Indicate by check mark whether the registrant by furnishing the information contained in this Form is also thereby furnishing the information to the Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act of 1934.  

TIM Participações S.A., and TIM Participações S.A. and Subsidiaries

Financial Statements as at

December 31, 2017

and Independent Auditors’ Report

TIM PARTICIPAÇÕES S.A.

FINANCIAL STATEMENTS

December 31, 2017 and 2016

Contents

INDEPENDENT AUDITOR’S REPORT ON THE INDIVIDUAL AND CONSOLIDATED FINANCIAL STATEMENTS

To the

Shareholders and Management of

TIM Participações S.A.

Rio de Janeiro - RJ

Opinion

We have audited the individual and consolidated financial statements of TIM Participações S.A. (‘Company’), identified as parent company and consolidated, respectively, which comprise the balance sheet as at December 31, 2017 and the respective statement of income, comprehensive income, changes in shareholders’ equity and cash flows for the year then ended, and the corresponding notes to the financial statements, including a summary of significant accounting policies.

In our opinion, the accompanying financial statements present fairly, in all material respects, the individual and consolidated financial position of the Company as at December 31, 2017, its individual and consolidated financial performance and its individual and consolidated cash flows for the year then ended, in accordance with Brazilian accounting practices and International Financial Reporting Standards (IFRS) issued by the International Accounting Standards Board (IASB).

Basis for opinion

We conducted our audit in accordance with Brazilian and International Standards on Auditing (ISAs). Our responsibilities under those standards are further described in the ‘Auditor’s Responsibilities for the Audit of the Individual and Consolidated Financial Statements’ section of our report. We are independent of the Company and its subsidiaries in accordance with the relevant ethical principles set forth in the Accountants’ Code of Ethics for Professional Accountants and in the professional standards issued by the Brazilian Federal Association of Accountants (CFC) (CFC), and we have fulfilled our other ethical responsibilities in accordance with these standards. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.

Key audit matters

Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the financial statements of the current year. These matters were addressed in the context of our audit of the individual and consolidated financial statements as a whole and in forming our opinion thereon, and we do not provide a separate opinion on these matters.

Provision for tax contingencies

In accordance to Note No. 24 to the financial statements, the Company and its subsidiaries are parties to legal and administrative proceedings in the civil, labor, tax and regulatory spheres which arise in the normal course of their business. As at December 31, 2017, the Company has tax issues under discussion in various processual spheres, in the total amount of R$ 15 billion, being R$ 180 million set up to cover losses and risks considered probable, based on analysis by the Company’s legal consultants and by Management. Situations where losses are considered possible are disclosed and those where losses are considered remote are not disclosed.

Audit response

Considering the relevance of the involved amounts and the necessity of critical judgement in relation to the probability of losses in the judicial discussions, any change in the prognostic and/or judgement can relevantly impact the financial statements of the Company. Our audit procedures included:

§

Obtaining confirmation from the Company’s legal consultants for all ongoing tax processes, as well as the respective valuation of amounts and probability of losses;

§

For some tax processes, obtaining an opinion of tax specialists (second opinion) about the reasonability of the prognostic made by the Company’s legal consultants and assessment of the arguments and/or defense thesis with the involvement of our specialists;

§

Evaluation of the adequacy of the disclosure of the notes to financial statements.

Based on the evidence obtained, considering the inherent uncertainty to legal and tax questions, we determined the provision is appropriate, and we validate the sufficiency and the adequacy of disclosures in the notes to the financial statements.

Impairment evaluation of goodwill

The Company has registered goodwill in the amount of R$ 1.53 billion as at December 31, 2017, related to companies’ acquisitions in prior years, in accordance to Note No. 15 to the financial statements. Management evaluates, at least annually, the risk of impairment of these assets, based on the value in use method or discounted cash flow model, which requires that Management adopt some assumptions based on information provided by its internal reports. This procedure involves significant judgement on the future results of the business, in which any adjustment on the adopted assumptions can generate significant effects in the valuation and impacts in the financial statements of the Company as a whole.

Audit response

We evaluated and questioned the future cash flow forecasts prepared by Management and the process used in their preparation, including comparisons with their most recent business plans, and performed the test of value in use. We questioned Management’s main assumptions for long-term growth rates in the forecasts, by comparing them with economic and sector forecasts, and the discount rate considering the cost of capital for the Company. We verified the adequacy of the disclosure made in the notes to the financial statements.

Based on our procedures, we considered that Management’s assumptions are in a reasonable range and the related disclosures are acceptable

Unbilled revenue recognition

According to Note No. 28 to the financial statements, revenue recognition in telecom industry is considered an inherent risk, because the process involves complex billing systems, by processing a large volume of data, with a combination of different sold products and price variations during the year, which may change according to different marketing plans and actions. The revenues are recognized monthly via invoicing, and revenues to be billed between the billing date and the end of month (unbilled) are identified, processed and recognized in the month in which the service was rendered. Calculations of unbilled revenues from the previous month are reversed out and unbilled amounts are calculated at each month end. Eventual problems in this estimative calculation can impact relevantly the financial statements of the Company.

Audit response

Our audit procedures included, among others:

§

Assessment and test on the relevant Information Technology (IT) systems;

§

Detailed test over the services revenue, by non-statistical sample;

§

Understanding and evaluation of the estimative adopted by the Company’s management to determine the unbilled revenue in the end of the year, as well as the comparison of this estimative with the effective billed revenue of the subsequent month after closing;

§

Adequacy of disclosures presented in the notes to the financial statements.

Based on our procedures, we considered that the adopted policies used for the unbilled revenue recognition are adequate.

Other matters

Statement of value added

The individual and consolidated statements of added value for the year ended December 31, 2017, prepared under the responsibility of the Company’s management, and presented as supplemental information for IFRS purposes, were subject to the same audit procedures followed for the audit of the financial statements of the Company. In order to form an opinion, we have checked whether these statements are reconciled with the financial statements and accounting records, as applicable, and whether its form and contents meet the criteria established in Accounting Pronouncement CPC 09 – Statement of Added Value. In our opinion, the statements of value added were properly prepared, in all material respects, in accordance with the criteria established in this Technical Pronouncement and are consistent with the individual and consolidated financial statements taken as a whole.

Other information accompanying the individual and consolidated financial statements and the auditor’s report

The Company’s management is responsible for other information that comprises the Management Report.

Our opinion on the individual and consolidated financial statements does not cover the Management Report and we do not provide any form of audit conclusion thereon.

In connection with our audit of the individual and consolidated financial statements, our responsibility is to read the Management Report and, doing so, consider whether the report is materially inconsistent with the individual and consolidated financial statements or our knowledge obtained during the audit, or otherwise appears to be materially misstated. If, based on the work we have performed, we conclude that there is a material misstatement of the Management Report, we are required to report this fact. We have nothing to report in this regard.

Responsibilities of management and those charged with governance for the individual and consolidated financial statements

Management is responsible for the preparation and fair presentation of these individual and consolidated financial statements in accordance with the accounting practices adopted in Brazil and with the Financial Reporting Standards (IFRS) issued by the International Accounting Standards Board (IASB) and for such internal control as management determines is necessary to enable the preparation of individual and consolidated financial statements that are free from material misstatement, whether due to fraud or error.

In preparing the individual and consolidated financial statements, management is responsible for assessing the Company’s ability to continue as a going concern, disclosing, when applicable, matters related to going concern and using the going concern basis of accounting unless management either intends to liquidate the Company and its subsidiaries or to cease operations, or has no realistic alternative to do so.

Those charged with governance are responsible for overseeing the Company’s financial reporting process.

Auditor’s responsibilities for the audit of the individual and consolidated financial statements

Our objectives are to obtain reasonable assurance about whether the individual and consolidated financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with the Brazilian and International Standards of Auditing (ISAs) will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements.

As part of an audit in accordance with the Brazilian and International Standards of Auditing (ISAs), we exercise professional judgment and maintain professional skepticism throughout the audit. We also:

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Identify and assess the risks of material misstatement of the individual and consolidated financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control;

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Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s and its subsidiaries internal control;

§

Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by management;

§

Conclude on the appropriateness of management’s use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may raise significant doubt on the Company and its subsidiaries’ ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor’s report to the related disclosures in the individual and consolidated financial statements or, if such disclosures are inappropriate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor’s report. However, future events or conditions may cause the Company and its subsidiaries to cease to continue as a going concern;

§

Evaluate the overall presentation, structure and content of the financial statements, including the disclosures, and whether the individual and consolidated financial statements represent the underlying transactions and events in a manner that achieves fair presentation;

§

Obtain sufficient appropriate audit evidence regarding the financial information of the entities or business activities within the Group to express an opinion on the consolidated financial statements. We are responsible for the direction, supervision and performance of the group audit. We remain solely responsible for our audit opinion.

We communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit.

We also provide those charged with governance with a statement that we have complied with relevant ethical requirements regarding independence, and to communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, related safeguards.

From the matters communicated with those charged with governance, we determine those matters that were of most significance in the audit of the financial statements of the current year, and are therefore the key audit matters. We describe these matters in our auditor’s report unless law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances we determine that a matter should not be communicated in our report because the adverse consequences in doing so would reasonably be expected to outweigh the public interest benefits of such communication.

The accompanying financial statements have been translated into English for the convenience of readers outside Brazil.

Rio de Janeiro, February 5, 2018.

TIM PARTICIPAÇÕES S.A., AND TIM PARTICIPAÇÕES S.A. AND SUBSIDIARIES

BALANCE SHEET

 (In thousands of Reais)

The accompanying notes are an integral part of the financial statements.

TIM PARTICIPAÇÕES S.A., AND TIM PARTICIPAÇÕES S.A. AND SUBSIDIARIES

BALANCE SHEET

 (In thousands of Reais)

The accompanying notes are an integral part of the financial statements.

TIM PARTICIPAÇÕES S.A., AND

 TIM PARTICIPAÇÕES S.A. AND SUBSIDIARIES

STATEMENT OF INCOME

Years ended December 31

(In thousands of Reais, except otherwise stated)

The accompanying notes are an integral part of the financial statements.

TIM PARTICIPAÇÕES S.A., AND

 TIM PARTICIPAÇÕES S.A. AND SUBSIDIARIES

STATEMENT OF COMPREHENSIVE INCOME

Years ended December 31

(In thousands of Reais)

The items included in the Statement of Comprehensive Income are recorded net of taxes.

The accompanying notes are an integral part of the financial statements.

TIM PARTICIPAÇÕES S.A., AND

 TIM PARTICIPAÇÕES S.A. AND SUBSIDIARIES

STATEMENT OF CHANGES IN SHAREHOLDERS’ EQUITY

 (In thousands of Reais)

The accompanying notes are an integral part of the financial statements.

TIM PARTICIPAÇÕES S.A., AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF CASH FLOW

Years ended December 31

(In thousands of Reais)

Supplementary disclosure on consolidated cash flow

The accompanying notes are an integral part of the financial statements.

TIM PARTICIPAÇÕES S.A., AND

 TIM PARTICIPAÇÕES S.A. AND SUBSIDIARIES

STATEMENT OF VALUE ADDED

Years ended December 31

(In thousands of Reais)

The accompanying notes are an integral part of the financial statements.

TIM PARTICIPAÇÕES S.A.

Publicly-held Company

CNPJ/MF: 02.558.115/0001-21

NIRE: 33 300 276 963

MANAGEMENT REPORT AND ANALYSIS FOR 2017 RESULTS

COMMENTS ON THE FINANCIAL STATEMENTS FOR THE FISCAL YEAR ENDED ON DECEMBER 31, 2017

Dear shareholders,

The management of TIM Participações S.A. ("TIM Participações", "Companhia" or "TIM") presents the Management Discussion and Analysis Report of 2017 results, together with the Individual and Consolidated Financial Statements and the Independent Auditors’ Report for the fiscal year ended on December 31, 2017.

The Financial Statements have been prepared in accordance Brazilian Standards and the IFRS (International financial reporting standards), as defined by the IASB.

The operational and financial information for 2017, unless stated otherwise, is presented in Reais (R$), based on the consolidated amounts, and pursuant to Brazilian corporate law.

Company Profile

TIM Participações is a publicly-held company with shares listed on the São Paulo Stock Exchange (B3) and ADRs (American Depositary Receipts) listed on the New York Stock Exchange (NYSE). In 2017, TIM confirmed its permanence in the select group of companies that integrate the ISE (Corporate Sustainability Index) portfolio for the tenth consecutive year, reinforcing its commitment to economic, social and environmental sustainability. Moreover, TIM is the only telecommunication company to participate in Novo Mercado (New Market), a segment recognized by B3's highest level of corporate governance.

TIM Participações is controlled by TIM Brasil Serviços e Participações S.A., a subsidiary of the Telecom Italia group. Through sharing experiences and the adoption of a good practices policy, the Company shares experiences with its parent company and accumulates synergies that benefit all of its clients. Through its subsidiaries, TIM Celular S.A. and TIM S.A. (formerly Intelig), TIM operates in the mobile, in the fixed telephony, in the long distance and data transmission markets throughout Brazilian territory and in the ultra-broadband market encompassing some states of the country.

1. Message from Management

The year of 2017 confirms that the recovery trajectory of our results, started on the second half of 2016, was consolidated. Despite a very gradual macroeconomic recovery, the focus on the execution of the designed plan allowed TIM not only to grow again solidly, but also to present some indicators that surpassed historical levels, such as EBITDA and EBITDA Margin in the fourth quarter.

This transformation was based on the aiming for the best experience for the user and having as drivers: (i) the base’s transformation, with a strong increase in the value proposition and greater incentive to recurrent offers; (ii) the construction of the largest and best 4G network in Brazil and (iii) an efficiency-oriented approach in all activities combined with the first effects of the digitization process.

Customer Base Transformation

The change of the value proposition to customers with the inclusion of new services and benefits and a better usage experience, continues to generate excellent operating results, such as the addition of 2.9 million lines in the postpaid segment, which reached a mix of 30% of the total base and also the growth of recurrent prepaid offers that double their participation on the base, reaching the level of 26%. One of the positive consequences of this process is the ARPU growth which reached 12.1% in the year.

The transformation is also due to the changing habits and demands of customers, who are using more and more data and digital services. Therefore, encouraging migration to a technology where experience with such services is much better becomes critical to success. In this regard, we continue to encourage the migration to 4G, reaching 27.6 million users this technology, an increase of 63.7%, which represents 47.1% of the Company’s total base. This result was made possible by TIM's ongoing effort to equip its base with smartphones. By the end of 2017 of smartphones’ penetration on total base reached 80.9%.

4G Coverage Leadership: Biggest and Best

The evolution of our infrastructure is an essential part of our strategy to search for a higher value customer base. Maintaining the leading position in 4G coverage, with more than 3,000 cities and 91% of the urban population, gives us an important competitive differential, which was achieved with the efficient implementation of a 1.8 GHz frequency refarming process.

The use of new features is also part of building our evolution and the best 4G experience, therefore, we are the only operator in Brazil to use voice over LTE, already available in 1,200 cities. In addition, we are the Company that has accelerated more the implementation of the 4G through 700 MHz frequency, delivering more than 900 covered cities, which provides a significant improvement in indoor coverage and reinforces our commitment to be the best 4G provider in the country.

The fixed infrastructure also evolved, in 2017 we expanded our optic fiber network, surpassing the 85 thousand kilometers mark, which helps the mobile network performance with the connection of the sites to fiber and extends the coverage of TIM Live ultra-broadband services, the leader in Netflix satisfaction and awarded by Estadão. This expansion allowed the preliminary launch of ultra-broadband through FTTH, Fiber To The Home, which will be expanded in 2018, reinforcing the focus on the highest value.

Efficiency On All Fronts

The efficiency program still permeates the entire Company, adding up R$ 659 million in savings during 2017, despite the continuous expansion of infrastructure and greater commercial efforts to attract high value customers. The objectives of the program are not limited to financial savings, but also aim at operational evolution and to improve customer experience.

The initiatives in progress are levers for the continuity of TIM's growth, in which the following projects stand out: (i) redefinition of processes and systems; (ii) review of commissioning strategies; (iii) corporate reorganization; (iv) fiscal efficiency; (v) contracts renegotiation; and (vi) development of own infrastructure, reducing the number of leased lines. The process of "digitalization" permeates some of these fronts and began to yield results already in 2017, with expressive growth in the usage of non-human service and sales channels.

Our efforts ensured not only a more efficient organization, but also a significant saving, contributing to the EBITDA margin expansion to historical levels.

Conclusion and Perspectives

Our turnaround has evolved from a recovery process to a story of sustainable and consistent growth. The effectiveness of the strategy enabled the Company to deliver all the short-term goals established by the 2017-2019 industrial plan, whose strategic pillars continue to guide TIM's path, focusing on efficiency and the best customer experience. There are interesting opportunities we want to capture, and for that, we will keep the focus on our infrastructure’s evolution and accelerate the digital transformation, which will bring us better operational and financial results, and improve the quality of our services.

The year 2018 will be a lot of work and we will continue to be committed to our growth trajectory combined with improvements in profitability and cash generation.

Stefano De Angelis

CEO

2. Economic and Industrial Overview

2.1. Macroeconomic Environment

The year of 2017 marked the inflection of Brazilian economy with the recovery of the Gross Domestic Product (GDP), which grew by 1.00%¹ after two consecutive years of decline, mainly driven by domestic consumption and trade balance surplus.

Inflation, measured by the Extended National Consumer Price Index (Índice de Preços ao Consumidor Amplo - IPCA), was under strict control and, by the end of 2017, it was at 2.95%, below the minimum target set by the Central Bank. The performance is explained by the super harvests, which reduced the prices of food, and also by the reduction in the price of beverages. The basic interest rate (SELIC) confirmed the downward path and closed the year at a historical low of 7.00%, a significant reduction of 6.75 percentage points compared to the closing of 2016. This movement is explained by the still slight economic recovery of the country and the lower expectation of inflation.  

On the foreign exchange front, the Brazilian real depreciated 1.50% compared to the US dollar in 2017. During the year, the exchange rate showed a strong oscillation due to reports of corruption cases in Brazil, to the monetary policy and the reforms proposed by the US government. The trade balance closed the year with a surplus of $67 billion, representing a growth of 40.49% compared to 2016. Of note was the 17.55% increase in exports, which more than offset the 9.59% increase in imports.

Despite the overall positive result, instability continued to mark the political environment, leading to uncertainties regarding the approval of fiscal and political reforms. The presidential elections 2018 also contribute towards a decreased predictability regarding the direction of the country's economy.

In the international scenario, the continuous military instability, especially between the United States and North Korea, brought volatility to the markets, generating strong oscillations. In Europe, the level of economic activity is improving in the euro zone, even as discussions regarding Brexit continue. In the United States, some government proposals and the Fed's monetary policy set a tone of uncertainty about the sustainability of the global economic growth in the years to come.

2.2. Particularities of the Telecommunications Sector

The telecommunications sector in Brazil is marked by strong competition and by the effective regulation of the National telecommunications agency, ANATEL, whose mission is "to promote the development of the country's telecommunications, in order to provide it with a modern and efficient telecommunications infrastructure, capable of providing the society with adequate, diversified and fair prices throughout the entire national territory".

The gradual recovery in the economic scenario had a direct impact on the telecommunications market in 2017, which maintained the trajectory of reduction in the mobile customer base. In the mobile market, the process of migration from prepaid to hybrid (control plans) and postpaid plans has marked the dynamics of customer bases. This movement can be seen as a result of the growing demand for access to data and content services. At the same time, the operators sought to retain their customers with offers that have recurrence consumption and, consequently, of revenue, in line with the strategy of offering more for more.

The dynamics of the sector in 2017 consolidated the tendency to an increase in data consumption, requiring operators to adapt their networks, facing the challenge of delivering an increasingly robust infrastructure in an environment of greater rationality in investments. Additionally, the integration of digital services into the portfolio was a mark of the industry that year, when companies sought to monetize their offerings, including integrated content in their portfolio.

Lastly, the growing demand for Fixed Broadband consolidated the vision of Internet access as an essential asset for the population, which was confirmed by the strong migration to higher speed service offerings (especially for ultra-broadband, with speeds above 34Mbps).

3. TIM Services

3.1. Business

TIM is recognized for its strong brand and for its reputation as an innovative and disruptive company capable of setting new consumption standards for the market. The proactive approach allows the Company to be in a leading position in the transformation of telecommunications business model. The change in consumer profile and the emergence of new technologies foster a rupture in the telecommunications industry based on the consumption of digital data, content and services.

Pioneering and innovative offerings are traits of the Company, which has a complete portfolio for individuals as well as corporate solutions for small, medium and large companies. Besides traditional voice and data services, TIM offers a fixed-line ultra-broadband service, TIM Live, and fixed broadband service through the mobile network, a technology known as WTTx.

Also regarding the portfolio, the Company offers a series of digital contents and services in its packages, increasing the functionalities of the mobile devices in the daily life of its clients. The ability to manage a complete and varied portfolio gives TIM the possibility to offer customized packages to its customers and to propose convergent offers in certain regions.

In 2017 TIM launched a new concept of postpaid, TIM Black, which continues the strategy of evolution of the Company’s portfolio in the segment, associated with a better service usage experience and inclusion of new benefits. The release set a milestone of the inclusion of unlimited calls to any operator in TIM’s Postpaid plans, in addition to robust internet and digital services packages, including video platforms. Still regarding postpaid plans, TIM increased its portfolio with the release of TIM Família, in order to offer more benefits and a better experience to its customers.

In the control and prepaid segments, TIM also innovated in its portfolio. In control segment, a gateway to postpaid plans, the Company was the first to offer unlimited calls to any operator, plus data and digital services packages. Regarding prepaid plans, the Company continues to value its leadership and to offer innovative and complete packages, aiming to stimulate the recurrence of its base.

The new positioning of TIM seeks to follow the desire of its consumers, considering them the center of decision making, based on: (i) INNOVATION, which is in the DNA of the Company and will continue as a priority, with new plans, offers, partnerships and technologies; (ii) QUALITY, which is the basis for acquiring the customer's loyalty and for the expansion of its life cycle; and in the (iii) USER EXPERIENCE, which is the strategic pillar of convergence of all others, establishing a new relationship with customers and acting in a way that everyone receives the best experience, great services and a transparent relationship with the Company.

3.2. Strategy

The Company's strategy is based on 6 (six) pillars: culture, digitalization, offer, infrastructure, efficiency and customer experience. These pillars aim to redesign customer experience and make TIM the best choice of value in the market, leveraged by the leadership position in mobile ultra-broadband and by the proposal of intelligent offers.

In the culture pillar, the goal is to disseminate the feeling of ownership, responsibility, this being the axis for a deep cultural transformation within the Company. Based on the concept of accountability, TIM believes that its employees will be able to concentrate their creativity and energy in the search for new solutions, delivering positive results.

The digitalization pillar aims to accelerate the development and implementation of digital systems, enhancing customer experience and delivering significant operational and financial efficiencies. The migration to digital and flexible platforms follows the market trend of using the most sophisticated technologies, allowing for greater operational agility and efficiency.

The offer pillar proposes the selective development of innovative packages, according to the client's profile. Additionally, the Company intends to expand its fixed broadband offer through FTTH (Fiber To The Home) and WTTx (Wireless To The x) technologies, which will allow a selective approach with convergent offers in certain regions.

Regarding infrastructure, the Company aims to expand the 4G coverage with 700MHz, confirming its leadership in mobile ultra-broadband coverage and quality excellence. In parallel, the development of fiber network aims to broaden the fixed broadband coverage and maintain quality level required by the customers, is one of the drivers for investments targeting.

The efficiency proposal remains in the Company's strategy, based on the broad and systemic view that is predominant in the operation, which aims to generate disruptive efficiencies both in the operational and financial scope.

All 5 (five) pillars mentioned above are directly related to commitment to the customer experience. This is the main objective of the proposed structure in which the customer is the center of decision making.

4. Human Resources

TIM reinforces the commitment to zeal for its employees, so that the focus on people and the development of their abilities and capabilities are vectors of encouragement and renewal of the feeling of pride and belonging of its employees. The Company aims to stimulate creativity and confidence, and to encourage people to break the barriers of everyday life, going beyond their own limits.

TIM manages its human resources by aligning people's expectations, business needs and market conditions. In a dynamic and challenging work environment, the Company offers space and opportunities for its team to expand its horizons, develop and expand corporate and personal achievements.

4.1. People

TIM ended 2017 with 9,519 employees throughout Brazil. These employees, with their stories and knowledge, represent the intellectual capital of the Company and act as engines for the development of the business.

Approximately 70.0% of employees have completed higher education or attend university and 8.3% have postgraduate degrees. The numbers and results show that TIM has a diverse and highly qualified framework to meet the Company's challenges. The workforce is complemented by 300 trainees and 274 young apprentices.

4.2. Development and Training

TIM employees have access to innovative tools and well-structured ways to evolve within the company and to build a successful career. In line with the organizational values, they trace their careers from their own professional experiences and knowledge acquired from the company's investment. In this regard, TIM invested more than R$7 million in training and development of its employees in 2017.

To guide the careers of its employees, TIM maps and monitors individual performance to guide the activities more assertively. In addition to encouraging and providing real growth opportunities, the Company recognizes the dedication and differentiated performance of its professionals by using Performance Management.

In order to attract the best students in the market and train our future professionals, the Trainee Without Borders program brings to TIM young people with energy, determination, initiative, team spirit and, especially, interest in challenges.

4.3. Long Term Incentive Plan

The Long-Term Incentive Plan is intended to grant options for the purchase or subscription of shares of TIM Participações to employees of the Company and its subsidiaries, thereby seeking to promote the expansion, achievement and success of the corporate objectives, as well as the interests of TIM shareholders and management.

The plan consists in granting the right to purchase the Company's shares for a predetermined price during a specified period. The options are subject to a vesting period (during which the options cannot be exercised) and execution conditions (which can adjust the option price positively or negatively). As employees are able to add value to stock prices, they are able to benefit from the appreciation in the exercise of their options.

The granting of stock options or shares subscription has been made annually for 3 years and the exercise of the option of stock purchase or shares subscription will be completed gradually, up to 33% in the first year, up to 66% in the second year and 100% in the third year, counted from each of the three concessions. The term of the options is 6 years.

As approved by the Company's General Meeting, the management of the Plan is the responsibility of the Board of directors, subject to the Company's bylaws. Currently, there are two Long-term incentive plans in force in the Company, referring to the 2011-2013 and 2014-2016 cycles.

The exercise of the 2011-2013 Option plan is conditional upon the fulfillment of the shares' specific performance goals, while the exercise of the 2014-2016 Option plan is conditional upon the analysis of the performance of TIM shares compared to other market assets. The Target price is calculated by applying an adjustment to the base price of the share, increasing or reducing this amount, according to the criteria defined in each Plan.

During 2017, the Company began a restructuring process of its long-term incentive plan. Thus, as approved by the Board of Directors, and exceptionally for 2017, the long-term incentive plan will be structured as bonus, which payment is conditioned to the achievement of certain financial indicators of TIM and will be divided into two years. Following the informed restructuring process, the Company will submit to statutory board the new format of long-term incentive program for 2018 and 2019.

4.3.1. Stock Option 2011-2013 Cycle

In this Plan, the results of three acquisition periods of 2011 and 2012, 2011 concessions, and the first and second acquisition periods of 2013 have already been determined:

4.3.2. Stock Option 2014-2016 Cycle

5. Network

Infrastructure is one of the strategic pillars of the Company and TIM reaffirms its investment commitment in 2018, seeking to offer more and better services. The recent changes in the consumption pattern as well as the increasing demand for quality requires a structured network expansion plan, supported by more robust technical analysis regarding the consumption pattern and the customers’ needs, as well as a cultural transformation.

In the scope of spectrum usage, TIM continues its refarming project, aiming at more efficiency and better performance. Regarding fiber, the Company continues with its network expansion project, to support the ultra-broadband converging network, increasing the availability of FTTH and FTTS.

As for sites, TIM plans to increase site density by using Bio Sites, which are sustainable, cheaper structures that are easier to install and with no visual impact on cities. In the context of big data, the Company is constantly evolving its analytical tools from a more complete and proactive approach, aiming at a more efficient deployment of investments.

When it comes to corporate culture, the new technologies and customer demands cause a rupture in the traditional model of telecommunications operators. In this scenario, TIM seeks to develop, motivate and engage its employees so that they can perform in a dynamic, innovative and collaborative environment, based on an agile and flexible operating model.

5.1. National Coverage

TIM's infrastructure has a national reach, covering approximately 95% of the Brazilian urban population, being present in more than 3,500 cities. The Company also has extensive data coverage, maintaining its leading position in 4G coverage in the country.

Of the R$ 4.15 billion invested in 2017, 87% were dedicated to network and information technology in order to guarantee the expansion of coverage and capacity, aiming to meet the growing data traffic. Infrastructure improvement and growth are supported by different projects, among them one can highlight the expansion of fiber optic network, densification of sites, expansion of hetnet coverage, refarming of radiofrequency and the aggregation of carriers in two or three frequencies, depending on its geographic location.

TIM maintained its leadership in 4G coverage, reaching 3,003 cities, or 91% of the country's urban population, an increase of approximately 140% in the number of cities covered compared to 2016. To support this expansion, the number of 4G sites (e-NodeB elements) grew 77%, surpassing the number of 3G sites.

This significant expansion in 4G is supported by the implementation of spectrum refarming process, which uses the 1,800MHz band and reorganizes the use of frequencies according to availability, redirecting them to the new technology (from 2G to 4G). This practice enables coverage optimization, deploying Capex more efficiently.

Additionally, TIM continues to develop its LTE network through the use of the new 700MHz frequency, which is available in 916 cities. The 700 MHz band enables greater signal reach with higher download and upload speed, as well as lower latency, providing a significant improvement in the customers' use experience. As it is a lower frequency, coverage reach can be four times greater when compared to 2,600 MHz band, and it also provides greater penetration in indoor environments.

The network expansion on several fronts allows TIM to maintain its innovative attitude and explore new technologies, such as VoLTE and WTTX. The Company was the first operator in Latin America to offer VoLTE, voice over LTE network, a technology that allows calls traditionally carried out through circuits, to evolve into IP data network, ensuring efficiency and stability. Other benefits to users includes simultaneous navigation trough 4G, reduced battery consumption and shorter connection establishment time.

The use of WTTX, Wireless-To-The-X, technology that allows the commercialization of wireless broadband via LTE network, enabled TIM to increase its portfolio of residential solutions. WTTX emerges as a quality choice to serve regions with repressed demand for broadband due to the lack of offers and to a fixed network infrastructure that is still under development. The user can navigate with stability and simple activation through a plug and play model. This service's release and expansion was only possible thanks to TIM's investments in the 4G network.

5.2. Wholesale

5.2.1. International Coverage (Roaming)

Abroad, TIM continues to expand the availability of international roaming services, covering with approximately 600 networks for voice or data use on six continents (including Antarctica), more than 200 countries. It is worth highlighting the 4G coverage available in more than 50 countries. Aiming at bringing more convenience to users, TIM has commercial agreements that offer coverage on board ships and planes for clients who travel abroad.

5.2.2. MVNO (Mobile Virtual Network Operator)

TIM innovates once again by exploring new business models, being the first and current leader in MNO (Mobile Network Operator) infrastructure for MVNOs in Brazil.  This approach allows the Company to benefit from complementary mobile service offerings for the corporate market and differentiated caring for niches of retail market, as well as offering specialized services such as M2M and IoT.

5.2.3. Wholesale Connectivity Provider

TIM has one of the largest optic fiber infrastructures in Brazil, with more than 85 thousand kilometers, of which 55 thousand are from long-distance fibers. The Company has metropolitan networks in 105 cities throughout the country, providing multiservice transportation coverage to support Mobile / Fixed Broadband and connectivity to the corporate/wholesale market.

To ensure application transparency and bandwidth scalability, TIM uses different technologies, such as Ethernet, DWDM and IP / MPLS, to supply connectivity services. The Company offers end-to-end high-speed services such as: internet access, backbone, mobile backhaul and last mile, with protection in all Brazilian capitals and following international standards, being the only operator with MEF 2.0 Certification in Brazil.

5.3. Customer Service and Quality

Company's commitment to customer experience is reflected in Anatel's quality KPIs, which are presented as a national average. In 2017, TIM maintained a solid performance, with all quality metrics (accessibility and drop in voice and data), being above the target required by the Agency. In addition, both indicators of instantaneous speed (SMP10) and average speed (SMP11) were also above the Agency's target, indicating strong resilience by the Company's network in a scenario of expressive increase in data traffic.

In addition to Anatel's official KPIs, the SpeedTest numbers (as measured by Ookla²) continue to show improvement in network quality indicators, especially regarding mobile data. The throughput (downlink and uplink) and latency indicators evolution are essential to attest the data user experience quality, especially in the current postpaid base growth scenario.

Considering the performance of LTE technology in data usage and the wide coverage and availability of the TIM 4G network - as showed by the greater number of measurements in the Brazilian market on the SpeedTest platform - TIM showed a strong adherence of its customers to this technology in 2017. In 4Q17, approximately 60% of TIM's data traffic was carried out by the 4G network.

Indeed, in a recent satisfaction survey conducted by Bridge Research³, TIM achieved significant results in 2017. In December/17, the Company ranked first in overall pure postpaid satisfaction and second in the control segment. In terms of satisfaction with the usage of the internet by the mobile internet use satisfaction, TIM had a similar outcome, occupying the first place in pure postpaid and second in control.

It is also worth mentioning that the Company continues to invest in digitization actions in order to improve customer experience and boost process efficiencies. TIM believes that the digital transformation of its services must take place on several fronts, from the sale of the line/activation, to post-sale and self-caring, billing, collection and, finally, payment.

In this way, results have been quite expressive. In 2017, the number of digital caring, that is, users seeking service through the "My TIM" app and website, doubled in relation to 2016, representing 57% of the total interactions (a growth of 22p.p. YoY). Also, digital sales doubled its participation over gross additions in 2017, while prepaid recharging by digital means grew ~4 p.p. as percentage of total recharges.

6. Operational Performance

6.1. Overview of the Brazilian Market

Following last year's dynamics, the pace of customer base reduction remains. The main causes of this movement are base cleaning actions and by the process of consolidation of multiple chips.

6.2. TIM’s Performance

In the end of 2017, TIM presented a base of 58.6 million active lines, a reduction of 7.5% compared to the previous year. Despite a solid performance in postpaid, disconnection in prepaid lines impacted negatively the total base.

In 2017, TIM reported negative net adds of 4.8 million lines, an increase of 69.8% compared to 2016. The total gross adds were down to 27.7 million in the year, a reduction of 12.0% YoY, while disconnections fell to 32.5 million lines, -5.2% YoY. Despite this result, the disconnection rate showed a slight increase +0.8 p.p. YoY, reaching 53.2%, due to lower gross adds.

The postpaid customer base amounted 17.8 million users by the end of 2017, an increase of 19.6%. The postpaid net adds showed an increase of 2.2x compared to 2016 due to: i) customers' migration from prepaid to postpaid (mainly control), ii) number portability and iii) stable disconnection rate. These results confirm the Company's strategy to retrieve its fair share in the segment and also reaffirms the good results achieved by Control plans.

As for Mobile Number Portability (MNP), TIM reached positive results in the postpaid segment in all months of the year. Since the launch of the new post-paid concept in 2Q17, TIM Black, the Company has posted consistent MNP numbers in the segment, maintaining the positive course observed in the previous year.

In the prepaid segment, TIM reaccelerated disconnection rhythm in 2017, maintaining a strict base cleaning policy. In the year, prepaid base closed with 40.8 million active lines, down 15.9%, disconnecting 7.7 million lines. This dynamic is also impacted by migrations to control segment.

Breakdown of customer base by technology:

·

The number of 4G users continues to grow and reached 27.6 million in 2017. The 63.7% growth compared to 2016 was mainly due to the users’ migration from 3G to 4G seeking a better user experience.

·

3G closed 2017 with 19.1 million users, a reduction of 35.3% compared to 2016. This decrease is in line with the migration to more modern smartphones with 4G technology, and the focus on higher value customers.

Smartphone penetration closed 2017 at 80.9% of the customer base, an increase of 8.1 p.p. compared to what was reported in 2016. This growth validates the Company's strategy to equip its customers, stimulating the penetration of data services, mainly regarding to 4G technology, as well as encouraging migration to more complete plans, which follow the 'more for more' approach.

6.3. Fixed Broadband Market

TIM Live maintained consistent growth in 2017 in the main indicators analyzed - revenue, customers, coverage and quality. Net revenue increased 44.6% YoY due to: (i) base expansion, which totaled 392 thousand customers, + 28.2% YoY and (ii) ARPU growth, up 14.3% YoY.

Looking at operational metrics, in 2017 TIM Live increased coverage (addressable households) by 53.3%, with an occupancy rate of MSANs 1.8 p.p. higher. In addition, it is important to highlight that the quality of TIM Live's services is a major market differential, with direct effects on its results of operations. Such excellence in service quality is recognized by Netflix and Estadão Newspaper. At Netflix, TIM Live led Brazil’s provider speed ranking 33 times in the last 36 months, and was the best in services category for the third time at Estadão ranking.

The use of WTTx (TIM Internet Home) technology, fixed broadband through the mobile network, is an opportunity in development. After the soft launch in 3T17, TIM ended 2017 offering WTTx in 16 cities in 12 states. Of the clients that hired the service, 83% had no access to residential internet service and 21% didn’t have Pay TV.

7. Financial Performance

To better represent financial performance and business trends, TIM normalizes some lines of its Financial Statements, eliminating the impact of non-recurring items. These movements are pointed out when required.

7.1. Operational Revenues

Net Revenues in the year 2017 advanced 3.9% YoY and totaled R$ 16,234 million. Mobile Service Revenues registered an increase of 5.1% YoY.  Throughout the year, Data & Content Revenues remained as the highlight, compensating for the negative impacts of the reduction of voice services, of the cut in the interconnection fee (MTR) and the macroeconomic scenario still in a gradual recovery process. Fixed Service Revenues increased by 4.7% YoY by the end of 2017.

The breakdown of Net Revenues and other highlights are presented below:

Service Revenues closed the year at R$ 15,474 million, an increase of 5.1% YoY, confirming the recovery trajectory. The Mobile Service Revenues (MSR) presented very similar dynamics increasing the same 5.1% YoY.

Client Generated Revenues (CGR), which consists Local Voice, Long distance Voice and Data & Content Revenues, increased by 6.5% YoY in 2017. Revenues generated by recurring offer packages increased 43.9% YoY and already represents more than 60% of the CGR.

Local Voice Revenues dropped 23.8% YoY in the year, affected by the voice-to-data migration that occurs as TIM introduces more data and content services into combined (voice + data) packages. Long Distance Voice Revenues recorded a 25.8% YoY drop in the full year, with similar dynamics as seen in the local voice revenues.

In the year, the Minutes of Use (MOU) totaled 110 minutes, which represents a 5.8% YoY decrease, an effect of change in customer profile, which migrates from voice to data.

Data & Content Revenues increased by 37.7% YoY in 2017 and represented 58.6% of MSR, due to the Company's position of offering more packages of recurring offers and content incorporated into these offers. Data & Content Revenues generated on recurring bundles offers more than doubled in the yearly comparison.

2017⁴ BOU (bytes of use), until November, increased by nearly 95% compared to the previous year, following the data expansion allowances and due to TIM's efforts to migrate customers to 4G and boost smartphone penetration using this technology.

Interconnection Revenues decreased 21.3% YoY in 2017. The increase in incoming traffic was not enough to compensate for the effects of the decrease in the Mobile termination rate (MTR). The incidence of the MTR in the Services Revenues reached 4.3% percent in 2017. Excluding the effects of cuts in the MTR, Mobile Service Revenue would have grown 8.6%, reaching R$ 15,173 million in 2017.

Other Mobile Revenues finished 2017 with an increase of 35.0% YoY at R$ 472 million. The performance of this line follows to a great extent the dynamics of network sharing contracts and swaps that generate revenues, representing more than 50% of this line (and with correspondent costs at the Network and Interconnection group).

Mobile ARPU (Monthly Average Revenues Per User) grew 12.1% YoY in 2017 and reached R$ 20.2. ARPU's advance is explained mainly by the improvement in the base mix (more postpaid) and also by the individual growth of each segment. Prepaid ARPU has been growing for eight quarters while postpaid ARPU has been growing for the fifth consecutive quarter.

Fixed Service Revenues rose 4.7% YoY in 2017, drawn by the growth of TIM Live which improved net revenues in 44.6% YoY.  With the expansion of coverage, TIM Live starts having an increasingly expressive participation in fixed service revenues (TIM Live revenues accounted for 35% of total fixed vs. 25% in 2016).

Products Revenues decreased 15.3% YoY in the year, reflecting the drop in the number of devices sold and the lower average price. Despite the decrease, the pace of deceleration should be emphasized when compared to the variations of previous years. The penetration of smartphones at the end of 2017 reached 80.9% (compared to 72.8% in 2016).

7.2 Operational Costs and Expenses

Total Normalized Costs and Expenses remained under strict control and ended the year 2017 with a decrease of 1.0% YoY, despite the expressive growth of the postpaid base and the continuous expansion of the network. At the end of the year, the Company reached 117% of the savings goal established for the 2017 Efficiency Plan, providing an avoidance of R$ 659 million in total costs.

An analysis of the detailing of operational expenses for the year is presented below:

Normalized Personnel closed 2017 in a slight increase of 0.8% YoY. The performance of the line was affected by the impact of inflation on wages adjusted in 2Q17 (when the accumulated National consumer price index of the last 12 months was 9.62%) and higher expenses with labor contingencies, which more than offset the reduction in the employee base (9,519 in 2017 compared to 12,294 in 2016).

Commercial decreased 2.9% YoY in 2017, impacted by the decline in FISTEL expenses, prepaid recharge fees and efficiencies on advertising spending mix, as well as savings generated through the digitalization of processes. These effects more than compensated for the growth in postpaid sales commissioning expenses and other customer management expenses driven by the postpaid base expansion (billing, collection and caring).

Network and Interconnection (ITX) grew 1.4% in 2017, following the effects of the network expansion, which impacted the costs such as land rentals and infrastructure sharing (with effects on costs and revenues), as well as the impact of inflation in essential services such as power. Such expenses more than offset the structural trends of the Company, such as the drop in the interconnection fee (MTR) and lower costs with leased lines (an effect of resolution No. 639 of Anatel and fewer lines due to the Zero Leased Lines project).

Normalized General and Administrative Expenses (G&A) in 2017, increased 3.1% YoY, aligned with the increase of inflation in the period (IPCA +2.95%).

The Cost of Goods Sold (COGS) continued to reduce the pace of decline compared to previous years and retreated by 13.2% in 2017, still impacted by the decrease in the number of devices sold, -12.6% YoY, and also by the lower average selling price, (-1.7% YoY). It is important to note that the reduction in the average sales price is a result of a change in the strategy of the suppliers, who started delivering higher quality equipment at more affordable prices. The Company's device sales mix continues evolving to high-value devices, with sales volumes migrating from the prepaid segment and concentrating on postpaid and control.

Provisions for Doubtful Debts (Bad Debt) advanced 18.7% YoY, following the continuous growth in postpaid base and revenue. Despite this performance, Bad Debt remains under control as percentage of gross revenue, 1.4%.

Other Normalized Operating Expenses showed an increase of 1.3% YoY in 2017. Despite fluctuating during the year mainly due to contingencies, contribution to FUST/FUNTEL and other seasonal effects the share of this line over total OPEX was 2.9%, in line with the prior year’s performance, 2.8%.

Subscriber Acquisition Costs (SAC = subsidy + commissioning + advertising expenses) reached R$ 39.6 per gross addition in 2017, an increase of 36.7% YoY, due to higher commissioning expenses (higher postpaid mix in gross additions) and to the increase in loyalty offers (discounted device offers). Despite the increase in SAC, the SAC/ARPU ratio, which indicates the payback per client, remained at a healthy level of 2.2 months in 2017.

7.3. From EBITDA to Net Income

EBITDA

Normalized EBITDA totaled R$ 5.9 billion in 2017, an increase of 13.7% YoY. This performance was due to: (i) increase in Mobile Service Revenues with a higher contribution margin, (ii) higher Fixed Service Revenues and (iii) cost control.

Normalized EBITDA Margin ended 2017 in 36.6%, 3.2 p.p. higher than 2016 records. This performance is influenced by the change in revenue mix.

With the growth of off-net traffic, MTR costs continued do reduce MTR, and are reaching out the revenue of this interconnection type, reducing an historical exposure of the EBITDA to the interconnection system, 0.7% in 2017.

Depreciation and Amortization (D&A) / EBIT

D&A displayed a 6.0% YoY increase in 2017. Depreciation increased 4.6% YoY, mainly due to the higher number of construction works carried out. Amortization presented a 7.8% YoY increase due to greater investment in software. Normalized EBIT increased 34.0% YoY in 2017, mostly benefited by the higher EBITDA. The reported EBIT showed an increase of 35.8% YoY in 2017.

NET FINANCIAL RESULT

In 2017, the Net Financial Result was negative by R$ 498 million, result was 21.2% more negative than in 2016, explained by a non-recurring positive derivatives mark-to-market ("MTM") effect that occurred in 2016.

INCOME TAX AND SOCIAL CONTRIBUTION

Income Tax and Social Contribution line totaled R$ 201 million in 2017, a 23.5% YoY decrease compared to 2016, mainly explained by the deduction of a R$ 190 million payment of Interest on Equity in November 2017. The effective rate was 14.0% vs. 25.9% in 2016.

NET INCOME

Reported Net Income in the quarter amounted to R$ 1,235 million, up 64.5% YoY. Earnings per Share (EPS) was 0.51 versus 0.31 in the last year.

7.4. CAPEX

Capex totaled R$ 4,148 million in 2017, down 7.9% YoY, confirmed the Industrial Plan 2017-19, due to efficiency on investments (more coverage, installing more equipment and fiber, however using less resources due to better negotiated conditions). Approximately 87% of Capex was dedicated to infrastructure, mainly transportation network projects, 4G technology and IT.

7.5. Debt and Cash

Gross Debt totaled R$ 6,423 million at the end of 2017, down 22.9% YoY, including (i) leasing recognition in the total amount of R$ 1,682 million (related to the towers sale, the LT Amazonas project and other financial leasing operations); and (ii) the hedge position in the amount of R$ 48 million (reducing gross debt).

The Company's debt is concentrated in long-term contracts (77% of the total), mainly through BNDES financing. Approximately 9% of total debt is denominated in foreign currency (USD), and is fully hedged in local currency. The average debt cost excluding leasing effects was 10.5% p.y, a reduction when compared to the 12.5% p.y cost in the same period of last year. In 2017, with the aim of efficiently manage of the Company's indebtedness and cash, TIM decided to partially liquidate and prioritize higher-cost debt in the total amount of R$ 1,717 million.

At the end of 2017, the Cash and Securities position stood at R$ 3,726 million, down from R$ 5,608 million in 2017.

Main movements that affected cash and securities during 2017 are presented below:

The average cash yield income decreased to 10.2% p.y in 4Q17 compared to 14.2% p.y in 2016, excluding the FX Fund, following the Selic rate reduction.

The Net Debt/EBITDA ratio was 0.45x at the end of the year, a reduction when compared to the 0.52x registered in 2016. Net debt reached R$ 2,697 million at the end of 2017, slightly below the same period of the previous year when net debt was R$ 2,721 million.

7.6. Free Cash Flow

In 2017, the Operating Free Cash Flow (OFCF), excluding the 700Mhz license, posted a growth of R$ 1,691 million compared to 2016, as a result of EBITDA growth and CAPEX efficiency allocation, along to a positive working capital in R$ 598 million.

  7.7. Tower Sales Impacts

In 2017, TIM concluded the project under the Tower sale agreement signed in November 2014 with American Tower do Brasil (ATC). By the end of the project, 5,873 towers were sold by the total amount of R$2.65 billion, as described below:

·

First closing: On April 29, 2015, TIM transferred 4,176 towers to ATC and received approximately R$1.9 billion.

·

Second closing: On September 30, 2015 TIM transferred 1,125 towers to ATC and received approximately R$517 million.

·

Third closing: On December 16, 2015 TIM transferred 182 towers to ATC and received approximately R$84 million.

·

Fourth closing: On June 9, 2016, TIM transferred 270 towers to ATC and received approximately R$ 109 million.

·

Fifth closing: On December 20, 2016, TIM transferred 66 towers to ATC and received approximately R$24 million.

·

Sixth cloing: On June 30, 2017, TIM transferred 54 towers to the ATC and received approximately R$20 million.

The masterlease agreement (MLA) defines the leaseback of the transferred towers for a period of 20 years. According to IAS17, this transaction should be accounted for as (1) sale and (2) leaseback and after their demands, the leaseback is recorded as financial lease.

The reconciliation of the impacts on the Financial Statements and related notes for more details regarding the closings can be found in Note No. 16 of the Financial Statements.

8. Social Responsibility

TIM has social responsibility and environmental policies that guide the actions and initiatives of the Company and are based on the principles of the UN Global Compact, a voluntary agreement which TIM has been a signatory since 2008. Through this agreement, companies from all over the world are committed to ensure compliance with the ten principles relating to human rights, working conditions, environment and the fight against corruption.

As a signatory of the Global Compact, the Company is committed to cooperate with United Nations Sustainable Development Goals (SDG), a universal agenda of goals to be achieved until 2030. TIM's commitments are expressed in the Sustainability Report, disclosed annually based on the GRI⁵. In addition, the Company has been present for 10 years in Corporate Sustainability Index (ISE) of B3, remaining as the telecommunication company for more consecutive years in the portfolio.

Annually, the company also publishes the inventory of greenhouse gas (GHG) emissions according to the GHG Protocol methodology, and participates in the CDP, the world's largest database of corporate climate change information.

In line with the principles of its environmental and climate change management policies, TIM considers energy consumption efficiency as one of its challenges. Despite the expected increase in energy consumption, due to the expansion of the network infrastructure, the Company invests in energy efficiency actions, like the RAN Sharing agreements, a model for network infrastructure sharing with other operators.

In addition, TIM uses Biosites in its network expansion, structures with significant reduction in visual impact that contribute to harmonization with the environment and with urban infrastructure. The multifunctionality of the structure can contribute beyond the transmission of telecommunications, including lighting and surveillance cameras. By the end of 2017, TIM reached a total of 528 active Biosites.

TIM also seeks constant improvement in its environmental management system. In 2017, the Company maintained important certifications of "management and operations on the TIM Celular network", demonstrating its commitment to efficiency and to performance objectives, which go beyond the level required by current legislation, through international excellence quality models based on ISO 9001 (national certification) and ISO 14001 (regional certification in the States of Rio de Janeiro, Espírito Santo and São Paulo).

Since 2000, TIM holds a certificate for its quality management system and since 2010 certified its environmental management system, being the first mobile operator in Brazil to receive this certification⁶. In 2018, the Company plans to expand its environmental certification to other areas and maintain the preparatory activities to obtain the certification for its occupational safety and health management system, based on the OHSAS 18001, and for information security, based on the ISO 27001.

TIM also recognizes that companies have an important role to play when it comes to public education and collective well-being in Brazil. Therefore, in 2013, the Instituto TIM (www.institutotim.org.br) was founded with the mission to develop resources and strategies for the democratization of science, technology and innovation, through mathematical and scientific education projects for children and youth, and through the development of free technologies that contribute to the implementation of public policies.

In partnership with several federal institutions (MCTIC/CNPq, MEC, MinC) and about 70 Departments of Education, Culture and Planning all over the country, the actions of Instituto TIM have already reached approximately 500 municipalities in all 26 states and in the Federal District, benefiting more than 700,000 people, among them 500,000 students and 16 thousand teachers.

In 2017, the Instituto TIM, within Unicef (United Nations Children's Fund) and other partners, released the School Active Search platform (www.buscaativaescolar.org.br), which contributes to fight school exclusion. So far, more than 450 municipalities have adopted the solution.

The year of 2017 was also marked by the availability of Cultural Maps as SaaS ("software as a service") by the Ministry of Culture, facilitating the adhesion of municipalities and states to the platform developed by the Instituto TIM, which aims to map and monitor the management of the country's culture. Overall, about 30 Cultural Maps facilities have already been installed.

The 3^rd edition of the Academic Working Capital, Instituto TIM's entrepreneurial education program, supported more than 20 technological projects of university students, which culminated in products presented in an Investment Fair to investors of the startup market. Also regarding entrepreneurship education, it is important to highlight the release of three new courses on this subject in the TIM Tec platform (cursos.timtec.com.br).

Additionally, in 2017 the Instituto TIM has renewed its partnership with the Instituto Nacional de Matemática Pura e Aplicada (IMPA) in order to grant scholarships for medallists from the Brazilian Mathematics Olympiad of Public Schools (OBMEP).

The Company also has a private social investment policy, which defines the strategic guidelines, criteria and responsibilities of the functions involved in TIM and the Instituto TIM, ensuring that there is planning, solidity and transparency in the transfer of resources to social projects.

Social investment initiatives include donations, projects developed by the Instituto TIM and sponsorships. In 2017 more than R$ 5 million were invested in social benefits, as detailed in the table below: