Oi S.A.

Bayard de Paoli Gontijo - CEO and Treasurer Flavio Guimaraes - CFO and Director of IR Pedro Falcao - Engineering Director

Mauricio Fernandes - BofA Merrill Lynch Walter Piecyk - BTIG Mathieu Robilliard - Barclays Mandeep Singh - Redburn Daniel Federle - Credit Suisse Jonathan Dann - RBC Christopher Beck - Astoria Capital Bilal Ishaq - Nomura Michel Morin - Morgan Stanley Pierre Safa - Goldman Sachs Nigel Murray - Pine River

Good morning everyone. I have here with me [indiscernible] B2C Director; [indiscernible] B2 billion Director; [indiscernible] Engineering Director; Jason Inacio, Transformation Officer Director; [indiscernible] Network Operations Director and our finance team, with Flavio Guimaraes, CFO and Investors Relations Director, [indiscernible] Administrative and Financial Director and also [indiscernible] in the IR team.

Good morning. Thank you for taking the time to join our call.

In the last several months Oi made great progress in stabilizing the Company and laying the groundwork for our longer term turnaround. We have also made great progress in improving our corporate governance, one chair, one vote, a new Board, a stable and lasting agreement with PT SGPS, and I'm happy to say that my senior management team is now addressing you, we are all addressing you as shareholders of Oi.

We know that we have to recapture the trust of the market and that will take time for you to believe that we'll do what we say. We hope that today's results are a small step toward rebuilding that trust.

We're working just as hard to rebuild the trust with our customers with the market and all of the institutions that we work with. Let me start on slide 2 by reiterating our promised guidance for 2015.

Our routine EBITDA in Brazil of BRL7 billion to BRL7.4 billion and of an improvement in operating free cash flow of BRL1.2 billion to BRL1.8 billion. We will meet our products.

We have had a good quarter operationally but our debt has still risen by almost BRL2 billion in the quarter and this year we'll continue to see rising debt albeit at a slower pace. But I want you to know that as shareholders of Oi, it's the ambition of everyone around this table with me to return the Company to a positive free cash flow.

I know that few of you believe this is possible and I have read and heard about the many reasons for that, that our wireless network quality is too poor to cell data, that our low levels of CapEx will create future problems to Oi, that our wireline business will continue to loose share to peers, that our contingent liabilities could pass to the balance sheet at any moment and that our financial expenses are crippling. Many of these criticisms are fair, but many are baseless or ill informed.

It will not be easy, but we believe that our company can return to positive free cash flow based on four building blocks. First, efficient CapEx and better, more integrated network.

Our network is not as weak as some of you like to make out and going forward we will increasingly enjoy the benefits of integration; second, more constructive regulatory relationships that should lead to lower cost, high returns on our CapEx and reduce liabilities, a new Oi is entering a new and better cycle of institutional relationships; third, EBITDA growth based on continued markets growth and cost control, which we have started to show you already; and fourth, continued monetization of assets and debt refinancing to lower our financial expenses. Now I'll move to slide 4 to discuss operational turnaround.

We see a consistent improvement in EBITDA and operational cash flow on the back of cost reduction in a more efficient colocation of capital. In the first quarter of 2015, Brazilian EBITDA rose by 12.8% year-over-year.

We have a 330 basis points improvement in margins, while operational cash flow rose by 88%. Literally all trends improved except those of our corporate segment that is arduously suffering from a tougher macroeconomic environment.

Total revenues reached BRL6.8 billion, a slight decrease of 0.5% year-over-year, but a recovery from the decline of 2% in the fourth quarter 2014. Oi is benefiting from a better price environment, the simplification of our tariffs and a consistent improvement in the mix of customers.

Our best results have been in personnel [indiscernible] where personnel revenues rose 8.8% year-over-year this quarter. On the cost side, routine OpEx decreased 2.9% on an annual basis and 8.6% sequentially in outstanding inflation of over 8%.

This represents a decrease of roughly 30% in real terms. Our CapEx has also fallen by over 80% as we pursue efficiencies in the business.

I know that this is a source of concern to some investors, about the sustainability of our plan and the risk that we cut too deeply or fall behind in terms of infrastructure. As such, we will devote time in this presentation to explain how we are making this cut and why we think our infrastructure allows us to stay in line with peers in terms of quality without spending as much.

Our plan to deliver the operational turnaround is on track, again, we reiterate our guidance for 2015. The slide 5 presents the operational highlights.

As you know, our focus is to improve the profitability of our existing base. In the first instance we have reduced gross adds and focused on reducing churn and improving the quality of an active customer base.

As part of the program, we have tightened our [indiscernible] on the prepaid segment in order to avoid payment and necessary taxes on inactive customers. Going to slide 6, we show the breakdown of our revenues.

I think this slide shows clearly that as we have promised, the third quarter of last year was the turning point for Oi. We have built on the recovery of the fourth quarter to deliver personnel revenue growth that more than offsets MTR declines.

Residential revenues continue to decline, but at a slower pace as we have improved our mix and pricing. Total customer revenues registered an annual increase of almost 1%.

On slide 7 we go into more details on wireless. Our 4% prepaid and data continues to deliver results on the personnel [database].

Recharges rose 7.6% year-over-year this quarter while voice customers are joining the data revolution delivering 56% year-over-year growth in data revenues. For all of you that argue that we cannot deliver or sell data, there is now 38% of the total customer revenues in line with peers.

This change is a result of several initiatives principally better data package offers, a push to increase smartphone penetration in our base and to convert 2G users to our 3G network that has more capacity. Smartphone users grew from 27% in first quarter 2014 to 49% this quarter.

Combined this led to an 8.8% increase in customer personnel mobility revenues in the same period and an increasing mobile ARPU excluding MTRs of 11.3% year-over-year. Turning to slide 8, in the residential segment, the profitability of the customer base is improving in all product lines.

The repositioning of our offers, faster average speeds in our broadband base and the initiatives of cross selling and upselling have resulted in an improved mix of gross adds. The ARPU of all three of our projects improved, residential ARPU grew 3.1% sequentially and 5.4% year-over-year staying at BRL7, BRL7.6 in the first quarter 2015.

TV continues to be in a strategic pillar for the residential segment. [Now this] connection of TV represents the loss of low end customers, the [indiscernible] of our Pay TV increased 48.8% on an basis reaching 1.2 million customers in this quarter.

Oi TV was a winner in the Pay TV category by the Brazilian Consumers Satisfaction Index 2014, a highly respected consumer research publication in Brazil. Slide 9 shows the highlights of the B2 billion segment where we continue to focus on improvement in profitability and cost reduction.

The tough macroeconomic environment will likely continue to present a headwind all year. In the corporate segment we have continued to reduce dependence on voice services by increasing the share of IT in other non-traditional services such as data, cloud services, data center and ICT sales.

We are successfully upgrading customer services without the use of additional investments, an important initiative towards cash flow regeneration. In SMEs we are reviewing sales channels portfolio of offers and post-sale processes in order to improve the efficiency, productivity as well as the quality of our customer base.

My team is actually aware of voice financial situation but as shareholders we are also very concerned about the long term sustainability of our company. Working together, we will find more and more ways to reduce our cost and deliver more to our customers.

The next few slides will give you more detail on our cost cutting efforts. Slide 10 shows the decline in cost of our Brazilian operations, down by 7.5% sequentially and 4.8% year-over-year despite an inflation of 8.1% in the last 12 months, a real decrease of almost 13% in the last 12 months.

FX, energy and inflation may pressure the next quarters but we are finding new savings to offset that. In this quarter, we reduced personnel cost by [BRL117 million] compared to the fourth quarter 2014, a 16.5% sequential decrease.

This came from several initiatives, such as reduction of the executive team, greater control of overtime and on-call optimizing employee shifts and a more restrictive hiring policy among other initiatives. We are creating and plan to keep a leaner, more efficient organization.

Third party services costs fell by BRL112 million sequentially or by 6.8%. This was mainly driven by lower sales commissions, a reduction in consulting and advisor services and the renegotiation of contracts.

Marketing expenses declined BRL123 million sequentially, naturally impacted by the seasonal effects but also due to a more rational approach with advertising campaigns. As I pointed out, in the last earnings call and you can see on slide 11 we developed a transformation plan in 2015 focused on profitability and cash generation along four main pillars, reduced spending OpEx and CapEx, improving working capital, improved customer profitability and finally optimized organization structure.

We set up a transformation office which drives the generation of new initiatives, a process in which the entire management team participates on a weekly basis. Nothing is sacred in this meeting and we all push each other to deliver more.

This has been crucial to finding more coordinated cost savings that are both deeper and more effective. The number of initiatives has grown from BRL134 in the end of 2014, to BRL290 in March 45% of which are already fully implemented and this is why OpEx has fallen so much in such a short time.

If you move to slide 12, we can see the progress in all the four pillars of the plan. By reducing spending, OpEx and CapEx on one hand, we're working to aggressively cut the necessary cost and more importantly, building an organization with an owner mindset.

On the other hand, on the key business and operating areas, we're working on smart reductions with our partners to reduce waste, increase efficiency and create value. The reductions of call center cost, fleet optimization and commissions are just a few illustration of the managed to sales initiative happening today on this front.

To improve the working capital, we're revising our stock management policies and outsourcing the handset management operations. In addition, we are working in collaboration with our suppliers, adjusting payment terms to more comparative practices.

In order to improve customer profitability, we are repositioning our pricing and focusing on aggressive commercial efforts on higher packages. This has considerably improved our new entrant ARPU.

We have seen growth of 15% on Pay TV and 17% on the fixed broadband. At last to optimize organization structure, we streamlined our headcount.

In addition, we effectively focus our effort on reducing headcount related cost such as over time and on call as well as travel and taxi costs. In summary, we showed that the initiatives of the plan are already delivering results.

Before on slide 13 we hope that the results of this quarter give you confidence that we are on track to achieve our guidance in both EBITDA and operational cash flow through growth of the key parts of our business and a vigorous and structured cost cutting program. However, it is important that you understand that our program is sustainable and that we are not sacrificing network quality for financial results.

On the contrary, we think that our infrastructure is the right one for this moment in the evolution of the Brazilian market and will deliver more to our customers while spending less. I will now walk you through a few slides that show why our network is at least as good as our peers and how we are delivering more with less with our network.

I've shown some of the facts on slide 15 before, but somehow they seem to be [indiscernible]. Oi is the only Brazilian operator with national wide backbone footprint 330,000 kilometers of fiber, from which more than [21,000] municipalities are served with optical fiber representing approximately 70% of the population.

This will matter more and more when it comes to delivering both wireline and wireless services. We are absolutely focused on leveraging this advantage for ur customers.

In order to sustain traffic growth and increase survivability rates, our transmission network is being upgraded being state of the art 100 gigabytes per second optically switched technology, OTM. This project to end this June, will use more than 30,000 kilometers of fiber connecting 12 states, reducing CapEx per megabyte per second by approximately 40% and increasing capacity up to 57 times.

Service available is a top priority is for us. This upgrade is being implemented in parallel with a set of strategic and CapEx free fiber swaps which will increase the number of states with three way backbones, routes from 19 to 24 by the end of this year.

We are also implementing a new architecture for our IP data communication broadband network towards a new 100 gigabytes per second [core] and a new architecture called Single Edge. This will enable a fixed and mobile broadband customers to make faster downloads, watch HD videos in high quality and make video and voice calls.

This change allows the most efficient use of available bandwidth in times of increased consumption, thus avoiding congestion and delays in the network. This will lower CapEx per megabyte per second in approximately 25% and generate the reduction of almost 50% in the amount of IP routers for customer service.

By 2015, 167 municipalities will be serviced by this platform, reaching nearly 6 million broadband subscribers and over 9,000 corporate customers. All this backbone initiatives led towards improving quality of experiencing of our fixed, mobile and B2 billion clients.

Voice, nationwide fixed footprint provides service to more than 50 million fixed voice customers from which close to 6 million have broadband access. Excluding the state of San Paolo, which we do not serve our fixed broadband footprint reached 97% of the population.

Today we have more than 3 million ports available and we can offer speeds of more than 10 megabytes per second to approximately 50% of our footprint. Our TV satellite platform offers the best portfolio of national and regional TV HD content and is key in monetizing our entire corporate infrastructure in a multi-play strategy.

On slide 16, we discussed the mobile network where we are facing huge data traffic growth. The number of subscribers have doubled in the last 12 months as we have migrated customers from 2G to 3G.

Despite this, we have delivered consistent improvement in ANATEL's quality metrics both in 3G data drop and 3G data access, mostly based on network optimization. As you can see, we have also shown consistent improvement in general complaints and quality specific complaints.

We will provide more data to anyone that wants to look, but I want to make it clear that our network offers quality that is similar to peers, but its improving more rapidly. On slide 17, we show some of the ways we're improving the efficiency of our capital expenditure through the renegotiation of contracts, vendor rationalization and monetization of existing assets.

For the transport network, as I have mentioned, the expansion of OI's backbone and the modernization of our IP network results in a substantial reduction of the cost per megabyte per second. Additionally, our mobile network was subject to a significant 3G centric optimization swap project where full contract reviews reduced by 32% voice MOU and data megabyte of CapEx, leading to vendor rationalization per state by 33% and significant capacity increase.

Our coverage strategy is also sustained by share initiative that started with the 4G rent share agreement and will be complemented by new network share agreement for the 2G, 3G footprint will increase our municipality coverage by 28% and 56% for our 2G and 3G network respectively. This kind of share agreement is also being used for fiber swaps to further improve our CapEx efficiency.

I am confident that not only is our cost cutting sustainable, but that our approach is increasing the sustainability and efficiency of our Company. Much of this was long overdue.

Understand the skepticism of the market, but Oi has changed and together with my team, we'll prove the skepticism is wrong. I'll now hand over to Flavio to go through our finance data with you.

Thank you Bayard and good morning. On slide 19 you can see that not with sustaining our effort that the company has been making, our debt is increasing.

Net debt increased to BRL32.6 billion, including the annual payment of Fistel maintenance fee and a non-recurring tax payment over intragroup interest on own capital, major part of which will be reverted as tax credit in the future. However, net debt related to operations increased only BRL6 million in this quarter versus BRL240 million burned in first quarter.

Instead, the main driver of our higher debt is financial expense driven higher by Brazil's macroeconomic situation and the resulting higher interest rate. Obviously we can only reach our ambition as positive free cash flow if we address our balance sheet just as vigorously as we have everything else.

On page 20 you can see that we are focused on three things; asset monetization, reducing financial expense and reducing and eliminating new liabilities by building a new and more constructive relationship with the regulator. On page 21 as you know, the sale of our Portuguese asset is almost complete.

All corporate approvals have already been concluded and the European Commission has recently approved the transition. We already have the covenants waivers and we are now working on the carve out to segregate the assets and liabilities that will be transferred to royalties.

We expect to close this transaction and cashing the proceeds in the second quarter. In the addition to the sale of PT Portugal, we're continuing to focus on the sale of our African assets as well as the monetization of some other assets like real estate.

Moving to slide 22, the sale of PT Portugal will leave us with a great deal of liquidity. Pro forma [fee has] to show that the closing of PT sale will increase our financial flexibility substantially for the next two years.

We are working around the clock to understand how we can use our newfound flexibility to improve our financial structure and reduce our annual interest expenses. Nevertheless the company is always looking for market opportunities to refinance short term debt aiming to improve its debt per file Now, I'll turn back to Bayard.

Thank you Flavio. Now let`s move to page 24 and you can see that we're improving the corporate government of OI.

As you know, on March 31, we announced that our Board approved an alternative structure that will allow us to deliver one share, one vote and the higher standards of governance. Additionally, we have announced a new Board with many independent directors that will be submitted to the shareholders' approval at the same meeting that will approve the alternative structure.

This meeting will be held after ANATEL approval. Lastly in the slide 25, as I set out in the beginning of the presentation, we are entering into a new cycle of better relationship with key situations in Brazil.

As a result of the more constructive approach, including the negotiation of the further investments in key areas of our infrastructure, we expect to see amend of the creation of new liabilities from regulatory filings. It's too early to say what exact numbers we will see come out of these discussions since there is a very wide range of topic being discussed.

But change in this cycle could affect all aspects of the quality of our services and our finances, liabilities, cost and returns and it could do so meaningfully. Our historic relationships with the key institutions in Brazil have been poor and counterproductive for everyone.

We want to change that with a different approach, better governance and an important moment for Brazil we think we can turn what has been a vicious regulatory cycle in to a virtuous one. The cost of our historical vicious cycle have run into the billions.

Poor quality and performance led to high customer complaints. Alongside customer cost, Oi has also suffered from the [looming fines] from ANATEL and other intuitions that have further contributed to our debt and our cost of borrowing and lent to our ability to reinvest in our business.

This cycle is counterproductive for everyone. It must stop.

And we believe that with our different approach and the more constructive conservations that we are having with many intuitions, we'll get there. As you can see, on the right hand side of the page, an improvement in quality and an adjustment in terms of conduct TAC should reduce the level of complaints by old customers and their associated cost and fines leaving us clear to invest more in the country's infrastructure.

On April 29, we filed the projects we hope to complete as part of the TAC or terms of adjustment of conduct with ANATEL. We have many other plans to improve Oi's infrastructure throughout the country.

I cannot say exactly what the outcome will be of our discussions with ANATEL and the government, but I can say that the potential impact on our company is significant. The relations are improving and that we at Oi are doing everything we can to get back to a virtuous cycle of investment.

Additional in in the slide 26, it's also important to be very clear that all of our liabilities have always been fully disclosed in our financial statement and in fact [indiscernible] of traditional deposits, we are over hedged in terms of potential balance sheet impacts from these contingencies. Finally, now in the slide 27 to wrap up.

We are making progress in all fronts and working better than ever as a team and we have lots more to do to achieve our medium term ambition of returning to positive free cash flow. But as your new shareholder who reads most of the research on the street and as the CEO of this company, I want to make it clear that Oi has changed.

Yes, we have a big challenge ahead, but with our operational turnaround and the work we're doing on the balance sheet Oi also has a huge opportunity. With that, I will like to open for questions.

Thank you.

Thank you good morning, Bayard, Flavio. One question about the cash burn in the quarter, I think you highlighted well what it was, the components and everything.

With the significant EBITDA improvement, will assume to be a rising cash burn I guess, a chunk of that was coming from Fistel payments in the quarter. But other than potential asset sales that can reduce interest expenses, what are your expectations in terms of being able to revert the negative cash flow including interest expenses going over the next few quarters.

Thank you.

Good morning Mauricio, thank you the question. I will start answering the question and then I will turn over to Flavio here who can give you more details.

But basically I mean I think all starts with the turnaround of the business and I think we're doing this. So if you take into consideration that the first Q 2014 we burned in operations BRL214 million, this quarter we were stable in that.

I think we have started to do the turnaround and this is key for our success in reducing the leverage. Then we have other pillars to attract the leverage of the company; one, is selling assets as you mentioned, we still have assets to sell, valuable assets such as the African assets, real estate and even towers; and finally, we will refinance our debt with the liquidity we're going to get from PT, we're going to use it to refinance, reducing cost and extending maturities.

With that, I'm going to turn to Flavio and he can complement with something he thinks is important.

Good morning Mauricio. As Bayard mentioned, with the liquidity after sale of PT and our larger debt portfolio, there will be plenty of opportunities to reduce the financial expenses.

Then we could also work in our extended maturities and improving the debt profile. The second thing I would like to realize is that given the recent -- the profile of the recent new issuers we do believe there will be opportunities to improve the debt profile.

Of course I'll not give you any details of specific transactions at this time. We are already working on it and we are confident that will get there and we can refinance part of the debt.

Thank you and if I may one more on the cost reduction which was impressive. What are the -- I understand the reduction is substantial and related to mainly your personnel and outsourcing cost.

I guess the question that remains is, how this is -- what is the residential impact of business going forward to remain competitive. I know you exercise the companies carefully avoiding that of course, but could you give us a good example of things of high areas in which it was excess cost and they were reduced and therefore we have a better picture of things that are being cut and therefore not affect the ability of the company to remain competitive.

Going forward I see this might [indiscernible] on a presentation with call centers fleet reduction, mobile commission, that kind of thing, but it's still a bit unclear exactly what are these that will not affect companies' ability to remain competitive. Thank you.

Thank you Mauricio. First I will like to emphasize what I have said in my speech.

Senior management of Oi today is addressing you as shareholders. So we are really, really focused on maintaining the business sustainable for the future and we're not going to do anything that could harm our future to give you a good numbers in the first quarter of our turnaround plan.

So I think this is important to emphasize and I said that on the speech but I will like to repeat just to make it clear on our objective here. As I mentioned as well, by the end of 2014 we had 134 initiatives in terms of recurring costs.

We have as of today 290. We're working all the lines of the balance sheet.

We're working where we do think it can do better and bring efficiency to the company. Nothing we have done and that you saw in the balance sheet will impact our business in the future.

In fact, it drew it back in a positive way because we are improving the capacity of the company, we're becoming a more efficient company for the future, personnel is down, third party services are down, network maintenance down, marketing down. Marketing, you might see numbers going up, because again, we are well known brands, for the beginning we believe it was not necessary to advertise that much, for the future, we might need to advertise more.

But I mean all those initiatives that we presented here as efficiency in terms of cost, they will remain with us and we will in fact approach more and develop other during the course of the year. So if the concern is, if this could harm our ability to perform in the future, definitely not, we're doing this as shareholders think about the future of the company.

Thanks. I want to go back to your comments on the four point plan.

The second point, maybe I missed this, when you were detailing it, but on the second point you were talking about, this is the plan for free cash flow, you are saying a more constructive regulatory and intuitional relationships. Can you just provide more color on how better a regulatory or institutional relationships help free cash flow?

Walter thank you very much for the question. We have mentioned that we are trying to rebuild our relationship with institutions in Brazil.

I think the file off the back term of adjustment of conduct to ANATEL was the first step into that direction. This for me is a game changer in our industry in Brazil and for Oi.

We are building a trustful relationship in that sense. And as you can see in our balance sheet, we have contingencies and we have provisions related to revelations and with that, we are aiming to avoid those future potential contingencies and liabilities, addressing past problems we have with clients and relations.

We have a more sustainable business for the future.

So that better relationship, tangibly we are going to see something happen with those contingencies liabilities whether its shifting to attack or otherwise being reducing or being reduced that's the tangible impact of free cash flow that these better relationship should generate. Do I have that correct?

Yes, I think we could think Walter, the reductions in OpEx, maintenance cost and then finally reductions in judicial deposits for the future.

Understood. One other question is -- I'm sorry to interrupt, go ahead.

No, just do not create any impression that we're going to fix this within couple of months. Of course it's possible that takes time.

We filed the tax 29 of April. The agency will analyze that until November.

In November they will approve it or not. We believe they will approve it.

And then we'll start deploying this by 2016 onwards. So again, for the medium to long term what we see here is an OpEx that is down and last judicial deposits related to those initiatives.

So if the TAC is approved, do we see that there was -- I know it's not on the balance sheet, but there was continued liabilities. If its approved, they get automatically reduced or is it just -- you're just saying it's not going to grow in the future from additional penalties.

I think we have here opportunities in not growing for the future definitely and we have opportunities here to settle disputes that we still have over the agencies that are not booked yet. So, part of the past problems we had that could become potential liabilities for the future will terminate.

And then future liabilities that could come because of failure to deliver the services or failure to meet obligations will terminate. So I think we'll address somehow the past and the future with those initiatives.

Okay, thank you. And then just, could you just comment a little bit on the network plan as far as just in terms of cell sites.

I mean I think if you look around the world, a lot of wireless operators are adding cell sites and [identifying] their networks. TIM Brazil, I can't remember was it yesterday or the day before whenever they reported, had talked about doubling the number of cell sites over the next two to three years.

Again the same thing is happening in the US. Can you give us a sense of how your cell sites may or may not grow over the next two or three years or what the current plan is?

Yes, I'm going to turn here to [indiscernible] our Engineering Director and he's going to answer that question. Thank you.

Good morning. Relative with the mobile network, there are several aspects that we have to take in consideration.

When we talk about evolution, we should talk about 4G and 5G and obligatory regulations towards 4G covenants to 2017 where we address series over 100,000 pop, will be mainly implemented with the 2.6 megahertz. And why is this?

Because none of the three operators that bought the 700 megahertz spectrum wanted to pay the more than BRL100 million to fulfill this obligation with other frequencies. And the reason for that is that with this obligation, they will have to put fiber in the sites.

So when we talk about more sites, Oi is the only operator that with series over 30,000 pop has 95% of this seat is covered with fiber and has basically 84% of these sites with optical fiber. This means that our fiber in the metro backbone in the mobile backbone is enough for us to expand with further sites and with lower cost.

If we talk about series under 30,000, we are the only operator that can cover this series with fiber, 40% of this series which is none of these operators can do and we have more than 60% of the sites with fiber. So expanding with further sites for us, in our point of view is not a must at this point, it will be in the next few years and we are in Brazil the only operator if we take in consideration that more than 50% of CapEx for new sites is in transport, we are better positioned than any other operator to fulfill this when we talk about expanding the throughput and the coverage of the mobile footprint.

Right, so you're saying that obviously you've got a great fixed infrastructure to put these cell sites on but did I hear you right that there is no real current plans for a cell site expansion at least in the next year or two?

We are expanding our footprint with several sharing agreements. And the sharing agreements that you know with the 4G, it will address also the increase of the footprint expansion in 2G and 3G with TIM.

I can tell you that when we will fulfill this, we will have a higher coverage than the market leader in 3G which is significant. And with this we can even in the future optimize our existing throughput when we [ally] both networks and overlap coverage because the technology that is going to be used allows this kind of action.

Yes, good afternoon. Thank you very much.

I have two questions please. First with regards to mobile, obviously a very strong performance in terms of the service revenues.

I was very surprised. To be fair, if we take a step back, this has been a pretty volatile line.

I remember Q3 was minus 11% and now it's moving up. So my question is should -- what would be a normalized rate of growth we should expect going forward?

Is it still going to be a [number of] quarter where we see a lot of volatility up and down? And related to that, I understand that this quarter the good performance is linked to some price increases.

Can you tell us what is the tariff discount you analyze you have today versus your peers, because I think you're still at a discount. And I guess the question is how much of a discount do you feel comfortable of having in order to not lose too much market share.

The second question has to do with net debt and I'm looking at slide 22 and actually specifically in terms of your liquidity position and your refinancing obligation. Obviously you list there up to BRL11 billion of liquidity linked to revolving facilities, commercial paper etc., etc.

And my question are these BRL11 billion set in stone or could the people that have credit to you just remove them for any reason, macro getting tougher, your operating trajectory being worse than expected etc., etc. So I'm trying to get a sense if all this liquidity that is in that chart is something we can count on 100%.

Thanks.

Thank you, Mathieu. I'll start answering the mobile question and then I'll turn to Flavio to respond on the liquidity.

So on the mobile, we recognize this has been a volatile line. We think that with the measures, with the initiatives we started to implement late 2014, this will reduce.

I mean the volatility will reduce. We have done several things here.

We have revised all the pricing of our offers and we are [aligning our offers] better today. Second, we have tried to simplify as much as we could the offers of the mobile business.

Our sector is dynamic; it is complex. It is difficult to our clients, to all of our clients, to all of the sector clients to understand what they're buying.

Therefore we're trying every to simplify their life with simpler offers. And we have done a part of this on the last quarter last year as well.

We're using also more and more what we call here active campaign management. Trying to be more effective on the offers, offering a [indiscernible] for our clients' [in fact] need.

Third, [recharges] are up because again we are increasing also in data to improve the quality of our revenues as well. Although I mentioned in my speech some of the analysts and investors, they do not believe we have capacity for data we are growing the data revenues at the same pace of our competitors.

In fact, we have 38% of our revenues in the mobile related to data this quarter. So I think that combining all those things, results are improving and we expect results to continue to be positive for the next quarters.

With that I'll pass to Flavio here to talk about liquidity.

Thank you Mathieu. So that's pretty much our position today.

They are fully available. Of course after we cash in the proceeds, we will reassess that and see whether it makes sense to continue with all of them or whether we would cancel some of them to avoid unnecessary [commitment] fees.

But again that will give us some comfortable. Of course the cash in will improve our flexibility and then we're going to reassess later on.

Hi, thank you for taking the question. I have two questions please.

First of all, in terms of your list of priorities, you list consolidation in Brazil quite low down on the list. I just wanted to understand is that genuinely the case?

Is it actually quite a low priority for you right now in terms of your list of priorities? That's the first question.

The second question is coming back to judicial deposits. I'm a little bit confused.

I know there was an earlier question and you tried to answer it. But what I understood from your answer is you're not saying that the current judicial deposit number will go down.

You're just saying through the actions you're taking, it may not go up because some of your contingent liabilities which are probable and that could become possible would probably not end up in there. Could you just give me a little bit more color on what -- on the -- are you expecting that judicial deposit number to reduce in net terms or just not grow?

Thank you.

Well, I'll start by the consolidation question. Thank you, Mandeep.

On consolidation, I think I have said that in the previous quarter. The better we do in terms of turning around the business is stronger we get to any consolidation.

I will repeat what I have said as well. I do believe the consolidation will happen in Brazil.

But the market has its own times and movements and we have to respect that. Therefore my top priority now is to turn around the business.

And get really stronger, the bigger the advantage when the time comes. So that's what I have to say about the consolidation.

We'll continue to do our homework here in terms of reducing costs, improving the top line, improving EBITDA and then we're going to be in better shape when the time comes. In terms of judicial deposits, well, first there's a new law in Brazil that grants judicial deposits in other words, cash with other financial instruments [indiscernible].

This is positive for all of us in Brazil. It means that a judge cannot any more accept only cash on disputes with corporates.

This could benefit us in the [low cost] deposits we have. I don't think it's going to happen in the short term, but it will happen definitely in the future and new judicial deposits.

Apart from that you're right. What I said is with the [TAC} we're going to have less deposits in the future.

Of course we're working how to reduce the current level of judicial deposits that we have. [indiscernible] it seems too high for corporate in Brazil.

So we're working on that, but we do not have any specific answer to that right now. So it's more on the future and on the new rule, on this new law that we believe we all in Brazil will benefit.

Okay, thank you. Could I just follow up on the first question please?

Yes.

So do you think there are in theory consolidation possibilities in Brazil that would not involve TIM in any way for you I mean?

Well, there are likely opportunities always [indiscernible].

My first question is about net adds. That seems to be negative in almost all the lines.

I would like to know if it's something to be concerned about and what could be done to improve net adds in all the segments in the future. And second, I would like to listen more details on the TAC because in my view, this is a chance to exchange [fines] for unprofitable investments.

So it was not expected to be an NPV priority for the company. So I'd like to understand better how that could be free cash flow positive for the Company if those unprofitable investments are not so unprofitable [like this].

Well, thank you. First, on the net adds, we are not concerned about growth.

I think I have said at the fourth quarter results that our target is not growth this year. It is [leveraging] our current base.

Of course the strategy will change in the future, but this year our focus is on profitability and fixing the balance sheet. Therefore we're not concerned at this moment about this.

And we're concerned about improving the mix of offers. We are concerned about being rational in pricing [as you've seen], improving the ARPU of all the lines of services we offer.

And this is happening. So again we are delivering what we have promised.

We have not [indiscernible] for this year growth in terms of [RGUs]. So I think with that [indiscernible].

Second question in terms of TAC. We're going to do the TAC with the CapEx we have available every year.

We have seen in the past, billing and [indiscernible] on the obligation. We're going to address this with the current CapEx we have.

We're going to address coverage, we're going to address billing, we're going to address everything we have to address. So we do not see this an NPV negative or positive.

We see this as structural changes that we need to do to improve the quality of our Company with our clients and the regulator. Therefore again for us it is totally positive to have the TAC available.

Again we are avoiding to allow disputes to become contingencies and maybe provisions for this Company in the future with the TAC. Therefore this is definitely positive and we are happy that we filed all the projects in late April and hopefully they will be approved in November.

Thank you.

Hi Bayard and team. It was a --I think you already answered the question.

So the plan now is to repay debt and fix the Company. Can I just ask a balance sheet question?

It's probably my lack of not being a trained accountant. But can you just quickly explain in terms of the long-term assets in escrow [indiscernible] by BRL1 billion, the contingency provisions increased by BRL0.5 billion and then cash actually went up.

Could you -- are you currently settling sort of off balance -- these off balance sheet contingencies? Is that why the cash with the judiciary is falling?

And does that have -- that has no impact on the consolidated cash flow that you report? But is there any way to settle these quicker?

First we are always trying to settle disputes in a way that we -- we resource the provisions and we release some cash from [indiscernible]. This is an ongoing situation [indiscernible].

If there are opportunities to settle and release judicial deposits and if we can resource provisions or contingencies in some cases. So this is an ongoing situation.

With regard to your question, I mean the accounting question, we're going to have to take a look on the lines and get back to you. Our IR they will contact you and probably make it available in our website.

We're going to have all these numbers here, but accounting, they don't have anything to do with the results we presented.

Okay. And then can I ask a separate question?

Of the interconnect costs that you show on the P&L, how much of those are mobile? And can they be -- do they fall again in the second quarter as you -- when did the MTR cut actually happen in the quarter?

Was it sort of part way through the quarter?

Just -- okay, if you go to slide 10 of our presentation, we have separated what is related to tariffs in the mobile on the first part of the chart and then we have traffic in the second part of the question -- on the chart. So I think with that, we answer your question here Jonathan because what is related to the mobile tariff cuts, it is -- to the first part of the question it amounts to BRL125 million.

And what is related to traffic and it's on the second part of the chart, it amounts to BRL127 million.

And was the termination rate cut effective from the beginning of Q1 or was it perhaps -- from memory the exact date of the MTR cut changes between late February through to March [Multiple Speakers].

There is definitely one month I think with the new tariff.

Okay. So it'll be slightly larger.

You'll get a full quarter in the second quarter. Okay, thank you.

Yes, hi. I just wanted to follow up on some comments you made around possible liability management.

And I was wondering if you could help us understand in a little more detail what the potential options you have are. And what the options are for the cash that you will get from PT, now that consolidation might be pushed out a little bit further.

Thank you Christopher. I'm going to pass here to Flavio who's going to answer your question.

Thank you. Well, that's a very large portfolio.

We have plenty of opportunity to play with it, with the different kind of instruments and conditions. Unfortunately at this point, I will not give in detail.

But I can promise that we are just waiting on it and we believe that we will be ready really soon [to dispose it].

And so in terms of just broadly speaking, are you thinking about paying down some of the short term debt with the cash from PT or you mentioned some potential to refi. And additionally on prior calls, I believe Bayard made some comments about keeping some of that cash on the balance sheet in order to think about potential consolidation.

So is that -- has that need been reduced and therefore some of the cash will be used more actively for these types of transactions?

Christopher, this is Bayard again. I mean what I have said as you mentioned was that some of the cash would be maintained in our balance sheet.

And that's exactly what we are evaluating here. How much of that cash we should pay out in terms of debt to reduce financial expense; how much of that we can maintain in our balance sheet.

And I think the key thing here is to be effective in using that liquidity in the benefit of refinancing our leverage. So tapping the market when there is a market there to refinance, to extend maturities and maybe reduce costs.

But that's only using this liquidity to refinance some of the current debt in a more effective way. So this is exactly what Flavio said.

This is the work he is doing with his team here in order to improve our financial situation.

Thank you. That's helpful.

Last one from me is just regarding the covenant which has now been pushed until 2016. But that will become an issue for you again.

It's important as you've said overall debt could continue to increase on a net basis and that's actually a gross ratio which it seems would be a challenge to get all the way down to 4 times. So can you just comment on any thoughts on how to deal with to deal with that one that kicks back in next year?

Thank you.

Thank you, Christopher. We are not giving guidance for covenants for the next year.

We are fine with the covenants. Last year I answered that question several times and said we're not going to breach on the covenants.

I'm going to say the same again. We're not going to breach to any covenants.

So when the time comes we're going to be there and again we're not giving any guidance right now.

Hi there. Thanks for taking the questions.

So I wanted to follow up on again very quickly in respect of some of the TAC proposals. You mentioned earlier that you had a belief that those would likely be approved.

I just want to understand what leads you to that belief. And then did I understand correctly that you don't expect any increase within CapEx or investment if those projects are approved.

And then, I also wanted to see if you would give any guidance around maintenance CapEx level. Obviously you've managed to roll in CapEx over the last couple of quarters and I'm just wondering what the lowest level could be and if where we're at the moment is kind of a sustainable level.

And then finally, perhaps you can give us a little bit of an update around Q2 trading. Obviously you've seen now a couple of quarters with sequential improvement with respect to EBITDA.

And I'm just wondering if that's something that you'd expect to continue in Q2. Obviously you're maintaining the 2015 guidance, so I'm just trying to understand given that you're ahead of schedule at the moment whether you're expecting a deterioration within the operating environment going forward.

Thank you very much. Let's start by the TAC question.

I mean we of course think the projects will be approved because we have followed all the regulations, all the rules of the TAC. [indiscernible] the team here is fully dedicated to TAC, working on those initiatives or they have worked on those initiatives to make sure we are in compliance with the regulation.

Therefore we expect those to be approved. Second, in terms of CapEx, first as I have said we're going to address all the initiatives with the current CapEx of the Company.

Those are not initiatives, new initiatives in the Company. Those are structural projects that we need to do in the Company.

And with that we're going to use the current CapEx of the company to address the projects. The current level of CapEx is sustainable for this year.

I'm not saying this is the guidance. I'm saying we, as I mentioned last quarter as well, we're going to have a better [result] in terms of cost reduction, the more we're going to have to invest in the business.

That's the challenge that the team here have and they've been working as a team very hard in terms of finding opportunities to reduce costs and with that get flexibility in our Company. So that's how I can answer you.

For the first quarter that was sustainable. It was enough for what we had to do.

And we are monitoring this all the time together with the engineering team and the business areas here and the transformation [office] we have established. The last question I think was about the second quarter.

No guidance for the second quarter. We reiterate our guidance for this year, BRL7 to BRL7.4 billion in [indiscernible] in Brazil and the improvement in terms of operational cash flow BRL1.2 billion to BRL1.8 billion.

And that's pretty much what I said. This is definitely a difficult year in terms of macroeconomic environment in Brazil.

I have pointed out some pressures we're going to have in terms of energy, in terms of the FX, in terms of inflation. So those things will definitely pressure on us.

It doesn't mean that we're not going to deliver the cost reduction. It means that we're going to have work harder to get where we want.

And again we are confident we're going to deliver on the guidance.

With regards to liability management, just going back to this point, you mentioned in the presentation that cash from the PT disposal acts as a natural hedge for PT debt. You also just mentioned that you may decide to leave some of those PT disposal proceeds on your balance sheet.

Can you just talk a little bit to hedging? In your current assessment, is it economically feasible first of all?

And second of all feasible [indiscernible] in the current environment to put currency hedges in place for all or part of Portugal Telecom into national finance bonds instead of holding euro cash on the balance sheet as a hedge.

Thank you. I'll pass you to Flavio who will answer your question.

Thank you. Well, initially the cash position will be the natural hedge for those PT debt and then of course once we use the proceeds we'll have to hedge it, the position to maturity.

So we are pretty much confident that those markets in the same way we have been doing with Oi's portfolio which is now 100% hedged, most of them till maturity and I would say that in a very good condition, that will be the same strategy for the PT debt. So I don't see that as a problem.

Of course we'll have to assess that carefully and we will be implementing the same strategy that we have been implementing for the last couple of years. So I'm not that concerned about it.

Yes, hello. I think most of my questions have been answered.

But I guess just on the liability management front, the only thing I'll ask is -- and thanks for sharing the information that you have so far which is very helpful. I guess the question is in terms of just looking at market conditions, do you have any priority or consideration around the accessing the local market versus foreign markets if you were to look at refinancing debt?

Or is that too premature to ask that question at this point. Thanks.

Let me answer this here and again Flavio can add some information. So first, liability management.

This is exactly what we're doing right now. We do not have details to tell you.

Part of our strategy is to work [indiscernible] and then when we have something concrete, we can execute. So we're not going to give any details again apart from the ones we gave you which is we're going to take advantage of the liquidity to do what we can do in terms of extending maturity and reducing costs.

In terms of market conditions, once again I respect the market conditions. We do see opportunities for tapping some markets.

But we're going to hope that -- we're going to evaluate that situation carefully to go to the market when it's appropriate, when there is a market to be tapped. So I think this is what we can say at this moment.

There isn't anything else to say about the liability management apart from what we have said. We're going to try to take advantage of the liquidity and well, we have to say it is a substantial liquidity that we can take advantage of.

Thank you.

Yes, good morning. First Bayard, congratulations on the achievements in changing the corporate governance and the Board composition as well as on the tariff cutting.

It looks like you're making very good progress there. And on the shareholder or [short] share ownership of the executive team I was wondering if you can give us a little bit more color as to how that works and how relevant that is.

And then secondly, in terms of the personnel expense reduction in this quarter, usually in Brazil it's a little difficult to lay off workers and it's a little expensive as well. And you didn't mention any severance expenses.

So I'm wondering if there were severance expenses that were included in that personnel line item. In other words should we expect the personnel line item to actually decline from here, if we don't have these severance expenses going forward?

Thank you.

Okay, thank you, Michel for your questions. First in terms of the shares, we are -- as I mentioned before we are all shareholders here.

The senior management, the exec we are all shareholders. I think that was extremely important in that process of transforming the business and transforming the organization.

So I think we are very happy about it and I would like to thank my Board for doing that for us. Now what we have done here was we used to have a formal long terms incentive plan here that we restructured with this new transformation plan we have for the Company.

And in that sense, a long term incentive plan from the past was transformed into shares, [simple] shares and distributed to the senior executives of the Company. So that's what I can tell you.

We're going to give you more information in our [indiscernible] which is our formal day to address such issues. But basically it's exactly what I'm saying.

We're all shareholders in the management who have [certain] shares, [indiscernible] dilution for our shareholders. But we feel still exactly the same way our shareholders in the sense of how the market behaves, what we're doing for the future and making sure we have a sustainable business.

Second, in terms of lay off of personnel or reducing the structure, we have done this basically in April. Therefore you don't see this impact yet in our [accounts].

But you do see already the [indiscernible] impacts coming from overtime, better control of shifts, the reduction is coming [indiscernible] in terms of executive there as well but the costs already [are paid]. So what you see there is an amount that will improve in the future because of the reduction done in April.

[indiscernible] next quarter, but then onwards, even a better number than the personnel. Thank you.

Yes, thank you. Good morning.

Thank you for taking my question. I just have a quick question about the assets held for sale in Africa.

So they've fallen by -- looking at the balance sheet you gave, by BRL1 billion quarter over quarter. So could you please explain, give a little bit more color about the developments and what's going on and what your thoughts are as to that asset.

Thank you.

This is [indiscernible] basically assets, euro and dollars against reals. So again the assets available for sale, those available assets are generating good cash and we are working on this.

So this [indiscernible] effect.

Well, thank you very much for joining us for this conference call. I would like to thank again my team here.

I think we have done a good job in the first quarter. Results are improving and we will keep the momentum.

And again we're working as a team and shareholders of this Company to improve our quality of service, to improve our relationships with institutions in Brazil and give returns to our shareholders. Thank you very much.

See you next quarter.