Oi S.A.

Zeinal Abedin Mahomed Bava - Chief Executive Officer Bayard De Paoli Gontijo - Interim Chief Financial Officer, Investor Relations Officer and Treasury Director

Richard H. Prentiss - Raymond James Ltd., Research Division Paul Marsh Carlos A.

de Legarreta Díaz Mathew Berns Michel Morin - Morgan Stanley, Research Division Maria Tereza Azevedo - UBS Investment Bank, Research Division Mauro Ferman Christopher Vandergrift

Okay. Thank you very much.

Good afternoon, ladies and gentlemen. I'm here joined by my CFO, Bayard, and our finance team, and thank you very much for being on this call.

Just very quick highlights on the numbers that we put out today. Our net revenues increased 1.5% sequentially, amounting to BRL 7.2 billion on the back of fixed broadband and Pay TV growth in the Residential segment and the increase of Personal Mobility service revenue due to higher recharges and substantial pick-up in data usage.

Year-over-year, the growth on these segments was more than offset by the MTR cuts, reduction on handset sales and the Corporate/SME revenue decline, which, as you know, is undergoing a profound change. And I will talk about that a bit later on in my presentation.

Our EBITDA amounted to BRL 3.5 billion in the fourth quarter. That was impacted by the gain from the sale of Globenet.

If one was to exclude this one-off event, our routine EBITDA improved on a quarter-by-quarter basis, and it is very much being underpinned by the focus that we've shared with you that we would be having in terms of the quality of sales, profitability, operational efficiency and strong cost and financial discipline. Our operational cash flow, routine EBITDA minus CapEx, amounted to BRL 484 million.

That's an improvement, sequential improvement, but it's also a substantial improvement when you compare it to the fourth quarter of last year. Our net income amounted BRL 1.2 billion.

That is BRL 776 million increase over fourth quarter, about 191% up and BRL 1 billion sequentially on the back of this one-off sale of the submarine cable that I mentioned earlier. Our net debt stood at about BRL 30.4 billion.

Clearly, we've done much better than market had expected. If you bear in mind and take into account the fact that we took advantage of this tax refinancing program called Refis, which, in our view, improved our balance sheet and the delta of net debt third quarter, fourth quarter is explained by this payment as well as a dividend payout in respect of fiscal year 2013.

And as such, there will not be a dividend payout in 2014. Our Revenue Generating Units grew 0.2%, notwithstanding the cleanup that we've done in our database, particularly on the fixed line side of our business.

I will now turn over to the presentation that we put out on our site. So looking at Page #2.

We continue to believe that we posted resilient performance when it comes to Revenue Generating Units. Customer churn was highlighted in the second quarter call as the big issue that Oi was facing.

We essentially had done substantial amount of sales in the past in which were resulting in very high provision for bad debt and for receivables. And we took the view that in the first half -- or the second half of last year, we should really be focusing in reducing churn and improving the quality of the customers that we attract into our ecosystem.

Across-the-board, we have reduced churn whether we're talking about fixed line, broadband, Pay TV, or whether we're talking about Residential or SME for that matter. In the month of December, Oi posted the best churn of the last 2 to 3 years.

But if one looks at the revenue trends, those trends improved compared to the prior quarter, and we are posting also stable margins. Margins are roughly 28%, which, in the context of the Brazilian market, continues to be, I think, one of the best, if not the best, margin performance.

In terms of net revenues, it was up about 1.5% sequentially. And we saw growth in Residential, in service customer when it comes to mobility and also in Corporate/SMEs and wholesale.

Of course, this is just one quarter, and as we are facing significant amount of improvement that we need to make, well, I think, you'll see a choppy performance quarter-by-quarter, but the trends are clearly in the direction that we have been sharing with you either in the various quarters we make or in the meetings we've had recently on our road shows. In terms of OpEx, we've indicated to you that financial discipline will be key to the delivery of the results in the future.

Our OpEx was up 1.5% sequentially. Bear in mind that fourth quarter is seasonally a very active quarter in terms of sales, and that's a pretty good performance, but I think the stellar performance is when you compare fourth quarter 2013 with fourth quarter 2012.

And costs were mutually flat when inflation is running at about 5.9%. So my CFO will take you through that in a lot more detail and the work that we're doing in costs is not just in bad debt, it's across-the-board, line by line, and this is what's actually underpinning the EBITDA performance that we posted.

So routine EBITDA was up 1.7%. Net income was up substantially on the back of this disposal that I mentioned earlier, but routine EBITDA minus CapEx improved once again.

And if you look at Page #4, it increased about 13.6% compared to third quarter, and it increased substantially compared to the fourth quarter last year. Roughly, we went from about BRL 90 million of EBITDA minus CapEx in the fourth quarter of 2012 to BRL 484 million in the fourth quarter of 2013, very much in line with what we've said to you earlier as to what is our business priority, which is we would like to correct the cash flow profile of this company, and we would like to maintain a high level of financial and cost discipline.

With regard to the net debt on the same Page 4, we've highlight to you the dividend payments that we did, BRL 476 million; and the Refis, that early payment that I mentioned to you, which we took advantage of. We've saved ourselves a lot of money in terms balance sheet liabilities of BRL 709 million and we also got authorization from ANATEL for the sale of our fixed line towers.

That money was sitting on an escrow, and as from the fourth quarter, it's now sitting on our books as well. Let me now take you through in more detail what the performance -- or what the business performance has been in this fourth quarter.

First and foremost, just a couple of minutes on Brazil. We continue to see this market as a very interesting and growth market when it comes to telecom.

Broadband, Pay TV penetration is well below what the full potential of the market is. We also believe that mobile data usage is also well below where it is likely to be if you bear in mind the fact that there has been significant amount of wealth redistribution in here.

And also, this is one market where 70% of the population is active in the sense that it's working full time. And moreover, as you know, employment is all-time low.

So we continue to believe that is a sizable opportunity in a very big market, however, it is not homogeneous, and therefore, one would have to be granular in the way that one approaches the opportunities in this market. So region-by-region, city-by-city, I think the economic story, if you like, will be materially different.

And this is what we believe goes in the direction of one of the strengths that Oi has. We are present in 4,800 municipalities with fixed line infrastructure.

Of course, when it comes to mobility, we are present in about 5,477 municipalities, but it is worth mentioning that we have the second-biggest, if you like, fiber backbone in the world at Oi. And therefore, what we now need to do is to leverage this capillarity, this presence that we have in all these municipalities and translate that into superior, if you like, performance both in terms of top line, but also in terms of profitability, because in the same way that the growth is not homogeneous, the competition is also not homogeneous.

Let me now turn over to the performance of the Residential segment. First and foremost, we indicated to the market that one of the priorities we have was to consolidate our business model.

And by that we mean when it comes to Residential, to do more double play and more triple play; when it comes to mobility, if you're thinking about B2C, is to do more prepaid, and we focus on the fixed line side our business. Fourth quarter 2012, household is more than one service from Oi.

It was running at about 53%, that's up about 5 percentage points to 58% right now. Worth also mentioning is that we have been able to improve ARPU 4.5% on the back of the upselling and the cross-selling that we are doing on this installed base of our customers.

So our ability to monetize existing base has significantly improved as we continue to make tools available within our company so that we can take advantage of the business intelligence in-house. Worth also mentioning is that churn is declining, as I said earlier.

Churn is all-time low at Oi in December. And now we feel that processes are pretty robust for us to now to continue to drive more sales in the future.

Page 12. Recently, we just launched a new promotion and this is a promotion which entitles our fixed-line customers to have access to our mobile services as well.

It is one way in which we can continue to enhance value proposition. The other one is to relaunch, if you like, our Pay TV offer.

Now we are -- as you know, we have significant satellite capacity available. Right now, I think we have the biggest satellite capacity available in the Brazilian market.

And as from April, we will be launching -- or relaunching, if you like, our DTH service. And our service will be quite different to what is in offer today in this market.

We will have more channels, we will have more HD channels, and we will have a lot more local global channels. Moreover, we will have a line-up of key different set-top boxes starting from very low end, which we call zappers, to hybrid set-top boxes, whereby you can actually use your broadband interconnection to enjoy some interactive services, and last, but not the least, the so-called PVRs, which are high-end boxes.

So we think that through our combination of more HD, we will have a lot better customer, a lot better quality of service, and by making sure that we have this kind of segmentation of our offer, we should be able to appeal to a much bigger audience than we have done today. Now considering that we are moving to a new satellite, we took a management decision to actually go slow in terms of sales in the fourth quarter, and most likely, in the first quarter.

Now obviously, it is in our interest at this stage to monitor that, because as we launch a new satellite, we will also have to engage in, if you like, redirecting some of the antennas and so on and so forth, and we prefer to do that if and when we have the new satellite and the new headend up and running, which is likely to happen around April. Slide 14, only to mention a couple of things here.

First, churn is low. Obviously, the sales have come down substantially.

We feel confident about the robustness of our processes, so now we are beginning to sell more. So what we try to pass as a message to you on Slide 14 is that when it comes to our Residential segment, January showed a much, much robust -- a better performance than December.

And also worth mentioning that in December, if you like, our performance was also impacted by the fact that we are rolling out this new workflow management tool, which forces us to actually train about 30,000 people across all our regional companies in Brazil. Now we've installed this workflow management tool in a number of states already.

That project will be completed by June this year, but as we stop progressing the implementation, obviously, it has an impact in our ability to translate sales into installations. So as you can see, some of the states are beginning to benefit from this new workflow management tool.

We are also beginning to install more customers and we're also beginning to sell more simply because we feel a lot more confident about our ability to control churn. When it comes to Residential, Slide 15.

Sequentially, our revenues were up 1.6%. If you look at the quarter-by-quarter performance, you will see that we have some atypical performance in the fourth quarter of 2012, but if you look at seasonally, you'll see that 1.6% represent an improved performance compared to the previous quarters.

And we continue to believe that with the investments that we are doing not just in beefing up our bundled offers, we should be able to continue to surprise the market with better performance than expected in the segment. In terms of mobility, when we said let's consolidate the business model of Oi, short-term, we should focus on prepaid because the barriers are much, much lower and it is in Oi's DNA to be, if you like, a prepaid champion.

Once we fixed, if you like, all of the churn issues and challenges that we have with the postpaid customer, I will be very happy to share with you that we are making good progress. Recharges are lead indicator of where the revenues are.

And recharges were up 5.3% in the fourth quarter of 2013. Obviously, there's work here to be done in terms of capillarity of our sales distribution.

And it is also worth mentioning that when you look at our overall performance, bear in mind that São Paulo is a drag on our performance simply because, as you know, in the past few years Oi has had back and forth decision about its presence in São Paulo. Hopefully, in the next few months, we will be able to share with you what our plans are for that important state, where we believe we also have a significant role to play in terms of the future.

But still, notwithstanding the São Paulo effect, we are still seeing recharges up by 5.3%. Now of course, we are continuously rolling out new services.

As you know, in the prepaid market, some of these new services require time. So that if you like retail customers understand the mechanics and the benefits of the offers, we've launched this offer, 2 to 4 DS, which has 2 benefits: one is to, if you like, create a price protection of BRL 0.10 a day.

Obviously, that's on the back of recharges of BRL 13, BRL 18, and BRL 25. We believe that we need to be rational in the way that we price our products.

And the good news is that we are seeing additional rational behavior in the Brazilian market when it comes to mobility. That -- one of the other advantages of this package is that people are not incentivized to recharge in the first week of the month.

Actually, they can actually recharge throughout the month. This includes, if you like, the quality of service that we also provide to our customers.

One other offer that we've launched that I would like to highlight is this Oi Galera offer, which is targeting the youth segment. Now the youth segment in Brazil is very important.

We're talking about a market where there are 60 million young people and this is clearly one segment where we believe structurally and strategically we need to make significant ingrowth in the future. This offer had a soft launch in November of this year, and we are now beginning to gather pace as, if you like, the back-to-school, if you like, campaigns are being now promoted actively.

When it comes to postpaid, Slide 19, you will see that very much in line with what we've indicated to the market, which is, we would like to focus on better, if you like, credit analysis and get better customers and lower churn. We have pretty much removed handset subsidies.

Early churn is declining, but the good news is that we are beginning to see some reversal in the revenue performance in terms of the postpaid because we feel more confident on our ability to control. What we're doing in postpaid, we have launched a new offer, and this new offer now is banked on our belief that we can grow data substantially in this market, especially as we start beefing up our 3G coverage and promoting, if you like, take-up of smartphones in our customer base.

So when you look at Page 21, our customer revenues were up 3.4%, but I also would like to highlight here is that our data contribution was up 11 percentage points. So today data is already contributing about 27% of all our sales, and we believe that there is still a long way to go in terms of realizing the full potential of data not just in Oi but in the Brazilian market overall.

In terms of Corporate, clearly for us, the name of the game is to change the mix of our revenues. Moving away from traditional commoditized fixed voice revenues to providing customers, if you like, value-added services, whether we're talking about data, IT, virtualization in terms of cloud.

But also, we'd like to highlight that in the past, not significant amount of efforts are being done to sell mobility to those that are fixed line customers of Oi. As we put that as a priority to our corporate customer sales force, we are beginning to see also some positive impacts.

So 9.3% growth in terms of mobile revenues only in this segment and still a long way to go. When it comes to new services, also, we'd also like to highlight the partnership of Oi with Portugal Telecom when it comes to the cloud.

This allows us to enlarge the scope of services that we offer to our Brazilian customers. Having said that clearly here, we are driving all the initiatives on the back of the work that Portugal Telecom is doing when it comes to the cloud ecosystem and white labeling it in order to present this to our customers in this market.

So IT data and, if you like, cloud will be important drivers of revenues in the Corporate segment. Having said that, it's a change that is in progress.

When it comes to SMEs, SMEs is clearly one of the segments where we've had significant backgrounds -- backlogs of sales in the past. When one thinks about bad debt provision, clearly, the SMEs segment is one of the offenders -- or important offenders to our performance.

Now we have a new team in place. We've started a major, if you like, transformation of the operational model; renegotiating, if you like, franchises, commissions that we pay to agents, so this commissioning model is also being changed.

We are building up an internal sales force. In the month of December, we completed the -- if you like, we were able to hire about 320 sales people.

We are training them on the job. So in January, we are still, if you like, seeing significant turnaround of the sales force because we would like to keep the best working for us and keep working this 300 to 400 team of internal sales.

So all these things are progressing, but I would say that whilst top line is still not there and it's a drag in terms of our overall B2B performance, but we are beginning to see already better churn and better ARPU. And this is a recurring theme in the fixed line residential.

We also saw better ARPU performance on the back of more successful monetization of installed customer base. In SMEs, we are also doing the same.

And as you saw, fixed and mobile ARPU was up about 15% on the back of the work that we're doing around changing customer mix, but also simplifying the portfolio of services that we are making available to those customers. So in summary, when it comes to B2B, clearly the focus is in improving performance through customer’s growth and new services growth.

Clearly here, we need to transform our mix of revenues away from traditional, if you like, voice revenues to more data, more IT and more virtualization, and of course, deliver on the turnaround of the SMEs segment where we believe there's still a lot to do. In terms of operations, allow me to start with the network first.

Significant amount of work being done to improve the quality, significant amount of work being done to improve the speed, the reliability, but also the coverage. Here, one of the ways in which we are being able to do more with less, because this CapEx will be very much under control and declining, is by promoting supply consolidation.

One other very important change is in the way that we are negotiating our contract, moving away from buying hardware or software to total cost of ownership. We have recently done significant rationalization of our suppliers when it comes to mobility.

We have, if you like, a prime supplier for 2G, 3G and 4G, different suppliers on each, if you like, technology. But clearly, promoting bigger take-up of share by the lead supplier.

Also worth mentioning here, we are directing efforts to enhance our presence and our capillarity. As I mentioned to you, one of the key strong points of Oi is the fact that we have presence with fixed line infrastructure in 4,800 municipalities.

We have increased the installation of ADSL ports. We are also increasing the average broadband speed.

Average broadband speed in what we call the high-potential municipalities was up about 27% December 2012, December 2013. When you look at those municipalities where we are taking, if you like, more modern infrastructure, it was up about 18%.

And so we continue to believe that 46% of our high-potential municipalities are now in the position to be targeted with new broadband promotion on the back of all of these investments that we are doing. One way in which we can control CapEx is by sharing infrastructure with our competitors.

And we're doing that very successfully with Telecom Italia when it comes to 4G. And it is our intention to continue to look at ways in which we can increment in which -- ways in which we can increase this relationship not just within but all other operators that are willing to work with us, so that, if you like, we can bring to bear synergies and make sure that we deploy capital where we can generate better returns.

So we are not willing or doing other initiatives when it comes to 2G, when it comes to 3G, and also, when it comes to fiber investments as well. Allow me now to mention a little bit about the network operations.

Network operations, this is significant amount of work that's been done over the last few quarters -- I'm sorry, few months. We have, if you like, gone from having 3 network operation centers to having just 1 here in Rio.

We used to have, if you like, field teams in 20 locations in Brazil. We now have field teams only in 3 locations.

All of these is improving our agility, our ability to respond quickly, but it's also contributing to increased efficiency, and of course, to reduce costs. If -- just one data point to share with you, when it comes to truck rolls, we have reduced significantly the amount of truck rolls associated with, if you like, alarms that we get from the systems whereby they have some calls [indiscernible].

So I think here, clearly, work is being done. Congestion has reduced significantly.

Interruptions, in terms of interruption per month, in the last 3 to 4 months have also improved substantially and we are also beginning to see substantial reduction when it comes to average waiting time when a technical call to the point of care. We are standardizing processes.

We are automating processes. So this is, again, one area where we are doing business process reengineering.

And recently, I heard that one of our competitors is going to do similar things to what we've done. The good news in here is that we have done already this centralization, and hopefully, 2014, we already spent benefit from it.

One other area of intense work is when it comes to transforming our field force tools and, if you like, skills. And from that standpoint, you will have seen on Slide 33 of our presentation that on the back of the work that we're doing in terms of rolling out this new management tool, this new workforce management tool called Click, field visits have come down 18%.

Net promoter score is very important word of mouth in terms of recommending Oi's services to friends and families. It's up 16 percentage points.

And when it comes to, if you like, making our technical people multi-skilled, which is absolutely fundamental and critical for us to underpin productivity gain, significant amount of added [ph] progress has already been made in that regard as well. So another interesting data point to share with you is this last Monday, 100% of earned installations in the State of Minas were already pre-booked.

Now as you start prebooking, chances are that your efficiency in terms of installation goes from 4 out of 10 to 7 out of 10. So I profoundly believe that these investments that we are doing will give us the structural competitive advantage and will end up also benefiting us in terms of perception of quality of service.

We also included for you on Page 34 some of the benefits in terms of costs of end-to-end processes that we have, if you like, reengineering. This is just for you to get a sense that the cost cutting that you are seeing in our company is underpinned not by short-term measures, of course, there are some tactical initiatives, low-hanging fruit, but we are also, if you like, doing significant business process reengineering thinking 3, 5 years out.

IT. IT is another area where, frankly, we believe that there is significant amount of work to be done.

We have just recently completed our productivity benchmarks. We concluded that we -- our software factories were not up to the standards that we wanted to manage them at.

We renegotiated a few contracts which had implicit, roughly, 20% to 30% productivity gains. So what basically this means is that whilst we may spend the same, we will get a lot more men and women hours so that we can put to work in developing new services and developing new services faster.

Also worth mentioning is the work we're doing with a number of suppliers, whereby, we're beginning to share risks, and we're also, of course, trying to do joint projects to promote synergies as well. Included in Slide 36 here just we could get a sense that it's not just about doing a new IT architecture.

It's also about reducing the complexity of what we have, but also aligning IT with network. Together, I think we can, if you like, arrange IT and network to serve better our customers and to be a lot more aligned with our business priorities are [ph].

In less than 4 months, we have already eliminated a number of apps. Still a long way to go, but we expect that 40% of our apps will be eliminated.

This means less overhead, this means less complexities, and of course, it means a lot more agility. One of the visions that we have is that IT will be very critical for telecom companies in the future.

This is what we'll dictate, in our view, the winners in our sector because it will make us, if you like, lean, and it will also make us a lot more responsive to our customers. So when you think about where we are trying to get to when it comes to IT, we are going to move away from being organized in silos to being organized by modules.

And the whole objective here is to ensure that we use standard solutions so we can reduce costs. We use standard solutions so we can bring to bear the benefits of scale, but also, we can work towards implementing modules that allow us to provide our customers with a superior convergent offer and experience in the future.

Talking about customers. Customer care is key to our company.

One of the key drivers of the bonus or annual bonus of the team at Oi for 2014 will be quality of service that we provide to our customers. Now when it comes to quality of service, we believe that investing in digital platforms is what makes sense, because it allows us to improve the engagement rate, it allows us to improve the quality of interaction, and of course, last, but not the least, it should also allow us to reduce cost.

Before I hand you over to my CFO, a couple of things I would like to mention. Slide 40.

I think this is a good slide in terms of summarizing what we're trying to achieve in terms of changing our cash flow profile. And as you know, key to us being able to change our cash flow profile and enhancing our financial flexibility is also to make good progress on asset disposals.

Since July, we have sold assets that have resulted in cash-in proceeds for our company of about BRL 4 billion. Two disposals that we did end of the year, Globenet on one hand, and mobile towers on the other.

We have not received cash yet. Both these companies will generate -- or both these disposals will generate cash-in of about BRL 3 billion in the first quarter of this year.

Now we've already received the cash from Globenet but the cash from the disposal of the mobile towers will be received at the end of this quarter. So what you will see in terms of our net debt and financial flexibility in the first quarter, you will already see the impact of these 2 transactions.

You only saw the impact on our numbers, accounting impact of the sale of Globenet. Now disposal of these assets allow us to reduce our cost of funding, allow us to enhance our financial flexibility, but of course, it will end up having an OpEx impact.

As I've said in my earlier calls, as I've understand [ph] this is a financing cost, but obviously, from accounting standpoint, we will treat it as an OpEx and the full year impact will be roughly BRL 650 million. Notwithstanding, we continue to believe that we need to continue to sell more assets.

We need to continue to identify more assets to sell. And in that regard, we will be selling more mobile towers end of the year, and we are also looking at our real estate portfolio in order to assess what potential there is for us to be able to monetize some of that.

One last word about the team. We have pretty much completed the reorganization of our company in terms of the team.

And allow me to say that the team is hugely motivated to deliver on results and from that standpoint, I think that these results are very encouraging because it also allows about 17,000 people here to believe that, yes, we can do it and we can do it faster and better and spending less. So let me now hand you over to my CFO.

And in the end, I will just have just a very quick wrap-up and then we will open up for questions. Thank you.

Bayard, please?

Thank you, Zeinal. Good morning, everyone.

Starting the report in financial review on Page 45. Net revenue totaled BRL 7.2 billion in the fourth quarter, 1.5% up from the previous quarter and recorded improvements in our sales.

This was due to the company's focus on quality of sales and profitability of the customer base. Residential segment net revenue totaled BRL 2.6 billion, 1.6% up in the quarter, reflecting the continuing focus on sales of bundled services combined fixed line, broadband and TV.

At the end of the quarter, 58% of the households served by the company had more than one Oi product, up by 5 percentage points in the last 12 months. As a result, residential ARPU grew by 7% year-over-year to almost BRL 74 in this quarter.

It's worth mentioning that the increase in ARPU was also due to the upselling initiatives, especially in the Pay TV. Net revenue from Personal Mobility came to BRL 2.4 billion, 2.5% over third quarter.

It is important to emphasize that service revenue moved up by 3.5% in the time period reaching BRL 1.7 billion. This performance reflects the continuous growth in Prepaid recharge volume, which reached record levels this quarter, and increase of data usage in both Prepaid and Postpaid segments.

As a result, data revenue accounted to 27% of the Personal Mobility service revenue at the fourth quarter, 3 percentage points up in comparison with the previous quarter. The business-to-business segment recorded net revenues of about BRL 2.1 billion, 0.5% more than in the previous quarter, mainly due to the favorable wholesale settlement agreements closed.

The company is working in turning around the SME segment by developing and aligning sales channels, revising commissioning models and adjusting the offers. In the annual comparison, the reduction in total net revenue was the result of a reduction in the MTR interconnection tariff, in reduction in revenue from handset sales due to the lower Pay TV pilots and a decrease in revenue from SME segment.

Moving onto Slide 46. Here, we present our operating cost and expenses, which totaled BRL 3.7 billion in the fourth quarter.

The main reasons for the OpEx decline in the quarterly comparison were: a gain of BRL 1.5 billion from the disposal of Globenet; a reduction of BRL 18 million in personnel costs influenced by a decline in employee overtime expenses; a reduction of BRL 85 million in the provision for bad debt sustained by the company's current focus on financial discipline to add more efficient collection procedures and a tighter credit requirements for new customers; a reduction of BRL 62 million in third-party service costs due to the slowdown of sales, call center cost decline due to the drop in the contract rate and lower client maintenance costs; an increase of BRL 40 million and BRL 33 million in handset sales and marketing costs, respectively, reflecting the seasonality of the year-end holidays. Moving on now to Slide 47.

Cost and expenses remained flat in the year-over-year comparison despite the fact that 2/3 of the OpEx is linked to inflation. This part on the line, the company focused on profitability, financial discipline and cost control.

Routine EBITDA moved up 1.7% in the quarter to BRL 2 billion, while the routine margin stood at 28%, flat over the previous quarter, but 5 percentage points higher than in the quarter ended June 30. This improvement reflects the sequential revenue growth and focus on cost control.

The disposal of Globenet resulted in gains of BRL 1.5 billion in fourth quarter '13. And additionally, Oi booked a gain associated with the reversal of labor contingencies amounting BRL 115 million, of which BRL 74 million were deemed to be related to prior years.

This gain was offset by one-offs, including provisions related to write-offs of certain fixed assets. Slide 48 shows the company's CapEx, which continue focus -- with continued focus on reducing the total cost of ownership.

Oi invested BRL 1.5 billion in the fourth quarter, totaling BRL 6.2 billion for the full year. 75% of the investment were allocated to the network, especially to improve and extend the 3G and broadband network, as well as the implementation and expansion of the 4G network.

Excluding interest and work in progress, 2013 CapEx amounted to BRL 6 billion. Operational cash flow totaled almost BRL 2 billion in the quarter.

In routine EBITDA terms, it came to BRL 484 million, 14% up in the quarter and 438% up year-over-year. Once again, the improvement in operational cash flow shows management commitment to leverage control and financial discipline.

On Slide 49, we show that financial expenses include mainly due to the height of base interest rates partially offset by the provision reversal of interest on PIS/COFINS over each of the assets due to the adherence to the refinancing program refis. Oi's net income reached BRL 1.2 billion in the fourth quarter impacted by a gain from Globenet disposal.

Moving to Slide 50, we show the evolution of net debt, which grew BRL 1.1 billion in the quarter, closing the year at BRL 30.4 billion. From this increase, a BRL 500 million was more related to operations and was due to payment of dividends, disbursement of PIS/COFINS over each of the asset and the receipt of the sale of the rights of usage of 2,000 fixed towers.

In regard to the order, approximately BRL 600 million, it is important to mention that it was significantly lower than in the fourth quarter of 2012. Thanks to greater financial discipline and operational efficiency.

The maintenance of positive working capital was due to the focus on the prepaid increase, an average payment terms to suppliers and improvements in collection procedures and credit dollars. Leverage control is one of the management's top priorities in order to reestablish the financial flexibility needed in a capital-intensive industry.

And generally, the company received the cash settlement of Globenet's sales in an amount of BRL 1.8 billion and anticipated a 3G license payment. It shows Oi's commitment with the correction of the cash flow trajectory and focus on its financial discipline.

The investments to file on Slide 51 shows a total debt of BRL 34 billion with a comparative selling cost, a balanced justification of interest rates and virtually no FX exposure. After hedging, interest rate exposure breakdown at the end of fourth quarter was: 49% CDI, 26% prefixed rates, 15% NDF interest rate, 10% price inflation.

The final slide shows Oi's liquidity position, which came to around BRL 11 billion, composed by BRL 3.9 billion in cash and BRL 7.2 billion in client facility available for disbursement at any time. The average debt maturity at the end of the quarter was 4.3 years, 60% maturing from 2017 onwards.

The fourth quarter cost of debt was 108% of CDI. I will now turn back the presentation to Zeinal for his closing remarks

Okay. Thank you, Bayard.

So just to wrap up, I think we're making good progress. The comparables with the -- with 2012 are difficult because as you know, we have high sales, but also be very high bad debt.

Notwithstanding, I think we are making good progress in terms of controlling our churn and also in terms of repositioning our offer so that we take advantage of the fact that we have all this capillarity, but also we have an installed customer base to whom we can sell more and therefore, our ability to monetize this is allowing us to grow, but also grow profitably. We are correcting our cash flow profile, and we are enhancing our financial flexibility.

You heard my CFO say that we have about BRL 11 billion of liquidity. More than 60% of our debt matures after 2017.

Also you saw that our EBITDA minus CapEx increased fivefold in this fourth quarter 2013 compared to fourth quarter 2012, and no ForEx exposure at Oi. Our net debt performance was better than the market had expected, notwithstanding, if you like, the fact that the cash relating to the submarine cables and the mobile towers would only come in, in the first quarter.

Also worth mentioning here is that we are correcting our cash flow profile, but we continue to invest for growth. We know in no circumstances, we will trade long-term for short-term.

We will take the more difficult path to transforming the business by doing business process reengineering, which will take time, but we believe that long term, we would like to enhance our competitive positioning in the market and take full advantage of what we think is the huge growth potential of Pay TV, broadband and mobile Internet in the Brazilian market. Financial discipline is key to everything that we are doing, and therefore, you saw us in the fourth quarter show again significant discipline, not just in terms of CapEx by trying to do more with less, but also in terms of OpEx.

Year-on-year, our OpEx was flat when inflation here runs at roughly 5.9%. In terms of governance, allow me to say that there were couple of things that the buy side and the sell analysts just talked to us about.

One was this tax refinancing program, whereby Oi was never in the past taken advantage of. This year, we paid over BRL 700 million.

We took advantage, and this provided us savings -- important savings in terms of future cash flow for Oi. Likewise, when it came to the 3G license for which we will pay 18% cost per annum, we were able to pay over BRL 500 million in the year first quarter, and just that payment alone will result in savings of roughly BRL 24 million in our cash flow in 2014.

So this goes to show that the governance has de facto changed, that we will not trade short-term for the long-term, and last but not least, allow me to say that we all at Oi believe that these are an encouraging set of results, we're making good progress against our strategic investment and strategic goals, and the team is motivated clearly to continue to do whatever we can to deliver on all the expectations and all the results that we promised the market. Thank you.

And my CFO and my team, we are all available to answer any questions that you may have. Thank you.

Two questions, if I could. First, a lot of speculation, obviously, about the consolidation in Brazil.

Not to ask specifically, but what would you need to do and when could you be ready to participate in the consolidation if it were to come? And then the second question is you mentioned more mobile towers could be sold?

Could you update us as far as how many more towers that could be that you might sell by the end of '14?

Okay, thank you. As you can imagine, it's very difficult for me to comment on the first part of your -- to comment on your first question because we are in the quiet period, because we are in the process of, if you like, documenting the proposed transaction with Portugal Telecom.

But what I can tell you, generally speaking, is that consolidation is always good for the market. We continue to believe that there's a lot of work to be done in the Brazilian market in terms of improving the profitability.

We believe that we can correct some of these imbalances that exist by being more rational, and the good news is that the market is behaving in a lot more rational way. That's as much as I can say in that regard.

With regard to mobile towers, we have about 1,500 to 2,000 additional towers that we could potentially sell. In addition to these mobile towers, we are also right now doing a significant -- a rather [indiscernible] due diligence of all of our real estate portfolio to ascertain whether we have real estate that we could potentially also sell, bearing in mind that we operate under concession and that we have certain restrictions that we have to live up to as part of that concession.

But that work is progressing, and we think that maybe in the second half of the year, we should be able to provide the market with some visibility as to what our real estate portfolio is and what potentially we could do with it. But at this stage, just mobile towers, about 1,500 to 2,000 that we could potentially sell during the course of this year.

Thank you.

I wanted to just see if I could better understand the outlook for margins in 2014. I think amidst the talk of not wanting to trade the long-term for the short-term, you've obviously got some very exciting plans for the residential Pay TV side and getting back into postpaid mobile.

But it seems that those are likely to come with some upfront costs, whether that's relaunch cost of promotion and advertising cost for the Pay TV or handset subsidies in postpaid. So if I think, in addition to that incremental cost from high rental fees on the tower sales, on the costs, maybe related costs to the World Cup in the summer, I think my question is really can you achieve all that you want to achieve in terms of repositioning the top line for growth without seeing some temporary pressure on margins and perhaps on EBITDA in absolute terms in 2014?

Okay. Paul, thank you for the question.

When we think about changing the cash flow profile of the company, I think we have a number of levers that we are using. First is we are disposing of assets.

That gives us access to, if you like, cash and a much lower cost, too, than our cost of funding. And we are instilling significant amount of cost discipline.

So everything that's discretionary and so on and so forth, we are cutting back on. We have changed the governance in the way that we actually deploy investments within our company, whereby we are giving our regional companies a lot more empowerment for them to actually dictate where is it that we should be investing.

We are also forcing our sales teams to actually sell in those exchanges where we have capacity available and therefore, we are being very granular in the way that we are approaching the growth opportunity in the Brazilian market. So it's not like one-size-fits-all and so it's region by region.

Sometimes, even city by city. And we're doing all this as part of this exercise that we need to do, which is to improve our cash flow, kill this cash burn and start paving the way for us to become cash flow positive and start paying down debt.

Now of course, when one thinks about the changing of the cash flow profile, those are the obvious things. Then you have CapEx, whereby we are also doing more with less.

But one cannot forget about the growth element because clearly, our fixed line -- our fixed costs are very high and the incremental returns from every dollar that we sell is significantly higher than the 27%, 28% margin that we have. So it's a fine balance.

You rightly pointed out that we have the World Cup. World Cup will be disruptive in the sense that chances are that we will have less working days than otherwise expected.

Probably, if you like, the booming impact is unlikely to be material in that regard, but we have a fine balance here that we need to achieve. But I would like to see my margin stay at the sort of level where they are today.

So we would like to continue to, if you like, reduce costs in order to create some flexibility for us to continue to invest in the growth in our business. Now I mentioned very briefly that we are seeing some rational behavior in the Brazilian market when it comes to pricing and mobility.

We think that, that's a plus in that regard. And finally, I think the industry is coming to terms with the fact that we need to improve the cash flow and the margin so that we can actually live up to the investments that will be required, bearing in mind the potential that exists in us being able to grow Pay TV and so on and so forth.

Now of course, when it comes to Pay TV, your point, we are not likely to grow probably at the full potential rate at which we could do it considering how good our offer is likely to be. But that's the fine balance that one needs to strike because as you know, connecting customers is expected.

So it's a fine balance that one will have to strike. We will be rational in the way that we price our services exactly because of that.

And we will try and make sure that people buy our services on the back of the quality and the services that we are offering as opposed to engaging in any kind of pricing pressure. Thank you.

Regarding the upcoming ANATEL increase, can you provide us a price or range for the price at which it will occur?

And as I mentioned in my earlier -- in the early question, we've been advised by our lawyers that based on the fact that Oi and Comco expected to issue shares as a result of this previously announced capital increase and so on. We cannot provide you with more detailed disclosure regarding this transaction in this call.

We are in a quiet period. So for more Information, I would advise you to actually look at all the filings that we will be making.

What I can say is what's already publicly known, which is that we are confident that we will be able to get the transaction done in the second quarter. That's the timetable upon which we are working.

And I apologize, I cannot go into more detail for legal reasons, but I would encourage you to look at all the information that we will be filing in the next few days so that you can get all the answers that you're looking for. Thank you.

That's okay. I understand.

And if I may, a second one. Regarding the regulatory upcoming topics I have, which do you think are key?

I believe the 700 megahertz option, probably the dedicated data link settlements or -- if you can comment on that, that will be great.

Okay. There has been some discussions about the 700 megahertz.

There, what I would like to perhaps just mention very briefly is that not a lot of details are available. And what's known publicly, and there has been even some news in the press, is that there are some tests actually happening right now to look at the technical interference between using the frequency for LTE, but also, if you like, moving TV to a digital world.

There were some press I think over the weekend, which I'm sure you have access to as well. And one needs to make sure that, technically speaking, whatever it is being sold actually can be used for whatever purpose that's being sold for and all the discussion that's happening right now is that there are some interference issues, which may end up putting in place, if you like, filters and so on.

So I think it's early days to talk about that whilst because I think one needs to be able to use the spectrum that one acquires. And one needs to make sure that technically, that will be possible and that nobody will be left out without any service, whether we're talking about 4G or 3G for that matter.

We forgot to -- what you mentioned about these discussions that sometimes appear about the company being able to renegotiate some liabilities with ANATEL. What, in Brazilian, we'd say [Brazilian].

That's something which we are looking at. At this stage, it's very early to mention what that may or may not mean for us.

Having said that, it's an opportunity for us to be able to sit down with the relevant entities and discuss those liabilities and hopefully, have an agreement which is good for both sides. And both sides would be the company on one hand and the citizens on the other.

Because we would expect to redeploy some of that cash, if you like, in beefing up our coverage, whether we're talking about broadband in schools or whether we're talking about taking mobility coverage to rural areas. So I think it's encouraging what's happening right now in that regard, but I don't want to run ahead of what may or may not happen.

I think it's early days. But it's clearly one good development that could -- we could potentially see during the course of this year.

And we will keep the market posted as and when these relevant information are available. Thank you.

I just had a couple of quick questions. First of all, are there any taxes on the Globenet proceeds?

That's the first one. The second one is the holdco net debt, it was BRL 4.5 billion at 6/30.

Do you have an updated number for 12/31? Maybe that's coming out in the coming days, but just if you had an updated number on that?

And then the last question was on the residential ARPU. There was a sizable increase that you guys pointed out from Q3 to Q4.

I was just curious if that's seasonal or generally, what you're seeing in that because the overall mix of different RGUs hasn't really changed much. So I'm really curious as to what's driving that and how you think about the sustainability of it.

Let me take the third question and then my CFO will answer the first and the second question. And again, thank you for your question and your remark.

What's happening right now is we are -- you have seen -- I think Slide 11 and 13 are relevant in the presentation to explain that. First and foremost, we are driving the penetration of services in the installed customer base.

And that's why we've said that one of the business objectives of Oi is to correct, if you like, is to change the business model of the company. And clearly, we are trying to move to double play, triple play.

So you have seen in that slide that households with more than one service in terms of our total number of households that we've serve has gone from 53% to 58%. Second thing is when you look at the Pay TV slide, which is Slide 13, you will also see that on average, 35% of new customers are upselling within 6 months.

So you actually come in with the basic package and then you end up buying the HD package, and then you'd end up buying some premium services on top as well. So again, we need to monetize the installed customer base that we have.

We know this customer base better than anybody. We don't need to run, if you like, additional financial risks if we continue to work with the people that we know and have a long history of relationship with our company.

So clearly, the focus in residential is actually to drive this penetration of additional services in the installed customer base. And let's see what happens in the next few quarters.

But clearly, this increase that we saw was quite encouraging, and this is clearly underpinning better performance in the segment compared to what people had expected. With regard to your first 2 questions, Bayard?

Okay. So regarding to taxes related to the Globenet deal, we don't have any taxes since we closed the transaction on December.

And on December, we have current and accumulated losses so the cash-in was not too late. Regarding the holding, that we do not speak on behalf of Companhia AIX Participacoes.

We manage from Oi down, so I mean, we cannot answer that question.

I was wondering if on working capital, your payables were up significantly quarter-on-quarter, and I was wondering if there's an explanation for that? And also on the receivable side, I think that you had sold some receivables in Q3, so I was just wondering if you did the same thing again in Q4?

Michel, thank you. No, we did not sell any receivables in the fourth quarter.

And what you actually saw is that we -- suppliers in the balance sheet went from BRL 3.9 billion to BRL 4.7 billion. So what we have been able to do in this fourth quarter is to renegotiate a number of our contracts with suppliers.

And in the new acquisitions that we are doing, we are also incorporating better and longer payment terms as well. So the working capital improvement was achieved on the back, if you like, of suppliers.

The stocks are pretty much flat. So from that standpoint, I think our purchasing unit has done a pretty quotable [ph] job.

Thank you.

Could you please give us any visibility on the expected CapEx level for 2014 and '15? How much lower from the BRL 6 billion level should we expect from the higher spending efficiency that you were expecting?

What I'm allowed to say because of this quiet period isn't that much. But what I can tell you is what I've said before, and I can repeat perhaps with even greater resolve, which is that we will have lower CapEx in 2014 compared to 2013.

And we will have lower CapEx because, on one hand, we are doing more sharing with our peer group of companies here in Brazil because we are changing the way that we negotiate certain contracts, moving away from just buying hardware, software to total cost of ownership, and because we obviously are bringing to bear the fact that we have scale in some of these new negotiations. Last but not the least, we have brought to bear disciplines in our company whereby we are, if you like, directing our CapEx where it makes business sense and financial sense for us.

So as opposed to us investing indiscriminately in Brazil, we are looking to those regions, those cities where you have better growth, where we have better market positioning in order to invest so that we can quickly turn those investments into returns for our company and for our shareholders. Thank you.

Quick question. I wanted to know if you've already factored into your numbers the CapEx for the 700 megahertz auction?

They're saying they could occur as early as August. And what we're hearing is that the minimum price by the government could be BRL 12 billion for all the operators.

So have you factored in Oi's share in participating in the auction?

The 700-megahertz spectrum, as you can imagine, is interesting for all operators. So Oi will invest in 700 megahertz and is interested in investing 700 megahertz.

Having said that, what's been out there, our press release, in one hand, and on the other hand, as I mentioned earlier in the early question, there are some technical issues that are still pending to be resolved in order for one to be able to ascertain whether that frequency will be able to be used for LTE and on what basis it will be used for LTE. So especially you being Brazilian, you will have seen, especially this last weekend, there was a lot of -- or some reports in the press addressing exactly that issue.

So in a nutshell, when I made the comment about the CapEx, it's obviously leaving to one side anything that we may do in terms of investing in acquiring spectrum. Spectrum is a scarce resource, so we would be looking for quiet [ph] certainly, and especially because it's 700 megahertz.

But it's early days to go into a lot more detail other than just to make clear that the comment I made to -- about CapEx did not include anything about the 700 megahertz, which will be treated as a separate project. Thank you.

I was wondering if you could clarify the amount of cash yet to be received in previously announced asset sales, please.

Okay. We still have to come in on first quarter 2014, roughly BRL 1.5 billion.

And we've received on January 17, BRL 1.8 billion. The BRL 1.5 billion is related to the sale of mobile towers, and the BRL 1.8 billion is related to the Globenet disposal.

Important to mention as well that we decided to anticipate the payment of the 3G license in January since this is pure expenses if you consider that we pay roughly 80% per annum in terms of cost for that license. So this is pretty much what we expect to have on the first quarter.

BRL 3.3 billion, being BRL 1.8 billion already received and BRL 1.5 billion to be received until March this year.

Okay. Thank you.

Thank you very much for being on this call. My team and I, of course, is available to answer any further questions or queries that you may have offline.

And apologies if we could not give you any insights as to the transaction that we are working on for legal reasons, but encourage you to look at any filings that we may do. And as I mentioned, we, at management team at Oi, believe that we have made good progress in terms of the results that we posted today.

And we are very much motivated to continue to do even more in the next few quarters. And of course, thank you again, and I hope to see you in the future.

Thank you. Bye-bye.