegre, Cachoeira Dourada, Inaciolândia, Itumbiara, Paranaiguara and São Simão, in the State of Goiás;

· Another extension of the 1800 MHz band in the cities of Buriti Alegre, Cachoeira Dourada, Inaciolândia, Itumbiara, Paranaiguara and São Simão, in the State of Goiás;

· Extension of the 1800 MHz band in the States of Rio do Janeiro, Espírito Santo, Bahía and Sergipe;

· Extension of the 1800 MHz band in the States of Amazonas, Amapá, Maranhão Pará and Roraima;

· Extension of the 1800 MHz band in the States of Alagoas, Ceará, Paraíba, Piauí, Pernambuco and Rio Grande do Norte;

· Extension of the 1800 MHz band in the city of Paranaíba in the state of Mato Grosso do Sul, and the cities of Buriti Alegre, Cachoeira Dourada, Inaciolândia, Itumbiara, Paranaiguara and São Simão, in the State of Goiás;

· Extension of the 1800 MHz band in the cities of Londrina and Tamarana in the state of Paraná.

Currently, according to the Decree 10,402/2020, that regulates Law 13,879/2019, it is possible to renew licenses for successive periods.

Licenses for the 900MHz and 1800MHz band will expire in 2023 and renewal has been requested.

Our current 850 MHz authorizations will expire between 2020 and 2028. In September 2020, Anatel’s Board of Directors decided, during an extraordinary meeting, to approve the renewal of our 850 MHz

133 

authorizations for primary use until 2028. However, specific conditions for renewal are still under discussion between Anatel and service providers. If a renewal in 2028 is not allowed, we would be required to compete for new licenses in a spectrum auction. In addition, the coverage of our mobile services would be significantly affected, and our services could become unavailable in certain regions.

In April 2012, ANATEL auctioned off 273 licenses in the 450 MHz, and 2500 MHz frequencies. Vivo (merged into Telefônica) secured 1 block in 2500 MHz frequency band “X” (20 + 20 MHz) nationwide, together with the right and obligation to use the 450 MHz frequency band in the States of Alagoas (AL), Ceará (CE), Minas Gerais (MG), Paraíba (PB), Pernambuco (PE), Piauí (PI), Rio Grande do Norte (RN) and Sergipe (SE), as well as the areas identified by the National Codes 13, 14, 15, 16, 17, 18 and 19, in the State of São Paulo (SP). Nonetheless, the commitment to use the 450 MHz band may also be fulfilled by the use of any other frequency range Telefônica already holds. See below the relevant expiration and renewal dates:

· Brasil (“X” Band – 2500 MHz) until 2027 (associated with SMP service) to be renewed on October 18, 2024;

· Alagoas, Ceará, Minas Gerais, Paraíba, Pernambuco, Piauí, Rio Grande do Norte, Sergipe (450 MHz) until 2027 (associated to STFC and SCM services) to be renewed on October 18, 2024;

· Telefônica in the areas identified by the National Codes 13, 14, 15, 16, 17, 18 and 19, in the state of São Paulo (SP), until 2027 (associated to SMP and SCM services) to be renewed on October 18, 2024.

In September 2014, ANATEL auctioned off 6 blocks in the 700 MHz frequency. We acquired 3 blocks resulting in nationwide coverage in the 700 MHz frequency band. The spectrum licenses may be renewed in 2029.

In December 2015, ANATEL auctioned off the remaining spectrum lots in the 1800 MHz, 1900 MHz, 2500 MHz and 3500 MHz bands, Telefônica acquired seven lots of the 2500 MHz frequency band. These lots are associated to six different States, five of them the capital cities of the States of São Paulo, Rio de Janeiro, Rio Grande do Sul, Santa Catarina, and Tocantins and one city in the State of Mato Grosso do Sul. Such frequencies will be used for the provision of 4G mobile services. The spectrum license may be renewed in 2030.

The licenses above may be renewed successively; (ii) for an additional term of 15 (fifteen) years; and (iii) upon payment of 2% of our net revenues from usage charges in the applicable region in the previous year. The payment is also due every two years during the extension period.

Execution of Purchase Agreement for Acquisition of UPI Mobile Assets of the Oi Group

On January 28, 2021, we executed the Purchase and Sale Agreement of Shares and Other Covenants, or the Oi Agreement, by and among Oi Móvel SA - In Judicial Recovery, as seller, Telefônica Brasil, Tim S.A. and Claro S.A., as Buyers, and Oi S.A. - In Judicial Recovery and Telemar Norte Leste S.A. - In Judicial Recovery, as intervening parties and guarantors of the seller’s obligations. The Oi group is currently undergoing a judicial reorganization process (recuperação judicial) in Brazil and the Oi Agreement was executed in connection with a judicial auction held on December 14, 2020 for the sale of assets of the Oi group’s mobile business operations (Grupo Oi’s Personal Mobile Service), or the UPI Mobile Assets, after the joint offer made by us and the other Buyers was declared the winning bid in the competitive bidding process under the judicial auction, which was approved by the Brazilian Judicial Reorganization Court (Juízo da Recuperação Judicial).

Under the Oi Agreement, Telefônica Brasil is entitled to a selection of assets that will comprise its share of the UPI Mobile Assets, consisting of:

· Clients: approximately 10.5 million (corresponding to approximately 29% of UPI Mobile Assets’ total customer base) – according to ANATEL’s database of April 2020. The allocation of customers among the Buyers considered criteria intended to enhance competition among the Brazilian telecom market operators;

134 

· Spectrum: 43MHz as a national weighted average based on population (approximately 46% of UPI Mobile Assets’ radiofrequencies). The division of frequencies among the Buyers conforms strictly to the spectrum limits established by ANATEL; and

· Infrastructure: including agreements for the use of 2.7 thousand mobile access sites (corresponding to approximately 19% of UPI Mobile Assets’ total sites).

In addition, under the Oi Agreement, the completion of the acquisition of the UPI Mobile Assets by the Buyers will take place according to the segregation plan for such assets, pursuant to which the UPI Mobile Assets will be segregated and contributed by the Oi Group to three different specific purpose entities, or SPEs, such that Telefônica Brasil will acquire the totality of the shares of one SPE that will hold the assets to be attributed to Telefônica Brasil pursuant to the aforementioned segregation plan, which will be separate and independent from the other SPEs. Similarly, the other two Buyers will each acquire the totality of the shares of the respective remaining SPEs, which will each hold the respective assets to be attributed to each of the two other Buyers.

The total consideration agreed to be paid by the Buyers under the Oi Agreement amounts to: (i) R$16,500.0 million, of which R$15,744.0 million comprises the base purchase price and R$756.0 million relates to amounts to be paid as consideration for transitional services to be rendered by the Oi Group to the Buyers for a period of up to twelve months, under a transitional services agreement to be entered into among the parties, or the Transitional Services Agreement; and (ii) R$819.0 million, as consideration for services to be rendered by the Oi Group to the Buyers under a take-or-pay data transmission capacity agreement to be entered into among the parties, or the Capacity Agreement.

Subject to the terms, conditions and payment schedule agreed upon between Oi Group and the Buyers, the consideration owed by the Buyers to Oi will be paid upon effectiveness of the transaction, which will occur on the date of the execution of the Transitional Services Agreement. Under the terms of the Oi Agreement, Telefônica Brasil will disburse an amount corresponding to 1/3^rd of the total consideration, equivalent to approximately R$5.5 billion. Subject to the continuity of the current market conditions and necessary internal approvals, as well as, in light of our robust financial position and strong cash flow generation, we intend to use our own cash resources to finance the transaction.

The completion of the acquisition is also subject to certain precedent conditions usually applicable to this type of transaction and set forth in the Oi Agreement, such as the prior consent of ANATEL and approval by the Brazilian competition authority (CADE), as well as, if applicable, the submission to the general shareholders’ meeting of the Company, under the terms of article 256 of the Brazilian Corporations Law. As of the date of this annual report, the regulatory approvals that are required to be granted by the CADE and ANATEL have not yet been granted.  Moreover, as of the date hereof, it is possible that such approvals required for the consummation of the transactions contemplated by the Oi Agreement acquisition may not be obtained or, if they are obtained, could impose unanticipated or adverse conditions or otherwise modify the terms thereof, including the re-allocation of assets among us and the other two operators that were awarded the winning bid together with us, pursuant to our joint bid.

We believe that the transactions contemplated by the Oi Agreement, once and if consummated, will generate benefits for our shareholders through the generation of revenues and efficiencies resulting form operational synergies, as well as for our customers, as a result of the assets acquired, which reinforce our commitment to excellence in the quality of the services we provide and finally, for the Brazilian industry as a whole, due to the resulting changes that reinforce the industry’s capacity to make investments and create technological innovations sustainably, further contributing to the ongoing digitalization of the country. We believe our acquisition of a portion of the UPI Mobile Assets marks another important step in achieving our purpose of increasing digitalization to bring people together (Digitalizar para aproximar).

135 

D. Exchange Controls

There are no restrictions on ownership of common shares by individuals or legal entities domiciled outside of Brazil, provided that they comply with the registration requirements set forth in the applicable regulation enacted by CMN and the CVM. 

The right to convert dividend or interest payments and proceeds from the sale of shares into foreign currency and to remit such amounts outside Brazil is subject to restrictions under foreign investment legislation which generally requires, among other things, the documentary evidence that provides the validity and properly backs the economic grounds of the foreign exchange transaction and that the relevant investment be registered with the Central Bank and the CVM, as applicable. The restrictions on the remittance of foreign capital abroad may hinder or prevent the custodian for the common shares represented by ADSs or holders of common shares from converting dividends, distributions or the proceeds from any sale of these common shares into U.S. dollars and remitting the U.S. dollars abroad. Holders of ADSs could be adversely affected by delays in, or refusal to grant any, required government approval to convert Brazilian currency payments on the common shares underlying the ADSs and to remit the proceeds abroad. 

As from March 30, 2015, the different forms of foreign portfolio investments in Brazil, including investments via Depositary Receipts, are regulated by CMN Resolution 4,373, of September 29, 2014 (“Resolution No. 4,373”), which revoked the former rule (CMN Resolution 2,689, of January 26, 2000) that had been in force for about 15 years.

Registered Capital

Amounts invested in common shares by a non-Brazilian holder who qualifies under Resolution No. 4,373 and obtains registration with the CVM, or by the depositary representing an ADS holder, are eligible for registration with the Central Bank. Such registration (the amount so registered is referred to as registered capital) allows remittances of funds outside Brazil converted into foreign currency at the commercial market rate, acquired with the proceeds of distributions on, and amounts realized through, dispositions of such common shares. The registered capital per common share purchased in the form of ADS, or purchased in Brazil and deposited with the depositary in exchange for ADS, will be equal to its purchase price (stated in U.S. dollars). The registered capital per common share withdrawn upon cancellation of an ADS will be the U.S. dollar equivalent of (i) the average price of a common share on the Brazilian stock exchange on which the most common shares were traded on the day of withdrawal or (ii) if no common shares were traded on that day, the average price on the Brazilian stock exchange on which the most common shares were traded in the 15 trading sessions immediately preceding such withdrawal. The U.S. dollar equivalent will be determined on the basis of the average commercial market rates (buy/sell) quoted by the Central Bank on such date or dates.

An electronic registration has been issued in the name of the depositary with respect to the ADSs and is maintained by the custodian on behalf of the depositary. Pursuant to the registration, the custodian and the depositary are able to convert dividends and other distributions with respect to the common shares represented by ADSs into foreign currency and remit the proceeds outside Brazil. If a holder of ADSs exchanges such ADSs for common shares, such holder will be entitled to continue to rely on the depositary’s registration for five business days after such exchange, following which such holder must seek to obtain its own electronic registration with the Central Bank. Thereafter, any holder of common shares may not be able to convert into foreign currency and remit outside Brazil the proceeds from the disposition of, or distributions with respect to, such common shares, unless such holder is a duly qualified investor under Resolution No. 4,373 and obtains its own electronic registration.

If the holder does not qualify under Resolution No. 4,373 by registering with the CVM and the Central Bank and appoints a representative in Brazil to act directly in the Brazilian market to acquire common shares, the holder will be subject to a less favorable Brazilian tax treatment than a holder of ADSs. Regardless of registration under Resolution No. 4,373, residents of tax havens are subject to less favorable tax treatment than other foreign investors. See “—E. Taxation—Brazilian Tax Considerations.”

136 

Under current Brazilian legislation, the federal government may impose temporary restrictions on remittances of foreign capital abroad in the event of a serious imbalance or an anticipated serious imbalance of Brazil’s balance of payments. For approximately six months in 1989 and early 1990, the federal government froze all dividend and capital repatriations held by the Central Bank that were owed to foreign equity investors, to conserve Brazil’s foreign currency reserves. These amounts were subsequently released in accordance with federal government directives. There can be no assurance that the federal government will not impose similar restrictions on foreign repatriations in the future.

E. Taxation

The following discussion contains a description of the material Brazilian and U.S. federal income tax consequences arising from the acquisition, ownership and disposition of common shares or ADSs by certain holders or beneficial owners, as described below. This summary is based upon the tax laws and regulations of Brazil and the United States as of the date of this annual report, which are subject to change, possibly with retroactive effect, and to differing interpretations. You should consult your own tax advisers as to the Brazilian, U.S. federal or other tax consequences of the acquisition, ownership and disposition of common shares or ADSs, including, in particular, the effect of any state, local or non-U.S., non-Brazilian tax laws.

Although there is presently no income tax treaty entered into between Brazil and the United States, the tax authorities of the two countries have had discussions that may culminate in such a treaty. No assurance can be given, however, as to whether or when a treaty will enter into force or how it will affect the U.S. holders of common shares or ADSs. Brazil and the United States have, however, entered into a Tax Treaty Information Exchange Agreement, in order to establish an effective exchange of tax-related information between the two countries.

Brazilian Tax Considerations 

The following discussion summarizes the main Brazilian tax consequences applicable to the purchase, ownership and disposal of common shares or ADSs by a holder that is not domiciled in Brazil for purposes of Brazilian taxation, or a Non-Brazilian Holder, but it does not purport to be a comprehensive description of all the tax considerations that may be relevant to these matters based upon the particular circumstances of a holder. Each Non-Brazilian Holder should consult his or her own tax adviser concerning the Brazilian tax consequences of an investment in common shares or ADSs. This summary is based upon federal tax laws of Brazil in effect as of the date hereof, which are subject to change and differing interpretations.

Although there is presently no income tax treaty between Brazil and the United States, the tax authorities of the two countries have had discussions that may culminate in such a treaty. No assurance can be given, however, as to whether or when a tax treaty will enter into force or how such a treaty would affect a U.S. holder of common shares or ADSs. The tax considerations described below do not take into account tax treaties entered into by Brazil and other countries.

Taxation of Dividends 

Dividends paid by a Brazilian corporation, such as the Company, to an ADS Holder that is not resident in Brazil for tax purposes (“Non-Resident Holder”) are currently not subject to withholding income tax, or WHT, in Brazil to the extent that such amounts are related to profits generated on or after January 1, 1996. Dividends paid from profits generated before January 1, 1996 may be subject to WHT at variable rates, according to the tax legislation applicable to each corresponding year.

Law No. 11,638, dated December 28, 2007, or Law No. 11,638, significantly changed the Brazilian Corporation Law in order to align Brazilian generally accepted accounting principles with International Financial Reporting Standards, or IFRS. Nonetheless, Law No. 11,941, dated May 27, 2009, introduced the Transitory Tax Regime, or RTT, in order to render neutral, from a tax perspective, all the changes provided by Law No. 11,638. Under the RTT, for tax purposes, legal entities should observe the accounting methods and criteria that were effective on December 31, 2007.

137 

Profits determined pursuant to Law No. 11,638, or IFRS Profits, may differ from the profits calculated pursuant to the accounting methods and criteria as effective on December 31, 2007, or 2007 Profits.

While it was general market practice to distribute exempted dividends with reference to the IFRS Profits, Rule No. 1,397, issued by the Brazilian tax authorities on September 16, 2013, established that legal entities should observe the 2007 Profits in order to determine the amount of profits that could be distributed as exempted income to their beneficiaries.

Any profits paid in excess of said 2007 Profits, or Excess Dividends, should, in the tax authorities’ view and in the specific case of non-resident beneficiaries, be subject to the following rules of taxation: (1) 15.0% WHT, in case of beneficiaries domiciled abroad, but not in a Low or Nil Tax Jurisdiction, and (2) 25.0% WHT, in the case of beneficiaries domiciled in a Low or Nil Tax Jurisdiction.

In order to mitigate potential disputes on the subject, Law No. 12,973, dated May 13, 2014, or Law No. 12, 973, in addition to revoking the RTT, introduced a new set of tax rules (the “New Brazilian Tax Regime”), including new provisions with respect to Excess Dividends. Under these new provisions: (1) Excess Dividends related to profits assessed from 2008 to 2013 are exempt; (2) potential disputes remain concerning the Excess Dividends related to 2014 profits, since Law No. 12,973 has not expressly excluded those amounts from taxation and Rule No. 1,492, issued by the Brazilian tax authorities on September 17, 2014, established they are subject to taxation when distributed by companies which have not elected to apply the New Brazilian Tax Regime in 2014; and (3) as of 2015, as the New Brazilian Tax Regime is mandatory and has completely replaced the RTT, dividends calculated based on IFRS Profits should be considered fully exempt.

Finally, there is currently legislation pending before the Brazilian Congress discussing the taxation of dividends. It is not possible to predict if the taxation of dividends will be effectively approved by the Brazilian Congress and how such taxation would be implemented.

Distribution of Interest on Shareholders’ Equity

Law No. 9,249, dated December 26, 1995, as amended, allows a Brazilian corporation, such as the Company, to make payments to shareholders of interest on shareholders’ equity as an alternative to carrying out dividend distributions and treat those payments as a deductible expense for the purposes of calculating Brazilian corporate income tax and social contribution on net income.

For tax purposes, this interest is limited to the daily variation of the pro rata variation of the TJLP, as determined by the Central Bank from time to time applied to certain equity accounts, and the amount of the distribution may not exceed the greater of:

· 50% of net income (after the deduction of the social contribution on net income and before taking into account the provision for corporate income tax and the amounts attributable to shareholders as interest on shareholders’ equity) for the period in respect of which the payment is made; or

· 50% of the sum of retained profits and profits reserves for the year prior to the year in respect of which the payment is made.

Payments of interest on shareholders’ equity to a Non-Resident Holder are subject to WHT at the rate of 15.0%, or 25.0% if the Non-Resident Holder is domiciled in a Low or Nil Tax Jurisdiction.

These payments may be included, at their net value, as part of any mandatory dividend. To the extent that such payments are accounted for as part of the mandatory dividend, under current Brazilian law, we are obliged to distribute to shareholders an additional amount sufficient to ensure that the net amount received by the shareholders, after payment by us of applicable WHT, plus the amount of declared dividends, is at least equal to the mandatory dividend. The distribution of interest on shareholders’ equity must be proposed by our board of directors and is subject to subsequent ratification by the shareholders at the shareholders’ meeting.

138 

Capital Gains

Sale of ADSs

According to Law No. 10,833, dated December 29, 2003, or Law 10,833, capital gains earned on the disposal of assets located in Brazil by a Non-Brazilian Holder, whether to another non-Brazilian resident or to a Brazilian resident are subject to taxation in Brazil.

Our understanding is that ADSs do not qualify as assets located in Brazil for the purposes of Law No. 10,833 because they represent securities issued and renegotiated in an offshore exchange market and, therefore, should not be subject to the Brazilian WHT. However, considering the lack of any judicial court ruling in respect thereto, we cannot assure you of how tax authorities and Brazilian courts would interpret the definition of assets located in Brazil in connection with the taxation of gains realized by a Non-Brazilian Holder on the disposal of ADSs to another non-Brazilian resident. If the ADSs are deemed to be assets located in Brazil, gains recognized by a Non-Brazilian Holder from the sale or other disposition to either a non-resident or a resident in Brazil may be subject to income tax in Brazil as further described below.

Conversion of ADSs into Common Shares

Although there is no clear regulatory guidance, the exchange of ADSs for common shares should not be subject to Brazilian tax. Non-Resident Holders may exchange ADSs for the underlying common shares, sell the common shares on a Brazilian stock exchange and remit abroad the proceeds of the sale, according to the regulations of the Central Bank.

Upon receipt of the underlying common shares in exchange for ADSs, Non-Resident Holders may also elect to register with the Central Bank the U.S. dollar value of such common shares as a foreign portfolio investment under Resolution No. 4,373, which will entitle them to the tax treatment described above.

Alternatively, a Non-Resident Holder is also entitled to register with the Central Bank the U.S. dollar value of such common shares as a foreign direct investment under Law No. 4,131/62, in which case the respective sale would be subject to the tax treatment applicable to transactions carried out of by a Non-Resident Holder that is not registered before the Central Bank and the CVM in accordance with Resolution No. 4,373.

Sale of Common Shares

Capital gains assessed on a Non-Resident Holder on the disposition of common shares carried out on a Brazilian stock exchange (which may include transactions carried out on the organized over-the-counter market, or OTC) are:

· exempt from income tax when realized by a Non-Resident Holder that (1) has registered its investment in Brazil with the Central Bank under the rules of CMN Resolution No. 4,373, or a 4,373 Holder, and (2) is not resident or domiciled in a Low or Nil Tax Jurisdiction;

· subject to income tax at a rate of 15.0% in the case of gains realized by (1) a Non-Resident Holder that (A) is not a 4,373 Holder and (B) is not resident or domiciled in a Low or Nil Tax Jurisdiction; or (2) a Non-Resident Holder that (A) is a 4,373 Holder, and (B) is resident or domiciled in a Low or Nil Tax Jurisdiction. In this case, a withholding income tax of 0.005% of the sale value shall be applicable and withheld by the intermediary institution (i.e., a broker) that receives the order directly from the Non-Resident Holder, which can be later offset against any income tax due on the capital gain earned by the Non-Resident Holder; or

· subject to income tax at a rate of up to 25.0% in the case of gains realized by a Non-Resident Holder that (1) is not a 4,373 holder, and (2) is resident or domiciled in a Low or Nil Tax Jurisdiction. In this case, a withholding income tax of 0.005% of the sale value shall be applicable and withheld by the intermediary institution (i.e., a broker) that receives the order directly from the Non-Resident Holder, which can be later offset against any income tax due on the capital gain earned by the Non-Resident Holder.

139 

Any other gains assessed on a sale or disposition of common shares that is not carried out on a Brazilian stock exchange are subject to (1) income tax at a rate ranging from 15.0% up to 22.5% when realized by a Non-Resident Holder that is not resident or domiciled in a Low Tax Jurisdiction; and (2) income tax at a rate of 25.0% when realized by a Non-Resident Holder that is domiciled or resident in a Low Tax Jurisdiction. If these gains are related to transactions conducted on the Brazilian non-organized over-the-counter market with intermediation, a WHT of 0.005% on the sale value will also apply and can be used to offset the income tax due on the capital gain.

Any exercise of preemptive rights relating to common shares or ADSs will not be subject to Brazilian withholding income tax. Any gain on the sale or assignment of preemptive rights relating to common shares by the depositary on behalf of holders of ADSs will be subject to Brazilian income taxation according to the same rules applicable to the sale or disposal of common shares.

In the case of a redemption of common shares or a capital reduction by a Brazilian corporation, such as the Company, the positive difference between the amount received by a Non-Brazilian Holder and the acquisition cost of the common shares redeemed, including these underlying ADSs, is treated as a capital gain derived from the sale or exchange of shares not carried out on a Brazilian stock exchange market, and is therefore subject to income tax at the progressive rate from 15% to 22.5%, and 25% for residents in a Low or Nil Taxation Jurisdiction.

As a general rule, the gains realized as a result of the disposal of common shares, including these underlying ADSs, is the positive difference between the amount realized on the sale or exchange of the common shares and their acquisition cost.

There is no assurance that the current preferential treatment for a Non-Brazilian Holder of ADSs and a 4,373 Holder of common shares will continue or that it will not change in the future.

Gains on the exchange of common shares for ADSs

The deposit of common shares in exchange for ADSs may be subject to Brazilian income tax on capital gains if the amount previously registered with the Central Bank as a foreign investment in common shares or, in the case of other market investors under Resolution No. 4,373, the acquisition cost of the common shares, as the case may be, is lower than:

· the average price per common share on the Brazilian stock exchange on which the greatest number of such common shares were sold on the day of deposit; or

· if no common shares were sold on that day, the average price on the Brazilian stock exchange on which the greatest number of common shares were sold during the 15 preceding trading sessions.

The difference between the amount previously registered, or the acquisition cost, as the case may be, and the average price of the common shares, calculated as set forth above, is considered a capital gain.

Discussion on Low or Nil Taxation Jurisdictions

On June 4, 2010, the Brazilian tax authorities enacted Normative Ruling No. 1,037 listing (1) the countries and jurisdictions considered as Low or Nil Taxation Jurisdictions or where the local legislation does not allow access to information related to the shareholding composition of legal entities, to their ownership or to the identity of the effective beneficiary of the income attributed to non-residents, and (2) the privileged tax regimes, which definition is provided by Law No. 11,727, of June 23, 2008, or Law No. 11,727.

A Low or Nil Taxation Jurisdiction is a country or location that (1) does not impose taxation on income, (2) imposes income tax at a maximum rate lower than 20.0%, or (3) imposes restrictions on the disclosure of shareholding composition or the ownership of the investment. A regulation issued by the Brazilian tax authorities on November 28, 2014 (Ordinance No. 488, of 2014) decreased, from 20.0% to 17.0%, the

140 

minimum threshold for certain specific cases. The reduced 17.0% threshold applies only to countries and regimes aligned with international standards of fiscal transparency in accordance with rules to be established by the Brazilian tax authorities. Although Ordinance No. 488 has lowered the threshold rate, Normative Ruling No. 1,037, which identifies the countries considered to be Low or Nil Tax Jurisdictions and the locations considered as privileged tax regimes, has not been amended yet to reflect such threshold modification.

Law No. 11,727 created the concept of “privileged tax regimes,” which encompasses the countries and jurisdictions that (1) do not tax income or tax it at a maximum rate lower than 20.0%; (2) grant tax advantages to a non-resident entity or individual (a) without the need to carry out a substantial economic activity in the country or jurisdiction, or (b) conditioned to the non-exercise of a substantial economic activity in the country or jurisdiction; (3) do not tax or tax proceeds generated abroad at a maximum rate lower than 20.0%; or (4) restrict the ownership disclosure of assets and ownership right or restrict disclosure about economic transactions carried out. Although we believe that the best interpretation of the current tax legislation is that the above mentioned “privileged tax regime” concept should apply solely for purposes of Brazilian transfer pricing and thin capitalization rules, among other rules that make express reference to the concepts, we can provide no assurance that tax authorities will not interpret the rules as applicable also to a Non-Resident Holder on payments of interest on shareholders’ equity.

Currently, the understanding of the Brazilian tax authorities is that the rate of 15.0% of WHT applies to payments made to beneficiaries resident in privileged tax regimes (Answer to Advance Tax Ruling Request COSIT No. 575, of December 20, 2017). In any case, if Brazilian tax authorities determine that payments made to a Non-Resident Holder under a privileged tax regime are subject to the same rules applicable to payments made to Non-Resident Holders located in a Low or Nil Tax Jurisdictions, the withholding income tax applicable to such payments could be assessed at a rate up to 25.0%.

We recommend investors to consult their own tax advisors from time to time to verify any possible tax consequence arising from Normative Ruling No. 1,037 and Law No. 11,727. If the Brazilian tax authorities determine that payments made to a Non-Resident Holder are considered to be made under a “privileged tax regime,” the WHT applicable to such payments could be assessed at a rate of up to 25.0%.

Other Brazilian Taxes

There are no Brazilian federal inheritance, gift or succession taxes applicable to the ownership, transfer or disposal of common shares or ADSs by a Non-Brazilian Holder. Gift and inheritance taxes, however, may be levied by some states on gifts made to or inheritances bestowed by the Non-Brazilian Holder on individuals or entities resident or domiciled within such states in Brazil. There is no Brazilian stamp, issue, registration or similar taxes or duties payable by a Non-Brazilian Holder of common shares or ADSs.

Taxation of Foreign Exchange Transactions (IOF/Exchange)

Pursuant to Decree No. 6,306/07, the conversion into foreign currency or the conversion into Brazilian currency of the proceeds received or remitted by a Brazilian entity from a foreign investment in the Brazilian securities market, including those in connection with the investment by a Non-Brazilian Holder in the common shares and ADSs, may be subject to the Tax on Foreign Exchange Transactions, or IOF/Exchange. Currently, the applicable rate for almost all foreign currency exchange transactions is 0.38%. Currently, foreign currency exchange transactions carried out for the inflow of funds in Brazil for investment in the Brazilian financial and capital market made by a foreign investor (including a Non-Brazilian Holder, as applicable) are subject to IOF/Exchange at a 0% rate. The IOF/Exchange rate will also be 0% for the outflow of resources from Brazil related to these types of investments, including payments of dividends and interest on shareholders’ equity and the repatriation of funds invested in the Brazilian market. Furthermore, the IOF/Exchange is currently levied at a 0% rate for the conversion of ADSs into common shares held by foreign investors under the 4,373 Holders regime. In any case, the Brazilian government is permitted to increase the rate to a maximum of 25% at any time, with respect to future transactions. Any increase in the rate would not apply retroactively.

141 

Tax on Bonds and Securities Transactions (IOF/Bonds)

Pursuant to Decree 6,306/07, the Tax on Bonds and Securities Transactions, or IOF/Bonds, may be imposed on any transaction involving bonds and securities even if the transactions are performed on a Brazilian stock exchange. The rate of this tax for transactions involving common shares is currently 0%, but the Brazilian government may increase such rate up to 1.5% per day, with respect to future transactions. Currently, the issuance of depositary receipts traded outside of Brazil which underlying shares are issued by a Brazilian company and listed on a Brazilian stock exchange are also subject to IOF/Bonds at the 0% rate. Any increase in the rate would not apply retroactively.

U.S. Federal Income Tax Considerations

The following are the material U.S. federal income tax consequences to U.S. Holders (as defined below) of owning and disposing of common shares or ADSs, but this is not a comprehensive description of all of the tax considerations that may be relevant to a particular person’s decision to hold such securities. The discussion applies only to U.S. Holders that hold common shares or ADSs as capital assets for U.S. federal income tax purposes, and it does not describe all of the tax consequences that may be relevant in light of a U.S. Holder’s particular circumstances, including alternative minimum tax consequences, the potential application of the provisions of the Internal Revenue Code of 1986 (the “Code”) known as the Medicare contribution tax, the effects of any state, local or non-U.S. tax laws and tax consequences applicable to U.S. Holders subject to special rules, such as:

· certain financial institutions;

· dealers or traders in securities who use a mark-to-market method of tax accounting;

· persons holding common shares or ADSs as part of a hedge, “straddle,” integrated transaction or similar transaction;

· persons whose functional currency for U.S. federal income tax purposes is not the U.S. dollar;

· entities classified as partnerships or other pass-through entities for U.S. federal income tax purposes;

· tax-exempt organizations;

· regulated investment companies;

· real estate investment trusts;

· insurance companies;

· persons that own or are deemed to own 10% or more of our stock by vote or value;

· persons required for U.S. federal income tax purposes to conform the timing of income accruals to their financial statements under Section 451 of the Code;

· persons who acquired our common shares or ADSs pursuant to the exercise of any employee stock option or otherwise as compensation; or

· persons holding common shares or ADSs in connection with a trade or business conducted outside of the United States.

If an entity that is classified as a partnership for U.S. federal income tax purposes holds common shares or ADSs, the U.S. federal income tax treatment of a partner will generally depend on the status of the partner and the activities of the partnership. Partnerships holding common shares or ADSs and partners in such partnerships should consult their tax advisers as to the particular U.S. federal income tax consequences of holding and disposing of the common shares or ADSs.

142 

This discussion is based on the Code, administrative pronouncements, judicial decisions and final, temporary and proposed U.S. Treasury regulations, all as of the date hereof. These laws are subject to change, possibly on a retroactive basis. This discussion is also based in part on representations by the depositary and assumes that each obligation under the Deposit Agreement and any related agreement will be performed in accordance with its terms.

You are a “U.S. Holder” if, for U.S. federal income tax purposes, you are a beneficial owner of common shares or ADSs and you are:

· an individual citizen or resident of the United States;

· a corporation, or other entity taxable as a corporation, created or organized in or under the laws of the United States, any state therein or the District of Columbia; or

· an estate or trust the income of which is subject to U.S. federal income taxation regardless of its source.

THE SUMMARY OF U.S. FEDERAL INCOME TAX CONSEQUENCES SET OUT BELOW IS INTENDED FOR GENERAL INFORMATION PURPOSES ONLY. U.S. HOLDERS OF COMMON SHARES OR ADSs ARE URGED TO CONSULT WITH THEIR OWN TAX ADVISERS WITH RESPECT TO THE PARTICULAR TAX CONSEQUENCES TO THEM OF OWNING OR DISPOSING OF COMMON SHARES OR ADSs, INCLUDING THE APPLICABILITY AND EFFECT OF STATE, LOCAL, NON-U.S. AND OTHER TAX LAWS AND POSSIBLE CHANGES IN TAX LAWS.

In general, if you own ADSs, you will be treated as the owner of the underlying shares represented by those ADSs for U.S. federal income tax purposes. Accordingly, no gain or loss will be recognized if you exchange ADSs for the underlying shares represented by those ADSs.

This discussion assumes that we are not, and will not become, a passive foreign investment company, as described below.

Taxation of Distributions

Distributions paid on common shares or ADSs (including distributions to shareholders that are treated as interest on shareholders’ equity for Brazilian tax purposes) will generally be treated as dividends to the extent paid out of current or accumulated earnings and profits (as determined under U.S. federal income tax principles). Because we do not maintain calculations of our earnings and profits under U.S. federal income tax principles, it is expected that distributions generally will be reported to U.S. Holders as dividends. Subject to applicable limitations that may vary depending upon your circumstances, dividends paid by “qualified foreign corporations” to certain non-corporate U.S. Holders are taxable at the rates applicable to long-term capital gains. A foreign corporation is treated as a “qualified foreign corporation” with respect to dividends paid on stock that is readily tradable on a securities market in the United States, such as the NYSE, where our ADSs are traded. You should consult your tax adviser regarding the availability of the reduced tax rate on dividends in your particular circumstances.

The amount of a dividend will include any amounts withheld in respect of Brazilian taxes. The amount of the dividend will be treated as foreign-source dividend income to you and will not be eligible for the dividends-received deduction generally allowed to U.S. corporations under the Code. Dividends will be included in your income on the date of your, or in the case of ADSs, the depositary’s, receipt of the dividend. The amount of any dividend income paid in reais will be a U.S. dollar amount calculated by reference to the exchange rate in effect on the date of such receipt, regardless of whether the payment is in fact converted into U.S. dollars. If the dividend is converted into U.S. dollars on the date of receipt, you should not be required to recognize foreign currency gain or loss in respect of the dividend income. If the dividend is not converted into U.S. dollars on the date of receipt, you will have a basis in reais equal to the U.S. dollar value on the date of receipt. You may have foreign currency gain or loss if the dividend is converted into U.S. dollars after the date of receipt.

143 

Subject to applicable limitations that may vary depending upon your circumstances, Brazilian income taxes withheld from dividends on common shares or ADSs will be creditable against your U.S. federal income tax liability. The rules governing foreign tax credits are complex, and, therefore, you should consult your tax adviser regarding the availability of foreign tax credits in your particular circumstances. In particular, a U.S. Holder may use foreign tax credits to offset only the portion of its U.S. tax liability that is attributable to foreign-source income. Instead of claiming a credit, you may, at your election, deduct such Brazilian taxes in computing your taxable income, subject to generally applicable limitations under U.S. law. An election to deduct foreign taxes instead of claiming foreign tax credits applies to all taxes paid or accrued in the taxable year to foreign countries and possessions of the United States.

Sale or Other Disposition of Common Shares or ADSs

For U.S. federal income tax purposes, gain or loss you realize on the sale or other disposition of common shares or ADSs will generally be capital gain or loss, and will generally be long-term capital gain or loss if you held the common shares or ADSs for more than one year. The amount of your gain or loss will equal the difference between your tax basis in the common shares or ADSs disposed of and the amount realized on the disposition, in each case, as determined in U.S. dollars. If a Brazilian tax on gains is withheld on the sale or disposition of common shares or ADSs, a U.S. Holder’s amount realized will include the gross amount of the proceeds of such sale or disposition before deduction of the Brazilian tax. See “—Brazilian Tax Considerations—Capital Gains” for a description of when a disposition may be subject to taxation by Brazil. Such gain or loss will generally be U.S.-source gain or loss for foreign tax credit purposes. U.S. Holders should consult their tax advisers as to whether the Brazilian tax on gains may be creditable against their U.S. federal income tax on foreign-source income from other sources.

Other Brazilian Taxes

You should note that any Brazilian IOF/Exchange tax (as discussed above under “—Brazilian Tax Considerations”) will not be a creditable foreign tax for U.S. federal income tax purposes, although you may be entitled to deduct such tax, subject to applicable limitations under U.S. law. You should consult your tax adviser regarding the U.S. federal income tax consequences of the payment of Brazilian IOF/Exchange tax, including whether you may claim a deduction for such tax or should instead include the amount of tax paid in your initial basis in the common shares or ADSs.

Passive Foreign Investment Company Rules

We believe that we were not a “passive foreign investment company” (“PFIC”) for U.S. federal income tax purposes for our 2020 taxable year. However, because PFIC status depends on the composition of a company’s income and assets and the market value of its assets from time to time, there can be no assurance that we will not be a PFIC for any taxable year. If we were a PFIC for any taxable year during which a U.S. Holder held common shares or ADSs, gain recognized by such U.S. Holder on a sale or other disposition (including certain pledges) of the common shares or ADSs would be allocated ratably over the U.S. Holder’s holding period for the common shares or ADSs. The amounts allocated to the taxable year of the sale or other disposition and to any year before we became a PFIC would be taxed as ordinary income. The amount allocated to each other taxable year would be subject to tax at the highest rate in effect for individuals or corporations, as appropriate, for such taxable year, and an interest charge would be imposed on the resulting tax liability. Further, to the extent that any distribution received by a U.S. Holder on its common shares or ADSs exceeded 125% of the average of the annual distributions on common shares or ADSs received by the U.S. Holder during the preceding three years or the U.S. Holder’s holding period, whichever is shorter, that distribution would be subject to taxation in the same manner. Certain elections may be available that would result in alternative treatments (such as mark-to-market treatment) of the common shares or ADSs. U.S. Holders should consult their tax advisers to determine whether any of these elections would be available and, if so, what the consequences of the alternative treatments would be in their particular circumstances. If we are a PFIC for any taxable year during which a U.S. Holder owns our common shares or ADSs, the U.S. Holder will generally be required to file Internal Revenue Service (“IRS”) Form 8621 with its annual U.S. federal income tax return, subject to certain exceptions.

144 

Information Reporting and Backup Withholding

Payments of dividends and sales proceeds that are made within the United States or through certain U.S.-related financial intermediaries generally are subject to information reporting and may be subject to backup withholding, unless (i) you are a U.S. corporation or other exempt recipient or (ii) in the case of backup withholding, you provide a correct taxpayer identification number and certify that you are not subject to backup withholding. The amount of any backup withholding from a payment to you will be allowed as a credit against your U.S. federal income tax liability and may entitle you to a refund, provided that the required information is timely furnished to the IRS.

Certain U.S. Holders who are individuals or closely-held entities may be required to report information on IRS Form 8938 relating to their ownership of securities of a non-U.S. person, subject to certain exceptions (including an exception for securities held in certain accounts maintained by financial institutions, in which case the accounts may be reportable if maintained by a non-U.S. financial institution). U.S. Holders are urged to consult their tax advisers regarding the effect, if any, of these rules on their ownership and disposition of common shares or ADSs.

U.S. HOLDERS OF OUR COMMON SHARES OR ADSs SHOULD CONSULT THEIR OWN TAX ADVISERS AS TO THE BRAZILIAN, U.S. FEDERAL, STATE, LOCAL AND OTHER TAX CONSEQUENCES OF THE OWNERSHIP AND DISPOSITION OF OUR COMMON SHARES OR ADSs BASED UPON THEIR PARTICULAR CIRCUMSTANCES.

F. Dividends and Paying Agents

Not applicable.

G. Statement of Experts

Not applicable.

H. Documents on Display

We are subject to the information requirements of the Exchange Act, except that as a foreign issuer, we are not subject to the proxy rules or the short-swing profit disclosure rules of the Exchange Act. In accordance with these statutory requirements, we file or furnish reports and other information with the SEC. Reports and other information filed or furnished by us with the SEC may be inspected and copied at the public reference facilities maintained by the SEC at 100 F Street NE, Washington, D.C. 20549. Copies of such material may be obtained by mail from the Public Reference Section of the SEC, 100 F Street NE, Washington, D.C. 20549, at prescribed rates. You may also inspect these reports and other information at the offices of the NYSE, 11 Wall Street, New York, New York 10005, on which our ADSs are listed.

In addition, the SEC maintains a website that contains information filed electronically, which can be accessed over the Internet at http://www.sec.gov.

We also file financial statements and other periodic reports with the CVM. Copies of our annual report on Form 20-F and documents referred to in this annual report and our bylaws will be available for inspection upon request at our offices at Avenida Engenheiro Luis Carlos Berrini, 1376 – 28^th floor, 04571-936, São Paulo, SP, Brasil.

I. Subsidiary Information

Not applicable.

Item 11. Quantitative and Qualitative Disclosures About Market Risk

We are exposed to several market risks as a result of our commercial operations, debts obtained to finance our activities and financial derivative instruments, including exchange rate risk, interest rate risk, debt acceleration risk and credit risk. To help us manage our risks, we conduct a valuation of our financial assets

145 

and liabilities in relation to market values based on available information and appropriate valuation methodologies. However, the interpretation of market information, as well as the selection of methodologies, requires considerable judgment and reasonable estimates to produce adequate realization values. As a result, our valuation estimates do not necessarily indicate the amounts, which will be realized in the current market. The use of different market approaches and/or methodologies for the estimates may have a significant effect on the estimated realization values.

We also enter into derivative instruments to manage the risks to which we are exposed in accordance with our risk management policy. We do not hold derivative instruments for speculative purposes.

To further assist our risk management, we conduct fair value analyses of our derivative financial instruments, as well as sensitivity analyses of our risk variables and our net exposure risk. For more details of the results of our valuation analysis, risk management strategies, and sensitivity analysis of our derivative financial instruments, please see Note 33 to our consolidated financial statements.

In addition, volatile market conditions arising from the COVID-19 pandemic may result in significant changes in foreign exchange rates, interest rates, and share prices, both our own and those of third parties we use to value certain of our long-term investments. Refer to Part II Item IA. “Risk Factors” in this document for further discussion on the impact of the COVID-19 pandemic on our business, operating results, and financial condition.

Item 12. Description of Securities Other Than Equity Securities

A. Debt Securities

Not applicable.

B. Warrants and Rights

Not applicable.

C. Other Securities

Not applicable.

D. American Depositary Shares

The depositary, Citibank N.A., collects its fees for delivery and surrender of ADSs directly from investors depositing shares or surrendering ADSs or from intermediaries acting for them. The depositary also collects fees for making distributions to holders of ADSs by deducting those fees from the amounts distributed or by selling a portion of distributable property to pay the fees. The depositary may collect its annual fee for depositary services by directly billing investors or by charging the book-entry system accounts of participants acting for them. The depositary may generally refuse to provide fee-attracting services until its fees for those services are paid. See Exhibit 2.2 to this Form 20-F for a description of the rights of holders of the ADSs. 

The holder of an ADS may have to pay the following fees and charges related to services in connection with the ownership of the ADS up to the amounts set forth in the table below.

Persons depositing or withdrawing shares, receiving distributions or holding ADSs on the applicable record date, as applicable, must pay:	For:
Up to US$5.00 per 100 ADSs (or fraction thereof) issued	·  Issuance of ADSs upon deposit of Shares, excluding issuances as a result of distributions
Up to US$5.00 per 100 ADSs (or fraction thereof) surrendered	·  Delivery of deposited securities against surrender of ADSs

146 

Persons depositing or withdrawing shares, receiving distributions or holding ADSs on the applicable record date, as applicable, must pay:  For: 

Up to US$5.00 per 100 ADSs (or fraction thereof) held	·  Distribution of cash dividends or other cash distributions (i.e., sale of rights and other entitlements)
	·  Distribution of ADSs pursuant to (i) stock dividends or other free stock distributions, or (ii) exercise of rights to purchase additional ADSs
	·  Distribution of securities other than ADSs or rights to purchase additional ADSs (i.e., spin-off shares)
	·  Depositary services
Registration or transfer fees	·  Registration of shares or other deposited securities on the share register and applicable to transfers of shares or other deposited securities to or from the name of the custodian, the depositary or any nominees upon the making of deposits and withdrawals, respectively
Expenses and charges of the depositary	·  Cable, telex and facsimile transmissions and delivery expenses as are expressly provided in the deposit agreement
	·  Conversion of foreign currency
Taxes (including applicable interest and penalties) and other governmental charges	·  As necessary
Any reasonable and customary out-of-pocket expenses incurred in the conversion of foreign currency and/or on your behalf in complying with exchange control or other governmental requirements	·  As necessary
Fees, charges, costs and expenses incurred by the depositary, the custodian, or any nominee in connection with the ADR program	·  As necessary

On November 23, 2020, we entered into a deposit agreement with Citibank N.A., pursuant to which Citibank N.A. became our depositary.

Citibank N.A. has agreed to reimburse us for expenses related to the establishment and maintenance expenses of the ADS program. The depositary has agreed to reimburse us for our continuing annual stock exchange listing fees. The depositary has also agreed to pay the standard out-of-pocket maintenance costs for the ADRs, which consist of the expenses of postage and envelopes for mailing annual and interim financial reports, printing and distributing dividend checks, electronic filing of U.S. Federal tax information, mailing required tax forms, stationery, postage, facsimile, and telephone calls. It has also agreed to reimburse us annually for certain investor relations programs or special investor relations promotional activities. In certain instances, the depositary has agreed to provide additional payments to us based on any applicable performance indicators relating to the ADR facility. There are limits on the amount of expenses for which the depositary will reimburse us, but the amount of reimbursement available to us is not necessarily tied to the amount of fees the depositary collects from investors. During 2020, we received from Citibank N.A., our depositary, US$4.6 million, for the services described above.

147 

Part II

Item 13. Defaults, Dividend Arrearages and Delinquencies

As of December 31, 2020, we were not in default under any of our obligations and there were no dividend arrearages or delinquencies.

Item 14. Material Modifications to the Rights of Security Holders and Use of Proceeds

On October 1, 2020, the Extraordinary General Meeting of the Company approved, and the Special General Meeting of the Company’s Preferred Shareholders ratified, the Conversion of all the preferred shares issued by the Company into common shares, in the proportion of one (1) common share for each one (1) preferred share and its implementation by the Company’s officers as well as the relevant changes to our Bylaws to reflect the Conversion.

After the concession and the expiration of the term for shareholders to exercise withdrawal rights, we proceeded with the Conversion, and the last trading session for our preferred shares on the B3 and for our ADSs backed by preferred shares on the NYSE was on November 20, 2020. Therefore, as of November 23, 2020, “VIVT3” represents the only ticker symbol for trading of the Company’s common shares on the B3, and ADSs backed by our common shares began trading on the NYSE under the ticker symbol “VIV,” with each ADS representing one common share. Each of our common shares entitles its holder to one vote at our annual and extraordinary shareholders’ meetings, whereas prior to the Conversion, holders of our preferred shares were generally not entitled to vote, except under limited circumstances.

For a description of the rights of holders of our common shares and ADSs represented by common shares, see “Item 10. Additional Information—B. Memorandum and Articles of Association—Description of our Bylaws” and Exhibit 2.2 to this Form 20-F.

Item 15. Controls and Procedures

Disclosure Controls and Procedures

Our Chief Executive Officer, or CEO, and Chief Financial Officer, or CFO, are responsible for establishing and maintaining our disclosure controls and procedures. These controls and procedures were designed to ensure that information relating to us required to be disclosed in the reports that we file under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the SEC. We evaluated these disclosure controls and procedures under the supervision of our CEO and CFO as of December 31, 2020. Based on this evaluation, our CEO and CFO concluded that our disclosure controls and procedures were adequate and effective and were designed to ensure that material information relating to us and our consolidated subsidiaries are made known to them by others within those entities to allow timely decisions relating to the required disclosure.

Management’s Annual Report on Internal Control over Financial Reporting

Management is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act). The Telefônica Brasil internal control system was designed to provide reasonable assurance as to the integrity and reliability of the published financial statements. All internal control systems, no matter how well designed, may have inherent limitations and can provide reasonable assurance that the objectives of the control system are met.

Management evaluated the effectiveness of internal control over financial reporting under the supervision of our Chief Executive Officer, or CEO and Chief Financial Officer or CFO as of December 31, 2020 based on the criteria set out in the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) framework, or the 2013 framework, and concluded that, as of December 31, 2020, our internal control over financial reporting was adequate and effective.

148 

Report of the Registered Public Accounting Firm

PricewaterhouseCoopers Auditores Independentes, the independent registered public accounting firm that has audited our consolidated financial statements, has issued a report on the effectiveness of our internal control over financial reporting as of December 31, 2020. This report appears on page F-1.

Changes in Internal Control over Financial Reporting

Our internal audit department periodically evaluates our internal controls for the main cycles, documenting by flowcharts the processes used in each cycle, identifying opportunities and suggesting improvements for the existing control mechanisms. There was no change in our internal control over financial reporting that occurred during the period covered by this annual report that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

Item 16. [Reserved]

Item 16a. Audit Committee Financial Expert

Our Control and Audit Committee is comprised of a minimum of three (3) and a maximum of five (5) nonexecutive directors. See “Item 6. Directors, Senior Management and Employees—C. Board Practices—Committees—Control and Audit Committee.” Our Board of Directors has designated José María Del Rey Osorio, an independent member of our Board of Directors in accordance with the rules of the B3’s Novo Mercado and a member of our Control and Audit Committee, as the Company’s “audit committee financial expert,” as such term is defined by the SEC. There are some similar functions between the Control and Audit Committee and our statutory Fiscal Board (Conselho Fiscal), the latter of which meets the requirements of the general exemption from the listing standards for audit committees set forth in Exchange Act Rule 10A-3(c)(3). See “Item 16d. Exemptions from the Listing Standards for Audit Committees Procedures.”

Item 16b. Code of Ethics

Our administrations and employees ethics conduct, daily performed, are governed by a code of business conduct and ethics called the “Princípios de Negócio Responsável” or the Telefónica Business Principles, which is reviewed periodically and approved by the board. Its global guidelines define the way we do business with all stakeholders and generate long term value. In addition, the Telefónica Business Principles set forth mechanisms for decision making when facing ethical dilemmas and situations that eventually can be considered not in accordance with the law. We promote periodical training to our employees aiming to reinforce our code of ethics concepts and principles reaching 85% of our personnel. 

The Compliance Department’s mission is to be a role model in ensuring the applicability of anti-corruption compliance law and corporate ethics, generating value to stakeholders, protecting the company and its employees, reducing risks of non-compliance and increasing even more Telefônica’s culture which is based on ethics and integrity. The Compliance Department works together with other areas of the company to maintain our business best practices. 

At Telefônica Brasil, the compliance program, named as #VivoDeAcordo, has important pillars to its solid implementation: total commitment from top management; a robust structure of highly qualified and skilled employees responsible for the program’s actions; regular analysis and evaluation of business risks; internal policies addressing diverse subjects, such as prevention of corruption, conflict of interests, gifts and entertainment, information security, among others, in line with global guidelines and internal regulations well-structured and available to all employees; periodic compliance training for current and new employees and an active channel to answer questions about the entire program. 

The program applies to all employees (including directors and board members) and also to allies. To enhance integrity culture, initiatives of prevention, detection, remediation and integrity are constantly released, such as: regular communication on ethics topics; anticorruption training; promotion of compliance channel “Fale com #VivoDeAcordo” and our policies, that are available in our intranet portal.

149 

 The company is aware of the importance of its supply chain for its international presence, the impact and involved values in its business transactions volume. For this reason, our company promotes, establishes and maintains high level of responsible behavior with respect of its suppliers, promoting among them not only compliance quality/service standards, but also ethical, social, environmental and privacy standards in any relationship with Telefônica’s supply chain. 

As one of the pillars of our code of ethics (Princípios de Negócio Responsável), the respect and commitment to human rights guide the regular and periodic evaluation of the impacts in our value chain. Since 2010, we have been signatories to the Global Compact, a UN initiative to encourage companies to follow corporate social responsibility and sustainability policies through the adoption of ten principles related to human rights, labor, environment and corruption.

The Telefónica Business Principles are available and open to consultation for employees on the Telefónica Intranet site as well as for the general public on the Telefónica external website (https://www.telefonica.com/en/web/about_telefonica/strategy/business-principles). These Business Principles were modified in 2017 in order to include, among others, several new principles related to privacy and data protection, security, responsible communication practices, the protection of minority shareholders as well as to reinforce other principles including the anti-corruption principle. No waivers were granted in 2020.

Item 16c. Principal Accountant Fees and Services

In the chart below we have detailed the expenses accrued in respect of the fees for services rendered by PricewaterhouseCoopers Auditores Independentes, our independent auditor for the fiscal years ended December 31, 2020, 2019 and 2018:

	Year ended December 31,
	2020		2019		2018
	(in millions of reais)
Audit Fees		12.3		10.8		12.0
Audit-Related Fees		0.3		0.3		0.3
Total		12.6		11.1		12.3

Audit Fees 

Services included under this heading are mainly the audit of the annual and reviews of interim financial statements, work to comply with the requirements of the Sarbanes-Oxley Act (Section 404) and the review of the 20-F report to be filed with US Securities and Exchange Commission (SEC). 

Audit-Related Fees

This heading mainly includes services related to the review of the information required by regulatory authorities and the review of corporate responsibility reports.

Item 16d. Exemptions From the Listing Standards for Audit Committees Procedures

Brazilian Corporate Law requires that we have a statutory Fiscal Board (Conselho Fiscal) composed of three (3) to five (5) members who are elected at the general shareholders’ meeting. The Fiscal Board operates independently from management and from a company’s external auditors, and the members of our Fiscal Board are all financially literate. Its main function is to monitor the activities of management, examine the financial statements of each fiscal year and provide a formal report to our shareholders. We are relying on the general exemption from the listing standards relating to audit committees contained in Rule 10A-3(c)(3) under the Exchange Act because our statutory Fiscal Board meets the requirements of the general exemption set forth in Exchange Act Rule 10A-3(c)(3). See “Item 6. Directors, Senior Management and Employees—C. Board Practices—Fiscal Board.” Our statutory Fiscal Board is primarily charged with certain advisory, oversight and review functions with respect to the company’s financial statements; however, the statutory Fiscal Board, as required by Brazilian Corporate Law, has only an advisory role and does not participate in the management of the company. Indeed, decisions of the statutory Fiscal Board are not binding on the

150 

company under Brazilian Corporate Law. Our Board of Directors, under Brazilian Corporate Law, is the only entity with the legal capacity to appoint and retain any independent registered public accounting firm, and decide the budget appropriation with respect to such auditors.

Since Brazilian Corporate Law does not specifically grant our statutory Fiscal Board the power to establish receipt, retention and complaint procedures regarding accounting, internal control and audit matters, or create policies for the confidential, anonymous treatment of employee concerns regarding accounting or auditing matters, we have established a Control and Audit Committee as a best corporate governance practice to address these various issues. See “Item 6. Directors, Senior Management and Employees—C. Board Practices—Committees—Control and Audit Committee.” 

The Fiscal Board is not the equivalent of, or wholly comparable to, a U.S. audit committee. Among other differences, it is not required to meet the standards of “independence” established in Rule 10A-3 and is not fully empowered to act on matters that are required by Rule 10A-3 to be within the scope of an audit committee’s authority. Nonetheless, we believe that our use of a fiscal board in accordance with Brazilian Corporate Law in combination with our Control and Audit Committee, as opposed to the provisions set forth in Exchange Act Rule 10A-3(b), does not materially adversely affect the ability of the Fiscal Board to act independently, satisfy the other applicable requirements of Exchange Act Rule 10A-3 (to the extent permitted by Brazilian Corporate Law) or to fulfill its fiduciary and other obligations under Brazilian law.

Item 16e. Purchases of Equity Securities by the Issuer and Affiliated Purchasers

Plan for the Purchase of Shares Issued by the Company.

The Board of Directors approved in December 7, 2018, pursuant to article 17, item XV of the Bylaws and the CVM Instruction No. 567/15, a Share Buyback Program for the acquisition of shares issued by the Company (“Program”) for subsequent cancellation, sale or holding in treasury, as follows:

(i) Program objective: acquisition of common and preferred shares issued by the Company for subsequent cancellation, sale or holding in treasury, with no capital reduction, for the purpose of increasing shareholder value through the efficient application of available cash, optimizing the Company’s capital allocation.

(ii) Resources: the share buybacks will be made through the use of the capital reserve balance constant in the last Interim Financial Statements published on June 30, 2020 (R$ 1.2 billion), except the reserves referred to in Article 7, § 1, of ICVM 567.

(iii) Term: beginning from the date of the Board of Directors’ resolution, shall remain in force up to January 2022, with acquisitions made in Bolsa de Valores (B3 S.A. – Brasil, Bolsa, Balcão) at market prices, observing the legal limits.

(iv) Number of shares to be acquired (not considering the Conversion): up to a maximum of 583,558 common shares and 37,736,954 preferred shares.

(v) Number of outstanding shares (not considering the Conversion): 31,610,941 common shares and 415,117,308 preferred shares; pursuant to Article 8, section I, § 3 of ICVM 567.

(vi) Intermediary financial institutions: the operation will be performed through the following financial institutions: (i) Bradesco Corretora S.A. CTVM, headquartered at Avenida Paulista, 1.450, 7th floor – São Paulo/SP, (ii) BTG Pactual Corretora de Títulos e Valores Mobiliários S.A., headquartered at Av. Brig. Faria Lima, 347, 15th floor – São Paulo/SP, (iii) Itaú Corretora de Valores S.A., headquartered at Av. Brig. Faria Lima, 3.500, 3rd floor – São Paulo/SP, and (iv) Santander Corretora de Câmbio e Valores Mobiliários S.A., headquartered at Av. Presidente Juscelino Kubitschek, 2.235, 24th floor – São Paulo/SP.

Information about the Program for the Buyback of Shares Issued by the Company, including those required under the CVM Instructions No. 567/15 and No. 480/09, as amended, and additional documents are available to shareholders at the Company’s headquarters, on the Company’s investor relations page on its website, as well as on the websites of the CVM and B3.

151 

On November 25, 2020, due to the Conversion of all preferred shares into Common Shares, the Company published a material fact stating that where previously there was a reference to the preferred shares issued by the Company, i.e., mentioned above in items (i) and (v), it should be considered as a reference to the common shares issued by the Company.

In 2020, prior to the suspension of the “VIVT4” ticker for trading in our preferred shares by the B3, which took place on November 23, 2020, the Company made the following repurchases:

	Year ended December 31, 2020
Period of Fiscal Year	Total Number of Shares Purchased		Average Price Paid per Share (R$)		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs		Maximum Number of Shares that May Yet Be Purchased Under the Plans or Programs
August 1 to August 31		—		—		—		415,117,308
September 1 to September 30		—		—		—		415,117,308
October 1 to October 31		232,000		R$43.61		232,000		414,885,308
November 1 to November 22		—		—		232,000		414,885,308

_______________

(1) For a more detailed description of our plan, see the information above under the heading “—Plan for the Purchase of Shares Issued by the Company” and note 22(f) to our financial statements 

After that date, the Company made the following repurchases:

	Year ended December 31, 2020
Period of Fiscal Year	Total Number of Shares Purchased		Average Price Paid per Share (R$)		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs		Maximum Number of Shares that May Yet Be Purchased Under the Plans or Programs
November 23 to November 30		59,200		43.50		291,200		446,437,049
December 1 to December 31		227,600		43.92		518,800		446,209,449

_______________

(1) For a more detailed description of our plan, see the information above under the heading “—Plan for the Purchase of Shares Issued by the Company” and note 22(f) to our financial statements 

Item 16f. Change in Registrant’s Certifying Accountant

Not applicable.

Item 16g. Corporate Governance

Principal Differences Between U.S. and Brazilian Corporate Governance Practices 

Pursuant to NYSE rules, foreign private issuers that are listed on the NYSE, such as our Company, must disclose any significant ways in which their corporate governance practices differ from those followed by U.S. companies under the listing rules of the NYSE. 

The significant differences between our corporate governance practices and the NYSE corporate governance standards are as follows: 

Independence of Directors and Independence Tests 

The NYSE standards require a majority of the membership of listed company boards to be composed of independent directors and set for the criteria for determining independence. However, controlled companies

152 

(whether or not they are foreign private issuers) are not required to have a majority of the members of their board of directors be independent. Therefore, we would be exempt from this NYSE requirement even if we were a U.S. company.

The Brazilian Corporate Law and our bylaws require that our directors be elected by our shareholders at a general shareholders meeting. Eleven of our directors were appointed by our common shareholders, and one director was appointed by representatives of our minority preferred shareholders, prior to the Conversion of all our preferred shares into common shares after market close on November 20, 2020. Eight of our directors are independent in line with the parameters set by the regulations of B3’s Novo Mercado.

Both the Brazilian Corporate Law and the CVM establish rules in relation to certain qualification requirements and restrictions, investiture, compensation, duties and responsibilities of companies’ executives and directors. We believe these rules provide adequate assurances that our independent directors are independent, although such rules allow us to have directors that would not otherwise pass the independence tests established by the NYSE. 

Executive Sessions 

The NYSE standards require non-management directors of listed companies to meet at regularly scheduled executive sessions without management. In addition, our board of directors’ internal rules set forth that the secretary of the board of directors shall summon regular meetings or sessions without the attendance of members of the Company’s Board of Executive Officers even if they are a member of the board of directors. 

According to the Brazilian Corporate Law, up to one-third of the members of our Board of Directors can be elected to executive positions. The remaining non-management directors are not expressly empowered to serve as a check on management, and there is no requirement that those directors meet regularly without management. Notwithstanding, our Board of Directors consists of eleven non-management directors. 

Nominating/Corporate Governance Committee Requirements 

The NYSE standards require that listed companies have a nominating/corporate governance committee composed entirely of independent directors, and such committee must have a written charter that addresses the committee’s purposes and responsibilities (including certain required purposes and responsibilities) as well as the annual performance evaluation of the committee. However, controlled companies (whether or not they are foreign private issuers) are exempt from this requirement. Therefore, we would be exempt from this NYSE requirement even if we were a U.S. company. 

Brazilian Corporate Law does not require us to maintain a committee responsible for nominations or corporate governance. Nevertheless, our board of directors has created our Nominations, Compensation and Corporate Governance Committee, which consists of three (3) to five (5) directors appointed by the Board of Directors to serve for the duration of their respective terms as members of the board of directors, two of which are independent in line with the parameters set by the regulations of B3’s Novo Mercado. Our Nominations, Compensation and Corporate Governance Committee has a written charter, which sets forth its responsibilities, including nominating our management team and setting compensation limits for our management, establishing employment agreements for our management and setting forth our annual report of corporate governance practices. Unlike the nominating/corporate governance committees of U.S. companies listed on the NYSE (other than controlled companies), our Nominations, Compensation and Corporate Governance Committee is not necessarily responsible for identifying individuals to become board members, or overseeing the evaluation of the board and management. See “Item 6. Directors, Senior Management and Employees—C. Board Practices—Committees—Nominations, Compensation and Corporate Governance Committee” for a description of the responsibilities of our Nominations, Compensation and Corporate Governance Committee. 

153 

Compensation Committee Requirements 

The NYSE standards require listed companies to have a compensation committee composed entirely of independent directors, and such members must meet the additional independence requirements specific to compensation committee membership set forth in the rules. In addition, NYSE standards require the compensation committee to have a written charter that addresses the committee’s purposes and responsibilities (including certain required purposes and responsibilities). Said charter must specify the rights and responsibilities of the compensation committee regarding the authority to retain advisors and provide funding for such advisors. Certain specified factors must be considered regarding such advisers’ independence from management. However, controlled companies (whether or not they are foreign private issuers) are exempt from this requirement. Therefore, we would be exempt from this NYSE requirement even if we were a U.S. company. 

As noted above, while Brazilian Corporate Law does not require us to have a compensation committee, our Board of Directors has created our Nominations, Compensation and Corporate Governance Committee. As determined by the Brazilian Corporate Law, the compensation of management is approved by our shareholders at our shareholders’ meeting. Subject to this approval, our Board of Directors establishes the compensation of its members and of our executive officers. The Nominations, Compensation and Corporate Governance Committee provides information and recommendations to the Board of Directors regarding the compensation of our executive officers and managers (see “Item 6. Directors, Senior Management and Employees - C. Board Practices - Committees – Nominations, Compensation and Corporate Governance Committee”). Our Nominations, Compensation and Corporate Governance Committee is not required to perform certain functions that are required of U.S. companies listed on the NYSE (other than controlled companies), such as directly reviewing and approving corporate goals and objectives relating to CEO compensation, evaluating the CEO’s performance in light of those goals and objectives and, either as a committee or together with the other independent directors, determining and approving the CEO’s compensation level based on this evaluation. 

Our Nominations, Compensation and Corporate Governance Committee is not required by the Brazilian Corporate Law or its charter to take into consideration any factors relevant to independence from management when retaining the advice of a compensation consultant, legal counsel or other advisers. 

Audit Committee Requirements 

The NYSE standards require listed companies (including foreign private issuers) to have an audit committee that satisfies the requirements of Rule 10A-3 under the Exchange Act. However, Rule 10A-3 provides an exemption for companies, such as our Company, that have a board of auditors or statutory auditors, established and selected pursuant to home country legal provisions expressly requiring or permitting such a board or similar body, provided that certain criteria are satisfied. The NYSE standards also set forth additional requirements for the audit committees of listed companies, including that the audit committee must have a minimum of three (3) members, all members of the audit committee must be independent, the audit committee must have a written charter that addresses certain topics, and each listed company must have an internal audit function. As a foreign private issuer, we are exempt from these additional requirements. 

Brazilian Corporate Law and our bylaws each require that we have a statutory Fiscal Board (Conselho Fiscal). See “Item 6. Directors, Senior Management and Employees—C. Board Practices—Fiscal Board.” Our statutory Fiscal Board meets the requirements of the general exemption from the listing standards for audit committees set forth in Exchange Act Rule 10A-3(c)(3). See “Item 16d. Exemptions from the Listing Standards for Audit Committees Procedures.” Our statutory Fiscal Board is primarily charged with certain advisory, oversight and review functions with respect to the company’s financial statements. However, the statutory Fiscal Board, as required by Brazilian Corporate Law, has only an advisory role and does not participate in the management of the company. Indeed, the decisions of the statutory Fiscal Board are not binding on the company under Brazilian Corporate Law. See “Item 6. Directors, Senior Management and Employees—C. Board Practices—Fiscal Board.” 

In addition to our statutory Fiscal Board, we have established a Control and Audit Committee as a best corporate governance practice to comply with the requirements of the Sarbanes-Oxley Act as described in

154 

“Item 6. Directors, Senior Management and Employees—C. Board Practices—Committees—Control and Audit Committee.” Our Control and Audit Committee comprises a minimum of three (3) and a maximum of five (5) directors, who are not members of our Board of Executive Officers, and who are appointed by the board of directors to serve as members of the Control and Audit Committee for the duration of their respective terms as members of the board of directors. Only the chairman of the Control and Audit Committee is considered independent. The Committee has its own charter, which was approved by the board of directors.

Shareholder Approval of Equity Compensation Plans 

NYSE rules require that shareholders be given the opportunity to vote on all equity compensation plans and material revisions thereto, with limited exceptions.  

Corporate Governance Guidelines 

NYSE rules require that listed companies adopt and disclose corporate governance guidelines.

 We are subject to the corporate governance provisions of the Brazilian Corporate Law and of CVM Instruction 480 (as amended by CVM Instruction 586 issued on June 8, 2017), which requires us to disclose certain corporate governance guidelines. Under CVM Instruction 480, we must disclose information regarding our adoption of the governance practices set forth in the Brazilian Corporate Governance Code - Public Companies (the “Governance Code”). Thus, we are required to disclose a report named “Report on the Brazilian Corporate Governance Code - Public Companies” within seven months from the closing date of each fiscal year. Notwithstanding, since the governance practices set forth in the Governance Code are imposed only on a “comply or explain” basis, adherence to the recommendations described therein is not mandatory, however, an explanation must be disclosed with respect to any recommendations set forth therein that we do not adopt. 

In addition, we have a Nominations, Compensation and Corporate Governance Committee that establishes our corporate governance guidelines, which we disclose to the public on an annual basis.

Corporate Governance Practices

We are a sociedade anônima, a corporation incorporated under the laws of Brazil, and are subject to the corporate governance provisions set forth within Brazilian Corporate Law. We comply with the regulatory requirements of the Brazilian Corporate Law regarding the independence of our board of directors, the establishment and composition of certain board committees and the adoption and disclosure of corporate governance guidelines.

We comply with several requirements of Brazilian and international laws to promote strong corporate governance, reduce investor uncertainties and enhance disclosure of material and other information.

With the approval of our board of directors and/or Officers, we implemented several measures over the last few years designed to improve our transparency and disclosure practices. We believe these measures will benefit our shareholders, and current and future investors as well as the marketplace in general. Among the measures we have implemented, we have:

· created a policy for disclosure of material facts or corporate actions and trading of our securities (Política de Divulgação de Ato ou Fato Relevante e de Negociação de Valores Mobiliários);

· created a policy for internal controls related to the Communication, Recording and Control of Financial and Accounting Information (Normativa sobre Registro, Comunicação e Controle de Informação Financeiro-Contábil);

· established the Quality and Sustainability Committee;

· established the Control and Audit Committee;

· established the Nominations, Compensation and Corporate Governance Committee;

155 

· established the Strategy Committee;

· enacted a procedure to receive and deal with reports of accounting and auditing fraud within the company (Canal de Denúncias);

· enacted a policy for prior approval of contracting audit services (Normativa sobre Aprovação Prévia de Serviços a serem Prestados pelo Auditor Externo);

· enacted a code of business conduct and ethics (Princípios de Negócio Responsável);

· enacted a code of conduct for members of our finance team regulating the conduct of our managers in connection with the registration and control of financial and accounting information and their access to privileged and nonpublic information and data (Normas de Conduta para Financeiros);

· enacted a policy regarding communication of information to the securities market (Normativa sobre Comunicação de Informação aos Mercados);

· enacted a policy regarding the prevention and fight against corruption (Diretrizes de Prevenção e Combate à Corrupção and Política Anticorrupção).

As determined by the Brazilian Corporate Law, the annual cap for the aggregate compensation of the statutory board of directors and Board of Executive Officers is approved by our shareholders at a shareholders' meeting. The Nominations, Compensation and Corporate Governance Committee provides information and recommendations to the board of directors regarding the criterion for compensation. 

Our policy relating to insider trading is determined pursuant to our Política de Divulgação de Ato ou Fato Relevante e de Negociação de Valores Mobiliários in accordance with corporate law. This document establishes practices for disclosing, using and preserving the confidentiality of relevant acts and/or facts of the Company, and establishes obligations and mechanisms for the disclosure of said facts to the market. The Company, controlling Shareholders, Senior management, members of our Board of Directors, Fiscal Board and any other employee exposed to sensitive information are subject to the restrictions imposed by such rules. In addition to the prohibition on the trading of our shares by such individuals when in possession of insider information, the rules establish blackout trading periods for those periods when insider information is available. In addition, the charter sets forth instructions for dealing with conflicts of interest and mandates disclosure of any such situation.

Data Protection and Privacy Initiatives

We are committed to ensuring security in the processing of our customers’ personal data, and is guided by three fundamental pillars: confidentiality, integrity and availability of the information that we handle. As part of our commitment and in compliance with the applicable law, we have adopted robust security measures to prevent security incidents, and developed resources to identify and correct vulnerabilities that could put the privacy of our customers, employees and commercial partners at risk.

Our commitment to data protection and privacy predates the publication of the LGPD and has intensified since 2018, when we began adapting to the rules and obligations imposed by LGPD under the aegis of a specialized, multidisciplinary and capable workgroup. We highlight the following areas:

· Data Protection Office (DPO) - in compliance with the LGPD, we appointed a Data Protection Officer and a DPO area solely dedicated to managing governance and raising awareness of the subject, actively advising business areas on issues and queries related to data protection/privacy and supporting the continuous evolution of the standards and measures in accordance with the LGPD.

· Information Security - Vivo has a Digital Security Department, dedicated and committed to protecting data from unauthorized access, focusing on integrity, confidentiality and availability of information, in addition to having policies and guidelines for monitoring and taking corrective actions in the case of breaches and attacks.

156 

· Legal - Vivo has a qualified legal team that assists with the analysis of contracts, amendments and any legal issues that may arise about privacy and data protection.

Furthermore, we have redesigned and updated our Privacy Center website, initially created in 2016, which is available in Portuguese at https://www.vivo.com.br/a-vivo/informacoes-aos-clientes/centro-de-privacidade. We are one of the few large Brazilian companies to have created a dedicated website to bring transparency and provide information about our data protection and privacy actions, in addition to allowing the exercise of the rights of data subjects in an easy and free manner. The information on our website is not a part of this annual report on Form 20-F.

Conversion of Our Preferred Shares into Common Shares

As mentioned above, on October 1, 2020, the Extraordinary General Meeting of the Company approved and the Special General Meeting of the Company’s Preferred Shareholders ratified the Conversion of all the preferred shares issued by the Company into common shares, in the proportion of one (1) common share for each one (1) preferred share and its implementation by the Company’s officers as well as the relevant changes to the Company’s Bylaws to reflect the Conversion.

After the concession and the expiration of the term for shareholders to exercise withdrawal rights, we proceeded with the Conversion, and the last trading session for our preferred shares on the B3 and for our ADSs backed by preferred shares on the NYSE was on November 20, 2020. Therefore, as of November 23, 2020, “VIVT3” represents the only ticker symbol for the trading of the Company’s common shares on the B3, and ADSs backed by our common shares began trading on the NYSE under the ticker symbol “VIV.”

The Conversion was undertaken as part of certain improvements to our Corporate Governance Practices, in order to maximize the generation of value to all our shareholders, conferring to them rights set forth under Brazilian Corporate Law, such as the right to vote and the right to tag along, among others.

Item 16h. Mine Safety Disclosure

Not applicable.

157 

Part III

Item 17. Financial Statements 

We have responded to Item 18 in lieu of responding to this Item.

Item 18. Financial Statements 

Reference is made to pages F-1 through F-92.

Item 19. Exhibits

Exhibit number	Description
1.1	Bylaws of Telefônica Brasil S.A., as amended (unofficial English translation). (Incorporated by reference to our Form 6-K furnished to the SEC on October 2, 2020)
2.1	Form of Deposit Agreement, by and among Telefônica Brasil S.A., Citibank, N.A., as Depositary, and Holders and Beneficial Owners of American Depositary Shares issued thereunder. (Incorporated by reference to Exhibit (a)(i) to the Registration Statement of American Depositary Shares on Form F-6 (No. 333-249516), filed with the SEC on October 16, 2020)
2.2	Description of Securities registered under Section 12 of the Exchange Act
4.1	Contract and Justification of the Merger of Telefônica Data Brasil Holding S.A. into Telecomunicações De São Paulo S.A. – TELESP and Partial Spin-Off of Telefônica Empresas S.A. dated March 9, 2006. (Incorporated by reference to Exhibit B to our Form CB, filed with the SEC on March 14, 2006)
4.2	Grant Contract for Fixed Commuted Telephone Service in Local Modality (Sector 31) between Agência Nacional De Telecomunicações and Telecomunicações De São Paulo S.A. – TELESP dated June 30, 2011 (unofficial English translation). (Incorporated by reference to Exhibit 4(B).1 to our Annual Report on Form 20-F for the year ended December 31, 2011, filed with the SEC on April 20, 2012)
4.3	Grant Contract for Fixed Commuted Telephone Service in Long-Distance Modality (Sector 31) between Agência Nacional De Telecomunicações and Telecomunicações De São Paulo S.A. – TELESP dated June 30, 2011 (unofficial English translation). (Incorporated by reference to Exhibit 4(B).2 to our Annual Report on Form 20-F for the year ended December 31, 2011, filed with the SEC on April 20, 2012)
4.4	Certificate of Authorization to Provide Multimedia Communication Service between Agência Nacional de Telecomunicações – ANATEL and Global Telecom S.A. dated March 19, 2004 (English language summary). (Incorporated by reference to Exhibit 4(B).1 to our Annual Report on Form 20-F for the year ended December 31, 2012, filed with the SEC on March 20, 2013)
4.5	Authorization Agreement of the Personal Mobile Service (Region II) between Agência Nacional de Telecomunicações – ANATEL and Telefônica Brasil S.A. dated January 18, 2010 (English language summary). (Incorporated by reference to Exhibit 4.3 to our Annual Report on Form 20-F for the year ended December 31, 2013, filed with the SEC on March 19, 2014)
4.6	Authorization Agreement of the Personal Mobile Service (Region III) between Agência Nacional de Telecomunicações – ANATEL and Telefônica Brasil S.A. dated January 18, 2010 (English language summary). (Incorporated by reference to Exhibit 4.4 to our Annual Report on Form 20-F for the year ended December 31, 2013, filed with the SEC on March 19, 2014)
4.7	Authorization Agreement to Provide Commuted Fixed Telephone Service in Local Modality (Regions I and II) between Agência Nacional De Telecomunicações and Telefônica Brasil S.A. dated September 5, 2011 (English language summary). (Incorporated by reference to Exhibit 4.5 to our Annual Report on Form 20-F for the year ended December 31, 2013, filed with the SEC on March 19, 2014)

158 

Exhibit number  Description 

4.8	Certificate of Authorization to Provide Commuted Fixed Telephone Service in National Long-Distance Modality (Regions I and II) between Agência Nacional de Telecomunicações – ANATEL and Telefônica Brasil S.A. dated September 5, 2011 (English language summary). (Incorporated by reference to Exhibit 4.6 to our Annual Report on Form 20-F for the year ended December 31, 2013, filed with the SEC on March 19, 2014)
4.9	Certificate of Authorization to Provide Commuted Fixed Telephone Service in International Long-Distance Modality (Regions I and II) between Agência Nacional de Telecomunicações – ANATEL and Telefônica Brasil S.A. dated September 5, 2011 (English language summary). (Incorporated by reference to Exhibit 4.7 to our Annual Report on Form 20-F for the year ended December 31, 2013 filed with the SEC on March 19, 2014)
4.10	Authorization Agreement of the Personal Mobile Service (Region I) between Agência Nacional de Telecomunicações – ANATEL and Telefônica Brasil S.A. dated February 7, 2012 (English language summary). (Incorporated by reference to Exhibit 4.8 to our Annual Report on Form 20-F for the year ended December 31, 2013, filed with the SEC on March 19, 2014)
4.11	Authorization Agreement for Spectrum Blocks Associated with Personal Mobile Service (Region III) between Agência Nacional de Telecomunicações – ANATEL and Telefônica Brasil S.A. dated October 16, 2012 (English language summary). (Incorporated by reference to Exhibit 4.9 to our Annual Report on Form 20-F for the year ended December 31, 2013, filed with the SEC on March 19, 2014)
4.12	Authorization Agreement for Spectrum Blocks Associated with Personal Mobile Service (Region II) between Agência Nacional de Telecomunicações – ANATEL and Telefônica Brasil S.A. dated October 16, 2012 (English language summary). (Incorporated by reference to Exhibit 4.10 to our Annual Report on Form 20-F for the year ended December 31, 2013 filed with the SEC on March 19, 2014)
4.13	Authorization Agreement for Spectrum Blocks Associated with Personal Mobile Service (Region III) between Agência Nacional de Telecomunicações – ANATEL and Telefônica Brasil S.A. dated October 16, 2012 (English language summary). (Incorporated by reference to Exhibit 4.11 to our Annual Report on Form 20-F for the year ended December 31, 2013, filed with the SEC on March 19, 2014)
4.14	Authorization Agreement for Spectrum Blocks Associated with Personal Mobile Service and Multimedia Communication (Areas identified by the National Codes 13, 14, 15, 16, 17, 18 and 19, in the state of São Paulo) between Agência Nacional de Telecomunicações – ANATEL and Telefônica Brasil S.A. dated October 16, 2012 (English language summary). (Incorporated by reference to Exhibit 4.12 to our Annual Report on Form 20-F for the year ended December 31, 2013, filed with the SEC on March 19, 2014)
4.15	Authorization Agreement for Spectrum Blocks Associated with Personal Mobile Service and Multimedia Communication (States of Alagoas, Ceará, Minas Gerais, Paraíba, Pernambuco, Piauí, Rio Grande do Norte and Sergipe) between Agência Nacional de Telecomunicações – ANATEL and Telefônica Brasil S.A. dated October 16, 2012 (English language summary). (Incorporated by reference to Exhibit 4.13 to our Annual Report on Form 20-F for the year ended December 31, 2013, filed with the SEC on March 19, 2014)
4.16	Authorization Agreement for Conditional Access Service in the entire Brazilian territory between Agência Nacional de Telecomunicações – ANATEL and Telefônica Brasil S.A. dated March 18, 2013 (Incorporated by reference to Exhibit 4.14 to our Annual Report on Form 20-F for the year ended December 31, 2013, filed with the SEC on March 19, 2014)
4.17	Authorization Agreement for Conditional Access Service in the entire Brazilian territory between Agência Nacional de Telecomunicações – ANATEL and Telefônica Brasil S.A. dated March 18, 2013 (Incorporated by reference to Exhibit 4.15 to our Annual Report on Form 20-F for the year ended December 31, 2013, filed with the SEC on March 19, 2014)
4.18	Authorization Agreement for Conditional Access Service in the entire Brazilian territory between Agência Nacional de Telecomunicações – ANATEL and Telefônica Brasil S.A. dated March 18, 2013 (Incorporated by reference to Exhibit 4.16 to our Annual Report on Form 20-F for the year ended December 31, 2013, filed with the SEC on March 19, 2014)

159 

Exhibit number  Description 

4.19	Authorization Agreement for Conditional Access Service in the entire Brazilian territory between Agência Nacional de Telecomunicações – ANATEL and Telefônica Brasil S.A. dated March 18, 2013 (Incorporated by reference to Exhibit 4.17 to our Annual Report on Form 20-F for the year ended December 31, 2013, filed with the SEC on March 19, 2014)
4.20	Authorization Agreement for Conditional Access Service in the entire Brazilian territory between Agência Nacional de Telecomunicações – ANATEL and Telefônica Brasil S.A. dated March 18, 2013 (Incorporated by reference to Exhibit 4.18 to our Annual Report on Form 20-F for the year ended December 31, 2013, filed with the SEC on March 19, 2014)
4.21	Authorization Agreement for Conditional Access Service in the entire Brazilian territory between Agência Nacional de Telecomunicações – ANATEL and Telefônica Brasil S.A. dated March 18, 2013 (Incorporated by reference to Exhibit 4.19 to our Annual Report on Form 20-F for the year ended December 31, 2013, filed with the SEC on March 19, 2014)
4.22	Authorization Agreement for Radiofrequency Blocks Associated with Personal Mobile Service (States of Rio de Janeiro, Minas Gerais, Espírito Santo, Bahia, Sergipe, Alagoas, Pernambuco, Paraíba, Rio Grande do Norte, Ceará and Piauí) between Agência Nacional de Telecomunicações – ANATEL and Telefônica Brasil S.A. dated December 2, 2014 (Incorporated by reference to Exhibit 4.22 to our Annual Report on Form 20-F for the year ended December 31, 2014, filed with the SEC on February 27, 2015).
4.23	Authorization Agreement for Radiofrequency Blocks Associated with Personal Mobile Service (Federal District of Brasilia and the States of Rio Grande do Sul, Santa Catarina, Paraná, Mato Grosso do Sul, Mato Grosso, Goiás, Tocantins and Rondônia.) between Agência Nacional de Telecomunicações – ANATEL and Telefônica Brasil S.A. dated December 2, 2014 (Incorporated by reference to Exhibit 4.23 to our Annual Report on Form 20-F for the year ended December 31, 2014, filed with the SEC on February 27, 2015).
4.24	Authorization Agreement for Radiofrequency Blocks Associated with Personal Mobile Service (State of São Paulo) between Agência Nacional de Telecomunicações – ANATEL and Telefônica Brasil S.A. dated December 2, 2014 (Incorporated by reference to Exhibit 4.24 to our Annual Report on Form 20-F for the year ended December 31, 2014, filed with the SEC on February 27, 2015).
4.25	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, Telefônica Brasil S.A., as purchaser, and GVTPar, GVT Operadora and Telefónica, S.A. (Incorporated by reference to Exhibit 4.25 to our Annual Report on Form 20-F for the year ended December 31, 2014, filed with the SEC on February 27, 2015) †
4.26	Purchase and Sale Agreement of Shares and Other Covenants, dated as of January 28, 2021, by and among Oi Móvel SA - In Judicial Recovery, as seller, Telefônica Brasil S.A., Tim S.A. and Claro S.A., as buyers, and Oi S.A. - In Judicial Recovery and Telemar Norte Leste S.A. - In Judicial Recovery, as intervening parties and guarantors of the seller’s obligations. (English free translation)

8.1	List of Subsidiaries
12.1	Section 302 Certification of the Chief Executive Officer.
12.2	Section 302 Certification of the Chief Financial Officer.
13.1	Section 906 Certification of the Chief Executive Officer.
13.2	Section 906 Certification of the Chief Financial Officer.

101.INS	XBRL Instance Document
101.SCH	XBRL Taxonomy Extension Schema Document
101.CAL	XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF	XBRL Taxonomy Extension Definition Linkbase Document
101.LAB	XBRL Taxonomy Extension Label Linkbase Document
101.PRE	XBRL Taxonomy Extension Presentation Linkbase Document

_______________

† Confidential information has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to this omitted information.

160 

Signatures

The registrant hereby certifies that it meets all of the requirements for filing on Form 20-F and that it has duly caused and authorized the undersigned to sign this annual report on its behalf.

TELEFÔNICA BRASIL S.A.
By:	/s/ Christian Mauad Gebara
	Name:	Christian Mauad Gebara
	Title:	Chief Executive Officer
By:	/s/ David Melcon Sanchez-Friera
	Name:	David Melcon Sanchez-Friera
	Title:	Chief Financial Officer

Date: February 25, 2021

161 

Telefônica Brasil S.A.

Consolidated Financial Statements

On December 31, 2020 and 2019 and for the years ended December 31, 2020, 2019 and 2018.

TABLE OF CONTENTS

Page

Report of Independent Registered Public Accounting Firm	F-1
Consolidated Balance Sheets	F-4
Consolidated Statements of Income	F-6
Consolidated Statements of Other Comprehensive Income	F-7
Consolidated Statements of Changes in Equity	F-8
Consolidated Statements of Cash Flows	F-9
Notes to Consolidated Financial Statements	F-10

Report of Independent Registered Public Accounting Firm

To the Board of Directors and Shareholders

Telefônica Brasil S.A.

Opinions on the financial statements and internal control over financial reporting

We have audited the accompanying consolidated balance sheets of Telefônica Brasil S.A. and its subsidiaries (the “Company”) as of December 31, 2020 and December 31, 2019, and the related consolidated statements of income, other comprehensive income, changes in equity and cash flows for each of the three years in the period ended December 31, 2020, including the related notes (collectively referred to as the “consolidated financial statements”). We also have audited the Company's internal control over financial reporting as of December 31, 2020, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2020 and December 31, 2019, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2020 in conformity with International Financial Reporting Standards as issued by the International Accounting Standards Board. Also, in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2020, based on criteria established in Internal Control - Integrated Framework (2013) issued by the COSO.

Change in accounting principle

As discussed in Note 12 to the consolidated financial statements, the Company changed the manner in which it accounts for leases in 2019.

Basis for opinions

The Company's management is responsible for these consolidated financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in item 15 – Controls and Procedures – Management´s Annual Report on Internal Control over Financial Reporting. Our responsibility is to express opinions on the Company’s consolidated financial statements and on the Company's internal control over financial reporting based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects.

Our audits of the consolidated financial statements included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.

F-1

Definition and limitations of internal control over financial reporting

A company's internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company's internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company's assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Critical audit matters

The critical audit matters communicated below are matters arising from the current period audit of the consolidated financial statements that were communicated or required to be communicated to the audit committee and that (i) relate to accounts or disclosures that are material to the consolidated financial statements and (ii) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.

Provisions for tax and regulatory contingencies

As described in Notes 7(g) and 19 to the consolidated financial statements, the Company has recorded provision for tax and regulatory contingencies of R$ 1,895,504 thousand and R$ 1,207,331, respectively, as of December 31, 2020. The Company recognizes provision in the consolidated financial statements for the resolution of pending litigation when the Company has a present obligation as a result of a past event and management determines that a loss is probable, and the amount of the loss can be reasonably estimated. No liability for an estimated loss is accrued in the consolidated financial statements for unfavorable outcomes when, after assessing the information available, (i) management concludes that it is not probable that a loss has been incurred in any of the pending litigation; or (ii) management is unable to estimate the loss of the pending matters. In case of income tax pending litigations, management determines whether is probable or not that taxation authority will accept the uncertain tax treatment. If the Company concludes it is not probable that taxation authority will accept the uncertain tax treatment, a provision for income tax is recognized. In Notes 7(g) and 19, the Company also discloses the contingency in circumstances where management concludes (i) no loss is probable or reasonably estimable, but it is reasonably possible that a loss may be incurred or, (ii) in case of income tax pending litigations, is probable that the taxation authority will accept the uncertain tax treatment.

The principal considerations for our determination that performing procedures relating to tax and regulatory contingencies is a critical audit matter are there was significant judgment by management when assessing the likelihood of a loss being incurred and when determining whether a reasonable estimate of the loss and possible outcomes for each claim can be made, which in turn led to a high degree of auditor judgment, effort, and subjectivity in evaluating management´s assessment of the loss contingencies associated with litigations claims.

Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements. These procedures included testing the effectiveness of controls relating to management´s evaluation of pending litigation, including controls over determining whether a loss is probable and whether the amount of loss can be reasonably estimated or whether the taxation authority will probably not accept the income tax pending litigations , as well as financial statement disclosures. These procedures also included among others, (1) obtaining and evaluating the letters of audit inquiry with internal and external legal counsel, (2) evaluating the reasonableness of management´s assessment regarding unfavorable outcomes, and (3) evaluating the sufficiency of the Company´s disclosures. Professionals with specialized skill and knowledge were used to assist in the evaluation of Company´s assessment regarding unfavorable outcomes.

F-2

Revenue recognition - unbilled

As described in Notes 4 and 24 to the consolidated financial statements, of the total gross revenue recognized by the Company for the year ended December 31, 2020, R$ 2,191,331 thousand relates to services rendered and not yet billed. When the revenue billing cycle does not align with the account closing date, management estimates the amount to be recognized for services rendered and not yet billed at the year-end. These estimates are based on different cycles of information, on data obtained from different sources and processed by a large number of applications and systems.

The principal considerations for our determination that performing procedures relating to unbilled revenue, is a critical audit matter are the judgments made by management for estimating the amount of unbilled revenue. This in turn led to a high degree of auditor judgment and effort in performing audit procedures to evaluate unbilled revenue recognition.

Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements. These procedures included testing the effectiveness of controls relating to unbilled revenue recognition. The procedures also included, among others, (1) assessing the reasonableness of the criteria employed by management to estimate revenue rendered and not yet billed including the accuracy of the underlying data and (2) performing a comparison of the originally estimated and actual billed revenue after year-end.

Goodwill Impairment Assessment

As described in Note 13 to the consolidated financial statements, the Company´s consolidated goodwill balance was R$ 23,026,429 thousand at December 31, 2020, associated with a single cash-generating unit (CGU) that provides all telecommunications services through a broadly integrated network. Management conducts impairment tests for goodwill at least annually or more frequently, if events or circumstances indicate the carrying amount may not be fully recoverable. Potential impairment is identified by comparing the value in use of the CGU to its carrying value, including goodwill. Value in use is estimated by management using a discounted cash flow model. Management’s cash flows projections for the CGU included significant judgements and assumptions relating to revenue growth, discount rate and perpetuity growth rate.

The principal considerations for our determination that performing procedures relating to goodwill impairment assessment is a critical audit matter are there were (i) significant judgments made by management when developing the value in use measurement of the CGU; (ii) a high degree of auditor judgement, subjectivity and effort in performing procedures and evaluating management’s significant assumptions related to revenue growth, discount rate and perpetuity growth rate; and (iii) the audit effort involved the use of professionals with specialized skill and knowledge.

Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements. These procedures included testing the effectiveness of controls relating to management’s goodwill impairment assessment, including controls over the valuation of the CGU. These procedures also included, among others, (i) testing management’s process for developing the value in use estimate; (ii) evaluating the appropriateness of the discounted cash flow model; (iii) testing the completeness and accuracy of underlying data used in the model; and (iv) evaluating the reasonableness of the significant assumptions used by management related to revenue growth, discount rate and perpetuity growth rate. Evaluating management's assumption related to revenue growth involved evaluating whether assumption used by management were reasonable considering (i) the current and past performance of the CGU, (ii) the consistency with external market and industry data, and (iii) whether this assumption was consistent with evidence obtained in other areas of the audit. Professionals with specialized skill and knowledge were used to assist in the evaluation of the Company’s discounted cash flow model and the discount rate and the perpetuity growth rate assumptions.

São Paulo, February 23, 2021

By:	/s/ PricewaterhouseCoopers
	Name:	PricewaterhouseCoopers Auditores Independentes

We have served as the Company’s auditor since 2017.

F-3

TELEFÔNICA BRASIL S.A.

Consolidated Balance Sheets

On December 31, 2020 and 2019

	Note	December 31, 2020		December 31, 2019
	(In thousands of reais)
ASSETS
Current assets			19,060,868		18,644,678
Cash and cash equivalents	3		5,762,081		3,393,377
Trade accounts receivable	4		8,182,667		8,719,497
Inventories	5		633,100		578,003
Income and social contribution taxes recoverable	7		519,277		411,595
Taxes, charges and contributions recoverable	8		2,512,293		4,176,362
Judicial deposits and garnishments	9		177,433		277,468
Prepaid expenses	6		859,766		686,503
Derivative financial instruments	31		5,902		19,282
Other assets	10		408,349		382,591
Non-current assets			89,677,510		89,645,044
Short–term investments pledged as collateral			46,280		63,766
Trade accounts receivable	4		379,898		440,453
Taxes, charges and contributions recoverable	8		824,324		841,198
Deferred taxes	7		138,641		171,042
Judicial deposits and garnishments	9		2,766,945		3,393,417
Prepaid expenses	6		194,511		220,082
Derivative financial instruments	31		63,514		52,881
Other assets	10		184,254		235,738
Investments	11		144,433		104,251
Property, plant and equipment	12		44,352,593		42,847,264
Intangible assets	13		40,582,117		41,274,952
TOTAL ASSETS			108,738,378		108,289,722

The accompanying notes are an integral part of these Consolidated Financial Statements.

F-4

Consolidated Balance Sheets

On December 31, 2020 and 2019

	Note	December 31, 2020		December 31, 2019
	(In thousands of reais)
LIABILITIES AND EQUITY
Current liabilities			17,875,084		17,732,088
Personnel, social charges and benefits	15		764,329		752,246
Trade accounts payable	16		6,613,004		6,871,799
Income and social contribution taxes payable	7		1,693		6,585
Taxes, charges and contributions payable	17		1,607,434		1,139,812
Dividends and interest on equity	18		3,865,998		3,587,417
Provisions and contingencies	19		417,653		374,445
Deferred income	21		506,806		506,181
Loans, financing, debentures and leases	20		3,682,472		4,126,490
Derivative financial instruments	31		8,864		1,921
Other liabilities	22		406,831		365,192
Non-current liabilities			21,306,530		20,102,056
Personnel, social charges and benefits	15		3,679		36,028
Income and social contribution taxes payable	7		96,252		86,512
Taxes, charges and contributions payable	17		319,358		285,055
Deferred taxes	7		4,414,540		3,146,453
Provisions and contingencies	19		5,192,478		5,160,973
Deferred income	21		239,438		211,901
Loans, financing, debentures and leases	20		9,556,694		9,698,183
Derivative financial instruments	31		66,116		54,212
Other liabilities	22		1,417,975		1,422,739
TOTAL LIABILITIES			39,181,614		37,834,144
Equity			69,556,764		70,455,578
Capital	23		63,571,416		63,571,416
Capital reserves	23		1,182,263		1,165,463
Income reserves	23		3,149,679		3,492,387
Other comprehensive income acumulated	23		65,888		30,737
Additional proposed dividends	23		1,587,518		2,195,575
TOTAL LIABILITIES AND EQUITY			108,738,378		108,289,722

The accompanying notes are an integral part of these Consolidated Financial Statements.

F-5

Consolidated Statements of Income

Years ended December 31, 2020, 2019 and 2018

	Note	2020			2019			2018
	(In thousands of reais, except earnings per share)
Net operating revenue	24		43,126,472			44,268,171			43,462,740
Cost of sales	25		(22,693,083	)		(22,158,947	)		(21,025,767	)
Gross profit			20,433,389			22,109,224			22,436,973
Operating income (expenses)			(13,852,460	)		(14,895,300	)		(12,980,789	)
Selling expenses	25		(11,871,555	)		(12,701,222	)		(12,832,741	)
General and administrative expenses	25		(2,524,993	)		(2,498,096	)		(2,598,970	)
Other operating income	26		1,419,113			929,498			4,077,003
Other operating expenses	26		(875,025	)		(625,480	)		(1,626,081	)
Operating income			6,580,929			7,213,924			9,456,184
Financial income	27		1,351,530			1,132,870			4,112,640
Financial expenses	27		(1,924,959	)		(1,953,011	)		(2,285,487	)
Equity	11		734			752			(5,847	)
Income before taxes			6,008,234			6,394,535			11,277,490
Income and social contribution taxes	7		(1,237,707	)		(1,393,521	)		(2,349,232	)
Net income for the year			4,770,527			5,001,014			8,928,258
Basic and diluted earnings per common share (in R$)	23		2.90			2.78			4.96
Basic and diluted earnings per preferred share (in R$)	23		2.77			3.06			5.45

The accompanying notes are an integral part of these Consolidated Financial Statements.

F-6

Consolidated Statements of Other Comprehensive Income

Years ended December 31, 2020, 2019 and 2018

	Note	2020			2019			2018
	(In thousands of reais)
Net income for the year			4,770,527			5,001,014			8,928,258
Other comprehensive income that may be reclassified into income in subsequent periods			34,861			1,523			8,309
Losses on derivative financial instruments	23		(6,283	)		(509	)		(2,450	)
Taxes	7		2,136			173			832
Cumulative Translation Adjustments (CTA) on transactions in foreign currency	11		39,008			1,859			9,927
Other comprehensive income (losses) not to be reclassified into income (losses) in subsequent periods			204,785			(132,131	)		(63,151	)
Unrealized gains (losses) on financial assets at fair value through other comprehensive income	23		440			(17	)		(625	)
Taxes	7		(150	)		6			213
Actuarial gains (losses) and limitation effect of the assets of surplus plan	30		309,911			(201,660	)		(93,492	)
Taxes	7		(105,416	)		69,540			30,753
Other comprehensive income (losses)			239,646			(130,608	)		(54,842	)
Total comprehensive income for the year			5,010,173			4,870,406			8,873,416

The accompanying notes are an integral part of these Consolidated Financial Statements.

F-7

Consolidated Statements of Changes in Equity

Years ended December 31, 2020, 2019 and 2018

Capital

Special goodwill reserve

Other capital reserves

Treasury shares

Legal reserve

Tax incentive reserve

Expansion and moderniza– tion reserve

Retained earnings

Proposed additional dividends

Other comprehend- sive income accumulated

Total equity

(In thousands of reais)

Balance as of December 31, 2017

63,571,416

63,074

1,238,268

(87,820

)

2,138,344

27,884

297,000

–

2,191,864

21,328

73,780,826

Effects of the initial adoption of IFRS 9 and 15, net of taxes

–

–

–

–

–

–

–

(138,663

)

–

–

(138,663

)

Balance on January 1, 2018

63,571,416

63,074

1,238,268

(87,820

)

2,138,344

27,884

297,000

(138,663

)

2,191,864

21,328

73,642,163

Payment of additional dividend for 2017

–

–

–

–

–

–

–

–

(2,191,864

)

–

(2,191,864

)

Unclaimed dividends and interest on equity

–

–

–

–

–

–

–

152,770

–

–

152,770

Adjustment – Tax incentives

–

–

–

–

–

11,529

–

(11,529

)

–

–

–

Other comprehensive income

–

–

–

–

–

–

–

(62,739

)

–

7,897

(54,842

)

Equity transactions

–

–

10

–

–

–

–

–

–

–

10

Net income for the year

–

–

–

–

–

–

–

8,928,258

–

–

8,928,258

Allocation of income:

Legal reserve

–

–

–

–

446,413

–

–

(446,413

)

–

–

–

Interim interest on equity

–

–

–

–

–

–

–

(4,550,000

)

–

–

(4,550,000

)

Reversal of expansion and Modernization Reserve

–

–

–

–

–

–

(297,000

)

297,000

–

–

–

Expansion and Modernization Reserve

–

–

–

–

–

–

1,700,000

(1,700,000

)

–

–

–

Additional proposed dividends

–

–

–

–

–

–

–

(2,468,684

)

2,468,684

–

–

Balance on December 31, 2018

63,571,416

63,074

1,238,278

(87,820

)

2,584,757

39,413

1,700,000

–

2,468,684

29,225

71,607,027

Payment of additional dividend for 2018

–

–

–

–

–

–

–

–

(2,468,684

)

–

(2,468,684

)

Unclaimed dividends and interest on equity

–

–

–

–

–

–

–

82,898

–

–

82,898

DIPJ adjustment – Tax incentives

–

–

–

–

–

18,166

–

(18,166

)

–

–

–

Other comprehensive income

–

–

–

–

–

–

–

(132,120

)

–

1,512

(130,608

)

Equity transactions (Note 1 c)

–

–

(48,135

)

–

–

–

–

–

–

–

(48,135

)

Other

–

–

66

–

–

–

–

–

–

–

66

Net income for the year

–

–

–

–

–

–

–

5,001,014

–

–

5,001,014

Allocation of income:

Legal reserve

–

–

–

–

250,051

–

–

(250,051

)

–

–

–

Interim interest on equity and dividends

–

–

–

–

–

–

–

(3,588,000

)

–

–

(3,588,000

)

Reversal of expansion and Modernization Reserve

–

–

–

–

–

–

(1,700,000

)

1,700,000

–

–

–

Expansion and Modernization Reserve

–

–

–

–

–

–

600,000

(600,000

)

–

–

–

Additional proposed dividends

–

–

–

–

–

–

–

(2,195,575

)

2,195,575

–

–

Balance on December 31, 2019

63,571,416

63,074

1,190,209

(87,820

)

2,834,808

57,579

600,000

–

2,195,575

30,737

70,455,578

Payment of additional dividend for 2019

–

–

–

–

–

–

–

–

(2,195,575

)

–

(2,195,575

)

Unclaimed dividends and interest on equity

–

–

–

–

–

–

–

99,788

–

–

99,788

Adjustment – Tax incentives

–

–

–

–

–

18,766

–

(18,766

)

–

–

–

Other comprehensive income

–

–

–

–

–

–

–

204,495

–

35,151

239,646

Equity transactions (Note 1 c)

–

–

39,521

–

–

–

–

–

–

–

39,521

Payment of withdrawal rights to shareholders when converting preference shares to ordinary shares

–

–

–

(32

)

–

–

–

–

–

–

(32

)

Repurchase of preferred shares for maintenance in treasury

–

–

–

(22,689

)

–

–

–

–

–

–

(22,689

)

Reversal of expansion and Modernization Reserve

–

–

–

–

–

–

(600,000

)

600,000

–

–

–

Net income for the year

–

–

–

–

–

–

–

4,770,527

–

–

4,770,527

Allocation of income:

Legal reserve

–

–

–

–

238,526

–

–

(238,526

)

–

–

–

Interim interest on equity and dividends

–

–

–

–

–

–

–

(3,830,000

)

–

–

(3,830,000

)

Additional proposed dividends

–

–

–

–

–

–

–

(1,587,518

)

1,587,518

–

–

Balance on December 31, 2020

63,571,416

63,074

1,229,730

(110,541

)

3,073,334

76,345

–

–

1,587,518

65,888

69,556,764

F-8

Consolidated Statements of Cash Flows

Years ended December 31, 2020, 2019 and 2018

	2020			2019			2018
	(In thousands in reais)
Cash flows from operating activities
Income before taxes		6,008,234			6,394,535			11,277,490
Adjustment for:
Depreciation and amortization		11,227,498			10,919,792			8,368,623
Foreign exchange on loans and derivative financial instruments		(6,538	)		(5,271	)		30,664
Indexation accruals on assets and liabilities		506,056			518,833			801,912
Equity		(734	)		(752	)		5,847
Losses (gains) on write-off/sale of assets		(459,758	)		(329,603	)		(63,881	)
Impairment losses – trade accounts receivable		1,740,358			1,682,348			1,533,660
Change in liability provisions		92,358			(116,717	)		(80,333	)
Write-off and reversals for impairment – inventories		6,508			(95,988	)		(45,223	)
Pension plans and other post-retirement benefits		88,487			56,012			52,885
Provisions for tax, civil, labor and regulatory contingencies		673,905			625,480			1,098,251
Interest expense		651,496			782,921			497,797
Other		(48,289	)		(143,208	)		(14,089	)
Changes in assets and liabilities
Trade accounts receivable		(1,142,973	)		(2,078,801	)		(1,603,002	)
Inventories		61,783			(15,843	)		(68,127	)
Taxes recoverable		1,687,393			87,550			(5,849,648	)
Prepaid expenses		(146,425	)		(188,641	)		41,166
Other assets		(17,116	)		70,265			(20,225	)
Personnel, social charges and benefits		(17,755	)		(13,303	)		47,870
Trade accounts payable		287,273			286,513			1,056,817
Taxes, charges and contributions		38,526			1,872,920			223,059
Provisions for tax, civil, labor and regulatory contingencies		(927,057	)		(1,727,178	)		(3,928,925	)
Other liabilities		38,334			(11,477	)		(249,571	)
		14,209,764			12,175,852			1,835,527
Cash generated from operations		20,217,998			18,570,387			13,113,017
Interest paid		(781,092	)		(746,986	)		(494,931	)
Income and social contribution taxes paid		(95,156	)		(102,205	)		(676,659	)
Net cash generated by operating activities		19,341,750			17,721,196			11,941,427
Cash flows from investing activities
Additions to PP&E, intangible assets and others		(8,289,264	)		(8,838,641	)		(8,517,458	)
Proceeds from sale of PP&E		959,345			698,643			9,053
Cash paid for acquisition of companies, net of cash acquired		–			(70,844	)		–
Cash received from sale of investments		116,411			–			10
Redemption net of judicial deposits		798,233			277,894			2,832,062
Cash and cash equivalents due to the acquisition (sale) of companies		(6,756	)		5,760			–
Redemption of applications in guarantees		13,575			–			–
Net cash used in investing activities		(6,408,456	)		(7,927,188	)		(5,676,333	)
Cash flows from financing activities
Payment of loans, financing, debentures and leases		(5,297,688	)		(3,696,660	)		(2,893,219	)
Receipts – derivative financial instruments		84,400			192,124			181,117
Payments – derivative financial instruments		(69,214	)		(100,581	)		(85,124	)
Dividend and interest on equity paid		(5,259,367	)		(6,176,842	)		(4,136,878	)
Payment for acquisitions of shares for treasury		(22,721	)		–			–
Net cash used in financing activities		(10,564,590	)		(9,781,959	)		(6,934,104	)
Increase (decrease) in cash and cash equivalents		2,368,704			12,049			(669,010	)
Cash and cash equivalents at beginning of the year		3,393,377			3,381,328			4,050,338
Cash and cash equivalents at end of the year		5,762,081			3,393,377			3,381,328

The accompanying notes are an integral part of these Consolidated Financial Statements.

F-9

TELEFÔNICA BRASIL S. A.

Notes to Consolidated Financial Statements

Years ended December 31, 2020, 2019 and 2018
(In thousands of reais, unless otherwise stated)

(1) Operations

(a) Background information

Telefônica Brasil S.A. (the “Company” or “Telefônica Brasil”) is a publicly–held corporation with the main purpose of operating telecommunications services; development of activities necessary or complementary to the execution of such services, in accordance with the concessions, authorizations and permissions granted; exploration of value–added services; offering of integrated solutions, management and provision of services related to: (i) data centers, including hosting and co–location; (ii) storage, processing and management of data, information, texts, images, videos, applications and information systems and similar; (iii) information technology; (iv) information and communication security; (v) telecommunications; and (vi) electronic security systems; licensing and sublicensing of software of any nature, among others.

The Company’s principal offices are located at 1376, Engenheiro Luis Carlos Berrini Avenue, in the city and state of São Paulo, Brazil. It is a member of the Telefónica Group (“Group”), based in Spain and operates in several countries across Europe and Latin America.

On December 31, 2020 and 2019, Telefónica S.A. (“Telefónica”), the Group holding company, held a total direct and indirect interest in the Company of 73.58% (Note 23).

The Company is registered with the Brazilian Securities and Exchange Commission (“CVM”) and its shares are traded at B3. It is also registered with the Securities and Exchange Commission (“SEC”), of the United States of America, its American Depositary Shares (“ADSs”) being backed only by common shares and traded on the New York Stock Exchange (“New York Stock Exchange ” - “ NYSE ”).

(b) Operations

The Company renders services for: (i) Fixed Switched Telephone Service Concession Arrangement (“STFC”); (ii) Multimedia Communication Service (“SCM”, data communication, including broadband internet); (iii) Personal Mobile Service (“SMP”); and (iv) Conditioned Access Service (“SEAC” – Pay TV), throughout Brazil, through concessions and authorizations, in addition to other activities.

Service concessions and authorizations are granted by Brazil’s Telecommunications Regulatory Agency (“ANATEL”), the agency responsible for the regulation of the Brazilian telecommunications sector under the terms of Law No. 9472 of July 16, 1997 – General Telecommunications Law (“Lei Geral das Telecomunicações” – LGT).

In accordance with the STFC service concession agreement, every two years, during the agreement’s 20–year term ending on December 31, 2025, the Company will pay a fee equivalent to 2% of its prior–year STFC revenue, net of applicable taxes and social contribution taxes (Note 22).

Before the sanction of the Law nº 13.879 / 2019, radio frequencies authorizations generally were valid for 15 years and could be extended only once, for the same period. With the normative revision improved by the aforementioned Law, successive extensions of authorization grants were allowed, but the applicability of this instrument to the currently terms was uncertain until the edition of Decree nº 10.402 / 2020, which detailed the requirements related to the new successive extension regime and clarified that the current authorizations are also covered by the referred regime.

Notwithstanding, the Decree also defines the conditions to be considered by ANATEL in connection with requests for renewal, such as ensuring the efficient use of radio frequencies, competitive aspects, meeting the public interest and fulfilling the obligations already assumed with ANATEL.

F-10

Currently, every two years after the first renewal of these agreements, the Company will pay a fee equivalent to 2% of its prior–year SMP revenue, net of applicable taxes and social contribution taxes (Note 22), and for certain terms, in the 15th year, the Company will pay 1% of its prior–year revenue. The calculation will consider the net revenue from Basic and Alternative Services Plans. In July 2018, ANATEL published Resolution No. 695 with a new public spectrum price regulation. This Resolution sets new criteria for the costs of renewing licenses. The formula considers factors such as authorization time, regional revenue and the amount of spectrum used by the provider. Part of the payment can be converted into investment commitments.

When deciding on the extension of the 850 MHz band authorizations, ANATEL determined, through Judgment No. 510, of September 30, 2020, that (i) the Superintendence of Granting and Provisioning Resources (“SOR”) deal with requests for extension of the current authorizations for the use of radio frequencies in sub–bands A and B, proposing their approval, on a primary basis, until November 29, 2028, if the legal and regulatory requirements are met; and that (ii) the amount due for the extension must be calculated based on net present value parameters, in order to reflect the real economic value (market value) of the bands.

Therefore, after overcoming the necessary procedures with SOR, the Board of Directors of ANATEL, through Judgment No. 618, of November 26, 2020, extended the term of the authorization for the right to use radio frequencies, referring to the bands 869.0 to 880.0 MHz, 824.0 to 835.0 MHz, 890.0 to 891.5 MHz and 845.0 to 846.5 MHz, associated with Authorization Term No. 001/2006 / PVCP / SPV– ANATEL granted to the Company, until the date of November 29, 2028, without exclusivity, on a primary basis and restricted to the provision area related to the State of Rio de Janeiro, pursuant to Act No. 7,281, of November 26, 2020. The extension for a period lower than the maximum limit provided for by Law (20 years), in the opinion of ANATEL, it took place from the need to promote reorganization and resizing of the channel’s channeling. The calculation of the value by method other than those previously mentioned (biannual charges and Resolution No. 695/2018, which approved the Public Price Regulation for the Right to Use Radio Frequencies (“PPDUR”) was decided on the grounds that the current regulatory instruments have no forecast of applicability in cases of a second extension of authorizations, as a complement, ANATEL determined that the payment for the authorization should be made at the level of 10% of the amount due, with the remaining 90% being settled in the form of investments.

The terms of authorization for the use of the radio frequency bands are granted based on the results obtained in the respective radio frequency auction conducted by ANATEL.

The following is a summary of the authorizations for use of radio frequency bands, granted to the Company, according to the terms of authorization to operate the service in each region.

Radiofrequency	Band (MHz)	License Expiration (Year)
450 MHz	14	2027
700 MHz	20	2029
800 MHz	25	2021–2028
900 MHz	5	2023–2035
1800 MHz	20–50	2023–2035
2100 MHz	20–30	2023
2500 MHz	40–60	2027–2031

c) Corporate events that occurred in 2020 and 2019

In 2020

Structuring of Vivo Money Credit Rights Investment Fund

In August 2020, the Vivo Money Credit Rights Investment Fund (“FIDC” or “Vivo Money”) was structured, in the form of a closed condominium, for an indefinite term. The FIDC may be liquidated by resolution of the General Assembly in accordance with its regulations.

The objective of the FIDC is to provide its quota holders an equity return on their shares by investing in the acquisition of: (i) eligible credit rights, with supporting documents, which meet the eligibility criteria and the conditions of assignment, and (ii) financial assets, observing all indexes of composition and diversification of the fund’s portfolio.

F-11

The acquisition of eligible credit rights and other financial assets will originate in credit transactions carried out electronically by the Company’s customers, within the scope of the Vivo Money program, exclusively through an electronic platform provided by the Company.

The FIDC began operations on September 14, 2020, having been granted automatic registration under article 8 of CVM Instruction 356/01, issuing 2,000 (two thousand) junior subordinated quotas with an initial unit face value of R$1,000.00 (one thousand reais).

On December 1, 2020, the Company made a new contribution to the FIDC in the amount of R$ 2,000, with the issuance of an additional 2,000 (two thousand) junior subordinated quotas with an initial unit face value of R$1,000.00 (one thousand reais).

On December 31, 2020, the Company held 4,000 (four thousand) junior subordinated quotas with an initial unit face value of R$1,000.00 (one thousand reais), with no defined remuneration parameter and subordinated to senior shares and subordinated mezzanine shares, in that order of priority, for the purpose of amortization and redemption.

The FIDC is managed and held in custody by Brl Trust Distribuidora de Títulos e Valores Mobiliários S.A., a financial institution, based in the city of São Paulo – SP, accredited by the CVM for the exercise of portfolio management activity under declaratory act no. 11,784, of June 30, 2011.

Acquisition and sale of control of Telefônica Cibersegurança e Tecnologia do Brasil Ltda.

Acquisition of control of Telefônica Cibersegurança e Tecnologia do Brasil Ltda.

In September 2020, the Company acquired control of Telefônica Cibersegurança e Tecnologia do Brasil Ltda (“CyberCo Brasil”), for R$10,000.00 (ten thousand reais), with a net worth of R$500.00 (five hundred reais) (“Transaction”).

Cibersegurança was controlled by Terra Networks Brasil Ltda (“Terra Networks”), a wholly–owned subsidiary of the Company and its corporate purpose is to develop integrated solutions, management, consulting, outsourcing, and the provision of services related to information and communication security; provision of research, technological development, consultancy, design, implementation and installation of projects related to the areas of information technology, information security and intelligence; management and provision of repair, maintenance, technical assistance and technical support in information technology, among other services.

This Transaction, which involves companies under common control, was accounted for at the book value of the net assets acquired (“Predecessor Value Method”), as certain requirements for the use of the acquisition method set forth in IFRS 3 (R). Consequently, the difference between the consideration given in exchange for the equity interest obtained and the value of the net assets acquired was recorded in the equity of the Company and its subsidiary.

On October 28, 2020, the Company made a capital contribution to CyberCo Brasil in the amount of R$7,000 in financial resources (cash).

On November 1, 2020, and as a preliminary step to the implementation of the Transaction, certain assets (R$19,008 in property, plant and equipment and intangible assets), contracts and employees were transferred to CyberCo Brasil by the Company, all strictly related to cybersecurity activities.

Sale of control of Telefônica Cibersegurança e Tecnologia do Brasil Ltda.

At the meeting held on November 1, 2020, the Company’s Board of Directors approved the execution of the Share Purchase and Sale Agreement, pursuant to which the Company sold all the shares it held, representing the entire share capital from its subsidiary CyberCo Brasil, to Telefónica Cybersecurity Tech, S.L. (“TTech”), indirect subsidiary of Telefónica S.A., for the total amount of R$116,411, having generated a net tax gain of R$39,521, recorded in equity, based on an independent external report prepared by a specialized company (“Transaction”).

F-12

The Transaction will allow the Company, as an exclusive distributor of CyberCo Brasil, to strengthen itself in the cybersecurity market by expanding its portfolio of products and services. In addition, the Company will benefit from greater competitiveness due to the global scale of the partner dedicated to such activities.

The Transaction also ensures the continuity of the provision of cybersecurity services by the Company’s B2B area to its end customers, as it includes the execution of certain contracts that regulate the provision of services between CyberCo Brasil and the Company. The Purchase and Sale Agreement contains terms and provisions common to this type of transaction.

This Transaction is not subject to obtaining any regulatory authorizations or additional approvals to those already obtained by the Company’s bodies and does not alter the Company’s shareholding structure or cause any dilution to its shareholders, generating value to them through accelerating their growth and increasing operational efficiency.

This operation involved companies under common control and, as certain requirements were not met so that it could be accounted for as a business combination provided for in IFRS 3 (R), the difference between the consideration received in exchange for the participation alienated company was recorded in the equity of the Company.

With the conclusion of the Transaction, as of November 1, 2020, CyberCo Brasil is no longer controlled by the Company.

In 2019

Acquisition of TIS by Wholly Owned Subsidiary – 2019

On September 26, 2019, the Company announced that its wholly–owned subsidiary Terra Networks had acquired all the shares representing the capital stock of Telefônica Infraestrutura e Segurança Ltda. (“TIS”), owned by Telefônica Ingeniería de Seguridad S.A. and Telefônica Digital Espanã, S.L.U. (“Transaction”).

TIS renders services and technology of information security systems, technical support and services related to the infrastructure, technology and information, among others.

The Transaction allowed Terra Networks, which includes among its activities the development of systems, to expand consulting and operational assistance, maximize commercialization of systems, licenses and applications, enabling the expansion of the portfolio of professional and managed services and the allow for the integration of the TIS and Terra Networks business offerings generating added value for the Company’s client portfolio. Synergies will accrue from the companies as these are under the same management, in the activities of information technology, security, IoT and connectivity.

The TIS share price purchase consideration was R$70,844, due in a single installment. This was paid in cash by Terra Networks without need of financing. The purchase price was calculated based on the economic value of the TIS on the discounted cash flow criterion, on August 31, 2019, based on an appraisal report contracted by Terra Networks’ Board of Directors.

The sale and purchase agreement contain terms and provisions common to such transactions, such as seller’s representations and warranties, indemnity and others. The Transaction was also preceded by an accounting, financial, legal and procedural audit of TIS.

Completion of the Transaction is not subject to regulatory or regulatory authorizations, or approvals by Company bodies. It was approved by Terra Networks’ Board of Executive Officers pursuant to its by–laws.

The Transaction does not change the Company’s ownership structure or cause any dilution to its shareholder value by accelerating their growth and increasing operational efficiency.

This Transaction, involved companies under common control, was accounted for at the book value of the net assets acquired (“Predecessor Value Method”), as certain requirements for the use of the acquisition method set forth in IFRS 3 (R). Consequently, the difference between the consideration given in exchange for the equity interest obtained and the value of the net assets acquired was recorded in Terra Network’s equity.

F-13

Upon completion of the Transaction, as from September 1, 2019, TIS became a direct subsidiary of Terra Networks and indirectly owned by the Company.

(2) Basis of Preparation and Presentation of Financial Statements

(a) Statement of compliance

The consolidated financial statements were prepared and are presented in accordance with the International Financial Reporting Standards (“IFRS”), as issued by the International Accounting Standards Board (“IASB”).

(b) Basis of preparation and presentation

The financial statements were prepared on a historical cost basis (except where different criteria are required) and adjusted to reflect the valuation of assets and liabilities measured at fair value or considering the mark–to–market valuation when such valuations are required by IFRS.

The Statement of Cash Flows was prepared in accordance with IAS 7 – Statement of Cash Flows and reflects the changes in cash that occurred in the years presented using the indirect method.

Assets and liabilities are classified as current when it is probable that their realization or settlement will occur in the next 12 months. Otherwise, they are classified and shown as non-current. The only exception relates to the balances of deferred tax assets and liabilities, which are classified and fully shown as non-current.

The Board of Directors authorized issuance of this consolidated financial statements at the meeting held on February 19, 2021.

c) Functional and reporting currency

The Company’s financial statements for the years ended December 31, 2020, 2019 and 2018 are presented in thousands of Brazilian Real/Reais (R$), unless otherwise stated.

The Company’s functional and reporting currency is the Brazilian Real. Transactions in foreign currency are translated into Brazilian Reais as follows: (i) assets, liabilities and shareholders’ equity (excluding capital stock and capital reserves) are translated at the closing exchange rate on the balance sheet date; (ii) expenses and revenues are translated at the average exchange rate, except for specific transactions that are converted by the transaction date rate; and (iii) the capital stock and capital reserves are converted at the transaction date rate.

Gains and losses from the conversion of investments abroad are recognized in the statement of comprehensive income. Gains and losses from the translation of monetary assets and liabilities between the exchange rate prevailing at the date of the transaction and the year–end closing (except for the conversion of investments abroad) are recognized in the statement of income.

d) Basis of consolidation

Interest held in subsidiaries or joint ventures is measured under the equity method in the individual financial statements. In the consolidated financial statements, investments and all asset and liability balances, revenues and expenses arising from transactions and interest held in subsidiaries are fully eliminated. Investments in joint ventures are measured under the equity method in the consolidated financial statements.

On December 31, 2020 and 2019, the Company holds direct equity interests in subsidiaries and joint ventures. Selected information on the Company’s investees is as follows:

F-14

		Equity interests
Investees	Type of investment	December 31, 2020	December 31, 2019
Terra Networks Brasil Ltda (“Terra Networks”)	Subsidiary	100.00%	100.00%
Telefônica Transportes e Logística Ltda (“TGLog”)	Subsidiary	99.99%	99.99%
POP Internet Ltda (“POP”)	Subsidiary	99.99%	99.99%
Vivo Money Credit Rights Investment Fund (“Vivo Money”) (Note 1.c)	Subsidiary	100.00%	–
Aliança Atlântica Holding B.V. (“Aliança”)	Joint venture	50.00%	50.00%
Companhia AIX de Participações (“AIX”)	Joint venture	50.00%	50.00%
Companhia ACT de Participações (“ACT”)	Joint venture	50.00%	50.00%

Terra Networks: The Company’s direct and wholly–owned subsidiary, with headquarters in Brazil, with the main activities being the development, production, installation and maintenance of computer systems; consultancy, operational assistance, training, courses and exhibitions in computer science; commercialization of products, computer systems, software licenses and applications; import and export of services, licenses, products and computer systems; cession of space for insertion of advertising or advertising material in general; provision of internet access; services and activities related to product distribution and electronic commerce; amusement and entertainment services; provision of intermediary services and business in general; commercialization, distribution, licensing of digital content; development and availability of portals and content pages on the internet; commercialization, lending and rental of equipment and products; provision of technical support services in information technology, among others.

Since September 1, 2019, Terra Networks became the direct parent company of TIS (Note 1 c), a company headquartered in Brazil, whose main activities are the exploration and provision of services and technology, information security systems, technical support and other services related to the infrastructure, technology and information, among others.

TGLog: The Company’s direct subsidiary, with its head office in Brazil, whose main activities are the provision of services in the activity of multimodal transportation of products in general; logistics activities; administration and operation of general and customs warehouses throughout the national territory; rental of equipment and storage of goods from third parties; among others.

POP: The Company’s direct subsidiary, with headquarters in Brazil, whose main activities are the development of activities related to information technology, internet and any other networks; provision of hosting services and the commercial exploitation of websites and portals; handling, making available and storing information and data; trade in software, hardware, telecommunication equipment and electronics; development, licensing and maintenance of information systems and routines; e–commerce development; creation and administration of own and / or third party databases; commercialization and placement of advertisements, advertisements and banners; among others.

POP is the direct parent company of Innoweb Ltda (“Innoweb”), headquartered in Brazil, whose main activities are to act as an internet provider; develop information activities; develop all forms of telecommunications activities, including the transmission of voice, data and information; commercialize equipment and / or accessories for telecommunications and electronics, among others

Vivo Money: The Company’s direct and wholly owned subsidiary, with headquarters in Brazil. It is a FIDC structured by the Company, for the acquisition of eligible credit rights and other financial assets originating from credit operations carried out electronically by the Company’s customers, within the scope of the Vivo Money program, exclusively through the electronic platform provided by the Company (Note 1.c).

Aliança: Joint venture, headquartered in Amsterdam, Netherlands, with 50% interest held by the Company, whose main activity is the acquisition and management of subsidiaries, and holding interest in companies of the telecommunications industry.

AIX: Joint venture, headquartered in Brazil, with 50% interest held by the Company, with the main activity in holding interest in Consórcio Refibra, and in performing activities related to the direct and indirect operation of activities associated with the construction, completion and operation of underground networks for optical fiber ducts.

F-15

ACT: Joint venture, headquartered in Brazil, with 50% interest held by the Company, with the main activity in holding interest in Consórcio Refibra, and in performing 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.

e) Segment reporting

Business segments are defined as components of a company for which separate financial information is available and regularly assessed by the operational decision–making professional in definition of how to allocate funds to an individual segment and in the assessment of segment performance. Considering that: (i) all officers and managers’ decisions are based on consolidated reports; (ii) the Company and its subsidiaries’ mission is to provide their customers with quality telecommunications services; and (iii) all decisions related to strategic planning, finance, purchases, short– and long–term investments are made on a consolidated basis, the Company and its subsidiaries operate in a single operating segment, namely the provision of telecommunications services.

f) Significant accounting practices

Significant and relevant accounting policies for the understanding of the basis of recognition and measurement applied in the preparation of the Company’s financial statements are included in the respective notes to which they refer.

The accounting policies adopted in the preparation of the consolidated financial statements for the year ended December 31, 2020 are consistent with those used in the preparation of the consolidated annual financial statements for the year ended December 31, 2019, except for the changes required by the new pronouncements, interpretations and amendments approved for the IASB, which came into effect as of January 1, 2020, as follows:

• Changes to IFRS 3: Definition of business

In October 2018, the IASB issued changes to the definition of business in IFRS 3, to help entities determine whether an acquired set of activities and assets consists of or not in a business. They clarify minimum requirements, eliminate the assessment of whether market participants are able to replace any missing elements, include guidelines to help entities assess whether a purchased process is substantive, better define business and product definitions, and introduce a test of optional fair value concentration.

• Amendments to IAS 1 and IAS 8: Definition of material omission

In October 2018, the IASB issued changes to IAS 1 and IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors, to align the definition “material omission” or “materially distorted disclosure” in all standards and to clarify certain aspects of the definition. The new definition states that “the information is material if its omission, distortion or obscuration can reasonably influence decisions that the main users of the general purpose financial statements make based on these financial statements, which provide financial information on the entity’s specific report”.

The adoption of these changes had no impact on the consolidated financial statements in the initial adoption period (January 1, 2020).

New IFRS pronouncements, issues, amendments and interpretations of the IASB

In addition to the standards issued and amended mentioned above, on the date of preparation of these financial statements, the IASB had issued IFRS 17 – Insurance Contracts (a standard not yet issued in Brazil), a new comprehensive accounting standard for insurance contracts that includes recognition and measurement, presentation and disclosure.

IFRS 17 will come into force for periods beginning on or after January 1, 2021, requiring the presentation of comparative figures. Early adoption is permitted if the entity also adopts IFRS 9 and IFRS 15 on the same date or before the initial adoption of IFRS 17. This standard does not apply to the Company.

F-16

The Company does not anticipate the early adoption for the year ended December 31, 2020 of any pronouncement, interpretation or amendment that has been issued before application is mandatory.

g) Significant accounting judgments estimates and assumptions

The preparation of the financial statements requires the use of certain critical accounting estimates and the exercise of judgment by the Company’s management in applying its accounting policies. These estimates are based on experience, knowledge, information available at the end of the year, and other factors, including expectations of future events that are believed to be reasonable in the circumstances. Actual results involving these estimates could differ in values from those recorded in the financial statements due to the criteria inherent in the estimation process. The Company reviews its estimates at least annually.

The significant and relevant estimates and judgments applied by the Company in the preparation of these financial statements are presented in the following notes: trade accounts receivable (Note 4); income and social contribution taxes (Note 7); property, plant and equipment (Note 12); intangible assets (Note 13); provision and contingencies (Note 19); net operating income (Note 24); pension plans and other post-employment benefits (Note 30); and financial instruments and risk and capital management (Note 31).

(3) Cash and Cash Equivalents

a) Accounting policy

These are financial assets, measured at amortized cost, maintained in order to meet short–term cash commitments and not for investment or other purposes. The Company and its subsidiaries consider cash equivalents a short–term investment readily convertible into a known amount of cash and subject to insignificant risk of change in value and when redeemable within 90 days.

Breakdown

	December 31, 2020		December 31, 2019
Cash and banks (1)		191,975		250,168
Short–term investments (2)		5,570,106		3,143,209
Total		5,762,081		3,393,377

(1) On December 31, 2020 and 2019, the Consolidated balances included R$47,313 and R$59,657, respectively, related to the Financial Clearing House, with a Telefónica Group company (Note 28).

(2) Highly liquid short–term investments basically comprise Bank Deposit Certificates (“CDB”) and Repurchase Agreements with first tier rated financial institutions, indexed to the Interbank Deposit Certificate (“CDI”) rate, with original maturities of up to three months, and with immaterial risk of change in value. Income from these investments are recorded as financial income.

(4) Trade Accounts Receivable

a) Accounting policy

These are financial assets measured initially at fair value and subsequently, at amortized cost and are evaluated by the value of the services provided and goods sold in accordance with the contracted conditions, net of estimated impairment losses. These include the services provided to customers, which were still not billed at the balance sheet date, as well as other trade accounts receivable related to the sale of cell phones, SIM cards, accessories, advertising and rent of IT equipment (“Vivo Tech” product) and credit rights of the Vivo Money FIDC.

The Company measures the provision for estimated impairment losses in an amount equal to the loss of credit expected for a lifetime.

F-17

b) Critical estimates and judgments

In determining whether the credit risk of a financial asset has increased significantly since the initial recognition and in estimating the expected credit losses, the Company considers reasonable and bearable information that is relevant and available. This includes quantitative and qualitative information and analysis, based on the Company’s historical experience, credit assessment and considering forward–looking information. Although the Company believes that the assumptions used are reasonable, the results may be different.

c) Breakdown

	December 31, 2020			December 31, 2019
Billed amounts		7,611,858			7,018,601
Unbilled amounts (1)		2,191,331			2,866,196
Interconnection amounts		724,630			790,046
Vivo Money FIDC		1,975			–
Amounts from related parties (Note 28)		105,349			129,904
Gross accounts receivable		10,635,143			10,804,747
Estimated impairment losses		(2,072,578	)		(1,644,797	)
Total		8,562,565			9,159,950
Current		8,182,667			8,719,497
Non-current		379,898			440,453

(1) Includes the amounts of contractual assets, shown in item 4.d), of this note.

Balances of non-current trade accounts receivable include:

	December 31, 2020			December 31, 2019
B2B merchandise resale portion – 24 months		159,075			182,286
Portion of accounts receivable from the OI group – Bankruptcy process of companies		59,813			89,647
Vivo TECH product (1)		348,086			317,988
Nominal amount receivable		566,974			589,921
Deferred financial income		(34,504	)		(48,086	)
Present value of accounts receivable		532,470			541,835
Estimated impairment losses		(152,572	)		(101,382	)
Net amount receivable		379,898			440,453

(1) The maturity schedule is up to five years for amounts related to the Vivo TECH product.

There are no unsecured residual values resulting in benefits to the lessor nor contingent payments recognized as revenue for the year.

The following are amounts receivable, net of estimated losses for impairment of accounts receivable, by maturity:

	December 31, 2020		December 31, 2019
Falling due (1)		6,798,420		6,862,054
Overdue – 1 to 30 days		870,551		966,986
Overdue – 31 to 60 days		228,074		306,956
Overdue – 61 to 90 days		142,788		192,622
Overdue – 91 to 120 days		157,105		250,029
Overdue – over 120 days		365,627		581,303
Total		8,562,565		9,159,950

(1) Includes the amounts of contractual assets, shown in item 4.d), of this note.

F-18

On December 31, 2020 and 2019, no customer represented more than 10% of trade accounts receivable, net.

d) Changes in contractual assets

The following table shows the changes in contractual assets, in the years ended December 31, 2020 and 2019:

	Contract assets, gross			Provision for losses			Contract assets, net
Balance on December 31, 2018		195,733			(33,708	)		162,025
Additions		558,883			(12,486	)		546,397
Write-offs		(485,108	)		–			(485,108	)
Balance on December 31, 2019		269,508			(46,194	)		223,314
Additions		444,284			–			444,284
Write-offs		(510,215	)		11,300			(498,915	)
Balance on December 31, 2020		203,577			(34,894	)		168,683

e) Changes in estimated losses for impairment

The following table shows the changes in estimated losses for impairment of accounts receivable.

Balance on December 31, 2018	(1,498,134	)
Supplement to estimated losses, net of resersal (Note 25)	(1,682,348	)
Write-off	1,547,577
Business combinations (Note 1.c)	(11,892	)
Balance on December 31, 2019	(1,644,797	)
Supplement to estimated losses, net of resersal (Note 25)	(1,740,358	)
Write-off	1,312,577
Balance on December 31, 2020	(2,072,578	)

(5) Inventories

a) Accounting policy

These are evaluated and presented at the lower of average acquisition cost and net realizable value, whichever is lower. These include resale materials such as cellphones, SIM cards, accessories, consumption materials and maintenance. Net realizable value is the estimated selling price in the ordinary course of business, less estimated costs to sell.

Estimated impairment losses are set up for materials and devices considered obsolete or whose carrying amounts are in excess of those usually sold within a reasonable period. Additions and reversals of estimated impairment losses and inventory obsolescence are included in cost of goods sold (Note 25).

b) Breakdown

	December 31, 2020			December 31, 2019
Materials for resale		590,706			539,822
Materials for consumption		37,156			41,584
Other inventories		35,109			24,115
Gross total		662,971			605,521
Estimated losses from impairment or obsolescence		(29,871	)		(27,518	)
Total		633,100			578,003

F-19

(6) Prepaid Expenses

a) Accounting policy

These are stated at amounts effectively disbursed referring to services contracted but not yet incurred. Prepaid expenses are allocated to the statement of incomes to the extent that related services are rendered, and economic benefits are obtained.

Includes the amounts of incremental costs related to obtaining a contract (sales commissions and other acquisition costs from third parties).

b) Breakdown

	December 31, 2020		December 31, 2019
Incremental costs (costumers contracts)		480,909		330,919
Advertising and publicity		275,083		249,433
Rental		61,559		184,248
Software and networks maintenance		80,151		33,863
Financial charges		22,175		30,521
Personal		–		30,135
Insurance		15,503		20,459
Satellites and links (1)		102,851		–
Taxes and other		16,046		27,007
Total		1,054,277		906,585
Current		859,766		686,503
Non-current		194,511		220,082

(1) Refers to contracts signed for the provision of infrastructure, equipment and links for satellite communication, aiming at the best provision of services by the Company. These contracts have a duration of up to 5 years.

(7) Income and Social Contribution Taxes

a) Accounting policy

a.1) Current taxes

Current tax assets and liabilities for the current and previous years are measured at the estimated amount recoverable from, or payable to, the tax authorities. The tax rates and laws used in calculating the amounts referred to above are those in effect, or substantially in effect, at year–end. In the balance sheet, current taxes are presented net of prepayments over the year.

Current income and social contribution taxes, related to items directly recognized in equity, are also recognized in equity. Management regularly assesses the tax position in circumstances in which tax regulation requires interpretation and sets up provision therefore when appropriate.

a.2) Deferred taxes

Deferred tax assets are recognized for all deductible temporary differences, unused tax credits and losses, to the extent that taxable profit is likely to be available for realization of deductible temporary differences and unused tax credits and losses are likely to be used, except: (i) when the deferred tax asset related to the deductible temporary difference arises from initial recognition of an asset or liability in a transaction other than a business combination and does not impact, at the transaction date, the book profit, income or loss for tax purposes; and (ii) on deductible temporary differences related to investments in subsidiaries that deferred tax assets are recognized only to the extent that it is probable that temporary differences will be reversed in the near future and taxable profit is likely be available so that temporary differences can be used.

The carrying amount of deferred tax assets is reviewed at each reporting date and reduced to the extent that it is no longer probable that sufficient taxable profit shall be available to allow all or part of the deferred tax asset to be used. Derecognized deferred tax assets are reassessed at each reporting date and are recognized to the extent that it has become probable that future taxable profits will allow the deferred tax asset to be recovered.

F-20

Deferred tax liabilities are recognized on all temporary tax differences, except: (i) when the deferred tax liability arises from initial recognition of goodwill, or an asset or liability in a transaction other than a business combination, and does not affect book profit or taxable profit or tax losses on the transaction date; and (ii) on temporary tax differences related to investments in subsidiaries, in which the temporary difference reversal period can be controlled and temporary differences are not likely to be reversed in the near future.

Deferred tax assets and liabilities are measured at the tax rate expected to be applicable for the year the asset will be realized, or the liability will be settled, based on the rates provided in tax legislation and that were published as at year–end.

Deferred tax assets and liabilities are not discounted to present value and are classified in the balance sheet as non-current, irrespective of their expected realization.

The tax effects of items recorded directly in equity are also recognized in equity. Deferred tax items are recognized based on the transaction which gave rise to that deferred tax, in comprehensive income or directly in equity.

Deferred tax assets and liabilities are presented net when there is a legal or constructive right to offset a tax asset against a tax liability and deferred taxes relate to the same taxpaying entity and are subject to the same tax authority.

b) Critical estimates and judgments

There are uncertainties regarding the interpretation of complex tax regulations and the amount and timing of future taxable profits. The Company and its subsidiaries set up provision, based on estimates, for possible consequences of different interpretation by the tax authorities. The amount of this provision is based on various factors, such as previous tax audit experience and different interpretations of tax regulations by the taxable entity and by the relevant tax authority. Such differences in interpretation may arise on a wide variety of issues depending on the conditions prevailing in the respective domicile of the Company or those of its subsidiaries.

The Company and its subsidiaries evaluate the recoverability of deferred tax assets based on estimates of future profits. This recoverability ultimately depends on the ability to generate taxable profits over the period in which the deferred tax asset is deductible. The analysis considers the reversal period of deferred tax liabilities, as well as estimates of taxable profits, based on updated internal projections reflecting the latest trends.

Determining the proper classification of the tax items depends on several factors, including an estimate of the period and the realization of the deferred tax asset and the expected date of payments of these taxes. The actual flow of receipt and payment of income tax could differ from estimates made by the Company and its subsidiaries, as a result of changes in tax laws or of unexpected future transactions that may have an impact on tax balances.

c) Income and social contribution taxes recoverable

	December 31, 2020		December 31, 2019
Income taxes recoverable		483,452		380,314
Social contribution taxes recoverable		35,825		31,281
Total		519,277		411,595

d) Income and social contribution taxes payable

	December 31, 2020		December 31, 2019
Income taxes payable		74,190		76,483
Social contribution taxes payable		23,755		16,614
Total		97,945		93,097
Current		1,693		6,585
Non-current		96,252		86,512

F-21

The non-current amounts of R$96,252 and R$86,512, recorded on December 31, 2020 and 2019, respectively, refer to the taxes classified in IFRIC 23 – Uncertainties about Income Tax Treatments (Note 7.g).

e) Deferred taxes

Significant components of deferred income and social contribution taxes are as follows:

	Balance on December 31, 2018			Income statement			Comprehensive income		Balance on December 31, 2019			Income statement			Comprehensive income			Equity transactions (4)			Balance on December 31, 2020
Deferred tax assets  (liabilities)
Income and social contribution taxes on tax losses (1)		1,428,476			51,360			–		1,479,836			(17,338	)		–			–			1,462,498
Income and social contribution taxes on temporary differences (2)		(3,181,331	)		(1,343,635	)		69,719		(4,455,247	)		(1,158,942	)		(103,430	)		(20,778	)		(5,738,397	)
Provisions for legal, labor, tax civil and regulatory contingencies		1,965,700			(275,109	)		–		1,690,591			101,826			–			–			1,792,417
Trade accounts payable and other provisions		571,734			(40,393	)		–		531,341			262,080			–			–			793,421
Customer portfolio and trademarks		184,603			(86,525	)		–		98,078			(132,249	)		–			–			(34,171	)
Estimated losses on impairment of accounts receivable		442,276			36,354			–		478,630			114,300			–			–			592,930
Estimated losses from modems and other P&E items		176,130			6,869			–		182,999			(9,343	)		–			–			173,656
Pension plans and other post-employment benefits		226,221			91,746			69,540		387,507			38,641			(105,416	)		–			320,732
Profit sharing		129,689			(9,695	)		–		119,994			13,919			–			–			133,913
Licenses		(1,853,214	)		(216,330	)		–		(2,069,544	)		(216,330	)		–			–			(2,285,874	)
Goodwill (Spanish and Navytree, Vivo Part. and GVT Part.)		(4,600,940	)		(1,002,768	)		–		(5,603,708	)		(1,002,768	)		–			–			(6,606,476	)
Property, plant and equipment of small value		(395,606	)		107,155			–		(288,451	)		(453,073	)		–			–			(741,524	)
Technological Innovation Law		(50,127	)		25,562			–		(24,565	)		5,844			–			–			(18,721	)
On other temporary differences (3)		22,203			19,499			179		41,881			118,211			1,986			(20,778	)		141,300
Total deferred tax assets (liabilities), non-current		(1,752,855	)		(1,292,275	)		69,719		(2,975,411	)		(1,176,280	)		(103,430	)		(20,778	)		(4,275,899	)
Deferred tax assets		5,569,885								5,548,581												6,051,884
Deferred tax liabilities		(7,322,740	)							(8,523,992	)											(10,327,783	)
Deferred tax assets (liabilities), net		(1,752,855	)							(2,975,411	)											(4,275,899	)
Represented in the balance sheet as follows:
Deferred tax assets of subsidiaries		230,097								171,042												138,641
Deferred tax liabilities		(1,982,952	)							(3,146,453	)											(4,414,540	)

(1) Under Brazilian tax legislation these may be offset up to 30% of the annual taxable income but otherwise have no expiry date.

(2) Amounts that will be realized upon payment of provision, occurrence of impairment losses for trade accounts receivable, or realization of inventories, as well as upon reversal of other provision.

(3) Deferred taxes from other temporary differences, such as deferred income, renewal of licenses, disposal of structures (towers and rooftops), among others.

(4) Refer to deferred taxes arising from transactions for the acquisition and sale of companies, described in note 1.c.

On December 31, 2020, deferred tax assets (income and social contribution tax losses) were not recognized in the subsidiaries’ (Innoweb, TGLog, TIS and Vivo Money) accounting records, in the amount of R$68,783 (R$54,570 on December 31, 2019), as it is not probable that future taxable profits will be sufficient for offset for these subsidiaries to benefit from such tax credits.

F-22

Expected realization of deferred taxes, net, non-current. The amounts are based on projections subject to change in the future.

Year
2021	2,080,481
2022	709,170
2023	505,837
2024	387,849
2025	32,811
2026 onwards	(7,992,047	)
Total	(4,275,899	)

f) Reconciliation of income tax and social contribution expense

The Company and its subsidiaries recognize income and social contribution taxes on a monthly basis, on an accrual basis, and pay taxes based on estimates, as per the tax auxiliary trial balance. Taxes calculated on profits up to the balance sheet date are recorded in liabilities or assets, as applicable.

Below we present the reconciliations of the tax expense and the amounts is calculated by applying the statutory tax rate of 34% (income tax of 25% and social contribution tax of 9%) in the table below for the year ended December 31, 2020, 2019 and 2018.

	2020			2019			2018
Income before taxes		6,008,234			6,394,535			11,277,490
Income and social contribution tax expenses, at the tax rate of 34%		(2,042,800	)		(2,174,142	)		(3,834,347	)
Permanent differences
Equity (Note 11)		250			256			(1,988	)
Unclaimed interest on equity		(16,699	)		(13,825	)		(14,426	)
Non-deductible expenses, gifts, incentives		(84,988	)		(84,487	)		(76,671	)
Tax benefit related to interest on equity allocated		894,200			879,920			1,547,000
Other (additions) exclusions		12,330			(1,243	)		31,200
Tax debit		(1,237,707	)		(1,393,521	)		(2,349,232	)
Effective rate		20.6	%		21.8	%		20.8	%
Current income and social contribution taxes		(61,427	)		(101,246	)		(832,485	)
Deferred income and social contribution taxes		(1,176,280	)		(1,292,275	)		(1,516,747	)

g) Uncertainties about Income Tax Treatments

The Company and its subsidiaries are defending several assessments filed by the Federal Revenue of Brazil (“RFB”) for allegedly incorrect deductions of expenses, mainly related to the amortization of goodwill, at various administrative and judicial levels, in the amount of R$16,969,554 on December 31, 2020 (R$9,895,728 on December 31, 2019). Management, supported by the position of its legal advisors, believes that a large part of these deductions will likely be accepted in decisions of higher courts of last resort (acceptance probability greater than 50%).

Of this amount, to tax treatments in which the Company and its subsidiaries believes that the probability of acceptance by the tax authority is less than 50%, a non-current tax and social contribution liability was recognized in the amount of R$96,252 on December 13, 2020 (R$86,512 on December 13, 2019), in relation to these actions (Note 7.d). These actions involve compensation for overpayment of income tax and social contribution not approved by the RFB.

F-23

(8) Taxes, Charges and Contributions Recoverable

	December 31, 2020		December 31, 2019
State VAT (ICMS) (1)		3,014,540		2,664,499
PIS and COFINS (2)		128,489		2,125,186
Withholding taxes and contributions (3)		87,134		142,940
Fistel, INSS, ISS and other taxes		106,454		84,935
Total		3,336,617		5,017,560
Current		2,512,293		4,176,362
Non-current		824,324		841,198

(1) Includes ICMS credits from the acquisition of property and equipment, available to offset in 48 months; requests for refund of ICMS paid on invoices that were subsequently cancelled; for the rendering of services; tax substitution; and tax rate difference; among others. Non-current consolidated amounts include credits arising from the acquisition of property and equipment of R$541,941 and R$537,209 on December 31, 2020 and 2019, respectively.

(2) The balance of December 31, 2019 include the tax credits of PIS and COFINS plus interest accruals based on the SELIC, in the amount of R$2,046,274, arising from the final judicial processes in favor of the Company, which recognized the right to deduct ICMS from the basis of the calculation of PIS and COFINS contributions. This amount was fully offset with the payments of taxes to be paid during the year 2020.

The Company has two other lawsuits of the same nature in progress (including lawsuit of company that have already been merged – Telemig), treated as contingent assets, which cover several periods between February 2002 and June 2017, with estimated amounts between R$1,768 million and R$1,944 million. For these cases, like the previous ones of the same nature, the Company only recognizes the credits after obtaining the unappealable transit certificate and a reliable measurement of the information.

(3) Withholding income tax (“IRRF”) credits on short–term investments, interest on equity and others, which are used as deduction in operations for the period and social contribution tax withheld at source on services provided to public agencies.

(9) Judicial Deposits and Garnishments

When granted suspension of tax liability, judicial deposits, are required to be made by law to enable claims discussions to proceed.

Judicial deposits are recorded at historical cost–plus legal indexation/interest accruals.

	December 31, 2020		December 31, 2019
Judicial deposits
Tax		1,453,939		2,007,074
Civil		951,905		1,049,922
Labor		241,455		316,009
Regulatory		266,647		261,005
Total		2,913,946		3,634,010
Garnishments		30,432		36,875
Total		2,944,378		3,670,885
Current		177,433		277,468
Non-current		2,766,945		3,393,417

F-24

The table below presents the classified balances on December 31, 2020 and 2019 of the tax judicial deposits (classified by tax).

Tax	December 31, 2020		December 31, 2019
Corporate Income Tax (IRPJ) and Social Contribution Tax (CSLL)		92,849		575,426
Universal Telecommunication Services Fund (FUST)		525,563		518,372
State Value–Added Tax (ICMS)		331,086		269,483
Social Contribution Tax for Intervention in the Economic Order (CIDE)		289,924		286,270
Social Security, work accident insurance (SAT) and funds to third parties (INSS)		18,880		140,186
Withholding Income Tax (IRRF)		58,300		57,142
Telecommunications Inspection Fund (FISTEL)		46,830		46,167
Contribution tax on gross revenue for Social Integration Program (PIS) and for Social Security Financing (COFINS)		33,540		34,983
Other taxes, charges and contributions		56,967		79,045
Total		1,453,939		2,007,074

A brief description of the main tax–related judicial deposits is as follows:

· Corporate Income Tax (IRPJ) and Social Contribution Tax (CSLL)

The Company is involved in disputes related to: (i) debts stemming from offsetting of IRPJ and CSLL overpayments not recognized by the Brazilian IRS; (ii) requirement of IRPJ estimates and lack of payment of debts in the Integrated System of Economic and Tax Information (SIEF); and (iii) underpaid IRPJ amounts.

On July 13, 2020, the 2nd Federal Court of Maringá – PR issued an order determining the transfer to the Company of the judicial deposit made by the former GVT, referring to the tax use of goodwill generated in operations to incorporate subsidiaries, in the updated amount of R$490,603, which was deposited in favor of the Company on July 20, 2020.

· Universal Telecommunication Services Fund (FUST)

The Company and/or its subsidiaries filed an injunction in order to represent its right not to include expenses with interconnection and industrial use of dedicated line in the FUST tax base, according to Abridgment No. 7, of December 15, 2005, as it does not comply with the provisions contained in the sole paragraph of article 6 of Law No. 9998/00. The amounts related to these expenses are deposited.

· State Value–Added Tax (ICMS)

The Company is party to legal proceedings related to: (i) ICMS on exempt or non-taxable transactions; (ii) ICMS not levied on communication in default; (iii) fine for late voluntary payment of ICMS; (iv) ICMS supposedly levied on access, adhesion, activation, availability and use of supplementary services and additional facilities; (v) right to tax credit from the acquisition of goods for fixed assets and electric energy; (vi) ICMS on activation cards for pre–paid services; (vii) assignment of payment of ICMS relating to a portion of pay TV operations.

· Social Contribution Tax for Intervention in the Economic Order (CIDE)

The Company is party to legal proceedings for the exemption of CIDE levied on offshore remittances of funds arising from agreements for the transfer of technology, brand and software licensing etc.

F-25

(10) Other Assets

	December 31, 2020		December 31, 2019
Surplus from post-employment benefit plans (Note 30) (1)		165,062		220,939
Receivables from suppliers		209,908		167,540
Advances to employees and suppliers		117,033		73,849
Related–party receivables (Note 28)		72,835		64,966
Goods for sale (2)		–		76,912
Other amounts receivable (3)		27,765		14,123
Total		592,603		618,329
Current		408,349		382,591
Non-current		184,254		235,738

(1) On December 31, 2020 and 2019, includes R$158,959 and R$209,347, respectively, referring to the distribution of the PBS-A surplus.

(2) Refers to the balance of property, plant and equipment available for sale, resulting from the contract entered into by the Company on November 28, 2019, for the sale of 1,909 structures (rooftops and towers) owned by the Company to Telxius Torres Brasil Ltda. (Note 12). On February 7, 2020, this transaction was concluded for a total amount of R$641 million, after the fulfillment of all suspensive conditions common to this type of transaction, including the approval of the Transaction by the Administrative Council for Economic Defense (“CADE”).

(3) On December 31, 2020 and 2019, includes R$12,122 and R$10,226, respectively, from a subletting agreement in the Curitiba Data Center, for a period of 22 years and of structures (towers and rooftops) for a period of 10 years (this occurred in the 1st quarter of 2020). There are no unsecured residual amounts that result in lessor benefits and no contingent payments recognized as income during the period years.

(11) Investments

a) Accounting policy

The consolidation of a subsidiary begins when the Company obtains control over the subsidiary and ends when the Company ceases to exercise said control. Assets, liabilities and results of a subsidiary acquired or sold during the year are included in the consolidated financial statements from the date on which the Company obtains control until the date on which the Company ceases to exercise control over the subsidiary.

Joint control is the contractually agreed sharing of a control, only existing when decisions about relevant activities call for unanimous agreement by the parties sharing control.

Control is obtained when the Company is exposed or has the right to variable returns based on its involvement with the investee and has the capacity of affecting those returns through the power exercised over an investee.

Based on the equity method, investments are recorded in balance sheets at cost plus changes after the acquisition of the equity interest. The statement of income reflects the portion of the results of operations of the investees.

When changes are directly recognized in the investees’ equity, the Company will recognize its portion in variations occurred, and record these variations in the statements of changes in equity and in the statements of comprehensive income, where applicable.

The financial statements of investees are prepared for the same reporting period of the Company. Whenever necessary, adjustments are made so that the accounting policies are in accordance with those adopted by the Company.

After the equity method is applied, the Company determines whether there is any need to recognize additional impairment of its investment in investees. At each closing date, the Company determines whether there is objective evidence of impairment of investment in the affiliate. If so, the Company calculates the recoverable amount as the difference between the recoverable value of the investees and their carrying amount and recognizes the amount in the statement of incomes.

When there is loss of significant influence over the investees, the Company evaluates and recognizes the investment, at that moment, at fair value. Any difference between the investees’ carrying amount by the time it loses significant influence and the fair value of the remaining investment and revenue from sale is recognized in the statement of incomes.

F-26

Foreign exchange variations in Aliança’s equity (jointly controlled entity) are recognized in the Company’s equity in other comprehensive income (“Effects on conversion of investments abroad”, Note 23).

b) Information on investees

Below, we present a summary of the relevant financial data of direct investees in which the Company has an interest and include the corporate changes described in note 1 c).

Balance sheets

	Joint Ventures (Aliança / AIX / ACT)
	December 31, 2020			December 31, 2019
Equity interest		50.00	%		50.00	%
Summary of balance sheets:
Current assets		301,518			221,183
Non-current assets		10,426			10,556
Total assets		311,944			231,739
Current liabilities		6,544			7,140
Non-current liabilities		18,090			16,773
Equity		287,310			207,826
Total liabilities and equity		311,944			231,739
Investment Book value		143,655			103,913

Statements of Income

	Joint Ventures (Aliança / AIX / ACT)
Summary Statements of Income:	2020			2019			2018
Net operating income		45,893			45,567			45,608
Operating costs and expenses		(44,595	)		(44,325	)		(58,773	)
Financial income (expenses), net		708			1,030			1,334
Income and social contribution taxes		(538	)		(768	)		137
Net income (loss) for the year		1,468			1,504			(11,694	)
Equity, according to interest held		734			752			(5,847	)

c) Changes in investments

	Joint Ventures (Aliança / AIX / ACT)		Other investments			Total investments
Balance on December 31, 2018		101,302		355			101,657
Equity		752		–			752
Other comprehensive  income		1,859		(17	)		1,842
Balance on December 31, 2019		103,913		338			104,251
Equity		734		–			734
Other comprehensive  income		39,008		440			39,448
Balance on December 31, 2020		143,655		778			144,433

F-27

(12) Property, Plant and Equipment

a) Accounting policy

It is measured at acquisition and/or construction cost, net of accumulated depreciation and/or accumulated impairment losses, if any. Such cost includes the borrowing costs for long–term construction projects if the recognition criteria are met and is stated net of ICMS (State VAT) credits, which were recorded as recoverable taxes.

Asset costs are capitalized until the asset becomes operational. Costs incurred after the asset becomes operational and that do not improve the functionality or extend the useful life of the asset are immediately recognized on an accrual basis. When significant parts of fixed assets are required to be replaced at intervals, the Company recognizes such parts as individual assets with specific useful lives and depreciation. Likewise, expenses that represent asset improvement (expanded installed capacity or useful life) are capitalized. All the other repair and maintenance costs are recognized in the statement of income as incurred.

The present value of the expected cost for the decommissioning of property, plant and equipment items (towers and equipment on leased property) is capitalized at the cost of the respective asset matched against the provision for dismantling obligations (Note 19) and depreciated over the useful lives of the related assets, which do not exceed the lease term.

Depreciation is calculated by the straight–line method over the useful lives of assets at rates that take into account the estimated useful lives of assets based on technical analyses.

The assets’ residual values, useful lives and methods of depreciation are reviewed on a yearly basis, adjusted prospectively, if appropriate. Useful lives in terms of depreciation rates are reviewed annually by the Company.

Property, plant and equipment items are written off when sold or when no future economic benefit is expected from their use or sale. Any gains or losses arising from write-off (measured as the difference between the net disposal proceeds and the carrying amount) are recognized in the statement of income in the year in which the asset is written off.

b) Critical estimates and judgments

The accounting treatment of investment in fixed assets includes estimating the useful life period for depreciation purposes, particularly for assets acquired in business combinations.

Useful life determination requires estimates regarding the expected technological developments and alternative uses of assets. The hypotheses related to the technological aspect and its future development imply a significant level of analysis, considering the difficulties in forecasting the time and nature of future technological changes.

An impairment loss exists when the carrying amount of an asset or Cash–Generating Unit (“CGU”) exceeds its recoverable amount, which is the higher of fair value less costs to sell and value in use. The calculation of fair value less costs to sell is based on available information from sales transactions of similar assets or market prices less additional costs to dispose of the asset. The calculation of the value in use is based on the discounted cash flow model. The recoverable amount is sensitive to the discount rate used in the discounted cash flow method, as well as the expected future cash receipts and the growth rate used for extrapolation purposes.

The Company periodically reviews the performance of the defined CGU in order to identify a possible devaluation. The determination of the recoverable value of the CGU also includes the use of assumptions and estimates and requires a significant degree of judgment and criterion.

c) Breakdown and changes

We present a brief description of the main items that make up fixed assets.

· Switching and transmission media equipment: Includes switching and control centers, gateway, platforms, base radio station, microcells, minicells, repeaters, antennas, radios, access networks, concentrators, cables, TV equipment and other switching and transmission media equipment.

F-28

· Terminal/modem equipment: Includes cellphones and modems (rent and free lease), CPCT, public telephones and other terminal equipment.

· Infrastructure: This includes buildings, elevators, central air conditioning equipment, towers, posts, containers, energy equipment, land piping, support and protectors, leasehold improvements, etc.

· Other fixed asset items: These include vehicles, repair and construction tools and instruments, telesupervision equipment, IT equipment, testing and measurement equipment, fixtures and other goods for general use.

	Switching and transmission equipment			Terminal equipment / modems			Infrastructure			Land			Other P&E			Estimated losses (1)			Assets and facilities under construction			Total
Balances and changes:
Balance on December 31, 2018		24,668,212			2,571,084			3,769,088			314,832			836,107			(156,892	)		2,112,896			34,115,327
Initial adoption IFRS 16 effects (2)		91,836			–			8,526,236			–			–			–			–			8,618,072
Additions		114,517			142,975			1,790,185			–			258,854			(20,465	)		6,576,296			8,862,362
Write-offs, net (3)		(17,069	)		(268	)		(139,857	)		(5,735	)		(2,182	)		3,540			(21,750	)		(183,321	)
Net transfers		4,265,573			1,299,368			504,010			–			88,100			–			(6,242,551	)		(85,500	)
Transfers of goods destined for sale (4)		(1,183	)		–			(248,175	)		(30,585	)		(67,143	)		–			(340	)		(347,426	)
Subletting (5)		–			–			(10,310	)		–			–			–			–			(10,310	)
Depreciation (Note 25)		(3,936,572	)		(1,426,890	)		(2,471,456	)		–			(297,234	)		–			–			(8,132,152	)
Business combinations (Note 1 c)		–			9			343			–			10,551			(691	)		–			10,212
Balance on December 31, 2019		25,185,314			2,586,278			11,720,064			278,512			827,053			(174,508	)		2,424,551			42,847,264
Additions		78,021			77,933			4,517,747			–			195,449			–			5,680,707			10,549,857
Write-offs, net (3)		(7,719	)		(170	)		(306,219	)		(5,483	)		(2,870	)		10,751			(16,533	)		(328,243	)
Net transfers		3,850,578			1,276,846			341,553			–			20,857			4,732			(5,682,742	)		(188,176	)
Subletting (5)		–			–			(2,115	)		–			–			–			–			(2,115	)
Capital contribution to CyberCo Brasil (note 1.c)		(5	)		–			–			–			(15,553	)		(680	)		–			(16,238	)
Depreciation (Note 25)		(4,034,228	)		(1,464,041	)		(2,731,627	)		–			(279,860	)		–			–			(8,509,756	)
Balance on December 31, 2020		25,071,961			2,476,846			13,539,403			273,029			745,076			(159,705	)		2,405,983			44,352,593
Balance on December 31, 2019
Cost		83,028,079			19,329,470			26,269,769			278,512			5,218,153			(174,508	)		2,424,551			136,374,026
Accumulated depreciation		(57,842,765	)		(16,743,192	)		(14,549,705	)		–			(4,391,100	)		–			–			(93,526,762	)
Total		25,185,314			2,586,278			11,720,064			278,512			827,053			(174,508	)		2,424,551			42,847,264
Balance on December 31, 2020
Cost		86,709,680			20,569,803			30,633,254			273,029			5,380,579			(159,705	)		2,405,983			145,812,623
Accumulated depreciation		(61,637,719	)		(18,092,957	)		(17,093,851	)		–			(4,635,503	)		–			–			(101,460,030	)
Total		25,071,961			2,476,846			13,539,403			273,029			745,076			(159,705	)		2,405,983			44,352,593

(1) The Company and its subsidiaries recognized estimated losses and write-offs (when applicable) for potential obsolescence of materials used for property and equipment maintenance, based on historical experience and expected future use.

(2) On January 1, 2019, the Company adopted IFRS 16, which requires lessees to recognize assets and liabilities arising from all leases (except short–term leases and leases of low–value assets) in the statement of financial position (Note 20). Before the leases were recognized under IAS 17 - Leases and classified in accordance with IAS 17 qualitative and quantitative criteria as operating leases (with lease payments recognized on the straight-line basis) or finance leases. The Company transitioned to IFRS 16 using the modified retrospective approach. The comparative information for prior-year periods was not restated. The adoption of this new standard gave rise to right of use assets and the corresponding lease liabilities of R$8,618,072 thousand as of January 1, 2019.

(3) In infrastructure, includes the amounts of R$288,603 and R$105,952 as of December 31, 2020 and 2019, respectively, referring to the cancellation of lease agreements.

(4) Refers to goods sold from the Tamboré and Curitiba (CIC) data centers, sold to a company controlled by Asterion Industrial Partners SGEIC, SA, according to the agreement entered into by the Company on May 8, 2019 and concluded with the discharge on July 24, 2019.

It also includes the assets intended for sale, resulting from the agreement entered into by the Company on November 28, 2019, for the sale of 1,909 structures (rooftops and towers) owned by the Company to Telxius Torres Brasil Ltda (Note 10).

(5) Refers to the lease for structures (towers and rooftops) in 2020 and for areas in the Curitiba data center in 2019.

d) Depreciation rates

In the years ended December 31, 2020 and 2019, the Company performed valuations of useful lives applied to its property, plant and equipment using the direct comparative method of market data.

For the year ended December 31, 2020, the results of these evaluations did not indicate the need for changes in useful life and annual depreciation rates.

F-29

For the year ended December 31, 2019, the results of these evaluations indicated the need for changes in the useful life and annual depreciation rates of some items in the asset classes and, these changes in the accounting estimate, caused an increase in depreciation expenses of R$283,552 in 2019.

The table below shows the annual depreciation rates for the years ended December 31, 2020 and 2019, except for leasing assets (presented in the Note 12.e).

Description
Switching and transmission equipment and media	2.50% to 25.00%
Terminal equipment / modems (1)	6.67% to 66.67%
Infrastructure	2.50% to 66.67%
Other P&E assets	10.00% to 25.00%

(1) lending handsets, with annual depreciation rates of 25.00% to 50.00%.

e) Additional information on leases

The Company recognizes the right–of–use assets on the lease start date (that is, on the date the asset is available for use). The rights of use assets are measured at cost, less any accumulated depreciation and impairment losses, and adjusted for any new remeasurement of lease liabilities.

The Company acts as a lessee in a significant number of lease agreements on different assets, such as structures (towers and rooftops) and the respective land where they are located; sites built in the Built to Suit (“BTS”) modality for installing antennas and other equipment and means of transmission; computer equipment; offices, shops and commercial properties. The Company applies a single recognition and measurement approach for all leases, except for short–term leases and leases of low value assets, as permitted by IFRS 16.

Below, we present the movement of leases, already included in the tables for the movement of fixed assets (Note 12.c). This information includes the amounts of leases covered by IAS 17 and the provision for dismantling for these leases.

	Switching and transmission equipment			Infrastructure			Other			Total
Annual depreciation rate (%)		5.00 to 92.31			3.13 to 92.31			20.00
Balances and changes:
Balance on December 31, 2018 (1)		186,554			189,455			10,950			386,959
Initial Adoption in January 1, 2019		91,836			8,526,236			–			8,618,072
Additions		107,108			1,696,833			–			1,803,941
Subletting (Note 12.c)		–			(10,310	)		–			(10,310	)
Depreciation (IAS 17)		(13,540	)		(35,181	)		(7,730	)		(56,451	)
Write-offs, net (IAS 17)		–			(2,098	)		–			(2,098	)
Depreciation (IFRS 16)		(25,652	)		(1,857,298	)		–			(1,882,950	)
Cancellation of contracts		–			(105,952	)		–			(105,952	)
Balance on December 31, 2019		346,306			8,401,685			3,220			8,751,211
Additions		55,904			4,394,809			10,564			4,461,277
Subletting (Note 12.c)		–			(2,115	)		–			(2,115	)
Depreciation (IAS 17)		(13,540	)		(30,277	)		(3,220	)		(47,037	)
Write-offs, net (IAS 17)		–			(4,902	)		–			(4,902	)
Depreciation (IFRS 16)		(30,159	)		(2,148,260	)		(183	)		(2,178,602	)
Cancellation of contracts		(420	)		(288,603	)		–			(289,023	)
Balance on December 31, 2020		358,091			10,322,337			10,381			10,690,809

(1) Refers to lease amounts covered by IAS 17 and the provision for dismantling for these leases.

F-30

f) Property and equipment items pledged in guarantee

On December 31, 2020, the Company had property and equipment pledged in guarantee for lawsuits, of R$85,172 (R$81,416 on December 31, 2019).

g) Reversible assets

The STFC service concession arrangement establishes that all assets owned by the Company and that are indispensable to the provision of the services described in the arrangement are considered “reversible” (returnable to the concession authority). On December 31, 2020, estimated residual value of reversible assets was R$6,711,435 (R$7,364,456 on December 31, 2019), which comprised switching and transmission equipment and public use terminals, external network equipment, energy, system and operational support equipment.

(13) Intangible Assets

a) Accounting policy

Intangible assets acquired separately are measured at acquisition / construction cost upon their initial recognition. The cost of an intangible asset acquired in a business combination is its fair value at the acquisition date.

After initial recognition, intangible assets are stated at acquisition and/or buildup cost, net of amortization and accumulated provision for impairment, where applicable. Intangible assets generated internally, excluding capitalized development costs, are not capitalized, and the expense is reflected in the statement of income for the year in which it is incurred.

The useful lives of intangible assets are considered finite or indefinite.

· Intangible assets with finite useful lives are amortized over their economic useful lives under the straight–line method and are tested for impairment whenever there is any indication of impairment loss. The amortization period and the amortization method for an intangible asset with a finite useful life are reviewed on an annual basis.

Changes in the estimated useful life or the expected pattern of consumption of future economic benefits embodied in an asset are accounted for by changing the amortization period or method, as appropriate, and treated as changes in accounting estimates. The amortization expense on intangible assets with finite lives is recognized in the statement of income in the cost/expense category consistent with the function of the intangible assets.

· Intangible assets with indefinite useful lives are not amortized, but are tested for impairment annually, either individually or at the CGU level. The assessment of indefinite life is reviewed annually to determine whether the indefinite life continues to be justifiable. Otherwise, changes in useful life – from indefinite to finite – are carried out prospectively. Goodwill generated upon investment acquisition is treated as an intangible asset with indefinite useful lives.

Gains and losses arising from derecognition of an intangible asset are measured as the difference between the net disposal proceeds and the carrying amount of the asset and recognized in the statement of income on disposal.

b) Critical estimates and judgments

An impairment loss exists when the carrying amount of an asset or CGU exceeds its recoverable amount, which is the higher of fair value less costs to sell and value in use. The calculation of fair value less costs to sell is based on available information from sales transactions of similar assets or market prices less additional costs to dispose of the asset. The calculation of the value in use is based on the discounted cash flow model. The recoverable amount is sensitive to the discount rate used in the discounted cash flow method, as well as the expected future cash receipts and the growth rate used for extrapolation purposes.

F-31

The Company periodically reviews the performance of the defined CGU in order to identify a possible devaluation in goodwill and other assets. The determination of the recoverable value of the CGU to which the goodwill is attributed also includes the use of assumptions and estimates and requires a significant degree of judgment and criterion.

The accounting treatment of the investment in intangible assets includes making estimates to determine the useful life for amortization purposes, particularly for assets acquired in business combinations.

The determination of the useful lives requires estimates in relation to the expected technological evolution and the alternative use of the assets. Hypotheses related to the technological aspect and its future development imply a significant degree of analysis, since the timing and nature of future technological changes are difficult to predict.

c) Breakdown and changes

A brief description of the key intangible asset items with finite useful lives, is as follows:

· Software: This includes licenses for software used in the Company’s operating, commercial and administrative activities.

· Customer portfolio and trademarks: This includes intangible assets acquired through business combination.

· Licenses: These include concession and authorization licenses, acquired from ANATEL for provision of telecommunication services. These also include licenses from business combinations.

	Indefinite useful life			Finite useful life
	Goodwill			Software			Customer portfolio			Trademarks			Licenses			Other intangible assets			Estimated losses for software			Software under development			Total
Balances and changes:
Balance on December 31, 2018		23,062,421			3,245,042			1,429,274			989,410			13,056,137			49,523			(499	)		389,677			42,220,985
Additions		–			374,690			–			–			–			–			–			1,390,731			1,765,421
Write-offs, net (1)		(3,249	)		(5,066	)		–			–			–			(58	)		–			–			(8,373	)
Net transfers		–			1,314,978			–			–			–			(6	)		–			(1,229,472	)		85,500
Transfers of goods destined for sale (2)		–			(1,537	)		–			–			–			–			–			–			(1,537	)
Business combinations (Note 1 c)		–			596			–			–			–			–			–			–			596
Amortization (Note 25)		–			(1,234,949	)		(500,441	)		(84,205	)		(964,316	)		(3,729	)		–			–			(2,787,640	)
Balance on December 31, 2019		23,059,172			3,693,754			928,833			905,205			12,091,821			45,730			(499	)		550,936			41,274,952
Additions (3)		–			526,112			–			–			184,300			–			(12,230	)		1,174,282			1,872,464
Write-offs, net (1)		(32,743	)		(220	)		–			–			–			–			–			–			(32,963	)
Net transfers		–			1,211,314			–			–			–			–			–			(1,023,138	)		188,176
Capital contribution to CyberCo Brasil (note 1.c)		–			(2,770	)		–			–			–			–			–			–			(2,770	)
Amortization (Note 25)		–			(1,420,757	)		(295,267	)		(84,205	)		(914,411	)		(3,102	)		–			–			(2,717,742	)
Balance on December 31, 2020		23,026,429			4,007,433			633,566			821,000			11,361,710			42,628			(12,729	)		702,080			40,582,117
Balance on December 31, 2019
Cost		23,059,172			18,310,812			4,513,278			1,658,897			20,244,219			270,000			(499	)		550,936			68,606,815
Accumulated amortization		–			(14,617,058	)		(3,584,445	)		(753,692	)		(8,152,398	)		(224,270	)		–			–			(27,331,863	)
Total		23,059,172			3,693,754			928,833			905,205			12,091,821			45,730			(499	)		550,936			41,274,952
Balance on December 31, 2020
Cost		23,026,429			20,069,371			4,513,278			1,658,897			20,428,520			269,640			(12,729	)		702,080			70,655,486
Accumulated amortization		–			(16,061,938	)		(3,879,712	)		(837,897	)		(9,066,810	)		(227,012	)		–			–			(30,073,369	)
Total		23,026,429			4,007,433			633,566			821,000			11,361,710			42,628			(12,729	)		702,080			40,582,117

(1) Refers to proportional write-offs refer to: (i) R$32,743 from the disposal of CyberCo Brasil’s investment (Note 1.c); and (ii) R$3,249, made in July 2019, resulting from the sale of the Tamboré and Curitiba (CIC) data centers, pursuant to paragraph 86 of IAS 36.

(2) Refers to transfers of assets from the Tamboré and Curitiba (CIC) data centers, sold for the amounts of R$419,690 to a company controlled by Asterion Industrial Partners SGEIC, SA, pursuant to an agreement entered into by the Company on May 8, 2019 and concluded. with the settlement on July 24, 2019.

(3) The addition into licenses, occurred in 2020, refers to the extension of the authorization for the right to use radio frequencies for the exploitation of SMP in the State of Rio de Janeiro, granted by ANATEL on November 29, 2020 (Note 1.b)

F-32

d) Amortization rates

The table below shows the annual amortization rates for the years ended December 31, 2020 and 2019.

Description
Softwares	20.00% to 50.00%
Customer portfolio	12.50%
Trademarks	7.70%
Licenses	3.60% to 6.67%
Other intangible assets	20.00%

e) Goodwill

e.1) Accounting policy

Business combinations are accounted for using the acquisition method. The cost of an acquisition is measured as the aggregate of the consideration transferred, recorded at fair value on the acquisition date, and the fair value of any non-controlling interest in the acquiree.

For each business combination, the Company measures non-controlling interests in the acquiree either at its fair value or based on its proportional share in the identifiable net assets of the acquiree. Costs directly attributable to an acquisition are recorded as expenses, as incurred.

Upon acquiring a business, the Company assesses financial assets acquired and liabilities assumed so as to classify and allocate them in accordance with contractual terms, economic circumstances and relevant conditions on the acquisition date, including the segregation, by the acquiree, of embedded derivatives existing in host contracts in the acquiree.

In the event a business combination is conducted in stages, the ownership interest previously held in the acquiree’s capital is reassessed at fair value on the date control is acquired, and any impacts are recognized in the statement of income.

Any contingent portion to be transferred by the acquirer shall be recognized at fair value on the acquisition date. Subsequent changes in the fair value of the contingent portion to be considered as an asset or liability is recognized in the statement of income.

Goodwill is initially measured as excess transferred payment amount in relation to acquired net assets (identifiable net assets acquired, and liabilities assumed). If consideration is lower than the fair value of acquired net assets, the difference must be recognized as a gain in the statement of income.

After initial recognition, goodwill is measured at cost, less any accumulated impairment losses. For the purpose of impairment testing, goodwill acquired in a business combination is, from the acquisition date, allocated to the CGUs that are expected to benefit from the combination, irrespective of whether other assets or liabilities of the acquiree are assigned to those units.

When goodwill has been allocated to a CGU and part of the operation within that CGU is disposed that, the goodwill associated with that operation is included in the carrying amount of the operation when determining the gain or loss on disposal. Goodwill disposed in these circumstances is allocated based on the relative fair values of the disposed operation and the portion of the CGU retained.

e.2) Goodwill breakdown

The table below shows the composition of the goodwill recorded by the Company as of December 31, 2020 and 2019.

F-33

	December 31, 2020		December 31, 2019
GVT Participações, occurred in 2015		12,837,141		12,837,141
Vivo Participações, occurred in 2011 (1)		9,124,496		9,157,239
Telefônica Televisão Participações, former Navytree, occurred in 2008		780,693		780,693
Spanish e Figueira, by the merger of Telefônica Data Brasil Holding (TDBH) in 2006		212,058		212,058
Santo Genovese Participações, Atrium Telecomunicações, which took place in 2004		71,892		71,892
Ajato Telecomunicação Ltda.		149		149
Total		23,026,429		23,059,172

(1) The proportional write-offs refer to: (i) R$32,743 from the disposal of CyberCo Brasil’s investment (Note 1.c) in 2020; and (ii) R$3,249, made in July 2019, resulting from the sale of the Tamboré and Curitiba (CIC) data centers in 2019, pursuant to paragraph 86 of IAS 36.

(14) Impairment of Non-Financial Assets

a) Accounting policy

The Company annually reviews the net carrying amount of assets in order to evaluate events or changes in economic, operating or technological circumstances that may indicate impairment losses. When such evidence is found, and net carrying amount exceeds recoverable amount, a provision for impairment is recorded so as to adjust the net carrying amount to the recoverable amount. The recoverable amount of an asset or a CGU is defined as the higher of value in use and net sales value.

Considering the convergence of product and service offerings, in addition, the Company’s main operating asset is a single, broadly integrated network, which is used to provide all telecommunications services to its customers, therefore, the Company defines your business as a single CGU.

Upon estimation of the value in use of an asset or cash–generating unit, estimated future cash flows are discounted at present value using a discount rate Weighted Average Cost of Capital “WACC” which reflects the weighted rate between (i) the cost of capital (including specific risks) based on the Capital Asset Pricing Model; and (ii) the debt these components being applicable to the asset or CGU before taxes.

The net fair value of sales is determined, whenever possible, based on recent market transactions between knowledgeable and interested parties with similar assets. In the absence of observable transactions in this regard, an appropriate valuation methodology is used. The calculations provided in this model are corroborated by available fair value indicators, such as prices quoted for listed entities, among other available indicators.

For assets excluding goodwill, an assessment is made at each reporting date as to whether there is any indication that previously recognized impairment losses may no longer exist or may have decreased. If the indication exists, the Company estimates the recoverable amount of the asset or the CGU.

A previously recognized impairment loss is reversed only if there has been a change in the assumptions used to determine an asset’s or CGU recoverable amount since the last impairment loss was recognized. Any reversal is limited so that the carrying amount of the asset does not exceed its recoverable amount or exceeds the carrying amount that would have been determined, net of depreciation, had no impairment loss been recognized for the asset in prior years. Such reversal is recognized in the statement of income.

The following assets have specific characteristics for impairment testing:

· Goodwill: Goodwill is tested for impairment annually at the reporting date or earlier when circumstances indicate that the carrying amount may be impaired. Where the recoverable amount is lower than the carrying amount, an impairment loss is recognized. Impairment losses relating to goodwill cannot be reversed in future periods.

F-34

· Intangible assets: Intangible assets with indefinite useful lives are tested for impairment annually at the reporting date either individually or at the CGU level, as appropriate, and when circumstances indicate that the carrying amount may be impaired.

· Determination of value in use: The key assumptions used to estimate value in use are: (i) revenues (projected considering the growth in customer base, growth in market revenue against GDP and the Company’s share of this market); (ii) variable costs and expenses (projected in accordance with the dynamics of the customer base, and fixed costs are projected in line with the historical performance of the Company, as well as with revenue growth); and (iii) capital investments (estimated considering the technological infrastructure necessary to enable the provision of services).

b) Key assumptions used in the calculation of value in use:

The value in use is mainly impacted by the following assumptions:

· Revenue growth: is based on the observation of the historical behavior of each revenue line, as well as trends based on market analysis. The projected revenue differs between product lines and services with a tendency of growth in broadband services, IPTV and IT compared to voice services (fixed). Mobile revenues follow the market trend, including a new mix between prepaid, post and control, migrations from prepaid to post and control, price convergence and growth in data and M2M.

· Discount rate: represents the assessment of risks in the current market. The calculation of the discount rate is based on the Company’s specific circumstances and being calculated based on the WACC. The WACC takes into account both debt and equity. The cost of equity is derived from the expected return on investment by Company investors. The cost of debt is based on loans with interest income that the Company is obliged to honor. The specific risk segment is incorporated by applying individual notably Beta factors.

· Perpetuity growth rate reflects the Company’s condition to generate cash flow in an eternal manner. The percentage considered mainly takes into account investments over the projected period and reproduces the Company’s condition in perpetuity.

c) Sensitivity to changes in assumptions:

The Company carries out a sensitivity analysis of the impairment test by considering reasonable changes in the main assumptions used in such test.

The following table shows the increases in/decreases in the percentage points (p.p) which were assumed for the years ended December 31, 2020 and 2019:

Changes in key assumptions	In percentage points (p.p)
Financial variables
Discount rate	+/– 0.5
Perpetuity growth rates	+/– 1.0
Operating variables
Revenues Margin	+/– 1.5

The sensitivity analysis performed at year–end 2020 and 2019 indicates that there are no significant risks arising from possible changes in the financial and operating variables, considered individually. In other words, the Company considers that within the above limits, no losses would be recognized.

d) Goodwill impairment testing

Annually, the Company assesses recoverability of goodwill carrying amounts based on the value in use and discounted cash flow method.

F-35

The process for determination of the value in use involves the use of assumptions, judgments and estimates on cash flows, such as revenue, cost and expense growth rates, estimated future investments and working capital and discount rates. The assumptions about cash flow increase projections are based on management’s estimates, market studies and macroeconomic projections. Future cash flows are discounted at the WACC rate.

Consistent with the economic analysis techniques, the assessment of value in use is made for a period of five years, and thereafter, considering the perpetuity of the assumptions based on the capacity of business continuity for an indefinite time. Management considered that the period of five years is adequate, based on its past experience in preparing cash flow projections.

The growth rate used to extrapolate projections beyond the five years period was 4.5% p.a. (nominal) in 2020 and 2019.

The estimated future cash flows were discounted at a discount rate of 11.11% and 10.22%, which before taxes are 12.54% and 11.38% in 2020 and 2019, respectively, also in nominal values.

The inflation rate for the period analyzed in the projected cash flows was 3.5% p.a. and 3.8% p.a. in 2020 and 2019, respectively.

Key assumptions were based on the Company’s historical performance and reasonable macroeconomic assumptions grounded on financial market projections, documented and approved by the Company’s management.

Based on annual impairment testing of the Company’s assets, prepared using projections considering the financial statements on December 31, 2020 and 2019, growth projections and operating results for the year ended December 31, 2020 and 2019, no impairment losses or evidence of losses were identified, since the value was in use is higher than the net carrying amount as at the assessment date.

(15) Personnel, Social Charges and Benefits

a) Accounting policy

Salaries, remunerations and profit sharing are negotiated in collective bargaining agreements, with the corresponding social charges and contributions added by the accrual basis. The profit–sharing program for employees is based on the Company’s operating and financial goals, and a provision is recognized when the assumptions for its accounting are satisfied.

Details of Telefónica’s share-based compensation plans are described in Note 29. In 2020, due to the cycle maturity of some plans, amounts were transferred from non-current to current.

Personnel costs and expenses, social charges and benefits are recorded as cost of services provided, commercial expenses or general and administrative expenses (Note 25).

a) Breakdown

	December 31, 2020		December 31, 2019
Social charges and benefits		350,138		400,470
Profit sharing		285,079		308,918
Share-based payment plans (Note 29)		86,296		40,523
Salaries and wages		46,495		38,363
Total		768,008		788,274
Current		764,329		752,246
Non-current		3,679		36,028

F-36

(16) Trade Accounts Payable

Accounting policy

These are obligations to pay for goods, services or goods that were acquired in the normal course of business. They are initially recognized at fair value and subsequently measured at amortized cost using the effective tax rate method, if applicable.

a) Breakdown

	December 31, 2020		December 31, 2019
Sundry suppliers (Opex, Capex, Services e Material)		5,741,208		5,958,280
Related parties (Note 28)		489,339		405,271
Amounts payable (operators, cobilling)		199,562		232,264
Interconnection / interlink		182,895		275,984
Total		6,613,004		6,871,799

(17) Taxes, Charges and Contributions

	December 31, 2020		December 31, 2019
Fistel (1)		671,145		–
ICMS		861,464		906,447
PIS and COFINS		221,323		331,863
Fust and Funttel		88,088		89,394
ISS, CIDE and other taxes		84,772		97,163
Total		1,926,792		1,424,867
Current		1,607,434		1,139,812
Non-current		319,358		285,055

(1) On April 15, 2020, provisional measure 952 was published in the Official Gazette (“DOU”), extending the deadline for payment of Fistel from March 31, 2020 to August 31, 2020, with no impact additional penalty or interest. On August 12, 2020, the Company made a partial payment of R$416,475. The balance refers to the residual payment which has been suspended according to the decision of the Federal Regional Court of the First Region, published on March 18, 2020.

(18) Dividends and Interest on Equity

a) Accounting policy

a.1) Dividends

Minimum mandatory dividends are stated in the balance sheet as legal obligations (provision in current liabilities). Dividends in excess of such minimum amount, not yet approved in the Shareholders’ Meeting, are recorded in equity as proposed additional dividends. After approval at the Shareholders’ Meeting, the dividends in excess of the mandatory minimum are transferred to current liabilities and classified as legal obligations.

a.2) Interest on equity

Brazilian legislation allows companies to pay interest on equity, which is similar to payment of dividends; however, this is deductible for income tax calculation purposes. In order to comply with Brazilian tax legislation, the Company and its subsidiaries provision, in its accounting records, the amount due to match against the financial expenses account in the statement of income for the year. For the presentation of these financial statements, that expense is reversed against a direct charge to equity, resulting in the same accounting treatment adopted for dividends. The distribution of interest on equity to shareholders is subject to withholding income tax at a 15% rate.

F-37

a.3) Unclaimed dividends and interest on equity

The rights to receive unclaimed interest on equity and dividends prescribe after three years from the initial date available for payment. When dividends and interest on equity expire, these amounts are reversed to retained earnings.

b) Dividends and interest on equity payable

b.1) Breakdown:

	December 31, 2020		December 31, 2019
Telefónica Latinoamérica Holding		837,113		787,823
Telefónica		1,021,474		948,662
SP Telecomunicações Participações		660,012		598,064
Telefónica Chile		1,849		1,667
Non-controlling interest		1,345,550		1,251,201
Total		3,865,998		3,587,417

b.2) Changes:

Balance on December 31, 2018	4,172,916
Supplementary dividends for 2018	2,468,684
Interim interest on equity (net of IRRF)	3,199,800
Unclaimed dividends and interest on equity	(82,898	)
Payment of dividends and interest on equity	(6,176,842	)
IRRF on shareholders exempt/immune from interest on equity	5,757
Balance on December 31, 2019	3,587,417
Supplementary dividends for 2019	2,195,575
Interim interest on equity (net of IRRF) and dividends	3,435,500
Unclaimed dividends and interest on equity	(99,788	)
Payment of dividends and interest on equity	(5,259,367	)
IRRF on shareholders exempt/immune from interest on equity	6,661
Balance on December 31, 2020	3,865,998

For purposes of the cash flow statement, interest on equity and dividends paid to shareholders are recognized in “Financing Activities”.

(19) Provision and Contingencies

Accounting policy

Provision is recognized when the Company has a present obligation (legal or constructive) as a result of a past event, when it is probable that economic benefits are required to settle the obligation and a reliable estimate of the value of the obligation can be made. Provision is restated at the balance sheet date considering the likely amount of loss and the nature of each provision.

Provision amounts for contingencies are presented at their gross amount, less the corresponding judicial deposits, and are classified as provision for civil, labor, tax and regulatory contingencies.

Judicial deposits are classified as assets given that the conditions required for their net presentation with provision do not exist.

F-38

Provision for civil, labor, tax and regulatory legal claims

The Company and its subsidiaries are parts to administrative; labor, tax, civil and regulatory claims, and accounting provision amounts have been recorded in respect of claims whose likelihood of loss was classified as probable. The assessment of the likelihood of loss includes an analysis of available evidence, the hierarchy of laws, available case law, the latest court decisions law and their relevance in the legal system, as well as the opinion of outside legal counsel. Provision is reviewed and adjusted considering changes in existing circumstances, such as the applicable statute of limitations, tax audit conclusions, or additional exposures identified based on new matters or court decisions.

Provision for decommissioning of assets

Refers to costs to be incurred due to returning sites to owners (locations intended for tower and equipment installation on leased property) in the same condition as these were found at the time of execution of the initial lease agreement.

These costs are provisioned as the present value from amounts expected to settle the obligation using estimated cash flows and they are recognized as part of the cost of the corresponding asset. The cash flows are discounted at a current pre–tax rate that reflects the risks specific to decommissioning of assets. The financial effect of the discount is recorded as incurred and recognized in the statement of income as a finance cost. The estimated future costs of decommissioning are reviewed annually and adjusted as appropriate.

Changes in the estimated future costs or in the discount rate applied are added to, or deducted from, the cost of the asset.

Contingent liabilities recognized in a business combination

A contingent liability recognized in business combination is initially measured at fair value.

Refers to contingent liabilities from the Purchase Price Allocation (PPA) on acquisition of the controlling interest of Vivo Participações in 2011 and GVTPart. in 2015.

b) Critical estimates and judgments

The obligation arising from the provisions can be legal or constructive, derived from, among other factors, regulations, contracts, customary practices or public commitments that expose third parties to a valid expectation that the Company or its subsidiaries will assume certain responsibilities. The determination of the provision is based on the best estimate of the disbursement required to settle the corresponding obligation, considering the information available as at the closing date, including the opinion of independent experts, such as legal advisors.

c) Information on provisions and contingencies

Breakdown of changes in provision for cases in which an unfavorable outcome is probable, in addition to contingent liabilities and provision for decommissioning are as follows:

	Provisions for contingencies
	Labor			Tax			Civil			Regulatory			Contingent liabilities (PPA)			Provision for de– commissioning			Total
Balance on December 31, 2018		779,686			1,951,897			1,004,803			1,022,216			827,275			673,448			6,259,325
Initial adoption IFRC 23 (Note 7)		–			(68,945	)		–			–			–			–			(68,945	)
Additions (reversal), net (Note 26)		152,105			32,719			364,008			93,634			(16,986	)		(90,159	)		535,321
Other additions (reversal) (1)		(5,709	)		–			(2,381	)		–			–			(4,191	)		(12,281	)
Write-offs due to payment		(485,539	)		(364,992	)		(833,579	)		(43,068	)		–			–			(1,727,178	)
Interest accruals		99,526			25,270			264,590			72,954			21,433			57,591			541,364
Business combinations (Note 1 c)		7,805			–			7			–			–			–			7,812
Balance on December 31, 2019		547,874			1,575,949			797,448			1,145,736			831,722			636,689			5,535,418
Additions (reversal), net (Note 26)		126,167			122,419			374,464			69,486			(18,631	)		(7,306	)		666,599
Other additions (reversal) (1)		6,390			–			(6,020	)		–			–			(236,598	)		(236,228	)
Write-offs due to payment		(287,028	)		(24,763	)		(575,484	)		(39,782	)		–			–			(927,057	)
Interest accruals		106,307			125,647			281,543			31,891			10,154			15,857			571,399
Balance on December 31, 2020		499,710			1,799,252			871,951			1,207,331			823,245			408,642			5,610,131
Balance on December 31, 2019
Current		236,130			–			113,307			25,008			–			–			374,445
Non-current		311,744			1,575,949			684,141			1,120,728			831,722			636,689			5,160,973
Balance on December 31, 2020
Current		176,582			–			180,965			60,055						51			417,653
Non-current		323,128			1,799,252			690,986			1,147,276			823,245			408,591			5,192,478

(1) Provision for decommissioning refers to the reversal resulting from the review of costs for dismantling technical sites. The effects of this reversal were recognized against property, plant and equipment.

F-39

c.1) Labor provision and contingencies

	Amounts involved
Nature/Degree of Risk	December 31, 2020		December 31, 2019
Provisions		499,710		547,874
Possible losses		1,435,790		452,070

Labor provision and contingencies involve lawsuits filed by former employees and outsourced employees (the latter involving subsidiary or joint liability) claiming for, among other issues, overtime, salary equalization, post-retirement benefits, allowance for health hazard and risk premium, and matters relating to outsourcing. The variation of R$983,720 in possible contingencies was due to new actions and revaluations that occurred in the period, due to the progress of the lawsuits.

The Company is also a defendant in lawsuits filed by retired former employees, linked to the Retirement Medical Assistance Plan (“PAMA”), which require, among other things, the annulment of changes in the medical plan. There are currently four actions underway with this object. All are in an advanced stage, awaiting judgment by the Superior Courts, two of which remain in the Labor Court and two have been referred to the Civil Court, with favorable decisions. The Company’s management, based on the opinion of its legal advisors and recent court rulings, considers these actions to be of possible risk. No amount was attributed to these actions due to the nature of the requests (cancellation of changes to health plans), since, at this moment, in the event of loss, there is no way to estimate the loss for the Company. Therefore, no loss amounts were provisioned for these lawsuits.

In addition, the Company is a party to Public Civil Actions filed by the Public Prosecution Service. In August 2018, the majority of the Federal Supreme Court (“STF”) Ministers ruled the outsourcing to be legally valid, including core activities, enabling the subsidiary to provide services. As a result of this decision, most of the Public Civil Actions have already had decisions based on the legality of outsourcing in the analyzed contract and the consequent filing of the processes. However, awaiting judgment of the motion for clarification to clarify the scope of said decision, including for cases that have already been res judicata, an opportunity in which the application of said decision will be evaluated in each of the residual processes in which the topic is discussed. In view of these considerations, there are still no conditions to estimate amounts or possible losses for the Company.

c.2) Tax provision and contingencies

The Company and its subsidiaries are defending various assessments filed by the Federal Revenue of Brazil (“RFB”) for alleged incorrect deductions of expenses, mainly related to the amortization of goodwill, at various administrative and judicial levels. Management, supported by the position of its legal advisors, believes that a large part of these deductions will probably be accepted in decisions of higher courts of last resort (acceptance probability greater than 50%).

F-40

For cases in which the Company and its subsidiaries believe that the probability of acceptance by the tax authority is less than 50% a provision is recognized. Details of above cases are disclosed in Note 7 (d).

	Amounts involved
Nature/Degree of Risk	December 31, 2020		December 31, 2019
Provisions		1,799,252		1,575,949
Federal		622,246		573,229
State		625,019		466,164
Municipal		37,506		34,915
FUST		514,481		501,641
Possible losses		29,368,422		26,104,867
Federal		3,257,998		2,233,733
State		17,447,000		15,460,028
Municipal		754,827		669,114
FUST, FUNTTEL and FISTEL		7,908,597		7,741,992

c.2.1) Tax provisions

Management, under advice of legal counsel, believes that the following losses are probable in the federal, state, municipal and regulatory (FUST) tax proceedings:

Federal taxes

The Company and/or its subsidiaries are party to administrative and legal proceedings at the federal level relating to: (i) claims for the non-ratification of compensation and refund requests formulated; (ii) IRRF and CIDE on remittances abroad related to technical and administrative assistance and similar services, as well as royalties; (iii) withholding income tax on interest on equity; (iv) Social Investment Fund (Finsocial) offset amounts; (v) additional charges to the PIS and COFINS tax base, as well as additional charges to COFINS required by Law No. 9,718/98; and (vi) ex–tariff, cancellation of the benefits under CAMEX Resolution No. 6, increase in the import duty from 4% to 28%.

State taxes

The Company and/or its subsidiaries are party to administrative and judicial proceedings at the state level relating to ICMS, regarding: (i) disallowance credits; (ii) non-taxation of alleged telecommunications services; (iii) tax credit for challenges/disputes over telecommunication services not provided or wrongly charged (Agreement 39/01); (iv) rate differential; (v) leasing of infrastructure for internet services (data); (vi) outflows of goods with prices lower than those of acquisition; and (vii) non-taxation discounts to customers.

Municipal taxes

The Company and/or its subsidiaries are party to municipal tax proceedings, at the judicial level, relating to: (i) Property tax (“IPTU”); (ii) Services tax (“ISS”) on equipment leasing services, non-core activities and supplementary activities; and (iii) withholding of ISS on contractors’ services.

FUST

The Company and/or its subsidiaries have judicial proceedings related to the non-inclusion of interconnection expenses and industrial exploitation of a dedicated line in the calculation basis of FUST.

c.2.2) Possible losses – tax contingencies

Management, under advice of legal counsel, believes that the risk of loss from the following federal, state, municipal and regulatory (FUST, FUNTTEL and FISTEL) are possible:

F-41

Federal taxes

The Company and/or its subsidiaries are party to administrative and judicial proceedings, at the federal level, which are awaiting decision at different court levels.

The more significant of these proceedings are: (i) dissatisfaction from failure to approve requests for compensation submitted by the Company; (ii) INSS (a) on compensation payment for salary losses arising from the “Plano Verão” and the “Plano Bresser”; (b) SAT, social security amounts owed to third parties (INCRA and SEBRAE); (c) meals to employees, withholding of 11% (assignment of workforce); (d) Stock Options – requirement of social security contributions on amounts paid to employees under the stock option plan; and (e) PLR (iii) deduction of COFINS on swap operation losses; (iv) PIS and COFINS: (a) accrual basis versus cash basis; (b) levies on value–added services; and (c) monthly subscription services; (v) IPI levied on shipment of fixed access units from the Company’s establishment; (vi) Financial transaction tax (IOF) – on loan transactions, intercompany loans and credit transactions; and (vii) IRRF on capital gain on the sale of the GVT Group to the Company (included in the 2020 financial year).

State taxes

The Company and/or its subsidiaries are party to administrative and judicial proceedings, at the state level, related to ICMS, which are awaiting decision in different court levels: (i) rental of movable property; (ii) reversal of previously unused credits; (iii) service provided outside São Paulo state paid to São Paulo state; (iv) co–billing; (v) tax substitution with a fictitious tax base (tax guideline); (vi) use of credits on acquisition of electric power; (vii) secondary activities, value added and supplementary services; (viii) tax credits related to claims/challenges regarding telecommunications services not provided or mistakenly charged (Agreement 39/01); (ix) deferred collection of interconnection (“DETRAF” – Traffic and Service Provision Document); (x) credits derived from tax benefits granted by other states; (xi) disallowance of tax incentives related to cultural projects; (xii) transfers of assets among business units owned by the Company; (xiii) communications service tax credits used in provision of services of the same nature; (xiv) card donation for prepaid service activation; (xv) reversal of credit from return and free lease in connection with assignment of networks (used by the Company itself and exemption of public bodies); (xvi) DETRAF fine; (xvii) own consumption; (xviii) exemption of public bodies; (xix) discounts granted; (xx) new tax register bookkeeping without prior authorization by tax authorities; (xxi) advertising services; (xxii) unmeasured services; and (xxiii) monthly subscription, which is in the STF with declaration liens and the Company awaits the judgment of the STF on the request for modulation.

Municipal taxes

The Company and/or its subsidiaries are party to administrative and judicial proceedings, at the municipal level, which are awaiting decision at different court levels.

The more significant of these proceedings are: (i) ISS on: (a) non-core activity, value–added and supplementary services; (b) withholding at source; (c) call identification and mobile phone licensing services; (d) full–time services, provision, returns and cancelled tax receipts; (e) data processing and antivirus; (f) charge for use of mobile network and lease of infrastructure; (g) advertising services; and (h) services provided by third parties; (ii) IPTU; (iii) land use tax; and (iv) various municipal charges.

FUST, FUNTTEL and FISTEL

Universal Telecommunications Services Fund (“FUST”)

Writs of mandamus were filed seeking the right to exclude revenues from interconnection and Industrial Use of Dedicated Line (“EILD”) in the FUST tax base, according to Abridgment No. 7 of December 15, 2005, as it does not comply with the provisions contained in the sole paragraph of Article 6 of Law No. 9,998/00, which are awaiting a decision from Higher Courts.

Various administrative and judicial charges by ANATEL in administrative scope for the constitution of the tax credit related to interconnection, EILD and other revenues that do not originate from the provision of telecommunication services.

F-42

On December 31, 2020, the consolidated amount involved totaled R$4,399,325 (R$4,411,759 on December 31, 2019).

Fund for Technological Development of Telecommunications (“FUNTTEL”)

Proceedings have been filed for the right not to include interconnection revenues and any others arising from the use of resources that are party of the networks in the FUNTTEL calculation basis, as determined by Law 10,052/00 and Decree No. 3,737/01, thus avoiding improper application of Article 4, paragraph 5, of Resolution 95/13.

There are several notifications of charges from the Ministry of Communications in administrative actions for constitution of the tax credit related to the interconnection, network resources and other revenues that do not originate from the provision of telecommunication services.

On December 31, 2020, the consolidated amount involved totaled R$764,655 (R$723,105 on December 31, 2019).

Telecommunications Inspection Fund (“FISTEL”)

There are judicial actions for the collection of TFI on: (i) extensions of the term of validity of the licenses for use of telephone exchanges associated with the operation of the fixed switched telephone service; and (ii) extensions of the period of validity of the right to use radiofrequency associated with the operation of the telephone service personal mobile service.

On December 31, 2020, the consolidated amount involved totaled R$2,744,617 (R$2,607,128 on December 31, 2019).

c.3) Civil provision civil contingencies

	Amounts involved
Nature/Degree of Risk	December 31, 2020		December 31, 2019
Provisions		871,951		797,448
Possible losses		3,374,200		3,495,010

c.3.1) Civil provisions

Management, under advice of legal counsel, believes that the following civil proceedings will result in probable losses:

· The Company is a party to proceedings involving rights to the supplementary amounts from shares calculated on community telephony plants and network expansion plans since 1996 (supplement of share proceedings). These proceedings are at different stages: lower courts, court of justice and high court of justice. On December 31, 2020, the consolidated amount involved totaled R$290,993 (R$297,641 on December 31, 2019).

· The Company and/or its subsidiaries are party to various civil proceedings related to consumerist at the administrative and judicial level, relating to the non-provision of services and/or products sold. On December 31, 2020, the consolidated amount involved totaled R$240,810 (R$211,865 on December 31, 2019).

· The Company and/or its subsidiaries are party to various civil proceedings of a non-consumer nature at administrative and judicial levels, all arising in the ordinary course of business. On December 31, 2020, the consolidated amount involved totaled R$340,148 (R$287,942 on December 31, 2019).

c.3.2) Possible losses – civil contingencies

Management, under advice of legal counsel, believes that losses are possible from the following civil proceedings:

F-43

· Collective Action filed by SISTEL Participants’ Association (“ASTEL”) in the state of São Paulo, in which SISTEL associates in the state of São Paulo challenge the changes made in the PAMA and claim for the reestablishment of the prior “status quo”. This proceeding is still in the appeal phase and awaits a decision on the Interlocutory Appeal filed by the Company against the decision on possible admission of the appeal to higher and supreme courts filed in connection with the Court of Appeals’ decision, which partially changed the decision rendering the matter groundless. In parallel, the parties formulated an agreement, filed though pending court approval. The amount cannot be estimated, and the claims cannot be settled due to their unenforceability because it entails the return to the prior plan conditions.

· Public Civil Action proposed by the National Federation of Associations of Retirees, Pensioners and Participants in Pension Funds in the Telecommunications Sector (“FENAPAS”), in which ASTEL is an assessor against Sistel, the Company and other operators, to annul the spin–off of the PBS pension plan. The action is claiming, in summary, the “dismantling of the supplementary pension system of Fundação Sistel”, which originated several specific PBS mirror plans, and corresponding allocations of resources from the technical surplus and tax contingency existing at the time of the spin–off. After upholding the lawsuit in the first degree and confirming the sentence at the appellate level, the Company filed an appeal for clarification. Concurrently, the National Superintendence of Complementary Social Security (“PREVIC”) intervened in the process, which caused the case to be sent to the Federal Court. The process is awaiting receipt at the Federal Court. No value has been determined nor orders settled due to their unenforceability as it involves a return to SITEL’s spun–off collection related to telecommunications operators of the former Telebrás System.

· The Company and its subsidiaries are party to other civil claims, at several levels, related to service rendering rights. Such claims have been filed by individual consumers, civil associations representing consumer rights or by the Bureau of Consumer Protection (“PROCON”), as well as by the Federal and State Public Prosecutor’s Office. The Company is also party to other claims of several types related to the ordinary course of business. On December 31, 2020, the consolidated amount totaled R$3,374,200 (R$3,495,010,626 on December 31, 2019).

· Intellectual Property: Lune Projetos Especiais Telecomunicação Comércio e Ind. Ltda. (“Lune”), a Brazilian company, filed lawsuits on November 20, 2001 against 23 wireless carriers claiming to own the patent for a caller ID and the trademark “Bina”. The purpose of the lawsuit was to interrupt provision of such service by carriers and to seek indemnification equivalent to the amount paid by consumers for using the service.

An unfavorable decision was handed down determining that the Company should refrain from selling mobile phones with the Bina ID service, subject to a daily fine of R$10 (ten thousand reais) in the event of non-compliance. Furthermore, according to that decision, the Company must pay indemnification for royalties, to be calculated on settlement. Motions for Clarification were proposed by all parties and Lune’s motions for clarification were accepted since an injunctive relief in this stage of the proceedings was deemed applicable. A bill of review appeal was filed in view of the current decision which granted a stay of execution suspending that unfavorable decision until final judgment of the review. A bill of review was filed in view of the sentence handed down on September 30, 2016, by the 4th Chamber of the Court of Justice of the Federal District, in order to annul the lower court sentence and remit the proceedings back to the lower court for a new examination, which is ongoing. Management is unable to reasonably estimate the liability with respect to this claim as the expertise is in its early stages.

· The Company and other wireless carriers are currently defendants in two class actions brought by the Public Prosecutor’s Office and consumer associations challenging the defined period for use of prepaid minutes. The plaintiffs allege that the prepaid minutes should not expire after a specific period. Conflicting decisions were handed down by courts on the matter, even though the Company believes that its criteria for the period determination comply with ANATEL standards. In relation to these two ongoing lawsuits, there are appeals pending judgment by the Regional Federal Court (“TRF”) and the Superior Tax Court (“STJ”) filed by the opposing parties, due to the favorable decision obtained by the Company. The other lawsuits, already closed, had decisions in favor of the interests of the Company that have been final and unappealable.

F-44

c.4) Regulatory provision and contingencies

	Amounts involved
Nature/Degree of Risk	December 31, 2020		December 31, 2019
Provisions		1,207,331		1,145,736
Possible losses		5,617,806		5,645,107

c.4.1) Regulatory provisions

Management, under advice of legal counsel, believes the likelihood of loss of the following regulatory proceedings is probable:

The Company is a party to administrative proceedings initiated mainly by ANATEL on the grounds of alleged non-compliance with obligations in the sectoral regulations, as well as in lawsuits that discuss, in the great majority, sanctions applied by ANATEL at the administrative level.

c.4.2) Possible losses – regulatory contingencies

Management, under advice of legal counsel believes the likelihood of loss of the following regulatory proceedings is possible:

The Company is a party to administrative proceedings filed by ANATEL (other agents, including other operators, also have claims against the Company) alleging non-compliance with the obligations set forth in industry regulations, as well as legal claims which discuss the mostly sanctions applied by ANATEL at the administrative level.

Significant cases with possible risks in the regulatory contingency portfolio include:

· Administrative and legal proceedings that discuss how ANATEL calculates the amount of the charge due to the extension of the radio frequencies associated with the SMP. In the view of the Agency, the calculation of encumbrances should consider the application of a percentage of 2% over the entire economic benefit resulting from the provision of the STFC / SMP service. In the Company’s view, however, revenues that are not part of the STFC / SMP service plans, as defined by the regulations at the time of signing the authorization terms / concession contracts, should not be considered when calculating the burden. Because of differences in interpretation, the Company filed administrative claims and lawsuits to challenge ANATEL charge collections.

· In May 2018, the Company filed a lawsuit to annul ANATEL final decision, of March of the same year, in the records of the Procedure for Determining Noncompliance with Obligations (“PADO”) for alleged violations of the fixed telephony regulation. The principal amount of the fine imposed by ANATEL, and object of the lawsuit, totals R$211,576. On December 31, 2020 and 2019, amount including interest and indexation accruals was approximately R$485,828 and R$475,151, respectively. The Company believes that the fine imposed is illegal and not due based, fundamentally, on the following defense arguments: (i) ANATEL’s error in determining the universe of users considered in the fine (the number of users affected is less than that considered by the ANATEL) and; (ii) the calculation of the penalty is disproportionate and without foundation. The lawsuit is in the lower court and currently awaits judgment, after the Company presents an expert report to support arguments to reduce the fine.

· Arbitration Procedure No. 24690 / PFF is in progress, which is being processed at the International Chamber of Commerce (“CCI”). The procedure was proposed by “Nextel Telecomunicações Ltda.” for “Telefônica Brasil S.A.”, and addresses divergence in Industrial Exploration and Network Sharing Contracts (Ran Sharing) signed between the parties. On December 31, 2020, the amount of the procedure is estimated at R$257,653. The parties entered into an agreement involving the issues in dispute and are awaiting approval of the agreement by the Arbitral Tribunal

F-45

d) Guarantees

The Company and its subsidiaries granted guarantees for tax, civil, labor and regulatory proceedings, as follows:

	December 31, 2020		December 31, 2019
Judicial deposits and garnishments		2,944,378		3,670,885
Letters of guarantee		2,509,089		2,608,463
Property and equipment		85,172		81,416
Total		5,538,639		6,360,764

On December 31, 2020, in addition to the guarantees presented above, the Company and its subsidiaries had amounts under short–term investment withheld by courts (except for loan–related investments) in the consolidated amount of R$46,280 (R$50,554 on December 31, 2019).

(20) Loans, Financing, Debentures and Leases

a) Accounting policy

These are financial liabilities measured initially and recognized by fair value, net of costs incurred to obtain them and subsequently measured by amortized cost (plus pro–rata charges and interest), considering the effective interest rate of each operation, or by fair value through profit or loss.

They are classified as current unless the Company has the unconditional right to settle the liability for at least 12 months after the closing date of the year.

Borrowing costs directly related to the acquisition, construction or production of an asset that necessarily requires more than 18 months to be completed for use or sale purposes are capitalized as part of the cost of the corresponding asset. The Company did not capitalize borrowing and financing costs and debentures due to the absence of qualifying assets.

All other costs of loans, financing, debentures and leases are recorded in expense in the period in which they are incurred. The costs of loans, financing and debentures comprise interest and other costs incurred.

b) Breakdown

	Information on December 31, 2020				December 31, 2020						December 31, 2019
	Currency	Annual interest rate	Maturity	Guarantees	Current		Non-current		Total		Current		Non-current		Total
Financial institutions (b.1)						61		51		112		23,865		24,985		48,850
PSI	R$	2.5% to 5.5%	Jan–23	(1)		61		51		112		8,847		112		8,959
BNB	R$	7.06% to 10%	Aug–22	(2)		–		–		–		15,018		24,873		39,891
Suppliers (b.2)	R$	114.6% to 149.0% of CDI	Dec–21			375,700		–		375,700		996,177		97		996,274
Debentures (b.3)						1,044,668		999,908		2,044,576		1,077,183		2,027,167		3,104,350
1st issue – Minas Comunica	R$	IPCA+0.50%	Jul–21	(3)		29,352		–		29,352		28,366		28,366		56,732
5th issue	R$	108.25% of CDI	Feb–22	(3)		1,015,316		999,908		2,015,224		44,504		1,998,801		2,043,305
6th issue	R$	100% of CDI + 0.24%	Nov–20	(3)		–		–		–		1,004,313		–		1,004,313
Leases (b.4)	R$	7.69% / IPCA				2,262,043		8,556,735		10,818,778		2,029,265		7,161,886		9,191,151
Contingent consideration (b.5)	R$	Selic				–		–		–		–		484,048		484,048
Total						3,682,472		9,556,694		13,239,166		4,126,490		9,698,183		13,824,673

Guarantees:

(1) Pledge of financed assets.

(2) Bank guarantee provided by Banco Safra in an amount equivalent to 100% of the outstanding financing debt balance. Setting up a liquidity fund represented by financial investments in the amount equivalent to three installments of repayment referenced to the average post-grace period performance. On December 31, 2019, the balance of this liquidity fund was R$13,212.

(3) Unsecured.

F-46

b.1) Loans and financing – Financial Institutions

Some financing agreements with the financial institutions have lower interest rates than those prevailing in the market. These operations fall within the scope of IAS 20 and therefore the subsidies granted up to December 31, 2017 were adjusted to present value and deferred in accordance with the useful lives of the financed assets.

The grants on January 1, 2018 adjusted to present value, were recorded in property, plant and equipment and are being depreciated according to the useful lives of the financed underlying assets.

b.2) Financing – Suppliers

Under bilateral agreements with suppliers, the Company obtained extension of the terms for payment of trade accounts payable at a cost based on the fixed CDI rate for the corresponding periods, with the net cost equivalent to between 114.6% to 149.0% of the CDI (109.2% to 122.5% of the CDI on December 31, 2019).

b.3) Debentures

The following is a summary of the debentures in effect on December 31, 2020.

			Amounts
	Issue		Issued		Outstanding		Issue value
1st issue – Minas Comunica		Dec-07		5,550		5,550		55,500
5th issue		Feb-17		200,000		200,000		2,000,000

The payment of principal of R$1,000,000 plus interest on the 5th issue (VIVT15) occurred on February 8, 2021.

Transaction costs in connection with the 5^th issue, totaling R$1,376 on December 31, 2020 (R$2,550 on December 31, 2019, with the 5^th and 6th issues), were treated as a reduction of liabilities as costs to be incurred and are recognized as financial expenses, according to the contractual terms of each issue.

b.4) Leases

On the lease start date, the Company recognizes lease liabilities measured at the present value of lease payments to be made during the lease term. After the start date, the value of the lease liability is increased to reflect the increase in interest and reduced for lease payments made.

Short–term lease and low–value lease payments are recognized as an expense using the straight–line method over the lease term.

The Company has agreements classified as lease agreements as a lessee: (i) lease of structures (towers and rooftops) arising from sale and leaseback transactions; (ii) lease of Built to Suit (“BTS”) sites to install antennas and other equipment and transmission facilities; (iii) lease of information technology equipment and; (iv) lease of infrastructure and transmission facilities associated with the power transmission network, offices, stores and commercial properties. The net carrying amount of the assets has remained unchanged until sale thereof, and a liability is recognized corresponding to the present value of mandatory minimum installments as per the agreement.

Below, we present the balances of the lease amounts payable:

	December 31, 2020			December 31, 2019
Nominal value payable		13,526,001			10,932,789
Unrealized financial expenses		(2,707,223	)		(1,741,638	)
Present value payable (1)		10,818,778			9,191,151
Current		2,262,043			2,029,265
Non-current		8,556,735			7,161,886

(1) On December 31, 2020 and 2019, the present value of balances payable, included R$1,470,508 and R$480,381, respectively, referring to lease agreements with Telefónica Group companies (Note 28).

F-47

The following is a schedule of the amounts payable on leases on December 31, 2020:

Year
2021	2,262,043
2022	2,270,112
2023	2,118,655
2024	1,551,657
2025	925,972
2026 onwards	1,690,339
Total	10,818,778

The weighted annual interest rate on lease contracts on December 31, 2020 is 7.69%, with an average maturity of 6.15 years.

The present value of lease agreements is measured by discounting future fixed payment flows, which do not include projected inflation, at market interest rates, estimated using the Company’s intrinsic risk spread.

The discount curves used are constructed based on observable data. Market interest rates are extracted from B3 and the Company’s risk spread is estimated from debt securities issued by companies with comparable risk. The final discount curve reflects the Company’s incremental loan interest rate.

There were no unsecured residual values resulting in benefits to the lessor or contingent payments recognized as revenue on December 31, 2020 and 2019.

b.5) Contingent consideration

As part of the Purchase and Sale Agreement and Other Covenants executed by and between the Company and Vivendi to acquire all shares in GVTPart., a contingent consideration relating to the judicial deposit made by GVT for the monthly installments of deferred income tax and social contribution on goodwill amortization was agreed, arising from the corporate restructuring process completed by GVT in 2013. If these funds are realized (being reimbursed, refunded, or via netting), it would be returned to Vivendi, as long as they are obtained in a final unappealable decision. The deadline for this return was up to 15 years and this amount was subject to monthly restatement at the SELIC rate.

On July 13, 2020, the 2nd Federal Court of Maringá – PR, issued an order determining the transfer to the Company of the judicial deposit made by the former GVT, corresponding to the tax benefit of goodwill from the mergers of subsidiaries.

As a result of the decision mentioned above, in September 2020, the Company redeemed the judicial deposit and paid Vivendi the amount of R$349,794, monetarily restated, net of costs, expenses and taxes incurred, directly attributable to the reimbursement of such amount.

c) Repayment schedule

Below, we present the breakdown by year of maturity of non-current amounts of loans, financing, debentures and leases as of December 31, 2020.

Year	Loans and financing – financial institutions		Financing – suppliers		Debentures		Leases		Total
2022		47		–		999,908		2,270,112		3,270,067
2023		4		–		–		2,118,655		2,118,659
2024		–		–		–		1,551,657		1,551,657
2025		–		–		–		925,972		925,972
2026 onwards		–		–		–		1,690,339		1,690,339
Total		51		–		999,908		8,556,735		9,556,694

F-48

d) Covenants

Loans and financing with financial institutions and debentures carry specific covenants involving a penalty in the event of breach of contract. A breach of contract as provided for in the agreements with the institutions listed above in item a), is characterized as non-compliance with covenants (analyzed on a quarterly, half–yearly or yearly basis), being a breach of a contractual clause, resulting in the early maturity of the contract.

On December 31, 2020 and 2019, the Company was in compliance with all economic and financial indices.

e) Changes

Changes in loans and financing, debentures, leases agreements and contingent considerations are as follows:

	Loans and financing			Debentures			Leases			Financing – suppliers			Contingent consideration			Total
Balance on December 31, 2018		1,582,570			3,173,910			393,027			524,244			465,686			6,139,437
Initial adoption IFRS 16 on January 1, 2019		–			–			8,618,072			–			–			8,618,072
Additions		–			–			1,803,941			967,313			–			2,771,254
Government grants (Note 21)		15,787			–			–			–			–			15,787
Financial charges (Note 27)		111,013			197,386			457,985			45,940			18,362			830,686
Issue costs		–			1,400			–			–			–			1,400
Foreign exchange variation  (Note 27)		(1,104	)		–			–			–			–			(1,104	)
Write-offs (cancellation of contracts)		–			–			(107,213	)		–			–			(107,213	)
Write-offs (payments)		(1,659,416	)		(268,346	)		(1,974,661	)		(541,223	)		–			(4,443,646	)
Balance on December 31, 2019		48,850			3,104,350			9,191,151			996,274			484,048			13,824,673
Additions		–			–			4,828,542			370,538			–			5,199,080
Financial charges (Note 27)		1,879			87,635			526,127			26,620			6,555			648,816
Issue costs		–			1,376			–			–			–			1,376
Costs and expenses incurred		–			–			–			–			(40,708	)		(40,708	)
Write-offs (cancellation of contracts)		–			–			(315,291	)		–			–			(315,291	)
Write-offs (payments)		(50,617	)		(1,148,785	)		(3,411,751	)		(1,017,732	)		(449,895	)		(6,078,780	)
Balance on December 31, 2020		112			2,044,576			10,818,778			375,700			–			13,239,166

f) Additions and payments

The following is a summary of the inflows and payments that occurred during the years ended December 31, 2020 and 2019.

	December 31, 2020											December 31, 2019
			Write-offs (payments)											Write-offs (payments)
	Additions		Principal			Financial charges			Total			Additions		Principal			Financial charges			Total
Loans and financing		–		(48,645	)		(1,972	)		(50,617	)		–		(1,564,258	)		(95,158	)		(1,659,416	)
BNDES / PSI		–		(8,849	)		(111	)		(8,960	)		–		(1,549,335	)		(91,939	)		(1,641,274	)
BNB		–		(39,796	)		(1,861	)		(41,657	)		–		(14,923	)		(3,219	)		(18,142	)
Debêntures		–		(1,025,583	)		(123,202	)		(1,148,785	)		–		(66,830	)		(201,516	)		(268,346	)
1st issue – Minas Comunica		–		(25,583	)		(1,995	)		(27,578	)		–		(25,583	)		(1,761	)		(27,344	)
4th issue		–		–			–			–			–		(41,247	)		(1,650	)		(42,897	)
5th issue		–		–			(88,819	)		(88,819	)		–		–			(135,242	)		(135,242	)
6th issue		–		(1,000,000	)		(32,388	)		(1,032,388	)		–		–			(62,863	)		(62,863	)
Financing – Suppliers		370,538		(970,029	)		(47,703	)		(1,017,732	)		967,313		(506,407	)		(34,816	)		(541,223	)
Contingent consideration				(344,217	)		(105,678	)		(449,895	)		–		–			–			–
Leases (1)		4,828,542		(2,909,214	)		(502,537	)		(3,411,751	)		10,422,013		(1,559,165	)		(415,496	)		(1,974,661	)
Total		5,199,080		(5,297,688	)		(781,092	)		(6,078,780	)		11,389,326		(3,696,660	)		(746,986	)		(4,443,646	)

(1) Additions include the amount of the initial adoption of IFRS 16 on January 1, 2019.

F-49

(21) Deferred Income

	December 31, 2020		December 31, 2019
Contractual liabilities (costumers contracts) (1)		529,179		499,035
Disposal of PP&E (2)		107,367		94,383
Government grants (3)		50,474		61,613
Other (4)		59,224		63,051
Total		746,244		718,082
Current		506,806		506,181
Non-current		239,438		211,901

(1) Refers to the balance of contractual liabilities of customers, deferred when they relate to performance obligations satisfied over time.

(2) Includes the net balances of the residual values from sale of non-strategic towers and rooftops, transferred to income as the conditions for recognition are met.

(3) This refers to: i) government subsidy arising from funds obtained from credit lines to be used in the acquisition of domestic equipment, which have been amortized over the useful life cycle of the equipment; and ii) subsidies arising from projects related to state taxes, which are being amortized over the contractual period.

The amount estimated by the Company as received by employees as emergency benefits paid directly to employees, by the Federal Government (MP No. 936), in the amount of R$34,590, for the months of May to December 2020, deducted from personnel costs and expenses (Note 25).

Changes in contractual liabilities (contracts with customers), mainly related to the sale of prepaid credits in the years ended December 31, 2020 and 2019:

Balance on December 31, 2018	532,207
Additions	6,762,607
Write-offs, net	(6,795,779	)
Balance on December 31, 2019	499,035
Additions	6,901,785
Write-offs, net	(6,871,641	)
Balance on December 31, 2020	529,179
Current	479,728
Non-current	49,451

Below, we present the expected periods of realization of contractual liabilities.

Year
2021	479,728
2022	15,824
2023	3,499
2024	8,089
2025	8,089
2026 onwards	13,950
Total	529,179

F-50

(22) Other Liabilities

	December 31, 2020		December 31, 2019
Surplus from post-employment benefit plans (Note 30)		954,581		1,155,067
Liabilities with ANATEL (1)		523,606		300,119
Third-party withholdings (2)		219,169		222,056
Amounts to be refunded to customers		44,973		43,794
Liabilities with related parties (Note 28)		33,831		30,114
Other liabilities		48,646		36,781
Total		1,824,806		1,787,931
Current		406,831		365,192
Non-current		1,417,975		1,422,739

(1) Includes the cost of renewing STFC and SMP licenses and SMP licenses and the extension of the authorization to use radio frequencies for the exploitation of SMP in the State of Rio de Janeiro, granted by ANATEL on November 29, 2020 (Notes 1.b and 12).

(2) This refers to payroll withholdings and taxes withheld from pay–outs of interest on equity and on provision of services.

(23) Equity

a.1) Conversion of preferred shares to common shares

At the Extraordinary General Meeting (“AGE”) of the Company, held on October 1, 2020, the following were approved: (i) the conversion of the total of 1,119,340,706 (one billion, one hundred and nineteen million, three hundred and forty thousand, seven hundred and six) preferred shares issued by the Company in common, registered, book–entry shares with no par value, in the proportion of 1 (one) common share for each 1 (one) preferred share converted, with extinction of the preferred shares (“Conversion”); (ii) the amendment and / or exclusion of article 4, caput and paragraphs, article 5, caput, article 7, caput and single paragraph, article 9, caput and single paragraph, article 10, caput and items (i), (ii ) and (iii) and article 14, caput, of the Company’s Bylaws; and (iii) the consolidation of the Company’s Bylaws.

Also, on October 1, 2020, AGESP ratified: (i) the Conversion; and (ii) the amendment to article 9, caput and sole paragraph, of the Company’s Bylaws, pursuant to article 136, first paragraph, of Law 6,404 / 76 (“Lei das S.A.”).

Pursuant to articles 136, items II and 137, item I, of the Brazilian Corporation Law, in view of the ratification of the Conversion by AGESP, the shareholders holding preferred shares issued by the Company who: (i) dissented from the resolution taken at AGESP; (ii) abstained from voting on the resolution taken at AGESP; or (iii) did not attend AGESP, had the right to withdraw from the Company, through the reimbursement of the value, of all or part of their shares, except for the provisions of article 137, third paragraph, of the Brazilian Corporation Law. the publication of the minutes took place on October 2, 2020, and the next subsequent business day was October 5, 2020, the period of 30 (thirty) days for exercising the withdrawal right started on October 5, 2020 (inclusive) and ended on November 3, 2020 (inclusive).

The shareholders who, evidently, were holders of shares issued by the Company since March 9, 2020 (inclusive), the date of the disclosure of the Material Fact that initially dealt with the Conversion, were able to exercise the right of withdrawal exercise of the effective right.

F-51

The amount of reimbursement per preferred share paid as a result of exercising the right to withdraw was determined based on (i) the Company’s shareholders’ equity in the financial statements for the fiscal year ended on December 31, 2019, duly approved by the General Meeting Company’s Ordinary Meeting held on May 28, 2020 (“AGM”); and (ii) the number of common and preferred shares, excluding treasury shares, corresponded to R$41.72 (forty–one reais and seventy–two cents) per share. The amount equivalent to the amount of complementary dividends declared by the Company at the AGM was deducted from the reimbursement value per share, since the declared dividends amounted to the profit account and, therefore, the book value per share on December 31, 2019 Considering that the Company’s share capital was divided into 1,688,693,776 (one billion, six hundred and eighty–eight million, six hundred and ninety–three thousand, seven hundred and seventy–six) shares (including common and preferred shares and excluding treasury shares), the reimbursement amount to be paid to dissenting shareholders, corresponding to the adjusted shareholders’ equity, was R$40.38 (forty reais and thirty–eight cents) per preferred share. Regarding the reimbursement amount, there was no type of monetary correction or adjustment on this amount, as well as any fractions of cents were disregarded.

As a result of the right to withdraw from the Conversion described above, on November 19, 2020, the Company paid R$32 to shareholders who exercised the right to withdraw, representing 805 preferred shares.

On November 23, 2020, the Company issued a material fact, communicating to its shareholders and the market in general that, as of this date: (i) the preferred shares issued by the Company will no longer be traded, due to the conversion of the all preferred shares in common shares; and (ii) only common shares of its issue will be traded, under the ticker “VIVT3”. With the completion of the aforementioned share conversion, the Company proceeded with the conversion of the American Depositary Receipt (ADR) program registered with the Securities and Exchange Commission (“SEC”), and it is expected that, as of this date, the Stock Exchange of New York (“NYSE”) suspend the trading of ADRs backed by preferred shares and start trading ADRs backed by common shares in the “when issued” format under the ticker “VIV WI” and, from November 30, 2020 , in the “regular way” format, under the “VIV” ticker.

For the effective implementation of the conversion of shares, a voting agreement was signed between the shareholders Telefónica S.A., Telefónica Latinoamérica Holding, S.L., SP Telecomunicações Participações Ltda. and, as the consenting intervening party, the Company, in order to comply with the provisions of items a.1 and a.2 of ANATEL Judgment 430, of August 11, 2020.

a.2) Capital

Pursuant to its Articles of Incorporation, the Company is authorized to increase its share capital up to 1,850,000,000 common shares. The Board of Directors is the competent body to decide on any increase and consequent issue of new shares within the authorized capital limit.

Brazilian Corporation Law (Law nº 6404/76, Article 166, item IV) – establishes that capital may be increased by means of a Special Shareholders’ Meeting Resolution by modifying the Articles of Incorporation, if the authorized capital increase limit has been reached.

The shareholders will have preemptive rights to subscribe for a capital increase, in proportion to the number of shares they own. By resolution of the Board of Directors, the preemptive right in the issuance of shares, convertible debentures and subscription bonus, whose placement may be made through sale on the Stock Exchange or public subscription, exchange for shares in a public offer for acquisition may be excluded control, under the terms of articles 257 and 253 of the Corporation Law, as well as, enjoy tax incentives, under the terms of special legislation, as provided for in article 172 of the Corporation Law.

Subscribed and paid–in capital on December 31, 2020 and 2019 amounted to R$63,571,416.

F-52

After the processes of: (i) conversion of preferred shares into common shares; (ii) share buyback program; and (iii) exercise of the right to dissent from the conversion of preferred shares into common shares, on December 31, 2020 the capital started to be represented by shares, all common, book–entry and without par value, distributed as follows:

	Total
Shareholders	Number			%
Controlling Group		1,244,241,119			73.58	%
Telefónica Latinoamérica Holding, S.L.		407,279,213			24.09	%
Telefónica		503,329,803			29.76	%
SP Telecomunicações Participações		332,695,590			19.67	%
Telefónica Chile		936,513			0.06	%
Other shareholders		443,933,052			26.25	%
Treasury Shares		2,810,752			0.17	%
Total shares		1,690,984,923			100.00	%
Treasury Shares		(2,810,752	)
Total shares outstanding		1,688,174,171

b) Capital reserves

b.1) Special goodwill reserve

This represents the tax benefit generated by the merger of Telefonica Data do Brasil Ltda. which will be capitalized in favor of the controlling shareholders (SP Telecomunicações Participações) after the tax credits are realized under the terms of CVM Ruling No. 319/99.

The balance of this account on December 31, 2020 and 2019 totaled R$63,074.

b.2) Other capital reserves

The breakdown on December 31, 2020 and 2019 was as follows.

	December 31, 2020			December 31, 2019
Excess of the value in the issue or capitalization, in relation to the basic value of the share on the issue date (1)		2,735,930			2,735,930
Cancelation of treasury shares according to the Special Shareholders’ Meeting  (SGM) of 3/12/15 (2)		(112,107	)		(112,107	)
Direct costs of capital increases (3)		(62,433	)		(62,433	)
Incorporation of shares of GVTPart. (4)		(1,188,707	)		(1,188,707	)
Effects of the acquisition of Lemontree and GTR by Company and Tglog by TData (5)		(75,388	)		(75,388	)
Preferred shares delivered referring to the judicial process of expansion plan (6)		2			2
Effects of the acquisition of Terra Networks by TData (7)		(59,029	)		(59,029	)
Effects of the acquisition of TIS by Terra Networks (8)		(48,135	)		(48,135	)
Effects of the acquisition and sale of CyberCo Brasil (9)		39,521			–
Other		76			76
Total		1,229,730			1,190,209

(1) It referes the excess of the value in the issue or capitalization, in relation to the basic value of the share on the issue date.

(2) The cancellation of 2,332,686 shares issued by the Company, held in treasury, approved at the Special Shareholders’ Meeting held on March 12, 2015.

(3) The value refers direct costs (net of taxes) of Company capital that increased on April 30,2015, arising from the Primary Offering of Shares.

(4) The value refers the difference between the economic values that comes from the merger of shares owned by GVTPart, issued on the transaction closing date.

(5) Regarding the effects of the acquisition of shares of non-controlling shareholders that, with the adoption of IFRS 10, 35 and 36. It would be recorded in equity when there is no change in the shareholding control.

(6) It refers about the effects of write-offs due to the transfer of 62 preferred shares in treasury to outstanding shares, for compliance with judicial process decisions in which the Company is involved regarding rights to the complementary receipt of shares calculated in relation to network expansion plans after 1996.

F-53

(7) The effects refer the acquisition of Terra Networks by TData, related to the difference between the consideration given in exchange for the equity interest obtained and the value of the net assets acquired.

(8) The effects refer the acquisition of TIS by Terra Networks, related to the difference between the consideration given in exchange for the equity interest obtained and the value of the net assets acquired (Note 1 c).

(9) Refers to the effects on the Company and on a subsidiary, due to the acquisition and sale of CyberCo Brasil, referring to the difference between the consideration received in exchange for the alienated shareholding (Note 1.c).

b.3) Treasury shares

These are equity instruments that are repurchased and recognized at cost and deducted from shareholders’ equity. No gain or loss is recognized in the statement of income on the purchase, sale, issue or cancellation of the equity instruments of the Company. Any difference between the book value and the consideration is recognized in other capital reserves.

The Company’s shares held in treasury whose balance is resulting: (i) from the exercise of the right to withdraw from the Company’s common and preferred shareholders, who expressed their dissent regarding the acquisition of GVTPart.; (ii) the exercise of the right to withdraw from the holders of preferred shares of the Company who expressed their dissent from the process of converting the Company’s preferred shares into common shares; (iii) the acquisition of preferred shares in the financial market in accordance with the share buyback program; and (iii) transfers of preferred shares, related to compliance with court decisions in which the Company is involved, which deals with rights to the complementary receipt of shares calculated in relation to network expansion plans after 1996.

During the year of 2020, 519,605 shares were acquired, of which 232,805 preferred shares and 286,800 common shares, in the total amount of R$22,721, resulting from the right of withdrawal in the conversion of preferred shares to common shares and through the Share Repurchase Program of the Company.

The balance of this account on December 31, 2020 totaled R$110,541, consisting of 2,810,752 common shares (on December 31, 2019 totaled R$87,820, consisting of 2,290,164 common shares and 983 preferred shares).

c) Income reserves

c.1) Legal Reserve

This reserve is obligatorily constituted by the Company on the basis of 5% of net income for the year, up to 20% of the paid–in capital stock. The legal reserve may only be used to increase share capital and to offset accumulated losses.

c.2) Expansion and Modernization Reserve

This reserve is constituted based on the capital budget, whose purpose is to guarantee the expansion of the network capacity to meet the Company’s increasing demand and guarantee the quality of service rendering. In accordance with Article 196 of Law No. 6404/76, the capital budget will be submitted for appreciation and approval by the Annual Shareholders’ Meeting. On May 28, 2020, the Company’s Annual General Meeting (“AGM”) approved the allocation of the result for the 2019 fiscal year, including the reversal of the 2018 reserve in the amount of R$1,700,000 and the constitution of a new 2019 reserve in the amount of R$600,000. In 2020, the 2019 reserve was reversed in the amount of R$600,000, which will be submitted for appreciation and approval by the AGM, scheduled to be held on April 15, 2021.

c.3) Tax Incentives

The Company has State VAT (ICMS) tax benefits in the states of Minas Gerais and Espírito Santo, relating to tax credits approved by the relevant bodies of said states, in connection with investments in the installation of SMP support equipment, fully operational, in accordance with the rules in force, ensuring that the localities listed in the call for bid be included in the SMP coverage area. The portion of profit subject to the incentive was excluded from dividend calculation and may be used only in the event of capital increase or loss absorption.

F-54

c.4) Changes of income reserves

The amounts of the income reserves are distributed as follows:

	Legal reserve		Expansion and Modernization Reserve			Tax incentives		Total
Balance on December 31, 2018		2,584,757		1,700,000			39,413		4,324,170
Reversal of reserves		–		(1,700,000	)		–		(1,700,000	)
Recording of reserves		250,051		600,000			18,166		868,217
Balance on December 31, 2019		2,834,808		600,000			57,579		3,492,387
Reversal of reserves		–		(600,000	)		–		(600,000	)
Recording of reserves		238,526		–			18,766		257,292
Balance on December 31, 2020		3,073,334		–			76,345		3,149,679

d) Dividend and interest on equity (IOE)

d.1) Additional dividends proposed for 2019

On May 28, 2020, the AGM approved the allocation of proposed additional dividends for 2019, not yet distributed, amounting to R$2,195,575 to the holders of common and preferred shares that were registered in the Company’s records at the end of the day of the Ordinary General Meeting. The amount was paid on December 9, 2020.

d.2) Remuneration to shareholders

The dividends are calculated in accordance with the Company Articles of Incorporation and the Corporation Law.

The table below shows the calculation of dividends and interest on equity for 2020 and 2019:

	2020			2019
Net income for the year		4,770,527			5,001,014
Allocation to legal reserve		(238,526	)		(250,051	)
(–) Tax incentives – not distributable		(18,766	)		(18,166	)
Adjusted net income		4,513,235			4,732,797
Dividend and IOE distributed for the year:		(3,830,000	)		(3,588,000	)
Interest on equity (gross)		(2,630,000	)		(2,588,000	)
Interim dividends		(1,200,000	)		(1,000,000	)
Balance of unallocated net income		683,235			1,144,797
(+) Reversal special reserve for modernization and expansion		600,000			1,700,000
(+) Unclaimed dividends and interest on equity		99,788			82,898
(+-) Actuarial gains (losses) recognized and effect of limitation of surplus plan assets, net of taxes and other changes		204,495			(132,120	)
Income available to be distributed		1,587,518			2,795,575
Proposal for Distributions:
Special reserve for modernization and expansion		–			600,000
Additional proposed dividends		1,587,518			2,195,575
Proposed additional dividends – Net income for the year		987,518			495,575
Proposed additional dividends – Based on prior year’s net income, referring to the reversal of the special reserve for expansion and modernization		600,000			1,700,000
Total		1,587,518			2,795,575
Mandatory minimum dividend – 25% of adjusted net income		1,128,309			1,183,199

F-55

The proposal to management of the 2020 financial year that is presented above will be submitted to the annual general meeting to be held in 2021.

Total proposed for deliberation – per share	2020		2019
Common shares		0.940376		1.219339
Preferred shares		–		1.341273

In 2020 and 2019, the Company allocated interim dividends and interest on equity, which were allocated to mandatory minimum dividends, as follows:

2020

	Dates			Gross Amount						Net Value						Amount per Share, Net
Nature	Approval	Credit	Beginning of Payment	Common		Preferred		Total		Common		Preferred		Total		Common		Preferred
IOE	02/14/20	02/28/20	Until 12/31/21		85,373		184,627		270,000		72,567		156,933		229,500		0.12745554999		0.14020110499
IOE	03/19/20	03/31/20	Until 12/31/21		47,430		102,570		150,000		40,315		87,185		127,500		0.07080863888		0.07788950277
IOE	06/17/20	06/30/20	Until 12/31/21		284,578		615,422		900,000		241,891		523,109		765,000		0.42485183332		0.46733701665
IOE	09/17/20	09/28/20	Until 12/31/21		205,528		444,472		650,000		174,699		377,801		552,500		0.30683743517		0.33752117869
IOE	11/16/20	11/27/20	Until 12/31/21		400,000		–		400,000		340,000		–		340,000		0.20136681027		–
IOE	12/15/20	12/28/20	Until 12/31/21		260,000		–		260,000		221,000		–		221,000		0.13091066301		–
Dividends	12/15/20	12/28/20	Until 12/31/21		1,200,000		–		1,200,000		1,200,000		–		1,200,000		0.71082712946		–
Total					2.482,909		1.347,091		3,830,000		2,290,472		1,145,028		3,435,500

2019

	Dates			Gross Amount						Net Value						Amount per Share, Net
Nature	Approval	Credit	Beginning of Payment	Common		Preferred		Total		Common		Preferred		Total		Common		Preferred
IOE	02/15/19	02/28/19	08/18/20		221,338		478,662		700,000		188,137		406,863		595,000		0.33044031480		0.36348434628
IOE	04/17/19	04/30/19	08/18/20		180,233		389,767		570,000		153,198		331,302		484,500		0.26907282777		0.29598011054
IOE	06/17/19	06/28/19	08/18/20		306,079		661,921		968,000		260,167		562,633		822,800		0.45695174961		0.50264692458
IOE	12/19/19	12/30/19	08/18/20		110,669		239,331		350,000		94,069		203,431		297,500		0.16522015740		0.18174217314
Dividends	12/19/19	12/30/19	08/18/20		316,198		683,802		1,000,000		316,198		683,802		1,000,000		0.55536187362		0.61089806098
Total					1,134,517		2,453,483		3,588,000		1,011,769		2,188,031		3,199,800

The amounts of IOE are calculated and presented net of Withholding Income Tax (“IRRF”). Exempt shareholders received the full IOE amount, without withholding income tax at source.

Until November 22, 2020, the date on which preferred shares were closed, the Company’s capital was divided into preferred and common shares. Preferred shares were not entitled to vote, except in the cases provided for in articles 9 and 10 of the previous Bylaws, being guaranteed priority in the reimbursement of capital, without premium and in the receipt of a dividend 10% higher than that attributed to each common share , as provided in article 7 of the Company’s Bylaws and in item II of paragraph 1 of article 17 of Law No. 6,404/76.

Dividends and interest on capital decided on the credit date as of November 23, 2020, contemplate the effects of converting preferred shares into common shares (Note 23 a.1).

d.3) Unclaimed dividends and interest on equity

Pursuant to Article 287, paragraph II, item “a” of Law No. 6404, of December 15, 1976, the dividends and interest on equity unclaimed by shareholders are subject to the statute of limitation three years, as from the initial payment date. The Company reverses the amounts of unclaimed dividends and IOE to equity once the statute of limitation occurred.

For the years ended December 31, 2020 and 2019, the Company reversed unclaimed dividends and interest on equity amounting to R$99,788 and R$82,898, respectively, which were included in calculations for decisions on Company dividends.

F-56

e) Other comprehensive income

· Financial assets at fair value through other comprehensive income: These refer to changes in fair value of financial assets available for sale.

· Derivative financial instruments: These refer to the effective part of cash flow hedges up to the balance sheet date.

· Currency translation effects for foreign investments: This refers to currency translation differences arising from the translation of financial statements of Aliança (joint venture).

Changes in other comprehensive income were as follows:

	Financial assets at fair value through other comprehensive income			Derivative transactions			Currency translation effects – foreign investments		Total
Balance on December 31, 2018		(9,070	)		336			37,959		29,225
Translation gains		–			–			1,859		1,859
Losses from future contracts		–			(336	)		–		(336	)
Losses on financial assets at fair value through other comprehensive income		(11	)		–			–		(11	)
Balance on December 31, 2019		(9,081	)		–			39,818		30,737
Translation gains		–			–			39,008		39,008
Losses from future contracts		–			(4,147	)		–		(4,147	)
Gains on financial assets at fair value through other comprehensive income		290			–			–		290
Balance on December 31, 2020		(8,791	)		(4,147	)		78,826		65,888

f) Company shares repurchase program

On July 28, 2020, the Company’s Board of Directors, in accordance with article no. 17, item XV of the Bylaws and CVM Instruction no. 567, approved a new Share Repurchase Program of the Company, which has as its objective the acquisition of common shares issued by the Company for subsequent cancellation, sale or maintenance in treasury, without reducing the share capital. This is designed to increase shareholder value by efficiently investing the available cash resources and optimizing the capital allocation of the Company.

The repurchase will be made using the capital reserve balance included in the ITRs with base date June 30, 2020 (R$1.165 billion), except for the reserves referred to in article 7, § 1, of ICVM 567.

This program will run until January 27, 2022, with acquisitions made at B3, at market prices, observing the legal and regulatory limits.

The maximum amounts authorized for acquisition will be 38,320,512 common shares. The number of shares outstanding is 446,496,249 common shares, according to the definition given by article nº 8, § 3, item I, of ICVM 567.

During the year ended December 31, 2020, 518,800 shares of the Company were acquired, of which 232,000 were preferred shares and 286,800 common shares, for the amount of R$22,689.

g) Earnings per share

Basic and diluted earnings per share were calculated by dividing profit attributed to the Company’s shareholders by the weighted average number of outstanding common and preferred shares.

F-57

Below, we present the earnings per share calculations for the years ended December 31, 2020, 2019 and 2018.

	2020		2019		2018
Net income for the year :		4,770,527		5,001,014		8,928,258
Common shares		1,991,046		1,581,308		2,823,093
Preferred shares		2,779,481		3,419,706		6,105,165
Number of shares (thousands):		1,688,615		1,688,694		1,688,694
Weighted average number of outstanding common shares for the year		685,522		569,354		569,354
Weighted average number of outstanding preferred shares for the year		1,003,093		1,119,340		1,119,340
Basic and diluted earnings per share (R$)
Common shares		2.90		2.78		4.96
Preferred shares		2.77		3.06		5.45

(24) Net Operating Revenue

a) Accounting policy

Total packages combining various fixed network, mobile, data, internet or television products or services, total revenue are allocated to each performance obligation based on its independent selling prices in relation to the total consideration of the package and recognized when (or as soon as) the obligation is met, regardless of whether or not items are delivered. When packages include a discount on the equipment, there is an increase in revenues recognized for the sale of handsets and other equipment, to the detriment of ongoing service revenue over subsequent periods. To the extent that the packages are marketed at a discount, the difference between the revenue from the sale of equipment and the consideration received from the customer in advance is recognized as a contractual asset in the statement of financial position.

Revenues correspond substantially to the value of the consideration received or receivable arising from the provision of telecommunications, communications, sales of goods, advertising and other revenues, and are presented net of taxes, rebates and returns (in the case of sale of goods), incident on them.

Revenues from sales of public telephone cards and prepaid cellular recharge credits, as well as the respective taxes due are deferred and recognized in income as services are effectively rendered.

Revenues from leasing contracts for equipment classified as financial leasing (“Vivo Tech” product) are recognized at the installation of the equipment, at which time the actual transfer of risk occurs. Revenues are recognized at the present value of future minimum contract payments.

Revenue from the sale of appliances to dealers is accounted for at the time of delivery and not at the time of sale to the final customer.

Revenues from services and goods are basically subject to the following indirect taxes: ICMS or ISS (as the case may be), PIS and COFINS, as the case may be.

b) Critical estimates and judgments

The Company has billing systems for services with intermediate cut–off dates. Thus, at the end of each month there are revenues already received by the Company, but not effectively invoiced to its customers. These unbilled revenues are recorded based on estimates, which take into account historical consumption data, number of days elapsed since the last billing date, different cycles of information, and data obtained from different sources which is processed by a large number of application and system, among others. These estimates are subject to significant uncertainties.

c) Breakdown

	2020			2019			2018
Gross operating revenue		63,195,443			66,571,866			65,794,397
Services (1)		57,293,392			60,129,579			61,292,362
Sale of goods (2)		5,902,051			6,442,287			4,502,035
Deductions from gross operating revenue		(20,068,971	)		(22,303,695	)		(22,331,657	)
Taxes		(13,022,712	)		(13,894,361	)		(14,559,915	)
Services		(11,981,372	)		(12,678,809	)		(13,820,784	)
Sale of goods		(1,041,340	)		(1,215,552	)		(739,131	)
Discounts granted and return of goods		(7,046,259	)		(8,409,334	)		(7,771,742	)
Services		(4,968,350	)		(6,319,584	)		(6,288,941	)
Sale of goods		(2,077,909	)		(2,089,750	)		(1,482,801	)
Net operating revenue		43,126,472			44,268,171			43,462,740
Services		40,343,670			41,131,186			41,182,637
Sale of Goods		2,782,802			3,136,985			2,280,103

(1) These include telephone services, use of interconnection network, data and SVA services, cable TV and other services.

(2) These include sale of goods (handsets, SIM cards and accessories) and equipment of “Vivo Tech”.

No single customer contributed more than 10% of gross operating revenue for the years ended December 31, 2020, 2019 and 2018.

F-58

(25) Operating Costs and Expenses

	Cost of sales and services			Selling expenses			General and administrative expenses			Total
2020
Personnel (1)		(775,789	)		(2,522,455	)		(442,716	)		(3,740,960	)
Third-party services (2)		(7,120,850	)		(5,888,370	)		(1,078,582	)		(14,087,802	)
Rental, insurance, condominium and connection means (3)		(1,284,943	)		(59,578	)		(45,140	)		(1,389,661	)
Taxes, charges and contributions (4)		(1,690,171	)		(32,517	)		(47,428	)		(1,770,116	)
Estimated impairment losses on accounts receivable (Note 4)		–			(1,740,358	)		–			(1,740,358	)
Depreciation and amortization (5)		(8,865,855	)		(1,495,229	)		(866,414	)		(11,227,498	)
Cost of goods sold		(2,878,533	)		–			–			(2,878,533	)
Materials and other operating costs and expenses		(76,942	)		(133,048	)		(44,713	)		(254,703	)
Total		(22,693,083	)		(11,871,555	)		(2,524,993	)		(37,089,631	)
2019
Personnel (1)		(758,780	)		(2,568,363	)		(430,409	)		(3,757,552	)
Third-party services (2)		(6,601,587	)		(6,686,452	)		(1,154,823	)		(14,442,862	)
Rental, insurance, condominium and connection means (3)		(1,388,217	)		(78,401	)		(57,359	)		(1,523,977	)
Taxes, charges and contributions (4)		(1,597,066	)		(41,810	)		(31,127	)		(1,670,003	)
Estimated impairment losses on accounts receivable (Note 4)		–			(1,682,348	)		–			(1,682,348	)
Depreciation and amortization (5)		(8,624,228	)		(1,501,096	)		(794,468	)		(10,919,792	)
Cost of goods sold		(3,156,964	)		–			–			(3,156,964	)
Materials and other operating costs and expenses		(32,105	)		(142,752	)		(29,910	)		(204,767	)
Total		(22,158,947	)		(12,701,222	)		(2,498,096	)		(37,358,265	)
2018
Personnel (1)		(872,032	)		(2,574,498	)		(549,610	)		(3,996,140	)
Third-party services (2)		(6,656,924	)		(6,989,006	)		(1,237,527	)		(14,883,457	)
Rental, insurance, condominium and connection means (3)		(2,957,489	)		(147,613	)		(202,881	)		(3,307,983	)
Taxes, charges and contributions (4)		(1,594,836	)		(30,703	)		(36,122	)		(1,661,661	)
Estimated impairment losses on accounts receivable (Note 4)		–			(1,533,660	)		–			(1,533,660	)
Depreciation and amortization (5)		(6,487,909	)		(1,352,638	)		(528,076	)		(8,368,623	)
Cost of goods sold		(2,406,099	)		–			–			(2,406,099	)
Materials and other operating costs and expenses		(50,478	)		(204,623	)		(44,754	)		(299,855	)
Total		(21,025,767	)		(12,832,741	)		(2,598,970	)		(36,457,478	)

(1) Includes costs and expenses with fees, salaries, social charges and benefits, profit sharing, stock–based compensation plans, pension plans and other post-employment benefits, training, transportation, health and nutrition.

(2) Includes costs and expenses for interconnection and use of networks, advertising and publicity, plant maintenance, electricity, security, cleaning, TV content purchase, commercial brokerage and intermediation, partnerships, call center, back office, logistics and storage, preparation and posting of telephone bills, banking services, among others.

(3) Includes costs and expenses of infrastructure, real estate, equipment, vehicles, insurance and means of connection.

(4) Includes costs and expenses with FISTEL, FUST, FUNTTEL, liens for renewal of licenses and other taxes, fees and contributions.

(5) Includes the consolidated amounts of R$2,225,639, R$1,939,401 and R$29,631 in the years ended December 31, 2020 2019 and 2018, respectively, related to the leases depreciation.

(26) Other Operating Income (Expenses)

	2020			2019			2018
Recovered expenses and fines (1)		993,551			503,777			3,962,150
Provisions for labor, tax and civil contingencies (Note 19) (2)		(673,905	)		(625,480	)		(1,258,966	)
Net gain (loss) on asset disposal/loss (3)		425,562			408,160			114,853
Other operating income (expenses)		(201,120	)		17,561			(367,115	)
Total		544,088			304,018			2,450,922
Other operating income		1,419,113			929,498			4,077,003
Other operating expenses		(875,025	)		(625,480	)		(1,626,081	)
Total		544,088			304,018			2,450,922

(1) For the year ended December 31, 2020, includes tax credits amount to R$435,698, from the final court proceeding in favor of the Company, which recognized the right to exclude ICMS (VAT) from the basis of calculation of PIS and COFINS contributions for the periods from November 2001 to March 2016 and July 2002 to August 2003.

For the year ended December 31, 2018, includes tax credits amount to R$3,386,433, from the final court proceeding in favor of the Company, which recognized the right to exclude ICMS (VAT) from the basis of calculation of PIS and COFINS contributions for the periods from September 2003 to June 2017 and July 2004 to June 2013.

(2) For the year ended December 31, 2018, includes the write-off of judicial deposits in the amount of R$160,715.

(3) The cumulative 2020 amount includes a net gain of R$93,257, resulting from the agreement entered into by the Company on November 28, 2019, for the sale of 1,909 structures (rooftops and towers) owned by the Company to Telxius Torres Brasil Ltda. (Note 12).

F-59

Following the sale of the assets, treated as a sale and leaseback transaction, a lease was executed for part of the structures sold with Telxius Torres Brasil Ltda, to continue the data transmissions necessary for provision of telephony services by the Company (Note 20).

(27) Financial Income (Expenses)

a) Accounting policy

These include interest, monetary and exchange variations arising from short–term investments, derivative transactions, loans, financing, debentures, present value adjustments of transactions that generate monetary assets and liabilities and other financial transactions. These are recognized on an accrual basis when earned or incurred by the Company.

For all financial instruments measured at amortized cost and interest–yielding financial assets classified as financial assets at fair value through other comprehensive income, interest income or expense is recognized using the effective interest method, which exactly discounts estimated future cash payments or receipts over the expected life of the financial instrument or, where appropriate, a shorter period, to the net carrying amount of the financial asset or liability.

b) Breakdown

	2020			2019			2018
Financial Income
Interest income		177,236			272,158			246,083
Interest receivable (customers, taxes and other)		98,232			177,636			118,476
Gain on derivative transactions (Note 31)		181,162			315,351			305,996
Foreign exchange variations on loans and financing (Note 20)		–			5,140			32,326
Other income with foreign exchange and monetary variation (judicial deposits, taxes and others) (1)		780,663			209,447			3,341,211
Other financial income		114,237			153,138			68,548
Total		1,351,530			1,132,870			4,112,640
Financial Expenses
Loan, financing, debenture and leases charges (Note 20) (2)		(648,816	)		(830,686	)		(510,398	)
Foreign exchange variation on loans and financing (Note 20)		–			(4,036	)		(61,174	)
Loss on derivative transactions (Note 31)		(179,128	)		(263,388	)		(295,208	)
Interest payable (financial institutions, provisions, trade accounts payable, taxes and other)		(129,030	)		(144,779	)		(186,238	)
Other expenses with foreign exchange and monetary variation (contingencies, suppliers, taxes and others)		(805,823	)		(615,291	)		(963,463	)
IOF, Pis, Cofins and other financial expenses (3)		(162,162	)		(94,831	)		(269,006	)
Total		(1,924,959	)		(1,953,011	)		(2,285,487	)
Financial income (expenses), net		(573,429	)		(820,141	)		1,827,153

(1) For the year ended December 31, 2020, includes tax credits amounting to R$512,659, arising from the final court proceeding in favor of the Company and its subsidiary (TData), which recognized the right to exclude ICMS (VAT) from the basis of calculation of PIS and COFINS contributions for the periods from November 2001 to March 2016 and July 2002 to August 2003 (Note 8).

For the year ended December 31, 2018, includes tax credits amounting to R$2,926,247, arising from the final court proceeding in favor of the Company and its subsidiary (TData), which recognized the right to exclude ICMS (VAT) from the basis of calculation of PIS and COFINS contributions for the periods from September 2003 to June 2017 and July 2004 to June 2013.

F-60

(2) Includes the consolidated amounts of R$526,127, R$457,985 and R$45,501 in the years ended December 31, 2020, 2019 and 2018, respectively, related to leases charges.

(3) Includes the amount of PIS and COFINS on the indexation for inflation credits in (1) above.

(28) Balances and Transactions with Related Parties

a) Balances and transactions with related parties

The main balances of assets and liabilities with related parties arises from transactions with companies related to the controlling group carried out at the prices and other commercial conditions agreed in contracts between the parties and refer to:

(a) Fixed and mobile telephony services provided by Telefónica Group companies.

(b) Digital TV services contracted.

(c) Rental, maintenance of safety equipment and construction services contracted.

(d) Corporate services passed through at the cost effectively incurred.

(e) Right to use certain software licenses and maintenance and support contracted.

(f) International transmission infrastructure for several data circuits and roaming services contracted.

(g) Operations by Telefónica Group companies, relating to the purchase of internet content, advertising and auditing services.

(h) Marketing services.

(i) Information access services through the electronic communications network.

(j) Data communication services and integrated solutions.

(k) Long distance call and international roaming services.

(l) Refunds to be paid or received regarding expenses and miscellaneous expenses.

(m) Brand fee for assignment of rights to use the brand.

(n) Platform of health services.

(o) Cost Sharing Agreement for digital business.

(p) Rentals buildings.

(q) Financial Clearing House roaming, inflows of funds for payments and receipts arising from roaming operation.

(r) Integrated e–learning, online education and training solutions.

(s) Factoring transactions, credit facilities for services provided by the Group’s suppliers.

(t) Social investment. The Fundação Telefônica, innovative use of technology to enhance learning and knowledge, contributing to personal and social development.

(u) Contracts or agreements assigning user rights for cable ducts, optical fiber duct rental services, and right–of–way related occupancy agreements with several highway concessionaires.

F-61

(v) Adquira Sourcing platform – online solution to transact purchase and sale of various types of goods and services.

(w) Digital media; marketing and sales, in–store and outdoor digital marketing services.

(x) Lease transactions between the Company and Telxius Torres Brasil. The operations consist of the sale of infrastructure assets owned by the Company, together with the assignment of the sharing contracts, with the subsequent assignment of the use of space of the referred infrastructures to the Company.

(y) Amounts to be reimbursed by SPTE as a result of contractual clause of the purchase of Terra Networks equity interest.

(z) Sale of digital products and creation of an exclusive band channel that responds to the commercial demand for these digital services and products.

(aa) Land purchase and sale operation.

(The Company and its subsidiaries sponsor pension plans and other post-employment benefits for its employees with Visão Prev and Sistel (Note 30).

Telefônica Corretora de Seguros (“TCS”) acts as intermediary in transactions between insurance companies and the Company and its subsidiaries in the acquisition of insurance for cell phones, operational risks, general liability, guarantee insurance, among others. There are no balances arising from insurance intermediation with TCS, which is remunerated directly by the contracted insurer.

F-62

The following table summarizes the consolidated balances with related parties:

Balance Sheet – Assets

December 31, 2020

December 31, 2019

Companies

Type of transaction

Cash and cash equivalents

Accounts receivable

Other assets

Cash and cash equivalents

Accounts receivable

Other assets

Parent Companies

SP Telecomunicações  Participações

d) / l) / p)

–

8

9,876

–

6

4,924

Telefónica Latinoamerica Holding

l)

–

–

19,188

–

–

40,105

Telefónica

l) / z)

–

–

4,796

–

10,873

2,555

–

8

33,860

–

10,879

47,584

Other Group companies

Colombia Telecomunicaciones

k) / l)

–

151

–

–

159

520

Telefónica International Wholesale Services Brasil

a) / d) / l) / p)

–

3,113

221

–

1,961

69

T.O2 Germany GMBH CO. OHG

k)

–

330

–

–

1,688

–

Telefónica Venezolana

k) / l)

–

6,852

2,196

–

6,498

2,196

Telefônica Digital España

g) / l)

–

1,151

–

–

696

300

Telefônica Factoring do Brasil

a) / d) / s)

–

8,919

62

–

2,782

45

Telefónica International Wholesale Services II, S.L.

a) / j) / k)

–

54,249

–

–

58,490

–

Telefônica Serviços de Ensino

a) / d) / p)

–

130

24

–

153

14

Telefónica Moviles Argentina

j) / k)

–

5,883

–

–

5,145

–

Telefónica Moviles España

k)

–

1,783

–

–

1,536

–

Telefónica USA

j)

–

4,126

–

–

5,319

–

Telfisa Global BV

q)

47,313

–

–

59,657

–

–

Telxius Cable Brasil

a) / d) / l) / p)

–

4,624

223

–

11,382

4,895

Telxius Torres Brasil

a) d) / p) / x)

–

960

9,164

–

5,429

6,611

Terra Networks Mexico, Terra Networks Peru e Terra Networks Argentina

g) / h)

–

5,617

–

–

5,598

–

Telefónica Cyber Tech Brasil

a) / d) / j) /p)

–

439

23,416

–

–

–

Outras

a) / d) / g) / h) / j) / k) / l) / p)

–

7,014

3,669

–

12,189

2,732

47,313

105,341

38,975

59,657

119,025

17,382

Total

47,313

105,349

72,835

59,657

129,904

64,966

		Balance Sheet – Liabilities
		December 31, 2020				December 31, 2019
Companies	Type of transaction	Trade accounts payable and other payables		Other liabilities and leases		Trade accounts payable and other payables		Other liabilities and leases
Parent Companies
SP Telecomunicações  Participações	y)		–		27,599		–		23,524
Telefónica	l) / m)		8,274		673		2,907		40
			8,274		28,272		2,907		23,564
Other Group companies
Colombia Telecomunicaciones	k)		157		–		816		–
Fundação Telefônica	l)		–		–		–		86
Media Networks Latin America S.A.C.	b)		5,660		–		9,245		–
Telefónica International Wholesale Services Brasil	f) / l)		52,161		318		44,835		318
T.O2 Germany GMBH CO. OHG	k)		769		–		5,000		–
Telefónica Venezolana	k)		6,038		–		6,044		–
Telefónica Compras Electrónica	v)		32,187		–		28,169		–
Telefônica Digital España	o)		115,899		–		68,015		–
Telefônica Factoring do Brasil	s)		–		1,551		–		4,057
Telefónica Global Technology	e)		30,535		–		28,854		–
Telefónica International Wholesale Services II, S.L.	f) / k)		80,254		–		66,976		–
Telefônica Serviços de Ensino	r)		4,480		–		8,373		–
Telefónica Moviles Argentina	k)		757		–		3,638		–
Telefónica Moviles España	k)		1,283		–		3,488		–
Telefónica USA	f)		12,688		269		16,015		267
Telxius Cable Brasil	f) / l)		18,937		1,572		47,168		1,572
Telxius Torres Brasil	l) / x)		74,655		1,393,898		30,018		480,589
Terra Networks Mexico, Terra Networks Peru and Terra Networks Argentina	h)		5,231		–		7,105		–
Telefónica Cyber Tech Brasil	aa)		15,131		–		–		–
Companhia AIX Participações	a) / u)		–		78,236		2,050		–
Outras			24,243		223		26,555		42
			481,065		1,476,067		402,364		486,931
Total			489,339		1,504,339		405,271		510,495
Current liabilities
Trade accounts payable and other payables (Note 16)			489,339		–		405,271		–
Leases (Note 20)			–		346,291		–		55,920
Other liabilities (Note 22)			–		33,244		–		29,529
Non-current liabilities			–
Leases (Note 20)			–		1,124,217		–		424,461
Other liabilities (Note 22)			–		587		–		585

F-63

		Income statement
		2020								2019									2018
Companies	Type of transaction	Operating revenues		Operating revenues (cost and other expenses)			Financial result			Operating revenues			Operating revenues (cost and other expenses)			Financial result			Operating revenues			Operating revenues (cost and other expenses)			Financial result
Parent Companies
SP Telecomunicações Participações	d) / l) / p)		10		558			–			5			497			–			–			347			–
Telefónica Latinoamerica Holding	l)		–		19,181			7,217			–			18,309			851			–			16,466			9,077
Telefónica	l) / m)		–		(427,868	)		(13,163	)		–			(422,958	)		(5,226	)		–			(373,690	)		(16,680	)
			10		(408,129	)		(5,946	)		5			(404,152	)		(4,375	)		–			(356,877	)		(7,603	)
Other Group companies
Colombia Telecomunicaciones	k) / l)		110		306			118			111			321			(17	)		250			(4,280	)		(2,145	)
Fundação Telefônica	t)		–		(9,998	)		–			–			(11,971	)		–			–			(12,223	)		–
Telefónica International Wholesale Services Brasil	a) / d) / f) / l) / p)		5,586		(105,384	)		–			757			(104,105	)		(54	)		2,006			(101,272	)		–
Media Networks Latin America S.A.C.	b)		–		(28,471	)		(246	)		–			(41,023	)		(596	)		–			(34,791	)		(1,007	)
Telefônica Serviços de Ensino	a) / d) /  p) / r)		877		(26,072	)		–			1,085			(35,228	)		–			1,158			(49,130	)		–
T.O2 Germany GMBH CO. OHG	k)		32		3,565			823			(100	)		489			1,845			148			(1,975	)		–
Telefónica Venezolana	k)		–		–			–			–			–			–			–			(34,534	)		–
Telefónica Compras Electrónica	v)		–		(33,919	)		–			–			(30,814	)		–			–			(124,537	)		(813	)
Telefônica Digital España	g) / l) / o)		366		(142,343	)		(22,992	)		299			(127,182	)		(3,016	)		2,416			212			2,601
Telefônica Factoring do Brasil	a) / d) / s)		7,674		252			(1,551	)		2,418			239			(4,048	)		–			(36,738	)		(4,134	)
Telefónica Global Technology	e)		–		(80,784	)		(6,470	)		–			(63,947	)		388			1,568			(54,210	)		–
Telefónica International Wholesale Services II, S.L.	a)/ f) / j) / k)		65,246		(88,730	)		9,451			48,819			(75,693	)		(4,128	)		53,357			(64,036	)		9,771
Telefónica Moviles Argentina	j) / k)		2,152		1,340			200			4,030			(3,437	)		90			5,916			(3,437	)		–
Telefónica Moviles España	k)		554		949			(62	)		410			(1,737	)		545			(209	)		(4,166	)		–
Telefónica USA	f) / j)		–		(17,186	)		(436	)		38			(19,793	)		1,700			1,518			(19,441	)		(539	)
Telxius Cable Brasil	a) / d) / f) / l) / p)		12,066		(314,327	)		(30,251	)		13,585			(252,436	)		(7,415	)		49,777			(206,095	)		(7,896	)
Telxius Torres Brasil	a) / d) / p) / x)		8,902		1,178			(69,137	)		3,652			756			(24,144	)		3,218			(129,706	)		–
Terra Networks Mexico, Terra Networks Peru and Terra Networks Argentina	h)		847		(8,428	)		166			2,535			(5,639	)		567			–			(2,794	)		1,450
Telefónica Cyber Tech Brasil	a) / aa)/ d) / j) /p)		347		(15,544	)		–			–			–			–			–			–			–
Companhia AIX Participações	a) / u)		28		–			(1,252	)		38			(24,174	)		–			75			(22,645	)		–
Other	a) / c) / d) / e) /  f) / g) / h) / i) / j) / k) / l) / n) / o) / p) / q) / w)		3,075		(17,795	)		1,494			6,860			(58,763	)		588			4,840			(27,116	)		(244	)
			107,862		(881,391	)		(120,145	)		84,537			(854,137	)		(37,695	)		126,038			(932,914	)		(2,956	)
Total			107,872		(1,289,520	)		(126,091	)		84,542			(1,258,289	)		(42,070	)		126,038			(1,289,791	)		(10,559	)

F-64

b) Management compensation

Consolidated key management compensation paid by the Company to its Board of Directors and Statutory Officers for the years ended December 31, 2020 and 2019 totaled R$27,802 and R$25,483, respectively. Of this amount, R$17,470 (R$16,758 on December 31, 2019) corresponds to salaries, benefits and social charges and R$10,332 (R$8,725 on December 31, 2019) to variable compensation.

These were recorded as personnel expenses in General and administrative expenses (Note 25).

For the years ended December 31, 2020 and 2019, the Directors and Officers received no pension, retirement or similar benefits.

(29) Share-Based Payment Plans

a) Accounting policy

The Company and subsidiaries measure the cost of transactions settled with shares issued by the parent company (Telefónica), to its officers and employees.

The Company and its subsidiaries measure the cost of transactions settled with employees and officers based on shares issued by the parent company (Telefónica), by reference to the fair value of the shares on the date at which they are granted, using the binomial valuation model. This fair value is charged to the statement of income over the period until the vesting date.

The Company and its subsidiaries reimburse Telefónica for the fair value of the benefit delivered on the grant date to the officers and employees.

b) Information on share-based payment plans

Telefónica as the Company´s parent has different share-based payment plans which are also offered to management and employees of its subsidiaries, including the Company and its subsidiaries.

The granting of shares is conditional upon: (i) maintenance of an active employment relationship within the Telefónica Group on the cycle consolidation date; and (ii) achievement, by Telefónica, of results representing fulfillment of the objectives established for the plan.

F-65

The level of success is based on a comparison of growth in Telefónica shareholder earnings, including their quotations and dividends (Total Shareholder Return – “TSR”), compared with the growth in TSR for companies of the Group in an established basis of comparison and the Telefónica Group’s FCF.

On December 31, 2020, the value of Telefónica’ share price was Eur 3.2450.

Company and subsidiaries share-based compensation plans expenses described above, where applicable, are recorded as personnel expenses, divided into the groups cost of services, selling expenses and general and administrative expenses (Note 25), corresponding to R$19,196 and R$10,833 for the years ended December 31, 2020 and 2019.

The main plans in effect on December 31, 2020 are detailed below:

Talent for the Future Share Plan (“TFSP”), for its Senior Managers, Managers and Experts at a global level

Telefónica’s Annual Shareholders’ Meeting, held on June 8, 2018, approved a long–term program with the objective of rewarding the commitment, outstanding performance and high potential of its executives at a global level with the attribution of shares of Telefónica.

Participants do not have to pay for their assigned initial actions. The total planned duration of the plan is three years. The cycles are independent of each other. The number of shares is announced at the beginning of the cycle and after the three years period from the grant date, the shares will be transferred to the participants if the goal is achieved.

· The 2018–2020 cycle (January 1, 2018 to December 31, 2020): includes 122 active executives with potential rights to receive 101,000 shares of Telefónica.

· The 2019-2021 cycle (January 1, 2019 to December 31, 2021): includes 152 active executives with potential rights to receive 128,000 shares of Telefónica.

· The 2020–2022 cycle (January 1, 2020 to December 31, 2022): includes 170 active executives with potential rights to receive 136,400 shares of Telefónica.

Perform Share Plan (“PSP”), for its Vice-Presidents and Directors at the global level

Telefónica’s Annual Shareholders’ Meeting, held on June 8, 2018, approved a long–term program with the objective of rewarding the commitment, outstanding performance and high potential of its Directors at the global level with the attribution of shares of Telefónica.

Participants do not have to pay for their assigned shares. The total planned duration of the plan is three years. The cycles are independent of each other. The number of shares is announced at the beginning of the cycle and after the three years period from the grant date, the shares will be transferred to the participants if the target is reached.

· The 2018–2020 cycle (January 1, 2018 to December 31, 2020): includes 94 active executives (including 2 executives appointed under the Company’s by–laws), with the potential right to receive 740,345 shares of Telefónica.

· The 2019-2021 cycle (January 1, 2019 to December 31, 2021): includes 94 active executives (including 3 executives appointed under the Company’s by–laws), with the potential right to receive 995,237 shares of Telefónica.

· The 2020-2022 cycle (January 1, 2020 to December 31, 2022): includes 106 active executives (including 3 executives appointed under the Company’s by–laws), with the potential right to receive 601,444 shares of Telefónica.

Global Employee Share Plan (“GESP”)

Employees enrolled in the plan acquired Telefónica shares through monthly contributions of €25 to €150 (or the equivalent in local currency) up to €1,800 over 12 months (acquisition period).

F-66

The 12 months following the purchase period are the retention period for the purchased shares. At the end of the 2nd year, reward shares will be delivered, that is, for every two shares purchased by the employee, a free share will be granted.

The cycle of this plan is effective from July 1, 2019 to June 31, 2021.

The delivery of shares will take place after the vesting period of the plan, after July 31, 2021, and is subject to: (i) remaining in the company during the two years of the program (vesting period), subject to certain special conditions in relation to casualties; and (ii) the exact number of shares to be delivered at the end of the vesting period depends on the number of shares acquired and held by employees. Thus, employees enrolled in the plan, and who remain in the Telefónica Group, who have maintained the acquired shares for an additional period of another twelve months after the end of the purchase period, will be entitled to receive one free share for every two shares they have acquired and maintained until the end of the vesting period.

On December 31, 2020 and 2019, the consolidated liability balances of the plans mentioned above were R$86,296 and R$40,523, respectively, including taxes.

(30) Pension Plans and Other Post-Employment Benefits

a) Accounting policy

The Company and its subsidiaries individually sponsor pension funds of post-retirement benefits for active and retired employees, in addition to a multisponsor supplementary retirement plan and health care plan for former employees. Contributions are determined on an actuarial basis and recorded on an accrual basis. Liabilities relating to defined benefit plans are determined based on actuarial evaluations at each year–end, in order to ensure that sufficient reserves have been set up for both current and future commitments.

Actuarial liabilities related to defined benefit plans were calculated using the projected unit credit method. Actuarial gains and losses are recognized immediately in equity (in other comprehensive income).

For plans with defined contribution characteristics, the obligation is limited to the contributions payable, which are recognized in the P&L in the respective accrual periods.

The asset or liability related to defined benefit plan to be recognized in the financial statements corresponds to the present value of the obligation for the defined benefit (using a discount rate based on long–term National Treasury Notes – “NTNs”), less the fair value of plan assets that will be used to settle the obligations. Plan assets are assets held by a privately held supplementary pension plan entity. Plan assets are not available to the Company’s creditors or those of its subsidiaries and cannot be paid directly to the Company or its subsidiaries. The fair value is based on information on market prices and, in the case of securities quoted, on the purchase price disclosed. The value of any defined benefit asset then recognized is limited to the present value of any economic benefits available as a reduction in future plan contribution from the Company.

Actuarial costs recognized in the statement of income are limited to the service cost and cost of interest on the defined benefit plan obligation. Any changes in the measurement of plan assets and obligations are initially recognized in other comprehensive income, and immediately reclassified to retained earnings in P&L.

The Company and its subsidiaries manage and individually sponsors a health care plan for retired employees and former employees with fixed contributions to the plan, in accordance with Law No. 9656/98 (which provides for private health care and health insurance plans). As provided for in Articles 30 and 31 of said law, participants shall have the right to the health care plan in which they participated while they were active employees.

b) Critical estimates and judgments

The cost of pension plans with defined benefits and other post-employment health care benefits and the present value of the pension obligation are determined using actuarial valuation methods. Actuarial valuation involves use of assumptions about discount rates, future salary increases, mortality rates and future increases in pension and annuity benefits. The obligation for defined benefits is highly sensitive to changes in these assumptions. All assumptions are reviewed on an annual basis.

F-67

The mortality rate is based on publicly available mortality tables in the country. Future salary increases, and pension increases are based on expected future inflation rates for the country.

c)       Information on pension plans and other post-employment benefits

The plans sponsored by the Company and its subsidiaries and the related benefit types are as follows:

Plan	Type	Entity	Sponsor
PBS-A	Defined benefit (DB)	Sistel	Telefônica Brasil, jointly with other telecoms resulting from privatization of the Sistema Telebrás
PAMA / PCE	Defined benefit (DB)	Sistel	Telefônica Brasil, jointly with other telecoms resulting from privatization of the Sistema Telebrás
Healthcare – Law No. 9656/98	Defined benefit (DB)	Telefônica Brasil	Telefônica Brasil, Terra Networks, TGLog and TIS
CTB	Defined benefit (DB)	Telefônica Brasil	Telefônica Brasil
Telefônica BD	Defined benefit (DB)	VisãoPrev	Telefônica Brasil
VISÃO	Defined contribution (DC) / Hybrid	VisãoPrev	Telefônica Brasil, Terra Networks, TGLog and TIS

The Company has participation in the decisions that directly affect the governance of the plans, with members nominated for both the Deliberative Council and the Fiscal Council of the administrators Sistel and Visão Prev.

The defined benefit obligation is made up of different components, according to the pension characteristic of each plan, and may include the actuarial liabilities of supplementary pension liabilities, health care benefits to retirees and dependents or compensation for death or disability of members. This liability is exposed to economic and demographic risks, such as: (i) increases in medical costs that could impact the cost of health care plans; (ii) salary growth; (iii) long–term inflation rate; (iv) nominal discount rate; and (v) life expectancy of members and pensioners.

The fair value of plan assets is primarily comprised of fixed income investments (NTN’s, LFT’s, LTN’s, repurchase agreements, CDBs, debentures, letters of guarantee and FIDC shares) and equity investments (highly liquid, well regarded, large company shares and investments in market indices).

Due to the concentration of fixed income and floating rate investments plan assets are mainly exposed to the risks inherent in the financial market and economic environment such as: (i) market risk in the economic sectors where variable income investments are concentrated; (ii) risk events that impact the economic environment and market indices where variable income investments are concentrated; and (iii) the long–term inflation rate that may erode the profitability of fixed income investments at fixed rates.

The companies that administer post-employment benefits plans sponsored by the Company (Visão Prev and Sistel) seek to meet the flows of assets and liabilities through the acquisition of fixed income securities and other long–term assets.

With the exception of the Companhia Telefônica Brasileira (“CTB”) and the healthcare plan under Law No. 9656/98, generally all benefit plans that have funds constituted present a surplus position. The economic benefit recorded in the Company’s assets or that of its subsidiaries does not reflect the total surplus determined in these plans. The economic benefit stated under assets considers only the portion of the surplus which presents a real possibility of recovery. The means of plan surplus recovery is solely through reductions in future contributions and given that not all plans currently receive enough contributions for full recovery of surpluses, the economic benefit recorded under assets is limited to the total possible recovery amount in accordance with projected future contributions.

The position of plan assets is on December 31, 2020 and 2019, respectively, and plan assets were apportioned based on the Company’s actuarial liabilities in relation to the total actuarial liabilities of the plan.

The actuarial gains and losses generated in each year are immediately recognized in equity (in other comprehensive income).

F-68

The following is a summary of the pension plans and other post-employment benefits:

c.1) Post-Employment Health Benefits Plans

The actuarial valuation made for the PAMA health plan used the registration of the participants with a base date of August 31, 2020, while the actuarial valuation made for the health plan Law No. 9,656/98 used the registration of the participants with a base date of September 30, 2020, both plans projected for December 31, 2020. For comparative exercises, the actuarial valuation made for the PAMA health plan and health plan Law No. 9,656/98 used the registration of the participants with a base date of December 31, 2019, both plans projected for December 31, 2019.

c.1.1) Healthcare Plan to Retirees and Special Coverage Program (PAMA and PAMA–PCE)

The Company, together with other companies of the former Telebrás System, at shared cost, sponsor health care plans (PAMA and PAMA–PCE) to retirees. These plans are managed by Fundação Sistel and are closed plans, not admitting new members.

Contributions to the plans are determined based on actuarial valuations prepared by independent actuaries, in accordance with the rules in force in Brazil. The funding procedure is the capitalization method and the sponsor’s contribution are at the fixed percentage of payroll of employees covered by the Telefônica BD plan.

c.1.2) Health care plan – Law No. 9656/98

The Company manages and together with its subsidiaries sponsors a health care plan to retired employees and former employees with fixed contributions to the plan, in accordance with Law No. 9656/98.

As provided for in Articles 30 and 31 of said law, participants shall have the right to the health care plan in which they participated while they were active employees. Benefitted participants are classified as (i) retirees and their dependents; and (ii) dismissed employees and their dependents.

Retirees and dismissed employees, in order to keep their right to the benefits, must make contributions to the plan in accordance with the contribution tables by age bracket established by carriers and/or insurance companies.

c.2) Post-employment Social Security Plans

The actuarial valuation made for the pension plan (CTB, PBS-A, Telefônica BD and Visão Plans) used the registration of the participants with a base date of July 31, 2020, projected for December 31, 2020 and the registration of the participants with a base date of July 31, 2019, projected for December 31, 2019.

They include the PBS Assisted Plans (“PBS-A”), CTB, Telefônica DB and Visão.

c.2.1) PBS Assisted Plan (PBS-A)

The PBS-A plan is a defined benefit private pension plan managed by Sistel and sponsored by the Company jointly with the other telecommunications companies originating in the privatization of the Telebrás System. The plan is subject to funding by sponsors in the case of any asset insufficiency to ensure pension supplementation of participants in the future.

The PBS-A plan comprises assisted participants of the Sistel Benefit Plan who were already retirees on January 31, 2000, from all the participating sponsors, with joint liability of all sponsors to the plan and Sistel.

According to PREVIC Ordinance No. 1,061, of December 5, 2019, published in the DOU on December 9, 2019, Sistel approved the distribution of part of its surplus, in the form of PBS-A’s special reserve, with reversal of values to sponsors and improvement of benefits, in the form of temporary income, to those assisted. The participation corresponding to the Company in the distribution of this reserve was calculated in the amount of R$215,328, with expected distribution in the form of 36 monthly payments, corrected by the plan’s income (Note 10).

F-69

Even considering the distribution of the reserve approved by PREVIC, PBS-A still has assets in excess of actuarial obligations as of December 31, 2020 and 2019. These surpluses were not recognized due to the lack of legal provision for their reimbursement and, as they are not a contributory plan, no deduction is possible in future contributions.

c.2.2) CTB Plan

Contributions to the CTB plan are determined based on actuarial valuations prepared by independent actuaries, in accordance with the rules in force in Brazil. The funding procedure is the capitalization method and the sponsor’s contribution are a fixed percentage of payroll of employees covered by the plan.

The Company also individually manages and sponsors the CTB plan, originally provided to former employees of CTB who were in the Company in 1977, with whom an individual retirement concession agreement was executed to encourage their resignation. This is an informal pension supplementation benefit paid to former employees directly by the Company. These plans are closed, and no other members are admitted.

c.2.3) Telefônica DB Plan

The Company individually sponsors a defined benefit retirement plan, the Telefônica DB plan.

In order to improve allocation of Telefônica DB plan assets and analyze the coverage ratio of plan obligations in future years, a stochastic ALM study was prepared by Visão Prev and Willis Towers Watson. This ALM study aimed at projecting the ratio between coverage of liabilities (solvency ratio) and the risk of mismatching measured by the standard deviation of the solvency ratio. The study concluded that the plan presents sustainable projection of their coverage ratio with the current investments’ portfolio.

At the time of the concession, a benefit is calculated, which will be paid in a lifelong form and updated by inflation. This plan is not open to new accessions.

The contributions are defined according to the costing plan, which is calculated considering financial, demographic and economic hypotheses in order to accumulate enough resources to pay the benefits to the participants who are already receiving them, and to the new pensions.

c.2.4) VISÃO Plans

The Visão Telefônica and Visão Multi plans will hereinafter be shown jointly under the name VISÃO, due to their similarity.

The Company and its subsidiaries sponsor defined contribution pension plans with defined benefit components (hybrid plans), i.e. the VISÃO Plans, managed by Visão Prev. The contribution is attributed to each subsidiary in the economic and demographic proportion of its respective obligation to the plan.

The contributions made by the Company and subsidiaries related to defined contribution plans totaled R$40,983 on December 31, 2020 (R$27,963 on December 31, 2019).

The contributions to the Visão Telefônica and Visão Multi plans are: (i) basic and additional contribution, with contributions made by the participant and sponsor; and (ii) additional, sporadic and specific contribution, with contributions made only by the participant.

In addition, the participant has the possibility to choose one of five investment profiles to apply to their balance, and they are: Super Conservative, Conservative, Moderate, Aggressive and Aggressive Fixed Income Long–Term.

F-70

c.3) Consolidated information on pension plans and other post-employment benefits

c.3.1) Reconciliation of net liabilities (assets):

	December 31, 2020								December 31, 2019
	Post-retirement pension plans			Post-retirement health plans		Total			Post-retirement pension plans			Post-retirement health plans		Total
Present value of DB plan obligations		2,238,700			1,863,359		4,102,059			2,429,478			2,016,614		4,446,092
Fair value of plan assets		3,411,297			1,004,048		4,415,345			3,696,914			1,001,112		4,698,026
Net liabilities (assets)		(1,172,597	)		859,311		(313,286	)		(1,267,436	)		1,015,502		(251,934	)
Asset limitation		1,081,325			21,480		1,102,805			1,128,691			57,371		1,186,062
Current assets		(82,935	)		–		(82,935	)		(71,776	)		–		(71,776	)
Non-current assets		(82,127	)		–		(82,127	)		(149,163	)		–		(149,163	)
Current liabilities		6,475			15,680		22,155			6,937			18,620		25,557
Non-current liabilities		67,315			865,111		932,426			75,257			1,054,253		1,129,510

c.3.2) Total expenses recognized in the statement of income:

	2020							2019						2018
	Post-retirement pension plans			Post-retirement health plans		Total		Post-retirement pension plans		Post-retirement health plans		Total		Post-retirement pension plans		Post-retirement health plans		Total
Current service cost		3,036			26,576		29,612		3,155		16,293		19,448		2,931		13,722		16,653
Net interest on net actuarial assets/liabilities		(10,385	)		82,151		71,766		5,713		56,612		62,325		6,074		45,892		51,966
Total		(7,349	)		108,727		101,378		8,868		72,905		81,773		9,005		59,614		68,619

c.3.3) Amounts recognized in other comprehensive income (loss)

	2020									2019								2018
	Post-retirement pension plans			Post-retirement health plans			Total			Post-retirement pension plans			Post-retirement health plans		Total			Post-retirement pension plans			Post-retirement health plans			Total
Actuarial (losses) gains		114,556			(256,010	)		(141,454	)		(188,889	)		412,416		223,527			(186,170	)		184,527			(1,643	)
Asset limitation effect		(128,320	)		(40,137	)		(168,457	)		(24,297	)		2,430		(21,867	)		188,259			(93,125	)		95,134
Total		(13,764	)		(296,147	)		(309,911	)		(213,186	)		414,846		201,660			2,089			91,402			93,491

c.3.4) Changes in amount net of liability (asset) of defined benefit, net

	December 31, 2020									December 31, 2019
	Post-retirement pension plans			Post-retirement health plans			Total			Post-retirement pension plans			Post-retirement health plans			Total
Net defined benefit liability (asset) at the beginning of the year		(138,745	)		1,072,873			934,128			68,368			600,113			668,481
Business combinations		–			–			–			–			1,994			1,994
Expenses		(7,349	)		108,727			101,378			8,868			72,905			81,773
Sponsor contributions		(8,229	)		(4,662	)		(12,891	)		(8,776	)		(16,985	)		(25,761	)
Amounts recognized in OCI		(13,764	)		(296,147	)		(309,911	)		(213,186	)		414,846			201,660
Distribution of reserves		76,815			–			76,815			5,981			–			5,981
Net defined benefit liability (asset) at the end of the year		(91,272	)		880,791			789,519			(138,745	)		1,072,873			934,128
Actuarial assets per balance sheet		(165,062	)		–			(165,062	)		(220,939	)		–			(220,939	)
Actuarial liabilities per balance sheet		73,790			880,791			954,581			82,194			1,072,873			1,155,067

F-71

c.3.5) Changes in defined benefit liability

	December 31, 2020									December 31, 2019
	Post-retirement pension plans			Post-retirement health plans			Total			Post-retirement pension plans			Post-retirement health plans			Total
Defined benefit liability at the beginning of the year		2,429,478			2,016,614			4,446,092			2,011,355			1,313,157			3,324,512
Liability assumed after acquisition of company		–			–			0			–			1,994			1,994
Current service costs		3,036			26,576			29,612			3,155			16,293			19,448
Interest on actuarial liabilities		167,991			150,510			318,501			175,695			121,088			296,783
Benefits paid		(171,177	)		(48,101	)		(219,278	)		(165,929	)		(53,724	)		(219,653	)
Member contributions paid		346			–			346			323			–			323
Actuarial losses (gains) adjusted by experience		(70,783	)		(33,088	)		(103,871	)		93,699			226,928			320,627
Actuarial losses (gains) adjusted by demographic assumptions		(8,378	)		(52,071	)		(60,449	)		–			(44,249	)		(44,249	)
Actuarial losses (gains) adjusted by financial assumptions		(111,813	)		(197,081	)		(308,894	)		311,180			435,127			746,307
Defined benefit liability at the end of the year		2,238,700			1,863,359			4,102,059			2,429,478			2,016,614			4,446,092

c.3.6) Changes in the fair value of plan assets

	December 31, 2020									December 31, 2019
	Post-retirement pension plans			Post-retirement health plans			Total			Post-retirement pension plans			Post-retirement health plans			Total
Fair value of plan assets at the beginning of the year		3,696,914			1,001,112			4,698,026			2,999,669			763,325			3,762,994
Benefits paid		(164,587	)		(43,477	)		(208,064	)		(159,001	)		(36,774	)		(195,775	)
Participants contributions paid		346			–			346			323			–			323
Sponsor contributions paid		1,638			38			1,676			1,848			35			1,883
Interest income on plan assets		259,331			72,604			331,935			266,287			69,137			335,424
Return on plan assets excluding interest income		(305,530	)		(26,229	)		(331,759	)		593,769			205,389			799,158
Distribution of reserves		(76,815	)		–			(76,815	)		(5,981	)		–			(5,981	)
Fair value of plan assets at the end of the year		3,411,297			1,004,048			4,415,345			3,696,914			1,001,112			4,698,026

c.3.7) Changes in asset limitation

	December 31, 2020									December 31, 2019
	Post-retirement pension plans			Post-retirement health plans			Total			Post-retirement pension plans			Post-retirement health plans		Total
Asset Limitation at the beginning of the year		1,128,691			57,371			1,186,062			1,056,682			50,281		1,106,963
Interest on the asset limitation		80,954			4,246			85,200			96,306			4,661		100,967
Changes in the assets limitation, except interest		(128,320	)		(40,137	)		(168,457	)		(24,297	)		2,429		(21,868	)
Asset Limitation at the end of the year		1,081,325			21,480			1,102,805			1,128,691			57,371		1,186,062

F-72

c.3.8) Results projected for 2021

	Post-retirement pension plans		Post-retirement health plans		Total
Current service cost		2,183		21,361		23,544
Net interest on net defined benefit liability/asset		7,062		70,436		77,498
Total		9,245		91,797		101,042

c.3.9) Sponsoring company contributions projected for 2021

	Post-retirement pension plans		Post-retirement health plans		Total
Sponsor contributions		1,670		6,475		8,145
Benefits paid directly by the sponsor		–		15,686		15,686
Total		1,670		22,161		23,831

c.3.10) Average weighted duration of defined benefit liability

	Post-retirement pension plans	Post-retirement health plans
In 2020	7.9  years	16.3  years
In 2019	8.3  years	18.1  years

c.3.11) Actuarial assumptions

December 31, 2020
	Post-retirement pension plans	Post-retirement health plans
Discount rate to present value of defined benefit liability	Visão: 6.4% / PBS-A: 7.4% / Telefônica BD: 7.7% / CTB: 7.0%	PAMA and PCE: 7.7% / Law 9.656/98: 7.9%
Future salary growth rate	CTB and PBS-A: N/A / Visão telefônica: 4.8% / Visão Multi: 6.4% / Telefônica BD: 4.6%	N/A
Medical expense growth rate	N/A	6.6%
Nominal annual adjustment rate of pension benefits	3.5%	N/A
Medical service eligibility age	N/A	Female participants: 59 years Male participants: 63 years
Estimated retirement age	PBS-A, CTB and Telefônica BD: 57 years Visão: 60 years	Female participants: 59 years Male participants: 63 years
Mortality table for nondisabled individuals	PBS-A, CTB and Telefônica BD: AT-2000 Basic segregated by gender, down-rated by 10% Visão: AT-2000 Basic segregated by gender, down-rated by 50%	AT-2000 Basic segregated by gender, down-rated by 10%
Mortality table for disabled individuals	PBS-A, CTB and Telefônica BD: RP-2000 Disabled Male, down-rated by 60% Visão: N/A	PAMA and PCE: RP-2000 Disabled Male, down-rated by 40% Law 9.656/98: RP-2000 Disabled Male, down-rated by 60%
Disability table	Telefônica BD: Light-Forte PBS-A and CTB: N/A Visão Telefônica: Álvaro Vindas, down-rated by 50% Visão: Light-Fraca, down rated by 50%	Light-Forte
Turnover	PBS-A, CTB and Telefônica BD: N/A Visão: Turnover experience in VISÃO plans (2015 to 2017)	PAMA and PCE: N/A Law No. 9656/98: Turnover experience in VISÃO plans (2015 to 2017)

F-73

Further to the assumptions stated above, other assumptions common to all plans were adopted in 2020 as follows: (i) Long–term inflation rate 3.5%; and (ii) Annual increase in the use of medical services according to age: 4.0%.

December 31, 2019
	Post-retirement pension plans	Post-retirement health plans
Discount rate to present value of defined benefit liability	Visão: 6.6% / PBS-A and Telefônica BD: 7.2% / CTB: 7.0%	PAMA and PCE: 7.4% / Law 9.656/98: 7.5%
Future salary growth rate	CTB and PBS-A: N/A / Visão and Telefônica BD: 5.5%	N/A
Medical expense growth rate	N/A	6.9%
Nominal annual adjustment rate of pension benefits	3.8%	N/A
Medical service eligibility age	N/A	Female participants: 59 years Male participants: 63 years
Estimated retirement age	PBS-A, CTB and Telefônica BD: 57 years Visão: 60 years	Female participants: 59 years Male participants: 63 years
Mortality table for nondisabled individuals	PBS-A, CTB and Telefônica BD: AT-2000 Basic segregated by gender, down-rated by 10% Visão: AT-2000 Basic segregated by gender, down-rated by 50%	AT-2000 Basic segregated by gender, down-rated by 10%
Mortality table for disabled individuals	PBS-A, CTB and Telefônica BD: RP-2000 Disabled Female, down-rated by 40% Visão: N/A	RP-2000 Disabled Female, down-rated by 40%
Disability table	Telefônica BD: Light-Forte / PBS-A and CTB: N/A / Visão: Light-Fraca, down rated by 30%	Light-Forte
Turnover	PBS-A, CTB and Telefônica BD: N/A Visão: Turnover experience in VISÃO plans (2015 to 2017)	PAMA and PCE: N/A Law No. 9656/98: Turnover experience in VISÃO plans (2015 to 2017)

F-74

Further to the assumptions stated above, other assumptions common to all plans were adopted in 2019 as follows: (i) Long–term inflation rate 3.8%; and (ii) Annual increase in the use of medical services according to age: 4.0%.

c.3.12) Changes in actuarial assumptions in relation to the prior year

In order to adjust some actuarial assumptions to the economic and demographic reality, a study was conducted for the plans administered by Visão Prev and Sistel, which adopted the definition of the assumptions in their Deliberative Councils.

The main economic and financial assumptions that have changed in relation to the previous fiscal year and that interfere with the defined benefit liability are: (i) rates for discount to present value of the defined benefit liability; (ii) long–term inflation rate; (iii) rate of future wage growth; (iv) rate of growth of medical costs; and (v) annual nominal index of adjustment of social security benefits.

The impacts on the plans’ defined benefit liabilities due to the new definition of the actuarial assumptions are as follows:

	Post-retirement pension plans			Post-retirement health plans			Total
Defined benefit liability, based on current actuarial assumptions		2,238,700			1,863,359			4,102,059
Defined benefit liability, based on prior–year actuarial assumptions		2,358,891			2,112,510			4,471,401
Difference from change in actuarial assumptions		(120,191	)		(249,151	)		(369,342	)

c.3.13) Sensitivity analysis for actuarial assumptions

The Company believes that the significant actuarial assumptions with reasonable likelihood of variation due to financial and economic scenarios, which could significantly change the amount of the defined benefit obligation, are the discount rate used to adjust the defined benefit liability to present value and the rate of growth of medical costs.

Sensitivity analysis of the defined benefit liability for scenarios involving a 0.5% increase and a 0.5% decrease in the discount rate used to discount the defined benefit liability to present value is as follows:

	Post-retirement pension plans		Post-retirement health plans		Total
Defined benefit liability, discounted to present value at current rate		2,238,700		1,863,359		4,102,059
Defined benefit liability, discounted to present value considering a rate increased by 0.5%		2,152,416		1,729,350		3,881,766
Defined benefit liability, discounted to present value considering a rate decreased by 0.5%		2,332,035		2,012,077		4,344,112

The following is a sensitivity analysis of the defined benefit obligation for scenarios of 1% increase and 1% reduction in the rate of growth of medical costs:

	Post-retirement pension plans		Post-retirement health plans		Total
Defined benefit liability, projected by the current medical cost growth rate		2,238,700		1,863,359		4,102,059
Defined benefit liability, projected by the current medical cost growth considering a rate increased by 1%		2,238,700		2,176,479		4,415,179
Defined benefit liability, projected by the current medical cost growth considering a rate decreased by 1%		2,238,700		1,611,501		3,850,201

F-75

c.3.14) Allocation of plan assets

	December 31, 2020				December 31, 2019
	Post-retirement pension plans		Post-retirement health plans		Post-retirement pension plans		Post-retirement health plans
Investments with market value quoted in active market:
Fixed income investments
National Treasury Note (NTN)		2,878,204		938,986		3,067,926		940,144
Treasury Financial Letter		183,744		65,062		270,676		60,968
Repurchase operations		171,534		–		172,895		–
Debentures		22,104		–		16,818		–
Treasury Financial Letter (LFT)		15,099		–		14,238		–
FIDC shares / Others		22,815		–		24,517		–
National Treasury Notes (LTN)		167		–		282		–
Variable income investments
Investments linked to funds and market indexes		5,678		–		6,265		–
Investments in other sectors		286		–		622		–
Real estate investments		90,325		–		100,701		–
Loans to participants		19,374		–		19,870		–
Structured and overseas investments		1,967		–		2,104		–
Total		3,411,297		1,004,048		3,696,914		1,001,112

(31) Financial Instruments and Risk and Capital Management

a) Accounting policy

a.1) Financial assets

Initial recognition and measurement

On initial recognition, a financial asset is classified in the following measurement categories: (i) at fair value through profit or loss; (ii) at amortized cost; or (iii) at fair value through other comprehensive income, depending on the situation.

The classification of financial assets at initial recognition depends on the contractual cash flow characteristics of the financial asset and the business model for the management of these assets.

For a financial asset to be classified and measured at amortized cost or at fair value through other comprehensive income, it needs to generate cash flows that are “exclusively payments of principal and interest” on the principal amount outstanding. This assessment is carried out at the level of each financial instrument.

Financial assets with cash flows that are not exclusively payments of interest principal are classified and measured at fair value through profit or loss, regardless of the business model adopted.

The Company’s business model for managing financial assets refers to how it manages its financial assets to generate cash flows. The business model determines whether cash flows will result from the collection of contractual cash flows, the sale of financial assets or both. Financial assets classified and measured at amortized cost are maintained in a business plan with the objective of maintaining financial assets in order to obtain contractual cash flows while financial assets classified and measured at fair value against other comprehensive income are maintained in a business model. with the objective of obtaining contractual cash flows and also for the purpose of sale.

The Company’s consolidated financial assets include cash and cash equivalents, trade accounts receivable, short–term investments pledged as collateral and derivative financial instruments.

F-76

Subsequent measurement

Subsequent measurement of financial assets depends on their classification, as follows:

· Financial assets at fair value through profit or loss: these assets are subsequently measured at fair value. Net income, including interest, is recognized directly in income.

· Financial assets at amortized cost: these assets are subsequently measured at amortized cost using the effective interest method. The amortized cost is reduced by impairment losses. Interest income, foreign exchange gains and losses and impairment are recognized in income. Any gain or loss on derecognition is recognized in profit or loss.

· Financial assets at fair value through other comprehensive income: these assets are subsequently measured at fair value. Interest income is calculated using the effective interest method, and foreign exchange gains and losses and impairment are recognized in profit or loss. Other net income is recognized in other comprehensive income. In derecognition, the accumulated result in other comprehensive income is reclassified to the statement of income.

Derecognition

A financial asset (or, whenever the case, a part of a financial asset, or a part of a group of similar financial assets) is derecognized when:

· The rights to receive the cash flows from the asset have expired; or

· The Company has transferred its rights to receive cash flows from it has assumed obligation to pay the received cash flows in full without material delay to a third part under a ‘pass–through’ arrangement; and either (i) the Company has transferred substantially all the risks and rewards of the asset, or (ii) the Company has neither transferred nor retained substantially all the risks and rewards of the asset, but has transferred control of the asset.

Impairment of financial assets

The Company and its subsidiaries apply an impairment model for financial assets based on expected credit losses, using a simplified method for certain short and long–term assets (commercial receivables, lease receivables and contractual assets).

Under this simplified approach, credit impairment is recognized by reference to expected credit losses over the life of the asset. For this purpose, the Company and its subsidiaries use matrices based on historical bad debt experience by geographical area on a portfolio segmented by customer category according to credit pattern. The matrix for each category has a defined time horizon divided into intervals in accordance with the collection management policy and is fed with historical data that covers at least 24 collection cycles. This data is updated on a regular basis. Based on the information observable at each close, the Company and its subsidiaries assess the need to adjust the rates resulting from these matrices, considering current conditions and future economic forecasts.

a.2) Financial liabilities

Initial recognition and measurement

Upon initial recognition, a financial liability is classified into the following measurement categories: (i) at fair value through profit or loss; (ii) at amortized cost; or (iii) derivatives designated as hedge instruments in an effective hedge, as appropriate.

Financial liabilities are initially recognized at fair value plus, in the case of loans and financing, transaction cost directly attributable thereto.

The Company’s consolidated financial liabilities include trade accounts payable, loans and financing, debentures, leases, contingent payments (when applicable) and derivative financial instruments.

F-77

Subsequent measurement

Measurement of financial liabilities depends on their classification, as follows:

· Financial liabilities at fair value through profit or loss: financial liabilities are designated at initial recognition at fair value through profit or loss. This category also includes derivative financial instruments contracted, except those designated as derivative financial instruments of cash flow hedge. Interest, monetary and exchange variations and changes arising from the valuation at fair value, when applicable, are recognized in the statement of income when incurred.

· Financial liabilities at amortized cost: after initial recognition, loans and financing subject to interest are subsequently measured at amortized cost using the effective interest rate method. Gains and losses are recognized in the statement of income at the time of write-off of liabilities, as well as during the amortization process using the effective interest rate method.

Derecognition

A financial liability is derecognized when the obligation has been revoked, cancelled or expired.

When an existing financial liability is replaced by another of the same lender, and the terms of the instruments are substantially different, or when the terms of an existing debt instrument are substantially modified, this replacement or modification is treated as derecognition of the original liability and recognition of a new liability, and the difference in the corresponding carrying amounts is recognized in the statement of income.

a.3) Fair value measurement

Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants on the measurement date. Fair value measurement is based on the assumption that the transaction to sell the asset or transfer the liability will take place (i) in the principal market for the asset or liability; and (ii) in the absence of a principal market, in the most advantageous market for that asset or liability. The Company and or its subsidiaries must have access to the principal (or most advantageous) market.

The fair value of an asset or a liability is measured using the assumptions that market participants would use when pricing an asset or liability, assuming that market participants act in their best economic interests.

Fair value measurement of a non-financial asset takes into consideration the capacity of a market participant to generate economic benefits through the best use of the asset or selling it to another market participant that would also make the best use of the asset.

The Company and its subsidiaries use adequate valuation techniques in the circumstances and for which there is sufficient data to measure the fair value, that maximizes the use of relevant observable inputs and minimizes the use of unobservable inputs.

For assets and liabilities recurrently recognized in the financial statements, the Company determines whether there were transfers between the hierarchy levels, revaluating the classification (based on the lowest level input that is significant to the overall fair value measurement) at the end of each reporting period.

The Company and its subsidiaries assessed their financial assets and liabilities in relation to market values using available information and appropriate valuation methodologies. However, both the interpretation of market data and the selection of valuation methods require considerable judgment and reasonable estimates to produce the most adequate realization value. As a result, the estimates shown do not necessarily indicate amounts that could be realized in the current market. The use of different assumptions for the market and/or methodologies may have a material effect on estimated realization values.

The fair values of all assets and liabilities are classified within the fair value hierarchy described below, based on the lowest level of information that is significant to the fair value measurement as a whole:

· Level 1: quoted market prices (unadjusted) in active markets for identical assets or liabilities.

F-78

· Level 2: valuation techniques for which there is a significantly lower level of information to measure the fair value directly or indirectly observable; and

· Level 3: valuation techniques for which the lowest and significant level of information to measure the fair value is not available.

During the periods shown in the tables below, there were no transfers of fair value assessments between the levels mentioned above.

a.4) Financial instruments – net

Financial assets and liabilities are presented net in the balance sheet if, and only if, there is a current enforceable legal right to offset the amounts recognized and if there is an intention to offset or realize the asset or settle the liability simultaneously.

a.5) Derivative financial instruments and hedge accounting

A hedge relationship qualifies for hedge accounting if it meets all of the following effectiveness requirements: (i) there is an economic relationship between the hedged item and the hedging instrument; (ii) the credit risk effect does not influence the changes in value that result from this economic relationship; and (iii) the hedge ratio of the hedging relationship is the same as that resulting from the amount of the hedged item that the entity effectively protects and the amount of the hedge instrument that the Company effectively uses to protect that amount of hedged item.

The documentation includes identification of the hedging instrument, the hedged item or transaction, the nature of the hedged risk, the nature of the risks excluded from the hedge relationship, the prospective statement of hedge effectiveness and how the Company shall assess the effectiveness of changes in the hedging instrument’s fair value in offsetting the exposure to changes in the hedged item’s fair value or cash flows attributable to the hedged risk.

On the inception initial recognition of a hedge relationship, the Company formally designates and documents the hedge relationship to which it wishes to apply hedge accounting, the risk management objective and strategy for undertaking the hedge.

The Company uses derivative financial instruments, such as currency and interest rate swaps or currency non-deliverable forward contracts to hedge against currency risks.

Derivative financial instruments designated in hedge transactions are initially recognized at fair value on the date on which the derivative contract is entered into, and subsequently revalued also at fair value.

Derivatives are presented as financial assets when the fair value of the instrument is positive and as financial liabilities when the fair value of the instrument is negative.

Any gains or losses resulting from changes in fair value of derivatives during the year are posted directly to the statement of income, except for the effective portion of cash flow hedges, which is recognized directly in equity as other comprehensive income and subsequently reclassified to P&L when the hedged item affects P&L.

For the purpose of hedge accounting, hedges are classified as cash flow hedges and fair value hedges.

Cash flow hedges

Cash flow hedges meeting the recording criteria are accounted for as follows: (i) the portion of gain or loss from the hedge instrument determined as an effective hedge shall be recognized directly in equity (other comprehensive income), and (ii) the ineffective portion of gain or loss from the hedge instrument shall be recognized in the statement of income.

When the Company’s documented risk management strategy for any given hedge relationship excludes from the hedge effectiveness evaluation any particular component of gain or loss or the corresponding cash flows from the hedge instrument, that gains or loss component is recognized in financial income (expenses).

F-79

Amounts recorded in other comprehensive income are immediately transferred to the statement of income when the hedged transaction affects P&L. When a hedged item is the cost of a non-financial asset or liability, amounts recorded in equity are transferred at the initial carrying amount of the non-financial assets and liabilities.

If the hedging instrument expires or is sold, terminated or exercised without replacement or rollover (as part of the hedging strategy), or if its designation as a hedge is revoked, or when the hedge fails to meet the hedge accounting criteria, any cumulative gain or loss previously recognized in other comprehensive income remains separately in equity until the forecast transaction occurs or the firm commitment is fulfilled.

The Company’s contracts are classified as cash flow hedges when they provide protection against changes in cash flows that are attributable to a particular risk associated with a recognized liability that may affect the profit or loss and fair value when they provide protection against exposure to changes in the fair value of the identified part of certain liabilities that is attributable to a particular risk (exchange variation) and may affect the profit or loss.

Fair value hedges

Fair value hedges meeting the accounting criteria are accounted for as follows: (i) gain or loss from changes in fair value of a hedge instrument shall be recognized in the statement of income as finance costs; and (ii) gain or loss from a hedged item attributable to the hedged risk shall adjust the recorded amount of the hedged item to be recognized in the statement of income, as finance costs.

For fair value hedges relating to items carried at amortized cost, any adjustment to carrying amount is amortized through profit or loss over the remaining term of the hedge using the effective interest method. The effective interest rate amortization may begin as soon as any adjustment exists and no later than the point that the hedged item ceases to be adjusted for changes in its fair value attributable to the risk being hedged.

If the hedged item is derecognized, the unamortized fair value is recognized immediately in the statement of income.

When an unrecognized firm commitment is designated as a hedged item, the subsequent cumulative change in the fair value of the firm commitment attributable to the hedged risk is recognized as an asset or liability with a corresponding gain or loss recognized in profit and loss.

Classification between current and non-current

Derivative financial instruments are classified as current and non-current or segregated into short and long–term portions based on an evaluation of the contractual cash flows.

When the Company maintains a derivative as an economic hedge (and does not apply hedge accounting), for a period exceeding 12 months after the balance sheet date, the derivative is classified as non-current (or segregated into current and non-current portions), in line with the classification of the corresponding item.

Derivative instruments that are designated as effective hedging instruments are classified consistently with the classification of the underlying hedged item.

The derivative instrument is segregated into current and non-current portions only when amounts can be reliably allocated.

b) Critical estimates and judgments

When the fair value of financial assets and liabilities stated in the balance sheet cannot be obtained in active markets, it will be determined using valuation techniques, including the discounted cash flow method. Data for these methods is based on those adopted in the market, whenever possible. However, when this is not feasible, a certain level of judgment is required for fair value determination. Judgment includes consideration of the inputs used, such as liquidity risk, credit risk and volatility. Changes in the assumptions about these factors could affect the reported fair value of financial instruments.

F-80

c) Derivative transactions

The derivative financial instruments contracted by the Company are mainly used for hedging against foreign exchange risk from assets and liabilities in foreign currency and the effects of inflation on leases indexed to the IPCA. There are no derivative financial instruments held for speculative purposes, possible currency risks are hedged.

Management believes that the Company’s internal controls for its derivatives are adequate to control risks associated with each strategy for the market. Gains/losses obtained or sustained by the Company in relation to its derivatives show that its risk management has been appropriate.

As long as these derivative contracts qualify for hedge accounting, the hedged item is adjusted to fair value, offsetting the result of the derivatives, pursuant to the rules of hedge accounting. This hedge accounting applies both to financial liabilities and probable cash flows in foreign currency.

Derivatives contracts include specific penalties for breach of contract. Breach of contract provided for in agreements made with financial institutions leads to the anticipated liquidation of the contract.

On December 31, 2020 and 2019, the Company held no embedded derivatives contracts.

c.1) Fair value of derivative financial instruments

The valuation method used to calculate the fair value of financial liabilities (if applicable) and derivative financial instruments was the discounted cash flow method, based on expected settlements or realization of liabilities and assets at market rates prevailing at the balance sheet date.

The fair values of positions in Reais are calculated by projecting future inflows from transactions using B3 yield curves and discounting these flows to present value using market DI rates for swaps announced by B3.

The market values of foreign exchange derivatives were obtained using the market exchange rates in effect at the balance sheet date and projected market rates obtained from the currency’s coupon–rate yield curves. The linear convention of 360 calendar days was used to determine coupon rates of positions indexed in foreign currencies, while the exponential convention of 252 business days was used to determine coupon rates for positions indexed to CDI rates.

Consolidated derivatives financial instruments shown below are registered with B3 and classified as swaps, usually, that do not require margin deposits.

F-81

							Accumulated effects from fair value
	Notional Value						Amount receivable (payable)
Description	December 31, 2020			December 31, 2019			December 31, 2020			December 31, 2019
Assets position		411,650			515,261			69,416			72,163
Foreign Currency		316,322			72,790			1,265			–
US$  (1)		97,753			72,790			306			–
EUR  (1)		91,863			–			888			–
NDF US$ (3)		126,706			–			71			–
Floating rate		44,560			369,491			127			1,818
CDI (1)		44,560			369,491			127			1,818
Inflation rates		50,768			72,980			68,024			70,345
IPCA (2)		50,768			72,980			68,024			70,345
Liabilities position		(411,650	)		(515,261	)		(74,980	)		(56,133	)
Floating rate		(240,384	)		(145,770	)		(67,609	)		(56,133	)
CDI (1) (2)		(240,384	)		(145,770	)		(67,609	)		(56,133	)
Fixed rate		(126,706	)		–			(6,662	)		–
NDF US$ (3)		(126,706	)		–			(6,662	)		–
Foreign Currency		(44,560	)		(369,491	)		(709	)		–
US$  (1)		(44,560	)		(365,161	)		(709	)		–
EUR  (1)		–			(4,330	)		–			–
		Assets position						69,416			72,163
		Current						5,902			19,282
		Non-current						63,514			52,881
		Liabilities position						(74,980	)		(56,133	)
		Current						(8,864	)		(1,921	)
		Non-current						(66,116	)		(54,212	)
		Amounts receivable, net						(5,564	)		16,030

(1) Foreign currency swaps (Euro and CDI x Euro) (R$92,924)) and (US$ and CDI x US$) (R$51,545) – maturing through February 19, 2021 to hedge currency risk affecting net amounts payable (carrying amount R$92,928 in Euros and LIBOR) and receivables (carrying amount R$51,545 in US$).

(2) IPCA x CDI swaps (R$246,816) – maturing in 2033 to hedge risk of change pegged to IPCA (carrying amount R$276,167).

(3) NDF US$ x R$ (R$119,838) – forward operations contracted with maturity up to June 11, 2021, with the objective of protecting against risks of exchange rate variations in service contracts (book value of R$119,838 in dollars).

The table below shows the breakdown of swaps maturing after December 31, 2020:

	Maturing in
Swap contract	2021			2022		2023		2024		2025		2026 onwards			Amount receivable (payable) on December 31, 2020
Foreign currency x CDI		(299	)		–		–		–		–		–			(299	)
CDI x Foreign Currency		(582	)		–		–		–		–		–			(582	)
IPCA x CDI		4,510			5,015		5,160		5,137		5,076		(22,990	)		1,908
NDF US$ x Fixed rate		(6,591	)		–		–		–		–		–			(6,591	)
Total		(2,962	)		5,015		5,160		5,137		5,076		(22,990	)		(5,564	)

For the purposes of preparing its financial statements, the Company adopted the fair value hedge accounting methodology for its foreign currency swaps x CDI and IPCA x CDI for hedging or financial debt. Under this arrangement, both derivatives and hedged risk are recognized at fair value.

On December 31, 2020 and 2019, the transactions with derivatives generated a positive consolidated net result of R$2,034 and R$51,963, respectively (Note 27).

c.2) Sensitivity analysis to the Company’s risk variables

CVM Resolution 475/08 requires listed companies to disclose sensitivity analyses for each type of market risk that management understands to be significant when originated by financial instruments to which the entity is exposed at the end of each period, including all derivative financial instrument transactions.

In making the above analysis, each of the transactions with derivative financial instruments was assessed and assumptions included a probable scenario and two others that could adversely impact the Company.

In the probable scenario assumption used, on the maturity dates of each of the transactions, were the market rates for the B3 yield curves (currencies and interest rates), and data from the IBGE, Central Bank, FGV, among others. In the probable scenario, there is no impact on the fair value of the above–mentioned derivatives. However, for Scenarios II and III, as per CVM ruling, risk variables were stressed by 25% and 50% respectively.

F-82

Since the Company only holds derivatives to hedge its foreign currency assets and liabilities, changing scenarios are tracked by the corresponding hedged items the effects are almost non-existent. For these transactions, the Company reported the consolidated net exposure in each of the above–mentioned three scenarios on December 31, 2020.

Transaction	Risk	Probable			25% depreciation			50% depreciation
Hedge (assets position)	Derivatives (depreciation risk EUR)		92,924			116,155			139,386
Payables in EUR	Debt (appreciation risk EUR)		(94,517	)		(118,146	)		(141,777	)
Receivables in EUR	Debt (depreciation risk EUR)		1,549			1,937			2,324
	Net Exposure		(44	)		(54	)		(67	)
Hedge (assets position)	Derivatives (depreciation risk )US$)		51,545			64,431			77,318
Payables in US$	Debt (appreciation risk US$)		(284,102	)		(355,127	)		(426,153	)
Receivables in US$	Debt (depreciation risk US$)		232,557			290,696			348,835
	Net Exposure		–			–			–
Hedge (assets position)	Derivatives (risk of decrease in IPCA)		246,815			233,184			220,868
Debt in IPCA	Debt (risk of increase in IPCA)		(276,167	)		(262,536	)		(250,220	)
	Net Exposure		(29,352	)		(29,352	)		(29,352	)
Hedge (assets position)	Derivatives (depreciation risk US$)		119,838			149,798			179,757
OPex in US$	OPex (appreciation risk US$)		(119,838	)		(149,798	)		(179,757	)
	Net Exposure		–			–			–
Hedge (CDI position)
Hedge US$ and EUR (liabilities position)	Derivatives (risk of decrease in CDI)		205,654			205,655			205,656
Hedge IPCA (liabilities position)	Derivatives (risk of increase in CDI)		(246,816	)		(233,184	)		(220,868	)
	Net Exposure		(41,162	)		(27,529	)		(15,212	)
Total net exposure in each scenario			(70,558	)		(56,935	)		(44,631	)
Net effect on changes in current fair value			–			13,623			25,927

The assumptions used by the Company for the sensitivity analysis on December 31, 2020 were as follows:

Risk Variable	Probable			25% depreciation			50% depreciation
US$		5.1967			6.4959			7.7951
EUR		6.3756			7.9695			9.5634
IPCA		4.31	%		5.39	%		6.47	%
IGPM		23.14	%		28.93	%		34.71	%
CDI		1.90	%		2.38	%		2.85	%

For calculation of the net exposure for the sensitivity analysis, all derivatives were considered at market value and hedged items designated for hedges for accounting purposes were also considered at fair value.

The fair values shown in the table above are based on the portfolio position on December 31, 2020, but do not reflect an estimate for realization due to the dynamism of the market, which is constantly monitored by the Company. The use of different assumptions could significantly affect the estimates.

F-83

d) Classification of financial assets and liabilities by category and fair value hierarchy

For the purposes of disclosing fair value, the Company and its subsidiaries determined classes of assets and liabilities based on the nature, characteristics and risks of the asset or liability and the level of the fair value hierarchy.

Below, we present the composition and classification of financial assets and liabilities as of December 31, 2020 and 2019.

			Book value				Fair value
	Classification by category	Fair value hierarchy	December 31, 2020		December 31, 2019		December 31, 2020		December 31, 2019
Financial Assets
Current
Cash and cash equivalents  (Note 3)	Amortized cost			5,762,081		3,393,377		5,762,081		3,393,377
Trade accounts receivable (Note 4)	Amortized cost			8,182,667		8,719,497		8,182,667		8,719,497
Derivative transactions (Note 31)	Measured at fair value through OCI	Level 2		5,902		19,282		5,902		19,282
Non-current
Investments pledged as collateral	Amortized cost			46,280		63,766		46,280		63,766
Trade accounts receivable (Note 4)	Amortized cost			379,898		440,453		379,898		440,453
Derivative transactions (Note 31)	Measured at fair value through OCI	Level 2		63,514		52,881		63,514		52,881
Total financial assets				14,440,342		12,689,256		14,440,342		12,689,256
Financial Liabilities
Current
Trade accounts payable, net (Note 16)	Amortized cost			6,613,004		6,871,799		6,613,004		6,871,799
Loans, financing and leases (Note 20)	Amortized cost			375,756		1,020,061		375,772		1,021,810
Loans, financing and leases (Note 20)	Measured at fair value through profit or loss	Level 2		2,262,048		2,029,246		2,262,048		2,029,246
Debentures (Note 20)	Amortized cost			1,044,668		1,077,183		1,030,528		1,104,539
Derivative transactions (Note 31)	Measured at fair value through profit or loss	Level 2		8,864		1,921		8,864		1,921
Non-current
Loans, financing and leases (Note 20)	Amortized cost			51		25,093		49		24,106
Loans, financing and leases (Note 20)	Measured at fair value through profit or loss	Level 2		8,556,735		7,161,875		8,556,735		7,161,875
Contingent consideration (Note 20)	Measured at fair value through profit or loss	Level 2		–		484,048		–		484,048
Debentures (Note 20)	Amortized cost			999,908		2,027,167		986,662		1,948,705
Derivative transactions (Note 31)	Measured at fair value through OCI	Level 2		66,116		54,212		66,116		54,212
Total financial liabilities				19,927,150		20,752,605		19,899,778		20,702,261

e) Capital management

The purpose of the Company’s capital management is to ensure maintenance of a high credit rating and an optimal capital ratio to support the Company’s business and maximize shareholder value.

The Company manages its capital structure by making adjustments and adapting to current economic conditions. For this purpose, the Company may pay dividends, obtain new loans, issue debentures and contract derivatives. For the year ended December 31, 2020, there were no changes in capital structure objectives, policies or processes.

The Company’s debt structure includes loans, financing, debentures, leases, contingent consideration and transactions with derivatives, less cash and cash equivalents, short–term investments to secure BNB financing, accounts receivable for credit rights (FIDC) and guarantor of the contingent consideration liability.

F-84

In 2020, there was a favorable decision and conversion into income for the Company of the judicial deposit guaranteeing the contingent consideration liability (Note 9) and, consequently, the amount of the contingent consideration was paid to Vivendi (Note 20).

The Company’s ratio of consolidated debt to shareholders’ equity consists of the following:

	December 31, 2020			December 31, 2019
Cash and cash equivalents		5,762,081			3,393,377
Accounts receivable – FIDC		1,975			–
Loans, financing, debentures, leases and contingent consideration		(13,239,166	)		(13,824,673	)
Derivative transactions, net		(5,564	)		16,030
Short–term investment pledged as collateral		–			13,212
Asset guarantor of contingent consideration		–			484,048
Net debt		7,480,674			9,918,006
Net equity		69,556,764			70,455,578
Net debt-to-equity ratio		10.75	%		14.08	%

f) Risk management policy

The Company and its subsidiaries are exposed to several market risks as a result of its commercial operations, debts contracted to finance its activities and debt–related financial instruments.

f.1) Currency Risk

The Company is exposed to the foreign exchange risk for financial assets and liabilities denominated in foreign currencies, which may generate a smaller amount receivable or larger amount payable depending on the exchange rate in the period.

Hedging transactions were executed to minimize the risks associated with exchange rate on financial assets and liabilities in foreign currencies. This balance is subject to daily changes due to the dynamics of the business. However, the Company intends to cover the net balance of these assets and obligations (US$3,845 thousand, €14,508 thousand and £66 thousand paid by December 31, 2020 and US$72,530 thousand receivable, €974 thousand and £110 thousand paid by December 31, 2019) to mitigate its foreign exchange risks.

f.2) Interest and Inflation Risk

This risk may arise from an unfavorable change in the domestic interest rate, which may adversely affect financial expenses from the portion of debentures referenced to the CDI and liability positions in derivatives (currency hedge and IPCA) pegged to floating interest rates (CDI).

To reduce exposure to the floating interest rate (CDI), the Company and its subsidiaries invested cash equivalents of R$5,570,106 and R$3,143,209 on December 31, 2020 and 2019, respectively, mostly in short–term CDI–based financial investments (CDBs). The carrying amounts of these instruments approximate their fair values, as they may be redeemed in the short term.

f.3) Liquidity Risk

Liquidity risk may arise from having insufficient funds to meet commitments in different currencies and dates of realization of rights and settlement of obligations.

The Company structures the maturity dates of non-derivative financial contracts (Note 20), and their respective derivatives, as shown in the schedule of payments disclosed in this note, to avoid affecting their liquidity.

The Company’s cash flow and liquidity are managed on a daily basis by the operating departments to ensure that cash flows and contracted funding, when necessary, it is sufficient to meet scheduled commitments in to avoid liquidity risk.

F-85

The following is a summary of the maturity profile of the consolidated financial liabilities, which include principal and future interest rates up to the date of maturity. For fixed rate liabilities, interest was calculated on the basis of the indices established in each contract. For variable rate liabilities, interest was calculated on the basis of the market forecast for each period.

On December 31, 2020	2021		2022		2023		2024		2025		2026 onwards		Total
Trade accounts payable		6,613,004		–		–		–		–		–		6,613,004
Loans and financing		63		48		4		–		–		–		115
Leases		2,262,043		2,270,112		2,118,655		1,551,657		925,972		1,690,339		10,818,778
Debentures		1,062,237		1,021,647		–		–		–		–		2,083,884
Derivative transactions		8,864		–		–		–		–		66,116		74,980
Total		9,946,211		3,291,807		2,118,659		1,551,657		925,972		1,756,455		19,590,761

f.4) Credit Risk

The credit risk arises from the possibility of the Company and its subsidiaries incurring losses due to difficulty in receiving amounts billed to their customers and sales of prepaid handsets and cards that have been pre–activated for the distribution network.

The credit risk on accounts receivable is diversified and mitigated by strict control of the customer base. The Company constantly monitors the level of accounts receivable from postpaid services and limits bad credit risk by cutting off access to telephone lines if bills are past due. The mobile customer base predominantly uses the prepaid system, which requires purchase of credits beforehand and therefore does not pose credit risk. Exceptions are made for emergency services that must be maintained for security or national defense reasons.

Credit risk on sales of pre–activated prepaid handsets and cards is managed by a conservative policy for granting credit, using modern credit scoring methods, analyzing financial statements and consultations to commercial databases, in addition to requesting guarantees.

The Company and its subsidiaries are also subject to credit risk arising from their investments, letters of guarantee received as collateral for certain transactions and receivables from derivative transactions. The Company and its subsidiaries control the credit limits granted to each counterpart and diversify this exposure across first–tier financial institutions as per current credit policies of financial counterparts.

f.5) Social and Environmental Risks

The Company’s operations and properties are subject to various environmental laws and regulations that, among others, govern environmental licenses and records, protection of fauna and flora, air emissions, waste management and remediation of contaminated sites. If the Company fails to meet present and future requirements, or to identify and manage new or existing contamination, it will incur significant costs, which include cleaning costs, damages, compensation, remedies, adjustment of conduct, fines, activities suspension and other penalties, investments to improve its facilities or change its processes, or interruption of operations, in addition to damage to our reputation in the market. The realization of environmental conditions not currently identified, more stringent inspections by regulatory agencies, the entry into force of more stringent laws and regulations or other unanticipated events may occur and, ultimately, result in significant environmental liabilities and their costs. The occurrence of any of the above factors could have a material adverse effect on the Company’s business, results of operations and financial position. According to Article 75 of Law No. 9605 of 1998, the maximum fine per breach of environmental law is R$50,000 (fifty million Reais).

From a social point of view, the Company is exposed to contingencies from outsourced service providers. These potential liabilities may involve labor claims by employees of the service providers filing claims against the service provider and Company, requesting inclusion the Company as an assessor, that is, the Company may be compelled to pay in the case the provider does not settle these obligations. There is also a more remote possibility that these employees will be treated as direct employees by the Company, which would generate the risk of joint and several convictions or even the recognition of the service provider’s direct link with the Company. The demands that are known to Telefónica are already provided.

F-86

f.6) Insurance Coverage

The policy of the Company and its subsidiaries, as well as the Telefónica Group, includes contracting insurance coverage for all assets and liabilities involving significant and high–risk amounts, based on management’s judgment and following Telefónica corporate program guidelines.

On December 31, 2020, maximum limits of claims (established pursuant to the agreements of each entity consolidated by the Company) for significant assets, liabilities or interests covered by insurance and their respective amounts were R$900,000 for operational risks (including business interruption) and R$75,000 for general civil liability.

f.7) Risks Relating to the Brazilian Telecommunications Industry and the Company

The Company's business is subject to extensive regulation, including any regulatory changes that may occur during the terms of our concession agreements and the Company's authorizations to provide telecommunication services in Brazil. ANATEL, the main telecommunications industry regulator in the country, regulates, among other things: industry policies and regulations; licensing (including licensing of spectrum and bidding processes); fees and tariffs; competition, incentives and restrictions (including the Company's ability to grow by acquiring other telecommunications businesses); service, technical and quality standards; consumer rights; penalties and other sanctions; interconnection and settlement arrangements; and universal service obligations.

The Brazilian telecommunications regulatory framework is continuously evolving. The interpretation and enforcement of regulations, the assessment of compliance with regulations and the flexibility of regulatory authorities are all marked by uncertainty. The Company operate under authorizations and a concession from the Brazilian government, and the ability to maintain these authorizations and concession is a precondition to the Company's success. However, because of the changing nature of the Brazilian regulatory framework, the Company cannot guarantee that ANATEL will not adversely modify the terms of the Company's authorizations and/or licenses. According to the Company operating authorizations and licenses, must meet specific requirements and maintain minimum quality, coverage and service standards. If the Company failure to comply with such requirements may result in the imposition of fines, penalties and/or other regulatory responses, including the termination of the Company's operating authorizations and concession. Any partial or total termination of any of the Company's operating authorizations and licenses or the Company's concession would have a material adverse effect on the Company's business, financial condition, revenues, results of operations and prospects.

In recent years, ANATEL has reviewed and introduced regulatory changes, especially regarding asymmetric competition measures and interconnection fees charged among local providers of telecommunications services. Asymmetric competition measures can include regulations intended to rebalance markets in which a market participant has distinct market power over other competitors. The adoption of disproportionately asymmetric measures could have a material adverse effect on the Company's business, financial condition, revenues, results of operations and prospects.

With respect to interconnection fees, these are an important part of the Company's revenue and cost bases. Such fees are charged by telecommunications service providers to each other in order to allow interconnected use of each other’s networks. To the extent that changes to the rules governing interconnection fees reduce the amount of fees the Company can receive, or ability to collect such fees, the Company's businesses, financial conditions, revenues, results of operations and prospects could be adversely affected.

Therefore, the Company's business, results of operations, revenues and financial conditions could be negatively affected by the actions of the Brazilian authorities, including, in particular, the following: the introduction of new or stricter operational and/or service requirements; the granting of operating licenses in our areas; limitations on interconnection fees the Company may charge to other telecommunications service providers; imposition of significant fines or penalties regarding failures to comply with regulatory obligations; delays in the granting of, or the failure to grant, approvals for rate increases; and antitrust limitations imposed by ANATEL and CADE.

f.8) Compliance

The Company complies with Brazilian anti–corruption laws and regulations where it has its securities traded. In particular, the Company is subject, in Brazil, to the Law n 12.846/2013 and, in the United States, to the U.S. Foreign Corrupt Practices Act of 1977.

F-87

Although the Company has internal policies and procedures designed to ensure compliance with the these anti–corruption laws and regulations, there can be no assurance that such policies and procedures will be sufficient or that the Company’s employees, directors, officers, partners, agents and service providers will not take actions in violation of the Company’s policies and procedures (or otherwise in violation of the relevant anti–corruption laws and regulations) for which the Company or they may be ultimately held responsible. Violations of anti–corruption laws and regulations could lead to financial penalties, damage to the Company’s reputation or other legal consequences that could have a material adverse effect on the Company’s business, results of operations and financial condition.

The Company develops and implements initiatives to ensure the continuous improvement of its compliance program, through an organizational and governance structure that guarantees a performance based on ethics, transparency and respect for applicable laws and standards.

f.9) Impacts of the Coronavirus pandemic (COVID-19)

In March 2020, the World Health Organization (“WHO”) declared that the outbreak of Coronavirus (COVID-19) was a pandemic. COVID-19 has negatively impacted the global economy, disrupted supply chains, created significant volatility and impacted financial markets resulting in an economic slowdown. The outbreak and rapid spread of COVID-19 has resulted in a substantial reduction in commercial activities worldwide and is causing the weakening of economic conditions, both in Brazil and abroad.

As part of efforts to curb the spread of COVID-19, federal, state and municipal governments at times imposed various restrictions on the conduct of business and travel. Government restrictions, such as requests to stay at home, quarantine and worker absenteeism, have led to a significant number of businesses closings slowdowns. Such restrictions had an adverse impact on the Company and some of its customers and suppliers, had operated during a period with a fraction of their capacities or completely paralyzed their operations, which adversely affected the Company’s sales.

As the events surrounding the COVID-19 pandemic continued to occur during the year of 2020, the Company’s main focus was and will continue to be the health, safety and well–being of its employees, customers and suppliers. To continue its operations, as permitted by the respective federal, state and municipal governments, the Company has adopted numerous security measures in order to protect its employees, customers and suppliers. These measures include, among others, adhering to social distance protocols, allowing the majority of its employees to work from home, suspending non-essential travel, disinfecting facilities and work spaces extensively and frequently, suspending non-essential visitors and requiring the use of facial masks for employees who need to be present at the Company’s facilities. The Company expects to continue with these security measures and will be able to take other actions or adapt its policies, according to the requirements and guidelines of government authorities or according to the best interest of its employees, customers and suppliers.

The measures imposed by federal, state and municipal governments, resulting in a substantial reduction in commercial activities, except for essential companies and services, such as telecommunications services. This allowed the Company to continue providing its main services on an uninterrupted basis.

As a result of the global economic slowdown caused by the COVID-19 pandemic, the Company experienced reduced demand and, consequently, has experienced some impacts on business and results. The prolongation of this situation may have a significant adverse effect on the economies and global financial markets, as well as on the Company’s business, results of operations and financial situation.

The possible effects on the Company’s business will depend on the extent of the COVID-19 pandemic, despite the fact that some vaccines have already been developed in other countries and are being approved in Brazil.

Thus, the Company may not be able to accurately predict the impacts on the business, as it will depend on the evolution of the following factors:

· The duration and scope of the pandemic.

· Government, business and individual actions that were and continue to be taken in response to the pandemic.

F-88

· The impact of the pandemic on economic activity and actions taken in response.

· The time it will take for economic activity to return to previous levels.

· The effect on the Company’s customers and the demand for its products and services.

· The Company’s ability to continue selling its products and services, including to those working from home.

· Ability of the Company’s customers to pay for its products and services; and

· Any closings of the Company’s facilities and those of its customers and suppliers.

· Among the main impacts resulting from COVID-19, of note, are:

· Total closure of retail stores at the end of March 2020, with a gradual reopening. Currently, all stores have returned to activities.

· The Company offered its customers the possibility of making installments with payments in up to 10 installments, free of fines and interest.

· The Company prepaid receivables from suppliers in the second and third quarters of 2020, of approximately R$2 billion, as a way of supporting the cash flow of these companies to maintain their productive activities.

· Under Provisional Measure 936/2020 (MP No. 936), during the months of May to December 2020, the Company’s employees received, directly from the Federal Government, an emergency benefit payment estimated at R$34.5 million.

· Evaluation of the matrix of provisions for estimated losses to reduce the recoverable value of accounts receivable and inventories; and

· Under Provisional Measure 952/2020 (MP nº 952), the deadline for payment of the Fistel fee, which was due in March 2020. In August 2020, the Company paid R$416.5MM.

(32) Additional Information on Cash Flows

a) Reconciliation of cash flow financing activities

The following is a reconciliation of consolidated cash flow financing activities for the years ended December 31, 2020 and 2019.

				Cash flows from financing activities			Cash flows from operating activities			Financing activities not involving cash and cash equivalents
	Balance on December 31, 2019			Write-offs (payments)			Write-offs (payments)			Financial charges and foreign exchange variation		Costs and expenses incurred			Additions of leases and supplier financing		Interim and unclaimed dividends and interest on equity		Balance on December 31, 2020
Interim dividends and interest on equity		3,587,417			(5,259,367	)		–			–		–			–		5,537,948		3,865,998
Loans and financing		1,045,124			(1,018,674	)		(49,675	)		28,499		–			370,538		–		375,812
Leases		9,191,151			(2,909,214	)		(502,537	)		210,836		–			4,828,542		–		10,818,778
Debentures		3,104,350			(1,025,583	)		(123,202	)		89,011		–			–		–		2,044,576
Derivative financial instruments		(16,030	)		15,186			–			6,408		–			–		–		5,564
Contingent Consideration		484,048			(344,217	)		(105,678	)		6,555		(40,708	)		–		–		–
Total		17,396,060			(10,541,869	)		(781,092	)		341,309		(40,708	)		5,199,080		5,537,948		17,110,728

F-89

				Cash flows from financing activities			Cash flows from operating activities			Financing activities not involving cash and cash equivalents
	Balance on December 31, 2018			Write-offs (payments)			Write-offs (payments)			Financial charges and foreign exchange variation			Additions of leases and supplier financing		Initial adoption IFRS 16		Interim and unclaimed dividends and interest on equity		Balance on December 31, 2019
Interim dividends and interest on equity		4,172,916			(6,176,842	)		–			–			–		–		5,591,343		3,587,417
Loans and financing		2,106,814			(2,070,665	)		(129,974	)		171,636			967,313		–		–		1,045,124
Leases		393,027			(1,559,165	)		(415,496	)		350,772			1,803,941		8,618,072		–		9,191,151
Debentures		3,173,910			(66,830	)		(201,516	)		198,786			–		–		–		3,104,350
Derivative financial instruments		(56,150	)		91,543			26,234			(77,657	)		–		–		–		(16,030	)
Contingent Consideration		465,686			–			–			18,362			–		–		–		484,048
Total		10,256,203			(9,781,959	)		(720,752	)		661,899			2,771,254		8,618,072		5,591,343		17,396,060

b) Financing transactions that do not involve cash

The main transactions that do not involve cash of the Company refer to the acquisition of assets through leases and income from financing with suppliers, as follows:

	December 31, 2020		December 31, 2019
Initial adoption IFRS 16 on January 1, 2019		–		8,618,072
Financing transactions with suppliers		370,538		967,313
Acquisition of assets through leases		4,828,542		1,803,941
Total		5,199,080		11,389,326

(33) Contractual Commitments

The Company and its subsidiaries have unrecognized contractual commitments arising from the purchase of goods and services, which mature on several dates, with monthly payments.

On December 31, 2020, the total nominal values equivalent to the full contract period were:

Year
2021	1,429,424
2022	1,319,222
2023	1,296,793
2024	540,585
2025	388,329
2026 onwards	873,058
Total	5,847,411

F-90

(34) OI’s Group Mobile Assets Auction Outcome

On December 14, 2020, the Company, in compliance with and for the purposes of CVM Instruction No. 358/2002, as amended (“ICVM 358”), and subsequently to the Material Facts disclosed on March 10th, 2020, July 18th, 2020, July 27th, 2020, August 7th, 2020 and September 7th, 2020, informed its shareholders and the market in general that the offer presented by the Company jointly with TIM S.A. and Claro S.A. (the Company, jointly with TIM S.A. and Claro S.A., the “Purchasers”) was declared the winner of the competitive process for purchase of the mobile business assets – Personal Mobile Service of the Oi Group (“UPI Mobile Assets”), in the auction held on the same date hereof at the 7th Corporate Court of Rio de Janeiro. The Judicial Recovery Court approved the Purchasers’ offer as winner of the bid, after favorable opinion from the Public Prosecution of the State of Rio de Janeiro and the Judicial Administrator.

The total amount was R$16,500,000, of which R$15,744,000 represents the offer base price (“Base Price”) and R$756,000 refers to transitional services to be rendered for up to 12 months by the Oi Group to the Purchasers (“Transitional Services”); besides the compensation for the take–or–pay data transmission Capacity Agreement, of which the current net present value (NPV) corresponds to R$819,000.

Subject to the terms, conditions and payment calendar set forth in the SPE Mobile Assets Share Purchase and Sale Agreement, a draft of which is attached as Exhibit 5.3.9.1 of the Amendment to the Original Plan and Exhibit I to the Notice for judicial assignment of UPI Mobile Assets (“Agreement”), the Base Price and the amount for the Transitional Services shall be paid at the moment of effectiveness of the transaction (“Closing”), that is the date of execution of the Transitional Services agreement. The Data Transmission Capacity Agreement shall also be executed on the Closing date and its payment shall be made according to the terms and conditions thereof.

The Company shall disburse an amount corresponding to 33% of the Base Price and of the Transitional Services, equivalent to approximately R$5,5 billion. With regards to the Capacity Agreement and considering its specific characteristics and the Company’s needs, the total current amount to be disbursed by the Company corresponds to approximately R$179 million or 22% of the agreement’s total Net Present Value (NPV).

Subject to the continuity of the current market conditions and necessary internal approvals, as well as, in light of its robust financial parameters and strong cash flow generation, the Company intends to use its own resources to finance the transaction.

The assets that make up the UPI Mobile Assets shall, pursuant to the Agreement, be segregated by means of a segregation plan and contributed by the Oi Group to three different specific purpose entities (“SPE”), in such a way that the Company shall acquire the totality of the shares of one SPE that will hold the assets to be attributed to the Company pursuant to the aforementioned segregation plan, isolated and independent from the other SPEs.

The Company is entitled to a selection of assets that shall comprise the UPI Mobile Assets, composed of:

· Clients: approximately 10.5 million (corresponding to approximately 29% of UPI Mobile Assets’ total customer base), according to Anatel’s data base of April/20. Allocation of customers among Purchasers considered criterion that enhance competition among the Brazilian market operators;

· Spectrum: 43MHz as a national weighted average based on population (46% of UPI Mobile Assets’ radiofrequencies). Division of frequencies among Purchasers strictly respects the spectrum limits established by ANATEL; and

· Infrastructure: agreements for the use of 2.7 thousand mobile access sites (corresponding to 19% of UPI Mobile Assets’ total sites).

(35) Subsequent Events

a) Purchase and Sale Agreement of Shares and Other Covenants between Oi Móvel S.A. and the Company, Tim S.A. and Claro S.A.

On January 29, 2021, the Company, under the terms of CVM Instruction No. 358/2002 (“ICVM 358”), as amended, in accordance to the Material Facts, mentioned in note 34, it informed its shareholders and the market in general that, on January 28, 2021, that the Purchase and Sale Agreement of Shares and Other Covenants (“Agreement”) was executed by and between Oi Móvel SA – In Judicial Recovery, as Seller; the Company, Tim S.A. and Claro S.A., as Buyers and Oi S.A. – In Judicial Recovery and Telemar Norte Leste S.A. – In Judicial Recovery, as intervening parties and guarantors of the Seller’s obligations. The Agreement was executed as a result of the competitive procedure for the sale of the assets of the mobile operation – Grupo Oi’s Personal Mobile Service (“UPI Mobile Assets”), in a judicial auction held on 12.14.2020 in which the Company and the other buyers were declared winners.

F-91

The completion of the acquisition by the Buyers of the UPI Mobile Assets shall take place according to the segregation plan of such assets, so that each of the Buyers will acquire shares of an SPE containing their assets from the UPI Mobile Assets. The completion of the acquisition is also subject to certain precedent conditions usually applicable to this type of transaction and set forth in the Agreement, such as the prior consent of ANATEL and approval by CADE, as well as, if applicable, the submission to the general shareholders’ meeting of Company, under the terms of article 256 of the Corporations Law, in which case additional information will be disclosed in due course.

This transaction, as of its completion, will bring benefits to the Company’s shareholders through the generation of revenues and efficiencies due to operational synergies, as well as to its customers, as a result of the Company’s commitment to excellence in the quality of the services provided and, finally, to the sector as a whole due to the reinforcement in the capacity to make investments and create technological innovations in a sustainable way, contributing to the digitalization of the country. The acquisition by the Company of a portion of the UPI Mobile Assets represents another important step in the Company’s purpose of digitalize to bring closer.

b) Interest on equity declared by the Company

At a meeting held on February 12, 2021, calling upon the General Shareholders’ Meeting to be held in 2022, the Board of Directors approved the credit of interest on equity for the fiscal year 2021, under the terms of article 26 of the Company’s Articles of Incorporation, article 9 of Law No. 9249/95 and CVM Ruling No. 683/12, in the gross amount of R$150,000, equivalent to 0.08889560697 per common share, corresponding to a net amount of Withholding Income Tax (IRRF) of R$127,500, equivalent to 0.07556126592 per common share, calculated based on the balance sheet of the January 31, 2021.

The amount of interest on own capital per common share informed above may undergo future adjustments, up to February 26, 2021, as a result of possible acquisitions of shares under the Company's Share Buyback Program.

Payment thereof will be made up to until July 31, 2022, on a date to be set by the Board of Directors and timely communicated to the market, being paid individually to shareholders, according to the ownership structure contained in the Company's records, through the end of day February 26, 2021.

F-92

EX-2.2

Exhibit 2.2

DESCRIPTION OF SECURITIES
REGISTERED UNDER SECTION 12 OF THE EXCHANGE ACT

As of December 31, 2020, Telefônica Brasil S.A. (“we,” “us,” and “our”) had the following series of securities registered pursuant to Section 12(b) of the Exchange Act:

Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Shares, without par value*	VIVT3	New York Stock Exchange*
American Depositary Shares (as evidenced by American Depositary Receipts), each representing one Common Share	VIV	New York Stock Exchange

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

The trading market for our common shares is the São Paulo Stock Exchange - B3 S.A. – Brasil, Bolsa, Balcão (“B3”). Our common shares trade under the symbol “VIVT3” (formerly TLPP3). In the United States, the common shares trade in the form of American Depositary Receipts (“ADRs”), each representing one common share, issued by Citibank N.A., as depositary, pursuant to a deposit agreement, among us, the depositary and the registered holders and beneficial owners from time to time of ADRs (the “Deposit Agreement”).

The ADRs representing preferred shares commenced trading on the NYSE on November 16, 1998 and upon the Conversion (as described below) of all our preferred shares into common shares effective as of market close on November 20, 2020, our ADRs backed by preferred shares were exchanged for ADRs backed by common shares, trading in ADRs representing preferred shares was suspended as of November 23, 2020, and trading in ADRs representing common shares recommenced on the same date, and are traded on NYSE under the symbol “VIV” (formerly TSP).

At an extraordinary shareholders’ meeting held on October 1, 2020, our shareholders approved, effective as from such date, among other things: (1) the conversion of all of our preferred shares into common shares, at a ratio of one common share for each preferred share (the “Conversion”); and (2) amendments to our by-laws. At a special meeting of holders of our preferred shares, held on that same date, our preferred shareholders ratified the conversion of all of our preferred shares into common shares. After the concession and the expiration of the term for shareholders to exercise withdrawal rights, we proceeded with the Conversion, and the last trading session for our preferred shares on the B3 and for our ADSs backed by preferred shares on the NYSE was on November 20, 2020. Therefore, as of November 23, 2020, “VIVT3” represents the only ticker symbol for trading of the Company’s common shares on the B3, and ADSs backed by our common shares began trading on the NYSE under the ticker symbol “VIV.” In connection with this listing (but not for trading) and upon the Conversion, our common shares are registered under Section 12(b) of the Exchange Act.

This exhibit contains a description of the rights of (i) the holders of common shares and (ii) ADR holders. Common shares underlying the ADSs are held by a Brazilian custodian, as agent for the depositary, and holders of ADSs will not be treated as holders of the Common shares.

The following summary is subject to and qualified in its entirety by Telefônica Brasil S.A.’s bylaws and of Law No. 6,404 of December 15, 1976, as amended (the “Brazilian Corporate Law”). In Brazil, a company’s bylaws (estatuto social) are the principal governing document of a corporation (sociedade por ações). This is not a summary of all the significant provisions of our bylaws or of the Brazilian Corporate Law and does not purport to be complete. Capitalized terms used but not defined herein have the meanings given to them in our annual report on Form 20-F for the fiscal year ended December 31, 2020 and in the Deposit Agreement, which is an exhibit to our registration statement on Form F-6 filed with the SEC on October 16, 2020.

 1 

COMMON SHARES

Item 9. General

9.A.3 Preemptive rights

See “—Item 10.B Memorandum and articles of association— Description of Our Bylaws—Preemptive Rights” below.

9.A.5 Type and class of securities

As of December 31, 2020, we had an outstanding share capital of R$63,571,415,865.09, comprised of 1,688,174,171 common shares, net of 2,810,752 treasury shares. All of our outstanding share capital is fully paid. All of our shares are without par value. Our common shares are in book-entry form, registered in the name of each shareholder or its nominee. In addition, our board of directors may increase our share capital up to 1,850,000,000 common shares without amendment to our bylaws. Any increase of our share capital above that limit must be approved by a general extraordinary shareholders meeting. See “—Item 10.B Memorandum and articles of association— Description of Our Bylaws—Form and Transfer” below for information on transfers of our shares.

Item 9.A.6. Limitations or qualifications

Not applicable.

Item 9.A.7. Other rights

Not applicable.

Item 10.B Memorandum and articles of association

The following information describes our common shares and provisions set forth by our bylaws and of the Brazilian Corporate Law. This description is only a summary. You should read and refer to our bylaws (estatuto social) included as Exhibit 1.1 hereto.

Description of Our Bylaws

The following is a summary of the material provisions of our bylaws and of the Brazilian Corporate Law. In Brazil, a company’s bylaws (estatuto social) are the principal governing document of a corporation (sociedade por ações).

General

We are registered with the Board of Trade of São Paulo (Junta Comercial de São Paulo), or JUCESP, under No. 35.3.001588-14. We have been duly registered with the CVM under No. 17671 since August 19, 1998. Our headquarters are located in the city of São Paulo, state of São Paulo, Brazil. Our company has an undetermined period of existence.

At an extraordinary shareholders’ meeting held on October 1, 2020, our shareholders approved, effective as from such date, among other things: (1) the conversion of all of our preferred shares into common shares, at a ratio of one common share for each preferred share (the “Conversion”); and (2) amendments to our by-laws. At a special meeting of holders of our preferred shares, held on that same date, our preferred shareholders ratified the conversion of all of our preferred shares into common shares. After the conversion of the preferred shares into common shares, which formally occurred after the market closed on November 20, 2020, as approved by our shareholders on October 1, 2020, our subscribed and fully-paid share capital was R$63,571,415,865.09 divided into 1,690,984,923 common shares, all with no par value (including 2,291,147 treasury shares). As a result of the Conversion, as of December 31, 2020, we had an outstanding share capital of R$63,571,415,865.09, comprised of 1,688,174,171 common shares, net of 2,810,752 treasury shares. All of our outstanding share capital is fully paid.

 2 

All of our shares are without par value. In addition, our board of directors may increase our share capital up to 1,850,000,000 common shares without amendment to our bylaws. Any increase of our share capital above that limit must be approved by a general extraordinary shareholders meeting.

As of December 31, 2020, 2,810,752 common shares were held by us (treasury shares) at a book value per share of R$41.20. As of December 31, 2019, 2,290,164 preferred shares and 983 common shares were held by us (treasury shares) at a book value per share of R$41.72. As of the date of this annual report, there are no persons to whom any capital of the Company or any of our subsidiaries is under option or agreed conditionally or unconditionally to be put under option.

History of Share Capital

Public Offering for the Primary Distribution of Common and Preferred Shares

At a meeting held on March 25, 2015, the board of directors approved unanimously the realization of a Public Offering for the Primary Distribution of Common and Preferred Shares issued by the Company, all registered shares, without par value, free and clear of any liens or encumbrances, including in the form of American Depositary Shares (“ADSs”), represented by American Depositary Receipts, held simultaneously in Brazil and abroad, through a capital increase of the Company.

The capital increase was approved by the board of directors’ meeting held on April 27, 2015, amounting to R$15.8 billion, increasing the Company’s share capital from R$37.8 billion to R$53.6 billion through the issuance of 121,711,240 common shares, at an issue price of R$38.47 per unit, and 236,803,588 preferred shares, at an issue price of R$47.00 per unit. Common shares, preferred shares and ADSs issued as a result of this capital increase confer to their holders, as of April 28, 2015, date of disclosure of the Global Offering announcement of commencement, the same rights assigned respectively to the holders of common shares, preferred shares and ADSs, currently outstanding, under the Company’s Bylaws and the Brazilian Law of Corporations, fully participating in dividends and other distributions declared from the date of publication of the Global Offering announcement of commencement.

The issue price of R$47.00 per preferred share was determined after the completion of the bookbuilding process, in accordance with Article 23, paragraph 1, and Article 44 of CVM Instruction 400, and in accordance with the provisions of Article 170, paragraph 1, item III, of Law 6,404 of December 15, 1976, as amended. The issue price of R$38.47 per common share was determined based on the price per preferred share determined after the completion of the bookbuilding process, applying a discount of 18.14%, which represents the average price discount trading of the common shares issued by the Company in relation to the trading price of the preferred shares issued by the Company in the three months prior to March 26, 2015.

Public Offering for the Primary Distribution of Shares

At a meeting held on April 30, 2015, the board of directors approved a second capital increase in connection with the Public Offering for the Primary Distribution of Shares, due to the exercise, by the Bank of America Merrill Lynch Banco Múltiplo S.A., of the option of over-allotment of shares that was granted by the Company through the Coordination, Placement and Firm Guarantee of Settlement of Common and Preferred Shares Issued by Telefônica Brasil S.A., in accordance with Article 24 of CVM Instruction 400, of December 29, 2003, as amended, to meet the excess demand verified during the Offering. The Company’s share capital was increased in the amount of R$295.3 million, through the issuance of 6,282,660 preferred shares at the issue price of R$ 47.00 per unit, increasing the share capital of the Company to R$53.9 billion, represented by 503,046,911 common shares and 985,019,821 preferred shares.

GVTPar Merger and Increase in the Company’s Share Capital

On May 28, 2015, the General Shareholders’ Meeting approved the merger of shares issued by GVT Participações (“GVTPar”) by the Company and its implementation, with the conversion of GVTPar in a wholly owned subsidiary of the Company and the consequent increase in the Company’s capital in the amount of R$9.7 billion through the issue of 68,597,306 common shares and 134,320,885 preferred shares, all without par value, increasing the share capital of the Company to R$63.6 billion, as it stands at the date of this report.

 3 

Conversion of Our Preferred Shares into Common Shares

As mentioned above, on October 1, 2020, the Extraordinary General Meeting of the Company approved and the Special General Meeting of the Company’s Preferred Shareholders ratified the Conversion of all the preferred shares issued by the Company into common shares, in the proportion of one (1) common share for each one (1) preferred share and its implementation by the Company’s officers as well as the relevant changes to the Company’s Bylaws to reflect the Conversion.

After the concession and the expiration of the term for shareholders to exercise withdrawal rights, we proceeded with the Conversion, and the last trading session for our preferred shares on the B3 and for our ADSs backed by preferred shares on the NYSE was on November 20, 2020. Therefore, as of November 23, 2020, “VIVT3” represents the only ticker symbol for trading of the Company’s common shares on the B3, and ADSs backed by our common shares began trading on the NYSE under the ticker symbol “VIV.”

The Conversion was undertaken as part of certain improvements to our Corporate Governance Practices, in order to maximize the generation of value to all our shareholders, conferring to them rights set forth under Brazilian Corporate Law, such as the right to vote and the right to tag along, among others.

Corporate Purposes 

Under Article 2 of our bylaws, our corporate purposes are:

· the operation of telecommunications services;

· the development of activities necessary or useful for the performance of these services, in accordance with the concessions, authorizations, and permissions granted to us;

· the operation of value-added services, including, making available without definitive assignment, audio, video, image, and text content, applications and the like;

· the operation of integrated solutions, management, and provision of services related to: (i) data centers, including hosting and colocation; (ii) storage, processing, and management of data, information, texts, images, videos, applications, and information systems and the like; (iii) information technology; (iv) information and communication security; (v) telecommunications; and (vi) electronic security systems related to theft, intrusion, fire, and others; and

· licensing and sub-licensing of software of any nature.

In the pursuit of its corporate purpose, the Company may incorporate assets and rights of third parties into its assets, as well as:

· participate in the capital of other companies, including in order to comply with the national telecommunications policy;

· create companies and/or subsidiaries for the execution of activities within its purpose and that are preferably decentralized;

· promote the importation of goods and services necessary for the execution of activities within its purpose;

· provide technical assistance services to companies in the telecommunications sector, carrying out activities of common interest;

· manage and provide maintenance, assistance and technical support in information technology and equipment related to the Company’s activities;

· provide consulting services related to the Company’s activities;

· prepare, implement, and install projects related to the Company’s activities;

 4 

· manage and render engineering services and carry out civil construction and related works, necessary for the execution of projects related to the Company’s activities;

· provide monitoring services related to the Company’s activities;

· provide business intermediation services in general;

· market, sell and lease equipment and materials necessary or useful for the exploration of its activities, including precision, measurement and electronic sensor equipment;

· carry out studies and research activities, aiming at the development of the telecommunications sector;

· enter into contracts and agreements with other companies that explore telecommunications services or with any persons or entities, with the purpose of ensuring the operation of the services, without prejudice to its duties and powers; and

· carry out other similar or related activities assigned to it by the National Telecommunications Agency - ANATEL.

Board of Directors 

Under our bylaws, any matters subject to the approval of our Board of Directors can be approved only by the majority of votes of the present members of our Board of Directors with a majority of members currently in office. Under our bylaws, our board of directors may only deliberate if a majority of its members are present at a duly convened meeting and in the event of a tie, the Chairman of the board of directors shall be the tiebreaker. 

Election of Directors 

The members of our Board of Directors are elected at general meetings of shareholders for three-year terms. The tenure of the members of the Board of Directors and of the Board of Executive Officers will be conditioned on such members signing the respective instrument of investiture and complying with applicable legal requirements. 

Qualification of Executive Officers and Directors 

The Brazilian Corporate Law requires each of our executive officers to be residents of Brazil. Members of our Board of Directors are not required to be residents of Brazil; however, their tenure is conditioned on the appointment of a representative who resides in Brazil with powers to receive service of process in proceedings initiated against such member based on the corporate legislation, by means of a power-of-attorney valid for at least three years after the termination of the term of such director. 

Fiduciary Duties and Conflicts of Interest 

All members of our board of directors owe fiduciary duties to us and all of our shareholders. 

Under the Brazilian Corporate Law and the board of directors’ internal rules, if one of our directors has a conflict of interest with our company in connection with any proposed transaction, such director may not vote in any decision of our board of directors regarding such transaction and must disclose the nature and extent of his conflicting interest for inclusion in the minutes of the applicable meeting. The same rules on conflict of interest rules are applicable to executive officers. 

Any transaction in which one of our directors or executive officers may have an interest can only be approved on reasonable and fair terms and conditions that are no more favorable than the terms and conditions prevailing in the market or offered by third parties. If any such transaction does not meet this requirement, then the Brazilian Corporate Law provides that the transaction may be held null and void and the interested director or executive officer must return to us any benefits or other advantages that he obtained from, or as result of, such transaction. Under the Brazilian Corporate Law and upon the request of a shareholder who owns at least 1% (as reduced by ICVM 627/2020) of our total share capital, our directors and executive officers must disclose to our shareholders at the Annual Shareholders’ Meeting certain transactions and circumstances that may give rise to a conflict of interest. In addition, our company (through the approval of the majority of our share capital) or shareholders who own 1%

 5 

(as reduced by ICVM 627/2020) or more of our share capital may bring an action for civil liability against directors and executive officers for any losses caused to us as a result of a conflict of interest. 

Compensation 

Under our bylaws, our common shareholders approve the annual cap for aggregate compensation payable to our directors, executive officers and members of our Fiscal Board. Subject to this approval, our board of directors establishes the distribution of such compensation of its members and of our executive officers. 

As per Brazilian Corporate Law, the compensation payable to the members of the fiscal board shall not be less than 10% of the compensation of the company’s executive officers, not including other benefits listed in paragraph three of article 162 thereof. 

Mandatory Retirement 

Neither the Brazilian Corporate Law nor our bylaws establish a mandatory retirement age for our directors or executive officers.

Share Capital 

Each of our common shares entitles its holder to one vote at our annual and extraordinary shareholders’ meetings. Holders of our common shares are not entitled to any preference in respect of our dividends or other distributions or otherwise in case of our liquidation.

Shareholders’ Meetings 

Under the Brazilian Corporate Law, we must hold an annual shareholders’ meeting until April 30 of each year in order to: 

· approve or reject the financial statements approved by our board of directors, including any recommendation by our Board of Directors for the allocation of net profit and distribution of dividends; and

· elect members of our Board of Directors (upon expiration of their three-year terms) and members of our Fiscal Board, subject to the right of minority common shareholders to elect members of our board of directors and our fiscal board.

In addition to the annual shareholders’ meetings, holders of our common shares have the power to determine any matters related to changes in our corporate purposes and to pass any resolutions they deem necessary to protect and enhance our development whenever our interests so require, by means of extraordinary shareholders’ meetings. 

We convene our shareholders’ meetings, including our annual shareholders’ meeting, by publishing a notice in two Brazilian newspapers (the State official gazette and a major newspaper). On the first call of a shareholders’ meeting, the notice must be published no fewer than three times, beginning at least 15 calendar days prior to the scheduled meeting date. On the second call of a shareholders’ meeting, the notice must be published no fewer than three times, beginning at least 8 calendar days prior to the scheduled meeting date. In accordance with our bylaws, for meetings involving deliberations described under article 136 of the Brazilian Corporate Law, the notice must be published at least 30 calendar days prior to the scheduled meeting date and on the second call at least 10 calendar days prior to the scheduled meeting date. As recommended by the CVM, for annual shareholders’ meetings, we convene our shareholders’ meeting 30 calendar days prior to the scheduled meeting date. The notice must contain the meeting’s place, date, time, agenda and, in the case of a proposed amendment to our bylaws, a description of the subject matter of the proposed amendment. 

Our Board of Directors may convene shareholders’ meetings. Under the Brazilian Corporate Law, shareholders’ meetings also may be convened by our shareholders as follows:

· by any of our shareholders if, under certain circumstances set forth in the Brazilian Corporate Law, our directors do not convene a shareholders’ meeting required by law within 60 days; and

 6 

· by shareholders holding at least 1% (as reduced by ICVM 627/2020) of our total share capital if, after a period of 8 days, our directors fail to call a shareholders’ meeting that has been requested by such shareholders by means of a duly reasoned request that indicates the subject matter.

In addition, our Fiscal Board may convene an ordinary shareholders’ meeting if our board of directors does not convene an annual shareholders’ meeting within 30 days or an extraordinary shareholders’ meeting at any other time to consider any urgent and serious matters. 

Each shareholders’ meeting is presided over by the president of the board of directors, who is responsible for choosing a secretary of the meeting among those present at the meeting. In case of absence of the president of the board of directors at the shareholders’ meeting, the shareholders may choose, among those present, the president and the secretary of the meeting. A shareholder may be represented at a shareholders’ meeting by an attorney-in-fact appointed by the shareholder less than one year before the meeting. The attorney-in-fact must be a shareholder, a member of our board of directors, a member of our board of executive officers, a lawyer or a financial institution, and the power of attorney appointing the attorney-in-fact must comply with certain formalities set forth under Brazilian law. To be admitted to a shareholders’ meeting, a person must produce proof of his or her shareholder status and/or a valid power of attorney (if the shareholder is to be represented by an attorney-in-fact), together with any other requirement provided for in the call notice. 

In order to convene a shareholders’ meeting, shareholders representing at least 25% (except when the agenda sets forth a matter that requires a higher quorum) of our issued voting share capital must be present on the first call. However, shareholders representing at least two-thirds of our issued voting share capital must be present at a shareholders’ meeting called to amend our bylaws. If a quorum is not met, our board of directors may issue a second call by publishing a notice as described above at least 8 calendar days prior to the scheduled meeting. Except as otherwise provided by law, the quorum requirements do not apply to a meeting held on the second call, and the shareholders’ meetings may be convened with the presence of shareholders representing any number of shares (subject to the voting requirements for certain matters described below).

Remote Voting 

Pursuant to the CVM Instruction No. 481/09, as amended, the system of Remote Voting is required to be adopted by Brazilian companies for: (i) an Ordinary General Shareholders’ Meeting; (ii) whenever an Extraordinary General Shareholders’ Meeting is called and occurs on the same date as an Ordinary General Shareholders’ Meeting; and (iii) whenever a Shareholders’ Meeting is called to elect the members of the Fiscal Board or of the board of directors, due to the requirements set forth in article 21-A, paragraph 1, item II of CVM Instruction No. 481/09 (Remote Voting can be adopted in other situations, at the Company’s choice). This system aims to facilitate the participation of the Company’s shareholders in its meetings. This instruction provides for the following:

· the creation of a Remote Voting Ballot (“Boletim de Voto a Distância”) through which the shareholders may exercise their right to vote prior to the date in which the shareholders’ meeting is held;

· the possibility to include in the Remote Voting Ballot a list of candidates and submit minority shareholders’ proposals, for deliberation at the shareholders’ meeting, upon satisfaction of certain criteria;

· the deadlines, procedures and means of transmitting the Remote Voting Bulletin; and

· the possibility of holding shareholders’ meeting by fully digital means (in which case shareholders may only participate virtually) or partially digital means (in which case shareholders may either participate virtually or attend the meeting in person at the Company’s headquarters).

In addition, listed companies are required to adopt certain measures regarding the voting process, including:

· informing the market of the adoption of the cumulative voting process in shareholders’ meetings immediately upon receipt of the first valid requirement; and

· disclosing voting maps, as well as any voting statement presented by a shareholder at a meeting;

In accordance with the provisions of applicable laws and regulations, Telefônica Brasil S.A. has adopted the Remote Voting System since its Annual Shareholders’ Meeting held on April 26, 2017.

 7 

We do not have an electronic system for receiving remote voting ballots or remote participation ballots. Exceptionally, we may hold meetings partially or exclusively through a digital format, in accordance with CVM Instruction No. 481/09. Specific instructions regarding remote voting in shareholders’ meetings, which we may decide to hold partially or exclusively through a digital format, will be disclosed in the relevant shareholders’ meeting manual, in addition to other channels that we may deem appropriate.

Voting Rights 

Under the Brazilian Corporate Law and our bylaws, each of our common shares entitles its holder to one vote at our shareholders’ meetings. There are no limitations under the Brazilian Corporate Law or our bylaws on the right of non-Brazilian residents or nationals to own shares or vote according to those shares, other than the restrictions applicable to all shareholders. 

Voting Rights of Common Shares 

Except as otherwise provided by law, resolutions of a shareholders’ meeting are passed by a simple majority vote of the holders of our common shares present or represented at the meeting, without taking abstentions into account. Under the Brazilian Corporate Law, the approval of shareholders representing at least half of our voting shares is required for the types of action described below:

· creating preferred shares or disproportionately increasing an existing class of our preferred shares relative to the other classes of our preferred shares, other than to the extent permitted by our bylaws;

· changing a priority, preference, right, privilege or condition of redemption or amortization of any class of our preferred shares or creating a new class of preferred shares that has a priority, preference, right, condition or redemption or amortization superior to an existing class of our preferred shares;

· reducing the mandatory dividend set forth in our bylaws;

· changing our corporate purpose;

· merging our company with another company, or consolidating our company, subject to the conditions set forth in the Brazilian Corporate Law;

· transferring all of our shares to another company, known as an “incorporação de ações” under the Brazilian Corporate Law;

· participating in a centralized group of companies (grupo de sociedades) as defined under the Brazilian Corporate Law and subject to the conditions set forth in the Brazilian Corporate Law;

· dissolving or liquidating our company or canceling any ongoing liquidation of our company; and

· spinning-off of all or any part of our company.

Decisions on the transformation of our company into another form of business entity require the unanimous approval of our shareholders.

Our company is required to give effect to shareholders agreements that contain provisions regarding the purchase or sale of our shares, preemptive rights to acquire our shares, the exercise of the right to vote or the power to control our company, if these agreements are filed with our headquarters. Brazilian Corporate Law requires the president of any Shareholder’s or Board of Directors meeting to disregard any vote taken by any of the parties to any shareholders agreement that has been duly filed with our company that violates the provisions of any such agreement. In the event that a shareholder that is party to a shareholders agreement (or a director appointed by such shareholder) is absent from any shareholders’ or board of directors’ meeting or abstains from voting, the other party or parties to that shareholders agreement have the right to vote the shares of the absent or abstaining shareholder (or on behalf of the absent director) in compliance with that shareholders agreement.

For the effective implementation of the Conversion, a voting agreement was executed by and among the shareholders Telefónica S.A., Telefónica Latinoamérica Holding, S.L., SP Telecomunicações Participações Ltda.,

 8 

and, as intervening and consenting party, the Telefônica Brasil, in order to comply with the provisions of items a.1 and a.2 of ANATEL. This voting agreement is filed and made available at our Company headquarters, as determined under article 118 of Brazilian Corporate Law.  

Under the Brazilian Corporate Law, neither our bylaws nor actions taken at a shareholders’ meeting may deprive any of our shareholders of certain specific rights, including:

· the right to participate in the distribution of our profits;

· the right to participate in any remaining residual assets in the event of our liquidation;

· the right to supervise the management of our corporate business as specified in the Brazilian Corporate Law;

· preemptive rights in the event of an issuance of our shares, debentures convertible into our shares or subscription bonuses, except with respect to a public offering of our securities; and

· the right to withdraw from our company under the circumstances specified in the Brazilian Corporate Law.

Voting Rights of Minority Shareholders 

Shareholders holding shares representing not less than 5% of our voting shares at our shareholders’ meeting have the right to request that we adopt a cumulative voting procedure to elect the members of the Board of Directors. This procedure must be requested by the required number of shareholders at least 48 hours prior to a shareholders’ meeting.

Under the Brazilian Corporate Law, shareholders that are not controlling shareholders, but that together hold common shares representing at least 10% of our voting capital have the right to appoint one member to our Board of Directors at our shareholders’ meeting.

In the event that minority holders of common shares elect a director and the cumulative voting procedures described above is also used, our controlling shareholders always retain the right to elect at least one member more than the number of members elected by the other shareholders, regardless of the total number of members of our board of directors.

The shareholders seeking to exercise these minority rights (except for the cumulative voting procedure) must prove that they have held their shares for no less than three (3) months preceding the shareholders’ meeting at which the director will be appointed. Brazilian Corporate Law provides that any directors appointed by the non-controlling shareholders have the right to veto for cause the selection of our independent registered public accounting firm.

In accordance with the Brazilian Corporate Law, minority shareholders are entitled to elect one member and an alternate to our Fiscal Board in a separate election as long as they jointly represent 10% or more of the voting shares. The other shareholders with the right to vote may elect the remaining members and alternates, who, in any event, must outnumber the directors and alternates elected by any holders of non-voting preferred shares and the minority shareholders.

Under the Brazilian Corporate Law, the following actions require ratification by the majority of issued and outstanding shares of the affected class within one year from the shareholders’ meeting at which the common shareholders approve the action:

· the creation of preferred shares or a disproportionate increase of an existing class of preferred shares relative to the other classes of preferred shares, other than to the extent permitted by our bylaws;

· a change of a priority, preference, right, privilege or condition of redemption or amortization of any class of preferred shares; or

· the creation of a new class of preferred shares that has a priority, preference, right, condition or redemption or amortization superior to an existing class of preferred shares.

 9 

This meeting would be called by publication of a notice in two Brazilian newspapers for three days, at least 30 days before the meeting, in accordance with our bylaws.

Liquidation 

We may be liquidated in accordance with the provisions of Brazilian law. In the event of our extrajudicial liquidation, a shareholders’ meeting will determine the manner of our liquidation, appoint our liquidator and our Fiscal Board that will function during the liquidation period.

Preemptive Rights 

Each shareholder has a general preemptive right to subscribe for shares of the same class in any capital increase, in an amount sufficient to keep the same proportional participation of such shareholder in the total capital of the corporation. A minimum period of 30 days following the publication of the capital increase notice shall be observed by the corporation for the exercise of the preemptive right by the shareholder. The right of participation in capital increases is assignable under Brazilian Corporate Law. In the event of a capital increase that would maintain or increase the proportion of capital represented by common shares, holders of ADSs, or of common shares, would have the preemptive right to subscribe only to our newly issued common shares. In the event of a capital increase that would reduce the proportion of capital represented by common shares, holders of ADSs, or of common shares, would have the preemptive right to subscribe to our newly issued common shares in proportion to their shareholdings and to our newly issued common shares only to the extent necessary to prevent dilution of their interest.

However, holders of our ADSs may not be able to exercise the preemptive rights relating to our common shares underlying their ADSs unless a registration statement under the Securities Act is effective with respect to those rights or an exemption from the registration requirements of the Securities Act is available. We are not obligated to file a registration statement with respect to the shares relating to these preemptive rights or to take any other action to make preemptive rights available to holders of our ADSs, and we may not file any such registration statement.

In addition, a publicly held company whose bylaws allow for capital increases may provide for the issuance of stock, debentures convertible into stock or subscription bonuses without granting any preemptive rights to prior shareholders or by decreasing the term for the shareholders to exercise their preemptive rights, as long as the placement of such securities is made:

· upon a sale on a stock exchange or public subscription;

· through an exchange of shares in a public offering, with the purpose of acquiring control of another company; or

· for the use of certain tax incentives but only when such placement is made without granting preemptive rights.

Redemption, Amortization, Tender Offers and Rights of Withdrawal 

Our bylaws or our shareholders at a shareholders’ meeting may authorize us to use our profits or reserves to redeem or amortize our shares in accordance with conditions and procedures established for such redemption or amortization. The Brazilian Corporate Law defines “redemption” (resgate de ações) as the payment of the value of the shares in order to permanently remove such shares from circulation, with or without a corresponding reduction of our share capital. The Brazilian Corporate Law defines “amortization” (amortização) as the distribution to the shareholders, without a corresponding capital reduction, of amounts that they would otherwise receive if we were liquidated. If an amortization distribution has been paid prior to our liquidation, then upon our liquidation, the shareholders who did not receive an amortization distribution will have a preference equal to the amount of the amortization distribution in the distribution of our capital.

The Brazilian Corporate Law authorizes us to redeem shares not held by our controlling shareholders, if, after a tender offer effected as a consequence of a delisting of the Company before the CVM, less than five percent (5%) of our outstanding shares remains publicly-held. The redemption price in such case would be the same price paid for our shares in such tender offer.

 10 

The Brazilian Corporate Law and our bylaws also require the acquirer of control (in case of a change of control) or the controller (in case of delisting or a substantial reduction in liquidity of our shares) to make a tender offer for the acquisition of the shares held by minority shareholders under certain circumstances described below under “—Mandatory Tender Offers.” The shareholder can also withdraw its capital from our company under certain circumstances described below under “—Rights of Withdrawal.” 

Mandatory Tender Offers 

The Brazilian Corporate Law requires the launching of a tender offer at a purchase price equal to the fair value for all outstanding shares in order to cancel (or to convert) the registration of our company as a publicly held company or in case of a substantial reduction in the liquidity of our shares as a result of purchases by our controlling shareholders. If our controlling shareholders enter into a transaction which results in a change of control of our company, the controlling shareholders must include in the documentation of the transaction an obligation of the acquirer to launch a tender offer for the purchase of all our common shares for, at least, 80% of the price per share paid to the controlling shareholders. The tender offer must be submitted to the CVM within 30 days from the date of execution of the definitive documents of sale of the shares.

Rights of Withdrawal 

The Brazilian Corporate Law provides that, in certain limited circumstances, a dissenting shareholder may withdraw its equity interest from our company and be reimbursed by us for the value of our common shares that it then holds.

This right of withdrawal may be exercised by dissenting shareholders in the event that the holders of shares with voting rights authorize:

(i) creating preferred shares or disproportionately increasing any existing class of our preferred shares relative to the other classes of our preferred shares, other than to the extent permitted by our bylaws;

(ii) changing a priority, preference, right, privilege or condition of redemption or amortization of any class of our preferred shares or creating a new class of preferred shares that has a priority, preference, right, condition or redemption or amortization superior to any existing class of preferred shares;

(iii) reducing the mandatory dividend set forth in our bylaws;

(iv) a change in our corporate purpose;

(v) merging our company with another company, or consolidating our company, subject to the conditions set forth in the Brazilian Corporate Law;

(vi) the acquisition of all of our shares by another company, known as an “incorporação de ações” under the Brazilian Corporate Law;

(vii) participating in a centralized group of companies (grupo de sociedades) as defined under the Brazilian Corporate Law and subject to the conditions set forth in the Brazilian Corporate Law;

(viii) dissolving or liquidating our company or canceling any ongoing liquidation of our company;

(ix) spinning-off of all or any part of our company; and

(x) the inclusion of an arbitration clause in our bylaws.

In addition, we note that:

· in items (i) and (ii), only the holders of shares of the affected type or class will be entitled to redemption;

· in items (v) and (vii), the holders of shares of a type or class with liquidity and dispersion (as defined in ICVM 565/2015) in the market will not have the right to redemption; and

 11 

· in item (ix), the dissenting shareholders shall only have a right of redemption if the spinning off implies in: (1) a change in the corporate purpose (except if the spun-off assets revert to a company whose main purpose is the same as ours), (2) a reduction of the mandatory dividend, or (3) participation in a group of companies.

Dissenting shareholders are also entitled to withdraw in the event that the entity resulting from a merger or spin-off does not have its shares listed in an exchange or traded in the secondary market within 120 days from the shareholders’ meeting that approved the relevant merger or spin-off. 

Notwithstanding the above, in the event that we are consolidated or merged with another company, become part of a centralized group of companies, or acquire the control of another company for a price in excess of certain limits imposed by the Brazilian Corporate Law, holders of any type or class of our shares or the shares of the resulting entity that have minimal market liquidity and are dispersed among a sufficient number of shareholders will not have the right to withdraw. For this purpose, shares that are part of general indices representative of portfolios of securities traded in Brazil (as defined by ICVM 565/2015) or abroad are considered liquid, and sufficient dispersion will exist if the controlling shareholder, the parent company or other companies under its control hold less than half of the total number of outstanding shares of that type or class. 

Only shareholders who own shares on the date of publication of the first notice convening the relevant shareholders’ meeting or the press release concerning the relevant transaction is published, whichever is earlier, will be entitled to withdrawal rights. 

The redemption of shares arising out of the exercise of any withdrawal rights would be made at the book value per share, determined on the basis of our most recent audited balance sheet approved by our shareholders. If the shareholders’ meeting approving the action that gave rise to withdrawal rights occurred more than 60 days after the date of the most recent approved audited balance sheet, a shareholder may demand that its shares be valued on the basis of a balance sheet prepared specifically for this purpose.

The right of withdrawal lapses 30 days after the date of publication of the minutes of the shareholders’ meeting that approved the action that gave rise to withdrawal rights. Within ten days following the expiration of the term to exercise the withdrawal rights mentioned above, the company may call a Shareholders’ Meeting to confirm or reconsider any resolution giving rise to withdrawal if we believe that the withdrawal of shares of dissenting shareholders would jeopardize its financial stability.

Liability of Our Shareholders for Further Capital Calls

Neither Brazilian law nor our bylaws require any capital calls. Our shareholders’ liability for capital calls is limited to the payment of the issue price of any shares subscribed or acquired.

Inspection of Corporate Records

Shareholders that own 1% (as reduced by ICVM 627/2020) or more of our outstanding share capital have the right to inspect our corporate records, including shareholders’ lists, corporate minutes, financial records and other documents of our company, if (1) we or any of our officers or directors have committed any act contrary to Brazilian law or our bylaws, or (2) there are grounds to suspect that there are material irregularities in our company. However, in either case, the shareholder that desires to inspect our corporate records must obtain a court order authorizing the inspection.

Disclosures of Share Ownership

Brazilian regulations require that (1) each of our controlling shareholders, directly or indirectly, (2) shareholders who have elected members of our Board of Directors or Fiscal Board, and (3) any person or group of persons representing a person that has directly or indirectly acquired or sold a material interest in our shares of any type and class disclose its or their share ownership or divestment to us, and we are responsible for transmitting such information to the CVM and the market. In addition, if a share acquisition results in, or is made with the intention of, change of control or company’s management structure, as well as acquisitions that cause the obligation of performing a tender offer, the persons acquiring such number of shares are required to publish a statement containing certain required information about such acquisition.

 12 

CVM defines a “material interest” deal as any increase or decrease in share ownership of any class resulting in a change in the ownership levels of our shareholders. The ownership levels are set in 5% increments (for example, an acquisition where the total ownership of a shareholder jumps from 9% to 11% should be reported since it made the ownership surpass the 10% level). Ownership levels are calculated adding direct and indirect ownership and derivatives based upon our shares.

Our controlling shareholders, shareholders that appoint members of our Board of Directors or Fiscal Board and members of our Board of Directors, Board of Executive Officers or Fiscal Board must file a statement reporting any change in their holdings of our shares, or of any family member or person included as dependent in their income tax return, or of our controlling shareholders (only if they are considered public companies), with the CVM and the Brazilian stock exchanges on which our securities are traded.

Form and Transfer 

Our common shares are in book-entry form, registered in the name of each shareholder or its nominee. The transfer of our shares is governed by Article 35 of the Brazilian Corporate Law, which provides that a transfer of shares is effected by our transfer agent by an entry made by the transfer agent in its books, upon presentation of valid written share transfer instructions to us by a transferor or its representative. When common shares are acquired or sold on a Brazilian stock exchange, their transfer is effected on the records of our transfer agent by a representative of a brokerage firm or the stock exchange’s clearing system. The transfer agent also performs all the services of safe-keeping of our shares. Transfers of our shares by a non-Brazilian investor are made in the same manner and are executed on the investor’s behalf by the investor’s local agent. If the original investment was registered with the Central Bank pursuant to foreign investment regulations, the non-Brazilian investor is also required to amend, if necessary, through its local agent, the electronic certificate of registration to reflect the new ownership.

The B3 operates a central clearing system. A holder of our shares may choose, at its discretion, to participate in this system, and all shares that such shareholder elects to be put into the clearing system are deposited in custody with the clearing and settlement chamber of the B3 (through a Brazilian institution that is duly authorized to operate by the Central Bank and maintains a clearing account with the clearing and settlement chamber of the B3). Shares subject to the custody of the clearing and settlement chamber of the B3 are noted as such in our registry of shareholders. Each participating shareholder will, in turn, be registered in the register of the clearing and settlement chamber of the B3 and will be treated in the same manner as shareholders registered in our books.

Dividends

Our dividend distribution practice has historically included the distribution of periodic dividends, based on quarterly balance sheets or shorter periods approved by our Board of Directors. When we pay dividends on an annual basis, they are declared at our annual shareholders’ meeting, which we are required by the Brazilian Corporate Law and our bylaws to hold up to April 30 of each year. As per Brazilian Corporate Law, declared dividends are generally required to be paid within 60 days of their declaration unless the shareholders’ resolution establishes another payment date. In any event, Brazilian Corporate Law also states that declared dividends must be paid until the end of the fiscal year in which it was declared. Under Article 9 of Law 9,249/95 and our bylaws, we also may pay interest attributable to shareholders’ equity as an alternative form of dividends upon approval of our board of directors

Payment of Dividends and Interest on Shareholders’ Equity (Juros sobre Capital Próprio) 

We may pay the mandatory distributable amount as dividends or as interest attributable to shareholders’ equity, which is similar to a dividend but is deductible in calculating our income tax obligations. 

Because our shares are issued in book-entry form, dividends with respect to any share are automatically credited to the account holding such share. Shareholders who are not residents of Brazil must register with the Central Bank in order to receive dividends, sales proceeds or other amounts with respect to their shares to be eligible to be remitted outside of Brazil.

The common shares underlying our ADSs are held in Brazil by the depositary, which has registered with the Central Bank as the registered owner of our common shares. Payments of cash dividends and distributions, if any, will be made in Brazilian currency to the depositary. The depositary will then convert such proceeds into U.S.

 13 

dollars and will cause such U.S. dollars to be distributed to holders of our ADSs. As with other types of remittances from Brazil, the Brazilian government may impose temporary restrictions on remittances to foreign investors of the proceeds of their investments in Brazil, as it did for approximately six months in 1989 and early 1999, and on the conversion of Brazilian currency into foreign currencies, which could hinder or prevent the depositary from converting dividends into U.S. dollars and remitting these U.S. dollars abroad.

In addition, remittances are subject to a Brazilian financial transactions tax, which as of the date of this Form 20-F is 0%, but may be subject to change.

For information about taxation on profits, dividends and interest on shareholders’ equity, see “Item 10. Additional Information—E. Taxation—Brazilian Tax Considerations—Taxation of Dividends” of this Form 20-F.

Dividends 

We are required by the Brazilian Corporate Law and by our bylaws to hold an annual shareholders’ meeting until April 30 of each year. At our annual shareholders’ meeting, our common shareholders may vote to declare an annual dividend. Our payment of annual dividends is based on our audited financial statements prepared for our preceding fiscal year. 

Any holder of record of shares at the time that a dividend is declared is entitled to receive dividends. Under the Brazilian Corporate Law, we are generally required to pay dividends within 60 days after declaring them, unless the shareholders’ resolution establishes another payment date, which, in any case, must occur prior to the end of the fiscal year in which the dividends were declared. 

Our Board of Directors may declare interim dividends based on (i) the accrued profits recorded in our semiannual financial statements; (ii) the accrued profits recorded in our quarterly financial statements or in our financial statements for shorter periods, provided that the total amount of dividends paid up every six months does not exceed the total amount within the capital reserve determined pursuant to article 182 of the Brazilian Corporate Law; and (iii) the amount recorded in the profit and loss account or profit reserve account in our last annual or semiannual financial statements. 

All the interim dividends that are distributed shall be considered as part of the mandatory dividends that shall be paid by us. 

Interest on Shareholders’ Equity 

Brazilian corporations may make payments to shareholders characterized as interest on shareholders’ equity as an alternative form of making dividend distributions. Amounts paid as interest on shareholders’ equity (net of applicable withholding tax, as described below) may be deducted from the minimum dividends we are obligated to distribute to our shareholders in accordance with our bylaws and Brazilian Corporate Law. The rate of interest may not be higher than the federal government’s TJLP, as determined by the Central Bank from time to time (7.5% per annum for 2016 and for the first quarter of 2017, 7.0% for the remaining quarters of 2017, 6.75%, 6.6%, 6.56% and 6.98% for the four quarters of 2018, and 7.03%, 6.26%, 5.95% and 5.57% for the four quarters of 2019 and 5.09%, 4.94%, 4.91% and 4.55% for the four quarters of 2020), applied over specific net equity accounts. The total amount distributed as interest on shareholders’ equity may not exceed the greater of (i) 50% of net income (before taking the distribution and any deductions for income taxes into account) for the year with respect to which the payment is made and (ii) 50% of retained earnings for the year before the year with respect to which the payment is made. Payments of interest on shareholders’ equity are decided by the shareholders on the basis of recommendations of our Board of Directors. 

Distributions of interest on shareholders’ equity paid to Brazilian and non-Brazilian holders of common shares, including payments to the depositary in respect of common shares underlying ADSs, are deductible by us for Brazilian corporate income tax purposes. These payments to U.S. holders or other non-Brazilian holders are subject to Brazilian withholding tax at the rate of 15%. If the recipient of the payment is domiciled in a Tax Haven Jurisdiction, as defined by Brazilian law, the rate will be 25%.

 14 

Time Limits for Claiming Dividends

Our shareholders have three (3) years to claim dividend distributions made with respect to their shares, as from the date that we distribute the dividends to our shareholders, after which any unclaimed dividend distributions legally revert to us. We are not required to adjust the amount of any distributions for inflation that occurs during the period from the date of declaration to the payment date.

AMERICAN DEPOSITARY SHARES

Item 12. Other securities

Disclosures under Items 12.A, 12.B, and 12.C are not applicable.

12.D.1 Depositary

Citibank, N.A. acts as the depositary for the American Depositary Shares. Citibank’s depositary offices are located at 388 Greenwich Street, New York, New York 10013, U.S.A.

12.D.2 Provisions

American Depositary Shares are frequently referred to as “ADSs” and represent ownership interests in securities that are on deposit with the depositary. ADSs may be evidenced by certificates that are commonly known as “American Depositary Receipts” or “ADRs.” In the United States, the common shares trade in the form of ADRs, each representing one common share, issued by Citibank N.A., as depositary, pursuant to a Deposit Agreement, among us, the depositary and the registered holders and beneficial owners from time to time of ADRs.  The depositary typically appoints a custodian to safekeep the securities on deposit. In this case, the custodian is Citibank DTVM S.A., located at Avenida Paulista 1,111, São Paulo, SP, 01311-920, Brazil.

As of December 31, 2020, we had 148,936,960 ADSs outstanding, representing 148,936,960 common shares or 8.8% of outstanding common shares.

We are providing you with a summary description of the material terms of the ADSs and of your material rights as an owner of ADSs. We urge you to review the Deposit Agreement in its entirety, which is an exhibit to our registration statement on Form F-6 filed with the SEC on October 16, 2020, and which exhibit is incorporated by reference as exhibit to this annual report on Form 20-F.

Each ADS represents the right to receive, and exercise beneficial ownership interests in, one of our common shares on deposit with the custodian. An ADS also represents the right to receive, and exercise beneficial ownership interests in, any other securities, cash or property received by the depositary or the custodian on behalf of the owner of the ADS but that has not been distributed to the owners of ADSs because of legal restrictions or practical considerations.

If you become an owner of ADSs, you will become a party to the deposit agreement and therefore will be bound to its terms and to the terms of any ADR that evidences your ADSs. The deposit agreement and the ADR specify our rights and obligations as well as your rights and obligations as owner of ADSs and those of the depositary. As an ADS holder you appoint the depositary to act on your behalf in certain circumstances. The deposit agreement, the ADSs, and the ADRs are governed by New York law. However, our obligations to the holders of common shares will continue to be governed by the laws of Brazil, which may be different from the laws in the United States.

In addition, applicable laws and regulations may require you to satisfy reporting requirements and obtain regulatory approvals in certain circumstances. You are solely responsible for complying with such reporting requirements and obtaining such approvals.

Neither the depositary, the custodian, us or any of their or our respective agents or affiliates will be required to take any actions whatsoever on behalf of you to satisfy such reporting requirements or obtain such regulatory approvals under applicable laws and regulations.

 15 

The manner in which you own the ADSs (e.g., in a brokerage account vs. as registered holder, or as holder of certificated vs. uncertificated ADSs) may affect your rights and obligations, and the manner in which, and extent to which, the depositary bank’s services are made available to you. As an owner of ADSs, you may hold your ADSs either directly in the form of certificated ADSs evidenced by an ADR registered in your name, indirectly through a brokerage or safekeeping account, or directly through an account established by the depositary in your name reflecting the registration of uncertificated ADSs directly on the books of the depositary (commonly referred to as the “direct registration system” or “DRS”).

The direct registration system reflects the uncertificated (book-entry) registration of ownership of ADSs by the depositary. Under the direct registration system, ownership of ADSs is evidenced by periodic statements issued by the depositary to the holders of the ADSs. The direct registration system includes automated transfers between the depositary and The Depository Trust Company, or “DTC,” the central book-entry clearing and settlement system for equity securities in the United States. If you decide to hold your ADSs through your brokerage or safekeeping account, you must rely on the procedures of your broker or bank to assert your rights as an ADS owner. Banks and brokers typically hold securities such as the ADSs through clearing and settlement systems such as DTC. The procedures of such clearing and settlement systems may limit your ability to exercise your rights as an owner of ADSs. Please consult with your broker or bank if you have any questions concerning these limitations and procedures. All ADSs held through DTC will be registered in the name of a nominee of DTC. This summary description assumes you have opted to own the ADSs directly by means of an ADS registered in your name and, as such, we will refer to you as the “holder.” Only persons in whose name ADRs are registered on the books of the depositary will be treated by us and the depositary as ADR holders. When we refer to “you,” we assume the reader owns ADSs and will own ADSs at the relevant time.

The registration of the common shares in the name of the depositary bank or the custodian shall, to the maximum extent permitted by applicable law, vest in the depositary bank or the custodian the record ownership in the applicable common shares with the beneficial ownership rights and interests in such common shares being at all times vested with the beneficial owners of the ADSs representing the common shares. The depositary bank or the custodian shall at all times be entitled to exercise the beneficial ownership rights in all deposited property, in each case only on behalf of the holders and beneficial owners of the ADSs representing the deposited property.

Dividends and Distributions

As a holder, you generally have the right to receive the distributions we make on the common shares deposited with the custodian. Your receipt of these distributions may be limited, however, by practical considerations and legal limitations. Holders will receive such distributions under the terms of the deposit agreement in proportion to the number of underlying common shares that your ADSs represent as of a specified record date.

Distributions of Cash

Whenever we intend to make a distribution of a cash dividend or other cash distribution in respect of ADSs, we will give timely notice thereof to the depositary specifying, among other things, the record date applicable for determining the holders of ADSs entitled to receive such distribution. Upon the timely receipt of such notice, the depositary will establish the ADS record date. Upon confirmation of the receipt of:

· any cash dividend or other cash distribution on the common shares held in respect of the ADSs, or

· proceeds from the sale of any deposited property held in respect of the ADSs under the terms hereof, the depositary will

(i) if any amounts are received in a foreign currency, promptly convert or cause to be converted such cash dividend, distribution or proceeds into U.S. dollars,

(ii) if applicable and unless previously established, establish the ADS record date, and

(iii) distribute promptly the amount thus received (net of (a) the applicable fees and charges set forth in the fee schedule set forth below under “—Fees and Charges” and (b) applicable taxes withheld) to the holders entitled thereto as of the ADS record date in proportion to the number of ADSs held as of the ADS record date.

 16 

The depositary will distribute only such amount, however, as can be distributed without attributing to any holder a fraction of one cent, and any balance not so distributed will be held by the depositary (without liability for interest thereon) and will be added to and become part of the next sum received by the depositary for distribution to holders of ADSs outstanding at the time of the next distribution. If we withhold, or the custodian or the depositary is required to withhold and does withhold, from any cash dividend or other cash distribution in respect of the common shares held in respect of the ADSs, or from any cash proceeds from the sales of deposited property, an amount on account of taxes, duties or other governmental charges, the amount distributed to holders on the ADSs will be reduced accordingly. Such withheld amounts will be forwarded by us, the custodian or the depositary to the relevant governmental authority. Evidence of payment thereof by us will be forwarded by us to the depositary upon request. The depositary will hold any cash amounts it is unable to distribute in a non-interest bearing account for the benefit of the applicable holders and beneficial owners of ADSs until the distribution can be effected or the funds that the depositary holds must be escheated as unclaimed property in accordance with the laws of the relevant states of the United States. Notwithstanding anything contained in the deposit agreement to the contrary, in the event we fail to give the depositary timely notice of the proposed distribution under this paragraph, the depositary will use commercially reasonable efforts to perform the actions contemplated in this paragraph, and we and you acknowledge that the depositary shall have no liability for its failure to perform the actions contemplated in this paragraph where such notice has not been so timely given, other than for willful misconduct or its failure to use commercially reasonable efforts, as provided in this paragraph.

Distributions of Shares

Whenever we intend to make a distribution that consists of a dividend in, or free distribution of, shares, we will give timely notice thereof to the depositary specifying, among other things, the record date applicable to holders of ADSs entitled to receive such distribution. Upon the timely receipt of such notice from us, the depositary will establish the ADS record date. Upon receipt of confirmation from the custodian of the receipt of the shares so distributed by us, the depositary will either:

(i) distribute to the holders as of the ADS record date in proportion to the number of ADSs held as of the ADS record date, additional ADSs, which represent in the aggregate the number of shares received as such dividend, or free distribution, subject to the other terms of the deposit agreement (including, without limitation, (a) the applicable fees and charges of, and expenses incurred by, the depositary and (b) taxes), or

(ii) if additional ADSs are not so distributed, take all actions necessary so that each ADS issued and outstanding after the ADS record date will, to the extent permissible by law, thenceforth also represent rights and interests in the additional integral number of shares distributed upon the common shares held in respect of such ADSs (net of (a) the applicable fees and charges of, and expenses incurred by, the depositary and (b) taxes).

In lieu of delivering fractional ADSs, the depositary will sell the number of shares or ADSs, as the case may be, represented by the aggregate of such fractions and distribute the net proceeds. In the event that the depositary determines that any distribution in property (including shares) is subject to any tax or other governmental charges which the depositary is obligated to withhold, or, if we in the fulfillment of our obligation, have furnished an opinion of U.S. counsel determining that shares must be registered under the Securities Act or other laws in order to be distributed to holders (and no such registration statement has been declared effective), the depositary may dispose of all or a portion of such property (including shares and rights to subscribe therefor) in such amounts and in such manner, including by public or private sale, as the depositary deems necessary and practicable, and the depositary will distribute the net proceeds of any such sale (after deduction of (a) taxes and (b) fees and charges of, and expenses incurred by, the depositary) to holders entitled thereto upon the terms described in the deposit agreement. The depositary will hold and/or distribute any unsold balance of such property in accordance with the provisions of the deposit agreement. Notwithstanding anything contained in the deposit agreement to the contrary, in the event we fail to give the depositary timely notice of the proposed distribution under this paragraph, the depositary will use commercially reasonable efforts to perform the actions contemplated in this paragraph, and we and you acknowledge that the depositary shall have no liability for its failure to perform the actions contemplated in this paragraph where such notice has not been so timely given, other than for willful misconduct or its failure to use commercially reasonable efforts, as provided in this paragraph.

 17 

Distributions of Rights

Whenever we intend to distribute rights to purchase additional common shares, the depositary will make such rights available to holders of ADSs only if

(i) we timely provide evidence satisfactory to the depositary that it may lawfully distribute such rights,

(ii) we timely indicate that we wish such rights to be made available to holders of ADSs, and

(iii) the depositary determines that making such rights so available is lawful and reasonably practicable.

If any of clauses (i) through (iii) of the preceding sentence are not satisfied, the depositary may sell such rights, if practicable, and distribute the net proceeds in the same way it distributes cash, or if the sale of such rights cannot practicably be accomplished by reason of the non-transferability of the rights, limited markets therefor, their short duration or otherwise, the depositary may allow such rights to lapse, in which case you will receive nothing.

You may have to pay fees, expenses, taxes and other governmental charges to subscribe for the new ADSs upon the exercise of your rights.

Elective Distributions

Whenever we intend to distribute a dividend payable at the election of shareholders either in cash or in additional shares, we will give prior notice thereof to the depositary bank and will indicate whether we wish the elective distribution to be made available to you. In such case, we will assist the depositary bank in determining whether such distribution is lawful and reasonably practicable.

The depositary bank will make the election available to you only if it is reasonably practicable and if we have been timely provided all of the documentation contemplated in the deposit agreement. In such case, the depositary bank will establish procedures to enable you to elect to receive either cash or additional ADSs, in each case as described in the deposit agreement.

If the election is not made available to you, you will receive either cash or additional ADSs, depending on what a shareholder in Brazil would receive upon failing to make an election, as more fully described in the deposit agreement.

Other Distributions

Whenever we intend to distribute property other than cash, common shares or rights to purchase additional common shares, the depositary may distribute such other property, but only if

(i) we timely provide evidence satisfactory to the depositary that it may lawfully distribute such other property,

(ii) we indicate that we wish such other property to be made available to holders of ADSs, and

(iii) the depositary determines that making such other property so available is lawful and reasonably practicable.

If any of clauses (i) through (iii) of the preceding sentence are not satisfied, the depositary may sell such securities or property and distribute any net proceeds in the same way it distributes cash.

The distribution will be made net of fees, expenses, taxes and governmental charges payable by holders under the terms of the deposit agreement. In order to pay such taxes and governmental charges, the depositary may sell all or a portion of the property received.

o the extent the depositary determines in its discretion that any distribution is not practicable with respect to any ADS holder, the depositary may make such distribution as it deems practicable, including the distribution of foreign currency, securities or property, or it may retain such items, without paying interest on or investing them, on behalf of the ADS holder as deposited securities. Neither we nor the depositary will be liable for (i) any failure to accurately determine whether it is lawful or practicable to make the property described in this section available to

 18 

holders of ADSs in general or you in particular, nor (ii) any loss incurred in connection with the sale or disposal of such property.

Redemption

Whenever we decide to redeem any of the securities on deposit with the custodian, we will notify the depositary bank in advance. If it is practicable and if we provide all of the documentation contemplated in the deposit agreement, the depositary bank will provide notice of the redemption to the holders.

The custodian will be instructed to surrender the shares being redeemed against payment of the applicable redemption price. The depositary bank will convert into U.S. dollars upon the terms of the deposit agreement the redemption funds received in a currency other than U.S. dollars and will establish procedures to enable holders to receive the net proceeds from the redemption upon surrender of their ADSs to the depositary bank. You may have to pay fees, expenses, taxes and other governmental charges upon the redemption of your ADSs. If less than all ADSs are being redeemed, the ADSs to be retired will be selected by lot or on a pro rata basis, as the depositary bank may determine.

Changes Affecting Common Shares

The common shares held on deposit for your ADSs may change from time to time. For example, there may be a change in nominal or par value, a split-up, cancellation, consolidation or reclassification of such common shares or a recapitalization, reorganization, merger, consolidation, or sale of all or substantially all of our assets.

If any such change were to occur, the depositary may, with our approval, and must, upon our request, (i) distribute additional ADSs as in the case of a stock dividend on the common shares; (ii) amend the deposit agreement and the applicable ADRs; (iii) amend the applicable registration statement in respect of the ADSs; (iv) call for the surrender of outstanding ADRs to be exchanged for new ADRs and (v) take such other actions as are appropriate to reflect such change with respect to the ADSs. If the depositary does not choose any of the foregoing, any of the cash, securities or other property it receives will constitute part of the deposited property and each ADS will then represent a proportionate interest in such property.

Issuance of ADSs upon Deposit of Common Shares

The depositary may create ADSs on your behalf if you or your broker deposit common shares with the custodian. The depositary will deliver these ADSs to the person you indicate only after you pay any applicable issuance fees and other charges of the depositary, any governmental charges and taxes payable for the transfer of the common shares to the custodian and any stock transfer or registration fees for the registration of transfer of the common shares on any applicable register and after you deliver any necessary instruments or confirmations of transfer. Your ability to deposit common shares and receive ADSs may be limited by U.S. and Brazilian legal considerations applicable at the time of deposit.

The issuance of ADSs may be delayed until the depositary or the custodian receives confirmation that all required approvals have been given and that the common shares have been duly transferred to the custodian. The depositary will only issue ADSs in whole numbers.

Transfer, Combination and Split Up of ADRs

As an ADR holder, you will be entitled to transfer, combine or split up your ADRs and the ADSs evidenced thereby. For transfers of ADRs, you will have to surrender the ADRs to be transferred to the depositary and also must:

· ensure that the surrendered ADR is properly endorsed or otherwise in proper form for transfer;

· provide such proof of identity and genuineness of signatures as the depositary deems appropriate;

· provide any transfer stamps required by the State of New York or the United States; and

 19 

· pay all applicable fees, charges, expenses, taxes and other government charges payable by ADR holders pursuant to the terms of the deposit agreement, upon the transfer of ADRs.

To have your ADRs either combined or split up, you must surrender the ADRs in question to the depositary with your request to have them combined or split up, and you must pay all applicable fees, charges and expenses payable by ADR holders, pursuant to the terms of the deposit agreement, upon a combination or split up of ADRs.

The Depositary may appoint one or more co-transfer agents to effect transfers, combinations and split ups of ADRs. The co-transfer agent(s) will be entitled to the same protection and indemnity as the depositary and will agree to be bound by the terms of the deposit agreement.

Withdrawal of Common Shares Upon Cancellation of ADSs

As a holder, you will be entitled to present your ADSs to the depositary for cancellation and then receive the corresponding number of underlying common shares at the custodian’s office. Your ability to withdraw the common shares is subject to the provisions of or governing the deposited securities, and of the deposit agreement, any ADRs evidencing the ADSs, the rules of the Central Clearing System of the B3 (Central Depositária da B3), the Company’s estatuto (bylaws) and applicable law. In order to withdraw the common shares represented by your ADSs, you will be required to pay to the depositary the fees for cancellation of ADSs and any charges and taxes payable upon the transfer of the common shares being withdrawn. The withdrawn common shares will be delivered at the office of the custodian. Once canceled, the ADSs will not have any rights under the deposit agreement.

If you hold ADSs registered in your name, the depositary may ask you to

(i) provide proof of identity and genuineness of any signature,

(ii) provide such other information as the depositary may deem necessary or proper including without limitation information as to citizenship, residence, exchange control approval, beneficial ownership of any securities, compliance with applicable law, regulations, provisions of or governing deposited securities and terms of the deposit agreement and the form of ADR, as the depositary may deem necessary or proper, and

(iii) comply with such regulations as the depositary may establish consistent with the deposit agreement and any regulations which the depositary is informed of in writing by us which are deemed desirable by us, the depositary or the custodian to facilitate compliance with any applicable rules or regulations of the Central Bank or the CVM.

You will have the right to withdraw the securities represented by your ADSs at any time except for:

· Temporary delays that may arise because (i) the transfer books for the common shares or ADSs are closed, or (ii) common shares are immobilized on account of a shareholders’ meeting or a payment of dividends;

· Obligations to pay fees, taxes and similar charges; and

· Restrictions imposed because of laws or governmental regulations applicable to ADSs or the withdrawal of securities on deposit.

The deposit agreement may not be modified to impair your right to withdraw the securities represented by your ADSs except to comply with mandatory provisions of law.

Suspension of Certain Actions by Depositary

The depositary may suspend the issuance of ADSs, the acceptance of deposits of common shares, the registration, registration of transfer, split-up or combination of ADSs or the withdrawal of deposited securities, generally or in particular instances, when the ADS register or any register for deposited securities is closed or when any such action is deemed advisable by the depositary or by us.

 20 

Voting Rights

As a holder, you generally have the right under the deposit agreement to instruct the depositary to exercise the voting rights, if any, for the common shares and any other securities represented by your ADSs. The voting rights of holders of common shares are described in “—Item 9.A.7. Other rights—Voting Rights of Common Shares.”

As soon as practicable after receipt from us of notice of any meeting or solicitation of consents or proxies, the depositary will mail to you a notice stating (a) such information as is contained in such notice and any solicitation materials, (b) that each holder on the record date set by the depositary will be entitled to instruct the depositary as to the exercise of the voting rights, if any, pertaining to the securities represented by the holder’s ADSs and (c) the manner in which such instructions may be given. Upon receipt of instructions of a holder in the manner and on or before the date established by the depositary for such purpose, the depositary will endeavor insofar as practicable and permitted under applicable law, the provisions of the deposit agreement, the bylaws, and the provisions of or governing deposited securities to vote or cause to be voted the deposited securities represented by such holder’s ADSs in accordance with such instructions. If the depositary does not receive instructions of a holder before the date established by the depositary for such purpose, such holder will be deemed absent from the meeting, and no vote will be recorded in respect of such holder. The depositary will not itself exercise any voting discretion in respect of any deposited securities.

We cannot assure you that you will receive voting materials in time to enable you to return voting instructions to the depositary in a timely manner. Securities for which no voting instructions have been received will not be voted.

Record Dates

The Depositary may, after consultation with us, if practicable, fix a record date, which, to the extent applicable, will be as near as practicable to any corresponding record date set by us for the determination of the ADS holders who will be (i) responsible for the fee assessed by the depositary for administration of the ADS program and for any expenses provided for in the deposit agreement and (ii) entitled to receive any distribution on or in respect of deposited securities, to give instructions for the exercise of any voting rights, to receive any notice or to act in respect of other matters and only such holders will be so entitled or obligated.

Amendments and Termination

We may agree with the depositary to modify the deposit agreement at any time without your consent. Any amendments or supplements to the deposit agreement which impose or increase any fees or charges (other than charges in connection with foreign exchange control regulations, and taxes and other governmental charges, delivery and other such expenses), or which otherwise materially prejudices any substantial existing rights of holders of ADSs do not become effective until the expiration of 30 days after notice of such amendment or supplement has been given to holders of ADSs. If a holder of ADSs continues to hold ADSs after being so notified, such ADS holder is deemed to agree to such amendment. Any amendments or supplements will be deemed not to prejudice any substantial rights or ADS holders if they (i) are reasonably necessary for the ADSs to be registered under the Securities Act or for the ADSs or common shares to be eligible for book-entry settlement, and (ii) in each case do not impose or increase the fees and charges you are required to pay. In addition, an amendment can become effective before notice is given if this is necessary to ensure compliance with a new law, rule or regulation.

The deposit agreement cannot be amended to impair your right to withdraw the common shares represented by your ADSs (except in order to comply with mandatory provisions of applicable law).

The depositary may resign by delivery of written notice to us of its election to do so, and we may remove the depositary by delivery of written notice to the depositary of such removal. The depositary shall, upon our request, terminate the deposit agreement by distributing notice of such termination to holders of ADSs at least 30 days prior to the date of termination. If 90 days shall have expired after (i) the depositary shall have delivered to us a written notice of its election to resign, or (ii) we shall have delivered to the depositary a written notice of the removal of the depositary, and, in either case, a successor depositary shall not have been appointed and accepted its appointment, the depositary may terminate the deposit agreement by distributing notice of such termination to the holders of all ADSs then outstanding at least 30 days prior to the date fixed in such notice for such termination.

 21 

After termination, the depositary and its agents will perform no further acts under the deposit agreement except to receive and hold (or sell) distributions on deposited securities and deliver deposited securities being withdrawn. At any time after the date of termination, the depositary will sell the deposited securities and will thereafter (as long as it may lawfully do so) hold in a segregated account the net proceeds of such sales, together with any other cash then held by it under the deposit agreement, without liability for interest, in trust for the pro rata benefit of the holders of ADSs who have not yet surrendered their ADSs. After making such sale, the depositary will have no further obligations in respect of the deposit agreement, except to account for such net proceeds and other cash.

Disclosure of Interests

To the extent that the provisions of or governing any deposited securities may require disclosure of or impose limits on beneficial or other ownership of deposited securities and other securities, and may provide for blocking transfer, voting or other rights to enforce such disclosure or limits, all persons holding ADSs agree to comply with all such disclosure requirements and ownership limitations and to cooperate with the depositary in its compliance with any instructions from us in respect thereof.

Books of Depositary

The depositary or its agent will maintain at a designated transfer office a register for the registration, registration of transfer, combination and split-up of ADSs. You may inspect such records at such office at all reasonable times but solely for the purpose of communicating with other holders in the interest of the business of our company or matters relating to the deposit agreement.

The depositary will maintain in New York facilities for the delivery and receipt of ADSs. The ADS register may be closed from time to time when deemed expedient by the depositary or requested by us.

Limitations on Obligations and Liabilities

The deposit agreement limits our obligations and the depositary’s obligations to you. Neither we nor the depositary nor our agents will be liable:

· if any present or future law, rule, regulation, fiat, order or decree of the United States, the Federative Republic of Brazil or any other country, or of any governmental or regulatory authority or any securities exchange or market or automated quotation system, the provisions of or governing any deposited securities, any present or future provision of our charter, any act of God, war, terrorism, pandemic or other circumstance beyond its control shall prevent or delay or cause any of us, the depositary or our agents to be subject to any civil or criminal penalty in connection with, any act which the deposit agreement or the ADRs provides shall be done or performed by it (including, without limitation, voting);

· if it exercises or fails to exercise discretion under the deposit agreement, the ADRs or the provisions of or governing the common shares, including any failure to determine that any distribution or action may be lawful or reasonably practicable;

· if it performs its obligations without negligence or bad faith;

· if it takes any action or inaction in reliance upon the advice of or information from legal counsel, accountants, any person presenting shares for deposit, any holder of ADSs, or any other person believed by it in good faith to be competent to give such advice or information;

· if it fails to determine that it may be lawful or feasible to make rights available to holders in general or to any holder in particular;

· if it relies upon any written notice, request, direction or other document believed by it to be genuine and to have been signed or presented by the proper party or parties;

· for the inability by a holder of ADSs to benefit from any distribution or other benefit made available to holders of common shares but not, under the terms of the deposit agreement, made available to holders or any particular holder of ADSs;

 22 

· for any action or inaction of any clearing or settlement system (and any participant thereof) for the deposited property or the ADSs; or

· for any consequential or punitive damages (including lost profits) for any breach of the deposit agreement.

Neither the depositary nor its agents have any obligation to appear in, prosecute or defend any action, suit or other proceeding in respect of any deposited securities or the ADSs, which in its opinion may involve it in expense or liability, unless indemnity satisfactory to it against all expense (including fees and disbursements of counsel) and liability be furnished as often as may be required (and no Custodian shall be under any obligation whatsoever with respect to such proceedings, the responsibility of the Custodian being solely to the Depositary). We and our agents shall only be obligated to appear in, prosecute or defend any action, suit or other proceeding in respect of any deposited securities or the ADSs, which in our opinion may involve us in expense or liability, if indemnity satisfactory to us against all expense (including fees and disbursements of counsel) and liability is furnished as often as may be required. The depositary shall not be liable for the acts or omissions made by any securities depository, clearing agency or settlement system in connection with or arising out of book-entry settlement of deposited securities or otherwise. Furthermore, the depositary shall not be responsible for, and shall incur no liability in connection with or arising from, the insolvency of any custodian that is not a branch or affiliate of Citibank, N.A.

The depositary has no obligation to inform ADS holders or any other holders of an interest in an ADS about the requirements of Brazilian law, rules or regulations or any changes therein or thereto.

Neither the depositary nor any of its agents shall be liable to holders of ADSs or beneficial owners of interests in ADSs for any indirect, special, punitive or consequential damages (including, without limitation, lost profits) of any form incurred by any person or entity, whether or not foreseeable and regardless of the type of action in which such a claim may be brought.

Additionally, none of us, the depositary or the custodian shall be liable for the failure by any holder of ADSs or beneficial owner therein to obtain the benefits of credits on the basis of non-U.S. tax paid against such holder’s or beneficial owner’s income tax liability. Neither we nor the depositary shall incur any liability for any tax consequences that may be incurred by holders or beneficial owners of ADSs on account of their ownership of ADSs or ADSs.

The depositary and its agents may fully respond to any and all demands or requests for information maintained by or on its behalf in connection with the deposit agreement, any holder or holders of ADRs, any ADS or ADSs or otherwise related to the deposit agreement to the extent such information is requested or required by or pursuant to any lawful authority, including without limitation laws, rules, regulations, administrative or judicial process, banking, securities or other regulators.

The depositary shall not incur liability for the content of any information submitted to it by us or on our behalf for distribution to the holders of ADSs or for any inaccuracy of any translation thereof, for any investment risk associated with acquiring an interest in the deposited securities, for the validity or worth of the deposited securities, for the credit-worthiness of any third party, for allowing any rights to lapse upon the terms of the deposit agreement or for the failure or timeliness of any notice from us.

So long as it acted without bad faith or negligence, the depositary shall not be liable for any acts or omissions made by a successor or predecessor depositary.

The depositary and its agents will not be responsible for any failure to carry out any instructions to vote any of the deposited securities, for the manner in which any such vote is cast or for the effect of any such vote.

The depositary and its agents may own and deal in any class of securities or our company or our affiliates and in ADSs.

Taxes

You will be responsible for the taxes and other governmental charges payable by the custodian or the depositary with respect to the ADSs, ADRs, any deposited securities or other property represented by the ADSs or any distributions thereon. We, the depositary or the custodian may deduct from any distribution the taxes and governmental charges payable by holders and may sell any and all property on deposit to pay the taxes and

 23 

governmental charges payable by holders. If any tax or governmental charge is required to be withheld on any non-cash distribution, the depositary may sell the distributed property or securities in such amounts and in such manner as the depositary deems necessary and practicable to pay such taxes and shall distribute any remaining net proceeds or the balance of such property or securities to the holders entitled thereto. You will be liable for any deficiency if the sale proceeds do not cover the taxes that are due.

The depositary may refuse to effect any registration, registration of transfer, split-up or combination of ADRs or any withdrawal of deposited securities until all taxes and charges are paid by the applicable holder. The depositary and the custodian may take reasonable administrative actions to obtain tax refunds and reduced tax withholding for any distributions on your behalf. However, you may be required to provide to the depositary and to the custodian proof of taxpayer status and residence and such other information as the depositary and the custodian may require to fulfill legal obligations. You are required to indemnify us, the depositary and the custodian and our respective directors, employees, agents and affiliates for any claims with respect to taxes, additions to tax, penalties or interest arising out of any refund of taxes, reduced rate of withholding at source or other tax benefit obtained for you, as well as any claims with respect to taxes (including applicable interest and penalties thereon) arising from any ADSs held by you, the deposited property represented by the ADSs and any transaction entered into by you in respect of the ADSs and/or the deposited property represented thereby.

Foreign Currency Conversion

The depositary bank will arrange for the conversion of all foreign currency received into U.S. dollars if such conversion is practical, and it will distribute the U.S. dollars in accordance with the terms of the deposit agreement. You may have to pay fees and expenses incurred in converting foreign currency, such as fees and expenses incurred in complying with currency exchange controls and other governmental requirements.

If the conversion of foreign currency is not practical or lawful, or if any required approvals are denied or not obtainable at a reasonable cost or within a reasonable period, the depositary bank may take the following actions in its discretion:

· Convert the foreign currency to the extent practical and lawful and distribute the U.S. dollars to the holders for whom the conversion and distribution is lawful and practical.

· Distribute the foreign currency to holders for whom the distribution is lawful and practical.

· Hold the foreign currency (without liability for interest) for the applicable holders.

Available Information

The deposit agreement, the provisions of or governing deposited securities and any written communications from us, which are both received by the custodian or its nominee as a holder of deposited securities and made generally available to the holders of deposited securities, are available for inspection by ADS holders at the offices of the depositary.

Governing Law

The deposit agreement is governed by and shall be construed in accordance with the laws of the State of New York. In the deposit agreement, we have submitted to the jurisdiction of the federal and states courts in the City of New York and appointed an agent for service of process on our behalf.

Registered Capital

An electronic registration has been issued in the name of the depositary with respect to the ADSs and is maintained by the custodian on behalf of the depositary. Pursuant to the registration, the custodian and the depositary are able to convert dividends and other distributions with respect to the common shares represented by ADSs into foreign currency and remit the proceeds outside Brazil. If a holder of ADSs exchanges such ADSs for common shares, such holder will be entitled to continue to rely on the depositary’s registration for five business days after such exchange, following which such holder must seek to obtain its own electronic registration with the Central Bank. Thereafter, any holder of common shares may not be able to convert into foreign currency and remit outside

 24 

Brazil the proceeds from the disposition of, or distributions with respect to, such common shares, unless such holder is a duly qualified investor under Resolution No. 2,689 and obtains its own electronic registration. CMN Resolution No. 4,373 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 common shares and the remittance of funds arising from the sale of these common shares.

 25 

EX-4.26

SHARE PURCHASE AGREEMENT AND OTHER COVENANTS

entered into by and among

OI S.A. - IN JUDICIAL REORGANIZATION

TELEMAR NORTE LESTE S.A. - IN JUDICIAL REORGANIZATION

OI MÓVEL S.A. - IN JUDICIAL REORGANIZATION

and, on the other hand,

TIM S.A.

TELEFÔNICA BRASIL S.A.

CLARO S.A.

on

January 28, 2021

_______________________________________________________________________

SHARE PURCHASE AGREEMENT AND OTHER COVENANTS

The parties, on the one hand,

OI MÓVEL S.A. - In Judicial Reorganization, a privately-held corporation, registered with the National Register of Corporate Taxpayers (the “CNPJ”) under CNPJ No. 05.423.963/0001-11, with headquarters and principal place of business at Setor Comercial Norte, Quadra 3, Block A, Edifício Estação Telefônica, ground floor (part 2), Brasília - DF, CEP 70.713-900, herein represented pursuant to its bylaws (“Oi Móvel” or the “Seller”);

and, on the other hand,

TIM S.A., a publicly-traded corporation, registered with the CNPJ under No. 02.421.421/0001-11, with headquarters and principal place of business at Avenida João Cabral de Mello Neto, No. 850, Block 1, Room 1212, Rio de Janeiro, RJ, CEP 22.775-057, herein represented pursuant to the provisions of its bylaws (“TIM”);

TELEFÔNICA BRASIL S.A., a publicly-traded company, registered with the CNPJ under No. 02.558.157/0001-62, with headquarters and principal place of business at Avenida Engenheiro Luiz Carlos Berrini, No. 1376, São Paulo SP, CEP 04.571-936, herein represented pursuant to the provisions of its bylaws (“Telefônica”);

CLARO S.A., a privately-held corporation, registered with the CNPJ under No. 40.432.544/0001-47, with headquarters and principal place of business at Rua Henri Dunant, No. 780, Tower A and Tower B, São Paulo SP, 04.709-110, herein represented pursuant to its bylaws (“Claro”, and, when referred to together with TIM and Telefônica, simply the “Purchasers”);

where the Seller and Purchasers are hereinafter referred to collectively as the “Parties” or, individually, as a “Party”.

And further, as intervening and consenting parties and guarantors of the Seller’s obligations:

TELEMAR NORTE LESTE S.A. - In Judicial Reorganization, a privately-held corporation, registered with the CNPJ under No. 33.000.118/0001-79, with headquarters principal place of business at Rua do Lavradio, No. 71, 2nd floor, Centro, Rio de Janeiro - RJ, CEP 20230-070, hereby represented pursuant to the provisions of its bylaws (“Telemar”); and

OI S.A. - In Judicial Reorganization, a privately-held corporation, registered with the CNPJ under No. 76.535.764/0001-43, with headquarters principal place of business at Rua do Lavradio, No. 71, 2nd floor, Centro, Rio de Janeiro - RJ, CEP 20230-070, herein represented pursuant to the provisions of its bylaws (“Oi” where Oi is referred to together with Oi Móvel and Telemar as the “Oi Group Companies”).

 1 

WHEREAS:

A. Oi is the legal owner of one hundred percent (100%) of the shares issued by Telemar, representing one hundred percent (100%) of its total and voting capital stock, which, in turn, is the legal owner of one hundred percent (100%) of the shares issued by the Seller, representing one hundred percent (100%) of its total and voting capital stock;

B. Oi, Telemar, and Oi Móvel, among other Oi Group companies, are under judicial reorganization pursuant to the Judicial Reorganization Plan;

C. The Judicial Reorganization Plan expressly provides for the disposal of the UPI Mobile Assets by the Seller;

D. The sale of the UPI Mobile Assets was subject to a competitive process for the sale of an isolated production unit through the submission of sealed bids, in accordance with the Public Notice published on November 10, 2020, pursuant to article 142, II, of Law No. 11,101/05 (the “Competitive Process”);

E. The bid of the Purchasers was declared the winner in the Competitive Process and confirmed by the Judicial Reorganization Court;

F. The Oi Group Companies intend, prior to the Closing Date, to implement the Corporate Reorganization and to resolve on and approve the takeover of the Seller by one of the Oi Group Companies (the “Oi Group Takeover Company”), pursuant to article 227 of the Brazilian Corporations Law, which shall result in: (a) the extinguishment of the Seller and cancellation of the shares issued by the Company; (b) universal succession by the Oi Group Takeover Company of all of the rights and obligations of the Seller, including those related to this Agreement and the other Transaction Documents; and (c) the assignment to the Oi Group Takeover Company of all of the shares held by the Seller in the special purpose entities created to hold all of the UPI Mobile Assets, Obligations, and Rights; and

G. Having made their own assessment of the UPI Mobile Assets, Obligations, and Rights and being aware of the terms of the Judicial Reorganization Plan, the Purchasers wish to acquire the UPI Mobile Assets from the Seller, subject to the terms and conditions agreed upon herein, free and clear of any encumbrances or liabilities of the Oi Group, materialized or not, whether of an environmental, labor, tax, social security, civil, regulatory, administrative, criminal, anticorruption, or commercial nature, pursuant to articles 60 and 141, II, of Law No. 11,101/05, as well as article 133, paragraph 1, II, of the National Tax Code.

NOW, THEREFORE, the Parties RESOLVE to execute this Share Purchase Agreement and Other Covenants (this “Agreement”), which shall be governed by the following terms and conditions:

 2 

CHAPTER I

RULES OF CONSTRUCTION AND DEFINITIONS

1.1.           Construction. This Agreement shall be governed by and construed as follows: (a) the headings and titles of the Sections of this Agreement are for convenience of reference only and shall not limit or affect the meaning of the Sections, paragraphs, or items to which they apply; (b) wherever the context so requires, the definitions contained in this Agreement shall be applied in both the singular and the plural and the masculine grammatical gender shall include the feminine grammatical gender and vice versa; (c) references to any documents or other instruments include all amendments, replacements, and restatements thereof and additions thereto, unless expressly provided for otherwise; (d) except as otherwise expressly provided for in this Agreement, references to items or exhibits apply to items and exhibits of this Agreement; (e) except as otherwise expressly provided for in this Agreement, all references to any Parties, including their successors, beneficiaries, representatives, and authorized assigns; and (f) other similar terms shall always be read as though accompanied by the term “for example”.

1.2.           Time Limits. All time limits stipulated in or resulting from this Agreement shall be calculated in the manner established in article 132 of the Brazilian Civil Code. Any deadline that terminates on a day that is not considered a Business Day shall be automatically extended until the next immediately following Business Day.

1.3.           Definitions. As used in this Agreement, capitalized terms not defined herein shall have the meanings set forth in Exhibit 1.3.

1.4.           Seller. Once the merger of Oi Móvel into the Oi Group Takeover Company has been approved pursuant to Recital F above and, by virtue of the universal succession by Oi Group Takeover Company in all of the rights and obligations of the Seller under this Agreement and the other Transaction Documents, as well as the assignment to the Oi Group Takeover Company of all of the shares currently held by the Seller in the special purpose entities created to hold all of the UPI Mobile Assets, Obligations, and Rights, the Oi Group Takeover Company shall assume the position of the Seller under this Agreement and the position of Oi Móvel under the other Transaction Documents for all intents and purposes.

CHAPTER II

SUBJECT MATTER

2.1.           Purchase and Sale of the UPI Mobile Assets. Subject to verification (or waiver, as applicable) of the Conditions Precedent and subject to the other terms and conditions of this Agreement, the Seller irrevocably and irreversibly undertakes to sell and transfer, on the Closing Date and pursuant to articles 60 and 141, II, of Law No. 11,101/05, as well as article 133, paragraph 1, II, of the National Tax Code, the UPI Mobile Assets to the Purchasers, who, in turn, irrevocably and irreversibly undertake to acquire the UPI Mobile Assets from the Seller, in the manner set forth in this Agreement (the “Transaction”).

 3 

2.1.1.       For the purposes of this Agreement, “UPI Mobile Assets” means the Isolated Productive Unit formed by the UPI Mobile Assets, Liabilities, and Rights indicated in Exhibit 2.1.1 to be contributed by the Seller, pursuant to the Segregation and Division Plan, to the capital stock of three special purpose entities incorporated for the disposal of the UPI Mobile Assets (in each case a “Mobile SPE”), whose equity shall be composed, on the Closing Date, (i) in the case of the Mobile SPE whose shares shall be transferred to TIM, by the portion of the UPI Mobile Assets, Obligations, and Rights to be transferred to TIM, (ii) in the case of the Mobile SPE whose shares shall be transferred to Telefônica, by the portion of the UPI Mobile Assets, Obligations, and Rights to be transferred to Telefônica, and (iii) in the case of the Mobile SPE whose shares shall be transferred to Claro, by the portion of the UPI Mobile Assets, Obligations, and Rights to be transferred to Claro, in all cases in the manner provided for in the Judicial Reorganization Plan and pursuant to Section 5.2 of this Agreement. Exhibit 2.1.1 describes any and all Encumbrances existing as of this date on the UPI Mobile Assets, Obligations, and Rights, which shall have been fully released by the Closing Date, such that, upon transfer to the Purchasers, the Mobile SPEs hold the UPI Mobile Assets, Obligations, and Rights entirely free and clear of any Encumbrances or restrictions.

2.1.2.        The shares issued by each Mobile SPE shall be transferred by the Seller to the Purchasers as follows: on the Closing Date, (i) the Seller shall transfer to TIM the shares issued by the Mobile SPE, whose equity shall consist of the portion of the UPI Mobile Assets, Obligations, and Rights to be transferred to TIM (the “TIM Shares SPE”), (ii) the Seller shall transfer to Telefónica the shares issued by the Mobile SPE whose equity shall consist of the portion of the UPI Mobile Assets, Obligations, and Rights to be transferred to Telefónica (the “Telefónica Shares SPE”), and (iii) the Seller shall transfer to Claro the shares issued by the Mobile SPE whose equity shall consist of the portion of the UPI Mobile Assets, Obligations, and Rights to be transferred to Claro (“Claro Shares SPE”, and, together with TIM Shares SPE and the Telefónica Shares SPE, the “Shares”). The Shares shall be transferred, as provided for in this Section 2.1.2, free and clear of any Encumbrances, so that each of the Purchasers becomes, directly or indirectly, the sole owner of all Shares of the respective Mobile SPE that belong to it.

2.1.3.        The Shares shall be sold and transferred by the Seller to the Purchasers, with all voting and economic rights inherent therein.

2.1.4.        The contribution of the UPI Assets, Obligations, and Rights to the capital stock of the Mobile SPEs, for purposes of disposal of the UPI Mobile Assets in the terms provided for herein, shall be performed in accordance with the plan presented by the Purchasers to the Seller on the date hereof (attached hereto as Exhibit 2.1.4), which was discussed in good faith and previously agreed upon among the Parties, within the exact limits of the Antitrust Protocol and which becomes a part of this Agreement for all legal purposes (the “Segregation and Division Plan”), it being certain that the Seller hereby agrees to implement or cause to be implemented in all that is in its control, in the terms provided for herein, without prejudice to the provisions of Section 4.3(iv) of this Agreement. The Parties hereby acknowledge and agree that the Segregation and Division Plan: (i) complies with the Antitrust Protocol and all Laws, in particular ANATEL regulations, in effect on the date hereof; (ii) that the steps of the Segregation and Division Plan that shall be implemented prior to the approval of CADE and ANATEL are merely preparatory and administrative and that, in addition to not interfering with the independence of the Parties, they do not violate any applicable Laws or regulations; (iii) any step

 4 

of the Segregation and Division Plan, which requires authorization by CADE, ANATEL, or third parties, shall only be implemented after obtaining such authorization; and (iv) sets forth reasonable obligations and within the control of the Parties within the scope of the Corporate Reorganization and which are necessary for the UPI Mobile Assets Segregation into more than one specific purpose entity; and (v) sets forth a budget prepared by the Parties on reasonable bases, considered on this date sufficient for the implementation of the Segregation and Division Plan (the “Segregation and Division Budget”). The Parties acknowledge and agree that the Segregation and Division Plan does not stipulate any obligations that may result in the Oi Group Companies not complying with their obligations to third parties and that the Oi Group Companies shall not be obligated and shall not have any liability for the implementation of any acts related to the Segregation and Division Plan that depend on third-party approvals, provided that such approvals have been regularly and timely requested and have not been obtained.

2.1.4.1.     The Parties have negotiated in good faith under the Segregation and Division Plan: (i) the mechanisms and conditions for the transfer to the Mobile SPEs of the agreements executed by Oi Móvel with the public entities listed in Exhibit 2.1.1 so that the implementation of the Segregation and Division Plan shall not result in a partial or full breach of the service agreements with such public entities; and (ii) the assumption after Closing by the Purchasers or their Affiliates (including the Mobile SPEs, after the Closing) of the obligations that the Seller and/or its Affiliates have assumed under the terms of the Infrastructure Sharing Agreements, in their capacity as Affiliates of Oi Móvel with the counterparties to such agreements, as listed in Exhibit 2.1.1.

2.1.5.        The Parties acknowledge that (i) the Segregation and Division Budget represents the Parties' best estimate, on the date hereof, of the costs that will be incurred by the Oi Group Companies to implement the Segregation and Division Plan; and (ii) if the Segregation and Division Budget proves to be insufficient to implement the Segregation and Division Plan, the Segregation and Division Budget may be modified, by mutual agreement among the Parties, so as to include additional costs that may be necessary to implement the Segregation and Division Plan. In such event, the Seller shall, prior to actually incurring any additional costs, submit to the Purchasers for approval a revised proposal for the Segregation and Division Budget reasonably detailing the additional costs to be incurred, which shall be reviewed and approved by the Purchasers, in good faith, and shall not be unreasonably withheld by the Purchasers.

2.1.6.        The Purchasers agree to indemnify the Oi Group Companies for any and all Losses they may incur as a result of any actions undertaken by the Oi Group Companies exclusively in connection with the implementation of the Segregation and Division Plan, provided that such actions are undertaken in accordance with the Segregation and Division Plan and/or upon the express instructions of the Purchasers, their agents, or representatives. For the purposes of clarification, the following shall not be considered to be a Loss of the Oi Group Companies for the purposes of the indemnification obligation set forth in this Section 2.1.6: (i) the costs incurred by the Oi Group Companies that may be reimbursed by the Purchasers under Section 2.1.8 below; (ii) any losses that the Oi Group Companies may incur as a result of any noncompliance with third-party obligations (including, without limitation, tax, labor, and social security obligations), even if such obligations are related to the full or partial implementation of the Segregation and Division Plan, except for any losses incurred by the Oi Group Companies as a result of any noncompliance with third-party obligations arising strictly from the implementation of the provisions set forth in the Segregation and Division Plan, provided that, in this case, the Oi Group Companies have given prior and specific written notice to the

 5 

Purchasers that such provisions would give rise to a noncompliance with third-party obligations; (iii) any costs or Losses arising from the implementation of the Corporate Reorganization and not related to compliance with the Segregation and Division Plan; and (iv) any Losses arising from acts performed by the Seller in fault, willful misconduct, violation of law, or acts performed by the Seller that are not in express compliance with the Segregation and Division Plan and/or with the Purchasers' instructions.

2.1.7.        The Purchasers may, by mutual agreement and upon prior authorization from the Seller, which may not be unreasonably withheld, modify the content of the Segregation and Division Plan at any time as of this date and up to ten (10) days after CADE Approval and ANATEL's Prior Consent (whichever occurs last), in order to accommodate regulatory restrictions and/or the Government Authorities' requirements or other issues that may be necessary for the UPI Mobile Assets Segregation, provided that, in the event that such modifications result in increased costs for the implementation of the Segregation and Division Plan, the Segregation and Division Budget shall be amended, by mutual agreement among the Parties, to reflect such increase.

2.1.8.        Subject to the provisions of Section 5.2.4.1, the costs proven to have been incurred by the Seller exclusively with the implementation of the Segregation and Division Plan, as provided for herein, provided they are included in the Division and Segregation Budget or otherwise expressly approved by the Purchasers, shall be the exclusive responsibility of the Purchasers until the end of the ninety (90) day period counted from CADE Approval and ANATEL's Prior Consent. The costs incurred with the implementation of the Segregation and Division Plan shall be subject to a quarterly report (the “Cost Report”), to be prepared and submitted by the Seller to the Purchasers within ten (10) days after the end of each quarter, containing all related bills for expenses and shall be reimbursed by the Purchasers within thirty (30) days of receipt of the Cost Report.

CHAPTER III

PRICE AND PAYMENT

3.1.           Price. In consideration for the disposal and transfer of the UPI Movable Assets in the form agreed upon herein, and for the other obligations assumed by the Seller in this Agreement, the Seller shall receive, as provided for in Section 3.4 et seq., the following amounts:

a) fifteen billion, seven hundred and forty-four million Brazilian Reais (R$15,744,000,000.00) (the “Base Price”), corresponding to the “Enterprise Value” of the UPI Mobile Assets calculated based on the pro-forma financial statements of the UPI Mobile Assets prepared by Emst & Young dated April 17, 2020 (the “Pro-Forma Mobile Assets”), as well as the values of Net Debt, Working Capital, Target CAPEX, and Minimum Revenue, which shall be adjusted pursuant to this CHAPTER III (the “Purchase Price for the Shares”)

b) seven hundred and fifty-six million Brazilian Reais (R$ 756,000,000.00), corresponding to the present value, of the total consideration to be due, on the Closing Date, by the Mobile SPEs to the Seller under the Transition Services Agreement, which shall be paid by the Purchasers to the Seller on behalf of and at the order of the Mobile SPEs, pursuant to this CHAPTER III and to the Legislation in force (the “Transition Services Purchase Price”); and

c) eight hundred and nineteen million Brazilian Reais (R$ 819,000,000.00), corresponding to

 6 

the present value (calculated at an annual discount rate of 7% in Brazilian Reais) of the total consideration to be owed by the Mobile SPEs to the Seller under the Agreement for the Supply of Telecommunications Signal Transmission Capacity under an Industrial Exploration Regime.

3.1.1.        For the purposes of calculating the Closing Price and the Final Post-Closing Adjustment in the manner set forth in Sections 3.2 and 3.8 below, the Base Price shall be adjusted pursuant to Schedule 3.7 to this Agreement to reflect (i) the ascertainment of the Closing CAPEX less than the Target CAPEX, and (ii) verification of Net Revenues Participation of the business consisting of the UPI Mobile Assets, Obligation, and Rights in the last available six-month period prior to the month in which the Closing occurs in any amount less than ninety percent (90%) of the Net Revenue Minimum Participation, and (iii) the ascertainment of the Net Earnings Participation by Product of the business consisting of the UPI Mobile Assets, Obligations, and Rights in any amount less than ninety percent (90%) of the of Net Earnings Participation by Reference Product pursuant to Exhibit 3.7. For the purposes of adjusting the Base Price, the highest amounts calculated in each of items (ii) and (iii) (the “Adjusted Base Price”) shall be considered.

3.2.           Closing Price. Subject to the provisions of Section 5.2 below, within five (5) Business Days prior to the Closing Date, the Seller shall prepare and submit or cause to be prepared and submitted to the Purchasers (a) the individual balance sheet of each of the Mobile SPEs with a base date of the last day of the month immediately preceding the Closing, reviewed by an Independent Audit Firm and prepared in accordance with the Accounting Practices (the “Closing Balance Sheet”), (b) the income statement (presented individually and considered in combination for the purposes of this Chapter III) for the businesses to be operated by each one of the Mobile SPEs, which shall have as its base period the period between January 1, 2020, and the closing of the quarter immediately preceding the month in which the Closing occurs, prepared in accordance with the Accounting Practices (the “Closing Income Statement”), and (c) the calculation statements (the “Calculation Statement - Closing Price”) containing its most accurate good faith estimates based on the Closing Balance Sheet for Net Debt, Working Capital, CAPEX investments made, Net Revenue Participation ascertained and Net Earnings Participation by Product observed in the period between the financial statements of 01/01/2020 and the Closing Date, in relation to the businesses that will be operated by the Mobile SPEs, considered on a combined basis, as well as the calculation of the price to be paid on the Closing Date by the Purchasers (the “Closing Price”), considering:

Closing Price = Adjusted Base Price - (Closing Net Debt) + [(Closing Working Capital - Target Working Capital of Mobile SPEs)] - Withheld Amount

3.2.1.        The financial information of the Mobile SPEs, including balance sheets and income statements, shall be combined solely for the purposes of calculating the Closing Price and the Post-Closing Adjustment.

3.2.2.        The Parties agree that any disagreement by the Purchasers as to one or more items of the Closing Balance Sheet, the Closing Income Statement, and the Calculation Statement - Closing Price shall be handled in the manner set forth in Section 3.8 below, and shall not serve as a justification by the Purchasers for the nonpayment, in whole or in part, of the Closing Price on the Closing Date.

3.3.           Withheld Amount. The Parties agree that the amount equivalent to ten percent (10%) of the

 7 

Closing Price (the “Withheld Amount”) shall be retained by the Purchasers from the Closing Price in order to offset any amount that the Seller shall pay to the Purchasers as a result of the Final Post-Closing Adjustment, pursuant to Section 3.8. The Withheld Amount shall be adjusted by the variation of one hundred percent (100%) of the CDI from the Closing Date until the date of effective payment and shall be fully paid to the Seller (after any deduction to offset the Final Post-Closing Adjustment, if necessary) on the date of payment of the Final Post-Closing Adjustment.

3.4.           Payment Method. The Closing Price shall be paid by the Purchasers to the Seller, on the Closing Date, net of any withholding or deduction of any Taxes or bank fees, in Brazilian currency and in immediately available funds, by means of available electronic transfer - TED into the checking account held by the Seller to be timely indicated in writing by the Seller, at least ten (10) days prior to the Closing Date.

3.4.1.        The Purchase Price for the Transition Services shall be paid by the Mobile SPEs to the Seller on the Closing Date, pursuant to the terms of the respective agreements, and the consideration for the Services for the Provision of Telecommunications Signal Transmission Capacity in an Industrial Exploration Regime shall be paid by the Mobile SPEs to the Seller pursuant to such agreement, throughout the provision of the services.

3.4.2.        In the event that the Seller, at its sole discretion, notifies the Purchasers in writing up to thirty (30) days prior to the Closing Date in this regard, the Purchasers undertake to make the payment of part or all of the Closing Price directly to third-party creditor(s), including non-performing creditors, of the Oi Group Companies under the Judicial Reorganization Plan that may be appointed by the Seller, on behalf of and at the order of the Seller and in the amount indicated by the Seller, by virtue of financial obligations assumed by the Seller with such creditor(s) prior to this Agreement, by means of electronic transfer of available funds - TED to the checking account held by the respective third party(ies) that shall be included in the notice to be sent by the Seller requesting such payment directly to the creditor(s).

3.4.2.1.     The payment of part or all of the Closing Price to third-party creditors shall be conditioned on the notice sent by the Seller, in accordance with and within the period set forth in Section 3.4.3, being accompanied by a reference to the provision of the Judicial Reorganization Plan and its Amendment, or by a copy of the order of the Judicial Reorganization Court authorizing such request for payment on account of and at the order, and, further, by documents that prove satisfactorily the condition of such third-party(s) as financial creditors of the Seller, such as (i) agreements, and any amendments thereto, that originated the financial obligation assumed by the Seller; or (ii) debenture indenture and amendments thereof and related documents, including, in the event that such debentures are registered debentures, the registration and transfer books of registered debentures, or, in the event that such debentures are book-entry debentures, the updated statement issued by the bookkeeping agent with a list of existing debentureholders, and, in the event that such debentures are registered for trading, electronic custody or settlement in any organized market, evidence of ownership of such debentures issued by the competent institution, whereby the obligation of the Purchasers to make payments in favor of third parties shall only be verified if such payments are expressly provided for or authorized in the Judicial Reorganization Plan.

3.4.2.2.     The payment made by the Purchasers pursuant to Section 3.4.3 shall not imply, under any circumstances, (i) assumption, by the Purchasers, of any obligation, financial or otherwise, of the Oi

 8 

Group Companies vis-à-vis the third-party creditor(s) indicated by the Seller,

(ii)       subrogation by the Purchasers of such third-party creditor(s) indicated by the Seller in the rights held by them in relation to the Oi Group Companies; or (iii) the obligation to pay any additional amount related to the financial obligation assumed by the Seller with such creditor(s), including, but not limited to, other portions of the financial obligation, costs and expenses of any nature, taxes, interest, adjustment for inflation, penalties, or fines that, in any way, make up such financial obligation of the Seller vis-à-vis such creditor(s).

3.4.2.3.     In the event that the payment to be made by the Purchasers under Section 3.4.3 involves the payment or withholding of any Taxes, fees, or contributions of any nature whatsoever, or has any financial or Tax cost to the Purchasers (including, without limitation, interest, and taxation on interest) arising from such payment on behalf of and at the order of the Seller, the respective amounts shall be paid or withheld by the Purchasers on behalf of and at the order of the Seller and pursuant to its instructions and calculations and considered as part of the Closing Price.

3.5.           Joint and Several Liability. The Purchasers shall be jointly and severally liable vis-à-vis the Seller for the full payment of the Purchase Price of the Shares and of the Transition Services, as well as for compliance with all obligations assumed by the Purchasers herein, including the one set forth in Section 10.1.1. For the purposes of clarity, the obligations under the Ancillary Operating Agreements shall not be a joint and several liability among the Purchasers, and each Purchaser shall be responsible for fulfilling the obligations under the Ancillary Operating Agreements individually and without joint and several liability.

3.6.           Taxes. Each Party shall be exclusively and individually liable for the Taxes due by it by reason of the transactions set forth in this Agreement. Each Party shall be responsible under the applicable Laws for calculating, assessing, withholding, and paying the Taxes under its respective responsibility.

3.7.           Calculation Examples. Exhibit 3.7 contains illustrative examples of the calculation of the Closing Price Adjustment, using the concepts and formulas set forth in this CHAPTER III.

3.8.           Closing Price Adjustment and Final Closing Price Statement. Notwithstanding the payment of the Closing Price, by the Purchasers, on the Closing Date, pursuant to Section 3.4, within one hundred twenty (120) days counted as of the Closing Date, the Purchasers shall send to the Seller (i) a written notice to the Seller stating their agreement with respect to the Calculation Statement - Closing Price or (ii) a notice (“Post-Closing Adjustment Notice”) accompanied by (a) an individual balance sheet of each one of the Mobile SPEs prepared in accordance with the Accounting Practices, which shall have as its base date the Closing Date (the “Final Closing Balance Sheet”), (b) an income statement (presented individually and considered on a combined basis for purposes of this Chapter III) for the businesses operated by each one of the Mobile SPEs, prepared in accordance with the Accounting Practices and which shall have as its base period the period between January 1, 2020, and the Closing Date (the “Final Closing Income Statement”); and (c) statement of calculation of any adjustment to the Closing Price (the “Post-Closing Adjustment”), considering the differences in the following accounts:

(i) with respect to the Net Debt and Working Capital: (a) the Net Debt ascertained in the Closing Balance Sheet in relation to the Closing Net Debt; and (b) the Working Capital ascertained in the Closing Balance Sheet in relation to the Closing Working Capital; and

 9 

(ii) with respect to investments in CAPEX, Net Revenue Participation, and Net Earnings Participation: (a) of the CAPEX determined in the Closing Balance Sheet in relation to the CAPEX stated in the Calculation Statement - Closing Price, (b) of the Net Revenue Participation ascertained in the Closing Income Statement in relation to the Minimum Net Revenue Participation ascertained in the Calculation Statement - Closing Price, subject to the percentage provided for in Section 3.1.1 (ii) and (iii) and (c) of the Net Earnings Participation by Product ascertained in the Closing Income Statement in relation to the Reference Net Earnings Participation ascertained in the Calculation Statement - Closing Price, all in accordance with the formulas described in Exhibit 3.7. The Post-Closing Adjustment Notice shall specify, in reasonable detail, the nature and amount of any adjustment in relation to the Closing Price.

3.8.1.        If the Purchasers do not send a Post-Closing Adjustment Notice, the Withheld Amount shall be paid to the Seller, in domestic currency and in immediately available funds, by means of electronic transfer of available funds - TED to the checking account owned by the Seller to be timely indicated in writing, within up to five (5) Business Days as of the end of the term mentioned in this Section 3.8, not being subject to further questioning by the Purchasers.

3.8.2.        In the event that the Purchasers send a Post-Closing Adjustment Notice, the items and amounts that have been included in the Calculation Statement - Closing Price, but which have not been objected to by the Purchasers in the Post-Closing Adjustment Notice shall become final and binding upon the Parties.

3.8.3.        The Seller shall, within thirty (30) Business Days of receipt of the Post-Closing Adjustment Notice, send written notice to the Purchasers stating its agreement (the “Agreement Notice”) or, in reasonable detail, its disagreement (the “Disagreement Notice”) with respect to the Post-Closing Adjustment. In the event that a Disagreement Notice is submitted by the Seller pursuant to the terms hereof (or in the event Seller fails to submit the Disagreement Notice within the period mentioned above), the Post-Closing Adjustment reported in the Post-Closing Adjustment Notice shall be the Final Post-Closing Adjustment for purposes of Section 3.8.6 below. Any items and amounts that have been included in the Post-Closing Adjustment Notice, but that are not timely objected to by the Seller in a Disagreement Notice under the terms provided for herein shall become final and binding with respect to the Parties, not being subject to questioning by the Seller in any case.

3.8.4.        Discussion Deadline. Within thirty (30) days following receipt of the Disagreement Notice by the Purchasers (the “Discussion Period”), the Parties shall resolve in good faith any disagreements they may have with respect to the Post-Closing Adjustment.

3.8.5.        Review by the Auditor. Upon expiration of the Discussion Period, if the Parties have not reached a consensus with respect to the Post-Closing Adjustment, the Seller or Purchasers may send a notice to the other Party requesting that the determination of the Post-Closing Adjustment be submitted to an Independent Audit Firm, to be engaged by the Purchasers, excluding those that, on the date of engagement, are the independent auditor of either Party or that have provided service to the Purchasers or Seller with respect to the preparation of the Post-Closing Adjustment or the Disagreement Notice, respectively (the “Auditor” and the “Auditor Notice”).

3.8.6.        Review Procedure. The Auditor shall be engaged by the Purchasers within five (5) Business

 10 

Days after receipt of the Auditor Notice by either Party. The Seller and Purchasers shall instruct the Auditor to make the final determination of the Post-Closing Adjustment in full compliance with the Accounting Practices and criteria used in the preparation of the Closing Balance Sheet (the “Final Post-Closing Adjustment”). The Parties shall cooperate with the Auditor during the period of its engagement. In the Final Post-Closing Adjustment, the Auditor shall be limited to choosing (a) only one amount from among those indicated in the proposals submitted by the Seller and Purchasers with respect to each disputed item in the Post-Closing Adjustment and/or the Disagreement Notice, as applicable, or (b) an amount that is in the range between the amounts indicated in the Post-Closing Adjustment and/or the Disagreement Notice with respect to each disputed item, and the Auditor may not choose an amount that exceeds the largest amount or is less than the smallest amount indicated in the Post-Closing Adjustment and/or the Disagreement Notice.

3.8.7.        The Final Post-Closing Adjustment shall become final and binding upon the Parties on the date the Auditor delivers its final determination in writing to the Parties (which final determination the Seller and Purchasers shall request to be delivered no later than thirty (30) days after its engagement), it being understood that the Auditor's final determination shall be final, conclusive, and binding upon the Parties, and shall not be subject to judicial or arbitral review or otherwise appealable or challengeable by the Parties, except for manifest mathematical error (the “Post-Closing Adjustment Determination Date”).

3.8.8.        The Parties hereby agree that any fees and expenses of the Auditor shall be borne by the Party whose proposed Post-Closing Adjustment is the closest to the Final Post-Closing Adjustment.

3.8.9.        Post-Closing Adjustment Payment. The Final Post-Closing Adjustment shall be paid by the Seller to the Purchasers within five (5) Business Days as of (a) the date of receipt by the Purchasers of an Agreement Notice on the terms provided for herein; or (b) the Post-Closing Adjustment Determination Date, in both cases net of any withholding or deduction of any Tax or bank fees, by setting off the Withheld Amount against the amount of the Final Post-Closing Adjustment, and the positive balance of such set-off, if any, shall be paid to the Seller in domestic currency and immediately available funds, by means of electronic transfer of available funds - TED to the checking account held by the Seller to be timely indicated in writing. If the Withheld Amount is insufficient to satisfy the payment of the Post-Final Closing Adjustment, the missing amount shall be paid by the Seller to the Purchasers within the same term herein provided by means of electronic transfer of available funds - TED to the current accounts held by the Purchasers to be timely indicated in writing, net of any withholding or deduction of any Tax or bank charges, in domestic currency and in immediately available funds.

3.9.           Guarantee. As a guarantee for the Purchasers' obligation to make payment in a timely and proper manner of the penalty provided in Section 10.1.1 below, the Purchasers shall deliver to the Seller on the date hereof an original of a bank letter of guarantee issued by a first class financial institution for the benefit of the Seller (the “Guarantee”), provided that, however, the Purchasers shall be exempt from posting the Guarantee if, as of the date hereof, any of the Purchasers has evidence of a credit rating not below S&P and Fitch “AA” or Moody's “A3”.

CHAPTER IV

CONDITIONS PRECEDENT

 11 

4.1.           Parties’ Conditions Precedent. The obligations of each of the Parties to consummate the Transaction are subject (i) to the fulfillment, on or before the Closing Date, of the following conditions precedent (which cannot be waived by the Purchasers and/or Seller); and (ii) to such conditions precedent remaining fulfilled on the Closing Date (the “Parties’ Conditions Precedent”):

(i) Requirements of Law No. 11,101/05 and the Judicial Reorganization Plan. All requirements and formalities set forth in Law No. 11,101/05 and in the Judicial Reorganization Plan that are necessary for the Closing and consummation of the Transaction shall have been complied with, including with regard to the validity and legitimacy of the formation of the UPI Mobile Assets;

(ii) Competitive Process. The legal time limit for filing any appeal shall have elapsed or, if an appeal has been filed, no judicial decision shall be in force receiving as supersedeas such appeals filed against (a) the decision providing judicial approval of the Amendment of the Judicial Reorganization Plan; and/or (b) the court decision ratifying the winning bid of the Competitive Process, pursuant to the Amendment to the Judicial Reorganization Plan and Law No. 11,101/05;

(iii) CADE Approval. The competent authorization for consummation of the Transaction shall have been obtained, by the General Review Board and/or by the CADE Court, as applicable, pursuant to Section 5.3, and verification of the final and unappealable decision with regard to such authorization, herein understood as being, as the case may be, (a) elapse of fifteen (15) days from the publication of the decision of CADE's General Review Board, without any appeals by third parties having been filed within this period or an avocation by the CADE Court having occurred, pursuant to the Law; or (b) in the event that the Transaction is analyzed by the CADE Court, the publication of its final decision, considering any motions for clarification filed, pursuant to the Law (in any event, the “Approval by CADE”);

(iv) Prior consent of ANATEL. Obtainment of the prior consent for the consummation of the Transaction from ANATEL, pursuant to Section 5.3 and to the applicable Law (“Prior Consent from ANATEL”);

(v) Laws and Decisions. No competent Governmental Authority has issued an Act or Decision in force and effect that would render the acts of the Closing unlawful or otherwise prevent its consummation; and

(vi) Oi Móvel Merger. Approval, by December 31, 2021, by the Extraordinary General Meetings of Shareholders of Oi Móvel and the Oi Group Takeover Company, pursuant to Section 5.6 of this Agreement, of the merger of Oi Móvel into the Oi Group Takeover Company, it being understood and agreed that, in the event such merger is not approved by the Extraordinary General Meetings of Shareholders of Oi Móvel and the Oi Group Takeover Company by December 31, 2021, and provided that all other Seller's Conditions Precedent have been complied with (or waived, in writing) in accordance with the terms provided for herein, then the Seller shall be obligated to complete the Closing and consummate the Transaction in accordance with the terms provided for herein, regardless

 12 

of the merger of Oi Móvel into the Oi Group Takeover Company.

4.2.           Seller’s Conditions Precedent. The Seller's obligation to consummate the Transaction is subject to (i) the fulfillment, on or prior to the Closing Date, of each of the following conditions (unless waived, in writing, in whole or in part, by the Seller, in its free and sole discretion); and (ii) that each such condition precedent remains fulfilled (or waived, in writing, in whole or in part, by the Seller, at its free and sole discretion) on the Closing Date (the “Seller's Conditions Precedent”):

(i) Representations and Warranties. The representations and warranties provided by the Purchasers referred to in Sections 7.2.1 through 7.2.3 of Exhibit 7.2 to this Agreement have remained true, complete, and correct as of the date of execution of this Agreement and through the Closing Date, as though reaffirmed on the Closing Date (except in the case of any representation or warranty which, in accordance with its terms, is made with respect to another date expressly specified therein);

(ii) Fulfillment of Obligations. The obligations assumed by the Purchasers under this Agreement have been fully performed; and

(iii) Corporate Approvals. Obtainment, by the Purchasers, of all corporate approvals necessary for the consummation of the Transaction, as indicated and described in Exhibit 4.2(iii).

4.3.           Purchasers’ Conditions Precedent. The obligation of the Purchasers to consummate the Transaction is subject (i) to the satisfaction, on or prior to the Closing Date, of each of the following conditions (unless waived, in writing, in whole or in part, by the Purchasers, at their sole and exclusive discretion); and (ii) to whether each such condition precedent remains satisfied (or waived, in writing, in whole or in part, by the Purchasers, at their sole and exclusive discretion) on the Closing Date (the “Purchasers' Conditions Precedent” and, together with the Parties' Conditions Precedent and the Seller's Conditions Precedent, the “Conditions Precedent”):

(i) Representations and Warranties. The Fundamental Oi Group Representations and Warranties have remained true, complete, and correct and the other representations and warranties of Oi Group Companies have remained true, complete, and correct in all material respects as of the date of execution of this Agreement and until the Closing Date, as though restated on the Closing Date (except in the case of any representation or warranty that, in accordance with its terms, is made with respect to another date expressly specified therein or that has been updated pursuant to Section 7.1.1);

(ii) Fulfillment of Obligations. The obligations assumed by the Oi Group Companies under this Agreement have been fully complied with;

(iii) Third-Party Authorizations. Obtainment, by the Oi Group Companies, as applicable, of all prior authorizations (or waivers) from third parties necessary for the completion of the Transaction, including the Corporate Reorganization, as indicated and described in Exhibit 4.3(iii);

(iv) Corporate Reorganization. Completion of all acts of the Corporate Reorganization

 13 

described in Section 5.2, such that, on the Closing Date, and without prejudice to the provisions of Section 2.1.4: (a) the respective assets of the Mobile SPEs are composed of the UPI Mobile Assets, Obligations, and Rights to be transferred to the corresponding Purchasers, pursuant to Section 5.2, subject to the provisions of Section 2.1.4; (b) the Mobile SPEs are operating the UPI Mobile Assets, Obligations, and Rights granted to them pursuant to Section 5.2, in the Ordinary Course of Business, with all necessary Licenses, registrations, authorizations, and consents, pursuant to the Legislation in force, in an isolated and independent manner from the Oi Group except for the use of the services and goods subject to the Ancillary Operating Agreements provided that, however, in the event that the Seller complies with all of its Minimum Segregation Obligations as per the Segregation and Division Plan (prepared pursuant to the Law, in particular ANATEL regulations) and, notwithstanding such compliance, the implementation of the Segregation and Division Plan is not completed by December 31, 2021, and provided that all other Parties’ Conditions Precedent and the Buyers have been complied with (or waived, in writing) as provided for herein, then the Purchasers shall be obligated to complete the Closing and consummate the Transaction, as provided for herein.

(v) Absence of Material Adverse Effect. No Material Adverse Effect has occurred by the Closing Date; and

(vi) Base Price Adjustment. The Seller shall have prepared and delivered to the Purchasers, in accordance with Section 3.2 of this Agreement, the Closing Balance Sheet of each Mobile SPE, the Closing Income Statement, and the Calculation Statement - Closing Price.

4.4.           Verification. Once the Conditions Precedent have been fulfilled and verified (or waived, as applicable), either Party shall notify (providing reasonably supportive documents, as applicable) the other Party, no later than five (5) days from the date on which all Conditions Precedent have been verified (or waived, as applicable), reporting that the Conditions Precedent have been fulfilled and verified (or waived, as applicable) for the purposes of convening them for the Closing, subject to the provisions of CHAPTER VI.

CHAPTER V

OBLIGATIONS PRIOR TO THE CLOSING

5.1.           Cooperation. Each of the Parties, as applicable, undertakes to: (a) take all actions necessary to comply with the obligations set forth in this Agreement, therein signing all instruments and documents required for the consummation of the Transaction provided for herein and using its best efforts so that the Closing occurs as soon as possible, subject to the provisions of Section 10.1; (b) subject to the provisions of Section 5.3.1 below, meet any requirements of Governmental Authorities, in order to enable the consummation of the Transaction, within the shortest possible time and with minimal damage to the UPI Movable Assets, Obligations, and Rights and the activities of those involved; (c) perform the acts and adopt the measures incumbent upon it, according to this Agreement, as well as endeavor to expend reasonable efforts and cooperate with the other Parties, so that the Conditions Precedent are fulfilled and verified within the shortest possible time, being also obliged to

 14 

take the applicable measures to keep the other Parties informed about the verification of the Conditions Precedent; (d) report to the other Parties the occurrence of any act, fact, or omission that may have a material impact on the verification, or lack thereof, of any of the Conditions Precedent that comes to its Knowledge, within up to five (5) Business Days after such Knowledge; (e) refrain from taking any action or performing any act that may hinder the consummation of the Transaction, including non-recognition, in bad faith, of verification of compliance with the Conditions Precedent; and (f) the Seller shall take or cause to be taken all actions and perform all acts necessary, at its own expense, so that, between the date of execution of the Agreement and the Closing Date, the procedures set forth in Exhibit 5.1 have been duly observed. All acts provided for under this Section shall be performed in strict compliance with the limitations of the applicable Laws, including Law No. 12,529/11, regulations, and guides issued by CADE and the Antitrust Protocol.

5.1.1.        Right to Information. The Parties agree that, between the date of execution of this Agreement and the Closing Date, the Oi Group Companies shall cause: (a) the Purchasers to be informed of the declaration of dividends, profit sharing, or interest on shareholders' equity by Oi Móvel and/or the Mobile SPEs; (b) by the date of the UPI Mobile Assets Segregation, the Purchasers to receive quarterly income statements from Oi Móvel, prepared in accordance with the Accounting Practices, reviewed by an Independent Audit Firm, subject to the legal deadlines for disclosure of quarterly financial information applicable to Oi; (c) within thirty (30) days of the UPI Mobile Assets Segregation, the Seller delivers to the Purchasers the Formation Balance Sheet of each of the Mobile SPEs prepared in accordance with the Accounting Practices and audited by an Independent Audit Firm; (d) from the UPI Mobile Assets Segregation date until the Closing Date, the Seller delivers to the Purchasers the monthly Income Statements and Balance Sheets of the Mobile SPEs prepared in accordance with the Accounting Practices; and (e) the information contemplated in Exhibit 5.1.1 is provided to the Purchasers pursuant to the terms and conditions of the Antitrust Protocol executed by the Parties. The documents and information referred to herein shall be provided to the Purchasers pursuant to the terms and conditions of the Antitrust Protocol executed by the Parties.

5.2.           Corporate Reorganization. The Oi Group Companies shall perform or cause to be performed, as the case may be, any and all acts necessary to, within ninety (90) days from the date of obtaining the Approval by CADE or ANATEL's Prior Consent (whichever occurs last): (i) perform, pursuant to articles 7 and 8 of the Brazilian Corporations Law, the transfer to the capital stock of the Mobile SPEs (drop down) of the UPI Mobile Assets, Liabilities, and Rights (the “Corporate Reorganization”); and (ii) formalize the transfer, by virtue of the Corporate Reorganization, of the UPI Mobile Assets, Liabilities, and Rights to the Mobile SPEs, subject to the provisions of Section 2.1.4, so that, at the end of such term, the Mobile SPEs are operating all the activities currently conducted by Oi Móvel through the UPI Mobile Assets, Obligations, and Rights without a break in continuity and maintaining the conditions under which they are currently operated, in an isolated and independent manner from the Oi Group, except for the provisions of this Agreement, with all the necessary Licenses, registrations, authorizations, and consents in this regard (with such moment being referred to in this Agreement as “UPI Mobile Assets Segregation”). For clarification purposes, all assets, liabilities, obligations, and rights of Oi Group that are not expressly listed as UPI Mobile Assets, Obligations, and Rights in the form of Exhibit 2.1.1 shall not be included in the UPI Mobile Assets, shall not be part of the Transaction, were not considered in the Purchase Price of the Shares, and the Transition Services and, therefore, shall not be transferred to the Mobile SPEs, except if expressly authorized by the Purchasers under this Agreement.

5.2.1.        The Parties agree that the Corporate Reorganization: (i) shall not violate any Law or any

 15 

provision of the Judicial Reorganization Plan or the Public Notice; (ii) shall not imply the creation or transfer to the Mobile SPEs of any obligations, Encumbrances, Liabilities, or contingencies other than those indicated in Exhibit 2.1.1; and (iii) shall comply with all provisions contained in the Segregation and Division Plan prepared and submitted by the Purchasers and incorporated herein pursuant to Section 2.1.4, without prejudice to the provisions of Section 5.2.4 below.

5.2.2.       The Parties agree that the Seller shall bear all costs and expenses related to the Corporate Reorganization, without prejudice to the Purchasers' obligation to bear the costs related to the implementation of any Segregation and Division Plan pursuant to Section 2.1.4, to the extent it exceeds the costs that would otherwise be incurred to implement the Corporate Reorganization.

5.2.3.        The Parties may update, in good faith and by mutual agreement, the information set forth in Exhibit 2.1.1 to add and/or delete certain UPI Mobile Assets, Obligations, and Rights, provided that such updates shall not affect any of the provisions set forth in CHAPTER III, nor the absence of succession by the Purchasers in any Liabilities or Obligations of the Oi Group, whether of an environmental, labor, tax, social security, civil, regulatory, administrative, anti-corruption, criminal, or commercial nature.

5.2.4.        Subject to the provisions of Sections 2.1.4 and 4.3(iv) hereof, the Seller shall, prior to the Closing Date, take or cause to be taken all the steps and perform, at a minimum, all the acts set forth in Exhibit 5.2.4 hereto so that each Mobile SPE may operate the UPI Mobile Assets, Obligations, and Rights without a break in continuity, even if the UPI Mobile Assets Segregation is not fully implemented (the “Minimum Segregation Obligations”).

5.2.4.1.     Subject to the provisions of Section 2.1.6, in the event the Closing occurs (i) after the period of ninety (90) days as of the obtainment of the later between the Approval by CADE or ANATEL's Prior Consent, or (ii) on December 31, 2021 (whichever occurs last between (i) and (ii), or, further, the date that is agreed upon among the Parties pursuant to Section 2.1.7 without the Seller having implemented the UPI Mobile Assets Segregation in its entirety (but has implemented the Minimum Segregation Obligations), the Seller shall now bear one-half of the costs of the Segregation and Division Plan incurred since then, which may be deducted from any amount that the Seller has receivable from the Purchasers.

5.2.5.        The Parties agree that the Transaction shall involve the termination and rehiring by the Mobile SPEs of employees of Oi Móvel. The forms of dismissal, rehiring, and allocation of employees to each Mobile SPE shall be set out in the Segregation and Division Plan.

5.2.5.1.     The Parties agree that any disbursements, costs, and expenses incurred by the Seller and/or the Oi Group Companies in connection with the termination and rehiring by the Mobile SPEs of the employees of Oi Móvel, including any severance pay, shall be fully reimbursed by the Purchasers and paid to the Seller within thirty (30) days from the date of the notice sent by the Seller to the Purchasers reporting the termination and rehiring by the Mobile SPEs, limited to twenty-five million Brazilian Reais (R$25,000,000.00). For the purposes of this Section, the Seller shall prepare a report of the costs incurred in connection with such terminations and submit it to the Purchasers within fifteen (15) days after the discharge of such employees.

5.3.           Submission of the Transaction to the Competent Authorities. The Purchasers shall prepare

 16 

preliminary versions of the drafts of the merger notice form to CADE and of the request for prior consent to ANATEL (the “Pre-filing Drafts”), as well as schedule prior face-to-face meetings with such authorities prior to the definitive submission of this Transaction (the “Pre-filing Meetings”), in order to present the main aspects of the Transaction and discuss essential information for analysis thereof by the aforementioned authorities. The Seller undertakes to provide, on a timely basis, the information necessary for the preparation of the drafts. The Pre-filing Drafts shall be pre-submitted to the Seller for confirmation regarding the accuracy of their information, and the Pre-filing Meetings shall be attended by its representatives, unless the pre-filing submission or meeting attendance is waived in writing by the Seller in its sole discretion. The Pre-filing Drafts shall be submitted in advance by the Purchasers to such authorities by email (or other form potentially requested by the authority) in preparation for the Pre-filing Meetings, which shall be scheduled on a confidential basis as soon as all the information necessary for the submission of the Transaction to the respective authorities is available to the Purchasers. In the period between the date of the first Pre-Filing Meeting and the final submission of the Transaction to CADE and ANATEL, the Purchasers shall keep the authorities informed, periodically, by e-mail, regarding the progress of the notice and request for preliminary approval, as well as regarding the answers to the questions formulated by the authorities. Once the completeness of the concentration act notice form for CADE and the request for prior consent by ANATEL is verified, the Purchasers shall formally submit the present Transaction to the aforementioned authorities immediately, with formal authorization for CADE (waiver) to initiate the review of the concentration act before the publication of the respective Notice. The Parties shall use their best efforts to keep the pre-filing period short so that formal submission takes place as soon as possible.

5.3.1.        The Parties establish that the Purchasers shall be the only Parties responsible for taking all measures necessary, always acting diligently, and at their own expense, to obtain the CADE Approval and the Prior Consent from ANATEL as soon as possible, herein undertaking to present any and all reasonable remedies and/or conditions that such Governmental Authorities deem necessary to obtain the respective approvals and complete the Transaction, subject to the provisions of Sections 5.3.5 and 10.1.1 below, including within the scope of the implementation of the Segregation and Division Plan submitted by the Purchasers pursuant to Section 2.1.4. The Purchasers shall keep the Seller informed of each submission process performed, including any and all communications forwarded to or received from such Governmental Authorities, including those that may require impositions, restrictions, or limitations on the intended Transaction and implementation of the Segregation and Division Plan. The Purchasers shall promptly comply with any and all requests that they deem reasonable from such Governmental Authorities, and in no event may they comply with such requests after the time period established by the applicable Laws.

5.3.2.        The Oi Group Companies undertake to instruct their officers and directors to cooperate with the Purchasers in the submission of information in their possession that is reasonably necessary for such submission, as requested by the Purchasers. Among the information required, confidential and/or competitively sensitive information shall be clearly indicated by the Oi Group Companies as such to be exchanged in accordance with the restrictions of the Antitrust Protocol.

5.3.3.        All costs and expenses related to the procedure for approval of the Transaction by CADE and ANATEL shall be borne by the Purchasers, except for expenses with attorneys and any other advisors hired by the Seller, which shall be borne by the Seller.

 17 

5.3.4.        At its discretion, the Seller may be represented by outside counsel in the record of the reporting of the Transaction to CADE or within the scope of the reporting process of the Transaction to ANATEL, and the Seller's representatives shall always be invited to participate in the Purchasers' interactions related to the process of obtaining approval for the Transaction from CADE and ANATEL when the Transaction and the Segregation and Division Plan are to be presented as a whole to CADE and ANATEL or when the Seller's participation is necessary or convenient for obtaining the approval, and the Seller and its counsel shall be informed of the aforementioned meetings with such Governmental Authorities as soon as the Purchasers and their counsel become aware of the scheduled meetings, in order to make such participation feasible, except when the matters exclusively pertaining to the Purchasers are involved. However, in leading the interactions with CADE and ANATEL, the Purchasers shall not require the Seller's approval for the submission of any responses, documents, or information to such Governmental Authorities. The Purchasers undertake, however, to share with the Seller in advance the documents to be submitted to said Governmental Authorities for acknowledgement and for confirmation of the accuracy of the information submitted. In this latter event, the Seller shall use its best efforts, provided that it is received with reasonable notice, to verify the information and to confirm and/or correct any information prepared by the Purchasers, as well as submit any comments it deems pertinent to better defend the interests of the Parties, Oi Móvel, and the Mobile SPEs before CADE and ANATEL.

5.3.5.        In the event that CADE and/or ANATEL deem necessary the imposition of structural restrictions (whether by means of disposal of assets, return of Licenses, or others that affect the ownership of the radio frequencies acquired), as a condition for granting CADE Approval and/or ANATEL's Prior Consent, respectively, including in the scope of the implementation of the Segregation and Division Plan potentially submitted by the Purchasers pursuant to Section 2.1.4, the Purchasers shall be obligated to interact with such Government Authorities in good faith and with diligence, aiming to identify the minimum level of structural restrictions required and proposing the restrictions sufficient to eliminate, in a consensual manner, the concerns identified in the approval processes of the Transaction. The implications of the restrictions required by CADE and/or ANATEL or, further, negotiated by the Purchasers with such Governmental Authorities, shall depend on (a) the type of asset whose divestiture is required by CADE and/or ANATEL; and (b) the impact that any assets to be divested shall have on the potential generation of Net Revenues of the business comprised of the UPI Mobile Assets, Obligations, and Rights, subject to the following parameters:

(i) if it is necessary to divest or return any assets and/or businesses of any nature (including businesses that include, in whole or in part, authorizations or licenses for the use of radio frequencies), owned or operated by the Purchasers or their Subsidiaries (i.e., assets outside the perimeter of the UPI Mobile Assets, Obligations, and Rights - the “Non-Parameter Assets”), then the Purchasers shall not be obligated to make such divestments or returns, nor to consummate the Transaction, nor to pay to the Seller the penalty provided for in Section 10.1.1 below;

(ii) provided that the Purchasers do not exceed, with the acquisition of the UPI Mobile Assets, Obligations, and Rights, the limits of use of radio frequency bands set forth in Resolution No. 703 of ANATEL, of November 1, 2018, in the event that by a decision by CADE and/or ANATEL requires divestiture or return of assets and/or businesses that include, in whole or in part, authorizations or Licenses for use of radio frequency, which are part of the perimeter of the UPI Mobile Assets, Obligations, and Rights, then the Purchasers shall not be obligated to carry out said divestitures or returns, nor to

 18 

consummate the Transaction, but shall pay to the Seller the penalty provided for in Section 10.1.1 below;

(iii) if between the execution date of this Agreement and the Closing Date there is a change in Resolution No. 703 of ANATEL, dated November 1, 2018, that reduces the scope of the limits of use of the radio frequency band in effect on such date and, therefore, the Purchasers exceed such limits and a decision by CADE and/or ANATEL requires divestiture or return of assets and/or businesses that include, in whole or in part, authorizations or Licenses for use of radio frequency, which are part of the perimeter of the UPI Mobile Assets, Obligations, and Rights, then the Purchasers shall not be obligated to carry out said divestitures or returns, nor to consummate the Transaction, nor pay to the Seller the penalty provided for in Section 10.1.1 below;

(iv) in the event that it is necessary to divest assets and/or businesses within the perimeter of the UPI Mobile Assets, Obligations, and Rights, different from authorizations or licenses for use of radio frequency, whose Net Revenue generated in the fiscal year immediately preceding the fiscal year of the date of execution of this Agreement correspond, in the aggregate, to twenty-five percent (25%) or less of the Net Revenue generated by the whole business made up of the UPI Mobile Assets, Obligations, and Rights in the same period, the Purchasers shall be obligated to comply with the restriction imposed or make the offer of assets in this amount to obtain the CADE Approval and/or the Prior Consent of ANATEL, having also the obligation to consummate the Transaction, provided that the other conditions precedent provided for in CHAPTER IV above are verified;

(v) in the event that it is necessary to divest assets and/or businesses within the perimeter of the UPI Mobile Assets, Obligations, and Rights, different from authorizations or licenses for use of radio frequency, whose Net Revenue generated in the fiscal year immediately preceding the fiscal year of the date of execution of this Agreement correspond, in the aggregate, more than twenty-five percent (25%) of the Net Revenue generated by the whole business made up of the UPI Mobile Assets, Obligations, and Rights in the same period, the Purchasers shall not be obligated to divest at these levels or to consummate the Transaction, it being understood that, in the event Purchasers decide: (a) not to make an alternative offer of restrictions; or (b) to make an alternative offer of restrictions that is not accepted by CADE and/or ANATEL, preventing the consummation of the Transaction, the Purchasers shall be obligated to pay Seller the penalty set forth in Section 10.1.1 below; and

(vi) if any restriction of the non-competition obligation set forth in Section 9.4 is imposed, the Purchasers shall not be obligated to accept the restrictions or to consummate the Transaction, it being understood that, in the event Purchasers decide: (a) not to make an alternative offer of restrictions; or (b) to make an alternative offer of restrictions that is not accepted by CADE and/or ANATEL, preventing the consummation of the Transaction, the Purchasers shall be obligated to pay Seller the penalty set forth in Section 10.1.1 below.

5.3.5.1.     For the sole and exclusive purposes of interpretation of how the Purchasers' right set forth in Section 5.3.5 to not consummate the transaction may be exercised with the payment or nonpayment

 19 

of the penalty set forth in Section 10.1.1 below (and without prejudice to the option of the Purchasers to exercise the right set forth in Section 5.3.5 (i) above), in the event CADE and/or ANATEL deem necessary the divestiture of assets of a certain nature, but do not specify whether such assets are among the UPI Mobile Assets, Obligations, and Rights or among the Assets Outside the Perimeter, for the exclusive purposes of the provisions in items (i) to (v) of Section 5.3.5 above, the Purchasers shall begin the calculation of the divestiture by the UPI Mobile Assets, Obligations, and Rights of the same nature subject of the decision of CADE and/or ANATEL and, only after, and if necessary to fully comply with the determination of these bodies, include the Assets Outside the Perimeter that are of the same nature, and, for the definition of the nature of the assets, the following criteria shall be used (i) for clients and other assets (such as towers, etc. - except authorizations or Licenses for use of radio frequencies), the criteria shall be location (Registration Area - “RA”); and, (ii) for authorizations or Licenses for use of radio frequency, the criterion shall be the spectrum band, within the same RA.

5.3.6.        The Parties clarify that the imposition of any remedies or restrictions on the Transaction by CADE and/or ANATEL shall not affect or imply change, in any event, in the Parties' obligations set forth herein, nor in the price provided for in this Agreement for the acquisition of the UPI Mobile Assets.

5.3.7.        In the event of an unappealable administrative decision by CADE and/or ANATEL to the effect of rejection of the Transaction, this Agreement shall be terminated by operation of law, without there being due any indemnity from Party to Party for such fact, however, the Purchasers shall (i) pay Seller the penalty provided for in Section 10.1.1, and (ii) fully bear the costs that may be incurred by the Seller exclusively necessary for the reversal of the stages of the Segregation and Division Plan that may have already been implemented, subject to the preparation, by the Seller, of a budget to be submitted to and approved by the Purchasers, whose approval shall not be unjustifiably denied.

5.3.8.        Specific rules regarding the submission of the Transaction to CADE and ANATEL.

5.3.8.1.     During the period in which the Transaction is under review by CADE and ANATEL (and until it is approved), the Parties undertake to maintain and preserve the current market conditions, under the terms provided for in the applicable Law.

5.3.8.2.     Once CADE and ANATEL believe they have satisfied any restrictions that may have been imposed by such authorities for the Closing of the Transaction, the Parties shall perform the Closing within the shortest possible time period to be agreed upon among the Parties, subject to the provisions of Sections 5.2 and 6.1, it being understood that the Closing shall to continue to be subject to compliance (or waiver, as applicable) of the other Conditions Precedent provided for in this Agreement.

5.3.8.3.     The Parties undertake to fully cooperate with each other in the provision of all information, data, and documents to be submitted to CADE and ANATEL, therein offering, within a reasonable time and compatible with the fulfillment of the obligations agreed upon herein, the information, data, and documents reasonably necessary to obtain CADE Approval and ANATEL's Prior Consent, during all phases of the process, making their best efforts to obtain the approval of the Transaction without restrictions.

5.4.           Regular Course and Conduct of the Business. The Oi Group Companies agree, as of the date

 20 

hereof until the Closing Date, to cause Oi Móvel and/or the Mobile SPEs, as applicable, to conduct their operations and activities with care and diligence, in compliance with the Ordinary Course of Business and the Law, provided that: (a) Oi Móvel (and/or its successors), as of the date hereof until the Closing Date; and (b) the Mobile SPEs, as of their incorporation and until the Closing Date, may not resolve on or practice, and the Oi Group Companies agree to cause Oi Móvel or the Mobile SPEs, as applicable, not to resolve on or practice, any of the acts listed below, provided that such acts impact, directly or indirectly, on the UPI Mobile Assets, Obligations, and Rights. For clarification purposes, the resolution or practice of any acts by Oi Móvel and the Mobile SPEs, as applicable, is expressly permitted, even if they are listed below, provided that such acts (aa) are carried out for the exclusive purpose of enabling the implementation of the Corporate Reorganization provided for in this Agreement; (bb) are carried out for the exclusive purpose of enabling the participation of the Oi Group Companies in the 5G/700MHz Auction; (cc) are provided for in this Agreement or in the Judicial Reorganization Plan (and provided that they are not expressly prohibited by this Agreement), or (dd) otherwise have been previously authorized in writing by the Purchasers (in this case, subject to the provisions of Section 5.4.1).

(i) significantly and unreasonably alter the accounting, tax, labor, operational, and/or business standards, methods, criteria, procedures, records, and practices (including, without limitation, the proportion of Value-Added Services (VASs) revenue over telecom services) used by Oi Móvel and/or the Mobile SPEs, as applicable, which must always comply with the Law;

(ii) dispose, in any way, of the UPI Mobile Assets, Obligations, and Rights or create any Encumbrances over the UPI Mobile Assets, Obligations, and Rights (including selling, promising to sell, assigning, promising to assign, or otherwise transferring, encumbering, or promising to transfer or encumber such UPI Mobile Assets, Obligations, and Rights);

(iii) approve or allow Oi Móvel and/or the Mobile SPEs, as applicable, to issue shares of any kind or class, or other securities of any kind, notably debentures, convertible or not, beneficiary parts, subscription warrants, or that grant stock options to management and/or third parties, profit-sharing rights, or, further, reduce the capital stock;

(iv) approve or implement any transformation, merger, spin-off, take-over (including the transfer of shares), capitalization of a company by means of contribution and contribution of assets (drop down) or any other form of corporate reorganization involving Oi Móvel, the Mobile SPEs, their Affiliates, and/or the UPI Mobile Assets, Obligations, and Rights, as well as their liquidation or dissolution, or the sale or disposal of substantially all of their assets;

(v) acquire, in any capacity, any equity interest or enter into an investment agreement, shareholder or quotaholder agreement, or even a consortium or joint venture agreement that may impact the UPI Mobile Assets, Obligations, and Rights;

(vi) enter into any agreement that provides for the purchase and sale, endorsement, transfer, or exercise of voting rights of shares representing the capital stock of Oi Móvel and/or the Mobile SPEs, as applicable, or that affects them in any way;

(vii) approve or implement a material change, termination, or return of any License from any Governmental Authority necessary for the operation and maintenance of the UPI Mobile

 21 

Assets, Obligations, and Rights;

(viii) contract, whether in a single transaction or series of transactions, any type of indebtedness with third parties in an amount exceeding one hundred million Brazilian Reais (R$ 100,000,000.00) and contract, whether in a single transaction or series of transactions, any type of indebtedness with Related Parties (except for the Mobile SPEs, which may not be parties in debt transactions) in an amount exceeding two billion Brazilian Reais (R$ 2,000,000,000.00);

(ix) grant forgiveness, cancellation, novation, waiver, or release of any debts, claims or rights of Oi Móvel and/or the Mobile SPEs, as applicable, in an amount exceeding, individually or jointly, twenty million Brazilian Reais (R$20,000,000.00);

(x) sell, assign, transfer, or license, for consideration or free of charge, any Intellectual Property rights related to, used in, or necessary for the operation of the UPI Mobile Assets, Obligations, and Rights as currently operated;

(xi) enter into, terminate, assign, or modify in any way any type of contract that may be considered a Material Agreement, except if in the Normal Course of Business and provided that it is entered into at arm's length;

(xii) enter into new Sharing Agreements or Lease Agreements with third parties (including Related Parties) related to the UPI Mobile Assets, Obligations, and Rights, except for the Oi Sharing Agreement with UPI Torres attached to the proposal accepted on July 18, 2020, by Oi in the competitive process for the disposal of UPI Torres and disclosed in the Judicial Reorganization Plan;

(xiii) amend the terms and conditions of the Sharing Agreements or Lease Agreements currently in force relating to the UPI Mobile Assets, Obligations, and Rights;

(xiv) enter into any commitment or settlement in any administrative or judicial proceedings, including settlement agreements, involving Oi Móvel and/or the Mobile SPEs, as applicable, in an individual amount in excess of twenty million Brazilian Reais (R$20,000,000.00), or entailing commitments and/or obligations of continued compliance for Oi Móvel and/or the Mobile SPEs, as applicable;

(xv) declare, pay, distribute, and/or credit any dividends, profit-sharing or interest on equity, or return, on any basis, assets or amounts to the shareholders of Oi Móvel and/or the Mobile SPEs, as applicable, in an aggregate amount exceeding one billion Brazilian Reais (R$1,000,000,000.00) or in accordance with Oi Móvel's past practices, it being understood that such distribution shall not materially adversely impact on the Oi Companies' ability to comply with the obligations set forth in this Agreement;

(xvi) commence any new business related to the UPI Mobile Assets, Obligations, and Rights or carry out, in the Mobile SPEs, any activity or operation other than the development of the mobile telephony business through the UPI Mobile Assets, Obligations, and Rights;

 22 

(xvii) hire or cause to be hired in the Mobile SPEs, officers, directors, or employees other than those listed in Exhibit 5.4(xvii), increase or change their remuneration at the Mobile SPE, or create or change benefit packages or plans for them after their hiring by the Mobile SPEs;

(xviii) execute new agreements and/or renew, amend, or extend the validity period of any agreement with any shareholder or with any Related Party, except if in the Normal Course of Business and provided that it is entered into under market conditions and provided that such agreement may be terminated at any time as of the Closing Date without charge to the Purchasers or the Mobile SPEs;

(xix) perform any act or assume any obligation or make any extraordinary investment that materially and adversely deviates from the budget of Oi Móvel or the Mobile SPEs, as applicable;

(xx) make, whether in a single transaction or series of transactions, investments that may result in annual CAPEX exceeding one billion Brazilian Reais (R$ 1,000,000,000.00); and

(xxi) agree to, or undertake to, or adopt or authorize, including via the exercise of voting rights, any of the acts provided for in this Section.

5.4.1.        For the purposes of item “dd” of Section 5.4 above, the Seller shall notify Purchasers in writing of the need for resolution and/or performance of any act listed in Section 5.4, therein indicating the reason and submitting any documentation necessary to prove such need. The Purchasers shall have up to ten (10) Business Days as of the sending of such communication by the Seller to respond authorizing or not allowing the resolution and/or performance of the act in question, it being understood that: (a) the Purchasers may not prevent the resolution and/or refuse to perform any act without justification; and (b) the lack of response by the Purchasers within the period provided for herein shall be interpreted as tacit authorization, and the Seller shall be allowed to decide on and/or perform the act in question, without such act giving rise to any right of indemnity for the Purchasers.

5.4.2.        For the purposes of clarification, subject to the provisions of Section 5.4 above, any acts, facts, or resolutions, or any other events or decisions that may be made by Oi Móvel or the Mobile SPEs strictly related to the participation of the Oi Group Companies in the 5G/700MHz Auction shall be deemed to have been carried out in the Normal Course of Business.

5.4.3.        As of this date and until the Closing Date, (a) the Oi Group Companies shall ensure that Oi Móvel and the Oi Mobile SPEs, as applicable, do not engage in any act that may materially impact on Oi Móvel's reputation and relationship with suppliers, distributors, and other Persons that have material commercial relations with Oi Móvel and/or the Oi Mobile SPEs, as applicable; and (b) the Oi Group Companies shall keep the Purchasers informed about the compliance with the obligations undertaken in this Section 5.4, immediately notifying them of the occurrence of: (x) any change in the Normal Course of Business of Oi Móvel and/or the Mobile SPEs, as applicable; or (y) any act or fact that may materially adversely affect the UPI Mobile Assets, Obligations, and Rights; or (z) any fact that implies an incorrigible breach by the Oi Group Companies of the representations and warranties provided pursuant to Section 7.1 below or the occurrence of a Material Adverse Effect.

5.5.           Telemar Merger. The Purchasers agree that, at any time after this date, Oi, as the shareholder

 23 

representing the entire capital stock of Telemar, may (but shall not be obligated to) convene extraordinary general shareholders' meetings of Telemar and Oi, respectively, pursuant to their respective Bylaws and applicable Laws, to resolve on the approval of the merger of Telemar by Oi, pursuant to article 227 of the Brazilian Corporations Law, which shall result in the extinguishment of Telemar and cancellation of the shares issued by the company, with the assignment of all of the shares held by Telemar in Oi Móvel (or its successor company by reason of the merger contemplated in Section 5.6) to Oi. In the event of merger of Telemar by Oi, Oi shall succeed Telemar in all of its rights and obligations, including those under this Agreement, and shall (1) perform all acts and execute all instruments necessary to formalize the transfer of Telemar's rights and obligations by virtue of the merger, and (2) send to the Purchasers copies of the minutes of the extraordinary meetings of shareholders provided for herein, duly registered with the competent Boards of Trade, as well as other documents that may be reasonably required by the Purchasers for confirmation of compliance with such formalities.

5.6.           Oi Móvel Merger. As soon as possible, but in any event within thirty (30) Business Days of the Segregation of UPI Mobile Assets, Oi shall cause to be convened Extraordinary General Meetings of Shareholders of Oi Móvel and the Oi Group Takeover Company, pursuant to their respective bylaws and applicable Laws, to resolve on the approval of the merger of Oi Móvel by the Oi Group Takeover Company, pursuant to article 227 of the Brazilian Corporations Law, which shall result in the extinguishment of Oi Móvel and cancellation of the shares issued by the company, with the attribution of all of the shares held by Oi Móvel in the Oi Móvel SPEs to the Oi Group Takeover Company. The Oi Group Takeover Company shall succeed Oi Móvel in all of its rights and obligations, including those set forth in this Agreement, and shall (1) perform all acts and execute all instruments necessary to formalize the transfer of Oi Móvel's assets, rights, and obligations by virtue of the merger; and (2) send to the Purchasers copies of the minutes of the extraordinary general meetings of shareholders provided for herein, as well as the Merger Memorandum and the respective valuation reports duly registered with the competent Boards of Trade, as well as other documents that may be reasonably required by the Purchasers to confirm compliance with such formalities. Except in the event that the merger of Oi Móvel does not occur by the Closing Date, upon the implementation of the merger of Oi Móvel, the Oi Group Takeover Company shall be the universal successor in all obligations of Oi Móvel and shall become the Seller, for all purposes of this Agreement. Until the implementation of the merger of Oi Móvel, Oi and Telemar are joint and several guarantors of all of Oi Móvel's obligations under this Agreement.

CHAPTER VI

CLOSING

6.1.           Closing and Closing Acts. The Parties undertake to (a) on the last Business Day of the month in which all Conditions Precedent are met and/or waived (as applicable), or on the last Business Day of the month following such finding or waiver, if this occurs after the twentieth (20th) day of the month, or (b) on another date that may be agreed upon in advance by the Parties in writing (the “Closing Date”), appear at a place and time to be mutually agreed upon by the Parties and perform the following acts (the “Closing Acts”), which shall be deemed to have occurred simultaneously (the “Closing”):

(i) The Seller's Representations, Warranties, and Obligations. The Seller shall deliver to the Purchasers a statement signed by its legal representatives confirming that (a) all

 24 

representations and warranties referred to in Section 7.1 have remained true and complete, in all material respects, from the date of execution of this Agreement to the Closing Date, except for those representations and warranties that shall be updated to reflect events that have occurred between and including this date and the Closing Date; and (b) it has fulfilled all of its obligations under this Agreement that it was required to fulfill by the Closing Date (including, without limitation, that the Conditions Precedent continued to be satisfied as of the Closing Date);

(ii) The Purchasers' Representations, Warranties, and Obligations. The Purchasers shall deliver to the Seller a statement signed by their legal representatives confirming that (a) all representations and warranties under Section 7.2 have remained true and complete from and including the date of execution of this Agreement up to and including the Closing Date; and (b) the Purchasers have performed all of the obligations that they were required to perform under this Agreement up to and including the Closing Date (including that the Conditions Precedent remain satisfied as of the Closing Date);

(iii) Corporate Reorganization. The Seller shall deliver to the Purchasers copies of all documents that, at the discretion of the Purchasers and upon request submitted to the Seller within two (2) Business Days prior to the Closing Date, are necessary to demonstrate the implementation of the Corporate Reorganization as provided for herein, subject to Section 4.3(iv);

(iv) Transfer of the Shares. The Seller and the Purchasers shall sign the instruments of transfer registering the transfer of ownership over the Shares in the Registered Shares Transfer Book of the Mobile SPEs and the officers of the Mobile SPEs present at the Closing shall register said transfers and the new shareholding positions under the capital stock of the Mobile SPEs in the respective Registered Shares Book;

(v) Payment of the Closing Price. The Purchasers shall pay the Closing Price to the Seller, subject to the provisions of Section 3.4;

(vi) Officers and Directors and Corporate Books and other books and records. The Seller shall deliver to the Purchasers: (a) the written resignations, effective as of the Closing Date, of all officers and directors of the Mobile SPEs (except for those whose resignation is waived by the Purchasers) and the Mobile SPEs, through their new officers and directors elected and sworn in pursuant to item (vii) below, shall acknowledge receipt of such resignations, granting a full, general, unrestricted, and irrevocable release to the resigning officers and directors with respect to the period during which they held their positions in the Mobile SPEs; and (b) the corporate books, accounting and financial records, tax documents, and other records of the Mobile SPEs;

(vii) Election of New Officers and Directors. The Purchasers, as shareholders representing one hundred percent (100%) of the total and voting capital stock of the Mobile SPEs, shall perform, and shall cause to be performed, all corporate acts necessary for the election and investiture of the new officers and directors of the Mobile SPEs (who shall replace the resigning officers and directors, pursuant to item (vi) above);

 25 

(viii) Transition Services Agreements. The Seller or another Oi Group Company and each of the Mobile SPEs shall enter into the respective Transition Services Agreement, in accordance with the terms and conditions set forth in Exhibit 6.1(viii);

(ix) Long-Term Agreements. The Seller or another Oi Group company and each of the Mobile SPEs shall enter into (a) the Agreement for the Supply of Telecommunications Signal Transmission Capacity under an Industrial Exploitation Regime, in the form of the draft attached hereto as Exhibit 6.1(ix)(a); and (b) the Infrastructure Sharing Agreement, in the form of the draft attached hereto as Exhibit 6.1(ix)(b); and

(x) Release from Guarantees. The Oi Group Companies shall deliver to the Purchasers the respective instruments of release of any and all Encumbrances on the Assets, UPI Mobile Assets, Obligations, and Rights.

6.2.           The Parties further undertake to perform, in good faith, on the Closing Date, all other acts and sign all documents necessary or convenient for the effective completion of the Closing.

6.3.           All acts to be performed within the scope of the Closing constitute part of a single transaction agreed upon among the Parties and shall be deemed to have been performed and implemented simultaneously, regardless of the order or numbering specified in this Agreement. As a consequence, if any of the acts to be performed at the Closing are not effectively performed on the Closing Date, the other acts potentially performed shall be deemed null and void, unless the Parties agree otherwise in writing.

6.4.           After consummation of the Transaction, the Purchasers shall exercise, as of the Closing Date, all rights and obligations inherent to full ownership and control of the Shares, without any restriction, including rights prior to the Closing Date that may not have been exercised.

6.5.           Registrations. The Purchasers, as shareholders representing one hundred percent (100%) of the total and voting capital stock of the Mobile SPEs, shall submit for registration with the competent Governmental Authorities, within ten (10) Business Days counted as of the Closing Date, the corporate acts mentioned herein signed and delivered on the Closing Date, and any costs for registration of such corporate acts shall be borne by the Mobile SPEs. The Parties shall cooperate as necessary to ensure that such recordings are appropriately made.

6.6.           Obligation to perform the Closing. Subject to the provisions of Section 5.3.5, the Parties acknowledge and agree that, once all Conditions Precedent have been verified and/or waived (as applicable), the Purchasers shall be bound, together with the Seller, to perform the Closing, as provided for in this Agreement.

CHAPTER VII

REPRESENTATIONS AND WARRANTIES

7.1.           The Oi Group Companies’ Representations and Warranties. The Oi Group Companies, as applicable, make the representations and warranties set forth in Exhibit 7.1 hereof, further representing and warranting that they are, as of the date hereof, true, accurate, complete, correct, and

 26 

not misleading, and shall remain so, up to and including the Closing Date (except for those representations and warranties where reference is made to a specific date, which are true, accurate, complete, correct, and not misleading, as of the date to which they refer).

7.1.1.        Updating of the Representations and Warranties. The information set forth in the representations and warranties and exhibits set forth in Section 7.1 reflects the situation of Oi Móvel, the UPI Mobile Assets, Obligations, and Rights and other information set forth therein on the base dates indicated therein. The Parties hereby agree that, with the exception of the Oi Group Companies’ Fundamental Representations and Warranties, the Oi Group Companies may update in good faith the information contained in such representations and warranties and exhibits, provided that such updates (a) may only refer to acts, facts, or omissions occurring after the date hereof or, exclusively with respect to representations and warranties that refer to a specific date or period, after the date or period to which they refer, (b) shall not exempt the Oi Group Companies from any of the obligations provided for in this Agreement, in particular the indemnification obligations provided for in Section 8.1 below, and (c) such updates may not represent, individually or jointly, a Material Adverse Effect.

7.2.           The Purchasers’ Representations and Warranties. The Purchasers provide the representations and warranties set forth in Exhibit 7.2 hereof, further representing and warranting that they are, as of the date hereof, true, accurate, complete, correct, and not misleading, and shall remain so, up to and including the Closing Date (except for those representations and warranties where reference is made to a specific date, which are true, accurate, complete, correct, and not misleading, as of the date to which they refer).

CHAPTER VIII

INDEMNIFICATION OBLIGATIONS

8.1.           Indemnification by the Oi Group Companies. The Oi Group Companies agree, jointly and severally, to indemnify and hold the Purchasers (in this case, to the extent that they result in Losses for the Purchasers), as well as their respective Affiliates and their officers and directors, employees, and agents, and, further, their respective successors (the “Purchasers' Indemnified Parties”), harmless from and against any and all Losses actually incurred by any of the Purchasers' Indemnified Parties, when such Loss arises, directly or indirectly, from:

(i) any falsity, inaccuracy, error, or breach in the representations and warranties provided by any of the Oi Group Companies, pursuant to Section 7.1 of this Agreement;

(ii) action or omission by any of the Oi Group Companies or their Affiliates that results in the breach of this Agreement or of any of the other Transaction Documents, or default, violation, or breach, in whole or in part, of any obligation provided for in such instruments which is the responsibility of the Oi Group Companies; and/or

(iii) acts, facts, actions, or omissions of any nature, whether attributable to the Oi Group Companies, their respective Affiliates, officers and directors, employees, representatives, agents, or any third party, related to the operation or conduct of the business of the Mobile SPEs, or to the UPI Mobile Assets, Obligations, and Rights, in any case, whose triggering event has occurred up to (and including) the Closing Date and regardless of their

 27 

identification in the course of the due diligence process for purposes of the Transaction, or their information or lack thereof through the representations and warranties provided under this Agreement, financial statements, or other Transaction Documents.

8.2.           Limitations on the Oi Group Companies’ Obligation to Indemnify. Notwithstanding the provisions of this CHAPTER VIII, with the exception of the Losses arising from acts proven to have been committed with intent or fraud, which shall not be limited to any amount or time period, the Oi Group Companies’ obligation to indemnify, pursuant to Section 8.1 above, is subject to the following limitations, without prejudice to the provisions of Section 8.6:

(i) the aggregate amount of all Losses indemnified by the Oi Group Companies under Sections 8.1(i) and 8.1(iii) may not exceed the equivalent of ten percent (10%) of the Purchase Price of the Shares;

(ii) the aggregate amount of all Losses indemnified by the Oi Group Companies under Section 8.1(ii) may not exceed the equivalent amount of the Purchase Price of the Shares;

(iii) the Oi Group Companies shall not be obligated to indemnify the Purchasers' Indemnified Parties (a) for any Losses lower than the minimum amount of two hundred thousand Brazilian Reais (R$200,000.00) per individual Loss (that is, the minimum amount for a Loss to qualify for indemnification), except with respect to Losses related to consumer lawsuits, which shall qualify for indemnification regardless of the individual amount, but which, in the aggregate, shall reach Losses in an amount greater than the minimum amount of two hundred thousand Brazilian Reais (R$200,000.00); and (b) until the Losses reach an aggregate minimum limit of five million Brazilian Reais (R$5,000,000.00). For clarification purposes, the obligation of the Oi Group Companies to indemnify the Purchasers' Indemnified Parties shall not apply unless and until the individual Losses that exceed the individual minimum limit pursuant to item (a) above are, in the aggregate, greater than the aggregate minimum limit established in item (b), in which case the Oi Group Companies shall be obligated to indemnify the Purchasers' Indemnified Parties for the total amount of the Losses incurred and accrued up to the date in question, in compliance with the procedures set forth in this Agreement.

8.2.1.        Notwithstanding the provisions of this CHAPTER VIII, the determination of the amount of a Loss shall take into consideration the payment made or recovery eventually received as a result of the contracting of insurance policies by the Indemnified Party, that is, payments shall only be made to the Party that actually suffers such Loss, net of the amount of any indemnification actually received as a result of the purchase of insurance policies, but taking into account the cost of deductibles incurred for the receipt of insurance, as well as for any amounts that are successfully reimbursed by the Purchasers through an action for recourse filed as a result of any Loss. Additionally, the payment of a Loss must take into consideration the intertemporal tax effects regarding the deductibility or levy of applicable taxes, that is: (a) if the Loss generates a deductible expense, and (b) if the indemnification generates a taxable obligation. If the receipt of the indemnification generates a taxable obligation of the Indemnifying Party, the amount of the indemnification shall be adjusted to include the amount of any Taxes due by the Indemnifying Party, also taking into consideration any tax reductions generated

 28 

by the portion of the loss that is effectively deductible. If the receipt of the indemnification does not generate a taxable obligation, the indemnification shall be paid at the original amount of the Loss, less the amount of any tax reductions generated by the portion of the Loss that is effectively deductible.

8.2.2.        For the purposes of the provisions of this Section 8.2, the Purchase Price of the Shares shall be adjusted by the variation of the CDI until the term of the obligation to indemnify the Oi Group Companies or full payment of the last indemnification due by them, whichever occurs last.

8.3.           Obligation to Mitigate. The Purchasers' Indemnified Parties shall use their best efforts to refrain from taking any action to aggravate any Loss incurred by them that may be indemnified by the Oi Group Companies under this Agreement.

8.4.           Indemnification by the Purchasers. The Purchasers agree, jointly and severally, to indemnify and hold the Oi Group Companies (in this case, until the Closing Date), as well as their respective Affiliates and their directors, officers, employees, and agents, and respective successors (the “Seller's Indemnified Parties”, with the Seller's Indemnified Parties or the Purchasers' Indemnified Parties, as the context requires, referred to as the “Indemnified Parties”), harmless and free from any and all Losses actually incurred by any of the Seller's Indemnified Parties, where such Loss arises, directly or indirectly, from:

(i) any falsity, inaccuracy, error, or breach in the representations and warranties provided by the Purchasers, pursuant to Section 7.2 of this Agreement; and/or

(ii) action or omission of the Purchasers or their Affiliates that results in a violation of this

Agreement.

8.5.           Obligation to Mitigate. The Seller's Indemnified Parties shall use their best efforts to refrain from taking any action to aggravate any Loss incurred by it that may be indemnified by the Purchasers under this Agreement.

8.6.           Survival of the Obligation to Indemnify. The indemnification obligations set forth in this CHAPTER VIII shall remain in force until the date of the sixth (6th) anniversary of the Closing Date, with such term to be increased by an additional period of thirty (30) days, exclusively so that the Indemnifying Party may notify the Indemnifying Party about the Losses incurred or Third-Party Claims filed during the term previously provided (the “Final Term”).

8.6.1.        In the event that a Claim Notice or Third-Party Claim Notice is served prior to the end of the Closing Date, the provisions of this Agreement shall survive and the Closing Date shall be extended for the duration of the claim in question, until final resolution of such claim (including, for purposes of clarity, (i) any suit, appeal, proceeding, levy, release, action, or other Claim of any kind brought in continuance, outgrowth, or consequence of the claim originally served, and (ii) all Third-Party Claims already existing as of the Closing Date), and the respective Loss shall be indemnified and/or reimbursed, as the case may be, even if the indemnification and/or disbursement by the Indemnifying Party is to occur after the end of the Final Term.

8.7.           Indemnification Procedure for Direct Claims. If an Indemnified Party suffers or incurs Losses subject to indemnification under Sections 8.1 or 8.4 above and not arising out of a Third-Party Claim

 29 

(a “Direct Claim”), such Indemnified Party shall send notice to the Party or Parties obligated to indemnify or reimburse such Loss under such Sections (“Indemnifying Party”), therein describing the Loss in question, specifying the amount involved, and providing all reasonable documents and information regarding the Loss (an “Indemnification Notice”).

8.7.1.        Answer. The Indemnifying Party shall have ten (10) Business Days from the receipt of the Indemnification Notice (the “Response Period”) to send a notice in response (a “Response Notice”), informing the Indemnifying Party of whether (a) it agrees to indemnify the Loss notified for the amount indicated in the Indemnification Notice, in which case such amount shall be deemed, on the date of receipt of the Response Notice, to be a Loss Due and shall be paid in accordance with the provisions of Section 8.10; or (b) it has any objection with respect to the notified Loss and/or its amount, therein stating the grounds for its objection and providing, to the extent possible, documents and information to support its understanding. In the event the Indemnifying Party fails to send a Response Notice within the Response Period, the Loss which is the subject of the Indemnification Notice shall be deemed, at the date of expiration of the Response Period, to be a Loss, and shall be paid in accordance with the provisions of Section 8.10.

8.7.2.        Entire Objection. If in the Response Notice the Indemnifying Party fully disputes the reported Loss, the Parties shall meet within five (5) Business Days following receipt of the Response Notice for the purpose of attempting to reach, in good faith, an agreement as to the treatment to be given to the reported Loss. The failure of the Parties to reach such an amicable solution may be settled by the dispute resolution mechanisms provided for in CHAPTER XI of this Agreement. The Parties acknowledge that they may choose not to initiate arbitration proceedings until the amounts in dispute are sufficient to justify recourse to arbitration, in the sole discretion of the Party claiming to be a creditor. In this case, such postponement shall not imply and shall not be construed as a waiver of any right, nor shall it be construed as recognition, implicit or explicit, of any claim or right of the other Party.

8.7.3.        Partial Objection. If in the Response Notice the Indemnifying Party disputes only part of the notified Loss, then (i) the uncontested portion shall automatically become due from the Indemnifying Party to the Indemnifying Party on the date of receipt of the Response Notice, and shall be paid in accordance with the provisions of Section 8.10, and (ii) the disputed portion shall have the treatment described in Section 8.7.2 above.

8.7.4.        Final Decision. If a Loss notified via Indemnification Notice is submitted to arbitration proceedings and the Arbitral Tribunal finds that the disputed amount is due, in whole or in part, by the Indemnifying Party, this amount shall be paid to the Indemnified Party in accordance with the provisions of Section 8.10.

8.8.           Third-Party Claim Indemnification Procedure. In the event that a Party receives notice of any Claim against it (a “Third-Party Claim”) that may give rise to a claim for Loss, such Party shall provide notice to the other Party, within one-third (1/3) of the time to contest the Third-Party Claim as of the date it becomes aware of the Third-Party Claim, informing it of the Third-Party Claim and specifying the amount involved and providing all reasonable documents and information regarding the Third-Party Claim (a “Third-Party Claim Notice”).

8.8.1.        The indemnifying Party shall, within the first half of the legal term for the presentation of the

 30 

proper defense or answer, (a) make payment or authorize reimbursement of the amount in question; (b) inform the Indemnified Party whether or not it shall conduct the defense of such Third-Party Claim; or (c) delegate to the Indemnified Party the presentation of a defense and/or answer to the Third-Party Claim, in which case the Indemnified Party shall diligently defend against the Third-Party Claim, it being understood that the Indemnifying Party's silence shall be deemed as having opted for the provisions of item (c) of this Section and subject to the provisions of Section 8.8.3.1.

8.8.2.        If the indemnifying Party itself chooses to present an answer or defense, the Indemnifying Party must appoint and hire the attorney in charge of conducting such objection or defense, provided that, at the option of the Purchasers (i) a first class law firm or a law firm recognized as an expert in the subject matter of the Third-Party Claim shall be hired; or (ii) priority shall be given to attorneys already retained for the due causes, and the Indemnifying Party shall be required to grant to the attorney appointed by the Indemnifying Party the powers necessary for the conduct of the due process, as well as provide all documents and information necessary for the preparation of the answer or defense. The Indemnifying Party may accompany the defense and shall be reasonably informed in all proceedings related to any Third-Party Claim conducted by the Indemnifying Party, including through the appointment (at its expense) of legal counsel other than the counsel retained by the indemnifying Party.

8.8.3.        The Parties shall cooperate with each other in the defense of a particular Third-Party Claim and shall make available, within a reasonable time for purposes of this Section, to the Party responsible for conducting the defense all witnesses, pertinent files, materials, and information in the indemnified Party's possession or under its control relating to the Third-Party Claim (or in the possession or control of any of its Representatives) that are reasonably requested by the Party responsible for conducting the defense or its attorney.

8.8.3.1.     In the event of a Third-Party Claim that requires, at any time, the submission of collateral or deposits, the indemnifying Party shall, up to five (5) Business Days prior to the legal deadline for submission of such collateral, make it available, at its own expense, to the indemnified Party in the form required by law and satisfactory to the court, even if the indemnified Party has assumed the defense of such Third-Party Claim.

8.8.3.2.     Notwithstanding the foregoing, the indemnifying Party shall, whenever requested by the indemnified Party, take part in the Third-Party Claim that is related to any liabilities or obligations not assumed by the Purchasers under this Agreement and the Judicial Reorganization Plan, declaring itself administratively or judicially to be the responsible party for the subject matter of the Third-Party Claim in lieu of the Mobile SPEs or the Purchasers, as the case may be.

8.8.4.        The Parties shall cause the attorneys retained to keep the Parties informed of the progress of the Third-Party Claim by providing copies of all pleadings reasonably requested of them.

8.8.5.        The indemnifying Party shall have the right to settle any Third-Party Claim if it obtains a full release from the indemnified Party with respect to such Third-Party Claim or the written consent of the indemnified Party (which shall not be unreasonably withheld, conditioned, or delayed).

8.9.           Fulfillment of the Procedures. Any failure by the Indemnifying Party to comply with the procedures and commitments under this Agreement, especially this CHAPTER VIII, shall not relieve

 31 

the Indemnifying Party of its obligation to indemnify or compensate the Indemnified Party for the Loss in question, except to the extent that such Loss could have been remedied, mitigated, reduced, or avoided had the Indemnified Party complied with the provisions hereof.

8.10.         Payment of Indemnification. The obligation to indemnify shall become due and payable as follows:

(i) for Losses subject to Direct Claims: (a) upon receipt of an Indemnification Notice, in the amounts that are not disputed in accordance with Section 8.8 and sub-sections, on the day following the expiration of the period for an answer; or (b) in the event of an answer, and in respect to the portion so answered, the date upon which the Parties mutually agree with respect to such portion or upon which an award has been rendered by the Arbitral Tribunal, in the amounts of Loss allocated by the Arbitral Tribunal to each Indemnifying Party, as the case may be; or

(ii) for Losses subject to Third-Party Claims: the date on which a Loss becomes due under the terms of the relevant Third-Party Claim by virtue of a final and unappealable judgment or by settlement in a Third-Party Claim, in the amount of the Loss due.

8.10.1.      Delays in Payment. The Party that does not fully and timely comply with its obligation to indemnify under this CHAPTER VIII shall be automatically subject, by operation of law, by and regardless of any notice or summons, to payment of a non-compensatory late payment fee of two percent (2%) on the overdue amount, plus adjustment per the CDI, plus default interest of one percent (1%) per month, calculated pro rata die on the adjusted amount, due from the due date until the date of its effective and full payment, without prejudice to the losses and damages applicable.

8.11.         The Parties agree to use their best commercial efforts to, in good faith and considering market practices, avoid the establishment of any Loss under this Agreement and, in the case it is established, mitigate its effects.

CHAPTER IX

ADDITIONAL OBLIGATIONS

9.1.           Confidentiality. Due to the access they had and shall have to the Confidential Information, and considering the Non-Disclosure Agreement and the Antitrust Protocol entered into under the negotiations prior to the execution of this Agreement, the Parties reciprocally undertake the commitments not to disclose all or part of the subject matter and/or content of this Agreement to any third parties, other than their respective Representatives who must have access to the Agreement for purposes of compliance with the provisions set forth herein, under the Law. The Parties shall require their respective Representatives, under their sole responsibility, to (a) undertake confidentiality commitments equal to those now undertaken by the Parties in this Section 9.1; (b) not allow access to the Confidential Information of the other Parties to third parties other than their Representatives, and to them only to the extent necessary to enable the achievement of the subject matter of this Agreement; (c) not use any of the Confidential Information for any purpose other than the purposes set forth in this Agreement; and (d) maintain the greatest possible confidentiality with respect to the Confidential Information received.

 32 

9.1.1.        The limitations provided for in this Agreement for the disclosure of Confidential Information shall not apply when such Confidential Information (a) is, on the date hereof, within the public domain; (b) was known by the recipient of the Confidential Information at the time of its disclosure, not having been obtained, directly or indirectly, from the provider of the Confidential Information, its Representatives, or third parties subject to the duty of confidentiality; (c) has become generally known to the public, after the date hereof, as a result of action or omission by the provider of the Confidential Information or any of its Representatives; or (d) becomes public knowledge after its disclosure to the recipient of the Confidential Information, without any participation of the latter in the disclosure.

9.1.2.        If the Party receiving the Confidential Information or any of its Representatives is required by law, regulation, court order, or Governmental Authorities empowered in this regard, to disclose any Confidential Information, the receiving Party shall, if not prohibited by law, immediately give notice thereof to the Party providing the Confidential Information, in writing and prior to such disclosure, so that it may seek a court order or other remedy from the appropriate authority preventing the disclosure, except if the disclosure is required under the capital market Laws applicable to each Party or its Affiliates, in which case the provisions of Section 9.1.4 shall apply. The receiving Party shall cooperate with the providing Party in obtaining such a court order or other remedy to prevent the disclosure. The receiving Party further agrees that if the providing Party is unsuccessful in attempting to waive its obligation to disclose the Confidential Information, it shall disclose only the portion of the Confidential Information that is legally required and further that it shall use its best efforts to obtain reliable assurances that confidential treatment shall be given to the Confidential Information disclosed.

9.1.3.        Notwithstanding the confidentiality commitment set forth in this Section 9.1, the Confidential Information may be disclosed to third parties with the prior written consent of the Parties.

9.1.4.        Announcements. The Parties agree that, in the event that any Party (or its Affiliates) is required by any Governmental Authority or under any Law applicable to the capital markets to which such Party is subject to make any public announcement or release with respect to the Transaction (the “Reporting Party”), the Reporting Party shall inform the other Party of such requirement and shall take reasonable steps to share and discuss with the other Party the terms of such announcement or release, in order for the Parties, if applicable, to agree on its content and, if so agreed among the Parties and if possible, release a joint announcement. Without prejudice to the provisions of this Section, the Reporting Party (as well as its officers and directors) shall have no obligation to obtain the consent of the other Parties for the public announcement with respect to the Transaction arising from the request referred to above or any other obligation arising from applicable Law, or from rules or regulations issued by the Brazilian Securities and Exchange Commission or by the relevant authorities of each applicable jurisdiction.

9.1.5.        Assignment of Confidentiality Commitments. On the Closing Date, the Oi Group Companies shall assign and transfer (or cause to be assigned and transferred, as the case may be) to the Purchasers all the rights and obligations of Oi Group Companies or any of their Affiliates the confidentiality commitments with Third Parties so that, as of and including the Closing Date, the Purchasers may, in accordance with applicable Laws, fully exercise such assigned and transferred rights separately and independently of the Oi Group.

9.2.           Access to Information after the Closing. As of the Closing Date, the Oi Group Companies shall grant (and shall cause their Affiliates to grant) to the SPEs, the Purchasers, and their respective

 33 

representatives or advisors reasonable access, at appropriate times, to the books, documents, and records of the Seller and Oi Móvel, therein providing the information and documents in their possession and related thereto, allowing the SPEs and the Purchasers, including, for themselves or through their representatives or advisors: (i) to verify the operating and accounting procedures and other management information and reports of the Seller and Oi Móvel, including for the purposes of Section 3.8; (ii) to inspect changes in the liabilities, including banking, tax, labor, and social security liabilities, of the Seller and Oi Móvel; (iii) to examine documents and information regarding employees and service providers of the Seller and Oi Móvel; and (iv) to verify the corporate situation and the legal and/or administrative proceedings to which the Seller or Oi Móvel is a party, as plaintiff, defendant, or co-defendant, subject to the terms of the Antitrust Protocol.

9.3.           Wrong Pockets. It is the intention of the Parties that the Mobile SPEs hold, on the Closing Date, the full economic and commercial benefits, as well as the risks and benefits, of the UPI Mobile Assets, Obligations, and Rights that shall be transferred to them pursuant to Section 5.2 and necessary for their operation and development of their business. In the event that, at any time after the Closing Date, either Party learns of the existence of assets, rights, equipment, and facilities necessary for the conduct of the business carried on by the Mobile SPEs that are mistakenly recorded in the accounts or owned by the Seller or any of its Affiliates, or learns of the existence of assets, rights, equipment, and facilities that are unrelated to the UPI Assets, Obligations, and Rights transferred to the Mobile SPEs and that are mistakenly recorded in the accounts or owned by the Mobile SPEs, the Parties shall transfer the assets, rights, equipment, and facilities to the rightful owner in the most expeditious and practical manner possible. The Parties acknowledge and agree that, except as arising directly from the instructions of the Purchasers or their counsel, the Seller, as the Party responsible for implementing the Corporate Reorganization, shall bear any and all costs related to the transfer of the assets, rights, equipment, and facilities under this Section 9.3, including, but not limited to, the applicable Taxes. For the avoidance of doubt, the provisions of this Section shall not affect the determination of the Purchase Price of the Shares and the Transition Services.

9.3.1.        The commitment of the Parties provided for in Section 9.3 above shall also apply to the rectification of the accounting record or ownership of assets, rights, equipment, and facilities necessary for the operation and development of the business of each of the Mobile SPEs, to the extent that the contribution of the UPI Mobile Assets, Obligations, and Rights has been made in disagreement with the Segregation and Division Plan.

9.4.           Non-Compete. The Oi Group Companies agree not to act or participate, and warrant that their Affiliates shall not act or participate, directly or indirectly, in the provision of mobile telephony services (Personal Mobile Service - SMP) (i) as an authorized SMP provider (that is, hold radio frequencies and/or Authorizations for the provision of SMP), (ii) through franchises or as an authorized virtual network or accredited under ANATEL Resolution No. 550/2010, as amended, or other rules that may regulate the Mobile Virtual Network Operator^- MVNO, and/or (iii) as a mobile network provider, or provider of origin, particularly radio frequencies for the provision of SMP or mobile service, in any case, and such restrictions also apply to the use or linkage of the “Oi” trademark, directly or through mobile licenses granted to third parties. For clarification purposes, the obligations undertaken herein include the performance of the Oi Group Companies as a controlling partner, provider of origin, partner, financing party, operator, consultant, or otherwise, in any Person that operates in Brazil, and shall be valid for a period of five (5) years, subject to the following: after the thirty-sixth (36th) month after the Closing, the Seller may act as an accredited and/or authorized

 34 

provider of origin (MVNO), or a similar/successive role to the extent that the applicable regulations are amended, in any case without linking such performance with the use of the “Oi” brand. For the avoidance of doubt, the Parties acknowledge and agree that the non-compete obligation set forth in this section does not apply to (i) the use of radio frequency spectrum by the Oi Group Companies and their Affiliates exclusively for the provision of Multimedia Communication Services (SCM), and (ii) any wholesale offers by the Oi Group Companies and its Affiliates, including offers for SMP operators, except for any wholesale offers involving the use of radio frequencies for the provision of SMP services (such as industrial use, rights of use, sharing, roaming, etc.), which shall not be permitted. The Seller acknowledges and accepts that this is a fundamental condition of this Agreement and the Transaction. Without prejudice to the right of the Purchasers to seek specific performance of an obligation hereunder before a court of competent jurisdiction to obtain injunctive relief and/or order and for any other legal remedies that the Purchasers may seek pursuant to or in accordance with the applicable Laws, in the event of breach of the obligation assumed under this Section 9.3, the Oi Group Companies shall be jointly and severally liable and shall pay the Purchasers an amount equivalent to five percent (5%) of the Purchase Price of the Shares as a non-compensatory penalty for the breach of this Agreement, without prejudice to other rights hereunder, provided that the non-compensatory penalty shall be deducted from any damages that are finally determined by settlement or by a final and unappealable decision of a Governmental Authority. The penalty shall be paid by the Oi Group Companies within five (5) Business Days from the date on which the breach of the non-compete obligation has been acknowledged by the Oi Group Companies or by a final and unappealable decision of a Government Authority, whichever occurs first. The Parties agree that the Purchase Price of the Shares includes a portion intended to remunerate the Seller for the obligations assumed herein, and no additional payment shall be due to the Seller in this regard, for the period mentioned in this Section.

9.5.           Radio Frequency Purchase Option. Considering the provisions of Section 9.4 above, in the event that any of the Oi Group Companies or their Affiliates acquire, between the date of execution of this Agreement and the Closing Date, any rights over authorizations or Licenses for use of radio frequencies intended by ANATEL for the provision of SMP, the Seller shall communicate such fact to the Purchasers within five (5) days from the publication of ANATEL's act recognizing the acquisition of such rights. In this case, provided that the Purchasers may acquire such radio frequencies under applicable regulations, the Purchasers shall have the right, but not the obligation, to acquire from the Oi Group Companies or its Affiliates, as the case may be, totally or partially, and always at the same price and under the same conditions, the rights over such authorizations or licenses for the use of radio frequencies necessarily associated with the authorization for the provision of SMP acquired by the Oi Group Companies or their Affiliates (the “Radio Frequency Purchase Option”). The exercise of the Radio Frequency Purchase Option shall be exercised between the date of receipt of the notice from Seller regarding the acquisition of such rights and the twentieth day prior to the date of execution of the Instrument of Authorization (or other applicable legal instrument, as the case may be) corresponding to the radio frequency(ies) acquired by the Oi Group Companies or their Affiliates (the “Option Exercise Period”), provided that the effective transfer of such rights and the corresponding payment of the acquisition price may only occur after (i) the Closing Date, and (ii) approval of the exercise of the Radio Frequency Purchase Option by CADE and ANATEL, whichever occurs last. In the event that the Purchasers do not exercise, in whole or in part, within the Option Exercise Period, their Radio Frequency Purchase Option right over any rights over radio frequencies they may have acquired pursuant to the applicable regulations, and consequently the Oi Group Companies renounce the Radio Frequencies acquired by virtue of the provisions of Section 9.4 above, the Purchasers shall, within twenty (20) days of notice from the Oi Group Companies to the Purchasers that they have renounced the rights of use of the Radio Frequencies, pay to the Seller the amounts

 35 

corresponding to the burdens associated with such waiver, limited to ten percent (10%) of the price of each radio frequency on which it has not exercised the Radio Frequency Purchase Option, with nothing else being owed by the Purchasers to the Oi Group Companies and their Affiliates, at any time, for the non-exercise of the Radio Frequency Purchase Option.

9.5.1.        If the option to purchase radio frequencies is not exercised due to regulatory prohibitions or prohibitions imposed by CADE and/or ANATEL, no amounts shall be owed by the Purchasers to the Oi Group Companies for any reason.

9.6.           Substitution of Guarantees. The Purchasers undertake to use their best efforts to, as of the Closing Date, replace the guarantees provided by the Seller and/or any of its Affiliates with respect to contracts entered into by the Mobile SPEs and/or related to the UPI Mobile Assets, Obligations, and Rights, including those set forth in Exhibit 9.6, as such guarantees may be subject to notice from the Seller to the Purchasers, requesting replacement of such guarantees provided and attaching supporting documentation. The Purchasers shall submit to the Seller evidence of the release of their respective guarantees as soon as they have been replaced as provided for herein. In the event of impossibility of replacing any guarantee, the Parties undertake to discuss the best solution for all the Parties, it being hereby established that the Seller undertakes not to revoke the guarantees it has provided. For the purposes of clarification, any contractual obligations assumed by the Seller and/or any of its Affiliates under contracts entered into with third parties that have not been assumed by the Mobile SPEs and/or are not related to the UPI Mobile Assets, Obligations, and Rights (among which are the Tower Purchase Agreements) are not covered by this section.

9.7.           Purchase of Insurance. As of the Closing, the Purchasers shall provide, to their own account and at their own expense, the insurance coverage they deem necessary and advisable for the assets and operations of the Mobile SPEs.

9.8.           Attorneys-in-Fact. As of the Closing, the Purchasers shall arrange, on their own behalf and at their own expense, the appointment and accreditation of attorneys-in-fact with powers to represent the Mobile SPEs before financial institutions with which the Mobile SPEs operate and/or maintain bank accounts.

CHAPTER X

TERM OF DURATION AND TERMINATION

10.1.         Term of Duration. This Agreement enters into force, for all intents and purposes, on the date hereof and shall remain in force until (a) the consummation of the Transaction; (b) the advance termination by the Purchasers in the events of non-consummation of the transaction set forth in Sections 5.3.5 and 5.3.7, or in the case of declaration of occurrence of a Material Adverse Effect; or (c) the end of the period of twenty (20) months counted from this date, without the Transaction having been consummated, whichever occurs first. It is agreed that the Purchasers may, at their sole discretion, regardless of justification, extend the aforementioned time period, once only, for an additional period of six (6) months for the purpose of obtaining CADE Approval and/or ANATEL's Prior Consent. For clarification purposes, the obligation provided for in Section 10.1.1, if due, shall remain valid and in effect until its effective fulfillment.

10.1.1.      Penalty (Break-Up Fee). Without prejudice to the provisions of Section 5.3.5, in the event that this Agreement is terminated by the Purchasers or expires due to the non-consummation of the Transaction by the end of the term set forth in Section 10.1 above, the Purchasers shall, irrevocably

 36 

and irreversibly, and except as otherwise provided for in Section 12.1.2 below, pay to the Seller a penalty in an amount corresponding to thirteen percent (13%) of the Base Price, provided that:

(i) the amount corresponding to ten percent (10%) of the Base Price shall be paid in cash within fifteen (15) days counted from (a) the aforementioned date of termination of this Agreement by means of electronic transfer of available funds - TED to the Seller's checking account or (b) the date of receipt of the notice of termination of the Transaction in the event of early termination of this Agreement by the Purchasers; and

(ii) the amount corresponding to three percent (3%) of the Base Price shall be paid, at the sole discretion of the Purchasers:

a) in cash by means of electronic transfer of available funds - TED to the Seller's checking account within fifteen (15) days counted from (a) the aforementioned termination date of this Agreement; or (b) the date of receipt of the notice of termination of the Transaction in the event of early termination of this Agreement by the Purchasers; or

b) by means of the consideration (in net present value) for the engagement by the Purchasers (or their respective Affiliates) of wholesale services, such as (but not limited to) the provision of backbone/backhaul capacity, transmission tower space, fiber connected homes, or any other services currently provided or to be provided in the future by the Seller or one of the Oi Group Companies (or one of their Affiliates), to be taken from the Oi Group Companies by the Purchasers, in the event of the imposition of the penalty set forth in this Section 10.1.1.

10.1.1.1.   The services shall necessarily be rendered within a maximum term of five (5) years, and the payment of said consideration shall occur (a) in relation to the portion corresponding to two percent (2%) of the Base Price on the date of execution of the Services Agreement attached as Exhibit 10.1.1 (the “General Services Agreement”), which establishes contractual terms and conditions compatible and consistent with those charged in the market for such services; and (b) in relation to the portion corresponding to one percent (1%) of the Base Price to the extent the services are rendered by the Seller, by the Companies of the Oi Group or its Affiliates, within the scope of the General Services Agreement.

10.1.1.2.   The Oi Group Companies hereby agree that, in the event of payment of the penalty provided for in this Section 10.1.1 in the form of consideration for services hired, in relation to the portion corresponding to two percent (2%) of the Base Price paid in cash, the Seller shall present, on the date of payment of the penalty (and as a condition thereof), a bank guarantee issued by a first class bank on an irrevocable and irreversible basis, in order to guarantee compliance with its obligation to provide the services paid in advance, on terms satisfactory to the Purchasers.

10.1.1.3.   The payment of the portion of the penalty corresponding to three percent (3%) of the Base Price referred to in this Section as consideration for services provided by the Seller or one of the Oi Group Companies (or one of its Affiliates) shall be subject to the execution of the General Services Agreement, as well as presentation of the bank guarantee provided in Section 10.1.1.2.

10.1.2.      In addition to the cases provided for in Section 5.3.5, the penalty provided for in Section

 37 

10.1.1       shall not apply if the termination of this Agreement occurs as a result of:

(i) a decision rendered by any competent Governmental Authority (except CADE and ANATEL) preventing consummation of the Transaction, in any event until the end of the term set forth in Section 10.1;

(ii) breach (without corresponding waiver as provided for herein) of any Condition Precedent referred to in (a) Section 4.1(i), (ii), and (v), provided that such breach is not attributable to the Purchasers, and (b) Section 4.3.

10.1.3.     Delay in the payment of the penalty set forth in Section 10.1.1 shall automatically subject the Purchasers, as of right and regardless of notice, to the payment of a non-compensatory late payment fee of two percent (2%) on the overdue amount, plus adjustment for inflation per the CDI rate, as well as late payment interest of one percent (1%) per month, calculated pro rata die on the adjusted amount, due as of the maturity date of the overdue amount until the date of its effective and full payment, without prejudice to applicable losses and damages.

10.2.       Upon termination of this Agreement and payment of the penalty provided for in Section 10.1.2, no indemnity, penalty, or additional payment shall be due by the Purchasers to the Seller, except if (a) there is a breach or falsehood in the representations and warranties provided by the Purchasers in Section 7.2 or (b) breach of the obligations assumed in this Agreement by the Purchasers, in which case the Seller shall be entitled to additional indemnification if damages or losses are effectively proven in an amount greater than the amount of the penalty provided for above.

10.3.       Effects of Termination. In any event of termination of this Agreement (a) the provisions of Section 9.1 (Confidentiality), of CHAPTER XI (Dispute Resolution), of Section 10.1.1 (Break-up Fee), and of CHAPTER XII (General Provisions) shall remain valid and effective, surviving, therefore, the termination of this Agreement; and (b) the Parties shall not be exempt from liability for the Losses to which they give rise due to any breach of this Agreement.

CHAPTER XI

DISPUTE RESOLUTION

11.1.       Arbitration. Any disputes arising under this Agreement or in any way related to it, including as to its existence, validity, effectiveness, interpretation of the terms, conditions, performance, or termination (a “Dispute”), shall be settled by arbitration as provided for in this CHAPTER XI (“Arbitration”).

11.2.       The Parties agree that, before initiating arbitration for the resolution of any Dispute, they shall attempt to negotiate an agreement for the amicable settlement of such Dispute, within a period not exceeding fifteen (15) Business Days from the receipt by one Party of notice of the existence of the Dispute sent by the other Party. The Parties agree that their obligation to resolve any Disputes amicably is an obligation of a means which does not preclude the immediate commencement of arbitration at any time at the sole discretion of any Party.

11.3.       Upon expiration of such term, or when at the discretion of any of the Parties it is impossible

 38 

to obtain an amicable solution, the interested Party may submit the Dispute to arbitration before the Market Arbitration Chamber (the “Chamber”), in accordance with its arbitration rules (the “Rules”) in force on the date of the request for initiation of arbitration, except for the amendments provided for herein.

11.4.       The arbitration shall be conducted by three (3) arbitrators (the “Arbitral Tribunal”), one appointed by the claimant party and another appointed by the respondent party, pursuant to the Rules. In the event that there are multiple claimants and/or respondents, the multiple claimants and/or respondents shall jointly appoint their respective arbitrator. In the absence of an agreement between the claimants or respondents to appoint the respective co-arbitrator, all arbitrators shall be appointed by the Chamber. The two arbitrators so appointed shall appoint, by common agreement, the third arbitrator, who shall act as chairman of the Arbitral Tribunal, within the period provided for in the Rules. If any of the three arbitrators is not appointed within that time limit, it shall be incumbent upon the Chamber to appoint the arbitrator(s) in accordance with the provisions of the Rules. Any controversy in the appointment of the arbitrators by the parties, as well as the selection of the third arbitrator, shall be resolved by the Chamber. The Parties, by mutual agreement, hereby waive application of the provisions of the Rules limiting the choice of sole arbitrator, co-arbitrator, or chairman of the arbitral tribunal to the list of arbitrators of the Chamber.

11.5.       The arbitration shall have its seat in the City of Rio de Janeiro, State of Rio de Janeiro, Brazil, where the award shall be rendered, and shall be conducted in Portuguese. The Arbitral Tribunal shall judge the merits of the Dispute according to the Brazilian laws and shall not decide based on equity.

11.6.       The Arbitral Tribunal may grant the urgent, provisional, and definitive remedies it deems appropriate, including those aimed at specific performance of the obligations under this Agreement. Any order, decision, determination, or award rendered by the Arbitral Tribunal shall be final and binding on the parties and their successors, who expressly waive any appeal. The arbitral award may be enforced before any judicial authority having jurisdiction over the parties and/or their assets.

11.7.       Each Party shall bear its own costs and expenses in the course of the arbitration and the parties shall apportion in equal parts the costs and expenses whose cause cannot be ascribed to one of them. The award shall assign to the losing party, or both parties in proportion to their unsuccessful claims, ultimate responsibility for the cost of the proceedings, including reimbursement of reasonable contractual fees of counsel and other advisers. The award shall not impose the payment of attorneys' fees for loss of suit.

11.8.       Without prejudice to this arbitration provision, the Parties elect the central courts of the City of Rio de Janeiro, State of Rio de Janeiro, Brazil, to the exclusion of any other, however privileged it may be, for the exclusive purpose of hearing and deciding any claims relating to (i) the granting of emergency measures (provisional or in limine) prior to the establishment of arbitration; (ii) the events set forth in Law No. 9,307/1996; (iii) the execution of an extrajudicial instrument, assured, however, the prerogative of choice of the judgment creditor, pursuant to article 781 of the Code of Civil Procedure; and (vi) conflicts that by force of Brazilian Legislation may not be submitted to arbitration. Any emergency measure granted by the judiciary shall be promptly reported by the party who requested such measure to the Chamber.

11.9.       The Parties agree that all issues relating to the arbitration, including its very existence, shall

 39 

be kept confidential. All elements thereof (including, without limitation, the parties' briefs, evidence, awards, and other third party filings and any other documents submitted or exchanged during the course of the arbitration proceedings) shall only be disclosed to the Arbitral Tribunal, the parties, their counsel, the staff of the Chamber, and any person necessary for the development of the arbitration, unless disclosure is required for compliance with the obligations imposed by applicable Laws or by any Governmental Authority.

11.10.     Any and all disputes relating to the confidentiality obligation shall be finally and bindingly settled by the Arbitral Tribunal, which may adopt any measure to safeguard the confidentiality of the arbitration proceedings, or of any other matter relating to the arbitration.

11.11.     If two or more disputes arise with respect to this Agreement, or in any way related to it, their resolution may occur through a single arbitration proceeding, in accordance with the Rules. Prior to the empaneling of the Arbitral Tribunal, the Chamber shall consolidate the aforementioned disputes into a single arbitral proceeding, in accordance with the Rules. After the empaneling of the Arbitral Tribunal, in order to facilitate the resolution of related disputes, the Arbitral Tribunal may, at the request of a party, consolidate the arbitral proceedings with any other pending arbitral proceedings involving the resolution of disputes arising out of or in any way connected with this Agreement. The Arbitration Tribunal shall consolidate the proceedings provided that (i) they involve the same parties; (ii) there are common issues of fact and/or law between them; and (iii) consolidation in these circumstances does not result in prejudice arising from unreasonable delay in resolving disputes. The competence to order consolidation of proceedings and conduct the consolidated proceedings shall lie with the first arbitral tribunal empaneled. The decision for consolidation shall be final and binding on all parties involved in the disputes and arbitral proceedings which are the subject of the consolidation order. The Oi Group Companies are expressly bound by this arbitration commitment for all legal purposes.

CHAPTER XII

GENERAL PROVISIONS

12.1.       Notices. All notices and other communications provided for in this Agreement shall be prepared in writing and sent to the addresses below, or to others that may be indicated by the Parties as provided for in this Section, (a) by registered or certified letter with return receipt; or (b) e-mail with proof of sending and receipt:

(i)       If to the Oi Group Companies:

Oi S.A. - In Judicial Reorganization

Rua Humberto de Campos, No. 425, 8th floor, Leblon, in the City of Rio de Janeiro, RJ

CEP 22430-190

E-mail: camille.faria@oi.net.br

Attn: Camille Loyo Faria (CFO, Investor Relations Officer)

(ii)       If to the Purchasers:

TIM S.A.

Av. João Cabral de Mello Neto, 850, Block 1, Room 1212

CEP 22.775-057, Rio de Janeiro, RJ

 40 

E-mail: ac@timbrasil.com.br

Attn: Adrian Calaza (CFO, Investor Relations Officer)

Telefônica (Brasil) S.A.

Av. Engenheiro Luiz Carlos Berrini, 1376, 32nd floor

CEP 04571-936, São Paulo, SP

E-mail: david.melcon@telefonica.com

Attn: David Melcon Sanchez-Friera (CFO, Investor Relations Officer)

Claro S.A.

Rua Henri Dunant, 780, Towers A and B

CEP 04.709-110, São Paulo, SP

E-mail: rodrigo.marques@claro.com.br

Attn: Rodrigo Marques de Oliveira (Vice President of Strategy)

12.1.1.    The notices and communications sent and delivered pursuant to Section 12.1 above shall be deemed provided on the date of their effective receipt or delivery, evidenced by written acknowledgment of receipt, voucher, or other proof of effective receipt or delivery to the addresses indicated above.

12.1.2.    Any Party may, by written notice given and delivered as provided for in Section 12.1 above, provide a different address or person to whom all notices and communications shall be sent in the future, and such modification shall be effective only after the date of delivery of the notice provided for herein.

12.2.       Irrevocability and Irreversibility. Amendment of the Agreement. This Agreement is entered into on an irrevocable and irreversible basis and binds the Parties, as well as their heirs and successors on any account. Any amendment to this Agreement may only be validly executed by means of a written amendment duly signed by all Parties, or their respective heirs and successors on any account.

12.3.       Forbearance and Waivers. Any foreign by any Party regarding delay, non-performance, or defective or incomplete performance of any of the provisions of this Agreement shall not be construed or understood as a waiver of any right and shall not prejudice the right to demand performance of obligations assumed.

12.4.       Assignment. This Agreement, the rights and obligations arising under it, or the respective contractual position, may not be assigned and/or transferred, in part or in whole, by any of the Parties, without the prior and express written consent of the other Parties.

12.5.       Exhibits. The Exhibits to this Agreement constitute an integral and inseparable part of this Agreement, for all legal purposes and effects.

12.6.       Entire Agreement. This Agreement constitutes the entire agreement among the Parties with respect to the matters addressed herein, thus superseding and replacing all prior agreements, memoranda of understanding, and/or representations, oral or written (including confidentiality agreements).

 41 

12.7.       Tax Liability. Each Party shall be responsible for the full and timely payment of any and all Taxes that are levied or come to be levied on the performance of the subject matter of this Agreement, and for which a Party, in the legal capacity of taxpayer in the tax relationship, must make payment of such Taxes, unless otherwise provided for in this Agreement.

12.8.       Severability. If at any time any provision of this Agreement is held by any court of competent jurisdiction to be illegal, void, or unenforceable, such provision shall have no force or effect, and the illegality or enforceability of such provision shall have no effect on and shall not impair the enforceability of any other provision of this Agreement.

12.9.       Representatives. Except as otherwise expressly provided for in this Agreement, no Party shall, by reason of this Agreement, be deemed to be a representative of the other Party for any purpose, and no Party shall have the power, or the authority as a representative, or otherwise, to represent, act, bind, obligate, or otherwise create or assume any obligation on behalf of any other Party for any purpose.

12.10.     Specific Performance. The Parties undertake to fulfill, formalize, and perform their obligations always in strict compliance with the terms and conditions established in this Agreement. The Parties hereby acknowledge and agree that all obligations assumed or that may be charged under this Agreement are subject to specific performance under the Brazilian Code of Civil Procedure. The Parties do not waive any action or remedy to which they may be entitled at any time. The Parties expressly acknowledge and undertake the specific performance of their obligations and accept judicial orders or other similar acts.

12.11.     Expenses. Unless specifically provided for otherwise in this Agreement, each Party shall bear its own expenses incurred in the preparation, negotiation, execution, and implementation of this Agreement and other documents provided for herein, including all fees and expenses of agents, consultants, advisors, brokers, representatives, attorneys, and accountants, it being certain that no costs related to the Transaction shall be attributed to the Company.

12.12.     Enforceable Instrument. This instrument signed in the presence of two (2) witnesses shall serve as an extrajudicial enforceable instrument in the manner set forth in the Brazilian Code of Civil Procedure, for all legal effects.

12.13.     Applicable Law. This Agreement and all aspects of the legal relationship created by it shall be governed by and construed in accordance with the laws of the Federative Republic of Brazil.

IN WITNESS WHEREOF, the Parties hereto sign this Agreement in four (4) counterparts, together with the two (2) witnesses indicated below.

Rio de Janeiro, January 28, 2021.

[signature pages follow]

 42 

[Signature page 1 of the Share Purchase Agreement and Other Covenants entered into on January 28, 2021, by and among Oi S.A. - In Judicial Reorganization, Telemar Norte Leste S.A. - In Judicial Reorganization, Oi Móvel S.A. - In Judicial Reorganization, TIM S.A., Telefônica Brasil S.A., and Claro S.A.]

Oi S.A. - In Judicial Reorganization

/s/ Rodrigo Modesto de Abreu	/s/ Camille Loyo Faria
By: Rodrigo Modesto de Abreu Title: Chief Executive Officer	By: Camille Loyo Faria Title: Chief Financial Officer

Telemar Norte Leste S.A. - In Judicial Reorganization

/s/ Rodrigo Modesto de Abreu	/s/ Camille Loyo Faria
By: Rodrigo Modesto de Abreu Title: Chief Executive Officer	By: Camille Loyo Faria Title: Chief Financial Officer

Oi Mobile S.A. - In Judicial Reorganization

/s/ Rodrigo Modesto de Abreu	/s/ Camille Loyo Faria
By: Rodrigo Modesto de Abreu Title: Chief Executive Officer	By: Camille Loyo Faria Title: Chief Financial Officer

 43 

[Signature page 2 of the Share Purchase Agreement and Other Covenants entered into on January 28, 2021, by and among Oi S.A. - In Judicial Reorganization, Telemar Norte Leste S.A. - In Judicial Reorganization, Oi Móvel S.A. - In Judicial Reorganization, TIM S.A., Telefônica Brasil S.A., and Claro S.A.]

TIM S.A.

/s/ Pietro Labriola	/s/ Adrian Calaza
By: Pietro Labriola Title: Chief Executive Officer	By: Adrian Calaza Title: Chief Financial Officer

 44 

[Signature page 3 of the Share Purchase Agreement and Other Covenants entered into on January 28, 2021, by and among Oi S.A. - In Judicial Reorganization, Telemar Norte Leste S.A. - In Judicial Reorganization, Oi Móvel S.A. - In Judicial Reorganization, TIM S.A., Telefônica Brasil S.A., and Claro S.A.]

Telefônica (Brasil) S.A.

/s/ David Melcon Sanchez-Friera	/s/ Breno Rodrigo Pacheco de Oliveira
By: David Melcon Sanchez-Friera Title: Chief Financial Officer	By: Breno Rodrigo Pacheco de Oliveira Title: General Counsel

 45 

[Signature page 4 of the Share Purchase Agreement and Other Covenants entered into on January 28, 2021, by and among Oi S.A. - In Judicial Reorganization, Telemar Norte Leste S.A. - In Judicial Reorganization, Oi Móvel S.A. - In Judicial Reorganization, TIM S.A., Telefônica Brasil S.A., and Claro S.A.]

Claro S.A.

/s/ Rodrigo Marques de Oliveira	/s/ Antônio Oscar de Carvalho Petersen
By: Rodrigo Marques de Oliveira Title: Vice President of Strategy	By: Antônio Oscar de Carvalho Petersen Title: General Counsel

 46 

[Signature page 5 of the Share Purchase Agreement and Other Covenants entered into on January 28, 2021, by and among Oi S.A. - In Judicial Reorganization, Telemar Norte Leste S.A. - In Judicial Reorganization, Oi Móvel S.A. - In Judicial Reorganization, TIM S.A., Telefônica Brasil S.A., and Claro S.A.]

Witnesses:

1.	/s/ Stefano Lisa	2.	/s/ Ricardo Guillermo Hobbs
	Name: Stefano Lisa RNE: G115786-T CPF: 070.535.301-86		Name: Ricardo Guillermo Hobbs RG: 12516658-8 CPF: 202.791.548-60

 47 

Exhibit 1.3

Definitions

“Affiliate” means, with respect to any Person: (i) any other Person that, directly or indirectly, is Controlled by or is under common Control with such Person; (ii) in which such Person, directly or indirectly, has Significant Influence (as defined under Brazilian GAAP); or (iii) in which such Person has Control; it being further provided, that (a) any Person that owns directly or indirectly, through one or more intermediaries or otherwise, twenty percent (20%) or more of the ownership interest (other than as a limited partner of such Person) shall be deemed an Affiliate of such Person, and (b) each partnership of which a Person is a general partner shall be deemed an Affiliate of such Person. For all purposes hereof, the Mobile SPEs are, until the Closing, Affiliates of the Seller and, after the Closing, Affiliates of the Purchasers.

“ANATEL” means the National Telecommunications Agency.

“General Meeting of Creditors” means the general meeting of creditors held on September 8, 2020, that approved the Amendment to the Judicial Reorganization Plan.

“UPI Mobile Assets, Obligations, and Rights” means solely and exclusively the assets, obligations, rights, licenses of use or exploitation, authorizations, contracts, customers, and other assets identified and listed in Exhibit 2.1.1.

“Government Authority” means any governmental, regulatory, or administrative authority, agency, or commission, recognized stock exchange, or, further, any court, tribunal, or judicial or arbitral body, whether federal, state, or municipal, Brazilian or of any other country with jurisdiction over a Person or situation at issue, including CADE and ANATEL.

“Governmental Authorizations” means any consent, permission, approval, waiver, or authorization of any Governmental Authority, and any declaration, registration, submission, transfer, or filing with any Governmental Authority for the implementation of the transactions contemplated by this Agreement.

“CADE” means the Administrative Council for Economic Defense.

“Cash” means, with respect to each Person, in aggregate, without duplication and as recorded on the Balance Sheet, the amounts of cash or cash equivalents and marketable securities, convertible into cash within ninety (90) days, excluding any cash that may not be freely used by reason of restrictions, limitations, or taxes on use, or distribution by Law, contract, or otherwise, including, without limitation, restrictions on dividends and recoveries or any other form of restriction, including guarantee, bond, or security deposits. For the avoidance of doubt, Cash excludes rent guarantee deposits, customer deposits, and judicial deposits and should be calculated net of outstanding checks.

“CAPEX” means the expenditures and/or disbursements incurred for the acquisition, expansion, enlargement, or refurbishment of fixed and/or intangible assets of UPI Mobile Assets that meet the criteria for capitalization in accordance with Accounting Practices.

“Closing CAPEX” means the amount of CAPEX, as the case may be, as of the date of delivery of the Closing Price Calculation Statement, calculated by the Seller as the amount equivalent to the

 48 

cumulative CAPEX from January 1, 2020, through the Closing Date.

“CAPEX Target” means the amount of R$73,900,000.00 per month, established in accordance with the CAPEX Plan. The CAPEX Target shall be calculated considering the cumulative amount from January 1, 2020, to the Closing Date, as shown in Exhibit 3.7. For the purposes of clarification, if the Closing occurs on October 31, 2021, the CAPEX Target shall be twenty-two (22) months, multiplied by R$73,900,000.00.

“Working Capital” means, without duplication, current assets, including, inventories net of provisions and write-offs, current accounts receivable from customers net of allowance for doubtful accounts, accounts receivable arising from services rendered but not yet invoiced, advances granted to third parties, and other assets and rights realizable within one year, less current liabilities, including accounts payable to suppliers and service providers (except for those related to the acquisition of property, plant, and equipment - CAPEX, with these being considered in the definition of Gross Indebtedness), accounts payable from accrued liabilities, provision for accounts payable not invoiced by suppliers, other current accounts payable, advances obtained from third parties, liabilities related to payroll, current taxes payable in current liabilities, excluding provisions for payment or assets associated with FISTEL-TFF inspection fee. For the avoidance of doubt, Working Capital shall be calculated excluding any outstanding checks that were considered in the Cash calculation. For the purposes of clarification, the definition of Working Capital should not consider the amounts included in the calculation of Cash and Gross Debt.

“Closing Working Capital” means the amount of the combined Working Capital of the Mobile SPEs included in the Closing Price Calculation Statement, calculated by the Seller and its advisors based on the Closing Balance Sheet of the Mobile SPEs estimated by the Seller in accordance with the Accounting Practices.

“Target Working Capital of the Mobile SPEs” means the amount of R$ 126,000,000.00.

“CDI” means the average annual rate (considering a year of 252 business days) related to transactions with Interbank Deposit Certificates - CDI, with maturity equal to one (1) Business Day (over), calculated and disclosed daily by B3 S.A. - Brasil, Bolsa, Balcão with rounding of the daily factor to the eighth decimal place. If, for any reason, the CDI rate is extinguished, replaced, or not disclosed, the interest rate that officially replaces it shall be applied or, in its absence, the rate that best reflects the average variation of the funding costs in the domestic interfinancial market.

“Brazilian Civil Code” means Law No. 10,406/2002, and its subsequent amendments.

“Brazilian Code of Civil Procedure” means Law No. 13,105/2015, as amended.

“National Tax Code” means Law No. 5,172, of October 25, 1966, as amended.

“Knowledge” means, with respect to a particular Person, (a) actual knowledge of such Person or any of its officers; and (b) the knowledge which such Person or any of its officers should have acquired by diligent inquiry and/or which would be expected of them as a result of Law and/or their fiduciary duties. In the case of the Seller, its Knowledge includes Knowledge of Oi Móvel and its Affiliates.

“Sharing Agreements” means the agreements that establish the conditions for sharing infrastructure

 49 

items, towers, and the assignment of the use of areas and facilities under the domain of Third Parties, as described in the respective agreements, for the sole purpose of providing telecommunications services.

“Lease Agreements” means the lease agreements, assignment of use of space, or other real estate instruments that establish the conditions of use and access of areas or properties under the domain or owned by Third Parties for the installation of infrastructure items, towers, or antennas, as described in the respective agreements, for the sole purpose of providing telecommunications services.

“Ancillary Operating Agreements” means (a) the Agreement for the Supply of Telecommunications Signal Transmission Capacity on an Industrial Exploitation Regime, and (b) the Infrastructure Sharing Agreement, all to be entered into, on the Closing Date, between the Seller or another Oi Group company and the Mobile SPEs pursuant to Section 6.1(ix).

“Transition Services Agreements” means the Agreements that shall have as their subject the provision, by companies of Oi Group to the Mobile SPEs, on a transitional basis, of certain services necessary for the continuity of the operation of the business comprised by the UPI Mobile Assets, as of the Closing Date, in the same manner and with at least the same quality as they were conducted in the Normal Course of Business, during the twelve (12) months prior to the execution of this Agreement, pursuant to the minimum terms and conditions set forth in Exhibit 6.1(viii).

“Material Agreement” means any contract, pre-contract, memorandum of understanding, letter of intent, agreement, guarantee, or commitment entered into by a Person that entails annual revenues/expenditures to such Person equal to or greater than seven million Brazilian Reais (R$ 7,000,000.00). “Control” means, with respect to any Person, (a) the ownership, direct or indirect, of the power to determine the management and lines of action of such Person, either through (i) ownership of the majority of its voting capital stock (or rights that ensure a majority in its corporate resolutions, as applicable), (ii) the right to elect the majority of its directors, and/or (iii) by means of agreement, qualified quorum in the bylaws or articles of incorporation or any other legal form; as well as, (b) even if in the absence of any of the requirements provided for in item (a) above, the power actually used to direct the corporate activities and guide the operation of the bodies of the Person in question, directly or indirectly, in fact or in law, regardless of the equity interest held. The expressions and terms “Controller”, “Controlled by”, “under common Control” and “Controlled” have the meanings logically arising from this definition of Control.

“Normal Course of Business” means, with respect to a Person, the conduct of its business, in accordance with all Laws applicable to such Person, in a manner that is consistent in nature, scope, and magnitude with past practices of such Person and is related to its day-to-day operations.

“Decision” means any judgment, grant, order, order, decree, mandate, instruction, or decision of Governmental Authority.

“Fundamental Representations and Warranties Oi Group Companies” means the representations and warranties provided by the Oi Group Companies in Sections 7.1.1 through 7.1.4 and 7.1.12 of Exhibit 7.1 to this Agreement.

“Claims” means any action, judicial, arbitral, or administrative proceeding, demand, Decision, judicial

 50 

or extrajudicial notice, complaint, notice of violation, lien, garnishment, notice of noncompliance, or violation, investigation, audit, assessment, notice of collection, proceeding, or judicial or administrative inquiry.

“Business Day” means any day other than a Saturday, Sunday, holiday, or day on which financial institutions are required or authorized by Law to remain closed in the City of Rio de Janeiro or São Paulo.

“Net Debt” means Gross Debt minus Cash (calculating both Gross Debt and Cash as positive numbers, such that Net Debt shall be a positive number if Gross Debt exceeds Cash, or a negative number if Cash exceeds Gross Debt).

“Closing Net Debt” means the amount of the combined Net Debt of the Mobile SPEs included in the Closing Price Calculation Statement, calculated by the Seller and its advisors based on the Closing Balance Sheet of each of the Mobile SPEs prepared in accordance with the Accounting Practices.

“Transaction Documents” means this Agreement, the Ancillary Operating Agreements, and the Transition Services Agreements.

“Public Notice” means the public notice containing the rules applicable to the Competitive Process, published on November 10, 2020, by the Seller pursuant to the Judicial Reorganization Plan.

“Material Adverse Effect” means, with respect to any Person, any change or effect that, individually or in conjunction with other factors, materially impairs the financial condition of such Person or its Affiliates and/or the development of the activities and operations of such Person or its Affiliates, and that results or may result in a Loss, contingent or actual, negative financial impacts, imposition of payments, or disbursements in an amount equal to or greater than an amount in Brazilian Reais equivalent to twenty percent (20%) of the Base Price, considered individually or in the aggregate, including any change or effect arising from any of the following events, circumstances, cases, or state of affairs to the extent that such event, circumstances, case, or state of affairs generates a disproportionate adverse impact on the business or operations of the Person, when compared to other Persons operating in the same industries and markets as the Person: (a) material changes in the economic or political environment in Brazil or material changes abroad that affect the securities, credit, consumer, or capital markets, or the market in which the Person and its Affiliates operate; (b) any material changes in applicable Laws or accounting standards that occurred after the date hereof. Notwithstanding the provisions above, the following shall always be considered a Material Adverse Effect: (a) default of any obligation under the Judicial Reorganization Plan and/or the declaration of bankruptcy of any of the Oi Group Companies; and (b) a reduction in the accumulated Net Revenue of the six months prior to the Closing above 50% of the Minimum Revenue.

“Independent Audit Firm” means any of the four well-known international audit and consulting firms (EY, PwC, Deloitte, and KPMG) or, if they are all in a conflict-of-interest situation or with restrictions on independence, any among BDO- RCS Auditores Independentes, RSM Brasil, Grant Thornton Brasil.

“Gross Indebtedness” means on the date to be determined with respect to the Mobile SPEs, in an aggregate and unduplicated amount: (a) the principal balance and any interest, premium, costs, fees,

 51 

penalties (including but not limited to prepayment penalties and brokerage costs) in connection with prepayment of debt and all accrued and unpaid interest in connection with indebtedness for loans and all items included in letters b) through s) below; provided that unamortized debt issuance costs shall be excluded from this calculation and that all debt shall be recorded without any time adjustment resulting from extension of terms or other procedures that would result in the debt being recorded in the books at less than par, balance when discounted with effective reduction of the obligation. Gross Indebtedness shall also include fines, financial penalties (whether materialized or not), and obligations arising from administrative or judicial proceedings of any nature (including fact-finding proceedings for noncompliance with obligations, consent decrees, and others) imposed on Oi Group Companies or any of their respective Affiliates, officers and directors, employees, or representatives by ANATEL or any other Governmental Authority and that are related to the operation or conduct of business related to the UPI Mobile Assets, Obligations, and Rights, and that have been initiated at any time prior to the Closing.

(a)       financial obligations (which cannot be measured at fair value) evidenced by notes, bonds, debentures, loan stock, or similar instruments, whether convertible or not, including those incurred in connection with the acquisition of property, assets, or businesses;

(b)       any obligations (whether or not secured, as holder, guarantor, or otherwise) to pay money or with respect to money borrowed or raised (which may not be valued using fair value), by any means (including acceptances, bills of exchange, bonds, and deposits), including any costs and fees payable in connection therewith and any obligations on any interest payments are realized;

(c)       to the extent not otherwise included in this definition, the effect of mark-to-market (positive or negative) of all financial derivative instruments;

(d)       amounts drawn from credit lines;

(f)        all lease liabilities that should be capitalized in accordance with Brazilian GAAP, including those related to property, plant, and equipment, if applicable. For the avoidance of doubt, no amount arising from a lease liability, due to the application of CPC 06 (R2) (or IFRS16) as of January 1, 2019, shall be considered as Indebtedness, to the extent that these leases should not have been classified as finance leases before the application of said CPC 06 (or IFRS 16), whose mandatory application took place as of January 1, 2019;

(g)       any dividend or other profit distribution declared but not paid;

(h)       any amounts payable to suppliers of fixed assets (CAPEX);

(i)        any deferred revenue balance related to long-term contracts;

(j)        past-due balances and debts to any supplier, employee, and/or service providers (including the provision for interest expense and penalties related to such past-due balances);

(k)       transaction bonuses (payable to the Seller's employees, outside advisors, or any other party involved in the transaction) and any other transaction costs;

(l)        balances of actuarial liabilities related to pension plans for employees of Oi Móvel or the Mobile SPEs ((presented individually and considered in combination for the purposes of Chapter III)), as applicable, and any other social benefits granted to employees that are not already

 52 

considered in working capital;

(m)      performance bonus payable to Employees and former employees;

(n)       any balances of taxes in arrears, balances payable under tax, labor or social security installment plans, as well as balances of taxes payable classified as noncurrent liabilities in the Company's balance sheet;

(o)       income tax balances due and unpaid;

(p)       any debt, liability or obligation payable related to the judicial reorganization;

(q)       all receivables advanced or monetized with financial institutions and/or acquirers of credit card services;

(r)        past due installments related to acquisitions made by Oi Móvel and/or the Mobile SPEs;

(s)       any balance payable to Oi or any of its subsidiaries;

(t)        any outstanding balances relating to obligations, liabilities, or provisions that, according to the pro forma financial statements of UPI Mobile Assets prepared by Ernst & Young, are not reflected in the Closing Balance Sheet of each Mobile SPE;

(u)       Liabilities and obligations due and unpaid to regulatory agencies, including fines, interest, and adjustments for inflation;

(v)       materialized civil, tax, and labor contingencies whose liabilities and provisions are reflected in the accounting records of the Mobile SPEs; and

(x)       provisions for payment or assets associated with FISTEL inspection fee (TFF).

“Brazilian GAAP” means the accounting practices adopted in Brazil, which corresponds to the full set of accounting rules and standards issued by the Accounting Pronouncements Committee (CPC), applicable to publicly held and large companies, applied in a uniform manner and comparable with prior periods.

“Oi Group” means the group of companies comprised by Oi S.A. - In Judicial Reorganization (“Oi”) and its Affiliates.

“Confidential Information” means, with respect to any Party, any and all information (i) to which a Party comes to have access or knowledge by means of the negotiation of the Transaction and execution of the Transaction Documents; and (ii) concerning the business, properties, and business relationships, including names and addresses of any customers and suppliers of a Party, as well as the respective Affiliates.

“Judicial Reorganization Court” means the 7th Business Court of the Court of the Rio de Janeiro State Court of Appeals.

“Law” means any and all legal standards, laws, statutory provisions, regulations, ordinances, codes, or policies, federal, state or local, consent, directive, decree, or Final Decision of a Governmental

 53 

Authority in effect.

“Brazilian Corporations Law” means Law No. 6,404, of December 15, 1976, and its subsequent amendments.

“5G/700MHz Auction” means the spectrum auction held by ANATEL for the introduction of the frequencies to be used by 5G technology and the 700MHz band in Brazil.

“Brazilian Anti-Corruption Laws” means all Brazilian Laws regarding corruption, bribery, fraud, public conflict of interest, improper conduct, bid and public procurement violations, money laundering, political or electoral donations, or business administration without commitment to ethics, including but not limited to, Decree-Law No. 2,848/1940 (Criminal Code), Brazilian Federal Law No. 8,429/1992 (Administrative Misconduct Law), Brazilian Federal Law No. 9,504/1997 (Electoral Law), Brazilian Federal Law No. 8,666/1993 (Public Contracts and Bidding Law), Brazilian Federal Law No. 12,813/2013 (Conflict of Interest Law), Brazilian Federal Law No. 9,613/1998 (Money Laundering Law) and Brazilian Federal Law No. 12,846/2013 (Anti-Corruption Law), subsequently regulated by Federal Decree No. 8,420/2015 (Anti-Corruption Decree).

“License” means licenses, permits, franchises, concessions, grant title, orders, consents, approvals, authorizations, registrations, waivers, variances, qualifications, certificates, or other similar authorizations issued, or otherwise granted, by a Governmental Authority.

“Non-Disclosure Agreement” means the Non-Disclosure Agreement signed on January 3, 2020, between Telemar and each of Telefônica and Claro (or their Affiliates), and on December 26, 2019, between Telemar and TIM. A copy of each Non-Disclosure Agreement is set forth in Exhibit 1.3(ii) to this Agreement.

“Encumbrance” means any encumbrance, judicial or extrajudicial, secured, in rem, obligatory, or personal; charge; claim; attachment; lien; pledge; security interest; mortgage; fiduciary sale; blockage, unavailability, seizure, sequestration, or garnishment; antichresis, annual rent, or pension; option or right of purchase, sale, conversion, exchange; right of first offer, right of first refusal, or preference in purchase, sale, or subscription; claim; or other lien of any nature.

“Related Party” means, with respect to any Person, any other Person (a) who is a spouse, ascendant, descendant, or collateral to the third degree of such first Person; (b) who is, directly or indirectly, an Affiliate, Associated Company, Controlled Company, Parent, or under common Control with such first Person; (c) in which such first Person, directly or indirectly, has significant influence (as defined by Brazilian GAAP); or (d) of which such first Person owns more than twenty percent (20%) of the shares, quotas, or voting securities of the Person.

“Share of Net Revenue” means the share of the amount of Net Revenue of the business consisting of the UPI Mobile Assets, Obligations, and Rights accumulated in the last published six-month period prior to the Closing Date in relation to the Net Revenue of the mobile telephony market (understood as the sum of the four main operators: Telefônica, TIM, Claro, and Oi Móvel) - “Revenue Share”.

“Minimum Net Revenue Participation” means the share in the amount of Net Revenue of the business consisting of the UPI Mobile Assets, Obligations, and Rights accumulated in the published 2019 six-

 54 

month period preceding the month in which the Closing occurs in relation to the total amount of Net Revenue of the mobile market, calculated in accordance with the monthly revenues of UPI Mobile Assets as presented in Exhibit 3.7. For the avoidance of doubt, if the Closing occurs on October 31, 2021, the Minimum Net Revenue Participation should correspond to the aggregate amount of revenues earned during April, May, June, July, August, and September of 2019.

“Share of Net Earnings by Product” means the share (%) of the UPI Mobile Assets in the variation of customers by Product of the total market according to data reported by Anatel for the market of the services provided by the UPI Mobile Assets.

“Share of Net Earnings by Reference Product” means the share (%) of the UPI Mobile Assets in the variation of customers by Product of the total market, in a manner comparative between the dates or a given period, according to data reported by Anatel for the market of the services provided by the UPI Mobile Assets.

“Liabilities” means any and all debts, obligations, onerous commitments, and/or provisions, accrued or fixed, absolute or contingent, due or falling due, determined or determinable, whether or not recognized in the accounting records, including those arising from any Law, Proceeding, or Governmental Decision, and those arising from any contractual instrument.

“Loss” means any and all losses suffered, directly, that constitute economic or extra-economic damage, such as, for example, consequential damages, lost profits, damage to image, liabilities, constraints, contingencies, fines, costs, disbursements, obligations, expenses, judicial costs, attorneys’ fees and those of other specialists, including experts, costs with reports, etc. Loss shall include not only those effectively disbursed, but also those that may have a negative impact on a Person, regardless of disbursement. Loss should not require a final judgment in court, unless it is the result of a third-party claim.

“Person” means any person, whether an individual or legal entity, as well as any entities lacking legal personality, including Governmental Authorities, associations, foundations, trusts, partnerships, investment funds, joint ventures, consortiums, condominiums, de facto corporations, partnerships, or any other entity with or without legal personality.

“CAPEX Plan” means the capital expenditure plan of the UPI Mobile Assets, prepared in accordance with the Accounting Practices.

“Judicial Reorganization Plan” means the judicial reorganization plan of Oi and its direct and indirect subsidiaries Telemar, Oi Móvel, Portugal Telecom International Finance BV - In Judicial Reorganization, and Oi Brasil Holdings Cooperatief UA - In Judicial Reorganization - together with the companies COPART 4 Participações S.A. - In Judicial Reorganization and COPART 5 Participações S.A. - In Judicial Reorganization that were subsequently merged, respectively, into Oi and Telemar - approved at a general meeting of creditors held on December 19 and 20, 2017, and ratified by the Judicial Reorganization Court on January 8, 2018, as amended pursuant to the terms of the Amendment to the Judicial Reorganization Plan approved at the General Meeting of Creditors.

“Accounting Practices” means the accounting practices adopted in Brazil under Brazilian GAAP, applied in good faith and in a uniform and comparable manner with prior periods and using at all times

 55 

the same criteria that were adopted by the Seller in the preparation of the Oi Móvel Financial Statements disclosed in connection with the fiscal year ended December 31, 2019.

“Proceeding” means any action, suit, judicial, arbitral, or administrative proceeding, demand, order, judicial or extrajudicial notice, claim, notice of infringement, notice of violation or breach, investigation, notification, notice of collection, suit, administrative or judicial inquiry, filed by or brought against any of the Parties and/or Oi Móvel.

“Product” means Prepaid, Postpaid, Control, and M2M service. In the absence of market benchmarks for Control, the sum of Postpaid and Control shall apply.

“Intellectual Property” means any and all trademarks, corporate names, service marks, service names, patents, utility models, copyrights, moral rights, trademarks, product designs, product formula, trade secrets, product packaging, research and development, inventions (whether patentable or not), invention disclosures, improvements, processes, formulae, industrial models, drawings and formulations, diagrams, specifications, technology, methodologies, embedded software ( firmware), development tools, flow charts, annotations, Internet domain names, software licenses, any other confidential and proprietary right or information, whether or not registrable, including all pending rights, licenses or applications for registration, for any of the above, and all related technical information, technical, engineering, or manufacturing drawings, know-how, documents, diskettes, records, files, and other media in which the items cited above are stored.

“Antitrust Protocol” means the Antitrust Protocol entered into between Telemar and each of the Purchasers (or their Affiliates) on April 14, 2020, in the case of TIM, on April 12, 2020, in the case of Telefônica, and on April 27, 2020, in the case of Claro. A copy of each Antitrust Protocol is set forth in Exhibit 1.3(iii) to this Agreement.

“Net Revenue” means the revenue, whether or not billed, earned as a result of the provision of mobile telephony services, net of the corresponding Taxes levied on gross revenue and any other deductions from gross revenue, calculated in accordance with the Accounting Practices.

“Minimum Revenue” means the amount of Net Revenue of the business consisting of the UPI Mobile Assets, Obligations, and Rights accrued in the same six (6) month period of 2019 preceding the month in which the Closing occurs, calculated in accordance with the monthly revenue of UPI Mobile Assets as presented in Exhibit 3.7. For the avoidance of doubt, if the Closing occurs on October 31, 2021, the Minimum Revenue should correspond to the aggregate amount of Net Revenue earned during April, May, June, July, August, and September of 2019.

“Representative” of a Person shall be construed broadly and shall include members, officers, partners, directors, executives, employees, agents, advisors, attorneys, consultants, accountants, investment bankers, and other representatives of such Person.

“Subsidiaries” means with respect to a Person, a company Controlled directly or under common control with such Person.

“Tax” means any levy; tax; charge; fee; social security contribution, social contribution, improvement contribution, or intervention in the economic domain; compulsory loan; or other monetary payment,

 56 

imposed by a Government Authority and that has any of the natures provided above; including taxes on capital gains, withheld at the source, related to remuneration or on property, ICMS, IPI, COFINS, PIS, CSLL, ISS, IPTU, ITR, ITBI, ITCMD, IPVA, IRPJ, IRRF, INSS, FGTS, IOF, ISS, II, and ITR; as well as collections related to such amounts, including interest, fines (whether or not default fines), isolated fines, penalties, adjustment for inflation, and amounts related to ancillary obligations, including fines for noncompliance therewith.

Other Definitions. The following terms are defined in the following sections or items of the Agreement:

Term	Section
Shares	2.1.2
SPE Claro Shares	2.1.2
SPE Telefônica Shares	2.1.2
SPE TIM Shares	2.1.2
Post-Closing Adjustment	3.8
Final Post-Closing Adjustment	3.8.6
Prior Consent of ANATEL	4.1(iv)
CADE Approval.	4.1(iii)
AR	5.3.5.1
Arbitration	11.1
Assets Outside the Perimeter	5.3.5(i)
Closing Acts	6.1
Auditor	3.8.5
Closing Balance Sheet	3.2
Final Closing Balance Sheet	3.8
Chamber	11.3
Claro	Parties’ Identification
Purchasers	Parties’ Identification
Conditions Precedent	4.3
Seller’s Conditions Precedent.	4.2
Purchasers' Conditions Precedent	4.3
Parties' Conditions Precedent	4.1

 57 

Agreement	Recitals
General Services Agreement	10.1.1.1
Post-Adjustment Determination Date	3.8.7
Closing Date	6.1
Third-Party Claim	8.8
Direct Claim	8.7
Closing Income Statement	3.2
Final Closing Financial Statement	3.8
Calculation Statement – Closing Price	3.2
Disputes	11.1
Closing	6.1
Guarantee	3.8.9
Pre-filing Drafts	5.3
Auditor Notice	3.8.5
Post-Closing Adjustment Notice	3.8
Agreement Notice	3.8.3
Third-Party Claim Notice	8.8
Disagreement Notice	3.8.3
Indemnification Notice	8.7
Response Notice	8.7.1
Minimum Segregation Obligations	5.2.4
Oi	Parties’ Identification
Oi Móvel	Parties’ Identification
Radio Frequency Purchase Option	9.5
Transaction	2.1
Segregation and Division Budget	2.1.4

 58 

Party	Parties’ Identification
Reporting Party	9.1.4
Indemnifying Party	8.7
Parties	Parties’ Identification
Indemnified Parties	8.4
Seller’s Indemnified Parties	8.4
Purchasers' Indemnified Parties	8.1
Segregation and Division Plan	2.1.4
Discussion Deadline	3.8.4
Response Period	8.7.1
Final Term	8.6
Base Price	3.1(a)
Adjusted Base Price	3.1.1
Share Purchase Price	3.1(a)
Transition Services Purchase Price	3.1(b)
Closing Price	3.2
Competitive Process	Recital D
Pro-Forma Mobile Assets	3.1(a)
Regulations	11.3
Cost Report	2.1.8
Corporate Reorganization	5.2
Pre-filing Meetings	5.3
UPI Mobile Assets Segregation	5.2
Oi Group Takeover Company	Recital F
Oi Group Companies	Parties’ Identification
Mobile SPE	2.1.1

 59 

Telefônica	Parties’ Identification
Telemar	Parties’ Identification
TIM	Parties’ Identification
Arbitral Tribunal	11.4
UPI Mobile Assets	2.1.1
Withheld Amount	3.3
Seller	Parties’ Identification

 60 

Exhibit 1.3(ii)

Non-Disclosure Agreements

[Omitted]

Exhibit 1.3(iii)

Antitrust Protocol

[Omitted]

Exhibit 2.1.1

UPI Mobile Assets, Obligations and Rights

[Omitted]

Exhibit 2.1.4

Segregation and Division Plan

[Omitted]

Exhibit 3.7

Calculation Examples

[Omitted]

Exhibit 4.2(iii)

Purchasers’ Corporate Approvals

[Omitted]

Exhibit 4.3(iii)

Third-Party Authorizations

[Omitted]

Exhibit 5.1

Cooperation Obligations

[Omitted]

Exhibit 5.1.1

Information Obligations

[Omitted]

Exhibit 5.2.4

Minimum Segregation Obligations

[Omitted]

Exhibit 5.4(xvii)

List of officers, directors and employees for segregation

[Omitted]

Exhibit 6.1(vii)

Term Sheet of Transitional Services Agreement

[Omitted]

Exhibit 6.1(ix)(a)

Draft of the Agreement for the Supply of Telecommunications Signal Transmission Capacity under an Industrial Exploitation Regime

[Omitted]

Exhibit 6.1(ix)(b)

Draft of the Infrastructure Sharing Agreement

[Omitted]

Exhibit 7.1

Representations and Warranties of Oi Group Companies

[Omitted]

Exhibit 7.1.5

Exceptions to the ownership and validity of licenses

[Omitted]

Exhibit 7.1.6

List of Relevant Agreements

[Omitted]

Exhibit 7.1.7

Related Parties Agreements

[Omitted]

Exhibit 7.1.10

Exceptions to the ordinary course of business

[Omitted]

Exhibit 7.1.13

Exceptions to the ownership, right of use and regularity of UPI Mobile Assets, Obligations and Rights

[Omitted]

Exhibit 7.1.16(i)

Licenses required by ANATEL

[Omitted]

Exhibit 7.1.16(iii)

Exceptions to the regularity of the licenses required by ANATEL

[Omitted]

Exhibit 7.1.19

Intellectual Property

[Omitted]

Exhibit 7.2

Representations and Warranties of Purchasers

[Omitted]

Exhibit 9.6

Substitution of Guarantees

[Omitted]

Exhibit 10.1.1

Draft of the General Services Agreement (Break-up Fee)

[Omitted]

EX-8.1

Exhibit 8.1

List of Subsidiaries of Telefônica Brasil S.A.

Subsidiaries	2020
Terra Networks Brasil S.A.		100.00	%
Telefônica Transportes e Logística LTDA		99.99	%
POP Internet Ltda.		99.99	%
Vivo Money Credit Rights Investment Fund		100.00	%
Aliança Atlântica Holding B.V.(1)		50.00	%
Companhia AIX de Participações (1)		50.00	%
Companhia ACT de Participações (1)		50.00	%

(1) jointly controlled

EX-12.1

Exhibit 12.1

CERTIFICATION

I, Christian Mauad Gebara, certify that:

1.       I have reviewed this annual report on Form 20-F of Telefônica Brasil S.A.;

2.       Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.       Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the company as of, and for, the periods presented in this report;

4.       The Company’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the company and have:

a.       designed such disclosure controls and procedures or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the company, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b.       designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c.       evaluated the effectiveness of the company’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d.       disclosed in this report any change in the company’s internal control over financial reporting that occurred during the period covered by the annual report that has materially affected, or is reasonably likely to materially affect, the company’s internal control over financial reporting; and

5.       The Company’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the company’s auditors and the audit committee of the company’s board of directors (or persons performing the equivalent functions):

a.       all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Company’s ability to record, process, summarize and report financial information; and

b.       any fraud, whether or not material, that involves management or other employees who have a significant role in the Company’s internal control over financial reporting.

Date:	February 25, 2021	By:	/s/ Christian Mauad Gebara
			Name:	Christian Mauad Gebara
			Title:	Chief Executive Officer

EX-12.2

 Exhibit 12.2

CERTIFICATION

I, David Melcon Sanchez-Friera, certify that:

1.       I have reviewed this annual report on Form 20-F of Telefônica Brasil S.A.;

2.       Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.       Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the Company as of, and for, the periods presented in this report;

4.       The Company’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the Company and have:

a.       designed such disclosure controls and procedures or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the Company, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b.       designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c.       evaluated the effectiveness of the Company’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d.       disclosed in this report any change in the Company’s internal control over financial reporting that occurred during the period covered by the annual report that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting; and

5.       The Company’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the Company’s auditors and the audit committee of the Company’s board of directors (or persons performing the equivalent functions):

a.       all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Company’s ability to record, process, summarize and report financial information; and

b.       any fraud, whether or not material, that involves management or other employees who have a significant role in the Company’s internal control over financial reporting.

Date:	February 25, 2021	By:	/s/ David Melcon Sanchez-Friera
			Name:	David Melcon Sanchez-Friera
			Title:	Chief Financial Officer

EX-13.1

Exhibit 13.1

CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE U.S. SARBANES-OXLEY ACT OF 2002

In connection with the Annual Report of Telefônica Brasil S.A. (the “Company”) on Form 20-F for the fiscal year ended December 31, 2020, as filed with the U.S. Securities and Exchange Commission on the date hereof (the “Report”), I, Christian Mauad Gebara, Chief Executive Officer, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to section 906 of the U.S. Sarbanes-Oxley Act of 2002, that to the best of my knowledge:

(i) the Report fully complies with the requirements of Section 13(a) or 15(d) of the U.S. Securities Exchange Act of 1934; and

(ii) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date:	February 25, 2021	By:	/s/ Christian Mauad Gebara
			Name:	Christian Mauad Gebara
			Title:	Chief Executive Officer

EX-13.2

Exhibit 13.2

CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE U.S. SARBANES-OXLEY ACT OF 2002

In connection with the Annual Report of Telefônica Brasil S.A. (the “Company”) on Form 20-F for the fiscal year ended December 31, 2020, as filed with the U.S. Securities and Exchange Commission on the date hereof (the “Report”), I, David Melcon Sanchez-Friera, Chief Financial Officer, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to section 906 of the U.S. Sarbanes-Oxley Act of 2002, that to the best of my knowledge:

(i) the Report fully complies with the requirements of Section 13(a) or 15(d) of the U.S. Securities Exchange Act of 1934; and

(ii) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date:	February 25, 2021	By:	/s/ David Melcon Sanchez-Friera
			Name:	David Melcon Sanchez-Friera
			Title:	Chief Financial Officer

XML

Document and Entity Information	12 Months Ended
	Dec. 31, 2020 shares
Document and Entity Information
Entity Registrant Name	TELEFONICA BRASIL S.A.
Entity Central Index Key	0001066119
Document Type	20-F
Document Registration Statement	false
Document Annual Report	true
Entity Interactive Data Current	No
Entity Current Reporting Status	Yes
Document Transition Report	false
Document Shell Company Report	false
Document Period End Date	Dec. 31, 2020
Amendment Flag	false
Current Fiscal Year End Date	--12-31
Entity Well-known Seasoned Issuer	Yes
Entity Voluntary Filers	No
Entity Filer Category	Large Accelerated Filer
Entity Shell Company	false
Entity Emerging Growth Company	false
Document Fiscal Year Focus	2020
Document Fiscal Period Focus	FY
ICFR Auditor Attestation Flag	false
Common shares
Document and Entity Information
Entity Common Stock, Shares Outstanding	0
Preferred shares
Document and Entity Information
Entity Common Stock, Shares Outstanding	0

XML

Consolidated Balance Sheets - BRL (R$) R$ in Thousands	Dec. 31, 2020	Dec. 31, 2019
ASSETS
Current assets	R$ 19,060,868	R$ 18,644,678
Cash and cash equivalents	5,762,081	3,393,377
Trade accounts receivable	8,182,667	8,719,497
Inventories	633,100	578,003
Income and social contribution taxes recoverable	519,277	411,595
Taxes, charges and contributions recoverable	2,512,293	4,176,362
Judicial deposits and garnishments	177,433	277,468
Prepaid expenses	859,766	686,503
Derivative financial instruments	5,902	19,282
Other assets	408,349	382,591
Non-current assets	89,677,510	89,645,044
Short-term investments pledged as collateral	46,280	63,766
Trade accounts receivable	379,898	440,453
Taxes, charges and contributions recoverable	824,324	841,198
Deferred taxes	138,641	171,042
Judicial deposits and garnishments	2,766,945	3,393,417
Prepaid expenses	194,511	220,082
Derivative financial instruments	63,514	52,881
Other assets	184,254	235,738
Investments	144,433	104,251
Property, plant and equipment	44,352,593	42,847,264
Intangible assets	40,582,117	41,274,952
TOTAL ASSETS	108,738,378	108,289,722
LIABILITIES AND EQUITY
Current liabilities	17,875,084	17,732,088
Personnel, social charges and benefits	764,329	752,246
Trade accounts payable	6,613,004	6,871,799
Income and social contribution taxes payable	1,693	6,585
Taxes, charges and contributions payable	1,607,434	1,139,812
Dividends and interest on equity	3,865,998	3,587,417
Provisions and contingencies	417,653	374,445
Deferred income	506,806	506,181
Loans, financing, debentures and leases	3,682,472	4,126,490
Derivative financial instruments	8,864	1,921
Other liabilities	406,831	365,192
Non-current liabilities	21,306,530	20,102,056
Personnel, social charges and benefits	3,679	36,028
Income and social contribution taxes payable	96,252	86,512
Taxes, charges and contributions payable	319,358	285,055
Deferred taxes	4,414,540	3,146,453
Provisions and contingencies	5,192,478	5,160,973
Deferred income	239,438	211,901
Loans, financing, debentures and leases	9,556,694	9,698,183
Derivative financial instruments	66,116	54,212
Other liabilities	1,417,975	1,422,739
TOTAL LIABILITIES	39,181,614	37,834,144
Equity	69,556,764	70,455,578
Capital	63,571,416	63,571,416
Capital reserves	1,182,263	1,165,463
Income reserves	3,149,679	3,492,387
Other comprehensive income acumulated	65,888	30,737
Additional proposed dividends	1,587,518	2,195,575
TOTAL LIABILITIES AND EQUITY	R$ 108,738,378	R$ 108,289,722

XML

Consolidated Statements of Income - BRL (R$) R$ in Thousands	12 Months Ended
	Dec. 31, 2020	Dec. 31, 2019	Dec. 31, 2018
Consolidated Statements of Income
Net operating revenue	R$ 43,126,472	R$ 44,268,171	R$ 43,462,740
Cost of sales	(22,693,083)	(22,158,947)	(21,025,767)
Gross profit	20,433,389	22,109,224	22,436,973
Operating income (expenses)	(13,852,460)	(14,895,300)	(12,980,789)
Selling expenses	(11,871,555)	(12,701,222)	(12,832,741)
General and administrative expenses	(2,524,993)	(2,498,096)	(2,598,970)
Other operating income	1,419,113	929,498	4,077,003
Other operating expenses	(875,025)	(625,480)	(1,626,081)
Operating income	6,580,929	7,213,924	9,456,184
Financial income	1,351,530	1,132,870	4,112,640
Financial expenses	(1,924,959)	(1,953,011)	(2,285,487)
Equity	734	752	(5,847)
Income before taxes	6,008,234	6,394,535	11,277,490
Income and social contribution taxes	(1,237,707)	(1,393,521)	(2,349,232)
Net income for the year	R$ 4,770,527	R$ 5,001,014	R$ 8,928,258
Common shares
Consolidated Statements of Income
Basic and diluted earnings per share (in R$)	R$ 2.90	R$ 2.78	R$ 4.96
Preferred shares
Consolidated Statements of Income
Basic and diluted earnings per share (in R$)	R$ 2.77	R$ 3.06	R$ 5.45

XML

Consolidated Statements of Other Comprehensive Income - BRL (R$) R$ in Thousands	12 Months Ended
	Dec. 31, 2020	Dec. 31, 2019	Dec. 31, 2018
Consolidated Statements of Other Comprehensive Income
Net income for the year	R$ 4,770,527	R$ 5,001,014	R$ 8,928,258
Other comprehensive income that may be reclassified into income in subsequent periods	34,861	1,523	8,309
Losses on derivative financial instruments	(6,283)	(509)	(2,450)
Taxes	2,136	173	832
Cumulative Translation Adjustments (CTA) on transactions in foreign currency	39,008	1,859	9,927
Other comprehensive income (losses) not to be reclassified into income (losses) in subsequent periods	204,785	(132,131)	(63,151)
Unrealized gains (losses) on financial assets at fair value through other comprehensive income	440	(17)	(625)
Taxes	(150)	6	213
Actuarial gains (losses) and limitation effect of the assets of surplus plan	309,911	(201,660)	(93,492)
Taxes	(105,416)	69,540	30,753
Other comprehensive income (losses)	239,646	(130,608)	(54,842)
Total comprehensive income for the year	R$ 5,010,173	R$ 4,870,406	R$ 8,873,416

XML

Consolidated Statements of Changes in Equity - BRL (R$) R$ in Thousands	Capital	Special goodwill reserve	Other capital reserves	Treasury shares	Legal reserve	Tax incentive reserve	Expansion and modernization reserve	Retained earnings	Proposed additional dividends	Other comprehensive income accumulated	Total
Equity at beginning of period at Dec. 31, 2017	R$ 63,571,416	R$ 63,074	R$ 1,238,268	R$ (87,820)	R$ 2,138,344	R$ 27,884	R$ 297,000		R$ 2,191,864	R$ 21,328	R$ 73,780,826
Effects of the initial adoption of IFRS 9 and 15, net of taxes								R$ (138,663)			(138,663)
Equity at end of period at Jan. 01, 2018	63,571,416	63,074	1,238,268	(87,820)	2,138,344	27,884	297,000	(138,663)	2,191,864	21,328	73,642,163
Equity at beginning of period at Dec. 31, 2017	63,571,416	63,074	1,238,268	(87,820)	2,138,344	27,884	297,000		2,191,864	21,328	73,780,826
Payment of additional dividend									(2,191,864)		(2,191,864)
Unclaimed dividends and interest on equity								152,770			152,770
Adjustment - Tax incentives						11,529		(11,529)
Other comprehensive income								(62,739)		7,897	(54,842)
Equity transactions			10								10
Reversal of expansion and Modernization Reserve							(297,000)	297,000
Net income for the year								8,928,258			8,928,258
Allocation of income:
Legal reserve					446,413			(446,413)
Interim interest on equity								(4,550,000)			(4,550,000)
Expansion and Modernization Reserve							1,700,000	(1,700,000)
Additional proposed dividends								(2,468,684)	2,468,684
Equity at end of period at Dec. 31, 2018	63,571,416	63,074	1,238,278	(87,820)	2,584,757	39,413	1,700,000		2,468,684	29,225	71,607,027
Payment of additional dividend									(2,468,684)		(2,468,684)
Unclaimed dividends and interest on equity								82,898			82,898
Adjustment - Tax incentives						18,166		(18,166)
Other comprehensive income								(132,120)		1,512	(130,608)
Equity transactions			(48,135)								(48,135)
Reversal of expansion and Modernization Reserve							(1,700,000)	1,700,000
Other			66								66
Net income for the year								5,001,014			5,001,014
Allocation of income:
Legal reserve					250,051			(250,051)
Interim interest on equity								(3,588,000)			(3,588,000)
Expansion and Modernization Reserve							600,000	(600,000)
Additional proposed dividends								(2,195,575)	2,195,575
Equity at end of period at Dec. 31, 2019	63,571,416	63,074	1,190,209	(87,820)	2,834,808	57,579	600,000		2,195,575	30,737	70,455,578
Payment of additional dividend									(2,195,575)		(2,195,575)
Unclaimed dividends and interest on equity								99,788			99,788
Adjustment - Tax incentives						18,766		(18,766)
Other comprehensive income								204,495		35,151	239,646
Equity transactions			39,521								39,521
Payment of withdrawal rights to shareholders when converting preference shares to ordinary shares				(32)							(32)
Repurchase of preferred shares for maintenance in treasury				(22,689)							(22,689)
Reversal of expansion and Modernization Reserve							R$ (600,000)	600,000
Net income for the year								4,770,527			4,770,527
Allocation of income:
Legal reserve					238,526			(238,526)
Interim interest on equity								(3,830,000)			(3,830,000)
Additional proposed dividends								R$ (1,587,518)	1,587,518
Equity at end of period at Dec. 31, 2020	R$ 63,571,416	R$ 63,074	R$ 1,229,730	R$ (110,541)	R$ 3,073,334	R$ 76,345			R$ 1,587,518	R$ 65,888	R$ 69,556,764

XML

Consolidated Statements of Cash Flows - BRL (R$) R$ in Thousands	12 Months Ended
	Dec. 31, 2020	Dec. 31, 2019	Dec. 31, 2018
Cash flows from operating activities
Income before taxes	R$ 6,008,234	R$ 6,394,535	R$ 11,277,490
Adjustment for:
Depreciation and amortization	11,227,498	10,919,792	8,368,623
Foreign exchange on loans and derivative financial instruments	(6,538)	(5,271)	30,664
Indexation accruals on assets and liabilities	506,056	518,833	801,912
Equity	(734)	(752)	5,847
Losses (gains) on write-off/sale of assets	(459,758)	(329,603)	(63,881)
Impairment losses - trade accounts receivable	1,740,358	1,682,348	1,533,660
Change in liability provisions	92,358	(116,717)	(80,333)
Write-off and reversals for impairment - inventories	6,508	(95,988)	(45,223)
Pension plans and other post-retirement benefits	88,487	56,012	52,885
Provisions for tax, civil, labor and regulatory contingencies	673,905	625,480	1,098,251
Interest expense	651,496	782,921	497,797
Other	(48,289)	(143,208)	(14,089)
Changes in assets and liabilities
Trade accounts receivable	(1,142,973)	(2,078,801)	(1,603,002)
Inventories	(61,783)	(15,843)	(68,127)
Taxes recoverable	1,687,393	87,550	(5,849,648)
Prepaid expenses	(146,425)	(188,641)	41,166
Other assets	(17,116)	70,265	(20,225)
Personnel, social charges and benefits	(17,755)	(13,303)	47,870
Trade accounts payable	287,273	286,513	1,056,817
Taxes, charges and contributions	38,526	1,872,920	223,059
Provisions for tax, civil, labor and regulatory contingencies	(927,057)	(1,727,178)	(3,928,925)
Other liabilities	38,334	(11,477)	(249,571)
Total adjustments	14,209,764	12,175,852	1,835,527
Cash generated from operations	20,217,998	18,570,387	13,113,017
Interest paid	(781,092)	(746,986)	(494,931)
Income and social contribution taxes paid	(95,156)	(102,205)	(676,659)
Net cash generated by operating activities	19,341,750	17,721,196	11,941,427
Cash flows from investing activities
Additions to PP&E, intangible assets and others	(8,289,264)	(8,838,641)	(8,517,458)
Proceeds from sale of PP&E	959,345	698,643	9,053
Cash paid for acquisition of companies, net of cash acquired		(70,844)
Cash received from sale of investments	116,411		10
Redemption net of judicial deposits	798,233	277,894	2,832,062
Cash and cash equivalents due to the acquisition (sale) of companies	(6,756)	5,760
Redemption of applications in guarantees	13,575
Net cash used in investing activities	(6,408,456)	(7,927,188)	(5,676,333)
Cash flows from financing activities
Payment of loans, financing, debentures and leases	(5,297,688)	(3,696,660)	(2,893,219)
Receipts - derivative financial instruments	84,400	192,124	181,117
Payments - derivative financial instruments	(69,214)	(100,581)	(85,124)
Dividend and interest on equity paid	(5,259,367)	(6,176,842)	(4,136,878)
Payment for acquisitions of shares for treasury	(22,721)
Net cash used in financing activities	(10,564,590)	(9,781,959)	(6,934,104)
Increase (decrease) in cash and cash equivalents	2,368,704	12,049	(669,010)
Cash and cash equivalents at beginning of the year	3,393,377	3,381,328	4,050,338
Cash and cash equivalents at end of the year	R$ 5,762,081	R$ 3,393,377	R$ 3,381,328

XML

OPERATIONS

12 Months Ended

Dec. 31, 2020

OPERATIONS

OPERATIONS

1)  OPERATIONS

a)  Background information

Telefônica Brasil S.A. (the “Company” or “Telefônica Brasil”) is a publicly-held corporation with the main purpose of operating telecommunications services; development of activities necessary or complementary to the execution of such services, in accordance with the concessions, authorizations and permissions granted; exploration of value-added services; offering of integrated solutions, management and provision of services related to: (i) data centers, including hosting and co-location; (ii) storage, processing and management of data, information, texts, images, videos, applications and information systems and similar; (iii) information technology; (iv) information and communication security; (v) telecommunications; and (vi) electronic security systems; licensing and sublicensing of software of any nature, among others.

The Company’s principal offices are located at 1376, Engenheiro Luis Carlos Berrini Avenue, in the city and state of São Paulo, Brazil. It is a member of the Telefónica Group (“Group”), based in Spain and operates in several countries across Europe and Latin America.

On December 31, 2020 and 2019, Telefónica S.A. (“Telefónica”), the Group holding company, held a total direct and indirect interest in the Company of  73.58% (Note 23).

The Company is registered with the Brazilian Securities and Exchange Commission ("CVM") and its shares are traded at B3. It is also registered with the Securities and Exchange Commission ("SEC"), of the United States of America, its American Depositary Shares ("ADSs") being backed only by common shares and traded on the New York Stock Exchange ("New York Stock Exchange "-" NYSE").

b)  Operations

The Company renders services for: (i) Fixed Switched Telephone Service Concession Arrangement ("STFC"); (ii) Multimedia Communication Service ("SCM", data communication, including broadband internet); (iii) Personal Mobile Service ("SMP"); and (iv) Conditioned Access Service ("SEAC" - Pay TV), throughout Brazil, through concessions and authorizations, in addition to other activities.

Service concessions and authorizations are granted by Brazil's Telecommunications Regulatory Agency ("ANATEL"), the agency responsible for the regulation of the Brazilian telecommunications sector under the terms of Law No. 9472 of July 16, 1997 - General Telecommunications Law ("Lei Geral das Telecomunicações" - LGT).

In accordance with the STFC service concession agreement, every two years, during the agreement's 20-year term ending on December 31, 2025, the Company will pay a fee equivalent to 2% of its prior-year STFC revenue, net of applicable taxes and social contribution taxes (Note 22).

Before the sanction of the Law nº 13.879 / 2019, radio frequencies authorizations generally were valid for 15 years and could be extended only once, for the same period. With the normative revision improved by the aforementioned Law, successive extensions of authorization grants were allowed, but the applicability of this instrument to the currently terms was uncertain until the edition of Decree nº 10.402 / 2020, which detailed the requirements related to the new successive extension regime and clarified that the current authorizations are also covered by the referred regime.

Notwithstanding, the Decree also defines the conditions to be considered by ANATEL in connection with requests for renewal, such as ensuring the efficient use of radio frequencies, competitive aspects, meeting the public interest and fulfilling the obligations already assumed with ANATEL.

Currently, every two years after the first renewal of these agreements, the Company will pay a fee equivalent to 2% of its prior-year SMP revenue, net of applicable taxes and social contribution taxes (Note 22), and for certain terms, in the 15th year, the Company will pay 1% of its prior-year revenue. The calculation will consider the net revenue from Basic and Alternative Services Plans. In July 2018, ANATEL published Resolution No. 695 with a new public spectrum price regulation. This Resolution sets new criteria for the costs of renewing licenses. The formula considers factors such as authorization time, regional revenue and the amount of spectrum used by the provider. Part of the payment can be converted into investment commitments.

When deciding on the extension of the 850 MHz band authorizations, ANATEL determined, through Judgment No. 510, of September 30, 2020, that (i) the Superintendence of Granting and Provisioning Resources (“SOR”) deal with requests for extension of the current authorizations for the use of radio frequencies in sub-bands A and B, proposing their approval, on a primary basis, until November 29, 2028, if the legal and regulatory requirements are met; and that (ii) the amount due for the extension must be calculated based on net present value parameters, in order to reflect the real economic value (market value) of the bands.

Therefore, after overcoming the necessary procedures with SOR, the Board of Directors of ANATEL, through Judgment No. 618, of November 26, 2020, extended the term of the authorization for the right to use radio frequencies, referring to the bands 869.0 to 880.0 MHz, 824.0 to 835.0 MHz, 890.0 to 891.5 MHz and 845.0 to 846.5 MHz, associated with Authorization Term No. 001/2006 / PVCP / SPV- ANATEL granted to the Company, until the date of November 29, 2028, without exclusivity, on a primary basis and restricted to the provision area related to the State of Rio de Janeiro, pursuant to Act No. 7,281, of November 26, 2020. The extension for a period lower than the maximum limit provided for by Law (20 years), in the opinion of ANATEL, it took place from the need to promote reorganization and resizing of the channel's channeling. The calculation of the value by method other than those previously mentioned (biannual charges and Resolution No. 695/2018, which approved the Public Price Regulation for the Right to Use Radio Frequencies (“PPDUR”) was decided on the grounds that the current regulatory instruments have no forecast of applicability in cases of a second extension of authorizations, as a complement, ANATEL determined that the payment for the authorization should be made at the level of 10% of the amount due, with the remaining 90% being settled in the form of investments.

The terms of authorization for the use of the radio frequency bands are granted based on the results obtained in the respective radio frequency auction conducted by ANATEL.

The following is a summary of the authorizations for use of radio frequency bands, granted to the Company, according to the terms of authorization to operate the service in each region.

Radiofrequency	Band (MHz)	License Expiration (Year)
450 MHz	14	2027
700 MHz	20	2029
800 MHz	25	2021-2028
900 MHz	5	2023-2035
1800 MHz	20-50	2023-2035
2100 MHz	20-30	2023
2500 MHz	40-60	2027-2031

c) Corporate events that occurred in 2020 and 2019

In 2020

Structuring of Vivo Money Credit Rights Investment Fund

In August 2020, the Vivo Money Credit Rights Investment Fund (“FIDC” or “Vivo Money”) was structured, in the form of a closed condominium, for an indefinite term. The FIDC may be liquidated by resolution of the General Assembly in accordance with its regulations.

The objective of the FIDC is to provide its quota holders an equity return on their shares by investing in the acquisition of: (i) eligible credit rights, with supporting documents, which meet the eligibility criteria and the conditions of assignment, and (ii) financial assets, observing all indexes of composition and diversification of the fund's portfolio.

The acquisition of eligible credit rights and other financial assets will originate in credit transactions carried out electronically by the Company's customers, within the scope of the Vivo Money program, exclusively through an electronic platform provided by the Company.

The FIDC began operations on September 14, 2020, having been granted automatic registration under article 8 of CVM Instruction 356/01, issuing 2,000 (two thousand) junior subordinated quotas with an initial unit face value of R$1,000.00 (one thousand reais).

On December 1, 2020, the Company made a new contribution to the FIDC in the amount of R$ 2,000, with the issuance of an additional 2,000 (two thousand) junior subordinated quotas with an initial unit face value of R$1,000.00 (one thousand reais).

On December 31, 2020, the Company held 4,000 (four thousand) junior subordinated quotas with an initial unit face value of R$1,000.00 (one thousand reais), with no defined remuneration parameter and subordinated to senior shares and subordinated mezzanine shares, in that order of priority, for the purpose of amortization and redemption.

The FIDC is managed and held in custody by Brl Trust Distribuidora de Títulos e Valores Mobiliários S.A., a financial institution, based in the city of São Paulo - SP, accredited by the CVM for the exercise of portfolio management activity under declaratory act no. 11,784, of June 30, 2011.

Acquisition and sale of control of Telefônica Cibersegurança e Tecnologia do Brasil Ltda.

Acquisition of control of Telefônica Cibersegurança e Tecnologia do Brasil Ltda.

In September 2020, the Company acquired control of Telefônica Cibersegurança e Tecnologia do Brasil Ltda (“CyberCo Brasil”), for R$10,000.00 (ten thousand reais), with a net worth of R$500.00 (five hundred reais) ("Transaction").

Cibersegurança was controlled by Terra Networks Brasil Ltda (“Terra Networks”), a wholly-owned subsidiary of the Company and its corporate purpose is to develop integrated solutions, management, consulting, outsourcing, and the provision of services related to information and communication security; provision of research, technological development, consultancy, design, implementation and installation of projects related to the areas of information technology, information security and intelligence; management and provision of repair, maintenance, technical assistance and technical support in information technology, among other services.

This Transaction, which involves companies under common control, was accounted for at the book value of the net assets acquired (“Predecessor Value Method”), as certain requirements for the use of the acquisition method set forth in IFRS 3 (R). Consequently, the difference between the consideration given in exchange for the equity interest obtained and the value of the net assets acquired was recorded in the equity of the Company and its subsidiary.

On October 28, 2020, the Company made a capital contribution to CyberCo Brasil in the amount of R$7,000 in financial resources (cash).

On November 1, 2020, and as a preliminary step to the implementation of the Transaction, certain assets (R$19,008 in property, plant and equipment and intangible assets), contracts and employees were transferred to CyberCo Brasil by the Company, all strictly related to cybersecurity activities.

Sale of control of Telefônica Cibersegurança e Tecnologia do Brasil Ltda.

At the meeting held on November 1, 2020, the Company's Board of Directors approved the execution of the Share Purchase and Sale Agreement, pursuant to which the Company sold all the shares it held, representing the entire share capital from its subsidiary CyberCo Brasil, to Telefónica Cybersecurity Tech, S.L. (“TTech”), indirect subsidiary of Telefónica S.A., for the total amount of R$116,411,having generated a net tax gain of R$39,521, recorded in equity, based on an independent external report prepared by a specialized company ("Transaction").

The Transaction will allow the Company, as an exclusive distributor of CyberCo Brasil, to strengthen itself in the cybersecurity market by expanding its portfolio of products and services. In addition, the Company will benefit from greater competitiveness due to the global scale of the partner dedicated to such activities.

The Transaction also ensures the continuity of the provision of cybersecurity services by the Company's B2B area to its end customers, as it includes the execution of certain contracts that regulate the provision of services between CyberCo Brasil and the Company. The Purchase and Sale Agreement contains terms and provisions common to this type of transaction.

This Transaction is not subject to obtaining any regulatory authorizations or additional approvals to those already obtained by the Company's bodies and does not alter the Company's shareholding structure or cause any dilution to its shareholders, generating value to them through accelerating their growth and increasing operational efficiency.

This operation involved companies under common control and, as certain requirements were not met so that it could be accounted for as a business combination provided for in IFRS 3 (R), the difference between the consideration received in exchange for the participation alienated company was recorded in the equity of the Company.

With the conclusion of the Transaction, as of November 1, 2020, CyberCo Brasil is no longer controlled by the Company.

In 2019

Acquisition of TIS by Wholly Owned Subsidiary - 2019

On September 26, 2019, the Company announced that its wholly-owned subsidiary Terra Networks had acquired all the shares representing the capital stock of Telefônica Infraestrutura e Segurança Ltda. ("TIS"), owned by Telefônica Ingeniería de Seguridad S.A. and Telefônica Digital Espanã, S.L.U. ("Transaction").

TIS renders services and technology of information security systems, technical support and services related to the infrastructure, technology and information, among others.

The Transaction allowed Terra Networks, which includes among its activities the development of systems, to expand consulting and operational assistance, maximize commercialization of systems, licenses and applications, enabling the expansion of the portfolio of professional and managed services and the allow for the integration of the TIS and Terra Networks business offerings generating added value for the Company's client portfolio. Synergies will accrue from the companies as these are under the same management, in the activities of information technology, security, IoT and connectivity.

The TIS share price purchase consideration was R$70,844, due in a single installment. This was paid in cash by Terra Networks without need of financing. The purchase price was calculated based on the economic value of the TIS on the discounted cash flow criterion, on August 31, 2019, based on an appraisal report contracted by Terra Networks’ Board of Directors.

The sale and purchase agreement contain terms and provisions common to such transactions, such as seller's representations and warranties, indemnity and others. The Transaction was also preceded by an accounting, financial, legal and procedural audit of TIS.

Completion of the Transaction is not subject to regulatory or regulatory authorizations, or approvals by Company bodies. It was approved by Terra Networks' Board of Executive Officers pursuant to its by-laws.

The Transaction does not change the Company's ownership structure or cause any dilution to its shareholder value by accelerating their growth and increasing operational efficiency.

This Transaction, involved companies under common control, was accounted for at the book value of the net assets acquired (“Predecessor Value Method”), as certain requirements for the use of the acquisition method set forth in IFRS 3 (R). Consequently, the difference between the consideration given in exchange for the equity interest obtained and the value of the net assets acquired was recorded in Terra Network’s equity.

Upon completion of the Transaction, as from September 1, 2019, TIS became a direct subsidiary of Terra Networks and indirectly owned by the Company.

XML

BASIS OF PREPARATION AND PRESENTATION OF FINANCIAL STATEMENTS

12 Months Ended

Dec. 31, 2020

BASIS OF PREPARATION AND PRESENTATION OF FINANCIAL STATEMENTS

BASIS OF PREPARATION AND PRESENTATION OF FINANCIAL STATEMENTS

2)  BASIS OF PREPARATION AND PRESENTATION OF FINANCIAL STATEMENTS

a)  Statement of compliance

The consolidated financial statements were prepared and are presented in accordance with the International Financial Reporting Standards (“IFRS”), as issued by the International Accounting Standards Board (“IASB”).

b)  Basis of preparation and presentation

The financial statements were prepared on a historical cost basis (except where different criteria are required) and adjusted to reflect the valuation of assets and liabilities measured at fair value or considering the mark-to-market valuation when such valuations are required by IFRS.

The Statement of Cash Flows was prepared in accordance with IAS 7 - Statement of Cash Flows and reflects the changes in cash that occurred in the years presented using the indirect method.

Assets and liabilities are classified as current when it is probable that their realization or settlement will occur in the next 12 months. Otherwise, they are classified and shown as non-current. The only exception relates to the balances of deferred tax assets and liabilities, which are classified and fully shown as non-current.

The Board of Directors authorized the issuance of this consolidated financial statements at the meeting held on February 19, 2021.

c) Functional and reporting currency

The Company’s financial statements for the years ended December 31, 2020, 2019 and 2018 are presented in thousands of Brazilian Real/Reais (R$), unless otherwise stated.

The Company’s functional and reporting currency is the Brazilian Real. Transactions in foreign currency are translated into Brazilian Reais as follows: (i) assets, liabilities and shareholders' equity (excluding capital stock and capital reserves) are translated at the closing exchange rate on the balance sheet date; (ii) expenses and revenues are translated at the average exchange rate, except for specific transactions that are converted by the transaction date rate; and (iii) the capital stock and capital reserves are converted at the transaction date rate.

Gains and losses from the conversion of investments abroad are recognized in the statement of comprehensive income. Gains and losses from the translation of monetary assets and liabilities between the exchange rate prevailing at the date of the transaction and the year-end closing (except for the conversion of investments abroad) are recognized in the statement of income.

d) Basis of consolidation

Interest held in subsidiaries or joint ventures is measured under the equity method in the individual financial statements. In the consolidated financial statements, investments and all asset and liability balances, revenues and expenses arising from transactions and interest held in subsidiaries are fully eliminated. Investments in joint ventures are measured under the equity method in the consolidated financial statements.

On December 31, 2020 and 2019, the Company holds direct equity interests in subsidiaries and joint ventures. Selected information on the Company's investees is as follows:

		Equity interests
Investees	Type of investment	12.31.20		12.31.19
Terra Networks Brasil Ltda ("Terra Networks")	Subsidiary	100.00	%	100.00	%
Telefônica Transportes e Logística Ltda ("TGLog")	Subsidiary	99.99	%	99.99	%
POP Internet Ltda ("POP")	Subsidiary	99.99	%	99.99	%
Vivo Money Credit Rights Investment Fund ("Vivo Money") (Note 1.c)	Subsidiary	100.00	%	—
Aliança Atlântica Holding B.V. ("Aliança")	Joint venture	50.00	%	50.00	%
Companhia AIX de Participações ("AIX")	Joint venture	50.00	%	50.00	%
Companhia ACT de Participações ("ACT")	Joint venture	50.00	%	50.00	%

Terra Networks: The Company's direct and wholly-owned subsidiary, with headquarters in Brazil, with the main activities being the development, production, installation and maintenance of computer systems; consultancy, operational assistance, training, courses and exhibitions in computer science; commercialization of products, computer systems, software licenses and applications; import and export of services, licenses, products and computer systems; cession of space for insertion of advertising or advertising material in general; provision of internet access; services and activities related to product distribution and electronic commerce; amusement and entertainment services; provision of intermediary services and business in general; commercialization, distribution, licensing of digital content; development and availability of portals and content pages on the internet; commercialization, lending and rental of equipment and products; provision of technical support services in information technology, among others.

Since September 1, 2019, Terra Networks became the direct parent company of TIS (Note 1 c), a company headquartered in Brazil, whose main activities are the exploration and provision of services and technology, information security systems, technical support and other services related to the infrastructure, technology and information, among others.

TGLog: The Company's direct subsidiary, with its head office in Brazil, whose main activities are the provision of services in the activity of multimodal transportation of products in general; logistics activities; administration and operation of general and customs warehouses throughout the national territory; rental of equipment and storage of goods from third parties; among others.

POP: The Company's direct subsidiary, with headquarters in Brazil, whose main activities are the development of activities related to information technology, internet and any other networks; provision of hosting services and the commercial exploitation of websites and portals; handling, making available and storing information and data; trade in software, hardware, telecommunication equipment and electronics; development, licensing and maintenance of information systems and routines; e-commerce development; creation and administration of own and / or third party databases; commercialization and placement of advertisements, advertisements and banners; among others.

POP is the direct parent company of Innoweb Ltda (“Innoweb”), headquartered in Brazil, whose main activities are to act as an internet provider; develop information activities; develop all forms of telecommunications activities, including the transmission of voice, data and information; commercialize equipment and / or accessories for telecommunications and electronics, among others

Vivo Money: The Company's direct and wholly owned subsidiary, with headquarters in Brazil. It is a FIDC structured by the Company, for the acquisition of eligible credit rights and other financial assets originating from credit operations carried out electronically by the Company's customers, within the scope of the Vivo Money program, exclusively through the electronic platform provided by the Company (Note 1.c).

Aliança: Joint venture, headquartered in Amsterdam, Netherlands, with 50% interest held by the Company, whose main activity is the acquisition and management of subsidiaries, and holding interest in companies of the telecommunications industry.

AIX: Joint venture, headquartered in Brazil, with 50% interest held by the Company, with the main activity in holding interest in Consórcio Refibra, and in performing activities related to the direct and indirect operation of activities associated with the construction, completion and operation of underground networks for optical fiber ducts.

ACT: Joint venture, headquartered in Brazil, with 50% interest held by the Company, with the main activity in holding interest in Consórcio Refibra, and in performing 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.

e) Segment reporting

Business segments are defined as components of a company for which separate financial information is available and regularly assessed by the operational decision-making professional in definition of how to allocate funds to an individual segment and in the assessment of segment performance.  Considering that: (i) all officers and managers' decisions are based on consolidated reports; (ii) the Company and its subsidiaries’ mission is to provide their customers with quality telecommunications services; and (iii) all decisions related to strategic planning, finance, purchases, short- and long-term investments are made on a consolidated basis, the Company and its subsidiaries operate in a single operating segment, namely the provision of telecommunications services.

f) Significant accounting practices

Significant and relevant accounting policies for the understanding of the basis of recognition and measurement applied in the preparation of the Company's financial statements are included in the respective notes to which they refer.

The accounting policies adopted in the preparation of the consolidated financial statements for the year ended December 31, 2020 are consistent with those used in the preparation of the consolidated annual financial statements for the year ended December 31, 2019, except for the changes required by the new pronouncements, interpretations and amendments approved for the IASB, which came into effect as of January 1, 2020, as follows:

•  Changes to IFRS 3: Definition of business

In October 2018, the IASB issued changes to the definition of business in IFRS 3, to help entities determine whether an acquired set of activities and assets consists of or not in a business. They clarify minimum requirements, eliminate the assessment of whether market participants are able to replace any missing elements, include guidelines to help entities assess whether a purchased process is substantive, better define business and product definitions, and introduce a test of optional fair value concentration.

• Amendments to IAS 1 and IAS 8: Definition of material omission

In October 2018, the IASB issued changes to IAS 1 and IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors, to align the definition “material omission” or “materially distorted disclosure” in all standards and to clarify certain aspects of the definition. The new definition states that "the information is material if its omission, distortion or obscuration can reasonably influence decisions that the main users of the general purpose financial statements make based on these financial statements, which provide financial information on the entity's specific report".

The adoption of these changes had no impact on the consolidated financial statements in the initial adoption period (January 1, 2020).

New IFRS pronouncements, issues, amendments and interpretations of the IASB

In addition to the standards issued and amended mentioned above, on the date of preparation of these financial statements, the IASB had issued IFRS 17 - Insurance Contracts (a standard not yet issued in Brazil), a new comprehensive accounting standard for insurance contracts that includes recognition and measurement, presentation and disclosure.

IFRS 17 will come into force for periods beginning on or after January 1, 2021, requiring the presentation of comparative figures. Early adoption is permitted if the entity also adopts IFRS 9 and IFRS 15 on the same date or before the initial adoption of IFRS 17. This standard does not apply to the Company.

The Company does not anticipate the early adoption for the year ended December 31, 2020 of any pronouncement, interpretation or amendment that has been issued before application is mandatory.

g) Significant accounting judgments estimates and assumptions 

The preparation of the financial statements requires the use of certain critical accounting estimates and the exercise of judgment by the Company's management in applying its accounting policies. These estimates are based on experience, knowledge, information available at the end of the year, and other factors, including expectations of future events that are believed to be reasonable in the circumstances. Actual results involving these estimates could differ in values from those recorded in the financial statements due to the criteria inherent in the estimation process. The Company reviews its estimates at least annually.

The significant and relevant estimates and judgments applied by the Company in the preparation of these financial statements are presented in the following notes: trade accounts receivable (Note 4); income and social contribution taxes (Note 7); property, plant and equipment (Note 12); intangible assets (Note 13); provision and contingencies (Note 19); net operating income (Note 24); pension plans and other post-employment benefits (Note 30); and financial instruments and risk and capital management (Note 31).

XML

CASH AND CASH EQUIVALENTS

12 Months Ended

Dec. 31, 2020

CASH AND CASH EQUIVALENTS

CASH AND CASH EQUIVALENTS

3)  CASH AND CASH EQUIVALENTS

a)  Accounting policy

These are financial assets, measured at amortized cost, maintained in order to meet short-term cash commitments and not for investment or other purposes. The Company and its subsidiaries consider cash equivalents a short-term investment readily convertible into a known amount of cash and subject to insignificant risk of change in value and when redeemable within 90 days.

b)  Breakdown

	12.31.20	12.31.19
Cash and banks (1)	191,975	250,168
Short-term investments (2)	5,570,106	3,143,209
Total	5,762,081	3,393,377

(1) On December 31, 2020 and 2019, the Consolidated balances included R$47,313 and R$59,657, respectively, related to the Financial Clearing House, with a Telefónica Group company (Note 28).

(2) Highly liquid short-term investments basically comprise Bank Deposit Certificates (“CDB”) and Repurchase Agreements with first tier rated financial institutions, indexed to the Interbank Deposit Certificate (“CDI”) rate, with original maturities of up to three months, and with immaterial risk of change in value. Income from these investments are recorded as financial income.

XML

TRADE ACCOUNTS RECEIVABLE

12 Months Ended

Dec. 31, 2020

TRADE ACCOUNTS RECEIVABLE

TRADE ACCOUNTS RECEIVABLE

4)  TRADE ACCOUNTS RECEIVABLE

a)  Accounting policy

These are financial assets measured initially at fair value and subsequently, at amortized cost and are evaluated by the value of the services provided and goods sold in accordance with the contracted conditions, net of estimated impairment losses. These include the services provided to customers, which were still not billed at the balance sheet date, as well as other trade accounts receivable related to the sale of cell phones, SIM cards, accessories, advertising and rent of IT equipment (“Vivo Tech” product) and credit rights of the Vivo Money FIDC.

The Company measures the provision for estimated impairment losses in an amount equal to the loss of credit expected for a lifetime.

b)  Critical estimates and judgments

In determining whether the credit risk of a financial asset has increased significantly since the initial recognition and in estimating the expected credit losses, the Company considers reasonable and bearable information that is relevant and available. This includes quantitative and qualitative information and analysis, based on the Company's historical experience, credit assessment and considering forward-looking information. Although the Company believes that the assumptions used are reasonable, the results may be different.

c)  Breakdown

	12.31.20	12.31.19
Billed amounts	7,611,858	7,018,601
Unbilled amounts (1)	2,191,331	2,866,196
Interconnection amounts	724,630	790,046
Vivo Money FIDC	1,975	—
Amounts from related parties (Note 28)	105,349	129,904
Gross accounts receivable	10,635,143	10,804,747
Estimated impairment losses	(2,072,578)	(1,644,797)
Total	8,562,565	9,159,950
Current	8,182,667	8,719,497
Non-current	379,898	440,453

(1)Includes the amounts of contractual assets, shown in item 4.d), of this note.

Balances of non-current trade accounts receivable include:

	12.31.20	12.31.19
B2B merchandise resale portion -  24 months	159,075	182,286
Portion of accounts receivable from the OI group - Bankruptcy process of companies	59,813	89,647
Vivo TECH product (1)	348,086	317,988
Nominal amount receivable	566,974	589,921
Deferred financial income	(34,504)	(48,086)
Present value of accounts receivable	532,470	541,835
Estimated impairment losses	(152,572)	(101,382)
Net amount receivable	379,898	440,453

(1)The maturity schedule is up to five years for amounts related to the Vivo TECH product.

There are no unsecured residual values resulting in benefits to the lessor nor contingent payments recognized as revenue for the year.

The following are amounts receivable, net of estimated losses for impairment of accounts receivable, by maturity:

	12.31.20	12.31.19
Falling due (1)	6,798,420	6,862,054
Overdue – 1 to 30 days	870,551	966,986
Overdue – 31 to 60 days	228,074	306,956
Overdue – 61 to 90 days	142,788	192,622
Overdue – 91 to 120 days	157,105	250,029
Overdue – over 120 days	365,627	581,303
Total	8,562,565	9,159,950

(1)Includes the amounts of contractual assets, shown in item 4.d), of this note.

On December 31, 2020 and 2019, no customer represented more than 10% of trade accounts receivable, net.

d)  Changes in contractual assets

The following table shows the changes in contractual assets,  in the years ended December 31, 2020 and 2019:

	Contract assets, gross	Provision for losses	Contract assets, net
Balance on 12.31.18	195,733	(33,708)	162,025
Additions	558,883	(12,486)	546,397
Write-offs	(485,108)	—	(485,108)
Balance on 12.31.19	269,508	(46,194)	223,314
Additions	444,284	—	444,284
Write-offs	(510,215)	11,300	(498,915)
Balance on 12.31.20	203,577	(34,894)	168,683

e)  Changes in estimated losses for impairment

The following table shows the changes in estimated losses for impairment of accounts receivable.

Balance on 12.31.18	(1,498,134)
Supplement to estimated losses, net of resersal (Note 25)	(1,682,348)
Write-off	1,547,577
Business combinations (Note 1.c)	(11,892)
Balance on 12.31.19	(1,644,797)
Supplement to estimated losses, net of resersal (Note 25)	(1,740,358)
Write-off	1,312,577
Balance on 12.31.20	(2,072,578)

XML

INVENTORIES

12 Months Ended

Dec. 31, 2020

INVENTORIES

INVENTORIES

5)  INVENTORIES

a)   Accounting policy

These are evaluated and presented at the lower of average acquisition cost and net realizable value, whichever is lower. These include resale materials such as cellphones, SIM cards, accessories, consumption materials and maintenance. Net realizable value is the estimated selling price in the ordinary course of business, less estimated costs to sell.

Estimated impairment losses are set up for materials and devices considered obsolete or whose carrying amounts are in excess of those usually sold within a reasonable period. Additions and reversals of estimated impairment losses and inventory obsolescence are included in cost of goods sold (Note 25).

b)   Breakdown

	12.31.20	12.31.19
Materials for resale	590,706	539,822
Materials for consumption	37,156	41,584
Other inventories	35,109	24,115
Gross total	662,971	605,521
Estimated losses from impairment or obsolescence	(29,871)	(27,518)
Total	633,100	578,003

XML

PREPAID EXPENSES

12 Months Ended

Dec. 31, 2020

PREPAID EXPENSES

PREPAID EXPENSES

6)  PREPAID EXPENSES

a)   Accounting policy

These are stated at amounts effectively disbursed referring to services contracted but not yet incurred. Prepaid expenses are allocated to the statement of incomes to the extent that related services are rendered, and economic benefits are obtained.

Includes the amounts of incremental costs related to obtaining a contract (sales commissions and other acquisition costs from third parties).

b)   Breakdown

	12.31.20	12.31.19
Incremental costs (costumers contracts)	480,909	330,919
Advertising and publicity	275,083	249,433
Rental	61,559	184,248
Software and networks maintenance	80,151	33,863
Financial charges	22,175	30,521
Personal	—	30,135
Insurance	15,503	20,459
Satellites and links (1)	102,851	—
Taxes and other	16,046	27,007
Total	1,054,277	906,585
Current	859,766	686,503
Non-current	194,511	220,082

(1) Refers to contracts signed for the provision of infrastructure, equipment and links for satellite communication, aiming at the best provision of services by the Company. These contracts have a duration of up to 5 years.

(1)

XML

INCOME AND SOCIAL CONTRIBUTION TAXES

12 Months Ended

Dec. 31, 2020

INCOME AND SOCIAL CONTRIBUTION TAXES

INCOME AND SOCIAL CONTRIBUTION TAXES

7)  INCOME AND SOCIAL CONTRIBUTION TAXES

a)Accounting policy

a.1) Current taxes

Current tax assets and liabilities for the current and previous years are measured at the estimated amount recoverable from, or payable to, the tax authorities. The tax rates and laws used in calculating the amounts referred to above are those in effect, or substantially in effect, at year-end. In the balance sheet, current taxes are presented net of prepayments over the year.

Current income and social contribution taxes, related to items directly recognized in equity, are also recognized in equity. Management regularly assesses the tax position in circumstances in which tax regulation requires interpretation and sets up provision therefore when appropriate.

a.2) Deferred taxes

Deferred tax assets are recognized for all deductible temporary differences, unused tax credits and losses, to the extent that taxable profit is likely to be available for realization of deductible temporary differences and unused tax credits and losses are likely to be used, except: (i) when the deferred tax asset related to the deductible temporary difference arises from initial recognition of an asset or liability in a transaction other than a business combination and does not impact, at the transaction date, the book profit, income or loss for tax purposes; and (ii) on deductible temporary differences related to investments in subsidiaries that deferred tax assets are recognized only to the extent that it is probable that temporary differences will be reversed in the near future and taxable profit is likely be available so that temporary differences can be used. 

The carrying amount of deferred tax assets is reviewed at each reporting date and reduced to the extent that it is no longer probable that sufficient taxable profit shall be available to allow all or part of the deferred tax asset to be used. Derecognized deferred tax assets are reassessed at each reporting date and are recognized to the extent that it has become probable that future taxable profits will allow the deferred tax asset to be recovered.

Deferred tax liabilities are recognized on all temporary tax differences, except: (i) when the deferred tax liability arises from initial recognition of goodwill, or an asset or liability in a transaction other than a business combination, and does not affect book profit or taxable profit or tax losses on the transaction date; and (ii) on temporary tax differences related to investments in subsidiaries, in which the temporary difference reversal period can be controlled and temporary differences are not likely to be reversed in the near future.

Deferred tax assets and liabilities are measured at the tax rate expected to be applicable for the year the asset will be realized, or the liability will be settled, based on the rates provided in tax legislation and that were published as at year-end.

Deferred tax assets and liabilities are not discounted to present value and are classified in the balance sheet as non-current, irrespective of their expected realization.

The tax effects of items recorded directly in equity are also recognized in equity. Deferred tax items are recognized based on the transaction which gave rise to that deferred tax, in comprehensive income or directly in equity.

Deferred tax assets and liabilities are presented net when there is a legal or constructive right to offset a tax asset against a tax liability and deferred taxes relate to the same taxpaying entity and are subject to the same tax authority.

b)  Critical estimates and judgments

There are uncertainties regarding the interpretation of complex tax regulations and the amount and timing of future taxable profits. The Company and its subsidiaries set up provision, based on estimates, for possible consequences of different interpretation by the tax authorities. The amount of this provision is based on various factors, such as previous tax audit experience and different interpretations of tax regulations by the taxable entity and by the relevant tax authority. Such differences in interpretation may arise on a wide variety of issues depending on the conditions prevailing in the respective domicile of the Company or those of its subsidiaries.

The Company and its subsidiaries evaluate the recoverability of deferred tax assets based on estimates of future profits. This recoverability ultimately depends on the ability to generate taxable profits over the period in which the deferred tax asset is deductible. The analysis considers the reversal period of deferred tax liabilities, as well as estimates of taxable profits, based on updated internal projections reflecting the latest trends.

Determining the proper classification of the tax items depends on several factors, including an estimate of the period and the realization of the deferred tax asset and the expected date of payments of these taxes. The actual flow of receipt and payment of income tax could differ from estimates made by the Company and its subsidiaries, as a result of changes in tax laws or of unexpected future transactions that may have an impact on tax balances.

c)  Income and social contribution taxes recoverable

	12.31.20	12.31.19
Income taxes recoverable	483,452	380,314
Social contribution taxes recoverable	35,825	31,281
Total	519,277	411,595

d)  Income and social contribution taxes payable

	12.31.20	12.31.19
Income taxes payable	74,190	76,483
Social contribution taxes payable	23,755	16,614
Total	97,945	93,097
Current	1,693	6,585
Non-current	96,252	86,512

The non-current amounts of R$96,252 and R$86,512, recorded on December 31, 2020 and 2019, respectively, refer to the taxes classified in IFRIC 23 - Uncertainties about Income Tax Treatments (Note 7.g).

e)  Deferred taxes

Significant components of deferred income and social contribution taxes are as follows:

	Balance on	Income	Comprehensive	Balance on	Income	Comprehensive	Equity	Balance on
	12.31.18	statement	income	12.31.19	statement	income	transactions (4)	12.31.20
Deferred tax assets  (liabilities)
Income and social contribution taxes on tax losses (1)	1,428,476	51,360	—	1,479,836	(17,338)	—	—	1,462,498
Income and social contribution taxes on temporary differences (2)	(3,181,331)	(1,343,635)	69,719	(4,455,247)	(1,158,942)	(103,430)	(20,778)	(5,738,397)
Provisions for legal, labor, tax civil and regulatory contingencies	1,965,700	(275,109)	—	1,690,591	101,826	—	—	1,792,417
Trade accounts payable and other provisions	571,734	(40,393)	—	531,341	262,080	—	—	793,421
Customer portfolio and trademarks	184,603	(86,525)	—	98,078	(132,249)	—	—	(34,171)
Estimated losses on impairment of accounts receivable	442,276	36,354	—	478,630	114,300	—	—	592,930
Estimated losses from modems and other P&E items	176,130	6,869	—	182,999	(9,343)	—	—	173,656
Pension plans and other post-employment benefits	226,221	91,746	69,540	387,507	38,641	(105,416)	—	320,732
Profit sharing	129,689	(9,695)	—	119,994	13,919	—	—	133,913
Licenses	(1,853,214)	(216,330)	—	(2,069,544)	(216,330)	—	—	(2,285,874)
Goodwill (Spanish and Navytree, Vivo Part. and GVT Part.)	(4,600,940)	(1,002,768)	—	(5,603,708)	(1,002,768)	—	—	(6,606,476)
Property, plant and equipment of small value	(395,606)	107,155	—	(288,451)	(453,073)	—	—	(741,524)
Technological Innovation Law	(50,127)	25,562	—	(24,565)	5,844	—	—	(18,721)
On other temporary differences (3)	22,203	19,499	179	41,881	118,211	1,986	(20,778)	141,300
Total deferred tax assets (liabilities), non-current	(1,752,855)	(1,292,275)	69,719	(2,975,411)	(1,176,280)	(103,430)	(20,778)	(4,275,899)
Deferred tax assets	5,569,885			5,548,581				6,051,884
Deferred tax liabilities	(7,322,740)			(8,523,992)				(10,327,783)
Deferred tax assets  (liabilities), net	(1,752,855)			(2,975,411)				(4,275,899)
Represented in the balance sheet as follows:
Deferred tax assets of subsidiaries	230,097			171,042				138,641
Deferred tax liabilities	(1,982,952)			(3,146,453)				(4,414,540)

(1)Under Brazilian tax legislation these may be offset up to  30% of the annual taxable income but otherwise have no expiry date.

(2)Amounts that will be realized upon payment of provision, occurrence of impairment losses for trade accounts receivable, or realization of inventories, as well as upon reversal of other provision.

(3)Deferred taxes from other temporary differences, such as deferred income, renewal of licenses, disposal of structures (towers and rooftops), among others.

(4)Refer to deferred taxes arising from transactions for the acquisition and sale of companies, described in note 1.c.

On December 31, 2020, deferred tax assets (income and social contribution tax losses) were not recognized in the subsidiaries' (Innoweb, TGLog, TIS and Vivo Money) accounting records, in the amount of R$68,783 (R$54,570 on December 31, 2019), as it is not probable that future taxable profits will be sufficient for offset for these subsidiaries to benefit from such tax credits.

Expected realization of deferred taxes, net, non-current. The amounts are based on projections subject to change in the future.

Year
2021	2,080,481
2022	709,170
2023	505,837
2024	387,849
2025	32,811
2026 onwards	(7,992,047)
Total	(4,275,899)

f)  Reconciliation of income tax and social contribution expense

The Company and its subsidiaries recognize income and social contribution taxes on a monthly basis, on an accrual basis, and pay taxes based on estimates, as per the tax auxiliary trial balance. Taxes calculated on profits up to the balance sheet date are recorded in liabilities or assets, as applicable.

Below we present the reconciliations of the tax expense and the amounts is calculated by applying the statutory tax rate of 34% (income tax of 25% and social contribution tax of 9%) in the table below for the year ended December 31, 2020, 2019 and 2018.

	2020		2019		2018
Income before taxes	6,008,234		6,394,535		11,277,490
Income and social contribution tax expenses, at the tax rate of 34%	(2,042,800)		(2,174,142)		(3,834,347)
Permanent differences
Equity (Note 11)	250		256		(1,988)
Unclaimed interest on equity	(16,699)		(13,825)		(14,426)
Non-deductible expenses, gifts, incentives	(84,988)		(84,487)		(76,671)
Tax benefit related to interest on equity allocated	894,200		879,920		1,547,000
Other (additions) exclusions	12,330		(1,243)		31,200
Tax debit	(1,237,707)		(1,393,521)		(2,349,232)
Effective rate	20.6	%	21.8	%	20.8	%
Current income and social contribution taxes	(61,427)		(101,246)		(832,485)
Deferred income and social contribution taxes	(1,176,280)		(1,292,275)		(1,516,747)

g) Uncertainties about Income Tax Treatments

The Company and its subsidiaries are defending several assessments filed by the Federal Revenue of Brazil (“RFB”) for allegedly incorrect deductions of expenses, mainly related to the amortization of goodwill, at various administrative and judicial levels, in the amount of R$16,969,554 on December 31, 2020 (R$9,895,728 on December 31, 2019). Management, supported by the position of its legal advisors, believes that a large part of these deductions will likely be accepted in decisions of higher courts of last resort (acceptance probability greater than 50%).

Of this amount, to tax treatments in which the Company and its subsidiaries believes that the probability of acceptance by the tax authority is less than 50%, a non-current tax and social contribution liability was recognized in the amount of R$96,252 on December 13, 2020 (R$86,512 on December 13, 2019), in relation to these actions(Note 7.d). These actions involve compensation for overpayment of income tax and social contribution not approved by the RFB.

XML

TAXES, CHARGES AND CONTRIBUTIONS RECOVERABLE

12 Months Ended

Dec. 31, 2020

TAXES, CHARGES AND CONTRIBUTIONS RECOVERABLE

TAXES, CHARGES AND CONTRIBUTIONS RECOVERABLE

8)  TAXES, CHARGES AND CONTRIBUTIONS RECOVERABLE

	12.31.20	12.31.19
State VAT (ICMS) (1)	3,014,540	2,664,499
PIS and COFINS (2)	128,489	2,125,186
Withholding taxes and contributions (3)	87,134	142,940
Fistel, INSS, ISS and other taxes	106,454	84,935
Total	3,336,617	5,017,560
Current	2,512,293	4,176,362
Non-current	824,324	841,198

(1) Includes ICMS credits from the acquisition of property and equipment, available to offset in 48 months; requests for refund of ICMS paid on invoices that were subsequently cancelled; for the rendering of services; tax substitution; and tax rate difference; among others. Non-current consolidated amounts include credits arising from the acquisition of property and equipment of R$541,941 and R$537,209 on December 31, 2020 and 2019, respectively.

(2) The balance of December 31, 2019 include the tax credits of PIS and COFINS plus interest accruals based on the SELIC, in the amount of R$2,046,274, arising from the final judicial processes in favor of the Company, which recognized the right to deduct ICMS from the basis of the calculation of PIS and COFINS contributions. This amount was fully offset with the payments of taxes to be paid during the year 2020. The Company has two other lawsuits of the same nature in progress (including lawsuit of company that have already been merged - Telemig), treated as contingent assets, which cover several periods between February 2002 and June 2017, with estimated amounts between R$1,768 million and R$1,944 million. For these cases, like the previous ones of the same nature, the Company only recognizes the credits after obtaining the unappealable transit certificate and a reliable measurement of the information.

(3) Withholding income tax ("IRRF") credits on short-term investments, interest on equity and others, which are used as deduction in operations for the period and social contribution tax withheld at source on services provided to public agencies.

XML

JUDICIAL DEPOSITS AND GARNISHMENTS

12 Months Ended

Dec. 31, 2020

JUDICIAL DEPOSITS AND GARNISHMENTS

JUDICIAL DEPOSITS AND GARNISHMENTS

9)  JUDICIAL DEPOSITS AND GARNISHMENTS

When granted suspension of tax liability, judicial deposits, are required to be made by law to enable claims discussions to proceed.

Judicial deposits are recorded at historical cost-plus legal indexation/interest accruals.

	12.31.20	12.31.19
Judicial deposits
Tax	1,453,939	2,007,074
Civil	951,905	1,049,922
Labor	241,455	316,009
Regulatory	266,647	261,005
Total	2,913,946	3,634,010
Garnishments	30,432	36,875
Total	2,944,378	3,670,885
Current	177,433	277,468
Non-current	2,766,945	3,393,417

The table below presents the classified balances on December 31, 2020 and 2019 of the tax judicial deposits (classified by tax).

Tax	12.31.20	12.31.19
Corporate Income Tax (IRPJ) and Social Contribution Tax (CSLL)	92,849	575,426
Universal Telecommunication Services Fund (FUST)	525,563	518,372
State Value-Added Tax (ICMS)	331,086	269,483
Social Contribution Tax for Intervention in the Economic Order (CIDE)	289,924	286,270
Social Security, work accident insurance (SAT) and funds to third parties (INSS)	18,880	140,186
Withholding Income Tax (IRRF)	58,300	57,142
Telecommunications Inspection Fund (FISTEL)	46,830	46,167
Contribution tax on gross revenue for Social Integration Program (PIS) and for Social Security Financing (COFINS)	33,540	34,983
Other taxes, charges and contributions	56,967	79,045
Total	1,453,939	2,007,074

A brief description of the main tax-related judicial deposits is as follows:

· Corporate Income Tax (IRPJ) and Social Contribution Tax (CSLL)

The Company is involved in disputes related to: (i) debts stemming from offsetting of IRPJ and CSLL overpayments not recognized by the Brazilian IRS; (ii) requirement of IRPJ estimates and lack of payment of debts in the Integrated System of Economic and Tax Information (SIEF); and (iii) underpaid IRPJ amounts.

On July 13, 2020, the 2nd Federal Court of Maringá - PR issued an order determining the transfer to the Company of the judicial deposit made by the former GVT, referring to the tax use of goodwill generated in operations to incorporate subsidiaries, in the updated amount of R$490,603, which was deposited in favor of the Company on July 20, 2020.

· Universal Telecommunication Services Fund (FUST)

The Company and/or its subsidiaries filed an injunction in order to represent its right not to include expenses with interconnection and industrial use of dedicated line in the FUST tax base, according to Abridgment No. 7, of December 15, 2005, as it does not comply with the provisions contained in the sole paragraph of article 6 of Law No. 9998/00. The amounts related to these expenses are deposited.

· State Value-Added Tax (ICMS)

The Company is party to legal proceedings related to: (i) ICMS on exempt or non-taxable transactions; (ii) ICMS not levied on communication in default; (iii) fine for late voluntary payment of ICMS; (iv) ICMS supposedly levied on access, adhesion, activation, availability and use of supplementary services and additional facilities; (v) right to tax credit from the acquisition of goods for fixed assets and electric energy; (vi) ICMS on activation cards for pre-paid services; (vii) assignment of payment of ICMS relating to a  portion of pay TV operations.

· Social Contribution Tax for Intervention in the Economic Order (CIDE)

The Company is party to legal proceedings for the exemption of CIDE levied on offshore remittances of funds arising from agreements for the transfer of technology, brand and software licensing etc.

XML

OTHER ASSETS

12 Months Ended

Dec. 31, 2020

OTHER ASSETS

OTHER ASSETS

10)  OTHER ASSETS

	12.31.20	12.31.19
Surplus from post-employment benefit plans (Note 30) (1)	165,062	220,939
Receivables from suppliers	209,908	167,540
Advances to employees and suppliers	117,033	73,849
Related-party receivables (Note 28)	72,835	64,966
Goods for sale (2)	—	76,912
Other amounts receivable (3)	27,765	14,123
Total	592,603	618,329
Current	408,349	382,591
Non-current	184,254	235,738

(1) On December 31, 2020 and 2019, includes R$158,959 and R$209,347, respectively, referring to the distribution of the PBS-A surplus

(2) Refers to the balance of property, plant and equipment available for sale, resulting from the contract entered into by the Company on November 28, 2019, for the sale of 1,909 structures (rooftops and towers) owned by the Company to Telxius Torres Brasil Ltda. (Note 12). On February 7, 2020, this transaction was concluded for a total amount of R$641 million, after the fulfillment of all suspensive conditions common to this type of transaction, including the approval of the Transaction by the Administrative Council for Economic Defense ("CADE").

(3) On December 31, 2020 and 2019, includes R$12,122 and R$10,226, respectively, from a subletting agreement in the Curitiba Data Center, for a period of 22 years and of structures (towers and rooftops) for a period of 10 years (this occurred in the 1st quarter of 2020). There are no unsecured residual amounts that result in lessor benefits and no contingent payments recognized as income during the period years.

XML

INVESTMENTS

12 Months Ended

Dec. 31, 2020

INVESTMENTS

INVESTMENTS

11)  INVESTMENTS

a)  Accounting policy

The consolidation of a subsidiary begins when the Company obtains control over the subsidiary and ends when the Company ceases to exercise said control. Assets, liabilities and results of a subsidiary acquired or sold during the year are included in the consolidated financial statements from the date on which the Company obtains control until the date on which the Company ceases to exercise control over the subsidiary.

Joint control is the contractually agreed sharing of a control, only existing when decisions about relevant activities call for unanimous agreement by the parties sharing control.

Control is obtained when the Company is exposed or has the right to variable returns based on its involvement with the investee and has the capacity of affecting those returns through the power exercised over an investee.

Based on the equity method, investments are recorded in balance sheets at cost plus changes after the acquisition of the equity interest. The statement of income reflects the portion of the results of operations of the investees.

When changes are directly recognized in the investees' equity, the Company will recognize its portion in variations occurred, and record these variations in the statements of changes in equity and in the statements of comprehensive income, where applicable.

The financial statements of investees are prepared for the same reporting period of the Company. Whenever necessary, adjustments are made so that the accounting policies are in accordance with those adopted by the Company.

After the equity method is applied, the Company determines whether there is any need to recognize additional impairment of its investment in investees. At each closing date, the Company determines whether there is objective evidence of impairment of investment in the affiliate. If so, the Company calculates the recoverable amount as the difference between the recoverable value of the investees and their carrying amount and recognizes the amount in the statement of incomes.

When there is loss of significant influence over the investees, the Company evaluates and recognizes the investment, at that moment, at fair value. Any difference between the investees’ carrying amount by the time it loses significant influence and the fair value of the remaining investment and revenue from sale is recognized in the statement of incomes.

Foreign exchange variations in Aliança’s equity (jointly controlled entity) are recognized in the Company’s equity in other comprehensive income (“Effects on conversion of investments abroad”, Note 23).

b)  Information on investees

Below, we present a summary of the relevant financial data of direct investees in which the Company has an interest and include the corporate changes described in note 1 c).

Balance sheets

	Joint Ventures (Aliança / AIX / ACT)
	12.31.20		12.31.19
Equity interest	50.00	%	50.00	%
Summary of balance sheets:
Current assets	301,518		221,183
Non-current assets	10,426		10,556
Total assets	311,944		231,739
Current liabilities	6,544		7,140
Non-current liabilities	18,090		16,773
Equity	287,310		207,826
Total liabilities and equity	311,944		231,739
Investment Book value	143,655		103,913

Statements of Income

	Joint Ventures (Aliança / AIX / ACT)
Summary Statements of Income:	2020	2019	2018
Net operating income	45,893	45,567	45,608
Operating costs and expenses	(44,595)	(44,325)	(58,773)
Financial income (expenses), net	708	1,030	1,334
Income and social contribution taxes	(538)	(768)	137
Net income (loss) for the year	1,468	1,504	(11,694)
Equity, according to interest held	734	752	(5,847)

c)  Changes in investments

	Joint Ventures
	(Aliança / AIX	Other	Total
	/ ACT)	investments	investments
Balance on 12.31.18	101,302	355	101,657
Equity	752	—	752
Other comprehensive  income	1,859	(17)	1,842
Balance on 12.31.19	103,913	338	104,251
Equity	734	—	734
Other comprehensive  income	39,008	440	39,448
Balance on 12.31.20	143,655	778	144,433

XML

PROPERTY, PLANT AND EQUIPMENT

12 Months Ended

Dec. 31, 2020

PROPERTY, PLANT AND EQUIPMENT

PROPERTY, PLANT AND EQUIPMENT

12)  PROPERTY, PLANT AND EQUIPMENT

a) Accounting policy

It is measured at acquisition and/or construction cost, net of accumulated depreciation and/or accumulated impairment losses, if any. Such cost includes the borrowing costs for long-term construction projects if the recognition criteria are met and is stated net of ICMS (State VAT) credits, which were recorded as recoverable taxes.

Asset costs are capitalized until the asset becomes operational. Costs incurred after the asset becomes operational and that do not improve the functionality or extend the useful life of the asset are immediately recognized on an accrual basis. When significant parts of fixed assets are required to be replaced at intervals, the Company recognizes such parts as individual assets with specific useful lives and depreciation. Likewise, expenses that represent asset improvement (expanded installed capacity or useful life) are capitalized. All the other repair and maintenance costs are recognized in thestatement of income as incurred.

The present value of the expected cost for the decommissioning of property, plant and equipment items (towers and equipment on leased property) is capitalized at the cost of the respective asset matched against the provision for dismantling obligations (Note 19) and depreciated over the useful lives of the related assets, which do not exceed the lease term.

Depreciation is calculated by the straight-line method over the useful lives of assets at rates that take into account the estimated useful lives of assets based on technical analyses. The assets’ residual values, useful lives and methods of depreciation are reviewed on a yearly basis, adjusted prospectively, if appropriate. Useful lives in terms of depreciation rates are reviewed annually by the Company.

Property, plant and equipment items are written off when sold or when no future economic benefit is expected from their use or sale. Any gains or losses arising from write-off (measured as the difference between the net disposal proceeds and the carrying amount) are recognized in the statement of income in the year in which the asset is written off.

b) Critical estimates and judgments

The accounting treatment of investment in fixed assets includes estimating the useful life period for depreciation purposes, particularly for assets acquired in business combinations.

Useful life determination requires estimates regarding the expected technological developments and alternative uses of assets. The hypotheses related to the technological aspect and its future development imply a significant level of analysis, considering the difficulties in forecasting the time and nature of future technological changes.

An impairment loss exists when the carrying amount of an asset or Cash-Generating Unit (“CGU”) exceeds its recoverable amount, which is the higher of fair value less costs to sell and value in use. The calculation of fair value less costs to sell is based on available information from sales transactions of similar assets or market prices less additional costs to dispose of the asset. The calculation of the value in use is based on the discounted cash flow model. The recoverable amount is sensitive to the discount rate used in the discounted cash flow method, as well as the expected future cash receipts and the growth rate used for extrapolation purposes.

The Company periodically reviews the performance of the defined CGU in order to identify a possible devaluation. The determination of the recoverable value of the CGU also includes the use of assumptions and estimates and requires a significant degree of judgment and criterion.

c) Breakdown and changes

We present a brief description of the main items that make up fixed assets.

· Switching and transmission media equipment: Includes switching and control centers, gateway, platforms, base radio station, microcells, minicells, repeaters, antennas, radios, access networks, concentrators, cables, TV equipment and other switching and transmission media equipment.

· Terminal/modem equipment: Includes cellphones and modems (rent and free lease), CPCT, public telephones and other terminal equipment.

· Infrastructure: This includes buildings, elevators, central air conditioning equipment, towers, posts, containers, energy equipment, land piping, support and protectors, leasehold improvements, etc.

· Other fixed asset items: These include vehicles, repair and construction tools and instruments, telesupervision equipment, IT equipment, testing and measurement equipment, fixtures and other goods for general use.

							Assets and
	Switching and	Terminal					facilities
	transmission	equipment /			Other	Estimated	under
	equipment	modems	Infrastructure	Land	P&E	losses (1)	construction	Total
Balances and changes:
Balance on 12.31.18	24,668,212	2,571,084	3,769,088	314,832	836,107	(156,892)	2,112,896	34,115,327
Initial adoption IFRS 16 effects (2)	91,836	—	8,526,236	—	—	—	—	8,618,072
Additions	114,517	142,975	1,790,185	—	258,854	(20,465)	6,576,296	8,862,362
Write-offs, net (3)	(17,069)	(268)	(139,857)	(5,735)	(2,182)	3,540	(21,750)	(183,321)
Net transfers	4,265,573	1,299,368	504,010	—	88,100	—	(6,242,551)	(85,500)
Transfers of goods destined for sale (4)	(1,183)	—	(248,175)	(30,585)	(67,143)	—	(340)	(347,426)
Subletting (5)	—	—	(10,310)	—	—	—	—	(10,310)
Depreciation (Note 25)	(3,936,572)	(1,426,890)	(2,471,456)	—	(297,234)	—	—	(8,132,152)
Business combinations (Note 1 c)	—	9	343	—	10,551	(691)	—	10,212
Balance on 12.31.19	25,185,314	2,586,278	11,720,064	278,512	827,053	(174,508)	2,424,551	42,847,264
Additions	78,021	77,933	4,517,747	—	195,449	—	5,680,707	10,549,857
Write-offs, net (3)	(7,719)	(170)	(306,219)	(5,483)	(2,870)	10,751	(16,533)	(328,243)
Net transfers	3,850,578	1,276,846	341,553	—	20,857	4,732	(5,682,742)	(188,176)
Subletting (5)	—	—	(2,115)	—	—	—	—	(2,115)
Capital contribution to CyberCo Brasil (note 1.c)	(5)	—	—	—	(15,553)	(680)	—	(16,238)
Depreciation (Note 25)	(4,034,228)	(1,464,041)	(2,731,627)	—	(279,860)	—	—	(8,509,756)
Balance on 12.31.20	25,071,961	2,476,846	13,539,403	273,029	745,076	(159,705)	2,405,983	44,352,593
Balance on 12.31.19
Cost	83,028,079	19,329,470	26,269,769	278,512	5,218,153	(174,508)	2,424,551	136,374,026
Accumulated depreciation	(57,842,765)	(16,743,192)	(14,549,705)	—	(4,391,100)	—	—	(93,526,762)
Total	25,185,314	2,586,278	11,720,064	278,512	827,053	(174,508)	2,424,551	42,847,264
Balance on 12.31.20
Cost	86,709,680	20,569,803	30,633,254	273,029	5,380,579	(159,705)	2,405,983	145,812,623
Accumulated depreciation	(61,637,719)	(18,092,957)	(17,093,851)	—	(4,635,503)	—	—	(101,460,030)
Total	25,071,961	2,476,846	13,539,403	273,029	745,076	(159,705)	2,405,983	44,352,593

(1) The Company and its subsidiaries recognized estimated losses and write-offs (when applicable) for potential obsolescence of materials used for property and equipment maintenance, based on historical experience and expected future use.

(2)On January 1, 2019, the Company adopted IFRS 16, which requires lessees to recognize assets and liabilities arising from all leases (except short-term leases and leases of low-value assets) in the statement of financial position (Note 20). Before the leases were recognized under IAS 17 - Leases and classified in accordance with IAS 17 qualitative and quantitative criteria as operating leases (with lease payments recognized on the straight-line basis) or finance leases. The Company transitioned to IFRS 16 using the modified retrospective approach. The comparative information for prior-year periods was not restated. The adoption of this new standard gave rise to right of use assets and the corresponding lease liabilities of R$8,618,072 thousand as of January 1, 2019.

(3)In infrastructure, includes the amounts of R$288,603 and R$105,952 as of December 31, 2020 and 2019, respectively, referring to the cancellation of lease agreements.

(4)Refers to goods sold from the Tamboré and Curitiba (CIC) data centers, sold to a company controlled by Asterion Industrial Partners SGEIC, SA, according to the agreement entered into by the Company on May 8, 2019 and concluded with the discharge on July 24, 2019.

It also includes the assets intended for sale, resulting from the agreement entered into by the Company on November 28, 2019, for the sale of 1,909 structures (rooftops and towers) owned by the Company to Telxius Torres Brasil Ltda (Note  10).

(5)Refers to the lease for structures (towers and rooftops) in 2020 and for areas in the Curitiba data center in 2019.

d) Depreciation rates

In the years ended December 31, 2020 and 2019, the Company performed valuations of useful lives applied to its property, plant and equipment using the direct comparative method of market data.

For the year ended December 31, 2020, the results of these evaluations did not indicate the need for changes in useful life and annual depreciation rates.

For the year ended December 31, 2019, the results of these evaluations indicated the need for changes in the useful life and annual depreciation rates of some items in the asset classes and, these changes in the accounting estimate, caused an increase in depreciation expenses of R$283,552  in  2019.

The table below shows the annual depreciation rates for the years ended December 31, 2020 and 2019, except for leasing assets (presented in the Note 12.e).

Description
Switching and transmission equipment and media	2.50% to 25.00%
Terminal equipment / modems (1)	6.67% to 66.67%
Infrastructure	2.50% to 66.67%
Other P&E assets	10.00% to 25.00%

(1)Includes lending handsets, with annual depreciation rates of 25.00% to 50.00%.

e) Additional information on leases

The Company recognizes the right-of-use assets on the lease start date (that is, on the date the asset is available for use). The rights of use assets are measured at cost, less any accumulated depreciation and impairment losses, and adjusted for any new remeasurement of lease liabilities.

The Company acts as a lessee in a significant number of lease agreements on different assets, such as structures (towers and rooftops) and the respective land where they are located; sites built in the Built to Suit (“BTS”) modality for installing antennas and other equipment and means of transmission; computer equipment; offices, shops and commercial properties. The Company applies a single recognition and measurement approach for all leases, except for short-term leases and leases of low value assets, as permitted by IFRS 16.

Below, we present the movement of leases, already included in the tables for the movement of fixed assets (Note 12.c). This information includes the amounts of leases covered by IAS 17 and the provision for dismantling for these leases.

	Switching and
	transmission
	equipment	Infrastructure	Other	Total
Annual depreciation rate (%)	5.00 to 92.31	3.13 to 92.31	20.00
Balances and changes:
Balance on 12.31.18 (1)	186,554	189,455	10,950	386,959
Initial Adoption in 01.01.19	91,836	8,526,236	—	8,618,072
Additions	107,108	1,696,833	—	1,803,941
Subletting (Note 12.c)	—	(10,310)	—	(10,310)
Depreciation (IAS 17)	(13,540)	(35,181)	(7,730)	(56,451)
Write-offs, net (IAS 17)	—	(2,098)	—	(2,098)
Depreciation (IFRS 16)	(25,652)	(1,857,298)	—	(1,882,950)
Cancellation of contracts	—	(105,952)	—	(105,952)
Balance on 12.31.19	346,306	8,401,685	3,220	8,751,211
Additions	55,904	4,394,809	10,564	4,461,277
Subletting (Note 12.c)	—	(2,115)	—	(2,115)
Depreciation (IAS 17)	(13,540)	(30,277)	(3,220)	(47,037)
Write-offs, net (IAS 17)	—	(4,902)	—	(4,902)
Depreciation (IFRS 16)	(30,159)	(2,148,260)	(183)	(2,178,602)
Cancellation of contracts	(420)	(288,603)	—	(289,023)
Balance on 12.31.20	358,091	10,322,337	10,381	10,690,809

(1)Refers to lease amounts covered by IAS 17 and the provision for dismantling for these leases.

f) Property and equipment items pledged in guarantee

On December 31, 2020, the Company had property and equipment pledged in guarantee for lawsuits, of R$85,172  (R$81,416 on December 31, 2019).

g) Reversible assets

The STFC service concession arrangement establishes that all assets owned by the Company and that are indispensable to the provision of the services described in the arrangement are considered “reversible” (returnable to the concession authority). On December 31, 2020, estimated residual value of reversible assets was R$6,711,435  (R$7,364,456 on December 31, 2019), which comprised switching and transmission equipment and public use terminals, external network equipment, energy, system and operational support equipment.

XML

INTANGIBLE ASSETS

12 Months Ended

Dec. 31, 2020

INTANGIBLE ASSETS

INTANGIBLE ASSETS

13)  INTANGIBLE ASSETS

a)  Accounting policy

Intangible assets acquired separately are measured at  acquisition / construction cost upon their initial recognition. The cost of an intangible asset acquired in a business combination is its fair value at the acquisition date.

After initial recognition, intangible assets are stated at acquisition and/or buildup cost, net of amortization and accumulated provision for impairment, where applicable. Intangible assets generated internally, excluding capitalized development costs, are not capitalized, and the expense is reflected in the statement of income for the year in which it is incurred.

The useful lives of intangible assets are considered finite or indefinite.

· Intangible assets with finite useful lives are amortized over their economic useful lives under the straight-line method and are tested for impairment whenever there is any indication of impairment loss. The amortization period and the amortization method for an intangible asset with a finite useful life are reviewed on an annual basis.

Changes in the estimated useful life or the expected pattern of consumption of future economic benefits embodied in an asset are accounted for by changing the amortization period or method, as appropriate, and treated as changes in accounting estimates. The amortization expense on intangible assets with finite lives is recognized in the statement of income in the cost/expense category consistent with the function of the intangible assets.

· Intangible assets with indefinite useful lives are not amortized, but are tested for impairment annually, either individually or at the CGU level. The assessment of indefinite life is reviewed annually to determine whether the indefinite life continues to be justifiable. Otherwise, changes in useful life – from indefinite to finite - are carried out prospectively. Goodwill generated upon investment acquisition is treated as an intangible asset with indefinite useful lives.

Gains and losses arising from derecognition of an intangible asset are measured as the difference between the net disposal proceeds and the carrying amount of the asset and recognized in the statement of income on disposal. 

b)  Critical estimates and judgments

An impairment loss exists when the carrying amount of an asset or CGU exceeds its recoverable amount, which is the higher of fair value less costs to sell and value in use. The calculation of fair value less costs to sell is based on available information from sales transactions of similar assets or market prices less additional costs to dispose of the asset. The calculation of the value in use is based on the discounted cash flow model. The recoverable amount is sensitive to the discount rate used in the discounted cash flow method, as well as the expected future cash receipts and the growth rate used for extrapolation purposes.

The Company periodically reviews the performance of the defined CGU in order to identify a possible devaluation in goodwill and other assets. The determination of the recoverable value of the CGU to which the goodwill is attributed also includes the use of assumptions and estimates and requires a significant degree of judgment and criterion.

The accounting treatment of the investment in intangible assets includes making estimates to determine the useful life for amortization purposes, particularly for assets acquired in business combinations.

The determination of the useful lives requires estimates in relation to the expected technological evolution and the alternative use of the assets. Hypotheses related to the technological aspect and its future development imply a significant degree of analysis, since the timing and nature of future technological changes are difficult to predict.

c)  Breakdown and changes

A brief description of the key intangible asset items with finite useful lives, is as follows:

· Software: This includes licenses for software used in the Company’s operating, commercial and administrative activities.

· Customer portfolio and trademarks: This includes intangible assets acquired through business combination.

· Licenses: These include concession and authorization licenses, acquired from ANATEL for provision of telecommunication services. These also include licenses from business combinations.

	Indefinite
	useful life	Finite useful life
							Estimated
						Other	losses	Software
			Customer			intangible	for	under
	Goodwill	Software	portfolio	Trademarks	Licenses	assets	software	development	Total
Balances and changes:
Balance on 12.31.18	23,062,421	3,245,042	1,429,274	989,410	13,056,137	49,523	(499)	389,677	42,220,985
Additions	—	374,690	—	—	—	—	—	1,390,731	1,765,421
Write-offs, net (1)	(3,249)	(5,066)	—	—	—	(58)	—	—	(8,373)
Net transfers	—	1,314,978	—	—	—	(6)	—	(1,229,472)	85,500
Transfers of goods destined for sale (2)	—	(1,537)	—	—	—	—	—	—	(1,537)
Business combinations (Note 1 c)	—	596	—	—	—	—	—	—	596
Amortization (Note 25)	—	(1,234,949)	(500,441)	(84,205)	(964,316)	(3,729)	—	—	(2,787,640)
Balance on 12.31.19	23,059,172	3,693,754	928,833	905,205	12,091,821	45,730	(499)	550,936	41,274,952
Additions (3)	—	526,112	—	—	184,300	—	(12,230)	1,174,282	1,872,464
Write-offs, net (1)	(32,743)	(220)	—	—	—	—	—	—	(32,963)
Net transfers	—	1,211,314	—	—	—	—	—	(1,023,138)	188,176
Capital contribution to CyberCo Brasil (note 1.c)	—	(2,770)	—	—	—	—	—	—	(2,770)
Amortization (Note 25)	—	(1,420,757)	(295,267)	(84,205)	(914,411)	(3,102)	—	—	(2,717,742)
Balance on 12.31.20	23,026,429	4,007,433	633,566	821,000	11,361,710	42,628	(12,729)	702,080	40,582,117
Balance on 12.31.19
Cost	23,059,172	18,310,812	4,513,278	1,658,897	20,244,219	270,000	(499)	550,936	68,606,815
Accumulated amortization	—	(14,617,058)	(3,584,445)	(753,692)	(8,152,398)	(224,270)	—	—	(27,331,863)
Total	23,059,172	3,693,754	928,833	905,205	12,091,821	45,730	(499)	550,936	41,274,952
Balance on 12.31.20
Cost	23,026,429	20,069,371	4,513,278	1,658,897	20,428,520	269,640	(12,729)	702,080	70,655,486
Accumulated amortization	—	(16,061,938)	(3,879,712)	(837,897)	(9,066,810)	(227,012)	—	—	(30,073,369)
Total	23,026,429	4,007,433	633,566	821,000	11,361,710	42,628	(12,729)	702,080	40,582,117

(1) Refers to proportional write-offs refer to: (i) R$32,743 from the disposal of  CyberCo Brasil's investment (Note 1.c); and (ii) R$3,249, made in July 2019, resulting from the sale of the Tamboré and Curitiba (CIC) data centers, pursuant to paragraph 86 of IAS 36.

(2) Refers to transfers of assets from the Tamboré and Curitiba (CIC) data centers, sold for the amounts of R$419,690 to a company controlled by Asterion Industrial Partners SGEIC, SA, pursuant to an agreement entered into by the Company on May 8, 2019 and concluded. with the settlement on July 24, 2019.

(3) The addition into licenses, occurred in 2020, refers to the extension of the authorization for the right to use radio frequencies for the exploitation of SMP in the State of Rio de Janeiro, granted by ANATEL on November 29, 2020 (Note 1.b) 

d)  Amortization rates

The table below shows the annual amortization rates for the years ended December 31, 2020 and 2019.

Description
Softwares	20.00 % to 50.00	%
Customer portfolio	12.50	%
Trademarks	7.70	%
Licenses	3.60% to 6.67	%
Other intangible assets	20.00	%

e)  Goodwill

e.1) Accounting policy

Business combinations are accounted for using the acquisition method. The cost of an acquisition is measured as the aggregate of the consideration transferred, recorded at fair value on the acquisition date, and the fair value of any non-controlling interest in the acquiree.

For each business combination, the Company measures non-controlling interests in the acquiree either at its fair value or based on its proportional share in the identifiable net assets of the acquiree. Costs directly attributable to an acquisition are recorded as expenses, as incurred.

Upon acquiring a business, the Company assesses financial assets acquired and liabilities assumed so as to classify and allocate them in accordance with contractual terms, economic circumstances and relevant conditions on the acquisition date, including the segregation, by the acquiree, of embedded derivatives existing in host contracts in the acquiree.

In the event a business combination is conducted in stages, the ownership interest previously held in the acquiree’s capital is reassessed at fair value on the date control is acquired, and any impacts are recognized in the statement of income.

Any contingent portion to be transferred by the acquirer shall be recognized at fair value on the acquisition date. Subsequent changes in the fair value of the contingent portion to be considered as an asset or liability is recognized in the statement of income.

Goodwill is initially measured as excess transferred payment amount in relation to acquired net assets (identifiable net assets acquired, and liabilities assumed). If consideration is lower than the fair value of acquired net assets, the difference must be recognized as a gain in the statement of income.

After initial recognition, goodwill is measured at cost, less any accumulated impairment losses. For the purpose of impairment testing, goodwill acquired in a business combination is, from the acquisition date, allocated to the CGUs that are expected to benefit from the combination, irrespective of whether other assets or liabilities of the acquiree are assigned to those units.

When goodwill has been allocated to a CGU and part of the operation within that CGU is disposed that, the goodwill associated with that operation is included in the carrying amount of the operation when determining the gain or loss on disposal. Goodwill disposed in these circumstances is allocated based on the relative fair values of the disposed operation and the portion of the CGU retained.

e.2) Goodwill breakdown

The table below shows the composition of the goodwill recorded by the Company as of December 31, 2020 and 2019.

	12.31.20	12.31.19
GVT Participações, occurred in 2015	12,837,141	12,837,141
Vivo Participações, occurred in 2011 (1)	9,124,496	9,157,239
Telefônica Televisão Participações, former Navytree, occurred in 2008	780,693	780,693
Spanish e Figueira, by the merger of Telefônica Data Brasil Holding (TDBH) in 2006	212,058	212,058
Santo Genovese Participações, Atrium Telecomunicações, which took place in 2004	71,892	71,892
Ajato Telecomunicação Ltda.	149	149
Total	23,026,429	23,059,172

(1) The proportional write-offs refer to: (i) R$32,743 from the disposal of CyberCo Brasil's investment (Note 1.c) in 2020; and (ii) R$3,249, made in July 2019, resulting from the sale of the Tamboré and Curitiba (CIC) data centers in 2019, pursuant to paragraph 86 of IAS 36.

XML

IMPAIRMENT OF NONFINANCIAL ASSETS

12 Months Ended

Dec. 31, 2020

IMPAIRMENT OF NONFINANCIAL ASSETS

IMPAIRMENT OF NONFINANCIAL ASSETS

14)  IMPAIRMENT OF NON-FINANCIAL ASSETS

a) Accounting policy

The Company annually reviews the net carrying amount of assets in order to evaluate events or changes in economic, operating or technological circumstances that may indicate impairment losses. When such evidence is found, and net carrying amount exceeds recoverable amount, a provision for impairment is recorded so as to adjust the net carrying amount to the recoverable amount. The recoverable amount of an asset or a CGU is defined as the higher of value in use and net sales value.

Considering the convergence of product and service offerings, in addition, the Company's main operating asset is a single, broadly integrated network, which is used to provide all telecommunications services to its customers, therefore, the Company defines your business as a single CGU.

Upon estimation of the value in use of an asset or cash-generating unit, estimated future cash flows are discounted at present value using a discount rate Weighted Average Cost of Capital “WACC” which reflects the weighted rate between (i) the cost of capital (including specific risks) based on the Capital Asset Pricing Model; and (ii) the debt these components being applicable to the asset or CGU before taxes.

The net fair value of sales is determined, whenever possible, based on recent market transactions between knowledgeable and interested parties with similar assets. In the absence of observable transactions in this regard, an appropriate valuation methodology is used. The calculations provided in this model are corroborated by available fair value indicators, such as prices quoted for listed entities, among other available indicators.

For assets excluding goodwill, an assessment is made at each reporting date as to whether there is any indication that previously recognized impairment losses may no longer exist or may have decreased. If the indication exists, the Company estimates the recoverable amount of the asset or the CGU.

A previously recognized impairment loss is reversed only if there has been a change in the assumptions used to determine an asset’s or CGU recoverable amount since the last impairment loss was recognized. Any reversal is limited so that the carrying amount of the asset does not exceed its recoverable amount or exceeds the carrying amount that would have been determined, net of depreciation, had no impairment loss been recognized for the asset in prior years. Such reversal is recognized in the statement of income.

The following assets have specific characteristics for impairment testing:

· Goodwill: Goodwill is tested for impairment annually at the reporting date or earlier when circumstances indicate that the carrying amount may be impaired. Where the recoverable amount is lower than the carrying amount, an impairment loss is recognized. Impairment losses relating to goodwill cannot be reversed in future periods.

· Intangible assets: Intangible assets with indefinite useful lives are tested for impairment annually at the reporting date either individually or at the CGU level, as appropriate, and when circumstances indicate that the carrying amount may be impaired.

· Determination of value in use: The key assumptions used to estimate value in use are: (i) revenues (projected considering the growth in customer base, growth in market revenue against GDP and the Company’s share of this market); (ii) variable costs and expenses (projected in accordance with the dynamics of the customer base, and fixed costs are projected in line with the historical performance of the Company, as well as with revenue growth); and (iii) capital investments (estimated considering the technological infrastructure necessary to enable the provision of services).

b) Key assumptions used in the calculation of value in use:

The value in use is mainly impacted by the following assumptions:

· Revenue growth: is based on the observation of the historical behavior of each revenue line, as well as trends based on market analysis. The projected revenue differs between product lines and services with a tendency of growth in broadband services, IPTV and IT compared to voice services (fixed). Mobile revenues follow the market trend, including a new mix between prepaid, post and control, migrations from prepaid to post and control, price convergence and growth in data and M2M.

· Discount rate: represents the assessment of risks in the current market. The calculation of the discount rate is based on the Company's specific circumstances and being calculated based on the WACC. The WACC takes into account both debt and equity. The cost of equity is derived from the expected return on investment by Company investors. The cost of debt is based on loans with interest income that the Company is obliged to honor. The specific risk segment is incorporated by applying individual notably Beta factors.

· Perpetuity growth rate reflects the Company's condition to generate cash flow in an eternal manner. The percentage considered mainly takes into account investments over the projected period and reproduces the Company's condition in perpetuity.

c) Sensitivity to changes in assumptions:

The Company carries out a sensitivity analysis of the impairment test by considering reasonable changes in the main assumptions used in such test.

The following table shows the increases in/decreases in the percentage points (p.p) which were assumed for the years ended December 31, 2020 and 2019:

Changes in key assumptions	In percentage points (p.p)
Financial variables
Discount rate	+/-	0.5
Perpetuity growth rates	+/-	1.0
Operating variables
Revenues Margin	+/-	1.5

The sensitivity analysis performed at year-end 2020 and 2019 indicates that there are no significant risks arising from possible changes in the financial and operating variables, considered individually. In other words, the Company considers that within the above  limits, no losses would be recognized.

d)  Goodwill impairment testing

Annually, the Company assesses recoverability of goodwill carrying amounts based on the value in use and discounted cash flow method.

The process for determination of the value in use involves the use of assumptions, judgments and estimates on cash flows, such as revenue, cost and expense growth rates, estimated future investments and working capital and discount rates. The assumptions about cash flow increase projections are based on management’s estimates, market studies and macroeconomic projections. Future cash flows are discounted at the WACC rate.

Consistent with the economic analysis techniques, the assessment of value in use is made for a period of five years, and thereafter, considering the perpetuity of the assumptions based on the capacity of business continuity for an indefinite time. Management considered that the period of five years is adequate, based on its past experience in preparing cash flow projections.

The growth rate used to extrapolate projections beyond the five years period was 4.5% p.a. (nominal) in 2020 and 2019.

The estimated future cash flows were discounted at a discount rate of 11.11% and 10.22%, which before taxes are 12.54% and 11.38% in 2020 and 2019, respectively, also in nominal values.

The inflation rate for the period analyzed in the projected cash flows was 3.5% p.a. and 3.8% p.a. in 2020 and 2019, respectively.

Key assumptions were based on the Company’s historical performance and reasonable macroeconomic assumptions grounded on financial market projections, documented and approved by the Company’s management.

Based on annual impairment testing of the Company’s assets, prepared using projections considering the financial statements on December 31, 2020 and 2019, growth projections and operating results for the year ended December 31, 2020 and 2019, no impairment losses or evidence of losses were identified, since the value was in use is higher than the net carrying amount as at the assessment date.

XML

PERSONNEL, SOCIAL CHARGES AND BENEFITS

12 Months Ended

Dec. 31, 2020

PERSONNEL, SOCIAL CHARGES AND BENEFITS

PERSONNEL, SOCIAL CHARGES AND BENEFITS

15)  PERSONNEL, SOCIAL CHARGES AND BENEFITS

a)  Accounting policy

Salaries, remunerations and profit sharing are negotiated in collective bargaining agreements, with the corresponding social charges and contributions added by the accrual basis. The profit-sharing program for employees is based on the Company's operating and financial goals, and a provision is recognized when the assumptions for its accounting are satisfied.

Details of Telefónica's share-based compensation plans are described in Note 29. In 2020, due to the cycle maturity of some plans, amounts were transferred from non-current to current.

Personnel costs and expenses, social charges and benefits are recorded as cost of services provided, commercial expenses or general and administrative expenses (Note 25).

b)  Breakdown

	12.31.20	12.31.19
Social charges and benefits	350,138	400,470
Profit sharing	285,079	308,918
Share-based payment plans (Note 29)	86,296	40,523
Salaries and wages	46,495	38,363
Total	768,008	788,274
Current	764,329	752,246
Non-current	3,679	36,028

XML

TRADE ACCOUNTS PAYABLE

12 Months Ended

Dec. 31, 2020

TRADE ACCOUNTS PAYABLE

TRADE ACCOUNTS PAYABLE

16)  TRADE ACCOUNTS PAYABLE

a)  Accounting policy

These are obligations to pay for goods, services or goods that were acquired in the normal course of business. They are initially recognized at fair value and subsequently measured at amortized cost using the effective tax rate method, if applicable.

b)  Breakdown

	12.31.20	12.31.19
Sundry suppliers (Opex, Capex, Services e Material)	5,741,208	5,958,280
Related parties (Note 28)	489,339	405,271
Amounts payable (operators, cobilling)	199,562	232,264
Interconnection / interlink	182,895	275,984
Total	6,613,004	6,871,799

XML

TAXES, CHARGES AND CONTRIBUTIONS

12 Months Ended

Dec. 31, 2020

TAXES, CHARGES AND CONTRIBUTIONS

TAXES, CHARGES AND CONTRIBUTIONS

17)  TAXES, CHARGES AND CONTRIBUTIONS

	12.31.20	12.31.19
Fistel (1)	671,145	—
ICMS	861,464	906,447
PIS and COFINS	221,323	331,863
Fust and Funttel	88,088	89,394
ISS, CIDE and other taxes	84,772	97,163
Total	1,926,792	1,424,867
Current	1,607,434	1,139,812
Non-current	319,358	285,055

(1) On April 15, 2020, provisional measure 952 was published in the Official Gazette (“DOU”), extending the deadline for payment of Fistel from March 31, 2020 to August 31, 2020, with no impact additional penalty or interest. On August 12, 2020, the Company made a partial payment of R$416,475. The balance refers to the residual payment which has been suspended according to the decision of the Federal Regional Court of the First Region, published on March 18, 2020.

(1)

XML

DIVIDENDS AND INTEREST ON EQUITY

12 Months Ended

Dec. 31, 2020

DIVIDENDS AND INTEREST ON EQUITY

DIVIDENDS AND INTEREST ON EQUITY

18)  DIVIDENDS AND INTEREST ON EQUITY

a)  Accounting policy

a.1) Dividends

Minimum mandatory dividends are stated in the balance sheet as legal obligations (provision in current liabilities). Dividends in excess of such minimum amount, not yet approved in the Shareholders’ Meeting, are recorded in equity as proposed additional dividends. After approval at the Shareholders’ Meeting, the dividends in excess of the mandatory minimum are transferred to current liabilities and classified as legal obligations.  

a.2) Interest on equity

Brazilian legislation allows companies to pay interest on equity, which is similar to payment of dividends; however, this is deductible for income tax calculation purposes. In order to comply with Brazilian tax legislation, the Company and its subsidiaries provision, in its accounting records, the amount due to match against the financial expenses account in the statement of income for the year. For the presentation of these financial statements, that expense is reversed against a direct charge to equity, resulting in the same accounting treatment adopted for dividends. The distribution of interest on equity to shareholders is subject to withholding income tax at a 15% rate.

a.3) Unclaimed dividends and interest on equity

The rights to receive unclaimed interest on equity and dividends prescribe after three years from the initial date available for payment. When dividends and interest on equity expire, these amounts are reversed to retained earnings.

b)  Dividends and interest on equity payable

b.1) Breakdown:

	12.31.20	12.31.19
Telefónica Latinoamérica Holding	837,113	787,823
Telefónica	1,021,474	948,662
SP Telecomunicações Participações	660,012	598,064
Telefónica Chile	1,849	1,667
Non-controlling interest	1,345,550	1,251,201
Total	3,865,998	3,587,417

b.2) Changes:

Balance on 12.31.18	4,172,916
Supplementary dividends for 2018	2,468,684
Interim interest on equity (net of IRRF)	3,199,800
Unclaimed dividends and interest on equity	(82,898)
Payment of dividends and interest on equity	(6,176,842)
IRRF on shareholders exempt/immune from interest on equity	5,757
Balance on 12.31.19	3,587,417
Supplementary dividends for 2019	2,195,575
Interim interest on equity (net of IRRF) and dividends	3,435,500
Unclaimed dividends and interest on equity	(99,788)
Payment of dividends and interest on equity	(5,259,367)
IRRF on shareholders exempt/immune from interest on equity	6,661
Balance on 12.31.20	3,865,998

For purposes of the cash flow statement, interest on equity and dividends paid to shareholders are recognized in “Financing Activities”.

XML

PROVISION AND CONTINGENCIES

12 Months Ended

Dec. 31, 2020

PROVISION AND CONTINGENCIES

PROVISION AND CONTINGENCIES

19)  PROVISION AND CONTINGENCIES

a)  Accounting policy

Provision is recognized when the Company has a present obligation (legal or constructive) as a result of a past event, when it is probable that economic benefits are required to settle the obligation and a reliable estimate of the value of the obligation can be made. Provision is restated at the balance sheet date considering the likely amount of loss and the nature of each provision.

Provision amounts for contingencies are presented at their gross amount, less the corresponding judicial deposits, and are classified as provision for civil, labor, tax and regulatory contingencies.

Judicial deposits are classified as assets given that the conditions required for their net presentation with provision do not exist.

Provision for civil, labor, tax and regulatory legal claims

The Company and its subsidiaries are parts to administrative; labor, tax, civil and regulatory claims, and accounting provision amounts have been recorded in respect of claims whose likelihood of loss was classified as probable. The assessment of the likelihood of loss includes an analysis of available evidence, the hierarchy of laws, available case law, the latest court decisions law and their relevance in the legal system, as well as the opinion of outside legal counsel. Provision is reviewed and adjusted considering changes in existing circumstances, such as the applicable statute of limitations, tax audit conclusions, or additional exposures identified based on new matters or court decisions.

Provision for decommissioning of assets

Refers to costs to be incurred due to returning sites to owners (locations intended for tower and equipment installation on leased property) in the same condition as these were found at the time of execution of the initial lease agreement.

These costs are provisioned as the present value from amounts expected to settle the obligation using estimated cash flows and they are recognized as part of the cost of the corresponding asset. The cash flows are discounted at a current pre-tax rate that reflects the risks specific to decommissioning of assets. The financial effect of the discount is recorded as incurred and recognized in the statement of income as a finance cost. The estimated future costs of decommissioning are reviewed annually and adjusted as appropriate. Changes in the estimated future costs or in the discount rate applied are added to, or deducted from, the cost of the asset.

Contingent liabilities recognized in a business combination

A contingent liability recognized in business combination is initially measured at fair value.

Refers to contingent liabilities from the Purchase Price Allocation (PPA) on acquisition of the controlling interest of Vivo Participações in 2011 and GVTPart. in 2015.

b)  Critical estimates and judgments

The obligation arising from the provisions can be legal or constructive, derived from, among other factors, regulations, contracts, customary practices or public commitments that expose third parties to a valid expectation that the Company or its subsidiaries will assume certain responsibilities. The determination of the provision is based on the best estimate of the disbursement required to settle the corresponding obligation, considering the information available as at the closing date, including the opinion of independent experts, such as legal advisors.

c)  Information on provisions and contingencies

Breakdown of changes in provision for cases in which an unfavorable outcome is probable, in addition to contingent liabilities and provision for decommissioning are as follows:

	Provisions for contingencies
					Contingent	Provision for
	Labor	Tax	Civil	Regulatory	liabilities (PPA)	decommissioning	Total
Balance on 12.31.18	779,686	1,951,897	1,004,803	1,022,216	827,275	673,448	6,259,325
Initial adoption IFRC 23 (Note 7)	—	(68,945)	—	—	—	—	(68,945)
Additions (reversal), net (Note 26)	152,105	32,719	364,008	93,634	(16,986)	(90,159)	535,321
Other additions (reversal) (1)	(5,709)	—	(2,381)	—	—	(4,191)	(12,281)
Write-offs due to payment	(485,539)	(364,992)	(833,579)	(43,068)	—	—	(1,727,178)
Interest accruals	99,526	25,270	264,590	72,954	21,433	57,591	541,364
Business combinations (Note 1 c)	7,805	—	7	—	—	—	7,812
Balance on 12.31.19	547,874	1,575,949	797,448	1,145,736	831,722	636,689	5,535,418
Additions (reversal), net (Note 26)	126,167	122,419	374,464	69,486	(18,631)	(7,306)	666,599
Other additions (reversal) (1)	6,390	—	(6,020)	—	—	(236,598)	(236,228)
Write-offs due to payment	(287,028)	(24,763)	(575,484)	(39,782)	—	—	(927,057)
Interest accruals	106,307	125,647	281,543	31,891	10,154	15,857	571,399
Balance on 12.31.20	499,710	1,799,252	871,951	1,207,331	823,245	408,642	5,610,131
Balance on 12.31.19
Current	236,130	—	113,307	25,008	—	—	374,445
Non-current	311,744	1,575,949	684,141	1,120,728	831,722	636,689	5,160,973
Balance on 12.31.20
Current	176,582	—	180,965	60,055		51	417,653
Non-current	323,128	1,799,252	690,986	1,147,276	823,245	408,591	5,192,478

(1)Provision for decommissioning refers to the reversal resulting from the review of costs for dismantling technical sites. The effects of this reversal were recognized against property, plant and equipment.

c.1) Labor provision and contingencies

	Amounts involved
Nature/Degree of Risk	12.31.20	12.31.19
Provisions	499,710	547,874
Possible losses	1,435,790	452,070

Labor provision and contingencies involve lawsuits filed by former employees and outsourced employees (the latter involving subsidiary or joint liability) claiming for, among other issues, overtime, salary equalization, post-retirement benefits, allowance for health hazard and risk premium, and matters relating to outsourcing. The variation of R$983,720 in possible contingencies was due to new actions and revaluations that occurred in the period, due to the progress of the lawsuits.

The Company is also a defendant in lawsuits filed by retired former employees, linked to the Retirement Medical Assistance Plan (“PAMA”), which require, among other things, the annulment of changes in the medical plan. There are currently four actions underway with this object. All are in an advanced stage, awaiting judgment by the Superior Courts, two of which remain in the Labor Court and two have been referred to the Civil Court, with favorable decisions. The Company's management, based on the opinion of its legal advisors and recent court rulings, considers these actions to be of possible risk. No amount was attributed to these actions due to the nature of the requests (cancellation of changes to health plans), since, at this moment, in the event of loss, there is no way to estimate the loss for the Company. Therefore, no loss amounts were provisioned for these lawsuits.

In addition, the Company is a party to Public Civil Actions filed by the Public Prosecution Service. In August 2018, the majority of the Federal Supreme Court (“STF”) Ministers ruled the outsourcing to be legally valid, including core activities, enabling the subsidiary to provide services. As a result of this decision, most of the Public Civil Actions have already had decisions based on the legality of outsourcing in the analyzed contract and the consequent filing of the processes. However, awaiting judgment of the motion for clarification to clarify the scope of said decision, including for cases that have already been res judicata, an opportunity in which the application of said decision will be evaluated in each of the residual processes in which the topic is discussed. In view of these considerations, there are still no conditions to estimate amounts or possible losses for the Company.

c.2) Tax provision and contingencies

The Company and its subsidiaries are defending various assessments filed by the Federal Revenue of Brazil (“RFB”) for alleged incorrect deductions of expenses, mainly related to the amortization of goodwill, at various administrative and judicial levels. Management, supported by the position of its legal advisors, believes that a large part of these deductions will probably be accepted in decisions of higher courts of last resort (acceptance probability greater than 50%).

For cases in which the Company and its subsidiaries believe that the probability of acceptance by the tax authority is less than 50% a provision is recognized.

Details of above cases are disclosed in Note 7 (d).

	Amounts involved
Nature/Degree of Risk	12.31.20	12.31.19
Provisions	1,799,252	1,575,949
Federal	622,246	573,229
State	625,019	466,164
Municipal	37,506	34,915
FUST	514,481	501,641
Possible losses	29,368,422	26,104,867
Federal	3,257,998	2,233,733
State	17,447,000	15,460,028
Municipal	754,827	669,114
FUST, FUNTTEL and FISTEL	7,908,597	7,741,992

c.2.1) Tax provisions

Management, under advice of legal counsel, believes that the following losses are probable in the federal, state, municipal and regulatory (FUST) tax proceedings:

Federal taxes

The Company and/or its subsidiaries are party to administrative and legal proceedings at the federal level relating to: (i) claims for the non-ratification of compensation and refund requests formulated; (ii) IRRF and CIDE on remittances abroad related to technical and administrative assistance and similar services, as well as royalties; (iii) withholding income tax on interest on equity; (iv) Social Investment Fund (Finsocial) offset amounts; (v) additional charges to the PIS and COFINS tax base, as well as additional charges to COFINS required by Law No. 9,718/98; and (vi) ex-tariff, cancellation of the benefits under CAMEX Resolution No. 6, increase in the import duty from 4% to 28%.

State taxes

The Company and/or its subsidiaries are party to administrative and judicial proceedings at the state level relating to ICMS, regarding: (i) disallowance credits; (ii) non-taxation of alleged telecommunications services; (iii) tax credit for challenges/disputes over telecommunication services not provided or wrongly charged (Agreement 39/01); (iv) rate differential; (v) leasing of infrastructure for internet services (data); (vi) outflows of goods with prices lower than those of acquisition; and (vii) non-taxation discounts to customers.

Municipal taxes

The Company and/or its subsidiaries are party to municipal tax proceedings, at the judicial level, relating to: (i) Property tax (“IPTU”); (ii) Services tax (“ISS”) on equipment leasing services, non-core activities and supplementary activities; and (iii) withholding of ISS on contractors' services.

FUST

The Company and/or its subsidiaries have judicial proceedings related to the non-inclusion of interconnection expenses and industrial exploitation of a dedicated line in the calculation basis of FUST.

c.2.2) Possible losses - tax contingencies

Management, under advice of legal counsel, believes that the risk of loss from the following federal, state, municipal and regulatory (FUST, FUNTTEL and FISTEL) are possible:

Federal taxes

The Company and/or its subsidiaries are party to administrative and judicial proceedings, at the federal level, which are awaiting decision at different court levels.

The more significant of these proceedings are: (i) dissatisfaction from failure to approve requests for compensation submitted by the Company; (ii) INSS (a) on compensation payment for salary losses arising from the "Plano Verão" and the "Plano Bresser"; (b) SAT, social security amounts owed to third parties (INCRA and SEBRAE); (c) meals to employees, withholding of 11% (assignment of workforce); (d) Stock Options - requirement of social security contributions on amounts paid to employees under the stock option plan; and (e) PLR; (iii) deduction of COFINS on swap operation losses; (iv) PIS and COFINS: (a) accrual basis versus cash basis; (b) levies on value-added services; and (c) monthly subscription services; (v) IPI levied on shipment of fixed access units from the Company's establishment; (vi) Financial transaction tax (IOF) - on loan transactions, intercompany loans and credit transactions; and (vii) IRRF on capital gain on the sale of the GVT Group to the Company (included in the 2020 financial year).

State taxes

The Company and/or its subsidiaries are party to administrative and judicial proceedings, at the state level, related to ICMS, which are awaiting decision in different court levels: (i) rental of movable property; (ii) reversal of previously unused credits; (iii) service provided outside São Paulo state paid to São Paulo state; (iv) co-billing; (v) tax substitution with a fictitious tax base (tax guideline); (vi) use of credits on acquisition of electric power; (vii) secondary activities, value added and supplementary services; (viii) tax credits related to claims/challenges regarding telecommunications services not provided or mistakenly charged (Agreement 39/01); (ix) deferred collection of interconnection (“DETRAF” - Traffic and Service Provision Document); (x) credits derived from tax benefits granted by other states; (xi) disallowance of tax incentives related to cultural projects; (xii) transfers of assets among business units owned by the Company; (xiii) communications service tax credits used in provision of services of the same nature; (xiv) card donation for prepaid service activation; (xv) reversal of credit from return and free lease in connection with assignment of networks (used by the Company itself and exemption of public bodies); (xvi) DETRAF fine; (xvii) own consumption; (xviii) exemption of public bodies; (xix) discounts granted; (xx) new tax register bookkeeping without prior authorization by tax authorities; (xxi) advertising services; (xxii) unmeasured services; and (xxiii) monthly subscription, which is in the STF with declaration liens and the Company awaits the judgment of the STF on the request for modulation.

Municipal taxes

The Company and/or its subsidiaries are party to administrative and judicial proceedings, at the municipal level, which are awaiting decision at different court levels.

The more significant of these proceedings are: (i) ISS on: (a) non-core activity, value-added and supplementary services; (b) withholding at source; (c) call identification and mobile phone licensing services; (d) full-time services, provision, returns and cancelled tax receipts; (e) data processing and antivirus; (f) charge for use of mobile network and lease of infrastructure; (g) advertising services; and (h) services provided by third parties; (ii) IPTU; (iii) land use tax; and (iv) various municipal charges.

FUST, FUNTTEL and FISTEL

Universal Telecommunications Services Fund (“FUST”)

Writs of mandamus were filed seeking the right to exclude revenues from interconnection and Industrial Use of Dedicated Line (“EILD”) in the FUST tax base, according to Abridgment No. 7 of December 15, 2005, as it does not comply with the provisions contained in the sole paragraph of Article 6 of Law No. 9,998/00, which are awaiting a decision from Higher Courts.

Various administrative and judicial charges by ANATEL in administrative scope for the constitution of the tax credit related to interconnection, EILD and other revenues that do not originate from the provision of telecommunication services.

On December 31, 2020, the consolidated amount involved totaled R$4,399,325  (R$4,411,759 on December 31, 2019).

Fund for Technological Development of Telecommunications (“FUNTTEL”)

Proceedings have been filed for the right not to include interconnection revenues and any others arising from the use of resources that are party of the networks in the FUNTTEL calculation basis, as determined by Law 10,052/00 and Decree No. 3,737/01, thus avoiding improper application of Article 4, paragraph 5, of Resolution 95/13.

There are several notifications of charges from the Ministry of Communications in administrative actions for constitution of the tax credit related to the interconnection, network resources and other revenues that do not originate from the provision of telecommunication services.

On December 31, 2020, the consolidated amount involved totaled R$764,655  (R$723,105 on December 31, 2019).

Telecommunications Inspection Fund (“FISTEL”)

There are judicial actions for the collection of TFI on: (i) extensions of the term of validity of the licenses for use of telephone exchanges associated with the operation of the fixed switched telephone service; and (ii) extensions of the period of validity of the right to use radiofrequency associated with the operation of the telephone service personal mobile service.

On December 31, 2020, the consolidated amount involved totaled R$2,744,617  (R$2,607,128 on December 31, 2019).

c.3) Civil provision civil contingencies

	Amounts involved
Nature/Degree of Risk	12.31.20	12.31.19
Provisions	871,951	797,448
Possible losses	3,374,200	3,495,010

c.3.1) Civil provisions

Management, under advice of legal counsel, believes that the following civil proceedings will result in probable losses:

· The Company is a party to proceedings involving rights to the supplementary amounts from shares calculated on community telephony plants and network expansion plans since 1996 (supplement of share proceedings). These proceedings are at different stages: lower courts, court of justice and high court of justice. On December 31, 2020, the consolidated amount involved totaled R$290,993  (R$297,641 on December 31, 2019).

· The Company and/or its subsidiaries are party to various civil proceedings related to consumerist at the administrative and judicial level, relating to the non-provision of services and/or products sold. On December 31, 2020, the consolidated amount involved totaled R$240,810  (R$211,865 on December 31, 2019).

· The Company and/or its subsidiaries are party to various civil proceedings of a non-consumer nature at administrative and judicial levels, all arising in the ordinary course of business. On December 31, 2020, the consolidated amount involved totaled R$340,148 (R$287,942 on December 31, 2019).

c.3.2) Possible losses - civil contingencies

Management, under advice of legal counsel, believes that losses are possible from the following civil proceedings:

· Collective Action filed by SISTEL Participants' Association (“ASTEL”) in the state of São Paulo, in which SISTEL associates in the state of São Paulo challenge the changes made in the PAMA and claim for the reestablishment of the prior "status quo". This proceeding is still in the appeal phase and awaits a decision on the Interlocutory Appeal filed by the Company against the decision on possible admission of the appeal to higher and supreme courts filed in connection with the Court of Appeals' decision, which partially changed the decision rendering the matter groundless. In parallel, the parties formulated an agreement, filed though pending court approval. The amount cannot be estimated, and the claims cannot be settled due to their unenforceability because it entails the return to the prior plan conditions.

· Public Civil Action proposed by the National Federation of Associations of Retirees, Pensioners and Participants in Pension Funds in the Telecommunications Sector (“FENAPAS”), in which ASTEL is an assessor against Sistel, the Company and other operators, to annul the spin-off of the PBS pension plan.  The action is claiming, in summary, the “dismantling of the supplementary pension system of Fundação Sistel”, which originated several specific PBS mirror plans, and corresponding allocations of resources from the technical surplus and tax contingency existing at the time of the spin-off. After upholding the lawsuit in the first degree and confirming the sentence at the appellate level, the Company filed an appeal for clarification. Concurrently, the National Superintendence of Complementary Social Security (“PREVIC”) intervened in the process, which caused the case to be sent to the Federal Court. The process is awaiting receipt at the Federal Court. No value has been determined nor orders settled due to their unenforceability as it involves a return to SITEL’s spun-off collection related to telecommunications operators of the former Telebrás System.

· The Company and its subsidiaries are party to other civil claims, at several levels, related to service rendering rights. Such claims have been filed by individual consumers, civil associations representing consumer rights or by the Bureau of Consumer Protection (“PROCON”), as well as by the Federal and State Public Prosecutor's Office. The Company is also party to other claims of several types related to the ordinary course of business. On December 31, 2020, the consolidated amount totaled R$3,374,200  (R$3,495,010,626 on December 31, 2019).

· Intellectual Property: Lune Projetos Especiais Telecomunicação Comércio e Ind. Ltda. (“Lune”), a Brazilian company, filed lawsuits on November 20, 2001 against 23 wireless carriers claiming to own the patent for a caller ID and the trademark "Bina". The purpose of the lawsuit was to interrupt provision of such service by carriers and to seek indemnification equivalent to the amount paid by consumers for using the service.

An unfavorable decision was handed down determining that the Company should refrain from selling mobile phones with the Bina ID service, subject to a daily fine of R$10 (ten thousand reais) in the event of non-compliance. Furthermore, according to that decision, the Company must pay indemnification for royalties, to be calculated on settlement. Motions for Clarification were proposed by all parties and Lune's motions for clarification were accepted since an injunctive relief in this stage of the proceedings was deemed applicable. A bill of review appeal was filed in view of the current decision which granted a stay of execution suspending that unfavorable decision until final judgment of the review. A bill of review was filed in view of the sentence handed down on September 30, 2016, by the 4th Chamber of the Court of Justice of the Federal District, in order to annul the lower court sentence and remit the proceedings back to the lower court for a new examination, which is ongoing. Management is unable to reasonably estimate the liability with respect to this claim as the expertise is in its early stages.

· The Company and other wireless carriers are currently defendants in two class actions brought by the Public Prosecutor's Office and consumer associations challenging the defined period for use of prepaid minutes. The plaintiffs allege that the prepaid minutes should not expire after a specific period. Conflicting decisions were handed down by courts on the matter, even though the Company believes that its criteria for the period determination comply with ANATEL standards. In relation to these two ongoing lawsuits, there are appeals pending judgment by the Regional Federal Court (“TRF”) and the Superior Tax Court (“STJ”) filed by the opposing parties, due to the favorable decision obtained by the Company. The other lawsuits, already closed, had decisions in favor of the interests of the Company that have been final and unappealable.

c.4) Regulatory provision and contingencies

	Amounts involved
Nature/Degree of Risk	12.31.20	12.31.19
Provisions	1,207,331	1,145,736
Possible losses	5,617,806	5,645,107

c.4.1) Regulatory provisions

Management, under advice of legal counsel, believes the likelihood of loss of the following regulatory proceedings is probable:

The Company is a party to administrative proceedings initiated mainly by ANATEL on the grounds of alleged non-compliance with obligations in the sectoral regulations, as well as in lawsuits that discuss, in the great majority, sanctions applied by ANATEL at the administrative level.

c.4.2) Possible  losses - regulatory contingencies

Management, under advice of legal counsel believes the likelihood of loss of the following regulatory proceedings is possible:

The Company is a party to administrative proceedings filed by ANATEL (other agents, including other operators, also have claims against the Company) alleging non-compliance with the obligations set forth in industry regulations, as well as legal claims which discuss the mostly sanctions applied by ANATEL at the administrative level.

Significant cases with possible risks in the regulatory contingency portfolio include:

· Administrative and legal proceedings that discuss how ANATEL calculates the amount of the charge due to the extension of the radio frequencies associated with the SMP. In the view of the Agency, the calculation of encumbrances should consider the application of a percentage of 2% over the entire economic benefit resulting from the provision of the STFC / SMP service. In the Company's view, however, revenues that are not part of the STFC / SMP service plans, as defined by the regulations at the time of signing the authorization terms / concession contracts, should not be considered when calculating the burden. Because of differences in interpretation, the Company filed administrative claims and lawsuits to challenge ANATEL charge collections.

· In May 2018, the Company filed a lawsuit to annul ANATEL final decision, of March of the same year, in the records of the Procedure for Determining Noncompliance with Obligations (“PADO”) for alleged violations of the fixed telephony regulation. The principal amount of the fine imposed by ANATEL, and object of the lawsuit, totals R$211,576. On December 31, 2020 and 2019, amount including interest and indexation accruals was approximately R$485,828 and R$475,151, respectively. The Company believes that the fine imposed is illegal and not due based, fundamentally, on the following defense arguments: (i) ANATEL's error in determining the universe of users considered in the fine (the number of users affected is less than that considered by the ANATEL) and; (ii) the calculation of the penalty is disproportionate and without foundation. The lawsuit is in the lower court and currently awaits judgment, after the Company presents an expert report to support arguments to reduce the fine.

· Arbitration Procedure No. 24690 / PFF is in progress, which is being processed at the International Chamber of Commerce (“CCI”). The procedure was proposed by “Nextel Telecomunicações Ltda.” for “Telefônica Brasil S.A.”, and addresses divergence in Industrial Exploration and Network Sharing Contracts (Ran Sharing) signed between the parties. On December 31, 2020, the amount of the procedure is estimated at R$257,653. The parties entered into an agreement involving the issues in dispute and are awaiting approval of the agreement by the Arbitral Tribunal

d)  Guarantees

The Company and its subsidiaries granted guarantees for tax, civil, labor and regulatory proceedings, as follows:

	12.31.20	12.31.19
Judicial deposits and garnishments	2,944,378	3,670,885
Letters of guarantee	2,509,089	2,608,463
Property and equipment	85,172	81,416
Total	5,538,639	6,360,764

On December 31, 2020, in addition to the guarantees presented above, the Company and its subsidiaries had amounts under short-term investment withheld by courts (except for loan-related investments) in the consolidated amount of R$46,280  (R$50,554 on December 31, 2019).

XML

LOANS, FINANCING, DEBENTURES AND LEASES

12 Months Ended

Dec. 31, 2020

LOANS, FINANCING, DEBENTURES AND LEASES

LOANS, FINANCING, DEBENTURES AND LEASES

20)  LOANS, FINANCING, DEBENTURES AND LEASES

a)  Accounting policy

These are financial liabilities measured initially and recognized by fair value, net of costs incurred to obtain them and subsequently measured by amortized cost (plus pro-rata charges and interest), considering the effective interest rate of each operation, or by fair value through profit or loss.

They are classified as current unless the Company has the unconditional right to settle the liability for at least 12 months after the closing date of the year.

Borrowing costs directly related to the acquisition, construction or production of an asset that necessarily requires more than 18 months to be completed for use or sale purposes are capitalized as part of the cost of the corresponding asset. The Company did not capitalize borrowing and financing costs and debentures due to the absence of qualifying assets.

All other costs of loans, financing, debentures and leases are recorded in expense in the period in which they are incurred. The costs of loans, financing and debentures comprise interest and other costs incurred.

b)  Breakdown

	Information on December 31, 2020				12.31.20			12.31.19
	Currency	Annual interest rate	Maturity	Guarantees	Current	Non-current	Total	Current	Non-current	Total
Financial institutions (b.1)					61	51	112	23,865	24,985	48,850
PSI	R$	2.5% to 5.5%	Jan-23	(1)	61	51	112	8,847	112	8,959
BNB	R$	7.06% to 10%	Aug-22	(2)	—	—	—	15,018	24,873	39,891
Suppliers (b.2)	R$	114.6% to 149.0% of CDI	Dec-21		375,700	—	375,700	996,177	97	996,274
Debentures (b.3)					1,044,668	999,908	2,044,576	1,077,183	2,027,167	3,104,350
1st issue – Minas Comunica	R$	IPCA+0.50%	Jul-21	(3)	29,352	—	29,352	28,366	28,366	56,732
5th issue	R$	108.25% of CDI	Feb-22	(3)	1,015,316	999,908	2,015,224	44,504	1,998,801	2,043,305
6th issue	R$	100% of CDI + 0.24%	Nov-20	(3)	—	—	—	1,004,313	—	1,004,313
Leases (b.4)	R$	7.69% / IPCA			2,262,043	8,556,735	10,818,778	2,029,265	7,161,886	9,191,151
Contingent consideration (b.5)	R$	Selic			—	—	—	—	484,048	484,048
Total					3,682,472	9,556,694	13,239,166	4,126,490	9,698,183	13,824,673

Guarantees:

(1)Pledge of financed assets.

(2)Bank guarantee provided by Banco Safra in an amount equivalent to 100% of the outstanding financing debt balance. Setting up a liquidity fund represented by financial investments in the amount equivalent to three installments of repayment referenced to the average post-grace period performance. On December 31, 2019, the balance of this liquidity fund was R$13,212.

(3)Unsecured.

b.1) Loans and financing - Financial Institutions

Some financing agreements with the financial institutions have lower interest rates than those prevailing in the market. These operations fall within the scope of IAS 20 and therefore the subsidies granted up to December 31, 2017 were adjusted to present value and deferred in accordance with the useful lives of the financed assets.

The grants on January 1, 2018 adjusted to present value, were recorded in property, plant and equipment and are being depreciated according to the useful lives of the financed underlying assets.

b.2) Financing - Suppliers

Under bilateral agreements with suppliers, the Company obtained extension of the terms for payment of trade accounts payable at a cost based on the fixed CDI rate for the corresponding periods, with the net cost equivalent to between 114.6% to 149.0% of the CDI (109.2% to 122.5% of the CDI on December 31, 2019).

b.3) Debentures

The following is a summary of the debentures in effect on December 31, 2020.

		Amounts
Issue		Issued	Outstanding	Issue value
1st issue – Minas Comunica	Dec-07	5,550	5,550	55,500
5th issue	Feb-17	200,000	200,000	2,000,000

The payment of principal of R$1,000,000 plus interest on the 5th issue (VIVT15) occured on February 8, 2021.

Transaction costs in connection with the 5th issue, totaling R$1,376 on December 31, 2020 (R$2,550 on December 31, 2019, with the 5th and 6th issues), were treated as a reduction of liabilities as costs to be incurred and are recognized as financial expenses, according to the contractual terms of each issue.

b.4) Leases

On the lease start date, the Company recognizes lease liabilities measured at the present value of lease payments to be made during the lease term. After the start date, the value of the lease liability is increased to reflect the increase in interest and reduced for lease payments made.

Short-term lease and low-value lease payments are recognized as an expense using the straight-line method over the lease term.

The Company has agreements classified as lease agreements as a lessee: (i) lease of structures (towers and rooftops) arising from sale and leaseback transactions; (ii) lease of Built to Suit ("BTS") sites to install antennas and other equipment and transmission facilities; (iii) lease of information technology equipment and; (iv) lease of infrastructure and transmission facilities associated with the power transmission network, offices, stores and commercial properties. The net carrying amount of the assets has remained unchanged until sale thereof, and a liability is recognized corresponding to the present value of mandatory minimum installments as per the agreement.

Below, we present the balances of the lease amounts payable:

	12.31.20	12.31.19
Nominal value payable	13,526,001	10,932,789
Unrealized financial expenses	(2,707,223)	(1,741,638)
Present value payable (1)	10,818,778	9,191,151
Current	2,262,043	2,029,265
Non-current	8,556,735	7,161,886

(1) On December 31, 2020 and 2019, the present value of balances payable, included R$1,470,508 and R$480,381, respectively, referring to lease agreements with Telefónica Group companies (Note 28).

The following is a schedule of the amounts payable on leases on December 31, 2020:

Year
2021	2,262,043
2022	2,270,112
2023	2,118,655
2024	1,551,657
2025	925,972
2026 onwards	1,690,339
Total	10,818,778

The weighted annual interest rate on lease contracts on December 31, 2020 is 7.69%, with an average maturity of 6.15 years.

The present value of lease agreements is measured by discounting future fixed payment flows, which do not include projected inflation, at market interest rates, estimated using the Company's intrinsic risk spread.

The discount curves used are constructed based on observable data. Market interest rates are extracted from B3 and the Company's risk spread is estimated from debt securities issued by companies with comparable risk. The final discount curve reflects the Company's incremental loan interest rate.

There were no unsecured residual values resulting in benefits to the lessor or contingent payments recognized as revenue on December 31, 2020 and 2019.

b.5) Contingent consideration

As part of the Purchase and Sale Agreement and Other Covenants executed by and between the Company and Vivendi to acquire all shares in GVTPart., a contingent consideration relating to the judicial deposit made by GVT for the monthly installments of deferred income tax and social contribution on goodwill amortization was agreed, arising from the corporate restructuring process completed by GVT in 2013. If these funds are realized (being reimbursed, refunded, or via netting), it would be returned to Vivendi, as long as they are obtained in a final unappealable decision. The deadline for this return was up to 15 years and this amount was subject to monthly restatement at the SELIC rate.

On July 13, 2020, the 2nd Federal Court of Maringá - PR, issued an order determining the transfer to the Company of the judicial deposit made by the former GVT, corresponding to the tax benefit of goodwill from the mergers of subsidiaries.

As a result of the decision mentioned above, in September 2020, the Company redeemed the judicial deposit and paid Vivendi the amount of R$349,794, monetarily restated, net of costs, expenses and taxes incurred, directly attributable to the reimbursement of such amount.

c)  Repayment schedule

Below, we present the breakdown by year of maturity of non-current amounts of loans, financing, debentures and leases as of December 31, 2020.

	Loans and financing -	Financing -
Year	financial institutions	suppliers	Debentures	Leases	Total
2022	47	—	999,908	2,270,112	3,270,067
2023	4	—	—	2,118,655	2,118,659
2024	—	—	—	1,551,657	1,551,657
2025	—	—	—	925,972	925,972
2026 onwards	—	—	—	1,690,339	1,690,339
Total	51	—	999,908	8,556,735	9,556,694

d)  Covenants

Loans and financing with financial institutions and debentures carry specific covenants involving a penalty in the event of breach of contract. A breach of contract as provided for in the agreements with the institutions listed above in item a), is characterized as non-compliance with covenants (analyzed on a quarterly, half-yearly or yearly basis), being a breach of a contractual clause, resulting in the early maturity of the contract.

On December 31, 2020 and 2019, the Company was in compliance with all economic and financial indices.

e)  Changes

Changes in loans and financing, debentures, leases agreements and contingent considerations are as follows:

	Loans and			Financing -	Contingent
	financing	Debentures	Leases	suppliers	consideration	Total
Balance on 12.31.18	1,582,570	3,173,910	393,027	524,244	465,686	6,139,437
Initial adoption IFRS 16 on 01.01.19	—	—	8,618,072	—	—	8,618,072
Additions	—	—	1,803,941	967,313	—	2,771,254
Government grants (Note 21)	15,787	—	—	—	—	15,787
Financial charges (Note 27)	111,013	197,386	457,985	45,940	18,362	830,686
Issue costs	—	1,400	—	—	—	1,400
Foreign exchange variation (Note 27)	(1,104)	—	—	—	—	(1,104)
Write-offs (cancellation of contracts)	—	—	(107,213)	—	—	(107,213)
Write-offs (payments)	(1,659,416)	(268,346)	(1,974,661)	(541,223)	—	(4,443,646)
Balance on 12.31.19	48,850	3,104,350	9,191,151	996,274	484,048	13,824,673
Additions	—	—	4,828,542	370,538	—	5,199,080
Financial charges (Note 27)	1,879	87,635	526,127	26,620	6,555	648,816
Issue costs	—	1,376	—	—	—	1,376
Costs and expenses incurred	—	—	—	—	(40,708)	(40,708)
Write-offs (cancellation of contracts)	—	—	(315,291)	—	—	(315,291)
Write-offs (payments)	(50,617)	(1,148,785)	(3,411,751)	(1,017,732)	(449,895)	(6,078,780)
Balance on 12.31.20	112	2,044,576	10,818,778	375,700	—	13,239,166

f)  Additions and payments

The following is a summary of the inflows and payments that occurred during the years ended December 31, 2020 and 2019.

	12.31.20				12.31.19
		Write-offs (payments)				Write-offs (payments)
	Additions	Principal	Financial charges	Total	Additions	Principal	Financial charges	Total
Loans and financing	—	(48,645)	(1,972)	(50,617)	—	(1,564,258)	(95,158)	(1,659,416)
BNDES / PSI	—	(8,849)	(111)	(8,960)	—	(1,549,335)	(91,939)	(1,641,274)
BNB	—	(39,796)	(1,861)	(41,657)	—	(14,923)	(3,219)	(18,142)
Debêntures	—	(1,025,583)	(123,202)	(1,148,785)	—	(66,830)	(201,516)	(268,346)
1st issue –  Minas Comunica	—	(25,583)	(1,995)	(27,578)	—	(25,583)	(1,761)	(27,344)
4th issue	—	—	—	—	—	(41,247)	(1,650)	(42,897)
5th issue	—	—	(88,819)	(88,819)	—	—	(135,242)	(135,242)
6th issue	—	(1,000,000)	(32,388)	(1,032,388)	—	—	(62,863)	(62,863)
Financing - Suppliers	370,538	(970,029)	(47,703)	(1,017,732)	967,313	(506,407)	(34,816)	(541,223)
Contingent consideration	—	(344,217)	(105,678)	(449,895)	—	—	—	—
Leases (1)	4,828,542	(2,909,214)	(502,537)	(3,411,751)	10,422,013	(1,559,165)	(415,496)	(1,974,661)
Total	5,199,080	(5,297,688)	(781,092)	(6,078,780)	11,389,326	(3,696,660)	(746,986)	(4,443,646)

(1) Additions include the amount of the initial adoption of IFRS 16 on January 1, 2019.

XML

DEFERRED INCOME

12 Months Ended

Dec. 31, 2020

DEFERRED INCOME

DEFERRED INCOME

21)  DEFERRED INCOME

	12.31.20	12.31.19
Contractual liabilities (costumers contracts) (1)	529,179	499,035
Disposal of PP&E (2)	107,367	94,383
Government grants (3)	50,474	61,613
Other (4)	59,224	63,051
Total	746,244	718,082
Current	506,806	506,181
Non-current	239,438	211,901

(1)Refers to the balance of contractual liabilities of customers, deferred when they relate to performance obligations  satisfied over time.

(2)Includes the net balances of the residual values from sale of non-strategic towers and rooftops, transferred to income as the conditions for recognition are met.

(3)This refers to: i) government subsidy arising from funds obtained from credit lines to be used in the acquisition of domestic equipment, which have been amortized over the useful life cycle of the equipment; and ii) subsidies arising from projects related to state taxes, which are being amortized over the contractual period.

The amount estimated by the Company as received by employees as emergency benefits paid directly to employees, by the Federal Government (MP No. 936), in the amount of R$34,590, for the months of May to December 2020, deducted from personnel costs and expenses (Note 25).

Changes in contractual liabilities (contracts with customers), mainly related to the sale of prepaid credits in the years ended December 31, 2020 and 2019:

Balance on 12.31.18	532,207
Additions	6,762,607
Write-offs, net	(6,795,779)
Balance on 12.31.19	499,035
Additions	6,901,785
Write-offs, net	(6,871,641)
Balance on 12.31.20	529,179
Current	479,728
Non-current	49,451

Below, we present the expected periods of realization of contractual liabilities.

Year
2021	479,728
2022	15,824
2023	3,499
2024	8,089
2025	8,089
2026 onwards	13,950
Total	529,179

XML

OTHER LIABILITIES

12 Months Ended

Dec. 31, 2020

OTHER LIABILITIES

OTHER LIABILITIES

22)  OTHER LIABILITIES

	12.31.20	12.31.19
Surplus from post-employment benefit plans (Note 30)	954,581	1,155,067
Liabilities with ANATEL (1)	523,606	300,119
Third-party withholdings (2)	219,169	222,056
Amounts to be refunded to customers	44,973	43,794
Liabilities with related parties (Note 28)	33,831	30,114
Other liabilities	48,646	36,781
Total	1,824,806	1,787,931
Current	406,831	365,192
Non-current	1,417,975	1,422,739

(1)Includes the cost of renewing STFC and SMP licenses and SMP licenses and the extension of the authorization to use radio frequencies for the exploitation of SMP in the State of Rio de Janeiro, granted by ANATEL on November 29, 2020 (Notes 1.b and 12).

(2)This refers to payroll withholdings and taxes withheld from pay-outs of interest on equity and on provision of services.

XML

EQUITY

12 Months Ended

Dec. 31, 2020

EQUITY

EQUITY

23)  EQUITY

a.1)  Conversion of preferred shares to common shares

At the Extraordinary General Meeting (“AGE”) of the Company, held on October 1, 2020, the following were approved: (i) the conversion of the total of 1,119,340,706 (one billion, one hundred and nineteen million, three hundred and forty thousand, seven hundred and six) preferred shares issued by the Company in common, registered, book-entry shares with no par value, in the proportion of 1 (one) common share for each 1 (one) preferred share converted, with extinction of the preferred shares ("Conversion"); (ii) the amendment and / or exclusion of article 4, caput and paragraphs, article 5, caput, article 7, caput and single paragraph, article 9, caput and single paragraph, article 10, caput and items (i), (ii ) and (iii) and article 14, caput, of the Company's Bylaws; and (iii) the consolidation of the Company's Bylaws.

Also, on October 1, 2020, AGESP ratified: (i) the Conversion; and (ii) the amendment to article 9, caput and sole paragraph, of the Company's Bylaws, pursuant to article 136, first paragraph, of Law 6,404 / 76 (“Lei das S.A.”).

Pursuant to articles 136, items II and 137, item I, of the Brazilian Corporation Law, in view of the ratification of the Conversion by AGESP, the shareholders holding preferred shares issued by the Company who: (i) dissented from the resolution taken at AGESP; (ii) abstained from voting on the resolution taken at AGESP; or (iii) did not attend AGESP, had the right to withdraw from the Company, through the reimbursement of the value, of all or part of their shares, except for the provisions of article 137, third paragraph, of the Brazilian Corporation Law. the publication of the minutes took place on October 2, 2020, and the next subsequent business day was October 5, 2020, the period of 30 (thirty) days for exercising the withdrawal right started on October 5, 2020 (inclusive) and ended on November 3, 2020 (inclusive).

The shareholders who, evidently, were holders of shares issued by the Company since March 9, 2020 (inclusive), the date of the disclosure of the Material Fact that initially dealt with the Conversion, were able to exercise the right of withdrawal exercise of the effective right.

The amount of reimbursement per preferred share paid as a result of exercising the right to withdraw was determined based on (i) the Company's shareholders' equity in the financial statements for the fiscal year ended on December 31, 2019, duly approved by the General Meeting Company's Ordinary Meeting held on May 28, 2020 (“AGM”); and (ii) the number of common and preferred shares, excluding treasury shares, corresponded to R$41.72 (forty-one reais and seventy-two cents) per share. The amount equivalent to the amount of complementary dividends declared by the Company at the AGM was deducted from the reimbursement value per share, since the declared dividends amounted to the profit account and, therefore, the book value per share on December 31, 2019 Considering that the Company's share capital was divided into 1,688,693,776 (one billion, six hundred and eighty-eight million, six hundred and ninety-three thousand, seven hundred and seventy-six) shares (including common and preferred shares and excluding treasury shares), the reimbursement amount to be paid to dissenting shareholders, corresponding to the adjusted shareholders' equity, was R$40.38 (forty reais and thirty-eight cents) per preferred share. Regarding the reimbursement amount, there was no type of monetary correction or adjustment on this amount, as well as any fractions of cents were disregarded.

As a result of the right to withdraw from the Conversion described above, on November 19, 2020, the Company paid R$32 to shareholders who exercised the right to withdraw, representing 805 preferred shares.

On November 23, 2020, the Company issued a material fact, communicating to its shareholders and the market in general that, as of this date: (i) the preferred shares issued by the Company will no longer be traded, due to the conversion of the all preferred shares in common shares; and (ii) only common shares of its issue will be traded, under the ticker “VIVT3”. With the completion of the aforementioned share conversion, the Company proceeded with the conversion of the American Depositary Receipt (ADR) program registered with the Securities and Exchange Commission (“SEC”), and it is expected that, as of this date, the Stock Exchange of New York (“NYSE”) suspend the trading of ADRs backed by preferred shares and start trading ADRs backed by common shares in the “when issued” format under the ticker “VIV WI” and, from November 30, 2020 , in the “regular way” format, under the “VIV” ticker.

For the effective implementation of the conversion of shares, a voting agreement was signed between the shareholders Telefónica S.A., Telefónica Latinoamérica Holding, S.L., SP Telecomunicações Participações Ltda. and, as the consenting intervening party, the Company, in order to comply with the provisions of items a.1 and a.2 of ANATEL Judgment 430, of August 11, 2020.

a.2)  Capital

Pursuant to its Articles of Incorporation, the Company is authorized to increase its share capital up to 1,850,000,000 common shares. The Board of Directors is the competent body to decide on any increase and consequent issue of new shares within the authorized capital limit.

Brazilian Corporation Law (Law nº 6404/76, Article 166, item IV) - establishes that capital may be increased by means of a Special Shareholders’ Meeting Resolution by modifying the Articles of Incorporation, if the authorized capital increase limit has been reached.

The shareholders will have preemptive rights to subscribe for a capital increase, in proportion to the number of shares they own. By resolution of the Board of Directors, the preemptive right in the issuance of shares, convertible debentures and subscription bonus, whose placement may be made through sale on the Stock Exchange or public subscription, exchange for shares in a public offer for acquisition may be excluded control, under the terms of articles 257 and 253 of the Corporation Law, as well as, enjoy tax incentives, under the terms of special legislation, as provided for in article 172 of the Corporation Law.

Subscribed and paid-in capital on December 31, 2020 and 2019 amounted to R$63,571,416.  

After the processes of: (i) conversion of preferred shares into common shares; (ii) share buyback program; and (iii) exercise of the right to dissent from the conversion of preferred shares into common shares, on December 31, 2020 the capital started to be represented by shares, all common, book-entry and without par value, distributed as follows:

	Total
Shareholders	Number	%
Controlling Group	1,244,241,119	73.58	%
Telefónica Latinoamérica Holding, S.L.	407,279,213	24.09	%
Telefónica	503,329,803	29.76	%
SP Telecomunicações Participações	332,695,590	19.67	%
Telefónica Chile	936,513	0.06	%
Other shareholders	443,933,052	26.25	%
Treasury Shares	2,810,752	0.17	%
Total shares	1,690,984,923	100.00	%
Treasury Shares	(2,810,752)
Total shares outstanding	1,688,174,171

b) Capital reserves

b.1) Special goodwill reserve

This represents the tax benefit generated by the merger of Telefonica Data do Brasil Ltda. which will be capitalized in favor of the controlling shareholders (SP Telecomunicações Participações) after the tax credits are realized under the terms of CVM Ruling No. 319/99.

The balance of this account on December 31, 2020 and 2019 totaled R$63,074.

b.2) Other capital reserves

The breakdown on December 31, 2020 and 2019 was as follows.

	12.31.20	12.31.19
Excess of the value in the issue or capitalization, in relation to the basic value of the share on the issue date (1)	2,735,930	2,735,930
Cancelation of treasury shares according to the Special Shareholders' Meeting  (SGM) of 3/12/15 (2)	(112,107)	(112,107)
Direct costs of capital increases (3)	(62,433)	(62,433)
Incorporation of shares of GVTPart. (4)	(1,188,707)	(1,188,707)
Effects of the acquisition of Lemontree and GTR by Company and Tglog by TData (5)	(75,388)	(75,388)
Preferred shares delivered referring to the judicial process of expansion plan (6)	2	2
Effects of the acquisition of Terra Networks by TData (7)	(59,029)	(59,029)
Effects of the acquisition of TIS by Terra Networks (8)	(48,135)	(48,135)
Effects of the acquisition and sale of CyberCo Brasil (9)	39,521	—
Other	76	76
Total	1,229,730	1,190,209

(1)It referes the excess of the value in the issue or capitalization, in relation to the basic value of the share on the issue date.

(2)The cancellation of 2,332,686 shares issued by the Company, held in treasury, approved at the Special Shareholders' Meeting held on March 12, 2015.

(3)The value refers direct costs (net of taxes) of Company capital that increased on April 30,2015, arising from the Primary Offering of Shares.

(4)The value refers the difference between the economic values that comes from the merger of shares owned by GVTPart, issued on the transaction closing date.

(5)Regarding the effects of the acquisition of shares of non-controlling shareholders that, with the adoption of IFRS 10, 35 and 36. It would be recorded in equity when there is no change in the shareholding control.

(6)It refers about the effects of write-offs due to the transfer of 62 preferred shares in treasury to outstanding shares, for compliance with judicial process decisions in which the Company is involved regarding rights to the complementary receipt of shares calculated in relation to network expansion plans after 1996.

(7)The effects refer the acquisition of Terra Networks by TData, related to the difference between the consideration given in exchange for the equity interest obtained and the value of the net assets acquired.

(8)The effects refer the acquisition of TIS by Terra Networks, related to the difference between the consideration given in exchange for the equity interest obtained and the value of the net assets acquired (Note 1 c).

(9)Refers to the effects on the Company and on a subsidiary, due to the acquisition and sale of CyberCo Brasil, referring to the difference between the consideration received in exchange for the alienated shareholding (Note 1.c).

b.3) Treasury shares

These are equity instruments that are repurchased and recognized at cost and deducted from shareholders' equity. No gain or loss is recognized in the statement of income on the purchase, sale, issue or cancellation of the equity instruments of the Company. Any difference between the book value and the consideration is recognized in other capital reserves.

The Company's shares held in treasury whose balance is resulting: (i) from the exercise of the right to withdraw from the Company's common and preferred shareholders, who expressed their dissent regarding the acquisition of GVTPart.; (ii) the exercise of the right to withdraw from the holders of preferred shares of the Company who expressed their dissent from the process of converting the Company's preferred shares into common shares; (iii) the acquisition of preferred shares in the financial market in accordance with the share buyback program; and (iii) transfers of preferred shares, related to compliance with court decisions in which the Company is involved, which deals with rights to the complementary receipt of shares calculated in relation to network expansion plans after 1996.

During the year of 2020, 519,605 shares were acquired, of which 232,805 preferred shares and 286,800 common shares, in the total amount of R$22,721, resulting from the right of withdrawal in the conversion of preferred shares to common shares and through the Share Repurchase Program of the Company.

The balance of this account on December 31, 2020 totaled R$110,541, consisting of 2,810,752 common shares (on December 31, 2019 totaled R$87,820, consisting of 2,290,164 common shares and 983 preferred shares).

c) Income reserves

c.1) Legal Reserve

This reserve is obligatorily constituted by the Company on the basis of 5% of net income for the year, up to 20% of the paid-in capital stock. The legal reserve may only be used to increase share capital and to offset accumulated losses.

c.2) Expansion and Modernization Reserve

This reserve is constituted based on the capital budget, whose purpose is to guarantee the expansion of the network capacity to meet the Company's increasing demand and guarantee the quality of service rendering. In accordance with Article 196 of Law No. 6404/76, the capital budget will be submitted for appreciation and approval by the Annual Shareholders' Meeting. On May 28, 2020, the Company's Annual General Meeting (“AGM”) approved the allocation of the result for the 2019 fiscal year, including the reversal of the 2018 reserve in the amount of R$1,700,000 and the constitution of a new 2019 reserve in the amount of R$600,000. In 2020, the 2019 reserve was reversed in the amount of R$600,000, which will be submitted for appreciation and approval by the AGM, scheduled to be held on April 15, 2021. 

c.3) Tax Incentives

The Company has State VAT (ICMS) tax benefits in the states of Minas Gerais and Espírito Santo, relating to tax credits approved by the relevant bodies of said states, in connection with investments in the installation of SMP support equipment, fully operational, in accordance with the rules in force, ensuring that the localities listed in the call for bid be included in the SMP coverage area. The portion of profit subject to the incentive was excluded from dividend calculation and may be used only in the event of capital increase or loss absorption.

c.4) Changes of income reserves

The amounts of the income reserves are distributed as follows:

		Expansion and
		Modernization
	Legal reserve	Reserve	Tax incentives	Total
Balance on 12.31.18	2,584,757	1,700,000	39,413	4,324,170
Reversal of reserves	—	(1,700,000)	—	(1,700,000)
Recording of reserves	250,051	600,000	18,166	868,217
Balance on 12.31.19	2,834,808	600,000	57,579	3,492,387
Reversal of reserves	—	(600,000)	—	(600,000)
Recording of reserves	238,526	—	18,766	257,292
Balance on 12.31.20	3,073,334	—	76,345	3,149,679

d)  Dividend and interest on equity (IOE)

d.1) Additional dividends proposed for 2019

On May 28, 2020, the AGM approved the allocation of proposed additional dividends for 2019, not yet distributed, amounting to R$2,195,575 to the holders of common and preferred shares that were registered in the Company's records at the end of the day of the Ordinary General Meeting. The amount was paid on December 9, 2020.

d.2) Remuneration to shareholders

The dividends are calculated in accordance with the Company Articles of Incorporation and the Corporation Law.

The table below shows the calculation of dividends and interest on equity for 2020 and 2019:

	2020	2019
Net income for the year	4,770,527	5,001,014
Allocation to legal reserve	(238,526)	(250,051)
(-) Tax incentives - not distributable	(18,766)	(18,166)
Adjusted net income	4,513,235	4,732,797
Dividend and IOE distributed for the year:	(3,830,000)	(3,588,000)
Interest on equity (gross)	(2,630,000)	(2,588,000)
Interim dividends	(1,200,000)	(1,000,000)
Balance of unallocated net income	683,235	1,144,797
(+) Reversal special reserve for modernization and expansion	600,000	1,700,000
(+) Unclaimed dividends and interest on equity	99,788	82,898
(+-) Actuarial gains (losses) recognized and effect of limitation of surplus plan assets, net of taxes and other changes	204,495	(132,120)
Income available to be distributed	1,587,518	2,795,575
Proposal for Distributions:
Special reserve for modernization and expansion	—	600,000
Additional proposed dividends	1,587,518	2,195,575
Proposed additional dividends - Net income for the year	987,518	495,575
Proposed additional dividends - Based on prior year's net income, referring to the reversal of the special reserve for expansion and modernization	600,000	1,700,000
Total	1,587,518	2,795,575
Mandatory minimum dividend - 25% of adjusted net income	1,128,309	1,183,199

The proposal to management of the 2020 financial year that is presented above will be submitted to the annual general meeting to be held in 2021.

Total proposed for deliberation - per share	2020	2019
Common shares	0.940376	1.219339
Preferred shares	—	1.341273

In 2020 and 2019, the Company allocated interim dividends and interest on equity, which were allocated to mandatory minimum dividends, as follows:

2020

	Dates			Gross Amount			Net Value			Amount per Share, Net
			Beginning of
Nature	Approval	Credit	Payment	Common	Preferred	Total	Common	Preferred	Total	Common	Preferred
IOE	02/14/20	02/28/20	Until 12/31/21	85,373	184,627	270,000	72,567	156,933	229,500	0.12745554999	0.14020110499
IOE	03/19/20	03/31/20	Until 12/31/21	47,430	102,570	150,000	40,315	87,185	127,500	0.07080863888	0.07788950277
IOE	06/17/20	06/30/20	Until 12/31/21	284,578	615,422	900,000	241,891	523,109	765,000	0.42485183332	0.46733701665
IOE	09/17/20	09/28/20	Until 12/31/21	205,528	444,472	650,000	174,699	377,801	552,500	0.30683743517	0.33752117869
IOE	11/16/20	11/27/20	Until 12/31/21	400,000	—	400,000	340,000	—	340,000	0.20136681027	—
IOE	12/15/20	12/28/20	Until 12/31/21	260,000	—	260,000	221,000	—	221,000	0.13091066301	—
Dividends	12/15/20	12/28/20	Until 12/31/21	1,200,000	—	1,200,000	1,200,000	—	1,200,000	0.71082712946	—
Total				2,482,909	1,347,091	3,830,000	2,290,472	1,145,028	3,435,500

2019

	Dates			Gross Amount			Net Value			Amount per Share
			Beginning of
Nature	Approval	Credit	Payment	Common	Preferred	Total	Common	Preferred	Total	Common	Preferred
IOE	02/15/19	02/28/19	08/18/20	221,338	478,662	700,000	188,137	406,863	595,000	0.33044031480	0.36348434628
IOE	04/17/19	04/30/19	08/18/20	180,233	389,767	570,000	153,198	331,302	484,500	0.26907282777	0.29598011054
IOE	06/17/19	06/28/19	08/18/20	306,079	661,921	968,000	260,167	562,633	822,800	0.45695174961	0.50264692458
IOE	12/19/19	12/30/19	08/18/20	110,669	239,331	350,000	94,069	203,431	297,500	0.16522015740	0.18174217314
Dividends	12/19/19	12/30/19	08/18/20	316,198	683,802	1,000,000	316,198	683,802	1,000,000	0.55536187362	0.61089806098
Total				1,134,517	2,453,483	3,588,000	1,011,769	2,188,031	3,199,800

The amounts of IOE are calculated and presented net of Withholding Income Tax (“IRRF”). Exempt shareholders received the full IOE amount, without withholding income tax at source.

Until November 22, 2020, the date on which preferred shares were closed, the Company's capital was divided into preferred and common shares. Preferred shares were not entitled to vote, except in the cases provided for in articles 9 and 10 of the previous Bylaws, being guaranteed priority in the reimbursement of capital, without premium and in the receipt of a dividend 10% higher than that attributed to each common share , as provided in article 7 of the Company's Bylaws and in item II of paragraph 1 of article 17 of Law No. 6,404/76.

Dividends and interest on capital decided on the credit date as of November 23, 2020, contemplate the effects of converting preferred shares into common shares (Note 23 a.1).

d.3) Unclaimed dividends and interest on equity

Pursuant to Article 287, paragraph II, item “a” of Law No. 6404, of December 15, 1976, the dividends and interest on equity unclaimed by shareholders are subject to the statute of limitation three years, as from the initial payment date. The Company reverses the amounts of unclaimed dividends and IOE to equity once the statute of limitation occurred.

For the years ended December 31, 2020 and 2019, the Company reversed unclaimed dividends and interest on equity amounting to R$99,788 and R$82,898, respectively, which were included in calculations for decisions on Company dividends.

e)  Other comprehensive income

Financial assets at fair value through other comprehensive income: These refer to changes in fair value of financial assets available for sale.

Derivative financial instruments: These refer to the effective part of cash flow hedges up to the balance sheet date.

Currency translation effects for foreign investments: This refers to currency translation differences arising from the translation of financial statements of Aliança (joint venture).

Changes in other comprehensive income were as follows:

	Financial assets at		Currency translation
	fair value through other		effects - foreign
	comprehensive income	Derivative transactions	investments	Total
Balance on 12.31.18	(9,070)	336	37,959	29,225
Translation gains	—	—	1,859	1,859
Losses from future contracts	—	(336)	—	(336)
Losses on financial assets at fair value through other comprehensive income	(11)	—	—	(11)
Balance on 12.31.19	(9,081)	—	39,818	30,737
Translation gains	—	—	39,008	39,008
Losses from future contracts	—	(4,147)	—	(4,147)
Gains on financial assets at fair value through other comprehensive income	290	—	—	290
Balance on 12.31.20	(8,791)	(4,147)	78,826	65,888

f)  Company shares repurchase program

On July 28, 2020, the Company's Board of Directors, in accordance with article no. 17, item XV of the Bylaws and CVM Instruction no. 567, approved a new Share Repurchase Program of the Company, which has as its objective the acquisition of common shares issued by the Company for subsequent cancellation, sale or maintenance in treasury, without reducing the share capital. This is designed to increase shareholder value by efficiently investing the available cash resources and optimizing the capital allocation of the Company.

The repurchase will be made using the capital reserve balance included in the ITRs with base date June 30, 2020 (R$1.165 billion), except for the reserves referred to in article 7, § 1, of ICVM 567.

This program will run until January 27, 2022, with acquisitions made at B3, at market prices, observing the legal and regulatory limits.

the maximum amounts authorized for acquisition will be 38,320,512 common shares. The number of shares outstanding is 446,496,249 common shares, according to the definition given by article nº 8, § 3, item I, of ICVM 567.

During the year ended December 31, 2020, 518,800 shares of the Company were acquired, of which 232,000 were preferred shares and 286,800 common shares, for the amount of R$22,689.

g)  Earnings per share

Basic and diluted earnings per share were calculated by dividing profit attributed to the Company’s shareholders by the weighted average number of outstanding common and preferred shares.

Below, we present the earnings per share calculations for the years ended December 31, 2020, 2019 and 2018.

	2020	2019	2018
Net income for the year	4,770,527	5,001,014	8,928,258
Common shares	1,991,046	1,581,308	2,823,093
Preferred shares	2,779,481	3,419,706	6,105,165
Number of shares (thousands):	1,688,615	1,688,694	1,688,694
Weighted average number of outstanding common shares for the year	685,522	569,354	569,354
Weighted average number of outstanding preferred shares for the year	1,003,093	1,119,340	1,119,340
Basic and diluted earnings per share:	2.90	2.78	4.96
Common shares
Preferred shares	2.77	3.06	5.45

XML

NET OPERATING REVENUE

12 Months Ended

Dec. 31, 2020

NET OPERATING REVENUE

NET OPERATING REVENUE

24)  NET OPERATING REVENUE

a)    Accounting policy

Total packages combining various fixed network, mobile, data, internet or television products or services, total revenue are allocated to each performance obligation based on its independent selling prices in relation to the total consideration of the package and recognized when (or as soon as) the obligation is met, regardless of whether or not items are delivered. When packages include a discount on the equipment, there is an increase in revenues recognized for the sale of handsets and other equipment, to the detriment of ongoing service revenue over subsequent periods. To the extent that the packages are marketed at a discount, the difference between the revenue from the sale of equipment and the consideration received from the customer in advance is recognized as a contractual asset in the statement of financial position.

Revenues correspond substantially to the value of the consideration received or receivable arising from the provision of telecommunications, communications, sales of goods, advertising and other revenues, and are presented net of taxes, rebates and returns (in the case of sale of goods), incident on them.

Revenues from sales of public telephone cards and prepaid cellular recharge credits, as well as the respective taxes due are deferred and recognized in income as services are effectively rendered.

Revenues from leasing contracts for equipment classified as financial leasing ("Vivo Tech" product) are recognized at the installation of the equipment, at which time the actual transfer of risk occurs. Revenues are recognized at the present value of future minimum contract payments.

Revenue from the sale of appliances to dealers is accounted for at the time of delivery and not at the time of sale to the final customer.

Revenues from services and goods are basically subject to the following indirect taxes: ICMS or ISS (as the case may be), PIS and COFINS, as the case may be.

b)    Critical estimates and judgments

The Company has billing systems for services with intermediate cut-off dates. Thus, at the end of each month there are revenues already received by the Company, but not effectively invoiced to its customers. These unbilled revenues are recorded based on estimates, which take into account historical consumption data, number of days elapsed since the last billing date, different cycles of information, and data obtained from different sources which is processed by a large number of application and system, among others. These estimates are subject to significant uncertainties.

c)    Breakdown

	2020	2019	2018
Gross operating revenue	63,195,443	66,571,866	65,794,397
Services (1)	57,293,392	60,129,579	61,292,362
Sale of goods (2)	5,902,051	6,442,287	4,502,035
Deductions from gross operating revenue	(20,068,971)	(22,303,695)	(22,331,657)
Taxes	(13,022,712)	(13,894,361)	(14,559,915)
Services	(11,981,372)	(12,678,809)	(13,820,784)
Sale of goods	(1,041,340)	(1,215,552)	(739,131)
Discounts granted and return of goods	(7,046,259)	(8,409,334)	(7,771,742)
Services	(4,968,350)	(6,319,584)	(6,288,941)
Sale of goods	(2,077,909)	(2,089,750)	(1,482,801)
Net operating revenue	43,126,472	44,268,171	43,462,740
Services	40,343,670	41,131,186	41,182,637
Sale of Goods	2,782,802	3,136,985	2,280,103

(1)These include telephone services, use of interconnection network, data and SVA services, cable TV and other services.

(2)These include sale of goods (handsets, SIM cards and accessories) and equipment of “Vivo Tech”.

No single customer contributed more than 10% of gross operating revenue for the years ended December 31, 2020, 2019 and 2018.

XML

OPERATING COSTS AND EXPENSES

12 Months Ended

Dec. 31, 2020

OPERATING COSTS AND EXPENSES

OPERATING COSTS AND EXPENSES

25)  OPERATING COSTS AND EXPENSES

	2020
			General and
	Cost of sales		administrative
	and services	Selling expenses	expenses	Total
Personnel (1)	(775,789)	(2,522,455)	(442,716)	(3,740,960)
Third-party services (2)	(7,120,850)	(5,888,370)	(1,078,582)	(14,087,802)
Rental, insurance, condominium and connection means (3)	(1,284,943)	(59,578)	(45,140)	(1,389,661)
Taxes, charges and contributions (4)	(1,690,171)	(32,517)	(47,428)	(1,770,116)
Estimated impairment losses on accounts receivable (Note 4)	—	(1,740,358)	—	(1,740,358)
Depreciation and amortization (5)	(8,865,855)	(1,495,229)	(866,414)	(11,227,498)
Cost of goods sold	(2,878,533)	—	—	(2,878,533)
Materials and other operating costs and expenses	(76,942)	(133,048)	(44,713)	(254,703)
Total	(22,693,083)	(11,871,555)	(2,524,993)	(37,089,631)

	2019
			General and
	Cost of sales		administrative
	and services	Selling expenses	expenses	Total
Personnel (1)	(758,780)	(2,568,363)	(430,409)	(3,757,552)
Third-party services (2)	(6,601,587)	(6,686,452)	(1,154,823)	(14,442,862)
Rental, insurance, condominium and connection means (3)	(1,388,217)	(78,401)	(57,359)	(1,523,977)
Taxes, charges and contributions (4)	(1,597,066)	(41,810)	(31,127)	(1,670,003)
Estimated impairment losses on accounts receivable (Note 4)	—	(1,682,348)	—	(1,682,348)
Depreciation and amortization (5)	(8,624,228)	(1,501,096)	(794,468)	(10,919,792)
Cost of goods sold	(3,156,964)	—	—	(3,156,964)
Materials and other operating costs and expenses	(32,105)	(142,752)	(29,910)	(204,767)
Total	(22,158,947)	(12,701,222)	(2,498,096)	(37,358,265)

	2018
			General and
	Cost of sales		administrative
	and services	Selling expenses	expenses	Total
Personnel (1)	(872,032)	(2,574,498)	(549,610)	(3,996,140)
Third-party services (2)	(6,656,924)	(6,989,006)	(1,237,527)	(14,883,457)
Rental, insurance, condominium and connection means (3)	(2,957,489)	(147,613)	(202,881)	(3,307,983)
Taxes, charges and contributions (4)	(1,594,836)	(30,703)	(36,122)	(1,661,661)
Estimated impairment losses on accounts receivable (Note 4)	—	(1,533,660)	—	(1,533,660)
Depreciation and amortization (5)	(6,487,909)	(1,352,638)	(528,076)	(8,368,623)
Cost of goods sold	(2,406,099)	—	—	(2,406,099)
Materials and other operating costs and expenses	(50,478)	(204,623)	(44,754)	(299,855)
Total	(21,025,767)	(12,832,741)	(2,598,970)	(36,457,478)

(1)Includes costs and expenses with fees, salaries, social charges and benefits, profit sharing, stock-based compensation plans, pension plans and other post-employment benefits, training, transportation, health and nutrition.

(2)Includes costs and expenses for interconnection and use of networks, advertising and publicity, plant maintenance, electricity, security, cleaning, TV content purchase, commercial brokerage and intermediation, partnerships, call center, back office, logistics and storage, preparation and posting of telephone bills, banking services, among others.

(3)Includes costs and expenses of infrastructure, real estate, equipment, vehicles, insurance and means of connection.

(4)Includes costs and expenses with FISTEL, FUST, FUNTTEL, liens for renewal of licenses and other taxes, fees and contributions.

(5)Includes the consolidated amounts of R$2,225,639,  R$1,939,401 and R$29,631 in the years ended December 31, 2020 2019 and 2018, respectively, related to the leases depreciation.

XML

OTHER OPERATING INCOME (EXPENSES)

12 Months Ended

Dec. 31, 2020

OTHER OPERATING INCOME (EXPENSES)

OTHER OPERATING INCOME (EXPENSES)

26)  OTHER OPERATING INCOME (EXPENSES)

	2020	2019	2018
Recovered expenses and fines (1)	993,551	503,777	3,962,150
Provisions for labor, tax and civil contingencies (Note 19) (2)	(673,905)	(625,480)	(1,258,966)
Net gain (loss) on asset disposal/loss (3)	425,562	408,160	114,853
Other operating income (expenses)	(201,120)	17,561	(367,115)
Total	544,088	304,018	2,450,922
Other operating income	1,419,113	929,498	4,077,003
Other operating expenses	(875,025)	(625,480)	(1,626,081)
Total	544,088	304,018	2,450,922

(1) For the year ended December 31, 2020, includes tax credits amount to R$435,698, from the final court proceeding in favor of the Company, which recognized the right to exclude ICMS (VAT) from the basis of calculation of PIS and COFINS contributions for the periods from November 2001 to March 2016 and July 2002 to August 2003.

For the year ended December 31, 2018, includes tax credits amount to R$3,386,433, from the final court proceeding in favor of the Company, which recognized the right to exclude ICMS (VAT) from the basis of calculation of PIS and COFINS contributions for the periods from September 2003 to June 2017 and July 2004 to June 2013.

(2) For the year ended December 31, 2018, includes the write-off of judicial deposits in the amount of R$160,715.

(3) The cumulative 2020 amount includes a net gain of R$93,257, resulting from the agreement entered into by the Company on November 28, 2019, for the sale of 1,909 structures (rooftops and towers) owned by the Company to Telxius Torres Brasil Ltda. (Note 12).

Following the sale of the assets, treated as a sale and leaseback transaction, a lease was executed for part of the structures sold with Telxius Torres Brasil Ltda, to continue the data transmissions necessary for provision of telephony services by the Company (Note 20).

XML

FINANCIAL INCOME (EXPENSES)

12 Months Ended

Dec. 31, 2020

FINANCIAL INCOME (EXPENSES)

FINANCIAL INCOME (EXPENSES)

27)  FINANCIAL INCOME (EXPENSES)

a)  Accounting policy

These include interest, monetary and exchange variations arising from short-term investments, derivative transactions, loans, financing, debentures, present value adjustments of transactions that generate monetary assets and liabilities and other financial transactions. These are recognized on an accrual basis when earned or incurred by the Company.

For all financial instruments measured at amortized cost and interest-yielding financial assets classified as financial assets at fair value through other comprehensive income, interest income or expense is recognized using the effective interest method, which exactly discounts estimated future cash payments or receipts over the expected life of the financial instrument or, where appropriate, a shorter period, to the net carrying amount of the financial asset or liability.

b)  Breakdown

	2020	2019	2018
Financial Income
Interest income	177,236	272,158	246,083
Interest receivable (customers, taxes and other)	98,232	177,636	118,476
Gain on derivative transactions (Note 31)	181,162	315,351	305,996
Foreign exchange variations on loans and financing (Note 20)	—	5,140	32,326
Other income with foreign exchange and monetary variation (judicial deposits, taxes and others) (1)	780,663	209,447	3,341,211
Other financial income	114,237	153,138	68,548
Total	1,351,530	1,132,870	4,112,640
Financial Expenses
Loan, financing, debenture and leases charges (Note 20) (2)	(648,816)	(830,686)	(510,398)
Foreign exchange variation on loans and financing (Note 20)	—	(4,036)	(61,174)
Loss on derivative transactions (Note 31)	(179,128)	(263,388)	(295,208)
Interest payable (financial institutions, provisions, trade accounts payable, taxes and other)	(129,030)	(144,779)	(186,238)
Other expenses with foreign exchange and monetary variation (contingencies, suppliers, taxes and others)	(805,823)	(615,291)	(963,463)
IOF, Pis, Cofins and other financial expenses (3)	(162,162)	(94,831)	(269,006)
Total	(1,924,959)	(1,953,011)	(2,285,487)
Financial income (expenses), net	(573,429)	(820,141)	1,827,153

(1) For the year ended December 31, 2020, includes tax credits amounting to R$512,659, arising from the final court proceeding in favor of the Company and its subsidiary (TData), which recognized the right to exclude ICMS (VAT) from the basis of calculation of PIS and COFINS contributions for the periods from November 2001 to March 2016 and July 2002 to August 2003 (Note 8).

For the year ended December 31, 2018, includes tax credits amounting to R$2,926,247, arising from the final court proceeding in favor of the Company and its subsidiary (TData), which recognized the right to exclude ICMS (VAT) from the basis of calculation of PIS and COFINS contributions for the periods from September 2003 to June 2017 and July 2004 to June 2013.

(2) Includes the consolidated amounts of R$526,127,  R$457,985 and R$45,501 in the years ended December 31, 2020, 2019 and 2018, respectively, related to leases charges.

(3) Includes the amount of PIS and COFINS on the indexation for inflation credits in (1) above.

XML

BALANCES AND TRANSACTIONS WITH RELATED PARTIES

12 Months Ended

Dec. 31, 2020

BALANCES AND TRANSACTIONS WITH RELATED PARTIES

BALANCES AND TRANSACTIONS WITH RELATED PARTIES

28)  BALANCES AND TRANSACTIONS WITH RELATED PARTIES

a)  Balances and transactions with related parties

The main balances of assets and liabilities with related parties arises from transactions with companies related to the controlling group carried out at the prices and other commercial conditions agreed in contracts between the parties and refer to:

a)    Fixed and mobile telephony services provided by Telefónica Group companies.

b)    Digital TV services contracted.

c)    Rental, maintenance of safety equipment and construction services contracted.

d)    Corporate services passed through at the cost effectively incurred.

e)    Right to use certain software licenses and maintenance and support contracted.

f)    International transmission infrastructure for several data circuits and roaming services contracted.

g)    Operations by Telefónica Group companies, relating to the purchase of internet content, advertising and auditing services.

h)    Marketing services.

i)    Information access services through the electronic communications network.

j)    Data communication services and integrated solutions.

k)    Long distance call and international roaming services.

l)    Refunds to be paid or received regarding expenses and miscellaneous expenses.

m)    Brand fee for assignment of rights to use the brand.

n)    Platform of health services.

o)    Cost Sharing Agreement for digital business.

p)    Rentals buildings.

q)    Financial Clearing House roaming, inflows of funds for payments and receipts arising from roaming operation.

r)    Integrated e-learning, online education and training solutions.

s)    Factoring transactions, credit facilities for services provided by the Group's suppliers.

t)    Social investment. The Fundação Telefônica, innovative use of technology to enhance learning and knowledge, contributing to personal and social development.

u)    Contracts or agreements assigning user rights for cable ducts, optical fiber duct rental services, and right-of-way related occupancy agreements with several highway concessionaires.

v)    Adquira Sourcing platform - online solution to transact purchase and sale of various types of goods and services.

w)    Digital media; marketing and sales, in-store and outdoor digital marketing services.

x)    Lease transactions between the Company and Telxius Torres Brasil. The operations consist of the sale of infrastructure assets owned by the Company, together with the assignment of the sharing contracts, with the subsequent assignment of the use of space of the referred infrastructures to the Company.

y)    Amounts to be reimbursed by SPTE as a result of contractual clause of the purchase of Terra Networks equity interest.

z)    Sale of digital products and creation of an exclusive band channel that responds to the commercial demand for these digital services and products.

aa)  Land purchase and sale operation.

The Company and its subsidiaries sponsor pension plans and other post-employment benefits for its employees with Visão Prev and Sistel (Note 30).

Telefônica Corretora de Seguros (“TCS”) acts as intermediary in transactions between insurance companies and the Company and its subsidiaries in the acquisition of insurance for cell phones, operational risks, general liability, guarantee insurance, among others. There are no balances arising from insurance intermediation with TCS, which is remunerated directly by the contracted insurer.

The following table summarizes the consolidated balances with related parties:

		Balance Sheet - Assets
		12.31.20			12.31.19
		Cash and cash	Accounts	Other	Cash and cash	Accounts
Companies	Type of transaction	equivalents	receivable	assets	equivalents	receivable	Other assets
Parent Companies
SP Telecomunicações Participações	d) / l) / p)	—	8	9,876	—	6	4,924
Telefónica Latinoamerica Holding	l)	—	—	19,188	—	—	40,105
Telefónica	l) / z)	—	—	4,796	—	10,873	2,555
		—	8	33,860	—	10,879	47,584
Other Group companies
Colombia Telecomunicaciones	k) / l)	—	151	—	—	159	520
Telefónica International Wholesale Services Brasil	a) / d) / l) / p)	—	3,113	221	—	1,961	69
T.O2 Germany GMBH CO. OHG	k)	—	330	—	—	1,688	—
Telefónica Venezolana	k) / l)	—	6,852	2,196	—	6,498	2,196
Telefônica Digital España	g) / l)	—	1,151	—	—	696	300
Telefônica Factoring do Brasil	a) / d) / s)	—	8,919	62	—	2,782	45
Telefónica International Wholesale Services II, S.L.	a) / j) / k)	—	54,249	—	—	58,490	—
Telefônica Serviços de Ensino	a) / d) / p)	—	130	24	—	153	14
Telefónica Moviles Argentina	j) / k)	—	5,883	—	—	5,145	—
Telefónica Moviles España	k)	—	1,783	—	—	1,536	—
Telefónica USA	j)	—	4,126	—	—	5,319	—
Telfisa Global BV	q)	47,313	—	—	59,657	—	—
Telxius Cable Brasil	a) / d) /  l) / p)	—	4,624	223	—	11,382	4,895
Telxius Torres Brasil	a) d) / p) / x)	—	960	9,164	—	5,429	6,611
Terra Networks Mexico, Terra Networks Peru e Terra Networks Argentina	g) / h)	—	5,617	—	—	5,598	—
Telefónica Cyber Tech Brasil	a) / d) / j) /p)	—	439	23,416	—	—	—
Outras	a) / d) / g) / h) / j) / k) / l) / p)	—	7,014	3,669	—	12,189	2,732
		47,313	105,341	38,975	59,657	119,025	17,382
Total		47,313	105,349	72,835	59,657	129,904	64,966

		Balance Sheet - Liabilities
		12.31.20		12.31.19
		Trade accounts	Other	Trade accounts	Other
		payable and	liabilities and	payable and	liabilities and
Companies	Type of transaction	other payables	leases	other payables	leases
Parent Companies
SP Telecomunicações Participações	y)	—	27,599	—	23,524
Telefónica	l) / m)	8,274	673	2,907	40
		8,274	28,272	2,907	23,564
Other Group companies
Colombia Telecomunicaciones	k)	157	—	816	—
Fundação Telefônica	l)	—	—	—	86
Media Networks Latin America S.A.C.	b)	5,660	—	9,245	—
Telefónica International Wholesale Services Brasil	f) / l)	52,161	318	44,835	318
T.O2 Germany GMBH CO. OHG	k)	769	—	5,000	—
Telefónica Venezolana	k)	6,038	—	6,044	—
Telefónica Compras Electrónica	v)	32,187	—	28,169	—
Telefônica Digital España	o)	115,899	—	68,015	—
Telefônica Factoring do Brasil	s)	—	1,551	—	4,057
Telefónica Global Technology	e)	30,535	—	28,854	—
Telefónica International Wholesale Services II, S.L.	f) / k)	80,254	—	66,976	—
Telefônica Serviços de Ensino	r)	4,480	—	8,373	—
Telefónica Moviles Argentina	k)	757	—	3,638	—
Telefónica Moviles España	k)	1,283	—	3,488	—
Telefónica USA	f)	12,688	269	16,015	267
Telxius Cable Brasil	f) / l)	18,937	1,572	47,168	1,572
Telxius Torres Brasil	l) / x)	74,655	1,393,898	30,018	480,589
Terra Networks Mexico, Terra Networks Peru and Terra Networks Argentina	h)	5,231	—	7,105	—
Telefónica Cyber Tech Brasil	aa)	15,131	—	—	—
Companhia AIX Participações	a) / u)	—	78,236	2,050	—
Outras		24,243	223	26,555	42
		481,065	1,476,067	402,364	486,931
Total		489,339	1,504,339	405,271	510,495
Current liabilities
Trade  accounts payable and other payables (Note 16)		489,339	—	405,271	—
Leases (Note 20)		—	346,291	—	55,920
Other liabilities (Note 22)		—	33,244	—	29,529
Non-current liabilities
Leases (Note 20)		—	1,124,217	—	424,461
Other liabilities (Note 22)		—	587	—	585

		Income statement
		2020			2019			2018
			Operating			Operating			Operating
			revenues			revenues			revenues
			(cost and			(cost and			(cost and
		Operating	other	Financial	Operating	other	Financial	Operating	other	Financial
Companies	Type of transaction	revenues	expenses)	result	revenues	expenses)	result	revenues	expenses)	result
Parent Companies
SP Telecomunicações Participações	d) / l) / p)	10	558	—	5	497	—	—	347	—
Telefónica Latinoamerica Holding	l)	—	19,181	7,217	—	18,309	851	—	16,466	9,077
Telefónica	l) / m)	—	(427,868)	(13,163)	—	(422,958)	(5,226)	—	(373,690)	(16,680)
		10	(408,129)	(5,946)	5	(404,152)	(4,375)	—	(356,877)	(7,603)
Other Group companies
Colombia Telecomunicaciones	k) / l)	110	306	118	111	321	(17)	250	(4,280)	(2,145)
Fundação Telefônica	t)	—	(9,998)	—	—	(11,971)	—	—	(12,223)	—
Telefónica International Wholesale Services Brasil	a) / d) / f) / l) / p)	5,586	(105,384)	—	757	(104,105)	(54)	2,006	(101,272)	—
Media Networks Latin America S.A.C.	b)	—	(28,471)	(246)	—	(41,023)	(596)	—	(34,791)	(1,007)
Telefônica Serviços de Ensino	a) / d) / p) / r)	877	(26,072)	—	1,085	(35,228)	—	1,158	(49,130)	—
T.O2 Germany GMBH CO. OHG	k)	32	3,565	823	(100)	489	1,845	148	(1,975)	—
Telefónica Venezolana	k)	—	—	—	—	—	—	—	(34,534)	—
Telefónica Compras Electrónica	v)	—	(33,919)	—	—	(30,814)	—	—	(124,537)	(813)
Telefônica Digital España	g) / l) / o)	366	(142,343)	(22,992)	299	(127,182)	(3,016)	2,416	212	2,601
Telefônica Factoring do Brasil	a) / d) / s)	7,674	252	(1,551)	2,418	239	(4,048)	—	(36,738)	(4,134)
Telefónica Global Technology	e)	—	(80,784)	(6,470)	—	(63,947)	388	1,568	(54,210)	—
Telefónica International Wholesale Services II, S.L.	a)/ f) / j) / k)	65,246	(88,730)	9,451	48,819	(75,693)	(4,128)	53,357	(64,036)	9,771
Telefónica Moviles Argentina	j) / k)	2,152	1,340	200	4,030	(3,437)	90	5,916	(3,437)	—
Telefónica Moviles España	k)	554	949	(62)	410	(1,737)	545	(209)	(4,166)	—
Telefónica USA	f) / j)	—	(17,186)	(436)	38	(19,793)	1,700	1,518	(19,441)	(539)
Telxius Cable Brasil	a) / d) / f) / l) / p)	12,066	(314,327)	(30,251)	13,585	(252,436)	(7,415)	49,777	(206,095)	(7,896)
Telxius Torres Brasil	a) / d) / p) / x)	8,902	1,178	(69,137)	3,652	756	(24,144)	3,218	(129,706)	—
Terra Networks Mexico, Terra Networks Peru and Terra Networks Argentina	h)	847	(8,428)	166	2,535	(5,639)	567	—	(2,794)	1,450
Telefónica Cyber Tech Brasil	a) / aa)/ d) / j) /p)	347	(15,544)	—	—	—	—	—	—	—
Companhia AIX Participações	a) / u)	28	—	(1,252)	38	(24,174)	—	75	(22,645)	—
Other	a) / c) / d) / e) /  f) / g) / h) / i) / j) / k) / l) / n) / o) / p) / q) / w)	3,075	(17,795)	1,494	6,860	(58,763)	588	4,840	(27,116)	(244)
		107,862	(881,391)	(120,145)	84,537	(854,137)	(37,695)	126,038	(932,914)	(2,956)
Total		107,872	(1,289,520)	(126,091)	84,542	(1,258,289)	(42,070)	126,038	(1,289,791)	(10,559)

b)  Management compensation

Consolidated key management compensation paid by the Company to its Board of Directors and Statutory Officers for the years ended December 31, 2020 and 2019 totaled R$27,802 and R$25,483, respectively. Of this amount, R$17,470  (R$16,758 on December 31, 2019) corresponds to salaries, benefits and social charges and R$10,332  (R$8,725 on December 31, 2019) to variable compensation.

These were recorded as personnel expenses in General and administrative expenses (Note 25).

For the years ended December 31, 2020 and 2019, the Directors and Officers received no pension, retirement or similar benefits.

XML

SHARE-BASED PAYMENT PLANS

12 Months Ended

Dec. 31, 2020

SHARE-BASED PAYMENT PLANS

SHARE-BASED PAYMENT PLANS

29)  SHARE-BASED PAYMENT PLANS

a)    Accounting policy

The Company and subsidiaries measure the cost of transactions settled with shares issued by the parent company (Telefónica), to its officers and employees.

The Company and its subsidiaries measure the cost of transactions settled with employees and officers based on shares issued by the parent company (Telefónica), by reference to the fair value of the shares on the date at which they are granted, using the binomial valuation model. This fair value is charged to the statement of income over the period until the vesting date.

The Company and its subsidiaries reimburse Telefónica for the fair value of the benefit delivered on the grant date to the officers and employees.

b)    Information on share-based payment plans

Telefónica as the Company´s parent has different share-based payment plans which are also offered to management and employees of its subsidiaries, including the Company and its subsidiaries.

The granting of shares is conditional upon: (i) maintenance of an active employment relationship within the Telefónica Group on the cycle consolidation date; and (ii) achievement, by Telefónica, of results representing fulfillment of the objectives established for the plan.

The level of success is based on a comparison of growth in Telefónica shareholder earnings, including their quotations and dividends (Total Shareholder Return – “TSR”), compared with the growth in TSR for companies of the Group in an established basis of comparison and the Telefónica Group's FCF.

On December 31, 2020, the value of Telefónica’ share price was Eur 3.2450.

Company and  subsidiaries share-based compensation plans expenses described above, where applicable, are recorded as personnel expenses, divided into the groups cost of services, selling expenses and general and administrative expenses (Note 25), corresponding to R$19,196 and R$10,833 for the years ended December 31, 2020 and 2019.

The main plans in effect on December 31, 2020 are detailed below:

Talent for the Future Share Plan (“TFSP”), for its Senior Managers, Managers and Experts at a global level

Telefónica's Annual Shareholders' Meeting, held on June 8, 2018, approved a long-term program with the objective of rewarding the commitment, outstanding performance and high potential of its executives at a global level with the attribution of shares of Telefónica.

Participants do not have to pay for their assigned initial actions. The total planned duration of the plan is three years. The cycles are independent of each other. The number of shares is announced at the beginning of the cycle and after the three years period from the grant date, the shares will be transferred to the participants if the goal is achieved.

· The 2018-2020 cycle (January 1, 2018 to December 31, 2020): includes 122 active executives with potential rights to receive 101,000 shares of Telefónica.

· The 2019-2021 cycle (January 1, 2019 to December 31, 2021): includes 152 active executives with potential rights to receive 128,000 shares of Telefónica.

· The 2020-2022 cycle (January 1, 2020 to December 31, 2022): includes 170 active executives with potential rights to receive 136,400 shares of Telefónica.

Perform Share Plan (“PSP”), for its Vice-Presidents and Directors at the global level

Telefónica's Annual Shareholders' Meeting, held on June 8, 2018, approved a long-term program with the objective of rewarding the commitment, outstanding performance and high potential of its Directors at the global level with the attribution of shares of Telefónica.

Participants do not have to pay for their assigned shares. The total planned duration of the plan is three years. The cycles are independent of each other. The number of shares is announced at the beginning of the cycle and after the three years period from the grant date, the shares will be transferred to the participants if the target is reached.

· The 2018-2020 cycle (January 1, 2018 to December 31, 2020): includes 94 active executives (including 2 executives appointed under the Company's by-laws), with the potential right to receive 740,345 shares of Telefónica.

· The 2019-2021 cycle (January 1, 2019 to December 31, 2021): includes 94 active executives (including 3 executives appointed under the Company's by-laws), with the potential right to receive 995,237 shares of Telefónica.

· The 2020-2022 cycle (January 1, 2020 to December 31, 2022): includes 106 active executives (including 3 executives appointed under the Company's by-laws), with the potential right to receive 601,444 shares of Telefónica.

Global Employee Share Plan (“GESP”)

Employees enrolled in the plan acquired Telefónica shares through monthly contributions of €25 to €150 (or the equivalent in local currency) up to €1,800 over 12 months (acquisition period).

The 12 months following the purchase period are the retention period for the purchased shares. At the end of the 2nd year, reward shares will be delivered, that is, for every two shares purchased by the employee, a free share will be granted.

The cycle of this plan is effective from July 1, 2019 to June 31, 2021.

The delivery of shares will take place after the vesting period of the plan, after July 31, 2021, and is subject to: (i) remaining in the company during the two years of the program (vesting period), subject to certain special conditions in relation to casualties; and (ii) the exact number of shares to be delivered at the end of the vesting period depends on the number of shares acquired and held by employees. Thus, employees enrolled in the plan, and who remain in the Telefónica Group, who have maintained the acquired shares for an additional period of another twelve months after the end of the purchase period, will be entitled to receive one free share for every two shares they have acquired and maintained until the end of the vesting period.

On December 31, 2020 and 2019, the consolidated liability balances of the plans mentioned above were R$86,296 and R$40,523, respectively, including taxes.

XML

PENSION PLANS AND OTHER POST-EMPLOYMENT BENEFITS

12 Months Ended

Dec. 31, 2020

PENSION PLANS AND OTHER POST-EMPLOYMENT BENEFITS

PENSION PLANS AND OTHER POST-EMPLOYMENT BENEFITS

30)  PENSION PLANS AND OTHER POST-EMPLOYMENT BENEFITS

a)    Accounting policy

The Company and its subsidiaries individually sponsor pension funds of post-retirement benefits for active and retired employees, in addition to a multisponsor supplementary retirement plan and health care plan for former employees. Contributions are determined on an actuarial basis and recorded on an accrual basis. Liabilities relating to defined benefit plans are determined based on actuarial evaluations at each year-end, in order to ensure that sufficient reserves have been set up for both current and future commitments.

Actuarial liabilities related to defined benefit plans were calculated using the projected unit credit method. Actuarial gains and losses are recognized immediately in equity (in other comprehensive income).

For plans with defined contribution characteristics, the obligation is limited to the contributions payable, which are recognized in the P&L in the respective accrual periods.

The asset or liability related to defined benefit plan to be recognized in the financial statements corresponds to the present value of the obligation for the defined benefit (using a discount rate based on long-term National Treasury Notes - “NTNs”), less the fair value of plan assets that will be used to settle the obligations. Plan assets are assets held by a privately held supplementary pension plan entity. Plan assets are not available to the Company’s creditors or those of its subsidiaries and cannot be paid directly to the Company or its subsidiaries. The fair value is based on information on market prices and, in the case of securities quoted, on the purchase price disclosed. The value of any defined benefit asset then recognized is limited to the present value of any economic benefits available as a reduction in future plan contribution from the Company.

Actuarial costs recognized in the statement of income are limited to the service cost and cost of interest on the defined benefit plan obligation. Any changes in the measurement of plan assets and obligations are initially recognized in other comprehensive income, and immediately reclassified to retained earnings in P&L.

The Company and its subsidiaries manage and individually sponsors a health care plan for retired employees and former employees with fixed contributions to the plan, in accordance with Law No. 9656/98 (which provides for private health care and health insurance plans). As provided for in Articles 30 and 31 of said law, participants shall have the right to the health care plan in which they participated while they were active employees. 

b)    Critical estimates and judgments

The cost of pension plans with defined benefits and other post-employment health care benefits and the present value of the pension obligation are determined using actuarial valuation methods. Actuarial valuation involves use of assumptions about discount rates, future salary increases, mortality rates and future increases in pension and annuity benefits. The obligation for defined benefits is highly sensitive to changes in these assumptions. All assumptions are reviewed on an annual basis.

The mortality rate is based on publicly available mortality tables in the country. Future salary increases, and pension increases are based on expected future inflation rates for the country.

c)    Information on pension plans and other post-employment benefits

The plans sponsored by the Company and its subsidiaries and the related benefit types are as follows:

Plan	Type	Entity	Sponsor
PBS-A	Defined benefit (DB)	Sistel	Telefônica Brasil, jointly with other telecoms resulting from privatization of the Sistema Telebrás
PAMA / PCE	Defined benefit (DB)	Sistel	Telefônica Brasil, jointly with other telecoms resulting from privatization of the Sistema Telebrás
Healthcare - Law No. 9656/98	Defined benefit (DB)	Telefônica Brasil	Telefônica Brasil, Terra Networks, TGLog and TIS
CTB	Defined benefit (DB)	Telefônica Brasil	Telefônica Brasil
Telefônica BD	Defined benefit (DB)	VisãoPrev	Telefônica Brasil
VISÃO	Defined contribution (DC) / Hybrid	VisãoPrev	Telefônica Brasil, Terra Networks, TGLog and TIS

The Company has participation in the decisions that directly affect the governance of the plans, with members nominated for both the Deliberative Council and the Fiscal Council of the administrators Sistel and Visão Prev.

The defined benefit obligation is made up of different components, according to the pension characteristic of each plan, and may include the actuarial liabilities of supplementary pension liabilities, health care benefits to retirees and dependents or compensation for death or disability of members. This liability is exposed to economic and demographic risks, such as: (i) increases in medical costs that could impact the cost of health care plans; (ii) salary growth; (iii) long-term inflation rate; (iv) nominal discount rate; and (v) life expectancy of members and pensioners.

The fair value of plan assets is primarily comprised of fixed income investments (NTN's, LFT’s, LTN's, repurchase agreements, CDBs, debentures, letters of guarantee and FIDC shares) and equity investments (highly liquid, well regarded, large company shares and investments in market indices).

Due to the concentration of fixed income and floating rate investments plan assets are mainly exposed to the risks inherent in the financial market and economic environment such as: (i) market risk in the economic sectors where variable income investments are concentrated; (ii) risk events that impact the economic environment and market indices where variable income investments are concentrated; and (iii) the long-term inflation rate that may erode the profitability of fixed income investments at fixed rates.

The companies that administer post-employment benefits plans sponsored by the Company (Visão Prev and Sistel) seek to meet the flows of assets and liabilities through the acquisition of fixed income securities and other long-term assets.

With the exception of the Companhia Telefônica Brasileira ("CTB") and the healthcare plan under Law No. 9656/98, generally all benefit plans that have funds constituted present a surplus position. The economic benefit recorded in the Company's assets or that of its subsidiaries does not reflect the total surplus determined in these plans. The economic benefit stated under assets considers only the portion of the surplus which presents a real possibility of recovery. The means of plan surplus recovery is solely through reductions in future contributions and given that not all plans currently receive enough contributions for full recovery of surpluses, the economic benefit recorded under assets is limited to the total possible recovery amount in accordance with projected future contributions.

The position of plan assets is on December 31, 2020 and 2019, respectively, and plan assets were apportioned based on the Company’s actuarial liabilities in relation to the total actuarial liabilities of the plan.

The actuarial gains and losses generated in each year are immediately recognized in equity (in other comprehensive income).

The following is a summary of the pension plans and other post-employment benefits:

c.1) Post-Employment Health Benefits Plans

The actuarial valuation made for the PAMA health plan used the registration of the participants with a base date of August 31, 2020, while the actuarial valuation made for the health plan Law No. 9,656/98 used the registration of the participants with a base date of September 30, 2020, both plans projected for December 31, 2020. For comparative exercises, the actuarial valuation made for the PAMA health plan and health plan Law No. 9,656/98 used the registration of the participants with a base date of December 31, 2019, both plans projected for December 31, 2019.

c.1.1) Healthcare Plan to Retirees and Special Coverage Program (PAMA and PAMA-PCE)

The Company, together with other companies of the former Telebrás System, at shared cost, sponsor health care plans (PAMA and PAMA-PCE) to retirees. These plans are managed by Fundação Sistel and are closed plans, not admitting new members.

Contributions to the plans are determined based on actuarial valuations prepared by independent actuaries, in accordance with the rules in force in Brazil. The funding procedure is the capitalization method and the sponsor’s contribution are at the fixed percentage of payroll of employees covered by the Telefônica BD plan.

c.1.2) Health care plan – Law No. 9656/98

The Company manages and together with its subsidiaries sponsors a health care plan to retired employees and former employees with fixed contributions to the plan, in accordance with Law No. 9656/98.

As provided for in Articles 30 and 31 of said law, participants shall have the right to the health care plan in which they participated while they were active employees. Benefitted participants are classified as (i) retirees and their dependents; and (ii) dismissed employees and their dependents.

Retirees and dismissed employees, in order to keep their right to the benefits, must make contributions to the plan in accordance with the contribution tables by age bracket established by carriers and/or insurance companies.

c.2)  Post-employment Social Security Plans

The actuarial valuation made for the pension plan (CTB, PBS-A, Telefônica BD and Visão Plans) used the registration of the participants with a base date of July 31, 2020, projected for December 31, 2020 and the registration of the participants with a base date of July 31, 2019, projected for December 31, 2019.

They include the PBS Assisted Plans (“PBS-A"), CTB, Telefônica DB and Visão.

c.2.1) PBS Assisted Plan (PBS-A)

The PBS-A plan is a defined benefit private pension plan managed by Sistel and sponsored by the Company jointly with the other telecommunications companies originating in the privatization of the Telebrás System. The plan is subject to funding by sponsors in the case of any asset insufficiency to ensure pension supplementation of participants in the future.

The PBS-A plan comprises assisted participants of the Sistel Benefit Plan who were already retirees on January 31, 2000, from all the participating sponsors, with joint liability of all sponsors to the plan and Sistel.

According to PREVIC Ordinance No. 1,061, of December 5, 2019, published in the DOU on December 9, 2019, Sistel approved the distribution of part of its surplus, in the form of PBS-A's special reserve, with reversal of values to sponsors and improvement of benefits, in the form of temporary income, to those assisted.

The participation corresponding to the Company in the distribution of this reserve was calculated in the amount of R$215,328, with expected distribution in the form of 36 monthly payments, corrected by the plan's income (Note 10).

Even considering the distribution of the reserve approved by PREVIC, PBS-A still has assets in excess of actuarial obligations as of December 31, 2020 and 2019. These surpluses were not recognized due to the lack of legal provision for their reimbursement and, as they are not a contributory plan, no deduction is possible in future contributions.

c.2.2) CTB Plan

Contributions to the CTB plan are determined based on actuarial valuations prepared by independent actuaries, in accordance with the rules in force in Brazil. The funding procedure is the capitalization method and the sponsor’s contribution are a fixed percentage of payroll of employees covered by the plan.

The Company also individually manages and sponsors the CTB plan, originally provided to former employees of CTB who were in the Company in 1977, with whom an individual retirement concession agreement wasexecuted to encourage their resignation. This is an informal pension supplementation benefit paid to former employees directly by the Company. These plans are closed, and no other members are admitted.

c.2.3) Telefônica DB Plan

The Company individually sponsors a defined benefit retirement plan, the Telefônica DB plan.

In order to improve allocation of Telefônica DB plan assets and analyze the coverage ratio of plan obligations in future years, a stochastic ALM study was prepared by Visão Prev and Willis Towers Watson. This ALM study aimed at projecting the ratio between coverage of liabilities (solvency ratio) and the risk of mismatching measured by the standard deviation of the solvency ratio. The study concluded that the plan presents sustainable projection of their coverage ratio with the current investments’ portfolio.

At the time of the concession, a benefit is calculated, which will be paid in a lifelong form and updated by inflation. This plan is not open to new accessions.

The contributions are defined according to the costing plan, which is calculated considering financial, demographic and economic hypotheses in order to accumulate enough resources to pay the benefits to the participants who are already receiving them, and to the new pensions.

c.2.4) VISÃO Plans

The Visão Telefônica and Visão Multi plans will hereinafter be shown jointly under the name VISÃO, due to their similarity.

The Company and its subsidiaries sponsor defined contribution pension plans with defined benefit components (hybrid plans), i.e. the VISÃO Plans, managed by Visão Prev. The contribution is attributed to each subsidiary in the economic and demographic proportion of its respective obligation to the plan.

The contributions made by the Company and subsidiaries related to defined contribution plans totaled R$40,983 on December 31, 2020 (R$27,963 on December 31, 2019).

The contributions to the Visão Telefônica and Visão Multi plans are: (i) basic and additional contribution, with contributions made by the participant and sponsor; and (ii) additional, sporadic and specific contribution, with contributions made only by the participant.

In addition, the participant has the possibility to choose one of five investment profiles to apply to their balance, and they are: Super Conservative, Conservative, Moderate, Aggressive and Aggressive Fixed Income Long-Term.

c.3)  Consolidated information on pension plans and other post-employment benefits

c.3.1) Reconciliation of net liabilities (assets):

	12.31.20			12.31.19
	Post-retirement	Post-retirement		Post-retirement	Post-retirement
	pension plans	health plans	Total	pension plans	health plans	Total
Present value of DB plan obligations	2,238,700	1,863,359	4,102,059	2,429,478	2,016,614	4,446,092
Fair value of plan assets	3,411,297	1,004,048	4,415,345	3,696,914	1,001,112	4,698,026
Net liabilities (assets)	(1,172,597)	859,311	(313,286)	(1,267,436)	1,015,502	(251,934)
Asset limitation	1,081,325	21,480	1,102,805	1,128,691	57,371	1,186,062
Current assets	(82,935)	—	(82,935)	(71,776)	—	(71,776)
Non-current assets	(82,127)	—	(82,127)	(149,163)	—	(149,163)
Current liabilities	6,475	15,680	22,155	6,937	18,620	25,557
Non-current liabilities	67,315	865,111	932,426	75,257	1,054,253	1,129,510

c.3.2) Total expenses recognized in the statement of income:

	2020			2019			2018
	Post-	Post-		Post-	Post-		Post-	Post-
	retirement	retirement		retirement	retirement		retirement	retirement
	pension plans	health plans	Total	pension plans	health plans	Total	pension plans	health plans	Total
Current service cost	3,036	26,576	29,612	3,155	16,293	19,448	2,931	13,722	16,653
Net interest on net actuarial assets/liabilities	(10,385)	82,151	71,766	5,713	56,612	62,325	6,074	45,892	51,966
Total	(7,349)	108,727	101,378	8,868	72,905	81,773	9,005	59,614	68,619

c.3.3) Amounts recognized in other comprehensive income (loss)

	2020			2019			2018
	Post-	Post-		Post-	Post-		Post-	Post-
	retirement	retirement		retirement	retirement		retirement	retirement
	pension plans	health plans	Total	pension plans	health plans	Total	pension plans	health plans	Total
Actuarial (losses) gains	114,556	(256,010)	(141,454)	(188,889)	412,416	223,527	(186,170)	184,527	(1,643)
Asset limitation effect	(128,320)	(40,137)	(168,457)	(24,297)	2,430	(21,867)	188,259	(93,125)	95,134
Total	(13,764)	(296,147)	(309,911)	(213,186)	414,846	201,660	2,089	91,402	93,491

c.3.4) Changes in amount net of liability (asset) of defined benefit, net

	12.31.20			12.31.19
	Post-retirement	Post-retirement		Post-retirement	Post-retirement
	pension plans	health plans	Total	pension plans	health plans	Total
Net defined benefit liability (asset) at the beginning of the year	(138,745)	1,072,873	934,128	68,368	600,113	668,481
Business combinations	—	—	—	—	1,994	1,994
Expenses	(7,349)	108,727	101,378	8,868	72,905	81,773
Sponsor contributions	(8,229)	(4,662)	(12,891)	(8,776)	(16,985)	(25,761)
Amounts recognized in OCI	(13,764)	(296,147)	(309,911)	(213,186)	414,846	201,660
Distribution of reserves	76,815	—	76,815	5,981	—	5,981
Net defined benefit liability (asset) at the end of the year	(91,272)	880,791	789,519	(138,745)	1,072,873	934,128
Actuarial assets per balance sheet	(165,062)	—	(165,062)	(220,939)	—	(220,939)
Actuarial liabilities per balance sheet	73,790	880,791	954,581	82,194	1,072,873	1,155,067

c.3.5) Changes in defined benefit liability

	12.31.20			12.31.19
	Post-retirement	Post-retirement		Post-retirement	Post-retirement
	pension plans	health plans	Total	pension plans	health plans	Total
Defined benefit liability at the beginning of the year	2,429,478	2,016,614	4,446,092	2,011,355	1,313,157	3,324,512
Liability assumed after acquisition of company	—	—	0	—	1,994	1,994
Current service costs	3,036	26,576	29,612	3,155	16,293	19,448
Interest on actuarial liabilities	167,991	150,510	318,501	175,695	121,088	296,783
Benefits paid	(171,177)	(48,101)	(219,278)	(165,929)	(53,724)	(219,653)
Member contributions paid	346	—	346	323	—	323
Actuarial losses (gains) adjusted by experience	(70,783)	(33,088)	(103,871)	93,699	226,928	320,627
Actuarial losses (gains) adjusted by demographic assumptions	(8,378)	(52,071)	(60,449)	—	(44,249)	(44,249)
Actuarial losses (gains) adjusted by financial assumptions	(111,813)	(197,081)	(308,894)	311,180	435,127	746,307
Defined benefit liability at the end of the year	2,238,700	1,863,359	4,102,059	2,429,478	2,016,614	4,446,092

c.3.6) Changes in the fair value of plan assets

	12.31.20			12.31.19
	Post-retirement	Post-retirement		Post-retirement	Post-retirement
	pension plans	health plans	Total	pension plans	health plans	Total
Fair value of plan assets at the beginning of the year	3,696,914	1,001,112	4,698,026	2,999,669	763,325	3,762,994
Benefits paid	(164,587)	(43,477)	(208,064)	(159,001)	(36,774)	(195,775)
Participants contributions paid	346	—	346	323	—	323
Sponsor contributions paid	1,638	38	1,676	1,848	35	1,883
Interest income on plan assets	259,331	72,604	331,935	266,287	69,137	335,424
Return on plan assets excluding interest income	(305,530)	(26,229)	(331,759)	593,769	205,389	799,158
Distribution of reserves	(76,815)	—	(76,815)	(5,981)	—	(5,981)
Fair value of plan assets at the end of the year	3,411,297	1,004,048	4,415,345	3,696,914	1,001,112	4,698,026

c.3.7) Changes in asset limitation

	12.31.20			12.31.19
	Post-retirement	Post-retirement		Post-retirement	Post-retirement
	pension plans	health plans	Total	pension plans	health plans	Total
Asset Limitation at the beginning of the year	1,128,691	57,371	1,186,062	1,056,682	50,281	1,106,963
Interest on the asset limitation	80,954	4,246	85,200	96,306	4,661	100,967
Changes in the assets limitation, except interest	(128,320)	(40,137)	(168,457)	(24,297)	2,429	(21,868)
Asset Limitation at the end of the year	1,081,325	21,480	1,102,805	1,128,691	57,371	1,186,062

c.3.8) Results projected for 2021

	Post-retirement	Post-retirement
	pension plans	health plans	Total
Current service cost	2,183	21,361	23,544
Net interest on net defined benefit liability/asset	7,062	70,436	77,498
Total	9,245	91,797	101,042

c.3.9) Sponsoring company contributions projected for 2021

	Post-retirement	Post-retirement
	pension plans	health plans	Total
Sponsor contributions	1,670	6,475	8,145
Benefits paid directly by the sponsor	—	15,686	15,686
Total	1,670	22,161	23,831

c.3.10) Average weighted duration of defined benefit liability

	Post-retirement		Post-retirement
	pension plans		health plans
In 2020	7.9	years	16.3	years
In 2019	8.3	years	18.1	years

c.3.11) Actuarial assumptions

	12.31.20
	Post-retirement pension plans	Post-retirement health plans
Discount rate to present value of defined benefit liability	Visão: 6.4% / PBS-A: 7.4% /  Telefônica BD: 7.7% / CTB: 7.0%	PAMA and PCE: 7.7% / Law 9.656/98: 7.9%
Future salary growth rate	CTB and PBS-A: N/A / Visão telefônica: 4.8% / Visão Multi: 6.4% / Telefônica BD: 4.6%	N/A
Medical expense growth rate	N/A	6.6%
Nominal annual adjustment rate of pension benefits	3.5%	N/A
Medical service eligibility age	N/A	Female participants: 59 years Male participants: 63 years
Estimated retirement age	PBS-A, CTB and Telefônica BD: 57 years Visão: 60 years	Female participants: 59 years Male participants: 63 years
Mortality table for nondisabled individuals	PBS-A, CTB and Telefônica BD: AT-2000 Basic segregated by gender, down-rated by 10% Visão: AT-2000 Basic segregated by gender, down-rated by 50%	AT-2000 Basic segregated by gender, down-rated by 10%
Mortality table for disabled individuals	PBS-A, CTB and Telefônica BD: RP-2000 Disabled Male, down-rated by 60% Visão: N/A	PAMA and PCE: RP-2000 Disabled Male, down-rated by 40%  Law 9.656/98: RP-2000 Disabled Male, down-rated by 60%
Disability table	Telefônica BD: Light-Forte PBS-A and CTB: N/A Visão Telefônica: Álvaro Vindas, down-rated by 50%  Visão: Light-Fraca, down rated by 50%	Light-Forte
Turnover	PBS-A, CTB and Telefônica BD: N/A Visão: Turnover experience in VISÃO plans (2015 to 2017)	PAMA and PCE: N/A Law No. 9656/98: Turnover experience in VISÃO plans (2015 to 2017)

Further to the assumptions stated above, other assumptions common to all plans were adopted in 2020 as follows: (i) Long-term inflation rate 3.5%;  and (ii) Annual increase in the use of medical services according to age: 4.0%.

	12.31.19
	Post-retirement pension plans	Post-retirement health plans
Discount rate to present value of defined benefit liability	Visão: 6.6% / PBS-A and Telefônica BD: 7.2% / CTB: 7.0%	PAMA and PCE: 7.4% / Law 9.656/98: 7.5%
Future salary growth rate	CTB and PBS-A: N/A / Visão and Telefônica BD: 5.5%	N/A
Medical expense growth rate	N/A	6.9%
Nominal annual adjustment rate of pension benefits	3.8%	N/A
Medical service eligibility age	N/A	Female participants: 59 years Male participants: 63 years
Estimated retirement age	PBS-A, CTB and Telefônica BD: 57 years Visão: 60 years	Female participants: 59 years Male participants: 63 years
Mortality table for nondisabled individuals	PBS-A, CTB and Telefônica BD: AT-2000 Basic segregated by gender, down-rated by 10% Visão: AT-2000 Basic segregated by gender, down-rated by 50%	AT-2000 Basic segregated by gender, down-rated by 10%
Mortality table for disabled individuals	PBS-A, CTB and Telefônica BD: RP-2000 Disabled Female, down-rated by 40% Visão: N/A	RP-2000 Disabled Female, down-rated by 40%
Disability table	Telefônica BD: Light-Forte / PBS-A and CTB: N/A / Visão: Light-Fraca, down rated by 30%	Light-Forte
Turnover	PBS-A, CTB and Telefônica BD: N/A Visão: Turnover experience in VISÃO plans (2015 to 2017)	PAMA and PCE: N/A Law No. 9656/98: Turnover experience in VISÃO plans (2015 to 2017)

Further to the assumptions stated above, other assumptions common to all plans were adopted in 2019 as follows: (i) Long-term inflation rate 3.8%; and (ii) Annual increase in the use of medical services according to age: 4.0%.

c.3.12) Changes in actuarial assumptions in relation to the prior year

In order to adjust some actuarial assumptions to the economic and demographic reality, a study was conducted for the plans administered by Visão Prev and Sistel, which adopted the definition of the assumptions in their Deliberative Councils.

The main economic and financial assumptions that have changed in relation to the previous fiscal year and that interfere with the defined benefit liability are: (i) rates for discount to present value of the defined benefit liability; (ii) long-term inflation rate; (iii) rate of future wage growth; (iv) rate of growth of medical costs; and (v) annual nominal index of adjustment of social security benefits.

The impacts on the plans’ defined benefit liabilities due to the new definition of the actuarial assumptions are as follows:

	Post-retirement	Post-retirement
	pension plans	health plans	Total
Defined benefit liability, based on current actuarial assumptions	2,238,700	1,863,359	4,102,059
Defined benefit liability, based on prior-year actuarial assumptions	2,358,891	2,112,510	4,471,401
Difference from change in actuarial assumptions	(120,191)	(249,151)	(369,342)

c.3.13) Sensitivity analysis for actuarial assumptions

The Company believes that the significant actuarial assumptions with reasonable likelihood of variation due to financial and economic scenarios, which could significantly change the amount of the defined benefit obligation, are the discount rate used to adjust the defined benefit liability to present value and the rate of growth of medical costs.

Sensitivity analysis of the defined benefit liability for scenarios involving a 0.5% increase and a 0.5% decrease in the discount rate used to discount the defined benefit liability to present value is as follows:

	Post-retirement	Post-retirement
	pension plans	health plans	Total
Defined benefit liability, discounted to present value at current rate	2,238,700	1,863,359	4,102,059
Defined benefit liability, discounted to present value considering a rate increased by 0.5%	2,152,416	1,729,350	3,881,766
Defined benefit liability, discounted to present value considering a rate decreased by 0.5%	2,332,035	2,012,077	4,344,112

The following is a sensitivity analysis of the defined benefit obligation for scenarios of 1% increase and 1% reduction in the rate of growth of medical costs:

	Post-retirement	Post-retirement
	pension plans	health plans	Total
Defined benefit liability, projected by the current medical cost growth rate	2,238,700	1,863,359	4,102,059
Defined benefit liability, projected by the current medical cost growth considering a rate increased by 1%	2,238,700	2,176,479	4,415,179
Defined benefit liability, projected by the current medical cost growth considering a rate decreased by 1%	2,238,700	1,611,501	3,850,201

c.3.14) Allocation of plan assets

	12.31.20		12.31.19
	Post-retirement	Post-retirement	Post-retirement	Post-retirement
	pension plans	health plans	pension plans	health plans
Investments with market value quoted in active market:
Fixed income investments
National Treasury Note (NTN)	2,878,204	938,986	3,067,926	940,144
Treasury Financial Letter	183,744	65,062	270,676	60,968
Repurchase operations	171,534	—	172,895	—
Debentures	22,104	—	16,818	—
Treasury Financial Letter (LFT)	15,099	—	14,238	—
FIDC shares / Others	22,815	—	24,517	—
National Treasury Notes (LTN)	167	—	282	—
Variable income investments
Investments linked to funds and market indexes	5,678	—	6,265	—
Investments in other sectors	286	—	622	—
Real estate investments	90,325	—	100,701	—
Loans to participants	19,374	—	19,870	—
Structured and overseas investments	1,967	—	2,104	—
Total	3,411,297	1,004,048	3,696,914	1,001,112

XML

FINANCIAL INSTRUMENTS AND RISK AND CAPITAL MANAGEMENT

12 Months Ended

Dec. 31, 2020

FINANCIAL INSTRUMENTS AND RISK AND CAPITAL MANAGEMENT

FINANCIAL INSTRUMENTS AND RISK AND CAPITAL MANAGEMENT

31)  FINANCIAL INSTRUMENTS AND RISK AND CAPITAL MANAGEMENT

a)  Accounting policy

a.1) Financial assets

Initial recognition and measurement

On initial recognition, a financial asset is classified in the following measurement categories: (i) at fair value through profit or loss; (ii) at amortized cost; or (iii) at fair value through other comprehensive income, depending on the situation.

The classification of financial assets at initial recognition depends on the contractual cash flow characteristics of the financial asset and the business model for the management of these assets.

For a financial asset to be classified and measured at amortized cost or at fair value through other comprehensive income, it needs to generate cash flows that are “exclusively payments of principal and interest” on the principal amount outstanding. This assessment is carried out at the level of each financial instrument.

Financial assets with cash flows that are not exclusively payments of interest principal are classified and measured at fair value through profit or loss, regardless of the business model adopted.

The Company's business model for managing financial assets refers to how it manages its financial assets to generate cash flows. The business model determines whether cash flows will result from the collection of contractual cash flows, the sale of financial assets or both. Financial assets classified and measured at amortized cost are maintained in a business plan with the objective of maintaining financial assets in order to obtain contractual cash flows while financial assets classified and measured at fair value against other comprehensive income are maintained in a business model. with the objective of obtaining contractual cash flows and also for the purpose of sale.

The Company’s consolidated financial assets include cash and cash equivalents, trade accounts receivable, short-term investments pledged as collateral and derivative financial instruments.

Subsequentmeasurement

Subsequent measurement of financial assets depends on their classification, as follows:

Financial assets at fair value through profit or loss: these assets are subsequently measured at fair value. Net income, including interest, is recognized directly in income.

Financial assets at amortized cost: these assets are subsequently measured at amortized cost using the effective interest method. The amortized cost is reduced by impairment losses. Interest income, foreign exchange gains and losses and impairment are recognized in income. Any gain or loss on derecognition is recognized in profit or loss.

Financial assets at fair value through other comprehensive income: these assets are subsequently measured at fair value. Interest income is calculated using the effective interest method, and foreign exchange gains and losses and impairment are recognized in profit or loss. Other net income is recognized in other comprehensive income. In derecognition, the accumulated result in other comprehensive income is reclassified to the statement of income.

Derecognition

A financial asset (or, whenever the case, a part of a financial asset, or a part of a group of similar financial assets) is derecognized when:

· The rights to receive the cash flows from the asset have expired; or

· The Company has transferred its rights to receive cash flows from it has assumed obligation to pay the received cash flows in full without material delay to a third part under a ‘pass-through’ arrangement; and either (i) the Company has transferred substantially all the risks and rewards of the asset, or (ii) the Company has neither transferred nor retained substantially all the risks and rewards of the asset, but has transferred control of the asset.

Impairment of financial assets

The Company and its subsidiaries apply an impairment model for financial assets based on expected credit losses, using a simplified method for certain short and long-term assets (commercial receivables, lease receivables and contractual assets).

Under this simplified approach, credit impairment is recognized by reference to expected credit losses over the life of the asset. For this purpose, the Company and its subsidiaries use matrices based on historical bad debt experience by geographical area on a portfolio segmented by customer category according to credit pattern. The matrix for each category has a defined time horizon divided into intervals in accordance with the collection management policy and is fed with historical data that covers at least 24 collection cycles. This data is updated on a regular basis. Based on the information observable at each close, the Company and its subsidiaries assess the need to adjust the rates resulting from these matrices, considering current conditions and future economic forecasts.

a.2) Financial liabilities

Initial recognition and measurement

Upon initial recognition, a financial liability is classified into the following measurement categories: (i) at fair value through profit or loss; (ii) at amortized cost; or (iii) derivatives designated as hedge instruments in an effective hedge, as appropriate.

Financial liabilities are initially recognized at fair value plus, in the case of loans and financing, transaction cost directly attributable thereto.

The Company’s consolidated financial liabilities include trade accounts payable, loans and financing, debentures, leases, contingent payments (when applicable) and derivative financial instruments.

Subsequent measurement

Measurement of financial liabilities depends on their classification, as follows:

Financial liabilities at fair value through profit or loss: financial liabilities are designated at initial recognition at fair value through profit or loss. This category also includes derivative financial instruments contracted, except those designated as derivative financial instruments of cash flow hedge. Interest, monetary and exchange variations and changes arising from the valuation at fair value, when applicable, are recognized in the statement of income when incurred.

Financial liabilities at amortized cost: after initial recognition, loans and financing subject to interest are subsequently measured at amortized cost using the effective interest rate method. Gains and losses are recognized in the statement of income at the time of write-off of liabilities, as well as during the amortization process using the effective interest rate method.

Derecognition

A financial liability is derecognized when the obligation has been revoked, cancelled or expired.

When an existing financial liability is replaced by another of the same lender, and the terms of the instruments are substantially different, or when the terms of an existing debt instrument are substantially modified, this replacement or modification is treated as derecognition of the original liability and recognition of a new liability, and the difference in the corresponding carrying amounts is recognized in the statement of income.

a.3) Fair value measurement

Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants on the measurement date. Fair value measurement is based on the assumption that the transaction to sell the asset or transfer the liability will take place (i) in the principal market for the asset or liability; and (ii) in the absence of a principal market, in the most advantageous market for that asset or liability.

The Company and or its subsidiaries must have access to the principal (or most advantageous) market.

The fair value of an asset or a liability is measured using the assumptions that market participants would use when pricing an asset or liability, assuming that market participants act in their best economic interests.

Fair value measurement of a non-financial asset takes into consideration the capacity of a market participant to generate economic benefits through the best use of the asset or selling it to another market participant that would also make the best use of the asset.

The Company and its subsidiaries use adequate valuation techniques in the circumstances and for which there is sufficient data to measure the fair value, that maximizes the use of relevant observable inputs and minimizes the use of unobservable inputs.

For assets and liabilities recurrently recognized in the financial statements, the Company determines whether there were transfers between the hierarchy levels, revaluating the classification (based on the lowest level input that is significant to the overall fair value measurement) at the end of each reporting period.

The Company and its subsidiaries assessed their financial assets and liabilities in relation to market values using available information and appropriate valuation methodologies. However, both the interpretation of market data and the selection of valuation methods require considerable judgment and reasonable estimates to produce the most adequate realization value. As a result, the estimates shown do not necessarily indicate amounts that could be realized in the current market. The use of different assumptions for the market and/or methodologies may have a material effect on estimated realization values.

The fair values of all assets and liabilities are classified within the fair value hierarchy described below, based on the lowest level of information that is significant to the fair value measurement as a whole:

Level 1: quoted market prices (unadjusted) in active markets for identical assets or liabilities.

Level 2: valuation techniques for which there is a significantly lower level of information to measure the fair value directly or indirectly observable; and

Level 3: valuation techniques for which the lowest and significant level of information to measure the fair value is not available.

During the periods shown in the tables below, there were no transfers of fair value assessments between the levels mentioned above.

a.4) Financial instruments - net

Financial assets and liabilities are presented net in the balance sheet if, and only if, there is a current enforceable legal right to offset the amounts recognized and if there is an intention to offset or realize the asset or settle the liability simultaneously.

a.5) Derivative financial instruments and hedge accounting

A hedge relationship qualifies for hedge accounting if it meets all of the following effectiveness requirements: (i) there is an economic relationship between the hedged item and the hedging instrument; (ii) the credit risk effect does not influence the changes in value that result from this economic relationship; and (iii) the hedge ratio of the hedging relationship is the same as that resulting from the amount of the hedged item that the entity effectively protects and the amount of the hedge instrument that the Company effectively uses to protect that amount of hedged item.

The documentation includes identification of the hedging instrument, the hedged item or transaction, the nature of the hedged risk, the nature of the risks excluded from the hedge relationship, the prospective statement of hedge effectiveness and how the Company shall assess the effectiveness of changes in the hedging instrument’s fair value in offsetting the exposure to changes in the hedged item’s fair value or cash flows attributable to the hedged risk.

On the inception initial recognition of a hedge relationship, the Company formally designates and documents the hedge relationship to which it wishes to apply hedge accounting, the risk management objective and strategy for undertaking the hedge.

The Company uses derivative financial instruments, such as currency and interest rate swaps or currency non- deliverable forward contracts to hedge against currency risks.

Derivative financial instruments designated in hedge transactions are initially recognized at fair value on the date on which the derivative contract is entered into, and subsequently revalued also at fair value. Derivatives are presented as financial assets when the fair value of the instrument is positive and as financial liabilities when the fair value of the instrument is negative.

Any gains or losses resulting from changes in fair value of derivatives during the year are posted directly to the statement of income, except for the effective portion of cash flow hedges, which is recognized directly in equity as other comprehensive income and subsequently reclassified to P&L when the hedged item affects P&L.

For the purpose of hedge accounting, hedges are classified as cash flow hedges and fair value hedges.

Cash flow hedges

Cash flow hedges meeting the recording criteria are accounted for as follows: (i) the portion of gain or loss from the hedge instrument determined as an effective hedge shall be recognized directly in equity (other comprehensive income), and (ii) the ineffective portion of gain or loss from the hedge instrument shall be recognized in the statement of income.

When the Company’s documented risk management strategy for any given hedge relationship excludes from the hedge effectiveness evaluation any particular component of gain or loss or the corresponding cash flows from the hedge instrument, that gains or loss component is recognized in financial income (expenses).

Amounts recorded in other comprehensive income are immediately transferred to the statement of income when the hedged transaction affects P&L. When a hedged item is the cost of a non-financial asset or liability, amounts recorded in equity are transferred at the initial carrying amount of the non-financial assets and liabilities.

If the hedging instrument expires or is sold, terminated or exercised without replacement or rollover (as part of the hedging strategy), or if its designation as a hedge is revoked, or when the hedge fails to meet the hedge accounting criteria, any cumulative gain or loss previously recognized in other comprehensive income remains separately in equity until the forecast transaction occurs or the firm commitment is fulfilled.

The Company's contracts are classified as cash flow hedges when they provide protection against changes in cash flows that are attributable to a particular risk associated with a recognized liability that may affect the profit or loss and fair value when they provide protection against exposure to changes in the fair value of the identified part of certain liabilities that is attributable to a particular risk (exchange variation) and may affect the profit or loss.

Fair value hedges 

Fair value hedges meeting the accounting criteria are accounted for as follows: (i) gain or loss from changes in fair value of a hedge instrument shall be recognized in the statement of income as finance costs; and (ii) gain or loss from a hedged item attributable to the hedged risk shall adjust the recorded amount of the hedged item to be recognized in the statement of income, as finance costs.

For fair value hedges relating to items carried at amortized cost, any adjustment to carrying amount is amortized through profit or loss over the remaining term of the hedge using the effective interest method.  The effective interest rate amortization may begin as soon as any adjustment exists and no later than the point that the hedged item ceases to be adjusted for changes in its fair value attributable to the risk being hedged.

If the hedged item is derecognized, the unamortized fair value is recognized immediately in the statement of income.

When an unrecognized firm commitment is designated as a hedged item, the subsequent cumulative change in the fair value of the firm commitment attributable to the hedged risk is recognized as an asset or liability with a corresponding gain or loss recognized in profit and loss.

Classification between current and non-current 

Derivative financial instruments are classified as current and non-current or segregated into short and long-term portions based on an evaluation of the contractual cash flows. 

When the Company maintains a derivative as an economic hedge (and does not apply hedge accounting), for a period exceeding 12 months after the balance sheet date, the derivative is classified as non-current (or segregated into current and non-current portions), in line with the classification of the corresponding item.

Derivative instruments that are designated as effective hedging instruments are classified consistently with the classification of the underlying hedged item.

The derivative instrument is segregated into current and non-current portions only when amounts can be reliably allocated. 

b) Critical estimates and judgments

When the fair value of financial assets and liabilities stated in the balance sheet cannot be obtained in active markets, it will be determined using valuation techniques, including the discounted cash flow method. Data for these methods is based on those adopted in the market, whenever possible. However, when this is not feasible, a certain level of judgment is required for fair value determination. Judgment includes consideration of the inputs used, such as liquidity risk, credit risk and volatility. Changes in the assumptions about these factors could affect the reported fair value of financial instruments.

c) Derivative transactions

The derivative financial instruments contracted by the Company are mainly used for hedging against foreign exchange risk from assets and liabilities in foreign currency and the effects of inflation on leases indexed to the IPCA. There are no derivative financial instruments held for speculative purposes, possible currency risks are hedged.

Management believes that the Company's internal controls for its derivatives are adequate to control risks associated with each strategy for the market. Gains/losses obtained or sustained by the Company in relation to its derivatives show that its risk management has been appropriate.

As long as these derivative contracts qualify for hedge accounting, the hedged item is adjusted to fair value, offsetting the result of the derivatives, pursuant to the rules of hedge accounting. This hedge accounting applies both to financial liabilities and probable cash flows in foreign currency.

Derivatives contracts include specific penalties for breach of contract. Breach of contract provided for in agreements made with financial institutions leads to the anticipated liquidation of the contract.

On December 31, 2020 and 2019, the Company held no embedded derivatives contracts.

c.1) Fair value of derivative financial instruments

The valuation method used to calculate the fair value of financial liabilities (if applicable) and derivative financial instruments was the discounted cash flow method, based on expected settlements or realization of liabilities and assets at market rates prevailing at the balance sheet date.

The fair values of positions in Reais are calculated by projecting future inflows from transactions using B3 yield curves and discounting these flows to present value using market DI rates for swaps announced by B3.

The market values of foreign exchange derivatives were obtained using the market exchange rates in effect at the balance sheet date and projected market rates obtained from the currency's coupon-rate yield curves. The linear convention of 360 calendar days was used to determine coupon rates of positions indexed in foreign currencies, while the exponential convention of 252 business days was used to determine coupon rates for positions indexed to CDI rates.

Consolidated derivatives financial instruments shown below are registered with B3 and classified as swaps, usually, that do not require margin deposits.

			Accumulated effects from fair value
	Notional Value		Amount receivable (payable)
Description	12.31.20	12.31.19	12.31.20	12.31.19
Assets position	411,650	515,261	69,416	72,163
Foreign Currency	316,322	72,790	1,265	—
US$  (1)	97,753	72,790	306	—
EUR  (1)	91,863	—	888	—
NDF US$  (3)	126,706	—	71	—
Floating rate	44,560	369,491	127	1,818
CDI (1)	44,560	369,491	127	1,818
Inflation rates	50,768	72,980	68,024	70,345
IPCA (2)	50,768	72,980	68,024	70,345
Liabilities position	(411,650)	(515,261)	(74,980)	(56,133)
Floating rate	(240,384)	(145,770)	(67,609)	(56,133)
CDI (1) (2)	(240,384)	(145,770)	(67,609)	(56,133)
Fixed rate	(126,706)	—	(6,662)	—
NDF US$ (3)	(126,706)	—	(6,662)	—
Foreign Currency	(44,560)	(369,491)	(709)	—
US$  (1)	(44,560)	(365,161)	(709)	—
EUR (1)	—	(4,330)	—	—
	Assets position		69,416	72,163
	Current		5,902	19,282
	Non-current		63,514	52,881
	Liabilities position		(74,980)	(56,133)
	Current		(8,864)	(1,921)
	Non-current		(66,116)	(54,212)
	Amounts receivable, net		(5,564)	16,030

(1)Foreign currency swaps (Euro and CDI x Euro) (R$92,924)) and (US$ and CDI x US$) (R$51,545) - maturing through February 19, 2021 to hedge currency risk affecting net amounts payable (carrying amount R$92,928 in Euros and LIBOR) and receivables (carrying amount R$51,545 in US$).

(2)IPCA x CDI swaps (R$246,816) - maturing in 2033 to hedge risk of change pegged to IPCA (carrying amount R$276,167).

(3)NDF US$ x R$ (R$119,838) - forward operations contracted with maturity up to June 11, 2021, with the objective of protecting against risks of exchange rate variations in service contracts (book value of R$119,838in dollars).

The table below shows the breakdown of swaps maturing after December 31, 2020:

							Amount
	Maturing in						receivable
						2026	(payable) on
Swap contract	2021	2022	2023	2024	2025	onwards	12.31.20
Foreign currency x CDI	(299)	—	—	—	—	—	(299)
CDI x Foreign Currency	(582)	—	—	—	—	—	(582)
IPCA x CDI	4,510	5,015	5,160	5,137	5,076	(22,990)	1,908
NDF US$ x Fixed rate	(6,591)	—	—	—	—	—	(6,591)
Total	(2,962)	5,015	5,160	5,137	5,076	(22,990)	(5,564)

For the purposes of preparing its financial statements, the Company adopted the fair value hedge accounting methodology for its foreign currency swaps x CDI and IPCA x CDI for hedging or financial debt. Under this arrangement, both derivatives and hedged risk are recognized at fair value.

On December 31, 2020 and 2019, the transactions with derivatives generated a positive consolidated net result of R$2,034 and R$51,963, respectively (Note 27).

c.2) Sensitivity analysis to the Company’s risk variables

CVM Resolution 475/08 requires listed companies to disclose sensitivity analyses for each type of market risk that management understands to be significant when originated by financial instruments to which the entity is exposed at the end of each period, including all derivative financial instrument transactions.

In making the above analysis, each of the transactions with derivative financial instruments was assessed and assumptions included a probable scenario and two others that could adversely impact the Company.

In the probable scenario assumption used, on the maturity dates of each of the transactions, were the market rates for the B3 yield curves (currencies and interest rates), and data from the IBGE, Central Bank, FGV, among others. In the probable scenario, there is no impact on the fair value of the above-mentioned derivatives. However, for Scenarios II and III, as per CVM ruling, risk variables were stressed by 25% and 50% respectively.

Since the Company only holds derivatives to hedge its foreign currency assets and liabilities, changing scenarios are tracked by the corresponding hedged items the effects are almost non-existent. For these transactions, the Company reported the consolidated net exposure in each of the above-mentioned three scenarios on December 31, 2020.

Transaction	Risk	Probable	25% depreciation	50% depreciation
Hedge (assets position)	Derivatives (depreciation risk EUR)	92,924	116,155	139,386
Payables in EUR	Debt (appreciation risk EUR)	(94,517)	(118,146)	(141,777)
Receivables in EUR	Debt (depreciation risk EUR)	1,549	1,937	2,324
	Net Exposure	(44)	(54)	(67)
Hedge (assets position)	Derivatives (depreciation risk US$)	51,545	64,431	77,318
Payables in US$	Debt (appreciation risk US$)	(284,102)	(355,127)	(426,153)
Receivables in US$	Debt (depreciation risk US$)	232,557	290,696	348,835
	Net Exposure	—	—	—
Hedge (assets position)	Derivatives (risk of decrease in IPCA)	246,815	233,184	220,868
Debt in IPCA	Debt (risk of increase in IPCA)	(276,167)	(262,536)	(250,220)
	Net Exposure	(29,352)	(29,352)	(29,352)
Hedge (assets position)	Derivatives (depreciation risk US$)	119,838	149,798	179,757
OPex in US$	OPex (appreciation risk US$)	(119,838)	(149,798)	(179,757)
	Net Exposure	—	—	—
Hedge (CDI position)
Hedge US$ and EUR (liabilities position)	Derivatives (risk of decrease in CDI)	205,654	205,655	205,656
Hedge IPCA (liabilities position)	Derivatives (risk of increase in CDI)	(246,816)	(233,184)	(220,868)
	Net Exposure	(41,162)	(27,529)	(15,212)
Total net exposure in each scenario		(70,558)	(56,935)	(44,631)
Net effect on changes in current fair value		—	13,623	25,927

The assumptions used by the Company for the sensitivity analysis on December 31, 2020 were as follows:

Risk Variable	Probable		25% depreciation		50% depreciation
US$	5.1967		6.4959		7.7951
EUR	6.3756		7.9695		9.5634
IPCA	4.31	%	5.39	%	6.47	%
IGPM	23.14	%	28.93	%	34.71	%
CDI	1.90	%	2.38	%	2.85	%

For calculation of the net exposure for the sensitivity analysis, all derivatives were considered at market value and hedged items designated for hedges for accounting purposes were also considered at fair value.

The fair values shown in the table above are based on the portfolio position on December 31, 2020, but do not reflect an estimate for realization due to the dynamism of the market, which is constantly monitored by the Company. The use of different assumptions could significantly affect the estimates.

d) Classification of financial assets and liabilities by category and fair value hierarchy

For the purposes of disclosing fair value, the Company and its subsidiaries determined classes of assets and liabilities based on the nature, characteristics and risks of the asset or liability and the level of the fair value hierarchy. Below, we present the composition and classification of financial assets and liabilities as of December 31, 2020 and 2019.

		Fair value	Book value		Fair value
	Classification by category	hierarchy	12.31.20	12.31.19	12.31.20	12.31.19
Financial Assets
Current
Cash and cash equivalents  (Note 3)	Amortized cost		5,762,081	3,393,377	5,762,081	3,393,377
Trade accounts receivable (Note 4)	Amortized cost		8,182,667	8,719,497	8,182,667	8,719,497
Derivative transactions (Note 31)	Measured at fair value through OCI	Level 2	5,902	19,282	5,902	19,282
Non-current
Investments pledged as collateral	Amortized cost		46,280	63,766	46,280	63,766
Trade accounts receivable (Note 4)	Amortized cost		379,898	440,453	379,898	440,453
Derivative transactions (Note 31)	Measured at fair value through OCI	Level 2	63,514	52,881	63,514	52,881
Total financial assets			14,440,342	12,689,256	14,440,342	12,689,256
Financial Liabilities
Current
Trade accounts payable, net (Note 16)	Amortized cost		6,613,004	6,871,799	6,613,004	6,871,799
Loans, financing and leases (Note 20)	Amortized cost		375,756	1,020,061	375,772	1,021,810
Loans, financing and leases (Note 20)	Measured at fair value through profit or loss	Level 2	2,262,048	2,029,246	2,262,048	2,029,246
Debentures (Note 20)	Amortized cost		1,044,668	1,077,183	1,030,528	1,104,539
Derivative transactions (Note 31)	Measured at fair value through profit or loss	Level 2	8,864	1,921	8,864	1,921
Non-current
Loans, financing and leases (Note 20)	Amortized cost		51	25,093	49	24,106
Loans, financing and leases (Note 20)	Measured at fair value through profit or loss	Level 2	8,556,735	7,161,875	8,556,735	7,161,875
Contingent consideration (Note 20)	Measured at fair value through profit or loss	Level 2	—	484,048	—	484,048
Debentures (Note 20)	Amortized cost		999,908	2,027,167	986,662	1,948,705
Derivative transactions (Note 31)	Measured at fair value through OCI	Level 2	66,116	54,212	66,116	54,212
Total financial liabilities			19,927,150	20,752,605	19,899,778	20,702,261

e)  Capital management

The purpose of the Company's capital management is to ensure maintenance of a high credit rating and an optimal capital ratio to support the Company's business and maximize shareholder value.

The Company manages its capital structure by making adjustments and adapting to current economic conditions. For this purpose, the Company may pay dividends, obtain new loans, issue debentures and contract derivatives. For the year ended December 31, 2020, there were no changes in capital structure objectives, policies or processes.

The Company’s debt structure includes loans, financing, debentures, leases, contingent consideration and transactions with derivatives, less cash and cash equivalents, short-term investments to secure BNB financing , accounts receivable for credit rights (FIDC) and guarantor of the contingent consideration liability.

In 2020, there was a favorable decision and conversion into income for the Company of the judicial deposit guaranteeing the contingent consideration liability (Note 9) and, consequently, the amount of the contingent consideration was paid to Vivendi (Note 20).

The Company’s ratio of consolidated debt to shareholders’ equity consists of the following:

	12.31.20		12.31.19
Cash and cash equivalents	5,762,081		3,393,377
Accounts receivable - FIDC	1,975		—
Loans, financing, debentures, leases and contingent consideration	(13,239,166)		(13,824,673)
Derivative transactions, net	(5,564)		16,030
Short-term investment pledged as collateral	—		13,212
Asset guarantor of contingent consideration	—		484,048
Net debt	7,480,674		9,918,006
Net equity	69,556,764		70,455,578
Net debt-to-equity ratio	10.75	%	14.08	%

f)  Risk management policy

The Company and its subsidiaries are exposed to several market risks as a result of its commercial operations, debts contracted to finance its activities and debt-related financial instruments.

f.1) Currency Risk

The Company is exposed to the foreign exchange risk for financial assets and liabilities denominated in foreign currencies, which may generate a smaller amount receivable or larger amount payable depending on the exchange rate in the period.

Hedging transactions were executed to minimize the risks associated with exchange rate on financial assets and liabilities in foreign currencies. This balance is subject to daily changes due to the dynamics of the business. However, the Company intends to cover the net balance of these assets and obligations (US$3,845 thousand, €14,508 thousand and £66 thousand paid by December 31, 2020 and US$72,530 thousand receivable, €974 thousand and £110 thousand paid by December 31, 2019) to mitigate its foreign exchange risks.

f.2) Interest and Inflation Risk

This risk may arise from an unfavorable change in the domestic interest rate, which may adversely affect financial expenses from the portion of debentures referenced to the CDI and liability positions in derivatives (currency hedge and IPCA) pegged to floating interest rates (CDI).

To reduce exposure to the floating interest rate (CDI), the Company and its subsidiaries invested cash equivalents of R$5,570,106 and R$3,143,209 on December 31, 2020 and 2019, respectively, mostly in short-term CDI-based financial investments (CDBs). The carrying amounts of these instruments approximate their fair values, as they may be redeemed in the short term.

f.3) Liquidity Risk

Liquidity risk may arise from having insufficient funds to meet commitments in different currencies and dates of realization of rights and settlement of obligations.

The Company structures the maturity dates of non-derivative financial contracts (Note 20), and their respective derivatives, as shown in the schedule of payments disclosed in this note, to avoid affecting their liquidity.

The Company’s cash flow and liquidity are managed on a daily basis by the operating departments to ensure that cash flows and contracted funding, when necessary, it is sufficient to meet scheduled commitments in to avoid liquidity risk.

The following is a summary of the maturity profile of the consolidated financial liabilities, which include principal and future interest rates up to the date of maturity. For fixed rate liabilities, interest was calculated on the basis of the indices established in each contract. For variable rate liabilities, interest was calculated on the basis of the market forecast for each period.

On 12.31.20	2021	2022	2023	2024	2025	2026 onwards	Total
Trade accounts payable	6,613,004	—	—	—	—	—	6,613,004
Loans and financing	63	48	4	—	—	—	115
Leases	2,262,043	2,270,112	2,118,655	1,551,657	925,972	1,690,339	10,818,778
Debentures	1,062,237	1,021,647	—	—	—	—	2,083,884
Derivative transactions	8,864	—	—	—	—	66,116	74,980
Total	9,946,211	3,291,807	2,118,659	1,551,657	925,972	1,756,455	19,590,761

f.4) Credit Risk

The credit risk arises from the possibility of the Company and its subsidiaries incurring losses due to difficulty in receiving amounts billed to their customers and sales of prepaid handsets and cards that have been pre-activated for the distribution network.

The credit risk on accounts receivable is diversified and mitigated by strict control of the customer base. The Company constantly monitors the level of accounts receivable from postpaid services and limits bad credit risk by cutting off access to telephone lines if bills are past due. The mobile customer base predominantly uses the prepaid system, which requires purchase of credits beforehand and therefore does not pose credit risk. Exceptions are made for emergency services that must be maintained for security or national defense reasons.

Credit risk on sales of pre-activated prepaid handsets and cards is managed by a conservative policy for granting credit, using modern credit scoring methods, analyzing financial statements and consultations to commercial databases, in addition to requesting guarantees.

The Company and its subsidiaries are also subject to credit risk arising from their investments, letters of guarantee received as collateral for certain transactions and receivables from derivative transactions. The Company and its subsidiaries control the credit limits granted to each counterpart and diversify this exposure across first-tier financial institutions as per current credit policies of financial counterparts.

f.5) Social and Environmental Risks

The Company's operations and properties are subject to various environmental laws and regulations that, among others, govern environmental licenses and records, protection of fauna and flora, air emissions, waste management and remediation of contaminated sites. If the Company fails to meet present and future requirements, or to identify and manage new or existing contamination, it will incur significant costs, which include cleaning costs, damages, compensation, remedies, adjustment of conduct, fines, activities suspension and other penalties, investments to improve its facilities or change its processes, or interruption of operations, in addition to damage to our reputation in the market. The realization of environmental conditions not currently identified, more stringent inspections by regulatory agencies, the entry into force of more stringent laws and regulations or other unanticipated events may occur and, ultimately, result in significant environmental liabilities and their costs. The occurrence of any of the above factors could have a material adverse effect on the Company's business, results of operations and financial position. According to Article 75 of Law No. 9605 of 1998, the maximum fine per breach of environmental law is R$50,000 (fifty million Reais).

From a social point of view, the Company is exposed to contingencies from outsourced service providers. These potential liabilities may involve labor claims by employees of the service providers filing claims against the service provider and Company, requesting inclusion the Company as an assessor, that is, the Company may be compelled to pay in the case the provider does not settle these obligations. There is also a more remote possibility that these employees will be treated as direct employees by the Company, which would generate the risk of joint and several convictions or even the recognition of the service provider's direct link with the Company. The demands that are known to Telefónica are already provided.

f.6) Insurance Coverage

The policy of the Company and its subsidiaries, as well as the Telefónica Group, includes contracting insurance coverage for all assets and liabilities involving significant and high-risk amounts, based on management's judgment and following Telefónica corporate program guidelines.

On December 31, 2020, maximum limits of claims (established pursuant to the agreements of each entity consolidated by the Company) for significant assets, liabilities or interests covered by insurance and their respective amounts were R$900,000 for operational risks (including business interruption) and R$75,000 for general civil liability.

f.7) Risks Relating to the Brazilian Telecommunications Industry and the Company

The Company's business is subject to extensive regulation, including any regulatory changes that may occur during the terms of our concession agreements and the Company's authorizations to provide telecommunication services in Brazil. ANATEL, the main telecommunications industry regulator in the country, regulates, among other things: industry policies and regulations; licensing (including licensing of spectrum and bidding processes); fees and tariffs; competition, incentives and restrictions (including the Company's ability to grow by acquiring other telecommunications businesses); service, technical and quality standards; consumer rights; penalties and other sanctions; interconnection and settlement arrangements; and universal service obligations.

The Brazilian telecommunications regulatory framework is continuously evolving. The interpretation and enforcement of regulations, the assessment of compliance with regulations and the flexibility of regulatory authorities are all marked by uncertainty. The Company operate under authorizations and a concession from the Brazilian government, and the ability to maintain these authorizations and concession is a precondition to the Company's success. However, because of the changing nature of the Brazilian regulatory framework, the Company cannot guarantee that ANATEL will not adversely modify the terms of the Company's authorizations and/or licenses. According to the Company operating authorizations and licenses, must meet specific requirements and maintain minimum quality, coverage and service standards. If the Company failure to comply with such requirements may result in the imposition of fines, penalties and/or other regulatory responses, including the termination of the Company's operating authorizations and concession. Any partial or total termination of any of the Company's operating authorizations and licenses or the Company's concession would have a material adverse effect on the Company's business, financial condition, revenues, results of operations and prospects.

In recent years, ANATEL has reviewed and introduced regulatory changes, especially regarding asymmetric competition measures and interconnection fees charged among local providers of telecommunications services. Asymmetric competition measures can include regulations intended to rebalance markets in which a market participant has distinct market power over other competitors. The adoption of disproportionately asymmetric measures could have a material adverse effect on the Company's business, financial condition, revenues, results of operations and prospects.

With respect to interconnection fees, these are an important part of the Company's revenue and cost bases. Such fees are charged by telecommunications service providers to each other in order to allow interconnected use of each other’s networks. To the extent that changes to the rules governing interconnection fees reduce the amount of fees the Company can receive, or ability to collect such fees, the Company's businesses, financial conditions, revenues, results of operations and prospects could be adversely affected.

Therefore, the Company's business, results of operations, revenues and financial conditions could be negatively affected by the actions of the Brazilian authorities, including, in particular, the following: the introduction of new or stricter operational and/or service requirements; the granting of operating licenses in our areas; limitations on interconnection fees the Company may charge to other telecommunications service providers; imposition of significant fines or penalties regarding failures to comply with regulatory obligations; delays in the granting of, or the failure to grant, approvals for rate increases; and antitrust limitations imposed by ANATEL and CADE.

f.8) Compliance

The Company complies with Brazilian anti-corruption laws and regulations where it has its securities traded. In particular, the Company is subject, in Brazil, to the Law n 12.846/2013 and, in the United States, to the U.S. Foreign Corrupt Practices Act of 1977.

Although the Company has internal policies and procedures designed to ensure compliance with the these anti-corruption laws and regulations, there can be no assurance that such policies and procedures will be sufficient or that the Company’s employees, directors, officers, partners, agents and service providers will not take actions in violation of the Company’s policies and procedures (or otherwise in violation of the relevant anti-corruption laws and regulations) for which the Company or they may be ultimately held responsible. Violations of anti-corruption laws and regulations could lead to financial penalties, damage to the Company’s reputation or other legal consequences that could have a material adverse effect on the Company’s business, results of operations and financial condition.

The Company develops and implements initiatives to ensure the continuous improvement of its compliance program, through an organizational and governance structure that guarantees a performance based on ethics, transparency and respect for applicable laws and standards.

f.9) Impacts of the Coronavirus pandemic (COVID-19)

In March 2020, the World Health Organization (“WHO”) declared that the outbreak of Coronavirus (COVID-19) was a pandemic. COVID-19 has negatively impacted the global economy, disrupted supply chains, created significant volatility and impacted financial markets resulting in an economic slowdown. The outbreak and rapid spread of COVID-19 has resulted in a substantial reduction in commercial activities worldwide and is causing the weakening of economic conditions, both in Brazil and abroad.

As part of efforts to curb the spread of COVID-19, federal, state and municipal governments at times imposed various restrictions on the conduct of business and travel. Government restrictions, such as requests to stay at home, quarantine and worker absenteeism, have led to a significant number of businesses closings slowdowns. Such restrictions had an adverse impact on the Company and some of its customers and suppliers, had operated during a period with a fraction of their capacities or completely paralyzed their operations, which adversely affected the Company's sales.

As the events surrounding the COVID-19 pandemic continued to occur during the year of 2020, the Company's main focus was and will continue to be the health, safety and well-being of its employees, customers and suppliers. To continue its operations, as permitted by the respective federal, state and municipal governments, the Company has adopted numerous security measures in order to protect its employees, customers and suppliers. These measures include, among others, adhering to social distance protocols, allowing the majority of its employees to work from home, suspending non-essential travel, disinfecting facilities and work spaces extensively and frequently, suspending non-essential visitors and requiring the use of facial masks for employees who need to be present at the Company's facilities. The Company expects to continue with these security measures and will be able to take other actions or adapt its policies, according to the requirements and guidelines of government authorities or according to the best interest of its employees, customers and suppliers.

The measures imposed by federal, state and municipal governments, resulting in a substantial reduction in commercial activities, except for essential companies and services, such as telecommunications services. This allowed the Company to continue providing its main services on an uninterrupted basis.

As a result of the global economic slowdown caused by the COVID-19 pandemic, the Company experienced reduced demand and, consequently, has experienced some impacts on business and results. The prolongation of this situation may have a significant adverse effect on the economies and global financial markets, as well as on the Company's business, results of operations and financial situation.

The possible effects on the Company's business will depend on the extent of the COVID-19 pandemic, despite the fact that some vaccines have already been developed in other countries and are being approved in Brazil.

Thus, the Company may not be able to accurately predict the impacts on the business, as it will depend on the evolution of the following factors:

· The duration and scope of the pandemic.

· Government, business and individual actions that were and continue to be taken in response to the pandemic.

· The impact of the pandemic on economic activity and actions taken in response.

· The time it will take for economic activity to return to previous levels.

· The effect on the Company's customers and the demand for its products and services.

· The Company's ability to continue selling its products and services, including to those working from home.

· Ability of the Company's customers to pay for its products and services; and

· Any closings of the Company's facilities and those of its customers and suppliers.

Among the main impacts resulting from COVID-19, of note, are:

· Total closure of retail stores at the end of March 2020, with a gradual reopening. Currently, all stores have returned to activities.

· The Company offered its customers the possibility of making installments with payments in up to 10 installments, free of fines and interest.

· The Company prepaid receivables from suppliers in the second and third quarters of 2020, of approximately R$2 billion, as a way of supporting the cash flow of these companies to maintain their productive activities.

· Under Provisional Measure 936/2020 (MP No. 936), during the months of May to December 2020, the Company's employees received, directly from the Federal Government, an emergency benefit payment estimated at R$34.5 million.

· Evaluation of the matrix of provisions for estimated losses to reduce the recoverable value of accounts receivable and inventories; and

· Under Provisional Measure 952/2020 (MP nº 952), the deadline for payment of the Fistel fee, which was due in March 2020. In August 2020, the Company paid R$416.5MM.

XML

ADDITIONAL INFORMATION ON CASH FLOWS

12 Months Ended

Dec. 31, 2020

ADDITIONAL INFORMATION ON CASH FLOWS

ADDITIONAL INFORMATION ON CASH FLOWS

32)  ADDITIONAL INFORMATION ON CASH FLOWS

a)  Reconciliation of cash flow financing activities

The following is a reconciliation of consolidated cash flow financing activities for the years ended December 31, 2020 and 2019.

		Cash flows	Cash flows
		from financing	from operating
		activities	activities	Financing activities not involving cash and cash equivalents
				Financial		Additions	Interim and
				charges and	Costs	of leases	unclaimed
				foreign	and	and	dividends
	Balance on	Write-offs	Write-offs	exchange	expenses	supplier	and interest	Balance on
	12.31.19	(payments)	(payments)	variation	incurred	financing	on equity	12.31.20
Interim dividends and interest on equity	3,587,417	(5,259,367)	—	—	—	—	5,537,948	3,865,998
Loans and financing	1,045,124	(1,018,674)	(49,675)	28,499	—	370,538	—	375,812
Leases	9,191,151	(2,909,214)	(502,537)	210,836	—	4,828,542	—	10,818,778
Debentures	3,104,350	(1,025,583)	(123,202)	89,011	—	—	—	2,044,576
Derivative financial instruments	(16,030)	15,186	—	6,408	—	—	—	5,564
Contingent Consideration	484,048	(344,217)	(105,678)	6,555	(40,708)	—	—	—
Total	17,396,060	(10,541,869)	(781,092)	341,309	(40,708)	5,199,080	5,537,948	17,110,728

		Cash flows	Cash flows
		from financing	from operating
		activities	activities	Financing activities not involving cash and cash equivalents
				Financial			Interim and
				charges and	Additions of		unclaimed
				foreign	leases and	Initial	dividends
	Balance on	Write-offs	Write-offs	exchange	supplier	adoption	and interest	Balance on
	12.31.18	(payments)	(payments)	variation	financing	IFRS 16	on equity	12.31.19
Interim dividends and interest on equity	4,172,916	(6,176,842)	—	—	—	—	5,591,343	3,587,417
Loans and financing	2,106,814	(2,070,665)	(129,974)	171,636	967,313	—	—	1,045,124
Leases	393,027	(1,559,165)	(415,496)	350,772	1,803,941	8,618,072	—	9,191,151
Debentures	3,173,910	(66,830)	(201,516)	198,786	—	—	—	3,104,350
Derivative financial instruments	(56,150)	91,543	26,234	(77,657)	—	—	—	(16,030)
Contingent Consideration	465,686	—	—	18,362	—	—	—	484,048
Total	10,256,203	(9,781,959)	(720,752)	661,899	2,771,254	8,618,072	5,591,343	17,396,060

b)  Financing transactions that do not involve cash

The main transactions that do not involve cash of the Company refer to the acquisition of assets through leases and income from financing with suppliers, as follows:

	12.31.20	12.31.19
Initial adoption IFRS 16 on 01.01.19	—	8,618,072
Financing transactions with suppliers	370,538	967,313
Acquisition of assets through leases	4,828,542	1,803,941
Total	5,199,080	11,389,326

XML

CONTRACTUAL COMMITMENTS

12 Months Ended

Dec. 31, 2020

CONTRACTUAL COMMITMENTS

CONTRACTUAL COMMITMENTS

33)  CONTRACTUAL COMMITMENTS

The Company and its subsidiaries have unrecognized contractual commitments arising from the purchase of goods and services, which mature on several dates, with monthly payments.

On December 31, 2020, the total nominal values equivalent to the full contract period were:

Year
2021	1,429,424
2022	1,319,222
2023	1,296,793
2024	540,585
2025	388,329
2026 onwards	873,058
Total	5,847,411

XML

OI's GROUP MOBILE ASSETS AUCTION OUTCOME

12 Months Ended

Dec. 31, 2020

OI's GROUP MOBILE ASSETS AUCTION OUTCOME

OI's GROUP MOBILE ASSETS AUCTION OUTCOME

34)  OI’s GROUP MOBILE ASSETS AUCTION OUTCOME

On December 14, 2020, the Company, in compliance with and for the purposes of CVM Instruction No. 358/2002, as amended (“ICVM 358”), and subsequently to the Material Facts disclosed on March 10th, 2020, July 18th, 2020, July 27th, 2020, August 7th, 2020 and September 7th, 2020, informed its shareholders and the market in general that the offer presented by the Company jointly with TIM S.A. and Claro S.A. (the Company, jointly with TIM S.A. and Claro S.A., the “Purchasers”) was declared the winner of the competitive process for purchase of the mobile business assets - Personal Mobile Service of the Oi Group (“UPI Mobile Assets”), in the auction held on the same date hereof at the 7th Corporate Court of Rio de Janeiro. The Judicial Recovery Court approved the Purchasers’ offer as winner of the bid, after favorable opinion from the Public Prosecution of the State of Rio de Janeiro and the Judicial Administrator.

The total amount offered was R$16,500,000, of which R$15,744,000 represents the offer base price (“Base Price”) and R$756,000 refers to transitional services to be rendered for up to 12 months by the Oi Group to the Purchasers (“Transitional Services”); besides the compensation for the take-or-pay data transmission Capacity Agreement, of which the current net present value (NPV) corresponds to R$819,000.

Subject to the terms, conditions and payment calendar set forth in the SPE Mobile Assets Share Purchase and Sale Agreement, a draft of which is attached as Exhibit 5.3.9.1 of the Amendment to the Original Plan and Exhibit I to the Notice for judicial assignment of UPI Mobile Assets (“Agreement”), the Base Price and the amount for the Transitional Services shall be paid at the moment of effectiveness of the transaction (“Closing”), that is the date of execution of the Transitional Services agreement. The Data Transmission Capacity Agreement shall also be executed on the Closing date and its payment shall be made according to the terms and conditions thereof.

The Company shall disburse an amount corresponding to 33% of the Base Price and of the Transitional Services, equivalent to approximately R$5,5 billion. With regards to the Capacity Agreement and considering its specific characteristics and the Company’s needs, the total current amount to be disbursed by the Company corresponds to approximately R$179 million or 22% of the agreement’s total Net Present Value (NPV).

Subject to the continuity of the current market conditions and necessary internal approvals, as well as, in light of its robust financial parameters and strong cash flow generation, the Company intends to use its own resources to finance the transaction.

The assets that make up the UPI Mobile Assets shall, pursuant to the Agreement, be segregated by means of a segregation plan and contributed by the Oi Group to three different specific purpose entities (“SPE”), in such a way that the Company shall acquire the totality of the shares of one SPE that will hold the assets to be attributed to the Company pursuant to the aforementioned segregation plan, isolated and independent from the other SPEs.

The Company is entitled to a selection of assets that shall comprise the UPI Mobile Assets, composed of:

· Clients: approximately 10.5 million (corresponding to approximately 29% of UPI Mobile Assets’ total customer base), according to Anatel’s data base of April/20. Allocation of customers among Purchasers considered criterion that enhance competition among the Brazilian market operators;

· Spectrum: 43MHz as a national weighted average based on population (46% of UPI Mobile Assets’ radiofrequencies). Division of frequencies among Purchasers strictly respects the spectrum limits established by ANATEL; and

· Infrastructure: agreements for the use of 2.7 thousand mobile access sites (corresponding to 19% of UPI Mobile Assets’ total sites).

XML

SUBSEQUENT EVENTS

12 Months Ended

Dec. 31, 2020

SUBSEQUENT EVENTS

SUBSEQUENT EVENTS

35)  SUBSEQUENT EVENTS

a) Purchase and Sale Agreement of Shares and Other Covenants between Oi Móvel S.A. and the Company, Tim S.A. and Claro S.A.

On January 29, 2021, the Company, under the terms of CVM Instruction No. 358/2002 (“ICVM 358”), as amended, in accordance to the Material Facts, mentioned in note 34,  it informed its shareholders and the market in general that, on January 28, 2021, that the Purchase and Sale Agreement of Shares and Other Covenants (“Agreement”) was executed by and between Oi Móvel SA - In Judicial Recovery, as Seller; the Company, Tim S.A. and Claro S.A., as Buyers and Oi S.A. - In Judicial Recovery and Telemar Norte Leste S.A. - In Judicial Recovery, as intervening parties and guarantors of the Seller's obligations. The Agreement was executed as a result of the competitive procedure for the sale of the assets of the mobile operation - Grupo Oi's Personal Mobile Service (“UPI Mobile Assets”), in a judicial auction held on 12.14.2020 in which the Company and the other buyers were declared winners.

The completion of the acquisition by the Buyers of the UPI Mobile Assets shall take place according to the segregation plan of such assets, so that each of the Buyers will acquire shares of an SPE containing their assets from the UPI Mobile Assets. The completion of the acquisition is also subject to certain precedent conditions usually applicable to this type of transaction and set forth in the Agreement, such as the prior consent of ANATEL and approval by CADE, as well as, if applicable, the submission to the general shareholders' meeting of Company, under the terms of article 256 of the Corporations Law, in which case additional information will be disclosed in due course.

This transaction, as of its completion, will bring benefits to the Company's shareholders through the generation of revenues and efficiencies due to operational synergies, as well as to its customers, as a result of the Company's commitment to excellence in the quality of the services provided and, finally, to the sector as a whole due to the reinforcement in the capacity to make investments and create technological innovations in a sustainable way, contributing to the digitalization of the country. The acquisition by the Company of a portion of the UPI Mobile Assets represents another important step in the Company's purpose of digitalize to bring closer.

b) Interest on equity declared by the Company

At a meeting held on February 12, 2021, calling upon the General Shareholders’ Meeting to be held in 2022, the Board of Directors approved the credit of interest on equity for the fiscal year 2021, under the terms of article 26 of the Company’s Articles of Incorporation, article 9 of Law No. 9249/95 and CVM Ruling No. 683/12, in the gross amount of R$150,000, equivalent to 0.08889560697 per common share, corresponding to a net amount of Withholding Income Tax (IRRF) of R$127,500, equivalent to 0.07556126592 per common share, calculated based on the balance sheet of the January 31, 2021.

The amount of interest on own capital per common share informed above may undergo future adjustments, up to February 26, 2021, as a result of possible acquisitions of shares under the Company's Share Buyback Program.

Payment thereof will be made until July 31, 2022, on a date to be set by the Board of Directors and timely communicated to the market, being paid individually to shareholders, according to the ownership structure contained in the Company's records, through the end of day February 26, 2021.

XML

SUMMARY OF SIGNIFICANT ACCOUNTING PRACTICES (Policies)

12 Months Ended

Dec. 31, 2020

SUMMARY OF SIGNIFICANT ACCOUNTING PRACTICES

CASH AND CASH EQUIVALENTS

These are financial assets, measured at amortized cost, maintained in order to meet short-term cash commitments and not for investment or other purposes. The Company and its subsidiaries consider cash equivalents a short-term investment readily convertible into a known amount of cash and subject to insignificant risk of change in value and when redeemable within 90 days.

TRADE ACCOUNTS RECEIVABLE

These are financial assets measured initially at fair value and subsequently, at amortized cost and are evaluated by the value of the services provided and goods sold in accordance with the contracted conditions, net of estimated impairment losses. These include the services provided to customers, which were still not billed at the balance sheet date, as well as other trade accounts receivable related to the sale of cell phones, SIM cards, accessories, advertising and rent of IT equipment (“Vivo Tech” product) and credit rights of the Vivo Money FIDC.

The Company measures the provision for estimated impairment losses in an amount equal to the loss of credit expected for a lifetime.

INVENTORIES

These are evaluated and presented at the lower of average acquisition cost and net realizable value, whichever is lower. These include resale materials such as cellphones, SIM cards, accessories, consumption materials and maintenance. Net realizable value is the estimated selling price in the ordinary course of business, less estimated costs to sell.

Estimated impairment losses are set up for materials and devices considered obsolete or whose carrying amounts are in excess of those usually sold within a reasonable period. Additions and reversals of estimated impairment losses and inventory obsolescence are included in cost of goods sold (Note 25).

PREPAID EXPENSES

These are stated at amounts effectively disbursed referring to services contracted but not yet incurred. Prepaid expenses are allocated to the statement of incomes to the extent that related services are rendered, and economic benefits are obtained.

Includes the amounts of incremental costs related to obtaining a contract (sales commissions and other acquisition costs from third parties).

INCOME AND SOCIAL CONTRIBUTION TAXES

a.1) Current taxes

Current tax assets and liabilities for the current and previous years are measured at the estimated amount recoverable from, or payable to, the tax authorities. The tax rates and laws used in calculating the amounts referred to above are those in effect, or substantially in effect, at year-end. In the balance sheet, current taxes are presented net of prepayments over the year.

Current income and social contribution taxes, related to items directly recognized in equity, are also recognized in equity. Management regularly assesses the tax position in circumstances in which tax regulation requires interpretation and sets up provision therefore when appropriate.

a.2) Deferred taxes

Deferred tax assets are recognized for all deductible temporary differences, unused tax credits and losses, to the extent that taxable profit is likely to be available for realization of deductible temporary differences and unused tax credits and losses are likely to be used, except: (i) when the deferred tax asset related to the deductible temporary difference arises from initial recognition of an asset or liability in a transaction other than a business combination and does not impact, at the transaction date, the book profit, income or loss for tax purposes; and (ii) on deductible temporary differences related to investments in subsidiaries that deferred tax assets are recognized only to the extent that it is probable that temporary differences will be reversed in the near future and taxable profit is likely be available so that temporary differences can be used. 

The carrying amount of deferred tax assets is reviewed at each reporting date and reduced to the extent that it is no longer probable that sufficient taxable profit shall be available to allow all or part of the deferred tax asset to be used. Derecognized deferred tax assets are reassessed at each reporting date and are recognized to the extent that it has become probable that future taxable profits will allow the deferred tax asset to be recovered.

Deferred tax liabilities are recognized on all temporary tax differences, except: (i) when the deferred tax liability arises from initial recognition of goodwill, or an asset or liability in a transaction other than a business combination, and does not affect book profit or taxable profit or tax losses on the transaction date; and (ii) on temporary tax differences related to investments in subsidiaries, in which the temporary difference reversal period can be controlled and temporary differences are not likely to be reversed in the near future.

Deferred tax assets and liabilities are measured at the tax rate expected to be applicable for the year the asset will be realized, or the liability will be settled, based on the rates provided in tax legislation and that were published as at year-end.

Deferred tax assets and liabilities are not discounted to present value and are classified in the balance sheet as non-current, irrespective of their expected realization.

The tax effects of items recorded directly in equity are also recognized in equity. Deferred tax items are recognized based on the transaction which gave rise to that deferred tax, in comprehensive income or directly in equity.

Deferred tax assets and liabilities are presented net when there is a legal or constructive right to offset a tax asset against a tax liability and deferred taxes relate to the same taxpaying entity and are subject to the same tax authority.

INVESTMENTS

The consolidation of a subsidiary begins when the Company obtains control over the subsidiary and ends when the Company ceases to exercise said control. Assets, liabilities and results of a subsidiary acquired or sold during the year are included in the consolidated financial statements from the date on which the Company obtains control until the date on which the Company ceases to exercise control over the subsidiary.

Joint control is the contractually agreed sharing of a control, only existing when decisions about relevant activities call for unanimous agreement by the parties sharing control.

Control is obtained when the Company is exposed or has the right to variable returns based on its involvement with the investee and has the capacity of affecting those returns through the power exercised over an investee.

Based on the equity method, investments are recorded in balance sheets at cost plus changes after the acquisition of the equity interest. The statement of income reflects the portion of the results of operations of the investees.

When changes are directly recognized in the investees' equity, the Company will recognize its portion in variations occurred, and record these variations in the statements of changes in equity and in the statements of comprehensive income, where applicable.

The financial statements of investees are prepared for the same reporting period of the Company. Whenever necessary, adjustments are made so that the accounting policies are in accordance with those adopted by the Company.

After the equity method is applied, the Company determines whether there is any need to recognize additional impairment of its investment in investees. At each closing date, the Company determines whether there is objective evidence of impairment of investment in the affiliate. If so, the Company calculates the recoverable amount as the difference between the recoverable value of the investees and their carrying amount and recognizes the amount in the statement of incomes.

When there is loss of significant influence over the investees, the Company evaluates and recognizes the investment, at that moment, at fair value. Any difference between the investees’ carrying amount by the time it loses significant influence and the fair value of the remaining investment and revenue from sale is recognized in the statement of incomes.

Foreign exchange variations in Aliança’s equity (jointly controlled entity) are recognized in the Company’s equity in other comprehensive income (“Effects on conversion of investments abroad”, Note 23).

PROPERTY, PLANT AND EQUIPMENT

It is measured at acquisition and/or construction cost, net of accumulated depreciation and/or accumulated impairment losses, if any. Such cost includes the borrowing costs for long-term construction projects if the recognition criteria are met and is stated net of ICMS (State VAT) credits, which were recorded as recoverable taxes.

Asset costs are capitalized until the asset becomes operational. Costs incurred after the asset becomes operational and that do not improve the functionality or extend the useful life of the asset are immediately recognized on an accrual basis. When significant parts of fixed assets are required to be replaced at intervals, the Company recognizes such parts as individual assets with specific useful lives and depreciation. Likewise, expenses that represent asset improvement (expanded installed capacity or useful life) are capitalized. All the other repair and maintenance costs are recognized in thestatement of income as incurred.

The present value of the expected cost for the decommissioning of property, plant and equipment items (towers and equipment on leased property) is capitalized at the cost of the respective asset matched against the provision for dismantling obligations (Note 19) and depreciated over the useful lives of the related assets, which do not exceed the lease term.

Depreciation is calculated by the straight-line method over the useful lives of assets at rates that take into account the estimated useful lives of assets based on technical analyses. The assets’ residual values, useful lives and methods of depreciation are reviewed on a yearly basis, adjusted prospectively, if appropriate. Useful lives in terms of depreciation rates are reviewed annually by the Company.

Property, plant and equipment items are written off when sold or when no future economic benefit is expected from their use or sale. Any gains or losses arising from write-off (measured as the difference between the net disposal proceeds and the carrying amount) are recognized in the statement of income in the year in which the asset is written off.

INTANGIBLE ASSETS

Intangible assets acquired separately are measured at  acquisition / construction cost upon their initial recognition. The cost of an intangible asset acquired in a business combination is its fair value at the acquisition date.

After initial recognition, intangible assets are stated at acquisition and/or buildup cost, net of amortization and accumulated provision for impairment, where applicable. Intangible assets generated internally, excluding capitalized development costs, are not capitalized, and the expense is reflected in the statement of income for the year in which it is incurred.

The useful lives of intangible assets are considered finite or indefinite.

· Intangible assets with finite useful lives are amortized over their economic useful lives under the straight-line method and are tested for impairment whenever there is any indication of impairment loss. The amortization period and the amortization method for an intangible asset with a finite useful life are reviewed on an annual basis.

Changes in the estimated useful life or the expected pattern of consumption of future economic benefits embodied in an asset are accounted for by changing the amortization period or method, as appropriate, and treated as changes in accounting estimates. The amortization expense on intangible assets with finite lives is recognized in the statement of income in the cost/expense category consistent with the function of the intangible assets.

· Intangible assets with indefinite useful lives are not amortized, but are tested for impairment annually, either individually or at the CGU level. The assessment of indefinite life is reviewed annually to determine whether the indefinite life continues to be justifiable. Otherwise, changes in useful life – from indefinite to finite - are carried out prospectively. Goodwill generated upon investment acquisition is treated as an intangible asset with indefinite useful lives.

Gains and losses arising from derecognition of an intangible asset are measured as the difference between the net disposal proceeds and the carrying amount of the asset and recognized in the statement of income on disposal.

GOODWILL

Business combinations are accounted for using the acquisition method. The cost of an acquisition is measured as the aggregate of the consideration transferred, recorded at fair value on the acquisition date, and the fair value of any non-controlling interest in the acquiree.

For each business combination, the Company measures non-controlling interests in the acquiree either at its fair value or based on its proportional share in the identifiable net assets of the acquiree. Costs directly attributable to an acquisition are recorded as expenses, as incurred.

Upon acquiring a business, the Company assesses financial assets acquired and liabilities assumed so as to classify and allocate them in accordance with contractual terms, economic circumstances and relevant conditions on the acquisition date, including the segregation, by the acquiree, of embedded derivatives existing in host contracts in the acquiree.

In the event a business combination is conducted in stages, the ownership interest previously held in the acquiree’s capital is reassessed at fair value on the date control is acquired, and any impacts are recognized in the statement of income.

Any contingent portion to be transferred by the acquirer shall be recognized at fair value on the acquisition date. Subsequent changes in the fair value of the contingent portion to be considered as an asset or liability is recognized in the statement of income.

Goodwill is initially measured as excess transferred payment amount in relation to acquired net assets (identifiable net assets acquired, and liabilities assumed). If consideration is lower than the fair value of acquired net assets, the difference must be recognized as a gain in the statement of income.

After initial recognition, goodwill is measured at cost, less any accumulated impairment losses. For the purpose of impairment testing, goodwill acquired in a business combination is, from the acquisition date, allocated to the CGUs that are expected to benefit from the combination, irrespective of whether other assets or liabilities of the acquiree are assigned to those units.

When goodwill has been allocated to a CGU and part of the operation within that CGU is disposed that, the goodwill associated with that operation is included in the carrying amount of the operation when determining the gain or loss on disposal. Goodwill disposed in these circumstances is allocated based on the relative fair values of the disposed operation and the portion of the CGU retained.

IMPAIRMENT OF NON-FINANCIAL ASSETS

The Company annually reviews the net carrying amount of assets in order to evaluate events or changes in economic, operating or technological circumstances that may indicate impairment losses. When such evidence is found, and net carrying amount exceeds recoverable amount, a provision for impairment is recorded so as to adjust the net carrying amount to the recoverable amount. The recoverable amount of an asset or a CGU is defined as the higher of value in use and net sales value.

Considering the convergence of product and service offerings, in addition, the Company's main operating asset is a single, broadly integrated network, which is used to provide all telecommunications services to its customers, therefore, the Company defines your business as a single CGU.

Upon estimation of the value in use of an asset or cash-generating unit, estimated future cash flows are discounted at present value using a discount rate Weighted Average Cost of Capital “WACC” which reflects the weighted rate between (i) the cost of capital (including specific risks) based on the Capital Asset Pricing Model; and (ii) the debt these components being applicable to the asset or CGU before taxes.

The net fair value of sales is determined, whenever possible, based on recent market transactions between knowledgeable and interested parties with similar assets. In the absence of observable transactions in this regard, an appropriate valuation methodology is used. The calculations provided in this model are corroborated by available fair value indicators, such as prices quoted for listed entities, among other available indicators.

For assets excluding goodwill, an assessment is made at each reporting date as to whether there is any indication that previously recognized impairment losses may no longer exist or may have decreased. If the indication exists, the Company estimates the recoverable amount of the asset or the CGU.

A previously recognized impairment loss is reversed only if there has been a change in the assumptions used to determine an asset’s or CGU recoverable amount since the last impairment loss was recognized. Any reversal is limited so that the carrying amount of the asset does not exceed its recoverable amount or exceeds the carrying amount that would have been determined, net of depreciation, had no impairment loss been recognized for the asset in prior years. Such reversal is recognized in the statement of income.

The following assets have specific characteristics for impairment testing:

· Goodwill: Goodwill is tested for impairment annually at the reporting date or earlier when circumstances indicate that the carrying amount may be impaired. Where the recoverable amount is lower than the carrying amount, an impairment loss is recognized. Impairment losses relating to goodwill cannot be reversed in future periods.

· Intangible assets: Intangible assets with indefinite useful lives are tested for impairment annually at the reporting date either individually or at the CGU level, as appropriate, and when circumstances indicate that the carrying amount may be impaired.

· Determination of value in use: The key assumptions used to estimate value in use are: (i) revenues (projected considering the growth in customer base, growth in market revenue against GDP and the Company’s share of this market); (ii) variable costs and expenses (projected in accordance with the dynamics of the customer base, and fixed costs are projected in line with the historical performance of the Company, as well as with revenue growth); and (iii) capital investments (estimated considering the technological infrastructure necessary to enable the provision of services).

PERSONNEL, SOCIAL CHARGES AND BENEFITS

Salaries, remunerations and profit sharing are negotiated in collective bargaining agreements, with the corresponding social charges and contributions added by the accrual basis. The profit-sharing program for employees is based on the Company's operating and financial goals, and a provision is recognized when the assumptions for its accounting are satisfied.

Details of Telefónica's share-based compensation plans are described in Note 29. In 2020, due to the cycle maturity of some plans, amounts were transferred from non-current to current.

Personnel costs and expenses, social charges and benefits are recorded as cost of services provided, commercial expenses or general and administrative expenses (Note 25).

TRADE ACCOUNTS PAYABLE

These are obligations to pay for goods, services or goods that were acquired in the normal course of business. They are initially recognized at fair value and subsequently measured at amortized cost using the effective tax rate method, if applicable.

DIVIDENDS AND INTEREST ON EQUITY

a.1) Dividends

Minimum mandatory dividends are stated in the balance sheet as legal obligations (provision in current liabilities). Dividends in excess of such minimum amount, not yet approved in the Shareholders’ Meeting, are recorded in equity as proposed additional dividends. After approval at the Shareholders’ Meeting, the dividends in excess of the mandatory minimum are transferred to current liabilities and classified as legal obligations.  

a.2) Interest on equity

Brazilian legislation allows companies to pay interest on equity, which is similar to payment of dividends; however, this is deductible for income tax calculation purposes. In order to comply with Brazilian tax legislation, the Company and its subsidiaries provision, in its accounting records, the amount due to match against the financial expenses account in the statement of income for the year. For the presentation of these financial statements, that expense is reversed against a direct charge to equity, resulting in the same accounting treatment adopted for dividends. The distribution of interest on equity to shareholders is subject to withholding income tax at a 15% rate.

a.3) Unclaimed dividends and interest on equity

The rights to receive unclaimed interest on equity and dividends prescribe after three years from the initial date available for payment. When dividends and interest on equity expire, these amounts are reversed to retained earnings.

PROVISIONS AND CONTINGENCIES

Provision is recognized when the Company has a present obligation (legal or constructive) as a result of a past event, when it is probable that economic benefits are required to settle the obligation and a reliable estimate of the value of the obligation can be made. Provision is restated at the balance sheet date considering the likely amount of loss and the nature of each provision.

Provision amounts for contingencies are presented at their gross amount, less the corresponding judicial deposits, and are classified as provision for civil, labor, tax and regulatory contingencies.

Judicial deposits are classified as assets given that the conditions required for their net presentation with provision do not exist.

Provision for civil, labor, tax and regulatory legal claims

The Company and its subsidiaries are parts to administrative; labor, tax, civil and regulatory claims, and accounting provision amounts have been recorded in respect of claims whose likelihood of loss was classified as probable. The assessment of the likelihood of loss includes an analysis of available evidence, the hierarchy of laws, available case law, the latest court decisions law and their relevance in the legal system, as well as the opinion of outside legal counsel. Provision is reviewed and adjusted considering changes in existing circumstances, such as the applicable statute of limitations, tax audit conclusions, or additional exposures identified based on new matters or court decisions.

Provision for decommissioning of assets

Refers to costs to be incurred due to returning sites to owners (locations intended for tower and equipment installation on leased property) in the same condition as these were found at the time of execution of the initial lease agreement.

These costs are provisioned as the present value from amounts expected to settle the obligation using estimated cash flows and they are recognized as part of the cost of the corresponding asset. The cash flows are discounted at a current pre-tax rate that reflects the risks specific to decommissioning of assets. The financial effect of the discount is recorded as incurred and recognized in the statement of income as a finance cost. The estimated future costs of decommissioning are reviewed annually and adjusted as appropriate. Changes in the estimated future costs or in the discount rate applied are added to, or deducted from, the cost of the asset.

Contingent liabilities recognized in a business combination

A contingent liability recognized in business combination is initially measured at fair value.

Refers to contingent liabilities from the Purchase Price Allocation (PPA) on acquisition of the controlling interest of Vivo Participações in 2011 and GVTPart. in 2015.

LOANS, FINANCING, DEBENTURES AND LEASES

These are financial liabilities measured initially and recognized by fair value, net of costs incurred to obtain them and subsequently measured by amortized cost (plus pro-rata charges and interest), considering the effective interest rate of each operation, or by fair value through profit or loss.

They are classified as current unless the Company has the unconditional right to settle the liability for at least 12 months after the closing date of the year.

Borrowing costs directly related to the acquisition, construction or production of an asset that necessarily requires more than 18 months to be completed for use or sale purposes are capitalized as part of the cost of the corresponding asset. The Company did not capitalize borrowing and financing costs and debentures due to the absence of qualifying assets.

All other costs of loans, financing, debentures and leases are recorded in expense in the period in which they are incurred. The costs of loans, financing and debentures comprise interest and other costs incurred.

NET OPERATING REVENUE

Total packages combining various fixed network, mobile, data, internet or television products or services, total revenue are allocated to each performance obligation based on its independent selling prices in relation to the total consideration of the package and recognized when (or as soon as) the obligation is met, regardless of whether or not items are delivered. When packages include a discount on the equipment, there is an increase in revenues recognized for the sale of handsets and other equipment, to the detriment of ongoing service revenue over subsequent periods. To the extent that the packages are marketed at a discount, the difference between the revenue from the sale of equipment and the consideration received from the customer in advance is recognized as a contractual asset in the statement of financial position.

Revenues correspond substantially to the value of the consideration received or receivable arising from the provision of telecommunications, communications, sales of goods, advertising and other revenues, and are presented net of taxes, rebates and returns (in the case of sale of goods), incident on them.

Revenues from sales of public telephone cards and prepaid cellular recharge credits, as well as the respective taxes due are deferred and recognized in income as services are effectively rendered.

Revenues from leasing contracts for equipment classified as financial leasing ("Vivo Tech" product) are recognized at the installation of the equipment, at which time the actual transfer of risk occurs. Revenues are recognized at the present value of future minimum contract payments.

Revenue from the sale of appliances to dealers is accounted for at the time of delivery and not at the time of sale to the final customer.

Revenues from services and goods are basically subject to the following indirect taxes: ICMS or ISS (as the case may be), PIS and COFINS, as the case may be.

FINANCIAL INCOME (EXPENSES)

These include interest, monetary and exchange variations arising from short-term investments, derivative transactions, loans, financing, debentures, present value adjustments of transactions that generate monetary assets and liabilities and other financial transactions. These are recognized on an accrual basis when earned or incurred by the Company.

For all financial instruments measured at amortized cost and interest-yielding financial assets classified as financial assets at fair value through other comprehensive income, interest income or expense is recognized using the effective interest method, which exactly discounts estimated future cash payments or receipts over the expected life of the financial instrument or, where appropriate, a shorter period, to the net carrying amount of the financial asset or liability.

SHARE-BASED PAYMENT PLANS

The Company and subsidiaries measure the cost of transactions settled with shares issued by the parent company (Telefónica), to its officers and employees.

The Company and its subsidiaries measure the cost of transactions settled with employees and officers based on shares issued by the parent company (Telefónica), by reference to the fair value of the shares on the date at which they are granted, using the binomial valuation model. This fair value is charged to the statement of income over the period until the vesting date.

The Company and its subsidiaries reimburse Telefónica for the fair value of the benefit delivered on the grant date to the officers and employees.

PENSION PLANS AND OTHER POST-EMPLOYMENT BENEFITS

The Company and its subsidiaries individually sponsor pension funds of post-retirement benefits for active and retired employees, in addition to a multisponsor supplementary retirement plan and health care plan for former employees. Contributions are determined on an actuarial basis and recorded on an accrual basis. Liabilities relating to defined benefit plans are determined based on actuarial evaluations at each year-end, in order to ensure that sufficient reserves have been set up for both current and future commitments.

Actuarial liabilities related to defined benefit plans were calculated using the projected unit credit method. Actuarial gains and losses are recognized immediately in equity (in other comprehensive income).

For plans with defined contribution characteristics, the obligation is limited to the contributions payable, which are recognized in the P&L in the respective accrual periods.

The asset or liability related to defined benefit plan to be recognized in the financial statements corresponds to the present value of the obligation for the defined benefit (using a discount rate based on long-term National Treasury Notes - “NTNs”), less the fair value of plan assets that will be used to settle the obligations. Plan assets are assets held by a privately held supplementary pension plan entity. Plan assets are not available to the Company’s creditors or those of its subsidiaries and cannot be paid directly to the Company or its subsidiaries. The fair value is based on information on market prices and, in the case of securities quoted, on the purchase price disclosed. The value of any defined benefit asset then recognized is limited to the present value of any economic benefits available as a reduction in future plan contribution from the Company.

Actuarial costs recognized in the statement of income are limited to the service cost and cost of interest on the defined benefit plan obligation. Any changes in the measurement of plan assets and obligations are initially recognized in other comprehensive income, and immediately reclassified to retained earnings in P&L.

The Company and its subsidiaries manage and individually sponsors a health care plan for retired employees and former employees with fixed contributions to the plan, in accordance with Law No. 9656/98 (which provides for private health care and health insurance plans). As provided for in Articles 30 and 31 of said law, participants shall have the right to the health care plan in which they participated while they were active employees. 

FINANCIAL INSTRUMENTS AND RISK AND CAPITAL MANAGEMENT

a.1) Financial assets

Initial recognition and measurement

On initial recognition, a financial asset is classified in the following measurement categories: (i) at fair value through profit or loss; (ii) at amortized cost; or (iii) at fair value through other comprehensive income, depending on the situation.

The classification of financial assets at initial recognition depends on the contractual cash flow characteristics of the financial asset and the business model for the management of these assets.

For a financial asset to be classified and measured at amortized cost or at fair value through other comprehensive income, it needs to generate cash flows that are “exclusively payments of principal and interest” on the principal amount outstanding. This assessment is carried out at the level of each financial instrument.

Financial assets with cash flows that are not exclusively payments of interest principal are classified and measured at fair value through profit or loss, regardless of the business model adopted.

The Company's business model for managing financial assets refers to how it manages its financial assets to generate cash flows. The business model determines whether cash flows will result from the collection of contractual cash flows, the sale of financial assets or both. Financial assets classified and measured at amortized cost are maintained in a business plan with the objective of maintaining financial assets in order to obtain contractual cash flows while financial assets classified and measured at fair value against other comprehensive income are maintained in a business model. with the objective of obtaining contractual cash flows and also for the purpose of sale.

The Company’s consolidated financial assets include cash and cash equivalents, trade accounts receivable, short-term investments pledged as collateral and derivative financial instruments.

Subsequentmeasurement

Subsequent measurement of financial assets depends on their classification, as follows:

Financial assets at fair value through profit or loss: these assets are subsequently measured at fair value. Net income, including interest, is recognized directly in income.

Financial assets at amortized cost: these assets are subsequently measured at amortized cost using the effective interest method. The amortized cost is reduced by impairment losses. Interest income, foreign exchange gains and losses and impairment are recognized in income. Any gain or loss on derecognition is recognized in profit or loss.

Financial assets at fair value through other comprehensive income: these assets are subsequently measured at fair value. Interest income is calculated using the effective interest method, and foreign exchange gains and losses and impairment are recognized in profit or loss. Other net income is recognized in other comprehensive income. In derecognition, the accumulated result in other comprehensive income is reclassified to the statement of income.

Derecognition

A financial asset (or, whenever the case, a part of a financial asset, or a part of a group of similar financial assets) is derecognized when:

· The rights to receive the cash flows from the asset have expired; or

· The Company has transferred its rights to receive cash flows from it has assumed obligation to pay the received cash flows in full without material delay to a third part under a ‘pass-through’ arrangement; and either (i) the Company has transferred substantially all the risks and rewards of the asset, or (ii) the Company has neither transferred nor retained substantially all the risks and rewards of the asset, but has transferred control of the asset.

Impairment of financial assets

The Company and its subsidiaries apply an impairment model for financial assets based on expected credit losses, using a simplified method for certain short and long-term assets (commercial receivables, lease receivables and contractual assets).

Under this simplified approach, credit impairment is recognized by reference to expected credit losses over the life of the asset. For this purpose, the Company and its subsidiaries use matrices based on historical bad debt experience by geographical area on a portfolio segmented by customer category according to credit pattern. The matrix for each category has a defined time horizon divided into intervals in accordance with the collection management policy and is fed with historical data that covers at least 24 collection cycles. This data is updated on a regular basis. Based on the information observable at each close, the Company and its subsidiaries assess the need to adjust the rates resulting from these matrices, considering current conditions and future economic forecasts.

a.2) Financial liabilities

Initial recognition and measurement

Upon initial recognition, a financial liability is classified into the following measurement categories: (i) at fair value through profit or loss; (ii) at amortized cost; or (iii) derivatives designated as hedge instruments in an effective hedge, as appropriate.

Financial liabilities are initially recognized at fair value plus, in the case of loans and financing, transaction cost directly attributable thereto.

The Company’s consolidated financial liabilities include trade accounts payable, loans and financing, debentures, leases, contingent payments (when applicable) and derivative financial instruments.

Subsequent measurement

Measurement of financial liabilities depends on their classification, as follows:

Financial liabilities at fair value through profit or loss: financial liabilities are designated at initial recognition at fair value through profit or loss. This category also includes derivative financial instruments contracted, except those designated as derivative financial instruments of cash flow hedge. Interest, monetary and exchange variations and changes arising from the valuation at fair value, when applicable, are recognized in the statement of income when incurred.

Financial liabilities at amortized cost: after initial recognition, loans and financing subject to interest are subsequently measured at amortized cost using the effective interest rate method. Gains and losses are recognized in the statement of income at the time of write-off of liabilities, as well as during the amortization process using the effective interest rate method.

Derecognition

A financial liability is derecognized when the obligation has been revoked, cancelled or expired.

When an existing financial liability is replaced by another of the same lender, and the terms of the instruments are substantially different, or when the terms of an existing debt instrument are substantially modified, this replacement or modification is treated as derecognition of the original liability and recognition of a new liability, and the difference in the corresponding carrying amounts is recognized in the statement of income.

a.3) Fair value measurement

Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants on the measurement date. Fair value measurement is based on the assumption that the transaction to sell the asset or transfer the liability will take place (i) in the principal market for the asset or liability; and (ii) in the absence of a principal market, in the most advantageous market for that asset or liability.

The Company and or its subsidiaries must have access to the principal (or most advantageous) market.

The fair value of an asset or a liability is measured using the assumptions that market participants would use when pricing an asset or liability, assuming that market participants act in their best economic interests.

Fair value measurement of a non-financial asset takes into consideration the capacity of a market participant to generate economic benefits through the best use of the asset or selling it to another market participant that would also make the best use of the asset.

The Company and its subsidiaries use adequate valuation techniques in the circumstances and for which there is sufficient data to measure the fair value, that maximizes the use of relevant observable inputs and minimizes the use of unobservable inputs.

For assets and liabilities recurrently recognized in the financial statements, the Company determines whether there were transfers between the hierarchy levels, revaluating the classification (based on the lowest level input that is significant to the overall fair value measurement) at the end of each reporting period.

The Company and its subsidiaries assessed their financial assets and liabilities in relation to market values using available information and appropriate valuation methodologies. However, both the interpretation of market data and the selection of valuation methods require considerable judgment and reasonable estimates to produce the most adequate realization value. As a result, the estimates shown do not necessarily indicate amounts that could be realized in the current market. The use of different assumptions for the market and/or methodologies may have a material effect on estimated realization values.

The fair values of all assets and liabilities are classified within the fair value hierarchy described below, based on the lowest level of information that is significant to the fair value measurement as a whole:

Level 1: quoted market prices (unadjusted) in active markets for identical assets or liabilities.

Level 2: valuation techniques for which there is a significantly lower level of information to measure the fair value directly or indirectly observable; and

Level 3: valuation techniques for which the lowest and significant level of information to measure the fair value is not available.

During the periods shown in the tables below, there were no transfers of fair value assessments between the levels mentioned above.

a.4) Financial instruments - net

Financial assets and liabilities are presented net in the balance sheet if, and only if, there is a current enforceable legal right to offset the amounts recognized and if there is an intention to offset or realize the asset or settle the liability simultaneously.

a.5) Derivative financial instruments and hedge accounting

A hedge relationship qualifies for hedge accounting if it meets all of the following effectiveness requirements: (i) there is an economic relationship between the hedged item and the hedging instrument; (ii) the credit risk effect does not influence the changes in value that result from this economic relationship; and (iii) the hedge ratio of the hedging relationship is the same as that resulting from the amount of the hedged item that the entity effectively protects and the amount of the hedge instrument that the Company effectively uses to protect that amount of hedged item.

The documentation includes identification of the hedging instrument, the hedged item or transaction, the nature of the hedged risk, the nature of the risks excluded from the hedge relationship, the prospective statement of hedge effectiveness and how the Company shall assess the effectiveness of changes in the hedging instrument’s fair value in offsetting the exposure to changes in the hedged item’s fair value or cash flows attributable to the hedged risk.

On the inception initial recognition of a hedge relationship, the Company formally designates and documents the hedge relationship to which it wishes to apply hedge accounting, the risk management objective and strategy for undertaking the hedge.

The Company uses derivative financial instruments, such as currency and interest rate swaps or currency non- deliverable forward contracts to hedge against currency risks.

Derivative financial instruments designated in hedge transactions are initially recognized at fair value on the date on which the derivative contract is entered into, and subsequently revalued also at fair value. Derivatives are presented as financial assets when the fair value of the instrument is positive and as financial liabilities when the fair value of the instrument is negative.

Any gains or losses resulting from changes in fair value of derivatives during the year are posted directly to the statement of income, except for the effective portion of cash flow hedges, which is recognized directly in equity as other comprehensive income and subsequently reclassified to P&L when the hedged item affects P&L.

For the purpose of hedge accounting, hedges are classified as cash flow hedges and fair value hedges.

Cash flow hedges

Cash flow hedges meeting the recording criteria are accounted for as follows: (i) the portion of gain or loss from the hedge instrument determined as an effective hedge shall be recognized directly in equity (other comprehensive income), and (ii) the ineffective portion of gain or loss from the hedge instrument shall be recognized in the statement of income.

When the Company’s documented risk management strategy for any given hedge relationship excludes from the hedge effectiveness evaluation any particular component of gain or loss or the corresponding cash flows from the hedge instrument, that gains or loss component is recognized in financial income (expenses).

Amounts recorded in other comprehensive income are immediately transferred to the statement of income when the hedged transaction affects P&L. When a hedged item is the cost of a non-financial asset or liability, amounts recorded in equity are transferred at the initial carrying amount of the non-financial assets and liabilities.

If the hedging instrument expires or is sold, terminated or exercised without replacement or rollover (as part of the hedging strategy), or if its designation as a hedge is revoked, or when the hedge fails to meet the hedge accounting criteria, any cumulative gain or loss previously recognized in other comprehensive income remains separately in equity until the forecast transaction occurs or the firm commitment is fulfilled.

The Company's contracts are classified as cash flow hedges when they provide protection against changes in cash flows that are attributable to a particular risk associated with a recognized liability that may affect the profit or loss and fair value when they provide protection against exposure to changes in the fair value of the identified part of certain liabilities that is attributable to a particular risk (exchange variation) and may affect the profit or loss.

Fair value hedges 

Fair value hedges meeting the accounting criteria are accounted for as follows: (i) gain or loss from changes in fair value of a hedge instrument shall be recognized in the statement of income as finance costs; and (ii) gain or loss from a hedged item attributable to the hedged risk shall adjust the recorded amount of the hedged item to be recognized in the statement of income, as finance costs.

For fair value hedges relating to items carried at amortized cost, any adjustment to carrying amount is amortized through profit or loss over the remaining term of the hedge using the effective interest method.  The effective interest rate amortization may begin as soon as any adjustment exists and no later than the point that the hedged item ceases to be adjusted for changes in its fair value attributable to the risk being hedged.

If the hedged item is derecognized, the unamortized fair value is recognized immediately in the statement of income.

When an unrecognized firm commitment is designated as a hedged item, the subsequent cumulative change in the fair value of the firm commitment attributable to the hedged risk is recognized as an asset or liability with a corresponding gain or loss recognized in profit and loss.

Classification between current and non-current 

Derivative financial instruments are classified as current and non-current or segregated into short and long-term portions based on an evaluation of the contractual cash flows. 

When the Company maintains a derivative as an economic hedge (and does not apply hedge accounting), for a period exceeding 12 months after the balance sheet date, the derivative is classified as non-current (or segregated into current and non-current portions), in line with the classification of the corresponding item.

Derivative instruments that are designated as effective hedging instruments are classified consistently with the classification of the underlying hedged item.

The derivative instrument is segregated into current and non-current portions only when amounts can be reliably allocated.    

XML

OPERATIONS (Tables)

12 Months Ended

Dec. 31, 2020

OPERATIONS

Summary of authorizations for rendering SMP services

Radiofrequency	Band (MHz)	License Expiration (Year)
450 MHz	14	2027
700 MHz	20	2029
800 MHz	25	2021-2028
900 MHz	5	2023-2035
1800 MHz	20-50	2023-2035
2100 MHz	20-30	2023
2500 MHz	40-60	2027-2031

XML

BASIS OF PREPARATION AND PRESENTATION OF FINANCIAL STATEMENTS (Tables)

12 Months Ended

Dec. 31, 2020

BASIS OF PREPARATION AND PRESENTATION OF FINANCIAL STATEMENTS

Schedule of equity interests

On December 31, 2020 and 2019, the Company holds direct equity interests in subsidiaries and joint ventures. Selected information on the Company's investees is as follows:

		Equity interests
Investees	Type of investment	12.31.20		12.31.19
Terra Networks Brasil Ltda ("Terra Networks")	Subsidiary	100.00	%	100.00	%
Telefônica Transportes e Logística Ltda ("TGLog")	Subsidiary	99.99	%	99.99	%
POP Internet Ltda ("POP")	Subsidiary	99.99	%	99.99	%
Vivo Money Credit Rights Investment Fund ("Vivo Money") (Note 1.c)	Subsidiary	100.00	%	—
Aliança Atlântica Holding B.V. ("Aliança")	Joint venture	50.00	%	50.00	%
Companhia AIX de Participações ("AIX")	Joint venture	50.00	%	50.00	%
Companhia ACT de Participações ("ACT")	Joint venture	50.00	%	50.00	%

XML

CASH AND CASH EQUIVALENTS (Tables)

12 Months Ended

Dec. 31, 2020

CASH AND CASH EQUIVALENTS

Schedule of cash and cash equivalents

	12.31.20	12.31.19
Cash and banks (1)	191,975	250,168
Short-term investments (2)	5,570,106	3,143,209
Total	5,762,081	3,393,377

(1) On December 31, 2020 and 2019, the Consolidated balances included R$47,313 and R$59,657, respectively, related to the Financial Clearing House, with a Telefónica Group company (Note 28).

(2) Highly liquid short-term investments basically comprise Bank Deposit Certificates (“CDB”) and Repurchase Agreements with first tier rated financial institutions, indexed to the Interbank Deposit Certificate (“CDI”) rate, with original maturities of up to three months, and with immaterial risk of change in value. Income from these investments are recorded as financial income.

XML

TRADE ACCOUNTS RECEIVABLE (Tables)

12 Months Ended

Dec. 31, 2020

TRADE ACCOUNTS RECEIVABLE

Schedule of trade accounts receivables

	12.31.20	12.31.19
Billed amounts	7,611,858	7,018,601
Unbilled amounts (1)	2,191,331	2,866,196
Interconnection amounts	724,630	790,046
Vivo Money FIDC	1,975	—
Amounts from related parties (Note 28)	105,349	129,904
Gross accounts receivable	10,635,143	10,804,747
Estimated impairment losses	(2,072,578)	(1,644,797)
Total	8,562,565	9,159,950
Current	8,182,667	8,719,497
Non-current	379,898	440,453

(1)Includes the amounts of contractual assets, shown in item 4.d), of this note.

Schedule of accounts receivable balances related to the Soluciona IT

	12.31.20	12.31.19
B2B merchandise resale portion -  24 months	159,075	182,286
Portion of accounts receivable from the OI group - Bankruptcy process of companies	59,813	89,647
Vivo TECH product (1)	348,086	317,988
Nominal amount receivable	566,974	589,921
Deferred financial income	(34,504)	(48,086)
Present value of accounts receivable	532,470	541,835
Estimated impairment losses	(152,572)	(101,382)
Net amount receivable	379,898	440,453

(1)The maturity schedule is up to five years for amounts related to the Vivo TECH product.

Schedule of amounts receivable, net of estimated losses for impairment of accounts receivable, by maturity

	12.31.20	12.31.19
Falling due (1)	6,798,420	6,862,054
Overdue – 1 to 30 days	870,551	966,986
Overdue – 31 to 60 days	228,074	306,956
Overdue – 61 to 90 days	142,788	192,622
Overdue – 91 to 120 days	157,105	250,029
Overdue – over 120 days	365,627	581,303
Total	8,562,565	9,159,950

(1)Includes the amounts of contractual assets, shown in item 4.d), of this note.

Schedule of changes in contractual assets arising from the initial adoption of IFRS 15

	Contract assets, gross	Provision for losses	Contract assets, net
Balance on 12.31.18	195,733	(33,708)	162,025
Additions	558,883	(12,486)	546,397
Write-offs	(485,108)	—	(485,108)
Balance on 12.31.19	269,508	(46,194)	223,314
Additions	444,284	—	444,284
Write-offs	(510,215)	11,300	(498,915)
Balance on 12.31.20	203,577	(34,894)	168,683

Schedule of changes in the estimated impairment losses for accounts receivable

Balance on 12.31.18	(1,498,134)
Supplement to estimated losses, net of resersal (Note 25)	(1,682,348)
Write-off	1,547,577
Business combinations (Note 1.c)	(11,892)
Balance on 12.31.19	(1,644,797)
Supplement to estimated losses, net of resersal (Note 25)	(1,740,358)
Write-off	1,312,577
Balance on 12.31.20	(2,072,578)

XML

INVENTORIES (Tables)

12 Months Ended

Dec. 31, 2020

INVENTORIES

Schedule of inventories

	12.31.20	12.31.19
Materials for resale	590,706	539,822
Materials for consumption	37,156	41,584
Other inventories	35,109	24,115
Gross total	662,971	605,521
Estimated losses from impairment or obsolescence	(29,871)	(27,518)
Total	633,100	578,003

XML

PREPAID EXPENSES (Tables)

12 Months Ended

Dec. 31, 2020

PREPAID EXPENSES

Schedule of prepaid expenses

	12.31.20	12.31.19
Incremental costs (costumers contracts)	480,909	330,919
Advertising and publicity	275,083	249,433
Rental	61,559	184,248
Software and networks maintenance	80,151	33,863
Financial charges	22,175	30,521
Personal	—	30,135
Insurance	15,503	20,459
Satellites and links (1)	102,851	—
Taxes and other	16,046	27,007
Total	1,054,277	906,585
Current	859,766	686,503
Non-current	194,511	220,082

(1) Refers to contracts signed for the provision of infrastructure, equipment and links for satellite communication, aiming at the best provision of services by the Company. These contracts have a duration of up to 5 years.

XML

INCOME AND SOCIAL CONTRIBUTION TAXES (Tables)

12 Months Ended

Dec. 31, 2020

INCOME AND SOCIAL CONTRIBUTION TAXES

Schedule of income and social contribution taxes recoverable

	12.31.20	12.31.19
Income taxes recoverable	483,452	380,314
Social contribution taxes recoverable	35,825	31,281
Total	519,277	411,595

Schedule of income and social contribution taxes payable

	12.31.20	12.31.19
Income taxes payable	74,190	76,483
Social contribution taxes payable	23,755	16,614
Total	97,945	93,097
Current	1,693	6,585
Non-current	96,252	86,512

Schedule of significant components of deferred income and social contribution taxes

	Balance on	Income	Comprehensive	Balance on	Income	Comprehensive	Equity	Balance on
	12.31.18	statement	income	12.31.19	statement	income	transactions (4)	12.31.20
Deferred tax assets  (liabilities)
Income and social contribution taxes on tax losses (1)	1,428,476	51,360	—	1,479,836	(17,338)	—	—	1,462,498
Income and social contribution taxes on temporary differences (2)	(3,181,331)	(1,343,635)	69,719	(4,455,247)	(1,158,942)	(103,430)	(20,778)	(5,738,397)
Provisions for legal, labor, tax civil and regulatory contingencies	1,965,700	(275,109)	—	1,690,591	101,826	—	—	1,792,417
Trade accounts payable and other provisions	571,734	(40,393)	—	531,341	262,080	—	—	793,421
Customer portfolio and trademarks	184,603	(86,525)	—	98,078	(132,249)	—	—	(34,171)
Estimated losses on impairment of accounts receivable	442,276	36,354	—	478,630	114,300	—	—	592,930
Estimated losses from modems and other P&E items	176,130	6,869	—	182,999	(9,343)	—	—	173,656
Pension plans and other post-employment benefits	226,221	91,746	69,540	387,507	38,641	(105,416)	—	320,732
Profit sharing	129,689	(9,695)	—	119,994	13,919	—	—	133,913
Licenses	(1,853,214)	(216,330)	—	(2,069,544)	(216,330)	—	—	(2,285,874)
Goodwill (Spanish and Navytree, Vivo Part. and GVT Part.)	(4,600,940)	(1,002,768)	—	(5,603,708)	(1,002,768)	—	—	(6,606,476)
Property, plant and equipment of small value	(395,606)	107,155	—	(288,451)	(453,073)	—	—	(741,524)
Technological Innovation Law	(50,127)	25,562	—	(24,565)	5,844	—	—	(18,721)
On other temporary differences (3)	22,203	19,499	179	41,881	118,211	1,986	(20,778)	141,300
Total deferred tax assets (liabilities), non-current	(1,752,855)	(1,292,275)	69,719	(2,975,411)	(1,176,280)	(103,430)	(20,778)	(4,275,899)
Deferred tax assets	5,569,885			5,548,581				6,051,884
Deferred tax liabilities	(7,322,740)			(8,523,992)				(10,327,783)
Deferred tax assets  (liabilities), net	(1,752,855)			(2,975,411)				(4,275,899)
Represented in the balance sheet as follows:
Deferred tax assets of subsidiaries	230,097			171,042				138,641
Deferred tax liabilities	(1,982,952)			(3,146,453)				(4,414,540)

(1)Under Brazilian tax legislation these may be offset up to  30% of the annual taxable income but otherwise have no expiry date.

(2)Amounts that will be realized upon payment of provision, occurrence of impairment losses for trade accounts receivable, or realization of inventories, as well as upon reversal of other provision.

(3)Deferred taxes from other temporary differences, such as deferred income, renewal of licenses, disposal of structures (towers and rooftops), among others.

(4)Refer to deferred taxes arising from transactions for the acquisition and sale of companies, described in note 1.c.

Schedule of expected realization of deferred taxes

Year
2021	2,080,481
2022	709,170
2023	505,837
2024	387,849
2025	32,811
2026 onwards	(7,992,047)
Total	(4,275,899)

Schedule of reconciliation of income and social contribution tax expense

	2020		2019		2018
Income before taxes	6,008,234		6,394,535		11,277,490
Income and social contribution tax expenses, at the tax rate of 34%	(2,042,800)		(2,174,142)		(3,834,347)
Permanent differences
Equity (Note 11)	250		256		(1,988)
Unclaimed interest on equity	(16,699)		(13,825)		(14,426)
Non-deductible expenses, gifts, incentives	(84,988)		(84,487)		(76,671)
Tax benefit related to interest on equity allocated	894,200		879,920		1,547,000
Other (additions) exclusions	12,330		(1,243)		31,200
Tax debit	(1,237,707)		(1,393,521)		(2,349,232)
Effective rate	20.6	%	21.8	%	20.8	%
Current income and social contribution taxes	(61,427)		(101,246)		(832,485)
Deferred income and social contribution taxes	(1,176,280)		(1,292,275)		(1,516,747)

XML

TAXES, CHARGES AND CONTRIBUTIONS RECOVERABLE (Tables)

12 Months Ended

Dec. 31, 2020

TAXES, CHARGES AND CONTRIBUTIONS RECOVERABLE

Schedule of taxes, charges and contributions recoverable

	12.31.20	12.31.19
State VAT (ICMS) (1)	3,014,540	2,664,499
PIS and COFINS (2)	128,489	2,125,186
Withholding taxes and contributions (3)	87,134	142,940
Fistel, INSS, ISS and other taxes	106,454	84,935
Total	3,336,617	5,017,560
Current	2,512,293	4,176,362
Non-current	824,324	841,198

(1) Includes ICMS credits from the acquisition of property and equipment, available to offset in 48 months; requests for refund of ICMS paid on invoices that were subsequently cancelled; for the rendering of services; tax substitution; and tax rate difference; among others. Non-current consolidated amounts include credits arising from the acquisition of property and equipment of R$541,941 and R$537,209 on December 31, 2020 and 2019, respectively.

(2) The balance of December 31, 2019 include the tax credits of PIS and COFINS plus interest accruals based on the SELIC, in the amount of R$2,046,274, arising from the final judicial processes in favor of the Company, which recognized the right to deduct ICMS from the basis of the calculation of PIS and COFINS contributions. This amount was fully offset with the payments of taxes to be paid during the year 2020. The Company has two other lawsuits of the same nature in progress (including lawsuit of company that have already been merged - Telemig), treated as contingent assets, which cover several periods between February 2002 and June 2017, with estimated amounts between R$1,768 million and R$1,944 million. For these cases, like the previous ones of the same nature, the Company only recognizes the credits after obtaining the unappealable transit certificate and a reliable measurement of the information.

(3) Withholding income tax ("IRRF") credits on short-term investments, interest on equity and others, which are used as deduction in operations for the period and social contribution tax withheld at source on services provided to public agencies.

XML

JUDICIAL DEPOSITS AND GARNISHMENTS (Tables)

12 Months Ended

Dec. 31, 2020

JUDICIAL DEPOSITS AND GARNISHMENTS

Schedule of judicial deposits and garnishments

	12.31.20	12.31.19
Judicial deposits
Tax	1,453,939	2,007,074
Civil	951,905	1,049,922
Labor	241,455	316,009
Regulatory	266,647	261,005
Total	2,913,946	3,634,010
Garnishments	30,432	36,875
Total	2,944,378	3,670,885
Current	177,433	277,468
Non-current	2,766,945	3,393,417

Schedule of composition of the balances of the tax judicial deposits

Tax	12.31.20	12.31.19
Corporate Income Tax (IRPJ) and Social Contribution Tax (CSLL)	92,849	575,426
Universal Telecommunication Services Fund (FUST)	525,563	518,372
State Value-Added Tax (ICMS)	331,086	269,483
Social Contribution Tax for Intervention in the Economic Order (CIDE)	289,924	286,270
Social Security, work accident insurance (SAT) and funds to third parties (INSS)	18,880	140,186
Withholding Income Tax (IRRF)	58,300	57,142
Telecommunications Inspection Fund (FISTEL)	46,830	46,167
Contribution tax on gross revenue for Social Integration Program (PIS) and for Social Security Financing (COFINS)	33,540	34,983
Other taxes, charges and contributions	56,967	79,045
Total	1,453,939	2,007,074

XML

OTHER ASSETS (Tables)

12 Months Ended

Dec. 31, 2020

OTHER ASSETS

Schedule of other assets

	12.31.20	12.31.19
Surplus from post-employment benefit plans (Note 30) (1)	165,062	220,939
Receivables from suppliers	209,908	167,540
Advances to employees and suppliers	117,033	73,849
Related-party receivables (Note 28)	72,835	64,966
Goods for sale (2)	—	76,912
Other amounts receivable (3)	27,765	14,123
Total	592,603	618,329
Current	408,349	382,591
Non-current	184,254	235,738

(1) On December 31, 2020 and 2019, includes R$158,959 and R$209,347, respectively, referring to the distribution of the PBS-A surplus

(2) Refers to the balance of property, plant and equipment available for sale, resulting from the contract entered into by the Company on November 28, 2019, for the sale of 1,909 structures (rooftops and towers) owned by the Company to Telxius Torres Brasil Ltda. (Note 12). On February 7, 2020, this transaction was concluded for a total amount of R$641 million, after the fulfillment of all suspensive conditions common to this type of transaction, including the approval of the Transaction by the Administrative Council for Economic Defense ("CADE").

(3) On December 31, 2020 and 2019, includes R$12,122 and R$10,226, respectively, from a subletting agreement in the Curitiba Data Center, for a period of 22 years and of structures (towers and rooftops) for a period of 10 years (this occurred in the 1st quarter of 2020). There are no unsecured residual amounts that result in lessor benefits and no contingent payments recognized as income during the period years.

XML

INVESTMENTS (Tables)

12 Months Ended

Dec. 31, 2020

INVESTMENTS

Summary of the relevant financial data of the investees in which the Company holds a stake

	Joint Ventures (Aliança / AIX / ACT)
	12.31.20		12.31.19
Equity interest	50.00	%	50.00	%
Summary of balance sheets:
Current assets	301,518		221,183
Non-current assets	10,426		10,556
Total assets	311,944		231,739
Current liabilities	6,544		7,140
Non-current liabilities	18,090		16,773
Equity	287,310		207,826
Total liabilities and equity	311,944		231,739
Investment Book value	143,655		103,913

Statements of Income

	Joint Ventures (Aliança / AIX / ACT)
Summary Statements of Income:	2020	2019	2018
Net operating income	45,893	45,567	45,608
Operating costs and expenses	(44,595)	(44,325)	(58,773)
Financial income (expenses), net	708	1,030	1,334
Income and social contribution taxes	(538)	(768)	137
Net income (loss) for the year	1,468	1,504	(11,694)
Equity, according to interest held	734	752	(5,847)

Schedule of changes in investments

	Joint Ventures
	(Aliança / AIX	Other	Total
	/ ACT)	investments	investments
Balance on 12.31.18	101,302	355	101,657
Equity	752	—	752
Other comprehensive  income	1,859	(17)	1,842
Balance on 12.31.19	103,913	338	104,251
Equity	734	—	734
Other comprehensive  income	39,008	440	39,448
Balance on 12.31.20	143,655	778	144,433

XML

PROPERTY, PLANT AND EQUIPMENT (Tables)

12 Months Ended

Dec. 31, 2020

PROPERTY, PLANT AND EQUIPMENT

Schedule of breakdown of and changes to property, plant and equipment

							Assets and
	Switching and	Terminal					facilities
	transmission	equipment /			Other	Estimated	under
	equipment	modems	Infrastructure	Land	P&E	losses (1)	construction	Total
Balances and changes:
Balance on 12.31.18	24,668,212	2,571,084	3,769,088	314,832	836,107	(156,892)	2,112,896	34,115,327
Initial adoption IFRS 16 effects (2)	91,836	—	8,526,236	—	—	—	—	8,618,072
Additions	114,517	142,975	1,790,185	—	258,854	(20,465)	6,576,296	8,862,362
Write-offs, net (3)	(17,069)	(268)	(139,857)	(5,735)	(2,182)	3,540	(21,750)	(183,321)
Net transfers	4,265,573	1,299,368	504,010	—	88,100	—	(6,242,551)	(85,500)
Transfers of goods destined for sale (4)	(1,183)	—	(248,175)	(30,585)	(67,143)	—	(340)	(347,426)
Subletting (5)	—	—	(10,310)	—	—	—	—	(10,310)
Depreciation (Note 25)	(3,936,572)	(1,426,890)	(2,471,456)	—	(297,234)	—	—	(8,132,152)
Business combinations (Note 1 c)	—	9	343	—	10,551	(691)	—	10,212
Balance on 12.31.19	25,185,314	2,586,278	11,720,064	278,512	827,053	(174,508)	2,424,551	42,847,264
Additions	78,021	77,933	4,517,747	—	195,449	—	5,680,707	10,549,857
Write-offs, net (3)	(7,719)	(170)	(306,219)	(5,483)	(2,870)	10,751	(16,533)	(328,243)
Net transfers	3,850,578	1,276,846	341,553	—	20,857	4,732	(5,682,742)	(188,176)
Subletting (5)	—	—	(2,115)	—	—	—	—	(2,115)
Capital contribution to CyberCo Brasil (note 1.c)	(5)	—	—	—	(15,553)	(680)	—	(16,238)
Depreciation (Note 25)	(4,034,228)	(1,464,041)	(2,731,627)	—	(279,860)	—	—	(8,509,756)
Balance on 12.31.20	25,071,961	2,476,846	13,539,403	273,029	745,076	(159,705)	2,405,983	44,352,593
Balance on 12.31.19
Cost	83,028,079	19,329,470	26,269,769	278,512	5,218,153	(174,508)	2,424,551	136,374,026
Accumulated depreciation	(57,842,765)	(16,743,192)	(14,549,705)	—	(4,391,100)	—	—	(93,526,762)
Total	25,185,314	2,586,278	11,720,064	278,512	827,053	(174,508)	2,424,551	42,847,264
Balance on 12.31.20
Cost	86,709,680	20,569,803	30,633,254	273,029	5,380,579	(159,705)	2,405,983	145,812,623
Accumulated depreciation	(61,637,719)	(18,092,957)	(17,093,851)	—	(4,635,503)	—	—	(101,460,030)
Total	25,071,961	2,476,846	13,539,403	273,029	745,076	(159,705)	2,405,983	44,352,593

(1) The Company and its subsidiaries recognized estimated losses and write-offs (when applicable) for potential obsolescence of materials used for property and equipment maintenance, based on historical experience and expected future use.

(2)On January 1, 2019, the Company adopted IFRS 16, which requires lessees to recognize assets and liabilities arising from all leases (except short-term leases and leases of low-value assets) in the statement of financial position (Note 20). Before the leases were recognized under IAS 17 - Leases and classified in accordance with IAS 17 qualitative and quantitative criteria as operating leases (with lease payments recognized on the straight-line basis) or finance leases. The Company transitioned to IFRS 16 using the modified retrospective approach. The comparative information for prior-year periods was not restated. The adoption of this new standard gave rise to right of use assets and the corresponding lease liabilities of R$8,618,072 thousand as of January 1, 2019.

(3)In infrastructure, includes the amounts of R$288,603 and R$105,952 as of December 31, 2020 and 2019, respectively, referring to the cancellation of lease agreements.

(4)Refers to goods sold from the Tamboré and Curitiba (CIC) data centers, sold to a company controlled by Asterion Industrial Partners SGEIC, SA, according to the agreement entered into by the Company on May 8, 2019 and concluded with the discharge on July 24, 2019.

It also includes the assets intended for sale, resulting from the agreement entered into by the Company on November 28, 2019, for the sale of 1,909 structures (rooftops and towers) owned by the Company to Telxius Torres Brasil Ltda (Note  10).

(5)Refers to the lease for structures (towers and rooftops) in 2020 and for areas in the Curitiba data center in 2019.

Schedule of depreciation rates of property, plant and equipment

Description
Switching and transmission equipment and media	2.50% to 25.00%
Terminal equipment / modems (1)	6.67% to 66.67%
Infrastructure	2.50% to 66.67%
Other P&E assets	10.00% to 25.00%

(1)Includes lending handsets, with annual depreciation rates of 25.00% to 50.00%.

Schedule of changes in leases, after the adoption of IFRS 16, already included in the asset movement tables

	Switching and
	transmission
	equipment	Infrastructure	Other	Total
Annual depreciation rate (%)	5.00 to 92.31	3.13 to 92.31	20.00
Balances and changes:
Balance on 12.31.18 (1)	186,554	189,455	10,950	386,959
Initial Adoption in 01.01.19	91,836	8,526,236	—	8,618,072
Additions	107,108	1,696,833	—	1,803,941
Subletting (Note 12.c)	—	(10,310)	—	(10,310)
Depreciation (IAS 17)	(13,540)	(35,181)	(7,730)	(56,451)
Write-offs, net (IAS 17)	—	(2,098)	—	(2,098)
Depreciation (IFRS 16)	(25,652)	(1,857,298)	—	(1,882,950)
Cancellation of contracts	—	(105,952)	—	(105,952)
Balance on 12.31.19	346,306	8,401,685	3,220	8,751,211
Additions	55,904	4,394,809	10,564	4,461,277
Subletting (Note 12.c)	—	(2,115)	—	(2,115)
Depreciation (IAS 17)	(13,540)	(30,277)	(3,220)	(47,037)
Write-offs, net (IAS 17)	—	(4,902)	—	(4,902)
Depreciation (IFRS 16)	(30,159)	(2,148,260)	(183)	(2,178,602)
Cancellation of contracts	(420)	(288,603)	—	(289,023)
Balance on 12.31.20	358,091	10,322,337	10,381	10,690,809

(1)Refers to lease amounts covered by IAS 17 and the provision for dismantling for these leases.

XML

INTANGIBLE ASSETS (Tables)

12 Months Ended

Dec. 31, 2020

INTANGIBLE ASSETS

Schedule of breakdown, changes and amortization rates of intangible assets

	Indefinite
	useful life	Finite useful life
							Estimated
						Other	losses	Software
			Customer			intangible	for	under
	Goodwill	Software	portfolio	Trademarks	Licenses	assets	software	development	Total
Balances and changes:
Balance on 12.31.18	23,062,421	3,245,042	1,429,274	989,410	13,056,137	49,523	(499)	389,677	42,220,985
Additions	—	374,690	—	—	—	—	—	1,390,731	1,765,421
Write-offs, net (1)	(3,249)	(5,066)	—	—	—	(58)	—	—	(8,373)
Net transfers	—	1,314,978	—	—	—	(6)	—	(1,229,472)	85,500
Transfers of goods destined for sale (2)	—	(1,537)	—	—	—	—	—	—	(1,537)
Business combinations (Note 1 c)	—	596	—	—	—	—	—	—	596
Amortization (Note 25)	—	(1,234,949)	(500,441)	(84,205)	(964,316)	(3,729)	—	—	(2,787,640)
Balance on 12.31.19	23,059,172	3,693,754	928,833	905,205	12,091,821	45,730	(499)	550,936	41,274,952
Additions (3)	—	526,112	—	—	184,300	—	(12,230)	1,174,282	1,872,464
Write-offs, net (1)	(32,743)	(220)	—	—	—	—	—	—	(32,963)
Net transfers	—	1,211,314	—	—	—	—	—	(1,023,138)	188,176
Capital contribution to CyberCo Brasil (note 1.c)	—	(2,770)	—	—	—	—	—	—	(2,770)
Amortization (Note 25)	—	(1,420,757)	(295,267)	(84,205)	(914,411)	(3,102)	—	—	(2,717,742)
Balance on 12.31.20	23,026,429	4,007,433	633,566	821,000	11,361,710	42,628	(12,729)	702,080	40,582,117
Balance on 12.31.19
Cost	23,059,172	18,310,812	4,513,278	1,658,897	20,244,219	270,000	(499)	550,936	68,606,815
Accumulated amortization	—	(14,617,058)	(3,584,445)	(753,692)	(8,152,398)	(224,270)	—	—	(27,331,863)
Total	23,059,172	3,693,754	928,833	905,205	12,091,821	45,730	(499)	550,936	41,274,952
Balance on 12.31.20
Cost	23,026,429	20,069,371	4,513,278	1,658,897	20,428,520	269,640	(12,729)	702,080	70,655,486
Accumulated amortization	—	(16,061,938)	(3,879,712)	(837,897)	(9,066,810)	(227,012)	—	—	(30,073,369)
Total	23,026,429	4,007,433	633,566	821,000	11,361,710	42,628	(12,729)	702,080	40,582,117

(1) Refers to proportional write-offs refer to: (i) R$32,743 from the disposal of  CyberCo Brasil's investment (Note 1.c); and (ii) R$3,249, made in July 2019, resulting from the sale of the Tamboré and Curitiba (CIC) data centers, pursuant to paragraph 86 of IAS 36.

(2) Refers to transfers of assets from the Tamboré and Curitiba (CIC) data centers, sold for the amounts of R$419,690 to a company controlled by Asterion Industrial Partners SGEIC, SA, pursuant to an agreement entered into by the Company on May 8, 2019 and concluded. with the settlement on July 24, 2019.

(3) The addition into licenses, occurred in 2020, refers to the extension of the authorization for the right to use radio frequencies for the exploitation of SMP in the State of Rio de Janeiro, granted by ANATEL on November 29, 2020 (Note 1.b) 

Schedule of annual amortization rates for intangible assets

Description
Softwares	20.00 % to 50.00	%
Customer portfolio	12.50	%
Trademarks	7.70	%
Licenses	3.60% to 6.67	%
Other intangible assets	20.00	%

Schedule of breakdown of goodwill

	12.31.20	12.31.19
GVT Participações, occurred in 2015	12,837,141	12,837,141
Vivo Participações, occurred in 2011 (1)	9,124,496	9,157,239
Telefônica Televisão Participações, former Navytree, occurred in 2008	780,693	780,693
Spanish e Figueira, by the merger of Telefônica Data Brasil Holding (TDBH) in 2006	212,058	212,058
Santo Genovese Participações, Atrium Telecomunicações, which took place in 2004	71,892	71,892
Ajato Telecomunicação Ltda.	149	149
Total	23,026,429	23,059,172

(1) The proportional write-offs refer to: (i) R$32,743 from the disposal of CyberCo Brasil's investment (Note 1.c) in 2020; and (ii) R$3,249, made in July 2019, resulting from the sale of the Tamboré and Curitiba (CIC) data centers in 2019, pursuant to paragraph 86 of IAS 36.

XML

IMPAIRMENT OF NONFINANCIAL ASSETS (Tables)

12 Months Ended

Dec. 31, 2020

IMPAIRMENT OF NONFINANCIAL ASSETS

Schedule of sensitivity to changes in assumptions

Changes in key assumptions	In percentage points (p.p)
Financial variables
Discount rate	+/-	0.5
Perpetuity growth rates	+/-	1.0
Operating variables
Revenues Margin	+/-	1.5

XML

PERSONNEL, SOCIAL CHARGES AND BENEFITS (Tables)

12 Months Ended

Dec. 31, 2020

PERSONNEL, SOCIAL CHARGES AND BENEFITS

Schedule of personnel, social charges and benefits

	12.31.20	12.31.19
Social charges and benefits	350,138	400,470
Profit sharing	285,079	308,918
Share-based payment plans (Note 29)	86,296	40,523
Salaries and wages	46,495	38,363
Total	768,008	788,274
Current	764,329	752,246
Non-current	3,679	36,028

XML

TRADE ACCOUNTS PAYABLE (Tables)

12 Months Ended

Dec. 31, 2020

TRADE ACCOUNTS PAYABLE

Schedule of trade accounts payable

	12.31.20	12.31.19
Sundry suppliers (Opex, Capex, Services e Material)	5,741,208	5,958,280
Related parties (Note 28)	489,339	405,271
Amounts payable (operators, cobilling)	199,562	232,264
Interconnection / interlink	182,895	275,984
Total	6,613,004	6,871,799

XML

TAXES, CHARGES AND CONTRIBUTIONS (Tables)

12 Months Ended

Dec. 31, 2020

TAXES, CHARGES AND CONTRIBUTIONS

Schedule of taxes, charges and contributions

17)  TAXES, CHARGES AND CONTRIBUTIONS

	12.31.20	12.31.19
Fistel (1)	671,145	—
ICMS	861,464	906,447
PIS and COFINS	221,323	331,863
Fust and Funttel	88,088	89,394
ISS, CIDE and other taxes	84,772	97,163
Total	1,926,792	1,424,867
Current	1,607,434	1,139,812
Non-current	319,358	285,055

(1) On April 15, 2020, provisional measure 952 was published in the Official Gazette (“DOU”), extending the deadline for payment of Fistel from March 31, 2020 to August 31, 2020, with no impact additional penalty or interest. On August 12, 2020, the Company made a partial payment of R$416,475. The balance refers to the residual payment which has been suspended according to the decision of the Federal Regional Court of the First Region, published on March 18, 2020.

XML

DIVIDENDS AND INTEREST ON EQUITY (Tables)

12 Months Ended

Dec. 31, 2020

DIVIDENDS AND INTEREST ON EQUITY

Schedule of breakdown of dividend and interest on equity

	12.31.20	12.31.19
Telefónica Latinoamérica Holding	837,113	787,823
Telefónica	1,021,474	948,662
SP Telecomunicações Participações	660,012	598,064
Telefónica Chile	1,849	1,667
Non-controlling interest	1,345,550	1,251,201
Total	3,865,998	3,587,417

Schedule of changes in dividend and interest on equity

Balance on 12.31.18	4,172,916
Supplementary dividends for 2018	2,468,684
Interim interest on equity (net of IRRF)	3,199,800
Unclaimed dividends and interest on equity	(82,898)
Payment of dividends and interest on equity	(6,176,842)
IRRF on shareholders exempt/immune from interest on equity	5,757
Balance on 12.31.19	3,587,417
Supplementary dividends for 2019	2,195,575
Interim interest on equity (net of IRRF) and dividends	3,435,500
Unclaimed dividends and interest on equity	(99,788)
Payment of dividends and interest on equity	(5,259,367)
IRRF on shareholders exempt/immune from interest on equity	6,661
Balance on 12.31.20	3,865,998

XML

PROVISION AND CONTINGENCIES (Tables)

12 Months Ended

Dec. 31, 2020

PROVISIONS AND CONTINGENCIES

Schedule of breakdown of changes in provisions for cases in which an unfavorable outcome is probable, in addition to contingent liabilities and provisions for dismantling

	Provisions for contingencies
					Contingent	Provision for
	Labor	Tax	Civil	Regulatory	liabilities (PPA)	decommissioning	Total
Balance on 12.31.18	779,686	1,951,897	1,004,803	1,022,216	827,275	673,448	6,259,325
Initial adoption IFRC 23 (Note 7)	—	(68,945)	—	—	—	—	(68,945)
Additions (reversal), net (Note 26)	152,105	32,719	364,008	93,634	(16,986)	(90,159)	535,321
Other additions (reversal) (1)	(5,709)	—	(2,381)	—	—	(4,191)	(12,281)
Write-offs due to payment	(485,539)	(364,992)	(833,579)	(43,068)	—	—	(1,727,178)
Interest accruals	99,526	25,270	264,590	72,954	21,433	57,591	541,364
Business combinations (Note 1 c)	7,805	—	7	—	—	—	7,812
Balance on 12.31.19	547,874	1,575,949	797,448	1,145,736	831,722	636,689	5,535,418
Additions (reversal), net (Note 26)	126,167	122,419	374,464	69,486	(18,631)	(7,306)	666,599
Other additions (reversal) (1)	6,390	—	(6,020)	—	—	(236,598)	(236,228)
Write-offs due to payment	(287,028)	(24,763)	(575,484)	(39,782)	—	—	(927,057)
Interest accruals	106,307	125,647	281,543	31,891	10,154	15,857	571,399
Balance on 12.31.20	499,710	1,799,252	871,951	1,207,331	823,245	408,642	5,610,131
Balance on 12.31.19
Current	236,130	—	113,307	25,008	—	—	374,445
Non-current	311,744	1,575,949	684,141	1,120,728	831,722	636,689	5,160,973
Balance on 12.31.20
Current	176,582	—	180,965	60,055		51	417,653
Non-current	323,128	1,799,252	690,986	1,147,276	823,245	408,591	5,192,478

(1)Provision for decommissioning refers to the reversal resulting from the review of costs for dismantling technical sites. The effects of this reversal were recognized against property, plant and equipment.

Schedule of guarantees granted by contingency

	12.31.20	12.31.19
Judicial deposits and garnishments	2,944,378	3,670,885
Letters of guarantee	2,509,089	2,608,463
Property and equipment	85,172	81,416
Total	5,538,639	6,360,764

Labor

PROVISIONS AND CONTINGENCIES

Schedule of provision contingencies

	Amounts involved
Nature/Degree of Risk	12.31.20	12.31.19
Provisions	499,710	547,874
Possible losses	1,435,790	452,070

Tax

PROVISIONS AND CONTINGENCIES

Schedule of provision contingencies

	Amounts involved
Nature/Degree of Risk	12.31.20	12.31.19
Provisions	1,799,252	1,575,949
Federal	622,246	573,229
State	625,019	466,164
Municipal	37,506	34,915
FUST	514,481	501,641
Possible losses	29,368,422	26,104,867
Federal	3,257,998	2,233,733
State	17,447,000	15,460,028
Municipal	754,827	669,114
FUST, FUNTTEL and FISTEL	7,908,597	7,741,992

Civil

PROVISIONS AND CONTINGENCIES

Schedule of provision contingencies

	Amounts involved
Nature/Degree of Risk	12.31.20	12.31.19
Provisions	871,951	797,448
Possible losses	3,374,200	3,495,010

Regulatory

PROVISIONS AND CONTINGENCIES

Schedule of provision contingencies

	Amounts involved
Nature/Degree of Risk	12.31.20	12.31.19
Provisions	1,207,331	1,145,736
Possible losses	5,617,806	5,645,107

XML

LOANS, FINANCING, DEBENTURES AND LEASES (Tables)

12 Months Ended

Dec. 31, 2020

LOANS, FINANCING, DEBENTURES AND LEASES

Schedule of balance of amounts payable relating to finance leases

	12.31.20	12.31.19
Nominal value payable	13,526,001	10,932,789
Unrealized financial expenses	(2,707,223)	(1,741,638)
Present value payable (1)	10,818,778	9,191,151
Current	2,262,043	2,029,265
Non-current	8,556,735	7,161,886

(1) On December 31, 2020 and 2019, the present value of balances payable, included R$1,470,508 and R$480,381, respectively, referring to lease agreements with Telefónica Group companies (Note 28).

Schedule of aging list of finance lease payable

Year
2021	2,262,043
2022	2,270,112
2023	2,118,655
2024	1,551,657
2025	925,972
2026 onwards	1,690,339
Total	10,818,778

Schedule of repayments by year of maturity

	Loans and financing -	Financing -
Year	financial institutions	suppliers	Debentures	Leases	Total
2022	47	—	999,908	2,270,112	3,270,067
2023	4	—	—	2,118,655	2,118,659
2024	—	—	—	1,551,657	1,551,657
2025	—	—	—	925,972	925,972
2026 onwards	—	—	—	1,690,339	1,690,339
Total	51	—	999,908	8,556,735	9,556,694

Schedule of changes in borrowings

	Loans and			Financing -	Contingent
	financing	Debentures	Leases	suppliers	consideration	Total
Balance on 12.31.18	1,582,570	3,173,910	393,027	524,244	465,686	6,139,437
Initial adoption IFRS 16 on 01.01.19	—	—	8,618,072	—	—	8,618,072
Additions	—	—	1,803,941	967,313	—	2,771,254
Government grants (Note 21)	15,787	—	—	—	—	15,787
Financial charges (Note 27)	111,013	197,386	457,985	45,940	18,362	830,686
Issue costs	—	1,400	—	—	—	1,400
Foreign exchange variation (Note 27)	(1,104)	—	—	—	—	(1,104)
Write-offs (cancellation of contracts)	—	—	(107,213)	—	—	(107,213)
Write-offs (payments)	(1,659,416)	(268,346)	(1,974,661)	(541,223)	—	(4,443,646)
Balance on 12.31.19	48,850	3,104,350	9,191,151	996,274	484,048	13,824,673
Additions	—	—	4,828,542	370,538	—	5,199,080
Financial charges (Note 27)	1,879	87,635	526,127	26,620	6,555	648,816
Issue costs	—	1,376	—	—	—	1,376
Costs and expenses incurred	—	—	—	—	(40,708)	(40,708)
Write-offs (cancellation of contracts)	—	—	(315,291)	—	—	(315,291)
Write-offs (payments)	(50,617)	(1,148,785)	(3,411,751)	(1,017,732)	(449,895)	(6,078,780)
Balance on 12.31.20	112	2,044,576	10,818,778	375,700	—	13,239,166

Schedule of funding and payments

	12.31.20				12.31.19
		Write-offs (payments)				Write-offs (payments)
	Additions	Principal	Financial charges	Total	Additions	Principal	Financial charges	Total
Loans and financing	—	(48,645)	(1,972)	(50,617)	—	(1,564,258)	(95,158)	(1,659,416)
BNDES / PSI	—	(8,849)	(111)	(8,960)	—	(1,549,335)	(91,939)	(1,641,274)
BNB	—	(39,796)	(1,861)	(41,657)	—	(14,923)	(3,219)	(18,142)
Debêntures	—	(1,025,583)	(123,202)	(1,148,785)	—	(66,830)	(201,516)	(268,346)
1st issue –  Minas Comunica	—	(25,583)	(1,995)	(27,578)	—	(25,583)	(1,761)	(27,344)
4th issue	—	—	—	—	—	(41,247)	(1,650)	(42,897)
5th issue	—	—	(88,819)	(88,819)	—	—	(135,242)	(135,242)
6th issue	—	(1,000,000)	(32,388)	(1,032,388)	—	—	(62,863)	(62,863)
Financing - Suppliers	370,538	(970,029)	(47,703)	(1,017,732)	967,313	(506,407)	(34,816)	(541,223)
Contingent consideration	—	(344,217)	(105,678)	(449,895)	—	—	—	—
Leases (1)	4,828,542	(2,909,214)	(502,537)	(3,411,751)	10,422,013	(1,559,165)	(415,496)	(1,974,661)
Total	5,199,080	(5,297,688)	(781,092)	(6,078,780)	11,389,326	(3,696,660)	(746,986)	(4,443,646)

(1) Additions include the amount of the initial adoption of IFRS 16 on January 1, 2019.

Loans and financing

LOANS, FINANCING, DEBENTURES AND LEASES

Schedule of borrowings

	Information on December 31, 2020				12.31.20			12.31.19
	Currency	Annual interest rate	Maturity	Guarantees	Current	Non-current	Total	Current	Non-current	Total
Financial institutions (b.1)					61	51	112	23,865	24,985	48,850
PSI	R$	2.5% to 5.5%	Jan-23	(1)	61	51	112	8,847	112	8,959
BNB	R$	7.06% to 10%	Aug-22	(2)	—	—	—	15,018	24,873	39,891
Suppliers (b.2)	R$	114.6% to 149.0% of CDI	Dec-21		375,700	—	375,700	996,177	97	996,274
Debentures (b.3)					1,044,668	999,908	2,044,576	1,077,183	2,027,167	3,104,350
1st issue – Minas Comunica	R$	IPCA+0.50%	Jul-21	(3)	29,352	—	29,352	28,366	28,366	56,732
5th issue	R$	108.25% of CDI	Feb-22	(3)	1,015,316	999,908	2,015,224	44,504	1,998,801	2,043,305
6th issue	R$	100% of CDI + 0.24%	Nov-20	(3)	—	—	—	1,004,313	—	1,004,313
Leases (b.4)	R$	7.69% / IPCA			2,262,043	8,556,735	10,818,778	2,029,265	7,161,886	9,191,151
Contingent consideration (b.5)	R$	Selic			—	—	—	—	484,048	484,048
Total					3,682,472	9,556,694	13,239,166	4,126,490	9,698,183	13,824,673

Guarantees:

(1)Pledge of financed assets.

(2)Bank guarantee provided by Banco Safra in an amount equivalent to 100% of the outstanding financing debt balance. Setting up a liquidity fund represented by financial investments in the amount equivalent to three installments of repayment referenced to the average post-grace period performance. On December 31, 2019, the balance of this liquidity fund was R$13,212.

(3)Unsecured.

Debentures

LOANS, FINANCING, DEBENTURES AND LEASES

Schedule of borrowings

		Amounts
Issue		Issued	Outstanding	Issue value
1st issue – Minas Comunica	Dec-07	5,550	5,550	55,500
5th issue	Feb-17	200,000	200,000	2,000,000

XML

DEFERRED INCOME (Tables)

12 Months Ended

Dec. 31, 2020

DEFERRED INCOME

Schedule of deferred income

	12.31.20	12.31.19
Contractual liabilities (costumers contracts) (1)	529,179	499,035
Disposal of PP&E (2)	107,367	94,383
Government grants (3)	50,474	61,613
Other (4)	59,224	63,051
Total	746,244	718,082
Current	506,806	506,181
Non-current	239,438	211,901

(1)Refers to the balance of contractual liabilities of customers, deferred when they relate to performance obligations  satisfied over time.

(2)Includes the net balances of the residual values from sale of non-strategic towers and rooftops, transferred to income as the conditions for recognition are met.

(3)This refers to: i) government subsidy arising from funds obtained from credit lines to be used in the acquisition of domestic equipment, which have been amortized over the useful life cycle of the equipment; and ii) subsidies arising from projects related to state taxes, which are being amortized over the contractual period.

Schedule of changes in contractual liabilities (IFRS 15), mainly related to the sale of prepaid credits

Balance on 12.31.18	532,207
Additions	6,762,607
Write-offs, net	(6,795,779)
Balance on 12.31.19	499,035
Additions	6,901,785
Write-offs, net	(6,871,641)
Balance on 12.31.20	529,179
Current	479,728
Non-current	49,451

Schedule of expected periods of realization of contractual liabilities

Year
2021	479,728
2022	15,824
2023	3,499
2024	8,089
2025	8,089
2026 onwards	13,950
Total	529,179

XML

OTHER LIABILITIES (Tables)

12 Months Ended

Dec. 31, 2020

OTHER LIABILITIES

Schedule of other liabilities

	12.31.20	12.31.19
Surplus from post-employment benefit plans (Note 30)	954,581	1,155,067
Liabilities with ANATEL (1)	523,606	300,119
Third-party withholdings (2)	219,169	222,056
Amounts to be refunded to customers	44,973	43,794
Liabilities with related parties (Note 28)	33,831	30,114
Other liabilities	48,646	36,781
Total	1,824,806	1,787,931
Current	406,831	365,192
Non-current	1,417,975	1,422,739

(1)Includes the cost of renewing STFC and SMP licenses and SMP licenses and the extension of the authorization to use radio frequencies for the exploitation of SMP in the State of Rio de Janeiro, granted by ANATEL on November 29, 2020 (Notes 1.b and 12).

(2)This refers to payroll withholdings and taxes withheld from pay-outs of interest on equity and on provision of services.

XML

EQUITY (Tables)

12 Months Ended

Dec. 31, 2020

EQUITY

Schedule of distribution of capital

	Total
Shareholders	Number	%
Controlling Group	1,244,241,119	73.58	%
Telefónica Latinoamérica Holding, S.L.	407,279,213	24.09	%
Telefónica	503,329,803	29.76	%
SP Telecomunicações Participações	332,695,590	19.67	%
Telefónica Chile	936,513	0.06	%
Other shareholders	443,933,052	26.25	%
Treasury Shares	2,810,752	0.17	%
Total shares	1,690,984,923	100.00	%
Treasury Shares	(2,810,752)
Total shares outstanding	1,688,174,171

Schedule of other capital reserves

	12.31.20	12.31.19
Excess of the value in the issue or capitalization, in relation to the basic value of the share on the issue date (1)	2,735,930	2,735,930
Cancelation of treasury shares according to the Special Shareholders' Meeting  (SGM) of 3/12/15 (2)	(112,107)	(112,107)
Direct costs of capital increases (3)	(62,433)	(62,433)
Incorporation of shares of GVTPart. (4)	(1,188,707)	(1,188,707)
Effects of the acquisition of Lemontree and GTR by Company and Tglog by TData (5)	(75,388)	(75,388)
Preferred shares delivered referring to the judicial process of expansion plan (6)	2	2
Effects of the acquisition of Terra Networks by TData (7)	(59,029)	(59,029)
Effects of the acquisition of TIS by Terra Networks (8)	(48,135)	(48,135)
Effects of the acquisition and sale of CyberCo Brasil (9)	39,521	—
Other	76	76
Total	1,229,730	1,190,209

(1)It referes the excess of the value in the issue or capitalization, in relation to the basic value of the share on the issue date.

(2)The cancellation of 2,332,686 shares issued by the Company, held in treasury, approved at the Special Shareholders' Meeting held on March 12, 2015.

(3)The value refers direct costs (net of taxes) of Company capital that increased on April 30,2015, arising from the Primary Offering of Shares.

(4)The value refers the difference between the economic values that comes from the merger of shares owned by GVTPart, issued on the transaction closing date.

(5)Regarding the effects of the acquisition of shares of non-controlling shareholders that, with the adoption of IFRS 10, 35 and 36. It would be recorded in equity when there is no change in the shareholding control.

(6)It refers about the effects of write-offs due to the transfer of 62 preferred shares in treasury to outstanding shares, for compliance with judicial process decisions in which the Company is involved regarding rights to the complementary receipt of shares calculated in relation to network expansion plans after 1996.

(7)The effects refer the acquisition of Terra Networks by TData, related to the difference between the consideration given in exchange for the equity interest obtained and the value of the net assets acquired.

(8)The effects refer the acquisition of TIS by Terra Networks, related to the difference between the consideration given in exchange for the equity interest obtained and the value of the net assets acquired (Note 1 c).

(9)Refers to the effects on the Company and on a subsidiary, due to the acquisition and sale of CyberCo Brasil, referring to the difference between the consideration received in exchange for the alienated shareholding (Note 1.c).

Schedule of income reserves

		Expansion and
		Modernization
	Legal reserve	Reserve	Tax incentives	Total
Balance on 12.31.18	2,584,757	1,700,000	39,413	4,324,170
Reversal of reserves	—	(1,700,000)	—	(1,700,000)
Recording of reserves	250,051	600,000	18,166	868,217
Balance on 12.31.19	2,834,808	600,000	57,579	3,492,387
Reversal of reserves	—	(600,000)	—	(600,000)
Recording of reserves	238,526	—	18,766	257,292
Balance on 12.31.20	3,073,334	—	76,345	3,149,679

Schedule of calculation of dividends and interest on equity

	2020	2019
Net income for the year	4,770,527	5,001,014
Allocation to legal reserve	(238,526)	(250,051)
(-) Tax incentives - not distributable	(18,766)	(18,166)
Adjusted net income	4,513,235	4,732,797
Dividend and IOE distributed for the year:	(3,830,000)	(3,588,000)
Interest on equity (gross)	(2,630,000)	(2,588,000)
Interim dividends	(1,200,000)	(1,000,000)
Balance of unallocated net income	683,235	1,144,797
(+) Reversal special reserve for modernization and expansion	600,000	1,700,000
(+) Unclaimed dividends and interest on equity	99,788	82,898
(+-) Actuarial gains (losses) recognized and effect of limitation of surplus plan assets, net of taxes and other changes	204,495	(132,120)
Income available to be distributed	1,587,518	2,795,575
Proposal for Distributions:
Special reserve for modernization and expansion	—	600,000
Additional proposed dividends	1,587,518	2,195,575
Proposed additional dividends - Net income for the year	987,518	495,575
Proposed additional dividends - Based on prior year's net income, referring to the reversal of the special reserve for expansion and modernization	600,000	1,700,000
Total	1,587,518	2,795,575
Mandatory minimum dividend - 25% of adjusted net income	1,128,309	1,183,199

Schedule of proposed for deliberation per share

Total proposed for deliberation - per share	2020	2019
Common shares	0.940376	1.219339
Preferred shares	—	1.341273

Schedule of allocation of interim dividends and interest on equity

2020

	Dates			Gross Amount			Net Value			Amount per Share, Net
			Beginning of
Nature	Approval	Credit	Payment	Common	Preferred	Total	Common	Preferred	Total	Common	Preferred
IOE	02/14/20	02/28/20	Until 12/31/21	85,373	184,627	270,000	72,567	156,933	229,500	0.12745554999	0.14020110499
IOE	03/19/20	03/31/20	Until 12/31/21	47,430	102,570	150,000	40,315	87,185	127,500	0.07080863888	0.07788950277
IOE	06/17/20	06/30/20	Until 12/31/21	284,578	615,422	900,000	241,891	523,109	765,000	0.42485183332	0.46733701665
IOE	09/17/20	09/28/20	Until 12/31/21	205,528	444,472	650,000	174,699	377,801	552,500	0.30683743517	0.33752117869
IOE	11/16/20	11/27/20	Until 12/31/21	400,000	—	400,000	340,000	—	340,000	0.20136681027	—
IOE	12/15/20	12/28/20	Until 12/31/21	260,000	—	260,000	221,000	—	221,000	0.13091066301	—
Dividends	12/15/20	12/28/20	Until 12/31/21	1,200,000	—	1,200,000	1,200,000	—	1,200,000	0.71082712946	—
Total				2,482,909	1,347,091	3,830,000	2,290,472	1,145,028	3,435,500

2019

	Dates			Gross Amount			Net Value			Amount per Share
			Beginning of
Nature	Approval	Credit	Payment	Common	Preferred	Total	Common	Preferred	Total	Common	Preferred
IOE	02/15/19	02/28/19	08/18/20	221,338	478,662	700,000	188,137	406,863	595,000	0.33044031480	0.36348434628
IOE	04/17/19	04/30/19	08/18/20	180,233	389,767	570,000	153,198	331,302	484,500	0.26907282777	0.29598011054
IOE	06/17/19	06/28/19	08/18/20	306,079	661,921	968,000	260,167	562,633	822,800	0.45695174961	0.50264692458
IOE	12/19/19	12/30/19	08/18/20	110,669	239,331	350,000	94,069	203,431	297,500	0.16522015740	0.18174217314
Dividends	12/19/19	12/30/19	08/18/20	316,198	683,802	1,000,000	316,198	683,802	1,000,000	0.55536187362	0.61089806098
Total				1,134,517	2,453,483	3,588,000	1,011,769	2,188,031	3,199,800

Schedule of changes in other comprehensive income

	Financial assets at		Currency translation
	fair value through other		effects - foreign
	comprehensive income	Derivative transactions	investments	Total
Balance on 12.31.18	(9,070)	336	37,959	29,225
Translation gains	—	—	1,859	1,859
Losses from future contracts	—	(336)	—	(336)
Losses on financial assets at fair value through other comprehensive income	(11)	—	—	(11)
Balance on 12.31.19	(9,081)	—	39,818	30,737
Translation gains	—	—	39,008	39,008
Losses from future contracts	—	(4,147)	—	(4,147)
Gains on financial assets at fair value through other comprehensive income	290	—	—	290
Balance on 12.31.20	(8,791)	(4,147)	78,826	65,888

Schedule of calculation of earnings per share

	2020	2019	2018
Net income for the year	4,770,527	5,001,014	8,928,258
Common shares	1,991,046	1,581,308	2,823,093
Preferred shares	2,779,481	3,419,706	6,105,165
Number of shares (thousands):	1,688,615	1,688,694	1,688,694
Weighted average number of outstanding common shares for the year	685,522	569,354	569,354
Weighted average number of outstanding preferred shares for the year	1,003,093	1,119,340	1,119,340
Basic and diluted earnings per share:	2.90	2.78	4.96
Common shares
Preferred shares	2.77	3.06	5.45

XML

NET OPERATING REVENUE (Tables)

12 Months Ended

Dec. 31, 2020

NET OPERATING REVENUE

Schedule of net operating revenue

	2020	2019	2018
Gross operating revenue	63,195,443	66,571,866	65,794,397
Services (1)	57,293,392	60,129,579	61,292,362
Sale of goods (2)	5,902,051	6,442,287	4,502,035
Deductions from gross operating revenue	(20,068,971)	(22,303,695)	(22,331,657)
Taxes	(13,022,712)	(13,894,361)	(14,559,915)
Services	(11,981,372)	(12,678,809)	(13,820,784)
Sale of goods	(1,041,340)	(1,215,552)	(739,131)
Discounts granted and return of goods	(7,046,259)	(8,409,334)	(7,771,742)
Services	(4,968,350)	(6,319,584)	(6,288,941)
Sale of goods	(2,077,909)	(2,089,750)	(1,482,801)
Net operating revenue	43,126,472	44,268,171	43,462,740
Services	40,343,670	41,131,186	41,182,637
Sale of Goods	2,782,802	3,136,985	2,280,103

(1)These include telephone services, use of interconnection network, data and SVA services, cable TV and other services.

(2)These include sale of goods (handsets, SIM cards and accessories) and equipment of “Vivo Tech”.

XML

OPERATING COSTS AND EXPENSES (Tables)

12 Months Ended

Dec. 31, 2020

OPERATING COSTS AND EXPENSES

Schedule of operating costs and expenses

	2020
			General and
	Cost of sales		administrative
	and services	Selling expenses	expenses	Total
Personnel (1)	(775,789)	(2,522,455)	(442,716)	(3,740,960)
Third-party services (2)	(7,120,850)	(5,888,370)	(1,078,582)	(14,087,802)
Rental, insurance, condominium and connection means (3)	(1,284,943)	(59,578)	(45,140)	(1,389,661)
Taxes, charges and contributions (4)	(1,690,171)	(32,517)	(47,428)	(1,770,116)
Estimated impairment losses on accounts receivable (Note 4)	—	(1,740,358)	—	(1,740,358)
Depreciation and amortization (5)	(8,865,855)	(1,495,229)	(866,414)	(11,227,498)
Cost of goods sold	(2,878,533)	—	—	(2,878,533)
Materials and other operating costs and expenses	(76,942)	(133,048)	(44,713)	(254,703)
Total	(22,693,083)	(11,871,555)	(2,524,993)	(37,089,631)

	2019
			General and
	Cost of sales		administrative
	and services	Selling expenses	expenses	Total
Personnel (1)	(758,780)	(2,568,363)	(430,409)	(3,757,552)
Third-party services (2)	(6,601,587)	(6,686,452)	(1,154,823)	(14,442,862)
Rental, insurance, condominium and connection means (3)	(1,388,217)	(78,401)	(57,359)	(1,523,977)
Taxes, charges and contributions (4)	(1,597,066)	(41,810)	(31,127)	(1,670,003)
Estimated impairment losses on accounts receivable (Note 4)	—	(1,682,348)	—	(1,682,348)
Depreciation and amortization (5)	(8,624,228)	(1,501,096)	(794,468)	(10,919,792)
Cost of goods sold	(3,156,964)	—	—	(3,156,964)
Materials and other operating costs and expenses	(32,105)	(142,752)	(29,910)	(204,767)
Total	(22,158,947)	(12,701,222)	(2,498,096)	(37,358,265)

	2018
			General and
	Cost of sales		administrative
	and services	Selling expenses	expenses	Total
Personnel (1)	(872,032)	(2,574,498)	(549,610)	(3,996,140)
Third-party services (2)	(6,656,924)	(6,989,006)	(1,237,527)	(14,883,457)
Rental, insurance, condominium and connection means (3)	(2,957,489)	(147,613)	(202,881)	(3,307,983)
Taxes, charges and contributions (4)	(1,594,836)	(30,703)	(36,122)	(1,661,661)
Estimated impairment losses on accounts receivable (Note 4)	—	(1,533,660)	—	(1,533,660)
Depreciation and amortization (5)	(6,487,909)	(1,352,638)	(528,076)	(8,368,623)
Cost of goods sold	(2,406,099)	—	—	(2,406,099)
Materials and other operating costs and expenses	(50,478)	(204,623)	(44,754)	(299,855)
Total	(21,025,767)	(12,832,741)	(2,598,970)	(36,457,478)

(1)Includes costs and expenses with fees, salaries, social charges and benefits, profit sharing, stock-based compensation plans, pension plans and other post-employment benefits, training, transportation, health and nutrition.

(2)Includes costs and expenses for interconnection and use of networks, advertising and publicity, plant maintenance, electricity, security, cleaning, TV content purchase, commercial brokerage and intermediation, partnerships, call center, back office, logistics and storage, preparation and posting of telephone bills, banking services, among others.

(3)Includes costs and expenses of infrastructure, real estate, equipment, vehicles, insurance and means of connection.

(4)Includes costs and expenses with FISTEL, FUST, FUNTTEL, liens for renewal of licenses and other taxes, fees and contributions.

(5)Includes the consolidated amounts of R$2,225,639,  R$1,939,401 and R$29,631 in the years ended December 31, 2020 2019 and 2018, respectively, related to the leases depreciation.

XML

OTHER OPERATING INCOME (EXPENSES) (Tables)

12 Months Ended

Dec. 31, 2020

OTHER OPERATING INCOME (EXPENSES)

Schedule of other operating income (expenses)

	2020	2019	2018
Recovered expenses and fines (1)	993,551	503,777	3,962,150
Provisions for labor, tax and civil contingencies (Note 19) (2)	(673,905)	(625,480)	(1,258,966)
Net gain (loss) on asset disposal/loss (3)	425,562	408,160	114,853
Other operating income (expenses)	(201,120)	17,561	(367,115)
Total	544,088	304,018	2,450,922
Other operating income	1,419,113	929,498	4,077,003
Other operating expenses	(875,025)	(625,480)	(1,626,081)
Total	544,088	304,018	2,450,922

(1) For the year ended December 31, 2020, includes tax credits amount to R$435,698, from the final court proceeding in favor of the Company, which recognized the right to exclude ICMS (VAT) from the basis of calculation of PIS and COFINS contributions for the periods from November 2001 to March 2016 and July 2002 to August 2003.

For the year ended December 31, 2018, includes tax credits amount to R$3,386,433, from the final court proceeding in favor of the Company, which recognized the right to exclude ICMS (VAT) from the basis of calculation of PIS and COFINS contributions for the periods from September 2003 to June 2017 and July 2004 to June 2013.

(2) For the year ended December 31, 2018, includes the write-off of judicial deposits in the amount of R$160,715.

(3) The cumulative 2020 amount includes a net gain of R$93,257, resulting from the agreement entered into by the Company on November 28, 2019, for the sale of 1,909 structures (rooftops and towers) owned by the Company to Telxius Torres Brasil Ltda. (Note 12).

XML

FINANCIAL INCOME (EXPENSES) (Tables)

12 Months Ended

Dec. 31, 2020

FINANCIAL INCOME (EXPENSES)

Schedule of financial income (expenses)

	2020	2019	2018
Financial Income
Interest income	177,236	272,158	246,083
Interest receivable (customers, taxes and other)	98,232	177,636	118,476
Gain on derivative transactions (Note 31)	181,162	315,351	305,996
Foreign exchange variations on loans and financing (Note 20)	—	5,140	32,326
Other income with foreign exchange and monetary variation (judicial deposits, taxes and others) (1)	780,663	209,447	3,341,211
Other financial income	114,237	153,138	68,548
Total	1,351,530	1,132,870	4,112,640
Financial Expenses
Loan, financing, debenture and leases charges (Note 20) (2)	(648,816)	(830,686)	(510,398)
Foreign exchange variation on loans and financing (Note 20)	—	(4,036)	(61,174)
Loss on derivative transactions (Note 31)	(179,128)	(263,388)	(295,208)
Interest payable (financial institutions, provisions, trade accounts payable, taxes and other)	(129,030)	(144,779)	(186,238)
Other expenses with foreign exchange and monetary variation (contingencies, suppliers, taxes and others)	(805,823)	(615,291)	(963,463)
IOF, Pis, Cofins and other financial expenses (3)	(162,162)	(94,831)	(269,006)
Total	(1,924,959)	(1,953,011)	(2,285,487)
Financial income (expenses), net	(573,429)	(820,141)	1,827,153

(1) For the year ended December 31, 2020, includes tax credits amounting to R$512,659, arising from the final court proceeding in favor of the Company and its subsidiary (TData), which recognized the right to exclude ICMS (VAT) from the basis of calculation of PIS and COFINS contributions for the periods from November 2001 to March 2016 and July 2002 to August 2003 (Note 8).

For the year ended December 31, 2018, includes tax credits amounting to R$2,926,247, arising from the final court proceeding in favor of the Company and its subsidiary (TData), which recognized the right to exclude ICMS (VAT) from the basis of calculation of PIS and COFINS contributions for the periods from September 2003 to June 2017 and July 2004 to June 2013.

(2) Includes the consolidated amounts of R$526,127,  R$457,985 and R$45,501 in the years ended December 31, 2020, 2019 and 2018, respectively, related to leases charges.

(3) Includes the amount of PIS and COFINS on the indexation for inflation credits in (1) above.

XML

BALANCES AND TRANSACTIONS WITH RELATED PARTIES (Tables)

12 Months Ended

Dec. 31, 2020

BALANCES AND TRANSACTIONS WITH RELATED PARTIES

Schedule of consolidated balances with the related parties

		Balance Sheet - Assets
		12.31.20			12.31.19
		Cash and cash	Accounts	Other	Cash and cash	Accounts
Companies	Type of transaction	equivalents	receivable	assets	equivalents	receivable	Other assets
Parent Companies
SP Telecomunicações Participações	d) / l) / p)	—	8	9,876	—	6	4,924
Telefónica Latinoamerica Holding	l)	—	—	19,188	—	—	40,105
Telefónica	l) / z)	—	—	4,796	—	10,873	2,555
		—	8	33,860	—	10,879	47,584
Other Group companies
Colombia Telecomunicaciones	k) / l)	—	151	—	—	159	520
Telefónica International Wholesale Services Brasil	a) / d) / l) / p)	—	3,113	221	—	1,961	69
T.O2 Germany GMBH CO. OHG	k)	—	330	—	—	1,688	—
Telefónica Venezolana	k) / l)	—	6,852	2,196	—	6,498	2,196
Telefônica Digital España	g) / l)	—	1,151	—	—	696	300
Telefônica Factoring do Brasil	a) / d) / s)	—	8,919	62	—	2,782	45
Telefónica International Wholesale Services II, S.L.	a) / j) / k)	—	54,249	—	—	58,490	—
Telefônica Serviços de Ensino	a) / d) / p)	—	130	24	—	153	14
Telefónica Moviles Argentina	j) / k)	—	5,883	—	—	5,145	—
Telefónica Moviles España	k)	—	1,783	—	—	1,536	—
Telefónica USA	j)	—	4,126	—	—	5,319	—
Telfisa Global BV	q)	47,313	—	—	59,657	—	—
Telxius Cable Brasil	a) / d) /  l) / p)	—	4,624	223	—	11,382	4,895
Telxius Torres Brasil	a) d) / p) / x)	—	960	9,164	—	5,429	6,611
Terra Networks Mexico, Terra Networks Peru e Terra Networks Argentina	g) / h)	—	5,617	—	—	5,598	—
Telefónica Cyber Tech Brasil	a) / d) / j) /p)	—	439	23,416	—	—	—
Outras	a) / d) / g) / h) / j) / k) / l) / p)	—	7,014	3,669	—	12,189	2,732
		47,313	105,341	38,975	59,657	119,025	17,382
Total		47,313	105,349	72,835	59,657	129,904	64,966

		Balance Sheet - Liabilities
		12.31.20		12.31.19
		Trade accounts	Other	Trade accounts	Other
		payable and	liabilities and	payable and	liabilities and
Companies	Type of transaction	other payables	leases	other payables	leases
Parent Companies
SP Telecomunicações Participações	y)	—	27,599	—	23,524
Telefónica	l) / m)	8,274	673	2,907	40
		8,274	28,272	2,907	23,564
Other Group companies
Colombia Telecomunicaciones	k)	157	—	816	—
Fundação Telefônica	l)	—	—	—	86
Media Networks Latin America S.A.C.	b)	5,660	—	9,245	—
Telefónica International Wholesale Services Brasil	f) / l)	52,161	318	44,835	318
T.O2 Germany GMBH CO. OHG	k)	769	—	5,000	—
Telefónica Venezolana	k)	6,038	—	6,044	—
Telefónica Compras Electrónica	v)	32,187	—	28,169	—
Telefônica Digital España	o)	115,899	—	68,015	—
Telefônica Factoring do Brasil	s)	—	1,551	—	4,057
Telefónica Global Technology	e)	30,535	—	28,854	—
Telefónica International Wholesale Services II, S.L.	f) / k)	80,254	—	66,976	—
Telefônica Serviços de Ensino	r)	4,480	—	8,373	—
Telefónica Moviles Argentina	k)	757	—	3,638	—
Telefónica Moviles España	k)	1,283	—	3,488	—
Telefónica USA	f)	12,688	269	16,015	267
Telxius Cable Brasil	f) / l)	18,937	1,572	47,168	1,572
Telxius Torres Brasil	l) / x)	74,655	1,393,898	30,018	480,589
Terra Networks Mexico, Terra Networks Peru and Terra Networks Argentina	h)	5,231	—	7,105	—
Telefónica Cyber Tech Brasil	aa)	15,131	—	—	—
Companhia AIX Participações	a) / u)	—	78,236	2,050	—
Outras		24,243	223	26,555	42
		481,065	1,476,067	402,364	486,931
Total		489,339	1,504,339	405,271	510,495
Current liabilities
Trade  accounts payable and other payables (Note 16)		489,339	—	405,271	—
Leases (Note 20)		—	346,291	—	55,920
Other liabilities (Note 22)		—	33,244	—	29,529
Non-current liabilities
Leases (Note 20)		—	1,124,217	—	424,461
Other liabilities (Note 22)		—	587	—	585

		Income statement
		2020			2019			2018
			Operating			Operating			Operating
			revenues			revenues			revenues
			(cost and			(cost and			(cost and
		Operating	other	Financial	Operating	other	Financial	Operating	other	Financial
Companies	Type of transaction	revenues	expenses)	result	revenues	expenses)	result	revenues	expenses)	result
Parent Companies
SP Telecomunicações Participações	d) / l) / p)	10	558	—	5	497	—	—	347	—
Telefónica Latinoamerica Holding	l)	—	19,181	7,217	—	18,309	851	—	16,466	9,077
Telefónica	l) / m)	—	(427,868)	(13,163)	—	(422,958)	(5,226)	—	(373,690)	(16,680)
		10	(408,129)	(5,946)	5	(404,152)	(4,375)	—	(356,877)	(7,603)
Other Group companies
Colombia Telecomunicaciones	k) / l)	110	306	118	111	321	(17)	250	(4,280)	(2,145)
Fundação Telefônica	t)	—	(9,998)	—	—	(11,971)	—	—	(12,223)	—
Telefónica International Wholesale Services Brasil	a) / d) / f) / l) / p)	5,586	(105,384)	—	757	(104,105)	(54)	2,006	(101,272)	—
Media Networks Latin America S.A.C.	b)	—	(28,471)	(246)	—	(41,023)	(596)	—	(34,791)	(1,007)
Telefônica Serviços de Ensino	a) / d) / p) / r)	877	(26,072)	—	1,085	(35,228)	—	1,158	(49,130)	—
T.O2 Germany GMBH CO. OHG	k)	32	3,565	823	(100)	489	1,845	148	(1,975)	—
Telefónica Venezolana	k)	—	—	—	—	—	—	—	(34,534)	—
Telefónica Compras Electrónica	v)	—	(33,919)	—	—	(30,814)	—	—	(124,537)	(813)
Telefônica Digital España	g) / l) / o)	366	(142,343)	(22,992)	299	(127,182)	(3,016)	2,416	212	2,601
Telefônica Factoring do Brasil	a) / d) / s)	7,674	252	(1,551)	2,418	239	(4,048)	—	(36,738)	(4,134)
Telefónica Global Technology	e)	—	(80,784)	(6,470)	—	(63,947)	388	1,568	(54,210)	—
Telefónica International Wholesale Services II, S.L.	a)/ f) / j) / k)	65,246	(88,730)	9,451	48,819	(75,693)	(4,128)	53,357	(64,036)	9,771
Telefónica Moviles Argentina	j) / k)	2,152	1,340	200	4,030	(3,437)	90	5,916	(3,437)	—
Telefónica Moviles España	k)	554	949	(62)	410	(1,737)	545	(209)	(4,166)	—
Telefónica USA	f) / j)	—	(17,186)	(436)	38	(19,793)	1,700	1,518	(19,441)	(539)
Telxius Cable Brasil	a) / d) / f) / l) / p)	12,066	(314,327)	(30,251)	13,585	(252,436)	(7,415)	49,777	(206,095)	(7,896)
Telxius Torres Brasil	a) / d) / p) / x)	8,902	1,178	(69,137)	3,652	756	(24,144)	3,218	(129,706)	—
Terra Networks Mexico, Terra Networks Peru and Terra Networks Argentina	h)	847	(8,428)	166	2,535	(5,639)	567	—	(2,794)	1,450
Telefónica Cyber Tech Brasil	a) / aa)/ d) / j) /p)	347	(15,544)	—	—	—	—	—	—	—
Companhia AIX Participações	a) / u)	28	—	(1,252)	38	(24,174)	—	75	(22,645)	—
Other	a) / c) / d) / e) /  f) / g) / h) / i) / j) / k) / l) / n) / o) / p) / q) / w)	3,075	(17,795)	1,494	6,860	(58,763)	588	4,840	(27,116)	(244)
		107,862	(881,391)	(120,145)	84,537	(854,137)	(37,695)	126,038	(932,914)	(2,956)
Total		107,872	(1,289,520)	(126,091)	84,542	(1,258,289)	(42,070)	126,038	(1,289,791)	(10,559)

XML

PENSION PLANS AND OTHER POST-EMPLOYMENT BENEFITS (Tables)

12 Months Ended

Dec. 31, 2020

PENSION PLANS AND OTHER POST-EMPLOYMENT BENEFITS

Schedule of plans sponsored by the Company and its subsidiaries and related benefit types

Plan	Type	Entity	Sponsor
PBS-A	Defined benefit (DB)	Sistel	Telefônica Brasil, jointly with other telecoms resulting from privatization of the Sistema Telebrás
PAMA / PCE	Defined benefit (DB)	Sistel	Telefônica Brasil, jointly with other telecoms resulting from privatization of the Sistema Telebrás
Healthcare - Law No. 9656/98	Defined benefit (DB)	Telefônica Brasil	Telefônica Brasil, Terra Networks, TGLog and TIS
CTB	Defined benefit (DB)	Telefônica Brasil	Telefônica Brasil
Telefônica BD	Defined benefit (DB)	VisãoPrev	Telefônica Brasil
VISÃO	Defined contribution (DC) / Hybrid	VisãoPrev	Telefônica Brasil, Terra Networks, TGLog and TIS

Schedule of reconciliation of net liabilities (assets)

	12.31.20			12.31.19
	Post-retirement	Post-retirement		Post-retirement	Post-retirement
	pension plans	health plans	Total	pension plans	health plans	Total
Present value of DB plan obligations	2,238,700	1,863,359	4,102,059	2,429,478	2,016,614	4,446,092
Fair value of plan assets	3,411,297	1,004,048	4,415,345	3,696,914	1,001,112	4,698,026
Net liabilities (assets)	(1,172,597)	859,311	(313,286)	(1,267,436)	1,015,502	(251,934)
Asset limitation	1,081,325	21,480	1,102,805	1,128,691	57,371	1,186,062
Current assets	(82,935)	—	(82,935)	(71,776)	—	(71,776)
Non-current assets	(82,127)	—	(82,127)	(149,163)	—	(149,163)
Current liabilities	6,475	15,680	22,155	6,937	18,620	25,557
Non-current liabilities	67,315	865,111	932,426	75,257	1,054,253	1,129,510

Summary of total expenses recognized in the income statement

	2020			2019			2018
	Post-	Post-		Post-	Post-		Post-	Post-
	retirement	retirement		retirement	retirement		retirement	retirement
	pension plans	health plans	Total	pension plans	health plans	Total	pension plans	health plans	Total
Current service cost	3,036	26,576	29,612	3,155	16,293	19,448	2,931	13,722	16,653
Net interest on net actuarial assets/liabilities	(10,385)	82,151	71,766	5,713	56,612	62,325	6,074	45,892	51,966
Total	(7,349)	108,727	101,378	8,868	72,905	81,773	9,005	59,614	68,619

Summary of amounts recognized in other comprehensive income (loss)

	2020			2019			2018
	Post-	Post-		Post-	Post-		Post-	Post-
	retirement	retirement		retirement	retirement		retirement	retirement
	pension plans	health plans	Total	pension plans	health plans	Total	pension plans	health plans	Total
Actuarial (losses) gains	114,556	(256,010)	(141,454)	(188,889)	412,416	223,527	(186,170)	184,527	(1,643)
Asset limitation effect	(128,320)	(40,137)	(168,457)	(24,297)	2,430	(21,867)	188,259	(93,125)	95,134
Total	(13,764)	(296,147)	(309,911)	(213,186)	414,846	201,660	2,089	91,402	93,491

Schedule of changes in amount net of liability (asset) of defined benefit, net

	12.31.20			12.31.19
	Post-retirement	Post-retirement		Post-retirement	Post-retirement
	pension plans	health plans	Total	pension plans	health plans	Total
Net defined benefit liability (asset) at the beginning of the year	(138,745)	1,072,873	934,128	68,368	600,113	668,481
Business combinations	—	—	—	—	1,994	1,994
Expenses	(7,349)	108,727	101,378	8,868	72,905	81,773
Sponsor contributions	(8,229)	(4,662)	(12,891)	(8,776)	(16,985)	(25,761)
Amounts recognized in OCI	(13,764)	(296,147)	(309,911)	(213,186)	414,846	201,660
Distribution of reserves	76,815	—	76,815	5,981	—	5,981
Net defined benefit liability (asset) at the end of the year	(91,272)	880,791	789,519	(138,745)	1,072,873	934,128
Actuarial assets per balance sheet	(165,062)	—	(165,062)	(220,939)	—	(220,939)
Actuarial liabilities per balance sheet	73,790	880,791	954,581	82,194	1,072,873	1,155,067

Schedule of results projected for 2020

	Post-retirement	Post-retirement
	pension plans	health plans	Total
Current service cost	2,183	21,361	23,544
Net interest on net defined benefit liability/asset	7,062	70,436	77,498
Total	9,245	91,797	101,042

Schedule of sponsoring company contributions projected for 2020

	Post-retirement	Post-retirement
	pension plans	health plans	Total
Sponsor contributions	1,670	6,475	8,145
Benefits paid directly by the sponsor	—	15,686	15,686
Total	1,670	22,161	23,831

Schedule of average weighted duration of defined benefit liability

	Post-retirement		Post-retirement
	pension plans		health plans
In 2020	7.9	years	16.3	years
In 2019	8.3	years	18.1	years

Schedule of actuarial assumptions

	12.31.20
	Post-retirement pension plans	Post-retirement health plans
Discount rate to present value of defined benefit liability	Visão: 6.4% / PBS-A: 7.4% /  Telefônica BD: 7.7% / CTB: 7.0%	PAMA and PCE: 7.7% / Law 9.656/98: 7.9%
Future salary growth rate	CTB and PBS-A: N/A / Visão telefônica: 4.8% / Visão Multi: 6.4% / Telefônica BD: 4.6%	N/A
Medical expense growth rate	N/A	6.6%
Nominal annual adjustment rate of pension benefits	3.5%	N/A
Medical service eligibility age	N/A	Female participants: 59 years Male participants: 63 years
Estimated retirement age	PBS-A, CTB and Telefônica BD: 57 years Visão: 60 years	Female participants: 59 years Male participants: 63 years
Mortality table for nondisabled individuals	PBS-A, CTB and Telefônica BD: AT-2000 Basic segregated by gender, down-rated by 10% Visão: AT-2000 Basic segregated by gender, down-rated by 50%	AT-2000 Basic segregated by gender, down-rated by 10%
Mortality table for disabled individuals	PBS-A, CTB and Telefônica BD: RP-2000 Disabled Male, down-rated by 60% Visão: N/A	PAMA and PCE: RP-2000 Disabled Male, down-rated by 40%  Law 9.656/98: RP-2000 Disabled Male, down-rated by 60%
Disability table	Telefônica BD: Light-Forte PBS-A and CTB: N/A Visão Telefônica: Álvaro Vindas, down-rated by 50%  Visão: Light-Fraca, down rated by 50%	Light-Forte
Turnover	PBS-A, CTB and Telefônica BD: N/A Visão: Turnover experience in VISÃO plans (2015 to 2017)	PAMA and PCE: N/A Law No. 9656/98: Turnover experience in VISÃO plans (2015 to 2017)

	12.31.19
	Post-retirement pension plans	Post-retirement health plans
Discount rate to present value of defined benefit liability	Visão: 6.6% / PBS-A and Telefônica BD: 7.2% / CTB: 7.0%	PAMA and PCE: 7.4% / Law 9.656/98: 7.5%
Future salary growth rate	CTB and PBS-A: N/A / Visão and Telefônica BD: 5.5%	N/A
Medical expense growth rate	N/A	6.9%
Nominal annual adjustment rate of pension benefits	3.8%	N/A
Medical service eligibility age	N/A	Female participants: 59 years Male participants: 63 years
Estimated retirement age	PBS-A, CTB and Telefônica BD: 57 years Visão: 60 years	Female participants: 59 years Male participants: 63 years
Mortality table for nondisabled individuals	PBS-A, CTB and Telefônica BD: AT-2000 Basic segregated by gender, down-rated by 10% Visão: AT-2000 Basic segregated by gender, down-rated by 50%	AT-2000 Basic segregated by gender, down-rated by 10%
Mortality table for disabled individuals	PBS-A, CTB and Telefônica BD: RP-2000 Disabled Female, down-rated by 40% Visão: N/A	RP-2000 Disabled Female, down-rated by 40%
Disability table	Telefônica BD: Light-Forte / PBS-A and CTB: N/A / Visão: Light-Fraca, down rated by 30%	Light-Forte
Turnover	PBS-A, CTB and Telefônica BD: N/A Visão: Turnover experience in VISÃO plans (2015 to 2017)	PAMA and PCE: N/A Law No. 9656/98: Turnover experience in VISÃO plans (2015 to 2017)

Schedule of impacts on the plans' defined benefit liabilities due to the new definition of the actuarial assumptions

	Post-retirement	Post-retirement
	pension plans	health plans	Total
Defined benefit liability, based on current actuarial assumptions	2,238,700	1,863,359	4,102,059
Defined benefit liability, based on prior-year actuarial assumptions	2,358,891	2,112,510	4,471,401
Difference from change in actuarial assumptions	(120,191)	(249,151)	(369,342)

Summary of allocation of plan assets

	12.31.20		12.31.19
	Post-retirement	Post-retirement	Post-retirement	Post-retirement
	pension plans	health plans	pension plans	health plans
Investments with market value quoted in active market:
Fixed income investments
National Treasury Note (NTN)	2,878,204	938,986	3,067,926	940,144
Treasury Financial Letter	183,744	65,062	270,676	60,968
Repurchase operations	171,534	—	172,895	—
Debentures	22,104	—	16,818	—
Treasury Financial Letter (LFT)	15,099	—	14,238	—
FIDC shares / Others	22,815	—	24,517	—
National Treasury Notes (LTN)	167	—	282	—
Variable income investments
Investments linked to funds and market indexes	5,678	—	6,265	—
Investments in other sectors	286	—	622	—
Real estate investments	90,325	—	100,701	—
Loans to participants	19,374	—	19,870	—
Structured and overseas investments	1,967	—	2,104	—
Total	3,411,297	1,004,048	3,696,914	1,001,112

Discount rate

PENSION PLANS AND OTHER POST-EMPLOYMENT BENEFITS

Schedule of sensitivity analysis for actuarial assumptions

	Post-retirement	Post-retirement
	pension plans	health plans	Total
Defined benefit liability, discounted to present value at current rate	2,238,700	1,863,359	4,102,059
Defined benefit liability, discounted to present value considering a rate increased by 0.5%	2,152,416	1,729,350	3,881,766
Defined benefit liability, discounted to present value considering a rate decreased by 0.5%	2,332,035	2,012,077	4,344,112

Rate of growth of medical costs

PENSION PLANS AND OTHER POST-EMPLOYMENT BENEFITS

Schedule of sensitivity analysis for actuarial assumptions

	Post-retirement	Post-retirement
	pension plans	health plans	Total
Defined benefit liability, projected by the current medical cost growth rate	2,238,700	1,863,359	4,102,059
Defined benefit liability, projected by the current medical cost growth considering a rate increased by 1%	2,238,700	2,176,479	4,415,179
Defined benefit liability, projected by the current medical cost growth considering a rate decreased by 1%	2,238,700	1,611,501	3,850,201

Defined benefit liability

PENSION PLANS AND OTHER POST-EMPLOYMENT BENEFITS

Schedule of changes in amount net of liability (asset) of defined benefit, net

	12.31.20			12.31.19
	Post-retirement	Post-retirement		Post-retirement	Post-retirement
	pension plans	health plans	Total	pension plans	health plans	Total
Defined benefit liability at the beginning of the year	2,429,478	2,016,614	4,446,092	2,011,355	1,313,157	3,324,512
Liability assumed after acquisition of company	—	—	0	—	1,994	1,994
Current service costs	3,036	26,576	29,612	3,155	16,293	19,448
Interest on actuarial liabilities	167,991	150,510	318,501	175,695	121,088	296,783
Benefits paid	(171,177)	(48,101)	(219,278)	(165,929)	(53,724)	(219,653)
Member contributions paid	346	—	346	323	—	323
Actuarial losses (gains) adjusted by experience	(70,783)	(33,088)	(103,871)	93,699	226,928	320,627
Actuarial losses (gains) adjusted by demographic assumptions	(8,378)	(52,071)	(60,449)	—	(44,249)	(44,249)
Actuarial losses (gains) adjusted by financial assumptions	(111,813)	(197,081)	(308,894)	311,180	435,127	746,307
Defined benefit liability at the end of the year	2,238,700	1,863,359	4,102,059	2,429,478	2,016,614	4,446,092

Fair value of plan assets

PENSION PLANS AND OTHER POST-EMPLOYMENT BENEFITS

Schedule of changes in amount net of liability (asset) of defined benefit, net

	12.31.20			12.31.19
	Post-retirement	Post-retirement		Post-retirement	Post-retirement
	pension plans	health plans	Total	pension plans	health plans	Total
Fair value of plan assets at the beginning of the year	3,696,914	1,001,112	4,698,026	2,999,669	763,325	3,762,994
Benefits paid	(164,587)	(43,477)	(208,064)	(159,001)	(36,774)	(195,775)
Participants contributions paid	346	—	346	323	—	323
Sponsor contributions paid	1,638	38	1,676	1,848	35	1,883
Interest income on plan assets	259,331	72,604	331,935	266,287	69,137	335,424
Return on plan assets excluding interest income	(305,530)	(26,229)	(331,759)	593,769	205,389	799,158
Distribution of reserves	(76,815)	—	(76,815)	(5,981)	—	(5,981)
Fair value of plan assets at the end of the year	3,411,297	1,004,048	4,415,345	3,696,914	1,001,112	4,698,026

Asset Limitation

PENSION PLANS AND OTHER POST-EMPLOYMENT BENEFITS

Schedule of changes in amount net of liability (asset) of defined benefit, net

	12.31.20			12.31.19
	Post-retirement	Post-retirement		Post-retirement	Post-retirement
	pension plans	health plans	Total	pension plans	health plans	Total
Asset Limitation at the beginning of the year	1,128,691	57,371	1,186,062	1,056,682	50,281	1,106,963
Interest on the asset limitation	80,954	4,246	85,200	96,306	4,661	100,967
Changes in the assets limitation, except interest	(128,320)	(40,137)	(168,457)	(24,297)	2,429	(21,868)
Asset Limitation at the end of the year	1,081,325	21,480	1,102,805	1,128,691	57,371	1,186,062

XML

FINANCIAL INSTRUMENTS AND RISK AND CAPITAL MANAGEMENT (Tables)

12 Months Ended

Dec. 31, 2020

FINANCIAL INSTRUMENTS AND RISK AND CAPITAL MANAGEMENT

Schedule of consolidated derivatives financial instruments that are registered with B3 and classified as swaps and that do not require margin deposits

			Accumulated effects from fair value
	Notional Value		Amount receivable (payable)
Description	12.31.20	12.31.19	12.31.20	12.31.19
Assets position	411,650	515,261	69,416	72,163
Foreign Currency	316,322	72,790	1,265	—
US$  (1)	97,753	72,790	306	—
EUR  (1)	91,863	—	888	—
NDF US$  (3)	126,706	—	71	—
Floating rate	44,560	369,491	127	1,818
CDI (1)	44,560	369,491	127	1,818
Inflation rates	50,768	72,980	68,024	70,345
IPCA (2)	50,768	72,980	68,024	70,345
Liabilities position	(411,650)	(515,261)	(74,980)	(56,133)
Floating rate	(240,384)	(145,770)	(67,609)	(56,133)
CDI (1) (2)	(240,384)	(145,770)	(67,609)	(56,133)
Fixed rate	(126,706)	—	(6,662)	—
NDF US$ (3)	(126,706)	—	(6,662)	—
Foreign Currency	(44,560)	(369,491)	(709)	—
US$  (1)	(44,560)	(365,161)	(709)	—
EUR (1)	—	(4,330)	—	—
	Assets position		69,416	72,163
	Current		5,902	19,282
	Non-current		63,514	52,881
	Liabilities position		(74,980)	(56,133)
	Current		(8,864)	(1,921)
	Non-current		(66,116)	(54,212)
	Amounts receivable, net		(5,564)	16,030

(1)Foreign currency swaps (Euro and CDI x Euro) (R$92,924)) and (US$ and CDI x US$) (R$51,545) - maturing through February 19, 2021 to hedge currency risk affecting net amounts payable (carrying amount R$92,928 in Euros and LIBOR) and receivables (carrying amount R$51,545 in US$).

(2)IPCA x CDI swaps (R$246,816) - maturing in 2033 to hedge risk of change pegged to IPCA (carrying amount R$276,167).

(3)NDF US$ x R$ (R$119,838) - forward operations contracted with maturity up to June 11, 2021, with the objective of protecting against risks of exchange rate variations in service contracts (book value of R$119,838in dollars).

Schedule of breakdown of swaps maturing after December 31, 2019

							Amount
	Maturing in						receivable
						2026	(payable) on
Swap contract	2021	2022	2023	2024	2025	onwards	12.31.20
Foreign currency x CDI	(299)	—	—	—	—	—	(299)
CDI x Foreign Currency	(582)	—	—	—	—	—	(582)
IPCA x CDI	4,510	5,015	5,160	5,137	5,076	(22,990)	1,908
NDF US$ x Fixed rate	(6,591)	—	—	—	—	—	(6,591)
Total	(2,962)	5,015	5,160	5,137	5,076	(22,990)	(5,564)

Schedule of sensitivity analysis net exposure

Transaction	Risk	Probable	25% depreciation	50% depreciation
Hedge (assets position)	Derivatives (depreciation risk EUR)	92,924	116,155	139,386
Payables in EUR	Debt (appreciation risk EUR)	(94,517)	(118,146)	(141,777)
Receivables in EUR	Debt (depreciation risk EUR)	1,549	1,937	2,324
	Net Exposure	(44)	(54)	(67)
Hedge (assets position)	Derivatives (depreciation risk US$)	51,545	64,431	77,318
Payables in US$	Debt (appreciation risk US$)	(284,102)	(355,127)	(426,153)
Receivables in US$	Debt (depreciation risk US$)	232,557	290,696	348,835
	Net Exposure	—	—	—
Hedge (assets position)	Derivatives (risk of decrease in IPCA)	246,815	233,184	220,868
Debt in IPCA	Debt (risk of increase in IPCA)	(276,167)	(262,536)	(250,220)
	Net Exposure	(29,352)	(29,352)	(29,352)
Hedge (assets position)	Derivatives (depreciation risk US$)	119,838	149,798	179,757
OPex in US$	OPex (appreciation risk US$)	(119,838)	(149,798)	(179,757)
	Net Exposure	—	—	—
Hedge (CDI position)
Hedge US$ and EUR (liabilities position)	Derivatives (risk of decrease in CDI)	205,654	205,655	205,656
Hedge IPCA (liabilities position)	Derivatives (risk of increase in CDI)	(246,816)	(233,184)	(220,868)
	Net Exposure	(41,162)	(27,529)	(15,212)
Total net exposure in each scenario		(70,558)	(56,935)	(44,631)
Net effect on changes in current fair value		—	13,623	25,927

Schedule of sensitivity analysis assumptions

Risk Variable	Probable		25% depreciation		50% depreciation
US$	5.1967		6.4959		7.7951
EUR	6.3756		7.9695		9.5634
IPCA	4.31	%	5.39	%	6.47	%
IGPM	23.14	%	28.93	%	34.71	%
CDI	1.90	%	2.38	%	2.85	%

Schedule of composition of financial assets and liabilities

		Fair value	Book value		Fair value
	Classification by category	hierarchy	12.31.20	12.31.19	12.31.20	12.31.19
Financial Assets
Current
Cash and cash equivalents  (Note 3)	Amortized cost		5,762,081	3,393,377	5,762,081	3,393,377
Trade accounts receivable (Note 4)	Amortized cost		8,182,667	8,719,497	8,182,667	8,719,497
Derivative transactions (Note 31)	Measured at fair value through OCI	Level 2	5,902	19,282	5,902	19,282
Non-current
Investments pledged as collateral	Amortized cost		46,280	63,766	46,280	63,766
Trade accounts receivable (Note 4)	Amortized cost		379,898	440,453	379,898	440,453
Derivative transactions (Note 31)	Measured at fair value through OCI	Level 2	63,514	52,881	63,514	52,881
Total financial assets			14,440,342	12,689,256	14,440,342	12,689,256
Financial Liabilities
Current
Trade accounts payable, net (Note 16)	Amortized cost		6,613,004	6,871,799	6,613,004	6,871,799
Loans, financing and leases (Note 20)	Amortized cost		375,756	1,020,061	375,772	1,021,810
Loans, financing and leases (Note 20)	Measured at fair value through profit or loss	Level 2	2,262,048	2,029,246	2,262,048	2,029,246
Debentures (Note 20)	Amortized cost		1,044,668	1,077,183	1,030,528	1,104,539
Derivative transactions (Note 31)	Measured at fair value through profit or loss	Level 2	8,864	1,921	8,864	1,921
Non-current
Loans, financing and leases (Note 20)	Amortized cost		51	25,093	49	24,106
Loans, financing and leases (Note 20)	Measured at fair value through profit or loss	Level 2	8,556,735	7,161,875	8,556,735	7,161,875
Contingent consideration (Note 20)	Measured at fair value through profit or loss	Level 2	—	484,048	—	484,048
Debentures (Note 20)	Amortized cost		999,908	2,027,167	986,662	1,948,705
Derivative transactions (Note 31)	Measured at fair value through OCI	Level 2	66,116	54,212	66,116	54,212
Total financial liabilities			19,927,150	20,752,605	19,899,778	20,702,261

Schedule of Company's ratio of consolidated debt to shareholders' equity

	12.31.20		12.31.19
Cash and cash equivalents	5,762,081		3,393,377
Accounts receivable - FIDC	1,975		—
Loans, financing, debentures, leases and contingent consideration	(13,239,166)		(13,824,673)
Derivative transactions, net	(5,564)		16,030
Short-term investment pledged as collateral	—		13,212
Asset guarantor of contingent consideration	—		484,048
Net debt	7,480,674		9,918,006
Net equity	69,556,764		70,455,578
Net debt-to-equity ratio	10.75	%	14.08	%

Summary the maturity profile of our consolidated financial liabilities as set forth in loan agreements

On 12.31.20	2021	2022	2023	2024	2025	2026 onwards	Total
Trade accounts payable	6,613,004	—	—	—	—	—	6,613,004
Loans and financing	63	48	4	—	—	—	115
Leases	2,262,043	2,270,112	2,118,655	1,551,657	925,972	1,690,339	10,818,778
Debentures	1,062,237	1,021,647	—	—	—	—	2,083,884
Derivative transactions	8,864	—	—	—	—	66,116	74,980
Total	9,946,211	3,291,807	2,118,659	1,551,657	925,972	1,756,455	19,590,761

XML

ADDITIONAL INFORMATION ON CASH FLOWS (Tables)

12 Months Ended

Dec. 31, 2020

ADDITIONAL INFORMATION ON CASH FLOWS

Schedule of reconciliation of cash flow financing activities

		Cash flows	Cash flows
		from financing	from operating
		activities	activities	Financing activities not involving cash and cash equivalents
				Financial		Additions	Interim and
				charges and	Costs	of leases	unclaimed
				foreign	and	and	dividends
	Balance on	Write-offs	Write-offs	exchange	expenses	supplier	and interest	Balance on
	12.31.19	(payments)	(payments)	variation	incurred	financing	on equity	12.31.20
Interim dividends and interest on equity	3,587,417	(5,259,367)	—	—	—	—	5,537,948	3,865,998
Loans and financing	1,045,124	(1,018,674)	(49,675)	28,499	—	370,538	—	375,812
Leases	9,191,151	(2,909,214)	(502,537)	210,836	—	4,828,542	—	10,818,778
Debentures	3,104,350	(1,025,583)	(123,202)	89,011	—	—	—	2,044,576
Derivative financial instruments	(16,030)	15,186	—	6,408	—	—	—	5,564
Contingent Consideration	484,048	(344,217)	(105,678)	6,555	(40,708)	—	—	—
Total	17,396,060	(10,541,869)	(781,092)	341,309	(40,708)	5,199,080	5,537,948	17,110,728

		Cash flows	Cash flows
		from financing	from operating
		activities	activities	Financing activities not involving cash and cash equivalents
				Financial			Interim and
				charges and	Additions of		unclaimed
				foreign	leases and	Initial	dividends
	Balance on	Write-offs	Write-offs	exchange	supplier	adoption	and interest	Balance on
	12.31.18	(payments)	(payments)	variation	financing	IFRS 16	on equity	12.31.19
Interim dividends and interest on equity	4,172,916	(6,176,842)	—	—	—	—	5,591,343	3,587,417
Loans and financing	2,106,814	(2,070,665)	(129,974)	171,636	967,313	—	—	1,045,124
Leases	393,027	(1,559,165)	(415,496)	350,772	1,803,941	8,618,072	—	9,191,151
Debentures	3,173,910	(66,830)	(201,516)	198,786	—	—	—	3,104,350
Derivative financial instruments	(56,150)	91,543	26,234	(77,657)	—	—	—	(16,030)
Contingent Consideration	465,686	—	—	18,362	—	—	—	484,048
Total	10,256,203	(9,781,959)	(720,752)	661,899	2,771,254	8,618,072	5,591,343	17,396,060

Schedule of financing transactions that do not involve cash

	12.31.20	12.31.19
Initial adoption IFRS 16 on 01.01.19	—	8,618,072
Financing transactions with suppliers	370,538	967,313
Acquisition of assets through leases	4,828,542	1,803,941
Total	5,199,080	11,389,326

XML

CONTARCTUAL COMMITMENTS (Tables)

12 Months Ended

Dec. 31, 2020

CONTRACTUAL COMMITMENTS

Schedule Of Maturity Analysis Contractual Commitments

Year
2021	1,429,424
2022	1,319,222
2023	1,296,793
2024	540,585
2025	388,329
2026 onwards	873,058
Total	5,847,411

XML

OPERATIONS (Details)					12 Months Ended
	Dec. 31, 2020 BRL (R$) item	Dec. 01, 2020 BRL (R$) item	Nov. 01, 2020 BRL (R$)	Sep. 14, 2020 BRL (R$) item	Dec. 31, 2020 BRL (R$)	Dec. 31, 2019	Oct. 28, 2020 BRL (R$)	Sep. 30, 2020 BRL (R$)	Sep. 26, 2019 BRL (R$)
OPERATIONS
Periodicity of payment of fee payable in an service concession agreement term					2 years
Agreement term					20 years
Percentage of service concession fees based on prior year STFC revenue	2.00%				2.00%
Periodicity of payment for the usage of frequencies associated with SMP after the first renewal of these agreements					2 years
Percentage of service concession fees based on prior year SMP revenues	2.00%				2.00%
Percentage of service concession fees based on prior year SMP revenues in fifteen year of agreement term	1.00%				1.00%
Agreement extension term					15 years
Settlement for authorization through payment as a percent of amount due					10.00%
Settlement for authorization through investment as a percent of amount due					90.00%
Telefonica
OPERATIONS
Percentage of ownership interest held					73.58%	73.58%
Vivo Money Credit Rights Investment Fund ("Vivo Money") | Junior Subordinated Quotas
OPERATIONS
Number of quotas issued | item	4,000	2,000		2,000
Initial Unit Face Value Of Quotas	R$ 1,000.00	R$ 1,000.00		R$ 1,000.00	R$ 1,000.00
Contribution made by the company		R$ 2,000
Terra Networks
OPERATIONS
Total consideration for acquisition									R$ 70,844,000
Telefnica Cibersegurana e Tecnologia do Brasil Ltda ("CyberCo Brasil")
OPERATIONS
Total consideration for acquisition								R$ 10,000.00
Net worth								R$ 500.00
Capital contribution made							R$ 7,000,000
Other tangible or intangible assets transferred			R$ 19,008,000
Telefnica Cibersegurana e Tecnologia do Brasil Ltda, discontinued operations
OPERATIONS
Proceeds from disposal of shares			116,411,000
Net gain on disposal of shares			R$ 39,521,000

XML

BASIS OF PREPARATION AND PRESENTATION OF FINANCIAL STATEMENTS (Details)	12 Months Ended
	Dec. 31, 2020	Dec. 31, 2019
Alianca Atlantica Holding B.V. (Alianca)
Equity interests in subsidiaries
Ownership interest in jointly-controlled subsidiary (as a percent)	50.00%	50.00%
Companhia AIX de Participacoes
Equity interests in subsidiaries
Ownership interest in jointly-controlled subsidiary (as a percent)	50.00%	50.00%
Companhia ACT de Participacoes (ACT)
Equity interests in subsidiaries
Ownership interest in jointly-controlled subsidiary (as a percent)	50.00%	50.00%
Terra Networks
Equity interests in subsidiaries
Ownership interest in wholly-owned subsidiary (as a percent)	100.00%	100.00%
Vivo Money Credit Rights Investment Fund ("Vivo Money")
Equity interests in subsidiaries
Ownership interest in wholly-owned subsidiary (as a percent)	100.00%
TGLog
Equity interests in subsidiaries
Ownership interest in wholly-owned subsidiary (as a percent)	99.99%	99.99%
POP Internet Ltda ("POP")
Equity interests in subsidiaries
Ownership interest in wholly-owned subsidiary (as a percent)	99.99%	99.99%

XML

CASH AND CASH EQUIVALENTS (Details) - BRL (R$) R$ in Thousands	Dec. 31, 2020	Dec. 31, 2019	Dec. 31, 2018	Dec. 31, 2017
CASH AND CASH EQUIVALENTS
Cash and banks (1)	R$ 191,975	R$ 250,168
Short-term investments (2)	5,570,106	3,143,209
Total	R$ 5,762,081	R$ 3,393,377	R$ 3,381,328	R$ 4,050,338

XML

TRADE ACCOUNTS RECEIVABLE (Details) - BRL (R$) R$ in Thousands	Dec. 31, 2020	Dec. 31, 2019
Trade accounts receivables
Billed amounts	R$ 7,611,858	R$ 7,018,601
Unbilled amounts	2,191,331	2,866,196
Interconnection amounts	724,630	790,046
Vivo Money FIDC	1,975
Amounts from related parties (Note 28)	105,349	129,904
Trade accounts receivable	8,562,565	9,159,950
Current	8,182,667	8,719,497
Noncurrent	379,898	440,453
Gross carrying amount
Trade accounts receivables
Trade accounts receivable	10,635,143	10,804,747
Estimated losses for impairment or obsolescence
Trade accounts receivables
Trade accounts receivable	R$ (2,072,578)	R$ (1,644,797)

XML

TRADE ACCOUNTS RECEIVABLE - Non current trade accounts receivable (Details) - BRL (R$) R$ in Thousands	12 Months Ended
	Dec. 31, 2020	Dec. 31, 2019
TRADE ACCOUNTS RECEIVABLE
Present value of accounts receivable	R$ 12,122	R$ 10,226
Maturity schedule	5 years
Discounted unguaranteed residual value of assets subject to finance lease	R$ 0
Contingent Rents Recognised As Income	0
Soluciona TI
TRADE ACCOUNTS RECEIVABLE
Discounted unguaranteed residual value of assets subject to finance lease	0
Contingent Rents Recognised As Income	0
Trade accounts receivable | Soluciona TI
TRADE ACCOUNTS RECEIVABLE
B2B merchandise resale portion - 24 months	159,075	182,286
Vivo TECH product	348,086	317,988
Nominal amount receivable	566,974	589,921
Deferred financial income	(34,504)	(48,086)
Present value of accounts receivable	532,470	541,835
Estimated impairment losses	(152,572)	(101,382)
Present value of accounts receivable	379,898	440,453
Trade accounts receivable | OI group | Soluciona TI
TRADE ACCOUNTS RECEIVABLE
Portion of accounts receivable from the OI group - Bankruptcy process of companies	R$ 59,813	R$ 89,647

XML

TRADE ACCOUNTS RECEIVABLE, NET - Aging list of trade accounts receivable (Details) - BRL (R$) R$ in Thousands	Dec. 31, 2020	Dec. 31, 2019
Aging list of trade accounts receivable
Trade accounts receivable	R$ 8,562,565	R$ 9,159,950
Falling due (1)
Aging list of trade accounts receivable
Trade accounts receivable	6,798,420	6,862,054
Overdue - 1 to 30 days
Aging list of trade accounts receivable
Trade accounts receivable	870,551	966,986
Overdue - 31 to 60 days
Aging list of trade accounts receivable
Trade accounts receivable	228,074	306,956
Overdue - 61 to 90 days
Aging list of trade accounts receivable
Trade accounts receivable	142,788	192,622
Overdue - 91 to 120 days
Aging list of trade accounts receivable
Trade accounts receivable	157,105	250,029
Overdue - over 120 days
Aging list of trade accounts receivable
Trade accounts receivable	R$ 365,627	R$ 581,303

XML

TRADE ACCOUNTS RECEIVABLE, NET - Changes in contractual assets (Details) - BRL (R$) R$ in Thousands	12 Months Ended
	Dec. 31, 2020	Dec. 31, 2019
TRADE ACCOUNTS RECEIVABLE
Balance at the beginning of period	R$ 223,314	R$ 162,025
Additions	444,284	546,397
Write-offs	(498,915)	(485,108)
Balance at the end of period	168,683	223,314
Gross carrying amount
TRADE ACCOUNTS RECEIVABLE
Balance at the beginning of period	269,508	195,733
Additions	444,284	558,883
Write-offs	(510,215)	(485,108)
Balance at the end of period	203,577	269,508
Provision for losses
TRADE ACCOUNTS RECEIVABLE
Balance at the beginning of period, Provision for losses	(46,194)	(33,708)
Additions, Provision for losses		(12,486)
Write-offs, Provision for losses	11,300
Balance at the end of period, Provision for losses	R$ (34,894)	R$ (46,194)

XML

TRADE ACCOUNTS RECEIVABLE, NET - Changes in losses for impairment (Details) - Trade accounts receivable - BRL (R$) R$ in Thousands	12 Months Ended
	Dec. 31, 2020	Dec. 31, 2019
Estimated impairment losses for accounts receivable roll forward
Balance at beginning	R$ (1,644,797)	R$ (1,498,134)
Supplement to estimated losses, net of resersal (Note 25)	(1,740,358)	(1,682,348)
Write-off	1,312,577	1,547,577
Business combinations (Note 1.c)		(11,892)
Balance at ending	R$ (2,072,578)	R$ (1,644,797)

XML

INVENTORIES (Details) - BRL (R$) R$ in Thousands	Dec. 31, 2020	Dec. 31, 2019
INVENTORIES
Total	R$ 633,100	R$ 578,003
Gross carrying amount
INVENTORIES
Materials for resale	590,706	539,822
Materials for consumption	37,156	41,584
Other inventories	35,109	24,115
Total	662,971	605,521
Estimated losses for impairment or obsolescence
INVENTORIES
Total	R$ (29,871)	R$ (27,518)

XML

PREPAID EXPENSES (Details) - BRL (R$) R$ in Thousands	12 Months Ended
	Dec. 31, 2020	Dec. 31, 2019
PREPAID EXPENSES
Incremental costs (costumers contracts)	R$ 480,909	R$ 330,919
Advertising and publicity	275,083	249,433
Rental	61,559	184,248
Software and networks maintenance	80,151	33,863
Financial charges	22,175	30,521
Personal		30,135
Insurance	15,503	20,459
Satellites and links (1)	102,851
Taxes and other	16,046	27,007
Total	1,054,277	906,585
Current	859,766	686,503
Non-current	R$ 194,511	R$ 220,082
Maximum duration for contracts signed for the provision of infrastructure, equipment and links for satellite communication	5 years

XML

INCOME AND SOCIAL CONTRIBUTION TAXES - Income and Social Contribution taxes recoverable (Details) - BRL (R$) R$ in Thousands	Dec. 31, 2020	Dec. 31, 2019
INCOME AND SOCIAL CONTRIBUTION TAXES
Income taxes recoverable	R$ 483,452	R$ 380,314
Social contribution taxes recoverable	35,825	31,281
Total	R$ 519,277	R$ 411,595

XML

INCOME AND SOCIAL CONTRIBUTION TAXES - Income and Social Contribution taxes payable (Details) - BRL (R$) R$ in Thousands	Dec. 31, 2020	Dec. 31, 2019
INCOME AND SOCIAL CONTRIBUTION TAXES
Income taxes payable	R$ 74,190	R$ 76,483
Social contribution taxes payable	23,755	16,614
Total	97,945	93,097
Current	1,693	6,585
Non-current	R$ 96,252	R$ 86,512

XML

INCOME AND SOCIAL CONTRIBUTION TAXES - Deferred taxes (Details) - BRL (R$) R$ in Thousands	12 Months Ended
	Dec. 31, 2020	Dec. 31, 2019	Dec. 31, 2018
DEFERRED TAXES AND TAXES RECOVERABLE
Balance at beginning	R$ (2,975,411)	R$ (1,752,855)
Income statement	(1,176,280)	(1,292,275)
Comprehensive income	(103,430)	69,719
Equity transactions	(39,521)	48,135	R$ (10)
Equity transactions	(20,778)
Balance at ending	(4,275,899)	(2,975,411)	(1,752,855)
Deferred tax assets	6,051,884	5,548,581	5,569,885
Deferred tax liabilities	(10,327,783)	(8,523,992)	(7,322,740)
Deferred tax assets of subsidiaries	138,641	171,042	230,097
Deferred tax liabilities	R$ (4,414,540)	R$ (3,146,453)	(1,982,952)
Percentage of tax bases limit used to offset tax losses	30.00%	30.00%
Deferred tax credits (income and social contribution tax losses) were not recognized in indirect subsidiaries	R$ 68,783	R$ 54,570
Income and social contribution taxes on tax losses
DEFERRED TAXES AND TAXES RECOVERABLE
Balance at beginning	1,479,836	1,428,476
Income statement	(17,338)	51,360
Balance at ending	1,462,498	1,479,836	1,428,476
Income and social contribution taxes on temporary differences
DEFERRED TAXES AND TAXES RECOVERABLE
Balance at beginning	(4,455,247)	(3,181,331)
Income statement	(1,158,942)	(1,343,635)
Comprehensive income	(103,430)	69,719
Equity transactions	(20,778)
Balance at ending	(5,738,397)	(4,455,247)	(3,181,331)
Provisions for legal, labor, tax civil and regulatory contingencies
DEFERRED TAXES AND TAXES RECOVERABLE
Balance at beginning	1,690,591	1,965,700
Income statement	101,826	(275,109)
Balance at ending	1,792,417	1,690,591	1,965,700
Trade accounts payable and other provisions
DEFERRED TAXES AND TAXES RECOVERABLE
Balance at beginning	531,341	571,734
Income statement	262,080	(40,393)
Balance at ending	793,421	531,341	571,734
Estimated losses on impairment of accounts receivable
DEFERRED TAXES AND TAXES RECOVERABLE
Balance at beginning	478,630	442,276
Income statement	114,300	36,354
Balance at ending	592,930	478,630	442,276
Customer portfolio and trademarks
DEFERRED TAXES AND TAXES RECOVERABLE
Balance at beginning	98,078	184,603
Income statement	(132,249)	(86,525)
Balance at ending	(34,171)	98,078	184,603
Estimated losses from modems and other P&E items
DEFERRED TAXES AND TAXES RECOVERABLE
Balance at beginning	182,999	176,130
Income statement	(9,343)	6,869
Balance at ending	173,656	182,999	176,130
Pension plans and other post-employment benefits
DEFERRED TAXES AND TAXES RECOVERABLE
Balance at beginning	387,507	226,221
Income statement	38,641	91,746
Comprehensive income	(105,416)	69,540
Balance at ending	320,732	387,507	226,221
Profit sharing
DEFERRED TAXES AND TAXES RECOVERABLE
Balance at beginning	119,994	129,689
Income statement	13,919	(9,695)
Balance at ending	133,913	119,994	129,689
Licenses
DEFERRED TAXES AND TAXES RECOVERABLE
Balance at beginning	(2,069,544)	(1,853,214)
Income statement	(216,330)	(216,330)
Balance at ending	(2,285,874)	(2,069,544)	(1,853,214)
Goodwill (Spanish e Navytree, Vivo Part. and GVTPart.)
DEFERRED TAXES AND TAXES RECOVERABLE
Balance at beginning	(5,603,708)	(4,600,940)
Income statement	(1,002,768)	(1,002,768)
Balance at ending	(6,606,476)	(5,603,708)	(4,600,940)
Property, plant and equipment of small value
DEFERRED TAXES AND TAXES RECOVERABLE
Balance at beginning	(288,451)	(395,606)
Income statement	(453,073)	107,155
Balance at ending	(741,524)	(288,451)	(395,606)
Technological Innovation Law
DEFERRED TAXES AND TAXES RECOVERABLE
Balance at beginning	(24,565)	(50,127)
Income statement	5,844	25,562
Balance at ending	(18,721)	(24,565)	(50,127)
Other temporary differences
DEFERRED TAXES AND TAXES RECOVERABLE
Balance at beginning	41,881	22,203
Income statement	118,211	19,499
Comprehensive income	1,986	179
Equity transactions	(20,778)
Balance at ending	R$ 141,300	R$ 41,881	R$ 22,203

XML

INCOME AND SOCIAL CONTRIBUTION TAXES - Projections (Details) - BRL (R$) R$ in Thousands	Dec. 31, 2020	Dec. 31, 2019	Dec. 31, 2018
DEFERRED TAXES AND TAXES RECOVERABLE
Total	R$ (4,275,899)	R$ (2,975,411)	R$ (1,752,855)
2021
DEFERRED TAXES AND TAXES RECOVERABLE
Total	2,080,481
2022
DEFERRED TAXES AND TAXES RECOVERABLE
Total	709,170
2023
DEFERRED TAXES AND TAXES RECOVERABLE
Total	505,837
2024
DEFERRED TAXES AND TAXES RECOVERABLE
Total	387,849
2025
DEFERRED TAXES AND TAXES RECOVERABLE
Total	32,811
2026 onwards
DEFERRED TAXES AND TAXES RECOVERABLE
Total	R$ (7,992,047)

XML

INCOME AND SOCIAL CONTRIBUTION TAXES - Reconciliation of income tax and social contribution expense (Details) R$ in Thousands	12 Months Ended
	Dec. 31, 2020 BRL (R$)	Dec. 31, 2019 BRL (R$)	Dec. 31, 2018 BRL (R$)
INCOME AND SOCIAL CONTRIBUTION TAXES
Statutory tax rate	34	34	34
Income tax rate	25.00%	25.00%	25.00%
Social contribution tax rate	9.00%	9.00%	9.00%
Income before taxes	R$ 6,008,234	R$ 6,394,535	R$ 11,277,490
Income and social contribution tax expenses, at the tax rate of 34%	(2,042,800)	(2,174,142)	(3,834,347)
Equity pickup (Note 11)	250	256	(1,988)
Unclaimed interest on equity	(16,699)	(13,825)	(14,426)
Non-deductible expenses, gifts, incentives	(84,988)	(84,487)	(76,671)
Tax benefit related to interest on equity allocated	894,200	879,920	1,547,000
Other (additions) exclusions	12,330	(1,243)	31,200
Tax debits	R$ (1,237,707)	R$ (1,393,521)	R$ (2,349,232)
Effective rate	20.6	21.8	20.8
Current income and social contribution taxes	R$ (61,427)	R$ (101,246)	R$ (832,485)
Deferred income and social contribution taxes	R$ (1,176,280)	R$ (1,292,275)	R$ (1,516,747)

XML

INCOME AND SOCIAL CONTRIBUTION TAXES - Tax litigation (Details) - BRL (R$) R$ in Thousands	Dec. 31, 2020	Dec. 31, 2019
Disclosure of temporary difference, unused tax losses and unused tax credits [line items]
Provision for tax litigation, filed by the Federal Revenue of Brazil ("RFB")	R$ 16,969,554	R$ 9,895,728
Income And Social Contribution Taxes Payable Non Current	R$ 96,252	R$ 86,512
Minimum
Disclosure of temporary difference, unused tax losses and unused tax credits [line items]
Probability of acceptance (as a percent)	50.00%
Maximum
Disclosure of temporary difference, unused tax losses and unused tax credits [line items]
Probability of acceptance (as a percent)	50.00%

XML

TAXES, CHARGES AND CONTRIBUTIONS RECOVERABLE (Details) R$ in Thousands	12 Months Ended
	Dec. 31, 2020 BRL (R$) lawsuit	Dec. 31, 2019 BRL (R$)
TAXES, CHARGES AND CONTRIBUTIONS RECOVERABLE
State VAT (ICMS) (1)	R$ 3,014,540	R$ 2,664,499
PIS and COFINS (2)	128,489	2,125,186
Withholding taxes and contributions (3)	87,134	142,940
Fistel, INSS, ISS and other taxes	106,454	84,935
Total	3,336,617	5,017,560
Current	2,512,293	4,176,362
Non-current	R$ 824,324	841,198
Tax credits offsetting period	48 months
Deferred tax credits from acquisition of property and equipment	R$ 541,941	537,209
Tax credits from PIS and COFINS		R$ 2,046,274
Number of in-progress lawsuits | lawsuit	2
Minimum
TAXES, CHARGES AND CONTRIBUTIONS RECOVERABLE
Contingent assets from in-progress lawsuits	R$ 1,768,000
Maximum
TAXES, CHARGES AND CONTRIBUTIONS RECOVERABLE
Contingent assets from in-progress lawsuits	R$ 1,944,000

XML

JUDICIAL DEPOSITS AND GARNISHMENTS - Judicial Deposits and garnishments (Details) - BRL (R$) R$ in Thousands	Dec. 31, 2020	Dec. 31, 2019
JUDICIAL DEPOSITS AND GARNISHMENTS
Tax	R$ 1,453,939	R$ 2,007,074
Civil	951,905	1,049,922
Labor	241,455	316,009
Regulatory	266,647	261,005
Total	2,913,946	3,634,010
Garnishments	30,432	36,875
Total	2,944,378	3,670,885
Current	177,433	277,468
Non-current	R$ 2,766,945	R$ 3,393,417

XML

JUDICIAL DEPOSITS AND GARNISHMENTS - Tax related judicial Deposits (Details) - BRL (R$) R$ in Thousands	Jul. 20, 2020	Dec. 31, 2020	Dec. 31, 2019
JUDICIAL DEPOSITS AND GARNISHMENTS
Judicial tax deposits		R$ 1,453,939	R$ 2,007,074
Corporate Income Tax (IRPJ) and Social Contribution Tax (CSLL)
JUDICIAL DEPOSITS AND GARNISHMENTS
Judicial tax deposits		92,849	575,426
Judicial deposits transferred to the company	R$ 490,603
Universal Telecommunication Services Fund (FUST)
JUDICIAL DEPOSITS AND GARNISHMENTS
Judicial tax deposits		525,563	518,372
State Value-Added Tax (ICMS)
JUDICIAL DEPOSITS AND GARNISHMENTS
Judicial tax deposits		331,086	269,483
Social Contribution Tax for Intervention in the Economic Order (CIDE)
JUDICIAL DEPOSITS AND GARNISHMENTS
Judicial tax deposits		289,924	286,270
Social Security, work accident insurance (SAT) and funds to third parties (INSS)
JUDICIAL DEPOSITS AND GARNISHMENTS
Judicial tax deposits		18,880	140,186
Withholding Income Tax (IRRF)
JUDICIAL DEPOSITS AND GARNISHMENTS
Judicial tax deposits		58,300	57,142
Telecommunications Inspection Fund (FISTEL)
JUDICIAL DEPOSITS AND GARNISHMENTS
Judicial tax deposits		46,830	46,167
Contribution tax on gross revenue for Social Integration Program (PIS) and for Social Security Financing (COFINS)
JUDICIAL DEPOSITS AND GARNISHMENTS
Judicial tax deposits		33,540	34,983
Other taxes, charges and contributions
JUDICIAL DEPOSITS AND GARNISHMENTS
Judicial tax deposits		R$ 56,967	R$ 79,045

XML

OTHER ASSETS (Details) R$ in Thousands		3 Months Ended	12 Months Ended
	Nov. 28, 2019 item	Mar. 31, 2020	Dec. 31, 2020 BRL (R$)	Feb. 07, 2020 BRL (R$)	Dec. 31, 2019 BRL (R$)
OTHER ASSETS
Surplus from post-employment benefit plans (Note 30)			R$ 165,062		R$ 220,939
Receivables from suppliers			209,908		167,540
Advances to employees and suppliers			117,033		73,849
Related-party receivables (Note 28)			72,835		64,966
Goods for sale (2)			0		76,912
Other amounts receivable (3)			27,765		14,123
Total			592,603	R$ 641,000	618,329
Current			408,349		382,591
Non-current			R$ 184,254		235,738
Number of towers sold | item	1,909
Term of the sublease		10 years	22 years
Unsecured residual values resulting in benefits to the lessor			R$ 0
Contingent Rents Recognised As Income			0
Present value of accounts receivable			12,122		10,226
PBS Assisted Plan (PBS-A)
OTHER ASSETS
Distribution of PBS - A surplus			R$ 158,959		R$ 209,347

XML

INVESTMENTS (Details) - BRL (R$) R$ in Thousands	12 Months Ended
	Dec. 31, 2020	Dec. 31, 2019	Dec. 31, 2018	Jan. 01, 2018	Dec. 31, 2017
INVESTMENTS
Current assets	R$ 19,060,868	R$ 18,644,678
Non-current assets	89,677,510	89,645,044
TOTAL ASSETS	108,738,378	108,289,722
Current liabilities	17,875,084	17,732,088
Non-current liabilities	21,306,530	20,102,056
Equity	69,556,764	70,455,578	R$ 71,607,027	R$ 73,642,163	R$ 73,780,826
TOTAL LIABILITIES AND EQUITY	108,738,378	108,289,722
Investment Book value	144,433	104,251	101,657
Net operating income	43,126,472	44,268,171	43,462,740
Operating costs and expenses	(37,089,631)	(37,358,265)	(36,457,478)
Financial income (expenses), net	(573,429)	(820,141)	1,827,153
Income and social contribution taxes	(1,237,707)	(1,393,521)	(2,349,232)
Net income for the year	4,770,527	5,001,014	8,928,258
Equity pickup, according to interest held	R$ 734	R$ 752	(5,847)
Alianca / AIX / ACT
INVESTMENTS
Ownership interest in joint ventures (as a percent)	50.00%	50.00%
Current assets	R$ 301,518	R$ 221,183
Non-current assets	10,426	10,556
TOTAL ASSETS	311,944	231,739
Current liabilities	6,544	7,140
Non-current liabilities	18,090	16,773
Equity	287,310	207,826
TOTAL LIABILITIES AND EQUITY	311,944	231,739
Investment Book value	143,655	103,913
Net operating income	45,893	45,567	45,608
Operating costs and expenses	(44,595)	(44,325)	(58,773)
Financial income (expenses), net	708	1,030	1,334
Income and social contribution taxes	(538)	(768)	137
Net income for the year	1,468	1,504	(11,694)
Equity pickup, according to interest held	R$ 734	R$ 752	R$ (5,847)

XML

INVESTMENTS - Changes in investments (Details) - BRL (R$) R$ in Thousands	12 Months Ended
	Dec. 31, 2020	Dec. 31, 2019	Dec. 31, 2018
INVESTMENTS
Balances at beginning of the period	R$ 104,251	R$ 101,657
Equity	734	752	R$ (5,847)
Other comprehensive income	39,448	1,842
Balances at end of the period	144,433	104,251	101,657
Other investments
INVESTMENTS
Balances at beginning of the period	338	355
Other comprehensive income	440	(17)
Balances at end of the period	778	338	355
Joint ventures
INVESTMENTS
Balances at beginning of the period	103,913	101,302
Equity	734	752
Other comprehensive income	39,008	1,859
Balances at end of the period	R$ 143,655	R$ 103,913	R$ 101,302

XML

PROPERTY, PLANT AND EQUIPMENT (Details) R$ in Thousands		12 Months Ended
	Nov. 28, 2019 item	Dec. 31, 2020 BRL (R$)	Dec. 31, 2019 BRL (R$)	Dec. 31, 2018 BRL (R$)
PROPERTY, PLANT AND EQUIPMENT
Balance at beginning of the period		R$ 42,847,264	R$ 34,115,327
Initial adoption IFRS 16 effects			8,618,072
Transfers of goods destined for sale			(347,426)
Subletting		(2,115)	(10,310)
Additions		10,549,857	8,862,362
Write-offs, net		(328,243)	(183,321)
Net transfers		(188,176)	(85,500)
Capital contribution to CyberCo Brasil		(16,238)
Depreciation		(8,509,756)	(8,132,152)
Business combinations			10,212
Balance at end of the period		44,352,593	42,847,264	R$ 34,115,327
Proceeds from sale of PP&E		959,345	698,643	9,053
Number of towers sold | item	1,909
Tambor and Curitiba (CIC) data centers
PROPERTY, PLANT AND EQUIPMENT
Proceeds from sale of PP&E		419,690
Gross carrying amount
PROPERTY, PLANT AND EQUIPMENT
Balance at beginning of the period		136,374,026
Balance at end of the period		145,812,623	136,374,026
Accumulated depreciation / amortization
PROPERTY, PLANT AND EQUIPMENT
Balance at beginning of the period		(93,526,762)
Balance at end of the period		(101,460,030)	(93,526,762)
Switching and transmission equipment
PROPERTY, PLANT AND EQUIPMENT
Balance at beginning of the period		25,185,314	24,668,212
Initial adoption IFRS 16 effects			91,836
Transfers of goods destined for sale			(1,183)
Additions		78,021	114,517
Write-offs, net		(7,719)	(17,069)
Net transfers		3,850,578	4,265,573
Capital contribution to CyberCo Brasil		(5)
Depreciation		(4,034,228)	(3,936,572)
Balance at end of the period		25,071,961	25,185,314	24,668,212
Switching and transmission equipment | Gross carrying amount
PROPERTY, PLANT AND EQUIPMENT
Balance at beginning of the period		83,028,079
Balance at end of the period		86,709,680	83,028,079
Switching and transmission equipment | Accumulated depreciation / amortization
PROPERTY, PLANT AND EQUIPMENT
Balance at beginning of the period		(57,842,765)
Balance at end of the period		(61,637,719)	(57,842,765)
Terminal equipment / modems
PROPERTY, PLANT AND EQUIPMENT
Balance at beginning of the period		2,586,278	2,571,084
Additions		77,933	142,975
Write-offs, net		(170)	(268)
Net transfers		1,276,846	1,299,368
Depreciation		(1,464,041)	(1,426,890)
Business combinations			9
Balance at end of the period		2,476,846	2,586,278	2,571,084
Terminal equipment / modems | Gross carrying amount
PROPERTY, PLANT AND EQUIPMENT
Balance at beginning of the period		19,329,470
Balance at end of the period		20,569,803	19,329,470
Terminal equipment / modems | Accumulated depreciation / amortization
PROPERTY, PLANT AND EQUIPMENT
Balance at beginning of the period		(16,743,192)
Balance at end of the period		(18,092,957)	(16,743,192)
Infrastructure
PROPERTY, PLANT AND EQUIPMENT
Balance at beginning of the period		11,720,064	3,769,088
Initial adoption IFRS 16 effects			8,526,236
Transfers of goods destined for sale			(248,175)
Subletting		(2,115)	(10,310)
Additions		4,517,747	1,790,185
Write-offs, net		(306,219)	(139,857)
Net transfers		341,553	504,010
Depreciation		(2,731,627)	(2,471,456)
Business combinations			343
Balance at end of the period		13,539,403	11,720,064	3,769,088
Write offs, net related to cancellation of lease agreements		288,603	105,952
Infrastructure | Gross carrying amount
PROPERTY, PLANT AND EQUIPMENT
Balance at beginning of the period		26,269,769
Balance at end of the period		30,633,254	26,269,769
Infrastructure | Accumulated depreciation / amortization
PROPERTY, PLANT AND EQUIPMENT
Balance at beginning of the period		(14,549,705)
Balance at end of the period		(17,093,851)	(14,549,705)
Land
PROPERTY, PLANT AND EQUIPMENT
Balance at beginning of the period		278,512	314,832
Transfers of goods destined for sale			(30,585)
Write-offs, net		(5,483)	(5,735)
Balance at end of the period		273,029	278,512	314,832
Land | Gross carrying amount
PROPERTY, PLANT AND EQUIPMENT
Balance at beginning of the period		278,512
Balance at end of the period		273,029	278,512
Other P&E
PROPERTY, PLANT AND EQUIPMENT
Balance at beginning of the period		827,053	836,107
Transfers of goods destined for sale			(67,143)
Additions		195,449	258,854
Write-offs, net		(2,870)	(2,182)
Net transfers		20,857	88,100
Capital contribution to CyberCo Brasil		(15,553)
Depreciation		(279,860)	(297,234)
Business combinations			10,551
Balance at end of the period		745,076	827,053	836,107
Other P&E | Gross carrying amount
PROPERTY, PLANT AND EQUIPMENT
Balance at beginning of the period		5,218,153
Balance at end of the period		5,380,579	5,218,153
Other P&E | Accumulated depreciation / amortization
PROPERTY, PLANT AND EQUIPMENT
Balance at beginning of the period		(4,391,100)
Balance at end of the period		(4,635,503)	(4,391,100)
Estimated losses | Estimated losses for impairment or obsolescence
PROPERTY, PLANT AND EQUIPMENT
Balance at beginning of the period		(174,508)	(156,892)
Additions			(20,465)
Write-offs, net		10,751	3,540
Net transfers		4,732
Capital contribution to CyberCo Brasil		(680)
Business combinations			(691)
Balance at end of the period		(159,705)	(174,508)	(156,892)
Assets and facilities under construction
PROPERTY, PLANT AND EQUIPMENT
Balance at beginning of the period		2,424,551	2,112,896
Transfers of goods destined for sale			(340)
Additions		5,680,707	6,576,296
Write-offs, net		(16,533)	(21,750)
Net transfers		(5,682,742)	(6,242,551)
Balance at end of the period		2,405,983	2,424,551	R$ 2,112,896
Assets and facilities under construction | Gross carrying amount
PROPERTY, PLANT AND EQUIPMENT
Balance at beginning of the period		2,424,551
Balance at end of the period		R$ 2,405,983	R$ 2,424,551

XML

PROPERTY, PLANT AND EQUIPMENT - Depreciation rates (Details) - BRL (R$) R$ in Thousands	12 Months Ended
	Dec. 31, 2020	Dec. 31, 2019
Switching and transmission equipment and media | Minimum
PROPERTY, PLANT AND EQUIPMENT
Depreciation rate (as a percent)		2.50%
Switching and transmission equipment and media | Maximum
PROPERTY, PLANT AND EQUIPMENT
Depreciation rate (as a percent)		25.00%
Terminal equipment / modems | Minimum
PROPERTY, PLANT AND EQUIPMENT
Depreciation rate (as a percent)	25.00%	6.67%
Terminal equipment / modems | Maximum
PROPERTY, PLANT AND EQUIPMENT
Depreciation rate (as a percent)	50.00%	66.67%
Infrastructure | Minimum
PROPERTY, PLANT AND EQUIPMENT
Depreciation rate (as a percent)		2.50%
Infrastructure | Maximum
PROPERTY, PLANT AND EQUIPMENT
Depreciation rate (as a percent)		66.67%
Other P&E assets | Minimum
PROPERTY, PLANT AND EQUIPMENT
Depreciation rate (as a percent)		10.00%
Other P&E assets | Maximum
PROPERTY, PLANT AND EQUIPMENT
Depreciation rate (as a percent)		25.00%
Depreciation rate accounting estimates
PROPERTY, PLANT AND EQUIPMENT
Increased depreciation expense	R$ 283,552

XML

PROPERTY, PLANT AND EQUIPMENT - Additional information on leases (Details) - BRL (R$) R$ in Thousands	12 Months Ended
	Dec. 31, 2020	Dec. 31, 2019
PROPERTY, PLANT AND EQUIPMENT
Balance at beginning of the period	R$ 42,847,264	R$ 34,115,327
Initial Adoption on 01.01.19		8,618,072
Additions	10,549,857	8,862,362
Subletting	(2,115)	(10,310)
Write-offs, net	(328,243)	(183,321)
Balance at end of the period	44,352,593	42,847,264
Switching and transmission equipment
PROPERTY, PLANT AND EQUIPMENT
Balance at beginning of the period	25,185,314	24,668,212
Initial Adoption on 01.01.19		91,836
Additions	78,021	114,517
Write-offs, net	(7,719)	(17,069)
Balance at end of the period	25,071,961	25,185,314
Infrastructure
PROPERTY, PLANT AND EQUIPMENT
Balance at beginning of the period	11,720,064	3,769,088
Initial Adoption on 01.01.19		8,526,236
Additions	4,517,747	1,790,185
Subletting	(2,115)	(10,310)
Write-offs, net	(306,219)	(139,857)
Balance at end of the period	13,539,403	11,720,064
Other P&E
PROPERTY, PLANT AND EQUIPMENT
Balance at beginning of the period	827,053	836,107
Additions	195,449	258,854
Write-offs, net	(2,870)	(2,182)
Balance at end of the period	745,076	827,053
Changes in leases, after the adoption of IFRS 16
PROPERTY, PLANT AND EQUIPMENT
Balance at beginning of the period	8,751,211	386,959
Initial Adoption on 01.01.19		8,618,072
Additions	4,461,277	1,803,941
Subletting	(2,115)	(10,310)
Depreciation and write-offs, net (IAS 17)	(47,037)	(56,451)
Depreciation (IFRS 16)	(2,178,602)	(1,882,950)
Write-offs, net	(4,902)	(2,098)
Cancellation of contracts	(289,023)	(105,952)
Balance at end of the period	10,690,809	8,751,211
Changes in leases, after the adoption of IFRS 16 | Switching and transmission equipment
PROPERTY, PLANT AND EQUIPMENT
Balance at beginning of the period	346,306	186,554
Initial Adoption on 01.01.19		91,836
Additions	55,904	107,108
Depreciation and write-offs, net (IAS 17)	(13,540)	(13,540)
Depreciation (IFRS 16)	(30,159)	(25,652)
Cancellation of contracts	(420)
Balance at end of the period	358,091	346,306
Changes in leases, after the adoption of IFRS 16 | Infrastructure
PROPERTY, PLANT AND EQUIPMENT
Balance at beginning of the period	8,401,685	189,455
Initial Adoption on 01.01.19		8,526,236
Additions	4,394,809	1,696,833
Subletting	(2,115)	(10,310)
Depreciation and write-offs, net (IAS 17)	(30,277)	(35,181)
Depreciation (IFRS 16)	(2,148,260)	(1,857,298)
Write-offs, net	(4,902)	(2,098)
Cancellation of contracts	(288,603)	(105,952)
Balance at end of the period	R$ 10,322,337	8,401,685
Changes in leases, after the adoption of IFRS 16 | Other P&E
PROPERTY, PLANT AND EQUIPMENT
Annual depreciation rate (%)	20.00%
Balance at beginning of the period	R$ 3,220	10,950
Additions	10,564
Depreciation and write-offs, net (IAS 17)	(3,220)	(7,730)
Depreciation (IFRS 16)	(183)
Balance at end of the period	R$ 10,381	R$ 3,220
Minimum | Infrastructure
PROPERTY, PLANT AND EQUIPMENT
Annual depreciation rate (%)		2.50%
Minimum | Changes in leases, after the adoption of IFRS 16 | Switching and transmission equipment
PROPERTY, PLANT AND EQUIPMENT
Annual depreciation rate (%)	5.00%
Minimum | Changes in leases, after the adoption of IFRS 16 | Infrastructure
PROPERTY, PLANT AND EQUIPMENT
Annual depreciation rate (%)	3.13%
Maximum | Infrastructure
PROPERTY, PLANT AND EQUIPMENT
Annual depreciation rate (%)		66.67%
Maximum | Changes in leases, after the adoption of IFRS 16 | Switching and transmission equipment
PROPERTY, PLANT AND EQUIPMENT
Annual depreciation rate (%)	92.31%
Maximum | Changes in leases, after the adoption of IFRS 16 | Infrastructure
PROPERTY, PLANT AND EQUIPMENT
Annual depreciation rate (%)	92.31%

XML

PROPERTY, PLANT AND EQUIPMENT - Property and equipment items pledged in guarantee and reversible assets (Details) - BRL (R$) R$ in Thousands	12 Months Ended
	Dec. 31, 2020	Dec. 31, 2019
PROPERTY, PLANT AND EQUIPMENT
Property and equipment pledged in guarantee	R$ 85,172	R$ 81,416
Estimated residual value of reversible assets	R$ 6,711,435	R$ 7,364,456

XML

INTANGIBLE ASSETS (Details) - BRL (R$) R$ in Thousands	1 Months Ended	12 Months Ended			24 Months Ended
	Jul. 31, 2019	Dec. 31, 2020	Dec. 31, 2019	Dec. 31, 2018	Dec. 31, 2020
INTANGIBLE ASSETS
Balance at beginning of the period		R$ 41,274,952	R$ 42,220,985		R$ 42,220,985
Additions		1,872,464	1,765,421
Write-offs, net		(32,963)	(8,373)
Net transfers		188,176	85,500
Transfers of goods destined for sale (2)			(1,537)
Business combination (Note 1.c.2)			596
Capital contribution to CyberCo Brasil (note 1.c)	R$ 32,743	(2,770)
Amortization (Note 25)		(2,717,742)	(2,787,640)
Balance at end of the period		40,582,117	41,274,952	R$ 42,220,985	40,582,117
Proceeds from sale of PP&E		959,345	698,643	9,053
Tambor and Curitiba (CIC) data centers
INTANGIBLE ASSETS
Write-offs, net	R$ 3,249
Proceeds from sale of PP&E		419,690
Gross carrying amount
INTANGIBLE ASSETS
Balance at beginning of the period		68,606,815
Balance at end of the period		70,655,486	68,606,815		70,655,486
Accumulated depreciation / amortization
INTANGIBLE ASSETS
Balance at beginning of the period		(27,331,863)
Balance at end of the period		(30,073,369)	(27,331,863)		(30,073,369)
Softwares
INTANGIBLE ASSETS
Balance at beginning of the period		3,693,754	3,245,042		3,245,042
Additions		526,112	374,690
Write-offs, net		(220)	(5,066)
Net transfers		1,211,314	1,314,978
Transfers of goods destined for sale (2)			(1,537)
Business combination (Note 1.c.2)			596
Capital contribution to CyberCo Brasil (note 1.c)		(2,770)
Amortization (Note 25)		(1,420,757)	(1,234,949)
Balance at end of the period		R$ 4,007,433	R$ 3,693,754	3,245,042	4,007,433
Softwares | Minimum
INTANGIBLE ASSETS
Annual amortization rate (%)		20.00%	20.00%
Softwares | Maximum
INTANGIBLE ASSETS
Annual amortization rate (%)		50.00%	50.00%
Softwares | Estimated losses for impairment or obsolescence
INTANGIBLE ASSETS
Balance at beginning of the period		R$ (499)	R$ (499)		(499)
Additions		(12,230)
Balance at end of the period		(12,729)	(499)	(499)	(12,729)
Softwares | Gross carrying amount
INTANGIBLE ASSETS
Balance at beginning of the period		18,310,812
Balance at end of the period		20,069,371	18,310,812		20,069,371
Softwares | Accumulated depreciation / amortization
INTANGIBLE ASSETS
Balance at beginning of the period		(14,617,058)
Balance at end of the period		(16,061,938)	(14,617,058)		R$ (16,061,938)
Customer portfolio
INTANGIBLE ASSETS
Annual amortization rate (%)					12.50%
Balance at beginning of the period		928,833	1,429,274		R$ 1,429,274
Amortization (Note 25)		(295,267)	(500,441)
Balance at end of the period		633,566	928,833	1,429,274	633,566
Customer portfolio | Gross carrying amount
INTANGIBLE ASSETS
Balance at beginning of the period		4,513,278
Balance at end of the period		4,513,278	4,513,278		4,513,278
Customer portfolio | Accumulated depreciation / amortization
INTANGIBLE ASSETS
Balance at beginning of the period		(3,584,445)
Balance at end of the period		(3,879,712)	(3,584,445)		R$ (3,879,712)
Trademarks
INTANGIBLE ASSETS
Annual amortization rate (%)					7.70%
Balance at beginning of the period		905,205	989,410		R$ 989,410
Amortization (Note 25)		(84,205)	(84,205)
Balance at end of the period		821,000	905,205	989,410	821,000
Trademarks | Gross carrying amount
INTANGIBLE ASSETS
Balance at beginning of the period		1,658,897
Balance at end of the period		1,658,897	1,658,897		1,658,897
Trademarks | Accumulated depreciation / amortization
INTANGIBLE ASSETS
Balance at beginning of the period		(753,692)
Balance at end of the period		(837,897)	(753,692)		(837,897)
Licenses
INTANGIBLE ASSETS
Balance at beginning of the period		12,091,821	13,056,137		13,056,137
Additions		184,300
Amortization (Note 25)		(914,411)	(964,316)
Balance at end of the period		R$ 11,361,710	R$ 12,091,821	13,056,137	R$ 11,361,710
Licenses | Minimum
INTANGIBLE ASSETS
Annual amortization rate (%)		3.60%	3.60%
Licenses | Maximum
INTANGIBLE ASSETS
Annual amortization rate (%)					6.67%
Licenses | Gross carrying amount
INTANGIBLE ASSETS
Balance at beginning of the period		R$ 20,244,219
Balance at end of the period		20,428,520	R$ 20,244,219		R$ 20,428,520
Licenses | Accumulated depreciation / amortization
INTANGIBLE ASSETS
Balance at beginning of the period		(8,152,398)
Balance at end of the period		(9,066,810)	(8,152,398)		R$ (9,066,810)
Other intangible assets
INTANGIBLE ASSETS
Annual amortization rate (%)					20.00%
Balance at beginning of the period		45,730	49,523		R$ 49,523
Write-offs, net			(58)
Net transfers			(6)
Amortization (Note 25)		(3,102)	(3,729)
Balance at end of the period		42,628	45,730	49,523	42,628
Other intangible assets | Gross carrying amount
INTANGIBLE ASSETS
Balance at beginning of the period		270,000
Balance at end of the period		269,640	270,000		269,640
Other intangible assets | Accumulated depreciation / amortization
INTANGIBLE ASSETS
Balance at beginning of the period		(224,270)
Balance at end of the period		(227,012)	(224,270)		(227,012)
Software under development
INTANGIBLE ASSETS
Balance at beginning of the period		550,936	389,677		389,677
Additions		1,174,282	1,390,731
Net transfers		(1,023,138)	(1,229,472)
Balance at end of the period		702,080	550,936	389,677	702,080
Software under development | Gross carrying amount
INTANGIBLE ASSETS
Balance at beginning of the period		550,936
Balance at end of the period		702,080	550,936		702,080
Goodwill
INTANGIBLE ASSETS
Balance at beginning of the period		23,059,172	23,062,421		23,062,421
Write-offs, net		(32,743)	(3,249)
Balance at end of the period		23,026,429	23,059,172	R$ 23,062,421	23,026,429
Goodwill | Gross carrying amount
INTANGIBLE ASSETS
Balance at beginning of the period		23,059,172
Balance at end of the period		R$ 23,026,429	R$ 23,059,172		R$ 23,026,429

XML

INTANGIBLE ASSETS - Goodwill breakdown (Details) - BRL (R$) R$ in Thousands	1 Months Ended	12 Months Ended
	Jul. 31, 2019	Dec. 31, 2020	Dec. 31, 2019
INTANGIBLE ASSETS
Goodwill		R$ 23,026,429	R$ 23,059,172
Capital contribution to CyberCo Brasil (note 1.c)	R$ 32,743	(2,770)
Ajato Telecomunicacao Ltda.
INTANGIBLE ASSETS
Goodwill		149	149
Spanish and Figueira, by the merger of Telefonica Data Brasil Holding (TDBH) in 2006
INTANGIBLE ASSETS
Goodwill		212,058	212,058
Santo Genovese Participacoes, Atrium Telecomunicacoes, which took place in 2004
INTANGIBLE ASSETS
Goodwill		71,892	71,892
Telefonica Televisao Participacoes, former Navytree, occurred in 2008
INTANGIBLE ASSETS
Goodwill		780,693	780,693
Vivo Participacoes, occurred in 2011
INTANGIBLE ASSETS
Goodwill		9,124,496	9,157,239
GVT Participacoes, occurred in 2015
INTANGIBLE ASSETS
Goodwill		R$ 12,837,141	R$ 12,837,141

XML

INTANGIBLE ASSETS - Annual amortization rates (Details)	24 Months Ended
	Dec. 31, 2020
Customer portfolio
Disclosure of detailed information about intangible assets [line items]
Annual amortization rate (as a percent)	12.50%
Trademarks
Disclosure of detailed information about intangible assets [line items]
Annual amortization rate (as a percent)	7.70%
Other intangible assets
Disclosure of detailed information about intangible assets [line items]
Annual amortization rate (as a percent)	20.00%

XML

IMPAIRMENT OF NONFINANCIAL ASSETS (Details) - BRL (R$) R$ in Thousands	12 Months Ended
	Dec. 31, 2020	Dec. 31, 2019
IMPAIRMENT OF NONFINANCIAL ASSETS
Period of assessment of value of goodwill	5 years	5 years
Growth rate	4.50%	4.50%
Discount rate applied to cash flow projections	11.11%	10.22%
Discount rate for estimated future cash flows before tax	12.54%	11.38%
Inflation rate	3.50%	3.80%
Impairment loss	R$ 0	R$ 0
Non-financial assets | Discount rate
IMPAIRMENT OF NONFINANCIAL ASSETS
Percentage points increase	0.50%	0.50%
Percentage points decrease	1.00%	1.00%
Non-financial assets | Perpetuity growth rates
IMPAIRMENT OF NONFINANCIAL ASSETS
Percentage points increase	1.00%	1.00%
Percentage points decrease	0.50%	0.50%
Non-financial assets | Revenues Margin
IMPAIRMENT OF NONFINANCIAL ASSETS
Percentage points increase	1.50%	1.50%
Percentage points decrease	1.50%	1.50%

XML

PERSONNEL, SOCIAL CHARGES AND BENEFITS (Details) - BRL (R$) R$ in Thousands	Dec. 31, 2020	Dec. 31, 2019
PERSONNEL, SOCIAL CHARGES AND BENEFITS
Social charges and benefits	R$ 350,138	R$ 400,470
Profit sharing	285,079	308,918
Share-based payment plans (Note 29)	86,296	40,523
Salaries and wages	46,495	38,363
Total	768,008	788,274
Current	764,329	752,246
Non-current	R$ 3,679	R$ 36,028

XML

TRADE ACCOUNTS PAYABLE (Details) - BRL (R$) R$ in Thousands	Dec. 31, 2020	Dec. 31, 2019
TRADE ACCOUNTS PAYABLE
Sundry suppliers (Opex, Capex, Services e Material)	R$ 5,741,208	R$ 5,958,280
Related parties (Note 28)	489,339	405,271
Amounts payable (operators, co-billing)	199,562	232,264
Interconnection / interlink	182,895	275,984
Total	R$ 6,613,004	R$ 6,871,799

XML

TAXES, CHARGES AND CONTRIBUTIONS (Details) - BRL (R$) R$ in Thousands			1 Months Ended
		Aug. 12, 2020	Aug. 31, 2020	Dec. 31, 2020	Dec. 31, 2019
TAXES, CHARGES AND CONTRIBUTIONS
Fistel (1)	[1]			R$ 671,145
ICMS				861,464	R$ 906,447
PIS and COFINS				221,323	331,863
Fust and Funttel				88,088	89,394
ISS, CIDE and other taxes				84,772	97,163
Total				1,926,792	1,424,867
Current				1,607,434	1,139,812
Non-current				R$ 319,358	R$ 285,055
Fistel taxes paid		R$ 416,475	R$ 416,500

[1] On April 15, 2020, provisional measure 952 was published in the Official Gazette (“DOU”), extending the deadline for payment of Fistel from March 31, 2020 to August 31, 2020, with no impact additional penalty or interest. On August 12, 2020, the Company made a partial payment of R$416,475. The balance refers to the residual payment which has been suspended according to the decision of the Federal Regional Court of the First Region, published on March 18, 2020.

XML

DIVIDENDS AND INTEREST ON EQUITY - Breakdown (Details) - BRL (R$) R$ in Thousands	12 Months Ended
	Dec. 31, 2020	Dec. 31, 2019	Dec. 31, 2018
Dividends and interest on equity payable
Withholding tax rate (as a percent)	15.00%
Dividends and interest on equity	R$ 3,865,998	R$ 3,587,417	R$ 4,172,916
Equity attributable to owners of parent [member]
Dividends and interest on equity payable
Dividends and interest on equity	3,865,998	3,587,417
Telefnica Latinoamrica Holding
Dividends and interest on equity payable
Dividends and interest on equity	837,113	787,823
Telefonica
Dividends and interest on equity payable
Dividends and interest on equity	1,021,474	948,662
SP Telecomunicacoes Participacoes
Dividends and interest on equity payable
Dividends and interest on equity	660,012	598,064
Telefonica Chile
Dividends and interest on equity payable
Dividends and interest on equity	1,849	1,667
Non-controlling interest
Dividends and interest on equity payable
Dividends and interest on equity	R$ 1,345,550	R$ 1,251,201

XML

DIVIDENDS AND INTEREST ON EQUITY - Changes (Details) - BRL (R$) R$ in Thousands	12 Months Ended
	Dec. 31, 2020	Dec. 31, 2019
DIVIDENDS AND INTEREST ON EQUITY
Beginning Balance	R$ 3,587,417	R$ 4,172,916
Supplementary dividends	2,195,575	2,468,684
Interim interest on equity (net of IRRF)	3,435,500	3,199,800
Unclaimed dividends and interest on equity	(99,788)	(82,898)
Payment of dividends and interest on equity	(5,259,367)	(6,176,842)
IRRF on shareholders exempt/immune from interest on equity	6,661	5,757
Ending Balance	R$ 3,865,998	R$ 3,587,417

XML

PROVISIONS AND CONTINGENCIES - Breakdown of changes in provisions (Details) - BRL (R$) R$ in Thousands	12 Months Ended
	Dec. 31, 2020	Dec. 31, 2019
PROVISIONS AND CONTINGENCIES
Balances at the beginning	R$ 5,535,418	R$ 6,259,325
Initial adoption IFRIC 23 (Note 7)		(68,945)
Additions (reversal), net (Note 26)	666,599	535,321
Other additions (reversal) (1)	(236,228)	(12,281)
Write-offs due to payment	(927,057)	(1,727,178)
Interest accruals	571,399	541,364
Business combination (Note 1.c.1)		7,812
Balances at the closing	5,610,131	5,535,418
Current	417,653	374,445
Noncurrent	5,192,478	5,160,973
Labor
PROVISIONS AND CONTINGENCIES
Balances at the beginning	547,874	779,686
Additions (reversal), net (Note 26)	126,167	152,105
Other additions (reversal) (1)	6,390	(5,709)
Write-offs due to payment	(287,028)	(485,539)
Interest accruals	106,307	99,526
Business combination (Note 1.c.1)		7,805
Balances at the closing	499,710	547,874
Current	176,582	236,130
Noncurrent	323,128	311,744
Tax
PROVISIONS AND CONTINGENCIES
Balances at the beginning	1,575,949	1,951,897
Initial adoption IFRIC 23 (Note 7)		(68,945)
Additions (reversal), net (Note 26)	122,419	32,719
Write-offs due to payment	(24,763)	(364,992)
Interest accruals	125,647	25,270
Balances at the closing	1,799,252	1,575,949
Noncurrent	1,799,252	1,575,949
Civil
PROVISIONS AND CONTINGENCIES
Balances at the beginning	797,448	1,004,803
Additions (reversal), net (Note 26)	374,464	364,008
Other additions (reversal) (1)	(6,020)	(2,381)
Write-offs due to payment	(575,484)	(833,579)
Interest accruals	281,543	264,590
Business combination (Note 1.c.1)		7
Balances at the closing	871,951	797,448
Current	180,965	113,307
Noncurrent	690,986	684,141
Regulatory
PROVISIONS AND CONTINGENCIES
Balances at the beginning	1,145,736	1,022,216
Additions (reversal), net (Note 26)	69,486	93,634
Write-offs due to payment	(39,782)	(43,068)
Interest accruals	31,891	72,954
Balances at the closing	1,207,331	1,145,736
Current	60,055	25,008
Noncurrent	1,147,276	1,120,728
Contingent liabilities (PPA)
PROVISIONS AND CONTINGENCIES
Balances at the beginning	831,722	827,275
Additions (reversal), net (Note 26)	(18,631)	(16,986)
Interest accruals	10,154	21,433
Balances at the closing	823,245	831,722
Noncurrent	823,245	831,722
Provision for decommissioning
PROVISIONS AND CONTINGENCIES
Balances at the beginning	636,689	673,448
Additions (reversal), net (Note 26)	(7,306)	(90,159)
Other additions (reversal) (1)	(236,598)	(4,191)
Interest accruals	15,857	57,591
Balances at the closing	408,642	636,689
Current	51
Noncurrent	R$ 408,591	R$ 636,689

XML

PROVISIONS AND CONTINGENCIES - Labor provisions and contingencies (Details) R$ in Thousands	12 Months Ended
	Dec. 31, 2020 BRL (R$)	Dec. 31, 2019 BRL (R$)
PROVISIONS AND CONTINGENCIES
Import duty (as a percent)	4.00%
Increased import duty (as a percent)	28
Provision for Universal Telecommunications Services Fund	R$ 4,399,325	R$ 4,411,759
Provision under fund for Technological Development of Telecommunications	764,655	723,105
Provision for Telecommunications Inspection Fund	2,744,617	2,607,128
Amount of fine imposed by ANATEL lawsuit	211,576,000
Interest and correction amount on fine imposed by ANATEL lawsuit	485,828,000	475,151,000
Variation in possible losses	983,720
Estimated amount of arbitration procedure	R$ 257,653
Minimum
PROVISIONS AND CONTINGENCIES
Import duty (as a percent)	11.00%
Labor
PROVISIONS AND CONTINGENCIES
Provisions	R$ 499,710	547,874
Possible losses	1,435,790	452,070
Tax
PROVISIONS AND CONTINGENCIES
Provisions	1,799,252	1,575,949
Federal (1)	622,246	573,229
State	625,019	466,164
Municipal	37,506	34,915
FUST	514,481	501,641
Possible losses	29,368,422	26,104,867
Federal (1)	3,257,998	2,233,733
State	17,447,000	15,460,028
Municipal	754,827	669,114
FUST, FUNTTEL and FISTEL	7,908,597	7,741,992
Civil
PROVISIONS AND CONTINGENCIES
Provisions - probable losses	871,951	797,448
Possible losses	3,374,200	3,495,010
Supplement of share proceedings	290,993	297,641
Relating to failure to supply services and/or products sold	240,810	211,865
Civil proceedings of a non-consumer nature	340,148	287,942
Claims at several levels, related to service rendering rights	3,374,200	3,495,010,626
Daily fine in case of noncompliance	R$ 10
Percentage of charge on interconnection services	2.00%
Regulatory
PROVISIONS AND CONTINGENCIES
Provisions - probable losses	R$ 1,207,331	1,145,736
Possible losses	R$ 5,617,806	R$ 5,645,107

XML

PROVISIONS AND CONTINGENCIES - Guarantees (Details) - BRL (R$) R$ in Thousands	Dec. 31, 2020	Dec. 31, 2019
PROVISIONS AND CONTINGENCIES
Property and equipment	R$ 85,172	R$ 81,416
Judicial deposits and garnishments	2,944,378	3,670,885
Letters of guarantee	2,509,089	2,608,463
Short-term investments pledged as collateral	5,538,639	6,360,764
Contingent liability for guarantees
PROVISIONS AND CONTINGENCIES
Short-term investments pledged as collateral	R$ 46,280	R$ 50,554

XML

LOANS, FINANCING, DEBENTURES AND LEASES - Breakdown (Details) R$ in Thousands	12 Months Ended
	Dec. 31, 2020 BRL (R$) installment	Dec. 31, 2019 BRL (R$)
LOANS, FINANCING, DEBENTURES AND LEASES
Current	R$ 3,682,472	R$ 4,126,490
Noncurrent	9,556,694	9,698,183
Total	13,239,166	13,824,673
Loans and financing | Home currency
LOANS, FINANCING, DEBENTURES AND LEASES
Current	61	23,865
Noncurrent	51	24,985
Total	112	48,850
Financing - BNDES PSI maturing 1/15/2023 | Home currency
LOANS, FINANCING, DEBENTURES AND LEASES
Current	61	8,847
Noncurrent	51	112
Total	R$ 112	8,959
Financing - BNDES PSI maturing 1/15/2023 | Home currency | Minimum
LOANS, FINANCING, DEBENTURES AND LEASES
Annual interest rate (as a percent)	2.50%
Financing - BNDES PSI maturing 1/15/2023 | Home currency | Maximum
LOANS, FINANCING, DEBENTURES AND LEASES
Annual interest rate (as a percent)	5.50%
Financing - BNB maturing 8/18/2022 | Home currency
LOANS, FINANCING, DEBENTURES AND LEASES
Current		15,018
Noncurrent		24,873
Total		39,891
Bank guarantee (in percent)	100.00%
Number of installments | installment	3
Remaining balances		13,212
Financing - BNB maturing 8/18/2022 | Home currency | Minimum
LOANS, FINANCING, DEBENTURES AND LEASES
Annual interest rate (as a percent)	7.06%
Financing - BNB maturing 8/18/2022 | Home currency | Maximum
LOANS, FINANCING, DEBENTURES AND LEASES
Annual interest rate (as a percent)	10.00%
Financing - Suppliers | Home currency
LOANS, FINANCING, DEBENTURES AND LEASES
Current	R$ 375,700	996,177
Noncurrent		97
Total	R$ 375,700	996,274
Financing - Suppliers | Home currency | Minimum
LOANS, FINANCING, DEBENTURES AND LEASES
Annual interest rate (as a percent)	114.60%
Financing - Suppliers | Home currency | Maximum
LOANS, FINANCING, DEBENTURES AND LEASES
Annual interest rate (as a percent)	149.00%
Debentures | Home currency
LOANS, FINANCING, DEBENTURES AND LEASES
Current	R$ 1,044,668	1,077,183
Noncurrent	999,908	2,027,167
Total	2,044,576	3,104,350
1st issue - Minas Comunica | Home currency
LOANS, FINANCING, DEBENTURES AND LEASES
Current	29,352	28,366
Noncurrent		28,366
Total	R$ 29,352	56,732
1st issue - Minas Comunica | IPCA | Home currency
LOANS, FINANCING, DEBENTURES AND LEASES
Annual interest rate (as a percent)	0.50%
5th issue | Home currency
LOANS, FINANCING, DEBENTURES AND LEASES
CDI, as percentage	108.25%
Current	R$ 1,015,316	44,504
Noncurrent	999,908	1,998,801
Total	R$ 2,015,224	2,043,305
6th issue | Home currency
LOANS, FINANCING, DEBENTURES AND LEASES
Annual interest rate (as a percent)	0.24%
CDI, as percentage	100.00%
Current		1,004,313
Total		1,004,313
Leases
LOANS, FINANCING, DEBENTURES AND LEASES
Current	R$ 2,262,043	2,029,265
Noncurrent	R$ 8,556,735	7,161,886
Leases | Home currency
LOANS, FINANCING, DEBENTURES AND LEASES
Annual interest rate (as a percent)	7.69%
Current	R$ 2,262,043	2,029,265
Noncurrent	8,556,735	7,161,886
Total	R$ 10,818,778	9,191,151
Contingent Consideration | Home currency
LOANS, FINANCING, DEBENTURES AND LEASES
Noncurrent		484,048
Total		R$ 484,048

XML

LOANS, FINANCING, DEBENTURES AND LEASES - Loans and financing (Details) - BRL (R$) R$ in Thousands	12 Months Ended
	Dec. 31, 2020	Dec. 31, 2019	Sep. 30, 2020
Vivendi
LOANS, FINANCING, DEBENTURES AND LEASES
Reimbursement amount			R$ 349,794
Financing - Suppliers | Minimum
LOANS, FINANCING, DEBENTURES AND LEASES
Net cost of CDI, as percentage	114.60%	109.20%
Financing - Suppliers | Maximum
LOANS, FINANCING, DEBENTURES AND LEASES
Net cost of CDI, as percentage	149.00%	122.50%

XML

LOANS, FINANCING, DEBENTURES AND LEASES - Debentures (Details) R$ in Thousands		12 Months Ended
	Feb. 08, 2021 BRL (R$)	Dec. 31, 2020 BRL (R$) item	Dec. 31, 2019 BRL (R$)	Dec. 31, 2018 BRL (R$)
LOANS, FINANCING, DEBENTURES AND LEASES
Payment of loans, financing and debentures		R$ 5,297,688	R$ 3,696,660	R$ 2,893,219
Debentures
LOANS, FINANCING, DEBENTURES AND LEASES
Payment of loans, financing and debentures		R$ 1,025,583	66,830
1st issue - Minas Comunica
LOANS, FINANCING, DEBENTURES AND LEASES
Issued | item		5,550
Outstanding | item		5,550
Issue value		R$ 55,500
Payment of loans, financing and debentures		R$ 25,583	25,583
5th issue
LOANS, FINANCING, DEBENTURES AND LEASES
Issued | item		200,000
Outstanding | item		200,000
Issue value		R$ 2,000,000
Transaction cost		R$ 1,376
5th and 6 th issues
LOANS, FINANCING, DEBENTURES AND LEASES
Transaction cost			R$ 2,550
Forecast | 5th issue
LOANS, FINANCING, DEBENTURES AND LEASES
Payment of loans, financing and debentures	R$ 1,000,000

XML

LOANS, FINANCING, DEBENTURES AND LEASES - Leases and contingent consideration (Details) - BRL (R$) R$ in Thousands	12 Months Ended
	Dec. 31, 2020	Dec. 31, 2019
LOANS, FINANCING, DEBENTURES AND LEASES
Current	R$ 3,682,472	R$ 4,126,490
Noncurrent	R$ 9,556,694	9,698,183
Weighted annual interest rate on lease contracts	7.69%
Average maturity on lease contracts	6 years 1 month 24 days
Leases
LOANS, FINANCING, DEBENTURES AND LEASES
Nominal value payable	R$ 13,526,001	10,932,789
Unrealized financial expenses	(2,707,223)	(1,741,638)
Present value payable	10,818,778	9,191,151
Current	2,262,043	2,029,265
Noncurrent	8,556,735	7,161,886
Minimum Finance Lease Payments Payable At Present Values	10,818,778	9,191,151
Telefonica Global Technology
LOANS, FINANCING, DEBENTURES AND LEASES
Present value payable	1,470,508	480,381
Minimum Finance Lease Payments Payable At Present Values	1,470,508	R$ 480,381
2021 | Leases
LOANS, FINANCING, DEBENTURES AND LEASES
Present value payable	2,262,043
Minimum Finance Lease Payments Payable At Present Values	2,262,043
2022 | Leases
LOANS, FINANCING, DEBENTURES AND LEASES
Present value payable	2,270,112
Minimum Finance Lease Payments Payable At Present Values	2,270,112
2023 | Leases
LOANS, FINANCING, DEBENTURES AND LEASES
Present value payable	2,118,655
Minimum Finance Lease Payments Payable At Present Values	2,118,655
2024 | Leases
LOANS, FINANCING, DEBENTURES AND LEASES
Present value payable	1,551,657
Minimum Finance Lease Payments Payable At Present Values	1,551,657
2025 | Leases
LOANS, FINANCING, DEBENTURES AND LEASES
Present value payable	925,972
Minimum Finance Lease Payments Payable At Present Values	925,972
2026 onwards | Leases
LOANS, FINANCING, DEBENTURES AND LEASES
Present value payable	1,690,339
Minimum Finance Lease Payments Payable At Present Values	R$ 1,690,339

XML

LOANS, FINANCING, DEBENTURES AND LEASES - Repayment schedule (Details) R$ in Thousands	Dec. 31, 2020 BRL (R$)
LOANS, FINANCING, DEBENTURES AND LEASES
Repayments	R$ 9,556,694
Loans and financing
LOANS, FINANCING, DEBENTURES AND LEASES
Repayments	51
Debentures
LOANS, FINANCING, DEBENTURES AND LEASES
Repayments	999,908
Leases
LOANS, FINANCING, DEBENTURES AND LEASES
Repayments	8,556,735
2022
LOANS, FINANCING, DEBENTURES AND LEASES
Repayments	3,270,067
2022 | Loans and financing
LOANS, FINANCING, DEBENTURES AND LEASES
Repayments	47
2022 | Debentures
LOANS, FINANCING, DEBENTURES AND LEASES
Repayments	999,908
2022 | Leases
LOANS, FINANCING, DEBENTURES AND LEASES
Repayments	2,270,112
2023
LOANS, FINANCING, DEBENTURES AND LEASES
Repayments	2,118,659
2023 | Loans and financing
LOANS, FINANCING, DEBENTURES AND LEASES
Repayments	4
2023 | Leases
LOANS, FINANCING, DEBENTURES AND LEASES
Repayments	2,118,655
2024
LOANS, FINANCING, DEBENTURES AND LEASES
Repayments	1,551,657
2024 | Leases
LOANS, FINANCING, DEBENTURES AND LEASES
Repayments	1,551,657
2025
LOANS, FINANCING, DEBENTURES AND LEASES
Repayments	925,972
2025 | Leases
LOANS, FINANCING, DEBENTURES AND LEASES
Repayments	925,972
2026 onwards
LOANS, FINANCING, DEBENTURES AND LEASES
Repayments	1,690,339
2026 onwards | Leases
LOANS, FINANCING, DEBENTURES AND LEASES
Repayments	R$ 1,690,339

XML

LOANS, FINANCING, DEBENTURES AND LEASES - Changes (Details) - BRL (R$) R$ in Thousands	12 Months Ended
	Dec. 31, 2020	Dec. 31, 2019	Dec. 31, 2018
LOANS, FINANCING, DEBENTURES AND LEASES
Balance at beginning of the period	R$ 13,824,673	R$ 6,139,437
Initial adoption IFRS 16		8,618,072
Additions	5,199,080	2,771,254
Government grants (Note 21)		15,787
Financial charges (Note 27)	648,816	830,686	R$ 510,398
Issue costs	1,376	1,400
Foreign exchange variation (Note 27)		(1,104)
Write-offs (cancellation of contracts)	(315,291)	(107,213)
Write-offs (payments)	(6,078,780)	(4,443,646)
Costs and expenses incurred	(40,708)
Balance at end of the period	13,239,166	13,824,673	6,139,437
Loans and financing
LOANS, FINANCING, DEBENTURES AND LEASES
Balance at beginning of the period	48,850	1,582,570
Government grants (Note 21)		15,787
Financial charges (Note 27)	1,879	111,013
Foreign exchange variation (Note 27)		(1,104)
Write-offs (payments)	(50,617)	(1,659,416)
Balance at end of the period	112	48,850	1,582,570
Debentures
LOANS, FINANCING, DEBENTURES AND LEASES
Balance at beginning of the period	3,104,350	3,173,910
Financial charges (Note 27)	87,635	197,386
Issue costs	1,376	1,400
Write-offs (payments)	(1,148,785)	(268,346)
Balance at end of the period	2,044,576	3,104,350	3,173,910
Leases
LOANS, FINANCING, DEBENTURES AND LEASES
Balance at beginning of the period	9,191,151	393,027
Initial adoption IFRS 16		8,618,072
Additions	4,828,542	1,803,941
Financial charges (Note 27)	526,127	457,985
Write-offs (cancellation of contracts)	(315,291)	(107,213)
Write-offs (payments)	(3,411,751)	(1,974,661)
Balance at end of the period	10,818,778	9,191,151	393,027
Financing - Suppliers
LOANS, FINANCING, DEBENTURES AND LEASES
Balance at beginning of the period	996,274	524,244
Additions	370,538	967,313
Financial charges (Note 27)	26,620	45,940
Write-offs (payments)	(1,017,732)	(541,223)
Balance at end of the period	375,700	996,274	524,244
Contingent Consideration
LOANS, FINANCING, DEBENTURES AND LEASES
Balance at beginning of the period	484,048	465,686
Financial charges (Note 27)	6,555	18,362
Write-offs (payments)	(449,895)
Costs and expenses incurred	R$ (40,708)
Balance at end of the period		R$ 484,048	R$ 465,686

XML

LOANS, FINANCING, DEBENTURES AND LEASES - Summary of Funding and Payments (Details) - BRL (R$) R$ in Thousands	12 Months Ended
	Dec. 31, 2020	Dec. 31, 2019	Dec. 31, 2018
LOANS, FINANCING, DEBENTURES AND LEASES
Additions	R$ 5,199,080	R$ 11,389,326
Write-offs (payments), Principal	(5,297,688)	(3,696,660)	R$ (2,893,219)
Write-offs (payments), Financial charges	(781,092)	(746,986)	R$ (494,931)
Write-offs (payments), Total	(6,078,780)	(4,443,646)
Loans and financing
LOANS, FINANCING, DEBENTURES AND LEASES
Write-offs (payments), Principal	(48,645)	(1,564,258)
Write-offs (payments), Financial charges	(1,972)	(95,158)
Write-offs (payments), Total	(50,617)	(1,659,416)
Financing - BNDES FINEM - Contract 14.2.1192.1 maturing 1/15/2023 (Selic)
LOANS, FINANCING, DEBENTURES AND LEASES
Write-offs (payments), Principal	(8,849)	(1,549,335)
Write-offs (payments), Financial charges	(111)	(91,939)
Write-offs (payments), Total	(8,960)	(1,641,274)
BNB
LOANS, FINANCING, DEBENTURES AND LEASES
Write-offs (payments), Principal	(39,796)	(14,923)
Write-offs (payments), Financial charges	(1,861)	(3,219)
Write-offs (payments), Total	(41,657)	(18,142)
Debentures
LOANS, FINANCING, DEBENTURES AND LEASES
Write-offs (payments), Principal	(1,025,583)	(66,830)
Write-offs (payments), Financial charges	(123,202)	(201,516)
Write-offs (payments), Total	(1,148,785)	(268,346)
1st issue - Minas Comunica
LOANS, FINANCING, DEBENTURES AND LEASES
Write-offs (payments), Principal	(25,583)	(25,583)
Write-offs (payments), Financial charges	(1,995)	(1,761)
Write-offs (payments), Total	(27,578)	(27,344)
4th issue
LOANS, FINANCING, DEBENTURES AND LEASES
Write-offs (payments), Principal		(41,247)
Write-offs (payments), Financial charges		(1,650)
Write-offs (payments), Total		(42,897)
5th issue
LOANS, FINANCING, DEBENTURES AND LEASES
Write-offs (payments), Financial charges	(88,819)	(135,242)
Write-offs (payments), Total	(88,819)	(135,242)
6th issue
LOANS, FINANCING, DEBENTURES AND LEASES
Write-offs (payments), Principal	(1,000,000)
Write-offs (payments), Financial charges	(32,388)	(62,863)
Write-offs (payments), Total	(1,032,388)	(62,863)
Financing - Suppliers
LOANS, FINANCING, DEBENTURES AND LEASES
Additions	370,538	967,313
Write-offs (payments), Principal	(970,029)	(506,407)
Write-offs (payments), Financial charges	(47,703)	(34,816)
Write-offs (payments), Total	(1,017,732)	(541,223)
Leases
LOANS, FINANCING, DEBENTURES AND LEASES
Additions	4,828,542	10,422,013
Write-offs (payments), Principal	(2,909,214)	(1,559,165)
Write-offs (payments), Financial charges	(502,537)	(415,496)
Write-offs (payments), Total	(3,411,751)	R$ (1,974,661)
Contingent Consideration
LOANS, FINANCING, DEBENTURES AND LEASES
Write-offs (payments), Principal	(344,217)
Write-offs (payments), Financial charges	(105,678)
Write-offs (payments), Total	R$ (449,895)

XML

DEFERRED INCOME (Details) - BRL (R$) R$ in Thousands	8 Months Ended
	Dec. 31, 2020	Dec. 31, 2019	Dec. 31, 2018
DEFERRED INCOME
Contractual Liabilities (customers contracts)	R$ 529,179	R$ 499,035	R$ 532,207
Disposal of PP&E	107,367	94,383
Government grants	50,474	61,613
Other	59,224	63,051
Total	746,244	718,082
Current	506,806	506,181
Non-current	239,438	R$ 211,901
Amount of emergency benefits paid directly to employees by Federal Government	R$ 34,590

XML

DEFERRED INCOME - Changes in contractual liabilities (Details) - BRL (R$) R$ in Thousands	12 Months Ended
	Dec. 31, 2020	Dec. 31, 2019
DEFERRED INCOME
Balance at the beginning of period	R$ 499,035	R$ 532,207
Additions	6,901,785	6,762,607
Write-offs, net	(6,871,641)	(6,795,779)
Balance at the end of period	529,179	R$ 499,035
Current	479,728
Non-current	R$ 49,451

XML

DEFERRED INCOME - Expected periods of realization of contractual liabilities (Details) - BRL (R$) R$ in Thousands	Dec. 31, 2020	Dec. 31, 2019	Dec. 31, 2018
DEFERRED INCOME
Total	R$ 529,179	R$ 499,035	R$ 532,207
2021
DEFERRED INCOME
Total	479,728
2022
DEFERRED INCOME
Total	15,824
2023
DEFERRED INCOME
Total	3,499
2024
DEFERRED INCOME
Total	8,089
2025
DEFERRED INCOME
Total	8,089
2026 onwards
DEFERRED INCOME
Total	R$ 13,950

XML

OTHER LIABILITIES (Details) - BRL (R$) R$ in Thousands	Dec. 31, 2020	Dec. 31, 2019
OTHER LIABILITIES
Surplus from post-employment benefit plans (Note 30)	R$ 954,581	R$ 1,155,067
Liabilities with ANATEL	523,606	300,119
Third-party withholdings	219,169	222,056
Amounts to be refunded to customers	44,973	43,794
Liabilities with related parties (Note 28)	33,831	30,114
Other liabilities	48,646	36,781
Total	1,824,806	1,787,931
Current	406,831	365,192
Noncurrent	R$ 1,417,975	R$ 1,422,739

XML

EQUITY - Conversion of preferred shares to common shares (Details) - BRL (R$) R$ / shares in Units, R$ in Thousands	Nov. 19, 2020	Dec. 31, 2020	Oct. 01, 2020	Dec. 31, 2019
Preferred shares
EQUITY
Shares issued			1,119,340,706
Par value per share (in dollars per share)			R$ 0
1 (one) common share			1
Reimbursement Amount Per Share		R$ 41.72
Reimbursement amount per share to be paid corresponding to adjusted shareholders' equity		R$ 40.38
Payment to shareholders who exercised the right to withdraw	R$ 32
Number of shares held by shareholders who exercised the right to withdraw	805
Common and Preferred Shares excluding treasury shares
EQUITY
Shares considered for calculation of adjusted shareholders' equity				1,688,693,776

XML

EQUITY - Capital (Details)	Dec. 31, 2020 shares
EQUITY
Authorized capital	1,850,000,000

XML

EQUITY - Distribution of capital (Details) - BRL (R$) R$ in Thousands	Dec. 31, 2020	Oct. 01, 2020	Dec. 31, 2019
EQUITY
Capital	R$ 63,571,416		R$ 63,571,416
Total shares outstanding	1,688,174,171
Capital
EQUITY
Number	1,690,984,923
Percentage of shares issued	100.00%
Capital | Controlling Group
EQUITY
Number	1,244,241,119
Percentage of shares issued	73.58%
Capital | Telefnica Latinoamrica Holding
EQUITY
Number	407,279,213
Percentage of shares issued	24.09%
Capital | Telefonica
EQUITY
Number	503,329,803
Percentage of shares issued	29.76%
Capital | SP Telecomunicacoes Participacoes
EQUITY
Number	332,695,590
Percentage of shares issued	19.67%
Capital | Telefonica Chile
EQUITY
Number	936,513
Percentage of shares issued	0.06%
Capital | Other shareholders
EQUITY
Number	443,933,052
Percentage of shares issued	26.25%
Treasury shares
EQUITY
Number	2,810,752
Percentage of shares issued	0.17%
Treasury Shares	(2,810,752)
Common shares
EQUITY
Treasury Shares	(2,810,752)		(2,290,164)
Total shares outstanding			446,496,249
Preferred shares
EQUITY
Number		1,119,340,706
Treasury Shares			(983)

XML

EQUITY - Capital reserves (Details) - BRL (R$) R$ in Thousands		12 Months Ended
	Mar. 12, 2015	Dec. 31, 2020	Dec. 31, 2019	Jun. 30, 2020
EQUITY
Total				R$ 1,165,000
Cancelation of treasury shares according to the Special Shareholders' Meeting (SGM) of 3/12/15 (in shares)	2,332,686
Preferred shares
EQUITY
Transfer of lawsuits concerning judicial proceedings (in shares)		62	62
Other capital reserves
EQUITY
Excess of value in the issue or capitalization		R$ 2,735,930	R$ 2,735,930
Cancelation of treasury shares according to the Special Shareholders' Meeting (SGM) of 3/12/15		(112,107)	(112,107)
Direct costs of capital increases		(62,433)	(62,433)
Incorporation of shares of GVTPart		(1,188,707)	(1,188,707)
Preferred shares delivered referring to the judicial process of expansion plan		2	2
Total		1,229,730	1,190,209
Other capital reserves | Telefnica Cibersegurana e Tecnologia do Brasil Ltda ("CyberCo Brasil")
EQUITY
Effects of the acquisition and sale of CyberCo Brasil (9)		39,521
Special goodwill reserve
EQUITY
Tax benefit generated by merger		63,074	63,074
Telefonica Data S.A. (TData) | Other capital reserves
EQUITY
Effects of the acquisition		(59,029)	(59,029)
Terra Networks | Other capital reserves
EQUITY
Effects of the acquisition		76	76
Lemontree and GTR and Tglog | Other capital reserves
EQUITY
Effects of the acquisition		(75,388)	(75,388)
Telefnica Infraestrutura e Segurana Ltda | Other capital reserves
EQUITY
Effects of the acquisition		R$ (48,135)	R$ (48,135)

XML

EQUITY - Capital reserves - Treasury Shares (Details) - BRL (R$) R$ in Thousands	12 Months Ended
	Dec. 31, 2020	Dec. 31, 2019
EQUITY
Balance	R$ 110,541	R$ 87,820
Number of shares acquired	518,800
Amount paid for shares acquired	R$ 22,721
Common shares
EQUITY
Balance (in shares)	2,810,752	2,290,164
Number of shares acquired	286,800
Preferred shares
EQUITY
Balance (in shares)		983
Number of shares acquired	232,000
Treasury shares
EQUITY
Balance (in shares)	2,810,752
Number of shares acquired	519,605
Treasury shares | Common shares
EQUITY
Number of shares acquired	286,800
Treasury shares | Preferred shares
EQUITY
Number of shares acquired	232,805

XML

EQUITY - Legal Reserve and Income reserves (Details) - BRL (R$) R$ in Thousands	12 Months Ended
	Dec. 31, 2020	Dec. 31, 2019	Dec. 31, 2018
EQUITY
Revenue reserve (as a percent)	5.00%
Maximum percentage of revenue reserved in paid-in capital	20.00%
Balance	R$ 3,492,387
Balance	3,149,679	R$ 3,492,387
Income reserves
EQUITY
Balance	3,492,387	4,324,170
Reversal of reserves	(600,000)	(1,700,000)
Recording of reserves	257,292	868,217
Balance	3,149,679	3,492,387	R$ 4,324,170
Legal reserve
EQUITY
Balance	2,834,808	2,584,757
Recording of reserves	238,526	250,051
Balance	3,073,334	2,834,808	2,584,757
Expansion and modernization reserve
EQUITY
Balance	600,000	1,700,000
Reversal of reserves	(600,000)	(1,700,000)	(297,000)
Recording of reserves		600,000
Balance		600,000	1,700,000
Tax incentive reserve
EQUITY
Balance	57,579	39,413
Recording of reserves	18,766	18,166
Balance	R$ 76,345	R$ 57,579	R$ 39,413

XML

EQUITY - Interim dividend and interest on equity (Details) - BRL (R$) R$ / shares in Units, R$ in Thousands			12 Months Ended
	May 28, 2020	Jan. 01, 2018	Dec. 31, 2020	Dec. 31, 2019	Dec. 31, 2018
EQUITY
Allocation of income to additional dividend proposed	R$ 2,195,575
Net income for the year			R$ 4,770,527	R$ 5,001,014	R$ 8,928,258
Allocation to legal reserve			(238,526)	(250,051)
Tax incentives - not distributable			(18,766)	(18,166)
Adjusted net income			4,513,235	4,732,797
Dividend and IOE distributed for the year:			(3,830,000)	(3,588,000)	R$ (4,550,000)
Interest on equity (gross)			(2,630,000)	(2,588,000)
Interim dividends			(1,200,000)	(1,000,000)
Balance of unallocated net income			683,235	1,144,797
Reversal special reserve for modernization and expansion			600,000	1,700,000
Effects of the initial adoption of IFRS 9 and 15, net of taxes in 01.01.18		R$ (138,663)
Unclaimed dividends and interest on equity			99,788	82,898
Actuarial gains (losses) recognized and effect of limitation of surplus plan assets, net of taxes and other changes			204,495	(132,120)
Income available to be distributed			1,587,518	2,795,575
Proposal for Distributions: Special reserve for modernization and expansion				600,000
Proposal for Distributions: Additional proposed dividends			1,587,518	2,195,575
Proposed additional dividends - Net income for the year			987,518	495,575
Proposed additional dividends - Based on prior year's net income, referring to the reversal of the special reserve for expansion and modernization			R$ 600,000	R$ 1,700,000
Mandatory minimum dividend - as percentage of adjusted net income			25.00%	25.00%
Mandatory minimum dividend - 25% of adjusted net income			R$ 1,128,309	R$ 1,183,199
Common shares
EQUITY
Dividend and IOE distributed for the year:			R$ (2,482,909)	R$ (1,134,517)
Total proposed for deliberation - per share			R$ 0.940376	R$ 1.219339
Preferred shares
EQUITY
Dividend and IOE distributed for the year:			R$ (1,347,091)	R$ (2,453,483)
Total proposed for deliberation - per share				R$ 1.341273

XML

EQUITY - Allocation of interim dividend and interest on equity (Details) - BRL (R$) R$ / shares in Units, R$ in Thousands	12 Months Ended
	Dec. 31, 2020	Dec. 31, 2019	Dec. 31, 2018
EQUITY
Total, Gross	R$ 3,830,000	R$ 3,588,000	R$ 4,550,000
IOE, net	3,435,500	3,199,800
Reversal of unclaimed dividends and interest on equity	99,788	82,898
02/14/20
EQUITY
Total, Gross	270,000
IOE, net	229,500
03/19/20
EQUITY
Total, Gross	150,000
IOE, net	127,500
06/17/20
EQUITY
Total, Gross	900,000
IOE, net	765,000
09/17/20
EQUITY
Total, Gross	650,000
IOE, net	552,500
11/16/20
EQUITY
Total, Gross	400,000
IOE, net	340,000
12/15/20
EQUITY
Total, Gross	260,000
Dividends, net	1,200,000
IOE, net	221,000
02/15/19
EQUITY
Total, Gross		700,000
IOE, net		595,000
04/17/19
EQUITY
Total, Gross		570,000
IOE, net		484,500
06/17/19
EQUITY
Total, Gross		968,000
IOE, net		822,800
12/19/19
EQUITY
Total, Gross		350,000
Dividends, net		1,000,000
IOE, net		297,500
Common shares
EQUITY
Total, Gross	2,482,909	1,134,517
IOE, net	2,290,472	1,011,769
Common shares | 02/14/20
EQUITY
Total, Gross	85,373
IOE, net	R$ 72,567
IOE, per share	R$ 0.12745554999
Common shares | 03/19/20
EQUITY
Total, Gross	R$ 47,430
IOE, net	R$ 40,315
IOE, per share	R$ 0.07080863888
Common shares | 06/17/20
EQUITY
Total, Gross	R$ 284,578
IOE, net	R$ 241,891
IOE, per share	R$ 0.42485183332
Common shares | 09/17/20
EQUITY
Total, Gross	R$ 205,528
IOE, net	R$ 174,699
IOE, per share	R$ 0.30683743517
Common shares | 11/16/20
EQUITY
Total, Gross	R$ 400,000
IOE, net	R$ 340,000
IOE, per share	R$ 0.20136681027
Common shares | 12/15/20
EQUITY
Total, Gross	R$ 260,000
Dividends, net	1,200,000
IOE, net	R$ 221,000
Dividends, per share	R$ 0.71082712946
IOE, per share	R$ 0.13091066301
Common shares | 02/15/19
EQUITY
Total, Gross		221,338
IOE, net		R$ 188,137
IOE, per share		R$ 0.33044031480
Common shares | 04/17/19
EQUITY
Total, Gross		R$ 180,233
IOE, net		R$ 153,198
IOE, per share		R$ 0.26907282777
Common shares | 06/17/19
EQUITY
Total, Gross		R$ 306,079
IOE, net		R$ 260,167
IOE, per share		R$ 0.45695174961
Common shares | 12/19/19
EQUITY
Total, Gross		R$ 110,669
Dividends, net		316,198
IOE, net		R$ 94,069
Dividends, per share		R$ 0.55536187362
IOE, per share		R$ 0.16522015740
Preferred shares
EQUITY
Total, Gross	R$ 1,347,091	R$ 2,453,483
IOE, net	1,145,028	2,188,031
Preferred shares | 02/14/20
EQUITY
Total, Gross	184,627
IOE, net	R$ 156,933
IOE, per share	R$ 0.14020110499
Preferred shares | 03/19/20
EQUITY
Total, Gross	R$ 102,570
IOE, net	R$ 87,185
IOE, per share	R$ 0.07788950277
Preferred shares | 06/17/20
EQUITY
Total, Gross	R$ 615,422
IOE, net	R$ 523,109
IOE, per share	R$ 0.46733701665
Preferred shares | 09/17/20
EQUITY
Total, Gross	R$ 444,472
IOE, net	R$ 377,801
IOE, per share	R$ 0.33752117869
Preferred shares | 02/15/19
EQUITY
Total, Gross		478,662
IOE, net		R$ 406,863
IOE, per share		R$ 0.36348434628
Preferred shares | 04/17/19
EQUITY
Total, Gross		R$ 389,767
IOE, net		R$ 331,302
IOE, per share		R$ 0.29598011054
Preferred shares | 06/17/19
EQUITY
Total, Gross		R$ 661,921
IOE, net		R$ 562,633
IOE, per share		R$ 0.50264692458
Preferred shares | 12/19/19
EQUITY
Total, Gross		R$ 239,331
Dividends, net		683,802
IOE, net		R$ 203,431
Dividends, per share		R$ 0.61089806098
IOE, per share		R$ 0.18174217314

XML

EQUITY - Changes in other comprehensive income (Details) - BRL (R$) R$ in Thousands	12 Months Ended
	Dec. 31, 2020	Dec. 31, 2019
Changes in other comprehensive income
Balance	R$ 30,737	R$ 29,225
Translation gains	39,008	1,859
Losses from future contracts	(4,147)	(336)
Gains (Losses) on financial assets at fair value through other comprehensive income	290	(11)
Balance	65,888	30,737
Financial assets at fair value through other comprehensive income
Changes in other comprehensive income
Balance	(9,081)	(9,070)
Gains (Losses) on financial assets at fair value through other comprehensive income	290	(11)
Balance	(8,791)	(9,081)
Derivative transactions
Changes in other comprehensive income
Balance		336
Losses from future contracts	(4,147)	(336)
Balance	(4,147)
Currency translation effects - foreign investments
Changes in other comprehensive income
Balance	39,818	37,959
Translation gains	39,008	1,859
Balance	R$ 78,826	R$ 39,818

XML

EQUITY - Company Share Repurchase Program (Details) - BRL (R$) R$ in Thousands	12 Months Ended
	Dec. 31, 2020	Dec. 31, 2019	Jun. 30, 2020
EQUITY
Acquisition of shares in the financial market	R$ 22,689
Capital reserves			R$ 1,165,000
Number of shares outstanding	1,688,174,171
Number of shares acquired	518,800
Amount paid for shares acquired	R$ 22,721
Common shares
EQUITY
Shares to be acquired under repurchase program		38,320,512
Number of shares outstanding		446,496,249
Number of shares acquired	286,800
Preferred shares
EQUITY
Number of shares acquired	232,000
Treasury shares
EQUITY
Number of shares acquired	519,605
Treasury shares | Common shares
EQUITY
Number of shares acquired	286,800
Treasury shares | Preferred shares
EQUITY
Number of shares acquired	232,805

XML

EQUITY - Earnings per share (Details) - BRL (R$) R$ / shares in Units, shares in Thousands, R$ in Thousands	12 Months Ended
	Dec. 31, 2020	Dec. 31, 2019	Dec. 31, 2018
EQUITY
Net income for the year	R$ 4,770,527	R$ 5,001,014	R$ 8,928,258
Weighted average number of outstanding shares for the year	1,688,615	1,688,694	1,688,694
Common shares
EQUITY
Net income for the year	R$ 1,991,046	R$ 1,581,308	R$ 2,823,093
Weighted average number of outstanding shares for the year	685,522	569,354	569,354
Basic and diluted earnings per share (in R$)	R$ 2.90	R$ 2.78	R$ 4.96
Preferred shares
EQUITY
Net income for the year	R$ 2,779,481	R$ 3,419,706	R$ 6,105,165
Weighted average number of outstanding shares for the year	1,003,093	1,119,340	1,119,340
Basic and diluted earnings per share (in R$)	R$ 2.77	R$ 3.06	R$ 5.45

XML

NET OPERATING REVENUE (Details) - BRL (R$) R$ in Thousands	12 Months Ended
	Dec. 31, 2020	Dec. 31, 2019	Dec. 31, 2018
Revenue breakdown
Gross operating revenue	R$ 63,195,443	R$ 66,571,866	R$ 65,794,397
Deductions from gross operating revenue	(20,068,971)	(22,303,695)	(22,331,657)
Taxes	(13,022,712)	(13,894,361)	(14,559,915)
Discounts granted and return of goods	(7,046,259)	(8,409,334)	(7,771,742)
Net operating revenue	43,126,472	44,268,171	43,462,740
Services
Revenue breakdown
Gross operating revenue	57,293,392	60,129,579	61,292,362
Taxes	(11,981,372)	(12,678,809)	(13,820,784)
Discounts granted and return of goods	(4,968,350)	(6,319,584)	(6,288,941)
Net operating revenue	40,343,670	41,131,186	41,182,637
Sale of goods
Revenue breakdown
Gross operating revenue	5,902,051	6,442,287	4,502,035
Taxes	(1,041,340)	(1,215,552)	(739,131)
Discounts granted and return of goods	(2,077,909)	(2,089,750)	(1,482,801)
Net operating revenue	R$ 2,782,802	R$ 3,136,985	R$ 2,280,103

XML

OPERATING COSTS AND EXPENSES (Details) - BRL (R$) R$ in Thousands	12 Months Ended
	Dec. 31, 2020	Dec. 31, 2019	Dec. 31, 2018
OPERATING COSTS AND EXPENSES
Personnel	R$ (3,740,960)	R$ (3,757,552)	R$ (3,996,140)
Third-party services	(14,087,802)	(14,442,862)	(14,883,457)
Rental, insurance, condominium and connection means	(1,389,661)	(1,523,977)	(3,307,983)
Taxes, charges and contributions	(1,770,116)	(1,670,003)	(1,661,661)
Estimated impairment losses on accounts receivable (Note 4)	(1,740,358)	(1,682,348)	(1,533,660)
Depreciation and amortization	(11,227,498)	(10,919,792)	(8,368,623)
Cost of goods sold	(2,878,533)	(3,156,964)	(2,406,099)
Material and other operating costs and expenses	(254,703)	(204,767)	(299,855)
Total	(37,089,631)	(37,358,265)	(36,457,478)
Depreciation on lease	2,225,639	1,939,401	29,631
Cost of sales and services
OPERATING COSTS AND EXPENSES
Personnel	(775,789)	(758,780)	(872,032)
Third-party services	(7,120,850)	(6,601,587)	(6,656,924)
Rental, insurance, condominium and connection means	(1,284,943)	(1,388,217)	(2,957,489)
Taxes, charges and contributions	(1,690,171)	(1,597,066)	(1,594,836)
Depreciation and amortization	(8,865,855)	(8,624,228)	(6,487,909)
Cost of goods sold	(2,878,533)	(3,156,964)	(2,406,099)
Material and other operating costs and expenses	(76,942)	(32,105)	(50,478)
Total	(22,693,083)	(22,158,947)	(21,025,767)
Selling expenses
OPERATING COSTS AND EXPENSES
Personnel	(2,522,455)	(2,568,363)	(2,574,498)
Third-party services	(5,888,370)	(6,686,452)	(6,989,006)
Rental, insurance, condominium and connection means	(59,578)	(78,401)	(147,613)
Taxes, charges and contributions	(32,517)	(41,810)	(30,703)
Estimated impairment losses on accounts receivable (Note 4)	(1,740,358)	(1,682,348)	(1,533,660)
Depreciation and amortization	(1,495,229)	(1,501,096)	(1,352,638)
Material and other operating costs and expenses	(133,048)	(142,752)	(204,623)
Total	(11,871,555)	(12,701,222)	(12,832,741)
General and administrative expenses
OPERATING COSTS AND EXPENSES
Personnel	(442,716)	(430,409)	(549,610)
Third-party services	(1,078,582)	(1,154,823)	(1,237,527)
Rental, insurance, condominium and connection means	(45,140)	(57,359)	(202,881)
Taxes, charges and contributions	(47,428)	(31,127)	(36,122)
Depreciation and amortization	(866,414)	(794,468)	(528,076)
Material and other operating costs and expenses	(44,713)	(29,910)	(44,754)
Total	R$ (2,524,993)	R$ (2,498,096)	R$ (2,598,970)

XML

OTHER OPERATING INCOME (EXPENSES) - Summary of other operating income (expenses) (Details) - BRL (R$) R$ in Thousands	12 Months Ended
	Dec. 31, 2020	Dec. 31, 2019	Dec. 31, 2018
OTHER OPERATING INCOME (EXPENSES), NET
Recovered expenses and fines	R$ 993,551	R$ 503,777	R$ 3,962,150
Provisions for labor, tax and civil contingencies (Note 19)	(673,905)	(625,480)	(1,258,966)
Net gain (loss) on asset disposal/loss	425,562	408,160	114,853
Other operating income (expenses)	(201,120)	17,561	(367,115)
Total	544,088	304,018	2,450,922
Other operating income	1,419,113	929,498	4,077,003
Other operating expenses	R$ (875,025)	R$ (625,480)	R$ (1,626,081)

XML

OTHER OPERATING INCOME (EXPENSES) - Sale of assets (Details) R$ in Thousands	12 Months Ended
	Dec. 31, 2020 BRL (R$) item	Dec. 31, 2019 BRL (R$)	Dec. 31, 2018 BRL (R$)
Sale of assets
Tax credits arising from final court proceeding in favor of the Company and its subsidiary	R$ 435,698		R$ 3,386,433
Write-off of judicial deposits included in provision for labor, tax and civil contingencies			160,715
Gains (losses) on disposals of non-current assets	425,562	R$ 408,160	R$ 114,853
Rooftops and towers
Sale of assets
Gains (losses) on disposals of non-current assets	R$ 93,257
Number of Structures Sold | item	1,909

XML

FINANCIAL INCOME (EXPENSES) (Details) - BRL (R$) R$ in Thousands	12 Months Ended
	Dec. 31, 2020	Dec. 31, 2019	Dec. 31, 2018
FINANCIAL INCOME (EXPENSES)
Interest income	R$ 177,236	R$ 272,158	R$ 246,083
Interest receivable (customers, taxes and other)	98,232	177,636	118,476
Gain on derivative transactions (Note 31)	181,162	315,351	305,996
Foreign exchange variations on loans and financing (Note 20)		5,140	32,326
Other income with foreign exchange and monetary variation (judicial deposits, taxes and others) (1)	780,663	209,447	3,341,211
Other financial income	114,237	153,138	68,548
Total	1,351,530	1,132,870	4,112,640
Loan, financing, debenture and leases charges (Note 20)	(648,816)	(830,686)	(510,398)
Foreign exchange variation on loans and financing (Note 20)		(4,036)	(61,174)
Loss on derivative transactions (Note 31)	(179,128)	(263,388)	(295,208)
Interest payable (financial institutions, provisions, trade accounts payable, taxes and other)	(129,030)	(144,779)	(186,238)
Other expenses with foreign exchange and monetary variation (contingencies, suppliers, taxes and others)	(805,823)	(615,291)	(963,463)
IOF, PIS, Cofins and other financial expenses	(162,162)	(94,831)	(269,006)
Total	(1,924,959)	(1,953,011)	(2,285,487)
Financial income (expenses), net	(573,429)	(820,141)	1,827,153
Tax credit value included in other revenues from foreign exchange and monetary variation	512,659		2,926,247
Leases charges	R$ 526,127	R$ 457,985	R$ 45,501

XML

BALANCES AND TRANSACTIONS WITH RELATED PARTIES - Balance Sheet (Details) - BRL (R$) R$ in Thousands	Dec. 31, 2020	Dec. 31, 2019
BALANCES AND TRANSACTIONS WITH RELATED PARTIES
Cash and cash equivalents	R$ 47,313	R$ 59,657
Accounts receivable	105,349	129,904
Other assets and prepaid expenses	72,835	64,966
Other assets	72,835	64,966
Trade accounts payable and other payables	489,339	405,271
Trade accounts payable and other payables	489,339	405,271
Leases, current	346,291	55,920
Leases, non-current	1,124,217	424,461
Other liabilities	33,831	30,114
Other liabilities and leases	1,504,339	510,495
Other liabilities, current	33,244	29,529
Other liabilities, non-current	587	585
Parent
BALANCES AND TRANSACTIONS WITH RELATED PARTIES
Accounts receivable	8	10,879
Other assets and prepaid expenses	33,860
Other assets		47,584
Trade accounts payable and other payables	8,274	2,907
Other liabilities		23,564
Other liabilities and leases	28,272
SP Telecomunicacoes Participacoes
BALANCES AND TRANSACTIONS WITH RELATED PARTIES
Accounts receivable	8	6
Other assets and prepaid expenses	9,876
Other assets		4,924
Other liabilities		23,524
Other liabilities and leases	27,599
Telefonica LatinoAmerica Holding
BALANCES AND TRANSACTIONS WITH RELATED PARTIES
Other assets and prepaid expenses	19,188
Other assets		40,105
Telefonica
BALANCES AND TRANSACTIONS WITH RELATED PARTIES
Accounts receivable		10,873
Other assets and prepaid expenses	4,796
Other assets		2,555
Trade accounts payable and other payables	8,274	2,907
Other liabilities		40
Other liabilities and leases	673
Other Group companies
BALANCES AND TRANSACTIONS WITH RELATED PARTIES
Cash and cash equivalents	47,313	59,657
Accounts receivable	105,341	119,025
Other assets and prepaid expenses	38,975
Other assets		17,382
Trade accounts payable and other payables	481,065	402,364
Other liabilities		486,931
Other liabilities and leases	1,476,067
Colombia Telecomunicaciones
BALANCES AND TRANSACTIONS WITH RELATED PARTIES
Accounts receivable	151	159
Other assets		520
Trade accounts payable and other payables	157	816
Telefonica International Wholesale Services
BALANCES AND TRANSACTIONS WITH RELATED PARTIES
Accounts receivable	3,113	1,961
Other assets and prepaid expenses	221
Other assets		69
Trade accounts payable and other payables	52,161	44,835
Other liabilities		318
Other liabilities and leases	318
T.O2 Germany GMBH CO. OHG
BALANCES AND TRANSACTIONS WITH RELATED PARTIES
Accounts receivable	330	1,688
Trade accounts payable and other payables	769	5,000
Telefonica Venezolana
BALANCES AND TRANSACTIONS WITH RELATED PARTIES
Accounts receivable	6,852	6,498
Other assets and prepaid expenses	2,196
Other assets		2,196
Trade accounts payable and other payables	6,038	6,044
Telefonica Digital Espana
BALANCES AND TRANSACTIONS WITH RELATED PARTIES
Accounts receivable	1,151	696
Other assets		300
Trade accounts payable and other payables	115,899	68,015
Telefonica Factoring do Brasil
BALANCES AND TRANSACTIONS WITH RELATED PARTIES
Accounts receivable	8,919	2,782
Other assets and prepaid expenses	62
Other assets		45
Other liabilities		4,057
Other liabilities and leases	1,551
Telefonica Global Technology
BALANCES AND TRANSACTIONS WITH RELATED PARTIES
Trade accounts payable and other payables	30,535	28,854
Telefonica Inteligencia e Seguranca Brasil
BALANCES AND TRANSACTIONS WITH RELATED PARTIES
Accounts receivable	54,249	58,490
Trade accounts payable and other payables	80,254	66,976
Telefonica Servicos de Ensino
BALANCES AND TRANSACTIONS WITH RELATED PARTIES
Accounts receivable	130	153
Other assets and prepaid expenses	24
Other assets		14
Trade accounts payable and other payables	4,480	8,373
Telefonica Moviles Argentina
BALANCES AND TRANSACTIONS WITH RELATED PARTIES
Accounts receivable	5,883	5,145
Trade accounts payable and other payables	757	3,638
Telefonica Moviles Espanha
BALANCES AND TRANSACTIONS WITH RELATED PARTIES
Accounts receivable	1,783	1,536
Trade accounts payable and other payables	1,283	3,488
Telefonica USA
BALANCES AND TRANSACTIONS WITH RELATED PARTIES
Accounts receivable	4,126	5,319
Trade accounts payable and other payables	12,688	16,015
Other liabilities		267
Other liabilities and leases	269
Telfisa Global BV
BALANCES AND TRANSACTIONS WITH RELATED PARTIES
Cash and cash equivalents	47,313	59,657
Telxius Cable Brasil
BALANCES AND TRANSACTIONS WITH RELATED PARTIES
Accounts receivable	4,624	11,382
Other assets and prepaid expenses	223
Other assets		4,895
Trade accounts payable and other payables	18,937	47,168
Other liabilities		1,572
Other liabilities and leases	1,572
Telxius Torres Brasil
BALANCES AND TRANSACTIONS WITH RELATED PARTIES
Accounts receivable	960	5,429
Other assets and prepaid expenses	9,164
Other assets		6,611
Trade accounts payable and other payables	74,655	30,018
Other liabilities		480,589
Other liabilities and leases	1,393,898
Fundacao Telefonica
BALANCES AND TRANSACTIONS WITH RELATED PARTIES
Other liabilities		86
Media Networks Latina America SAC
BALANCES AND TRANSACTIONS WITH RELATED PARTIES
Trade accounts payable and other payables	5,660	9,245
Telefonica Compras Electronicas
BALANCES AND TRANSACTIONS WITH RELATED PARTIES
Trade accounts payable and other payables	32,187	28,169
Terra Networks Mexico, Terra Networks Peru e Terra Networks Argentina
BALANCES AND TRANSACTIONS WITH RELATED PARTIES
Accounts receivable	5,617	5,598
Trade accounts payable and other payables	5,231	7,105
Telefnica Cyber Tech Brasil
BALANCES AND TRANSACTIONS WITH RELATED PARTIES
Accounts receivable	439
Other assets and prepaid expenses	23,416
Trade accounts payable and other payables	15,131
Companhia AIX Participaes
BALANCES AND TRANSACTIONS WITH RELATED PARTIES
Trade accounts payable and other payables		2,050
Other liabilities and leases	78,236
Outras
BALANCES AND TRANSACTIONS WITH RELATED PARTIES
Accounts receivable	7,014	12,189
Other assets and prepaid expenses	3,669
Other assets		2,732
Trade accounts payable and other payables	24,243	26,555
Other liabilities		R$ 42
Other liabilities and leases	R$ 223

XML

BALANCES AND TRANSACTIONS WITH RELATED PARTIES - Income Statement (Details) - BRL (R$) R$ in Thousands	12 Months Ended
	Dec. 31, 2020	Dec. 31, 2019	Dec. 31, 2018
BALANCES AND TRANSACTIONS WITH RELATED PARTIES
Operating revenues	R$ 107,872	R$ 84,542	R$ 126,038
Operating revenues (cost and other expenses)	(1,289,520)	(1,258,289)	(1,289,791)
Financial result	(126,091)	(42,070)	(10,559)
Parent
BALANCES AND TRANSACTIONS WITH RELATED PARTIES
Operating revenues	10	5
Operating revenues (cost and other expenses)	(408,129)	(404,152)	(356,877)
Financial result	(5,946)	(4,375)	(7,603)
SP Telecomunicacoes Participacoes
BALANCES AND TRANSACTIONS WITH RELATED PARTIES
Operating revenues	10	5
Operating revenues (cost and other expenses)	558	497	347
Telefonica LatinoAmerica Holding
BALANCES AND TRANSACTIONS WITH RELATED PARTIES
Operating revenues (cost and other expenses)	19,181	18,309	16,466
Financial result	7,217	851	9,077
Telefonica
BALANCES AND TRANSACTIONS WITH RELATED PARTIES
Operating revenues (cost and other expenses)	(427,868)	(422,958)	(373,690)
Financial result	(13,163)	(5,226)	(16,680)
Other Group companies
BALANCES AND TRANSACTIONS WITH RELATED PARTIES
Operating revenues	107,862	84,537	126,038
Operating revenues (cost and other expenses)	(881,391)	(854,137)	(932,914)
Financial result	(120,145)	(37,695)	(2,956)
Colombia Telecomunicaciones
BALANCES AND TRANSACTIONS WITH RELATED PARTIES
Operating revenues	110	111	250
Operating revenues (cost and other expenses)	306	321	(4,280)
Financial result	118	(17)	(2,145)
Telefonica International Wholesale Services
BALANCES AND TRANSACTIONS WITH RELATED PARTIES
Operating revenues	5,586	757	2,006
Operating revenues (cost and other expenses)	(105,384)	(104,105)	(101,272)
Financial result		(54)
Fundacao Telefonica
BALANCES AND TRANSACTIONS WITH RELATED PARTIES
Operating revenues (cost and other expenses)	(9,998)	(11,971)	(12,223)
Media Networks Latina America SAC
BALANCES AND TRANSACTIONS WITH RELATED PARTIES
Operating revenues (cost and other expenses)	(28,471)	(41,023)	(34,791)
Financial result	(246)	(596)	(1,007)
Telefonica Moviles Espanha
BALANCES AND TRANSACTIONS WITH RELATED PARTIES
Operating revenues	554	410	(209)
Operating revenues (cost and other expenses)	949	(1,737)	(4,166)
Financial result	(62)	545
Telefonica Servicos de Ensino
BALANCES AND TRANSACTIONS WITH RELATED PARTIES
Operating revenues	877	1,085	1,158
Operating revenues (cost and other expenses)	(26,072)	(35,228)	(49,130)
T.O2 Germany GMBH CO. OHG
BALANCES AND TRANSACTIONS WITH RELATED PARTIES
Operating revenues	32	(100)	148
Operating revenues (cost and other expenses)	3,565	489	(1,975)
Financial result	823	1,845
Telefnica Venezolana
BALANCES AND TRANSACTIONS WITH RELATED PARTIES
Operating revenues (cost and other expenses)			(34,534)
Telefonica Compras Electronicas
BALANCES AND TRANSACTIONS WITH RELATED PARTIES
Operating revenues (cost and other expenses)	(33,919)	(30,814)	(124,537)
Financial result			(813)
Telefonica Digital Espana
BALANCES AND TRANSACTIONS WITH RELATED PARTIES
Operating revenues	366	299	2,416
Operating revenues (cost and other expenses)	(142,343)	(127,182)	212
Financial result	(22,992)	(3,016)	2,601
Telefonica Factoring do Brasil
BALANCES AND TRANSACTIONS WITH RELATED PARTIES
Operating revenues	7,674	2,418
Operating revenues (cost and other expenses)	252	239	(36,738)
Financial result	(1,551)	(4,048)	(4,134)
Telefonica Global Technology, S.A.U.
BALANCES AND TRANSACTIONS WITH RELATED PARTIES
Operating revenues			1,568
Operating revenues (cost and other expenses)	(80,784)	(63,947)	(54,210)
Financial result	(6,470)	388
Telefonica International Wholesale Services Espanha
BALANCES AND TRANSACTIONS WITH RELATED PARTIES
Operating revenues	65,246	48,819	53,357
Operating revenues (cost and other expenses)	(88,730)	(75,693)	(64,036)
Financial result	9,451	(4,128)	9,771
Telefonica Moviles Argentina
BALANCES AND TRANSACTIONS WITH RELATED PARTIES
Operating revenues	2,152	4,030	5,916
Operating revenues (cost and other expenses)	1,340	(3,437)	(3,437)
Financial result	200	90
Telefonica USA
BALANCES AND TRANSACTIONS WITH RELATED PARTIES
Operating revenues		38	1,518
Operating revenues (cost and other expenses)	(17,186)	(19,793)	(19,441)
Financial result	(436)	1,700	(539)
Telxius Cable Brasil
BALANCES AND TRANSACTIONS WITH RELATED PARTIES
Operating revenues	12,066	13,585	49,777
Operating revenues (cost and other expenses)	(314,327)	(252,436)	(206,095)
Financial result	(30,251)	(7,415)	(7,896)
Telxius Torres Brasil
BALANCES AND TRANSACTIONS WITH RELATED PARTIES
Operating revenues	8,902	3,652	3,218
Operating revenues (cost and other expenses)	1,178	756	(129,706)
Financial result	(69,137)	(24,144)
Terra Networks Mexico, Terra Networks Peru e Terra Networks Argentina
BALANCES AND TRANSACTIONS WITH RELATED PARTIES
Operating revenues	847	2,535
Operating revenues (cost and other expenses)	(8,428)	(5,639)	(2,794)
Financial result	166	567	1,450
Telefnica Cyber Tech Brasil
BALANCES AND TRANSACTIONS WITH RELATED PARTIES
Operating revenues	347
Operating revenues (cost and other expenses)	(15,544)
Companhia AIX Participaes
BALANCES AND TRANSACTIONS WITH RELATED PARTIES
Operating revenues	28	38	75
Operating revenues (cost and other expenses)		(24,174)	(22,645)
Financial result	(1,252)
Outras
BALANCES AND TRANSACTIONS WITH RELATED PARTIES
Operating revenues	3,075	6,860	4,840
Operating revenues (cost and other expenses)	(17,795)	(58,763)	(27,116)
Financial result	R$ 1,494	R$ 588	R$ (244)

XML

BALANCES AND TRANSACTIONS WITH RELATED PARTIES - Management compensation (Details) - BRL (R$) R$ in Thousands	12 Months Ended
	Dec. 31, 2020	Dec. 31, 2019
BALANCES AND TRANSACTIONS WITH RELATED PARTIES
Key management personnel compensation	R$ 27,802	R$ 25,483
Salaries, benefits and social charges	17,470	16,758
Variable compensation	R$ 10,332	R$ 8,725

XML

SHARE-BASED PAYMENT PLANS (Details) € / shares in Units, € in Thousands, R$ in Thousands		12 Months Ended
	Jun. 08, 2018	Dec. 31, 2020 EUR (€) item € / shares shares	Dec. 31, 2020 BRL (R$) item shares	Dec. 31, 2019 BRL (R$)
SHARE-BASED PAYMENT PLANS
Share price | € / shares		€ 3.2450
Expense from share-based payment transactions with employees | R$			R$ 19,196	R$ 10,833
Consolidated liability balances | R$			R$ 86,296	R$ 40,523
Global Employee Share Plan ("GESP")
SHARE-BASED PAYMENT PLANS
Employee monthly contributions | €		€ 1,800
Acquisition period		12 years	12 years
Retention period		12 years	12 years
Number of purchased shares for which free shares will be granted | shares		2	2
Vesting period		2 years	2 years
Number of free shares entitled for every two purchased shares | shares		1	1
Global Employee Share Plan ("GESP") | Minimum
SHARE-BASED PAYMENT PLANS
Employee monthly contributions | €		€ 25
Global Employee Share Plan ("GESP") | Maximum
SHARE-BASED PAYMENT PLANS
Employee monthly contributions | €		€ 150
TFSP 2018-2020 cycle
SHARE-BASED PAYMENT PLANS
Number of active executives		122	122
Number of potential shares to be received | shares		101,000	101,000
TFSP 2019-2021 cycle
SHARE-BASED PAYMENT PLANS
Number of active executives		152	152
Number of potential shares to be received | shares		128,000	128,000
TFSP 2020-2022 cycle
SHARE-BASED PAYMENT PLANS
Number of active executives		170	170
Number of potential shares to be received | shares		136,400	136,400
Talent future share plan
SHARE-BASED PAYMENT PLANS
Initial life of the plan	3 years	3 years	3 years
Perform Share Plan
SHARE-BASED PAYMENT PLANS
Initial life of the plan	3 years
PSP 2018-2020 cycle
SHARE-BASED PAYMENT PLANS
Number of active executives		94	94
Number of executives appointed under articles Bylaws		2	2
Number of potential shares to be received | shares		740,345	740,345
PSP 2019-2021 cycle
SHARE-BASED PAYMENT PLANS
Number of active executives		94	94
Number of executives appointed under articles Bylaws		3	3
Number of potential shares to be received | shares		995,237	995,237
PSP 2020-2022 cycle
SHARE-BASED PAYMENT PLANS
Number of active executives		106	106
Number of executives appointed under articles Bylaws		3	3
Number of potential shares to be received | shares		601,444	601,444

XML

PENSION PLANS AND OTHER POST-EMPLOYMENT BENEFITS - Sponsored Plans by Type (Details) R$ in Thousands	12 Months Ended
	Dec. 31, 2020 BRL (R$) installment	Dec. 31, 2019 BRL (R$)
PBS Assisted Plan (PBS-A)
PENSION PLANS AND OTHER POST-EMPLOYMENT BENEFITS
Company's participation in distribution of reserves	R$ 215,328
Number of monthly payments for distribution of reserves | installment	36
VISAO Plans
PENSION PLANS AND OTHER POST-EMPLOYMENT BENEFITS
Contributions made by the Company and its subsidiaries	R$ 40,983	R$ 27,963

XML

PENSION PLANS AND OTHER POST-EMPLOYMENT BENEFITS - Reconciliation of net liabilities (assets) (Details) - BRL (R$) R$ in Thousands	Dec. 31, 2020	Dec. 31, 2019	Dec. 31, 2018
Reconciliation of assets and liabilities:
Present value of DB plan obligations	R$ 4,102,059	R$ 4,446,092
Fair value of plan assets	4,415,345	4,698,026
Net liabilities (assets)	(313,286)	(251,934)
Net liabilities (assets)	789,519	934,128	R$ 668,481
Current assets	(82,935)	(71,776)
Noncurrent assets	(82,127)	(149,163)
Current liabilities	22,155	25,557
Noncurrent liabilities	932,426	1,129,510
Post-retirement pension plans
Reconciliation of assets and liabilities:
Present value of DB plan obligations	2,238,700	2,429,478
Fair value of plan assets	3,411,297	3,696,914
Net liabilities (assets)	(1,172,597)	(1,267,436)
Net liabilities (assets)	(91,272)	(138,745)	68,368
Current assets	(82,935)	(71,776)
Noncurrent assets	(82,127)	(149,163)
Current liabilities	6,475	6,937
Noncurrent liabilities	67,315	75,257
Post-retirement health plans
Reconciliation of assets and liabilities:
Present value of DB plan obligations	1,863,359	2,016,614
Fair value of plan assets	1,004,048	1,001,112
Net liabilities (assets)	859,311	1,015,502
Net liabilities (assets)	880,791	1,072,873	600,113
Current liabilities	15,680	18,620
Noncurrent liabilities	865,111	1,054,253
Asset Limitation
Reconciliation of assets and liabilities:
Net liabilities (assets)	1,102,805	1,186,062	1,106,963
Asset Limitation | Post-retirement pension plans
Reconciliation of assets and liabilities:
Net liabilities (assets)	1,081,325	1,128,691	1,056,682
Asset Limitation | Post-retirement health plans
Reconciliation of assets and liabilities:
Net liabilities (assets)	R$ 21,480	R$ 57,371	R$ 50,281

XML

PENSION PLANS AND OTHER POST-EMPLOYMENT BENEFITS - Total expenses recognized in the income statement (Details) - BRL (R$) R$ in Thousands	12 Months Ended
	Dec. 31, 2020	Dec. 31, 2019	Dec. 31, 2018
PENSION PLANS AND OTHER POST-EMPLOYMENT BENEFITS
Current service cost	R$ 29,612	R$ 19,448	R$ 16,653
Net interest on net actuarial assets/liabilities	71,766	62,325	51,966
Total	101,378	81,773	68,619
Post-retirement pension plans
PENSION PLANS AND OTHER POST-EMPLOYMENT BENEFITS
Current service cost	3,036	3,155	2,931
Net interest on net actuarial assets/liabilities	(10,385)	5,713	6,074
Total	(7,349)	8,868	9,005
Post-retirement health plans
PENSION PLANS AND OTHER POST-EMPLOYMENT BENEFITS
Current service cost	26,576	16,293	13,722
Net interest on net actuarial assets/liabilities	82,151	56,612	45,892
Total	R$ 108,727	R$ 72,905	R$ 59,614

XML

PENSION PLANS AND OTHER POST-EMPLOYMENT BENEFITS - Amounts recognized in other comprehensive income (loss) (Details) - BRL (R$) R$ in Thousands	12 Months Ended
	Dec. 31, 2020	Dec. 31, 2019	Dec. 31, 2018
PENSION PLANS AND OTHER POST-EMPLOYMENT BENEFITS
Actuarial (losses) gains	R$ (141,454)	R$ 223,527	R$ (1,643)
Asset limitation effect	(168,457)	(21,867)	95,134
Total	(309,911)	201,660	93,491
Post-retirement pension plans
PENSION PLANS AND OTHER POST-EMPLOYMENT BENEFITS
Actuarial (losses) gains	114,556	(188,889)	(186,170)
Asset limitation effect	(128,320)	(24,297)	188,259
Total	(13,764)	(213,186)	2,089
Post-retirement health plans
PENSION PLANS AND OTHER POST-EMPLOYMENT BENEFITS
Actuarial (losses) gains	(256,010)	412,416	184,527
Asset limitation effect	(40,137)	2,430	(93,125)
Total	R$ (296,147)	R$ 414,846	R$ 91,402

XML

PENSION PLANS AND OTHER POST-EMPLOYMENT BENEFITS - Changes in amount net of liability (asset) of defined benefit, net (Details) - BRL (R$) R$ in Thousands	12 Months Ended
	Dec. 31, 2020	Dec. 31, 2019
PENSION PLANS AND OTHER POST-EMPLOYMENT BENEFITS
Balance at the beginning of the year	R$ 934,128	R$ 668,481
Business combinations		1,994
Expenses	101,378	81,773
Sponsor contributions	(12,891)	(25,761)
Amounts recognized in OCI	(309,911)	201,660
Distribution of reserves	76,815	5,981
Balance at the end of the year	789,519	934,128
Actuarial assets per balance sheet	(165,062)	(220,939)
Actuarial liabilities per balance sheet	954,581	1,155,067
Post-retirement pension plans
PENSION PLANS AND OTHER POST-EMPLOYMENT BENEFITS
Balance at the beginning of the year	(138,745)	68,368
Expenses	(7,349)	8,868
Sponsor contributions	(8,229)	(8,776)
Amounts recognized in OCI	(13,764)	(213,186)
Distribution of reserves	76,815	5,981
Balance at the end of the year	(91,272)	(138,745)
Actuarial assets per balance sheet	(165,062)	(220,939)
Actuarial liabilities per balance sheet	73,790	82,194
Post-retirement health plans
PENSION PLANS AND OTHER POST-EMPLOYMENT BENEFITS
Balance at the beginning of the year	1,072,873	600,113
Business combinations		1,994
Expenses	108,727	72,905
Sponsor contributions	(4,662)	(16,985)
Amounts recognized in OCI	(296,147)	414,846
Balance at the end of the year	880,791	1,072,873
Actuarial liabilities per balance sheet	R$ 880,791	R$ 1,072,873

XML

PENSION PLANS AND OTHER POST-EMPLOYMENT BENEFITS - Changes in defined benefit liability (Details) - BRL (R$) R$ in Thousands	12 Months Ended
	Dec. 31, 2020	Dec. 31, 2019
PENSION PLANS AND OTHER POST-EMPLOYMENT BENEFITS
Balance at the beginning of the year	R$ 934,128	R$ 668,481
Liability assumed after acquisition of company		1,994
Balance at the end of the year	789,519	934,128
Defined benefit liability
PENSION PLANS AND OTHER POST-EMPLOYMENT BENEFITS
Balance at the beginning of the year	4,446,092	3,324,512
Liability assumed after acquisition of company	0	1,994
Current service costs	29,612	19,448
Interest on actuarial liabilities	318,501	296,783
Benefits paid	(219,278)	(219,653)
Member contributions paid	346	323
Actuarial losses (gains) adjusted by experience	(103,871)	320,627
Actuarial losses (gains) adjusted by demographic assumptions	(60,449)	(44,249)
Actuarial losses (gains) adjusted by financial assumptions	(308,894)	746,307
Balance at the end of the year	4,102,059	4,446,092
Post-retirement pension plans
PENSION PLANS AND OTHER POST-EMPLOYMENT BENEFITS
Balance at the beginning of the year	(138,745)	68,368
Balance at the end of the year	(91,272)	(138,745)
Post-retirement pension plans | Defined benefit liability
PENSION PLANS AND OTHER POST-EMPLOYMENT BENEFITS
Balance at the beginning of the year	2,429,478	2,011,355
Current service costs	3,036	3,155
Interest on actuarial liabilities	167,991	175,695
Benefits paid	(171,177)	(165,929)
Member contributions paid	346	323
Actuarial losses (gains) adjusted by experience	(70,783)	93,699
Actuarial losses (gains) adjusted by demographic assumptions	(8,378)
Actuarial losses (gains) adjusted by financial assumptions	(111,813)	311,180
Balance at the end of the year	2,238,700	2,429,478
Post-retirement health plans
PENSION PLANS AND OTHER POST-EMPLOYMENT BENEFITS
Balance at the beginning of the year	1,072,873	600,113
Liability assumed after acquisition of company		1,994
Balance at the end of the year	880,791	1,072,873
Post-retirement health plans | Defined benefit liability
PENSION PLANS AND OTHER POST-EMPLOYMENT BENEFITS
Balance at the beginning of the year	2,016,614	1,313,157
Liability assumed after acquisition of company		1,994
Current service costs	26,576	16,293
Interest on actuarial liabilities	150,510	121,088
Benefits paid	(48,101)	(53,724)
Actuarial losses (gains) adjusted by experience	(33,088)	226,928
Actuarial losses (gains) adjusted by demographic assumptions	(52,071)	(44,249)
Actuarial losses (gains) adjusted by financial assumptions	(197,081)	435,127
Balance at the end of the year	R$ 1,863,359	R$ 2,016,614

XML

PENSION PLANS AND OTHER POST-EMPLOYMENT BENEFITS - Changes in the fair value of plan assets (Details) - BRL (R$) R$ in Thousands	12 Months Ended
	Dec. 31, 2020	Dec. 31, 2019
PENSION PLANS AND OTHER POST-EMPLOYMENT BENEFITS
Balance at the beginning of the year	R$ (934,128)	R$ (668,481)
Asset acquired on acquisition of company		(1,994)
Distribution of reserves	(76,815)	(5,981)
Balance at the end of the year	(789,519)	(934,128)
Fair value of plan assets
PENSION PLANS AND OTHER POST-EMPLOYMENT BENEFITS
Balance at the beginning of the year	4,698,026	3,762,994
Benefits paid	(208,064)	(195,775)
Participants contributions paid	346	323
Sponsor contributions paid	1,676	1,883
Interest income on plan assets	331,935	335,424
Return on plan assets excluding interest income	(331,759)	799,158
Distribution of reserves	(76,815)	(5,981)
Balance at the end of the year	4,415,345	4,698,026
Post-retirement pension plans
PENSION PLANS AND OTHER POST-EMPLOYMENT BENEFITS
Balance at the beginning of the year	138,745	(68,368)
Distribution of reserves	(76,815)	(5,981)
Balance at the end of the year	91,272	138,745
Post-retirement pension plans | Fair value of plan assets
PENSION PLANS AND OTHER POST-EMPLOYMENT BENEFITS
Balance at the beginning of the year	3,696,914	2,999,669
Benefits paid	(164,587)	(159,001)
Participants contributions paid	346	323
Sponsor contributions paid	1,638	1,848
Interest income on plan assets	259,331	266,287
Return on plan assets excluding interest income	(305,530)	593,769
Distribution of reserves	(76,815)	(5,981)
Balance at the end of the year	3,411,297	3,696,914
Post-retirement health plans
PENSION PLANS AND OTHER POST-EMPLOYMENT BENEFITS
Balance at the beginning of the year	(1,072,873)	(600,113)
Asset acquired on acquisition of company		(1,994)
Balance at the end of the year	(880,791)	(1,072,873)
Post-retirement health plans | Fair value of plan assets
PENSION PLANS AND OTHER POST-EMPLOYMENT BENEFITS
Balance at the beginning of the year	1,001,112	763,325
Benefits paid	(43,477)	(36,774)
Sponsor contributions paid	38	35
Interest income on plan assets	72,604	69,137
Return on plan assets excluding interest income	(26,229)	205,389
Balance at the end of the year	R$ 1,004,048	R$ 1,001,112

XML

PENSION PLANS AND OTHER POST-EMPLOYMENT BENEFITS - Changes in assets limitation (Details) - BRL (R$) R$ in Thousands	12 Months Ended
	Dec. 31, 2020	Dec. 31, 2019
PENSION PLANS AND OTHER POST-EMPLOYMENT BENEFITS
Balance at the beginning of the year	R$ 934,128	R$ 668,481
Balance at the end of the year	789,519	934,128
Asset Limitation
PENSION PLANS AND OTHER POST-EMPLOYMENT BENEFITS
Balance at the beginning of the year	1,186,062	1,106,963
Interest on the asset limitation	85,200	100,967
Changes in the assets limitation, except interest	(168,457)	(21,868)
Balance at the end of the year	1,102,805	1,186,062
Post-retirement pension plans
PENSION PLANS AND OTHER POST-EMPLOYMENT BENEFITS
Balance at the beginning of the year	(138,745)	68,368
Balance at the end of the year	(91,272)	(138,745)
Post-retirement pension plans | Asset Limitation
PENSION PLANS AND OTHER POST-EMPLOYMENT BENEFITS
Balance at the beginning of the year	1,128,691	1,056,682
Interest on the asset limitation	80,954	96,306
Changes in the assets limitation, except interest	(128,320)	(24,297)
Balance at the end of the year	1,081,325	1,128,691
Post-retirement health plans
PENSION PLANS AND OTHER POST-EMPLOYMENT BENEFITS
Balance at the beginning of the year	1,072,873	600,113
Balance at the end of the year	880,791	1,072,873
Post-retirement health plans | Asset Limitation
PENSION PLANS AND OTHER POST-EMPLOYMENT BENEFITS
Balance at the beginning of the year	57,371	50,281
Interest on the asset limitation	4,246	4,661
Changes in the assets limitation, except interest	(40,137)	2,429
Balance at the end of the year	R$ 21,480	R$ 57,371

XML

PENSION PLANS AND OTHER POST-EMPLOYMENT BENEFITS - Results projected (Details) R$ in Thousands	12 Months Ended
	Dec. 31, 2020 BRL (R$)
PENSION PLANS AND OTHER POST-EMPLOYMENT BENEFITS
Current service cost	R$ 23,544
Net interest on net defined benefit liability/asset	77,498
Total	101,042
Post-retirement pension plans
PENSION PLANS AND OTHER POST-EMPLOYMENT BENEFITS
Current service cost	2,183
Net interest on net defined benefit liability/asset	7,062
Total	9,245
Post-retirement health plans
PENSION PLANS AND OTHER POST-EMPLOYMENT BENEFITS
Current service cost	21,361
Net interest on net defined benefit liability/asset	70,436
Total	R$ 91,797

XML

PENSION PLANS AND OTHER POST-EMPLOYMENT BENEFITS - Sponsoring company contributions projected (Details) R$ in Thousands	12 Months Ended
	Dec. 31, 2020 BRL (R$)
PENSION PLANS AND OTHER POST-EMPLOYMENT BENEFITS
Sponsor contributions	R$ 8,145
Benefits paid directly by the sponsor	15,686
Total	23,831
Post-retirement pension plans
PENSION PLANS AND OTHER POST-EMPLOYMENT BENEFITS
Sponsor contributions	1,670
Total	1,670
Post-retirement health plans
PENSION PLANS AND OTHER POST-EMPLOYMENT BENEFITS
Sponsor contributions	6,475
Benefits paid directly by the sponsor	15,686
Total	R$ 22,161

XML

PENSION PLANS AND OTHER POST-EMPLOYMENT BENEFITS - Average weighted duration of defined benefit liability (Details)	12 Months Ended
	Dec. 31, 2020	Dec. 31, 2019
Post-retirement pension plans
PENSION PLANS AND OTHER POST-EMPLOYMENT BENEFITS
Average weighted duration of defined benefit liability	7 years 10 months 24 days	8 years 3 months 18 days
Post-retirement health plans
PENSION PLANS AND OTHER POST-EMPLOYMENT BENEFITS
Average weighted duration of defined benefit liability	16 years 3 months 18 days	18 years 1 month 6 days

XML

PENSION PLANS AND OTHER POST-EMPLOYMENT BENEFITS - Actuarial Assumptions (Details)	12 Months Ended
	Dec. 31, 2020	Dec. 31, 2019
PENSION PLANS AND OTHER POST-EMPLOYMENT BENEFITS
Long term inflation rate	3.50%	3.80%
Annual increase in use of healthcare services according to age	4.00%	4.00%
Post-retirement pension plans
PENSION PLANS AND OTHER POST-EMPLOYMENT BENEFITS
Nominal annual adjustment rate of pension benefits	3.50%	3.80%
Visao
PENSION PLANS AND OTHER POST-EMPLOYMENT BENEFITS
Discount rate to present value of defined benefit liability	6.40%	6.60%
Future salary growth rate	6.40%
Mortality table for nondisabled individuals (as a percent)	50.00%	50.00%
Disability table ( as a percent)	50.00%	30.00%
Visao and Tcoprev
PENSION PLANS AND OTHER POST-EMPLOYMENT BENEFITS
Estimated retirement age	60 years	60 years
PBS-A and CTB
PENSION PLANS AND OTHER POST-EMPLOYMENT BENEFITS
Discount rate to present value of defined benefit liability	7.40%	7.20%
Telefnica BD and Tcoprev
PENSION PLANS AND OTHER POST-EMPLOYMENT BENEFITS
Discount rate to present value of defined benefit liability	7.70%	7.00%
Visao and Telefonica BD
PENSION PLANS AND OTHER POST-EMPLOYMENT BENEFITS
Future salary growth rate	4.80%	5.50%
Disability table ( as a percent)	50.00%
PBS-A, CTB and Telefonica BD
PENSION PLANS AND OTHER POST-EMPLOYMENT BENEFITS
Estimated retirement age	57 years	57 years
Mortality table for nondisabled individuals (as a percent)	10.00%	10.00%
Mortality table for disabled individuals (as a percent)	60.00%	40.00%
Telefonica BD Plan
PENSION PLANS AND OTHER POST-EMPLOYMENT BENEFITS
Future salary growth rate	4.60%
Post-retirement health plans
PENSION PLANS AND OTHER POST-EMPLOYMENT BENEFITS
Medical expense growth rate	6.60%	6.90%
Mortality table for nondisabled individuals (as a percent)	10.00%	10.00%
Mortality table for disabled individuals (as a percent)	40.00%	40.00%
Post-retirement health plans, Female participants
PENSION PLANS AND OTHER POST-EMPLOYMENT BENEFITS
Medical service eligibility age	59 years	59 years
Estimated retirement age	59 years	59 years
Post-retirement health plans, Male participants
PENSION PLANS AND OTHER POST-EMPLOYMENT BENEFITS
Medical service eligibility age	63 years	63 years
Estimated retirement age	63 years	63 years
CTB
PENSION PLANS AND OTHER POST-EMPLOYMENT BENEFITS
Discount rate to present value of defined benefit liability	7.00%

XML

PENSION PLANS AND OTHER POST-EMPLOYMENT BENEFITS - Changes in Actuarial Assumptions in Relation to Prior Year (Details) - BRL (R$) R$ in Thousands	12 Months Ended
	Dec. 31, 2020	Dec. 31, 2019	Dec. 31, 2018
PENSION PLANS AND OTHER POST-EMPLOYMENT BENEFITS
Defined benefit liability	R$ 789,519	R$ 934,128	R$ 668,481
Post-retirement pension plans
PENSION PLANS AND OTHER POST-EMPLOYMENT BENEFITS
Defined benefit liability	(91,272)	(138,745)	68,368
Post-retirement health plans
PENSION PLANS AND OTHER POST-EMPLOYMENT BENEFITS
Defined benefit liability	880,791	1,072,873	600,113
Defined benefit liability
PENSION PLANS AND OTHER POST-EMPLOYMENT BENEFITS
Defined benefit liability	4,102,059	4,446,092	3,324,512
Difference from change in actuarial assumptions	(369,342)
Defined benefit liability | Post-retirement pension plans
PENSION PLANS AND OTHER POST-EMPLOYMENT BENEFITS
Defined benefit liability	2,238,700	2,429,478	2,011,355
Difference from change in actuarial assumptions	(120,191)
Defined benefit liability | Post-retirement health plans
PENSION PLANS AND OTHER POST-EMPLOYMENT BENEFITS
Defined benefit liability	1,863,359	R$ 2,016,614	R$ 1,313,157
Difference from change in actuarial assumptions	(249,151)
Based on prior-year actuarial assumptions | Defined benefit liability
PENSION PLANS AND OTHER POST-EMPLOYMENT BENEFITS
Defined benefit liability	(4,471,401)
Based on prior-year actuarial assumptions | Defined benefit liability | Post-retirement pension plans
PENSION PLANS AND OTHER POST-EMPLOYMENT BENEFITS
Defined benefit liability	(2,358,891)
Based on prior-year actuarial assumptions | Defined benefit liability | Post-retirement health plans
PENSION PLANS AND OTHER POST-EMPLOYMENT BENEFITS
Defined benefit liability	R$ (2,112,510)

XML

PENSION PLANS AND OTHER POST-EMPLOYMENT BENEFITS - Sensitivity analysis for actuarial assumptions (Details) - BRL (R$) R$ in Thousands	Dec. 31, 2020	Dec. 31, 2019
PENSION PLANS AND OTHER POST-EMPLOYMENT BENEFITS
Defined benefit liability, discounted to present value at current rate	R$ 4,102,059	R$ 4,446,092
Discount rate
PENSION PLANS AND OTHER POST-EMPLOYMENT BENEFITS
Increase in actuarial assumption (as a percent)	0.50%
Decrease in actuarial assumption (as a percent)	0.50%
Defined benefit liability, discounted to present value at current rate	R$ 4,102,059
Defined benefit liability, discounted to present value considering a rate increased by 0.5%	3,881,766
Defined benefit liability, discounted to present value considering a rate decreased by 0.5%	R$ 4,344,112
Rate of growth of medical costs
PENSION PLANS AND OTHER POST-EMPLOYMENT BENEFITS
Increase in actuarial assumption (as a percent)	1.00%
Decrease in actuarial assumption (as a percent)	1.00%
Defined benefit liability, discounted to present value at current rate	R$ 4,102,059
Defined benefit liability, discounted to present value considering a rate increased by 0.5%	4,415,179
Defined benefit liability, discounted to present value considering a rate decreased by 0.5%	3,850,201
Post-retirement pension plans
PENSION PLANS AND OTHER POST-EMPLOYMENT BENEFITS
Defined benefit liability, discounted to present value at current rate	2,238,700	2,429,478
Post-retirement pension plans | Discount rate
PENSION PLANS AND OTHER POST-EMPLOYMENT BENEFITS
Defined benefit liability, discounted to present value at current rate	2,238,700
Defined benefit liability, discounted to present value considering a rate increased by 0.5%	2,152,416
Defined benefit liability, discounted to present value considering a rate decreased by 0.5%	2,332,035
Post-retirement pension plans | Rate of growth of medical costs
PENSION PLANS AND OTHER POST-EMPLOYMENT BENEFITS
Defined benefit liability, discounted to present value at current rate	2,238,700
Defined benefit liability, discounted to present value considering a rate increased by 0.5%	2,238,700
Defined benefit liability, discounted to present value considering a rate decreased by 0.5%	2,238,700
Post-retirement health plans
PENSION PLANS AND OTHER POST-EMPLOYMENT BENEFITS
Defined benefit liability, discounted to present value at current rate	1,863,359	R$ 2,016,614
Post-retirement health plans | Discount rate
PENSION PLANS AND OTHER POST-EMPLOYMENT BENEFITS
Defined benefit liability, discounted to present value at current rate	1,863,359
Defined benefit liability, discounted to present value considering a rate increased by 0.5%	1,729,350
Defined benefit liability, discounted to present value considering a rate decreased by 0.5%	2,012,077
Post-retirement health plans | Rate of growth of medical costs
PENSION PLANS AND OTHER POST-EMPLOYMENT BENEFITS
Defined benefit liability, discounted to present value at current rate	1,863,359
Defined benefit liability, discounted to present value considering a rate increased by 0.5%	2,176,479
Defined benefit liability, discounted to present value considering a rate decreased by 0.5%	R$ 1,611,501

XML

PENSION PLANS AND OTHER POST-EMPLOYMENT BENEFITS - Allocation of plan assets (Details) - BRL (R$) R$ in Thousands	Dec. 31, 2020	Dec. 31, 2019
Allocation of plan assets
Total	R$ 4,415,345	R$ 4,698,026
Post-retirement pension plans
Allocation of plan assets
Total	3,411,297	3,696,914
Post-retirement pension plans | Investments linked to funds and market indexes
Allocation of plan assets
Variable income investments	5,678	6,265
Post-retirement pension plans | Market value quoted in active market
Allocation of plan assets
Real estate investments	90,325	100,701
Structured investments	1,967	2,104
Post-retirement pension plans | Market value quoted in active market | National Treasury Note (NTN)
Allocation of plan assets
Fixed income investments and Loans to participants	2,878,204	3,067,926
Post-retirement pension plans | Market value quoted in active market | Treasury Financial Letter (LFT)
Allocation of plan assets
Fixed income investments and Loans to participants	183,744	270,676
Post-retirement pension plans | Market value quoted in active market | Repurchase operations
Allocation of plan assets
Fixed income investments and Loans to participants	171,534	172,895
Post-retirement pension plans | Market value quoted in active market | Debentures
Allocation of plan assets
Fixed income investments and Loans to participants	22,104	16,818
Post-retirement pension plans | Market value quoted in active market | Financial bills
Allocation of plan assets
Fixed income investments and Loans to participants	15,099	14,238
Post-retirement pension plans | Market value quoted in active market | FIDC shares / Others
Allocation of plan assets
Fixed income investments and Loans to participants	22,815	24,517
Post-retirement pension plans | Market value quoted in active market | National Treasury Notes (LTN)
Allocation of plan assets
Fixed income investments and Loans to participants	167	282
Post-retirement pension plans | Market value quoted in active market | Investments in other sectors
Allocation of plan assets
Variable income investments	286	622
Post-retirement pension plans | Market value quoted in active market | Loans to participants
Allocation of plan assets
Fixed income investments and Loans to participants	19,374	19,870
Post-retirement health plans
Allocation of plan assets
Total	1,004,048	1,001,112
Post-retirement health plans | Market value quoted in active market | National Treasury Note (NTN)
Allocation of plan assets
Fixed income investments and Loans to participants	938,986	940,144
Post-retirement health plans | Market value quoted in active market | Treasury Financial Letter (LFT)
Allocation of plan assets
Fixed income investments and Loans to participants	R$ 65,062	R$ 60,968

XML

FINANCIAL INSTRUMENTS AND RISK AND CAPITAL MANAGEMENT - Impairment of financial assets (Details)	12 Months Ended
	Dec. 31, 2020 item
Impairment of financial assets
Number of collection cycles	24

XML

FINANCIAL INSTRUMENTS AND RISK AND CAPITAL MANAGEMENT - Fair value (Details) - BRL (R$) R$ in Thousands	12 Months Ended
	Dec. 31, 2020	Dec. 31, 2019
FINANCIAL INSTRUMENTS AND RISK AND CAPITAL MANAGEMENT
Transfers from level 1 to 2 assets	R$ 0	R$ 0
Transfers from level 2 to 1 assets	0	0
Transfers from level 1 to 2 liabilities	0	0
Transfers from level 2 to 1 liabilities	0	0
Transfers in to level 3	0	0
Transfers out of level 3	R$ 0	R$ 0

XML

FINANCIAL INSTRUMENTS AND RISK AND CAPITAL MANAGEMENT - Derivative financial instruments (Details) - BRL (R$) R$ in Thousands	12 Months Ended
	Dec. 31, 2020	Dec. 31, 2019
FINANCIAL INSTRUMENTS AND RISK AND CAPITAL MANAGEMENT
Derivative financial instruments for speculative purposes	0
Embedded derivative financial instruments held	0	0
Threshold business days for linear convention	360 days
Threshold business days for exponential convention	252 days

XML

FINANCIAL INSTRUMENTS AND RISK AND CAPITAL MANAGEMENT - Breakdown of swaps (Details) - BRL (R$) R$ in Thousands	12 Months Ended
	Dec. 31, 2020	Dec. 31, 2019
Derivative financial instruments break down of swaps
Total	R$ (5,564)	R$ 16,030
(Net) result of transactions with derivatives	2,034	R$ (51,963)
2021
Derivative financial instruments break down of swaps
Total	(2,962)
2022
Derivative financial instruments break down of swaps
Total	5,015
2023
Derivative financial instruments break down of swaps
Total	5,160
2024
Derivative financial instruments break down of swaps
Total	5,137
2025
Derivative financial instruments break down of swaps
Total	5,076
2026 onwards
Derivative financial instruments break down of swaps
Total	(22,990)
Foreign currency x CDI
Derivative financial instruments break down of swaps
Total	(299)
Foreign currency x CDI | 2021
Derivative financial instruments break down of swaps
Total	(299)
CDI x Foreign Currency
Derivative financial instruments break down of swaps
Total	(582)
CDI x Foreign Currency | 2021
Derivative financial instruments break down of swaps
Total	(582)
IPCA x CDI
Derivative financial instruments break down of swaps
Total	1,908
IPCA x CDI | 2021
Derivative financial instruments break down of swaps
Total	4,510
IPCA x CDI | 2022
Derivative financial instruments break down of swaps
Total	5,015
IPCA x CDI | 2023
Derivative financial instruments break down of swaps
Total	5,160
IPCA x CDI | 2024
Derivative financial instruments break down of swaps
Total	5,137
IPCA x CDI | 2025
Derivative financial instruments break down of swaps
Total	5,076
IPCA x CDI | 2026 onwards
Derivative financial instruments break down of swaps
Total	(22,990)
NDF US$ x Fixed rate
Derivative financial instruments break down of swaps
Total	(6,591)
NDF US$ x Fixed rate | 2021
Derivative financial instruments break down of swaps
Total	R$ (6,591)

XML

FINANCIAL INSTRUMENTS AND RISK AND CAPITAL MANAGEMENT - Derivatives financial instruments classified as swaps (Details) € in Thousands, R$ in Thousands	Dec. 31, 2020 EUR (€)	Dec. 31, 2020 BRL (R$)	Dec. 31, 2019 BRL (R$)	Dec. 31, 2018 BRL (R$)
Derivatives financial instruments
Current		R$ 5,902	R$ 19,282
Non Current		63,514	52,881
Current		(8,864)	(1,921)
Non Current		(66,116)	(54,212)
Total		(5,564)	16,030
Carrying amount		13,239,166	13,824,673	R$ 6,139,437
Foreign currency swaps maturing in 2033 to hedge risk of change in finance lease rate pegged to IPCA
Derivatives financial instruments
Notional Value		246,816
Carrying amount		276,167
Foreign currency swaps (Euro and CDI x Euro) maturing through February 19, 2021
Derivatives financial instruments
Notional Value		92,924
Carrying amount		92,928
Foreign currency swaps (US$ and CDI x US$) maturing through February 19, 2021
Derivatives financial instruments
Currency risk affecting net amount payable		51,545
Currency risk affecting net amount receivable | €	€ 51,545
Foreign currency swaps (NDF US$ x R$) with maturity up to June 11, 2021
Derivatives financial instruments
Notional Value		119,838
Book value of exchange risk		119,838
Assets position
Derivatives financial instruments
Notional Value		411,650	515,261
Accumulated effects from fair value Amount receivable or payable		69,416	72,163
Current		5,902	19,282
Non Current		63,514	52,881
Assets position | Floating interest rate
Derivatives financial instruments
Notional Value		44,560	369,491
Accumulated effects from fair value Amount receivable or payable		127	1,818
Assets position | CDI
Derivatives financial instruments
Notional Value		44,560	369,491
Accumulated effects from fair value Amount receivable or payable		127	1,818
Assets position | Inflation rates
Derivatives financial instruments
Notional Value		50,768	72,980
Accumulated effects from fair value Amount receivable or payable		68,024	70,345
Assets position | IPCA
Derivatives financial instruments
Notional Value		50,768	72,980
Accumulated effects from fair value Amount receivable or payable		68,024	70,345
Assets position | Foreign currency
Derivatives financial instruments
Notional Value		316,322	72,790
Accumulated effects from fair value Amount receivable or payable		1,265
Assets position | NDF US$
Derivatives financial instruments
Notional Value		126,706
Accumulated effects from fair value Amount receivable or payable		71
Assets position | US Dollar
Derivatives financial instruments
Notional Value		97,753	72,790
Accumulated effects from fair value Amount receivable or payable		306
Assets position | Euro
Derivatives financial instruments
Notional Value		91,863
Accumulated effects from fair value Amount receivable or payable		888
Liabilities position
Derivatives financial instruments
Notional value for liabilities position		(411,650)	(515,261)
Short position		(74,980)	(56,133)
Current		(8,864)	(1,921)
Non Current		(66,116)	(54,212)
Liabilities position | Floating interest rate
Derivatives financial instruments
Notional value for liabilities position		(240,384)	(145,770)
Short position		(67,609)	(56,133)
Liabilities position | Fixed rate
Derivatives financial instruments
Notional value for liabilities position		(126,706)
Accumulated effects from fair value Amount receivable or payable		(6,662)
Liabilities position | NDF US$
Derivatives financial instruments
Notional value for liabilities position		(126,706)
Accumulated effects from fair value Amount receivable or payable		(6,662)
Liabilities position | CDI
Derivatives financial instruments
Notional value for liabilities position		(240,384)	(145,770)
Short position		(67,609)	(56,133)
Liabilities position | Foreign currency
Derivatives financial instruments
Notional value for liabilities position		(44,560)	(369,491)
Short position		(709)
Liabilities position | US Dollar
Derivatives financial instruments
Notional value for liabilities position		(44,560)	(365,161)
Short position		R$ (709)
Liabilities position | Euro
Derivatives financial instruments
Notional value for liabilities position			R$ (4,330)

XML

FINANCIAL INSTRUMENTS AND RISK AND CAPITAL MANAGEMENT - Sensitivity analysis assumptions (Details)	12 Months Ended
	Dec. 31, 2020
Probable | IPCA
Sensitivity analysis assumptions
Risk Variable (as a percent)	4.31%
Probable | IGPM
Sensitivity analysis assumptions
Risk Variable (as a percent)	23.14%
Probable | CDI
Sensitivity analysis assumptions
Risk Variable (as a percent)	1.90%
Probable | US Dollar
Sensitivity analysis assumptions
Risk Variable Ratio	5.1967
Probable | Euro
Sensitivity analysis assumptions
Risk Variable Ratio	6.3756
25% depreciation | IPCA
Sensitivity analysis assumptions
Risk Variable (as a percent)	5.39%
25% depreciation | IGPM
Sensitivity analysis assumptions
Risk Variable (as a percent)	28.93%
25% depreciation | CDI
Sensitivity analysis assumptions
Risk Variable (as a percent)	2.38%
25% depreciation | US Dollar
Sensitivity analysis assumptions
Risk Variable Ratio	6.4959
25% depreciation | Euro
Sensitivity analysis assumptions
Risk Variable Ratio	7.9695
50% depreciation | IPCA
Sensitivity analysis assumptions
Risk Variable (as a percent)	6.47%
50% depreciation | IGPM
Sensitivity analysis assumptions
Risk Variable (as a percent)	34.71%
50% depreciation | CDI
Sensitivity analysis assumptions
Risk Variable (as a percent)	2.85%
50% depreciation | US Dollar
Sensitivity analysis assumptions
Risk Variable Ratio	7.7951
50% depreciation | Euro
Sensitivity analysis assumptions
Risk Variable Ratio	9.5634

XML

FINANCIAL INSTRUMENTS AND RISK AND CAPITAL MANAGEMENT - Sensitivity analysis net exposure (Details) R$ in Thousands	12 Months Ended
	Dec. 31, 2020 BRL (R$) item
FINANCIAL INSTRUMENTS AND RISK AND CAPITAL MANAGEMENT
Percentage of risk deterioration for scenario one	25.00%
Percentage of risk deterioration for scenario two	50.00%
Number of scenarios | item	3
Probable
FINANCIAL INSTRUMENTS AND RISK AND CAPITAL MANAGEMENT
Net exposure in euro	R$ (44)
Net exposure in IPCA	(29,352)
Net exposure in hedge CDI position	(41,162)
Total net exposure in each scenario	(70,558)
Probable | Hedge (assets position) derivatives depreciation risk in Euro
FINANCIAL INSTRUMENTS AND RISK AND CAPITAL MANAGEMENT
Net exposure in euro	92,924
Probable | Debt appreciation risk for payables in Euro
FINANCIAL INSTRUMENTS AND RISK AND CAPITAL MANAGEMENT
Net exposure in euro	(94,517)
Probable | Debt depreciation risk for receivables in Euro
FINANCIAL INSTRUMENTS AND RISK AND CAPITAL MANAGEMENT
Net exposure in euro	1,549
Probable | Hedge (assets position) derivatives depreciation risk in US dollars
FINANCIAL INSTRUMENTS AND RISK AND CAPITAL MANAGEMENT
Net exposure in us dollars hedge short position	51,545
Probable | Debt appreciation risk for payables in US dollars
FINANCIAL INSTRUMENTS AND RISK AND CAPITAL MANAGEMENT
Net exposure in us dollars hedge short position	(284,102)
Probable | Debt depreciation risk for receivables in US dollars
FINANCIAL INSTRUMENTS AND RISK AND CAPITAL MANAGEMENT
Net exposure in us dollars hedge short position	232,557
Probable | Hedge (assets position) derivatives risk of decrease risk in IPCA
FINANCIAL INSTRUMENTS AND RISK AND CAPITAL MANAGEMENT
Net exposure in IPCA	246,815
Probable | Debt risk of increase in IPCA
FINANCIAL INSTRUMENTS AND RISK AND CAPITAL MANAGEMENT
Net exposure in IPCA	(276,167)
Probable | Hedge (assets position), Derivatives (depreciation risk US$) in OPex em US$
FINANCIAL INSTRUMENTS AND RISK AND CAPITAL MANAGEMENT
Net exposure in IPCA	119,838
Probable | OPex (appreciation risk US$)
FINANCIAL INSTRUMENTS AND RISK AND CAPITAL MANAGEMENT
Net exposure in IPCA	(119,838)
Probable | Hedge US $ and Euro (liabilities position) derivative risk decrease in CDI
FINANCIAL INSTRUMENTS AND RISK AND CAPITAL MANAGEMENT
Net exposure in hedge CDI position	205,654
Probable | Hedge IPCA (liabilities position) derivatives risk of increase in CDI
FINANCIAL INSTRUMENTS AND RISK AND CAPITAL MANAGEMENT
Net exposure in hedge CDI position	(246,816)
25% depreciation
FINANCIAL INSTRUMENTS AND RISK AND CAPITAL MANAGEMENT
Net exposure in euro	(54)
Net exposure in IPCA	(29,352)
Net exposure in hedge CDI position	(27,529)
Total net exposure in each scenario	(56,935)
Net effect on changes in current fair value	13,623
25% depreciation | Hedge (assets position) derivatives depreciation risk in Euro
FINANCIAL INSTRUMENTS AND RISK AND CAPITAL MANAGEMENT
Net exposure in euro	116,155
25% depreciation | Debt appreciation risk for payables in Euro
FINANCIAL INSTRUMENTS AND RISK AND CAPITAL MANAGEMENT
Net exposure in euro	(118,146)
25% depreciation | Debt depreciation risk for receivables in Euro
FINANCIAL INSTRUMENTS AND RISK AND CAPITAL MANAGEMENT
Net exposure in euro	1,937
25% depreciation | Hedge (assets position) derivatives depreciation risk in US dollars
FINANCIAL INSTRUMENTS AND RISK AND CAPITAL MANAGEMENT
Net exposure in us dollars hedge short position	64,431
25% depreciation | Debt appreciation risk for payables in US dollars
FINANCIAL INSTRUMENTS AND RISK AND CAPITAL MANAGEMENT
Net exposure in us dollars hedge short position	(355,127)
25% depreciation | Debt depreciation risk for receivables in US dollars
FINANCIAL INSTRUMENTS AND RISK AND CAPITAL MANAGEMENT
Net exposure in us dollars hedge short position	290,696
25% depreciation | Hedge (assets position) derivatives risk of decrease risk in IPCA
FINANCIAL INSTRUMENTS AND RISK AND CAPITAL MANAGEMENT
Net exposure in IPCA	233,184
25% depreciation | Debt risk of increase in IPCA
FINANCIAL INSTRUMENTS AND RISK AND CAPITAL MANAGEMENT
Net exposure in IPCA	(262,536)
25% depreciation | Hedge (assets position), Derivatives (depreciation risk US$) in OPex em US$
FINANCIAL INSTRUMENTS AND RISK AND CAPITAL MANAGEMENT
Net exposure in IPCA	149,798
25% depreciation | OPex (appreciation risk US$)
FINANCIAL INSTRUMENTS AND RISK AND CAPITAL MANAGEMENT
Net exposure in IPCA	(149,798)
25% depreciation | Hedge US $ and Euro (liabilities position) derivative risk decrease in CDI
FINANCIAL INSTRUMENTS AND RISK AND CAPITAL MANAGEMENT
Net exposure in hedge CDI position	205,655
25% depreciation | Hedge IPCA (liabilities position) derivatives risk of increase in CDI
FINANCIAL INSTRUMENTS AND RISK AND CAPITAL MANAGEMENT
Net exposure in hedge CDI position	(233,184)
50% depreciation
FINANCIAL INSTRUMENTS AND RISK AND CAPITAL MANAGEMENT
Net exposure in euro	(67)
Net exposure in IPCA	(29,352)
Net exposure in hedge CDI position	(15,212)
Total net exposure in each scenario	(44,631)
Net effect on changes in current fair value	25,927
50% depreciation | Hedge (assets position) derivatives depreciation risk in Euro
FINANCIAL INSTRUMENTS AND RISK AND CAPITAL MANAGEMENT
Net exposure in euro	139,386
50% depreciation | Debt appreciation risk for payables in Euro
FINANCIAL INSTRUMENTS AND RISK AND CAPITAL MANAGEMENT
Net exposure in euro	(141,777)
50% depreciation | Debt depreciation risk for receivables in Euro
FINANCIAL INSTRUMENTS AND RISK AND CAPITAL MANAGEMENT
Net exposure in euro	2,324
50% depreciation | Hedge (assets position) derivatives depreciation risk in US dollars
FINANCIAL INSTRUMENTS AND RISK AND CAPITAL MANAGEMENT
Net exposure in us dollars hedge short position	77,318
50% depreciation | Debt appreciation risk for payables in US dollars
FINANCIAL INSTRUMENTS AND RISK AND CAPITAL MANAGEMENT
Net exposure in us dollars hedge short position	(426,153)
50% depreciation | Debt depreciation risk for receivables in US dollars
FINANCIAL INSTRUMENTS AND RISK AND CAPITAL MANAGEMENT
Net exposure in us dollars hedge short position	348,835
50% depreciation | Hedge (assets position) derivatives risk of decrease risk in IPCA
FINANCIAL INSTRUMENTS AND RISK AND CAPITAL MANAGEMENT
Net exposure in IPCA	220,868
50% depreciation | Debt risk of increase in IPCA
FINANCIAL INSTRUMENTS AND RISK AND CAPITAL MANAGEMENT
Net exposure in IPCA	(250,220)
50% depreciation | Hedge (assets position), Derivatives (depreciation risk US$) in OPex em US$
FINANCIAL INSTRUMENTS AND RISK AND CAPITAL MANAGEMENT
Net exposure in IPCA	179,757
50% depreciation | OPex (appreciation risk US$)
FINANCIAL INSTRUMENTS AND RISK AND CAPITAL MANAGEMENT
Net exposure in IPCA	(179,757)
50% depreciation | Hedge US $ and Euro (liabilities position) derivative risk decrease in CDI
FINANCIAL INSTRUMENTS AND RISK AND CAPITAL MANAGEMENT
Net exposure in hedge CDI position	205,656
50% depreciation | Hedge IPCA (liabilities position) derivatives risk of increase in CDI
FINANCIAL INSTRUMENTS AND RISK AND CAPITAL MANAGEMENT
Net exposure in hedge CDI position	R$ (220,868)

XML

FINANCIAL INSTRUMENTS AND RISK AND CAPITAL MANAGEMENT - Composition of consolidated financial assets and liabilities (Details) - BRL (R$) R$ in Thousands	Dec. 31, 2020	Dec. 31, 2019
FINANCIAL INSTRUMENTS AND RISK AND CAPITAL MANAGEMENT
Financial assets Book value	R$ 14,440,342	R$ 12,689,256
Financial assets Fair value	14,440,342	12,689,256
Financial liabilities Book value	19,927,150	20,752,605
Fair value of financial liabilities	19,899,778	20,702,261
Cash and cash equivalents | Amortized cost
FINANCIAL INSTRUMENTS AND RISK AND CAPITAL MANAGEMENT
Current financial assets Book value	5,762,081	3,393,377
Current financial assets Fair value	5,762,081	3,393,377
Investments pledged as collateral | Amortized cost
FINANCIAL INSTRUMENTS AND RISK AND CAPITAL MANAGEMENT
Noncurrent financial assets Book value	46,280	63,766
Noncurrent financial assets Fair value	46,280	63,766
Trade accounts receivable | Amortized cost
FINANCIAL INSTRUMENTS AND RISK AND CAPITAL MANAGEMENT
Current financial assets Book value	8,182,667	8,719,497
Noncurrent financial assets Book value	379,898	440,453
Current financial assets Fair value	8,182,667	8,719,497
Noncurrent financial assets Fair value	379,898	440,453
Derivative financial instruments | Measured at fair value through OCI | Level 2
FINANCIAL INSTRUMENTS AND RISK AND CAPITAL MANAGEMENT
Current financial assets Book value	5,902	19,282
Noncurrent financial assets Book value	63,514	52,881
Current financial assets Fair value	5,902	19,282
Noncurrent financial assets Fair value	63,514	52,881
Trade accounts payable | Amortized cost
FINANCIAL INSTRUMENTS AND RISK AND CAPITAL MANAGEMENT
Current financial liabilities Book value	6,613,004	6,871,799
Current financial liabilities Fair value	6,613,004	6,871,799
Loans and financing | Amortized cost
FINANCIAL INSTRUMENTS AND RISK AND CAPITAL MANAGEMENT
Current financial liabilities Book value	375,756	1,020,061
Noncurrent financial liabilities Book value	51	25,093
Current financial liabilities Fair value	375,772	1,021,810
Noncurrent financial liabilities Fair value	49	24,106
Loans and financing | Measured at fair value through profit or loss | Level 2
FINANCIAL INSTRUMENTS AND RISK AND CAPITAL MANAGEMENT
Current financial liabilities Book value	2,262,048	2,029,246
Noncurrent financial liabilities Book value	8,556,735	7,161,875
Current financial liabilities Fair value	2,262,048	2,029,246
Noncurrent financial liabilities Fair value	8,556,735	7,161,875
Debentures | Amortized cost
FINANCIAL INSTRUMENTS AND RISK AND CAPITAL MANAGEMENT
Current financial liabilities Book value	1,044,668	1,077,183
Noncurrent financial liabilities Book value	999,908	2,027,167
Current financial liabilities Fair value	1,030,528	1,104,539
Noncurrent financial liabilities Fair value	986,662	1,948,705
Derivative financial instruments | Measured at fair value through profit or loss | Level 2
FINANCIAL INSTRUMENTS AND RISK AND CAPITAL MANAGEMENT
Current financial liabilities Book value	8,864	1,921
Current financial liabilities Fair value	8,864	1,921
Derivative financial instruments | Measured at fair value through OCI | Level 2
FINANCIAL INSTRUMENTS AND RISK AND CAPITAL MANAGEMENT
Noncurrent financial liabilities Book value	66,116	54,212
Noncurrent financial liabilities Fair value	R$ 66,116	54,212
Contingent Consideration | Measured at fair value through profit or loss | Level 2
FINANCIAL INSTRUMENTS AND RISK AND CAPITAL MANAGEMENT
Noncurrent financial liabilities Book value		484,048
Noncurrent financial liabilities Fair value		R$ 484,048

XML

FINANCIAL INSTRUMENTS AND RISK AND CAPITAL MANAGEMENT - Capital Management (Details) - BRL (R$) R$ in Thousands	12 Months Ended
	Dec. 31, 2020	Dec. 31, 2019	Dec. 31, 2018	Jan. 01, 2018	Dec. 31, 2017
FINANCIAL INSTRUMENTS AND RISK AND CAPITAL MANAGEMENT
Cash and cash equivalents	R$ 5,762,081	R$ 3,393,377	R$ 3,381,328		R$ 4,050,338
Accounts receivable - FIDC	1,975
Loans, financing, debentures, leases and contingent consideration	(13,239,166)	(13,824,673)	(6,139,437)
Derivative transactions, net	(5,564)	16,030
Short-term investments pledged as collateral	5,538,639	6,360,764
EQUITY	69,556,764	70,455,578	R$ 71,607,027	R$ 73,642,163	R$ 73,780,826
Capital management
FINANCIAL INSTRUMENTS AND RISK AND CAPITAL MANAGEMENT
Cash and cash equivalents	5,762,081	3,393,377
Accounts receivable - FIDC	1,975
Loans, financing, debentures, leases and contingent consideration	(13,239,166)	(13,824,673)
Derivative transactions, net	(5,564)	16,030
Asset guarantor of contingent consideration		484,048
Net debt	7,480,674	9,918,006
EQUITY	R$ 69,556,764	R$ 70,455,578
Net debt-to-equity ratio	10.75%	14.08%
Capital management | Financing - BNB maturing 8/18/2022
FINANCIAL INSTRUMENTS AND RISK AND CAPITAL MANAGEMENT
Short-term investments pledged as collateral		R$ 13,212

XML

FINANCIAL INSTRUMENTS AND RISK AND CAPITAL MANAGEMENT - Currency and Interest Risk (Details) € in Thousands, £ in Thousands, R$ in Thousands, $ in Thousands	Dec. 31, 2020 USD ($)	Dec. 31, 2020 GBP (£)	Dec. 31, 2020 EUR (€)	Dec. 31, 2020 BRL (R$)	Dec. 31, 2019 USD ($)	Dec. 31, 2019 GBP (£)	Dec. 31, 2019 EUR (€)	Dec. 31, 2019 BRL (R$)	Dec. 31, 2018 BRL (R$)	Dec. 31, 2017 BRL (R$)
FINANCIAL INSTRUMENTS AND RISK AND CAPITAL MANAGEMENT
Cash and cash equivalents				R$ 5,762,081				R$ 3,393,377	R$ 3,381,328	R$ 4,050,338
Currency Risk
FINANCIAL INSTRUMENTS AND RISK AND CAPITAL MANAGEMENT
Net balance of these rights and obligations receivable	$ 3,845	£ 66	€ 14,508		$ 72,530	£ 110	€ 974
CDI | Interest Risk
FINANCIAL INSTRUMENTS AND RISK AND CAPITAL MANAGEMENT
Cash and cash equivalents				R$ 5,570,106				R$ 3,143,209

XML

FINANCIAL INSTRUMENTS AND RISK AND CAPITAL MANAGEMENT - Liquidity Risk (Details) - BRL (R$) R$ in Thousands	Dec. 31, 2020	Dec. 31, 2019
Risk management policy
Financial liabilities	R$ 19,927,150	R$ 20,752,605
Liquidity Risk
Risk management policy
Financial liabilities	19,590,761
Liquidity Risk | Trade accounts payable
Risk management policy
Financial liabilities	6,613,004
Liquidity Risk | Loans and financing
Risk management policy
Financial liabilities	115
Liquidity Risk | Leases
Risk management policy
Financial liabilities	10,818,778
Liquidity Risk | Debentures
Risk management policy
Financial liabilities	2,083,884
Liquidity Risk | Derivative financial instruments
Risk management policy
Financial liabilities	74,980
2021 | Liquidity Risk
Risk management policy
Financial liabilities	9,946,211
2021 | Liquidity Risk | Trade accounts payable
Risk management policy
Financial liabilities	6,613,004
2021 | Liquidity Risk | Loans and financing
Risk management policy
Financial liabilities	63
2021 | Liquidity Risk | Leases
Risk management policy
Financial liabilities	2,262,043
2021 | Liquidity Risk | Debentures
Risk management policy
Financial liabilities	1,062,237
2021 | Liquidity Risk | Derivative financial instruments
Risk management policy
Financial liabilities	8,864
2022 | Liquidity Risk
Risk management policy
Financial liabilities	3,291,807
2022 | Liquidity Risk | Loans and financing
Risk management policy
Financial liabilities	48
2022 | Liquidity Risk | Leases
Risk management policy
Financial liabilities	2,270,112
2022 | Liquidity Risk | Debentures
Risk management policy
Financial liabilities	1,021,647
2023 | Liquidity Risk
Risk management policy
Financial liabilities	2,118,659
2023 | Liquidity Risk | Loans and financing
Risk management policy
Financial liabilities	4
2023 | Liquidity Risk | Leases
Risk management policy
Financial liabilities	2,118,655
2024
Risk management policy
Financial liabilities	1,551,657
2024 | Leases
Risk management policy
Financial liabilities	1,551,657
2025
Risk management policy
Financial liabilities	925,972
2025 | Leases
Risk management policy
Financial liabilities	925,972
2026 onwards | Liquidity Risk
Risk management policy
Financial liabilities	1,756,455
2026 onwards | Liquidity Risk | Leases
Risk management policy
Financial liabilities	1,690,339
2026 onwards | Liquidity Risk | Derivative financial instruments
Risk management policy
Financial liabilities	R$ 66,116

XML

FINANCIAL INSTRUMENTS AND RISK AND CAPITAL MANAGEMENT - Social and Environmental Risks (Details) R$ in Thousands	Dec. 31, 2020 BRL (R$)
Environmental risks
Exposure to contingent liabilities
Maximum fine per breach of environmental law	R$ 50,000

XML

FINANCIAL INSTRUMENTS AND RISK AND CAPITAL MANAGEMENT - Insurance Coverage (Details) R$ in Thousands	Dec. 31, 2020 BRL (R$)
FINANCIAL INSTRUMENTS AND RISK AND CAPITAL MANAGEMENT
Maximum limits of claims for operational risks	R$ 900,000
Maximum limits of claims for general civil liability risks	R$ 75,000

XML

FINANCIAL INSTRUMENTS AND RISK AND CAPITAL MANAGEMENT - Impacts of the Coronavirus pandemic (COVID-19) (Details) R$ in Thousands		1 Months Ended	12 Months Ended
	Aug. 12, 2020 BRL (R$)	Aug. 31, 2020 BRL (R$)	Dec. 31, 2020 BRL (R$) installment
FINANCIAL INSTRUMENTS AND RISK AND CAPITAL MANAGEMENT
Number of installments for payments offered to customers, pursuant to COVID-19 | installment			10
Prepaid supplies pursuant to COVID-19			R$ 2,000,000
Emergency benefit payment received by company's employees, pursuant to COVID-19			R$ 34,500
Fistel taxes paid	R$ 416,475	R$ 416,500

XML

ADDITIONAL INFORMATION ON CASH FLOWS (Details) - BRL (R$) R$ in Thousands	12 Months Ended
	Dec. 31, 2020	Dec. 31, 2019
ADDITIONAL INFORMATION ON CASH FLOWS
Balance at beginning of the year	R$ 17,396,060	R$ 10,256,203
Cash flows from financing activities, Write-offs (payments)	(10,541,869)	(9,781,959)
Cash flows from operating activities, Write-offs (payments)	(781,092)	(720,752)
Financing activities not involving cash and cash equivalents, Financial charges and foreign exchange variation	341,309	661,899
Financing activities not involving cash and cash equivalents, Costs and expenses incurred	(40,708)
Financing activities not involving cash and cash equivalents, Additions of leases and supplier financing	5,199,080	2,771,254
Financing activities not involving cash and cash equivalents, Interim and unclaimed dividends and interest on equity	5,537,948	5,591,343
Balance at end of the year	17,110,728	17,396,060
Initial adoption IFRS 16 on 01.01.19		8,618,072
Financing transactions with suppliers	370,538	967,313
Acquisition of assets through leases	4,828,542	1,803,941
Total	5,199,080	11,389,326
Interim dividends and interest on equity
ADDITIONAL INFORMATION ON CASH FLOWS
Balance at beginning of the year	3,587,417	4,172,916
Cash flows from financing activities, Write-offs (payments)	(5,259,367)	(6,176,842)
Financing activities not involving cash and cash equivalents, Interim and unclaimed dividends and interest on equity	5,537,948	5,591,343
Balance at end of the year	3,865,998	3,587,417
Loans and financing
ADDITIONAL INFORMATION ON CASH FLOWS
Balance at beginning of the year	1,045,124	2,106,814
Cash flows from financing activities, Write-offs (payments)	(1,018,674)	(2,070,665)
Cash flows from operating activities, Write-offs (payments)	(49,675)	(129,974)
Financing activities not involving cash and cash equivalents, Financial charges and foreign exchange variation	28,499	171,636
Financing activities not involving cash and cash equivalents, Additions of leases and supplier financing	370,538	967,313
Balance at end of the year	375,812	1,045,124
Leases
ADDITIONAL INFORMATION ON CASH FLOWS
Balance at beginning of the year	9,191,151	393,027
Cash flows from financing activities, Write-offs (payments)	(2,909,214)	(1,559,165)
Cash flows from operating activities, Write-offs (payments)	(502,537)	(415,496)
Financing activities not involving cash and cash equivalents, Financial charges and foreign exchange variation	210,836	350,772
Financing activities not involving cash and cash equivalents, Additions of leases and supplier financing	4,828,542	1,803,941
Balance at end of the year	10,818,778	9,191,151
Initial adoption IFRS 16 on 01.01.19		8,618,072
Debentures
ADDITIONAL INFORMATION ON CASH FLOWS
Balance at beginning of the year	3,104,350	3,173,910
Cash flows from financing activities, Write-offs (payments)	(1,025,583)	(66,830)
Cash flows from operating activities, Write-offs (payments)	(123,202)	(201,516)
Financing activities not involving cash and cash equivalents, Financial charges and foreign exchange variation	89,011	198,786
Balance at end of the year	2,044,576	3,104,350
Derivative financial instruments
ADDITIONAL INFORMATION ON CASH FLOWS
Balance at beginning of the year	(16,030)	(56,150)
Cash flows from financing activities, Write-offs (payments)	15,186	91,543
Cash flows from operating activities, Write-offs (payments)		26,234
Financing activities not involving cash and cash equivalents, Financial charges and foreign exchange variation	6,408	(77,657)
Balance at end of the year	5,564	(16,030)
Contingent Consideration
ADDITIONAL INFORMATION ON CASH FLOWS
Balance at beginning of the year	484,048	465,686
Cash flows from financing activities, Write-offs (payments)	(344,217)
Cash flows from operating activities, Write-offs (payments)	(105,678)
Financing activities not involving cash and cash equivalents, Financial charges and foreign exchange variation	6,555	18,362
Financing activities not involving cash and cash equivalents, Costs and expenses incurred	R$ (40,708)
Balance at end of the year		R$ 484,048

XML

CONTRACTUAL COMMITMENTS (Details) R$ in Thousands	Dec. 31, 2020 BRL (R$)
Disclosure Of Maturity Analysis For Contractual Commitment [Line Items]
Total nominal values	R$ 5,847,411
2021
Disclosure Of Maturity Analysis For Contractual Commitment [Line Items]
Total nominal values	1,429,424
2022
Disclosure Of Maturity Analysis For Contractual Commitment [Line Items]
Total nominal values	1,319,222
2023
Disclosure Of Maturity Analysis For Contractual Commitment [Line Items]
Total nominal values	1,296,793
2024
Disclosure Of Maturity Analysis For Contractual Commitment [Line Items]
Total nominal values	540,585
2025
Disclosure Of Maturity Analysis For Contractual Commitment [Line Items]
Total nominal values	388,329
2026 onwards
Disclosure Of Maturity Analysis For Contractual Commitment [Line Items]
Total nominal values	R$ 873,058

XML

OI's GROUP MOBILE ASSETS AUCTION OUTCOME (Details) R$ in Thousands	12 Months Ended
	Dec. 31, 2020 BRL (R$)
OI's GROUP MOBILE ASSETS AUCTION OUTCOME
Total offered amount	R$ 16,500,000
Offer base price	15,744,000
Transitional services to be rendered	756,000
Net present value (NPV)	R$ 819,000
Disbursement of Base Price (as a percent)	33.00%
Disbursement of Base Price	R$ 55,000,000
Disbursement of Net Present Value (NPV)	R$ 179,000
Disbursement of Net Present Value (NPV) (as a percent)	22.00%
Number of different specific purpose entities	3
Shares of number of SPE to be acquired by entity that will hold the assets to be attributed to the Company pursuant to segregation plan	1
Amount of clients selected by entity	R$ 10,500
Clients selected by entity as a percentage of total customer base	29.00%
Spectrum selected by entity as a percentage of total radiofrequencies	46.00%
Number of mobile access sites selected by entity	27
Mobile access sites selected by entity as a percentage of total sites	19

XML

SUBSEQUENT EVENTS (Details) - Interest on equity - Common shares R$ / shares in Units, R$ in Thousands	Feb. 12, 2021 BRL (R$) R$ / shares
SUBSEQUENT EVENTS
Gross interest on equity | R$	R$ 150,000
Gross interest on equity, per share | R$ / shares	R$ 0.08889560681
Net interest on equity | R$	R$ 127,500
Net interest on equity, per share | R$ / shares	R$ 0.07556126546