TIMB TIM SA

A.       History and Development of the Company

Basic Information

TIM S.A., formerly known as Intelig Telecomunicações Ltda., a publicly held company (sociedade anônima) organized under the laws of the Federative Republic of Brazil, incorporated in the Federative Republic of Brazil for an indefinite period on March 9, 1998.

Our headquarters are located at João Cabral de Melo Neto Avenue, 850 – South Tower – 12^th floor, 22775-055, Rio de Janeiro, Brazil and our telephone number is +55 (21) 4109-4167.

Our agent for service of process in the United States is Puglisi & Associates located at 850 Library Avenue, Suite 204, Newark, Delaware 19711.

The SEC maintains an Internet site that contains reports, proxy and information statements and other information regarding issuers that file electronically with the SEC at http://sec.gov. Our web site address is http://www.tim.com.br. Information contained on, or that can be accessed through, our website does not constitute a part of this annual report.

Historical Background

Privatization and summary

In July 1998, as part of the privatization of Telebrás, the Brazilian state-owned telecommunications monopoly, the Federal Government sold substantially all its shares of the 12 holding companies into which Telebrás had initially been broken up, including its shares of Tele Sudeste Celular Participações S.A. (“TSU”), and Tele Nordeste Celular Participações S.A. (“TND”). Following a series of acquisitions, corporate reorganizations and corporate name changes, TSU and TND merged to form TIM Participações in 2004.

We continued to expand and restructure our operations through a series of corporate reorganizations, mergers, acquisitions and name changes as described below, and a majority of our share capital is currently held, directly and indirectly, by Telecom Italia (which began operating in Brazil in 1998 as Telecom Italia Mobile) through its wholly owned subsidiary, TIM Brasil, formed in 2002 as the holding company of Telecom Italia’s operating companies in Brazil. In turn, the single largest shareholder of Telecom Italia is Vivendi, which is able to exercise significant influence over Telecom Italia. In 2019, Telecom Italia delisted all of its U.S. listed securities and deregistered from the SEC, having filed Form 15F on July 9, 2019. On February 17, 2023, TIM Brasil obtained registration by the CVM as a publicly-held company in category B. See “—C. Organizational Structure” for a description of our current corporate structure and Exhibit 8.1 attached hereto for a list of our significant subsidiaries as of the date of this annual report.

Acquisition of Intelig

In 2009, we acquired 100% of Intelig’s share capital from Holdco Participações Ltda. As a result, Intelig became our wholly-owned subsidiary. The acquisition of Intelig (prior to being renamed TIM S.A. in September 2017 and being merged in the Reorganization) brought material advantages through significant synergies with its network, such as its metropolitan fiber optic network and its large backbone that allowed us to accelerate the development of our 3G network and generate significant operational cost savings.

Merger of TIM Celular

In 2011, TIM Celular (which was subsequently merged into the Company as a result of the Reorganization) entered into an agreement with Companhia Brasiliana de Energia and AES Elpa (the AES Group in Brazil) for the purchase of all of AES Elpa’s equity interests in Eletropaulo Telecomunicações and 98.3% of the interest of AES RJ, (“AES Atimus Acquisition”). In connection with the acquisition, Eletropaulo Telecomunicações changed its corporate name to TIM Fiber SP Ltda. (“TIM Fiber SP”), and AES RJ changed its corporate name to TIM Fiber RJ S.A. (“TIM Fiber RJ”). Both entities were collectively referred to as TIM Fiber. In accordance with the corporate reorganization of TIM Fiber, TIM Fiber RJ and TIM Fiber SP were merged into TIM Celular in 2012, which was the former entity that used to own and operate the fiber optic network in metropolitan São Paulo and Rio de Janeiro (and which, as discussed below, itself was merged into the Company in October 2018 as a result of the Reorganization). The purpose of this reorganization was to simplify our organizational structure and improve the administrative, operational and financial efficiency of the companies controlled by us.

Reorganization

On July 25, 2017, TIM’s Board of Directors approved the corporate reorganization (the “Reorganization”), of its then subsidiaries, TIM Celular and Intelig. On September 6, 2017, as the first phase of the Reorganization, Intelig altered its articles of association to change the company from a limited liability company to an unlisted limited liability corporation, and to change its corporate name to TIM S.A.

As discussed in more detail below (see “—C. Organizational Structure”), in October 2018, the Reorganization resulted in the merger of TIM Celular into the Company. This merger achieved its objective of capturing operating and financial synergies, through the implementation of a more efficient operating structure, as well as accounting and internal control systems.

Merger and succession of NYSE and B3 listing

On July 29, 2020, the shareholders of TIM Participações (our former parent holding company) and our shareholders approved, by a majority of votes, the merger of the first into the latter, pursuant to the terms of the Protocolo e Justificação de Incorporação. On July 29, 2020, the boards of directors of each of TIM Participações and the Company approved the execution of a Merger Agreement (protocolo de incorporação) with the Company. TIM Participações merged with and into the Company, previously a wholly owned subsidiary of our former parent holding company TIM Participações (the “Merger”), which became effective on September 28, 2020. Consequently, TIM Participações, our former parent holding company, was merged into the Company as a result of the Merger. The common shares of TIM Participações had been listed on the Novo Mercado segment of the B3 S.A. – Brasil, Bolsa, Balcão (the “B3”) (the São Paulo stock exchange) since 2011. In order to be listed on the Novo Mercado, we are required to comply with heightened corporate governance and disclosure requirements and we are not permitted to issue preferred shares, participation bonuses or any type of shares that have restricted voting rights. On September 28, 2020, as a result of the Merger, TIM Participações ceased to exist as a separate entity, and TIM continued as the surviving corporation in the Merger, with TIM succeeding to all rights and obligations of TIM Participações pursuant to Brazilian corporate law and TIM became the successor registrant under Rule 12g-3(a) under the Exchange Act. On September 28, 2020, the B3 approved the listing of the merged company and the admission to trading of its shares on the Novo Mercado. On September 28, 2020, TIM filed a form 6-K pursuant to Rule 12g-3(a) promulgated under the Exchange Act to report this succession in accordance with Rule 12g-3(f) promulgated under the Exchange Act. Pursuant to Rule 12g-3(a) under the Exchange Act, TIM’s common shares and TIM ADSs, as common shares and ADSs of the successor issuer, were deemed registered under Section 12(b) of the Exchange Act. TIM Participações’s common shares and ADSs continued to be traded until October 13, 2020 when our common shares and ADSs started to trade on the B3 and the NYSE, respectively. See “Item 9. The Offer and Listing—A. Offer and Listing Details.”

Joint acquisition of Oi Group’s mobile business

On March 10, 2020, we disclosed to the market that we, jointly with Telefônica Brasil S.A. (“Vivo”), expressed to Oi Group’s financial advisor, Bank of America Merrill Lynch (“BofA”), our interest in a potential joint acquisition of all or a part of Oi Group’s UPI mobile business. On July 18, 2020, we, together with Vivo and Claro S.A. (“Claro”), submitted a binding offer to Oi Group for the acquisition of all of the mobile assets of the Oi Group, or the UPI Mobile Business. The offer was revised on July 27, 2020 and September 7, 2020 and the latter offer was accepted by Oi Group on December 14, 2020. On December 14, 2020, we, along with Claro and Vivo, were declared the winners of the competitive process of the sale of assets of the mobile telephony operation (Personal Mobile Service) of the Oi Group. In February 2022, the transaction received regulatory approval from CADE and Anatel. Closing of the transaction occurred on April 20, 2022. See ―”2022 Important Events.”

As a result of closing the transaction, we became the owner of 100% of the share capital of SPE Cozani, a company that holds part of the assets, rights and obligations business unit of Oi Móvel S.A. – Under Judicial Reorganization (“Oi Móvel”). The price for 100% of the shares of SPE Cozani, after all the adjustments provided for in the Share Purchase Agreement (“SPA”), was R$6.98 billion. Pursuant to the SPA, of the Adjusted Closing Price: (i) R$ 634.33 million was withheld by us, mostly for the purposes of covering any additional price adjustments that may need to be made and which may be identified in the 120 days following the closing; (ii) R$2.06 billion was transferred directly to BNDES - National Bank for Economic and Social Development, per a contractual provision; and (iii) the balance of R$4.29 billion was paid directly to the Seller.

With the acquisition completed, our business has taken a significant step forward at a national level, allowing us to compete even more effectively with our main competitors with regard to infrastructure and broad geographic representation of our customer base.

Following the closing of the acquisition, on October 3, 2022, we, Claro and Vivo commenced an arbitration procedure before the Market’s Chamber of Arbitration (“CAM/B3”) against Oi Group in order to dispute the post-closing price adjustment of the transaction. TIM, Claro and Vivo are seeking an indemnification of R$3.1 billion of which TIM is entitled to approximately R$1.4 billion.

Partnership with C6 Bank

On March 26, 2020 we entered into a commercial agreement with Banco C6 S.A. (“C6 Bank”), pursuant to which we have been granted, on February 1, 2021, the right to subscribe for an indirect equity interest of approximately 1.4% of C6 Bank through the exercise of subscription bonuses, subject to certain agreed upon thresholds. By the end of 2022, we had vested rights to subscribe for an indirect equity interest of approximately 5.52% of C6 Bank.

However, certain elements of this partnership are currently being disputed and so we may not obtain all of the expected benefits of the partnership. We commenced an arbitration procedure No. 28/2021/SEC8 before the Arbitration and Mediation Center of the Brazil-Canada Chamber of Commerce by TIM against C6 Bank, Carbon Holding Financeira S.A. and Carbon Holding S.A., pertaining to the interpretation of certain contractual clauses of the contracts governing the partnership between the parties. As a potential result of this arbitration, the strategic partnership may be terminated.

TIM and Vivo new sharing agreement

In September 2020, the competent authorities (CADE and Anatel) approved the new sharing agreement established between TIM and Vivo, for: (i) sharing of the 2G network, allowing one operator to switch-off its 2G network, where both parts are currently present, and the remaining operator will provide “roaming like” services for the customers of both operators and (ii) establishing new infrastructure sharing agreements for the 3G and 4G network (Single-Grid), directed to cities with fewer than 30,000 inhabitants, which in the future may be expanded to larger cities. We believe that carrying out this agreement will result in synergies and efficiencies that could help support us in continuing to provide innovative and standard-setting offerings and services, as well as synergies and efficiencies in the allocation of investments and operating costs.

In relation to our sharing of the 2G network, the renowned GWCN (Gateway Core Network) technical solution was approved and carried out during 2021, while quality KPIs were monitored. As a result of the sharing agreement, TIM switched-off its 2G network in five cities in the state of Espírito Santo and seven cities in the state of São Paulo; Vivo switched-off four cities in the state of Rio de Janeiro and eight cities in the state of São Paulo. All the switched-off cities had less than 30,000 inhabitants and were each already covered by access to 3G or 4G.

With respect to the single grid agreement, each party was able to increase its 3G and 4G coverage in more than 300 cities with a total of 422 shared sites, as of May 2021. The agreement remains in force and includes a detailed rollout that is now expected to be concluded by 2024.

TIM and Stellantis connected cars partnership

In October 2020, we and Fiat Chrysler Automóveis (FCA), now known as Stellantis, established a partnership to offer connectivity solutions embedded in vehicles of the Fiat, Jeep and RAM brands in Brazil from the first half of 2021. As part of the global strategy of developing ecosystems for connected services and to enhance the digital experience of customers, future Stellantis launches in the country will rely on eSIM, with the LTE coverage quality and our IoT network. As a result, future Stellantis vehicle launches in Brazil will have access to native Wi-Fi onboard eSIM and the cars’ active and real-time communication with the user, the Stellantis and the dealer network. In addition to such features, this technology will focus on safety, allowing remote identification of possible vehicle failures with the possibility of more agile and accurate diagnoses.

During 2021, a Proof of Concept (“PoC”) was launched in the Stellantis factory in Goiana/PE using 5G connectivity to investigate the benefits of this technology and enabling the use of new applications on a large scale, from the use case of artificial intelligence to the automated processing of images. The PoC evolved in 2022 to a new phase which will enable an Edge 5G SA Private Core and an Edge Cloud environment, achieving greater computing capacity, greater scalability, and allowing the application to perform in an environment with higher throughput and low latency.

Partnership with TIP and INATEL

Also in October 2020, we announced a partnership with Telecom Infra Project (“TIP”), for developing OpenRAN (Open Radio Access Network) technology by means of the Open Field Program. The initiative will be hosted by INATEL (Instituto Nacional de Telecomunicações) in the city of Santa Rita do Sapucaí, in the state of Minas Gerais, Brazil. The goal is to create an adequate environment (living lab) to test, validate and accelerate products and new functionalities of open and disaggregated technologies solutions for Radio Access Network, by performing network testing, product validation, feature analysis and recommendation based on friendly users’ usage and feedback. The program has taken place since 2021. Additionally, at the end of 2022, the Open RAN 5G SA TIP test plan for network access with the vendor was completed and the TIP internal process to obtain the Silver Badge began and is expected to be completed after the review and approval of the deliverables. This Silver Badge demonstrates testing of a product, combination or solution for alignment with TIP-defined requirements, typically in a controlled environment. The specific tests required for a particular badge are established by TIP’s project groups and comprise a significant subset of all tests required for deployment.

I-Systems (formerly FiberCo) Formation and Sale of Equity Interest

On December 10, 2020, our Board of Directors approved the formation of FiberCo, in preparation for a possible future segregation of assets and provision of fiber infrastructure services. This process is one of the intermediate steps in the transformation of our broadband services, and it aims to create an open fiber infrastructure vehicle to allow us to attract a strategic partner as a shareholder of FiberCo. We expect FiberCo to operate in the wholesale market and to provide fiber connectivity services for last-mile and a transport network, for all market operators, having us as an anchor customer. We expect FiberCo to allow us to achieve our expected growth in the Brazilian fiber market in the coming years, taking advantage of the open network approach and using a focused operating model. This transaction aims to accelerate the growth of our residential broadband business and unlock additional value from our existing infrastructure. Accordingly, on March 3, 2021, we entered into an exclusivity agreement with IHS Brasil Participações Ltda. (“IHS”), a large and diversified provider of telecommunications infrastructure, to negotiate the terms and conditions for the acquisition of an equity interest in FiberCo by IHS. The operation was approved by CADE on June 16, 2021 and by Anatel on November 11, 2021.

On November 16, 2021, after regulatory authorizations from Anatel and CADE, IHS Fiber Brasil – Cessão de Inraestruturas Ltda. (“IHS Fiber”), acquired from us an equity interest in FiberCo, a company that was incorporated by us to segregate network assets and provide infrastructure services.

As a result of the transaction, IHS Fiber changed the name of the acquired entity to I-Systems and currently holds 51% of I-Systems’s share capital, with the remaining 49% held by us.

Partnership between TIM and Cogna

On July 7, 2021, we informed our shareholders, the market in general and other stakeholders that, together with Anhanguera Educacional Participações S.A. (“AESAPAR”), a subsidiary of Cogna Educação S.A. (“Cogna”), jointly referred to as “Partners”, it completed the negotiations regarding a strategic partnership (“Partnership”) with the objective of developing offers combined with special benefits aimed at providing distance education through the Ampli platform, reaching over 280,000 users enrolled in undergraduate courses and open courses in 2022.

On February 15, 2023, the partners agreed amicably to call off the partnership. We are negotiating a new partnership with an educational group in Brazil to offer greater value and exclusive benefits to our customer base and expand access to digital education services.

Partnership between TIM and FS Group

In line with our customer platform strategy, following on from a number of other strategic partnerships, in May 2022 we entered into a new strategic partnership with FS Security to establish a new company dedicated to digital security solutions and entertainment for end consumers while also making it available as a white-label model for other operators.

FiberCo’s operations include approximately 15,000 km of fiber in a secondary network, covering approximately 7.5 million homes (homes passed), 4.5 million of which are FTTH (fiber to the home) and 3.4 million are FTTC (fiber to the curb), which constitute the initial base of assets transferred by TIM. The homes connected account for approximately 700,000 over which FiberCo will provide operation and maintenance services to TIM. Moreover, approximately 140 employees were transferred to FiberCo, as well as other assets and contracts, all exclusively related to the scope of its activities.

With the completion of the acquisition, FiberCo changed its corporate name to I-Systems, and began its journey as an infrastructure vehicle with the mission of deploying, operating and maintaining last-mile infrastructure for broadband access to be offered in the wholesale market, having us as an anchor customer.

5G Auction in 2021

In November 2021, the 5G auction was held. In the auction, we acquired 11 lots, with a total value offered of R$1.05 billion, in three frequency bands: 3.5 GHz, 2.3 GHz and 26 GHz. The acquired bands have a set of obligations that must be met with financial contributions or the construction of mobile and fixed network infrastructure. As a result, we have rights to the spectrum capacity that we consider necessary to follow our growth journey in the mobile telephony market nationwide, as well as preparing ourselves for customers’ demands and the ability to explore new use applications and develop innovative solutions that require high-speed connectivity and capacity.

The main commitments associated with each band are as follows:

2022 Important Events

TIM elects new Chief Executive Officer (CEO)

On January 31, 2022, our Board of Directors announced that Mr. Alberto Mario Griselli would replace Mr. Pietro Labriola in the positions of Chief Executive Officer (“CEO”) and Board member. Mr. Griselli, who held the position of Chief Revenue Officer (CRO) from July 2019 to August 2022, holds a degree in Electronic Engineering from La Sapienza University in Rome and an MBA in finance from Columbia University. With over 20 years of experience in the telecommunications industry, he has held relevant positions such as Vice-President for Latin America at TIM, a global provider of mobile engagement solutions for telecom operators, and Chief Executive Officer for Brazil and for Latin America at Value Partners, a management consulting global firm. In addition, on February 1, 2023, he assumed the positions of Investor Relations Officer and Chief Financial Officer on an interim basis, the latter of which he held until a replacement was appointment on February 27, 2023.

Anatel grants consent to transfer control of Oi’s mobile telephony activities

On January 31, 2022, Anatel, unanimously granted its consent to the closing of the sale of the mobile telephony activities of Oi Móvel S.A. – Under Judicial Reorganization (the “Oi Transaction”), via three specific purpose entities, which correspond to the assets acquired by us, Vivo and Claro S.A. (together, the “Buyers”).

The consent provides for certain conditions, in line with a transaction of this nature, which mainly aim to guarantee access by small providers to nationwide networks, maintain commitments linked to the transferred radio frequencies, establish the minimum parameters of the communication plan linked to the transaction and grant users certain rights in the migration phases.

CADE approves the acquisition of most of the Oi mobile assets by TIM

On February 9, 2022, CADE under the of Concentration Act 08700.000726/2021-08, approved the closing of the Oi Transaction, subject to certain conditions, mostly behavioral, and which were recorded in a Concentration Control Agreement (the “CC Agreement”) between the Buyers and CADE. These conditions can be used by new entrants and smaller operators to reduce entry barriers and enable the exploration of different business models, without affecting TIM’s main objective of strengthening its infrastructure and closing the capacity gap spectrum compared to its main competitors. The CC Agreement was designed to strike a balance between creating value while mitigating competition concerns.

We have continued to comply with all the measures put in place by Anatel and the CC Agreement, for example:

On April 19, 2022, we provided Anatel with a reference offer for the national roaming market. The reference offer was approved by Anatel on September 21, 2022. On the same date, we provided a reference offer for providing the mobile services through a virtual network, which was approved by Anatel on September 26, 2022.

On July 4, 2022, we independently offered to sell up to 50% of the Radio Base Stations (“ERBs”) that we had purchased from Oi Móvel (“ERBs Public Offerings”).

On July 5, 2022, we, together with Oi, signed a letter of intent to ensure the maintenance and continuity of mobile services provided at the Comandante Ferraz Antarctic Station - EACF until the end of the Cooperation Agreement no. 12000/2019-001/00, February 21, 2024, concluded on February 21, 2019 by the Union, through the Navy Command, and by Telemar Norte Leste and Oi Móvel.

On August 15, 2022, we signed a Radio Frequency Availability Agreement with Oi Móvel in order to allow Oi Móvel to meet its targets for implementing fixed wireless access systems to ensure compliance with the General Plan for Fixed Telephony Services in Public Regime (“PGMU-IV”), approved by Decree-Law 9,619/2018.

On October 20, 2022, we published reference offers to enable the execution of the Industrial Network Exploration Agreement and Onerous Temporary Agreement Assignment of Rights to Use Radiofrequency, in accordance with the terms defined by the CC Agreement.

On December 20, 2022, we published offers to enter into a contract for the Onerous Temporary Agreement Assignment of Rights to use the 900 MHz radiofrequency that we had acquired in the Oi Transaction.

Capital Expenditures

Capital expenditures totaled R$ 4,730 million in 2022, a decrease of 40.6% as compared to 2021. This result was mainly due to the registration of investments in the acquisition of licenses in the frequency auction in 2021. Excluding this effect, capital expenditure for 2022 would have grown 8% year-over-year due to the investments linked to the integration of Oi’s mobile assets, in addition to the implementation of 5G technology in Brazil. The actual amount and timing of our future capital expenditures may be affected by foreign exchange oscillations and other impacts from financial or economic crises. For a detailed breakdown of our capital expenditures in 2022, 2021 and 2020 and those currently in progress, as well as the total amount each year and method of financing, see “Item 5. Operating and Financial Review and Prospects—B. Liquidity and Capital Resources—Uses of Funds—Material Capital Expenditures” and “—Sources of Funds.”

On December 30, 2021, we released our Industrial Plan for 2022-2024, which illustrated some of the transformation that we have been able to achieve as the result of previous Industrial Plans. These achievements include, notably, network improvements and an improved customer experience, as recognized by independent third parties, and ongoing innovations in network evolution, including our 5G rollout – pursuing traffic offload, multiple-input multiple-output technology, or Massive-MIMO, repurposing frequency bands that have historically been allocated for 2G mobile services and that are being migrated to other frequencies (known as refarming), and the Vivo MoU (see “Item 4. Information on the Company—B. Business Overview—Our Business”). Through specific and disciplined investments in new technologies and processes, we seek to reach a position that allows us to act on new opportunities to sustain revenue growth, increase profitability, develop our infrastructure and expand cash flow generation. We focus on improvement of returns on investment as well as customer experience maximization, but we are also committed to our role in society by promoting environmental, social and governance initiatives that in our view will result in a positive transformation for all stakeholders.

We expect that our IT initiatives such as our big data evolution, the rollout of “next best action,” or NBA, cognitive systems, and our application and architecture review, in a two-year time frame will enable us to advance our IT systems in such a way that will enable us to have an enhanced view of our customers’ lifecycle and consumption patterns, as well as allowing for faster time-to-market, development of new capabilities, process automation, and increased efficiency. Our approach to investment in our network has a five-part focus, as follows: data growth, 5G, IoT, fixed broadband, and new initiatives. The benefits expected are a convergent architecture, fixed wireless access improvement, network densification, innovative solutions, new IoT business opportunities and network decommissioning savings.

The capital expenditure expected to support the Industrial Plan for 2022-2024 was approximately R$13.0 billion, considering our operations on a standalone basis, or R$13.5 billion considering the combination of our operations with the UPI Oi Mobile Assets as a result of the Oi Transaction for that three-year period. Some capital expenditure initiatives in development include disruptive business models for our infrastructure. With the use of new technologies, such as Massive-MIMO technology, and with network sharing agreements, we expect it will be possible for us to provide services in locations that were not previously financially viable.

On February 23, 2022, we updated our strategic plan following a year of consistent improvements, which included the successful achievement of our short-term objectives outlined in our previous strategic plan for 2021-2023. We managed to implement our strategy to achieve these objectives despite a more pressured and unstable macroeconomic environment that had generally frustrated previous market projections. In this context, our focus on execution, with flexible decision making and appropriate prioritization, was crucial.

For the next three year period, our plan takes into account (i) the estimated effects of the acquisition of the assets of Oi Móvel since the transaction received regulatory approval from the sector regulator (Anatel) and the competition regulator (CADE) (see material facts of January 31 and February 9, 2022); (ii) the effects of the beginning of the adoption of 5G technology and the obligations and commitments that we agreed to as part of our competitive bids in the 5G frequency auctions, (see material fact disclosed on November 5, 2021) in Brazil; and (iii) the change to a new coverage growth model for our residential broadband service after the segregation of our network assets and incorporation of I-Systems, (see material fact disclosed on November 16, 2021). Under this new set of assumptions, we also reaffirm our commitment to (i) the sustainable evolution of service revenue; (ii) the improvement of our operating cash generation; (iii) maintain an adequate capital allocation, characterized by the capital expenditure allocated to network and IT infrastructure that improve our operational efficiency and customer experience; and (iv) the continuous expansion of cash flow as a combination of all of the above factors.

On February 14, 2023, we updated our strategic plan for 2023-2025, which reflected the full achievement of our short-term goals outlined in the 2022-2024 Plan, demonstrating the success of the strategy and consistent execution throughout 2022. These results were achieved in a year of great challenges and uncertainties in the external environment, but of great opportunities and sectoral transformations, in which we are the protagonist: the launch of 5G technology and the end of the cycle of consolidation of the mobile market. For this new triennium, we project an improvement in overall business dynamics, driven by the combination of a larger revenue base with a solid margin recovery trend and better capital expenditure efficiency opportunities and a clear path to optimization of lease spending. This dynamic will provide an expansion of cash flow, generating additional space for shareholder remuneration.

5G launched in 2022

Following our investment in network infrastructure, in March 2022, we announced the completion of our standalone 5G network core. This was necessary for us to be able to provide fifth-generation services in accordance with government requirements. Anatel approved a revised schedule for granting access to the 3.5 GHz spectrum band in order to activate the 5G network in the Brazilian capital and Federal District of Brasília after August 2022, commencing the commercial operations of 5G Standalone (5G SA) throughout Brazil. In 2022, we began the rollout and now have 5G coverage in Brasília and all 26 state capitals, with a special focus on the cities of São Paulo, Rio de Janeiro and Curitiba, where 100% of the neighborhoods were covered, and where we have the highest number of sites compared to our competitors.

Recent Developments

In early 2023, we became the first and only telecommunications operator covering 100% of the municipalities in Brazil, in addition to 5G coverage in all state capitals. As at the date of this annual report, our network covers 100% of 5570 Brazilian cities, making us what we believe to be the first and only private service company to be present in all cities in Brazil. In Brazil, 4G connectivity continues to prevail throughout the country.

On January 17, 2023, Ms. Camille Loyo Faria resigned from the position of Chief Financial Officer (“CFO”) and Investor Relations Officer (“IRO”) of the Company, remaining in office until January 31, 2023. As a result, from February 1, 2023, Mr. Alberto Mario Griselli, our CEO, assumed on an interim basis, the positions of CFO and IRO of the Company.

Registration of our controlling shareholder as a Category B public company in Brazil

On February 17, 2023, TIM Brasil, our controlling shareholder, obtained registration in Brazil as a publicly held company in category B. Public companies registered in category B in Brazil may issue securities other than shares, share certificates or depository receipts, or securities convertible into such securities.

On February 27, 2023, the Board of Directors appointed Ms. Andrea Palma Viegas Marques to the position of CFO while Mr. Alberto Mario Griselli retained his position as CEO and IRO. Ms. Viegas has a degree in Business Administration from Cândido Mendes University, and a Master’s in Business Administration from Ibmec and currently holds the position of Executive Director of Planning and Control at the Company. Ms. Viegas has more than 20 years’ experience in the telecommunications sector, including 17 years within the TIM Group, performing different functions in the financial, marketing and technology areas. Throughout her career she has also worked in the Oil &Gas industry, Audit and Human Resources sectors.

On February 28, 2023, we announced a partnership with Upload Ventures Growth, LP (“Upload”) – an independent venture capital manager – to create an investment fund (“5G Fund”) focused on solutions based on 5G technology. The investments aimed to develop early-stage companies (including startups and scaleups) from different sectors, particularly those that already have established business models. In addition to financial contributions through the 5G Fund, the companies we invest in will be able to rely on having access to our industrial and technological assets in order to leverage their growth.

On March 30, 2023, our shareholders approved our merger with SPE Cozani (then a wholly-owned subsidiary) pursuant to which SPE Cozani would be merged into us, subject to certain conditions, including authorization by Anatel and the closing processes that are required under Brazilian corporate law to consummate the merger of two companies, pursuant to the Protocol and Justification of incorporation. On March 31, 2023, our Board of Directors confirmed satisfaction of all the closing conditions and approved the closing of the merger with SPE Cozani, which became effective on April 1, 2023.

B.       Business Overview

Market Characteristics

The telecommunications sector in Brazil is marked by a high degree of competition and by the effective regulation of the National Telecommunications Agency, or Anatel, which has a stated purpose of “promoting the development of telecommunications in Brazil, in order to provide it with a modern and efficient telecommunications infrastructure, capable of offering society appropriate and diversified services at fair prices nationwide”.

Throughout 2022, the telecommunications sector continued to suffer the impacts brought on by the global COVID-19 pandemic, as well as restrictions aimed at curbing the spread of the virus. However, despite these challenges, the sector maintained a growth trajectory in terms of data consumption, and as such, operators were required to adapt their networks and face the challenge of delivering an increasingly robust infrastructure in an environment which requires greater rationality of investments, including on projects such as the densification of sites, frequency refarming, and the aggregation of carriers on two or three frequencies. Furthermore, we continue to advance in sharing initiatives focused on 4G and transport network, despite accelerating the rollout of our 5G coverage in order to optimize traffic offload. This network evolution has allowed for a better usage experience, both in terms of performance – with higher download and upload speeds and lower latency – as well as in indoor coverage and greater penetration.

Demand for the evolution of technology and investments in the sector has also continued. In particular, this can be seen in relation to the 5G auction, which was held in the last quarter of 2021 and in additional to a financial component established a series of special commitments undertaken by successful bidders related to the right-of-use of frequencies, which forces the sector to undergo a new cycle of investment. The deployment of 5G technology is expected to bring about significant technological advances, enabling the generation of new business models, encouraging an increasingly connected society, and paving the way for advances in research and development.

Throughout its history, the Brazilian telecommunications sector has always been impacted by fierce competition, evidenced by the presence of aggressive marketing offers, including the add-on content offered to customers and strong price competition. However, in recent years, we have observed this competition begin to focus more towards quality and service. This trend continued in 2022.

During 2022, we closed the Oi Transaction, following satisfaction of all the conditions, including regulatory consents by Anatel and CADE. However, following the closing, the Buyers, including us, initiated an arbitration proceeding relating to the adjusted closing price, after learning that there were differences in assumptions and calculation criteria, which the Buyers only had access to following the closing. The sale of the mobile operation was part of the Court-Ordered Reorganization Process of Oi S.A. – Under Judicial Reorganization.

Lastly, 2022 was marked by the launch of 5G technology in Brazil, which seeks to address the demand for faster connection speeds. We ended 2022 having launched 5G technology in all 27 state capitals of Brazil, with a much higher number of antennas than required by Anatel, allowing us to provide an even better experience for our customers.

The Brazilian mobile market reported a decrease in subscriber base of 1.1% year-on-year (“YoY”), breaking a trend towards growth from recent years. During 2022, postpaid users reached 140.1 million users. Since the end of 2020, the prepaid customer base is no longer the market’s largest component, shrinking even further relative to postpaid customers in the years ended 2021 and 2022. It now constitutes only 44.4% of the total subscriber base as of December 31, 2022, as compared to 47% as of December 31, 2021. The significant reduction in the overall number of prepaid users is mainly due to the acceleration in users consolidating multiple SIM cards into a single SIM, high penetration of mobile service and the rapid substitution of voice with data usage, resulting in a decrease in the so-called “community effect,” where consumers value a telecommunications system more as more users adopt it. The postpaid segment, however, experienced an increase of 3.2% during 2022, reaching 55.6% of the total subscriber base as of December 31, 2022, as compared to 53% as of December 31, 2021, driven by operators’ efforts to monetize their customer base, offering more data, content and digital services, and the migration of customers from prepaid to control plans, and from entrance plans to postpaid plans.

Mobile Competitors

TIM is the brand name under which we market our mobile telecommunications services, offering 5G DSS, 4G, 3G and GSM technologies. Currently, we hold mobile licenses for each of the ten wireless areas of Brazil recognized by Anatel, making us a mobile operator in Brazil offering complete nationwide coverage. In two of our ten areas we are the Telebrás legacy provider. See “—A. History and Development of the Company—Historical Background.” Our network covers 100% of Brazil’s municipalities.

In addition to TIM, as at the end of 2022 there were two other major participants in the Brazilian mobile market that offer nationwide coverage in all Anatel wireless areas: Vivo and Claro, since Oi was acquired by the trio (us, Claro and Vivo) in April 2022. See “—A. History and Development of the Company—Historical Background.”

The Brazilian mobile telecommunications industry is highly competitive. Any adverse effects on our results and market share from competitive pressures will depend on a variety of factors that cannot be precisely assessed and are beyond our control. Among such factors are our competitors’ size, experience, business strategies and capabilities, the prevailing market conditions, and the applicable regulations.

Other Competition

We also compete with landline telephone service providers, of which the incumbent providers in Brazil (Oi, Vivo and Embratel Participações S.A. (owned by America Movil), as well as Algar Telecom, a regional incumbent), and some other relevant players (GVT, acquired by Vivo, and Net Serviços de Comunicação S.A., owned by America Movil), offer packages including voice (both fixed line and mobile), broadband and pay-TV services in bundled offers. Landline providers are, however, required to offer their services to unaffiliated mobile providers on the same basis they are offered to affiliate mobile providers. Our acquisition of Intelig (now known as TIM S.A.) and AES Atimus (later TIM Fiber, which was merged into TIM Celular in 2012, and TIM Celular was merged into the Company in 2018) broadened our participation in the fixed telecommunication sector.

In November 2018, Anatel issued Resolution No. 703/2018, which established new maximum limits for the amount of spectrum bandwidth that a single telecommunications service provider of collective interest, as well as its affiliates, subsidiaries or controller company, when operating in the same municipality, may hold on a primary basis. This regulatory change increases the competitive environment of the sector and facilitates consolidation of operations among the main players in the market.

In recent years, in preparation of certain anticipated market events, the Brazilian telecom sector has experienced a series of broadband-centric capital markets and mergers and acquisitions activity, resulting in a mixture of organic growth and strategic acquisitions. The 3.5GHz rights that were acquired at auction by regional providers will open an opportunity for them to become mobile network operators. Additionally, the new neutral network, which is expected to be offered by Winity Telecom, using the 700 MHz frequency will be able to leverage mobile network capacity for ISPs. One of the main opportunities for ISPs in the mobile market will be for ISPs to leverage their current broadband customer base with bundle offers combining their existing broadband offering with mobile offerings that utilize the mobile neutral network.

The consequence of this has led to a growing number of strong market participants in the sector. Brazilian ISPs pursing IPOs aim to use the IPO proceeds to strengthen their regional presence across the country. In July 2021 alone, three of Brazil’s largest ISPs, Desktop, Unifique and Brisanet, staged their IPOs. Shares of the companies were listed on the B3 stock exchange in São Paulo. The wave of Brazilian ISP capital markets and mergers and acquisitions activity reinforces the companies' expansion plans, with regional providers continuing to add new acquisitions to their post-IPO portfolio by acquiring smaller ISPS to complement their existing footprint. Other groups are undertaking this same strategy, for example Grupo Vero, Grupo Conexão, Grupo EB Capital, and Grupo mhnet.

Our Business

We are a telecommunications company that offers mobile voice and data services, broadband Internet access, Value-Added Services, and other telecommunications services and products. For a breakdown of our total revenue by category of activity, see—Item 5. Operating and Financial Review and Prospects—Results of Operations for the Year Ended December 31, 2022, compared to the Year Ended December 31, 2021.

We believe that we are well recognized in the market for our strong brand, “TIM”, and for having a reputation as an innovative and disruptive company capable of setting new consumption standards for the market. Our proactive approach allows us to be in a leading position in the transformation of the telecommunications business model. The change in consumer profiles and the emergence of new technologies foster a rupture in the telecommunications industry based on the consumption of digital data, content and services.

We are characterized by our pioneering and innovative offerings, among a complete portfolio for individuals as well as corporate solutions for small, medium and large companies. Besides traditional voice and data services, we offer a fixed-line ultra-broadband service, TIM UltraFibra (formerly TIM Live), WTTx technology through UltraFibra service, and we have started to offer IoT solutions, with successful examples in agribusiness, while also looking for new opportunities in other industrial segments such as mining, transport and logistics, healthcare, public safety and industry 4.0.

We also offer a variety of digital content and services in our portfolio of packages, aimed at increasing the day-to-day functionality of our customers’ mobile devices. The ability to manage a complete and varied portfolio gives us the opportunity to offer customized packages to our customers and to provide offers which bundle services, like voice and data, to customers in certain regions.

In 2022, we continued our innovative and pioneering strategy in all consumer market segments (prepaid, control and postpaid). In the postpaid segment, the biggest launch of the year was the new plan with an Apple TV+ subscription included for no additional fee. Settled at the same price point as our other postpaid plans and competitively positioned in the market for postpaid offers, the partnership with Apple allows us to provide a unique offering in the Brazilian market. Furthermore, we started to establish our position in the 5G market. We launched an extra “5G Booster Package” to postpaid customers, enabling them to enjoy the best of our 5G capabilities. In addition, we believe we are currently the only carrier in the Brazilian market to allow our customers to choose their favorite subscription among HBO, YouTube or Netflix without the need to switch plans. This feature also permits customers to easily change their choice whenever they want. We still maintain other advantages such as “data rollover”, “concierge service” and the new “TIM in flight”, to contribute to a better customer experience. In the control segment, we increased our focus on the “TIM Controle Redes Sociais” (TIM Control Social Media) plan, which grants unlimited data to be used on Instagram, Twitter and Facebook packages, and has a higher average ticket. Furthermore, in the prepaid segment, we continued with our strategy to increase value added benefits for our customers. For example, by including an “Amazon Prime Mobile Only” subscription with no additional fee to TIM PRÉ TOP customers, we maintain our strong position in the prepaid market, being the only carrier in the global market to offer video and music subscriptions without an additional fee (Amazon Prime Mobile Only and Deezer Go – launched in 2021). Through this product strategy, we believe that our pioneering and innovative spirit (which we consider characteristics of our DNA) will sustain our relevance in the domestic market and allow our customers to take full advantage of growing network capabilities as we enter the 5G era.

In July, 2019, we and Vivo also entered into a memorandum of understanding (the “Vivo MoU”), to start negotiations regarding: (i) sharing of a single-grid 2G network; (ii) establishment of new infrastructure sharing agreements for the 4G network in 700Mhz, directed to cities with fewer than 30,000 inhabitants, which in the future may be expanded to larger cities; (iii) other network sharing opportunities in other frequencies and technologies; and (iv) other opportunities in efficiency and cost reduction in operations and network maintenance. We believe that implementing the concepts set forth in the Vivo MoU will result in synergies and efficiencies that could help support us in continuing to provide innovative and standard-setting offerings and services, as well as synergies and efficiencies in the allocation of investments and operating costs.

We believe that our robust network infrastructure, our innovative approach, our brand recognition, and our widespread sales network, position us well to capitalize on opportunities in the telecommunications industry in Brazil and meet the constantly changing demands of the mobile telecommunications market. We believe that our main strengths include:

High quality services

Since national coverage and quality had improved quite substantially over the last few years, Anatel also has shifted its focus. The prior focus was service quality from a broader, state-oriented perspective and now, Anatel is taking a local perspective, concentrating its efforts on smaller geographic areas like cities, especially those where service is still considered poor. In the final quarter of 2017, Anatel proposed the Quality of Telecommunications Services Regulation (Regulamento de Qualidade dos Serviços de Telecomunicações) (“RQUAL”), which came into force in March 2022. Based on performance against certain quality and performance indicators, operators will each be classified with a grade between A-E. This grading is expected to take place in 2023. RQUAL is based on responsive regulation and will apply to all telecommunication services (mobile, fixed, fixed broadband and payTV) on a municipal level and sets forth new obligations for service providers, such as a user compensation model and a mandatory ombudsman, and grants customers additional rights including the customer’s possibility of terminating their service agreement without penalty in case of poor service quality. For more information on the new quality regulation, see “—Regulation of the Brazilian Telecommunications Industry—Quality Management Regulation.”

Accordingly, we have also started tracking our quality and performance indicators, in particular focusing on service quality at the city level, in order to assure an even more rigorous review of our customer experience. Following the contribution period, we continue to monitor municipalities outside the Anatel threshold (“critical”) and have already started simulating the new performance indicators set forth in Resolution No. 717/2019.

The results of this local focus are demonstrated in the solid improvements of Anatel’s quality metrics over recent years. As a highlight, we have been able to maintain positive results in 3G/4G data-related indicators due to the rapid expansion of our coverage, in particular in 4G, where we are the leading telecommunications company by number of cities covered, according to the Anatel website (www.anatel.gov.br).

Our LTE technology also demonstrated strong performance and the inclusion of the NR network in data usage, wide coverage and availability. These results are important due to the strong demand by our customers for this technology. At the end of 2022, approximately 94.18% of our data traffic was carried out over the 4G and 5G network, with an increase of 1.83% compared to the previous year.

The results of our digital transformation initiatives continue to expand and, during 2022, demonstrated solid results. Given the impacts of the COVID-19 pandemic, our customers demanded even more network capacity and digital solutions. This demand meets the strategy we have adopted for several years to seek digital evolution and constant network development, aiming to ensure innovative solutions, quality and availability of services, offering a superior customer experience and strengthening our positioning in the market. We believe that the digital transformation of our services must take place on several fronts, from the sale and activation of the line to post-sale and the so-called “self-caring”, meaning the digital service portals that allow customers to manage profiles and subscriptions, billing, collection, and payment.

Even in a challenging year, our digital channels’ positive results and the excellence of services offered to our customers confirm that we had made the right business decisions, demonstrated our capacity to adapt to adverse situations and reinforce our purpose of “evolving together, with courage, transforming technology into freedom”.

We believe our ultra-broadband service is also viewed generally as a reference of quality in the sector, driven by our commitment to ensuring a positive customer experience. The service quality of our TIM UltraFibra offering has produced positive results, being recognized for 7 consecutive years (2015 - 2022) by the widely circulated newspaper, “O Estado de São Paulo.”

We also seek a strong position in the high-value customer market as a content HUB by offering a variety of plans for individual and family usage, bundling voice and data packages, streaming and other content subscriptions, as well digital Value-Added Services (music, e-reading, video streaming, games), in order to provide a custom customer experience.

We are also better able to provide high quality services due to our strong relationship with our suppliers. We operate a system for information technology vendor management in order to improve the commitment of our suppliers. As a result of this approach, we benefit from enhancements like (i) better accountability of end-to-end vendors on our business processes; (ii) better contractual conditions and savings due to the increase of volumes per vendor; (iii) vendor consolidation and specialization in specific platforms/processes, creating the opportunity for long-term investments in such areas; (iv) active contribution to transformation and simplification; and (v) raising the best practices of Request for Quotation instead of Direct negotiating in order to gain more savings, also increasing the so called Global Deal among us and Telecom Italia with the scope to capture more synergies and quality of the furniture’s by global vendors.

These processes were organized and improved through detailed rules such as the Projects Review Board and Investments, and the Function Points Productivity Contractual Auditing. This allowed us to achieve an excellent level of information technology governance, exemplified by better business contribution of each investment due to shared objectives and goals. As a result, we improved our efficacy and efficiency.

Finally, we also continue to seek new internal data sources in order to better understand our users’ perspective and needs, including collecting and analyzing information from applications and investing in the modernization of traditional quality-assessment tools.

We understand that the above statistics reflect our commitment to quality infrastructure and our focus on customer experience. However, we recognize that there are some statistics and/or quality measures that use different methodologies and which may present different results from those that are mentioned above.

Open Innovation Program

Our Open Innovation Program has the objective of establishing a network to exchange knowledge, best practices and business models within a collaborative group of enterprises, startups and academia in order to leverage the development of innovative products and services. The program focuses on learning and exploring new technologies in partnership with complementary business partners, in order to create sustainable and responsible solutions. The collaboration network is based on the concept of partnerships with startup, innovation hubs, academy and/or society, and is designed to bring together entrepreneurs, vendors, technology companies, providers and content developers, innovation centers and universities so that they can recognize in TIM a potential partner in the development of new products, services or business models based on our business strengths and technology.

As a supporter of the concept of open innovation for five years, we have been obtaining positive results from applying this concept to our business. After a unique year in 2019 for our Open Innovation program, when the company became a space for promoting and fostering a new technological wave in Brazil, we went further in 2020 and 2021, increasing our involvement with startups, establishing new partnerships with innovation hubs dedicated to healthtechs and agritechs. During 2019, we established 5G Living Labs with the aim to foster the development and use of 5G in a variety of contexts, to perform network testing and promote market readiness. The 5G Living Labs establish an environment for experimentation and co-creation in which end-users, researchers, companies and public institutions explore, design and jointly assess new and innovative products, services, solutions and business models, and provide important feedback for development and subsequent commercialization of products and services. In this occasion, four labs were launched with national and international partners across Brazil: one with the Federal University of Santa Catarina and CERTI Foundation, one with the National Telecommunication Institute (Inatel) in Santa Rita do Sapucai (State of Minas Gerais), one with the Federal University of Campina Grande and Virtus Institute and the last, one in São Paulo within CUBO, the most prestigious startup hub in Latin America. These TIM 5G Living Labs were focused on fostering 5G use in the following areas and business sectors: telemedicine, remote education, smartcity, security, intelligent home, game streaming, drones, industry 4.0, immersive technologies for education, health, industry and entertainment (actual reality and virtual reality) and smart agriculture using experimental 5G radiofrequencies.

In 2020, we together with the Telecom Infra Project (TIP) and the National Telecommunication Institute (Inatel) started the Open Field Program, which aims to develop innovative and sustainable solutions for the expansion of the radio access network (RAN) infrastructure, creating an adequate environment to run tests, like a living laboratory, validating and accelerating products and new functionalities of open and disaggregated technologies solutions, such as Open RAN. The program has taken place since 2021. Additionally, by the end of 2022, the execution of the Open RAN 5G SA TIP test plan for access network with the vendor was completed and the TIP internal process to obtain the Silver Badge began, which will happen after the review and approval of deliverables. This TIP Silver Badge demonstrate testing of a product, combination or solution for alignment with TIP-defined requirements, typically in a controlled environment. The specific tests required for a particular badge are established by TIP’s project groups and will comprise a significant subset of all tests required for deployment.

In 2021, as part of our client platform strategy for start-ups, we actively pursued a number of fintechs, edutechs, insurtechs and healthtechs, among other verticals in an effort to transform those startups into unicorns. This was based on our client platform strategy pursuant to which we seek partnerships with digital service companies where we believe we can accelerate their growth and create new business models, client journeys and marketing approaches. As part of this strategy, we started pilot projects to foster the development of an ecosystem of solutions and partners with the aim to approve devices and applications in partnership with academies, government agencies, communities and startups. In 2022, we were also working more closely with the Cubo Itaú innovation center to promote co-creation with startups. In October 2022, TIM established a new singular hub, dedicated to 5G “HUB 5G TIM ” that was launched at Cube's space, with 5G demos by partners (FWA, VR gaming, AR for Industry 4.0, 5G notebook, necklace and 360° camera). The hub, a collaboration ecosystem, is a place for experimentation where customers, studies, large case companies, entrepreneurs, investors and public institutions, services and valid cases are connected to solutions in general, with a focus on developing an innovative environment aimed at business connections with companies that can be leveraged with 5G technology. The launch of our new positioning at CUBO with the “HUB 5G TIM” brand space took place at CUBO headquarters in São Paulo, with the participation of technology partner companies, innovation hubs and startups.

We in alliance with Inatel – Brazil’s National Institute of Telecommunications, will develop solutions regarding internet-of-things (IoT) and smart cities based on IoT Mobile solutions with applications that could improve the quality of life of citizens, development of intelligent tools and enable new processes of public administration.

In alliance with PUC/Rio - Pontifical Catholic University of Rio de Janeiro, we will develop different use cases in relation to following verticals:

(i)       Health:

(ii)       Rural:

In 2021, with the goal of redefining smart cities in Brazil and exploring the full potential of 5G, we, Enel X Brazil and Leonardo Brazil joined forces to serve smart, safe and resilient cities. The companies agreed to offer and develop joint solutions for smart cities, combining experience in energy, telecommunications, technology, and cybersecurity tailored to Brazilian municipalities.

In 2021, we became a partner of Embrapa, the main agent of innovation and research in agribusiness in Brazil and the world, in the development of a new innovation agribusiness hub called Silo, located in Juiz de Fora (MG). The hub pursues innovative solutions through the combination of entrepreneurship, research and innovation. We will provide an important role in operating the hub, enabling mobility and 5G.

In 2021, in relation to 5G, in partnership with AgTech Garage innovation hub, we launched a call for startups that want to evolve or pivot their business plans in order to utilize 5G. The call was successful, having more than 45 startups registered, with eight finalists. Those startups had the opportunity to present their pitch to us, involving solutions for fire detection, irrigation, intelligent fertilization, robotics, image monitoring, pest control, among others. Among the finalists, four startups were selected to test and evolve their minimum viable product (MVP) together with Auros Robotics, Quickium and Umgrauemeio.

In 2021, driven by current market trends and the role of 5G enabling new business concepts, we established a partnership with Intel, which allows us to have first-hand access to Intel technology. The project focuses on offering 5G network services to benefit end consumers. The focus of the partnership is mainly on cloud gaming and the metaverse. This initiative is unprecedented in the Brazilian market, making us the first pioneer partner of Intel for cloud gaming over 5G.

In 2021, we again took part in the biggest hackathon in Latin America, Hacking.Rio. The challenges were based on the UN Sustainable Development Goals and we launched a challenge based on SDG 11 – “Sustainable Cities and Communities”, looking for products and services that can benefit mobility and help create, more modern and cleaner cities with green spaces.

In 2021, Stellantis, we and Accenture teamed up to launch the first standalone 5G pilot for the automotive industry in Brazil applied through a private network, which uses artificial intelligence and cloud computing.

In 2021, we were chosen as the telecommunications provider responsible for providing the 5G infrastructure and network, deploying the 5G SA (standalone) network core in the public cloud, constituting an integrated digital environment.

In 2022, after undertaking a proof of concept, we signed a private 5G network customer service partnership with a customer operating in the port segment. Pursuant to the joint initiative, we plan to implement the first 5G private mobile internet network tailored for port operators throughout Latin America. The network is expected to be commissioned in 2023, after releasing the 3.5 Ghz frequency for the city, under the oversight of Anatel, the national regulator.

The year 2022 was marked by several challenges, such as the reopening of face-to-face events, new opportunities in our partnerships, and bringing together startups that are in the scale up phase.

We participated in Scibiz, the largest conference bringing together the connection between science and business in Latin America, promoted by USP, at the International Diffusion Center (CDI) and at InovaUSP, in São Paulo. Together with several of our internal teams, such as human resources, IT/network and marketing, we held lectures on various topics and participated in panels on 5G technology, with the participation of a number of our directors, and a panel dedicated to our Cloud journey, which included participation by representatives from some of the largest tech companies.

We again took part in the biggest hackathon in Latin America, Hacking.Rio. Challenges were based on the UN Sustainable Development Goals and we launched a challenge based on SDG 12 – “sustainable production and consumption”, looking for products and services that can benefit the 4.0 industry, Big Data and 5G.

We made the first call for startups for our hub, called “HUB 5G TIM”, leveraging our new collaboration space. The first cycle was dedicated to our B2B - Corporate Solutions department, aimed at approaching startups dedicated to 5G applications for one of the most significant economic sectors of the Brazilian economy: Agribusiness. Eight startup proposals were selected, four of which were pure agritechs and four deeptechs/datatechs, with specialized solutions such as mapping the spatial variability of agricultural soils and creating high-precision management zones, in addition to computer vision, artificial intelligence and machine learning technologies. The selected startups will be able to test their solutions on one of our B2B agribusiness clients, in addition to having support from our technology department for better use of the 5G network.

Based on our open innovation model, in 2022 we contracted with 15 startups with solutions to increase revenue, improve experience and reduce cost or risk, supported by technologies such as artificial intelligence, cyber ​​security and process automation, to meet challenges in the areas of sales, purchasing, logistics, security, legal and customer relationship. As a result, we have already observed cost reductions with legal operational processes, based on the digitization of the demand handling flow stage, significant reduction of the SLA for carrying out tasks in the IT operations area and other improvement according to the perception of our employees, among other gains.

A Strong brand.

We believe that our brand, TIM, since the commencement of our operations, has been recognized for leading important developments in the Brazilian telecommunications market and, consistent with our brand identity, we continue to position ourselves at forefront of society’s digital transformation. Our brand tagline “Imagine the possibilities”, invites our customers to view the future in a positive light and demonstrates our commitment to being along side them as they face new challenges, opening up a world of opportunities. In addition, we presented a new spokesperson representing our current brand values - freedom, respect and courage - and highlighting diversity, an important pillar in our strategy. To reinforce our brand strategy, we revised our written purpose: “Evolve together with courage, transforming technology into freedom”, indicating that we will continue to lead important market movements and act as a pioneer in customer services. Furthermore, to reinforce the positioning of our brand as a brand that values our customers and brings advantages beyond just gigabytes of data, we have become the first operator to offer consumers prepaid video streaming, further broadening and democratizing access to this type of service to a previously unserved customer base. Since 2015, we have been the leader in 4G coverage throughout Brazil, even connecting Brazil’s countryside to help facilitate technological innovation in the agribusiness sector. Furthermore, we pioneered the activation of 5G networks in Brazil, with our first tests carried out in 2019, and we demonstrated our preparedness for the next generation of mobile networks by launching 5G in all Brazilian state capitals while staying ahead of the competition in terms of coverage (including by focusing our 5G deployment in key regions in order to reap the benefits of our investment in 5G most efficiently). Finally, in order to help reinforce our brand association with music, in 2022 we resumed our music sponsorship. This included the sponsorship of the 2022 Brazilian edition of the Rock in Rio festival and TIM Music Rio (free concerts on the beaches of Rio de Janeiro), TIM Music Noites Cariocas (the most iconic event in Rio) and TIM Music Mulheres Positivas (an all-female lineup).

Advanced Technology and Innovation Center

In 2017, we set up TIM Lab, a multifunctional test bed environment for evaluation of innovative technologies, products and services, assessing their functional efficiency and performance requirements, and development of new models and solutions. This endeavor brings engineers, researchers and technicians together to ensure effective assessment, and serves as an open space for new opportunities, leading innovation for the Brazilian telecommunications market and acting as a national reference for R&D activities.

TIM Lab performs a strategic role in supporting service assessment and innovation activities. These projects support our network evolution and tackle certain important business and market needs, including the evaluation of new generation networks, future Internet applications, projects with positive social and environmental impacts and open innovation initiatives.

In this sense, we also joined the Telecom Infra Project (“TIP”), an initiative founded by Facebook and other companies to create a new approach for building and deploying telecommunication network infrastructure, with TIM Lab as the first TIP Community Lab in Latin America. In addition, since 2017 TIM Lab has also participated as one of the GSMA Mobile IoT Open Labs since 2017, a community where companies developing solutions over cellular low power wide area networks can work with experts on their projects.

Among the technologies assessed and approved at the TIM Lab environment are certain extremely important technologies to support the network evolution, including 700MHz LTE, IP multimedia networks (voice over LTE, video over LTE, WiFi calling services, completely laid out functional blocks, and enabled by an IP multimedia subsystem platform), network functions virtualization (“NFV”), 4G RAN sharing, NB-IoT, Defense Wavelength Division Multiplexing, transport network and power saving features and solutions. In 2019, we launched our nationwide 4G NB-IoT network in 700MHz, covering over 3,200 cities. In 2020, we ran laboratory tests and live trials with 4G advanced features combined with 5G (multiple antennas plus carrier aggregation and dynamic spectrum sharing). The first 5G NSA compatible devices were homologated and commercialized in 2020, allowing the users to make use of the technology in the available live clusters. Open-RAN solutions were also evaluated in laboratory environment with the objective to assess the maturity of 4G and 5G disaggregated solutions for future field trials. Other advanced technologies, such as edge computing, disaggregated transponders and transport network optimization and automation solutions were also evaluated in TIM Lab in 2020.

We evaluated 5G standalone architecture and solutions in 2021 (known as 5G SA), for commercial deployment in 2022. Also in 2021, we developed proofs of concept (PoCs) making use of different technologies associated with 5G SA, such as artificial intelligence for the automated processing of images (using 5G as mean of connectivity), and cloud software for hosting 5G core network elements.

In 2022, we continued to undertake tests for our standalone 5G architecture at TIM Lab, aiming to ensure the evolution of the 5G architecture and the provision of quality services. Another focus of our work throughout 2022 at TIM Lab were the tests of broadband/fixed network expansion scenarios and Multi InfraCo's scenarios (together with VTAL), with a focus on the interoperability tests of TIM CPEs in the InfraCo's network, in addition to the various support and testing fronts with I-Systems.

In 2022, aspiring to broaden its project horizons and position itself as an innovative brand, TIM Lab undertook to migrate to a new location, with a fully renovated test environment that would also function as an innovate space for presenting projects to potential new business partners and clients while also generating cost efficiency, with the use of its own building and with new technical features. In October 2022, we started the plan to migrate TIM Lab to a new location in São Cristovão, in the state of Rio de Janeiro, with an area of approximately 850 m². With this new infrastructure, the TIM Lab will benefit from an increased usable area, better connectivity and greater capacity to absorb innovative projects, in addition to connections with cloud environments.

Strong commitment with ESG pillars and the only Brazilian telecommunications company listed on the Novo Mercado for over 10 years

Since 2011, we have been part of the Novo Mercado segment of the B3 stock exchange, meaning that we are subject to B3's highest standard of corporate governance requirements, which includes compliance with heightened requirements not only related to corporate governance, but also to the disclosure of information to the market. We believe that the listing on the Novo Mercado provides greater liquidity and value for our shares and allows us greater access to international markets, promotes the strengthening of our corporate image and increases confidence in us, in addition to reaffirming the long-term commitment of Telecom Italia and its subsidiaries (the “Telecom Italia Group”), in Brazil. We believe listing on the Novo Mercado also aligns the interests among our controlling and minority shareholders with respect to voting rights, tag along rights and dividend policy.

In addition, we belong to a select group of companies comprising the portfolio of the Corporate Governance Index and the B3 Tag Along Stock Index, comprised of companies that have committed to adopt better co-sale protection to minority shareholders, have actively traded in 30% of the trading sessions and do not constitute a penny stock. In December 2022, we were listed for the fifteenth consecutive year as part of the portfolio of the Corporate Sustainability Index of the B3, an index comprised of companies that have a strong commitment to sustainability and social responsibility. In 2022, we also remained one of the constituents of the S&P B3 Brazil ESG Index. In January 2023, we were selected to remain in the portfolio of the Carbon Efficient Index, or ICO2, of the B3, with the commitment to measure, disclose and monitor our greenhouse gases, or GHG, emissions, and we were selected to be part of B3’s Great Place to Work Index, or IGPTW, once we became a GPTW certified company in 2022, recognizing us an employer that creates an outstanding employee experience. We increased, by 4%, our S&P ESG Score, which is based on our response to the Corporate Sustainability Assessment (CSA). The constant pursuit of best environmental, social and governance practices also ensures our presence in several international indexes and ratings, such as FTSE4GOOD Emerging Markets, FTSE4GOOD Latin America, MSCI AWCI ESG Leaders, MSCI Emerging Markets ESG Leaders, Refinitiv D&I Index, among others.

In 2021, we became the first Brazilian operator to integrate the Refinitiv Diversity & Inclusion Index, occupying the first position globally in the telecom sector. The index measures the performance of more than 11,000 companies - equivalent to 80% of the global market - based on diversity, inclusion and career development initiatives. In 2022, we were ranked 10th in the global ranking, maintaining our leadership in the telecom sector and in Brazil. At the beginning of 2022, we remained for the second consecutive year in Bloomberg's Gender Equality Index, which gathers 485 companies from 45 countries, with only 17 from Brazil.

As a signatory to the Global Compact since 2008 and UN Women since 2021, we promote projects related to the Sustainable Development Goals (“SDG”) and recognize the rights to data privacy, safe internet, access to information and freedom of expression as essential and unnegotiable as part of our efforts to respect Human Rights.

As part of our commitment to society in addressing climate change, we conduct periodic mapping of the sources of emissions in our activities. We are able to do so by preparing annually a GHG inventory in accordance with the guidelines of the GHG Protocol (which sets the global standard for how to measure, manage, and report greenhouse gas emissions) and also by working with TIM in Italy to establish goals aligned with the Science Based Targets Initiative (SBTi), since the companies controlled or related to the TIM Group in Italy (“TIM Group”) joined the initiative in July 2021 with the challenge of keeping global warming limited to 1.5°C, as established in the Paris Agreement. The SBTi aims to promote the best reduction and offsetting GHG emissions in line with climate science. Since 2010, we have reported our greenhouse gases (GHG) emissions by means of the Carbon Disclosure Project (“CDP”) – the largest database of primary corporate climate change information in the world – and publishes its GHG emissions inventory in accordance with the Brazil GHG Protocol Program. In 2021, the CDP questionnaire was integrated by B3 as a crucial part of the methodology for the selection of the constituents of the Corporate Sustainability Index and our CDP Score improved from B- to B. In 2022, we remained in the ICDPR70, an index we have been part of since its creation in 2021, which focuses on including companies publicly committed to reducing their carbon footprint, based on the companies' scores in the CDP questionnaire and ranking those with the best level of awareness about climate change.

Since May 2022, we have publicly declared our support for the recommendations by the Task Force on Climate related Financial Disclosures (TCFD), demonstrating our commitment to better information as a basis for understanding climate risks in our transition to a low carbon economy. We have also aligned our approach to climate risks and opportunities with the TCFD recommendations and published these in an issue brief.

We also identify opportunities to improve our levels of excellence in our Environmental Management System (EMS), covering all our operations, based on our Environmental Policy. This includes basic commitments such as protecting the environment, customer service to the legal requirements and norms of the organization and the continuous improvement of performance in processes and controls, having obtained the ISO14001 environmental certification for Network Management and Operation in the states of Rio de Janeiro, São Paulo and Espírito Santo.

For 15 years we have published our Sustainability Report presenting the main financial and non-financial results, in accordance with the Global Reporting Initiative (“GRI”) Standards methodology. Since 2021, we refer to this publication as the ESG Report and reinforce our commitment to transparency and accountability to our stakeholders, organizing the report into three pillars: Environmental, Social and Governance. Since 2021, the ESG Report also reports the SASB - Sustainability Accounting Standards Board - indicators. Our ESG Report has an independent third-party limited assurance since 2009.

Our main policies - such as the Corporate Social Responsibility, Human Rights, Environmental, Climate Change, Supplier Relations, Risk Management, Anti-corruption and Safety & Occupational Health Policies - are publicly available to the consultation of our stakeholders.

Founded in 2013, Instituto TIM has a mission to democratize access to science, technology and innovation, in order to promote human development in Brazil. More than 700,000 people from all Brazilian states and the Federal District have been benefited by the education and inclusion projects of Instituto TIM, some of which were internationally awarded (i.e. Governarte Awards – BID 2015).

In 2022, we updated our long-term ESG commitments in our 2023-2025 Strategic Plan. Based on the ambitions assumed in our last Industrial Plan (2023-2025), we included new objectives related to a portfolio of initiatives that are part of our business strategy, contributing to a coherent interrelated structure between ESG aspects, business operations and organizational accountability. For the TIM Group, the business role is increasingly tied to the responsible management of aspects that go beyond financial targets and aim to generate positive value for society in the long term.

Among the established goals, which are also part of MBO and LTI compensation programs, our environmental pillar is to become a carbon-neutral company by 2030 and net-zero carbon by 2040. In addition, we have undertaken to maintain a policy of using renewable sources for 100% of our energy consumption, to increase by 110% the energy efficiency in data traffic (against the base year of 2019) by 2025, to reduce by 47% scope 3 indirect emissions by 2030 and to recycle at least 95% of our solid waste by 2023. From a social perspective, the main commitments are for our workforce to be comprised of 40% of black people, our leadership positions to be comprised 35% of women, to take 4G connectivity to all Brazilian cities, and to keep our level of employee engagement of at least 80% until 2023. We have obtained the ISO 37001 (anti-bribery management systems) and, in 2022, also obtained the ISO 27001 (information security management), both are important aspects of our Corporate Governance pillar, which also has as goals to recertificate them when needed, and by 2023, to keep TIM on the Novo Mercado, Pró-Ética and ISE-B3, and the ISO 14001 and ISO 9001 certifications. Our ESG plan is annually updated together with strategic plan.

Highly qualified and experienced executives and controlling shareholder support.

We have a team of highly qualified executives, widely recognized in the industry and possessing extensive experience in telecommunications markets in Europe and emerging countries. Our executive compensation policy seeks to align the interests of our executives with those of our shareholders, through variable compensation plans and share based incentives that reward good performance and the accomplishment of certain goals, as well as provide for improved executive retention.

Our controlling shareholder’s support in our operations is further demonstrated through the sharing of know-how and best practices and development of new solutions for networking, marketing and finance, which are rapidly rolled out under a “plug & play” strategy, under which network innovations may be developed by our parent company first in other regions and then implemented with us.

Strong financial position

With consistent financial results in recent years, and solid earnings before financial revenues (expenses) (including foreign exchange variations), income tax and social contribution, depreciation and amortization costs and expenses and share of loss of an associate (“Adjusted EBITDA”), according to our internal analysis, we believe that we have a strong cash flow generation, a solid financial position and a low relative Net Debt to Adjusted EBITDA ratio. In this scenario, we understand that we are in a strong position to take a significant role in potential future consolidations in the market and/or to have a competitive position in important frequency auctions in the years to come.

Our Strategy

Our Strategic Plan

We expect our updated strategic plan to allow us to consolidate the TIM brand through 2025, in a consistent approach with our prior plan (2022-2024). Our new plan is still focused on our main stakeholders and on providing building blocks for our future growth by combining evolution and transformation to reach our aspirations, which combines our bold expectations for both value and growth. The improvement in overall business dynamics, driven by the combination of having a larger revenue base with a solid margin recovery trend and better capital expenditure efficiency provides us with opportunity and a clear path to optimizing our spending. This dynamic is expected to provide benefits to our cash flow and overall financial returns.

The means by which we achieve our aspirations pass through (a) being recognized as the best mobile operator in Brazil, (b) accelerating our growth by pursuing a new asset light model in broadband, (c) scaling-up our presence in the B2B/IoT tech arena and (d) expanding the portfolio of our strategic partnerships to accelerate our ability to capture value.

In order to be recognized as the best mobile operator in Brazil, we know we have to surpass our competitors by providing the market with (1) the best offer, using innovation as a core differentiator, (2) the best customer service, which involves a long journey towards developing a culture of customer experience excellence, and (3) the best connection, by taking the lead in the network quality race, all whilst evolving to provide our customers the best overall service and experience available in the market.

For the purposes of accelerating our growth through a new asset light model in broadband, we are focused on the massive FTTC to FTTH customer migration (to maximize customer experience and profitability), accelerating the expansion of our footprint through partnerships like I-Systems, and enhancing our value proposition, launching convergence play (mobile + broadband) with a better trade-off between volume and value.

In order to scale-up our presence in the B2B/IoT tech arena, we have been undertaking strategic movements, aiming to capture the expected growth of the market by increasing adoption across verticals and 5G opportunities, through (a) the select use cases verticals, (b) partnering with industry leaders, (c) developing solutions in specific ecosystems, whilst having in mind that the market for solutions and services related to connected applications will grow faster than the market for connectivity. We have already been partnering with many industry leaders and are evaluating a number of promising vertical opportunities that we wish to pursue. There are many sectors which present business opportunities for us to offer a full vertical solution.

We are strengthening our core business to generate cash-flow to sustain new avenues of growth and increase shareholder remuneration. We believe that this unique combination of elements, with ESG agenda embedded in our business strategy, will result in the best value proposition for the investor community.

In an effort to generate high value beyond our core business through partnerships with potential market disruptors and unicorn candidates, our plan is to leverage our base and key assets to target organizations that we believe can grow exponentially, boosting our unique assets through a symbiotic relationship. We have developed a clear plan of action to generate value for our customers, partners and shareholders, whilst retaining our customer base with an ever improving service quality and value proposition. In recent years, we have built an unrivalled, efficient and scalable machine to convert millions of customers to new digital services. 

Protecting the value of our prepaid customer base and aiming at the growing postpaid segment, shifting focus from absolute market share to revenue share, and strengthening our existing customer base.

Up until 2020, the Brazilian mobile telecommunications market was facing an overall reduction in the number of prepaid customers. However, in 2021, the prepaid base increased, which may be a consequence of the socio-economic changes in population or particular incentives in our competitors’ offerings. In 2022 the market underwent a series of disconnections of inactive lines that were inherited by leading carriers following their acquisition of Oi’s mobile business. We maintained our strategy to be chosen as the single SIM provider for the prepaid consumer market by providing offers that are attractive and valuable to customers while maintaining our reputation for quality and innovation. For the prepaid consumer market, our key priority is to offer simplification to improve customer experience with continued evolution of digital channels, while for the postpaid consumer market, our plan is to grow based on a “Mobile Challenger” approach pushing migration from prepaid, leveraging the benefits of 4G coverage leadership and establishing a customer long-term relationship driven by loyalty initiatives. To support this strategy, we also implemented new offers, new handset strategy and initiatives in our sales channel model because of the pandemic. We improved the digital channel and created a drive thru and delivery sales models experience. In the business to business market, we intend to leverage consumer offers and channels in order to gain market share in the small and medium business, or SMB, segment, as well as to launch a new mobile offering focused on micro and small businesses. We are also pursuing the development of targeted markets such as the Internet of things, or IoT, and the machine-to-machine market, or M2M, beyond simple connectivity, and evaluating business opportunities for the application, using the 5G network, of mobile application and fixed wireless access. Moreover, we are repositioning our sales channel strategy in order to increase not only efficiency but also sales productivity. Our growth strategy is mainly focused on addressing the potential for mobile Internet in the Brazilian market, particularly increasing mobile Internet penetration and data traffic. We believe mobile operators are in a strong position to address the demand for broadband in Brazil, with the ability to provide flexible price plans affordable to the majority of the Brazilian population. The lack of fixed infrastructure is still an issue for accessibility to fixed broadband, especially in suburban areas, making mobile coverage more suitable for such customers without broadband access. In addition to providing affordability and coverage advantages, mobile operators appeal to the new cultural demand for Internet connectivity at all times and in all places.

In addition, our strategy also involves positioning TIM as a partner of our existing customer base, by increasing their loyalty by offering exclusive products to existing customers, focusing on Value-Added Services in our offers, and by differentiation in our product s and services. Value-Added Services represent an important part of the TIM strategy, as it is already a relevant market and has high growth rates with the potential to increase revenue streams. Such services are generally launched through a partnership with an established OTT player. We believe the foregoing strategies will allow us to strengthen customer loyalty without requiring us to incur higher costs, as increased traffic within our own network does not significantly increase our operational costs. We are also investing in new channels, to bring new customers to the company and to enhance each customer’s experience. We are constantly seeking new customers through new marketing efforts and promotional initiatives. Another important growth factor is expected to come from our digital strategy evolution, with an increased role in the growing M2M and IoT ecosystem, exploring new revenues opportunities including being more than just a connectivity provider, offering a platform (analytics, big data, mobile advertising, etc.) and a content offer aggregation to support mobile and fixed service revenue growth. Capitalizing on fixed-mobile substitution in voice and traditional services.

We seek to capitalize on the existing opportunity of fixed-mobile substitution in voice and data traffic and encourage the use of mobile devices, rather than landlines, for long distance communication and Internet. We believe that the main advantage of our product offerings is that our customers are able to use our growing mobile network.

Providing affordable Internet access.

Mobile network technology has created a business opportunity for CSPs to offer more affordable connectivity services to individuals, which brings benefits for both customers and the mobile operator. We are offering our prepaid and postpaid customers competitive data usage plans through wireless handsets or other data devices (e.g., tablets, wearables, etc.). We believe that our telecommunications activities generate positive impact beyond our business. Access to mobile telephony and broadband internet services allows not only communication, but also creates countless opportunities for people and companies, functioning as a powerful tool for innovation. This transformation also enables digital inclusion through the provision of connectivity to regions otherwise without access to these resources, such as isolated communities, rural locations and low-income areas. Our focus on increased data usage among our customers is also influenced by our ability to effectively manage our handset and accessories sales, with a focus on entry level 5G smartphone models that will be ready for the deployment of our 5G network, providing quality Internet access. This approach is allowing us to offer our services at a highly competitive price, offer convenient payment methods, meet market demand and allow for opportunities for innovation. The result of this strategy can be seen in the increase in our number of data users and in smartphone penetration, especially in 5G. Leading mobile Internet growth in our sector is a key pillar of our strategy, since we see this as the most important market in terms of growth and size in the foreseeable future. Our marketing efforts have also been designed to stimulate Internet usage and leverage our 4G and 5G networks by providing for suitable and affordable postpaid and prepaid Internet plans.

Construction of a unique infrastructure network in the Brazilian market and improving our network

We are committed to developing a robust network infrastructure capable of serving our customer base and anticipating new trends and technologies in the industry. The development of this infrastructure requires both organic (planning and infrastructure development projects for the existing network) and inorganic (acquisitions) investments. As part of our strategy to focus our investments in infrastructure, TIM Participações acquired Intelig (now known as TIM S.A.) in December 2009, in order to establish TIM’s own fiber optic network and develop automation projects. TIM Participações also acquired the company formerly known as AES Atimus (later TIM Fiber, which was merged into TIM Celular in 2012, and TIM Celular was merged into the Company in 2018) in 2011 to strengthen and expand our fiber optic network.

With the Oi Transaction, we have improved our market position, capturing better economies of scale, synergies and optimizing investments. With the acquisition, we have incorporated into our network approximately 7,200 mobile access sites, being approximately 49% of the former Oi’s total mobile assets. We intend to maintain 2,500 of these mobile access sites, improving coverage and user experience, while decommissioning the remaining sites as they are too close to our existing sites.

Besides improving our core infrastructure, we have been rolling out an aggressive plan for 4G coverage, which we believe has placed us as the leader for 4G coverage in Brazil, providing 4G technology in 100% of Brazilian cities at the end of 2022 – in line with our commitment to cover 100% of the country with our 4G network by the end of 2023, considerably ahead of our competitors and we believe positioning our brand as the market leader in terms of coverage. We were elected the telco with the best “Core Consistent Quality” and with the higher network availability by OpenSignal, in partnership with Anatel.

Strengthening our expanding core and developing our recent new businesses.

We have continued our plan to strengthen and expand our core sectors. TIM UltraFibra offers high quality ultra-broadband, with high-speed data connection. To navigate our way through new markets, we, through partnership with I-Systems and others, have accelerated our footprint expansion, FTTH (fiber to the home) network coverage and continued to grow, prioritizing the consolidation of already active clusters. We ended 2022 with growth of 30% YoY of total homes passed (HPs) with fiber, operating in 32 cities and 9 administrative regions of the Federal District, and with an ARPU increasing by 1.7% when compared to 2021.

TIM UltraFibra ended 2022 with 716,000 connections, adding approximately 31,000 lines in the past 12 months, increasing by 4.5% YoY, maintaining its growth trajectory, with the FTTH base as the main lever. Higher value plans, with speed above 100 Mpbs, continue to gain more relevance, reaching a 77% share of the total base in the quarter ended December 31, 2022. We plan to continue expanding TIM Ultrafibra's services with the coverage rollout model transition from building to renting, with I-Systems acting as one of the infrastructure vehicles with the mission of deploying, operating and maintaining last-mile infrastructure for broadband access, in a strategy of changing capital expenditure to operating expenditure with positive free cash flow impact.

Since 2020, TIM has been developing an innovative customer platform strategy that aims to monetize our customer base. Strategic partnerships, together with Mobile Advertising, yielded revenues of approximately R$185 million in 2022.

Following the same approach, in May 2022, we announced a new strategic partnership, this time focused on the digital security market and entertainment. This partnership was born between TIM and the FS group with the creation of EXA, a new brand dedicated to digital solutions for end consumers. EXA began to offer reading solutions to our customers directly in their plans through the Ayabook and Aya Minibooks applications (which provide access to digital books) and through Bancah (which provides access to several Brazilian newspapers and magazines). As a result, more than 40 million TIM customers can benefit from these services.

Sales and Marketing Strategy

Our recent sales and marketing strategy has been characterized by:

Digitalization and innovation by means of a partnership with C6 Bank, a digital bank, that adds more value to postpaid customers, bringing exclusive benefits such as credit card with free annual fees, exclusive investment portfolio, no tax to open an account, and also expanding our telecom benefits with internet bonuses, internet to use in international roaming, international long distance calls and the possibility to buy smartphones with better payment options with C6 Bank credit cards.

We are negotiating a new partnership with an educational group in Brazil to offer greater value and exclusive benefits to our customer base and expand access to digital education services.

Mobile Service Rates and Plans

In Brazil, as in most of Latin America, mobile telecommunications service is offered on a “calling party pays” basis, under which the customer generally pays only for outgoing calls. Additional charges apply when a customer receives or places calls while outside the customer’s “registration area,” which are the areas into which we divide our coverage areas.

Under our current authorizations, we are allowed to set prices for our service plans, provided that such amounts do not exceed a specified inflation adjusted cap. Anatel must ratify our basic and other service plans, but its focus is on compliance with the relevant regulatory rules rather than the prices charged. See “—Regulation of the Brazilian Telecommunications Industry—Wholesale Rates Regulation.” We charge different rates for our services, which vary according to the customer’s service plan. Per minute prices decrease as customers commit to purchasing more minutes per month. Prices can also vary depending on the type of call (for example, calls from other operators on fixed lines or calls outside the network for mobile calls) or the location of the parties on a call.

Anatel regulations require mobile telecommunications providers to offer service to all individuals regardless of income level. We recommend service plans that are suitable to each potential customer’s needs and credit history, such as our prepaid service plans described below. If a customer fails to make timely payment, services can be interrupted. See “—Billing and Collection.”

We offer mobile services under a variety of rate plans to meet the needs of different customer classification, including our corporate customers. The rate plans are either postpaid, where the customer is billed monthly for the previous month, or prepaid, where the customer pays in advance for a specified volume of use over a specified period.

Our postpaid plans include the following charges:

Certain plans include the cost of national roaming and long distance in the price per minute so that all calls within Brazil cost the same amount per minute. Some postpaid plans are designed for high- and moderate- usage subscribers, who are typically willing to pay higher monthly fees in exchange for minutes included in the monthly service charge while other plans are designed to satisfy the more limited needs of low-usage postpaid subscribers. We also offer customized services to our corporate clients, which may include local call rates between employees wherever located in Brazil.

We offer a single prepaid plan with promotional offerings, which does not include monthly charges. Prepaid customers can purchase a prepaid credits plan that may be used for calls, data and additional services, based on the specific customer’s needs. We have agreements with large national retail store chains, in addition to partnerships with regional retail store chains, to offer recharging online. Customers can also recharge straight from their mobile handsets using credit cards.

Consumer Plans

In 2022, we continued to improve our positioning towards high value consumers, offering a variety of plans bundling voice, data packages and free access to certain applications, as well digital Value-Added Services (music, e-reading, video streaming). The approach to this segment is driven by the strategy of adding value for the customer base and ensuring users a premium custom experience.

Within the consumer business, our main plans include:

Prepaid Plans

Postpaid Plans

In the higher value postpaid segment, we have maintained our position in the market as an innovator and disruptor with our new TIM Black Família and TIM Black plans, discussed above, improving our portfolio by offering large shared data packages with monthly video streaming subscriptions, such as Netflix, HBO GO or YouTube Premium already included in the fee.

TIM Black Família plans start at R$184.99 for an entry level plan with unlimited off-network calls, 30 GB shared data package (for one main line and one dependent), and unlimited data for OTT applications such as WhatsApp, Facebook, Instagram and others. The main offer is set at R$284.99 (for one main line and three dependents) with unlimited off-network calls, 100 GB shared data package, Netflix, HBO GO or YouTube Premium monthly fee included, and unlimited data for OTT applications such as WhatsApp, Facebook, Instagram, data rollover, international roaming (including data package for use in the American continent, seven days of unlimited WhatsApp and 30 minutes of voice) and others.

TIM Black plans start at R$99.99 for an entry level plan with unlimited off-network calls, 15 GB data package (for one main line), and unlimited data for OTT applications, such as WhatsApp, Facebook, Instagram and others. The main offer is set at R$139.99 (for one main line) with unlimited off-network calls, 25 GB data package, data rollover and international roaming (data package for use in the American continent) and other benefits like unlimited data for OTT applications and Value-Added Services such as music, e-books and magazines.

Control Plans

Our Control plans are a hybrid between our prepaid and postpaid plans, with fixed price billed to the customer on a monthly basis, either via credit card or digital account. Once customers of Control plans have reached the limit of their data plan, the data transmission is no longer available and the user has two options: (i) to repurchase a data package or upgrade to higher tariff plan; or (ii) to wait for the next data period to commence, which varies by plan, at which point his data availability and usage limit are renewed in full. Postpaid customers can also purchase a data package to navigate in full speed but the usage is not blocked when he reaches the limit of his data package.

TIM Controle plans start at R$46.99 with unlimited calls and 15 GB Internet. The main offer in the TIM Controle portfolio (which has a commercial focus) is set at R$59.99 with unlimited calls, 19GB Internet and unlimited data for OTT applications.

Corporate Plans

We commenced an ambitious endeavor in 2018 to bridge the connectivity gap in Brazilian rural areas in partnership with the agricultural industry. As a leader in 4G coverage, we already had agribusiness customers, but sought to enable the digitalization of the industry and to offer innovative solutions in order to increase our productivity with automation, control and new technologies. We joined major companies within the sector to create ConectarAGRO, a customer-focused initiative to expand connectivity to all rural areas of Brazil, increasing productivity and transforming the lives of those who live in these regions. The initiative reached its 2019 goal of 5 million connected hectares and expects to progress further in 2023.

In 2021, we continued to improve our positioning towards the large companies as potential clients, offering a variety of corporate solutions for mobile or fixed services (both voice and data), as well as Value-Added Services and mobile-to-mobile services. The approach for these top clients are driven by customized solutions and a premium customer service focus. In the SMB segment, we have positioned our core offering targeting the “prosumer” market, or those individuals who both consume and produce a product. “TIM Black Empresas” has become the brand for the SMB portfolio, delivering unlimited voice calls and a variety of data packages, consistent with its strategy of providing “lots of minutes and lots of Internet, across all operators and anywhere in Brazil.” In addition to mobile connectivity, relevant Value-Added Services have been added to the main “TIM Black Empresas” offer in order to empower our business customers during their progress towards digital transformation, such as: cloud storage and backup, a website and online store builder, sales/field force automation and productivity apps. Those complimentary services were built based on revenue sharing agreements through strong partnerships with UOL, Fs, Datamob, Prouser and Deezer, that supports our aim to become our customers’ business partner rather than a pure connectivity provider.

In 2022, we started offering private networks combined with edge computing solutions in the B2B market, in order to address the needs of agricamps, and ports and other verticals to have access to high-throughput, low-latency and high resilience 5G networks, ensuring that companies always have access to the bandwidth and network resources they need, including low latency time. We intend to implement those networks in 2023.

We maintain a prominent position in the area of Internet of Things (known as IoT), especially in the AGRO segment, where since 2018 we have started an ambitious effort to fill the connectivity gap throughout rural Brazil in partnership with the agricultural sector. In 2020, in addition to consolidating its leadership in AGRO, we managed to evolve with projects in other verticals with action and cooperation with the ecosystem. Our strategy that has connectivity as the central point, our strongest attribute, but with complete solutions together with our partners in order to give more value to our customers and, at the same time, generate more revenue and loyalty. In addition, we have been developing a new network product and service model by offering private networks using 4G and 5G mobile network technologies for corporate customers, mainly for industrial segments such as mining, transport and logistics, healthcare, public safety and industry 4.0.

Since 2018, in an ambitious effort to fill the connectivity gap in rural Brazil, we have increasingly advanced in enabling digitization of the sector and allowing the adoption of innovative solutions to increase productivity and efficiency with automation, control and new technologies.

We are a founding member of ConectarAGRO in partnership with the major players of the agricultural sector, focusing on customer-farmers, to expand connectivity to all rural areas in Brazil, increasing productivity and transforming the lives of those who live in these regions.

In 2022 we reinforced our position of prominence in the area of Internet of Things (known as IoT), not only due to strong results in agribusiness, but with relevant projects in other verticals such as logistics, public safety and mining, acting and cooperating with the ecosystem. We also established ourselves in the 5G private network business segment and closed a number of deals in industrial sectors, the most significant of which was the first 5G port operation in Latin America, located in Port of Santos, State of São Paulo. The center point of our strategy is connectivity, complemented by fulsome solutions together with our partners to deliver additional value to our customers while generating more revenue and customer loyalty.

In the ICT and Mobile market, our strategy is to reinforce our portfolio of traditional solutions and our positioning as a significant player in large companies’ segment, offering various corporate solutions for mobile or fixed services (voice and data). In addition, we are working to evolve our value-added solutions, seeking to provide a more fulsome approach to meet the broader needs of our premium customers.

Value-Added Services

We are constantly seeking to increase value to our customers through innovative offers and products, and 2022 was no exception. We offer, directly or through agreements entered into with third parties, Value-Added Services in varied categories, such as education, music, reading, games, videos and social networks.

In 2022, we launched what we consider to be the most innovative offer in the Brazilian pre-paid space, made possible by partnering with Amazon. Pursuant to our offer, all pre-paid customer are granted free access to Amazon Prime Video. This has generated a spending increase of 20% for our pre-paid base using the service.

We also continue the improvement of our portfolio through additional services provided by new strategic partners.

Digital Channels

In 2022, we continued to develop our digital channels as well as the insurance services we relaunched in 2018 with a new portfolio of services, which allow us to take a broader approach to this market. We launched new digital customer service channels, which aims to maximize convenience for our customers. We continue to use a new tool called DialMyApp that shows a visual interactive voice response (known as IVR) on the customer's cell phone every time the customer calls the contact center from an Android device. This is intended to enable our customers to resolve their issues directly on their smartphone without needing to go through the traditional phone service. We achieved first place in customer engagement on this platform among all Brazilian telcos. We also continue to use customer service through RCS, a Google platform that allows easy interaction with our customers, with user-friendly visual elements, in addition to a more interesting cost composition. Once again, we were the first telco to launch this service in Brazil. We also started the process of internalizing pre- and post-paid migrations under the leadership of the board dedicated exclusively to digital and remote channels created in 2021.

In 2023, our fundamental pillars are to increase the share of proprietary channels, with the evolution of the e-commerce internalization process and to redevelop the MEU TIM app, as a strategy to improve customer experience, increase the volume of users and improve their digital journey.

Customer Service

In order to serve our customer base, almost 63 million customers, we aligned the insourced/outsourced ratio of our internally managed customer service operations to our outsourced customer service operation to the best practices of Brazilian telecommunications business.

We operate through 18 customer care centers, two of our own and 16 outsourced, comprising around 13,511 customer service representatives and our home based service “Projeto Nova Era – 100% Remote service”, (of which 1,521 customer service representatives aim to offer our customers a differentiated journey). Our high value customer service, core processes and critical “Referral Channels” are maintained in our home based model.

As of December 31, 2022, we had more than 12,800 points of sale through premium shops and dealers (exclusive or multi-brand) and consolidated partnerships with large retail chains. This figure includes 158 of our own stores. In addition to these retail stores, our customers have access to prepaid phone services through supermarkets, newsstands, and other small retailers, totaling more than 212,000 points of sale throughout Brazil.

After its launch in December 2021, we opened our first five concept stores, using a new format, launching the beginning of a new experience in our customer journey. For 2023, we plan to open four additional concept stores in this new format. The new format has several spaces where customers are able to try out smartphones and accessories that already have 5G technology, as well as equipment for connecting homes using TIM UltraFibra fixed ultra-broadband. Customers themselves will be able to carry out basic activities, such as consulting with our sales representatives, printing, paying invoices, purchasing plans and services, and even discussing with our tech experts tips for operating their devices, apps, and more. For the corporate market, we have more than 397 third-party business partners and 101 employees focused on serving small and medium-size companies and a direct sales force team of 86 employees focused on large companies.

Since 2020, digital channels have been an important aspect of our service, through the MEU TIM mobile application and the MEU TIM web portal. Digital channels are also useful for self-service, prepaid customer recharge and service upselling. In addition to being a better customer experience due to the speed of response it provides, digital channels also allow us to reduce costs such as customer service operations and sales commissions.

We continued to roll out new features across our digital channels, increasing our ability to promptly resolve challenging issues that arise for our customers.

We expanded our customer service offerings for our digital customers by adding the following channels for our customers to connect with us: CHAT MEU TIM (Web and App), WhatsApp, SMS, RCS, Telegram, Apple Message for Business and Google Business Message.

We also talk to our customers via Twitter, Facebook and Instagram. As of December 31, 2022, our principal Twitter account had more than 740,000 followers and our Facebook page had more than 2,753,000 likes.

In 2012, we activated an additional Twitter account, and in December 2022, this channel had over 273,000 followers and recorded more than 337,000 tweets. Our Instagram page has more than 445,000 followers. Meanwhile, in 2022, the MEU TIM app received the best rating among the service applications of Brazilian operators (grade 4.7 in the App Store).

Since 2021, we have been working to keep our “Customer Experience” foundational pillar as a focus (see “—Our Strategy”), creating initiatives that seek to put the customer as the center of decision-making. The approach used to promote this cultural transformation was guided by the relationship between customers and employees.

We have evaluated and taken action to improve the experience and professional development of our employees, with educational projects to promote engagement and insight, focused not only on technical, functional or soft skills competences, but also on the new capabilities required to reach industrial and business goals. These efforts strengthened the bonds between an employee’s business functions and the products and services they deliver to the customer. The impact was noticeable in our Organizational Climate Survey, a study performed by consulting company Mercer, considering several companies across the country, in which our employees’ performance in respect of “Quality and Customer Focus” attained by 1pp (86%), from 2020 to 2021. Compared to the other telecom companies that also use this survey, TIM is 10pp (84%) above average regarding this indicator. The business area responsible for supporting these initiatives was divided in three sections: Design, Execution and Monitoring.

Our design team created a policy with “Customer Experience” guidelines. This document defined expected behaviors and patterns in communication and interactions with customers, outlined a monitoring model, as well as refactored the products and services development cycles, to better cover all elements of Customer Experience.

The Execution area sought to solve legacy issues, with many of them concluded, which represented the efforts in the Customer Experience governance plan. These actions were grouped on four strategic pillars:

In addition, we continued to use the so-called “Net Promoter Score” as a fundamental key performance indicator to measure customer experience with our call center. There is an ongoing project to expand this survey to other of our customer service channels.

We have also sought to maximize customer satisfaction through improvements in our processes and systems, including customer journey mapping, where employees are invited to assume the customer perspective using empathy maps and design thinking tools. The goal of using these methods is to reduce customer effort, increase customer success and to ensure positive emotions towards our brand. We also work in teams to resolve critical issues and implement improvements in processes and systems.

We also enhanced our interactive voice response channels to include more customer oriented services.

We completed the migration of prepaid and postpaid consumer back-office services (front end was implemented in 2015) to the Siebel customer relationship management, or CRM, platform. The migration to the Siebel system from legacy systems for corporate clients is still ongoing.

Lines of Revenue

Our revenues from mobile and fixed services includes: (i) monthly subscription charges, (ii) network usage charges for local mobile calls, (iii) roaming fees, (iv) interconnection charges, (v) national and international long distance calls, (vi) Value-Added Services, and (vii) co-billing. Additionally, we have revenues from sales of products (mobile handsets and accessories) and other customer platforms revenues.

Monthly Subscription Charges

We receive a monthly subscription fee under our postpaid mobile plans, which varies based on the usage limits under the relevant plan.

*General Authorization Plan (“GAP”) for Personal Mobile Service

Roaming Fees

We receive revenue pursuant to roaming agreements we have entered into with other mobile telecommunications service providers. When a call is made from within our coverage area by a client of another mobile service provider, that service provider is charged a roaming fee for the service used, be it voice, text messaging or data, at our applicable rates. Similarly, when one of our clients makes a mobile call when that customer is outside our coverage area using the network of another service provider, we must pay the charges associated with that call to the mobile service provider in whose coverage area the call originates at the applicable rate of such mobile service provider.

Automatic national roaming permits our customers to use their mobile telephones on the networks of other mobile service providers while traveling or “roaming” in the limited areas of Brazil not covered by our network, complementing our current mobile coverage. Similarly, we provide mobile telecommunications service to customers of other mobile service providers when those customers place or receive calls while in our network. Mobile service providers which are party to roaming agreements must provide service to roaming customers on the same basis that such providers provide service to their own clients. All such providers carry out a monthly reconciliation of roaming charges. Our roaming agreements have a one-year term and automatically renew for additional one-year terms, which are regulated and previously approved by Anatel.

Interconnection Charges

We receive interconnection revenues for any calls originating from another service provider’s network, mobile or fixed line, which is received by any mobile customer, of ours or of another provider’s, while using our network. We charge the service provider from whose network the call originates an interconnection fee for every minute our network is used in connection with the call. On the other hand, we must pay the fees for other telecommunications companies, when our users place a call to phones connected to other network operators.

We have entered into interconnection agreements with most of the telecommunications service providers operating in Brazil, which include provisions specifying the number of interconnection points, the method by which signals must be received and transmitted, and the costs and fees for interconnection services. Such interconnection agreements must be submitted to Anatel for approval. Nevertheless, even in the absence of ratification by Anatel, the parties to these agreements are obligated to offer interconnection services to each other.

The interconnection fees we were permitted to charge other telecommunications companies, and which other mobile telecommunications companies charge us, have in the past been adjusted by inflation. Transition rules were defined and applied until July 2014, as set forth in Resolution No. 639/2014. Anatel effectively issued the rule for the definition of reference rates for entities with significant market power, based on a cost model, for VU-M, as well as maximum rates for TU-RL. Since the issuance of Resolution No. 639/2014, interconnection fees have been decreasing based on a specific glide path, until 2019. Starting in 2020, Anatel has determined that VU-M values will rise slightly again. See “—Regulation of the Brazilian Telecommunications Industry—Interconnection Regulation.”

Long Distance

Telecommunications customers in Brazil are able to select long distance carriers on a per-call basis under the carrier code selection, or the CSP, introduced in July 2003, by punching in a two-digit code prior to dialing long distance. This regulation also increased the size of home registration areas, calls within which are local calls and, as a result, reduced the number of home registration areas.

For mobile customers, we offer long distance services throughout Brazil. This service allows our mobile customers the option of continuing to use our service for long distance calls, which we believe strengthens our respective relationship and loyalty, and enhances the perception of our brand as a comprehensive mobile telecommunications service. Mobile customers of other service providers can also choose to use our long distance service.

Under this structure, a customer is charged the VC1 rates directly by us only for calls made by and completed to a number registered within that customer’s home registration area. Long distance calls, however, are charged to a customer by the chosen long distance carrier. When our customer chooses other long distance carriers, in turn, the other carrier pays us a VU-M fee for any use of our network for a long distance call.

VU-M is the fee another telecommunications service provider pays to us for the use of our network by such provider’s customers, in this case for long distance calls. See “—Interconnection Charges.”

Co-Billing Services

Co-billing occurs when we bill our customers on behalf of another long distance service provider for services rendered to our customer by that carrier. Beginning July 2003, we started providing co-billing services to other telecommunication service providers operating in Brazil. The fee to provide such service to the long distance carrier is defined by Anatel and the rate charged to the subscriber follows the rating plan from the long distance carrier.

Sales of Product

We offer a diverse portfolio of handset models from several manufacturers for sale through our dealer network, which includes our own stores, exclusive franchises and authorized dealers. We are focused on offering an array of handsets, including essential and smartphones devices with enhanced functionality for Value-Added Services, while practicing a policy of increasing 5G smartphone penetration. Our mobile handsets can be used in conjunction with either our prepaid or postpaid service plans.

Billing and Collection

Our company-wide, integrated billing and collection systems are provided by a third-party vendors. These systems have four main functions: (i) customer registration, (ii) customer information management, (iii) accounts receivable management and (iv) billing and collection.

These billing systems give us significant flexibility in developing service plans and billing options.

Certain aspects of billing customers in Brazil are regulated by Anatel. For mobile and fixed telephones, currently if a customer’s payment is more than 15 days overdue, we can suspend the customer’s ability to make outgoing calls if preceded by a notification. If the payment is 45 days overdue, we can suspend the customer’s ability to receive incoming calls, also if preceded by a notification. For residential broadband, currently if a customer’s payment is more than 15 days overdue, we can reduce the speed of the customer’s broadband access and if the payment is 45 days overdue, we can suspend the customer’s broadband access. After 90 days from the customer’s payment due date, we generally discontinue service entirely, with a notification to the customer. Discontinuation of service is sometimes delayed, however, between 120 and 180 days after the due date for valued customers. The rules of suspension and discontinuation of fixed and residential broadband service are the same as those applied for the mobile service.

In March 2014, Anatel approved a single regulation for the telecommunications sector, with general rules for customer service, billing, and service offers, which are applicable to fixed, mobile, broadband and cable TV customers.

In order to avoid delinquency and discontinuation of service, however, we have invested in CRM models to identify customers with a higher propensity to early delinquency and also reinforced credit history checks for our customers prior to service activation. Although we continue to have one of the lowest delinquency rates in the segment, we noticed an increase in bad debt as a consequence of the expansion of the postpaid base of customers and the challenging economic environment.

In 2020, we expanded our capillarity of collection methods, at the time being the only telecommunication company to offer the possibility of paying with the new instant payment system developed by the Brazilian central bank (known as PIX) to the entire customer base, which allows us to immediately recognize and act upon payments, e.g. to restore services of customers that were in default.

In 2022, we had our best bad debt ratio over revenue in recent years, even with the challenging economic scenario. In 2022, there was a considerable increase in the number of customers paying us with PIX.

Pursuant to Anatel regulations, we and other telephone service providers periodically reconcile the interconnection and roaming charges owed among us and them and settle on a net basis. See “—Lines of Revenue—Interconnection Charges” and “—Lines of Revenue—Roaming Fees.”

Seasonality

We have experienced a trend of generating a significantly higher number of new clients and product sales in the fourth quarter of each year as compared to the other three fiscal quarters. Several factors contribute to this trend, including the increased use of retail distribution in which sales volume increases significantly during the year-end holiday shopping season, the timing of new product and service announcements and introductions, and aggressive marketing and promotions in the fourth quarter of each year.

Regional Overview

We provide 4G coverage in 5,370 cities to 99% of the urban population of Brazil, making our 4G network the most extensive in the country. We continued our infrastructure evolution and expanded our 4.5G coverage to 1,922 cities by the end of December 2022. Our 3G coverage reaches 4,132 municipalities and 94% of the urban population.

Lastly, 2022 was marked by the launch of 5G technology in Brazil, which seeks to meet the demand for higher connection speeds. We ended 2022 having launched 5G technology in all 27 state capitals of Brazil, with a much higher number of antennas than required by Anatel, allowing us to provide an even better experience for our customers.

The following table shows information regarding Brazilian mobile telecommunications, at the dates indicated.

Our Network

Our wireless networks use 4G, 3G and 2G technologies and cover 100% of the urban Brazilian population. In order to move toward 4G services, in October 2012, we acquired additional bandwidth in the 2,530-2,540 MHz and 2,650-2,660 MHz sub-bands, with national coverage.

Between 2007 and 2014, we acquired new RF authorizations used for 3G and 4G mobile telephone services at the 2100 MHz, 2500 MHz and 700 MHz bands. In September 2014, we invested approximately R$2.85 billion to acquire bandwidth in the 700 MHz range, which aligned with our strategy of expanding our broadband and 4G service across Brazil. We began providing our services in the 700MHz range in 2016. See “—Regulation of the Brazilian Telecommunications Industry—Frequencies and Spectrum Background”. In December 2015, Anatel auctioned left over radio frequencies in the 1,800 MHz, 1,900 MHz and 2,500 MHz bands. We submitted bids for the left over lots of the 2,500 MHz band, in the 2,500-2,510 MHz and 2,620-2,630 MHz sub-bands – known as P-Band, which had originally been auctioned in 2012. This particular P-Band spectrum provides for 4G mobile services. We acquired the lots for Recife, in the state of Pernambuco (Region AR 81), and Curitiba, in the state of Paraná (Region AR 41), based on our bids which totaled R$57.5 million. The corresponding authorization terms were signed in July 2016. During 2017, several municipalities throughout Brazil had their analog TV signals switched-off, freeing up the bandwidths in those regions for 4G mobile services. In 2018, the analog TV switch-off schedule was completed in regions where it is necessary to clean up the 700 MHz spectrum for the LTE. Therefore, by September 2019, all municipalities were able to receive our expanded 4G coverage through the 700 MHz band. Throughout 2020 and 2021, the entity created to ensure the spectrum cleanup, called the Entity for Administration of TV and RTV Channel Relocation and Digitalization Process, or EAD, is expected to fulfill the remaining auction obligations, concluding the relocations of broadcasters and the provision of interference solutions in order to complete the switch-off process and to make the spectrum fully available to mobile operators. In November 2021, we invested approximately R$1.1 billion to acquire the 2.3 GHz, 3.5 GHz and 26 GHz spectrum bands, aligned with our strategy of deploying 5G technology. See “—Regulation of the Brazilian Telecommunications Industry—Frequencies and Spectrum Background” and “—Regulation of the Brazilian Telecommunications Industry—Authorizations and Concessions.” In connection with the conclusion of the Reorganization whereby TIM Celular was merged into the Company, see “—Item 4. Information on the Company—C. Organizational Structure,” we hold all of the authorizations previously issued in the name of other companies controlled, directly or indirectly, by TIM Participações.

RF authorizations are generally valid for a period of 15 years initially and are renewable for an additional 15 years, and our current authorizations started expiring in September 2022.As such, we have started requesting renewals for the same period as the authorizations reach the end of their original term (for details on spectrum licenses and expiration dates see “—Regulation of the Brazilian Telecommunications Industry—Frequencies and Spectrum Background”). In the case of authorizations that cannot be renewed, current telecommunications law sets forth that the spectrum is returned to the Federal Government under Anatel’s management. This is why revisions to the General Telecommunications Law have had a meaningful impact for the sector, as the proposed updated law now allows for subsequent and unlimited renewals of radio frequency authorizations of up to 20 years each, generating an environment possibly more conducive to long-term investments.

As a result of our investment in infrastructure, on March 2022 we announced that we had completed our implementation of standalone 5G network CORE. This was necessary for us to be able to provide fifth-generation services in accordance with government requirements. Anatel approved a revised schedule for granting access to the 3.5 GHz spectrum band in order to activate the 5G network in the Brazilian capital and Federal District of Brasília after August 2022, commencing the commercial operations of 5G Standalone (5G SA) throughout Brazil. In 2022, we began the rollout and now have 5G coverage in Brasília and all 26 state capitals, with a special focus on the cities of São Paulo, Rio de Janeiro and Curitiba, where 100% of the neighborhoods were covered, and where we have the highest number of sites compared to our competitors.

We consider the purchase of any frequency made available by Anatel for the provision of mobile services as a priority, since having available frequency is core to our business. In 2021, we made R$3,213 in investments, primarily in capacity and coverage 4G, mainly using M-MIMO antennas, core functions virtualization, expansion and capacity enhancement of our optical transport networks, infrastructure resilience, quality maintenance and enabling of fiber-to-the-site and the mobile broadband MBB programs.

These investments allowed us to reach, by the end of 2022, the milestone of 5,370 cities with 4G coverage, or 99% of the country’s urban population. We are thus the leader in 4G coverage in Brazil among mobile telecommunications providers, both by number of cities served and percentage of population covered.

On July 22, 2020, we obtained the approval of the Anatel and, on June 3, 2020, obtained the approval of the CADE for the execution of two onerous transfer contracts aimed at sharing 2G, 3G and 4G mobile network infrastructure, reinforcing the evolution process of the Brazilian telecommunications market in terms of network infrastructure sharing. For details see “—Site-sharing agreements.”

Our wireless network has both centralized and distributed functions, and includes mainly transmission equipment, consisting primarily of more than 60 thousand eNodeBs in our 4G network, more than 17 thousand NodeBs for the 3G layer and more than 13 thousand BTSs for 2G network as of December 2022, considering site-sharing, hardware equipment and software installation and upgrades. The network is connected primarily by IP radio links and/or optical fiber transmission systems distributed nationwide.

Another priority is developing our national network. In December 2022, we continued to increase the quantity of sites connected by optical fiber, as well as integrating mobile sites acquired with Oi assets, reaching more than 10.500 of sites connected by optical fiber. The results are consistent with Anatel’s network quality requirements, and with TIM retaining its solid performance in 2022. Since national coverage and quality of service has improved substantially over the last few years, Anatel has shifted its focus in recent years. Anatel is now concentrating its efforts on smaller geographic areas, particularly in those areas where service is still considered poor.

The AES Atimus Acquisition and consequent creation of TIM Fiber (which was merged into TIM Celular in 2012, and TIM Celular was merged into the Company in 2018) has improved our optical fiber (or fiber optic) network presence in more than 31 cities including the metropolitan regions of Rio de Janeiro, São Paulo, Salvador, Goiânia, Recife, Manaus, Belo Horizonte and Distrito Federal. Our optical fiber network has capacity to offer high quality ultra-broadband service, available through our TIM UltraFibra service and increase basic infrastructure to be applied in our fixed and mobile operations.

Our fixed broadband infrastructure is highlighted by the following characteristics:

Our switching exchanges and intelligent network platforms enable us to offer flexible, high quality voice service at extremely competitive prices. Our satellite network covers distant areas of the country and is being expanded and renewed to provide high private service.

As a general matter, telecommunications operators’ networks have tended to be designed, deployed and managed according to a vertical architecture model referred to as “end-to-end,” where the hardware and software are proprietary and dedicated to each network function. With the growing demand for differentiated services, the need for physical space, energy and speed have become critical and, consequently, companies’ capital expenditure and operating costs have tended to increase.

Such network architecture based on monolithic network elements requires a long time for development and deployment, impacting directly the time-to-market for launching new products or services and, consequently, reducing the generation of new revenues.

NFV is the new architectural paradigm that aims to address the infrastructural network transformation as a key step in the evolution of the implementation of new systems and network infrastructure, as it adopts the concept of consolidating standardized commercial off-the-shelf hardware elements that are available in virtual environments for shared use across various applications, accelerating the ability to deliver services, reducing costs and improving customer satisfaction. TIM aims to capitalize on the proposed benefits from such technology.

TIM understands that the NFV and the sharing of resources and equipment is the way to establish an economically more efficient structure, by reducing investment and/or operational costs while also reducing the time-to-market for launching new offers (an increasingly relevant factor in a competitive scenario).

By the end of 2022, we deployed 15 new virtualized Core Network Datacenters (DCC) located in Rio de Janeiro (2), São Paulo (2), Fortaleza (2), Salvador (2), Brasília (2), Belo Horizonte (2), Belém and Curitiba (2), in addition to 19 new virtualized Edge Network Datacenters (DCE) located in Campinas, Porto Alegre, Natal, João Pessoa, Florianópolis, Blumenau, Maringá, Londrina, São Luis, Goiânia, Foz do Iguaçu, Santos, São José dos Campos, Uberlândia, Varginha, Feira de Santana, Teresina, Manaus and Ponta Grossa. Most of our core network functions are already running in a virtualized fashion by means of these network datacenters. The migration of additional network functions to a virtualized datacenter will be based on a roadmap of virtual network functions, or VNFs, respecting the maturity of each network function.

Similar to the movement of IT Systems to Public Cloud Infrastructure, Network Functions have also been planned to be migrated to the cloud, respecting their particularities regarding high availability and performance. In order to guarantee this movement, NFV Architecture had an important role for the evolution of these NFs from a Virtual environment (VNF) to a Cloud environment (CNF). As result of this journey, TIM intends to move Network workloads to a hybrid cloud (On-Premise and Public Cloud) throughout the next 3 years. TIM understands that Cloud Infrastructure is a second step (just after NFV) to establish an economically more efficient infrastructure, not only for reducing investment/costs, but also for speeding up project deployments and reducing time-to-market of new offers.

Based on the efficiency and on the robustness of the technologies used in the NFV and IP networks, in virtualizing its core network, TIM is also optimizing capital expenditures.

Therefore, our commitment to quality infrastructure and quality improvement allow us to develop projects such as: (i) unification of the functions of an Intelligent Network core signaling network and network data base through Unified Data Consolidation and (ii) the evolution of security platforms such as Session Border Controller that accomplishes IP interconnection in with other operators. We expect from these and other projects to be able to reduce our operating expenditures by decreasing leased lines and infrastructure sharing, simplifying maintenance processes and architecture/topology, increasing resilience even in conditions of disaster recovery and improving the customer experience by increasing the speed in which calls are set up and data is transmitted and improve the amount of time needed to make customers profiles available in our data base.

In 2011, we implemented a Policy and Charging Control (“PCC”), platform in accordance with the standards of the 3rd Generation Partnership Project, or 3GPP. This PCC made it possible for us to develop a brand new means to control fair use, as we are now able to reduce a given subscriber’s speed, block usage and offer additional data packets to maintain maximum speeds after the subscriber’s existing data packet is depleted. Since then, several innovative data offers have been launched that promote the usage of data, social media and streaming. This PCC platform is now implemented in NFV model, which brings modernization and high scalability to support the increasing demand of mobile data and reduces the time-to-market when launching new data offers.

In 2014, we started to change our Mobile Packet Core platform to a Unified Packet Core based on the most advanced 3GPP Evolved Packet Core standards, providing a coordinated seamless mobility management in a HetNet access environment (full multiple-access nodes for 2G/3G/4G/Femto/WiFi) in order to support the huge increase in data demand in the Brazilian telecommunications market, as discussed elsewhere throughout this annual report on Form 20-F. The Evolved Packet Core platform is also evolving to an NFV model, based on 3GPP’s Control and User Plane Separation of EPC nodes. This enables flexible network deployment and operation, by distributed or centralized deployment and the independent scaling between control plane and user plane functions.

In 2022, we started to implement our 5G Core, following 3GPP standards, providing 5G Standalone services for our customers, with new capabilities like reduced RTT – Round Trip Time and mission critical IoT services. The 5G core has being implemented in a Cloud environment (CNF).

In 2017, we started to implement our Voice over LTE/4G, or VoLTE, platform following 3GPP standards, providing better voice quality and 4G service continuity, avoiding the need to resort to 2G/3G during voice calls. The VoLTE platform was implemented in an NFV model since its inception, based on 3GPP’s nodes.

In 2018, we implemented a new security system to access our new and legacy platforms, called “Secure Password.” It uses a secure shell, or SSH, security protocol, monitors attempts of non-standard access and generates related warnings (IAM-Identity Access Management). This process involves password encryption and a logical safe that only grants recovery to authorized users while also granting and recording accesses through video and text devices. More specifically, it features: (i) password authentication with a maximum validity of 90 days; (ii) authorization through a login administration interface; and (iii) audit (logs) generated by the system, allowing the traceability of user actions from the beginning to the end of each operation. The system also sends logs to a centralized system as a historical database. Additionally, we have a plan to mitigate network risk on a macro scale that prioritizes our critical network infrastructure based on a risk map, or the Network Resilience Plan. The Network Resilience Plan allows us to focus on the main issues, and these in turn become the basis for crafting short-, medium- and long-term mitigation measures in order to enhance the robustness of the network.

Sources and Availability of Raw Materials

Our business and results of operations are not significantly affected by the availability and prices of raw materials.

Site-Sharing and Other Agreements.

Network Decommissioning

From time to time, we are required to decommission our network equipment for a number of reasons, including: security, compliance, cost savings, resource optimization, efficiency, and others. With a complex network like ours, we periodically review our network requirements.

The year ended December 31, 2022 was a transformative year for our network decommissioning program. We implemented new models, which were materialized in new projects to manage our assets within budget limits. An effective and consistent communication channel was created and improved, called "RADAR 4.0". We implemented automations and procedural improvements that substantially reduced the number of service level agreements for decommissioning. We consolidated new models of reverse logistics, direct discard from industrial buildings (including IT and OSS), integrity control flows and "Decommissioning By Design" (when costs related to decommissioning are included in network optimization/evolution projects), increased production capacity through new service contracts, and sponsored the growth of our tax and accounting teams that contribute to the decommissioning process.

As a result, we were able to support the strong increase in demand generated by strategic projects such as the integration of SPE Cozani, the Vivo Sharing Agreement, the Integrity Control Appointments and others. We disassembled 55% more cabinets and discarded 25% more assets in comparison to 2021. And now, we have a more robust structure in place that is able to support the demand foreseen in 2023.

Site-Sharing Agreements

With the objective of avoiding unnecessary duplication of networks and infrastructure, Anatel allows telecommunications service providers to use other providers’ networks (long distance, backhaul and spectrum frequencies, among others) as secondary support in providing telecommunications services, with a focus on reducing costs and increasing the penetration of mobile services in Brazil. Therefore, we have allowed other telecommunications service providers in our region to use our infrastructure, and we have used other providers’ infrastructure, pursuant to site-sharing agreements with such operators.

Based on such Anatel policy, in November 2012, TIM Celular (which has been merged into the Company in connection with the Reorganization) formalized with Oi an agreement for the reciprocal assignment of their LTE networks (4G technology) in certain cities, which was approved by Anatel and CADE, which is the Brazilian antitrust agency and has the mission to ensure free competition in the market, not only by investigating and ultimately deciding on the competitive matter, but also by disseminating a free competition culture.

In April 2014, TIM Celular (now TIM S.A.) and Oi entered into a new agreement to negotiate the joint construction, implementation and reciprocal assignment of parts of their respective GSM (2G) and UMTS (3G) network infrastructures in cities with less than 30,000 inhabitants, which was also approved by Anatel and CADE.

In July 2015, TIM Celular (now TIM S.A.), Oi and Vivo entered into an agreement for the reciprocal assignment of LTE network media (4G), similar to the agreement between TIM Celular (now TIM S.A.) and Oi in 2012, but also covering frequencies sharing. As with the prior sharing agreements, Anatel and CADE approved the agreement between the parties. After Oi’s bankruptcy process, in 2022, we and Vivo requested CADE’s clearance for a contract addendum, in order to continue the sharing agreement without Oi. This clearance was granted by CADE on February, 13, 2023, and we are currently in the process of finalizing and executing the amendment to the agreement.

Also in 2015, TIM Celular (now TIM S.A.), Vivo, Claro and Oi filed with CADE a Term of Commitment with the objective of negotiating the joint contracting of one or more companies to carry out the construction, installation and provision of infrastructure in indoor environments (such as shopping malls) in several locations in Brazil, which was approved without restriction by CADE.

In November 2015, our predecessor entities, TIM Celular and Intelig (which subsequently merged to form TIM), and Vivo filed an agreement to share UMTS network (3G) under a multiple operation core network, RAN sharing model which includes frequency sharing in certain cities based on their rural coverage obligations, which was also approved without restrictions.

In March 2018, due to the mediation process between ourselves and Oi, a new RAN sharing agreement was executed, which changed the sharing modality described in the 2012 agreement (technological evolution from the multi-operator radio access network to the multi-operator care network) and included part of the 1,800 MHz radio frequency bands. CADE and Anatel approved the operation without any restrictions.

On July 23, 2019, we and Vivo entered into a memorandum of understanding, or the Vivo MoU, to start negotiations regarding: (i) sharing of single-grid 2G network; (ii) establishment of new infrastructure sharing agreements for the 4G network in 700Mhz, directed to cities with fewer than 30,000 inhabitants, which in the future may be expanded to larger cities; (iii) other network sharing opportunities in other frequencies and technologies; and (iv) other opportunities in efficiency and cost reduction in operations and network maintenance. We and Vivo believe that the potential developments from the concepts set forth in the Vivo MoU would result in improved services at both carriers, as well as synergies and efficiencies in the allocation of investments and operating costs.

On December 19, 2019, pursuant to the Vivo MoU with Vivo, two new sharing agreements have been entered into regarding: (i) the creation of a unique network in 2G technology; and (ii) a single-grid agreement that will result in an expansion of 3G and 4G networks and a network consolidation in small cities (with less than 30,000 inhabitants). Both agreements were approved without restrictions by CADE and Anatel in 2020, reinforcing the evolution of the Brazilian telecommunications market in terms of network infrastructure sharing.

Our Operational Contractual Obligations

For more information on our material contractual obligations, see “Item 10. Additional Information—C. Material Contracts.”

We have entered into interconnection agreements with most of the telecommunications service providers operating in Brazil. The terms of our interconnection agreements include provisions specifying the number of interconnection points, the method by which signals must be received and transmitted, and the costs and fees for interconnection services. Interconnection agreements must be submitted for Anatel’s approval. Nevertheless, even in the absence of ratification by Anatel, the parties to these interconnection agreements are obligated to offer interconnection services to each other. See “—Interconnection Regulation.”

Roaming Agreements

We have entered into roaming agreements for automatic roaming services with other mobile operators outside our regions. Automatic roaming allows our customers to use their mobile telephones on the networks of other mobile operators while traveling abroad or out of TIM coverage areas in Brazil. Similarly, we provide mobile services for customers of other mobile operators when those customers place or receive calls while visiting Brazilian cities with TIM coverage. We provide services for the clients visiting our network on the same infra-structure basis provided to our own clients. All of the mobile operators party to these agreements must carry out a monthly reconciliation of roaming charges with its roaming partners.

National Roaming Agreements

In 2017, Anatel required us, Claro, Oi and Vivo to guarantee the provision of mobile services (voice, SMS and data) in all cities with less than 30,000 inhabitants through roaming agreements.

International Roaming Agreements

We have international roaming agreements available in 210 different countries with 462 international operators that encompass 591 individual (PMNs) networks. These agreements include at a minimum voice service, and may be enhanced based on the technology available on the visiting network and can include voice, SMS and data (2G, 3G and 4G). Our international roaming agreements have steadily expanded in recent years. By the end of 2022, we expanded our 4G data coverage to 35 new networks, meaning now we offer 4G roaming in 105 countries, covering the main travel destinations for Brazilians. We have also started offering VoLTE and 5G NSA on roaming; by the end of 2022 we had already established five VoLTE connections in two countries and 26 5G NSA connections in 16 countries.

In November 2018, Brazil entered into a free trade agreement with Chile, which resulted in the end of international roaming charges between the two countries. In October 13, 2021 the Legislative Decree No. 33/2021, which approved the free trade with Chile, was sanctioned by the President of the Senate. With the approval, the agreement came into force on January 25, 2022, and the end of roaming charges is expected by January 25, 2023. The agreement signed in July 2019 with other Mercosur countries to eliminate international roaming. In January 2023, the operational manual on international roaming services was approved through decision No.2 as established in Article 11.25 of the free trade agreement between Brazil and Chile.

Regulation of the Brazilian Telecommunications Industry

General

The telecommunications sector is regulated by Anatel, which was established by law and is administratively independent and financially autonomous from the Ministry of Communication (Ministério das Comunicações). Anatel is responsible for reviewing and amending all administrative regulation regarding services, completion and customer’s rights related to telecommunications, issuing formal authorizations and performing inspections, as set forth in the General Telecommunications Law and the Regulamento da Agência Nacional de Telecomunicações, or the Anatel Decree.

Despite liberalization, which occurred in 1997, the Brazilian telecommunications market still faces persistent dominant positions held by fixed incumbent operators. In particular, broadband access is currently offered by operators over their own infrastructure and the respective regulatory framework is not always based on effective implementation of the wholesale access obligations.

In 1998, a presidential decree approved the first General Plan for Universalization Goals (Plano Geral de Metas de Universalização) (“PGMU”), obligations binding on the landline telephony services (Serviço Telefônico Móvel Comutado) (“STFC”), applicable only for fixed incumbents. PGMU is reviewed every 5 years, and the last universalization plan, formulated by the government, was published in January 2021 considering that fixed telephony concession will end in 2025. The PGMU V, replaces the 4G targets established in PGMU IV for construction of a backhaul in the municipalities that do not have a fiber optic connection.

A presidential decree issued on June 30, 2011, established a bidding process for 4G RFs, an important landmark for the telecommunications sector. The bid occurred in 2012 and, in order to guarantee full rural service by 2018, Anatel linked the 4G blocks in the 2,500 MHz band to the 450MHz band in specific geographic regions of Brazil. As a result, the four winning operators of the 4G blocks in the 2,500 MHz band linked to the 450MHz band are subject to coverage commitments in rural areas. Such presidential decree also resulted in two new regulations to measure mobile and fixed broadband quality standards.

Another important set of rules is the Decree No. 9,612/2018, or the Connectivity Plan, which established a series of guidelines for execution of terms of conduct adjustment, onerous granting of spectrum authorization and regulatory acts in general which includes: (i) expansion of high capacity telecommunications transport networks; (ii) increased coverage of mobile broadband access networks; and (iii) broadening the coverage of fixed broadband access network in areas with no available internet access by means of this type of infrastructure. It also establishes that the network implemented from the commitments will be subject to sharing from its entry into operation, except when there is appropriate competition in the respective relevant market. As well as Decree No. 10,480/2020 that regulates the Antennas Law (Law No. 13,116/2015) with the objective of stimulating the development of the telecommunications network infrastructure.

Federal Government

In 2021 there were some important ordinances published, namely: (i) Ministry of Communications Decree No. 2,447/2021, which approved our issuance of up to R$5,753 billion in debentures; (ii) Ministry of Communications Decree No. 2,556, which set priorities and goals for the establishment of investments determined by Anatel; (iii) Decree No. 10,748, which established the Federal Network for the Management of Cyber Incidents, regulating the National Information Security Policy, which aims to improve and coordinate the bodies and entities of the federal public administration in the prevention, treatment and response to cyber incidents; (iv) Decree No. 10,887, which provided for the organization of the National Consumer Defense System, with the objective of guaranteeing greater protection to consumer relations, increasing legal certainty, and making the administrative process more efficient; and (v) Data Protection Authority Decree No. 15, which established the Governance Committee, responsible for establishing institutional strategies and strategic guidelines related to public governance.

Also, there were some relevant decrees involving 5G. They were: (i) Decree No. 10,799 which updated Decree No. 9,612/2018 (telecom public policies), allowing the Government’s network to be built by other entities, not only Telebras; (ii) Decree No. 10,800 established the Amazon Integrated and Sustainable Program (PAIS). One of its objectives is to expand telecom networks to the Amazon region, in addition to creating a management committee to monitor them, among other provisions; and (iii) Ministry of Communications Decree No. 1,924/21 about 5G guidelines, mainly about network security; obligation to provide an exclusive government network; backhaul for agribusiness; coverage of federal highways aligned with the Ministry of Infrastructure, among others. In order to use the Universal Telecom Services Fund (FUST), (i.e. the contribution that the telecom sector makes annually), Law No. 14,109/2020 was introduced authorizing the use of FUST, including by the private sector, to expand connectivity in rural or urban areas with a low human development Index (HDI) as well as policies for education and tech innovation of services in rural areas.

In 2020, the Decree No. 10,480/2020 was published by the federal government, which regulates antennas (Law No. 13,116/2015) with the purpose of stimulating the development of telecommunications network infrastructure. This decree is aimed to foster development of telecommunication network infrastructure and is a major step towards unlocking historical problems in the sector preventing its development, for example, some historical problems that the regulation seeks to cure include free right of way on highways and railways, positive silence, small cells and dig once.

On 15 June 2021, Provisional Measure 1,018/2020 was transformed into Law No. 14,173/2021, reducing the charges for satellite internet terrestrial stations and changing some of the FUST application rules.

The law reduces FUST collection between 2022 and 2026 for telecommunications operators that run universalization programs approved by the management council (yet to be approved) with their own resources. The benefit will be valid for five years from 1 January 2022 and will be progressive: 10% in the first year; 25% in the second year; 40% in the third year; and 50% from the fourth year onwards.

In addition, the new legislation removes the obligation to share towers within a distance of less than 500 metres from each other. The withdrawal of this obligation was considered essential for the implementation of 5G in Brazil, including to allow for the expected increase in density for the new technology.

In 2022, Decree No. 10.952/2022 was published, establishing the transfer of R$3.5 billion of FUST collection for connectivity of students and teachers of basic public education and data provided by INEP as criteria for transferring resources. The decree also stipulates that the resources may be used for a fixed connection, provided that cost-effectiveness is proven or that there is no offer of mobile data in the location where the beneficiary students live. 

In March 2022 Decree No. 11,004/22 was published, which defines how the Fund will be operationalized and foresees how the resources will be applied to any telecommunications service.

Also in 2022, Decree No. 11.304/2022 was published, establishing new rules for the Customer Service (SAC). The new “SAC Decree” brought more flexible rules regarding service hours, provision of protocol and digital service.

Anatel

Over the years, Anatel has published several Resolutions that apply obligations to the telecommunications sector, among which we can highlight:

Resolutions published in 2022

Main Public Consultations held in 2022

Telecommunications Self-regulation System

In March 2020, telecommunication operators signed the Telecommunications Self-Regulation System, or SART, which proposes to establish common rules and procedures that must be followed by all participating companies, in relation to the most material topics in the relationship between providers and customers, such as telemarketing (approved in September 2019), offers (approved in March 2020), billing (approved in February 2021) and attendance (approved in March 2020).

Other Agencies

Recently, we also monitored and participated in Public Consultations carried out by Brazil’s national electricity agency, Agência Nacional de Energia Elétrica, or Aneel, on topics related to infrastructure sharing (poles) and distributed generation. The results of the Public Consultations are expected for the years 2023 and 2024.

Review of the Current Regulatory Model for the Provision of Telecommunications Services

In 2019, PLC 79/2016 was approved and converted into Law No. 13,879. The Law entered into force on October 4, establishing a new regulatory framework for the telecommunications sector in Brazil, the major regulatory change in 20 years.

The new telecommunications framework allows the fixed telephone concessionaires to adapt their agreements from a concession regime to an authorization regime. This change of concession to authorization must be requested by the concessionaire and it should be approved by the Anatel. In return, concessionaires must, among other conditions, make investment commitments to expand fixed broadband services, in areas without adequate competition for these services in order to minimize gaps and inequalities between Brazilian areas. Additionally, it also changes the rules on authorization of radiofrequency uses, establishing subsequent renewals and allows Radiofrequency trading among players (spectrum secondary market).

In June 2020, the Federal Government published Decree No. 10,402/2020 which regulates Law No 13,879/2019 and provides for the adaptation of the concession instrument to authorization of telecommunications service and on the extension and transfer of radiofrequency authorization, grants of telecommunications service and satellite exploration rights.

Decree No. 10,402/2020 establishes that the partial or full transfer of the authorization to use radio frequencies between telecommunications service providers will be carried out against payment by Anatel and must be preceded by Anatel’s consent, in addition to enabling the maintenance of obligations associated to radiofrequencies (serving the public interest), the application of restrictions of a competitive nature when necessary/convenient and the analysis of tax regularity of the company to which the authorization is being transferred. It also confirmed that the current authorizations are covered by the new rule for successive renewals.

Authorizations and Concessions

With the privatization of the Telebrás system and pursuant to the Minimum Law (Lei Mínima), Band A and Band B service providers were granted concessions under Cellular Mobile Service (Serviço Móvel Celular), or SMC, regulations. Each concession was a specific grant of authority to supply mobile telecommunications services in a defined geographical area, subject to certain requirements contained in the applicable list of obligations attached to each concession.

Our predecessors were granted SMC concessions and in December 2002, such SMC concessions were converted into PCS authorizations, with an option to renew the authorizations for an additional 15 years. We acquired PCS authorizations in conjunction with auctions of bandwidth by Anatel in 2001, and subsequently acquired additional authorizations and operations under the PCS regulations as well.

In connection with the conclusion of the Reorganization whereby TIM Celular was merged into the Company (see “Item 4. Information on the Company—C. Organizational Structure”). We hold all of the authorizations previously issued in the name of other companies controlled, directly or indirectly, by TIM Participações.

Obligations of Telecommunications Companies

Among all the obligations imposed on telecommunications providers, Resolution No. 632/2014 has the most significant impact. Pursuant to this resolution, Anatel approved the adoption of a single regulation for the telecommunications sector, the RGC, with general rules for customer service, billing, and service offers, which are applicable to fixed, mobile, broadband and cable TV customers. This regulation was subject to a Public Consultation in 2020 and a new Regulation is expected to be approval in the first half of 2023.

In December 2019, Anatel approved RQUAL, which came into force in March 2022. After reviewing certain indicators, operators will be classified from A-E (expected to take place in 2023). See “—Quality Management Regulation.”

PCS Regulation

In September 2000, Anatel promulgated regulations regarding PCS wireless telecommunications services that are significantly different from the ones applicable to mobile companies operating under Band A and Band B.

According to rules issued by Anatel, renewal of a concession to provide mobile telecommunications services, as well as permission from Anatel to transfer control of cellular companies, are conditioned on agreement by such cellular service provider to operate under the PCS rules. TIM Sul, TIM Nordeste and TIM Maxitel converted their cellular concessions into PCS authorizations in December 2002, and later transferred them to TIM Sul, TIM Nordeste and TIM Maxitel, which are now TIM S.A. (following the Reorganization and various intercompany mergers discussed herein) subject to obligations under the PCS regulations. See “—Authorizations and Concessions.”

In recent years, Anatel initiated certain administrative proceedings against TIM Celular (now TIM S.A.) for noncompliance with certain quality standards and noncompliance with its rules and authorization terms. We have been fined by Anatel in some proceedings and are still discussing the penalty imposed in appeals before the agency. As a result of these proceedings, Anatel applied some fines that did not cause a material adverse effect on our business. On December 31, 2022, the total amount of these fines was R$270.1 million (after adjusting for inflation). However, only R$31.2 million (after adjusting for inflation) was classified as “probable loss” by our legal advisors. The significant amount related to fines classified as “possible loss” is a result of ongoing litigation.

On August 22, 2019, Anatel’s board of officers unanimously approved the execution of a TAC with TIM S.A., effective for 4 years from signature. The agreement covers fines imposed against us in the total amount of R$639 million. The commitment we assumed, as also approved by our Board of Directors on June 19, 2020, foresees actions to develop our services from three different perspectives: (i) customer experience, quality and infrastructure, through initiatives to improve the licensing process of base stations, efficient use of resources, (ii) evolution of digital service channels, decreasing complaint rates and user repair demands, and (iii) reinforcement of transportation and access networks. In addition, the agreement also includes the commitment to bring mobile broadband through the 4G network to 350 cities with less than 30 thousand inhabitants thus reaching over 3.4 million people and the application of Internal Controls Management to ensure compliance with the closed proposal and the commitment to not impose inspection obstructions. As released to the market in June 16, 2020, and previously approved by Anatel on August 22, 2019, the TAC provided the implementation of the new infrastructure in three years, with our assurance that these areas will be shared with other providers.

We continue to do our best to fully comply with our obligations under the PCS regime or with future changes in the regulations to which we are subject. See “—Obligations of Telecommunications Companies,” “Item 3. Key Information—D. Risk Factors—Risks Relating to our Business” and “Item 8. Financial Information—A. Consolidated Statements and Other Financial Information—Legal Proceedings.”

Significant Market Power

In November 2012, Anatel published a new competition framework known as the PGMC 2012. Also in November 2012, Anatel published a series of regulations identifying groups with significant market power in the following relevant markets as defined by the PGMC 2012: (i) wholesale offer of fixed access infrastructure for data transmission through copper or coaxial cable in rates equal or higher than 10 Mbps (Act No. 6,617, of November 8, 2012); (ii) wholesale offer of fixed infrastructure for local and long distance transportation for data transmission in rates equal or higher than 34 Mbps (Act No. 6,619, of November 8, 2012); (iii) passive infrastructure for transport and access networks (Act No. 6,620, of November 8, 2012); (iv) mobile network termination (Act No. 6,621, of November 8, 2012); and (v) national roaming (Act No. 6,622, of November 8, 2012). On December 5, 2016, Anatel published public consultations on (i) the revision of PGMC 2012’s relevant markets and remedies; and (ii) the proposal of a specific Regulation for the Approval of Reference Offers, for public comment until March 22, 2017.

In July 2018, Anatel published the New PGMC, which revised PGMC 2012 and created new markets: (i) mobile network; and (ii) national roaming; and (iii) high capacity data transport. According to the New PGMC proposal, cities in Brazil will be classified by levels of competition (1 – competitive, 2 – moderately competitive, 3 – less competitive, 4 – non-competitive), and asymmetric measures will be applied according to the market competition. In addition, also based on the proposal submitted to public consultation, wholesale relevant markets will be defined as follows:

Under the New PGMC, TIM has been classified as having significant market power in the following markets: (i) mobile network termination (otherwise referred to as the mobile network termination market); (ii) national roaming; and (iii) high capacity data transport (five municipalities). The measures applied to an significant market power operator in those markets include: (i) the application of mobile termination rates on a glide path based on a price cap system and the partial application of the Bill & Keep system (at a 50% threshold (i.e., not a significant market power operator pays only if the terminated traffic on the significant market power operator network is more than 50% of the total traffic exchanged) and only until the next revision of the New PGMC in 2021); and (ii) an obligation to offer the service of national roaming service to operators not having significant market power.

Due to such classification, we are subject to increased regulation under the New PGMC, which could have an adverse effect on our business, financial condition and results of operations. Specifically, because we have been classified as having significant market power in the mobile network termination market, the rates charged by mobile service providers to other mobile service providers to terminate calls on their mobile networks, or VU-M, are regulated. On July 4, 2014, Anatel approved, by means of Resolution No. 639/2014, a rule for the definition of maximum reference rates for entities with significant market power, based on a cost model, for VU-M, TU-RL, and EILD. Pursuant to Anatel’s rule, reference rates will decline based on a glide path until the cost modeling known as BU-LRIC is applied (in 2019, for VU-M and TU-RL; and in 2020, for EILD). On July 7, 2014, Anatel published the corresponding Acts Nos. 6,210/2014, 6,211/2014 and 6,212/2014, which determined the specific reference rates effective as of February 2016. On December 19, 2018, Anatel published the corresponding Acts Nos. 9,918/2018, 9,919/2018 and 9,920/2018, which determined the specific reference rates effective as of February 2020. Before coming into force, Anatel started revising these acts and, on February 24, 2020, published the new Acts Nos. 986/2020 and 987/2020.

Because of our classification as having significant market power in the national roaming market, we must also offer roaming services to other mobile providers without significant market power at the rates approved by Anatel. We are also required to provide access to our high capacity data transport network due to our classification as having significant market power in that market.

Until July 2018, roaming reference values were provided for in Act No. 9,157/2018. After deliberation by Anatel's Board, the new values are now provided for in Act No. 8,822/2022.

In the high-capacity data transport, Anatel’s Board recently approved Act No. 15,944/2022, replacing Act No. 9,161/2018.

For additional detail, see “—Lines of Revenue—Network Usage Charges,” “—Lines of Revenue—Roaming Fees,” “—Lines of Revenue —Interconnection Charges” and “—Lines of Revenue—Long Distance” above.

Interconnection Regulation

Telecommunication operators must publish a public interconnection offer on both economic and technical conditions and are subject to the “General Interconnection Regulatory Framework” issued by Anatel in 2005.

In October 2011, Anatel established a mechanism for reducing fixed-to-mobile call rates, that results on a glide path to the reduction of mobile interconnection rates (VU-M) from 2012 to 2018, in accordance with Resolution No. 600/2012.

In addition to the VU-M reduction, Anatel established a bill and keep, or B&K, rule between significant market power and non-significant market power PCSs. From January 2013 until February 2015, the B&K was 80%/20%. On February 12, 2015, Anatel approved, by means of Resolution No. 649/2015, the following new B&K percentages, amending the percentages established by Resolution No. 600: 75%/25%, from 2015 until 2016; 65%/35%, from 2016 until 2017; 55%/45%, from 2017 until 2018; and 50%/50%, from 2018 until 2019, which was the object of a judicial suit (ongoing), in order to suspend its effects. In July 2015, we filed a lawsuit seeking to annul Resolution No. 649/2015 and maintain the percentages originally established by Resolution No. 600/2012, which currently remains pending a final decision. However, as discussed above, the New PGMC in 2021 set the partial Bill & Keep threshold to 50% (i.e., a non-significant market power operator pays only if the terminated traffic on the significant market power operator network is more than 50% of the total traffic exchanged) and will be applied until the next revision of the New PGMC scheduled for 2022. In addition, Anatel determined the end of the existing additional 20% on the value of mobile termination rate paid by significant market power operators to non-significant market power operators.

Related to fixed interconnection, Anatel revised the criteria for pricing the use of fixed networks in May 2012. According to such regulation, after January 1, 2014, a full B&K regime (in which no payments are due for the traffic termination) was implemented for local STFC operators dealing with other local STFC operators. Currently, therefore, no payments are due for the use of a local STFC operator’s network by other local STFC operator. With respect to interconnection of STFC operators with long distance and mobile operators, we understand that, in 2012, when Anatel issued PGMC 2012, the asymmetrical measure that permitted STFC operators without significant market power to charge a TU-RL 20% higher than the TU-RL charged by STFC operator, with significant market power was revoked. In September 2016, we filed a lawsuit on this subject, which is still pending a final decision.

On July 4, 2014, Anatel approved, by means of Resolution No. 639/2014, a rule for the definition of maximum reference rates for entities with significant market power, based on a cost model, for VU-M and TU-RL, and for EILD. On July 7, 2014, Anatel published the corresponding Acts No. 6,210/2014, 6,211/2014 and 6,212/2014, which determined the specific reference rates effective as of February 2016.

On February 24, 2017, considering the glide path provided in Act No. 6,211, VU-M rates were again reduced, depending on the region, to the level of approximately R$0.05, in 2018, it was also reduced to levels of R$0.03, in 2019, it was reduced to levels of R$0.01 and, in 2020, it was reduced to levels of R$0.03. In December 2020, Anatel published Acts setting forth mobile termination rate which will be valid from 2020 until 2023.

Wholesale Rates Regulation

Under our PCS authorizations, we are allowed to set prices for our service plans, subject to approval by Anatel, provided that such amounts do not exceed a specified inflation adjusted cap. Anatel currently uses the telecommunication services index (Índice de Serviços de Telecomunicações), or IST, a specific price inflation index that it developed, in evaluating prices and determining the relevant cap for prices charged in the telecommunications industry. As mentioned above, on July 4, 2014, Anatel approved the calculation of VU-M, TU-RL and EILD reference rates based on a cost model. We expect that the adjustment of our prices will follow the market trend, and that the adjustment will be below the annual inflation rate based on the IST.

Number Portability

In March 2007, Anatel issued a new regulation regarding number portability in Brazil for fixed telephony and PCS providers. Portability is limited to migration between providers of the same telecommunications services. For PCS providers, portability can take place when a customer changes its services provider within the same Registration Area as well as when a customer changes the service plan of the same area. Anatel finished the nationwide NP implementation schedule in March 2009.

Value-Added Services and Internet Regulation

Value-Added Services are not considered under Brazilian telecommunications regulations to be telecommunications services, but rather an activity that adds features to a telecommunications service. Regulations require all telecommunications service providers to grant network access to any party interested in providing Value-Added Services, on a non-discriminatory basis, unless technically impossible. Telecommunications service providers also are allowed to render Value-Added Services through their own networks. Internet connection, when offered to users on a single basis, by parties other than telecommunications service providers, is considered by Brazilian legislation to be a value-added service, and its providers are not considered to be telecommunications companies. Current regulations allow us or any other interested party to offer Internet connection through our network. In such case, Internet connection would be deemed as a portion of the telecommunications service that enables users to navigate the Internet.

In April 2014, the Brazilian President passed Law No. 12,965/2014, known as the Legal Framework for the Use of the Internet (Marco Civil da Internet), or the Internet Framework, which establishes the principles, guarantees, rights and duties for the use of the Internet in Brazil. Key topics covered in the Internet Framework are: net neutrality; collection, use and storage of personal data; confidentiality of communications; freedom of expression and the treatment of illegal, immoral or offensive contents.

The Presidential Decree No. 8,711/2016 was enacted by the Brazilian President on May 11, 2016 and provided additional detail on the Internet Framework in three main aspects: (i) clarification of the scope and implementation of the net neutrality rules, (ii) implementation of the rights and obligations related to privacy and data protection regarding Brazilian Internet users, and (iii) governance of the Internet Framework, including authorities entitled to enforce the legislations. See “—Review of the Current Regulatory Model for the Provision of Telecommunications Services.”

Privacy and Data Protection

On August 14, 2018, the Brazilian President passed the LGPD. This new law is closer to the European Union General Data Protection Regulation, or GDPR, including significant extraterritorial application and considerable fines of up to 2% of a company’s global turnover of the previous financial year. The LGPD came into effect on September 18, 2020. However, the administrative sanctions provisions of LGPD only became enforceable as of August 1, 2021, pursuant to Law No. 14,010/2020. Cybersecurity incidents and data breach or leakage events may subject us to the following penalties: (1) warnings, with the imposition of a deadline for the adoption of corrective measures; (2) a one-time fine of up to 2% of gross sales of the company or a group of companies or a maximum amount of R$50,000,000 per violation; (3) a daily fine, up to a maximum amount of R$50,000,000 per violation; (4) public disclosure of the violation; (5) the restriction of access to the personal data to which the violation relates, until corrective measures are implemented; (6) deletion of the personal data to which the violation relates; (7) partial suspension of the databases to which the violation relates for up to 12 months, until corrective measures are implemented; (8) suspension of the personal data processing activities to which the violation relates for up to 12 months; and (9) partial or full prohibition on personal data processing activities. The postponement of the administrative sanctions did not prevent the competent authorities to begin supervision procedures and enactment of additional rules to be complied with prior to such effectiveness date, nor did it prevent individual or collective lawsuits based on violation of data subject’s rights and subject to civil liability.

We have set up a team tasked with adapting our processes and technologies to ensure compliance with the LGPD requirements. Notably, we have, among other developments, created a specific clause for the protection of personal data in our contracts with suppliers and business partners, developed training for all employees and salesforce as well as customized training for top leadership on the topic of data protection, and created an Executive Data Protection Committee, led by the CEO.

Frequencies and Spectrum Background

In connection with the PCS authorization auctions in 2001 and 2002, Anatel divided the Brazilian territory into three separate regions, each of which is equal to the regions applicable to the public regime fixed-line telephone service providers. PCS services could only be provided under Bands C, D and E at that time with initially 1800 MHz band and afterwards also the 900 MHz band. We acquired the D band in regions II and III and the E band in region I, completing our national coverage when considering TIM Sul, TIM Nordeste and Maxitel coverage (each ultimately merged into the Company). On March 2016, the authorizations for the D and E bands were renewed.

In December 2007, we acquired new authorizations for the 1,800 MHz frequency in São Paulo and Rio de Janeiro in order to improve our RF capacity in these regions. Within the same auction, Claro and Vivo acquired authorizations to provide PCS services in regions where we had historically provided services but where Claro and Vivo previously did not, using 1,800 MHz and 1,900 MHz bands. This resulted in increased competition in these regions. In the same auction, Oi received authorization to provide PCS services in the state of São Paulo using 1,800 MHz (band M in the whole state and band E in the state’s countryside).

In December 2007, we acquired 3G frequencies sub-bands (1,900–2,100 MHz), with national coverage; these authorizations were granted in April 2008 and are valid until 2023. Oi, Claro, Vivo and Algar Telecom also acquired 3G frequencies sub-bands in the same auction carried out by Anatel. All the authorization winners were subject to coverage and/or expansion commitments, divided by Municipality among the winners, in unserved areas.

In December 2010, Anatel auctioned an empty 3G band of radio spectrum consisting of (10+10) MHz in 2.1 GHz in the whole country (the “H Band” Auction), and other left over frequencies in the 900 MHz and 1800 MHz bands that had not been assigned in previous auctions. In this auction: we, Vivo, Claro and Nextel (now America Movil) acquired blocks of frequencies.

In December 2011, Anatel auctioned 16 blocks in the 1,800 MHz band, which were sold to Claro, Oi, CTBC and TIM. As a result of our participation in the auction, we expanded our 2G coverage and increased our presence in the northern and central-western regions of Brazil, including the states of Paraná, Espírito Santo, Rio Grande do Sul, Santa Catarina and Minas Gerais.

In 2012, Anatel established a bidding process in order to comply with Presidential Decree No. 7,512 of June 2011, which set April 2012 as the deadline to auction the 2.5 GHz band, in order to introduce 4G technology in Brazil. Anatel modeled the auction with two national blocks of (20+20) MHz (W and Z) and two national blocks of (10+10) MHz (V1 and V2). In order to guarantee full rural service by 2018, Anatel linked the 4G blocks to the 450MHz band in specific geographic regions of Brazil. Then, in 2022, through Act No. 12,827, published on September 13, 2022, the 450 MHz block was extinguished. As indicated in the notice, the winners of the auction committed themselves to the waiver if services were not activated within the established time frame.

We participated in the auction as a group bidding in the name of TIM and Intelig (now known as TIM S.A.). We did not bid for the W block (Amazonas as a rural area), which we viewed as having a high premium if compared to the X block (67%). We successfully acquired the V1 block, which in our view held the best capital expenditure/operating expenditure profile associated with rural services in its selected regions (the States of Rio de Janeiro, Espírito Santo, Santa Catarina, and Paraná). The joint bid allowed us to take advantage of the flexibility of the auction rules. These bands brought heavy coverage obligations as its short-range characteristics demands large investments.

In November 2013, Anatel approved the dedication of a single band, of the 700MHz spectrum, exclusively to mobile services and in September 2014, Anatel concluded the 700 MHz spectrum auction that granted to us, Vivo, Claro and Algar the operation of the 700 MHz frequency for the 4G mobile technology, to be added to the current LTE service in the 2.5 GHz RF. We bid on Block 2 of that auction, for national coverage of the 700 MHz band, and won the same with a bid of R$1,947 million (a 1% premium over the minimum price of R$1,927 million).

The auction also required the winning bidders to proportionally reimburse the broadcasters for the cleanup of the spectrum previously held and used by them. We spent R$1,199 million in order to create in March 2015 the EAD with the other winning bidders, to ensure the spectrum cleanup. The price allocated to the cleanup of the spectrum related to unsold blocks was shared proportionately among the winning bidders who bought the other blocks. To offset such additional cost to the winning bidders, the price of the 700 MHz spectrum was discounted using Anatel’s WACC methodology. As of September 2019, all Brazilian municipalities are able to receive TIM’s expanded 4G coverage through the 700 MHz band.

In December 2015, Anatel auctioned remaining radio frequencies in the 1,800 MHz, 1,900 MHz and 2,500 MHz bands. We submitted bids for the left over lots of the 2,500 MHz band, which had originally been auctioned in 2012. This particular band spectrum provides for 4G mobile services. We were the first ranked bidder in the lots for Recife, in the state of Pernambuco, and Curitiba, in the state of Paraná, based on our bids which totaled R$57.5 million. The corresponding authorization terms were executed by Anatel in July 2016.

In November 2021, TIM acquired 11 lots in the 5G Auction, with a total value offered of R$1.05 billion, in three frequency bands 3.5 GHz, 2.3 GHz and 26 GHz. The acquired bands have a set of obligations that must be met with financial contributions or the construction of mobile and fixed network infrastructure.

Currently, according to Decree No. 10,402/2020, which regulates Law No. 13,879/2019, it is possible to renew licenses for successive periods. However, some conditions are being disputed with Anatel and judicially, such as value and term of renewal.

The actual scenario of frequencies granted to us by Anatel is presented on the tables below:

Industrial Exploration of Dedicated Lines

In December 2010, Anatel approved a public hearing that considered alterations of the EILD, which established mechanisms for the operation of transmissions circuits up to 34 Mbps to increase transparency between operators and concessionaires. In May 2012, Anatel approved the new EILD regulations (Regulação de Exploração Industrial de Linha Dedicada), or REILD, detailing mechanisms to optimize the operating structure for transmission loop contracts in order to increase contract price transparency and affording equal treatment to independent service providers from concessionaire groups. The REILD specifically sets out more effective rules on project definition including Standard EILD or Special EILD, in addition to contract and delivery terms, and specifies EILD delivery dispute resolution procedures. Concurrently, in May 2012, Anatel approved new EILD reference prices, a step towards value fixation in controversies between service providers.

Considering that EILD is also a market subject to the asymmetric regulation defined by Anatel in the PGMC 2012, operators classified by Anatel as pertaining to group with significant market power in the EILD market, such as Oi, were required to submit reference prices and offers for Anatel’s approval, as well as to only offer EILD through a specific system designed for the PGMC 2012. In September 2013, Anatel ratification, for the first time, reference prices and offers of the operators with significant market power in the EILD market. At least every six months new reference prices and offers must be submitted for Anatel’s approval. We are not currently classified as having significant market power in the EILD market.

Nevertheless, the TIM network is still growing and, with its backbone now reaching the North region of Brazil by using optical fiber technologies and not only via satellite, this has allowed TIM to strengthen and expand the services offered in that region, particularly in the states of Pará, Amapá and the city of Manaus, the capital of the state of Amazonas and a very important industrial zone.

The greatest benefits of the use of the optical fiber technology are the higher network stability and assurance, greater voice and data traffic capacity and the higher transmission rates that we can now provide to our customers, all of which are essential features to support the increasing telecommunication services demands in the region. In addition to these perspectives, we contribute to reduce social disparities, offering the same technology to our customers, as well as content residing locally in our data centers, making no difference to the technical architecture built in a big metropolitan centers.

We have started discussions to apply the EILD reference rates based on cost model to the existing agreements we have with operators with significant market power in the EILD market. As part of the strategy of reducing operating expenses and as consequence of the expansion of our optic network infrastructure we are gradually deactivating leased lines such as EILD. The agreements for network sharing between the national operators is also a key factor to the reducing of leased lines. The number of leased circuits has considerably decreased along the last year. New lines are hired only in the cases where leasing is demonstrated to be the most cost effective solution.

Migration of the Mobile Networks with Analog Technology

In February 2011, Anatel approved Resolution No. 562/11, which modified a provision of the regulation on conditions of use of RF, determining that, after a period of 360 days from the publication, the use of analog technology in RF sub bands of 800 MHz would no longer be allowed.

In relation to the use of such RF, we no longer have subscribers of analog technology. However, our analog networks were still used by STFC concessionaires to provide services to subscribers in rural areas of the country, through a service called RuralCel.

In December 2016, Anatel approved Resolution No. 672/16, which prohibited the use of analog technology in the radio frequency sub bands of 800 MHz, 900 MHz, 1,800 MHz, 1,900 MHz and 2,100 MHz. We shut down our RuralCel service in 2017, and consequently turned off the related radio base stations, as attested to by Oi and recognized by Anatel in Decision-making No. 6/2017.

Quality Management Regulation

In October 2011, Anatel published PCS and SCM quality management regulations to establish quality parameters which were to have been met by the mobile telephone and Internet connection operators in up to 12 months. Most quality parameters established relating to the quality of the networks, both mobile and fixed, became effective in October and November 2012.

In response to the need to better quantify the financial impacts, Oi submitted a request for cancellation together with a request for review to Anatel for the presentation of technical surveys of the economic impacts of the new regulations. The aforementioned request was submitted to public hearing by Anatel, which resulted in a series of divergent opinions regarding the quality measures by the different operations that are being analyzed by Anatel.

With regard to STFC, in December 2012, Anatel approved the Quality Management Regulation for STFC service providers, which aims to create a new quality management model available, such as the Quality for PCS and SCM.

In February 2013, Anatel published the STFC quality management regulations to establish quality parameters that must be met by fixed-line operators within 120 days. All established parameters took effective in June 2013.

In December 2019, Anatel approved the new Telecommunication Services Quality Regulation (“RQUAL”) based on a reactive regulation. In this new model, quality is measured on the basis of three main indicators – a Service Quality Index, a Perceived Quality Index and a User Complaints Index – and operators are classified into five categories (A to E). Based on this regulation, Anatel will be able to take measures according to specific cases, such as consumer compensation, the adoption of an action plan or the adoption of precautionary measures to ensure quality standard improvements.

At the end of November 2021, after a joint work by Anatel, operators and the Quality Assurance Support Authority to define the objectives, criteria and reference values of indicators, Anatel’s Board of Directors formalized the reference documents that anchor this regulation (the Operational Manual and the Reference Values) and stipulated the entry into force on March 1, 2022. Anatel will also disclose the official indexes, and the quality label (intended to increase competition for quality) in 2023, considering the results of the new indicators monitored in the second half of 2022. Meanwhile, adjustments to the criteria and reference values can be made by Anatel.

       Fraud Detection and Prevention

“Subscription fraud,” which consists of using identification documents or personal data information of another individual to obtain mobile services, is the main fraud relating to mobile, fixed and long distance service. We are focused on implementing prevention measures in our points of sales to avoid such subscription fraud, such as: (i) digital authentication for our sales front-end system; (ii) a strong training program; (iii) maintenance of a list of offenders to prevent fraud; (iv) analysis of the documentation presented; and (v) monitoring and identification of point of sale. We also work to detect and prevent fraud by frequently improving and updating our traffic behavior monitoring and subscriber data.

Our security operations management develops programs and strategies to mitigate risks through macro business processes such as:

Network: Actions aimed to combat theft, robbery or damage of equipment and network infrastructure by the application of physical and electronic protections, such as equipment tracking, installation of protective security equipment, virtual and physical surveillance and intelligence analysis.

Investigations of Specific Incidents: These anti-fraud efforts are focused on the reduction of illicit activities. The program consolidates and analyzes all the facts related to known incidents in order to identify circumstances in which our services may be being used to perpetuate noncompliance with laws, codes and other policies such as extortion, pedophilia, aggression, theft, drug trafficking and harassment.

Personal Security: These efforts focus on the combined use of organizational, technical and human resources aimed at preserving the physical, intellectual and emotional integrity of the human resources of the group, ensuring compliance with the precepts pointed out in the security operations mission and focused on the foreign public on a visit to Brazil.

Commercial Security: These efforts seek to mitigate the losses resulting from theft and robbery of smartphones, among them the deployment of safes in the stores for the storage of high value devices in all stores, prioritizing street-front stores.

Security in Logistics: These efforts are directed to combat loss due to theft or theft of merchandise whether in transportation or storage.

Taxes on Telecommunications Goods and Services

The telecommunications goods and services offered are subject to a variety of federal, state and local taxes (in addition to taxes on income), the most significant of which are ICMS, ISS, COFINS, PIS, FUST, FUNTTEL, FISTEL, CONDECINE and Corporate Income Tax and Social Contribution on Net Income, which are described below.

In 2005, Anatel enacted Ordinance No. 7/05 requiring that FUST should be paid on revenues arising from interconnection charges since its effectiveness. A notice was issued deciding that we must adjust values on the FUST calculation basis in order to include interconnection revenues received from other telecommunications companies. A writ of mandamus was filed against Anatel to avoid the terms of Ordinance No. 7/05. The first level decision was issued in our favor. Such decision was challenged by Anatel and the Appeal judgement confirmed the first level decision. Anatel appealed to High Courts in order to reverse the Appeal decision.

In December 2020, Law No. 14,109 was approved with the purpose of stimulating the use of FUST to expand and improve the quality of telecommunications services, reducing regional inequalities and stimulating the use of new technologies to promote economic and social development. In the case of using FUST’s resources, the law requires the connection of all public schools by 2024 with broadband internet access. The law also provided a 50% reduction in the payment of the mandatory annual contribution of telecommunications operators to the Fund when they execute programs, projects, plans, activities, initiatives, and actions approved by the Fund's Management Council through the use of their own resources. This requirement remains in force until December 2016, but it may be further renewed.

In the first quarter of 2022, the Federal Government signed Decree 11,004/2022, which regulates the use of FUST and establishes directions for the use of resources by the Management Board, established in 2022.

Effective in 2001, the installation and inspection fee is assessed based on net activations of mobile numbers (that is, the number of new mobile activations reduced by the number of cancelled subscriptions), as well as based on the net additions of radio base stations. The operations inspection fee equals 33% of the total amount of installation inspection fees that would have been paid with respect to existing equipment. The public funds raised from this installation fee are appropriated to either the Brazilian Communication Company (“EBC”), or the Brazilian National Cinema Agency (Agência Nacional do Cinema) (“ANCINE”), in order to benefit Brazilian cinema industry. Also, Anatel charges the installation inspection fee when there is an extension of the term of validity of the right to use radio frequencies associated with the operation of the personal mobile service. We understand that such collection is unjustified and is challenging this rate in court.

In December 2020, Law No. 14,108 was sanctioned and exempts FISTEL for 5 (five) years from the base stations and equipment that integrate the machine to machine (M2M) ecosystems and, also, extinguishes the prior licensing. The definition and regulation of M2M communication systems shall be established by Anatel. The Brazilian government also laid out in the budget law for 2021 a tax exemption forecast of FISTEL value. Additionally, in June 2021, Law No. 14,173 was approved, lowering the FISTEL fees on VSATs from R$201.12 to R$26.83.

The rules for deductibility of goodwill were maintained for transactions which occurred prior to the end of 2017. The tax treatment by TIM Celular (now TIM S.A.) of the goodwill arising from the purchase of the companies AES Atimus SP and RJ was not impacted by the new rules.

Regarding dividends, Law No. 12,973 ensured the full and unconditional exemption on payment or credit of profits or dividends earned between 2008 and 2013, previously paid or not. Uncertainty remained, however, in relation to exemption on profits and dividends generated in the calendar year 2014, if higher than the taxable income in the same period in the case of companies that do not opt for early adoption of the new post-RTT tax regime that year. According to the Federal tax authorities the exception is not applicable to the excess amount, or in other words, to the profits and dividends paid in excess of the taxable income.

Dividends are not subject to withholding income tax when paid. However, as the payment of dividends is not tax deductible for the company that is distributing them, there is an alternative regime for stockholder compensation called “interest on equity,” which allows companies to deduct any interest paid to stockholders from net profits for tax purposes.

These distributions may be paid in cash. The interest is calculated in accordance with daily pro rata variation of the Brazilian government’s long-term interest rate (“TJLP”), as determined by the Central Bank from time to time, and cannot exceed the greater of: (1) 50% of the net income (before taxes and already considering the deduction of the own interest amount attributable to stockholders) related to the period in respect of which the payment is made; or (2) 50% of the sum retained profits and profits reserves as of the date of the beginning of the period in respect of which the payment is made.

Any payment of interest to stockholders is subject to withholding income tax at the rate of 15% (or 12.5% for some jurisdictions, as provided in certain Double Taxation Treaties), or 25% in the case of a stockholder domiciled in a Low or Nil Tax Jurisdiction. These payments may be qualified, at their net value, as part of any mandatory dividend. As described herein, we and our subsidiaries paid interest on equity in 2021. Please refer to ““Item 5. — Operating and Financial Review and Prospects” —Dividend  Distribution —Interest on Equity” for detailed information.

Tax losses carried forward are available for offset during any year up to 30.0% of annual taxable income. No time limit is currently imposed on the application of net operating losses on a given tax year to offset future taxable income within the same tax year, nevertheless there is no monetary restatement.

Companies are taxed based on their worldwide income rather than on income produced solely in Brazil. As a result, profits, capital gains and other income obtained abroad by Brazilian entities are added to their net profits for tax purposes. Therefore, profits, capital gains and other income obtained by foreign branches or income obtained from subsidiaries or foreign corporations controlled by a Brazilian entity are computed in the calculation of an entity’s profits, in proportion to its participation in such foreign companies’ capital.

In the end of 2017, the RFB, issued Normative Instruction No. 1,771/2017 in order to determine the tax treatment due to the accounting CPC 47 – Customer Contract Revenue, which tax treatment went into effect in 2018.

Income tax and social contribution were regulated by Decree 580/2018 and Normative Instruction RFB No. 1,700/2017 in addition to other federal laws and decrees. In December 2018, this decree was revoked and replaced by Decree No. 9,580, which consolidates the main provisions related to income tax and social contribution. As of the date hereof, no relevant impacts to the Company were identified with regard to such changes.

Anatel Administrative Proceedings

Under the terms of its PCS authorization, TIM Celular (now TIM S.A.) implemented mobile personal telecommunications coverage for the assigned area. Under such term of authorization, TIM Celular (now TIM S.A.) is required to operate in accordance with the quality standards established by Anatel. If it fails to meet the minimum quality standards required, TIM Celular (now TIM S.A.) is subject to Obligation Non-Compliance Determination Procedures, or PADO, and applicable penalties. Anatel has brought administrative proceedings against the TIM Group, which are currently pending for (1) noncompliance with certain quality service indicators (the quality management regulation, or RGQ, and/or RQUAL); and (2) default of certain other obligations assumed under the Terms of Authorization and pertinent regulations. In its defense before Anatel, the TIM Group attributed the lack of compliance to items beyond its control and not related to its activities and actions. We cannot predict the outcome of these proceedings at this time, but have accrued the amount in our balance sheet as a provision for all those cases in which we estimate our loss to be probable.

Disclosure Pursuant to Section 219 of the Iran Threat Reduction and Syria Human Rights Act

Section 219 of the Iran Threat Reduction and Syria Human Rights Act of 2012 added Section 13(r) to the Exchange Act. Section 13(r) requires an issuer to disclose in its annual or quarterly reports filed with the SEC whether the issuer or any of its affiliates has knowingly engaged in certain activities, transactions or dealings with the Government of Iran, relating to Iran or with designated natural persons or entities involved in terrorism or the proliferation of weapons of mass destruction during the period covered by the annual or quarterly report. Disclosure is required even when the activities were conducted outside the United States by non-U.S. entities and even when such activities were conducted in compliance with applicable law.

We are also required to disclose our affiliates’ activities relating to countries with economic sanctions. We entered into Roaming Agreements for the provision of telecommunication services with mobile networks, from Cuba, Lybia, North Korea, Iran, Russia, Sudan, Syria and Ukraine (Crimea occupied territories).

In accordance with our Code of Ethics, we seek to comply with all applicable laws. The Code of Ethics is available on our website: https://ri.tim.com.br/.

Our activities relating to countries with economic sanctions

The Company is not, to its knowledge, engaged in any activities, transactions or dealings with the Government of Cuba, North Korea, Iran, Lybia, Russia, and Syriatel from Sudan, Syria and Ukraine (Crimea occupied territories), or the Designated Countries.

The activities, transactions or dealings we had in the year ended December 31, 2022 to our knowledge, related in any way to Designated Countries are roaming agreements for the provision of telecommunication services, which allow our mobile customers to use their mobile devices on a network outside their home network, or Roaming Agreements. In our view, the amounts related to these operations, detailed below, are immaterial in our business. The Company does not have any agreement with providers from North Korea.

Roaming Agreements with the following local mobile phone operators:

The impact on our consolidated statement of income arising from Roaming Agreements with networks of the Designated Countries is detailed as follows:

Telecom Italia activities relating to Designated Countries

The information in this section is based solely on information provided to us by our parent Telecom Italia for the purposes of complying with our obligations under Section 13(r) of the Exchange Act.

Telecom Italia informs us that the activities, transactions or dealings it and its consolidated subsidiaries had in the year ended December 31, 2022 that, to its knowledge, relate to Designated Countries are (1) Roaming Agreements, (2) international telecommunications services agreements with international carriers, which cover delivery of traffic, or International Carrier Agreements, and (3) commercial sale and other agreements, or Commercial Sale and Other Agreements.

Telecom Italia informs us that the only activities that it and its consolidated subsidiaries had in the year ended December 31, 2022 that, to its knowledge, relate in any way to the Designated Countries are:

Roaming Agreements

Its Roaming Agreements are with the following local mobile phone operators:

The amounts of revenues, charges, receivables and payables are considered de minimis by Telecom Italia’s compared to its consolidated revenues, operating expenses, trade receivables and trade payables, respectively.

International Carrier Agreements

Telecom Italia’s subsidiary Telecom Italia Sparkle S.p.A., or TI Sparkle, directly and through its subsidiaries, has agreements with ETEC-Empresa de Telecomunicacione in Cuba, and Syrian Telecommunication in Syria.

The purpose of these International Carrier Agreements is to allow the uninterrupted exchange of international traffic. Consequently, Telecom Italia intend to continue maintaining these agreements.

The amounts of revenues, charges, receivables and payables are considered de minimis by Telecom Italia’s compared to its consolidated revenues, operating expenses, trade receivables and trade payables, respectively.

Commercial Sale and Other Agreements

TI Sparkle provides institutional access to Internet to Syria by means of Seabone IP ports and data transmission capacity through international cable systems located outside the Syrian territory. TI Sparkle also offers Internet Access services to Iran and Cuba through its international IP backbone system Seabone.

The amounts of revenues, charges, receivables and payables are considered de minimis by Telecom Italia’s compared to its consolidated revenues, operating expenses, trade receivables and trade payables, respectively.

C.       Organizational Structure

We are part of the Telecom Italia Group, which is engaged in the communications sector and, particularly, the fixed and mobile national and international telecommunications sector. The operating segments of the Telecom Italia Group are organized according to the respective geographical location of the telecommunications business (Domestic—Italy and Brazil). We are currently held, directly and indirectly, by Telecom Italia, which as of December 31, 2022 held 66.59% of our shares. In turn, the single largest shareholder of Telecom Italia is Vivendi, which holds, directly, a stake of approximately 23.75% of ordinary share capital. In 2019, Telecom Italia delisted all its U.S. listed securities and deregistered from the SEC, having filed Form 15F on July 9, 2019. Substantially all assets previously held by TIM Participações consisted of the shares of the Company (known, until its corporate name change in September 2017, as Intelig, and into which TIM Celular was merged in October 2018 in connection with the Reorganization, as set forth in more detail below) (incorporated in the Federative Republic of Brazil and headquarters located in the State of Rio de Janeiro).

On July 25, 2017, the TIM Participações S.A.’s Board of Directors approved the Reorganization, under which TIM Celular was to be merged into the Company. In connection with the Reorganization, Intelig was transformed by corporate act into a closely held joint stock company and its corporate name was changed to TIM S.A. On October 31, 2018, the Reorganization was concluded and the merger of TIM Celular into the Company was completed, transferring all of TIM Celular’s operations to TIM S.A., and with the Company succeeding to all of TIM Celular’s assets, rights and liabilities. The Reorganization had the objective of capturing operational and financial synergies, through the implementation of a more efficient process structure, as well as accounting and internal control systems. This final step of the Reorganization resulted in efficiencies including: (i) tax efficiencies related to the termination of intercompany transactions; (ii) the creation of one company with combined services (fixed and mobile services) potentially resulting in a more efficient and swift response to the market’s needs, through the development of new services and integrated offers, and enabling a better strategic positioning and competitiveness as well as a better customer experience; (iii) optimization of resources and systems; and (iv) the recording by TIM Participações of an approximately R$952 million tax credit. The minutes of the Reorganization were filed with and approved by the Board of Trade of the State of São Paulo (Junta Comercial do Estado de São Paulo), in December 2018.

On July 29, 2020, our Board of Directors and the Board of Directors of TIM Participações approved the Merger of TIM Participações into the Company, which became effective on September 28, 2020. The Merger was part of a reorganization of TIM’s corporate group. The business carried out by TIM following the Merger was the same as the business previously carried out by TIM Participações prior to the Merger. Upon the consummation of this transaction and the approval of the listing of our common shares and ADSs on B3 and NYSE, respectively, TIM Participações S.A.’s shareholders received one share of the Company in exchange for each share of TIM Participações that they held, in accordance with the terms of the Merger Agreement.

On December 10, 2020, our Board of Directors, after reviewing certain studies, approved the establishment of a new company, FiberCo, in preparation for the future segregation of assets and the provision of residential fiber optic infrastructure services.

On December 16, 2020, FiberCo was established as our wholly owned subsidiary, and on November 16, 2021, IHS acquired a 51% equity interest from us in FiberCo. As a result of the transaction, FiberCo ceased to be our wholly owned subsidiary. We now hold 49% of FiberCo’s share capital and IHS holds the remaining 51%. With the completion of the acquisition, FiberCo changed its corporate name to I-Systems. For more details on this transaction, see “Item 4. Information on the Company—A. History and Development of the Company—2021 Important Events—Completion of the transaction between IHS and I-System.”

On April 20, 2022, we informed our shareholders and the market in general that we had acquired 100% of the capital stock of SPE Cozani, making it a wholly-owned subsidiary. The acquisition of this company corresponds to the portion of the assets, rights and obligations of Oi Móvel that we acquired.

On June 28, 2022, the shareholders’ ratified, at an extraordinary general meeting, our acquisition of shares representing 100% of the capital stock of SPE Cozani.

On March 30, 2023, our shareholders approved our merger with SPE Cozani (then a wholly-owned subsidiary) pursuant to which SPE Cozani would be merged into TIM S.A., subject to certain conditions, including authorization by Anatel and the closing processes that are required under Brazilian corporate law to consummate the merger of two companies, pursuant to the Protocol and Justification of incorporation.

On March 31, 2023, at a meeting of our Board of Directors, it was confirmed that the outstanding conditions for the merger of SPE Cozani had been met, with an effective date of April 1, 2023, following which date SPE Cozani was merged into the Company and ceased to exist as a separate legal entity. Pursuant to the merger, we succeeded SPE Cozani in respect of all of its rights and obligations.

The following chart illustrates our current ownership structure:

D.       Property, Plant and Equipment

Our principal properties consist of radio frequencies, transmission equipment, switching exchanges and gateway equipment, which connect calls to and from customers and enables data traffic connections, and radio base stations, which comprise certain signal transmission and reception equipment covering a defined area. At our radio base station, we have also installed antennas and certain equipment to connect these antennas with our switching equipment. As of December 31, 2022, we had more than 60 thousand eNodeB, more than 17 thousand NodeB, more than 13 thousand BTS and more than 112 thousand kilometers in fiber optic networks. We generally lease or buy the sites where our mobile telecommunications network equipment is installed. Over the course of 2022, we had leased approximately 71,631 square meters of real property, all of which was available for office space. We also lease approximately 25,075 square meters of stores operated by us. There are no material encumbrances that may affect our utilization of our property or equipment. All of our property and equipment is owned or leased domestically, we do not own or lease any property or equipment outside Brazil.

Our strategic plan for the 2023-2025 period, or the Industrial Plan 2023-2025, forecasts our capital expenditures of approximately R$14.0 billion, considering the combination with the UPI Oi Mobile Assets.