As filed with the Securities and Exchange Commission on March 19, 2018
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 20-F/A
(Amendment No. 1)
(Mark One)
¨ REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934
OR
x ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2017
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, 28º andar
04571-936 São Paulo, SP, Brazil
(Address of principal executive offices)
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, Email and/or Facsimile and Address of Company Contact Person)
Securities registered or to be registered pursuant to Section 12(b) of the Act:
Title of each class |
Name of each exchange on which registered |
Preferred Shares, without par value |
New York Stock Exchange* |
American Depositary Shares (as evidenced by American Depositary Receipts), each representing one share of Preferred Stock |
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 Preferred 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, 2017 was:
Title of Class |
Number of Shares Outstanding |
Shares of Common Stock.................................................................................................................................. |
569,354,053 |
Shares of Preferred Stock.................................................................................................................................. |
1,119,339,723 |
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. x 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 x 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. x Yes ¨ No
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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 and post such files) x 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 x 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 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 x |
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 x No
Explanatory Note
This Amendment No. 1 to the Annual Report on Form 20-F of Telefônica Brasil S.A. (the “Company”) amends the Company’s Annual Report on Form 20-F for the year ended December 31, 2017 (the “Original 20-F”), which was filed with the Securities and Exchange Commission on February 21, 2018. The Company is filing this Amendment No. 1 solely to furnish Exhibit 101, which was not included in the Original 20-F. Exhibit 101 includes information about the Company in eXtensible Business Reporting Language (XBRL).
Except as described above, this Amendment No. 1 does not amend any information set forth in the Original 20-F, and the Company has not updated disclosures included therein to reflect any events that occurred subsequent to February 21, 2018.
Pursuant to Rule 406T of Regulation S-T, these interactive data files are deemed furnished and not filed or part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended, and are deemed not filed for purposes of Section 18 of the Securities and Exchange Act of 1934, as amended, and are otherwise not subject to liability under those sections.
PART III
Exhibit number |
Description |
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 |
* In accordance with Rule 406T(b)(2) of Regulation S-T, this eXtensible Business Reporting Language (XBRL) information is furnished and not filed or part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended, are deemed not filed for purposes of Section 18 of the Exchange Act of 1934, as amended, and otherwise are not subject to liability under those sections.
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 Amendment No. 1 to the annual report on Form 20-F on its behalf.
TELEFÔNICA BRASIL S.A. | ||
By: |
/s/ Eduardo Navarro de Carvalho | |
|
Name: |
Eduardo Navarro de Carvalho |
|
Title: |
Chief Executive Officer |
| ||
By: |
/s/ David Melcon Sanchez-Friera | |
|
Name: |
David Melcon Sanchez-Friera |
|
Title: |
Chief Financial Officer |
Date: March 19, 2018
Document and Entity Information |
12 Months Ended |
---|---|
Dec. 31, 2017
shares
| |
Document Information [Line Items] | |
Entity Registrant Name | TELEFONICA BRASIL S.A. |
Entity Central Index Key | 0001066119 |
Document Type | 20-F/A |
Document Period End Date | Dec. 31, 2017 |
Amendment Flag | false |
Current Fiscal Year End Date | --12-31 |
Entity Well-known Seasoned Issuer | Yes |
Entity Voluntary Filers | No |
Entity Current Reporting Status | Yes |
Entity Filer Category | Large Accelerated Filer |
Document Fiscal Year Focus | 2017 |
Document Fiscal Period Focus | FY |
Common shares | |
Document Information [Line Items] | |
Entity Common Stock, Shares Outstanding | 569,354,053 |
Preferred shares | |
Document Information [Line Items] | |
Entity Common Stock, Shares Outstanding | 1,119,339,723 |
Consolidated Income Statements - BRL (R$) R$ in Thousands |
12 Months Ended | ||
---|---|---|---|
Dec. 31, 2017 |
Dec. 31, 2016 |
Dec. 31, 2015 |
|
Consolidated Income Statements | |||
Net operating income | R$ 43,206,832 | R$ 42,508,459 | R$ 40,286,815 |
Cost of sales | (20,272,530) | (20,823,014) | (20,345,076) |
Gross profit | 22,934,302 | 21,685,445 | 19,941,739 |
Operating income (expenses) | (16,302,065) | (15,317,426) | (14,702,141) |
Selling expenses | (13,136,474) | (12,455,366) | (12,005,477) |
General and administrative expenses | (2,443,105) | (2,793,386) | (2,142,459) |
Other operating income | 464,182 | 968,479 | 538,239 |
Other operating expenses | 1,186,668 | 1,037,153 | 1,092,444 |
Operating income | 6,632,237 | 6,368,019 | 5,239,598 |
Financial income | 1,755,958 | 2,781,359 | 4,728,665 |
Finance expenses | (2,659,002) | (4,015,900) | (5,576,843) |
Equity pickup | 1,580 | 1,244 | 2,036 |
Income before taxes | 5,730,773 | 5,134,722 | 4,393,456 |
Income and social contribution taxes | (1,121,983) | (1,049,480) | (973,207) |
Net income for the year | R$ 4,608,790 | R$ 4,085,242 | R$ 3,420,249 |
Common shares | |||
Consolidated Income Statements | |||
Basic and diluted earnings per share | R$ 2.56 | R$ 2.27 | R$ 2.15 |
Preferred shares | |||
Consolidated Income Statements | |||
Basic and diluted earnings per share | R$ 2.82 | R$ 2.50 | R$ 2.37 |
OPERATIONS |
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OPERATIONS | 1) OPERATIONS a) Background information Telefônica Brasil S.A. (“Company” or “Telefônica Brasil”) is a publicly held corporation operating in telecommunication services and in the performance of activities that are necessary or useful in the rendering of such services, in conformity with the concessions and authorizations it has been granted. The Company, headquartered at Avenida Engenheiro Luiz Carlos Berrini, No. 1376, in the city and State of São Paulo, Brazil, is a member of Telefónica Group (“Group”), with headquarters in Spain and present in several countries of Europe and Latin America. At December 31, 2017 and 2016, Telefónica S.A. (“Telefónica”), the Group holding company, held total direct and indirect interest in the Company (Note 22). The Company is registered in the Brazilian Securities Commission ("CVM") as a publicly-held company under Category A (issuers authorized to trade any marketable securities) and has shares traded on the B3 (company resulting from the combination of activities between BM&FBovespa and CETIP – Central Custody and Settlement of Securities). The Company is also listed in the Securities and Exchange Commission ("SEC"), of the United States of America, and its American Depositary Shares ("ADSs") are classified under level II, backed only by preferred shares and traded on the New York Stock Exchange ("NYSE"). b) Operations The Company operates in the rendering of: (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, as established in the General Plan of Concessions ("PGO"). Service concessions and authorizations are granted by the 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), amended by Laws No. 9986, of July 18, 2000, and No. 12485, of September 12, 2011. The operation of such concessions is subject to supplementary regulations and plans. In accordance with the STFC service concession agreement, in every two years, during the agreement's 20-year term, the Company shall pay a fee equivalent to 2% of its prior-year STFC revenue, net of applicable taxes and social contribution taxes (Note 21). The Company's current STFC concession agreement is valid until December 31, 2025. In accordance with the authorization terms for the usage of radio frequencies associated with SMP, in every two years after the first renewal of these agreements, the Company shall pay a fee equivalent to 2% of its prior-year SMP revenue, net of applicable taxes and social contribution taxes (Note 21), and in the 15th year the Company will pay 1% of its prior-year revenue. The calculation will consider the net revenue from the application of Basic and Alternative Services Plans. These agreements can be extended only once for a term of 15 years. The Company's authorization terms ("TA") for the operation of SMP, according to the SMP General Authorization Plan ("PGA"), are: (i) Region I - TA n. 078/2012 / PVCP / SPV-ANATEL; (ii) Region II - TA n ° 005/2010 / PVCP / SPV-ANATEL; and (iii) Region III - TA n ° 006/2010 / PVCP / SPV-ANATEL. 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 and are associated with the authorization terms for operating the service in each region. The following is a summary of the authorizations for the use of radio frequency bands, granted to the Company.
C) Relevant events occurred in 2017 and 2016
c.1) Acquisition of Terra Networks by Wholly-Owned Subsidiary
On July 3, 2017, the Company informed that its wholly-owned subsidiary Telefônica Data S.A. ("TData") has acquired all the shares representing the capital stock of Terra Networks Brasil S.A. ("Terra Networks"), owned by SP Telecomunicações Participações Ltda. ("SPTE"), one of the controlling shareholders of the Company ("Transaction").
Terra Networks 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.
TData is a company dedicated to the exploration of VAS, as well as integrated business solutions in telecommunications, technical assistance of telecommunications equipment and networks, maintenance of equipment and networks and development of projects.
The total price paid for the acquisition of shares issued by Terra Networks was R$ 250,000, in a single installment, with no need for any financing, using only the cash available of TData. Such value was calculated based on the economic value of the Terra Networks, according to the discounted cash flow criterion, with a base date of April 30, 2017, based on an appraisal report contracted by TData Board of Directors.
The Transaction was subject to conditions usually applicable to this type of deal, and was preceded by a legal and financial audit in relation to Terra Networks and valuation by an independent company.
The Transaction was not subject to obtaining any regulatory authorizations or approvals by the Company's regulators and the way it was structured does not change the Company's shareholding structure or cause any dilution to its shareholders, generating value to them through accelerated growth of digital services and increased operational efficiency, there are no significant costs related to the Transaction.
The purpose of the Transaction was to expand and integrate the commercial offer of digital services that can add immediate value to the customer base of TData and of the Company, as well as generating TData service offers to Terra Networks' customer base and subscribers and, thanks to the national presence of Terra Networks' operation and expertise, generate leverage for TData advertising business. In addition, since the Company has the skills to create new digital media products for mobile and advertising and Terra Networks has know-how in selling, attending and operating digital services for specific customers, the acquisition by TData will also facilitate the synergy between the companies involved, in addition to maximize the unification of the commercial conditions maintained with suppliers.
Accounting Method
Considering that business combinations between entities under common control have not yet been specifically addressed by International Financial Reporting Standards (IFRS), an entity is required to apply the hierarchy in paragraphs 10-12 of IAS 8 - Accounting Policies, Change of Estimates and Error Correction to choose the accounting policy to be adopted.
An entity may therefore choose to account for combinations of entities under common control using the Acquisition Method based on IFRS 3 (R) or the carrying amount of the net assets acquired ("Pooling of Interests" or "Predecessor Value Method"), with the guidance provided by other accounting standard-setting bodies with a Conceptual Framework similar to IFRSs.
This Transaction, which as previously described, 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 TData's equity.
Upon completion of the Transaction, as from July 3, 2017, Terra Networks became a direct subsidiary of TData and indirectly owned by the Company.
We present below the composition of the book value of identifiable net assets acquired in the amount of R$190,971.
Provision for Probable Risks and Contingent Liabilities
The agreement for the sale and purchase of this Transaction contains terms and provisions common to this type of transaction, including indemnification of certain liabilities, contingent or materialized, arising from acts or facts occurring up to the date of the Transaction, reducing the amounts already provisioned for the respective contingencies, which were considered in the purchase price.
At the date of the Transaction, Terra Networks was involved in administrative and judicial proceedings related to tax, civil and labor matters, whose unfavorable outcomes are considered probable and possible, as the case may be.
Other information
The net book value of trade accounts receivable provided by Terra Networks totals R$61,276, which does not differ from the gross amount of R$69,995, net of estimated losses for impairment of R$8,719.
From the date of acquisition until the conclusion of the financial statements for the period ended December 31, 2017, Terra Networks contributed R$155,224 of consolidated net operating revenue and R$179,615 of consolidated net income to the Company, mainly due to the recognition of R$125,191 of income tax on tax losses and negative basis of social contribution (note 7 b).
c.2) Corporate restructuring - 2016
The Shareholders’ Meeting held on April 1, 2016, approved corporate restructuring in accordance with the terms and conditions proposed on March 14, 2016.
The corporate restructuring was approved by ANATEL through Ruling No. 50,169, dated January 22, 2016, which was published in the DOU on January 28, 2016, with the conditions provided therein. GVT Participações S.A. (“GVTPart.”) was the parent company of Global Village Telecom S.A. ("GVT"), companies controlled by the Company from May 28, 2015 to April 1, 2016. GVT was the direct controlling holder of POP Internet Ltda. (“POP”), and indirect controlling holder of Innoweb Ltda. (“Innoweb”), both with head offices in Brazil.
POP is a provider of free Internet access and content. Innoweb (subsidiary of POP) provides services using VoIP technology (voicer over IP), which allows calls using the Internet, with the facilities inherent in this environment.
The corporate restructuring occurred on the same date as the Shareholders’ Meeting mentioned above, as follows: (i) GVT was spun-off and its net assets, including assets, rights and obligations related to telecommunications activities, were absorbed by GVTPart., where as the remaining portion relating to assets, rights and obligations related to activities other than telecommunications was absorbed by POP; and (ii) the net assets of GVTPart. (after the merger of GVT’s net assets, item (i)) was merged into the Company. The corporate restructuring intends to standardize the services provided by the companies involved in this process by (i) concentrating the rendering of telecommunication services in a single company, i.e., the Company; and (ii) migrating of activities that were provided by GVT, other than telecommunication services to POP. As such, the simplification of the corporate structure and the centralization of the provision of telecommunication services at the Company will lead to a converging environment, facilitating consolidation and centralization in the offering of telecommunication services and simplification of service package offerings; optimizing administrative and operating costs; and standardization of the operations at the companies involved in the corporate restructuring. Given that the merger of GVTPart. into the Company did not require a capital increase or a change in shareholders’ interest in the Company, since GVTPart. was a wholly-owned subsidiary of the Company, the replacement of shares held by the shareholders in GVTPart. with shares in the Company is not applicable. Consequently, there are no minority interests to be considered and, therefore, in accordance with the CVM’s position in similar prior cases, and under the terms of CVM Resolution No. 559/08, the provisions of article 264 of Law No. 6404/76 and its further amendments similarly do not apply. In addition, in relation to the transaction preceding the merger of GVTPart into the Company, the replacement of shares is not applicable, given that GVT is a subsidiary of GVTPart. and of the Company itself, thus there are no minority shareholders. Pursuant to the provisions of article 137 of Law No. 6404/76 and its further amendments, the corporate restructuring does not entitle the Company’s shareholders to the right of withdrawal. Furthermore, considering that there are no minority shareholders of GVTPart., since it is a wholly-owned subsidiary of the Company, there is no question of right to withdrawal or exercise of the right to withdraw by GVTPart. non-controlling shareholders as provided for in article 136, item iv, and article 137 of Law No. 6404/76 and its further amendments.
c.3 Acquisition of GVT Participações S.A. (“GVTPart.”)
Pursuant to, and for the purposes of, CVM Rule No. 358/02, the Company informed the market that its Special Shareholders’ Meeting (“AGE”) held on May 28, 2015 approved the ratification of the Stock Purchase Agreement and Other Covenants executed by the Company, in the capacity of “Buyer”, and Vivendi and its subsidiaries (Société d’Investissements et de Gestion 108 SAS - “FrHolding108” and Société d’Investissements et de Gestion 72 S.A.), in the capacity of “Sellers”, whereby all the shares issued by GVTPart were acquired by the Company.
Payment for acquisition of GVTPart. shares was made as follows: (i) €4.663 billion paid in cash after contractual adjustments for net debt assumed on the execution date; and (ii) Company-issued shares delivered to FRHolding108 as a result of the merger of GVTPart shares by the Company, representing 12% of the Company’s capital stock after the merger of shares.
As a result of the merger of GVTPart. shares, the Company’s capital increased by R$9,666,021, with the issuance of 68,597,306 common shares and 134,320,885 preferred shares, all registered, no-par value shares, based on the economic value of merged shares calculated using the discounted cash flow method and on the appraisal report on GVTPart’s economic value prepared by an expert firm, in accordance with article 252, paragraph 1, together with article 8, of Law No. 6404/76. The difference between the economic value of merged shares and the market value of shares issued on the transaction closing date was recognized in “Other Capital Reserves”, in the amount of R$1,188,707.
This transaction was subject to obtaining of applicable corporate and regulatory approvals, including from Brazil’s Administrative Council for Economic Defense (“CADE”) and ANATEL, further to other conditions usually applicable to this type of transaction. The transaction was approved by ANATEL under Act No. 448 of January 22, 2015, published in the Official Federal Gazette (“DOU”) on January 26, 2015, and by CADE at the 61st ordinary session of its Trial Court, held on March 25, 2015, and published in the Official Federal Gazette (“DOU”) on March 31, 2015.
Once the acquisition transaction was completed on May 28, 2015, the Company held direct interest in GVTPart and indirect interest in GVT. GVTPart. is headquartered in Brazil as its business purpose includes participation in other companies, whether national or foreign, as partner, shareholder or member. Its direct subsidiary (GVT) provides landline telephone, data, multimedia communication and pay-tv services throughout Brazilian territory.
Under IFRS 3 (R) – Business Combinations, business acquisitions are accounted for using the acquisition method. The consideration transferred in a business combination is measured at fair value, which is calculated as the sum of the fair value of assets transferred, the liabilities assumed at the acquisition date from the former acquiree’s shareholders and equity interests issued in exchange for control over the acquiree.
The acquisition price was as follows:
(1) Derivative transactions refer to cash flow hedges to protect the amount due in Euros to Vivendi, for the acquisition of GVTPart., against exchange rate variation of the amount.
A breakdown of the fair value of identifiable net assets acquired for R$4,426,373, as well as goodwill recorded on the acquisition date are presented below. At the date of preparation of the financial statements for the year ended December 31, 2015, the Company had already completed the revisions and adjustments of the fair value determination of the identifiable assets acquired and liabilities assumed by GVTPart..
(5) This refers to goodwill recorded on the acquisition of GVTPart. based on expected synergies resulting from the business combination. This amount has already been used for tax purposes. The main purpose of the Company’s acquiring of control over GVTPart was to enable the integration of landline, mobile, data and TV telecommunication services in Brazil, with a view to operating more efficiently. The acquisition of GVTPart. allows the Company to obtain significant synergies in revenues and costs, thus generating opportunities of cross sales in the individual and corporate markets, also allowing optimization of investments, improvement of service quality, reduction of cost of content, acquisition and platform in the pay-tv business, due to economies of scale, as well as reduction of general and administrative expenses, not affecting the Company’s growth potential.
The methods and assumptions used to determine the fair values were:
Customer portfolio
The customer portfolio was valued using the MEEM method (“Multi-period Excess Earnings Method”), which is based on a discounted cash flow calculation of future economic benefits attributable to the customer base, net of eliminated liabilities for contributions involving its generation. In order to estimate the remaining useful life of the customer portfolio, an analysis of the average length of customer relationships was conducted using a churn method.
The purpose of the useful life analysis is to estimate a survival curve that anticipates future churn rates in relation to the existing customer base. The so-called Iowa curves were used as an approximation to the customer survival curve. The fair value allocated to the customer portfolio on the acquisition date was R$2,523,000, which will be amortized over 7.77 years on average. Brand
The fair value of “GVT” brand was determined through the "relief-from-royalty” method. This method measures the value of the asset by capitalizing the royalties saved by owning intellectual property. In other words, the owner of the brand profits from owning the intangible asset, rather than having to pay royalties for its use. The royalties saved were determined by applying a market royalty rate (expressed as a percentage of revenue) to the future expected revenues from the sale of the product or service associated with the intangible asset. The market royalty rate, normally expressed as a percentage of net revenue, is the rate a knowledgeable willing owner would charge a knowledgeable willing user for use of an asset it owns in an arm’s length transaction. The fair value allocated to the brand on the acquisition date was R$59,000, which will be amortized over 1.5 years. Contingent Consideration
As part of the Stock Purchase Agreement and Other Covenants executed by the Company and Vivendi for the acquisition of all GVTPart-issued shares, a contingent consideration was defined for the court deposits made by GVT for the monthly installments of deferred income and social contribution taxes on the amortization of goodwill arising from the corporate restructuring process completed by GVT in 2013. In September 2014, GVT filed for a cancellation of the judicial review and the return of amounts deposited with the courts.
If GVT succeeds in receiving (being reimbursed, refunded or netting) these funds, they will be returned to Vivendi, as long as they are obtained in a final unappeasable decision. The period for returning such amount is of up to 15 years. The fair value of the contingent consideration on the acquisition date is R$344,217, recorded in the Company’s noncurrent liabilities as “Loans, Financing and Debentures” (Note 20), which is subject to monthly monetary adjustments based on the Selic rate. Fair value of contingent liabilities
According to IFRS 3 (R) - Business Combinations, the acquirer must recognize, on the acquisition date, contingent liabilities assumed in a business combination, even if it is not probable that cash outflows will be required to settle the obligation, as long as it is a present obligation arising from past events and its fair value can be measured reliably.
In compliance with these requirements, contingent liabilities were recognized the amount of R$512,648 of contingent liabilities at fair value, which were determined considering the expected cash outflow required to settle the obligation on the acquisition date. |
BASIS OF PREPARATION AND PRESENTATION OF FINANCIAL STATEMENTS |
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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 Company’s financial statements for the years ended December 31, 2017, 2016 and 2015 are presented in thousands of reais (unless otherwise stated), which is the Company’s functional currency and were prepared under the going concern assumption. The Board of Directors authorized the issue of these consolidated financial statements at the meeting held on February 16, 2018. 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. These financial statements were prepared under various measurement bases used in accounting estimates. The accounting estimates involved in the preparation of these financial statements were based on objective and subjective factors, considering management’s judgment for determining the adequate amounts to be recorded in the financial statements. Significant items subject to these estimates and assumptions include: selection of useful lives and recoverability of property, plant and equipment in operations, measurement of the recoverability of assets with indefinite useful lives, measurement of financial assets at fair value and under present value adjustment method, as well as non-financial assets acquired in a business combination, credit risk analysis in determining estimated impairment losses of trade accounts receivable, as well as the analysis of other risks in determining other provisions, including the provision for contingencies. The carrying amounts of assets and liabilities recognized, which represent hedged items at fair value, which, alternatively, would have been recorded at amortized cost, are adjusted to state the variations in fair values attributable to the hedged risks. Settlement of transactions involving these estimates may result in amounts significantly different from those recorded in the financial statements due to the uncertainties inherent in their estimate process. The Company reviews its estimates at least on an annual basis. For comparability of the consolidated financial statements (income statement, statements of comprehensive income, statements of value added and statements of cash flows) for years ended December 31, 2017, 2016 and 2015, the effects of acquisition of Terra Networks by TData occurred on July 3, 2017 (note 1.c.1). The accounting policies adopted in the preparation of the consolidated financial statements for the year ended December 31, 2017 are consistent with those used in the preparation of the consolidated annual financial statements for the year ended December 31, 2016. The following amendments to standards published by the International Accounting Standards Board (IASB) come into force for annual periods beginning on or after January 1, 2017:
The Company considered these amendments in the preparation of the annual consolidated financial statements; however, did not generate a significant impact on its results or financial position. On the date of preparation of these financial statements, the following IFRS amendments had been published; however, their application was not mandatory. The Company does not adopt early any pronouncement, interpretation or amendment that has been issued, before application is mandatory.
Based on the analyses made to date, the Company estimates that the adoption of many of these standards, amendments and interpretations will not have a significant impact on the consolidated financial statements in the initial period of adoption. However, for the following issued but not yet effective standards are expected to have a significant impact on the consolidated financial statements at the time of their adoption and prospectively. IFRS 15 Revenues from Contracts with Customers IFRS 15 sets out the requirements for recognising revenue from contracts with customers. The new requirements are expected to affect the following aspects, among others:
In addition to this, IFRS 15 allows for two transition methods, namely the full retrospective method and the modified retrospective method with the cumulative effect from initial application recognized as an adjustment to the opening balance of retained earnings at the date of initial application. The Company will adopt the latter and prior-year comparatives will not be restated; instead, the Company will disclose the nature and amount of the changes in items in the statement of financial position and the income statement as a result of applying IFRS 15 for the first time. It is also possible to elect to apply certain practical expedients to facilitate the application of the new criteria. The Company has evaluated which of them will be adopted in the implementation of the standard with the objective of reducing the complexity in its application. The main practical expedients that the Company will adopt are:
The process of implementing the new requirements involves the introduction of modifications to the current information systems, the implementation of new IT tools, and changes in the processes and controls of the entire revenue cycle in the Company. This process of implementation in the Company entails a high degree of complexity due to factors such as a large number of contracts, numerous data source systems, as well as the need to make complex estimates. From the analysis performed on the transactions of the last financial year considering commercial offers as well as the volume of contracts affected, the Company estimates that the adoption of the new revenue recognition requirements on its equity is expected to result in an increase in retained earnings of 156 million reais before deferred taxes, being the most significant impacts due to the changes introduced by IFRS 15 relating to the first-time recognition of contract assets that, under IFRS 15, lead to the earlier recognition of revenue from the sale of goods, and the activation and deferral of the incremental costs related to the obtaining contracts and contract fulfilment costs that, under IFRS 15, result in the later recognition of customer acquisition costs and other selling expenses. As the accounting effects of the transition to the new standard will be recognized directly in equity, the effects on profit or loss in 2018 will be related to changes in the point in time at which revenue and expenses are realized. The Company expects a shift from revenues from the provision of services to revenues from the sale of goods, by between 0.3 and 0.7 percentage point on the assumption that there are no significant changes to business models or products offered. IFRS 9 Financial Instruments IFRS 9 is applicable to financial assets and financial liabilities. As a result of the analysis of the effects of the new requirements introduced by this standard certain expected impacts have been identified in relation with the following aspects, among others:
As a result of the analysis of the new standard, the Company expects that the key changes will relate to documentation of policies and hedging strategies, as well as the estimation and timing of recognition of expected losses on receivables from customers. The Company has decided to apply the option that allows not to restate comparative periods to be presented in the year of initial application. Based on the analysis performed to date, the Company estimates that the new impairment requirements is expected to result upon initial adoption in a decrease of 354 million reais in retained earnings, before deferred taxes, as a result of the increase in the bad debt provision balance on receivables from customers recognized under IAS 39. IFRS 16 Leases IFRS 16 requires lessees to recognise assets and liabilities arising from all leases (except for short-term leases and leases of low-value assets) in the statement of financial position. The Company acts as a lessee on a very significant number of lease agreements over different assets, such as third-party towers, circuits, office buildings and stores and land where the towers are located, mainly. A significant portion of these contracts is accounted for as operating lease under the current lease standard, with lease payments being recognized generally on a straight-line basis over the contract term. The Company is currently in the process of estimating the impact of this new standard on such contracts. This analysis includes the estimation of the lease term, based on the non-cancellable period and the periods covered by options to extend the lease, when the exercise depends only on Telefônica and where such exercise is reasonably certain. This will depend, to a large extent, on the specific facts and circumstances by class of assets in the telecom industry (technology, regulation, competition, business model, among others). In addition to this, the Company will make assumptions to calculate the discount rate, which will mainly be based on the incremental borrowing rate of interest for the estimated term. On the other hand, the Company is considering not to separately recognise non-lease components from lease components for those classes of assets in which non-lease components are not material with respect to the total value of the lease. In addition to the mentioned estimations, the standard allows for two transition methods: retrospectively for all periods presented, or using a modified retrospective approach where the cumulative effect of adoption is recognized at the date of initial application. The Company has tentatively decided to adopt the latter transition method; therefore the Company would recognise the cumulative effect of initial application as an adjustment to retained earnings in the year of initial application of IFRS 16. Also, certain practical expedients are available on first-time application in connection with the right of use asset measurement, discount rates, impairment, leases that finish within the twelve months subsequent to the date of first application, initial direct costs, and term of the lease. The Company is evaluating which of these practical expedients will be adopted. In this regard, the Company is considering opting for the practical expedient that allows not reassessing whether a contract is or contains a lease on the date of initial application of IFRS 16 but to directly apply the new requirements to all those contracts which under current accounting were identified as a lease. Due to the different alternatives available, together with the complexity of the estimations and the significant number of lease contracts, the Company has not yet completed the implementation process, so at present it is not possible to make a reasonable estimation of the impact of initial application of the new requirements. However, based on the volume of contracts affected, as well as the magnitude of the future lease commitments, as disclosed in Note 32 herein, the Company expects that the changes introduced by IFRS 16 will have a significant impact on its financial statements from the date of adoption, including the recognition on the balance sheet of right of use assets and their corresponding lease obligations in connection with the majority of contracts that are classified as operating leases under the current lease standard. Also, amortization of the right of use assets and recognition of interest costs on the lease obligation on the statements of income will replace amounts recognized as lease expense under the current lease standard. Classification of lease payments in the statement of cash flows will also be affected by the requirements of the new lease standard. On the other side, the Company's Financial Statements will include broader disclosures with relevant information regarding lease contracts. c) Basis of consolidation The consolidated financial statements include the financial statements of the Company and its subsidiaries at December 31, 2017, 2016 and 2015 (Note 11). The Company held the following direct equity interests on the respective dates:
(1) TData is the wholly-owned parent of Terra Networks and Telefônica Transportes e Logística Ltda ("TGLog"). (2) POP is the wholly-owned parent of Innoweb Ltda ("Innoweb"). Interest held in subsidiaries or jointly-controlled entities 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 jointly-controlled entities are measured under the equity method in the consolidated financial statements. |
SUMMARY OF SIGNIFICANT ACCOUNTING PRACTICES |
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SUMMARY OF SIGNIFICANT ACCOUNTING PRACTICES | 3) SUMMARY OF SIGNIFICANT ACCOUNTING PRACTICES a) Cash and cash equivalents These are maintained in order to meet short-term cash commitments and not for investment or other purposes. The Company consider cash equivalents a short-term investment readily convertible into a known amount of cash and subject to insignificant risk of change in value. Short-term investments are classified as cash-equivalent when redeemable within 90 days (Note 4). b) Trade accounts receivable These are evaluated by the value of the services provided in accordance with the contracted conditions, net of estimated impairment losses. These include the services provided to customers, which were still not billed until balance sheet date, as well as other trade accounts receivable related to the sale of cellphones, SIM cards, accessories, advertising and rent of IT equipment (TData’s “Soluciona TI” product), (Note 5). The estimated impairment losses are set up at amounts sufficient to cover any losses and mainly consider the expected default. c) Inventories These are evaluated and presented at lower of average acquisition cost and net realizable value, whichever is lower. These include cellphones, SIM cards, prepaid 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 (Note 6). Estimated impairment losses are set up for materials and devices considered obsolete or whose carrying amounts are in excess of those usually sold by the Company within a reasonable period of time. d) Prepaid expenses These are stated at amounts effectively disbursed referring to services contracted but not yet incurred. Prepaid expenses are allocated to the income statements to the extent that related services are rendered and economic benefits are obtained (Note 9). e) Investments 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. 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. Based on the equity method, investments are recorded in balance sheets at cost plus changes after the acquisition of the equity interest. The income statement 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 as 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 income statements. 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 income statements. 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 22). f) Property, plant and equipment Property, plant and equipment are stated 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 the 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 income statement 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 18) 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 life in terms of depreciation rates, which is 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 of assets (measured as the difference between the net disposal proceeds and the net carrying amount of the asset) are recognized in the income statement in the year in which the asset is written off. A brief description of the main property, plant and equipment items, Note 12 is as follows:
g) Intangible assets Intangible assets acquired separately are measured at 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 income statement for the year in which it is incurred. The useful lives of intangible assets are considered finite or indefinite.
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 income statement in the cost/expense category consistent with the function of the intangible assets.
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 income statement on disposal. A brief description of the key intangible asset items with finite useful lives, Note 13, is as follows:
h) Lease The classification of an agreement as a lease is based on substantive issues related to the use of an asset or specific assets, or even the right to use a given asset, on the initial date of its execution. Finance lease agreements: By means of these agreements, the Company assumes substantially all risks and rewards relating to ownership of a leased item. These are capitalized at the lease inception at the fair value of the leased asset or, if lower, at the present value of the minimum lease payments. Initial direct costs incurred in the transaction are added to cost, where applicable. Payments of finance lease agreements are allocated to financial charges and reduction of finance lease liabilities in order to obtain the constant interest rate on the outstanding liability balance. Implicit interest recognized in liabilities is allocated to the income statement over the lease term using the effective interest rate method. Leased assets are depreciated according to their estimated useful lives or the lease term, whichever is shorter. The Company and TData are parties to the following finance lease agreements:
The difference between the nominal amount of lease payments and recorded accounts receivable/payable are recognized as finance income/expenses using the effective interest method over the lease term. Operating lease: These are lease agreements where lessor holds a significant portion of risks and rewards, where effects are recognized in the income statements for the year over the contractual term. i) Impairment of nonfinancial 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 Cash Generating Unit (“CGU”) is defined as the higher of value in use and net sales value. 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 based on the cost of capital rate the Capital Asset Pricing Model (CAPM) before taxes, which reflects the weighted average cost of capital and specific risks of the asset or CGU. Whenever possible, the net sale value is determined based on a firm sale agreement executed on an arm’s length basis between knowledgeable and willing parties, adjusted by expenses attributable to the sale of assets or, when there is no firm sale agreement, based on the market price of an active market, or on the latest transaction price involving similar assets. 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. 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 income statement. The following assets have specific characteristics for impairment testing:
Key assumptions were based on the Company’s historical performance and reasonable macroeconomic assumptions grounded on financial market projections, documented and approved by Company’s management. The impairment test of the Company fixed and intangible assets, including goodwill, did not result in recognition of impairment losses for the years ended December 31, 2017 and 2016, since their estimated recoverable amount is greater than the net carrying amount as of the estimation date. j) Business combinations and 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 noncontrolling interest in the acquiree. For each business combination, the Company measures noncontrolling interests in the acquiree either at its fair value or on the basis of 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 income statement. 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 income statement. Contingent consideration on acquisition of a business that is not classified as equity is subsequently measured at fair value through profit or loss, whether or not included in the scope of IFRS 9 Financial Instruments. 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 fair value of acquired net assets, the difference must be recognized as gain in the income statement. 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 cash-generating units that are expected to benefit from the combination, irrespective of whether other assets or liabilities of the acquiree are assigned to those units. Where goodwill has been allocated to a CGU and part of the operation within that CGU is disposed of, 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. k) Financial Instruments – Initial recognition and subsequent measurement k.1) Financial assets Initial recognition and measurement Financial assets are classified at initial recognition (when it becomes part of the instrument's contractual provisions), as: (i) fair value through profit or loss; (ii) loans and receivables; (iii) investments held to maturity; (iv) financial assets available for sale or (v) derivatives classified as effective hedge instruments, as applicable. All financial assets are initially recognized at fair value, plus, in the case of investment that is not determined at fair value through profit or loss, the transaction costs that are directly attributable to the acquisition of the financial asset. The Company’s consolidated financial assets include cash and cash equivalents, trade accounts receivable, short-term investments pledged as collateral and derivative financial instruments. Subsequent measurement Subsequent measurement of financial assets depends on their classification, as follows: Financial assets at fair value through profit or loss: These include financial assets held for trading and financial assets designated upon initial recognition at fair value through profit or loss: (i) financial assets are classified as held for trading if acquired to be sold within short term. This category includes derivative financial instruments contracted by the Company which do not meet the hedge accounting criteria set out by the corresponding standard; and (ii) financial assets at fair value through profit or loss are stated in balance sheets at fair value with their corresponding gains or losses recognized in the income statements. Loans and receivables: these refer to non-derivative financial assets with fixed or determinable payments, however not traded in an active market. After initial measurement, these financial assets are stated at amortized cost, using the effective interest method, less impairment, where applicable. Amortized cost is calculated taking into account any discount or “premium” on acquisition and fees or costs incurred. Amortization by the effective interest method and impairment losses are included in the financial income line in the income statement, if applicable. Financial assets available for sale: These are non-derivative financial assets not classified as: (i) loans and receivables; (ii) investments held to maturity; or (iii) financial assets at fair value through profit or loss. These financial assets include equity and debt instruments. Debt instruments in this category are those which are intended to be held for an indefinite period and can be sold to meet liquidity needs or in response to changes in market conditions. After initial measurement, financial assets available for sale are measured at fair value, with unrealized gains and losses being recognized directly in other comprehensive income until such time as the investment is written off, except for impairment losses, interest calculated using the effective interest method and gains or losses due to exchange variations on monetary assets, which are recognized directly in the income statement for the year. When the investment is written-off or when a loss is determined due to impairment, the cumulative gains or losses which were previously recognized in other comprehensive income should be recognized in the statement of income. The fair value of financial assets available for sale denominated in foreign currency is measured in the foreign currency and translated at the spot exchange rate at financial statements date. Changes in fair value attributable to translation differences that result from a change in amortized cost of the asset are recognized in the income statement, and other variations are recognized directly in equity. 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:
k.2) Impairment of financial assets The Company evaluate, at the balance sheet date, if there is any objective evidence indicating that the financial asset or group of financial assets is not recoverable. A loss only exists if, and only if, there is objective evidence of impairment as a result of one or more events that have occurred after initial recognition of the asset (a “loss event” occurred) and such event has an impact on the estimated future cash flows of the financial asset or group of financial assets that can be reasonably estimated. The carrying amount of an asset is reduced by a provision and the loss amount is recognized in the income statement. If, in a subsequent year, estimated impairment increases or decreases due to an event after impairment recognition, impairment loss previously recognized will be adjusted accordingly. Should a written-off asset be recovered in the future, such recovery is recognized in the income statement. k.3) Financial liabilities Initial recognition and measurement Upon initial recognition, the Company’s financial liabilities are classified in the following categories: financial liabilities measured at fair value through profit or loss and other financial liabilities. 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, finance lease agreements, contingent payments 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: These include financial liabilities designated upon initial recognition at fair value through profit or loss. This category also includes derivative financial instruments contracted which do not meet the hedge accounting criteria set out by the corresponding standard. For the years ended December 31, 2017 and 2016, the Company did not record any financial liability at fair value through profit or loss upon initial recognition. Loans and financing: After initial recognition, loans and financing subject to interest are subsequently measured at amortized cost, using the effective interest method. Gains and losses are recognized in the income statement when the liabilities are derecognized as well as through the effective interest rate amortization process. Derecognition A financial liability is derecognized when the obligation has been revoked, cancelled or has 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 income statement. k.4) 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; or (ii) in the absence of a principal market, in the most advantageous market for that asset or liability. The Company 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 use adequate valuation techniques in the circumstances and for which there is sufficient data to measure the fair value, 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. For the purposes of fair value disclosures, the Company determined classes of assets or liabilities based on the nature, characteristics and risks of those assets or liabilities and the fair value hierarchy level, as mentioned above. k.5) 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. l) Derivative financial instruments and hedge accounting The Company uses derivative financial instruments, such as currency and interest rate swaps or currency nondeliverable 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 income statement, 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. Inception initial recognition of a hedge relationship, the Company formally designate and documents the hedge relationship to which it wishes to apply hedge accounting, the risk management objective and strategy for undertaking the hedge. The documentation includes identification of the hedging instrument, the hedged item or transaction, the nature of the hedged risk, the nature of unhedged risks, 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. For the purpose of hedge accounting, hedges are classified as cash flow hedges and fair value hedges. l.1) 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 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 income statement. 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 gain or loss component is recognized in financial income (expenses). Amounts recorded in other comprehensive income are immediately transferred to the income statement 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. l.2) 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 income statement 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 income statement, 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 income statement. 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. l.3) Classification between current and noncurrent Derivative financial instruments are classified as current and noncurrent or segregated into short and long term portions based on an evaluation of the contractual cash flows. When the Company maintains a derivative as economic hedge (and does not apply hedge accounting), for a period exceeding 12 months after balance sheet date, the derivative is classified as noncurrent (or segregated into current and noncurrent 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 noncurrent portions only when amounts can be reliably allocated. m) Loans and financing Loans and financing obtained are initially recognized at fair value, net of costs incurred to obtain them and subsequently measured at amortized cost (plus charges and pro rata interest), considering the effective interest rate of each operation. These are classified as current, unless the Company has an unconditional right to settle the liability for at least 12 months after year end. n) Borrowing costs Borrowing costs that are directly attributable to the acquisition, construction or production of an asset that necessarily takes a period of time exceeding 18 months to prepare for its intended use or sale form part of the cost of that asset. All other borrowing costs are recorded in the period they are incurred. Borrowing costs include interest and other costs incurred by an entity in connection with the borrowing of funds. In 2017 and 2016, the Company did not capitalize amounts related to borrowing costs. o) Interest on equity and dividends o.1) 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 provision, in its accounting records the amount due to match against the financial expenses account in the income statement 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. o.2) Dividends Minimum mandatory dividends are stated in the balance sheet as legal obligations (provisions 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 minimum mandatory are transferred to current liabilities, and classified as legal obligations. p) Provisions p.1) General Provisions are 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. Provisions are restated at the balance sheet date considering the likely amount of loss and the nature of each contingency. Provisions for contingencies are presented at their gross amount, less the corresponding judicial deposits, and are classified as provisions for civil, labor, tax and regulatory contingencies. Judicial deposits are classified as assets given that the conditions required for their net presentation with the provision do not exist. p.2) Provisions for civil, labor, tax and regulatory legal claims The Company is party to labor, tax, civil and regulatory administrative and legal proceedings and set up a provision for contingencies whose likelihood of loss was estimated 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. Provisions are 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. p.3) Provision for decommissioning of assets This 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 at the present value of amounts expected to settle the obligation using estimated cash flows and 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 income statement 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. p.4) Contingent liabilities recognized in a business combination A contingent liability recognized in business combination is initially measured at fair value. q) Taxes q.1) Current taxes Current tax assets and liabilities for the current and prior 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 provisions therefor when appropriate. q.2) Deferred taxes Deferred taxes arise from temporary differences at the balance sheet date between the tax bases of assets and liabilities and their carrying amount. 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, where 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 of year-end. Deferred tax assets and liabilities are not discounted to present value and are classified in the balance sheet as noncurrent, 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. q.3) Sales taxes Revenues are recognized net of value added taxes, which from services rendered is subject to State Value-Added Tax (ICMS) or Service Tax (ISS) at the rates in force in each region as well as and to Social Contribution Tax on Gross Revenue for Social Integration Program (PIS) and Social Contribution Tax on Gross Revenue for Social Security Financing (COFINS) taxation on a cumulative basis for revenue from telecommunication services. Other revenue earned by the Company, including revenue from resale of goods, on a noncumulative basis, is taxed at for PIS, COFINS and by ICMS at the rates in force in each State. Prepayments or recoverable amounts are stated in current or noncurrent assets, based on their estimated realization. r) Other assets and liabilities Assets are recognized in the balance sheet when it is likely that their future economic benefits will flow to the Company, and their cost or value can be reliably measured. A liability is recognized in the balance sheet when the Company have a legal or constructive obligation as a result of a past event, the settlement of which is likely to generate an outflow of economic benefits. Assets and liabilities are presented in the balance sheet classified as current or noncurrent. An asset is classified as current when: (i) it is expected to be realized or is intended to be sold or used in the ordinary operational cycle; (ii) it is mainly held for trading purposes; (iii) it is expected to be realized within 12 months from the reporting period; or (iv) cash and cash equivalents, unless there are restrictions upon exchange thereof, i.e., when used to settle a liability within 12 months from the reporting period. All other assets are classified as noncurrent. A liability is classified as current when: (i) it is expected to be settled in the ordinary operational cycle; (ii) it is mainly held for trading purposes; (iii) It is expected to be settled within 12 months from the reporting period; or (iv) there is no unconditional right to defer settlement of the liability within 12 months from the reporting period. All other liabilities are classified as noncurrent. s) Present value adjustment of assets and liabilities Current and noncurrent monetary assets and liabilities are adjusted to their present value when the effect on the overall financial statements is considered significant. The present value adjustment is calculated using contractual cash flows and the explicit, and sometimes implicit, interest rates of the respective assets and liabilities. Accordingly, the interest rate embedded in revenues, expenses and related costs is discounted, so that these assets and liabilities are recognized on an accrual basis. This interest is subsequently reallocated to financial income and expenses in P&L through use of the effective interest method in relation to contractual cash flows. Implicit interest rates were determined based on assumptions, and accounting estimates are considered. t) Government grants and assistance Government grants are recognized when there is reasonable certainty that the benefit will be received and that all the related conditions will be met. When the benefit refers to an expense item, it is recognized as revenue along the benefit period, on a systematic basis in relation to the costs the benefit it intends to offset. When the Company receives non-monetary grants, the asset and the benefit are recorded at nominal amounts and reflected in the income statements over the expected useful life of the asset by equal annual installments. A loan or assistance is initially recognized or measured at fair value. A government grant is measured as the difference between the initial carrying amount of the loan and proceeds therefrom. A loan is subsequently measured in accordance with the applicable accounting policy. When loans or similar assistance are provided by governments or related institutions, with an interest rate below the current applicable market rate, the effect of this favorable interest is regarded as an additional government grant. The financing lines with the Brazilian Development Bank (BNDES), with interest rates not exceeding those prevailing in the market, are classified under the scope of IAS 20, and are recorded at fair value based on market rates. Adjustment arising from the comparison of the amount measured based on the rate agreed upon is accounted for as deferred revenue (Note 19). u) Revenue recognition Revenues substantially correspond to value of considerations received or receivable arising from the provision of telecommunications or communications services, the sale of goods, advertising and other revenue, and are stated net of taxes, discounts or returns (in case of sale of goods) thereon. Revenues and expenses are stated on the accrual basis of accounting. Revenue is recognized when it is probable that future economic benefits will flow to the Company or its subsidiaries, when it can be reliably measured, costs incurred in the transaction can be measured, the risks and rewards have been substantially transferred to the buyer and when specific criteria have been met for each of the Company’s activities. Consolidated revenues of the Company comprise basically telecommunication services regarding voice, data and digital services, broadband, TV and additional telecommunication services that are offered to customers through fixed-price traffic packs (paid on a monthly basis) or based on customers’ consumption, remuneration for network usage, advertising and sale of goods. u.1) Recognition of revenues from telecommunication services Revenues from telecommunication, data and digital services, broadband services provided are recorded on an accrual basis based on the amounts agreed upon. Local and long-distance calls are billed by the measurement process under legislation in force. The services billed on fixed monthly amounts are calculated and accounted for on a straight-line basis. Unbilled revenues from the last billing up to the balance sheet date are recognized in the month in which the service is provided. Revenues related to sale of public phone cards and pay-as-you-go credit for cellphones as well as the respective taxes are deferred and recognized in the income statement to the extent that the services are effectively rendered. Revenues from equipment lease contracts classified as finance lease agreement (TData’s Soluciona TI product) are recognized on installation of equipment whereupon effective transfer of risk takes place. Revenue is recognized at present value of future minimum payments provided for in the agreement. Revenues from services are basically subject to the following indirect taxes: ICMS or ISS (as applicable), PIS and COFINS. u.2) Recognition of revenue and cost from sales of goods Revenues and cost of sales (mobile phones, simcards and accessories) are recorded when risks and rewards inherent in such goods are transferred to buyers. Sales made in own stores are recognized upon sale to end consumer. Revenues and costs of sales made by accredited dealers are deferred and recognized in P&L when the device is activated, limited to 90 days from the sale date. u.3) Customer loyalty program The Company has a loyalty points program that enables customers to accumulate points when they pay bills regarding the usage of the services offered. The accumulated points may be exchanged for telephone sets or services, conditional upon obtaining a minimum balance of points by customer. The consideration received is allocated to the cost of sets or services at fair value. The fair value of points is determined by dividing the amount of discount granted by the number of points necessary for the redemption based on the points program. The portion of revenue related to the fair value of the accumulated balance of points generated is deferred and recognized as revenue upon redemption of points. The number of points to be accounted for is determined through statistical techniques that consider assumptions and historical data on expected redemption rates, expiration percentages and cancellation of points, among other factors. These estimates are subject to variations and uncertainties due to changes in the behavior of customer redemptions. u.4) Membership fee and promotional campaigns Participation fees paid for promotional campaigns by customers of the Company are deferred and recorded in P&L throughout the duration of such campaign. u.5) Agreements combining more than one element Commercial packages offered by the Company that combine different elements are analyzed to determine whether it is necessary to separate the different elements identified, adopting the recognition criterion that is most adequate to each situation. Total revenue generated by the package sale is distributed among its elements, based upon their respective fair values. The fair value determination of each element then identified implies the need for complex estimates given the nature of the business. A possible change in fair values estimates could affect the distribution of revenues between components and consequently the deferred revenue. u.6) Advertising Revenues from advertising are recognized in income during the advertising period. v) Financial income (expenses) These include interest, and 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 available for sale, 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. w) Post-retirement benefit plans The Company 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 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 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. The fair value is based on information on market prices and, in case of securities quoted, on 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 income statement 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 manages and individually sponsor 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. x) Significant accounting judgments, estimates and assumptions The preparation of the financial statements requires management to make judgments, estimates and adopt assumptions supported by valuation bases used in accounting estimates. The accounting estimates involved in the preparation of these financial statements were based on objective and subjective factors, considering management’s judgment for determining the adequate amounts to be recorded in the financial statements. Settlement of transactions involving these estimates may result in amounts significantly different from those recorded in the financial statements due to the uncertainties inherent in their estimate process. Significant assumptions concerning sources of uncertainty in future estimates and other significant sources of estimation uncertainty at the balance sheet date, involving a significant risk of causing a material adjustment to the carrying amount of assets and liabilities, are as follows: x.1) Impairment of non-financial assets An impairment loss exists when the carrying amount of an asset or cash-generating unit exceeds its recoverable amount, which is the higher of fair value less cost to sell and value in use. The calculation of fair value less cost to sell is based on information available on transactions for sale of similar assets or market prices less additional costs to dispose of the asset. The calculation of 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 expected future cash receipts and growth rate used for extrapolation purposes. The Company regularly analyzes the performance of the defined cash generating unit in order to identify any impairment of goodwill and its other assets. Determination of the recoverable amount of the cash generating unit to which goodwill is attributed includes use of assumptions and estimates and requires use of significant accounting judgment and criterion. x.2) Post-retirement benefit plans 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. x.3) Fair value of financial instruments 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. x.4) Property, plant and equipment and finite-lived intangible assets The accounting treatment of investment in fixed and intangible assets includes estimating useful life period for depreciation purposes and the fair value at the date of acquisition, 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 time and nature of future technological changes. x.5) Revenue recognition – Customer Loyalty Program The Company estimates the fair value of points attributed under the customer loyalty program by applying statistic techniques. Inputs for the model include assumptions about expected redemption rates, the mix of products that will be available for future redemption and customers’ preference in relation to points use. Since issued points do not expire, these estimates are subject to significant uncertainties. x.6) Agreements combining more than one element The fair value determination of each element in a multiple element agreement requires complex estimates given the nature of the business. A possible change in fair value estimates could affect the distribution of revenues between components and consequently the deferred revenues. x.7) Taxes There are uncertainties regarding the interpretation of complex tax regulations and the amount and timing of future taxable profits. The Company set up provisions, based on reasonable estimates, for the possible consequences of audits by tax authorities in respective jurisdictions in which they operate. The amount of these provisions 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. The Company evaluate the recoverability of deferred tax assets based on estimates of future profits. This recoverability ultimately depends on the ability of the Company 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, as a result of changes in tax laws or of unexpected future transactions that may impact tax balances. x.8) Provisions for tax, labor, civil and regulatory proceedings Provisions are recognized when the Company has a present obligation arising from a past event, settlement of which requires an outflow of resources rated as probable and when it can be reliably estimated. This obligation 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 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 of the closing date, including the opinion of independent experts, such as legal advisors. x.9) Revenue recognition - revenue from unbilled services 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, among others. Because historical data are used, these estimates are subject to significant uncertainties. y) Functional and reporting currency The Company’s functional and reporting currency is the Brazilian real. Transactions in foreign currency were translated at the exchange rate in force as of the date the transaction. Assets and liabilities denominated in foreign currencies are translated using the exchange rate at the balance sheet date. The exchange rate variations arising from transactions in foreign currencies are recognized in P&L as financial income or expenses. Gains and losses on the translation of foreign investments are recognized in the statement of comprehensive income. z) Translation of transactions denominated in foreign currency Monetary assets and liabilities denominated in foreign currencies are translated into the functional currency (real) at the exchange rate (fix rate) in force as of the transaction date and subsequently re-measured based on the fix rates effective that, at December 31, 2017, were US$1.00 = R$3.3080, €1.00 = R$3.9676, and at December 31, 2016, were US$1.00 = R$3.2591, €1.00 = R$3.4351. Gains and losses resulting from the translation of these assets and liabilities due to exchange rate variation between transaction date and period end are recognized in the income statement. aa) Employee profit sharing The Company has obligations arising from employment contracts, recognizing these provisions during the year. Provisions are recorded to recognize the expense regarding employee profit sharing. These provisions are calculated based on qualitative and quantitative goals set by management and accounted for in specific accounts according to their function in groups of: Cost of services, Selling expenses and General and administrative expenses. ab) Share-based payments The Company measure the cost of transactions settled with employees and officers based on shares issued by parent company (Telefónica), by reference to the fair value of the shares at the date at which they are granted, using the binomial valuation model. This fair value is charged to the income statement over the period until the vesting date. ac) Treasury shares Own equity instruments that are repurchased (treasury stock) are recognized at cost and deducted from equity. No gains or losses are recognized in P&L on purchase, sale, issue or cancellation of the Company’s own equity instruments. ad) 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 decisions on 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 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 consolidated on a consolidated basis, the Company operate in a single operating segment, namely the provision of telecommunications services. ae) Statement of cash flows The statement of cash flows was prepared in accordance with IAS 7 – Statement of Cash Flows using the indirect method, and reflects the changes in cash for the years reported. |
CASH AND CASH EQUIVALENTS |
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CASH AND CASH EQUIVALENTS | 4) CASH AND CASH EQUIVALENTS
Highly liquid short-term investments basically comprise Bank Deposit Certificates (CDB) and Repurchase Agreements kept at first-tier financial institutions, pegged to the Interbank Deposit Certificate (CDI) rate, with original maturities of up to three months, and with immaterial risk of change in value. Revenues generated by these investments are recorded as financial income. |
TRADE ACCOUNTS RECEIVABLE |
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TRADE ACCOUNTS RECEIVABLE | 5) TRADE ACCOUNTS RECEIVABLE
Consolidated balances of noncurrent trade accounts receivable include:
The balances of current and noncurrent trade accounts receivable, relating to finance lease of “Soluciona TI” product, comprise the following effects:
At December 31, 2017, the aging list of gross trade accounts receivable relating to “Soluciona TI” product is as follows:
There are no unsecured residual values resulting in benefits to the lessor nor contingent payments recognized as revenue for the year. The aging list of trade accounts receivable, net of estimated impairment losses, is as follows:
At December 31, 2017 and 2016, no customer represented more than 10% of trade accounts receivable, net. Changes in the estimated impairment losses for accounts receivable are as follows:
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INVENTORIES |
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INVENTORIES | 6) INVENTORIES
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DEFERRED TAXES AND TAXES RECOVERABLE |
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DEFERRED TAXES AND TAXES RECOVERABLE | 7) DEFERRED TAXES AND TAXES RECOVERABLE a) Taxes recoverable
b) Deferred taxes Deferred income and social contribution tax assets are computed considering expected generation of taxable profit, which were based on a technical feasibility study, approved by the Board of Directors. Significant components of deferred income and social contribution taxes are as follows:
At December 31, 2017, deferred tax credits (income and social contribution tax losses) were not recognized in indirect subsidiaries' (Innoweb and TGLog) accounting records, in the amount of R$11,938 (R$2,993 at December 31, 2016), as it is not probable that future taxable profits shall be available for these subsidiaries to benefit from such tax credits. Expected realization of deferred taxes, net, noncurrent. The amounts are based on projections subject to change in the future.
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JUDICIAL DEPOSITS AND GARNISHMENTS |
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JUDICIAL DEPOSITS AND GARNISHMENTS | 8) JUDICIAL DEPOSITS AND GARNISHMENTS In some situations, in connection with a legal requirement or to suspension of tax liability, judicial deposits are made to secure the continuance of the claims under discussion. These judicial deposits may be required for claims where the likelihood of loss was analyzed by the Company, grounded on the opinion of its legal advisors as a probable, possible or remote loss.
On December 31, 2017, the Company had a number of tax-related judicial deposits in the consolidated amount of R$4,230,917 (R$3,758,787 at December 31, 2016). In Note 18, we provide further details on issues arising from the most significant judicial deposits. The table below presents the composition of the balances as of December 31, 2107 and 2016 of the tax judicial deposits (segregated and summarized by tribute).
A brief description of the main tax-related judicial deposits is as follows: •Contribution to Empresa Brasil de Comunicação (EBC) On behalf of its members, Sinditelebrasil (Union of Telephony, and Mobile and Personal Services) is challenging in court payment of the Contribution to Foster Public Radio Broadcasting to EBC, introduced by Law No. 11.652/2008. The Company and TData, as union members, made court deposits relating to that contribution. •Telecommunications Inspection Fund (FISTEL) The Company has legal proceedings involving the collection by ANATEL of the Installation Inspection Fee ("TFI") on the renewal of the validity of the license, as well as the exclusion of the calculation basis of the Installation Inspection Fee ("TFI") and Inspection and Operation Fee ("TFF") of mobile stations that do not belong to it. |
PREPAID EXPENSES |
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PREPAID EXPENSES | 9) PREPAID EXPENSES
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OTHER ASSETS |
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OTHER ASSETS | 10) OTHER ASSETS
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INVESTMENTS |
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INVESTMENTS | 11) INVESTMENTS a) Information on investees The Company holds equity interests in wholly-owned subsidiaries (subsidiaries) and jointly-owned subsidiaries. Below, we present the main information of the Company's investees. TData: The Company's wholly-owned subsidiary, headquartered in Brazil, has the purpose of providing and operating value-added services (VAS); integrated business solutions in telecommunications and related activities; technical assistance and maintenance of telecommunications equipment and networks and project design. TData is the parent company of TGLog (acquired on October 28, 2015 for R$15,811) and Terra Networks (acquired on July 3, 2017 for R$250,000). GVTPart: A wholly-owned subsidiary of the Company up to March 31, 2016. GVTPart. was controlling shareholder of GVT and headquartered in Brazil, the business purpose of GVTPart is to hold interest in other domestic or foreign companies as a partner, shareholder or member. GVT provides landline telephone, data, multimedia communication and pay-tv services in the entire Brazilian territory. GVTPart. was merged into the Company on April 1, 2016 (Note 1 c.2). POP: The Company's direct subsidiary on April 1, 2016 (Note 1c2), is engaged in the performance of activities related to information technology, internet and any other networks; hosting services and the commercial operation of websites and portals; handling, provision and storage of information and data; sale of software, hardware, telecommunication equipment and electronics; development, licensing and maintenance of information systems and routines; development of electronic commerce; creation and administration of own and/or third-party databases; sale of publicity and advertising and, banner vehicles; and holding interest in other companies as member or shareholder, and may also form consortia and/or other forms of association. Until March 31, 2016, POP was controlled by GVT (Note 1 c.2). POP is the wholly-owned subsidiary of Innoweb Ltda ("Innoweb"), whose business purpose is to operate as an internet provider; performing information activities; all forms of telecommunications activities, including the transmission of voice, data and information; sale of telecommunications and electronic equipment and/or accessories; and holding interest in other companies as member or shareholder, and may also form consortia and/or other forms of association. Aliança: Jointly-controlled subsidiary, headquartered in Amsterdam, Netherlands, with 50% interest held by the Company, this entity is engaged in the acquisition and management of subsidiaries, and holding interest in companies of the telecommunications industry. AIX: Jointly-controlled subsidiary headquartered in Brazil, with 50% interest held by the Company, this entity is engaged 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: Jointly-controlled subsidiary headquartered in Brazil, with 50% interest held by the Company, this entity is engaged 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. Below is a summary of significant financial data on the wholly-owned subsidiaries:
b) Changes in investments
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PROPERTY, PLANT AND EQUIPMENT |
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PROPERTY, PLANT AND EQUIPMENT | 12) PROPERTY, PLANT AND EQUIPMENT a) Breakdown and changes
b) Depreciation rates In accordance with IAS 16, the Company performed valuations of useful lives applied to its property, plant and equipment using the direct comparative method of market data. The results of these evaluations did not indicate the need for changes in useful lives in 2017. In relation to 2016, these evaluations indicated the need for changes in useful lives and annual depreciation rates for some items of asset classes. This change in the accounting estimate, which was applied reduced the depreciation expense for the annual period ended December 31, 2016 by R$157,053. c) Property and equipment items pledged in guarantee At December 31, 2017, the Company had consolidated amounts of property and equipment items pledged in guarantee for lawsuits, amounting to R$176,591 (R$203,600 at December 31, 2016). d) 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 referred to arrangement are considered “reversible” (returnable to the concession authority). At December 31, 2017, estimated residual value of reversible assets was R$8,763,355 (R$8,813,916 at December 31, 2016), which comprised switching and transmission equipment and public use terminals, external network equipment, energy, system and operational support equipment. e) Finance lease At December 31, 2017, classes of switching and transmission equipment, infrastructure and other assets included the net residual amounts of R$280,103 (R$298,604 as of December 31, 2016), in which the Company is a lessee of financial leasing operations. |
INTANGIBLE ASSETS |
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INTANGIBLE ASSETS | 13) INTANGIBLE ASSETS a) Breakdown, changes and amortization rates
(1)On December 17, 2015, the Company was the winner in seven lots at a frequency of 2,500MHz, offering the amount of R$185,450. On July 21, 2016, through acts No. 2.483, No. 2.485 and No. 2.486, the Directing Council of ANATEL approved the use of these radio frequencies. The terms of authorization of these radio frequency bands were signed on July 26, 2016 and published in the DOU on August 26, 2016. b) Goodwill breakdown
c) Goodwill impairment testing The Company assessed recoverability of goodwill carrying amount 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 were based on management’s estimates, market studies and macroeconomic projections. Future cash flows were discounted at the WACC (Weighted Average Cost of Capital) rate. Consistent with the economic analysis techniques, the assessment of value in use is made for a period of five (5) 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 5 years is adequate, based on its past experience in preparing cash flow projections. Such understanding is in line with paragraph 35 of IAS 36 – Impairment of Assets. The growth rate used to extrapolate the projections beyond the 5 years period was 4.5% and 5.0% in 2017 and 2016, respectively. Estimated future cash flows were discounted at the pre tax rate of 13.58% in 2017 (14.75% in 2016), also at nominal amounts. The inflation rate for the period analyzed in the projected cash flows was 4.0% in 2017 (4.5% in 2016). 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 intangible assets, prepared using projections considering the financial statements at December 31, 2017 and 2016, growth projections and operating results for the year ended December 31, 2017 and 2016, no impairment losses or evidence of losses were identified, since value in use is higher than net carrying amount as of the assessment date. c.1) Key assumptions used in the calculation of value in use: The value in use is mainly impacted by the following assumptions:
c.2) 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 maximum increases or decreases, expressed in percentage points (p.p.) were assumed for the years ended December 31, 2017 and 2016:
The sensitivity analysis performed at year-end 2017 and 2016 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 (reasonably wide) limits, no losses would be recognized. |
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PERSONNEL, SOCIAL CHARGES AND BENEFITS | 14) PERSONNEL, SOCIAL CHARGES AND BENEFITS
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TRADE ACCOUNTS PAYABLE | 15) TRADE ACCOUNTS PAYABLE
(1)As of December 31, 2016, the amount recorded as non-current related to the judicial proceeding filed against SMP operators claiming the reduction of the VU-M amount. On October 15, 2007, an injunction was obtained to provide a judicial deposit of the difference between VC1 calls and the amount effectively charged by SMP operators. In May 2017, the updated amount of R$71,956 was raised in favor of the operators involved, after an agreement between the parties. |
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TAXES, CHARGES AND CONTRIBUTIONS | 16) TAXES, CHARGES AND CONTRIBUTIONS
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DIVIDENDS AND INTEREST ON EQUITY (IOE) |
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DIVIDENDS AND INTEREST ON EQUITY (IOE) | 17) DIVIDENDS AND INTEREST ON EQUITY (IOE) a) Dividends and interest on equity payable a.1) Breakdown:
a.2) Changes:
For the cash flow statement, interest on equity and dividends paid to shareholders are recognized in “Financing Activities”. Interest on equity and dividends not claimed by shareholders expire within three years from the initial payment date. Should dividends and interest on equity expire, these amounts are recorded in retained earnings for later distribution. |
PROVISIONS AND CONTINGENCIES |
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PROVISIONS AND CONTINGENCIES | 18) PROVISIONS AND CONTINGENCIES The Company is party to administrative and judicial proceedings and labor, tax and civil claims filed in different courts. The management of the Company, based on the opinion of its legal counsel, recognized provisions for proceedings for which an unfavorable outcome is considered probable. Breakdown of changes in provisions for cases in which an unfavorable outcome is probable, in addition to contingent liabilities and provisions for decommissioning are as follows:
a) Provisions and labor contingencies
Labor provisions and contingencies involve labor claims filed by former employees and outsourced employees (the latter alleging 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 Company is also a defendant in labor claims filed by retired former employees who are covered by the Retired Employees Medical Assistance Plan (“PAMA”), who, among other issues, are demanding the cancellation of amendments to this plan. Most of these claims await a decision by the Regional Labor Court of São Paulo and the Superior Labor Court. Based on the opinion of its legal counsel and recent decisions of the courts, management considers the risk of loss in these cases as possible. No amount has been specified for these claims, since is not possible to estimate the cost to the Company in the event of loss. In addition, the Company is party to Public Civil Actions filed by the Labor Public Prosecutor’s Office, mainly in relation to the determination that the Company must cease the engagement of intermediaries to carry out its core activities. No amounts were allocated to the possible degree of risk in these Public Civil Actions in the above table, since at this stage of the proceedings it is not possible to estimate the cost to the Company in the event of loss. b) Provisions and tax contingencies
b.1) Probable tax contingencies Management and its legal counsel understand that losses are probable in the following federal, state, municipal and other tax proceedings (FUST, FISTEL and EBC) are described below:
Federal Taxes The Company is party to administrative and legal proceedings relating to: (i) claims resulting from the non-ratification of compensation and refund requests formulated; (ii) CIDE levied on the remittance of amounts abroad related to technical and administrative assistance and similar services, as well as royalties; (iii) IRRF on interest on equity; (iv) Social Investment Fund (Finsocial) offset amounts; and (v) additional charges to the PIS and COFINS tax base, as well as additional charges to COFINS required by Law No. 9,718/98. At December 31, 2017, consolidated provisions totaled R$502,153 (R$343,353 at December 31, 2016). State taxes The Company is party to administrative and judicial proceedings relating to: (i) disallowance of ICMS credits; (ii) telecommunications services not subject to ICMS; (iii) tax credit for challenges / disputes over telecommunication services not provided or wrongly charged (Agreement 39/01); (iv) rate difference of ICMS; (v) ICMS on rent of infrastructure necessary for internet (data) services; and (vi) outflows of goods with prices lower than those of acquisition. At December 31, 2017, consolidated provisions totaled R$231,998 (R$226,571 at December 31, 2016). Municipal taxes The Company is party to various 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. At December 31, 2017, consolidated provisions totaled R$32,054 (R$30,519 at December 31, 2016). FUST, FISTEL and EBC The Company has administrative and judicial discussions related to: (i) the non-inclusion of interconnection expenses and industrial exploitation of a dedicated line in the calculation basis of FUST; (ii) exclusion of the calculation basis of the Installation Inspection Fee ("TFI") and Inspection and Operation Fee ("TFF") of the mobile stations that are not owned by it; and (iii) Contribution to the Promotion of Public Broadcasting (EBC). At December 31, 2017, consolidated provisions totaled R$2,813,003 (R$2,529,238 at December 31, 2016). b.2) Possible tax contingencies Management and its legal counsel understand that losses are possible in the following federal, state, municipal and other tax proceedings (FUST, FUNTTEL, FISTEL and EBC) are described below: Federal taxes The Company is party to various administrative and judicial proceedings, at the federal level, which are awaiting decisions in different court levels. The most important of these proceedings are: (i) statements of dissatisfaction resulting from failure to approve requests for compensation submitted by the Company; (ii) INSS (social security contribution) (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) and (c) supply of meals to employees, withholding of 11% (assignment of workforce); (iii) IRRF and CIDE on the funds remitted abroad related to technical services and to administrative support and similar services, etc., and royalties; (iv) IRPJ and CSLL - disallowance of costs and sundry expenses not evidenced; (v) deduction of COFINS on swap operation losses; (vi) PIS and COFINS accrual basis versus cash basis; (vii) IRPJ FINOR, FINAN or FUNRES; (viii) IRPJ and CSLL, disallowance of expenses on goodwill of the corporate restructuring of Terra Networks and Vivo S.A., and for the takeovers of Navytree, TDBH, VivoPart. and GVTPart.; (ix) ex-tariff, cancellation of the benefits under CAMEX Resolution No. 6, increase in the import duty from 4% to 28%; (x) IPI levied on shipment of fixed access units from the Company's establishment; (xi) PIS and COFINS levied on value-added services and monthly subscription services; (xii) INSS on Stock Options - requirement of social security contributions on amounts paid to employees under the stock option plan; (xiii) IOF - required on loan transactions, intercompany loans and credit transactions; and (xiv) operating expenses allegedly non-deductible and related to estimated losses on the recoverable value of accounts receivable. At December 31, 2017, consolidated amounts involved totaled R$8,226,374 (R$5,931,022 at December 31, 2016). State taxes The Company is party to various administrative and judicial proceedings, at the state level, which are awaiting decisions in different court levels. Among these lawsuits, the following are highlighted: (i) provision of facility, utility and convenience services and rental of movable property; (ii) international calls (DDI); (iii) reversal of ICMS credit related to the acquisition of items of property, plant and equipment and payment of ICMS in interstate transfers of property, plant and equipment between branches; (iv) reversal of previously unused ICMS credits; (v) service provided outside São Paulo state with ICMS paid to São Paulo State; (vi) co-billing; (vii) tax substitution with a fictitious tax base (tax guideline); (viii) use of credits related to acquisition of electric power; (ix) secondary activities, value added and supplementary services; (x) tax credits related to opposition/challenges regarding telecommunications services not provided or mistakenly charged (Agreement 39/01); (xi) deferred collection of ICMS - interconnection (DETRAF - Traffic and Service Provision Document); (xii) credits derived from tax benefits granted by other states; (xiii) disallowance of tax incentives related to cultural projects; (xiv) transfers of assets among business units owned by the Company; (xv) communications service tax credits used in provision of services of the same nature; (xvi) card donation for prepaid service activation; (xvii) reversal of credit from return and free lease in connection with assignment of networks (used by the Company itself and exemption of public bodies); (xviii) DETRAF fine; (xix) ICMS on own consumption; (xx) ICMS on exemption of public bodies; (xxi) ICMS on amounts given by way of discounts; (xxii) new tax register bookkeeping without prior authorization by tax authorities; (xxiii) ICMS on monthly subscription; (xxiv) tax on unmeasured services; and (xxv) ICMS on advertising services. At December 31, 2017, consolidated amounts involved totaled R$18,968,349 (R$15,389,802 at December 31, 2016). Municipal taxes The Company is party to various administrative and judicial proceedings, at the municipal level, which are awaiting decisions in different court levels. The most important of these proceedings are: (i) ISS on non-core activity, value-added and supplementary services; (ii) ISS withholding at source; (iii) IPTU; (iv) land use tax; (v) various municipal charges; (vi) charge for use of mobile network and lease of infrastructure; (vii) advertising services; (viii) services provided by third parties; (ix) advisory services in corporate management provided by Telefónica Latino América Holding; (x) ISS on call identification and mobile phone licensing services; (xi) ISS on full-time services, provisions, returns and cancelled tax receipts; and (xii) ISS on data processing and antivirus congeners. At December 31, 2017, consolidated amounts involved totaled R$548,014 (R$853,244 at December 31, 2016). FUST, FUNTTEL, FISTEL and EBC Universal Telecommunications Services Fund (“FUST”) Writs of mandamus were filed seeking the right to not include revenues with interconnection and Industrial Use of Dedicated Line (EILD) in FUST tax base, according to Abridgment No. 7 of December 15, 2005, as it does not comply with the provisions contained in sole paragraph of article 6 of Law No. 9,998/00, which are awaiting a decision from Higher Courts. Various delinquency notices were issued by ANATEL in the administrative level to collect charges on interconnections, EILD and other revenues not earned from the provision of telecommunication services. At December 31, 2017, consolidated amounts involved totaled R$4,316,571 (R$4,089,065 at December 31, 2016). Fund for Technological Development of Telecommunications (“FUNTTEL”) Proceedings filed for recognition of the right not to include interconnection revenues and any others arising from the use of resources that are part of the networks in FUNTTEL calculation basis, as determined by Law 10,052/00 and Decree No. 3,737/01, thus avoiding the improper application of Article 4, paragraph 5, of Resolution 95/13. Several notifications of debits drawn up by 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. At December 31, 2017, consolidated amounts involved totaled R$493,867 (R$1,190,637 at December 31, 2016). Telecommunications Inspection Fund (“FISTEL”) Judicial actions for the collection of TFI on: (a) 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 (b) extensions of the period of validity of the right to use radiofrequency associated with the operation of the telephone service personal mobile service. At December 31, 2017, consolidated amounts involved totaled R$2,556,443 (R$2,352,000 at December 31, 2016). Contribution to Empresa Brasil de Comunicação (“EBC”) The Union of Telephony and Cellular and Personal Mobile Service Companies ("Sinditelebrasil") judicially discusses, on behalf of the associates, the Contribution to the Promotion of Public Broadcasting to EBC, created by Law 11,652/08. Several notifications of debit entry were drawn up by ANATEL at the administrative level for the constitution of the tax credit. At December 31, 2017, consolidated amounts involved totaled R$279,292 (R$244,808 at December 31, 2016). c) Provisions civil contingencies
c.1) Provisions for probable civil losses Management and its legal counsel understand that losses are probable in the following civil proceedings: •The Company is party to proceedings involving rights to the supplementary amounts from shares calculated on 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. At December 31, 2017, consolidated provisions totaled R$324,232 (R$256,276 at December 31, 2016).
c.2) Civil contingencies assessed as possible losses Management and its legal counsel understand that losses are possible in the following civil proceedings:
An unfavorable decision was handed down determining that the Company should refrain from selling mobile phones with Caller ID service ("Bina"), subject to a daily fine of R$10,000.00 (Ten thousand reais) in case of noncompliance. Furthermore, according to that decision, the Company must pay indemnification for royalties, to be calculated in 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 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. At the present time, we await the judgment of the regimental grievance filed against a decision prior to the judgment, which rejected the application of the former lawyers of Lune as assistants of the author. There is no way to determine the extent of potential liabilities with respect to this claim.
d) Provisions and regulatory contingencies
d.1) Provisions for regulatory contingencies assessed as probable losses
The Company is party to administrative proceedings against ANATEL, filed based on an alleged failure to meet sector regulations, and to judicial proceedings to contest sanctions applied by ANATEL at the administrative level. At December 31, 2017, consolidated provisions totaled R$1,103,792 (R$828,934 at December 31, 2016).
d.2) Regulatory contingencies assessed as possible losses According to the Company’s management and legal counsel, the likelihood of loss of the following regulatory civil proceedings is possible:
However, ANATEL determined that in addition to revenues from Service Plans, the charge corresponding to 2% should also be levied on interconnection revenues and other operating revenues, which is not stipulated in clause 1.7 of referred Authorization Term. Considering, based on the provisions of the Authorization Terms, that revenue from interconnection services should not be included in the calculation of the 2% charge for radiofrequency use right extension, the Company filed administrative and legal proceedings challenging these charges, based on ANATEL’s position. d.3) Term of Conduct Adjustment ("TAC") The Board of Directors of ANATEL approved, on October 27, 2016, the Company's TAC. On September 27, 2017, this instrument was judged by the Brazilian Court of Audit ("TCU"), with the instruction of recommendations and determinations to ANATEL for the continuation of the analysis of the instrument. e) Guarantees The Company granted guarantees for tax, civil and labor proceedings, as follows:
At December 31, 2017, in addition to the guarantees presented above, the Company had amounts under short-term investment frozen by courts (except for loan-related investments) in the consolidated amount of R$69,764 (R$67,393 at December 31, 2016). |
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DEFERRED REVENUE | 19) DEFERRED REVENUE
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LOANS, FINANCING AND DEBENTURES |
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LOANS, FINANCING AND DEBENTURES | 20) LOANS, FINANCING AND DEBENTURES a) Breakdown
(1)Guarantee in receivables relating to 15% of the outstanding debt balance or four times the largest installment, whichever is higher.
(2)Pledge of financed assets.
(3)Assignment of receivables corresponding to 20% of outstanding debt balance or 1 time the last installment of sub-credit facility "A" (UMIPCA) plus 5 times the last installment of each of the other sub-credit facilities, whichever is greater.
(4)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. Balances were R$11,722 and R$10,773 at December 31, 2017 and 2016, respectively.
a.1) Loans and financing
Some financing agreements with the BNDES described above, have lower interest rates than those prevailing on the market. These operations fall within the scope of IAS 20 and thus the subsidies granted by BNDES were adjusted to present value deferred in accordance with the useful lives of the financed assets, resulting in a balance until December 31, 2017 as of R$32,155 (R$47,346 at December 31, 2016), note 19. a.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 fixed CDI rate for the corresponding periods, with the net cost equivalent to between 101.4% to 109.4% of CDI (108.4% of CDI as of December 31, 2016). a.3) Finance lease The Company has agreements classified as finance lease agreements in the condition of lessee relate to: (i) lease of towers and rooftops arising from sale and finance 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. 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 of the agreement. The amounts recorded in property, plant and equipment are depreciated over the estimated useful lives of the assets or the lease term, whichever is shorter. The balance of amounts payable relating to aforementioned transactions comprises the following effects:
Aging list of finance lease payable at December 31, 2017 is as follows:
There are no unsecured residual values resulting in benefits to the lessor or contingent payments recognized as revenue at December 31, 2017 and 2016. a.4) 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 (Note 1c.3), 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), they will be returned to Vivendi, as long as they are obtained in a final unappeasable decision. Reimbursement will be made within 15 years and this amount is subject to monthly restatement at the SELIC rate. b) Debentures Information on the debentures at December 31, 2017 and 2016:
Transaction costs in connection with the 4th, 5th and 6th issues, totaling R$5,422 at December 31, 2017 (R$495 at December 31, 2016, 3th and 4th issues), were allocated as a reduction of liabilities as costs to be incurred and are recognized as financial expenses, according to the contractual terms of each issue.
c) Repayment schedule At December 31, 2017, breakdown of noncurrent loans, financing, finance lease, debentures and contingent consideration by year of maturity is as follows:
d) Covenants There are loans and financing with BNDES and debentures with specific covenants involving a penalty in the event of breach of contract. A breach of contract provided for in the agreements with the institutions listed above is characterized as noncompliance 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.
At December 31, 2017 and 2016 all economic and financial indexes established in existing contracts have been achieved.
e) Changes Changes in loans and financing, debentures, finance lease agreements and contingent considerations are as follows:
The following is a summary of funding and payments made during the year ended December 31, 2017.
Additions
Loans and Financing
Banco do Nordeste ("BNB")
On May 12, 2017, draw-downs were made related to the agreement signed on August 18, 2014 in the total amount of R$39,878. The rates of this contract are 7.06% p.a. to 10.0% p.a., total term of 8 years, with interest payments and principal repayments in 72 monthly and successive installments. These resources were destined to investment and expansion projects for the Brazil's Northeast region.
BNDES FINEM
Contract 14.2.1192.1: On December 30, 2014, a financing line of R$1,000,293 was contracted, with rates of: (i) TJLP + 0 to 3.12% p.a; (ii) 4% p.a; (iii ) Selic + 2.32% p.a, total term of 8 years, with a grace period ending on January 15, 2018. After the grace period, interest and principal repayments will be paid in 60 monthly and successive installments; and (iv) 6% a.a. total term of 7 years, with a grace period ending on January 15, 2017. After the grace period, interest and principal repayments will be paid in 60 monthly and successive installments.
During 2017, three disbursements related to this agreement were made in the amount of R$15,998.
These disbursements refer to a financial support plan linked to projects carried out in the 2014-2016 triennium, aiming at expansion in the areas of operation.
Debentures
5th Issue
At a meeting held on January 26, 2017, the Company's Board of Directors approved the 5th issue of simple debentures, non-convertible into shares of the Company, in a single series, unsecured, in the total amount of R$2,000,000, which were subject to public placement with restricted efforts, under a firm guarantee regime, in the terms of ICVM 476/09.
On February 8, 2017, the Company issued 200,000 debentures, with a par value equivalent to R$10. The debentures have a maturity of five years and the nominal unit value of each of the debentures will not be monetarily restated.
Remuneration interest corresponds to 108.25% of the accumulated variation of the average daily rates of one-day Interbank Deposits ("DI").
6th Issue
At a meeting held on November 13, 2017, the Company's Board of Directors approved the 6th issue of simple debentures, non-convertible into shares of the Company, in a single series, unsecured, in the total amount of R$1,000,000, which were subject to public placement with restricted efforts, under a firm guarantee regime, in the terms of ICVM 476/09.
On November 27, 2017, the Company issued 100,000 debentures, with a par value equivalent to R$10. The debentures have a maturity of three years and the nominal unit value of each of the debentures will not be monetarily restated.
Remuneration interest corresponds to 100.00% of the accumulated variation of the average daily rates of one-day Interbank Deposits ("DI"), plus a spread equivalent to 0.24%. |
OTHER LIABILITIES |
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OTHER LIABILITIES | 21) OTHER LIABILITIES
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EQUITY |
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EQUITY | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
EQUITY | 22) EQUITY a) Capital According to its Articles of Incorporation, the Company is authorized to increase its share capital up to 1,850,000,000 common and preferred 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. Nevertheless, Brazil’s Corporation Law (Law nº 6404/76, Article 166, item IV) - establishes that capital may be increased by means of a Special Shareholders’ Meeting resolution to decide about amendments to the Articles of Incorporation, if authorized capital increase limit has been reached. Capital increases do not necessarily observe the proportion between the number of shares of each class to be maintained, however the number of non-voting or restricted-voting preferred shares must not exceed 2/3 of total shares issued. Preferred shares are non-voting, except for cases set forth in Articles 9 and 10 of the Articles of Incorporation, but have priority in the event of reimbursement of capital, without premium, and are entitled to dividends 10% higher than those paid on common shares, as per article 7 of the Company’s Articles of Incorporation and item II, paragraph 1, article 17 of Law No. 6404/76. Preferred shares are also entitled to full voting rights if the Company fails to pay the minimum dividend to which they are entitled for three consecutive financial years and this right will be kept until payment of said dividend.
Subscribed and paid-in capital at December 31, 2017 and 2016 amounted to R$63,571,416, divided into shares without par value, held as follows: At December 31, 2017
At December 31, 2016
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 (SPTE Participações Ltda) after the tax credits are realized under the terms of CVM Ruling No. 319/99. The balance of this account at December 31, 2017 and 2016 was R$63,074. b.2) Other capital reserves The breakdown as of December 31, 2017 and 2016 is as follows.
(1)Refers to 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)Refers to direct costs (net of taxes) of Company capital increases on April 28, 2015 and April 30, 2015, arising from the Primary Offering of Shares. (4)Refers to the difference between the economic values of the merger of shares of GVTPart. and market value of shares, 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, would be recorded in equity when there is no change in the shareholding control. (6)Refers to 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)Refers to the effects of TData's acquisition of 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.1). b.3) Treasury shares The Company's shares held in treasury whose balance is resulting: (i) of the exercise of the right to withdraw from the Company's common and preferred shareholders, who expressed their dissent regarding the acquisition of GVTPart (see Note 1.c3); (ii) the acquisition of preferred shares in the financial market in accordance with the share buyback program in effect at the time of the transaction (see Note 22.f); 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. The table below shows the changes in this caption for the year ended December 31, 2017 and 2016.
c) Income reserves The amounts of the income reserves are distributed as follows:
d) Dividend and interest on equity d.1) Additional dividends proposed for 2016 On April 26, 2017, the Company's Ordinary General Meeting approved the allocation of proposed additional dividends for 2016, not yet distributed, amounting of R$1,913,987, equivalent to R$1.06295487663 and R$1.16925036430 for common and preferred shares, respectively, 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 will be paid as of December 13, 2017. 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 2017 and 2016:
The manner proposed by management for payment of dividends was: For 2017: The remaining unallocated balance of net income for the year ended December 31, 2017, amounting to R$1,950,897, plus equity instruments lapsed in 2017 amounting to R$101,778 and reversal special reserve for expansion and modernization of 2016 amounting to R$550,000 and less other comprehensive income amounting to R$113,811, totaling R$2,488,864. The amount of R$297,000 was classified as "Special Reserve for Expansion and Modernization" and R$2,191,864 was classified as additional proposed dividends in accordance with the management proposal for allocation of income for the year, submitted and approved at the General Shareholders’ Meeting. For 2016: The remaining unallocated balance of net income for the year ended December 31, 2016, amounting to R$1,698,694, plus equity instruments lapsed in 2016 amounting to R$221,559 and reversal special reserve for expansion and modernization of 2016 amounting to R$700,000 and less other comprehensive income amounting to R$156,266, totaling R$2,463,987. The amount of R$550,000 was classified as "Special Reserve for Expansion and Modernization" and R$1,913,987 was classified as additional proposed dividends in accordance with the management proposal for allocation of income for the year, submitted and approved at the General Shareholders’ Meeting at April 27, 2017.
In 2017 and 2016, the Company allocated interim dividends and interest on equity, which were allocated to mandatory minimum dividends, as follows: 2017
2016
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 expire in 3 (three) years, as from the initial payment date. The Company reverses the amount of unclaimed dividends and IOE to equity upon expiry. For the years ended December 31, 2017 and 2016, the Company reversed unclaimed dividends and interest on equity amounting to R$101,778 and R$189,471, respectively, which were included in calculations for decisions on Company dividends. e) Other comprehensive income Financial instruments available for sale: 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 (jointly-controlled entity). Changes in other comprehensive income are as follows:
f) Company Share Repurchase Program In a meeting held on June 9, 2017, the Company’s Board of Directors, in accordance with article 17, item XV, of the Articles of Incorporation, approved the repurchase of common and preferred shares issued by the Company, under CVM Ruling No. 567, of September 17, 2015, for acquisition of common and preferred shares issued by the Company for subsequent cancellation, disposal or to be held in treasury, without decreasing capital, to increase shareholder value through the efficient application of available cash resources and optimize the Company's capital allocation. The repurchase shall be made through the use of the capital reserve balance included in the balance sheet as of March 31, 2017, excluding the reserves referred to in article 7, paragraph 1, of CVM Instruction 567, of September 17, 2015. This program is effective until December 8, 2018, with the acquisitions made at B3, at market prices, observing the legal and regulatory limits, being the maximum amounts to be acquired of 870,781 common shares and 41,510,761 preferred shares. On June 1, 2017 and July 5, 2017, the Company acquired 45 and 661 preferred shares issued by the Company at an average unit price of R$47.31 and R$45.26, repectively, totaling R$32. 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 for the year. The table below sets out the calculation of earnings per share for the years ended December 31, 2017, 2016 and 2015:
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NET OPERATING REVENUE | 23) NET OPERATING REVENUE
(1) These include telephone services, use of interconnection network, data and SVA services, cable TV and other services.
No one customer contributed more than 10% of gross operating revenue for the years ended December 31, 2017, 2016 and 2015. All amounts in net income are included in income and social contribution tax bases. |
OPERATING COSTS AND EXPENSES |
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OPERATING COSTS AND EXPENSES | 24) OPERATING COSTS AND EXPENSES
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OTHER OPERATING INCOME (EXPENSES) |
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OTHER OPERATING INCOME (EXPENSES) | 25) OTHER OPERATING INCOME (EXPENSES)
The transaction was recognized as sale and leaseback as provided under IAS 17. Management analyzed each asset leased back and classified them as operating or finance leases in accordance with IAS 17 qualitative and quantitative criteria. Risks and benefits relating to these towers have been transferred to their purchasers, with the exception of several towers for which transfer of risks and benefits was not possible. For these items, the amount was recognized as deferred revenue (Note 19). (2) In the same transaction , performed in 2016 and described in item (1), the Company transferred assignment of current lease agreements for sites and sold sharing agreements (customer portfolio) for R$40,899. |
FINANCIAL INCOME (EXPENSES) |
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FINANCIAL INCOME (EXPENSES) | 26) FINANCIAL INCOME (EXPENSES)
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INCOME AND SOCIAL CONTRIBUTION TAXES |
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INCOME AND SOCIAL CONTRIBUTION TAXES | 27) INCOME AND SOCIAL CONTRIBUTION TAXES The Company recognize income and social contribution taxes on a monthly basis, on an accrual basis, and pay the taxes based on estimates, in accordance with the trial balances for tax-reduction/tax-suspension purposes. Taxes calculated on profits until the month of the financial statements are recorded in liabilities or assets, as applicable. Reconciliation of the reported tax expense and the amounts calculated by applying the statutory tax rate of 34% (income tax of 25% and social contribution tax of 9%) is shown in the table below for the years ended December 31, 2017, 2016 and 2015.
Breakdown of gains and losses of deferred income and social contribution taxes on temporary differences is shown in Note 7.b). |
BALANCES AND TRANSACTIONS WITH RELATED PARTIES |
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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 as follows:
As described in note 30, the Company sponsor pension plans and other post-employment benefits to its employees with Visão Prev e Sistel. The following table summarizes the consolidated balances with related parties:
The agreement’s conditions were established taking into consideration: (i) prior transactions of the same nature performed by the Company and other companies in the industry; (ii) a valuation report for the assets subject matter of the agreement, prepared by an independent appraiser; and (iii) internal business plan showing that the operation is profitable for the Company. The following table summarizes the aforementioned transaction:
b) Management compensation Consolidated key management personnel compensation paid by the Company to its Board of Directors and Statutory Officers for the years ended December 31, 2017 and 2016 totaled R$21,684 and R$109,314, respectively. Of this amount, R$14,439 (R$39,822 at December 31, 2016) corresponds to salaries, benefits and social charges and R$7,245 (R$69,492 at December 31, 2016) to variable compensation. These amounts were recorded as expenses with personnel under the General and administrative expenses group of accounts (Note 24). For the years ended December 31, 2017 and 2016, the Company’s Directors and Officers did not receive any pension, retirement pension or other similar benefits. |
SHARE-BASED PAYMENT PLANS |
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SHARE-BASED PAYMENT PLANS | |
SHARE-BASED PAYMENT PLANS | 29) SHARE-BASED PAYMENT PLANS Telefónica, as the Company’s parent company, has different share-based payment plans based on the share quotes, which were also offered to management and employees of its subsidiaries, including Telefônica Brasil. The fair value of these options is estimated on the grant date, based on a binomial pricing model reflecting terms and conditions of instruments granted. The Company reimburse Telefónica for the amount of the fair value of the benefits granted to management and employees on the grant date. The main plans in effect at December 31, 2017 and 2016 are detailed below: a) Performance & Investment Plan (“PIP”) Telefónica’s General Shareholders’ Meeting held on May 18, 2011 approved a long-term program for using Telefónica stock options to reward senior management’s global commitment, outstanding performance and high potential by awarding Telefónica S.A. shares. Participants are not required to pay for their initial stock options and may increase the number of shares to be received at the end of the plan if they decide to make a joint investment in their PIP, which requires a participant to buy the equivalent of 25% of the initial shares awarded by Telefónica and hold them until the end of the cycle, when Telefónica will add another 25% in addition to the initial amount of shares in their co-investment. Initially, the plan is expected to remain effective for 3 years. The cycles are independent of each other. The number of shares is reported at the beginning of each cycle and will be transferred to participants 3 years after the grant date assuming these professionals have met their targets. The granting of shares is conditional on: (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 the growth in shareholder earnings, considering stock quotations and dividends (Total Shareholder Return - TSR) with the growth in TSR for companies of the Group in an established basis of comparison. In 2014, the Company approved the extension of this program for another 3 cycles of 3 years each, beginning October 1, 2014 until September 30, 2017. The number of shares is stated at the beginning of the cycle and three years after grant date, and shares are transferred to participants as long as TSR targets are met. The 2013‑2016 cycle takes place in June 2016 and the TSR was not achieved, therefore Telefónica shares were not awarded to the Company's executives. The 2014-2017 cycle takes place in September 2017 and the TSR was not achieved, therefore Telefónica shares were not awarded to the Company’s executives. The 2015-2018 (October 1, 2015 the September 30, 2018): with 84 active Company executives (including 2 executives appointed under the Articles of Incorporation of the Company), hold the right to potentially receive 471,654 Telefónica shares (includes initial amounts and co-investment).
At December 31, 2017, the value of Telefónica’ share price was Eur 8.1950. b) Talent for the Future Share Plan (“TFSP”) Telefónica’s 2014 General Shareholders’ Meeting approved a long-term program to reward the global commitment, outstanding performance and high potential of its executives by awarding Telefónica shares. Participants are not required to pay for their initial options. Initially, the plan is expected to remain effective for 3 years. The cycle began on October 1, 2014 until September 30, 2017. The number of shares is reported at the beginning of the cycle and shares will be transferred to participants 3 years after grant date if their targets have been met. 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. The 2014-2017 cycle takes place in September 2017 and the TSR was not achieved, therefore Telefónica shares were not awarded to the Company’s executives. The 2015-2018 cycle (October 1, 2015 to September 30, 2018): with the right to potentially receive 83,500 Telefónica shares (includes initial amounts). At December 31, 2017, the value of Telefónica’ share price was Eur 8.1950. c) Global Employee Share Plan (“GESP”) At the Telefónica General Shareholders’ Meeting held on May 30, 2014, a share purchase plan under tax incentive was approved, intended for employees of Telefónica Group at the international level, including the employees of the Company. This plan offers the possibility of acquiring Telefónica shares with the commitment of the later to deliver free of charge to participants a given number of its shares, whenever certain requirements are met. Initially, the plan was expected to remain effective for 2 years. Employees enrolled in the plan were able to acquire Telefónica shares by making monthly contributions of 25 to 150 euros (or the equivalent in local currency) totaling at most 1,800 euros over 12 months (acquisition period). The delivery of shares occurred after the vesting period of the plan, as of July 31, 2017, and was conditional on: (i) the permanence in the Company during the 2‑year program period (vesting period), subject to certain special conditions related to terminations; and (ii) the exact number of shares to be granted at the end of the vesting period depends on the number of shares acquired and held by employees. Thus, employees enrolled with the plan, who remained in the Telefónica Group and who have held the shares acquired for an additional period of over 12 months after the end of the purchase period, will be entitled to receive one free share for each share they have acquired and held until the end of the vesting period. The cycle was finalized on July 31, 2017, with the delivery of the net shares of withholding income tax.
The expenses of the Company with the share-based compensation plans described above, where applicable, are recorded as personnel expenses, divided into the groups Cost of Services, Selling expenses and General and Administrative Expenses (Note 24), corresponding to R$7,013 and R$21,952 for the years ended December 31, 2017 and 2016. |
PENSION PLANS AND OTHER POST-EMPLOYMENT BENEFITS |
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PENSION PLANS AND OTHER POST-EMPLOYMENT BENEFITS | 30) PENSION PLANS AND OTHER POST-EMPLOYMENT BENEFITS The plans sponsored by the Company and related benefit types are as follows:
The actuarial valuation of the plans was made in December 2017 and 2016, based on the registration of the participants held on the following dates: - 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 October 31, 2017, projected for December 31, 2017 and the registration of the participants with a base date of July 31, 2016, projected for 31 of December 2016. The actuarial valuation carried out for the health plan Law No. 9,656 / 98 used the register of the participants with a base date of October 31, 2017, projected for December 31, 2017 and the registration of the participants with a base date of August 31, 2016 , projected for December 31, 2016. - Post-employment Social Security Plans The actuarial valuation made for the CTB pension plan used the registration of the participants with a base date of August 31, 2017, projected for December 31, 2017 and the registration of the participants with a base date of July 31, 2016, projected for 31 of December 2016. The actuarial valuation made for all other pension plans (PBS-A, Telefônica BD, Tcoprev and Visão plans) used the register of the participants with a base date of July 31, 2017, projected for December 31, 2017 and the with a base date of July 31, 2016, projected for December 31, 2016. 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 VisãoPrev. 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 (VisãoPrev 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 CTB deficit plans and the healthcare plan under Law No. 9656/98, generally all benefit plans that have fund 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 at December 31, 2017 and 2016, 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: a) Post-retirement Health Plans a.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) for 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 is at the fixed percentage of payroll of employees covered by the Telefônica BD plan. a.2) Health care plan – Law No. 9656/98 The Company manages sponsor 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 retirees and their dependents and 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. b) Post-Employment Pension Plans They include the PBS Assisted Plans (“PBS-A"), CTB, Telefônica DB, Tcoprev and Visão. On December 9, 2016, Visão Prev obtained approvals from the National Supplementary Pension Authority ("PREVIC") for the incorporation of Vivo Prev and Visão TGestiona plans to the Visão Telefônica plan. In this way, as of January 1, 2017, all participants in Vivo Prev and Visão TGestiona plans became participants in the Visão Telefônica plan. This unification preserves all vested rights, and gives participants of the incorporated plans access to the benefits of the Visão Telefônica plan. The main purpose of the mergers is to create greater synergy of the benefits offered to the participants, as well as to reduce administrative and operational costs of the plans, as well as to improve administrative efficiency. The following describes the key information about post-retirement pension plans. b.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 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. Although the PBS-A plan has assets in excess of actuarial liabilities at December 31, 2017 and 2016, such surplus was not recognized due to lack of legal provision in relation to refund thereof, in addition, since it is not a contributive plan, it is not possible to make any deduction from future contributions. b.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 is 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 Companhia Telefônica Brasileira (“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. b.3) Telefônica DB Plan The Company individually sponsor defined benefit retirement plan, the Telefônica DB Plan. In order to improve allocation of Telefôncia 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 present 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 benefit to the participants who are already receiving and to the new pensions. b.4) Tcoprev Plan The Company sponsors, individually, the Tcoprev Plan, a hybrid plan for defined benefits and defined contribution of pension benefits, managed by Visão Prev. The contributions to the Tcoprev plan are: (i) basic contribution, with contributions made by the participant and sponsor; and (ii) voluntary and sporadic contributions, with contribution made only by the participant. In addition to these contributions, the sponsor can make the variable contribution, of an eventual character, being apportioned proportionally to the basic contribution of the participant. In order to improve allocation of Tcoprev 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 Tcoprev plan present sustainable projection of its coverage ratio with the current investments portfolio. b.5) VISÃO Plans The Visão Telefôncia and Visão Multi plans will hereinafter be shown jointly under the name VISÃO, due to their similarity. The Company 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 related to defined contribution plans totaled R$43,702 at December 31, 2017 (R$37,879 at December 31, 2016). The contributions to the Visão Telefôncia 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 contribution made only by the participant. In addition, the participant has the possibility to choose one of the five investment profiles to apply their balance, they are: Super Conservative, Conservative, Moderate, Aggressive and Aggressive Fixed Income Long Term. c) Consolidated Information on Pension Plans and Other Post-Employment Benefits c.1) Reconciliation of assets and liabilities:
c.2) Total expenses recognized in the income statement:
c.3) Amounts recognized in other comprehensive income (loss)
c.4) Changes in amount net of liability (asset) of defined benefit, net
c.5) Changes in defined benefit liability
c.6) Changes in the fair value of plan assets
c.7) Changes in assets limitation
c.8) Results projected for 2018
c.9) Sponsoring company contributions projected for 2018
c.10) Average weighted duration of defined benefit liability
c.11) Actuarial assumptions
Further to the assumptions stated above, other assumptions common to all plans were adopted in 2017 as follows:
Further to the assumptions stated above, other assumptions common to all plans were adopted in 2016 as follows: (i) Long-term inflation rate 4.5%; and (ii) Annual increase in the use of medical services according to age: 4.0%.
c.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:
c.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:
The following is a sensitivity analysis on the defined benefit obligation for scenarios of 1% increase and 1% reduction in the rate of growth of medical costs:
c.14) Allocation of plan assets
c.15) Maturity of future benefit payments
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FINANCIAL INSTRUMENTS AND RISK AND CAPITAL MANAGEMENT | 31) FINANCIAL INSTRUMENTS AND RISK AND CAPITAL MANAGEMENT a) Derivative transactions The derivative financial instruments contracted by the Company are mainly intended to hedge against foreign exchange risk arising from assets and liabilities in foreign currency, risk of inflation on its debentures and leases indexed to the IPCA and against the risk of changes in TJLP of a portion of debt with BNDES. There are no, derivative financial instruments for speculative purposes and possible currency risks are hedged. Management understands 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. The Company calculates the effectiveness of the derivative contracts to hedge its financial liabilities and cash flows in foreign currency at the beginning of the operation and on an ongoing basis. At December 31, 2017 and 2016, the derivative instruments were effective for the hedged items. As long as these derivatives contracts qualify for hedge accounting, the hedged item may also be adjusted to fair value, offsetting the result of the derivatives, according to the rules of hedge accounting. This hedge accounting applies both to financial liabilities and probable cash flows in foreign currency. At December 31, 2017 and 2016, the Company held no embedded derivatives contracts. Derivatives contracts include specific penalties for breach of contract. Breach of contract provided for in agreements made with financial institutions leads to the early maturity thereof. a.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 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.
The table below shows the breakdown of swaps maturing after December 31, 2017:
For the purposes of preparing its financial statements, the Company adopted the fair value hedge accounting methodology for its foreign currency swaps x CDI, IPCA x CDI, IGPM x CDI and TJLP x CDI for hedging or financial debt. Under this arrangement, both derivatives and hedged risk are recognized at fair value. The ineffective portion at December 31, 2017 was R$1,289 (R$2,091 at December 31, 2016). At December 31, 2017 and 2016, the transactions with derivatives generated consolidated negative (net) result of R$41,985 and R$347,870, respectively (Note 26). a.2) Sensitivity analysis to the Company’s risk variables The IFRS 7 requires by disclosing 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 derivatives 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 the assumption is to use, on the maturity dates of each of the transactions, what the market had been showing through B3 yield curves (currencies and interest rates), as well as data available at 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, risk variables were considered to deteriorate 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, thus showing that effects are almost non-existent. For these transactions, the Company reported the consolidated net exposure in each of the above-mentioned three scenarios at December 31, 2017. Sensitivity analysis - net exposure
The assumptions used by the Company for the sensitivity analysis at December 31, 2017 were as follows: Sensitivity analysis assumptions
For calculation of the net exposure for the sensitivity analysis, all derivatives were considered at market value and hedged items designated for hedge for accounting purposes were also considered at fair value. The fair values shown in the table above are based on the portfolio position at December 31, 2017, 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. b) Fair value The Company 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. At December 31, 2017 and 2016, neither the Company not its subsidiaries detected any significant and enduring impairment of their financial instruments. The fair value 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 significant 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 years ended December 31, 2017 and 2016, there were no transfers between fair value measurements of level 3 and level 1 and 2. The following table show the composition of financial assets and liabilities at December 31, 2017 and 2016.
c) Capital management The purpose of the Company’s capital management is to ensure maintenance of a high credit rating before institutions and an optimal capital ratio in order 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, raise new loans, issue debentures and contract derivatives. For the year ended December 31, 2017, there were no changes in capital structure objectives, policies or processes. In its net debt structure, the Company includes balances referring to loans, financing, debentures, finance leasing, contingent consideration and transactions with derivatives, less cash and cash equivalents, short-term investments to secure BNB financing and guarantor of the contingent consideration liability. The Company’s ratio of consolidated debt to shareholders’ equity consists of the following:
d) Risk management policy The Company is exposed to several market risks as a result of its commercial operations, debts contracted to finance its activities and debt-related financial instruments. d.1) Currency Risk There is risk arising from the possibility that the Company may incur losses due to fluctuating exchange rates, which add to costs arising from loans denominated in foreign currencies. At December 31, 2017, 2.7% of financial debt was foreign-currency denominated (14.0% at December 31, 2016). The Company enters into derivative transactions (currency hedge) with financial institutions to hedge against exchange rate variation affecting its total indebtedness in foreign currency (R$225,254 and R$1,287,864 at 31 December 2017 and 2016, respectively). Its total debt on these dates was covered by asset positions in currency-exchange hedge transactions with CDI-rate swaps. There is also foreign exchange risk for non-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 engaged to minimize the risks associated with exchange-rate variation of non-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 rights and obligations (US$16,953 thousand receivable and €17,535 thousand payable by December 31, 2017 and US$17,293 thousand receivable and €5,695 thousand payable by December 31, 2016) to mitigate its foreign exchange risks. d.2) Interest and Inflation Risk This risk arises because the Company may incur losses in the event of an unfavorable change in the domestic interest rate, which may adversely affect financial expenses resulting from the portion of debentures referenced to the CDI and liability positions in derivatives (currency hedge, IPCA and TJLP) pegged to floating interest rates (CDI). The debt with BNDES is indexed to the Long-Term Interest Rate (TJLP) which is set on a quarterly basis by the National Monetary Council. During the year 2016 and for the quarter ended March 30, 2017, the TJLP was 7.5%. In the third quarter of 2017, the TJLP remained at 7.0%, until the end of the year. Inflation risk arises from the Minas Comunica debentures of the 1st issue, which are tied to the IPCA and thus may adversely affect financial expenses in the event of an unfavorable change in this index. To reduce exposure to the variable interest rate (CDI), the Company invested their cash equivalents of R$3,932,539 at December 31, 2017 (R$4,906,741 at December 31, 2016), mostly in short-term CDI-based financial investments (Bank Deposit Certificates). The carrying amounts of these instruments approach their fair values, since they may be redeemed in short term. d.3) Liquidity Risk Liquidity risk is the possibility of the Company not holding sufficient funds to meet their commitments due to different currencies and dates of realization of rights and settlement of obligations. The Company structure the maturity dates of non-derivative financial contracts, as shown in Note 20, and their respective derivatives, as shown in the schedule of payments disclosed in this note, to avoid affecting their liquidity. The Company cash flow and liquidity and those of its subsidiaries are managed on a daily basis by the departments in charge to ensure that operating cash flows and prior funding, when necessary, will be sufficient to meet their schedule of commitments in order to avoid liquidity risk. Below, we summarize the maturity profile of our consolidated financial liabilities as set forth in loan agreements:
d.4) Credit Risk The risk arises from the possibility of the Company 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-debt 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 is 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 control the credit limits granted to each counterpart and diversify this exposure across first tier financial institutions as per current credit policies of financial counterparties. d.5) Social and Environmental Risks Our 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 we fail to meet present and future requirements, or to identify and manage new or existing contamination, we will incur in significant costs, which include cleaning costs, damages, compensation, fines, activities suspension and other penalties, investments to improve our facilities or change our processes, or interruption of operations. The identification 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 our 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. From the social point of view, we are exposed to contingent liabilities due to the fact that our structure foresees the hiring of outsourced service providers. These potential liabilities may involve labor claims by service providers who could eventually be treated as direct employees, which would generate requests for links and joint liability in overtime claims and occupational accidents, among others. If we obtain an unfavorable decision in relation to a significant portion of these contingencies that have not yet been provisioned, our financial and equity situation and the results of our operations may be affected. d.6) Insurance Coverage The policy of the Company, 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. At December 31, 2017, 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$1,501,052 for operational risks (with loss of profit) and R$75,000 for general civil liability. d.7) Other Risks The Company is required to comply with Brazilian anti-corruption laws and regulations, as well as laws and regulations on the same subject in jurisdictions where it has its securities traded. In particular, the Company is subject, in Brazil, to the Law nº 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 aforementioned 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. In connection with the above-mentioned policies, the Company is currently conducting an internal investigation - which is part of a broader investigation being conducted by the controlling shareholder of the Company (Telefónica, S.A.) - regarding possible violations of the abovementioned laws and regulations. The Company is in contact with governmental authorities about this matter and intends to cooperate with those authorities as the investigation continues. It is not possible at this time to predict the scope or duration of this matter or its likely outcome. |
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COMMITMENTS AND GUARANTEES (RENTALS) | 32) COMMITMENTS AND GUARANTEES (RENTALS) The Company lease equipment, facilities, and several stores, administrative buildings, and sites (containing radio-base stations and towers), through several non-cancellable operating agreements maturing on different dates, with monthly payments. At December 31, 2017, the total amounts corresponding to the full period of the contracts were as follows:
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ADDITIONAL INFORMATION ON CASH FLOWS |
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ADDITIONAL INFORMATION ON CASH FLOWS | 33) ADDITIONAL INFORMATION ON CASH FLOWS a) Reconciliation of cash flow financing activities The following is a reconciliation of cash flow financing activities for the year ended December 31, 2017.
b) Financing transactions that do not involve cash The main financing transactions that do not involve cash of the Company refer to the acquisition of assets through finance leases. At December 31, 2017 and 2016, these transactions totaled R$13,462 and R$61,866, respectively. |
SUMMARY OF SIGNIFICANT ACCOUNTING PRACTICES (Policies) |
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SUMMARY OF SIGNIFICANT ACCOUNTING PRACTICES | |||||||||||||||||||||
Cash and cash equivalents | a) Cash and cash equivalents These are maintained in order to meet short-term cash commitments and not for investment or other purposes. The Company consider cash equivalents a short-term investment readily convertible into a known amount of cash and subject to insignificant risk of change in value. Short-term investments are classified as cash-equivalent when redeemable within 90 days (Note 4). |
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Trade accounts receivable | b) Trade accounts receivable These are evaluated by the value of the services provided in accordance with the contracted conditions, net of estimated impairment losses. These include the services provided to customers, which were still not billed until balance sheet date, as well as other trade accounts receivable related to the sale of cellphones, SIM cards, accessories, advertising and rent of IT equipment (TData’s “Soluciona TI” product), (Note 5). The estimated impairment losses are set up at amounts sufficient to cover any losses and mainly consider the expected default. |
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Inventories | c) Inventories These are evaluated and presented at lower of average acquisition cost and net realizable value, whichever is lower. These include cellphones, SIM cards, prepaid 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 (Note 6). Estimated impairment losses are set up for materials and devices considered obsolete or whose carrying amounts are in excess of those usually sold by the Company within a reasonable period of time. |
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Prepaid expenses | d) Prepaid expenses These are stated at amounts effectively disbursed referring to services contracted but not yet incurred. Prepaid expenses are allocated to the income statements to the extent that related services are rendered and economic benefits are obtained (Note 9). |
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Investments | e) Investments 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. 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. Based on the equity method, investments are recorded in balance sheets at cost plus changes after the acquisition of the equity interest. The income statement 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 as 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 income statements. 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 income statements. 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 22). |
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Property, plant and equipment | f) Property, plant and equipment Property, plant and equipment are stated 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 the 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 income statement 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 18) 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 life in terms of depreciation rates, which is 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 of assets (measured as the difference between the net disposal proceeds and the net carrying amount of the asset) are recognized in the income statement in the year in which the asset is written off. A brief description of the main property, plant and equipment items, Note 12 is as follows:
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Intangible assets | g) Intangible assets Intangible assets acquired separately are measured at 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 income statement for the year in which it is incurred. The useful lives of intangible assets are considered finite or indefinite.
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 income statement in the cost/expense category consistent with the function of the intangible assets.
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 income statement on disposal. A brief description of the key intangible asset items with finite useful lives, Note 13, is as follows:
Licenses: These include concession and authorization licenses, acquired from ANATEL for provision of telecommunication services. These also include licenses from business combinations, recorded at fair value on the acquisition date. |
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Lease | h) Lease The classification of an agreement as a lease is based on substantive issues related to the use of an asset or specific assets, or even the right to use a given asset, on the initial date of its execution. Finance lease agreements: By means of these agreements, the Company assumes substantially all risks and rewards relating to ownership of a leased item. These are capitalized at the lease inception at the fair value of the leased asset or, if lower, at the present value of the minimum lease payments. Initial direct costs incurred in the transaction are added to cost, where applicable. Payments of finance lease agreements are allocated to financial charges and reduction of finance lease liabilities in order to obtain the constant interest rate on the outstanding liability balance. Implicit interest recognized in liabilities is allocated to the income statement over the lease term using the effective interest rate method. Leased assets are depreciated according to their estimated useful lives or the lease term, whichever is shorter. The Company and TData are parties to the following finance lease agreements:
The difference between the nominal amount of lease payments and recorded accounts receivable/payable are recognized as finance income/expenses using the effective interest method over the lease term. Operating lease: These are lease agreements where lessor holds a significant portion of risks and rewards, where effects are recognized in the income statements for the year over the contractual term. |
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Impairment of nonfinancial assets | i) Impairment of nonfinancial 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 Cash Generating Unit (“CGU”) is defined as the higher of value in use and net sales value. 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 based on the cost of capital rate the Capital Asset Pricing Model (CAPM) before taxes, which reflects the weighted average cost of capital and specific risks of the asset or CGU. Whenever possible, the net sale value is determined based on a firm sale agreement executed on an arm’s length basis between knowledgeable and willing parties, adjusted by expenses attributable to the sale of assets or, when there is no firm sale agreement, based on the market price of an active market, or on the latest transaction price involving similar assets. 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. 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 income statement. The following assets have specific characteristics for impairment testing:
Key assumptions were based on the Company’s historical performance and reasonable macroeconomic assumptions grounded on financial market projections, documented and approved by Company’s management. The impairment test of the Company fixed and intangible assets, including goodwill, did not result in recognition of impairment losses for the years ended December 31, 2017 and 2016, since their estimated recoverable amount is greater than the net carrying amount as of the estimation date. |
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Business combinations and goodwill | j) Business combinations and 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 noncontrolling interest in the acquiree. For each business combination, the Company measures noncontrolling interests in the acquiree either at its fair value or on the basis of 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 income statement. 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 income statement. Contingent consideration on acquisition of a business that is not classified as equity is subsequently measured at fair value through profit or loss, whether or not included in the scope of IFRS 9 Financial Instruments. 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 fair value of acquired net assets, the difference must be recognized as gain in the income statement. 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 cash-generating units that are expected to benefit from the combination, irrespective of whether other assets or liabilities of the acquiree are assigned to those units. Where goodwill has been allocated to a CGU and part of the operation within that CGU is disposed of, 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. |
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Financial Instruments - Initial recognition and subsequent measurement | k) Financial Instruments – Initial recognition and subsequent measurement k.1) Financial assets Initial recognition and measurement Financial assets are classified at initial recognition (when it becomes part of the instrument's contractual provisions), as: (i) fair value through profit or loss; (ii) loans and receivables; (iii) investments held to maturity; (iv) financial assets available for sale or (v) derivatives classified as effective hedge instruments, as applicable. All financial assets are initially recognized at fair value, plus, in the case of investment that is not determined at fair value through profit or loss, the transaction costs that are directly attributable to the acquisition of the financial asset. The Company’s consolidated financial assets include cash and cash equivalents, trade accounts receivable, short-term investments pledged as collateral and derivative financial instruments. Subsequent measurement Subsequent measurement of financial assets depends on their classification, as follows: Financial assets at fair value through profit or loss: These include financial assets held for trading and financial assets designated upon initial recognition at fair value through profit or loss: (i) financial assets are classified as held for trading if acquired to be sold within short term. This category includes derivative financial instruments contracted by the Company which do not meet the hedge accounting criteria set out by the corresponding standard; and (ii) financial assets at fair value through profit or loss are stated in balance sheets at fair value with their corresponding gains or losses recognized in the income statements. Loans and receivables: these refer to non-derivative financial assets with fixed or determinable payments, however not traded in an active market. After initial measurement, these financial assets are stated at amortized cost, using the effective interest method, less impairment, where applicable. Amortized cost is calculated taking into account any discount or “premium” on acquisition and fees or costs incurred. Amortization by the effective interest method and impairment losses are included in the financial income line in the income statement, if applicable. Financial assets available for sale: These are non-derivative financial assets not classified as: (i) loans and receivables; (ii) investments held to maturity; or (iii) financial assets at fair value through profit or loss. These financial assets include equity and debt instruments. Debt instruments in this category are those which are intended to be held for an indefinite period and can be sold to meet liquidity needs or in response to changes in market conditions. After initial measurement, financial assets available for sale are measured at fair value, with unrealized gains and losses being recognized directly in other comprehensive income until such time as the investment is written off, except for impairment losses, interest calculated using the effective interest method and gains or losses due to exchange variations on monetary assets, which are recognized directly in the income statement for the year. When the investment is written-off or when a loss is determined due to impairment, the cumulative gains or losses which were previously recognized in other comprehensive income should be recognized in the statement of income. The fair value of financial assets available for sale denominated in foreign currency is measured in the foreign currency and translated at the spot exchange rate at financial statements date. Changes in fair value attributable to translation differences that result from a change in amortized cost of the asset are recognized in the income statement, and other variations are recognized directly in equity. 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:
k.2) Impairment of financial assets The Company evaluate, at the balance sheet date, if there is any objective evidence indicating that the financial asset or group of financial assets is not recoverable. A loss only exists if, and only if, there is objective evidence of impairment as a result of one or more events that have occurred after initial recognition of the asset (a “loss event” occurred) and such event has an impact on the estimated future cash flows of the financial asset or group of financial assets that can be reasonably estimated. The carrying amount of an asset is reduced by a provision and the loss amount is recognized in the income statement. If, in a subsequent year, estimated impairment increases or decreases due to an event after impairment recognition, impairment loss previously recognized will be adjusted accordingly. Should a written-off asset be recovered in the future, such recovery is recognized in the income statement. k.3) Financial liabilities Initial recognition and measurement Upon initial recognition, the Company’s financial liabilities are classified in the following categories: financial liabilities measured at fair value through profit or loss and other financial liabilities. 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, finance lease agreements, contingent payments 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: These include financial liabilities designated upon initial recognition at fair value through profit or loss. This category also includes derivative financial instruments contracted which do not meet the hedge accounting criteria set out by the corresponding standard. For the years ended December 31, 2017 and 2016, the Company did not record any financial liability at fair value through profit or loss upon initial recognition. Loans and financing: After initial recognition, loans and financing subject to interest are subsequently measured at amortized cost, using the effective interest method. Gains and losses are recognized in the income statement when the liabilities are derecognized as well as through the effective interest rate amortization process. Derecognition A financial liability is derecognized when the obligation has been revoked, cancelled or has 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 income statement. k.4) 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; or (ii) in the absence of a principal market, in the most advantageous market for that asset or liability. The Company 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 use adequate valuation techniques in the circumstances and for which there is sufficient data to measure the fair value, 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. For the purposes of fair value disclosures, the Company determined classes of assets or liabilities based on the nature, characteristics and risks of those assets or liabilities and the fair value hierarchy level, as mentioned above. k.5) 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. |
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Derivative financial instruments and hedge accounting | l) Derivative financial instruments and hedge accounting The Company uses derivative financial instruments, such as currency and interest rate swaps or currency nondeliverable 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 income statement, 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. Inception initial recognition of a hedge relationship, the Company formally designate and documents the hedge relationship to which it wishes to apply hedge accounting, the risk management objective and strategy for undertaking the hedge. The documentation includes identification of the hedging instrument, the hedged item or transaction, the nature of the hedged risk, the nature of unhedged risks, 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. For the purpose of hedge accounting, hedges are classified as cash flow hedges and fair value hedges. l.1) 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 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 income statement. 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 gain or loss component is recognized in financial income (expenses). Amounts recorded in other comprehensive income are immediately transferred to the income statement 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. l.2) 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 income statement 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 income statement, 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 income statement. 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. l.3) Classification between current and noncurrent Derivative financial instruments are classified as current and noncurrent or segregated into short and long term portions based on an evaluation of the contractual cash flows. When the Company maintains a derivative as economic hedge (and does not apply hedge accounting), for a period exceeding 12 months after balance sheet date, the derivative is classified as noncurrent (or segregated into current and noncurrent 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 noncurrent portions only when amounts can be reliably allocated. |
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Loans and financing | m) Loans and financing Loans and financing obtained are initially recognized at fair value, net of costs incurred to obtain them and subsequently measured at amortized cost (plus charges and pro rata interest), considering the effective interest rate of each operation. These are classified as current, unless the Company has an unconditional right to settle the liability for at least 12 months after year end. |
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Borrowing costs | n) Borrowing costs Borrowing costs that are directly attributable to the acquisition, construction or production of an asset that necessarily takes a period of time exceeding 18 months to prepare for its intended use or sale form part of the cost of that asset. All other borrowing costs are recorded in the period they are incurred. Borrowing costs include interest and other costs incurred by an entity in connection with the borrowing of funds. In 2017 and 2016, the Company did not capitalize amounts related to borrowing costs. |
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Interest on equity and dividends | o) Interest on equity and dividends o.1) 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 provision, in its accounting records the amount due to match against the financial expenses account in the income statement 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. o.2) Dividends Minimum mandatory dividends are stated in the balance sheet as legal obligations (provisions 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 minimum mandatory are transferred to current liabilities, and classified as legal obligations. |
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Provisions | p) Provisions p.1) General Provisions are 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. Provisions are restated at the balance sheet date considering the likely amount of loss and the nature of each contingency. Provisions for contingencies are presented at their gross amount, less the corresponding judicial deposits, and are classified as provisions for civil, labor, tax and regulatory contingencies. Judicial deposits are classified as assets given that the conditions required for their net presentation with the provision do not exist. p.2) Provisions for civil, labor, tax and regulatory legal claims The Company is party to labor, tax, civil and regulatory administrative and legal proceedings and set up a provision for contingencies whose likelihood of loss was estimated 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. Provisions are 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. p.3) Provision for decommissioning of assets This 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 at the present value of amounts expected to settle the obligation using estimated cash flows and 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 income statement 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. p.4) Contingent liabilities recognized in a business combination A contingent liability recognized in business combination is initially measured at fair value. |
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Taxes | q) Taxes q.1) Current taxes Current tax assets and liabilities for the current and prior 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 provisions therefor when appropriate. q.2) Deferred taxes Deferred taxes arise from temporary differences at the balance sheet date between the tax bases of assets and liabilities and their carrying amount. 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, where 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 of year-end. Deferred tax assets and liabilities are not discounted to present value and are classified in the balance sheet as noncurrent, 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. q.3) Sales taxes Revenues are recognized net of value added taxes, which from services rendered is subject to State Value-Added Tax (ICMS) or Service Tax (ISS) at the rates in force in each region as well as and to Social Contribution Tax on Gross Revenue for Social Integration Program (PIS) and Social Contribution Tax on Gross Revenue for Social Security Financing (COFINS) taxation on a cumulative basis for revenue from telecommunication services. Other revenue earned by the Company, including revenue from resale of goods, on a noncumulative basis, is taxed at for PIS, COFINS and by ICMS at the rates in force in each State. Prepayments or recoverable amounts are stated in current or noncurrent assets, based on their estimated realization. |
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Other assets and liabilities | r) Other assets and liabilities Assets are recognized in the balance sheet when it is likely that their future economic benefits will flow to the Company, and their cost or value can be reliably measured. A liability is recognized in the balance sheet when the Company have a legal or constructive obligation as a result of a past event, the settlement of which is likely to generate an outflow of economic benefits. Assets and liabilities are presented in the balance sheet classified as current or noncurrent. An asset is classified as current when: (i) it is expected to be realized or is intended to be sold or used in the ordinary operational cycle; (ii) it is mainly held for trading purposes; (iii) it is expected to be realized within 12 months from the reporting period; or (iv) cash and cash equivalents, unless there are restrictions upon exchange thereof, i.e., when used to settle a liability within 12 months from the reporting period. All other assets are classified as noncurrent. A liability is classified as current when: (i) it is expected to be settled in the ordinary operational cycle; (ii) it is mainly held for trading purposes; (iii) It is expected to be settled within 12 months from the reporting period; or (iv) there is no unconditional right to defer settlement of the liability within 12 months from the reporting period. All other liabilities are classified as noncurrent. |
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Present value adjustment of assets and liabilities | s) Present value adjustment of assets and liabilities Current and noncurrent monetary assets and liabilities are adjusted to their present value when the effect on the overall financial statements is considered significant. The present value adjustment is calculated using contractual cash flows and the explicit, and sometimes implicit, interest rates of the respective assets and liabilities. Accordingly, the interest rate embedded in revenues, expenses and related costs is discounted, so that these assets and liabilities are recognized on an accrual basis. This interest is subsequently reallocated to financial income and expenses in P&L through use of the effective interest method in relation to contractual cash flows. Implicit interest rates were determined based on assumptions, and accounting estimates are considered. |
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Government grants and assistance | t) Government grants and assistance Government grants are recognized when there is reasonable certainty that the benefit will be received and that all the related conditions will be met. When the benefit refers to an expense item, it is recognized as revenue along the benefit period, on a systematic basis in relation to the costs the benefit it intends to offset. When the Company receives non-monetary grants, the asset and the benefit are recorded at nominal amounts and reflected in the income statements over the expected useful life of the asset by equal annual installments. A loan or assistance is initially recognized or measured at fair value. A government grant is measured as the difference between the initial carrying amount of the loan and proceeds therefrom. A loan is subsequently measured in accordance with the applicable accounting policy. When loans or similar assistance are provided by governments or related institutions, with an interest rate below the current applicable market rate, the effect of this favorable interest is regarded as an additional government grant. The financing lines with the Brazilian Development Bank (BNDES), with interest rates not exceeding those prevailing in the market, are classified under the scope of IAS 20, and are recorded at fair value based on market rates. Adjustment arising from the comparison of the amount measured based on the rate agreed upon is accounted for as deferred revenue (Note 19). |
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Revenue recognition | u) Revenue recognition Revenues substantially correspond to value of considerations received or receivable arising from the provision of telecommunications or communications services, the sale of goods, advertising and other revenue, and are stated net of taxes, discounts or returns (in case of sale of goods) thereon. Revenues and expenses are stated on the accrual basis of accounting. Revenue is recognized when it is probable that future economic benefits will flow to the Company or its subsidiaries, when it can be reliably measured, costs incurred in the transaction can be measured, the risks and rewards have been substantially transferred to the buyer and when specific criteria have been met for each of the Company’s activities. Consolidated revenues of the Company comprise basically telecommunication services regarding voice, data and digital services, broadband, TV and additional telecommunication services that are offered to customers through fixed-price traffic packs (paid on a monthly basis) or based on customers’ consumption, remuneration for network usage, advertising and sale of goods. u.1) Recognition of revenues from telecommunication services Revenues from telecommunication, data and digital services, broadband services provided are recorded on an accrual basis based on the amounts agreed upon. Local and long-distance calls are billed by the measurement process under legislation in force. The services billed on fixed monthly amounts are calculated and accounted for on a straight-line basis. Unbilled revenues from the last billing up to the balance sheet date are recognized in the month in which the service is provided. Revenues related to sale of public phone cards and pay-as-you-go credit for cellphones as well as the respective taxes are deferred and recognized in the income statement to the extent that the services are effectively rendered. Revenues from equipment lease contracts classified as finance lease agreement (TData’s Soluciona TI product) are recognized on installation of equipment whereupon effective transfer of risk takes place. Revenue is recognized at present value of future minimum payments provided for in the agreement. Revenues from services are basically subject to the following indirect taxes: ICMS or ISS (as applicable), PIS and COFINS. u.2) Recognition of revenue and cost from sales of goods Revenues and cost of sales (mobile phones, simcards and accessories) are recorded when risks and rewards inherent in such goods are transferred to buyers. Sales made in own stores are recognized upon sale to end consumer. Revenues and costs of sales made by accredited dealers are deferred and recognized in P&L when the device is activated, limited to 90 days from the sale date. u.3) Customer loyalty program The Company has a loyalty points program that enables customers to accumulate points when they pay bills regarding the usage of the services offered. The accumulated points may be exchanged for telephone sets or services, conditional upon obtaining a minimum balance of points by customer. The consideration received is allocated to the cost of sets or services at fair value. The fair value of points is determined by dividing the amount of discount granted by the number of points necessary for the redemption based on the points program. The portion of revenue related to the fair value of the accumulated balance of points generated is deferred and recognized as revenue upon redemption of points. The number of points to be accounted for is determined through statistical techniques that consider assumptions and historical data on expected redemption rates, expiration percentages and cancellation of points, among other factors. These estimates are subject to variations and uncertainties due to changes in the behavior of customer redemptions. u.4) Membership fee and promotional campaigns Participation fees paid for promotional campaigns by customers of the Company are deferred and recorded in P&L throughout the duration of such campaign. u.5) Agreements combining more than one element Commercial packages offered by the Company that combine different elements are analyzed to determine whether it is necessary to separate the different elements identified, adopting the recognition criterion that is most adequate to each situation. Total revenue generated by the package sale is distributed among its elements, based upon their respective fair values. The fair value determination of each element then identified implies the need for complex estimates given the nature of the business. A possible change in fair values estimates could affect the distribution of revenues between components and consequently the deferred revenue. u.6) Advertising Revenues from advertising are recognized in income during the advertising period. |
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Financial income (expenses) | v) Financial income (expenses) These include interest, and 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 available for sale, 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. |
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Post-retirement benefit plans | w) Post-retirement benefit plans The Company 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 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 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. The fair value is based on information on market prices and, in case of securities quoted, on 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 income statement 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 manages and individually sponsor 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. |
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Significant accounting judgments, estimates and assumptions | x) Significant accounting judgments, estimates and assumptions The preparation of the financial statements requires management to make judgments, estimates and adopt assumptions supported by valuation bases used in accounting estimates. The accounting estimates involved in the preparation of these financial statements were based on objective and subjective factors, considering management’s judgment for determining the adequate amounts to be recorded in the financial statements. Settlement of transactions involving these estimates may result in amounts significantly different from those recorded in the financial statements due to the uncertainties inherent in their estimate process. Significant assumptions concerning sources of uncertainty in future estimates and other significant sources of estimation uncertainty at the balance sheet date, involving a significant risk of causing a material adjustment to the carrying amount of assets and liabilities, are as follows: x.1) Impairment of non-financial assets An impairment loss exists when the carrying amount of an asset or cash-generating unit exceeds its recoverable amount, which is the higher of fair value less cost to sell and value in use. The calculation of fair value less cost to sell is based on information available on transactions for sale of similar assets or market prices less additional costs to dispose of the asset. The calculation of 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 expected future cash receipts and growth rate used for extrapolation purposes. The Company regularly analyzes the performance of the defined cash generating unit in order to identify any impairment of goodwill and its other assets. Determination of the recoverable amount of the cash generating unit to which goodwill is attributed includes use of assumptions and estimates and requires use of significant accounting judgment and criterion. x.2) Post-retirement benefit plans 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. x.3) Fair value of financial instruments 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. x.4) Property, plant and equipment and finite-lived intangible assets The accounting treatment of investment in fixed and intangible assets includes estimating useful life period for depreciation purposes and the fair value at the date of acquisition, 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 time and nature of future technological changes. x.5) Revenue recognition – Customer Loyalty Program The Company estimates the fair value of points attributed under the customer loyalty program by applying statistic techniques. Inputs for the model include assumptions about expected redemption rates, the mix of products that will be available for future redemption and customers’ preference in relation to points use. Since issued points do not expire, these estimates are subject to significant uncertainties. x.6) Agreements combining more than one element The fair value determination of each element in a multiple element agreement requires complex estimates given the nature of the business. A possible change in fair value estimates could affect the distribution of revenues between components and consequently the deferred revenues. x.7) Taxes There are uncertainties regarding the interpretation of complex tax regulations and the amount and timing of future taxable profits. The Company set up provisions, based on reasonable estimates, for the possible consequences of audits by tax authorities in respective jurisdictions in which they operate. The amount of these provisions 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. The Company evaluate the recoverability of deferred tax assets based on estimates of future profits. This recoverability ultimately depends on the ability of the Company 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, as a result of changes in tax laws or of unexpected future transactions that may impact tax balances. x.8) Provisions for tax, labor, civil and regulatory proceedings Provisions are recognized when the Company has a present obligation arising from a past event, settlement of which requires an outflow of resources rated as probable and when it can be reliably estimated. This obligation 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 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 of the closing date, including the opinion of independent experts, such as legal advisors. x.9) Revenue recognition - revenue from unbilled services 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, among others. Because historical data are used, these estimates are subject to significant uncertainties. |
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Functional and reporting currency | y) Functional and reporting currency The Company’s functional and reporting currency is the Brazilian real. Transactions in foreign currency were translated at the exchange rate in force as of the date the transaction. Assets and liabilities denominated in foreign currencies are translated using the exchange rate at the balance sheet date. The exchange rate variations arising from transactions in foreign currencies are recognized in P&L as financial income or expenses. Gains and losses on the translation of foreign investments are recognized in the statement of comprehensive income. |
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Translation of transactions denominated in foreign currency | z) Translation of transactions denominated in foreign currency Monetary assets and liabilities denominated in foreign currencies are translated into the functional currency (real) at the exchange rate (fix rate) in force as of the transaction date and subsequently re-measured based on the fix rates effective that, at December 31, 2017, were US$1.00 = R$3.3080, €1.00 = R$3.9676, and at December 31, 2016, were US$1.00 = R$3.2591, €1.00 = R$3.4351. Gains and losses resulting from the translation of these assets and liabilities due to exchange rate variation between transaction date and period end are recognized in the income statement. |
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Employee profit sharing | aa) Employee profit sharing The Company has obligations arising from employment contracts, recognizing these provisions during the year. Provisions are recorded to recognize the expense regarding employee profit sharing. These provisions are calculated based on qualitative and quantitative goals set by management and accounted for in specific accounts according to their function in groups of: Cost of services, Selling expenses and General and administrative expenses. |
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Share-based payments | ab) Share-based payments The Company measure the cost of transactions settled with employees and officers based on shares issued by parent company (Telefónica), by reference to the fair value of the shares at the date at which they are granted, using the binomial valuation model. This fair value is charged to the income statement over the period until the vesting date. |
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Treasury shares | ac) Treasury shares Own equity instruments that are repurchased (treasury stock) are recognized at cost and deducted from equity. No gains or losses are recognized in P&L on purchase, sale, issue or cancellation of the Company’s own equity instruments. |
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Segment reporting | ad) 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 decisions on 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 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 consolidated on a consolidated basis, the Company operate in a single operating segment, namely the provision of telecommunications services. |
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Statement of cash flows | ae) Statement of cash flows The statement of cash flows was prepared in accordance with IAS 7 – Statement of Cash Flows using the indirect method, and reflects the changes in cash for the years reported. |
OPERATIONS (Tables) |
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Summary of authorizations for rendering SMP services |
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Schedule of identifiable assets acquired and liabilities assumed |
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Schedule of acquisition price |
(1) Derivative transactions refer to cash flow hedges to protect the amount due in Euros to Vivendi, for the acquisition of GVTPart., against exchange rate variation of the amount. |
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Schedule of identifiable assets acquired and liabilities assumed |
(5) This refers to goodwill recorded on the acquisition of GVTPart. based on expected synergies resulting from the business combination. This amount has already been used for tax purposes. |
BASIS OF PREPARATION AND PRESENTATION OF FINANCIAL STATEMENTS (Tables) |
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Schedule of IFRS amendments |
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Schedule of equity interests |
(1) TData is the wholly-owned parent of Terra Networks and Telefônica Transportes e Logística Ltda ("TGLog"). (2) POP is the wholly-owned parent of Innoweb Ltda ("Innoweb"). |
CASH AND CASH EQUIVALENTS (Tables) |
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Schedule of cash and cash equivalents |
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TRADE ACCOUNTS RECEIVABLE (Tables) |
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Schedule of trade accounts receivables |
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Schedule of current and noncurrent trade accounts receivable, relating to finance lease |
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Schedule of aging list of gross trade accounts receivable |
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Schedule of aging list of trade accounts receivable, net of estimated impairment losses |
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Schedule of changes in the estimated impairment losses for accounts receivable |
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INVENTORIES (Tables) |
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INVENTORIES | |||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of inventories |
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DEFERRED TAXES AND TAXES RECOVERABLE (Tables) |
12 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Dec. 31, 2017 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
DEFERRED TAXES AND TAXES RECOVERABLE | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of taxes recoverable |
|
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of significant components of deferred income and social contribution taxes |
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Schedule of expected realization of deferred taxes |
|
JUDICIAL DEPOSITS AND GARNISHMENTS (Tables) |
12 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Dec. 31, 2017 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
JUDICIAL DEPOSITS AND GARNISHMENTS | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of judicial deposits and garnishments |
|
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of composition of the balances of the tax judicial deposits |
|
PREPAID EXPENSES (Tables) |
12 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Dec. 31, 2017 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
PREPAID EXPENSES | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of prepaid expenses |
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OTHER ASSETS (Tables) |
12 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Dec. 31, 2017 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
OTHER ASSETS | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of other assets |
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INVESTMENTS (Tables) |
12 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Dec. 31, 2017 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
INVESTMENTS | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Summary of significant financial data on investees |
|
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Schedule of changes in investments |
|
PROPERTY, PLANT AND EQUIPMENT (Tables) |
12 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Dec. 31, 2017 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
PROPERTY, PLANT AND EQUIPMENT | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of breakdown of and changes to property, plant and equipment |
|
INTANGIBLE ASSETS (Tables) |
12 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Dec. 31, 2017 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
INTANGIBLE ASSETS | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of breakdown, changes and amortization rates of intangible assets |
(1)On December 17, 2015, the Company was the winner in seven lots at a frequency of 2,500MHz, offering the amount of R$185,450. On July 21, 2016, through acts No. 2.483, No. 2.485 and No. 2.486, the Directing Council of ANATEL approved the use of these radio frequencies. The terms of authorization of these radio frequency bands were signed on July 26, 2016 and published in the DOU on August 26, 2016. |
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Schedule of breakdown of goodwill |
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Schedule of sensitivity to changes in assumptions |
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PERSONNEL, SOCIAL CHARGES AND BENEFITS (Tables) |
12 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||
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Dec. 31, 2017 | |||||||||||||||||||||||||||||||||||||||||||||||||||
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Schedule of personnel, social charges and benefits |
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TRADE ACCOUNTS PAYABLE (Tables) |
12 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||
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Dec. 31, 2017 | |||||||||||||||||||||||||||||||||||||||||||||||||||
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Schedule of trade accounts payable |
(1)As of December 31, 2016, the amount recorded as non-current related to the judicial proceeding filed against SMP operators claiming the reduction of the VU-M amount. On October 15, 2007, an injunction was obtained to provide a judicial deposit of the difference between VC1 calls and the amount effectively charged by SMP operators. In May 2017, the updated amount of R$71,956 was raised in favor of the operators involved, after an agreement between the parties. |
TAXES, CHARGES AND CONTRIBUTIONS (Tables) |
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Schedule of taxes, charges and contributions |
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DIVIDENDS AND INTEREST ON EQUITY (IOE) (Tables) |
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DIVIDENDS AND INTEREST ON EQUITY (IOE) | |||||||||||||||||||||||||||||||||||||||||||
Schedule of breakdown of dividend and interest on equity |
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Schedule of changes in dividend and interest on equity |
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PROVISIONS AND CONTINGENCIES (Tables) |
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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 |
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Schedule of guarantees granted by contingency |
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Labor | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Schedule of provision contingencies |
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Tax | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Schedule of provision contingencies |
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Civil | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Schedule of provision contingencies |
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Schedule of provision contingencies |
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DEFERRED REVENUE (Tables) |
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Dec. 31, 2017 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
DEFERRED REVENUE | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of deferred revenue |
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LOANS, FINANCING AND DEBENTURES (Tables) |
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Disclosure of detailed information about borrowings [line items] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of balance of amounts payable relating to finance leases |
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Schedule of aging list of finance lease payable | Aging list of finance lease payable at December 31, 2017 is as follows:
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Schedule of repayments by year of maturity |
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Schedule of changes in borrowings |
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Summary of funding and payments |
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Loans and financing | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Disclosure of detailed information about borrowings [line items] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of borrowings |
(1)Guarantee in receivables relating to 15% of the outstanding debt balance or four times the largest installment, whichever is higher.
(2)Pledge of financed assets.
(3)Assignment of receivables corresponding to 20% of outstanding debt balance or 1 time the last installment of sub-credit facility "A" (UMIPCA) plus 5 times the last installment of each of the other sub-credit facilities, whichever is greater.
(4)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. Balances were R$11,722 and R$10,773 at December 31, 2017 and 2016, respectively. |
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Debentures | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Disclosure of detailed information about borrowings [line items] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of borrowings |
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OTHER LIABILITIES (Tables) |
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OTHER LIABILITIES | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of other liabilities |
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EQUITY (Tables) |
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EQUITY | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of distribution of capital | At December 31, 2017
At December 31, 2016
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Schedule of other capital reserves |
(1)Refers to 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)Refers to direct costs (net of taxes) of Company capital increases on April 28, 2015 and April 30, 2015, arising from the Primary Offering of Shares. (4)Refers to the difference between the economic values of the merger of shares of GVTPart. and market value of shares, 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, would be recorded in equity when there is no change in the shareholding control. (6)Refers to 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)Refers to the effects of TData's acquisition of 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.1). |
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Schedule of treasury shares |
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Schedule of income reserves |
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Schedule of calculation of dividends and interest on equity |
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Schedule of proposed dividend for deliberation per share |
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Schedule of allocation of interim dividends and interest on equity | 2017
2016
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Schedule of changes in other comprehensive income |
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Schedule of calculation of earnings per share |
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NET OPERATING REVENUE (Tables) |
12 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Dec. 31, 2017 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
NET OPERATING REVENUE | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of net operating revenue |
(1) These include telephone services, use of interconnection network, data and SVA services, cable TV and other services. |
OPERATING COSTS AND EXPENSES (Tables) |
12 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Dec. 31, 2017 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
OPERATING COSTS AND EXPENSES | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of operating costs and expenses |
(1) Includes R$1,267, R$46,647 and R$37,626, related to non-cumulative PIS and COFINS tax credits in 2017, 2016 and 2015, respectively. |
OTHER OPERATING INCOME (EXPENSES) (Tables) |
12 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Dec. 31, 2017 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
OTHER OPERATING INCOME (EXPENSES) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Summary of other operating income (expenses) |
The transaction was recognized as sale and leaseback as provided under IAS 17. Management analyzed each asset leased back and classified them as operating or finance leases in accordance with IAS 17 qualitative and quantitative criteria. Risks and benefits relating to these towers have been transferred to their purchasers, with the exception of several towers for which transfer of risks and benefits was not possible. For these items, the amount was recognized as deferred revenue (Note 19). (2) In the same transaction , performed in 2016 and described in item (1), the Company transferred assignment of current lease agreements for sites and sold sharing agreements (customer portfolio) for R$40,899. |
FINANCIAL INCOME (EXPENSES) (Tables) |
12 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Dec. 31, 2017 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
FINANCIAL INCOME (EXPENSES) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of financial income (expenses) |
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INCOME AND SOCIAL CONTRIBUTION TAXES (Tables) |
12 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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INCOME AND SOCIAL CONTRIBUTION TAXES | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of income and social contributions taxes |
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BALANCES AND TRANSACTIONS WITH RELATED PARTIES (Tables) |
12 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Schedule of consolidated balances with the related parties |
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Schedule of transactions with the related parties having impact on the balance sheet |
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Schedule of transactions with the related parties having impact on the statement of income |
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PENSION PLANS AND OTHER POST-EMPLOYMENT BENEFITS (Tables) |
12 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Dec. 31, 2017 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
PENSION PLANS AND OTHER POST-EMPLOYMENT BENEFITS | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of plans sponsored by the Company and related benefit types |
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Schedule of reconciliation of assets and liabilities |
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Summary of total expenses recognized in the income statement |
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Summary of amounts recognized in other comprehensive income (loss) |
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Schedule of changes in amount net of liability (asset) of defined benefit, net |
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Schedule of results projected for 2018 |
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Schedule of sponsoring company contributions projected for 2018 |
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Schedule of average weighted duration of defined benefit liability |
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Schedule of actuarial assumptions |
Further to the assumptions stated above, other assumptions common to all plans were adopted in 2017 as follows:
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Schedule of impacts on the plans' defined benefit liabilities due to the new definition of the actuarial assumptions |
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Summary of allocation of plan assets |
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Schedule of maturity of future benefit payments |
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Discount rate | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
PENSION PLANS AND OTHER POST-EMPLOYMENT BENEFITS | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of sensitivity analysis for actuarial assumptions |
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Rate of growth of medical costs | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
PENSION PLANS AND OTHER POST-EMPLOYMENT BENEFITS | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of sensitivity analysis for actuarial assumptions |
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Defined benefit liability | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
PENSION PLANS AND OTHER POST-EMPLOYMENT BENEFITS | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of changes in amount net of liability (asset) of defined benefit, net |
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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 |
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Asset Limitation | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
PENSION PLANS AND OTHER POST-EMPLOYMENT BENEFITS | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of changes in amount net of liability (asset) of defined benefit, net |
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FINANCIAL INSTRUMENTS AND RISK AND CAPITAL MANAGEMENT (Tables) |
12 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Dec. 31, 2017 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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 |
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Schedule of breakdown of swaps maturing after December 31, 2017 |
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Schedule of sensitivity analysis net exposure |
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Schedule of sensitivity analysis assumptions |
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Schedule of composition of financial assets and liabilities |
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Schedule of Company's ratio of consolidated debt to shareholders' equity |
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Summary the maturity profile of our consolidated financial liabilities as set forth in loan agreements |
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COMMITMENTS AND GUARANTEES (RENTALS) (Tables) |
12 Months Ended | |||||||||||||||
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Dec. 31, 2017 | ||||||||||||||||
COMMITMENTS AND GUARANTEES (RENTALS) | ||||||||||||||||
Schedule of non-cancellable operating agreements |
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ADDITIONAL INFORMATION ON CASH FLOWS (Tables) |
12 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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ADDITIONAL INFORMATION ON CASH FLOWS | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of reconciliation of cash flow financing activities |
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OPERATIONS - Acquisition of GVT Participacoes S.A. ("GVTPart.") (Details) - May 28, 2015 - GVT Participacoes S.A. ("GVTPart") R$ / shares in Units, R$ in Thousands, € in Millions |
BRL (R$)
shares
|
EUR (€) |
BRL (R$)
R$ / shares
|
---|---|---|---|
Acquisition of GVT Participacoes S.A. ("GVTPart.") | |||
Payment for acquisition | € 4,663 | R$ 15,964,853 | |
Shares issued as a percent of capital stock after the merger of shares | 12.00% | 12.00% | |
Capital increased | R$ | R$ 9,666,021 | ||
Par value | R$ / shares | R$ 0 | ||
Common shares | |||
Acquisition of GVT Participacoes S.A. ("GVTPart.") | |||
Shares issued (in shares) | 68,597,306 | ||
Preferred shares | |||
Acquisition of GVT Participacoes S.A. ("GVTPart.") | |||
Shares issued (in shares) | 134,320,885 |
OPERATIONS - Acquisition of GVT Participacoes S.A. ("GVTPart.") Acquisition price (Details) - GVT Participacoes S.A. ("GVTPart") R$ in Thousands, € in Millions |
Dec. 31, 2015
BRL (R$)
|
May 28, 2015
EUR (€)
|
May 28, 2015
BRL (R$)
|
---|---|---|---|
Acquisition of GVT Participacoes S.A. ("GVTPart.") | |||
Gross consideration in cash (4.663 billion euros) | € 4,663 | R$ 15,964,853 | |
Contractual Adjustments (Net Debt) | (7,060,899) | ||
Total consideration in cash, net | 8,903,954 | ||
Contingent Consideration | 344,217 | ||
Consideration in Shares at Fair Value | 8,477,314 | ||
Cash Flow Hedge Gain on Transaction, net of taxes | (377,373) | ||
Refund according to sections 2.2.4 and 2.2.5 of SPA | (84,598) | ||
Total consideration, net of Cash Flow Hedge | R$ 17,263,514 | R$ 17,263,514 |
SUMMARY OF SIGNIFICANT ACCOUNTING PRACTICES (Details) - R$ / $ |
12 Months Ended | |
---|---|---|
Dec. 31, 2017 |
Dec. 31, 2016 |
|
SUMMARY OF SIGNIFICANT ACCOUNTING PRACTICES | ||
Withholding tax rate (as a percent) | 15.00% | |
US Dollar | ||
SUMMARY OF SIGNIFICANT ACCOUNTING PRACTICES | ||
Exchange rate | 3.3080 | 3.2591 |
Euro | ||
SUMMARY OF SIGNIFICANT ACCOUNTING PRACTICES | ||
Exchange rate | 3.9676 | 3.4351 |
CASH AND CASH EQUIVALENTS (Details) - BRL (R$) R$ in Thousands |
Dec. 31, 2017 |
Dec. 31, 2016 |
Dec. 31, 2015 |
Dec. 31, 2014 |
---|---|---|---|---|
CASH AND CASH EQUIVALENTS | ||||
Cash and banks | R$ 117,799 | R$ 198,369 | ||
Short-term investments | 3,932,539 | 4,906,741 | ||
Total | R$ 4,050,338 | R$ 5,105,110 | R$ 5,336,845 | R$ 4,692,689 |
TRADE ACCOUNTS RECEIVABLE (Details) - BRL (R$) R$ in Thousands |
Dec. 31, 2017 |
Dec. 31, 2016 |
---|---|---|
Trade accounts receivables | ||
Billed amounts | R$ 6,753,621 | R$ 6,939,909 |
Unbilled amounts | 2,481,364 | 1,930,708 |
Interconnection amounts | 859,819 | 1,345,471 |
Amounts from related parties (Note 28) | 201,021 | 190,906 |
Trade accounts receivable | 8,862,354 | 9,007,099 |
Current | 8,588,466 | 8,701,688 |
Noncurrent | 273,888 | 305,411 |
Cost | ||
Trade accounts receivables | ||
Trade accounts receivable | 10,295,825 | 10,406,994 |
Estimated impairment losses | ||
Trade accounts receivables | ||
Trade accounts receivable | R$ (1,433,471) | R$ (1,399,895) |
TRADE ACCOUNTS RECEIVABLE - Noncurrent trade accounts receivable (Details) - BRL (R$) R$ in Thousands |
Dec. 31, 2017 |
Dec. 31, 2016 |
---|---|---|
Non-current trade accounts receivable | ||
Resale of good to other entities | R$ 122,651 | R$ 143,265 |
Impact of the present-value adjustment on resale of good to other entities | 16,011 | 32,920 |
Soluciona TI | ||
Non-current trade accounts receivable | ||
Noncurrent receivable form related parties | 106,206 | 104,874 |
Impact of the present-value adjustment on resale of good to legal entities | 33,614 | 3,005 |
OI group | ||
Non-current trade accounts receivable | ||
Accounts receivable from negotiations on the bankruptcy | 45,031 | 57,272 |
Present-value adjustment on accounts receivable arising from negotiations on the bankruptcy | R$ 15,535 | R$ 10,268 |
TRADE ACCOUNTS RECEIVABLE, NET - Current and non current trade accounts receivable (Details) - Soluciona TI - BRL (R$) R$ in Thousands |
Dec. 31, 2017 |
Dec. 31, 2016 |
---|---|---|
Current and noncurrent trade accounts receivable | ||
Deferred financial income | R$ 33,614 | R$ 3,005 |
Noncurrent | 106,206 | 104,874 |
Trade accounts receivable | ||
Current and noncurrent trade accounts receivable | ||
Nominal amount receivable | 434,743 | 611,384 |
Deferred financial income | (33,614) | (3,005) |
Present value of accounts receivable | 401,129 | 608,379 |
Estimated impairment losses | (154,666) | (344,738) |
Net amount receivable | 246,463 | 263,641 |
Current | 140,257 | 158,767 |
Noncurrent | R$ 106,206 | R$ 104,874 |
TRADE ACCOUNTS RECEIVABLE, NET - Aging list of gross trade accounts receivable (Details) - Soluciona TI - BRL (R$) R$ in Thousands |
12 Months Ended | |
---|---|---|
Dec. 31, 2017 |
Dec. 31, 2016 |
|
Aging of gross trade accounts receivable | ||
Unsecured residual values resulting in benefits to the lessor | R$ 0 | |
Contingent payments recognized as revenue | 0 | |
Trade accounts receivable | ||
Aging of gross trade accounts receivable | ||
Nominal amount receivable | 434,743 | R$ 611,384 |
Present value of accounts receivable | 401,129 | R$ 608,379 |
Trade accounts receivable | 2018/Falling due within one year/Up to 1 year | ||
Aging of gross trade accounts receivable | ||
Nominal amount receivable | 229,981 | |
Present value of accounts receivable | 229,981 | |
Trade accounts receivable | Falling due between one year and five years | ||
Aging of gross trade accounts receivable | ||
Nominal amount receivable | 204,762 | |
Present value of accounts receivable | R$ 171,148 |
TRADE ACCOUNTS RECEIVABLE, NET - Aging list of trade accounts receivable (Details) - BRL (R$) R$ in Thousands |
Dec. 31, 2017 |
Dec. 31, 2016 |
---|---|---|
Aging list of trade accounts receivable | ||
Trade accounts receivable | R$ 8,862,354 | R$ 9,007,099 |
Falling due | ||
Aging list of trade accounts receivable | ||
Trade accounts receivable | 6,635,125 | 6,841,752 |
Overdue - 1 to 30 days | ||
Aging list of trade accounts receivable | ||
Trade accounts receivable | 1,132,008 | 1,073,568 |
Overdue - 31 to 60 days | ||
Aging list of trade accounts receivable | ||
Trade accounts receivable | 375,176 | 322,485 |
Overdue - 61 to 90 days | ||
Aging list of trade accounts receivable | ||
Trade accounts receivable | 232,648 | 227,010 |
Overdue - 91 to 120 days | ||
Aging list of trade accounts receivable | ||
Trade accounts receivable | 105,342 | 105,048 |
Overdue - over 120 days | ||
Aging list of trade accounts receivable | ||
Trade accounts receivable | R$ 382,055 | R$ 437,236 |
TRADE ACCOUNTS RECEIVABLE, NET - Estimated impairment losses for accounts receivable (Details) - Trade accounts receivable - BRL (R$) R$ in Thousands |
12 Months Ended | |
---|---|---|
Dec. 31, 2017 |
Dec. 31, 2016 |
|
Estimated impairment losses for accounts receivable rollforward | ||
Balance at beginning | R$ (1,399,895) | R$ (2,217,926) |
Supplement to estimated losses (Note 24) | (1,994,769) | (1,843,775) |
Reversal of estimated losses (Note 24) | 513,754 | 495,554 |
Write-off due to use | 1,456,158 | 2,166,252 |
Business combination (Note 1.c.1) | (8,719) | |
Balance at ending | R$ (1,433,471) | R$ (1,399,895) |
INVENTORIES (Details) - BRL (R$) R$ in Thousands |
Dec. 31, 2017 |
Dec. 31, 2016 |
---|---|---|
INVENTORIES | ||
Total | R$ 348,755 | R$ 410,413 |
Cost | ||
INVENTORIES | ||
Materials for resale | 325,850 | 377,465 |
Materials for consumption | 57,740 | 77,732 |
Other inventories | 7,822 | 7,892 |
Total | 391,412 | 463,089 |
Estimated impairment losses | ||
INVENTORIES | ||
Total | R$ (42,657) | R$ (52,676) |
DEFERRED TAXES AND TAXES RECOVERABLE - Taxes recoverable (Details) - BRL (R$) R$ in Thousands |
24 Months Ended | |
---|---|---|
Dec. 31, 2017 |
Dec. 31, 2016 |
|
DEFERRED TAXES AND TAXES RECOVERABLE | ||
State VAT (ICMS) | R$ 2,450,856 | R$ 2,329,159 |
Income and social contribution taxes recoverable | 505,535 | 830,549 |
Withholding taxes and contributions | 238,355 | 157,371 |
PIS and COFINS | 85,098 | 148,759 |
Fistel, INSS, ISS and other taxes | 27,431 | 38,236 |
Total | 3,307,275 | 3,504,074 |
Current | 2,563,990 | 3,027,230 |
Noncurrent | R$ 743,285 | 476,844 |
Tax credits offsetting period | 48 months | |
Deferred tax credits from acquisition of property and equipment | R$ 423,588 | R$ 370,770 |
DEFERRED TAXES AND TAXES RECOVERABLE - Projections (Details) - BRL (R$) R$ in Thousands |
Dec. 31, 2017 |
Dec. 31, 2016 |
Dec. 31, 2015 |
---|---|---|---|
DEFERRED TAXES AND TAXES RECOVERABLE | |||
Total | R$ (337,917) | R$ 27,497 | R$ 711,590 |
2018 | |||
DEFERRED TAXES AND TAXES RECOVERABLE | |||
Total | 1,904,953 | ||
2019/From 1 to 2 years | |||
DEFERRED TAXES AND TAXES RECOVERABLE | |||
Total | (685,775) | ||
2020 | |||
DEFERRED TAXES AND TAXES RECOVERABLE | |||
Total | 374,379 | ||
2021 | |||
DEFERRED TAXES AND TAXES RECOVERABLE | |||
Total | 442,867 | ||
2022 | |||
DEFERRED TAXES AND TAXES RECOVERABLE | |||
Total | 704,303 | ||
2023 onwards/Over five years | |||
DEFERRED TAXES AND TAXES RECOVERABLE | |||
Total | R$ (4,450,194) |
JUDICIAL DEPOSITS AND GARNISHMENTS - Judicial Deposits and garnishments (Details) - BRL (R$) R$ in Thousands |
Dec. 31, 2017 |
Dec. 31, 2016 |
---|---|---|
JUDICIAL DEPOSITS AND GARNISHMENTS | ||
Tax | R$ 4,230,917 | R$ 3,758,787 |
Labor | 885,338 | 1,051,430 |
Civil | 1,205,807 | 1,109,001 |
Regulatory | 200,627 | 276,604 |
Total | 6,522,689 | 6,195,822 |
Garnishments | 141,116 | 155,744 |
Total | 6,663,805 | 6,351,566 |
Current | 324,638 | 302,424 |
Non current | R$ 6,339,167 | R$ 6,049,142 |
PREPAID EXPENSES (Details) - BRL (R$) R$ in Thousands |
Dec. 31, 2017 |
Dec. 31, 2016 |
---|---|---|
PREPAID EXPENSES | ||
Advertising and publicity | R$ 336,295 | R$ 258,212 |
Insurance | 36,941 | 39,558 |
Rental | 29,713 | 19,276 |
Software and networks maintenance | 12,375 | 12,283 |
Taxes, financial charges, personal and other | 54,231 | 50,193 |
Total | 469,555 | 379,522 |
Current | 446,439 | 343,092 |
Noncurrent | R$ 23,116 | R$ 36,430 |
OTHER ASSETS (Details) - BRL (R$) R$ in Thousands |
Dec. 31, 2017 |
Dec. 31, 2016 |
---|---|---|
OTHER ASSETS | ||
Advances to employees and suppliers | R$ 58,456 | R$ 83,634 |
Related-party receivables (Note 28) | 166,733 | 250,679 |
Receivables from suppliers | 114,015 | 99,166 |
Subsidy on handset sales | 37,258 | 30,491 |
Surplus from post-employment benefit plans (Note 30) | 9,833 | 9,041 |
Other amounts receivable | 24,037 | 22,649 |
Total | 410,332 | 495,660 |
Current | 321,397 | 440,095 |
Noncurrent | R$ 88,935 | R$ 55,565 |
PROPERTY, PLANT AND EQUIPMENT - Depreciation rates (Details) - BRL (R$) R$ in Thousands |
12 Months Ended | |
---|---|---|
Dec. 31, 2017 |
Dec. 31, 2016 |
|
PROPERTY, PLANT AND EQUIPMENT | ||
Property and equipment pledged in guarantee | R$ 176,591 | R$ 203,600 |
Estimated residual value of reversible assets | R$ 8,763,355 | 8,813,916 |
Depreciation rate accounting estimates | ||
PROPERTY, PLANT AND EQUIPMENT | ||
Reduction to depreciation expense | R$ 157,053 |
PROPERTY, PLANT AND EQUIPMENT - Finance lease (Details) - BRL (R$) R$ in Thousands |
Dec. 31, 2017 |
Dec. 31, 2016 |
Dec. 31, 2015 |
---|---|---|---|
PROPERTY, PLANT AND EQUIPMENT | |||
Property, plant and equipment | R$ 33,222,316 | R$ 31,924,918 | R$ 30,476,765 |
Finance lease | |||
PROPERTY, PLANT AND EQUIPMENT | |||
Property, plant and equipment | R$ 280,103 | R$ 298,604 |
INTANGIBLE ASSETS - Goodwill breakdown (Details) - BRL (R$) R$ in Thousands |
Dec. 31, 2017 |
Dec. 31, 2015 |
---|---|---|
INTANGIBLE ASSETS | ||
Goodwill | R$ 23,062,421 | |
Ajato Telecomunicacao Ltda. | ||
INTANGIBLE ASSETS | ||
Goodwill | 149 | |
Spanish e Figueira (merged with TDBH) | ||
INTANGIBLE ASSETS | ||
Goodwill | 212,058 | |
Santo Genovese Participacoes Ltda. | ||
INTANGIBLE ASSETS | ||
Goodwill | 71,892 | |
Telefonica Televisao Participacoes S.A. | ||
INTANGIBLE ASSETS | ||
Goodwill | 780,693 | |
Vivo Participacoes S. A. | ||
INTANGIBLE ASSETS | ||
Goodwill | 9,160,488 | |
GVT Participacoes S.A. ("GVTPart") | ||
INTANGIBLE ASSETS | ||
Goodwill | R$ 12,837,141 | R$ 12,837,141 |
INTANGIBLE ASSETS - Goodwill impairment testing (Details) - BRL (R$) R$ in Thousands |
12 Months Ended | |
---|---|---|
Dec. 31, 2017 |
Dec. 31, 2016 |
|
INTANGIBLE ASSETS | ||
Period of assessment of value of goodwill | 5 years | 5 years |
Growth rate | 4.50% | 5.00% |
Discount rate applied to cash flow projections | 13.58% | 14.75% |
Inflation rate | 4.00% | 4.50% |
Impairment loss | R$ 0 | R$ 0 |
Minimum | ||
INTANGIBLE ASSETS | ||
Discount rate | (1.00%) | |
Perpetuity growth rates | (0.50%) | |
OIBDA Margin | (2.00%) | |
Capex/Revenues Margin | (1.00%) | |
Maximum | ||
INTANGIBLE ASSETS | ||
Discount rate | 1.00% | |
Perpetuity growth rates | 0.50% | |
OIBDA Margin | 2.00% | |
Capex/Revenues Margin | 1.00% |
PERSONNEL, SOCIAL CHARGES AND BENEFITS (Details) - BRL (R$) R$ in Thousands |
Dec. 31, 2017 |
Dec. 31, 2016 |
---|---|---|
PERSONNEL, SOCIAL CHARGES AND BENEFITS | ||
Salaries and wages | R$ 40,171 | R$ 55,476 |
Social charges and benefits | 399,229 | 384,073 |
Profit sharing | 273,384 | 285,887 |
Share-based payment plans (Note 29) | 33,880 | 46,223 |
Total | 746,664 | 771,659 |
Current | 723,380 | 760,643 |
Noncurrent | R$ 23,284 | R$ 11,016 |
TRADE ACCOUNTS PAYABLE (Details) - BRL (R$) R$ in Thousands |
1 Months Ended | ||
---|---|---|---|
May 31, 2017 |
Dec. 31, 2017 |
Dec. 31, 2016 |
|
TRADE ACCOUNTS PAYABLE | |||
Sundry suppliers (Opex, Capex, services e Material) | R$ 6,683,503 | R$ 6,617,240 | |
Amounts payable (operators, co-billing) | 187,976 | 314,958 | |
Payables for purchase of non-current assets | 224,777 | 369,715 | |
Related parties (Note 28) | 350,844 | 381,240 | |
Total | 7,447,100 | 7,683,153 | |
Current | R$ 7,447,100 | 7,611,246 | |
Noncurrent | R$ 71,907 | ||
Judicial deposit in favor of the operators | R$ 71,956 |
TAXES, CHARGES AND CONTRIBUTIONS (Details) - BRL (R$) R$ in Thousands |
Dec. 31, 2017 |
Dec. 31, 2016 |
---|---|---|
TAXES, CHARGES AND CONTRIBUTIONS | ||
Income and social contribution taxes payable | R$ 4,479 | R$ 11,520 |
ICMS | 1,149,137 | 1,226,172 |
PIS and COFINS | 419,589 | 412,149 |
Fust and Funttel | 93,869 | 92,828 |
ISS, CIDE and other taxes | 113,689 | 77,193 |
Total | 1,780,763 | 1,819,862 |
Current | 1,731,315 | 1,770,731 |
Noncurrent | R$ 49,448 | R$ 49,131 |
DIVIDENDS AND INTEREST ON EQUITY (IOE) - Changes (Details) - BRL (R$) R$ in Thousands |
12 Months Ended | |
---|---|---|
Dec. 31, 2017 |
Dec. 31, 2016 |
|
DIVIDENDS AND INTEREST ON EQUITY (IOE) | ||
Beginning Balance | R$ 2,195,031 | R$ 2,209,362 |
Supplementary dividends for previous year | 1,913,987 | 1,287,223 |
Interim dividends and interest on equity (net of IRRF) | 2,054,143 | 1,846,323 |
Unclaimed dividends and interest on equity | (101,778) | (189,471) |
Payment of dividends and interest on equity | (3,668,551) | (2,966,384) |
IRRF on shareholders exempt/immune from interest on equity | 3,284 | 7,978 |
Ending Balance | R$ 2,396,116 | R$ 2,195,031 |
PROVISIONS AND CONTINGENCIES - Guarantees (Details) - BRL (R$) R$ in Thousands |
Dec. 31, 2017 |
Dec. 31, 2016 |
---|---|---|
PROVISIONS AND CONTINGENCIES | ||
Property and equipment | R$ 176,591 | R$ 203,600 |
Judicial deposits and garnishments | 6,663,805 | 6,351,566 |
Letters of guarantee | 1,669,476 | 1,948,088 |
Short-term investments pledged as collateral | 81,486 | 78,166 |
Contingent liability for guarantees | ||
PROVISIONS AND CONTINGENCIES | ||
Short-term investments pledged as collateral | R$ 69,764 | R$ 67,393 |
DEFERRED REVENUE (Details) - BRL (R$) R$ in Thousands |
Dec. 31, 2017 |
Dec. 31, 2016 |
---|---|---|
DEFERRED REVENUE | ||
Services and goods | R$ 301,292 | R$ 389,706 |
Disposal of PP&E | 165,162 | 227,397 |
Activation revenue | 7,959 | 44,914 |
Customer loyalty program | 50,354 | 56,210 |
Government grants | 115,379 | 133,300 |
Other | 83,052 | 90,112 |
Total | 723,198 | 941,639 |
Current | 372,561 | 429,853 |
Noncurrent | R$ 350,637 | R$ 511,786 |
LOANS, FINANCING AND DEBENTURES - Loans and financing (Details) - BRL (R$) R$ in Thousands |
12 Months Ended | |
---|---|---|
Dec. 31, 2017 |
Dec. 31, 2016 |
|
LOANS, FINANCING AND DEBENTURES | ||
Loans and financing | R$ 3,941,102 | R$ 5,669,767 |
BNDES - PSI | ||
LOANS, FINANCING AND DEBENTURES | ||
Loans and financing | R$ 32,155 | R$ 47,346 |
Financing - Suppliers | ||
LOANS, FINANCING AND DEBENTURES | ||
Net cost of CDI, as percentage | 108.40% | |
Financing - Suppliers | Minimum | ||
LOANS, FINANCING AND DEBENTURES | ||
Net cost of CDI, as percentage | 101.40% | |
Financing - Suppliers | Maximum | ||
LOANS, FINANCING AND DEBENTURES | ||
Net cost of CDI, as percentage | 109.40% |
OTHER LIABILITIES (Details) - BRL (R$) R$ in Thousands |
1 Months Ended | ||
---|---|---|---|
Jan. 31, 2017 |
Dec. 31, 2017 |
Dec. 31, 2016 |
|
OTHER LIABILITIES | |||
Authorization licenses | R$ 258,742 | R$ 1,048,523 | |
Liabilities with related parties (Note 28) | 125,987 | 112,358 | |
Payment for license renewal | 167,536 | 215,154 | |
Third-party withholdings | 144,593 | 227,685 | |
Surplus from post-employment benefit plans (Note 30) | 531,938 | 327,670 | |
Amounts to be refunded to subscribers | 189,380 | 168,708 | |
Other liabilities | 72,893 | 92,447 | |
Total | 1,491,069 | 2,192,545 | |
Current | 718,468 | 1,640,757 | |
Noncurrent | R$ 772,601 | R$ 551,788 | |
Installment paid | R$ 858,991 |
EQUITY - Capital (Details) - shares |
12 Months Ended | |
---|---|---|
Dec. 31, 2017 |
Dec. 31, 2016 |
|
EQUITY | ||
Authorized capital | 1,850,000,000 | |
Preferred shares | ||
EQUITY | ||
Percentage of increase in amount allocated to common share | 10.00% | 10.00% |
Number of consecutive financial years to which minimum dividend to be paid | 3 years | |
Maximum | Preferred shares | ||
EQUITY | ||
Proportion of non-vesting or restricted-voting preferred shares as percentage of total shares | 0.67% |
EQUITY - Income reserves (Details) - BRL (R$) R$ in Thousands |
12 Months Ended | |
---|---|---|
Dec. 31, 2017 |
Dec. 31, 2016 |
|
EQUITY | ||
Balance | R$ 2,474,974 | |
Reversal of reserves | 550,000 | R$ 700,000 |
Balance | 2,463,228 | 2,474,974 |
Income reserves | ||
EQUITY | ||
Balance | 2,474,974 | 2,410,571 |
Reversal of reserves | (550,000) | (700,000) |
Recording of reserves | 538,254 | 764,403 |
Balance | 2,463,228 | 2,474,974 |
Legal reserve | ||
EQUITY | ||
Balance | 1,907,905 | 1,703,643 |
Recording of reserves | 230,439 | 204,262 |
Balance | 2,138,344 | 1,907,905 |
Expansion and modernization reserve | ||
EQUITY | ||
Balance | 550,000 | 700,000 |
Reversal of reserves | (550,000) | (700,000) |
Recording of reserves | 297,000 | 550,000 |
Balance | 297,000 | 550,000 |
Tax incentive reserve | ||
EQUITY | ||
Balance | 17,069 | 6,928 |
Recording of reserves | 10,815 | 10,141 |
Balance | R$ 27,884 | R$ 17,069 |
EQUITY - Company Share Repurchase Program (Details) - BRL (R$) R$ / shares in Units, R$ in Thousands |
12 Months Ended | |||
---|---|---|---|---|
Jul. 05, 2017 |
Jun. 09, 2017 |
Jun. 01, 2017 |
Dec. 31, 2017 |
|
EQUITY | ||||
Acquisition of shares in the financial market (in shares) | 45 | |||
Acquisition of shares in the financial market | R$ 32 | |||
Common shares | ||||
EQUITY | ||||
Shares to be acquired under repurchase program | 870,781 | |||
Preferred shares | ||||
EQUITY | ||||
Shares to be acquired under repurchase program | 41,510,761 | |||
Acquisition of shares in the financial market (in shares) | 661 | 45 | ||
Unit issue price | R$ 45.26 | R$ 47.31 | ||
Acquisition of shares in the financial market | R$ 32 | R$ 2 | ||
Treasury shares | ||||
EQUITY | ||||
Acquisition of shares in the financial market (in shares) | 706 | |||
Acquisition of shares in the financial market | R$ 32 | |||
Treasury shares | Preferred shares | ||||
EQUITY | ||||
Acquisition of shares in the financial market (in shares) | 706 |
EQUITY - Earnings per share (Details) - BRL (R$) R$ / shares in Units, R$ in Thousands |
12 Months Ended | ||
---|---|---|---|
Dec. 31, 2017 |
Dec. 31, 2016 |
Dec. 31, 2015 |
|
EQUITY | |||
Net income for the year attributable to shareholders: | R$ 4,608,790 | R$ 4,085,242 | R$ 3,420,249 |
Weighted average number of outstanding shares for the year | 1,688,694 | 1,688,694,000 | 1,491,131,000 |
Common shares | |||
EQUITY | |||
Net income for the year attributable to shareholders: | R$ 1,457,288 | R$ 1,291,743 | R$ 1,083,911 |
Weighted average number of outstanding shares for the year | 569,354,000 | 569,354,000 | 503,842,000 |
Basic and diluted earnings per share | R$ 2.56 | R$ 2.27 | R$ 2.15 |
Preferred shares | |||
EQUITY | |||
Net income for the year attributable to shareholders: | R$ 3,151,502 | R$ 2,793,499 | R$ 2,336,338 |
Weighted average number of outstanding shares for the year | 1,119,340,000 | 1,119,340,000 | 987,289,000 |
Basic and diluted earnings per share | R$ 2.82 | R$ 2.50 | R$ 2.37 |
NET OPERATING REVENUE (Details) - BRL (R$) R$ in Thousands |
12 Months Ended | ||
---|---|---|---|
Dec. 31, 2017 |
Dec. 31, 2016 |
Dec. 31, 2015 |
|
NET OPERATING REVENUE | |||
Gross operating revenue | R$ 66,243,174 | R$ 65,006,728 | R$ 60,997,496 |
Deductions from gross operating revenue | (23,036,342) | (22,498,269) | (20,710,681) |
Taxes | (16,058,584) | (15,388,784) | (14,163,869) |
Discounts granted and return of goods | (6,977,758) | (7,109,485) | (6,546,812) |
Net operating revenue | R$ 43,206,832 | R$ 42,508,459 | R$ 40,286,815 |
OPERATING COSTS AND EXPENSES (Details) - BRL (R$) R$ in Thousands |
12 Months Ended | ||
---|---|---|---|
Dec. 31, 2017 |
Dec. 31, 2016 |
Dec. 31, 2015 |
|
OPERATING COSTS AND EXPENSES | |||
Personnel | R$ (3,725,767) | R$ (3,859,788) | R$ (3,221,662) |
Third-party services | (13,247,186) | (13,110,297) | (12,528,701) |
Interconnection and network use | (1,440,968) | (1,924,148) | (2,595,894) |
Advertising and publicity | (1,015,414) | (1,065,882) | (1,102,458) |
Rental, insurance, condominium and connection means | (2,980,561) | (2,688,009) | (2,394,409) |
Taxes, charges and contributions | (1,866,593) | (1,959,564) | (1,687,783) |
Estimated impairment losses on accounts receivable | (1,481,015) | (1,348,221) | (1,230,675) |
Depreciation and amortization | (7,853,734) | (7,654,406) | (6,814,951) |
Cost of goods sold | (1,955,890) | (2,118,940) | (2,597,088) |
Material and other operating costs and expenses | (284,981) | (342,511) | (319,391) |
Total | (35,852,109) | (36,071,766) | (34,493,012) |
Non-cumulative PIS and COFINS | 1,267 | 46,647 | 37,626 |
Cost of sales | |||
OPERATING COSTS AND EXPENSES | |||
Personnel | (845,358) | (976,233) | (813,612) |
Third-party services | (5,591,284) | (5,705,098) | (5,300,820) |
Interconnection and network use | (1,440,968) | (1,924,148) | (2,595,894) |
Rental, insurance, condominium and connection means | (2,624,405) | (2,326,219) | (2,051,055) |
Taxes, charges and contributions | (1,792,764) | (1,861,237) | (1,616,920) |
Depreciation and amortization | (5,963,153) | (5,821,620) | (5,269,588) |
Cost of goods sold | (1,955,890) | (2,118,940) | (2,597,088) |
Material and other operating costs and expenses | (58,708) | (89,519) | (100,099) |
Total | (20,272,530) | (20,823,014) | (20,345,076) |
Selling expenses | |||
OPERATING COSTS AND EXPENSES | |||
Personnel | (2,387,314) | (2,136,399) | (1,939,493) |
Third-party services | (6,423,523) | (6,151,012) | (6,183,609) |
Advertising and publicity | (1,015,414) | (1,065,882) | (1,102,458) |
Rental, insurance, condominium and connection means | (151,455) | (141,135) | (156,663) |
Taxes, charges and contributions | (39,050) | (5,933) | (5,264) |
Estimated impairment losses on accounts receivable | (1,481,015) | (1,348,221) | (1,230,675) |
Depreciation and amortization | (1,433,297) | (1,408,866) | (1,181,216) |
Material and other operating costs and expenses | (205,406) | (197,918) | (206,099) |
Total | (13,136,474) | (12,455,366) | (12,005,477) |
General and administrative expenses | |||
OPERATING COSTS AND EXPENSES | |||
Personnel | (493,095) | (747,156) | (468,557) |
Third-party services | (1,232,379) | (1,254,187) | (1,044,272) |
Rental, insurance, condominium and connection means | (204,701) | (220,655) | (186,691) |
Taxes, charges and contributions | (34,779) | (92,394) | (65,599) |
Depreciation and amortization | (457,284) | (423,920) | (364,147) |
Material and other operating costs and expenses | (20,867) | (55,074) | (13,193) |
Total | R$ (2,443,105) | R$ (2,793,386) | R$ (2,142,459) |
OTHER OPERATING INCOME (EXPENSES) - Summary of other operating income (expenses) (Details) - BRL (R$) R$ in Thousands |
12 Months Ended | ||
---|---|---|---|
Dec. 31, 2017 |
Dec. 31, 2016 |
Dec. 31, 2015 |
|
OTHER OPERATING INCOME (EXPENSES), NET | |||
Recovered expenses and fines | R$ 355,415 | R$ 504,877 | R$ 538,239 |
Provisions for labor, tax and civil contingencies | (999,419) | (985,176) | (1,014,080) |
Net gain (loss) on asset disposal/loss | 108,767 | 463,602 | (4,512) |
Other operating income (expenses) | (187,249) | (51,977) | (73,852) |
Total | (722,486) | (68,674) | (554,205) |
Other operating income | 464,182 | 968,479 | 538,239 |
Other operating expenses | R$ (1,186,668) | R$ (1,037,153) | R$ (1,092,444) |
OTHER OPERATING INCOME (EXPENSES) - Sale of assets (Details) R$ in Thousands |
12 Months Ended | ||
---|---|---|---|
Dec. 31, 2017
BRL (R$)
|
Dec. 31, 2016
BRL (R$)
item
|
Dec. 31, 2015
BRL (R$)
|
|
Sale of assets | |||
Net gain (loss) on asset disposal/loss | R$ 108,767 | R$ 463,602 | R$ (4,512) |
Transmission towers | |||
Sale of assets | |||
Net gain (loss) on asset disposal/loss | R$ 476,371 | ||
Number of towers sold | item | 1,655 | ||
Transmission towers | Customer portfolio | |||
Sale of assets | |||
Disposal of sharing agreement | R$ 40,899 |
BALANCES AND TRANSACTIONS WITH RELATED PARTIES - Management compensation (Details) - BRL (R$) R$ in Thousands |
12 Months Ended | |
---|---|---|
Dec. 31, 2017 |
Dec. 31, 2016 |
|
BALANCES AND TRANSACTIONS WITH RELATED PARTIES | ||
Key management personnel compensation | R$ 21,684 | R$ 109,314 |
Salaries, benefits and social charges | 14,439 | 39,822 |
Variable compensation | R$ 7,245 | R$ 69,492 |
SHARE-BASED PAYMENT PLANS (Details) |
12 Months Ended | ||
---|---|---|---|
May 18, 2011 |
Dec. 31, 2017
item
€ / shares
shares
|
Dec. 31, 2014
item
|
|
Performance & Investment Plan | |||
SHARE-BASED PAYMENT PLANS | |||
Initial percentage of shares purchased | 25.00% | ||
Percentage of shares awarded | 25.00% | ||
Initial life of the plan | 3 years | ||
Number of cycles extended | 3 | ||
Extended life of plan | 3 years | ||
Share price | € / shares | € 8.1950 | ||
PIP 2015-2018 cycle | |||
SHARE-BASED PAYMENT PLANS | |||
Number of active executives | 84 | ||
Number of executives appointed under articles | 2 | ||
Number of potential shares to be received | shares | 471,654 | ||
Talent future share plan | |||
SHARE-BASED PAYMENT PLANS | |||
Initial life of the plan | 3 years | ||
Share price | € / shares | € 8.1950 | ||
TFSP 2015-2018 cycle | |||
SHARE-BASED PAYMENT PLANS | |||
Number of potential shares to be received | shares | 83,500 |
SHARE-BASED PAYMENT PLANS - Global Employee Share Plan (Details) - Global Employee Share Plan |
May 30, 2014
EUR (€)
shares
|
---|---|
SHARE-BASED PAYMENT PLANS | |
Initial life of the plan | 2 years |
Period for employee contribution | 12 months |
Vesting period | 2 years |
Number of free share for each share acquired | shares | 1 |
Minimum | |
SHARE-BASED PAYMENT PLANS | |
Employees monthly contribution | € 25 |
Shares holding period after purchase period for getting free shares | 12 months |
Maximum | |
SHARE-BASED PAYMENT PLANS | |
Employees monthly contribution | € 150 |
Employees annual contribution | € 1,800 |
SHARE-BASED PAYMENT PLANS - Changes (Details) - BRL (R$) R$ in Thousands |
12 Months Ended | |
---|---|---|
Dec. 31, 2017 |
Dec. 31, 2016 |
|
SHARE-BASED PAYMENT PLANS | ||
Expense from share-based payment transactions with employees | R$ 7,013 | R$ 21,952 |
PENSION PLANS AND OTHER POST-EMPLOYMENT BENEFITS - Sponsored Plans by Type (Details) - BRL (R$) R$ in Thousands |
12 Months Ended | |
---|---|---|
Dec. 31, 2017 |
Dec. 31, 2016 |
|
VISAO Plans | ||
PENSION PLANS AND OTHER POST-EMPLOYMENT BENEFITS | ||
Contributions made by the Company | R$ 43,702 | R$ 37,879 |
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, 2017 |
Dec. 31, 2016 |
Dec. 31, 2015 |
|
PENSION PLANS AND OTHER POST-EMPLOYMENT BENEFITS | |||
Current service cost | R$ 10,650 | R$ 5,572 | R$ 8,402 |
Net interest on net actuarial assets/liabilities | 34,583 | 8,264 | 41,288 |
Total | 45,233 | 13,836 | 49,690 |
Post-retirement pension plans | |||
PENSION PLANS AND OTHER POST-EMPLOYMENT BENEFITS | |||
Current service cost | 3,044 | 2,811 | 2,682 |
Net interest on net actuarial assets/liabilities | 5,258 | 5,278 | 4,525 |
Total | 8,302 | 8,089 | 7,207 |
Post-retirement health plans | |||
PENSION PLANS AND OTHER POST-EMPLOYMENT BENEFITS | |||
Current service cost | 7,606 | 2,761 | 5,720 |
Net interest on net actuarial assets/liabilities | 29,325 | 2,986 | 36,763 |
Total | R$ 36,931 | R$ 5,747 | R$ 42,483 |
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, 2017 |
Dec. 31, 2016 |
Dec. 31, 2015 |
|
PENSION PLANS AND OTHER POST-EMPLOYMENT BENEFITS | |||
Actuarial (gains) losses | R$ 533,487 | R$ 65,576 | R$ (10,438) |
Asset limitation effect | (362,191) | 171,191 | (391,055) |
Total | 171,296 | 236,767 | (401,493) |
Post-retirement pension plans | |||
PENSION PLANS AND OTHER POST-EMPLOYMENT BENEFITS | |||
Actuarial (gains) losses | 325,292 | (174,496) | (87,306) |
Asset limitation effect | (309,780) | 182,088 | (541,596) |
Total | 15,512 | 7,592 | (628,902) |
Post-retirement health plans | |||
PENSION PLANS AND OTHER POST-EMPLOYMENT BENEFITS | |||
Actuarial (gains) losses | 208,195 | 240,072 | 76,868 |
Asset limitation effect | (52,411) | (10,897) | 150,541 |
Total | R$ 155,784 | R$ 229,175 | R$ 227,409 |
PENSION PLANS AND OTHER POST-EMPLOYMENT BENEFITS - Results projected (Details) R$ in Thousands |
12 Months Ended |
---|---|
Dec. 31, 2017
BRL (R$)
| |
PENSION PLANS AND OTHER POST-EMPLOYMENT BENEFITS | |
Current service cost | R$ 16,653 |
Net interest on net defined benefit liability/asset | 51,966 |
Total | 68,619 |
Post-retirement pension plans | |
PENSION PLANS AND OTHER POST-EMPLOYMENT BENEFITS | |
Current service cost | 2,931 |
Net interest on net defined benefit liability/asset | 6,074 |
Total | 9,005 |
Post-retirement health plans | |
PENSION PLANS AND OTHER POST-EMPLOYMENT BENEFITS | |
Current service cost | 13,722 |
Net interest on net defined benefit liability/asset | 45,892 |
Total | R$ 59,614 |
PENSION PLANS AND OTHER POST-EMPLOYMENT BENEFITS - Sponsoring company contributions projected (Details) R$ in Thousands |
12 Months Ended |
---|---|
Dec. 31, 2017
BRL (R$)
| |
PENSION PLANS AND OTHER POST-EMPLOYMENT BENEFITS | |
Sponsor contributions | R$ 2,532 |
Benefits paid directly by the sponsor | 16,940 |
Total | 19,472 |
Post-retirement pension plans | |
PENSION PLANS AND OTHER POST-EMPLOYMENT BENEFITS | |
Sponsor contributions | 2,499 |
Benefits paid directly by the sponsor | 7,914 |
Total | 10,413 |
Post-retirement health plans | |
PENSION PLANS AND OTHER POST-EMPLOYMENT BENEFITS | |
Sponsor contributions | 33 |
Benefits paid directly by the sponsor | 9,026 |
Total | R$ 9,059 |
PENSION PLANS AND OTHER POST-EMPLOYMENT BENEFITS - Average weighted duration of defined benefit liability (Details) - Y |
12 Months Ended | |
---|---|---|
Dec. 31, 2017 |
Dec. 31, 2016 |
|
Post-retirement pension plans | ||
PENSION PLANS AND OTHER POST-EMPLOYMENT BENEFITS | ||
Average weighted duration of defined benefit liability | 8.5 | 8.9 |
Post-retirement health plans | ||
PENSION PLANS AND OTHER POST-EMPLOYMENT BENEFITS | ||
Average weighted duration of defined benefit liability | 18.7 | 12.7 |
FINANCIAL INSTRUMENTS AND RISK AND CAPITAL MANAGEMENT - Derivative financial instruments (Details) - instrument |
12 Months Ended | |
---|---|---|
Dec. 31, 2017 |
Dec. 31, 2016 |
|
FINANCIAL INSTRUMENTS AND RISK AND CAPITAL MANAGEMENT | ||
Embedded derivative financial instruments held | 0 | 0 |
Threshold business days for linear convention | 360 days | |
Threshold business days for exponential convention | 252 days |
FINANCIAL INSTRUMENTS AND RISK AND CAPITAL MANAGEMENT - Fair value (Details) - BRL (R$) R$ in Thousands |
12 Months Ended | |
---|---|---|
Dec. 31, 2017 |
Dec. 31, 2016 |
|
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 |
FINANCIAL INSTRUMENTS AND RISK AND CAPITAL MANAGEMENT - Social and Environmental Risks (Details) R$ in Thousands |
Dec. 31, 2017
BRL (R$)
|
---|---|
Environmental risks | |
Exposure to contingent liabilities | |
Maximum fine per breach of environmental law | R$ 50,000 |
FINANCIAL INSTRUMENTS AND RISK AND CAPITAL MANAGEMENT - Insurance Coverage (Details) R$ in Thousands |
Dec. 31, 2017
BRL (R$)
|
---|---|
FINANCIAL INSTRUMENTS AND RISK AND CAPITAL MANAGEMENT | |
Maximum limits of claims for operational risks | R$ 1,501,052 |
Maximum limits of claims for general civil liability risks | R$ 75,000 |
COMMITMENTS AND GUARANTEES (RENTALS) - Non-cancellable operating agreements (Details) R$ in Thousands |
Dec. 31, 2017
BRL (R$)
|
---|---|
Non-cancellable operating agreements | |
Amount corresponding to contracts | R$ 14,745,345 |
2018/Falling due within one year/Up to 1 year | |
Non-cancellable operating agreements | |
Amount corresponding to contracts | 2,285,148 |
Falling due between one year and five years | |
Non-cancellable operating agreements | |
Amount corresponding to contracts | 7,442,212 |
2023 onwards/Over five years | |
Non-cancellable operating agreements | |
Amount corresponding to contracts | R$ 5,017,985 |
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