Price as of
04/30/2010

Per share
ON - VIVO3 - R$ 46.29
PN - VIVO4 -  R$ 46.20
ADR – VIV – US$ 26.47

Capital Stock
03/31/2010

Free Float- ON Shares       11.1%
Free Float- PN Shares       55.5%
Free Float- Total               40.3%
Treasury Shares                  0.3%
Controlling Group             59.4%
Total ON Shares      137.269.188
Total PN Shares       263.444.639

 Stock Performance
In 1Q10

Market Cap R$  19.4 billion as of 03/31/2010

HIGHLIGHTS

• Net profit of R$ 191.9 million in 1Q10, 44.3% higher than the amount recorded in 1Q09;
• In complying with its priority goal of delivering the best services to its customers, Vivo has continued to consistently achieve quality levels higher than its competitors’.
• In March, Vivo’s customer base reached 53,949 thousand accesses, a growth of 18.2% in relation to 1Q09, thus recording a market share of 30.12%, which represents an increase for the seventh consecutive month. In the post-paid segment, the market share was 33.5%, keeping its leadership in the domestic market in these two indicators;
• In 1Q10 Vivo managed to attract 2,205 thousand new customers, 33% in the post paid segment. The share of net additions reached 42.8%. In the post paid segment the share of net additions was 71.5%. Total growth recorded in terms of net additions in relation to 1Q09 was 216.8%;
• The access to 3G data plans, through smartphones and data cards, grew 149% in the comparison with 1Q09, with an estimated market share of 41% in march 2010;
• The 3G network serves more than 594 municipalities, reaching more than 61% of the population, increasing its position in relation to the competitors;
• Net Service Revenue of R$3,929.5 million in the quarter represents an increase of 5.8% over 1Q09;
• Recharges, in financial terms, grew 10.4% in 1Q10 in relation to 1Q09, increasing in 9.1 percentage points the proportion of prepaid clients that make recharges;
• Sustained growth in data and VAS revenue, increased 51.8% and 7.3% in the comparison with 1Q09 and 4Q09, respectively, representing 17.5% of the net service revenue in the quarter. Internet revenue grew by 119.8% in relation to 1Q09;
• EBITDA margin in the quarter of 30.1%, remaining stable in percentage terms over 1Q09. EBITDA reached R$ 1,273.7 million in the quarter, a growth of 3.8% in comparison with 1Q09. Excluding the effects of the CPCs adoption, the EBITDA would be R$1,283.8 million, an annual growth of 6.6% and an EBITDA Margin of 30.6%, 70 basis points higher than in the same period of 2009;
• Operating cash generation before investment and financing activities, obtained from the “Indirect Cash Flow” totals R$392.8 million in the quarter;
• The net debt recorded in 1Q10 was R$3,937.6 million, resulting in a Net Debt/EBITDA rate of 0.75.

 3G coverage serves approximately 600 municipalities and more than 61% of
the population.

CAPEX represents 7.8% of the net revenue in 1Q10. The expenditures in this quarter were mainly intended to: increase coverage of the networks for supporting voice and data demand, expansion of the capacity in regions where demand exists, and achievement of goals set forth by Anatel. In 1Q10, CAPEX totaled R$328.7 million, lower than the amount recorded in the same period of last year due to different seasonality of the projects in the periods. For fiscal year 2010, approved CAPEX is of R$2,490 million.

Operating cash generation of R$ 392.8 million in
1Q10

In 1Q10 the Company generated R$392.8 million of operating cash, which was used for payments of investments effected (R$ 451.0 million), resulting in a net consumption of R$58.2 million in the cash flow after investment activities. Cash applied in financing activities presented a net consumption of R$394.5 million due to payment of loans and their related hedges due in the period. After the financing activities, the Company recorded cash and cash equivalent consumption of R$452.7 million.

In the comparison with 4Q09, a reduction of R$746.6 million was recorded in cash generated from operating activities. This reduction is due to increased operating payments, mainly caused by disbursement of the TFF (Inspection and Operation Fee), which is annually paid to Anatel in March. The investment activities recorded similar cash consumption, resulting in a cash flow after the investment activities of R$ 745.6 million less than in 4Q09. Added to this result, there was an increase in cash consumption by the financing activities in the amount of R$ 108.3 million, which was mainly caused by the repayment of debentures and other debt (Resolution 2770) due in the period, thus contributing to higher consumption of the cash flow after the financing activities of R$ 853.9 million, reducing the cash and cash equivalents in R$452.7 million. 

In the comparison with 1Q09, a reduction of R$346.6 million was recorded in the operating cash flow, which was due to the increase in the operating disbursements, especially the increase in the amount paid to Anatel for the TFF (Inspection and Operation Fee), as a result of the increase in the customer base. On the other hand, the investment activities decreased, generating  R$277.7 million, which resulted in a cash after investment activities lower in R$68.9 million in relation to 1Q09.

The figures mentioned here are part of the “Statement of Indirect Cash Flow” presented on page 15.

Leadership in quality and differentiated offers.

• Vivo’s customer base at the end of 1Q10 recorded 53,949 thousand accesses, of which more than 46 million in GSM/WCDMA technology. Such growth is due to our attractive offers to the pre paid segment, to the wide acceptance obtained by the “Vivo Você” plans and to the outstanding performance in the sales of new accesses relating to data plans. Quality leadership and the portfolio of handsets contributed to such growth, keeping Vivo in a leadership position, with its market share at 30.12%. 
  
  
• Net additions in 1Q10 totaled 2,205 thousand new accesses, representing a 216.8% growth in relation to 1Q09. With a share of net additions of 42.8%, Vivo was the leader in number of acquisitions.
  
  
• Worthy of mention is the 19.5% growth in the post-paid customer base, with a share of net additions of 71.5%, driven by the strong contribution of internet access sales and to the wide acceptance and stimulation to the community concept, as offered by the new “Vivo Você” plans launched in November 2009.
  
  
• Our current commercial growth is a result of our current attractiveness on the market, created from the right choices we made in the past such as focusing on satisfaction and loyalty of our customer base and constant quality improvement in everything we do. Worthy of mention is the 19.5% growth in the post paid customer base representing a share of net additions of 71.5% in this segment.
  
  
• The “Vivo Você” plans have shown to be a strong instrument for attracting and retaining customers, not only due to their excellent cost-benefit relation but also to the possibility of service customization in accordance with the customers’ needs.
  
  

SAC reduced by by 32.4% in 1Q10.

• SAC of R$ 69 in 1Q10 is 32.4% lower than in 1Q09. Such reduction reflects the growth in the additions with SIM Cards only, which reduce expenses with subsidy, as well as lower subsidy to handsets. When compared to 4Q09, the SAC recorded an increase of 11.3%, mainly due to a larger mix of post-paid and data customers, whose terminals have more subsidies, in addition to the Fistel fee. Beginning this quarter, besides the components already used, we started to include expenses with free lease to corporate customers and the Fistel fee in the SAC calculation.

Churn remained stable in the quarter.

Customer base growth dilutes ARPU.

• Churn of 2.5% in the quarter, stable between the compared periods, reaffirming our position as the best option among the mobile telephone operators, reflects Vivo’s success in its efforts to retain customers. Vivo has managed to keep this indicator under control thanks to segmented actions.
  
  
• Vivo has continued to intensify its efforts for ensuring loyalty and retention of its customer base, minimizing possible impacts arising out of the highly competitive scenario. The Reward Program has continued to be strongly used in the exchange of handsets and in the shielding of the customer base, being consolidated as the main relationship tool as regards post-paid customers.
  
  
• The ARPU of R$24.8 in the quarter records a reduction of 9.2% in relation to 1Q09, due to the strategy of adapting prices to the market with the objective of increasing customer base and, as a result, increase revenues. When compared to 4Q09, the ARPU recorded a reduction of 8.5% as a result of the seasonality between the periods. Vivo carries out actions for stimulating communication among its customers, by means of offers of value-added services, thus seeking to offset the effects of the competition actions and of the multiplicity of SIM Cards, which dilute customers’ expenses.
  
  
• The Outgoing ARPU in 1Q10 recorded a reduction of 5.7% in relation to 1Q09 and 6.9% in relation to 4Q09, lower than the reduction in the ARPU Blended, due to the adequacy of use by the customers and promotional bonus. The Incoming ARPU, on its turn, decreased by 13.9% in the comparison with the same period of last year, mainly due to the increased penetration of the mobile telephone service in Brazil.
  
  
• Worthy of mention is the data ARPU growth, which increased by 30.3% in relation to 1Q09, mainly due to increased use of Vivo Internet, keeping the growth trend of other services and data products, already recorded in prior quarters.

Growth of the outgoing traffic due to the campaigns to increase usage of Vivo services

• The Blended MOU of 116 minutesin 1Q10 increased by 50.6% in relation to 1Q09 and decreased by 2.5% in relation to 4Q09. The growth of the Blended MOU in the quarter is a result of the actions for stimulating usage, especially the “Recarregue e Ganhe” campaign and the “Vivo Você” plans. The reduction recorded in relation to 4Q09 arises out of the seasonality between the compared periods.

• The total traffic recorded a 76.6% growth in 1Q10, in the comparison with 1Q09 and 3.7% in relation to 4Q09, with emphasis to the 119.0% and 5.3% increase, respectively, in the outgoing traffic. Annual growth, mainly in the outgoing segment, is a result of the continued incentive to a higher volume of traffic and to the community concept, started in the previous quarter.

Total net revenue recorded a growth of 4.8% over 1Q09. Such variation was due to the growth in the data and VAS revenue, which more than offsets the reduction in the revenue from usage of network and from sales of handsets. The service revenues in the quarter grew 5.8% in relation to the same period of last year. The revenue from the sale of handsets has continued to decrease, mainly as a result of the increase of additions without purchase of handsets.

Access and usage revenue remained stable in relation to 1Q09 due to the adequacy of use and to the bonuses given in the several campaigns to stimulate usage. When compared to 4Q09, it recorded a slight decrease, as a reflex of the seasonality and lower number of business days.

Growth of 52% in data revenues and of 120% in revenues from mobile internet services in 1Q10

Data revenue plus VAS grew 51.8% and 7.3% over 1Q09 and 4Q09, respectively, representing, in this last quarter, 17.5% of the Net Service Revenue. The main factors which contributed to this continued to be: increase in the Vivo Internet customer base as well as the consumption of interactivity services via SMS.

Mobile Internet revenues grew 119.8% over 1Q09 and 20.2% over 4Q09, being the more representative service in the data and VAS revenue (53.3%). In relation to the net service revenue it represents 9.3%. The revenue obtained from SMS + MMS grew 16.3%, when compared to 1Q09.

 Optimum allocation of funds and improvement
of processes contributed to increase Profitability.

The total operating costs, excluding depreciation and amortization expenses, totaled R$ 2,959.5 million in 1Q10, recording an increase of 5.2% in the comparison with 1Q09. Such increase is due to the increased commercial activity in the period. When compared to 4Q09, the operating costs recorded a reduction of 1.8%, arising out of seasonality, optimum allocation of funds and continuous improvement of processes.

Commercial efficiency maintained, even
in a quarter
without special celebration dates.

The personnel expenses recorded increases of 3.0% in the quarter and of 15.8% in the year due to the incorporation, as from September 2009, of professionals who provide assistance in our own stores. Such fact resulted in a reduction in costs with third party services in the selling expenses.

The cost of services rendered in 1Q10 increased by 21.7% over 1Q09, as a result of the 34.2% increase in the costs of Fistel Fee and other taxes due to the growth of the customer base and the increase of 22.7% in interconnection expenses. When compared to 4Q09 the increase is of 2.4%, due to the increase in expenses with leasing of sites as a consequence of the increase in network coverage and capacity and third-party services.

The cost of goods sold recorded a reduction of 29.2% in the comparison between 1Q10 and 1Q09, and of 11.4% in the comparison between 1Q10 and 4Q09, even considering the increase in the customer base between the periods. This is due in part to the increase in sales of SIM Cards only.

In the 1Q10, the selling expenses increased by 10.8% in relation to 1Q09. This increase is related to higher expenses with third-party services, such as sales commissions and support, due to the increase in the commercial compared to the same period of last year. In the comparison with 4Q09, the selling expenses decreased by 4.3% as a result of less expenses with third-party services, especially outsourced labor in the own stores, which services started being provided by Vivo’s employees.

The Provision for Doubtful Accounts (PDD) in 1Q10 showed a reduction of 45.4% in relation to 1Q09, corresponding to 0.7% of the total gross revenue, 0.7 percentage points lower than in 1Q09 (1.4%). In comparison with 4Q09, the growth was of 5.5%, stable in relation to its percentage in the gross revenue. Vivo has continued with its collection actions and strict credit granting criteria, which have maintained this item under control.    
 

The general and administrative expenses decreased by 4.6% and 3.8% in 1Q10 in relation to 1Q09 and 4Q09, respectively. The drop in both comparisons is a result of expenses with third-party services and others.  

Other Operating Revenues/Expenses recorded expense of R$ 1.5 million. The comparison with 1Q09 presents an increase in the revenue, especially in circuit lease and fines. When compared to 4Q09, which recorded revenue of R$5.2 million, the variation is a result of the reduction in the revenue from recovered expenses, especially taxes.

EBITDA margin
of 30.1%in
the 1Q10.

The EBITDA (earnings before interests, taxes, depreciation and amortization) in 1Q10 was R$ 1,273.7 million, an increase of 3.8% in relation to 1Q09, with an EBITDA Margin of 30.1%. When compared to 4Q09, the EBITDA recorded a reduction of 9.1%. The result recorded in 1Q10 reflects the continued growth in service revenue, combined with an efficient cost control, mainly due to the continuous improvement of the operating processes.

Depreciation and amortization expenses recorded an increase of 9.6% in 1Q10 over 1Q09, and of 4.9% over 4Q09, due to the investments in the period.  

Drop of 64.6% in
net financial
expenses in
comparison with
1Q09.

Vivo’s net financial expenses decreased by R$ 106.5 million in the comparison of 1Q10 over 1Q09. This decrease is mainly due to a lower debt level (R$ 4,803.2 in 1Q10 against R$ 7,713.1 in 1Q09). Among the main amortizations made in the period is the one relating to the 3G licenses debt to Anatel (fully settled in Oct/09), which in 1Q09 generated a service cost of R$41 million. Such amount, added to the cost of the remaining debt in the period, generated an additional cost of R$ 78.4 million in 1Q09 in relation to 1Q10. We also recorded a net financial revenue in the 1Q10 relating to the recognition of updating of judicial deposit assets and contingency liabilities.  

When compared to 4Q09, Vivo’s net financial expenses in 1Q10 decreased by R$ 84.1 million, mainly due to the recognition in 1Q10 of the income on court deposits and contingency liabilities, which had a positive impact on the net revenue. Further, there was an additional expense of R$23.5 million as a result of the PIS/Cofins taxes on interest on the own capital in December 2009. We recorded a lower debt service cost in 1Q10 occasioned by the drop in the effective interest rate in the period (1.99% in 1Q10 and 2.09% in 4Q09).

Raising of
Vivo’s rating from brAA
to brAAA by
Standard &
Poor’s

The Company closed the 1Q10 with a debt of R$ 4,803.2 million (R$ 7,713.1 million in 1Q09), of which 16.3% is in foreign currency (UMBND, US$ and YEN), with 99.8% of the loans being protected by exchange hedge transactions). The debt in 1Q10 was offset by cash funds and financial investments (R$ 858.1 million) and by derivative assets and liabilities (R$ 7.5 million receivable), resulting in a net debt of R$ 3,937.6 million (R$ 5,613.8 million at March 31, 2009). Such drop in the net debt of R$ 1,676.2 is due to the lower debt service cost, allied to good cash generation by the Company. In 1Q10, the Company settled, at the respective maturity date, the 3rd issue of debentures in the amount of R$ 210 million, plus interest of R$ 22.8 million. Still in this quarter, the Company started the rescheduling of the 2nd issue / 2nd series of debentures, in the amount of R$ 800 million. Until the expiration of the dissenting period (April 09, 2010), we recorded R$ 459.9 million from debenture holders who did not reschedule their debentures.

At March 19, 2010, Standard & Poor’s raised in its Brazil National Rating System the long-term corporate credit rating assigned to Vivo, from “brAA” to “brAAA”, as well as the rating of its debentures, in the amount of R$ 1 billion (2nd issue), and of R$ 810 million (4th issue), from “brAA” to “brAAA”.

Reduction of the gross debt by
6.3% in 1Q10
in relation to
4Q09

The gross debt in 1Q10 recorded a drop of 6.3% when compared to 4Q09. In the comparison of 1Q10 over 4Q09, Vivo’s net debt recorded an increase of R$112.4 million, despite the fact that the Company recorded a consistent operating cash generation in the period, mainly due to the payment, in March, of the TFF (Inspection and Operation Fee) to Anatel in the amount of R$ 705.7 million.

Net Profit of R$ 191.9 million in 1Q10.

The consolidated Net Profit of R$ 191.9 million in 1Q10 represents an increase of 44.3% in relation to 1Q09, reflecting the better operational and financial performance. Vivo has continued to place its focus on profitability, as it becomes evident from the repeated positive results in the last quarters.  

Payment of
Interest on the
Own Capital
and Dividends.

Vivo effected the payment on April 19, 2010 of the 50% referring to the dividends declared based on the 2009 year-end balance sheet to the holders of common and preferred shares, the total amount of which is made up of interest on the own capital of R$ 104,135,762.30, with 15% withholding income tax, resulting in net interests of R$ 88,515,397.96 and included as dividends, as set forth in article 9 of Law no. 9249/95, added to the dividends in the amount of R$ 730,364,262.13, resulting in a per share dividend of R$ 2.049299159273, in the total net amount of R$ 818,879,660.08. The net amount paid on this date was R$ 409,439,830.04.

The proposal for the profit allocation was approved at the General Meeting (AGO) held on April 16, 2010, with the balance of 50% to be paid on October 25, 2010.

Merger of
Telemig
Celular S.A.

Vivo communicated to its shareholders and to the market in general that, on December 03, 2009, it filed a request with the National Telecommunications Agency – Anatel for prior approval of the merger of Telemig Celular S.A. into Vivo Participações S.A., in conformity with the provisions set forth in Law no. 9472/97 – General Telecommunications Law, in the Regulation for Verification of Share Control and of Transfer of Share Control in Telecommunication Service Providers, as approved by Resolution no. 101/1999, as well as in other applicable regulatory instruments.

At the Extraordinary Shareholders’ Meeting held on November 30, 2009, the inclusion of the activity of mobile telephony service provider in the Bylaws of Vivo Participações was approved in order to enable the future merger mentioned above.

Subsequent
Event.

On April 09, 2010, the period for debenture holders dissenting to the new conditions provided for by the Board of Directors of the Company relating to the rescheduling of the debentures of the 2nd issue / 2nd series expired. Our strategy of continuous financing cost reduction combined with the decrease in our debt levels and the access to low cost credit sources led to the offer of re-pricing conditions that resulted in dissidence from some of the debenture holders. The amount resulting from debenture holders having chosen to exercise the right to sell their debentures was R$ 459.9 million. Such amount was reclassified to short-term in conformity with the technical pronouncement – subsequent event (CPC 24).

This press release contains forecasts of future events. Such statements are not statements of historical fact, and merely reflect the expectations of the company's management. The terms "anticipates," "believes," "estimates," "expects," "forecasts," "intends," "plans," "projects", "aims" and similar terms are intended to identify these statements, which obviously involve risks or uncertainties which may or may not be foreseen by the company. Accordingly, the future results of operations of the Company may differ from its current expectations, and the reader should not rely exclusively on the positions taken herein. These forecasts speak only of the date they are made, and the company does not undertake any obligation to update them in light of new information or future developments.

GLOSSARY

Financial Terms:

CAPEX – Capital Expenditure.
Working capital = Operational Current assets – Operational Current liabilities.
Net debt = Gross debt – cash – financial investments – securities – asset from derivative transactions + liability from derivative transactions.
Net Debt / EBITDA – Index which evaluates the Company’s ability to pay its debt with the generation of operating cash within a one-year period.
EBIT – Earnings before interest and taxes.
EBITDA – Earnings result before interest. taxes. depreciation and amortization.
Indebtedness = Net Debt / (Net Debt + NE) – Index which measures the Company’s financial leverage.
Operating Cash Flow = EBITDA – CAPEX.
IST = Telecommunications Services Index.
EBITDA Margin = EBITDA / Net Operating Revenue.
Allowance for doubtful accounts  = A concept in accounting that measures the provision made for accounts receivable overdue for more than 90 days, includes part of clients under negotiation.
NE – Shareholders’ Equity.
Subsidy = (net revenue from goods – cost of goods sold + discounts given by suppliers) / gross additions.

Technology and Services

1xRTT – (1x Radio Transmission Technology) – It is the CDMA 2000 1x technology which, pursuant to the ITU (International Telecommunication Union). and in accordance with the IMT-2000 rules is considered 3G (third generation) Technology.
CDMA – (Code Division Multiple Access) – Wireless interface technology for cellular networks based on spectral spreading of the radio signal and channel division by code domain.
CDMA 2000 1xEV-DO – 3rd Generation access technology with data transmission speed of up to 2.4 Megabits per second.
CSP – Carrier Selection Code.
SMP – Personal Mobile Services.
SMS – Short Message Service – Short text message service for cellular handsets. allowing customers to send and receive alphanumerical messages.
WAP – Wireless Application Protocol is an open and standardized protocol started in 1997 which allows access to Internet servers through specific equipment. a WAP Gateway at the carrier. and WAP browsers in customers’ handsets. WAP supports a specific language (WML) and specific applications (WML script).
ZAP – A service which allows quick wireless access to the Internet through a computer, notebook or palmtop.
GSM – (Global System for Mobile) – an open digital cellular technology used for transmitting mobile voice and data services. It is a circuit witched system that divides each channel into time-slots.

Operating indicators:

Gross additions – Total of customers acquired in the period.
Net additions = Gross Additions – number of customers disconnected.
ARPU (Average Revenue per User) – net revenue from services per month / monthly average of customers in the period.
Postpaid ARPU – ARPU of postpaid service users.
Prepaid ARPU – ARPU of prepaid service users.
Blended ARPU – ARPU of the total customer base (contract + prepaid).
Entry Barrier – Value of the least expensive phone offered.
Customers – Number of wireless lines in service.
Churn rate = percentage of the disconnections from customer base during the period or the number of customers disconnected in the period / ((customers at the beginning of the period + customers at the end of the period) / 2).
Market share = Company’s total number of customers / number of customers in its operating area.
Market share of net additions: participation of estimated net additions in the operating area.
MOU (minutes of use) – monthly average. in minutes. of traffic per customer = (Total number of outbound minutes + incoming minutes) / monthly average of customers in the period.
Postpaid MOU – MOU of postpaid service users.
Prepaid MOU – MOU of prepaid service users.
Market penetration = Company’s total number of customers + estimated number of customers of competitors) / each 100 inhabitants in the Company’s operating area.
Productivity = number of customers / permanent employees.
Right planning programs – Customer profile adequacy plans
SAC – cost of acquisition per customer = (70% marketing expenses + costs of the distribution network + handset subsidies + free lease to corporate customers (PJ) + Fistel) / gross additions.
VC – amount owed by the User, per time unit, for the communication.
VC1 – amount owed by the User, per time unit, for a call made to a STFC Access Code in the internal geographic area of the Registration Area of the call originated.
VC2 – amount owed by the User, per time unit, for a domestic long distance call to a location outside the registration area where the user is located but inside his/her primary area code.
VC3 – amount owed by the User, per time unit, for a domestic long distance call to a location outside the registration area where the user is located and outside his/her primary area code.
VU-M – amount payable to a SMP Operator, per time unit, for the use of its network (interconnection fee).
Partial Bill & Keep – system of collection for use of local network between SMP operators which occurs only when traffic between them exceeds 55%, which impacts revenue and interconnection cost. Application of Partial Bill &Keep ceased as from July 2006.