<PAGE>   1
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                     ---------------------------------------
                                    FORM 20-F
                     ---------------------------------------

      [ ]      REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g)
                     OF THE SECURITIES EXCHANGE ACT OF 1934

                                       OR

      [X]      ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
                     OF THE SECURITIES EXCHANGE ACT OF 1934
                   For the fiscal year ended December 31, 1999

                                       OR

      [ ]      TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
                     OF THE SECURITIES EXCHANGE ACT OF 1934
                      for the transition period from    to
                        Commission File Number 001-14483


                      TELE NORTE CELULAR PARTICIPACOES S.A.
             (Exact name of Registrant as specified in its charter)


 TELE NORTE CELLULAR HOLDING COMPANY          THE FEDERATIVE REPUBLIC OF BRAZIL
    (Translation of Registrant's               (Jurisdiction of incorporation
        name into English)                            or organization)

                        SCN, QUADRA 3, BLOCO A, SOBRELOJA
                        70713-000 BRASILIA -- DF, BRAZIL
                    (Address of principal executive offices)


 SECURITIES REGISTERED OR TO BE REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT.

<TABLE>
<CAPTION>
     TITLE OF EACH CLASS               NAME OF EACH EXCHANGE ON WHICH REGISTERED
     -------------------               -----------------------------------------
<S>                                    <C>
Preferred Shares, without par value            New York Stock Exchange*
Depositary Shares, each representing           New York Stock Exchange
  50,000 Preferred Shares
</TABLE>

                              --------------------
* Not for trading, but only in connection with the listing of American
Depositary Shares on the New York Stock Exchange.

SECURITIES REGISTERED OR TO BE REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
                                      None

SECURITIES FOR WHICH THERE IS A REPORTING OBLIGATION PURSUANT TO SECTION 15(d)
OF THE ACT:
                                      None

INDICATE THE NUMBER OF OUTSTANDING SHARES OF EACH OF THE ISSUER'S CLASSES OF
CAPITAL OR COMMON STOCK AS OF THE CLOSE OF THE PERIOD COVERED BY THE ANNUAL
REPORT:

<TABLE>
<S>                                                    <C>
                Common Shares, without par value       124,369,030,532
                Preferred Shares, without par value    210,029,997,060
</TABLE>

INDICATE BY CHECK MARK WHETHER THE REGISTRANT (1) HAS FILED ALL REPORTS REQUIRED
TO BE FILED BY SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 DURING
THE PRECEDING 12 MONTHS (OR FOR SUCH SHORTER PERIOD THAT THE REGISTRANT WAS
REQUIRED TO FILE SUCH REPORTS), AND (2) HAS BEEN SUBJECT TO SUCH FILING
REQUIREMENTS FOR THE PAST 90 DAYS.
                                   YES X  NO__

INDICATE BY CHECK MARK WHICH FINANCIAL STATEMENT ITEM THE REGISTRANT HAS ELECTED
TO FOLLOW:
                              ITEM 17 _  ITEM 18 X
<PAGE>   2
                                TABLE OF CONTENTS


<TABLE>
<S>                                                                          <C>
PART I

   Item 1.  DESCRIPTION OF BUSINESS ......................................     1
   Item 2.  DESCRIPTION OF PROPERTY ......................................    15
   Item 3.  LEGAL PROCEEDINGS ............................................    15
   Item 4.  CONTROL OF REGISTRANT ........................................    17
   Item 5.  NATURE OF TRADING MARKET .....................................    17
   Item 6.  EXCHANGE CONTROL AND OTHER LIMITATIONS AFFECTING SECURITY-
            HOLDERS ......................................................    19
   Item 7.  TAXATION .....................................................    20
   Item 8.  SELECTED FINANCIAL DATA ......................................    25
   Item 9.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
            AND RESULTS OF OPERATIONS ....................................    27
   Item 9A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK....    37
   Item 10. DIRECTORS AND OFFICERS OF REGISTRANT .........................    38
   Item 11. COMPENSATION OF DIRECTORS AND OFFICERS .......................    41
   Item 12. OPTIONS TO PURCHASE SECURITIES FROM REGISTRANT OR SUBSIDIARIES    42
   Item 13. INTEREST OF MANAGEMENT IN CERTAIN TRANSACTIONS ...............    42

PART II

   Item 14. DESCRIPTION OF SECURITIES TO BE REGISTERED ...................    42

PART III

   Item 15. DEFAULT UPON SENIOR SECURITIES ...............................    42
   Item 16. CHANGES IN SECURITIES, CHANGES IN SECURITY FOR REGISTERED
            SECURITIES AND USE OF PROCEEDS ...............................    42

PART IV

   Item 17. FINANCIAL STATEMENTS .........................................    42
   Item 18. FINANCIAL STATEMENTS .........................................    42
   Item 19. FINANCIAL STATEMENTS AND EXHIBITS ............................    42

FINANCIAL STATEMENTS .....................................................   F-1

GLOSSARY OF TELECOMMUNICATIONS TERMS .....................................   A-1
</TABLE>

                            ------------------------
<PAGE>   3
\         Tele Norte Celular Participacoes S.A., a corporation organized under
the laws of the Federative Republic of Brazil, is referred to in this annual
report as the "Registrant." All references to "we," "us" or the "Company" are to
the Registrant and, depending on the context, its subsidiaries.

         The Registrant is one of the companies formed as a result of the
breakup of Telecomunicacoes Brasileiras S.A. - - Telebras, commonly referred to
as "Telebras," by the federal government of Brazil in May 1998. Each of the
subsidiaries was formed in January 1998 by spinning off the cellular
telecommunications operations of operating companies controlled by Telebras,
which we refer to in this annual report as the "predecessor companies."
References to our operations prior to January 1998 are to the cellular
operations of the predecessor companies. See "Item 1 -- Description of Business
-- Historical Background" for a description of the breakup of Telebras.

References in this annual report to

              -   the "real," "reais" and "R$" are to Brazilian reais (plural)
                  and to the Brazilian real (singular), the currency of Brazil
                  and
              -   "U.S. dollars," "dollars" and "U.S.$" are to United States
                  dollars.

         On June 27, 2000, the noon buying rate in New York city for cable
transfers in foreign currencies as certified for customs purposes by the Federal
Reserve Bank of New York was R$1.8230 per U.S.$1.00.

         Our consolidated financial statements as of December 31, 1997 and 1998
and for the years ended December 31, 1997, 1998 and 1999 have been prepared in
accordance with generally accepted accounting principles in the United States,
commonly referred to as "U.S. GAAP." The consolidated financial statements and
other financial information as of and for the years ended December 31, 1998 and
1999 are presented in nominal reais and do not recognize the effects of
inflation. The consolidated financial statements and other financial information
for prior dates and periods have been indexed and expressed in constant reais of
December 31, 1997 purchasing power using the integral restatement method
(correcao monetaria integral). Consolidated financial statements prepared in
accordance with generally accepted accounting principles in Brazil, commonly
referred to as "Brazilian GAAP," have been published in Brazil.

         This annual report contains forward-looking statements. Statements that
are not statements of historical fact, including statements about our beliefs
and expectations, are forward-looking statements. The words "anticipates,"
"believes," "estimates," "expects," "forecasts," "intends," "plans," "predicts,"
"projects" and "targets" and similar words are intended to identify these
statements, which necessarily involve known and unknown risks and uncertainties.

         Known risks and uncertainties include those resulting from our short
history as an independent, private-sector entity and the introduction of
competition to the Brazilian telecommunications sector, as well as those
relating to the cost and availability of financing, the performance of the
Brazilian economy generally, the levels of exchange rates between Brazilian and
foreign currencies and the federal government's telecommunications policy.
Accordingly, our actual results of operations may be different from our current
expectations, and the reader should not place undue reliance on these
forward-looking statements. Forward-looking statements speak only as of the date
they are made, and we do not undertake any obligation to update them in light of
new information or future developments.

         The "Glossary of Telecommunications Terms" that begins on page A-1
provides definitions of certain technical terms used herein.


                                       ii
<PAGE>   4
                                     PART I

ITEM 1.  DESCRIPTION OF BUSINESS

         We provide cellular telecommunications services in a region comprising
the Brazilian States of Para, Amazonas, Maranhao, Amapa, and Roraima under
concessions granted by the federal government of Brazil. Cellular
telecommunications services were first offered by one of our predecessor
companies in the State of Maranhao in April 1994. At December 31, 1999, we had
343,600 subscribers.

THE REGISTRANT AND ITS OPERATING SUBSIDIARIES

         The following table presents the contribution made by each subsidiary
to our net operating revenues and net income for the year ending December 31,
1999 and our shareholding in each subsidiary at December 31, 1999.

<TABLE>
<CAPTION>
                              % OF NET
                             OPERATING    % OF NET    % OF SHARE    % OF VOTING
SUBSIDIARY                    REVENUES     INCOME       CAPITAL        STOCK
----------                    --------     ------       -------        -----
<S>                          <C>          <C>         <C>           <C>
Telepara Celular S.A.....       39.7         7.9          69.0          96.6
Telamazon Celular S.A....       31.4        42.9          80.3          84.1
Telma Celular S.A........       19.9        29.9          66.8          82.8
Teleamapa Celular S.A....        5.4        14.1          90.6          94.5
Telaima Celular S.A......        3.6         5.2          86.9          95.1
</TABLE>

         In May 2000, we announced a plan to merge into Telma Celular, S.A. our
four other subsidiaries. We believe that the consolidation of our operations
into a single integrated structure will result in cost efficiencies and an
improved quality of service.

         We estimate that the reduction in administrative costs, which will
result from the consolidation will be approximately R$1 million for the first
year following the consolidation. We also estimate that the cost savings from
the consolidation and standardization of our operations will be approximately
R$43 million at present net value.

         Our planned consolidation is contingent upon the approval of the
Brazilian Securities Commission (Comissao de Valores Mobiliarios) and the
National Telecommunications Agency (Agencia Nacional de Telecomunicacoes -
ANATEL)

         Substantially all of the Registrant's assets other than cash and cash
equivalents consist of shares in its subsidiaries. The Registrant relies almost
exclusively on dividends from its subsidiaries to meet its needs for cash,
including cash to pay dividends to its shareholders.

         The Registrant's headquarters are located at SCN, Quadra 3, Bloco A,
Sobreloja Norte, 70713 000 Brasilia-DF, Brazil, and its telephone number is
5561-429-5600.

HISTORICAL BACKGROUND

         Prior to the incorporation of Telebras in 1972, there were more than
900 telecommunications companies operating throughout Brazil. Between 1972 and
1975, Telebras and its operating subsidiaries, which we refer to collectively as
the "Telebras System," acquired almost all the other telephone companies in
Brazil and thus came to have a monopoly over the provision of public
telecommunications services in almost all areas of the country.

         Beginning in 1995, the federal government undertook a comprehensive
reform of Brazil's telecommunications regulatory system. In July 1997, Brazil's
National Congress adopted the General Telecommunications Law (Lei Geral de
Telecomunicacoes), which provided for the establishment of a new regulatory
framework, the introduction of competition and the privatization of Telebras.
The General Telecommunications Law established an independent regulatory agency
called Agencia Nacional de Telecomunicacoes - ANATEL, which we refer to as
"Anatel."



                                       1
<PAGE>   5
         In January 1998, in preparation for the restructuring and privatization
of the Telebras System, the cellular telecommunications operations of Telebras'
operating subsidiaries were spun off into separate companies. In May 1998,
Telebras was restructured to form, in addition to Telebras, twelve new holding
companies by means of a procedure under Brazilian corporate law called cisao, or
split-up. Virtually all the assets and liabilities of Telebras, including the
shares held by Telebras in the operating companies of the Telebras System, were
allocated to the new holding companies.

         The new holding companies, together with their respective subsidiaries,
consist of:

              -   eight cellular service providers, each operating in one of
                  eight regions,
              -   three wireline service providers, each providing local and
                  intraregional long-distance service in one of three regions
                  and
              -   Embratel Participacoes S.A. - Embratel, which provides
                  domestic long-distance telephone service throughout Brazil.

         The Registrant is one of the new cellular holding companies. In the
breakup of Telebras, the Registrant was allocated all the share capital held by
Telebras in the operating subsidiaries of the Telebras System that provided
cellular telecommunications service in the States of Para, Maranhao, Roraima,
Amapa and Amazonas. In July 1998, the federal government sold substantially all
its shares of the new holding companies, including the Registrant, to
private-sector buyers. The federal government's shares of the Registrant were
purchased by Telpart Participacoes S.A., which we refer to as "Telpart," a
consortium comprising TIW do Brasil Ltda., Opportunity MEM S.A. and a group of
five Brazilian pension funds. See "Item 4 - - Control of Registrant" for a
description of our principal shareholders.

OUR REGION

         Our region covers an area of approximately 3,532,000 square kilometers,
representing approximately 41% of Brazil's area. Its population of approximately
14.7 million inhabitants represents approximately 9.0% of the population of
Brazil. Our region has 18 metropolitan areas with populations in excess of
100,000 people, including the cities of Belem, Manaus, Sao Luis, Boa Vista and
Macapa. During 1999, our region generated approximately 5% of Brazil's gross
domestic product.

         The map below shows the location of our region within Brazil.



                                       2
<PAGE>   6
                         [MAP OF REGION WITHIN BRAZIL]




         The following table presents the population, gross domestic product and
per capita income statistics for each state in our region at the dates and for
the years indicated.

<TABLE>
<CAPTION>
                                             AT DECEMBER 31, 1999         YEAR ENDED DECEMBER 31, 1999
                                             --------------------         ----------------------------
                                         POPULATION      % OF BRAZIL'S    % OF BRAZIL'S     PER CAPITA
STATE                                   (MILLIONS)(1)    POPULATION(1)       GDP(1)          INCOME(2)
-----                                   -------------    -------------       ------          ---------
<S>                                     <C>              <C>              <C>               <C>
Para (Telepara Celular S.A.)........         5.9              3.6              2.1          R$2,390.22
Amazonas (Telamazon Celular S.A.)...         2.6              1.6              1.3          R$2,174.42
Maranhao (Telma Celular S.A.).......         5.5              3.3              1.3          R$1,159.54
Amapa (Teleamapa Celular S.A.)......         0.4              0.3              0.2          R$1,773.41
Roraima (Telaima Celular S.A.)......         0.3              0.2              0.1          R$3,252.82
                                             ---              ---              ---
Region..............................        14.4              9.0              5.0
                                            ====              ===              ===
</TABLE>
------------
(1)  Estimates of the Brazilian Institute of Geography and Statistics (Instituto
     Brasileiro de Geografia e Estatistica - IBGE), at July 1, 1999.
(2)  Data for 1997 as published by the Central Bank of Brazil.

         Our business, financial condition, results of operations and prospects
depend in part on the performance of the Brazilian economy and the economy of
our region, in particular. See "Item 9 - - Management's Discussion and


                                       3
<PAGE>   7
Analysis of Financial Condition and Results of Operations -- Brazilian economic
environment" for a description of the Brazilian economic conditions.

OUR SERVICES

General

         We offer cellular telecommunications service to our subscribers through
a variety of rate plans. We offer analog and, commencing in late 1999, digital
cellular services. At December 31, 1999, we had a total of 343,600 subscribers.
Of this number, 77% were contract subscribers and 23% were prepay subscribers.

         We also offer value-added services, including voicemail, call
forwarding, call waiting, call conferencing, caller line identification and
three-way calling. We also began to sell cellular telephones in 1999. We do not
expect these sales to be a significant component of our revenues.

Contract subscribers

         Contract subscribers consist primarily of high-income individuals,
including professionals, executives and entrepreneurs, who use their handsets
for both personal and business purposes.

         A contract subscriber's handset is activated upon signing of a service
contract. The service contract provides, among other things, the terms and
conditions of the specific service plan elected by the subscriber. See " --
Sources of revenue -- Subscriber rates" for a description of our service plans.

Prepay customers

         In general, prepay subscribers are younger and have less income than
contract subscribers. Prepay subscribers also tend to use their handsets more to
receive than to originate calls.

         A prepay customer is no longer considered a customer when a specified
period of time has elapsed since the customer purchased and activated, or added
credit to, his or her last prepay card. The customer's telephone number is then
deactivated, and he or she is considered to have turned over.

         A prepay customer currently has 90 days to activate a new card after
the balance of his existing card becomes zero before losing his phone number.
During such time, a prepay customer will be able to receive local incoming calls
but such a customer will not be able to make outgoing calls. Balances
automatically become zero if the customer has not activated a new card within 90
days after activation of the previous card.

Contract churn

         Contract churn measures both voluntarily and involuntarily disconnected
subscribers. We determine average monthly contract churn for a given period by
dividing the sum of all contract subscribers disconnected during such period by
the sum of the beginning-of-month subscribers for each of the months in such
period, expressed as a percentage.

         Our average monthly contract churn in 1998 and 1999 was 1.3% and 1.7%,
respectively. Our contract churn is mainly related to termination due to
non-payment, particularly because we did not face any competition in our region
until October 1999. With the advent of competition, we may experience increased
contract churn.

Quality of service

         We have experienced at times quality of service problems, including
busy circuits, lack of system availability and dropped calls. In 1999, the
average "all circuits busy rate" (as a percentage of calls attempted) was 2.4%,
the average system availability on first call attempted was 85.7% and the
average dropped call rate was 2.1%. At present, we are not experiencing any
significant quality of service problems and exceed most of the quality of
service requirements established by Anatel. See " -- Regulation of the Brazilian
telecommunications industry -- Obligations of telecommunications companies --
Quality of service" for a description of these obligations.



                                       4
<PAGE>   8
Roaming

         Through agreements with other cellular service providers, we offer
automatic roaming services throughout Brazil that allow our subscribers to make
and receive calls while out of our region. In addition, we provide cellular
telecommunications service to subscribers of other cellular service providers
while they are in our region. We charge the other service providers pursuant to
roaming agreements for the service provided to their subscribers. See " --
Operating agreements -- Roaming agreements" for a description of our roaming
arrangements.

NETWORK AND SUBSCRIBER DATA

         The following table sets forth information on our subscriber base,
coverage and related matters at the dates and for the years indicated.

<TABLE>
<CAPTION>
                                                                            1997        1998        1999
                                                                          --------     -------     -------
<S>                                                                       <C>          <C>         <C>
Cellular lines in service at year-end:
   Contract subscribers...............................................     207,769     218,600     265,600
   Prepay subscribers.................................................          --          --      78,000
                                                                          --------     -------     -------
                                                                           207,769     218,600     343,600
Net subscriber growth during year.....................................        30.8%        5.2%         57%
Estimated population of our region at year-end (millions)(1)..........        14.1        14.2        14.7
Estimated covered population at year-end (millions)(2)................         6.9         7.4         8.2
Percentage of population covered at year-end(3).......................        49.1%       50.3%       56.9%
Penetration at year-end(4)............................................        1.51%       1.49%        2.5%
Average monthly incoming minutes of use per subscriber:
   Contract subscribers...............................................          86         108         117
   Prepay subscribers.................................................          --          --          73
Average monthly outgoing minutes of use per subscriber:
   Contract subscribers...............................................          96         108         111
   Prepay subscribers.................................................          --          --          23
Average monthly revenues per subscriber(5)............................    R$109.57     R$93.10     R$81.00
Cost of acquisition per subscriber(6).................................        n.a.     R$   23     R$  149
</TABLE>

---------
n.a.= not available
(1)  Estimates of the Brazilian Institute of Geography and Statistics (Instituto
     Brasileiro de Geografia e Estatistica - IBGE) at July 1, 1999.
(2)  Estimates by our management of the number of people within our region who
     can access our cellular telephone signal.
(3)  Estimates by our management of the percentage of the population of our
     region who can access our cellular telephone signal.
(4)  Estimates by our management of the number of cellular lines in service in
     our region divided by the population of our region.
(5)  In nominal reais, net of value-added taxes.
(6)  The significant increase in the cost of acquisition per subscriber in 1999
     as compared to 1998 reflects a reduction in activation fees from R$330 to
     R$49 for digital services and R$99 for analog services. This reduction was
     made in anticipation of competition.

         Our concessions contain network expansion and modernization
obligations. See " -- Regulation of the Brazilian telecommunications industry --
Obligations of telecommunications companies." We believe that we will be able to
meet all these obligations.

SOURCES OF REVENUE

General

         We generate revenue from:

                                       5
<PAGE>   9
            -  usage charges, which include airtime charges for outgoing calls
               and roaming and other similar charges,

            -  monthly subscription charges,

            -  network usage fees which are amounts charged by us to other
               cellular and wireline service providers, and to Embratel as the
               long-distance service provider, for use of our network,

            -  activation fees, which are one-time sign-up charges paid to
               obtain cellular telecommunications service and

            -  other charges, including charges for call forwarding, call
               waiting and call blocking.

         Our rates are subject to the approval of Anatel.

Subscriber rates

         Since October 1994, cellular telecommunications service in Brazil has
been offered on a "calling party pays" basis, under which the subscriber pays
only for calls that he or she originates, except for roaming charges on calls
received outside the subscriber's home registration area.

         Subscriber charges are computed based on the subscriber's calling plan,
the location of the party called, the place from which the call originates and
other factors, as described below.

         Our region is divided into 65 registration areas. The lowest base rate
per minute, which we refer to as a "VC1" rate, applies to calls made by a
subscriber in its registration area to persons in the same registration area.
Until May 9, 1999, calls from one registration area to another within our region
were charged at a higher rate, which we refer to as "VC2" rate. On May 9, 1999,
the VC2 and VC1 rate were made to be the same for mobile-to-mobile calls.
Beginning in February 2000, the VC2 and VC1 rates are the same for all calls
except under the Basic plan.

         Calls from our region to persons outside our region are billed at the
highest rate, which we refer to as a "VC3" rate. When a subscriber makes or
receives a call while outside our region, a per-call surcharge known as "AD" is
applicable. When a subscriber receives a call while outside his or her home
registration area, the subscriber also pays an additional rate per minute, which
we refer to as "DSL1", if the subscriber is located within our region, or a
higher rate, which we refer to as "DSL2" if the subscriber is located outside
our region.

         Airtime service charges are discounted 30% for calls made on Saturdays,
Sundays and national holidays and for calls made from 7 PM to 8 AM, Monday
through Friday. A 30% surcharge is imposed on VC1 calls made to lines of other
cellular service providers.

         We have kept the Basic plan and have launched two additional plans
during 1999 which are a Corporate plan and a prepaid service plan. The following
table sets forth the average rates for these plans at March 31, 2000.

                     RATE INFORMATION FOR OUR SERVICE PLANS

<TABLE>
<CAPTION>
                                       BASIC        CORPORATE        PREPAY
                                       -----        ---------        ------
<S>                                    <C>          <C>              <C>
Activation fee(1)................      49.00(3)       49.00(3)        -
Monthly subscription fee(1).....       31.11          30.00           -
Airtime charges per minute:(2)
    VC1(1).......................       0.33           0.30           0.99
    VC2..........................       0.72           0.30           0.99
    VC3..........................       0.82           0.70           0.99
    DSL1.........................       0.36           -              -
    DSL2.........................       0.41           0.30           N/A
AD (per call)(2) ................       0.68           0.30           N/A
</TABLE>
---------
(1)  The rates presented are averages of the rates charged by us, weighted by
     the number of subscribers.
(2)  All amounts are weighted average peak rates in nominal reais and include
     any applicable value-added taxes.
(3)  For digital services. Activation fee is R$99.00 reais for analog services.



                                       6
<PAGE>   10
Roaming fees

         We also receive revenue pursuant to roaming agreements with other
cellular service providers. When a call is made from within our region by a
subscriber of another cellular service provider, that service provider pays us
for the call at the applicable rate. Conversely, when one of our subscribers
makes a cellular call outside our region, we must pay the charges associated
with that call to the cellular service provider in whose region the call
originates.

Network usage fees

         We earn revenues from any call, cellular or wireline, originating with
another service provider and terminating on a cellular telephone within our
region. We charge the service provider from whose network the call originates a
network usage fee for every minute our network is used in connection with the
call. The average network usage fee per minute we charged to other service
providers was R$0.21 in 1996 and R$0.19 in 1997, 1998 and 1999, respectively,
net of value-added taxes. This fee was increased to R$0.22 in January 2000.

SALES AND MARKETING

General

         We divide our market into categories corresponding to the amount of
cellular telephone usage. Based on this scenario, we have focused on the
contract and prepay segments. In the contract segment, we decided to adjust the
Basic plan and to launch a Corporate plan. In the prepay segment, we launched a
new product to address the needs of the customers who generally receive more
calls than they make.

         Anatel's regulations require that cellular telecommunications service
be provided to all individual applicants, regardless of income level, in the
order in which applications are received. In order to assist in managing the
risk of payment defaults, we conduct credit checks on our customers. We can
interrupt service if a customer fails to make timely payments. See " -- Billing
and collection."

Sales network

         We market our services through direct and indirect distribution
channels. We target potential large-account customers through direct contact by
a skilled sales force and provide them with ongoing support. Small and
medium-sized businesses are targeted through a combination of corporate
client-focused sales force, company stores and the marketing efforts of
independent distributions. We attract prepay customers mainly through our
independent distributors and retail points-of-sale.

         Company stores. We provide telecommunications services through
company-owned stores located in metropolitan centers. Such stores are effective
in building image and brand awareness through the exclusive provision of our
telecommunications services. Company stores also provide standard levels of
service, greater accountability and consistent customer service. Although the
majority of sales at company stores consists of subscriptions for cellular
telecommunications services, the stores also sell handsets, generally for prices
at or near cost, in connection with the sale of both contract and prepay
subscriptions. At December 31, 1999, we had nine company stores, as well as
three mobile stores.

         Independent distributors. We select our independent distributors based
on their creditworthiness and an assessment of their premises. All of our
independent distributors receive basic training relating to the activation of
cellular telecommunications service. Beginning in 1999, independent distributors
receive a fixed commission of R$90 for each new contract customer they sign up
for service, provided that the customer retains and pays for service for at
least three months, and all exclusive independent distributors receive marketing
support from us.

         In addition, independent distributors receive a mark-up margin on each
sale of a handset and prepay card kit for use by prepay subscribers. At December
31, 1999, we had 230 independent distributor outlets, located primarily in
metropolitan centers.

         Retailers. We make prepay cards available at approximately 2,000 points
of sale. We distribute through 20 retailers, which include national and regional
franchises and chains, such as Yamada.



                                       7
<PAGE>   11
         In early 1999, we introduced the brand "Amazonia Celular." Amazonia
Celular is now the brand name under which the cellular telecommunications
services of all of our subsidiaries are marketed.

Customer service

         We used to run four customer service departments located in each state
in our region except for the State of Amapa. By the end of 1999, we had
accomplished our plan to have one customer service department, which is located
in State of Para, providing 24-hour, seven-day customer service throughout our
region. At December 31, 1999, we had approximately 270 service attendants.

         Through our customer service attendants, we are able to provide
immediate service to customers for requests such as reactivation, addition of
value-added services and number changes, among others. During 1999, our customer
service team answered, on average, in excess of 300,000 calls per month. This
represents nearly a fivefold increase in calls per month as compared to 1998.
This increase is mainly due to a significant improvement in response time, which
is now at industry levels.

BILLING AND COLLECTION

         Our billing system, which was developed by LHS Communication System
Incorporated and has been in operation since 1999, has four main functions:

            -  subscriber registration,
            -  subscriber information management,
            -  accounts payable management, and
            -  billing and collection.

         To smooth the billing and collection cycles, we use eleven staggered
cycles each month.

         Brazilian law provides that subscribers must receive a bill at least
five days before the due date. If a subscriber's payment is more than 20 days
past due we suspend service until we receive full payment for all outstanding
charges. If a subscriber's payment is more than 90 days past-due, we discontinue
service and the subscriber is churned.

         After each collection cycle, we reconcile the roaming and network usage
fees owed to and owing from other telecommunications service providers. For
domestic and international long-distance calls made by our subscribers, we
forward the amounts due for such calls to Embratel and charge Embratel a fee for
the use of our cellular telecommunications network.

         Our provisions for doubtful accounts were 5.6%, 16.5% and 10.2% of
service revenues in 1997, 1998, and 1999 respectively. The increase in the level
of doubtful accounts from 1997 to 1998 is due primarily to an increase in the
number of customers with relatively lower income, an increase in subscription
fraud and adverse economic conditions in Brazil. In the fourth quarter of 1998,
we put in place new credit and collection policies and an anti-fraud system in
order to reduce the level of bad debt. As a result of these measures, there was
a significant decrease in bad debt in 1999.

         We experienced a problem with the software of our billing system from
October 1999 through March 2000, which resulted in the understatement of airtime
charges of a portion of our subscribers. This problem, which did not have a
material adverse effect on our financial condition, has since been resolved.

         We are currently exploring the possibility of upgrading or replacing
our billing system to better adapt it to our own new value-added services and to
allow us to track subscriber patterns and build subscriber data.

OUR NETWORK

         At December 31, 1999, our cellular telecommunications network covered
approximately 57% of our region's population. We continue to expand our cellular
telecommunications network to cover as broad a geographical area as is
economically feasible in order to meet consumer demand. Under our concessions,
we have


                                       8
<PAGE>   12
obligations concerning network expansion. See " -- Regulation of the Brazilian
telecommunications industry -- Obligations of telecommunications companies," for
a description of these obligations.

         We increase the capacity and improve the quality of our cellular
telecommunications network by building new base stations and adding channels to
existing base stations. This development is carried out in response to projected
subscriber demand. We believe that our cellular telecommunications network will
require further development to meet increasing demand for cellular
telecommunications services in and around our region's major metropolitan areas.
See " -- Quality of service."

         At December 31, 1999, our cellular telecommunications network consisted
of seven cellular switches, two mini-switches, 256 cell sites and 13 repeaters.
Our four principal switching centers are located in Belem (two), Manaus and Sao
Luis.

         We centralized our network administration system in the City of Belem.
This system is capable of monitoring the base stations, switching centers and
all critical network operational parameters. We analyze the performance data
generated by this system in order to make the operating adjustments and capital
expenditures necessary to maintain and enhance network operations. In addition,
technicians operating this system have the ability to rapidly evaluate and
respond to technical difficulties in network operations.

         In 1999 we digitalized our cellular network, using TDMA technology. We
also implemented our own digital transmission systems in the cities of Belem,
Manaus and Sao Luis, providing a significant increase in network quality, as
well as a reduction in leased line costs. At December 31, 1999, approximately
half of our subscribers made use of digital technology services, representing
approximately half of the traffic on our network.

         We believe that digitalization offers advantages, including greater
network capacity, reduced operating costs and additional revenue through the
sale of value-added services. Digital cellular telecommunications service also
offers subscriber greater security. Digital cellular telephones are generally
more expensive than analog telephones. Following digitization, we expanded our
coverage to meet the requirements established in our concessions and the
increasing demand for cellular service in the area.

         Ericsson Telecomunicacoes S.A. is our principal supplier of cellular
telecommunications equipment.

FRAUD DETECTION AND PREVENTION

         Fraud resulting from cloned cellular telephone calls has increased
continuously since we began offering cellular telecommunications services, and
we believe that the incidence of cloning is likely to continue to increase in
the near term. Cloning fraud consists of duplicating the cellular signal of a
subscriber, enabling the perpetrator of the fraud to make telephone calls using
the subscriber's signal. These calls are billed to the subscriber, but we write
off the receivable when we discover that it arose from a fraudulent call. If
part of a fraudulent call is carried by the network of another service provider,
we are obligated to pay that service provider the applicable network usage fee,
regardless of whether we are able to collect the receivable associated with the
call.

         Subscription fraud occurs when a person, typically using a fictitious
identification and address, obtains cellular telecommunications service with no
intention of paying for the service and then incurs substantial charges before
the cellular operator is able to identify the fraud and terminate service. When
we discover that a receivable has been generated by a fraudulent call, we write
off the receivable.

         We have implemented fraud-detection and fraud-prevention measures in an
effort to reduce fraud-related losses. Fraud-detection measures involve the
collection and review of call records to detect abnormal calling patterns. When
abnormal patterns are found, the subscriber is contacted by our fraud control
staff and, if cloning has occurred, the subscriber's number is changed.
Fraud-prevention measures include restrictions on international calls from a
given number and restrictions on three-way calling by customers with
international direct-dial access.

         We have experienced a significant increase in the incidence of
subscription fraud. In response to the increase in subscription fraud, we have
developed subscription fraud prevention measures that include:

            -  background checks of our employees,



                                        9
<PAGE>   13
            -  fraud awareness and prevention training, and
            -  credit checks of new customers through credit rating agencies.

         We installed a nationwide fraud detection system licensed from Digital
Equipment Corporation. This system aids in fraud detection in various ways,
including identifying instances of simultaneous usage by a single subscriber,
call frequency and unusually high usage patterns. The system has been
operational within our region since August 1998. We decided to centralize our
anti-fraud system at our facilities in the City of Belem, state of Para, where
we have a better system with a lower level of investment by acquiring and
implementing an Ericsson's solution called "Fraud Office," which prevents
the cloning of numbers.

         We are also planning to implement an authentication center solution to
effectively detect and prevent fraud before it happens, without affecting our
legitimate subscribers. The authentication center prevents wireless fraud by
authenticating mobile stations upon registration, call origination and call
termination. The authentication operations make it possible to immediately
detect the presence of a clone with no noticeable impact to the legitimate
subscribers.

         The basis for these authentication operations is a 26-digit number
called the A-Key, which is known only to the authentication center and the
subscriber's handset. The A-Key, the electronic serial number and a random
number are used as inputs to the cellular authentication and voice encryption
algorithm that produces shared secret data. This data is used to calculate the
value compared between the handset and the authentication center during
authentication. Occasionally, a subscriber's shared secret data may need to be
updated because of a security violation, planned expiration, or routine
administrative procedure.

COMPETITION

Band B competition

         The General Telecommunications Law provides for the introduction of
competition in telecommunications services in Brazil. The federal government has
granted ten licenses to private companies to provide cellular telecommunications
service within particular regions of Brazil on a frequency range referred to as
"Band B." The frequency range used by the cellular service providers that were
spun off from the Telebras System, including us, is referred to as "Band A."
Each Band B license covers a geographic region which generally corresponds to a
cellular region of a Band A service provider. See " -- Regulation of the
Brazilian telecommunications industry -- Concessions and Licenses."

         The license to provide cellular telecommunications services in our
region on Band B was granted to Tele Centro Oeste Celular Participacoes S.A.,
which we refer to as "TCO." TCO paid R$60.5 million for the license and
commenced to provide digital cellular telecommunications service based on the
TDMA standard in October 1999, under the name of Norte Brasil Telecom. The
rights and obligations of TCO under its concessions are substantially the same
as ours under our concession. However, our concessions expire in 2009 and TCO's
licenses expire in 2013. Both may be renewed at the discretion of Anatel for
additional 15-year periods. TCO, a company owned by Splice do Brasil, an
industrial company, currently provides cellular telecommunications services also
in the States of Goias, Mato Grosso do Sul, Mato Grosso, Rondonia, Acre,
Tocantins and the Federal District.

         Our market share in our region was 92% at December 31, 1999. We expect
our market share to decrease gradually as TCO continues to build out its network
in our region.

Other Competition

         We also compete with wireline telephone service providers. Our existing
and potential subscribers may shift to wireline service providers to take
advantage of the lower prices if service quality were to improve. The quality of
service concerns associated with the wireline service provider include
installation delays, service interruptions and service availability. However,
the quality of service of wireline providers could improve if significant
investments in the wireline telephone network are made.

         We believe that wireline service providers do not present a significant
competition for the provision of telecommunications services, as over 90% of our
current subscribers have wirelines. The primary wireline service provider in our
region is Tele Norte Leste Participacoes S.A., which is controlled by Telemar
Participacoes S.A. The


                                       10
<PAGE>   14
second company to obtain a concession to provide wireline telecommunications
service in our region is Canbra Telefonica S.A., a consortium comprised of Bell
Canada International, Wireless Local Looping, Qualcomm Incorporated, SLI
Wireless and Taquari Participacoes S.A. Canbra Telefonica S.A. began providing
wireline telecommunications service in our region in February 1999.

         We also compete with other wireless telecommunications services, such
as mobile radio, paging and beeper services, which are used in our region as a
substitute for cellular telecommunications services. These competing wireless
telecommunications services are generally less expensive than cellular
telecommunications services.

         Technological advances in the telecommunications field, such as
Personal Communications Services, commonly known as "PCS," may in the future
introduce additional competition for cellular service providers. PCS services,
which are similar to digital cellular telecommunications services, require a
concession from the federal government. The federal government has indicated
that it plans to auction additional bandwidth for PCS by the end of 2000.

         Satellite services, which provide nationwide coverage, are available in
Brazil. Although satellite services have the benefit of covering a much greater
area than cellular telecommunications services, they are considerably more
expensive than cellular telecommunications services and do not offer comparable
coverage inside buildings. Currently, we do not plan to offer mobile satellite
services, other than pursuant to a roaming arrangement with a satellite service
provider, or PCS services, although we may consider doing so in the future.

         The entry of new competitors may have a material adverse effect on our
business, financial condition, results of operations or prospects. Any adverse
effects on results and market share from competitive pressures will depend on a
variety of factors that cannot now be assessed with precision and that are
beyond our control. The factors include, among others, the identity of the
competitors, their business strategies and capabilities, prevailing market
conditions at the time, the regulations applicable to new entrants and us and
the effectiveness of our efforts to prepare for increased competition. One or
more new competitors may have technical or financial resources greater than
ours.

OPERATING AGREEMENTS

Interconnection Agreements

         The provision of interconnection services to other telecommunications
service providers is obligatory upon request of another service provider, except
in the case of service providers within the same cellular region.

         We have entered into interconnection agreements with Embratel and our
predecessor companies. The terms of these interconnection agreements include
provisions for the number of connection points, the method by which signals must
be received and transmitted and the costs and fees of interconnection. In
addition, network usage charges are assessed based on the terms of these
agreements. These agreements do not have termination provisions; we believe that
Anatel would not allow a termination prior to the expiration and non-renewal of
a concession to avoid possible potential disruptions in telecommunications. See
" -- Regulation of the Brazilian telecommunications industry -- Obligations of
telecommunications companies -- Interconnection."

         We currently do not interconnect with TCO, the Band B operator in our
region.

Roaming agreements

         The provision of roaming services to other telecommunications service
providers is obligatory upon request of another service provider, except in the
case of service providers within the same cellular region.

         We have entered into agreements for automatic roaming with all the
other Band A and Band B service providers outside our region. These roaming
agreements permit our subscribers to use their cellular telephones on the
networks of other cellular service providers while traveling or "roaming"
outside our region. Conversely, we are required to provide cellular
telecommunications service to subscribers of those cellular service providers
from outside our region when those subscribers are within our region. The
agreements require the parties to provide service to roaming subscribers on the
same basis as they provide service to their own subscribers and to carry out a


                                       11
<PAGE>   15
monthly reconciliation of roaming subscriber usage charges. The agreements have
a three-year term and automatically renew for further one-year terms.

         We currently do not have a roaming agreement with TCO, the Band B
operator in our region.

EMPLOYEES

         At December 31, 1999, we had 770 employees, as compared to 490
employees at December 31, 1998. Of our employees, 14% were employed in sales and
marketing, 10% in engineering, 21% in administration, 49% in customer service
and 6% in information technology. The significant increase in employees in 1999
occurred primarily in the areas of customer service and sales and marketing,
which had not been areas of priority before the privatization.

         We believe that our relationship with our work force is good. We have
not experienced any work stoppages since the privatization.

         We participate in a pension fund, Fundacao Telebras de Sguridade Social
-- Sistel, the purpose of which is to supplement government-provided benefits.
We make monthly contributions to Sistel currently equal to 13.5% of the salary
of each employee who is a Sistel member. Each member employee also makes a
monthly contribution to Sistel based on age and salary. Members of Sistel
qualify for full pension benefits after reaching age 57, provided they have been
members of Sistel for at least ten uninterrupted years and have been affiliated
with the social security system for at least 35 years. Sistel operates
independently from us, and its assets and liabilities are fully segregated from
ours. Our employees at the time of the privatization had the right to maintain
their rights and benefits in Sistel.

         Sistel is a multi-employer defined benefit plan that covers the former
employees of the Telebras system, and we are contingently liable for all of the
unfunded obligations of the plan. See Note 12 to the consolidated financial
statements for a fuller description of this contingency. We believe that Sistel
may be replaced by one or more separate plans, but we do not know when this will
occur or what the consequences will be for us or our employees.

RESEARCH AND DEVELOPMENT

         In connection with the breakup of Telebras, we were required to enter
into a three-year contract in May 1998 with Telebras' Center for Research and
Development (Centro de Pesquisa e Desenvolvimento da Telebras), under which we
are obligated to contribute a maximum of R$1.2 million per year to the Center
during the three years ending May 2001. We do not conduct any independent
research and primarily depend upon the manufacturers of telecommunications
products for the development of new hardware.

REGULATION OF THE BRAZILIAN TELECOMMUNICATIONS INDUSTRY

General

         Our business, including the services we provide and the rates we
charge, is subject to comprehensive regulation under the Minimum Law (Lei
Minima), the General Telecommunications Law, a new comprehensive regulatory
framework for the provision of telecommunications services enacted by Anatel in
November 1998 and various related administrative enactments. We operate under
concessions that authorize us to provide cellular services and require
compliance with some obligations.

         Anatel is the regulatory agency for telecommunications under the
October 1997 Regulation of the National Telecommunications Agencies (Regulamento
da Agencia Nacional de Telecomunicacoes). Anatel, which is administratively
independent and financially autonomous, is required to report on its activities
to the Ministry of Telecommunications. Anatel has authority to propose and issue
regulations that are legally binding on telecommunications service providers.
Any proposed regulation must undergo a period of public comment, which may
include public hearings, and may be challenged in Brazilian courts.

Concessions and licenses

         Concessions and other types of licenses to provide telecommunications
services are granted under the public regime or the private regime. Our
concessions are granted under the private regime and we are subject to


                                       12
<PAGE>   16
some obligations imposed by Anatel, which we describe below under " --
Obligations of telecommunications companies."

         Pursuant to the Minimum Law, the Band A and Band B service providers
have been granted concessions. Each concession is a specific grant of authority
to provide cellular telecommunications services, conditioned on compliance with
requirements contained in the applicable list of obligations appended to each
concession. If a cellular service provider wishes to offer any
telecommunications service other than the cellular telecommunications service
authorized by its concession, it may apply to Anatel for a license to offer such
other services.

         Each concession has been granted for an initial period of 15 years, and
may be renewed at the discretion of Anatel for further periods of 15 years if
the list of obligations has been met. The concessions to provide cellular
telecommunications services in the states of Para, Amazonas, Maranhao, Amapa and
Roraima expire in March 2009, August 2009, April 2009, May 2009 and July 2009,
respectively.

         Until December 31, 1999, the provision of cellular telecommunications
services was limited to one Band A service provider and one Band B service
provider in any single region. Beginning in January 1, 2000, Anatel may grant
concessions to additional providers of cellular telecommunications services.
Anatel has indicated that it plans to auction additional bandwidth for PCS by
the end of 2000.

Obligations of telecommunications companies

         General. As described below, we must comply with certain requirements
relating to quality of service, network expansion and interconnection. Anatel
does not currently require network operators to unbundle network elements and
services, although Anatel has stated that it plans to review the issue on a
regular basis and may require unbundling in the future. In an unbundled regime,
each network operator is required to provide a detailed list of network services
and elements which may be purchased separately by a party requesting
interconnection.

         Quality of service and network expansion. We, like other cellular
service providers, are subject to obligations concerning quality of service and
network expansion and modernization. If we fail to meet these obligations we may
be fined. Penalties can be of up to 0.05% of annual net operating revenues per
day until full compliance, subject to a variable maximum penalty amount.

         There is as well a potential for revocations of our concessions.
However, there are no precedents for the revocation of a telecommunications
concession and there are no precise guidelines under Brazilian laws or
regulations for when such an action would arise in the event of noncompliance
with the terms of a concession.

         Our quality of service obligations require:

            -  the cellular network to be fully operational at least 98% of the
               time;
            -  the rate of failed call completion due to signal loss not to
               exceed 3%;
            -  the rate at which the cellular network rejects attempted calls
               because no circuits are available not to exceed 5%;
            -  the rate at which interconnected calls fail to complete not to
               exceed 3%;
            -  the cellular network to be available on first call attempts at
               least 90% of the time; and
            -  the number of subscription complaints per month not to exceed
               five per 100 subscribers.

         We must meet these standards by the end of 2000. We must also provide
cellular telecommunications service to municipalities in our region in
accordance with the following requirements:



                                       13
<PAGE>   17
<TABLE>
<CAPTION>
                                                 MINIMUM COVERAGE REQUIRED
                                                       BY NOVEMBER 4,
                                             ---------------------------------

POPULATION OF MUNICIPALITY(1)                1999      2000      2001     2002
-----------------------------                ----      ----      ----     ----

<S>                                          <C>       <C>       <C>      <C>
30,000 to 50,000.........................      --       --        --       70%
50,000 to 75,000.........................      --       --        80%      --
75,000 to 100,000........................      --       90%       --       --
100,000 to 200,000.......................     100%      --        --       --
Maximum average installation waiting time
    (in days)(2).........................     120       30        15        5
</TABLE>
----------------
(1)  For service to be deemed to be offered in any municipality, service must be
     available to at least 30% of the population.
(2)  Time between request for service and connection in areas with cellular
     telecommunications service.

         We have met or exceeded our network expansion obligations for the
period 1998-2000 and at present are in compliance with our quality of service
obligations. We expect that we will be in compliance with our obligations. We
expect that we will be in compliance with our obligations at all times.

         Interconnection. All telecommunications service providers are required
to provide interconnection upon request to any party that provides public
telecommunications services, with the exception of competitors within the same
cellular region. The terms and conditions of interconnection are to be freely
negotiated between parties, subject to a price cap established by Anatel. If a
company offers any party an interconnection tariff below the price cap, it must
offer that tariff to any other requesting party on a nondiscriminatory basis. If
the parties cannot agree on the amount of the interconnection tariff, Anatel
will act as the final arbiter.

         Anatel has stated that for the time being it does not expect to require
network operators to permit co-location of equipment. Co-location means that a
network operator permits another party to place its switching equipment in or
near the local exchange of the network operator and to connect to the network at
this location. Co-location is currently a matter for negotiation between
interested parties.

Rate regulation

         Our concessions provide for a price-cap mechanism to set and adjust
rates on an annual basis. The cap is a maximum weighted average price for a
basket of services. The basket includes the services in the Basic service plan,
including monthly subscription fee, VC1, VC2, VC3, DSL1, DSL2 and AD charges, as
well as the network usage fees.

         The initial price cap agreed upon by Anatel and us in our concession is
based on previously existing rates, which were developed based on our fully
allocated costs The initial price cap is adjusted on an annual basis under a
formula set forth in our concessions. The price cap is adjusted to reflect
changes in the provider's cost structure and the rate of inflation as measured
by the General Price Index, Internal Availability (Indice Geral de Precos,
Disponibilidade Interna), an inflation index developed by the Fundacao Getulio
Vargas, a private Brazilian economic research organization.

         The weighted average rate for the entire basket of services may not
exceed the price cap, but the rates for individual services within the basket
may be increased. We may increase the rate for any individual service by up to
20%, subject to a downward adjustment for inflation effects already captured in
the annual upward adjustments of the overall price cap for the basket, so long
as it adjusts other prices downward to ensure that the weighted average rate
does not exceed the price cap.

         Other telecommunications companies wishing to interconnect with and use
our network must pay a network usage fee. The network usage fee is a flat fee
charged per minute of use which represents an average charge for a basket of
network elements and services. The network usage fee charged by Band A service
providers is subject to a price cap set by Anatel. The price cap for the network
usage fee varies from company to company based on the underlying cost
characteristics of each company's network.



                                       14
<PAGE>   18
ITEM 2.  DESCRIPTION OF PROPERTY

         Our principal physical properties consist of transmission equipment,
switching equipment and base stations. Our headquarters are located in Brasilia
and we lease approximately 3,200 square meters of office space in the cities of
Belem, Macapa, Sao Luiz and Boa Vista and own approximately 2,480 square meters
of office space in Manaus.

         We also lease the sites where our cellular telecommunications network
equipment is installed. At December 31, 1999, we had seven cellular switches in
Belem, Maraba, Sao Luiz, Manaus, Macapa and Boa Vista, 256 cell sites and 13
repeaters, all of which were located on land leased by us. Most of these leases
are renewable on a yearly basis. In addition, we lease nine retail stores
throughout the region.

ITEM 3.  LEGAL PROCEEDINGS

LITIGATION RELATED TO THE BREAKUP OF TELEBRAS

         The breakup of Telebras is subject to several lawsuits in which the
plaintiffs have requested, and in certain cases obtained, preliminary
injunctions against the breakup. All of these preliminary injunctions have been
quashed by decisions of the relevant Federal Court, although several of these
decisions are currently on appeal.

         These lawsuits are based on a number of legal theories, the principal
among which are that:

            -  Brazil's Constitution requires that the creation of the twelve
               new holding companies be specifically authorized by the General
               Telecommunications Law;
            -  the Telebras shareholders' meeting held on May 22, 1998 which
               approved the breakup was not properly convened;
            -  national sovereignty will be threatened if the country's
               telecommunications companies are controlled by foreign entities;
               and
            -  the General Telecommunications Law requires that some matters,
               such as the entry of new competitors and the administration of
               development and technology funds, be regulated prior to the
               breakup and privatization either by an executive order of the
               President or by an act of Congress.

         If any of the plaintiffs in the above-described lawsuits ultimately
prevails, the breakup will have to be reinitiated. It is theoretically possible
under Brazilian law for a court to require that the breakup be unwound, although
we believe that this is very unlikely.

LITIGATION ARISING OUT OF EVENTS PRIOR TO THE BREAKUP

         Telebras and our predecessor companies, the legal predecessors of the
Registrant, and our subsidiaries, respectively, are defendants in a number of
legal proceedings including tax and labor-related matters and subject to certain
other claims and contingencies. Liability for any claims arising out of acts
committed by our predecessor companies prior to the effective date of the
spin-off of the cellular assets and liabilities of the predecessor companies to
our subsidiaries remains with the predecessor companies, except for:

            -  labor and tax claims, for which the predecessor companies and the
               subsidiaries are jointly and severally liable, by operation of
               law, and
            -  liabilities with respect to which our predecessor companies had
               made specific accounting provision prior to the breakup,
               assigning them to our subsidiaries.

         Any claims against the predecessor companies which are not satisfied by
the predecessor companies could result in claims against our subsidiaries to the
extent that our subsidiaries received assets at the time of the spin-off which
might have been used to settle those claims. Under the shareholders' resolution
pursuant to which the spin-off was effected, our subsidiaries have contribution
rights against the predecessor companies with respect to the entire amount of
any payments made by our subsidiaries in connection with any labor or tax claims
brought against our subsidiaries which relate to events prior to the effective
date of the spin-off.



                                       15
<PAGE>   19
         Under the terms of the breakup, liability for any claims arising out of
acts committed by Telebras prior to the effective date of the breakup remains
with Telebras, except for:

            -  labor and tax claim for which Telebras and the new holding
               companies are jointly and severally liable by operation of law,
               and
            -  any liability with respect to which Telebras made a specific
               accounting provision prior to the breakup to the extent that such
               provision has been assigned to us or one of the other new holding
               companies. We believe that the likelihood that these claims will
               materialize and have a material adverse effect on our business,
               results of operations or financial condition is remote.

LITIGATION RELATED TO THE APPLICATION OF THE ICMS

General

         In June 1998, the governments of the individual Brazilian states
approved an agreement to interpret existing Brazilian tax law to apply the state
value-added tax, commonly known as the "ICMS," to certain services, including
cellular activation and monthly subscriptions. The agreement also provides that
the ICMS may be applied retroactively to activation services rendered during the
five years preceding June 1998.

         We believe that the attempt by the state governments to extend the
scope of the ICMS to services that are supplementary to basic telecommunications
services such as cellular activation and monthly subscriptions, is unlawful
because:

            -  the state governments acted beyond the scope of their authority,
            -  the application of ICMS taxes to services not previously defined
               as telecommunications services requires the enactment of a
               specific law to that effect, and
            -  the Brazilian Constitution does not allow the retroactive
               application of new taxes.

Taxation of cellular activation

         Each of our subsidiaries has filed a lawsuit with the Treasury Court of
the state in which it is located seeking injunctive relief from retroactive and
prospective application of the ICMS to cellular activation. Each of our
subsidiaries has obtained a temporary injunction relieving it from the payment
of the ICMS on cellular activation during the pendency of the lawsuits.
Nonetheless, the tax authorities of the states where the lawsuits are pending
may appeal the decisions of the Treasury Court to grant temporary injunctions.
We cannot assure you that our subsidiaries will ultimately prevail in any appeal
relating to the temporary injunctions or in the underlying litigation with
respect to application of the ICMS to cellular activation.

         We may not prevail in our position that the new interpretation by the
state governments is unlawful. Five-year retroactive application of the ICMS to
cellular activation would have a material adverse impact on our business results
of operations and financial condition. However, we believe that the retroactive
application of the ICMS to cellular activation is improbable. We also believe
that the predecessor companies would be liable to our subsidiaries for any tax
liability arising from the retroactive application of the ICMS to cellular
activation recognized prior to 1998. Therefore, we have not made any provision
with respect to such application prior to 1998 in our consolidated financial
statements.

         We have made provisions totaling approximately R$3.0 million for the
application of the ICMS on cellular activation from the effective date of the
agreement to December 31, 1999. The application of the ICMS to cellular
activation for the full years ended December 31, 1998 and 1999, would have had a
maximum negative impact estimated at R$2.7 million and R$0.3 million,
respectively, on our results of operations for 1998 and 1999, respectively. We
do not believe that application of the ICMS to cellular activation, applied on a
prospective basis, will have a material impact on our results of operations.

Taxation of monthly subscriptions and other services

         In December 1998, each of our subsidiaries filed an injunction with the
Treasury Court of the state in which it is located and therefore suspended the
remittance of the ICMS on monthly subscriptions and additional services


                                       16
<PAGE>   20
and we deposited such amounts in a trust account administered by the courts. We
cannot assure you that we will prevail. Accordingly, we have recorded an
aggregate provision of R$4.3 million for 1998 and 1999 in our consolidated
financial statements.

OTHER LITIGATION

         We are a party to certain legal proceedings arising in the normal
course of business. We have provided for or deposited in court amounts to cover
our estimated losses due to adverse legal judgments. We believe that these
actions, if decided against us, would not have a material adverse effect on our
business, results of operations or financial condition.

ITEM 4.  CONTROL OF REGISTRANT

         Of our two classes of capital stock outstanding, only the common shares
have full voting rights. The preferred shares have voting rights under limited
circumstances. Telpart owns 51.8% of the common shares. Accordingly, Telpart has
the ability to control the election of our Board of Directors and our direction
and future operations.

         The following table presents information concerning the ownership of
our common shares by Telpart. We are not aware of any other shareholder owning
more than 10.0% of the common shares.

<TABLE>
<CAPTION>
                              NUMBER OF COMMON         PERCENTAGE OF OUTSTANDING
NAME OF OWNER                   SHARES OWNED                 COMMON SHARES
-------------                   ------------                 -------------
<S>                           <C>                      <C>
Telpart S.A..........          64,499,336,719                    51.8%
</TABLE>

         Our officers and directors as a group own less than 0.01% of the common
shares.

         Telpart is a consortium comprising Newtel Participacoes S.A., which
owns 51% of Telpart, and TIW do Brasil Ltda., which owns the remaining 49%.
Telpart also owns a controlling interest in Telemig Celular Participacoes S.A.,
the Band A service provider in the cellular region that includes the State of
Minas Gerais.

         Newtel Participacoes S.A. is a holding company. Fifty-one percent of
Newtel is owned by Opportunity MEM S.A., which is indirectly held by investment
and mutual funds managed by Opportunity Bank, a private Brazilian investment
bank. Forty-nine percent of Newtel is owned by the following Brazilian pension
funds: SISTEL - Fundacao Sistel Seguridade Social, TELOS - Fundacao Embratel de
Seguridade Social, FUNCEF - Fundacao dos Economiarios Federais; PETROS -
Fundacao Petrobras de Seguridade Social and PREVI - Caixa de Previdencia dos
Funcionarios do Banco do Brasil.

         TIW do Brasil Ltda. is an indirect wholly owned subsidiary of
Telesystem International Wireless, Inc., which we refer to as "TIW," a Canadian
public company whose shares are listed on NASDAQ and the Toronto Stock Exchange.
TIW develops, acquires, owns and operates wireless telecommunications networks
in developing and developed markets throughout the world.

         On December 28, 1999, our shareholders approved a legal reorganization
whereby Telpart contributed some assets to us resulting in future tax benefits.
We recorded a deferred tax asset of R$48.8 million which is recognized over a
period of up to ten years. In accordance with Brazilian corporate law, we may
issue shares (pro rate both common and preferred) to Telpart for the amount of
the tax benefits recognized by us. In addition, minority shareholders are
granted preemptive rights. If the minority shareholders do not elect to exercise
these rights, the shares will be issued to Telpart. See Note 7 to the
consolidated financial statements for a fuller description.

ITEM 5.  NATURE OF TRADING MARKET

         The principal trading market for the preferred shares is the Sao Paulo
Stock Exchange (Bolsa de Valores de Sao Paulo). At December 31, 1999, we had
approximately 2.5 million common and preferred shareholders.



                                       17
<PAGE>   21
         The preferred shares commenced trading separately on the Brazilian
stock exchanges on September 21, 1998.

         The following table presents the reported high and low closing sale
prices for our preferred shares as reported on the Sao Paulo Stock Exchange for
the periods indicated.

<TABLE>
<CAPTION>
                                                         NOMINAL REAIS PER 1,000
                                                            PREFERRED SHARES
                                                            ----------------
                                                          HIGH             LOW
                                                          ----             ---
<S>                                                      <C>              <C>
Third quarter 1998 (beginning September 21, 1998)..      R$0.44           R$0.12
Fourth quarter 1998................................      R$1.05           R$0.23
First quarter 1999.................................      R$1.04           R$0.48
Second quarter 1999................................      R$1.24           R$0.93
Third quarter 1999.................................      R$1.24           R$0.69
Fourth quarter 1999................................      R$1.59           R$1.02
</TABLE>

         In the United States, the preferred shares trade in the form of
American Depository Shares, commonly referred to as "ADSs," each representing
50,000 preferred shares, issued by The Bank of New York, as depositary pursuant
to a deposit agreement among the Registrant, the depositary and the registered
holders and beneficial owners from time to time of American Depository Receipts,
which are commonly known as "ADRs." The ADSs commenced trading separately on the
New York Stock Exchange on November 16, 1998 under the symbol "TCN". At December
31, 1999, there were approximately 127 holders of record of ADSs. The following
table presents the reported high and low closing sales prices for ADSs on the
New York Stock Exchange for the period indicated.

<TABLE>
<CAPTION>
                                                         U.S. DOLLARS PER ADS
                                                         --------------------
                                                         HIGH            LOW
                                                         ----            ---
<S>                                                    <C>             <C>
Fourth quarter 1998 (Beginning November 16, 1998)...   U.S.$45         U.S.$11?
First quarter 1999..................................   U.S.$29 3/4     U.S.$17
Second quarter 1999.................................   U.S.$36 1/4     U.S.$25 1/2
Third quarter 1999..................................   U.S.$33?        U.S.$19?
Fourth quarter 1999.................................   U.S.$43 1/2     U.S.$25 1/2
</TABLE>

TRADING ON THE BRAZILIAN STOCK EXCHANGES

         Until May 2000, Brazil had nine stock exchanges, with the Sao Paulo
Stock Exchange and the Rio de Janeiro Stock Exchange as the most significant.
During 1999, the Sao Paulo Stock Exchange accounted for approximately 92% of the
trading value of equity securities on all Brazilian stock exchanges, and the Sao
Paulo Stock Exchange and the Rio de Janeiro Stock Exchange together accounted
for substantially all of the trading value of equity securities on all Brazilian
stock exchanges.

         In May 2000, the nine stock exchanges were unified under the management
of the Sao Paulo Stock Exchange. The verification process requires the signing
of protocol agreements between the Sao Paulo Stock Exchange and each of the
other eight stock exchanges. It is expected that all the agreements will be
signed by the end of the year 2000.

         The Sao Paulo Stock Exchange is a nonprofit entity owned by its member
brokerage firms. Trading on the exchange is limited to member brokerage firms
and a limited number of authorized nonmembers. The Sao Paulo Stock Exchange has
two open outcry trading sessions each day, from 10:00 a.m. to 1:00 p.m. and from
2:00 p.m. to 4:50 p.m. Trading is also conducted from 10:00 a.m. to 5:00 p.m. on
an automated system. There are no specialists or market makers for our shares on
the Sao Paulo Stock Exchange.

         Settlement of transactions is effected three business days after the
trade date without adjustment of the purchase price for inflation. Payment for
shares is made through the facilities of separate clearinghouses for each
exchange which maintain accounts for member brokerage firms. The seller is
ordinarily required to deliver the shares to the exchange on the second business
day following the trade date. The clearinghouse for the Sao Paulo


                                       18
<PAGE>   22
Stock Exchange is Companhia Brasileira de Liquidacao e Custodia S.A. - CBLC,
which is controlled mainly by the member brokerage firms and banks that are not
members of that exchange.

         At December 31, 1999, the aggregate market capitalization of the 478
companies listed on the Sao Paulo Stock Exchange was approximately R$228.5
billion. Although all the outstanding listed shares of an exchange-listed
company may trade on a Brazilian stock exchange, in most cases less than half of
the listed shares are actually available for trading by the public, the
remainder being held by small groups of controlling persons that rarely trade
their shares. For this reason, data showing the total market capitalization of
Brazilian stock exchanges tend to overstate the liquidity of the Brazilian
equity securities market.

         The Brazilian equity market is relatively small and illiquid compared
to major world markets. In 1999, the combined daily trading volumes on the Sao
Paulo Stock Exchange and the Rio de Janeiro Stock Exchange averaged
approximately R$971.8 million.

         Trading on Brazilian stock exchanges by nonresidents of Brazil is
subject to some limitations under Brazilian foreign investment legislation.

REGULATION OF BRAZILIAN SECURITIES MARKETS

         The Brazilian securities markets are regulated by the Brazilian
Securities Commission (Comissao de Valores Mobiliarios), commonly referred to as
"CVM," which has authority over stock exchanges and the securities markets
generally, and by the Central Bank, which has, among other powers, licensing
authority over brokerage firms and regulates foreign investment and foreign
exchange transactions. The Brazilian securities market is governed by Law No.
4,728 as amended, which is commonly referred to as the "Brazilian Securities
Law," and Law No. 6,404, as amended, which is commonly referred to as the
"Brazilian Corporation Law."

         Under the Brazilian Corporation Law, a company is either public
(companhia aberta), such as the Registrant, or private, a (companhia fechada).
All public companies are registered with the CVM and are subject to reporting
requirements. A company registered with the CVM may have its securities traded
either on the Sao Paulo Stock Exchange or in the Brazilian over-the-counter
market. The shares of a public company may also be traded privately, subject to
some limitations. To be listed, a company must apply for registration with the
CVM and the Sao Paulo Stock Exchange.

         Trading in securities on the Sao Paulo stock exchange may be suspended
at the request of a company in anticipation of a material announcement. Trading
may also be suspended on the initiative of the Sao Paulo Stock Exchange or the
CVM, among other reasons, based on or due to a belief that a company has
provided inadequate information regarding a material event or has provided
inadequate responses to inquiries by the CVM or the Sao Paulo Stock Exchange.

         The Brazilian Securities Law provides for, among other things,
disclosure requirements, restrictions on insider trading and price manipulation,
and protection of minority shareholders. However, the Brazilian securities
markets are not as highly regulated and supervised as the United States
securities markets or markets in certain other jurisdictions.

ITEM 6.  EXCHANGE CONTROL AND OTHER LIMITATIONS AFFECTING SECURITY-HOLDERS

         There are no restrictions on ownership of preferred shares or common
shares of the Registrant by individuals or legal entities domiciled outside
Brazil.

         The right to convert dividend payments and proceeds from the sale of
shares into foreign currency and to remit such amounts outside Brazil is subject
to restrictions under foreign investment legislation which generally requires,
among other things, that the relevant investments be registered with the Central
Bank. The restrictions on the remittance of foreign capital abroad may hinder or
prevent Banco Itau S.A., which is acting as custodian for the preferred shares
represented by ADSs, or holders who have exchanged ADRs for preferred shares
from converting dividends, distributions or the proceeds from any sale of such
preferred shares, as the case may be, into U.S. dollars and remitting such U.S.
dollars abroad. Holders of ADSs could be adversely affected by delays in, or
refusal to grant any, required government approval for conversions of Brazilian
currency payments and remittances abroad of the proceeds from dividends or sales
of Preferred Shares underlying the ADSs.



                                       19
<PAGE>   23
         The system of foreign investment in financial and capital markets in
Brazil has been modified by Resolution No. 2,689 of the National Monetary
Council on January 26, 2000, which substitutes the rules of Annex IV to
Resolution No. 1,289 of the National Monetary Council. Portfolios under Annex IV
must be adapted to the new regulations by June 30, 2000.

         According to the present resolution, the entry of foreign capital
through the free-rate exchange market, as an investment in the Brazilian
financial and capital markets, will be subject to electronic registration at the
Central Bank. Qualified foreign investors registered with the CVM, acting
through authorized custody accounts managed by local agents, may buy and sell
shares on Brazilian stock exchanges without obtaining separate certificates of
registration for each transaction. However, institutions that provide custody
services must submit monthly information to the Central Bank regarding each
foreign investor, as well as submit to the Central Bank or the CVM records of
transactions made by foreign investors.

         The term "qualified foreign investors" includes any individual or a
financial or non-financial institution, resident or domiciled abroad, which (i)
has a legal representative in Brazil, (ii) fills out a form to be kept on hand
by the legal representative; and (iii) obtains registration with the CVM as a
foreign investor. If the legal representative is an individual or non-financial
institution, the foreign investor should also indicate a financial institution
domiciled in Brazil as its legal representative.

         The issuance of depositary receipts in foreign markets in respect of
shares of Brazilian issuers, such as our ADRs, is permitted by Resolution No.
1,927 of the National Monetary Council, which is the restated and amended Annex
V to Resolution No. 1,289 of the National Monetary Council. Our ADS program was
approved under the Annex V regime by the Central Bank and the CVM prior to the
issuance of the ADSs. Accordingly, the proceeds from the sale of ADSs by ADR
holders outside Brazil are free of Brazilian foreign investment controls and
holders of the ADSs will be entitled to the favorable tax treatment.

         A certificate of registration has been issued in the name of the
depositary with respect to the ADSs and is maintained by the custodian on behalf
of the depositary. Pursuant to the certificate of registration, the custodian
and the depositary are able to convert dividends and other distributions with
respect to the preferred shares represented by ADSs into foreign currency and
remit the proceeds outside Brazil. In the event that a holder of ADSs exchanges
such ADSs for preferred shares, such holder will be entitled to continue to rely
on the depositary's certificate of registration for five business days after
such exchange, following which such holder must seek to obtain its own
certificate of registration with the Central Bank. A holder of preferred shares
may not convert them into foreign currency and remit outside Brazil unless such
holder obtains its own certificate of registration. A holder that obtains a
certificate of registration will be subject to less favorable Brazilian tax
treatment than a holder of ADSs. See "Taxation -- Brazilian tax considerations"
for a description of this tax treatment.

         Under current Brazilian legislation, the federal government may impose
temporary restrictions on remittances of foreign capital abroad in the event of
a serious imbalance or an anticipated serious imbalance of Brazil's balance of
payments. For approximately six months in 1989 and early 1990, the federal
government froze all dividend and capital repatriations held by the Central Bank
that were owed to foreign equity investors, in order to conserve Brazil's
foreign currency reserves. These amounts were subsequently released in
accordance with federal government directives. The imbalance in Brazil's balance
of payments increased during 1998, and there can be no assurance that the
federal government will not impose similar restrictions on foreign repatriations
in the future.

ITEM 7.  TAXATION

         The following summary contains a description of the material Brazilian
and U.S. federal income tax consequences of the acquisition, ownership and
disposition of preferred shares or ADSs. This summary does not purport to be a
comprehensive description of all the tax considerations that may be relevant to
a decision to purchase preferred shares or ADSs. The summary is based upon the
tax laws of Brazil and related regulations and on the tax laws of the United
States and related regulations as in effect on the date of this annual report.
These laws and regulations may change in the future.

         Although there is at present no income tax treaty between Brazil and
the United States, the tax authorities of the two countries have had discussions
that may culminate in such a treaty. We cannot assure you, however, as to
whether or when a treaty will enter into force or how it will affect the U.S.
holders of preferred shares or ADSs.


                                       20
<PAGE>   24
Prospective holders of preferred shares or ADSs should consult their own tax
advisors as to the tax consequences of the acquisition, ownership and
disposition of preferred shares or ADSs in their particular circumstances.

BRAZILIAN TAX CONSIDERATIONS

         The following discussion summarizes material Brazilian tax consequences
of the acquisition, ownership and disposition of preferred shares or ADSs by a
holder not deemed to be domiciled in Brazil for Brazilian tax purposes. This
discussion does not address all the Brazilian tax considerations that may be
applicable to any such particular non-Brazilian holder, and each non-Brazilian
holder should consult his or her own tax advisor about the Brazilian tax
consequences of investing in preferred shares or ADSs.

Taxation of dividends

         Dividends paid by the Registrant in cash or in kind from profits of
periods beginning on or after January 1, 1996 (i) to the depositary in respect
of preferred shares underlying ADSs or (ii) to a non-Brazilian holder in respect
of preferred shares, will generally not be subject to Brazilian withholding tax.

         Dividends paid from profits generated before January 1, 1996 may be
subject to Brazilian withholding tax at varying rates, except that stock
dividends are not subject to Brazilian tax unless the stock is subsequently
redeemed by the Registrant, or the non-Brazilian holder sells the stock in
Brazil, within five years after the distribution.

         The only Brazilian tax treaty now in effect that would, if specified
conditions are met, reduce the rate of the withholding tax on dividends paid
from profits generated before January 1, 1996 is the treaty with Japan, which
would reduce the rate to 12.5%.

Taxation of capital gains

         Capital gain or loss is defined as the difference between the amount in
Brazilian currency realized on the sale or exchange and the acquisition cost of
the shares sold, measured in Brazilian currency without any correction for
inflation. The acquisition cost of shares registered as an investment with the
Central Bank is calculated on the basis of the foreign currency amount
registered with the Central Bank.

         Capital gains realized outside Brazil by a non-Brazilian holder on the
disposition of ADSs or preferred shares to another non-Brazilian holder are not
subject to Brazilian tax. The deposit of preferred shares in exchange for ADSs
and the withdrawal of preferred shares upon cancellation of ADSs are also not
subject to Brazilian tax.

         Capital gains realized by non-Brazilian holders on dispositions of
preferred shares in Brazil or in transactions with Brazilian residents may be
free of Brazilian tax, taxed at a rate of 10% or taxed at a rate of 15%,
depending on the circumstances described below:

            -  Gains on the disposition of preferred shares obtained upon
               cancellation of ADSs are not taxed in Brazil if such disposition
               is made, and the proceeds are remitted abroad, within five
               business days after cancellation.
            -  If the sales value of the preferred shares contains a component
               of interest on capital, the amount of this interest will be taxed
               at a rate of 15%. See " - Distributions of interest on capital"
               below.
            -  Gains on the sale or exchange of duly-registered investments made
               in accordance with Resolution No. 2.689 of the Monetary Council
               are not subject to Brazilian tax if such sale or exchange occurs
               on a Brazilian stock exchange, except for investments originating
               from countries where income is not taxed or is taxed at a rate
               lower than 20%, which are taxed in accordance with the same tax
               rules applicable to Brazilian residents;
            -  Gains realized through transactions on Brazilian stock exchanges
               are generally subject to tax at a rate of 10%, and
            -  Gains realized through off-exchange transactions in Brazil or
               with Brazilian residents are generally subject to tax at a rate
               of 15%.


                                       21
<PAGE>   25
         Any gains realized by a non-Brazilian holder upon the redemption of
preferred shares will be treated as gains from the disposition of such Preferred
Shares to a Brazilian resident occurring off of a stock exchange and will
accordingly be subject to tax at a rate of 15%.

         Brazil's tax treaties do not grant relief from taxes on gains realized
on sales or exchanges of preferred shares.

         We cannot assure you that the current preferential treatment for
holders of ADSs and non-Brazilian holders of preferred shares under the
Resolution No. 2.689 regime will be maintained.

         Any exercise of preemptive rights relating to the preferred shares or
ADSs will not be subject to Brazilian taxation. Gains on the sale or assignment
of preemptive rights relating to the preferred shares will be treated
differently for Brazilian tax purposes depending on whether

            -  the sale or assignment is made by the depositary or the investor,
               and
            -  the transaction takes place on a Brazilian stock exchange.

         Gains on sales or assignments made by the depositary on a Brazilian
stock exchange are not taxed in Brazil, but gains on other sales or assignments
may be subject to tax at rates up to 15%.

Distributions of interest on capital

         Brazilian corporations may make payments to shareholders characterized
as interest on the capital of the company as an alternative form of making
dividend distributions. The rate of interest may not be higher than the federal
government's long-term interest rate as determined by the Central Bank from time
to time (11.00% per annum for the three-month period starting April 1, 2000).
The total amount distributed as interest on capital may not exceed the greater
of

            -  50% of net income for the year in respect of which the payment is
               made before taking such distribution and any deductions for
               income taxes into account, or
            -  50% of retained earnings for years prior to the year in respect
               of which the payment is made, plus profit reserves.

         Payments of interest on capital are decided by the shareholders on the
basis of recommendations of a company's board of directors.

         Distributions of interest on capital paid to Brazilian and
non-Brazilian holders of preferred shares, including payments to the depositary
in respect of preferred shares underlying ADSs, are deductible by the Registrant
for Brazilian corporate income tax purposes. These payments are subject to
Brazilian withholding tax at the rate of 15%, except for payments to persons who
are constitutionally exempt from tax in Brazil. Payments to persons situated in
jurisdictions deemed to be tax havens will be subject to tax at a 25% rate. Tax
havens are defined as countries that either have no income tax or in which the
income tax rate is less than 20%.

         We cannot assure you that our Board of Directors will not recommend
that future distributions of profits should be made by means of interest on
capital instead of by means of dividends.

         Amounts paid as interest on capital, net of applicable withholding tax,
may be treated as payments in respect of the dividends we are obligated to
distribute to our shareholders in accordance with our charter and the Brazilian
Corporation Law. Distributions of interest on capital in respect of the
Preferred Shares, including distributions to the depositary in respect of
preferred shares underlying ADSs, may be converted into U.S. dollars and
remitted outside of Brazil, subject to applicable exchange controls.

Other Brazilian taxes

         There are no Brazilian inheritance, gift or succession taxes applicable
to the ownership, transfer or disposition of preferred shares or ADSs by a
non-Brazilian holder except for gift and inheritance taxes levied by some states
in Brazil on gifts made or inheritances bestowed by individuals or entities not
resident or domiciled in Brazil or in the relevant state to individuals or
entities that are resident or domiciled within such state in Brazil.


                                       22
<PAGE>   26
There are no Brazilian stamp, issue, registration, or similar taxes or duties
payable by holders of preferred shares or ADSs.

         A financial transaction tax (Imposto sobre Operacoes Financeiras) may
be imposed on the conversion of Brazilian currency into foreign currency, such
as for purposes of paying dividends and interest. The tax rate on such
conversions is currently 0%, but the Minister of Finance has the legal power to
increase the rate to a maximum of 25%. Any such increase will be applicable only
prospectively

         Another tax, which applies to the removal of funds from accounts at
banks and other financial institutions, will be imposed on distributions by us
in respect of ADSs at the time such distributions are converted into U.S.
dollars and remitted abroad by the custodian. This tax is in effect until June
2002, unless its term is extended, and has a rate of 0.38% from June 1999 until
June 2000 and a rate of 0.30% from June 2000 until June 2002.

Registered capital

         Amounts invested in preferred shares by a non-Brazilian holder who
qualifies under the Resolution No. 2689 regime and obtains registration with the
CVM, or by the depositary representing an ADS holder, are eligible for
registration with the Central Bank. This registration permits the conversion at
the commercial market rate or reais into foreign currency and the remittance of
the foreign currency outside Brazil. The commercial market rate is an exchange
rate quoted by the Central Bank.

         The registered capital per preferred share purchased in the form of an
ADS, or purchased in Brazil and deposited with the depositary in exchange for an
ADS, will be equal to its purchase price stated in U.S. dollars. The registered
capital per preferred share withdrawn upon cancellation of an ADS will be the
U.S. dollar equivalent of

            -  the average price of a preferred share on the Brazilian stock
               exchange on which the most preferred shares were traded on the
               day of withdrawal, or
            -  if no preferred shares were traded on that day, the average price
               on the Brazilian stock exchange on which the most preferred
               shares were traded in the fifteen trading sessions immediately
               preceding such withdrawal.

         The U.S. dollar equivalent will be determined on the basis of the
average commercial market rates quoted by the Central Bank on such date or
dates.

         A non-Brazilian holder of preferred shares may experience delays in
effecting Central Bank registration, which may delay the remittances of funds
abroad. Such a delay may adversely affect the amount in U.S. dollars to be
received by the non-Brazilian holder.

U.S. FEDERAL TAX CONSIDERATIONS

         The statements regarding U.S. tax law presented below are based on U.S.
laws and regulations in force on the date of this annual report. Changes to such
laws or regulations subsequent to the date of this annual report could affect
the tax consequences described in this annual report. This summary describes the
material tax consequences of the ownership and disposition of preferred shares
or ADSs, but it does not purport to be a comprehensive description of all of the
tax consequences that may be relevant to a decision to hold or dispose of
preferred shares or ADSs.

         This summary applies only to purchasers of preferred shares or ADSs who
will hold the preferred shares or ADSs as capital assets and does not apply to
special classes of holders such as

            -  dealers in securities or currencies,
            -  holders whose functional currency is not the U.S. dollar,
            -  holders of 10% or more of our shares (taking into account shares
               held directly through depositary arrangements),
            -  tax-exempt organizations,
            -  financial institutions,


                                       23
<PAGE>   27
            -  holders liable for the alternative minimum tax,
            -  securities traders who elect to account for their investment in
               preferred shares or ADSs on a mark-to-market basis, and
            -  persons holding preferred shares or ADSs in a hedging transaction
               or as part of a straddle or conversion transaction.

         Each holder should consult its own tax advisor concerning the overall
tax consequences to it, including the consequences under laws other than U.S.
federal income tax laws, of an investment in preferred shares or ADSs.

         In this discussion, references to "ADSs" also refer to preferred
shares, references to a "U.S. holder" are to a holder of an ADS that is

            -  a citizen or resident of the United States of America,
            -  a corporation organized under the laws of the United States of
               America or any state thereof, or
            -  otherwise subject to U.S. federal income taxation on a net basis
               with respect to the ADS.

         For purposes of the U.S. Internal Revenue Code of 1986, as amended,
which we referred to as the "Code," holders of ADRs will be treated as owners of
the ADSs represented by such ADRs.

Taxation of dividends

         A U.S. holder will recognize ordinary dividend income for U.S. federal
income tax purposes in an amount equal to the amount of any cash and the value
of any property distributed by us as a dividend to the extent that such
distribution is paid out of our current or accumulated earnings and profits, as
determined for U.S. federal income tax purposes, when such distribution is
received by the custodian or by the U.S. holder, in the case of a holder of
preferred shares. To the extent that such a distribution exceeds our earnings
and profits, it will be treated as a nontaxable return of capital to the extent
of the U.S. holder's tax basis in the ADS and after as capital gain.

         The amount of any distribution will include the amount of Brazilian tax
withheld on the amount distributed and the amount of a distribution paid in
reais will be measured by reference to the exchange rate for converting reais
into U.S. dollars in effect on the date the distribution is received by the
custodian, or by a U.S. holder, in the case of a holder of preferred shares. If
the custodian or U.S. holder, in the case of a holder of preferred shares, does
not convert the reais into U.S. dollars on the date it receives them, it is
possible that the U.S. holder will recognize foreign currency loss or gain,
which would be ordinary loss or gain, when the reais are converted into U.S.
dollars. Dividends paid by us will not be eligible for the dividends received
deduction allowed to corporations under the Code.

         Distributions out of earnings and profits with respect to the ADSs
generally will be treated as dividend income from sources outside of the United
States and generally will be treated separately along with other items of
"passive" (or, in the case of certain U.S. holders, "financial services") income
for purposes of determining the credit for foreign income taxes allowed under
the Code. Subject to certain limitations, Brazilian income tax withheld in
connection with any distribution with respect to the ADSs may be claimed as a
credit against the U.S. federal income tax liability of a U.S. holder if the
U.S. holder elects for that year to credit all foreign income taxes, or such
Brazilian withholding tax may be taken as a deduction. Foreign tax credits will
not be allowed for withholding taxes imposed in respect of certain short-term or
hedged positions in securities or in respect of arrangements in which a U.S.
holder's expected economic profit, after non-U.S. taxes, is insubstantial. U.S.
holders should consult their own tax advisors concerning the implications of
these rules in light of their particular circumstances.

         Distributions of additional shares to holders with respect to their
ADSs that are made as part of a pro rata distribution to all of our shareholders
generally will not be subject to U.S. federal income tax.

         A holder of an ADS that is a foreign corporation or nonresident alien
individual, a "non-U.S. holder," generally will not be subject to U.S. federal
income tax or withholding tax on distributions with respect to ADSs that are
treated as dividend income for U.S. federal income tax purposes. The non-U.S.
holder generally will also not be subject to U.S. federal income tax or
withholding tax on distributions with respect to ADSs that are treated as
capital


                                       24
<PAGE>   28
gain for U.S. federal income tax purposes unless the holder would be subject to
U.S. federal income tax on gain realized on the sale or other disposition of
ADSs, as discussed below.

Taxation of capital gains

         Upon the sale or other disposition of an ADS, a U.S. holder will
recognize gain or loss for U.S. federal income tax purposes in an amount equal
to the difference between the amount realized in consideration for the
disposition of the ADS (excluding the amount of any distribution paid to the
custodian but not distributed by the custodian prior to the disposition) and the
U.S. holder's tax basis in the ADS. The gain or loss generally will be subject
to U.S. federal income tax and will be treated as capital gain or loss.
Long-term capital gains recognized by an individual holder generally are subject
to a maximum rate of 20% in respect of property held for more than one year. The
deductibility of capital losses is subject to limitations. Gain realized by a
U.S. holder on a sale or disposition of ADSs generally will be treated as U.S.
source income. Consequently, if Brazilian tax is imposed on such gain, the U.S.
holder will not be able to use the corresponding foreign tax credit, unless the
holder has other foreign source income of the appropriate type in respect of
which the credit may be used.

         A non-U.S. holder will not be subject to U.S. federal income tax or
withholding tax on gain realized on the sale or other disposition of an ADS
unless

            -  the gain is effectively connected with the conduct by the holder
               of a trade or business in the United States, or
            -  the holder is an individual who is present in the United States
               of America for 183 days or more in the taxable year of the sale
               and certain other conditions are met.

U.S. backup withholding and information reporting

         Dividend payments on the ADSs and proceeds from the sale, exchange or
other disposition of ADSs may be subject to information reporting to the IRS and
possible U.S. backup withholding at a 31% rate. Backup withholding will not
apply, however, to a holder who furnishes a correct taxpayer identification
number or certificate of foreign status and makes any other required
certification or who is otherwise exempt from backup withholding. Persons
required to establish their exempt status generally must provide such
certification on IRS From W-9 (Request for Taxpayer Identification Number and
Certification) in the case of U.S. persons and on IRS Form W-8 (Certificate of
Foreign Status) in the case of non-U.S. persons. Treasury Regulations have
generally expanded the circumstances under which information reporting and
backup withholding may apply for payments made after December 31, 1999.

         Amounts withheld as backup withholding may be credited against a
holder's U.S. federal income tax liability, and a holder may obtain a refund of
any excess amounts withheld under the backup withholding rules by filing the
appropriate claim for refund with the IRS and furnishing any required
information.

U.S. state and local taxes

         U.S. holders should consult their own tax advisors concerning the U.S.
state and local tax consequences of holding ADSs.

ITEM 8.  SELECTED FINANCIAL DATA

BACKGROUND

         The selected financial information presented below should be read in
conjunction with the consolidated financial statements and the related notes
included in this annual report, as well as "Item 9 - - Management's Discussion
and Analysis of Financial Condition and Results of Operations." The consolidated
financial statements have been audited by Ernst & Young Auditores Independentes
S.C. for 1998 and 1999 and by KPMG Auditores Independentes for prior years.
Consolidated Financial Statements appear elsewhere in this Annual Report. The
consolidated financial statements are prepared in accordance with U.S. GAAP.



                                       25
<PAGE>   29
 U.S. GAAP SELECTED FINANCIAL INFORMATION

<TABLE>
<CAPTION>
                                                                         YEARS ENDED DECEMBER 31,
                                                        ----------------------------------------------------
                                                        1996           1997              1998           1999
                                                        ----           ----              ----           ----
                                                  (IN THOUSANDS OF CONSTANT REAIS     (IN THOUSANDS OF NOMINAL
                                                       AT DECEMBER 31, 1997)        REAIS, EXCEPT PER SHARE DATA)
<S>                                               <C>               <C>             <C>                <C>
STATEMENT OF OPERATIONS DATA:
Revenues .....................................        166,453        219,316           232,555          308,846
Operating income .............................        106,204        118,727            57,910           33,747
Income before unallocated interest and taxes .         86,869         84,532                --               --
Net income(1) ................................             --             --            31,532           19,383
Basic and diluted earnings in reais per common
    thousand shares(1) .......................             --             --              0.09             0.06

OTHER FINANCIAL DATA:
EBITDA(2) ....................................        113,676        131,023            96,624           84,129
Capital expenditures .........................        105,467         51,768            31,672          151,037
</TABLE>

<TABLE>
<CAPTION>
                                                                            AS OF DECEMBER 31,
                                                   ----------------------------------------------------------
                                                   1996              1997               1998             1999
                                                   ----              ----               ----             ----
                                               (IN THOUSANDS OF CONSTANT REAIS    (IN THOUSANDS OF NOMINAL REAIS)
                                                    AT DECEMBER 31, 1997)
<S>                                            <C>                <C>              <C>                <C>
BALANCE SHEET DATA:
Cash and cash equivalents ................             --             8,845            78,733            69,233
Working capital ..........................          6,580            17,161            78,654            43,213
Total assets .............................        207,558           266,137           358,724           569,680
Long-term debt (including current portion)         16,842            24,057            39,203            89,128
Divisional equity ........................        137,315           157,192                --                --
Shareholders' equity .....................             --                --           189,852           252,306
</TABLE>
-----------
(1)  Net income and earnings per share have not been presented for 1996 and 1997
     because interest and income taxes could not be segregated from the
     predecessor companies. See Note 2 to the consolidated financial statements
     for a fuller description of this issue.
(2)  EBITDA consists of operating income plus depreciation and amortization and,
     in 1998, impairment of assets. We believe that EBITDA is a standard measure
     that is commonly reported and widely used by analysts, investors and others
     in the wireless communications industry. The information has been disclosed
     in this annual report to permit a more complete comparative analysis of our
     operating performance and capitalization relative to other companies in the
     industry. These indicators should not be considered as a substitute or
     alternative for net income or cash flows.

         Selected financial information as of and for the year ended December
31, 1995 in accordance with U.S. GAAP is not provided because the accounting
records for that year were not maintained in a manner that would readily permit
all costs, assets and liabilities to be segregated between fixed and cellular
telecommunications operations in accordance with U.S. GAAP. However, selected
financial information as of and for the year ended December 31, 1995 in
accordance with Brazilian GAAP is available, and is presented below together
with selected financial information as of and for the years ended December 31,
1996, 1997, 1998 and 1999.


                                       26
<PAGE>   30
BRAZILIAN GAAP SELECTED FINANCIAL INFORMATION

<TABLE>
<CAPTION>
                                                                        YEARS ENDED DECEMBER 31,
                                                        ------------------------------------------------------------
                                                        1995         1996         1997         1998(1)       1999(1)
                                                        ----         ----         ----         -------       -------
                                                      (IN THOUSANDS OF CONSTANT REAIS AT    (IN THOUSANDS OF NOMINAL
                                                              DECEMBER 31, 1997)           REAIS, EXCEPT PER SHARE DATA)
<S>                                                   <C>           <C>          <C>       <C>              <C>
STATEMENT OF OPERATIONS DATA:
Revenues..........................................      73,111      166,453      219,316       238,163       306,903
Operating income..................................      48,555      105,885      118,881        64,206        40,337
Income before unallocated interest and taxes......      37,973       83,978       82,291            --            --
Net income(2).....................................          --           --           --        32,630        23,208
Basic and diluted earnings in reais per common
    thousand shares(2)............................          --           --           --          0.10          0.07
</TABLE>

<TABLE>
<CAPTION>
                                                                            AS OF DECEMBER 31,
                                                        -----------------------------------------------------------
                                                        1995         1996         1997        1998(1)       1999(1)
                                                        ----         ----         ----        -------       -------
                                                      (IN THOUSANDS OF CONSTANT REAIS AT        (IN THOUSANDS OF
                                                              DECEMBER 31, 1997)                 NOMINAL REAIS)
<S>                                                   <C>           <C>          <C>           <C>          <C>
BALANCE SHEET DATA:
Cash and cash equivalents.........................          --           --        8,845        79,733       69,233
Working capital...................................      15,748        6,580       17,161        75,535       57,176
Total assets......................................      94,716      208,541      271,349       361,736      672,052
Long-term debt (including current portion)........      16,572       16,842       25,294        39,203       89,128
Divisional equity.................................      46,496      138,113      165,308            --           --
Shareholders' equity..............................          --           --           --       192,092      215,300
</TABLE>
----------
(1)  Certain information provided for 1998 and 1999 differs from the Brazilian
     GAAP information published in Brazil because the information published in
     Brazil has been indexed through 1995, while the financial information
     presented here has been index through 1997.
(2)  Net income and earnings per share have not been presented for 1995, 1996
     and 1997 because interest and income taxes could not be segregated from the
     predecessor companies.

EXCHANGE RATES

         The following table presents the period-end, average, high and low
commercial market rate (through February 21, 1995) quoted by the Central Bank of
Brazil and the noon buying rate (from February 22, 1995) reported by the Federal
Reserve Bank of New York, expressed in reais per U.S. dollar for the periods
indicated.

<TABLE>
<CAPTION>
                                             AVERAGE FOR
YEAR                         PERIOD-END      PERIOD (1)        HIGH         LOW
----                         ----------      ----------        ----         ---
<S>                          <C>             <C>              <C>         <C>
1995...................        0.9722          0.9228         0.9722      0.8450
1996...................        1.0393          1.0080         1.0413      0.9733
1997...................        1.1165          1.0805         1.1166      1.0394
1998...................        1.2085          1.1640         1.2090      1.1160
1999 ..................        1.8090          1.8640         2.2000      1.2074
2000 (through April 30)        1.8050          1.7795         1.8560      1.7230
</TABLE>
----------
(1)  Represents the average of the exchange rates on the last day of each month.

ITEM 9.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
         OF OPERATIONS

         This item should be read in conjunction with the consolidated financial
statements and accompanying notes included elsewhere in this annual report,
which were prepared in accordance with U.S. GAAP.

                                       27
<PAGE>   31
PRESENTATION OF FINANCIAL INFORMATION

         On May 22, 1998, in preparation for the privatization, the Telebras
System was restructured to form twelve new holding companies, including the
Registrant. The restructuring of the Telebras System was accomplished by means
of a procedure under Brazilian law called cisao or split-up. Virtually all the
assets and liabilities of Telebras were allocated to the new holding companies.
In the breakup, certain assets and liabilities of Telebras, including 80.3% of
the total share capital of Telamazon Celular, 86.9% of Telaima Celular, 90.6% of
Teleamapa Celular, 69.09% of Telepara Celular and 66.8% of Telma Celular were
transferred to us.

         The Registrant was created effective February 28, 1998. For 1998 and
1999, our consolidated financial statements reflect the consolidated financial
condition and results of operations of the Registrant and its subsidiaries. For
earlier dates and periods, our consolidated financial statements reflect only
the financial condition and results of operations of the cellular operations of
our predecessor companies. The formation of the Registrant and its subsidiaries
has been accounted for as a reorganization of entities under common control in a
manner similar to a pooling of interests.

         Upon its creation, the Registrant received, in addition to the shares
of its subsidiaries, assets of Telebras consisting primarily of cash. As a
result, our consolidated shareholders' equity giving effect to the breakup of
Telebras was R$2.0 million higher than divisional equity at December 31, 1997.

         The subsidiaries were created effective January 1, 1998, by splitting
up the predecessor companies to separate their cellular operations from their
wireline operations. The assets and liabilities of the cellular
telecommunications businesses of the predecessor companies were transferred to
the subsidiaries at their indexed historical costs. The revenues and expenses
associated with such assets and liabilities were also allocated to the
subsidiaries. For 1998 and 1999, our consolidated financial statements reflect
the operations of our subsidiaries as fully independent companies. For prior
years, our consolidated financial statements reflect the cellular operations of
the predecessor companies but are not necessarily indicative of what our
financial condition and results of operations would have been if the cellular
operations of the predecessor companies had been under separate legal entities
prior to 1998.

         In preparing financial statements for years prior to 1998, it was not
possible to determine the amount of the predecessor companies' cash and
nonspecific debt that should be allocated to the cellular operations, and there
was no shareholders' equity specifically attributable to the cellular
operations. As a result, the presentation of our consolidated financial
statements for 1997 is different from 1998 and 1999. In particular, for 1997 the
statement of operations does not include interest income or taxes and includes
only the allocable portion of interest expense. As a result, it does not present
net income and historical earnings per share information.

         Our accounting methodology changed in 1998 to reflect the lower level
of inflation in Brazil. Through December 31, 1997, our consolidated financial
statements recognize certain effects of inflation and have been restated in
constant reais of December 31, 1997 purchasing power. The restatement was made
using the integral restatement method prescribed by the CVM, which is an
acceptable method of recognizing effects of inflation under U.S. GAAP.
Inflationary gains or losses on monetary assets and liabilities were allocated
to their corresponding income or expense caption in the consolidated statements
of operations. Inflationary gains or losses without a corresponding income or
expense caption were allocated to other net operating income (expense).

         During 1997, the three-year cumulative inflation rate fell below 100%,
and as a result we no longer use the integral restatement method effective
January 1, 1998. The consolidated financial statements for 1998 and 1999 are
presented in nominal reais and do not recognize effects of inflation. Financial
statements for prior dates and periods, which are restated in constant reais of
December 31, 1997, have not been further restated.

PREPAY SUBSCRIBERS

         Since the inception of our prepay plan in June 1999, the number of
prepay subscribers has grown to represent approximately 23% of our total
subscribers at December 31, 1999. A prepay subscriber can activate a cellular
phone, purchase a prepaid card with a fixed amount of credit to be used over a
period of up to 180 days and credit the prepaid card value to the subscriber's
account either at a customer service center or by a phone call. The


                                       28
<PAGE>   32
customer will have access to cellular service until the credit is fully used or
otherwise until the card expires at the end of 180 days, whichever occurs first.

         We believe that prepay plans are attractive to a wide range of cellular
customers. In addition to helping customers control costs, a prepay program has
no monthly bill and allows customers to prepay for cellular services in cash.
The prepay market is composed of customers who typically earn a variable income
and prefer not to make a fixed financial commitment, do not have the credit
profile required to purchase a contract plan or seek cellular services for
emergency or limited use only.

         We believe the prepay service offerings provide an opportunity to
improve margins because, compared to the average contract plan, prepay plans
involve higher average per minute airtime charges, a lower cost to acquire
prepay subscribers and the absence of billing costs, credit concerns and payment
risk. Prepay customers are also potential customers for other services and
products offered by us, and we focus marketing efforts on migrating qualified
prepay customers to higher revenue contract plans. In addition, we are exploring
new methods to increase minutes of use by its prepay customers. Prepay
customers, on average, have substantially lower minutes of use than contract
customers and do not pay monthly fees and, as a result, generate substantially
lower average monthly revenues per customer.

COMPOSITION OF OPERATING REVENUES AND EXPENSES

Revenues

         We generate operating revenues from:

            -  usage charges, which include airtime charges based on tenths of a
               minute of outgoing calls and roaming and other similar charges,
               all of which depend upon which service plan has been selected by
               the customer;
            -  monthly subscription payments, which depend upon which service
               plan has been selected by the customer;
            -  network usage fees, which are the amounts charged by us to other
               cellular and wireline telephone service providers for use of our
               network by such service providers' customers;
            -  activation fees, which are one-time sign-up charges paid to
               obtain cellular telecommunications service;
            -  sales of handsets; and
            -  other services and charges.

         We began to sell handsets in the second quarter of 1999. We do not
expect these sales to contribute significantly to operating income because we
plan to offer handsets at cost, as an incentive for our customers to subscribe
to our services. We may even be required to offer handsets at below cost because
of growing competition. This could have a negative effect on our operating
margin.

Operating expenses

         Operating expenses consist of cost of services, selling, general and
administrative expenses, bad debt expense, depreciation and, in 1998, a charge
for impairment of certain analog transmission equipment. Cost of services
consists primarily of fixed costs such as leased line charges, site rental and
network maintenance, including overhead, as well as variable costs such as
certain interconnection charges. Selling, general and administrative expenses
consist primarily of salaries, wages and related benefits for administrative
personnel, advertising and promotional expenses and other overhead expenses.

TAXES ON TELECOMMUNICATIONS SERVICES

         The cost of telecommunications services to subscribers includes a
variety of taxes. The average rate of all such taxes, as a percentage of our
gross operating revenues, was approximately 21.5% in 1999. The principal taxes
are a state value-added tax, the Imposto sobre Circulacao de Mercadorias e
Servicos, commonly known as the "ICMS," and a municipal tax or servicer, the
Imposto sobre Servicos, referred to as the "ISS". The ICMS is a tax that the
Brazilian states impose at varying rates on revenues from the sale of goods and
services, including


                                       29
<PAGE>   33
telecommunications services. The ICMS rate in each state in our region is 25%
for domestic telecommunications services, except in Amapa, where it was 17%
until December 1999 and 25% after. The ISS is imposed on services not subject to
the ICMS and its average rate is 5%.

         Other taxes on gross operating revenues include two federal social
contribution taxes, the Programa de Integracao Social, referred to as "PIS," and
the Contribuicao para Financiamento da Seguridade Social, known as "COFINS,"
imposed on some telecommunications services at a combined rate of 3.65% of gross
operating revenues. Prior to February 1999, the combined rate of both taxes was
2.65%.

         In June 1998, the governments of the individual Brazilian states
approved an agreement to interpret existing Brazilian tax law to apply the ICMS
effective July 1, 1998 to some services to which the ICMS had not previously
been applied, including cellular activation and monthly subscription. The
agreement also provides that the ICMS may be applied retroactively to activation
services rendered during the five years before June 30, 1998. See "Item 3 - -
Legal Proceedings" for a fuller description of these developments.

RESULTS OF OPERATIONS

         The following discussion presents comparisons of results of operations
for 1999 and 1998 and for 1998 and 1997. Because of the extensive changes in our
circumstances in 1998 and related changes in financial statement presentation,
results of operations for 1998 and 1997 are not comparable in many respects.

1999 COMPARED TO 1998

Revenues

         Net operating revenues were R$308.8 million in 1999, compared to
R$232.6 million in 1998, representing an increase of 33%. The increase is
attributable mainly to a 32% increase in the average number of subscribers in
1999 as compared to 1998, as well as the introduction of handset sales in the
second quarter of 1999 to assist our distribution network. The handsets
revenues, which totaled R$33.5 million in 1999, did not contribute to our profit
as the handsets were sold at, or near, cost. Although the revenues from the sale
of handsets are expected to increase in the future, we do not believe that they
will contribute significantly to our profit. In effect, competition may force us
to offer handsets at subsidized prices.

         Revenues from the provision of cellular services were R$275.3 million
in 1999, an 18% increase from the R$232.6 million of 1998. The service revenues
increase did not follow the 32% increase in the average subscriber base because
of the introduction of prepay service in the second quarter of 1999. This
service provides access to the same service of the contract program, except that
users pay in advance for the service by way of purchase of cards. We expect that
the new subscribers under the prepay plan will generate less revenues than the
historical contract users. At December 31, 1999, 78,000 subscribers, or 23% of
the total subscriber base, were under the prepay program. We believe that a
significant portion of our new subscribers will adhere to the prepay program,
resulting in a lower increase in revenues as compared to the number of
subscribers.

         We may have to reduce our rates further due to competition. We expect
that future reduction in rates will help stimulate growth in our subscriber base
resulting in an increase in revenues from monthly subscription payments and an
increase in revenues from usage charges as a result of an increase in call
volume. However, we are not able to determine the extent to which these effects
will offset the reduction in fees and rates.

         In 1999, a competing cellular service provider commenced operating for
the first time in our region. We expect that the advent of competition will
contribute to declining prices and will affect our ability to maintain growth in
our subscriber base.

Cost of services

         Cost of services reached R$113.9 million in 1999, or 41% of service
revenues, compared to R$67.5 million, or 29% of service revenues, in 1998. The
increase, as a percentage of service revenues, is mainly attributable to an
increase in depreciation of R$30.1 million, which reflects:

            -  a R$17.6 million increase in investment in property, plant and
               equipment, and

                                       30
<PAGE>   34
            -  a R$12.5 million adjustment resulting from a revised estimate of
               useful lives of property, plant and equipment in light of the
               advent of competition and a review of industry practices.

Selling, general and administrative expenses

         Selling, general and administrative expenses were R$90.6 million in
1999, or 33% of service revenues, compared to R$51.9 million, or 22% of service
revenues in 1998. The increase is attributable to increased promotion and
advertising costs in relation to new products like prepay and digital services,
as well as higher costs for commissions related to the level of new activation.
In addition, the arrival of competition in our region in 1999 also contributed
to the increase in selling and marketing expenses. Despite the significant unmet
demand in our region, as evidenced by the low penetration rate of 2.5% at
December 31, 1999, we believe that it will be more costly in the future to
attract new subscribers.

Pension plan expense

         A pension plan expense of R$6.3 million was recorded in 1999 as a
result of changes approved by the administrator, allowing for the break-up of
the plan. The expense recorded by us represents an estimate of our share of the
unfunded pension liability.

Bad debt expense

         Bad debt expense was R$28.1 million, or 10% of service revenues, in
1999, compared to R$38.4 million, or 16.5% of service revenues, in 1998. During
the year, we continued to experience significant, although lower, bad debt
levels due to a variety of factors, including:

            -  overall growth in our accounts receivable;
            -  an increase in the number of customers with relatively lower
               income, who are more prone to delay paying cellular telephone
               bills; and
            -  subscription fraud.

         We maintain an allowance for past-due accounts receivable in an amount
equal to our estimate of probable future losses on such accounts, based on
historical losses and the current level of overdue accounts receivable. We also
immediately charge off any account receivable arising from fraud. Cellular
service is cut off to customers who have accounts receivable that are more than
20 days past due.

         In the fourth quarter of 1998, we put in place new credit and
collection policies, and in 1999 we implemented an anti-fraud system to reduce
our level of bad debt. As a result of these measures, bad debt expense reduced
significantly in 1999 and management expects that bad debt levels will further
decline in the future.

Interest income (expense)

         Net interest income was R$14.9 million in 1999, compared to a net
interest income of R$4.5 million in 1998. The increase is due to an increase in
the average cash on hand, offset in part by an increase in consolidated
indebtedness related to capital investments.

Foreign exchange (gain) loss

         Foreign exchange loss was R$12.4 million in 1999, compared to R$2.5
million in 1998, due to the effect on our net U.S. dollar-denominated debt of
the 50% devaluation of the real relative to the U.S. dollar in 1999.

Income taxes

         Income taxes, which include social contribution taxes, were R$8.3
million in 1999 compared to R$16.9 million in 1998. The effective rate of tax on
pretax income in 1999 was 23%, compared to the combined statutory rate of 33%.
The decrease is attributable to the declaration of interest on capital in
December 1999. Interest on capital consists of tax deductible dividend.
Dividends are deductible to the extent they are declared before the end of the
current fiscal year. See Note 7 to the consolidated financial statements.



                                       31
<PAGE>   35
Net income

         As a result of the above, net income was R$19.4 million for 1999 and
R$31.5 million for 1998, or R$0.06 and R$0.09 per thousand common shares,
respectively.

1998 COMPARED TO 1997

Revenues

         Our revenues were R$232.6 million in 1998, up 6% from R$219.3 million
in 1997. The growth in revenues was attributable mainly to an increase of 13% in
the average number of subscribers. This increase was partly offset by lower
activation fee revenues as a result of fewer subscribers initiating services in
1998.

Cost of services

         Cost of services was R$67.5 million in 1998, up 33% from R$50.7 million
in 1997. The increase is primarily attributable to increased interconnection
costs, as a higher volume of calls was subject to network usage charges payable
to other cellular and wireline service providers. Depreciation expense was
R$20.3 million in 1998, compared to R$12.3 million in 1997, reflecting increased
investment in property, plant and equipment.

Selling, general and administrative

         Selling, general and administrative expenses were R$51.9 million in
1998, up 43.8% from R$36.1 million of allocated expenses recognized by our
predecessor companies in 1997. The increase reflects:

            -  provisions for contingencies in the amount of R$9.0 million,
               including R$6.2 million relating to a legal action contesting the
               application of ICMS to monthly subscription;
            -  costs associated with our independent operation and one-year
               service contracts with the predecessor companies to assist us in
               our early stages of autonomy.

         By the end of 1998, we had largely ceased to rely on services provided
by our predecessor companies, and had almost fully independent administrative
capabilities.

Bad debt expense

         Bad debt expense was R$38.4 million in 1998, compared to R$12.3 million
in 1997. During 1998, we continued to experience significant bad debt levels due
to a variety of factors, including:

            -  overall growth in our accounts receivable;
            -  an increase in the number of customers with relatively lower
               income (who are more prone to delay paying cellular telephone
               bills) due to poor credit and collection procedures;
            -  an increase in subscription fraud in analog service; and
            -  increased consumer interest rates, which have adversely affected
               the ability of consumers to meet payment obligations, resulting
               from adverse economic conditions in Brazil.

         In the fourth quarter of 1998, we put in place new credit and
collection policies and started the implementation of an anti-fraud system,
which became operational in the second half of 1999, in order to reduce the
level of bad debt.

Interest income (expense)

         Interest income was R$8.6 million in 1998, due to investment of cash on
hand. We did not recognize interest income in 1997. Interest expense increased
to R$4.0 million in 1998 from R$0.8 million, on an allocated expense basis, in
1997. The increase in interest expense reflects a R$15.1 million net increase in
consolidated indebtedness.

Foreign exchange loss

         Foreign exchange loss was R$2.5 million in 1998, due to the effect of
devaluation of our real on our debt.



                                       32
<PAGE>   36
Income taxes

         Income and social contribution taxes were R$16.9 million in 1998. The
effective rate of tax on pretax income was 28%, compared to the combined
statutory rate of 33%. We did not incur income and social contribution taxes in
1997.

Minority interest

         Minority interest of R$11.6 million consists of the share of profit of
our subsidiaries that is attributable to shareholders other than us.

Net income

         Net income for 1998 was R$31.5 million, or R$0.09 per thousand common
shares.

LIQUIDITY AND CAPITAL RESOURCES

General

         In 1999, cash provided by operating activities was R$70.1 million.
EBITDA, which we define as operating income plus depreciation and the charge for
impairment of long-lived assets, was R$84.1 million. At December 31, 1999, we
had cash and cash equivalents of R$69.2 million.

Indebtedness

         During 1999, we obtained R$109.7 million of new debt to finance the
acquisition of equipment. We had R$114.5 million of unsecured indebtedness at
December 31, 1999, of which R$78.1 million was denominated in U.S. dollars and
bore interest at LIBOR plus a rate of 0.4% to 5.75%, and R$36.9 million was in
reais bearing interest at a rate of 6.7% over the long-term interest rate (which
was 12.5% at December 31, 1999) disclosed by the Central Bank. All of our
indebtedness arises from equipment financing.

         Substantially all start-up costs and initial capital investments were
financed by cash flows from the wireline telephone operations of the predecessor
companies. Accordingly, our indebtedness does not reflect the amount of debt we
would have been required to incur to build our current network if we had
operated on a stand-alone basis from the inception of our predecessor companies'
cellular telecommunications operations.

Dividends and other distributions

         We are required to distribute to our shareholders, either as dividends
or as tax-deductible interest on capital, 25% of our adjusted net income
determined in accordance with Brazilian accounting principles as adjusted in
accordance with Brazilian corporate law. We are also required to pay a
non-cumulative preferred dividend on its preferred shares in an amount equal to
6% of the share capital attributable to the preferred shares under Brazilian
corporate law.

         For purposes of the mandatory distribution requirement, we included in
adjusted net income part of the unrealized income reserve transferred upon the
breakup of Telebras, which amounted to R$59.3 million and is included in
distributable capital and other reserves in our shareholders' equity. We decided
to include the unrealized reserve in the calculation of the mandatory
distribution requirements over a ten-year period. As a result, the total
dividend for the year ended December 31, 1999 amounted to R$7.6 million, of
which R$4.1 million was transferred into a special reserve for future
investments. The actual cash dividend payment pertaining to the year 1999 was
R$3.5 million. We cannot assure you that the mandatory distribution of the
unrealized income reserve will not result in substantial additional dividend
requirements.

         The Registrant's only significant asset other than cash are its shares
in the subsidiaries. The Registrant relies almost exclusively on dividends from
its subsidiaries to meet its needs for cash, including for the payment of
dividends to its shareholders. The Registrant controls the payment of dividends
by its subsidiaries, subject to limitations under Brazilian corporate law.



                                       33
<PAGE>   37
Capital expenditures

         Prior to privatization, our capital expenditures were planned and
allocated on a system-wide basis and subject to approval by the federal
government. These constraints on capital expenditures prevented us from making
some investments to modernize in a timely manner our cellular telecommunications
services.

         Since the privatization of Telebras, these restrictions have not
applied. We are now able to determine our own capital expenditure budget
although, as is the case with telecommunications service providers, we must
comply with build-out obligations under our concessions. See " -- Regulation of
the Brazilian telecommunications industry -- Obligations of telecommunications
companies" for a description of these obligations.

         Our capital expenditure priorities include build out of our network to
increase coverage, improvement of overall quality and increase of the level of
digitalization of our network. We spent R$151 million in capital expenditures in
1999.

         We currently expect that our capital expenditures for the years 2000
through 2002 will aggregate approximately R$350 million, with approximately
R$150 million of that amount falling in 2000. This estimate is based on March
31, 2000 exchange rates. Because a substantial portion of capital expenditures
is denominated in U.S. dollars, further devaluation of the real could require
that the estimate be increased. The estimated amount and timing of capital
expenditures may also be affected by a number of other risks and uncertainties.

         We believe that our capital expenditure requirements can be met through
a combination of cash flow from operations and equipment financing from a
variety of sources.

POLITICAL AND ECONOMIC FACTORS

         Our business, results of operations and financial condition are
significantly affected by the political and economic environment in Brazil. In
particular, our financial performance will be affected by:

            -  economic growth in our region and its impact on demand for
               telecommunications services,
            -  the cost and availability of financing, and
            -  the exchange rates between Brazilian and foreign currencies.

Brazilian political environment

         The Brazilian political environment was marked by high levels of
uncertainty after the country returned to civilian rule in 1985, ending 20 years
of military government. The death of a President-elect in 1985 and the
resignation of another President in the midst of impeachment proceedings in
1992, as well as rapid turnover in the federal government at and immediately
below the cabinet level, adversely affected the implementation of consistent
economic and monetary policies.

         Our business, results of operations and financial condition may be
adversely affected by changes in policy affecting factors such as, among others,

            -  currency fluctuations,
            -  inflation,
            -  price instability,
            -  interest rates,
            -  tax policy, and
            -  telecommunications policy.

         Fernando Henrique Cardoso, who was Finance Minister at the time of
implementation of Brazil's latest economic stabilization plan, commonly referred
to as the "Real Plan", was elected President of Brazil in October 1994 and
reelected in October 1998 for an additional four-year term, which began in
January 1999. President Cardoso is the leader of a coalition of six political
parties that represents a majority in the federal Congress. His party, the
Brazilian Social Democratic Party, holds the second largest number of seats in
the coalition.


                                       34
<PAGE>   38
         In January 1999, the new Governor of the State of Minas Gerais, who
belongs to an opposition party, announced that his state would suspend payments
on its debt to the federal government for 90 days. The Governor of the State of
Rio Grande do Sul subsequently obtained a court order permitting his state to
make its debt payments into an escrow account, pending resolution of a request
of seven states to renegotiate refinancing agreements they had reached with the
federal government in 1997. The federal government has responded by seeking to
withhold constitutionally-mandated transfers to the State of Minas Gerais. The
federal government has notified certain international financial institutions
that it will no longer guarantee those states' obligations to those
institutions, leading the World Bank to suspend loans to the States of Minas
Gerais and Rio Grande do Sul.

         Conflicts between the federal government and state governments could
complicate the passage of the government's fiscal reform package and longer-term
fiscal measures, including a reform of the tax system, and Brazil's ability to
meet the agreed targets under the country's agreements with the International
Monetary Fund.

         The conflict between the federal government and the state governments
may undermine investor confidence, have a negative effect on the Brazilian
economy and negatively impact the states in our region. If the Brazilian economy
or the economy of the states in our region were to be adversely affected by a
default, our operations and the market price of the preferred shares and ADS may
be adversely affected.

Brazilian economic environment

         General. Our business, results of operations and financial condition
are dependent on general economic conditions in Brazil, and in particular on:

         -        economic growth and its impact on demand for
                  telecommunications services,

         -        the cost and availability of financing, and

         -        exchange rates between Brazilian and foreign currencies.

         Effects of inflation and impact of Real Plan. Since the introduction of
the real as the new Brazilian currency in July 1994, inflation has remained
controlled although it has increased since the devaluation of the real in
January 1999. Inflation was 20% in 1999, 2% in 1998 and 8% in 1997, as measured
by the IGP-DI, a general price index. High inflation places pressure on our
rates and invites federal government efforts to control inflation by holding
down the rates that Brazilian public utilities are permitted to charge.

         The table below shows the Brazilian general price inflation (according
to the IGP-DI) and devaluation of the Brazilian currency against the U.S. dollar
for the periods shown:

<TABLE>
<CAPTION>
                                                                             YEAR ENDED DECEMBER 31,
                                                                         -------------------------------
                                                                         1999          1998         1997
                                                                         ----          ----         ----
<S>                                                                      <C>           <C>          <C>
Inflation (IGP-DI)..............................................          20%           2%           8%
Devaluation of the real vs. U.S. dollar.........................          48%           8%           7%
</TABLE>

         Effects of exchange rate variation and inflation on our financial
condition and results of operations. The devaluation of the Brazilian real and
the resulting inflation have had and will continue to have negative effects on
our results of operations, primarily as a result of the following factors:

         -        Real devaluations generally result in a significant decrease
                  in the purchasing power of Brazilian consumers, resulting in a
                  decrease in the demand for cellular telephony services.

         -        Due to competitive market conditions and regulatory
                  constraints, we may not always be able to increase our rates
                  in line with inflation.

         -        The significant devaluation of the real as compared to the
                  U.S. dollar in 1999 resulted in the recording of exchange
                  losses given over net U.S. dollar liability position.

         -        A portion of our costs and expenses (e.g., handsets,
                  depreciation and interest expense) is denominated in U.S.
                  dollars, while all of our revenues are denominated in reais.
                  In a period of real devaluation, this relationship causes a
                  negative impact on our margins.


                                       35
<PAGE>   39
         -        A substantial portion of our indebtedness is denominated in
                  U.S. dollars. As a result, the real-carrying amount of such
                  debt increases to reflect the additional reais required to
                  meet such U.S. dollar liabilities.

         Effects of Asian and Russian crises on the Brazilian economy. In
November 1997, in a move to counteract speculation of Brazilian currency
devaluation generated by the financial crisis in the Asian markets, the
Brazilian government increased annual interest rates from approximately 20% to
approximately 40%. This sudden and dramatic increase in interest rates had the
immediate effect of severely dampening the availability of consumer credit. By
April 30, 1998, these rates had decreased to approximately 23%. Partly as a
result of these events, the Brazilian economy was driven into a recession. The
market indices of the Brazilian securities market declined significantly, and
the market price of our preferred shares was adversely affected.

         After Russia devalued its currency in August 1998, foreign investors
withdrew funds from emerging market countries. Brazil was particularly affected
due to its growing budget and current account deficits. In October 1998, the
Brazilian government announced a fiscal package designed to curb government
spending and offset higher debt service costs caused by higher interest rates.
The Brazilian government also entered into a standby accord with the IMF,
providing U.S.$41.5 billion to Brazil from contributions made by the IMF and,
among others, 20 developed country governments. Acceptance of the IMF package
committed Brazil to implementing a combination of spending cuts and tax
increases.

         Despite the fiscal package and the IMF accord, confidence in the
Brazilian market continued to erode. In an attempt to curb the increasing
capital outflows and address concerns about the commitment of certain state
governments to fiscal austerity, on January 13, 1999, the Central Bank announced
changes to its foreign exchange policy dating from 1995, including the
implementation of a wider trading band for the real/U.S. dollar exchange rate.
This resulted in the Central Bank ceasing to intervene in the market to ensure
that the real traded at between R$1.1975 and R$1.2114 per U.S.$1.00. The
commercial selling rate rose to R$1.3193 per U.S.$1.00 on the same day,
producing a devaluation of the real of approximately 8% and effectively reaching
the ceiling of the new trading band set by the Central Bank.

         In response to continued high capital outflows, on January 15, 1999 the
Central Bank announced that it would no longer intervene in the foreign exchange
market, except in exceptional circumstances to mitigate excessive volatility,
thereby allowing the real to U.S. dollar exchange rate to fluctuate freely.
Since January 15, 1999, the real has traded in a volatile and sometimes illiquid
market. From December 31, 1998 through December 31, 1999, the real devalued by
48% against the U.S. dollar. At June 27, 2000, the noon buying rate was R$1.8230
to U.S.$1.00.

         Shortly after the devaluation, in order to minimize excessive market
volatility and reduce the inflationary effects of the devaluation, the Central
Bank raised interest rates to more than 40% per annum. Interest rates have since
decreased to approximately 18.5% at April 30, 2000, but are still high and have
affected consumer and business confidence.

         As a result of the devaluation, certain economic benchmarks established
in the IMF standby accord had to be revised. In March 1999, the Brazilian
government and the IMF executive board agreed to a memorandum of economic
policies for Brazil that allowed the Central Bank to intervene in the spot
foreign exchange market and stipulated how much the Central Bank could sell in
the market to improve liquidity and reduce volatility of the real. As a result,
an additional U.S.$9.8 billion was made available to Brazil in early April 1999.
Also in March 1999, the Brazilian government agreed with foreign private-sector
banks to maintain interbank lines at February 28, 1999 levels through August 30,
1999, thereby halting a significant decline in such lines since September 1998.

         In the second half of 1999, Brazil was affected by events taking place
in Ecuador and Argentina. Ecuador missed a payment on the country's U.S.$5.9
billion Brady bond debt, becoming the first country ever to default on a Brady
bond debt. Argentina faced political uncertainty in response to the election in
October 1999 of a new president who belongs to a political party different from
that of the prior president. Brazilian economic conditions may be affected
negatively by events elsewhere, especially in emerging markets. Instability in
the Brazilian financial markets caused by developments in the international
financial markets may adversely affect our financial condition and,
specifically, our ability to raise capital when needed and the market price of
the preferred shares and ADSs.


                                       36
<PAGE>   40
REGULATORY AND COMPETITIVE FACTORS

         Our business, including the services we provide and the rates we
charge, are subject to comprehensive regulation under the General
Telecommunications Law. As a result, our business, results of operations and
financial conditions could be affected negatively by the actions of the
Brazilian authorities. In particular, we could be negatively affected by actions
such as the following:

         -        delays in the granting, or the failure to grant, approvals for
                  rate increases;

         -        the granting of more concessions to new competitors in our
                  region, and

         -        the introduction of new or stricter requirements to our
                  concession.

         We began to face competition in our region in the fourth quarter of
1999 and anticipate that competition will contribute to declining prices for
cellular telecommunications services and increasing pressure on operating
margins. Our future growth and results of operations will depend significantly
on a variety of factors, including:

         -        our ability to attract new subscribers,

         -        the rate of growth of our subscriber base,

         -        the usage and revenue generated from our subscribers,

         -        the level of airtime, equipment prices,

         -        the rate of churn, and

         -        our ability to control costs.

         We also expect to face competition from PCS providers, as the Anatel
has indicated that it plans to auction additional bandwidth for PCS by the end
of 2000. The scope of increased competition and any adverse effects on our
results and market share will depend on a variety of factors that we cannot now
assess with precision and many of which are beyond our control.

ITEM 9A.      QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

         We are primarily exposed to market risk from changes in both foreign
currency exchange rates and interest rates. We are exposed to foreign exchange
rate risk because certain of our costs and debt are denominated in currencies,
primarily the U.S. dollar, other than those in which we earn revenues, primarily
the real. Similarly, we are subject to market risk deriving from changes in
interest rates which may affect the cost of our financing. We do not use
derivative instruments, such as foreign exchange forward contracts, foreign
currency options, interest rate swaps and forward rate agreements, to manage
these market risks, nor do we hold or issue derivative or other financial
instruments for trading purposes.

EXCHANGE RATE RISK

         We have exchange rate exposure with respect to the U.S. dollar. At
December 31, 1999, R$78.1 million of our indebtedness was denominated in U.S.
dollars. The potential additional costs to us that would result from a
hypothetical 10% change in foreign currency exchange rates would be
approximately R$7.8 million.

INTEREST RATE RISK

         At December 31, 1999, we had approximately R$126.0 million in loans and
financing outstanding, all of which bore interest at floating rates. We invest
our excess liquidity (R$69.2 million at December 31, 1999) mainly in short-term
instruments. The potential loss in earnings to us over one year that would have
resulted from a hypothetical, instantaneous and unfavorable change of 100 basis
points in the interest rates applicable to financial assets and liabilities on
December 31, 1999 would be approximately R$1.3 million.

         The above sensitivity analysis is based on the assumption of an
unfavorable 100 basis point movement of the interest rates applicable to each
homogeneous category of financial assets and liabilities and sustained over a
period of one year. A homogeneous category is defined according to the currency
in which financial assets and liabilities are denominated and assumes the same
interest rate movement within each homogeneous category (e.g.


                                       37
<PAGE>   41
U.S. dollars). As a result, our interest rate risk sensitivity model may
overstate the impact of interest rate fluctuations for such financial
instruments as consistently unfavorable movements of all interest rates are
unlikely. See Notes 5 and 6 to our consolidated financial statements for a
description of our short- and long-term debt.

ITEM 10.      DIRECTORS AND OFFICERS OF REGISTRANT

BOARD OF DIRECTORS

         The Registrant is administered by a Board of Directors (Conselho de
Administracao) and a Board of Executive Officers (Diretoria). The Board of
Directors is comprised of eleven members serving for a term of three years. The
Board of Directors holds a regular meeting once every two months and holds
special meetings when called by the Chairman or by two members of the Board of
Directors.

         The following are the current members of the Board of Directors and
their respective positions.

<TABLE>
<CAPTION>
  NAME                                                                  POSITION             DATE ELECTED
  ----                                                                  --------             ------------
<S>                                                                     <C>                <C>
  Arthur Joaquim de Carvalho...............................             Chairman           August 10, 1998
  Wellington Dantas de Amorim..............................             Director           August 10,1998
  Bruno Ducharme...........................................             Director           September 1, 1998
  Zeno Antonio Brandt......................................             Director           September 1,1998
  Peter Gerald White.......................................             Director           April 23, 1999
  Gunnar Birger Vinof Vikberg..............................             Director           April 10, 2000
  Oscar de Paula Bernardes Neto............................             Director           April 10, 2000
  Gustavo Henrique de Barroso Franco.......................             Director           April 10, 2000
  Carla Cico...............................................             Director           April 10, 2000
  Elaine Aleixo Lustosa Thompson-Flores....................             Director           April 10, 2000
  Sedat Ozmen..............................................             Director           May 5, 2000(1)
</TABLE>

  ----------
  (1) Interim member, appointed by the Board of Directors, as permitted by the
Registrant's by-laws.


         Set forth below are brief biographical descriptions of the Directors.

         Arthur Joaquim de Carvalho is also elected to the Board of Directors of
Telemig Celular Participacoes S.A. In addition, Mr. Carvalho is a Principal of
CVC/Opportunity Equity Partners Ltd., a Cayman Islands privately owned
investment company. He served as a Senior Investment Officer for private equity
at the Opportunity Group. Prior to working at Opportunity, he served as a
Managing Director of Manuel Joaquim de Carvalho Ltda., an export-oriented
agribusiness company. He holds a degree in business administration from the
Federal University of Bahia.

         Wellington Dantas de Amorim is also a Director of Telemig Celular
Participacoes S.A. Since April 1998, Mr. Amorim has served as the Investment
Manager for PREVI - Caixa de Previdencia dos Funcionarios do Banco do Brasil.
From 1982 to 1998, Mr. Amorim served as an employee of Banco do Brasil S.A.
("BB"). He served as Assistant to the Executive Committee of BB and Member of
the Technical Consulting of the Executive Committee of BB. He has served also as
the Coordinator of the Center of Planning and Control for the Rio de Janeiro
State Cabinet. He holds a degree and a masters degree in international relations
from the University of Brasilia.

         Bruno Ducharme serves as President and Chief Executive Officer of TIW,
as Executive Vice-President of Telesystem Ltd. and as a member of the Board of
Directors of Telemig Celular Participacoes S.A., Teleglobe Inc. and of MDSI
Mobile Data Solutions Inc. Mr. Ducharme joined the Telesystem group of companies
in 1990 as Vice-President of Telesystem Financial Corporation and became a
Vice-President of Telesystem in 1991. Mr. Ducharme has held a number of
executive positions with companies within the Telesystem group including
Executive Vice-President and Chief Financial Officer of Teleglobe Inc. in 1993
and President and Chief Executive Officer of Microcell Telecommunications Inc.
in 1994. Mr. Ducharme holds a bachelor's degree in civil law from McGill
University, a master's degree in business administration from the Wharton School
of the University of Pennsylvania, and a master's degree in international
relations from the University of Pennsylvania.


                                       38
<PAGE>   42
         Zeno Antonio Brandt is also a Director of Telemig Celular Participacoes
S.A. He joined Banco do Brasil S.A. in 1986 where he has served as Chief of
Service, Supervisor, Manager of Resources, and Branch Manager until 1997. He has
diplomas in management, business administration, finance and sales.

         Peter Gerald White is also a Director of Telemig Celular Participacoes
S.A. He previously served as special assistant to the Federal Minister of
Forestry and Rural Development in Canada, and special assistant to the Premier
of Quebec. He founded the Laval Congress on Canadian Affairs in 1961, and in
1969 formed the Sterling Newspaper Group. He has received the recognition of
Chevalier de l'Ordre National de la Legion d'Honneur in 1997 by the President of
France for his role in developing strong economic ties between Canada and
France. He served as the President of the Canada-France Business Club and later
as Chairman of the Canadian Institute of International Affairs. He served as
Chairman, President and CEO of Domgroup Ltd., Publisher of Saturday Night
Magazine, founding Chairman of Public Policy Forum, President of the Council for
Canadian Unity, Executive Vice-President of The Ravelston Corporation and Argus
Corporation, and Director of Hollinger Inc., UniMedia Inc., Southam Inc.,
Telesystem Ltd., Proprietary Energy Industries Inc., Cinram International, and
Normerica Building Systems Inc. He holds a law degree from the University of
Laval.

         Gunnar Birger Vinof Vikberg is also a Director of Telemig Celular
Participacoes S.A. Mr. Vikberg is the founder and director of Viking Consultoria
Empresarial e Participacoes S/C Ltda. Mr. Vikberg was also the Chief Executive
Officer of Algar S.A. from 1997 to 1999. Prior to that, Mr. Vikberg had been
Executive Vice President. Mr. Vikberg was the exclusive representative of Xerox
Quality Services in Brazil in 1995. Between 1992 and 1994, Mr. Vikberg was
President of Millicom do Brasil S.A. and PCN do Brasil S.A. From 1975 to 1989,
Mr. Vikberg held several positions at Grupo Xerox do Brasil S.A., including that
of Executive Vice President. From 1954 to 1975, Mr. Vikberg was associated with
L.M. Ericsson, where he was the Director General of Ericsson do Brasil S.A. from
1968 to 1975. Mr. Vikberg has also been a member of the Board of Directors of
several Brazilian companies. Mr. Vikberg received a degree in Electrical
Engineering from the Royal Institute of Technology in Stockholm, Sweden, as well
as a degree in Business Administration from the Institut pour l'Etude des
Methodes de Direction de l'Enterprise in Lausanne, Switzerland.

         Oscar de Paula Bernardes Neto is also a Director of Telemig Celular
Participacoes S.A. Mr. Bernardes is also the Chairman of the Board of Directors
of Santista Alimentos S.A. and Seara Alimentos S.A., two Brazilian food
companies, as well as the Chairman of Advisory Board of TIW do Brasil, one of
our controlling shareholders. Mr. Bernardes is also a member of the Board of
Directors of several other Brazilian companies and of Delphi Automotive in the
United States. From 1996 to 1999, Mr. Bernardes was the Chief Executive Officer
of Bunge International, an international agribusiness company. Prior to that,
Mr. Bernardes was associated with Booz-Allen & Hamilton for 15 years, where he
was the Director for Latin America from 1993 to 1996. Mr. Bernardes received a
degree in chemical engineering from the Federal University of Rio de Janeiro.

         Gustavo Henrique de Barroso Franco is also a Director of Telemig
Celular Participacoes S.A. Mr. Franco was the President of the Central Bank of
Brazil from August 1997 to January 1999. For the previous four years, Mr. Franco
was the Director of International Affairs for the Central Bank of Brazil.
Between May and September of 1993, Mr. Franco was the Adjunct Secretary of
Economic Policy for the Ministry of Finance. From 1986 to 1993, Mr. Franco was
an Associate Professor in the Economics Department of the Catholic University of
Rio de Janeiro. Mr. Franco has written several books and articles on different
areas of economics. Mr. Franco holds a master's in Economics from the Catholic
University of Rio de Janeiro as well as a master's and Ph.D. in Economics from
Harvard University.

         Carla Cico is also a Director of Telemig Celular Participacoes S.A. Ms.
Cico has several years of experience in the telecommunications industry, in both
wireless and wireless service. Ms. Cico occupied managerial positions at Stet
International S.p.A. in Rome, Italy, IRI S.p.A. in China, and Italtel S.p.A. in
China. Ms. Cico is also a Director of CVC/Opportunity Equity Partners.

         Sedat Ozmen is also an interim Director of Telemig Celular
Participacoes S.A. and a director of CVC/Opportunity Equity Partners, Brasil
Telecom S.A., Opportrans Concessao Metroviaria S.A.-METRO and Santos Brazil S.A.
Prior to joining Banco Opportunity in 1999, Mr. Ozmen worked for over 25 years
in the Xerox group of companies in various executive roles including Marketing
Director, Finance Director and Systems Director of Xerox do Brasil, President of
Xerox in the Middle East and Africa and Executive Director of Rank Xerox in


                                       39
<PAGE>   43
London. Mr. Ozmen holds a degree in Chemical Engineering from Robert College,
Istambul, Turkey, and a master's degree in business administration from Stamford
University.

         Elaine Aleixo Lustosa Thompson-Flores has been a Director of Fundacao
Petrobras de Seguridade Social-PETROS since August 1999. From July 1997 to
August 1999, Ms. Thompson-Flores was the Director of the Department of Economic
Protection and Defense and the Adjunct Secretary of the Division of Economic
Rights of the Ministry of Justice. From May 1996 to June 1997, Ms.
Thompson-Flores was a partner, director and senior economic analyst at
Intelicorp Consultoria Ltds. From April to November 1995, Ms. Thompson-Flores
was a consultant to the Executive Secretary of the Ministry of Industry,
Commerce and Tourism. From October 1993 to March 1995, she was the General
Coordinator of Industrial Affairs with the Division of Economic Policy of the
Ministry of Finance. Prior to that, Ms. Thompson-Flores was a professor and a
researcher at several Brazilian institutions. Ms.
Thompson-Flores has a master's in Economics from the Catholic University of Rio
de Janeiro.

EXECUTIVE OFFICERS

         The following are our executive officers and their respective
positions.

<TABLE>
<CAPTION>
Name                                                  Position
----                                                  --------
<S>                                                   <C>
Marcio Kaiser....................................     President and Chief Executive Officer
Joao Cox Neto....................................     Chief Financial Officer
Rene Patoine.....................................     Executive Vice-President of Operations
Jose Alberto D'Ambrosio..........................     Vice-President of Human Resources and Administration
Antonio Jose Ribeiro dos Santos..................     Vice-President of Business Development
Benoit Bellerose.................................     Director of Mergers & Acquisitions
Joao Alberto Santos..............................     Corporate Comptroller
Alexandre S. D'Ambrosio..........................     General Counsel
</TABLE>

         Set forth below are brief biographical descriptions of the executive
officers whose biographies were not included above.

         Marcio Kaiser was appointed President and Chief Executive Officer on
January 4, 1999. Mr. Kaiser is also President and Chief Executive Officer of
Telemig Celular Participacoes S.A., our affiliate. Mr. Kaiser has extensive
management and marketing experience in high technology, particularly the
computer technology sector. He was, until recently, President and Managing
Director of Oracle Brazil. Before that, Mr. Kaiser spent 20 years with IBM
Brazil and IBM Latin America. He served successively as Chief Financial Officer,
Regional Director, Country Director of Sales and Marketing, Vice-President and
Director of Technology and Executive Committee Member for IBM Brazil. He also
served as General Services Manager for IBM Latin America.

         Joao Cox Neto has been Chief Financial Officer since April 1, 1999. Mr.
Cox Neto is also Chief Financial Officer of Telemig Celular Participacoes S.A.
Prior to joining Tele Norte Celular Participacoes S.A., Mr. Cox held the
position of Chief Financial Officer at Odebrecht Servicos de Infraestrutura S.A.
(OSI), the infrastructure and public service arm of the Odebrecht Group.
Previously, he held various financial management positions at the Odebrecht
Group, including Finance Director for the holding company and CFO for OPP
Petroquimica S.A. Mr. Cox holds a degree in Economics from Universidade Federal
da Bahia and has attended to graduate studies in Economics at the Universite du
Quebec a Montreal and at the Oxford University's CPS program. Since 1991 Mr. Cox
has been a member of the Board of Directors of several companies in Brazil and
Argentina and he is currently a member of the Board of ABRASCA (Brazilian
Association of Public Companies) and IBRI (Brazilian Institute for Investor
Relations).

         Rene Patoine has been Executive Vice-President of Operations of the
Company and of Telemig Celular Participacoes S.A. since September 1998. Mr.
Patoine was a member of the Board of Directors of the Company from September 1,
1998 to March 2000. Prior to that, he served as Executive Vice-President of
Operations of Telesystem International Wireless Inc. He served as Vice-President
of Operations & Strategy Planning for Telecel International Inc. from 1995 to
1997, Executive Advisor and Engineering Director for Conecel S.A. in Ecuador
from 1993 to 1995, Project Director for Bell Canada International from 1992 to
1993, and General Manager of Telecel


                                       40
<PAGE>   44
S.A. in Zaire from 1989 to 1991. He holds a bachelor's degree in electrical
engineering from Sherbrooke University, Quebec, Canada.

         Jose Alberto D'Ambrosio was appointed Vice President of Human Resources
and Administration on April 1, 1999. Mr. D'Ambrosio is also Vice President of
Human Resources and Administration of Telemig Celular Participacoes S.A. Mr.
D'Ambrosio previously served as Director of Human Resources Products and
Services at PricewaterhouseCoopers, where he worked extensively with
multinational corporations in directing human resources consulting projects.
Prior to that, he served as a Senior Consultant at Towers Perrin where he was
responsible for designing, implementing and monitoring Compensation and Benefits
Programs as well as for leading the Health Care consulting practice area in
Latin America. Including his first assignment as Human Resources Manager for
Alcoa Aluminio S.A., Mr. D'Ambrosio has 23 years of experience in the Human
Resources field. He holds a degree in economics from Faculdade de Administracao
e Economia de S.J. da Boa Vista/Sao Paulo as well as a post-graduate degree in
Administration from Instituto Maua de Tecnologia/Sao Paulo.

         Antonio Jose Ribeiro dos Santos was appointed Vice-President of
Business Development in March 1999. Mr. Santos is also the Vice President of
Business Development of Telemig Celular Participacoes S.A. Mr. Santos, with 28
years experience in the Brazilian telecommunications industry, joined the
company's management team from Telebrasilia S.A., a recently privatized
telephone company in Brasilia where he headed the engineering department. At
Telebrasilia, he was responsible for projects such as the implementation and
expansion of cellular lines. Mr. dos Santos worked for the first private
cellular company in Brazil, Americel, as the head of the Strategic Planning
Directory and for the B-Band cellular company in the State of Rio Grande do Sul,
Telet S.A., where he was an Executive Vice-President. He also is a part-time
professor at Brasilia University in the Department of Electric Engineering. Mr.
dos Santos graduated from the University of Brasilia and holds a degree in
Electric Engineering.

         Benoit Bellerose has been the Director of Mergers and Acquisitions of
the Registrant since March 2000. Mr. Bellerose was the Corporate Comptroller of
the Registrant from January 1999 to March 2000. Mr. Bellerose is also the
Director of Mergers and Acquisitions of Telemig Celular Participacoes S.A. Prior
to joining the Registrant, Mr. Bellerose was the assistant controller at
Telesystem International Wireless Inc. Before 1997 Mr. Bellerose was a principal
at Ernst & Young in Canada. Mr. Bellerose holds a bachelor's degree in Business
Administration from the Universite du Quebec a Trois-Rivieres, Canada, and is a
member of the Canadian Institute of Chartered Accountants.

         Joao Alberto Santos has been the Comptroller of the Registrant since
April 2000. Mr. Santos is also the Comptroller of Telemig Celular Participacoes
S.A. Prior to joining the Registrant, Mr. Santos had been the Chief Financial
Officer of the five operating companies of Tele Norte Participacoes S/A (namely
Telemazon Cellar S/A, Telepara Celular S/A, Telma Celular S/A, Telaima Celular
S/A and Teleamapa Celular S/A) since their privatization in 1998. Mr. Santos's
previous experience includes fifteen years at Valvulas Schrader do Brazil S/A,
where he worked at various managerial levels in the company's financial
operations. In addition, Mr. Santos worked for several years in the cocoa and
coffee export business and in the tropical fruit juice manufacturing industry.
Mr. Santos is a graduate of the State University of Feira de Santana, in Bahia,
and has completed post graduate studies at the Getulio Vargas Foundation in Sao
Paulo.

         Alexandre S. D'Ambrosio has been the General Counsel of the Registrant
since August 1999. Mr. D'Ambrosio is also the General Counsel of Telemig Celular
Participacoes S.A. For three years prior to joining the Registrant, Mr.
D'Ambrosio had been Deputy General Counsel for Odebrecht Servicos de
Infra-Estrutura (OSI) and in-house counsel for Companhia Brasileira de Projetos
e Obras - CBPO (both members of the Odebrecht group of companies) in Sao Paulo,
Brazil. Mr. D'Ambrosio's previous experience includes over ten years practicing
law in Washington, DC and in New York City from 1986 through 1996. He holds a
law degree from the University of Sao Paulo Law School, in Brazil, a Masters
degree from Harvard Law School, in Cambridge, MA, and a Masters in Comparative
Law degree from the National Law Center of George Washington University, in
Washington, DC. Mr. D'Ambrosio also teaches Commercial Law at the Instituto de
Estudos Superiores de Brasilia - IESB.

ITEM 11.      COMPENSATION OF DIRECTORS AND OFFICERS

         For the year ended December 31, 1999, the aggregate amount of
compensation paid by us to all directors and executive officers as a group was
approximately R$1.1 million.


                                       41
<PAGE>   45
         For the year ended December 31, 1999, we did not set aside or accrue
monies to provide pension, retirement or similar benefits for officers and
directors.

ITEM 12.      OPTIONS TO PURCHASE SECURITIES FROM REGISTRANT OR SUBSIDIARIES

         On April 10, 2000, our shareholders approved the introduction of an
employee stock option plan. However, the terms of this plan have not yet been
determined.

ITEM 13.      INTEREST OF MANAGEMENT IN CERTAIN TRANSACTIONS

         Telesystem International Wireless, Inc., the parent company of the 49%
owner of Telpart S.A., our controlling shareholder, has been providing us with
technical assistance and services. We paid R$3.7 million and R$13.9 million for
1998 and 1999, respectively. See Note 10 to the consolidated financial
statements.

         We are a member of a national roaming committee of cellular operators,
which includes our affiliate, Telemig Celular Participacoes S.A. The purpose of
the committee is to oversee technical and system aspects to ensure the highest
quality of roaming service. As required by Brazilian regulation, Telemig and
ourselves facilitate roaming to our respective subscribers.

         In order to maximize efficiency in resource allocation between Telemig
Celular Participacoes S.A. and Tele Norte Celular Participacoes S.A., the two
companies have entered into a cost sharing agreement, pursuant to which certain
costs that are incurred for the benefit of both companies and their subsidiaries
are allocated to each company, based on criteria designed to reflect the actual
amount of use by each company (measured by time sheets, number of customers, or
estimated costs, as the case may be). The costs that are allocated under this
cost sharing agreement refer primarily to personnel, marketing and outside
consulting fees.


                                     PART II

ITEM 14.      DESCRIPTION OF SECURITIES TO BE REGISTERED

         None.


                                    PART III

ITEM 15.      DEFAULT UPON SENIOR SECURITIES

         Not applicable.

ITEM 16.      CHANGES IN SECURITIES, CHANGES IN SECURITY FOR REGISTERED
              SECURITIES AND USE OF PROCEEDS

         None.


                                     PART IV

ITEM 17.      FINANCIAL STATEMENTS

         The Registrant has responded to Item 18 in lieu of responding to this
Item.

ITEM 18.      FINANCIAL STATEMENTS

         Reference is made to pages F-1 through F-25

ITEM 19.      FINANCIAL STATEMENTS AND EXHIBITS

<TABLE>
<CAPTION>
                                                                                                               PAGE
                                                                                                               ----
<S>                                                                                                           <C>
         (a)      The following consolidated financial statements are filed as
part of this Form 20-F:

         Report of Independent Auditors.........................................................................F-1
         Consolidated Balance Sheets............................................................................F-3
</TABLE>


                                       42
<PAGE>   46
<TABLE>
<S>                                                                                                             <C>
         Consolidated Statements of Operations and Comprehensive Income.........................................F-4
         Consolidated Statements of Cash Flows..................................................................F-5
         Consolidated Statements of Net Interdivisional Cash Distribution (Receipt).............................F-6
         Consolidated Statements of Changes in Shareholders' Equity.............................................F-7
         Notes to Consolidated Financial Statements.............................................................F-8

         (b)List of Exhibits

         None.
</TABLE>


                                       43
<PAGE>   47
                         REPORT OF INDEPENDENT AUDITORS



To the Board of Directors and Shareholders
TELE NORTE CELULAR PARTICIPACOES S.A.

We have audited the accompanying consolidated balance sheets of TELE NORTE
CELULAR PARTICIPACOES S.A. as of December 31, 1999 and 1998, and the related
consolidated statements of operations and comprehensive income, changes in
shareholders' equity, and cash flows for the years then ended. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.

We conducted our audits in accordance with generally accepted auditing standards
in the United States. Those standards require that we plan and perform the
audits to obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.

In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of TELE NORTE CELULAR
PARTICIPACOES S.A. at December 31, 1999 and 1998, and the consolidated results
of its operations and its cash flows for the years then ended, in conformity
with accounting principles generally accepted in the United States.



Brasilia, Brazil
January 31, 2000

Ernst & Young Auditores Independentes S.C.

                                      F-1
<PAGE>   48
                          INDEPENDENT AUDITORS' REPORT

The Board of Directors and Shareholders
Tele Norte Celular Participacoes S.A.
Brasilia - DF

We have audited the accompanying consolidated statements of operations and
comprehensive income, net interdivisional cash distribution (receipt) and
changes in shareholders' equity of Tele Norte Celular Participacoes S.A. for the
year ended December 31, 1997. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.

We conducted our audits in accordance with generally accepted auditing standards
in Brazil, which do not differ in any material respects from generally accepted
auditing standards in the United States of America. Those standards require that
we plan and perform the audit to obtain reasonable assurance about whether the
consolidated financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting amounts and disclosures
in the consolidated financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well
as evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.

The accompanying consolidated financial statements, referred to above, have been
prepared in accordance with generally accepted accounting principles in the
United States of America and on the basis set out in Note 2 to the consolidated
financial statements. Accordingly, interest income, unallocated interest
expense, income tax expense and the related assets and liabilities are not
included in the consolidated financial statements.

In our opinion, the consolidated financial statements present fairly, in all
material respects, the results of operations and cash flows of Tele Norte
Celular Participacoes S.A. for the year ended December 31, 1997, in conformity
with accounting principles generally accepted in the United States.


KPMG  Auditores Independentes
July 17, 1998
Brasilia, Brazil

                                       F-2
<PAGE>   49
                      TELE NORTE CELULAR PARTICIPACOES S.A.

                           CONSOLIDATED BALANCE SHEETS
                Amounts are in thousands of Brazilian Reais - R$

<TABLE>
<CAPTION>
                                                                                                DECEMBER 31,
                                                                                        --------------------------------
                                                                                            1999             1998
                                                                                        --------------------------------
<S>                                                                                         <C>              <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents                                                                      69,233           79,733
Trade receivables, net of allowance for doubtful accounts of R$27,210 and R$ 18,220            87,137           30,092
Other receivables                                                                                  --           13,940
Income tax receivable                                                                           9,316               --
Deferred income taxes                                                                          11,329           16,472
Other current assets                                                                           19,341            4,988
                                                                                        --------------------------------
                                                                                              196,356          145,225
                                                                                        --------------------------------

Property, plant and equipment, net                                                            307,995          207,340
Deferred income taxes                                                                          64,810            3,929
Other non current assets                                                                          519            2,230
                                                                                        ================================
                                                                                              569,680          358,724
                                                                                        ================================

LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable                                                                               58,683            4,542
Accrued liabilities                                                                             3,493           10,813
Value added and other taxes payable                                                            10,680            8,838
Income taxes payable                                                                                -           12,188
Short-term debt                                                                                36,942                -
Current portion of long term debt                                                              11,614           13,226
Deferred activation fees                                                                        1,735            5,266
Other current liabilities                                                                      29,996           11,698
                                                                                        --------------------------------
                                                                                              153,143           66,571
                                                                                        --------------------------------

Long term debt                                                                                 77,514           25,977
Pension plan obligation                                                                         6,300                -
Provision for contingencies                                                                    10,042            9,043
Minority interest                                                                              70,375           67,281
                                                                                        --------------------------------
                                                                                              164,231          102,301
                                                                                        --------------------------------

SHAREHOLDERS' EQUITY:
Preferred shares, no par value, issued and outstanding 210,029,997 thousand shares             36,266           36,266
Common shares, no par value, issued and outstanding 124,369,031 thousand shares                21,483           21,483
Other capital and reserves                                                                    151,436          102,618
Retained earnings                                                                              43,121           29,485
                                                                                        --------------------------------

                                                                                              252,306          189,852
                                                                                        --------------------------------
                                                                                              569,680          358,724
                                                                                        ================================
</TABLE>

See the accompanying notes to the consolidated financial statements.

                                      F-3
<PAGE>   50
                      TELE NORTE CELULAR PARTICIPACOES S.A.

                      CONSOLIDATED STATEMENTS OF OPERATIONS
                            AND COMPREHENSIVE INCOME
                       Amounts are in Brazilian Reais - R$

<TABLE>
<CAPTION>
                                                                              YEAR ENDED DECEMBER 31,
                                                             -----------------------------------------------------------
                                                                   1999                1998                1997
                                                             -----------------------------------------------------------
                                                             (THOUSANDS OF R$    (THOUSANDS OF R$    (THOUSANDS OF R$
                                                             ACTUAL - NOTE 2)    ACTUAL - NOTE 2)     CONSTANT - NOTE 2)
<S>                                                          <C>                 <C>                  <C>
Revenues:
   Services provided to third parties                                  275,323             206,629             175,833
   Services provided to related parties                                     --              25,926              43,483
   Sales of handsets                                                    33,523                  --                  --
                                                             -----------------------------------------------------------
                                                                       308,846             232,555             219,316
                                                             -----------------------------------------------------------

Cost of services:
   Provided by related parties                                              --              29,004              45,684
   Provided by others                                                  113,872              38,540               5,027
Cost of handsets                                                        36,927                  --                  --
Selling, general and administrative expenses                            90,626              51,913              36,072
Pension plan expense                                                     6,300                  --                  --
Bad debt expense                                                        28,084              38,428              12,333
Other net operating income                                                (710)             (1,688)              1,473
Impairment of long-lived assets                                             --              18,448                  --
                                                             -----------------------------------------------------------
Operating income                                                        33,747              57,910             118,727

Interest income                                                        (20,963)             (8,591)
Interest expense                                                         6,016               4,047                  --
Foreign exchange (gain) loss                                            12,394               2,472              (1,058)
Allocated interest expense                                                  --                  --                 791
Net non-operating loss                                                      --                  --                 979
                                                             -----------------------------------------------------------
Income before minority interest, unallocated interest
    expense and taxes                                                   36,300              59,982             118,015
Minority interest before unallocated interest expense and                   --                  --              33,483
    taxes
                                                             -----------------------------------------------------------
Income before unallocated interest expense and taxes                    36,300              59,982              84,532
                                                             -----------------------------------------------------------
Income taxes                                                             8,347              16,897
Minority interest                                                        8,570              11,553
                                                             -----------------------------------------------------------
Net income and comprehensive income                                     19,383               31,532
                                                             ===========================================================
Basic and diluted earnings, in Reais per thousand common
    shares                                                                0.06                0.09
                                                             ===========================================================
</TABLE>

See the accompanying notes to the consolidated financial statements

                                      F-4
<PAGE>   51
                      TELE NORTE CELULAR PARTICIPACOES S.A.

                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                Amounts are in thousands of Brazilian Reais - R$

<TABLE>
<CAPTION>
                                                                                        YEAR ENDED          YEAR ENDED
                                                                                       DECEMBER 31,        DECEMBER 31,
                                                                                           1999                1998
                                                                                 ---------------------------------------
<S>                                                                                <C>                 <C>
Operating activities:
Net income                                                                                  19,383              31,532
Adjustments to reconcile net income to net cash provided by operating
activities:
   Depreciation                                                                             50,382              20,266
   Deferred income taxes                                                                    (6,920)            (24,428)
   Minority interest                                                                         8,570              11,553
   Unrealized foreign exchange loss on long-term debt                                       10,702               1,700
   Pension provision                                                                         6,300                   -
   Provision for contingencies                                                                 999               9,030
   Impairment of long-lived assets                                                               -              18,448
   Compensation expense                                                                          -               1,200
Changes in operating assets and liabilities:
   Trade receivables                                                                       (43,105)              9,611
   Accounts payable and accrued liabilities                                                 46,821               4,864
   Accounts payable related to property, plant and equipment                                     -             (14,121)
   Value added and other taxes payable                                                       1,842               6,867
   Income taxes payable                                                                    (21,504)             12,188
   Deferred activation fees                                                                 (3,531)              5,266
   Others                                                                                      180              (9,185)
                                                                                 ---------------------------------------
Net cash provided by operating activities                                                   70,119              84,791
                                                                                 ---------------------------------------

Investing activities:
   Proceeds from sales of property, plant and equipment                                          -               2,348
   Additions to property, plant and equipment                                             (151,037)            (31,672)
                                                                                 ---------------------------------------
Net cash used in investing activities                                                     (151,037)            (29,324)
                                                                                 ---------------------------------------

Financing activities:
   Increase in short-term debt                                                              46,342                   -
   Increase in long-term debt                                                               63,372              21,971
   Repayment of short-term debt                                                             (9,400)                  -
   Repayment of long-term debt                                                             (24,149)             (8,525)
   Dividends                                                                                (5,747)                  -
   Contribution upon Spin-Off                                                                    -               1,975
                                                                                 ---------------------------------------
Net cash provided by financing activities                                                   70,418              15,421
                                                                                 ---------------------------------------

Increase in cash and cash equivalents for the year                                         (10,500)             70,888
Cash and cash equivalents, beginning of the year                                            79,733               8,845
                                                                                 =======================================
Cash and cash equivalents, end of the year                                                  69,233              79,733
                                                                                 =======================================

Supplemental cash flow information:
   Income taxes paid                                                                        24,520              29,229
   Interest paid                                                                             3,945               2,343
</TABLE>

See the accompanying notes to the consolidated financial statements.

                                      F-5
<PAGE>   52
                      TELE NORTE CELULAR PARTICIPACOES S.A.

                          CONSOLIDATED STATEMENT OF NET
                   INTERDIVISIONAL CASH DISTRIBUTION (RECEIPT)
                       Amounts are in Brazilian Reais - R$

<TABLE>
<CAPTION>
                                                                         YEAR ENDED
                                                                        DECEMBER 31,
                                                                            1997
                                                                    ----------------------
                                                                      (THOUSANDS OF R$
                                                                     CONSTANT - NOTE 2)
<S>                                                                 <C>
Operating activities:
Income before unallocated interest expense and taxes                              84,532
Adjustments to reconcile to cash provided by
   operating activities:
   Depreciation                                                                   12,296
   Minority interest in income before unallocated
      interest expense and taxes                                                  33,483
   Trade receivables                                                             (10,672)
   Other current assets                                                             (206)
   Account payable and accrued liabilities                                         3,373
   Value added and other taxes payable                                            (2,412)
   Other current liabilities                                                         443
                                                                    ----------------------
                                                                                 120,837
                                                                    ----------------------

Investing activities:
   Additions to property, plant and equipment                                    (51,768)
   Proceeds from disposal of property, plant and equipment                            26
                                                                    ----------------------
                                                                                 (51,742)
                                                                    ----------------------

Financing activities:
   Increase in long-term debt                                                     25,925
   Repayment of long-term debt                                                   (14,496)
                                                                    ----------------------
                                                                                  11,429
                                                                    ----------------------

Increase in cash and cash equivalents                                             80,524
Cash and cash equivalents, beginning of the year                                       -
Cash and cash equivalents, end of the year                                        (8,845)
                                                                    ======================
                                                                                  71,679
                                                                    ======================

Supplemental cash distribution information:
    Interest paid                                                                  7,108
                                                                    ======================
</TABLE>

See the accompanying notes to the consolidated financial statements.

                                      F-6
<PAGE>   53
                      TELE NORTE CELULAR PARTICIPACOES S.A.

           CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
      Amounts are in thousands of actual Brazilian Reais - R$ for the years
 ended December 31, 1999 and 1998 and in thousands of constant Brazilian Reais -
                    R$ for the year ended December 31, 1997.



<TABLE>
<CAPTION>
                                                        Divisional         Preferred        Common shares
                                                          equity            shares
                                                      -----------------------------------------------------
<S>                                                     <C>                <C>              <C>
BALANCE AT DECEMBER 31, 1996                                   137,315                 -                  -
                                                      -----------------------------------------------------
Income before unallocated interest expense and
taxes                                                           84,532                 -                  -
Deferred taxes                                                    (596)                -                  -
Net interdivisional cash distribution                          (71,679)                -                  -
Minority interest effects other than on income                   7,620                 -                  -
                                                      -----------------------------------------------------
BALANCE AT DECEMBER 31, 1997                                   157,192                 -                  -
                                                      -----------------------------------------------------
Contributed capital from the Spin-Off                            1,975                 -                  -
Allocation of divisional equity as a result of
Spin-Off                                                      (159,167)           36,266             21,483
Contributed capital                                                  -                 -                  -
Interest on capital                                                  -                 -                  -
Net income                                                           -                 -                  -
                                                      -----------------------------------------------------
BALANCE AT DECEMBER 31, 1998                                         -            36,266             21,483
                                                      -----------------------------------------------------
Paid in capital - non cash                                           -                 -                  -
Net income                                                           -                 -                  -
Dividends                                                            -                 -                  -
Interest on capital                                                  -                 -                  -
                                                      =====================================================
BALANCE AT DECEMBER 31, 1999                                         -            36,266             21,483
                                                      =====================================================
</TABLE>

<TABLE>
<CAPTION>
                                                        Capital          Retained             Total
                                                       reserves          earnings
                                                      ----------------------------------------------------
<S>                                                    <C>               <C>                  <C>
BALANCE AT DECEMBER 31, 1996                                       -                 -            137,315
                                                      ----------------------------------------------------
Income before unallocated interest expense and
taxes                                                              -                 -             84,532
Deferred taxes                                                     -                 -               (596)
Net interdivisional cash distribution                              -                 -            (71,679)
Minority interest effects other than on income                     -                 -              7,620
                                                      ----------------------------------------------------
BALANCE AT DECEMBER 31, 1997                                       -                 -            157,192
                                                      ----------------------------------------------------
Contributed capital from the Spin-Off                              -                 -              1,975
Allocation of divisional equity as a result of
Spin-Off                                                     101,418                 -                  -
Contributed capital                                            1,200                 -              1,200
Interest on capital                                                -            (2,047)            (2,047)
Net income                                                         -            31,532             31,532
                                                      ----------------------------------------------------
BALANCE AT DECEMBER 31, 1998                                 102,618            29,485            189,852
                                                      ----------------------------------------------------
Paid in capital - non cash                                    48,818                 -             48,818
Net income                                                         -            19,383             19,383
Dividends                                                          -            (1,724)            (1,724)
Interest on capital                                                -            (4,023)            (4,023)
                                                      ====================================================
BALANCE AT DECEMBER 31, 1999                                 151,436            43,121            252,306
                                                      ====================================================
</TABLE>

See the accompanying notes to the consolidated financial statements

                                      F-7
<PAGE>   54
                      TELE NORTE CELULAR PARTICIPACOES S.A.

                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
                          Amounts are in thousands of
                          actual Brazilian Reais - R$
       for the years ended December 31, 1999 and 1998 and in thousands of
                   constant Brazilian Reais - R$ for the year
                            ended December 31, 1997.



     1.  BACKGROUND AND DESCRIPTION OF BUSINESS

      Beginning in 1995, the federal government of Brazil (the "Federal
      Government") undertook a comprehensive reform of the Brazilian regulation
      of the telecommunications industry. In July 1997, the Federal Congress
      adopted a General Telecommunications Law providing for the privatization
      of Telecomunicacoes Brasileiras S.A. ("Telebras") which, through its 28
      operating subsidiaries, was the primary supplier of public
      telecommunications services in Brazil ("Telebras System").

      In preparation for the privatization of the Telebras system, the operating
      subsidiaries were divided into twelve separate groups, (a) three regional
      fixed line operators, (b) eight regional cellular operators and (c) one
      national long-distance operator. The cellular telecommunications
      businesses were first separated from the operating subsidiaries, and
      subsequently the fixed line businesses, the new cellular businesses and
      the long-distance operator were combined into twelve separate groups (the
      "New Holding Companies", individually, "New Holding Company"). Both the
      separation of the cellular businesses and the subsequent grouping of the
      former Telebras subsidiaries were performed using a procedure under
      Brazilian corporate law called cisao (Spin-Off). As part of this process
      Tele Norte Celular Participacoes S.A. was formed on May 22, 1998, through
      the Spin-Off of certain assets and liabilities of Telebras, including
      80.3%, 86.9%, 90.6%, 69% and 66.8% of the share capital of Telamazon
      Celular S.A., Telaima Celular S.A., Teleamapa Celular S.A., Telepara
      Celular S.A. and Telma Celular S.A. (together the "subsidiaries"),
      respectively.

      Telamazon Celular S.A., Telaima Celular S.A., Teleamapa Celular S.A.,
      Telepara Celular S.A. and Telma Celular S.A. were formed on January 5,
      1998 and subsequently received on January 30, 1998 from Telecomunicacoes
      do Amazonas S.A. ("Telamazon"), Telecomunicacoes de Roraima S.A.
      ("Telaima"), Telecomunicacoes do Amapa S.A. ("Teleamapa"),
      Telecomunicacoes do Para S.A. ("Telepara") and Telecomunicacoes do
      Maranhao S.A. ("Telma") the assets and liabilities comprising their
      respective cellular telecommunications services (together the "predecessor
      companies"). Tele Norte Celular Participacoes S.A. and its subsidiaries
      (together the "Company") are the primary suppliers of cellular
      telecommunications services in the states of Amazonas, Roraima, Amapa,
      Para and Maranhao under the terms of concessions granted by the Federal
      Government on October 23, 1997 (the "Concessions"). The Concessions will
      expire in 2009 and may be renewed at the discretion of Agencia Nacional de
      Telecomunicacoes ("Anatel"), the regulatory authority for the Brazilian
      telecommunications industry, for a further term of 15 years. Through their
      predecessors Telamazon, Telaima, Teleamapa, Telepara and Telma, the
      Company has provided cellular telecommunications services in the states of
      Amazonas, Roraima, Amapa, Para and Maranhao since April 1994.

      On July 29, 1998, the Federal Government sold to twelve buyers (the "New
      Controlling Shareholders") its rights to receive shares of the twelve New
      Holding Companies upon the distribution of such shares. In connection with
      this sale, the Federal Government assigned to the New Controlling
      Shareholders, effective August 4, 1998, substantially all its economic and
      voting rights with respect to the New Holding Companies.

      The Company's business, including the services it may provide and the
      rates it charges, is regulated by Anatel and is fully dependent upon the
      cellular telecommunications concession granted by the Federal Government.

      The Company will be required to make significant capital and operating
      expenditures on an ongoing basis in order to deploy its cellular
      telecommunications network, which will require the Company to seek
      additional financing. Some of these investments may be financed through
      debt denominated in foreign currencies. A significant


                                      F-8
<PAGE>   55
                      TELE NORTE CELULAR PARTICIPACOES S.A.

           NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - Continued
                          Figures are in thousands of
                          actual Brazilian Reais - R$
       for the year ended December 31, 1998 and 1999 and in thousands of
                   constant Brazilian Reais - R$ for the year
                            ended December 31, 1997.



      devaluation and a return to high levels of inflation could have an adverse
      effect on the Brazilian economy, and, as a result, it could affect the
      Company's financial position, cash flows or results of operations.

      2. PRESENTATION OF THE FINANCIAL STATEMENTS

      These consolidated financial statements have been prepared in accordance
      with accounting principles generally accepted in the United States and
      rules and regulations adopted by the United States Securities and Exchange
      Commission. Certain of the comparative figures have been reclassified to
      conform to the presentation adopted in the current year.

      The Company has also published consolidated financial statements prepared
      in accordance with accounting principles generally accepted in Brazil and
      rules and regulations adopted by the Brazilian Securities Commission
      ("CVM").

         a)       Basis of presentation prior to December 31, 1997

         The Spin-Off of the cellular telecommunications businesses of
         Telamazon, Telaima, Teleamapa, Telepara and Telma to the Company was
         accounted for as a reorganization of entities under common control in a
         manner similar to a pooling of interests. The assets and liabilities of
         the cellular telecommunications businesses of Telamazon, Telaima,
         Teleamapa, Telepara and Telma were transferred to the Company at their
         indexed historical costs. The revenues and expenses associated with
         such assets and liabilities were allocated to the Company. Separate
         records of revenues and costs of services of the cellular
         telecommunications businesses were maintained historically.
         Accordingly, the actual amounts were allocated for the 1996 and 1997
         fiscal years.

         The consolidated statements of operations and of net interdivisional
         cash distribution (receipt) have been prepared to include the
         historical activity related to the assets and liabilities transferred.
         The consolidated financial statements are not necessarily indicative of
         what would have been the financial condition and revenues and expenses
         of the Company as of December 31, 1997 had the cellular
         telecommunications businesses of Telamazon, Telaima, Teleamapa,
         Telepara and Telma been separate legal entities during such period.

         With respect to costs (other than costs of services), the methodologies
         employed in transferring the assets and liabilities included the
         specific identification of costs associated with those assets and
         liabilities, and the allocation of costs where specific identification
         was not possible. Allocations were made using criteria established by
         management that were designed to ensure that all relevant costs were
         appropriately included in the consolidated statements of operations for
         the periods presented. Those allocation criteria included: square
         footage (in relation to land and building related expenses), number of
         terminals (in relation to general management, accounting, data
         processing, legal department and other general staff functions), number
         of employees (in relation to the human resources department), number of
         requisitions issued (in relation to office material costs) and miles
         driven (in relation to certain transportation costs). Management
         believes that the amounts included in the consolidated statements of
         operations for the year ended December 31, 1997 fairly reflect the
         income before interest income, unallocated interest expense and taxes
         of the cellular telecommunications businesses of Telamazon, Telaima,
         Teleamapa, Telepara and Telma.


                                      F-9
<PAGE>   56
                      TELE NORTE CELULAR PARTICIPACOES S.A.

           NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - Continued
                          Figures are in thousands of
                          actual Brazilian Reais - R$
       for the years ended December 31, 1998 and 1999 and in thousands of
                   constant Brazilian Reais - R$ for the year
                            ended December 31, 1997.



2.    PRESENTATION OF THE FINANCIAL STATEMENTS--Continued

      a) Basis of presentation prior to December 31, 1997--Continued

         Prior to December 31, 1997, cash and certain non-specific debt could
         not be segregated from Telamazon, Telaima, Teleamapa, Telepara and
         Telma. Accordingly, these amounts have not been included in the
         accompanying consolidated financial statements. Additionally, interest
         income and unallocated interest expense relating to the cellular
         telecommunications businesses could not be identified. Consequently,
         income tax expense and related liabilities do not appear in the
         consolidated statement of operations for 1997. The portion of
         consolidated equity and income before interest income, unallocated
         interest expense and taxes attributable to shareholders other than
         Telebras at December 31, 1997, and for the year then ended is reflected
         as "minority interest" in the consolidated financial statements. At
         December 31, 1997, such minority shareholders owned 19.74%, 13.09%,
         9.36%, 30.96% and 33.21% of the share capital of Telamazon, Telaima,
         Teleamapa, Telepara and Telma, respectively. All taxes payable at
         December 31, 1997, related to revenues (ICMS, PASEP, COFINS) remained
         with the predecessor companies when the assets and liabilities of the
         cellular telecommunications businesses were transferred to the
         subsidiaries. The legal responsibility for their payment remained with
         the predecessor companies.

         Because it was not possible to segregate the cash balances for the
         cellular telecommunications businesses prior to December 31, 1997, a
         traditional statement of cash flows could not be prepared for the year
         ended December 31, 1997. In lieu of detailing the beginning and ending
         cash and cash equivalents balances, and the net change in cash and cash
         equivalents between years, the net cash transferred to/from the fixed
         line telecommunications businesses of Telamazon, Telaima, Teleamapa,
         Telepara and Telma has been presented as "Net interdivisional cash
         distribution (receipt)" in the statement of net interdivisional cash
         distribution (receipt).

         Since the Company's subsidiaries did not exist prior to January 1,
         1998, no individual capital structure was maintained. Consequently, the
         net assets contributed were shown as "divisional equity" in the
         consolidated statement of changes in shareholders' equity for each of
         the years in the two-year period ended December 31, 1997.

         Earnings per share has not been presented for the year ended December
         31, 1997, as the consolidated statement of operations exclude interest
         income, unallocated interest expense and taxes, as a result of
         nonspecific cash and debt not being allocated from Telamazon, Telaima,
         Teleamapa, Telepara and Telma.

         Full indexation to December 31, 1997

         The consolidated financial statements as of and for the years prior to
         December 31, 1997 were prepared on a fully indexed basis to recognize
         the effects of changes in the purchasing power of the Brazilian
         currency during the periods presented.


                                      F-10
<PAGE>   57
                      TELE NORTE CELULAR PARTICIPACOES S.A.

           NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - Continued
                          Figures are in thousands of
                          actual Brazilian Reais - R$
       for the year ended December 31, 1998 and 1999 and in thousands of
                   constant Brazilian Reais - R$ for the year
                            ended December 31, 1997.



2.     PRESENTATION OF THE FINANCIAL STATEMENTS--Continued

      a) Basis of presentation prior to December 31, 1997--Continued

         Full indexation to December 31, 1997--Continued

         i. Inflation restatement index

         The consolidated financial statements were indexed and expressed in
         currency of constant purchasing power of December 31, 1997 by using the
         Indice Geral de Precos-Mercado [the General Prices Index-Market or the
         "IGP-M" of the Fundacao Getulio Vargas in 1997. Inflation for the year
         ended December 31, 1997, as measured by the IGP-M, was 7.7%.

         Management believes that this index is an appropriate indication of
         general price-level inflation to be used for the years indicated.

         The effects of price-level adjustments and the monetary gains and
         losses associated with the indexation have not been eliminated in these
         financial statements, because the application of inflation restatement
         as measured by the IGP-M represents a comprehensive measure of the
         effects of price-level changes in the Brazilian economy and, as such,
         is considered a more meaningful presentation than historical cost-based
         financial reporting.

         In July 1997, the three-year cumulative inflation rate for Brazil fell
         below 100%. However, for accounting purposes, the constant currency
         method continued to be applied through December 31, 1997. The restated
         balances of non-monetary assets and liabilities of the Company as of
         December 31, 1997 were used as the opening balances on January 1, 1998
         and are no longer restated for inflation beginning January 1, 1998.


                                      F-11
<PAGE>   58

                      TELE NORTE CELULAR PARTICIPACOES S.A.

            NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--Continued
            Figures are in thousands of actual Brazilian Reais - R$
        for the year ended December 31, 1998 and 1999 and in thousands of
                   constant Brazilian Reais - R$ for the year
                            ended December 31, 1997.


2.     PRESENTATION OF THE FINANCIAL STATEMENTS--Continued

      a) Basis of presentation prior to December 31, 1997--Continued

         Full indexation to December 31, 1997--Continued

         ii. Consolidated statements of operations

         Items in the consolidated statements of operations for the year ended
December 31, 1997 are adjusted by:

         o    allocating inflationary holding gains or losses on interest
              bearing monetary assets and liabilities to their corresponding
              interest income and expense captions;

         o    allocating inflationary holding gains and losses from other
              monetary items to their corresponding income or expense captions.
              Amounts without a corresponding income or expense caption were
              allocated to "Other net operating (income) expense."

         iii. Deferred income tax effects of indexation adjustments in 1997

         As a result of legislation mandating the discontinuation of the
         indexation system from January 1, 1996, the indexation of assets and
         liabilities is not permitted for tax purposes. Accordingly, a deferred
         tax liability arises for the excess of net assets shown for financial
         reporting purposes over the tax basis of these net assets. The charge
         relating to this deferred tax liability of R$4,091 in 1997 was recorded
         directly against divisional equity.

      b) Basis of presentation subsequent to December 31, 1997

         On May 22, 1998, the shareholders of Telebras approved the Spin-Off,
         whereby existing shareholders received shares in the New Holding
         Companies in proportion to their holdings in Telebras. The New Holding
         Companies contain the assets and liabilities previously recorded in the
         accounts of Telebras, with limited exceptions.

                                      F-12
<PAGE>   59
                      TELE NORTE CELULAR PARTICIPACOES S.A.

            NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--Continued
            Figures are in thousands of actual Brazilian Reais - R$
        for the year ended December 31, 1998 and 1999 and in thousands of
                   constant Brazilian Reais - R$ for the year
                            ended December 31, 1997.

2.     Presentation of the Financial Statements--CONTINUED

      b) Basis of presentation subsequent to December 31, 1997--Continued

         The shareholders also approved a specific structure for the
         shareholders' equity of each New Holding Company, which included an
         allocation of a portion of the retained earnings of Telebras. This
         value of allocated retained earnings does not represent the historical
         retained earnings of the New Holding Companies and therefore is
         presented as "Capital Reserves" on the consolidated statements of
         changes in shareholders' equity. The net assets which were spun-off
         from Telebras, in addition to its investment in the operating
         subsidiaries, resulted in a net equity increase of R$1,975 in relation
         to the Company's historical divisional equity.

         Upon formation, the Company's legal capital structure was defined by
         the resolutions approved by the Telebras shareholders' meeting of May
         22, 1998. The value of shareholders' equity of R$167,283 includes
         capital reserves of R$46,789.

         The Company's legal capital and reserves and future retained earnings
         computed using Brazilian GAAP will be the basis from which future
         dividends will be payable.

         Brazilian corporate and tax law allows state controlled companies that
         are participating in the government's privatization program a
         three-month delay between the accounting base date for a Spin-Off and
         the date on which the shareholders' meeting approves the Spin-Off,
         including the related accounting basis for the net assets spun off. As
         a result, the consolidated financial statements of the Company include
         the results of operations and changes in financial condition of the
         subsidiaries from January 1, 1998 and the effects of the cash allocated
         from Telebras as of March 1, 1998.

3.     SUMMARY OF ACCOUNTING POLICIES

      The summary of significant accounting policies is as follows:

      a) Consolidation

         The consolidated financial statements of the Company for the year ended
         December 31, 1999 include the accounts of the Company and its
         subsidiaries. All significant intercompany transactions and balances
         have been eliminated.

      b) Cash equivalents

         Cash equivalents consist of highly liquid investments with original
         maturities of three months or less at the time of purchase.

      c) Foreign currency transactions

         Transactions in foreign currency are recorded at the prevailing
         exchange rate at the time of the related transactions. Foreign currency
         denominated monetary assets and liabilities are translated using the
         exchange

                                      F-13
<PAGE>   60
                      TELE NORTE CELULAR PARTICIPACOES S.A.

            NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--Continued
            Figures are in thousands of actual Brazilian Reais - R$
        for the year ended December 31, 1998 and 1999 and in thousands of
                   constant Brazilian Reais - R$ for the year
                            ended December 31, 1997.


         rate at the balance sheet date. Exchange differences are recognized in
         the statements of operations as they occur.

3.     SUMMARY OF ACCOUNTING POLICIES--Continued

      d) Property, plant and equipment

         Property, plant and equipment are stated at indexed cost through
         December 31, 1997 and at cost thereafter. Depreciation is provided
         using the straight-line method based on the estimated useful lives of
         the underlying assets as follows:

<TABLE>
<CAPTION>
                                             Years
                                      ---------------------
<S>                                   <C>
         Buildings                             20
         Network equipment                     8
         Other equipment                     4 to 5
</TABLE>

         Interest incurred on borrowings is capitalized as part of property,
         plant and equipment until the asset is placed in service, to the extent
         that borrowings do not exceed construction-in-progress. The amount of
         interest capitalized excludes the inflationary element in local
         currency borrowings and the foreign exchange gains and losses on
         foreign currency borrowings.

         The Company reviews property, plant and equipment for impairment
         whenever events or changes in circumstances indicate that the carrying
         amount may not be recoverable.

         In December 1998, to comply with industry practice, the Company reduced
         the estimated useful lives of certain of its assets as follows: network
         equipment from 10 to 13 years to 8 years, buildings from 25 years to 20
         years and other equipment from 5 to 20 years to 4 to 5 years. The
         Company believes that the estimated useful lives used by the industry
         better reflect the period of the economic benefits to be received from
         the assets. The effect of this change was an increase in depreciation
         expense of R$12,500 for the year ended December 31, 1999.

      e) Revenue recognition

         Revenues for services are recognized when the service is provided.
         Revenues from cellular telephone services consist of subscription
         charges, usage charges, activation fees, network usage charges and
         charges for maintenance and other customer services. Unbilled revenues
         from the billing date to the month-end are estimated and recognized as
         revenue during the month in which the service was provided. Effective
         January 1, 1998, the Company defers net activation fees. These fees are
         amortized over twelve months, the estimated effective contract life.
         Revenues from equipment sales refer to sales of handsets.

         The Company began selling prepaid cards during 1999. The revenue from
         the sales of these cards is recognized according to the minutes used
         for each card. Revenue from unused minutes is deferred until used. As
         the amount deferred is immaterial, it has been included in other
         liabilities.

                                      F-14
<PAGE>   61
                      TELE NORTE CELULAR PARTICIPACOES S.A.

            NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--Continued
            Figures are in thousands of actual Brazilian Reais - R$
        for the year ended December 31, 1998 and 1999 and in thousands of
                   constant Brazilian Reais - R$ for the year
                            ended December 31, 1997.



      f) Pension and other post-retirement benefits

         The Company participates in a multi-employer plan that provides pension
         and other post-retirement benefits for its employees. The costs of
         pension and other post-retirement benefits are based on a fixed
         percentage of remuneration, as recommended annually by independent
         actuaries. Current costs are determined as the amount of required
         contribution for the period and are recorded on an accrual basis.
         See note 12.

3.     SUMMARY OF ACCOUNTING POLICIES--Continued

      g) Use of estimates

         The preparation of consolidated financial statements in conformity with
         generally accepted accounting principles requires management to make
         estimates and assumptions relating to the reporting of assets and
         liabilities and the disclosure of contingent assets and liabilities at
         the date of the financial statements, and the reported amounts of
         revenues and expenses during the period reported. Actual results could
         differ from those estimates.

      h) Advertising costs

         Advertising costs are expensed as incurred and included in selling,
         general and administrative expenses. They amounted to R$12,390 and
         R$930 for the years ended December 31, 1999 and 1998, respectively. The
         Company did not maintain specific records for prior years.

      i) New accounting pronouncements

         SFAS NO. 133, "ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING
         ACTIVITIES"

         In June 1998, the Financial Accounting Standards Board ("FASB") issued
         Statement of Financial Accounting Standards ("SFAS") No. 133,
         "Accounting for Derivative Instruments and Hedging Activities". SFAS
         133 establishes new accounting and reporting standards for derivative
         financial instruments and for hedging activities. SFAS 133 requires
         companies to measure all derivatives at fair value and to recognize
         them in the balance sheet as an asset or liability, depending on the
         company's rights or obligations under the applicable derivative
         contract. In June 1999, the FASB issued SFAS No. 137, which deferred
         the effective date of adoption of SFAS 133 for one year. The Company
         will adopt SFAS 133 no later than the first quarter of fiscal year
         2001. SFAS 133 is not expected to have a material impact on the
         Company's consolidated results of operations, financial position or
         cash flows.

      j) Reclassifications

         Certain 1998 amounts were reclassified to conform to the 1999
         presentation.

                                      F-15
<PAGE>   62
                      TELE NORTE CELULAR PARTICIPACOES S.A.

            NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--Continued
            Figures are in thousands of actual Brazilian Reais - R$
        for the year ended December 31, 1998 and 1999 and in thousands of
                   constant Brazilian Reais - R$ for the year
                            ended December 31, 1997.



4.     PROPERTY, PLANT AND EQUIPMENT


<TABLE>
<CAPTION>
                                                           Accumulated         Carrying
                                             Cost          Depreciation         Value
                                        ----------------------------------------------------
<S>                                     <C>                <C>                 <C>
      DECEMBER 31, 1998
      Land and buildings                         6,096               417             5,679
      Network equipment                        234,636            57,049           177,587
      Other equipment                            5,947             2,243             3,704
      Construction-in-progress                  20,370                 -            20,370
                                        ----------------------------------------------------
                                               267,049            59,709           207,340
                                        ====================================================

      DECEMBER 31, 1999
      Land and buildings                         4,966               544             4,422
      Network equipment                        265,504           100,022           165,482
      Other equipment                           71,010             9,525            61,485
      Construction-in-progress                  76,606                 -            76,606
                                        ----------------------------------------------------
                                               418,086           110,091           307,995
                                        ====================================================
</TABLE>

      The amount of interest capitalized as part of property, plant and
      equipment is R$ 2,623 and R$2,268 for the years ended December 31,1999 and
      1998, respectively.



5.       SHORT -TERM DEBT

<TABLE>
<CAPTION>
                                                                                   1999                   1998
                                                                           ---------------------------------------------

<S>                                                                        <C>                         <C>
      Brazilian Reais facilities, due in quarterly installments until                    36,942                      -
         November 2000 with annual interest of 6.7% over the Long-
         term Interest Rate (TJLP - 12.5% at December 31, 1999)
                                                                           ---------------------------------------------
      Total                                                                              36,942                      -
                                                                           =============================================
</TABLE>

                                      F-16
<PAGE>   63
                      TELE NORTE CELULAR PARTICIPACOES S.A.

            NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--Continued
            Figures are in thousands of actual Brazilian Reais - R$
        for the year ended December 31, 1998 and 1999 and in thousands of
                   constant Brazilian Reais - R$ for the year
                            ended December 31, 1997.




6.     LONG-TERM DEBT

<TABLE>
<CAPTION>
                                                                                   1999                   1998
                                                                           ---------------------------------------------

<S>                                                                        <C>                    <C>
        U.S. dollar denominated, unsecured, interest and principal due                   32,643                 28,972
           semi-annually through March 2003, interest at LIBOR plus
           0.4% (LIBOR was 6.19% at December 31, 1999)

        U.S. dollar denominated, unsecured, interest and principal due                   45,450                      -
           semi-annually through December 2004, interest at LIBOR plus
           5.75% (LIBOR was 6.19% at December 31, 1999)
        Other                                                                            11,035                 10,231
                                                                           ---------------------------------------------
        Total                                                                            89,128                 39,203
        Less current portion                                                            (11,614)               (13,226)
                                                                           ---------------------------------------------
        Long-term portion                                                                77,514                 25,977
                                                                           =============================================
</TABLE>

      Minimum annual principal repayments of all long-term debt during the next
five years are as follows:

<TABLE>
<S>                                      <C>
      2001                                             25,238
      2002                                             26,077
      2003                                             14,837
      2004 and after                                   11,362
                                         ----------------------
      Total                                            77,514
                                         ======================
</TABLE>



7.     CAPITAL STOCK

         The capital stock of the Company is comprised of preferred shares and
         common shares, all without par value. The Company has 700,000,000
         thousand shares authorized, (including both preferred and common
         shares). At May 22, 1998, the date the Company was legally formed,
         there were 210,029,997 thousand outstanding preferred shares and
         124,369,031 thousand outstanding common shares. The capital may be
         increased by a decision taken at a shareholders' meeting or by the
         Board of Directors in connection with the capitalization of profits or
         reserves, provided that the amounts were allocated for capital
         increases at a previous shareholders' meeting.

         The preferred shares are non-voting except under limited circumstances
         and are entitled to a preferential, 6% non-cumulative dividend. The
         preferred shares are also entitled to priority over the common shares
         in the case of liquidation of the Company.

         Under the Brazilian Corporation Law, the number of non-voting shares or
         shares with limited voting rights, such as the preferred shares, may
         not exceed two-thirds of the total number of outstanding shares.

         As part of the privatization of Telebras, the Brazilian Federal
         Government offered Telebras' employees the right to purchase, at a
         discounted price, the Federal Government's entire holding of Telebras
         preferred shares and the preferred shares of each of the New Holding
         Companies created as a result of the Spin-Off. The period during

                                      F-17
<PAGE>   64
                      TELE NORTE CELULAR PARTICIPACOES S.A.

            NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--Continued
            Figures are in thousands of actual Brazilian Reais - R$
        for the year ended December 31, 1998 and 1999 and in thousands of
                   constant Brazilian Reais - R$ for the year
                            ended December 31, 1997.



         which employees could subscribe for the shares began on August 4, 1998,
         and expired on October 30, 1998. In 1998, the Company recorded
         compensation expense and contributed capital in the amount of R$1,200
         related to this offer.

7.    CAPITAL STOCK--Continued

      Dividends

      Under Brazilian Corporation Law, dividends can only be paid out of the
      distributable capital arising from the Spin-Off and from future retained
      earnings. Pursuant to its by-laws, the Company is required to distribute
      as dividends in respect of each fiscal year ending on December 31, to the
      extent amounts are available for distribution, an aggregate amount equal
      to at least 25% of Adjusted Net Income, as defined below, on such date.
      The annual dividend distributed to holders of preferred shares, the
      "Preferred Dividend", has priority in the allocation of Adjusted Net
      Income. Remaining amounts to be distributed are allocated first to the
      payment of a dividend to holders of common shares in an amount per share
      equal to the Preferred Dividend, and the remainder is distributed equally,
      on a per share basis, among holders of preferred shares and common shares.

      For the purposes of the Brazilian Corporation Law, and in accordance with
      the Company's by-laws, the "Adjusted Net Income" is an amount equal to the
      Company's net profits under Brazilian GAAP adjusted to reflect allocations
      to or from (i) the legal reserve, (ii) a contingency reserve for
      anticipated losses, if any, and (iii) an unrealized revenue reserve, if
      any. Under Brazilian Corporation Law, the Company is required to
      appropriate 5% of its annual earnings, calculated using Brazilian GAAP,
      after absorbing accumulated losses, to a legal reserve, which is
      restricted as to distribution. This reserve may be used to increase
      capital or to absorb losses, but may not be distributed as dividends. At
      December 31, 1999, the Company's financial statements, prepared using
      Brazilian GAAP, presented an unconsolidated total equity of R$352,763
      including a legal reserve of R$6,737.

      Additionally, Brazilian corporations are permitted to attribute
      tax-deductible interest expense on shareholders' equity, which may either
      be paid in cash, in the form of a dividend, or used to increase capital
      stock value for statutory purposes. For financial reporting purposes, such
      interest on capital is recorded as a reduction from retained earnings.

      Paid in Capital

      On December 28, 1999, the shareholders approved a legal reorganization
      whereby a major shareholder contributed certain assets to the Company
      resulting in future tax benefits. This asset will result in amortization
      expense and a related tax benefit. For US GAAP purposes, in accordance
      with EITF 94-10, tax effects caused by transactions with shareholders were
      not included in the Company's income statement but rather in equity.
      Therefore, the Company recorded a deferred tax asset of R$48,818 with an
      offsetting amount as Paid in Capital. The deferred tax asset will be
      realized as the tax benefits are recognized for local tax purposes over a
      period of up to 10 years.

      In accordance with Brazilian corporate law, the Company may issue shares
      (pro rata both common and preferred) based on the different pricing
      criteria permitted by such law to the contributing shareholder for the
      amount of the tax benefits recognized by the Company. However, the
      minority shareholders will be given the right to purchase their pro-rata
      share of this capital stock increase in order to prevent dilution. In case
      they do not accept the offer,

                                      F-18
<PAGE>   65
                      TELE NORTE CELULAR PARTICIPACOES S.A.

            NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--Continued
            Figures are in thousands of actual Brazilian Reais - R$
        for the year ended December 31, 1998 and 1999 and in thousands of
                   constant Brazilian Reais - R$ for the year
                            ended December 31, 1997.



      these shares will be issued to the majority shareholders. Additionally,
      the Company has to ensure that shareholders will receive the minimum
      dividend required by law if the amortization expense results in
      accumulated losses.


      These potential shares are considered contingent shares and since it is
      not possible to determine what pricing criteria the Company will use,
      these shares are not included in either basic or diluted earnings per
      share calculation, in accordance with SFAS 128.

8.    EARNINGS PER COMMON SHARE

      In these consolidated financial statements, information is disclosed per
      lot of one thousand shares, because this is the minimum number of shares
      that can be traded on the Brazilian stock exchanges.

      As discussed in Note 1, the Company was formed subsequent to December 31,
      1997. The equity structure utilized for earnings per share computations is
      that of the new entity formed in May 1998.

      Since the preferred and common shareholders have different dividend,
      voting and liquidation rights, basic earnings per share has been
      calculated using the "two-class" method. The "two-class" method is an
      earnings allocation formula that determines earnings per share for
      preferred and common shares according to the dividends to be paid as
      required by the Company's by-laws and participation rights in
      undistributed earnings.

      Basic earnings per common share is computed by reducing net income by
      distributable and undistributable net income available to preferred
      shareholders and dividing net income available to common shareholders by
      the weighted-average number of common shares outstanding during the
      period. Net income available to preferred shareholders is the sum of the
      preferred dividends distributable net income, and the preferred
      shareholders' portion of undistributed net income.

      Undistributed net income is computed by deducting preferred dividends and
      common dividends from net income. Undistributed net income is shared
      equally, on a per share basis, by the preferred and common shareholders.

      The following table sets forth the computation of basic and diluted
      earnings per thousand of common shares:


<TABLE>
<CAPTION>
                                                                                       1999                1998
                                                                                 ---------------------------------------
<S>                                                                              <C>                      <C>
      Numerator:
         Net income                                                                         19,383              31,532
         Less: Distributable net income available to preferred stockholders                 (2,176)             (2,176)
                Undistributed net income allocated to preferred stockholders                (9,998)            (17,629)
                                                                                 ---------------------------------------
      Numerator for basic and diluted earnings per thousand shares-income
          available to common stockholders                                                   7,209              11,727
                                                                                 ---------------------------------------

      Denominator:
      Basic and diluted weighted-average number of common shares (in
          thousands)                                                                   124,369,031         124,369,031
                                                                                 ---------------------------------------
</TABLE>

                                      F-19
<PAGE>   66
                      TELE NORTE CELULAR PARTICIPACOES S.A.

            NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--Continued
            Figures are in thousands of actual Brazilian Reais - R$
        for the year ended December 31, 1998 and 1999 and in thousands of
                   constant Brazilian Reais - R$ for the year
                            ended December 31, 1997.



<TABLE>
<S>                                                                              <C>                      <C>
      Basic and diluted earnings, in Reais per thousand common shares                         0.06                0.09
                                                                                 =======================================
</TABLE>


9.    INCOME TAXES

      Brazilian income taxes comprise federal income tax and the social
      contribution tax. The statutory rates for income tax and for the social
      contribution tax are 25% and 12%, respectively, at December 31, 1999.




      Following is the detail of income tax expense for the years ended December
31, 1999 and 1998:

<TABLE>
<CAPTION>
                                                                                          1999                 1998
                                                                                 ------------------------------------------
<S>                                                                              <C>                  <C>
      Federal income tax charge                                                         12,543               31,150
      Social contribution tax charge                                                     2,724               10,175
      Deferred taxes                                                                    (6,920)             (24,428)
                                                                                 ------------------------------------------
      Income tax expense as reported in the accompanying financial statements            8,347               16,897
                                                                                 ==========================================

      Following is a reconciliation of the reported income tax expense and the
      amount calculated by applying the combined statutory tax rate of 37% and
      33% for the years ended December 31, 1999 and 1998, respectively:

                                                                                          1999                 1998
                                                                                 ------------------------------------------
      Tax charge at the combined statutory rate                                         13,431               19,794
          Non-deductible expenses                                                          634                2,330
          Interest on capital                                                           (6,521)                   -
          Effect of changes in tax rates                                                   803                    -
          Non-taxable income                                                                 -               (5,227)
                                                                                 ------------------------------------------
          Income tax expense as reported in the accompanying financial
          statements                                                                     8,347               16,897
                                                                                 ==========================================

      Following is an analysis of deferred income tax assets and liabilities:
      Deferred tax assets:
          Assets related to paid in capital                                             48,818                    -
          Impairment of equipment                                                        9,160                6,087
          Accrued expenses and provision for contingencies                              10,682               13,154
          Allowance for doubtful accounts                                               10,164                6,013
          Capitalized interest                                                           3,427                2,339
                                                                                 ------------------------------------------
                                                                                        82,251               27,593
      Deferred tax liabilities:
          Cumulative indexation differences                                             (6,112)              (7,192)
                                                                                 ------------------------------------------
          Net deferred tax assets                                                       76,139               20,401
                                                                                 ==========================================

          Current portion                                                               11,329               16,472
          Long-term deferred income taxes                                               64,810                3,929
                                                                                 ------------------------------------------
          Net deferred tax assets                                                       76,139               20,401
                                                                                 ==========================================
</TABLE>

      As further explained in Note 7, the total tax of R$48,818 related to
      deferred asset was credited to paid in capital in the shareholders' equity
      section.


                                      F-20
<PAGE>   67
                      TELE NORTE CELULAR PARTICIPACOES S.A.

            NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--Continued
            Figures are in thousands of actual Brazilian Reais - R$
        for the year ended December 31, 1998 and 1999 and in thousands of
                   constant Brazilian Reais - R$ for the year
                            ended December 31, 1997.



10.   TRANSACTIONS WITH RELATED PARTIES

      Up until the change of control of the Company on August 4, 1998, Empresa
      Brasileira de Telecomunicacoes S.A., a long-distance cellular
      telecommunications company, the predecessor companies and the other
      parties to the Telebras group were related to the Company. The Company has
      operating agreements with these companies for inter or intrastate
      long-distance, international telephone calls, automatic roaming and
      interconnection. The Company executed several service contracts with the
      predecessor companies to perform certain administrative tasks on the
      Company's behalf.

      Certain of the Company's shareholders and affiliated companies provide
      technical assistance and services to the Company. The consideration
      included in short-term liabilities related to these services amounted to
      R$17,526 in 1999 and R$3,656 for 1998; total expenses were R$13,870 and
      R$3,656 for the years ended December 31, 1999 and 1998, respectively.

11.   IMPAIRMENT OF LONG-LIVED ASSETS

      During the fourth quarter of 1998, the Company recorded a write-down of
      certain of its analog transmission network equipment amounting to
      R$18,448.

      In 1998, the Ministry of Communications granted to a newly formed
      consortium an additional license to provide enhanced services in the
      Company's concession area in the form of digital cellular services. The
      commercial operation of the consortium began in 1999. The introduction of
      competition with digital capacity in the Company's market has resulted in
      an acceleration of its plan to replace its existing analog equipment with
      more modern digital equipment. As a result, the analog transmission
      network equipment will be removed before the end of its useful life due to
      the declining demand for analog services.

      The amount of the write-down was established by comparing the fair value
      of the analog transmission equipment, established based on the expected
      future cash flow from the use of this equipment, discounted at a
      risk-adjusted rate, to the carrying amount of the impaired equipment.

12.   PENSION PLAN AND OTHER POST-RETIREMENT BENEFIT PLANS

      The Company, together with substantially all of the other companies in the
      former Telebras group, participates in a multi-employer defined benefit
      pension plan and other post-retirement benefit plans administered by the
      Fundacao Sistel de Seguridade Social ("Sistel"), a minority shareholder.

      Substantially all of Company's employees are covered by these plans. The
      Company contributed and charged to expense the amounts R$1,069, R$786 and
      R$2,152 during 1999, 1998 and 1997, respectively, related to pension fund
      contributions. As a member of the multi-employer plans, the Company's
      contributions are not segregated in separate accounts or restricted to
      provide benefits only to employees of the Company.

                                      F-21
<PAGE>   68
                      TELE NORTE CELULAR PARTICIPACOES S.A.

            NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--Continued
            Figures are in thousands of actual Brazilian Reais - R$
        for the year ended December 31, 1998 and 1999 and in thousands of
                   constant Brazilian Reais - R$ for the year
                            ended December 31, 1997.




12.   PENSION PLAN AND OTHER POST-RETIREMENT BENEFIT PLANS--Continued

      In 1999, Sistel approved changes to the plan statutes resulting in the
      break up of plan assets and liabilities related to the active participants
      of each sponsor. The Company recorded a contingent liability of R$6,300
      which represents its unfunded pension liability. Sistel did not break up
      plan assets and liabilities related to inactive participants and thus the
      Company will continue to sponsor the Sistel plan for such inactive
      participants.

      The Company also sponsors the Sistel post-retirement plans (health and
      life insurance). The Company will continue to participate in such plan as
      Sistel did not break up the assets and liabilities of such plan.

      The pension benefit is generally defined as the difference between (i) 90%
      of the retiree's average salary during the last 36 months indexed to the
      date of retirement and (ii) the value of the retirement pension paid by
      the Brazilian social security system. For retired employees the initial
      pension payment is subsequently adjusted upwards to recognize cost of
      living increases and productivity awards granted to active employees. In
      addition to the pension supplements, post-retirement health care and life
      insurance benefits are provided to eligible pensioners and their
      dependents. Sistel no longer offers post-retirement life insurance
      benefits, effective July 1999.

      Contributions to the plans are based on actuarial studies prepared by
      independent actuaries. The actuarial studies are revised periodically to
      identify whether adjustments to the contributions are necessary.

      The provisions of SFAS No. 87, "Employers' Accounting for Pensions", for
      the purpose of calculating the funded status, were applied with effects
      from January 1, 1992, because it was not feasible to apply them from the
      effective date in the standard.

      Beginning in 1998, the Company adopted the disclosure requirements of SFAS
      No. 132 "Employers' Disclosures About Pensions and Other Post-retirement
      Benefits" which revised and standardized employers' disclosures about
      pension and other post-retirement benefit plans. It does not change the
      measurement or recognition of those plans.

      The change in plans assets and benefit obligation of the Sistel pension
      and other post-retirement benefit plans (health and life insurance) and
      the related actuarial assumptions are as follows:

      Change in plan assets

<TABLE>
<CAPTION>
                                                                 PENSION                           OTHER
                                                       -------------------------------------------------------------------
                                                             1999             1998            1999             1998
                                                       -------------------------------------------------------------------
<S>                                                    <C>              <C>               <C>              <C>
      Fair value of plan assets at beginning of
      year                                              4,578,000        4,680,000         119,000          115,000
      Actual return on plan assets                        663,000         (238,000)         36,000          (11,000)
      Sponsors' contributions                             180,000          253,000          26,000           31,000
      Plan participant's contributions                    100,000          144,000              --
      Benefits paid                                      (322,000)        (231,000)        (23,000)         (14,000)
      Administrative expenses                             (12,000)         (30,000)         (2,000)          (2,000)
                                                       -------------------------------------------------------------------
      Fair value of plan assets at end of year          5,187,000        4,578,000         156,000          119,000
                                                       -------------------------------------------------------------------
</TABLE>

                                      F-22
<PAGE>   69
                      TELE NORTE CELULAR PARTICIPACOES S.A.

            NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--Continued
            Figures are in thousands of actual Brazilian Reais - R$
        for the year ended December 31, 1998 and 1999 and in thousands of
                   constant Brazilian Reais - R$ for the year
                            ended December 31, 1997.



12.   PENSION PLAN AND OTHER POST-RETIREMENT BENEFIT PLANS--Continued

      Change in benefit obligations

<TABLE>
<CAPTION>
                                                                 PENSION                            OTHER
                                                       -------------------------------------------------------------------
                                                              1999            1998            1999               1998
                                                       -------------------------------------------------------------------
<S>                                                    <C>             <C>             <C>                <C>
      Benefit obligation at beginning of year            9,946,000       8,716,000       1,751,000          1,935,000
      Service cost                                         308,000         463,000          59,000             60,000
      Interest cost                                        403,000         547,000          98,000             91,000
      Actuarial (gains) losses                          (4,528,000)       (231,000)       (473,000)          (316,000)
      Administrative expenses                              (12,000)        (30,000)         (2,000)            (2,000)
      Benefits paid                                       (322,000)        481,000         (23,000)           (17,000)
                                                       -------------------------------------------------------------------
      Benefit obligation at end of year                  5,795,000       9,946,000       1,410,000          1,751,000
                                                       -------------------------------------------------------------------
</TABLE>


<TABLE>
<CAPTION>
                                                                                       1999                1998
                                                                                 --------------------------------------
<S>                                                                              <C>                 <C>
      THE WEIGHTED-AVERAGE ACTUARIAL ASSUMPTIONS, AS DETERMINED
         BY ACTUARIES, WERE AS FOLLOWS
      Discount rate for determining projected benefit obligations                     6.00%               6.00%
      Rate of increase in compensation levels                                         3.00%               3.25%
      Expected long-term rate of return on plan assets                                9.00%               10.00%
</TABLE>


      The above rates exclude inflation.

      Health care cost trend rates of increase were projected at annual rates,
      excluding inflation, ranging from 6% in 1999 decreasing to 2.7% in 2048.
      The effect of a one percent annual increase (decrease) in the assumed
      health care cost trend rates would increase (decrease) the accumulated
      post-retirement benefits obligation at December 31, 1999 and 1998 by
      R$164,537 and R$183,160, respectively. Measurement of the accumulated
      post-retirement benefit obligation was based on the same assumptions as
      were used in the pension fund liability calculations.

13.   COMMITMENTS

      At December 31, 1998, the Company has capital expenditure commitments of
      R$68,000 related to the continuing expansion and modernization of the
      network.

      The Company rents equipment and premises through a number of operating
      lease agreements that expire at different dates. Total rent expense under
      these agreements was R$4,491, R$ 4,254 and R$1,809 for the years ended
      December 31, 1999, 1998 and 1997, respectively.

      Future minimum lease payments under non-cancelable operating leases with
      an initial term of one year or more are as follows at December 31, 1999.

                                      F-23
<PAGE>   70
                      TELE NORTE CELULAR PARTICIPACOES S.A.

            NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--Continued
            Figures are in thousands of actual Brazilian Reais - R$
        for the year ended December 31, 1998 and 1999 and in thousands of
                   constant Brazilian Reais - R$ for the year
                            ended December 31, 1997.



 13.   COMMITMENTS--Continued

      Year ending December 31,

<TABLE>
<S>                                          <C>
      2000                                                  3,666
      2001                                                  3,464
      2002                                                  3,241
      2003                                                  2,923
      2004 and after                                        3,635
                                             ======================
      Total minimum payments                               16,929
                                             ======================
</TABLE>

      The Company guarantees certain debt amounting to R$2,400 of an association
      which owns and operates certain operating assets.

      The Company's concession requires that certain network coverage
      requirements and service quality milestones be met to continue to be valid
      and permit the Company to operate.

14.   CONTINGENCIES

      ICMS tax on monthly fees and activation fees

      The Company believes that the ICMS (Imposto sobre Circulacao de
      Mercadorias e Servicos), a state value-added tax, relates to
      telecommunications services, and therefore the application of ICMS on
      monthly fees, activation fees and additional services lacks legal support,
      as these do not constitute telecommunications services. During the fourth
      quarter of 1998, the Company filed an injunction with the State Treasury
      Department of each of the five states in which it operates and therefore
      stopped remitting to the state governments the ICMS on monthly fees and
      additional services. There can be no assurance that the Company will
      prevail in its proceedings and, as a result, based on advice of counsel, a
      provision of R$7,411 and R$6,149 was recorded in the accompanying
      consolidated financial statements for 1999 and 1998, respectively.

      Other litigation

      The Company is subject to legal proceedings, administrative proceedings
      and claims of various types in the ordinary course of its business for
      which an accrual of R$2,631 and R$2,894 for 1999 and 1998, respectively,
      have been recorded in these accompanying consolidated financial
      statements. In management's opinion, the ultimate settlements, if any,
      will not have any additional significantly adverse effect on the Company's
      financial condition or results of operations.

                                      F-24
<PAGE>   71
                      TELE NORTE CELULAR PARTICIPACOES S.A.

            NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--Continued
            Figures are in thousands of actual Brazilian Reais - R$
        for the year ended December 31, 1998 and 1999 and in thousands of
                   constant Brazilian Reais - R$ for the year
                            ended December 31, 1997.



FINANCIAL INSTRUMENTS

      a) Fair value of financial assets and liabilities

         Estimated fair values of the Company's financial assets and liabilities
         have been determined using available market information and appropriate
         valuation methodologies. However, considerable judgment is required in
         interpreting market data to develop the estimated fair values.
         Accordingly, the amounts presented below are not necessarily indicative
         of the amounts that could be realized in a current market exchange. The
         use of different market assumptions and/or estimation methodologies may
         have a material effect on the estimated fair values.

         The fair value information as of December 31, 1999 and 1998 presented
         below is based on pertinent information available to management as of
         those dates.

<TABLE>
<CAPTION>
                                                          1999              1999              1998               1998
                                                  ------------------------------------------------------------------------
                                                     BOOK VALUE        FAIR VALUE        BOOK VALUE        FAIR VALUE
                                                  ------------------------------------------------------------------------
<S>                                               <C>               <C>               <C>              <C>
         Short-term debt                                36,942            36,942           -                        -
         Long-term debt                                 89,128            89,128            39,203             39,163
</TABLE>

         The carrying value of cash, cash equivalents, trade receivables, other
         current assets, accounts payable and accrued liabilities are a
         reasonable estimate of their fair value because of the short maturities
         of such instruments. Interest rates that are currently available to the
         Company for issuance of debt with similar terms and maturities were
         used to estimate the fair value of long-term debt.

      b) Concentration of risks

         Credit risk with respect to trade receivables is diversified. The
         Company continually monitors the level of trade receivables and limits
         the exposure to bad debts by cutting access to the telephone network if
         any invoice is twenty days past due. Exceptions comprise telephone
         services that must be maintained for reasons of safety or national
         security.

         There is no concentration of available sources of labor, services,
         concessions or rights, other than those mentioned above, that could, if
         suddenly eliminated, severely impact the Company's operations.

                                      F-25
<PAGE>   72
                      GLOSSARY OF TELECOMMUNICATIONS TERMS

access charge:                      Amount paid per minute charged by network
                                    operators for the use of their network by
                                    other network operators. Also known as an
                                    "interconnection charge" or "network usage
                                    charge."

access gates:                       The points of interface between the network
                                    equipment (either dedicated or switched) and
                                    the transmission media that connect network
                                    equipment to the end user. The quantity of
                                    service is directly related to the quantity
                                    of network access gates.

AMPS (Advanced Mobile
Phone Service):                     An analog cellular telecommunications
                                    services standard utilizing the 850 MHz
                                    band in use in North America, parts of
                                    South America, Australia and various other
                                    areas.

analog:                             A transmission method employing a
                                    continuous electrical signal that varies in
                                    amplitude or frequency in response to
                                    changes in sound, light, position, etc.,
                                    impressed on a transducer in the sending
                                    device.

analog network:                     A network using analog technology with
                                    circuit switching, capable of connecting one
                                    user with all the users, but with limited
                                    transmission capacity.

ATM (Asynchronous                   A broadband switching technology that
Transfer Mode):                     permits the use of one network for different
                                    kinds of information (e.g., voice, data and
                                    video).

automatic                           A service which permits a subscriber to use
international roaming:              his or her cellular telephone on a foreign
                                    cellular service provider's network. The
                                    subscriber may receive calls made to the
                                    subscriber's regular cellular telephone
                                    number (such calls are "automatically"
                                    passed to the foreign service provider's
                                    network).

band A service provider:            A former Telebras operating subsidiary that
                                    has been granted a concession to provide
                                    cellular telecommunications services in a
                                    particular area within a radio spectrum
                                    frequency range referred to by Anatel as
                                    "Band A."

band B service provider:            A cellular service provider that has been
                                    granted a concession to provide cellular
                                    telecommunications services in a particular
                                    area within a radio spectrum frequency range
                                    referred to by Anatel as "Band B."

base station:                       A radio transmitter/receiver that maintains
                                    communications with the cellular telephones
                                    within a given cell. Each base station in
                                    turn is interconnected with other base
                                    stations and with the public switched
                                    telephone network.

broadband services:                 Services characterized by a transmission
                                    speed of two Mbit/s or more. According to
                                    international standards, these services are
                                    divided into two categories:

                                        -    Interactive services, including
                                             videotelephone/videoconferencing
                                             (both point-to-point and
                                             multipoint); videomonitoring,
                                             interconnection of local networks,
                                             file transfer, CAD, high-speed fax,
                                             e-mail for moving images or mixed
                                             documents, broadband videotext,
                                             video on demand and retrieval of
                                             sound programs or fixed and moving
                                             images; and

                                        -    Broadcast services, such as sound
                                             programs, television programs
                                             (including high-definition TV and
                                             pay TV) and selective document
                                             acquisition.

CATV (Cable television):            Cable or fiber-based distribution of TV
                                    programs.

                                      A-1
<PAGE>   73
CDMA (Code Division
Multiple Access):                   A standard of digital cellular
                                    telecommunications technology that
                                    provides more call carrying capacity than
                                    analog or TDMA.

cell:                               The geographic area covered by a single base
                                    station in a cellular telecommunications
                                    system.

cell splitting:                     The process of dividing cells into smaller
                                    coverage areas by reducing the power output
                                    and the antenna height of the base station
                                    transmitter. Cell splitting increases
                                    capacity in a particular area by allowing
                                    for the further reuse of frequencies by a
                                    cellular telecommunications system.

cellular service:                   A mobile telecommunications service provided
                                    by means of a network of interconnected
                                    low-powered base stations, each of which
                                    covers one small geographic cell within the
                                    total cellular telecommunications system
                                    service area.

channel:                            One of a number of discrete frequency ranges
                                    utilized by a base station.

digital:                            A mode of representing a physical variable
                                    such as speech using digits 0 and 1 only.
                                    The digits are transmitted in binary form as
                                    a series of pulses. Digital transmission and
                                    switching technologies employ a sequence of
                                    discrete, distinct pulses to represent
                                    information, as opposed to continuous analog
                                    signal. Digital networks allow for higher
                                    capacity and higher flexibility through the
                                    use of computer-related technology for the
                                    transmission and manipulation of telephone
                                    calls. Digital systems offer lower noise
                                    interference and can incorporate encryption
                                    as a protection from external interference.

digital penetration:                The substitution of equipment capable of
                                    transmitting digital signals for equipment
                                    limited to analog transmission.

exchange:                           See Switch.

frame relay:                        A data transmission service using fast
                                    protocols based on direct use of
                                    transmission lines.

internet:                           A collection of interconnected networks
                                    spanning the entire world, including
                                    university, corporate, government and
                                    research networks from around the globe.
                                    These networks all use the IP (Internet
                                    Protocol) communications protocol.

ISDN (Integrated Services           A system in which several services (e.g.,
Digital Network):                   speech and data) may be simultaneously
                                    transmitted end-to-end in digital form.

leased high-speed data              The digital exchange of information at
communication:                      speeds exceeding 64 kbps transmitted through
                                    media that are leased to users for their
                                    exclusive use.

local loop:                         The system used to connect the subscriber to
                                    the nearest switch. It generally consists of
                                    a pair of copper wires but may also employ
                                    fiber-optic circuits, microwave links or
                                    other technologies.

manual international roaming:       A service that permits a subscriber to use
                                    his or her cellular telephone on a foreign
                                    cellular service provider's network. The
                                    subscriber may only receive calls made to a
                                    temporary number issued to the subscriber by
                                    the foreign service provider for use while
                                    roaming.

microcells:                         A small cell covered by a low-power base
                                    station. Microcells can cover small areas
                                    such as a single building.

network:                            An interconnected collection of elements.
                                    In a telephone network, these consist of
                                    switches connected to each other and to
                                    customer equipment. The

                                      A-2
<PAGE>   74
                                    transmission equipment may be based on fiber
                                    optic or metallic cable or point-to-point
                                    radio connections.

network usage charge:               Amount paid per minute charged by network
                                    operators for the use of their network by
                                    other network operators. Also known as an
                                    "access charge" or "interconnection charge."

optical fiber:                      A transmission medium which permits
                                    extremely high capacities. It consists of a
                                    thin strand of glass that provides a pathway
                                    along which waves of light can travel for
                                    telecommunications purposes.

packet-switched data                Data services based on parceling or breaking
communication services:             the data stream into packets and switching
                                    the individual packets. Information
                                    transmitted is segmented into cells of a
                                    standardized length, which are then
                                    transmitted independently of one another,
                                    allowing maximization of available capacity
                                    and usage of a single transmission path for
                                    multiple communications. The cells are then
                                    reassembled upon reaching their destination.

PBX (Private Branch Exchange):      Telephone switchboard for private use but
                                    linked to the national telephone network.

PCS (Personal Communication         PCS has come to represent two things: first,
Services):                          a digital wireless communications service
                                    operating over the 1.9 GHz band; and second,
                                    more generically, a wireless communications
                                    service utilizing a digital network that
                                    offers typical features such as voice, video
                                    and data applications, short messaging,
                                    voicemail, caller identification, call
                                    conferencing and call forwarding. Generic
                                    PCS suppliers promote this service in the
                                    ability of its features to be customized, or
                                    "bundled," to the needs of the individual
                                    customers.

Penetration:                        The measurement of the take-up of services.
                                    At any date, the penetration is calculated
                                    by dividing the number of subscribers by the
                                    population to which the service is available
                                    and multiplying the quotient by 100.

private leased circuits:            Voice, data or image transmission media
                                    leased to users for their exclusive use.

PSTN (Public Switched               The public telephone network that delivers
Telephone Network):                 basic telephone service and, in some
                                    circumstances, more advanced services.

repeaters:                          A device that amplifies an input signal for
                                    retransmission.

roaming:                            A function that enables subscribers to use
                                    their cellular telephones on networks of
                                    service providers other than the one with
                                    which they signed their initial contract.

satellite services:                 Satellites are used, among other things, for
                                    links with countries that cannot be reached
                                    by cable or to provide an alternative to
                                    cable and to form closed user networks.

SDH (Synchronous Digital            A hierarchical set of digital transport
Hierarchy):                         structures, standardized for the transport
                                    of suitably adapted payloads over physical
                                    transmission networks.

sectorization:                      The process of dividing cells into sectors
                                    by using directional antennae at the base
                                    station. Sectorization reduces co-channel
                                    interference which permits smaller cells and
                                    increases network capacity.

switch:                             A device that opens or closes circuits or
                                    selects the paths or circuits to be used for
                                    transmission of information. Switching is
                                    the process of interconnecting circuits to
                                    form a transmission path between users.
                                    Switches may also record information for
                                    billing and control purposes.

                                      A-3
<PAGE>   75
TDMA (Time Division
Multiple Access):                   A standard of digital cellular
                                    telecommunications technology, which
                                    provides more call carrying capacity than
                                    analog, but less than CDMA.

universal service:                  The obligation to supply basic service to
                                    all users throughout the national territory
                                    at reasonable prices.

value added services:               Value added services provide additional
                                    functionality to the basic transmission
                                    services offered by a telecommunications
                                    network.

                                      A-4
<PAGE>   76
                                   SIGNATURES

         Pursuant to the requirements of Section 12 of the Securities Exchange
Act of 1934, the registrant certifies that it meets all requirements for filing
on Form 20-F and has duly caused this annual report to be signed on its behalf
by the undersigned, thereunto duly authorized.

                                   TELE NORTE CELULAR PARTICIPACOES S.A.


                                   By: s/s Alexandre S. D'Ambrosio
                                      ------------------------------------------
                                       Alexandre S. D'Ambrosio
                                       General Counsel


Date:   June 30, 2000
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1
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                     ---------------------------------------
                                    FORM 20-F
                     ---------------------------------------

      [ ]      REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g)
                     OF THE SECURITIES EXCHANGE ACT OF 1934

                                       OR

      [X]      ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
                     OF THE SECURITIES EXCHANGE ACT OF 1934
                   For the fiscal year ended December 31, 1999

                                       OR

      [ ]      TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
                     OF THE SECURITIES EXCHANGE ACT OF 1934
                      for the transition period from    to
                        Commission File Number 001-14483

                      TELE NORTE CELULAR PARTICIPACOES S.A.
             (Exact name of Registrant as specified in its charter)

 TELE NORTE CELLULAR HOLDING COMPANY          THE FEDERATIVE REPUBLIC OF BRAZIL
    (Translation of Registrant's               (Jurisdiction of incorporation
        name into English)                            or organization)

                        SCN, QUADRA 3, BLOCO A, SOBRELOJA
                        70713-000 BRASILIA -- DF, BRAZIL
                    (Address of principal executive offices)

 SECURITIES REGISTERED OR TO BE REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT.
TITLE OF EACH CLASS               NAME OF EACH EXCHANGE ON WHICH REGISTERED
     -------------------               -----------------------------------------
Preferred Shares, without par value            New York Stock Exchange*
Depositary Shares, each representing           New York Stock Exchange
  50,000 Preferred Shares
--------------------
* Not for trading, but only in connection with the listing of American
Depositary Shares on the New York Stock Exchange.

SECURITIES REGISTERED OR TO BE REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
                                      None

SECURITIES FOR WHICH THERE IS A REPORTING OBLIGATION PURSUANT TO SECTION 15(d)
OF THE ACT:
                                      None

INDICATE THE NUMBER OF OUTSTANDING SHARES OF EACH OF THE ISSUER'S CLASSES OF
CAPITAL OR COMMON STOCK AS OF THE CLOSE OF THE PERIOD COVERED BY THE ANNUAL
REPORT:
Common Shares, without par value       124,369,030,532
                Preferred Shares, without par value    210,029,997,060
INDICATE BY CHECK MARK WHETHER THE REGISTRANT (1) HAS FILED ALL REPORTS REQUIRED
TO BE FILED BY SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 DURING
THE PRECEDING 12 MONTHS (OR FOR SUCH SHORTER PERIOD THAT THE REGISTRANT WAS
REQUIRED TO FILE SUCH REPORTS), AND (2) HAS BEEN SUBJECT TO SUCH FILING
REQUIREMENTS FOR THE PAST 90 DAYS.
                                   YES X  NO__

INDICATE BY CHECK MARK WHICH FINANCIAL STATEMENT ITEM THE REGISTRANT HAS ELECTED
TO FOLLOW:
                              ITEM 17 _  ITEM 18 X
2
                                TABLE OF CONTENTS
PART I

   Item 1.  DESCRIPTION OF BUSINESS ......................................     1
   Item 2.  DESCRIPTION OF PROPERTY ......................................    15
   Item 3.  LEGAL PROCEEDINGS ............................................    15
   Item 4.  CONTROL OF REGISTRANT ........................................    17
   Item 5.  NATURE OF TRADING MARKET .....................................    17
   Item 6.  EXCHANGE CONTROL AND OTHER LIMITATIONS AFFECTING SECURITY-
            HOLDERS ......................................................    19
   Item 7.  TAXATION .....................................................    20
   Item 8.  SELECTED FINANCIAL DATA ......................................    25
   Item 9.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
            AND RESULTS OF OPERATIONS ....................................    27
   Item 9A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK....    37
   Item 10. DIRECTORS AND OFFICERS OF REGISTRANT .........................    38
   Item 11. COMPENSATION OF DIRECTORS AND OFFICERS .......................    41
   Item 12. OPTIONS TO PURCHASE SECURITIES FROM REGISTRANT OR SUBSIDIARIES    42
   Item 13. INTEREST OF MANAGEMENT IN CERTAIN TRANSACTIONS ...............    42

PART II

   Item 14. DESCRIPTION OF SECURITIES TO BE REGISTERED ...................    42

PART III

   Item 15. DEFAULT UPON SENIOR SECURITIES ...............................    42
   Item 16. CHANGES IN SECURITIES, CHANGES IN SECURITY FOR REGISTERED
            SECURITIES AND USE OF PROCEEDS ...............................    42

PART IV

   Item 17. FINANCIAL STATEMENTS .........................................    42
   Item 18. FINANCIAL STATEMENTS .........................................    42
   Item 19. FINANCIAL STATEMENTS AND EXHIBITS ............................    42

FINANCIAL STATEMENTS .....................................................   F-1

GLOSSARY OF TELECOMMUNICATIONS TERMS .....................................   A-1
------------------------
3
\         Tele Norte Celular Participacoes S.A., a corporation organized under
the laws of the Federative Republic of Brazil, is referred to in this annual
report as the "Registrant." All references to "we," "us" or the "Company" are to
the Registrant and, depending on the context, its subsidiaries.

         The Registrant is one of the companies formed as a result of the
breakup of Telecomunicacoes Brasileiras S.A. - - Telebras, commonly referred to
as "Telebras," by the federal government of Brazil in May 1998. Each of the
subsidiaries was formed in January 1998 by spinning off the cellular
telecommunications operations of operating companies controlled by Telebras,
which we refer to in this annual report as the "predecessor companies."
References to our operations prior to January 1998 are to the cellular
operations of the predecessor companies. See "Item 1 -- Description of Business
-- Historical Background" for a description of the breakup of Telebras.

References in this annual report to

              -   the "real," "reais" and "R$" are to Brazilian reais (plural)
                  and to the Brazilian real (singular), the currency of Brazil
                  and
              -   "U.S. dollars," "dollars" and "U.S.$" are to United States
                  dollars.

         On June 27, 2000, the noon buying rate in New York city for cable
transfers in foreign currencies as certified for customs purposes by the Federal
Reserve Bank of New York was R$1.8230 per U.S.$1.00.

         Our consolidated financial statements as of December 31, 1997 and 1998
and for the years ended December 31, 1997, 1998 and 1999 have been prepared in
accordance with generally accepted accounting principles in the United States,
commonly referred to as "U.S. GAAP." The consolidated financial statements and
other financial information as of and for the years ended December 31, 1998 and
1999 are presented in nominal reais and do not recognize the effects of
inflation. The consolidated financial statements and other financial information
for prior dates and periods have been indexed and expressed in constant reais of
December 31, 1997 purchasing power using the integral restatement method
(correcao monetaria integral). Consolidated financial statements prepared in
accordance with generally accepted accounting principles in Brazil, commonly
referred to as "Brazilian GAAP," have been published in Brazil.

         This annual report contains forward-looking statements. Statements that
are not statements of historical fact, including statements about our beliefs
and expectations, are forward-looking statements. The words "anticipates,"
"believes," "estimates," "expects," "forecasts," "intends," "plans," "predicts,"
"projects" and "targets" and similar words are intended to identify these
statements, which necessarily involve known and unknown risks and uncertainties.

         Known risks and uncertainties include those resulting from our short
history as an independent, private-sector entity and the introduction of
competition to the Brazilian telecommunications sector, as well as those
relating to the cost and availability of financing, the performance of the
Brazilian economy generally, the levels of exchange rates between Brazilian and
foreign currencies and the federal government's telecommunications policy.
Accordingly, our actual results of operations may be different from our current
expectations, and the reader should not place undue reliance on these
forward-looking statements. Forward-looking statements speak only as of the date
they are made, and we do not undertake any obligation to update them in light of
new information or future developments.

         The "Glossary of Telecommunications Terms" that begins on page A-1
provides definitions of certain technical terms used herein.

                                       ii
4
                                     PART I

ITEM 1.  DESCRIPTION OF BUSINESS

         We provide cellular telecommunications services in a region comprising
the Brazilian States of Para, Amazonas, Maranhao, Amapa, and Roraima under
concessions granted by the federal government of Brazil. Cellular
telecommunications services were first offered by one of our predecessor
companies in the State of Maranhao in April 1994. At December 31, 1999, we had
343,600 subscribers.

THE REGISTRANT AND ITS OPERATING SUBSIDIARIES

         The following table presents the contribution made by each subsidiary
to our net operating revenues and net income for the year ending December 31,
1999 and our shareholding in each subsidiary at December 31, 1999.
% OF NET
                             OPERATING    % OF NET    % OF SHARE    % OF VOTING
SUBSIDIARY                    REVENUES     INCOME       CAPITAL        STOCK
----------                    --------     ------       -------        -----
Telepara Celular S.A.....       39.7         7.9          69.0          96.6
Telamazon Celular S.A....       31.4        42.9          80.3          84.1
Telma Celular S.A........       19.9        29.9          66.8          82.8
Teleamapa Celular S.A....        5.4        14.1          90.6          94.5
Telaima Celular S.A......        3.6         5.2          86.9          95.1
In May 2000, we announced a plan to merge into Telma Celular, S.A. our
four other subsidiaries. We believe that the consolidation of our operations
into a single integrated structure will result in cost efficiencies and an
improved quality of service.

         We estimate that the reduction in administrative costs, which will
result from the consolidation will be approximately R$1 million for the first
year following the consolidation. We also estimate that the cost savings from
the consolidation and standardization of our operations will be approximately
R$43 million at present net value.

         Our planned consolidation is contingent upon the approval of the
Brazilian Securities Commission (Comissao de Valores Mobiliarios) and the
National Telecommunications Agency (Agencia Nacional de Telecomunicacoes -
ANATEL)

         Substantially all of the Registrant's assets other than cash and cash
equivalents consist of shares in its subsidiaries. The Registrant relies almost
exclusively on dividends from its subsidiaries to meet its needs for cash,
including cash to pay dividends to its shareholders.

         The Registrant's headquarters are located at SCN, Quadra 3, Bloco A,
Sobreloja Norte, 70713 000 Brasilia-DF, Brazil, and its telephone number is
5561-429-5600.

HISTORICAL BACKGROUND

         Prior to the incorporation of Telebras in 1972, there were more than
900 telecommunications companies operating throughout Brazil. Between 1972 and
1975, Telebras and its operating subsidiaries, which we refer to collectively as
the "Telebras System," acquired almost all the other telephone companies in
Brazil and thus came to have a monopoly over the provision of public
telecommunications services in almost all areas of the country.

         Beginning in 1995, the federal government undertook a comprehensive
reform of Brazil's telecommunications regulatory system. In July 1997, Brazil's
National Congress adopted the General Telecommunications Law (Lei Geral de
Telecomunicacoes), which provided for the establishment of a new regulatory
framework, the introduction of competition and the privatization of Telebras.
The General Telecommunications Law established an independent regulatory agency
called Agencia Nacional de Telecomunicacoes - ANATEL, which we refer to as
"Anatel."

                                       1
5
         In January 1998, in preparation for the restructuring and privatization
of the Telebras System, the cellular telecommunications operations of Telebras'
operating subsidiaries were spun off into separate companies. In May 1998,
Telebras was restructured to form, in addition to Telebras, twelve new holding
companies by means of a procedure under Brazilian corporate law called cisao, or
split-up. Virtually all the assets and liabilities of Telebras, including the
shares held by Telebras in the operating companies of the Telebras System, were
allocated to the new holding companies.

         The new holding companies, together with their respective subsidiaries,
consist of:

              -   eight cellular service providers, each operating in one of
                  eight regions,
              -   three wireline service providers, each providing local and
                  intraregional long-distance service in one of three regions
                  and
              -   Embratel Participacoes S.A. - Embratel, which provides
                  domestic long-distance telephone service throughout Brazil.

         The Registrant is one of the new cellular holding companies. In the
breakup of Telebras, the Registrant was allocated all the share capital held by
Telebras in the operating subsidiaries of the Telebras System that provided
cellular telecommunications service in the States of Para, Maranhao, Roraima,
Amapa and Amazonas. In July 1998, the federal government sold substantially all
its shares of the new holding companies, including the Registrant, to
private-sector buyers. The federal government's shares of the Registrant were
purchased by Telpart Participacoes S.A., which we refer to as "Telpart," a
consortium comprising TIW do Brasil Ltda., Opportunity MEM S.A. and a group of
five Brazilian pension funds. See "Item 4 - - Control of Registrant" for a
description of our principal shareholders.

OUR REGION

         Our region covers an area of approximately 3,532,000 square kilometers,
representing approximately 41% of Brazil's area. Its population of approximately
14.7 million inhabitants represents approximately 9.0% of the population of
Brazil. Our region has 18 metropolitan areas with populations in excess of
100,000 people, including the cities of Belem, Manaus, Sao Luis, Boa Vista and
Macapa. During 1999, our region generated approximately 5% of Brazil's gross
domestic product.

         The map below shows the location of our region within Brazil.

                                       2
6
                         [MAP OF REGION WITHIN BRAZIL]

         The following table presents the population, gross domestic product and
per capita income statistics for each state in our region at the dates and for
the years indicated.
AT DECEMBER 31, 1999         YEAR ENDED DECEMBER 31, 1999
                                             --------------------         ----------------------------
                                         POPULATION      % OF BRAZIL'S    % OF BRAZIL'S     PER CAPITA
STATE                                   (MILLIONS)(1)    POPULATION(1)       GDP(1)          INCOME(2)
-----                                   -------------    -------------       ------          ---------
Para (Telepara Celular S.A.)........         5.9              3.6              2.1          R$2,390.22
Amazonas (Telamazon Celular S.A.)...         2.6              1.6              1.3          R$2,174.42
Maranhao (Telma Celular S.A.).......         5.5              3.3              1.3          R$1,159.54
Amapa (Teleamapa Celular S.A.)......         0.4              0.3              0.2          R$1,773.41
Roraima (Telaima Celular S.A.)......         0.3              0.2              0.1          R$3,252.82
                                             ---              ---              ---
Region..............................        14.4              9.0              5.0
                                            ====              ===              ===
------------
(1)  Estimates of the Brazilian Institute of Geography and Statistics (Instituto
     Brasileiro de Geografia e Estatistica - IBGE), at July 1, 1999.
(2)  Data for 1997 as published by the Central Bank of Brazil.

         Our business, financial condition, results of operations and prospects
depend in part on the performance of the Brazilian economy and the economy of
our region, in particular. See "Item 9 - - Management's Discussion and

                                       3
7
Analysis of Financial Condition and Results of Operations -- Brazilian economic
environment" for a description of the Brazilian economic conditions.

OUR SERVICES

General

         We offer cellular telecommunications service to our subscribers through
a variety of rate plans. We offer analog and, commencing in late 1999, digital
cellular services. At December 31, 1999, we had a total of 343,600 subscribers.
Of this number, 77% were contract subscribers and 23% were prepay subscribers.

         We also offer value-added services, including voicemail, call
forwarding, call waiting, call conferencing, caller line identification and
three-way calling. We also began to sell cellular telephones in 1999. We do not
expect these sales to be a significant component of our revenues.

Contract subscribers

         Contract subscribers consist primarily of high-income individuals,
including professionals, executives and entrepreneurs, who use their handsets
for both personal and business purposes.

         A contract subscriber's handset is activated upon signing of a service
contract. The service contract provides, among other things, the terms and
conditions of the specific service plan elected by the subscriber. See " --
Sources of revenue -- Subscriber rates" for a description of our service plans.

Prepay customers

         In general, prepay subscribers are younger and have less income than
contract subscribers. Prepay subscribers also tend to use their handsets more to
receive than to originate calls.

         A prepay customer is no longer considered a customer when a specified
period of time has elapsed since the customer purchased and activated, or added
credit to, his or her last prepay card. The customer's telephone number is then
deactivated, and he or she is considered to have turned over.

         A prepay customer currently has 90 days to activate a new card after
the balance of his existing card becomes zero before losing his phone number.
During such time, a prepay customer will be able to receive local incoming calls
but such a customer will not be able to make outgoing calls. Balances
automatically become zero if the customer has not activated a new card within 90
days after activation of the previous card.

Contract churn

         Contract churn measures both voluntarily and involuntarily disconnected
subscribers. We determine average monthly contract churn for a given period by
dividing the sum of all contract subscribers disconnected during such period by
the sum of the beginning-of-month subscribers for each of the months in such
period, expressed as a percentage.

         Our average monthly contract churn in 1998 and 1999 was 1.3% and 1.7%,
respectively. Our contract churn is mainly related to termination due to
non-payment, particularly because we did not face any competition in our region
until October 1999. With the advent of competition, we may experience increased
contract churn.

Quality of service

         We have experienced at times quality of service problems, including
busy circuits, lack of system availability and dropped calls. In 1999, the
average "all circuits busy rate" (as a percentage of calls attempted) was 2.4%,
the average system availability on first call attempted was 85.7% and the
average dropped call rate was 2.1%. At present, we are not experiencing any
significant quality of service problems and exceed most of the quality of
service requirements established by Anatel. See " -- Regulation of the Brazilian
telecommunications industry -- Obligations of telecommunications companies --
Quality of service" for a description of these obligations.

                                       4
8
Roaming

         Through agreements with other cellular service providers, we offer
automatic roaming services throughout Brazil that allow our subscribers to make
and receive calls while out of our region. In addition, we provide cellular
telecommunications service to subscribers of other cellular service providers
while they are in our region. We charge the other service providers pursuant to
roaming agreements for the service provided to their subscribers. See " --
Operating agreements -- Roaming agreements" for a description of our roaming
arrangements.

NETWORK AND SUBSCRIBER DATA

         The following table sets forth information on our subscriber base,
coverage and related matters at the dates and for the years indicated.
1997        1998        1999
                                                                          --------     -------     -------
Cellular lines in service at year-end:
   Contract subscribers...............................................     207,769     218,600     265,600
   Prepay subscribers.................................................          --          --      78,000
                                                                          --------     -------     -------
                                                                           207,769     218,600     343,600
Net subscriber growth during year.....................................        30.8%        5.2%         57%
Estimated population of our region at year-end (millions)(1)..........        14.1        14.2        14.7
Estimated covered population at year-end (millions)(2)................         6.9         7.4         8.2
Percentage of population covered at year-end(3).......................        49.1%       50.3%       56.9%
Penetration at year-end(4)............................................        1.51%       1.49%        2.5%
Average monthly incoming minutes of use per subscriber:
   Contract subscribers...............................................          86         108         117
   Prepay subscribers.................................................          --          --          73
Average monthly outgoing minutes of use per subscriber:
   Contract subscribers...............................................          96         108         111
   Prepay subscribers.................................................          --          --          23
Average monthly revenues per subscriber(5)............................    R$109.57     R$93.10     R$81.00
Cost of acquisition per subscriber(6).................................        n.a.     R$   23     R$  149
---------
n.a.= not available
(1)  Estimates of the Brazilian Institute of Geography and Statistics (Instituto
     Brasileiro de Geografia e Estatistica - IBGE) at July 1, 1999.
(2)  Estimates by our management of the number of people within our region who
     can access our cellular telephone signal.
(3)  Estimates by our management of the percentage of the population of our
     region who can access our cellular telephone signal.
(4)  Estimates by our management of the number of cellular lines in service in
     our region divided by the population of our region.
(5)  In nominal reais, net of value-added taxes.
(6)  The significant increase in the cost of acquisition per subscriber in 1999
     as compared to 1998 reflects a reduction in activation fees from R$330 to
     R$49 for digital services and R$99 for analog services. This reduction was
     made in anticipation of competition.

         Our concessions contain network expansion and modernization
obligations. See " -- Regulation of the Brazilian telecommunications industry --
Obligations of telecommunications companies." We believe that we will be able to
meet all these obligations.

SOURCES OF REVENUE

General

         We generate revenue from:

                                       5
9
            -  usage charges, which include airtime charges for outgoing calls
               and roaming and other similar charges,

            -  monthly subscription charges,

            -  network usage fees which are amounts charged by us to other
               cellular and wireline service providers, and to Embratel as the
               long-distance service provider, for use of our network,

            -  activation fees, which are one-time sign-up charges paid to
               obtain cellular telecommunications service and

            -  other charges, including charges for call forwarding, call
               waiting and call blocking.

         Our rates are subject to the approval of Anatel.

Subscriber rates

         Since October 1994, cellular telecommunications service in Brazil has
been offered on a "calling party pays" basis, under which the subscriber pays
only for calls that he or she originates, except for roaming charges on calls
received outside the subscriber's home registration area.

         Subscriber charges are computed based on the subscriber's calling plan,
the location of the party called, the place from which the call originates and
other factors, as described below.

         Our region is divided into 65 registration areas. The lowest base rate
per minute, which we refer to as a "VC1" rate, applies to calls made by a
subscriber in its registration area to persons in the same registration area.
Until May 9, 1999, calls from one registration area to another within our region
were charged at a higher rate, which we refer to as "VC2" rate. On May 9, 1999,
the VC2 and VC1 rate were made to be the same for mobile-to-mobile calls.
Beginning in February 2000, the VC2 and VC1 rates are the same for all calls
except under the Basic plan.

         Calls from our region to persons outside our region are billed at the
highest rate, which we refer to as a "VC3" rate. When a subscriber makes or
receives a call while outside our region, a per-call surcharge known as "AD" is
applicable. When a subscriber receives a call while outside his or her home
registration area, the subscriber also pays an additional rate per minute, which
we refer to as "DSL1", if the subscriber is located within our region, or a
higher rate, which we refer to as "DSL2" if the subscriber is located outside
our region.

         Airtime service charges are discounted 30% for calls made on Saturdays,
Sundays and national holidays and for calls made from 7 PM to 8 AM, Monday
through Friday. A 30% surcharge is imposed on VC1 calls made to lines of other
cellular service providers.

         We have kept the Basic plan and have launched two additional plans
during 1999 which are a Corporate plan and a prepaid service plan. The following
table sets forth the average rates for these plans at March 31, 2000.

                     RATE INFORMATION FOR OUR SERVICE PLANS
BASIC        CORPORATE        PREPAY
                                       -----        ---------        ------
Activation fee(1)................      49.00(3)       49.00(3)        -
Monthly subscription fee(1).....       31.11          30.00           -
Airtime charges per minute:(2)
    VC1(1).......................       0.33           0.30           0.99
    VC2..........................       0.72           0.30           0.99
    VC3..........................       0.82           0.70           0.99
    DSL1.........................       0.36           -              -
    DSL2.........................       0.41           0.30           N/A
AD (per call)(2) ................       0.68           0.30           N/A
---------
(1)  The rates presented are averages of the rates charged by us, weighted by
     the number of subscribers.
(2)  All amounts are weighted average peak rates in nominal reais and include
     any applicable value-added taxes.
(3)  For digital services. Activation fee is R$99.00 reais for analog services.

                                       6
10
Roaming fees

         We also receive revenue pursuant to roaming agreements with other
cellular service providers. When a call is made from within our region by a
subscriber of another cellular service provider, that service provider pays us
for the call at the applicable rate. Conversely, when one of our subscribers
makes a cellular call outside our region, we must pay the charges associated
with that call to the cellular service provider in whose region the call
originates.

Network usage fees

         We earn revenues from any call, cellular or wireline, originating with
another service provider and terminating on a cellular telephone within our
region. We charge the service provider from whose network the call originates a
network usage fee for every minute our network is used in connection with the
call. The average network usage fee per minute we charged to other service
providers was R$0.21 in 1996 and R$0.19 in 1997, 1998 and 1999, respectively,
net of value-added taxes. This fee was increased to R$0.22 in January 2000.

SALES AND MARKETING

General

         We divide our market into categories corresponding to the amount of
cellular telephone usage. Based on this scenario, we have focused on the
contract and prepay segments. In the contract segment, we decided to adjust the
Basic plan and to launch a Corporate plan. In the prepay segment, we launched a
new product to address the needs of the customers who generally receive more
calls than they make.

         Anatel's regulations require that cellular telecommunications service
be provided to all individual applicants, regardless of income level, in the
order in which applications are received. In order to assist in managing the
risk of payment defaults, we conduct credit checks on our customers. We can
interrupt service if a customer fails to make timely payments. See " -- Billing
and collection."

Sales network

         We market our services through direct and indirect distribution
channels. We target potential large-account customers through direct contact by
a skilled sales force and provide them with ongoing support. Small and
medium-sized businesses are targeted through a combination of corporate
client-focused sales force, company stores and the marketing efforts of
independent distributions. We attract prepay customers mainly through our
independent distributors and retail points-of-sale.

         Company stores. We provide telecommunications services through
company-owned stores located in metropolitan centers. Such stores are effective
in building image and brand awareness through the exclusive provision of our
telecommunications services. Company stores also provide standard levels of
service, greater accountability and consistent customer service. Although the
majority of sales at company stores consists of subscriptions for cellular
telecommunications services, the stores also sell handsets, generally for prices
at or near cost, in connection with the sale of both contract and prepay
subscriptions. At December 31, 1999, we had nine company stores, as well as
three mobile stores.

         Independent distributors. We select our independent distributors based
on their creditworthiness and an assessment of their premises. All of our
independent distributors receive basic training relating to the activation of
cellular telecommunications service. Beginning in 1999, independent distributors
receive a fixed commission of R$90 for each new contract customer they sign up
for service, provided that the customer retains and pays for service for at
least three months, and all exclusive independent distributors receive marketing
support from us.

         In addition, independent distributors receive a mark-up margin on each
sale of a handset and prepay card kit for use by prepay subscribers. At December
31, 1999, we had 230 independent distributor outlets, located primarily in
metropolitan centers.

         Retailers. We make prepay cards available at approximately 2,000 points
of sale. We distribute through 20 retailers, which include national and regional
franchises and chains, such as Yamada.

                                       7
11
         In early 1999, we introduced the brand "Amazonia Celular." Amazonia
Celular is now the brand name under which the cellular telecommunications
services of all of our subsidiaries are marketed.

Customer service

         We used to run four customer service departments located in each state
in our region except for the State of Amapa. By the end of 1999, we had
accomplished our plan to have one customer service department, which is located
in State of Para, providing 24-hour, seven-day customer service throughout our
region. At December 31, 1999, we had approximately 270 service attendants.

         Through our customer service attendants, we are able to provide
immediate service to customers for requests such as reactivation, addition of
value-added services and number changes, among others. During 1999, our customer
service team answered, on average, in excess of 300,000 calls per month. This
represents nearly a fivefold increase in calls per month as compared to 1998.
This increase is mainly due to a significant improvement in response time, which
is now at industry levels.

BILLING AND COLLECTION

         Our billing system, which was developed by LHS Communication System
Incorporated and has been in operation since 1999, has four main functions:

            -  subscriber registration,
            -  subscriber information management,
            -  accounts payable management, and
            -  billing and collection.

         To smooth the billing and collection cycles, we use eleven staggered
cycles each month.

         Brazilian law provides that subscribers must receive a bill at least
five days before the due date. If a subscriber's payment is more than 20 days
past due we suspend service until we receive full payment for all outstanding
charges. If a subscriber's payment is more than 90 days past-due, we discontinue
service and the subscriber is churned.

         After each collection cycle, we reconcile the roaming and network usage
fees owed to and owing from other telecommunications service providers. For
domestic and international long-distance calls made by our subscribers, we
forward the amounts due for such calls to Embratel and charge Embratel a fee for
the use of our cellular telecommunications network.

         Our provisions for doubtful accounts were 5.6%, 16.5% and 10.2% of
service revenues in 1997, 1998, and 1999 respectively. The increase in the level
of doubtful accounts from 1997 to 1998 is due primarily to an increase in the
number of customers with relatively lower income, an increase in subscription
fraud and adverse economic conditions in Brazil. In the fourth quarter of 1998,
we put in place new credit and collection policies and an anti-fraud system in
order to reduce the level of bad debt. As a result of these measures, there was
a significant decrease in bad debt in 1999.

         We experienced a problem with the software of our billing system from
October 1999 through March 2000, which resulted in the understatement of airtime
charges of a portion of our subscribers. This problem, which did not have a
material adverse effect on our financial condition, has since been resolved.

         We are currently exploring the possibility of upgrading or replacing
our billing system to better adapt it to our own new value-added services and to
allow us to track subscriber patterns and build subscriber data.

OUR NETWORK

         At December 31, 1999, our cellular telecommunications network covered
approximately 57% of our region's population. We continue to expand our cellular
telecommunications network to cover as broad a geographical area as is
economically feasible in order to meet consumer demand. Under our concessions,
we have

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obligations concerning network expansion. See " -- Regulation of the Brazilian
telecommunications industry -- Obligations of telecommunications companies," for
a description of these obligations.

         We increase the capacity and improve the quality of our cellular
telecommunications network by building new base stations and adding channels to
existing base stations. This development is carried out in response to projected
subscriber demand. We believe that our cellular telecommunications network will
require further development to meet increasing demand for cellular
telecommunications services in and around our region's major metropolitan areas.
See " -- Quality of service."

         At December 31, 1999, our cellular telecommunications network consisted
of seven cellular switches, two mini-switches, 256 cell sites and 13 repeaters.
Our four principal switching centers are located in Belem (two), Manaus and Sao
Luis.

         We centralized our network administration system in the City of Belem.
This system is capable of monitoring the base stations, switching centers and
all critical network operational parameters. We analyze the performance data
generated by this system in order to make the operating adjustments and capital
expenditures necessary to maintain and enhance network operations. In addition,
technicians operating this system have the ability to rapidly evaluate and
respond to technical difficulties in network operations.

         In 1999 we digitalized our cellular network, using TDMA technology. We
also implemented our own digital transmission systems in the cities of Belem,
Manaus and Sao Luis, providing a significant increase in network quality, as
well as a reduction in leased line costs. At December 31, 1999, approximately
half of our subscribers made use of digital technology services, representing
approximately half of the traffic on our network.

         We believe that digitalization offers advantages, including greater
network capacity, reduced operating costs and additional revenue through the
sale of value-added services. Digital cellular telecommunications service also
offers subscriber greater security. Digital cellular telephones are generally
more expensive than analog telephones. Following digitization, we expanded our
coverage to meet the requirements established in our concessions and the
increasing demand for cellular service in the area.

         Ericsson Telecomunicacoes S.A. is our principal supplier of cellular
telecommunications equipment.

FRAUD DETECTION AND PREVENTION

         Fraud resulting from cloned cellular telephone calls has increased
continuously since we began offering cellular telecommunications services, and
we believe that the incidence of cloning is likely to continue to increase in
the near term. Cloning fraud consists of duplicating the cellular signal of a
subscriber, enabling the perpetrator of the fraud to make telephone calls using
the subscriber's signal. These calls are billed to the subscriber, but we write
off the receivable when we discover that it arose from a fraudulent call. If
part of a fraudulent call is carried by the network of another service provider,
we are obligated to pay that service provider the applicable network usage fee,
regardless of whether we are able to collect the receivable associated with the
call.

         Subscription fraud occurs when a person, typically using a fictitious
identification and address, obtains cellular telecommunications service with no
intention of paying for the service and then incurs substantial charges before
the cellular operator is able to identify the fraud and terminate service. When
we discover that a receivable has been generated by a fraudulent call, we write
off the receivable.

         We have implemented fraud-detection and fraud-prevention measures in an
effort to reduce fraud-related losses. Fraud-detection measures involve the
collection and review of call records to detect abnormal calling patterns. When
abnormal patterns are found, the subscriber is contacted by our fraud control
staff and, if cloning has occurred, the subscriber's number is changed.
Fraud-prevention measures include restrictions on international calls from a
given number and restrictions on three-way calling by customers with
international direct-dial access.

         We have experienced a significant increase in the incidence of
subscription fraud. In response to the increase in subscription fraud, we have
developed subscription fraud prevention measures that include:

            -  background checks of our employees,

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            -  fraud awareness and prevention training, and
            -  credit checks of new customers through credit rating agencies.

         We installed a nationwide fraud detection system licensed from Digital
Equipment Corporation. This system aids in fraud detection in various ways,
including identifying instances of simultaneous usage by a single subscriber,
call frequency and unusually high usage patterns. The system has been
operational within our region since August 1998. We decided to centralize our
anti-fraud system at our facilities in the City of Belem, state of Para, where
we have a better system with a lower level of investment by acquiring and
implementing an Ericsson's solution called "Fraud Office," which prevents
the cloning of numbers.

         We are also planning to implement an authentication center solution to
effectively detect and prevent fraud before it happens, without affecting our
legitimate subscribers. The authentication center prevents wireless fraud by
authenticating mobile stations upon registration, call origination and call
termination. The authentication operations make it possible to immediately
detect the presence of a clone with no noticeable impact to the legitimate
subscribers.

         The basis for these authentication operations is a 26-digit number
called the A-Key, which is known only to the authentication center and the
subscriber's handset. The A-Key, the electronic serial number and a random
number are used as inputs to the cellular authentication and voice encryption
algorithm that produces shared secret data. This data is used to calculate the
value compared between the handset and the authentication center during
authentication. Occasionally, a subscriber's shared secret data may need to be
updated because of a security violation, planned expiration, or routine
administrative procedure.

COMPETITION

Band B competition

         The General Telecommunications Law provides for the introduction of
competition in telecommunications services in Brazil. The federal government has
granted ten licenses to private companies to provide cellular telecommunications
service within particular regions of Brazil on a frequency range referred to as
"Band B." The frequency range used by the cellular service providers that were
spun off from the Telebras System, including us, is referred to as "Band A."
Each Band B license covers a geographic region which generally corresponds to a
cellular region of a Band A service provider. See " -- Regulation of the
Brazilian telecommunications industry -- Concessions and Licenses."

         The license to provide cellular telecommunications services in our
region on Band B was granted to Tele Centro Oeste Celular Participacoes S.A.,
which we refer to as "TCO." TCO paid R$60.5 million for the license and
commenced to provide digital cellular telecommunications service based on the
TDMA standard in October 1999, under the name of Norte Brasil Telecom. The
rights and obligations of TCO under its concessions are substantially the same
as ours under our concession. However, our concessions expire in 2009 and TCO's
licenses expire in 2013. Both may be renewed at the discretion of Anatel for
additional 15-year periods. TCO, a company owned by Splice do Brasil, an
industrial company, currently provides cellular telecommunications services also
in the States of Goias, Mato Grosso do Sul, Mato Grosso, Rondonia, Acre,
Tocantins and the Federal District.

         Our market share in our region was 92% at December 31, 1999. We expect
our market share to decrease gradually as TCO continues to build out its network
in our region.

Other Competition

         We also compete with wireline telephone service providers. Our existing
and potential subscribers may shift to wireline service providers to take
advantage of the lower prices if service quality were to improve. The quality of
service concerns associated with the wireline service provider include
installation delays, service interruptions and service availability. However,
the quality of service of wireline providers could improve if significant
investments in the wireline telephone network are made.

         We believe that wireline service providers do not present a significant
competition for the provision of telecommunications services, as over 90% of our
current subscribers have wirelines. The primary wireline service provider in our
region is Tele Norte Leste Participacoes S.A., which is controlled by Telemar
Participacoes S.A. The

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second company to obtain a concession to provide wireline telecommunications
service in our region is Canbra Telefonica S.A., a consortium comprised of Bell
Canada International, Wireless Local Looping, Qualcomm Incorporated, SLI
Wireless and Taquari Participacoes S.A. Canbra Telefonica S.A. began providing
wireline telecommunications service in our region in February 1999.

         We also compete with other wireless telecommunications services, such
as mobile radio, paging and beeper services, which are used in our region as a
substitute for cellular telecommunications services. These competing wireless
telecommunications services are generally less expensive than cellular
telecommunications services.

         Technological advances in the telecommunications field, such as
Personal Communications Services, commonly known as "PCS," may in the future
introduce additional competition for cellular service providers. PCS services,
which are similar to digital cellular telecommunications services, require a
concession from the federal government. The federal government has indicated
that it plans to auction additional bandwidth for PCS by the end of 2000.

         Satellite services, which provide nationwide coverage, are available in
Brazil. Although satellite services have the benefit of covering a much greater
area than cellular telecommunications services, they are considerably more
expensive than cellular telecommunications services and do not offer comparable
coverage inside buildings. Currently, we do not plan to offer mobile satellite
services, other than pursuant to a roaming arrangement with a satellite service
provider, or PCS services, although we may consider doing so in the future.

         The entry of new competitors may have a material adverse effect on our
business, financial condition, results of operations or prospects. Any adverse
effects on results and market share from competitive pressures will depend on a
variety of factors that cannot now be assessed with precision and that are
beyond our control. The factors include, among others, the identity of the
competitors, their business strategies and capabilities, prevailing market
conditions at the time, the regulations applicable to new entrants and us and
the effectiveness of our efforts to prepare for increased competition. One or
more new competitors may have technical or financial resources greater than
ours.

OPERATING AGREEMENTS

Interconnection Agreements

         The provision of interconnection services to other telecommunications
service providers is obligatory upon request of another service provider, except
in the case of service providers within the same cellular region.

         We have entered into interconnection agreements with Embratel and our
predecessor companies. The terms of these interconnection agreements include
provisions for the number of connection points, the method by which signals must
be received and transmitted and the costs and fees of interconnection. In
addition, network usage charges are assessed based on the terms of these
agreements. These agreements do not have termination provisions; we believe that
Anatel would not allow a termination prior to the expiration and non-renewal of
a concession to avoid possible potential disruptions in telecommunications. See
" -- Regulation of the Brazilian telecommunications industry -- Obligations of
telecommunications companies -- Interconnection."

         We currently do not interconnect with TCO, the Band B operator in our
region.

Roaming agreements

         The provision of roaming services to other telecommunications service
providers is obligatory upon request of another service provider, except in the
case of service providers within the same cellular region.

         We have entered into agreements for automatic roaming with all the
other Band A and Band B service providers outside our region. These roaming
agreements permit our subscribers to use their cellular telephones on the
networks of other cellular service providers while traveling or "roaming"
outside our region. Conversely, we are required to provide cellular
telecommunications service to subscribers of those cellular service providers
from outside our region when those subscribers are within our region. The
agreements require the parties to provide service to roaming subscribers on the
same basis as they provide service to their own subscribers and to carry out a

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monthly reconciliation of roaming subscriber usage charges. The agreements have
a three-year term and automatically renew for further one-year terms.

         We currently do not have a roaming agreement with TCO, the Band B
operator in our region.

EMPLOYEES

         At December 31, 1999, we had 770 employees, as compared to 490
employees at December 31, 1998. Of our employees, 14% were employed in sales and
marketing, 10% in engineering, 21% in administration, 49% in customer service
and 6% in information technology. The significant increase in employees in 1999
occurred primarily in the areas of customer service and sales and marketing,
which had not been areas of priority before the privatization.

         We believe that our relationship with our work force is good. We have
not experienced any work stoppages since the privatization.

         We participate in a pension fund, Fundacao Telebras de Sguridade Social
-- Sistel, the purpose of which is to supplement government-provided benefits.
We make monthly contributions to Sistel currently equal to 13.5% of the salary
of each employee who is a Sistel member. Each member employee also makes a
monthly contribution to Sistel based on age and salary. Members of Sistel
qualify for full pension benefits after reaching age 57, provided they have been
members of Sistel for at least ten uninterrupted years and have been affiliated
with the social security system for at least 35 years. Sistel operates
independently from us, and its assets and liabilities are fully segregated from
ours. Our employees at the time of the privatization had the right to maintain
their rights and benefits in Sistel.

         Sistel is a multi-employer defined benefit plan that covers the former
employees of the Telebras system, and we are contingently liable for all of the
unfunded obligations of the plan. See Note 12 to the consolidated financial
statements for a fuller description of this contingency. We believe that Sistel
may be replaced by one or more separate plans, but we do not know when this will
occur or what the consequences will be for us or our employees.

RESEARCH AND DEVELOPMENT

         In connection with the breakup of Telebras, we were required to enter
into a three-year contract in May 1998 with Telebras' Center for Research and
Development (Centro de Pesquisa e Desenvolvimento da Telebras), under which we
are obligated to contribute a maximum of R$1.2 million per year to the Center
during the three years ending May 2001. We do not conduct any independent
research and primarily depend upon the manufacturers of telecommunications
products for the development of new hardware.

REGULATION OF THE BRAZILIAN TELECOMMUNICATIONS INDUSTRY

General

         Our business, including the services we provide and the rates we
charge, is subject to comprehensive regulation under the Minimum Law (Lei
Minima), the General Telecommunications Law, a new comprehensive regulatory
framework for the provision of telecommunications services enacted by Anatel in
November 1998 and various related administrative enactments. We operate under
concessions that authorize us to provide cellular services and require
compliance with some obligations.

         Anatel is the regulatory agency for telecommunications under the
October 1997 Regulation of the National Telecommunications Agencies (Regulamento
da Agencia Nacional de Telecomunicacoes). Anatel, which is administratively
independent and financially autonomous, is required to report on its activities
to the Ministry of Telecommunications. Anatel has authority to propose and issue
regulations that are legally binding on telecommunications service providers.
Any proposed regulation must undergo a period of public comment, which may
include public hearings, and may be challenged in Brazilian courts.

Concessions and licenses

         Concessions and other types of licenses to provide telecommunications
services are granted under the public regime or the private regime. Our
concessions are granted under the private regime and we are subject to

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some obligations imposed by Anatel, which we describe below under " --
Obligations of telecommunications companies."

         Pursuant to the Minimum Law, the Band A and Band B service providers
have been granted concessions. Each concession is a specific grant of authority
to provide cellular telecommunications services, conditioned on compliance with
requirements contained in the applicable list of obligations appended to each
concession. If a cellular service provider wishes to offer any
telecommunications service other than the cellular telecommunications service
authorized by its concession, it may apply to Anatel for a license to offer such
other services.

         Each concession has been granted for an initial period of 15 years, and
may be renewed at the discretion of Anatel for further periods of 15 years if
the list of obligations has been met. The concessions to provide cellular
telecommunications services in the states of Para, Amazonas, Maranhao, Amapa and
Roraima expire in March 2009, August 2009, April 2009, May 2009 and July 2009,
respectively.

         Until December 31, 1999, the provision of cellular telecommunications
services was limited to one Band A service provider and one Band B service
provider in any single region. Beginning in January 1, 2000, Anatel may grant
concessions to additional providers of cellular telecommunications services.
Anatel has indicated that it plans to auction additional bandwidth for PCS by
the end of 2000.

Obligations of telecommunications companies

         General. As described below, we must comply with certain requirements
relating to quality of service, network expansion and interconnection. Anatel
does not currently require network operators to unbundle network elements and
services, although Anatel has stated that it plans to review the issue on a
regular basis and may require unbundling in the future. In an unbundled regime,
each network operator is required to provide a detailed list of network services
and elements which may be purchased separately by a party requesting
interconnection.

         Quality of service and network expansion. We, like other cellular
service providers, are subject to obligations concerning quality of service and
network expansion and modernization. If we fail to meet these obligations we may
be fined. Penalties can be of up to 0.05% of annual net operating revenues per
day until full compliance, subject to a variable maximum penalty amount.

         There is as well a potential for revocations of our concessions.
However, there are no precedents for the revocation of a telecommunications
concession and there are no precise guidelines under Brazilian laws or
regulations for when such an action would arise in the event of noncompliance
with the terms of a concession.

         Our quality of service obligations require:

            -  the cellular network to be fully operational at least 98% of the
               time;
            -  the rate of failed call completion due to signal loss not to
               exceed 3%;
            -  the rate at which the cellular network rejects attempted calls
               because no circuits are available not to exceed 5%;
            -  the rate at which interconnected calls fail to complete not to
               exceed 3%;
            -  the cellular network to be available on first call attempts at
               least 90% of the time; and
            -  the number of subscription complaints per month not to exceed
               five per 100 subscribers.

         We must meet these standards by the end of 2000. We must also provide
cellular telecommunications service to municipalities in our region in
accordance with the following requirements:

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MINIMUM COVERAGE REQUIRED
                                                       BY NOVEMBER 4,
                                             ---------------------------------

POPULATION OF MUNICIPALITY(1)                1999      2000      2001     2002
-----------------------------                ----      ----      ----     ----
30,000 to 50,000.........................      --       --        --       70%
50,000 to 75,000.........................      --       --        80%      --
75,000 to 100,000........................      --       90%       --       --
100,000 to 200,000.......................     100%      --        --       --
Maximum average installation waiting time
    (in days)(2).........................     120       30        15        5
----------------
(1)  For service to be deemed to be offered in any municipality, service must be
     available to at least 30% of the population.
(2)  Time between request for service and connection in areas with cellular
     telecommunications service.

         We have met or exceeded our network expansion obligations for the
period 1998-2000 and at present are in compliance with our quality of service
obligations. We expect that we will be in compliance with our obligations. We
expect that we will be in compliance with our obligations at all times.

         Interconnection. All telecommunications service providers are required
to provide interconnection upon request to any party that provides public
telecommunications services, with the exception of competitors within the same
cellular region. The terms and conditions of interconnection are to be freely
negotiated between parties, subject to a price cap established by Anatel. If a
company offers any party an interconnection tariff below the price cap, it must
offer that tariff to any other requesting party on a nondiscriminatory basis. If
the parties cannot agree on the amount of the interconnection tariff, Anatel
will act as the final arbiter.

         Anatel has stated that for the time being it does not expect to require
network operators to permit co-location of equipment. Co-location means that a
network operator permits another party to place its switching equipment in or
near the local exchange of the network operator and to connect to the network at
this location. Co-location is currently a matter for negotiation between
interested parties.

Rate regulation

         Our concessions provide for a price-cap mechanism to set and adjust
rates on an annual basis. The cap is a maximum weighted average price for a
basket of services. The basket includes the services in the Basic service plan,
including monthly subscription fee, VC1, VC2, VC3, DSL1, DSL2 and AD charges, as
well as the network usage fees.

         The initial price cap agreed upon by Anatel and us in our concession is
based on previously existing rates, which were developed based on our fully
allocated costs The initial price cap is adjusted on an annual basis under a
formula set forth in our concessions. The price cap is adjusted to reflect
changes in the provider's cost structure and the rate of inflation as measured
by the General Price Index, Internal Availability (Indice Geral de Precos,
Disponibilidade Interna), an inflation index developed by the Fundacao Getulio
Vargas, a private Brazilian economic research organization.

         The weighted average rate for the entire basket of services may not
exceed the price cap, but the rates for individual services within the basket
may be increased. We may increase the rate for any individual service by up to
20%, subject to a downward adjustment for inflation effects already captured in
the annual upward adjustments of the overall price cap for the basket, so long
as it adjusts other prices downward to ensure that the weighted average rate
does not exceed the price cap.

         Other telecommunications companies wishing to interconnect with and use
our network must pay a network usage fee. The network usage fee is a flat fee
charged per minute of use which represents an average charge for a basket of
network elements and services. The network usage fee charged by Band A service
providers is subject to a price cap set by Anatel. The price cap for the network
usage fee varies from company to company based on the underlying cost
characteristics of each company's network.

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ITEM 2.  DESCRIPTION OF PROPERTY

         Our principal physical properties consist of transmission equipment,
switching equipment and base stations. Our headquarters are located in Brasilia
and we lease approximately 3,200 square meters of office space in the cities of
Belem, Macapa, Sao Luiz and Boa Vista and own approximately 2,480 square meters
of office space in Manaus.

         We also lease the sites where our cellular telecommunications network
equipment is installed. At December 31, 1999, we had seven cellular switches in
Belem, Maraba, Sao Luiz, Manaus, Macapa and Boa Vista, 256 cell sites and 13
repeaters, all of which were located on land leased by us. Most of these leases
are renewable on a yearly basis. In addition, we lease nine retail stores
throughout the region.

ITEM 3.  LEGAL PROCEEDINGS

LITIGATION RELATED TO THE BREAKUP OF TELEBRAS

         The breakup of Telebras is subject to several lawsuits in which the
plaintiffs have requested, and in certain cases obtained, preliminary
injunctions against the breakup. All of these preliminary injunctions have been
quashed by decisions of the relevant Federal Court, although several of these
decisions are currently on appeal.

         These lawsuits are based on a number of legal theories, the principal
among which are that:

            -  Brazil's Constitution requires that the creation of the twelve
               new holding companies be specifically authorized by the General
               Telecommunications Law;
            -  the Telebras shareholders' meeting held on May 22, 1998 which
               approved the breakup was not properly convened;
            -  national sovereignty will be threatened if the country's
               telecommunications companies are controlled by foreign entities;
               and
            -  the General Telecommunications Law requires that some matters,
               such as the entry of new competitors and the administration of
               development and technology funds, be regulated prior to the
               breakup and privatization either by an executive order of the
               President or by an act of Congress.

         If any of the plaintiffs in the above-described lawsuits ultimately
prevails, the breakup will have to be reinitiated. It is theoretically possible
under Brazilian law for a court to require that the breakup be unwound, although
we believe that this is very unlikely.

LITIGATION ARISING OUT OF EVENTS PRIOR TO THE BREAKUP

         Telebras and our predecessor companies, the legal predecessors of the
Registrant, and our subsidiaries, respectively, are defendants in a number of
legal proceedings including tax and labor-related matters and subject to certain
other claims and contingencies. Liability for any claims arising out of acts
committed by our predecessor companies prior to the effective date of the
spin-off of the cellular assets and liabilities of the predecessor companies to
our subsidiaries remains with the predecessor companies, except for:

            -  labor and tax claims, for which the predecessor companies and the
               subsidiaries are jointly and severally liable, by operation of
               law, and
            -  liabilities with respect to which our predecessor companies had
               made specific accounting provision prior to the breakup,
               assigning them to our subsidiaries.

         Any claims against the predecessor companies which are not satisfied by
the predecessor companies could result in claims against our subsidiaries to the
extent that our subsidiaries received assets at the time of the spin-off which
might have been used to settle those claims. Under the shareholders' resolution
pursuant to which the spin-off was effected, our subsidiaries have contribution
rights against the predecessor companies with respect to the entire amount of
any payments made by our subsidiaries in connection with any labor or tax claims
brought against our subsidiaries which relate to events prior to the effective
date of the spin-off.

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         Under the terms of the breakup, liability for any claims arising out of
acts committed by Telebras prior to the effective date of the breakup remains
with Telebras, except for:

            -  labor and tax claim for which Telebras and the new holding
               companies are jointly and severally liable by operation of law,
               and
            -  any liability with respect to which Telebras made a specific
               accounting provision prior to the breakup to the extent that such
               provision has been assigned to us or one of the other new holding
               companies. We believe that the likelihood that these claims will
               materialize and have a material adverse effect on our business,
               results of operations or financial condition is remote.

LITIGATION RELATED TO THE APPLICATION OF THE ICMS

General

         In June 1998, the governments of the individual Brazilian states
approved an agreement to interpret existing Brazilian tax law to apply the state
value-added tax, commonly known as the "ICMS," to certain services, including
cellular activation and monthly subscriptions. The agreement also provides that
the ICMS may be applied retroactively to activation services rendered during the
five years preceding June 1998.

         We believe that the attempt by the state governments to extend the
scope of the ICMS to services that are supplementary to basic telecommunications
services such as cellular activation and monthly subscriptions, is unlawful
because:

            -  the state governments acted beyond the scope of their authority,
            -  the application of ICMS taxes to services not previously defined
               as telecommunications services requires the enactment of a
               specific law to that effect, and
            -  the Brazilian Constitution does not allow the retroactive
               application of new taxes.

Taxation of cellular activation

         Each of our subsidiaries has filed a lawsuit with the Treasury Court of
the state in which it is located seeking injunctive relief from retroactive and
prospective application of the ICMS to cellular activation. Each of our
subsidiaries has obtained a temporary injunction relieving it from the payment
of the ICMS on cellular activation during the pendency of the lawsuits.
Nonetheless, the tax authorities of the states where the lawsuits are pending
may appeal the decisions of the Treasury Court to grant temporary injunctions.
We cannot assure you that our subsidiaries will ultimately prevail in any appeal
relating to the temporary injunctions or in the underlying litigation with
respect to application of the ICMS to cellular activation.

         We may not prevail in our position that the new interpretation by the
state governments is unlawful. Five-year retroactive application of the ICMS to
cellular activation would have a material adverse impact on our business results
of operations and financial condition. However, we believe that the retroactive
application of the ICMS to cellular activation is improbable. We also believe
that the predecessor companies would be liable to our subsidiaries for any tax
liability arising from the retroactive application of the ICMS to cellular
activation recognized prior to 1998. Therefore, we have not made any provision
with respect to such application prior to 1998 in our consolidated financial
statements.

         We have made provisions totaling approximately R$3.0 million for the
application of the ICMS on cellular activation from the effective date of the
agreement to December 31, 1999. The application of the ICMS to cellular
activation for the full years ended December 31, 1998 and 1999, would have had a
maximum negative impact estimated at R$2.7 million and R$0.3 million,
respectively, on our results of operations for 1998 and 1999, respectively. We
do not believe that application of the ICMS to cellular activation, applied on a
prospective basis, will have a material impact on our results of operations.

Taxation of monthly subscriptions and other services

         In December 1998, each of our subsidiaries filed an injunction with the
Treasury Court of the state in which it is located and therefore suspended the
remittance of the ICMS on monthly subscriptions and additional services

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20
and we deposited such amounts in a trust account administered by the courts. We
cannot assure you that we will prevail. Accordingly, we have recorded an
aggregate provision of R$4.3 million for 1998 and 1999 in our consolidated
financial statements.

OTHER LITIGATION

         We are a party to certain legal proceedings arising in the normal
course of business. We have provided for or deposited in court amounts to cover
our estimated losses due to adverse legal judgments. We believe that these
actions, if decided against us, would not have a material adverse effect on our
business, results of operations or financial condition.

ITEM 4.  CONTROL OF REGISTRANT

         Of our two classes of capital stock outstanding, only the common shares
have full voting rights. The preferred shares have voting rights under limited
circumstances. Telpart owns 51.8% of the common shares. Accordingly, Telpart has
the ability to control the election of our Board of Directors and our direction
and future operations.

         The following table presents information concerning the ownership of
our common shares by Telpart. We are not aware of any other shareholder owning
more than 10.0% of the common shares.
NUMBER OF COMMON         PERCENTAGE OF OUTSTANDING
NAME OF OWNER                   SHARES OWNED                 COMMON SHARES
-------------                   ------------                 -------------
Telpart S.A..........          64,499,336,719                    51.8%
Our officers and directors as a group own less than 0.01% of the common
shares.

         Telpart is a consortium comprising Newtel Participacoes S.A., which
owns 51% of Telpart, and TIW do Brasil Ltda., which owns the remaining 49%.
Telpart also owns a controlling interest in Telemig Celular Participacoes S.A.,
the Band A service provider in the cellular region that includes the State of
Minas Gerais.

         Newtel Participacoes S.A. is a holding company. Fifty-one percent of
Newtel is owned by Opportunity MEM S.A., which is indirectly held by investment
and mutual funds managed by Opportunity Bank, a private Brazilian investment
bank. Forty-nine percent of Newtel is owned by the following Brazilian pension
funds: SISTEL - Fundacao Sistel Seguridade Social, TELOS - Fundacao Embratel de
Seguridade Social, FUNCEF - Fundacao dos Economiarios Federais; PETROS -
Fundacao Petrobras de Seguridade Social and PREVI - Caixa de Previdencia dos
Funcionarios do Banco do Brasil.

         TIW do Brasil Ltda. is an indirect wholly owned subsidiary of
Telesystem International Wireless, Inc., which we refer to as "TIW," a Canadian
public company whose shares are listed on NASDAQ and the Toronto Stock Exchange.
TIW develops, acquires, owns and operates wireless telecommunications networks
in developing and developed markets throughout the world.

         On December 28, 1999, our shareholders approved a legal reorganization
whereby Telpart contributed some assets to us resulting in future tax benefits.
We recorded a deferred tax asset of R$48.8 million which is recognized over a
period of up to ten years. In accordance with Brazilian corporate law, we may
issue shares (pro rate both common and preferred) to Telpart for the amount of
the tax benefits recognized by us. In addition, minority shareholders are
granted preemptive rights. If the minority shareholders do not elect to exercise
these rights, the shares will be issued to Telpart. See Note 7 to the
consolidated financial statements for a fuller description.

ITEM 5.  NATURE OF TRADING MARKET

         The principal trading market for the preferred shares is the Sao Paulo
Stock Exchange (Bolsa de Valores de Sao Paulo). At December 31, 1999, we had
approximately 2.5 million common and preferred shareholders.

                                       17
21
         The preferred shares commenced trading separately on the Brazilian
stock exchanges on September 21, 1998.

         The following table presents the reported high and low closing sale
prices for our preferred shares as reported on the Sao Paulo Stock Exchange for
the periods indicated.
NOMINAL REAIS PER 1,000
                                                            PREFERRED SHARES
                                                            ----------------
                                                          HIGH             LOW
                                                          ----             ---
Third quarter 1998 (beginning September 21, 1998)..      R$0.44           R$0.12
Fourth quarter 1998................................      R$1.05           R$0.23
First quarter 1999.................................      R$1.04           R$0.48
Second quarter 1999................................      R$1.24           R$0.93
Third quarter 1999.................................      R$1.24           R$0.69
Fourth quarter 1999................................      R$1.59           R$1.02
In the United States, the preferred shares trade in the form of
American Depository Shares, commonly referred to as "ADSs," each representing
50,000 preferred shares, issued by The Bank of New York, as depositary pursuant
to a deposit agreement among the Registrant, the depositary and the registered
holders and beneficial owners from time to time of American Depository Receipts,
which are commonly known as "ADRs." The ADSs commenced trading separately on the
New York Stock Exchange on November 16, 1998 under the symbol "TCN". At December
31, 1999, there were approximately 127 holders of record of ADSs. The following
table presents the reported high and low closing sales prices for ADSs on the
New York Stock Exchange for the period indicated.
U.S. DOLLARS PER ADS
                                                         --------------------
                                                         HIGH            LOW
                                                         ----            ---
Fourth quarter 1998 (Beginning November 16, 1998)...   U.S.$45         U.S.$11?
First quarter 1999..................................   U.S.$29 3/4     U.S.$17
Second quarter 1999.................................   U.S.$36 1/4     U.S.$25 1/2
Third quarter 1999..................................   U.S.$33?        U.S.$19?
Fourth quarter 1999.................................   U.S.$43 1/2     U.S.$25 1/2
TRADING ON THE BRAZILIAN STOCK EXCHANGES

         Until May 2000, Brazil had nine stock exchanges, with the Sao Paulo
Stock Exchange and the Rio de Janeiro Stock Exchange as the most significant.
During 1999, the Sao Paulo Stock Exchange accounted for approximately 92% of the
trading value of equity securities on all Brazilian stock exchanges, and the Sao
Paulo Stock Exchange and the Rio de Janeiro Stock Exchange together accounted
for substantially all of the trading value of equity securities on all Brazilian
stock exchanges.

         In May 2000, the nine stock exchanges were unified under the management
of the Sao Paulo Stock Exchange. The verification process requires the signing
of protocol agreements between the Sao Paulo Stock Exchange and each of the
other eight stock exchanges. It is expected that all the agreements will be
signed by the end of the year 2000.

         The Sao Paulo Stock Exchange is a nonprofit entity owned by its member
brokerage firms. Trading on the exchange is limited to member brokerage firms
and a limited number of authorized nonmembers. The Sao Paulo Stock Exchange has
two open outcry trading sessions each day, from 10:00 a.m. to 1:00 p.m. and from
2:00 p.m. to 4:50 p.m. Trading is also conducted from 10:00 a.m. to 5:00 p.m. on
an automated system. There are no specialists or market makers for our shares on
the Sao Paulo Stock Exchange.

         Settlement of transactions is effected three business days after the
trade date without adjustment of the purchase price for inflation. Payment for
shares is made through the facilities of separate clearinghouses for each
exchange which maintain accounts for member brokerage firms. The seller is
ordinarily required to deliver the shares to the exchange on the second business
day following the trade date. The clearinghouse for the Sao Paulo

                                       18
22
Stock Exchange is Companhia Brasileira de Liquidacao e Custodia S.A. - CBLC,
which is controlled mainly by the member brokerage firms and banks that are not
members of that exchange.

         At December 31, 1999, the aggregate market capitalization of the 478
companies listed on the Sao Paulo Stock Exchange was approximately R$228.5
billion. Although all the outstanding listed shares of an exchange-listed
company may trade on a Brazilian stock exchange, in most cases less than half of
the listed shares are actually available for trading by the public, the
remainder being held by small groups of controlling persons that rarely trade
their shares. For this reason, data showing the total market capitalization of
Brazilian stock exchanges tend to overstate the liquidity of the Brazilian
equity securities market.

         The Brazilian equity market is relatively small and illiquid compared
to major world markets. In 1999, the combined daily trading volumes on the Sao
Paulo Stock Exchange and the Rio de Janeiro Stock Exchange averaged
approximately R$971.8 million.

         Trading on Brazilian stock exchanges by nonresidents of Brazil is
subject to some limitations under Brazilian foreign investment legislation.

REGULATION OF BRAZILIAN SECURITIES MARKETS

         The Brazilian securities markets are regulated by the Brazilian
Securities Commission (Comissao de Valores Mobiliarios), commonly referred to as
"CVM," which has authority over stock exchanges and the securities markets
generally, and by the Central Bank, which has, among other powers, licensing
authority over brokerage firms and regulates foreign investment and foreign
exchange transactions. The Brazilian securities market is governed by Law No.
4,728 as amended, which is commonly referred to as the "Brazilian Securities
Law," and Law No. 6,404, as amended, which is commonly referred to as the
"Brazilian Corporation Law."

         Under the Brazilian Corporation Law, a company is either public
(companhia aberta), such as the Registrant, or private, a (companhia fechada).
All public companies are registered with the CVM and are subject to reporting
requirements. A company registered with the CVM may have its securities traded
either on the Sao Paulo Stock Exchange or in the Brazilian over-the-counter
market. The shares of a public company may also be traded privately, subject to
some limitations. To be listed, a company must apply for registration with the
CVM and the Sao Paulo Stock Exchange.

         Trading in securities on the Sao Paulo stock exchange may be suspended
at the request of a company in anticipation of a material announcement. Trading
may also be suspended on the initiative of the Sao Paulo Stock Exchange or the
CVM, among other reasons, based on or due to a belief that a company has
provided inadequate information regarding a material event or has provided
inadequate responses to inquiries by the CVM or the Sao Paulo Stock Exchange.

         The Brazilian Securities Law provides for, among other things,
disclosure requirements, restrictions on insider trading and price manipulation,
and protection of minority shareholders. However, the Brazilian securities
markets are not as highly regulated and supervised as the United States
securities markets or markets in certain other jurisdictions.

ITEM 6.  EXCHANGE CONTROL AND OTHER LIMITATIONS AFFECTING SECURITY-HOLDERS

         There are no restrictions on ownership of preferred shares or common
shares of the Registrant by individuals or legal entities domiciled outside
Brazil.

         The right to convert dividend payments and proceeds from the sale of
shares into foreign currency and to remit such amounts outside Brazil is subject
to restrictions under foreign investment legislation which generally requires,
among other things, that the relevant investments be registered with the Central
Bank. The restrictions on the remittance of foreign capital abroad may hinder or
prevent Banco Itau S.A., which is acting as custodian for the preferred shares
represented by ADSs, or holders who have exchanged ADRs for preferred shares
from converting dividends, distributions or the proceeds from any sale of such
preferred shares, as the case may be, into U.S. dollars and remitting such U.S.
dollars abroad. Holders of ADSs could be adversely affected by delays in, or
refusal to grant any, required government approval for conversions of Brazilian
currency payments and remittances abroad of the proceeds from dividends or sales
of Preferred Shares underlying the ADSs.

                                       19
23
         The system of foreign investment in financial and capital markets in
Brazil has been modified by Resolution No. 2,689 of the National Monetary
Council on January 26, 2000, which substitutes the rules of Annex IV to
Resolution No. 1,289 of the National Monetary Council. Portfolios under Annex IV
must be adapted to the new regulations by June 30, 2000.

         According to the present resolution, the entry of foreign capital
through the free-rate exchange market, as an investment in the Brazilian
financial and capital markets, will be subject to electronic registration at the
Central Bank. Qualified foreign investors registered with the CVM, acting
through authorized custody accounts managed by local agents, may buy and sell
shares on Brazilian stock exchanges without obtaining separate certificates of
registration for each transaction. However, institutions that provide custody
services must submit monthly information to the Central Bank regarding each
foreign investor, as well as submit to the Central Bank or the CVM records of
transactions made by foreign investors.

         The term "qualified foreign investors" includes any individual or a
financial or non-financial institution, resident or domiciled abroad, which (i)
has a legal representative in Brazil, (ii) fills out a form to be kept on hand
by the legal representative; and (iii) obtains registration with the CVM as a
foreign investor. If the legal representative is an individual or non-financial
institution, the foreign investor should also indicate a financial institution
domiciled in Brazil as its legal representative.

         The issuance of depositary receipts in foreign markets in respect of
shares of Brazilian issuers, such as our ADRs, is permitted by Resolution No.
1,927 of the National Monetary Council, which is the restated and amended Annex
V to Resolution No. 1,289 of the National Monetary Council. Our ADS program was
approved under the Annex V regime by the Central Bank and the CVM prior to the
issuance of the ADSs. Accordingly, the proceeds from the sale of ADSs by ADR
holders outside Brazil are free of Brazilian foreign investment controls and
holders of the ADSs will be entitled to the favorable tax treatment.

         A certificate of registration has been issued in the name of the
depositary with respect to the ADSs and is maintained by the custodian on behalf
of the depositary. Pursuant to the certificate of registration, the custodian
and the depositary are able to convert dividends and other distributions with
respect to the preferred shares represented by ADSs into foreign currency and
remit the proceeds outside Brazil. In the event that a holder of ADSs exchanges
such ADSs for preferred shares, such holder will be entitled to continue to rely
on the depositary's certificate of registration for five business days after
such exchange, following which such holder must seek to obtain its own
certificate of registration with the Central Bank. A holder of preferred shares
may not convert them into foreign currency and remit outside Brazil unless such
holder obtains its own certificate of registration. A holder that obtains a
certificate of registration will be subject to less favorable Brazilian tax
treatment than a holder of ADSs. See "Taxation -- Brazilian tax considerations"
for a description of this tax treatment.

         Under current Brazilian legislation, the federal government may impose
temporary restrictions on remittances of foreign capital abroad in the event of
a serious imbalance or an anticipated serious imbalance of Brazil's balance of
payments. For approximately six months in 1989 and early 1990, the federal
government froze all dividend and capital repatriations held by the Central Bank
that were owed to foreign equity investors, in order to conserve Brazil's
foreign currency reserves. These amounts were subsequently released in
accordance with federal government directives. The imbalance in Brazil's balance
of payments increased during 1998, and there can be no assurance that the
federal government will not impose similar restrictions on foreign repatriations
in the future.

ITEM 7.  TAXATION

         The following summary contains a description of the material Brazilian
and U.S. federal income tax consequences of the acquisition, ownership and
disposition of preferred shares or ADSs. This summary does not purport to be a
comprehensive description of all the tax considerations that may be relevant to
a decision to purchase preferred shares or ADSs. The summary is based upon the
tax laws of Brazil and related regulations and on the tax laws of the United
States and related regulations as in effect on the date of this annual report.
These laws and regulations may change in the future.

         Although there is at present no income tax treaty between Brazil and
the United States, the tax authorities of the two countries have had discussions
that may culminate in such a treaty. We cannot assure you, however, as to
whether or when a treaty will enter into force or how it will affect the U.S.
holders of preferred shares or ADSs.

                                       20
24
Prospective holders of preferred shares or ADSs should consult their own tax
advisors as to the tax consequences of the acquisition, ownership and
disposition of preferred shares or ADSs in their particular circumstances.

BRAZILIAN TAX CONSIDERATIONS

         The following discussion summarizes material Brazilian tax consequences
of the acquisition, ownership and disposition of preferred shares or ADSs by a
holder not deemed to be domiciled in Brazil for Brazilian tax purposes. This
discussion does not address all the Brazilian tax considerations that may be
applicable to any such particular non-Brazilian holder, and each non-Brazilian
holder should consult his or her own tax advisor about the Brazilian tax
consequences of investing in preferred shares or ADSs.

Taxation of dividends

         Dividends paid by the Registrant in cash or in kind from profits of
periods beginning on or after January 1, 1996 (i) to the depositary in respect
of preferred shares underlying ADSs or (ii) to a non-Brazilian holder in respect
of preferred shares, will generally not be subject to Brazilian withholding tax.

         Dividends paid from profits generated before January 1, 1996 may be
subject to Brazilian withholding tax at varying rates, except that stock
dividends are not subject to Brazilian tax unless the stock is subsequently
redeemed by the Registrant, or the non-Brazilian holder sells the stock in
Brazil, within five years after the distribution.

         The only Brazilian tax treaty now in effect that would, if specified
conditions are met, reduce the rate of the withholding tax on dividends paid
from profits generated before January 1, 1996 is the treaty with Japan, which
would reduce the rate to 12.5%.

Taxation of capital gains

         Capital gain or loss is defined as the difference between the amount in
Brazilian currency realized on the sale or exchange and the acquisition cost of
the shares sold, measured in Brazilian currency without any correction for
inflation. The acquisition cost of shares registered as an investment with the
Central Bank is calculated on the basis of the foreign currency amount
registered with the Central Bank.

         Capital gains realized outside Brazil by a non-Brazilian holder on the
disposition of ADSs or preferred shares to another non-Brazilian holder are not
subject to Brazilian tax. The deposit of preferred shares in exchange for ADSs
and the withdrawal of preferred shares upon cancellation of ADSs are also not
subject to Brazilian tax.

         Capital gains realized by non-Brazilian holders on dispositions of
preferred shares in Brazil or in transactions with Brazilian residents may be
free of Brazilian tax, taxed at a rate of 10% or taxed at a rate of 15%,
depending on the circumstances described below:

            -  Gains on the disposition of preferred shares obtained upon
               cancellation of ADSs are not taxed in Brazil if such disposition
               is made, and the proceeds are remitted abroad, within five
               business days after cancellation.
            -  If the sales value of the preferred shares contains a component
               of interest on capital, the amount of this interest will be taxed
               at a rate of 15%. See " - Distributions of interest on capital"
               below.
            -  Gains on the sale or exchange of duly-registered investments made
               in accordance with Resolution No. 2.689 of the Monetary Council
               are not subject to Brazilian tax if such sale or exchange occurs
               on a Brazilian stock exchange, except for investments originating
               from countries where income is not taxed or is taxed at a rate
               lower than 20%, which are taxed in accordance with the same tax
               rules applicable to Brazilian residents;
            -  Gains realized through transactions on Brazilian stock exchanges
               are generally subject to tax at a rate of 10%, and
            -  Gains realized through off-exchange transactions in Brazil or
               with Brazilian residents are generally subject to tax at a rate
               of 15%.

                                       21
25
         Any gains realized by a non-Brazilian holder upon the redemption of
preferred shares will be treated as gains from the disposition of such Preferred
Shares to a Brazilian resident occurring off of a stock exchange and will
accordingly be subject to tax at a rate of 15%.

         Brazil's tax treaties do not grant relief from taxes on gains realized
on sales or exchanges of preferred shares.

         We cannot assure you that the current preferential treatment for
holders of ADSs and non-Brazilian holders of preferred shares under the
Resolution No. 2.689 regime will be maintained.

         Any exercise of preemptive rights relating to the preferred shares or
ADSs will not be subject to Brazilian taxation. Gains on the sale or assignment
of preemptive rights relating to the preferred shares will be treated
differently for Brazilian tax purposes depending on whether

            -  the sale or assignment is made by the depositary or the investor,
               and
            -  the transaction takes place on a Brazilian stock exchange.

         Gains on sales or assignments made by the depositary on a Brazilian
stock exchange are not taxed in Brazil, but gains on other sales or assignments
may be subject to tax at rates up to 15%.

Distributions of interest on capital

         Brazilian corporations may make payments to shareholders characterized
as interest on the capital of the company as an alternative form of making
dividend distributions. The rate of interest may not be higher than the federal
government's long-term interest rate as determined by the Central Bank from time
to time (11.00% per annum for the three-month period starting April 1, 2000).
The total amount distributed as interest on capital may not exceed the greater
of

            -  50% of net income for the year in respect of which the payment is
               made before taking such distribution and any deductions for
               income taxes into account, or
            -  50% of retained earnings for years prior to the year in respect
               of which the payment is made, plus profit reserves.

         Payments of interest on capital are decided by the shareholders on the
basis of recommendations of a company's board of directors.

         Distributions of interest on capital paid to Brazilian and
non-Brazilian holders of preferred shares, including payments to the depositary
in respect of preferred shares underlying ADSs, are deductible by the Registrant
for Brazilian corporate income tax purposes. These payments are subject to
Brazilian withholding tax at the rate of 15%, except for payments to persons who
are constitutionally exempt from tax in Brazil. Payments to persons situated in
jurisdictions deemed to be tax havens will be subject to tax at a 25% rate. Tax
havens are defined as countries that either have no income tax or in which the
income tax rate is less than 20%.

         We cannot assure you that our Board of Directors will not recommend
that future distributions of profits should be made by means of interest on
capital instead of by means of dividends.

         Amounts paid as interest on capital, net of applicable withholding tax,
may be treated as payments in respect of the dividends we are obligated to
distribute to our shareholders in accordance with our charter and the Brazilian
Corporation Law. Distributions of interest on capital in respect of the
Preferred Shares, including distributions to the depositary in respect of
preferred shares underlying ADSs, may be converted into U.S. dollars and
remitted outside of Brazil, subject to applicable exchange controls.

Other Brazilian taxes

         There are no Brazilian inheritance, gift or succession taxes applicable
to the ownership, transfer or disposition of preferred shares or ADSs by a
non-Brazilian holder except for gift and inheritance taxes levied by some states
in Brazil on gifts made or inheritances bestowed by individuals or entities not
resident or domiciled in Brazil or in the relevant state to individuals or
entities that are resident or domiciled within such state in Brazil.

                                       22
26
There are no Brazilian stamp, issue, registration, or similar taxes or duties
payable by holders of preferred shares or ADSs.

         A financial transaction tax (Imposto sobre Operacoes Financeiras) may
be imposed on the conversion of Brazilian currency into foreign currency, such
as for purposes of paying dividends and interest. The tax rate on such
conversions is currently 0%, but the Minister of Finance has the legal power to
increase the rate to a maximum of 25%. Any such increase will be applicable only
prospectively

         Another tax, which applies to the removal of funds from accounts at
banks and other financial institutions, will be imposed on distributions by us
in respect of ADSs at the time such distributions are converted into U.S.
dollars and remitted abroad by the custodian. This tax is in effect until June
2002, unless its term is extended, and has a rate of 0.38% from June 1999 until
June 2000 and a rate of 0.30% from June 2000 until June 2002.

Registered capital

         Amounts invested in preferred shares by a non-Brazilian holder who
qualifies under the Resolution No. 2689 regime and obtains registration with the
CVM, or by the depositary representing an ADS holder, are eligible for
registration with the Central Bank. This registration permits the conversion at
the commercial market rate or reais into foreign currency and the remittance of
the foreign currency outside Brazil. The commercial market rate is an exchange
rate quoted by the Central Bank.

         The registered capital per preferred share purchased in the form of an
ADS, or purchased in Brazil and deposited with the depositary in exchange for an
ADS, will be equal to its purchase price stated in U.S. dollars. The registered
capital per preferred share withdrawn upon cancellation of an ADS will be the
U.S. dollar equivalent of

            -  the average price of a preferred share on the Brazilian stock
               exchange on which the most preferred shares were traded on the
               day of withdrawal, or
            -  if no preferred shares were traded on that day, the average price
               on the Brazilian stock exchange on which the most preferred
               shares were traded in the fifteen trading sessions immediately
               preceding such withdrawal.

         The U.S. dollar equivalent will be determined on the basis of the
average commercial market rates quoted by the Central Bank on such date or
dates.

         A non-Brazilian holder of preferred shares may experience delays in
effecting Central Bank registration, which may delay the remittances of funds
abroad. Such a delay may adversely affect the amount in U.S. dollars to be
received by the non-Brazilian holder.

U.S. FEDERAL TAX CONSIDERATIONS

         The statements regarding U.S. tax law presented below are based on U.S.
laws and regulations in force on the date of this annual report. Changes to such
laws or regulations subsequent to the date of this annual report could affect
the tax consequences described in this annual report. This summary describes the
material tax consequences of the ownership and disposition of preferred shares
or ADSs, but it does not purport to be a comprehensive description of all of the
tax consequences that may be relevant to a decision to hold or dispose of
preferred shares or ADSs.

         This summary applies only to purchasers of preferred shares or ADSs who
will hold the preferred shares or ADSs as capital assets and does not apply to
special classes of holders such as

            -  dealers in securities or currencies,
            -  holders whose functional currency is not the U.S. dollar,
            -  holders of 10% or more of our shares (taking into account shares
               held directly through depositary arrangements),
            -  tax-exempt organizations,
            -  financial institutions,

                                       23
27
            -  holders liable for the alternative minimum tax,
            -  securities traders who elect to account for their investment in
               preferred shares or ADSs on a mark-to-market basis, and
            -  persons holding preferred shares or ADSs in a hedging transaction
               or as part of a straddle or conversion transaction.

         Each holder should consult its own tax advisor concerning the overall
tax consequences to it, including the consequences under laws other than U.S.
federal income tax laws, of an investment in preferred shares or ADSs.

         In this discussion, references to "ADSs" also refer to preferred
shares, references to a "U.S. holder" are to a holder of an ADS that is

            -  a citizen or resident of the United States of America,
            -  a corporation organized under the laws of the United States of
               America or any state thereof, or
            -  otherwise subject to U.S. federal income taxation on a net basis
               with respect to the ADS.

         For purposes of the U.S. Internal Revenue Code of 1986, as amended,
which we referred to as the "Code," holders of ADRs will be treated as owners of
the ADSs represented by such ADRs.

Taxation of dividends

         A U.S. holder will recognize ordinary dividend income for U.S. federal
income tax purposes in an amount equal to the amount of any cash and the value
of any property distributed by us as a dividend to the extent that such
distribution is paid out of our current or accumulated earnings and profits, as
determined for U.S. federal income tax purposes, when such distribution is
received by the custodian or by the U.S. holder, in the case of a holder of
preferred shares. To the extent that such a distribution exceeds our earnings
and profits, it will be treated as a nontaxable return of capital to the extent
of the U.S. holder's tax basis in the ADS and after as capital gain.

         The amount of any distribution will include the amount of Brazilian tax
withheld on the amount distributed and the amount of a distribution paid in
reais will be measured by reference to the exchange rate for converting reais
into U.S. dollars in effect on the date the distribution is received by the
custodian, or by a U.S. holder, in the case of a holder of preferred shares. If
the custodian or U.S. holder, in the case of a holder of preferred shares, does
not convert the reais into U.S. dollars on the date it receives them, it is
possible that the U.S. holder will recognize foreign currency loss or gain,
which would be ordinary loss or gain, when the reais are converted into U.S.
dollars. Dividends paid by us will not be eligible for the dividends received
deduction allowed to corporations under the Code.

         Distributions out of earnings and profits with respect to the ADSs
generally will be treated as dividend income from sources outside of the United
States and generally will be treated separately along with other items of
"passive" (or, in the case of certain U.S. holders, "financial services") income
for purposes of determining the credit for foreign income taxes allowed under
the Code. Subject to certain limitations, Brazilian income tax withheld in
connection with any distribution with respect to the ADSs may be claimed as a
credit against the U.S. federal income tax liability of a U.S. holder if the
U.S. holder elects for that year to credit all foreign income taxes, or such
Brazilian withholding tax may be taken as a deduction. Foreign tax credits will
not be allowed for withholding taxes imposed in respect of certain short-term or
hedged positions in securities or in respect of arrangements in which a U.S.
holder's expected economic profit, after non-U.S. taxes, is insubstantial. U.S.
holders should consult their own tax advisors concerning the implications of
these rules in light of their particular circumstances.

         Distributions of additional shares to holders with respect to their
ADSs that are made as part of a pro rata distribution to all of our shareholders
generally will not be subject to U.S. federal income tax.

         A holder of an ADS that is a foreign corporation or nonresident alien
individual, a "non-U.S. holder," generally will not be subject to U.S. federal
income tax or withholding tax on distributions with respect to ADSs that are
treated as dividend income for U.S. federal income tax purposes. The non-U.S.
holder generally will also not be subject to U.S. federal income tax or
withholding tax on distributions with respect to ADSs that are treated as
capital

                                       24
28
gain for U.S. federal income tax purposes unless the holder would be subject to
U.S. federal income tax on gain realized on the sale or other disposition of
ADSs, as discussed below.

Taxation of capital gains

         Upon the sale or other disposition of an ADS, a U.S. holder will
recognize gain or loss for U.S. federal income tax purposes in an amount equal
to the difference between the amount realized in consideration for the
disposition of the ADS (excluding the amount of any distribution paid to the
custodian but not distributed by the custodian prior to the disposition) and the
U.S. holder's tax basis in the ADS. The gain or loss generally will be subject
to U.S. federal income tax and will be treated as capital gain or loss.
Long-term capital gains recognized by an individual holder generally are subject
to a maximum rate of 20% in respect of property held for more than one year. The
deductibility of capital losses is subject to limitations. Gain realized by a
U.S. holder on a sale or disposition of ADSs generally will be treated as U.S.
source income. Consequently, if Brazilian tax is imposed on such gain, the U.S.
holder will not be able to use the corresponding foreign tax credit, unless the
holder has other foreign source income of the appropriate type in respect of
which the credit may be used.

         A non-U.S. holder will not be subject to U.S. federal income tax or
withholding tax on gain realized on the sale or other disposition of an ADS
unless

            -  the gain is effectively connected with the conduct by the holder
               of a trade or business in the United States, or
            -  the holder is an individual who is present in the United States
               of America for 183 days or more in the taxable year of the sale
               and certain other conditions are met.

U.S. backup withholding and information reporting

         Dividend payments on the ADSs and proceeds from the sale, exchange or
other disposition of ADSs may be subject to information reporting to the IRS and
possible U.S. backup withholding at a 31% rate. Backup withholding will not
apply, however, to a holder who furnishes a correct taxpayer identification
number or certificate of foreign status and makes any other required
certification or who is otherwise exempt from backup withholding. Persons
required to establish their exempt status generally must provide such
certification on IRS From W-9 (Request for Taxpayer Identification Number and
Certification) in the case of U.S. persons and on IRS Form W-8 (Certificate of
Foreign Status) in the case of non-U.S. persons. Treasury Regulations have
generally expanded the circumstances under which information reporting and
backup withholding may apply for payments made after December 31, 1999.

         Amounts withheld as backup withholding may be credited against a
holder's U.S. federal income tax liability, and a holder may obtain a refund of
any excess amounts withheld under the backup withholding rules by filing the
appropriate claim for refund with the IRS and furnishing any required
information.

U.S. state and local taxes

         U.S. holders should consult their own tax advisors concerning the U.S.
state and local tax consequences of holding ADSs.

ITEM 8.  SELECTED FINANCIAL DATA

BACKGROUND

         The selected financial information presented below should be read in
conjunction with the consolidated financial statements and the related notes
included in this annual report, as well as "Item 9 - - Management's Discussion
and Analysis of Financial Condition and Results of Operations." The consolidated
financial statements have been audited by Ernst & Young Auditores Independentes
S.C. for 1998 and 1999 and by KPMG Auditores Independentes for prior years.
Consolidated Financial Statements appear elsewhere in this Annual Report. The
consolidated financial statements are prepared in accordance with U.S. GAAP.

                                       25
29
 U.S. GAAP SELECTED FINANCIAL INFORMATION
YEARS ENDED DECEMBER 31,
                                                        ----------------------------------------------------
                                                        1996           1997              1998           1999
                                                        ----           ----              ----           ----
                                                  (IN THOUSANDS OF CONSTANT REAIS     (IN THOUSANDS OF NOMINAL
                                                       AT DECEMBER 31, 1997)        REAIS, EXCEPT PER SHARE DATA)
STATEMENT OF OPERATIONS DATA:
Revenues .....................................        166,453        219,316           232,555          308,846
Operating income .............................        106,204        118,727            57,910           33,747
Income before unallocated interest and taxes .         86,869         84,532                --               --
Net income(1) ................................             --             --            31,532           19,383
Basic and diluted earnings in reais per common
    thousand shares(1) .......................             --             --              0.09             0.06

OTHER FINANCIAL DATA:
EBITDA(2) ....................................        113,676        131,023            96,624           84,129
Capital expenditures .........................        105,467         51,768            31,672          151,037
AS OF DECEMBER 31,
                                                   ----------------------------------------------------------
                                                   1996              1997               1998             1999
                                                   ----              ----               ----             ----
                                               (IN THOUSANDS OF CONSTANT REAIS    (IN THOUSANDS OF NOMINAL REAIS)
                                                    AT DECEMBER 31, 1997)
BALANCE SHEET DATA:
Cash and cash equivalents ................             --             8,845            78,733            69,233
Working capital ..........................          6,580            17,161            78,654            43,213
Total assets .............................        207,558           266,137           358,724           569,680
Long-term debt (including current portion)         16,842            24,057            39,203            89,128
Divisional equity ........................        137,315           157,192                --                --
Shareholders' equity .....................             --                --           189,852           252,306
-----------
(1)  Net income and earnings per share have not been presented for 1996 and 1997
     because interest and income taxes could not be segregated from the
     predecessor companies. See Note 2 to the consolidated financial statements
     for a fuller description of this issue.
(2)  EBITDA consists of operating income plus depreciation and amortization and,
     in 1998, impairment of assets. We believe that EBITDA is a standard measure
     that is commonly reported and widely used by analysts, investors and others
     in the wireless communications industry. The information has been disclosed
     in this annual report to permit a more complete comparative analysis of our
     operating performance and capitalization relative to other companies in the
     industry. These indicators should not be considered as a substitute or
     alternative for net income or cash flows.

         Selected financial information as of and for the year ended December
31, 1995 in accordance with U.S. GAAP is not provided because the accounting
records for that year were not maintained in a manner that would readily permit
all costs, assets and liabilities to be segregated between fixed and cellular
telecommunications operations in accordance with U.S. GAAP. However, selected
financial information as of and for the year ended December 31, 1995 in
accordance with Brazilian GAAP is available, and is presented below together
with selected financial information as of and for the years ended December 31,
1996, 1997, 1998 and 1999.

                                       26
30
BRAZILIAN GAAP SELECTED FINANCIAL INFORMATION
YEARS ENDED DECEMBER 31,
                                                        ------------------------------------------------------------
                                                        1995         1996         1997         1998(1)       1999(1)
                                                        ----         ----         ----         -------       -------
                                                      (IN THOUSANDS OF CONSTANT REAIS AT    (IN THOUSANDS OF NOMINAL
                                                              DECEMBER 31, 1997)           REAIS, EXCEPT PER SHARE DATA)
STATEMENT OF OPERATIONS DATA:
Revenues..........................................      73,111      166,453      219,316       238,163       306,903
Operating income..................................      48,555      105,885      118,881        64,206        40,337
Income before unallocated interest and taxes......      37,973       83,978       82,291            --            --
Net income(2).....................................          --           --           --        32,630        23,208
Basic and diluted earnings in reais per common
    thousand shares(2)............................          --           --           --          0.10          0.07
AS OF DECEMBER 31,
                                                        -----------------------------------------------------------
                                                        1995         1996         1997        1998(1)       1999(1)
                                                        ----         ----         ----        -------       -------
                                                      (IN THOUSANDS OF CONSTANT REAIS AT        (IN THOUSANDS OF
                                                              DECEMBER 31, 1997)                 NOMINAL REAIS)
BALANCE SHEET DATA:
Cash and cash equivalents.........................          --           --        8,845        79,733       69,233
Working capital...................................      15,748        6,580       17,161        75,535       57,176
Total assets......................................      94,716      208,541      271,349       361,736      672,052
Long-term debt (including current portion)........      16,572       16,842       25,294        39,203       89,128
Divisional equity.................................      46,496      138,113      165,308            --           --
Shareholders' equity..............................          --           --           --       192,092      215,300
----------
(1)  Certain information provided for 1998 and 1999 differs from the Brazilian
     GAAP information published in Brazil because the information published in
     Brazil has been indexed through 1995, while the financial information
     presented here has been index through 1997.
(2)  Net income and earnings per share have not been presented for 1995, 1996
     and 1997 because interest and income taxes could not be segregated from the
     predecessor companies.

EXCHANGE RATES

         The following table presents the period-end, average, high and low
commercial market rate (through February 21, 1995) quoted by the Central Bank of
Brazil and the noon buying rate (from February 22, 1995) reported by the Federal
Reserve Bank of New York, expressed in reais per U.S. dollar for the periods
indicated.
AVERAGE FOR
YEAR                         PERIOD-END      PERIOD (1)        HIGH         LOW
----                         ----------      ----------        ----         ---
1995...................        0.9722          0.9228         0.9722      0.8450
1996...................        1.0393          1.0080         1.0413      0.9733
1997...................        1.1165          1.0805         1.1166      1.0394
1998...................        1.2085          1.1640         1.2090      1.1160
1999 ..................        1.8090          1.8640         2.2000      1.2074
2000 (through April 30)        1.8050          1.7795         1.8560      1.7230
----------
(1)  Represents the average of the exchange rates on the last day of each month.

ITEM 9.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
         OF OPERATIONS

         This item should be read in conjunction with the consolidated financial
statements and accompanying notes included elsewhere in this annual report,
which were prepared in accordance with U.S. GAAP.

                                       27
31
PRESENTATION OF FINANCIAL INFORMATION

         On May 22, 1998, in preparation for the privatization, the Telebras
System was restructured to form twelve new holding companies, including the
Registrant. The restructuring of the Telebras System was accomplished by means
of a procedure under Brazilian law called cisao or split-up. Virtually all the
assets and liabilities of Telebras were allocated to the new holding companies.
In the breakup, certain assets and liabilities of Telebras, including 80.3% of
the total share capital of Telamazon Celular, 86.9% of Telaima Celular, 90.6% of
Teleamapa Celular, 69.09% of Telepara Celular and 66.8% of Telma Celular were
transferred to us.

         The Registrant was created effective February 28, 1998. For 1998 and
1999, our consolidated financial statements reflect the consolidated financial
condition and results of operations of the Registrant and its subsidiaries. For
earlier dates and periods, our consolidated financial statements reflect only
the financial condition and results of operations of the cellular operations of
our predecessor companies. The formation of the Registrant and its subsidiaries
has been accounted for as a reorganization of entities under common control in a
manner similar to a pooling of interests.

         Upon its creation, the Registrant received, in addition to the shares
of its subsidiaries, assets of Telebras consisting primarily of cash. As a
result, our consolidated shareholders' equity giving effect to the breakup of
Telebras was R$2.0 million higher than divisional equity at December 31, 1997.

         The subsidiaries were created effective January 1, 1998, by splitting
up the predecessor companies to separate their cellular operations from their
wireline operations. The assets and liabilities of the cellular
telecommunications businesses of the predecessor companies were transferred to
the subsidiaries at their indexed historical costs. The revenues and expenses
associated with such assets and liabilities were also allocated to the
subsidiaries. For 1998 and 1999, our consolidated financial statements reflect
the operations of our subsidiaries as fully independent companies. For prior
years, our consolidated financial statements reflect the cellular operations of
the predecessor companies but are not necessarily indicative of what our
financial condition and results of operations would have been if the cellular
operations of the predecessor companies had been under separate legal entities
prior to 1998.

         In preparing financial statements for years prior to 1998, it was not
possible to determine the amount of the predecessor companies' cash and
nonspecific debt that should be allocated to the cellular operations, and there
was no shareholders' equity specifically attributable to the cellular
operations. As a result, the presentation of our consolidated financial
statements for 1997 is different from 1998 and 1999. In particular, for 1997 the
statement of operations does not include interest income or taxes and includes
only the allocable portion of interest expense. As a result, it does not present
net income and historical earnings per share information.

         Our accounting methodology changed in 1998 to reflect the lower level
of inflation in Brazil. Through December 31, 1997, our consolidated financial
statements recognize certain effects of inflation and have been restated in
constant reais of December 31, 1997 purchasing power. The restatement was made
using the integral restatement method prescribed by the CVM, which is an
acceptable method of recognizing effects of inflation under U.S. GAAP.
Inflationary gains or losses on monetary assets and liabilities were allocated
to their corresponding income or expense caption in the consolidated statements
of operations. Inflationary gains or losses without a corresponding income or
expense caption were allocated to other net operating income (expense).

         During 1997, the three-year cumulative inflation rate fell below 100%,
and as a result we no longer use the integral restatement method effective
January 1, 1998. The consolidated financial statements for 1998 and 1999 are
presented in nominal reais and do not recognize effects of inflation. Financial
statements for prior dates and periods, which are restated in constant reais of
December 31, 1997, have not been further restated.

PREPAY SUBSCRIBERS

         Since the inception of our prepay plan in June 1999, the number of
prepay subscribers has grown to represent approximately 23% of our total
subscribers at December 31, 1999. A prepay subscriber can activate a cellular
phone, purchase a prepaid card with a fixed amount of credit to be used over a
period of up to 180 days and credit the prepaid card value to the subscriber's
account either at a customer service center or by a phone call. The

                                       28
32
customer will have access to cellular service until the credit is fully used or
otherwise until the card expires at the end of 180 days, whichever occurs first.

         We believe that prepay plans are attractive to a wide range of cellular
customers. In addition to helping customers control costs, a prepay program has
no monthly bill and allows customers to prepay for cellular services in cash.
The prepay market is composed of customers who typically earn a variable income
and prefer not to make a fixed financial commitment, do not have the credit
profile required to purchase a contract plan or seek cellular services for
emergency or limited use only.

         We believe the prepay service offerings provide an opportunity to
improve margins because, compared to the average contract plan, prepay plans
involve higher average per minute airtime charges, a lower cost to acquire
prepay subscribers and the absence of billing costs, credit concerns and payment
risk. Prepay customers are also potential customers for other services and
products offered by us, and we focus marketing efforts on migrating qualified
prepay customers to higher revenue contract plans. In addition, we are exploring
new methods to increase minutes of use by its prepay customers. Prepay
customers, on average, have substantially lower minutes of use than contract
customers and do not pay monthly fees and, as a result, generate substantially
lower average monthly revenues per customer.

COMPOSITION OF OPERATING REVENUES AND EXPENSES

Revenues

         We generate operating revenues from:

            -  usage charges, which include airtime charges based on tenths of a
               minute of outgoing calls and roaming and other similar charges,
               all of which depend upon which service plan has been selected by
               the customer;
            -  monthly subscription payments, which depend upon which service
               plan has been selected by the customer;
            -  network usage fees, which are the amounts charged by us to other
               cellular and wireline telephone service providers for use of our
               network by such service providers' customers;
            -  activation fees, which are one-time sign-up charges paid to
               obtain cellular telecommunications service;
            -  sales of handsets; and
            -  other services and charges.

         We began to sell handsets in the second quarter of 1999. We do not
expect these sales to contribute significantly to operating income because we
plan to offer handsets at cost, as an incentive for our customers to subscribe
to our services. We may even be required to offer handsets at below cost because
of growing competition. This could have a negative effect on our operating
margin.

Operating expenses

         Operating expenses consist of cost of services, selling, general and
administrative expenses, bad debt expense, depreciation and, in 1998, a charge
for impairment of certain analog transmission equipment. Cost of services
consists primarily of fixed costs such as leased line charges, site rental and
network maintenance, including overhead, as well as variable costs such as
certain interconnection charges. Selling, general and administrative expenses
consist primarily of salaries, wages and related benefits for administrative
personnel, advertising and promotional expenses and other overhead expenses.

TAXES ON TELECOMMUNICATIONS SERVICES

         The cost of telecommunications services to subscribers includes a
variety of taxes. The average rate of all such taxes, as a percentage of our
gross operating revenues, was approximately 21.5% in 1999. The principal taxes
are a state value-added tax, the Imposto sobre Circulacao de Mercadorias e
Servicos, commonly known as the "ICMS," and a municipal tax or servicer, the
Imposto sobre Servicos, referred to as the "ISS". The ICMS is a tax that the
Brazilian states impose at varying rates on revenues from the sale of goods and
services, including

                                       29
33
telecommunications services. The ICMS rate in each state in our region is 25%
for domestic telecommunications services, except in Amapa, where it was 17%
until December 1999 and 25% after. The ISS is imposed on services not subject to
the ICMS and its average rate is 5%.

         Other taxes on gross operating revenues include two federal social
contribution taxes, the Programa de Integracao Social, referred to as "PIS," and
the Contribuicao para Financiamento da Seguridade Social, known as "COFINS,"
imposed on some telecommunications services at a combined rate of 3.65% of gross
operating revenues. Prior to February 1999, the combined rate of both taxes was
2.65%.

         In June 1998, the governments of the individual Brazilian states
approved an agreement to interpret existing Brazilian tax law to apply the ICMS
effective July 1, 1998 to some services to which the ICMS had not previously
been applied, including cellular activation and monthly subscription. The
agreement also provides that the ICMS may be applied retroactively to activation
services rendered during the five years before June 30, 1998. See "Item 3 - -
Legal Proceedings" for a fuller description of these developments.

RESULTS OF OPERATIONS

         The following discussion presents comparisons of results of operations
for 1999 and 1998 and for 1998 and 1997. Because of the extensive changes in our
circumstances in 1998 and related changes in financial statement presentation,
results of operations for 1998 and 1997 are not comparable in many respects.

1999 COMPARED TO 1998

Revenues

         Net operating revenues were R$308.8 million in 1999, compared to
R$232.6 million in 1998, representing an increase of 33%. The increase is
attributable mainly to a 32% increase in the average number of subscribers in
1999 as compared to 1998, as well as the introduction of handset sales in the
second quarter of 1999 to assist our distribution network. The handsets
revenues, which totaled R$33.5 million in 1999, did not contribute to our profit
as the handsets were sold at, or near, cost. Although the revenues from the sale
of handsets are expected to increase in the future, we do not believe that they
will contribute significantly to our profit. In effect, competition may force us
to offer handsets at subsidized prices.

         Revenues from the provision of cellular services were R$275.3 million
in 1999, an 18% increase from the R$232.6 million of 1998. The service revenues
increase did not follow the 32% increase in the average subscriber base because
of the introduction of prepay service in the second quarter of 1999. This
service provides access to the same service of the contract program, except that
users pay in advance for the service by way of purchase of cards. We expect that
the new subscribers under the prepay plan will generate less revenues than the
historical contract users. At December 31, 1999, 78,000 subscribers, or 23% of
the total subscriber base, were under the prepay program. We believe that a
significant portion of our new subscribers will adhere to the prepay program,
resulting in a lower increase in revenues as compared to the number of
subscribers.

         We may have to reduce our rates further due to competition. We expect
that future reduction in rates will help stimulate growth in our subscriber base
resulting in an increase in revenues from monthly subscription payments and an
increase in revenues from usage charges as a result of an increase in call
volume. However, we are not able to determine the extent to which these effects
will offset the reduction in fees and rates.

         In 1999, a competing cellular service provider commenced operating for
the first time in our region. We expect that the advent of competition will
contribute to declining prices and will affect our ability to maintain growth in
our subscriber base.

Cost of services

         Cost of services reached R$113.9 million in 1999, or 41% of service
revenues, compared to R$67.5 million, or 29% of service revenues, in 1998. The
increase, as a percentage of service revenues, is mainly attributable to an
increase in depreciation of R$30.1 million, which reflects:

            -  a R$17.6 million increase in investment in property, plant and
               equipment, and

                                       30
34
            -  a R$12.5 million adjustment resulting from a revised estimate of
               useful lives of property, plant and equipment in light of the
               advent of competition and a review of industry practices.

Selling, general and administrative expenses

         Selling, general and administrative expenses were R$90.6 million in
1999, or 33% of service revenues, compared to R$51.9 million, or 22% of service
revenues in 1998. The increase is attributable to increased promotion and
advertising costs in relation to new products like prepay and digital services,
as well as higher costs for commissions related to the level of new activation.
In addition, the arrival of competition in our region in 1999 also contributed
to the increase in selling and marketing expenses. Despite the significant unmet
demand in our region, as evidenced by the low penetration rate of 2.5% at
December 31, 1999, we believe that it will be more costly in the future to
attract new subscribers.

Pension plan expense

         A pension plan expense of R$6.3 million was recorded in 1999 as a
result of changes approved by the administrator, allowing for the break-up of
the plan. The expense recorded by us represents an estimate of our share of the
unfunded pension liability.

Bad debt expense

         Bad debt expense was R$28.1 million, or 10% of service revenues, in
1999, compared to R$38.4 million, or 16.5% of service revenues, in 1998. During
the year, we continued to experience significant, although lower, bad debt
levels due to a variety of factors, including:

            -  overall growth in our accounts receivable;
            -  an increase in the number of customers with relatively lower
               income, who are more prone to delay paying cellular telephone
               bills; and
            -  subscription fraud.

         We maintain an allowance for past-due accounts receivable in an amount
equal to our estimate of probable future losses on such accounts, based on
historical losses and the current level of overdue accounts receivable. We also
immediately charge off any account receivable arising from fraud. Cellular
service is cut off to customers who have accounts receivable that are more than
20 days past due.

         In the fourth quarter of 1998, we put in place new credit and
collection policies, and in 1999 we implemented an anti-fraud system to reduce
our level of bad debt. As a result of these measures, bad debt expense reduced
significantly in 1999 and management expects that bad debt levels will further
decline in the future.

Interest income (expense)

         Net interest income was R$14.9 million in 1999, compared to a net
interest income of R$4.5 million in 1998. The increase is due to an increase in
the average cash on hand, offset in part by an increase in consolidated
indebtedness related to capital investments.

Foreign exchange (gain) loss

         Foreign exchange loss was R$12.4 million in 1999, compared to R$2.5
million in 1998, due to the effect on our net U.S. dollar-denominated debt of
the 50% devaluation of the real relative to the U.S. dollar in 1999.

Income taxes

         Income taxes, which include social contribution taxes, were R$8.3
million in 1999 compared to R$16.9 million in 1998. The effective rate of tax on
pretax income in 1999 was 23%, compared to the combined statutory rate of 33%.
The decrease is attributable to the declaration of interest on capital in
December 1999. Interest on capital consists of tax deductible dividend.
Dividends are deductible to the extent they are declared before the end of the
current fiscal year. See Note 7 to the consolidated financial statements.

                                       31
35
Net income

         As a result of the above, net income was R$19.4 million for 1999 and
R$31.5 million for 1998, or R$0.06 and R$0.09 per thousand common shares,
respectively.

1998 COMPARED TO 1997

Revenues

         Our revenues were R$232.6 million in 1998, up 6% from R$219.3 million
in 1997. The growth in revenues was attributable mainly to an increase of 13% in
the average number of subscribers. This increase was partly offset by lower
activation fee revenues as a result of fewer subscribers initiating services in
1998.

Cost of services

         Cost of services was R$67.5 million in 1998, up 33% from R$50.7 million
in 1997. The increase is primarily attributable to increased interconnection
costs, as a higher volume of calls was subject to network usage charges payable
to other cellular and wireline service providers. Depreciation expense was
R$20.3 million in 1998, compared to R$12.3 million in 1997, reflecting increased
investment in property, plant and equipment.

Selling, general and administrative

         Selling, general and administrative expenses were R$51.9 million in
1998, up 43.8% from R$36.1 million of allocated expenses recognized by our
predecessor companies in 1997. The increase reflects:

            -  provisions for contingencies in the amount of R$9.0 million,
               including R$6.2 million relating to a legal action contesting the
               application of ICMS to monthly subscription;
            -  costs associated with our independent operation and one-year
               service contracts with the predecessor companies to assist us in
               our early stages of autonomy.

         By the end of 1998, we had largely ceased to rely on services provided
by our predecessor companies, and had almost fully independent administrative
capabilities.

Bad debt expense

         Bad debt expense was R$38.4 million in 1998, compared to R$12.3 million
in 1997. During 1998, we continued to experience significant bad debt levels due
to a variety of factors, including:

            -  overall growth in our accounts receivable;
            -  an increase in the number of customers with relatively lower
               income (who are more prone to delay paying cellular telephone
               bills) due to poor credit and collection procedures;
            -  an increase in subscription fraud in analog service; and
            -  increased consumer interest rates, which have adversely affected
               the ability of consumers to meet payment obligations, resulting
               from adverse economic conditions in Brazil.

         In the fourth quarter of 1998, we put in place new credit and
collection policies and started the implementation of an anti-fraud system,
which became operational in the second half of 1999, in order to reduce the
level of bad debt.

Interest income (expense)

         Interest income was R$8.6 million in 1998, due to investment of cash on
hand. We did not recognize interest income in 1997. Interest expense increased
to R$4.0 million in 1998 from R$0.8 million, on an allocated expense basis, in
1997. The increase in interest expense reflects a R$15.1 million net increase in
consolidated indebtedness.

Foreign exchange loss

         Foreign exchange loss was R$2.5 million in 1998, due to the effect of
devaluation of our real on our debt.

                                       32
36
Income taxes

         Income and social contribution taxes were R$16.9 million in 1998. The
effective rate of tax on pretax income was 28%, compared to the combined
statutory rate of 33%. We did not incur income and social contribution taxes in
1997.

Minority interest

         Minority interest of R$11.6 million consists of the share of profit of
our subsidiaries that is attributable to shareholders other than us.

Net income

         Net income for 1998 was R$31.5 million, or R$0.09 per thousand common
shares.

LIQUIDITY AND CAPITAL RESOURCES

General

         In 1999, cash provided by operating activities was R$70.1 million.
EBITDA, which we define as operating income plus depreciation and the charge for
impairment of long-lived assets, was R$84.1 million. At December 31, 1999, we
had cash and cash equivalents of R$69.2 million.

Indebtedness

         During 1999, we obtained R$109.7 million of new debt to finance the
acquisition of equipment. We had R$114.5 million of unsecured indebtedness at
December 31, 1999, of which R$78.1 million was denominated in U.S. dollars and
bore interest at LIBOR plus a rate of 0.4% to 5.75%, and R$36.9 million was in
reais bearing interest at a rate of 6.7% over the long-term interest rate (which
was 12.5% at December 31, 1999) disclosed by the Central Bank. All of our
indebtedness arises from equipment financing.

         Substantially all start-up costs and initial capital investments were
financed by cash flows from the wireline telephone operations of the predecessor
companies. Accordingly, our indebtedness does not reflect the amount of debt we
would have been required to incur to build our current network if we had
operated on a stand-alone basis from the inception of our predecessor companies'
cellular telecommunications operations.

Dividends and other distributions

         We are required to distribute to our shareholders, either as dividends
or as tax-deductible interest on capital, 25% of our adjusted net income
determined in accordance with Brazilian accounting principles as adjusted in
accordance with Brazilian corporate law. We are also required to pay a
non-cumulative preferred dividend on its preferred shares in an amount equal to
6% of the share capital attributable to the preferred shares under Brazilian
corporate law.

         For purposes of the mandatory distribution requirement, we included in
adjusted net income part of the unrealized income reserve transferred upon the
breakup of Telebras, which amounted to R$59.3 million and is included in
distributable capital and other reserves in our shareholders' equity. We decided
to include the unrealized reserve in the calculation of the mandatory
distribution requirements over a ten-year period. As a result, the total
dividend for the year ended December 31, 1999 amounted to R$7.6 million, of
which R$4.1 million was transferred into a special reserve for future
investments. The actual cash dividend payment pertaining to the year 1999 was
R$3.5 million. We cannot assure you that the mandatory distribution of the
unrealized income reserve will not result in substantial additional dividend
requirements.

         The Registrant's only significant asset other than cash are its shares
in the subsidiaries. The Registrant relies almost exclusively on dividends from
its subsidiaries to meet its needs for cash, including for the payment of
dividends to its shareholders. The Registrant controls the payment of dividends
by its subsidiaries, subject to limitations under Brazilian corporate law.

                                       33
37
Capital expenditures

         Prior to privatization, our capital expenditures were planned and
allocated on a system-wide basis and subject to approval by the federal
government. These constraints on capital expenditures prevented us from making
some investments to modernize in a timely manner our cellular telecommunications
services.

         Since the privatization of Telebras, these restrictions have not
applied. We are now able to determine our own capital expenditure budget
although, as is the case with telecommunications service providers, we must
comply with build-out obligations under our concessions. See " -- Regulation of
the Brazilian telecommunications industry -- Obligations of telecommunications
companies" for a description of these obligations.

         Our capital expenditure priorities include build out of our network to
increase coverage, improvement of overall quality and increase of the level of
digitalization of our network. We spent R$151 million in capital expenditures in
1999.

         We currently expect that our capital expenditures for the years 2000
through 2002 will aggregate approximately R$350 million, with approximately
R$150 million of that amount falling in 2000. This estimate is based on March
31, 2000 exchange rates. Because a substantial portion of capital expenditures
is denominated in U.S. dollars, further devaluation of the real could require
that the estimate be increased. The estimated amount and timing of capital
expenditures may also be affected by a number of other risks and uncertainties.

         We believe that our capital expenditure requirements can be met through
a combination of cash flow from operations and equipment financing from a
variety of sources.

POLITICAL AND ECONOMIC FACTORS

         Our business, results of operations and financial condition are
significantly affected by the political and economic environment in Brazil. In
particular, our financial performance will be affected by:

            -  economic growth in our region and its impact on demand for
               telecommunications services,
            -  the cost and availability of financing, and
            -  the exchange rates between Brazilian and foreign currencies.

Brazilian political environment

         The Brazilian political environment was marked by high levels of
uncertainty after the country returned to civilian rule in 1985, ending 20 years
of military government. The death of a President-elect in 1985 and the
resignation of another President in the midst of impeachment proceedings in
1992, as well as rapid turnover in the federal government at and immediately
below the cabinet level, adversely affected the implementation of consistent
economic and monetary policies.

         Our business, results of operations and financial condition may be
adversely affected by changes in policy affecting factors such as, among others,

            -  currency fluctuations,
            -  inflation,
            -  price instability,
            -  interest rates,
            -  tax policy, and
            -  telecommunications policy.

         Fernando Henrique Cardoso, who was Finance Minister at the time of
implementation of Brazil's latest economic stabilization plan, commonly referred
to as the "Real Plan", was elected President of Brazil in October 1994 and
reelected in October 1998 for an additional four-year term, which began in
January 1999. President Cardoso is the leader of a coalition of six political
parties that represents a majority in the federal Congress. His party, the
Brazilian Social Democratic Party, holds the second largest number of seats in
the coalition.

                                       34
38
         In January 1999, the new Governor of the State of Minas Gerais, who
belongs to an opposition party, announced that his state would suspend payments
on its debt to the federal government for 90 days. The Governor of the State of
Rio Grande do Sul subsequently obtained a court order permitting his state to
make its debt payments into an escrow account, pending resolution of a request
of seven states to renegotiate refinancing agreements they had reached with the
federal government in 1997. The federal government has responded by seeking to
withhold constitutionally-mandated transfers to the State of Minas Gerais. The
federal government has notified certain international financial institutions
that it will no longer guarantee those states' obligations to those
institutions, leading the World Bank to suspend loans to the States of Minas
Gerais and Rio Grande do Sul.

         Conflicts between the federal government and state governments could
complicate the passage of the government's fiscal reform package and longer-term
fiscal measures, including a reform of the tax system, and Brazil's ability to
meet the agreed targets under the country's agreements with the International
Monetary Fund.

         The conflict between the federal government and the state governments
may undermine investor confidence, have a negative effect on the Brazilian
economy and negatively impact the states in our region. If the Brazilian economy
or the economy of the states in our region were to be adversely affected by a
default, our operations and the market price of the preferred shares and ADS may
be adversely affected.

Brazilian economic environment

         General. Our business, results of operations and financial condition
are dependent on general economic conditions in Brazil, and in particular on:

         -        economic growth and its impact on demand for
                  telecommunications services,

         -        the cost and availability of financing, and

         -        exchange rates between Brazilian and foreign currencies.

         Effects of inflation and impact of Real Plan. Since the introduction of
the real as the new Brazilian currency in July 1994, inflation has remained
controlled although it has increased since the devaluation of the real in
January 1999. Inflation was 20% in 1999, 2% in 1998 and 8% in 1997, as measured
by the IGP-DI, a general price index. High inflation places pressure on our
rates and invites federal government efforts to control inflation by holding
down the rates that Brazilian public utilities are permitted to charge.

         The table below shows the Brazilian general price inflation (according
to the IGP-DI) and devaluation of the Brazilian currency against the U.S. dollar
for the periods shown:
YEAR ENDED DECEMBER 31,
                                                                         -------------------------------
                                                                         1999          1998         1997
                                                                         ----          ----         ----
Inflation (IGP-DI)..............................................          20%           2%           8%
Devaluation of the real vs. U.S. dollar.........................          48%           8%           7%
Effects of exchange rate variation and inflation on our financial
condition and results of operations. The devaluation of the Brazilian real and
the resulting inflation have had and will continue to have negative effects on
our results of operations, primarily as a result of the following factors:

         -        Real devaluations generally result in a significant decrease
                  in the purchasing power of Brazilian consumers, resulting in a
                  decrease in the demand for cellular telephony services.

         -        Due to competitive market conditions and regulatory
                  constraints, we may not always be able to increase our rates
                  in line with inflation.

         -        The significant devaluation of the real as compared to the
                  U.S. dollar in 1999 resulted in the recording of exchange
                  losses given over net U.S. dollar liability position.

         -        A portion of our costs and expenses (e.g., handsets,
                  depreciation and interest expense) is denominated in U.S.
                  dollars, while all of our revenues are denominated in reais.
                  In a period of real devaluation, this relationship causes a
                  negative impact on our margins.

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39
         -        A substantial portion of our indebtedness is denominated in
                  U.S. dollars. As a result, the real-carrying amount of such
                  debt increases to reflect the additional reais required to
                  meet such U.S. dollar liabilities.

         Effects of Asian and Russian crises on the Brazilian economy. In
November 1997, in a move to counteract speculation of Brazilian currency
devaluation generated by the financial crisis in the Asian markets, the
Brazilian government increased annual interest rates from approximately 20% to
approximately 40%. This sudden and dramatic increase in interest rates had the
immediate effect of severely dampening the availability of consumer credit. By
April 30, 1998, these rates had decreased to approximately 23%. Partly as a
result of these events, the Brazilian economy was driven into a recession. The
market indices of the Brazilian securities market declined significantly, and
the market price of our preferred shares was adversely affected.

         After Russia devalued its currency in August 1998, foreign investors
withdrew funds from emerging market countries. Brazil was particularly affected
due to its growing budget and current account deficits. In October 1998, the
Brazilian government announced a fiscal package designed to curb government
spending and offset higher debt service costs caused by higher interest rates.
The Brazilian government also entered into a standby accord with the IMF,
providing U.S.$41.5 billion to Brazil from contributions made by the IMF and,
among others, 20 developed country governments. Acceptance of the IMF package
committed Brazil to implementing a combination of spending cuts and tax
increases.

         Despite the fiscal package and the IMF accord, confidence in the
Brazilian market continued to erode. In an attempt to curb the increasing
capital outflows and address concerns about the commitment of certain state
governments to fiscal austerity, on January 13, 1999, the Central Bank announced
changes to its foreign exchange policy dating from 1995, including the
implementation of a wider trading band for the real/U.S. dollar exchange rate.
This resulted in the Central Bank ceasing to intervene in the market to ensure
that the real traded at between R$1.1975 and R$1.2114 per U.S.$1.00. The
commercial selling rate rose to R$1.3193 per U.S.$1.00 on the same day,
producing a devaluation of the real of approximately 8% and effectively reaching
the ceiling of the new trading band set by the Central Bank.

         In response to continued high capital outflows, on January 15, 1999 the
Central Bank announced that it would no longer intervene in the foreign exchange
market, except in exceptional circumstances to mitigate excessive volatility,
thereby allowing the real to U.S. dollar exchange rate to fluctuate freely.
Since January 15, 1999, the real has traded in a volatile and sometimes illiquid
market. From December 31, 1998 through December 31, 1999, the real devalued by
48% against the U.S. dollar. At June 27, 2000, the noon buying rate was R$1.8230
to U.S.$1.00.

         Shortly after the devaluation, in order to minimize excessive market
volatility and reduce the inflationary effects of the devaluation, the Central
Bank raised interest rates to more than 40% per annum. Interest rates have since
decreased to approximately 18.5% at April 30, 2000, but are still high and have
affected consumer and business confidence.

         As a result of the devaluation, certain economic benchmarks established
in the IMF standby accord had to be revised. In March 1999, the Brazilian
government and the IMF executive board agreed to a memorandum of economic
policies for Brazil that allowed the Central Bank to intervene in the spot
foreign exchange market and stipulated how much the Central Bank could sell in
the market to improve liquidity and reduce volatility of the real. As a result,
an additional U.S.$9.8 billion was made available to Brazil in early April 1999.
Also in March 1999, the Brazilian government agreed with foreign private-sector
banks to maintain interbank lines at February 28, 1999 levels through August 30,
1999, thereby halting a significant decline in such lines since September 1998.

         In the second half of 1999, Brazil was affected by events taking place
in Ecuador and Argentina. Ecuador missed a payment on the country's U.S.$5.9
billion Brady bond debt, becoming the first country ever to default on a Brady
bond debt. Argentina faced political uncertainty in response to the election in
October 1999 of a new president who belongs to a political party different from
that of the prior president. Brazilian economic conditions may be affected
negatively by events elsewhere, especially in emerging markets. Instability in
the Brazilian financial markets caused by developments in the international
financial markets may adversely affect our financial condition and,
specifically, our ability to raise capital when needed and the market price of
the preferred shares and ADSs.

                                       36
40
REGULATORY AND COMPETITIVE FACTORS

         Our business, including the services we provide and the rates we
charge, are subject to comprehensive regulation under the General
Telecommunications Law. As a result, our business, results of operations and
financial conditions could be affected negatively by the actions of the
Brazilian authorities. In particular, we could be negatively affected by actions
such as the following:

         -        delays in the granting, or the failure to grant, approvals for
                  rate increases;

         -        the granting of more concessions to new competitors in our
                  region, and

         -        the introduction of new or stricter requirements to our
                  concession.

         We began to face competition in our region in the fourth quarter of
1999 and anticipate that competition will contribute to declining prices for
cellular telecommunications services and increasing pressure on operating
margins. Our future growth and results of operations will depend significantly
on a variety of factors, including:

         -        our ability to attract new subscribers,

         -        the rate of growth of our subscriber base,

         -        the usage and revenue generated from our subscribers,

         -        the level of airtime, equipment prices,

         -        the rate of churn, and

         -        our ability to control costs.

         We also expect to face competition from PCS providers, as the Anatel
has indicated that it plans to auction additional bandwidth for PCS by the end
of 2000. The scope of increased competition and any adverse effects on our
results and market share will depend on a variety of factors that we cannot now
assess with precision and many of which are beyond our control.

ITEM 9A.      QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

         We are primarily exposed to market risk from changes in both foreign
currency exchange rates and interest rates. We are exposed to foreign exchange
rate risk because certain of our costs and debt are denominated in currencies,
primarily the U.S. dollar, other than those in which we earn revenues, primarily
the real. Similarly, we are subject to market risk deriving from changes in
interest rates which may affect the cost of our financing. We do not use
derivative instruments, such as foreign exchange forward contracts, foreign
currency options, interest rate swaps and forward rate agreements, to manage
these market risks, nor do we hold or issue derivative or other financial
instruments for trading purposes.

EXCHANGE RATE RISK

         We have exchange rate exposure with respect to the U.S. dollar. At
December 31, 1999, R$78.1 million of our indebtedness was denominated in U.S.
dollars. The potential additional costs to us that would result from a
hypothetical 10% change in foreign currency exchange rates would be
approximately R$7.8 million.

INTEREST RATE RISK

         At December 31, 1999, we had approximately R$126.0 million in loans and
financing outstanding, all of which bore interest at floating rates. We invest
our excess liquidity (R$69.2 million at December 31, 1999) mainly in short-term
instruments. The potential loss in earnings to us over one year that would have
resulted from a hypothetical, instantaneous and unfavorable change of 100 basis
points in the interest rates applicable to financial assets and liabilities on
December 31, 1999 would be approximately R$1.3 million.

         The above sensitivity analysis is based on the assumption of an
unfavorable 100 basis point movement of the interest rates applicable to each
homogeneous category of financial assets and liabilities and sustained over a
period of one year. A homogeneous category is defined according to the currency
in which financial assets and liabilities are denominated and assumes the same
interest rate movement within each homogeneous category (e.g.

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41
U.S. dollars). As a result, our interest rate risk sensitivity model may
overstate the impact of interest rate fluctuations for such financial
instruments as consistently unfavorable movements of all interest rates are
unlikely. See Notes 5 and 6 to our consolidated financial statements for a
description of our short- and long-term debt.

ITEM 10.      DIRECTORS AND OFFICERS OF REGISTRANT

BOARD OF DIRECTORS

         The Registrant is administered by a Board of Directors (Conselho de
Administracao) and a Board of Executive Officers (Diretoria). The Board of
Directors is comprised of eleven members serving for a term of three years. The
Board of Directors holds a regular meeting once every two months and holds
special meetings when called by the Chairman or by two members of the Board of
Directors.

         The following are the current members of the Board of Directors and
their respective positions.
NAME                                                                  POSITION             DATE ELECTED
  ----                                                                  --------             ------------
Arthur Joaquim de Carvalho...............................             Chairman           August 10, 1998
  Wellington Dantas de Amorim..............................             Director           August 10,1998
  Bruno Ducharme...........................................             Director           September 1, 1998
  Zeno Antonio Brandt......................................             Director           September 1,1998
  Peter Gerald White.......................................             Director           April 23, 1999
  Gunnar Birger Vinof Vikberg..............................             Director           April 10, 2000
  Oscar de Paula Bernardes Neto............................             Director           April 10, 2000
  Gustavo Henrique de Barroso Franco.......................             Director           April 10, 2000
  Carla Cico...............................................             Director           April 10, 2000
  Elaine Aleixo Lustosa Thompson-Flores....................             Director           April 10, 2000
  Sedat Ozmen..............................................             Director           May 5, 2000(1)
----------
  (1) Interim member, appointed by the Board of Directors, as permitted by the
Registrant's by-laws.

         Set forth below are brief biographical descriptions of the Directors.

         Arthur Joaquim de Carvalho is also elected to the Board of Directors of
Telemig Celular Participacoes S.A. In addition, Mr. Carvalho is a Principal of
CVC/Opportunity Equity Partners Ltd., a Cayman Islands privately owned
investment company. He served as a Senior Investment Officer for private equity
at the Opportunity Group. Prior to working at Opportunity, he served as a
Managing Director of Manuel Joaquim de Carvalho Ltda., an export-oriented
agribusiness company. He holds a degree in business administration from the
Federal University of Bahia.

         Wellington Dantas de Amorim is also a Director of Telemig Celular
Participacoes S.A. Since April 1998, Mr. Amorim has served as the Investment
Manager for PREVI - Caixa de Previdencia dos Funcionarios do Banco do Brasil.
From 1982 to 1998, Mr. Amorim served as an employee of Banco do Brasil S.A.
("BB"). He served as Assistant to the Executive Committee of BB and Member of
the Technical Consulting of the Executive Committee of BB. He has served also as
the Coordinator of the Center of Planning and Control for the Rio de Janeiro
State Cabinet. He holds a degree and a masters degree in international relations
from the University of Brasilia.

         Bruno Ducharme serves as President and Chief Executive Officer of TIW,
as Executive Vice-President of Telesystem Ltd. and as a member of the Board of
Directors of Telemig Celular Participacoes S.A., Teleglobe Inc. and of MDSI
Mobile Data Solutions Inc. Mr. Ducharme joined the Telesystem group of companies
in 1990 as Vice-President of Telesystem Financial Corporation and became a
Vice-President of Telesystem in 1991. Mr. Ducharme has held a number of
executive positions with companies within the Telesystem group including
Executive Vice-President and Chief Financial Officer of Teleglobe Inc. in 1993
and President and Chief Executive Officer of Microcell Telecommunications Inc.
in 1994. Mr. Ducharme holds a bachelor's degree in civil law from McGill
University, a master's degree in business administration from the Wharton School
of the University of Pennsylvania, and a master's degree in international
relations from the University of Pennsylvania.

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         Zeno Antonio Brandt is also a Director of Telemig Celular Participacoes
S.A. He joined Banco do Brasil S.A. in 1986 where he has served as Chief of
Service, Supervisor, Manager of Resources, and Branch Manager until 1997. He has
diplomas in management, business administration, finance and sales.

         Peter Gerald White is also a Director of Telemig Celular Participacoes
S.A. He previously served as special assistant to the Federal Minister of
Forestry and Rural Development in Canada, and special assistant to the Premier
of Quebec. He founded the Laval Congress on Canadian Affairs in 1961, and in
1969 formed the Sterling Newspaper Group. He has received the recognition of
Chevalier de l'Ordre National de la Legion d'Honneur in 1997 by the President of
France for his role in developing strong economic ties between Canada and
France. He served as the President of the Canada-France Business Club and later
as Chairman of the Canadian Institute of International Affairs. He served as
Chairman, President and CEO of Domgroup Ltd., Publisher of Saturday Night
Magazine, founding Chairman of Public Policy Forum, President of the Council for
Canadian Unity, Executive Vice-President of The Ravelston Corporation and Argus
Corporation, and Director of Hollinger Inc., UniMedia Inc., Southam Inc.,
Telesystem Ltd., Proprietary Energy Industries Inc., Cinram International, and
Normerica Building Systems Inc. He holds a law degree from the University of
Laval.

         Gunnar Birger Vinof Vikberg is also a Director of Telemig Celular
Participacoes S.A. Mr. Vikberg is the founder and director of Viking Consultoria
Empresarial e Participacoes S/C Ltda. Mr. Vikberg was also the Chief Executive
Officer of Algar S.A. from 1997 to 1999. Prior to that, Mr. Vikberg had been
Executive Vice President. Mr. Vikberg was the exclusive representative of Xerox
Quality Services in Brazil in 1995. Between 1992 and 1994, Mr. Vikberg was
President of Millicom do Brasil S.A. and PCN do Brasil S.A. From 1975 to 1989,
Mr. Vikberg held several positions at Grupo Xerox do Brasil S.A., including that
of Executive Vice President. From 1954 to 1975, Mr. Vikberg was associated with
L.M. Ericsson, where he was the Director General of Ericsson do Brasil S.A. from
1968 to 1975. Mr. Vikberg has also been a member of the Board of Directors of
several Brazilian companies. Mr. Vikberg received a degree in Electrical
Engineering from the Royal Institute of Technology in Stockholm, Sweden, as well
as a degree in Business Administration from the Institut pour l'Etude des
Methodes de Direction de l'Enterprise in Lausanne, Switzerland.

         Oscar de Paula Bernardes Neto is also a Director of Telemig Celular
Participacoes S.A. Mr. Bernardes is also the Chairman of the Board of Directors
of Santista Alimentos S.A. and Seara Alimentos S.A., two Brazilian food
companies, as well as the Chairman of Advisory Board of TIW do Brasil, one of
our controlling shareholders. Mr. Bernardes is also a member of the Board of
Directors of several other Brazilian companies and of Delphi Automotive in the
United States. From 1996 to 1999, Mr. Bernardes was the Chief Executive Officer
of Bunge International, an international agribusiness company. Prior to that,
Mr. Bernardes was associated with Booz-Allen & Hamilton for 15 years, where he
was the Director for Latin America from 1993 to 1996. Mr. Bernardes received a
degree in chemical engineering from the Federal University of Rio de Janeiro.

         Gustavo Henrique de Barroso Franco is also a Director of Telemig
Celular Participacoes S.A. Mr. Franco was the President of the Central Bank of
Brazil from August 1997 to January 1999. For the previous four years, Mr. Franco
was the Director of International Affairs for the Central Bank of Brazil.
Between May and September of 1993, Mr. Franco was the Adjunct Secretary of
Economic Policy for the Ministry of Finance. From 1986 to 1993, Mr. Franco was
an Associate Professor in the Economics Department of the Catholic University of
Rio de Janeiro. Mr. Franco has written several books and articles on different
areas of economics. Mr. Franco holds a master's in Economics from the Catholic
University of Rio de Janeiro as well as a master's and Ph.D. in Economics from
Harvard University.

         Carla Cico is also a Director of Telemig Celular Participacoes S.A. Ms.
Cico has several years of experience in the telecommunications industry, in both
wireless and wireless service. Ms. Cico occupied managerial positions at Stet
International S.p.A. in Rome, Italy, IRI S.p.A. in China, and Italtel S.p.A. in
China. Ms. Cico is also a Director of CVC/Opportunity Equity Partners.

         Sedat Ozmen is also an interim Director of Telemig Celular
Participacoes S.A. and a director of CVC/Opportunity Equity Partners, Brasil
Telecom S.A., Opportrans Concessao Metroviaria S.A.-METRO and Santos Brazil S.A.
Prior to joining Banco Opportunity in 1999, Mr. Ozmen worked for over 25 years
in the Xerox group of companies in various executive roles including Marketing
Director, Finance Director and Systems Director of Xerox do Brasil, President of
Xerox in the Middle East and Africa and Executive Director of Rank Xerox in

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London. Mr. Ozmen holds a degree in Chemical Engineering from Robert College,
Istambul, Turkey, and a master's degree in business administration from Stamford
University.

         Elaine Aleixo Lustosa Thompson-Flores has been a Director of Fundacao
Petrobras de Seguridade Social-PETROS since August 1999. From July 1997 to
August 1999, Ms. Thompson-Flores was the Director of the Department of Economic
Protection and Defense and the Adjunct Secretary of the Division of Economic
Rights of the Ministry of Justice. From May 1996 to June 1997, Ms.
Thompson-Flores was a partner, director and senior economic analyst at
Intelicorp Consultoria Ltds. From April to November 1995, Ms. Thompson-Flores
was a consultant to the Executive Secretary of the Ministry of Industry,
Commerce and Tourism. From October 1993 to March 1995, she was the General
Coordinator of Industrial Affairs with the Division of Economic Policy of the
Ministry of Finance. Prior to that, Ms. Thompson-Flores was a professor and a
researcher at several Brazilian institutions. Ms.
Thompson-Flores has a master's in Economics from the Catholic University of Rio
de Janeiro.

EXECUTIVE OFFICERS

         The following are our executive officers and their respective
positions.
Name                                                  Position
----                                                  --------
Marcio Kaiser....................................     President and Chief Executive Officer
Joao Cox Neto....................................     Chief Financial Officer
Rene Patoine.....................................     Executive Vice-President of Operations
Jose Alberto D'Ambrosio..........................     Vice-President of Human Resources and Administration
Antonio Jose Ribeiro dos Santos..................     Vice-President of Business Development
Benoit Bellerose.................................     Director of Mergers & Acquisitions
Joao Alberto Santos..............................     Corporate Comptroller
Alexandre S. D'Ambrosio..........................     General Counsel
Set forth below are brief biographical descriptions of the executive
officers whose biographies were not included above.

         Marcio Kaiser was appointed President and Chief Executive Officer on
January 4, 1999. Mr. Kaiser is also President and Chief Executive Officer of
Telemig Celular Participacoes S.A., our affiliate. Mr. Kaiser has extensive
management and marketing experience in high technology, particularly the
computer technology sector. He was, until recently, President and Managing
Director of Oracle Brazil. Before that, Mr. Kaiser spent 20 years with IBM
Brazil and IBM Latin America. He served successively as Chief Financial Officer,
Regional Director, Country Director of Sales and Marketing, Vice-President and
Director of Technology and Executive Committee Member for IBM Brazil. He also
served as General Services Manager for IBM Latin America.

         Joao Cox Neto has been Chief Financial Officer since April 1, 1999. Mr.
Cox Neto is also Chief Financial Officer of Telemig Celular Participacoes S.A.
Prior to joining Tele Norte Celular Participacoes S.A., Mr. Cox held the
position of Chief Financial Officer at Odebrecht Servicos de Infraestrutura S.A.
(OSI), the infrastructure and public service arm of the Odebrecht Group.
Previously, he held various financial management positions at the Odebrecht
Group, including Finance Director for the holding company and CFO for OPP
Petroquimica S.A. Mr. Cox holds a degree in Economics from Universidade Federal
da Bahia and has attended to graduate studies in Economics at the Universite du
Quebec a Montreal and at the Oxford University's CPS program. Since 1991 Mr. Cox
has been a member of the Board of Directors of several companies in Brazil and
Argentina and he is currently a member of the Board of ABRASCA (Brazilian
Association of Public Companies) and IBRI (Brazilian Institute for Investor
Relations).

         Rene Patoine has been Executive Vice-President of Operations of the
Company and of Telemig Celular Participacoes S.A. since September 1998. Mr.
Patoine was a member of the Board of Directors of the Company from September 1,
1998 to March 2000. Prior to that, he served as Executive Vice-President of
Operations of Telesystem International Wireless Inc. He served as Vice-President
of Operations & Strategy Planning for Telecel International Inc. from 1995 to
1997, Executive Advisor and Engineering Director for Conecel S.A. in Ecuador
from 1993 to 1995, Project Director for Bell Canada International from 1992 to
1993, and General Manager of Telecel

                                       40
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S.A. in Zaire from 1989 to 1991. He holds a bachelor's degree in electrical
engineering from Sherbrooke University, Quebec, Canada.

         Jose Alberto D'Ambrosio was appointed Vice President of Human Resources
and Administration on April 1, 1999. Mr. D'Ambrosio is also Vice President of
Human Resources and Administration of Telemig Celular Participacoes S.A. Mr.
D'Ambrosio previously served as Director of Human Resources Products and
Services at PricewaterhouseCoopers, where he worked extensively with
multinational corporations in directing human resources consulting projects.
Prior to that, he served as a Senior Consultant at Towers Perrin where he was
responsible for designing, implementing and monitoring Compensation and Benefits
Programs as well as for leading the Health Care consulting practice area in
Latin America. Including his first assignment as Human Resources Manager for
Alcoa Aluminio S.A., Mr. D'Ambrosio has 23 years of experience in the Human
Resources field. He holds a degree in economics from Faculdade de Administracao
e Economia de S.J. da Boa Vista/Sao Paulo as well as a post-graduate degree in
Administration from Instituto Maua de Tecnologia/Sao Paulo.

         Antonio Jose Ribeiro dos Santos was appointed Vice-President of
Business Development in March 1999. Mr. Santos is also the Vice President of
Business Development of Telemig Celular Participacoes S.A. Mr. Santos, with 28
years experience in the Brazilian telecommunications industry, joined the
company's management team from Telebrasilia S.A., a recently privatized
telephone company in Brasilia where he headed the engineering department. At
Telebrasilia, he was responsible for projects such as the implementation and
expansion of cellular lines. Mr. dos Santos worked for the first private
cellular company in Brazil, Americel, as the head of the Strategic Planning
Directory and for the B-Band cellular company in the State of Rio Grande do Sul,
Telet S.A., where he was an Executive Vice-President. He also is a part-time
professor at Brasilia University in the Department of Electric Engineering. Mr.
dos Santos graduated from the University of Brasilia and holds a degree in
Electric Engineering.

         Benoit Bellerose has been the Director of Mergers and Acquisitions of
the Registrant since March 2000. Mr. Bellerose was the Corporate Comptroller of
the Registrant from January 1999 to March 2000. Mr. Bellerose is also the
Director of Mergers and Acquisitions of Telemig Celular Participacoes S.A. Prior
to joining the Registrant, Mr. Bellerose was the assistant controller at
Telesystem International Wireless Inc. Before 1997 Mr. Bellerose was a principal
at Ernst & Young in Canada. Mr. Bellerose holds a bachelor's degree in Business
Administration from the Universite du Quebec a Trois-Rivieres, Canada, and is a
member of the Canadian Institute of Chartered Accountants.

         Joao Alberto Santos has been the Comptroller of the Registrant since
April 2000. Mr. Santos is also the Comptroller of Telemig Celular Participacoes
S.A. Prior to joining the Registrant, Mr. Santos had been the Chief Financial
Officer of the five operating companies of Tele Norte Participacoes S/A (namely
Telemazon Cellar S/A, Telepara Celular S/A, Telma Celular S/A, Telaima Celular
S/A and Teleamapa Celular S/A) since their privatization in 1998. Mr. Santos's
previous experience includes fifteen years at Valvulas Schrader do Brazil S/A,
where he worked at various managerial levels in the company's financial
operations. In addition, Mr. Santos worked for several years in the cocoa and
coffee export business and in the tropical fruit juice manufacturing industry.
Mr. Santos is a graduate of the State University of Feira de Santana, in Bahia,
and has completed post graduate studies at the Getulio Vargas Foundation in Sao
Paulo.

         Alexandre S. D'Ambrosio has been the General Counsel of the Registrant
since August 1999. Mr. D'Ambrosio is also the General Counsel of Telemig Celular
Participacoes S.A. For three years prior to joining the Registrant, Mr.
D'Ambrosio had been Deputy General Counsel for Odebrecht Servicos de
Infra-Estrutura (OSI) and in-house counsel for Companhia Brasileira de Projetos
e Obras - CBPO (both members of the Odebrecht group of companies) in Sao Paulo,
Brazil. Mr. D'Ambrosio's previous experience includes over ten years practicing
law in Washington, DC and in New York City from 1986 through 1996. He holds a
law degree from the University of Sao Paulo Law School, in Brazil, a Masters
degree from Harvard Law School, in Cambridge, MA, and a Masters in Comparative
Law degree from the National Law Center of George Washington University, in
Washington, DC. Mr. D'Ambrosio also teaches Commercial Law at the Instituto de
Estudos Superiores de Brasilia - IESB.

ITEM 11.      COMPENSATION OF DIRECTORS AND OFFICERS

         For the year ended December 31, 1999, the aggregate amount of
compensation paid by us to all directors and executive officers as a group was
approximately R$1.1 million.

                                       41
45
         For the year ended December 31, 1999, we did not set aside or accrue
monies to provide pension, retirement or similar benefits for officers and
directors.

ITEM 12.      OPTIONS TO PURCHASE SECURITIES FROM REGISTRANT OR SUBSIDIARIES

         On April 10, 2000, our shareholders approved the introduction of an
employee stock option plan. However, the terms of this plan have not yet been
determined.

ITEM 13.      INTEREST OF MANAGEMENT IN CERTAIN TRANSACTIONS

         Telesystem International Wireless, Inc., the parent company of the 49%
owner of Telpart S.A., our controlling shareholder, has been providing us with
technical assistance and services. We paid R$3.7 million and R$13.9 million for
1998 and 1999, respectively. See Note 10 to the consolidated financial
statements.

         We are a member of a national roaming committee of cellular operators,
which includes our affiliate, Telemig Celular Participacoes S.A. The purpose of
the committee is to oversee technical and system aspects to ensure the highest
quality of roaming service. As required by Brazilian regulation, Telemig and
ourselves facilitate roaming to our respective subscribers.

         In order to maximize efficiency in resource allocation between Telemig
Celular Participacoes S.A. and Tele Norte Celular Participacoes S.A., the two
companies have entered into a cost sharing agreement, pursuant to which certain
costs that are incurred for the benefit of both companies and their subsidiaries
are allocated to each company, based on criteria designed to reflect the actual
amount of use by each company (measured by time sheets, number of customers, or
estimated costs, as the case may be). The costs that are allocated under this
cost sharing agreement refer primarily to personnel, marketing and outside
consulting fees.

                                     PART II

ITEM 14.      DESCRIPTION OF SECURITIES TO BE REGISTERED

         None.

                                    PART III

ITEM 15.      DEFAULT UPON SENIOR SECURITIES

         Not applicable.

ITEM 16.      CHANGES IN SECURITIES, CHANGES IN SECURITY FOR REGISTERED
              SECURITIES AND USE OF PROCEEDS

         None.

                                     PART IV

ITEM 17.      FINANCIAL STATEMENTS

         The Registrant has responded to Item 18 in lieu of responding to this
Item.

ITEM 18.      FINANCIAL STATEMENTS

         Reference is made to pages F-1 through F-25

ITEM 19.      FINANCIAL STATEMENTS AND EXHIBITS
PAGE
                                                                                                               ----
(a)      The following consolidated financial statements are filed as
part of this Form 20-F:

         Report of Independent Auditors.........................................................................F-1
         Consolidated Balance Sheets............................................................................F-3
42
46
Consolidated Statements of Operations and Comprehensive Income.........................................F-4
         Consolidated Statements of Cash Flows..................................................................F-5
         Consolidated Statements of Net Interdivisional Cash Distribution (Receipt).............................F-6
         Consolidated Statements of Changes in Shareholders' Equity.............................................F-7
         Notes to Consolidated Financial Statements.............................................................F-8

         (b)List of Exhibits

         None.
43
47
                         REPORT OF INDEPENDENT AUDITORS

To the Board of Directors and Shareholders
TELE NORTE CELULAR PARTICIPACOES S.A.

We have audited the accompanying consolidated balance sheets of TELE NORTE
CELULAR PARTICIPACOES S.A. as of December 31, 1999 and 1998, and the related
consolidated statements of operations and comprehensive income, changes in
shareholders' equity, and cash flows for the years then ended. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.

We conducted our audits in accordance with generally accepted auditing standards
in the United States. Those standards require that we plan and perform the
audits to obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.

In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of TELE NORTE CELULAR
PARTICIPACOES S.A. at December 31, 1999 and 1998, and the consolidated results
of its operations and its cash flows for the years then ended, in conformity
with accounting principles generally accepted in the United States.

Brasilia, Brazil
January 31, 2000

Ernst & Young Auditores Independentes S.C.

                                      F-1
48
                          INDEPENDENT AUDITORS' REPORT

The Board of Directors and Shareholders
Tele Norte Celular Participacoes S.A.
Brasilia - DF

We have audited the accompanying consolidated statements of operations and
comprehensive income, net interdivisional cash distribution (receipt) and
changes in shareholders' equity of Tele Norte Celular Participacoes S.A. for the
year ended December 31, 1997. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.

We conducted our audits in accordance with generally accepted auditing standards
in Brazil, which do not differ in any material respects from generally accepted
auditing standards in the United States of America. Those standards require that
we plan and perform the audit to obtain reasonable assurance about whether the
consolidated financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting amounts and disclosures
in the consolidated financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well
as evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.

The accompanying consolidated financial statements, referred to above, have been
prepared in accordance with generally accepted accounting principles in the
United States of America and on the basis set out in Note 2 to the consolidated
financial statements. Accordingly, interest income, unallocated interest
expense, income tax expense and the related assets and liabilities are not
included in the consolidated financial statements.

In our opinion, the consolidated financial statements present fairly, in all
material respects, the results of operations and cash flows of Tele Norte
Celular Participacoes S.A. for the year ended December 31, 1997, in conformity
with accounting principles generally accepted in the United States.

KPMG  Auditores Independentes
July 17, 1998
Brasilia, Brazil

                                       F-2
49
                      TELE NORTE CELULAR PARTICIPACOES S.A.

                           CONSOLIDATED BALANCE SHEETS
                Amounts are in thousands of Brazilian Reais - R$
DECEMBER 31,
                                                                                        --------------------------------
                                                                                            1999             1998
                                                                                        --------------------------------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents                                                                      69,233           79,733
Trade receivables, net of allowance for doubtful accounts of R$27,210 and R$ 18,220            87,137           30,092
Other receivables                                                                                  --           13,940
Income tax receivable                                                                           9,316               --
Deferred income taxes                                                                          11,329           16,472
Other current assets                                                                           19,341            4,988
                                                                                        --------------------------------
                                                                                              196,356          145,225
                                                                                        --------------------------------

Property, plant and equipment, net                                                            307,995          207,340
Deferred income taxes                                                                          64,810            3,929
Other non current assets                                                                          519            2,230
                                                                                        ================================
                                                                                              569,680          358,724
                                                                                        ================================

LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable                                                                               58,683            4,542
Accrued liabilities                                                                             3,493           10,813
Value added and other taxes payable                                                            10,680            8,838
Income taxes payable                                                                                -           12,188
Short-term debt                                                                                36,942                -
Current portion of long term debt                                                              11,614           13,226
Deferred activation fees                                                                        1,735            5,266
Other current liabilities                                                                      29,996           11,698
                                                                                        --------------------------------
                                                                                              153,143           66,571
                                                                                        --------------------------------

Long term debt                                                                                 77,514           25,977
Pension plan obligation                                                                         6,300                -
Provision for contingencies                                                                    10,042            9,043
Minority interest                                                                              70,375           67,281
                                                                                        --------------------------------
                                                                                              164,231          102,301
                                                                                        --------------------------------

SHAREHOLDERS' EQUITY:
Preferred shares, no par value, issued and outstanding 210,029,997 thousand shares             36,266           36,266
Common shares, no par value, issued and outstanding 124,369,031 thousand shares                21,483           21,483
Other capital and reserves                                                                    151,436          102,618
Retained earnings                                                                              43,121           29,485
                                                                                        --------------------------------

                                                                                              252,306          189,852
                                                                                        --------------------------------
                                                                                              569,680          358,724
                                                                                        ================================
See the accompanying notes to the consolidated financial statements.

                                      F-3
50
                      TELE NORTE CELULAR PARTICIPACOES S.A.

                      CONSOLIDATED STATEMENTS OF OPERATIONS
                            AND COMPREHENSIVE INCOME
                       Amounts are in Brazilian Reais - R$
YEAR ENDED DECEMBER 31,
                                                             -----------------------------------------------------------
                                                                   1999                1998                1997
                                                             -----------------------------------------------------------
                                                             (THOUSANDS OF R$    (THOUSANDS OF R$    (THOUSANDS OF R$
                                                             ACTUAL - NOTE 2)    ACTUAL - NOTE 2)     CONSTANT - NOTE 2)
Revenues:
   Services provided to third parties                                  275,323             206,629             175,833
   Services provided to related parties                                     --              25,926              43,483
   Sales of handsets                                                    33,523                  --                  --
                                                             -----------------------------------------------------------
                                                                       308,846             232,555             219,316
                                                             -----------------------------------------------------------

Cost of services:
   Provided by related parties                                              --              29,004              45,684
   Provided by others                                                  113,872              38,540               5,027
Cost of handsets                                                        36,927                  --                  --
Selling, general and administrative expenses                            90,626              51,913              36,072
Pension plan expense                                                     6,300                  --                  --
Bad debt expense                                                        28,084              38,428              12,333
Other net operating income                                                (710)             (1,688)              1,473
Impairment of long-lived assets                                             --              18,448                  --
                                                             -----------------------------------------------------------
Operating income                                                        33,747              57,910             118,727

Interest income                                                        (20,963)             (8,591)
Interest expense                                                         6,016               4,047                  --
Foreign exchange (gain) loss                                            12,394               2,472              (1,058)
Allocated interest expense                                                  --                  --                 791
Net non-operating loss                                                      --                  --                 979
                                                             -----------------------------------------------------------
Income before minority interest, unallocated interest
    expense and taxes                                                   36,300              59,982             118,015
Minority interest before unallocated interest expense and                   --                  --              33,483
    taxes
                                                             -----------------------------------------------------------
Income before unallocated interest expense and taxes                    36,300              59,982              84,532
                                                             -----------------------------------------------------------
Income taxes                                                             8,347              16,897
Minority interest                                                        8,570              11,553
                                                             -----------------------------------------------------------
Net income and comprehensive income                                     19,383               31,532
                                                             ===========================================================
Basic and diluted earnings, in Reais per thousand common
    shares                                                                0.06                0.09
                                                             ===========================================================
See the accompanying notes to the consolidated financial statements

                                      F-4
51
                      TELE NORTE CELULAR PARTICIPACOES S.A.

                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                Amounts are in thousands of Brazilian Reais - R$
YEAR ENDED          YEAR ENDED
                                                                                       DECEMBER 31,        DECEMBER 31,
                                                                                           1999                1998
                                                                                 ---------------------------------------
Operating activities:
Net income                                                                                  19,383              31,532
Adjustments to reconcile net income to net cash provided by operating
activities:
   Depreciation                                                                             50,382              20,266
   Deferred income taxes                                                                    (6,920)            (24,428)
   Minority interest                                                                         8,570              11,553
   Unrealized foreign exchange loss on long-term debt                                       10,702               1,700
   Pension provision                                                                         6,300                   -
   Provision for contingencies                                                                 999               9,030
   Impairment of long-lived assets                                                               -              18,448
   Compensation expense                                                                          -               1,200
Changes in operating assets and liabilities:
   Trade receivables                                                                       (43,105)              9,611
   Accounts payable and accrued liabilities                                                 46,821               4,864
   Accounts payable related to property, plant and equipment                                     -             (14,121)
   Value added and other taxes payable                                                       1,842               6,867
   Income taxes payable                                                                    (21,504)             12,188
   Deferred activation fees                                                                 (3,531)              5,266
   Others                                                                                      180              (9,185)
                                                                                 ---------------------------------------
Net cash provided by operating activities                                                   70,119              84,791
                                                                                 ---------------------------------------

Investing activities:
   Proceeds from sales of property, plant and equipment                                          -               2,348
   Additions to property, plant and equipment                                             (151,037)            (31,672)
                                                                                 ---------------------------------------
Net cash used in investing activities                                                     (151,037)            (29,324)
                                                                                 ---------------------------------------

Financing activities:
   Increase in short-term debt                                                              46,342                   -
   Increase in long-term debt                                                               63,372              21,971
   Repayment of short-term debt                                                             (9,400)                  -
   Repayment of long-term debt                                                             (24,149)             (8,525)
   Dividends                                                                                (5,747)                  -
   Contribution upon Spin-Off                                                                    -               1,975
                                                                                 ---------------------------------------
Net cash provided by financing activities                                                   70,418              15,421
                                                                                 ---------------------------------------

Increase in cash and cash equivalents for the year                                         (10,500)             70,888
Cash and cash equivalents, beginning of the year                                            79,733               8,845
                                                                                 =======================================
Cash and cash equivalents, end of the year                                                  69,233              79,733
                                                                                 =======================================

Supplemental cash flow information:
   Income taxes paid                                                                        24,520              29,229
   Interest paid                                                                             3,945               2,343
See the accompanying notes to the consolidated financial statements.

                                      F-5
52
                      TELE NORTE CELULAR PARTICIPACOES S.A.

                          CONSOLIDATED STATEMENT OF NET
                   INTERDIVISIONAL CASH DISTRIBUTION (RECEIPT)
                       Amounts are in Brazilian Reais - R$
YEAR ENDED
                                                                        DECEMBER 31,
                                                                            1997
                                                                    ----------------------
                                                                      (THOUSANDS OF R$
                                                                     CONSTANT - NOTE 2)
Operating activities:
Income before unallocated interest expense and taxes                              84,532
Adjustments to reconcile to cash provided by
   operating activities:
   Depreciation                                                                   12,296
   Minority interest in income before unallocated
      interest expense and taxes                                                  33,483
   Trade receivables                                                             (10,672)
   Other current assets                                                             (206)
   Account payable and accrued liabilities                                         3,373
   Value added and other taxes payable                                            (2,412)
   Other current liabilities                                                         443
                                                                    ----------------------
                                                                                 120,837
                                                                    ----------------------

Investing activities:
   Additions to property, plant and equipment                                    (51,768)
   Proceeds from disposal of property, plant and equipment                            26
                                                                    ----------------------
                                                                                 (51,742)
                                                                    ----------------------

Financing activities:
   Increase in long-term debt                                                     25,925
   Repayment of long-term debt                                                   (14,496)
                                                                    ----------------------
                                                                                  11,429
                                                                    ----------------------

Increase in cash and cash equivalents                                             80,524
Cash and cash equivalents, beginning of the year                                       -
Cash and cash equivalents, end of the year                                        (8,845)
                                                                    ======================
                                                                                  71,679
                                                                    ======================

Supplemental cash distribution information:
    Interest paid                                                                  7,108
                                                                    ======================
See the accompanying notes to the consolidated financial statements.

                                      F-6
53
                      TELE NORTE CELULAR PARTICIPACOES S.A.

           CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
      Amounts are in thousands of actual Brazilian Reais - R$ for the years
 ended December 31, 1999 and 1998 and in thousands of constant Brazilian Reais -
                    R$ for the year ended December 31, 1997.
Divisional         Preferred        Common shares
                                                          equity            shares
                                                      -----------------------------------------------------
BALANCE AT DECEMBER 31, 1996                                   137,315                 -                  -
                                                      -----------------------------------------------------
Income before unallocated interest expense and
taxes                                                           84,532                 -                  -
Deferred taxes                                                    (596)                -                  -
Net interdivisional cash distribution                          (71,679)                -                  -
Minority interest effects other than on income                   7,620                 -                  -
                                                      -----------------------------------------------------
BALANCE AT DECEMBER 31, 1997                                   157,192                 -                  -
                                                      -----------------------------------------------------
Contributed capital from the Spin-Off                            1,975                 -                  -
Allocation of divisional equity as a result of
Spin-Off                                                      (159,167)           36,266             21,483
Contributed capital                                                  -                 -                  -
Interest on capital                                                  -                 -                  -
Net income                                                           -                 -                  -
                                                      -----------------------------------------------------
BALANCE AT DECEMBER 31, 1998                                         -            36,266             21,483
                                                      -----------------------------------------------------
Paid in capital - non cash                                           -                 -                  -
Net income                                                           -                 -                  -
Dividends                                                            -                 -                  -
Interest on capital                                                  -                 -                  -
                                                      =====================================================
BALANCE AT DECEMBER 31, 1999                                         -            36,266             21,483
                                                      =====================================================
Capital          Retained             Total
                                                       reserves          earnings
                                                      ----------------------------------------------------
BALANCE AT DECEMBER 31, 1996                                       -                 -            137,315
                                                      ----------------------------------------------------
Income before unallocated interest expense and
taxes                                                              -                 -             84,532
Deferred taxes                                                     -                 -               (596)
Net interdivisional cash distribution                              -                 -            (71,679)
Minority interest effects other than on income                     -                 -              7,620
                                                      ----------------------------------------------------
BALANCE AT DECEMBER 31, 1997                                       -                 -            157,192
                                                      ----------------------------------------------------
Contributed capital from the Spin-Off                              -                 -              1,975
Allocation of divisional equity as a result of
Spin-Off                                                     101,418                 -                  -
Contributed capital                                            1,200                 -              1,200
Interest on capital                                                -            (2,047)            (2,047)
Net income                                                         -            31,532             31,532
                                                      ----------------------------------------------------
BALANCE AT DECEMBER 31, 1998                                 102,618            29,485            189,852
                                                      ----------------------------------------------------
Paid in capital - non cash                                    48,818                 -             48,818
Net income                                                         -            19,383             19,383
Dividends                                                          -            (1,724)            (1,724)
Interest on capital                                                -            (4,023)            (4,023)
                                                      ====================================================
BALANCE AT DECEMBER 31, 1999                                 151,436            43,121            252,306
                                                      ====================================================
See the accompanying notes to the consolidated financial statements

                                      F-7
54
                      TELE NORTE CELULAR PARTICIPACOES S.A.

                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
                          Amounts are in thousands of
                          actual Brazilian Reais - R$
       for the years ended December 31, 1999 and 1998 and in thousands of
                   constant Brazilian Reais - R$ for the year
                            ended December 31, 1997.

     1.  BACKGROUND AND DESCRIPTION OF BUSINESS

      Beginning in 1995, the federal government of Brazil (the "Federal
      Government") undertook a comprehensive reform of the Brazilian regulation
      of the telecommunications industry. In July 1997, the Federal Congress
      adopted a General Telecommunications Law providing for the privatization
      of Telecomunicacoes Brasileiras S.A. ("Telebras") which, through its 28
      operating subsidiaries, was the primary supplier of public
      telecommunications services in Brazil ("Telebras System").

      In preparation for the privatization of the Telebras system, the operating
      subsidiaries were divided into twelve separate groups, (a) three regional
      fixed line operators, (b) eight regional cellular operators and (c) one
      national long-distance operator. The cellular telecommunications
      businesses were first separated from the operating subsidiaries, and
      subsequently the fixed line businesses, the new cellular businesses and
      the long-distance operator were combined into twelve separate groups (the
      "New Holding Companies", individually, "New Holding Company"). Both the
      separation of the cellular businesses and the subsequent grouping of the
      former Telebras subsidiaries were performed using a procedure under
      Brazilian corporate law called cisao (Spin-Off). As part of this process
      Tele Norte Celular Participacoes S.A. was formed on May 22, 1998, through
      the Spin-Off of certain assets and liabilities of Telebras, including
      80.3%, 86.9%, 90.6%, 69% and 66.8% of the share capital of Telamazon
      Celular S.A., Telaima Celular S.A., Teleamapa Celular S.A., Telepara
      Celular S.A. and Telma Celular S.A. (together the "subsidiaries"),
      respectively.

      Telamazon Celular S.A., Telaima Celular S.A., Teleamapa Celular S.A.,
      Telepara Celular S.A. and Telma Celular S.A. were formed on January 5,
      1998 and subsequently received on January 30, 1998 from Telecomunicacoes
      do Amazonas S.A. ("Telamazon"), Telecomunicacoes de Roraima S.A.
      ("Telaima"), Telecomunicacoes do Amapa S.A. ("Teleamapa"),
      Telecomunicacoes do Para S.A. ("Telepara") and Telecomunicacoes do
      Maranhao S.A. ("Telma") the assets and liabilities comprising their
      respective cellular telecommunications services (together the "predecessor
      companies"). Tele Norte Celular Participacoes S.A. and its subsidiaries
      (together the "Company") are the primary suppliers of cellular
      telecommunications services in the states of Amazonas, Roraima, Amapa,
      Para and Maranhao under the terms of concessions granted by the Federal
      Government on October 23, 1997 (the "Concessions"). The Concessions will
      expire in 2009 and may be renewed at the discretion of Agencia Nacional de
      Telecomunicacoes ("Anatel"), the regulatory authority for the Brazilian
      telecommunications industry, for a further term of 15 years. Through their
      predecessors Telamazon, Telaima, Teleamapa, Telepara and Telma, the
      Company has provided cellular telecommunications services in the states of
      Amazonas, Roraima, Amapa, Para and Maranhao since April 1994.

      On July 29, 1998, the Federal Government sold to twelve buyers (the "New
      Controlling Shareholders") its rights to receive shares of the twelve New
      Holding Companies upon the distribution of such shares. In connection with
      this sale, the Federal Government assigned to the New Controlling
      Shareholders, effective August 4, 1998, substantially all its economic and
      voting rights with respect to the New Holding Companies.

      The Company's business, including the services it may provide and the
      rates it charges, is regulated by Anatel and is fully dependent upon the
      cellular telecommunications concession granted by the Federal Government.

      The Company will be required to make significant capital and operating
      expenditures on an ongoing basis in order to deploy its cellular
      telecommunications network, which will require the Company to seek
      additional financing. Some of these investments may be financed through
      debt denominated in foreign currencies. A significant

                                      F-8
55
                      TELE NORTE CELULAR PARTICIPACOES S.A.

           NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - Continued
                          Figures are in thousands of
                          actual Brazilian Reais - R$
       for the year ended December 31, 1998 and 1999 and in thousands of
                   constant Brazilian Reais - R$ for the year
                            ended December 31, 1997.

      devaluation and a return to high levels of inflation could have an adverse
      effect on the Brazilian economy, and, as a result, it could affect the
      Company's financial position, cash flows or results of operations.

      2. PRESENTATION OF THE FINANCIAL STATEMENTS

      These consolidated financial statements have been prepared in accordance
      with accounting principles generally accepted in the United States and
      rules and regulations adopted by the United States Securities and Exchange
      Commission. Certain of the comparative figures have been reclassified to
      conform to the presentation adopted in the current year.

      The Company has also published consolidated financial statements prepared
      in accordance with accounting principles generally accepted in Brazil and
      rules and regulations adopted by the Brazilian Securities Commission
      ("CVM").

         a)       Basis of presentation prior to December 31, 1997

         The Spin-Off of the cellular telecommunications businesses of
         Telamazon, Telaima, Teleamapa, Telepara and Telma to the Company was
         accounted for as a reorganization of entities under common control in a
         manner similar to a pooling of interests. The assets and liabilities of
         the cellular telecommunications businesses of Telamazon, Telaima,
         Teleamapa, Telepara and Telma were transferred to the Company at their
         indexed historical costs. The revenues and expenses associated with
         such assets and liabilities were allocated to the Company. Separate
         records of revenues and costs of services of the cellular
         telecommunications businesses were maintained historically.
         Accordingly, the actual amounts were allocated for the 1996 and 1997
         fiscal years.

         The consolidated statements of operations and of net interdivisional
         cash distribution (receipt) have been prepared to include the
         historical activity related to the assets and liabilities transferred.
         The consolidated financial statements are not necessarily indicative of
         what would have been the financial condition and revenues and expenses
         of the Company as of December 31, 1997 had the cellular
         telecommunications businesses of Telamazon, Telaima, Teleamapa,
         Telepara and Telma been separate legal entities during such period.

         With respect to costs (other than costs of services), the methodologies
         employed in transferring the assets and liabilities included the
         specific identification of costs associated with those assets and
         liabilities, and the allocation of costs where specific identification
         was not possible. Allocations were made using criteria established by
         management that were designed to ensure that all relevant costs were
         appropriately included in the consolidated statements of operations for
         the periods presented. Those allocation criteria included: square
         footage (in relation to land and building related expenses), number of
         terminals (in relation to general management, accounting, data
         processing, legal department and other general staff functions), number
         of employees (in relation to the human resources department), number of
         requisitions issued (in relation to office material costs) and miles
         driven (in relation to certain transportation costs). Management
         believes that the amounts included in the consolidated statements of
         operations for the year ended December 31, 1997 fairly reflect the
         income before interest income, unallocated interest expense and taxes
         of the cellular telecommunications businesses of Telamazon, Telaima,
         Teleamapa, Telepara and Telma.

                                      F-9
56
                      TELE NORTE CELULAR PARTICIPACOES S.A.

           NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - Continued
                          Figures are in thousands of
                          actual Brazilian Reais - R$
       for the years ended December 31, 1998 and 1999 and in thousands of
                   constant Brazilian Reais - R$ for the year
                            ended December 31, 1997.

2.    PRESENTATION OF THE FINANCIAL STATEMENTS--Continued

      a) Basis of presentation prior to December 31, 1997--Continued

         Prior to December 31, 1997, cash and certain non-specific debt could
         not be segregated from Telamazon, Telaima, Teleamapa, Telepara and
         Telma. Accordingly, these amounts have not been included in the
         accompanying consolidated financial statements. Additionally, interest
         income and unallocated interest expense relating to the cellular
         telecommunications businesses could not be identified. Consequently,
         income tax expense and related liabilities do not appear in the
         consolidated statement of operations for 1997. The portion of
         consolidated equity and income before interest income, unallocated
         interest expense and taxes attributable to shareholders other than
         Telebras at December 31, 1997, and for the year then ended is reflected
         as "minority interest" in the consolidated financial statements. At
         December 31, 1997, such minority shareholders owned 19.74%, 13.09%,
         9.36%, 30.96% and 33.21% of the share capital of Telamazon, Telaima,
         Teleamapa, Telepara and Telma, respectively. All taxes payable at
         December 31, 1997, related to revenues (ICMS, PASEP, COFINS) remained
         with the predecessor companies when the assets and liabilities of the
         cellular telecommunications businesses were transferred to the
         subsidiaries. The legal responsibility for their payment remained with
         the predecessor companies.

         Because it was not possible to segregate the cash balances for the
         cellular telecommunications businesses prior to December 31, 1997, a
         traditional statement of cash flows could not be prepared for the year
         ended December 31, 1997. In lieu of detailing the beginning and ending
         cash and cash equivalents balances, and the net change in cash and cash
         equivalents between years, the net cash transferred to/from the fixed
         line telecommunications businesses of Telamazon, Telaima, Teleamapa,
         Telepara and Telma has been presented as "Net interdivisional cash
         distribution (receipt)" in the statement of net interdivisional cash
         distribution (receipt).

         Since the Company's subsidiaries did not exist prior to January 1,
         1998, no individual capital structure was maintained. Consequently, the
         net assets contributed were shown as "divisional equity" in the
         consolidated statement of changes in shareholders' equity for each of
         the years in the two-year period ended December 31, 1997.

         Earnings per share has not been presented for the year ended December
         31, 1997, as the consolidated statement of operations exclude interest
         income, unallocated interest expense and taxes, as a result of
         nonspecific cash and debt not being allocated from Telamazon, Telaima,
         Teleamapa, Telepara and Telma.

         Full indexation to December 31, 1997

         The consolidated financial statements as of and for the years prior to
         December 31, 1997 were prepared on a fully indexed basis to recognize
         the effects of changes in the purchasing power of the Brazilian
         currency during the periods presented.

                                      F-10
57
                      TELE NORTE CELULAR PARTICIPACOES S.A.

           NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - Continued
                          Figures are in thousands of
                          actual Brazilian Reais - R$
       for the year ended December 31, 1998 and 1999 and in thousands of
                   constant Brazilian Reais - R$ for the year
                            ended December 31, 1997.

2.     PRESENTATION OF THE FINANCIAL STATEMENTS--Continued

      a) Basis of presentation prior to December 31, 1997--Continued

         Full indexation to December 31, 1997--Continued

         i. Inflation restatement index

         The consolidated financial statements were indexed and expressed in
         currency of constant purchasing power of December 31, 1997 by using the
         Indice Geral de Precos-Mercado [the General Prices Index-Market or the
         "IGP-M" of the Fundacao Getulio Vargas in 1997. Inflation for the year
         ended December 31, 1997, as measured by the IGP-M, was 7.7%.

         Management believes that this index is an appropriate indication of
         general price-level inflation to be used for the years indicated.

         The effects of price-level adjustments and the monetary gains and
         losses associated with the indexation have not been eliminated in these
         financial statements, because the application of inflation restatement
         as measured by the IGP-M represents a comprehensive measure of the
         effects of price-level changes in the Brazilian economy and, as such,
         is considered a more meaningful presentation than historical cost-based
         financial reporting.

         In July 1997, the three-year cumulative inflation rate for Brazil fell
         below 100%. However, for accounting purposes, the constant currency
         method continued to be applied through December 31, 1997. The restated
         balances of non-monetary assets and liabilities of the Company as of
         December 31, 1997 were used as the opening balances on January 1, 1998
         and are no longer restated for inflation beginning January 1, 1998.

                                      F-11
58

                      TELE NORTE CELULAR PARTICIPACOES S.A.

            NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--Continued
            Figures are in thousands of actual Brazilian Reais - R$
        for the year ended December 31, 1998 and 1999 and in thousands of
                   constant Brazilian Reais - R$ for the year
                            ended December 31, 1997.

2.     PRESENTATION OF THE FINANCIAL STATEMENTS--Continued

      a) Basis of presentation prior to December 31, 1997--Continued

         Full indexation to December 31, 1997--Continued

         ii. Consolidated statements of operations

         Items in the consolidated statements of operations for the year ended
December 31, 1997 are adjusted by:

         o    allocating inflationary holding gains or losses on interest
              bearing monetary assets and liabilities to their corresponding
              interest income and expense captions;

         o    allocating inflationary holding gains and losses from other
              monetary items to their corresponding income or expense captions.
              Amounts without a corresponding income or expense caption were
              allocated to "Other net operating (income) expense."

         iii. Deferred income tax effects of indexation adjustments in 1997

         As a result of legislation mandating the discontinuation of the
         indexation system from January 1, 1996, the indexation of assets and
         liabilities is not permitted for tax purposes. Accordingly, a deferred
         tax liability arises for the excess of net assets shown for financial
         reporting purposes over the tax basis of these net assets. The charge
         relating to this deferred tax liability of R$4,091 in 1997 was recorded
         directly against divisional equity.

      b) Basis of presentation subsequent to December 31, 1997

         On May 22, 1998, the shareholders of Telebras approved the Spin-Off,
         whereby existing shareholders received shares in the New Holding
         Companies in proportion to their holdings in Telebras. The New Holding
         Companies contain the assets and liabilities previously recorded in the
         accounts of Telebras, with limited exceptions.

                                      F-12
59
                      TELE NORTE CELULAR PARTICIPACOES S.A.

            NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--Continued
            Figures are in thousands of actual Brazilian Reais - R$
        for the year ended December 31, 1998 and 1999 and in thousands of
                   constant Brazilian Reais - R$ for the year
                            ended December 31, 1997.

2.     Presentation of the Financial Statements--CONTINUED

      b) Basis of presentation subsequent to December 31, 1997--Continued

         The shareholders also approved a specific structure for the
         shareholders' equity of each New Holding Company, which included an
         allocation of a portion of the retained earnings of Telebras. This
         value of allocated retained earnings does not represent the historical
         retained earnings of the New Holding Companies and therefore is
         presented as "Capital Reserves" on the consolidated statements of
         changes in shareholders' equity. The net assets which were spun-off
         from Telebras, in addition to its investment in the operating
         subsidiaries, resulted in a net equity increase of R$1,975 in relation
         to the Company's historical divisional equity.

         Upon formation, the Company's legal capital structure was defined by
         the resolutions approved by the Telebras shareholders' meeting of May
         22, 1998. The value of shareholders' equity of R$167,283 includes
         capital reserves of R$46,789.

         The Company's legal capital and reserves and future retained earnings
         computed using Brazilian GAAP will be the basis from which future
         dividends will be payable.

         Brazilian corporate and tax law allows state controlled companies that
         are participating in the government's privatization program a
         three-month delay between the accounting base date for a Spin-Off and
         the date on which the shareholders' meeting approves the Spin-Off,
         including the related accounting basis for the net assets spun off. As
         a result, the consolidated financial statements of the Company include
         the results of operations and changes in financial condition of the
         subsidiaries from January 1, 1998 and the effects of the cash allocated
         from Telebras as of March 1, 1998.

3.     SUMMARY OF ACCOUNTING POLICIES

      The summary of significant accounting policies is as follows:

      a) Consolidation

         The consolidated financial statements of the Company for the year ended
         December 31, 1999 include the accounts of the Company and its
         subsidiaries. All significant intercompany transactions and balances
         have been eliminated.

      b) Cash equivalents

         Cash equivalents consist of highly liquid investments with original
         maturities of three months or less at the time of purchase.

      c) Foreign currency transactions

         Transactions in foreign currency are recorded at the prevailing
         exchange rate at the time of the related transactions. Foreign currency
         denominated monetary assets and liabilities are translated using the
         exchange

                                      F-13
60
                      TELE NORTE CELULAR PARTICIPACOES S.A.

            NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--Continued
            Figures are in thousands of actual Brazilian Reais - R$
        for the year ended December 31, 1998 and 1999 and in thousands of
                   constant Brazilian Reais - R$ for the year
                            ended December 31, 1997.

         rate at the balance sheet date. Exchange differences are recognized in
         the statements of operations as they occur.

3.     SUMMARY OF ACCOUNTING POLICIES--Continued

      d) Property, plant and equipment

         Property, plant and equipment are stated at indexed cost through
         December 31, 1997 and at cost thereafter. Depreciation is provided
         using the straight-line method based on the estimated useful lives of
         the underlying assets as follows:
Years
                                      ---------------------
Buildings                             20
         Network equipment                     8
         Other equipment                     4 to 5
Interest incurred on borrowings is capitalized as part of property,
         plant and equipment until the asset is placed in service, to the extent
         that borrowings do not exceed construction-in-progress. The amount of
         interest capitalized excludes the inflationary element in local
         currency borrowings and the foreign exchange gains and losses on
         foreign currency borrowings.

         The Company reviews property, plant and equipment for impairment
         whenever events or changes in circumstances indicate that the carrying
         amount may not be recoverable.

         In December 1998, to comply with industry practice, the Company reduced
         the estimated useful lives of certain of its assets as follows: network
         equipment from 10 to 13 years to 8 years, buildings from 25 years to 20
         years and other equipment from 5 to 20 years to 4 to 5 years. The
         Company believes that the estimated useful lives used by the industry
         better reflect the period of the economic benefits to be received from
         the assets. The effect of this change was an increase in depreciation
         expense of R$12,500 for the year ended December 31, 1999.

      e) Revenue recognition

         Revenues for services are recognized when the service is provided.
         Revenues from cellular telephone services consist of subscription
         charges, usage charges, activation fees, network usage charges and
         charges for maintenance and other customer services. Unbilled revenues
         from the billing date to the month-end are estimated and recognized as
         revenue during the month in which the service was provided. Effective
         January 1, 1998, the Company defers net activation fees. These fees are
         amortized over twelve months, the estimated effective contract life.
         Revenues from equipment sales refer to sales of handsets.

         The Company began selling prepaid cards during 1999. The revenue from
         the sales of these cards is recognized according to the minutes used
         for each card. Revenue from unused minutes is deferred until used. As
         the amount deferred is immaterial, it has been included in other
         liabilities.

                                      F-14
61
                      TELE NORTE CELULAR PARTICIPACOES S.A.

            NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--Continued
            Figures are in thousands of actual Brazilian Reais - R$
        for the year ended December 31, 1998 and 1999 and in thousands of
                   constant Brazilian Reais - R$ for the year
                            ended December 31, 1997.

      f) Pension and other post-retirement benefits

         The Company participates in a multi-employer plan that provides pension
         and other post-retirement benefits for its employees. The costs of
         pension and other post-retirement benefits are based on a fixed
         percentage of remuneration, as recommended annually by independent
         actuaries. Current costs are determined as the amount of required
         contribution for the period and are recorded on an accrual basis.
         See note 12.

3.     SUMMARY OF ACCOUNTING POLICIES--Continued

      g) Use of estimates

         The preparation of consolidated financial statements in conformity with
         generally accepted accounting principles requires management to make
         estimates and assumptions relating to the reporting of assets and
         liabilities and the disclosure of contingent assets and liabilities at
         the date of the financial statements, and the reported amounts of
         revenues and expenses during the period reported. Actual results could
         differ from those estimates.

      h) Advertising costs

         Advertising costs are expensed as incurred and included in selling,
         general and administrative expenses. They amounted to R$12,390 and
         R$930 for the years ended December 31, 1999 and 1998, respectively. The
         Company did not maintain specific records for prior years.

      i) New accounting pronouncements

         SFAS NO. 133, "ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING
         ACTIVITIES"

         In June 1998, the Financial Accounting Standards Board ("FASB") issued
         Statement of Financial Accounting Standards ("SFAS") No. 133,
         "Accounting for Derivative Instruments and Hedging Activities". SFAS
         133 establishes new accounting and reporting standards for derivative
         financial instruments and for hedging activities. SFAS 133 requires
         companies to measure all derivatives at fair value and to recognize
         them in the balance sheet as an asset or liability, depending on the
         company's rights or obligations under the applicable derivative
         contract. In June 1999, the FASB issued SFAS No. 137, which deferred
         the effective date of adoption of SFAS 133 for one year. The Company
         will adopt SFAS 133 no later than the first quarter of fiscal year
         2001. SFAS 133 is not expected to have a material impact on the
         Company's consolidated results of operations, financial position or
         cash flows.

      j) Reclassifications

         Certain 1998 amounts were reclassified to conform to the 1999
         presentation.

                                      F-15
62
                      TELE NORTE CELULAR PARTICIPACOES S.A.

            NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--Continued
            Figures are in thousands of actual Brazilian Reais - R$
        for the year ended December 31, 1998 and 1999 and in thousands of
                   constant Brazilian Reais - R$ for the year
                            ended December 31, 1997.

4.     PROPERTY, PLANT AND EQUIPMENT
Accumulated         Carrying
                                             Cost          Depreciation         Value
                                        ----------------------------------------------------
DECEMBER 31, 1998
      Land and buildings                         6,096               417             5,679
      Network equipment                        234,636            57,049           177,587
      Other equipment                            5,947             2,243             3,704
      Construction-in-progress                  20,370                 -            20,370
                                        ----------------------------------------------------
                                               267,049            59,709           207,340
                                        ====================================================

      DECEMBER 31, 1999
      Land and buildings                         4,966               544             4,422
      Network equipment                        265,504           100,022           165,482
      Other equipment                           71,010             9,525            61,485
      Construction-in-progress                  76,606                 -            76,606
                                        ----------------------------------------------------
                                               418,086           110,091           307,995
                                        ====================================================
The amount of interest capitalized as part of property, plant and
      equipment is R$ 2,623 and R$2,268 for the years ended December 31,1999 and
      1998, respectively.

5.       SHORT -TERM DEBT
1999                   1998
                                                                           ---------------------------------------------
Brazilian Reais facilities, due in quarterly installments until                    36,942                      -
         November 2000 with annual interest of 6.7% over the Long-
         term Interest Rate (TJLP - 12.5% at December 31, 1999)
                                                                           ---------------------------------------------
      Total                                                                              36,942                      -
                                                                           =============================================
F-16
63
                      TELE NORTE CELULAR PARTICIPACOES S.A.

            NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--Continued
            Figures are in thousands of actual Brazilian Reais - R$
        for the year ended December 31, 1998 and 1999 and in thousands of
                   constant Brazilian Reais - R$ for the year
                            ended December 31, 1997.

6.     LONG-TERM DEBT
1999                   1998
                                                                           ---------------------------------------------
U.S. dollar denominated, unsecured, interest and principal due                   32,643                 28,972
           semi-annually through March 2003, interest at LIBOR plus
           0.4% (LIBOR was 6.19% at December 31, 1999)

        U.S. dollar denominated, unsecured, interest and principal due                   45,450                      -
           semi-annually through December 2004, interest at LIBOR plus
           5.75% (LIBOR was 6.19% at December 31, 1999)
        Other                                                                            11,035                 10,231
                                                                           ---------------------------------------------
        Total                                                                            89,128                 39,203
        Less current portion                                                            (11,614)               (13,226)
                                                                           ---------------------------------------------
        Long-term portion                                                                77,514                 25,977
                                                                           =============================================
Minimum annual principal repayments of all long-term debt during the next
five years are as follows:
2001                                             25,238
      2002                                             26,077
      2003                                             14,837
      2004 and after                                   11,362
                                         ----------------------
      Total                                            77,514
                                         ======================
7.     CAPITAL STOCK

         The capital stock of the Company is comprised of preferred shares and
         common shares, all without par value. The Company has 700,000,000
         thousand shares authorized, (including both preferred and common
         shares). At May 22, 1998, the date the Company was legally formed,
         there were 210,029,997 thousand outstanding preferred shares and
         124,369,031 thousand outstanding common shares. The capital may be
         increased by a decision taken at a shareholders' meeting or by the
         Board of Directors in connection with the capitalization of profits or
         reserves, provided that the amounts were allocated for capital
         increases at a previous shareholders' meeting.

         The preferred shares are non-voting except under limited circumstances
         and are entitled to a preferential, 6% non-cumulative dividend. The
         preferred shares are also entitled to priority over the common shares
         in the case of liquidation of the Company.

         Under the Brazilian Corporation Law, the number of non-voting shares or
         shares with limited voting rights, such as the preferred shares, may
         not exceed two-thirds of the total number of outstanding shares.

         As part of the privatization of Telebras, the Brazilian Federal
         Government offered Telebras' employees the right to purchase, at a
         discounted price, the Federal Government's entire holding of Telebras
         preferred shares and the preferred shares of each of the New Holding
         Companies created as a result of the Spin-Off. The period during

                                      F-17
64
                      TELE NORTE CELULAR PARTICIPACOES S.A.

            NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--Continued
            Figures are in thousands of actual Brazilian Reais - R$
        for the year ended December 31, 1998 and 1999 and in thousands of
                   constant Brazilian Reais - R$ for the year
                            ended December 31, 1997.

         which employees could subscribe for the shares began on August 4, 1998,
         and expired on October 30, 1998. In 1998, the Company recorded
         compensation expense and contributed capital in the amount of R$1,200
         related to this offer.

7.    CAPITAL STOCK--Continued

      Dividends

      Under Brazilian Corporation Law, dividends can only be paid out of the
      distributable capital arising from the Spin-Off and from future retained
      earnings. Pursuant to its by-laws, the Company is required to distribute
      as dividends in respect of each fiscal year ending on December 31, to the
      extent amounts are available for distribution, an aggregate amount equal
      to at least 25% of Adjusted Net Income, as defined below, on such date.
      The annual dividend distributed to holders of preferred shares, the
      "Preferred Dividend", has priority in the allocation of Adjusted Net
      Income. Remaining amounts to be distributed are allocated first to the
      payment of a dividend to holders of common shares in an amount per share
      equal to the Preferred Dividend, and the remainder is distributed equally,
      on a per share basis, among holders of preferred shares and common shares.

      For the purposes of the Brazilian Corporation Law, and in accordance with
      the Company's by-laws, the "Adjusted Net Income" is an amount equal to the
      Company's net profits under Brazilian GAAP adjusted to reflect allocations
      to or from (i) the legal reserve, (ii) a contingency reserve for
      anticipated losses, if any, and (iii) an unrealized revenue reserve, if
      any. Under Brazilian Corporation Law, the Company is required to
      appropriate 5% of its annual earnings, calculated using Brazilian GAAP,
      after absorbing accumulated losses, to a legal reserve, which is
      restricted as to distribution. This reserve may be used to increase
      capital or to absorb losses, but may not be distributed as dividends. At
      December 31, 1999, the Company's financial statements, prepared using
      Brazilian GAAP, presented an unconsolidated total equity of R$352,763
      including a legal reserve of R$6,737.

      Additionally, Brazilian corporations are permitted to attribute
      tax-deductible interest expense on shareholders' equity, which may either
      be paid in cash, in the form of a dividend, or used to increase capital
      stock value for statutory purposes. For financial reporting purposes, such
      interest on capital is recorded as a reduction from retained earnings.

      Paid in Capital

      On December 28, 1999, the shareholders approved a legal reorganization
      whereby a major shareholder contributed certain assets to the Company
      resulting in future tax benefits. This asset will result in amortization
      expense and a related tax benefit. For US GAAP purposes, in accordance
      with EITF 94-10, tax effects caused by transactions with shareholders were
      not included in the Company's income statement but rather in equity.
      Therefore, the Company recorded a deferred tax asset of R$48,818 with an
      offsetting amount as Paid in Capital. The deferred tax asset will be
      realized as the tax benefits are recognized for local tax purposes over a
      period of up to 10 years.

      In accordance with Brazilian corporate law, the Company may issue shares
      (pro rata both common and preferred) based on the different pricing
      criteria permitted by such law to the contributing shareholder for the
      amount of the tax benefits recognized by the Company. However, the
      minority shareholders will be given the right to purchase their pro-rata
      share of this capital stock increase in order to prevent dilution. In case
      they do not accept the offer,

                                      F-18
65
                      TELE NORTE CELULAR PARTICIPACOES S.A.

            NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--Continued
            Figures are in thousands of actual Brazilian Reais - R$
        for the year ended December 31, 1998 and 1999 and in thousands of
                   constant Brazilian Reais - R$ for the year
                            ended December 31, 1997.

      these shares will be issued to the majority shareholders. Additionally,
      the Company has to ensure that shareholders will receive the minimum
      dividend required by law if the amortization expense results in
      accumulated losses.

      These potential shares are considered contingent shares and since it is
      not possible to determine what pricing criteria the Company will use,
      these shares are not included in either basic or diluted earnings per
      share calculation, in accordance with SFAS 128.

8.    EARNINGS PER COMMON SHARE

      In these consolidated financial statements, information is disclosed per
      lot of one thousand shares, because this is the minimum number of shares
      that can be traded on the Brazilian stock exchanges.

      As discussed in Note 1, the Company was formed subsequent to December 31,
      1997. The equity structure utilized for earnings per share computations is
      that of the new entity formed in May 1998.

      Since the preferred and common shareholders have different dividend,
      voting and liquidation rights, basic earnings per share has been
      calculated using the "two-class" method. The "two-class" method is an
      earnings allocation formula that determines earnings per share for
      preferred and common shares according to the dividends to be paid as
      required by the Company's by-laws and participation rights in
      undistributed earnings.

      Basic earnings per common share is computed by reducing net income by
      distributable and undistributable net income available to preferred
      shareholders and dividing net income available to common shareholders by
      the weighted-average number of common shares outstanding during the
      period. Net income available to preferred shareholders is the sum of the
      preferred dividends distributable net income, and the preferred
      shareholders' portion of undistributed net income.

      Undistributed net income is computed by deducting preferred dividends and
      common dividends from net income. Undistributed net income is shared
      equally, on a per share basis, by the preferred and common shareholders.

      The following table sets forth the computation of basic and diluted
      earnings per thousand of common shares:
1999                1998
                                                                                 ---------------------------------------
Numerator:
         Net income                                                                         19,383              31,532
         Less: Distributable net income available to preferred stockholders                 (2,176)             (2,176)
                Undistributed net income allocated to preferred stockholders                (9,998)            (17,629)
                                                                                 ---------------------------------------
      Numerator for basic and diluted earnings per thousand shares-income
          available to common stockholders                                                   7,209              11,727
                                                                                 ---------------------------------------

      Denominator:
      Basic and diluted weighted-average number of common shares (in
          thousands)                                                                   124,369,031         124,369,031
                                                                                 ---------------------------------------
F-19
66
                      TELE NORTE CELULAR PARTICIPACOES S.A.

            NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--Continued
            Figures are in thousands of actual Brazilian Reais - R$
        for the year ended December 31, 1998 and 1999 and in thousands of
                   constant Brazilian Reais - R$ for the year
                            ended December 31, 1997.
Basic and diluted earnings, in Reais per thousand common shares                         0.06                0.09
                                                                                 =======================================
9.    INCOME TAXES

      Brazilian income taxes comprise federal income tax and the social
      contribution tax. The statutory rates for income tax and for the social
      contribution tax are 25% and 12%, respectively, at December 31, 1999.

      Following is the detail of income tax expense for the years ended December
31, 1999 and 1998:
1999                 1998
                                                                                 ------------------------------------------
Federal income tax charge                                                         12,543               31,150
      Social contribution tax charge                                                     2,724               10,175
      Deferred taxes                                                                    (6,920)             (24,428)
                                                                                 ------------------------------------------
      Income tax expense as reported in the accompanying financial statements            8,347               16,897
                                                                                 ==========================================

      Following is a reconciliation of the reported income tax expense and the
      amount calculated by applying the combined statutory tax rate of 37% and
      33% for the years ended December 31, 1999 and 1998, respectively:

                                                                                          1999                 1998
                                                                                 ------------------------------------------
      Tax charge at the combined statutory rate                                         13,431               19,794
          Non-deductible expenses                                                          634                2,330
          Interest on capital                                                           (6,521)                   -
          Effect of changes in tax rates                                                   803                    -
          Non-taxable income                                                                 -               (5,227)
                                                                                 ------------------------------------------
          Income tax expense as reported in the accompanying financial
          statements                                                                     8,347               16,897
                                                                                 ==========================================

      Following is an analysis of deferred income tax assets and liabilities:
      Deferred tax assets:
          Assets related to paid in capital                                             48,818                    -
          Impairment of equipment                                                        9,160                6,087
          Accrued expenses and provision for contingencies                              10,682               13,154
          Allowance for doubtful accounts                                               10,164                6,013
          Capitalized interest                                                           3,427                2,339
                                                                                 ------------------------------------------
                                                                                        82,251               27,593
      Deferred tax liabilities:
          Cumulative indexation differences                                             (6,112)              (7,192)
                                                                                 ------------------------------------------
          Net deferred tax assets                                                       76,139               20,401
                                                                                 ==========================================

          Current portion                                                               11,329               16,472
          Long-term deferred income taxes                                               64,810                3,929
                                                                                 ------------------------------------------
          Net deferred tax assets                                                       76,139               20,401
                                                                                 ==========================================
As further explained in Note 7, the total tax of R$48,818 related to
      deferred asset was credited to paid in capital in the shareholders' equity
      section.

                                      F-20
67
                      TELE NORTE CELULAR PARTICIPACOES S.A.

            NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--Continued
            Figures are in thousands of actual Brazilian Reais - R$
        for the year ended December 31, 1998 and 1999 and in thousands of
                   constant Brazilian Reais - R$ for the year
                            ended December 31, 1997.

10.   TRANSACTIONS WITH RELATED PARTIES

      Up until the change of control of the Company on August 4, 1998, Empresa
      Brasileira de Telecomunicacoes S.A., a long-distance cellular
      telecommunications company, the predecessor companies and the other
      parties to the Telebras group were related to the Company. The Company has
      operating agreements with these companies for inter or intrastate
      long-distance, international telephone calls, automatic roaming and
      interconnection. The Company executed several service contracts with the
      predecessor companies to perform certain administrative tasks on the
      Company's behalf.

      Certain of the Company's shareholders and affiliated companies provide
      technical assistance and services to the Company. The consideration
      included in short-term liabilities related to these services amounted to
      R$17,526 in 1999 and R$3,656 for 1998; total expenses were R$13,870 and
      R$3,656 for the years ended December 31, 1999 and 1998, respectively.

11.   IMPAIRMENT OF LONG-LIVED ASSETS

      During the fourth quarter of 1998, the Company recorded a write-down of
      certain of its analog transmission network equipment amounting to
      R$18,448.

      In 1998, the Ministry of Communications granted to a newly formed
      consortium an additional license to provide enhanced services in the
      Company's concession area in the form of digital cellular services. The
      commercial operation of the consortium began in 1999. The introduction of
      competition with digital capacity in the Company's market has resulted in
      an acceleration of its plan to replace its existing analog equipment with
      more modern digital equipment. As a result, the analog transmission
      network equipment will be removed before the end of its useful life due to
      the declining demand for analog services.

      The amount of the write-down was established by comparing the fair value
      of the analog transmission equipment, established based on the expected
      future cash flow from the use of this equipment, discounted at a
      risk-adjusted rate, to the carrying amount of the impaired equipment.

12.   PENSION PLAN AND OTHER POST-RETIREMENT BENEFIT PLANS

      The Company, together with substantially all of the other companies in the
      former Telebras group, participates in a multi-employer defined benefit
      pension plan and other post-retirement benefit plans administered by the
      Fundacao Sistel de Seguridade Social ("Sistel"), a minority shareholder.

      Substantially all of Company's employees are covered by these plans. The
      Company contributed and charged to expense the amounts R$1,069, R$786 and
      R$2,152 during 1999, 1998 and 1997, respectively, related to pension fund
      contributions. As a member of the multi-employer plans, the Company's
      contributions are not segregated in separate accounts or restricted to
      provide benefits only to employees of the Company.

                                      F-21
68
                      TELE NORTE CELULAR PARTICIPACOES S.A.

            NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--Continued
            Figures are in thousands of actual Brazilian Reais - R$
        for the year ended December 31, 1998 and 1999 and in thousands of
                   constant Brazilian Reais - R$ for the year
                            ended December 31, 1997.

12.   PENSION PLAN AND OTHER POST-RETIREMENT BENEFIT PLANS--Continued

      In 1999, Sistel approved changes to the plan statutes resulting in the
      break up of plan assets and liabilities related to the active participants
      of each sponsor. The Company recorded a contingent liability of R$6,300
      which represents its unfunded pension liability. Sistel did not break up
      plan assets and liabilities related to inactive participants and thus the
      Company will continue to sponsor the Sistel plan for such inactive
      participants.

      The Company also sponsors the Sistel post-retirement plans (health and
      life insurance). The Company will continue to participate in such plan as
      Sistel did not break up the assets and liabilities of such plan.

      The pension benefit is generally defined as the difference between (i) 90%
      of the retiree's average salary during the last 36 months indexed to the
      date of retirement and (ii) the value of the retirement pension paid by
      the Brazilian social security system. For retired employees the initial
      pension payment is subsequently adjusted upwards to recognize cost of
      living increases and productivity awards granted to active employees. In
      addition to the pension supplements, post-retirement health care and life
      insurance benefits are provided to eligible pensioners and their
      dependents. Sistel no longer offers post-retirement life insurance
      benefits, effective July 1999.

      Contributions to the plans are based on actuarial studies prepared by
      independent actuaries. The actuarial studies are revised periodically to
      identify whether adjustments to the contributions are necessary.

      The provisions of SFAS No. 87, "Employers' Accounting for Pensions", for
      the purpose of calculating the funded status, were applied with effects
      from January 1, 1992, because it was not feasible to apply them from the
      effective date in the standard.

      Beginning in 1998, the Company adopted the disclosure requirements of SFAS
      No. 132 "Employers' Disclosures About Pensions and Other Post-retirement
      Benefits" which revised and standardized employers' disclosures about
      pension and other post-retirement benefit plans. It does not change the
      measurement or recognition of those plans.

      The change in plans assets and benefit obligation of the Sistel pension
      and other post-retirement benefit plans (health and life insurance) and
      the related actuarial assumptions are as follows:

      Change in plan assets
PENSION                           OTHER
                                                       -------------------------------------------------------------------
                                                             1999             1998            1999             1998
                                                       -------------------------------------------------------------------
Fair value of plan assets at beginning of
      year                                              4,578,000        4,680,000         119,000          115,000
      Actual return on plan assets                        663,000         (238,000)         36,000          (11,000)
      Sponsors' contributions                             180,000          253,000          26,000           31,000
      Plan participant's contributions                    100,000          144,000              --
      Benefits paid                                      (322,000)        (231,000)        (23,000)         (14,000)
      Administrative expenses                             (12,000)         (30,000)         (2,000)          (2,000)
                                                       -------------------------------------------------------------------
      Fair value of plan assets at end of year          5,187,000        4,578,000         156,000          119,000
                                                       -------------------------------------------------------------------
F-22
69
                      TELE NORTE CELULAR PARTICIPACOES S.A.

            NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--Continued
            Figures are in thousands of actual Brazilian Reais - R$
        for the year ended December 31, 1998 and 1999 and in thousands of
                   constant Brazilian Reais - R$ for the year
                            ended December 31, 1997.

12.   PENSION PLAN AND OTHER POST-RETIREMENT BENEFIT PLANS--Continued

      Change in benefit obligations
PENSION                            OTHER
                                                       -------------------------------------------------------------------
                                                              1999            1998            1999               1998
                                                       -------------------------------------------------------------------
Benefit obligation at beginning of year            9,946,000       8,716,000       1,751,000          1,935,000
      Service cost                                         308,000         463,000          59,000             60,000
      Interest cost                                        403,000         547,000          98,000             91,000
      Actuarial (gains) losses                          (4,528,000)       (231,000)       (473,000)          (316,000)
      Administrative expenses                              (12,000)        (30,000)         (2,000)            (2,000)
      Benefits paid                                       (322,000)        481,000         (23,000)           (17,000)
                                                       -------------------------------------------------------------------
      Benefit obligation at end of year                  5,795,000       9,946,000       1,410,000          1,751,000
                                                       -------------------------------------------------------------------
1999                1998
                                                                                 --------------------------------------
THE WEIGHTED-AVERAGE ACTUARIAL ASSUMPTIONS, AS DETERMINED
         BY ACTUARIES, WERE AS FOLLOWS
      Discount rate for determining projected benefit obligations                     6.00%               6.00%
      Rate of increase in compensation levels                                         3.00%               3.25%
      Expected long-term rate of return on plan assets                                9.00%               10.00%
The above rates exclude inflation.

      Health care cost trend rates of increase were projected at annual rates,
      excluding inflation, ranging from 6% in 1999 decreasing to 2.7% in 2048.
      The effect of a one percent annual increase (decrease) in the assumed
      health care cost trend rates would increase (decrease) the accumulated
      post-retirement benefits obligation at December 31, 1999 and 1998 by
      R$164,537 and R$183,160, respectively. Measurement of the accumulated
      post-retirement benefit obligation was based on the same assumptions as
      were used in the pension fund liability calculations.

13.   COMMITMENTS

      At December 31, 1998, the Company has capital expenditure commitments of
      R$68,000 related to the continuing expansion and modernization of the
      network.

      The Company rents equipment and premises through a number of operating
      lease agreements that expire at different dates. Total rent expense under
      these agreements was R$4,491, R$ 4,254 and R$1,809 for the years ended
      December 31, 1999, 1998 and 1997, respectively.

      Future minimum lease payments under non-cancelable operating leases with
      an initial term of one year or more are as follows at December 31, 1999.

                                      F-23
70
                      TELE NORTE CELULAR PARTICIPACOES S.A.

            NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--Continued
            Figures are in thousands of actual Brazilian Reais - R$
        for the year ended December 31, 1998 and 1999 and in thousands of
                   constant Brazilian Reais - R$ for the year
                            ended December 31, 1997.

 13.   COMMITMENTS--Continued

      Year ending December 31,
2000                                                  3,666
      2001                                                  3,464
      2002                                                  3,241
      2003                                                  2,923
      2004 and after                                        3,635
                                             ======================
      Total minimum payments                               16,929
                                             ======================
The Company guarantees certain debt amounting to R$2,400 of an association
      which owns and operates certain operating assets.

      The Company's concession requires that certain network coverage
      requirements and service quality milestones be met to continue to be valid
      and permit the Company to operate.

14.   CONTINGENCIES

      ICMS tax on monthly fees and activation fees

      The Company believes that the ICMS (Imposto sobre Circulacao de
      Mercadorias e Servicos), a state value-added tax, relates to
      telecommunications services, and therefore the application of ICMS on
      monthly fees, activation fees and additional services lacks legal support,
      as these do not constitute telecommunications services. During the fourth
      quarter of 1998, the Company filed an injunction with the State Treasury
      Department of each of the five states in which it operates and therefore
      stopped remitting to the state governments the ICMS on monthly fees and
      additional services. There can be no assurance that the Company will
      prevail in its proceedings and, as a result, based on advice of counsel, a
      provision of R$7,411 and R$6,149 was recorded in the accompanying
      consolidated financial statements for 1999 and 1998, respectively.

      Other litigation

      The Company is subject to legal proceedings, administrative proceedings
      and claims of various types in the ordinary course of its business for
      which an accrual of R$2,631 and R$2,894 for 1999 and 1998, respectively,
      have been recorded in these accompanying consolidated financial
      statements. In management's opinion, the ultimate settlements, if any,
      will not have any additional significantly adverse effect on the Company's
      financial condition or results of operations.

                                      F-24
71
                      TELE NORTE CELULAR PARTICIPACOES S.A.

            NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--Continued
            Figures are in thousands of actual Brazilian Reais - R$
        for the year ended December 31, 1998 and 1999 and in thousands of
                   constant Brazilian Reais - R$ for the year
                            ended December 31, 1997.

FINANCIAL INSTRUMENTS

      a) Fair value of financial assets and liabilities

         Estimated fair values of the Company's financial assets and liabilities
         have been determined using available market information and appropriate
         valuation methodologies. However, considerable judgment is required in
         interpreting market data to develop the estimated fair values.
         Accordingly, the amounts presented below are not necessarily indicative
         of the amounts that could be realized in a current market exchange. The
         use of different market assumptions and/or estimation methodologies may
         have a material effect on the estimated fair values.

         The fair value information as of December 31, 1999 and 1998 presented
         below is based on pertinent information available to management as of
         those dates.
1999              1999              1998               1998
                                                  ------------------------------------------------------------------------
                                                     BOOK VALUE        FAIR VALUE        BOOK VALUE        FAIR VALUE
                                                  ------------------------------------------------------------------------
Short-term debt                                36,942            36,942           -                        -
         Long-term debt                                 89,128            89,128            39,203             39,163
The carrying value of cash, cash equivalents, trade receivables, other
         current assets, accounts payable and accrued liabilities are a
         reasonable estimate of their fair value because of the short maturities
         of such instruments. Interest rates that are currently available to the
         Company for issuance of debt with similar terms and maturities were
         used to estimate the fair value of long-term debt.

      b) Concentration of risks

         Credit risk with respect to trade receivables is diversified. The
         Company continually monitors the level of trade receivables and limits
         the exposure to bad debts by cutting access to the telephone network if
         any invoice is twenty days past due. Exceptions comprise telephone
         services that must be maintained for reasons of safety or national
         security.

         There is no concentration of available sources of labor, services,
         concessions or rights, other than those mentioned above, that could, if
         suddenly eliminated, severely impact the Company's operations.

                                      F-25
72
                      GLOSSARY OF TELECOMMUNICATIONS TERMS

access charge:                      Amount paid per minute charged by network
                                    operators for the use of their network by
                                    other network operators. Also known as an
                                    "interconnection charge" or "network usage
                                    charge."

access gates:                       The points of interface between the network
                                    equipment (either dedicated or switched) and
                                    the transmission media that connect network
                                    equipment to the end user. The quantity of
                                    service is directly related to the quantity
                                    of network access gates.

AMPS (Advanced Mobile
Phone Service):                     An analog cellular telecommunications
                                    services standard utilizing the 850 MHz
                                    band in use in North America, parts of
                                    South America, Australia and various other
                                    areas.

analog:                             A transmission method employing a
                                    continuous electrical signal that varies in
                                    amplitude or frequency in response to
                                    changes in sound, light, position, etc.,
                                    impressed on a transducer in the sending
                                    device.

analog network:                     A network using analog technology with
                                    circuit switching, capable of connecting one
                                    user with all the users, but with limited
                                    transmission capacity.

ATM (Asynchronous                   A broadband switching technology that
Transfer Mode):                     permits the use of one network for different
                                    kinds of information (e.g., voice, data and
                                    video).

automatic                           A service which permits a subscriber to use
international roaming:              his or her cellular telephone on a foreign
                                    cellular service provider's network. The
                                    subscriber may receive calls made to the
                                    subscriber's regular cellular telephone
                                    number (such calls are "automatically"
                                    passed to the foreign service provider's
                                    network).

band A service provider:            A former Telebras operating subsidiary that
                                    has been granted a concession to provide
                                    cellular telecommunications services in a
                                    particular area within a radio spectrum
                                    frequency range referred to by Anatel as
                                    "Band A."

band B service provider:            A cellular service provider that has been
                                    granted a concession to provide cellular
                                    telecommunications services in a particular
                                    area within a radio spectrum frequency range
                                    referred to by Anatel as "Band B."

base station:                       A radio transmitter/receiver that maintains
                                    communications with the cellular telephones
                                    within a given cell. Each base station in
                                    turn is interconnected with other base
                                    stations and with the public switched
                                    telephone network.

broadband services:                 Services characterized by a transmission
                                    speed of two Mbit/s or more. According to
                                    international standards, these services are
                                    divided into two categories:

                                        -    Interactive services, including
                                             videotelephone/videoconferencing
                                             (both point-to-point and
                                             multipoint); videomonitoring,
                                             interconnection of local networks,
                                             file transfer, CAD, high-speed fax,
                                             e-mail for moving images or mixed
                                             documents, broadband videotext,
                                             video on demand and retrieval of
                                             sound programs or fixed and moving
                                             images; and

                                        -    Broadcast services, such as sound
                                             programs, television programs
                                             (including high-definition TV and
                                             pay TV) and selective document
                                             acquisition.

CATV (Cable television):            Cable or fiber-based distribution of TV
                                    programs.

                                      A-1
73
CDMA (Code Division
Multiple Access):                   A standard of digital cellular
                                    telecommunications technology that
                                    provides more call carrying capacity than
                                    analog or TDMA.

cell:                               The geographic area covered by a single base
                                    station in a cellular telecommunications
                                    system.

cell splitting:                     The process of dividing cells into smaller
                                    coverage areas by reducing the power output
                                    and the antenna height of the base station
                                    transmitter. Cell splitting increases
                                    capacity in a particular area by allowing
                                    for the further reuse of frequencies by a
                                    cellular telecommunications system.

cellular service:                   A mobile telecommunications service provided
                                    by means of a network of interconnected
                                    low-powered base stations, each of which
                                    covers one small geographic cell within the
                                    total cellular telecommunications system
                                    service area.

channel:                            One of a number of discrete frequency ranges
                                    utilized by a base station.

digital:                            A mode of representing a physical variable
                                    such as speech using digits 0 and 1 only.
                                    The digits are transmitted in binary form as
                                    a series of pulses. Digital transmission and
                                    switching technologies employ a sequence of
                                    discrete, distinct pulses to represent
                                    information, as opposed to continuous analog
                                    signal. Digital networks allow for higher
                                    capacity and higher flexibility through the
                                    use of computer-related technology for the
                                    transmission and manipulation of telephone
                                    calls. Digital systems offer lower noise
                                    interference and can incorporate encryption
                                    as a protection from external interference.

digital penetration:                The substitution of equipment capable of
                                    transmitting digital signals for equipment
                                    limited to analog transmission.

exchange:                           See Switch.

frame relay:                        A data transmission service using fast
                                    protocols based on direct use of
                                    transmission lines.

internet:                           A collection of interconnected networks
                                    spanning the entire world, including
                                    university, corporate, government and
                                    research networks from around the globe.
                                    These networks all use the IP (Internet
                                    Protocol) communications protocol.

ISDN (Integrated Services           A system in which several services (e.g.,
Digital Network):                   speech and data) may be simultaneously
                                    transmitted end-to-end in digital form.

leased high-speed data              The digital exchange of information at
communication:                      speeds exceeding 64 kbps transmitted through
                                    media that are leased to users for their
                                    exclusive use.

local loop:                         The system used to connect the subscriber to
                                    the nearest switch. It generally consists of
                                    a pair of copper wires but may also employ
                                    fiber-optic circuits, microwave links or
                                    other technologies.

manual international roaming:       A service that permits a subscriber to use
                                    his or her cellular telephone on a foreign
                                    cellular service provider's network. The
                                    subscriber may only receive calls made to a
                                    temporary number issued to the subscriber by
                                    the foreign service provider for use while
                                    roaming.

microcells:                         A small cell covered by a low-power base
                                    station. Microcells can cover small areas
                                    such as a single building.

network:                            An interconnected collection of elements.
                                    In a telephone network, these consist of
                                    switches connected to each other and to
                                    customer equipment. The

                                      A-2
74
                                    transmission equipment may be based on fiber
                                    optic or metallic cable or point-to-point
                                    radio connections.

network usage charge:               Amount paid per minute charged by network
                                    operators for the use of their network by
                                    other network operators. Also known as an
                                    "access charge" or "interconnection charge."

optical fiber:                      A transmission medium which permits
                                    extremely high capacities. It consists of a
                                    thin strand of glass that provides a pathway
                                    along which waves of light can travel for
                                    telecommunications purposes.

packet-switched data                Data services based on parceling or breaking
communication services:             the data stream into packets and switching
                                    the individual packets. Information
                                    transmitted is segmented into cells of a
                                    standardized length, which are then
                                    transmitted independently of one another,
                                    allowing maximization of available capacity
                                    and usage of a single transmission path for
                                    multiple communications. The cells are then
                                    reassembled upon reaching their destination.

PBX (Private Branch Exchange):      Telephone switchboard for private use but
                                    linked to the national telephone network.

PCS (Personal Communication         PCS has come to represent two things: first,
Services):                          a digital wireless communications service
                                    operating over the 1.9 GHz band; and second,
                                    more generically, a wireless communications
                                    service utilizing a digital network that
                                    offers typical features such as voice, video
                                    and data applications, short messaging,
                                    voicemail, caller identification, call
                                    conferencing and call forwarding. Generic
                                    PCS suppliers promote this service in the
                                    ability of its features to be customized, or
                                    "bundled," to the needs of the individual
                                    customers.

Penetration:                        The measurement of the take-up of services.
                                    At any date, the penetration is calculated
                                    by dividing the number of subscribers by the
                                    population to which the service is available
                                    and multiplying the quotient by 100.

private leased circuits:            Voice, data or image transmission media
                                    leased to users for their exclusive use.

PSTN (Public Switched               The public telephone network that delivers
Telephone Network):                 basic telephone service and, in some
                                    circumstances, more advanced services.

repeaters:                          A device that amplifies an input signal for
                                    retransmission.

roaming:                            A function that enables subscribers to use
                                    their cellular telephones on networks of
                                    service providers other than the one with
                                    which they signed their initial contract.

satellite services:                 Satellites are used, among other things, for
                                    links with countries that cannot be reached
                                    by cable or to provide an alternative to
                                    cable and to form closed user networks.

SDH (Synchronous Digital            A hierarchical set of digital transport
Hierarchy):                         structures, standardized for the transport
                                    of suitably adapted payloads over physical
                                    transmission networks.

sectorization:                      The process of dividing cells into sectors
                                    by using directional antennae at the base
                                    station. Sectorization reduces co-channel
                                    interference which permits smaller cells and
                                    increases network capacity.

switch:                             A device that opens or closes circuits or
                                    selects the paths or circuits to be used for
                                    transmission of information. Switching is
                                    the process of interconnecting circuits to
                                    form a transmission path between users.
                                    Switches may also record information for
                                    billing and control purposes.

                                      A-3
75
TDMA (Time Division
Multiple Access):                   A standard of digital cellular
                                    telecommunications technology, which
                                    provides more call carrying capacity than
                                    analog, but less than CDMA.

universal service:                  The obligation to supply basic service to
                                    all users throughout the national territory
                                    at reasonable prices.

value added services:               Value added services provide additional
                                    functionality to the basic transmission
                                    services offered by a telecommunications
                                    network.

                                      A-4
76
                                   SIGNATURES

         Pursuant to the requirements of Section 12 of the Securities Exchange
Act of 1934, the registrant certifies that it meets all requirements for filing
on Form 20-F and has duly caused this annual report to be signed on its behalf
by the undersigned, thereunto duly authorized.

                                   TELE NORTE CELULAR PARTICIPACOES S.A.

                                   By: s/s Alexandre S. D'Ambrosio
                                      ------------------------------------------
                                       Alexandre S. D'Ambrosio
                                       General Counsel

Date:   June 30, 2000