The market for securities issued by Brazilian companies may be influenced, into varying degrees, by economic conditions in both emergingdeveloping and developed market countries.economies. The reaction of investors to developments in other countries may have an adverse impact on the market value of securities of Brazilian companies. Crises in other emerging countries or the economic policies of other countries may reduce investor demand for securities of Brazilian companies, including our preferred shares. Any of the foregoing developments may adversely affect the market value of our preferred shares and hinder our ability to access the capital markets and finance our operations in the future on acceptable terms and costs, or at all.

Brazilian law allows that, whenever there is a significant imbalance in Brazil’s balance of payments or a significant possibility that such imbalance will exist, the Brazilian government may impose temporary restrictions on capital outflows. Such restrictions could hinder or prevent the holders of our preferred shares or the depositarycustodian of our shares in Brazil, Citibank N.A. (acting as the agent for the ADSsdepositary), from remitting dividends abroad. The Brazilian government imposed restrictions on capital outflows for a six-month period at the end of 1989. If similar restrictions are introduced in the future, they would likely have an adverse effect on the market price of our preferred shares and ADSs.

Our business is subject to extensive government regulation.regulation, including any changes that may occur during the period of our authorization to provide telecommunication services. ANATEL, which is the primarymain telecommunications industry regulator in Brazil, is responsible for,regulates, among other things:

For further information concerning specificBrazil’s telecommunications regulatory framework is continuously evolving. The interpretation and enforcement of regulations, the assessment of compliance with regulations and the flexibility of regulatory authorities are all marked by uncertainty. We operate under authorization from the Brazilian government, and our ability to retain this authorization is a precondition to our success. However, because of the regulatory framework, we cannot provide assurances that ANATEL will not adversely modify the terms of our authorization. Furthermore, according to the terms of our operating authorizations, we are obligated to meet certain requirements and to maintain minimum quality, coverage and service standards. Failure by us to comply with these requirements may result in the imposition of fines or resolutions issuedother government actions, including the termination of our operating authorizations. Any partial or total revocation of any of our operating authorizations would have a material adverse effect on our business, financial condition, revenues, results of operations and prospects. In recent years, ANATEL has also been reviewing and introducing changes in the applicable regulation, especially regarding the interconnection fees among telecommunications service providers in Brazil. Interconnection fees, which are fees charged by ANATEL, refertelecommunications service providers to section “Item 5.A — Operatingeach other to interconnect to each other’s networks, are an important part of our revenue base. To the extent that changes to the rules governing interconnection fees reduce the amount of interconnection fees we are able to collect, our businesses, financial conditions, revenues, results of operations and Financial Reviewprospects could be materially adversely affected.

Therefore, our businesses, results of operations, revenues and Prospects— Operating Results — Regulatory and Competitive Factors.”financial conditions could be negatively affected by the actions of the Brazilian authorities, including, in particular, the following:

We operate our business under a concession granted by the Brazilian government.government offering fixed line services in the State of São Paulo. According to the terms of the concession, we are obligated to meet certain universal service requirements and to maintain minimum quality and service standards. For example, ANATEL requires that we satisfy certain conditions with respect to, among other things, expansion of our network to provide public pay-phone service for all locations with populations in excess ofa population over 100 inhabitants, expansion of our network to provide private individual telephone service for all locations with populations in excess ofa population over 300 inhabitants, and, with respect to quality of service, targets for the number of call completions. Our ability to satisfy these and other terms and conditions, as well as others, may be affected by factors beyond our control. Our failure to comply with the requirements of our concessio nconcession may result in the imposition of fines up to R$50.0 million or other government actions, including the termination of our concession. Any partial or total revocation of our concession would have a material adverse effect on our financial condition and results of operations. Moreover, the concession agreements establish that all assets owned by the Companycompany and which are indispensable to the provision of the services described in such agreements are considered reversible assets and are deemed to be part of the concession assets. The assets will be automatically returned to ANATEL upon expiration of the concession agreements, according to the regulation in force at that time. On December 31, 2010, theThe last net book value of reversible assets reported to ANATEL is dated December 31, 2013 and estimated at R$6.97.3 billion,

The expiration date of the original concession agreements was December 31, 2005, but it has since been renewed as of December 22, 2005 for an additional 20-year term. The current concession agreements contain a provision allowing ANATEL to review the concession terms in 2010, 2015 and 2020. This provision permits ANATEL to update the renewed concession agreements with respect to network expansion, modernization and quality of service targets in response to changes in technology, competition in the marketplace and domestic and international economic conditions.

On December 30, 2010,12, 2013, as part of a review of our concession agreement for fixed telephone line services, ANATEL amendedissued a public consultation, pursuant to the Company’sterms of our concession agreementsagreement. The public consultation allowed members of the public to allow further amendmentscomment on May 2, 2011, December 31, 2015certain topics such as service universalization, rates and December 31, 2020.  These further amendmentsfees and quality of services, among others. Depending on the comments of the public and decisions made by ANATEL, it may establish new conditionsdecide to revise our concession agreement and targets for universal accessimpose obligations on us that may have a materially adverse effect on our financial condition and quali ty, taking into consideration the conditions prevailing at the time, including complementary resources.results of operations.

Growth in the telecommunication industry in Brazil decelerated in 2013, mainly due to regulatory changes, such as cuts in mobile termination rates and expectfixed to mobile calls, which directly impact the revenues of telephone operators. However, competition remained strong, despite the weak macroeconomic environment, due to regulation initiatives aimed at stimulating competition, increasing the adoption of services and reinforcing the quality of services. The market has been marked by efforts to stimulate voice and data usage, and to reduce the effects of fixed-mobile substitution. Convergent solutions, which give customers the option to purchase a package of services, are becoming a trend. Furthermore, in 2013 there has also been an increase in competition regulation aimed at stimulating competition, increasing the adoption of new services and reinforcing the quality of services delivered.

Brazilian antitrust regulation is based on Law No. 12,529 of November 30, 2011, which generally prohibits any practice or transactions aimed at restricting free competition, dominating the relevant market of goods or services, arbitrarily increasing profits, or abusively exercising a dominant market position. The new antitrust law has altered several practices in Brazil; particularly, it established a pre-merger notification regime with new turnover thresholds and extended the maximum period for merger review procedures to 330 days from 240 days. We cannot continue to experience,expand our growth through acquisition of other service providers given the antitrust objections of ANATEL along with the fact that we currently already render SMP service all over the country. Consolidation of other competitors in the telecommunications market adjustments in which providers take actions in order to compete for clients, especially corporate and premium residential clients.  Such actions result inwill increase the competitive pressure on market prices and shiftsus due to the increase in market share.their economies

Under the SMP regime, our mobile subsidiaries have received payments for the use of their networks in combinationaccordance with a more aggressive number portability strategynetwork usage payment plan, which includes outbound long-distance calls. Until June 30, 2004, SMP service providers were able to opt to establish a price cap or freely negotiate our interconnection charges. In early 2005, ANATEL began permitting free negotiations for mobile interconnection, or VU-M fees and by July 2005, local-fixed concessionaires and mobile operators had reached a provisional agreement with respect to VU-M fees for local calls, or VC1 (the agreement guaranteed a 4.5% increase in mobile operators’ fees). ANATEL approved that may reduceprovisional agreement and, in March 2006, approved another provisional agreement of a 4.5% increase for VU-M fees for long-distance calls, or VC2, VC3, and international calls, among the same operators that had made the VC1 agreement in July 2005. In July 2007, ANATEL approved a provisional agreement among us and the fixed-line operators Telemar, Brasil Telecom, CTBC Telecom and Sercomtel and the mobile operators for interconnection fees for VC1, VC2 and VC3 calls that provides for an annual adjustment of approximately 1.97% to interconnection fees in Region I (Telemar’s Region) and an annual adjustment of approximately 2.25% in Region II (Brasil Telecom’s Region) and Region III (Telefônica’s Region). The current rule is the free negotiation of fees, subject to ANATEL regulations.

Resolution No. 576/2011 established rules for adjusting the VC fees, with consequent repass for the VU-M (mobile termination rate). It has also determined gradual annual percentages decreases from 2012 to 2014 for these fees. On April 5, 2013, ANATEL published Act 2222 in the Official Gazette, which led to a reduction of 8.77% on the value of our customer base.mobile termination rate.

We face increasing competition from cellular service providers.

The inflation index for the last available frequencies for 3G services (third generation mobile phone services), allowing entry oftelecommunication prices adjustment rely exclusively on external factors and we have little control over it. If new competitorsinflation adjustment mechanisms, or any other mechanism chosen by the Brazilian government in the market for wireless broadband communica tion, further increasingfuture, do not adequately reflect the risktrue effect of potential negative impactsinflation on our business. Any loss of market share as a result of competitionprices, our results from cellular service providersoperations could be adversely affected.

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

The advent of new products and technologies could have a variety of consequences. These new products and technologies may reduce the price of our services by providing lower-cost alternatives, or they may also be superior to, and render obsolete, the products and services we offer and the technologies we use, thus requiring investment in new technology.

In August 2010, ANATEL established a new policy regulating the 2.5 GHz spectrum, which requires MMDS (MultichannelMultichannel Multipoint Distribution Service)Service, or MMDS companies, including us,Vivo, to return until 2013, a significant portion of the spectrum theywe currently own and to offer cable TV on a primary basis.  Throughbasis, by 2013.

On June 12 and 13, 2012, ANATEL held a public bidding for 273 lots of 4G, on the 2,500 to 2,690MHz frequencies. We acquired the “X” band, with a nationwide coverage, for R$1.05 billion.  Given the rules of the public bidding process, which limited the total spectrum each service provider could hold within this initiative,frequency, we agreed to relinquish bands “P,” “T” and “U.” used for MMDS services within 18 months of obtaining the “X” band. Sky and TIM have preferred rights for the acquisition of the “T” and “U,” respectively, and for the “P” bands, in the cities of Curitiba and Rio de Janeiro and Oi have preferred rights for the acquisition of the “P” band in the cities of São Paulo and Porto Alegre.

Under band “X,” which we acquired in the bidding process, we will be required to provide infrastructure in rural areas in the states of Alagoas, Ceará, Minas Gerais, Paraíba, Pernambuco, Piauí, Rio Grande do Norte, Sergipe, and countryside of São Paulo, for a total of 2,556 municipalities.  The timetable for providing infrastructure in the rural areas requires that 30% of municipalities have infrastructure set up by June 2014, 60% by December 2014 and 100% by December 2015, with a transmission rate of 256Kbps and by December 31, 2017, all of these municipalities will be expected to have 1Mbps.

Currently, there are approximately 250 municipal laws that limit the installation of new antennas for mobile service, which has been a barrier to the expansion of mobile networks.  Those laws are meant to regulate issues related to urban aspects and the alleged effects of the radiation and radiofrequencies of the antennas. Initiatives for the approval of a federal law that establishes new guidelines to create a consolidated plan for the installation of antennas, have been taken. However as long as the municipal laws remain unchanged, the risk of noncompliance with regulation and of having services of limited quality in Brazil, thus restricting themcertain areas will exist.

Additional antenna installation is also limited as a result of media and other reports, which have suggested that radio frequency emissions from increasing service penetrationbase stations may cause health problems. These concerns could have an adverse effect on the wireless communications industry and, superior data communication.possibly, expose wireless providers, including us, to litigation.

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

We are organized under the laws of Brazil, and all of our executive officers and our independent public accountants reside or are based in Brazil. Also, fourseven of our sixteentwelve directors reside or are based in Brazil. Substantially all of our assets and those of these other persons are located in Brazil. As a result, it may not be possible for holders of the ADSs to effect service of process upon us or these other persons within the United States or other jurisdictions outside Brazil or to enforce against us or these other persons judgments obtained in the United

In accordance with Brazilian Corporate Law and our bylaws, holders of our preferred shares, and therefore of our ADSs, are not entitled to vote at meetings of our shareholders, except in limited circumstances set forth in “Item 10. Additional Information—B. Memorandum and Articles of Association.”

Holders of our preferred shares will not be able to exercise the preemptive rights relating to the preferred shares underlying your ADSs unless a registration statement under the U.S. Securities Act of 1933, as amended, or the Securities Act, is effective with respect to the shares underlying those rights, or an exemption from the registration requirements of the Securities Act is available. We are not obligated to file a registration statement. Unless we file a registration statement or an exemption from registration applies, holders of our preferedpreferred shares may receive only the net proceeds from the sale of their preemptive rights by the depositary, or if the preemptive rights cannot be sold, they will lapse and you will not receive any value for them. For more information on the exercise of these rights, see “I tem“Item 10. Additional Information—B. Memorandum and Articles of Association—Preemptive Rights.”

The ADSs benefit from the certificate of foreign capital registration, which permits The Bank of New York,Citibank N.A., as depositary, to convert dividends and other distributions with respect to preferred shares into foreign currency, and to remit the proceeds abroad. Holders of ADSs who exchange their ADSs for preferred shares will then be entitled to rely on the depositary’s certificate of foreign capital registration for five business days from the date of exchange. Thereafter, they will not be able to remit non-Brazilian currency abroad unless they obtain their own certificate of foreign capital registration, or unless they qualify under Resolution No. 2,689 of the Central Bank of Brazil, dated January 26, 2000 and issued by BACEN, which entitles certain investors to buy and sell shares on Brazilian stock exchanges without obtaining separate c ertificatescertificates of registration.

If holders of ADSs do not qualify under Resolution No. 2,689, they will generally be subject to less favorable tax treatment with respect to our preferred shares. There can be no assurance that the depositary’s certificate of registration or any certificate of foreign capital registration obtained by holders of ADSs will not be affected by future legislative or regulatory changes, or that additional Brazilian law restrictions applicable to their investment in the ADSs may not be imposed in the future.

Brazilian Law No. 10,833 provides that gains on the disposition of assets located in Brazil by non-residentsnonresidents of Brazil, whether to other non-residentsnonresidents or to Brazilian residents, will be subject to Brazilian taxation. The preferred shares are expected to be treated as assets located in Brazil for purposes of the law, and gains on the disposition of preferred shares, even by non-residentsnonresidents of Brazil, are expected to be subject to Brazilian taxation.

Based on the fact that the ADSs are issued and registered abroad, we believe that gains on the disposition of ADSs made outside of Brazil by non-residentsnonresidents of Brazil to another non-Brazilian resident would not be subject to Brazilian taxation, since it willthey would not fall within the definition of assets located in Brazil for purposes of Law 10,833. However, considering the general and unclear scope of Law No. 10,833 and the absence of judicial court rulings in

Telefónica Internacional S.A., or Telefónica, Internacional, our principal shareholder, currently owns directly and indirectly approximately 85.57%91.76% of our voting shares and 87.95%73.81% of our total capital.capital stock. See “Item 7. Major Shareholders and Related Party Transactions—A. Major Shareholders” and “Item 7. Major Shareholders and Related Party Transactions—B. Related Party Transactions.” As a result of its share ownership, Telefónica Internacional has the power to control us and our subsidiaries, including the power to elect our directors and officers and to determine the outcome of any action requiring shareholder approval, including transactions with related parties, corporate reorganizations and the timing and payment of our dividends. Given this degree of control over our company, circumstanc escircumstances could arise under which the interests of Telefónica Internacional could be deemed to be in conflict with the interests of our other shareholders.

We are registered with the CVM as a publicly held company and our stock is traded on the BM&FBOVESPA.&FBOVESPA under the symbol “VIVT3” (formerly TLPP3) for common shares and “VIVT4” (formerly TLPP4) for preferred shares. We are also registered with the SEC in the United States and our ADSs are traded on the New York Stock Exchange, or the NYSE.NYSE under the symbol “VIV” (formerly TSP). Our headquarters are located at Rua Martiniano de Carvalho, 851, 01321-001,Avenida Engenheiro Luis Carlos Berrini, 1376, 04571-936, São Paulo, SP, Brasil.Brazil. Our telephone number is 55-11-3549-7200.55-11-3430-8901 and our website is www.telefonica.com.br/ir. The information on our website is not part of this annual report on Form 20-F.

We provide fixed-line telecommunications services in the Statestate of São Paulo under concession agreements granted in 1998 by the Brazilian government in connection with the restructuring and privatization of the Telebrás System, as described below. The concession, which was renewed in December 2005, authorizes us to provide fixed-line telecommunications services in a specific region, which includes all of the Statestate of São Paulo except for a small area (Sector 33), where a previously existing fixed-line service provider, CTBC Telecom, which was not part of the Telebrás System, continues to operate independently.

In addition to the services that we provide under the concession agreements of 1998, we also provide international and interregional long-distance services, as permitted under Act No. 23,395 of March 1, 2002, underpursuant to which ANATEL also acknowledged the accomplishmentcompletion of our network expansion and achievement of universal service targets as of September 30, 2001.

On October 31, 2007, the board of ANATEL approved, from a regulatory perspective, the association between Grupo Abril and the Company,company, which involved, among other transactions, the acquisition of all of the operations of Multichannel Multipoint Distribution Service, (MMDS),or MMDS, a special license that allows us to offer Pay TV and broadband services through our former subsidiary Telefonica Sistemas de Televisão S.A. The transaction continues to be analyzedwas fully cleared by ANATEL, solely with respect toregulatory and antitrust matters, and will be finally reviewed by CADE.agencies.

In 2008, the Companywe pioneered the launch of internetInternet access through fiber optic cables (“Fiber to the Home” - FTTH) for non-commercial), or FTTH to noncommercial customers. Aside from the offer of an internetInternet connection with high-speed capacities of 30 Mbps and 100capabilities up to 200 Mbps, various bundles have also been offered, including Wi-Fi, Digital TV, 2,000 minutes of local and intra-state calls, anti-virus protection, call identification, technical assistance and specific call center assistance.

On February 16, 2009, ANATEL extended the authorization until 2024 for the use of the spectrum frequencies associated towith the MMDS in the cities of São Paulo, Curitiba, Rio de Janeiro and Porto Alegre.Alegre through 2024. These authorizations were converted into SEAC (Paid TV license) in 2013 but due specific requirements set forth in the 4G bid notice, the Group shall transfer or waive such RF authorizations until May 2014.

As of December 31, 2010,2013, our telephone network included 11.3 million fixed lines10,750 thousand fixed-lines in service, 3.3 million77,240 thousand mobile accesses, 3,922 thousand broadband clients and 0.5 million641 thousand Pay TV clients. Of the access lines in service, approximately 70% were residential, 24% were commercial, 2% were public telephone lines and 3% were for our own use and testing.

After the incorporation of Telecomunicações Brasileiras S.A. - –Telebrás in 1972, Telebrás and its operating subsidiaries collectively,(collectively, the “Telebrás System”) acquired almost all of the telephone companies in Brazil and monopolized the provision of public telecommunications services in virtually all areas of the country.

In May 1998, just prior tobefore its privatization under the General Telecommunications Law, the Telebrás System was restructured to form, in addition to Telebrás, twelve12 new holding companies. Virtually all assets and liabilities of Telebrás were transferred to the new holding companies, or the “new holding companies.”

In July 1998, the federal government privatized the Telebrás System, selling substantially all its shares in the new holding companies, including TelespPar and its shares in TSP and CTBC Borda, to private sector buyers. As a result of a subsequent reorganization of SP Telecomunicações on January 10, 1999, one of its subsidiaries, SPT Participações S.A., or SPT, became the controlling shareholder of TelespPar.

On August 3, 2000, the wholly-ownedour former wholly owned subsidiary, Telefônica Empresas S.A., was created with the corporate goal of providingto provide Switched Package Network services, and, on January 30, 2001, the independent Brazilian corporation, Telefônica Data Brasil Holding S.A. (TDBH), was created through a shareholder-approved spin-off of the data transmission operations performed by Telefónica Empresas S.A. A merger of the company and TDBH wasbecame effective in July 2006. See “—The SCM Restructuring.”

On January 29, 2003, the board of directors of ANATEL granted Telespus the authorization to use theprovide SCM service nationwide. The CompanyWe may now offer voice and data services through various points of presence composed of networks and telecommunication circuits.

On July 6, 2003, mobile telephony operators started to implementbegan implementing a long-distance carrier selection, (CSP)or CSP that enables the clientcustomers to determinechoose the long-distance carrier for each domestic long-distance call (VP2 and VP3) or international call, in accordance with the SMP (Mobile Personal Service) rules. As a result, the Company,company, having acknowledgementacknowledgment of the revenue from these long distancelong-distance services, started to pay the mobile telephony operators for the use of their networks.

On December 10, 2002, after receiving approval from ANATEL, our Board of Directors approved a proposal to acquire certain assets from Telefónica Data S.A. (formerly T-Empresas), one of the companies of the Telefónica group, including the following services: (i) an Internet service that allows our customers to access our network through remote dial-up connection and (ii) services that allow customers of Internet Service Providers, or ISPs, to have access to broadband Internet. The purpose of this asset acquisition was to capitalize on synergies that would assist in developing our network and provide a quick response to market competitors.

On December 30, 2004, we acquired indirect control of Atrium Telecomunicações Ltda. from Launceston Partners CV. Atrium provided various types of telecommunications services in Brazil, including internetInternet and intranet services, telecommunications management services and the sale and rental of telecommunications systems and related equipment. The acquisition was carried out through the purchase of the total share capital of Santo Genovese Participações Ltda., which held 99.99% of the representative share capital of Atrium.

On November 21, 2005, we approved the corporate reorganization of our wholly-ownedformer wholly owned companies, A. TelecomTELECOM S.A. (formerly Assist Telefónica S.A.), Santo Genovese Participações Ltda., or Santo Genovese, and Atrium Telecomunicações Ltda., or Atrium, which was implemented and became effective on March 1, 2006.

The terms and conditions of the SCM Restructuring are set forth in an agreement executed byamong the Companies onT-Companies dated as of March 9, 2006. The SCM Restructuring consisted of (i) the merger of TDBH into our company (the “Merger”); and (ii) the spin-off of all T-Empresas’ assets and activities except its SCM assets and activities outside Sectors 31, 32 and 34 of Region III of Annex II of the General Concession Plan (the “Spin-off”) and assets and activities related to the data center.

Following the approval of this restructuring: (i) TDBH was dissolved; (ii) its shareholders received shares of our common or preferred stock, or ADSs, as appropriate; (iii) we succeeded TDBH in all of its rights and obligations; and (iv) T-Empresas became our wholly-ownedwholly owned subsidiary. The transfer to TelespTELESP of the spun-off components of T-Empresas did not result in any increase or decrease in the net equity of Telesp,TELESP, nor in the number of shares that comprise its capital stock.

On October 29, 2006, the Companywe entered into an agreement with Abril Comunicações S.A., TVA Sistema de Televisão S.A., Comercial Cabo TV São Paulo Ltda., TVA Sul Paraná Ltda., and TVA Radioenlaces Ltda. (the “Abril Group”), whereby we combined our telecommunications and broadband services with the broadband and cable services of Tevecap S.A., or TVA, the second largest Brazilian pay TV provider with operations in the states of Paraná, Rio Grande do Sul, São Paulo and Rio de Janeiro. Through this transaction, we broadened our services to meet our users’ increasing demand, combining the Abril Group’s expertise in content and media production and placement with the expertise of the Telefónica Group in the telecommunications segment.

On October 31, 2007, the board of directors of ANATEL concluded the regulatory review of the association between Grupo Abril and the Company,company, approving the transaction, which involves (i) the acquisition of all of the operations of MMDS (Multichannel Multipoint Distribution Service) and broadband, and (ii) the acquisition of a significant stake, within the limit of the foreseen effective laws and regulations, in the cable television dealers controlled by Grupo Abril within and outside of the State of São Paulo. This decision was published in the Official Gazette of the Federal Executive on November 19, 2007. Antitrust clearance is still pending from ANATELThe transaction was fully cleared by regulatory and CADE competition authorities.antitrust agencies.

The Telesp stockholders, in the extraordinary general meeting held onOn November 23, 2007, our shareholders ratified the entering into of the Agreement, its amendments and annexes, and approved the implementation of the deal and the signaturesigning of all documents necessary for its complete formalization.

As a result of this transaction, Navytree Participações S.A (“Navytree”)S.A., or Navytree became a wholly-ownedwholly owned subsidiary of Telesp,TELESP, and our provision of broadband services became centralized.

On June 10, 2008, at the General Shareholders Meeting of Navytree,our shareholders approved a change in the corporate name of Navytree was changed to Telefônica Televisão Participações S.A (“TTP”).S.A., or TTP.

On October 14, 2008, Telefonica Sistema de Televisão S.A. (“TST”), TST and TTP purchased from Abril Comunicações S.A. all shares of Mundial Voip Telecomunicações Ltda., EPP, which had its corporate name changed to Ajato Telecomunicação Ltda. (“Ajato”).  Following, or Ajato. As a result of the merger of TTP into Telespthe company on November 11, 2008, Ajato’s shares arewere held by us and TST and us.prior to the restructuring described in item 3.A.

On October 21, 2008, Telesp’s Boardour board of Directorsdirectors and the shareholders of TTP and Telefônica Data Brasil Participações Ltda. (“DABR”), or DABR approved a corporate reorganization that consisted of the merger of TTP and DABR into us.

On November 11, 2008, the merger of TTP and DABR was approved by our Extraordinary Shareholders Meeting.shareholders. As a result of this restructuring, TTP and DABR were dissolved and Telespwe assumed all the rights and obligations of TTP and DABR.

The reorganization allowed Telespus to increase synergies, reduce managerial risk, simplify the corporate administrative structure and reduce costs, while also providing tax benefits expected to reduce Telesp’sTELESP’s income tax and other taxes assessed on revenue and income, thereby improving Telesp’sour cash flows. The reorganization and the goodwill amortization were structured so as to avoid any assumption of indebtedness by Telespus and to minimize any negative impact on theour future resultsresults.

On May 22, 2009, Telefônica Data S.A., our subsidiary, merged with its controlled subsidiary, TS Tecnologia da Informação Ltda., or TS Tecnologia, in accordance with the values recorded on the books and an appraisal report. This merger caused TS Tecnologia to be extinguished, and Telefônica Data S.A. became the successor ofto all of the assets and liabilities of TS Tecnologia.

On December 9, 2009, Telesp’sour Board of Directors approved the submission to a shareholder vote of the corporate reorganization proposal consisting of the partial spin-off of A.TELECOM S.A. (“A.TELECOM”), or A.TELECOM, and the subsequent merger into Telesp of the spun-off part of A.TELECOM.A.TELECOM into us.

On December 30, 2009, A.TELECOM’s shareholders approved the spin-off of part of A.TELECOM and the subsequent merger of the spun offspun-off part into Telesp.us. On the same date, Telesp’sour shareholders approved the merger of the spun-off part into us.

This corporate restructuring created synergies for us and A.TELECOM providing both of us with better administrative, operating and regulatory efficiencies regarding telecommunication integrated services, thus benefiting both of us and our respective shareholders.

InOn July 28, 2010, in accordance with the material fact disclosed to the public by Telefónica S.A., our controlling shareholder, Telefónica S.A. and Portugal Telecom SG SGPS, S.A. (“Portugal Telecom”) executed a purchase agreement for the acquisition by Telefónica S.A. (directly or through any of the companies within its group) of 50% of the capital stock of Brasilcel N.V. (a company jointly owned by Telefónica and Portugal Telecom, which owns shares representing approximately 60% of the capital stock of the Brazilian company Vivo Participações S.A., or Vivo Part) owned by Portugal Telecom.es).

On December 27, 2010, the Companycompany and Vivo Part,Participações, jointly announced the approval by their respective Boardsboards of Directorsdirectors of a proposal for corporate restructuring involving the merger of shares of Vivo PartParticipações into the Company,us, aiming for the unificationconsolidation of the shareholding positions of both companies.

Other than the concentration of the shareholding position herein mentioned, the purpose of the corporate restructuring aimswas to simplify the current organizational structure of the companies, both of which are publicly-heldwere publicly held companies and listed on BM&FBOVESPA and with American Depositary Receipts traded in the United States of America.States. The restructuring would allowallowed their respective shareholders to participate in one unified company with greater liquidity and with shares traded on Brazilian and foreign stock exchanges. Moreover, the corporate restructuring will provideprovided for the rationalization of the cost structure of the two companies and will facilitatefacilitated the integration of businesses and the generation of synergies, thus positively impacting both companies.

The simplified organization chart below demonstrates the corporate structure of the companies before and after the implementation of this reorganization.

The corporate structure before the merger of shares is as follows:

Vivo Part’s management was informed by its controlling shareholder,Upon completion of this corporate restructuring, Telefónica, S.A., that Telefónica, S.A. will hold held the shares of the Brazilian holding companies that currently arepreviously held indirectly by Telefónica, S.A., through the holding of Brasilcel, N.V., as a result of a transaction implemented abroad. The proposed merger of shares willdid not change the composition of the ultimate control of the involved companies.

The planned corporate structure after the merger of shares will beis as follows:

The totality of shares of Vivo Part will beParticipações was merged into the Company,us, and the holders of the merged shares of Vivo Part shall directly receiveParticipações received new shares thatto which they arewere entitled to in Telesp.the company. In accordance with Brazilian Corporate Law, as well as the bylaws of the twoboth companies, financial advisors and specialized companies will bewere retained for the preparation of studies

The corporate restructuring will be submitted towas approved by ANATEL for approval.on March 24, 2011. Before the corporate restructuring, the Brazilian entities, TBS Celular Participações Ltda., Portelcom Participações S.A. and PTelecom Brasil S.A. (jointly, the “Holdings BR”) will be, were merged into Vivo Part.Participações. The Holdings BR currently havehad as theirits main asset the shares of Vivo PartParticipações and arewere controlled by Brasilcel, N.V..Brasilcel. The merger of Holdings BR willdid not result in any change in the number and the composition of classes of shares of Vivo Part,Participações, and shalldid not affect the current participation of the shareholders of Vivo Part.Participações.

Our current general corporate and shareholder structure is as follows:

In 2013, we invested R$6,033.2 million, a similar amount to what was invested in 2012, however we increased the capital expenditures in projects and decreased our expenditures with spectrum licenses.  Investments in projects are permittedstrongly focused on network (84% of investments excluding licenses) and help sustain our commercial and revenue growth while maintaining the quality of the services provided.  Investments in new projects also prepare the company for a medium-term competitive scenario.

To meet the needs of an increasingly data driven and connected society, significant investments were made to determine our own capital expenditure budget, subject to compliance with certain obligations to expand service undersupport the concession. With this in mind, we were focused in voice services in order to comply with ANATEL’s targets and to provide quality service for clients. Also, in order to achieve a consolidated position in the broadband market, during 2010 the focusstrong growth of our capital expenditure has been,data usage in residential fiber, mobile 3G /4G and continuesdedicated corporate networks. We continue to be,invest in expanding modernizing and upgrading our ADSL network and improving our systems and processesthe backbone of customers relations, marketing and sales.national data transmission to meet the increase in mobile data traffic throughout the country.

The following table sets forth our capital expenditures for each year in the three-year period ended December 31, 2010.2013.

We anticipateIn 2012, we invested R$6,117.1 million in projects that sustain our capital expenditures for 2011 will be similarcurrent annual results and competitive position in the medium-term. A significant portion of resources was allocated to 2010. We expect to fund these expenditures with funds internally generated fromallow quality growth in our operations and through debt.

In 2011, we invested in projects that support our current results and prepare the company for the competitive landscape in the medium-term. A significant proportion of resources were allocated to enable growth associated with the services we provide.

To meet the needs of an increasingly connected society, significant investments were made to support the strong growth of data customers, whether fixed and mobile data services or dedicated high-speed services to the corporate market, as well as the increase in capillarity of our fiber optics network in São Paulo covers an area of 248,209 square kilometers, representing approximately 2.9% of Brazil’s territory. The populationPaulo. We also invested in the expansion of the State of São Paulo is approximately 41.7 million, representing 21.6% of Brazil’s total population. Based on the most recentnational data available, the gross domestic product, or GDP, of the State of São Paulo in 2008 was an estimated R$1,003 billion, or approximately US$429.2 billion, representing approximately 33% of Brazil’s GDPtransmission backbone to meet increasing demand for the year. The State of São Paulo’s annual per capita income during 2008 was an estimated R$24.5 thousand, or approximately US$13.3 thousand.mobile data traffic nationwide.

The concessions granted by the Brazilian government in 1998 and renewed in 2005, with the effective date starting in January 2006, allow us to provide fixed-line telecommunications services to a region that includes most—approximately 95%—of the Statestate of São Paulo. The portion of the Statestate of São Paulo that is excluded from our concession region represents approximately 1.5% of total lines in service and 2.2% of the population in the state.state’s population. This concession is operated by CTBC Telecom.

On May 7, 2002, we began offering international long distance servicelong-distance services and on July 29, 2002, we started offering interregional service. The conditions for the provision of interregional and international long-distance services outside the concession area contemplate that providers already operating services under a selection code (a two-digit code to be input by the caller as a prefix to the number dialed) shalldialed, representing a long-distance operator) would keep such code under the new licenses authorizing operation outside the applicable concession area. Accordingly, we continue using the provider selection code “15” that permits our callers to originatemake calls using our services even though they are outside our concession area. All interregional and international cellularmobile calls, whether in our concession area or that of another provider, need to dial a carrier selection code using Personal Mobile Service—SMP, through which mobile services users choose the provider for interregional and international long-distance calls, and which requires dialing our code “15” in order to use our services. See “—Services—Network Services.”